The

PRESIDENT
Dr. H. R. Subramanya
VICE PRESIDENT
Pravakar Mohanty
MEMBERS
Dr. 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
DIRECTORS
Examinations
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Swapan Dey
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A. P. Kar
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R. N. Pal
rnicwai@vsnl.net
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Siddhartha Sen
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EDITOR
Siddhartha Sen
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Management
Accountant
« Official Organ of The Institute of Cost and Works Accountants of India
Volume 40 No. 2 February 2005
Editorial & Communique HRD
Editorial : After the deluge 89 Human resource development in
coopertive milk supply society,
............................................
Tirunelveli
President's Communique 90 by Dr. V. M. Selvaraj and
M. Muthu Deivakani 150
Cover Features
VAT - Golden Opportunity Executive Digest 123
for Cost Accountants
by V. S. Datey 92 Institute Notification 133
............................................
Report on Cost Accounting
Value added - its meaning and Record Rules 117
application
by S. N. Chakraborty 97 Region & Chapter News 161
............................................
Seminar News 160
A White Paper On
State-Level Value Added Tax 105 Programmes 110, 114
Accounting
Accounting for Water For Attention of
Resources Members 158, 166
by Siddhartha Sarkar 111
Professional Updates
Service Tax on goods
transport agency
by Hetal Shah 115
............................................ IDEALS
Tax Titbits THE INSTITUTE STANDS FOR
by S. Rajaratnam 131 ❑ to develop the Cost and Management
Accountancy profession ❑ to develop
............................................
the body of members and properly
Activity based costing in equip them for functions ❑ to ensure
engineering industry sound professional ethics ❑ to keep
by A. N. Raman 155 abreast of new developments.
Globalization
Globalization, Informalization and The views expressed by contributors
Accounting: Scope for or reviewers in this Journal do not
Future Policy Options in necessarily reflect the opinion of The
I n s t i t u t e o f C o s t a n d Wo r k s
India
by Buddhadeb Ghosh 137 Accountants of India nor can the
Institute by any way held responsible
Tourism for them. The contents of this journal
Goa tourism development corpora- are the copyright of The Institute of
tion (GTDC) : A financial analysis Cost and Works Accountants of India,
by Filipe Rodriguese Melo and whose permission is necessary for
Dr. S. S. Hugar 145 reproduction in whole or in part.

the management accountant, February, 2005 87

 The Management Accountant
IN THIS ISSUE
Technical Data VAT - Golden Opportunity for Cost Accountants
V. S. Datey
Periodicity Monthly
Discussion on salient aspects of white paper on VAT released on 17 January
Language English
2005 and the role that can be played by Cost Accountants.
Overall size - 26.5 cm. × 19.5 cm.
Printed Area - 24 cm. × 17 cm. Value added - its meaning and application
Screens - upto 130 S. N. Chakraborty
An exposure on the concept of “Added Value” and its application under VAT
Subscription and Cenvat
Rs. 300/- (Inland) p.a.
Accounting for Water Resources
Single Copy : Rs. 30/-
Siddhartha Sarkar
Overseas The paper delves into the concept and definition of accounting for
US $ 150 for Airmail water uses by designing approaches to be universally applicable
US $ 100 for Surface Mail for evaluating water resource management.
Concessional Subscription Rates for Registered Globalization, Informalization and Accounting : Scope for Future Policy
Students & Grad CWAs of the Institute
Options in India
Rs. 150/- p.a.
Buddhadeb Ghosh
Single Copy : Rs. 15/- (for ICWAI
Students & Grad CWAs) This paper aims to assess the inherant strengths and weaknesses of
Indian Economy in the context of performance in a globalised regime
Subscription rate and price of and the role of ICWAI therein
The Management Accountant
(Student Edition) Goa tourism development corporation (GTDC) : A financial analysis
Annual Subscription rate : Rs. 50 Filipe Rodrigues e Melo and Dr. S. S. Hugar
Price of Single copy : Rs. 5 This paper makes an attempt to analyse the financial performance of GTDC
with the help of Ratio Analysis and analytical tools.

Advertisement Rates for Human resource development in cooperative milk supply society, Tirunelveli
The Management Accountant Dr. V. M. Selvaraj and M. Muthu Deivakani
Rs. (US $) A Case study on the relationship of job satisfaction level with various
Back Cover (colour only) 30,000 2,000 job satisfaction factors
Inside Cover (colour only) 25,000 1,500
Ordy. Full page 12,000 1,200
(B/W only)
Ordy. Half page 9,000 1,000 Diamond Jubilee Annual Seminar
(B/W only)
Ordy. Qrtr. page 5,000 500 on
(B/W only)
The Role of Cost & Management
Advertisement Rates for Accountants
Student Edition
in Value Based Economy
Full page Rs. 10,000
Back Page Rs. 8,000 Sunday, 27 February 2005,
(Always Half Page only) CMPDIL Hall, Asansol
Inside Half Page Rs. 5,000
Inside Quarter page Rs. 3,000 Contact:
The Institute reserves the right to refuse
Asansol Chapter of Cost Accountants
any matter of advertisement detrimental Rajpara-Budha, PO Asansol 713 301,
to the interest of the Institute. The
Dist: Burdwan, West Bengal
decision of the Editor in this regard will
be final. Phone: 0341-2209466

88 the management accountant, February, 2005


Editorial
After the deluge
The December 26 tsunami in the Indian
Ocean that devastated large coastal areas
in India and at least a dozen countries,
killing more than 2.26 lakhs people, mak-
ing many more destitute and destroying
huge infrastructure and properties, brings
to the fore the importance of disaster man-
agement where assessment of disaster
costs and cost management in the disas-
ter recovery and post-recovery phases as-
sume great importance.
It is true that prevention is better than
cure but countless times man is helpless
in the face of nature’s fury. Nonetheless,
a tsunami warning system for the Indian
Ocean will be set up by mid-2006 under
the leadership of the United Nations -
agreed the recently concluded governmen-
tal World Conference on Disaster Reduc-
tion in Kobe, Japan. The technology to
detect tsunamis in the Indian Ocean re-
gion should be up and running within 12
to 18 months, said Salvano Briceno, Di-
rector of the UN’s International Strategy
for Disaster Reduction (ISDR). Developing
plans for an effective response to any
warning, and educating local communities,
will take longer - perhaps two to three
years - Briceno said.
Once a disaster prevention plan is in or-
der the prevention cost management also
becomes a key issue as billions of dollars
are at stake both in the prevention, recov-
ery and post-recovery stages. The IMF has
already offered emergency assistance on
the order of $1 billion. So far official bilat-
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
eral and multi lateral pledges total about
$ 5 billion – said Asian Development Bank
(ADB). According to one ADB Report the
tsunami had set back poverty reduction
programmes in the region and could thrust
an additional two million people below the
poverty line.
The overall impact on the national
economies concerned need very careful
consideration. In case of Sri Lanka impact
on the economy and policy options to sup-
port a recovery system might be of great
proportion. Due to its heavy reliance on
tourism and extensive damage to tourism
industry Maldive’s recovery will depend on
international assistance for such recovery.
Indonesia saw a tremendous loss of human
lives. While the oil and natural gas pro-
duction facilities in Aceh and Northern
Sumatra survived the disaster, the rest of
the province’s economy was devastated.
The impact on Indian economy may not be
very significant but the destruction in the
coastal regions had a devastating effect on
the local fishing and agricultural commu-
nity. It will be a costly human and social
problem in the affected areas. What is
needed is socio-economic reconstruction
programmes based on appropriate cost-
benefits. Cost Accountants do have a dis-
tinct role in this domain.
The moot point: it is not a problem in
which aggregate numbers of GDP are rel-
evant - it is more a question of human and
social problems. And, that is of course, the
most important issue today !
89
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President's Communique
Dear Professional Colleagues:

Immediately after I finalized my communiqué through

this page for the January issue, the Tsunami tidal wave
ransacked the South Asia. A large part of our southern
coastline was damaged with loss of life, property etc. The
grief that has emerged is insurmountable and the task of
rehabilitation 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 the
best manner possible.

When there are formal and informal discussions in proc-

ess to finalize the Union Budget, I thought of looking into
the structure of classification of goods for the purpose of Excise Duty and Customs
Duty. 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 same
without any other rates. Such a process would rationalize tariff rate structure and
easy to be understood by the exporters and importers and at the same time more
practical for administering the rates by the Custom Departments. When the firm
decision is taken at the policy level then it will be practicable to do so with sufficient
accuracy 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 rate
structure. A computer cannot help if the exemptions required and item to be proved
to 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 results
without 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 Management
Accountancy Profession. Statistical data shows that there is at present substantial
unutilized capacity in a host of industrial sectors with exception of steel. The state of
unutilized capacity would continue and Indian Industry has been afflicted by
unutilized capacity for several years now. In many of these sectors the generation of
demand would call forth additional capacity creation fairly, easily and fairly soon. It
is essential to measure and monitor the capacity creation and keeping it unutilized
for 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 cost
effectiveness of Indian industrial sector. The role of Cost and Management Account-
ants in addressing this issue is very fundamental to the professional training and
contemporarily very important for the Indian economy.

90 the management accountant,February, 2005

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President's Communique
I am happy to inform you that Institute is fast moving to introduce e-learning to
its students. Information Technology is pervasive in the world of business. Compe-
tence with this technology is an imperative for the Professional Accountant. Keeping
in line with this perspective, the Institute is developing programs to enhance the
competence in Information Technology of the present and future members of the
Institute. e-Learning is the future in education and it is essential that our Institute
gears up to the challenge. The entire gamut of learning gets a big boost through this
mode and it is hoped that we would be able to reach largest number of learners and
at 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 examine
the scheme that is being introduced and let me have your reactions and suggestions
to the scheme.

We are also trying to bridge links with Academic Institutions so as to introduce

our study materials, in selected papers, among students undergoing academic courses
in 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 giving
fillip to our younger members to take to practice. I would request all the members to
go through and forward their valuable suggestions to come out with a comprehensive
frame work in this area. This also provides the Institute to identify the Gap in the
knowledge and application content and accordingly initiate steps to address the same.

I also take this opportunity to request all my professional colleagues to participate

in large numbers in the 46th National Convention to make it a memorable one to
commemorate the Diamond Jubilee Year of ICWAI with a state of the art theme
Enhancing & 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)

the management accountant, February, 2005 91

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VAT - Golden Opportunity
for Cost Accountants
Discussion on salient aspects of white paper on VAT
released on 17.01.2005, and the role a Cost Accountant
can play in proper implementation of VAT.
V. S. Datey *
W
ith the release of White paper on
VAT, it is now almost certain that
State Level VAT will become ef-
fective from 1-4-2005 in all States, except
possibly in UP. Cost Accountant is very well
suited to ensure proper implementation of VAT.
It is proposed to discuss salient aspects of
White Paper on VAT released on 17-1-2005
and role a Cost Accountant can play in proper
implementation of VAT.
Highlights of White Paper on State
VAT
Highlights of VAT are summarised below.
Benefits of VAT - In the VAT, a set-off is
given for input tax as well as tax paid on pre-
vious purchases to avoid cascading effect. With
the introduction of VAT, benefits will be as
follows:
· a set-off will be given for input tax as
well as tax paid on previous purchases
· other taxes, such as turnover tax, sur-
charge, additional surcharge, etc. will be
abolished
· overall tax burden will be rationalised
* FICWA, FCS
92
92
Cover feature
· 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, industrialists
and also the Government. It is indeed
a move towards more efficiency, equal
competition and fairness in the taxa-
tion system.
Overview of State Level VAT -
State-level VAT is centered around
the basic concept of “set-off” for the
tax paid earlier, the needed common
points of convergence also relate to
this 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
Table A
(a) Input purchased within the month
(b) Output sold in the month
(c) Input tax paid
(d) Output tax payable
(e) VAT payable during the month (after input tax credit)
((d)-(c)
March 15, 2005 @ 4:03 pm
S.D.
this is given effect through the con-
cept of input tax credit/rebate. This
input tax credit in relation to any
period means setting off the amount
of input tax by a registered dealer
against the amount of his output tax.
The Value Added Tax (VAT) is based
on the value addition to the goods,
and the related VAT liability of the
dealer is calculated by deducting in-
put tax credit from tax collected on
sales during the payment period (say,
a month).
If, for example, input worth Rs.
1,00,000/- is purchased and sales are
worth Rs. 2,00,000/- in a month, and
input tax rate and output tax rate are
4% and 10% respectively, then input
tax credit/set-off and calculation of
VAT will be as shown (Table A):
Entitlement of Input Tax Credit -
This input tax credit will be given for
both manufacturers and traders for
purchase of inputs/supplies meant for
both sale within the State as well as
to other States, irrespective of when
these will be utilised/sold. This also
reduces immediate tax liability. Even
for stock transfer/consignment sale of
goods out of the State, input tax paid
in excess of 4% will be eligible for tax
credit.
Exports will be completely tax free
- For all exports made out of the coun-
try, tax paid within the State will be
refunded in full, and this refund will
be made within three months. Units
located in SEZ and EOU will be
granted either exemption from pay-
ment of input tax or refund of the in-
put tax paid within three months.
: Rs. 1,00,000/
: Rs. 2,00,000/
: Rs. 4,000/
: Rs. 20,000/
: Rs. 16,000/
the management accountant,February, 2005
BC

Inter State Purchases not eligible
fro Credit - Tax paid on inputs pro-
cured from other States through in-
ter-State sale and stock transfer will
not be eligible for credit.
Credit of tax paid on Opening
Stock - All tax-paid goods purchased
on or after April 1,2004 and still in
stock 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 after
an interval of 3 months needed for
verification.
Tax Invoice, Cash Memo or Bill by
dealer - VAT with input tax credit is
crucially based on documentation of
tax invoice, cash memo or bill. Every
registered dealer, having turnover of
sales above an amount specified, shall
issue to the purchaser serially num-
bered tax invoice with the prescribed
particulars. This tax invoice will be
signed and dated by the dealer or his
regular employee, showing the re-
quired particulars. The dealer shall
keep a counterfoil or duplicate of such
tax invoice duly signed and dated.
Failure to comply with the above will
attract penalty.
Small dealers and Composition
Scheme - Registration of dealers with
gross annual turnover above Rs. 5
lakh will be compulsory. There will
be provision for voluntary registra-
tion even in cases where turnover is
less than Rs five lakhs. All existing
dealers will be automatically regis-
tered under the VAT Act. A new
dealer will be allowed 30 days time
from the date of liability to get regis-
tered.
Small dealers with gross annual
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
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Cover feature
turnover not exceeding Rs. 5 lakh will percentage of the dealers will be
not be liable to pay VAT. States will taken up for audit every year on a
have flexibility to fix this threshold scientific basis. If, however, evasion
limit within Rs. 5 lakh. is detected on audit, the concerned
dealer may be taken up for audit for
Small dealers with annual gross
previous periods. This Audit Wing
turnover not exceeding Rs. 50 lakh
will remain de-linked from tax collec-
who are otherwise liable to pay VAT,
tion wing to remove any bias. The
shall have the option for a composi-
audit team will conduct its work in a
tion scheme with payment of tax at a
time bound manner and audit will be
small percentage of gross turnover
completed within six months. The
(may be about 1%). The dealers opt-
audit report will be transparently
ing for this composition scheme will
sent to the dealer also.
not be entitled to input tax credit.
Sales Tax Declaration Form -
Scrutiny of Return - Returns are
There will be no need for any provi-
to be filed monthly/quarterly as speci-
sion for concessional sale under the
fied in the State Acts/Rules, and will
VAT Act since the provision for set-
be accompanied with payment
off makes the input zero-rated.
challans. Every return furnished by
Hence, there will be no need for dec-
dealers will be scrutinized expedi-
laration form, which will be a further
tiously within prescribed time limit
relief for dealers.
from the date of filing the return. If
any technical mistake is detected on Goods covered under VAT - All the
scrutiny, the dealer will be required goods, including declared goods will
to pay the deficit appropriately. be covered under VAT and will get the
benefit of input tax credit. The only
Self-Assessment of VAT Liability
few goods which will be outside VAT
- VAT liability will be self-assessed
will be liquor, lottery tickets, petrol,
by the dealers themselves in terms of
diesel, aviation turbine fuel and other
submission of returns upon setting off
motor spirit since their prices are not
the tax credit. Return forms as well
fully market determined. These will
as other procedures will be simple in
continue to be taxed under the Sales
all States. There will no longer be
Tax Act or any other State Act or even
compulsory assessment at the end of
by making special provisions in the
each year as is existing now. If no
VAT Act itself, and with uniform floor
specific notice is issued proposing de-
rates decided by the Empowered
partmental audit of the books of ac-
Committee.
counts of the dealer within the time
limit specified in the Act, the dealer VAT Rates and Classification of
will be deemed to have been self-as- Commodities - Under the VAT system
sessed on the basis of returns submit- covering about 550 goods, there will
ted by him. be only two basic VAT rates of 4% and
12.5%, plus a specific category of tax-
Departmental Audit of Accounts
exempted goods and a special VAT
of Dealers - Correctness of self-assess-
rate of 1% only for gold and silver or-
ment will be checked through a sys-
naments, etc. Thus the multiplicity of
tem of Departmental Audit. A certain
rates in the existing strcture will be
93
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Cover feature

done away with under the VAT sys- Table 1

tem. Sr No. Supplier’s Date of Name TIN No. Description Quan
Under exempted category, there (Control Invoice Invoice/Debit of of of goods tity
will be about 46 commodities compris- No.) No. /Debit Note Supplier supplier
Note No.
ing of natural and unprocessed prod-
ucts in unorganised sector, items 1 2 3 4 5 6 7
which are legally barred from taxa-
tion and items which have social im- Net Excise VAT VAT VAT Tax not Gross Remarks
plications. Included in this exempted purchase duty tax tax Tax eligible pur
price paid @ 1% @ 4% @ for chase
category is a set of maximum of 10 12.5% VAT price
commodities flexibly chosen by indi- credit
vidual States from a list of goods (fi-
8 9 10 11 12 13 14 15
nalised by the Empowered Commit-
tee) which are of local social impor- (Note - Same record can be used for Cenvat of excise and State VAT)
tance for the individual States with- Table 2
out having any inter-state implica- # Description of input # Unit of measurement (At the top of each page)
tion. The rest of the commodities in
Date Opening Sr No. Quantity Date Quantity Closing Remarks
the list will be common for all the stock of receipt received of issued Stock
States. (Control No. issue (for
as per manufacture
Under 4% VAT rate category,
Records or
there will be the largest number of of input sale)
goods (about 270), common for all the credit)
States, comprising of items of basic 1 2 3 4 5 6 7 8
necessities such as medicines and
drugs, all agricultural and industrial Table 3
inputs, capital goods and declared Sr Supplier’s Date of Name ST Regn Description Quantity
No. Invoice Invoice of No. of of goods
goods. The schedule of commodities
No. Supplier supplier
will be attached to the VAT Bill of
1 2 3 4 5 6 7
every State. The remaining commodi-
ties, common for all the States, will Net Tax Tax not Gross Remarks
purchase eligible eligible purchase
fall under the general VAT rate of
price for input for VAT price
12.5%. credit credit
Phasing out of CST - There is also 8 9 10 11 12
a need, after introduction of VAT, for
Table 4
phasing out of Central Sales Tax
(CST). However, the States are now Sr Supplier’s Date of Name TIN Description Net
No. Credit Credit of No. of of amount
collecting nearly Rs. 15 thousand Note No. Note Supplier supplier goods of debit
crore every year from CST. There is note
accordingly a need of compensation
1 2 3 4 5 6 7
from the Government of India for this
VAT VAT VAT Tax Gross Remarks
loss of revenue as CST is phased out.
tax @ tax Tax not Amount
The position regarding CST will be 1% @ 4% @ 12.5% eligible of Credit
reviewed by the Empowered Commit- for VAT Note
tee during 2005-06, and suitable de- credit
cision on the phasing out of CST will 8 9 10 11 12 13

94 the management accountant,February, 2005

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Cover feature

be taken. Table 5
Record of input Tax Credit Sr Supplier’s Date of Name TIN Description Quantity Net
No. Invoice Invoice/ of No. of purchase
Following records should be main- (Control No. / Debit Supplier of goods price
No.) Debit Note Note supplier
tained
No.
Records of Purchases of Inputs - 1 2 3 4 5 6 7 8
Credit of tax paid on inputs can be
Excise VAT VAT Gross Location Credit Credit Credit Remarks
availed only if original tax invoice
duty tax Tax purchase of in first in in
(VAT Invoice) is available. Dealer paid @ 4% @ 12.5% price capital year second third
should maintain proper ‘Purchase goods year year
Register’, recording receipts of all tax
9 10 11 12 13 14 15 16 17
invoices. These should be serially
numbered for purpose of checking and Table 6
cross reference. The record should
Month Opening Credit of Credit of Credit of Total
indicate break-up of tax paid at dif- and year Balance inputs Capital inputs in
ferent rates, so that tax paid at dif- Goods opening stock
ferent rates on inputs can be calcu-
1 2 3 4 5 6
lated. Suggested columns of the
record are - (Table 1 followed) Less Tax Net credit Credit Closing Remarks
reduced by available utilised Balance
Purchases from unregistered dealer Credit Notes during the (if any)
- If purchases from unregistered deal- month
ers are few, the same may be included 7 8 9 10 11
in main Purchase register itself.
Separate record is not required as Table 7
under new scheme, there is no re- Invoice/ Date Name Buyer’s Description Quantity Sale Sale Sale
quirement of paying sales tax on URD Debit of TIN of within within within
purchases. Note buyer No. Goods State State State
No. @ 1% @ 4% @12.5%
Monthly totals - Monthly totals of
1 2 3 4 5 6 7 8 9
credits availed should be taken.
VAT VAT VAT Sale Export Consig- Inter CST Gross Remarks
Record of debit notes - If Debit Note @ 1% @ 4% @ Exempt Sale nment State Sale
is issued by supplier, additional in- 12.5% from tax Transfer Sale Price
put credit of tax paid by supplier on 10 11 12 13 14 15 16 17 18 19
increased price will be available. This
should be entered in the Cenvat Table 8
Credit record. While entering debit
Credit Date Name Buyer’s Description Net Net Net
note, cross reference to original in- Note of TIN of Sale Sale Sale
voice should be given. No buyer No Goods within within within
State State State
Quantity record of inputs - Stock
@ 1% @ 4% @ 12.5%
record of all inputs is required to be
maintained. The record should be for 1 2 3 4 5 6 7 8
each type of input individually. One VAT VAT VAT Sale Export Inter CST Gross Remarks
or more pages may be reserved for @ 1% @ 4% @ 12.5% Exempt Sale State @ 4% Sale
each type of input. The suggested for- from tax Sale Price
mat is - (Table 2 in previous page) 9 10 11 12 13 14 15 16 17

the management accountant, February, 2005 95

95
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Opening stock - Credit will be avail-
able for tax paid on inputs lying in
stock as on 1-4-2005. Tax paid on
capital goods lying in stock as on 1-4-
2005 will not be available. It is nec-
essary to carry out detailed inventory
as on 1-4-2005. The record may be
prepared in following format. (Table
3 in previous page)
The tax paid on inputs lying in stock
will be available as per provisions of
State VAT tax law.
Record of credit notes received from
suppler - If supplier issues a credit
note, corresponding sales tax amount
will have to be reduced. Hence, record
of debit notes received from suppli-
ers should be kept in following form
(Table 4 in previous page)-
Record of capital goods - Credit is
available on VAT tax paid on capital
goods also. However, since the credit
is available in stages, separate
records are required. Suggested col-
umns of the record are - (Table 5 in
previous page)
MONTHLY TOTALS - Monthly totals
of credits availed should be taken.
RECORD OF DEBIT NOTES - If
Debit Note is issued by supplier, ad-
ditional credit of tax paid by supplier
on capital goods will be available.
This should be entered in the Cenvat
Credit record. While entering debit
note, 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 supplier
will amount to reduction in the price
of capital goods and corresponding re-
duction in tax paid on capital goods.
It may be advisable to enter net price
96
96
Cover feature
of capital goods after deducting the
credit note, after making suitable re-
marks.
Record of Tax credit available -
Monthly/quarterly totals of the fol-
lowing should be taken - (a) Input
credit available (b) Credit available
on capital goods (c) Credit notes from
suppliers.
Following record may be maintained
on monthly basis - (Table 6 followed)
These monthly/quarterly totals
should tally with the monthly/quar-
terly return that is required to be
submitted to VAT tax authorities.
CARRY FORWARD/REFUND OF
TAX 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 is
permitted only if goods were exported
out of India.
Record of output tax
Following are suggested records.
Sale Register - Record of output tax
payable will be required in the form
of Sale Register. The Sale Register
should have following columns - (Ta-
ble 7 in previous page)
Credit Notes register - The dealer
may issue debit/credit notes to his
buyers. Debit Notes may be entered
in the Sale Register itself, as value
of sale will increase to that extent.
Record of credit notes may be kept
separately, as tax liability of dealer
will reduce to the extent of tax on re-
duction in price given to buyer. The
Credit Notes register may have fol-
lowing columns - (Table 8 in previ-
ous page)
March 15, 2005 @ 4:03 pm
S.D.
Sale Account by small dealers - Small
dealers having gross turnover upto Rs
50 lakhs are not entitled to any VAT
credit. They cannot show VAT tax
separately in the invoice. Mostly,
they will be under composition
scheme. They will maintain daily
record of gross sales.
Payment of Tax and filing Returns
Every dealer is required to file re-
turns on monthly/quarterly basis. If
the aforesaid records are kept prop-
erly, filing the return will be very
easy and mistakes will be minimum.
Net Tax payable - Net tax payable will
have 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 paid
through prescribed challan on or be-
fore due date.
Preservation of records - Since assess-
ment can be opened for prescribed
period (usually five to eight years), it
is necessary to preserve all relevant
records for prescribed period from
close of the financial year. The
records can be audited by departmen-
tal audit party.
Role of Cost Accountant
It is very clear that proper record
keeping is essential for success of
VAT. Cost Accountants having exper-
tise in material accounting and con-
trol are most suitable to do the job
efficiently and effectively. The
records that will be required can best
be maintained by Cost Accountant.
He will also be ideally suitable for
auditing accounts of dealers on behalf
of dealer or the department. ❑
the management accountant,February, 2005
BC

Value added - its meaning
and application
An exposure on the concept of “Added value” and its
application under VAT and Cenvat.
S. N. Chakraborty *
A
dded value is a form of wealth,
But, this is not natural wealth
like 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 got
many uses. It provides a method of
measuring the net output of a busi-
ness, industry or country. It is also
the basis of national accounting.
Economists have used the V.A. con-
cept for long in a 'macro' sense. The
gross national product (i.e additional
wealth generated before deducting
depreciation of capital stock) of a
country is viewed as constituting the
sum total of incomes distributed to
the four productive agencies of an
economy:
G. N.P. = Wages + Rent + Inter-
est + Profit. Wages generically speak-
ing go to all the manpower engaged
in generating national wealth. Simi-
larly,' rent' represent the incomes of
those who provide various services
and charge for them. Interest repre-
sents the income going to suppliers
* FICWA
the management accountant, February, 2005
Cover feature
of capital. The residual component,
'profit' goes to the owners of the en-
terprise be it public or private. It is
important to note that 'materials' or
costs thereof, have not appeared in
the above GNP equation. The reason
for this is that the wealth of nations
arises out of the conversion of given,
basic stocks of their raw materials.
When all the factors of production
combine to add fresh or additional
utility or value to such materials,
only then we generate more GNP. It
is this inor, mental generation which
is 'value added' . Such an interpreta-
tion has to exclude 'materials' from
the computation of V.A.
It is possible to apply this macro-
logic to the micro-level enterprise
also. A manufacturing firm begins
with a certain quantum of raw mate-
rials, and then engages in a conver-
sion process to yield a product with
new utility and market value differ-
ent from the original cost of materi-
als. The excess of such market value
over the cost of materials is defined
as V.A. However, in practice materi-
als in V.A. calculations include all
items purchased from outside and ac-
tually processed. Thus, power, fuel
and stores are the other items which
March 15, 2005 @ 4:03 pm
S.D.
are added to materials, before deduct-
ing the latter from sale value. As a
begining, therefore, V.A. by a firm
during a period can be stated as ;
V.A. = Sales(net of excise duty)-
Cost of Throughput (i.e of items
bought from outside and processed
(1)
As an extension, we may now
write:
Profit = V.A. - All Conversion and
other costs. (2)
Where 'conversion costs' will in-
clude all manufacturing labour and
manufacturing overhead costs, and
'other costs' will cover various selling
and administrative costs, including
interest, depreciation etc. The reader
may now readily grasp the point that
an important mean has been provided
to understand the'why' of a certain
profit or loss figure for an enterprise.
Thus, if the bulk of conversion and
other costs are fixed in the short-run-
as they quite possibly are - then the
only effective 'way to manage profits
is to manage V.A. More of this later.
Some Definitional Refinements
It will be observed from equation
(1) above that the amount of
thoughput consumption is related to
the production activity during a pe-
riod
But this will not usually be equal
to the sales activity. In a hypotheti-
cal period of zero sales, but high
production,equation (1) 'would show'
a negative V.A. figure. Even
other'wise, in the more normal situa-
tion of periodic unbalanced produc-
tion and sales quantities, some ad-
justment is called for the calculation
of the cost of throughput. This may
be done as follows :
Instead of taking actual sales
value, we could consider 'value of pro-
duction' i.e.,
97
97
BC

Value of production + sales value=
value of increase or decrease in fin-
ished goods and 'work-in-progress
stocks. Thus, the first quantity on
the right hand side of equation (3) is
a mixture of market-determined val-
ues, and of internal valuation sys-
tems of finished goods and 'work-in-
progress stocks adopted by individual
firms. The latter could obviously be
all so different as to render compara-
bility amongst firms quite difficult.
But depending on the valuation meth-
odology adopted, this latter version
could either show a positive V.A. or a
much lower negative V.A. figure in
our hypothetical case of 'zero sales-
high production In fact, the Bureau
of Public Enterprises in its Annual
Reports 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 sales
value covers the anticipated sales
proceeds of actual Production as an
when sales may take place. possibly
this interpretation is implicit. V.A. is
then derived as follows:
V. A. = Value of production - Cost
of 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 unless
production has been sold, then one
may rewrite equation (1) as :
V.A. = Sales - Cost of Throughput
in sales. (5)
Company Unit Total
Sales 400
R.M. Consumed 165
Wages etc. 162
Depreciation 42
Intt. on loan 15
Total Cost 384
Profit/Loss 16
98
98
Cover feature
Obviously, then equation (2) for
calculating profit has to be suitably
rewritten as .
Profit = V.A. (vide eqn.5) - Cost of
Throughput in production
not sold - Cost of conversion
and other costs (6)
However, a problem will arise for
firms wich has just started their op-
erations, and have a very long pro-
duction cycle extending over 2 or 3
years. In such cases equation (5) loses
its applicability. But it is still possi-
ble to use equation (4) for these firms.
The B.P.E.definition of V.A. may have
been a response to such a situation
for many public sector firms. As soon
as, however, such firms cross over
their initial gestation periods, which
concentrate only on production, into
periods when both sales and produc-
tion tend to move in balance, they
should adopt equation (5) for V.A.
calulations. And, of course, other
firms may use equation (5) right from
the start. The reason we lay stress on
this is that - except for artificially
guaranted marketability of produc-
tion, no justifiable existence of V.A.
may be claimed unless goods have
been actually sold. And how can we
ignore that profits are themselves de-
rived from V.A. ?
Table – 1
Unit - 1 Unit - 2
100 100
40 45
40 42
10 12
5 5
95 104
5 -4
March 15, 2005 @ 4:03 pm
S.D.
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 business
performance, the profit as a measure
of 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 have
got same amount of Turnover,but due
to 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 added
value of other dusiness) are
to de deducted from the
value of output.
c) The difference between (a) &
(b) will be added value. A
visual chart of added value
is given hereunder to show
the relationship of gross out-
put with Added value.
Unit 3 Unit - 4
100 100
35 45
45 35
10 10
5 –
95 90
5 10
the management accountant,February, 2005
BC
 March 15, 2005 @ 4:03 pm
S.D.

