The new fiscal has begun with a bang as far as accounting norms go. The Institute of Chartered Accountants of India (ICAI) has made corporate India sit up by bringing forward by three years?AS30 was supposed to become mandatory after April 1, 2011?an accounting norm aimed at imparting transparency to the use of derivative contracts by businesses. Every company must disclose derivative losses and make provisions for them with immediate effect. Since the fourth quarter results for 2007-08 are still being tabulated on corporate spreadsheets, the norm will apply to these results?a prospect that has made several firms fearful that their currency contracts, under severe stress because of recent turmoil in global markets, would spoil the rest of their numbers. The extent of losses is unknown. What is known is that several instruments have gone under, and that the use of these instruments gained rapidly after 2004. According to data collated by the RBI from scheduled commercial banks, as of June 2007, the notional principal amount of outstanding derivatives was Rs 94.7 lakh crore?about twice India?s GDP. Of these, foreign exchange contracts were some Rs 37.6 lakh crore and interest rate related contracts nearly Rs 55 lakh crore.

From the sums involved, one might think that ICAI?s move was long overdue, for it would be scary for corporate accounts to have such vast quantities of money with their values derived from underlying assets of variable value (which is what derivatives are) lurking beneath what look like regular financial numbers. Others may argue that India needs a complete regulatory overhaul, as may soon be underway in America, where there are proposals to merge and recast several regulatory bodies so that a cohesive oversight of financial markets is made possible. Either way, India should resist panic of any sort. That derivative contracts are so large is only a sign of their need, and there is nothing spooky about financial products that serve a purpose. Losses need to be acknowledged, yes, and can be marked to market in an orderly manner (perhaps in phases), and on the understanding that this is not ?dirty linen? being brought to light, but the natural innards of firms seeking to make their rupee go the farthest. Sometimes, things snap. There is no shame in that.