Sovereign debt may hit Indian IT: Infosys

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BANGALORE: The looming sovereign debt crisis in Europe may impact the Indian IT industry’s growth in 2011 in case of defaults, a top official of the IT bellwether Infosys Technologies Ltd said.

Though the slow economic recovery in the developed markets has not impacted our business till now, the sovereign debt crisis brewing in Europe will have a domino effect on our industry if any country defaults, Infosys chief executive S.Gopalakrishnan told IANS here.

Recovering from the great recession of fiscal 2008-09 and 2009-10 when growth plunged to single digit from a high of 25-30 percent annual growth in boom times, the resilient Indian IT industry returned to double digit growth during this fiscal (2010-2011) on increasing outsourcing and offshoring from traditional and emerging markets.

We have seen volume growth back and we hope the ensuing fiscal (2011-12) will be normal barring unforeseen situation such as sovereign debt default, Gopalakrishnan said on the margins of a media conference on the company’s buoyant performance during the third quarter (Oct-Dec) of this fiscal (2010-12).

Fears of a sovereign debt crisis began last year in some European nations such as Portugal, Ireland, Greece, Spain (PIGS) and Belgium due to the widening of bond yield spread and risk insurance on credit default swaps between them and other European Union’s member-states, especially Germany.

In the aftermath of the global financial meltdown that began with the collapse of Lehman Brothers in Sept 2008 in the US, rising government deficits and downgrading of European government debt rocked financial markets.

A rescue package of nearly $1 trillion was approved by the European governments in May to ensure financial stability across the troubled continent.

Should something bad or unexpected happen in Europe or US, our growth pace will be affected though our exposure to the countries facing sovereign debt crisis is less than one percent, said Gopalakrishnan.

At the same time, expressing confidence that the industry would do well despite the uncertainty due to weaker economic recovery and high unemployment rate in the US, Gopalakrishnan said that the Indian industry had the resilience to bounce back as it did in the past decade when the internetdotcom bubble burst in 2000-01 and recently during the recession of 2008-0910.

The crisis can also lead to greater currency volatility and capital inflows moving to developing markets like Brazil, South Korea and Japan where yields are going up. The rupee will be under pressure to depreciate than appreciate as we have higher current account deficit, Infosys chief financial executive V. Balakrishnan noted.

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This post was submitted by Mudit Agrawal.

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