Positive Impacts of Financial Crisis on Indian Economy

Positive Impacts of Financial Crisis on Indian Economy

Abstract

Newton's third law says "Every action has equal and opposite reaction"
which was proved long ago. We know that at present the world is suffering
because of this financial crunch .Then cant we expect any positive impact
of today's financial crisis on our economy? Being a rational creature it is
the human tendency to find out a positive way out in order to get prove
its efficiency in negative scenario. In this paper we have tried to focus
on the positive impacts of Financial Crisis on Indian Economy as well as
a better future for tomorrow.

INTRODUCTION

Behind every dark cloud there is a silver lining.

Today the world is in a financial mess. Everyone is talking about financial crisis all over the world. But nothing lasts for long. Everyday we can't expect our economy to be in boom. The economy tends to move in various phases i.e. from expansion to peak and then peak to recession and along the way of "Phase to recovery" and once again to peak. This is because of two human emotions. Greed during expansion as the cause and sufferance during recession as the result

The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises and sovereign defaults. The current financial crisis is the worst of its kind since the great depression of 1930s. It becomes prominently visible in September 2008 with the failure of several large us-based financial firms. The global financial meltdown has spelt disaster for the world economy in general and for the US and the European economies in particular. But surprisingly when world's developed economies are suffering, there the developing countries like India and China are still spending money in many projects. Do we need to believe that Indian growth story is over? The answer is a big no. India is still to enter its golden phase of growth. This is the time for India to march on and look for opportunities to make its presence felt on the global economic map.

THE INDIAN APPROACH IN CURRENT SCENARIO

Today India stands erect to face this financial crunch with many advantages and strengths. One of the major strength is its nuclear technology which will aid India to battle out its biggest problem-power.

Cautioning against the use of word "recession" for Indian economy, Finance Minister P Chidambaram says India's growth would moderate in this difficult year, but would still be second-fastest in the world at the rate of 7-8 per cent. According to him a recession is defined as two successive quarters of contraction of GDP. He wishes to emphasize that India is nowhere near a recession. We may expect a moderation in growth rate in the current year to a level between 7 and 8 per cent. India would still be the second-fastest growing large economy in the world Chidambaram says.

Giving a positive projection on the country's economic scenario, P.M Manmohan Singh said India could regain its annual growth rate of 8% to 9% as the world's economy could recover partially the present crisis by September this year.

According to the Planning Commission Deputy Chairman, Montek Singh Ahluwalia, The global financial turmoil will not have any significant impact on the country's financial system as India is not exposed to the new and innovative financial instruments that triggered the meltdown. We have not been as exposed to these new and innovative instruments, which have been the source of financial distress internationally. .. So the direct impact on the Indian financial system is not going to be significant at all.

There will be indirect effect As regards to India, the country is fortunate to have large foreign exchange reserves and hence it would be able to tide over any short-term disruption in capital inflows.  The strengths of the Indian economy are substantial and capital inflows would eventually resume the normal course. As far as economic growth is concerned, the downturn in the world economy is going to have an impact on India and unlike the last year, the country would not get 9 per cent growth rate during the current fiscal. Still, the growth rate could fall below 8 per cent at 7.7 per cent, as predicted by the Prime Minister's Economic Advisory Council.

POSITIVE IMPACTS ON INDIAN ECONOMY

Emergence of a new economy

Perhaps this is the first time during such crisis period when world's big economies like US is struggling to overcome this situation India was able to invest money for launching of chandrayaan- 1.This is the time when world's most powerful economies are suffering more than Indian economy. It affected developed country economies more than developing country's economy. In USA Lehman Brothers has filed for bankruptcy,  Merill Lynch has emerged with Bank of America,  Washington Mutual Operations are being apprehended by FDIC and Wachovia is being auctioned by Citigroup .In comparison to such terrific conditions India is in a better place. It is worth underlining that we have a number of companies still reporting successes at this time. Some of the businesses bucking the trend at this stage have diversified into a number of areas and others have exposure to export markets. Whilst overseas markets are increasingly tough, but the businesses have been able to benefit from the weakness of the money value which has allowed exporters additional competitiveness with their international trade.

Expose of weaknesses in the economy

The major role of financial crunch is that it exposes the political, structural and financial weaknesses of an economy. It explores efficiency in the financial market, transparency and accountability of new or reformed organizations, opportunity for creating new jobs and technologies, sufficient fund for investment in R&D innovation and education.

During the financial crisis period, the extent of sufferance of an economy shows its weaknesses. Because if the rest of the world gets disturbed and capital flows and liquidity shrinks, there is bound to be spillovers not just on India but all over the world.. Regulators are trying to assess the situation and taking steps to insulate their economies from the unnecessary shock. The fact that we have not been affected reflects the merit of proceeding slowly. We have actually been reforming very slowly and gradual pace of reforms has some advantage and we should continue with that pace. India should endeavor to make the regulatory system more sophisticated to ensure that the country does not run into regulator gaps that precipitated the present global financial crisis.  Our country pursued economic reforms in a calibrated manner and escaped the fallout of global financial crisis. So these expose of weaknesses will definitely help India's fast growing economy in the long run.

Cost stabilization in real estate market.

Confederation of Real Estate Developers Association of India ( CREDAI) and National Real Estate Development Council (NREDC),  both  builders association with around 3500members each across the country,  have appealed the members to slash prices of their proporties.Builders feel that cutting down prices will spur buyers and restore confidence. This development will enable middle-class families to think of having their own homes as owning a house had become a distant dream because of unrealistic rise in real estate properties. By developing middle-class families it is for sure that Indian economy will be affected positively in long run. Because in comparison to any other country Indian middle-class families are significantly improving in monetary measures.

