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Automating compliances key for India to meet its $5 trillion economy vision

The latest episode of Mint Navigating Compliance with Technology series — ‘Automating compliances in the Manufacturing sector to put India on the roadmap to a $5 trillion economy’Premium
The latest episode of Mint Navigating Compliance with Technology series — ‘Automating compliances in the Manufacturing sector to put India on the roadmap to a $5 trillion economy’

The latest episode of Mint Navigating Compliance with Technology series, powered by Clear, looks at how manufacturing set-ups need to automate tax, GST and export compliances and focus on their core business operations to power growth

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India has an ambitious target to become a $5 trillion economy by 2024 and the Manufacturing sector will have a major role to play in this, with the entire thrust on ‘Make in India’ in a post pandemic world. 

 

Over the past decade, India’s manufacturing sector has transformed into a high growth area contributing significantly to the GDP through domestic penetration as well as the creation of export opportunities. The sector was badly hit by the pandemic, but saw a quick rebound by adopting digital technologies wherever possible and seeking intervention from the government to overcome its challenges.

 

In 2022 and beyond, the focus is going to be on efficiently scaling up to meet the pent up demand while managing the increase in manufacturing costs. Even as the government’s push to ‘Make in India’ gathers steam, one of the major roadblocks in the journey in terms of financial compliances remains. 

 

The latest episode of Mint Navigating Compliance with Technology series, titled ‘Automating compliances in the Manufacturing sector to put India on the roadmap to a $5 trillion economy’, powered by Clear, brought CFOs from a cross section of industries together to look at how manufacturing set-ups need to automate tax, GST and export compliances and focus on their core business operations to power growth.

 

The virtual panel discussion started with a focus on the gems and jewellery sector, which virtually came to a standstill with no footfalls in stores during the pandemic, even as gold prices surged. 

 

“The major challenge which we face is our fixed costs like salaries, rents and other overheads which have to be paid compulsorily. The first thing that we did is manage the working capital by seeking rental waivers from landlords or discounted cash flows. We used hedging options to take care of the gold price increase," said Ramakanth Ponnapalli, Chief Financial Officer, Bhima Jewels.

 

They overachieved their targets for 2020 and 2021 and expect to grow their geographical footprint in 2022 by opening more showrooms. “People are turning to gold as an investment opportunity during the pandemic. By Jan end, our sales turnover of 2021 will be achieved so February March will be the extra sales for us," he added.

 

The pent up demand has been instrumental in bringing the manufacturing segment back on track. But, increased costs of raw materials, uncertainty of demand, shortage of working capital and high logistics costs have been putting boulders along the way.

 

“We are a hugely diverse organisation present in several industries. This year has been very challenging for is at Mitsubishi Electric and controlling costs and working capital has been a key initiative for us. 92% of the expenses are fixed costs, and the focus was on reducing these by shifting our offices to shared working spaces and reducing travel, especially for sales teams who managed to do the same amount of business without travel," said Gurvinder Singh, Chief Financial Officer, Mitsubishi Electric India Private Limited.

The company operates on a broader ecosystem with vendors, dealers, suppliers, who need to be brought together for effective financial management, which changed post-Covid. “The company used to issue cheques and receive payments by cheque too. so we could get a good lead time in the working capital. But after the COVID session, we quickly moved to the RTGS and EFT mode of collections for collections and payments to the vendors," he added.

 

This process change in terms of digitization of payments is becoming permanent. There is going to be a sea change in terms of the way business is carried out. “B2B digitalization is happening at a furious pace across our country, and that is something that is getting missed by the common people. I think when you look for five years out, I personally feel very excited about where it's going to take us because once the backend processes are set, then the front end manufacturing and all the other processes can scale just very comfortably," said Rohit Razdan, Chief Business Officer, Clear. 

 

The manufacturing sector has unique challenges when it comes to financial compliances. Firms operate in different states and need to register for GST and track filings, which can be cumbersome.

 

“The biggest challenge is that our tax authorities work based on amendments and a lot of exceptions. If we have standardised rules  of GST, which do not change frequently, the life of a CFO and the finance accounting will become much simpler. So, what we have done is that along with using ERP which is very robust, we also make use of a lot of Power BI tools, which allow us to configure the system when we want and make the changes to the tools," said Manan R Shah, Chief Financial Officer, Sayaji Industries Limited, which operates across various geographies.  

 

By automating compliances, a lot of skilled manpower can be diverted to more productive tasks. “If you look at the admin team, at least 20-25% people would fall in the finance accounts team. This entire workforce of our country, which is into finance and accounts, is more or less being used only for compliance, which is not a productive use of our manpower, many of whom are chartered accountants and company secretaries," Shah added. 

 

Manufacturing firms seek greater stability in laws, which don’t change frequently, so that compliances become simpler and also to do away with compliances that don’t have any meaning. 

 

“One of the biggest challenges which we face this dynamic QR code, which is I mean doesn't give anything to anybody. Actually, there's only a requirement that you have to have dynamic QR code, but nobody knows what its use is," Ponnapalli said.

 

India is also emerging as a major exporter of goods and services to the rest of the world, making export compliances another area to look into for firms. “We are seeing a lot of challenges with respect to compliances. We are lobbying with the government's for GST credits, because if you see poultry is outside the purview of the GST regime," said N Srinivasan, Chief Financial Officer, Suguna Foods Private Limited, which  has been exporting frozen poultry meat to countries like Oman, Bahrain, Afghanistan, Bhutan and Maldives. 

 

Manufacturing firms typically deal with a large number of vendors and the process of matching invoices with multiple GST registrations can be cumbersome and time consuming too. 

 

“The government is functioning a bit like a start-up to change nation-wide systems in what seems like a sharply forward looking direction. The government collections have gone to about 1,35,000 crore. This number was 85,000 - 90,000 about a year or two back. Fundamentally, what that also means is that the people who were taking liberties are finding it difficult," said Razdan.

 

There are three focus areas for manufacturing firms – invoice reconciliations, vendor communication and controlling payments as a mechanism to enforce hygiene. Solutions providers like Clear provide AI-based solutions that can be connected to the ERP systems to ensure compliances in terms of systems without having to change the ERP. There are tools to send automated communication to vendors thereby reducing a lot of man hours needed to liaison with vendors. 

 

The Indian IT department is quite ahead of the curve when it comes to technology and incorrect filing of GST data can often result in notices, which require a huge amount of manual effort to resolve. The onus is on large corporations to ensure compliances for all their vendors, something that adds a lot of compliance burden on big firms. 

 

With the thrust on ‘Make in India’ in 2022 and beyond, manufacturing set-ups need to focus on growth and innovation. “There is a very big shift happening from unorganised to organised across manufacturing firms. Every manufacturing set-up needs to rush towards digitization to see growth in terms of revenues," Razdan concluded.

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