Users and Uses of Financial Information
February 21, 2012 | 
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In every financial accounting textbook, the authors explain in detail about “Users and Uses of Financial Accounting.” Information such as cash flow statements, income statements, and balance sheets are important documents that are kept to ensure that the company is recording everything correctly. The users of this accounting information are divided into two categories, internal and external users.
The internal users of accounting information are the managers who organize, operate and plan daily business routine. They are directly affiliated with the company and use managerial accounting, which includes in-depth reports used to determine financial strengths and weaknesses. For example, internal users would include management, finance, marketing, and human resources. An example of a human resource manager would be that he or she has to ensure the rights of their employees by using wage information along with other data. Important questions arise with internal users. A question for a marketing manager would include, “What price for an Apple I Pad will maximize the company’s net income?”
External users are groups of individuals that are outside organizations, and they use accounting to make financial decisions. An example of an external user would include a creditor, who uses accounting to evaluate the risks of granting credit. Taxing authorities, investors, and customers are also external users. External users would receive limited financial information from a company such as financial statements. These statements are the backbone of financial accounting and they give the external users enough information to inform them of the company’s economic position. Assets, liabilities, revenues, and expenses are of great importance to users of accounting information. For business purposes, it is customary to arrange this information in the format of four different financial statements; balance sheet, income statement, retained earnings statement, and statement of cash flows.
The purpose of the income statement is to report the success or failure of the company’s operations for a period of time. The income statement lists the company’s revenues followed by it expenses. A key point to recall when preparing an income statement is that amounts received from issuing stock are not revenues, and amounts paid out as dividends are not expenses. Therefore they are not reported on the income statement. Retained earnings statement shows the amounts and causes of changes in retained earnings during the period. The time period is equivalent to the time covered on the income statement. Financial statement users can evaluate dividend payment practices by monitoring the retained earnings statement. Some investors seek companies that have a history of paying high dividends, while others seek companies that reinvest earnings to increase the company’s growth.
The balance sheet is based on this equation: Assets = Liabilities + Stockholders Equity. This equation is referred to as the basis accounting equation. The balance sheet reports the company’s assets, liabilities and owners equity. It is a financial window to the company at a specific point in time. Claims are divided into two categories: claims of creditors, which are called liabilities and claims of owners, which are called stockholders equity. On the balance sheet it lists the company’s financial position as of a specific date in this order: assets first, then liabilities and stockholder’s equity. A note to self about stockholders equity is that it is composed of common stock and retained earnings. Finally there is the statement on cash flows. The purpose of the statement of cash flows is to provide financial information about the cash receipts and cash payments of a business for a specific period of time. Users are interested in the statement of cash flows because they want to get a better understanding of what is happening to a company’s most important resource. The statements of cash flows answer these following questions: 1) Where did cash come from during the period? 2) How was the cash used during the period? 3) What was the change in the cash balance during the period? The statement of cash flows also organizes and reports the cash generated used in the following activities: financing, investing, and operating. All businesses are involved with these three types of activities.
Financing activities is described as taking money to make money. The two sources of outside funds for corporations are borrowing money and selling shares of stock in exchange for cash. Investing activities involve the purchase of the resources company’s need in order to operate such as sale of long-term investments, property, plant, and equipment. Finally there is operating activities. Once a business has the assets it needs to get started it can begin its operations. Operating activities convert the items reported on the income statement to cash.
In conclusion, the users of financial statements are people who use financial documents for a large variety of business purposes and their ability to make decisions using these statements helps them to succeed in the business world. Students have a chance to succeed in business if they have the knowledge of professionals who use financial statement analysis techniques and tools used on a day-to-day basis.
Rollover And Expiration Days For Futures E-Mini Contracts
It just happened that September 1st, 2006, was a Friday. (And for those interested in historical trivia, September 1st, 1939, the day WWII started, was also a Friday.) Why am I talking about it? Because September is a rollover month for many futures contracts, including very popular stock index e-minis and whenever a rollover month starts on a Friday, a rollover day is on the first Thursday and not on the second one as is usually the case. I thought that pointing this out merits some attention.
Here are some other facts about the rollover and expiration days. The latter is always on the third Friday of a rollover month. For the instruments we are most interested in, that is e-minis of the futures contracts traded on the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), the months in question are: March, June, September, and December. There is a single contract letter associated with each month and, in the same order, it is: H, M, U, and Z.
When we switched to the September 2006 contract on the rollover day, which happened to be on September 7th, we switched to trading the U contract. The rollover day is the day most traders start trading the new contract, which also means that the trading volume shifts from the old contract to the new one. That does not mean that you have to switch to trading the new contract on that particular day as you can still trade the old one until the expiration day, but doing so on the rollover day makes a lot of sense. Otherwise, the longer you stay with the old contract the more your trading is going to be affected by the volume which is getting poorer and poorer the closer we are to the contract expiration.
