RNI – UP/ENG/2011/36701 ISSN: 2231-6353

A Biannual Refereed International Journal of Business and Social Studies

Volume 04 Number 01 March 2014

HermeneuticS

A Publication of Youth Empowerment and Research Association

Varanasi (U.P.) India

RNI – UP/ENG/2011/36701 ISSN: 2231-6353

HermeneuticS

Contents

Title of Paper Author (s) Page

No. Trends in Foreign Institutional Investment in India

Vartika Khandelwal 1

Child Immunization in Uttar Pradesh: An Assessment of Impact of Socio Demographic Variables

Brijesh P. Singh Sonam Maheshwari

7

Business Ethics and Green Marketing Initiative: A Global Prospective

Sarika Sharma & S. Prakash 10

Technological Intervention in Traditional Farming: Indian Context

Neeraj Singh 16

Cross-Border Capital Flows- Future Prospects of India

Subasish Mohanty 20

An Efficacy of the Doha Development Round and It’s Implications For the

Developing Countries

S.K Tannan, Md. Athar Ali

& Panna Lal

24

Self- Help Groups: An Important Tool for Empowerment of Women

Arpita Chaturvedi 27

Direct Cash Transfer Subsidy in India: Suggestions for Improvement

Meera Singh 32

Dupont Analysis of Return on Equity of Indian Banking Sector

Ajay Pratap Yadav, Awadhesh Kumar Tiwari &

Manish Kumar

37

Performance Review of Regional Rural Banks in India –With Special Reference

to Jharkhand Gramin Bank

Alok Kumar

43

An Assessment of Financial Performance of Gold Loan Nbfcs

Hariom Divakar 47

Carbon Sequestration- Economic Tool Against Environmental Pollution

Singh Ahuti 53

Challenges and Opportunities of Insurance Sector Towards Economic Development

Rahul Kanojia

57

The Importance of Locational Attributes: A Study of Independent Small Scale

Retailers

Vivek Kumar Pathak,

Chandan & MadanLal

60

Role of Corporate Governance in Sustainable Development

Triveni & Rajan 63

Human Resource Accounting –A Case Study of Infosys Technologies

Shweta Jaiswal 68

Convergence With IFRS: Context of India

Kishore Kumar Shah 73

Business Education and Ethics

Pushpraj Singh 77

A Review of Government Accounting in Indian Context

Ravish Chandra Verma 82

Corporate Blog: Creating Public Relations

Nilanjana Kumari 86

A Biannual Refereed International Journal of Business and Social Studies

Volume 04, No. 01, March 2014

A Publication of Youth Empowerment and Research Association Varanasi (U.P.) India

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 1 ISSN: 2231-6353

TRENDS IN FOREIGN INSTITUTIONAL INVESTMENT IN INDIA

Vartika Khandelwal *

ABSTRACT The Indian economy was liberalised following the Balance of Payment (BOP) crisis in the year 1991. After the launch of the reforms in the year 1991, there was a gradual shift in capital flows from debt to non-debt creating flows. The Government of India therefore, adopted the policy of encouraging foreign investment coming into the country. Foreign institutional investors

(FIIs) were allowed to invest in India from September, 1992 and foreign institutional investment (FII) since then have become an important source of foreign investment to India. In the light of this increasing significance of foreign institutional investment (FII) inflows to India, this paper tries to identify the trends associated with FII inflows to India in order to have a better understanding about the nature of these flows coming to India.

INTRODUCTION

The relationship between financial openness and

economic growth has been well established in the

existing literature. Financial openness has been

considered as a catalyst for economic growth; at the same time the possibility of feedback relationship

between the two cannot be denied. One way of

achieving financial openness is to encourage foreign

investment in the country. The increasing interlinkages

and liberalisation of financial markets have made the

emerging economies to embrace foreign capital.

Foreign investment plays an important role in the long

term economic development of a country by

augmenting availability of capital, raising productivity,

providing foreign exchange, meeting current account

deficit etc.

In the wake of economic liberalisation policy initiated

in 1991 in India, the Government of India has also

taken several measures to encourage foreign

investment in India, both direct and portfolio. In fact,

India has now become an attractive destination for

foreign investors owing, among other factors, to its

high potential for economic development. The foreign

investment in India as a percent of GDP has grown

from 0.05%in 1991-92 to 2.4% in 2004-05 and further

to 3.86% in 2010-11. The Foreign Direct Investment

(FDI) for the same period has increased from 0.05% to 1% and further to 1.9% whereas the percentage of

Foreign Portfolio Investment (FPI) to GDP was

negligible in 1991-92 which increased to almost 1.5%

in 2004-05 and to 2% in 2010-11(RBI, 2011).

FOREIGN INVESTMENT

Foreign Investment refers to investments made by

nationals of a country in financial assets and production

process of another country. Foreign investments in India

can take the form of investments in listed companies (FII

investments); investments in listed/unlisted companies other than through stock exchanges (Foreign Direct

Investment, Private Equity / Foreign Venture Capital

Investment route); investments through American

Depository Receipts / Global Depository Receipts

(ADRs/GDRs) or investments by Non Resident Indians

(NRIs) and Persons of Indian Origin (PIO) in various

forms (ISMR, 2011). It can be more simply classified

as: Foreign Direct Investment (FDI) and Foreign

Portfolio Investment (FPI).

FOREIGN INSTITUTIONAL INVESTORS The most significant part of investment through

portfolio inflows comes in the form of Foreign

Institutional Investment (FII) which is undertaken by a

category of investors called Foreign Institutional

Investors (FIIs). These institutional investors are

specialized financial intermediaries managing savings

collectively on behalf of certain investors towards

specific objectives in terms of risk, returns, and

maturity of claims. Formally, the term foreign

institutional investor has been defined by Securities

and Exchange Board of India (SEBI) under its (Foreign

Institutional Investors) Regulations, 1995 as: "an institution established or incorporated outside India

which proposes to make investment in India in

securities.‖ It also includes investment by a sub-

account. The entities those are eligible to get registered

in India as FIIs includes pension funds, mutual funds,

banks, university funds, foundations, etc.

IMPACT OF FOREIGN INSTITUTIONAL

FLOWS ON RECIPIENT ECONOMY

Benefits of FII

According to Pal (2006), mainstream economists suggest that the FPI can benefit the real sector of an

economy in three broad ways. First, the inflow of FII

can provide capital scarce developing countries like

India a non-debt creating source of foreign investment.

The inflow of portfolio investment can supplement

domestic saving for improving the investment rate. At

the same time by providing valuable foreign exchange

to the developing countries, FPI also reduces the

pressure of foreign exchange gap for countries like

India, thus enabling them to make the imports of

necessary investment goods easy. Second, it is suggested that increased inflow of foreign capital

increases the allocative efficiency of capital in a

country. The flow of resources into the capital-scarce

countries reduces their cost of capital, increases

investment, and raises output. The third and probably

the most important way by which FII affects the host

*Assistant Professor, Shri Ram College of Commerce, University of Delhi

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 2 ISSN: 2231-6353

economy is through linkage effects via the domestic

capital market. Purchases by FIIs give an upward thrust

to the domestic stock market prices which has a

positive impact on the price-earning ratios of the firms.

A higher P/E ratio leads to a lower cost of finance,

which in turn can lead to a higher amount of investment.

Costs of FII First, a major concern relates to the sustainability of

such inflows. Since the basic motive of these flows is

profit, they are always prone to sudden withdrawals.

That is why the terms such as hot, reversible, short

term are therefore often used to describe portfolio

flows. Rangarajan (2000) says that the problem with

this nature of volatility of portfolio inflows is that if

capital inflows are volatile or temporary, the country

will have to go through an adjustment process in both the real and financial markets, which later will have to

be reversed. This reversal will be having some costs.

As the exchange rates, interest rates and share prices

become volatile due to sudden surges in inflows and

outflows, there is a rise in amplitude of fluctuations in

output and employment; producers become wary of

investing or entering into any long-term commitment;

and economic activities get seriously distorted. It is for

this reason that FPI in the form of FIIs and other easily

reversible capital flows pose serious obstacles to

monetary and fiscal authorities in attaining the twin objectives of macrostabilisation and growth (Rakshit,

2006). Second, there is also a problem of herd

behaviour and positive feedback trading with these

inflows which makes these flows volatile. FIIs are

driven mostly by short-term expectations, characterized

by ―herd‖ behaviour and prone to be volatile. Herding

refers to a situation where all investors act in a similar

manner, that is, large number of FIIs buy or sell

together. If the FIIs follow such kind of herd

behaviour, then there are sudden large inflows or

outflows from the recipient countries, sometimes with

no reason whatsoever. Feedback trading refers to investors‘ reaction to recent changes in equity prices. If

a gain (fall) in equity values tends to bring in more

(lesser) portfolio inflows, it is an instance of ‗positive

feedback trading‘ while a decline in inflows following

a rise in equity values is termed ‗negative feedback

trading‘. In a country like India where stock markets

are very thin, changes in the stock markets need not

necessarily imply changes in the macroeconomic

fundamentals of the country. If FIIs purely rely on the

stock market returns then there can be sudden inflows

and outflows without any significant changes in macro situation.

RATIONALE OF THE STUDY The foreign institutional investors (FIIs) were allowed

to invest in the domestic financial markets from

September 1992. The, FII investment however started

flowing into India in 1993. And since then, FII inflow

to India grew many times from US$0.20 million (net,

monthly) in January 1993 to about US$390 (net,

monthly) million1 within a year‘s time. Over the past

ten years or so, India has gradually emerged as an

important destination of global investors‘ investment in

emerging equity markets. The cumulative FII

investment (purchases) in India since November 1992 till end of November 2012 stood at around Rs.

6380223 crores while the net investment for the same

period stood at around Rs. 701680.12 crores. The total

number of registered FIIs was 1752 till the end of

November 2012 and the total number of Registered

Sub-accounts was 6306 on the same date

(www.sebi.gov.in). FII investments as a percentage of

market capitalization increased from 1.52 per cent in

1993-94, to 12.96 per cent in 2000-01 and further to

14.51 per cent in 2010-11 (SEBI, 2011). The gross

turnover of FIIs in the equity market segment on the

Indian stock exchanges (the NSE and the BSE) accounted for Rs.14,330,091 million in 2010–2011,

which marked a year-on-year growth of 12.39 percent.

The total turnover of the FIIs in the equity market

constituted 15.30 percent of the total turnover on the

BSE and the NSE in 2010–2011, an improvement from

11.56 percent recorded in 2009–2010 (ISMR, 2011).

However portfolio flows in the form of FII tend to be

volatile and the sudden flight of this form of

investment can have adverse consequences on the

recipient country‘s economy as happened in the East

Asian crisis and Mexico crisis. Given this volatile nature and the importance of FII inflows in the Indian

economy, the present study aims to analyse the trends

associated with FII inflows to enable a better

understanding of the FII flows coming to India.

TRENDS IN FOREIGN INSTITUTIONAL

INVESTMENT

1. Investment (inflows, outflows and net) by FIIs

The participation of FIIs in the Indian markets was

allowed from 1992-93. Initially it started with a net

investment of 4 million US dollars. But from 1993-94

onwards the FIIs have been net positive investors except for the years 1998-99 and 2008-09. These two

years are the years of the two financial crisis, East

Asian Financial crisis of the year 1997 and more recent

Global financial crisis of 2008.

Table 1 presents the gross purchase, gross sales and net

investment by FIIs for the year 1992-93 to 2010-11. The

table shows that FIIs made a record investment in the

Indian equity market in 2010-11, surpassing the inflows

in any of the previous years. The gross purchases of debt

and equity by FIIs increased by 17.3 percent to

Rs.9,92,599 crores in 2010-11 from Rs.8,46,438 crores

in 2009-10. The combined gross sales by FIIs also

increased by 20.2 percent to Rs.8,46,161 crores from

Rs.7,03,780 crores during the same period in previous

year. The total net investment of FII was Rs.1,46,438

1 www.sebi.gov.in

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RNI – UP/ENG/2011/36701 3 ISSN: 2231-6353

crores as compared to of Rs.1,42,658 crores in 2009-10.

This was the highest net FII investments into Indian

securities market in any financial year so far. The

cumulative net investment by FIIs as on May 2012 stood

at around Rs. 6,26,798.19 crores.

Table- 1: Investment by FIIs

Year

Gross

Purchases/Inflows

(crore)

Gross

Sales/outflows

(crore)

Net

Investment

(crore)

Net Investment

(US $ mn.)

Cumulative

Investment

(US $ mn.)

1992-93 18 4 13 4 4

1993-94 5,593 467 5,127 1,634 1,638

1994-95 7,631 2,835 4,796 1,528 3,167

1995-96 9,694 2,752 6,942 2,036 5,202

1996-97 15,554 6,980 8,575 2,432 7,635

1997-98 18,695 12,737 5,958 1,650 9,285

1998-99 16,116 17,699 -1,584 -386 8,899

1999-00 56,857 46,735 10,122 2,474 11,373

2000-01 74,051 64,118 9,933 2,160 13,532

2001-02 50,071 41,308 8,763 1,839 15,372

2002-03 47,062 44,372 2,689 566 15,937

2003-04 1,44,855 99,091 45,764 10,005 25,943

2004-05 2,16,951 1,71,071 45,880 10,352 36,294

2005-06 3,46,976 3,05,509 41,467 9,363 45,657

2006-07 5,20,506 4,89,665 30,841 6,821 52,478

2007-08 9,48,018 8,81,839 66,179 16,442 68,919

2008-09 6,14,576 6,60,386 -45,811 -9,837 59,082

2009-10 8,46,438 7,03,780 1,42,658 30,253 89,335

2010-11 9,92,599 8,46,161 1,46,438 32,226 1,21,561

Source: Annual report, SEBI. 2010-11

Figure 1 (based on table 1) shows that despite of the

high purchases by FIIs, the net investment has remained flat. This accounts for the fact that the FIIs

sales have also been high. This implies that the pace at

which FIIs invest in Indian markets, they also

withdraw their money at an equal pace as a result of

which the net investment remains small in comparison

to the gross inflows.

Fig- 1

Gross Purchases and Net Investment by FIIs

2. Number of FIIs registered in India

The FII in India is undertaken by the entities/ individuals that are registered as FIIs in India. Thus it

becomes important to have a look at the number of FIIs

registered in India. This is to identify whether the

increasing investment is also being accompanied by an

equivalent increase in the number of FIIs.

Table 2 shows the number of FIIs registered with

SEBI. From a small figure of 18 in 1993, the FIIs

registered with SEBI have increased tremendously and

as on December, this number stood at 1767. Except for

the years 1999 and 2002 there has been an addition in the number of FIIs willing to get registered in India to

invest in Indian markets. This increasing trend can be

taken as an increased preference by FIIs to consider

India as a desirable investment location.

The number of increasing FIIs also corresponds to the

increasing cumulative investment in India (in million

US dollars) by these FIIs.

Figure 2 show that both FIIs and cumulative

investment shows an increasing trend. In fact the year recording highest net investment by FIIs is same as the

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 4 ISSN: 2231-6353

year recording the highest number of FIIs registration

which is the year of 2011.

Table- 2

No. of FIIs registered with SEBI

Year

(as on 31st March ) No. of FIIs Cumulative FIIs

1993 18 18

1994 158 176

1995 308 484

1996 367 851

1997 439 1290

1998 496 1786

1999 450 2236

2000 506 2742

2001 527 3269

2002 490 3759

2003 502 4261

2004 540 4801

2005 685 5486

2006 882 6368

2007 997 7365

2008 1319 8684

2009 1635 10319

2010 1713 12032

2011 1722 13754

Till Dec 2011 1767 15521

Source: Handbook of Statistics on Indian Securities

Market, SEBI, 2011

Fig- 2

Number of FIIs and Cumulative Investment by FIIs

Another interesting feature about the FIIs registered in

India is the country of affiliation, that is to say the

countries of origin/source of FIIs. Table 3 and figure 3

presents the source countries of FIIs registered in India.

As on March 31, 2006, SEBI had registered FIIs from

37 countries. The highest number of FIIs, as on March

31, 2006, was from the USA (342), followed by the UK (148). In terms of country of origin, the USA

topped the list with a share of 40 per cent of the

number of FIIs registered in India, followed by UK‘s

17 per cent. Other countries of significance in terms of

origin of FIIs investing in India are Luxemburg, Hong

Kong, and Singapore. About 85 per cent FIIs come

from the top 11 countries.

Table- 3

Country-wise FIIs registered with SEBI

as on 31st march, 2006

Originating

countries

No. of

registered FIIs

% share to

total FIIs

USA 342 38.78

UK 148 16.78

Luxembourg 64 7.256

Singapore 47 5.329

Hong Kong 30 3.401

Canada 26 2.948

Australia 23 2.608

Ireland 23 2.608

Netherlands 23 2.608

Mauritius 22 2.494

Switzerland 19 2.154

Others 115 13.04

Total 882

Source: Annual Report, SEBI, 2005-06

Figure- 3

Country-wise FIIs registered with SEBI

as on 31st march, 2006

Source: Annual Report, SEBI, 2005-06

3. Net Investment by FIIs in Equity and Debt

Table 4 presents the bifurcation of net investment by

FIIs in the equity and debt segment of the Indian

markets for the year 1992-93 to 2011-12. The

investment in debt is starting from the year 1996-97.

This is due to the fact that bifurcation of net investment

data was available from the year 1997 from the month

of April.

Table 4 shows that for two consecutive years (2004–

2005 and 2005–2006), the net investment in equity showed a year-on-year increase of 10 percent. The year

2006-07 was marked by a decline in net equity

investment which again increased in the year 2007-08

by 112%. There was a decline in the net equity

investment in 2008-09.

The years of 2009-10 and 2010-11 has saw maximum

net equity investment in both the equity and debt

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

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segments. The investment in equity has always been

higher than that of the investment in debt segment.

However, the investment in debt segment started

picking up from the year 2006-07. In fact in the year of

2011-12 the investment in debt segment has exceeded

that of equity. This could be due to the relaxations given by the government to FIIs to invest in debt

segment of the Indian markets.

Table- 4

Net Investments by FIIs (Rs. Crores)

Year Equity Debt Total

1992-93 13.4 0 13.4

1993-94 5,126.50 0 5,126.50

1994-95 4,796.30 0 4,796.30

1995-96 6,942.00 0 6,942.00

1996-97 8,545.60 28.9 8,574.50

1997-98 5,267.00 691.05 5,958.05

1998-99 -717.2 -867 -1,584.20

1999-00 9,669.50 452.6 10,122.10

2000-01 10,206.70 -273.3 9,933.40

2001-02 8,072.20 690.4 8,762.60

2002-03 2,527.20 162.1 2,689.30

2003-04 39,959.70 5,805.00 45,764.70

2004-05 44,122.70 1,758.60 45,881.30

2005-06 48,800.50 -7,333.80 41,466.70

2006-07 25,235.70 5,604.70 30,840.40

2007-08 53,403.80 12,775.30 66,179.10

2008-09 -47,706.20 1,895.20 -45,811.00

2009-10 110,220.60 32,437.70 142,658.30

2010-11 110,120.80 36,317.30 146,438.10

2011-12 43,737.60 49,987.90 93,725.50

Source: www.sebi.gov.in

Note: No bifurcation of net investment data available

before March 1997

Figure 4 (based on table 4) shows that equity has always

been the dominant portion of net FIIs investment in

India, though lately this trend has begun to change.

Since equity forms the major portion of total investment

by FIIs it is because of this reason that we have chosen

to measure our dependent variable in terms of the equity

inflows of FIIs.

4. Relationship between Net Investment by FIIs and

Stock Market Movement

Figure 5 shows the relationship between the net FII

inflows and the stock market returns in India which in

literature is considered to be the most important factor

in explaining FII inflows to India. There is a definite

pattern that can be observed from this figure. When

the markets were low, the net investment was also low.

In the year 2003-04 when the Sensex started showing

increasing pattern there was also an increase in the FII

inflows to India which continued till 2007-08. The year

2008-09 which saw a sharp decline in Sensex was also

marked by a decrease in the FII inflows, with FII inflows turning negative. The years 2009-10 and 2010-

11 have been the years of recovery for both Sensex and

FII inflows. The question as to what causes what, in

other words the issue of causality has been addressed

in the empirical literature quite well. Most of the

studies have found that it is the stock market returns in

India which attracts FII inflows to India and not the

other way round [Chakrabarti (2001), Mukherjee, Bose

and Coondoo (2002), Roy (2007), Kumar (2009)]

Thus, it can be said that because of saturation in the home markets, the FIIs are now looking towards

emerging economies like India for providing them

with higher returns on their portfolios. As a result of

which the FIIs are giving an increasing weightage to

the markets of emerging economies in their total

portfolio allocations. Because of this increasing

preference towards growing economies, these

economies are seeing huge inflow of funds. FII

inflows into India also have shown an increasing

trend after the 1997 Asian Financial Crisis. However

this analysis also reflects the fact that FIIs indulge in

feedback trading and herd behaviour. They invest when the returns in domestic financial markets are

high and withdraw funds when returns are low.

Fig 4: Net Investment by FIIs in Debt and Equity

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 6 ISSN: 2231-6353

Fig 5: Net Institutional Investment (Rs. Crore) and Monthly Average Sensex

Source: author‟s own compilation

This may result in FIIs withdrawing and infusing

huge funds to India without any substantial change in

the condition of the economy. This nature of FII

inflows coming to India has the tendency to destabilise Indian stock markets and the resultant

adverse consequences on the macroeconomic

management of the economy as a whole.

SUMMARY AND CONCLUSIONS

This paper makes an attempt to identify the trends

associated with the FII flows in order to have a better

understanding of these flows. The activities of FIIs in

the stock markets can be classified into purchase and

sale or inflows and outflows respectively. The net

outcome of sale and purchase activities is the net investment. Despite of the high inflows by FIIs, the

net investment has remained flat on account of high

outflows by FIIs. This probably suggests that FIIs

continuously adjust their portfolios in search of higher

returns. The net investment has however remained

positive (that is the inflows during any year has been

greater than the outflows) except for the two years of

1998-99 and 2008-09. These two years are mark by the

onset of two major financial crises, namely East Asian

Financial crisis and Global Financial Crisis. The equity

component of FII has remained high in comparison to

the debt part though in later years the FII in debt component has also increased. The number of FIIs

registered in India is also increasing. Thus, the FIIs are

active players in the Indian markets both in size and

number.

On the basis of analysis of the trends in FII flows it

can be said that FIIs are becoming a major players in

the Indian markets. They are increasing both in

numbers as well as quantity. However they seem to be

fair weather friends and withdraw their money

quickly in wake of any kind of internal and external disturbances.

The tendency of return chasing and herd behaviour on

part of FIIs makes the FII inflows coming to the Indian

equity markets volatile. The sudden changes in the

sentiments of FIIs can result in huge inflows/outflows

from the Indian markets. These results have important

implications for Indian policymakers. The

policymakers in India should try to develop some in-built cushions to protect the economy from the ill

effects resulting from volatile nature of FIIs. One such

way could be to encourage the domestic investors both

the retail as well as domestic institutional investor to

actively participate in the Indian equity markets so as

to broaden the investor base of the Indian equity

markets. Another way could be to discourage the

speculative part of the FII investment. Only then India

would be able to fully reap the benefits arising out of

increasing foreign investment.

REFERENCES

1. Chakrabarti, R. (2001), ―FII Flows to India:

Nature and Causes‖, Money & Finance, ICRA

Bulletin, October–December, pp. 61-81.

2. Indian Securities Market Review (ISMR), (2011),

National Stock Exchange.

3. Kumar, S. (2009), ―Investigating causal

relationship between stock return with respect to

exchange rate and FII: evidence from India‖.

Retrieved December 12, 2013, from

http://mpra.ub.uni-muenchen.de/15793/

4. Rakshit, M. (2006), ―On Liberalising Foreign Institutional Investments‖, Economic and

Political weekly, Vol. XLI # 11, March 18, pp.

991-998.

5. Rangarajan, C. (2000), ―Capital Flows: Another

Look,‖ Economic and Political Weekly,

December 9, pp. 4421-4427.

6. Reserve Bank of India (2011), Handbook of

Statistics on Indian Economy.

7. Roy, Nirmal V P. (2007), ―Foreign Portfolio

Capital flows into India: An Exploration into its

Openness and basic motives‖. Retrieved from 8. http://www.igidr.ac.in/money/mfc_10/Nirmal%20

Roy_submission_13.pdf (as on 30th January,

2011)

9. SEBI (2011) Handbook of Statistics on Indian

Securities Market.

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 7 ISSN: 2231-6353

CHILD IMMUNIZATION IN UTTAR PRADESH:

AN ASSESSMENT OF IMPACT OF SOCIO DEMOGRAPHIC VARIABLES

Brijesh P. Singh *

Sonam Maheshwari **

ABSTRACT In order to understand the reasons for large proportion of child deaths continue to be caused by immunizable diseases, this study has identified the need for a closer investigation in child immunization. Vaccination coverage information focuses on the age group 12-23 months, the age by which children should have received all basic vaccinations. Immunization coverage in many parts of the country remains low despite the efforts to improve the services. Only 25.5 percent children were vaccinated in Uttar Pradesh, which is one of the most backward states in India. The objective of this study was to assess immunization coverage and its associated factors among children aged 12-23 months in Uttar Pradesh.

INTRODUCTION

Universal immunization of children against the six

vaccine-preventable diseases (namely, tuberculosis,

diphtheria, whooping cough, tetanus, polio, and

measles) is crucial to reducing infant and child

mortality. Differences in vaccination coverage among

subgroups of the population are useful for programme

planning and targeting resources to areas most in need. Additionally, information on immunization coverage is

important for monitoring and evaluation of the

Expanded Programmes on Immunization (EPI). The

immunization of children against six potentially

deadly, but preventable diseases-tuberculosis,

diphtheria, pertussis, tetanus, polio and measles has

been an important cornerstone of the child-health-care

system in India.

Vaccination has been shown to be one of the most cost

effective health interventions worldwide, through

which a number of serious childhood diseases have been successfully prevented or eradicated. The

immunization campaign carried out from 1967 to 1977

by the World Health Organization (WHO) eradicated

the natural occurrence of small pox. Despite the efforts

to improve vaccination services, approximately 27

million infants were not vaccinated against measles or

tetanus in 2007. As a result, 2-3 million children are

dying annually from easily preventable diseases, and

many more fall ill.

The 12-23 month age group was chosen for analysis because both international and Government of India

guidelines specify that children should be fully

vaccinated by the time they complete their first year of

life. The Universal Immunization Programme has met

with only limited success in Uttar Pradesh. Estimates

from the third wave of National Family Health Survey

(NFHS) indicate that in Uttar Pradesh, 77 percent of

children ages 12-23 months are not fully immunized,

and 2.7 percent have not received any immunizations

at all. Partly because of low immunization coverage,

infant and child mortality rates are higher in Uttar

Pradesh than in other states of India. The low

immunization coverage and high infant and child

mortality rates are of considerable concern to both

national and state governments. In this context, it is

important to analyze immunization coverage and its

effect on infant and child mortality in the state.

Findings reflect that, only children from urban area or

educational or working groups can afford to be fully

vaccinated in Uttar Pradesh.

