India Inc. might have something to cheer about on the forex front. The National Advisory Committee on Accounting Standards (NACAS), whose accounting policies are followed by the Indian industry, has favoured suspending for two years, the Accounting Standard 11 (AS-11) that requires firms to mark-to-market foreign exchange assets and liabilities. The last two years had seen very volatile movements in the foreign exchange rates which had severe repercussions on the profitability of companies. In the last year especially, the sharp depreciation of the rupee against the dollar compelled many companies to report losses in their profit and loss accounts, thereby denting net profits. The purpose of AS-11 was to account for forex gains or losses under normal business conditions, but because of the sharp fluctuations in currency movements and the unpredictability of the same, it has been contended to suspend this standard for the time being. Thus, corporates will be able to report higher profits, which also means that the government will be able to collect higher taxes. If this proposal does go through, those companies largely relying on exports and those with foreign loans on their books will stand to benefit immensely from the same.
It is important to look at the holistic picture and have an individual opinion rather than get swayed away by the public consensus. This is the view of the man who pioneered the retailing boom in India - Mr. Kishore Biyani, the founder of India’s largest retailing company - Pantaloon. In an article in the Wall street Journal, Mr. Biyani wrote, "Almost daily doses of bad news on television screens and newspapers have possibly done as much damage to the economy as the events on either side of the Atlantic." I completely agree with him. Mr. Biyani’s predicament is based on the fact that an overwhelming majority of Indian consumers are self-employed, who can neither get laid off nor can have pay cuts. Consider some statistics he has provided. The share of the national income represented by proprietor-run concerns and partnerships is 35%. The share of companies is around 15%, government around 25%, and agriculture around 25%. Combine agriculture and the self-employed in industry a...
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