COST ACCOUNTANTS ARE THE EYES & EARS of Government of India

GST is big boon for the Cost Accountancy profession but on a limited scale compared to peer profession. GST will transform unorganized players into organized hence the number of SME will simply amplify over the coming few years.  Those who were not under proper service tax ambit and were scaling business will come under GST ambit. Their book keeping work will be regularized and once the PAN and Adhar are getting linked, will further block the loopholes of tax evasion. In continuation to my previous note on High time for COST Audit and Cost Record Applicability it’s being found that SME industry needs our assistance on a high level.  Now SME segment coming under compliance ambit will grow up in the long term to expand its growth and revenue and this is the place where the government might not be able to measure the type of benefits and support it needs. Since cost audit and cost record used to be the EYES & EARS of the government. Now with the mandate of below Rs 50cr turnover or Rs.100 cr turnover most of these segments will not come under the applicability of cost audit and cost record where as other professions will get tax audit and book keeping work which will be less importance for this industry to grow.

We need to believe that we have a new government in place which is very progressive and its reform policies have already shaped the Indian GDP growth 10 7% and its being envisaged that by 2019-2020 we will be near to 9% GDP growth riding on GST reforms.  Under the previous government it was well clear that policy logjams and inability to understand the bottle necks and place solutions accordingly slowed the GDP growth and investment climate and business climate within the economy. This government will hear out based on the current economic situation about the applicability of the Cost Audit and Cost record for the SME segment.  Its not like the previous government under which we lost many precious positions where the profession was ruling in its fields. One of this most important things we lost in 2009 as like Special Audit under Section 14A & 14AA of the Central Excise Act, 1944 (check the FM during that time).  The most important aspect of this government is that they are policy driven growth focused economy and have not kept any stone unturned for not getting growth. They will adopt and change any policy which is beneficial for the Indian economic growth. We are EARS and EYES of the Government.

Industry body FICCI's latest Economic Outlook Survey has pegged India's gross domestic product (GDP) growth at around 7.4 percent for the fiscal year 2017-18. The pick-up in overall GDP growth will also be supported by an improvement in industry and services sector growth.  This growth needs guidance which the profession can provide. The Government of India is focusing on Startup and Make in India. But Make in India and Startup India is not possible without contribution from SMEs of India.

Small and medium scale enterprises (SMEs) are understood in India as enterprises where the investment in plant and machinery or equipments is between Rs. 25 lakhs ( US $ 0.04 million) to Rs. 10  to Rs. 5 Crore (  US $ 0.8 million)  in case of a service sector enterprise. This definition is provided in Section 7 of Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act) and was notified in September 2006. 

Now under the current cost audit and cost record applicability the current ruling of slabs creates scope of opportunity as most of the SME are below the turnover level of Rs 50cr or Rs.100cr. Overall, the MSME sector accounts for 45 percent of Indian industrial output and 40 percent of exports.

This itself is a big opportunity which will growth the business of practicing and employment once cost audit applicability and cost record maintenance is implemented. Now the profession already knows that we have lost the ground but the current economic imbalances and exploring new opportunities of growth they need the support of the cost record and cost audit applicability aspect since they needs revise prices and revised cost estimation polices which will guide them for exploring market share in these new markets. Rising international commodity prices make the sector under extensive demand for various type of benefits and concession.  Now cost audit and cost records could have helped the government to access the prevailing problems for the industry.

Hence having a progressive government in one place who envisages double digit growth for the Indian economy the cost accountant fraternity cannot be left alone without having access to the SME below Rs 50cr turnover or what so ever turnover level..

High time for COST Audit and Cost Record Applicability

Its time to Fight back again for the profession since world economy provides the opportunity for Cost Records and Cost Audit implementation on the Small and Medium enterprise. I would love to the criticism for my subject but I hope it will be a eye opener now. We might be ignoring the current global economic turmoil and not taking advantage of the same to get back cost audit and cost record for the whole gamut of industries across the board.

SMEs accounted for 22% of the country’s GDP followed with an employment of   more than 60 million people. It’s a growing segment with huge upcoming entrepreneurs and innovation at large. Technology have amplified the speed of business formation and with FDI investments and foreign capital getting into Indian economy, A great Thanks to our Prime Minister for uplifting the image of Indian economy to the world ,India is all set for an huge growth. Skill development councils are working day and night to upgrade and uplift the skills of the Indian labor to match the upcoming demand. Cost management is important in this aspect and hence its value proposition cannot be explained in words since it’s infinite.

