Transcript Corporate cost management Week

Corporate cost management
Week
Business Excellence through Cost
Management
C A.N.J.Thomas
1. Objective :
The Objective of Corporate Cost Management
Week, I understand, is to spread the message of
cost management, which is essential to achieve
business excellence. It is expected to discuss the
best cost management practices across various
sectors in the economy and thus to create
awareness about inculcating cost culture, cost
consciousness and cost discipline in organizations.
Today businesses operate in a more complex,
dynamic and less predictable environment.
Business Models are constantly being reviewed
for their sustainability and alignment with new
strategies to achieve growth in turbulent times.
Professionals, especially Cost and management
Accountants have a great and significant role in
initiating and developing business models and
strategies and bring about considerable and
sustainable cost economics in an ethical manner.
The MSME sector is one of the key sectors of
the economy which provides maximum
employment and is a major contributor to the
economic growth. The cost management at
MSMEs involves establishment of good quality
systems, good manufacturing practices and
continuous improvement initiatives, aiming at
increasing productivity, efficiency and cost
effectiveness
2.Business Excellence through Cost
Management in MSMEs
Introduction
The MSMEs are playing a vital role in the development of both
developed and developing countries.
In India, these industries are considered to be the backbone of
the economy. Today, it accounts for nearly 45 per cent of the
gross value of output in the manufacturing sector and over 40
per cent of the total exports from the country.
In India, they are vital from the point of view- their overall
contribution in terms of number of units, production, exports,
employment and their spread in rural areas.
These industries are considered to be the engine of growth, the
world over.
These industries stimulate:
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innovative ideas,
business methods and
entrepreneurial skills;
they are flexible and
can adapt quickly to changing market demand and supply
situations;
• help in diversifying economic activity, and
• make a significant contribution to industrial development
and exports.
Therefore, the establishment and promotion of MSME’s
across the globe, has assumed strategic role and importance.
3.Definition of MSMEs in India
Earlier, industrial units in India were classified as small
scale and large scale units, based on investment ceiling
on the installed plants and machinery.
Within small-scale sector, there were sub-classifications
such as ancillary units, tiny units, women enterprises, and
small scale services and business units.
The medium scale units were not earlier defined in
India.
However, following the enactment of Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006,
enterprises in India are being broadly classified into micro
units, small units, medium units and large units.
Classification of MSMES
Manufacturing sector
Enterprises
Micro
Small
Medium
Investment in
plant
and
machinery
Less than Rs.25
lacs
Over Rs.25 lacs
but
not
exceeding Rs.5
crs
Over Rs.5 lacs
but
not
exceeding Rs.10
crs
service sector
Proposed to be Enterprises
revised
Investment
equipment
in
Less than Rs.50 Micro
lacs
Over Rs.50 lacs Small
but
not
exceeding Rs.10
crs
Over Rs.10 lacs Medium
but
not
exceeding Rs.30
crs
Less than Rs.10
lacs
Over Rs.10 lacs
but
not
exceeding Rs.2
crs
Over Rs.2 lacs
but
not
exceeding Rs.5
crs
4.Role MSMEs at Global Level
While looking at the role of MSMEs in the global economy, these industries are playing
a significant role as they are vital from the revenue and employment generation point of
view, particularly in emerging economies.
In OECD economies, MSMEs account for over 95% of the firms, 60 to 70% of
employment, 55% of GDP and generates the major share of new employment.
In developing countries like ours, more than 90% of all firms, outside the agricultural
sector, are MSMEs, generating a significant portion of GDP.
In half of the high income economies, formal MSMEs employed at least 45% of the
workforce, compared to only 27% in lower income economies, which further highlights
their importance in economic development and job creation.
Globally, MSMEs employ one-third of the working population.
MSMEs have been globally considered as an engine of economic growth and as key
instruments for promoting equitable development.
5.National scenario
MSME can be rightly called as the backbone of
the GDP of India.
The MSME sector in India is growing at an
exceptionally fast rate. It is proving to be
beneficial to the Indian Economy.
