Wednesday, April 16, 2008

Recession ??? or not ??? ...

For quite sometime, there has been talks about a recession in the economy. There are varied opinions among the economists on whether the country has already entered a period of recession or not. The federal reserve bank of US is talking about a big slowdown in growth, increasing inflation, rising energy bill and an increasingly costlier war in the middle-east. The sub-prime housing crisis that broke out last year had an adverse effect on the global markets including India.

There's an interview with Dr Shanto Ghosh, Principal Economist, Deloitte Haskins & Sells, Bangalore, posted in 'The Hindu' on the effect of the US recession on our economy.

He talks about various investors are going to look at investing dollars in other world economies including India. If there is an increase in the inflow of dollars into India, it is going to strengthen the rupee which in turn would affect the export oriented sectors. This would also bring about an increase in the inflation increasing the price of essential commodities.

Finally he talks about the effect of this development on the outsourcing industry which caught my attention. These are the things that I've been asking for a few months now - What's our future? How secure are we?

"The second, and a more direct, linkage is with respect to the services sector. Corporate profit outlook in the US is bleak. In the face of a recession, we should expect companies to announce postponement in their capital expenditures as well as information technology budgets.
The fact that the political climate in the US is currently biased against the outsourcing of jobs from the US will have a direct bearing on the amount of dollars that are likely to flow into India as payment for the outsourced jobs. This is again a negative stimulus for the service sector which has been the engine of growth for India over the past few years. "

Aren’t some people arguing that the pressure to retain margins will actually result in a higher amount of outsourcing from the US to countries such as India?
"There is a subtle fallacy in that argument. A recession is characterised by higher levels of unemployment. Moreover, it is a politically sensitive issue. How likely is it that, while joblessness and job cuts attract media attention, a US company will announce further job cuts and start outsourcing jobs outside the country? In my humble opinion, such speculations are nothing but wishful thinking."

I can't say if his words are entirely true. There are lots of differing opinion around. but the general consensus is that there will be a slowdown. As one of my manager put it, "We don't see any immediate effect (at least in our company, in our account). Business as usual will go on. Existing systems need to be maintained. But investments in new ventures, upgrades etc --- not sure.".

So far,the IT biggies have insisted that it is business as usual. They still seem to continue hiring new people. They're just talking about moving up the value chain, hiring quality talent and increasing productivity. Let's hope the industry weathers the storm. But at least in the immediate future, I feel that the big hikes and incentives will reduce, if not completely eliminated.


Rainbow said...

what incentive!!!!