For many years, India followed its own Accounting Standards that were well suited to domestic business conditions. These standards helped bring uniformity and discipline to financial reporting within the country. However, as the Indian economy began integrating with global markets, it became clear that purely domestic accounting rules were no longer sufficient.
Indian companies started raising capital abroad, foreign investors entered Indian markets, and cross-border mergers and acquisitions became common. In this new environment, financial statements prepared under local standards often failed to meet the expectations of global investors and regulators. This led to one critical question: Why did India need IFRS and global accounting standards?
This blog explains the economic, financial, and strategic reasons behind India’s move towards International Financial Reporting Standards (IFRS) and why global accounting standards became a necessity rather than a choice.
Understanding IFRS in Simple Terms
International Financial Reporting Standards (IFRS) are globally accepted accounting principles developed to bring uniformity, transparency, and comparability in financial reporting across countries.
IFRS provides a common accounting language so that:
- Financial statements prepared in one country can be easily understood in another
- Investors can compare companies across borders
- Multinational businesses can consolidate accounts efficiently
More than a hundred countries either follow IFRS fully or have aligned their local standards with it.
India’s Economic Transformation and Global Integration
India’s need for IFRS emerged alongside its economic liberalisation and global integration.
Over the last few decades:
- Indian companies expanded operations internationally
- Foreign direct investment into India increased significantly
- Indian firms listed securities on foreign stock exchanges
- Global investors became key stakeholders in Indian businesses
As a result, Indian financial statements were no longer meant only for domestic users. They were being read, analysed, and relied upon by global investors, analysts, lenders, and regulators.
Limitations of Purely Domestic Accounting Standards
While Indian Accounting Standards served the country well for many years, certain limitations became evident in a global context.
1. Lack of Global Comparability
Financial statements prepared under Indian standards were difficult to compare with those prepared under IFRS or other global frameworks. Similar transactions were often reported differently, leading to confusion for foreign users.
2. Multiple Reporting Requirements
Indian companies operating internationally were often required to:
- Prepare accounts under Indian standards for domestic use
- Reconcile or restate accounts under IFRS or US GAAP for foreign investors
This duplication increased cost, time, and complexity.
3. Reduced International Acceptability
Foreign investors and global stock exchanges preferred financial statements prepared under IFRS. Indian standards were sometimes viewed as less familiar or less transparent by international stakeholders.
Rising Importance of Foreign Capital for India
India’s growth ambitions required large inflows of foreign capital.
Foreign investors consider accounting standards as a key indicator of:
- Financial transparency
- Corporate governance quality
- Reliability of reported numbers
Without alignment with global standards, Indian companies faced challenges in attracting foreign capital at competitive costs. IFRS offered a solution by improving credibility and trust in financial reporting.
Cross-Border Listings and Global Stock Markets
Many Indian companies chose to list their securities on international stock exchanges or raise funds through global instruments.
Global stock exchanges typically require:
- Financial statements prepared under IFRS
- Consistent disclosure practices
- High-quality reporting standards
To meet these requirements, Indian companies either had to restate their financials or shift towards globally accepted standards. This further strengthened the case for IFRS in India.
Growth of Indian Multinational Corporations
Indian businesses evolved from domestic players into global multinational corporations.
These companies:
- Acquired foreign subsidiaries
- Entered joint ventures abroad
- Operated in multiple regulatory environments
Consolidating financial statements across countries became increasingly complex when different accounting frameworks were used. IFRS helped simplify consolidation and ensured consistency across global operations.
Improving Transparency and Corporate Governance
Global accounting standards place strong emphasis on:
- Fair value measurement
- Substance over form
- Extensive disclosures
India recognised that adopting globally aligned standards would:
- Improve transparency in financial reporting
- Reduce opportunities for manipulation
- Strengthen corporate governance
This was particularly important in building long-term investor confidence and protecting stakeholder interests.
Lessons from Global Financial Markets
Global financial crises highlighted the dangers of poor transparency and inconsistent reporting.
