October 16, 2018

Speaking at 15th National Award for Excellence in Cost Management

Thank you very much madam. President of the Institute of Cost Accountants of India, CMA Mr. Amit Apte; the vice president of the institute, CMA Balwinder Singh; my good friend, the former past President, the Institute of Cost Accountants of India, Mr. Sanjay Gupta; all the award winners of this very prestigious National Award for Excellence in Cost Management, distinguished ladies and gentlemen.

I find every award ceremony both educative and enlightening and, by and larger, whenever I get an opportunity to recognize the good work that different companies or individuals are doing, I do not hesitate to participate because I genuinely believe good work when recognized, when appreciated, rewarded, awarded can truly empower a person to do better, to continue to do good work. Look at excellence going forward in our chosen field. But it also encourages others to emulate, to aspire for winning awards, going forward. And as was said earlier by the President even if somebody may not have won an award today the efforts do not go unnoticed.

I think we are all a part of a journey, and in that journey one often comes across different curves and turns. We are navigating those turns during our journey. There will always be some hits, there will always be some misses, but those who relentlessly pursue very aspirational goals, big targets, aspire to be the best, look at extraordinary results are always bound to succeed. And I think looking at the quality of awardees today I have no doubt in my mind that each one of them deserved this award today, deserved to be recognized and I congratulate all of them.

There is that American football player, Vince Lombardi, who had once said,‘winning isn’t everything but the will to win is everything.’ And I think that’s what we have recognized today and I am sure going forward, we will have many other companies with the will to win the award in the years to come. And I hope the institute will continue and I was seeing the jury it’s truly a remarkable jury, very-very distinguished and renowned persons in the jury, which only strengthens the confidence that most well-deserving people have been nominated and have been awarded this prize today.

Of course, the institute continues to go from strength to strength.The largest in Asia, the second largest in the world?!! More than 70,000 members, probably half a million students, and as I was giving away the awards I was being told about the number of cost and management accountants who have come up today to receive the awards on behalf of these awardees, the companies. Congratulations to the institute also for bringing out such good talent, for preparing all of us for the challenges of tomorrow.

In fact, their very moto – TamsoMa Jyotirgamaya –‘let there be light,’ in a way, and we are celebrating the festival of Navratri right now, which will culminate going forward inDussehra and then Diwali. So, there can be no better time and no better recognition than the fact that each one of these awardees are beacons in the Indian business world, who show the rest of business, show the rest of the world, show the rest of the country the right path, the path towards success, brightly lit path towards successand nobody better than accountants to understand the difference between success and failure.

My late father used to always tell me while, of course,there are many other parameters of success, but end of the day, one will always have to have a bent of mind, which focuses on financial success and costing, because howsoever good you may work, howsoever good a product you make out unless you have your eye on costing, and that eye should be no less than Arjuna’s eye, focused to make your cost most competitive, make your product truly a product which is of good quality at the right price and that’s the only way one can be successful.

Otherwise, you can make a fancy product, you can make a really beautifully designed, extremely attractive high-quality product, but if you are not going to be competitive in the pricing,if the market is not going to accept that product at the price point you are offering it,it will remain a pipedream.It will never become a product of the masses, a product of mass consumption or a product which will lead to profits or good business going forward.

And in that sense I think you have a very important role to play both as an institute and all your 70,000 members to ensure that we prepare the country to manufacture, to provide services at the right cost point, which is competitive, which adds value, which encourages more business, and at the end of the day the bottom line will obviously speak for the success of any organization.And all the awardees today I am sure have maintained that cutting edge on costing to be recognized today for the good work that they have done.

It’s these ambassadors of your Institute who will ultimately give out the message of the importance of costing to the rest of the world. I personally believe that in my work, both in my work in the private sector whether I have ran industry, or whether I did investment banking, costing has always been one of the most important elements of success or failure. And I can recount so many instances when we have been able to make project successful in government in the last four and half years, when we have kept our focus on cost, when we have ensured that the service that the product that is being procured by the government or given to the people at large is in a cost-effective manner. And I think every government will have to look at maximizing returns through cost-effective implementation of programmes and projects.

I am going in for a program now for 100% electrification of the railways. Now, clearly it’s good for Indian Railways, it’s good for the country, because we will be cutting down on import of diesel and using electricity made from domestic raw materials, and in that domestic raw material I don’t mean only coal, I also mean the sun or wind or waste to energy or hydro, which we are trying to promote in a big way, and which to my mind, thanks to Prime Minister Modi’s big thrust and the large economies of scale that we have been able to bring into our renewable energy programme, have today become more competitive and more attractive than the coal-based power plants that my good friend Mr. Sobti from BHEL is providing.