Rationalization of Salary Structure in IT Industry

This financial crisis will have a positive impact on the IT industry. This sector has seen an unprecedented rise in salaries and increments. But with this financial crisis this cannot go further. No economy can afford 25% to 30% salary hike per industry per annum. So now IT industry slowdown will ensure better quality of work and also prevent attrition. Today the IT professional will think twice before changing their jobs. Along with it funds spent on recruitment, training and development and retention of man power will come down considerably. Earlier the scene was quite different. With that lucrative growth rate of salary structure, IT professionals were changing jobs frequently. It had a bad impact on the job culture of the industry in particular. Frequent change of jobs also affected the overall productivity of the industry. But now the scene is totally reverse in nature. As a result of this financial crisis professionals are not only in favor of changing the job but also ready to work more with the same salary with the objective to keep his job secure. Definitely it would help in the improvement of this sector as well as the productivity of the IT industry.

Performance Appraisal is gaining ground

Today's businesses are under a great deal of pressure to perform. With increasing customer expectations, global competition, costs of goods and services and above all because of financial crisis, many companies struggle to meet profit forecasts. As a result, companies are beginning to discover the powerful link that exists between employee performance and financial success. Many companies are relying more heavily on human capital to address consumer demands while lowering operating costs, and improving financial position. Deploying employee performance appraisal programs that lead to measurable improvements in employee performance can provide the human capital leverage companies need to overcome many of today's business obstacles.

Earlier as the job opportunity was more for the people; the role of performance appraisal was less.  To understanding how efficient your employees perform was critical to your business. Every year, thousands of businesses were losing millions of dollars in revenue due to inefficient employees. Now as this financial crisis arises everyone is trying to save one's job. Watching the changed job environment use of Performance Appraisal is gaining its ground day by day. As a result, everyone is ready to give his 100% to his job. Fear of losing the job improves the performance of the employees as a whole.

Austerity is the targeted path

Today Warren Buffet advice of austerity is practically followed by many countries. Cost cutting seems to be the sole solution to this contemporary problem. Starting from Govt. sectors to big private corporate sectors, cost cutting is there everywhere. Earlier when big MNCs were spending recklessly for promoting their business where staff luxury was of major portion, today they are taking a second thought before spending a single penny.

Splurge will no more be the watchword and greed will no more be good in corporate parlance. Financial crunch will force the companies to eliminate all forms of wastage and follow an austerity regime. India's greatest ability and strength is its tolerance and ability to adapt to difficult situations. It is now trying to tackle the issue of panic resulted out of depression and then pump massive amount of liquidity and confidence into the system. India's population plays the most crucial role here

Best place for outsourcing

"It is time to open up banking and insurance sectors for further foreign direct investments as multinational insurers and bankers are willing to invest more in India. There is a talk that FDI limit in insurance might be hiked to49%. And this time is the best time to do it", Prabhu Guptara, Executive Director, Think-Tank of United Bank of Switzerland (UBS).

According to Obama Govt. US's   priority would be given to curtail costs, which would include cutting wage expenditure and there by outsource work to countries like India.

In view of high credibility, Indian banks should also expand retail and other businesses abroad. There is also a need for more innovative products and global competitiveness.

India continues to be the best place or top destination for outsourcing. Two factors are responsible for it. First when it comes to salary costs India is extremely competitive, second Indian outsourcing firms have now matured into true global companies that can offer best services at competitive prices. India is coming under the list of top outsourcing destinations with China, Brazil, Mexico, Malaysia and Chile. India has the second lowest Its-BPO salary base of $7,500-$8500 followed by China. Another advantage of India in this section is that India is having one of the largest producers of English-speaking graduates including management and engineering graduates. Such a huge number of graduates will definitely result in offering higher value-added services to the customers. Which is very weak in china as the number of youth is less here.

. Today having the maximum no of youth our country is ready to adapt to this situation. Efficient young personnel are India's greatest asset here.

Opportunities for International trade.

When looking in particular at International Trade, there are huge opportunities for when the world economy begins to grow again and demand returns to foreign markets. The competitive position of Rupees only adds weight to the potential that can be realised.

Today countries all over the world are interested for trading with India. It will have a great impact on our foreign fund reserve and forex market.

Conclusion

While it is uncertain how prolonged and deep the recession will be, it can be said with certainty that demand, and subsequently growth, will return. It is therefore imperative that, when this happens, policymakers have a recovery plan in place. This plan should act to foster growth in the short-term and lay the foundations for economic stability in the long-term. There is currently a high level of activity amongst the business support community with a key focus on ensuring businesses survive the downturn. A challenging and critical focus on the basics, or fundamentals of businesses, is likely to give local companies the best chance of survival over the next year.

The growth of the public sector and the narrow reliance on financial services for growth needs to change, with manufacturers and exporters having particular attention paid to them. After watching so many positive points we Indians can ourselves that we are quite in a safer place in comparison to many developed countries economy. To conclude lets hope for a stronger India by rectifying all its economic weaknesses after this so called financial crunch.

REFERENCES

1. Ghosal SN (2009) "Global Financial Crisis- Cause and Impact" Icfai Reader.Mar2009
2. International Monetary Fund (2008) "Global Financial Stability Report", October 2008.
3. Larry Elliott, "Credit crisis- how it all began" The Guardian, (Aug.5, 2008).
4. Reserve Bank of India (2008), Annual Policy Statement for the year 2008-2009    April.
5. Singh Dhananjay (2009) "Global Financial Crisis –Positive for India", Icfai Reader, Jan2009.
6. Vardhani D and Sridevi  J (2009) " Downturns and Impact of Global Meltdown"  Icfai Reader .Mar2009
7. Venugopal V. (2004) "India and Global Economy" The Asian Economic Review, vol.46, No.3 December 2004
8. World Bank (2008) "Global Development Finance2008" , June.