DATA & METHODS

NFHS-3 collected information on vaccination coverage

for all living children born in the five years preceding

the survey. According to the guidelines developed by

the World Health Organization, children are considered

fully vaccinated when they have received a vaccination

against tuberculosis (BCG), three doses of the

diphtheria, whooping cough (pertussis), and tetanus

(DPT) vaccine; three doses of the poliomyelitis (polio)

vaccine; and one dose of the measles vaccine by the

age of 12 months. NFHS-3 asked mothers in India whether they had a vaccination card. If a card was

available, the interviewer was required to carefully

copy the day, month, and year that each vaccination

was received. For vaccinations not recorded on the

card, the mother‘s report that the vaccination was or

was not given was accepted. If the mother could not

show a vaccination card, she was asked whether the

child had received any vaccinations. If any

vaccinations had been received, the mother was asked

whether the child had received a vaccination against

tuberculosis (BCG); against DPT; against polio; and against measles. For DPT and polio, information was

obtained on the number of doses of the vaccine given

to the child. In such cases, mothers were not asked the

dates of vaccinations.

Univeriate Binary logistic regression was used to

determine the factors associated with full immunization

coverage among children aged 12-23 months old. Full

immunization status of the children (card plus mothers

recall) was included in the logistic regression model as

a dependent variable, while socio-demographic

characteristics of the mother, child characteristics were

* Assistant Professor (Statistics), Faculty of Commerce, Banaras Hindu University, Varanasi-221005

** JRF, Department of Statistics, Banaras Hindu University, Varanasi-221005

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Table- 1

Distribution of mothers and immunization coverage

according to various socio-demographic

characteristics in Uttar Pradesh

Background

Characteristics

Distribution Percent

Immunization

coverage Frequency Percentage

Maternal age at Birth

15-20 182 15.7 19.2

20-25 451 38.8 27.7

25-30 304 26.2 27.9

30-35 151 13.0 25.2

35+ 74 6.4 17.6

Residence

Urban 383 33.0 37.1

Rural 779 67.0 19.8

Religion

Hindu 861 74.1 28.2

Non-Hindu 301 25.9 17.6

Respondent’s Education

Illiterate 706 60.8 13.2

Primary 118 10.2 28.0

Secondary 244 21.0 41.8

Higher 94 8.1 72.3

Respondent’s Occupation

Not working 1068 92.0 21.5

Service 94 8.0 70.2

Has Health Card

No 483 41.6 0.4

Yes 276 23.8 41.6

Yes but not

seen 400 34.4 14.8

Sex of Child

Male 637 54.8 27.2

Female 525 45.2 23.4

Place of Delivery

Home 845 72.7 16.7

Hospital 317 27.3 48.9

Prenatal Care

Doctor 272 23.4 41.2

Other health

personnel 539 46.4 29.9

Dai /Other 351 30.2 6.6

Total 1162 100.0 25.5

Table- 2

Likelihood of immunization coverage among

children aged 12–23 months in Uttar Pradesh

*reference category

used as independent variables. A child between 12-23

months old who received one BCG, at least three doses

of DPT and Polio and a measles vaccine is said to be

fully vaccinated.

RESULTS

A total of 1162 mothers of aged between 15-49 years

old were analyzed in this study. Out of the total surveyed children aged 12-23 months, vaccination card

was only seen and confirmed was 23.8 percent. Polio

was the most frequently received vaccine. Particularly,

Polio1 was taken by the majority of children (95.18),

followed by Polio2 (92.94 %) and Polio 3(88.55) on

the basis of card plus recall record. The prevalence of

DPT1, DPT2, DPT3 were 57.73, 46.04 and 32.79

percent respectively. The coverage showed a

decrement from the first doses of vaccine to the last

doses. If we study on the basis of card only then the

percentage of all intake vaccination was poor among

all. Measles (39.24 percent) coverage were the least

taken vaccines when compared with other vaccines.

From table 1 only 21 percent and 8.1 percent of the mothers attended secondary and higher education

respectively. The majority (92 percent) of women were

non-working. Mostly women belong to Hindu religion.

Still now place of delivery of large number of women

(72.7) is home. 67 percent of total were from rural

Background

Characteristics

Odds

Ratio

95%

Confidence

Interval

p-

value

Maternal Age at Birth

15-20* - - -

20-25 1.610 1.056-2.457 0.001

25-30 1.630 1.044-2.546 0.000

30-35 1.412 0.839-2.377 0.004

35+ 0.895 0.443-1.808 0.002

Residence

Urban 2.415 1.345-3.867 0.000

Rural* - - -

Religion

Hindu 1.554 0.986-2.005 0.000

Non-Hindu* - - -

Respondent’s Education

Illiterate* - - -

Primary 2.559 1.620-4.404 0.000

Secondary 4.735 3.387-6.619 0.000

Higher 17.239 10.437-

28.474 0.000

Respondent’s

Occupation

Not working* - - -

Working 8.588 5.649-11.613 0.000

Sex of Child

Male 1.821 0.628-2.072 0.000

Female* - - -

Place of delivery

Home* - - -

Hospital 4.777 3.593-6.352 0.000

Prenatal Care

Doctor 4.900 1.234-5.560 0.001

Other health

personnel 2.789 0.987-4.678 0.000

Dai/Other* - -

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area. 30.2 percent of women were still received care by

Dai and other sources.

Table 2 shows bivariate logistic regression analysis of

socio-demographic characteristics of mothers and child

associated with complete immunization coverage (card plus recall) among children aged 12–23 months of age.

Bivariate analysis showed that education, religion,

place of residence, place of delivery, prenatal care is

significantly associated with complete immunization

status of children. The children of middle age group

women are significantly more likely to immunize than

younger and older women. Results obtained from this

study revealed the fact that there is a positive

association between maternal education and

immunization. Few of the possible ways that have been

focused so far are pointed out below for education as a

potential determinant for increasing vaccination uptake: (i) Education gives the basic ideas about the

path of wellbeing and also equips and encourages

increasing mother‘s knowledge on healthy living; (ii)

Education equips mothers with the knowledge of

proper health behavior and illness behavior for

preventive and curative measures. Hindu women‘s

children were 55 percent more likely to be vaccinated

as compared to Non-Hindu women‘s children.

Children of working women were more than eight

times more likely to be vaccinated because working

women were more aware about their child health due to knowledge about child health. Child‘s sex was

shown to be major confounders for full immunization

coverage. Sex discrimination against female children

was also seen in child immunization in Uttar Pradesh.

The study revealed that male children were more likely

to be fully immunized than females. Immunization in

case of hospital delivery is about five times higher than

non-hospital delivery group. It is also found

statistically significant with p-value 0.000. In Urban

area vaccination immunization is two times more likely

as compared to rural counterparts due to travel support,

education and mass media exposure and lack of health sectors. Women whose prenatal care were under

Doctor or trained Nurse/ health personnel were four

and two times more likely to be immunized their child

as compared to whose prenatal care was under Dai.

CONCLUSION

The utilization of immunization services in Uttar

Pradesh is far from good. The participants were not

aware of the immunization services being offered at the

health facilities and importance was not identified as

being disease preventive. There is need to strengthen

communication, education and information skills of

Health Workers to improve service provision and

health education to mothers. The surveillance and

referral systems in the area also need reinforcing so as

to identify defaulters of immunization and reduce the

drop-out rate.

REFERENCES

1. Ambo Woreda, Etana & Deress (2012) Factors

associated with complete immunization coverage

in children aged 12-23 months in‖ Central

Ethiopia. BMC Public Health 12:566.

2. Angela G, Zulfiqar B, Lulu B, Aly GS, Dennis

JGR & Anwar H. (2010): Pediatric disease burden

and vaccination recommendations: understanding

local differences. Int J Infect Dis, 30(30):1019-

1029.

3. Antai D. (2011) Rural-Urban Inequities in Childhood Immunisation in Nigeria: The Role of

Community Contexts. Afr J Prm Health Care Fam

Med. 3(1).

4. International Institute for Population Sciences &

ORC Macro National Family Health Survey India

2005/06. IIPS, Mumbai, India.

5. Lilian Chepkemoi Maina, Simon Karanja &

Janeth Kombich (2013) Immunization coverage

and its determinants among children aged 12-23

months in a peri-urban area of Kenya Pan African

Medical Journal. 6. Mosiur Rahman & Sarker Obaida-Nasrin (2010)

Factors affecting acceptance of complete

immunization coverage of children under five

years in rural Bangladesh salud pública de

méxico / vol. 52, no. 2, marzo-abril de.

7. Rakesh Munshi & Sang-Hyop Lee (2000) Child

Immunization in Madhya Pradesh National

Family Health Survey Subject Reports Number

15, International Institute for Population

Sciences.Mumbai, India.

8. Thomas Waldhoer, G. Haidinger, Christian

Vutuc, Ferdinand Haschke & Roswitha Plank (1997) The impact of sociodemographic variables

on immunization coverage of children European

Journal of Epidemiology 13: 145–149.

9. World Health Organization: Immunization

practice module 1and 2(1998) Expanded program

on immunization.

10. Zoe Matthews & Ian diamond (1997). Child

Immunisation in Ghana: The effects of family,

location and social disparity. Journal of Biosocial

Science, 29, pp. 327-343.

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

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BUSINESS ETHICS AND GREEN MARKETING INITIATIVE:

A GLOBAL PROSPECTIVE

Sarika Sharma*

S. Prakash**

ABSTRACT Ethics is a social Concern science of positive morality. It tells about the good and bad course of action by an individual or an organization. Social responsibility of the business stands for the objectives and subjective concern for the wellbeing of the society and environment. Social functions of marketing include survival, profitability, consumer services, social ethics and responsibilities. Social marketing activities would be regulated through private, public and business actions. Green marketing is the marketing of products that are presumed to be environmentally safe. Green marketing concern with scanning of green marketing environment, identifying ecologically sensitive customers and studying their green needs and motivates to designing products, their promotion distribution that have minimum detrimental impact on the environment. This paper reflects the social issues and ethical aspect of marketing, and also elaborates the green marketing initiatives

worldwide including India. Furthermore historical development of green marketing has also mentioned. Reasons for chosen of green marketing by the corporate, problems ahead in green marketing and some criteria for greater success of green marketing has also been discussed. Furthermore some marketing strategies for greenness are also suggested.

INTRODUCTION

Ethics is a science of morality. It speaks of what is

‗good‘ or ‗bad‘ for an individual may be natural or

artificial. It is not only a question ―good‖ or ―bad‖ but much more ―what is right‖ or ―what is wrong‖. Thus,

what is right is always good; however what is bed is

not necessarily wrong. The value system of good and

bad and right and wrong is the base for smooth and

satisfactory working a community. It means that, the

business community is allowed to make profits but not

at the cost of others.

HOW CAN ONE ENFORCE SUCH MORAL

RESPONSIBILITY?

One might think that the finest possible guide-lines can bring home moral responsibilities which can be

discharged by the employees of the corporate world.

Each executive faces very difficult ethical situations.

Thus, marketer is to act as marketer and not as

salesman. The following steps go a long way in getting

rid of many knotty and ticklish situations of ethical and

social situations.

I. Let moral concern be an integral part of

organizational goal: Concern for moral or ethical

values may be made an integral part of the

organizational goal along with the economic objective of profit maximization. The employees can then take

the right decisions with an eye on fair play confidently.

II. Let corporate ethical stance, be reflected in job

description: The Company‘s ethical stance may be

reflected in the job description of each and every

employee and included in the performance appraisal as

well to facilitate accountability.

III. Let there be, codes of ethical behaviour and

ombudsmen: Codes of ethical behaviour, ombudsmen and the like serve as more than palliatives for; they

cannot go to the root of a problem, however well-

intended. The moral perceptions are shaped by the

individual attitudes.

IV. Let there be, a carefully designed code of

conduct and its enforcement: The best way of

designing and enforcing ethical responsibility is to

institutionalize it through company constitution. A

model code conduct is the out of rich experience and

sharp experiment.

WHAT IS A SOCIAL RESPONSIBILITY OF THE

BUSINESS?

Social responsibility stands for the objectives and

subjective concern for the well-being of the society of which the business unit is a part and parcel. It is the

society that provides all the inputs to the business units

and sets certain limits or norms for the use of these in

delivering the goods and rendering services.

WHY CORPORATES CANNOT IGNORE THEIR

RESPONSIBILITY TO THE SOCIETY FOR

SEVERAL REASONS, SOME OF WHICH ARE

I. Dual objective of wealth and profit maximization:

While bottom line considerations are significant, the

corporate goal must be to focus on maximization of wealth and operating profits.

II. Sustaining the organizational image: Whenever

one hears the name of certain well established business

houses which are committed to any social cause, it

conjures up an image of a solid and professionally

managed organization. III. Drive towards self-

actualization: It has been an established fact that, in the

hierarchy of human needs as advocated by Abraham

Maslow, the highest state of achievement is self-

actualization, that is, the need of an individual to be socially acceptable. This can be easily applied even in

*Assistant Professor, Motilal Nehru College, University of Delhi, Delhi

**Assistant Professor, Shri Ram College of Commerce, University of Delhi, Delhi

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case of artificial person namely, the corporation, since

all professionally managed organizations wish to

establish a significant presence in the market.

These points make it amply clear that these corporates

that are readily willing to create and sustain a long legacy, will have to discharge their social

responsibilities. Social function and responsibilities can

be easily understood by the following figure.

Figure-1

Marketing social responsibility SOCIETY IN GENERAL

GOVERNMENT

1. LEGAL BUSINESS

2. REGULAR PAYMENT

OF TAXES

3. FACT REPORTING

4. BEHAVIOUR

SHAREHOLDERS

1. REGULAR DIVIDEND

2. REASONABLE DIVIDEND

3. CAPITAL APPRECIATION

4. TIMELY REPORTING

MARKETING

MANAGER

CUSTOMERS

1. DELIGHT

2. SAFE GOODS

3. REASONABLE PRICE

4. QUALITY PRODUCTS

EMPLOYEES

1. HIGHER WAGES

2. JOB SECURITY

3. JOB-SATISFACTION

4. MORE LIESURE

ALLOWED FOR CONVERSION

PO

LLU

TIO

N F

RE

E Q

UA

LIT

Y L

IFE

RE

SO

UR

CE

IN

PU

TS

SOCIAL FUNCTIONS OF MARKETING

There are four basic social function of marketing, they

are:

I. Survival: Survival is the fundamental and final

objective of a business especially when it is subjected

to changing environment and fluctuating forces of

competition and demand. Survival is one of the

parameters of performance.

II. Profitability: Business is not a charity. Business is

carried on to make profit and earning of profits justifies

its existence. Profitability is a mark of efficiency and is the rewards for the value added. Like, survival, profit

motive is the basic objective.

III. Consumer service: The marketing concept is

certainly consumer service oriented. Consumer care,

consumer satisfaction and the consumer delight are the

sure stepping stones towards reacting the goal of profit

making.

IV. Social responsibility. It goes without saying that

marketing is a sub-system of supra system of society. It thrives in a socio-economic environment with other

dimensions of ecology, technology, legal and cultural

tinges.

Management being a creative and team activity, the

managers at all the levels in the organization are

associated and involved in a challenging yet

thrilling, and hence, paying task of resolving the

conflicts and reconciling the major responsibilities

towards : 1. Consumer, 2. Employees, 3. Shareholders,

and 4. Government. There has been a deep socio-

economic interaction between the segments of the society and management or the organization which is

very clear from the figure.

As the business unit uses the resources of the society,

processes them and the output as the result is expected

to be of two sided namely beneficial to both the

business house and the society at large. Everlasting

interaction between the society and the organization in

terms of a cycle of Input, Processing and The Output

has a very interesting story of its own. This cycle clears

the relationship between the business house and the

society and mutual accommodation in terms of gains and pains. This can also be understood by the

following figure.

Figure-2

Business and the Society

PROCESSING

CONVERSIONINTO PRODUCT

AND SERVICES

INPUTS OUTPUT

THE

BUSINESSUNIT

PRODUCTS ANDSERVICES AS

PER THE

SOCIOECONOMICEXPECTATIONS

THE FEED-BACK

HUMAN

AND

MATERIAL

ACTIONS TO REGULATE SOCIAL

MARKETING ACTIVITIES

It is amply clear that it is the business which itself is

the root cause of economic and social ills. Therefore,

two sets of actions have been up surging to keep the

business to behave. These actions are ―private‖ and

―public‖ that have kept the business community on its

toes.

(I) PRIVATE ACTIONS

The private actions to regulate the marketing activities

have been seen in the form of CONSUMERISM as the social movements that have caught fancy of general

public in private attempt. Let us note those in brief.

Consumerism

Consumerism is the strongest social and organized

movement of citizens and the government agencies to

strengthen the rights and the powers of consumers as

against those of sellers.

Traditionally, the rights of sellers have been:

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The right of introducing any product in any size

and style, provided it is not hazardous to the

personal health or safety; or if it is, to include

proper worming and controls.

The right of charging any price for the product

provided no discrimination exists among similar kind of consumers.

The right of spending any amount to promote the

product provided it is not defined as unfair

competition.

The right of using any product message provided

it is not misleading or dishonest in content or

execution.

The right of using any buying incentive schemes

provided they are not unfair or misleading.

As against these rights of sellers, the buyers or the consumers do have certain rights to counteract and

balance between the two parties for mutual benefit.

These consumer rights are:

The right of not buying a product that is offered

for sale.

The right of expecting the safe products.

The right of expecting of better product

performance.

The right of being informed about the important

aspects of the product.

The right of protection against questionable products and marketing practices. and

The right of influencing the products and

marketing practices in ways that will improve the

quality of life.

(II) PUBLIC ACTIONS TO REGULATE

MARKETING

In case the manufacturers and the marketers do not

understand the implications of their operations, the

general public will play a vital role through resistance

finally forcing the government to pass Acts and Laws, amend and existing ones. Thus, we have M.R.T.P. Act

of 1969, Consumer Protection Act of 1986 and others

to contain the strength of manufacturers and the

marketers to bend to the demands of consumers so that

their products and services will be more consumer

friendly and environment friendly.

(III) BUSINESS ACTIONS TOWARDS

SOCIALLY RESPONSIBLE MARKETING

It is but natural that to start any movement that appears

quite challenging the prevailing freedom, there will be

resistance. Thus, the business community, to start with, opposed the two movements of consumerism and

environmentalism tooth and nail. They flout the attacks

by consumers and environmentalists were either

insignificant or unfair and fabricated. However, with

the passage of time majority of companies have

realized that there is truth in the arguments‘ of

consumers and environmentalists. They are out now to

accept and act in favor of the members of society.

Enlightened marketing is made up of five basic

principles namely, Consumer Oriented Marketing—

Innovative Marketing—Value Marketing-Sense of

Mission Marketing and Social Marketing. It will not be

out of place if we learn as to what these principles

stand for how they are bring about change in the future.

Figure-3

Legal issues facing marketing management

Selling decisions. Bribing : Stealing trade secrets? Disparaging

customers? Misrepresenting? Disclosure of consumer rights?Unfair discrimination

Competitive relations decisions : Anti-competitive acquisition?Barriers to entry? Predatory competition?

Product decisions : Product additions and deletions? Patentprotection? Product quality and safety? Product warranty?

Packaging decisions : Fair packaging and labelling? Excessivecosts? Scarce resources? Pollution?

Advertising decisions : False advertising? Deceptive advertising?

Bait and switch advertising? Promotion allowances and services?

Channel decisions : Exclusive dealing? Exclusive territorialdistributorship? Tying agreements? Dealers right?

Price decisions : Price flxing? Resale price maintenance? Price

discrimination? Minimum pricing? Price increases? Deceptive pricing?

T

H

E

D

E

C

I

S

I

O

N

M

A

K

E

R

Innovative marketing: ―Innovate or die‖ that applies

to the world of marketing as it is the sub-servants of

the society. There should be continuous improvement

in the real value of goods and services used by the

consumers and marketing improvements.

Value marketing: Value marketing is an attempt to

see that the consumers get added value or real value for

their society. It means building long-run consumer

loyalty by continuously improving the value that

consumers receive from the firm‘s marketing efforts.

Sense of mission marketing: It means an effort to

define the company‘s mission in broad ―social‖ terms

than narrow ―product‖ terms. Such an attempt of

defining social mission brings about better work

satisfaction and a clearer sense of direction on the part

of the employees.

Societal marketing: Societal marketing stands for

making the firms marketing decisions by giving due

weightage to consumer wants and genuine long-run

interests in the framework of firm‘s resource constraints and opportunities. One cannot afford to

neglect the long-run consumer interests.

GREEN MARKETING

Green marketing is an extension societal marketing

concept where top priority is given to environmental

protection that is environmental balance is maintained

and further improved. Green marketing is the

movement by companies to develop marketing

environmentally response products. Green marketing

can be defined as various marketing activities

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concerned with scanning of green marketing

environment, identifying ecologically sensitive

customers and studying their green needs and

motivates to designing products,

HISTORICAL EVOLUTION OF GREEN

MARKTING

The term Green Marketing came into prominence in

the late 1980s and early 1990s. The American

Marketing Association (AMA) held the first workshop

on ―Ecological Marketing‖ in 1975. The proceedings

of this workshop resulted in one of the first books on

green marketing entitled ―Ecological Marketing‖. In

1987 a document prepared by the World Commission

on Environment and Development defined sustainable

development as meeting ―the needs of the present

without compromising the ability of future generations

to meet their own need‖, Two tangible milestones for wave 1 of green marketing came in the form of

published books, both of which were called Green

Marketing.

OBJECTIVES OF GREEN MARKEING

1. Develop products that balance consumers need

for quality, performance, affordable pricing and

conveniences with environmental compatibility

that is minimal impact on the environment.

2. To project an image of high quality, including

environmental sensitivity relating to both a products and its manufacturing record for

environmental achievement.

3. Products should be either consumable or durable.

Consumables can be either eaten or placed into

the ground so that they turn into soil without any

harm to the environment.

GREEN MARKETING INITIATIVE

(A) INDIAN INITIATIVE

Tata motors ltd. is setting up an eco-friendly showroom using natural material for its flooring

and energy efficient lights. The taj chain, is in the

process of creating eco-rooms which have energy

efficient mini bars, organic bed linen and napkins

made up of recycled papers. The rooms will have

CFLs or Leds. Launched a low cost water purifier

made up of natural ingredients. Developing indica

EV, an electric car that would run on polymer

lithium ion batteries.

Recently launched Samsung solar mobile guru.

Battery operated L.G TV.

Introduction of C.N.G in Delhi

(B) GLOBAL INITIATIVE

1. Philips Light's "Marathon" Philips Lighting's first shot at marketing a standalone

compact fluorescent light (CFL) bulb was Earth Light,

at $15 each versus 75 cents for incandescent bulbs. The

product had difficulty climbing out of its deep green

niche. The company re-launched the product as

"Marathon, ―underscoring its new "super long life"

positioning and promise of saving $26 in energy costs

over its five-year lifetime. Finally, with the U.S. EPA's

Energy Star label to add credibility as well as new

sensitivity to rising utility costs and electricity

shortages, sales climbed 12 percent in an otherwise flat market.

2. Car sharing services Car-sharing services address the longer-term solutions

to consumer needs for better fuel savings and fewer

traffic tie-ups and parking nightmares, to complement

the environmental benefit of more open space and

reduction of greenhouse gases. They may be thought of

as a "time-sharing ―system for cars. Consumers who

drive less than 7,500 miles a year and do not need a car

for work can save thousands of dollars annually by

joining one of the many services springing up, including Zip Car (East Coast), I-GO Car (Chicago),

Flex Car (Washington State), and Hour Car (Twin

Cities).

3. Product and Services

Now companies are offering more eco-friendly

alternatives for their customers. Recycled products for

example, are one of the most popular alternatives that

can benefit the environment. These benefits include

sustainable forestry, clean air, energy efficiency, water

conservation and a healthy office.

4. Electronics sector The consumer electronics sector provides room for

using green marketing to attract new customers. One

example of this is HPs promise to cut its global energy

use 20 percent by the year 2010. To accomplish this

reduction below 2005 levels, The Hewlett-Packard

Company announced plans to deliver energy-efficient

products and services and institute energy-efficient

operating practices in its facilities worldwide.

WHY IS GREEN MARKETING CHOSEN BY

MOST MARKETERS? Most of the companies are venturing into green

marketing because of the following reasons:

I. Opportunity In India, around 25% of the consumers prefer

environmental-friendly products, and around 28% may

be considered healthy conscious. Therefore, green

marketers have diverse and fairly sizeable segments to

cater to. The Surf Excel detergent which saves water

(advertised with the message—"do bucket paanirozbachana") and the energy-saving LG

consumers durables are examples of green marketing.

II. Social Responsibility Many companies have started realizing that they must

behave in an environment-friendly fashion. They

believe both in achieving environmental objectives as

well as profit related objectives. The HSBC became the

world's first bank to go carbon-neutral last year. Other

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examples include Coca-Cola, which has invested in

various recycling activities.

III. Governmental Pressure Various regulations rare framed by the government to

protect consumers and the society at large. The Indian government too has developed a framework of

legislations to reduce the production of harmful goods

and by products.

IV. Competitive Pressure

Many companies take up green marketing to maintain

their competitive edge. The green marketing initiatives

by niche companies such as Body Shop and Green &

Black have prompted many mainline competitors to

follow suit.

CHALLENGES OR PROBLEMS AHEAD IN

GREEN MARKETING

Ensuring that marketing activities are not

misleading to customers in the problem of green

marketing.

Green products require renewable and recyclable

material, which is costly.

It requires a technology, which needs huge

investment in Research and Development.

Majority of the people are not aware of green

products and their uses.

Majority of the customers are not willing to pay a premium for green products.

HOW CAN WE MAKE GREEN MARKETING A

GREATER SUCCESS?

Green marketing though well developed in other

countries, India is to make it a greater success. The

requirements for success are:

I. Commitment from Top Management: Since, it is

related with the short-run and long-run profits,

performance and results, affecting everyone in the organization, top management should grant whole-

hearted support to the philosophy and efforts of green

marketing.

II. Turning Employees and others as

Environmentalists: The internal environment that

encourages employees should change their mind set

from being ordinary employees to environmentalists.

This can be done by establishing new positions like

vice-president of environment health and safety.

III. Avoid abuse of Green Marketing: It is also learnt

that some socially irresponsible companies have taken

undue advantage of green-marketing just by using

puffery. Just as Indian companies use the word ‗herbal‘

to get tax concessions or incentives. Some companies

are engaged in similar use of language that leads to

misleading understanding and results.

IV. Proper and Effective Communication: Some

companies have not been able to launch successfully

their green marketing programs. It is equally true that

some consumers have not responded well to green

marketing products because of confusing language

used to couch these products. Thus, ‗recyclable‘, ‗recycled‘, ‗degradable‘ ‗bio-degradable,

‗environmentally friendly‘ and ‗Ozone-Safe‘ are the

words that are confusing. That means green marketing

requires the expressions shall be simple and precise

that justify the claims made in their language used.

Instead of telling, ‗environmentally friendly‘ or ‗eco

friendly‘-the statement should made of ―This product

contains 67 percent recycled material‖.

V. Packaging Waste: There is need to reduce

environmental damaged caused by packing waste

which involves its collection, transport and disposal. These points of reducing waste are based on Helsinki

1971, Council of Decision on Packing and Packaging

waste. These are:

To reuse packaging material and reduce the

overall cost of packaging

To request local authorities to deal with the

situation effectively

To make efforts for recovering from packaging

waste according to packers institutions or other

waste

To integrate work done by transportation packer, recover of waste and local authorities

VII. Zero Waste. Discards are valuable sources. The

manufacturer look at the entire cycle of product: from

design phase of recovery. He should take back the used

product and packaging for manufacture or reuse.

