February 05

PRESIDENTDr. H. R. Subramanya

VICE PRESIDENTPravakar Mohanty

MEMBERSDr. Sanjiban Bandyopadhyay,

A. S. Durga Prasad, M. Gopalakrishnan,K. G. Goyal, D. V. Joshi, V. C. Kothari,

Bibhabananda Majumder, B. M. Sharma, Rakesh Singh,

Chandra Wadhwa, Dr. D. Jagannathan,N. K. Prasad., B. C. Malu

DIRECTORSExaminationsChandana Bose

[email protected]

StudiesSwapan Dey

[email protected]

TechnicalA. P. Kar

[email protected]

Administration & FinanceR. N. Pal

[email protected]

Research & JournalSiddhartha Sen

[email protected]

EDITORSiddhartha Sen

[email protected]

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8 7the management accountant, February, 2005

IDEALSTHE INSTITUTE STANDS FOR

❑ to develop the Cost and ManagementAccountancy profession ❑ to developthe body of members and properlyequip them for functions ❑ to ensuresound professional ethics ❑ to keepabreast of new developments.

The views expressed by contributorsor reviewers in this Journal do notnecessarily reflect the opinion of TheInst i tute of Cost and WorksAccountants of India nor can theInstitute by any way held responsiblefor them. The contents of this journalare the copyright of The Institute ofCost and Works Accountants of India,whose permission is necessary forreproduction in whole or in part.

Editorial & CommuniqueEditorial : After the deluge 89

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President's Communique 90

Cover FeaturesVAT - Golden Opportunityfor Cost Accountantsby V. S. Datey 92

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Value added - its meaning andapplicationby S. N. Chakraborty 97

..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A White Paper OnState-Level Value Added Tax 105

AccountingAccounting for WaterResourcesby Siddhartha Sarkar 111

Professional UpdatesService Tax on goodstransport agencyby Hetal Shah 115

..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax Titbitsby S. Rajaratnam 131

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Activity based costing inengineering industryby A. N. Raman 155

GlobalizationGlobalization, Informalization andAccounting: Scope forFuture Policy Options inIndiaby Buddhadeb Ghosh 137

TourismGoa tourism development corpora-tion (GTDC) : A financial analysisby Filipe Rodriguese Melo andDr. S. S. Hugar 145

« Official Organ of The Institute of Cost and Works Accountants of India

Volume 40 No. 2 February 2005

TheManagementAccountant

HRDHuman resource development incoopertive milk supply society,Tirunelveliby Dr. V. M. Selvaraj andM. Muthu Deivakani 150

Executive Digest 123

Institute Notification 133

Report on Cost AccountingRecord Rules 117

Region & Chapter News 161

Seminar News 160

Programmes 110, 114

For Attention ofMembers 158, 166

The Management AccountantTechnical Data

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88 the management accountant, February, 2005

IN THIS ISSUE

VAT - Golden Opportunity for Cost AccountantsV. S. DateyDiscussion on salient aspects of white paper on VAT released on 17 January2005 and the role that can be played by Cost Accountants.

Value added - its meaning and applicationS. N. ChakrabortyAn exposure on the concept of �Added Value� and its application under VATand Cenvat

Accounting for Water ResourcesSiddhartha SarkarThe paper delves into the concept and definition of accounting forwater uses by designing approaches to be universally applicablefor evaluating water resource management.

Globalization, Informalization and Accounting : Scope for Future PolicyOptions in IndiaBuddhadeb GhoshThis paper aims to assess the inherant strengths and weaknesses ofIndian Economy in the context of performance in a globalised regimeand the role of ICWAI therein

Goa tourism development corporation (GTDC) : A financial analysisFilipe Rodrigues e Melo and Dr. S. S. HugarThis paper makes an attempt to analyse the financial performance of GTDCwith the help of Ratio Analysis and analytical tools.

Human resource development in cooperative milk supply society, TirunelveliDr. V. M. Selvaraj and M. Muthu DeivakaniA Case study on the relationship of job satisfaction level with variousjob satisfaction factors

Diamond Jubilee Annual Seminaron

The Role of Cost & ManagementAccountants

in Value Based EconomySunday, 27 February 2005,CMPDIL Hall, Asansol

Contact:Asansol Chapter of Cost Accountants

Rajpara-Budha, PO Asansol 713 301,Dist: Burdwan, West Bengal

Phone: 0341-2209466

the management accountant, February, 2005 8 9

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The December 26 tsunami in the IndianOcean that devastated large coastal areasin India and at least a dozen countries,killing more than 2.26 lakhs people, mak-ing many more destitute and destroyinghuge infrastructure and properties, bringsto the fore the importance of disaster man-agement where assessment of disastercosts and cost management in the disas-ter recovery and post-recovery phases as-sume great importance.

It is true that prevention is better thancure but countless times man is helplessin the face of nature’s fury. Nonetheless,a tsunami warning system for the IndianOcean will be set up by mid-2006 underthe leadership of the United Nations -agreed the recently concluded governmen-tal World Conference on Disaster Reduc-tion in Kobe, Japan. The technology todetect tsunamis in the Indian Ocean re-gion should be up and running within 12to 18 months, said Salvano Briceno, Di-rector of the UN’s International Strategyfor Disaster Reduction (ISDR). Developingplans for an effective response to anywarning, and educating local communities,will take longer - perhaps two to threeyears - Briceno said.

Once a disaster prevention plan is in or-der the prevention cost management alsobecomes a key issue as billions of dollarsare at stake both in the prevention, recov-ery and post-recovery stages. The IMF hasalready offered emergency assistance onthe order of $1 billion. So far official bilat-

After the delugeeral and multi lateral pledges total about$ 5 billion – said Asian Development Bank(ADB). According to one ADB Report thetsunami had set back poverty reductionprogrammes in the region and could thrustan additional two million people below thepoverty line.

The overall impact on the nationaleconomies concerned need very carefulconsideration. In case of Sri Lanka impacton the economy and policy options to sup-port a recovery system might be of greatproportion. Due to its heavy reliance ontourism and extensive damage to tourismindustry Maldive’s recovery will depend oninternational assistance for such recovery.Indonesia saw a tremendous loss of humanlives. While the oil and natural gas pro-duction facilities in Aceh and NorthernSumatra survived the disaster, the rest ofthe province’s economy was devastated.The impact on Indian economy may not bevery significant but the destruction in thecoastal regions had a devastating effect onthe local fishing and agricultural commu-nity. It will be a costly human and socialproblem in the affected areas. What isneeded is socio-economic reconstructionprogrammes based on appropriate cost-benefits. Cost Accountants do have a dis-tinct role in this domain.

The moot point: it is not a problem inwhich aggregate numbers of GDP are rel-evant - it is more a question of human andsocial problems. And, that is of course, themost important issue today !

Editorial

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Dear Professional Colleagues:

Immediately after I finalized my communiqué throughthis page for the January issue, the Tsunami tidal waveransacked the South Asia. A large part of our southerncoastline was damaged with loss of life, property etc. Thegrief that has emerged is insurmountable and the task ofrehabilitation daunting one. Any amount of sympathy ex-pressed by us would not dilute the grief of those affected,but yet it is essential that we contribute to the cause in thebest manner possible.

When there are formal and informal discussions in proc-ess to finalize the Union Budget, I thought of looking intothe structure of classification of goods for the purpose of Excise Duty and CustomsDuty. I believe that it would be easier and quicker if one has one rate for one Chap-ter. This means that all the rates and duties in the same chapter will be the samewithout any other rates. Such a process would rationalize tariff rate structure andeasy to be understood by the exporters and importers and at the same time morepractical for administering the rates by the Custom Departments. When the firmdecision is taken at the policy level then it will be practicable to do so with sufficientaccuracy leaving very few exceptions like dues on newsprint etc. The fact that clear-ance in Customs is still very delayed is partly because of a highly complicated ratestructure. A computer cannot help if the exemptions required and item to be provedto be utilized in a particular type of machine are not clear. The beliefs that the com-puters will expertise customs clearance is a misconception and cannot deliver resultswithout rationalized tariff structure. The profession of Cost and Management Ac-countancy should be able to help out in involving rationalized customs tariff struc-ture.

I wish also to share with you one area of competence for the Cost and ManagementAccountancy Profession. Statistical data shows that there is at present substantialunutilized capacity in a host of industrial sectors with exception of steel. The state ofunutilized capacity would continue and Indian Industry has been afflicted byunutilized capacity for several years now. In many of these sectors the generation ofdemand would call forth additional capacity creation fairly, easily and fairly soon. Itis essential to measure and monitor the capacity creation and keeping it unutilizedfor the purpose of optimal resource utilization. The cost of unutilized capacity juxta- posed with cost of creating capacity is an important parameter to measure the costeffectiveness of Indian industrial sector. The role of Cost and Management Account-ants in addressing this issue is very fundamental to the professional training andcontemporarily very important for the Indian economy.

President's Communique


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I am happy to inform you that Institute is fast moving to introduce e-learning toits students. Information Technology is pervasive in the world of business. Compe-tence with this technology is an imperative for the Professional Accountant. Keepingin line with this perspective, the Institute is developing programs to enhance thecompetence in Information Technology of the present and future members of theInstitute. e-Learning is the future in education and it is essential that our Institutegears up to the challenge. The entire gamut of learning gets a big boost through thismode and it is hoped that we would be able to reach largest number of learners andat the same time provide the latest knowledge input. This novel scheme would re-quire, to succeed, enormous support from the members and students. It is a commit-ment to e-learning and therefore, I expect concerned members to critically examinethe scheme that is being introduced and let me have your reactions and suggestionsto the scheme.

We are also trying to bridge links with Academic Institutions so as to introduceour study materials, in selected papers, among students undergoing academic coursesin Commerce. I invite suggestions from members in this connection.

We are also trying to provide a framework to the Management Consultancy Serv-ices which is a rising star for our profession in the current context as well as givingfillip to our younger members to take to practice. I would request all the members togo through and forward their valuable suggestions to come out with a comprehensiveframe work in this area. This also provides the Institute to identify the Gap in theknowledge and application content and accordingly initiate steps to address the same.

I also take this opportunity to request all my professional colleagues to participatein large numbers in the 46th National Convention to make it a memorable one tocommemorate the Diamond Jubilee Year of ICWAI with a state of the art themeEnhancing & Sustaining Business Competencies under Emerging Global Environ-ment from 10th February to 12th February 2005 at Pune.

With best wishes and thank you

Dr. H. R. Subramanya (President)

President's Communique


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With the release of White paper onVAT, it is now almost certain thatState Level VAT will become ef-

fective from 1-4-2005 in all States, exceptpossibly in UP. Cost Accountant is very wellsuited to ensure proper implementation of VAT.It is proposed to discuss salient aspects ofWhite Paper on VAT released on 17-1-2005and role a Cost Accountant can play in properimplementation of VAT.

Highlights of White Paper on StateVAT

Highlights of VAT are summarised below.

Benefits of VAT - In the VAT, a set-off isgiven for input tax as well as tax paid on pre-vious purchases to avoid cascading effect. Withthe introduction of VAT, benefits will be asfollows:

· a set-off will be given for input tax aswell as tax paid on previous purchases

· other taxes, such as turnover tax, sur-charge, additional surcharge, etc. will beabolished

· overall tax burden will be rationalised

· prices will in general fall

· there will be self-assessment by dealers

· transparency will increase

· there will be higher revenue growth

The VAT will therefore help com-mon people, traders, industrialistsand also the Government. It is indeeda move towards more efficiency, equalcompetition and fairness in the taxa-tion system.

Overview of State Level VAT -State-level VAT is centered aroundthe basic concept of “set-off” for thetax paid earlier, the needed commonpoints of convergence also relate tothis concept of set-off/input tax credit,its coverage and related issues.

The essence of VAT is in provid-ing set-off for the tax paid earlier, and

this is given effect through the con-cept of input tax credit/rebate. Thisinput tax credit in relation to anyperiod means setting off the amountof input tax by a registered dealeragainst the amount of his output tax.The Value Added Tax (VAT) is basedon the value addition to the goods,and the related VAT liability of thedealer is calculated by deducting in-put tax credit from tax collected onsales during the payment period (say,a month).

If, for example, input worth Rs.1,00,000/- is purchased and sales areworth Rs. 2,00,000/- in a month, andinput tax rate and output tax rate are4% and 10% respectively, then inputtax credit/set-off and calculation ofVAT will be as shown (Table A):

Entitlement of Input Tax Credit -This input tax credit will be given forboth manufacturers and traders forpurchase of inputs/supplies meant forboth sale within the State as well asto other States, irrespective of whenthese will be utilised/sold. This alsoreduces immediate tax liability. Evenfor stock transfer/consignment sale ofgoods out of the State, input tax paidin excess of 4% will be eligible for taxcredit.

Exports will be completely tax free- For all exports made out of the coun-try, tax paid within the State will berefunded in full, and this refund willbe made within three months. Unitslocated in SEZ and EOU will begranted either exemption from pay-ment of input tax or refund of the in-put tax paid within three months.

VAT - Golden Opportunityfor Cost Accountants

* FICWA, FCS

V. S. Datey *

(a) Input purchased within the month : Rs. 1,00,000/

(b) Output sold in the month : Rs. 2,00,000/

(c) Input tax paid : Rs. 4,000/

(d) Output tax payable : Rs. 20,000/

(e) VAT payable during the month (after input tax credit)((d)-(c) : Rs. 16,000/

Table A

Cover feature

Discussion on salient aspects of white paper on VATreleased on 17.01.2005, and the role a Cost Accountantcan play in proper implementation of VAT.


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Inter State Purchases not eligiblefro Credit - Tax paid on inputs pro-cured from other States through in-ter-State sale and stock transfer willnot be eligible for credit.

Credit of tax paid on OpeningStock - All tax-paid goods purchasedon or after April 1,2004 and still instock as on April 1, 2005 will be eli-gible to receive input tax credit, sub-ject to submission of requisite docu-ments. This tax credit will be avail-able over a period of 6 months afteran interval of 3 months needed forverification.

Tax Invoice, Cash Memo or Bill bydealer - VAT with input tax credit iscrucially based on documentation oftax invoice, cash memo or bill. Everyregistered dealer, having turnover ofsales above an amount specified, shallissue to the purchaser serially num-bered tax invoice with the prescribedparticulars. This tax invoice will besigned and dated by the dealer or hisregular employee, showing the re-quired particulars. The dealer shallkeep a counterfoil or duplicate of suchtax invoice duly signed and dated.Failure to comply with the above willattract penalty.

Small dealers and CompositionScheme - Registration of dealers withgross annual turnover above Rs. 5lakh will be compulsory. There willbe provision for voluntary registra-tion even in cases where turnover isless than Rs five lakhs. All existingdealers will be automatically regis-tered under the VAT Act. A newdealer will be allowed 30 days timefrom the date of liability to get regis-tered.

Small dealers with gross annual

turnover not exceeding Rs. 5 lakh willnot be liable to pay VAT. States willhave flexibility to fix this thresholdlimit within Rs. 5 lakh.

Small dealers with annual grossturnover not exceeding Rs. 50 lakhwho are otherwise liable to pay VAT,shall have the option for a composi-tion scheme with payment of tax at asmall percentage of gross turnover(may be about 1%). The dealers opt-ing for this composition scheme willnot be entitled to input tax credit.

Scrutiny of Return - Returns areto be filed monthly/quarterly as speci-fied in the State Acts/Rules, and willbe accompanied with paymentchallans. Every return furnished bydealers will be scrutinized expedi-tiously within prescribed time limitfrom the date of filing the return. Ifany technical mistake is detected onscrutiny, the dealer will be requiredto pay the deficit appropriately.

Self-Assessment of VAT Liability- VAT liability will be self-assessedby the dealers themselves in terms ofsubmission of returns upon setting offthe tax credit. Return forms as wellas other procedures will be simple inall States. There will no longer becompulsory assessment at the end ofeach year as is existing now. If nospecific notice is issued proposing de-partmental audit of the books of ac-counts of the dealer within the timelimit specified in the Act, the dealerwill be deemed to have been self-as-sessed on the basis of returns submit-ted by him.

Departmental Audit of Accountsof Dealers - Correctness of self-assess-ment will be checked through a sys-tem of Departmental Audit. A certain

percentage of the dealers will betaken up for audit every year on ascientific basis. If, however, evasionis detected on audit, the concerneddealer may be taken up for audit forprevious periods. This Audit Wingwill remain de-linked from tax collec-tion wing to remove any bias. Theaudit team will conduct its work in atime bound manner and audit will becompleted within six months. Theaudit report will be transparentlysent to the dealer also.

Sales Tax Declaration Form -There will be no need for any provi-sion for concessional sale under theVAT Act since the provision for set-off makes the input zero-rated.Hence, there will be no need for dec-laration form, which will be a furtherrelief for dealers.

Goods covered under VAT - All thegoods, including declared goods willbe covered under VAT and will get thebenefit of input tax credit. The onlyfew goods which will be outside VATwill be liquor, lottery tickets, petrol,diesel, aviation turbine fuel and othermotor spirit since their prices are notfully market determined. These willcontinue to be taxed under the SalesTax Act or any other State Act or evenby making special provisions in theVAT Act itself, and with uniform floorrates decided by the EmpoweredCommittee.

VAT Rates and Classification ofCommodities - Under the VAT systemcovering about 550 goods, there willbe only two basic VAT rates of 4% and12.5%, plus a specific category of tax-exempted goods and a special VATrate of 1% only for gold and silver or-naments, etc. Thus the multiplicity ofrates in the existing strcture will be

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done away with under the VAT sys-tem.

Under exempted category, therewill be about 46 commodities compris-ing of natural and unprocessed prod-ucts in unorganised sector, itemswhich are legally barred from taxa-tion and items which have social im-plications. Included in this exemptedcategory is a set of maximum of 10commodities flexibly chosen by indi-vidual States from a list of goods (fi-nalised by the Empowered Commit-tee) which are of local social impor-tance for the individual States with-out having any inter-state implica-tion. The rest of the commodities inthe list will be common for all theStates.

Under 4% VAT rate category,there will be the largest number ofgoods (about 270), common for all theStates, comprising of items of basicnecessities such as medicines anddrugs, all agricultural and industrialinputs, capital goods and declaredgoods. The schedule of commoditieswill be attached to the VAT Bill ofevery State. The remaining commodi-ties, common for all the States, willfall under the general VAT rate of12.5%.

Phasing out of CST - There is alsoa need, after introduction of VAT, forphasing out of Central Sales Tax(CST). However, the States are nowcollecting nearly Rs. 15 thousandcrore every year from CST. There isaccordingly a need of compensationfrom the Government of India for thisloss of revenue as CST is phased out.The position regarding CST will bereviewed by the Empowered Commit-tee during 2005-06, and suitable de-cision on the phasing out of CST will

Sr No. Supplier’s Date of Name TIN No. Description Quan(Control Invoice Invoice/Debit of of of goods tityNo.) No. /Debit Note Supplier supplier

Note No.

1 2 3 4 5 6 7

Net Excise VAT VAT VAT Tax not Gross Remarkspurchase duty tax tax Tax eligible purprice paid @ 1% @ 4% @ for chase

12.5% VAT price credit

8 9 10 11 12 13 14 15

(Note - Same record can be used for Cenvat of excise and State VAT)

Table 1

Table 3Sr Supplier’s Date of Name ST Regn Description QuantityNo. Invoice Invoice of No. of of goods

No. Supplier supplier

1 2 3 4 5 6 7

Net Tax Tax not Gross Remarkspurchase eligible eligible purchaseprice for input for VAT price

credit credit

8 9 10 11 12

Table 4

Sr Supplier’s Date of Name TIN Description NetNo. Credit Credit of No. of of amount

Note No. Note Supplier supplier goods of debitnote

1 2 3 4 5 6 7

VAT VAT VAT Tax Gross Remarkstax @ tax Tax not Amount1% @ 4% @ 12.5% eligible of Credit

for VAT Notecredit

8 9 10 11 12 13

Cover feature

# Description of input # Unit of measurement (At the top of each page)

Date Opening Sr No. Quantity Date Quantity Closing Remarksstock of receipt received of issued Stock

(Control No. issue (foras per manufacture

Records orof input sale)credit)

1 2 3 4 5 6 7 8

Table 2


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be taken.

Record of input Tax Credit

Following records should be main-tained

Records of Purchases of Inputs -Credit of tax paid on inputs can beavailed only if original tax invoice(VAT Invoice) is available. Dealershould maintain proper ‘PurchaseRegister’, recording receipts of all taxinvoices. These should be seriallynumbered for purpose of checking andcross reference. The record shouldindicate break-up of tax paid at dif-ferent rates, so that tax paid at dif-ferent rates on inputs can be calcu-lated. Suggested columns of therecord are - (Table 1 followed)

Purchases from unregistered dealer- If purchases from unregistered deal-ers are few, the same may be includedin main Purchase register itself.Separate record is not required asunder new scheme, there is no re-quirement of paying sales tax on URDpurchases.

Monthly totals - Monthly totals ofcredits availed should be taken.

Record of debit notes - If Debit Noteis issued by supplier, additional in-put credit of tax paid by supplier onincreased price will be available. Thisshould be entered in the CenvatCredit record. While entering debitnote, cross reference to original in-voice should be given.

Quantity record of inputs - Stockrecord of all inputs is required to bemaintained. The record should be foreach type of input individually. Oneor more pages may be reserved foreach type of input. The suggested for-mat is - (Table 2 in previous page)

Month Opening Credit of Credit of Credit of Totaland year Balance inputs Capital inputs in

Goods opening stock

1 2 3 4 5 6

Less Tax Net credit Credit Closing Remarksreduced by available utilised BalanceCredit Notes during the (if any)

month

7 8 9 10 11

Table 5

Invoice/ Date Name Buyer’s Description Quantity Sale Sale SaleDebit of TIN of within within withinNote buyer No. Goods State State StateNo. @ 1% @ 4% @12.5%

1 2 3 4 5 6 7 8 9

VAT VAT VAT Sale Export Consig- Inter CST Gross Remarks@ 1% @ 4% @ Exempt Sale nment State Sale

12.5% from tax Transfer Sale Price

10 11 12 13 14 15 16 17 18 19

Table 7

Table 8

Credit Date Name Buyer’s Description Net Net NetNote of TIN of Sale Sale SaleNo buyer No Goods within within within

State State State@ 1% @ 4% @ 12.5%

1 2 3 4 5 6 7 8

VAT VAT VAT Sale Export Inter CST Gross Remarks@ 1% @ 4% @ 12.5% Exempt Sale State @ 4% Sale

from tax Sale Price

9 10 11 12 13 14 15 16 17

Table 6

Cover feature

Sr Supplier’s Date of Name TIN Description Quantity NetNo. Invoice Invoice/ of No. of purchase(Control No. / Debit Supplier of goods priceNo.) Debit Note Note supplier

No.

1 2 3 4 5 6 7 8

Excise VAT VAT Gross Location Credit Credit Credit Remarksduty tax Tax purchase of in first in inpaid @ 4% @ 12.5% price capital year second third

goods year year

9 10 11 12 13 14 15 16 17


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of capital goods after deducting thecredit note, after making suitable re-marks.

Record of Tax credit available -Monthly/quarterly totals of the fol-lowing should be taken - (a) Inputcredit available (b) Credit availableon capital goods (c) Credit notes fromsuppliers.

Following record may be maintainedon monthly basis - (Table 6 followed)

These monthly/quarterly totalsshould tally with the monthly/quar-terly return that is required to besubmitted to VAT tax authorities.

CARRY FORWARD/REFUND OFTAX CREDIT - If input tax credit can-not be utilised in a particular month/year, the credit can be carried for-ward and used in subsequent months/year. Refund of such excess credit ispermitted only if goods were exportedout of India.

Record of output tax

Following are suggested records.

Sale Register - Record of output taxpayable will be required in the formof Sale Register. The Sale Registershould have following columns - (Ta-ble 7 in previous page)

Credit Notes register - The dealermay issue debit/credit notes to hisbuyers. Debit Notes may be enteredin the Sale Register itself, as valueof sale will increase to that extent.Record of credit notes may be keptseparately, as tax liability of dealerwill reduce to the extent of tax on re-duction in price given to buyer. TheCredit Notes register may have fol-lowing columns - (Table 8 in previ-ous page)

Sale Account by small dealers - Smalldealers having gross turnover upto Rs50 lakhs are not entitled to any VATcredit. They cannot show VAT taxseparately in the invoice. Mostly,they will be under compositionscheme. They will maintain dailyrecord of gross sales.

Payment of Tax and filing Returns

Every dealer is required to file re-turns on monthly/quarterly basis. Ifthe aforesaid records are kept prop-erly, filing the return will be veryeasy and mistakes will be minimum.

Net Tax payable - Net tax payable willhave to be calculated as follows - (a)Output tax plus (b) Reversal of Credit(On exempted goods, stock transfers,free samples, lost inputs) - Less - (c)Input tax credit available.

This net amount is required to be paidthrough prescribed challan on or be-fore due date.

Preservation of records - Since assess-ment can be opened for prescribedperiod (usually five to eight years), itis necessary to preserve all relevantrecords for prescribed period fromclose of the financial year. Therecords can be audited by departmen-tal audit party.

Role of Cost Accountant

It is very clear that proper recordkeeping is essential for success ofVAT. Cost Accountants having exper-tise in material accounting and con-trol are most suitable to do the jobefficiently and effectively. Therecords that will be required can bestbe maintained by Cost Accountant.

He will also be ideally suitable forauditing accounts of dealers on behalfof dealer or the department. ❑

Cover feature

Opening stock - Credit will be avail-able for tax paid on inputs lying instock as on 1-4-2005. Tax paid oncapital goods lying in stock as on 1-4-2005 will not be available. It is nec-essary to carry out detailed inventoryas on 1-4-2005. The record may beprepared in following format. (Table3 in previous page)

The tax paid on inputs lying in stockwill be available as per provisions ofState VAT tax law.

Record of credit notes received fromsuppler - If supplier issues a creditnote, corresponding sales tax amountwill have to be reduced. Hence, recordof debit notes received from suppli-ers should be kept in following form(Table 4 in previous page)-

Record of capital goods - Credit isavailable on VAT tax paid on capitalgoods also. However, since the creditis available in stages, separaterecords are required. Suggested col-umns of the record are - (Table 5 inprevious page)

MONTHLY TOTALS - Monthly totalsof credits availed should be taken.

RECORD OF DEBIT NOTES - IfDebit Note is issued by supplier, ad-ditional credit of tax paid by supplieron capital goods will be available.This should be entered in the CenvatCredit record. While entering debitnote, cross reference to original in-voice should be given. Alternatively,price of capital goods may be in-creased suitably.

RECORDING OF CREDIT NOTES -Credit note received from supplierwill amount to reduction in the priceof capital goods and corresponding re-duction in tax paid on capital goods.It may be advisable to enter net price


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Added value is a form of wealth,But, this is not natural wealthlike Land, Minerals etc. Added

value is a measure of wealth gener-ated by the collective efforts of peo-ple who work in a business or indus-try i.e the employees, the executives,the shareholders.

The added value concept has gotmany uses. It provides a method ofmeasuring the net output of a busi-ness, industry or country. It is alsothe basis of national accounting.Economists have used the V.A. con-cept for long in a 'macro' sense. Thegross national product (i.e additionalwealth generated before deductingdepreciation of capital stock) of acountry is viewed as constituting thesum total of incomes distributed tothe four productive agencies of aneconomy:

G. N.P. = Wages + Rent + Inter-est + Profit. Wages generically speak-ing go to all the manpower engagedin generating national wealth. Simi-larly,' rent' represent the incomes ofthose who provide various servicesand charge for them. Interest repre-sents the income going to suppliers

Value added - its meaningand application

* FICWA

S. N. Chakraborty *

of capital. The residual component,'profit' goes to the owners of the en-terprise be it public or private. It isimportant to note that 'materials' orcosts thereof, have not appeared inthe above GNP equation. The reasonfor this is that the wealth of nationsarises out of the conversion of given,basic stocks of their raw materials.When all the factors of productioncombine to add fresh or additionalutility or value to such materials,only then we generate more GNP. Itis this inor, mental generation whichis 'value added' . Such an interpreta-tion has to exclude 'materials' fromthe computation of V.A.

It is possible to apply this macro-logic to the micro-level enterprisealso. A manufacturing firm beginswith a certain quantum of raw mate-rials, and then engages in a conver-sion process to yield a product withnew utility and market value differ-ent from the original cost of materi-als. The excess of such market valueover the cost of materials is definedas V.A. However, in practice materi-als in V.A. calculations include allitems purchased from outside and ac-tually processed. Thus, power, fueland stores are the other items which

are added to materials, before deduct-ing the latter from sale value. As abegining, therefore, V.A. by a firmduring a period can be stated as ;

V.A. = Sales(net of excise duty)-Cost of Throughput (i.e of itemsbought from outside and processed(1)

As an extension, we may nowwrite:

Profit = V.A. - All Conversion andother costs. (2)

Where 'conversion costs' will in-clude all manufacturing labour andmanufacturing overhead costs, and'other costs' will cover various sellingand administrative costs, includinginterest, depreciation etc. The readermay now readily grasp the point thatan important mean has been providedto understand the'why' of a certainprofit or loss figure for an enterprise.Thus, if the bulk of conversion andother costs are fixed in the short-run-as they quite possibly are - then theonly effective 'way to manage profitsis to manage V.A. More of this later.

Some Definitional Refinements

It will be observed from equation(1) above that the amount ofthoughput consumption is related tothe production activity during a pe-riod

But this will not usually be equalto the sales activity. In a hypotheti-cal period of zero sales, but highproduction,equation (1) 'would show'a negative V.A. figure. Evenother'wise, in the more normal situa-tion of periodic unbalanced produc-tion and sales quantities, some ad-justment is called for the calculationof the cost of throughput. This maybe done as follows :

Instead of taking actual salesvalue, we could consider 'value of pro-duction' i.e.,

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An exposure on the concept of “Added value” and itsapplication under VAT and Cenvat.


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Obviously, then equation (2) forcalculating profit has to be suitablyrewritten as .

Profit = V.A. (vide eqn.5) - Cost ofThroughput in productionnot sold - Cost of conversionand other costs (6)

However, a problem will arise forfirms wich has just started their op-erations, and have a very long pro-duction cycle extending over 2 or 3years. In such cases equation (5) losesits applicability. But it is still possi-ble to use equation (4) for these firms.The B.P.E.definition of V.A. may havebeen a response to such a situationfor many public sector firms. As soonas, however, such firms cross overtheir initial gestation periods, whichconcentrate only on production, intoperiods when both sales and produc-tion tend to move in balance, theyshould adopt equation (5) for V.A.calulations. And, of course, otherfirms may use equation (5) right fromthe start. The reason we lay stress onthis is that - except for artificiallyguaranted marketability of produc-tion, no justifiable existence of V.A.may be claimed unless goods havebeen actually sold. And how can weignore that profits are themselves de-rived from V.A. ?

Table – 1

Company Unit Total Unit - 1 Unit - 2 Unit 3 Unit - 4

Sales 400 100 100 100 100

R.M. Consumed 165 40 45 35 45Wages etc. 162 40 42 45 35Depreciation 42 10 12 10 10Intt. on loan 15 5 5 5 –

Total Cost 384 95 104 95 90

Profit/Loss 16 5 -4 5 10

Value of production + sales value=value of increase or decrease in fin-ished goods and 'work-in-progressstocks. Thus, the first quantity onthe right hand side of equation (3) isa mixture of market-determined val-ues, and of internal valuation sys-tems of finished goods and 'work-in-progress stocks adopted by individualfirms. The latter could obviously beall so different as to render compara-bility amongst firms quite difficult.But depending on the valuation meth-odology adopted, this latter versioncould either show a positive V.A. or amuch lower negative V.A. figure inour hypothetical case of 'zero sales-high production In fact, the Bureauof Public Enterprises in its AnnualReports on the working of Public Sec-tor companies, calls the amount de-rived in (3) above as 'value of produc-tion'. It is not clear 'whether salesvalue covers the anticipated salesproceeds of actual Production as anwhen sales may take place. possiblythis interpretation is implicit. V.A. isthen derived as follows:

V. A. = Value of production - Costof Materials, power etc (4)

If one chooses to adopt the princi-ple that V.A. accrued cannot be con-sidered equal to V.A. realised unlessproduction has been sold, then onemay rewrite equation (1) as :

V.A. = Sales - Cost of Throughputin sales. (5)

02. Drawback of Profit concept .-

Generally the business perform-ance is judged by the profit it earns.Although this is a universally ac-cepted method of judging the businessperformance, the profit as a measureof performance can be misleading.Various Business Units in a same in-dustry may have the same turnover,but the profitability may differ.

The Table 1 shows that four Units(1,2,3,&4) of the same industry havegot same amount of Turnover,but dueto different type of expenses the prof-itability is completely distorted.

03. How to calculate the Added value:

a) The value of output is calcu-lated by adjusting the fluc-tuation of Stock (opening &closing) with the sales.

b) All the purchased Goods &Services (which is the addedvalue of other dusiness) areto de deducted from thevalue of output.

c) The difference between (a) &(b) will be added value. Avisual chart of added valueis given hereunder to showthe relationship of gross out-put with Added value.


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Table - 2

Gross output

=

Sales turnover afteradjustment of stock

Wealth Created

=

Added value

Profit+

Interest+

Depreciation+

Wages, Salaried & otherEmployment Cost.

Mterials (after adj : of stock)+

Purchased services

Wealth Created by

other enterprise.

In the table below calculations of Added value of a business unit for three years are given as an illustration.

Table - 3

Rs. on lacs

1st Year 2nd Year 3rd Year

a) Value of output 3750 3950 4600

Production

Finished Stock

Accretion/Decretion (–) 50 3700 (+)50 4000 (–) 4600

b) Consumption of input & Services

Raw materials

consumed 1200 1360 1535

Electricity

Purchased 200 200 240

Stores & Spares

consumed 150 190 175

Rent paid 50 1600 50 1800 50 2000

C. Added value 2100 2200 2600

(a-b)

+

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06. Conclusion :

As alredy explained above the added value is a measure of the wealth created by the application of the kno~ledge& skill of people to provide various goods & services. These Goods & Services are generated to sati!fy the needs &desire of mankind. Added value measures the satisfaction of customers who buy the goods & services.

