For the last three decades, India's economy has been marked as one of the fastest growing economies in the world. Its fast economy growth has made it an attractive investment destination in the world. With the introduction of foreign direct investment (FDI) in several sectors, India has become an eye-catching destination for overseas investors (Perumpral, Evans, Agarwal, & Amenkhienan, 2009).
India’s Transaction Exposure
Most business activities carried out by companies and financial institutions depend on natural capital. Natural capital comprises of resources such as timber, minerals and land, stable climate, fresh water and clean air. India has been marked as one of the fastest growing economies in the world. It is mostly helped by its abundant natural capital.
Delegate your assignment to our experts and they will do the rest.
Indian banks and investors face a lot of financial risks due to the loans and investments they provide to businesses with natural capital impacts. Due to stricter environmental regulations, compliance costs have increased. This is from droughts and resource shortages which disrupt production and supply chains; and from reputational damage and changing consumer preferences which reduce company revenues (Bajpai, 1995).
India's Translation exposure approach
Translation Exposure is commonly known as Accounting Exposure. Translation exposure arises from financial statements of foreign affiliates which are stated in a foreign currency which must be restated in the parent company's reporting currency to prepare consolidated financial statements . The Institute of Chartered Accountants of India is in charge of regulating the accounting standards and principles. According to Accounting Standards No. 11, any transaction in foreign currency must be recorded in the reporting currency and the foreign currency (Perumpral, Evans, Agarwal, & Amenkhienan, 2009). This is done by applying to the foreign currency at the date of the transaction. Monetary items should be reported on closing rate while non-monetary items at the exchange rates at the time of the operation. The exchange difference should be recognized as income or expense in the period in which they arise (Perumpral, Evans, Agarwal, & Amenkhienan, 2009).
Risk elements to India’s economy in regards to recent events
Demonetization has led to mixed success. Last year, Prime Minister Modi declared that India's highest-denomination banknotes account for 86% of cash. This has proven to have long-term benefits as it has increased the number of digital transactions being conducted within India's economy, making it easier to track and to tax (Shephard, 2017). The government has conducted a few economic reforms. This includes the passage of the GST multiple tax rates. This change does enough to keep the financial momentum going.
Noisy democracy has greatly brought risks to the India economy. The Indian government blames the euro crisis for contributing to the slowdown, but the current mess is largely self-inflicted. Corruption severely affects India's economy. The increasing rate of corruption scandals since the late 2000s have damaged the government's integrity. It has therefore caused a significant loss in tax revenues, led to social unrest and widened income inequality (Gilmartin, 2009). The World Economic Forum’s Global Competitiveness Report shows that India’s executives consider corruption to be the most problematic factor they face in the country's economy. Corruption has been a significant risk in India's economy.
References
Bajpai, A. D. (1995). Emerging trends in Indian economy: papers in honour of Prof. Daya Shankar Nag. New Delhi: Atlantic.
Gilmartin, D. (2009). Empire, Identity, and India: Peasants, Political Economy and Law. Chicago: The Historian.
Pekkanen, S. M., Ravenhill, J., & Foot, R. (2014). Oxford handbook of the international relations of Asia. Oxford: Oxford University Press.
Perumpral, S. E., Evans, M., Agarwal, S., & Amenkhienan, F. (2009). The evolution of Indian accounting standards: Its history and current status with regard to International Financial Reporting Standards. Advances in Accounting, 25(1) , 106-111.
Shephard, W. (2017). How India Is Surviving Post-Demonetization . Retrieved from Forbes: https://www.forbes.com/sites/wadeshepard/2017/07/29/how-india-is-surviving-post-demonetization/#50cf66221164