Newspaper

1. The Business Standard
2. The Economic Times
3. The Times of India

 

Green Advertisements: The New Gold Marketer

Green Advertisements: The New Gold to the Marketer

 

Green is the new gold for the marketers. This is absolutely true as today, consumers are keen to use more eco-friendly products and are even willing to pay a premium price for the `green' products. Marketers have also found a niche for these green products. Thus, the concept of Green Marketing has emerged. Corporate India has also taken a big leap in this direction. Marketers are using green advertisements to create a good brand image and win the customer's heart (and, of course, the purse).

 

Good advertising does not just circulate information. It penetrates the public mind with desires and beliefs.

-- Leo Burnett

Green marketing is a concept which has gained momentum in the last few years. This has become all the more vital when our planet is in danger and everybody is keen to protect it. Efforts being taken by environmental agencies like Tree Club, Exnora, etc., are commendable in this context. Corporate India is also not far behind in this race. Going green is in the minds of the business owners and executives now more than ever. They are ready to go an extra mile to create consciousness among the public about the necessity to protect nature. For the marketers, green could be the new gold. They have clearly understood the fact that if the products are produced and marketed through eco-friendly ways, the idea of being nature-friendly can be easily cultivated in the minds of the customers. Such is the power of `Green Marketing'.

Green marketing means marketing of products which are environmentally safe. Thus, it includes a broad range of activities like producing, processing, packing and even advertising with the nature-friendly tinge in it. More and more companies are incorporating the concept of going green into their organizational culture. Companies like Honda, Videocon, Samsung, Philips are concentrating more on producing eco-friendly products. Even retailers are contributing towards this movement. Total, a famous retailer in Bangalore can be cited as an example in this case. The company is promoting the concept of reusable bags for shopping, where the shoppers can use the same carry bag for future purchases. A great step towards making the city plastic free indeed!

The latest in this aspect are advertisements which highlight the importance of being eco-friendly. These ads are called green advertisements. They generally promote the ideas of protecting the nature or promote eco-friendly products or even eco-ideas. Using print, outdoor and electronic media, advertisers are focusing their ads on this innovative and socially responsible concept. Besides creating a good brand image, advertisements which promote eco-friendly ideas can create awareness about what the public can do to conserve energy and other natural resources. Green promotions can thus be beneficial to both the businesses also to the environment in the long run. These green ads also help the public to identify the prevalent environmental ills. The ads also demonstrate how to rectify the problems, which would be beneficial to the entire society. But the marketing campaigns which have the green content should try to explain the benefits the consumers will achieve by being eco-friendly.

Panasonic's Eco-ideas

Panasonic is one organization, which has been working to highlight the issue of global warming. It has already started producing eco-friendly products like televisions without lead and has been taking initiatives to reduce greenhouse gas emissions. The company has decided to remove all poor energy efficient products from its portfolio and develop more energy saving equipments and technologies. It has also taken steps to increase awareness about protecting the environment, both locally and globally through its eco- ideas. This theme rhymes with its brand slogan—"Ideas for Life". Panasonic Corporation also rolled out its global Eco Ideas Strategy which would be implemented worldwide. Eco Ideas highlights the company's plans to achieve global excellence in all aspects of its environmental management activities. The three key initiatives that the company intends to pursue through this strategy are: reduce carbon dioxide (CO₂) emissions through a combination of greener products and factories, encourage resource conservation and promote eco-friendly individual actions. The company even announced the `Panasonic `eco ideas' Declaration, ' which, is a commitment to all members of society that the company will steadily and concretely implement eco-friendly initiatives. Panasonic's three pledges are:

1. We will produce energy-efficient products.

2. We will reduce CO₂ emissions across all our manufacturing sites.

3. We will encourage the spread of environmental activities throughout the world.

The TVC of Panasonic can be quoted as a green ad. The commercial features celebrities sharing eco ideas like, switching off the lights when you are out of the room or turning off the car engine in the traffic signals, etc. The celebrities who have featured in this TVC include Ranbir Kapoor, Neha Dhupia, etc. We can, thus, conclude that Panasonic is really keen to `Go Green'. This will also be beneficial to society.

Videocon - `Green' Change in the Logo

Videocon, a leading manufacturer of consumer durables aiming at global expansion has taken a big leap towards the Green Movement by changing its logo, which now has more of the green color. The new logo of Videocon has a new `V', is composed of two animated green, lava-like shapes—called Chouw and Mouw, with distinct identities of their own. The color palette of the logo has been chosen to reflect the company's ecological drive. The animated characters, Chouw and Mouw, would be used through a series of short videos to tell simple stories, each depicting a positive dimension of Videocon. These initiatives would serve to reposition Videocon as a `younger, fresher, eco-friendly' and a `with-it' brand.

PCRA - Spreading the Fuel Saving Ideas

Petroleum Conservation and Research Association (PCRA) has initiated a series of Green Ads which focus on energy efficiency and conservation of energy. The print ads, as well as TV commercials, emphasize the need to save scarce resources like petrol, diesel and cooking gas. The campaign named as "Save fuel yaani save money" is aptly timed as the economy is in a downturn and by judiciously using natural resources, one can save cost and also protect the environment. The television commercials are educational and informative. One of the ads features an LPG delivery man taking payment for delivering a cylinder. He tells the lady of the house, that from now, she can avail a 20% discount on the bills. The mother-in-law, who overhears this, and the housewife extend their hand for the discounted amount. The delivery man tells them that it's in their hands to earn the discount, by optimally utilizing LPG. He also tells that by using pressure cookers and by using lids to cover the vessels while cooking, one can save gas. Another interesting ad is shot in a Petrol Bunk and highlights the fact that when vehicles are driven at 45 kilometers per hour as against 65 kilometers per hour, one can save up to 20% of the normal fuel consumption.