Certain states in USA require than manufacture and

sale of enrichmentally preferable digital alternative to

memory thermometers. Denmark gives tax incentive to

environment friendly light recyclable packaging. New

Zealand provides funds for zero-waste activities, Germany urges suppliers to opt for refillable plastic

bottles instead of disposable cause. Canada requires

sense of glass bottles for refilling Xerox Company

takes back office equipment for recycling at the end of

useful life.

MARKETING STRATEGIES TO GREENNESS

Companies which embark on green marketing should

adopt the following strategies in their path towards

"greenness."

Adopt new technology/process or modify existing technology/process so as to reduce environmental

impact.

Establish a management and control system that

will lead to the adherence of stringent

environmental safety norms.

Using more environment-friendly raw materials at

the production stage.

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Explore possibilities of recycling of the used

products so that it can be used to offer similar or

other benefits with less wastage.

Marketing Audit (including internal and external

situation analysis)

Develop a marketing plan outlining strategies with regard to 7 P's.

CONCLUSION

Without civic morality the communities perish, without

personal morality their survival has no value. In the

initial days, one was surprised as to whether ethics has

any place in business and business decisions. However,

now there is no scope for such a surprise as one knows

the ethical and social issues have their own place and

are to be respected. Therefore, there is a growing

realization that the decisions involving moral and social considerations need not be dismissed as a

questionable indulgence in value judgment beyond the

pale of corporate concern. Marketing social

responsibilities exist mainly toward customer,

employees, shareholders and government. Through

private, public and business action social

responsibilities could be fulfilled. Private Acton

includes consumerism and environmentalism, public

action includes MRTP act 196, and consumer

protection act 1986. Business action mainly includes

selling decisions, branding, competitive relation

decisions, product decisions, packaging decisions, advertising decisions, distribution channel decisions

and price decisions. Green marketing initiatives are

appreciating, like use of CFL light bulbs, car sharing

services, use of electronic sectors, introduction of

CNG, solar electric system etc. in India around 25%

of the consumers prefer green products and more than

28% customer very conscious about their health. There

are few challenges in the way of green marketing like,

its product require renewable and recyclable material,

which is very costly. It needs new technology and

huge investment in research and development is also needed. In many developing countries majority of the

people are not fully aware about green products and

its uses. Thought some sort of action these problems

could be resolved easily. There are some marketing

strategies to encourage greenness, they are marketing

audit, development of a marketing plan outlining

strategies with regards to 7 Ps, exploration of reusable

and recycling products, establishment of management

control system and many more.

REFERENCES

1. S. Prakash, C.N. Sontakki,(2013) ―Strategic

Marketing‖ Kalyani Publishers, Delhi

2. S. Prakash, C.N. Sontakki((2013) ―Marketing and

Services Management‖ Kalyani publishers, Delhi

3. S. Prakash, C.N. Sontakki(2012) ― Principles of Marketing‖ Kalyani publishers, Delhi

4. S. Prakash, C.N. Sontakki(2013)― Marketing

Management Text and Cases‖ Kalyani publishers,

Delhi

5. Beri G.C (2009), Marketing Research, 4th

Edition, pp.369-380, Tata McGraw Hill, New

Delhi.

6. Dr.H.CPurohit (editor) (2006),‖Rural Marketing.

Challenging and Opportunities‖, New Delhi:

Shree publishers & Distributors.

7. Baumann, H., Boons, F., Bragd, A. (2002),

"Mapping the green product development field: engineering, policy and business perspectives",

Journal of Cleaner Production, Vol. 10.

8. Yi, Youjae (1990), "A Critical Review of

Consumer Satisfaction," in Review of Marketing.

Valerie A. Zeithaml, ed., Chicago: American

Marketing Association,

9. Pujari, D., Wright, G., Peattie, K. (2003), "Green

and competitive: influences on environmental

new product development performance", Journal

of Business Research, Vol. 56 No.8,

10. Polonsky, M., Ottman, J. (1998a), "Exploratory examination of whether marketers include

stakeholders in the green new product

development process", Journal of Cleaner

Production, Vol. 6 No.3

11. Menon, A., Menon, A. (1997), "Enviropreneurial

marketing strategy: the emergence of corporate

environmentalism as market strategy‖, Journal of

Marketing, Vol. 61 No. January,

12. Bolton, R.N. (1998), "A dynamic model of the

duration of the customer's relationship with a

continuous service provider: the role of

satisfaction", Marketing Science, Vol. 17 No.1, 13. Jacquelyna. Ottama‖ The New Rules of Green

Marketing: Strategies,Tools, and Inspiration for

Sustainable BrandingStrategies, Tools, and

Inspirationfor Sustainable Branding ‖January

2011.

14. http://www.blonnet.com/2009/07/14/stories/2009

071450970500.htm

15. http://knowledg.wharton.upenn.edu/india/article.c

fm?articleid.cfm?articleid=4386

16. http://www.dancewithshadows.com/pillscribe/mn

s-pharma-firms-line-up-to-tap-indias-rural-market/

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TECHNOLOGICAL INTERVENTION IN TRADITIONAL FARMING:

INDIAN CONTEXT

Neeraj Singh *

ABSTRACT India is also called a nation of villages and the villagers are having very few options for income generation for their livelihood. Livelihood is defined as a set of activities, involving securing water, food, fodder, medicine, shelter, clothing and the capacity to acquire above necessities working either individually or as a group by using endowments (both human and material) for meeting the requirements of the self and his/her household on a sustainable basis with dignity. Farming has always been the backbone of livelihood of Indian families. India ranks second worldwide in farm output. Agriculture in India is a major economic sector and it creates plenty of employment opportunities as well. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-

economic development of India. This article throws some light on the scenario of Indian Agricultural and the technical practices being followed in farming.

MODERNIZATION OF TRADITIONAL

FARMING

Traditional farming here refers to the agricultural

practices that farmers have been following over generations. Technologies are being adopted by

farmers at various steps of farming. The general

process of farming includes the following steps:

Selection of crop- This step can easily be the

most important step. It is very important to take a

decision regarding the crop. The further steps will

be decided only once the crop is selected as

different crops may require different sets of

cultivation practices. The main consideration in

selecting the crops for smallholder production is of course fulfilling their own needs and the

demands of the market. However, among crops

for which there is a sure demand some require

agronomic practices or environmental controls

which make them particularly suitable, or

particularly unsuitable, for smallholder producers.

This process of selection of crops is now being

influenced under certain circumstances by some

factors such as establishment of processing units

in nearby areas, increase in demand of cut flowers

etc.

Preparation of land- This is the first practical

step in farming. This involves a lot of time,

energy and labour and is one of the costliest step

in farming. The purpose of land preparation is to

provide the necessary soil conditions which will

enhance the successful establishment of the crop.

Apart from normal tillage, this process may also

include:

i. bush clearing;

ii. removal of stones and rocks;

iii. levelling of the field iv. installation of irrigation and drainage systems

There is an increasing trend of use of modern

implements, some of which are named below:

Tractor / Two-wheel tractor

Tracked tractor / Caterpillar tractor

Cultivator (of two main variations)

Dragged teeth (also called shanks) that pierce the

soil.

Rotary motion of disks or teeth.

Chisel plow

Harrow Plow or plough {various specialized

types}

Stone / Rock / Debris removal implement

(e.g. Destoner, Rock windrower/ rock rake, Stone

picker / picker)

Subsoiler

Rotator

Roller

Strip till toolbar

Use of these implements is helpful in saving

labour, time and also overall cost of cultivation.

Recently, there has been an emphasis on the use of

zero till seed drills and some other implements which

are used for reduced tillage or minimum tillage

operations.

Sowing of seeds- once the land is prepared, sowing starts. Sowing is the process of

planting seeds. Hand sowing or (planting) is the

process of casting handfuls of seed over prepared

ground. Usually, a drag, a swan-neck hoe

or harrow is employed to incorporate the seed into

the soil. Though labour-intensive, this method is

still used in some situations. Practice is required

to sow evenly and at the desired rate. The

following implements are now becoming popular

among the farmers:

Planter (farm implement)

Plastic mulch layer

Potato planter

Broadcast Seeder

* Assistant Professor, Department of Agricultural Economics, BHU, Varanasi

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Seed drill

Air seeder

Precision drill

Transplanter (e.g. Rice transplanter)

Irrigation- Irrigation means the action of applying water to land in order to supply crops

and other plants with necessary water. Irrigation

is done mainly to assist the growth of agricultural

crops and maintenance of landscapes in dry areas

and during periods of inadequate rainfall.

Additionally, irrigation also has a few other uses

in crop production, which include protecting

plants against frost, suppressing weed growth in

grain fields preventing soil consolidation.

Sometimes nutrients may be applied via irrigation

as well. Irrigation represents 92% of the consumption of water and by 2025, the capacity

will probably touch the figure of 1,050 km2, with

the equilibrium justifying both household and

industrial usage. Emphasis these days is in

adoption of such irrigation systems which saves

water. Some of the irrigation systems are named

below:

Center pivot irrigation

Drip irrigation

Hydroponics

Microjet System

Fertilization- Fertilization is defined as nutrient-

containing materials, called fertilizers, generally

into the soil in proximity to receptor plants.

However, some are added to water, or to air, or

applied as foliar spray. In agriculture, Fertilizer is

a substance added to soil to improve plants'

growth and yield. First used by ancient farmers,

fertilizer technology developed significantly as

the chemical needs of growing plants were

discovered. Modern synthetic fertilizers are

composed mainly of nitrogen, phosphorous, and potassium compounds with secondary micro

nutrients added. The use of synthetic fertilizers

has significantly improved the quality and

quantity of the food available today, although

their long-term use is debated by

environmentalists. Some of the equipments used

for fertilization are mentioned below:

Fertilizer spreader

Terragator

Liquid manure/slurry spreader (slurry tanker)

Manure spreader

Sprayer

Slurry agitator

Pest and Disease control- Wherever agriculture

takes place, pests have attacked the crop. Pest

here includes animals (mostly insects), fungi,

plants, bacteria, and viruses. Various chemicals

are used to make sure that the crop is free from

pests and diseases. The focus these days is to

promote use of integrated pest control methods or

biological control of the pests. These technologies

reduce the use of chemicals and fertilizers. Also

the plant breeders are concentrating on the

development of high yielding crop varieties which are disease resistant.

Harvesting- In agriculture, harvesting is the

process of gathering mature crops from the fields.

It includes cutting of grain or pulse for harvest,

typically using a scythe, sickle, or reaper. The

harvest marks the end of the growing season for a

particular crop. Harvesting in general usage

includes an immediate post-harvest handling, all

of the actions taken immediately after removing

the crop—cooling, sorting, cleaning, packing—up

to the point of further on-farm processing, or shipping to the wholesale or consumer market.

Grading and Packaging- It is the final step of

the agricultural process. Grading refers to the

process of classification of products into different

categories on the basis of quality, size etc.

Grading is done in agricultural products-fruits and

vegetables. Graded products are of uniform

quality and it becomes easy to market.

Packaging- Packaging of agricultural produce

can be defined as wrapping or containing it in some form of material that will protect it during

storage, transport and distribution. Packaging

prevents food from getting damaged due to

external factors like insects and micro-organisms,

moisture, air or odours. An attractive packaging

may surely attract the customer and get some

extra profit.

Weight sorter

Color sorter

Blemish sorter

Diameter sorter

Shape sorter

Density Sorter

Internal/taste sorter

SOME OTHER TECHNOLOGICAL AND

POLICY ADVANCEMENTS

(A) USE OF COMPUTERS IN AGRICULTURE

AND E-AGRICULTURE

The process of agriculture includes selection of crop,

Preparation of land, Sowing of seeds, Irrigation, Fertilization, Pest and Disease control, Harvesting,

Grading and Packaging. All concerned persons need

the information and knowledge about these phases to

manage them efficiently. Here the role of computer

comes in the picture. Computers and their applications

have changed the face of most traditional practices of

agriculture.

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Since the farmers need to take actions and he lacks in

capital and other resources so the information becomes

the only base on which the critical decisions can be

made-

Computers are used for record-keeping,

predicting weather conditions, generating information related to costs involved in

production, transport, agricultural processes, and

calculation of profit and/or loss.

The Internet enables communication between

farmers and agriculture experts. This leads to an

exchange of knowledge and serves as guidance

for farmers to improve production and earn

profits.

Use of technology reduces human labour but

significantly increases output.

Automatic tractors, fertilizers sprayers having

computers are present in the market. Farmers can easily adjust the amount of fertilizers according to

the requirements of soil and crops.

E-Agriculture is an emerging field focusing on the

enhancement of agricultural and rural development

through updated information and communication

processes. Focusing on agriculture, E-Agriculture

includes the conceptualization, design, development,

evaluation and application of innovative ways to use

information and communication technologies (IT) in

the rural areas.

Use of Internet in Agriculture (Agri Portals)

The following are the links of a few agri portals which

provide continuous help to the farmers:

Agriwatch.com

Echoupal

Agmarknet

www.indiaagristat.com

(ISAP) Indian society of Agribusiness

Professional www.isapindia.org

Food Corporation of India www.fciweb.nic.in

http://agricoop.nic.in http://www.apeda.com

http://fert.nic.in

http://mofpi.nic.in

http://dackkms.gov.in/KKMS/homepage.do Kisan

Call Center

ITC Limited www.itcportal.com

(B) INITIATIVES TAKEN BY GOVERNMENT

The Indian Council of Agricultural Research (ICAR) is

the principal authority in farming and ancillary

industries, which comprise learning and research. This council facilitated the establishment of a network of

agricultural research institutes and agricultural

universities throughout the country. ICAR had started

coordinated research projects which revolutionised the

agriculture. They had a key role in the studies and

explorations that resulted in the Green Revolution in

the decade of the 1970s.

The Government of India has been trying its level best

to increase investment or outlay in merchandizing and

commercializing agriculture. Some of the known plans

and strategies of the Indian Government include the

following:

Market Research and Information Network Construction of Rural Godowns

Grading and Standardization

Development/Strengthening of Agricultural

Marketing Infrastructure

Table-1

India ranks first in terms of production of

following items

Anise

Fresh fruit

Badian

Fennel

Tropical fresh

fruit Coriander

Pigeon peas

Jute

Spices

Pulses

Castor oil

seed

Millets

Safflower

seeds Buffalo milk

Guavas

Turmeric

Goat milk

Mangoes

Sesame seeds

Limes

Lemons

Dry chillies and

peppers

Cow's milk Cashew nuts

Chickpeas

Ginger

Okra

India ranks second in terms of production of

following items

Cabbages

Cashews

Fresh vegetables

Cotton seed and

lint

Brinjal Garlic

Silk

Potatoes

Goat meat

Cardamom

Wheat

Squashes

Inland fish

Cauliflowers Green peas

Pumpkins

Onions

Sugarcane

Rice

Dry beans

Lentil

Tea Groundnut

Gourds

India ranks third in terms of production of

following items

Sorghum

Tobacco

Coconuts

Hen's eggs

Rapeseed

Tomatoes

Tobacco

The Government of India has established Farmers

Commission to fully assess the cultivation plan.

Nonetheless, the suggestions received varied

responses.

There are 600+ ICAR governed Krishi Vigyan

Kendra (KVK) functioning in India. These KVK‘s are

often called ―Clinic for Crops‖ as they provide

solutions to the farmers. Every State Agriculture

University is involved in running KVK‘s so the

updated technology is provided to the farmers.

The major objectives of KVK‘s are:

To promptly demonstrate the latest agricultural

technologies to the farmers as well as extension

workers of State Departments of Agriculture

/Horticulture/ Fishery/ Animal Science/ NGOs

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with a view to reduce the time lag between the

technology generation and its adoption.

To test and verify the technologies in the socio-

economic conditions of the farmers with a view to

study the production constraints and to modify the

technologies & making them appropriate. To impart trainings to the practising farmers/ farm

women, rural youth and field level extension

functionaries by following the methods of

―Teaching by doing‖ and ―Learning by doing‘.

SCENARIO OF AGRICULTURE IN INDIA

At present, in terms of agricultural production, the

country holds the second position all over the world. In

2007, agriculture and other associated industries such

as lumbering and forestry represented around 16.6% of

the gross domestic product of the country. The sector

recruited about 52% of the entire manpower. The following states in India are the most developed states

in terms of agricultural contribution:

Punjab

Uttar Pradesh

Madhya Pradesh

Haryana

Bihar

Andhra Pradesh

Maharashtra

West Bengal

The total arable territory in India is 1,269,219 km2,

which represents about 56.78% of the overall land zone

of the country. The percentage of land under

agriculture is decreasing due to increase in population

and resulting shift of land use in urbanization.

The overall water surface area of the country is 31440

km2 and the country experiences a mean yearly

precipitation of 1,100 mm. Total production of food

grains, vegetables, fruits and animal products have

registered phenomenal increase since independence primarily due to adoption of advanced technologies. It

is evident from Table-1 that India ranks among the top

three producers in various agricultural products.

CONCLUSION

Agriculture has been the major recruiter of manpower

in India (52.1%) and there is a wide scope of

development. The Government has an important role to

play. The five-year plan (Panchabarshiki Parikalpana)

was an admirable step and repetition of such kind of

steps is required. Central government bodies and State

government bodies are doing a fantastic job but until and unless the mass is unable to utilize it, the efforts

are going in vain.

The result of modernization is reflected as India now

finds itself among the top ranks in the world when it

comes to agricultural production.

REFERENCES

1. http://www.mapsofindia.com/indiaagriculture/

2. http://jaskarankullar.blogspot.in/2013/06/14-jan-

2013-computer-in-agriculture_25.html

3. http://en.wikipedia.org/wiki/ICT_in_agriculture 4. http://in.answers.yahoo.com/question/index?qid=

20090609021810AAMUV4I

http://www.buzzle.com/articles/uses-of-

computers-in-agriculture.html

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CROSS-BORDER CAPITAL FLOWS- FUTURE PROSPECTS OF INDIA

Subasish Mohanty *

ABSTRACT Ever since the adoption of the Liberalisation, Privatisation and Globalisation (LPG) policy by the Government of India, our national economy has gone a long way further. India is now being considered as one of the emerging super powers and a prospective market leader of near future. Various foreign investors had shown faith in Indian concerns in the earlier phase of

investment. But over the years, their faith went diminishing as FDI inflows reduced consistently. Now, the recent trend shows that rather investing directly, they prefer to put their money in the route of Foreign Institutional Investments. This route is relatively safer and enables them to withdraw money in case of any adversity. The basic reason behind FIIs is the lack of faith or trust on the Government of India due to its faulty policies and highly volatile political fluctuations. This adverse situation has made India to slip to 14th rank in attracting FDI worldwide from a commanding position of 8th rank in 2009. A study has been made to figure out the quantum of FDI inflows during past 10 years and a special focus is being given from the period 2008 to 2014. After analysing the data, some suggestions and recommendations have been drawn. This piece of work may help the policy makers to identify the loopholes in FDI sector and help in taking adequate and appropriate policies. This will enable the reader to figure out the current scenario of Foreign Investments in India and its future

opportunities.

The World‘s capital markets were undergoing

tremendous expansion. Between 1980 and 2007, the volume of global capital flows increased dramatically

the free flow of capitals is the life blood of sustainable

economic growth and expanding prosperity therefore it

is the duty of a nation to facilitate and safeguard the

flow of capital across borders. Between 2002 and 2007,

the number of listed companies on the Nasdaq stock

market and New-York Stock Exchange (NYSE)

dropped by 16% and 3% respectively, while the Asian

markets increased significantly, with India growing

47%. South -Korea 157% and Singapore 62%. A

similar upward movement has been observed with regard to market capitalisation of the World‘s stock

exchanges. Between 2003 and 2008, the Nasdaq and

NYSE decreased by 16% and 19% respectively, while

the Asian market enjoyed significant increases. India

surged 132%, Shanghai 296%, and Hong Kong 86%.

Since the introduction of reform process in the

early 1990s, India has witnessed a significant increase

in capital inflows- in the form of foreign direct

investment, foreign portfolio investment, external

commercial borrowing and non resident Indians‘

inward remittances. The size of net capital inflows to

India rose from $7.1 billion in 1990-91 to $108 billion in 2007-08. Today, India has one of the highest net

capital inflows among the emerging market economies

of Asia.

TYPES OF FOREIGN INVESTMENT

Broadly there are two types of foreign investment,

namely, foreign Direct Investment (FDI) and Portfolio

Investment. FDI refers to investment in foreign country

where the investor retains control over the investment.

It typically takes the form of a starting a subsidiary,

acquiring a stake in an existing firm or starting a joint venture in the foreign country. Direct policy, industrial

and economic prospects etc. influence the FDI

decision. Portfolio investments are generally much

more sensitive than FDIs. Direct investors have direct

responsibility with the promotion and management of

the enterprise. Portfolio investors do not have such direct involvement with the promotion and

management.

Since the economic liberalisation of 1991, there has

been a surge in the FDI and portfolio investments in

India. There are mainly two routes of portfolio

investments in India, viz, by Foreign Institutional

Investors (FIIs) like mutual funds and through Global

Depository Receipts (GDRs), American Depository

Receipts (ADRs) and Foreign Currency Convertible

Bonds (FCCBs). GDRs/ADRs, and FCCBs are instruments issued by Indian companies in the foreign

markets for mobilising foreign capital by facilitating

portfolio investment by foreigners in Indian securities.

Since 1992, Indian companies, satisfying certain

conditions, are allowed to access foreign capital

markets by Euro issues.

BENEFITS OF FDI FDI comes with benefits for both the investor and the

economy where the investment is made. For the

investor, this could be a chance to tap markets where

he could make profits. The investors are wooed with techniques such as tax breaks, easier regulations, low

interest rate on loans and so on. For the company, FDI

has provided a much needed push in terms of injecting

liquidity apart from bringing in better technology,

creating more job opportunities and so on.

REGULATIONS ON FDI The government has laid down rules both on the basis

of the sector as well as the nature of activity that is

meant to be undertaken with the FDI. For instance, FDI

in an actively like mining for diamonds and precious stones does not require prior permission. A notification

simply needs to be sent to RBI within 30 days of

receiving the remittances and documents needs to be

submitted in a period of 30 days after the shares are

* Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi- 221005

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issued to the foreign investor. However, in certain

other sectors like broadcasting, the proposal needs to

be sent and approved by the Foreign Investment

Promotion Board (FIPB). There are also restrictions on

the amount of foreign investment in particular sector

and in certain cases, this is inclusive of both FDI and FII investment.

FACTORS AFFECTING INTERNATIONAL

INVESTMENT The following factors are affecting the international

investment;

1. Rate of Interest

One of the most important incentives to international

capital movements is the difference in the interest rate

prevailing at different places. Capital has a tendency to

move from a country with a low rate of interest to a

country where it is higher, other things being equal.

2. Speculation

Short term capital movements may be influenced also

by speculation pertaining to anticipated changes in the

interest rates or foreign exchange rates.

3. Profitability

Private foreign capital movement is influenced by the

profit motive. Hence, other things being equal, private

capital will be attracted to countries where the return

on investment is comparatively higher.

4. Costs of production

Private capital movements are encouraged by lower

costs of production in foreign countries. We may

distinguish between two steps of cost reducing

investment. The first arises from the need to obtain raw

materials from abroad. Such materials may be either

unavailable at home or obtainable only at extremely

high costs, but they are essential for the production and

sale of final products at home or abroad. Without them

profit opportunities would remain unexploited. Indeed,

vast investments in the extractive industries are motivated by the fact that the capital must go where the

resources are. The second type of cost- reducing

investment pertains to cost of commodities other than

materials, primary labour.

5. Economic Conditions

Economic conditions, particularly the market potential

and infrastructural facilities, influence private foreign

investment. The size of the population and the income

level of a country have an important bearing on the

market opportunities.

6. Government Policies

Government policies, particularly towards foreign

investment, foreign collaboration, remittances, profits,

taxation, foreign exchange controls, tariffs, and

monetary, fiscal and other incentives, are important

factors that may influence the foreign investment in a

country.

7. Political Factors

Political factors like political stability, nature of

important political parties and relations with other

countries also influence the capital investments.

Table- 1

Sectors Attracted Highest FDI equity inflows

(US $ Million)

Sector 2004-

05

2005-

06

2006-

07

2007-

08

Apr2000-

feb08*

%

Total

inflows

Service 444 543 664 5492 11934 22.42

Computer

software &

Hardware

539 1375 2614 373 7241 14.03

Telecom. 125 624 478 1198 3778 07.23

Construction

(Including

roads &

Highways)

152 151 985 527 2947 05.49

Housing &

real-estate 0 38 467 792 2324 04.21

Automobile 122 143 276 553 2115 04.10

Power 53 87 157 503 1741 03.40

Metallurgical 182 147 173 971 1557 02.86

Chemicals

(Other than

fertilisers)

198 390 205 216 1373 02.67

Drugs &

Pharma. 292 172 215 334 1276 02.46

Source: Economic Times, Dt: 30.04.2008

*Cumulative Sector wise inflows

Important factors that have contributed materially to

India‘s economic growth and its ability to attract

foreign capital include the following;

1. Corporate governance has a significant effect on

inward FDI flows, suggesting host country

governments and authorities should shape policy

in this area to maximise such flows. The impact

of transparency in corporate governance on FDI and firm performance is well documented.

2. In the early part of 1990‘s the government of

India abolished the import licensing policy for

which a free trade regime was found as a result of

which many small business firms have ventured

to make stride negotiations with the foreign

countries.

3. After reformation there were significant changes

which have been noticed in the area of tariff and

customs duty structure. The custom duty structure

has come down from 400% to less than 25% on an average.

4. Convertibility of the Country‘s current account,

allowing greater availability of foreign exchange

into and out of the country to meet business

requirements.

Ever since the adoption of LPG policy by the

Government of India, we have come a long way

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further. India is now being treated as one of the

prospective super power of the entire globe. Our

economy showed a steady growth and there was a

phase when our national economy was compared with

big guns like The United States of America, European

Unions and China.

Over the years, different new sectors have been

emerged and FDI is being allocated to those new

sectors now a days. The following table shows the

recent pattern of allocation of FDI in different sectors.

TABLE- 2

Sector/ Industry wise FDI Inflows to India

(In US $ Million)

Industry 2008-

09

2009-

10

2010-

11

2011-

12

2012-

13(P)

Manufacture 4777 5143 4793 9337 6528

Construction 2237 3516 1599 2634 1319

Financial

Services 4430 2206 1353 2603 2760

Real Estate

Activities 1886 2191 444 340 197

Electricity &

Other Energy

Sector

669 1877 1338 1395 1653

Communication

Services 2067 1852 1228 1458 92

Business

Services 643 1554 569 1590 643

Miscellaneous

Services 1458 888 509 801 552

Computer services

1647 866 843 736 247

Restaurants and

Hotels 343 671 218 870 3129

Retail &

Wholesale Trade 294 536 391 567 551

Mining 105 268 592 204 69

Transport 401 220 344 410 213

Trading 400 198 156 06 140

Education,

Research &

Development

243 91 56 103 150

Others 1097 384 506 419 43

Total 22697 22461 14939 23473 18286

Source: Compiled from Annual reports of RBI,2012-13

(P) - Provisional

The recent trends show a relatively negative

performance in the FDI sector. More foreign players

are no more interested in putting their money in Indian

firms; rather, they want to grab the Indian market by investing in institutional mode. Reasons like political

fluctuation, reduction in the value of rupee ultimately

shattered the FDI inflow in recent years.