Interestingly enough, December 1st 2006 also fell on a Friday and so again the rollover day was on the first Thursday of the month and not on the second one. You can easily check it using any online calendar. While this might look like a coincidence, it actually is not. There are some deeper reasons why this is so and can happen only to these two contract months. What this means, in particular, is that even if a March rollover day happened to be on the month’s first Thursday, the next rollover would never be on the first Thursday in June. The same is true for the June-September sequence. In fact, using the calendar, we find out that June 1st, 2007 falls on a Friday and thus the month’s rollover day will be on the first Thursday of June. However, the next rollover day is on the second Thursday in September 2007.
You can learn why this is so from a very interesting Wikipedia article. Just visit this site and find out what it has to offer on “corresponding months.” That will explain this regularity.
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Tags: Contracts, EMini, Expiration, Futures, Rollover | 
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Money Investments
Money investments can be made in the foreign exchange market, stock market, or futures trading market. The foreign exchange or “Forex” market was not accessible to the average investor in the past, but of late, it has become a popular option for investment. Stock market deals with a combination of government and company bonds as well as preferred and common stocks from various business establishments and other forms of securities and assets. Futures trading market comprises of financial arrangements where an undertaking is signed by a seller to provide a commodity or any other pre-decided asset on a pre-determined date to the buyer.
With the help of technology, everyone can derive the benefit of the low risk, high return foreign currency exchange market. For beginners, many online websites of Forex brokers offer demo or trial accounts that help the investors practice their trading skills. These accounts also help increase the understanding of working of the real time Forex market.
For investment in the stock market, investors have to create their portfolios that are a collection of investment securities owned by an institution or an individual. This practice of creating or holding a portfolio is a part of an investment and risk-limiting strategy, which is known as diversification. It means that by acquiring varied types of assets, certain risks can be reduced. A portfolio can comprise of stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is likely to maintain its worth.
Futures trading involves a buyer and a seller, in which the seller is required to provide the agreed upon commodity at a fixed price to the buyer at the time specified on the futures contract. The profits or losses incurred are determined by the contract’s price changes that are in relation to the price that are fixed at the beginning of the contract.
In all types of money investments, trading strategies make a lot of difference, for which traders must understand the trends of the market.
The Relationship of Inflation to Interest Rates
Why ever do interest rates exist? Who in the world invented such a torturous tool that makes your initial loan more expensive than it really was? After all, aren’t we borrowing money for the simple fact that we are short of it? Heck, such opportunism really can buy you an express ticket to the netherworld.
But are interest rates really the work of the devil as some people say? Before we come to understand interest rates, we must first understand the factors that affect it. One of these factors is “inflation”.
Inflation can be described as the power of your one dollar to purchase items. It is related to the Consumer Price Index or CPI. Now the CPI measures the percentage increase of basic commodities through a pegged year. The pegged year is normally a year in which the economy for that country performed exceptionally well. Now the list of these commodities is entirely at the discretion of the nation’s economic managers. Why? Because the world is full of different cultures. Some cultures are heavy rice eaters, while others prefer corn. Some are heavy wheat consumers, while others aren’t. What is a basic commodity in your country may not necessarily mean that it applies to another.
Anyway, back to inflation. When prices increase, your dollar gets to buy less. Over time, prices tend to steadily increase. Hence, your one dollar today is not necessarily equivalent in value to your one dollar tomorrow. A case in point: if you could buy four comic books with your one dollar when you were younger, guess what, Batman? You can’t even buy one these days at that price. That is inflation.
So how is this related to interest rates? Investors, try to preserve the value of their money by investing in activities that have yields that are either equivalent or higher than the inflation rate. Let’s say that the local interest rate is pegged at 6.5%; the money that you earn, save and invest, should be able to at the very least, match that rate. Why, because at the end of the year, if your money stayed inside the piggy bank, its value would’ve been eroded by that rate. So if you save 100 dollars at the start of the year, at the end of the year its worth would’ve been shaved by $6.50 leaving your $100 worth only $93.5.
In developed economies, bank savings interest rates normally equal that of the inflation rate. If competition is fierce between banking institutions then you will get higher interest rates thus more yield for your money.
So who decides on the interest rate to be used? Normally, it is the central bank of the country. Bear in mind that the rate they will declare is not something that needs to be followed. It is a benchmark, thus anything below that level automatically is a losing proposition for your investment.
So to wrap up, inflation is one of the factors that affect interest rates. When inflation moves up or down, the tendency is to increase or decrease the benchmark interest rate as well.
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Why Gold Prices Fluctuate
Annual Gold Prices for the past 5 years show that in 2005 the gold price had the biggest annual dollar increase, with an increase of over $80. A chart of prices over the last 30 years looks like a roller coaster.
Exploration and development expenditures include all of the costs associated with manpower and activities such as geologists, contractors, engineering, drilling equipment, metallurgical testing and economic feasibility studies.
Gold mining requires the use of specialized facilities and technology. Gold prices can fluctuate widely and are affected by numerous factors beyond the Company’s control. Gold is measured in Troy ounces, which weigh 10 percent more than the ounces used for potatoes and feathers. It’s often found in rock that contains sulfides, which when exposed to oxygen, water, and specialized bacteria produce highly acidic water.