MSME sector is one of the key drivers for
India’s transition from an agrarian economy to
an industrialized economy.
Following are some of the current figures related to
the MSME sector in India:
 The contribution of the MSME sector to the
entire output of the country is 40%.
 Currently, there are over 11 million MSME units
in India that produces more than 8000 products.
 90% of the Industrial Units in India belong to the
MSME sector.
 These MSME units contribute 35% to the Indian
Industrial Export.
 It accounts for 29.8 million enterprises in various
industries, employing 69 million people.
 It includes 2.2 million women-led enterprises (7.4 percent) and 15.4 million rural
enterprises (51.8 percent).
 Even though 94 percent of MSMEs are unregistered, their contribution to the
India’s GDP has been rising consistently at 11.5 percent a year, which is higher than
the overall GDP growth rate.
 In recent years, the MSME sector has consistently registered higher growth rate
compared with the growth rate of overall industrial sector.
 With its nimbleness and dynamism, the sector has shown worthy innovativeness
and adaptability to survive the recent economic downturn and recession.
 Besides helps in discouraging monopolistic practices of production and marketing,
these industries dynamically contribute to the growth of national economy along
with opportunity creation for accumulation of foreign exchange reserves.
 In India, this sector is highly heterogeneous in terms of the size of the enterprises,
variety of products and services, and levels of technology.
 These industries not only plays a crucial role in providing employment
opportunities at comparatively lower capital cost than large industries but also
helps in industrialization of rural and backward areas, reducing regional
imbalances and assuring more equitable distribution of national income and
wealth.
 MSMEs complement large industries as ancillary units and contribute enormously
to the socioeconomic development of the country.
In India too, MSMEs play an essential role in the
overall development of the economy
Following are some of the factors that have contributed to the
growth of MSME sector in India:
• To start and maintain these units, minimal investment is required.
• These SME units are now being funded by many government and
private banks.
• The SME sector is one of the greatest contributors of domestic
production as well as the export earnings. Many major mergers
have taken place recently.
• MSME units in India are being funded by foreign and local fund
provider.
• The advancement in technology has also contributed highly to the
MSME sector.
• There are numerous business directories and trade portals available
online that contains a rich database of manufacturers, sellers and
buyers.
Strengths of India for development
of MSMEs
Abundance of natural resources
Extensive Industrial infrastructure
Large pool of technical manpower
Highly capable entrepreneurs and managers
Low cost of labor
India’s Competitive Advantages
We have the advantage of indigenous sources of
raw materials at much cheaper rates than any part
of the world.
We pay ¼ th or 1/5 th of the labor cost compared
to South East Asia, USA & Europe.
India is using same type of plant & machinery and
technology as used anywhere else in the world.
We have world class engineers and managers who
have proved their mettle in the world and are
heading some large international companies.
The great paradox
In spite of so many advantages, our SME’s are not able to
compete on quality and cost with SMEs in other countries
Total No# of
Average value of
export per company in
SME’S
USD
Singapore
9,296
6.74 million
Malaysia
28,840
2.05 million
South Korea 2.9 million
45,000
India
4000
26 Million
A. COST MANAGEMENT
To improve quality and products/services of
MSMEs and make them cost competitive, active
involvement of professionals, especially Costs
and management accountants in the working for
MSME is the call of the day.
Major areas of contribution are discussed
hereunder.
Strategy for Growth:
Strategic Management is the process of formulating
strategies and strategic plansand managing the
organization to achieve them.
Strategy is defined as, 'where the organization
wants to go to fulfill its purpose and achieve its
mission, itprovides the framework for guiding
choices, which determine the organization's nature
and direction and,these choices relate to the
organization's products or services markets, key
capabilities, growth, returnon capital and allocation
of resources."
A firm develops its strategy by matching its core
competence with industry opportunities.
Strategy formulation is a process that senior executives use to
evaluate a company's strengths and weaknesses in light of
the opportunities and threats present in the environment
and then to decide on strategies that fit the company's core
competencies with environmental opportunities.