Graphical Representation of Total FDI Inflows of

Different Years (US $ Million)

TABLE- 3

Trends in Foreign Investment Inflows

(US $ Billions)

(India Slips from 8th

to 14th

Rank)

Rank

(According

to 2010)

Country 2009

Inflows

2010

Inflows

1 United

States 153 228

2 China 95 106

3 Hong Kong 52 69

4 Belgium 24 62

5 Brazil 26 48

6 Germany 38 46

7 United

Kingdom 71 45

8 Russian

Federation 36 41

9 Singapore 15 39

10 France 34 34

11 Australia 26 32

12 Saudi

Arabia 32 28

13 Ireland 26 26

14 India 36 25

Source: The Economic Times, 30th July, 2011

The above table shows the disastrous performance of

Indian players in attracting foreign capital. The global

ranking of attracting foreign capital for India has

already slipped down to 14 from 8th rank in the year

2009. This scenario shows that the foreign investors are

losing their faith on Indian economy, which is,

obviously a negative sign for our economy.

If we try to analyse the table 4, we will find that the

FDI inflow has steadily fallen from 2008. Those

declining FDI Inflows areas are marked with gray

shade. Barring 2011-12, all other years witnessed a consistent fall in the FDI inflow. 2008-09 remained a

bad year for Foreign Institutional Investors as well. A

heavy quantum of investment was withdrawn from

Indian market during this one year phase. After that,

things got opposite ways and FIIs started to reinvest in

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Indian markets. Now the current position of declining

FDI and consistent FII implies that probably such

foreign investors are losing faith on Indian market as

they are not investing in Indian ventures; rather, they

prefer to play in institutional mode.

TABLE- 4

Sluggish Foreign Investment Scenario

(FDI & FII Inflows)

FY

(Apr-Mar)

FDI Inflows to India FIIs in

India Total FDI Growth (%)

2000-01 4029 -- 1847

2001-02 6130 (+) 52 1505

2002-03 5035 (-) 18 377

2003-04 4322 (-) 14 10918

2004-05 6051 (+) 40 8686

2005-06 8961 (+) 48 9926

2006-07 22826 (+) 146 3225

2007-08 34843 (+) 53 20328

2008-09 22697 (-) 35 (-) 15017

2009-10 22461 (-) 1 29048

2010-11 14939 (-) 34 29422

2011-12 23473 (+) 57 16812

2012-13 (P) 18286 (-) 22 27583

2013-14 (P) 12988 (-) 29 NA

Source: The Economic Times, 12th Nov, 2013 and RBI

Annual Report, 2012-13.(P)- Provisional

Although the above mentioned period of 2008 to 2014

encouraged the flow of FIIs, still we have to look for

some other areas and, if proper steps will be taken at

the right time, we can attract further additional foreign

capital for the development of our country. In this

context the following suggestions and recommendations may have some role to play:

RECOMMENDATIONS AND POLICY

IMPLICATIONS

1. Now it has been noticed that retail sector is

expanding tremendously. Similarly, due to the

advent of the private insurance companies there is

a better hope that the sector will grow further in

future. Now it is necessary to liberalise the

investment norms so that more funds can be

obtained from the foreign countries by way of Foreign Direct Investment.

2. An easy process towards the convertibility of

country‘s capital account should be accepted so

that it will facilitate easy flow of foreign capital

into and out of the country.

3. No doubt, due to reformation of the financial

sector we are enjoying a stable economy still than

in certain regions the required financial literacy

has not proved to be very much effective for

which it is now necessary to take up the matter

seriously and it is necessary to push ahead the

financial sector reform and enhance India‘s role as a major hub for global finance.

4. In order to increase the import and export trade

there is an urgent need to issue licence for the

establishment of SEZs in our country. To develop

a giant industrial base in our country attempt

should be made to have a simplified land reform

policy. The applications which are kept pending for the approval of the SEZs should be made clear

earlier to facilitate the SEZs to work earlier.

5. Reformation in the educational sector needs to be

made on an urgent basis. More emphasis is to be

given towards the vocational education system

and the course curriculum should be updated

taking the present needs of the society. Skill

development will broaden the participation in

India‘s growth.

6. It is necessary to build on changes in tax policy,

industrial policy and general economic policy by

further reducing redtapism and bureaucratic hurdles that remain an important concern that

discourages foreign investment.

7. It is necessary to enhance innovative technologies

and strengthen intellectual property protection in

India. An international accounting standard

should be put into practice in order to bring more

transparency in the valuation of the business

entities located in foreign countries.

8. Now India is having a satisfactory level of foreign

exchange reserves which will no doubt stimulate

trade and commerce for the future. Further additional reserve of foreign exchange will

improve the absorption of capital inflows in the

short run and to develop foreign exchange earning

capacity that will enable an appropriate return on

invested capital.

CONCLUSION India has differentiated itself as a dynamic recipient

and source of global capital. India‘s prospects are

brighter now and in future it will remain as the leading

master in cross boarder capital flows. Investment Guru

Marc Faber remarked ―Asia will be the economic hotspot for the next 50 years‖. India and China have

prominently figured in the famous ‗BRICS 2050‘as

reported by Goldman Sachs. Previously, often

Question was asked by the foreigners before investing

―why India?‖ now a days, fund managers have replaced

the word and using ―How much in India?‖

REFERENCES

1. Shukla, R.; (2013) ―The necessity and Rationality

behind FDI‖, The Economic Times, 22 June,

2013 Lucknow Edition. 2. RBI Annual Report;, (2012-13) The reserve Bank

of India, Mumbai

3. Rajan, R.; ―Moving towards FDI- Role of

Regulators‖, Yojana, Sep, 2013 Issue.

4. Various Issues of ―The Economic Times‖

Newspaper.

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AN EFFICACY OF THE DOHA DEVELOPMENT ROUND AND

IT’S IMPLICATIONS FOR THE DEVELOPING COUNTRIES

S.K Tannan *

Md. Athar Ali **

Panna Lal ***

ABSTRACT The Doha Development Agenda, launched with much fanfare in December 2001 with a strong resolve to focus on development, has not made much progress since talks collapsed in December 2008 over the treatment of agricultural subsidies and tariff reduction. The previous two WTO Ministerial Conferences held at Geneva in 2009 and 2011 failed to break the logjam.Unlike the previous two ministerial meetings, WTO members have now pinned greater hope on the next WTO Ministerial Conference at Bali, Indonesia. There is a near consensus among the members that Bali Meeting should be about deliverables. The three areas on which they have zeroed in on to bridge the gaps are trade facilitation, food security and development dimension. While trade facilitation is pushed hard by the developed Nations, the G33 groups of Nations have put forward the proposal on food security. The third element is development, which includes LDC (Least Developed

Countries) specific issues-namely duty and quota free market access, operationalization of waiver on services, cotton and preferential rules of origin. The failure to conclude the Doha Round after more than a Decade of negotiations has had its biggest fallouts on the private sector and other key stakeholders. There has been growing disillusionment about the utility of the multilateral trading system. It has been observed that in recent years, the private sector in both developed and developing countries has shown greater preference for the free trade agreements. This is perhaps one of the key factors why WTO members are struggling to amass political capital to conclude the Doha deal.Consensus over three key deliverables and a strong political message emanating from G20 leaders at St Petersburg has enthused Indian Industry. The time has come to change our mindset so that we can collectively reach a consensus without compromising on the developmental aspects which has been the core of the

Doha Round.

DOHA DECLARATION The fourth Ministerial meeting of WTO was held in Doha, Qatar in November, 2001 in which Ministers

from the 142 member countries participated. This

Ministerial meeting had attracted a lot of attention

because of the conflict of interests of the developed

and developing countries. The developed countries

wanted a new round of Multilateral Trade Negotiations

to be launched soon, covering what are known as

Singapore Issues (a list of seven items :) which were

proposed at the Ministerial Meeting in Singapore in

1996 for future negotiations. The seven items included:

1. Investment,

2. Competition Policy, 3. Trade Facilitation,

4. Transparency in Government Procurement,

5. Environment

6. Agriculture, and

7. Trade Related Aspects of Intellectual Property

Rights (TRIPs).

Developing countries, on the other hand, held that the

Implementation Issues should be resolved before a

New Round. India had fought almost single-handedly

against the developed countries. The Doha Meet concluded by drawing up the ―Doha Development

Agenda‖ for new trade liberalization talks; with India

approving the Ministerial Declaration only after it was

satisfied that the Conference Chairman‘s Statements

had addressed the country‘s concerns in the four

Singapore Issues:

1. Foreign investment,

2. Competition policies, 3. Transparency in Government Procurement and

4. Trade Facilitation

The Agenda agreed upon should be seen as a game

plan for negotiations over the next few years. The

Doha Development Agenda includes:

Cutting tariffs on Industrial goods and services

Phasing out subsidies to agricultural producers

Reducing barriers to cross-border investment

Limiting the use of anti-dumping laws

The Doha Ministerial adopted three major declarations:

1. On the Negotiating Agenda for the new WTO

Round.

2. On implementation concerns of the developing

countries for assisting such countries implementing

the trade rules that came out of the Uruguay Round.

3. On the political statement dealing with Patents and

Public Health.

One of the remarkable achievements of the Doha

Ministerial for developing countries was that in the

case of TRIPs and Public Health, it allowed compulsory licensing which would allow companies

within the developing countries to produce generic

versions of patented drugs, if the situation was serious

enough. Now it will be possible for the developing

countries to set aside the patent laws if they have to

*Professor and HOD, Alabbar School of Management, Raffles University, Neemrana , Rajasthan

**Professor, Alabbar school of Management, Raffles University, Neemrana, Rajasthan.

***Assistant Professor, PGDAV (EVE) College, University of Delhi

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face the epidemics such as Malaria, Tuberculosis, and

AIDS. Each country has been given the freedom to

define a National Emergency. Doha Declaration on

TRIPs and Public Health was a milestone that

recognized that Intellectual Property Rights were

subservient to public health concerns. It clearly stated that TRIPs Agreement does not, and should not prevent

members from taking measures to protect public

health.

In Agriculture, it was concluded by all the countries

that subsidies need to be reduced and should ultimately

be phased out. However, in the case of food security

concerns, exceptions were permitted. All forms of

export subsidies will be phased out. This is a big

problem for the developed countries which have been

providing mounting subsidies. The success or failure of

the interests of the developing countries will depend on to what extent India can muster the support of the other

developing countries to fight for their common cause.

OBJECTIVES OF DOHA DEVELOPMENT

ROUND The main objective of the Doha Development Round

or Doha Development Agenda (Current Trade

Negotiation Round of the World Trade Organization

which commenced in November 2001) was to lower

the trade barriers around the world to enable the

countries to increase their trade globally. However, talks have been stalled over a divide on major issues

such as Agriculture, Industrial tariff and non-tariff

barriers, services and trade remedies.

The most significant differences are between the

developed nations (led by the European Union (EU),

the United States (USA), and Japan) and the major

developing countries (led and represented mainly by

India, Brazil, China and South Africa). The U.S wants

China, India, Brazil and South Africa, who are often

referred to as emerging countries, to undertake

commitments in market access and rules that are far in excess of what the Doha mandate stipulate.

Indeed the U.S stance also finds resonance with the

positions adopted by WTO‘s Director General Pascal

Lamy. In his inaugural statement at the Ministerial

meeting held in Geneva on December 15-17, 2009 ,

Lamy said ― You (the Ministers) will need to address

the essential question behind the current impasse;

different views as to what constitutes a fair balance of

rights and obligations within the trading system, among

members with different levels of development‖ There is also considerable contention against and between the

EU and U.S.A over their maintenance of agricultural

subsidies-seen to operate effectively as trade barriers.

CURRENT STATUS OF DOHA DEVELOPMENT

ROUND Doha Round began with a Ministerial level meeting in

Doha, Qatar in 2001. Subsequent meetings took place

in Cancun, Mexico (2003), Hongkong (2005). Related

negotiations took place in Geneva, Switzerland (2004,

2006 and 2008), Paris, France (2005), and Potsdam,

Germany (2007). The further Round of Negotiations

(July 23-29, 2008) in Geneva broke down after failing

to reach a compromise on agricultural import rules.

WTO‘S Eighth Ministerial meeting held in Geneva

during December 15-17, 2009 was also not a success as

it was held primarily for book-keeping. The most

complex set of issues the WTO is currently faced with,

are those it is trying to address through the Doha

Round, which commenced in Doha, Qatar in 2001.

The largest of the disputes has essentially resulted in a

split between developed members, such as the U.S,

Japan and EU, and developing Nations, led by India

and Brazil, over the large agricultural subsidies maintained by the richer nations. At subsequent trade

talks held in Cancun, Mexico, Brazil and its alliance of

developing nations-known as Group of 22-walked out

of negotiations when EU and Japan turned the focus of

the talks to international investment rules and anti-trust

policies without first addressing the issue of farm

subsidy programs.

A year following Cancun, the WTO pronounced U.S

cotton subsidies to be illegal , and the U.S, in

subsequent negotiations, agree to cut farm subsidies for such crops as cotton, corn, rice, wheat, and Soya beans

in order to appease demands made by Brazil and its

allies by 20%. Despite these advances, the Doha

Round‘s effectiveness and WTO‘s ability to handle the

large number of interests and issues presented in it are

still not certain.

Subsequently, intense negotiations took place between

the USA, China and India in the end of 2008 in order

to agree on negotiations modalities. However, these

negotiations did not result in any considerable

progress. Several countries called for negotiations to start again. Brazil and Pascal Lamy, the then Secretary

General, WTO led this process. Luiz Inacio Lula da

Silva, the then President of Brazil called upon several

countries leaders to urge them to renew negotiations.

Lamy visited India to discuss possible solutions to the

impasse.

The declaration at the end of G20 Summit of World

leaders in London in 2009 included a pledge to

complete the Doha Round. In early 2010, Brazil and

Lamy focused on the role of the United States in overcoming the deadlock. The President of Brazil

urged Barrack Obama to end the trade dispute between

the Brazil and the U.S over cotton subsidies following

his increase in tariffs on over 100 U.S goods.

Lamy highlighted the difficulty of obtaining agreement

from the U.S without the President‘s fast track

authority and biennial elections. One of the

consequences of the economic crisis of 2008-2009 was

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RNI – UP/ENG/2011/36701 26 ISSN: 2231-6353

the desire of the political leaders to shelter their

constituents from the increasingly competitive market

experienced during market contractions. Lamy hoped

that drop in trade of 12% in 2009, quoted as the largest

drop since the Second World War, could be countered

by successful conclusion of the Doha Round.

The failure to conclude the Doha Round after more

than a Decade of negotiations has had its biggest

fallouts on the private sector and other key

stakeholders. There has been growing disillusionment

about the utility of the multilateral trading system. It

has been observed that in recent years, the private

sector in both developed and developing countries has

shown greater preference for the free trade agreements.

This is perhaps one of the key factors why WTO

members are struggling to amass political capital to

conclude the Doha deal. Consensus over three key deliverables and a strong political message emanating

from G20 leaders at St Petersburg has enthused Indian

Industry. The time has come to change our mindset. So

that we can collectively reach a consensus without

compromising on the developmental aspects. which

has been the core of the Doha Round.

Unlike the previous ministerial meetings, WTO

members have now pinned greater hope on the next

WTO Ministerial Conference at Bali, Indonesia. There

is a near consensus among the members that Bali Meeting should be about deliverables. The three areas

on which they have zeroed in on to bridge the gaps are

trade facilitation, food security and development

dimension. While trade facilitation is pushed hard by

the developed Nations, the G33 groups of Nations have

put forward the proposal on food security. The third

element is development, which includes LDC (Least

Developed Countries) specific issues-namely duty and

quota free market access, operationalization of waiver

on services, cotton and preferential rules of origin.

ECONOMIC BENEFITS OF THE DOHA ROUND A study by the World Bank Economist Kym Anderson

found that global income could increase by more than

$ 3000 Billion per year, $ 2500 Billion of which would

go to the developing world. Pascal Lamy has

conservatively estimated that the deal would bring an

increase of $ 130 Billion. Several think tanks and

public organizations have assessed that the conclusions

of the trade round would result in a net gain. However,

the restructuring and adjustment costs required to

prevent the collapse of local industries, particularly in

developing countries, is a global concern.

The Copenhagen Consensus, which evaluates solutions

for global problems regarding the Cost-benefit ratio, in

2008 ranked the Doha Development Round as the

second best investment for global welfare. However,

One study presents several scenarios regarding the

economic costs of a failed Doha Round. For example,

in a scenario where the applied tariffs of major

economies would go to currently bound tariff rates,

world trade would decrease by 7.7 %. In a more

modest scenario, where countries would raise tariffs to

maximum rates applied during the past 13 years, world

trade would decrease by 3.2 %.

RESEARCH AREAS 1. A detailed and more accurate analysis of the

impact of trade policies on both developing and

developed countries is required to be undertaken.

2. To devise a new path breaking Model of global

trade as a tool to analyze the potential impacts of

the Negotiations and underlying economic

interests of the WTO‘s diverse members.

3. A more scientific assessment of the Cost-benefit

ratio which pertains to the economic benefits in

adopting the Doha Development Agreement as

well as the restructuring and adjustments costs required to prevent the collapse of the local

industries, particularly in developing countries.

4. The potential costs of the failed Doha Round.

Several studies have been undertaken on this

issue. However, a more comprehensive and

analytical study is required to be undertaken to

address the issue to address the issue in its

prosper perspective.

5. A proper and more scientific analysis has to be

undertaken to know the impact of the highest

applied or bound rates imposed by the countries for the 1995 to 2011.

6. To ascertain the problems faced by the

developing countries for implementation of the

Doha Round and also the technical assistance for

capacity building required by these countries.

7. The outstanding implementation issues in the area

of market access, investment measures, and

safeguards, rules of origin, and subsidies and

countervailing measures, among others.

8. The impact assessment study of the Doha Round

has to be undertaken using the economic

projections made by the various study groups.

REFERENCES

1. WTO‘s Hongkong Conference-I, Imbalanced

Outcome, Published in Economic and Political

Weekly, December 24, 2005

2. PCT System and its impact on the developing

countries, by Mr. Rajiv Ranjan, Ministry of

Commerce and Industry, New Delhi

3. Biotechnology, Intellectual Property Rights and

the Rights of Farmers in Developing Countries by

Emmanuel Ooru Awanku published in the Journal of World Intellectual Property, Volume 8, No 1,

January 2005

4. International Business Law and its Environment

by Schaffer, Earle and Augusti published by

Thomson-South-Western, 2005.

5. National Conference on TRIPS-CBD at the WTO,

Jointly organized by Ministry of Commerce and

Industry and UNCTAD, August 2005

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SELF- HELP GROUPS: AN IMPORTANT TOOL FOR EMPOWERMENT OF WOMEN

Arpita Chaturvedi *

ABSTRACT Women have long been neglected in their role as beneficial in the process of development. In the present day context women empowerment, is crucially important because of the rapid changing scenario. The empowerment of women is one of the central issues in the process of development of countries all over the world. The central and state government of India have

been launched several kinds of women development related programmes. But these progerammes is not working in proper and successful manner due less participation of women. The absence of the role of women in their developing process arises more corruption, exploitation and gender bias Therefore, the active participation of women is very much important in her development and empowerment and also successfulness of government‟s efforts. . SHGs have emerged as the most successful strategy, in the process of participatory development and empowerment of women. It helps to arose self-confidence, women begin to be recognized as an economic entity as an individual in their own right. They get a platform to impress themselves, share their problem and gain social acceptance. In this respect, the above topic has selected to convey the contribution of Self-Help Groups in economic women of empowerment.

INTRODUCTION

The word Empowerment captures the sense of gaining

control over lines of participation and of decision

making. The process of empowerment is both

individual and collective, since it is through

involvement in groups that people most often begins to

develop the awareness and the ability to organize to

take action and bring about change. Women in India

are victims of a multiple socio- economic and cultural

factors. Through women need to be empowered in all

the areas, it is economic independence, which is the most prominent means of the empowerment.

Therefore, enhancing income-earning opportunity is

increasingly viewed as an effective means for

empowering women and improving their status. SHGs

have emerged as the most successful strategy, in the

process of participatory development and

empowerment of women. The Self-Help programmes

in the form of saving and credit or micro-credit

schemes have succeeded in changing the lives of poor

women enhancing the standards of living, particularly

in rural areas. These programmes would increase the levels of income sources, purchasing power, and also

self-esteem. It helps to arose self-confidence, women

begin to be recognized as an economic entity as an

individual in their own right. They get a platform to

impress themselves, share their problem and gain

social acceptance.

METHODOLOGY For the purpose of data analysis, the data pertaining to

providing loans and finance assistance against the

SHGs for the period of 10 years from 2000-01 to 2010-

11 covered. The data relating to Loan and refinance assistance SHG are collected from the Annual Reports

of NABARD, Annual Reports of RBI, and Report on

Status of Microfinance in India published by the

NABARD for various years. The data has been

tabulated and analyzed by exercising simple statistical

techniques like average, percentages, growth and

correlation.

CONCEPT OF SELF-HELP GROUPS

According to Reserve Bank of India, a ―Self-help

group (SHG) is a registered or unregistered group of

micro entrepreneurs having homogeneous social and

economic background, voluntarily coming together to

save small amounts regularly, mutually agree to

contribute to a common fund and to meet their

emergency needs on mutual help basis‖. The group

members use collective wisdom and peer pressure to

ensure proper end-use of credit and timely repayment thereof. In fact, peer pressure has been recognized as

an effective substitute for collaterals. Like the little

drop of water making an ocean, their saving will

slowly grows into large sums and this saving are kept

with the bank. This is the common fund in the name of

the SHGs. The SHGs gives small loans to member

from its common funds. After six month, if the SHGs

satisfy the bank as per the checklist for equality, bank

will give loans to the SHGs. In this context, NABARD

have emerged a linkage pregame between SHGs and

banks.

OBJECTIVES OF SELF-HELP GROUP

The SHGs comprise very poor who do not have access

to get financial assistance from financial institutions.

They act as the forum for the members to provide

space and support to each other on mutual basis. It also

enables the members to learn to cooperate and work in

a group environment. The SHGs provide savings

mechanism, which suits the needs of the members and

provides a cost effective delivery mechanism for small

credit to its members. The SHGs significantly

contribute to the empowerment of poor people. In this process the micro-finance can change the lives of the

poor and it is possible to ensure a reasonable rise in the

income of the poor in various activities. The SHGs are

presently promoted by government, development

banks, voluntary agencies and NGOs, with a focus on

socio-economic issue, mainly thrift and credit

programs.

*Research Scholar, Department of Commerce and Business Administration, University of Allahabad, Allahabad

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They are also taking up issue relating to rural industries

and modernization of agriculture. Generally, the SHGs

are formed by the Development Agencies and NGOs,

which account for over 90 percent of SHGs promoted.

GENESIS OF SELF- HELP GROUPS The SHGs represent a marine grassroots to lend

mobilization of poor rural women into small in formal

associations capable of forming links with formal

system to help access financial and other services

needed for their socio-economic development.

Basically, the SHGs are being promoted as a part of the

micro-finance aimed to help the poor to obtain easily

financial services like saving, credit and insurance.

Micro-finance, which is being promoted widely in the

developing countries, mainly works through bringing

to gather group of the poor. The promotion of SHGs in

India began formally in 1992 with the launch of the SHGs-Bank Linkage programme by NABARD. The

programme main aim was to improve rural poor‘s

access to formal credit system in a cost effective and

sustainable manner by making uses of SHGs. The

SHG- bank linkage programme is targeted to reach the

poorest sections, which are bypassed by the formal

banking system. Therefore, it is essential that only the

very poor be considered as the target group of SHG-

Bank linkage programme. A SHG can be all-women

group, or even a mixed group. However, it has been the

experience that women‘s group perform better in all the important activities of SHGs. The SHGs are

sustainable as member come together due to felt need,

own platform of affinity and commonality of problems.

The SHGs are saving led and act as adhesive and they

are characterized by collective participatory wisdom.

They give doorstep access to micro-finance with near

zero transaction cost and offer interface with banking

network. These SHGs act as platform for women‘s

empowerment in all direction.

RELEVANCE OF SHGS IN RESPECT OF

WOMEN EMPOWERMENT The self-help groups have gained considerable

importance and have been instrumental in

empowerment by enabling women to work together in

collective agency. Women‘s networks to do not usually

obtain business or political favours as the command

few economic resources and frequently rely on time

and non-monetized labour exchange. However, Self-

Help groups, when combine with savings and credit,

have enabled women to benefit economically by

monetizing their contribution consequently it

empowered them to become agents of change in the rural sector in particular. The Self-Help groups have

facilitated the formation of social capital, where people

learn together for a common purpose in a group or

organization (Putnam 2000). Therefore, the relevance

of SHG has emerged in account of the following

reasons:

Access credit facilities: A SHGs works on the

principle of unity, which helps the poor to come

together the pool their saving and access credit

facilities. A SHG by tapping social capital like trust

and reciprocation helps in replacing physical

collateral, a major hurdle faced by the poor in

obtaining formal credit. Then, through principle of

joint liability and peer pressure, a SHG ensures prompt loan recovery from the members.

Empowerment: The SHG is seen as a term

expected to empower the women members. The

participation in SHG and the access the savings and

credit can play transformational role of women,

both socially and economically. The access the

savings and credit helps a women member to take

care of her family‘s financial needs for

consumption and production purposes.

Better Gender Relations: The ability to meet the

needs of their family has enhanced the standing of the women in the family leading to better gender

relations. In many cases women are also considered

in the decision making process of the family. Given

the widespread gender bias against women in

various field of socio-economic development in

countries like India, these are arguments that

intervention like micro-finance has the potential to

enhance women‘s capabilities that can make a

significant difference to overall development of

women.

Social Recognition: The continued participation in

SHG is further likely to enhance the awareness, skill and other abilities of the women resulting in

building in building of individual self-esteem and in

getting due social recognition. While the study

found good evidence to support the role of micro-

finance in increasing women‘s access to financial

services and their ownership of assets within the

household, the evidence was only mixed about the

role of micro-finance in either increasing women‘s

economic activity or increasing women‘s

awareness, mobility and skill development or

enhance women‘s status in the household as income contributors and decision makers.

Self- management: The SHG model often

compared to grameen group model which is largely

a self-managing one. The women members are

expected to manage on their own the affair of the

group and outside agencies. As a result of self –

management not only would women develop their

abilities at individual and group level but also

augment the scope for exercising control and

ownership over financial resources and institutions.

Thus, SHG can potentially contribute towards

women‘s over all development through meeting their practical needs, developing their skill and

abilities and by increasing the scope for their

control over institutions capable of contributing

towards socio-economic development.

Poverty Eradication: The primary role expected

of SHG is one of improving for the poor the access

to saving the credit seems to have enhanced the

independence of the poor women as a result of

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participation in SHGs. The borrowing members of

the SHGs have been able to reduce their reliance on

moneylender very drastically. The members have

not only been able to come out of the control of

these moneylenders but also have been able to save

or generate a sizeable amount of income by way of cheaper interest rate on loans obtained from SHGs.

Further, the families of the members have made

efforts both to guard themselves from various

vulnerabilities as well as build their economic base

so that they are able to escape from poverty.

Economic Activities: SHG members are using

quite significantly loan for their regular economic

activities like animal husbandry, agriculture and

petty business, in the process of trying to both

consolidate and improve the economic situation.

