Can Indian IT/ITES digest the US Govt. Credit Rating Downgrade?

Quite a debate provoking question I should say, given the passion with which a few colleagues of mine were enlisting points supporting both sides. One thing is certain, It is an epochal event that will have a say on all aspects that adorn the sidelines of progress.

Short Term Impact: I would say none or minimal, purely because the credit rating downgrade is for the US government and not of a particular corporation or a segment of industries. A lot of US companies are doing well and have cash heavy chests. (Read Apple has more cash than US government and Microsoft has higher credit rating than U.S. government). The second report also mentions 3 other companies namely Exxon Mobile, Johnson & Johnson, Automatic Data Processing (ADP) with AAA credit rating. Their spending will continue without any short term slamming on the brakes. This augurs well for the Indian IT/ITES industry.

Long Term Impact: This will depend to a large extent on how the 2nd generation economic reforms are pushed through in India. If the government chooses to take advantage of the prevailing global economic situation and unleash the 2nd generation of economic reforms quickly, FDI and FII might be tempted to reallocate their portfolio of funds in favor of India. This will also drive up IT/ITES activity by creating strong domestic as well as non-US demand. Today, the USA is the biggest consumer of IT/ITES services from India. This will have to balance out with demand coming from other areas too. Government itself can fuel this in a huge wave via the e-governance wave that can usher in more IT/ITES centric projects like Aadhar (Biometric Identity System for citizens).

The other side of the story is what the US government might do in wake of this development. While the pressure to internally create jobs has been fierce on the Obama administration, the market forces seem bent on looking in the opposite direction. There will be no quick pill for ailing Uncle Sam, but if the government starts a drive to set right the fundamentals, we might see a resurgent US over the next 2-3 decades with core R&D work still being retained in-house (in complete contrast to what I claimed in the post India’s 2nd moment of reckoning…) and Indian IT/ITES companies having to pursue other channels to move up the value chain and expand business

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Bharatesh said…
I like your opinion Vijay. I am optimistic too... Indian IT/ITES industry has matured and weathered the storm quite a few times to get sucked into this downgrading et. al... I do not read too much into this(not that I am an expert), but logically this is just a fact more often than not the under-rated exceed expectations :).
Vijay said…
True...A rating is like an opinion; the difference here being that coming from S&P, it is a collective opinion of a group of people whose past ratings and the conviction to stand by them resulted in people lending them a hearing when they voice their opinions. Nevertheless, an opinion still. Every individual will have to take his own decision; though the problem is that such opinions can sometimes turn into self fulfilling prophecies :-) And that's why US govt. is really scared...