Tuesday, September 25, 2018

Indian export Future..Price of Ignoring the Cost Accounting Series 1

The trade war has opened up the prospects for the cost accountants provided they are well prepared to generate outcome form the same. If the cost accounting tools do not have any myopic vision hence India needs to capitalize on the opportunity provided by such tools through cost accountants.    But does India is taking the advantage of the professional expertise and acumen.   I doubt.  The below historical data analysis and the rationales speak loud that the cost accounting tools, strategies and profession, and professional acumen both faced the delay of recognition and is yet to get its credits. I hope the readers would agree to the same point after reading the same. Trade restriction will grow more in the future as I have been telling in my previous articles that the doors of globalization will be closed when they have been exploited the trade. Down the line again some new trade wars would come up which might impact the Indian exports in the long term.  Indian has been losing the export competitiveness a hence always scouting for new countries and new trades. The volume of export has picked up but does not reveal Indian export is competitive.

In 2013/14, India's merchandise exports stood at $314.4 billion. In the next year, it fell to $310.3 billion. And the next year, 2015/16 saw a further fall to $262.3 billion before it improved marginally to $275.9 billion in 2016/17.
The strategy of jumping from Agriculture to services and not into manufacturing would not be a long-term sustainable economic growth for India from the current global market conditions.    The reason being that services in the long term would be controlled by Artificial Intelligence and Block-chain and hence export of services would not be required. Further new countries competitiveness in services could replicate Indian exports.  Now the biggest question is where India will stands in the long term in terms of the export market.

India is a very small player on the global landscape of export. India’s share of total world merchandise exports was 0.6% in 1995 rising to 1.7% by 2014. On the other hand, its neighboring country China’s rise is astonishing, accounting for 12.4% of the world’s merchandise exports, more than four times its share in 1995. To gain some perspective on total merchandise exports in China was $ U.S 2.3 billion in 2014, compared to India’s $U.S 17.5 million. Thus, India’s exports were only 14% of China’s.

If we look within the Asian countries about the growth of merchandise export we find that Japan showed the way initially when its manufacturing techniques powered it to become a global manufacturing powerhouse in sectors ranging from autos to consumer durables to imaging. Later the Asian Tigers, especially Taiwan and South Korea grew rapidly because of their engineering and manufacturing competitiveness. After that came the rise of China, which became the production base for all sorts of products from steel to solar panels, and from mobile phones to computers.

In India, we find that giving tax sops have been taken as the competitive tool but with currency volatility and fiscal and Current account deficit going for wild toss the leeway of export sops through taxation gets negligible pressure. In other words exports, sops stand out to be the taxpayer’s money. Tax sops for promoting export is not cost management neither its tool sustainable for the long term.  This speaks that efficient cost management and cost accounting tools are not being practiced. Cost Accountants knowledge is not being fully recognized and this is a big gap for the society.

Cost Accounting tools were never accepted in broader fashion and the professional expertise was suppressed since competitive rival profession took the easy steps of promoting tax sops to make the Indian export competitive.  

Cost measurement and efficient utilization of resources would lead to the make Indian goods affordable and competitive without indulging in any trade manipulative practices.   Cost Accountants who are joining the industry should focus on strategic cost management aspect where they can create an impact on bridging the gap within the society. Focusing on labor cost competitiveness would be a long-run game hence one has to accept that for the sustainable export competitiveness to grow.   Rising inflation over the long-term changes in the dynamics of labor cost competitiveness. Hence it's not a sustainable economic growth.

The Indian Foreign Trade Policy (FTP) Statement of 2015-2020 has a number of dimensions including enhancing market access; upgrading product quality and product/service diversification; building key transport links internationally; enhancing the efficiency of India’s export and trading infrastructure, and enhancing India’s reputation abroad. But I don’t find much on the part of cost efficiency and cost reduction and adoption of costing tools within the policy framework to create the competitiveness.

If we focus on Asian economy we find India has to compete with countries like China and Japan, the former is trade manipulator and the later is the mother of many new cost accounting strategies. The competition for India is too high in terms of making its export grow within the Asian economies.  Efficient cost management and efficient pricing would be the only path for keeping the Indian exports to remain competitive.   On the other hand, making the goods affordable to bridge the gap between the societies is the biggest opportunity for a long-term sustainable economy.

Adopting advanced technology does not mean resources are utilized efficiently or the product would become competitive if you don’t adopt cost pricing methodology. Currently Indian economy has been focusing on increasing the volume of export but not much on the competitiveness. The 4th Industrial revolution will not only change the dynamics but would make Indian export to less competitive.


Indian might be paying the cost for delayed identification or yet to recognize the full potential of the cost accounting profession and professionals.

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