Will the gain in rupee against USD affect the Indian IT Engineers?

Some of you know and some might have heard through news that TCS cut salary of their employees for the month of february and march. the salary of an IT engineer has been on rise every year and has been one of the most attractive USP for young students to pursue engineering and get into IT industry. As sad as it sounds, looking at the future does the IT engineers face a bigger problem. will they be enjoying the benefits and wages as they are getting now in the future.

The reason for the TCS salary cut according to news soruces was due to external factors. one such factor was the exhange rate.

Most of them in the IT industry know that a big portion of the Indian IT revenue is from the US. typically 60% of the revenue for all major IT companies in India come from America. Europe, Uk contribute the next major chunk of the revenue.
Domestic market share is pretty much negligible. we do not have companies that would pay huge and since there is no currency advantage, there has never been a significant revenue from the domestic market.

Though the initital investment for the IT industry is comparitively very less than other industries, the major influential factor for the huge revenue has always been the business overseas. Huge revenues due to the exchange rates between India and other countries.

The conversion rate for 1USD was $46 in 2006. now its $39. this has cut some huge slack in the revenues generated by industries that depended upon the currency benefits. IT industry being the major beneficiary, gets bit now.

Revenues and profits for a IT company is pretty straight forward

revenue = no. of engineers x no. of man hrs x rate / hr x exchange rate

profits = revenues - overheads - operating expenditure - depreciation - taxes.

Overheads are your wages. any increase in no. of engineers or engineering man hours or exchange rate would directly increase the companies revenue and vice versa.
Increase in your overheads is going to reduce the profits considerably.

Since the US currency was stronger, higher overheads didn't mean much to IT industries. but with rupee gaining everyday, since the revenue remains the same, the overhead cost increases and the profits are going low.

Having tasted huge profits IT companies are not going to give up on it. They are going to try all possible ways to keep the profits high.

While the options are to increase the number of engineers, that would still increase the overheads which will eventually lower your profits.

Recent news stated that IT companies are planning to increase the number of man hrs per week from 40 hrs to 48 hrs. this would be tough on the IT guys. though un officially every IT engineer works more than 48 hrs on any normal project, this is going to add up more pressure on them if it comes to existance.

IT companies have already pushing for offshore projects, so that they could take little more advantage on the overhead cost. but still it is only beneficiary as long as the currency value stays constant. if rupee gains everyday in comparison to dollar, pound or euro, then my friend IT industries are still in deep trouble.

Obviously they would strive hard to acquire more business and to expand the horizon in other geograhies. but the only major IT markets and strong currencies are US, UK and Europe.

Increasing the man hr rate would be quite impossible, no overseas company is going to pay you more since because the exhange rate is low.

Doing more domestic projects might be possible, but the profits would be peanuts in comaprison to what they get from overseas market.

It might eventually come over to reducing the overheads, which would be either reducing the salaries or less pay rise or layoffs. This would be tough on IT guys and budding engineers who are aspiring to get into this industry due to its attractive perks.

Optimistic views are that no such dramatic change would happen in near future, lets hope so.

As they say in enterprise computing, do you have a contingency plan?