Potential loss of software services exports from India could be in the range of $2-3 billion per month in the current year due to implications of covid-19, according to CARE Ratings.
RBI data suggests that software services exports in FY19 stood at $77.7 billion, which is equivalent to about $6.5 billion monthly on an average.
Impact of Covid-19 will be more apparent for the IT industry, as growth usually takes place in H1 of every fiscal. H1 is usually a stronger for this industry as many large deals are signed during this period, said Madan Sabnavis, chief economist, and Vahishta M. Unwalla, research analyst at CARE Ratings.
With disruption taking place in Q1 of FY20 and no definite signs of improvement in the future, IT industry could witness growth of 3-5 percent in FY21, compared with 7.7 percent in FY20, CARE Ratings said.
Investor information and credit rating agency ICRA has earlier estimated that the growth rate of IT services sector this year would dwindle to 3-5 percent as against the earlier estimate of 6-8 percent.
More than 75 percent of the industry’s revenues are sourced from exports to large markets like North America and Europe. Americas is the largest market for Indian IT majors contributing about 50 percent or more of their revenues, followed by Europe with 20-30 percent share in company’s revenues, CARE Ratings said.
The spread of the coronavirus in these two markets will create ripple effects for the IT industry, as receivables from clients in those two large markets are expected to get delayed taking a hit on revenue generation for Indian IT players. In addition to this, as spending on technology is a discretionary expense, most clients are expected to lower their technology budgetary allocations for the current year.
“The global spread of the coronavirus is resulting in simultaneous supply and demand shocks. We expect these shocks to materially slow economic activity,” Gaurav Jain, vice president of ICRA, said earlier.
However, a depreciating Rupee, could offer some solace to industry players, CARE Ratings said today.
Halt in global travel due to covid-19, will delay executing existing IT projects. With limited budget spends of clients, Total Contract Value (TCV) shall shrink and deal pipelines could remain weak for the year. Pressures on pricing could also be expected as large industry verticals such as BFSI, retail and manufacturing are already on a downward trend.
The industry was already grappling with increased protectionist measures imposed by US administration on granting H-1B visas. Large costs were being incurred and processes became slow and cumbersome. To add to this, USCIS temporarily suspended services from 18 March to 4 May, which will further delay the entire process of granting such essential visas to Indian IT players.
Total number of employees grew to 10.26 lakh cumulatively for four Indian IT majors as on 31 December 2019. This includes about 65,000 employee additions in initial three quarters of FY20.