Gold’s attractive appearance and malleability mean that it can be enjoyed as jewelry or other ornamentation and yet is easily convertible into coin or bullion. Where the price is presented in currencies other than the US dollar, it is converted into the local currency unit using the foreign exchange rate closing price on the same day.
Gold prices have surged past the $500-an-ounce mark, and more gains are predicted as investors look to protect themselves against inflation fears. They historically rise when faith in paper currencies erodes, as investors seek the intrinsic value of gold to protect themselves from inflation. Gold has continued to show strength in Asian and European trading.
Like all prices, the gold price reflects not only the inherent value of gold, but also the relative strength of the currency in which it is quoted. Costs are allocated to a stockpile based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead, depreciation, depletion and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit. While gold is a more stable store of value than paper currencies, it still remains a market in which governments have a heavy presence. Thus, taking into account the ever-shrinking value of the dollar, the real price of gold has hardly changed in a century.
Since 1982, average annual gold prices have stayed between $300 and $450 per ounce. Record upside price potential remains firmly in the hands of investors, with average annual gold prices for 2007 on track to beat the 1981 record of $614.
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Countries Which Celebrate Christmas
Christmas is a Christian holiday that celebrates the birth of Jesus. This feast was created by the pope to promote Christianity and remove pagan festivals celebrated at the winter solstice.
During the 4th century, the pope decided to bring the Christmas day on December 25th.
This day has always been represented by religious ceremonies and gifts and greetings exchange.
Here are some Christmas symbols:
* The Advent consists of a burning candle each Sunday four weeks before December 24th; which symbolize the rebirth of light after the winter solstice.
* The December 24th Midnight Mass; which celebrates the birth of Jesus.
* The Christmas Crib; which symbolizes the birth of Jesus in Christian homes.
* The Christmas tree, a symbol from the pagan celebration and representing life.
* The Yule log; which represents the log that we put in the fireplace to warm up on December 24th Eve.
* Santa Claus, an American creation, inspired by the Christian Saint Nicholas (celebrated in Belgium, the Netherlands, Germany and Alsace). This character wears a luxurious red cape, he has a long white beard and wears a red miter, he also holds a golden crosier. Saint Nicholas rewards good children while his companion Pere Fouettard/Black Peter punishes nasty children) and the elf Yule Goat, celebrated in Scandinavian countries.
Over the centuries, Christmas has evolved and December 24th Eve with our family, replaced the religious ceremonies.
The gift exchange: luxurious for the rich people and useful – sometimes only one orange – for the poor people, has been replaced by the modern marketing. People not only buys gifts but also spend lots of money in decoration items, food, drink…
The secularization of our society removed the true meaning of Christmas Time; which is, obviously, becoming a pagan feast.
Here are some countries which celebrate Christmas:
Belgium:
We have a festival especially dedicated to children; which is Saint Nicholas (Sinter Klaas) on December 6th. The Great Patron of Schoolboys, who is supposed to bring candies in their shoes, brings in fact toys by the thousands to our children.
In Belgium, Noël is rather reserved for adults: the streets are decorated and illuminated, we decorate our houses, windows, gardens, trees. Belgium seems to forget that it is a Catholic country and closes more and more churches, therefore, the Midnight Mass on December 24th usually happens at 6 or 8 PM. We then eat with our family and at 12 PM we exchange our gifts. Children usually receive a book or some clothes.
Christmas Day has little meaning but practicing Catholic go to church. Belgian people visit their family on January 1st. In the Belgian Ardens, people celebrate December 31st.
France:
Noël is dedicated to children. The streets and the houses are decorated several weeks in advance. French people have lots of Christmas customs: Christmas Markets, tree, the Christmas Dinner, Pere Noel, gifts, stories, songs, turkey, The Christmas Crib, the Yule Log, and so on. In Alsace, however, Saint Nicholas predominates on Santa Claus.
The Netherlands:
They organize their St. Nicholas (Sinter Klaas) festival: the old bearded man traveling by boat and accompanied by many black aids, who distributes gifts to good children. Dutch people reserve the big gifts for Kerstmis Time because they profit for some great bargains after Sinter Klaas.
Germany:
Weinhachten in Germany lasts two days. On December 26th they visit their family and their friends. Christ-Kind offers gifts to the children on December 24th families and friends. Germany has also a Saint Nicholas festival on December 6th.
Great Britain:
This holiday is celebrated in England with enthusiasm. Children sing “Carols” in the streets, they eat the famous “Xmas Pudding” at the end their family dinner on December 25th. In England, Santa Claus fills the English children socks with gifts. British people also exchange greeting cards; which are a British creation.
Spain:
If Santa Claus has little importance in Spain (Magi distribute gifts to children on January 6th), Spanish people decorate the streets with lights during the month of December. The windows of the shops are filled with lots of gifts and Spanish celebrate the Navidad Evening with their family.
Portugal:
Natal Eve is a holiday. The Portuguese attend the Midnight Mass; which is the “Missa Do Galo”. If there is no Christmas tree in Portugal, there is nevertheless a “Wooden Natal”.