Cover feature

Table - 2

Profit
+
Gross output
Interest Wealth Created
+ =
= Depreciation
Added value
+
Sales turnover after Wages, Salaried & other
adjustment of stock Employment Cost.

Mterials (after adj : of stock) Wealth Created by

+ other enterprise.
Purchased services

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)

the management accountant, February, 2005 99

99
BC
 March 15, 2005 @ 4:03 pm
S.D.

Cover feature

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 50
Bank & Other Int.
D) Depreciation charges for plant. bldg. 100 105 110
vehicles 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

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. creating
Added value is fundmental objective of Good Management. By creating more Added value we can all have a higher
standard of living Hence, Added Value is a new key to prosperity.

100 the management accountant,February, 2005

100

BC

Modvat and it Accounting Treatment :-
The Finance Minister had an-
nounced as part of the 1986 Budget
proposals, a modified system of value
added tax or 'MODVAT' for short. The
scheme provides for instant credit of the
excise duty and additional duty of cus-
toms (countervailing duty) paid on in-
puts "when used in or in relation to the
manufacture of the final products of
MODVAT enables a manufacturer to
obtain instant and complete
reimburesement of the specified duties
paid on the inputs. This will decrease
cost of the final product considerably
both on account of availability of credit
of the duties paid on the inputs and on
account 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 leviable
at the rates prescribed in the Central
Excise Tariff Act 1985 and only if the
goods 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 the
Central Excise Rules, 1944.
In order to limit the effect of the
cascading effect of tax being levied at
every stage of manufacturing activity
before a final finished product comes
into existence, duty credit scheme un-
der MODVAT 'was introduced.
Who can avail of the credit ?, In re-
spect of 'which final product the credit
can be availed of For 'What purposes
the credit can be availed ?
The credit under the MODVAT
scheme is available to a manufacturer
of a final product classifiable under any
of the chapters specified in column (3)
of the Table annexed to notification
No.177/86-CE. The final product should
be dutiable. Where the final product
manufactured by a manufacturer is
exempt from excise duty then no credit
of the duty paid on the inputs would be
available (rule 57C). Credit can be
the management accountant, February, 2005
Cover feature
taken only after the evidence of pay-
ment of duty has been received, except
in cases where this has been specifically
waived. There is no objection to taking
credit 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 the
inputs taken under the MODVAT
scheme may be utilised for paymen t of
duty on the final products in or in rela-
tion to the manufacture of 'which the
inputs are intended to be used. For ex-
ample, a manufacturer of bolts and
nuts may take credit of the excise duty
paid on the ferrous or non- ferrous met-
als used in its manufacture, and use the
same for payment of the excise duty on
the bolts and nuts. If he uses imported
raw materials, he can take credit of the
countervailing duty paid on these ma-
terials also. Where the same input is
used for different finished products,
some of which are not dutiable, the
credit of duty should be taken only for
that part attributable to inputs which
will be used for the manufacture of du-
tiable finished products. It necessary
initial credit could be taken on an ap-
propriate basis and a final adjustment
can be made after actual use of the in-
puts, in no case, should the credit ex-
ceed the amount actually admissible.
Essential Characteristics of MODVAT
Scheme :
(a) Rules 57A to 57J in the Central
Excise Rules contain the provisions
of MODVAT scheme.
(b) The scheme was introduced
through the Notification No.177/86
C.E. dated 1.3.86
(c) Credit of duty is available only if
the inputs and finished products
are specially specified for the pur-
pose. As the goods are classified
under various chapters of the cen-
tral Excise Tariff Act, MODVAT is
available when the inputs and out-
March 15, 2005 @ 4:03 pm
S.D.
puts are covered under the modi-
fied chapters (All items are now
covered under MODVAT except
Tobacco, Matches, Mineral Oils
and certain types of Textile fabrics)
(d) Credit of duty is availaole on cen-
tral Excise paid on indigenous ma-
terials and on additional duty of
customers (popularly known as
countervailing duty) on imported
items.
(e) The inputs have to be used in or in
relation to the manufacture of fi-
nal products.
(f) Plant & Machinery,Tools and
equipments etc. which are used as
a means of production are covered
under tile MODVAT scheme under
Rule 57Q. These provision were
inserted with effect from 1/3/94
(g) The duty so paid on inputs can be
claimed as a credit while paying
duty of excise on the final products.
(h) Duty credit will be available only
if the duty is paid on the final prod-
uct.
(i) MODVAT credit is available on re-
ceipt of the material irrespective of
its actual utilisation which may
take place at a later date,
(j) Subject to certain limits, deemed
credit at normal rate is available
on goods obtained from a small
scale unit even if the duty paid on
such unit is at a lower rate.
(k) Exemption is provided from pay-
ment of duty when any intermedi-
ate product though dutiable, is
used in the manufacture of a final
product.
Procedural Formalities :
In order to avail MODVAT, cer-
tain procedural formalities regarding
documentation and record mainte-
nance have to be followed. The main
requirements are :-
101
101
BC

(a) Credit can be availed only on pro-
duction of original duty paying
documents.
(b) Any manufacturer intending to
avail MODVAT and work under
its scheme, has to file before the
jurisdictional Assistant Collector
of central Excise a declaration
stating therein the descriptions
and chapter numbers of inputs to
be used and final products to be
manufactured therefrom.
(c) Two types of registers are to be
maintained by the manufacture
working under MODVAT-
(i) RG 23A part 1 : This is an ac-
count of input stocks being
received and issued for pro-
duction and is maintained in
quantitative terms and
(ii) RG 23A part II : This register
shows the value of credit re-
ceived on in-coming inputs
and its utilisation in paying
duty on the finished products.
Accounting of MODVAT :
Based on the Guidance Note on Ac-
counting Treatment for MODVAT pre-
pared by the Reaserch Committee of
The Institute of Chartered Accountants
of India, the accounting treatment for
MODVAT may be carried out in either
of the two methods stated hereinafter.
Method-I
The scheme of entries may be as
follows :-
(a) Materials purchased and duty
paid 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.
102
102
Cover feature
Dr. Excise Duty A/c.
Cr. Bank A/c
However, if credit is taken of duty
paid on inputs while making payment
of duty on the final products then the
cash 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 in
cash or by cheque) A/c.
The debit balance which may re-
main in the MODVAT Credit Receiv-
able A/C represent the credit which
may be availed of on payment of du
ty in future and this balance will be
shown in the asset side of the Balance
Sheet under the head "Advances"
Stock of inputs will be valued at net
of MODVAT.
Method-II
The scheme of entries under this
method may be as follows :
(a) When materials are purchased
the excise duty paid on inputs
will not be shown separately and
will 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 credit
will be utilised for payment of
duty 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 does
not mean the input have been ac-
tually utilised in the manufacture
of the final product. As and when
the material shall be so utl1ised,
the following entry will be passed :
Dr. MODVAT credit Availed A/c
March 15, 2005 @ 4:03 pm
S.D.
Cr. Profit & loss A/c or Consump-
tion A/c
The balance in the MODVAT
credit availed A/c represents
MODVAT on materials not consumed
but is lying in stock. This account to
be shown in the Balance Sheet as a
deduction from the value of stock.
Value Added Tax
1) Concept of VAT
VAT stands for Value Added Tax.
In a simple manner the concept of
VAT has been explained as :
"The value added tax is imposed on
the value that a business firm adds to
the goods and services that it purchased
from other firms. It adds value by
processing or handling these purchased
items with its own labour force and its
own machinery, buildings or other capi-
tal goods. It then sells the resulting
product to consumers or other firms.
The difference between the sales pro-
ceeds and the cost of materials etc, that
it has purchased from other firms is its
value added, which is the tax base of
the "value added tax".
VAT in essence, tantamounts to
taxing by instalments, the final con-
sumer spending in a domestic
economy. It has been considered as a
multi-stage tax. Thus, instead of tax
being levied on specific list of goods
and services, its impact salls on the
final consumer goods and services ex-
cept the goods and services which are
specifically exempted. Taxing on VAT
basis ensures that each input into the
final consumer output is taxed only
once. This happens because of the fact
that the tax paid on inputs at a pre-
vious stage in production is related.
This prevents the cascading effect
of taxes.
VAT has been explained with ref-
erence to both taxable transactions and
taxable persons. Taxable transactions
are usually defined broadly as sales by
persons engaged in industrial and com-
mercial activity. It includes both the
sale of goods and rendering of services.
the management accountant,February, 2005
BC

Taxable persons are defined to in-
clude producers,importers of taxable
goods, 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 public
utilities varies, but they are largely left
outside the scope of the tax or are
granted specific exemptions.
2) Classification of VAT :
VAT has Broadly been classified
into three types, viz.
i) Gross product type
ii) Income Type
iii) Consumption type
Gross Product Type :- For determin-
ing the tax liabilities under the first
type, the taxable entity is allowed to
deduct its purchases of raw materials
from its sales but it can not deduct its
cost of capital equipment or even de-
preciation on such equipment. Such
VAT requires considerable vigilance.
Since capital equipment cost is not de-
ductible, there could be attempts to
classify such goods required for current
expenditure,viz, making a case that
capital goods will be consumed in cur-
rent operations or are needed for car-
rying out repairs/renewals etc.
Income Type :- In the income type
VAT, both purchases of raw materials
and depreciation on capital goods are
deductible for computing the value
added. However, since depreciation al-
lowance is deductible, assets life and
depreciation tables are required to be
prescribed for sorting out administra-
tive problems concering its working.
Consumption Type :- Under the
consumption type Value Added Tax,
all business purchases including
those for capital goods are deductible
for calculating the value added. This
system avoids drawing of distinction
between current expenditure and
capital expenditure. This tax is con-
the management accountant, February, 2005
Cover feature
sidered nutral because it does not
give more advantage to labour vis-a-
vis capital. Hence this type is more
popular in European countries.
3) Manner of calculation of-VAT -
There are three 'ways of calculat-
ing VAT viz, the substraction, credit
and addi tivemethods. Under the
substraction method ,VAT liability is
calculated by substracting the pur-
chases from the sales and applying the
tax rate to the difference. The credit,
also called invoice method, involves
determination of amount of tax by al-
lowing substraction of tax paid on pur-
chases from tax due on sales. Under the
additive method, VAT liability is deter-
mined by adding together the compo-
nents of value added, wages, rent, in-
terest and not profit and then applying
the tax rate to this sum. These meth-
ods have their own relative advantages
and disadvantages.
4) Management of Value Enhancement
(MOVE) :
Our economy has accepted all chal-
lenges to enhance value through value-
creating activities. The basic economic
indicator is per capita VAW. The
MOVE, being a quality team in quality
circle involved in value creating chain
of activities, has became a strategic
priority for survival. MOVE can only
ensure the positive steps of value-cre-
ating activities in an economy. MOVE
continuously transforms every activity
into value-creating activity by means
of continuous improvements, which
come 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
March 15, 2005 @ 4:03 pm
S.D.
finished goods inventories.
MOVE aims at elimination of non-
value creating activities. Enhanced
VAW is always welcome for the sustain-
able economic growth and development.
5) The Measurement Technique of VAW
with the Application of Value. Added
Accounting by means of VAS and the
Hidden Assets of Enhanced VAW.
The measurement technique of
VAW with the application of value
added accounting (VAA) by means of
VAS intends to provide pertinent in-
formation regarding the application
of VAA is practical fields.
Computation of GVA from rev-
enue is as follows :-
6 ) Effective Leveraging Social Effects
of VAT :
The employees, the financial
stakeholders, and the government share
the pie of created VAW by defined ra-
tios and the rest is set aside in the form
of depreciation and retained NVA. The
employees mean here all categories of
employees including knowledge workers
and managerial personnel who share
created VAW in the form of their sala-
ries, wages ,gratuity ,contribution to
provident fund, bonus, remuneration to
top management and other form of wel-
fare expenses etc. The government pro-
vides necessary infrastructure and other
entrepreneurship friendly social climate
to create VAW.There fore, the govern-
ments are entitled to share the created
VAW in the form of imposed VAT.
The shareholders and debenture
holders are the financial stakeholders of
doing business operations to create
VAW.There fore, the shareholders are the
claimants of dividend on the deployed
capital. The debenture-holders are claim-
ants of interest on the deployed borrowed
capital. The ploughed back profits in the
form of retained NVA are reinvested in
creating VAW through the continuous
business operations.
103
103
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 March 15, 2005 @ 4:03 pm
S.D.

Cover feature

concerned. VAT regime is certainly good

Items : Rs. Rs. enough to check tax evasion by allow-
Total sales XXX ing strong incentives for tax honesty. If
the rate of VAT is ,@ 12.5%, the quan-
+ Closing Stock of Raw Materials XXX tum of VAT will produce effective
+ Closing Stock of semi finished goods leveraging social effects in the economy.
and finished goods XXX
7) White paper published in The News
+ Imputed profit on semi-finished paper on 17th January, 2005 at New
and finished goods XXX Delhi on VAT
+ Loss of Materials XXX Terming it as one of the biggest tax
reforms in India, finance minister P.
+ Loss of semi-finished goods XXX Chidambaram today presented the
White paper on the value added tax
+ Loss of finished goods XXX XXX
(VAT), which will come into effect from
Rebate on sales XXX April,1 The new tax regime, which has
been approved by most of the states, will
– Excise Duties XXX cover more than 550 goods. Of these, 46
– Taxes on Sales XXX natural and unprocessed local products
would be exempt from VAT.
– Power, fuel, Royalty, etc XXX
VAT will be imposed in three slabs
– Insurance, Rates, etc XXX of 1 per cent 4 per cent and 12.5 per cent.
Al per cent VAT will be imposed on gold
– Packages, Carriage XXX and silver, Liquor, Petrol, diesel, avia-
Baokerage,etc XXX tion turbine fuel and lottory tickets have
been kept out of the state-level VAT.
– Opening stock of Raw Materials XXX These products will remain under the
– Opening Stock of sales tax regime, says the white paper.
semi-finished goods XXX The VAT document prescribes a
rate of 4 per cent on a range of 270
– Opening Stock of finished goods XXX items, including drugs and industrial
– Purchases XXX products. Four per cent will be charged
on all agricultural and industrial in-
– Other purchases XXX puts, capital goods and declared goods.
XXX the structure impose a 12.5 per cent tax
on, most of the ramining items.
Gross value added
Also, sugar, textiles and tobacco,
(GVA) XXX which are covered under additional ex-
cise duties will not come under the VAT
GAV XXX regime for a year.
Less. Depreciation XXX State would be given an option to
NAV XXX tax tea at the rate of 12.5 per cent or 4
per cent until 2006.
Therefore, the agitators are not transparent enough,hence, they are worried on Any firm or Buisness House whose
the issues of VAT system having no valid reasons of probable price rise. It is ex- Annual turnover of Rs.5 lakhs to 50
pected to be clear by realising a simple example; let a manufacturer buys inputs lakhs will not come under the purview
(Particularly materials) for Rs.400 and pays sales tax Rs.16. The input costs in of VAT, but they will continue to pay
total Rs.416. If he fixes sale price Rs.600 for the product under the present system 1% sale Tax as usual. In that case they
of sales tax regime, he has to pay sales tax Rs.72@ 12%). He adds up the sales tax will not get tax exemption on the pur-
paid. The manufacturer sells the product for Rs.672. Under VAT regime, the sale chase of raw material.
price of the same product (672-( 16+72) - 672-(16+72) -400) 12.5% = Rs. 607 If, VAT
is imposed @ 12.5% must be lower than that of the previous level of price leaving The Finance Minister said that in
sales tax out of manufacturer's cost. Therefore, unnecessary crying and creating a way VAT was no different from the
mindest is not at all a pragmatic approach as far as value-creating economy is Central excise duty. ❑

104 the management accountant,February, 2005

104

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A White Paper On State-
Level Value Added Tax
Issued by the Empowered Committee of State
Finance Ministers for VAT
This White Paper on State-level
Value Added Tax (VAT) is presented
in three parts. To begin with, the jus-
tification of VAT and its background
have been mentioned (Part 1). In Part
2, the main design of VAT, as evolved
on the basis of a consensus among the
States through repeated discussions
in the Empowered Committee, has
been elaborated. While doing so, it is
recognised that this VAT is a State
subject and therefore the States will
have freedom for appropriate varia-
tions consistent with the basic design
as agreed upon at the Empowered
Committee. Finally, in Part 3, the
other related issues have been dis-
cussed for effective implementation of
VAT.
1. Justification of VAT and Back-
ground
1.1 In the existing sales tax struc-
ture, there are problems of double
taxation of commodities and multi-
plicity of taxes, resulting in a cascad-
ing tax burden. For instance, in the
existing structure, before a commod-
ity is produced, inputs are first taxed,
and then after the commodity is pro-
duced with input tax load, output is
taxed again. This causes an unfair
double taxation with cascading ef-
fects. In the VAT, a set-off is given
for input tax as well as tax paid on
previous purchases. In the prevailing
sales tax structure, there is in sev-
eral States also a multiplicity of
taxes, such as turnover tax, sur-
charge on sales tax, additional sur-
charge, etc. With introduction of VAT,
the management accountant, February, 2005
Cover Feature
these other taxes will be abolished.
In addition, Central sales tax is also
going to be phased out. As a result,
overall tax burden will be rational-
ised, and prices in general will also
fall. Moreover, VAT will replace the
existing system of inspection by a sys-
tem of built-in self-assessment by the
dealers and auditing. The tax struc-
ture will become simple and more
transparent. That will improve tax
compliance and also augment rev-
enue growth. Thus, to repeat, with
the introduction of VAT, benefits will
be as follows:
• a set-off will be given for input
tax 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, industrialists
and also the Government. It is indeed
a move towards more efficiency, equal
competition and fairness in the taxa-
tion system.
1.2 For these beneficial effects, a
full-fledged VAT was initiated first in
Brazil in mid 1960’s, then in Euro-
pean countries in 1970’s and subse-
March 15, 2005 @ 4:03 pm
S.D.
quently introduced in about 130 coun-
tries, including several federal coun-
tries. In Asia, it has been introduced
by a large number of countries from
China to Sri Lanka. Even in India,
there has been a VAT system intro-
duced by the Government of India for
about last ten years in respect of Cen-
tral excise duties. At the State-level,
the VAT system as decided by the
State Governments, would now be
introduced in terms of Entry 54 of the
State List of the Constitution.
1.3 The first preliminary
discussion on State-level VAT took
place in a meeting of Chief Ministers
convened by Dr. Manmohan Singh,
the then Union Finance Minister in
1995. In this meeting, the basic issues
on VAT were discussed in general
terms and this was followed up by
periodic interactions of State Finance
Ministers. Thereafter, in a signifi-
cant meeting of all Chief Ministers,
convened on November 16, 1999 by
Shri Yashwant Sinha, the then Un-
ion Finance Minister, three impor-
tant decisions were taken. First, be-
fore the introduction of State-level
VAT, the unhealthy sales tax rate
“war” among the States would have
to end and sales tax rates would need
to be harmonised by implementing
uniform floor rates of sales tax for
different categories of commodities
with effect from January 1, 2000. Sec-
ond, in the interest again of harmo-
nisation of incidence of sales tax, the
sales-tax-related industrial incentive
schemes 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, steps
would be taken by the States for in-
troduction of State-level VAT after
adequate preparation. For imple-
menting these decisions, an Empow-
ered Committee of State Finance
Ministers was set-up.
1.4 Thereafter, this Empow-
ered Committee has met regularly,
105
105
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attended by the State Finance Min-
isters, and also by the Finance Sec-
retaries and the Commissioners of
Commercial Taxes of the State Gov-
ernments as well as senior officials
of the Revenue Department of the
Ministry of Finance, Government of
India. Through repeated discussions
and collective efforts in the Empow-
ered Committee, it was possible
within a period of about a year and a
half to achieve nearly 98 per cent
success in the first two objectives on
harmonisation of sales tax structure
through implementation of uniform
floor rates of sales tax and discon-
tinuation of sales-tax- related incen-
tive schemes. As a part of regular
monitoring, whenever any deviation
is reported from the uniform floor
rates of sales tax, or from decision on
incentives, 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 systematic
preparation for the introduction of
State-level VAT. In order again to
avoid any unhealthy competition
among the States which may lead to
distortions in manufacturing and
trade, attempts have been made from
the very beginning to harmonise the
VAT design in the States, keeping
also in view the distinctive features
of each State and the need for federal
flexibility. This has been done by the
States collectively agreeing, through
repeated discussions in the Empow-
ered Committee, to certain common
points of convergence regarding VAT,
and allowing at the same time certain
flexibility for the local characteristics
of the States.
1.6 Along with these meas-
ures at ensuring convergence on the
basic issues on VAT, steps have also
been taken for necessary training,
computerisation and interaction with
106
106
Cover Feature
trade and industry, particularly at
the State levels. This interaction
with trade and industry is being spe-
cially emphasised.
1.7 It may be noted that while
such preparation was going on, the
Chief Ministers of all the States in an
important meeting on State-level
VAT convened by the Prime Minister
on October 18, 2002, when Shri
Jaswant Singh, the then Union Fi-
nance Minister was present, clearly
stated their intention of introducing
VAT from April 1, 2003. About 29
States and Union Territories had ex-
peditiously sent their Bills to the
Ministry of Finance, Government of
India for prior vetting. The Union
Ministry of Finance had considered
these Bills of States and Union Ter-
ritories, and sent their comments/
suggestions to the States and Union
Territories in line with the decisions
of the Empowered Committee of the
State Finance Ministers for incorpo-
rating the same in VAT Bills to be
placed in the State legislatures and
subsequent transmission to the Gov-
ernment of India for Presidential As-
sent. At this stage, there were certain
developments which delayed the in-
troduction of VAT. Despite these de-
velopments, most of the States re-
mained positively interested in im-
plementation of VAT. Madhya
Pradesh VAT Bill had already been
accorded Presidential Assent in No-
vember 2002. One State, namely,
Haryana, has already introduced
VAT on its own with good results on
revenue growth. It is important to
note that in the meeting of Empow-
ered Committee on June 18, 2004
when Shri P. Chidambaram, the Un-
ion Finance Minister, was invited and
was kindly present, all the States,
excepting one, once again categori-
cally renewed their commitment to
the introduction of VAT from April 1,
2005. Even for this particular State
with certain problems, a positive in-
teraction has recently been organised
March 15, 2005 @ 4:03 pm
S.D.
with that State to resolve certain
genuine ground-level problems. Now
nearly all the States have either fi-
nalised their VAT Bills and are in the
process of obtaining Presidential As-
sent, or will reach that stage very
soon.
2. Design of State-Level VAT
2.1 As already mentioned, the de-
sign of State-level VAT has been
worked out by the Empowered Com-
mittee through several rounds of dis-
cussion and striking a federal balance
between the common points of conver-
gence regarding VAT and flexibility
for the local characteristics of the
States. Since the State-level VAT is
centred around the basic concept of
“set-off” for the tax paid earlier, the
needed common points of convergence
also 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 Tax
Credit
2.2 The essence of VAT is in pro-
viding set-off for the tax paid earlier,
and this is given effect through the
concept of input tax credit/rebate.
This input tax credit in relation to
any period means setting off the
amount of input tax by a registered
dealer against the amount of his out-
put tax. The Value Added Tax (VAT)
is based on the value addition to the
goods, and the related VAT liability
of the dealer is calculated by deduct-
ing input tax credit from tax collected
on sales during the payment period
(say, a month).
If, for example, input worth Rs.
1,00,000/- is purchased and sales are
worth Rs. 2,00,000/- in a month, and
input tax rate and output tax rate are
4% and 10% respectively, then input
tax credit/set-off and calculation of
VAT will be as shown below:
the management accountant,February, 2005
BC

(a) Input purchased within the month
(b) Output sold in the month
(c) Input tax paid
(d) Output tax payable
(e) VAT payable during the month (after input tax credit)
((d)-(c)
Coverage of Set-Off / Input Tax Credit
2.3 This input tax credit will be
given for both manufacturers and
traders for purchase of inputs/sup-
plies meant for both sale within the
State 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 be
eligible for tax credit.
Carrying Over of Tax Credit
2.4 If the tax credit exceeds the
tax payable on sales in a month, the
excess credit will be carried over to
the end of next financial year. If there
is any excess unadjusted input tax
credit at the end of second year, then
the same will be eligible for refund.
Input tax credit on capital goods
will also be available for traders and
manufacturers. Tax credit on capital
goods 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 for
capital 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
the management accountant, February, 2005
Cover Feature
: Rs. 1,00,000/
: Rs. 2,00,000/
: Rs. 4,000/
: Rs. 20,000/
: Rs. 16,000/
country, tax paid within the State
will be refunded in full, and this re-
fund will be made within three
months. Units located in SEZ and
EOU will be granted either exemp-
tion from payment of input tax or re-
fund of the input tax paid within
three months.
Inputs Procured from Other States
2.6 Tax paid on inputs procured
from other States through inter-State
sale and stock transfer will not be eli-
gible for credit. However, a decision
has been taken for duly phasing out
of inter-State sales tax or Central
sales tax. As a preparation for that,
a comprehensive inter-State tax in-
formation exchange system is also
being set up.
Treatment of Opening Stock
2.7 All tax-paid goods purchased
on or after April 1,2004 and still in
stock 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-paid
goods on April 1, 2005 will also be
eligible. VAT will be levied on the
goods when sold on and after April 1,
2005 and input tax credit will be
given for the sales tax already paid
in the previous year. This tax credit
will be available over a period of 6
months after an interval of 3 months
needed for verification.
Compulsory Issue of Tax Invoice, Cash
Memo or Bill
March 15, 2005 @ 4:03 pm
S.D.
2.8 This entire design of VAT with
input tax credit is crucially based on
documentation of tax invoice, cash
memo or bill. Every registered dealer,
having turnover of sales above an
amount specified, shall issue to the
purchaser serially numbered tax in-
voice with the prescribed particulars.
This tax invoice will be signed and
dated by the dealer or his regular
employee, showing the required par-
ticulars. The dealer shall keep a coun-
terfoil or duplicate of such tax invoice
duly signed and dated. Failure to
comply with the above will attract
penalty.
Registration, Small Dealers and Com-
position Scheme
2.9 Registration of dealers with
gross annual turnover above Rs. 5
lakh will be compulsory. There will
be provision for voluntary registra-
tion. All existing dealers will be au-
tomatically registered under the VAT
Act. A new dealer will be allowed 30
days time from the date of liability to
get registered.
Small dealers with gross annual
turnover not exceeding Rs. 5 lakh will
not be liable to pay VAT. States will
have flexibility to fix this threshold
limit within Rs. 5 lakh.
Small dealers with annual gross
turnover not exceeding Rs. 50 lakh
who are otherwise liable to pay VAT,
shall however have the option for a
composition scheme with payment of
tax at a small percentage of gross
turnover. The dealers opting for this
composition 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 digit
numerals throughout the country.
First two characters will represent
the State Code as used by the Union
107
107
BC

