The last leg of BW businessworld Marketing Whitebook 2015-16's launch came to an end with the unveiling of the book in Mumbai on 30 July 2015. The discussions at the launch event saw participation from several industry leaders and stakeholders who presented their views on the theme ‘Connected Consumer’, and what #iammarketer meant in the communication and marketing business in India.The general consensus at the event was that even though marketers are gearing up for a future where advertising and transaction will converge, a lot more has to be achieved. The marketers investing in the new vision are waiting for a better tomorrow.(This story was published in BW | Businessworld Issue Dated 07-09-2015)
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Capabilities once seen only on unaffordable devices are making their way to budget phones, Mala Bhargava writes Recently when a reader told me she had Rs 30,000 to Rs 40,000 to spend on a phone and asked me to recommend one, I found myself more than a bit stumped. I couldn’t think of a strong reason to recommend one of the flagships, which would stretch her budget a little actually, over everything else that was available. And nor could I encourage her to pick up something in the price category she specified that would be really worthwhile. Where once I would have said — increase your budget a bit — I actually told her to consider a smartphone less than half the price. Not long ago, one could have been fairly certain of getting something special when paying a premium for a top-end smartphone. A great camera, a unique metallic design, an unbeatable stylus, stock Android, etc. But over the past year, both attractive design and sought-after specifications have crept down to budget phones. The Android phones around me right now, in fact, all have features and capabilities you would have had to pay through your nose for, a little over a year ago. The just-launched OnePlus 2 runs on the Snapdragon 810 processor and while that’s had some history of getting too hot, is still something you’d have seen first maybe on a Samsung flagship costing Rs 45,000 and above, not a Rs 24,000 device as it is now. A while ago, it was the USP of Sony top-end devices that they were waterproof. And now, the third gen Moto G, one of the most popular budget phones of recent times, can be submerged in three feet of water for half an hour. At one point, 2GB RAM on a smartphone was a big achievement that you had to pay for, but I have next to me the Zenfone 2 from Asus, a company we never really associated with smart phones until recently, and it has a 4GB RAM (more than my Rs 58,000 Samsung Note 4) as well as a rather nice stylised design at Rs 19,999. One of its variants has a pretty good camera, as does the Rs 9,999 Lenovo K3 Note and quite a few others. The cameras still don’t surpass the ones on the Samsung flagship, but it may not be long before we see that too. Both Apple and Samsung are being squeezed by Chinese and local players. Despite the Galaxy S6 being an excellent phone, it isn’t selling as well as it should and may see a price drop. Samsung’s profits have been plummeting for the past several quarters. But Samsung has said that its smartphone market share in India was over 40 per cent in June, up from 35 per cent in January. The claim was based on data from market research firm GfK. Samsung remains the world’s biggest smartphone maker but it is Apple that is raking in most of the rewards. All the same, even the mighty Apple can’t take continued dominance for granted — in China, Xiaomi has just unseated it to become the number one player there. There is also the idea being put forward that iPhone’s sales may take a hit in the near future because the droves who bought the iPhone 6 will not upgrade to the iPhone 6a as readily. This may give the budget players a window of opportunity to grab some more market share. An unfazed CEO Tim Cook is confident his company will retain its dominance. mala@businessworld.in,@malabhargava (This story was published in BW | Businessworld Issue Dated 07-09-2015)
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The big story that burnt the pages in every newspaper and the studios of every major TV channel last week was the debate on the banning of porn. The government of the day felt that this is bad for all of us, based on a PIL filed by an Indore-based lawyer, and decided to block 857 websites that were identified as defiling and corrupting Indian society (we were a pure and pious nation before these websites, of course). Fortunately, unlike in the case of other such protective decisions that they have taken on our behalf so far, the government quickly retracted the decision and limited the ban to websites indulging in child pornography. Of course, the ban had its very strong proponents. One amazing counter to the government’s reversal came from a panelist on a recent TV debate. She claimed that the label of child pornography should not necessarily be limited to content that uses children as actors. She felt that the definition must include the access that children get to adult content. There are interesting