The formation of SHG has not only helped the

women to be women to be socially independent but economically also

Socio-economic Development: apart from the help

to build their own equity, the SHG are helping are

women to leverage the savings for accessing larger

credit. The SHG are utilizing the savings mobilized

to lend small loans internally among their members.

This helps the member to meet their very urgent

consumption and social credit needs which

normally they would borrow from informal sources.

The personal abilities, ownership of economic

assets development of skills, ability to decide about self and extent of participation in political sphere

are likely to improve for the better if the women

member continues to participate in SHG for the

longer period.

Attention from Bank: The SHGs are also able to

borrow from banks to meet the bigger and

productive credit needs of the member. More and

more SHGs are getting credit linked to banks which

is increasing the members‘ access to formal source

of credit. Thus, SHGs have been able to add a new

source from where members can obtain loans which is helping the poor women to build their financial

resources.

Co-relation between WSHGs and Panchayat:

The members can play and important role in

decision making at gram sabhas by influencing,

formulating and implementing programme for the

benefit of women like health, diet, family welfare,

drinking water, family planning etc. they can

understand better their problems, identify them,

give priorities towards its solution. Thus, their

active participation will not only enhance their

status at village level but development of the village and nation.

PROGRESS OF SELF-HELP GROUPS

MOVEMENT

The progress of Self-Help Groups movement in India

so for, has been promising and impressive. The No. of

SHGs over the ten years was recorded as high as

89,64,626. It is observed that poor can organized them

and do things to promote their well-being.

The Table 1 presents the details of the progress of

SHGs in India. It is observed from the table that the

numbers of SHGs are increased from 1, 97,653 in the

year 2001-02 to 89, 64,626 in the year 2010-11. But in

the concern of the growth rate, it show that the

progress is not satisfactory, cumulative progress in

SHGs found decreased trend in year to year. SHGs

growth rate in the year 2001-02 was highest 74.92 among the ten years and with decreasing manner it was

38.31 in 2005-06, 25.67 in 2009-10 and lowest 15.40

in 2010-11. It indicates that the growth rates of the

SHGs are not satisfactory and consistently decreasing

due to various constraints in infrastructure

development and other promotional measures.

The table 2 shows the details of bank finance to SHGs

for the last ten years. It is noticed that the bank loan to

SHGs are gradually increased from Rs. 1026.34 crore

in the year 2001-02 to Rs. 68073.29 crore on the year 2010-11 with annual average of Rs. 23072.95 crore.

However, previously it had been seen that growth rate

was increased significantly but after the year 2001-02 it

has found in decreasing trend. The growth rate was

113.14 in the year 2001-02 and it is found low growth

rate of 27.18 in the year 2010-11 with decreasing rate

year by year. It indicates that the bank loan to SHGs

are not meeting requirement due to lake of sufficient

financial sources.

Table 1. Progress of Self-Help Groups in India

Years No. of

SHGs

Growth

Rates

Cumulative

No of SHGs

Cumul.

Growth

Rates

2001-02 1,97,653 32.61 4,61,478 74.92

2002-03 2,55,882 29.46 7,17,360 55.45

2003-04 3,61,731 41.37 10,79,091 50.43

2004-05 5,39,365 49.11 16,18,456 49.98

2005-06 6,20,109 14.97 22,38,565 38.31

2006-07 11,05,749 78.31 33,44,314 49.40

2007-08 12,27,770 11.04 45,72,084 36.71

2008-09 16,09,586 23.72 61,81,670 35.20

2009-10 15,86,822 -(1.44) 77,68,492 25.67

2010-11 11,96,134 -(32.66) 89,64,626 15.40

Average 8,70,080.1 21.39 36,94,613.6 43.15

Source: Hand Book of Statistics on the Indian

Economy, 2010-11

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Table 2. Progress of Self-Help Groups- Bank Loan with Bank Linkage Programme

Years No. of SHGs Bank Loan

(Rs. Crore)

Bank Loan

Growth

Rates

Cumulative

No of SHGs

Cumulative

Bank Loan

(Rs. Crore)

Cumulative

Bank Loan

Growth Rates

2001-02 1,97,653 545.47 89.47 4,61,478 1026.34 113.43

2002-03 2,55,882 1022.33 87.42 7,17,360 2048.67 99.61

2003-04 3,61,731 1855.53 81.50 10,79,091 3904.20 90.57

2004-05 5,39,365 2994.26 61.37 16,18,456 6898.46 76.69

2005-06 6,20,109 4499.09 50.26 22,38,565 11397.55 65.22

2006-07 11,05,749 6570.34 46.04 33,44,314 17967.89 57.65

2007-08 12,27,770 8849.23 34.68 45,72,084 26817.12 49.25

2008-09 16,09,586 12254.06 38.48 61,81,670 39071.18 45.69

2009-10 15,86,822 14453.65 17.95 77,68,492 53524.83 36.99

2010-11 11,96,134 14548.46 0.66 89,64,626 68073.29 27.18

Average 8,70,080.1 6759.24 50.78 36,94,613.6 23072.95 66.22

Source: Hand Book of Statistics on the Indian Economy, 2010-11

Table 3. Refinance Assistance to SHGs

Years No. of SHGs

Refinance

Assistance

(Rs. Crore)

Refinance

Assistance

Growth

Rates

Cumulative

No of SHGs

Cumulative

Refinance

Assistance

(Rs. Crore)

Cumulative

Refinance

Assistance

Growth Rates

2001-02 1,97,653 395.26 61.43 4,61,478 790.24 100.07

2002-03 2,55,882 622.47 57.48 7,17,360 1412.71 78.77

2003-04 3,61,731 705.44 13.33 10,79,091 2118.15 49.94

2004-05 5,39,365 967.76 37.19 16,18,456 3085.91 45.69

2005-06 6,20,109 1067.72 10.33 22,38,565 4153.63 34.60

2006-07 11,05,749 1293.26 21.12 33,44,314 5446.89 31.14

2007-08 12,27,770 1615.67 24.93 45,72,084 7062.56 29.66

2008-09 16,09,586 2620.48 62.19 61,81,670 9683.04 37.10

2009-10 15,86,822 3173.86 21.11 77,68,492 12856.90 32.78

2010-11 11,96,134 2544.57 19.83 89,64,626 15401.47 19.79

Average 8,70,080.1 1500.65 32.89 36,94,613.6 6201.13 45.95

Source: Hand Book of Statistics on the Indian Economy, 2010-11

The table 3 shows the detail of refinance SHGs. It is observed that the numbers of SHGs are tremendously

increased year by year from 4,61,478 to 89,64,626 with

an annual average of 36,94,613.6. The refinance

assistance to SHGs are also increased from Rs. 790.24

crore in the year 2001-02 to Rs. 15,401.47 in the year

2010-11 with an annual average of Rs. 6201.13 crore

the growth rate of financial assistance is not

satisfactory. The growth rates in prescribed years are found fluctuating nature. The overall performance is

found negative except two year (2008-09 & 2009-10).

It is recorded 100.07 in the year 2001-02 and with

decreasing trend, it established a low growth rate of

17.79 in the year 2010-11. It is noticed that the

refinance assistance to SHGs are increased but it is not

meeting the requirements of increased SHGs. It is

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found the banks are not giving refinance assistance to

SHGs due to improper recycling of funds.

Table 4. Correlation between No. of SHGs and

Bank Loan

Years No. of SHGs Bank Loan (Rs.

Crore)

2001-02 1,97,653 545.47

2002-03 2,55,882 1022.33

2003-04 3,61,731 1855.53

2004-05 5,39,365 2994.26

2005-06 6,20,109 4499.09

2006-07 11,05,749 6570.34

2007-08 12,27,770 8849.23

2008-09 16,09,586 12254.06

2009-10 15,86,822 14453.65

2010-11 11,96,134 14548.46

r = 0.936358

Source: Hand Book of Statistics on the Indian

Economy, 2010-11

Table 5. Correlation between No. of SHGs and

Refinance Assistance

Years

No. of SHGs Refinance

Assistance (Rs.

Crore)

2001-02 1,97,653 395.26

2002-03 2,55,882 622.47

2003-04 3,61,731 705.44

2004-05 5,39,365 967.76

2005-06 6,20,109 1067.72

2006-07 11,05,749 1293.26

2007-08 12,27,770 1615.67

2008-09 16,09,586 2620.48

2009-10 15,86,822 3173.86

2010-11 11,96,134 2544.57

r = 0.930797

Source: Hand Book of Statistics on the Indian

Economy, 2010-11

The table 4 represents the relationship between

numbers of SHGs to bank loans. It is clearly shows that

there is high positive relationship between number of

Self-Help Groups to bank loans (r = 0.936358).

The table 5 represents the relationship between number of SHGs to refinance assistance. It is clearly shows that

there is high positive relationship between number of

Self-Help Groups to refinance assistance (r =

0.930797).

CONCLUSION

The SHGs models for development have gained lot of

importance for empowering the rural women. The

government of India as well as state government

concerned is making hectic efforts in order to promote,

nurture and develop the SHGs with micro-finance

systems as an important tool for women empowerment through various policies, programmes and financial

supports. Though most of Self-Help Groups are

achieving laudable progress, the success rate is not up

to the mark as expected due to various factors. To erase

these constraints there is a need of arising group

liability among members to repay loan properly and

banks should focus to provide loan to more productive

activities. In order to plug the loopholes in the existing

system, the women beneficiaries should be motivated

in right direction towards achievement of success in

their respective economic activities. The members of Self-Help Groups should feel as ―Self-Help is the Best

Help‖ in improving their socio-economic status in the

society. Apart from government supports the rural

people should realize and work together to improve

their living standards which lead to empowerment of

people in all dimension. Women empowerment is a

vital factor for the overall economic development for

the country. Let us hope that all the women would

empower in all respects.

REFERENCES

1. National Council of Applied Economic Research (NCAER) ―Impact and Sustainability of SHG

Bank Linkage Programme‖ NCAER, New Delhi,

India (2008).

2. Nirbachita, Smita and Gundimeda, Haripriya,

―Self Help Group Bank Linkage model and

financial inclusion in India‖ Report of the

committee on Financial Inclusion in India (2008).

3. NABARD‘s Annual Report on Status of

microfinance in India 2006-2012.

4. RBI Report on trend and progress of Banking in

India 2010-12. 5. Development Monthly, ―Role of SHG‘s‖ Vol.50,

Oct (2006).

6. Lalitha, N. and B.S. Nagarajan, ―Self-help Groups

in Rural Development‖ Dominant Publishers and

Distributors, New Delhi, 2002.

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DIRECT CASH TRANSFER SUBSIDY IN INDIA: SUGGESTIONS FOR IMPROVEMENT

Meera Singh*

ABSTRACT Subsidy refers to a transfer of resources by the government to the buyer or seller of a good or service that has the effect of reducing the price paid by the buyers, increasing the price received by the sellers, or reducing the cost of production of the good or service. Many developing economies have recently introduced cash transfer programs, which provide money to poor

families contingent on certain behaviour, usually investments in human capital, such as sending children to school or bringing them to health centres. The Government of India has announced that subsidies on fertilisers, kerosene and liquefied petroleum gas will be replaced by cash transfers to end users. It is a poverty reduction measure in which government subsidies and other benefits are given directly to the poor in cash rather than in the form of subsidies. It can help the government reach out to identified beneficiaries and can plug leakages. Cash transfer can be a good way of helping the poor in many circumstances. Indeed, many schemes that are not directly cash transfer schemes also work mainly through cash transfer, such as the National Rural Employment Guarantee programme, which certainly has helped the poor through creating jobs and generating cash income for many poor people in rural India. This paper tries to examine the proposals to subsidies with cash transfers to the end users. A close examination of the objectives of the cash transfer subsidies is also

furnished in this paper.

INTRODUCTION

In the Union Government spending subsidies on food, petroleum and fertilizer make up for over 90 per cent of

the total subsidies with Food Subsidy accounting for

the highest average share (44 per cent). The average

annual growth rate of the Union Government spending

on subsidies has been about 14 per cent from 2000-01

to 2012-13, with the growth rate during 2006-07 to

2012-13 being higher as compared to the previous

phase of 2000-01 to 2005-06 (due to an overall

increase in food prices as well as higher expenses

towards petroleum subsidy over the last few years).

Cash transfer can be a good way of helping the poor in many circumstances. Indeed, many schemes that are

not directly cash transfer schemes also work mainly

through cash transfer, such as the National Rural

Employment Guarantee programme, which certainly

has helped the poor through creating jobs and

generating cash income for a great many poor people in

rural India. Cash is easy to handle and can be, in many

cases, easily monitored. It cannot be sensible to be

generically against cash transfer schemes, in a country

with a lot of poverty and a commitment to use public

money to make the very poor a bit less poor. The

government of India had implemented the scheme for cash transfer to the beneficiary's account in 51 districts

from January 1, 2013. Electronic Benefit Transfer

(EBT) has already begun on a pilot basis in Andhra

Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu,

West Bengal, Karnataka, Pondicherry and Sikkim. The

government claims the results are encouraging.

CASH TRANSFER SUBSIDY PROGRAM

It is a poverty reduction measure in which government

subsidies and other benefits are given directly to the

poor in cash rather than in the form of subsidies. It can help the government reach out to identified

beneficiaries and can plug leakages. The money is

directly transferred into bank accounts of beneficiaries.

LPG and kerosene subsidies, pension payments,

scholarships and employment guarantee scheme

payments as well as benefits under other government welfare programmes will be made directly to

beneficiaries. Cash Transfers are programs that transfer

cash directly, generally to poor households, with or

without conditions. The purpose of a cash transfer is:

To provide a monetary benefit for a specific

purpose or use- such as for education through a

scholarship, for healthcare through a medical

assistance program, etc.

Direct income support– such as old age income

support through a pension, unemployment

assistance through an unemployment benefit, etc.

This is predicated on the assumption that there is

a need to redistribute income as a public policy

objective. Often, the purpose is to enhance private

consumption levels and achieve a minimum

consumption floor.

To provide a direct subsidy for specific products –

such as for food, fuel, agricultural inputs,

electricity, books, etc.

OBJECTIVES OF THE STUDY

This study is specifically focused on the plans, existing

status and feasibility of cash transfer schemes for energy commodities such as PDS kerosene, LPG and

agricultural Products such as fertilisers.

PRESENT SCHEME OF SUBSIDY IN INDIA

The government in India has been subsidizing crucial

items like food, fuel etc. since Independence. These

subsidies have been very important in the Indian

context where a significant share of the population both

in rural as well as urban areas is not always capable of

affording even the necessary goods and services at the

market prices. Like most medicine, cash transfers are a cure, but not a cure all. Over the years, studies of the

Public Distribution System show that some states

manage supply of in-kind transfers fairly well, while in

* Assistant Professor, Department of Commerce, Udai Pratap Autonomous PG College, Varanasi- 221002

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a large number of cases, the pipeline connecting

citizens to ration supplies is prone to leakage and

corruption. Money at the top, spent by state treasuries

for the distribution system, produces little food or fuel

for PDS beneficiaries at the bottom. The development

of technologies such as biometrics and centralised fund-flow management systems have created new

pipelines through which cash can flow cheaply and

accurately to recipients. Political Parties linking the

scheme directly with the next election, because many

studies have assessed positive impacts of such

schemes, few have looked at their political benefits.

The Union Government spending on subsidies food,

petroleum and fertilizer make up for over 90 per cent of

the total subsidies (as per data from 2000-01 to 2012-

13), with Food Subsidy accounting for the highest

average share (44 per cent). The average annual growth

rate of the Union Government spending on subsidies has been about 14 per cent from 2000-01 to 2012-13,

with the growth rate during 2006-07 to 2012-13 being

higher as compared to the previous phase of 2000-01 to

2005-06 (due to an overall increase in food prices as

well as higher expenses towards petroleum subsidy

over the last few years).

The central government provides subsidies to

commodities such as food, fertilisers, petroleum, and a

few other services.

Kerosene Since 2002-03 the kerosene subsidy has increased more

or less uniformly from INR 4.14 per litre in 2002-03 to

INR 27.26 per litre in 2011-12. According to a

conservation estimate by the Union Oil Ministry, in

2012 as much as 40 per cent of the kerosene supplied

was siphoned off and sold on the black market. It is

then used as furnace oil in industries and even used for

adulteration of diesel and lubricants. The central

government procures and supplies kerosene to the state

governments and Union Territories. Kerosene is one of

the six commodities that are sold through Public Distribution System (PDS) to ration card holders. The

subsidy is provided to participating companies who

supply kerosene for the PDS. The quantity of kerosene

on which subsidy is allowed for each state are limited

to the allocations made by the Ministry of Petroleum

and Natural Gas. Currently, Indian Oil Corporation

Limited, Hindustan Petroleum Corporation Limited,

Bharat Petroleum Corporation Limited and IBP

Company Limited are allowed to supply the kerosene.

LPG

The total subsidy provided to LPG consumers between years 2009-10 and 2012-13, which increased from INR

160.71 billion in 2009-10 to INR 321.34 billion in

2011-12. The provisional figure for April to September

2013 is INR 196.22 billion, which is more than half of

last year‘s subsidy value. In ‗per unit‘ terms, LPG

subsidy increased from INR 200.71 per cylinder in

2009-10 to INR 342.88 per cylinder in 2011-12 and

INR 405.67 per cylinder for the first half (April to

September) of 2012-13. The subsidy is given to four

companies which supply LPG: Indian Oil Corporation

Limited, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited and IBP

Company Limited. The central government also gives a

freight subsidy for supplying kerosene and LPG to

areas such as north-eastern regions, Jammu & Kashmir,

Andaman & Nicobar Islands, Lakshadweep Island.

Total Subsidy on PDS Kerosene and Domestic LPG to Consumers (in INR)

PDS Kerosene per litre Domestic LPG per cylinder

Year

From

Government

Budget

By Public

Sector Oil

Companies

Total

Subsidy

From

Government

Budget

By Public

Sector Oil

Companies

Total

Subsidy

2002-03 2.45 1.69 4.14 67.75 62.27 130.02

2003-04 1.65 3.12 4.77 45.18 89.54 134.72

2004-05 0.82 7.96 8.78 22.58 124.89 147.47

2005-06 0.82 12.10 12.92 22.58 152.46 175.04

2006-07 0.82 15.17 15.99 22.58 156.08 178.66

2007-08 0.82 16.23 17.05 22.58 214.05 236.63

2008-09 0.82 24.06 24.88 22.58 234.88 257.46

2009-10 0.82 14.85 15.67 22.58 178.13 200.71

2010-11 0.82 17.39 18.21 22.58 249.94 272.52

2011-12 0.82 26.44 27.26 22.58 320.30 342.88

2012-13 0.82 31.16 31.98 22.58 427.14 449.72

Source: PPAC, (2013a)

Fertiliser Chemical fertilizers play a significant role in the

development of agriculture sector and successful

management of food security concerns in the country.

The government has been pursuing policy conducive to

increase availability and consumption of fertilizers to

meet the objective of increased productivity and higher

agricultural growth in the country. Fertilizer subsidy

has been one of the important features of the fertilizer

policy of Government of India. The objective of

fertilizer subsidy has been to provide adequate

fertilizers to farmers at affordable prices so as to induce

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consumption. The subsidy has been transferred to the

farmers in the form of subsidized Maximum Retail

Prices (MRPs) of a basket of fertilizer products. The

government provides subsidy for urea, 21 grades of

phosphatic and potash (P&K) fertilisers, and 15 grades

of NPK (nitrogen, phosphorous and potash) complex. Farmers pay 25 to 40 per cent of the actual cost and the

rest is borne by the government in the form of a

subsidy, which is reimbursed to the manufacturers and

importers. In 2010-11, Rs52,840 crore was allocated

for fertiliser subsidy. Presently, urea is mostly

produced domestically while phosphatic and potash

(P&K) fertiliser is imported.

Annual Subsidy Spending on Petroleum Products and Fertilisers (2000-01-2010-11) (Rs. in crore)

Year PDS

Kerosene

Domestic

LPG Petrol Diesel Fertiliser Food

2000-01 7522 6724 0 7522 13811 12010

2001-02 5310 5830 0 5310 12596 17494

2002-03 3018 5760 5225 3018 11015 24176

2003-04 3751 9158 6292 0 11847 25181

2004-05 10627 10146 150 2154 15879 25798

2005-06 15441 11851 2723 12647 18460 23077

2006-07 18853 12255 2027 18776 26222 24014

2007-08 20080 17186 7332 35166 32490 31328

2008-09 29199 19314 5181 52286 75849 43627

2009-10 18321 16071 5151 9279 61264 52490

2010-11 20496 23746 2227 34384 62301 63844

2011-12 (RE) 28215 32134 ... 81192 67199 72823

2012-13 (BE) 30151 41547 ... 92061 60974 75000

Source: Ministry of Finance; Indian Public Finance Statistics: 2012-13

Indian Petroleum & Natural Gas Statistics 2012-13and Union Budget 2012-13

Agriculture Fertiliser promotion and use was one of the key

components of the green revolution package of

inputs and practices, which collectively have been

widely credited for India attaining food grain security through a huge increase in agricultural

production, albeit regionally concentrated. Importantly,

over this time, while fertiliser consumption has

continued to rise substantially, the elasticity of output

with increased fertiliser inputs has been dropping

sharply. While the average crop response to fertiliser

use was around 25 kg of grain per kg of fertiliser

during the 1960s, this fell to only 8 kg of grain per kg

of fertiliser by the late 1990s. Between 2000-01 and

2009-10, while annual fertiliser consumption in India

grew by over 50%, food grain output grew by just 11%. In addition to its impact on soil quality, the most

severe consequence of fertiliser use is on highly

stressed water resources. As India considers its

options regarding the fertiliser subsidy and its

objectives, it is important to fully understand the

effects that the over-use of fertiliser in certain parts

of India have had not only on agriculture and its

sustainability, but on the availability and quality of

water for household and industrial purposes.

DESIRED ELEMENTS OF A SUBSIDY

FRAMEWORK The design and implementation of any Cash Transfer

system has many elements, all of which need to be

addressed for the cash transfer system to operate

smoothly. Once a decision is taken for introducing a

cash transfer system, either for distributive reasons or

for other reasons, it needs to be designed and rolled out

with a lot of planning and advance action. Any

effective subsidy regime has to incorporate the

following elements:

1. Empowerment and choice for beneficiaries-

The subsidy regime today for various products is

designed with the objective of delivering specific

goods and services to pre-defined categories of

citizens. Accordingly, the PDS is intended to deliver

food grains and kerosene to eligible beneficiaries. In

case of the PDS, the consumers have to purchase their

subsidized products from the designated Fair Price

Shops. The direct transfer of subsidy to beneficiaries

makes it possible for the beneficiary to access the

product or service from more than one pre-defined channels and locations. Government distribution

channels can co-exist with private providers in this

subsidy framework and the beneficiary could be

provided a choice. This enhances the delivery of goods

and services for the ultimate beneficiary.

2. Transparency in subsidy administration and

information visibility- An important challenge with improving the

effectiveness of any subsidy program lies in bridging

the information asymmetry. A large section of society

is often unaware of their rights and the welfare services offered by Governments. A direct subsidy transfer

framework facilitates monitoring the subsidy

transactions carried out at different levels. Information

such as the availability of the product, list of

beneficiaries, and details of benefits drawn, among

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other things, provides a powerful reconciliation and

social audit mechanism. Performance of vendors who

are servicing beneficiaries on behalf of the Government

can be routinely published on the Government‘s

website. Civil society organizations, activists,

researchers, analysts, and local residents themselves can use this information to highlight discrepancies and

irregularities in social programs.

3. One price for subsidized goods- The price of subsidized goods should preferably be the

market price, or an administered price that is close to

the market price. This can reduce market distortions

introduced by dual pricing, improve the productivity of

manufacturing and distribution, and reduce the

incentives to pilfer. The subsidy, when directly

transferred to the resident or their family, provides the

Government with a targeting framework that can improve the effectiveness of the subsidy budget.

4. Efficiency in production- Subsidies today are extensively used to incentivize the

production and distribution of certain goods and

services. The direct transfer of subsidies to

beneficiaries helps address such distortions, since the

manufacturers are no longer recipients of subsidies and

can compete in the market. Efficiency in production

will be further encouraged by the absence of

disincentives and uncertainty introduced by subsidies on manufacture.

5. Transfer Mechanism – There is a large back-end infrastructure that is needed

consisting of payment systems, bridges between

different IT systems (of banks, clearing houses,

Aadhaar, etc.), clearing systems, and soon, each of

which has to be linked up with the other to be inter-

operable. Fully electronic service delivery:

There is a high level of user acceptance for electronic

services, largely due to e-recharge for prepaid mobile connections. Like users of prepaid mobile connections,

while appreciating the convenience of e-recharge, and

the choice of locations, also have developed an

expectation of real-time delivery, beneficiaries would

be in a position to accept real time transfer of subsidy

to their accounts.

6. Effective MIS Reporting: MIS modules that provide Governments with data and

reports about the entire supply chain and service

delivery are an important part of the proposed subsidy framework. This would make it possible for

Government to take data-driven decisions and improve

the quality of services.

ADVANTAGES OF DIRECT CASH TRANSFER

PROGRAMMES

Poor families get cash in hand which they can use

according to their needs. In case of cash flow

problem, they may not have to borrow from

money lenders or micro-credit institutions which

charge high interest rates.

Cash transfer programmes reduce dependence on

government functionaries who are mostly not

responsive to the needs of the poor.

If conditions are attached to the cash transfer,

other social goals such as school attendance,

immunisation and registration of births can be

achieved.

Cash transfer programmes eliminate the cost of

managing the public distribution system, and

preventing leakages. According to a Planning

Commission study, the government spends about

Rs 3.65 to transfer Re 1 of food to eligible

recipients under the Public Distribution System.

Cash transfers programmes can be more sharply targeted so that it benefits only the recipients who

are eligible.

Scholarships – Merit, SC, ST and OBC

scholarships, sports scholarships, cultural

scholarships, etc. Many states also operate fee

reimbursement schemes.

Pensions – These include old age pensions,

pensions for destitute, etc. With additional

amounts added by state governments.

DISADVANTAGES OF DIRECT CASH

TRANSFER PROGRAMMES

The main disadvantage if scheme is that, only

Aadhar card holders will get cash transfer. As of

today, only 22 crore out of the 121 crore people

have Aadhar cards. Two other drawbacks are that

most BPL families don't have bank accounts and

several villages don't have any bank branches.

These factors can limit the reach of cash transfer.

Critics fear that poor families may waste the cash

on non-essential items. Also, adult members of a

family may tend to rely on cash handouts rather

than search for gainful employment.

The government may withdraw resources from

schemes which complement the social goals that

the government wants to achieve through

conditional cash transfers.

The success of cash transfer programmes depends

on correctly identifying and targeting

beneficiaries, which is the responsibility of the

central and state governments. According to the

N.C. Saxena committee on BPL Census, about

61% of the eligible population is excluded from

the BPL list.

Cash transfers work only with a well-functioning

private sector system, which may not be available

for a number of services.

If there is a time lag in opening an account in a

bank or post office, to receive the cash transfer

and the subsidised food disappears, will lose

doubly through not having the cash, and through

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RNI – UP/ENG/2011/36701 36 ISSN: 2231-6353

the fact that others will have the cash to buy food

which would keep the food prices high.

