Rising rupee, wages pressure India Inc

By Tony Munroe

MUMBAI (Reuters) - A strengthening currency and rising wages threaten to erode India's vaunted cost advantage, forcing companies to economize and innovate to remain competitive.

The rupee is up 12 percent this year against the dollar, and its surge to its strongest in nearly 10 years has caught many executives off-guard and eaten into margins in key export-focused sectors such as software services and textiles.

Wages, meanwhile, are forecast to rise by 14.4 percent in 2008, a fifth year of double-digit growth as companies fight for talent, according to consultants Hewitt Associates.

"India's real competitive advantage is people," said Alan Rosling, executive director of Tata Sons Ltd, the holding company for one of India's biggest business groups. On the other hand, he said, "the biggest constraint we face is people."

"Over time, obviously the competitive edge in terms of pure cost is going to erode," Rosling told the Reuters India Investment Summit.

"We need to become innovators," he said.

India's leading biotechnology firm, Biocon Ltd (BION.BO: Quote, Profile, Research, Stock Buzz), told the Reuters Summit that margins would be hurt by the stronger rupee for at least another six to nine months.

"Times are tough," said Kiran Mazumdar-Shaw, chairman and managing director of Biocon. "It is an absolute concern for us."  Continued...