Italy:
Natale lasts three days, from December 24th till 26th. However, Natale traditions vary from one region to another one and, depending on the region it is Babo Natale (Father Christmas) or the “Gesu Bambino” (Little Jesus) who brings gifts on December 25th. The Italian Christmas dessert is “Panettone”.
Scandinavian Countries:
During the Christmas Dinner, Scandinavian people reserve a place for the souls of the deceased members of their family. Once they finish to eat, they read the bible. The whole family is singing Christmas songs and dance around the Christmas tree.
Other European countries:
In Romania, on December 24th, there is a Christmas candle burning until the morning of December 25th. In Russia, Christmas Day happens on January 7th, according to the Orthodox calendar. In Greece the Christmas period begins on Christmas Eve and ends at the Epiphany. Christmas is less important than Easter.
USA:
The Saturday after Thanksgiving, Santa Claus is coming to announce the beginning of the Christmas shopping season. American people love to celebrate Christmas and set up a decorated Christmas in their home. Children hang empty stocks empty on the fireplace and on the Christmas morning they find them filled with candy and small toys.
Canada:
Houses, shops and streets are decorated with lights. Canadian people decorate their house with a Christmas tree, a Christmas wrap, a Christmas Crib… After the “Midnight Mass” people have a Christmas Eve with their family. Turkey and the Christmas log are the essential ingredients of a Canadian Christmas Dinner. They send greeting cards to their friends and family who live far away.
South America:
Peruvian people have Christmas parties but also learn to live better on christmas time. Their Christmas season lasts a full week. Mexican people celebrate Christmas with Las Posadas (pilgrimages representing the path by the Mary and Joseph). They celebrate the last Posada on the Christmas morning and then start the Christmas dinner. I Guatemala, immigrants have imported their German customs and the Christmas tree is essential but the Christmas gifts are reserved to the children. Gift exchange for adults is on January 1st.
Australia:
Christmas happens during the summertime, so Australian people celebrate Christmas at the beach. People eat cold turkey and pudding.
New Zealand:
If there are few decorations, New Zealand people organize Christmas parades and people sing in the parks. They also organize their famous “Christmas barbecue”.
Japan:
Christmas is merely commercial significance in Japan. This festival represents Saint Nicholas and it is an opportunity to offer gifts to small children.
China:
If Christmas Day is not a holiday, Christmas is celebrated in Chinese cities. This festival was imported into this country by foreign missionaries. For the Chinese people who celebrate it, Christmas is a religious event.
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How to Buy Tax Free Gold Bars
Nothing is tax free but there are ways to circumvent the tax process without illegally trying to evade the payment of taxes. Tax free gold bars can also be bought. US tax laws are very complex as in some states you are liable for capital gains tax if you sell gold at a higher price than the one you paid for when you bought. No taxes are slapped on purchase.
Gold Eagles being legal tender in the US like Maple Leafs in Canada, sale tax is exempt on purchase and sale. Great Britain does not tax gold coins as they are legal tender but some gold bars are liable for value added tax.
Buying American eagles form a gold dealer registered with GST will make the buyer liable for GST or sales tax, but not when it is bought online or from a private seller. The best bet lies in a prospective gold bar buyer checking out with his tax adviser first before going for the purchase.
Like any investment, for gold bars too expert advice from the finance person should be sought. And in the US there are separate tax structures for separate states. Tax free gold bars can be bought over the internet via bullion exchanges and storage providers. They can also be physically bought.
Super wealthy people from banana republics to semi-developed nations park their unaccounted money in banks all over Switzerland and Liechtenstein or register their companies in the Isle of Man or the Cayman islands. So it is equally possible for gold bars buyers not to pay tax on their purchases.
Banks in Europe, mainly Switzerland, Austria, Liechtenstein and Switzerland are known to have exclusive gold bars counters where gold bars can be bought and sold without paying a single dollar worth of tax.
As gold bars are becoming part of the investment portfolio, more investors are opting for gold coins and bars which can hedge losses in other risky financial instruments. People buy more gold bars than ever or park their money on gold when the economy slumps and other avenues disappear.
In 2004 the demand for gold bars as an investment alternative far exceeded demand for jewelry products as more gold investment products had been launched. It is financially wiser at times to hold gold than stocks or real estate which might crash. Bubbles burst easily in financial markets but not in gold markets unless gold looses its luster.
Just before the US elections, Republican Ron Paul tabled a bill for abolition of taxes on certain gold bars and bullion. But now things have changed and with a new US administration assuming office shortly, tax breaks on gold bars are dependent on new laws. Willful investors must keep their nose on the ground and take every opportunity where taxes are not levied.
Gold is the oldest form of investment, purest form of money and more durable and an ultimate asset which can survive volatilities in economy and the financial markets. No one how powerful can mess this up.
Will Bond Funds Be the Best Investment For 2011?
Investors who bet that bond funds would be the best investment for 2010 were not disappointed with their investment choice. Since smart investors look down the road six months or more that begs the question: will bond funds be the best investment for 2011 and what are the risks?
