Indian outsourcers hit by rupee appreciation

The appreciation of the Indian rupee against the U.S. dollar is affecting the margins of Indian outsourcers, the president of a trade association said Thursday.

It's a difficult time for Indian outsourcers as they are already struggling with rising staff salaries, Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), said Thursday.

The rise of the rupee against the dollar has Indian outsourcing companies worried, as two-thirds of their business comes from the U.S. The rupee has appreciated against the dollar by about 8 to 9 percent in the last three months, Karnik said.

A rising rupee has pushed down exporters' rupee revenues, even as their costs locally go up, he added.

To help firms cope with the currency issue, NASSCOM is asking the Indian government to restore some of the export incentives that were earlier provided to Indian outsourcers.

However, the government may not be in a mood to extend incentives to the outsourcing industry, which is generally seen as one of the more successful sectors of the Indian economy.

Export revenue of a large number of Indian outsourcing companies was brought under the tax net in February after India's Finance Minister P. Chidambaram imposed a minimum alternate tax (MAT) on income that was covered under tax breaks.

A large number of the operations of Indian outsourcing companies were set up under an export-promotion plan called the Software Technology Parks of India (STPI), which entitled them to tax breaks. But the STPI plan ends next year.

Companies seeking tax benefits now have to move their operations to special economic zones, something that's not feasible for outsourcing firms, which have operations in multiple locations close to where staff are available.

NASSCOM wants the STPI plan extended, and the MAT rolled back in the wake of the rupee appreciation, Karnik said. India's Minister for Commerce and Industry Kamal Nath promised earlier this week a package for exporters, in the wake of the appreciating rupee, but didn't outline specifics.