March 17, 2018

Speaking at 58th National Cost Convention 2018, in New Delhi

work of the team under him that the institute really is focusing on converting into a very prominent large national body. Brijeshji very rightly pointed out that a lot of people are not aware of the importance of the aspect of the profession that you are carrying out, the importance of costing if you have to truly make India cost competitive, make India an attractive destination in the comity of nations, bring out the best comparative advantages of working in India.

I don’t know if any of you has read about Michael Porter’s works on the comparative advantages of nations. In some sense, that can become a Holy Bible for any cost accountant that unless we are able to look at the competitive edge, but also in a comparative scenario we will never be able to make good suggestions, good advisors to make an organisation both competitive but also in the comparative sense more competitive. And, towards that end, costing plays a very important role. We in the chartered accountancy profession also look at costing with a great deal of importance and significance. It’s one of the most important papers in the chartered accountancy examination.

And it’s probably, if I may venture to suggest, I don’t know whether I should say it, but it was the only subject and the only paper in my entire academic life for which I attended a tuition class. Well, if you are interested, I will tell you the background of that. There is a professor JK Shah in Mumbai, who used to run this class for chartered accountancy students, somewhere near Opera House. Everybody I would meet would say ‘JK Shah में ज़रूर जाना costing के लिए|

But since I had never attended a tuition class, I was very-very skeptical and feeling very bad कि यार tuition class जाकर हमको subject सीखना पड़ेगा, but खैर I went to meet him and I said sir, I am not very sure I want to take the class. Will you allow me to attend some of your sessions, so that I can decide whether I want to continue and take up the whole course, but I will pay you the fees after I decide. I won’t pay you the fees today.

Fortunately, he agreed and he allowed me to attend his lectures. He himself was teaching costing. But I must acknowledge that only second day itself I decided no, I must take up the class, because probably many of us don’t understand costing unless you get into the nitty-gritties of it. And I realized that our own understanding of costing as a common individual, just B.com passed and studying for chartered accountancy, focused on accounting, on auditing, I realised that my own knowledge about costing was not good enough. And I did take that class all through, enjoyed it. And I believe next week or a week after that I am going to attend a function of JK Shah’s classes, the first time ever I am going to any such function they are celebrating…..

Across the country guided people how to seamlessly move into this new tax regime, of course, it’s quite a difficult task when you are trying to integrate 17 taxes, 23 cesses, 40 different laws to adhere to, being converted into one General Sales Tax – Goods & Services Tax – and bringing to fore a deep consensus between centre, states, 40 departments to agree on one framework and then to take that framework to millions of business persons, traders and then the common public across the country is a colossal task.

In fact, no country of the size of India in the world has embarked on GST. You don’t have a GST in China or in America also even today, but it is a bold move that the people of India have supported and helped to execute, particularly, the professional bodies. All of you worked hard to make that a success to reach it to all the people, and certainly, there will be some glitches, there will be certain issues. Very often, I tell friends that even when we do a small thing like furnishing our office, look at the amount of pain that one goes through – the carpenter troubles you one day, the plumber doesn’t show up another day, the tiles that you get may turn out to be defective, the laying of the tiles may not be even, and sometimes, in the middle of furnishing your office, maybe month or two or three months down the road, you actually wrench your hair and think, my God, I wish I had never started it in the first place. पुराना ही ऑफिस अच्छा था |

But, as the work gets complete, as the things fall into its slot, and as a new office comes out, then you enjoy working in that, then you enjoy being a part of the new office. So, one has to go through this period of pain, one has to go through this period where you are setting things in order and only after that you can enjoy the fruits of the effort and the labour that one puts in. And in that sense, the support of your institute to make this happen, to reach this out, has truly been phenomenal. Thank you Sanjayji for your leadership to bring the entire profession in support of the government, in support of our efforts to clean the system, to simplify the system. I am sure we have a long way to go before it becomes completely seamless and people get completely tuned to the new system.

In fact, I also want to complain to you Sanjayji and, particularly, to the CMA, Mr Anil Sharma. Is he in the audience here, by any chance? I was just reading your tax bulletin, glancing through it. और आपने तो मुझे डरा दिया एकदम | I was just seeing your valuation of various campaigns under the IGST Act, और देखते देखते I came to the point about ‘valuation of the advertisements placed on trains.’ It’s on page 2 of your article. And it really scared the hell out of me to see that how I am supposed to value for GST purposes any advertisement on the train. I will have to divide that cost on a train going from, you have taken the example from Hazrat Nizamuddin to Vasca Da Gama. I will have to allocate that cost to Delhi, Haryana, Uttar Pradesh, Madhya Pradesh, Maharashtra, Karnataka and Goa.