Ministry of Home Affairs. The set-
up of the next nine characters may,
however, be different in different
States.
Return
2.11 Under VAT, simplified form
of returns will be notified. Returns
are to be filed monthly/quarterly as
specified in the State Acts/Rules, and
will be accompanied with payment
challans. Every return furnished by
dealers will be scrutinized expedi-
tiously within prescribed time limit
from the date of filing the return. If
any technical mistake is detected on
scrutiny, the dealer will be required
to pay the deficit appropriately.
Procedure of Self-Assessment of VAT
Liability
2.12 The basic simplification in
VAT is that VAT liability will be self-
assessed by the dealers themselves in
terms of submission of returns upon
setting off the tax credit. Return
forms as well as other procedures will
be simple in all States. There will no
longer be compulsory assessment at
the end of each year as is existing
now. If no specific notice is issued
proposing departmental audit of the
books of accounts of the dealer within
the time limit specified in the Act, the
dealer will be deemed to have been
self-assessed on the basis of returns
submitted by him.
Because of the importance of the
concept of self-assessment in VAT,
provision for “self-assessment” will be
stated 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 certain
percentage of the dealers will be
taken up for audit every year on a
scientific basis. If, however, evasion
is detected on audit, the concerned
108
108
Cover Feature
dealer may be taken up for audit for
previous periods. This Audit Wing
will remain delinked from tax collec-
tion wing to remove any bias. The
audit team will conduct its work in a
time bound manner and audit will be
completed within six months. The
audit report will be transparently
sent to the dealer also.
Simultaneously, a cross-checking,
computerised system is being worked
out on the basis of coordination be-
tween the tax authorities of the State
Governments and the authorities of
Central Excise and Income Tax to
compare constantly the tax returns
and set-off documents of VAT system
of the States and those of Central
Excise and Income Tax. This compre-
hensive cross-checking system will
help reduce tax evasion and also lead
to 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 will
also bring in more equal competition
in the sphere of trade and industry.
Declaration Form
2.14 There will be no need for any
provision for concessional sale under
the VAT 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 further
relief for dealers.
Incentives
2.15 Under the VAT system, the
existing incentive schemes may be
continued 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, all
other existing taxes such as turnover
tax, surcharge, additional surcharge
and Special Additional Tax (SAT)
March 15, 2005 @ 4:03 pm
S.D.
would be abolished. There will not be
any reference to these taxes in the
VAT Bills. The States that have al-
ready introduced entry tax and in-
tend to continue with this tax should
make it vatable. If not made vatable,
entry tax will need to be abolished.
However, this will not apply to entry
tax that may be levied in lieu of
octroi.
Penal Provisions
2.17 Penal provisions in the VAT
Bills should not be more stringent
than in the existing Sales Tax Act.
Coverage of Goods under VAT
2.18 In general, all the goods, in-
cluding declared goods will be covered
under VAT and will get the benefit of
input tax credit.
The only few goods which will be
outside VAT will be liquor, lottery
tickets, petrol, diesel, aviation tur-
bine fuel and other motor spirit since
their prices are not fully market de-
termined. These will continue to be
taxed under the Sales Tax Act or any
other State Act or even by making
special 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 be
only two basic VAT rates of 4% and
12.5%, plus a specific category of tax-
exempted goods and a special VAT
rate of 1% only for gold and silver or-
naments, etc. Thus the multiplicity of
rates in the existing structure will be
done away with under the VAT sys-
tem.
Under exempted category, there
will be about 46 commodities compris-
ing of natural and unprocessed prod-
ucts in unorganised sector, items
which are legally barred from taxa-
the management accountant,February, 2005
BC

tion and items which have social im-
plications. Included in this exempted
category is a set of maximum of 10
commodities 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 in
the list will be common for all the
States. Under 4% VAT rate category,
there will be the largest number of
goods (about 270), common for all the
States, comprising of items of basic
necessities such as medicines and
drugs, all agricultural and industrial
inputs, capital goods and declared
goods. The schedule of commodities
will be attached to the VAT Bill of
every State. The remaining commodi-
ties, common for all the States, will
fall under the general VAT rate of
12.5%.
In terms of decision of the Empow-
ered Committee, VAT on Additional
Excise Duty items (namely, sugar,
textile and tobacco), because of ini-
tial organisational difficulties, will
not be imposed for one year after the
introduction of VAT, and till then the
existing arrangement will continue.
The position will be reviewed after
one year.
Effects of the VAT System
2.20 This design of the State-level
VAT has been carefully worked out
by the Empowered Committee after
repeated interactions with the States
and others concerned and striking a
balance between the needed conver-
gence and federal flexibility as well
as ground-level reality. If now all the
components of the VAT design are
taken together, then it will be seen
that the total effect of this VAT sys-
tem will be to rationalise the tax bur-
den and bring down, in general, the
price level. This will also stop un-
healthy tax-rate “war” and trade di-
the management accountant, February, 2005
Cover Feature
version among the States, which had
adversely affected interests of all the
States in the past. Moreover, this
VAT design will also significantly
bring in simplicity and transparency
in the tax structure, thereby improv-
ing tax-compliance and eventually
also the revenue growth, as men-
tioned in the beginning.
3. Steps Taken by the States
3.1 It is now of significance to note
that most of the States, after collec-
tive interaction in the Empowered
Committee, have either already modi-
fied or agreed to modify their VAT
Bills by incorporating these common
points of convergence including flex-
ibility as mentioned in the VAT de-
sign above, and are also taking other
preparatory steps towards introduc-
tion of VAT from April 1,2005.
3.2 As a part of the preparatory
steps, the States have started the
process of preparing the draft of VAT
Rules, including Books of Accounts to
be maintained. The objective will be
to keep these as simple as possible so
that it becomes easy for a small
trader to comply with the require-
ments.
3.3 Moreover, the States have ini-
tiated, and in many cases also com-
pleted, steps for computerisation upto
the levels of assessing officers and
also at the check posts. This process
will continue since this is extremely
important for document-based verifi-
cation and integration with Taxation
Information Exchange System as well
as with information of the Central
excise and income tax systems as in-
dicated earlier.
3.4 It may be mentioned here that
appropriate Central funds for VAT-
related computerisation in the North-
Eastern States are also being re-
leased by the Government of India.
4. Related Issues
March 15, 2005 @ 4:03 pm
S.D.
4.1 While the States have thus
taken several steps towards introduc-
tion of VAT, certain supporting deci-
sions were critically needed at the
national level for more effective im-
plementation of VAT from April
1,2005.
4.2 It needs to be carefully noted
that although introduction of VAT
may, after a few years, lead to rev-
enue growth, there may be a loss of
revenue in some States in the initial
years of transition. It is with this in
view that the Government of India
had agreed to compensate for 100 per
cent of the loss in the first year, 75
per cent of the loss in the second year
and 50 per cent of the loss in the third
year of introduction of VAT, and the
loss would be computed on the basis
of an agreed formula. This position
has not only been reaffirmed by the
Union Finance Minister in his
Budget Speech of 2004-05, but a con-
crete formula for this compensation
has also now been worked out after
interaction between the Union Fi-
nance Minister and the Empowered
Committee.
4.3 As mentioned earlier, there is
also a need, after introduction of VAT,
for phasing out of Central Sales Tax
(CST). However, the States are now
collecting nearly Rs. 15 thousand
crore every year from CST. There is
accordingly a need of compensation
from the Government of India for this
loss 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-State
trade of all commodities. As already
mentioned, this process of setting up
of Taxation Information Exchange
System has already been started by
the Empowered Committee, and is
expected to be completed within one
year. The position regarding CST will
109
109
BC

be reviewed by the Empowered Com-
mittee during 2005-06, and suitable
decision on the phasing out of CST
will be taken.
4.4 It is also essential to bring
imports into the VAT chain. Because
of the set-off, this will not result in
any tax cascading effect, but will only
improve tax compliance. A proposal
for VAT on imports, including the
collection mechanism with adequate
safeguards for the protection of in-
terest of land-locked States, is being
discussed with the Government of
India.
4.5 Similarly, discussion between
the Empowered Committee and the
Government of India is going on for
an early decision on the question of
collection and appropriation of serv-
ice tax by the Centre and the States.
If decisions on VAT on imports
and service tax are taken expedi-
tiously at the national level, then
these two important spheres of taxa-
tion can be integrated, along with
the AED items as mentioned earlier,
into the VAT system of the States
from the second year of introduction
of VAT.
4.6 It may be noted that this VAT
design has been worked out carefully
by the Empowered Committee to
strike a balance not only between the
common points of convergence and
federal flexibility, but also a balance
between what can be done to begin
with 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 is
specially important. The Empowered
Committee has therefore also set up
a Consultative Committee with one
representative from each of the na-
tional level trade organisations and
national level chambers of commerce
110
110
March 15, 2005 @ 4:03 pm
S.D.
Cover Feature
and industry. This Committee has two-way interaction between the
already started interacting with the Government and the trade and in-
Empowered Committee. This proc- dustry as well as the common peo-
ess of interaction will continue regu- ple.
larly to discuss issues and sort out
There is now only looking for-
problems of implementation of VAT.
ward to the introduction of State-
Such Consultative Committees will
level VAT by all the States and Un-
also be set up at the level of each
ion Territories from April 1, 2005.
State, and interaction with the State
We seek cooperation of all sections
Government will take place in a
of people in the country. q
similarly regular manner.
4.8 In course of discussion with
Programme
representatives of trade and indus-
try reference has often been made to
the earlier VAT Bills of some of the Institute of Cost and
States. It should be clearly noted, as Works Accountants of
already mentioned before, that all
the States have agreed to amend
India.
their earlier VAT Bills so as to con-
DIAMOND JUBILEE
form broadly to the common design
CELEBRATIONS
as elaborated in this White Paper.
This process of amendment has also
already started. The point of refer- Theme:
ence on VAT should therefore be this COMPETENCY BUILDING FOR
design of VAT as explained in this GLOBAL COMPETITION
White Paper. It should also be men-
ICWAI has great pleasure in
tioned that there are some important
announcing that the Diamond Jubilee
points on the ground-level imple-
Celebrations to commemorate 60th
mentation of VAT which have been
Year of its formation will be
raised by the representatives of
organized in all the Four Regional
trade and industry. Many of the
Councils under the theme
points will be taken care of in the
COMPETENCY BUILDING FOR
VAT rules of the States, with
GLOBAL COMPETITION
changes where necessary.
As a part of Diamond jubilee cel-
4.9 Finally, a comprehensive
ebrations it is proposed to hold one
campaign on State-level will be
day conference on the theme with spe-
launched to communicate in simple
cific reference to WTO scenerio.
and transparent manner the benefit
of VAT for common people, traders, 12th and 13th March, 2005 New Delhi
industrialists and also the State
26th and 27th March, 2005 Mumbai
Governments. This campaign will
then be launched first at the na- 16th and 17th April, 2005 Chennai
tional level on the basis of necessary 30th April, 2005 Kolkatta
coordination between the States and
the Centre. This will then be simul- Other details will be published
taneously followed up at the level of shortly
every State and also in districts of
the States. This campaign will be Dr.H.R.Subramanya
based on written materials as well
PRESIDENT- ICWAI
as publicity through all media. The
purpose of this campaign will be a
the management accountant,February, 2005
BC

Accounting for Water
Resources
The paper delves into the concept and definition of accounting
for water uses by designing approaches to be universally appli-
cable for evaluating water resource management.
Siddhartha Sarkar *
T
here has been increasing inter
national and local support for
better management of water
resources based on healthy economic
principles. Since the conventional
system of national accounts is not any
more considered as an appropriate
and complete indicator of economic
performance, the need for natural
resource accounting has become nec-
essary (Sarkar 2004). The system of
national accounts provides the infor-
mation on production and disposition
of economic goods and services includ-
ing generation and allocation of in-
come and wealth in national econo-
mies. Although the framework of the
system of national accounts com-
prises of a number of characteristics,
but the deficiency in the ability of the
system arises mainly because of the
inconsistent treatment of natural and
human-made capital. In order to pro-
vide a conceptual basis for environ-
mental and economic accounting, the
system of integrated environmental
and economic accounting has been
evolved to link conventional economic
accounts with environmental and
natural resource accounts. Conceptu-
ally water accounting requires water
balances. It facilitates in better un-
* Lecturer, Department of Commerce
Dinhata College, Dinhata, Cooch, Behar
the management accountant, February, 2005
Accounting
derstanding of present patterns of
water use, improving rationale for
allocation of water among uses and
for identification of means to achieve
water savings as well as enhances in
water productivity by measuring wa-
ter quality (NEERI 1997). Therefore,
water accounting methodology has
been 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 incorporates
water balance information with the
uses of water and communicates the
information to interested parties by
classifying water balance components
into water use categories. Therefore,
water accounting methodology is
based on water balance approach.
Water balance takes into account in-
flows and outflows from basins, sub-
basins and service levels. Inflows into
the domain are further classified into
various categories as gross inflow, net
inflow 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 inflow
plus any change in storage. If water
is removed from the storage over the
time period of interest, net inflow
March 15, 2005 @ 4:03 pm
S.D.
becomes higher than gross inflow and
if water is added to storage, net in-
flow becomes less than gross inflow.
Net inflow water is either depleted or
it flows out of the domain of interest.
Water depletion is the use or removal
of water from a water basin that
renders it unavailable for further use.
Hence, water depletion is a core con-
cept for water accounting as it is the
productivity and derived benefits per
unit of water depleted. Then, it is im-
portant to distinguish between water
depletion from water diverted to a
service or use, because not all water
diverted to use is depleted. As far as
the outflow is concerned, committed
water is that part of outflow, which
is committed to other uses, and un-
committed outflow is non-depleted
water being available for use within
a basin or for export to other basins,
but flows out due to lack of storage or
operational measures. The available
water is net inflow minus volume of
water available for use at the basin,
service or use levels. Available water
includes process depletion (volume of
water diverted and depleted to pro-
duce an intended goods) and non-
process depletion (volume of water
diverted and depleted not by the proc-
ess intended for it) plus uncommitted
water.
Water accounting considers com-
ponents of water balance and duly
classifies them according to the uses
and productivity of these uses. By and
large, water balance approach is
straightforward and visible. Often
many of the components of water bal-
ance are difficult to estimate or are
not available, e.g., groundwater in-
flows and outflows to and from an
area of interest are difficult to meas-
ure and drainage outflows are often
not measured as more emphasis has
been placed on knowledge of inflows
to irrigation systems or municipal
water supply system. In spite of the
limitations, experiences demand that
even a gross estimate of water bal-
111
111
BC

ance for use in water accounting is
useful to the policy makers and other
interested people and water balance
approaches have been successfully
used to study water use and produc-
tivity at basin level (Hasan and
Bhutta 1996), at the irrigation serv-
ice level (Helal et al. 1984 and Perry
1996) and at the field level (Rathore
et al. 1996).
Performance Measurement
The performance indicators for
water accounting follow depleted quo-
tient and effective efficiency concept
(Keller and Keller 1995). Water ac-
counting performance indicators may
be presented in the form of ratios and
in 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 be
defined in terms of gross, net and
available water. In order to having
three depleted quotients separately,
depletion is to be divided by gross
inflow, net inflow and available wa-
ter respectively. Besides, process quo-
tient relates to process depletion ei-
ther total depletion or volume of
available water. Process quotient in
terms of depleted and available wa-
ter can be found out as dividing proc-
ess depletion by total depletion and
available water respectively. The
process quotient of depleted water is
analogous to the effective efficiency
concept and is particularly useful in
identifying water savings opportuni-
ties while a basin is fully or near fully
committed. When there is no uncom-
mitted water, process quotient of de-
pleted water is equal to the process
fraction of available water. Add to,
productivity of water can either be
related to the physical mass of pro-
duction or the economic value per
unit volume of water production. Pro-
ductivity of water may be measured
against gross or net inflow, depleted
water, process depleted or available
water. It relates production of mass
112
112
Accounting
to process depletion. With a view to
getting three types of productivity
indictors, productivity is divided by
gross or net inflow, depletion and
process depletion respectively.
So far as accounting components
of water are concerned, at the field
or use level magnitude of the compo-
nent of water balance is a function of
agricultural, household or environ-
mental uses. At the service level, fo-
cus is on irrigation service analysis,
which typically includes groundwater
underlying irrigated areas. Finally,
at the basin level, several processes
of water use take into consideration
including agricultural, municipal and
industrial uses. The main inflow into
a basin is precipitation. Other inflow
can be river inflow into sub-basin,
trans-basin diversions or
groundwater originating from outside
basin.
Framework for Water Accounting
The water accounting comprises
of water supply account, water use
account and water asset account. The
basis of these accounts has been ex-
plained with the help of schematic
presentation.
Water supply account: In table 1
a schematic presentation of water
supply in terms of agriculture, en-
ergy, industry, final consumer, rest
of the world and environment has
been undertaken. In the table ecosys-
tem inputs include the rainwater sup-
plied to the environment. The natu-
ral resources disclose all abstracted
water as coming from the environ-
ment (ground, perennial or ephem-
eral surface water). Besides, products
delve into main industries supplying
water as a product. In addition, some
industries may supply water, which
has already been used in the produc-
tion process to other industries and
as such has lower quality water in
their production process. The supply
of water as a product is net of the
March 15, 2005 @ 4:03 pm
S.D.
leakage during transportation. This
loss or leakage is considered as return
from the industry supplying water.
The entries under the residuals cover
return of water to the environment
and include all the flows of water that
are supplied by the industry and used
by the environment.
Water use account: Table 2 pro-
vides a schematic presentation of use
of water by different using sectors. In
the table ecosystem inputs are the ac-
tivities that use rainwater or reduce
run off. Natural resources include
water abstracted from river, lakes,
dams and groundwater for own use
or distribution. Products imply the
water, which is received from dis-
tributors. Residuals incorporate wa-
ter that is returned to the system by
different sectors.
Total water consumption is a part
of abstracted water being no longer
available for use because of its incor-
poration into products, consumption
of human being or livestock or evapo-
ration, transportation or removal
from fresh water resources. It is found
out as the difference between total
water use and total water supply.
Water asset account: Asset account
for water reflects how the stock of wa-
ter at the beginning of the accounting
period are affected by transfer of water
between environment and internal hy-
drological system to make up the stock
of water at the end of an accounting
period. Although it is simple to meas-
ure the stock of groundwater, reservoirs
and lakes, however the stock of water
in a river is measured as the volume of
riverbed. Alternatively, stock of river
water can be measured based on annual
run off (total volume of water flows
during a year / outflows of a drainage
area or river basin) or mean annual run
off (average annual flow under natural
condition). It is important to note that
the classification of water assets does
not include water in the soil, vegeta-
tion, snow or ice. Thus, the asset ac-
count measures the precipitation,
the management accountant,February, 2005
BC

Table1: Water supply account (millions of cubic metres)
Sources
Ecosystem S1: Rainwater
Inputs
Natural S2: Total Water Abstracted
Resources of which : for own use for
irrigation (out of own use)
for delivery
Products S3: Water Supplied to other
Sectors of which: Waste water
Residuals S4: Water Returned of which:
Irrigation Cooling water
Waste water treated
Waste water untreated
Loss/Leakage in distribution
Other 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.
Table2: Water use account (millions of cubic metres)
Sources
Ecosystem U1: Rainwater
Inputs
Natural U2: Total Water Abstracted
Resources of which : for own use
for irrigation (out of own use)
for delivery
Products U3: Water Delivered through
Mains of which: Waste water
Residuals U4: Water Returned of which:
Irrigation Cooling water
Waste water treated Waste
water untreated Loss/Leakage
in distribution Other return
Total Water Use (U1 + U2+ U3 )
Source: United Nations Statistical Division
Note: Ag = agriculture, Ey = energy, In = industry, Fc = final consumer, Rw =
rest of the world and En = environment.
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
Accounting
which falls directly on rivers, lakes and
reservoirs and the part of the precipi-
Ag Ey In Fc Rw En Total tation, which reaches surface and
groundwater. The run off to surface to
surface water and infiltration to
groundwater are therefore net of
evapotranspiration. The opening and
closing stock denote the quantity of
water at the beginning and at the end
of 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 total
volume of water abstracted annually.
Residuals represent the total volume of
water in the accounting period returned
to the environment. Precipitation is
composed of all wet precipitation. It
represents the part of the total annual
precipitation that reaches the lakes (di-
rectly), rivers (via run off), reservoirs
(directly) and groundwater (infiltra-
tion) but incorporates water that is
used by alien plants, forestation and
dry land sugar cane. Inflows indicate
the total volume of water in the ac-
Ag Ey In Fc Rw En Total counting period that enters the rel-
evant territory. Net natural transfer for
water resource is defined as the differ-
ence between inflows to one type of
water resource from all other and out-
flows from the same water resource to
all others. Evapotranspiration is the
loss of water resources during the ac-
counting period due to
evapotranspiration. Outflows imply the
volume of water that leaves the rel-
evant territory during the accounting
period. Finally, total volume change
includes all the changes in the stock of
water, which is considered as a differ-
ence between the closing and opening
stock and therefore a balancing figure.
Conclusion
The concept of water accounting
is meant for a number of activities
such as identification of opportunities
113
113
BC
 March 15, 2005 @ 4:03 pm
S.D.

Accounting

Table 3: Water asset account (millions of cubic metres) Perry, C.J. (1996): The IIMI Wa-
ter Balance Framework: A Model for
Sources Surface water (dams, rivers, Groundwater Total
Project Level Analysis, Research Re-
lakes and other storage
port 5, International Irrigation Man-
facilities)
agement Institute, Sri Lanka.
Opening Stock Rathore, A. L., Pal, A.R., Sahu,
R.K. and Chadhary, J.L. (1996): “On-
Less: Abstraction Farm Rainwater and Crop Manage-
ment for Improving Productivity of
Add: Residuals / Total
Rain Fed Areas”, Agricultural Water
Return Flows
Management, Vol.31, pp.253 – 267.
Add: Precipitation Sarkar, S. (2004): “Valuation of
(Annual Run off) Natural Resources”, Indian Journal of
Commerce, Vol. 57,No.1, pp.106 –111.q
Add: Inflows (Total
Water Transfer in) Programme

Add/Less: Net Natural ICWAI PROGRAMME ON

Transfer
Less: Evaporation
Less: Outflows (Total
Water Transfer out)
Less: Total Volume
Change
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 water
audit. Since there is an increasing
pressure on accountability for water
use with rising scarcity of water, fu-
ture research in the realm of non-
process depletion of water, claim for
water savings based on field trials,
accounting for depletion due to pol-
lution, reporting of field scales result
in water accounting format, and ap-
propriate standards for water ac-
counting and auditing are utmost
desirable.
References :
Hasan, G.Z. and Bhutta, M.N.
(1996): “A Water Balance Model to Es-
timate Groundwater Recharge in
Cost Accounting in Oil Sector
Date & Venue
9-10 April 2005 at Hotel Ambarish,
Guwahati, Assam
Duration
9-30 AM to 4-30 PM
Programme Content
Globalisation of Oil Sector: Threats
& Challenges
Cost Accounting Records Rules in
Rechna Doab, Pakistan”, Irrigation and Oil Sector
Drainage Systems, No.10, pp.297 – 317. Costing of Oil Services
Cost System in Oil Industries
Helal, M.A.N., Ibrahim, M.,
Gates, T.K., Ree, W.O. and Semaika, Derivatives & Risk Management in
M. (1984): Water Budgets for irri- Indian Oil Industry
gated Regions in Egypt, Egypt Water
Participation Fee
Use and Management Project, Tech-
nical Report 47, Egypt. Rs. 5000 per person
Keller, A. and Keller, J. (1995): Payable by Cheque/Demand Draft
Effective Efficiency: A Water Use favouring
Concept for Allocating Freshwater 'ICWA of India' payable at Kolkata
Resources, Water Resources and Ir- Contact
rigation Division Discussion Paper
Mr. Swapan Majumder, PD Direc-
22, Win rock International, USA.
torate, Kolkata
National Environmental Engi- Phone: 033 - 2252 1031/34/35
neering Research Institute Or,
(NEERI)(1997): Natural Resource
Director (Research & Journal):
Accounting in Yamuna River Sub-
Ph 033 - 2252 7143
Basin, Draft Interim Report,
E-Mail: ssicwai@vsnl.net
Mimeograph, Nagpur.

114 the management accountant,February, 2005

114

BC

Service Tax on goods
transport agency
"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!"
Hetal Shah
I
n exercise of the powers conferred
by 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 the
Service Tax Rules, 1994 so as to cover
the services provided by the Goods
Transport Agency under the service
tax net.
Infact, The Finance Bill 2004
again sought to levy the tax on GTA
and once again GTA went on nation
wide strike. The government then
formed a committee to review this
matter. In the second week of Novem-
ber-2004 the committee submitted his
report with a suggestion that the li-
ability of service tax on GTA is to be
borne by the person who pay the
freight and a abatement of 75% is to
be given. This will led the tax on GTA
back to road with the 1997 position
of the receiver to pay the tax.
The Government accepted the
suggestion of the committee and is-
sued Four notification dated 03-12-
2004 making the applicability of
Service Tax on GTA w.e.f. 01-01-2005
Salient Features of the Service Tax on
GTA
A. Meaning of Goods Transport Agency
as defined in Section 65(50b) : GTA
" Means any commercial concern
which provides service in relation to
the management accountant, February, 2005
Professional Updates
transport of goods by road and issues
consignment note by whatever name
called". Going by the definition, a
cargo company popularly known as
Surface Courier Company is covered
by the rules. However, a courier com-
pany involved in the business of docu-
ment transportation is not covered
under this service clause. (However,
it will get covered under courier serv-
ices head).
B. Effective from :
Service tax is sought to be levied
on goods transport agency with Effect
From 1-1-2005
{ para 26 of the CBEC circular no
F.No.B2/8/2004-TRU dtd 10th Sep-
tember, 2004 read with exemption
notification no 32 to 35 /2004 ST dtd
3-12-2004} It is important to note that
w.e.f 10/09/2004 other new services
were added. However, GTA service is
being added w e f 01/01/2005.
C. Abatment available? :
As per notification no 32/2004 ST
dtd 3-12-2004 where the GTA does
not avail any CENVAT credit on in-
puts & capital goods, only 25% of the
gross amount charged on any taxable
service provided by GTA to a cus-
tomer in relation to transport of
goods, by road in goods carriage, will
be chargeable. i.e. 75% of the gross
amount would be exempted from serv-
ice tax. Further, exemption fm appli-
March 15, 2005 @ 4:03 pm
S.D.
cability of service tax is provided in
specific cases which are be discussed
in para G
D. Rate of Service Tax on the value of
taxable service:
Þ 10% as Service tax
Þ 2% on Service tax as Service tax
Education Cess.
E. Liability to pay service tax :
For all other services covered un-
der service tax, Service provider has
to charge, collect and pay the service
tax. However, in case of Service pro-
vided by GTA rule is different. As per
35/2004-Service Tax, dated : Decem-
ber 3, 2004, in relation to taxable
service provided by a goods transport
agency, any person who pays or is li-
able to pay freight either himself or
through his agent for the transporta-
tion of such goods by road in a goods
carriage; where the consignor or con-
signee of goods is,-
(a) any factory registered under or
governed by the Factories Act,
1948 (63 of 1948);
(b) any company established by or
under the Companies Act, 1956
(1 of 1956);
(c) any corporation established by or
under any law;
(d) any society registered under the
Societies Registration Act, 1860
(21 of 1860) or under any law cor-
responding to that Act in force in
any 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-
115
115
BC

vided by the GTA to an individual or
proprietorship concern and a person
who is a dealer but not registered un-
der central Excise Act, 1944 only would
chargeable 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 goods
transport agency which provides
service in relation to transport of
goods by road in a goods carriage
shall issue a consignment note, un-
less the services are exempted under
section 93 of the Act, to the customer.
"consignment note" for the pur-
pose of this rules means a document,
issued by a goods transport agency
against the receipt of goods for the
purpose of transport of goods by road
in a goods carriage, which is
1. serially numbered with date , and
contains the
2. name of the consignor,
3. name of consignee,
4. registration number of the goods
carriage in which the goods are
transported,
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 service
tax whether consignor, consignee
or the goods transport agency.'
G. Exemption:
As per Notification No. 33/2004,
When fruits, vegetables, eggs or milk
are transported by road, or as per
notification No. 34/2004
1. Where the gross amount charged
for all the consignments in one trip
in the goods carriage is below
Rs1500 or
116
116
Professional Updates
2. Where all the consignment to a
single consignee in one trip is be-
low Rs 750.
H. Mandatory information in Invoice::
As per the rule 4A, Invoice made
by GTA will contain additional details
of consignment note number, date &
gross weight of the consignment
Apart from regular details as per
Rule 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 and
value of taxable service provided
or to be provided; and
5. the service tax payable thereon.
6. signed by service provider or a
person 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 person
who is a dealer but not registered
under central Excise Act, 1944
2. By consignor if he or his agent
pays for the freight & falls in the
category Person liable to pay
service tax mentioned above. The
consignor will obtain Service Tax
Registration.
3. By consignee if he or his agent
pays for the freight & falls in the
category Person liable to pay
service tax mentioned above. The
consignee will obtain Service Tax
Registration.
J. Following Service tax paid on be-
half of GTA is eligible for Cenvat
Credit:
1. The Service tax paid by a Con-
March 15, 2005 @ 4:03 pm
S.D.
signor for removing final goods
for depot as stock transfer
2. The service tax paid by a Con-
signee on goods that are inputs
or capital goods as per Cenvat
Credit Rules, 2004.
3. The service tax paid by consignor
or consignee on GTA service
which is used as input service for
providing output service.
K. Cenvat Credit Eligibility :
The Service tax paid on behalf of
the GTA would be available as cenvat
credit only after full amount is paid
to GTA. It is understood that full
amount of invoice does not mean that
cenvat credit is available only if 100%
payment is made. It should not be
misunderstood that if a debit note has
been raised against the invoice, credit
of Cenvat is not available, as full pay-
ment is not made. Full payment is
understood to be the full and final
payment/settlement against the spe-
cific invoice. The service tax may be
paid by the Consignor or Consignee
by 25th of the next month.
L. Service Tax registration by the GTA
service receiver.
It is clear from the notification no.
35/2004, that the certain service receiv-
ers have to pay the service tax in case
of service received form GTO. In such
case the service receiver has to get him-
self registered under the Service Tax
Rules,1994 , because Rule 4 which deals
with registration states that Every per-
son liable to pay service tax shall have
to get himself registered with in 30 days
on which the service tax under section
66 of the Finance Act,1944 is levied. In
case of GTO the service tax is levied
w.e.f. from 01-01-2005 and the time
period 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
the management accountant,February, 2005
BC