 There are three distinct levels of business strategy,
which are as follows.
a.
Strategies at the highest level of an
organization, known as Corporate Level Strategies
basically deal with the allocation of resources among
various businesses or divisions of an enterprise.
b.
Strategies, which are at the level of a particular
business or division deals with primarily with the
thrust of competitive action in that business alone and
are known as Business Level Strategies.
c.
Strategies, which are limited to the particular
function of a business are known as Functional Level
Strategies.
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Concept in Strategic Management:
Distinctive Competence:
It means working out what the organization is, best at and what its
special or uniquecapabilities are. In other words it means 'Core
Competence'.
Focus:
It means the identifying and concentrating on the key strategic issue.
Sustainable Competitive Advantage:
Firms should create value for their customers, select markets where
they can excel and present a moving target to their competitors by
continually improving their position.
Inbound Logistics:
This represents the reception, storage and internal transport of inputs
to the product.
Inbound Logistics:
This represents the reception, storage and internal transport of inputs to
the product.
Operations:
The transformation of those input in the final products.
Outbound Logistics:
The collection, storage and distribution of the produce to buyers.
Marketing and Sales:
This involves, persuading buyers to purchase the product and making it
possible for them to do so.
Service:
The provision of service to enhance or maintain the value of the product.
Some Tools of Strategic
Cost Management
 Life Cycle Costing:
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The concept of life cycle costing ensures better allocation of costs during the pre and post
manufacturing periods.
 Acquisition costs, i.e. costs of research, design, testing, production, construction or
purchase of capital equipment.
 Transportation, maintenance and handling cost of capital equipment.
 Expenses like energy costs and other utility costs.
 Cost of training of the staff
 Other costs like inventory holding costs, spare parts, warehousing costs, technical know
how costs
Life cycle costing estimates and accumulates costs over a product's life cycle in order to
determine whether theprofits earned during the manufacturing phase will cover the costs
incurred during the pre and post manufacturingstages.
 Target Costing:
Target Costing can be used effectively as a Strategic Cost Management tool.
For implementation of this technique, a target price, which customers can pay
is determined in advance along with the target profit, which the business
organization wants to earn.
The target profit is deducted from the target sales price to obtain the target
costs.
The target costs are compared with the actual estimated costs and if the actual
estimated costs are more than the target costs, it is analyzed further and efforts
are made to ensure that the actual estimated costs are within the target costs.
Firms that undertake target costing have to put in place an exhaustive market
research to identify what their customers want and how much they are willing
to pay for that.
For achieving impressive results by using the Target Costing, the following
techniques are normally used.
 Tear - Down Analysis:
This analysis is also known as Reverse Engineering involves examining a
competitor's product in order to identify the opportunities for product
improvement and/or cost reduction.
The competitor's product is dismantled to identify its functionality and design and
to provide insights about the processes that are used and the cost to make the
product.
The aim is to benchmark provisional product design with the design of the
competitors and to incorporate any observed comparative advantage of the
competitor's approach to the productdesign.
 Value Engineering:
Value engineeringalso known as value analysis is a systematic interdisciplinary
examination of factors affecting the cost of a product or service in order to devise
means of achieving the specifiedpurpose at the required standard of quality and
reliability at the target cost.
 Kaizen Costing:
Kaizen is the Japanese term for continuous improvement: "gradual,
unending improvement, doing little things better, setting and achieving everhigher standards".Kaizen costing reduces the cost of producing existing
products by finding ways to increase the efficiency of the production
processes used in their manufacture.
Kaizen Costing has also been defined as a method of costing that involves
making continual, incremental improvements to the production process
during the manufacturing phase of the product/ service lifecycle, typically
involving setting targets for cost reduction.
For doing all these things, it is of utmost importance that the old mind set
should be changed and more professional approach is to be adopted in the
Management of these enterprises.