That’s a lot of work for all the cost accountants I must say. But that will be the evolution of this entire process, that is how we will all through these learnings come up and make the entire process much more simple, easy to execute. I think the states also had concerns, and very genuine concerns that would this move tax collection to certain prime centres. For example, Mumbai and Delhi would have head offices of most of the organisations, the railways may give an advertisement contract across the country from its headquarters in Delhi and that would deprive the states of a lot of the tax revenue that they would otherwise get in the earlier regime. Because there would be a tax collected at source, at different places which is now getting integrated into the GST.

So, it’s a very genuine issue that has arisen. But it was unavoidable. Unless you get all the states together, you are not going to be able to implement such a massive change, but the states have to protect their interests also. And, therefore, some of these things will come in, they will run their course and as there is more confidence how these things can be done in a simpler fashion. Obviously, all of you professionals will help us and help this tax regime also evolve going forward. So, one must appreciate the great effort that has gone into bringing so many different voices, so many different interests onto one table, integrating the interests of 29 states, all the Union Territories, different authorities who would otherwise collect the tax.

And I am very confident that going forward, as the people start enjoying the benefit of not dealing with 40 tax inspectors of not having to file returns in 40 different taxes and cesses, the true benefits of GST will reach out to the people and then maybe the institute can do a costing of how much money is saved for not having to comply with so many departments, both the official cost and the unofficial cost. Because, ultimately, there is a very large cost of corruption that this nation has also paid.

I mean, look at it. Even the IMF probably estimates that nearly 2% of our GDP is lost because of corruption. Personally, I think it would be much more. And that is what we have set out to clean up. As honorable Prime Minister repeatedly says, and in a way he links it up to the Swachh Bharat Abhiyan also. I remember a lot of people used to criticize ‘the Prime Minister has to talk of Swachh Bharat?’ This is not something Prime Ministers have to focus on.

But swachhta is not only about keeping the carpet clean at Vigyan Bhavan, or our homes clean or the trains clean, that’s obviously very important. But it’s about the entire thinking that is there in this country. Swachhta has to come into our work, swachhta has to come into our dealings. We have to get rid of this cost of corruption that this nation has suffered, and I would say not only for 70 years, but for centuries in this country, we have suffered a cost of corruption.

Ultimately, as I have often said, if two people cheat on their taxes or evade their taxes, …. those two people who are evading taxes, that leads to a lot of distortion in the entire market place and others in that business also tend to then in the comparative and competitive nature of business have to either shut down or join the bandwagon. And, gradually, the nation then moves into a system where all of us, even consumers would start thinking should I actually pay tax on the product that I am buying. So, you go to buy, if I may take the example of the carpet again, you go to buy a carpet in a store and a fellow tells you, ‘साहब टैक्स के साथ चाहिए, बिल के साथ चाहिए तो इतना लगेगा, without bill I can give it to you 12% or 18% cheaper. And we are all tempted, anybody will be tempted.

But I think it’s time now that all of us, probably, the institute can take a lead in this, start talking about the cost of that small laalach, that small benefit that attracts us, that excites us, the cost of that in the nation as a whole. How it distorts the country’s working, how it distorts business working, I am not even talking of the emotional element of it that after all that little bit of tax that one would have paid to buy a carpet, maybe a few hundred rupees, a few thousand rupees which a person who is buying a carpet of many thousand rupees can certainly afford. But whether when we are evading that tax, we are depriving a child of electricity in his home, whether we are depriving a poor person of a possible second meal in the day, whether we are depriving good healthcare facilities for that young man in Orissa who had to carry his mother on his shoulder to take her to the nearest healthcare facility which was far away because the ambulance didn’t work that way.

There is a huge cost of corruption that we have faced in this country, and I would urge you Sanjayji and all your colleagues to seriously consider what that cost has been for this nation, how much we have suffered when we talk of development, when we talk of growth, when we talk of prosperity because of that cost of corruption. And what can be done to move the needle, change the system. Is transparency a solution? And I personally am a great votary for transparency. My own experience of four years now in government lead me to believe that whatever we make more transparent leads to elimination of corruption.

