Growing terror

The aftershocks of the terrorist attack on the Big Apple, the home of the global finance, is being felt far and wide. Indian market cannot be an exception to the global trend. Especially the IT industry whose fortunes are, to a large extent, linked to the happenings in the US market. 

Indian and foreign companies operating here are reworking their strategies to cope with the aftermath of the slow down facing the global industry. It will take some time to work out the specific linkages. However, the business sentiment is certainly not upbeat. In fact, a leading distributor of IT products predicts that the market will not look up before 2003. A declining order book and piling up inventory is forecast in the near future.

A major problem anticipated is the rescheduling of highly efficient production lines, which were built for components coming in on 'just in time' basis. The increased security concerns in the airline industry is likely to disrupt this neat arrangements, forcing companies to stock up key components, which will increase the costs. Insurance premia for cargo moved by air too will increase substantially in the wake of fears of further attacks on the aviation sector.

Software exporters too may face some problems. The US is still the largest market for Indian software services. The IT industry in the US, along with others, were looking forward to a change in fortunes for the better. But now the weak sentiments following the terrorist attacks and the talks of imminent war against Afghanistan has put paid to those hopes. Witness the quick downslide of the airline industry induced by the drastic cut in corporate travel to a large industry. As the entire industry is expected to catch the same virus, demand for IT products and services too may slow down. And that is bad news for the already struggling Indian software exporters. 

Indian markets too have more or less acted in tandem with their counterparts. The stock marked has slumped to its 8-year record low levels. Despite a hefty kitty of $45-billion, the forex reserves look vulnerable, as foreign investors repatriate their funds to the safety cocoon of their home markets. The exports are already down and the pressure is telling on the rupee, which has breached the Rs 48 to a dollar level. The depreciating rupee is bad news for hardware importers, as the cost of finished goods will go up substantially. It may not help the software exporters with higher revenues because of the shrinkage of the market.

Is there a way out? A lot hinges on a quick end to the American quest for bringing the terrorist attack suspects to book. As long as the war mongering goes on, the markets will continue to be jittery. Just prior to the Black Tuesday, Prime Minister A B Vajpayee had unveiled a grand plan to stimulate the national economy. This offers some hope, provided the government acts on it fast and remove the innumerable bottlenecks that have curbed the unleashing of the native entrepreneurial spirit.

The industry may be tempted to ask for increased assistance. The government may respond if the industry seeks concessions that induce growth. Cash starved government cannot be expected to take steps that will further drain its dwindling resources. This is an opportunity for the domestic IT industry. For this is the time to look inward too and identify areas where the IT skills could be put to good use: improve delivery systems, tone up the public-government interface through appropriate technology and investment for the future through the education sector. Even in the days of pink slips, various sectors of the industry are hiring people with specific skill sets. Smart companies are using the opportunity to increase their branding activities and consolidate through efficient use of resources. That's the way to go for the industry now.