Indian IT professionals’ billing rates likely to dip this year to $74.7 per hour

Indian IT professionals are likely to earn less dollars per hour this year as some IT companies have opted to compete by passing on the benefits of rupee depreciation, DHL said, quoting Crisil Research.

Billing rates are likely to fall to 74.7 dollars (Rs 4,600) per hour for onsite workers, while they are likely to fall to $26.3 (Rs 1,618) per hour for offshore, or India-based, IT service professionals, DHL said in its year-end report on India’s economy. Last financial year, billing rates for IT professionals was $75.2 and $26.7 per hour.

“The pressure on billing rates is being heightened by aggressive bidding by a few players during renewals. In case of new deals, we expect vendors to pass on some of the benefits arising out of the recent rupee depreciation, which will further pull down the blended (across service lines) billing rates,” the DHL Crisil report said.

While some companies like TCS and Infosys have tried not to lower their prices despite a fall in costs due to the lower value of the rupee, smaller and more competitive vendors like Cognizant and others are expected to have aggressively bid for contracts by taking advantage of their lowered costs.

The Indian rupee has depreciated by about 20% in a year as investors pulled some of their investments from India back to the United States on signs that the US economy was picking up pace, even as the Indian economy slowed down.

When the rupee falls, costs of IT companies, who pay their employees in rupees, fall sharply, giving them the option of passing on some of that benefit to their customers. Though companies have said that the benefits cannot be passed on as the rupee may strengthen again, some companies have done so.

“Stronger demand from pent-up discretionary projects and rising proportion of higher value services (such as IT consulting, system integration, etc) can partially offset this over the long term,” the DHL India Trade Outlook for December 2013 said.

It noted that the Indian IT services companies have not been able to raise their billing rates over the past two years (see chart above). Billing rates have remained almost unchanged since the financial crisis in 2008-09.

“In fact, billing rates declined by 1-2% year on year in the last 2-3 years as a result of pricing pressure from banking and financial services industry clients and competition from players that passed on some of the benefits of rupee depreciation to clients,” it said.

The Indian IT services industry is expected to grow by about 15% this year, according to various reports.

In 2012-13, the industry grew by 10% y-o-y after rising by 19% y-o-y in 2011-12.

“Results announced during the last few quarters by Indian IT vendors indicate a strong volume-driven growth in the industry. This is primarily due to the improved macroeconomic environment in developed nations, which ramped up demand for Indian IT services,” logistics company DHL said.