Surprisingly I found that cost audit which has been of great value proposition to the Indian economy over the last several years have been abolished from cost audit applicability.

Growth of the Indian economy cannot be achieved without cost estimation since that’s the core competency of the Indian economy. Now age inflation and rising labour cost followed with raw material cost as international commodity prices are increasing from the lower levels of 2014-15 the small and medium enterprise is now feeling the squeeze of profit margins.

Export markets are under doldrums as Brexit issues and US trade protections are being implemented hence more focus on new markets in global map and also towards domestic markets. Now in new markets price needs to competitive since buyers of those new countries cannot match the price of   US or European markets export markets. Domestic people also needs reasonable price within their budget kitty.

This is the place where efficient cost management, cost control and measurement gets into picture for the growing micro industries and medium industries. Now most of the companies under this segment don’t qualify within the following threshold:

·      Having overall annual turnover of Rs. 100 crores or more and the aggregate turnover of the individual products or services specified of Rs. 35 crores or more.

·        Regulated sectors having overall annual turnover of Rs.50 crores or more and the aggregate turnover of the individual product(s) or service(s) specified of Rs.25 crores or more

The point is clear whether it’s a regulated or non regulated industry falling under Small and Medium Enterprise needs to have cost audit since it’s a win- win proposition for the industry and government. Trade protectionism is damaging the growth prospect of the Indian economy. Export will be affected since there is no proper cost audit or cost measurement.  These companies are using the same traditional cost management process where the price used to pay for the end product by US and European buyers. Now, that same price is not feasible for current economic condition and while entering into new export markets.  This is the place where Indian Small and Medium enterprise needs to come up with cost audit adoption so as to get the expertise of the cost management. Resource allocation is one of the key important thing for the SME industry and hence cost management and cost audit reports will be beneficial.

Now under GST implementation many SME who are not under the cost audit ambit but proposes to go big with export will be affected as they don’t have any one to communicate to the government from their end . Cost Audit report and cost audit used to facilitate this segment.

If Indian economy wants to become the 2^nd largest economy over the next decade then how without proper cost estimation and management and how the government will come to know about the depth of the benefits required by the Industry. Its high time that we approach the government and explain the value proposition of the cost audit and cost audit report for the SME for making ne export markets to grow.

COST AUDIT MIGHT HAVE HELPED ....NEW PROCUREMENT POLICY 2017

Cost Accountancy practicing profession is going to grow by leaps and bound provided the soldiers are focused towards the growth opportunities upcoming within the Indian industries. Practicing members and their hard work for several years have been a big boon to the profession and the green shoots of the same are now viewed . Those who are catering to the MSME segment as well as mid segment they will find stupendous growth coming as their turnover and volume of business will scale to an exponential growth over the next decade. The most silent thing which was approved by the government and was ignored due to GST focus is public procurement order 2017.

Indian is not the only country to have adopted Public Procurement order. Many countries and particularly keeping the international dumping and unfair trade practices in mind domestic companies have been empowered with this new policy. Now MSME segment will get growth as they are the one who will be benefitted more. What we all might have ignored is that Cost Standards and its report and data over the years and cost audit executed by the practicing members over the years might have helped the government to formulate this policy.  The best answere for this might be given by the ones who are on helm. What type of suggestion the Institute and its costing report have helped can only be answered by the CCM. But the practicing members have helped to identify the loopholes and imbalances of the economic factors within the economy and industry through their cost audit. Our cost accounting standards might have faced some hardships but it might have helped the government to formulate this policy.

Salient Features of the Policy

·         According to this order in case of tenders below Rs.50 lakh, only local suppliers will be eligible to bid.

·         In cases when the goods are divisible and the order is more than R50 lakh the vendors will be shortlisted on the basis of price.

·         In case the lowest price offer by the tenderer ( l1) is a local manufacturer or supplier, he will get the order. However in case it is not a local manufacturer, he will be given only 50 per cent of the order and the balance will be offered to the next in line local supplier.

·         In case goods are not divisible, the lowest bidder (non-local) will be given 50 per cent of the order. the local manufacturer will be given the opportunity to match the price of the lowest tenderer under certain conditions

·         Purchase preferences in case of other tenders, subject to any specific instructions given by the nodal ministry, will also be given to local manufacturers and suppliers of services, such that the minimum local content shall be at least 50 per cent.