PROPOSED SYSTEM OF CASH TRANSFER

Cash transfer of subsidy provides cash directly to a

specific part of the population. Cash can be transferred to the targeted population without stipulating any

conditions. Alternately, cash can be given if the

targeted population meet certain conditions in order to

avail of the cash. The Dhanalakshmi Scheme of the

Ministry of Women and Child Development is an

example of conditional cash transfer where each time

certain conditions are fulfilled for a girl child, the

family gets cash. The conditions include: registration

of the birth, immunisation, and enrolment in a school.

Other programmes which use conditional cash transfer

are Janani Suraksha Yojana and the Balika Samriddhi

Yojana. A third variant is that credit vouchers are provided which can be used to avail of services from

private sector providers. These service providers will

be reimbursed by the government. For example, the

Rashtriya Swasthya Bima Yojana enables persons

below the poverty line to access health benefits from

private hospitals.

RECOMMENDATIONS FOR THE DIRECT

CASH TRANSFER A Task Force on Direct Transfer of Subsidies on

Kerosene, LPG and Fertiliser was constituted under the Chairmanship of Shri Nandan Nilekani, Chairman,

UIDAI to recommend to the Government and

implement a solution for direct transfer of subsidies on

Kerosene, LPG and Fertilizer to the intended

beneficiaries. The recommendations of the Task Force

in its Interim Reports are:

Fertilizer Subsidy: The Task Force has recommended

the direct transfer of fertilizer subsidy in a phased

manner:

Phase I – Focus on Information visibility till the Retailers.

Phase II – Subsidy Payment to the retailers

Phase III – Subsidy Payment to the farmers

(Intended Beneficiaries)

LPG Subsidy: The Task Force has recommended the

direct transfer of subsidy for LPG in a phased manner

as follows:

Phase I - Cap on consumption of subsidized

cylinders for all customers

Phase II - Direct transfer of subsidy to customers‘ bank account using Aadhaar-enabled

platform.

Phase III – Identify and target segmented

customers for subsidy.

Kerosene Subsidy: The Task Force has recommended

the direct transfer of subsidy for Kerosene in a phased

manner as follows:

Phase I – Direct Transfer of Subsidy through

State/ UT Governments in the bank account of

beneficiaries.

Phase II- Phase II will aim at transferring the

cash equivalent of subsidy directly to

beneficiaries through their bank accounts by linking transactions to Aadhaar.

CONCLUSION

This paper has examined the proposals to substitute

fertiliser LPG and kerosene subsidies with cash

transfers to the end users. In both cases, a close

examination of the objectives of the subsidies in the

first instance and the implications of the shift raises

some demanding questions. In particular, unless

discussions on transfer‘s subsidies for cash transfers

are part of a broader strategy they will simply amount to tactical differences and not address long-term

challenges. The three items- fertiliser, kerosene and

LPG that are the focus of the budget proposals are not

only important for the high costs on the budget but they

constitute two of the most singular challenges that

India has faced in the past and will undoubtedly face

even more in the future: food and energy security, both

at the national level and for the hundreds of millions of

India‘s poor at the household level as well. It is for this

reason that this paper argues that the cash transfer

proposals in the budget are ultimately limited to

thinking about tactics and not about larger strategies. Starting from the vantage point of strategy, it is not

clear that a cash transfer is the appropriate policy

option in the case of kerosene subsidies, and in the case

of fertilisers there are a host of implementation

challenges and long-term environmental ones. It would

be much more valuable if we use the process initiated

by the shift to cash transfers as a proverbial

Archimedean lever: one that opens more imaginative

possibilities in addressing India‘s mounting agricultural

and energy challenges.

REFERENCE

1. http://planningcommission.gov.in/aboutus/co

mmittee/wrkgrp12/wg_fert0203.pdf

2. http://www.cbgaindia.org

3. http://www.finmin.nic.in/reports/IPFStat2012

13.pdf

4. Government of India (2010): ―Indian Public

Finance Statistics: 2010-2011‖, Ministry on

Petroleum and Natural Gas.

5. India Expenditure Budget, Vol. I: 2011-2012‖,

Ministry of Finance, Deptt of Eco. Affairs.

6. Perspectives on Cash Transfers, Economic & Political Weekly, Ma 21,2011 vol. xlvi no 21.

7. http://www.mit.gov.in/content/information-

technology-act

8. http://www.mit.gov.in/content/draft-

electronic-service-delivery-bill-1

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DUPONT ANALYSIS OF RETURN ON EQUITY OF INDIAN BANKING SECTOR

Ajay Pratap Yadav *

Awadhesh Kumar Tiwari **

Manish Kumar ***

ABSTRACT Bank capital has been in the spotlight in academic and professional galleries since the financial crisis began. Issuing and holding loans is generally more profitable than owning securities, so banks prefer to maintain a much higher percentage of loans than securities on their balance sheet and therefore earn more interest. Loans are also higher risk. This combination was the main reason behind an unprecedented liquidity crunch. Further, exposure with weak consumer and corporate credit,

banks currently view the risk of providing new loans to be too high and they will have to reserve more in equity capital to offset this risk. The secondary market for selling loans has still not fully recovered, so the ability to reduce this burden through loan sales is difficult. Hence, while handling with the situation with more equity capital, ROE becomes one of the important considerations to retain the same. One of the most important profitability metrics is Return on Equity (ROE). ROE reveals how much profit a company earns on total amount of shareholder equity found on the balance sheet. Shareholder equity is equal to total assets minus total liabilities. It's what the shareholders "own". Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners. Objective of study is to evaluate the extent to which, factors identified as per Du Pont analysis affects ROE of Indian

Nationalized Banks and Private sector banks. As far as Indian nationalized banks and private sector banks are concerned, net profit margin and asset equity ratio significantly affects return on equity. Therefore, it can be observed that according to three step Du-Pont analysis, net profit margin and asset equity ratio are the prime factors in deciding return on equity for Indian banking sector.

INTRODUCTION

One of the most important profitability metrics is

Return on Equity (ROE). ROE reveals how much

profit a company earns on total amount of shareholder

equity found on the balance sheet. Shareholder equity is equal to total assets minus total liabilities. It's what

the shareholders "own". Shareholder equity is a

creation of accounting that represents the assets created

by the retained earnings of the business and the paid-in

capital of the owners. While comparing between ROE

and EPS, ROE is a better gauge than simple EPS. ROE

reveals how a company is deploying its capital to build

a profitable business. The higher the ROE, the more

wealth the company is creating for its shareholders and

the better return they can expect from their investment.

Thus ROE serves towards achieving a company‘s

ultimate goal of shareholders wealth maximization. Whereas EPS, accompanied by and P/E ratios are

better used as a gauge of whether the shares themselves

are over or undervalued.

Some industries have a high ROE as they require little

or no assets while others require large infrastructure

builds before they generate profit. For this reason ROE

is best used to compare companies in the same

industry.

As far as banks are concerned, like any other standard businesses, they need to earn financial returns on its

employed capital. The ROE for banks is a common

measurement they use to assess the returns made on the

initial capital invested. Without a substantial return on

this capital, a bank may suffer low income and be

unable to pay for its administrative expenses or other

standard costs. The money, a bank earns from its initial

capital can also be part of the net income earned by the

bank. Investors are often quite interested in

the return on equity for banks.

Many banks start like any other business; after meeting

the legal requirements for stating operations, the

owners then seek capital for making transactions.

These funds can either come from the entrepreneur,

Govt., or from a group of readied investors looking to

draw passive income. Equity funds represent money

given to a business without a stated return date or other

repayment plan. The return on equity for banks helps

pay small financial returns to investors for the use of

this capital. Higher equity returns, therefore, are

typically more favorable than smaller returns.

The probability of loss is just as prevalent or as

dangerous for banks as it is for normal companies.

Failure to measure the return on equity for banks can

result in not discovering decreasing financial returns.

Low returns often turn into lower net profit, which

leads to a bank‘s inability to pays expenses and other

financial obligations. As this occurs, the company will

lose investors and equity, making it harder to make

financial gains.

Moreover, issuing and holding loans is generally more profitable than owning securities, so banks prefer to

maintain a much higher percentage of loans than

securities on their balance sheet and therefore earn

more interest. Loans are also higher risk. This

combination was the main reason behind an

* Assistant Professor, Shaheed Bhagat Singh Evening College, University of Delhi.

** Assistant Professor, P.G.D.A.V. (Eve.) College, University of Delhi.

*** Assistant Professor, Shaheed Bhagat Singh Evening College, University of Delhi.

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 38 ISSN: 2231-6353

unprecedented liquidity crunch last fall. The market

value of loan assets was dropping because there was

not a liquid market to value or trade the loans. As a

result, many banks could not meet daily funding

requirements and others needed to take enormous

write-downs to compensate for the loss in loan values.

The most basic balance sheet equation is total assets

must equal liabilities plus equity and therefore most of

the write-downs went straight to equity, as the value of

the liabilities was largely unchanged. Fundamentally,

equity is the margin by which creditors will be covered

if a bank‘s assets were liquidated. As this margin

shrinks, a bank‘s borrowing cost gets much higher. As

well, if equity capital is depleted, a bank‘s liabilities

become greater than the value of their assets and they

are insolvent. Bank capital has been in the spotlight in

academic and professional galleries since the financial crisis began.

Further, exposure with weak consumer and corporate

credit, banks currently view the risk of providing new

loans to be too high and they will have to reserve more

in equity capital to offset this risk. The secondary

market for selling loans has still not fully recovered, so

the ability to reduce this burden through loan sales is

difficult. Hence, while handling with the above

mentioned situation with more equity capital, ROE

becomes one of the important considerations.

On the basis of above theoretical observation, present

study aims at finding out extent of impact of factors

affecting ROE of Indian Nationalized Banks. Further

the study follows the DuPont system of financial

analysis created in 1919 by a finance executive at E.I.

du Pont de Nemours and Co., of Wilmington. This

system is used around the world today and serves as

the basis of examination of components that make

up ROE for the present study.

Primarily, there are three components in the calculation of return on equity using the traditional Du Pont

model;

Net Profit Margin

Asset Turnover and

Equity Multiplier. (Asset Equity Ratio)

By examining each input individually, we can observe

the extent of impact on ROE.

NET PROFIT MARGIN

The net profit margin is simply the after-tax profit a company generated for each rupee of revenue. Net

profit margins vary across industries, making it

important to compare a potential investment against its

competitors. It is calculated as follows:

Net Income ÷ Revenue

Implications: However a key point should be reserved

in the mind that an increase in sales should not be

understood as a proportionate increase in profits. This

notion does not take into account the associated costs.

As a company grows, its expenses will at times grow

along with it, perhaps at a greater rate than sales. As

the expense of a company rises, the net profit margin

may shrink. Even attempts to compensate the added expenses with an increase in the sales price of the

product, may result in a decrease in the quantity of

sales as consumers may not be as willing to purchase

the product at the higher price. If this were to happen,

total revenues could decrease despite the increase of

price per product. The opposite may happen as the cost

of production could decrease as production increases.

ASSET TURNOVER RATIO (ATR)

The asset turnover ratio is a measure of how effectively

a company converts its assets into sales. It is calculated

as follows: Asset Turnover = Revenue ÷ Assets

This ratio determines the efficiency with which assets

are being utilized. It indicates firm‘s ability to generate

sales per rupee of investment in assets. Further the

asset turnover ratio tends to be inversely related to the

net profit margin; i.e., the higher the net profit margin,

the lower the asset turnover. The result is that the

investor can compare companies using different

models (low-profit, high-volume vs. high-profit, low-

volume) and determine which one is the more attractive business.

Bank assets consist mainly of various kinds of loans

and marketable securities and of reserves of base

money, which may be held either as actual central bank

notes and coins or in the form of a credit (deposit)

balance at the central bank.

Implications: It should be noted that the asset turnover

ratio formula does not look at how well a company is

earning profits relative to assets. The formula only

looks at revenues and not profits. This is the distinct difference between return on assets (ROA) and the

asset turnover ratio, as return on assets looks at net

income, or profit, relative to assets.

EQUITY MULTIPLIER

It is possible for a company with terrible sales and

margins to take on excessive debt and artificially

increase its return on equity. The equity multiplier, a

measure of financial leverage, allows the investor to

see what portion of the return on equity is the result of

debt. The equity multiplier is calculated as follows: Equity Multiplier = Assets ’ Shareholders‘ Equity.

The nature of the banking business makes maintaining

adequate levels of equity capital crucial and current

guidelines were promulgated during the Basil accords

in 1998. The reason why banks are distinct from other

industries is primarily because bank assets are

intangible – the asset side of a bank‘s balance sheet is

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 39 ISSN: 2231-6353

comprised of loans and securities, not inventories and

accounts receivable, as is common in more traditional

businesses. Bank Capital includes tier 1 capital (paid-

up shares and common stock), which is a common

feature in all countries' banking systems, and total

regulatory capital, which includes several specified types of subordinated debt instruments that need not be

repaid if the funds are required to maintain minimum

capital levels (these comprise tier 2 and tier 3 capital).

Implications: It is possible for a company with terrible

sales and margins to take on excessive debt and

artificially increase its return on equity. Thus equity

multiplier allows the investor to see what portion of the

return on equity is the result of debt.

LITERATURE REVIEW

Hawawini and Viallet (1999) in their study, proposed a change to the existing DuPont model which resulted in

extension in form of five different ratios that combine

to form ROE. In their revision they acknowledged that

the financial statements that firms prepare for their

annual reports are not always useful to managers

making operating and financial decisions. They can

make better decision by undertaking wider approach

towards factors affecting important ratios. This in fact

led to the extension of Du-pont model into five factor

model incorporating tax burden and interest burden.

Brigham and Houston, (2001) supported this extension

saying that the modified model as a powerful tool to

illustrate the interconnectedness of a firm‘s income

statement and its balance sheet and to develop straight-

forward strategies for improving the firm‘s ROE.

Nissim & Penman (2001) suggested using a modified

version of the traditional DuPont model in order to

eliminate the effects of financial leverage and other

factors not under the control of those managers. Using

operating income to sales and asset turnover based on

operating assets limits the performance measure of management to those factors over which the

management has the most control. Thus the extension

has lead to both advantages and disadvantages in using

the model to measure the performance of the

management.

Sundararajan, (2002), stated that while ROA, ROE,

and interest margin (and non-interest expenses) to

gross income remain the key measures and they should

ideally be supplemented by the analysis of other

operating ratios.

S.Christina Sheela, (2011), while Studying association

among firm size, capital structure and financial

performance, ROE of Turkey based companies,

summarized that there was significant relationship

between the financial performance, utilization of fixed

assets and working capital. This study revealed that

assets turnover is the prime driver of ROE.

Ahmed Arif Almazari (2012), examined the financial

performance of the Jordanian Arab commercial bank

for the period 2000- 2009 by using the DuPont system

of financial analysis which was based on analysis of

return on equity model. He found that the financial

performance of Arab Bank to be relatively steady and reflected minimal volatility in the return on equity

during study period.

The study based on Indian steel industry by Ramudu P

Janaki, Parasuraman N R, and Nusrathunnisa (2012)

concluded that that ROE was primarily driven by the

equity multiplier in most of the years during the study

period. The factors like operating profit margin, assets

turnover, tax burden and interest burden could not

influence shareholders‘ return. Further they concluded

that the firms failed to leverage internal factors like

operating profit margin and assets turnover to maximize the return which should have been the actual

case. Thus the study proves that the capital structure

decisions or the way the firms design their capital

structure would impact ROE in real life situation

according the statistical results obtained in the study.

OBJECTIVES OF THE STUDY

Objective of study is to evaluate the extent to which,

factors identified as per Du Pont analysis affects ROE

of Indian Nationalized Banks and Private sector banks.

Further the study also aims at exhibition of comparison between nationalized banks and Private sector banks

on the basis of factors affecting their ROE.

RESEARCH DESIGN The research design followed for this study is hybrid in

nature.

Data Collection: For the concerned study 20

nationalized banks and 18 private sector banks have

been considered. Data have collected from website of

RBI and website of moneycontol

(www.moneycontrol.com).

Period of Study: The study covers 5 years period

(2008-2012).

Limitations of Study: The study is limited to the extent

of analyzing only ROE. Basically the scope of the

study is extended to three step Du-Pont model. The

three step model does not reveal the impact of

leverage. For better interpretation it is obvious that

ROE should be accompanied by other important ratios.

Further, the findings from the historical data may not be representative of the future. Findings and

conclusions are purely based on statistical testing that

may have certain limitations. A better insight may be

achieved through applying five-step Du-Pont Model.

Finally, the external factors have not been taken into

account while analyzing shareholders‘ return.

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 40 ISSN: 2231-6353

THE MODEL

As already mentioned above, according to Du-Pont

analysis, primarily, there are three factors affecting

ROE. Therefore, these three factors namely net profit

margin, asset turnover ratio (ATR) and asset equity

ratio have considered as independent factors and ROE as dependent factor. Multiplication of these three

factors provides ROE. Multiple regression run has been

conducted for the purpose of examining level of impact

of independent factors.

ROE = β0 + β1 (net profit margin) + β2 (ATR) + β3

(asset equity ratio) + e

Where,

ROE = Dependent factor

β0 = the intercept of the equation

β1, β2 & β3 = coefficients of variables

e = Error term

On the basis of above equation framed above,

following hypothesis has been developed.

1. H0: Net profit margin does not significantly affect

the ROE

H1: Net profit margin significantly affects ROE.

2. H0: Asset turnover ratio does not significantly

affect the ROE

H1: Asset turnover ratio significantly affects ROE.

3. H0: Asset equity ratio does not significantly affect

the ROE

H1: Asset equity ratio significantly affects ROE.

OBSERVATIONS AND FINDINGS

Table- 1

Descriptive Statistics- Nationalized Banks

Average

Sta

nd

ard

Devia

tion

Med

ian

Sk

ew

ness

Ku

rto

sis

CV

ROE 17.86 4.35 18.20 -0.233 -0.049 0.24

Net Profit

Margin 10.54 3.21 10.70 -0.022 -0.658 0.30

Asset

Equity

Ratio

18.78 3.38 18.13 0.955 1.53 0.18

Asset

Turnover Ratio

8.67 0.64 9.00 0.409 -0.669 0.074

Table- 2

Regression - Nationalized Banks

Coefficient St. Error t value P (2 tail)

Result at 5%

significance level

Intercept -13.27 4.44 -2.99 .004 Significant

Net Profit Margin 1.31 0.083 15.87 <.001 Significant

Asset Turnover Ratio 0.38 0.39 0.97 0.335 Insignificant

Asset Equity Ratio 0.74 0.083 8.94 <.001 Significant

Adjusted R2 = 0.7262

Analysis of Variance

Source Sum of Square Degree of Freedom Mean Sq F P value

Regression 1321.37 03 440.45 84.98

< .001 Error 476.80 92

5.18

Total 1798.17 95

The t-statistic measures how many standard errors the

coefficient is away from zero, therefore higher the t-

value, the greater the confidence we have in the

coefficients as predictors. Results (Table 2) exhibit that

all independent variable have positive impact on ROE

but net profit margin and asset equity ratio significantly

affect ROE. Particularly net profit margin with

coefficient of 1.31 followed by asset equity ratio

(coefficient: 0.74) makes highest contribution in

explaining the dependent variable (ROE).

The adjusted R2 also called the coefficient of multiple

determinations, is the percent of the variance in the

dependent explained uniquely or jointly by the

independent variables and is 72.62% which shows that

there is 72.62% variation in the dependent variable

attributable to the independent variables. The intercept

is the constant, where the regression line intercepts the

y axis, representing the amount the dependent y will be

when all the independent variables are 0. In this case it

is -13.27.

Test statistic for the F-test on the regression model. It

tests for a significant linear regression relationship

between the response variable and the predictor

variables. Observed results exhibit significant

relationship between dependent variable and

independent variables (F static: 84.98, P value: <.001).

SUMMARY OF RESULTS

Results for private sector banks exhibit the same

bearing as it is in case of nationalized banks.

According to the observations exhibited in Table 6, all

independent variable have noteworthy positive impact

on ROE but extent of impact of net profit margin and

asset equity ratio observed to be higher. Net profit

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 41 ISSN: 2231-6353

margin with coefficient of 1.27 makes highest

contribution towards explaining the dependent variable

(ROE).

Table- 3

Correlation Matrix - Nationalized Banks

Ret

urn

on N

et

wort

h

Net

Pro

fit

Mar

gin

Ass

et T

urn

over

Rat

io

Ass

et t

o E

quit

y

Rat

io

Return

on

Equity

Pearson

Correlation 1 0.70 -.015 0.093

Sig.(2 tail) 0.00* 0.883 0.366

Net

Profit

Margin

Pearson

Correlation 1 0.137 -0.48

Sig.(2 tail) 0.182 0.00*

Asset

Turnover

Ratio

Pearson

Correlation 1 -0.352

Sig.(2 tail) 0.00*

Asset to

Equity

Ratio

Pearson

Correlation 1

Sig.(2 tail)

*Significant at 5% significance level.

Table- 4

Nationalized Banks

Hypothesis (5%

significance level) H0 H1

1. Rejected Accepted

2. Accepted Rejected

3. Rejected Accepted

Table- 5

Descriptive Statistics: Private Sector Banks

Average

Sta

nd

ard

Devia

tion

Med

ian

Sk

ew

ness

Ku

rto

sis

CV

ROE 12.45 7.86 13.56 -2.14 6.21 6.63

Net

Profit

Margin

10.37

5.87

11.89

-1.96 5.10 0.57

Asset

Equity

Ratio

13.59 3.47 14.0 0.089 -0.226

0.25

Asset

Turnover

Ratio

9.82 1.06 10.0 0.315 0.064 0.11

Table- 6

Regression - Private Sector Banks

Coefficient St. Error t value P (2 tail)

Result at 5%

significance level

Intercept -21.37 3.69 -5.78 <0.001 Significant

Net Profit Margin 1.27 .054 23.68 <0.001 Significant

Asset Turnover Ratio 0.82 0.30 2.69 0.009 Significant

Asset to Equity Ratio 0.92 0.095 9.61 <0.001 Significant

Adjusted R2 = 0.87

Analysis of Variance

Source Sum of Square Degree of Freedom Mean Sq F P value

Regression 4754.59 03 1584.86 195.07

< .001 Error 682.45 84 8.12

Total 5437.04 87

Table- 7

Correlation Matrix- Private Sector Banks

Ret

urn

on

Net

wort

h

Net

Pro

fit

Mar

gin

Ass

et

Turn

over

Rat

io

Ass

et t

o

Equit

y

Rat

io

Return

on

Equity

Pearson

Correlation

1 0.86 0.112 0.106

Sig.(2 tail) 0.0* 0.298 0.326

Net

Profit

Margin

Pearson

Correlation 1 0.146 -0.277

Sig.(2 tail) 0.176 0.009*

Asset

Turnover

Ratio

Pearson

Correlation 1 0.338

Sig.(2 tail)

Asset to

Equity

Ratio

Pearson

Correlation 1

Sig.(2 tail)

*Significant at 5% significance level.

The adjusted R2 in case of private sector banks is 87%

which shows that there is 87% variation in the

dependent variable attributable to the independent

variables. The intercept, in this case is -21.37. Results

of F-test in this case indicates (F static: 195.07, P

value: <.001) significant association between

dependent variable and independent variables.

SUMMARY OF RESULTS

Table- 8

Private Sector Banks

Hypothesis (5%

significance level)

H0 H1

1. Rejected Accepted

2. Rejected Accepted

3. Rejected Accepted

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 42 ISSN: 2231-6353

CONCLUSION The company profitability for most investors is a

landmark in terms of earnings they could obtain by

placing capital. Profits earned by a company, taken the

absolute amount, provides an overview of a company‘s

activity without giving details about the extent to which the company manages dividends, debts,

liabilities or other indicators.

Maximization of shareholders‘ return remains as

central point of action in any corporate. Every strategic

decision undertaken by a firm would ultimately be

oriented towards this goal and therefore ROE has been

viewed as the bottom line of the performance the

management of the firms. As far as Indian nationalized

banks and private sector banks are concerned, net

profit margin and asset equity ratio significantly affects

return on equity. Therefore, it can be observed that according to three step Du-Pont analysis, net profit

margin and asset equity ratio are the prime factors in

deciding return on equity for Indian banking sector.

REFERENCES 1. Ramudu P Janaki, Parasuraman N R, and

Nusrathunnisa (2012), “What Drives

Shareholders‟ Return? Evidence from Indian

Steel Sector” World Journal of Social Sciences

Vol. 2. No. 7. November 2012 Issue. pp. 9 – 23

2. Soliman, M. (2008). ―The use of Du Pont analysis by market participants”. The Accounting Review,

83(3), pp.823-853.

3. Ahmed Arif Almazari, (2012), ‗Financial

performance analysis of the Jordanian Arab bank

by using the DuPont system of financial analysis‟,

International Journal of Economics and Finance

Vol. 4, no. 4, pp. 86-94.

4. Nissim, D and Penman, SH (2001), ‗Ratio Analysis and Equity Valuation: From Research

Practice‟, Review of Accounting Studies, no. 6

(1), pp. 109-154.

5. Brigham, Eugene F. and Joel F. Houston, (2001).

Fundamentals of Financial Management, Ninth

Edition, Horcourt College, United States of

America

6. Hawawini, G., & Viallet, C. (1999). Finance for

executives, South-Western College Publishing.

7. Kapil Sheeba (2011), Financial Management,

Pearson Publication, New Delhi.

8. Kishore Ravi M (2004), Financial Management, Taxman Publication New Delhi.

9. James C Van Horne, Financial Management and

Policy- Prentice Hall, India

10. www.economist.com/blogs/freeexchange/.../equit

y-capital-requirements

11. www.aei-ideas.org/2013/02/should-banks-hold-a-

lot-more-equity-capital

12. http://lexicon.ft.com/Term?term=bank-capital

13. www.investopedia.com/articles/fundamental-

analysis/08/dupont-analysis.asp

14. http://en.wikipedia.org/wiki/Return_on_equity 15. www.moneycontrol.com

ANNEXURE

List of Banks Considered for the Study

Nationalized Banks (20) Private Sector Banks (18)

Allahabad Bank Bank of Rajasthan Ltd.

Andhra Bank Indian Overseas Bank Ltd.

Bank of Baroda Dhanlaxmi Bank Ltd.

Bank of India Federal Bank Ltd.

Bank of Maharashtra Jammu and Kashmir Bank Ltd.

Canara Bank Karnataka Bank Ltd.

Central Bank of India Karur Vysya Bank Ltd.

Corporation Bank City Union Bank Ltd.

Dena Bank Lakshmi Vilas Bank Ltd.

Indian Bank South Indian Bank Ltd.

Indian Overseas Bank ING Vysya Bank Ltd.

Oriental Bank of Commerce ICICI Bank Limited

Punjab National Bank Axis Bank Ltd.

Syndicate Bank IndusInd Bank Ltd.

Punjab & Sind Bank Yes Bank Ltd.

Union Bank of India HDFC Bank Ltd.

United Bank of India Development Credit Bank Ltd.

UCO Bank Kotak Mahindra Bank Ltd.,

Vijaya Bank ------------

SBI ------------

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PERFORMANCE REVIEW OF REGIONAL RURAL BANKS IN INDIA –

WITH SPECIAL REFERENCE TO JHARKHAND GRAMIN BANK

Alok Kumar *

ABSTRACT Regional rural Banks plays a vital role in the agriculture and rural development of India. At Present, most of the regional rural banks are facing the problems of overdue, recovery, nonperforming assets and other problems. Therefore, it is necessary to study financial performance of RRBs in India. This paper attempts to analyze the financial performance of Regional Rural Banks in India with special reference to Jharkhand Gramin Bank. The study is mainly based on secondary data which is collected, compiled and calculated mainly from annual reports of the Jharkhand Gramin Bank. Other related information collected from journals, conference proceedings and websites. For data analysis Seven years, 2006-2007 to 2011-2012 were taken as the reference period. An analytical research design of Key Performance Indicators Analysis such as number of branches, deposits, loans, loans, investments and growth rate index is followed in the present study. The study

finds and concludes that performance of Jharkhand Gramin Bank has significantly improved.