As much as we look at level playing field for everybody it helps us bring honesty into the system. And cost and management accountants can truly play a, if I may use the word, ‘revolutionary’ role in making this happen.

I will give you one or two small examples of how things can change. I can look at any sector, I can look at my earlier stint as Power Minister. Some of you may recall the LED bulbs programme. Prime Minister on the 5th January, 2015 launched a programme that we will take LED bulb lighting to every home, every office, every street of India and bring in a revolution which will help bring the consciousness of energy efficiency in the country. In fact, I remember Prime Minister’s comment, ‘every kilowatt hour or every unit of electricity saved is actually equal to 1.3 units of electricity generated, because with transmission, distribution losses when you save one unit of electricity you are actually saving what you would pay for 1.3 units. And I think the cost accountants know that better than anybody else, I don’t know how the Prime Minister figured it out and he is certainly not a cost accountant.

But when we launched this programme, I still remember LED bulbs were typically and maybe somebody who has bought bulbs 4 or 5 years ago may recall were typically costing about Rs 500-600 in the market. The government of India, we had a company called Energy Efficiency Services Limited (EESL) was purchasing these bulbs for about Rs 310 plus taxes, with distribution, marketing, finance costs it was probably costing Rs 500-600. The government was giving a subsidy of Rs 100 and trying to sell it to the people and managing to sell 6 lakh bulbs – 600,000 bulbs every year. Total procurement of EESL in the year 2013-14 was 6 lakh bulbs at Rs 310.

I remember when I approached the honorable Prime Minister and I said that we want to replace 770 million – and that was our guess estimate based on whatever statistics, we took the statistics of how many bulbs are sold every year in the country, etc. the incandescent age-old bulbs. And we estimated 770 million bulbs will need to be replaced, so we kept a target that from 2015 to 2019, in four years, we will replace 770 million bulbs – 5 years – 2015 to 2019, started about a year after we came in. I remember May was the year we first started selling these bulbs, after launching it in January the process of procurement and all.

And I remember the meeting where I talked to my colleagues in the Ministry and I said we will sell this bulb at Rs 120, and everybody was aghast. They said it’s just not possible. Rakesh here who is one of your panelists was a part of that team at that point of time. And I said we will procure these bulbs in double digit. I still remember, when all the LED suppliers came and I said target price is double-digit. They said what do you mean by double-digit, I said it’s anything less than 99, that’s what is double-digit.

And my logic was simple. One can leverage on economies of scale, one will leverage on emerging new technologies, one will leverage on people with given large volumes starting to manufacture in India initially to assemble in India, bring jobs to India, make it much more competitive, its costing. And I knew that we can save a lot of money by eliminating corruption in the purchase. And ladies and gentlemen, you will be happy to know that barely two years into our procurement of LED bulbs that same EESL was procuring LED bulbs at Rs 38 plus taxes. The cost fell by 87%, certainly, due to a combination of factors.

Earlier, they used to pay in five years, we said you will get a cheque in your bank account on the 30th, an RTGS transfer in your bank account on the 30th day. If it’s not there, contact my office directly and talk to me. For guarantees of quality, we would take a bank guarantee instead of holding back money. And with government intervening with large scale procurement, that EESL which used to sell 6 lakh bulbs in a year, started selling 6 lakh bulbs every day.

And, ladies and gentlemen, you will be happy to know, just that one company, EESL, has sold about 292 million bulbs   in the last 3 years – 3 years are not even over. The private sector simultaneously has sold about 600 and odd million bulbs, effectively, we are already at 899 million bulbs sold at prices which are today almost 85% less, you can easily get a good quality bulb. Earlier, the bulbs were I think 9 W, which we have moved to 12 W now.

And you will be delighted to know, the entire cost of these 899 million bulbs that the nation has paid collectively, is about a billion dollars, just about a billion dollars, and the annual saving that the people of India, that every energy consumer who converts to LED bulbs gets is $6.5 billion every year – 40,000 crore rupees. सालाना बचत 40,000 करोड़ रुपये होती है सिर्फ LED bulbs में इस देश में, 11,200 करोड़ estimated units of power, kilowatt hours of power – 11,200 crores units of power is the saving in energy consumed. Of course, it’s impact on climate change is even greater, 80 million tonnes of carbon dioxide emissions have reduced, which I am sure will make our next generation happy, because they are really concerned about climate change, they want a better planet to live in, not what is happening today.