The creation of Added value requires a continual search for new products, new process & new material's. creatingAdded value is fundmental objective of Good Management. By creating more Added value we can all have a higherstandard of living Hence, Added Value is a new key to prosperity.

04. Disposal of Added value :-

The Added value calculated above for 3 years have been distributed in different expense heads (as shown below).This distribution will show how the 'wealth created is distributed amongst different heads.

Table - 4

Rs. in lacs

Year 1st 2nd 3rd

a) Added value 2100 2200 2600

b) Employment cost

Direct & Indirect wages 780 810 870

Staff & Others salary 375 392 415

Bonus 60 65 65

Staff welfare Exp 195 230 270

1410 1497 1620

C) Financial charges 45 46 50Bank & Other Int.

D) Depreciation charges for plant. bldg. 100 105 110vehicles etc.

E) Net profit before Tax 545 552 820

F) Added value .

(A = B + C + D + E) 2100 2200 2600

05. Added value per man :-

This is an indication of the performance of the business unit.

The example is given hereunder :-

Table - 5

Rs. in lacs

Year 1st 2nd 3rd

Added value 2100 2200 2600

Man power 5675 5790 6190

Added value/Man 37000 38000 42000

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Modvat and it Accounting Treatment :-

The Finance Minister had an-nounced as part of the 1986 Budgetproposals, a modified system of valueadded tax or 'MODVAT' for short. Thescheme provides for instant credit of theexcise duty and additional duty of cus-toms (countervailing duty) paid on in-puts "when used in or in relation to themanufacture of the final products ofMODVAT enables a manufacturer toobtain instant and completereimburesement of the specified dutiespaid on the inputs. This will decreasecost of the final product considerablyboth on account of availability of creditof the duties paid on the inputs and onaccount of reduction of interest costs.

Excise is a tax on manufacture.Goods manufactured in India are sub-jected to this tax and is known as cen-tral Excise Duty.Such duty is leviableat the rates prescribed in the CentralExcise Tariff Act 1985 and only if thegoods are clarified in the said Tariff.Central Excise is governed by the cen-tral Excise and Salt Act, 1944 and pro-cedural provisions are mentioned in theCentral Excise Rules, 1944.

In order to limit the effect of thecascading effect of tax being levied atevery stage of manufacturing activitybefore a final finished product comesinto existence, duty credit scheme un-der MODVAT 'was introduced.

Who can avail of the credit ?, In re-spect of 'which final product the creditcan be availed of For 'What purposesthe credit can be availed ?

The credit under the MODVATscheme is available to a manufacturerof a final product classifiable under anyof the chapters specified in column (3)of the Table annexed to notificationNo.177/86-CE. The final product shouldbe dutiable. Where the final productmanufactured by a manufacturer isexempt from excise duty then no creditof the duty paid on the inputs would beavailable (rule 57C). Credit can be

taken only after the evidence of pay-ment of duty has been received, exceptin cases where this has been specificallywaived. There is no objection to takingcredit for goods received earlier but evi-dence of duty payment reaching later,provided credit is taken after the re-ceipt of the latter.

The credit of the duty paid on theinputs taken under the MODVATscheme may be utilised for paymen t ofduty on the final products in or in rela-tion to the manufacture of 'which theinputs are intended to be used. For ex-ample, a manufacturer of bolts andnuts may take credit of the excise dutypaid on the ferrous or non- ferrous met-als used in its manufacture, and use thesame for payment of the excise duty onthe bolts and nuts. If he uses importedraw materials, he can take credit of thecountervailing duty paid on these ma-terials also. Where the same input isused for different finished products,some of which are not dutiable, thecredit of duty should be taken only forthat part attributable to inputs whichwill be used for the manufacture of du-tiable finished products. It necessaryinitial credit could be taken on an ap-propriate basis and a final adjustmentcan be made after actual use of the in-puts, in no case, should the credit ex-ceed the amount actually admissible.

Essential Characteristics of MODVATScheme :

(a) Rules 57A to 57J in the CentralExcise Rules contain the provisionsof MODVAT scheme.

(b) The scheme was introducedthrough the Notification No.177/86C.E. dated 1.3.86

(c) Credit of duty is available only ifthe inputs and finished productsare specially specified for the pur-pose. As the goods are classifiedunder various chapters of the cen-tral Excise Tariff Act, MODVAT isavailable when the inputs and out-

puts are covered under the modi-fied chapters (All items are nowcovered under MODVAT exceptTobacco, Matches, Mineral Oilsand certain types of Textile fabrics)

(d) Credit of duty is availaole on cen-tral Excise paid on indigenous ma-terials and on additional duty ofcustomers (popularly known ascountervailing duty) on importeditems.

(e) The inputs have to be used in or inrelation to the manufacture of fi-nal products.

(f) Plant & Machinery,Tools andequipments etc. which are used asa means of production are coveredunder tile MODVAT scheme underRule 57Q. These provision wereinserted with effect from 1/3/94

(g) The duty so paid on inputs can beclaimed as a credit while payingduty of excise on the final products.

(h) Duty credit will be available onlyif the duty is paid on the final prod-uct.

(i) MODVAT credit is available on re-ceipt of the material irrespective ofits actual utilisation which maytake place at a later date,

(j) Subject to certain limits, deemedcredit at normal rate is availableon goods obtained from a smallscale unit even if the duty paid onsuch unit is at a lower rate.

(k) Exemption is provided from pay-ment of duty when any intermedi-ate product though dutiable, isused in the manufacture of a finalproduct.

Procedural Formalities :

In order to avail MODVAT, cer-tain procedural formalities regardingdocumentation and record mainte-nance have to be followed. The mainrequirements are :-

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(a) Credit can be availed only on pro-duction of original duty payingdocuments.

(b) Any manufacturer intending toavail MODVAT and work underits scheme, has to file before thejurisdictional Assistant Collectorof central Excise a declarationstating therein the descriptionsand chapter numbers of inputs tobe used and final products to bemanufactured therefrom.

(c) Two types of registers are to bemaintained by the manufactureworking under MODVAT-

(i) RG 23A part 1 : This is an ac-count of input stocks beingreceived and issued for pro-duction and is maintained inquantitative terms and

(ii) RG 23A part II : This registershows the value of credit re-ceived on in-coming inputsand its utilisation in payingduty on the finished products.

Accounting of MODVAT :

Based on the Guidance Note on Ac-counting Treatment for MODVAT pre-pared by the Reaserch Committee ofThe Institute of Chartered Accountantsof India, the accounting treatment forMODVAT may be carried out in eitherof the two methods stated hereinafter.

Method-I

The scheme of entries may be asfollows :-

(a) Materials purchased and dutypaid on the same:

Dr. Purchase A/C

Dr. MODVAT credit Receiv-able A/C

Cr. Sundry Creditors A/c

(b) Where excise duty is paid on fin-ished products without adjust-ment MODVAT credit.

Dr. Excise Duty A/c.

Cr. Bank A/c

However, if credit is taken of dutypaid on inputs while making paymentof duty on the final products then thecash outflow will reduce and the en-try will be :-

Dr. Excise Duty A/c

Cr. MODVAT credit Receiv-able A/c

Cr. Bank (balance if any,paid incash or by cheque) A/c.

The debit balance which may re-main in the MODVAT Credit Receiv-able A/C represent the credit whichmay be availed of on payment of duty in future and this balance will beshown in the asset side of the BalanceSheet under the head "Advances"Stock of inputs will be valued at netof MODVAT.

Method-II

The scheme of entries under thismethod may be as follows :

(a) When materials are purchasedthe excise duty paid on inputswill not be shown separately andwill form part of the total cost.The entry will be . (Dr. Purchase)A/c (inclusive of excise duty) (Cr.)Sundry Creditors A/c

(b) As and when MODVAT creditwill be utilised for payment ofduty on the final products a sepa-rate account will be created:

Dr. Excise duty A/c

Cr. MODVAT credit Availed A/c

Cr. Cash or Bank A/c

(c) The MODVAT credit availed doesnot mean the input have been ac-tually utilised in the manufactureof the final product. As and whenthe material shall be so utl1ised,the following entry will be passed :

Dr. MODVAT credit Availed A/c

Cr. Profit & loss A/c or Consump-tion A/c

The balance in the MODVATcredit availed A/c representsMODVAT on materials not consumedbut is lying in stock. This account tobe shown in the Balance Sheet as adeduction from the value of stock.

Value Added Tax

1) Concept of VAT

VAT stands for Value Added Tax.In a simple manner the concept ofVAT has been explained as :

"The value added tax is imposed onthe value that a business firm adds tothe goods and services that it purchasedfrom other firms. It adds value byprocessing or handling these purchaseditems with its own labour force and itsown machinery, buildings or other capi-tal goods. It then sells the resultingproduct to consumers or other firms.The difference between the sales pro-ceeds and the cost of materials etc, thatit has purchased from other firms is itsvalue added, which is the tax base ofthe "value added tax".

VAT in essence, tantamounts totaxing by instalments, the final con-sumer spending in a domesticeconomy. It has been considered as amulti-stage tax. Thus, instead of taxbeing levied on specific list of goodsand services, its impact salls on thefinal consumer goods and services ex-cept the goods and services which arespecifically exempted. Taxing on VATbasis ensures that each input into thefinal consumer output is taxed onlyonce. This happens because of the factthat the tax paid on inputs at a pre-vious stage in production is related.

This prevents the cascading effectof taxes.

VAT has been explained with ref-erence to both taxable transactions andtaxable persons. Taxable transactionsare usually defined broadly as sales bypersons engaged in industrial and com-mercial activity. It includes both thesale of goods and rendering of services.

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Taxable persons are defined to in-clude producers,importers of taxablegoods, sometimes merchants and serv-ice enterprises. Mining is generally in-cluded in industrial production. Con-struction is generally treated as serv-ice activity. The treatment of publicutilities varies, but they are largely leftoutside the scope of the tax or aregranted specific exemptions.

2) Classification of VAT :

VAT has Broadly been classifiedinto three types, viz.

i) Gross product typeii) Income Type

iii) Consumption type

Gross Product Type :- For determin-ing the tax liabilities under the firsttype, the taxable entity is allowed todeduct its purchases of raw materialsfrom its sales but it can not deduct itscost of capital equipment or even de-preciation on such equipment. SuchVAT requires considerable vigilance.Since capital equipment cost is not de-ductible, there could be attempts toclassify such goods required for currentexpenditure,viz, making a case thatcapital goods will be consumed in cur-rent operations or are needed for car-rying out repairs/renewals etc.

Income Type :- In the income typeVAT, both purchases of raw materialsand depreciation on capital goods aredeductible for computing the valueadded. However, since depreciation al-lowance is deductible, assets life anddepreciation tables are required to beprescribed for sorting out administra-tive problems concering its working.

Consumption Type :- Under theconsumption type Value Added Tax,all business purchases includingthose for capital goods are deductiblefor calculating the value added. Thissystem avoids drawing of distinctionbetween current expenditure andcapital expenditure. This tax is con-

sidered nutral because it does notgive more advantage to labour vis-a-vis capital. Hence this type is morepopular in European countries.

3) Manner of calculation of-VAT -

There are three 'ways of calculat-ing VAT viz, the substraction, creditand addi tivemethods. Under thesubstraction method ,VAT liability iscalculated by substracting the pur-chases from the sales and applying thetax rate to the difference. The credit,also called invoice method, involvesdetermination of amount of tax by al-lowing substraction of tax paid on pur-chases from tax due on sales. Under theadditive method, VAT liability is deter-mined by adding together the compo-nents of value added, wages, rent, in-terest and not profit and then applyingthe tax rate to this sum. These meth-ods have their own relative advantagesand disadvantages.

4) Management of Value Enhancement(MOVE) :

Our economy has accepted all chal-lenges to enhance value through value-creating activities. The basic economicindicator is per capita VAW. TheMOVE, being a quality team in qualitycircle involved in value creating chainof activities, has became a strategicpriority for survival. MOVE can onlyensure the positive steps of value-cre-ating activities in an economy. MOVEcontinuously transforms every activityinto value-creating activity by meansof continuous improvements, whichcome into effects considering the follow-ing critical aspects of operations;

* Reduction of scraps.* Improvements of labour produc-

tivity.* Improvement in time management* Improvements in work processes.* Reduction of staff personnel

costs.* Reduction in raw materials and

finished goods inventories.MOVE aims at elimination of non-

value creating activities. EnhancedVAW is always welcome for the sustain-able economic growth and development.

5) The Measurement Technique of VAWwith the Application of Value. AddedAccounting by means of VAS and theHidden Assets of Enhanced VAW.

The measurement technique ofVAW with the application of valueadded accounting (VAA) by means ofVAS intends to provide pertinent in-formation regarding the applicationof VAA is practical fields.

Computation of GVA from rev-enue is as follows :-

6 ) Effective Leveraging Social Effectsof VAT :

The employees, the financialstakeholders, and the government sharethe pie of created VAW by defined ra-tios and the rest is set aside in the formof depreciation and retained NVA. Theemployees mean here all categories ofemployees including knowledge workersand managerial personnel who sharecreated VAW in the form of their sala-ries, wages ,gratuity ,contribution toprovident fund, bonus, remuneration totop management and other form of wel-fare expenses etc. The government pro-vides necessary infrastructure and otherentrepreneurship friendly social climateto create VAW.There fore, the govern-ments are entitled to share the createdVAW in the form of imposed VAT.

The shareholders and debentureholders are the financial stakeholders ofdoing business operations to createVAW.There fore, the shareholders are theclaimants of dividend on the deployedcapital. The debenture-holders are claim-ants of interest on the deployed borrowedcapital. The ploughed back profits in theform of retained NVA are reinvested increating VAW through the continuousbusiness operations.

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concerned. VAT regime is certainly goodenough to check tax evasion by allow-ing strong incentives for tax honesty. Ifthe rate of VAT is ,@ 12.5%, the quan-tum of VAT will produce effectiveleveraging social effects in the economy.

7) White paper published in The Newspaper on 17th January, 2005 at NewDelhi on VAT

Terming it as one of the biggest taxreforms in India, finance minister P.Chidambaram today presented theWhite paper on the value added tax(VAT), which will come into effect fromApril,1 The new tax regime, which hasbeen approved by most of the states, willcover more than 550 goods. Of these, 46natural and unprocessed local productswould be exempt from VAT.

VAT will be imposed in three slabsof 1 per cent 4 per cent and 12.5 per cent.Al per cent VAT will be imposed on goldand silver, Liquor, Petrol, diesel, avia-tion turbine fuel and lottory tickets havebeen kept out of the state-level VAT.These products will remain under thesales tax regime, says the white paper.

The VAT document prescribes arate of 4 per cent on a range of 270items, including drugs and industrialproducts. Four per cent will be chargedon all agricultural and industrial in-puts, capital goods and declared goods.the structure impose a 12.5 per cent taxon, most of the ramining items.

Also, sugar, textiles and tobacco,which are covered under additional ex-cise duties will not come under the VATregime for a year.

State would be given an option totax tea at the rate of 12.5 per cent or 4per cent until 2006.

Any firm or Buisness House whoseAnnual turnover of Rs.5 lakhs to 50lakhs will not come under the purviewof VAT, but they will continue to pay1% sale Tax as usual. In that case theywill not get tax exemption on the pur-chase of raw material.

The Finance Minister said that ina way VAT was no different from theCentral excise duty. ❑

Items : Rs. Rs.

Total sales XXX

+ Closing Stock of Raw Materials XXX

+ Closing Stock of semi finished goodsand finished goods XXX

+ Imputed profit on semi-finishedand finished goods XXX

+ Loss of Materials XXX

+ Loss of semi-finished goods XXX

+ Loss of finished goods XXX XXX

Rebate on sales XXX

– Excise Duties XXX

– Taxes on Sales XXX

– Power, fuel, Royalty, etc XXX

– Insurance, Rates, etc XXX

– Packages, Carriage XXX

Baokerage,etc XXX

– Opening stock of Raw Materials XXX

– Opening Stock ofsemi-finished goods XXX

– Opening Stock of finished goods XXX

– Purchases XXX

– Other purchases XXX

XXX

Gross value added

(GVA) XXX

GAV XXX

Less. Depreciation XXX

NAV XXX

Therefore, the agitators are not transparent enough,hence, they are worried onthe issues of VAT system having no valid reasons of probable price rise. It is ex-pected to be clear by realising a simple example; let a manufacturer buys inputs(Particularly materials) for Rs.400 and pays sales tax Rs.16. The input costs intotal Rs.416. If he fixes sale price Rs.600 for the product under the present systemof sales tax regime, he has to pay sales tax Rs.72@ 12%). He adds up the sales taxpaid. The manufacturer sells the product for Rs.672. Under VAT regime, the saleprice of the same product (672-( 16+72) - 672-(16+72) -400) 12.5% = Rs. 607 If, VATis imposed @ 12.5% must be lower than that of the previous level of price leavingsales tax out of manufacturer's cost. Therefore, unnecessary crying and creatingmindest is not at all a pragmatic approach as far as value-creating economy is

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This White Paper on State-levelValue Added Tax (VAT) is presentedin three parts. To begin with, the jus-tification of VAT and its backgroundhave been mentioned (Part 1). In Part2, the main design of VAT, as evolvedon the basis of a consensus among theStates through repeated discussionsin the Empowered Committee, hasbeen elaborated. While doing so, it isrecognised that this VAT is a Statesubject and therefore the States willhave freedom for appropriate varia-tions consistent with the basic designas agreed upon at the EmpoweredCommittee. Finally, in Part 3, theother related issues have been dis-cussed for effective implementation ofVAT.

1. Justification of VAT and Back-ground

1.1 In the existing sales tax struc-ture, there are problems of doubletaxation of commodities and multi-plicity of taxes, resulting in a cascad-ing tax burden. For instance, in theexisting structure, before a commod-ity is produced, inputs are first taxed,and then after the commodity is pro-duced with input tax load, output istaxed again. This causes an unfairdouble taxation with cascading ef-fects. In the VAT, a set-off is givenfor input tax as well as tax paid onprevious purchases. In the prevailingsales tax structure, there is in sev-eral States also a multiplicity oftaxes, such as turnover tax, sur-charge on sales tax, additional sur-charge, etc. With introduction of VAT,

these other taxes will be abolished.In addition, Central sales tax is alsogoing to be phased out. As a result,overall tax burden will be rational-ised, and prices in general will alsofall. Moreover, VAT will replace theexisting system of inspection by a sys-tem of built-in self-assessment by thedealers and auditing. The tax struc-ture will become simple and moretransparent. That will improve taxcompliance and also augment rev-enue growth. Thus, to repeat, withthe introduction of VAT, benefits willbe as follows:

• a set-off will be given for inputtax as well as tax paid on previ-ous purchases

• other taxes, such as turnover tax,surcharge, additional surcharge,etc. will be abolished

• overall tax burden will be ration-alised

• prices will in general fall• there will be self-assessment by

dealers• transparency will increase• there will be higher revenue

growth

The VAT will therefore help com-mon people, traders, industrialistsand also the Government. It is indeeda move towards more efficiency, equalcompetition and fairness in the taxa-tion system.

1.2 For these beneficial effects, afull-fledged VAT was initiated first inBrazil in mid 1960’s, then in Euro-pean countries in 1970’s and subse-

quently introduced in about 130 coun-tries, including several federal coun-tries. In Asia, it has been introducedby a large number of countries fromChina to Sri Lanka. Even in India,there has been a VAT system intro-duced by the Government of India forabout last ten years in respect of Cen-tral excise duties. At the State-level,the VAT system as decided by theState Governments, would now beintroduced in terms of Entry 54 of theState List of the Constitution.

1.3 The first preliminarydiscussion on State-level VAT tookplace in a meeting of Chief Ministersconvened by Dr. Manmohan Singh,the then Union Finance Minister in1995. In this meeting, the basic issueson VAT were discussed in generalterms and this was followed up byperiodic interactions of State FinanceMinisters. Thereafter, in a signifi-cant meeting of all Chief Ministers,convened on November 16, 1999 byShri Yashwant Sinha, the then Un-ion Finance Minister, three impor-tant decisions were taken. First, be-fore the introduction of State-levelVAT, the unhealthy sales tax rate“war” among the States would haveto end and sales tax rates would needto be harmonised by implementinguniform floor rates of sales tax fordifferent categories of commoditieswith effect from January 1, 2000. Sec-ond, in the interest again of harmo-nisation of incidence of sales tax, thesales-tax-related industrial incentiveschemes would also have to be discon-tinued with effect from January 1,2000. Third, on the basis of achieve-ment of the first two objectives, stepswould be taken by the States for in-troduction of State-level VAT afteradequate preparation. For imple-menting these decisions, an Empow-ered Committee of State FinanceMinisters was set-up.

1.4 Thereafter, this Empow-ered Committee has met regularly,

A White Paper On State-Level Value Added Tax

Issued by the Empowered Committee of StateFinance Ministers for VAT


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attended by the State Finance Min-isters, and also by the Finance Sec-retaries and the Commissioners ofCommercial Taxes of the State Gov-ernments as well as senior officialsof the Revenue Department of theMinistry of Finance, Government ofIndia. Through repeated discussionsand collective efforts in the Empow-ered Committee, it was possiblewithin a period of about a year and ahalf to achieve nearly 98 per centsuccess in the first two objectives onharmonisation of sales tax structurethrough implementation of uniformfloor rates of sales tax and discon-tinuation of sales-tax- related incen-tive schemes. As a part of regularmonitoring, whenever any deviationis reported from the uniform floorrates of sales tax, or from decision onincentives, the Empowered Commit-tee takes up the matter with the con-cerned State and also the Govern-ment of India for necessary rectifica-tion.

1.5 After reaching this stage,steps were initiated for systematicpreparation for the introduction ofState-level VAT. In order again toavoid any unhealthy competitionamong the States which may lead todistortions in manufacturing andtrade, attempts have been made fromthe very beginning to harmonise theVAT design in the States, keepingalso in view the distinctive featuresof each State and the need for federalflexibility. This has been done by theStates collectively agreeing, throughrepeated discussions in the Empow-ered Committee, to certain commonpoints of convergence regarding VAT,and allowing at the same time certainflexibility for the local characteristicsof the States.

1.6 Along with these meas-ures at ensuring convergence on thebasic issues on VAT, steps have alsobeen taken for necessary training,computerisation and interaction with

trade and industry, particularly atthe State levels. This interactionwith trade and industry is being spe-cially emphasised.

1.7 It may be noted that whilesuch preparation was going on, theChief Ministers of all the States in animportant meeting on State-levelVAT convened by the Prime Ministeron October 18, 2002, when ShriJaswant Singh, the then Union Fi-nance Minister was present, clearlystated their intention of introducingVAT from April 1, 2003. About 29States and Union Territories had ex-peditiously sent their Bills to theMinistry of Finance, Government ofIndia for prior vetting. The UnionMinistry of Finance had consideredthese Bills of States and Union Ter-ritories, and sent their comments/suggestions to the States and UnionTerritories in line with the decisionsof the Empowered Committee of theState Finance Ministers for incorpo-rating the same in VAT Bills to beplaced in the State legislatures andsubsequent transmission to the Gov-ernment of India for Presidential As-sent. At this stage, there were certaindevelopments which delayed the in-troduction of VAT. Despite these de-velopments, most of the States re-mained positively interested in im-plementation of VAT. MadhyaPradesh VAT Bill had already beenaccorded Presidential Assent in No-vember 2002. One State, namely,Haryana, has already introducedVAT on its own with good results onrevenue growth. It is important tonote that in the meeting of Empow-ered Committee on June 18, 2004when Shri P. Chidambaram, the Un-ion Finance Minister, was invited andwas kindly present, all the States,excepting one, once again categori-cally renewed their commitment tothe introduction of VAT from April 1,2005. Even for this particular Statewith certain problems, a positive in-teraction has recently been organised

with that State to resolve certaingenuine ground-level problems. Nownearly all the States have either fi-nalised their VAT Bills and are in theprocess of obtaining Presidential As-sent, or will reach that stage verysoon.

2. Design of State-Level VAT

2.1 As already mentioned, the de-sign of State-level VAT has beenworked out by the Empowered Com-mittee through several rounds of dis-cussion and striking a federal balancebetween the common points of conver-gence regarding VAT and flexibilityfor the local characteristics of theStates. Since the State-level VAT iscentred around the basic concept of“set-off” for the tax paid earlier, theneeded common points of convergencealso relate to this concept of set-off/input tax credit, its coverage and re-lated issues as elaborated below.

Concept of VAT and Set-off/ Input TaxCredit

2.2 The essence of VAT is in pro-viding set-off for the tax paid earlier,and this is given effect through theconcept of input tax credit/rebate.This input tax credit in relation toany period means setting off theamount of input tax by a registereddealer against the amount of his out-put tax. The Value Added Tax (VAT)is based on the value addition to thegoods, and the related VAT liabilityof the dealer is calculated by deduct-ing input tax credit from tax collectedon sales during the payment period(say, a month).

If, for example, input worth Rs.1,00,000/- is purchased and sales areworth Rs. 2,00,000/- in a month, andinput tax rate and output tax rate are4% and 10% respectively, then inputtax credit/set-off and calculation ofVAT will be as shown below:


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Coverage of Set-Off / Input Tax Credit

2.3 This input tax credit will begiven for both manufacturers andtraders for purchase of inputs/sup-plies meant for both sale within theState as well as to other States, irre-spective of when these will be uti-lised/sold. This also reduces immedi-ate tax liability.

Even for stock transfer/consign-ment sale of goods out of the State,input tax paid in excess of 4% will beeligible for tax credit.

Carrying Over of Tax Credit

2.4 If the tax credit exceeds thetax payable on sales in a month, theexcess credit will be carried over tothe end of next financial year. If thereis any excess unadjusted input taxcredit at the end of second year, thenthe same will be eligible for refund.

Input tax credit on capital goodswill also be available for traders andmanufacturers. Tax credit on capitalgoods may be adjusted over a maxi-mum of 36 equal monthly instal-ments. The States may at their op-tion reduce this number of instal-ments.

There will be a negative list forcapital goods (on the basis of princi-ples already decided by the Empow-ered Committee) not eligible for in-put tax credit.

Treatment of Exports, etc.

2.5 For all exports made out of the

country, tax paid within the Statewill be refunded in full, and this re-fund will be made within threemonths. Units located in SEZ andEOU will be granted either exemp-tion from payment of input tax or re-fund of the input tax paid withinthree months.

Inputs Procured from Other States

2.6 Tax paid on inputs procuredfrom other States through inter-Statesale and stock transfer will not be eli-gible for credit. However, a decisionhas been taken for duly phasing outof inter-State sales tax or Centralsales tax. As a preparation for that,a comprehensive inter-State tax in-formation exchange system is alsobeing set up.

Treatment of Opening Stock

2.7 All tax-paid goods purchasedon or after April 1,2004 and still instock as on April 1, 2005 will be eligi-ble to receive input tax credit, sub-ject to submission of requisite docu-ments. Resellers holding tax-paidgoods on April 1, 2005 will also beeligible. VAT will be levied on thegoods when sold on and after April 1,2005 and input tax credit will begiven for the sales tax already paidin the previous year. This tax creditwill be available over a period of 6months after an interval of 3 monthsneeded for verification.

Compulsory Issue of Tax Invoice, CashMemo or Bill

2.8 This entire design of VAT withinput tax credit is crucially based ondocumentation of tax invoice, cashmemo or bill. Every registered dealer,having turnover of sales above anamount specified, shall issue to thepurchaser serially numbered tax in-voice with the prescribed particulars.This tax invoice will be signed anddated by the dealer or his regularemployee, showing the required par-ticulars. The dealer shall keep a coun-terfoil or duplicate of such tax invoiceduly signed and dated. Failure tocomply with the above will attractpenalty.

Registration, Small Dealers and Com-position Scheme

2.9 Registration of dealers withgross annual turnover above Rs. 5lakh will be compulsory. There willbe provision for voluntary registra-tion. All existing dealers will be au-tomatically registered under the VATAct. A new dealer will be allowed 30days time from the date of liability toget registered.

Small dealers with gross annualturnover not exceeding Rs. 5 lakh willnot be liable to pay VAT. States willhave flexibility to fix this thresholdlimit within Rs. 5 lakh.

Small dealers with annual grossturnover not exceeding Rs. 50 lakhwho are otherwise liable to pay VAT,shall however have the option for acomposition scheme with payment oftax at a small percentage of grossturnover. The dealers opting for thiscomposition scheme will not be enti-tled to input tax credit.

Tax Payer’s Identification Number(TIN)

2.10 The Tax Payer’s Identifica-tion Number will consist of 11 digitnumerals throughout the country.First two characters will representthe State Code as used by the Union

(a) Input purchased within the month : Rs. 1,00,000/

(b) Output sold in the month : Rs. 2,00,000/

(c) Input tax paid : Rs. 4,000/

(d) Output tax payable : Rs. 20,000/

(e) VAT payable during the month (after input tax credit)((d)-(c) : Rs. 16,000/


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Ministry of Home Affairs. The set-up of the next nine characters may,however, be different in differentStates.

Return

2.11 Under VAT, simplified formof returns will be notified. Returnsare to be filed monthly/quarterly asspecified in the State Acts/Rules, andwill be accompanied with paymentchallans. Every return furnished bydealers will be scrutinized expedi-tiously within prescribed time limitfrom the date of filing the return. Ifany technical mistake is detected onscrutiny, the dealer will be requiredto pay the deficit appropriately.

Procedure of Self-Assessment of VATLiability

2.12 The basic simplification inVAT is that VAT liability will be self-assessed by the dealers themselves interms of submission of returns uponsetting off the tax credit. Returnforms as well as other procedures willbe simple in all States. There will nolonger be compulsory assessment atthe end of each year as is existingnow. If no specific notice is issuedproposing departmental audit of thebooks of accounts of the dealer withinthe time limit specified in the Act, thedealer will be deemed to have beenself-assessed on the basis of returnssubmitted by him.

Because of the importance of theconcept of self-assessment in VAT,provision for “self-assessment” will bestated in the VAT Bills of the States.

Audit

2.13 Correctness of self-assess-ment will be checked through a sys-tem of Departmental Audit. A certainpercentage of the dealers will betaken up for audit every year on ascientific basis. If, however, evasionis detected on audit, the concerned

dealer may be taken up for audit forprevious periods. This Audit Wingwill remain delinked from tax collec-tion wing to remove any bias. Theaudit team will conduct its work in atime bound manner and audit will becompleted within six months. Theaudit report will be transparentlysent to the dealer also.

Simultaneously, a cross-checking,computerised system is being workedout on the basis of coordination be-tween the tax authorities of the StateGovernments and the authorities ofCentral Excise and Income Tax tocompare constantly the tax returnsand set-off documents of VAT systemof the States and those of CentralExcise and Income Tax. This compre-hensive cross-checking system willhelp reduce tax evasion and also leadto significant growth of tax revenue.At the same time, by protecting trans-parently the interests of tax-comply-ing dealers against the unfair prac-tices of tax-evaders, the system willalso bring in more equal competitionin the sphere of trade and industry.

Declaration Form

2.14 There will be no need for anyprovision for concessional sale underthe VAT Act since the provision forset-off makes the input zero-rated.Hence, there will be no need for dec-laration form, which will be a furtherrelief for dealers.

Incentives

2.15 Under the VAT system, theexisting incentive schemes may becontinued in the manner deemed ap-propriate by the States after ensur-ing that VAT chain is not affected.

Other Taxes

2.16 As mentioned earlier, allother existing taxes such as turnovertax, surcharge, additional surchargeand Special Additional Tax (SAT)

would be abolished. There will not beany reference to these taxes in theVAT Bills. The States that have al-ready introduced entry tax and in-tend to continue with this tax shouldmake it vatable. If not made vatable,entry tax will need to be abolished.However, this will not apply to entrytax that may be levied in lieu ofoctroi.

Penal Provisions

2.17 Penal provisions in the VATBills should not be more stringentthan in the existing Sales Tax Act.

Coverage of Goods under VAT

2.18 In general, all the goods, in-cluding declared goods will be coveredunder VAT and will get the benefit ofinput tax credit.

The only few goods which will beoutside VAT will be liquor, lotterytickets, petrol, diesel, aviation tur-bine fuel and other motor spirit sincetheir prices are not fully market de-termined. These will continue to betaxed under the Sales Tax Act or anyother State Act or even by makingspecial provisions in the VAT Act it-self, and with uniform floor rates de-cided by the Empowered Committee.

VAT Rates and Classification of Com-modities

2.19 Under the VAT system cov-ering about 550 goods, there will beonly two basic VAT rates of 4% and12.5%, plus a specific category of tax-exempted goods and a special VATrate of 1% only for gold and silver or-naments, etc. Thus the multiplicity ofrates in the existing structure will bedone away with under the VAT sys-tem.

Under exempted category, therewill be about 46 commodities compris-ing of natural and unprocessed prod-ucts in unorganised sector, itemswhich are legally barred from taxa-


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tion and items which have social im-plications. Included in this exemptedcategory is a set of maximum of 10commodities flexibly chosen by indi-vidual States from a list of goods (fi-nalised by the Empowered Commit-tee) which are of local social impor-tance for the individual States with-out having any inter-state implica-tion. The rest of the commodities inthe list will be common for all theStates. Under 4% VAT rate category,there will be the largest number ofgoods (about 270), common for all theStates, comprising of items of basicnecessities such as medicines anddrugs, all agricultural and industrialinputs, capital goods and declaredgoods. The schedule of commoditieswill be attached to the VAT Bill ofevery State. The remaining commodi-ties, common for all the States, willfall under the general VAT rate of12.5%.

In terms of decision of the Empow-ered Committee, VAT on AdditionalExcise Duty items (namely, sugar,textile and tobacco), because of ini-tial organisational difficulties, willnot be imposed for one year after theintroduction of VAT, and till then theexisting arrangement will continue.The position will be reviewed afterone year.