extensions to that logic if you think about it. So you will now have ‘child beer’ (along with chilled beer) and ‘child tobacco’, as new labels for the stuff that gets into the hands of children. I was left wondering why we don’t ban those war games that children play on their handheld devices. This should then prevent the potential proliferation of children growing up to be terrorists! The fact is that each of us can come up with tenuous cause and effect relationships for any number of activities that lead to adverse effects on children, society, the environment, peace between nations and whatever else. One US-returned academic quotes a clear link that she established between pornography and violence against women after having interviewed 300 people! It is understandable that as individuals with backgrounds and experiences each of us will have a view of what is acceptable. And so be it. The bigger issue in all this is with the state deciding what is good or bad for us. There is little evidence available to demonstrate that getting rid of anything is beneficial to society. Including deathrow inmates. Even before the Internet nailed the availability obstacle 20 years ago, it was fairly evident that most things that were officially banned would any way find their way through other access points, provided people really wanted them. Take alcohol. You put an official stop to it and the bootlegging industry takes over in full swing. So what is the mechanism that decides what I can and cannot do? Particularly within the confines of a private citizen’s private life? Shouldn’t it be decided by the freedom of choice of the individual? As much as I have the right to avoid restaurants that serve beef or exposure to adults copulating, my neighbour should have the right to indulge in both. And as much as my neighbour exercised the free choice of voting for the party that came to rule, I needn’t have. Isn’t that the mechanism which brings governments to power? This is ultimately what a free society is built on, if indeed that is what we define ourselves as (everyday we make free choices about what airline we should fly and which soap works best for our skin).And most well-governed free societies have enough checks and balances to ensure that the abuse of such choices are stringently blocked by law. We must keep in mind that democratically elected governments are the biggest beneficiaries of free choice. Why would they want to take away that right from the very people who exercised that freedom to bring them to power? The author is president and CKO, EQUiTOR Value Advisory (This story was published in BW | Businessworld Issue Dated 07-09-2015)
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Any tea is best consumed when it’s not brewed for long, writes Rachna Chhachhi Tea is the most potent anti-cancer weapon we have, when consumed right. Most of India was traditionally a tea drinking country (except the south), where weak tea cooled us in the summer months and strong kahwas warmed us in the cold. Today, as awareness of health benefits of different kinds of teas emerge, it isn’t cool just saying you drink ‘green’ tea for health benefits. So get your tea-q high with benefits of these different teas, and enjoy some adulation too. Jasmine tea: Native to China, jasmine tea is not necessarily green tea. The jasmine flower can be combined with any tea, white, green or black, to get the health benefits. Jasmine tea lowers cholesterol and reduces sugar spikes in blood. Dandelion root tea: Dandelion root is used in ‘alternative’ medicines for digestive and urinary tract health. It decreases inflammation in the urinary tract. It’s very effective for those with prostate and kidney issues, and if you want to have a strong prostate and healthy kidneys, this tea delivers. Licorice root tea: Our humble ‘mulethi’ or licorice root has long been used for soothing colds and coughs. What is lesser known is the immunity building and fertility enhancing properties of this root. It pacifies female hormones, leading to lowered PMS, and increases sperm count in men. Chamomile tea: This is one of the most useful teas for stressed out souls with an irritable bowl. Chamomile tea is made from the chamomile flower, and lowers blood pressure, calms the nerves and gives you good sleep. It also relieves bloating and indigestion. Green tea: Green tea is made from virgin leaves of the camellia sinensis shrub that have yet not undergone oxidation during processing. It can be consumed as is or combined with other herbs, flowers or roots, making it even more potent. Much has been written about the anti-cancer properties of green tea, but it’s still not enough. Unlike other products that claim the same, green tea has actually proven to kill cancer cells and promote growth of healthy cells in all experiments it has been part of. This is due to the presence of catechin, epigallocatechin gallate (EGCG), which is a cancer killer. All teas have cancer killer catechins, but green tea has it in the highest quantities, and black tea the lowest. Green tea is the staple of Japanese meals, where 70 per cent of Japanese men are smokers, but incidence of lung cancer is low. The best way to consume: Any tea is best consumed when it’s NOT brewed for long. Boil the water, put in the leaves, shut off the gas, cover the pan for 1-2 minutes, pour and sip for best health benefits. Add honey for taste. Go enjoy the rains now with a hot cup-ah. Question Of The FortnightSend in your questions to askrachnachhachhi@gmail.com Every time I try losing weight, I get an injury and the weight loss regimen goes for a toss. I’m obese and cannot lose weight without combining exercise with diet. What should I do?