Just a glance at average annual rates of return for the 3-year period ending in mid 2010 helps explain the popularity of bond funds. Money market funds paid between 1% and 2% a year on average paying virtually nothing for the last 12 months. Stock funds had a wild ride with many of them LOSING 10% a year or more. Many high-quality BOND funds returned over 6% a year. Under one possible scenario these INCOME funds could be the best investment for 2011, or at least the best mutual funds. But don’t overlook the risk factor.
Bonds offer a fixed yearly income based on a fixed interest rate that never changes for the life of the investment. When you own shares in a bond fund you own a small part of a large portfolio of these income producing securities, which trade in the open market like stocks do. Your total return from bond funds includes both interest income and gains or losses in the value of the securities in the portfolio. Hence, risk is a factor.
Bond funds are also referred to as income funds because that’s their major attraction… higher interest income than you can get from other popular investment options or other mutual funds. They have been good investments in recent times and the best investment for 2010 for investors in search of higher returns without high risk. There are two basic reasons for this. Interest rates have been falling and inflation has been tame. Falling interest rates make the fixed interest income from existing or older bonds more attractive than that of new issues coming to market. Investors bid the price (value) of bonds up in the market because they are willing to pay more for the higher income.
Lower inflation makes a bond’s fixed income payment more attractive, as the future buying power it represents will not be significantly diluted by a higher cost of living. Negative inflation is referred to as DEFLATION, where the cost of goods and services actually declines. If interest rates continue to fall and inflation follows suit and/or goes negative, bond funds are a candidate for the best investment for 2011. Some economists and professional money managers believe that this scenario could definitely happen.
On the other hand, interest rates are presently near historical lows due at least in part to the government’s efforts to keep rates low to stimulate a lackluster economy. The question is whether or not the powers that be and/or the markets will push interest rates up in 2011? When rates go up inflation generally does as well and this is a formula for losing money in fixed income investments like bond funds. Higher interest rates and inflation make the fixed income from their securities less attractive; and investors in the bond market send bond prices down by selling.
Income funds have been some of the best mutual funds over the past 10 years and three years when things have been dicey for stocks and stock funds. Don’t assume that this trend will continue. Watch the economic and business news. If interest rates continue to creep downward and inflation stays low or turns negative (deflation), bond funds could be your best investment for 2011 and beyond. If the opposite occurs it’s time to lighten up on, or avoid bond funds altogether.
How Does Greece Affect the United States?
This is an excellent question and one that I have heard all week. Greece is almost half way around the world…it is a relatively small economy…comparatively speaking we don’t trade much with Greece…Isn’t it Greece’s problem?
Perhaps a simple photo will illustrate the issue here. As a kid, I loved to play dominoes with my grandmother. In my version of dominoes, we stood them on end very close to one another – one at a time – until we had placed every domino from the box in such a way where if you tipped the last one, a sequence would occur where every domino fell as a result. It took far longer to set this “game” up than it did to see it call come down.
Greece is a small country thousands of miles around the world with which we do a small amount of business (comparatively). Portugal is closer to Greece and together they do a larger portion of business. Spain is a more robust economy with dealings in Portugal and Greece.
As governments, each of these countries probably owns Greek bonds and other Greek investments. Banks in each of these nations have loaned money to Greece, both to the government and businesses in all likelihood. If Greece defaults on the amount of money that it owes, these two nations and their banks suffer a loss.
Banks all over the world are already doing a high wire act to enable their institutions to survive. Add in a default by the Greek government, and it triggers a default by several banks (for example in Portugal), followed by a default by Portugal’s government, which leads to trouble for Spain’s banks, followed by trouble for the Spanish Government, followed by Germany and France, followed ultimately at some point by the United States. The U.S. stock markets were contemplating this game of dominoes last week, when drops of 10% and more occurred.
But today U.S. Market trading is up markedly. What happened?
Over the weekend, the European Union and the International Monetary Fund (which the United States is the largest shareholder and financial backer of last resort) promised to fund a bailout of these weak European Nations so that the game of dominoes doesn’t take place and destroy the entire world wide financial system.
In essence what was done was create a fire break – a clearing between the trees that prevents a fire from spreading unabated. The break is intended to bound any fire by making it difficult to encompass additional land. (It is akin to removing three or four dominoes from the line to prevent the entire line from going down while it is being built).
As any firefighter will tell you, some firebreaks work and others don’t. The effectiveness is a function of the intensity of the fire and the conditions (like high winds and lack of moisture) at the time of the fire. The same thing holds true for this bailout – it is not a certainty that it will work, and it comes with offsetting problems. But it, like the U.S. bailout of the banks, is a better solution than the chaos that would result from no bailout.
India – A Future Warehouse of the World
Abstract
India has the world’s second largest population and one of the fastest growing economies in the world. India has a promising future, given the unprecedented growth in economy and its clout in the global issues. India is now riding on the wave of a gigantic boom in computer driven new economy. Many developed countries of the world are seeking the huge pool of English speaking talented software professionals in India. As the world is transforming towards knowledge society, India too is moving proportionately competing with the world. With the increase of Internet users and the advancement of information and communication technology in India had boasted the development towards e-commerce in global economic society. In IT sector India is booming as a super power. In the last few years India has made rapid strides in the IT sector especially in the software services and IT enabled services. In this paper we analyses the picture of IT industry in a very near future in India & contribution of India in world’s Information Technology Sector.