Report on Cost Accounting Record Rules
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 the
Companies Act every company shall keep at its regis-
tered office proper books of account and in the case of
a company pertaining to any class of companies en-
gaged in production, processing, manufactur-ing or
mining activities, such particulars relating to
4tilisation of material or labour or to other items of
cost as may be prescribed shall be kept, if such class
of companies is required by the Central Government
to 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, beginning
from March, 1967. These include (1) Cycle (2) Tyres
& Tubes 13) Caustic Soda (4) Room Air Conditioners
(5) Refrigerators (6) Batteries other than Dry Cell
Batteries (7) Electric Lamps (8) Electric Fans (9) Elec-
tric Motors (l0) Aluminium (11) Vanaspati (12) Bulk
Drugs (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)
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
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) Mining
and 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 been
made as to which are the remaining industries which
require Cost Accounting Records Rules and whether
any time-frame has been envisaged for formulating
these rules, the Ministry in their response dated 26
June, 2003 stated as under:-
“The first schedule to the Industries (Development
and Regulations) Act, 1951 features the list of
industries engaged in the manufacture or produc-
tion of various articles. Though number of indus-
tries/products indicated therein have already been
covered by notifying the Cost Accounting R~0rd
Rules for the respective products, following are
the major industries for which the said rules are
yet to be framed:-
(i) Fuels like Coal, fuel gases
(ii) Transportation-Aircraft, Ship, Railway locomotives
(iii) Industrial Machinery, Agricultural/Earth-moving
machinery
(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 have
attained strategic impor-tance to the economy and public
at large, particularly after the opening of the economy
for private/foreign companies. . An authentic cost data
base to various existing and new regulatory bodies (such
as Insurance Regulatory and Development Authority,
RBI.), Competition Commission, various States and Cen-
tral Government departments for fixation of user charges
in respect of services provided by them, revenue
depart-ments etc. is of paramount importance and would
go a long way in fulfilling their respective objectives. It is
therefore, envisaged to prepare Cost Accounting Records
Rules for these sectors in a phased manner:-
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Report on Cost Accounting Record Rules
(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/service
sectors, it may be submitted that framing of new Cost
Accounting Records Rules involves various stages such
as visit to select units, preparation of draft rules after
incorporating 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 same
into 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 nearly
a year and a half. In view of the above and taking into
account the work force available and other exigencies,
minimum of four to five years may be required to frame
Cost 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 of
the representatives of the Department of Company
Affairs on 14 October, 2003.
3.6 Even 38 years after passing the relevant provision of
Legislation, the Government have not been able to
frame the Cost Accounting Records Rules to cover all
major industries / products. The slow pace of framing
rules negate the very purpose of the important provi-
sion of the legislation passed by the Parliament. In
this connection a representative of the Department
of 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 legislation
that is intended to create anything permanent. It is not a
fresh legislation to create something specific on the lines
of CCI (Competition Commission of India). It enables us
to do something. It is not compulsory to do that thing even
if it is not required.”
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March 15, 2005 @ 4:03 pm
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Secondly, the misunderstanding seems to be that we
are controlling the cost. But we are not controlling the
cost. 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 control
will have to come from somewhere else.”
3.7 Clarifying the position further, the Secretary, DCA
added:
“As far as price control is concerned, this will notable
coming through by-the sole mechanism of CARRs. It is
only one of the aids that may help in arriving at the cost
of production of industrial products. Ultimately the price
control would depend on freight factors, on Government
Policies, on monsoon and such other things.”
3.8 During the course of oral evidence, the Committee
desired to know whether the Ministry laid down im-
mediately after passing the legislation in the year
1965 any time-frame for framing Cost Accounting
Records Rules to cover all major industries/ products
and the reasons for delay, if any, in not adhering to
the time frame. The Secretary, DCA stated in reply
as follows:-
“I would like to mention here that in a meeting which
was chaired by the Company Law Board at one point of
time there was a priority assigned for choosing the in-
dustries. These priorities were broader than the industry
should be consumer-oriented where any change in sales
price would impact the consumers; it should be produc-
ing basic raw materials like caustic soda, soda ash and
sulphuric acid; it should be an industry dealing with short
supply goods, capital intensive industries where capacity
remains unutilised, etc. Thus, the Cost Accounts Branch
of 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 enabling
provisions of the amended Companies Act.
In fact, on that reckoning there is hardly any arrears
with the Department of Company Affairs except that out
of that list only five industries, notable among them be-
ing coal, are left out for which CARRs should have been
in position. The reasons for these industries being left out
have not come out. clearly from the records available; In
fact there is no evidence available (it this stage which
may suggest that the concerned Ministries or the regula-
tors have been pursuing. the matter with the Departments
of Company Affairs as far as these given industries are
concerned.”
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Report on Cost Accounting Record Rules
3.9 The Department of Company Affairs stated in a note
that the main objective of Cost Audit when introduced
was mainly to meet Government requirements for
regulating the price mechanism in certain industries.
.DCA further stated that in the present scenario of
liberalisation and globalisation, to ensure free trade
and absence of unfair practices, authentic cost data-
base is not only essential for the industries to improve
upon 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 a
note. the Secretary, DCA submitted during oral evi-
dence (on14.10.2003) as fol1ows:-
“Of late there has been a school of thought developing
in the country who have been advocating dilution of
CARRs 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 continuous
edge. Also, the line Ministries and the regulators requests
for placing more and more industries towards CARRs are
not coming up. Perhaps the regime of administered prices
and subsidies is on the decline.”
3.10 Cost Accounting Records Rules have not been for-
mulated for some of the major industries/products
such as Coal, Transportation, (Aircraft, Ship and Rail-
way Locomotives), Industrial Machinery, (including
Agricultural Machinery and Earth moving Machin-
ery), Medical and surgical appliances, Food Process-
ing Industries, Glass, Ceramics,etc. When asked
whether any time frame bad been formulated to frame
CARRs for the industries/products mentioned above
and to specify targets in respect of each of the above
industries, the Secretary DCA submitted as under:-
“We shall be undertaking this exercise and we will be
writing to the concerned Ministries in the light of the new
regimes, 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 certain
set 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 evolving
CARRs for service sectors like Banking, Insurance,
Media /Broadcasting, Health, Education, Hotel. Tour-
ism and Airlines Sectors etc. the Secretary, DCA re-
sponded as under:-
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
“As the Act stands today, section 209(1 )(d) talks about
the class of company, engaged in production, processing,
manufacturing or mining activities. These are the four
categories of companies that they have expressed. We will
have to think about carefully whether the service sector
falls within these.”
3.12 The Committee regret to note that even 38 years af-
ter enactment of the relevant provisions empowering
the Government to prescribe Cost Accounting Records
Rules (CARRs), these have not been framed to cover
all major industries / projects. CARRs have so far been
notified only in respect of 47 industries. The slow pace
of framing rules negates the very purpose of the im-
portant provision ofthe legislation passed by the Par-
liament. Though it has been contended that the
legisla-tion is “enabling” and is not “mandatory”, the
Secretary, Department of Company Affairs indicated
during evidence that at one point of time priority had
been assigned to certain industries in the prepara-
tion of CARRs. He admitted that out of the priori-tized
industries 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 strange
that the Department of Company Affairs could not
ascertain the reasons why CARRs could not be framed
for a major Industry such as “Coal” all these years.
The Secretary. Department of Company Affairs has
assured that the Department would now be writing
to Ministries concerned regarding formulation of
CARRs and prioritize Industries/Services on the ba-
sis of urgency expressed by them. The Committee
would like to be apprised of the action taken in this
regard 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 “attained
strategic importance to the economy and the public at
large, particularly after opening of the economy for pri-
vate / foreign companies”. It has been stated that an
authentic cost data base is of paramount importance to
various existing and new regulatory bodies, Competi-
tion Commission and Government Departments for fixa-
tion of user charges in respect of services provided by
them 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 CARRs
for service industries. The Committee feel that absence
of ‘enabling’ provi-sion in the Companies Act should not
be a reason for not prescribing CARRs for service indus-
tries. If the need for cost audit is otherwise found to be
vital for service industries, the Committee emphasise
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Report on Cost Accounting Record Rules

that expeditious action should be taken to remove the APPENDICES

lacuna in the Companies Act by suitably amending it.
(Relevant Extracts concerning CARR)
3.14The Committee are concerned to note that the De-
partment of Company Affairs do not have a definite APPENDIX I
idea about the relevance and significance of CARRs
in the present day scenario of liberalization and (Vide Para 6 of the Introduction of the Report)
globalisation. The Department have held out two dif-
ferent views before the Committee. In a note submit- SUMMARY OF RECOMMENDATIONS MADE
ted to the Committee, tile Department opined that IN THE REPORT OF THE COMMITTEE ON
the main objective of cost audit when introduced was SUBORDINATE LEGISLATION
mainly to meet Government requirements for regu-
lating the price mechanism in certain industries and (FOURTEENTH LOK SABHA)
that in the present scenario authentic cost data base
Sl. Reference to Summary of
is not only essential for the industries to improve upon
No Para No. in Recommendations
their performance and face competitive environment
the Report
but is useful to various Government agencies, revenue
authorities, regulatory bodies, banks and financial in- 3. The Cost Accounting Records
stitutions for meeting their respective objectives. The Rules
Secretary, Department of Company Affairs, however,
3.12 The Committee regret to note that
quoted during evidence another school of thought ac-
even 38 years after enactment of
cording to which the competitive regime which is now
the relevant provisions empower-
in vogue calls for companies to be competitive, cost
ing the Government to prescribe
conscious and secretive if they have to be on a con-
Cost Accounting Records Rules
tinuous edge. This view advocates dilution of CARRs
(CARRs), these have not been
to the extent of eliminating them from the statute.
framed to cover all major indus-
The Committee note that one of the-objects of the
tries / projects. CARRs have so far
Companies (Second Amendment) Bill, 1964, (which
been notified only in respect of 47
en enact-ment became Companies (Amendment) Act,
industries. The slow pace off fram-
1965] as stated in the Statement of Objects and Rea-
ing rules negates the very purpose
sons appended to the Bill, was to strengthen the pro-
of the important provision of the
visions relating the investigation into the affairs of
legislation passed by the Parlia-
Companies and to provide for more effective audit in
ment. Though it has been. con-
dealing with cases of dishonesty and fraud in the cor-
tended that the ,legislation is “ena-
porate sector”. In view of a number of cases of finan-
bling” and is not “mandatory”, the
cial irregularities in the Corporate sector recently
Secretary, Department of Com-
coming to light, the Committee find it difficult to sub-
pany Affairs indicated during evi-
scribe to this school of thought. The Committee feel
dence that at-one point of time pri-
that holding divergent views and lack of clear policy
ority had been assigned to’ certain
about CARRs is not conductive to the functioning of
industries in the preparation of
the Department. The Committee urge that the De-
CARRs. He admitted that out of
partment of Company Affairs in consultation with
the prioritized industries for which
Ministries and regulators concerned should examine
CARRs should have, been in posi-
thoroughly from all angles the need and importance
tion, five major industries have
of the Cost Accounting Records Rules in the present
been left out, notable among them
day scenario and lay down clear, coherent and unam-
being the Coal Industry. It is
biguous policy guidelines in regard to CARRs.
strange that the Department of
N.N. KRISHNADAS, Company Affairs could not ascer-
Chairman, tain the reasons why CARRs could
Committee on Subordinate Legislation. not be framed for a major industry
such as “Coal” all these years. The
NEW DELHI;
Secretary, Department of Com-
August, 2004

120 the management accountant,February, 2005

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Report on Cost Accounting Record Rules
pany Affairs has assured that the
Department would now be writing
to Ministries concerned regarding
formulation of CARRs and
prioritize Industries / Services on
the basis of urgency expressed by
them. The Committee would like to
be apprised of the action taken in
this regard and the time frame laid
down 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 to
the. economy, and the. public at
large, particularly after opening of
the economy for private / foreign
companies”. It has been stated that
an authentic cost data base is of
paramount importance to various
existing. and new regulatory ,bod-
ies, Competition Commission and
Government, Departments for
fixation of user charges in respect
of services: provided by them and
would go a long way in respect of
fulfilling their respective objec-
tives. The existing provisions of
the Companies Act, however, do
not require formulation of CARRs
for service industries. The Com-
mittee feel that absence of ‘ena-
bling’ provision in the Companies
Act should not be a reason for not
prescribing CARRs for service in-
dustries: If the need for cost audit
is otherwise found to be vital for
service industries, the Committee
emphasise that expeditious action
should be taken to remove the la-
cuna in the Companies Act by suit-
ably amending it.
3.14 The Committee are concerned to
note that the Department of Com-
pany Affairs do not have a definite
idea about the relevance and sig-
nificance of CARRs in the present
day scenario of liberalization and
globalisation. The Department
have held out two different views
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
before the Committee. In a note
submitted to the Committee, the
Department opined that the main
objective of cost audit when intro-
duced was mainly to meet Govern-
ment requirements for regulating
the price mechanism in certain in-
dustries and that in the present
scenario authentic cost data base
is not only essential for the indus-
tries to improve upon their per-
formance and face competitive en-
vironment but is useful to various
Government agencies, revenue au-
thorities, regulatory bodies; banks
and financial institutions for meet-
ing their respective objectives. The
Secretary, Department of Company
Affairs, however, quoted during
evidence another school of thought
according to which the competitive
regime which is now in vogue calls
for companies to be competitive,
cost conscious and secretive if they
have to be on a continuous edge.
This view advocates dilution of
CARRs to the extent of eliminating
them from .the statute. The Com-
mittee note that ‘one of the objects
of the Companies (Second Amend-
ment) Bill, 1964, [which ‘on enact-
ment became Companies (Amend-
ment) Act, 1965] as stated in the
Statement of Objects and Reasons
appended to the Bill, was to
strengthen the provisions relating
to investigation into the affairs of
Companies and to provide for more
effective audit in dealing with
cases of dishonesty and fraud in the
corporate sector”. In view of a
number of cases .of financial ir-
regularities in the corporate sector
recently coming to light, the Com-
mittee find it difficult to subscribe
to this school of thought. The Com-
mittee feel that holding divergent
views and lack of clear policy about
CARRs is not conducive to the func-
tioning of the Department. The
Committee urge that the Depart-
ment of Company Affairs in consul-
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Report on Cost Accounting Record Rules

tation with Ministries and regula- MINUTES OF THE NINTH SITTING OFTHE COMMIT-
tors concerned should examine TEE ON SUBORDINATE LEGISLATION (2003-2004)
thoroughly from all angles the The Committee met on Tuesday, 14 October, 2003 from 15.00
need and importance of the Cost to 16.30 hours in Committee Room ‘C’, Parliament House
Accounting Records Rules in the Annexe, New Delhi.
present day scenario and lay down
clear coherent and unambiguous PRESENT
policy guidelines in regard to
CARRs. 1. DR.B.B.Ramaiah - Chairman
3 The Committee then considered
Members
Memorandum No. 60 regarding the
Cost Accounting Records (Planta- 2. Shri Paban Singh Ghatowar.
tion Products) Rules, 2002 (GSR
685-E of 2002) and the Cost Ac- 3. Dr. M. Jagannath
counting Records (Petroleum In-
dustry) Rules, 2002 (GSR 686-E of 4. Shri Ram Singh Kaswan
2002). The Committee observed
5. Shri Pravin Rashtrapal
that Cost Accounting Records
Rules for a number of major indus- 6. Shri Anadicharan Sahu
tries/products and a number of In-
dustrial Service Sectors have not 7. Prof. I.G Sanadi
been framed even 37 years after
passing the relevant provision of 8. Dr. Ram Lakhan Singh
Legislation. An authentic cost data
base to various existing and new 9. Shri Ramjiwan Singh
regulatory bodies (such as Insur-
10. Dr. N. Venkataswamy
ance Regulatory and Development
Authority, RBI), Competition Com- Secretariat
mission, various States and Cen-
tral Government departments for 1. Shri S.K. Sharma - Joint Secretary.
fixation of user charges in respect
2. Shri A. Louis Martin - Director
of services provided by them, rev-
enue departments etc. is of para- 3. Shri Ashok Balwani Under Secretary
mount importance which would go
2. The Committee took oral evidence of the representative
a tong way in fulfilling their re-
of the Ministry of Finance (Department of Company Af-
spective objectives. Having noted
fairs) regarding Cost Accounting Records Rules (CARRs).
the importance of the matter the
Committee desired that a back- 3. The following were present:-
ground note on Cost Accounting
Record Rules in the context of Con- 1. Shri M.M.K. Sardana, Secretary.
sumer Protection Act, establish-
ment of Competition Commission 2. Shri. Rajiv Mehrishi, Joint Secretary
and Abolition of MRTPC, WTO 3. Shri A. K. Kapoor. Adviser (Cost)
General Agreement Trade and
Services (GATS), and recent 4. Shri J. Bose. Deputy Director (Cost)
amendments in the Companies Act
etc. be obtained from the 5. Shri G. Venkatesh. Deputy Director (Cost)
Ministtry. The Committee also de- 4. Verbatim proceedngs of the discussions were kept on
cided to call the representatives, of record.
the Ministry/ bodies concerned for
evidence. The committee then adjourned.

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EXECUTIVE D IGEST
Global economic security
in crisis
New ILO report finds “world full of anxiety and
anger”
A
new ILO report* says that eco
nomic security promotes per
sonal well-being, happiness
and tolerance, while benefiting
growth and social stability. Yet it
finds the overwhelming majority of
people 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, the
ILO report measures global economic
security as perceived by ordinary peo-
ple and workers. Its findings make for
grim reading. Nearly three-quarters
of all workers live in countries with
low levels of economic security and
only 8 per cent in countries provid-
ing favourable economic security.
What is more, with economic se-
curity out of reach for the majority of
the world's workers, the report points
to "a world full of anxiety and anger".
Forms of insecurity, such as irregu-
larity of payments and non-payment
of contractual wages, and more re-
structured and regressive social se-
curity schemes, blight the global pic-
ture, the report says.
* Economic security for a better world, Socio- Eco-
nomic Security Programme. International La-
bour Office, 2004.
the management accountant, February, 2005
Global Economic Security
The report is based on a global
socioeconomic security databank sup-
plemented by detailed household and
workplace surveys covering over
48,000 workers and more than 10,000
workplaces worldwide. Measuring in-
dicators of economic security, such as
income, representation, employment
and 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 a
positive association, but rising in-
come seems to have little effect as
wealthy countries grow wealthier.
Rather, the key factor is the extent
of income security, measured in terms
of income protection and a low degree
of income inequality.
People are often performing jobs
which do not correspond to their skills
and qualifications, leading to "status
frustration", the report adds, saying
that economic insecurity fosters intol-
erance, stress, social illness and, ul-
timately, social violence.
Moreover, the report finds that
the richest countries in the world are
not always the most economically se-
cure. South and south-east Asian
countries do relatively better than
March 15, 2005 @ 4:03 pm
S.D.
many richer countries in terms of eco-
nomic security.
The report also points to an in-
crease in the frequency and severity
of economic shocks under
globalization. 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 affecting
whole communities and regions.
"Coming shortly after the report
of the World Commission on the So-
cial Dimension of Globalization, this
book should enrich the debate on how
we can build a fair globalization;' says
ILO Director-General Juan Somavia.
"Unless we can make our societies
more equal and the global economy
more inclusive, very few will achieve
economic security ordecent work."
A global picture
The study looks at national levels
of economic security, and divides
countries into four clusters: Paceset-
ters (with good policies, good institu-
tions and good outcomes), Pragma-
tists (good outcomes in spite of less
impressive policies or institutions),
Conventionals (seemingly good poli-
cies and institutions but with less
impressive outcomes) and Much-to-
be-Done countries (weak or non-exist-
ent policies and institutions, and poor
outcomes).
The conclusion is that many
wealthy countries could easily
achieve more economic security for
their citizens. The report shows that
the global distribution of economic
security does not correspond to the
global distribution of income; South
Asia, for example, has about 7 per
cent of the world's income, but about
14 per cent of the world's economic
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security. By contrast, Latin American
countries provide their citizens with
less economic security than could be
expected from their relative income
levels, the report says.
Indeed, being insecure influences
people's attitudes, which at times can
be detrimental to their ideas of a de-
cent society. This is shown by the inter
views with 48,000 respondents. In a
recent survey undertaken by the Latino
barometro in Latin American countries,
76 per cent of the people surveyed were
concerned about not having a job the
following year, and a majority said that
they would not mind a non-democratic
government if it could solve their un-
employment problems.
South Asian and south-east Asian
countries were among the better per-
formers, with a higher share of eco-
nomic security than their share of the
world's income. China and India have
'experienced higher economic growth
under globalization and a decline in
economic instability. Other countries
in the region have experienced lower
growth rates without an increase in
economic instability, despite the
Asian crisis of 1997 -98.
124
124
Global Economic Security
Africa - where the extent of poverty
has been understated-has suffered
greater economic insecurity than any
other region of the world during the past
15 years. Economic growth has been
slower and more unstable than in other
parts of the world, and 83 per cent of
African countries surveyed were in the
"Much-to-be-Done" bracket, implying
weak policies, institutions and results.
Economic insecurity has grown
the most in Eastern Europe over the
past 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 the
absence of decent state benefits. The
absence of meaningful work opportu-
nities is more severe than implied by
official unemployment statistics, and
laws and commitments on social se-
curity are ineffective.
Latin America - which has the
most unequal income distribution -
has experienced more frequent and
increasingly severe economic crises.
In recent years, the region has expe-
rienced a bigger decline in growth
rates and a bigger increase in the
volatility of growth than any other
March 15, 2005 @ 4:03 pm
S.D.
region of the world, inducing a sharp
increase in economic insecurity.
Despite regional variations, a key
feature of the findings is that only
countries which provide a coherent
set of policies which strengthen all
seven forms of labour security have-
a high score on overall economic se-
curity. Countries with very strong
attainment in some spheres but with
weak attainment in one or more oth-
ers do not perform well overall.
The report shows that political
democracy and a trend towards civil
liberties significantly increase eco-
nomic security and that government
spending on social security policies
also has a positive effect. But there
is only a weak impact of economic
growth on security, measured over
the longer term. In other words, rapid
growth does not necessarily create
better economic security, although it
can do so if accompanied by appropri-
ate social policies.
The report also finds that "income
security is a major determinant of other
forms of labour-related security", and
that income inequality worsens eco-
nomic security in several ways. "The
message", the report concludes,
is that "highly unequal societies
are unlikely to achieve much by
way of economic security or de-
cent work."
The analysis shows that
there has been an upward
trend in the frequency and se-
verity of economic shocks dur-
ing the recent period of
globalization (since 1980), as
well as a coincidental growth in
the number of natural disasters
affecting very large numbers of
people. It also shows that, ex-
cepting the two most populous
nations (China and India), glo-
bally - and particularly among
Continued to page 126
the management accountant,February, 2005
BC

Indian Ocean tsu-
nami warning sys-
tem by mid - 2006
A tsunami warning system for the
Indian Ocean will be set up by mid-
2006 under the leadership of the United
Nations, agreed the governmental
World Conference on Disaster Reduc-
tion in Kobe, Japan.
The news comes as Indonesia in-
creased its death toll from the tsunami
on 26 December 2004 to at least
160,000, raising the total number of
deaths to about 220,000.
The technology to detect tsunamis
in the Indian Ocean region should be
up and running within 12 to 18 months,
said Salvano Briceno, director of the
UN's International Strategy for Disas-
ter Reduction (ISDR). Developing plans
for an effective response to any warn-
ing, and educating local communities,
will take longer - perhaps two to three
years - Briceno said.
Individual countries, including the
US and India, had said they wanted to
coordinate 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 early
warning system in the Pacific, will take
the lead in coordinating the technology.
Mitigating the damage from any
future tsunami - through better build-
ing, for example - is also crucial and the
World Meteorological Organization, the
UN Development Programme and fi-
nancial institutions will work with in-
dividual countries on this.
Lastly, the International Federation
of Red Cross and Red Crescent Societies
will lead the projects for community edu-
cation. Within the next few weeks, the
the management accountant, February, 2005
Nature Against Man
ISDR will start distributing funds to the
individual agencies to start work.
The exact form of the early warn-
ing system - and how it might be used
and extended to provide warnings of
other natural hazards - is still to be
thrashed out. "There will be more meet-
ings to discuss the road map," said
Yoshitaka Murata, Japan's minister of
state for disaster management, and
president of the conference.
Once the Indian Ocean system is
decided, it will then be more straight-
forward to extend the system to other
seas and oceans, Briceno added.
Source : New Scientist
Tsunami &
Earthquake
Panel 1—Initiation: Earthquakes
are commonly associated with ground
shaking that is a result of elastic
waves traveling through the solid
earth. However, near the source of
submarine earthquakes, the seafloor
is “permanently” uplifted and down-
dropped, pushing the entire water col-
umn up and down.
The potential energy that results
from pushing water above mean sea
level is then transferred to horizontal
propagation of the tsunami wave (ki-
netic energy). For the case shown
above, the earthquake rupture occurred
at the base of the continental slope in
relatively deep water. Situations can
also arise where the earthquake rup-
ture occurs beneath the continental
shelf in much shallower water.
Note: In the figure the waves are
greatly exaggerated compared to wa-
ter depth! In the open ocean, the
waves are at most, several meters
high spread over many tens to hun-
March 15, 2005 @ 4:03 pm
S.D.
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 tsunami
that travels out to the deep ocean
(distant tsunami) and another tsu-
nami that travels towards the nearby
coast (local tsunami).
The height above mean sea level
of the two oppositely traveling tsuna-
mis is approximately half that of the
original tsunami (Panel 1). (This is
somewhat modified in three dimen-
sions, but the same idea holds.) The
speed at which both tsunamis travel
varies as the square root of the water
depth. Therefore the deep-ocean tsu-
nami travels faster than the local tsu-
nami near shore.
Panel 3—Amplification: Several
things happen as the local tsunami
travels over the continental slope.
Most obvious is that the amplitude
increases. In addition, the wave-
length decreases. This results in
steepening of the leading wave—an
important control of wave runup at
the coast (next panel).
Note also that the deep ocean tsu-
nami has traveled much farther than
the local tsunami because of the
higher propagation speed. As the
deep ocean tsunami approaches a dis-
tant shore, amplification and short-
ening of the wave will occur, just as
with the local tsunami shown above.
Panel 4—Runup: As the tsunami
wave travels from the deep-water,
continental slope region to the near-
shore region, tsunami runup occurs.
Runup is a measurement of the
125
125
BC

height of the water onshore observed
above a reference sea level.
Contrary to many artistic images of
tsunamis, most tsunamis do not result
in giant breaking waves (like normal
surf waves at the beach that curl over
as they approach shore). Rather, they
Continued from page 126
developing countries - economic
growth rates in per capita terms have
declined 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 for
rapid economic liberalization.
These trends are important, the
report notes, saying that more peo-
ple are being exposed to systemic
risk, 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 whole
communities and regions.
The ILO report also shows that for
developing countries, the national
level of economic security is inversely
related to capital account openness,
implying that it would be sensible for
developing countries to delay opening
their 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 markets
until they have the institutional ca-
pacities to handle fluctuations in con-
fidence and the impact of external
economic developments.
126
126
Nature Against Man
come in much like very strong and very
fast tides (i.e., a rapid, local rise in sea
level). Much of the damage inflicted by
tsunamis is caused by strong currents
and floating debris. The small number
of tsunamis that do break often form
vertical walls of turbulent water called
bores. Tsunamis will often travel much
farther inland than normal waves.
Do tsunamis stop once on land? Af-
ter runup, part of the tsunami energy
is reflected back to the open ocean. In
addition, a tsunami can generate a par-
As well as drawing on a global
databank of national policies, the re-
port uses statistics from a series of
People's Security Surveys carried out
in 15 countries, in which over 48,000
working people were interviewed
about their work, the insecurities
they experience, and their attitudes
to inequality and related aspects of
social and economic policy.
Respondents were asked about
their attitudes towards various aspects
of economic insecurity and inequality.
A majority everywhere favoured more
support 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 cent
of workers.
l Women usually experience more
insecurity on average than men,
and face more types of insecurity
l Employment security is dimin-
ishing almost everywhere, due to
the informalization of economic
activities, outsourcing, and regu-
latory reforms
l A large number of people possess
skills which they do not use in
their work
l Job security (the possession of a
March 15, 2005 @ 4:03 pm
S.D.
ticular type of wave called edge waves
that travel back-and forth, parallel to
shore. These effects result in many ar-
rivals of the tsunami at a particular
point on the coast rather than a single
wave suggested by Panel 3. Because of
the complicated behavior of tsunami
waves near the coast, the first runup
of a tsunami is often not the largest,
emphasizing the importance of not re-
turning to a beach several hours after
a tsunami hits. ❑
Source :http://walrus.wr.usgs.gov/
tsunami/basics.html
position giving good prospects of
satisfying work and a career) is
weak in most countries, and data
from the People's Security Sur-
veys high light wide-spread job
dissatisfaction
Finally, the analysis considers a
wide range of policies to determine
which 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- ating
them on the basis that they should of-
fer the strong prospect of reducing the
economic 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 that
conventional social security systems
are inappropriate for responding to the
new forms of systemic risk and uncer-
tainty which characterize the emerging
global economic system. Accordingly,
governments and international agen-
cies should promote universalistic,
rights-based schemes which provide
people with basic economic security,
rather than resorting to selective,
means-tested schemes. And they should
promote new forms of "Voice", bodies
which represent all legitimate interests
in society. Without Voice and basic in-
come security, almost everybody will
face a future of economic insecurity. ❑
Source :World of Work
the management accountant,February, 2005
BC

Standard Setters have lost sight !
Do standard-setters have lost sight of the fun-
damental principles of accounting
F
or some years now, I have been
concerned about the direction
in which the accounting stand-
ard-setters have been taking finan-
cial reporting both here in the UK
and internationally. In my view,
there is excessive emphasis on fair
valuation in the balance sheet to the
detriment of the usefulness of the in-
come statement in portraying the per-
formance of companies.
In common with over 7,000 listed
companies in the EU, we at Tomkins
are preparing for the transition to
reporting under IFRS from 1 Janu-
ary 2005. As finance director of a com-
pany listed in both London and New
York, I welcome the attempt to de-
velop a single global accounting lan-
guage. Unfortunately, however, the
language that is being spoken by the
International Accounting Standards
Board (IASB) is, frankly, foreign to
those of us who are managing our
businesses in order to maximise eco-
nomic and shareholder value. We
need accounting standards and a
framework for financial reporting
based on economic reality which, to
my mind, is driven by the ability of
businesses to generate sustainable
cashflows: and that's where Luca
Pacioli comes in.
Historical precedent
As students of the history of ac-
counting will know, Pacioli was a
monk and a mathematician who, in
1494, was the first person to describe
double-entry bookkeeping in his book
The Collected Knowledge of Arithme-
the management accountant, February, 2005
International Accounting Standards
tic, Geometry, Proportion and Propor-
tionality. Unwittingly, he was the
first chairman of the IASB as, it
seems, the publication of his book rep-
resented the first and only time to
date that the accounting profession
has achieved global stand-
ardisation.
The most important sec-
tion of his book was a treatise
on accounting in which you
will find the origins of the ex-
pression 'cash is king'. To
Pacioli, value creation de-
pended on the generation of
cash and the concept of profit
was as a mechanism to
smooth the inevitable volatil-
ity of cashflows.
In Pacioli's model, growth
represents the increase in the
book value of assets during
the period which, in turn,
comprises retained profit and
new investment by way of ad-
ditional equity or borrowings.
Cash generation is as relevant
today as it was in the 15th century,
but where Pacioli's model measured
performance based on period
cashflows, modern cash-based per-
formance measurement techniques
are based on forward-looking esti-
mates of sustainable cashflows.
Speaking in the wake of the
WorldCom scandal in August 2002,
Robert Howell, programme director of
the International Institute for Man-
agement Development, said: 'The ob-
jective of business is to create real
March 15, 2005 @ 4:03 pm
S.D.
shareholder value which means in-
creasing the net present value of the
future stream of cashflows.'
In this context, performance rep-
resents the change in the present
value of the sustainable future
cashflows of the business (or the
change in its 'economic value'). As the
drivers, of economic value are growth,
cash margin, investment, taxation
and competitive position, in this ac-
counting model financial performance
is 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 modern
financial reporting is still on profit-
ability and, it is thought by some,
there is undue focus on one particu-
lar indicator of profitability- earnings
per share. Against this background,
the IASB aims to develop a frame-
work for financial reporting that 'cat-
egorises and displays all income and
expenses for the period in a way that
enhances users' understanding of the
entity's achieved performance and
that assists users in forming expec-
127
127
BC

tations of future performance'.
Muddled thinking
While I support this objective in
principle, I had hoped that the IASB
would define a number of relevant
performance indicators that could be
easily identified in financial state-
ments. Unfortunately, the IASB's
move towards fair value coupled with
its desire to prevent over- reliance on
anyone measure of performance
seems in danger of resulting in finan-
cial statements from which it will, in
fact, be difficult to obtain any mean-
ingful indicators of business perform-
ance.
In my view, this is best illustrated
by the IASB's latest thinking on the
future format of the income statement
that was published as a project up-
date entitled Reporting Comprehen-
sive Income in September 2003. What
these proposals actually represent is
an implicit acknowledgement that
there is a need to develop an income
statement in which fair value move-
ments are shown separately in order
to provide some indication of under-
lying business performance.
To my mind, this begs the ques-
tion as to why we should bother with
fair value: does it tell us anything?
Even if you accept that fair value is
here to stay, the project update shows
some worryingly muddled thinking
about performance measurement.
Operating profit, an important indi-
cator of performance, is considered to
be a residual item that it will, in prac-
tice, be difficult to distinguish from
the other components of'business
profit, Within operating profit itself,
it will be difficult to distinguish be-
tween income and expenses resulting
from 'remeasurements' and other in-
come and expenses.
We are some way from a solution
and, I believe, the problem lies not so
much with the proposed reporting for-
128
128
March 15, 2005 @ 4:03 pm
S.D.
International Accounting Standards
mat but more
with the com- The language that is being spoken
prehensive in-
come model on by the IASB is, frankly, foreign to
which it is those of us who are managing our
founded.
In both
businesses in order to maximise
Pacioli's model shareholder value
and the for-
ward-looking economic value model,
is sensible to have teams of highly
increases or decreases in profit that
skilled people producing information
result from upward and downward
for external consumption that is nei-
movements in asset values do not af-
ther used to manage the business nor
fect cashflow and do not, therefore,
understood by the users of the ac-
have any bearing on the measured
counts. Surely, it would make sense
performance of businesses. However,
to focus this talent on increasing
movements in asset values do affect
shareholder value and, thereby, the
measured performance in the compre-
wealth of the world economy?
hensive income model. Thus the
model does not represent a combina- The IASB's objective is to 'de-
tion of the Pacioli and economic value velop, in the public interest, a single
models but another different ap- set of high quality, understandable
proach. and enforceable global accounting
standards that require high quality,
While it is true that some fair
transparent and comparable informa-
value adjustments may indicate fu-
tion in financial statements and other
ture cashflows, they take no account
financial reporting to help partici-
of the intangible drivers of long-term
pants in the world's capital markets
economic value. Consequently, the
and other users make economic deci-
comprehensive income model pro-
sions'.
vides users of financial statements
with neither the basic measurement
Losing their way
of performance based on cashflows in
the period, as provided by Pacioli's In reality, however, the standard-
model, nor the forward-looking as- setters seem to have lost sight of the
sessment of future cashflows provided fundamental principles of accounting
by the economic value model. At best, and are developing a highly technical
it falls between two stools. At worst, accounting model that will be incom-
it actually makes it more difficult for prehensible to most users of accounts.
users of financial statements to as- All this at a time when the rectitude
sess underlying business perform- and relevance of the accounting profes-
ance. sion is under severe scrutiny following
recent financial scandals.
So, what do I suggest should be
the future of financial reporting? In Over the last decade or so, finan-
a nutshell, we should be taking an 'in- cial reporting has become increas-
side out' approach. In other words, we ingly divorced from economic reality
should attempt to align the informa- but it is not too late to turn the tide.
tion reported externally with the in- Preparers of accounts need to wake
formation actually used internally by up to the challenge or, sadly, we will
management to run the business. get the financial reporting framework
that we deserve. ❑
We must ask ourselves whether it
Source : Ken Lever in Accountancy
the management accountant,February, 2005
BC
 Units Dec. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec.
2003 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004
Agriculture
Actual rainfall mm 21.7 19.6 14.2 11.4 51.1 84.4 165.7 188.6 250.9 127.2 82.6 19.2
variation from normal per cent 12.4 19.5 -32.7 -63.0 49.4 55.7 -5.5 -29.0 1.4 -40.4 7.7 -37.5
Stock of foodgrain mln. tns. 25.0 24.0 22.8 20.6 32.4 32.3 30.6 27.2 23.0 20.3 23.7
% change (yoy) -48.1 -40.1 -37.1 -37.1 -21.6 -18.9 -13.1 -10.9 -17.4 -14.1 7.4