Effects of the VAT System

2.20 This design of the State-levelVAT has been carefully worked outby the Empowered Committee afterrepeated interactions with the Statesand others concerned and striking abalance between the needed conver-gence and federal flexibility as wellas ground-level reality. If now all thecomponents of the VAT design aretaken together, then it will be seenthat the total effect of this VAT sys-tem will be to rationalise the tax bur-den and bring down, in general, theprice level. This will also stop un-healthy tax-rate “war” and trade di-

version among the States, which hadadversely affected interests of all theStates in the past. Moreover, thisVAT design will also significantlybring in simplicity and transparencyin the tax structure, thereby improv-ing tax-compliance and eventuallyalso the revenue growth, as men-tioned in the beginning.

3. Steps Taken by the States

3.1 It is now of significance to notethat most of the States, after collec-tive interaction in the EmpoweredCommittee, have either already modi-fied or agreed to modify their VATBills by incorporating these commonpoints of convergence including flex-ibility as mentioned in the VAT de-sign above, and are also taking otherpreparatory steps towards introduc-tion of VAT from April 1,2005.

3.2 As a part of the preparatorysteps, the States have started theprocess of preparing the draft of VATRules, including Books of Accounts tobe maintained. The objective will beto keep these as simple as possible sothat it becomes easy for a smalltrader to comply with the require-ments.

3.3 Moreover, the States have ini-tiated, and in many cases also com-pleted, steps for computerisation uptothe levels of assessing officers andalso at the check posts. This processwill continue since this is extremelyimportant for document-based verifi-cation and integration with TaxationInformation Exchange System as wellas with information of the Centralexcise and income tax systems as in-dicated earlier.

3.4 It may be mentioned here thatappropriate Central funds for VAT-related computerisation in the North-Eastern States are also being re-leased by the Government of India.

4. Related Issues

4.1 While the States have thustaken several steps towards introduc-tion of VAT, certain supporting deci-sions were critically needed at thenational level for more effective im-plementation of VAT from April1,2005.

4.2 It needs to be carefully notedthat although introduction of VATmay, after a few years, lead to rev-enue growth, there may be a loss ofrevenue in some States in the initialyears of transition. It is with this inview that the Government of Indiahad agreed to compensate for 100 percent of the loss in the first year, 75per cent of the loss in the second yearand 50 per cent of the loss in the thirdyear of introduction of VAT, and theloss would be computed on the basisof an agreed formula. This positionhas not only been reaffirmed by theUnion Finance Minister in hisBudget Speech of 2004-05, but a con-crete formula for this compensationhas also now been worked out afterinteraction between the Union Fi-nance Minister and the EmpoweredCommittee.

4.3 As mentioned earlier, there isalso a need, after introduction of VAT,for phasing out of Central Sales Tax(CST). However, the States are nowcollecting nearly Rs. 15 thousandcrore every year from CST. There isaccordingly a need of compensationfrom the Government of India for thisloss of revenue as CST is phased out.Moreover, while CST is phased out,there is also a critical need for.putting in place a regulatory frame-work in terms of Taxation Informa-tion Exchange System to give a com-prehensive picture of inter-Statetrade of all commodities. As alreadymentioned, this process of setting upof Taxation Information ExchangeSystem has already been started bythe Empowered Committee, and isexpected to be completed within oneyear. The position regarding CST will


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be reviewed by the Empowered Com-mittee during 2005-06, and suitabledecision on the phasing out of CSTwill be taken.

4.4 It is also essential to bringimports into the VAT chain. Becauseof the set-off, this will not result inany tax cascading effect, but will onlyimprove tax compliance. A proposalfor VAT on imports, including thecollection mechanism with adequatesafeguards for the protection of in-terest of land-locked States, is beingdiscussed with the Government ofIndia.

4.5 Similarly, discussion betweenthe Empowered Committee and theGovernment of India is going on foran early decision on the question ofcollection and appropriation of serv-ice tax by the Centre and the States.

If decisions on VAT on importsand service tax are taken expedi-tiously at the national level, thenthese two important spheres of taxa-tion can be integrated, along withthe AED items as mentioned earlier,into the VAT system of the Statesfrom the second year of introductionof VAT.

4.6 It may be noted that this VATdesign has been worked out carefullyby the Empowered Committee tostrike a balance not only between thecommon points of convergence andfederal flexibility, but also a balancebetween what can be done to beginwith and what should be incorpo-rated subsequently for further per-fection of the VAT system.

4.7 For successful implementa-tion of State-level VAT, close inter-action with trade and industry isspecially important. The EmpoweredCommittee has therefore also set upa Consultative Committee with onerepresentative from each of the na-tional level trade organisations andnational level chambers of commerce

and industry. This Committee hasalready started interacting with theEmpowered Committee. This proc-ess of interaction will continue regu-larly to discuss issues and sort outproblems of implementation of VAT.Such Consultative Committees willalso be set up at the level of eachState, and interaction with the StateGovernment will take place in asimilarly regular manner.

4.8 In course of discussion withrepresentatives of trade and indus-try reference has often been made tothe earlier VAT Bills of some of theStates. It should be clearly noted, asalready mentioned before, that allthe States have agreed to amendtheir earlier VAT Bills so as to con-form broadly to the common designas elaborated in this White Paper.This process of amendment has alsoalready started. The point of refer-ence on VAT should therefore be thisdesign of VAT as explained in thisWhite Paper. It should also be men-tioned that there are some importantpoints on the ground-level imple-mentation of VAT which have beenraised by the representatives oftrade and industry. Many of thepoints will be taken care of in theVAT rules of the States, withchanges where necessary.

4.9 Finally, a comprehensivecampaign on State-level will belaunched to communicate in simpleand transparent manner the benefitof VAT for common people, traders,industrialists and also the StateGovernments. This campaign willthen be launched first at the na-tional level on the basis of necessarycoordination between the States andthe Centre. This will then be simul-taneously followed up at the level ofevery State and also in districts ofthe States. This campaign will bebased on written materials as wellas publicity through all media. Thepurpose of this campaign will be a

two-way interaction between theGovernment and the trade and in-dustry as well as the common peo-ple.

There is now only looking for-ward to the introduction of State-level VAT by all the States and Un-ion Territories from April 1, 2005.We seek cooperation of all sectionsof people in the country. q

Cover Feature

Institute of Cost andWorks Accountants of

India.

DIAMOND JUBILEECELEBRATIONS

Theme:COMPETENCY BUILDING FOR

GLOBAL COMPETITION

ICWAI has great pleasure inannouncing that the Diamond JubileeCelebrations to commemorate 60thYear of its formation will beorganized in all the Four RegionalCouncils under the themeCOMPETENCY BUILDING FORGLOBAL COMPETITION

As a part of Diamond jubilee cel-ebrations it is proposed to hold oneday conference on the theme with spe-cific reference to WTO scenerio.

12th and 13th March, 2005 New Delhi

26th and 27th March, 2005 Mumbai

16th and 17th April, 2005 Chennai

30th April, 2005 Kolkatta

Other details will be publishedshortly

Dr.H.R.Subramanya

PRESIDENT- ICWAI

Programme


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Accounting for WaterResources

* Lecturer, Department of CommerceDinhata College, Dinhata, Cooch, Behar

Siddhartha Sarkar *

The paper delves into the concept and definition of accountingfor water uses by designing approaches to be universally appli-cable for evaluating water resource management.

becomes higher than gross inflow andif water is added to storage, net in-flow becomes less than gross inflow.Net inflow water is either depleted orit flows out of the domain of interest.Water depletion is the use or removalof water from a water basin thatrenders it unavailable for further use.Hence, water depletion is a core con-cept for water accounting as it is theproductivity and derived benefits perunit of water depleted. Then, it is im-portant to distinguish between waterdepletion from water diverted to aservice or use, because not all waterdiverted to use is depleted. As far asthe outflow is concerned, committedwater is that part of outflow, whichis committed to other uses, and un-committed outflow is non-depletedwater being available for use withina basin or for export to other basins,but flows out due to lack of storage oroperational measures. The availablewater is net inflow minus volume ofwater available for use at the basin,service or use levels. Available waterincludes process depletion (volume ofwater diverted and depleted to pro-duce an intended goods) and non-process depletion (volume of waterdiverted and depleted not by the proc-ess intended for it) plus uncommittedwater.

Water accounting considers com-ponents of water balance and dulyclassifies them according to the usesand productivity of these uses. By andlarge, water balance approach isstraightforward and visible. Oftenmany of the components of water bal-ance are difficult to estimate or arenot available, e.g., groundwater in-flows and outflows to and from anarea of interest are difficult to meas-ure and drainage outflows are oftennot measured as more emphasis hasbeen placed on knowledge of inflowsto irrigation systems or municipalwater supply system. In spite of thelimitations, experiences demand thateven a gross estimate of water bal-

derstanding of present patterns ofwater use, improving rationale forallocation of water among uses andfor identification of means to achievewater savings as well as enhances inwater productivity by measuring wa-ter quality (NEERI 1997). Therefore,water accounting methodology hasbeen developed so that it can be gen-erally accepted and used for irriga-tion, agricultural, municipal, indus-trial and environmental purposes.

Water Accounting Defined

Water accounting incorporateswater balance information with theuses of water and communicates theinformation to interested parties byclassifying water balance componentsinto water use categories. Therefore,water accounting methodology isbased on water balance approach.Water balance takes into account in-flows and outflows from basins, sub-basins and service levels. Inflows intothe domain are further classified intovarious categories as gross inflow, netinflow and water depletion. Gross in-flow is the total volume of water flow-ing into the domain from surface, pre-cipitation and sub-surface sources.Besides, net inflow is the gross inflowplus any change in storage. If wateris removed from the storage over thetime period of interest, net inflow

There has been increasing international and local support forbetter management of water

resources based on healthy economicprinciples. Since the conventionalsystem of national accounts is not anymore considered as an appropriateand complete indicator of economicperformance, the need for naturalresource accounting has become nec-essary (Sarkar 2004). The system ofnational accounts provides the infor-mation on production and dispositionof economic goods and services includ-ing generation and allocation of in-come and wealth in national econo-mies. Although the framework of thesystem of national accounts com-prises of a number of characteristics,but the deficiency in the ability of thesystem arises mainly because of theinconsistent treatment of natural andhuman-made capital. In order to pro-vide a conceptual basis for environ-mental and economic accounting, thesystem of integrated environmentaland economic accounting has beenevolved to link conventional economicaccounts with environmental andnatural resource accounts. Conceptu-ally water accounting requires waterbalances. It facilitates in better un-

Accounting


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ance for use in water accounting isuseful to the policy makers and otherinterested people and water balanceapproaches have been successfullyused to study water use and produc-tivity at basin level (Hasan andBhutta 1996), at the irrigation serv-ice level (Helal et al. 1984 and Perry1996) and at the field level (Rathoreet al. 1996).

Performance Measurement

The performance indicators forwater accounting follow depleted quo-tient and effective efficiency concept(Keller and Keller 1995). Water ac-counting performance indicators maybe presented in the form of ratios andin terms of productivity of water. De-pleted quotient is that part of the in-flow, which is depleted by both proc-ess, and non-process uses. It can bedefined in terms of gross, net andavailable water. In order to havingthree depleted quotients separately,depletion is to be divided by grossinflow, net inflow and available wa-ter respectively. Besides, process quo-tient relates to process depletion ei-ther total depletion or volume ofavailable water. Process quotient interms of depleted and available wa-ter can be found out as dividing proc-ess depletion by total depletion andavailable water respectively. Theprocess quotient of depleted water isanalogous to the effective efficiencyconcept and is particularly useful inidentifying water savings opportuni-ties while a basin is fully or near fullycommitted. When there is no uncom-mitted water, process quotient of de-pleted water is equal to the processfraction of available water. Add to,productivity of water can either berelated to the physical mass of pro-duction or the economic value perunit volume of water production. Pro-ductivity of water may be measuredagainst gross or net inflow, depletedwater, process depleted or availablewater. It relates production of mass

to process depletion. With a view togetting three types of productivityindictors, productivity is divided bygross or net inflow, depletion andprocess depletion respectively.

So far as accounting componentsof water are concerned, at the fieldor use level magnitude of the compo-nent of water balance is a function ofagricultural, household or environ-mental uses. At the service level, fo-cus is on irrigation service analysis,which typically includes groundwaterunderlying irrigated areas. Finally,at the basin level, several processesof water use take into considerationincluding agricultural, municipal andindustrial uses. The main inflow intoa basin is precipitation. Other inflowcan be river inflow into sub-basin,trans-basin diversions orgroundwater originating from outsidebasin.

Framework for Water Accounting

The water accounting comprisesof water supply account, water useaccount and water asset account. Thebasis of these accounts has been ex-plained with the help of schematicpresentation.

Water supply account: In table 1a schematic presentation of watersupply in terms of agriculture, en-ergy, industry, final consumer, restof the world and environment hasbeen undertaken. In the table ecosys-tem inputs include the rainwater sup-plied to the environment. The natu-ral resources disclose all abstractedwater as coming from the environ-ment (ground, perennial or ephem-eral surface water). Besides, productsdelve into main industries supplyingwater as a product. In addition, someindustries may supply water, whichhas already been used in the produc-tion process to other industries andas such has lower quality water intheir production process. The supplyof water as a product is net of the

leakage during transportation. Thisloss or leakage is considered as returnfrom the industry supplying water.The entries under the residuals coverreturn of water to the environmentand include all the flows of water thatare supplied by the industry and usedby the environment.

Water use account: Table 2 pro-vides a schematic presentation of useof water by different using sectors. Inthe table ecosystem inputs are the ac-tivities that use rainwater or reducerun off. Natural resources includewater abstracted from river, lakes,dams and groundwater for own useor distribution. Products imply thewater, which is received from dis-tributors. Residuals incorporate wa-ter that is returned to the system bydifferent sectors.

Total water consumption is a partof abstracted water being no longeravailable for use because of its incor-poration into products, consumptionof human being or livestock or evapo-ration, transportation or removalfrom fresh water resources. It is foundout as the difference between totalwater use and total water supply.

Water asset account: Asset accountfor water reflects how the stock of wa-ter at the beginning of the accountingperiod are affected by transfer of waterbetween environment and internal hy-drological system to make up the stockof water at the end of an accountingperiod. Although it is simple to meas-ure the stock of groundwater, reservoirsand lakes, however the stock of waterin a river is measured as the volume ofriverbed. Alternatively, stock of riverwater can be measured based on annualrun off (total volume of water flowsduring a year / outflows of a drainagearea or river basin) or mean annual runoff (average annual flow under naturalcondition). It is important to note thatthe classification of water assets doesnot include water in the soil, vegeta-tion, snow or ice. Thus, the asset ac-count measures the precipitation,

Accounting


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Accounting

Table1: Water supply account (millions of cubic metres)

Sources Ag Ey In Fc Rw En Total

Ecosystem S1: RainwaterInputs

Natural S2: Total Water AbstractedResources of which : for own use for

irrigation (out of own use)for delivery

Products S3: Water Supplied to otherSectors of which: Waste water

Residuals S4: Water Returned of which:Irrigation Cooling waterWaste water treatedWaste water untreatedLoss/Leakage in distributionOther return

Total Water Supply (S3 + S4 )

Source: United Nations Statistical Division

Note: Ag = agriculture, Ey = energy, In = industry, Fc = final consumer,Rw = rest of the world and En = environment.

which falls directly on rivers, lakes andreservoirs and the part of the precipi-tation, which reaches surface andgroundwater. The run off to surface tosurface water and infiltration togroundwater are therefore net ofevapotranspiration. The opening andclosing stock denote the quantity ofwater at the beginning and at the endof the accounting period respectively.The changes in stock during the ac-counting period can be caused by hu-man activities and natural processes.

Table 3 discloses a schematic pres-entation of water asset account for sur-face water, groundwater and other re-sources. Here, abstraction is the totalvolume of water abstracted annually.Residuals represent the total volume ofwater in the accounting period returnedto the environment. Precipitation iscomposed of all wet precipitation. Itrepresents the part of the total annualprecipitation that reaches the lakes (di-rectly), rivers (via run off), reservoirs(directly) and groundwater (infiltra-tion) but incorporates water that isused by alien plants, forestation anddry land sugar cane. Inflows indicatethe total volume of water in the ac-counting period that enters the rel-evant territory. Net natural transfer forwater resource is defined as the differ-ence between inflows to one type ofwater resource from all other and out-flows from the same water resource toall others. Evapotranspiration is theloss of water resources during the ac-counting period due toevapotranspiration. Outflows imply thevolume of water that leaves the rel-evant territory during the accountingperiod. Finally, total volume changeincludes all the changes in the stock ofwater, which is considered as a differ-ence between the closing and openingstock and therefore a balancing figure.

Conclusion

The concept of water accountingis meant for a number of activitiessuch as identification of opportunities

Table2: Water use account (millions of cubic metres)

Sources Ag Ey In Fc Rw En Total

Ecosystem U1: RainwaterInputs

Natural U2: Total Water AbstractedResources of which : for own use

for irrigation (out of own use)for delivery

Products U3: Water Delivered throughMains of which: Waste water

Residuals U4: Water Returned of which:Irrigation Cooling waterWaste water treated Wastewater untreated Loss/Leakagein distribution Other return

Total Water Use (U1 + U2+ U3 )

Source: United Nations Statistical DivisionNote: Ag = agriculture, Ey = energy, In = industry, Fc = final consumer, Rw =rest of the world and En = environment.


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Accounting

Perry, C.J. (1996): The IIMI Wa-ter Balance Framework: A Model forProject Level Analysis, Research Re-port 5, International Irrigation Man-agement Institute, Sri Lanka.

Rathore, A. L., Pal, A.R., Sahu,R.K. and Chadhary, J.L. (1996): “On-Farm Rainwater and Crop Manage-ment for Improving Productivity ofRain Fed Areas”, Agricultural WaterManagement, Vol.31, pp.253 – 267.

Sarkar, S. (2004): “Valuation ofNatural Resources”, Indian Journal ofCommerce, Vol. 57,No.1, pp.106 –111.q

Table 3: Water asset account (millions of cubic metres)

Sources Surface water (dams, rivers, Groundwater Totallakes and other storage

facilities)

Opening Stock

Less: Abstraction

Add: Residuals / TotalReturn Flows

Add: Precipitation(Annual Run off)

Add: Inflows (TotalWater Transfer in)

Add/Less: Net NaturalTransfer

Less: Evaporation

Less: Outflows (TotalWater Transfer out)

Less: Total VolumeChange

Closing Stock

Source: United Nations Statistical Division

for water savings and enhancing wa-ter productivity, supportive decision-making process for water allocation,performance measurement and wateraudit. Since there is an increasingpressure on accountability for wateruse with rising scarcity of water, fu-ture research in the realm of non-process depletion of water, claim forwater savings based on field trials,accounting for depletion due to pol-lution, reporting of field scales resultin water accounting format, and ap-propriate standards for water ac-counting and auditing are utmostdesirable.

References :

Hasan, G.Z. and Bhutta, M.N.(1996): “A Water Balance Model to Es-timate Groundwater Recharge in

Rechna Doab, Pakistan”, Irrigation andDrainage Systems, No.10, pp.297 – 317.

Helal, M.A.N., Ibrahim, M.,Gates, T.K., Ree, W.O. and Semaika,M. (1984): Water Budgets for irri-gated Regions in Egypt, Egypt WaterUse and Management Project, Tech-nical Report 47, Egypt.

Keller, A. and Keller, J. (1995):Effective Efficiency: A Water UseConcept for Allocating FreshwaterResources, Water Resources and Ir-rigation Division Discussion Paper22, Win rock International, USA.

National Environmental Engi-neering Research Institute(NEERI)(1997): Natural ResourceAccounting in Yamuna River Sub-Basin, Draft Interim Report,Mimeograph, Nagpur.

ICWAI PROGRAMME ON

Cost Accounting in Oil SectorDate & Venue

9-10 April 2005 at Hotel Ambarish,Guwahati, Assam

Duration9-30 AM to 4-30 PM

Programme ContentGlobalisation of Oil Sector: Threats

& ChallengesCost Accounting Records Rules in

Oil SectorCosting of Oil Services

Cost System in Oil IndustriesDerivatives & Risk Management in

Indian Oil Industry

Participation FeeRs. 5000 per person

Payable by Cheque/Demand Draftfavouring

'ICWA of India' payable at Kolkata

ContactMr. Swapan Majumder, PD Direc-

torate, KolkataPhone: 033 - 2252 1031/34/35

Or,Director (Research & Journal):

Ph 033 - 2252 7143E-Mail: [email protected]

Programme


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In exercise of the powers conferredby sub-section (1), read with sub-Section (2) of section 94 of the Fi-

nance Act, 1994 (32 of 1994), the Cen-tral Government has amended theService Tax Rules, 1994 so as to coverthe services provided by the GoodsTransport Agency under the servicetax net.

Infact, The Finance Bill 2004again sought to levy the tax on GTAand once again GTA went on nationwide strike. The government thenformed a committee to review thismatter. In the second week of Novem-ber-2004 the committee submitted hisreport with a suggestion that the li-ability of service tax on GTA is to beborne by the person who pay thefreight and a abatement of 75% is tobe given. This will led the tax on GTAback to road with the 1997 positionof the receiver to pay the tax.

The Government accepted thesuggestion of the committee and is-sued Four notification dated 03-12-2004 making the applicability ofService Tax on GTA w.e.f. 01-01-2005

Salient Features of the Service Tax onGTA

A. Meaning of Goods Transport Agencyas defined in Section 65(50b) : GTA

" Means any commercial concernwhich provides service in relation to

transport of goods by road and issuesconsignment note by whatever namecalled". Going by the definition, acargo company popularly known asSurface Courier Company is coveredby the rules. However, a courier com-pany involved in the business of docu-ment transportation is not coveredunder this service clause. (However,it will get covered under courier serv-ices head).

B. Effective from :

Service tax is sought to be leviedon goods transport agency with EffectFrom 1-1-2005

{ para 26 of the CBEC circular noF.No.B2/8/2004-TRU dtd 10th Sep-tember, 2004 read with exemptionnotification no 32 to 35 /2004 ST dtd3-12-2004} It is important to note thatw.e.f 10/09/2004 other new serviceswere added. However, GTA service isbeing added w e f 01/01/2005.

C. Abatment available? :

As per notification no 32/2004 STdtd 3-12-2004 where the GTA doesnot avail any CENVAT credit on in-puts & capital goods, only 25% of thegross amount charged on any taxableservice provided by GTA to a cus-tomer in relation to transport ofgoods, by road in goods carriage, willbe chargeable. i.e. 75% of the grossamount would be exempted from serv-ice tax. Further, exemption fm appli-

cability of service tax is provided inspecific cases which are be discussedin para G

D. Rate of Service Tax on the value oftaxable service:

Þ 10% as Service tax

Þ 2% on Service tax as Service taxEducation Cess.

E. Liability to pay service tax :

For all other services covered un-der service tax, Service provider hasto charge, collect and pay the servicetax. However, in case of Service pro-vided by GTA rule is different. As per35/2004-Service Tax, dated : Decem-ber 3, 2004, in relation to taxableservice provided by a goods transportagency, any person who pays or is li-able to pay freight either himself orthrough his agent for the transporta-tion of such goods by road in a goodscarriage; where the consignor or con-signee of goods is,-

(a) any factory registered under orgoverned by the Factories Act,1948 (63 of 1948);

(b) any company established by orunder the Companies Act, 1956(1 of 1956);

(c) any corporation established by orunder any law;

(d) any society registered under theSocieties Registration Act, 1860(21 of 1860) or under any law cor-responding to that Act in force inany part of India;

(e) any co-operative society estab-lished by or under any law;

(f) any dealer of excisable goods,who is registered under the Cen-tral Excise Act, 1944 (1 of 1944)or the rules made thereunder; or

(g) any body corporate established,or a partnership firm registered,by or under any law,

Thus effectively any services pro-

Professional Updates

Service Tax on goodstransport agency

Hetal Shah

"Socially responsible business" may be termed the seventh pil-lar of a redesigned India. What a transformation one could ef-fect in this country if only business houses were socially respon-sible!"


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vided by the GTA to an individual orproprietorship concern and a personwho is a dealer but not registered un-der central Excise Act, 1944 only wouldchargeable in the hands of GTA.

F. Consignment note by GTA is man-datory:

As per Rule 4B inserted vide no-tification no. 35/2004-Service Tax,dated: December 3, 2004, any goodstransport agency which providesservice in relation to transport ofgoods by road in a goods carriageshall issue a consignment note, un-less the services are exempted undersection 93 of the Act, to the customer.

"consignment note" for the pur-pose of this rules means a document,issued by a goods transport agencyagainst the receipt of goods for thepurpose of transport of goods by roadin a goods carriage, which is

1. serially numbered with date , andcontains the

2. name of the consignor,

3. name of consignee,

4. registration number of the goodscarriage in which the goods aretransported,

5. details of the goods transported,description of goods}

6. details of the place of origin

7. details of the place of destination,

8. Person liable for paying servicetax whether consignor, consigneeor the goods transport agency.'

G. Exemption:

As per Notification No. 33/2004,When fruits, vegetables, eggs or milkare transported by road, or as pernotification No. 34/2004

1. Where the gross amount chargedfor all the consignments in one tripin the goods carriage is belowRs1500 or

2. Where all the consignment to asingle consignee in one trip is be-low Rs 750.

H. Mandatory information in Invoice::

As per the rule 4A, Invoice madeby GTA will contain additional detailsof consignment note number, date &gross weight of the consignment

Apart from regular details as perRule 4A i.e

1. challan shall be serially numbered,

2. the name, address and the regis-tration number of service pro-vider; { if registered}

3. the name and address of the per-son receiving taxable service;

4. description, classification andvalue of taxable service providedor to be provided; and

5. the service tax payable thereon.

6. signed by service provider or aperson authorized by him

I. Registration under Service Tax :

1. By GTA if the services are pro-vided to an individual or propri-etorship concern and a personwho is a dealer but not registeredunder central Excise Act, 1944

2. By consignor if he or his agentpays for the freight & falls in thecategory Person liable to payservice tax mentioned above. Theconsignor will obtain Service TaxRegistration.

3. By consignee if he or his agentpays for the freight & falls in thecategory Person liable to payservice tax mentioned above. Theconsignee will obtain Service TaxRegistration.

J. Following Service tax paid on be-half of GTA is eligible for CenvatCredit:

1. The Service tax paid by a Con-

signor for removing final goodsfor depot as stock transfer

2. The service tax paid by a Con-signee on goods that are inputsor capital goods as per CenvatCredit Rules, 2004.

3. The service tax paid by consignoror consignee on GTA servicewhich is used as input service forproviding output service.

K. Cenvat Credit Eligibility :

The Service tax paid on behalf ofthe GTA would be available as cenvatcredit only after full amount is paidto GTA. It is understood that fullamount of invoice does not mean thatcenvat credit is available only if 100%payment is made. It should not bemisunderstood that if a debit note hasbeen raised against the invoice, creditof Cenvat is not available, as full pay-ment is not made. Full payment isunderstood to be the full and finalpayment/settlement against the spe-cific invoice. The service tax may bepaid by the Consignor or Consigneeby 25th of the next month.

L. Service Tax registration by the GTAservice receiver.

It is clear from the notification no.35/2004, that the certain service receiv-ers have to pay the service tax in caseof service received form GTO. In suchcase the service receiver has to get him-self registered under the Service TaxRules,1994 , because Rule 4 which dealswith registration states that Every per-son liable to pay service tax shall haveto get himself registered with in 30 dayson which the service tax under section66 of the Finance Act,1944 is levied. Incase of GTO the service tax is leviedw.e.f. from 01-01-2005 and the timeperiod should be upto 30-01-2005.

(This article should not be consid-ered as legal advice. The views ex-pressed in this article are the per-sonal views of the author) q


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C.B. II No. 448- Vol. 1

COMMITTEE ON SUBORDINATE

LEGISLATION

(FOURTEENTH LOK SABHA)

(2004-2005)

FIRST REPORT(Presented on 02 DEC 2004)

LOK SABRA SECRETARIAT

NEW DELHI

III

COST ACCOUNTING RECORDS RULES

3.2 Provisions for maintenance of cost records were in-troduced under Section209(1)(d) by Companies(Amendment) Act, 1965 (w.e.f 15.10.1965) in the Com-panies Act, 1956. In terms of Section 209 led) of theCompanies Act every company shall keep at its regis-tered office proper books of account and in the case ofa company pertaining to any class of companies en-gaged in production, processing, manufactur-ing ormining activities, such particulars relating to4tilisation of material or labour or to other items ofcost as may be prescribed shall be kept, if such classof companies is required by the Central Governmentto include such particulars in the Books of. Accounts.Accordingly, Cost Accounting Records Rules (CARRs)are being prescribed by the Government.

3.3 The Central Government have notified the Cost Ac-counting Records Rules for 47 industries, beginningfrom March, 1967. These include (1) Cycle (2) Tyres& Tubes 13) Caustic Soda (4) Room Air Conditioners(5) Refrigerators (6) Batteries other than Dry CellBatteries (7) Electric Lamps (8) Electric Fans (9) Elec-tric Motors (l0) Aluminium (11) Vanaspati (12) BulkDrugs (13) Jute Goods (14) Papers (15) Rayon (16)Dyes (17) Soda Ash (18) Polyester (19) Nylon (20)Textiles (21) Dry Cell Batteries (22) Sulphuric Acj9-(Z3) Steel Tubes and Pipes (24) Engineering Indus-tries (Z5) Electric Cables and Conductors (26) Bear-ings (27) Milk Food (28) Chemical Industries (29)Formulations (30) Steel Plant (31) Insecticides (32)

Fertilizers (33) Soaps and Deter-gents (34) Cosmet-ics and Toiletries (35) Footwear (36) Shaving Systems(37) Industrial Gases (38) Sugar (39) Cement (40)Motor Vehicles (41) Industrial Alcohol (42) Miningand Metallurgies (43) Electronic Products (44) Elec-tricity Industry (45) Plantation Prod-ucts (46) Tel-ecommunications (47) Petroleum Industry.

3.4 When asked to indicate whether any study had beenmade as to which are the remaining industries whichrequire Cost Accounting Records Rules and whetherany time-frame has been envisaged for formulatingthese rules, the Ministry in their response dated 26June, 2003 stated as under:-

“The first schedule to the Industries (Developmentand Regulations) Act, 1951 features the list ofindustries engaged in the manufacture or produc-tion of various articles. Though number of indus-tries/products indicated therein have already beencovered by notifying the Cost Accounting R~0rdRules for the respective products, following arethe major industries for which the said rules areyet to be framed:-

(i) Fuels like Coal, fuel gases

(ii) Transportation-Aircraft, Ship, Railway locomotives

(iii) Industrial Machinery, Agricultural/Earth-movingmachinery

(iv) Medical and Surgical Appliances

(v) Food Processing Industries

(vi) Glass

(vii)Ceramics

(viii) Defence Industries -Arm and. Ammunition

In addition, following industrial/service sectors haveattained strategic impor-tance to the economy and publicat large, particularly after the opening of the economyfor private/foreign companies. . An authentic cost database to various existing and new regulatory bodies (suchas Insurance Regulatory and Development Authority,RBI.), Competition Commission, various States and Cen-tral Government departments for fixation of user chargesin respect of services provided by them, revenuedepart-ments etc. is of paramount importance and wouldgo a long way in fulfilling their respective objectives. It istherefore, envisaged to prepare Cost Accounting RecordsRules for these sectors in a phased manner:-

Report on Cost Accounting Record Rules


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(i) Banking

(ii) Insurance

(iii) Media/Broadcasting

(iv) Health Services

(v) Education

(vi) Hotel (Hospitality Industry)

(vii)Tourism

(viii) Airlines

Regarding the time schedule for framing the Cost Ac-counting Records Rules for the above industrial/servicesectors, it may be submitted that framing of new CostAccounting Records Rules involves various stages suchas visit to select units, preparation of draft rules afterincorporating the suggestions received from the industry,professional bodies and practicing cost accountants, con-sideration of the draft rules by Informal Advisory Com-mittee, approval of the rules by Hon’ble Minister of Fi-nance, legal vetting of the rules, translation of the sameinto Hindi, publication of the notification and finally lay-ing the rules on the table of both the Houses of Parlia-ment. The entire procedure spans over a period of nearlya year and a half. In view of the above and taking intoaccount the work force available and other exigencies,minimum of four to five years may be required to frameCost Accounting Records Rules in respect of the indus-tries/services mentioned above:

3.5 The Committee considered this matter at their sit-ting held on 4 August, 2003 and took oral evidence ofthe representatives of the Department of CompanyAffairs on 14 October, 2003.

3.6 Even 38 years after passing the relevant provision ofLegislation, the Government have not been able toframe the Cost Accounting Records Rules to cover allmajor industries / products. The slow pace of framingrules negate the very purpose of the important provi-sion of the legislation passed by the Parliament. Inthis connection a representative of the Departmentof Company Affairs stated during oral evidence :

“Sir, I just want to clarify two things about this legis-lation. This legislation is enabling. It is not a legislationthat is intended to create anything permanent. It is not afresh legislation to create something specific on the linesof CCI (Competition Commission of India). It enables usto do something. It is not compulsory to do that thing evenif it is not required.”

Secondly, the misunderstanding seems to be that weare controlling the cost. But we are not controlling thecost. This legislation only enables us to compel compa-nies to keep the cost records. That is all we can do. Keep-ing the cost record per se is not cost control. Cost controlwill have to come from somewhere else.”

3.7 Clarifying the position further, the Secretary, DCAadded:

“As far as price control is concerned, this will notablecoming through by-the sole mechanism of CARRs. It isonly one of the aids that may help in arriving at the costof production of industrial products. Ultimately the pricecontrol would depend on freight factors, on GovernmentPolicies, on monsoon and such other things.”

