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06
JUN
2013

Effect of US economy over IT Companies in India

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Globalization has been a boost to the trend of generating high amount of revenues and turnovers over various economic sectors. We all know that Indian economy is a growing economy and main credit goes to the software revolution. But do we all know that most of the revolution and development centers are in US and not in India, which work as a facilitator for a developed country’s business and daily life. 98% of the great Indian brains are in US which work for them to improve their technology.

The United States have always been India’s largest trade partner, source of foreign money investment and external job opportunities for the Indians. Any downfall or slow of the US economy is likely to hurt India more today than the past times. The US economy is a credit-driven economy sustaining on scrounged capital. What characterize the economy are high savings consumption and fewer saving. The preeminent behavior has led to credit being extended to borrowers who do not have the capacity of repaying, resulting into high default rates, turning into losses in the financial system. There are high signals of slowdown in the US economy- rising unemployment rate, large credit defaults and falling real estate prices which are heating up the Indian economy and heading towards slowdown in growth.

The major area of concern is the software segment which is being affected the most. US has emerged as the bread and butter for Indian software exports. A slowdown in US economy is hurting the Indian economy since it is still largely export-dependent as it has not yet found its own domestic market large enough to accommodate any loss in the external sources. The analysts and software CEOs argue that during slowing economy, jobs are cut-down and companies invest more towards automation, so that the demand for software services and for IT products increase while the economy slows down.

The IT sector is predicted to be trampled underfoot with economy crises all over, releasing fair amount of shocks for the software techies, and the most surprising fact is the swiftness and the ferocity of the impact. It is declining the growth of Indian IT services and products. The slowdown is stretching the revenue margins and profits under pressure. One of the major impacts of US subprime crisis on global markets would be certain foreseen losses pertaining to securities, further making credit conditions stringent. These facts have clearly shown their adverse affect on the IT sector which is facing tough times ahead that is evident from Nasscom’s downward revision of growth forecast. This consequently is increasing the losses incurred on securities. As a cumulative effect, the business investments are dropping and India is losing its economical growth.

The need of the hour is to have more open economy, attract investments, which would re kindle innovative concepts and enhance foreign direct investments. India needs to work more on its domestic economical sectors and so the growth has to be sustainable, only then the impact of US subprime crisis on India can be offset.

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