Energy/Infrastructure
Coal production mln. tns. 33.4 34.6 33.5 37.5 28.2 28.6 27.7 28.6 26.0 28.5 31.1 32.4
% change (yoy) 6.3 8.4 12.6 6.8 8.2 7.8 6.4 7.6 -0.4 9.7 11.4 3.5
Crude oil production mln. tns. 2.89 2.91 2.73 2.89 2.85 2.88 2.78 2.87 2.88 2.76 2.88 2.80
% change (yoy) 3.0 4.2 7.2 2.0 10.7 8.1 1.1 0.3 5.1 2.0 -0.1 0.9

the management accountant, February, 2005

Power generation bln. unit 48.1 49.2 46.0 51.0 49.0 48.2 46.4 50.4 48.2 49.0 48.6 48.0 50.5
% change (yoy) 5.2 6.4 12.7 10.5 10.6 4.0 4.8 14.6 7.5 8.6 4.8 4.4 5.0
Railways: freight traffic mln. tns. 48.9 48.9 47.7 53.7 45.6 48.8 47.0 49.7 46.2 47.7 50.4 49.4
% change (yoy) 6.2 6.4 11.3 9.0 5.9 6.6 6.0 9.2 4.0 9.9 12.2 5..1

Industry
Industrial Production Index 1993-94= 100 202.0 203.9 197.3 210.7 189.5 192.3 190.3 198.7 196.7 200.9 203.0
% change (yoy) 7.4 8.0 8.3 8.1 8.9 6.8 7.3 8.5 8.0 8.8 10.1
Basic goods 1993-94= 100 175.7 180.3 172.5 183.2 168.8 171.0 167.8 175.2 170.5 173.6 179.5
% change (yoy) 5.5 7.4 10.3 6.4 8.0 3.0 2.9 5.7 5.2 6.9 6.8
Capital goods 1993-94= 100 209.7 207.5 224.2 278.0 183.1 198.6 210.9 207.9 219.5 240.8 230.7
% change (yoy) 13.1 15.5 27.8 25.2 10.1 13.0 16.9 11.6 16.4 17.5 19.2
Intermediate goods 1993-94= 100 213.9 206.3 199.8 210.5 202.6 207.2 206.6 214.7 213.2 208.5 209.2
% change (yoy) 10.5 6.9 6.2 5.3 12.4 13.0 7.4 6.4 5.0 3.4 6.7
Indicators : Monthly

Consumer durables 1993-94= 100 268.6 286.2 271.2 299.7 261.9 276.9 274.4 299.5 295.3 325.0 330.1
% change (yoy) 12.3 16.2 17.4 23.3 11.9 8.3 16.8 20.1 17.9 20.4 15.5
Consumer non-durables 1993-94= 100 210.3 216.8 204.7 205.7 192.1 186.1 178.4 189.5 186.3 189.3 191.9
% change (yoy) 3.1 5.1 -0.7 1.6 5.0 2.5 6.5 10.2 9.2 10.2 13.4

Industrial Production
Industrial Production Index % change (yoy) 7.4 8.0 8.3 8.1 8.9 6.8 7.3 8.5 8.0 8.8 10.1
Mining & quarrying % change (yoy) 5.6 8.7 10.7 5.1 9.1 5.3 2.7 4.2 4.4 4.9 4.7
Electricity % change (yoy) 5.4 6.1 12.9 10.6 10.3 3.1 4.5 13.7 7.4 7.7 3.8
Manufacturing % change (yoy) 7.8 8.2 7.6 8.1 8.8 7:5 8.1 8.4 8.4 9.2 11.3
Cement Lakh tonnes 100.7 102.4 103.4 112.6 106.4 104.5 98.0 102.7 88.5 98.4 107.5 102.6
% change (yoy) 5.0 7.1 11.0 3.5 17.3 -1.6 -4.1 9.0 1.1 11.7 14.1 11.8
Fertilisers ’000 tonnes 1275.1 1264.4 1224.1 969.0 1064.5 1240.0 1274.6 1325.2 1327.2 1282.4 1406.4 1342.0
% change (yoy) -3.6 2.2 11.2 3.4 21.2 10.5 18.8 7.6 3.1 4.8 5.2 2.6
Finished Steel ’000 tonnes 3023.0 3166.0 3096.0 3273.0 2704.0 2942.0 2974.0 3061.0 3117.0 3210.0 3164.0
% change (yoy) 6.2 6.1 8.9 6.9 -0.3 5.6 3.3 3.5 4.1 4.1 8.1

129
Automobiles % change 23.2 21.3 24.1 33.1 34.7 9.5 17.4 17.2 24.3 13.5 24.2 3.1

129
S.D.

BC
March 15, 2005 @ 4:03 pm
 130
Units Dec. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec.

130
2003 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004

External Transaction
Exports $ mln. 5840 5045 6158 7630 5631 5965 6260 5861 5634 6215 5962 6112
% change (yoy) 51.5 8.8 47.7 47.8 34.5 32.6 47.9 27.9 28.3 17.5 9.6 25.9
Imports $ mln. 7363 6830 6744 7958 6774 7928 8591 7446 7119 8609 8298 9064
% change (yoy) 47.8 22.4 45.4 34.8 21.0 31.4 54.4 31.5 25.7 41.3 19.7 43.1
Trade balance $ mln. -1523 -1785 -586 -328 -1143 -1963 -2331 -1585 -1485 -2394 -2336 -2952
Forex reserves $ bln. 97.6 100.8 104.1 107.4 113.0 114.1 114.2 113.0 112.7 114.1 115.7 121.2
FDI approvals Rs. bln. 10.7 5.6 3.1 7.2 7.5 3.9 16.7 7.4 7.7
FDI actuals excl. acquisition $ mln. 189 112 156 115 198 139 265 142 466 153
Exchange rate Rs /$ 45.49 45.37 45.17 44.93 43.78 45.09 45.40 45.96 46.23 45.97 45.67 45.02 43.89

Capital Markets
Capital Issue Rs.bln. 20.8 47.5 83.6 193.1 46.5 19.7 23.2 78.4 50.7 40.5 60.8 19.1 20.3
Public Issue Rs.bln. 8.4 8.3 40.7 119.8 33.8 0.0 0.0 54.2 0.5 0.8 53.7 2.2 1.6
Rights Issue Rs.bln. 1.0 1.1 0.3 0.7 0.0 2.3 0.1 0.0 23.6 3.1 0.8 0.5 0.5
Private Placements Rs.bln. 11.4 38.1 42.6 72.6 12.7 17.4 23.1 24.2 26.7 36.6 6.3 16.3 18.1
Monthly returns on CMIE
Overall Share Price Index per cent 19.2 -5.0 -1.2 0.6 3.7 -18.1 1.9 8.7 2.8 8.0 2.1 10.4 9.8
Avg. daily turnover on BSE Rs. bln. 24.8 31.1 26.9 23.0 22.3 21.6 16.6 17.8 17.1 17.8 17.0 17.6 21.5
Avg. daily turnover on NSE Rs. bln. 50.2 63.9 57.2 47.7 50.5 47.1 38.6 42.7 39.5 40.2 37.8 41.0 50.3

Industrial entrerpreneurs Nos. 421 354 330 447 385 404 411 400 437 541
memoranda Rs. bln. 426.4 83.4 207.5 197.9 89.2 614.5 140.2 159.8 114.0 242.1
Prices
Wholesale price index
Indicators : Monthly

All Commodities 1993-94=100 176.8 178.6 179.8 179.8 180.9 182.1 185.2 186.6 188.3 189.4 189.1 190.0
% change (yoy) 5.8 6.4 6.1 4.8 4.5 5.0 6.7 7.6 8.4 7.9 7.4 7.4
Primary Articles 1993-94=100 180.8 182.1 182.4 180.8 183.8 187.2 190.5 189.7 192.4 192.8 191.6 191.6
% change (yoy) 3.5 4.8 3.4 1.7 2.2 3.5 3.6 5.1 7.7 6.4 4.6 4.5
Fuel, Power & Lubricant 1993-94=100 257.1 261.8 262.2 262.6 263.2 264.3 269.9 274.9 279.5 281.9 282.1 290.6
% change (yoy) 7.7 8.3 7.3 3.3 3.6 6.7 9.7 10.2 12.0 10.7 11.1 13.9
Manufactured Products 1993-94=100 157.6 158.8 160.6 161.0 161.6 162.0 164.5 165.9 166.5 167.7 167.5 167.0
% change (yoy) 6.1 6.4 6.8 6.6 5.9 5.0 7.0 7.7 7.4 7.4 7.1 6.3
Consumer price index
IW-General Index 1982 = 100 502.0 504.0 504.0 504.0 504.0 508.0 512.0 517.0 522.0 523.0 526.0 525.0
% change (yoy) 3.7 4.3 4.1 3.5 2.2 2.8 3.0 3.2 4.6 4.8 4.6 4.2
AL-General Index 1986-87=100 332.0 332.0 332.0 332.0 331.0 333.0 336.0 338.0 341.0 343.0 345.0 344.0
% change (yoy) 3.4 3.8 3.1 2.5 1.5 1.8 1.8 2.1 3.0 3.3 3.6 3.3
UNME-General Index 1984-85=100 421.0 424.0 424.0 424.0 425.0 427.0 431.0 434.0 437.0 437.0 440.0 439.0
% change (yoy) 4.0 4.4 3.9 3.4 2.9 2.9 3.4 3.1 4.0 4.0 4.0 4.0
RL-General Index 1986-87=100 334.0 334.0 335.0 334.0 334.0 335.0 338.0 340.0 343.0 345.0 347.0 346.0
% change (yoy) 3.1 3.7 3.4 6.0 1.8 1.8 1.8 1.8 3.0 3.3 3.6 3.3

the management accountant,February, 2005

Source : CMIE
S.D.
March 15, 2005 @ 4:03 pm

BC

S. RAJARA
RAJA TNAM'S COLUMN
ATNAM'S
Tax Titbits
"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!"
Tsunami Killer
Tsunami tragedy is one of the
greatest disasters, which Asia had to
meet in recent times. The loss of life
and property is unprecedented re-
quiring not only the State, but also
every individual to shoulder the bur-
den. Nothing is more welcome than
sharing it voluntarily. Tax relief is an
added 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 Chief
Ministers' Relief Fund.
Exit High Court, enter NTT
A Bill for Constitution of National
Tax Tribunal, 2004 has been intro-
duced in Lok Sabha on 6.12.2004. The
object as stated in the Bill is to consti-
tute an alternate mechanism for the
High Court for clearing arrears of ap-
peals, which can only be on substan-
tive questions of law before the High
Courts. It is stated that huge revenue
is blocked in such pending litigations
and that it adversely affects the na-
tional economy, so that urgent meas-
ures are required for clearance of the
same. It will deal with all direct and
indirect taxes. Service tax will also be
covered by the same. It will initially
have 25 Benches all over India with the
number of Benches being left to the
* The author, an FICWA and a renowned
tax expert was a Council Member (Govt
Nominee) of ICWAI.
the management accountant, February, 2005
Professional Updates
Cover feature
N.A.Palkhiwala
Government to be decided from time to
time.
It is recognised that it will be nec-
essary to have adequate number of sup-
porting officers and employees. The
expectation of required funds is
Rs.31.51 lakhs per Bench per annum
amounting to Rs.7.88 crores per annum
for the 25 Benches to be initially con-
stituted. Expenditure on non-recurring
infrastructure requirement for initial
setting up is expected to be Rs.15 lakhs
per Bench and Rs.10 lakhs per annum
for maintenance as recurring expendi-
ture, so that total expenditure on this
account would be Rs.6.8 crores.
The proposed Tribunal will be
manned by a person, who had been a
Judge of the Supreme Court or a Chief
Justice of the High Court as Chairper-
son, while the Members will be those
recruited from persons, who are quali-
fied to be a Judge of a High Court or
has been a Member of the Appellate
Tribunal for Income-tax or Customs,
Central Excise and Service Tax for at
least, seven years. A legal practitioner
or a Chartered Accountant can appear
before the Tribunal. Chartered Ac-
countants, who are now eligible for ap-
pointment as Accountant Members of
the Income-tax Appellate Tribunal, will
not be eligible for Membership of Na-
tional Tax Tribunal. Cost Accountants
and others who are now qualified for
appearance before the Tribunal will not
be eligible for appearance before the
National Tax Tribunal.
March 15, 2005 @ 4:03 pm
S.D.
Once the Bill becomes law, all the
pending appeals now before the High
Courts will stand transferred to Na-
tional Tax Tribunal. The Government's
anxiety to collect disputed demand is
evident from section 15(4) of the Bill
requiring 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 is
within the powers of the Parliament
under Article 323B, which was inserted
along with Article 323A as part of the
exercise to curb the powers of the Court
during the Emergency under 42nd
Amendment Act, 1976 to the Constitu-
tion by substantially excluding judicial
review of administrative decisions. A
simultaneous amendment to Article
227 removed the power of superintend-
ence over statutory and quasi-judicial
Tribunals meant to ensure that such
bodies functioned "within the bounds
of their authority". These amendments
were for the apparent reasons that
such powers of the High Court "caused
delay and obstruction in the implemen-
tation of Government policies". Fortu-
nately, Article 136, which ensures the
supremacy of the Supreme Court had
not been interfered with. In S.A.
Sampath Kumar v. Union of India AIR
1987 SC 386, the Supreme Court held
that judicial review being a fundamen-
tal aspect of basic structure of the Con-
stitution, the jurisdiction of the High
Court on which parties repose their
faith and trust cannot be ousted. The
Supreme Court again in L.
Chandrakumar v. Union of India AIR
1997 SC 1125 has ruled that the power
of the High Court under Article 226 and
227 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 in
the Bill. Many of the objections levelled
against similar proposals earlier made
in the Bills and Acts creating such Tri-
131
131
BC

bunals are now sought to be met by the
new Bill. Even so, there will be a con-
tinued apprehension as to the efficacy
of the judicial remedy, which was hith-
erto available from the High Courts,
though time alone can reveal whether
such apprehensions are justified. Pow-
ers of writ in matters of exercise of ex-
cessive jurisdiction, validity of powers
of search and seizure, coercive proc-
esses adopted for recovery in excess of
powers and such other grievances will
not be available to the Tribunal, so that
they will continue with the High Courts
with the tax jurisdiction split between
such Tribunal and the High Courts.
Even some common issues like matters
involving non-statutory remedies as for
failure to observe principles of natural
justice or doctrines of promissory
estoppel and legitimate expectation will
continue 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 law
gives for exports is subject to so many
conditions, 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 Supreme
Court in IPCA Laboratory Ltd. v. Dy.
CIT (2004) 266 ITR 521 (SC) has upset
the interpretation hitherto accepted,
giving rise to a number of reassessment
notices, where relief had been granted,
with considerable doubt as to the juris-
diction for such notices in law giving
rise to a fresh spate of litigation. There
has been a sunset over Chapter VIA
reliefs for exports under sections
80HHC, 80HHD and 80HHE, while re-
lief under section 10A and 10B will also
not be available after the assessment
year 2009-10.
The recommendations of Kelkar
Committee has suggested the abolition
of even existing concessions. The threat
of withdrawal of non-tax assistance by
132
132
Professional Updates
way of duty draw back, import licence
and cash assistance is hanging over the
head of export industry, thanks to the
commitments which India has made in
international agreements to relax them
so as to be WTO-compatible. There is
an on-going exercise to replace the ex-
isting concessions by more acceptable
ones. Implementation of Value Added
Tax (VAT) is one such measure, while
another proposal is to refund all duties
and rates collected on exported goods
till such time as VAT becomes effective.
The commitment with South Asian
countries for bringing down tariff walls
in 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 ready
to make adjustments, so as to be able
to meet many challenges, which may
turn out to be opportunities.
Meanwhile, those getting benefit of
export promotion scheme under the
Duty Entitlement Pass Book Scheme
(DEPBS) have been denied relief by the
tax authorities. But a report in the Eco-
nomic Times dated 7th January, 2005
would refer to the assurance of the Prime
Minister 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 be
done with retrospective effect and that
instructions would be issued immedi-
ately to rectify anomalies in the Income-
tax Act to ensure prospective application
of the relief. Similar assurance is re-
quired on many other pending issues
now subject to rectifications and
reassessments relating to export relief.
It is stated that Special Economic
Zones (SEZ) are going to be permitted
all over India with a package of tax con-
cessions for them. One can only hope
that such concessions will not be sub-
ject to unpractical conditions rendered
impossible 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
March 15, 2005 @ 4:03 pm
S.D.
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 satisfy
the conditions therefore Government
does appear to be actively concerned
with encouragement of export industry
to 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 it
had done earlier, but also what was de-
scribed as a curative petition against its
decision in Union of India v. Azadi
Bachao Andolan (2003) 263 ITR 706
(SC), holding that the principle of treaty
override upholding the sanctity of com-
mitments of the Indian Government
under Double Tax Avoidance Agree-
ments, will now stand without any fur-
ther hazards of litigation. The conces-
sions in the agreement which India had
with Mauritius and UAE had been an
eyesore for other countries, so that the
new agreement with Malaysia has now
given the same liberal terms as in the
agreement with Mauritius. Agreement
with Singapore is under revision and
will soon follow suit. Cyprus is now be-
coming a new tax oasis offering a tax
haven with multiple concessions. The
shift of business from Mauritius to Cy-
prus, with which India has already an
agreement, has begun. Unilateral tax
reliefs for foreign taxes paid by busi-
nesses located in Cyprus, is the special
attraction for Cyprus. There are lots of
things happening in the tax world re-
quiring constant attention of those with
activities across the border to the chal-
lenges likely to be posed by globalisation.
Income-tax, which forms a significant
part of after-tax return on investments,
would be a matter of prime considera-
tion in business decisions.
WORDS OF WISDOM
"The execution of the laws
is more important than the
making of them"
Thomas Jefferson
the management accountant,February, 2005
BC

Institute Notification
Notification
11-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, Mukhram
Garden, Tilak Nagar, New Delhi - 110018 (Member-
ship No. 20386) is cancelled from 10th August, 2004
to 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 from
28th November, 2004 to 30th June, 2005, at his own
request,
3. Shri S.K. Das, MCOM,FICWA, 9-B, Kedar Nath Das
Lane, Kolkata - 700 030, (Membership No, 4378) is
cancelled from 30th November, 2004 to 30th June,
2005, at his own request,
4. Shri Tapan Kumar Sarkar, BSC,BCOM,AICWA, Flat
7, 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, 2004
to 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) is
cancelled 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, (Membership
No. 1530) is cancelled from 1st April, 2004 to 30th
June, 2004, at his own request, ,
9. Shri B. Narayanan, BCOM,FICWA, Block No. VI, Flat
No.6, Jyoti Co-op. Housing Society, 96, Kankulia
Road, Kolkata - 700 029, (Membership No. 1406) is
cancelled from 14th June, 2004 to 30th June, 2004,
at his own request,
10. Shri M. Manoharan, BCOM,AICWA, Old No. 23/New
No.5, Second Street, Thangam Colony, Anna Nagar
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
West, Chennai - 600 040, (Membership No. 12131) is
cancelled from 10th May, 2004 to 30th June, 2004, at
his own request,
11. Shri Niladri Dutta, BSC,AlCWA, 112-A, Salimpur
Road, Kolkata - 700 031, (Membership No. 7074) is
cancelled from 4th May, 2004 to 30th June, 2004, at
his own request,
12. Md. Bajlul Islam, BCOM(HONS),AICWA, 25, Gardner
Lane, Ground Floor, Kolkata - 700 014, (Membership
No. 19079) is cancelled from 5th April, 2004 to 30th
June, 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 30th
June, 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, Thiru
Vi Ka Nagar 1st Street, College Road, Tirupur, 641
602, (Membership No. 9021) is cancelled from 1st
January, 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 30th
June, 2004, at his own request,
17. Shri Faisal Shah, BCOM (HONS), MCOM,
AICWA, C/o. Danish Battery Works, Dr. Fatehullah
Road, Ranchi - 834 001, (Membership No. 23465) is
cancelled from 3rd August, 2004 to 30th June, 2005,
at his own request,
18. Shri P.S. Seshan, BSC, AICWA, B2/8, Vii Flats, Old
No. 34, Pinjala Subramaniam St., T. Nagar, Chennai
- 600017, (Membership No. 1571) is cancelled from
16th 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 cancelled
from 21st September, 2004 to 30th June, 2005, at his
own request,
20. Shri T. Thavamani, MCOM,AICWA, 19, Mayandia
Pillai 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
133
133
BC

Institute Notification
Argora Mandir, Ranchi - 834 012, (Membership No.
23202) is cancelled from 2nd August, 2004 to 30th
June, 2005, at her own request,
22. Shri Sujit Kumar Sinha, BSC,AICWA, 21, Scott Lane,
Kolkata -700009 (Membership No. 16017) is cancelled
from 28th October, 2004 to 30th June, 2005, at his
own request,
23. Shri V.S. Visvanathan, MA,BL,FICWA, 194, IIIrd
Cross, Cambridge Layout, Bangalore - 560 008, (Mem-
bership No. 8586) is cancelled from 1st April, 2004 to
30th 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 30th
June, 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, 2004
to 30th June, 2005 at his own request.
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 and
Works Accountants Act, 1959, the Council of the Insti-
tute of Cost and Works Accountants of India has removed
from the Register of Members, the names of :
1. Shri Preetam Singh Vohra, BCOM,AICWA, White
House, Nadidwala Colony, Malad, Mumbai - 400 064,
(Membership No. 1809) with effect from 21st August,
2003,
2. Shri Hrishikesh Ghosh, BCOM,AICWA, 44, Sil
Thakur Bari Road, Kolkata - 700 038, (Membership
No. 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 Tram
Depot, Kolkata - 700 026, (Membership No. 473) with
effect from 30th August, 2002,
134
134
March 15, 2005 @ 4:03 pm
S.D.
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 effect
from 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 15th
April, 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 & Strips
Ltd., Station Road, Navsari - 396 445, (Membership
No. 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 effect
from 4th May, 2003,
15. Shri Yash Pal Varshney, MCOM,AICWA, Chaiti
Morh, 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,
the management accountant,February, 2005
BC

Institute Notification
19. Shri Girishbhai Kanaiyalal Mehta, MCOM,FICWA, Ex-
Director, Nirma Management Services Pvt. Ltd., Nirma
House, 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, Hosur
Road, 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, (Membership
No. 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, (Membership
No. 11131) with effect from l0th May, 2004,
25. Shri Kamalakar Narayan Velankar, BCOM, LLB,
FICWA, 1, Vireshwar Darshan, Indulkar Marg, Vile
Parle East, Mumbai - 400057, (Membership No. 2994)
with effect from 8th January, 2001,
26. Shri P.S. Ramakrishnan, MCOM,FICWA, 4/4, Singh
Sabha Road, Shaktinagar, Delhi - 110007, (Member-
ship No. 1013) with effect from 27th January, 2004, .
27. Shri Harish Chandra, BCOM,MA,LLB,AICWA, Rai
Villa, Opp. 286, Govindpuri, Hardwar - 249401, (Mem-
bership No. 2349) with effect from 30th May, 2004, .
28. Shri V.A. Bhave, BCOM,BA,AICWA, 7, Pushkar
Jullian 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 11th
December, 1998,
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
32. Shri P. Subramaniam, BA,AICWA, No.3, New Thillai
Nagar, P.N. Pudur, Coimbatore - 641 041, (Member-
ship No. 1249) with effect from 7th September, 1993
on account of death.
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 and
Works Accountants Act, 1959, the Council of the Insti-
tute of Cost and Works Accountants of India has removed
from 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 India
Colony, Kodambakkam, Chennai - 600 024, (Member-
ship No. 1672) with effect from 9th September, 2004
at 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, 2004
at his own request,
3. Shri A.R. Dharma Row, ACMA,FICWA, Geetanjali,
Plot No. 45, 1-3-183/40/21/45, P&T Colony, New
Bakaram, 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, Shepherd
Road, Byculla, Mumbai - 400 008, (Membership No.
4110) with effect from 30th September, 2004 at his
own request, ,
5. Shri Neel Ratan Agarwal, BSC,AICWA, C/o. Bank of
Baroda, Corporate Banking Branch, Mithakhali Six
Road, 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 1st
April, 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) with
effect 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, Hanuman
Temple Road, Teachers Colony, East Marredpally,
Secunderabad - 500 026, (Membership No. 1570) with
effect from 15th September, 2004 at his own request,
135
135
BC

Institute Notification
9. Shri R. Balaji Pai, BSC,FICWA, 204-A, Atma Apart-
ments, 64, 10th Main, Malleswaram, Bangalore-
560003, (Membership No. 1232) with effect from 9th
September, 2004 at his own request,
10. Shri D. Mookerjee, MA,BCOM,ACMA,FICWA, Indu
Nivas, 11, Haradev Bhattacherjee Lane, Shibpore,
Howrah - 711 102, (Membership No. 262) with effect
from 29th December, 2003 at his own request,
11. Shri R. Ramalingam, BA,AICWA, 37K, Raja Gopal
Nagar, Kuniamuthur, Coimbatore - 641 008, (Mem-
bership No. 298) with effect from 19th December, 2003
at 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, Plot
No.2, R & D Defence Co-op. Housing Society, R & D
Defence Enclave, Sikh Village, Secunderabad - 500
009, (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, 2004
at his own request,
17. Shri G.C. Banerjee, BCOM,FICWA, 8A/2, Haricharan
Chatterjee 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, AB
274, Salt Lake City, Sector I, Kolkata - 700 064, (Mem-
bership No. 13896) with effect from 1st April, 2004 at
his 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,
136
136
March 15, 2005 @ 4:03 pm
S.D.
21. Shri T. Ranganathan, BCOM,FICWA, T-42A, 7th Av-
enue, Besant Nagar, Chennai - 600 090, (Membership
No. 133) with effect from 20th October; 2003 at his
own 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, Associated
Apartment, I.P. Extn., Patparganj, New Delhi -
110092, (Membership No. 4157) with effect from 23rd
March, 2004 at his own request,
25. Shri S. Sankaran, BCOM,FCA,AICWA, Flat 1-D, Sri Sai
Sabodhaya, 57/2-B, East Coast Road, Thiruvanmiyur,
Chennai - 600041, (Membership No. 637) with effect from
17th 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 21st
February, 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) with
effect 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 at
his 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 effect
from 28th April, 2004 at his own request.
Dr. H. R. Subramanya
President
the management accountant,February, 2005
BC

Globalization,
Informalization and
Accounting: Scope for
Future Policy Options in
India
This paper aims to assess the inherant strengths and
weaknesses of Indian Economy in the context of
performance in a globalised regime and the role of ICWAI
therein
Buddhadeb Ghosh *
T
he purpose of the globalization
program as pursued in most
parts of the world is to create a
competitive economic environment
that would ultimately increase effi-
ciency of production, distribution and
public utility services across different
sectors and regions of the economy.
Economies, societies, regions and in-
dustries around the world have been
fast integrating themselves into the
world economy at a faster pace dur-
ing last 15 years than ever before. Not
only commodities but also factors of
production (capital, labour and ma-
terials) and services are becoming
more and more mobile internation-
ally. Lester Brown's prophecy of a
"borderless world" has ultimately be-
come an economic reality. In such a
* Associate Scientist, Economic
Research Unit, Indian Statistical
Institute
the management accountant, February, 2005
March 15, 2005 @ 4:03 pm
S.D.
Globalization
terms, it speaks of the "outward ori-
entation" of an economy. In other
words, the higher the ratio between
trade and GDP, the higher is the
"openness" or globalization of an
economy 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 is
directly beneficial for those industries
that are efficient. Indirectly, it also
creates a positive growth chain
through higher productivity thereby
generating many new economic ac-
tivities. In an economy-wide sense, it
may 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 can
afford to relax on the overhead devel-
opment of the chain of necessary in-
frastructure facilities starting from
the production point leading to the
shipment point.
Casual empiricism shows that the
nations that fail to compete are fail-
ing to account for the rising informal
sector. This failure is ultimately
world, if any economy fails to provide
a competitive and decent economic translated into lower mobilization of
environment to its citizens, it's most domestic resources with the help of
cherished human resources along existing institutions. As is well
with capital will eventually move out. known, India contains all conceivable
features of underdevelopment where
five centuries still coexist simultane-
This paper is partitioned into five ously in the same environment
segments: (Bardhan, 1984; Banerjee and
Newman, 1993; Ray, 1998). Every
I. The Background country is evolving according to its
II. How is India doing? own laws of motion that produces spe-
cific types of frictions from time to
III. The Informal Sector time depending upon its own institu-
IV. Role of ICWAI tional framework (North, 1990 and
1994). And the task of the policy-mak-
V. What to do? ers is to understand the economic
VI. Conclusions malaise first before making the pre-
scriptions. Very often than not, we
I. The Background
come across situations where policy
Globalization means increasing prescriptions abound at the sheer
mobility and access to world re- neglect of appropriate diagnosis.
sources. It also means "competition"
India has seen a plethora of
in a world economy. In quantitative
137
137
BC

changes in economic policies under a
mixed economic set up during the
first 45 years after her Independence
from 1947 to 1991. But success in
'conventional wisdom' has always
eluded India. Undertaking a set of
right kind of economic policies in
principle does not have much to do
with implementation in Indian socio-
economic environment. These policy
changes can be termed at best as nec-
essary conditions for economic devel-
opment. But India has never fulfilled
what is meant by sufficient conditions
for economic progress. This is as true
for the aggregate economy as also for
specific sector like industry, agricul-
ture and trade. This sufficient set of
conditions should essentially include
an institutional framework, which
helps the process of implementation
of any set of policies at the right time
(North, 1994). For example, ineffi-
cient planning and half-hearted im-
port substituting industrialization
were detected as early as in late
1960s and early 1970s as possible
causes of failures (Bhagwati and
Desai, 1970; Chaudhury, 1977;
Bardhan, 1984). But it took another
20 years for India to switch to mar-
ket based export-led growth strategy
and that too in a halfhearted way and
at the complete neglect of high rate
of unskilled labour force participa-
tion. There is no clear binary answer
to these puzzles as size, culture, het-
erogeneity, political system, and also
a whole host of historical factors mat-
ter in the ultimate analysis which do
not 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 no
disagreement as to the fact that even
private productivity, efficiency and
technological development depend on
both the quality and quantity of ex-
138
138
Globalization
ternalities created by the government
in terms of physical, social, economic
and trading infrastructure facilities.
Aschauer (1989b) employs cross-
country data for the Group-of-Seven
nations over the period from 1965 to
1985, and finds that public non-mili-
tary investment bears a significantly
positive relationship with growth in
GDP. According to him, public invest-
ment spending as a share of GDP fell
during the late 60s and 70s for the
five developed nations except Japan
and Italy. The problem is universal
but both degree and dimension vary
quite widely. For example, Alicia
Munnell (1992) starts reviewing in-
frastructure and economic growth
primarily in the context of the Ameri-
can economy in the following manner:
"Public policies are often made
without much reliance on economic
reasoning. Economists are unaware
of what is happening in the world of
public affairs. As a result, both the
quality of public decision-making and
the role that economists play in it are
less than optimal." 1
If this is the possible scenario in
the American economy, we can at
ease discern what is happening in
Indian states.
The Competitiveness Bug
The issue of competitiveness par-
ticularly inter-country comparison of
productivities has become highly
fashionable across the world, whether
it is USA, or Japan, or India or China
or Ethiopia. 2
Dynamic competitiveness among
industries (or what is generally un-
derstood by competitiveness of indus-
tries over time) is a largely different
concept from the competitiveness of
a nation. The issue becomes particu-
larly relevant for countries that have
a strong domestic economy or so to
say, whose openness ratio (that is,
percentage share of trade in GDP) is
March 15, 2005 @ 4:03 pm
S.D.
low compared to most other nations.
To be more specific, USA, Japan and
India are only a few such nations,
which have an unusually low open-
ness ratio among the relatively larger
nations of the world. Moreover, the
share 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 rather
the inner strength of their domestic
economy that reduces the vulnerabil-
ity of the economy to international
upheavals. Unusually high depend-
ence on foreign trade with relatively
lower domestic market may jeopard-
ize the stability of an economy in an
age of globalization unless the coun-
try has a mature economic account-
ing system; and in that sense, India
even being economically poor is such
a stable nation which is inherently
slow to catch up to the wave of
globalization but does not have a
mature economic accounting system.
At this point most traditional
trade theorists might claim that sur-
plus from foreign trade (as opposed
to deficit) should be an absolute indi-
cator of the inner strength of a na-
tion's competitiveness (as opposed to
lack of competitiveness). On this
count, Japan is certainly competitive
along with China, while USA is not
along with India. But such conclusion
may not be as reliable as it appears
to 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 view
of the observer. For example, if com-
pared to countries, which had simi-
lar level of income and development
in the fifties of the last century, there
are simply many reasons to be a pes-
simist now. Or, if we can remember
the "hope" or "dream" expressed by
the social scientists or statesmen of
the world in the post-Second World
the management accountant,February, 2005
BC