— Amit Sharma, Gurgaon Dear Amit,Effective long-term weight loss is impossible without exercise. But if you cannot exercise, focus on changing the way you eat to get disease free. The first goal is to be free from high cholesterol, diabetes and hypertension. This is possible just by changing to high raw, low carbohydrate diet. Do gentle yoga and relaxing pranayamas to release stress, which can inhibit weight loss. And don’t eat after 7 p.m. All three when done together will make you lose weight and get healthier. The author is a certified nutritional therapist and WHO certified in nutrition. She is the writer of Restore, a book on how to fight diseases for working professionals. Order your copy from amazon.in (This story was published in BW | Businessworld Issue Dated 07-09-2015)
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Ultimately, it boils down to defining what is unacceptable, and then aggressively attacking it. Perhaps the solution is to set up a body that actively looks for and flags such conten, Abraham C. Mathews writes If you ever thought that policy-making was a minefield in India, check with Kamlesh Vaswani, lawyer and anti-porn crusader. By one account, this is how the porn ban in early August played out: Vaswani, who has been arguing in the Supreme Court for porn sites to be blocked, gave a list of 857 sites that he considered objectionable to Additional Solicitor General Pinky Anand, who represented the Indian government at the hearing. Anand sent the list ‘for appropriate action’ to the Department of Telecommunications. The Department forwarded it to Internet Service Providers (ISPs) such as BSNL and Vodafone for disablement under Section 79(3) of the Information Technology Act. (The order, now leaked, ends with “The contents of this letter may be kindly kept confidential.”) Section 79(3) merely takes away the immunity enjoyed by so-called intermediaries. So if a crime that involves any of these 857 sites is committed, and the victim sues the ISP, it becomes automatically liable. Naturally, that is too much of a risk to take. So off went the 857, and before they realised it, thousands Indians were deprived of their porn fix, albeit temporarily (two days later, the Government wrote to the ISPs saying they could unblock any site not containing child porn). Perhaps the only way to block the sites was surreptitiously, because the moment one so much as looks in that direction, one is attacked by a flock of questions, with the Constitution for wings and civil liberties for feathers. Sample these: does the Government get to tell you what you should or shouldn’t watch? Can it realistically control the Internet in the age of proxy servers? Where to draw the line between what is permissible and what is not? On whom can one pin the blame? The simple answer to the question of whether the government can decide what we should watch is no. In two cases seeking to ban pornography, in 2009 and 2010, the high courts of Bombay and Madras reiterated that as a “guardian of free speech, a Constitutional court should not embark on an exercise to direct State authorities to monitor websites”. But both high courts also noted that if there is a specific complaint about a violation, the government shall act on it. Pranesh Prakash, Policy Director at the Centre for Internet and Security (CIS), a Bangalore-based Internet advocacy group, is a fan of that approach. “We have laws in our country that make certain kinds of porn illegal,” he says, referring to child pornography. Even seeking that, or any other non-consensual porn, is an offence. “What the government needs to do is aggressively pursue criminal prosecution against violators, rather than blocking all pornographic sites,” opines Prakash. Good Porn Bad PornCertainly, some porn is created consensually and distributed willingly. It falls squarely under the definition of free speech, and is thus protected, particularly if it is viewed in private. But how does one differentiate between porn that is consensual and willingly uploaded, and porn that is not (for example, a hotel secretly filming a couple)? After all, the actor is anonymous to the viewer, and may not even be aware of the breach of his or her privacy. Sadly, the law has no answer. But is the solution then to ban porn in toto? Once you ban something saying its presence is deleterious to society, that argument quickly becomes the bedrock on which anything that ever annoyed anybody is banned. The principle of ‘art for art’s sake’ has been acknowledged time and again. The question has often been