All of this is possible if a good CMA gives you advice how to bring the cost down. After all, all of these are strategies, these are business strategies, these are intelligence strategies, which all of us are aware of. It doesn’t need rocket science to understand benefits of doing honest procurement, of doing procurement to scale, getting the best of technologies, giving assured business. I procure wagons in the railways. I will share with you my experience on wagons. I won’t give you more examples and bore you with that, but I could actually speak from now until evening, giving you examples of how costing can be a driver of change, a driver of honesty and integrity and how each one of you can become the ambassadors of the new India-2022 that we all aspire to see.

Indian railways buys wagons, how do we do it? We take out procurement requests or a tender. I won’t go into the amount of paperwork; it could take a year or two to decide what volume of wagons we need to procure in the past regime. Things changed after Sadanand Gowda became Railway Minister, Suresh Prabhu took it to the next level, really created a strong foundation for the railways in his tenure to make railways a very vibrant, forward looking organisation. But in earlier thinking, wagons, how were they procured? You open a tender let’s say for 10,000 wagons, you ask all the wagon manufacturers, there are about 7-8 of them, to bid the lowest price. Whoever is L1 – the lowest price, will get 30% market share, L2 can match L1 and get 22% market share or share of that order, and the others will get 20%, 18% and they will divide the order between 6 companies.

Now, any of the CMAs here thinks it’s a very efficient way of procurement… would anybody out of those manufacturers really bid aggressively to procure the business because his incremental business will be about 7-8%, maybe at best 10%. Can one really look at aggressive bidding, and you have made everybody work at suboptimal capacity, so 10,000 divided into 3000, 2800, 2000 and all, whereas capacities are 6000, 7000, 5000 – everybody is working suboptimal. And who is paying for it? You are paying for it. Indian railways is your money. Railways is a department of the government of India. It certainly charges for freight and passengers and all of that, but effectively, all that I charge for freight gets loaded onto products that you all buy. If I have a shortfall of funds, the government of India will have to pay my bills, I am government of India department. Where does the government get its revenue from? Your taxes!

So, we changed the procurement system. Two small changes I will share with you, and what I believe will help us to significantly reduce costs. A – I said look, we are going to need wagons herein and here-out, can we not plan for 5-year procurement? You know, when you get a carpenter to do work in your house, if you tell him to make one chair, he will ask you for a certain cost. If you tell him I want 10 chairs to be made over the next one year, keep making one every month and giving it to me. Would you agree that the cost will come down? हिंदी में बोलते हैना चाल मिल जाती है carpenter को |

He can plan for the future. He will buy glue for all the 10 chairs together, so he will get economies of scale. He may buy wood for all 10 chairs, so he won’t be wasting too much wood. From the same piece of wood, he can make 2 chairs, otherwise, he would make one chair and the rest would all get wasted. Possibly, I am just talking theoretically, the actuals may be different, I don’t know. So, I said we will plan for five years. We will take out a tender where people can bid for five years. There will be few items like steel which may vary based on indexes of steel price changes that’s a formulae one can easily derive. And, we will do a reverse auction जिसके लिए मैं काफी बदनाम हो चुका हूँ, मैं हिंदी में इसलिए कह रहा हूँ कि विदेशी लोगों को ऐसा नहीं लगे मैं खुद ही बोल रहा हूँ मैं बदनाम हो गया हूँ | पर रिवर्स ऑक्शन से लाभ कितना हुआ है आप देखिये, what is the benefit of reverse auction?

Today, solar prices are down to Rs 2.5 a unit, wind prices – and they resisted for two years, again something Rakesh has experienced since he works in my Ministry, in a PSU under my Ministry. Everybody resisted reverse auction and for two years wind energy didn’t get much business, once they came into the reverse auction format, and the best part is it gives everybody an equal opportunity. I cannot favour anybody because everybody has a right to participate, bid aggressively and get the business. Wind prices are also down to between Rs 2.5 and Rs 3, both of which are now below grid parity, so that our dream to make India the capital of renewable energy in the world can now truly be achieved. And, hopefully, we can leave behind a better planet to live in for the next generation than the one we inherited.