War period till early seventies, India
certainly has not done well. But if we
compare India's performance after 50
years of independence with that of
other nations, there is much less
scope for subjectivity.
ð Per Capita Measure:
1(i) In terms of the simplest measure
of economic development, that is
per capita income, India has still
'miles to go before' she can afford
to sleep. Among the five nations
compared here, namely China,
India, Japan, Korea and USA,
India has the lowest per capita
income (PCI) in terms of constant
$ in 2001: India has $477, China
$878, Korea $13502, Japan
$44458 and USA $31592.
(ii) Interestingly, India had higher
PCI than that of China till 1985.
And Korea was almost 10 times
richer by mid-1960s.
(iii) If we superimpose the issue of
poverty, inequality and regional
divergence into the picture of
PCI, there is not much scope for
optimism particularly after 1991.
As shown by Ghosh, Marjit &
Neogi (1998) and Ghosh and De
(2004), most of the states like
Bihar, Orissa, UP, MP, AP,
Rajasthan, WB and the North
Eastern states have been diverg-
ing fast in terms of PCI as well
as all the major infrastructure
facilities like rail, road, electric-
ity, irrigation, health service, tel-
ecommunication, air and port
services, schooling, etc. except
banking. It is a fact that unlike
the developed nations, coefficient
of variation of per capita net state
domestic products across Indian
states have been rising fast even
during the period of reforms. We
must therefore accept the fact
that any analysis of localized ter-
rorism across Indian districts in
recent period must put adequate
the management accountant, February, 2005
Globalization
emphasis on economic factors,
which have produced regional
marginalization.
ð Sectoral Analysis:
2.(i)In terms of the theories of
sectoral evolution of an economy,
India is at best now a traditional
economy on the whole. Only
about 16% of her income is gen-
erated from the manufacturing
sector and 25% from the agricul-
tural sector. Interestingly
enough, 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. In
the context of the developed na-
tions, "service" means service in
the true sense of the term, and
almost the entire service sector
is formal barring some exceptions
in case of Italy and some other
nations which have a long tale of
"civilization". For India, the en-
tire service sector is the major
source of our "informal" economy-
the most significant source of
generating parallel economy, the
most effective way to bypass the
law of the land, the easiest way
to prove economic policy a mean-
ingless pursuit, the most widely
followed tool to kick out our most
cherished human resources, or
what is called "brain drain".
(ii) This will be verified again later
with the help of other important
statistics.
ð Backbone of the Indian Economy-
Agriculture:
3. As is obvious from the statistics
given by the government relating
to the agricultural sector,
globalization has not touched
upon the heart of the Indian
economy, that is the agricultural
sector- as evaluated in terms of
agricultural productivity, mecha-
March 15, 2005 @ 4:03 pm
S.D.
nization, irrigation, fertilizer and
employment. It is obvious from
Table 1 that all the other nations
are much ahead still now.
ð Education:
4. In terms of sheer literacy, India
has to go a long way.
ð Capital and Development:
5.(i)As is well-known, capital contro-
versy has become an integral part
of our inefficient economic system
since the seventies. Although Ja-
pan and USA do not have much
higher rate of capital formation,
inherent inefficiency, inappropri-
ate choice of technology, outdated
methods of production and most
importantly, inadequate supply
of supporting infrastructures
have been responsible for less
than 5% Hindu rate of growth.
This is quite natural even under
adequate supply of money by the
Indian banking system. Coupled
with these, our faulty accounting
system has not left any scope for
successive correction over dec-
ades.
(ii) (a) We must introduce here the
notion of what is meant by "de-
velopment". I assume that about
one third Indians have future
dream and another one third In-
dians are working hard for a de-
cent living, and the residual one
third is "struggling for their mere
subsistence existence" (people
living below the preconceived
poverty line). Honestly speaking,
"internet" is not the burning
problem for most people living in
some parts of Midnapore,
Purulia, Kalahandi, Gaya,
Madhubani, Rai Bareli,
Shravasti, Ajmer, Jaisalmer,
Chittoor, Krishna, Bijapur and
Thanjavur. Therefore, on behalf
of these 66% people, it may be
said that "development" means
139
139
BC

good roads, good railways, good
schooling, good telecommunica-
tion, good banking, good irriga-
tion, good electricity, good health
care system, good security, good
recreation and tourism and fi-
nally a trustworthy society.
(b) In any society, socialist or capi-
talist, investment earmarked for
the creation of these facilities is
called fixed capital. The largest
part of this capital is formed un-
der government jurisdiction in
earlier phases of economic devel-
opment. In development termi-
nology this is called "Plan Capi-
tal Expenditure". Historically in-
teresting, India began well in
1950s during the Second Five
Year Plan in the name of public
sector capital formation. But the
great tempo has died quite some
time ago in early 1970s. In recent
period, share of Plan Capital was
38% of total expenditure by the
Government. This has been con-
tinuously declining to reach only
24% in 1998-99. Its place has
been taken over by Non-Plan Ex-
penditure, which has been rising
from 62% in 1985-86 to 73% in
1990-91 and 76% in 1998-99.
(c) No further explanation is per-
haps required to prove that the
reason for the collapsing state of
affairs in India's infrastructure
stock and flow is inherent in our
choice of expenditure pattern as
franchised in the democratic se-
lection process.
(d) The same picture at the State
level (that is, across districts) is
catastrophic, if not the "end of the
history".
External Sector:
(6)(i) As is well known, among many
definitions, globalization is meas-
ured by the trade orientation of
the domestic economy which is
140
140
Globalization
measured by the share of exports,
or share of trade (i.e. exports plus
imports), or share of high-tech-
nology exports, or share of FDI
in GDP.
(ii) India's share of trade in GDP is
29% as opposed to China's 49%,
Korea's 83%, Japan's 20% and
USA's 26%. This does not appear
to be as bad as is generally
thought at the popular level.
Unlike China and Korea, India's
economy has a strong domestic
market like that of Japan and
USA. But our problem lies in our
failure to utilize it to usher into
the 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 to
China's 20% is too weak to claim
our industrial supremacy in the
global market. Moreover, India's
FDI (0.71% as opposed to China's
4% which is the highest in the
world) is one of the lowest in the
world. At a time, when domestic
capital formation has come down
to an all time low, the positive
chance offered by the
globalization programme to at-
tract global capital is also not
utilized as per expectation.
Therefore, there is every reason
to believe that true globalization
has not taken root in Indian soil
ever since 1991. Notwithstanding
these failures, we must admit
that things have started chang-
ing from 1991 onwards. But the
rate 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 appears
to be about 8.29% in India as opposed
to China's 5.85%, Japan's 3.44%, Ko-
March 15, 2005 @ 4:03 pm
S.D.
rea's 6.28% and USA's 4.52%. It is
true that a small percentage of popu-
lation lives on interest income in In-
dia; but given high surplus money in
the Indian banking system, the na-
tional importance of capital formation
is so pressing now that the argument
of interest income should not be uti-
lized as a cause for raising interest
rate.
Tax Revenue:
Now we are at the core of a mean-
ingful comparison of the accounting
system of India and China vis-à-vis
the developed nations. Note that In-
dia's tax revenue being insignificant
relative to the national need and ca-
pability has remained stagnant over
last few decades, or falling margin-
ally. It stands at 10% now compared
to China's 7%, Japan's 20%, Korea's
17% and USA's 19%. For a nation,
which has been passing through the
first 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 2
crores (if our population is about a
billion and total number of families
is 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 believe
that the rest of the population earns
income, which is below the "income
tax line".
There is a popular perception that
about one third of Indian population
falls under the category of "middle
class" on whose existence the MNCs
vie with each other for the durable
consumption goods. But in Indian of-
ficial statistics, there is no such term
as "middle class". Casual empiricism
the management accountant,February, 2005
BC

suggests that if we agree for the
shake of argument that about 30
crores come under this category, then
at least 6 crore families with average
family size of 4.80 must come under
the purview of income tax. What is
more, only a tiny proportion has ac-
cess to Law, access to Knowledge &
Information, access to Public Service,
access to Power, access to Wealth and
Luxury, access to Commodity. It is
doubtless therefore to believe that
constant tax base coupled with weak
institutional set up would go on mak-
ing the parallel economy stronger day
by day thereby undermining the ef-
fectiveness of both public and private
policy in an era of globalization. And
free press alone does not have any-
thing to do in order to rectify the in-
stitutional framework. And unless
this is done, "Vision India 2020" is
bound to fail except as a political
propaganda 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 this
sector is highly lacking in all the de-
veloping countries. NSSO collects
partial information on this sector. On
the whole, most of us are in the dark
on this issue. Among the South and
Southeast Asian countries, India's
condition is the worst in sheer size.
For example, share of informal sec-
tor in urban employment in India has
been rising from 71% in 1974 to 76%
in 1983 to 79% in 1987-88, whereas
Pakistan's share is absolutely the
same. Share of this sector shows some
downward tendency in case of Indo-
nesia, Philippines and Thailand, and
stands at around 50%. But Korea's
share is less than 30%, whereas that
for Japan and Western nations is less
the management accountant, February, 2005
Globalization
than 5%. So even by such a crude
proxy, size of our unaccounted
economy is very high indeed.
(2) Urban Population:
(i)A look at United Nations CD
ROM makes it obvious that countries
with 60% urban population have per
capita income higher than the aver-
age world PCI. They are also the
same countries that have higher la-
bour force engaged in industry and
service sector. Here also, India along
with China, Pakistan, Bangladesh,
Thailand, Vietnam, etc is in a very
unfavourable position when com-
pared to the developed nations.
(ii)Finally, these are nations that
have higher proportion of GDP spent
on military purpose.
(3) Informal Sector in India:
(a) Magnitude of workforce en-
gaged in the unorganized/informal
sector.
The National Sample Survey Or-
ganization (NSSO) carried out a sam-
ple survey in 1999-2000 and its re-
sults showed that out of total
workforce of 397 million, only 28 mil-
lion workers are employed in the or-
ganized sector and the remaining in
the unorganized sector. It reveals
that over a decade, the employment
in the organized sector has been al-
most stagnant or slightly declined. In
the light of definition of informal sec-
tor encompassing private unincor-
porated enterprises as mentioned
above, NSS 55th round, 1999-2000
also covered non-agricultural enter-
prises in the informal sector in India.
As per the survey, there were 44.35
million enterprises and 79.71 million
workers employed thereof in the non-
agricultural informal sector of the
economy. Among these 25.01 million
enterprises employing 39.74 million
workers were in rural areas whereas
19.34 million enterprises with 39.97
March 15, 2005 @ 4:03 pm
S.D.
million workers in the urban area.
Among the workers engaged in the
informal sector, 70.21 million are full
time 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 informal
sector provides income-earning op-
portunities for an unusually larger
number of workers. There is a large
magnitude of workforce getting their
livelihood from the informal sector.
There is a far cry in recent period to
include them into the national insur-
ance scheme. The enactment of
legislations and other measures to
bring them under the regulatory and
social protection instruments will
adversely affect the existing mecha-
nism prevailing in the informal sec-
tor as it would lead to further mar-
ket imperfections thereby creating
hurdles in the smooth functioning of
the market-led economy. Besides, it
requires huge infrastructural and in-
stitutional arrangements involving
financial implications beyond the ca-
pacity of the Government in the
changing scenario all over the world.
The Government has to play a key
role of conciliator, facilitator and pro-
moter so that the workers employed
in the informal sector are able to get
requisite level of protection and se-
curity to have decent work environ-
ment. This will enable them to ex-
press their skills fully and according
to their capabilities necessary for en-
hancing the competitiveness of their
outputs and thereby raising their in-
come and socio-economic status.
About 370 million workers consti-
tuting 92% of the total workforce in
India were employed in the unorgan-
ized sector as per NSS Survey 1999-
2000. It plays a vital role in terms of
providing employment opportunity to
large segment of the working force in
the country and contributes to the
141
141
BC

national product significantly. The
contribution of the unorganised sec-
tor to the net domestic product and
its share in the total NDP at current
prices has been over 60%. In the mat-
ter of savings the share of household
sector in the total gross domestic sav-
ing mainly unorganised sector is
about three fourth. Thus unorganised
sector has a crucial role in our
economy in terms of employment and
its contribution to the National Do-
mestic Product, savings and capital
formation. During the process of eco-
nomic reforms and liberalization,
merger, integration of various firms
within the industry and up-gradation
of technology and other innovative
measures take place to enhance com-
petitiveness of the output both in
terms of cost and qualitative to com-
pete in the international market. The
low inefficient units either wither
away or merge with other ones per-
forming better. In this situation,
there is a special need to take care of
the interests of the workers by pro-
viding them training, upgrading their
skills, and other measures to enable
them to find new avenue of employ-
ment, improve their productivity in
the existing employment, necessary
to enhance the competitiveness of
their product both in terms of qual-
ity and cost which would also help in
improving their income and thereby
raising their socio- economic status.
It is now accepted that formal sector
could not provide adequate opportu-
nities to accommodate the workforce
in the country. Under the existing
economic scenario, the unorganized
sector will expand further in the
years to come. Thus, it needs to be
strengthened and activated so that it
could act as a vehicle of employment
provider and social development.
President Abdul Kalam and
Y.S.Rajan (1998) highlight the role of
the informal sector in the following
words:
142
142
Globalization
"A country like India can not hope
to build its future on the services sec-
tor alone though it can be and will be
a major component of the economy.
India cannot afford not to build its
strength in agriculture for reasons of
food nutritional security. Nor can it
afford to ignore manufacturing
strengths for reasons of economic and
national security. Based on the
strengths of these two sectors, it can
build a major economic infrastructure
for the services sector and use it to
generate wealth and employment for
her people [p.158]".
IV. Role of ICWAI
Apart from the informal indus-
trial sector, the entire rural economy
based on the agriculture, fishery and
animal husbandry have also been ris-
ing at a faster rate than ever before
to accommodate the ever-increasing
unskilled labour force, which is re-
leased from both rural and urban ar-
eas. The more the "formal sector" is
shrinking, the more there is a desper-
ate tendency among the general
masses to find any job in the unor-
ganized sector. Added to this is the
nation-wide construction activity,
which plays the most significant role
in absorbing the massive flow of un-
skilled and semi-skilled labouring
classes. Given the uncontrolled
growth of population in the lower
strata of the society during the last
two decades, the major responsibility
of this type of population explosion
must lie on the policy makers who are
involved in demographic decision-
making. But our concern here relates
to the huge flow of income and out-
put as well as the massive transac-
tion of money, which are linked in
this process.4 There is no doubt that
all these sectors taken together give
birth to unimaginable amount of
black money which could be otherwise
trapped by the government machin-
ery with the help of institutional sup-
port from the existing accounting in-
March 15, 2005 @ 4:03 pm
S.D.
stitutions of the nation. Interestingly,
it would not entail much extra costs
but it would help realize massive ac-
crual of additional revenue, which
could be utilized for providing public
services in areas, which badly need
new infrastructure. This will have
tremendous multiplier effects in gen-
erating further economic activities.
To be explicit, such scheme of things
fits well into the policy of the present
government as proposed in the Com-
mon Minimum Programme (CMP),
which is reproduced below.
CMP of the UPA Government:
1. Administrative Reforms: The
UPA will set up an Administrative
Reforms Commission to prepare a
detailed blueprint for revamping the
public administration system. E-gov-
ernance will be promoted on a mas-
sive scale. The Right to Information
Act will be made more progressive,
participatory and meaningful.
The UPA will take the leadership
role to drastically cut delays in High
Courts 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 initiate
steps to introduce state funding of
elections at the earliest.
2. Industrial reforms: The UPA will
take all necessary steps to revive indus-
trial growth and put it on a robust foot-
ing through continued deregulation
and other policies. Incentives to boost
private investment will be introduced.
FDI will continue to be encouraged. The
country needs and can easily absorb at
least two to three times the present
level of FDI inflows. Indian industry
will be given every support to become
productive and competitive. All regu-
latory institutions will be strengthened
to ensure that competition is free and
fair. These institutions will be run pro-
fessionally.
the management accountant,February, 2005
BC

3. Fiscal Policy: The UPA govern-
ment commits itself to eliminating
the revenue deficit of the centre by
2009 so as to release more resources
for investments in social and physi-
cal infrastructure. Subsidies will be
targeted sharply at the poor and truly
needy. A detailed roadmap for accom-
plishing this will be unveiled in Par-
liament within 90 days.
The UPA government reiterates
its commitment to VAT after all the
necessary homework has been com-
pleted. It will initiate measures to
increase the tax: GDP ratio by under-
taking major tax reforms that expand
the base of taxpayers, increase tax
compliance and make the tax admin-
istration more efficient. Tax rates will
be stable and conducive to growth,
compliance and investment.
V. What to do?
Even a stern optimist would
hardly disagree that the top-down
development strategy through half-
hearted planning paid insufficient
attention to initiate necessary insti-
tutional changes, which would create
law-abiding citizens. The result is
widespread failure to (i) maintain
quality 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 accounting
system 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 widespread
tax evasion that drastically reduce
surplus resources. What can be done
the management accountant, February, 2005
Globalization
towards the current crisis of lack of
government accountability? This will
unequivocally lead us to deal with the
four layers of corruptions:
ð The chain of political corruption-
bureaucratic corruption- citizen-
ship corruption and the great co-
ordination failure among all
these must be dealt with on ur-
gent basis before it is too late.
But some possible ways out may
be as follows:
1. To minimize the gap between law
and enforcement.
2. To restructure existing tax laws
and 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 the
incentive system particularly
those concerning the real produc-
tive sectors.
VI. Conclusion
It is great symptom that the new
government has admitted the existence
and gravity of the problems discussed
above. The UPA Government (in the
form 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 ripe
for ICWAI and similar institutions to
organize industrial houses, policy mak-
ers, press and government representa-
tives to develop a set of innovative pro-
posals to be submitted to the Central
as well as State governments. At a time
when government revenue is rising at
a disproportionately lower rate than
economic activities, there is every rea-
son for the government to be worried
about the inefficiency of its policy-mak-
ing instruments. Moreover, the more
the economy becomes vulnerable to for-
eign economic shocks under free trade,
March 15, 2005 @ 4:03 pm
S.D.
the need for regulating the economy
will become even more intense. There
is no reason why the government will
not be interested to reorganize and re-
vamp the existing accounting system,
tax structures and auditing. If it does,
it will simply undermine the efficacy of
government machinery and at the cost
of our future generation.
Notes:
1. The greatness of Western coun-
tries including USA and Japan
lies in the following facts.
(i) No person is above law for
all practical purposes.
(ii) Code of conduct is uniform.
(iii) Institutions and press are
free and strong enough to
sustain an ethically desir-
able society.
(iv) Political system and judici-
ary support the "economic
laws of motion".
(v) The incentive system does
not promote corruption and
inefficiency across board.
2. As rightly pointed out by Krugman
(1994a) in a critical work, "After
all, the rhetoric of competitiveness-
the view that, in the words of Presi-
dent Clinton, each nation is "like a
big corporation competing in the
global market place-"- has become
pervasive among opinion leaders
throughout the world. People who
believe themselves to be sophisti-
cated about the subject take it for
granted that the economic problem
facing any modern nation is essen-
tially one of competing on world
markets- that the United States
and Japan are competitors in the
same sense that Coca-Cola com-
petes with Pepsi- and are unaware
that anyone might seriously ques-
tion that proposition" (p.29).
3. This is not the outcome a single
143
143
BC

decade or a single Plan. This lies
at the heart of our political
economy. In a classic work,
Hirschman (1945) showed how suc-
cess in foreign trade determines
national power of a nation in the
international market. Apart from
USA, Germany and Japan, the rise
of China in recent period can be
explained by this hypothesis.
4. As this paper is beyond the pur-
view of possible estimates of our
"parallel economy", we refrain
from entering into such projec-
tions. There are many stories,
which report frightening propor-
tion of unaccounted component of
our national income. But one
thing is very clear from these re-
ports and researches: whatever
may be the actual proportion; it
simply undermines the efforts of
good citizens, and negates the
efficacy of the tools and instru-
ments of economic analysis. I
share many of the views of this
paper with S. Marjit, A. Kotwal,
B. Roy and P. Pal Choudhury.
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BC

Goa tourism development
corporation (GTDC) : A
financial analysis
This paper makes an attempt to analyse the financial
performance of GTDC with the help of Ratio Analysis and
analytical tools. It consists of two parts, Part A comprises of
Parameters for appraising the rate of return and Part B
Parameters for appraising the solvency position of Goa Tourism
Development Corporation.
Filipe Rodrigues e Melo * Dr. S. S. Hugar **
I
n the west, tourism became
established in the Egyptian
empires and reached its zenith in
the Roman period. In the east the
coastal empire in China and the
Mauryan Empire in India were
known for providing extensive
facilities to the traveller.
Infrastructure for travel like caravan
serais, inns, taverns and panthagar
were common. The Egyptian
civilization attracted many tourists.
The lighthouse of Alexandria was
considered one of the seven wonders
of the Ancient world. In India,
travelling for pleasure on the rivers
and to the hills was a tradition
started by the royal courts. In the
1960s it was decided to establish the
* Head, Dept of Commerce, Rosary Col-
lege, Navelim, Salcete Goa.
** Professor and Head, Dept of Commerce,
Karnataka University, Dharwad,
Karnataka.
the management accountant, February, 2005
Tourism
Indian Tourism Development
Corporation (ITDC). ITDC was to
play the role of a catalyst in
developing a modern superstructure
for international tourist. In 1970s
tourism was separated from the
Ministry of Civil Aviation and this
indicated the growing importance
attached to tourism in India. To
strengthen the tourism infrastruc-
ture state tourism development
corporations were set up to provide
accommodation and transport
facilities at tourist destination
around the country. Given the fact
that the economy of mainland
Portugal itself was a beneficiary in
large number. It was the hippies who
put Goa on the international tourism
map in a big way around 1966. A few
years later their parents that is the
older generation of tourists from the
western world, namely condor
tourists and others became our first
March 15, 2005 @ 4:03 pm
S.D.
visitors under organized travels,
feeding the five star culture and the
hotel chains. Tourism is concerned
with pleasure, holidays, travel and
going or arriving somewhere. These
are the motivations that make people
leave their short-term temporary visits
to other places. Tourism involves the
movement of people to, and their stay
at various destinations.
This involves a journey and
services like transport, accommoda-
tion, catering and viewing. The
journey to and stay at a site is outside
the normal place of work and
residence for a short period. In the
decade 1961-71 there was rapid
increase in the population of Goa
compared to the average increase of
24.8% in India. Following the
integration of this territory into the
Indian union, rapid development took
place and there was a rapid growth
of tourist arrivals (both domestic and
foreign) in Goa. The Dept. of Tourism
Govt. of Goa was the only agency
looking after the promotion of
tourism, developing basic infrastruc-
ture facilities and providing
accommodation facilities to the
middle and low-income group tourist.
The tourism industry being a service
oriented industry it was felt that it
would be difficult for the Dept. of
Tourism to promote tourism, develop
basic infrastructural facilities and
provide accommodation to the middle
and low-income group tourist.
Therefore it was decided that the
commercial activities looked after by
the Dept. of Tourism should be
entrusted to an autonomous and
corporate agency, which would have
a greater flexibility to carry out the
development works. Goa Tourism
Development Corporation (GTDC)
was incorporated on 30th March 1982
under the Indian Companies act
1956. The company prepared the
Memorandum of Association and
Articles of Association, which
provided guidelines for its smooth
145
145
BC
 March 15, 2005 @ 4:03 pm
S.D.

Tourism

functioning. The main activities of Table 1 Percentage of EBIT to the ratio, the more efficient use of the
the corporation can be broadly Total Assets capital employed, the better is the
categorized as follows: Accommoda- (Rs in lakhs) management efficiency and profita-
tion, Sightseeing tours, River Cruise bility. Moreover, the capital employed
and Package tours. Year EBIT Total Percen- provides a test of profitability related
Assets tage to the sources of long term funds. This
Objectives of the study
1991-1992 44 324 13.58 ratio is computed by dividing PAT to
The broader objective of the study
1992-1993 18 374 4.81 the Capital employed.
is to examine the financial
performance of GTDC with regard to 1993-1994 12 396 3.03 Table 2 reveals the PAT to Capital
selected financial parameters viz employed of GTDC for the period from
1994-1995 15 438 3.42 1991-1992 to 2000-2001
Earning before interest and tax
(EBIT), Profit after tax (PAT), Total 1995-1996 10 480 2.08 The worked out ratios of GTDC for
Assets, Capital employed, Share- 1996-1997 25 751 3.32 the period of 10 years are exhibited
holders Equity, Earning per share, 1997-1998 12 678 1.76 in table 2. It can be witnessed from
Working capital, Proprietors equity, the table that the net profit variable
Current assets and Fixed assets. 1998-1999 10 717 1.39 employed was found to have
Data and Methodology 1999-2000 -19 743 -2.55 augmented for the corresponding
2000-2001 -50 715 -6.99 period. The return on capital
The Study is based on Secondary
employed for the year 1991-1992 was
and Primary data. The Secondary Source: Annual reports of GTDC for as high as 30.34 and from 1992-1993
data is taken from the Annual reports the related periods. onwards, the percentage showed a
of GTDC for the period of 10 years i.e.
It can be observed from the above declining trend. During the last two
from 1991-92 to 2000-01. The
table that the earnings before years of the study period the
Primary data is collected by
interest and tax component was percentage was negative 8.89. This
personally visiting and interacting
noticed to have decelerated with a poor return on capital employed
with the officials of GTDC. Ratio
sharp fluctuation over a period. In speaks about the inefficient and
Analysis analytical tool was
contrast, the total assets were uneconomic use of capital resources
employed to analyse the financial
observed to have an upward trend for of GTDC This further speaks that the
statements of GTDC .
the same period. The ratio obviously management of GTDC has not made
Part A: Parameters for appraising the was found to be declining during the any efforts to monitor the resources
Rate of Return study period. During the last two in the best interest of the corporation.
Percentage of Earning before interest years of the study period, the ratio Table 2 PAT to Capital employed
and tax (EBIT) to Total Assets even turned out to be negative. This
(Rs in lakhs)
The percentage of EBIT to Total is a clear indication that GTDC has
not made any efforts to widen the size Year Net Capital Percen-
assets is also called as Profit to Asset
of its earning base in proportion to Profit employed tage
ratio. It is an important measure of
the increase volume of assets which (PAT)
the profitability of the financial
resources invested in any of the could be due to capital investment in 1991-1992 44 145 30.34
economic ventures. This percentage construction of hotels, renovation and 1992-1993 18 298 6.04
shows whether the total assets of the improvement of hotels, purchase of
1993-1994 12 299 4.01
business have been properly used or tourist buses or an investment in a
not. A high percentage speaks about similar asset which create a long term 1994-1995 15 309 4.85
the optimum use of resources benefit for GTDC. 1995-1996 10 346 2.89
invested in the business. As against Percentage of Profit after tax (PAT) to 1996-1997 24 621 3.86
this, a low percentage suggests Capital employed
1997-1998 11 543 2.02
inefficient and uneconomical use of This ratio indicates whether the
resources. 1998-1999 10 595 1.68
amount of capital employed has been
Table 1 exhibits the information effectively used or not. It is an index 1999-2000 -19 612 -3.10
relating to the percentage of EBIT to to the operational efficiency of the 2000-2001 -50 562 -8.89
the Total assets of GTDC for the business as well as an indicator of Source: Annual reports of GTDC for
period under study. profitability. Therefore, the higher the related period