3.8 During the course of oral evidence, the Committeedesired to know whether the Ministry laid down im-mediately after passing the legislation in the year1965 any time-frame for framing Cost AccountingRecords Rules to cover all major industries/ productsand the reasons for delay, if any, in not adhering tothe time frame. The Secretary, DCA stated in replyas follows:-

“I would like to mention here that in a meeting whichwas chaired by the Company Law Board at one point oftime there was a priority assigned for choosing the in-dustries. These priorities were broader than the industryshould be consumer-oriented where any change in salesprice would impact the consumers; it should be produc-ing basic raw materials like caustic soda, soda ash andsulphuric acid; it should be an industry dealing with shortsupply goods, capital intensive industries where capacityremains unutilised, etc. Thus, the Cost Accounts Branchof the Department of Company Affairs has been respond-ing to the request of the line Ministries and the regula-tors to prescribe relevant CARRs through the enablingprovisions of the amended Companies Act.

In fact, on that reckoning there is hardly any arrearswith the Department of Company Affairs except that outof that list only five industries, notable among them be-ing coal, are left out for which CARRs should have beenin position. The reasons for these industries being left outhave not come out. clearly from the records available; Infact there is no evidence available (it this stage whichmay suggest that the concerned Ministries or the regula-tors have been pursuing. the matter with the Departmentsof Company Affairs as far as these given industries areconcerned.”


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3.9 The Department of Company Affairs stated in a notethat the main objective of Cost Audit when introducedwas mainly to meet Government requirements forregulating the price mechanism in certain industries..DCA further stated that in the present scenario ofliberalisation and globalisation, to ensure free tradeand absence of unfair practices, authentic cost data-base is not only essential for the industries to improveupon their performance and face competitive environ-ment, but is useful to various Government agencies.revenue authorities, regular bodies, bank and finan-cial institutions for meeting their respective objec-tives. Deviating from the above position stated in anote. the Secretary, DCA submitted during oral evi-dence (on14.10.2003) as fol1ows:-

“Of late there has been a school of thought developingin the country who have been advocating dilution ofCARRs to the extent of eliminating them from the statu-tory list in the face of competitive regime now in vogue.This regime calls for companies to be competitive: cost-conscious and secretive if they have to be on a continuousedge. Also, the line Ministries and the regulators requestsfor placing more and more industries towards CARRs arenot coming up. Perhaps the regime of administered pricesand subsidies is on the decline.”

3.10 Cost Accounting Records Rules have not been for-mulated for some of the major industries/productssuch as Coal, Transportation, (Aircraft, Ship and Rail-way Locomotives), Industrial Machinery, (includingAgricultural Machinery and Earth moving Machin-ery), Medical and surgical appliances, Food Process-ing Industries, Glass, Ceramics,etc. When askedwhether any time frame bad been formulated to frameCARRs for the industries/products mentioned aboveand to specify targets in respect of each of the aboveindustries, the Secretary DCA submitted as under:-

“We shall be undertaking this exercise and we will bewriting to the concerned Ministries in the light of the newregimes, new regulators which are being foreseen like com-petition Commission of India or Anti Dumping WTO re-gime. If the line Ministries want us to prioritise certainset of industries or certain set of services, we will be work-ing out as per their schedule.”

3.11 When asked about the progress made in evolvingCARRs for service sectors like Banking, Insurance,Media /Broadcasting, Health, Education, Hotel. Tour-ism and Airlines Sectors etc. the Secretary, DCA re-sponded as under:-

“As the Act stands today, section 209(1 )(d) talks aboutthe class of company, engaged in production, processing,manufacturing or mining activities. These are the fourcategories of companies that they have expressed. We willhave to think about carefully whether the service sectorfalls within these.”

3.12 The Committee regret to note that even 38 years af-ter enactment of the relevant provisions empoweringthe Government to prescribe Cost Accounting RecordsRules (CARRs), these have not been framed to coverall major industries / projects. CARRs have so far beennotified only in respect of 47 industries. The slow paceof framing rules negates the very purpose of the im-portant provision ofthe legislation passed by the Par-liament. Though it has been contended that thelegisla-tion is “enabling” and is not “mandatory”, theSecretary, Department of Company Affairs indicatedduring evidence that at one point of time priority hadbeen assigned to certain industries in the prepara-tion of CARRs. He admitted that out of the priori-tizedindustries for which CARRs should have been in po-sition, five major industries have been left out, nota-ble among them being the Coal Industry. It is strangethat the Department of Company Affairs could notascertain the reasons why CARRs could not be framedfor a major Industry such as “Coal” all these years.The Secretary. Department of Company Affairs hasassured that the Department would now be writingto Ministries concerned regarding formulation ofCARRs and prioritize Industries/Services on the ba-sis of urgency expressed by them. The Committeewould like to be apprised of the action taken in thisregard and the time frame laid.down by the Depart-ment for completing the task.

3.13Service sectors such as Banking, Insurance, Health Serv-ices, Education, Hotel, etc. have admittedly “attainedstrategic importance to the economy and the public atlarge, particularly after opening of the economy for pri-vate / foreign companies”. It has been stated that anauthentic cost data base is of paramount importance tovarious existing and new regulatory bodies, Competi-tion Commission and Government Departments for fixa-tion of user charges in respect of services provided bythem and would go a long way in fulfilling their respec-tive objectives. The existing provisions of the Compa-nies Act, however, do not require formulation of CARRsfor service industries. The Committee feel that absenceof ‘enabling’ provi-sion in the Companies Act should notbe a reason for not prescribing CARRs for service indus-tries. If the need for cost audit is otherwise found to bevital for service industries, the Committee emphasise


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that expeditious action should be taken to remove thelacuna in the Companies Act by suitably amending it.

3.14The Committee are concerned to note that the De-partment of Company Affairs do not have a definiteidea about the relevance and significance of CARRsin the present day scenario of liberalization andglobalisation. The Department have held out two dif-ferent views before the Committee. In a note submit-ted to the Committee, tile Department opined thatthe main objective of cost audit when introduced wasmainly to meet Government requirements for regu-lating the price mechanism in certain industries andthat in the present scenario authentic cost data baseis not only essential for the industries to improve upontheir performance and face competitive environmentbut is useful to various Government agencies, revenueauthorities, regulatory bodies, banks and financial in-stitutions for meeting their respective objectives. TheSecretary, Department of Company Affairs, however,quoted during evidence another school of thought ac-cording to which the competitive regime which is nowin vogue calls for companies to be competitive, costconscious and secretive if they have to be on a con-tinuous edge. This view advocates dilution of CARRsto the extent of eliminating them from the statute.The Committee note that one of the-objects of theCompanies (Second Amendment) Bill, 1964, (whichen enact-ment became Companies (Amendment) Act,1965] as stated in the Statement of Objects and Rea-sons appended to the Bill, was to strengthen the pro-visions relating the investigation into the affairs ofCompanies and to provide for more effective audit indealing with cases of dishonesty and fraud in the cor-porate sector”. In view of a number of cases of finan-cial irregularities in the Corporate sector recentlycoming to light, the Committee find it difficult to sub-scribe to this school of thought. The Committee feelthat holding divergent views and lack of clear policyabout CARRs is not conductive to the functioning ofthe Department. The Committee urge that the De-partment of Company Affairs in consultation withMinistries and regulators concerned should examinethoroughly from all angles the need and importanceof the Cost Accounting Records Rules in the presentday scenario and lay down clear, coherent and unam-biguous policy guidelines in regard to CARRs.

N.N. KRISHNADAS,Chairman,

Committee on Subordinate Legislation.NEW DELHI;August, 2004

APPENDICES

(Relevant Extracts concerning CARR)

APPENDIX I

(Vide Para 6 of the Introduction of the Report)

SUMMARY OF RECOMMENDATIONS MADEIN THE REPORT OF THE COMMITTEE ON

SUBORDINATE LEGISLATION

(FOURTEENTH LOK SABHA)

Sl. Reference to Summary ofNo Para No. in Recommendations

the Report

3. The Cost Accounting RecordsRules

3.12 The Committee regret to note thateven 38 years after enactment ofthe relevant provisions empower-ing the Government to prescribeCost Accounting Records Rules(CARRs), these have not beenframed to cover all major indus-tries / projects. CARRs have so farbeen notified only in respect of 47industries. The slow pace off fram-ing rules negates the very purposeof the important provision of thelegislation passed by the Parlia-ment. Though it has been. con-tended that the ,legislation is “ena-bling” and is not “mandatory”, theSecretary, Department of Com-pany Affairs indicated during evi-dence that at-one point of time pri-ority had been assigned to’ certainindustries in the preparation ofCARRs. He admitted that out ofthe prioritized industries for whichCARRs should have, been in posi-tion, five major industries havebeen left out, notable among thembeing the Coal Industry. It isstrange that the Department ofCompany Affairs could not ascer-tain the reasons why CARRs couldnot be framed for a major industrysuch as “Coal” all these years. TheSecretary, Department of Com-


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pany Affairs has assured that theDepartment would now be writingto Ministries concerned regardingformulation of CARRs andprioritize Industries / Services onthe basis of urgency expressed bythem. The Committee would like tobe apprised of the action taken inthis regard and the time frame laiddown by the Department for com-pleting the task.

3.13 Service. sectors such as Banking,Insurance, Health Services, Edu-cation, Hotel, etc. have admittedly“attained strategic importance tothe. economy, and the. public atlarge, particularly after opening ofthe economy for private / foreigncompanies”. It has been stated thatan authentic cost data base is ofparamount importance to variousexisting. and new regulatory ,bod-ies, Competition Commission andGovernment, Departments forfixation of user charges in respectof services: provided by them andwould go a long way in respect offulfilling their respective objec-tives. The existing provisions ofthe Companies Act, however, donot require formulation of CARRsfor service industries. The Com-mittee feel that absence of ‘ena-bling’ provision in the CompaniesAct should not be a reason for notprescribing CARRs for service in-dustries: If the need for cost auditis otherwise found to be vital forservice industries, the Committeeemphasise that expeditious actionshould be taken to remove the la-cuna in the Companies Act by suit-ably amending it.

3.14 The Committee are concerned tonote that the Department of Com-pany Affairs do not have a definiteidea about the relevance and sig-nificance of CARRs in the presentday scenario of liberalization andglobalisation. The Departmenthave held out two different views

before the Committee. In a notesubmitted to the Committee, theDepartment opined that the mainobjective of cost audit when intro-duced was mainly to meet Govern-ment requirements for regulatingthe price mechanism in certain in-dustries and that in the presentscenario authentic cost data baseis not only essential for the indus-tries to improve upon their per-formance and face competitive en-vironment but is useful to variousGovernment agencies, revenue au-thorities, regulatory bodies; banksand financial institutions for meet-ing their respective objectives. TheSecretary, Department of CompanyAffairs, however, quoted duringevidence another school of thoughtaccording to which the competitiveregime which is now in vogue callsfor companies to be competitive,cost conscious and secretive if theyhave to be on a continuous edge.This view advocates dilution ofCARRs to the extent of eliminatingthem from .the statute. The Com-mittee note that ‘one of the objectsof the Companies (Second Amend-ment) Bill, 1964, [which ‘on enact-ment became Companies (Amend-ment) Act, 1965] as stated in theStatement of Objects and Reasonsappended to the Bill , was tostrengthen the provisions relatingto investigation into the affairs ofCompanies and to provide for moreeffective audit in dealing withcases of dishonesty and fraud in thecorporate sector”. In view of anumber of cases .of financial ir-regularities in the corporate sectorrecently coming to light, the Com-mittee find it difficult to subscribeto this school of thought. The Com-mittee feel that holding divergentviews and lack of clear policy aboutCARRs is not conducive to the func-tioning of the Department. TheCommittee urge that the Depart-ment of Company Affairs in consul-


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tation with Ministries and regula-tors concerned should examinethoroughly from all angles theneed and importance of the CostAccounting Records Rules in thepresent day scenario and lay downclear coherent and unambiguouspolicy guidelines in regard toCARRs.

3 The Committee then consideredMemorandum No. 60 regarding theCost Accounting Records (Planta-tion Products) Rules, 2002 (GSR685-E of 2002) and the Cost Ac-counting Records (Petroleum In-dustry) Rules, 2002 (GSR 686-E of2002). The Committee observedthat Cost Accounting RecordsRules for a number of major indus-tries/products and a number of In-dustrial Service Sectors have notbeen framed even 37 years afterpassing the relevant provision ofLegislation. An authentic cost database to various existing and newregulatory bodies (such as Insur-ance Regulatory and DevelopmentAuthority, RBI), Competition Com-mission, various States and Cen-tral Government departments forfixation of user charges in respectof services provided by them, rev-enue departments etc. is of para-mount importance which would goa tong way in fulfilling their re-spective objectives. Having notedthe importance of the matter theCommittee desired that a back-ground note on Cost AccountingRecord Rules in the context of Con-sumer Protection Act, establish-ment of Competition Commissionand Abolition of MRTPC, WTOGeneral Agreement Trade andServices (GATS), and recentamendments in the Companies Actetc. be obtained from theMinisttry. The Committee also de-cided to call the representatives, ofthe Ministry/ bodies concerned forevidence.

MINUTES OF THE NINTH SITTING OFTHE COMMIT-TEE ON SUBORDINATE LEGISLATION (2003-2004)

The Committee met on Tuesday, 14 October, 2003 from 15.00to 16.30 hours in Committee Room ‘C’, Parliament HouseAnnexe, New Delhi.

PRESENT

1. DR.B.B.Ramaiah - Chairman

Members

2. Shri Paban Singh Ghatowar.

3. Dr. M. Jagannath

4. Shri Ram Singh Kaswan

5. Shri Pravin Rashtrapal

6. Shri Anadicharan Sahu

7. Prof. I.G Sanadi

8. Dr. Ram Lakhan Singh

9. Shri Ramjiwan Singh

10. Dr. N. Venkataswamy

Secretariat

1. Shri S.K. Sharma - Joint Secretary.

2. Shri A. Louis Martin - Director

3. Shri Ashok Balwani Under Secretary

2. The Committee took oral evidence of the representativeof the Ministry of Finance (Department of Company Af-fairs) regarding Cost Accounting Records Rules (CARRs).

3. The following were present:-

1. Shri M.M.K. Sardana, Secretary.

2. Shri. Rajiv Mehrishi, Joint Secretary

3. Shri A. K. Kapoor. Adviser (Cost)

4. Shri J. Bose. Deputy Director (Cost)

5. Shri G. Venkatesh. Deputy Director (Cost)

4. Verbatim proceedngs of the discussions were kept onrecord.

The committee then adjourned.


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Global Economic Security

EXECUTIVE DIGEST

Anew ILO report* says that economic security promotes personal well-being, happiness

and tolerance, while benefitinggrowth and social stability. Yet itfinds the overwhelming majority ofpeople in a state of economic insecu-rity, and raises doubts over rich coun-tries' ability to turn wealth into hap-piness

GENEVA - For the first time, theILO report measures global economicsecurity as perceived by ordinary peo-ple and workers. Its findings make forgrim reading. Nearly three-quartersof all workers live in countries withlow levels of economic security andonly 8 per cent in countries provid-ing favourable economic security.

What is more, with economic se-curity out of reach for the majority ofthe world's workers, the report pointsto "a world full of anxiety and anger".Forms of insecurity, such as irregu-larity of payments and non-paymentof contractual wages, and more re-structured and regressive social se-curity schemes, blight the global pic-ture, the report says.

many richer countries in terms of eco-nomic security.

The report also points to an in-crease in the frequency and severityof economic shocks underglobalization. The variability of eco-nomic growth rates has increased,and individual problems, such as un-employment or illness, are being over-taken by bigger shocks affectingwhole communities and regions.

"Coming shortly after the reportof the World Commission on the So-cial Dimension of Globalization, thisbook should enrich the debate on howwe can build a fair globalization;' saysILO Director-General Juan Somavia."Unless we can make our societiesmore equal and the global economymore inclusive, very few will achieveeconomic security ordecent work."

A global picture

The study looks at national levelsof economic security, and dividescountries into four clusters: Paceset-ters (with good policies, good institu-tions and good outcomes), Pragma-tists (good outcomes in spite of lessimpressive policies or institutions),Conventionals (seemingly good poli-cies and institutions but with lessimpressive outcomes) and Much-to-be-Done countries (weak or non-exist-ent policies and institutions, and pooroutcomes).

The conclusion is that manywealthy countries could easilyachieve more economic security fortheir citizens. The report shows thatthe global distribution of economicsecurity does not correspond to theglobal distribution of income; SouthAsia, for example, has about 7 percent of the world's income, but about14 per cent of the world's economic

The report is based on a globalsocioeconomic security databank sup-plemented by detailed household andworkplace surveys covering over48,000 workers and more than 10,000workplaces worldwide. Measuring in-dicators of economic security, such asincome, representation, employmentand skills, the analysis draws some-times surprising results.

Income level is not the most im-portant determinant of national hap-piness, the report says. There is apositive association, but rising in-come seems to have little effect aswealthy countries grow wealthier.Rather, the key factor is the extentof income security, measured in termsof income protection and a low degreeof income inequality.

People are often performing jobswhich do not correspond to their skillsand qualifications, leading to "statusfrustration", the report adds, sayingthat economic insecurity fosters intol-erance, stress, social illness and, ul-timately, social violence.

Moreover, the report finds thatthe richest countries in the world arenot always the most economically se-cure. South and south-east Asiancountries do relatively better than

Global economic securityin crisisNew ILO report finds �world full of anxiety andanger�

* Economic security for a better world, Socio- Eco-nomic Security Programme. International La-bour Office, 2004.


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Global Economic Security

security. By contrast, Latin Americancountries provide their citizens withless economic security than could beexpected from their relative incomelevels, the report says.

Indeed, being insecure influencespeople's attitudes, which at times canbe detrimental to their ideas of a de-cent society. This is shown by the interviews with 48,000 respondents. In arecent survey undertaken by the Latinobarometro in Latin American countries,76 per cent of the people surveyed wereconcerned about not having a job thefollowing year, and a majority said thatthey would not mind a non-democraticgovernment if it could solve their un-employment problems.

South Asian and south-east Asiancountries were among the better per-formers, with a higher share of eco-nomic security than their share of theworld's income. China and India have'experienced higher economic growthunder globalization and a decline ineconomic instability. Other countriesin the region have experienced lowergrowth rates without an increase ineconomic instability, despite theAsian crisis of 1997 -98.

Africa - where the extent of povertyhas been understated-has sufferedgreater economic insecurity than anyother region of the world during the past15 years. Economic growth has beenslower and more unstable than in otherparts of the world, and 83 per cent ofAfrican countries surveyed were in the"Much-to-be-Done" bracket, implyingweak policies, institutions and results.

Economic insecurity has grownthe most in Eastern Europe over thepast decade. Workers and their fami-lies suffer from acute income insecu-rity due to the non-payment of wages,the loss of enterprise benefits and theabsence of decent state benefits. Theabsence of meaningful work opportu-nities is more severe than implied byofficial unemployment statistics, andlaws and commitments on social se-curity are ineffective.

Latin America - which has themost unequal income distribution -has experienced more frequent andincreasingly severe economic crises.In recent years, the region has expe-rienced a bigger decline in growthrates and a bigger increase in thevolatility of growth than any other

region of the world, inducing a sharpincrease in economic insecurity.

Despite regional variations, a keyfeature of the findings is that onlycountries which provide a coherentset of policies which strengthen allseven forms of labour security have-a high score on overall economic se-curity. Countries with very strongattainment in some spheres but withweak attainment in one or more oth-ers do not perform well overall.

The report shows that politicaldemocracy and a trend towards civilliberties significantly increase eco-nomic security and that governmentspending on social security policiesalso has a positive effect. But thereis only a weak impact of economicgrowth on security, measured overthe longer term. In other words, rapidgrowth does not necessarily createbetter economic security, although itcan do so if accompanied by appropri-ate social policies.

The report also finds that "incomesecurity is a major determinant of otherforms of labour-related security", andthat income inequality worsens eco-nomic security in several ways. "The

message", the report concludes,is that "highly unequal societiesare unlikely to achieve much byway of economic security or de-cent work."

The analysis shows thatthere has been an upwardtrend in the frequency and se-verity of economic shocks dur-ing the recent period ofglobalization (since 1980), aswell as a coincidental growth inthe number of natural disastersaffecting very large numbers ofpeople. It also shows that, ex-cepting the two most populousnations (China and India), glo-bally - and particularly among

Continued to page 126


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Nature Against Man

ISDR will start distributing funds to theindividual agencies to start work.

The exact form of the early warn-ing system - and how it might be usedand extended to provide warnings ofother natural hazards - is still to bethrashed out. "There will be more meet-ings to discuss the road map," saidYoshitaka Murata, Japan's minister ofstate for disaster management, andpresident of the conference.

Once the Indian Ocean system isdecided, it will then be more straight-forward to extend the system to otherseas and oceans, Briceno added.

Source : New Scientist

Tsunami &Earthquake

Panel 1—Initiation: Earthquakesare commonly associated with groundshaking that is a result of elasticwaves traveling through the solidearth. However, near the source ofsubmarine earthquakes, the seaflooris “permanently” uplifted and down-dropped, pushing the entire water col-umn up and down.

The potential energy that resultsfrom pushing water above mean sealevel is then transferred to horizontalpropagation of the tsunami wave (ki-netic energy). For the case shownabove, the earthquake rupture occurredat the base of the continental slope inrelatively deep water. Situations canalso arise where the earthquake rup-ture occurs beneath the continentalshelf in much shallower water.

Note: In the figure the waves aregreatly exaggerated compared to wa-ter depth! In the open ocean, thewaves are at most, several metershigh spread over many tens to hun-

dreds of kilometers in length.

Panel 2-Split: Within several min-utes of the earthquake, the initial tsu-nami (Panel 1) is split into a tsunamithat travels out to the deep ocean(distant tsunami) and another tsu-nami that travels towards the nearbycoast (local tsunami).

The height above mean sea levelof the two oppositely traveling tsuna-mis is approximately half that of theoriginal tsunami (Panel 1). (This issomewhat modified in three dimen-sions, but the same idea holds.) Thespeed at which both tsunamis travelvaries as the square root of the waterdepth. Therefore the deep-ocean tsu-nami travels faster than the local tsu-nami near shore.

Panel 3—Amplification: Severalthings happen as the local tsunamitravels over the continental slope.Most obvious is that the amplitudeincreases. In addition, the wave-length decreases. This results insteepening of the leading wave—animportant control of wave runup atthe coast (next panel).

Note also that the deep ocean tsu-nami has traveled much farther thanthe local tsunami because of thehigher propagation speed. As thedeep ocean tsunami approaches a dis-tant shore, amplification and short-ening of the wave will occur, just aswith the local tsunami shown above.

Panel 4—Runup: As the tsunamiwave travels from the deep-water,continental slope region to the near-shore region, tsunami runup occurs.Runup is a measurement of the

Indian Ocean tsu-nami warning sys-tem by mid - 2006

A tsunami warning system for theIndian Ocean will be set up by mid-

2006 under the leadership of the UnitedNations, agreed the governmentalWorld Conference on Disaster Reduc-tion in Kobe, Japan.

The news comes as Indonesia in-creased its death toll from the tsunamion 26 December 2004 to at least160,000, raising the total number ofdeaths to about 220,000.

The technology to detect tsunamisin the Indian Ocean region should beup and running within 12 to 18 months,said Salvano Briceno, director of theUN's International Strategy for Disas-ter Reduction (ISDR). Developing plansfor an effective response to any warn-ing, and educating local communities,will take longer - perhaps two to threeyears - Briceno said.

Individual countries, including theUS and India, had said they wanted tocoordinate the Indian Ocean system.But various UN agencies and other or-ganisations will now take responsibil-ity, under the framework of the ISDR.

Mitigating damage

The Intergovernmental Oceano-graphic Commission of UNESCO,which coordinates the tsunami earlywarning system in the Pacific, will takethe lead in coordinating the technology.

Mitigating the damage from anyfuture tsunami - through better build-ing, for example - is also crucial and theWorld Meteorological Organization, theUN Development Programme and fi-nancial institutions will work with in-dividual countries on this.

Lastly, the International Federationof Red Cross and Red Crescent Societieswill lead the projects for community edu-cation. Within the next few weeks, the


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Nature Against Man

As well as drawing on a globaldatabank of national policies, the re-port uses statistics from a series ofPeople's Security Surveys carried outin 15 countries, in which over 48,000working people were interviewedabout their work, the insecuritiesthey experience, and their attitudesto inequality and related aspects ofsocial and economic policy.

Respondents were asked abouttheir attitudes towards various aspectsof economic insecurity and inequality.A majority everywhere favoured moresupport for the economically vulner-able, and a desire to reduce inequality.

Among other findings are the fol-lowing:

l Most workers in developing coun-tries are unaware of trade un-ions, which in most of these coun-tries represent under 10 per centof workers.

l Women usually experience moreinsecurity on average than men,and face more types of insecurity

l Employment security is dimin-ishing almost everywhere, due tothe informalization of economicactivities, outsourcing, and regu-latory reforms

l A large number of people possessskills which they do not use intheir work

l Job security (the possession of a

position giving good prospects ofsatisfying work and a career) isweak in most countries, and datafrom the People's Security Sur-veys high light wide-spread jobdissatisfaction

Finally, the analysis considers awide range of policies to determinewhich offer the best prospect for pro-viding greater levels of economic secu-rity, particularly in developing coun-tries. To evaluate such policies, it pro-poses a novel approach, evalu- atingthem on the basis that they should of-fer the strong prospect of reducing theeconomic insecurity of the most inse-cure groups in society, and of not im-posing controls and "unfreedom" on in-tended beneficiaries.

The ILO analysis concludes thatconventional social security systemsare inappropriate for responding to thenew forms of systemic risk and uncer-tainty which characterize the emergingglobal economic system. Accordingly,governments and international agen-cies should promote universalistic,rights-based schemes which providepeople with basic economic security,rather than resorting to selective,means-tested schemes. And they shouldpromote new forms of "Voice", bodieswhich represent all legitimate interestsin society. Without Voice and basic in-come security, almost everybody willface a future of economic insecurity. ❑

Source :World of Work

developing countries - economicgrowth rates in per capita terms havedeclined while the variability of an-nual economic growth rates has in-creased, implying more national eco-nomic insecurity, contrary to predic-tions often made by those pushing forrapid economic liberalization.

These trends are important, thereport notes, saying that more peo-ple are being exposed to systemicrisk, rather than contingency risks.The latter are due to individual life-cycle events, such as individual un-employment or illness, which are cov-ered by standard social security sys-tems. People are far less able to pre-pare for shocks which affect wholecommunities and regions.

The ILO report also shows that fordeveloping countries, the nationallevel of economic security is inverselyrelated to capital account openness,implying that it would be sensible fordeveloping countries to delay openingtheir capital accounts until institu-tional developments and social poli-cies were in place to enable their so-cieties to withstand external shocks.In other words, countries should post-pone opening their financial marketsuntil they have the institutional ca-pacities to handle fluctuations in con-fidence and the impact of externaleconomic developments.

come in much like very strong and veryfast tides (i.e., a rapid, local rise in sealevel). Much of the damage inflicted bytsunamis is caused by strong currentsand floating debris. The small numberof tsunamis that do break often formvertical walls of turbulent water calledbores. Tsunamis will often travel muchfarther inland than normal waves.

Do tsunamis stop once on land? Af-ter runup, part of the tsunami energyis reflected back to the open ocean. Inaddition, a tsunami can generate a par-

ticular type of wave called edge wavesthat travel back-and forth, parallel toshore. These effects result in many ar-rivals of the tsunami at a particularpoint on the coast rather than a singlewave suggested by Panel 3. Because ofthe complicated behavior of tsunamiwaves near the coast, the first runupof a tsunami is often not the largest,emphasizing the importance of not re-turning to a beach several hours aftera tsunami hits. ❑

Source :http://walrus.wr.usgs.gov/tsunami/basics.html

Continued from page 126

height of the water onshore observedabove a reference sea level.

Contrary to many artistic images oftsunamis, most tsunamis do not resultin giant breaking waves (like normalsurf waves at the beach that curl overas they approach shore). Rather, they


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International Accounting Standards

Standard Setters have lost sight !Do standard-setters have lost sight of the fun-damental principles of accounting

shareholder value which means in-creasing the net present value of thefuture stream of cashflows.'

In this context, performance rep-resents the change in the presentvalue of the sustainable futurecashflows of the business (or thechange in its 'economic value'). As thedrivers, of economic value are growth,cash margin, investment, taxationand competitive position, in this ac-counting model financial performanceis a direct reflection of strategic posi-tion.

Although the creation of share-

holder value is based on the genera-tion of cash, the emphasis of modernfinancial reporting is still on profit-ability and, it is thought by some,there is undue focus on one particu-lar indicator of profitability- earningsper share. Against this background,the IASB aims to develop a frame-work for financial reporting that 'cat-egorises and displays all income andexpenses for the period in a way thatenhances users' understanding of theentity's achieved performance andthat assists users in forming expec-

For some years now, I have beenconcerned about the directionin which the accounting stand-

ard-setters have been taking finan-cial reporting both here in the UKand internationally. In my view,there is excessive emphasis on fairvaluation in the balance sheet to thedetriment of the usefulness of the in-come statement in portraying the per-formance of companies.

In common with over 7,000 listedcompanies in the EU, we at Tomkinsare preparing for the transition toreporting under IFRS from 1 Janu-ary 2005. As finance director of a com-pany listed in both London and NewYork, I welcome the attempt to de-velop a single global accounting lan-guage. Unfortunately, however, thelanguage that is being spoken by theInternational Accounting StandardsBoard (IASB) is, frankly, foreign tothose of us who are managing ourbusinesses in order to maximise eco-nomic and shareholder value. Weneed accounting standards and aframework for financial reportingbased on economic reality which, tomy mind, is driven by the ability ofbusinesses to generate sustainablecashflows: and that's where LucaPacioli comes in.

Historical precedent

As students of the history of ac-counting will know, Pacioli was amonk and a mathematician who, in1494, was the first person to describedouble-entry bookkeeping in his bookThe Collected Knowledge of Arithme-

tic, Geometry, Proportion and Propor-tionality. Unwittingly, he was thefirst chairman of the IASB as, itseems, the publication of his book rep-resented the first and only time todate that the accounting professionhas achieved global stand-ardisation.

The most important sec-tion of his book was a treatiseon accounting in which youwill find the origins of the ex-pression 'cash is king'. ToPacioli, value creation de-pended on the generation ofcash and the concept of profitwas as a mechanism tosmooth the inevitable volatil-ity of cashflows.

In Pacioli's model, growthrepresents the increase in thebook value of assets duringthe period which, in turn,comprises retained profit andnew investment by way of ad-ditional equity or borrowings.

Cash generation is as relevanttoday as it was in the 15th century,but where Pacioli's model measuredperformance based on periodcashflows, modern cash-based per-formance measurement techniquesare based on forward-looking esti-mates of sustainable cashflows.

Speaking in the wake of theWorldCom scandal in August 2002,Robert Howell, programme director ofthe International Institute for Man-agement Development, said: 'The ob-jective of business is to create real


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International Accounting Standards

tations of future performance'.

Muddled thinking

While I support this objective inprinciple, I had hoped that the IASBwould define a number of relevantperformance indicators that could beeasily identified in financial state-ments. Unfortunately, the IASB'smove towards fair value coupled withits desire to prevent over- reliance onanyone measure of performanceseems in danger of resulting in finan-cial statements from which it will, infact, be difficult to obtain any mean-ingful indicators of business perform-ance.

In my view, this is best illustratedby the IASB's latest thinking on thefuture format of the income statementthat was published as a project up-date entitled Reporting Comprehen-sive Income in September 2003. Whatthese proposals actually represent isan implicit acknowledgement thatthere is a need to develop an incomestatement in which fair value move-ments are shown separately in orderto provide some indication of under-lying business performance.

To my mind, this begs the ques-tion as to why we should bother withfair value: does it tell us anything?Even if you accept that fair value ishere to stay, the project update showssome worryingly muddled thinkingabout performance measurement.Operating profit, an important indi-cator of performance, is considered tobe a residual item that it will, in prac-tice, be difficult to distinguish fromthe other components of'businessprofit, Within operating profit itself,it will be difficult to distinguish be-tween income and expenses resultingfrom 'remeasurements' and other in-come and expenses.

We are some way from a solutionand, I believe, the problem lies not somuch with the proposed reporting for-

mat but morewith the com-prehensive in-come model onwhich it isfounded.

In bothPacioli's modeland the for-ward-looking economic value model,increases or decreases in profit thatresult from upward and downwardmovements in asset values do not af-fect cashflow and do not, therefore,have any bearing on the measuredperformance of businesses. However,movements in asset values do affectmeasured performance in the compre-hensive income model. Thus themodel does not represent a combina-tion of the Pacioli and economic valuemodels but another different ap-proach.

While it is true that some fairvalue adjustments may indicate fu-ture cashflows, they take no accountof the intangible drivers of long-termeconomic value. Consequently, thecomprehensive income model pro-vides users of financial statementswith neither the basic measurementof performance based on cashflows inthe period, as provided by Pacioli'smodel, nor the forward-looking as-sessment of future cashflows providedby the economic value model. At best,it falls between two stools. At worst,it actually makes it more difficult forusers of financial statements to as-sess underlying business perform-ance.

So, what do I suggest should bethe future of financial reporting? Ina nutshell, we should be taking an 'in-side out' approach. In other words, weshould attempt to align the informa-tion reported externally with the in-formation actually used internally bymanagement to run the business.

We must ask ourselves whether it

is sensible to have teams of highlyskilled people producing informationfor external consumption that is nei-ther used to manage the business norunderstood by the users of the ac-counts. Surely, it would make senseto focus this talent on increasingshareholder value and, thereby, thewealth of the world economy?

The IASB's objective is to 'de-velop, in the public interest, a singleset of high quality, understandableand enforceable global accountingstandards that require high quality,transparent and comparable informa-tion in financial statements and otherfinancial reporting to help partici-pants in the world's capital marketsand other users make economic deci-sions'.

Losing their way

In reality, however, the standard-setters seem to have lost sight of thefundamental principles of accountingand are developing a highly technicalaccounting model that will be incom-prehensible to most users of accounts.All this at a time when the rectitudeand relevance of the accounting profes-sion is under severe scrutiny followingrecent financial scandals.