INTRODUCTION

Banks play an important role in mobilization and allocation of resources in any country. Rural people in

India are facing problems in the inadequate supply of

credit. The major source of credit to rural households,

particularly-low income working households, has been

the informal sector. Informal sector advances loans at

very high rates of interest; the terms and conditions

attached to such loans have given rise to an elaborate

structure of intimidation of both economic and non-

economic conditions in rural population in India. The

Banking Commission (1972) recommended establish

an alternative institution for rural credit and ultimately

Government of India established Regional Rural Banks as a separate institution basically for rural credit on the

basis of the recommendations of the Working Group

under the Chairmanship of M. Narashimham.

Subsequently, the Regional Rural Banks were setup

through the promulgation of RRB Act of 1976.

Regional Rural Banks (RRBs) was created to meet the

excess demand for institutional credit in the rural areas,

particularly among the economically and socially

marginalized sections. RRBs are jointly owned by

Government of India, the concerned State Government

and Sponsor Banks; the issued capital of a RRB is shared by the owners in the proportion of 50%, 15%

and 35% respectively. The first five RRBs were set up

in four States in Haryana, West Bengal, Rajasthan,

with one each two in Uttar Pradesh, which were

sponsored by different commercial banks. At present,

there are 82 regional rural banks run successfully in all

over India.

The objectives as given in the preamble of RRBs Act

of 1976 were ―to develop the rural economy in

providing for the purpose of development of agriculture, trade commerce, industry and other

productive activities in the rural areas, credit and other

facilities particularly to the small and marginal farmers,

agricultural labourers, artisans and small entrepreneurs

and for matter connected therewith and incidental

thereto‖

JHARKHAND GRAMIN BANK - AN OVERVIEW

Jharkhand Gramin Bank, sponsored by Bank of India, was established on 12th June, 2006, consequent upon

amalgamation of four erstwhile Regional Rural Banks

– namely, Ranchi Kshetriya Gramin Bank, Singhbhum

Kshetriya Gramin Bank, Hazaribag Kshetriya Gramin

Bank, and Giridih Kshetriya Gramin Bank. The

amalgamation took place vide Government of India

Notification no. F.No.1/4/2006 dated 12.06.2006, and

the amalgamated entity, Jharkhand Gramin Bank,

continues to function under the ambit of the Regional

Rural Banks Act, 1976, an Act enacted by the

Government of India for ―... developing the rural

economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other

productive activities in the rural areas, credit and other

facilities, particularly to the small and marginal

farmers, agricultural labourers, artisans and small

entrepreneurs, and for matters connected therewith and

incidental thereto. Head Office of Jharkhand Gramin

Bank (JGB) is located in Ranchi, the Capital of

Jharkhand State, India. JGB is operating in 15 out of 24

districts in the State of Jharkhand, and it has a network

of 233 branches, under the jurisdiction of four Regional

Offices. The Regional Offices are Ranchi Region, Singhbhum Region, Hazaribag Region and Giridih

Region. The Authorised Share Capital of Jharkhand

Gramin Bank is Rs. 5 Crore and the paid up Share

Capital is Rs. 4 Crore contributed by Govt. of India

(50%), Sponsor Bank – Bank of India (35%) and Govt.

of Jharkhand (15%). The Bank has also received

additional share capital of Rs. 102.17 Crore contributed

by the share holders.

REVIEW OF LITERATURE

The literature obtained from the reports of various committees, commissions and working groups

established by the Central Government, NABARD and

Reserve Bank of India, the research studies and articles

of researchers, bank officials is briefly reviewed in this

part. Literatures of reviews on financial performance

are as follows:

* Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 44 ISSN: 2231-6353

Patel and Shete (1980) of the National Institute of

Banking Management made a valuable analysis of

performance and prospects of RRBs. They also gave a

comparative picture of performance in deposits, branch

expansion and credit deployment of the co-operative

banks, commercial banks and RRBs in a specified area. This was an eye opener for many researchers engaged

in this field of rural credit.

NABARD (1986) published ―A study on RRBs

viability‖, which was conducted by Agriculture

Finance Corporation in 1986 on behalf of NABARD.

The main suggestions of the study included

improvement in the infrastructure facilities and

opening of branches by commercial banks in such

areas where RRBs were already in function.

Khusro Committee (1989) argued that RRBs have no justifiable cause for continuance and recommended

their mergers with sponsor banks. The Committee was

of the view that ―the weaknesses of RRBs are endemic

to the system and non-viability is built into it, and the

only option was to merge the RRBs with the sponsor

banks. The objective of serving the weaker sections

effectively could be achieved only by self-sustaining

credit institutions.‖

Kalkundrickars (1990) in his study on ―Performance

and Growth of regional Rural Banks in Karnataka‖ found that these banks had benefited the beneficiaries

in raising their income, productivity, employment and

use of modern practices and rehabilitate rural artisans.

Narasimham Committee (1991) stressed the poor

financial health of the RRBs to the exclusion of every

other performance indicator. 172 of the 196 RRBs were

recorded unprofitable with an aggregate loan recovery

performance of 40.8 percent. (June 1993). The low

equity base of these banks (paid up capital of Rs. 25

lakhs) didn't cover for the loan losses of most RRBs. In

the case of a few RRBs, there had also been an erosion of public deposits, besides capital. In order to impart

viability to the operations of RRBs, the Narasimham

Committee suggested that the RRBs should be

permitted to engage in all types of banking business

and should not be forced to restrict their operations to

the target groups, a proposal which was readily

accepted. This recommendation marked a major

turning point in the functioning of RRBs.

Chavan and Pallavi (2004) have examined the growth

and regional distribution of rural banking over the period 1975-2002. Chavan‘s paper documents the gains

made by historical underprivileged region of east,

northeast and central part of India during the period of

social and development banking. These gains were

reversed in the 1990s: cutbacks in rural branches in

rural credit deposits ratios were the steepest in the

eastern and north-eastern states of India. Policies of

financial liberalization have unmistakably worsened

regional inequalities in rural banking in India.

Professor Dilip Khankhoje and Dr. Milind Sathye

(2008) have analysed to measure the variation in the

performance in terms of productive efficiency of RRBs

in India and to assess if the efficiency of these institutions has increased post-restructuring in 1993-94.

RESEARCH DESIGN

The present study is diagnostic and exploratory in

nature and makes use of secondary data. The study is

confined only to the specific areas like number of

branches, district coverage, deposits mobilized, credits

and investments made by the Jharkhand Gramin Bank

for the six years period starting from 2006-07 to the

year 2011-12. Performance indicators, the year 2011-

2012 was taken as the current year and year 2010-2011

was base year for the calculation of growth rate. Analytical Techniques Employed-Growth rate analysis

was undertaken with a view to studying financial

performance related to the Jharkhand Gramin Bank.

Growth rate is measured with the help of following

formula- The financial performance of the Jharkhand

Gramin Bank has been analyzed with the help of key

Growth Rate = B – C / B

B =Base Year, C= Current Year.

OBJECTIVES OF STUDY The present study is based upon the macro approach to analyze performance of Jharkhand Gramin Bank.

Specifically the objectives of the study are:

1. To analyze the financial performance of

Jharkhand Gramin Bank

2. To analyze the key performance indicators of

Jharkhand Gramin Bank

3. To evaluate progress of the Jharkhand Gramin

Bank during 2006-07 to 2011-12

4. To study the growth-pattern of Jharkhand Gramin

Bank

AREA OF THE STUDY

The study is based on the performance of Jharkhand

Gramin Bank. Therefore, study covers only one Bank

to the fulfilment of objectives of the study.

PERIOD OF THE STUDY

For collection of the secondary data on financial

performance of the Jharkhand Gramin Bank, six years

i.e. from 2006-2007 to 2011-2012 were taken as the

reference period.

METHOD OF DATA COLLECTION

The study is mainly based on secondary data which is

collected, compiled and calculated mainly from annual

reports of the Jharkhand Gramin Bank. Other related

information collected from journals, conference

proceedings and websites.

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RNI – UP/ENG/2011/36701 45 ISSN: 2231-6353

SIGNIFICANCE OF THE STUDY

The research study is significant to evaluate financial

performance of Jharkhand Gramin Bank. The results/

findings of the present study are useful to the policy

planners in their efforts to improve the working of the

Jharkhand Gramin Bank.

RESULTS AND DISCUSSION

Table 1 presents the key performance indicators and

growth of Jharkhand Gramin Bank from year 2006-07

to 2011-2012

Table- 1: Key Performance Indicators of Jharkhand Gramin Bank (Figures: - Rs. in Lakhs)

Parameters 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Growth %

No. Of Branches 210 210 215 217 221 233 5.43

Dist. Covered 12 15 15 15 15 15 0

Total Staff 832 824 821 804 847 832 0

Deposit 106074 122194 146036 166082 184157 196552 6.73

Borrowings 2397 1798 1989 1786 7953 8421 5.88

Investments 67355 76882 101922 111671 126412 135300 7.03

Gross Loan (o/s) 31295 34878 37552 45199 53162 61171 15.06

Loan Issued 8580 10583 15928 24249 34999 48461 38.46

C/D Ratio (%) 30 29 26 27 29 31

Accumulated Losses 666717 585913 432290 211452 47188 0 0

Profit & Loss 1623 808 1536 2208 1643 2098 27.69

Branch Productivity 654 744 854 956 1074 1106 2.97

Staff Productivity 165 191 223 263 280 309 10.35

Source: Various Annual Reports of Jharkhand Gramin Bank.

Observation of the Table 1 No. of Branches in

Jharkhand Gramin Bank increased from 221 to 233

during the year registering growth rate of 5.43%.

Deposits of Jharkhand Gramin Bank increased from

Rs. 184157 lakhs as on 31st March, 2011 to Rs. 196552

lakhs as on 31st March, 2012 registering growth rate of

6.73%. Borrowings of Jharkhand Gramin Bank

increased from Rs. 7953 lakhs as on 31 March 2011 to Rs. 8421 lakhs as on 31 March 2012 registering an

increase growth rate of 5.88%. Investments of

Jharkhand Gramin Bank increased from Rs. 126412

lakhs as on 31 March 2011 to Rs. 135300 lakhs as on

31 March 2012 registering an increase growth rate of

7.03%. Gross Loan (O/S) of Jharkhand Gramin Bank

increased from Rs. 53162 lakhs as on 31 March 2011

to Rs. 61171 lakhs as on 31 March 2012 registering an

increase growth rate of 15.06%. Loan issued from

Jharkhand Gramin Bank increased from Rs. 34999

lakhs as on 31 March 2011 to Rs. 48461 lakhs as on 31 March 2012 registering an increase growth rate of

38.46%. C/D Ratio of Jharkhand Gramin Bank

increased from 29% as on 31 March 2011 to 31% as on

31 March 2012. Accumulated losses decreased from

Rs. 47188 lakhs as on 31st March, 2011 to Rs. 0 as on

31st March, 2012. Profit & Loss of Jharkhand Gramin

Bank before tax increased from Rs. 1643 lakhs as on

31 March 2011 to Rs. 2098 lakhs as on 31 March 2012

registering an increase growth rate of 27.69%. The

branch productivity increased to Rs. 1106 lakhs in

2011-12 from Rs. 1074 lakhs in 2010-11 with a growth

of 2.97%. Similarly, staff productivity in 2011-12 increased to Rs. 309 lakhs from Rs. 280 lakhs in 2010-

11 with a growth of 10.35%.

WEAKNESS OF JHARKHAND GRAMIN BANK

Although Jharkhand Gramin Bank had a rapid

expansion of branch network and increase in volume of

business, these institutions went through a very

difficult evolutionary process due to the following

problems.

a) Very limited area of operations

b) High risk due to exposure only to the target group

c) Public perception that Jharkhand Gramin Bank is

poor man's banks d) Switch over to narrow investment banking as a

turn-over strategy

e) Heavy reliance on sponsor banks for investment

avenues with low returns barring exceptions, step-

motherly treatment from sponsor banks

f) Burden of government subsidy schemes and

inadequate knowledge of customers leading to

low quality assets

g) Unionized staff with low commitment to profit

orientation and functional efficiency

h) Inadequate exposure and skills to innovate products limiting the lending portfolios

i) Inadequate effort to achieve desired levels of

excellence in staff competence for managing the

affairs and business as an independent entity

j) Serious undermining of the Board by compulsions

to look up to sponsor banks, Govt. of India and

Govt. of Jharkhand for most decisions

SUGGESTIONS FOR IMPROVEMENT OF

JHARKHAND GRAMIN BANK

a) Efforts should be made to ensure that the non-

interest cost of credit to small borrowers is kept as low as possible.

b) Policy should be made by government for

opening more branches in weaker and remote

areas of state.

c) Productivity can be improved by controlling the

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 46 ISSN: 2231-6353

costs and increasing the income

d) Jharkhand Gramin Bank has to make an important

change in their decision making with regard to

their investments.

e) Jharkhand Gramin Bank has to give due

preference to the micro-credit scheme and encourage in the formation of self help group.

f) Jharkhand Gramin Bank has must strengthen

effective credit administration by way of credit

appraisal, monitoring the progress of loans and

their efficient recovery.

g) Jharkhand Gramin Bank may relax their

procedure for lending and make them easier for

village borrowers.

CONCLUSION

From the above analysis, the performance of Jharkhand

Gramin Bank, an attempt has been made to analyze the performance in terms of certain defined parameters like

number of branches, district covered and mobilization

of deposits, borrowers and investments made by this

bank. Jharkhand Gramin Bank successfully achieve its

objectives like to take banking to door steps of rural

households particularly in banking deprived rural area,

to avail easy and cheaper credit to weaker rural section

who are dependent on private lenders, to encourage

rural savings for productive activities, to generate

employment in rural areas and to bring down the cost

of purveying credit in rural areas. After all, let us hope, in the coming years through dedication and hard work,

Jharkhand Gramin Bank in Jharkhand would improve

their performance towards the achievement of their

corporate mission and goals in a better way.

REFERENCES 1. (n.d.). Retrieved from www.jharkhand gramin

bank.org.

2. (March, 1981). A study on the viability of RRBs.

RBI Bulletin.

3. Anil Kumar Soni and Abhay Kapre. (vol. No. 1, Issue No. 11, Nov. 2013). Performance

Evaluation of Regional Rural Banks in India.

ABHINAV- National Monthly Reffered Journal of

Research in Commerce & Management , 132-144.

4. Annual Reports. Jharkhand Gramin Bank.

5. Ibrahim, D. M. (vol. 3, No. 4, Oct. 2010).

Performance Evaluation of Regional Rural Banks

in India. International Business Research , 203-

211.

6. India, G. o. (1986). Report of the Working Group

on Regional Rural Banks. New Delhi:

Government of India. 7. Khusro, A. (1989). Report of the committee on

Agricultural credit Review committee. New Delhi:

Government of India.

8. Monthly Bulletins. RBI.

9. Narasimhan, M. (1991). Report of the committee

on the financial system. Reserve Bank of India.

10. Pati, A. P. (2005). Regional Rural Banks in

Liberalized Environment. New Delhi: Mittal

Publications.

11. Prof. Dilip Khankhoje and Dr. Milind Sathe. (Vol.

1, No. 2, 2008). International Business Research-CCSE. International Business Research .

12. Shete, K. V. (Jan.- March, 1981). RRB

Performance and Prospectus. Prajanan , 1-40.

13. Uddin, N. (2003). Regional Rural Banks And

Development. New Delhi: Mittal Publications.

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 47 ISSN: 2231-6353

AN ASSESSMENT OF FINANCIAL PERFORMANCE OF GOLD LOAN NBFCs

Hariom Divakar *

ABSTRACT One of the major concerns of the growth story of the gold loan companies is the pace at which their assets size has grown in volume as well as the expansion of branch network. The rapid growth of their assets, borrowings and branch network needs to be viewed with circumspection and measures to moderate such growth to more sustainable levels are desirable.

An analysis of the sources of funds of gold loan NBFCs revealed that their dependence on the banking sector witnessed an increase during the last five years. Borrowings from the banking sector were the biggest source of funds for the gold loan NBFCs. The consistent increase in the dependence of the gold loan NBFCs on the banking sector raises concerns. Gold loan NBFCs should gradually reduce their dependence on the bank finance so as to bring down the inter-connectedness with the formal financial system. The capital adequacy ratio of gold loan NBFCs witnessed a continuous declining trend during period under study. Further, the capital adequacy ratio of gold loan NBFCs was also lower than that of the NBFCs-ND-SI sector as a whole. The decline in the capital adequacy ratio despite increase in capital funds points to the aggressive asset growth that took place during the period under study. The gold loans NBFCs should strive to improve their capital.

The research paper is based on analytical approach, wrote in APA style, and secondary sources of data is used.

INTRODUCTION

Gold has always been a valued commodity. Particularly in India, it is considered as auspicious, and

used in the form of jewellery, coins and other assets.

Due to their high value, people have been taking loans

against gold ornaments for centuries. Till about a

decade ago, most of such lending activities used to take

place in the unorganized sector through pawnbrokers

and money lenders. However, the scenario has changed

with the entry of organized players. In the past few

years, banks and non-banking finance companies

(NBFCs) have made a significant presence in the gold

loan market. It is anticipated that the organized gold loan market will grow at a compound annual rate of

25.5% during FY 2012 to FY 2015.

A new trend of gold financing for purchasing has also

been observed in the industry. The region-wise analysis

revealed that the organized gold loan market is mainly

concentrated in the Southern India, while other regions

are witnessing a comparatively low presence of

organized players. It has been observed that the

organized players are exploring the potential, and

expanding their networks into North, East and West

regions. Our report analyzes the Indian gold loan industry, including its market size, penetration, type of

institutions, and share of major players, and presents

forecasts. We also studied how the government

regulations are impacting the industry. The

comprehensive research work covers the competitive

landscape, by including the profiles of major public

and private banks and specialized NBFCs

(Manappuram & Muthoot Finance) operating in the

market.

The high rate of growth witnessed in the volume of business of the Systemically Important Non-Deposit

Taking NBFCs (NBFCs-ND-SI), which are primarily

engaged in the business of lending against the

collateral of gold jewellery (hereafter referred to as

gold loan NBFCs) during the recent years warranted an analysis of the financial performance as well as

soundness of these companies. Further, though all these

companies are based in Kerala, their business is spread

across the country through a large network of branches

having implications for the entire financial system.

This also underlined the need for analyzing the

performance of these companies in the larger interest of

the entire financial system. Accordingly, in this

Research paper, an analysis of the financial

performance of gold loan NBFCs during the period

March 2008 to March 2012 is presented.

OBJECTIVES OF STUDY

The research paper assesses the financial performances

of Gold Trading NBFCs in india. It uses the different

ratio to analyse the financial information of last five

years from 2008 to 2012 which is obtained through

secondary source of data.

RESEARCH METHODOLOGY

The research paper is based on analytical approach to

analyse the data and data is derived through secondary

sources.

THE FINANCIAL PERFORMANCE OF GOLD

LOAN NBFCS

The Research paper seeks data on financial parameters

from all Non- Deposit taking systemically important

NBFCs (with asset size of Rs.100 crore and above) for

off-site surveillance on a monthly basis. The basic data

for this analysis has been extracted from these on-line

monthly returns submitted by the gold loan NBFCs to

the Department of Non-Banking Supervision, Reserve

Bank of India. The data are presented at aggregate level for six gold loan NBFCs which are predominantly into

gold loan business.

*Research Scholar, Department of Commerce, University of Lucknow

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Gold Loan NBFC-ND-SI

Item (Rs. Crore) Growth (y-o-y)

2007-08 2008-09 2009-10 2010-11 2011-12 2008-09 2009-10 2010-11 2011-12

1. Share Capital 128 135 404 633 911 5.4 200.6 56.5 43.9

2. Reserves & Surplus 381 620 1145 3419 5970 62.9 84.7 198.6 74.6

3. Debentures 1632 2284 3453 5532 11199 39.9 51.2 60.2 102.4

4. Bank Borrowings 922 1574 4568 12903 21306 70.7 190.2 182.5 65.1

5. Borrowings from FIs 39 0 20 65 142 -100.0 - 225.0 117.9

6. Inter-Corporate Borr 34 60 173 0 13 77.5 190.6 -99.7 2654.4

7. Commercial Paper 0 0 140 1846 1012 - - 1217.6 -45.2

8. Other Borrowings 313 778 1024 2107 3674 148.8 31.6 105.7 74.4

9. Current Liabilities 67 146 372 187 454 117.7 153.7 -49.8 143.5

10. Provisions 63 97 239 513 648 55.5 145.8 114.6 26.5

Total Assets/Liabilities 3577 5694 11538 27206 45479 59.2 102.7 135.8 67.2

1. Loans & Advances 2981 3860 9179 22666 39230 29.5 137.8 146.9 73.1

2. HP & Lease Assets 7 38 31 5 0 451.9 -19.6 -84.8 -99.5

3. Investments 71 66 232 169 375 -7.8 253.3 -27.2 122.3

3.1. Govt. Securities 14 1 1 0 0 -92.5 -42.5 -48.8 -100.0

3.2. Equity Shares 6 8 11 21 11 24.8 41.1 100.6 -47.5

3.3. Preference Shares 0 0 0 0 0 - - - -

3.4. Debentures & Bonds 0 0 0 0 0 - - -100.0 -

3.5. Units of Mutual Funds 2 4 156 84 264 75.2 4159.6 -46.0 214.0

3.7. Other Investments 45 52 64 63 100 15.7 23.3 -2.3 58.9

4. Cash & Bank Balances 217 1163 1158 2357 2150 436.3 -0.4 103.5 -8.8

5. Other Current Assets 58 292 591 1354 2735 405.1 102.3 129.0 102.0

6. Other Assets 243 274 347 655 989 12.7 26.8 88.9 50.9

Source: Reserve Bank of India, DNBS Data Base

GROWTH OF GOLD LOAN NBFCS VIS-À-VIS

NBFCS-ND-SI SECTOR

The gold loan NBFCs witnessed very high rate of

growth of balance sheet during the recent years. It is pertinent to note that the growth rate of gold loan

NBFCs was always higher than the growth rate of

NBFCs-ND-SI sector as a whole during the last four

years. However, there was a moderation in the growth

rate of gold loan NBFCs during 2011-12 as compared

with the previous year. (Table 1 & Chart 1).

SHARE OF GOLD LOAN NBFCS IN THE

NBFCS-ND-SI SECTOR

As the assets of gold loan NBFCs were growing at a

very high rate as compared to the growth of the assets

of the NBFCs-ND-SI sector during the period from

2009 to 2012, the share of assets of gold loan NBFCs

in the total assets of NBFCs-ND-SI sector witnessed

consistent increase during the same period. As at end-March 2012, the gold loan NBFCs accounted for

almost five per cent of the total assets of the NBFCs-

ND-SI sector. Further, assets of gold loan NBFCs

constituted around 19 per cent of the total assets of

loan companies as at end-March 2012.

Chart- 1

Growth of Gold Loan NBFCs vis-a-vis

NBFCs-ND-SI Sector

Source: Reserve Bank of India DNBS Data Base

Table- 1

Assets of Gold Loan NBFCs vis-à-vis

NBFCs-ND-SI Sector (As at end-March) (Rs.crore)

Item 2008 2009 2010 2011 2012

Total Assets

of NBFCs-

ND-SI sector

408705 482907 588806 730366 918904

Total Assets

of Gold

Loan

NBFCs

3577 5694 11538 27206 45479

Source: Reserve Bank of India, DNBS Data Base

0

20

40

60

80

100

120

140

160

2009 2010 2011 2012

Gold Loan NBFCs

NBFCs-ND-SISector

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Source: Reserve Bank of India DNBS Data Base

FACTORS CONTRIBUTED TO THE BALANCE

SHEET GROWTH OF GOLD LOAN NBFCS

On the liabilities side, the growth of balance sheet of

gold loan NBFCs was mainly contributed by borrowings from banks followed by debentures. On the

positive side, the capital funds of gold loan NBFCs

also contributed for the growth in balance sheet of gold

loan NBFCs during the period under review.

Source: Reserve Bank of India, DNBS Data Base

Note: Composition of incremental increase in the

balance sheet during the period between 2008 to 2012

is plotted in the chart.

On the assets side, the growth in balance sheet of gold

loan NBFCs was mainly contributed by the increase in

loans and advances since these companies are mainly

into lending against gold jewellery.

Note: contribution to incremetal increase in the

balance sheet during the period 2008-2012 is plotted in the chart.

Source: Reserve Bank of India, DNBS Data Base

SOURCES AND USES OF FUNDS OF GOLD

LOAN NBFCS

Sources of Funds There was a change in the pattern of sources of funds

of gold loan NBFCs during the recent years. Notably, since 2010, borrowings from banks have emerged as

the most important source of funds for the gold loan

NBFCs. Consequently, there has been a decline in the

share of resources raised through debentures since

2010. Yet debentures are the second major source of

funds for gold loan NBFCs. During the period under

review, the share of owned funds remained more or

less at the same level. Another point to be noted in this

context is the emergence of commercial paper as a

source of fund since 2010.

Source: Reserve Bank of India, DNBS Data Base

Uses of Funds

On the other hand, the pattern of uses of funds of gold

loan NBFCs remained almost unchanged during the period under review. The loans and advances continue

to be the largest use of fund for the gold loan NBFCs.

It may be noted that the gold loan NBFCs deployed

very less funds in current assets and other liquid assets

such as cash and bank balances.

Source: Reserve Bank of India DNBS Data Base

PROFITABILITY

Profitability of gold loan NBFCs has been much above

than that of the NBFCs- ND-SI sector as a whole

during the period under review. As at end-March 2012,

the return on assets of gold loan NBFCs was at 4.6 per

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cent as against the return on assets of the NBFCs-ND-

SI sector as a whole at 1.8 per cent. Further, during the

period under study, while the return on assets of the

entire NBFCs-ND-SI sector hovered around two per

cent, the return on assets of gold loan NBFCs

witnessed substantial increase.

Source: Reserve Bank of India DNBS Data Base

Similarly, the return on equity of the gold loan NBFCs

has also been consistently above the NBFCs-ND-SI

sector as a whole during the study period. Higher return on equity displays better prospects for resource

mobilization of these companies vis-à-vis other

companies in the NBFCs-ND-SI sector.

FINANCIAL SOUNDNESS

CAPITAL TO RISK WEIGHTED ASSETS RATIO

The capital adequacy ratio of both the NBFCs-ND-SI

sector as also the gold loan NBFCs witnessed

substantial decline during the period under

study.4 Notably, the decline in the capital adequacy

ratio of gold loan companies was more than the decline in the capital adequacy ratio of the NBFCs-ND-SI

sector as a whole.

Further, capital adequacy ratio of gold loan NBFCs

remained lower than the capital adequacy ratio of the

NBFCs-ND-SI sector as whole since 2010. However,

on the positive side, the capital adequacy ratio of gold

loan NBFCs always remained above the regulatory

minimum prescribed by the Reserve Bank.

