>Alan Rodger, research analyst with, acknowledges the Rupee is going from strength to strength will present a challenge to India-based outsourcing providers when it comes to the renewal of contracts with western companies.

>However, the high quality of service and talented workforce available in India, together with the continued improvements to the infrastructure will, continue to stand India in good stead.

This rise in the rupee against the US dollar is expected to continue for some time to come, barring any political crisis or natural disaster, according to the Indian press. NASSCOM, the public body that represents outsourcing organisations based in India, forecast that the Indian technology sector would rise by 27 per cent in the financial year 2006-2007, but in fact it rose 30 per cent, to $40 billion. During the financial year 2007-2008 NASSCOM has forecasted a rise of between 24 per cent and 27 per cent, equivalent to a staggering $50 billion of revenue.

According to research earlier this year by CLSA, it was identified that the IT industry in India employs some 1.6 million people directly, with a further 6 million in related industries.

>The industry itself contributes some 5.2 per cent to India''s GDP, and it is estimated that between 20 per cent and 25 per cent of India''s GDP expansion in the next three - four years will come from the IT industry in India. Approximately 75 per cent of the country''s software industry is exports, and it is this huge figure that will be impacted the most by the rise of the rupee against the dollar.

This will bring into stark relief the reasons that many organisations use third-party providers for IT and Business Process Outsourcing (BPO) services based in India. Cost should never be the only reason for outsourcing any services, but it is of course a major contributor to any decision to deliver from overseas, and a rise in prices of this nature may make some businesses question the financial advantages.

>However, the vast majority of outsourcing contracts between western countries and India are in, for example, US dollars or UK pounds, therefore it will be the India-based providers that will suffer the immediate effects of this situation, rather than the customer organisations. This is understandably one of the reasons that has made India a popular outsourcing destination in the past - the ability to protect against the rising cost of the rupee.

It will be a challenge for the likes of Wipro, Tata Consultancy Services, HCL, et al to minimise the impact of the rising rupee and maintain and renew their outsourcing contracts with western organisations.

>However, even if prices should rise marginally when these contracts are up for renewal, it should be remembered that the quality of the talent available in India remains extremely high and the infrastructure improves on an almost daily basis, and for many these and other factors will continue to make India an attractive place to continue to do business with.

>The author has worked with IBM, iPlanet, CSC, ICL, General Motors, Anglian Water, Severn Trent, HSBC, and Barclaycard as an employee or in an independent consultant his main focus topics at Butler Group have been outsourcing and services, infrastructure management, and security.