Over the last decade or so, finan-cial reporting has become increas-ingly divorced from economic realitybut it is not too late to turn the tide.Preparers of accounts need to wakeup to the challenge or, sadly, we willget the financial reporting frameworkthat we deserve. ❑

Source : Ken Lever in Accountancy

The language that is being spokenby the IASB is, frankly, foreign tothose of us who are managing ourbusinesses in order to maximise

shareholder value


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pro

duct

ion

mln

. tns

.33

.434

.633

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.528

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cha

nge

(yoy

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ns.

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oy)

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stri

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dex

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100

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7.5

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219.

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1


BC

130

March 15, 2005 @ 4:03 pm

S.D.

So

urc

e :

CM

IE

Indicators : Monthly

Uni

tsD

ec.

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

.20

0320

0420

0420

0420

0420

0420

0420

0420

0420

0420

0420

0420

04

Exte

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$ m

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5840

5045

6158

7630

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5965

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51.5

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4.0

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043

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2.9

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1986

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034

6.0

% c

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3.1

3.7

3.4

6.0

1.8

1.8

1.8

1.8

3.0

3.3

3.6

3.3


BC131

March 15, 2005 @ 4:03 pm

S.D.

Tsunami Killer

Tsunami tragedy is one of thegreatest disasters, which Asia had tomeet in recent times. The loss of lifeand property is unprecedented re-quiring not only the State, but alsoevery individual to shoulder the bur-den. Nothing is more welcome thansharing it voluntarily. Tax relief is anadded advantage for those, who con-tribute for the relief, the law allow-ing deduction at 100% of such contri-butions made either to Prime Minis-ter's National Relief Fund or ChiefMinisters' Relief Fund.

Exit High Court, enter NTT

A Bill for Constitution of NationalTax Tribunal, 2004 has been intro-duced in Lok Sabha on 6.12.2004. Theobject as stated in the Bill is to consti-tute an alternate mechanism for theHigh Court for clearing arrears of ap-peals, which can only be on substan-tive questions of law before the HighCourts. It is stated that huge revenueis blocked in such pending litigationsand that it adversely affects the na-tional economy, so that urgent meas-ures are required for clearance of thesame. It will deal with all direct andindirect taxes. Service tax will also becovered by the same. It will initiallyhave 25 Benches all over India with thenumber of Benches being left to the

Once the Bill becomes law, all thepending appeals now before the HighCourts will stand transferred to Na-tional Tax Tribunal. The Government'sanxiety to collect disputed demand isevident from section 15(4) of the Billrequiring 25% of the demand in the or-der appealed against to be paid as a pre-condition for appeal, subject, however,to relaxation on proof of undue hard-ship.

The Constitution of the Tribunal iswithin the powers of the Parliamentunder Article 323B, which was insertedalong with Article 323A as part of theexercise to curb the powers of the Courtduring the Emergency under 42ndAmendment Act, 1976 to the Constitu-tion by substantially excluding judicialreview of administrative decisions. Asimultaneous amendment to Article227 removed the power of superintend-ence over statutory and quasi-judicialTribunals meant to ensure that suchbodies functioned "within the boundsof their authority". These amendmentswere for the apparent reasons thatsuch powers of the High Court "causeddelay and obstruction in the implemen-tation of Government policies". Fortu-nately, Article 136, which ensures thesupremacy of the Supreme Court hadnot been interfered with. In S.A.Sampath Kumar v. Union of India AIR1987 SC 386, the Supreme Court heldthat judicial review being a fundamen-tal aspect of basic structure of the Con-stitution, the jurisdiction of the HighCourt on which parties repose theirfaith and trust cannot be ousted. TheSupreme Court again in L.Chandrakumar v. Union of India AIR1997 SC 1125 has ruled that the powerof the High Court under Article 226 and227 of the Constitution being an "es-sential features of the Constitution",even amendments to the Constitution"could not abrogate the same".

Appeal to the Supreme Court has,however, been specifically provided inthe Bill. Many of the objections levelledagainst similar proposals earlier madein the Bills and Acts creating such Tri-

Government to be decided from time totime.

It is recognised that it will be nec-essary to have adequate number of sup-porting officers and employees. Theexpectation of required funds isRs.31.51 lakhs per Bench per annumamounting to Rs.7.88 crores per annumfor the 25 Benches to be initially con-stituted. Expenditure on non-recurringinfrastructure requirement for initialsetting up is expected to be Rs.15 lakhsper Bench and Rs.10 lakhs per annumfor maintenance as recurring expendi-ture, so that total expenditure on thisaccount would be Rs.6.8 crores.

The proposed Tribunal will bemanned by a person, who had been aJudge of the Supreme Court or a ChiefJustice of the High Court as Chairper-son, while the Members will be thoserecruited from persons, who are quali-fied to be a Judge of a High Court orhas been a Member of the AppellateTribunal for Income-tax or Customs,Central Excise and Service Tax for atleast, seven years. A legal practitioneror a Chartered Accountant can appearbefore the Tribunal. Chartered Ac-countants, who are now eligible for ap-pointment as Accountant Members ofthe Income-tax Appellate Tribunal, willnot be eligible for Membership of Na-tional Tax Tribunal. Cost Accountantsand others who are now qualified forappearance before the Tribunal will notbe eligible for appearance before theNational Tax Tribunal.

Cover feature

"Socially responsible business" may be termed the seventh pil-lar of a redesigned India. What a transformation one could ef-fect in this country if only business houses were socially respon-sible!"

N.A.Palkhiwala

S.S.S.S.S. RAJ RAJ RAJ RAJ RAJ A R AA R AA R AA R AA R ATNAM'S COLUMNTNAM'S COLUMNTNAM'S COLUMNTNAM'S COLUMNTNAM'S COLUMN

Tax Titbits


* The author, an FICWA and a renownedtax expert was a Council Member (GovtNominee) of ICWAI.


BC

132

March 15, 2005 @ 4:03 pm

S.D.


bunals are now sought to be met by thenew Bill. Even so, there will be a con-tinued apprehension as to the efficacyof the judicial remedy, which was hith-erto available from the High Courts,though time alone can reveal whethersuch apprehensions are justified. Pow-ers of writ in matters of exercise of ex-cessive jurisdiction, validity of powersof search and seizure, coercive proc-esses adopted for recovery in excess ofpowers and such other grievances willnot be available to the Tribunal, so thatthey will continue with the High Courtswith the tax jurisdiction split betweensuch Tribunal and the High Courts.Even some common issues like mattersinvolving non-statutory remedies as forfailure to observe principles of naturaljustice or doctrines of promissoryestoppel and legitimate expectation willcontinue to be covered by the jurisdic-tion of the High Court.

The necessity of another super-Tri-bunal over the present one needs recon-sideration.

Exports - Ahoy!

The relief, which income-tax lawgives for exports is subject to so manyconditions, that there has been litiga-tions galore in working out relief, not-withstanding the fact that it is certi-fied by a qualified Chartered Account-ant. The recent decision of the SupremeCourt in IPCA Laboratory Ltd. v. Dy.CIT (2004) 266 ITR 521 (SC) has upsetthe interpretation hitherto accepted,giving rise to a number of reassessmentnotices, where relief had been granted,with considerable doubt as to the juris-diction for such notices in law givingrise to a fresh spate of litigation. Therehas been a sunset over Chapter VIAreliefs for exports under sections80HHC, 80HHD and 80HHE, while re-lief under section 10A and 10B will alsonot be available after the assessmentyear 2009-10.

The recommendations of KelkarCommittee has suggested the abolitionof even existing concessions. The threatof withdrawal of non-tax assistance by

way of duty draw back, import licenceand cash assistance is hanging over thehead of export industry, thanks to thecommitments which India has made ininternational agreements to relax themso as to be WTO-compatible. There isan on-going exercise to replace the ex-isting concessions by more acceptableones. Implementation of Value AddedTax (VAT) is one such measure, whileanother proposal is to refund all dutiesand rates collected on exported goodstill such time as VAT becomes effective.The commitment with South Asiancountries for bringing down tariff wallsin the very near future should encour-age exports for India. Capital convert-ibility is also in the offing. Export in-dustry may well be required to be readyto make adjustments, so as to be ableto meet many challenges, which mayturn out to be opportunities.

Meanwhile, those getting benefit ofexport promotion scheme under theDuty Entitlement Pass Book Scheme(DEPBS) have been denied relief by thetax authorities. But a report in the Eco-nomic Times dated 7th January, 2005would refer to the assurance of the PrimeMinister Manmohan Singh to the del-egation of exporters, that levy of income-tax on sale proceeds under Duty Enti-tlement Pass Book Scheme would not bedone with retrospective effect and thatinstructions would be issued immedi-ately to rectify anomalies in the Income-tax Act to ensure prospective applicationof the relief. Similar assurance is re-quired on many other pending issuesnow subject to rectifications andreassessments relating to export relief.

It is stated that Special EconomicZones (SEZ) are going to be permittedall over India with a package of tax con-cessions for them. One can only hopethat such concessions will not be sub-ject to unpractical conditions renderedimpossible by the over-zealous inter-pretative process.

A silver lining has been the clarifi-cation issued by the Board on 6th Janu-ary, 2005 clarifying that the pre-exist-ing undertakings in Domestic Tariff

Area (DTA) would be eligible for ben-efit of relief under section 10B for 100%EOU undertakings, when they get reg-istered as such as long as they satisfythe conditions therefore Governmentdoes appear to be actively concernedwith encouragement of export industryto enable it to meet global competition.

DTA - Future prospects

There is good news from the Su-preme Court that it has declined to en-tertain not only the review petition as ithad done earlier, but also what was de-scribed as a curative petition against itsdecision in Union of India v. AzadiBachao Andolan (2003) 263 ITR 706(SC), holding that the principle of treatyoverride upholding the sanctity of com-mitments of the Indian Governmentunder Double Tax Avoidance Agree-ments, will now stand without any fur-ther hazards of litigation. The conces-sions in the agreement which India hadwith Mauritius and UAE had been aneyesore for other countries, so that thenew agreement with Malaysia has nowgiven the same liberal terms as in theagreement with Mauritius. Agreementwith Singapore is under revision andwill soon follow suit. Cyprus is now be-coming a new tax oasis offering a taxhaven with multiple concessions. Theshift of business from Mauritius to Cy-prus, with which India has already anagreement, has begun. Unilateral taxreliefs for foreign taxes paid by busi-nesses located in Cyprus, is the specialattraction for Cyprus. There are lots ofthings happening in the tax world re-quiring constant attention of those withactivities across the border to the chal-lenges likely to be posed by globalisation.Income-tax, which forms a significantpart of after-tax return on investments,would be a matter of prime considera-tion in business decisions.

WORDS OF WISDOM

"The execution of the lawsis more important than the

making of them"Thomas Jefferson


BC133

March 15, 2005 @ 4:03 pm

S.D.

West, Chennai - 600 040, (Membership No. 12131) iscancelled from 10th May, 2004 to 30th June, 2004, athis own request,

11. Shri Niladri Dutta, BSC,AlCWA, 112-A, SalimpurRoad, Kolkata - 700 031, (Membership No. 7074) iscancelled from 4th May, 2004 to 30th June, 2004, athis own request,

12. Md. Bajlul Islam, BCOM(HONS),AICWA, 25, GardnerLane, Ground Floor, Kolkata - 700 014, (MembershipNo. 19079) is cancelled from 5th April, 2004 to 30thJune, 2004, at his own request,

13. Shri D.P. Agrawal, BCOM,ACS,AICWA, E-159,Murtipura Scheme, Jaipur - 302013, (Membership No.3867) is cancelled from 1st February, 2004 to 30thJune, 2004, at his own request,

14. Shri Sanjay Kumar Jain, BCOM,LLB,AlCWA, B-14,Sector 49, Noida - 201 301, (Membership No. 17400)is cancelled from 1st March, 2004 to 30th June, 2004,at his own request,

15. Shri L.V. Ramesh, BSC(HONS),AICWA, 6/19, ThiruVi Ka Nagar 1st Street, College Road, Tirupur, 641602, (Membership No. 9021) is cancelled from 1stJanuary, 2004 to 30th June, 2004, at his own request,

16. Shri Satya Sundar Mahasuar, BA,AICWA, F1/F-23,I.D. Market Complex, 1st Floor, IRC Village,Nayapalli, Bhubaneswar - 751 015.. (Membership No.22709) is cancelled from 21st January, 2004 to 30thJune, 2004, at his own request,

17. Shri Faisal Shah, BCOM (HONS), MCOM,AICWA, C/o. Danish Battery Works, Dr. FatehullahRoad, Ranchi - 834 001, (Membership No. 23465) iscancelled from 3rd August, 2004 to 30th June, 2005,at his own request,

18. Shri P.S. Seshan, BSC, AICWA, B2/8, Vii Flats, OldNo. 34, Pinjala Subramaniam St., T. Nagar, Chennai- 600017, (Membership No. 1571) is cancelled from16th July, 2004 to 30th June, 2005, at his own re-quest,

19. Shri Atul Gupta, BCOM(HONS),AlCWA, 1-41, Sec-tor 9, Noida, (Membership No. 21607) is cancelledfrom 21st September, 2004 to 30th June, 2005, at hisown request,

20. Shri T. Thavamani, MCOM,AICWA, 19, MayandiaPillai Street, East Sandai Pet, Madurai - 625 009,(Membership No. 22345) is cancelled from 6th Octo-ber, 2004 to 30th June, 2005, at his own request,

21. Ms. Meera Kumari, MCOM,AICWA, Argora, Near

Notification11-CWR (333-357)/2004 : In pursuance of sub-Regula-

tion (3) of Regulation 11 of the Cost and Works Account-ants Regulations, 1959, it is hereby notified that the Cer-tificates of Practice granted to :

1. Shri Harpreet Singh, BCOM,AICWA, A-9, MukhramGarden, Tilak Nagar, New Delhi - 110018 (Member-ship No. 20386) is cancelled from 10th August, 2004to 30th June, 2005, at his own request,

2. Shri S.N. Jeya, BCOM,AICWA, P-2, Dhakha Apts.,Shanti Colony, Jeeva Ratnam Nagar, Adyar, Chennai- 600020, (Membership No. 18614) is cancelled from28th November, 2004 to 30th June, 2005, at his ownrequest,

3. Shri S.K. Das, MCOM,FICWA, 9-B, Kedar Nath DasLane, Kolkata - 700 030, (Membership No, 4378) iscancelled from 30th November, 2004 to 30th June,2005, at his own request,

4. Shri Tapan Kumar Sarkar, BSC,BCOM,AICWA, Flat7, 3rd Floor, Purushottam Apartments, 1/4, Dr. R.N.Tagore Road, Kolkata - 700 056, (Membership No.13555) is cancelled from 17th May, 2004 to 30th June,2004, at his own request,

5. Shri M. Devendiran, BA,AICWA, H-27, Central Av-enue, Korattur, Chennai - 600 080.. (Membership No.3285) is cancelled from 21st June, 2004 to 30th June,2004, at his own request,

6. Shri Krishna Kumar Dhar, MCOM,AICWA, 533-A,Netaji Colony, Baranagar, Kolkata - 700 090, (Mem-bership No. 4789) is cancelled from 25th June, 2004to 30th June, 2004, at his own request

7. Shri Tapan Kumar Bhattacharya, BSC(HONS),AICWA, G-4, Nirala Apartment, Vidyalanka, Palpara,Chandannagar - 712 136, (Membership No. 5166) iscancelled from 30th June, 2004 to 30th June, 2005,at his own request,

8. Shri M.V. Kamath, BCOM,FICWA, A-4, Adarsh, J.B.Nagar, Andheri(E) , Mumbai. - 400 059, (MembershipNo. 1530) is cancelled from 1st April, 2004 to 30thJune, 2004, at his own request, ,

9. Shri B. Narayanan, BCOM,FICWA, Block No. VI, FlatNo.6, Jyoti Co-op. Housing Society, 96, KankuliaRoad, Kolkata - 700 029, (Membership No. 1406) iscancelled from 14th June, 2004 to 30th June, 2004,at his own request,

10. Shri M. Manoharan, BCOM,AICWA, Old No. 23/NewNo.5, Second Street, Thangam Colony, Anna Nagar

Institute Notification


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7. Shri K. Nagaswami, ACA,FICWA, 406, Sector 'A',Pocket 'C', Vasant Kunj, New Delhi - 110070, (Mem-bership No. 383) with effect from 13th April, 2003,

8. Mrs. Mamta Raweri, BCOM(H), LLB, ACA, ACS,AICWA, C109, Pushpanjali Enclave, Pitampura,Delhi - 110034, (Membership No. 16860) with effectfrom 15th May, 2004,

9. Shri Achinta Krishna Chatterjee, MCOM,AICWA, Ex-Manager, Rehabilitation Industries Corporation Ltd.,25, Mirza Ghalib Street, Ko1kata - 700 016, (Mem-bership No. 3889) with effect from 31st December,1998,

10. Shri S. Sthanumoorthy, BA, FCA, ACMA, AICWA, A-23, Shri Vishnu Bhagawan Co-Op. Hsg. Society Ltd.,Vishnu Baug, 137, S. V. Road, Andheri West), Mumbai- 400 058, (Membership No. 524) with effect from 15thApril, 2004,

11. Shri K. Nandagopal, BCOM,FICWA, 8, IV Main Road,Jawahar Nagar, Chennai - 600 082, (Membership No.9393) with effect from 22nd July, 2003,

12. Shri Pawan Kumar Jain, MCOM,FICWA, Ex-Divi-sional Manager (Fin. & A/cs.), Tata Metals & StripsLtd., Station Road, Navsari - 396 445, (MembershipNo. 4922) with effect from 31st May, 2003,

13. Shri Rajkumar Ganguly, BCOM(HONS), AICWA,AE-333, Sector I, Salt Lake City, Kolkata - 700 091, (Mem-bership No. 18004) with effect from 4th September,2002,

14. Shri N.E. Sundararajan , BSC,FICWA, E- Block,Ground Floor, 81, Luz Church Road, Mylapore,Chennai - 600004, (Membership No. 334) with effectfrom 4th May, 2003,

15. Shri Yash Pal Varshney, MCOM,AICWA, ChaitiMorh, Saraswati Dayanand Marg, Kashipur - 244 713,(Membership No. 4654) with effect from 26th Decem-ber, 2003,

16. Shri Bimal Krishna Ghosh, MA,FCMA,FICWA, CD-61, Sector 1, Salt Lake City, Kolkata - 700 064, (Mem-bership No. 914) with effect from 29th February, 2004,

17. Shri A.V. Rao, BCOM,FICWA, 5, Subash Sadan,Aarey Road, Goregaon (East), Mumbai - 400 063,(Membership No. 2263) with effect from 24th August,2003,

18. Shri S. Vasudeva Iyer, MCOM,ACA,AICWA, C-88,Teacher's Street, Near V. Bus Stop, Thirunagar,Madurai - 625006, (Membership No. 3998) with ef-fect from 8th February, 2004,

16-CWR (1423-1454)/2004 : In pursuance of Regula-tion 16 of the Cost and Works Accountants Regulations,1959, it is hereby notified that in exercise of powers con-ferred by sub-section (1) (a) of Section 20 of the Cost andWorks Accountants Act, 1959, the Council of the Insti-tute of Cost and Works Accountants of India has removedfrom the Register of Members, the names of :

1. Shri Preetam Singh Vohra, BCOM,AICWA, WhiteHouse, Nadidwala Colony, Malad, Mumbai - 400 064,(Membership No. 1809) with effect from 21st August,2003,

2. Shri Hrishikesh Ghosh, BCOM,AICWA, 44, SilThakur Bari Road, Kolkata - 700 038, (MembershipNo. 4434) with effect from 10th October, 2000,

3. Shri P.G. Radhakrishnan Nair, BCOM,ACS,FICWA,Sastha Tryre Industries Pvt. Ltd., J-219, MIDC Area,Tarapure, Boisar - 401 506, (Membership No. 6168)with effect from 29th February, 2000,

4. Shri Susanta Kumar Datta, BSC,AICWA, 162/A-87,Lake Gardens, Kolkata - 700 045, (Membership No.1210) with effect from 11th May, 2004,

5. Shri V.K. Jain, BCOM,ACA,AICWA, 191A-5/B,Paschim Vihar, New Delhi - 110063, (Membership No.8838) with effect from 3rd December, 2001.

6. Shri S. Ramakrishnan, BCOM,LLB,AICWA, 28/14/2,Nakuleswar Bhattacharjee Lane, Near Kalighat TramDepot, Kolkata - 700 026, (Membership No. 473) witheffect from 30th August, 2002,

Argora Mandir, Ranchi - 834 012, (Membership No.23202) is cancelled from 2nd August, 2004 to 30thJune, 2005, at her own request,

22. Shri Sujit Kumar Sinha, BSC,AICWA, 21, Scott Lane,Kolkata -700009 (Membership No. 16017) is cancelledfrom 28th October, 2004 to 30th June, 2005, at hisown request,

23. Shri V.S. Visvanathan, MA,BL,FICWA, 194, IIIrdCross, Cambridge Layout, Bangalore - 560 008, (Mem-bership No. 8586) is cancelled from 1st April, 2004 to30th June, 2004, at his own request,

24. Shri S.K. Mishra, BSC,AICWA, G-39A, Ganga Vihar,Gokulpuri, New Delhi - 110 094, (Membership No.21694) is cancelled from 18th October, 2004 to 30thJune, 2005, at his own request, and

25. Shri R.K. Bharani, BSC(HONS),LLB,FCS,FlCWA, 16,Vardan Apts., 64, IPEX, Delhi - 110 092 (Member-ship No. 7748) is cancelled from 30th September, 2004to 30th June, 2005 at his own request.



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16-CWR (1455-1485)/2004 : In pursuance of Regula-tion 16 of the Cost and Works Accountants Regulations,1959, it is hereby notified that in exercise of powers con-ferred by sub-section (1) (b) of Section 20 of the Cost andWorks Accountants Act, 1959, the Council of the Insti-tute of Cost and Works Accountants of India has removedfrom the Register of Members, the names of :

1. Shri K.R. Vengu, BCOM,AICWA, 2H, Krishna Apart-ments, 35, (Old No. 16), Circular Road, United IndiaColony, Kodambakkam, Chennai - 600 024, (Member-ship No. 1672) with effect from 9th September, 2004at his own request,

2 Shri Gour Chandra Das, MCOM,AICWA, Flat A-1,615/C, Lake Gardens, Kolkata - 700 045, (Member-ship No. 2856) with effect from 16th September, 2004at his own request,

3. Shri A.R. Dharma Row, ACMA,FICWA, Geetanjali,Plot No. 45, 1-3-183/40/21/45, P&T Colony, NewBakaram, Gandhinagar, Hyderabad - 500 380, (Mem-bership No. 726) with effect from 18th September,2004 at his own request,

4. Shri Aqil Zoyeb Nakhoda, BCOM,AICWA, Flat No.18, 4th Floor, Shepherd Apartments, 15A, ShepherdRoad, Byculla, Mumbai - 400 008, (Membership No.4110) with effect from 30th September, 2004 at hisown request, ,

5. Shri Neel Ratan Agarwal, BSC,AICWA, C/o. Bank ofBaroda, Corporate Banking Branch, Mithakhali SixRoad, Ahmedabad, (Membership No. 16538) with ef-fect from 1st October, 2004 at his own request,

6. Shri T.R. Iyengar, BSC,AICWA, Flat 16, Plot 195,Balaji Garedia Nagar, P.O. Rajawadi, Mumbai-400077, (Membership No. 42) with effect from 1stApril, 2003 at his own request,

7. Shri B.R.M. Rao, BCOM,AICWA, 35, Purulia High-way Road, (Sakchi New Planning Area), P.O. Sakchi,Jamshedpur - 831 001, (Membership No. 3123) witheffect from 16th September, 2004 at his own request,

8. Shri T.S. Seshadri, C/o. Shri T.S. Nanda Kumar,“Thiru Nilayam” (First Floor), 10-3-85/19, HanumanTemple Road, Teachers Colony, East Marredpally,Secunderabad - 500 026, (Membership No. 1570) witheffect from 15th September, 2004 at his own request,

19. Shri Girishbhai Kanaiyalal Mehta, MCOM,FICWA, Ex-Director, Nirma Management Services Pvt. Ltd., NirmaHouse, Ashram Road, Ahmedabad - 380 009, (Member-ship No. 755) with effect from 11th October, 1998,

20. Shri Prafulla Kumar Sarcar, BCOM,AICWA, 31/1,Siddhi Nath Chatterjee Road, Kolkata - 700 034, (Mem-bership No. 644) with effect from 11th January, 2004,

21. Shri G.V. Shankaranarayana, BSC, FICWA, HosurRoad, Bangalore - 560 095, (Membership No. 2131)with effect from 19th January, 1997,

22. Shri Shreenath Misra, BA,LLB,FICWA, Vill . :Panditpur, Raniganj - 230 001, (Membership No.3037) with effect from 16th March, 2004,

23. Shri K.V.S. Sastry, AICWA, H. No. 12-1-1261,Shantinagar, Secunderabad - 500 017, (MembershipNo. 3991) with effect from lOth April, 2004,

24. Shri K.S. Narasimhan, BCOM(HONS),FICWA, Ex-Man-ager - Int. Audit, Britannia Inds. Ltd., Britannia Gar-dens, Airport Road, Bangalore - 560 017, (MembershipNo. 11131) with effect from l0th May, 2004,

25. Shri Kamalakar Narayan Velankar, BCOM, LLB,FICWA, 1, Vireshwar Darshan, Indulkar Marg, VileParle East, Mumbai - 400057, (Membership No. 2994)with effect from 8th January, 2001,

26. Shri P.S. Ramakrishnan, MCOM,FICWA, 4/4, SinghSabha Road, Shaktinagar, Delhi - 110007, (Member-ship No. 1013) with effect from 27th January, 2004, .

27. Shri Harish Chandra, BCOM,MA,LLB,AICWA, RaiVilla, Opp. 286, Govindpuri, Hardwar - 249401, (Mem-bership No. 2349) with effect from 30th May, 2004, .

28. Shri V.A. Bhave, BCOM,BA,AICWA, 7, PushkarJullian Co-Op. Soc. Ltd., 735(I), B.W. Pathare Marg,Dadar, Mumbai - 400 028, (Membership No. 4014)with effect from 22nd December, 2003,

29. Shri Rajeshwar Murli Manohar, BSC, BE(MECH),AICWA, Nuddea House, 2, Bright Street, (Opp.Ballygunge Ice Skating Rink), Kolkata - 700 019,(Membership No. 1100) with effect from 28th Febru-ary, 2002,

30. Shri S.N. Gupta, BCOM,AICWA, Ex. Jt. Director(F&A) , 128, Vivaka Nand Puri, Old Rohtak Road,Azad Marg, Delhi - 110007, (Membership No. 1718)with effect from 27th September, 2000,

31. Shri R. Srinivasan, BCOM,AICWA, "Shiva Priya"Apartments, Flat No.6, 241/1, T.T.K. Road, Chennai- 600018, (Membership No. 2540) with effect from 11thDecember, 1998,

32. Shri P. Subramaniam, BA,AICWA, No.3, New ThillaiNagar, P.N. Pudur, Coimbatore - 641 041, (Member-ship No. 1249) with effect from 7th September, 1993on account of death.



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9. Shri R. Balaji Pai, BSC,FICWA, 204-A, Atma Apart-ments, 64, 10th Main, Malleswaram, Bangalore-560003, (Membership No. 1232) with effect from 9thSeptember, 2004 at his own request,

10. Shri D. Mookerjee, MA,BCOM,ACMA,FICWA, InduNivas, 11, Haradev Bhattacherjee Lane, Shibpore,Howrah - 711 102, (Membership No. 262) with effectfrom 29th December, 2003 at his own request,

11. Shri R. Ramalingam, BA,AICWA, 37K, Raja GopalNagar, Kuniamuthur, Coimbatore - 641 008, (Mem-bership No. 298) with effect from 19th December, 2003at his own request,

12. Shri P. Dasgupta, BSC,FICWA, B-489, Sushant Lok-I, Gurgaon - 122 001, (Membership No. 211) with ef-fect from 10th March, 2004 at his own request,

13. Shri Shridhar Bhavanishankar Burde, MSC, ACMA,AICWA, 19/401, Shakti Dham CHS, 'Shakti Nagar,Dahisar (E), Mumbai - 400 068, (Membership No. 2610)with effect from 20th February, 2004 at his own request,

14. Shri K. Venkata Rao, BCOM(HONS),FICWA, PlotNo.2, R & D Defence Co-op. Housing Society, R & DDefence Enclave, Sikh Village, Secunderabad - 500009, (Membership No. 1062) with effect from 1st April,2003 at his own request,

15. Shri Jagannath Mukherjee, BA,ACMA,AICWA, 4A,Rakhal Mukherjee Road, 1st Floor, Bhowanipur,Kolkata - 700 025, (Membership No. 3934) with ef-fect from 28th February, 2004 at his own request,

16. Shri D. Govinda Rao, FICWA, "Mani Nilayam", 1-1-336/57, Chikkadpally, Hyderabad - 500 020, (Mem-bership No. 2234) with effect from 5th March, 2004at his own request,

17. Shri G.C. Banerjee, BCOM,FICWA, 8A/2, HaricharanChatterjee Street, P.O. Ariadaha, Kolkata- 700057,(Membership No. 3265) with effect from 16th Febru-ary, 2004 at his own request,

18. Shri Rabindra Nath Mitra, MCOM,LLB,AICWA, 136,Main Road West Office Block, New Barrackpore,Kolkata - 700 131, (Membership No. 3112) with ef-fect from 1st April, 2004 at his own request,

19. Shri Sudhindra Kumar Roy, BA, MCOM, AICWA, AB274, Salt Lake City, Sector I, Kolkata - 700 064, (Mem-bership No. 13896) with effect from 1st April, 2004 athis own request,

20. Shri Sankar Deb Ganguly, BCOM,AICWA, 7/3, C.N.Roy Road, Kolkata - 700 039, (Membership No. 4538)with effect from 1st April, 2004 at his own request,

21. Shri T. Ranganathan, BCOM,FICWA, T-42A, 7th Av-enue, Besant Nagar, Chennai - 600 090, (MembershipNo. 133) with effect from 20th October; 2003 at hisown request,

22. Shri Krishan Chandra Gupta, BCOM(H), AICWA, C/o.Delhi Pustak Bhandar, 6956/1, Opp. Birla Mills,Kamla Nagar, Delhi - 110007 (Membership No. 3449)with effect from 31st March, 2004 at his own request,

23. Shri U,S. Swaminathan, BCOM, FICWA,"Swagatham", 17/6, I Main Marenahalli, Vijayanagar,Bangalore - 560 040, (Membership No. 537) with ef-fect from 5th June, 2004 at his own request,

24. Shri S.K. Bose, BCOM,FICWA, C-10, AssociatedApartment, I.P. Extn., Patparganj, New Delhi -110092, (Membership No. 4157) with effect from 23rdMarch, 2004 at his own request,

25. Shri S. Sankaran, BCOM,FCA,AICWA, Flat 1-D, Sri SaiSabodhaya, 57/2-B, East Coast Road, Thiruvanmiyur,Chennai - 600041, (Membership No. 637) with effect from17th July, 2004 at his own request,

26. Shri Amiya Kr. Chatterjee, MCOM,AICWA, 5/2/4,Motilal Mallick Lane, Bonhooghly, Kolkata - 700 035,(Membership No. 1769) with effect from 5th Febru-ary, 2004 at his own request,

27. Shri M.S. Phansalkar, MCOM,FICWA, "Datta Krupa",Near Sahayog Nagar, Govt. Colony, Vishrambag, Sangli- 416415, (Membership No. 1846) with effect from 21stFebruary, 2004 at his own request,

28. Shri Ashok Chhabra, BA,LLB,AICWA, Company Sec-retary, Procter & Gamble (P) Ltd., Tiecicon House, Dr.E. Moses Road, Mumbai - 400 011, (Membership No.7419) with effect from 1st April, 2003 at his own request,

29. Shri K. Nataraja Sarma, FCMA(London),AICWA, B-111, 3rd Cross Road, 3rd Main Road, Sainikpuri,Secunderabad - 500 094, (Membership No. 813) witheffect from 27th February, 2004 at his own request

30. Shri A. K. Chandra Shekhar, BCOM(HONS), FICWA,A-31, Asiad Village, New Delhi - 110 049, (Member-ship No. 3092) with effect from 19th August, 2003 athis own request, and

31. Shri N.S. Lakshmanan, BCOM,AICWA, 'Samthrupti',149, Lake Shore Homes, Kasavanahalli, P.O. Bellandur,Bangalore - 560 037, (Membership No. 4190) with effectfrom 28th April, 2004 at his own request.

Dr. H. R. SubramanyaPresident



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Globalization,Informalization andAccounting: Scope forFuture Policy Options inIndia

Buddhadeb Ghosh *

Globalization

The purpose of the globalizationprogram as pursued in mostparts of the world is to create a

competitive economic environmentthat would ultimately increase effi-ciency of production, distribution andpublic utility services across differentsectors and regions of the economy.Economies, societies, regions and in-dustries around the world have beenfast integrating themselves into theworld economy at a faster pace dur-ing last 15 years than ever before. Notonly commodities but also factors ofproduction (capital, labour and ma-terials) and services are becomingmore and more mobile internation-ally. Lester Brown's prophecy of a"borderless world" has ultimately be-come an economic reality. In such a

world, if any economy fails to providea competitive and decent economicenvironment to its citizens, it's mostcherished human resources alongwith capital will eventually move out.