Introduction
From the 1950s, IBM had a virtual monopoly of computers in India. The 360 series release in 1960s was the major workhouse of the large organizations. They even maintained a chain of programmers who could write down software’s for their machines. However in 1978, when George Fernandes, ministry of industries at that time, commanded IBM to take local shareholders into its subsidiary, the company refused strictly and went back after winding up its all operations in India. Its ex-employees then set up Computer Maintenance Corporation, with the primary object of maintaining IBM computers.
During the period of 1995-2000, the Indian IT Industry has recorded a C.A.G.R. (Compounded Annual Growth Rate) of more than 42.4 percent, which is almost double the growth rate of IT industries in many of the developed countries. For Details contact AMCHAM National Secretariat, New Delhi Foreign companies particularly American companies have played a vital role in making India an emerging IT super power in the world. These MNCs account for nearly 22 per cent of Indian software exports. According to the latest NASSCOM estimates, in 2001-02, multinational infotech companies exported software worth Rs. 6500 crore from India. Country’s total software export was pegged at Rs. 29400 crore. In terms of investment and growth, U.S. companies like Cognizant Technologies (largest export revenue earning MNC) IBM, Oracle, GE, Cisco, Compaq, Intel amongst others lead the MNCs in the Information Technology sector. Nine out of top 20 Indian IT firms are from United States. These account for over 37% of the turnover of the top 20 firms operating in India. Despite their significant contribution to the IT sector, these companies have to face a number of procedural and operational problems in India.
However, the volume of e-commerce, in India, is far below the levels achieved in USA, which was about 1 percent of the total GDP in 1999. Further, the expected volume of e-commerce in India in 2001 (US$ 255.3 million) is also below the levels expected to be achieved, which in comparison to Australia (US$ 3 billion), China (US$ 586 million), South Korea (US$ 876 million) and Hong Kong (US$685 million) is quite less.
Time has changed the way businesses are carried out. What was supposed to be known to few and limited to the home towns, appears to be an ancient methodology of carrying out the work. The present day brands work on world wide scale, that is they are successful in not just one particular region but have deepened their roots to all the corners in the globe that you can think of.
Information Technology is what constitutes the most important sector in the present day trend of carrying out business. It is because you can not be present everywhere to monitor the work, but with networking and communications, you can always stay in contact with the other business sites of yours.
ICT Approaches of India
A spate of reforms-post-1991 economic crisis-have given impetus to the Indian economy, particularly to the ICT sector. As part of the reform agenda, the Indian Government has taken major steps to promote ICT including the creation in 1988 of a World Market Policy, with a focus on software development for export; telecommunications policy reform; privatization of the national long-distance and mobile phone markets; and development of a more comprehensive approach to ICT. Although India’s success is commanding increasing attention and investment, it has yet to result in the distribution of social and economic benefits across a broader base of the population. Challenges-including the perception of an unfavorable regulatory climate, an overloaded judicial system, poor infrastructure and costly access, and limited use of ICT-remain. The emerging shift in government strategy, toward knowledge-intensive services, has created a climate more conducive to addressing enterprise, domestic infrastructure, education and the use of ICT to meet development needs.
Policy: India’s focus on self-reliant industrialization in the 1970s and 1980s has been replaced with reforms aimed at positioning India in the world economy: the foreign direct investment process has been streamlined, new sectors have been opened up to foreign direct investment and ownership, and the government has exempted the ICT industry from corporate income tax for five years. These reforms have helped India to become increasingly integrated into the global economy through growth in the export of software and skill-intensive software services, such as call-centers.
In 1986, the Indian government announced a new software policy designed to serve as a catalyst for the software industry. This was followed in 1988 with the World Market Policy and the establishment of the Software Technology Parks of India (STP) scheme. As a result, the Indian software industry grew from a mere US$150 million in 1991-1992 to a staggering US$5.7 billion (including over US$4 billion worth of software exports) in 1999-2000-representing an annual growth rate of over 50 percent.
The establishment of the Telecommunications Regulatory Authority of India (TRAI) was a key step towards effective implementation of telecommunications reforms. In 1992, the mobile phone market was opened up to private operators, in 1994 the fixed services market followed, and finally in 1999, national long distance operations were opened to private competition. Prior to these reforms, the Department of Telecommunications had been the sole provider of telecommunications services.
In addition, to attract foreign direct investment, the government permitted foreign equity of up to 100 percent and duty free import on all inputs. Government-created technology parks also offered professional labor services to clients, a cost-effective program for India since ICT labour is so inexpensive by global standards.