In some of the ads, children have been used to highlight the importance of saving fuel. For instance, in one of ads, a father and son are shown sitting in their car at a traffic signal. The young boy turns to his father and tells him that when he grows up, he will have his own cycle repair shop. His father turns to him in surprise. The kid explains that going by the way everyone is misusing fuel there would not be any fuel left for his generation to use. So evidently, people will use cycle to travel. The father then turns off the ignition. The ad reiterates the fact that the ignition should be turned off at signals to save fuel and, thus, save money. Radio slots have also been effectively used by PCRA. PCRA has targeted all segments of people for spreading awareness about environment protection. It has also released several print ads which seek to educate different sections of society like car owners, housewives, truck drivers, farmers, etc.

PCRA has indeed taken a very wonderful step through these campaigns. Instead of just speaking about the harmful effects of wasting energy and creating ecological imbalance, it has taken the additional responsibility of providing small hints to the public like for reaching short distances one can walk instead of using a car, one can save LPG by using pressure cooker, etc., to save fuel. These ideas will definitely create an impact on the public since they, not only benefit them personally, but also protect the environment.

GE - Ecomagination

GE has been working to solve the world's environmental challenges through its ecomagination efforts. Launched in May 2005, ecomagination is GE's commitment to imagine and build innovative technologies that would help customers address their environmental and financial needs and also help GE grow. Under the program, GE would: double its investment in clean technology R&D to $1.5 bn annually by end of 2010, introduce more ecomagination products each year and reduce its Greenhouse Gas (GHG) emissions and improve its energy efficiency. All these show the company's initiative to develop a green product portfolio. Through this initiative, the company has demonstrated that financial and environmental performance can go hand in hand and help the company to step towards growth. GE has also released many videos and print ads, which aim at educating the public about the need to be eco-friendly. GE is sure that its ecomagination drive will help reduce the harmful effects of the environmental hazards, and provide more `Green jobs' and also improve energy independence. Undoubtedly, Green `Imagination at work' will help to create environmental profitable growth.

Lifebuoy: Clean and Green

FMCG companies are also taking initiatives to spread `greenness' and cleanliness. The best example is the Lifebuoy ad, which features a small boy who gets down to clean the street. He is soon joined by his friends and the entire gang of small kids end up clearing the garbage of the colony and making the street clean and neat. The TVC message is, kabhi kabhi ek insaan, ek soch, ek iraada duniya badal saktha hai and duniya wohi badalega jinhe apni suraksha ka koi darr nahi and the ad finally shows the kids having a bath with Lifebouy and confidently saying Koi darr nahi. It is very clear that such ads will send a strong message even to the younger generation about the importance of keeping the world cleaner and greener.

Honda: Developing the Green Gold

Auto maker, Honda has invested huge amounts in R&D to discover new technologies and innovative products which are green.

Honda's dedication to develop fuel-efficient and alternative fuel technologies can be judged by the fact that three Honda vehicles earned recognition from the American Council for an Energy-Efficient Economy (ACEEE) as the `greenest vehicles of 2009' with the Honda Civic GX natural gas car taking the title of the greenest vehicle for the sixth consecutive year. Honda has 12 more environment- friendly vehicles in its product line.

When it comes to advertising, Honda has compelling environmental stories to tell. Here the marketers have resorted to online advertising to provide information about its new technology and various environment- friendly products. Consumers always prefer to buy products from companies which share information with them. The ad campaigns of Honda also stress the need to keep the city and streets clean, reduce gas emissions, etc. The company has also motivated dealers to take initiatives for environment protection. These initiatives have helped Honda to win loyal customers and create a strong brand image for itself.

More Companies Going Green

Many companies have started adopting green strategies of late. These companies are working to ensure that both their profit objectives and eco objectives go hand in hand. Infosys, the software behemoth, has been working to keep Bengaluru greener and cleaner through its tree planting efforts. It has also taken other innovative initiatives in this direction. HSBC has become the first bank to go carbon neutral. Coca-Cola, Nokia are other companies that have invested heavily in recycling activities. These telecom companies are advising customers to deposit their old cell phones with them so that the phones can be recycled.

Green marketers have a very big segment of public to cater. The TVC of Surf Excel detergent is another example in this context. The ad was released with the tag lineAb daag bhi jayega, do bucket pani bhi bachega.

It featured leading Bollywood actress, Shabana Azmi, and some more women carrying two buckets of water and emptying it into a tank mentioning that by using Surf Excel detergent they have saved two buckets of water everyday. Says Shabana Azmi at the end of the ad, Agar aapke paas Surf Excel Quick Wash hai, toh aap bhi rozana do bucket paani bacha sakte hain... zara sochiye sari Hindustan mein kitna paani bachega. (If you have Surf Excel Quick Wash, you too can save two buckets of water everyday. Imagine how much water the entire country will be able to save in the process). The TVC addressed an important social message of saving water.

The energy saving ads of LG and Samsung (Happy savings) are also examples of this genre of ads. Philips's CFL lamps consume very less electricity and help to save power. Electric four-wheelers like Reva and two-wheelers like Yo Bike are very popular among the people today. Companies are also using tools like billboards, websites, road shows and displays to spread awareness about environment protection. The billboards at BP Petrol Stations have a Sunflower reflecting that the company is investing in Solar Power. Reliance Fresh and Fresh @Namdhari stores in various cities spread ideas to protect environment through their displays.

Not only is the electronic media, the print media is also going green. Some of the companies are using innovative ways to spread their messages. For instance, in a particular fast food outlet, Bisleri bottles were sold with `Free Rain' stickers reminding people about the importance of trees. Slowdown in the economy shrinking bottom lines, pressure to cut costs, etc. have compelled companies to develop innovative ways to reduce costs and, at the same time, attract customers. Thus, companies are going green by using recyclable, energy efficient eco-friendly products which would help them attract the customers and contribute to the society.

Green Ads - Consumers' Perception

Today's consumers have begun to understand the importance of using eco-friendly products. Green marketing is growing steadily as consumers are willing to pay a premium to buy products that are eco-friendly. Thus, marketers must invest more in developing and selling eco-friendly products. This is the apt time for creating consciousness about green products and marketers can play an important role in this context to spread the green message.

