Impact of the US housing crisis

1. Impact on US

• The chances of a recession are very high. If not a major slow down of the economy will be there.
• The dollar will come down significantly. We have already seen this happen. More is likely to follow.
• Inflation will creep up.

2. Impact on Tech industry in the US.

• IT is an industry that thrives on good economy. When the companies are expanding, the economy is growing. Businesses look for ways to grow. IT is the way they do it.
• It’s a different story when things are going down. The first cutbacks come in IT. We saw this happen in 2001.
• This time around things are a little different though. IT projects are more closely integrated with the business plans and goals. So the impact of a slow down will not be that pronounced.
• Overall the US tech industry should ride out this problem. There may be some short term problems of layoffs and difficulty in finding a job. But the long term prospects look good.

3. Impact on India

• Most of India’s growth has been generated by internal demand. The consumption by the consumers constitutes 62% of the GDP. So the impact may not be very significant.
• Indian property market also has a bubble in it. The property prices have gone through the roof in the past few years. This bubble will burst… When I can’t say but the US problems have increased the chances.

4. Impact on Tech industry in India

• BPO and outsourcing firms will be hit hard in the short term. Firms dealing with the US mortgage industry could already be affected.
• As the demand comes down in the US and the economy slows. Contracts with the outsourcing firms will take a hit.
• Also the rise of the rupee or rather the fall of the US dollar will make outsourcing expensive for US firms.
• In the long run things will be picking up again. As US companies strife for growth after the turmoil. Outsourcing will play a major part in it.
• Overall this turmoil can be a good thing for Indian firms in the long run. This might just force them to look for work in India. In my opinion there is a huge potential waiting to be tapped. IBM has started doing it. They are generating a lot of revenue by working with Indian companies. It’s a golden opportunity for Infosys, Wipro etc to move up the IT services value chain. Instead of doing the grunt work of IT they can move into the more lucrative consulting business. And given their reputation in India. Indian companies will gladly make them their consulting partners.

I hope the turmoil goes away without causing major damages because if US economy goes into recession, it will significantly slow down the world economic growth rate.