raised whether it also includes ‘dirt for dirt’s sake’. Abhorrent as it may sound, the Constitution guarantees it, as long as it does not conflict with morality, decency (implied, in public) or public order. Vaswani’s petition argues that pornography affects “peace of mind, health and wellness, happiness and human potential”. But even if one buys that argument, can the Government legislate to keep people healthy, wealthy and wise? What about severe misogyny in mainstream films? Does it fuel sexual aggression? Would violence in films be the next to go (and one could argue that it must)? So we are limited to fixing responsibility for violations when they are reported or otherwise found. The uploader and creator of the pornographic content are obvious culprits. But can the website where the information was posted be sued? If you are the owner, can you be personally held liable? What about search engines which enable people to access such content? What is the role of ISPs? Prakash says it is unfair to target ISPs, since they can’t really do much except block. (Remember, the basic argument for net neutrality was that service providers should be ‘hollow pipes’ and no more — they should have no qualitative say with regard to the data they transmit.) However, he says, search engines are in a position to block certain types of porn, such as that involving children. He gives the example of a CIS experiment which attempted to place an ad for sex selection kits (advertising related to abortion based on the sex of the foetus is banned in India). The attempt was thwarted by search engines. Also, searches for sex selection kits yielded no results from India, he says. He suggests that search engines be similarly deployed in the war against undesirable porn. Websites and their senior officials have been considered liable before. Perhaps the most notable case was that of eBay subsidiary Bazee.com. In 2004, an IIT student posted a sex video of two minors for auction on the portal. During the day that it remained available, at least eight people bought the clip. Not only was the uploader arrested, but so was Avnish Bajaj, the portal’s Managing Director at the time. The Delhi High Court refused to intervene, saying the Information Technology Act “recognises the deemed criminal liability of the directors even when the company is not arraigned as an accused”. It added that the company could also be held liable. More recently, police registered an FIR against Snapdeal CEO Kunal Bahl after a complaint that prescription drugs were being illegally sold through the website. Ultimately, it boils down to defining what is unacceptable, and then aggressively attacking it. Perhaps the solution is to set up a body that actively looks for and flags such content. For example, the Internet Watch Foundation in the UK, which describes itself as an independent self-regulatory body set up by the UK Internet industry, actively seeks out and reports pornography involving children (it discourages the use of the phrase ‘child porn’, preferring ‘child sexual abuse images’). In the US, the law itself recognises the industry. In late July, a Manhattan Appeals Court in New York tossed out 15-year-old rules that sought to restrict the adult industry in the city as unconstitutional. One could well ask whether Indian attempts to uproot pornography are jingoistic. In 1964, the Supreme Court held Ranjit Udeshi, a bookseller in Bombay (as it was then called), guilty of selling D.H. Lawrence’s book, Lady Chatterley’s Lover (first published in 1928). Udeshi probably did not even know the contents of the book. In the past 50-odd years, however, Indian courts have been more steadfast in their defence of speech and expression, and the right to receive ideas. That is just as well. After all, you don’t close down schools to stop student suicides. For example, in a case relating to the late M.F. Husain, the court ruled in favour of his painting, saying that “the work as a whole must be considered, the obscene matter must be considered by itself and separately to find out whether it is so gross and its obscenity so decided that it is likely to deprave and corrupt those whose minds are open to influences of this sort.” (This story was published in BW | Businessworld Issue Dated 07-09-2015)
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The crop estimates show that barring sugarcane everything else recorded a decline in production in 2014-15 as compared to 2013-14. Sandeep Bamzai analyses India's long brewing agrarian crisisAs expected, India's farm output is down. A double whammy of a deficit monsoon last year which impacted the 2014 Kharif crop and unseasonal rains and hailstorms in February-March this year which damaged the standing Rabi crops in as many as 14 states means that we will be short by 12.36 million tonnes in 2014-15 crop year (July-June) as compared to the previous year when India reported its highest ever food-grain production of 265.04 million tonnes. The crop estimates show that barring sugarcane everything else recorded a decline in production in 2014-15 as compared to 2013-14. Last year India recorded a 12 