Though many companies are producing eco-friendly products, the awareness levels about the advantages of such products are not much among consumers. Companies need to develop innovative marketing strategies to spread the message and master the tools of trade before the green wave loses its fizz.

Conclusion

Green advertising plays an important role in spreading the ideas of protecting the environment. If designed innovatively and creatively, it can educate and motivate consumers to consciously work towards protecting the environment. Undoubtedly, green marketing campaigns must accompany green products and processes. But the green ads must show the benefits that the consumers would derive. And nothing can substitute the dedication of the business leaders who are keen to identify and implement the ideas of sustainability on an ongoing basis and become socially responsible in their own way. Green companies must take into consideration the 4Ps—People, Planet, Profit and Process and work towards the well-being of the customers, employees and nature. Then they can surely drive economic development while preserving nature and create a more sustainable greener tomorrow.

IFRS: Is India Reddy?

IFRS: Is India Ready?

 

The use of IFRS as a universal financial reporting language, is fast gaining ground across the globe. Adopting of IFRS is going to be very challenging and rewarding for India Inc.

The era of globalization has thrown open both opportunities and challenges to India Inc. The opportunity of gaining access to global markets has been accompanied by the need to adhere to internationally acclaimed standards. Besides this, as businesses became transnational, they realized the importance of maintaining a single set of accounting standards across the globe rather than having separate, country-specific Generally Accepted Accounting Principles (GAAP). In recent times, International Financial Reporting Standards (IFRS) have emerged to serve this very purpose. IFRS is being increasingly used as a universal financial reporting language across the globe.

 

IFRS hogged the limelight ever since the European Union (EU) decided to adopt it for all of its member states from 2005. Since then, more than 8,000 EU-listed firms have adopted the IFRS. After the EU, many more countries began to adopt the IFRS. As of now, more than 100 countries, either allow or require, their firms to use the IFRS, while preparing financial statements. Some of these countries include, Australia, New Zealand, China, Singapore, Japan, Middle East, Africa and members of the EU.

 

The US capital markets are no exception to this trend. The US capital markets have been losing their sheen as a result of excessive regulations imposed by the existing US GAAP. As an alternative, many companies prefer those capital markets where IFRS is accepted. More than 1,100 Chinese companies have recently switched over to new accounting standards, bringing their books in line with international norms.

Back home, India follows the Indian GAAP, which is inspired by the International Accounting Standards (IAS). The Institute of Chartered Accountants of India (ICAI) and the Government of India have affirmed that the country will converge with the IFRS by April 1, 2011. This means that, within the next two years, there would be a transition from the Indian GAAP into the IFRS and the IFRS will be the GAAP of India. Accordingly, the ICAI has released a Concept Paper on `Convergence with IFRS in India'. The concept paper includes the strategy and roadmap for convergence of the accounting norms of all the listed companies to the IFRS by April 1, 2011. Further, besides India, Canada, Japan and Korea have announced that they would be IFRS compliant by 2011, China and Israel envisaged doing so by 2008, and Brazil by 2010. Thus, about 150 countries across the world would be adopting the IFRS norms by 2011. It would be both challenging and rewarding for the Indian corporates to adopt the IFRS.

Road to IFRS

"The need for converge with IFRS has not only become an option or an alternative but a requirement" , says Rajesh Arora, Partner BSR & Co. The developments in the Indian economy in the recent years have transformed it from a rule-based one to a principle-based one. The adoption of the IFRS will require a deep understanding of its procedures and policies. For that matter, the goal of any accounting standard would be to generate transparent and comparable financial statements useful to its investors, organizations and customers.

According to Sanjay Hegde, Executive Director, PricewaterhouseCoop ers, "The ICAI's roadmap to convergence with IFRS would, not only save companies undertaking significant reconciliation procedures, which otherwise results in additional costs and the risk of being exposed to errors in reporting under the different accounting frameworks, but also significantly enhances the quality of financial reporting."

Those entities looking for the smooth transition to IFRS will have to abide by a few procedures set for the first time adopters of IFRS. Accordingly, an entity will be called as a first time adopter, when it has explicitly stated the adoption of IFRS in its financial statements. To comply with IFRS and to file the financial returns as per the IFRS, companies have to prepare at least one year of comparatives. Thus, companies, which are adopting the IFRS for the first time in 2011 will have to prepare the comparative financial statement for the year ended march 31, 2011. For this, the opening balance sheet of the financial year 2011, i.e., the balance sheet for the year ended March 31, 2010, should also be IFRS compliant. So the companies that are filing the returns for the financial year ending March 31, 2012 will have to file three balance sheets and two Profits &Loss accounts.

Some of the accountants feel that the Indian GAAP draws some of its basics from the IFRS and that significant differences do not persist between the two standards. Despite the fact that the ICAI has made many revisions to the Indian GAAP to bring it on par with the global standards, significant differences still exist between the two. India still needs to update its accounting standards, which fall far behind the new standards. Indian GAAP was initially based on the IFRS, but later acquired its own identity when it was updated according to the changing needs. The IFRS and the Indian GAAP mainly differ in areas of managing business combinations, group accounts, fixed asset accounting, presentation of financial statements and accounting for foreign exchange transactions. These differences exist due to the deviations of the Indian GAAP from the IFRS.

A major conceptual difference persists between the Indian GAAP and the IFRS. While the IFRS relies on the fair value concept for valuing most of the transactions of the companies, the Indian GAAP follows the cost-carrying approach for the same. Application of IFRS concepts would also make the accounting process more complex, thus increasing volatility in the income and other financial statements. Determining the fair value of their debts and assets will be a major challenge for the Indian companies.