Infrastructure: Teledensity in India has reached 3.5 percent of the population. Approximately 1 percent of households have fixed line connections, compared to 10 percent in China. The mobile sector has approximately 3 million users, growing at 100 percent per annum, and is expected to outstrip the fixed line market in the near future. The number of Internet accounts is around 1.5 million, growing at 50 percent per annum. India also has very high penetration rates of terrestrial TV, cable and radio. Voice and data wireless solutions, for both domestic and export markets, are increasingly produced and used locally.
Access to telephones in Indian villages has improved in the last five to six years through the introduction of the Public Call Office (PCO) run by local shopkeepers. More than 60 percent of the villages in India have at least one phone. This also includes over 800,000 Village Public Telephones (VPTs). Worldtel is undertaking a pilot in four states to secure financing to upgrade the Village Public Telephones so they will soon be Internet-accessible.
In some urban locations, India’s Software Technology Parks (STPs) provide infrastructure, buildings, electricity, telecommunications facilities and high-speed satellite links to facilitate export processing of software.
India also has a number of progressive computerized networks in place, including a stock exchange, the Indian Railways Passenger Reservation System, and the National Informatics Centre Network (NICNET), which connects government agencies at the central, state and district levels.
Enterprise: India’s well-established framework for protecting intellectual property rights has been an important inducement to business investment: well-known international trademarks have been protected by Indian laws, even when they were not registered in India. In 1999, major legislation was passed to protect intellectual property rights in harmony with international practices and in compliance with India’s obligations under TRIPS.
Much of the initial domestic demand stimulus for ICT and ICT services industries in India has come from government: 28 percent of total IT spending to date can be attributed to government and public sector expenditure. Major areas of government expenditure include: financial services, taxation, customs, telecommunications, education, defense and public infrastructure. As a result of the growth in ICT use in India, the ICT industry itself has also increased its domestic economic activity, for example, a number of ICT companies have developed accounting and word processing packages in Indian languages. The potential impact of this growth on the domestic economy is much broader than developing software for export only.
Human Capacity: In spite of relatively low literacy rates among the general population, India has several key advantages in human capital: a large English-speaking population and world-class education, research and management institutions-a direct result of investment in self-reliance in science and technology. In addition to establishing Indian Institutes of Technology in various cities around India to create a large pool of technical skills, the government has a computer policy to encourage R&D in personal computers. The IT training sector continues to grow at a rapid rate: total training revenues in 1998 were estimated at US$225 million, 30 percent up on the previous year. However, one of the biggest challenges to the Indian software industry remains the difficulty in attracting and retaining talented professionals.
Content and Applications: India has a large population with great linguistic diversity. Creating and maintaining locally relevant content for a country with 418 languages is a challenge. Nevertheless, local language content is slowly making ICT more relevant and accessible to a broader cross-section of the population. For example, India’s Center for Development of Advanced Computing has recently launched a scheme called iLEAP-ISP to create a free multilingual word processor to be made available to all Internet subscribers. On other fronts, some states such as Tamil Nadu have launched their own initiatives to support the standardization of local language software through interface programs that can be adapted to word processors, dictionaries, and commercial keyboards for use in schools, colleges, government offices and homes.
An emphasis has also been placed on the development of relevant e-government applications in India. Some states such as Madhya Pradesh and Andhra Pradesh have started to introduce applications which allow citizens to have faster and more transparent access to government services-for example, the provision of information on laws and regulations, and the procuring of licenses and official documents online.
Strategic Compact: Public-private partnerships, catalyzed by the IT Ministry, have played a key role in India’s ICT-related development. One of the positive results of this effort has been the IT Act of 2000, which was based on the recommendation of the National IT Task Force, and aims to set the overall strategy for the IT sector. In addition, the government and the private sector are starting to come together to foster ICT development. For example, a joint effort by the Computer Science Automation Department at the Indian Institute of Science and a Bangalore-based private company have developed Simputer-a cheap micro-computer that enables illiterate users to browse the Internet.
India’s development and contribution in world’s information technology sector is of highest reputation. Cities like Bangalore have become the favorite(most preferred) destinations of all the big banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multi national firms like Infosys Technologies, Wipro, and Microland who have set up their offices in the city. It is because the city offers good infrastructure, with large floor space and great telecom facilities. This can be judged on the basis of the high growth statistics of India and the changing outlook of the companies towards India .
It is because of this growth many popular brands that have not yet build up there rigid offices in the country are making it fast to have a destination in India too. For example, Sun Microsystems, a global IT major, announced in Bangalore to double the present workforce of the company’s Sun India Engineering Center (IEC) from the present 1000 to 2000 in the next two years time. IEC, which is the largest R&D center for Sun outside the US , would also focus on developing products in India to suit the needs of the Indian market, which would be benchmarked globally.
This speedy growth of IT Sector is undoubtedly due to the efforts of Indian government and the other developments that took in the other parts of the globe.
The country has seen an era when after the IBM shutted its shop in India in 1950, the mainframes that were imported into the country were all from Russia . Western computer could not be imported because of an American embargo on export of high-technology equipment to India , which was considered an ally of the Soviet Union .
Slowly, with the time the country could develop its first powerful parallel computer in 1991 known as CDAC, by connecting together a string of less powerful computers.