per cent deficit of Monsoon rainfall, making the year 2014 technically a drought year. This year too, it appears that India will have a deficit of 10 per cent or more during the Monsoon season (June-September). Which translates into two successive years of what is technically a drought amd this is obviously a travesty in a nation already grappling with malnutrition and poverty. Sandeep BamzaiGrowth rate of land under sowing is abysmal which in any case may cause lower production. Indian agriculture’s fundamentals haven’t changed one bit in almost 40 years. While crop switching has resulted in the prevalence of more cash crops being sown, the total net sown area hasn’t grown at all. Proportionately, mouths to feed has gone up manifold. And therein lies the rub for India. Net sown area in 1970 was 140 million hectares which has gone up to 142 million hectares in 2009. Meanwhile, the population has doubled during the same period, from 54.82 crore in 1970 to 116 crore in 2009. Even if one goes back in time, the compounded annual growth rate since 1950 in terms of net sown area (119 million hectares) is a meagre 0.35 per cent while since 2000 it is a paltry 0.08 per cent. When we talk of structural reform in the Indian economy, we don’t pay adequate heed to the daily mass migration of unskilled labour from rural Bharat to creaking under the strain urban agglomerates in India. Perhaps that is why there is no accretion in net sown area over a 40 year period and the contribution of agriculture as a percentage to GDP has dwindled rapidly. The depletion is worrisome because we have not built on our competencies. Imagine agriculture’s contribution was 49 per cent to the GDP basket in 1950, had taken a hair cut by 1970 to 41 per cent and is now closer to 15 per cent. Now, all these people are migrating to the cities and towns putting pressure on the civic infrastructure. Worse still, they are unskilled or low skilled and they don’t add any value to the economy after migration.This is the scariest part for if India wants to become a manufacturing hub to the rest of the world, then it needs to scale up its manufacturing output and give genuine employment opportunities to the nearly 12 million people who are coming off the education assembly line every year. As per 4th Advance Estimates for 2014-15, total production of rice is estimated at 104.80 MT which is lower by 1.85 MT than the last year's record production of 106.65 MT. Production of wheat, estimated at 88.94 MT, is lower by 6.91 MT than the record production of 95.85 million tonnes achieved during 2013-14. Total production of Coarse Cereals, estimated at 41.75 million tonnes, is also lower by 1.54 million tonnes than their production during 2013-14. Similarly, production of pulses estimated at 17.20 MT is lower by 2.05 MT than their production during the last year (2013-14). With a decrease of 6.07 million tonnes over the last year, total production of oilseeds in the country is estimated at 26.68 MT. Production of sugarcane, estimated at 359.33 MT, is however higher by 7.19 MT as compared to last year. Total production of cotton estimated at 35.48 million bales (of 170 kg each) is marginally lower than last year but higher by 3.01 million bales than the average production of last five years. India's long brewing agrarian crisis and resultant mass migration is a conundrum that cannot be resolved overnight with slogans, dovetailing human resources involved in say a MGNREGA towards building capital assets of some kind was one option. So, use the welfare economics model of giving dole but combine it with the MGNREGA budget and divert it into building roads and highways. Optimally utilise the resources at your disposal in the interim before manufacturing hubs can be architected. In any case building roads and highways will only help improve connectivity and work towards the betterment of Bharat and movement of farm of agriculture items. The only option is yield improvement to feed the growing population. But as we have not bothered to deal with supply side interventions, this too hasn’t materialised. Indian policy mavens are still to realise the enormity of the agrarian crisis coupled with the mass migration. With the second green revolution not having worked out, interestingly, states like Madhya Pradesh, Gujarat and even West Bengal have stepped up to the plate in terms of revolutionising agriculture in their respective areas, but India needs to collectively focus on Bharat and its kisan. MP is now the new wheat bowl producing premium 'sharbati atta' with the finest attributes in taste and quality. ICAR says that studies indicate a probability of 10-40 per cent loss in crop production in India and other countries of South Asia with increases in temperature by 2080-2100 and decrease in irrigation water. India could lose four to five million tonnes wheat production with every rise of 10 C temperature throughout the growing period even after considering carbon fertilization. So, even as we pitch India to transform itself as a global manufacturing hub, let us not ignore the humble farmer who ensures that food is put on our table.