Its tool which will give immense growth opportunities to the domestic companies who were ignored till date, will find substantial demand of goods. New technological innovation to reduce cost of production will also be attracted towards this sector. Cost Accountants needs to inform and strategies the business growth of their clients accordingly. Their work load will also increase as new orders and new growth opportunities opens up.

We are all busy with GST migration but this opportunity is long term benefit to the Indian economy and to the profession.  We need to have an open eye for these type of turn around and its our duty to inform the government at various point of time what type of improvisation is required for the Indian industries growth as well as to make them competitive in the global map. Practicing members are doing a great work but they needs to be part of every suggestion as well to be a part of the representation team. Gone are the days when only few selected CCM or RCM should represent the top brass of the Indian economy. When one moves as team it becomes more commanding.

LOAN WAIVER....SIX SIGMA APPLICATION

Bankruptcy code has been designed to liquidate the NPA and get value proposition from the same. Bankruptcy laws are designed to safeguard the society from the deliberate creation of NPA or willful defaulters. Yes this is going to be a boon in the long terms and the central government took an excellent role to block future party funding of the opposition (as most willful defaulters are from that regime). One of the biggest industry where according to to a Bank of America Merrill lynch (bofa-ml) report, various state governments are expected to waive off $40 billion (R2,57,000 crore) of  loans in the run-up to the 2019 lok Sabha election. Well don’t be shocked this is a none other than the Vote Bank NPA named under FARM LOAN WAIVER for which no Bankruptcy code is there in the system.

Before I get into the subject I wanted to share that this is a new series on the application and adoption of Six Sigma in the Indian farmers or Indian agricultural segment. This is going to the introduction phase followed with the further episodes of the same. Farmers are one of the key important part of the Indian economy and its high time that entrepreneurs can only come up for the recovery and development of this huge industry which feeds us. Six sigma applications will derive the finest part of the research and solutions which will lead an eye opener for the plethora of opportunity for the entrepreneurs.  The strategy of SIX Sigma application will lead to some resolve of these issues even in the international context.

Over the last several decades and primarily from 2004 to 2017 –UPA I,UPA II and BJP all have played a same tune and same law where tax payers money will go for toss and will be used for winning the vote bank. The FARM Loan waiver has been one of the biggest tool to win votes and create long term economic trouble. There is now law no bankruptcy code for the farm loan segment.

An important part of Indian economy has been kept out of any legal binding where Corer of money is being wasted for winning the vote bank. UP elections and now the upcoming next year MP elections will be won by that political party who declares farm loan waiver. The point is why FARM loan waiver is being used to solve the problem of the farmers other than curing the diseases.        There is now bankruptcy code for willful defaulters and even the non willful ones suffers due to the act of willful ones.Every ruling government have used this as tool to win and now having a majority in Parliament it becomes quite easy. The real problem of farmers is hardly resolved and neither a solution is being envisaged.

IF farmers fail to pay the loan then the hit does not go to the bank since these loans are compulsory insured by Agricultural Insurance Company of India (AIC), whose liabilities are back-stopped by the Centre through budgetary support. Then this also clarifies why it’s being used as tool by the politicians to use it as vote tool.

But there are hard parts of the story too. Farmers are not well connected with the end user as many middle men used to play the game. We discuss about technology and e-commerce market but we don’t develop any e-commerce market for the farmers where elimination of the middle men will be executed.

Even if the e-commerce market is developed the middle men story will not be eliminated since they are the money lenders to these farmers. About 40 per cent of the country’s farmers do not have access to institutional credit. Hence a major part of the funding is unorganised. The demonetization eliminated this market which has resulted to a dead lock for the farmers as funding is now negligible despite of a healthy monsoon.  This unorganised funding makes life difficult. According to NSS data, over 40%  of farmers still rely on non-institutional lenders, who mostly happen to be moneylenders-cum-traders and input dealers.

Now comes the story of banks and NBFC who fund the farmers. Well that funding is limited and we don’t know how much of it reaches to the end user. We waive lakhs of funds but we don’t look upon the issues of developing the farm economy.

Farm economy which includes irrigation, agricultural research, storage, marketing, etc. Today food inflation has come down but is that the reason why farmers are dying since they are unable to get good prices. No, the middle men are squeezing them up based on the funding given and demonetization affect. The poor development of the banking and financial reforms for the framers have lead to the path of exploitation by these money lenders which is getting reflected in the system.