This paper is partitioned into fivesegments:

I. The Background

II. How is India doing?

III. The Informal Sector

IV. Role of ICWAI

V. What to do?

VI. Conclusions

I. The Background

Globalization means increasingmobility and access to world re-sources. It also means "competition"in a world economy. In quantitative

terms, it speaks of the "outward ori-entation" of an economy. In otherwords, the higher the ratio betweentrade and GDP, the higher is the"openness" or globalization of aneconomy in contemporary vocabulary.On the whole, integration is the re-sultant of reduced costs of transpor-tation in particular and other infra-structure services in general. It isdirectly beneficial for those industriesthat are efficient. Indirectly, it alsocreates a positive growth chainthrough higher productivity therebygenerating many new economic ac-tivities. In an economy-wide sense, itmay work as a poverty removal proc-ess also. But in order to reap the ben-efits of globalization in the present"borderless" world, no country canafford to relax on the overhead devel-opment of the chain of necessary in-frastructure facilities starting fromthe production point leading to theshipment point.

Casual empiricism shows that thenations that fail to compete are fail-ing to account for the rising informalsector. This failure is ultimatelytranslated into lower mobilization ofdomestic resources with the help ofexisting institutions. As is wellknown, India contains all conceivablefeatures of underdevelopment wherefive centuries still coexist simultane-ously in the same environment(Bardhan, 1984; Banerjee andNewman, 1993; Ray, 1998). Everycountry is evolving according to itsown laws of motion that produces spe-cific types of frictions from time totime depending upon its own institu-tional framework (North, 1990 and1994). And the task of the policy-mak-ers is to understand the economicmalaise first before making the pre-scriptions. Very often than not, wecome across situations where policyprescriptions abound at the sheerneglect of appropriate diagnosis.

India has seen a plethora of* Associate Scientist, Economic

Research Unit, Indian StatisticalInstitute

This paper aims to assess the inherant strengths andweaknesses of Indian Economy in the context ofperformance in a globalised regime and the role of ICWAItherein


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Globalization

changes in economic policies under amixed economic set up during thefirst 45 years after her Independencefrom 1947 to 1991. But success in'conventional wisdom' has alwayseluded India. Undertaking a set ofright kind of economic policies inprinciple does not have much to dowith implementation in Indian socio-economic environment. These policychanges can be termed at best as nec-essary conditions for economic devel-opment. But India has never fulfilledwhat is meant by sufficient conditionsfor economic progress. This is as truefor the aggregate economy as also forspecific sector like industry, agricul-ture and trade. This sufficient set ofconditions should essentially includean institutional framework, whichhelps the process of implementationof any set of policies at the right time(North, 1994). For example, ineffi-cient planning and half-hearted im-port substituting industrializationwere detected as early as in late1960s and early 1970s as possiblecauses of failures (Bhagwati andDesai, 1970; Chaudhury, 1977;Bardhan, 1984). But it took another20 years for India to switch to mar-ket based export-led growth strategyand that too in a halfhearted way andat the complete neglect of high rateof unskilled labour force participa-tion. There is no clear binary answerto these puzzles as size, culture, het-erogeneity, political system, and alsoa whole host of historical factors mat-ter in the ultimate analysis which donot have much role to play in the con-ventional treatment of economic per-formance with formal tools of analy-sis (Akamatsu, 1962; Bernal, 1969;North and Thomas, 1973; Sen, 1975;Rosenberg, 1976; North, 1990, 1994;Rosenberg and Birdzell, 1986; Basu,2001; Lucas, 2002). But there is nodisagreement as to the fact that evenprivate productivity, efficiency andtechnological development depend onboth the quality and quantity of ex-

ternalities created by the governmentin terms of physical, social, economicand trading infrastructure facilities.Aschauer (1989b) employs cross-country data for the Group-of-Sevennations over the period from 1965 to1985, and finds that public non-mili-tary investment bears a significantlypositive relationship with growth inGDP. According to him, public invest-ment spending as a share of GDP fellduring the late 60s and 70s for thefive developed nations except Japanand Italy. The problem is universalbut both degree and dimension varyquite widely. For example, AliciaMunnell (1992) starts reviewing in-frastructure and economic growthprimarily in the context of the Ameri-can economy in the following manner:

"Public policies are often madewithout much reliance on economicreasoning. Economists are unawareof what is happening in the world ofpublic affairs. As a result, both thequality of public decision-making andthe role that economists play in it areless than optimal."1

If this is the possible scenario inthe American economy, we can atease discern what is happening inIndian states.

The Competitiveness Bug

The issue of competitiveness par-ticularly inter-country comparison ofproductivities has become highlyfashionable across the world, whetherit is USA, or Japan, or India or Chinaor Ethiopia.2

Dynamic competitiveness amongindustries (or what is generally un-derstood by competitiveness of indus-tries over time) is a largely differentconcept from the competitiveness ofa nation. The issue becomes particu-larly relevant for countries that havea strong domestic economy or so tosay, whose openness ratio (that is,percentage share of trade in GDP) is

low compared to most other nations.To be more specific, USA, Japan andIndia are only a few such nations,which have an unusually low open-ness ratio among the relatively largernations of the world. Moreover, theshare of their GDP coming from in-dustry is not unusually high com-pared to many newly rising nations.It is not their weakness; it is ratherthe inner strength of their domesticeconomy that reduces the vulnerabil-ity of the economy to internationalupheavals. Unusually high depend-ence on foreign trade with relativelylower domestic market may jeopard-ize the stability of an economy in anage of globalization unless the coun-try has a mature economic account-ing system; and in that sense, Indiaeven being economically poor is sucha stable nation which is inherentlyslow to catch up to the wave ofglobalization but does not have amature economic accounting system.

At this point most traditionaltrade theorists might claim that sur-plus from foreign trade (as opposedto deficit) should be an absolute indi-cator of the inner strength of a na-tion's competitiveness (as opposed tolack of competitiveness). On thiscount, Japan is certainly competitivealong with China, while USA is notalong with India. But such conclusionmay not be as reliable as it appearsto be (Krugman, 1994a and 1994b).

II. How is India doing?

This is a highly subjective ques-tion. There is no clear answer at least.It all depends upon the point of viewof the observer. For example, if com-pared to countries, which had simi-lar level of income and developmentin the fifties of the last century, thereare simply many reasons to be a pes-simist now. Or, if we can rememberthe "hope" or "dream" expressed bythe social scientists or statesmen ofthe world in the post-Second World


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War period till early seventies, Indiacertainly has not done well. But if wecompare India's performance after 50years of independence with that ofother nations, there is much lessscope for subjectivity.

ð Per Capita Measure:

1(i) In terms of the simplest measureof economic development, that isper capita income, India has still'miles to go before' she can affordto sleep. Among the five nationscompared here, namely China,India, Japan, Korea and USA,India has the lowest per capitaincome (PCI) in terms of constant$ in 2001: India has $477, China$878, Korea $13502, Japan$44458 and USA $31592.

(ii) Interestingly, India had higherPCI than that of China till 1985.And Korea was almost 10 timesricher by mid-1960s.

(iii) If we superimpose the issue ofpoverty, inequality and regionaldivergence into the picture ofPCI, there is not much scope foroptimism particularly after 1991.As shown by Ghosh, Marjit &Neogi (1998) and Ghosh and De(2004), most of the states likeBihar, Orissa, UP, MP, AP,Rajasthan, WB and the NorthEastern states have been diverg-ing fast in terms of PCI as wellas all the major infrastructurefacilities like rail, road, electric-ity, irrigation, health service, tel-ecommunication, air and portservices, schooling, etc. exceptbanking. It is a fact that unlikethe developed nations, coefficientof variation of per capita net statedomestic products across Indianstates have been rising fast evenduring the period of reforms. Wemust therefore accept the factthat any analysis of localized ter-rorism across Indian districts inrecent period must put adequate

emphasis on economic factors,which have produced regionalmarginalization.

ð Sectoral Analysis:

2.(i)In terms of the theories ofsectoral evolution of an economy,India is at best now a traditionaleconomy on the whole. Onlyabout 16% of her income is gen-erated from the manufacturingsector and 25% from the agricul-tural sector. Interestinglyenough, as much as 50% are gen-erated from the service sector.This is not the same service sec-tor, which people enjoy in West-ern Europe, Japan and USA. Inthe context of the developed na-tions, "service" means service inthe true sense of the term, andalmost the entire service sectoris formal barring some exceptionsin case of Italy and some othernations which have a long tale of"civilization". For India, the en-tire service sector is the majorsource of our "informal" economy-the most significant source ofgenerating parallel economy, themost effective way to bypass thelaw of the land, the easiest wayto prove economic policy a mean-ingless pursuit, the most widelyfollowed tool to kick out our mostcherished human resources, orwhat is called "brain drain".

(ii) This will be verified again laterwith the help of other importantstatistics.

ð Backbone of the Indian Economy-Agriculture:

3. As is obvious from the statisticsgiven by the government relatingto the agricultural sector,globalization has not touchedupon the heart of the Indianeconomy, that is the agriculturalsector- as evaluated in terms ofagricultural productivity, mecha-

nization, irrigation, fertilizer andemployment. It is obvious fromTable 1 that all the other nationsare much ahead still now.

ð Education:

4. In terms of sheer literacy, Indiahas to go a long way.

ð Capital and Development:

5.(i)As is well-known, capital contro-versy has become an integral partof our inefficient economic systemsince the seventies. Although Ja-pan and USA do not have muchhigher rate of capital formation,inherent inefficiency, inappropri-ate choice of technology, outdatedmethods of production and mostimportantly, inadequate supplyof supporting infrastructureshave been responsible for lessthan 5% Hindu rate of growth.This is quite natural even underadequate supply of money by theIndian banking system. Coupledwith these, our faulty accountingsystem has not left any scope forsuccessive correction over dec-ades.

(ii) (a) We must introduce here thenotion of what is meant by "de-velopment". I assume that aboutone third Indians have futuredream and another one third In-dians are working hard for a de-cent living, and the residual onethird is "struggling for their meresubsistence existence" (peopleliving below the preconceivedpoverty line). Honestly speaking,"internet" is not the burningproblem for most people living insome parts of Midnapore,Purulia, Kalahandi, Gaya,Madhubani, Rai Bareli ,Shravasti, Ajmer, Jaisalmer,Chittoor, Krishna, Bijapur andThanjavur. Therefore, on behalfof these 66% people, it may besaid that "development" means


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good roads, good railways, goodschooling, good telecommunica-tion, good banking, good irriga-tion, good electricity, good healthcare system, good security, goodrecreation and tourism and fi-nally a trustworthy society.

(b) In any society, socialist or capi-talist, investment earmarked forthe creation of these facilities iscalled fixed capital. The largestpart of this capital is formed un-der government jurisdiction inearlier phases of economic devel-opment. In development termi-nology this is called "Plan Capi-tal Expenditure". Historically in-teresting, India began well in1950s during the Second FiveYear Plan in the name of publicsector capital formation. But thegreat tempo has died quite sometime ago in early 1970s. In recentperiod, share of Plan Capital was38% of total expenditure by theGovernment. This has been con-tinuously declining to reach only24% in 1998-99. Its place hasbeen taken over by Non-Plan Ex-penditure, which has been risingfrom 62% in 1985-86 to 73% in1990-91 and 76% in 1998-99.

(c) No further explanation is per-haps required to prove that thereason for the collapsing state ofaffairs in India's infrastructurestock and flow is inherent in ourchoice of expenditure pattern asfranchised in the democratic se-lection process.

(d) The same picture at the Statelevel (that is, across districts) iscatastrophic, if not the "end of thehistory".

External Sector:

(6)(i) As is well known, among manydefinitions, globalization is meas-ured by the trade orientation ofthe domestic economy which is

measured by the share of exports,or share of trade (i.e. exports plusimports), or share of high-tech-nology exports, or share of FDIin GDP.

(ii) India's share of trade in GDP is29% as opposed to China's 49%,Korea's 83%, Japan's 20% andUSA's 26%. This does not appearto be as bad as is generallythought at the popular level.Unlike China and Korea, India'seconomy has a strong domesticmarket like that of Japan andUSA. But our problem lies in ourfailure to utilize it to usher intothe process of economic develop-ment with the help of a trustwor-thy economic accounting system.

(iii) But India's share in high-technol-ogy exports of 6% as opposed toChina's 20% is too weak to claimour industrial supremacy in theglobal market. Moreover, India'sFDI (0.71% as opposed to China's4% which is the highest in theworld) is one of the lowest in theworld. At a time, when domesticcapital formation has come downto an all time low, the positivechance offered by theglobalization programme to at-tract global capital is also notutilized as per expectation.Therefore, there is every reasonto believe that true globalizationhas not taken root in Indian soilever since 1991. Notwithstandingthese failures, we must admitthat things have started chang-ing from 1991 onwards. But therate of change is too slow to pre-dict any rosy picture in foresee-able future.3

Monetary & Fiscal Issues:

Real Interest Rate:

Average real interest rate appearsto be about 8.29% in India as opposedto China's 5.85%, Japan's 3.44%, Ko-

rea's 6.28% and USA's 4.52%. It istrue that a small percentage of popu-lation lives on interest income in In-dia; but given high surplus money inthe Indian banking system, the na-tional importance of capital formationis so pressing now that the argumentof interest income should not be uti-lized as a cause for raising interestrate.

Tax Revenue:

Now we are at the core of a mean-ingful comparison of the accountingsystem of India and China vis-à-visthe developed nations. Note that In-dia's tax revenue being insignificantrelative to the national need and ca-pability has remained stagnant overlast few decades, or falling margin-ally. It stands at 10% now comparedto China's 7%, Japan's 20%, Korea's17% and USA's 19%. For a nation,which has been passing through thefirst phase of personal income explo-sion only in the current decade, ris-ing inequality demands that 61%share of indirect taxes is itself a ret-rogressive feature of our tax system.Moreover, only about 2% of our popu-lation is personal income tax payers.This figure is, therefore, close to 2crores (if our population is about abillion and total number of familiesis about 23 crores). It is true that to-tal employment in the organized sec-tor (which includes government, cor-porate, semi-government, local bod-ies, etc.) is about 1.90 crores. It ap-pears strange, therefore, to believethat the rest of the population earnsincome, which is below the "incometax line".

There is a popular perception thatabout one third of Indian populationfalls under the category of "middleclass" on whose existence the MNCsvie with each other for the durableconsumption goods. But in Indian of-ficial statistics, there is no such termas "middle class". Casual empiricism


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suggests that if we agree for theshake of argument that about 30crores come under this category, thenat least 6 crore families with averagefamily size of 4.80 must come underthe purview of income tax. What ismore, only a tiny proportion has ac-cess to Law, access to Knowledge &Information, access to Public Service,access to Power, access to Wealth andLuxury, access to Commodity. It isdoubtless therefore to believe thatconstant tax base coupled with weakinstitutional set up would go on mak-ing the parallel economy stronger dayby day thereby undermining the ef-fectiveness of both public and privatepolicy in an era of globalization. Andfree press alone does not have any-thing to do in order to rectify the in-stitutional framework. And unlessthis is done, "Vision India 2020" isbound to fail except as a politicalpropaganda by the successive govern-ments.

III. The Informal Sector:

(1) Comparative Size

Share of Informal Labour in ur-ban Employment:

Information on the size, distribu-tion and income generated from thissector is highly lacking in all the de-veloping countries. NSSO collectspartial information on this sector. Onthe whole, most of us are in the darkon this issue. Among the South andSoutheast Asian countries, India'scondition is the worst in sheer size.For example, share of informal sec-tor in urban employment in India hasbeen rising from 71% in 1974 to 76%in 1983 to 79% in 1987-88, whereasPakistan's share is absolutely thesame. Share of this sector shows somedownward tendency in case of Indo-nesia, Philippines and Thailand, andstands at around 50%. But Korea'sshare is less than 30%, whereas thatfor Japan and Western nations is less

than 5%. So even by such a crudeproxy, size of our unaccountedeconomy is very high indeed.

(2) Urban Population:

(i)A look at United Nations CDROM makes it obvious that countrieswith 60% urban population have percapita income higher than the aver-age world PCI. They are also thesame countries that have higher la-bour force engaged in industry andservice sector. Here also, India alongwith China, Pakistan, Bangladesh,Thailand, Vietnam, etc is in a veryunfavourable position when com-pared to the developed nations.

(ii)Finally, these are nations thathave higher proportion of GDP spenton military purpose.

(3) Informal Sector in India:

(a) Magnitude of workforce en-gaged in the unorganized/informalsector.

The National Sample Survey Or-ganization (NSSO) carried out a sam-ple survey in 1999-2000 and its re-sults showed that out of totalworkforce of 397 million, only 28 mil-lion workers are employed in the or-ganized sector and the remaining inthe unorganized sector. It revealsthat over a decade, the employmentin the organized sector has been al-most stagnant or slightly declined. Inthe light of definition of informal sec-tor encompassing private unincor-porated enterprises as mentionedabove, NSS 55th round, 1999-2000also covered non-agricultural enter-prises in the informal sector in India.As per the survey, there were 44.35million enterprises and 79.71 millionworkers employed thereof in the non-agricultural informal sector of theeconomy. Among these 25.01 millionenterprises employing 39.74 millionworkers were in rural areas whereas19.34 million enterprises with 39.97

million workers in the urban area.Among the workers engaged in theinformal sector, 70.21 million are fulltime and 9.5 million part times. Per-centage of female workers to the to-tal workers is 20.2 percent.

(b) Relevance of the Informal Sec-tor in Indian Context

Broadly speaking, the informalsector provides income-earning op-portunities for an unusually largernumber of workers. There is a largemagnitude of workforce getting theirlivelihood from the informal sector.There is a far cry in recent period toinclude them into the national insur-ance scheme. The enactment oflegislations and other measures tobring them under the regulatory andsocial protection instruments willadversely affect the existing mecha-nism prevailing in the informal sec-tor as it would lead to further mar-ket imperfections thereby creatinghurdles in the smooth functioning ofthe market-led economy. Besides, itrequires huge infrastructural and in-stitutional arrangements involvingfinancial implications beyond the ca-pacity of the Government in thechanging scenario all over the world.The Government has to play a keyrole of conciliator, facilitator and pro-moter so that the workers employedin the informal sector are able to getrequisite level of protection and se-curity to have decent work environ-ment. This will enable them to ex-press their skills fully and accordingto their capabilities necessary for en-hancing the competitiveness of theiroutputs and thereby raising their in-come and socio-economic status.

About 370 million workers consti-tuting 92% of the total workforce inIndia were employed in the unorgan-ized sector as per NSS Survey 1999-2000. It plays a vital role in terms ofproviding employment opportunity tolarge segment of the working force inthe country and contributes to the


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national product significantly. Thecontribution of the unorganised sec-tor to the net domestic product andits share in the total NDP at currentprices has been over 60%. In the mat-ter of savings the share of householdsector in the total gross domestic sav-ing mainly unorganised sector isabout three fourth. Thus unorganisedsector has a crucial role in oureconomy in terms of employment andits contribution to the National Do-mestic Product, savings and capitalformation. During the process of eco-nomic reforms and liberalization,merger, integration of various firmswithin the industry and up-gradationof technology and other innovativemeasures take place to enhance com-petitiveness of the output both interms of cost and qualitative to com-pete in the international market. Thelow inefficient units either witheraway or merge with other ones per-forming better. In this situation,there is a special need to take care ofthe interests of the workers by pro-viding them training, upgrading theirskills, and other measures to enablethem to find new avenue of employ-ment, improve their productivity inthe existing employment, necessaryto enhance the competitiveness oftheir product both in terms of qual-ity and cost which would also help inimproving their income and therebyraising their socio- economic status.It is now accepted that formal sectorcould not provide adequate opportu-nities to accommodate the workforcein the country. Under the existingeconomic scenario, the unorganizedsector will expand further in theyears to come. Thus, it needs to bestrengthened and activated so that itcould act as a vehicle of employmentprovider and social development.

President Abdul Kalam andY.S.Rajan (1998) highlight the role ofthe informal sector in the followingwords:

"A country like India can not hopeto build its future on the services sec-tor alone though it can be and will bea major component of the economy.India cannot afford not to build itsstrength in agriculture for reasons offood nutritional security. Nor can itafford to ignore manufacturingstrengths for reasons of economic andnational security. Based on thestrengths of these two sectors, it canbuild a major economic infrastructurefor the services sector and use it togenerate wealth and employment forher people [p.158]".

IV. Role of ICWAI

Apart from the informal indus-trial sector, the entire rural economybased on the agriculture, fishery andanimal husbandry have also been ris-ing at a faster rate than ever beforeto accommodate the ever-increasingunskilled labour force, which is re-leased from both rural and urban ar-eas. The more the "formal sector" isshrinking, the more there is a desper-ate tendency among the generalmasses to find any job in the unor-ganized sector. Added to this is thenation-wide construction activity,which plays the most significant rolein absorbing the massive flow of un-skilled and semi-skilled labouringclasses. Given the uncontrolledgrowth of population in the lowerstrata of the society during the lasttwo decades, the major responsibilityof this type of population explosionmust lie on the policy makers who areinvolved in demographic decision-making. But our concern here relatesto the huge flow of income and out-put as well as the massive transac-tion of money, which are linked inthis process.4 There is no doubt thatall these sectors taken together givebirth to unimaginable amount ofblack money which could be otherwisetrapped by the government machin-ery with the help of institutional sup-port from the existing accounting in-

stitutions of the nation. Interestingly,it would not entail much extra costsbut it would help realize massive ac-crual of additional revenue, whichcould be utilized for providing publicservices in areas, which badly neednew infrastructure. This will havetremendous multiplier effects in gen-erating further economic activities.To be explicit, such scheme of thingsfits well into the policy of the presentgovernment as proposed in the Com-mon Minimum Programme (CMP),which is reproduced below.

CMP of the UPA Government:

1. Administrative Reforms: TheUPA will set up an AdministrativeReforms Commission to prepare adetailed blueprint for revamping thepublic administration system. E-gov-ernance will be promoted on a mas-sive scale. The Right to InformationAct will be made more progressive,participatory and meaningful.

The UPA will take the leadershiprole to drastically cut delays in HighCourts and lower levels of the judici-ary. Legal aid services will be ex-panded.

As part of its commitment to elec-toral reforms, the UPA will initiatesteps to introduce state funding ofelections at the earliest.

2. Industrial reforms: The UPA willtake all necessary steps to revive indus-trial growth and put it on a robust foot-ing through continued deregulationand other policies. Incentives to boostprivate investment will be introduced.FDI will continue to be encouraged. Thecountry needs and can easily absorb atleast two to three times the presentlevel of FDI inflows. Indian industrywill be given every support to becomeproductive and competitive. All regu-latory institutions will be strengthenedto ensure that competition is free andfair. These institutions will be run pro-fessionally.


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3. Fiscal Policy: The UPA govern-ment commits itself to eliminatingthe revenue deficit of the centre by2009 so as to release more resourcesfor investments in social and physi-cal infrastructure. Subsidies will betargeted sharply at the poor and trulyneedy. A detailed roadmap for accom-plishing this will be unveiled in Par-liament within 90 days.

The UPA government reiteratesits commitment to VAT after all thenecessary homework has been com-pleted. It will initiate measures toincrease the tax: GDP ratio by under-taking major tax reforms that expandthe base of taxpayers, increase taxcompliance and make the tax admin-istration more efficient. Tax rates willbe stable and conducive to growth,compliance and investment.

V. What to do?

Even a stern optimist wouldhardly disagree that the top-downdevelopment strategy through half-hearted planning paid insufficientattention to initiate necessary insti-tutional changes, which would createlaw-abiding citizens. The result iswidespread failure to (i) maintainquality and cost-effectiveness, (ii)balance investment to local needs, or(iii) limit corruption in implementa-tion of government programmes, (iv)support law-abiding citizens, (v) cre-ate environmental awareness, and(vi) rectify the existing accountingsystem across board. Indian develop-ment landscape is now filled with ap-petizing stories of large-scale diver-sion of public funds, poorly perform-ing educational institutions and hos-pitals, and development projects ill-suited to local needs.

Along with these, there are fun-damental weaknesses in our tax ad-ministration and innumerable re-ports and visible proofs of widespreadtax evasion that drastically reducesurplus resources. What can be done

towards the current crisis of lack ofgovernment accountability? This willunequivocally lead us to deal with thefour layers of corruptions:

ð The chain of political corruption-bureaucratic corruption- citizen-ship corruption and the great co-ordination failure among allthese must be dealt with on ur-gent basis before it is too late.

But some possible ways out maybe as follows:

1. To minimize the gap between lawand enforcement.

2. To restructure existing tax lawsand accounting system.

3. To introduce third party supervi-sion in any capital project par-ticularly those earmarked for in-frastructure development.

4. To start initiating change in theincentive system particularlythose concerning the real produc-tive sectors.

VI. Conclusion

It is great symptom that the newgovernment has admitted the existenceand gravity of the problems discussedabove. The UPA Government (in theform of Common Minimum Pro-gramme- CMP) has promised to estab-lish a transparent and efficient ac-counting system during their regime.To be optimistic, the time is now ripefor ICWAI and similar institutions toorganize industrial houses, policy mak-ers, press and government representa-tives to develop a set of innovative pro-posals to be submitted to the Centralas well as State governments. At a timewhen government revenue is rising ata disproportionately lower rate thaneconomic activities, there is every rea-son for the government to be worriedabout the inefficiency of its policy-mak-ing instruments. Moreover, the morethe economy becomes vulnerable to for-eign economic shocks under free trade,

the need for regulating the economywill become even more intense. Thereis no reason why the government willnot be interested to reorganize and re-vamp the existing accounting system,tax structures and auditing. If it does,it will simply undermine the efficacy ofgovernment machinery and at the costof our future generation.

Notes:

1. The greatness of Western coun-tries including USA and Japanlies in the following facts.

(i) No person is above law forall practical purposes.

(ii) Code of conduct is uniform.

(iii) Institutions and press arefree and strong enough tosustain an ethically desir-able society.

(iv) Political system and judici-ary support the "economiclaws of motion".

(v) The incentive system doesnot promote corruption andinefficiency across board.

2. As rightly pointed out by Krugman(1994a) in a critical work, "Afterall, the rhetoric of competitiveness-the view that, in the words of Presi-dent Clinton, each nation is "like abig corporation competing in theglobal market place-"- has becomepervasive among opinion leadersthroughout the world. People whobelieve themselves to be sophisti-cated about the subject take it forgranted that the economic problemfacing any modern nation is essen-tially one of competing on worldmarkets- that the United Statesand Japan are competitors in thesame sense that Coca-Cola com-petes with Pepsi- and are unawarethat anyone might seriously ques-tion that proposition" (p.29).

3. This is not the outcome a single

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decade or a single Plan. This liesat the heart of our politicaleconomy. In a classic work,Hirschman (1945) showed how suc-cess in foreign trade determinesnational power of a nation in theinternational market. Apart fromUSA, Germany and Japan, the riseof China in recent period can beexplained by this hypothesis.

4. As this paper is beyond the pur-view of possible estimates of our"parallel economy", we refrainfrom entering into such projec-tions. There are many stories,which report frightening propor-tion of unaccounted component ofour national income. But onething is very clear from these re-ports and researches: whatevermay be the actual proportion; itsimply undermines the efforts ofgood citizens, and negates theefficacy of the tools and instru-ments of economic analysis. Ishare many of the views of thispaper with S. Marjit, A. Kotwal,B. Roy and P. Pal Choudhury.

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ð Sen, A. (1975): Employment, Technologyand Development, OUP, Delhi. ❑


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Goa tourism developmentcorporation (GTDC) : Afinancial analysis

Filipe Rodrigues e Melo * Dr. S. S. Hugar **

* Head, Dept of Commerce, Rosary Col-lege, Navelim, Salcete Goa.

** Professor and Head, Dept of Commerce,Karnataka University, Dharwad,Karnataka.

This paper makes an attempt to analyse the financialperformance of GTDC with the help of Ratio Analysis andanalytical tools. It consists of two parts, Part A comprises ofParameters for appraising the rate of return and Part BParameters for appraising the solvency position of Goa TourismDevelopment Corporation.

visitors under organized travels,feeding the five star culture and thehotel chains. Tourism is concernedwith pleasure, holidays, travel andgoing or arriving somewhere. Theseare the motivations that make peopleleave their short-term temporary visitsto other places. Tourism involves themovement of people to, and their stayat various destinations.

This involves a journey andservices like transport, accommoda-tion, catering and viewing. Thejourney to and stay at a site is outsidethe normal place of work andresidence for a short period. In thedecade 1961-71 there was rapidincrease in the population of Goacompared to the average increase of24.8% in India. Following theintegration of this territory into theIndian union, rapid development tookplace and there was a rapid growthof tourist arrivals (both domestic andforeign) in Goa. The Dept. of TourismGovt. of Goa was the only agencylooking after the promotion oftourism, developing basic infrastruc-ture facilities and providingaccommodation facilities to themiddle and low-income group tourist.The tourism industry being a serviceoriented industry it was felt that itwould be difficult for the Dept. ofTourism to promote tourism, developbasic infrastructural facilities andprovide accommodation to the middleand low-income group tourist.Therefore it was decided that thecommercial activities looked after bythe Dept. of Tourism should beentrusted to an autonomous andcorporate agency, which would havea greater flexibility to carry out thedevelopment works. Goa TourismDevelopment Corporation (GTDC)was incorporated on 30th March 1982under the Indian Companies act1956. The company prepared theMemorandum of Association andArticles of Association, whichprovided guidelines for its smooth

In the west, tourism becameestablished in the Egyptianempires and reached its zenith in

the Roman period. In the east thecoastal empire in China and theMauryan Empire in India wereknown for providing extensivefacilities to the traveller.Infrastructure for travel like caravanserais, inns, taverns and panthagarwere common. The Egyptiancivilization attracted many tourists.The lighthouse of Alexandria wasconsidered one of the seven wondersof the Ancient world. In India,travelling for pleasure on the riversand to the hills was a traditionstarted by the royal courts. In the1960s it was decided to establish the

Indian Tourism DevelopmentCorporation (ITDC). ITDC was toplay the role of a catalyst indeveloping a modern superstructurefor international tourist. In 1970stourism was separated from theMinistry of Civil Aviation and thisindicated the growing importanceattached to tourism in India. Tostrengthen the tourism infrastruc-ture state tourism developmentcorporations were set up to provideaccommodation and transportfacilities at tourist destinationaround the country. Given the factthat the economy of mainlandPortugal itself was a beneficiary inlarge number. It was the hippies whoput Goa on the international tourismmap in a big way around 1966. A fewyears later their parents that is theolder generation of tourists from thewestern world, namely condortourists and others became our first

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functioning. The main activities ofthe corporation can be broadlycategorized as follows: Accommoda-tion, Sightseeing tours, River Cruiseand Package tours.Objectives of the study

The broader objective of the studyis to examine the financialperformance of GTDC with regard toselected financial parameters vizEarning before interest and tax(EBIT), Profit after tax (PAT), TotalAssets, Capital employed, Share-holders Equity, Earning per share,Working capital, Proprietors equity,Current assets and Fixed assets.Data and Methodology

The Study is based on Secondaryand Primary data. The Secondarydata is taken from the Annual reportsof GTDC for the period of 10 years i.e.from 1991-92 to 2000-01. ThePrimary data is collected bypersonally visiting and interactingwith the officials of GTDC. RatioAnalysis analytical tool wasemployed to analyse the financialstatements of GTDC .Part A: Parameters for appraising theRate of ReturnPercentage of Earning before interestand tax (EBIT) to Total Assets

The percentage of EBIT to Totalassets is also called as Profit to Assetratio. It is an important measure ofthe profitability of the financialresources invested in any of theeconomic ventures. This percentageshows whether the total assets of thebusiness have been properly used ornot. A high percentage speaks aboutthe optimum use of resourcesinvested in the business. As againstthis, a low percentage suggestsinefficient and uneconomical use ofresources.

Table 1 exhibits the informationrelating to the percentage of EBIT tothe Total assets of GTDC for theperiod under study.

Table 1 Percentage of EBIT toTotal Assets

(Rs in lakhs)

Year EBIT Total Percen-Assets tage

1991-1992 44 324 13.58

1992-1993 18 374 4.81

1993-1994 12 396 3.03

1994-1995 15 438 3.42

1995-1996 10 480 2.08

1996-1997 25 751 3.32

1997-1998 12 678 1.76

1998-1999 10 717 1.39

1999-2000 -19 743 -2.55

2000-2001 -50 715 -6.99

Source: Annual reports of GTDC forthe related periods.

It can be observed from the abovetable that the earnings beforeinterest and tax component wasnoticed to have decelerated with asharp fluctuation over a period. Incontrast, the total assets wereobserved to have an upward trend forthe same period. The ratio obviouslywas found to be declining during thestudy period. During the last twoyears of the study period, the ratioeven turned out to be negative. Thisis a clear indication that GTDC hasnot made any efforts to widen the sizeof its earning base in proportion tothe increase volume of assets whichcould be due to capital investment inconstruction of hotels, renovation andimprovement of hotels, purchase oftourist buses or an investment in asimilar asset which create a long termbenefit for GTDC.Percentage of Profit after tax (PAT) toCapital employed

This ratio indicates whether theamount of capital employed has beeneffectively used or not. It is an indexto the operational efficiency of thebusiness as well as an indicator ofprofitability. Therefore, the higher

the ratio, the more efficient use of thecapital employed, the better is themanagement efficiency and profita-bility. Moreover, the capital employedprovides a test of profitability relatedto the sources of long term funds. Thisratio is computed by dividing PAT tothe Capital employed.

Table 2 reveals the PAT to Capitalemployed of GTDC for the period from1991-1992 to 2000-2001

The worked out ratios of GTDC forthe period of 10 years are exhibitedin table 2. It can be witnessed fromthe table that the net profit variableemployed was found to haveaugmented for the correspondingperiod. The return on capitalemployed for the year 1991-1992 wasas high as 30.34 and from 1992-1993onwards, the percentage showed adeclining trend. During the last twoyears of the study period thepercentage was negative 8.89. Thispoor return on capital employedspeaks about the inefficient anduneconomic use of capital resourcesof GTDC This further speaks that themanagement of GTDC has not madeany efforts to monitor the resourcesin the best interest of the corporation.

