In the production scene of India, Cost control is a far fetched dream due to variety of reasons. Indian economy is one of scarcity, rising prices, shortages, labour unrest and poor competitive strength in the International Markets. The following are some of the reasons that hinders cost control in India
The cost of raw material and intermediary products are very high in India. The sharp rise in oil prices gives a severe push to the cost of raw materials with petro-chemical base.
2. Control of Inventory
Inventory control is not at all possible under Indian conditions. Shortages of raw materials are a usual phenomenon. Hence, producers always keep large inventories which go to increase their costs. This is particularly so with regard to imported raw materials.
3. No control over Wage
Producers have no control over wages. Wages are always rising as they are linked to the cost of living. There are wage boards for almost every industry and statutory obligations on the part of the management are becoming larger and larger leading to high cost of production due to high wage rate.
4. Uneconomic size of Plant
The size of the plant is very often uneconomic due to the Government’s desire to prevent concentration of economic power.
5. Underutilization of Capacity
Very frequently there is under-utilization of capacity due to lack of raw materials and power shortages.
6. Credit System
Machines and equipment obtained under tied credit systems usually cost 40 percent more than what it would cost if they were purchased in the open market.
7. Delay in issuing license
There are delays in issue of licenses and by the time licences and permits are sanctioned, the cost of equipment goes up.
8. Unseen overheads
Businessmen have to spend a lot of money as ‘Unseen Overheads’ to grease the palms of officials at different administrative levels to make the files move and to get the things done.
9. Indirect Taxation
The heavy indirect taxation and multi-point taxation and excise duties have a very heavy impact on the cost of production. India is perhaps the only country where basis raw materials carry heavy excise duties.
10. Absence of Cost Consciousness
Almost all Indian Industries operate in a sheltered market. They are protected from foreign competition through import controls. As the Indian market is primarily a sellers market and as there is no competition among sellers, there is no compelling reason for the industrialists to pay any attention to cost reduction programmes. To be very precise, in Indian industries, cost-consciousness is by and large absent.