The current status of the Automobile industry is that it’s crying and no one is bothered to hear the same. Before we get into the platform of debate I just want to accentuate few question about how government would find or measure the true potentiality after cost audit is abolished for the industry. How government would measure about the type of incentives ,duty cuts are required for the growth of the industry. In the recent new cost audit rules which have been released recently have been quite debatable across the board of cost accountants and industrial experts. The subject and the new rules are so wide that its quite difficult to cover in one article getting it further confined to couple of 1000 words. In my last articles which got published I covered explicitly about the different countries and the Big Giants of the Automobile Industry who have adopted Costing Methods and have accepted the applicability of the same and made a revolutionary change in their earning and within economy. Hence again I break up the process of discussing the same matter https://taxguru.in/chartered-accountant/cost-planning-cost-management-tools-toyota-australia-series4.html and https://taxguru.in/chartered-accountant/costing-methodscost-management-automobileseries-2.html. Before I get into the topic few grey areas of the profession and the Indian upcoming economic growth, I find there is wide gap between the fraternities. The Indian government has a clear road map to convert Indian manufacturing in a global hub but only manufacturing would not be suffice neither land and taxation policy reforms. If we compare the global standard of operating business we find that ethical values are very high.
These ethical values does not come from book but from strong cost accounting practices, control over price manipulation, safe guarding the minority stakes and public stake holders. Mere getting GDP growth based on high level of corruption and malpractices would only result to short term growth and long term collapse affecting not single but couple of generations. High auditing standards, efficient government reporting coming from accountants and extensive control over price manipulation as controlled by (Competition Commission of India) are the key wheels of sustainable economic growth. Just think that an economy like US which had one of the best standards failed to survive Lehman Brothers collapse and few other big financial institutions to fail. Then In a country like India where you don’t have that quality of standards, over and above you are abolishing cost audit rules and applicability for few industries and still dreaming India to be a Global Manufacturing Hub sounds something missing just like food without salt.
Indian automobile industry has been abolished from the new cost audit rules applicability. This industry was being catered by the Cost Accountants over the last several decades. Lest encapsulate the short journey of the Industry through couple of images:
So if the above progress of the industry over the last several decades has been achieved then Cost Audit and Cost Accountants has been an equal partner of sharing couple of decade’s expertise about growing the industry. Now suddenly the Cost Accountants are removed.
Lets encapsulate the growth of the current automobile industry followed with the huge inflow of funds being expected to come for this industry over the next 5 years.
- A total of 16.9 m two-wheelers were sold in FY14, a growth of a tepid 7% over the previous year.
- The industry is not only accounts for 22 per cent of the country’s manufacturing gross domestic product (GDP). But also is one of the largest employment generators.
- The auto sector is one of the biggest job creators, both directly and indirectly. It is estimated that every job created in an auto company leads to three to five indirect ancillary jobs.
- The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 – August 2014 was recorded at US$ 10,119.68 million, as per data by Department of Industrial Policy and Promotion (DIPP).
Now Investments in this sector which is also one of the biggest reasons why Cost Accountants should be kept as historically we have seen that mere inflow is not sufficient but proper ROI is also a grey area for the long term sustainability of the inflow. That is only achievable when Cost Audit is placed and proper reports are being taken into account by the government to improve the quality of industry.
The industry has grown not only due to inflow of capital but efficient use of resources by the Corporate as well as by the government-the source of which have been the cost audit reports and cost audit rules and regulations.
Some of the major investments and developments in the automobile sector in India are as follows:
- Ashok Leyland plans to invest Rs 450–500 crore (US$ 73.54–81.71 million) in India, by way of capital expenditure (capex) and investment during FY15. The company is required to manage Rs 6,000 crore (US$ 980.56 million) of assets in seven locations across the world, for which maintenance capex is needed.
- Honda Motors plans to set up the world’s largest scooter plant in Gujarat to roll out 1.2 million units annually and achieve leadership position in the Indian two-wheeler market. The company plans to spend around Rs 1,100 crore (US$ 179.76 million) on the new plant in Ahmedabad, and expand its range with a few more offerings.
- Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor India (YMI) will take care of its India operations. “The restructuring is part of Yamaha’s mid-term plan aimed at improving organisational efficiency,” as per Mr Hiroyuki Suzuki, Chief Executive and Managing Director. YMI would be responsible for corporate planning and strategy, business planning and business expansion, quality control, and regional control of Yamaha India Business.
- Tata Motors plans to use the ‘hub-and-spoke’ model in which India will be the key manufacturing base while it will have mini-hubs in overseas markets. The company also plans to set up mini hubs in potential markets like Africa, Middle-East and South East Asia.
- Hero Cycles through its unit OPM Global has acquired a majority stake in German bicycle company Mitteldeutsche Fahrradwerke AG (MIFA) for €15 million (US$ 19.11 million). The company plans to invest an additional €4 million (US$ 5.09 million) as capital expenses in restructuring the acquired company.
Remember that all these investments were coming to India since cost audit and cost accounting report have been fruitful for the government to measure the potentiality of the industry to grow in the long term.
How endless in the ancillary ad how endless its to calculate the same.
Now lest figure out how big is the industry in term of its ancillary industries and how those industries will be affected through price manipulation which could cost the end user for the automobile as well as other products.
The automotive sector with its deep backward linkages (such as metals like steel, aluminum, copper etc., plastics, paint, glass, electronics, capital equipment, trucking, warehousing and logistics) and forward linkages including (dealership retails, credit and financing, logistics, advertising, repair and maintenance, petroleum products, gas stations, insurance, service parts) has been recognized and identified at different for a (Development Council of Automobile and Allied Industries, Planning Commission, National Manufacturing Competitiveness Council and Investment Commission etc.) as a sector with a very high potential to increase the share of manufacturing in GDP, exports and employment. The sector is also seen as a multiplier of industrial growth. It helps in attaining two critical goals of the Common Minimum Programme, that of increasing manufacturing output and providing employment. Now just calculate how big is the industry.
The concept of attaining competitiveness on the basis of low cost and abundant labour, favourable exchange rates, low interest rates and concessional duty structure is becoming inadequate and therefore, not sustainable. In light of the above, it is felt that a greater emphasis is required on the development of the factors which can ensure competitiveness on a long-term basis. If the government don’t come to know about the cost of operating in automobile industry then how the government would measure about the taxation incentives which have to be given and which segment of the industry have to be given.
In efficient taxation policies would be framed which would deter the growth of the industry just like the current one where government fails to understand that by not extending the incentives the Indian automobile industry is going to land up with high slow growth. Calculate the loss
Well a great thanks to Mr. Amit Apte for providing inputs about writing this article.
Indraneel Sen Gupta (neel19414@gmail.com )
Global Macro Economic Researcher and Business Strategist
Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist
Author Bio
Nice share! thanks for the post..