Countries realised that:
- Weak accounting standards can hide financial risks
- Inconsistent reporting reduces market confidence
- Global investors demand high-quality, comparable information
India, as an emerging global economy, could not afford to remain isolated from these lessons. Aligning with IFRS became part of strengthening the overall financial reporting ecosystem.
Role of Globalisation in Accounting
Globalisation not only affected trade and investment but also financial reporting expectations.
In a globalised economy:
- Investors compare companies across countries
- Analysts use global benchmarks
- Regulators cooperate internationally
Accounting standards needed to support this interconnected system. IFRS provided a globally recognised framework to meet these expectations.
Why India Chose Alignment Instead of Ignoring IFRS
India had two choices:
- Continue with purely domestic standards
- Move closer to global accounting practices
Ignoring IFRS would have:
- Reduced global competitiveness of Indian companies
- Increased cost of capital
- Limited access to international markets
Adopting a globally aligned approach was essential to ensure that Indian businesses remained competitive on the world stage.
Balancing Global Standards with Indian Conditions
While India needed IFRS, it also had to consider:
- Domestic laws
- Economic environment
- Regulatory framework
This led to a carefully planned transition rather than an abrupt shift. India decided to align with IFRS principles while adapting them to local needs, ensuring a smooth and practical transition.
Long-Term Benefits for the Indian Economy
The move towards global accounting standards offered long-term advantages:
- Greater foreign investment inflows
- Improved credibility of Indian financial markets
- Better integration with global capital markets
- Stronger confidence in Indian corporate reporting
These benefits supported India’s ambition to emerge as a major global economic power.
IFRS as a Strategic Necessity for India
For India, IFRS was not just an accounting reform—it was a strategic economic decision.
It supported:
- Global expansion of Indian companies
- Participation in international capital markets
- Alignment with global best practices
Without IFRS, Indian financial reporting risked becoming outdated and disconnected from global realities.
Conclusion
India needed IFRS because the world around it changed. As businesses expanded globally and capital crossed borders, domestic accounting standards alone were no longer sufficient. Global investors demanded transparency, comparability, and consistency—qualities that IFRS was designed to deliver.
By recognising the importance of global accounting standards, India took a decisive step towards strengthening its financial reporting framework, enhancing investor confidence, and integrating with the global economy. The case for IFRS in India was not driven by compliance alone, but by the need to remain relevant, credible, and competitive in a globalised world.
“Before moving towards global standards, India followed its own framework of Accounting Standards. You can explore the list of accounting standards in India (AS 1 to AS 29) to understand the domestic system that existed prior to IFRS alignment.”
“India’s move towards IFRS ultimately led to a broader alignment with international practices. This transition is better understood by examining the need for convergence towards global accounting standards and its impact on financial reporting.”
FAQs
1: Why did India need IFRS?
India needed IFRS to align its financial reporting with global practices, improve comparability, attract foreign investment, and support Indian companies operating internationally.
2: What problems existed before IFRS in India?
Before IFRS alignment, Indian companies faced issues such as lack of global comparability, multiple reporting requirements, and limited international acceptability of financial statements.
3: How does IFRS help Indian companies?
IFRS helps Indian companies by improving transparency, simplifying consolidation of global operations, reducing reporting duplication, and increasing investor confidence.
4: Does IFRS benefit foreign investors in India?
Yes, IFRS provides foreign investors with familiar, reliable, and comparable financial information, making investment decisions easier and more accurate.
5: Is IFRS mandatory for all companies in India?
No. India follows IFRS-converged standards (Ind AS), which are mandatory only for certain classes of companies based on size, listing status, and regulatory criteria.
6: How is IFRS linked to globalization of Indian businesses?
As Indian companies expand globally, IFRS enables consistent financial reporting across borders, supporting cross-border listings, mergers, and acquisitions.
7: Did India adopt IFRS fully?
No. India chose convergence instead of full adoption to balance global standards with domestic legal and economic conditions.