Table 2 PAT to Capital employed(Rs in lakhs)

Year Net Capital Percen-Profit employed tage(PAT)

1991-1992 44 145 30.34

1992-1993 18 298 6.04

1993-1994 12 299 4.01

1994-1995 15 309 4.85

1995-1996 10 346 2.89

1996-1997 24 621 3.86

1997-1998 11 543 2.02

1998-1999 10 595 1.68

1999-2000 -19 612 -3.10

2000-2001 -50 562 -8.89Source: Annual reports of GTDC forthe related period

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Percentage of Profit after tax (PAT) toShareholders Equity

The percentage of PAT to theShareholders equity providesinformation as to how far the unit hasbeen able to contribute towards theshareholders wealth by theapplication of leverage i.e. Trading onEquity. A higher percentage of returnon shareholders equity suggests asound policy of trading on equity andthat the firm has been able to derivebenefit out of it.

The information relating toPercentage of PAT to ShareholdersEquity of GTDC for the period understudy is shown in Table 3

Table 3 Percentage of PAT toShareholders Equity

(Rs in lakhs )

Year Net Share- Percen-Profit holders tage(PAT) Equity

1991-1992 44 163 27.00

1992-1993 18 298 6.04

1993-1994 12 299 4.01

1994-1995 15 309 4.85

1995-1996 10 307 3.25

1996-1997 24 618 3.88

1997-1998 11 624 1.76

1998-1999 10 633 1.57

1999-2000 -19 612 -3.10

2000-2001 -50 562 -8.89

Source: Annual reports of GTDC forthe related period

The above table demonstratedthat the percentage of PAT toShareholders equity in respect ofGTDC was comparatively moreduring the early phase of the studyperiod and it turned out to benegative in the last two years of thestudy period. It may be inferred thatthe corporation was able to get some

advantage out of Trading on equityduring the period from 1991-1992 to1996-1997 except for the year 1995-1996. In the year 1995-1996 therewas a decrease in shareholders equitycoupled with decline in earning inProfit after tax. Hence, thepercentage of Profit after tax toshareholders equity recorded adecreasing trend from the year 1997-1998 and became negative in theyears 1999-2000 and 2000-2001. Thisindicates that GTDC has not beenable to derive benefit out of tradingon equity in recent years. This is theclear symptom of the fact that, thereis no synchronization between GTDCinvestment policy and financingpolicy.Percentage of Profit after tax (PAT) toTotal assets

The various profitability ratiosthrow light on the profitability of afirm from the viewpoint of (a) Theowners of the firm and (b) Theoperating efficiency of the firm. Theratios covered under the rate ofreturn to the equity holders' fallunder the first category. Theoperating efficiency of a firm in termsof the efficient utilization of theresources is reflected in net profitmargin. The overall profitability of afirm can be assessed on the basis of acombination of the two. The combinedprofitability is referred to as Return(after tax) on Total assets. This ratiois a central measure of the overallprofitability and operationalefficiency of a firm.

Table 4 indicates the Percentageof PAT to Total assets of GTDC forthe period under study.

Table 4 revealed the year wise dataof GTDC during the study period. It canbe observed from the table that on thefirst year of the study period i.e. 1991-1992, the percentage of PAT to Totalassets was 13.58 the highest among allthe years under study. This has beendue to high profits made by the

corporation as compared to the earlieryears. From the subsequent yearsonwards the percentage went ondeclining on account of decreasingprofits and increase in the Total assets.In the year 1999-2000 and 2000-2001,the percentage was negative 2.55 and6.99. This is mainly on account ofoperating expenses made being morethan the income earned.

Table 4 Percentage of PAT toTotal Assets.

(Rs in lakhs)

Year Net Total Percen-Profit Assets tage(PAT)

1991-1992 44 324 13.58

1992-1993 18 374 4.81

1993-1994 12 396 3.03

1994-1995 15 438 3.42

1995-1996 10 480 2.08

1996-1997 24 751 3.19

1997-1998 11 678 1.62

1998-1999 10 717 1.39

1999-2000 -19 743 -2.55

2000-2001 -50 715 -6.99

Source: Annual reports of GTDC forthe related periodEarning per Share (EPS)

Apart from the rates of return, theprofitability of a firm from the pointof view of the ordinary shareholdersis the earning per share. It measuresthe profit available to the equityholders on a per share basis i.e. theamount that they can get on everyshare held. The more the earning pershare, the better is the performanceand future prospects of the firm.Higher earnings per share suggestthe possibility of more cash dividendor bonus share.

Table 5 reveals the informationrelating to Earning per share of

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GTDC for the period under study.Table 5 Earning per Share

(Rs in actual)

Year Net No of EPSProfit Equity(PAT) Shares

1991-1992 4400821 85458 51.49

1992-1993 1753816 218255 8.03

1993-1994 1208115 218255 5.53

1994-1995 1465038 223564 6.55

1995-1996 969300 223564 4.33

1996-1997 2355666 223564 10.54

1997-1998 1039940 524290 1.98

1998-1999 914283 524290 1.74

1999-2000 -1886355 524290 -3.60

2000-2001 -5011830 524290 -9.55


The above table demonstratesthat the earning per share was thehighest 5 1.16 in the year 1991-1992thereby signifying that the net profitswere high during that yearcorresponding to the other yearsunder study. However, from thesubsequent year onwards the earningper share went on declining except forthe year 1996-1997 and in the years1999-2000 and 2000-2001 the earningper share was negative 3.65 and 9.50.This had been mainly due to highexpenditure incurred by thecorporation during those years.Part B: Parameters for appraising theSolvency position of Goa TourismDevelopment Corporation (GTDC)

These ratios are calculated tojudge the solvency position of GTDCfrom long term as well as short-termsolvency point of view. The followingare the ratios calculated in thisrespect.Working Capital ratio

As a normal rule, current assets

should be twice the current liabilitiesas then on payment of the liabilities,there will be no adverse effect onbusiness operations. But theemphasis is on running the businesssmoothly. If the firm can quickly layits hand on additional funds, say,because of arrangement with thebank, the current ratio may well beless than 2 without any damage to thecompany. A very high ratio will resultfrom idleness of funds only andtherefore it is not a good sign.

Table 6 depicts the workingcapital ratio of GTDC during thestudy period.

It can be observed from table 6that from 1991-1992 to 1995-1996.the average ratio was 1.03 and from1996-1997 to 2000- 2001, the averageratio was 1.24. This increase in theaverage ratio during the latter periodof five years indicates that thecorporation is liquid and has theability to pay its current obligationsin time as and when they became due.

Table 6 Working Capital ratio(Rs in lakhs)

Year Current Current Ratioassets liabili-

ties

1991-1992 72 179 0.40

1992-1993 95 76 1.25

1993-1994 114 97 1.17

1994-1995 154 129 1.19

1995-1996 159 134 1.18(1.03)

1996-1997 217 130 1.66

1997-1998 157 135 1.16

1998-1999 151 122 1.23

1999-2000 154 131 1.17

2000-2001 151 153 0.98(1.24)


Figures in brackets refer to

average ratios.Fixed assets to Capital employed ratio

This ratio gives an idea as to whatpart of the capital employed has beenused in purchasing the fixed assetsfor the firm. If the ratio is less thanone it is good for the business firm.

Table 7 reveals the fixed assets toCapital employed ratio of GTDCduring the study period.

Table 7 Fixed assets to Capitalemployed ratio.

(Rs in lakhs )Year Fixed Capital Ratio

assets emplo-yed

1991-1992 252 145 1.73

1992-1993 279 298 0.93

1993-1994 282 299 0.94

1994-1995 284 309 0.91

1995-1996 321 346 0.92(1.08)

1996-1997 534 621 0.85

1997-1998 521 543 0.95

1998-1999 566 595 0.95

1999-2000 589 612 0.96

2000-2001 564 562 1.00(0.94)

Source: Annual reports of GTDCfor the related period

Figures in brackets refer toaverage ratios.

It can be observed from the abovetable that from 1991-1992 to 1995-1996 the average ratio was 1.08 andfrom 1996-1997 to 2000-2001 theaverage ratio was 0.94. This trendindicated that during the latterperiod of five years the average ratiowas less as compared to the earlierperiod. From the analysis it appearsthat the corporation has not givenmuch attention towards creatingadequate infrastructure facilities,

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which on the other hand reflects onthe quality and type of serviceprovided by GTDC.Proprietary ratio

It is the ratio of proprietors' fundsto the Total assets. It reveals theowners contribution to the Totalvalue of assets. The higher the ratiothe lesser will be the reliance onoutsiders, although too high a ratiomay not be good for it. It would implythat external equities were notutilized properly.

Table 8 displays the Proprietorsfunds to Total assetsTable 8 Proprietors funds to Totalassets.

(Rs in lakhs )

Year Propri- Total Ratiotors Assetsfund

1991-1992 163 324 0.50

1992-1993 298 374 0.80

1993-1994 299 396 0.75(0.68)

1994-1995 308 438 0.70

1995-1996 308 480 0.64

1996-1997 618 751 0.82(0.72)

1997-1998 624 678 0.92

1998-1999 633 717 0.88

1999-2000 612 743 0.82

2000-2001 562 715 0.79(0.85)

Source: Annual reports of GTDCfor the related period

Figures in brackets are averageratios.

The above table shows that from1991-1992 to 1993-1994 the averageratio was 0.68. In the subsequentthree years period the average ratiowas 0.72. From the year 1996-1997to 2000-2001 the average ratio was0.85. This tendency indicated that

during the last four years of the studyperiod, the average ratio was thehighest as compared to the earlierperiods. This reveals that higher theratio the lesser will be the relianceon borrowed funds. However, it isequally desirable in the interest of thecorporation to keep the capitalstructure a balanced one givingweightage even to the borrowed fundswherein the corporation liability isfixed in terms of interest or dividendwhich may not be the same incase ofowned funds.Conclusion

The Financial position of GTDChas been introspected with regard toTotal assets, Capital employed,Shareholders equity, Earning pershare, Working capital andProprietors equity. Based on theanalysis the following observationsare made.

The percentage of EBIT to Totalassets of GTDC was found to bedeclining during the study periodthereby demonstrating that GTDChad not made any efforts to widen thesize of its earning base in proportionto the increased volume of assets.

The return on capital employedshowed a declining trend therebyexhibiting the inefficient anduneconomic use of capital resourcesof GTDC .

The percentage of EAIT toShareholders equity was compara-tively more during the early phase ofthe study period and it recorded adecreasing trend from the year 1997-98. This is a clear symptom of thefact that, there is no synchronizationbetween GTDC investment policy andfinancing policy.

The percentage of EAIT to Totalassets was the highest in the first yearof the study period and from thesubsequent year onwards the percentagewent on declining on account ofdecreasing profits and increase in Totalassets. In the last two years it turned

out to be negative. This is mainly onaccount of operating expenses madebeing more than the income earned.

The Earning per share was thehighest in the first year of the studyperiod and from the subsequent yearonwards the earning per share wenton declining and in the last two yearsof the study period the earning pershare was negative. This had beenmainly due to high expenditureincurred by the corporation duringthose years.

The calculated average ratios ofCurrent assets to Current liabilitieswas more during the latter period offive years as compared to the earlierperiod thereby indicating that thecorporation had the ability to pay itscurrent obligations in time as andwhen they became due.

The Fixed assets to Capitalemployed ratio revealed that thecorporation has not given muchattention towards creating anadequate infrastructure facilities,which on the other hand, reflects onthe quality and type of servicesprovided by GTDC.

The Proprietors ratio indicatesthat the average proprietary ratio hasbeen showing an increasing trendduring the study period. This revealsthat higher the ratio the lesser willbe the reliance on borrowed funds.References

● Annual reports of Goa TourismDevelopment Corporation (GTDC) from1991-92 to 2000-2001

● Gupta S.P (1995) Statistical Methods,S.Sultan Chand & sons, New Delhi.

● Historical Evolution and Development,Foundation Course in Tourism, TourismPhenomenon 1, IGNOU, New Delhi

● Khan M.Y and Jain P.K (1996) FinancialManagement Text and Problems, Tata McGraw Hill Publishing Co Ltd., New Delhi.

● Pandey I .M (1991) FinancialManagement, Vikas Publishing House PvtItd, New Delhi

● Prasanna Chandra, (1995), FinancialManagement- Theory and Practice, Tata-Mc Graw-Hill Publishing Co Ltd, Delhi.

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Human resource develop-ment in coopertive milksupply society, Tirunelveli

(ii) Analytical Tools:

Percentage and Chi-square Testare used to analyses the data for thepresent sudy.

Profile of the Society

This chapter attempts to presenta profile of "The Tirunelveli Coopera-tive Milk Supply Society Limited."

The voluntary association basedon the principles of "each for all andall for each and self help through,help" was registered as the“Tirunelveli co-operative associateLimited, 0.1067” under Sec. 4 of theMadras Co operative Societies Act of1932 on 13th May 1945. The certifi-cate of incorporation and the certifi-cate of commencement were duly ob-tained. The administration of thissociety with the objectives of increas-ing the production of milk and secur-ing the fair distribution of milk wasentrusted in an elected body withproper representation of members.

Administration and Management

To attend to the day-to-day ad-ministration and routine functions ofthe society there is an office headedby a paid Secretary. A chart is givenin the next page showing the line or-ganization of the administration.

Job Satisfaction

Job satisfaction is a motivationfactor and an integration factor aswell. It is equally a morale boasteras job satisfaction refers to the atti-tude of the employee towards his job.It is right to the degree to which theemployees' personal needs are ful-filled in the job situation. Thus jobsatisfaction is the favorableness withwhich employees view their work4.* Reader in Commerce, AKGS Arts

College, Sivaikundam** Scholor, M.B.A., Alagappa

University, Karaikudi

Human Resource Developmentpaves a paradigm shift fromtraditional Master slave re-

lationship to the modern trusteeshipsystem, in which employees and em-ployees are considered a partners in-vesting their wealth and labour re-spectively and from traditional salaryadministration to the new HumanResource system. Almost all the or-ganizations have now established Hu-man Resource Development depart-ments separately to effectively feelwith the Human resources.

According to Rao, Human Re-source Development defend as, it is acontinuous process to ensure the de-velopment by employees, companies,dynamism, motivations, and active-ness in a systamatic and plannedway2.

Based on Sukla statements, "Hu-man Resource Development consistsof all measures calculated to improvethe quality of human resource for thenation as a whole3”.

Objectives of the study

Following are the objectives of thepresent study:

i. To study profile of Tirunelveli Co-operative Milk Supply Society.

ii. To analyze the relationship be-tween the level of Job satisfactionand the various Job satisfactionfactors like age, locality, experi-ence and type of management.

iii. To offer suitable suggestions toimprove the job satisfactionamong the employees of the soci-ety.

Research Methodology

The study was undertaken by wayof descriptive Research. DescriptiveResearch was undertakcn by admin-istering questionnaires to employeesin the society. -

(i) Collection of Data:

Necessary data for the analysishave been collected by both primaryand secondary sources.

A Case study on the relationship of job satisfaction levelwith various job satisfaction factors like age, locality,experience etc.

Dr. V. M. Selvaraj* M. Muthu Deivakani **

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Line Organisation of the Administration

Secretary

Head Clerk

Supervisor(General and

Internal Audit)

Supervisor(Milk Shed)

Supervisor(Vendor)

Supervisor(Stall)

AssistantAssistant

Master

Cleaner

Clerk(Invoice

Check-up)

Clerk(Establish-

ment)

Clerk(Cash)

Clerk(Accounts)

Clerk(Stores &

Record

Clerk(Members

Loan)Clerk

(Production)Clerk

(Milk Couponand Redemption

of Coupon)(Shed) Keeper

(Shed) Watcher

Cleaner

Vendor

Attender

Peon

Clerk(Distribution)

Watchman

Attender(To Cancel the coupon)

Factors influencing Job Satisfaction :

There are so many factors, whichinfluence the level of such satisfactionof employment. Among the factors,only a few factors are analyzed. Theyare age, marital status, educationalqualification status, experience, pro-motion and salary.

Analytical Framework :

In this study, Human ResourceDevelopment employees are groupedinto 3 categories namely low level,medium level and high level for ana-lytical purpose.

³ / ×+ S.D. and score values £ / x-S.D have been classified respectively

r = No. of Rows in a contingency ta-ble.

The calculated value of chi-squareis mentioned with the table value ofchi-square for given level of signifi-cance usually, at 5% level. If at thestated level, the calculated value(C.V.) is less than the table value (T.V.) the null hypothesis is acceptedand otherwise it is rejected.

Age and level of Job Satisfaction

Age is one of the important fac-tors in determining the job satisfac-tion of employees5.

Table 1 shows that out of 100 em-ployees with high level of job satis-

as high and low level of Job satisfac-tion. The score values in between[x+S.D] and [x-S.D]. Have been clas-sified as medium level of Job Satis-faction. X being the arithmetic meanand S.D. calculated from the scorevales.

For computing chi-square test thefollowing formula has been used;

X2=(O-E)2/E, with (r-l) (c-l) de-grees of freedom.

Where

O = Observed Frequency

E = Number of Frequency

c = No. of Columns in a contingencytable.

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faction 7(21.21) were in the age groupof below 25 years. 5(15.15) and6(18.18) were in the age group of 25-30 and also age group of 36-40 andabove 40 respectively shows highlevel of job satisfaction.

It also shows that 3(8.82) and15(44.12) were in the age group of 36-40 and above 40 respectively showsmedium level of job satisfaction. Butin the same age group of 36-40,10(30-30) and above 40, 7(21.22) shows lowlevel of job satisfaction.

Degrees ofFreedom = (r-l) (c-1) = (5-1) (3-1) = 8

Calculated value of Chi-squaretest is 13.5, but at the table value at5% level is 3.69. Hence the null hy-pothesis is rejected

Marital Status :

Level of job satisfaction may alsodepend upon the marital status of anemployee. Hence an attempt is madeto study the relationship betweenmarital status and level of job satis-faction of employees working in co-operative milk supply society.

Table 2 reveals that out of 100employees working in cooperative so-ciety with high level of satisfaction,26(72.22) were married and 10(27.78)of them were Un-married out of 36employees respondents with mediumlevel of job satisfaction 23(63,89) weremarried and 13(36.1.1) were Unmar-ried.

Further it shows that out of 28employees having low level of job sat-isfaction 17(60.71) were married and11(39.29) were Un-married. It couldbe inferred from the table that re-spondent who were married with lowlevel of job satisfaction are lesser.

Degrees of freedom = (r-1) (c-l) = (3-1) (2-1) = 2

In the chi-square test the calcu-lated value of 0.94 is less than tablevalue of 19.03. Hence the null hypoth-esis is accepted.

Table : 1

Age and Level of Job Satisfaction of Sample Respondents

EmployeeHigh Medium Low TotalSl.

NoAge

No. of Resp. No. of Resp. No. of Resp.% % % %

1. Below 25 7 21.21 4 11.76 4 12.12 15 15

2. 25-30 5 15.15 6 17.65 8 24.24 19 19

3. 31-35 6 18.18 6 17.65 4 12.12 16 16

4. 36-40 7 21.21 3 8.82 10 30.30 20 20

5. Above 40 8 24.24 15 44.12 7 21.22 30 30

Total 33 100 34 100 33 100 100 100

No. of Resp.

Table : 2

Marital Status and level of Job satisfaction of sample Respondents

High Medium Low TotalSl.No No. of Resp. No. of Resp. No. of Resp.% % % %

1. Married 26 72.22 23 69.89 17 60.71 66 66

2. Unmarried 10 27.78 13 36.11 11 39.29 34 34

Total 36 100 36 100 28 100 100 100

No. of Resp.

Table : 3

Educational Qualification and level of Job Satisfaction of Sample Respondents


1. PrimaryLevel 30 63.83 18 64.29 12 48 60 60

2. SecondaryLevel 17 36.17 10 35.71 13 52 40 40

Total 47 100 28 100 25 100 100 100

No. of Resp.

Table : 4

Status and Level of Job Satisfaction is Sample Respondents

High Medium Low TotalSl.No No. of Resp. No. of Resp. No. of

Resp.% % % %

1. Officer 2 18.18 4 21.05 3 4.35 9 9.09

2. Clerks 4 36.36 3 15.79 3 4.35 10 10.10

3. Vendors 5 45.46 12 63.16 63 91.30 80 80.81

Total 12 100 19 100 69 100 100 100

No. of Resp.

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Educational Qualification :

Job Satisfaction depends upon theEducational Qualification also.

In table 3, the researchers ob-served that out of 47 employee's30(63.83) having high level of job sat-isfaction had primary level qualifica-tion and also it shows that 17(36.17)having high level of job satisfactionhad secondary level qualification. Itis observed that 18(64.29) and10(35.7.1) had medium and low levelof job satisfaction respectively and 12(48) and 13 (52) had medium and lowlevel of job. satisfaction respectively.It could be inferred from the tablethat respondents who were secondarylever had low level of job satisfaction.

Degrees of freedom (r-1) (c-1) = (2-1) (3-1) = 2.

It is inferred that calculated valueis 1.996 and the table value at 5%level shows 19.03. Therefore the nullhypothesis is rejected.

Status :

Job satisfaction depends upon theoccupational status. Therefore theresearchers has made an attempt tostudy the relationship between joblevel and job satisfaction of the sam-ple respondents.

Table 4 indicates that out oftwelve respondents working in a co-operative society with high level of jobsatisfaction and 19 employees havemedium level of job satisfaction. Outof 100 employees 69 persons havelower level of job satisfaction.

Degrees of freedom (r-1) (c-1) = (3-1)(3-1) = 4.

In the chi-square test, table valueat 5% level of 66.26 is lower than thecalculated value of 19.87. So, thevalue of hypothesis is rejected.

Experience :

Experience is one of the importantfactors in determining the Job satis-faction of employees.

Table 5 indicates that out of 100employees 49 persons have maximumlevel of job satisfaction. And 29 em-ployees & 22 persons have lower levelof satisfaction.

Degrees of freedom (r-l) (c-l) = (3-1) (5-1) = 8.

As the calculated value is 15.34and table value at 5% level is 3.69.(i.e.) lesser than the calculated value,the null hypothesis is rejected.

Promotion :

Level of Job satisfaction may alsodepend upon the promotion facilitiesof an employe'.

Table 6 reveals that out of 100employees working in cooperative so-ciety, with high level of job satisfac-tion 3(21.43) said 'Yes' and 11(78.57)said 'No'. Out of 20 respondents hav-ing medium level of job satisfaction5(25) said 'Yes' 15(75) said 'No'. and2(3.03) respondents having low levelof job satisfaction said 'Yes', and64'(96.97) have said 'No' for Promo-tional facilities.

Degrees of freedom (r-1) (c-1)=(2-1 ) (3-1 )=2.

ln the chi-square test, the calcu-lated value of 10.6 is greater that thetable value at 5% level of 9.01. Hencenull hypothesis is rejected.

Superior Co-operation :

Superior Co-operation is one ofthe important factors in determiningthe job satisfaction of employees.

In table 7 it is observed that outof 45 respondents 5(11.90),15(57.69)and 25(78.13) having high, mediumand low level of job satisfaction re-spectively, said 'Yes' 'for the SuperiorCooperation. Out of 55 employees37(88.10),11(42.31) and 7(21.87) havesaid 'No' for Superior Co-operation.

Degrees of freedom (r-l) (c-l )=(2-1) (3-1 )=2.

In the chi-square test, at 5% ta-ble value have 9.01 which is lesserthat the calculated value of 34.45.Hence the null hypothesis is rejected.

Salary :

The importance of the relation-ship between salary & job satisfactionis generally over emphasized by man-agements who tend to believe that apay-rise would make everyone in theorganisation happy6.

Table 8 indicates that out of 100maximum number of 55 employeeshad lower level of job satisfaction. 12employees had high level of job satis-faction and 33 persons had middlelevel of job satisfaction.

Degrees of Freedom = (r-l) (c-l)=(3-1)(3-1)= 4.

HRD

Table : 5

Experience and Level of Job Satisfaction of Sample Respondents

High Medium Low TotalSl.No

YearNo. of Resp. No. of Resp. No. of Resp.% % % %

1. Below 5 3 6.12 5 17.24 9 46.91 17 17

2. 5 - 10 15 30.61 8 27.59 5 22.72 28 28

3. 11-15 8 16.33 6 20.69 2 9.10 16 16

4. 16-20 4 8.16 3 10.34 1 4.54 8 8

5. Above 20 19 38.78 7 24.14 5 22.73 31 31

Total 49 100 29 100 22 100 100 100

No. of Resp.


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Table value at 5% of 6.26 is lesserthan 12.45 of calculated value. Hencenull hypothesis is rejected.

Findings

From the analysis, following arethe findings:

1. Most of the employees had notsatisfied with their present posi-tion.

2. It is noted that experienced em-ployees also have no job satisfac-tion in the society.

3. Many of the respondents feel thatsuperior should not co-operate.

4. Officers are having better satis-faction in their job when com-pared to clerks and vendors.

5. Conclusion reveals that healthypersonality and education is agood sign of having high job sat-isfaction.

Suggestions

Further improvement of job sat-isfaction are:

1. The management must take re-sponsibility to aim & equip offic-ers and clerks.

2. Salaries of the employees are pe-riodically revised.

3. The superiors should grant duerecognition on the basis of a fairperformance appraisal.

4. Job sharing and temporarily al-tered assignments would be help-ful.

5. Job satisfaction is an importantfactor related to variables like jobinvolvement, area, organization,commitment, etc.

Conclusions

Finally, the management of anyinstitutions should conduct job satis-faction surveys at least once in twoyears. This would enable the manage-ment to take steps to improve job sat-isfaction of their employees. ❑

HRD

Table : 6Promotion and Level of Job Satisfaction of Sample Respondents


1. Yes 3 21.43 5 25 2 3.03 10 10

2. No 11 78.57 15 75 64 96.97 90 90

Total 14 100 20 100 66 100 100 100

No. of Resp.

Table : 7Superior Co-operation and Level of Job Satisfaction of Sample REspondents


1. Yes 5 11.90 15 57.69 25 78.13 45 45

2. No 37 88.10 11 42.31 7 21.87 55 55

Total 42 100 26 100 32 100 100 100

No. of Resp.

Table : 8Salary and Level of Job Satisfaction of Sample Respondents

High Medium Low TotalSl.No No. of Resp. No. of

Resp.% % %

1. Below2000 3 25 16 48.48 21 38.18 40 40

2. 2000-4000 7 58.33 13 39.39 28 50.91 48 48

3. Above4000 2 16.67 4 12.13 6 10.91 12 12

Total 12 100 19 100 55 100 100 100

No. of Resp.No. of Resp. %

Table - 9

Perceived Job Characteristics of Co-operative Society Employees

Sl. Number Job Characteristics Score Rank Mean1. Technical advice to the members 448 1 1.792. Trade union is essential 436 2 4.363. Working condition in the organization 419 3 4.194. Welfare facilities 393 4 3.935. Work conflict 380 5 2.036. Job itself 353 6 4.587. Work involvement 333 7 2.678. Promotional facilities 332 8 1.339. Colleagues Co-operation 312 9 4.42

10. Life satisfaction 310 10 1.6911. Recognisation 300 11 3.46


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When the cost accounting systems were evolving throughthe previous century the

moulding factors were more rooted into the methods of manufacturing. Forexample we talk of adopting processcosting / batch costing / contract cost-ing and so on and so forth. Still theyhold good. But predominantly thecosting methods for working out theproduct costs were embedded into themanufacturing technique and thusthe principles became more factoryoriented. This witnessed the prolif-eration of allocation bases such asmachine hour rates, labour basedrates, material cost based rates, etc.When cost accountants meet the com-monly accepted language used to beabout the analysis of expenses intofactory cost centres and its rechargeand absorption into products on atrue and fair basis.

Activity Based Costing systemsconsolidated in the later part of thelast century from a business processperspective and not a manufacturingfunction perspective. This is a veryimportant feature of the current gen-eration costing systems. It is perplex-

* Management Accountant, Chennai


ing and amusing to hear debatesabout the applicability or otherwiseof ABC principles in a non engineer-ing industry without realising thatthe true consideration is for businessprocesses and not manufacturingprocesses. A deeper insight and amatured understanding of ABCwould identify the subject with vari-ety in the business processes of a firm.It is no exaggeration to say that itwas the service sector which nour-ished the growth of ABC in compari-son with the manufacturing worldthough the conceptualisation initiallycame from the manufacturing prac-tices.

Having stated that let us still inthis article look at some of the sali-ent features which distinguish the ap-plication of ABC in the manufactur-ing sector in contrast with the con-ventional cost accounting systemswhich are manufacturing oriented.

····· Batch level activities and costs

The conventional costing systemsattempt to unitise all costs of aproduct to the lowest level i.e. ofa single unit of the product. Thisis done by developing machine

hour or labour hour rates whichbecome the basis of absorbingcosts based on the time standardsof the product or on the actualtime occupied by the product.This is perfectly okay in a manu-facturing world with a singleproduct focus. But when the en-gineering activities get disturbedby product variety causing lot ofchange over activities or sched-uling and rescheduling activitiesthe resource consumption pat-tern will change and cannot beunitised through a machine hourrate. This normally happenswhen the product variety in-creases due to a competitive en-vironment.

Let us look at an engineering ex-ample. A firm is machining cylin-der blocks for different versions ofengines. This is an automobile an-cillary with different OEM custom-ers and supports a variety of ap-plication from a tractor engine tothe engine of an excavator loader.Dedicated cell manufacturing isyet to be practised in which caseABC principles will change. Thefirm has got a process layoutwherein machines are laid outfunctionally such a milling, drill-ing, honing, boring etc. In such asituation the different demand lev-els and just in time delivery condi-tions imposed by OEM the produc-tion scheduling will be a nightmare. Frequent change over withvarying production lot quantitywill cause differential levels of re-source consumption at each batchlevel or lot level. The per unit im-pact of this will be compoundedwhen the lot quantity can varyfrom 1 to 100 or more. The ABCsystems attempt to distinguishsuch activities and treat themseparately as batch level activitiesand costs. THIS TREATMENTWOULD BE DIFFERENT IN

A. N. RAMAN'S COLUMNA. N. RAMAN'S COLUMNA. N. RAMAN'S COLUMNA. N. RAMAN'S COLUMNA. N. RAMAN'S COLUMN

Activity based costing inengineering industry


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Cover FeatureProfessional Updates

world did not face such situa-tions. Products had a long life cy-cle requiring less monitoring ofthe phases such as conceptualis-ing, design, testing, manufactur-ing, post sales support and phaseout. The expenses incurred onsuch activities were minimal anddid not require any elaboratemanagement accounting.

Let us look at a current engineer-ing example. A company manu-facturing electronic products isalways exposed to the dangers ofreverse engineering and imita-tion. Consequently a gradual risein sales followed by a drop insales when imitation productscome is the usual business cycleof these products. In such situa-tions the cost pattern will haveto be tracked over the life cycleand product profitability moni-tored. The profit pattern as a per-centage of the selling price willnot be linear over the life cycleand will have to be seen in rela-tion with the overall productcosts. The product related costconcept in ABC structure does ex-actly this by tracking the costsover the activities distributedover the life cycle and unitisesthe same based on the volumes.For example periodic modifica-tions made to tooling/dies/circuitswill be tracked as modificationcosts and spread over the balancevolumes expected on the remain-ing life of the product.

····· Customer driven activities andcosts

Customers are at the centre ofbusiness processes today. Automo-bile ancillary in particular are be-ing driven by the demands beingbrought on them by the OEM cus-tomers who in turn are churned bythe feedback obtained from the cus-tomers. The traditional cost ac-counting systems were evolved in

CASE DEDICATED CELLSHAVE BEEN FORMED FOR DIF-FERENT PRODUCTS OR A CNCMACHING CENTRE TAKESCARE OF THE SITUATION.

····· Product level activities and costs

Product specific activities today areon the rise triggered by a flurry ofcustomer specific features. Thecontours and shape of the productsin particular in the automobile in-dustry are proliferating day by day.The traditional cost accounting en-vironment did not witness such aproliferation. The products wererelatively stable over a long lifecycle and not much of a new prod-uct development or modificationwork were necessary. Conse-quently the organisation structureitself did not possess a top heavyproduct engineering department ortechnology support focussed atmass customisation of products.Hence the cost accounting systemswere very comfortable in tuckingaway these minimum resourcesinto what may be called as worksoverheads which in turn were ab-sorbed into products. Alternativelythey were even merged into ma-chine hour or labour hour rates.

Let us consider an example fromengineering industry to amplifythis. In a typical two wheeler in-dustry today the strategy is to con-stantly introduce variants in themarket place to be in the top ofmind of the customer. If a twowheeler company has multipleproduct segments with relativelylow end volume earning productsalong with high end branded prod-ucts there will be continual at-tempts to introduce variants aswell as seek product modificationsto reduce low end product costs.These activities become the coreto the sustainability and cannot betucked away as works overheads.It is important to track the prod-

uct specific modifications and costthem separately so that low endproducts do not get loaded with costof modifying high end products.Typically we are talking of engi-neering change notices commonlycalled as ECNs. The ABC structurerecognises the emergence of suchactivities separately as a part ofthe competitive strategies andcosts them as product related costs.The resources may range anythingfrom product specific jigs and fix-tures to trial runs made for verify-ing and validating such changes.

····· Life cycle level activities and costs

The life cycle of the products aresignificantly coming down today.Technological changes and inno-vations are constantly at work asa part of the business strategy torelease new generation productsinto the markets. This is signifi-cantly happening even in the In-dian markets. When colour tel-evisions were introduced into themarket they captured the cus-tomers’ eyes and ears. Today onefinds rapid changes in independ-ent technology of picture andsound such as plasma viewing,projection viewing etc which arereleasing newer and newer prod-ucts. Constantly the older gen-eration products will be phasedout by the market faster and onecannot today buy a life style prod-uct with a wish to pass it on tothe next generation. Conse-quently the life cycle of the olderproducts are crashing. Hidden inthis situation is the process of in-troducing new products which ismore critical than the manufac-turing itself. This process ismanned by very sophisticated re-sources ranging from technologyrich software systems to consult-ing on obtaining customer feedback through market research.The traditional cost accounting


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an environment when the custom-ers were not driving the industry.For example marketing related ex-penses will be lumped as Sellingand Distribution overheads orseparated as Selling overheads andDistribution overheads. The basisof charging such costs to productswere more driven by arithmeticconvenience such as distributing toproducts based on sales value (what the traffic can bear ) or attimes on the basis of cost of sales.These methods were okay as longas the marketing expenses werenot of any strategic significance.Since ascertaining customers pref-erences and wants did not play amajor role in the business proc-esses it did not matter much whenwe simplistically treated the sell-ing and distribution overheads.But in the current environment thecustomers can be ignored only tothe perilous end of a business. Withbusiness strategy forcing evalua-tion of multiple customer segmentswith varying value proposition itis important to look at customersegment wise costs and costs ofreaching them. The concepts of ac-tivity based costing consider theseissues and enable the compilationof costs of serving customers.