But coming back to the subject, I said we will plan for five years, procurement will be in a methodology where if six bidders come in, the lowest three bidders will be selected to participate in a reverse auction. So, three will get eliminated, which means you better bid competitively in the first place if you don’t want to get eliminated in the first round itself. And then those three will bid amongst each other through a transparent computer programme which is available for the citizens of India – you can be on a cruise in Alaska and bid in that programme and you could be a journalist at Zee Hindustan and monitor the entire bidding to see that its transparent and honest.

And the lowest bidder then gets a bucket building capability, he can see I have a capacity to provide 6000 and he has a right to get an order for 6000 out of the 10,000 I need, which is an incentive for people to bid, get a better share of the business, run an efficient operation which encourages everybody to improve their efficiency to be able to be competitive. And who benefits from this? Thank you sir, I was wondering whether you will say the railways benefits. It’s you who will benefit from it. Given limited resources, I can buy more wagons, move more freight, hopefully, bring down the price of freight which I think needs to come down in the country to again make Indian business and industry more competitive, bring down logistics cost, don’t burden passengers with more increased fares, bring in efficiency. You will be amazed, and this is something cost accountants can do.

I started an exercise to look at the layover time between two trains, a train running from one journey to the other. It has had transformational results, so I found almost a 100-plus, and we will soon be coming out with the final….. giving it to all of you, almost 100-plus new trains could be started, more than a 100 new services, new trains could be started just using the time that a train is lying idle after it reaches its destination to do short journeys and come back before its next return journey starts. So, we had a train which used to go up to a certain place in Madhya Pradesh, I don’t recall now, and then stay there for many hours.

My colleague Minister Shri Narendra Singh Tomarji came and requested me, he said can you take that train up to Gwalior. So we started looking at the time table. We saw it’s lying idle, layover period is so long, why Gwalior? We can take it up to Jhansi! So, the Gwalior leg has already started, Jhansi will start from 1st April. This existing train is now going to do a longer journey, and the most satisfying part is not anything to do with cost, is not anything also to do with efficiency alone. The most satisfying part out of all of this is that I could take, I think it’s a Gatiman probably, I could take a fast speed train to Bundelkhand region of Uttar Pradesh, which is probably one of the country’s most backward regions that we have. And give the benefit of a fast train to the people of Bundelkhand, because after all, and particularly to my young friends, after all, that child or that family in Bundelkhand also has a right to board that train, to travel out, maybe for work, maybe for a religious visit, maybe for tourism, but he has a right to see the world, he has a right to explore this nation, he has a right to the services that each one of us takes as a natural right, but still millions of our brothers and sisters living in these backward areas which honorable Prime Minister has now taken it up as a task. He has identified 115 districts in this country who are not going to be categorized backward districts, who are now going to be Aspirational districts, aspiring for a better quality.

And I would urge institute such as yours to engage with programmes like the Aspirational District programme, help us reach and there are so many government sponsored programmes which never reach honestly to the person who deserves it the most. Help us to reach these programmes to the people in these areas who have remained deprived of these basic amenities that should be the right of every individual. That is the greatest satisfaction one gets when a superfast train reaches Bundelkhand, because after all, gentlemen, I would suspect there would not be a single person in this audience who has never travelled in a train. Is there anybody who has never travelled in a train here?

You know, each one of us some day, our family must have boarded some train, it could be two generations back, it could be four generations back. But if, I don’t know if you have read Alex Haley’s ‘Roots’, if any of you has read that but if one goes back to our roots, someday, somebody in our family boarded a train and it is thanks to that train which he boarded that each one of us is here leading a good, modern, happy life.

I wish you all success in your work. I am delighted with the engagement that the institute and all of you CMAs have with the Indian railways. I do hope we can continue this engagement, expand this engagement. I want all of you to come up with these ideas, which can help us make it a far more lean and mean machine, an efficient machine serving the people.

And I am very-very confident that if all our three institutes, the Institute of Chartered Accountants, Cost Accountants and Company Secretaries, instead of this antagonistic, adversarial relationship that we have seen over so many years, if all our three institutes work together in tandem, work together towards a more honest India, work together towards a developed India, we can truly achieve the India of 2022 as a new India.

My best wishes to all of you.

Next Speech

March 17, 2018 Speaking at Railway Programme, in Indore

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