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A lot is being said about the slowdown of economy in Rural India. Over the past decade, rural consumption was growing 1.5 times of urban growth rate and was a significant driver of the India story. This economy is believed to be in a flux given the uncertain monsoons and the slowdown of government inputs like MNREGA. This is expected to significantly hurt the growth rates across durables and FMCG categories. While there is a lot of truth to these views, there have been many fundamental shifts in the rural consumption economy that will mitigate the doomsday drivers especially for the non durables categories. Hemant RupaniFor starters the rural consumer has changed forever. Rural India today seeks more choices than it has ever done before. Mobile data usage and the inroads by ecommerce companies in hinterlands are a testimony to that. FMCGs too find Rural India taking to a wider range of products. A fair degree of upgradation to larger (albeit not large) packs has been evident across the length & breadth of the country. Most visible example of this is in the soft drinks industry where one finds larger PET bottles rubbing shoulders with the traditional glass bottles. The erstwhile slow growing and more rural states of Bihar, MP, Chhattisgarh and Jharkhand are reporting an accelerated growth trajectory. Relative premiumization is another wave being sensed by the FMCG industry in rural India. This may not fuel volume growths but it certainly enables a favourable product mix. In the biscuits category the rural consumer is moving from age old Glucose to Cookies & Creams categories. While the play remains limited to the mid & value range of these categories, it offers a large opportunity for improving realizations and driving revenue & margin growths. This would also set the stage for the consumer to experiment with newer formats & tastes in the coming years. Likewise in the soaps and detergents categories the movement from low end bathing bars to toilet soaps (higher fat content) is here to stay. These are here and now opportunities and will become very significant over the next 2-3 years. Rural India warrants the additional burden of ensuring accessibility of products for organizations that desire scale play. Distribution is the key and will remain the treasure trove for a long time. Traditionally these markets have been serviced through the wholesale route which limits the ability to engage and influence the consumers. Low scale and high costs of direct distribution limit investments in what is the most critical driver of growths. Organizations that manage to break this mould will reap significant benefits. They will be required to tide over the high costs of transition and risk the alienation of the wholesale community. Organized Cash & Carry formats help build a bridge, by allowing visibility to buying behaviour of their members. But this channel has to be carefully ridden to avoid channel conflicts on mass brands & SKUs. In a downturn there is always the temptation to fuel demand (questionably) through accelerated discounts to trade (especially wholesale) & freebies to consumers. This buying of business, in the current cycle, is also supported by a favourable commodity price regime. This does help generate some new trials but may not lead to much stickiness over time. A lot of the wholesale discounting never reaches the consumer. Competitive pressures lead to mimicking of this behaviour across players thereby resetting the margin tables for the industry. The reversals never happen in better times. The beverage industry is a great example of this phenomenon. The discount levels and the ensuing leakages make a very appealing case of tightening the belt there and offering greater value to the consumer. Yet given how eyeballs remain locked with the competitor, there is the morbid fear of who blinks first. The soft commodity prices today favour a profligate behaviour. In a few quarters when input costs rise again, it would become necessary to withdraw the value adds. The retail demand would then see the dual shock of overall inflation & category specific reduced value and will sustain the cycle of muted growths. The worrisome aspect of the rural economy is not as much the slowdown today, but more the impact of the actions taken to battle this slowdown. The author, Hemant Rupani, is VP Sales, Britannia Industries Limited
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Indian regulations on financial reporting are being aligned to international practices and the introduction of Internal Financial Controls (IFC) in the Companies Act 2013 is reflective of this trend. The trend underscores two important evolutions in globalised business; Governance and Technology. As technology adoption in businesses is growing rapidly, businesses have to rely on controls more and more while boards have to ensure that a robust control environment is designed and deployed to achieve business objectives. To this effect, the Companies Act, 2013 has imposed specific responsibilities on the Board of Directors towards the company's internal financial controls and requires the board to state that they have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. While similar reporting requirements have existed elsewhere in the world (in US it's the Section 404 under Sarbanes Oxley Act, the Turnbull Guidance on Internal Control with the London Stock Exchange for listed companies and Japan's Financial Instruments and Exchange Law (J-SOX) are similar rules for public companies), in India there was no such