The adverse impact of rupee appreciation against the US dollar is well known for the IT sector, but the robust local currency is also narrowing the gap in salaries of software professionals in US and India.

While the gap is likely to drop by up to 21 per cent in 2008 from the levels seen in 2006, it is still high enough to keep India’s competitive edge as a low-cost market, says a white paper by leading Executive Search Firm Manpower.

According to data compiled by Manpower, the sector’s staff level salaries were as much as 86 per cent higher in the US compared to India in 2006. However, this gap declined to 82 per cent in 2007 and is expected to decline further to 78 per cent in 2008. In executive level salaries, the gap dropped from 68 per cent in 2006 to 60 per cent in 2007 and could further decline to 52 per cent this year.

However, the steepest decline of 21 per cent is likely to be seen in the middle manager level, where the Unites States salaries used to be 69 per cent higher in 2006, but would be only 48 per cent higher than India in 2008. This difference stood at 57 per cent in 2007. While noting that salary is the biggest cost component, accounting for 45 per cent of IT companies and 40 per cent of BPO costs, the white paper said that a close comparison of Indian and US salaries indicates a narrowing gap in cost arbitrage during 2006 to 2008.

Concerns have also been raised periodically that the adverse impact of rupee appreciation could force IT companies, for whom exports account for a major part of revenues and profits, to cut down on the wage hikes and other employee costs in order to offset the impact on their margins, the data shows.