Process of Strategy Formulation
Environmental Analysis
Internal Analysis
Technology Know how
Manufacturing Know how
Marketing Know how
Distribution Know how
Political Logistics Know how
Competitor
Customer
Supplier
Regulatory
Social / supplier
Opportunities & Threats
Identify Opportunities
Strengths & Weaknesses
Identify Core Competencies
Fix Internal Competencies
With external opportunities
Firm’s Strategies
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Human Resources Strategies:
Indian SMEs are highly promoter centric. They usually hesitate to hire
professionals and hence thequality of manpower in the organization is
questionable. The Promoters normally do not want to dilute their stake in the
fear that they will not be able to control the business and hence they are
chronically undercapitalized.
It is of utmost importance that the entrepreneurs come out of this mind set and
start having a close look towardsthe quality of their manpower.
A long term strategy is essential to create a talent pool in the organization and
everyeffort should be made to retain them.
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Financial Strategies:
Indian SMEs are traditionally focused on creating financial
structures for tax efficiency rather than business efficiency.It is the
need of the hour that the SMEs planning to seek external funding
to finance their next level of growth need to focus on developing
financial structures for business efficiency.

Manufacturing Strategies:
The SMEs primarily manufacture sector specific components such as auto
ancillaries and equipment and supply these to tier -1 companies which
perform the fabrication and assembling tasks. It has been observed that
Indian SMEs in the manufacturing sector lag behind their competitors from
the technology perspective. The production methods adopted by them are
also obsolete and wasteful.

Marketing Strategies:
MSMEs have to be more aggressive in marketing their products and services.
Substantial investments will have to be made in the overseas market
research and also for designingsuitable distribution channel in the foreign
market. Domestic market is also very vast and scattered and here
alsosubstantial investments are required to tap the same. More consumer
centric approach is required in this field.

Technology Development Strategies
The global economy is currently undergoing fundamental transformation in
which technology plays a key role. Usage of technologies is revolutionizing
the rules of business, resulting in structural transformation of enterprises.
Modern businesses are not possible without help of technology, which is
having a significant impact on the operations of Micro Small and Medium
scale Business.
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Strategies FOR Integrated risk management
Risk is inherent for MSMEs and risk management must be identified as a
core competency. The goal should be to understand, measure and monitor
the various risks that arise. Risk here means the expected potential loss in
future. The best method to manage risk is to align the risk management
practices with corporate strategy by using both real and financial methods.
The MSMEs are exposed to the following risks:
o
Credit Risk
o
Market Risk
o
Operational Risk
o
Product Risk
o
Macro Economic Risk
o
Technology Risk
o
Reputation Risk
o
Legal Risk
Credit Risk Management for Msme
The SME must do an ongoing monitoring of a clients creditworthiness and
credit exposure, maintain credit rating and determine credit terms and
conditions.
Market Risk
Good understanding of hedging strategies, transfer pricing, compliances,
policy and structures are advocated. The most commonly used instrument is
the foreign exchange forward contract.
Operational Risk Management for Msme
Operational risk is risk arising due to operations. This risk is the risk of direct
and indirect loss resulting from failed or inadequate processes, systems or
people or from external events. Such a risk can be managed by Audit
oversight, critical self appraisal, risk indicators and formal quantification. In
the Audit oversight, the external audit department reviews business process
to identify industry weaknesses. The critical self appraisal process is highly
recommended for MSMEs as it involves every each department trying to
submit a subjective evaluation of the sources of operational risk, their
expected frequency and costs associated with them.
Product Risk
This originates from superior products replacing those offered by the
MSME. This is possible due to economies of Scale and Scope, Superior
logistics and Supply chain management etc.
Macro Economic Risk
The MSMEs which are into exports are extremely vulnerable to currency
fluctuations, interest rate regimes and inflation risk. This can be managed
with natural hedges.
Technology Risk
This risk is very important since most MSME are vendors/ solutions provider
to large firms which are exposed to technology risk/ risk of obsolescence.
This can be best managed by using flexible production processes and
keeping an eye on the changing business paradigms and thus forecasting
the expected technological changes.