Another significant difference is that the IFRS requires depreciation of all assets over their estimated useful lives, i.e., indefinite, whereas Indian GAAP mandates that the depreciation rates cannot be lower than the rates prescribed under the law. Further, the concept of deferred taxes under the IFRS is based on the balance-sheet approach, while the current Indian standard prescribes the income-statement approach for accounting deferred taxes. The latter approach is easier to understand and implement. Companies must also be careful about the operational changes in the standards under the IFRS. They have to reconsider the already valued contracts, debt agreements, employee benefits, treasury policies, education and training programs, and communications.

The first-time adopters must also consider the differences between the IFRS and the Companies Act, 1956. The statutory calculation of depreciation, definition of subsidiary as given by IFRS, treatment of expenses, such as the preliminary expenses, underwriting commission paid or discount allowed on issue of debentures, premium payable on redemption of debentures etc., in the IFRS is not consistent with that given in the Companies Act.

Most importantly, in the treatment of final accounts, the Companies Act restricts the opening up of final accounts once they are submitted to AGM, while IFRS needs to compare the financial statements to reaffirm the effect of adjustment in accounting policies and preceding period items. The Companies Act also stipulates the format for balance sheet and its disclosure in Schedule VI, which is almost incompatible with that of IFRS.

The above discussion indicates that the Indian companies have to make major changes in their accounting practices to adopt the new standards. The most revolutionary change would be to adopt the fair value principles. Thus, elimination of these differences and adopting the IFRS will considerably change the functioning of the Indian corporates in the future.

Interview

The use of International Financial Reporting Standards (IFRS) as a universal financial reporting language is gaining momentum across the globe. What is the reason for this growing momentum? How different is IFRS from GAAP? Dolphy D'Souza, Partner, Ernst & Young Pvt. Ltd.: Businesses have become truly global over the periods and an increased number of companies are making cross-border acquisitions and investments. Also, there are large number of companies which are accessing international capital market to raise funds. This requires establishment of an accounting framework, which is globally accepted and understood. In India, the ICAI formulates Accounting Standards (AS), based on IFRS. However, there are significant differences between the two because Indian AS remain sensitive to local conditions, including the legal and economic environment, and Indian AS have not kept pace with changes in IFRS. Significant differences exist between the two in areas, such as accounting for financial instruments, business combinations, property, plant and equipment and investment property. Jamil Khatri, Head, IFRS Conversion Services, KPMG in India: The convergence with IFRS is largely driven by the need for a single-set of high quality global standards, as opposed to varied national standards. The support of the US Securities and Exchange Commission (SEC) is an important contributor to the growing momentum. For example, the SEC now permits foreign companies to use IFRS and has proposed a roadmap and milestones for American companies to adopt IFRS. Under this roadmap, the US may undergo a transition to IFRS between 2014 and 2016, with early adoption permitted for some very large US companies. There are several areas of differences between the currently used Indian GAAP and IFRS. Key areas of differences include: Accounting for business acquisition and consolidation, accounting for financial instruments – including derivatives, accounting for share-based payments and option plans and overall presentation and disclosure of the financial statements. India is poised to converge with IFRS by the year 2011. On its road to convergence with IFRS, what are the potential benefits and probable challenges that India Inc., is likely to experience? Dolphy D'Souza: Convergence with IFRS will offer multiple benefits to India Inc in terms of improved access to international capital markets, benchmarking with global peers, improvement in brand value, escape from multiple reporting under various GAAPs, reflecting true value of acquisitions, etc. It will also open up a host of opportunities in the services sector for accountants, valuers and actuaries, etc. India has the potential to become a global hub for these services. Changing from Indian GAAP to IFRS is not merely an accounting exercise but it also has significant business consequences. In the process of convergence, India Inc is expected to face challenges in the terms of shortage of qualified resources, training of staff, changes to information system, tax planning strategies, management compensation, communication of potential impacts with stakeholders, etc. Jamil Khatri: The benefits of convergence include – comparability with global peers, access to global capital markets and ability to reduce risk premium with global investors, impetus to crossborder acquisitions, eliminating multiple-reporting for companies with global operations and multiple-listings in India and abroad and additional opportunities for Indian professionals and chartered accountants to play a role in global financial reporting. Challenges include – need to make faster regulatory progress, lack of trained and experienced resources, need to change the mindset in the organization, educating boards and investors, increased complexity and volatility in the financial statement reporting process, and one-time costs of transition. What could be the possible impact of convergence on the financial sector? Dolphy D'Souza: The financial sector would be one of the highest impacted sectors from convergence with IFRS. Presently, entities in the financial sector are complying with the RBI Guidelines, as well as accounting standards issued by the ICAI, to the extent relevant. The requirements of these pronouncements differ significantly from those of IFRS on Financial Instruments. Key areas where requirements differ include: Accounting for financial guarantees, loan commitments, derivatives and embedded derivatives, hedge accounting, accounting for priority sector loans, identification and provision on impaired/ non-performing loans, etc. Jamil Khatri: On a broader level, the convergence with IFRS may reduce reported earnings and net worth and thereby may impact valuation metrics that are used by investors and analysts to value companies. Additionally, due to the extensive use of fair values (especially for financial instruments such as derivatives) , the convergence may result in additional volatility in reported income and net worth. Specifically, IFRS convergence will have a relatively higher impact on the Indian banking and financial services sector. How prepared is India Inc for the convergence and do you feel that India can handle IFRS related issues effectively? Dolphy D'Souza: A few Indian companies have already published their first financial statements prepared in accordance with IFRS. There are also some other Indian companies that have started crunching their numbers in accordance with IFRS to produce the opening balance sheet for their conversion from Indian GAAP. Majority of the companies, however, have not started this process till date. These companies need to start preparing for IFRS convergence at an early date. The experience shows that significant time and efforts may be required to achieve convergence. If companies start preparing for IFRS at the right time (which is now) with the right kind of resources, they should be able to handle most IFRS related issues effectively. Jamil Khatri: While KPMG is in the process of rolling-out a formal survey to evaluate the preparedness for the convergence, our current interactions with the regulators, standard-setters and several companies, indicate that we are largely unprepared. A part of this lack of progress may be attributable to lack of sufficient regulatory clarity (e.g., regarding the manner of the first time transition – will this transition be in accordance with IFRS 1). The current depressed economic environment may also have resulted in deferral of IFRS implementation due to the lack of available budgets for the upfront one-time costs of preparedness. Having said that, sectors that will be most impacted, e.g., banking, have made relatively higher progress, as compared to other sectors. We believe that each company will need to develop its own time-bound plan, based on its specific circumstances. This plan needs to be developed immediately, even if a significant portion of the actual conversion activity is planned to be performed at a later stage. Against this backdrop, how do you see the future of accounting standards? Dolphy D'Souza: Presently, there are more than 100 countries across the world where IFRS is either required or permitted. Historically, besides IFRS, US GAAP was considered to be the most acceptable financial reporting framework. However, with the Securities and Exchange Commission (SEC) acceptance of IFRS for foreign private issuers without reconciliation to US GAAP, and a proposed 'Roadmap' for the local US companies, it is clear that IFRS is the standard of the FUTURE. Jamil Khatri: We believe that the movement towards IFRS is generally irreversible with all key stakeholders in India and across the world being committed to the convergence plan. Thus, in the future, accounting standard setting will most probably be centralized with the International Accounting Standards Board (IASB). However, unlike the past, key stakeholders from across the world – including the US and India, are likely to play a much more involved role in the functioning and governance of the IASB. For example, recently, Prabhakar Kalavacherla, an Indian Chartered Accountant and a US CPA has been appointed as an IASB Board member effective January 1, 2009. Prabhakar has previously worked in India and is currently a partner with KPMG LLP in Silicon Valley, US. Any other comments? Dolphy D'Souza: Conversion to IFRS entails a business-wide change management exercise and should be approached using a structured methodology encompassing the best practices of project management. As with any major finance transformation project, full support of the board and senior management will be critical to the success of the conversion effort. Boards should pay close attention to the details of management's proposed approach to the IFRS conversion and satisfy themselves that it covers all appropriate areas and is based on sound project management principles. Involvement of IFRS and valuation experts in the conversion project is most essential. Jamil Khatri: We believe that it is extremely important that key stakeholders from India Inc and industry associations get more fully involved with the convergence plan and process. This will ensure that the benefits envisaged by the convergence are fully realized. For example, unless the convergence and transition to IFRS is made using the first-time adoption rules of IFRS 1, the financial statements, prepared in accordance with the converged Indian GAAP (say for 2011-12) will not be in accordance with the IFRS issued by the IASB, which require that all transition be consistent with IFRS 1. Accordingly, Indian companies that raise capital in overseas markets may need to perform additional reconciliations to deal with this issue. This would be a permanent reconciliation item for years to come. Our interactions indicate that this issue has not been completely analyzed and understood by most stakeholders in India. There are similar other implementation issues where India Inc needs to get more fully involved.

