R Venkatakrishnan, Chennai

Promote Efficiency In a relatively capital constrained country like India, it is imperative that all efforts are made to promote efficiency that encourages optimisation of resources and maximisation of the same. Innovation is the key. We need to think out of the box and ensure efficiency is encouraged with due consideration being given for adequate risk management.
To begin with, banks and financial institutions should encourage existing units that proven ability to get better bang for the buck. This should not be restricted to just the MSME's but to all units. Use of traditional evaluation methods like the debt equity ratio or the current ratio needs to be reviewed with more appropriate ones like capital employed turnover ratio or human productivity ratio. I am sure that we could find quite a few and give them weights to arrive at a composite index!
On the fiscal side too we need to encourage units with higher productivity and efficiencies with a lower tax rate! While we encourage new units with tax covers and incentives, we don't seem to recognise ones who drive greater profitability in existing ones.
Archaic labour laws that stipulate minimum wages appear to penalise employers as it does extract any commitment from the employees to ensure greater productivity. The employer is penalised with increasing inflation indexed dearness allowance. The employer has no control over policies or the lack of it, which drive inflation. Competition and customers are consistently driving prices lower. Considering that over 60% of the country's GDP is derived from the service sector, even assuming that 50% of the cost is represented by salaries, a 10% increase would imply that margins are down close to 14%! So here we are perpetually running to stand were we are by constantly increasing capacities.
All pointers therefore indicate that we need radically different thoughts to encourage efficiency!
R Venkatakrishnan FCA DISA(ICAI)
"Rangas" 1/4 Fourth Main Road,
R A Puram,
Chennai 600028
Phone: +91 44 24618778 / 24618740 / 24617653
Mobile: +91 98408 13918
rvk@rvkassociates.com