Financial Statement Based Risk Assessment
The Financial Statements can be effectively used to assess the risk exposure
to MSME. For instance the Income statement will show the vulnerability of
the firm to a certain type of raw material which should be effectively
procured to maintain profitability and competiveness. Similarly the quality
of the earnings of the MSME can be assessed by comparing its PAT and the
Cash generated by operations.
 Balanced Scorecard for Growth
The balanced scorecard is a strategic planning and management system that is
used extensively in business and industry, government, and nonprofit
organizations worldwide to align business activities to the vision and strategy
of the organization, improve internal and external communications, and
monitor organization performance against strategic goals.
The Balanced Scorecard was originally proposed as an approach to
performance measurement that combined traditional financial measures with
non-financial measures to provide managers with richer and more relevant
information about organizational performance, particularly with regard to key
strategic goals.
In order to make rational decisions about organizational activity and not least
set targets for those activities, an enterprise should develop a clear idea about
what the organization is trying to achieve (Senge 1990, Kotter 1996).
Accordingly, the most effective Balanced Scorecard design processes use the
creation of a strategic destination statement describing, ideally in some detail,
what the organization is likely to look like at an agreed future date (Olve et al.
1999;Shulver et al. 2000). In many cases, this exercise builds on existing plans
and documents - but it is rare in practice to find a pre-existing document that
fully serves this purpose within an enterprise.
Each company should determine its own aims and measures connected within
an area of its activity.
B.QUALITY
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Reasons for poor quality and competitiveness
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Lack of interest by the Owner/CEO’s in quality improvement.
Departmental focus of the company.
Inefficient system of maintenance of Plant and Machinery.
Poor technical discipline
Lack of organized system for quality improvement.
Poor house-keeping and non-attention to various kinds of waste in the
company.
These are explain in the subsequent slides
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Involvement of CEO
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This is beigest single cause for comparatively poor quality and cost
competitiveness.
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Most CEOs consider Quality Control department as a minor functional
group, and leave it to a junior manager/engineer.
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This is due to definite reasons, which are explained in the following
slides.
 Reasons for lack of interest in quality by the CEOs.
There is a misconception among managers particularly in Small Scale Units, that
quality improvement efforts affect productivity and adds extra costs, making the
products noncompetitive.
A number of studies abroad and recently carried out even in India, has broken this
myth and shown the opposite effect.
The studies have shown that planned quality improvements, not only enhances the
product quality, but also results in cost savings, which helps the bottom-line of the
company.
 Present system of Management
Most companies are managed by through various functional departments.
The departments mainly focus on the criteria, based on which their performance
will be judged.
This is illustrated in following slides.

Production
i.
Normally concentrates on maximizing the quantitative output of the
product. Even when there is sufficient stock of unsold goods, the
production will continue.
ii.
They will tend to approve deviations in the specifications which
may have some impact on product quality or continue production even
when some specified process conditions are not fully complied with.
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i.
Marketing
Normally concentrates on fulfilling or even exceeding their allotted
targets by giving all kinds of incentives and concessions with in the
power of the marketing executives.
ii.
Some times, they may even promise tight delivery schedule to get a
large order. This may necessitate the Production to put personnel on
overtime or resort to emergency purchase of material at higher cost.
iii.
Such orders may cause loss to the company rather than profit.
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i.
Material Management
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i.
Equipment maintenance
Focuses on saving on cost of purchased material by pressurizing the
vendors.
ii.
The vendor may accept the order at lower price, because he may be
short of orders at that time. However since he is not getting much margin on
this order, he will give it a low priority and there is a strong possibility of
delayed supplies, which may result in stoppage of production or buying the
part on emergency basis by paying a higher price.
iii.
Both eventualities may cost more than the anticipated savings due to
lower purchase price, thus eating into profitability.
Normally Equipment Maintenance department is not given its due
importance.
ii.
Generally there is a tendency that if a manager is not dynamic enough to
get higher production, he is shunted to maintenance.
iii.
Because of his low profile, he may not be able to resources or money to
ensure planned preventive maintenance, which may need shut down of some
machines affecting overall production schedule and waste due to idle
machines.
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i.
ii.