Now for example UP gave farm loan waiver, now for some reason over the next 3 years Indian economy don’t get healthy rainfall. Now farmers will suffer then in that case farmers will wait for another farm loan waiver.   In this cases rather going for another loan waiver over the next 3 years why not to develop the alternative source of irrigation.

As the population is increasing followed with decline in farmers as next generation is reluctant to join the farming profession is going to lead India into a disaster. Government is focused towards vote bank and less on development of the farmers market and financing mechanism.

Use of technology could attract the framing industry followed with efficient marketing and storage facility. Education quality of the farmers is highly required to be updated but in the segment other than farming. Focusing more on crop cultivation use of pesticides and insecticides are of no use. Identification of the problems of farmers and getting solution is the key aspect demanded by the long term of the Indian economy.  

BLIND STRATEGIC MANAGEMENT...DOOMS INDIAN IT INDUSTRY

No long term vision, no long term eye on the changes in the business world and now you are blaming the world. Strategic management enjoys the field of business futuristic growth where the leader’s responsibility is to get into the long term growth outlook married with changing business structures. But the fallacy of the story is that they failed bitterly in implementing the same.

The question is where they went wrong. Short term profits and wider packages created the ripple effect. They are obsessed with numbers related to revenues, profits, margins, shareholder wealth, ESOP and dividends followed with exuberance perks that they lost their vision for the changes in the industry.

They enjoyed lucrative profits since they enjoy SEZ followed with many state and central governments sops followed with a topping of depreciating rupee makes the profits of the business, top level managers perks to multiply.

We stopped software development and we jumped into service providers losing sight of the long term growth of the Industry coming from other segments. Retrenchment has become the new meaning of saving cost and amplifying revenues and perks. The industry have been shattered from a long time  from 2008 but we still remained in our cocon.

Future driven investments have been limited which resulted some college pass out candidates to come up with AI. Artificial Intelligence will replace the service industry. Well get ready for some Authors to come up with their writing where one will enjoy that traditional IT related Industries have been replaced by AI.

Low cost of production have been enjoyed by Indian IT companies who earned from tax savings from SEZ,SOP from state or centre ,Rupee Depreciation and last but not the least converting young Indians into service providers at much lesser cost.

Colleges and young generation glued to this new world of IT jobs which are actually low paying jobs. Offshore business will dry out once AI comes to replace the remaining cost savings advantages to the client. US is becoming very strong on the use of AI platform and going forward it will replace offshore business opportunities to a great extent. Failure of strategic vision and application of strategies on future driven business model is proved.

Mr. Trump is being expected to be one of the “best salesmen” for robotic automation in the software services industry. This saves billions which we earn from them.

Short term driven targets followed with exorbitant pay packages have eroded the long term growth of the Industry.IT industry programmers were converted into sales person focusing on who can get how much projects which leads to revenue. They most interesting part here is to notice how the vision of the Industry was turned into blindness and how the strategic management segment was shifted majorly into sales and business development and nothing related to new products. Innovation was restricted.

IT services companies’ turned their recruitment eyes on recruiting students from second-rung (or even the third-rung) engineering colleges as only sales was required and did not higher much from the top B-schools since the pyramid of the industry was structured differently which was suited to establishing the base of the pyramid.

The work and recruitment culture was totally fined tuned against the principles of strategic management where he largest proportion of the workforce was at the base, who were also  paid the lowest wage, and at the narrower end of the pyramid were the more well-paid jobs for the relatively few. This segment of the pyramid enjoyed the maximum benefits.

The industry required some deep minds to look into the new aspects of the Industry.  Well how the industry can gain vision when the people employed and the hierarchy developed within the industry is itself driven towards low paying jobs and no innovative thinking.

Fallacy of the industry is that they blame the quality of education whereas they recruit accordingly in different structure.

Ancillary industries grew significantly based on the growth of the Industry which was itself short sighted.

If strategic management was adopted in the business objective and long term vision of the Industry then we should have achieved innovation and AI and robotic related investments. Strategic management helps to identify the long term changes in the industry and allocate resources accordingly. But here we find that low cost resources were the only function to drive long term growth. Within next 3 to 4 years AI and Robotics will replace services which will lead to massive layoff.

I am more concerned about those fellows who are in the college levels and have invested a significant surplus into IT education with a dream of getting job where the current industry shows mass layoff. Strategic management of the whole industry have been blind.