The Paradox of Currency-adjusted Growth
Once a year, in July-August every year, we at Dataquest, analyze the performance of Indian IT industry. I thought of sharing the major findings of the research, especially the export of IT services from India.
On the face of it, it is a fairly simple thing to do — get all the numbers and analyses straight from the research my colleagues have painstakingly conducted and presented in Dataquest, and summarize them for you.
I just had to do a little arithmetic — convert all the figures from Indian Rupees (INR), the currency that we use to present all our data, to U.S. Dollars (USD). That is when I realized that the seemingly simple exercise was anything but simple. Let me explain.
Take Indian IT-services exports. Between Apr. ’07 to Mar. ’08, the Indian FY08, in rupee terms, IT-services exports from India was Rs. 1,884,480 million, up from Rs. 1,478,810 million the previous year — that is a growth of 28 percent, compared to the growth in FY07, which was 35 percent. Now, convert that to USD in the prevailing average exchange rates of corresponding periods. In FY08, Indian IT-services exports stood at $46.6 billion, as compared to $33.6 billion in the same period the previous year. Now, that is a growth of 40 percent, as compared to 33.5 percent in FY07.
You do not have to be a great mathematician or an economist to figure out that INR appreciated significantly against USD between Apr. ’07 to Mar. ’08, whereas it depreciated a bit between the corresponding period a year back.
My dilemma: I have told all my readers of Dataquest that the growth slowed down from 35 percent in the previous year to 28 percent last year, with all the explanations of why it happened. So, how do I explain you why the growth accelerated from 33.5 percent to 40 percent? Did Indian IT-services exports actually slow down or accelerate? Did Infosys had a better growth this year or last year? Did IBM’s India revenue grow better this year or last year?
I do not know the answers, despite having all the numbers and stories behind them.
With increasing globalization but multiple currencies, this is an issue we will increasingly face. If we do not have a solution, all these number crunching will have little meaning. Companies listed in both U.S. and India will have to tell their investors completely different stories. American companies having more and more business in emerging markets will have to explain to their investors, for example, why despite having a better outlook for Mexico, the Russian business grew far faster — thanks to the currency-adjusted growth playing the mischief.
Does anyone have a reasonably simple answer?
Might I suggest that you base your computations on something that does not have to be converted, such as Hours. Then you could have other computations tied to it such as the change due to the change of the value of the Rupee and the change due to the change of the value of the Dollar.