And mind you, the coal-based power that we are using apart from its impact huge on climate change, apart fromthe damage it causes to the universe, when we are using renewable energy, we are actually locking in a price since it’s largely a capex-based business,there is hardly any opex. I mean the sun does not charge us for rising every day or the rain gods don’t charge us for the rain that they provide, which fill up our dams.

I think the fact that this price gets locked in for 25 odd years is truly a very-very important element of the big thrust we have given to renewable energy. So, our children and our grandchildren after them will continue to get low-cost power for every unit that we generate out of renewable power. And in that sense, many of you may recall the BhakraNangal Dam and those old hydro projects, today we get power from them almost for free, some of it is 20 paisa, some of it is 50 paisa per kilowatt hour.

It was thanks to the vision and foresight at that point of time when these hydro projects were set up. In fact, I feel pained that we have stopped at the capacity that we did. That was the time when land was easier to get, that was the time when we needed more power around the year.If only at that time we had exploited the large amount of potential capacity that hydro had to offer the story in India would have been completely different today.

I am glad that Prime Minister Modi has embarked on this massive renewable energy programme and look at the foresight and vision of Prime Minister Modi. I remember when he first started buying solar power in Gujarat, a lot of people were criticizing that why is he buying solar power which is so expensive, at that point of time solar power if I remember correctly was even 16 rupees a unit.

But Prime Minister Modi as Chief Minister of Gujarat was very clear that unless we start that programme we will never be able to achieve scale,and unless we achieve scale the price will never come down, and unless we have large demand in the country we will not be able to make in India. So, with his visionary approach to projects, visionary approach to government programmes he recognized that we will have to take a few a little bit of power at high prices so that the business comes to India, we will have to encourage Make in India through economics of scale by expanding the volume.

And of course, under his leadership this government has also done away with the feed-in tariffs and brought in most transparent auction by which we are procuring this renewable energy power, which has brought down that price to probably 20% of what it used to be a few years ago and maybe one-third of what it used to be when this government came into power in 2014.

And despite some initial resistance, today the whole world recognizes that the project that Prime Minister Modi did to have auction for procurement of renewable energy was truly game changing.It helped us expand our renewable energy manifold. I believe in the last four years, the solar capacity in India has expanded nearly ten-fold, just in four years ten-fold expansion, which has helped economics of scale come in, help bring the cost down and make it truly more viable future for the people of India.

In fact, I had this challenge when we announced hundred percent electrification of Railways, and by the way,those of you who are interested in the costing part of it we will be saving nearly $2 billion every year in terms of the diesel consumption. Now that 2 billion is not only diesel consumption saved, it’s also import saved, foreign exchange saved, it’s also less pollution all over the place. I mean in Delhi, we are in Delhi today, a lot of the pollution is also the trains chugging into Delhi, which are running on diesel.

And the overall investment if we go to see the payback will be five or six years, five or six years the total investment will be paid off.We will have a much-much cleaner environmental impact and we will be saving foreign exchange year on year, and with the rise in global prices, these savings could possibly even grow even further going forward.

But when we were doing this project, there was this question that came up what do we do with the diesel engines that we have, and we have a large number of diesel locomotives. We decided to do some engineering and research on how we can change the diesel engine to electric engine.And ladies and gentlemen, you will be happy to know that we have been able to convert diesel engines to electric engines at somewhere around only Rs 2 crore per engine for locomotive, just about two crore rupees.

And these diesel engines at the end of every 18 years I think used to go in for a complete overhaul, not the periodic overhaul, this was a midlife rehabilitation, MLR they call it, just like you had those in power plants till I became a Minister and I stopped that. So, there wasa midlife rehabilitation where a diesel engine, a polluting diesel engine we were investing Rs 5 crore to give it an extended life of 12 years after the initial. I don’t know if it is 18 years or 25 years, whatever is the original life, and then we were spending five crores in midlife rehabilitation to give it, to extend its life by a few more years.

Against that for only two crore rupees we are converting a diesel engine to a non-polluting electric engine. So, we are saving three crore there and I am sure all of you will appreciate that when we are making a new electric engine it’s like a brand-new engine, every part in that is new. We have removed the combustion engine.We have removed all the parts, the moving parts that were there and for barely two crore rupees we now have a new electric engine.

And for those that we will require for spares, for any potential accident or any time when there is a problem in the electric grid or in our overhead electrification, the spare engines that we will require we will buy new engines which are non-polluting, whose pollution levels are probably one tenth of what our old engines were.

So, we are conscious that even the spares have to be non-polluting, because all of us believe in this government that it’s our duty not only to all of us, but particularly to the children, the next generation and unfortunately here I don’t see too many young children except a few, but I think we owe it to them that we leave behind a better planet than the one we inherited.

And it’s inter-generational equity that demands that we do not mess with the environment, we do not cause more damage to the environment, but we prepare the nation in such a fashion that the children tomorrow don’t stand up and ask us or our children or grandchildren don’t come up to us and say ‘पापाआपलोगोंनेक्याकिया,हमारेदेशकेसाथक्याकिया,कैसादेशछोड़करगएहोहमारेलिए?