Quality Control department
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Lack of technical discipline
This department is mainly responsible for:
carrying out inward goods inspections, stage inspection and final
inspection.
iii.
Monitoring process control in production processes.
iv.
Carrying out various tests required in their laboratory.
v.
Very rarely it takes up quality improvement project or analyzing
the causes of defects occurring in the production.
i.
Non adhering to the tolerances in the drawing or the specifications
by the operators or giving deviations against the tolerances specified in
the drawings, to meet the delivery schedule. This is likely to affect the
quality of the component or assembly. Interestingly, such deviations are
given by the senior engineers, without any written authorization.
ii.
Taking liberties with the plant operating instructions given by the
plant supplier, often with tacit approval of the production manager.
iii.
Non adherence to preventive maintenance schedule
recommended by the supplier of plant and machinery.
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Efforts required to improve Quality and reduce cost by
various departments are given on the following slides
Production
Improve general house-keeping of production area.
Maintain proper documentation system of standards, drawing and
specifications.
Establish Process Planning section for developing process procedure,
Develop tools. Jigs & fixtures.
Conduct of process capability studies of important machines
Institute process controls to ensure that products conform to
specifications.
Ensure proper maintenance of plant and machinery.
Material Management
Establish vendor evaluation system and their empanelment
Developing specifications and acceptance criteria to be given to the
vendor with orders.
Arranging proper inspection of incoming material though QA group.
Carryout annual performance evaluation of vendors.
Planning optimum inventory level by shortening the procurement cycle.
Proper storage and maintenance of procured materials.
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Quality Assurance
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Implementation of quality improvement plan
Inspection of incoming martial, in-process inspection and final
inspection and generating data on trend of rejections for the information of
the management.
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Checking effectiveness of process control
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Assisting production in analyses of processing defects to find the root
causes and taking corrective actions.
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Determining the cost of poor quality in the company in financial
terms and submission of report to the management.
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The changes in the organizational procedures discussed so far cannot
be implemented by SMEs by themselves. They will need external expert
assistance to plan and implement the new strategy for reorganization of the
company and taking up quality improvement projects.
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They are advised to select a competent consultancy organisation
having good knowledge in the domain in which the company is operating.
There is risk in approaching private consultants, who may promise quick
results, but may not be able to deliver. It is advisable to approach reputed
non- profit organisations who will be more reliable and economical, being
quality promotion bodies.
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Methodology of organizing Quality improvement projects.
Request consultancy organization to conduct an awareness seminar for
the Management and senior staff of the company on strategy for quality
improvement and cost reduction.
Arrange a diagnostic study by the consultants to identify the weaknesses
of the company and major areas of waste.
The diagnosis should also assess rough estimate of cost of the waste due
to poor quality management.
After diagnostic study, the management should have detailed discussions
with the consultancy organisation about taking up a pilot project for quality
improvement and cost reduction.
Define the scope of the project which includes training of staff and hand
holding during implementation of the project.
It should be clearly understood by the management, that actual
implementation of the project will be carried out by a selected team from the
company. The consultants will provide guidance at every step. The CEO will have
to be fully involved and help in solving operational problems faced by the project
team.
Acceptance of the project with well defined scope and the financial terms
and signing of the contract.
Evaluate the results after completion of pilot project and plan further
action
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Various measures undertaken by the
government for the promotion of MSMEs in India
i.
In order to reduce the credit gap to MSME, Scheduled Commercial
Banks (SCBs) are to be directed to maintain minimum 22% in their outstanding
credit growth to MSME sector during the first two years of the 12th Five Year Plan
and further minimum amount of 25% during the remaining three years of the
12th Five Year Plan.
ii.
The focus of the 12th plan on MSMEs is that Banks should achieve 10%
increase in new micro enterprises borrowers on year to year basis. As a Subset,
banks should add at least 12 new MSMEs in their semi-urban and urban branches.
iii.
Availability of land for MSMEs has to be ensured. State governments
may earmark at least one industrial estate in each block. Government may identify
barren lands and allot it to MSMEs at affordable price or set up industrial units in
that places.
iv.