146 the management accountant,February, 2005

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Tourism

Percentage of Profit after tax (PAT) to advantage out of Trading on equity corporation as compared to the earlier
Shareholders Equity during the period from 1991-1992 to years. From the subsequent years
The percentage of PAT to the 1996-1997 except for the year 1995- onwards the percentage went on
Shareholders equity provides 1996. In the year 1995-1996 there declining on account of decreasing
information as to how far the unit has was a decrease in shareholders equity profits and increase in the Total assets.
been able to contribute towards the coupled with decline in earning in In the year 1999-2000 and 2000-2001,
shareholders wealth by the Profit after tax. Hence, the the percentage was negative 2.55 and
application of leverage i.e. Trading on percentage of Profit after tax to 6.99. This is mainly on account of
Equity. A higher percentage of return shareholders equity recorded a operating expenses made being more
on shareholders equity suggests a decreasing trend from the year 1997- than the income earned.
sound policy of trading on equity and 1998 and became negative in the Table 4 Percentage of PAT to
that the firm has been able to derive years 1999-2000 and 2000-2001. This Total Assets.
benefit out of it. indicates that GTDC has not been
(Rs in lakhs)
able to derive benefit out of trading
The information relating to
on equity in recent years. This is the Year Net Total Percen-
Percentage of PAT to Shareholders
clear symptom of the fact that, there Profit Assets tage
Equity of GTDC for the period under
is no synchronization between GTDC (PAT)
study is shown in Table 3
investment policy and financing 1991-1992 44 324 13.58
Table 3 Percentage of PAT to policy.
Shareholders Equity 1992-1993 18 374 4.81
Percentage of Profit after tax (PAT) to
(Rs in lakhs ) Total assets 1993-1994 12 396 3.03
Year Net Share- Percen- The various profitability ratios
Profit holders tage throw light on the profitability of a 1994-1995 15 438 3.42
(PAT) Equity firm from the viewpoint of (a) The 1995-1996 10 480 2.08
owners of the firm and (b) The
1991-1992 44 163 27.00 1996-1997 24 751 3.19
operating efficiency of the firm. The
1992-1993 18 298 6.04 ratios covered under the rate of
1997-1998 11 678 1.62
return to the equity holders' fall
1993-1994 12 299 4.01 under the first category. The 1998-1999 10 717 1.39
1994-1995 15 309 4.85 operating efficiency of a firm in terms
of the efficient utilization of the 1999-2000 -19 743 -2.55
1995-1996 10 307 3.25 resources is reflected in net profit 2000-2001 -50 715 -6.99
margin. The overall profitability of a
1996-1997 24 618 3.88 Source: Annual reports of GTDC for
firm can be assessed on the basis of a
1997-1998 11 624 1.76 combination of the two. The combined the related period
profitability is referred to as Return Earning per Share (EPS)
1998-1999 10 633 1.57 (after tax) on Total assets. This ratio Apart from the rates of return, the
1999-2000 -19 612 -3.10 is a central measure of the overall profitability of a firm from the point
profitability and operational of view of the ordinary shareholders
2000-2001 -50 562 -8.89 efficiency of a firm. is the earning per share. It measures
Source: Annual reports of GTDC for Table 4 indicates the Percentage the profit available to the equity
the related period of PAT to Total assets of GTDC for holders on a per share basis i.e. the
the period under study. amount that they can get on every
The above table demonstrated
Table 4 revealed the year wise data share held. The more the earning per
that the percentage of PAT to
of GTDC during the study period. It can share, the better is the performance
Shareholders equity in respect of
be observed from the table that on the and future prospects of the firm.
GTDC was comparatively more
first year of the study period i.e. 1991- Higher earnings per share suggest
during the early phase of the study
1992, the percentage of PAT to Total the possibility of more cash dividend
period and it turned out to be
assets was 13.58 the highest among all or bonus share.
negative in the last two years of the
study period. It may be inferred that the years under study. This has been Table 5 reveals the information
the corporation was able to get some due to high profits made by the relating to Earning per share of

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Tourism

GTDC for the period under study. should be twice the current liabilities average ratios.
Table 5 Earning per Share as then on payment of the liabilities, Fixed assets to Capital employed ratio
there will be no adverse effect on
(Rs in actual) This ratio gives an idea as to what
business operations. But the
part of the capital employed has been
Year Net No of EPS emphasis is on running the business
Profit Equity used in purchasing the fixed assets
smoothly. If the firm can quickly lay
(PAT) Shares for the firm. If the ratio is less than
its hand on additional funds, say,
one it is good for the business firm.
1991-1992 4400821 85458 51.49 because of arrangement with the
bank, the current ratio may well be Table 7 reveals the fixed assets to
1992-1993 1753816 218255 8.03 less than 2 without any damage to the Capital employed ratio of GTDC
company. A very high ratio will result during the study period.
1993-1994 1208115 218255 5.53
from idleness of funds only and Table 7 Fixed assets to Capital
1994-1995 1465038 223564 6.55 therefore it is not a good sign. employed ratio.
1995-1996 969300 223564 4.33 Table 6 depicts the working (Rs in lakhs )
capital ratio of GTDC during the Year Fixed Capital Ratio
1996-1997 2355666 223564 10.54 study period. assets emplo-
1997-1998 1039940 524290 1.98 It can be observed from table 6 yed
that from 1991-1992 to 1995-1996. 1991-1992 252 145 1.73
1998-1999 914283 524290 1.74
the average ratio was 1.03 and from
1999-2000 -1886355 524290 -3.60 1996-1997 to 2000- 2001, the average 1992-1993 279 298 0.93
ratio was 1.24. This increase in the
2000-2001 -5011830 524290 -9.55 1993-1994 282 299 0.94
average ratio during the latter period
Source: Annual reports of GTDC for of five years indicates that the 1994-1995 284 309 0.91
the related period corporation is liquid and has the
The above table demonstrates ability to pay its current obligations 1995-1996 321 346 0.92
that the earning per share was the in time as and when they became due. (1.08)
highest 5 1.16 in the year 1991-1992 Table 6 Working Capital ratio 1996-1997 534 621 0.85
thereby signifying that the net profits (Rs in lakhs)
were high during that year 1997-1998 521 543 0.95
corresponding to the other years Year Current Current Ratio
assets liabili- 1998-1999 566 595 0.95
under study. However, from the
ties
subsequent year onwards the earning 1999-2000 589 612 0.96
per share went on declining except for 1991-1992 72 179 0.40
the year 1996-1997 and in the years 2000-2001 564 562 1.00
1992-1993 95 76 1.25 (0.94)
1999-2000 and 2000-2001 the earning
per share was negative 3.65 and 9.50. 1993-1994 114 97 1.17 Source: Annual reports of GTDC
This had been mainly due to high 1994-1995 154 129 1.19 for the related period
expenditure incurred by the Figures in brackets refer to
1995-1996 159 134 1.18
corporation during those years. average ratios.
(1.03)
Part B: Parameters for appraising the It can be observed from the above
1996-1997 217 130 1.66
Solvency position of Goa Tourism table that from 1991-1992 to 1995-
Development Corporation (GTDC) 1997-1998 157 135 1.16 1996 the average ratio was 1.08 and
These ratios are calculated to 1998-1999 151 122 1.23 from 1996-1997 to 2000-2001 the
judge the solvency position of GTDC average ratio was 0.94. This trend
1999-2000 154 131 1.17
from long term as well as short-term indicated that during the latter
solvency point of view. The following 2000-2001 151 153 0.98 period of five years the average ratio
are the ratios calculated in this (1.24) was less as compared to the earlier
respect. period. From the analysis it appears
Source: Annual reports of GTDC for
Working Capital ratio that the corporation has not given
the related period
much attention towards creating
As a normal rule, current assets Figures in brackets refer to adequate infrastructure facilities,

148 the management accountant,February, 2005

148

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Tourism
which on the other hand reflects on during the last four years of the study
the quality and type of service period, the average ratio was the
provided by GTDC. highest as compared to the earlier
Proprietary ratio periods. This reveals that higher the
ratio the lesser will be the reliance
It is the ratio of proprietors' funds
on borrowed funds. However, it is
to the Total assets. It reveals the
equally desirable in the interest of the
owners contribution to the Total
corporation to keep the capital
value of assets. The higher the ratio
structure a balanced one giving
the lesser will be the reliance on
weightage even to the borrowed funds
outsiders, although too high a ratio
wherein the corporation liability is
may not be good for it. It would imply
fixed in terms of interest or dividend
that external equities were not
which may not be the same incase of
utilized properly.
owned funds.
Table 8 displays the Proprietors
Conclusion
funds to Total assets
The Financial position of GTDC
Table 8 Proprietors funds to Total
has been introspected with regard to
assets.
Total assets, Capital employed,
(Rs in lakhs ) Shareholders equity, Earning per
Year Propri- Total Ratio share, Working capital and
tors Assets Proprietors equity. Based on the
fund analysis the following observations
1991-1992 163 324 0.50 are made.
The percentage of EBIT to Total
1992-1993 298 374 0.80 assets of GTDC was found to be
1993-1994 299 396 0.75 declining during the study period
(0.68) thereby demonstrating that GTDC
had not made any efforts to widen the
1994-1995 308 438 0.70 size of its earning base in proportion
1995-1996 308 480 0.64 to the increased volume of assets.
The return on capital employed
1996-1997 618 751 0.82 showed a declining trend thereby
(0.72) exhibiting the inefficient and
1997-1998 624 678 0.92 uneconomic use of capital resources
of GTDC .
1998-1999 633 717 0.88
The percentage of EAIT to
1999-2000 612 743 0.82 Shareholders equity was compara-
tively more during the early phase of
2000-2001 562 715 0.79
the study period and it recorded a
(0.85)
decreasing trend from the year 1997
Source: Annual reports of GTDC -98. This is a clear symptom of the
for the related period
fact that, there is no synchronization
Figures in brackets are average between GTDC investment policy and
ratios. financing policy.
The above table shows that from The percentage of EAIT to Total
assets was the highest in the first year
1991-1992 to 1993-1994 the average
ratio was 0.68. In the subsequent of the study period and from the
subsequent year onwards the percentage
three years period the average ratio
was 0.72. From the year 1996-1997 went on declining on account of
decreasing profits and increase in Total
to 2000-2001 the average ratio was
0.85. This tendency indicated that assets. In the last two years it turned
the management accountant, February, 2005
March 15, 2005 @ 4:04 pm
S.D.
out to be negative. This is mainly on
account of operating expenses made
being more than the income earned.
The Earning per share was the
highest in the first year of the study
period and from the subsequent year
onwards the earning per share went
on declining and in the last two years
of the study period the earning per
share was negative. This had been
mainly due to high expenditure
incurred by the corporation during
those years.
The calculated average ratios of
Current assets to Current liabilities
was more during the latter period of
five years as compared to the earlier
period thereby indicating that the
corporation had the ability to pay its
current obligations in time as and
when they became due.
The Fixed assets to Capital
employed ratio revealed that the
corporation has not given much
attention towards creating an
adequate infrastructure facilities,
which on the other hand, reflects on
the quality and type of services
provided by GTDC.
The Proprietors ratio indicates
that the average proprietary ratio has
been showing an increasing trend
during the study period. This reveals
that higher the ratio the lesser will
be the reliance on borrowed funds.
References
● Annual reports of Goa Tourism
Development Corporation (GTDC) from
1991-92 to 2000-2001
● Gupta S.P (1995) Statistical Methods,
S.Sultan Chand & sons, New Delhi.
● Historical Evolution and Development,
Foundation Course in Tourism, Tourism
Phenomenon 1, IGNOU, New Delhi
● Khan M.Y and Jain P.K (1996) Financial
Management Text and Problems, Tata Mc
Graw Hill Publishing Co Ltd., New Delhi.
● Pandey I.M (1991) Financial
Management, Vikas Publishing House Pvt
Itd, New Delhi
● Prasanna Chandra, (1995), Financial
Management- Theory and Practice, Tata-
Mc Graw-Hill Publishing Co Ltd, Delhi.
. ❑
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Human resource develop-
ment in coopertive milk
supply society, Tirunelveli
A Case study on the relationship of job satisfaction level
with various job satisfaction factors like age, locality,
experience etc.
Dr. V. M. Selvaraj* M. Muthu Deivakani **
H
uman Resource Development
paves a paradigm shift from
traditional Master slave re-
lationship to the modern trusteeship
system, in which employees and em-
ployees are considered a partners in-
vesting their wealth and labour re-
spectively and from traditional salary
administration to the new Human
Resource system. Almost all the or-
ganizations have now established Hu-
man Resource Development depart-
ments separately to effectively feel
with the Human resources.
According to Rao, Human Re-
source Development defend as, it is a
continuous process to ensure the de-
velopment by employees, companies,
dynamism, motivations, and active-
ness in a systamatic and planned
way2.
Based on Sukla statements, "Hu-
man Resource Development consists
of all measures calculated to improve
the quality of human resource for the
nation as a whole3”.
* Reader in Commerce, AKGS Arts
College, Sivaikundam
** Scholor, M.B.A., Alagappa
University, Karaikudi
150
150
HRD
Objectives of the study
Following are the objectives of the
present study:
i. To study profile of Tirunelveli Co-
operative Milk Supply Society.
ii. To analyze the relationship be-
tween the level of Job satisfaction
and the various Job satisfaction
factors like age, locality, experi-
ence and type of management.
iii. To offer suitable suggestions to
improve the job satisfaction
among the employees of the soci-
ety.
Research Methodology
The study was undertaken by way
of descriptive Research. Descriptive
Research was undertakcn by admin-
istering questionnaires to employees
in the society. -
(i) Collection of Data:
Necessary data for the analysis
have been collected by both primary
and secondary sources.
March 15, 2005 @ 4:04 pm
S.D.
(ii) Analytical Tools:
Percentage and Chi-square Test
are used to analyses the data for the
present sudy.
Profile of the Society
This chapter attempts to present
a profile of "The Tirunelveli Coopera-
tive Milk Supply Society Limited."
The voluntary association based
on the principles of "each for all and
all for each and self help through,
help" was registered as the
“Tirunelveli co-operative associate
Limited, 0.1067” under Sec. 4 of the
Madras Co operative Societies Act of
1932 on 13th May 1945. The certifi-
cate of incorporation and the certifi-
cate of commencement were duly ob-
tained. The administration of this
society with the objectives of increas-
ing the production of milk and secur-
ing the fair distribution of milk was
entrusted in an elected body with
proper representation of members.
Administration and Management
To attend to the day-to-day ad-
ministration and routine functions of
the society there is an office headed
by a paid Secretary. A chart is given
in the next page showing the line or-
ganization of the administration.
Job Satisfaction
Job satisfaction is a motivation
factor and an integration factor as
well. It is equally a morale boaster
as job satisfaction refers to the atti-
tude of the employee towards his job.
It is right to the degree to which the
employees' personal needs are ful-
filled in the job situation. Thus job
satisfaction is the favorableness with
which employees view their work 4.
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Line Organisation of the Administration

Secretary

Head Clerk

Supervisor Supervisor Supervisor Supervisor

(General and (Milk Shed) (Vendor) (Stall)
Internal Audit)
Assistant
Assistant
Master

Cleaner

Clerk Clerk Clerk Clerk Clerk Clerk

(Cash) (Members (Stores & (Accounts) (Invoice (Establish-
Loan) Record Check-up) ment)
Clerk Clerk Clerk
(Production) (Distribution) (Milk Coupon
and Redemption
(Shed) Keeper Vendor of Coupon)

Attender Attender
(Shed) Watcher
(To Cancel the coupon)
Peon
Cleaner

Watchman

Factors influencing Job Satisfaction :
There are so many factors, which
influence the level of such satisfaction
of employment. Among the factors,
only a few factors are analyzed. They
are age, marital status, educational
qualification status, experience, pro-
motion and salary.
Analytical Framework :
In this study, Human Resource
Development employees are grouped
into 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
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 mean
and S.D. calculated from the score
vales.
For computing chi-square test the
following formula has been used;
X 2=(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 contingency
table.
r = No. of Rows in a contingency ta-
ble.
The calculated value of chi-square
is mentioned with the table value of
chi-square for given level of signifi-
cance usually, at 5% level. If at the
stated level, the calculated value
(C.V.) is less than the table value (T.
V.) the null hypothesis is accepted
and 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-

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Table : 1 faction 7(21.21) were in the age group

of below 25 years. 5(15.15) and
Age and Level of Job Satisfaction of Sample Respondents
6(18.18) were in the age group of 25-
Employee 30 and also age group of 36-40 and
Sl. Age High Medium Low Total above 40 respectively shows high
No No. of Resp. % No. of Resp. % No. of Resp. % No. of Resp. % level of job satisfaction.
It also shows that 3(8.82) and
1. Below 25 7 21.21 4 11.76 4 12.12 15 15
15(44.12) were in the age group of 36-
2. 25-30 5 15.15 6 17.65 8 24.24 19 19 40 and above 40 respectively shows
medium level of job satisfaction. But
3. 31-35 6 18.18 6 17.65 4 12.12 16 16
in the same age group of 36-40,10(30-
4. 36-40 7 21.21 3 8.82 10 30.30 20 20 30) and above 40, 7(21.22) shows low
level of job satisfaction.
5. Above 40 8 24.24 15 44.12 7 21.22 30 30
Degrees of
Total 33 100 34 100 33 100 100 100
Freedom = (r-l) (c-1) = (5-1) (3-1) = 8
Calculated value of Chi-square
Table : 2
test is 13.5, but at the table value at
Marital Status and level of Job satisfaction of sample Respondents 5% level is 3.69. Hence the null hy-
High Medium Low Total pothesis is rejected
Sl.
No No. of Resp. % No. of Resp. % No. of Resp. % No. of Resp. % Marital Status :
1. Married 26 72.22 23 69.89 17 60.71 66 66 Level of job satisfaction may also
2. Unmarried 10 27.78 13 36.11 11 39.29 34 34 depend upon the marital status of an
employee. Hence an attempt is made
Total 36 100 36 100 28 100 100 100 to study the relationship between
marital status and level of job satis-
Table : 3 faction of employees working in co-
Educational Qualification and level of Job Satisfaction of Sample Respondents operative milk supply society.

Sl. High Medium Low Total Table 2 reveals that out of 100
No No. of Resp. % No. of Resp. % No. of Resp. % No. of Resp. % employees working in cooperative so-
ciety with high level of satisfaction,
1. Primary 26(72.22) were married and 10(27.78)
Level 30 63.83 18 64.29 12 48 60 60 of them were Un-married out of 36
2. Secondary employees respondents with medium
Level 17 36.17 10 35.71 13 52 40 40 level of job satisfaction 23(63,89) were
married and 13(36.1.1) were Unmar-
Total 47 100 28 100 25 100 100 100 ried.

Table : 4 Further it shows that out of 28

employees having low level of job sat-
Status and Level of Job Satisfaction is Sample Respondents isfaction 17(60.71) were married and
Sl. High Medium Low Total 11(39.29) were Un-married. It could
No No. of Resp. % No. of Resp. % No. of Resp. % No. of % be inferred from the table that re-
Resp. spondent who were married with low
level of job satisfaction are lesser.
1. Officer 2 18.18 4 21.05 3 4.35 9 9.09
Degrees of freedom = (r-1) (c-l) = (3-1) (2-1) = 2
2. Clerks 4 36.36 3 15.79 3 4.35 10 10.10
In the chi-square test the calcu-
3. Vendors 5 45.46 12 63.16 63 91.30 80 80.81 lated value of 0.94 is less than table
Total 12 100 19 100 69 100 100 100 value of 19.03. Hence the null hypoth-
esis is accepted.
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Educational Qualification : Table 5 indicates that out of 100 Superior Co-operation :

employees 49 persons have maximum
Job Satisfaction depends upon the Superior Co-operation is one of
level of job satisfaction. And 29 em-
Educational Qualification also. the important factors in determining
ployees & 22 persons have lower level
the job satisfaction of employees.
In table 3, the researchers ob- of satisfaction.
served that out of 47 employee's In table 7 it is observed that out
Degrees of freedom (r-l) (c-l) = (3-1) (5-1) = 8.
30(63.83) having high level of job sat- of 45 respondents 5(11.90),15(57.69)
isfaction had primary level qualifica- As the calculated value is 15.34 and 25(78.13) having high, medium
tion and also it shows that 17(36.17) and table value at 5% level is 3.69. and low level of job satisfaction re-
having high level of job satisfaction (i.e.) lesser than the calculated value, spectively, said 'Yes' 'for the Superior
had secondary level qualification. It the null hypothesis is rejected. Cooperation. Out of 55 employees
is observed that 18(64.29) and 37(88.10),11(42.31) and 7(21.87) have
10(35.7.1) had medium and low level Promotion : said 'No' for Superior Co-operation.
of job satisfaction respectively and 12 Level of Job satisfaction may also Degrees of freedom (r-l) (c-l )=(2-1) (3-1 )=2.
(48) and 13 (52) had medium and low depend upon the promotion facilities
level of job. satisfaction respectively. In the chi-square test, at 5% ta-
of an employe'.
It could be inferred from the table ble value have 9.01 which is lesser
that respondents who were secondary Table 6 reveals that out of 100 that the calculated value of 34.45.
lever had low level of job satisfaction. employees working in cooperative so- Hence the null hypothesis is rejected.
ciety, with high level of job satisfac-
Degrees of freedom (r-1) (c-1) = (2-1) (3-1) = 2. tion 3(21.43) said 'Yes' and 11(78.57) Salary :
It is inferred that calculated value said 'No'. Out of 20 respondents hav-
The importance of the relation-
is 1.996 and the table value at 5% ing medium level of job satisfaction
ship between salary & job satisfaction
level shows 19.03. Therefore the null 5(25) said 'Yes' 15(75) said 'No'. and
is generally over emphasized by man-
hypothesis is rejected. 2(3.03) respondents having low level
agements who tend to believe that a
of job satisfaction said 'Yes', and
pay-rise would make everyone in the
Status : 64'(96.97) have said 'No' for Promo-
organisation happy6.
tional facilities.
Job satisfaction depends upon the
Table 8 indicates that out of 100
occupational status. Therefore the Degrees of freedom (r-1) (c-1)=(2-1 ) (3-1 )=2.
maximum number of 55 employees
researchers has made an attempt to
ln the chi-square test, the calcu- had lower level of job satisfaction. 12
study the relationship between job
lated value of 10.6 is greater that the employees had high level of job satis-
level and job satisfaction of the sam-
table value at 5% level of 9.01. Hence faction and 33 persons had middle
ple respondents.
null hypothesis is rejected. level of job satisfaction.
Table 4 indicates that out of
Degrees of Freedom = (r-l) (c-l)=(3-1)(3-1)= 4.
twelve respondents working in a co-
operative society with high level of job
satisfaction and 19 employees have
medium level of job satisfaction. Out Table : 5
of 100 employees 69 persons have Experience and Level of Job Satisfaction of Sample Respondents
lower level of job satisfaction.
Sl. High Medium Low Total
Degrees of freedom (r-1) (c-1) = (3-1)(3-1) = 4. Year
No No. of Resp. % No. of Resp. % No. of Resp. % No. of Resp. %
In the chi-square test, table value
at 5% level of 66.26 is lower than the 1. Below 5 3 6.12 5 17.24 9 46.91 17 17
calculated value of 19.87. So, the 2. 5 - 10 15 30.61 8 27.59 5 22.72 28 28
value of hypothesis is rejected.
3. 11-15 8 16.33 6 20.69 2 9.10 16 16
Experience : 4. 16-20 4 8.16 3 10.34 1 4.54 8 8
Experience is one of the important 5. Above 20 19 38.78 7 24.14 5 22.73 31 31
factors in determining the Job satis-
faction of employees. Total 49 100 29 100 22 100 100 100

the management accountant, February, 2005 153

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HRD

Table : 6 Table value at 5% of 6.26 is lesser

Promotion and Level of Job Satisfaction of Sample Respondents than 12.45 of calculated value. Hence
null hypothesis is rejected.
Sl. High Medium Low Total
No No. of Resp. % No. of Resp. % No. of Resp. % No. of Resp. % Findings

1. Yes 3 21.43 5 25 2 3.03 10 10 From the analysis, following are

the findings:
2. No 11 78.57 15 75 64 96.97 90 90
1. Most of the employees had not
Total 14 100 20 100 66 100 100 100 satisfied with their present posi-
Table : 7 tion.
Superior Co-operation and Level of Job Satisfaction of Sample REspondents 2. It is noted that experienced em-
Sl. High Medium Low Total ployees also have no job satisfac-
No tion in the society.
No. of Resp. % No. of Resp. % No. of Resp. % No. of Resp. %
3. Many of the respondents feel that
1. Yes 5 11.90 15 57.69 25 78.13 45 45 superior should not co-operate.
2. No 37 88.10 11 42.31 7 21.87 55 55 4. Officers are having better satis-
Total 42 100 26 100 32 100 100 100 faction in their job when com-
pared to clerks and vendors.
Table : 8 5. Conclusion reveals that healthy
Salary and Level of Job Satisfaction of Sample Respondents personality and education is a
good sign of having high job sat-
Sl. High Medium Low Total
isfaction.
No No. of Resp. % No. of Resp. % No. of Resp. % No. of %
Resp. Suggestions

1. Below Further improvement of job sat-

2000 3 25 16 48.48 21 38.18 40 40 isfaction are:

2. 2000- 1. The management must take re-

4000 7 58.33 13 39.39 28 50.91 48 48 sponsibility to aim & equip offic-
ers and clerks.
3. Above
2. Salaries of the employees are pe-
4000 2 16.67 4 12.13 6 10.91 12 12
riodically revised.
Total 12 100 19 100 55 100 100 100 3. The superiors should grant due
recognition on the basis of a fair
Table - 9
performance appraisal.
Perceived Job Characteristics of Co-operative Society Employees 4. Job sharing and temporarily al-
Sl. Number Job Characteristics Score Rank Mean tered assignments would be help-
1. Technical advice to the members 448 1 1.79 ful.
2. Trade union is essential 436 2 4.36 5. Job satisfaction is an important
3. Working condition in the organization 419 3 4.19 factor related to variables like job
4. Welfare facilities 393 4 3.93 involvement, area, organization,
commitment, etc.
5. Work conflict 380 5 2.03
6. Job itself 353 6 4.58 Conclusions
7. Work involvement 333 7 2.67 Finally, the management of any
8. Promotional facilities 332 8 1.33 institutions should conduct job satis-
9. Colleagues Co-operation 312 9 4.42 faction surveys at least once in two
10. Life satisfaction 310 10 1.69 years. This would enable the manage-
11. Recognisation 300 11 3.46 ment to take steps to improve job sat-
isfaction of their employees. ❑

154 the management accountant,February, 2005

154

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A. N. RAMAN'S COLUMN
Activity based costing in
engineering industry
W
hen the cost accounting sys
tems were evolving through
the previous century the
moulding factors were more rooted in
to the methods of manufacturing. For
example we talk of adopting process
costing / batch costing / contract cost-
ing and so on and so forth. Still they
hold good. But predominantly the
costing methods for working out the
product costs were embedded into the
manufacturing technique and thus
the principles became more factory
oriented. This witnessed the prolif-
eration of allocation bases such as
machine hour rates, labour based
rates, material cost based rates, etc.
When cost accountants meet the com-
monly accepted language used to be
about the analysis of expenses into
factory cost centres and its recharge
and absorption into products on a
true and fair basis.
Activity Based Costing systems
consolidated in the later part of the
last century from a business process
perspective and not a manufacturing
function perspective. This is a very
important feature of the current gen-
eration costing systems. It is perplex-
* Management Accountant, Chennai
the management accountant, February, 2005
Professional Updates
ing and amusing to hear debates
about the applicability or otherwise
of ABC principles in a non engineer-
ing industry without realising that
the true consideration is for business
processes and not manufacturing
processes. A deeper insight and a
matured understanding of ABC
would identify the subject with vari-
ety in the business processes of a firm.
It is no exaggeration to say that it
was the service sector which nour-
ished the growth of ABC in compari-
son with the manufacturing world
though the conceptualisation initially
came from the manufacturing prac-
tices.
Having stated that let us still in
this 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 systems
which are manufacturing oriented.
· Batch level activities and costs
The conventional costing systems
attempt to unitise all costs of a
product to the lowest level i.e. of
a single unit of the product. This
is done by developing machine
March 15, 2005 @ 4:04 pm
S.D.
hour or labour hour rates which
become the basis of absorbing
costs based on the time standards
of the product or on the actual
time occupied by the product.
This is perfectly okay in a manu-
facturing world with a single
product focus. But when the en-
gineering activities get disturbed
by product variety causing lot of
change over activities or sched-
uling and rescheduling activities
the resource consumption pat-
tern will change and cannot be
unitised through a machine hour
rate. This normally happens
when 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 of
engines. This is an automobile an-
cillary with different OEM custom-
ers and supports a variety of ap-
plication from a tractor engine to
the engine of an excavator loader.
Dedicated cell manufacturing is
yet to be practised in which case
ABC principles will change. The
firm has got a process layout
wherein machines are laid out
functionally such a milling, drill-
ing, honing, boring etc. In such a
situation the different demand lev-
els and just in time delivery condi-
tions imposed by OEM the produc-
tion scheduling will be a night
mare. Frequent change over with
varying production lot quantity
will cause differential levels of re-
source consumption at each batch
level or lot level. The per unit im-
pact of this will be compounded
when the lot quantity can vary
from 1 to 100 or more. The ABC
systems attempt to distinguish
such activities and treat them
separately as batch level activities
and costs. THIS TREATMENT
WOULD BE DIFFERENT IN
155
155
BC

