Indian IT Industry: Post Recession until Interim Budget 09

Post September 15, 2008 when Lehman Brothers filed for Chapter 11 Bankruptcy when recession was actually proclaimed officially(not that the slowdown had not begun earlier),you obseve the ratio of IT Outsourcing deals within the application space to the Infrastructure Managed Sevices space,you shall see the former going down with existing contracts being re-negotiated with billing rates down to the extent of 35-40%.In some projects, the billing rates are down to $16 an hour, which have been the lowest since the past several years and certain analysts forecast these to continue so for atleast until the first quarter of next year.Lets see some major factors. Packaged software deployment and maintenaince projects and other higher-end projects like SAP have faced severe pricing cuts of around 25%, which is again more than what it was earlier this year. Top IT firms are offering such rates in the form of introductory discounts for new clients, and for a year or two for existing clients so as to keep the cash flows going.However even by offering these attractive pricing discounts not many contracts in the pipeline have been awarded.

Regenotiated Contracts:
Some of the rates are even lesser than what the facilities personnel make per hour in their clients’ offices across the world and even in eastern European countries, where it varies between $16 and $22 per hour.as per a report in economictimes.With the onset of recession clients demanded flat rates in november slowly renegotiating at 20 percent by January 09 and eventually going hard for almost 30-40 percent discount.

Change in Recruitment Policies which are more in tune to the market vagaries:
Companies are achieving providing such steep discounts by controlling their overheads and its not been easy.Campus recruitment policies where fresh engineering graduates were hired as early duing the third year of graduation has now been forced to change as no one can now predict the future pipeline.Most companies have re-jigged their policies and now recruiting only in the final year and that to from only the elite engineering schools.Fewer and more calculated offers are being made with joining delays of almost 6-7 months.The world famous Infosys training program of 4 months has been extended for close to 8 months.

Hedging Woes:
The Indian IT industry comprosing of TCS,Infosys,Wipro,Tech Mahindra-Satyam,HCL Tech had all just about recovered from the vagaries of foreign exchange fluctuations with the rupee appreciating remarkably to almost Rs 40 per dollar in January 08 thus hitting their topline and bottom line.All of them indulged in hedging practices each at different rates and schemes but no one foresaw that the dollar would be trading today the July 7,2009 at 48.78 Rs to a dollar thus suffering enormous hedging losses in the past Quarters more so the last one of the last fiscal Q408-09. What did not help is that the major chunk of the IT revenues came from the BFSI (Banking and Financial Services Industry) and the auto industry which has seen the biggest impact of recession.GM filed for chapter 11 bankruptcy recently.

Tax Extension:
India's export-driven information technology sector breathed a little wth Pranab Mukherjee the finance minister announcing in the interim budget that the government will extend the Software Technology Park of India (STPI) Tax benefiits scheme beyond 2010 until the march 2011 by 1 year. Units situated in software technology parks falling under the scheme's umbrella are eligible for a 10-year income tax holiday, in addition to other benefits.The tax rate for Indian IT companies would have gone up 3-8% on the expiration of STPI scheme from 12-25%, depending on their operational structure had this been not extended.Though Nasscom was pitching for a 5 year break this will provide some relief till the industry can come back on track