Govt. Initiatives in 12th five year plan for MSME Sector: The BSE and
NSE got the approval for MSMEs platforms from the SEBI in order to enable these
enterprises to raise funds from capital markets.
v.
To achieve the overall target set by the Prime Minister’s National
Council on Skill Development, Ministry of MSME and other agencies conducted
the skill development programmes for 478,000 people during 12th five year plan.
However, during 13th plan , the Ministry aims to provide training to 572,000
people through its various programmes for development of self employment
opportunities as well as wage employment opportunities in the country.
vi.
To improve the productivity, competitiveness and capacity building of
MSMEs, the Government of India has adopted a cluster based approach. During
Apr-Jan 2012, the government has taken 8 new clusters for diagnostic study, 5 for
soft interventions, and 4 for setting up of common facility centres. Till Jan 2012,
the government has taken a total of 477 clusters for diagnostic study, soft
interventions and hard interventions and 134 infrastructure development
projects.
vii.
In order to lead focus on government lending to MSMEs, the
government constituted a committee in 2009 under the chairmanship of T.K .A.
Nair, which on the basis of its recommendations made it advisable for the SCBs
that share to micro enterprises in MSE lending should amount to 60 percent.
viii.
The government under its procurement policy mandates that all the
central minsters/ departments / central public sector undertakings shall procure
a minimum of 20 percent of their annual value of goods and services required by
them from MSEs.
The ministry of MSMEs has adopted a cluster approach for
holistic development of MSE in a cost effective manner to build
capacity of MSMEs for common supportive actions, soft
interventions. Hard interventions are taken up to create/upgrade
infrastructure facilities and setup common facility centres in existing
or new clusters.
ix.
x.
Another important scheme credit linked capital subsidy
scheme foe MSMEs was launched in order to facilitate the
upgradation of technology to MSEs by providing 15 percent capital
subsidy (maximum upto 15 lakh) for purchase of plant and
machinery. Maximum limit of eligible loan for calculation of subsidy
under the subsidy scheme is Rs 100 lakh.
MSME rating initiatives
All the general-purpose rating agencies in India, such as, CRISIL,
ICRA, CARE, Fitch India and Brickwork , ONICRA, SMERA offer
SME rating service.
SME rating is an independent and comprehensive assessment of the
overall conditions of the SMEs. Rating agencies primarily consider
business risks, management risks and financial risks of an SME unit
while awarding a rating grade.
The benefits of SME rating that accrue to the SME units may be
highlighted as:
a
an independent third party evaluation adding to SME's
credibility
b
easy access to funding and at favorable terms
c
credibility and confidence building with business partners
d
scope of self-correction and selfimprovement
e
enhanced visibility through publication of rating agency
websites
f
wider recognition and acceptance
g
introduction of good governance practices
SME ratings not only serve SME units, it also helps banks in many
ways. It facilitates pricing of loan products at attractive terms. It is also
useful in compliance with regulatory and capital adequacy norms.
Conclusion
Thus MSMEs play a vital role as they promote growth
and development of the economy, reduce rural
unemployment, regional disparities. MSMEs contribute
significantly to the economic activity in almost every
country of the world. Indian MSMEs are therefore of no
exception.
The performance of MSMEs has a determining
significance for Indian economic growth due to their
substantial share in enterprises, employment, and
production and value addition besides being one of the
important foreign exchange earner. However, in spite of
their vital significance, these industries face various
Challenges as mentioned which impede their growth.

Need of Cost Accountants Contributions for growth of MSMEs
Cost accounting function can have a pervasive influence in the MSMEs.
In the competitive and globalised trend, cost control and quality assurance
becomes an important element of strategy as unit margins shrink and new
products and applications are harder to find.
Cost Accountants can help the SME sector in managing costs effectively and
thereby establish a competitive edge to become world-class players.
The responsibility of the cost accounting function is great, for the cost
accountant's recommendations ultimately have a direct impact on company
operations and overall profitability.
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