Global I.T. – Indian Election Shakes Markets

When the Congress party won India’s election on May 13, the country’s stock markets plunged on worries that leftists would pressure the newly formed government to derail economic reforms. But Congress Party leaders moved quickly to state that their policies would be pro-investment. And leading IT and outsourcing industry players insisted that investors would not be harmed by the change in India’s government.

The Bombay Stock Exchange’s 30-share index in Mumbai plummeted more than 564 points (11 percent) on May 17, and it was mired close to that level on June 1.

Although the fall also dragged down tech stock prices, the stock market downturn was not directly linked to the tech sector, says Kiran Karnik, president of the National Association of Software and Service Companies (Nasscom) in Delhi. Nasscom is the leading industry group for India’s large software services and business process outsourcing (BPO) industry.

“There was a little bit of concern among some customers abroad, and we did get some calls after they heard what happened to the stock markets,” says Karnik. “But they understand that all this is a transient reaction, and not based on anything substantial.”

In fact, new Prime Minister Manmohan Singh is an Oxford-educated economist who believes government must create self-sustaining economic growth. Singh became prime minister after Congress Party leader Sonia Gandhi declined the job.

After the election and stock market fallout, IT industry players in India sought to reassure customers abroad.

IT and BPO industry sources do not expect the new government to reverse policies that help their industries, which are key foreign exchange earners and provide employment to a large segment of India’s urban population. “The IT and BPO industries in India contribute significantly to employment and foreign exchange revenues, and any government coming to power will not want to change that, even if they think they have to focus on rural development,” says Prakash Gurbaxani, chief executive officer of TransWorks Information Services, a Mumbai-based BPO company.

And the Communist-led government in West Bengal state has declared the IT and BPO industries as essential as electric and water utilities, Karnik says.