Benefits and Challenges

The convergence to IFRS, not only provides access to global laws, but also includes key benefits such as reduction in the risk premium and the cost of capital while giving an opportunity to anticipate challenges, set global targets, manage outcomes and implement the best solutions in the global environment. Those companies, which could not get listed on the international stock exchanges because of their non-compliance with the IFRS, will now have an opportunity to be listed. This access to international bourses will enable the companies to earn foreign investments. The international investor community will have access to financial information that is more reliable and is based on international standards to mitigate risk. With this, there would also be more cross-border transactions enabling the companies to acquire, merge and form alliances with the international entities.

While this would be a welcome step, there are many challenges that the companies would face on their way to convergence. Many are still skeptical about the convergence and implementation process. There are a few teething problems that would hinder the early adoption of the IFRS in India. For instance, the regulatory requirements in many countries are not compliant with IFRS, the accounting staff is not trained enough to implement IFRS, some of the entities do not have the required data to implement IFRS and certain IFRS requirements are highly complex. Above all, lack of guidance, communication and time may hinder the entire process of implementing the IFRS.

The success of shifting to IFRS in India largely depends on how well the regulators cooperate. There are fairly high chances that if a conflict arises between laws and accounting standards, the law would override the accounting standards. Hence, laws stipulated by the SEBI, RBI, and Income tax department need to be amended before adopting the IFRS. A CII release regarding the implementation of IFRS is as follows "Challenge in view of the conflicting legal and regulatory requirements related to financial statements, the technical preparedness of the industry and accounting professionals and economic environment prevailing in the country would pose challenges to convergence. "

Despite making all the amendments and complying with all regulatory and legal issues, shortage of resources could be a challenging factor for convergence. A recent report reveals that there are almost 1,45,000 CAs in the country _ the second largest pool of CAs in the world. But this figure still needs to be strengthened in order to cater to the growing requirement. More importantly, the need of the hour is to amend the curriculum of the CA course, accredited by the ICAI, in line with the new standards.

Impact of Convergence

The adoption of IFRS in India from 2011, will have a far-reaching impact on India Inc. Therefore, before implementing the IFRS, companies have to assess the possible threats and opportunities. The impact of implementing the IFRS would be different on different companies depending on the size, industry and the degree of complexity of operations of the company. To reduce the impact, many global companies are attempting to amend their traditional accounting laws in accordance with the new system. Rather than just amending the strategies of financial reporting, there is also a need to change the mindset of the people towards this comprehensive accounting language.

Further, the impact of IFRS would be huge on accounting for group accounts, business combinations, share-based payments, presentation of financial statements, fixed assets and investment property, and financial instruments. Adopting IFRS, also calls for rising obligation to additional reporting requirements in areas, such as taxes, financial instruments and fixed assets.

It is no wonder that, given the relatively less-developed debt and asset markets in India, their fair value determination will be a major challenge for the Indian companies. Managing the volatility that arises out of applying fair value concepts to financial instruments is all the more unfamiliar to Indian companies. Hence, audit committees are required to devise and implement appropriate hedge accounting principles and policies. Importantly, it would be a shift from local accounting standards to global accounting standards that reaches out to large groups of businesses all over the world. Hence, Indian companies have to take utmost care in the process of adoption.