And I think that is the duty that is incumbent on all of us or most of us in this room who are in positions where we can contribute to addressing these challenges of climate change, bringing down pollution levels in the country, improving in different forms. Today,Mahindras got an award, they are working on electric vehicles,Tata is working on electric vehicles.Some companies don’t make electric vehicle so they are trying to oppose electric vehicles, but we have decided that we will as a nationbecome a leader, get into the cutting edge of technology on electric vehicles and instead of following what the world does India will lead the world’s efforts on electric vehicles. That’s the plan that this government has drawn up.

Of course, you spoke about the LED program that’s been another program which I believe gives us a lot of satisfaction and that program also rested on basic costing principles. I remember when I became a Minister, these LED bulbs were being purchased in a small measure I think 600,000 bulbs were purchased every year by a company called Energy Efficiency Services Ltd (EESL).It’s a Government of India company, promoted by I think NTPC, Power Finance, Power Grid and maybe REC, these three-four companies have promoted EESL. They used to buy about six lakh bulbs.

If I remember correctly, their procurement price was about Rs.340 was there about something, I have left that Ministry I am probably getting out of the numbers, Rs.341 or something was the price of that bulb, it used to be a 7 W bulb or so. 7 watt LED bulb Rs.341, you add taxes, you add marketing cost, distribution cost, finance cost and all of that. It used to cost them some Rs.550. So, the government of India would give a 100 rupees subsidy and then sell these bulbs to whoever was interested in LED bulbs.

Prime Minister Modi, as I mentioned earlier, is very passionate about climate change and he realizes that every unit of power that you save is more valuable than a unit of power that you generate, given the transmission losses, distribution loss.We just heard one of the companies here has reduced it to 11%, but the nation as a whole is still at 22-23% transmission and distribution losses.

So, effectively when you are producing one unit of electricity, it’s as good as when you are saving one unit of electricity it’s as good as producing 1.3 units of electricity. Every unit saved is equivalent to 1.3 units produced. And therefore, Prime Minister Modi said put in your best effort to save electricity, focus on energy conservation, focus on energy efficiency.

It was around that time that this LED programme came to our knowledge and I remember we launched Ujala, the program to distribute LED bulbs in the country on 5thof January 2015. After that we started the process of procurement of these bulbs, of course, as is Mr. Modi’s style everything was through transparent auctions, transparent bidding through the computer systems, very-very robust qualification criteria and technical criteria for the quality of the LED bulbs.

I still recall 2015 I had gone to Davos and at one of the lunches I had the chief of Philips sitting next to me.5जनवरीकोलॉन्चकियाथायह22-23-24 जनवरीकीबातहै, because I remember I rushed back from there because President Obama was coming on 25thof January. So, it’s around few days after the launch. And at lunch you are generally chatting, I was describing to Philips CEO, world CEO, our project to replace every single bulb and we had estimated at that time that we will need to replace about 77 crore incandescent bulbs, those 60W, 80W, 100W bulbs that we all have used,मोटासाजोbulbहोताथा.

I said we are going to replace 770 million bulbs in the next four years with LED and my price point is a double-digit number in rupees, which is about a dollar and a half and I had aanimated discussion, describing my plans going forward. The conversation ended, I came back.

1stMay, 2015 we sold our first bulbs and then the process of procurement started and the entire procurement was resting on principles of costing. I am sharing this with you because it is actually thanks to the work that all of you are doing that the country is going to benefit from the LED program. And I remember when I did the costing and looked at the program and I sat with all the stakeholders, people who used to supply these bulbs.

I said I expect this price to come down to double-digit, and I remember one of them asking ‘what do you mean by double-digit?’ I said I mean double-digit, less than hundred is double digit, anything up to 99 from I think Rs. 10 is double-digit. And if I remember correctly, I was ridiculed a lot after that this guy must be some crazy rookie new Minister who doesn’t know what he’s talking, Rs.341 how would it become Rs.99.

I remember we had a series of procurements कभीएककरोड़ख़रीदतेथे, कभीदोकरोड़ख़रीदतेथे, price gradually started coming down, but we sold at Rs.130. We used to take Rs.10 upfront and I think for 11 and 12 months Rs.10 every month. Idea was that the power saving should be more than the cost of that bulb.What the person pays every month should be less than what he will save in his electricity bills.

And any of you will appreciate even if though you may not be engineers that if against a single 60W bulb you use a 7W bulb your electricity consumption is bound to be down by 85-87% स्वपतिजीउसमेंतोकोईदोरायनहींहोसकतीहै. I mean pure… anybody can say a 60W or a 90W bulb ifreplaced by a 7 or 9 watt bulb,your power consumption has to come down.