CASE DEDICATED CELLS
HAVE BEEN FORMED FOR DIF-
FERENT PRODUCTS OR A CNC
MACHING CENTRE TAKES
CARE OF THE SITUATION.
· Product level activities and costs
Product specific activities today are
on the rise triggered by a flurry of
customer specific features. The
contours and shape of the products
in particular in the automobile in-
dustry are proliferating day by day.
The traditional cost accounting en-
vironment did not witness such a
proliferation. The products were
· Life cycle level activities and costs
relatively stable over a long life
cycle and not much of a new prod-
uct development or modification
work were necessary. Conse-
quently the organisation structure
itself did not possess a top heavy
product engineering department or
technology support focussed at
mass customisation of products.
Hence the cost accounting systems
were very comfortable in tucking
away these minimum resources
into what may be called as works
overheads which in turn were ab-
sorbed into products. Alternatively
they were even merged into ma-
chine hour or labour hour rates.
Let us consider an example from
engineering industry to amplify
this. In a typical two wheeler in-
dustry today the strategy is to con-
stantly introduce variants in the
market place to be in the top of
mind of the customer. If a two
wheeler company has multiple
product segments with relatively
low end volume earning products
along with high end branded prod-
ucts there will be continual at-
tempts to introduce variants as
well as seek product modifications
to reduce low end product costs.
These activities become the core
to the sustainability and cannot be
tucked away as works overheads.
It is important to track the prod-
156
156
March 15, 2005 @ 4:04 pm
S.D.
Cover Feature
Professional Updates
uct specific modifications and cost world did not face such situa-
them separately so that low end tions. Products had a long life cy-
products do not get loaded with cost cle requiring less monitoring of
of modifying high end products. the phases such as conceptualis-
Typically we are talking of engi- ing, design, testing, manufactur-
neering change notices commonly ing, post sales support and phase
called as ECNs. The ABC structure out. The expenses incurred on
recognises the emergence of such such activities were minimal and
activities separately as a part of did not require any elaborate
the competitive strategies and management accounting.
costs them as product related costs.
Let us look at a current engineer-
The resources may range anything
ing example. A company manu-
from product specific jigs and fix-
facturing electronic products is
tures to trial runs made for verify-
always exposed to the dangers of
ing and validating such changes.
reverse engineering and imita-
tion. Consequently a gradual rise
in sales followed by a drop in
The life cycle of the products are
sales when imitation products
significantly coming down today.
come is the usual business cycle
Technological changes and inno-
of these products. In such situa-
vations are constantly at work as
tions the cost pattern will have
a part of the business strategy to
to be tracked over the life cycle
release new generation products
and product profitability moni-
into the markets. This is signifi-
tored. The profit pattern as a per-
cantly happening even in the In-
centage of the selling price will
dian markets. When colour tel-
not be linear over the life cycle
evisions were introduced into the
and will have to be seen in rela-
market they captured the cus-
tion with the overall product
tomers’ eyes and ears. Today one
costs. The product related cost
finds rapid changes in independ-
concept in ABC structure does ex-
ent technology of picture and
actly this by tracking the costs
sound such as plasma viewing,
over the activities distributed
projection viewing etc which are
over the life cycle and unitises
releasing newer and newer prod-
the same based on the volumes.
ucts. Constantly the older gen-
For example periodic modifica-
eration products will be phased
tions made to tooling/dies/circuits
out by the market faster and one
will be tracked as modification
cannot today buy a life style prod-
costs and spread over the balance
uct with a wish to pass it on to
volumes expected on the remain-
the next generation. Conse-
ing life of the product.
quently the life cycle of the older
products are crashing. Hidden in · Customer driven activities and
this situation is the process of in- costs
troducing new products which is
Customers are at the centre of
more critical than the manufac-
business processes today. Automo-
turing itself. This process is
bile ancillary in particular are be-
manned by very sophisticated re-
ing driven by the demands being
sources ranging from technology
brought on them by the OEM cus-
rich software systems to consult-
tomers who in turn are churned by
ing on obtaining customer feed
the feedback obtained from the cus-
back through market research.
tomers. The traditional cost ac-
The traditional cost accounting
counting systems were evolved in
the management accountant,February, 2005
BC

an environment when the custom-
ers were not driving the industry.
For example marketing related ex-
penses will be lumped as Selling
and Distribution overheads or
separated as Selling overheads and
Distribution overheads. The basis
of charging such costs to products
were more driven by arithmetic
convenience such as distributing to
products based on sales value (
what the traffic can bear ) or at
· Brand driven activities and costs
times on the basis of cost of sales.
These methods were okay as long
as the marketing expenses were
not of any strategic significance.
Since ascertaining customers pref-
erences and wants did not play a
major role in the business proc-
esses it did not matter much when
we simplistically treated the sell-
ing and distribution overheads.
But in the current environment the
customers can be ignored only to
the perilous end of a business. With
business strategy forcing evalua-
tion of multiple customer segments
with varying value proposition it
is important to look at customer
segment wise costs and costs of
reaching them. The concepts of ac-
tivity based costing consider these
issues and enable the compilation
of costs of serving customers.
Let us amplify the above situation.
Consider a manufacturer of a car
air conditioner who manufactures
and supplies for different OEM ma-
jors. Depending on the specifica-
tions originally given by the major
and their design there are likely to
be warranty claims of different
value from different customers.
These warranty claims not only the
material costs but also the organi-
sation’s time, effort and other re-
sources in attending to the cus-
tomer complaints. It may involve
a range of resources from testing
to travel and redesign in solving
the customer complaints. The to-
the management accountant, February, 2005
Professional Updates
tal costs of warranty need to be con-
sidered customer wise in order to
evaluate the costs of serving the
customers instead of lumping them
into selling and distribution ex-
penses. The concepts of Activity
Based Costing enable this by track-
ing customer wise costs by segre-
gating them as different activities
caused by customer related driv-
ers.
Competitive strategies in some
· Cost data support for waste
engineering industries today de-
mand heavy branding of prod-
ucts. This is true of industry such
as electric fan or even electric
motors. Branding as a strategy
has emerged in a big way of late
and certainly was not in the cen-
tre of strategy when the conven-
tional cost accounting systems
evolved .We do not have any set
practice as to how to have a
focussed costing of brand related
expenses. The position was some-
thing similar to what we dis-
cussed in the previous para-
graphs. The traditional cost ac-
counting systems were evolved in
an environment when the brand-
ing strategies were not driving
the industry. For example brand
related expenses will be lumped
as Selling and Distribution over-
heads or separated as Selling
overheads and Distribution over-
heads. The basis of charging such
costs to products were more
driven by arithmetic convenience
such as distributing to products
based on sales value ( what the
traffic can bear ) or at times on
the basis of cost of sales. These
methods were okay as long as the
branding expenses were not of
any strategic significance.
Branding strategy can be segre-
gated in to brand positioning,
brand maintenance and even
March 15, 2005 @ 4:04 pm
S.D.
brand refreshing phases of a prod-
uct marketing strategy. The media
, publicity materials or celebrity
endorsement fees and other re-
sources relating to the above seg-
regated phases are considered
phase wise and unitised based on
the realistic volumes expected and
revisited as per the actual volumes
achieved by the brand. This is the
conceptual structure which can be
embedded into an Activity Based
Costing system.
elimination
In the current competitive environ-
ment , a firm must continually im-
prove even to maintain its existing
relative performance. Ideas for
improving 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 growth
capabilities of the organisation
need to be nourished through vari-
ous systems including a cost feed-
back system to accomplish the
business strategy. Cost driven
strategies are unlikely to succeed
if the implementation methodology
does not encourage feedback and
learning. The newly designed and
propagated cost systems can en-
courage operational control and
learning that are needed for criti-
cal management challenges.
Kaizen costing can is meant to pro-
vide financial feedback to frontline
employees to encourage opera-
tional feedback and learning.
Activity Based Costing provides in-
formation either at an activity level
or at a cost driver level to support
kaizen costing. This provides vis-
ibility to cost related issues to be
taken up by the problem solving
teams. In some situation the data
can be even classified in terms of
157
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Professional Updates

the Loss Pillars in a company im-
plementing TPM. The traditional
cost accounting provides informa-
tion only at an accounting head
level and does not facilitate prob-
lem solving.
For example , in an engineering
process such a machine shop cost
data need to be provided on non
value adding activities such as
movement/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 valuable
trigger for kaizen projects. Such an
impact would not be there when
kaizen teams are provided infor-
mation on rejection percentages or
cycle time lost which are more non
financial in nature.
· Cost drivers in a process view of An organisation called CAM-I has
ABC. standardised the concepts of ABC.
In that frame work cost drivers in
A discussion on ABC is not com-
a horizontal or process view are
plete if we do not discuss about
nothing but root causes of a hid-
the cost drivers in engineering
den costs. For example cutting pa-
industry. Cost drivers are gen-
rameters is a cost driver of the tools
erally understood in the sense
selection. Alternatively the mate-
of a basis of absorbing activity
rial to be machined along with the
costs into products. For exam-
machining allowance can be con-
ple the activity costs relating to
sidered as a cost driver of tool cost.
customer complaint manage-
Yet another example of cost driver
ment as an activity can be as-
in a process view is the variations
signed to products based on a
in micron plated in a plating proc-
driver called number of com-
ess due to jig design. The cost data
plaints customer wise or time
relating to process cost drivers can
taken to resolve complaints
become an important source of in-
customer wise. The main objec-
formation for a continuous process
tive of such a driver is to assign
improvement. ❑
activity costs to products.

Attention of Members

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, 2004
intimating them to clear their membership dues within forty five days of the receipt of the said
notice, failing which their names will be removed from the Register of Members keeping in view
the 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 said
membership 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 did
not 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 not
be entitled to use the descriptive letters "AICWA" or "FICWA", as the case may be under Section
5 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 be
welcome to do so, subject to an application made to the Council in this behalf in Form 'H' and
payment of all arrears on account of the annual fee plus restoration fee calculated at the rate of
twenty per cent of the total amount of arrears plus the annual fee for the year in which the name
is 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 and
will also be available from the Membership Department of the Institute (e-mail: kbicwai@vsnl.net).

158 the management accountant,February, 2005

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Seminar News

THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

INTERNATIONAL SEMINAR ON
STRATEGIES FOR POWER SECTOR DEVELOPMENT
MARCH, 2005, HOTEL TAJ MAHAL, NEW DELHI
09.30 – 10.00 HRS.- Registration
10.00 – 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 and
Transmission of Power
l Increased Generation through Renovation
and Modernisation (R&M)
l Power Grid System – Strategies for Optimal
Use
l Captive Power Generation

14.30 – 17.30 Hrs. Second Technical Session Strategies for Development in Distribution of
Power
l Optimal Tariff Structure for Diluting
unsustainable Cross Subsidies
l Strategies for minimal T&D Loss
l Rural Electrification and providing afford-
able power
SECOND DAY
09.30 – 11.30 Hrs. First Technical Session Legal and Regulatory Frame Work
11.30 – 13.00 Hrs. Second Technical Session Financing, Pricing and Cost Accounting
records
14.00 - 16.00 Hrs. Third Technical Session Strategies for Development in Renewable En-
ergy Sector
16.00 – 17.00 Hrs. Panel Discussion ‘e’ Governance for Power Sector
17.00 – 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 India
ICWAI Bhawan (2nd Floor), 3 Institutional Area Lodi Road, New Delhi – 110 003.
Phones : 24622156, 24618645 (D) 011-24643273 (M)-011-9313375256
Tele-Fax : 011-24622156, 011-24618645
E-mail : icwaiprgm@vsnl.net / chandru@icwai.org

160 the management accountant,February, 2005

160

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EASTERN REGION
JAJPUR-KEONJHAR CHAPTER
New Office Bearers
Bishnu Mohan Sahu : Chairman
Sarda Bhusan
Mohanty : Vice-Chairman
Sridhar Sahoo : Secretary
Hiranya Kumar
Mohanty : Treasurer
RANCHI CHAPTER
Activities during December 2004
1. On 8 Dec. 2004, the Secretary
A.D.Wadhwa and A.K.Sao, Executive
Member 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 the
programme. They advised the stu-
dents to plan their career carefully.
Students were advised to join Cost Ac-
countancy profession for their bright
future.
2. S.G.Chakraborty, Vice-Chair-
man and Sanjay Kumar, Ex.Member-
Ranchi Chapter of Cost Accountants
met Sri Das, Add.Commissioner-Com-
mercial Taxes, Jharkhand on 21 Dec
2004 and appraised him about the
Cost Accountancy profession in regard
to VAT. As D-Date of the implemen-
tation of VAT is approaching, Ranchi
Chapter has initiated a series of ac-
tivities to include Cost Accountants in
the 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 VAT
Act.
Activities during January 2005.
The following programmes were
organised during first fortnight of
January'2005 by Ranchi Chapter-
1. On 15 January 2005, Ranchi
Chapter organised a workshop on the
the management accountant, February, 2005
Region & Chapter News
topic-"Enlivening-Living in the Fu-
ture". This workshop was conducted
by Kaushik Talukdar, noted Manage-
ment Guru. This was a interactive
programme and members also aired
their opinion on different issues which
require due Managerial and Leader-
ship skills. During the workshop some
games were also organised for final
students of ICWAI to test their IQ and
"response-time towards incidence".
Secretary A.D.Wadhwa and Treas-
urer S.K.Singh were helping Sri
Talukdar to conduct the show. Many
members, including A.L.Thakkar,
Pradeep Kumar, B.K.Singh,
D.K.Achari and A.K.Sao attended the
programme.
2. On 18 January 2005, Hindi daily
"Hindustan" organised a career coun-
selling programme at Guru Nanak
School, Ranchi which was attended by
about 500 students of +2 level. Secre-
tary A.D.Wadhwa presented his
speech on behalf of ICWAI. He invited
students to join ICWAI immediately
for their bright future. Media gave
good coverage to this programme as
well as to Cost Accountancy profes-
sion.
NORTHERN REGION
LUCKNOW CHAPTER
Regional Conference
Lucknow 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 Finance
Corporations, ONGC, NTPC, HAL,
Sahara India, RBI & others Banks
and Companies attended the confer-
ence. Saurabh Srivastava, Chairman,
Lucknow Chapter welcomed the
Chief Guest and Delegates, Harish
Goel, Chairman, NIRC, ICWAI dis-
cussed the present economic scenario
with reference to cost war prevailing
March 15, 2005 @ 4:04 pm
S.D.
in Indian Economic Environment.
The conference was inaugerated
by Hon'ble Deputy Speaker,
U.P.Vidhan Sabha Rajesh Kumar
Agarwal. He emphasized that profes-
sionals like (Cost Accountants) have
to take initiative in the field of Cost
and Management Accountancy to
provide reasonable price of the prod-
uct and services to society. J.K.Puri,
Chief Director, Indian Accounting
Service while delivering key note ad-
dress emphasised the role of Cost and
Management Accountants in WTO
regime. V.V.Singh, C.E.O., Reliance
Infocomm intimated that to mange
the 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 : Chairman
2. Sanjeev Sethi : Vice-Chairman
3. Sanjiv Jain : Secretary
4. J.S.Pandher : Member
( Immediate Past Chairman )
5. R.C.Singal : Member
6. Neeraj Verma : Member
7. Manoj Jajoo : Member
8. Shiv Kumar
Jindal : Member
CHANDIGARH-PANCHKULA
CHAPTER.
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 wherein
dignatories from Government, industry
and NIRC of ICWAI, New Delhi were
present, namely, Manmohan Singh,
IRS, Commissioner (Appeals). Deptt. of
Central Excise, Dinesh Gupta, IRS,
Deptt. of Central Excise, S.K.Garg, Vice
President, Spice Communications Lim-
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ited, Mohali, J.N.Tuli, Zonal Manager
Central Bank of India, Abhay Kumar,
Vice President IFFCO TOKIO Insur-
ance Chandigarh, S.P.Singh, former
Chairman of UBS, Panjab University
and D.C.Arya, Member, Northern In-
dia Regional Council of ICWAI, New
Delhi.
Balwinder Singh, Secretary of the
Chapter highlighted various issues con-
cerning Direct Taxes and Indirect
Taxes.
Vikas Gupta, Chairman of the
Chapter deliberating on the theme of
the seminar, stressed on the impor-
tance of paying tax by every indian for
the up-liftment of the Nation.
D.C.Arya, Member, NIRC of
ICWAI, stressed that in the competi-
tion era, when world is one ecomomic
entity, cost consciousness should be
promoted. Dinesh Gupta, Dy. Commis-
sioner, Deptt. of Central Excise,
Chandigarh clarified various issues
raised at the seminar. Manmohan
Singh, Commissioner (Appeal) Central
Excise Chandigarh appreciated the ef-
forts of the organizers and appreciated
the suggestions put forth.
K.S.Tanwar, Sr. Vice Chairman of
the Chapter presented vote of thanks.
JAMMU - SRINAGAR CHAPTER
In pursuance of Regulation 146 of
the Cost and Works Accountants Regu-
lations, 1959, the Executive Commit-
tee of the Council of the Institute of
Cost and Works Accountants of India
in its 317th meeting held on 24th Novem-
ber, 2004, renamed the Srinagar Chap-
ter of Cost Accountants as "Jammu-
Srinagar Chapter of Cost Accountants".
HEARTY FELICITATION
M. Muthusamy, AICWA on his re-
ceiving the “National Award 2004”
for the Best Self-Employed Person
under Orthopaedically Disabled
Category from our President His
Excellency Dr. A.P.J. Abdul Kalam.
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Region & Chapter News
SOUTHERN REGION
Programmers Organised During
September - 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 at
the Institute's premises. P.C.Anand,
Consultant - Central Excise, Chennai
was the Speaker. Earlier
R.Narayanan, Vice-Chairman, wel-
comed the Speaker and the members.
P.S.M.Hameed, Chairman, inaugu-
rated the meet. Members in large
numbers participated in the meet.
Guest Lecture on Indirect Taxa-
tion-Central Sales Tax:
A Guest Lecture for the benefit
of Intermediate/Final students of
ICWAI has been arranged by SIRC
on 'Central Sales Tax' Professor
N.S.Govindan, Expert in indirect
taxation, addressed the students.
Sunil Chako, Treasurer, SIRC wel-
comed the students and introduced
the Speaker. Students in large
numbers 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 the
Members. Sunil Chako, Treasurer,
SIRC welcomed the Speakers and
Members. R.Narayanan, Vice-
Chairman, SIRC proposed the vote
of thanks. Members in large num-
bers participated in the meet.
Discussion Meet on Concept Paper
on Companies Amendment Bill:
A Discussion on 'Concept Paper
March 15, 2005 @ 4:04 pm
S.D.
on Companies Amendment Bill' was
organized by SIRC P.S.M.Hameed,
Chairman, SIRC welcomed the
members and initiated the discus-
sion. V.Kalyanaraman, Past Presi-
dent, ICWAI and S.Gopalan, Past
Chairman, SIRC participated in the
discussion. S.Krishnamurty, Senior
Member of the profession who has
drafted the suggestive amendments
also attended the meet. Practicing
Members in large numbers partici-
pated in the discussion and gave
their view. R.Narayanan, Vice-
Chairman, SIRC proposed a vote of
thanks.
Professional Development Meet
'WTO & Antidumping:
A Professional Development
Meet on 'WTO & Antidumping'
was organized by SIRC in October
2004. R.Narayanan, Vice-Chair-
man, SIRC welcomed the members
and speaker. Dr.James Daniel Paul,
Economist, Murugappa Group,
Chennai, addressed the members
on the topic. Members in large num-
bers participated and interacted
with 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 in
October 2004. Leo Amal Raj &
Srinivasan, Consultants, Software
Training, Chennai have addressed
the members on the subject. Mem-
bers interacted with the faculties
and got their doubts cleared.
One-Day Seminar on 'Transfer
Pricing':
One-Day Seminar on 'Transfer
Pricing' was jointly organized by
ICWAI & SIRC in November 2004
at Hotel Residency Towers,
T.Nagar, Chennai. R.Narayanan,
Vice-Chairman, Sirc welcomed the
the management accountant,February, 2005
BC

participants and the Chief Guest.
Binoy Gupta, Chief Commissioner,
Income-Tax, Chennai inaugurated
the Seminar and addressed the par-
ticipants. V.Kalyanaraman, Past
President, ICWAI and P. S. M.
Hameed, Chairman, SIRC also ad-
dressed the participants. M.
Gopalakrishnan, Central Council
Member, ICWAI gave an overview
of the programme. S.Ramesh,
Chairman, PD, SIRC proposed a
vote of thanks.
Professional Development Meet on
'Amalgamations & Takeovers -
Valuation of Companies:
A Professional Development Meet
was organized by SIRC on 'Amalga-
mations & Takeovers - Valuation of
Companies' in November 2004 at
SIRC premises. S. V. Raman, Man-
agement Consultant, Chennai ad-
dressed the members on the topic.
R.Narayanan, Vice-Chairman, SIRC
welcomed the members and the
speaker. Members in large numbers
participated in the meet.
Guest Lecture on 'Accounting
Standards':
A Guest Lecture for the benefit
of Intermediate/Final students of
ICWAI has been arranged by SIRC
on 'Accounting Standards - AS' in
November 2004. M.P.Vijay Kumar,
Chartered Accountant and expert
on Accounting Standards addressed
the students. K.Shanmugam, Asst.
Director, SIRC welcomed the stu-
dents and introduced the speaker.
Students in large numbers attended
the 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-
the management accountant, February, 2005
Region & Chapter News
dressed the members on the topic.
R.Narayanan, Vice-Chairman,
SIRC welcomed the speaker and the
members. 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 with
SIRC of ICSI organized a One-Day
Seminar on 'Corporate Governance
- Disclosures & SEBI' in December
2004 at ICSI-SIRC House,
Nungambakkam. The Seminar was
divided 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 the
Session was Chaired by N.
Ramanathan, Vice-President - Fi-
nance & Secretary, Ponni Sugars
(Erode) Ltd., Chennai. The second
Technical Session on 'Disclosures &
SEBI' was addressed by H.
Jayasurya, Company Secretary,
Bangalore and the Session was
chaired by P. B. Madhavan, Advo-
cate, Chennai. The seminar was in-
augurated by Samir Biswas, Re-
gional Director, Company Law
Borad, Chennai. Delegates in good
numbers attended the seminar,
which included, Practising Mem-
bers of ICWA, ICSI and Corporates.
Professional Development Meet on
'Supply Chain Management':
A Professional Development
Meet on 'Supply Chain Manage-
ment' was organized by SIRC De-
cember 2004 at SIRC premises.
P.S.Anantha Narayanan, Manage-
ment Consultant, Chennai was the
Guest Speaker. K.Shanmugam,
Chairman, Podicherry Chapter of
Cost Accountants. Pondicherry pro-
posed a vote of thanks.
March 15, 2005 @ 4:04 pm
S.D.
COIMBATORE CHAPTER
Industrial Visit - Textile
An Industrial visit to Sri
Murugan Mills, a composite mill at
Coimbatore, was organized by the
Chapter for the Intermediate Stage
1 students on 1 December 2004.
Raveendran, Chairman PDC and
Balasubramaniam, Cost Account-
ant of Sri. Murugan Mills coordi-
nated the visit. Students were ex-
plained about the Spinning and
weaving process by the respective
technical experts. A model cost
sheet prepared by Mills was ex-
plained to students for their better
understanding. Feedback obtained
from students reveals that the visit
was useful and motivated one,
R.Maheswaran, Faculty guided the
student.
CPE Credit Seminar on Growing
Opportunities for Practice in Central
Excise.
The Coimbatore Chapter of Cost
Accountants 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 Accountant
coordinated the Seminar.
A. Ramasubramania Raja,
Chairman of the Coimbatore Chap-
ter of ICSI gave a warm welcome to
the participants and G. Natarajan,
Partner, Swamy Associates, Advo-
cates was the speaker. G. Natarajan
deliberated the growing oportu-
nities for practice in Central Excise.
He also focused on areas in which
the 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 service
distributor, adjudication and ap-
peals etc.,
The speaker delivered a well
structured and informative presen-
tation which was well received by
participants. At the interactive ses-
sion, G.Natarajan, speaker clarified
queries raised by members.
M.R.Thiagarajan, Company Secre-
tary, presented a memento to the
speaker. K.Gurusame, Chairman of
Coimbatore Chapter of Cost Ac-
countants gave the vote of thanks.
BANGALORE CHAPTER
Joint Programmes:
(a) 4-Days Training Programme
(in November 2004) on Finance for
non 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 of
Disinvestment and P.E. Reforms on
Finalisation of Accounts and review
of Audit paras for the Middle / Sen-
ior Level Executives of State Level
Public and Private Sector Enter-
prises.
Professional Development Meet:
(a) One Day Seminar on "Win-
ning Strategies in a Deconstruction
World."
A seminar was held in Novem-
ber 2004 at Hotel Grand Ashok on
Winning Strategies in a Deconst-
ruction World. The seminar was in-
augurated by M.S.Zahed, Chairman
of the Chapter, HMT Limited,
Bangalore. S.Venkanna, Chairman
of the Chapter, introduced the Chief
Guest to the Members.
Y.H.Anegundi, Secretary of the
Chapter proposed the vote of
thanks. Dr. H.R.Subramanya,
President, ICWAI, gave a over-view
of the subject of the seminar and
164
164
Region & Chapter News
was present throughout the semi-
nar. Large number of participants
attended the seminar.
(b) Silver Jubilee Commemora-
tion Annual Lecture:
The 16th Silver Jubilee Commemo-
ration Annual Lecture was delivered
by Prof. S.Sadagopan, Director, In-
dian Institute of Information Tech-
nology (IIIT), Bangalore, in Novem-
ber 2004 at Hotel Grand Ashok, on
Role of Management Accountant for
the Global Needs in the Internet Era.
The programme was well attended by
our members and at the end of the
programme, there was live interac-
tion. Dr. H. R. Subramanya, Presi-
dent-ICWAI, who was also present
during the lecture, gave a over-view
of the programme. S.Venkanna,
Chairman of the Chapter, introduced
the Chief Guest to the members.
Y.H.Anegundi, Secretary of the
Chapter proposed the vote of thanks.
Coaching Activity:
(a) Presonality Development
Programme was conducted in Sep-
tember 2004 for the benefit of our
students at the Chapter. There was
a good participation of students for
this programme and the interaction
was quite educative. G. N.
Venkataraman, Chairman-Coach-
ing, Coordinated the Programme.
(b) The inauguration of 77th Batch
of Oral Coaching Classes was held in
October 2004 at the Chapter
premises. M.Sreenivasa Rao, Past
President of the Institute, inaugu-
rated the Oral Coaching Classes.
G.N.Venkataraman, Chairman-
Cosching, welcomed the Chief Guest
and introduced him to the audience.
He also gave a report on the activi-
ties of coaching. The Chief Guest, in
his speech, advised the students to
put their best efforts in becoming the
bright professionalist. The pro-
gramme was presided by
S.Venkanna, Chairman of the Chap-
March 15, 2005 @ 4:04 pm
S.D.
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 December
2004 at Thiagarajar Polytechnic, Salem
5. P.Venkataramanan, Fellow Member
of ICWAI was the Chief Guest on the
occasion. R.Ahalya Rajan, Secretary of
the Chapter gave the welcome address.
AC Soundrarajan, Vice Principal of
Thiagarajar Polytechnic gave a special
address. He in his address, explained
the significance of cost accountancy and
the role of cost accountants in the glo-
bal scenario. Venkataramanan who
laid the foundation for Mettur-Salem
Chapter in the 1980's recalled the ef-
forts put in by him to bring up the
Chapter at Salem and also the role of
Cost Accountants in the present sce-
nario. The office bearers of the Chap-
ter appreciated the role played by
Venkataramanan in bringing the
Chapter at Salem and the various fa-
cilities he established for the benefit of
students.
On this occasion, distribution of
Coaching Completion Certificates
were made to the students who have
undergone 3rd oral coaching session.
About 100 students and office bear-
ers of the Chapter participated in the
programme. N Santhanam, Coaching
Administrator gave vote of thanks.
UKKUNAGARAM CHAPTER
Professional Development
Seminar.
A professional development
seminar was organized by
Ukkunagaram Chapter of Cost Ac-
countants on "Dynamic Role of Pro-
fessionals in the context of
Globalisation". M.Gopalakrishna,
IAS(Retd), Chairman, AP State Fi-
nance Corporation, was the main
speaker and the programme was
attended by practicing cost account-
the management accountant,February, 2005
BC

ants, members from the industry
and student members. The pro-
gramme was of educative value and
it was a great success.
KOTTAYAM CHAPTER
Members Meet
A members meet of the , Idukki,
Alleppey, Kottaym and
Pathanamthitta Districts was held
on 18th Dec 2004 at hotel Pearl Re-
gency Kottayam. Binoy Varghese
Secretary of the Chapter welcomed
the gathering. The meet was inau-
gurated by Hon.District Collector of
Kottayam Rani George IAS. In her
address, she stressed the need for
further development and growth of
the professional for extending the
benefit to the industry and com-
merce at large.
The Key note speaker
K.N.G.Kurup, the retired General
Manager HMT LTD Alwaye and an
eminent practicing Cost Accountant
Ernakulam stated the reputation
enjoyed by the Institute and the
members in the past right from the
origin. 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 his
appointment ad SIRC Treasure.
The Guest Speaker SIRC Treas-
urer Sunil Chacko assured the
members that, he would try his
level best for the development of the
profession in the area of employ-
ment and Practice. R.Jayachandran
Finance Manager Rubber Wood In-
dia Ltd extended a vote of thanks.
Seminar on Indian Capital Mar-
ket
As part of the members meet a
seminar on Indian Capital Market
was conducted in two sessions.
the management accountant, February, 2005
March 15, 2005 @ 4:04 pm
S.D.
Region & Chapter News
Technical session one, was on In- Change the Telephone Nos.
dian Capital Market Present Sce-
Dr. B. S.
nario which was presented by Regi
Rajpurohit : (O) 2513676
Jacob Managing Director JRG Sec-
Chairman : (R) 2430927
retary Oil Palm India Ltd. Reji
: (Mob) 98291-16237
Jacob stressed the role of Indian
Capital Market towards the devel- K. K. Vyas : 2640649
opment of our economy. Viju Secretary : (Mob) 94141-27649
Chacko Joint.Director Finance Rub-
ber Board presented a memento to
PUNE CHAPTER
Regi Jacob for his excellent presen-
tation S.Neelakanta Iyer Director
Study Circle Meeting on
Coaching, Kottayam Chapter ex-
4 December 2004
tended vote of thanks.
The Technical Session Two was Report on Energy Cost Management
on Investment Fundamentals Pune Chapter of Cost Accountants
which was presented by organised a study Circle meeting on
Sq.Leader.K.S.Mathews Managing "Energy Cost Management" on 4 Decem-
Director A.M.J.Stock Brockers Ltd ber 2004. Dr. G.H. Tasgaonkar was the
which was presided over C.J.Joseph expert speaker on the occasion. Amit
Cost Accountant and Company Sec- Apte, Chairman - P D Committee, Pune
retary. He intruded into the tech- Chapter welcomed the speaker.
nical areas of the capital market P.G.Pathak, member of the Institute
and Portfolio management for a introduced the speaker to the audience.
steady return when compared to the Dr. Tasgaonkar stressed the need to
bank rate by prudent and stable have efficiencies in Energy Generation
selection N.R.Battathri extended a / Consuming Assets. These efficiencies
vote of thanks to K.S.Mathews.
will have a dual benefit that of cost re-
duction, as also general improvement in
WESTERN REGION the overall health and pollution levels.
Dr. Tasgaonkar through various exam-
JODHPUR CHAPTER ples explained in detail the effects of
energy wastage on Ecology &
New Office Bearers Enviroment. He also spoke of various
Dr. B.S.Rajpurohit : Chairman innovative ways of achieving these
Devendra Daga : Vice-Chairman efficiencies.
K.K. Vyas : Secretary After an interactive question & an-
swer session K.S.Bagga, member offered
Virendra Surana : Treasurer
a vote of thanks.
Kamini
Sankhala : Joint Secre-
tary ( Student Nominee)
AT THE HELM
O.P. Mutha : Member
A.D. Jha : Member Kulamani Biswal, a senior Cost Ac-
countant (M-8471) joined as Chief
Yogesh Modi : Member (Finance) in Central Electricity
Abdul Salam : Member Regulatory Commission, New Delhi.
Shail Singh Previously he was Joint Director (Fi-
Solanki : Member nancial Analysis), Orissa Electricity
(Student Nominee) Regulatory Commission.
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 March 15, 2005 @ 4:04 pm
S.D.

For Attention of Members

FOR ATTENTION OF MEMBERS

In the 221st Meeting of the Council of the Institute held on 11th October, 2004, it was decided to issue Identity Cards
to the members of the Institute.
Accordingly, all members are requested to send their requisition for issue of Photo Identity Cards by filling up
the following requisition from in Block Letters. It should also be ensured to enclose one loose stamp-sized photograph
and affix another stamp-sized photograph with signature of the member concerned in the appropriate places earmarked
hereunder. The members making requisition should ensure to have cleared all their membership dues. The Requisition
Form duly filled in should be sent to the Deputy Director (Membership) of the Institute at 12, Sudder Street,
Kolkata - 700 016.
Telegram : STANDCOST
THE INSTITUTE OF COST AND Telephones : 2252-1031/34/35
WORKS ACCOUNTANTS OF INDIA 2252-1602/1492
Fax : 91-33-2252-7993
12 Sudder Street, Kolkata - 700 016 91-33-2252-1026
Website : www.myicwai.com
E-mail : kbicwai@vsnl.net
REQUISITION FORM FOR ISSUE OF PHOTO IDENTITY CARDS
Please Enclose One Please Affix
Loose Coloured One Coloured
Stamp-sized Stamp-sized
Photograph Here Photograph Here
With Clip

Signature in Black Ink

PARTICULARS (To be filled up in BLOCK LETTERS)

FIRST NAME MIDDLE NAME SURNAME
Shri/Mrs. Miss (Delete
whichever is not applicable)
Name in Short
Membership No.

Date of Admission as AICWA Date of Advancement to FICWA

Day Month Year Day Month Year

Qualifications
Professional Address Journal Mailing Address

City City
Pin Code Pin Code
Telephone No.
Office Residence
Fax No.
E-mail
Date of Birth
Day Month Year
SIGNATURE OF THE MEMBER (IN BLACK INK)

166 the management accountant,February, 2005

166

BC