Will a Weaker Rupee Help India Regain its Outsourcing Mojo?

India’s rupee has been in a free fall, dropping to a record low of 61.80 against the dollar last week and continuing a slide that has seen it lose more than 16 percent of its value since April, according to a report in Firstpost.

A Wall Street Journal article cites several reasons for the rupee’s depreciation, among them concerns over India’s economy, the government’s failure to implement reforms in advance of upcoming national elections, and signals from the U.S. Federal Reserve that it may end a bond-buying program that led to increased investment in emerging economies including India. The Fed’s plan has caused many Asian currencies to decline against the dollar, though the rupee has experienced the largest drop.

India has named Raghuram Rajan, a former chief economist of the International Monetary Fund, to head up its central bank, creating cautious optimism that the country’s economic conditions will improve, reports Reuters. The news service quotes a Barclays economist as saying Rajan’s appointment “will lift expectations of constructive and positive steps to lift the rupee.”

While the weak rupee sent the stock prices of many Indian companies on a slide, it boosted the market performance of IT companies like Tata Consultancy Services (TCS). According to the Economic Times, India’s BSE IT index has grown 20 percent since July while the BSE Sensex has dropped 1.1 percent.

In an interview with the Business Standard, TCS Chief Financial Officer Rajesh Gopinathan said the weakening rupee allows the company to be more “adventurous” than usual in pursuing business and to win outsourcing deals with lengthier terms.

On the client side, Forrester analyst Hansa Iyengar wrote in a blog post that outsourcing customers might be able to benefit from the kind of “adventurous” deals referenced by Gopinathan. The weak rupee allows Indian providers to offer lower rates that likely cannot be matched by non-Indian competitors like IBM and Accenture. However, clients should avoid putting too much downward price pressure on providers, Iyengar cautioned, or risk suffering a decline in service quality.

It’s a good idea to examine currency fluctuations during regular pricing reviews, Iyengar said, to ”arrive at optimum price-points during renegotiation.”

This article first appeared on our sister site, Global Delivery Report.