With time and the continuous growth across the world, the country continued struggling and came up as the world leader in Information Technology Sector.
The industry has grown up to US $ 5.7 billion (including over $4 billion worth of software exports) in 1999-2000, with the annual growth rate not sliding below 50 percent since 1991.
It exports software and services to nearly 95 countries around the world. The share of North America ( U.S. & Canada ) in India ‘s software exports is about 61 per cent.
The Indian labor is not only cheap but is technically skilled too to the world class level. It is due to the Indian Education System that includes in its course curriculum the practical knowledge of the latest technology that is developed in world along with the fluency in English Language that imparts compatibility in an Indian technician to communicate and work through out the world.
Further the geographical location of India serves it the advantage of being exactly halfway round the world from the US west coast, which is another reason why India is preferred destination of many big brands.
Also, The presence of a large number of Indians, especially engineers, in the US gave India an easy entry into the US software market.
What adds more to the dominance of India in Information Technology Sector is the government policies like the enactment of cyber laws to protect and safeguard the interest of software companies in India .
Setting up of the Software Technology Parks of India (STPI), by the Ministry of Information Technology, Government of India and the International Technology Park in a joint project by the State Government, the TATA Group and the Singapore Consortium to promote and facilitate the software exports is another major step towards the growth of Indian Information Technology Sector.
Similarly an industrial park, known as Electronic City , was set up in 1991 takes more than a hundred electronic industries including Motorola, Infosys, Siemens, ITI, and Wipro, in an area of around 330 acres.
The Export Promotion Industrial Park , built near International Technology Park , gives an exclusive 288 acres of area for export oriented business. GE has its India Technology Center located at this park and employs hundreds of multi disciplinary technology development activities.
The other promotional activities that brought up India to this position include the IT Corridor project. Conceptualized by Singapore ‘s Jurong Town Corporation Private Ltd, the IT corridor Project was initiated by the Department of IT and the Bangalore Development Authority in order to develop state of the art facilities for the development of knowledge based industries.
Thought’s of some World’s IT leaders about India
“Economic growth will force better governance, and better governance will feed more economic growth”
SV, NYC, USA
The people and communities at large feel that they don’t have the ability to make a difference
Juzar Singh Sangha, Bedford
India has to take more care of the village population who are still struggling to live properly
John Karondukadavil, India, Living in Poland, Jaslo
India can become a superpower if she concentrates on the technology market niche
Devyani Prabhat, Jersey City, USA
India must counter its skills and wage crisis
Pallavi, Sydney, Australia
Hopefully India will lead the world towards a more humane and tolerant future
Nilesh, Antwerp, Belgium
India needs to take strong and clear cut decisions to emerge as a global player
Nivedita Nadkarni, Madison, USA
India is a country gaining economic ground in the world
Justin, Bristol, UK
Indians now have to develop a sense of national pride
Leila, USA
India will never be a superpower, much less a global power
Jonathan, Boston, USA
India has had a sharp increase in the estimated number of HIV infections
Sezai, Eskisehir, Turkey
India’s economic success is built on the sacrifices of previous generations
Shekhar Scindia, Edison, NJ, USA
While India’s economic growth is encouraging, its sustainability is doubtful
Sigismond Wilson, Sierra Leonean in Michigan, USA
Conclusion
India is a perfect solution for all those companies, which seek for cheap, yet technically skilled labor who have innovative minds and state of art to work over a project. The ample of facilities provide in a perfect working conditions. For rest, cyber laws are there to monitor and safeguard everyone’s interest related to IT sector.
All these reasons contribute for India to be as the most adored destination to many companies. . So we can conclude:
•India poised for an explosive growth in ICT
•India emerging as a global R&D Hub
•From brain drain to brain gain
•Millions of jobs will be created in ICT & other emerging technology areas
•Quality issues will have to be addressed
•Private Sector world class institutions will emerge with global collaborations
•India will reclaim its ancient heritage of the world’s most advanced knowledge-based civilization called “Bharat”.
India will become Warehouse of IT in the world
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References
1. Goodman, Seymour E.; Burkhart, Grey E.; Foster, William A.; Mittal, Arun; Press, Laurence I.; and Tan, Zixiang (Alex), The Global Diffusion of the Internet Project, Asian Giants On-Line, Chapter 3 (India) and Chapter 4 (China), The Global Information Technology Assessment Group, Fairfax, VA, November 1998.
2. Press, L., Developing Networks in Less Industrialized Nations, IEEE Computer, vol. 28, no. 6, June 1995, PP 66-71.
3. [http://www.stpn.soft.net]
4. An Indian Perspective on IT & Engineering Programs ,Vijay Bhatkar, International Institute of Information Technology, Pune, India
5. Nasscom
6. Anuranjan Misra ” Software outsourcing from India” National Seminar on Strategies in Business Process Outsourcing”, IIMS, Bareilly, INDIA, Dec. 08-09 2004.
7. Anuranjan Misra” India – An Emerging IT Super Power” International Seminar on India 25 Years and Hence, IIMS, Bareilly, INDIA, Fev. 08,2006.