How Prepared is India?

Keeping in view the differences between the IFRS and the Indian GAAP, the Indian Accounting Standards Board has decided to set up a task force for the enforcement of the IFRS principles. The assigned task force shall formulate strategies and lay down a road map to converge the Indian GAAP with the IFRS by April 1, 2011.

ICAI, with an objective of a smooth transition to IFRS, has taken up the matter with, The National Advisory Committee on Accounting Standards established under the Ministry of Corporate Affairs, Government of India, along with other regulators, like the RBI, IRDA and SEBI. The ICAI, along with all the other regulatory bodies, will decide on the convergence, implementation and formulation of IFRS compliant policies and procedures suitable to the Indian conditions.

Prior to the implementation of IFRS, Indian companies will have to assess the eventual benefits to the country. With almost two years in hand, the IFRS adopters have to effectively employ and appreciate the benefits of the new standards. Industry analysts opine that it would be better to adopt the IFRS in a phased manner. The listed companies should be allowed to adopt the IFRS first, followed by the non-listed ones.

As of now, it is not yet clear how India would deal with the IFRS. There are several questions cropping up in this regard: Will there be a convergence or adoption of IFRS, or will the Companies Act be amended, or will there be a few exceptions allowed in the IFRS to meet specific issues in the Indian context, or will the IFRS standards be notified in the Companies Act, and finally, will these standards be applicable to small and medium-sized enterprises or will a separate set of guidelines be laid down for them, etc. In this regard, the Ministry of Corporate Affairs has notified that India will adopt the IFRS which will give it a distinct advantage in the global environment as the Indian companies will be able to claim themselves as being IFRS compliant. According to the Ministry, "if we converge and don't adopt the IFRS, Indian entities would not be able to claim that they are IFRS compliant, which will defeat the very purpose of embracing IFRS."

Accordingly, the ICAI has planned to initiate measures to build awareness about the new accounting language among the corporate Indians. It has planned to conduct a survey to assess the preparedness and knowledge about the new standards. However, Indian corporates opine that amendments should be made to the existing laws and the doubts involved in IFRS implementation should be cleared by the ICAI. This would set the ball rolling and enable the companies to start adopting the IFRS.

Companies have sufficient time in hand to plan for a smooth transition. They should utilize this time wisely to avoid last minute rush. Some of the provisions are very complex. Applying them in time crunch situations carries the risk of misapplication of the requirements. It has to be recognized that adoption of IFRS is more than a mere technical exercise.

 

Lord Krishna is ocean u r the wave of ocean one with it

Lord Krishna is ocean u r the wave of ocean one with it

Once there was a small kid on earth. One fine day it came to know that God is distributing apples to humans in his place at heaven. The kid was so happy to receive that news and it went with lot of enjoyment to heaven to get the apple from God. There was a big queue standing to get apple from God and this kid also joined in that queue. While it was standing, it was fully excited and thrilled for the fact that it is going to receive in person from God's hands. It's turn too came and the kid showed its both the hands to receive apple. God gave the apple but unfortunately the tiny hands couldn't hold that big apple. Apple fell down and got wasted in mud. The kid got so disappointed. The ministers near the God informed that if the kid likes to have an apple from God again then it has to again follow the queue. Having waited for so long the kid didn't want to return back to earth with empty hands so it decided to wait again in the queue.
 
 
This time the queue has become even more longer than the previous one. While waiting in queue, the kid could see lot of people who returns back with apple in hands and utmost satisfaction on their faces. The kid was so much disappointed and thought why me alone didn't get the apple in hand when all others were easily able to get it. What is the sin I did that I alone should suffer like this. Now the kid was so scared that it should not miss the apple again. Again Its turn came and God gave the apple to the kid's hands and after giving the apple god spoke to the kid.
 
 
"My dear child, last time after giving you the apple only I noticed the apple I gave to you was a rotten apple and that's why I made that to fell down from your hands. Having given you a rotten apple, I felt bad for you and I wanted to give you the best apple in the farm and that time the best apple in the farm was growing and that's why I made you to wait such a long time in the queue. Here it is. Now the apple that you have in hand is 'The Best' apple in the farm till to date. "
 
 
Moral of the story and its practical application in our life
 
So, friends, sometimes it happens as even after we put our 100% dedication and commitment things may get delayed or things may go wrong. Believe that God has something great for us and that's why this has happened.
  
Principles to learn and apply in our own life :
 
1)                  We must have rock-like faith in God and His divine plan for us.
2)                  God loves us unconditionally and infinitely.
3)                  He wants to give us the best that He has for us.
4)                  We should be ever grateful to Him for His gifts to us.
5)                  Whatever God does, He does it for our own good.
6)                  Whether we know His plans or not, we need to put implicit
faith in Him and His loving plans for us.  Then and then alone
we will be eternally blissful in life.
  
Believe this and see the world..... Your world will also look happy......
HARE KRISHNA HARE KRISHNA KRISHNA KRISHNA HARE HARE
HARE RAM HARE RAM RAM RAM HARE HARE

--
God Bless u!

WHY HAVE YOU LEFT RAM NAM?

ॐ ॐ ॐ ::::

WHY HAVE YOU LEFT RAM NAM?

You have not left your anger and hatred. But why have you left the Japa of Ram Nam? You have not left uttering falsehood. But why have you left Kirtan and prayer? You have not left your gluttony, coffee and laddu. But why have you left study of Gita and Upanishads? You have not left your daily face-shaving. But why have you left the morning meditations? You have not left your backbiting and scandalizing. But why left Mantra – writing?

~Swami Sivananda~

Innocent Love

 

 

 

 

 

 

 

 

 

 

 

 

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