Initially, we sold at a loss, which today some of you may criticize that it’s predatory pricing. But we had the courage of conviction that as economies of scale go up, we had the confidence that we are doing everything honestly, so the price of corruption will also reduce from our procurement cost.

When I sat with the stakeholders I realized where the pain points were, one of which I will share with you, the payment is to be made in five years, who the hell is going to trust that their product being sold to government and payment coming in five years and then there are collateral costs recovering those payments, unfortunately, in the old days.

We changed all of that. We said you supply the bulb, this is the qualifying criteria, only if you qualify you can bid, bids will all be electronic opened in front of – rather the computer will throw them out in front of all the participants, payment will be in your bank account through RTGS on the 30th day. No five-year payment, no one-year payment, no nothing.

You give a bank guarantee for your quality and we had the confidence that we are selecting good companies, we have robust specs for quality assurance. So, nobody can pass on crap to us. You give us bank guarantee for your quality, subsequently, I even change that, you give bank guarantee for your quality and based on your rating people have started supplying millions of bulbs. We started giving back bank guarantee also one-third one-third or quarter quarter every year depending on the warranty period and we put all of this into public domain.

And I am happy to share with you that I think the last figure I read few days back, against 77 crore bulbs that we had planned to replace in four years we have still not completed four years, 1stMay 2015 four years will get completed, so we are about threeand a half years now, the country has already replaced over 120 crore bulbs.

120 करोड़केऊपरजिसमें EESL alone which drove the project initially has sold about 31 crore bulbs. The private sector has pitched in with about 91 crore bulbs until August. And in the whole process forget two digit the prices fell at one point to Rs.38 plus taxes for the bulb, Rs.38, 87% reduction on the price of LED bulbs. And you know who bid that Rs.38, any guesses? Philips – the world’s largest lighting company and now they make them in India.

And about a year ago I get a call or a request letter from Philips that the CEO wants to meet me, the same guy with whom I had lunch many years ago. I thought कुछप्रॉब्लमहोगयीहोगीतोI asked all my officers किभाईरिपोर्टदोक्याहै, what has been the track record, are there some payment problems, do we have some issues pending.We found nothing. Normally, you go to the Minister only when you have a problem.

Still I gave him time out of respect, you know what he came and told me, he said Mr. Goyal I have no work with you, I have only come to meet you today to acknowledge that when you met me at Davos in 2015 and shared your vision, the vision of your Prime Minister on LEDs,in my mind, I thought you really have no clue of what you are saying, you don’t understand the lighting business at all and you are going down on a completely wrong path, you will never be able to achieve this project. I have only come in to acknowledge that what you have done in India, you as in not PiyushGoyal, what all of you in India have done replacing all your bulbs with LED bulbs.And by the way, that is saving all of you in your electricity bills, cumulatively as a nation today,we are saving over 50,000 crores every year, saving in our electricity bills all of us, and if any of you hasn’t replaced with LED bulbs your home, your office, your factories take back their…

There can be no better cost proposition than putting in LED lighting, the fastest payback for an investment. महिंद्रासेकोईहैनाI have once told PawanGoenka from Mahindra about this project. So, he said yeah we also have a plan in three years, we are going to replace all our lighting with LED. I said you must be a bad managing director Pawanji, he said क्याहुआ? I said do it in three months, why are you doing it in three years.आपतीनसालकाजितनालॉसकररहेहो this will pay back in three or four or six monthsऔरbusinessesमेंतोहमबिजलीकेलिए10रुपये 12 रुपयेदेतेहैं.

All of us in our offices or our homes at the level at which I assume you are consuming you must not be paying less than 8, 10, 12 rupees per unit. Your payback must be one or two months probably. And then I am glad to share with you that he reported back to me that when he studied it and got into detail they actually, the entire Mahindra Group replaced all their lights with LED in probably six or nine months after that.

There is huge potential for all of you to help us whether in government or in business, do these type of dramatic changes using elementary principles of costing and saving businesses wasteful expenditure, saving government wasteful expenditure and helping the nation as a whole prosper, helping every Indian in the country have a better future for them.And I am sure, this contribution of cost accountants will never go unnoticed, will never go unappreciated.

We will continue to award the good work that is done in cost management by all of you and I am sure this effort and the effort that all of you continue to do in the years ahead will be like your logo तमसोमाज्योतिर्गमय.It will show the light to the rest of the world, just like our LED program has actually become a beacon light worldwide for low-cost LED lighting and at scale, and countries in Europe, countries around the world today are emulating the Indian example.

Similarly, in different aspects of costing, let our cost and management accountants show the world better and better techniques, better and better ways to become cost-effective, to become competitive, to become more profitable and also give customers a better deal going forward.

Thank you very much.

Next Speech

October 12, 2018 Speaking at Press Conference, in New Delhi

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