requirement until the new act came into force. As part of Internal Financial Controls, Indian public and private companies are expected to establish frameworks that provide assurances about the soundness of governance and internal controls, elaborated as follows -For listed companies, the management would have to identify and document financial and non-financial controls (referred to in the act as policies and procedures for orderly and efficient conduct of business), assure the boards of the adequacy of such controls and also demonstrate results of testing operating effectiveness of such controls.For unlisted companies, the Directors' Report for FY 2014-15 would have to disclose adequacy of controls related to financial statements.Annual reports for the year FY 14-15 will be required to have Director Responsibility Statement carrying disclosure on what steps companies have taken to implement Internal Financial Controls.Additionally, for both listed and private companies, it is mandated that from FY 2015-16, statutory auditors would be expected to make opine on operating effectiveness of controls related to financial reporting.As with many other important provisions of the new Act, Internal financial control has been made a board and individual director's responsibility. This means enhanced level of engagement and scrutiny by the board and directors into IFC framework of a company and whether such frameworks are "adequate" and "effective". Currently, many companies are assessing the impact these new requirements will have on the operations and processes of the company, including the financial reporting process.Role of Board of DirectorsOne of the significant implications of the new Companies Act, 2013, is the reporting responsibilities of the director and auditors with regard to internal financial controls. Consequent to the formal responsibility introduced under the 2013 Act, the role of the Board and the Audit Committee in the oversight of internal control has become increasingly critical. In case of listed companies, the directors are expected to play an important role in establishing the control environment, including clarity of expectations regarding integrity and ethics and adherence to codes of conduct and creating clear accountability for performance of internal control responsibilities. The board's assessment of the risk of management overrides internal control and to that effect, some of the other responsibilities for the board of directors include establishing open lines of communication between management and the board, as well as providing separate lines of communication such as whistle blower hotlines. The need for boards to perform this self-evaluation and that of the committees and individual directors and ensure maintenance of appropriate skills and expertise is a critical success factor in meeting the new requirement of the 2013 Act.Role of Audit CommitteesAudit committees are expected to place a stronger emphasis than before on internal financial controls and risk management. In context of the act, the expectations of the audit committee's role have expanded due to enhanced company and external auditor reporting requirements, along with an increased focus on compliance by regulators. It may also be advisable to seek results on the effectiveness of IFC on a real time basis while also understanding how management addresses the risks highlighted by test of internal controls. The act also necessitates for statutory auditors to assert whether the company has adequate internal financial controls in place and the operating effectiveness of such controls. To this effect, the audit committee will need to view their controls framework from an auditability standpoint with requisite documentation to the satisfaction of external auditors.Treating IFC as a bridge to excellence in governanceMany enterprises today have siloed approaches to compliance and controls with sporadic documentation. Towards this end, by placing more accountability and responsibility on the Board and Audit Committee with respect to internal financial controls, the 2013 Act is attempting to align the corporate governance and financial reporting standards with global gold standards. Establishing the right internal controls provides greater assurance that a corporation will achieve its operating, financial reporting and compliance objectives and making governance more robust and wholesome.It is critical therefore that businesses approach Internal financial controls as an opportunity to improve overall business performance through bringing excellence models, structured policies & procedures, technology enablement and not consider it as mere compliance served to 'tick in the box'. Apart from the obvious solutions of improving control environment, Internal Financial Controls can enhance shareholder and investor confidence in the longer term. Companies can use this opportunity to internally promote a culture of compliance and integrity among employees. Compliance for the sake of compliance, has less appeal than if residual or other long term benefits can't be derived from compliance efforts. Enterprises need to recalibrate on how to take advantage of the effort that will undoubtedly be expended towards enhancing their Internal Financial Controls; to achieve more deep rooted benefits of improving their operating effectiveness, adopting leading technologies to enable better efficiencies and thereby creating a future ready business.The author is, Sachin Paranjape, Senior Director at Deloitte in India
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