Let us amplify the above situation.Consider a manufacturer of a carair conditioner who manufacturesand supplies for different OEM ma-jors. Depending on the specifica-tions originally given by the majorand their design there are likely tobe warranty claims of differentvalue from different customers.These warranty claims not only thematerial costs but also the organi-sation’s time, effort and other re-sources in attending to the cus-tomer complaints. It may involvea range of resources from testingto travel and redesign in solvingthe customer complaints. The to-

tal costs of warranty need to be con-sidered customer wise in order toevaluate the costs of serving thecustomers instead of lumping theminto selling and distribution ex-penses. The concepts of ActivityBased Costing enable this by track-ing customer wise costs by segre-gating them as different activitiescaused by customer related driv-ers.

····· Brand driven activities and costs

Competitive strategies in someengineering industries today de-mand heavy branding of prod-ucts. This is true of industry suchas electric fan or even electricmotors. Branding as a strategyhas emerged in a big way of lateand certainly was not in the cen-tre of strategy when the conven-tional cost accounting systemsevolved .We do not have any setpractice as to how to have afocussed costing of brand relatedexpenses. The position was some-thing similar to what we dis-cussed in the previous para-graphs. The traditional cost ac-counting systems were evolved inan environment when the brand-ing strategies were not drivingthe industry. For example brandrelated expenses will be lumpedas Selling and Distribution over-heads or separated as Sellingoverheads and Distribution over-heads. The basis of charging suchcosts to products were moredriven by arithmetic conveniencesuch as distributing to productsbased on sales value ( what thetraffic can bear ) or at times onthe basis of cost of sales. Thesemethods were okay as long as thebranding expenses were not ofany strategic significance.

Branding strategy can be segre-gated in to brand positioning,brand maintenance and even

brand refreshing phases of a prod-uct marketing strategy. The media, publicity materials or celebrityendorsement fees and other re-sources relating to the above seg-regated phases are consideredphase wise and unitised based onthe realistic volumes expected andrevisited as per the actual volumesachieved by the brand. This is theconceptual structure which can beembedded into an Activity BasedCosting system.

····· Cost data support for wasteelimination

In the current competitive environ-ment , a firm must continually im-prove even to maintain its existingrelative performance. Ideas forimproving processes and perform-ance for customers must increas-ingly come from front line employ-ees who are closest to internal proc-esses and an organisation’s cus-tomers. The learning and growthcapabilities of the organisationneed to be nourished through vari-ous systems including a cost feed-back system to accomplish thebusiness strategy. Cost drivenstrategies are unlikely to succeedif the implementation methodologydoes not encourage feedback andlearning. The newly designed andpropagated cost systems can en-courage operational control andlearning that are needed for criti-cal management challenges.Kaizen costing can is meant to pro-vide financial feedback to frontlineemployees to encourage opera-tional feedback and learning.

Activity Based Costing provides in-formation either at an activity levelor at a cost driver level to supportkaizen costing. This provides vis-ibility to cost related issues to betaken up by the problem solvingteams. In some situation the datacan be even classified in terms of


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the Loss Pillars in a company im-plementing TPM. The traditionalcost accounting provides informa-tion only at an accounting headlevel and does not facilitate prob-lem solving.

For example , in an engineeringprocess such a machine shop costdata need to be provided on nonvalue adding activities such asmovement/inspection/storage etc.At times cost data due to poor qual-ity of input material or poor qual-ity of tools can be a vary valuabletrigger for kaizen projects. Such animpact would not be there whenkaizen teams are provided infor-mation on rejection percentages orcycle time lost which are more nonfinancial in nature.

····· Cost drivers in a process view ofABC.

A discussion on ABC is not com-plete if we do not discuss aboutthe cost drivers in engineeringindustry. Cost drivers are gen-erally understood in the senseof a basis of absorbing activitycosts into products. For exam-ple the activity costs relating tocustomer complaint manage-ment as an activity can be as-signed to products based on adriver called number of com-plaints customer wise or timetaken to resolve complaintscustomer wise. The main objec-tive of such a driver is to assignactivity costs to products.

An organisation called CAM-I hasstandardised the concepts of ABC.In that frame work cost drivers ina horizontal or process view arenothing but root causes of a hid-den costs. For example cutting pa-rameters is a cost driver of the toolsselection. Alternatively the mate-rial to be machined along with themachining allowance can be con-sidered as a cost driver of tool cost.Yet another example of cost driverin a process view is the variationsin micron plated in a plating proc-ess due to jig design. The cost datarelating to process cost drivers canbecome an important source of in-formation for a continuous processimprovement. ❑

FOR ATTENTION OF MEMBERS

Restoration of Membership upon Removal of Names from the Register of Members for non-pay-ment of Membership Dues in terms of Regulation 7(7) of the Cost and Works Accountants (Amend-ment) Regulations, 2003

The members of the Institute who did not pay their membership fees due upto 30th Septem-ber, 2003 were individually issued Final Notice by Registered Post dated 30th August, 2004intimating them to clear their membership dues within forty five days of the receipt of the saidnotice, failing which their names will be removed from the Register of Members keeping in viewthe provisions of Regulation 7(7) of the Cost and Works Accountants (Amendment) Regulations,2003. Announcements drawing attention of members to the requirement of payment of saidmembership fees were also published in the past issues of our monthly journal "The Manage-ment Accountant".

The intimation for removal of names of the members from the Register of Members who didnot pay their membership fees as above are under issue to the members concerned.

Upon removal of their names from the Register of Members, the members concerned shall notbe entitled to use the descriptive letters "AICWA" or "FICWA", as the case may be under Section5 of the Cost and Works Accountants Act, 1959 or use the designation of a "Cost Accountant"under Section 7 of the Cost and Works Accountants Act, 1959.

For the purpose of restoration of name to the said Register, the member concerned would bewelcome to do so, subject to an application made to the Council in this behalf in Form 'H' andpayment of all arrears on account of the annual fee plus restoration fee calculated at the rate oftwenty per cent of the total amount of arrears plus the annual fee for the year in which the nameis restored in terms of Regulation 17 of the Cost and Works Accountants Regulations, 1959.

Form 'H' is available on the website of the Institute at www.icwai.org/www.myicwai.com andwill also be available from the Membership Department of the Institute (e-mail: [email protected]).

Attention of Members


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Seminar News

THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIAINTERNATIONAL SEMINAR ON

STRATEGIES FOR POWER SECTOR DEVELOPMENTMARCH, 2005, HOTEL TAJ MAHAL, NEW DELHI

09.30 – 10.00 HRS.- Registration10.00 – 11.00 HRS. - * Inauguration by Honourable

Union Minister of Power

Key Note Address : “Sustainable Power Development”FIRST DAY

11.30 – 13.30 Hrs. First Technical Session Strategies for Development in Generation andTransmission of Powerl Increased Generation through Renovation

and Modernisation (R&M)l Power Grid System – Strategies for Optimal

Usel Captive Power Generation

14.30 – 17.30 Hrs. Second Technical Session Strategies for Development in Distribution ofPowerl Optimal Tariff Structure for Diluting

unsustainable Cross Subsidiesl Strategies for minimal T&D Lossl Rural Electrification and providing afford-

able power

SECOND DAY09.30 – 11.30 Hrs. First Technical Session Legal and Regulatory Frame Work11.30 – 13.00 Hrs. Second Technical Session Financing, Pricing and Cost Accounting

records14.00 - 16.00 Hrs. Third Technical Session Strategies for Development in Renewable En-

ergy Sector16.00 – 17.00 Hrs. Panel Discussion ‘e’ Governance for Power Sector17.00 – 17.30 Hrs. Valedictory Address Upgrading Technical Efficiency and Skill Levels

in Power Sector

* Confirmation awaited

The Chairman and Speakers of the Technical Sessions will be drawn from the Ministry of Power, Central Electric-ity Authority, Central Electricity Regulatory Commission, State Electricity Regulatory Commission, CMDs and Di-rectors of Central and State PSUs and Private Sector Power units, Senior officers from SEBs and Ministry of Non-Conventional Energy Resources, etc.

Delegate Fee : Rs.4000/- (Rupees four thousand only) per participant (Non-residential)Venue : Hotel Taj Mahal, Mansingh Road, New Delhi.Dates : March, 2005 (09.30 – 17.30 Hrs.) (two full days)

For Details Please contact :Shri D. Chandru, Deputy Director (PD&P)The Institute of Cost and Works Accountants of IndiaICWAI Bhawan (2nd Floor), 3 Institutional Area Lodi Road, New Delhi – 110 003.Phones : 24622156, 24618645 (D) 011-24643273 (M)-011-9313375256Tele-Fax : 011-24622156, 011-24618645E-mail : [email protected] / [email protected]


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Region & Chapter News

EASTERN REGIONtopic-"Enlivening-Living in the Fu-ture". This workshop was conductedby Kaushik Talukdar, noted Manage-ment Guru. This was a interactiveprogramme and members also airedtheir opinion on different issues whichrequire due Managerial and Leader-ship skills. During the workshop somegames were also organised for finalstudents of ICWAI to test their IQ and"response-time towards incidence".Secretary A.D.Wadhwa and Treas-urer S.K.Singh were helping SriTalukdar to conduct the show. Manymembers, including A.L.Thakkar,Pradeep Kumar, B.K.Singh,D.K.Achari and A.K.Sao attended theprogramme.

2. On 18 January 2005, Hindi daily"Hindustan" organised a career coun-selling programme at Guru NanakSchool, Ranchi which was attended byabout 500 students of +2 level. Secre-tary A.D.Wadhwa presented hisspeech on behalf of ICWAI. He invitedstudents to join ICWAI immediatelyfor their bright future. Media gavegood coverage to this programme aswell as to Cost Accountancy profes-sion.

NORTHERN REGION

LUCKNOW CHAPTER

Regional ConferenceLucknow Chapter of Cost Ac-

countants organized Regional Confer-ence on 'Managing Growth - Chal-lenges for the Managers on 11/12 De-cember, 2004 at Hotel Clark Avadh.A large No. of delegates from differ-ent organizations like Power FinanceCorporations, ONGC, NTPC, HAL,Sahara India, RBI & others Banksand Companies attended the confer-ence. Saurabh Srivastava, Chairman,Lucknow Chapter welcomed theChief Guest and Delegates, HarishGoel, Chairman, NIRC, ICWAI dis-cussed the present economic scenariowith reference to cost war prevailing

in Indian Economic Environment.The conference was inaugerated

by Hon'ble Deputy Speaker,U.P.Vidhan Sabha Rajesh KumarAgarwal. He emphasized that profes-sionals like (Cost Accountants) haveto take initiative in the field of Costand Management Accountancy toprovide reasonable price of the prod-uct and services to society. J.K.Puri,Chief Director, Indian AccountingService while delivering key note ad-dress emphasised the role of Cost andManagement Accountants in WTOregime. V.V.Singh, C.E.O., RelianceInfocomm intimated that to mangethe growth in telecom sector is a pro-fessional challenge for which Cost Ac-countants will be most suitable pro-fessionals.

LUDHIANA CHAPTER

The following office bearers and mem-bers were elected for the new term.1. T.R.Goyal : Chairman2. Sanjeev Sethi : Vice-Chairman3. Sanjiv Jain : Secretary4. J.S.Pandher : Member

( Immediate Past Chairman )5. R.C.Singal : Member6. Neeraj Verma : Member7. Manoj Jajoo : Member8. Shiv Kumar

Jindal : Member

CHANDIGARH-PANCHKULACHAPTER.

The Institute of Cost & Works Ac-countants of India Chandigarh-Panchkula Chapter organized a semi-nar on "PRE BUDGET 2005" on 2 De-cember 2004 in Hotel Park Inn whereindignatories from Government, industryand NIRC of ICWAI, New Delhi werepresent, namely, Manmohan Singh,IRS, Commissioner (Appeals). Deptt. ofCentral Excise, Dinesh Gupta, IRS,Deptt. of Central Excise, S.K.Garg, VicePresident, Spice Communications Lim-

JAJPUR-KEONJHAR CHAPTER

New Office Bearers

Bishnu Mohan Sahu : ChairmanSarda BhusanMohanty : Vice-ChairmanSridhar Sahoo : SecretaryHiranya KumarMohanty : Treasurer

RANCHI CHAPTER

Activities during December 20041. On 8 Dec. 2004, the Secretary

A.D.Wadhwa and A.K.Sao, ExecutiveMember from Ranchi Chapter at-tended a career counselling pro-gramme at Army School, Ranchi, or-ganised by Hindi Daily 'Hindustan'.A large no. of students attended theprogramme. They advised the stu-dents to plan their career carefully.Students were advised to join Cost Ac-countancy profession for their brightfuture.

2. S.G.Chakraborty, Vice-Chair-man and Sanjay Kumar, Ex.Member-Ranchi Chapter of Cost Accountantsmet Sri Das, Add.Commissioner-Com-mercial Taxes, Jharkhand on 21 Dec2004 and appraised him about theCost Accountancy profession in regardto VAT. As D-Date of the implemen-tation of VAT is approaching, RanchiChapter has initiated a series of ac-tivities to include Cost Accountants inthe proposed VAT Act of Jharkhand.This meeting was a part of that ini-tiative and Ad. Commissioner of Com-mercial Taxes assured all due recog-nition to Cost Accountants in the VATAct.

Activities during January 2005.The following programmes were

organised during first fortnight ofJanuary'2005 by Ranchi Chapter-

1. On 15 January 2005, RanchiChapter organised a workshop on the


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ited, Mohali, J.N.Tuli, Zonal ManagerCentral Bank of India, Abhay Kumar,Vice President IFFCO TOKIO Insur-ance Chandigarh, S.P.Singh, formerChairman of UBS, Panjab Universityand D.C.Arya, Member, Northern In-dia Regional Council of ICWAI, NewDelhi.

Balwinder Singh, Secretary of theChapter highlighted various issues con-cerning Direct Taxes and IndirectTaxes.

Vikas Gupta, Chairman of theChapter deliberating on the theme ofthe seminar, stressed on the impor-tance of paying tax by every indian forthe up-liftment of the Nation.

D.C.Arya, Member, NIRC ofICWAI, stressed that in the competi-tion era, when world is one ecomomicentity, cost consciousness should bepromoted. Dinesh Gupta, Dy. Commis-sioner, Deptt. of Central Excise,Chandigarh clarified various issuesraised at the seminar. ManmohanSingh, Commissioner (Appeal) CentralExcise Chandigarh appreciated the ef-forts of the organizers and appreciatedthe suggestions put forth.

K.S.Tanwar, Sr. Vice Chairman ofthe Chapter presented vote of thanks.

JAMMU - SRINAGAR CHAPTER

In pursuance of Regulation 146 ofthe Cost and Works Accountants Regu-lations, 1959, the Executive Commit-tee of the Council of the Institute ofCost and Works Accountants of Indiain its 317th meeting held on 24th Novem-ber, 2004, renamed the Srinagar Chap-ter of Cost Accountants as "Jammu-Srinagar Chapter of Cost Accountants".

SOUTHERN REGION

Programmers Organised DuringSeptember - December 2004

Professional Development Meet on'Indirect Taxation-Recent Develop-

ments':A Professional Development Meet

on 'Indirect Taxation - Recent Devel-opments' was organized by SIRC atthe Institute's premises. P.C.Anand,Consultant - Central Excise, Chennaiwas the Speaker. EarlierR.Narayanan, Vice-Chairman, wel-comed the Speaker and the members.P.S.M.Hameed, Chairman, inaugu-rated the meet. Members in largenumbers participated in the meet.

Guest Lecture on Indirect Taxa-tion-Central Sales Tax:

A Guest Lecture for the benefitof Intermediate/Final students ofICWAI has been arranged by SIRCon 'Central Sales Tax' ProfessorN.S.Govindan, Expert in indirecttaxation, addressed the students.Sunil Chako, Treasurer, SIRC wel-comed the students and introducedthe Speaker. Students in largenumbers attended the lecture.

Professional Development Meet on'Information Technology & Man-

agement Accounting:A Professional Development

Meet on 'Information Technology &Management Accounting' was or-ganized by SIRC G.Mahadevan,Asst.Manager - Works Accounts,TAFE Ltd., Madurai addressed theMembers. Sunil Chako, Treasurer,SIRC welcomed the Speakers andMembers. R.Narayanan, Vice-Chairman, SIRC proposed the voteof thanks. Members in large num-bers participated in the meet.

Discussion Meet on Concept Paperon Companies Amendment Bill:

A Discussion on 'Concept Paper

on Companies Amendment Bill' wasorganized by SIRC P.S.M.Hameed,Chairman, SIRC welcomed themembers and initiated the discus-sion. V.Kalyanaraman, Past Presi-dent, ICWAI and S.Gopalan, PastChairman, SIRC participated in thediscussion. S.Krishnamurty, SeniorMember of the profession who hasdrafted the suggestive amendmentsalso attended the meet. PracticingMembers in large numbers partici-pated in the discussion and gavetheir view. R.Narayanan, Vice-Chairman, SIRC proposed a vote ofthanks.

Professional Development Meet'WTO & Antidumping:

A Professional DevelopmentMeet on 'WTO & Antidumping'was organized by SIRC in October2004. R.Narayanan, Vice-Chair-man, SIRC welcomed the membersand speaker. Dr.James Daniel Paul,Economist, Murugappa Group,Chennai, addressed the memberson the topic. Members in large num-bers participated and interactedwith the speaker during the inter-action session.

Professional Development Meet on'Internet Browsing & E.Mail:A Professional Development

Meet on 'Internet Browsing &E.Mail was organized by SIRC inOctober 2004. Leo Amal Raj &Srinivasan, Consultants, SoftwareTraining, Chennai have addressedthe members on the subject. Mem-bers interacted with the facultiesand got their doubts cleared.

One-Day Seminar on 'TransferPricing':

One-Day Seminar on 'TransferPricing' was jointly organized byICWAI & SIRC in November 2004at Hotel Residency Towers,T.Nagar, Chennai. R.Narayanan,Vice-Chairman, Sirc welcomed the

HEARTY FELICITATION

M. Muthusamy, AICWA on his re-ceiving the “National Award 2004”for the Best Self-Employed Personunder Orthopaedically DisabledCategory from our President HisExcellency Dr. A.P.J. Abdul Kalam.


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participants and the Chief Guest.Binoy Gupta, Chief Commissioner,Income-Tax, Chennai inauguratedthe Seminar and addressed the par-ticipants. V.Kalyanaraman, PastPresident, ICWAI and P. S. M.Hameed, Chairman, SIRC also ad-dressed the participants. M.Gopalakrishnan, Central CouncilMember, ICWAI gave an overviewof the programme. S.Ramesh,Chairman, PD, SIRC proposed avote of thanks.

Professional Development Meet on'Amalgamations & Takeovers -

Valuation of Companies:A Professional Development Meet

was organized by SIRC on 'Amalga-mations & Takeovers - Valuation ofCompanies' in November 2004 atSIRC premises. S. V. Raman, Man-agement Consultant, Chennai ad-dressed the members on the topic.R.Narayanan, Vice-Chairman, SIRCwelcomed the members and thespeaker. Members in large numbersparticipated in the meet.

Guest Lecture on 'AccountingStandards':

A Guest Lecture for the benefitof Intermediate/Final students ofICWAI has been arranged by SIRCon 'Accounting Standards - AS' inNovember 2004. M.P.Vijay Kumar,Chartered Accountant and experton Accounting Standards addressedthe students. K.Shanmugam, Asst.Director, SIRC welcomed the stu-dents and introduced the speaker.Students in large numbers attendedthe lecture.

Professional Development Meet on'Service Tax - Emerging Scenario'

SIRC has organized a Profes-sional Development Meet on 'Serv-ice Tax - Emerging Scenario' in De-cember 2004. R.Sivarajan, Consult-ant - Service Tax, Chennai ad-

dressed the members on the topic.R.Narayanan, Vice-Chairman,SIRC welcomed the speaker and themembers. M.Gopalakrishnan, Cen-tral Council Member, ICWAI pro-posed the vote of thanks.

Joint Seminar With ICSI on'Corporate Governance - Disclo-

sures & SEBI':

SIRC of ICWAI has jointly withSIRC of ICSI organized a One-DaySeminar on 'Corporate Governance- Disclosures & SEBI' in December2004 at ICSI-SIRC House,Nungambakkam. The Seminar wasdivided into two Technical Sessions.The First Technical Session on 'Cor-porate Governance - Emerging Is-sues was addressed by B.Ravi, Com-pany Secretary, Chennai and theSession was Chaired by N.Ramanathan, Vice-President - Fi-nance & Secretary, Ponni Sugars(Erode) Ltd., Chennai. The secondTechnical Session on 'Disclosures &SEBI' was addressed by H.Jayasurya, Company Secretary,Bangalore and the Session waschaired by P. B. Madhavan, Advo-cate, Chennai. The seminar was in-augurated by Samir Biswas, Re-gional Director, Company LawBorad, Chennai. Delegates in goodnumbers attended the seminar,which included, Practising Mem-bers of ICWA, ICSI and Corporates.

Professional Development Meet on'Supply Chain Management':

A Professional DevelopmentMeet on 'Supply Chain Manage-ment' was organized by SIRC De-cember 2004 at SIRC premises.P.S.Anantha Narayanan, Manage-ment Consultant, Chennai was theGuest Speaker. K.Shanmugam,Chairman, Podicherry Chapter ofCost Accountants. Pondicherry pro-posed a vote of thanks.

COIMBATORE CHAPTER

Industrial Visit - TextileAn Industrial visit to Sri

Murugan Mills, a composite mill atCoimbatore, was organized by theChapter for the Intermediate Stage1 students on 1 December 2004.Raveendran, Chairman PDC andBalasubramaniam, Cost Account-ant of Sri. Murugan Mills coordi-nated the visit. Students were ex-plained about the Spinning andweaving process by the respectivetechnical experts. A model costsheet prepared by Mills was ex-plained to students for their betterunderstanding. Feedback obtainedfrom students reveals that the visitwas useful and motivated one,R.Maheswaran, Faculty guided thestudent.

CPE Credit Seminar on GrowingOpportunities for Practice in CentralExcise.

The Coimbatore Chapter of CostAccountants and Coimbatore Chap-ter of Institute Company Secretar-ies of India (ICSI) had jointly organ-ized a Seminar on "Growing Oppor-tunities For Practice in Central Ex-cise " in 21 December 2004.

K. Gurusame, Chairman, Coim-batore Chapter of Cost Accountantcoordinated the Seminar.

A. Ramasubramania Raja,Chairman of the Coimbatore Chap-ter of ICSI gave a warm welcome tothe participants and G. Natarajan,Partner, Swamy Associates, Advo-cates was the speaker. G. Natarajandeliberated the growing oportu-nities for practice in Central Excise.He also focused on areas in whichthe Cost Accountants can concen-trate on practice like, duty plan-ning, definition of manufacture,valuation job work/outsourcing,cost benefit analysis for export ben-


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efits, tax planning for export incen-tives, cenvat credit, input servicedistributor, adjudication and ap-peals etc.,

The speaker delivered a wellstructured and informative presen-tation which was well received byparticipants. At the interactive ses-sion, G.Natarajan, speaker clarifiedqueries raised by members.M.R.Thiagarajan, Company Secre-tary, presented a memento to thespeaker. K.Gurusame, Chairman ofCoimbatore Chapter of Cost Ac-countants gave the vote of thanks.

BANGALORE CHAPTER

Joint Programmes:(a) 4-Days Training Programme

(in November 2004) on Finance fornon finance was held for the execu-tives of Bharat Earth Movers Ltd.

(b) 3-Days HRD Training Pro-gramme (in November 2004) in as-sociation with the Department ofDisinvestment and P.E. Reforms onFinalisation of Accounts and reviewof Audit paras for the Middle / Sen-ior Level Executives of State LevelPublic and Private Sector Enter-prises.

Professional Development Meet:(a) One Day Seminar on "Win-

ning Strategies in a DeconstructionWorld."

A seminar was held in Novem-ber 2004 at Hotel Grand Ashok onWinning Strategies in a Deconst-ruction World. The seminar was in-augurated by M.S.Zahed, Chairmanof the Chapter, HMT Limited,Bangalore. S.Venkanna, Chairmanof the Chapter, introduced the ChiefGuest to the Members.Y.H.Anegundi, Secretary of theChapter proposed the vote ofthanks. Dr. H.R.Subramanya,President, ICWAI, gave a over-viewof the subject of the seminar and

was present throughout the semi-nar. Large number of participantsattended the seminar.

(b) Silver Jubilee Commemora-tion Annual Lecture:

The 16th Silver Jubilee Commemo-ration Annual Lecture was deliveredby Prof. S.Sadagopan, Director, In-dian Institute of Information Tech-nology (IIIT), Bangalore, in Novem-ber 2004 at Hotel Grand Ashok, onRole of Management Accountant forthe Global Needs in the Internet Era.The programme was well attended byour members and at the end of theprogramme, there was live interac-tion. Dr. H. R. Subramanya, Presi-dent-ICWAI, who was also presentduring the lecture, gave a over-viewof the programme. S.Venkanna,Chairman of the Chapter, introducedthe Chief Guest to the members.Y.H.Anegundi, Secretary of theChapter proposed the vote of thanks.

Coaching Activity:(a) Presonality Development

Programme was conducted in Sep-tember 2004 for the benefit of ourstudents at the Chapter. There wasa good participation of students forthis programme and the interactionwas quite educative. G. N.Venkataraman, Chairman-Coach-ing, Coordinated the Programme.

(b) The inauguration of 77th Batchof Oral Coaching Classes was held inOctober 2004 at the Chapterpremises. M.Sreenivasa Rao, PastPresident of the Institute, inaugu-rated the Oral Coaching Classes.G.N.Venkataraman, Chairman-Cosching, welcomed the Chief Guestand introduced him to the audience.He also gave a report on the activi-ties of coaching. The Chief Guest, inhis speech, advised the students toput their best efforts in becoming thebright professionalist. The pro-gramme was presided byS.Venkanna, Chairman of the Chap-

ter. Y.H.Anegundi, Secretary, pro-posed a vote of thanks.

METTUR-SALEM CHAPTER

Inauguration of Fourth Oral Coach-ing Session was held on 8th December2004 at Thiagarajar Polytechnic, Salem5. P.Venkataramanan, Fellow Memberof ICWAI was the Chief Guest on theoccasion. R.Ahalya Rajan, Secretary ofthe Chapter gave the welcome address.AC Soundrarajan, Vice Principal ofThiagarajar Polytechnic gave a specialaddress. He in his address, explainedthe significance of cost accountancy andthe role of cost accountants in the glo-bal scenario. Venkataramanan wholaid the foundation for Mettur-SalemChapter in the 1980's recalled the ef-forts put in by him to bring up theChapter at Salem and also the role ofCost Accountants in the present sce-nario. The office bearers of the Chap-ter appreciated the role played byVenkataramanan in bringing theChapter at Salem and the various fa-cilities he established for the benefit ofstudents.

On this occasion, distribution ofCoaching Completion Certificateswere made to the students who haveundergone 3rd oral coaching session.About 100 students and office bear-ers of the Chapter participated in theprogramme. N Santhanam, CoachingAdministrator gave vote of thanks.

UKKUNAGARAM CHAPTER

Professional DevelopmentSeminar.

A professional developmentseminar was organized byUkkunagaram Chapter of Cost Ac-countants on "Dynamic Role of Pro-fessionals in the context ofGlobalisation". M.Gopalakrishna,IAS(Retd), Chairman, AP State Fi-nance Corporation, was the mainspeaker and the programme wasattended by practicing cost account-


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Change the Telephone Nos.

Dr. B. S.Rajpurohit : (O) 2513676Chairman : (R) 2430927

: (Mob) 98291-16237

K. K. Vyas : 2640649Secretary : (Mob) 94141-27649

PUNE CHAPTER

Study Circle Meeting on4 December 2004

Report on Energy Cost ManagementPune Chapter of Cost Accountants

organised a study Circle meeting on"Energy Cost Management" on 4 Decem-ber 2004. Dr. G.H. Tasgaonkar was theexpert speaker on the occasion. AmitApte, Chairman - P D Committee, PuneChapter welcomed the speaker.P.G.Pathak, member of the Instituteintroduced the speaker to the audience.

Dr. Tasgaonkar stressed the need tohave efficiencies in Energy Generation/ Consuming Assets. These efficiencieswill have a dual benefit that of cost re-duction, as also general improvement inthe overall health and pollution levels.Dr. Tasgaonkar through various exam-ples explained in detail the effects ofenergy wastage on Ecology &Enviroment. He also spoke of variousinnovative ways of achieving theseefficiencies.

After an interactive question & an-swer session K.S.Bagga, member offereda vote of thanks.

Technical session one, was on In-dian Capital Market Present Sce-nario which was presented by RegiJacob Managing Director JRG Sec-retary Oil Palm India Ltd. RejiJacob stressed the role of IndianCapital Market towards the devel-opment of our economy. VijuChacko Joint.Director Finance Rub-ber Board presented a memento toRegi Jacob for his excellent presen-tation S.Neelakanta Iyer DirectorCoaching, Kottayam Chapter ex-tended vote of thanks.

The Technical Session Two wason Investment Fundamentalswhich was presented bySq.Leader.K.S.Mathews ManagingDirector A.M.J.Stock Brockers Ltdwhich was presided over C.J.JosephCost Accountant and Company Sec-retary. He intruded into the tech-nical areas of the capital marketand Portfolio management for asteady return when compared to thebank rate by prudent and stableselection N.R.Battathri extended avote of thanks to K.S.Mathews.

ants, members from the industryand student members. The pro-gramme was of educative value andit was a great success.

KOTTAYAM CHAPTER

Members MeetA members meet of the , Idukki,

Alleppey, Kottaym andPathanamthitta Districts was heldon 18th Dec 2004 at hotel Pearl Re-gency Kottayam. Binoy VargheseSecretary of the Chapter welcomedthe gathering. The meet was inau-gurated by Hon.District Collector ofKottayam Rani George IAS. In heraddress, she stressed the need forfurther development and growth ofthe professional for extending thebenefit to the industry and com-merce at large.

The Key note speakerK.N.G.Kurup, the retired GeneralManager HMT LTD Alwaye and aneminent practicing Cost AccountantErnakulam stated the reputationenjoyed by the Institute and themembers in the past right from theorigin. He gave his valuable sugges-tion to the student members for fac-ing the exam with courage and con-fidence.

N.R.Battathiri Retired Joint.Director Rubber Board Govt. Of In-dia felicitated Sunil Chacko over hisappointment ad SIRC Treasure.

The Guest Speaker SIRC Treas-urer Sunil Chacko assured themembers that, he would try hislevel best for the development of theprofession in the area of employ-ment and Practice. R.JayachandranFinance Manager Rubber Wood In-dia Ltd extended a vote of thanks.

Seminar on Indian Capital Mar-ket

As part of the members meet aseminar on Indian Capital Marketwas conducted in two sessions.

AT THE HELM

Kulamani Biswal, a senior Cost Ac-countant (M-8471) joined as Chief(Finance) in Central ElectricityRegulatory Commission, New Delhi.Previously he was Joint Director (Fi-nancial Analysis), Orissa ElectricityRegulatory Commission.

WESTERN REGION

JODHPUR CHAPTER

New Office BearersDr. B.S.Rajpurohit : ChairmanDevendra Daga : Vice-ChairmanK.K. Vyas : Secretary

Virendra Surana : TreasurerKaminiSankhala : Joint Secre-tary ( Student Nominee)O.P. Mutha : MemberA.D. Jha : Member

Yogesh Modi : MemberAbdul Salam : MemberShail SinghSolanki : Member(Student Nominee)


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In the 221st Meeting of the Council of the Institute held on 11th October, 2004, it was decided to issue Identity Cardsto the members of the Institute.

Accordingly, all members are requested to send their requisition for issue of Photo Identity Cards by filling upthe following requisition from in Block Letters. It should also be ensured to enclose one loose stamp-sized photographand affix another stamp-sized photograph with signature of the member concerned in the appropriate places earmarkedhereunder. The members making requisition should ensure to have cleared all their membership dues. The RequisitionForm duly filled in should be sent to the Deputy Director (Membership) of the Institute at 12, Sudder Street,Kolkata - 700 016.

Please AffixOne ColouredStamp-sized

Photograph Here

Signature in Black Ink

Please Enclose OneLoose Coloured

Stamp-sizedPhotograph Here

With Clip

Telegram : STANDCOSTTelephones : 2252-1031/34/35

2252-1602/1492Fax : 91-33-2252-7993

91-33-2252-1026Website : www.myicwai.comE-mail : [email protected]

THE INSTITUTE OF COST ANDWORKS ACCOUNTANTS OF INDIA12 Sudder Street, Kolkata - 700 016

REQUISITION FORM FOR ISSUE OF PHOTO IDENTITY CARDS

PARTICULARS (To be filled up in BLOCK LETTERS)

FIRST NAME MIDDLE NAME SURNAME

Shri/Mrs. Miss (Deletewhichever is not applicable)

Name in Short

Membership No.

Date of Admission as AICWA Date of Advancement to FICWADay Month Year Day Month Year

QualificationsProfessional Address Journal Mailing Address

City CityPin Code Pin Code

Telephone No.Office Residence

Fax No.

E-mailDate of Birth

Day Month YearSIGNATURE OF THE MEMBER (IN BLACK INK)

FOR ATTENTION OF MEMBERS

For Attention of Members

Documents

February 05