Practical Thoughts

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Sunday, April 29, 2007

New Strategy for IT companies to fight the Stronger Rupee.

The strengthening rupee is a cause for concern for all of us in the Indian IT industry. I am no economist or an MBA to comment about this but I feel the companies might resort to paying employees in US Dollars soon to offset the loss.
I see some options here for the companies that might benefit them

1) Bring in a US Dollar component into the employee's salary. It would be paid out in Rupees but against the prevailing dollar rates. This would hedge the risk of a strong rupee and minimize the amount of Rupees being paid out as salary

2) In line with government regulations, the IT companies could buy dollars from the markets and pay the employees in rupees. They would use their internal resources to convert these dollars to Rupees. The perceived benefits would be
a) The benefit as stated in Point # 1
b) With IT companies buying in the dollars, the demand for it would go up and thereby it would be costlier which indirectly benefits the IT companies.
c) The cheaper dollars would be useful in funding the million dollar acquisitions that these companies are anyway planning.

Whatever be the case, the strong Rupee is a cause for concern for IT companies who are now paying humongous salaries to their employees based on their Dollar revenues. Now they will have to shell out more dollars to pay these salaries.

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