Source: Reserve Bank of India, DNBS Data Base

LEVERAGE RATIO The leverage ratio of gold loan NBFCs has been

consistently above than that of the NBFCs-ND-SI

sector as a whole during the period under

review.5 However, it is important to note that since

2009, the leverage ratio of gold loan NBFCs witnessed

a declining trend, though marginally. Decrease in

leverage ratio indicates NBFCs‘ gradual improvement

in owned fund either by infusion of additional capital

or retained earnings.(chart-10)

Source: Reserve Bank of India, DNBS Data Base

ASSET QUALITY

As gold loan NBFCs grant loans against security of

gold/gold jewellery, gross NPAs to gross advances

ratio of gold loan NBFCs was much less than that of

the NBFCs-ND-SI sector. However, the GNPA ratio of

gold loan NBFCs increased during 2011-12 as

compared with the previous years. (Chart-11)

Source: Reserve Bank of India, DNBS Data Base

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DATA ANALYSIS OF FINANCIAL

PERFORMANCE OF THE GOLD LOAN NBFCS

As compared with the NBFCs-ND-SI sector as a

whole, the gold loan NBFCs displayed better

performance in terms of profitability during the period

under review. This is evident from a number of performance indicators such as return on assets and

return on equity. Though the capital adequacy ratio of

gold loan NBFCs always remained above the

regulatory minimum prescribed by the Reserve Bank,

the ratio witnessed a declining trend during the period

under review. Further, the leverage ratio of gold loan

NBFCs has been above than that of the NBFCs-ND-SI

sector as a whole, though it witnessed a declining trend

during the recent years. Asset quality of gold loan

NBFCs was always better than that of the NBFCs-ND-

SI sector as a whole. The higher profits and lower NPA

ratios reported by gold loan NBFCs were mainly due to the secured lending against gold jewellery. Further, the

future prospects of these companies in terms of

resource mobilization from the market are also

positive, as these companies report high return on

equity.

Relatively high leverage as compared with other

companies in the NBFCs- ND-SI Sector: Leverage of

gold loan companies has been higher than that of

NBFCs- ND-SI sector as a whole during the period

under study. Though the leverage ratio witnessed a marginally declining trend during the recent years,

there may be a further need to limit the leverage of

gold loan companies.

Increasing Share of Gold Loan NBFCs in the

NBFCs-ND-SI Sector: As alluded to, earlier, NBFCs-

ND-SIs include those companies whose assets are more

than Rs. 100 crore. The major gold loan NBFCs fall

into the NBFCs-ND-SI sector. Though the share of

gold loan NBFCs in the NBFCs-ND-SI sector is still

low at around five per cent as at end-March 2012, the

consistent increase in the share of gold loan NBFCs in the NBFCs-ND-SI sector deserves attention.

Concentration of Assets in the Gold Loan Segment:

Gold loan companies are into lending against the

security of gold jewellery. There are instances where

the companies lent up to 85 per cent of the value of

gold earlier till the loan to value ratio was brought

down to 60 per cent recently. One disquieting feature

here is the fact that bulk of the gold loan NBFCs‘

assets are from one activity i.e., gold loan with

majority concentration.

Resources mobilisation by NBFCs: Gold Loan

companies have been taking recourse to bank

borrowings and issuance of Non-Convertible

Debentures (NCDs) for resource mobilisation. While

banks are supposed to appraise the NBFCs‘ credit

needs before sanctioning credit facilities, the

mobilization of funds by these companies through issue

of NCDs to retail customers in the guise of secured

debentures raises concerns.

Profitability and Lending Practices: The profitability

of gold loan NBFCs has been unusually high when

compared with the NBFCs-ND-SI sector. The growth in profits of was mainly due to increase in the volume

of business. However, an interaction with the aggrieved

borrowers revealed some questionable practices

followed by the gold loan NBFCs could also be partly

the source of high profits. Some of the gold loans

NBFCs are charging of usurious interest rates,

appropriating the pledged gold jewellery and adopting

questionable auctioning procedures.

CONCLUSION & SUGGESTIONS

I. The rapid growth of their assets, borrowings and

branch network needs to be monitored continuously One of the major concerns of the growth story of the

gold loan companies is the pace at which their assets

size has grown in volume as well as the expansion of

branch network. The rapid growth of their assets,

borrowings and branch network needs to be viewed

with circumspection and measures to moderate such

growth to more sustainable levels are desirable.

II. Need to reduce the interconnectedness with the

formal financial system

An analysis of the sources of funds of gold loan NBFCs revealed that their dependence on the banking

sector witnessed an increase during the last five years.

Borrowings from the banking sector were the biggest

source of funds for the gold loan NBFCs. The

consistent increase in the dependence of the gold loan

NBFCs on the banking sector raises concerns. Gold

loan NBFCs should gradually reduce their dependence

on the bank finance so as to bring down the

interconnectedness with the formal financial system.

To clarify, what we mean by the need to reduce the

interconnectedness with the formal financial system,

we explain that given the large dependence of the NBFCs on the banking system to source the funds in

the recent years, the Working Group suggests that there

is a need for the NBFCs to reduce their over-

dependence on any one source and should develop a

balanced structure of sources of finance, while

strengthening their capital funds as a risk buffer. In this

context, the AGLOC pleaded that FII flows, ECBs and

securitization may be permitted as additional sources of

funds to the gold loan NBFCs. DNBS may examine

this request in consultation with other relevant

Departments.

III. Declining capital adequacy ratio – Need to

improve the capital.

The capital adequacy ratio of gold loan NBFCs

witnessed a continuous declining trend during period

under study. Further, the capital adequacy ratio of gold

loan NBFCs was also lower than that of the NBFCs-

ND-SI sector as a whole. The decline in the capital

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adequacy ratio despite increase in capital funds points

to the aggressive asset growth that took place during

the period under study. The gold loans NBFCs should

strive to improve their capital

IV. Need to review the current stipulations

pertaining to raising resources through NCDs

Some gold loans NBFCs have been circumventing

Reserve Bank (IDMD) stipulations on Non-Convertible

Debentures (NCDs) and mobilization of funds on retail

form bearing ticket size of as less as rupees five

thousands from public practically on tap at their

branches.

REFERENCE

1. Khan & Jain, ―Financial Management‖ tata Mc-

Graw Hill Publications.

2. Roy, Nibedita.(2013) "The Golden Route to

Liquidity: A Performance Analysis of Gold Loan

Companies." International Journal of Research in Commerce, IT & Management 3.6 (2013).

3. Bhunia, Amalendu, and Somnath Mukhuti (2013).

"The impact of domestic gold price on stock price

indices–An empirical study of Indian stock

exchanges."Universal Journal of Marketing and

Business Research 2.2 (2013): 35-43.

4. http://www.rncos.com/Report/IM423.htm

5. http://www.rbi.org.in

6. NBFCs= Non-Banking Financial Corporations

7. ND-SI= Non-deposit- Systemically Important

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CARBON SEQUESTRATION-

ECONOMIC TOOL AGAINST ENVIRONMENTAL POLLUTION

Singh Ahuti*

ABSTRACT It is understood that carbon emission is responsible for global warming. In Kyoto protocol it is considered that global warming is the most dreaded problem of the Millennium. Even then also the human beings are busy in destroying the vegetation & promoting the Industries & technological advancement in present scenario. Trees are important sinks for atmospheric carbon i.e. CO2. The 50% of standing biomass its carbon itself. Importance of forest areas in carbon sequestration is amply clear yet hardly any attempts have been made to study the potential of trees in carbon sequestration in urban areas. In this study we made & attempt to explore ecological conservation values of such areas. Such green areas are pockets act as hot spot in urban biodiversity. Therefore, to evaluate the status of such a green pockets, this study were undertaken on vegetation. For convenience the paper is divided under following sub heads.

INTRODUCTION What is Sequestration-- Terrestrially, carbon is stored

in vegetation and in the soil. Plants store carbon for as

long as they live, in terms of live biomass. Once they

die, the biomass becomes a part of the food chain and

eventually enters the soil as soil carbon.

There are four components of carbon storage in a forest

ecosystem. These are trees, plants growing on the

forest floor (under-storey material), detritus such as

leaf litter and other decaying matter on the forest floor,

and forest soils. Simultaneously, plants grow on the forest floor and add to this carbon store. Over time,

branches, leaves and other materials fall to the forest

floor and may store carbon until they decompose.

Forest transitions from one ecological condition to

another will produce substantial carbon flows – forests

can be a carbon source or a sink Net forest carbon may

be released, thereby making the forest a source, due to

biomass reductions from fire, tree decomposition, or

logging, any of which will reduce the forest biomass.

Global carbon is held in a variety of different stocks.

Natural stocks include oceans, fossil fuel deposits, the

terrestrial system and the atmosphere. In the terrestrial system carbon is sequestered in rocks and sediments, in

swamps, wetlands and forests, and in the soils of

forests, grasslands and agriculture. About two-thirds of

the globe‘s terrestrial carbon, exclusive of that

sequestered in rocks and sediments, is sequestered in

the standing forests, forest under-storey plants, leaf and

forest debris, and in forest soils.

A stock that is taking-up carbon is called a "sink" and

one that is releasing carbon is call a ―source." The

potential for agricultural crops and grasses to act as a sink and sequester carbon appears to be limited, due to

their short life and limited biomass accumulations.

Their role for human management of carbon could

increase as we learn more about their potential.

OBJECTIVE

1. Kyoto protocol & carbon sequestration

2. To analyze the activities in carbon sequestration

3. Carbon sequestration in Indian perspective 4. Carbon sequestration & economic growth

5. How can emissions be offset?

IMPORTANT CLAUSES OF KYOTO

PROTOCOL RELATED TO CARBON

SEQUESTRATION The Kyoto Protocol to the UN Framework Convention

on Climate Change (UNFCCC, 1997) has provided a

vehicle for considering the effects of carbon sinks and

sources, as well as addressing issues related to fossil

fuels emissions.

There are at least four important points to recognize:

Forests are definitely included in the Protocol.

The Protocol provides for credit for some human

induced forest based emission reduction activities

begun in 1990 or later. However,

Credits accrue only for carbon sequestered during

the 2008-2012 commitment period.

Forest management, conservation and agricultural

soil sinks are not specifically mentioned and

hence their role in obtaining credits is currently

subject to varying interpretations. The approach of the Kyoto Protocol clearly is not

comprehensive in its treatment of sinks, being

inherently restrictive in its focus. To treat carbon sinks

is interrelated to afforestation, reforestation

&deforestation undertaken after 1990. Thus, the

Protocol ignores carbon changes during some periods

and from some sources, many human-induced. For

example, management and many human-induced

actions will generate far more carbon sequestration

than credit received. The Protocol specifically

mentions emissions from sources and removals by sinks resulting from direct human-induced land-use

change and forest related activities – Deforestation,

reforestation and afforestation – undertaken since

1990. However, the Protocol is silent on the role of

other sinks in meeting national emission inventories.

Agricultural land, for example, is mentioned as a

possible carbon source, which must be included in a

country‘s emission inventory.

* Assistant Professor, Department of Economics, Udai Pratap College Varanasi

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Kyoto protocol & LULUCF – Land use, land use

change and forestry (LULUCF) have the potential to

either be sources of emissions or ‗‘Sinks ‗‘ and are thus

treated specially in the Kyoto protocol. Generally,

activities such as reforestation and afforestation that

potentially remove GHG from the atmosphere as well as deforestation and other activities that deplete forests

must be accounted for in Annex I countries during their

commitment period. The use of sinks is restricted in

certain ways so as to not under mine the overall

environmental integrity of the protocol. The Marrakesh

accords (COP7) of the Kyoto protocol recognize the

following activities that can be used to meet targeted

reductions.

1. Afforestation

2. Reforestation

3. deforestation

4. Forest management 5. Crop land management

6. Grazing management

7. Re- vegetation

CARBON SEQUESTRATION ACTIVITIES

There are various activities that can increase the carbon

sequestration value of forestland. It is important to

remember that forests both sequester and emit carbon:

forest management will affect the magnitude. Forest

management affects the overall size of several direct

and indirect pools of stored carbon. The magnitude and direction of the flux will depend on how much the size

of each of these pools change.

The main activity options include;

1. Afforestation- increasing the area of forestland

being managed.

2. Reforestation- returning a forest more rapidly

than would otherwise occur to an area where a

forest has been eliminated.

3. Improved Forest management- e.g. increasing

productivity on existing forestland, reduction of

fires, control of losses from insects and diseases. 4. Increased use of biomass fuels

5. Increased resource efficiency in the forestry and

wood products industry.

6. forestland conservation- avoiding the loss of

forestland

Afforestation

This has been the most common activity used in lessor-

developed nations. The most partial application is the

planning of trees in areas that were deforested for

agriculture or grazing generations ago. After the loss of trees, the areas become either occupied by grasses or

shrubs that currently exclude the natural regeneration

of trees or the area suffered such severe erosion that

trees are unable to regenerate naturally. These lands

would not return to forests for many years if left to

themselves. Afforestation has the potential benefit for

increasing all five pools of carbon.

Reforestation

Many areas where forests have been destroyed either

from natural disturbances such as fire or anthropogenic

disturbances would naturally return to forests

eventually but the time necessary for full occupancy by

tree species could take decades. Planting and early tending can restore these forests

more quickly. Reforestation will increase the carbon

pools on site and by shortening rotation time, lead to

increases in the product pools as well.

Improved forest management

These types of activities have the greatest potential for

increased sequestration of carbon through forestry

because they encompass so many actions that could

take place over such a large area of the landscape. The

activities fall into three types;

1. Those that increase growth of the standing crop of

trees,

2. Those that decrease the release of carbon through

mortality from insects and diseases as well as

forest fires and

3. Those that reduce the total time period when

sequestration per hectare is reduced after harvests

because of less than full site occupancy.

The first type includes treatments such as the addition

of fertilizers and changing the water regime either through drainage or irrigation. These treatments may

have a dramatic effect on the pool of standing biomass

and will indirectly effect all other pools of carbon.

Forest fires and mortality from insect‘s attacks and

diseases release very large amounts of carbon into the

atmosphere. Treatments to reduce these releases mast

be assessed over entire landscapes to be sure that

protecting carbon stocks in some stands does not just

shift these disturbances are so important over large

areas,consequenceson other attributes of the forest such

as wild life habitat, biodiversity, and hydrology must

be assessed.

The third group of activities includes practices more

sophisticated than simple reforestation to reduce times

when the growing space is vacant after4 harvest. These

practices include multi-age management including

shelter wood harvests that encourage rotation

overlapping advance regeneration, greater use of

retention trees and areas left for more than one rotation

period, and simple lengthening of rotation periods. All

these activities have to be carefully planned to be sure

that increasing the standing biomass pool is not more than offset by reductions in other pools, particularly the

product pool. In situations where the product pool must

be debited from the carbon account upon removal these

practices will have a greater impact on the carbon

budget.

Increased use of biomass fuels- Wood energy power

plants have very little economy of scale. This means

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that it is possible to build small, decentralized plants

in rural areas. If the new energy reduces the amount of

petroleum products that would otherwise be used ,

significant carbon sequestration effects can be gained

not only by direct reduction in petroleum combustion

but also by decreased carbon emissions caused by refinement and transportation of the petroleum

products. Benefiting from increased use of biomass

fuels depends upon the assumption that the fuel wood

is being harvested in a sustainable manner and the

harvests would not have been used for semi

permanent product pools.

Increased resource efficiency in the forestry and

wood products industry.- The industry has made

major changes in the last few decades to increase

utilization and reduce waste. Early actions were based

on cleaner harvests that left less wood on the site. Many of these activities were discovered to have

deleterious effects on the ecosystem. More recent

activities have been based on reducing waste and

breakage after the wood has left the site. These

activities have made the industry more cost efficient

as well as allowing more carbon to be sequestered

through larger pools of carbon in products , increased

use of bioenergy, or reduction in the amount of dead

(rapidly decomposing )materials left in the wood yards.

This opportunity could be expanded to paper and wood

composite industries through the increased used of secondary products such as recycled paper and waste

fiber.

Forest land conservation

Forest lands (especially working forests) can sequester

significant amounts of carbon .Much can be gained by

not converting forestlands to other uses (such as

building and development )society will keep expanding

the area of developed land , but instead of converting

forestland , this land can be converted from uses that

are less effective in the sequestration of carbon .

Specific cases of alternative lands include the use of previously degraded areas (abandoned farm land) or

brown fields. Protecting forests from land conversion

can take advantage of all five pools of carbon.

CARBON SEQUESTRATION IN INDIAN

PERSPECTIVE

The total biomass above & under the ground in our

country is estimated to be about 8,375 million tons for

the year 1986, of which the carbon storage would be

4,178 million tones. The total carbon stored in forests,

including soil is estimated to be 9578 m t.

On the other hand, carbon emissions from fossil based

energy production and consumption activities in India

have been estimated at 152-205 m t per year. Clearly,

there are wide differences in the estimates made by

different scientists and ecologists. The corresponding

estimate from agriculture activities including fuel

burning ranges from 43 m t to as high as 115 m t. The

current rate of carbon emission from agricultural and

forestry sectors are just about being balanced by the

current rate of reforestation. This still leaves the entire

fossil-based emissions unabated. So, does India have any additional potential to sequester more carbon

through forestry? If it does, what Wold it cost? India

has nearly 53 million of degraded lands. According to a

study by the Delhi based Institute of Economic

Growth, at least 39 m ha of the degraded lands

mentioned above are clearly feasible for carbon

sequestration.

These estimates are based on their land capabilities,

feasible forestry options, and demand patterns for

different types of forest products. 6 m ha of

miscellaneous tree crop and other than current fallow lands can be for long timber plantations, 12 m ha of

partially degraded areas for natural regeneration and 6

m ha of fully degraded forests for enhanced

regeneration. Such a mix of forestry Options with land

capability can enhance the sequestration potential by

78 million tones of additional carbon per year by the

year 2020.

CARBON SEQUESTRATION & ECONOMIC

GROWTH

To check growth of carbon in the environment, the afforestation & reforestation of plants is compulsory,

by afforestation, the plants of medicinal values are

produced which are sold out and help in development

of economy. Besides this, from certain plants, furniture

wood is obtained and sold to get benefits.

By reforestation, the number of plants increased emits

more oxygen which is beneficial for environment and

Carbon sequestration

Afforestation Reforestation

Remove G.H.Gs from the

atmosphere

& emit O2

Medicinal

values

Beneficial for

environment

Carbon

sinks

Furniture

goods

Better agriculture Help in

determing

the age of

plants

Export More production

Foreign

currency

Economic development

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RNI – UP/ENG/2011/36701 56 ISSN: 2231-6353

better climatic condition. During better climatic

condition, the production of food grains are increased

which fetches good amount of help in economy. The

more production helps in export of woods to foreign

countries and helps in rebuilding its economy.

How can emissions be offset?

The concept of carbon sequestration is quite simple.

Whether you consider geological, oceanic or biological

carbon sequestration they all involve removing carbon

dioxide from the atmosphere and storing it in a‘ sink‘‘.

A sink, in this instance, can be described as a physical

state or geological location in which the carbon dioxide

can have no greenhouse effect in the atmosphere.

The World Land Trust operates carbon sequestration

schemes involving Land Use, Land use Change and

Forestry (LULUCF). The principle behind storing carbon using LULUCF activities is based on the fact

that plants use carbon dioxide from the atmosphere as

building blocks for cellular growth.

Tree biomass, when dry, is made up pf approx. 50%

carbon. Thus if an area of forest is planted and a

respective increase in tree biomass is measured, carbon

will have been stored, or sequestered, in that area.

Furthermore due to natural processes associated with

cycles of tree growth and the physical processes that

trees undergo, carbon will be stored in the soils and organic litter that surround the forest.

This above ground & below ground increase in carbon

storage has been the subject of extensive study over the

last 20 years, it has been found that it is measurable

and more importantly region and species specific.

REFERENCES

1. Roger Sedjo and Brent Sohngen (2012). "Carbon

Sequestration in Forests and Soils". Annual

Review of Resource Economics (Annual

Reviews) 4:127–144.doi:10.1146/annurev-

resource-083110-115941. 2. "Glossary of climate change acronyms"

UNFCCC. Retrieved July 15, 2010.

3. "Squaring the circle on carbon capture and

storage"(PDF). Claverton Energy Group

Conference, Bath,. October 24, 2008. Retrieved

May 9, 2010.

4. "Energy Terms Glossary S". Nebraska Energy

Office. Retrieved May 9, 2010.

5. Richard Lovett (May 3, 2008). "Burying biomass

to fight climate change". New Scientist (2654).

Retrieved May 9, 2010.(registration required)

6. http://www.nationalaglawcenter.org/wp-

content/uploads/assets/crs/RL31432.pdf

7. Nelson, Robert (July 1999). "Carbon Sequestration: A Better Alternative for Climate

Change?"

8. Pete Smith. "Soil Organic Carbon Dynamics and

Land-Use Change". In Ademola K.

Braimoh. Land Use and Soil Resources.

Springer. ISBN 1-4020-6777-1.

9. "FACTBOX: Carbon farming on rise in

Australia". Reuters. June 16, 2009. Retrieved

May 9, 2010.

10. Jump up^ "Environmental Co Benefits of

Sequestration Practices. 2006. June 1,

2009. http://www.epa.gov/sequestration/co-benefits.html

11. Gerald Traufetter (01/02/2009). "Cold Carbon

Sink: Slowing Global Warming with Antarctic

Iron". Spiegel.de. Retrieved May 9, 2010.

12. Richard Monastersky (September 30, 1995). "Iron

versus the Greenhouse - Oceanographers

cautiously explore a global warming therapy".

Science News. Retrieved May 9, 2010.

13. Planktos,http://www.planktos-science.com/

14. "WWF condemns Planktos Inc. iron-seeding plan

in the Galapagos". Biopact.com. June 27, 2007. Retrieved May 9, 2010.

15. David Fogarty (December 15, 2008). "Reuters

AlertNet -RPT-FEATURE-Scientists urge caution

in ocean-CO2 capture schemes". Alertnet.org.

Retrieved May 9, 2010.

16. Lavery T.J. et al. (2010). "Iron defecation by

sperm whales stimulates carbon export in the

Southern Ocean".Proceedings of the Royal

Society B 277: 3527–3531.doi:10.1098/rspb.2010.

0863. PMC 2982231.PMID 20554546.

17. Anna Salleh (November 9, 2007). "Urea 'climate

solution' may backfire". Australian Broadcasting Commission. Retrieved May 9, 2010.

18. Lovelock JE; Rapley CG (September 27, 2007).

"Ocean pipes could help the earth to cure

itself". Nature 449 (7161):

403. Bibcode:2007Natur.449..403L.doi:10.1038/4

49403a. PMID 17898747.

19. Fred Pearce (September 26, 2007). "Ocean

pumps could counter global warming". New

Scientist. Retrieved May 9, 2010.

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RNI – UP/ENG/2011/36701 57 ISSN: 2231-6353

CHALLENGES AND OPPORTUNITIES OF INSURANCE SECTOR

TOWARDS ECONOMIC DEVELOPMENT

Rahul Kanojia *

ABSTRACT Among all financial services Insurance has a unique identity. Insurance plays a very important role to overall development of the economy. In the past few years, several interesting lines of research have begun to map the specific contributions of Insurance to the economic growth process as well to the well-being of the poor. The evidence suggests that Insurance contributes materially to economic growth by improving the investment climate and promoting a more efficient mix of activities. This contribution is magnified by the complementary development of banking and other financial systems. The purpose of writing this paper is to study the role and impact of Insurance industry to economic development in India. To find out the various available opportunities and challenges in Insurance industry.

INTRODUCTION

There are several factors which are responsible for the

economic development of a country like literacy,

public welfare schemes, investments, capital formation,

financial services like banking and insurance etc. All

these factors are important for making a country

economically sound and developed. This paper is an

attempt to focus on the role and contribution of

Insurance to economic development in India. Insurance

is a social device .It tries to reduce the cost of loss to

society by reducing risk. It accumulates funds to meet individual losses. The fund is the way of transferring

individual loss to a group. The loss was uncertain from

individual‘s side. But for a group the loss becomes

certain. It is a mechanism of spreading risk falling on

one over many facing the same risk.

Insurance is an integral part of the Indian financial

system, made tremendous growth over the past few

years. Insurance performs multifarious function some

of which are specifically related to individual classes of

insurance business, such as marine, fire, life and accident and some of which are common functions

related to all classes of insurance business particularly

focusing towards economic activities as a means of

economic development. Whilst specific functions

mainly deal with individuals in mitigating their

financial losses, the common functions mainly aim at

providing boost to economic development of a country.

Insurance is a business where insurance companies are

constantly receiving sums of money in the form of

premium and much of this money they receive to be

paid in the shape of claims. Not all such money they

receive is in fact required at a time and, therefore, in the position of custodians of vast sums they are able to

invest it for earning interest in the capital market.

Whilst the general insurance investment has to be on

short-term basis, life funds can necessarily be invested

on long-term basis. The investment is usually made in

government securities, mortgages, industrial loans and

shares, debentures etc. The insurance market as such is

largely relied upon by commerce and industry as one

of the main sources of investment capital and therefore,

it obviously contributes much in the overall economic

development of a country. Insurance companies have a

pivotal role in offering insurance products which meet

the requirements of the people, and at the same time,

are affordable.

LITERATURE REVIEW

According to Ramesh Bhat (2005) ―Insurance does

influence the growth and development of an economy

in several ways. The availability of insurance can

mitigate the impacts of risk by providing products

which help organizations and individuals to minimize the consequences of risk and has a positive effect on

industry growth as entrepreneurs are able to cover their

risks. In the absence of a full range of insurance

products and/or deficient products in terms of coverage

and scope, the risk-taking abilities would be hampered

and chances are that the economic activities would turn

out to be high-risk activities. The implications of

leaving various risks uncovered can be significant and

the impact of losses can be devastating creating a huge

burden on the governments. Therefore, a strong and

competitive insurance industry is considered imperative for economic development and growth.

However, the contribution of the insurance companies

is also dependent on the fact that they are able to pool

risks effectively. Only then would it be possible to

cover these risks at an affordable and reasonable cost

as the insurance provider will be able to spread the

risks throughout the economy.‖

―Due to globalization, the number of entries of

insurance companies is dramatically increasing and

leading to hyper competition. The insurance companies

are in stress to focus on the strategic issues. Some of the insurance companies are providing competitive

presents of super-fast services, easy documentation

process, extra benefits for awarded customers,

complete cover and EMI benefits. The companies

should create a separate identity which may help the

customer to be choosy enough and demand for better

insurance companies which fulfills the requirement of

the target audience.‖ By G.Vadivalagan &

N.Suganthi,( July 2009).

*Research Scholar, Department of Commerce & Business Administration University of Allahabad.

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According to M.Motihar, (2013) ,‖The practice of

insurance has many secondary or subsidiary functions

which contribute to the welfare of the individual or

society. It tends more and more to transform our

modern social order, foster both private and public

interests, individual prudence, acts as an accelerator and as stabilizer of economic growth. Insurance has

attained so great a popularity and importance these

days that it has now become almost a ‗home-word‘.

The socio-economic significance of insurance has been

well realized all over the world and it will be no

exaggeration to say that industrial world without

insurance is like a car without shock-absorber.‖

―The increased competition has led to rapid product

innovations for catering to the diverse requirements of

the various segments of the population. Besides

statutory commitments in respect of weaker sections of society, competitive pressures are pushing life

insurers to adopt innovative marketing strategies to

extend insurance penetration, especially targeting

lower income groups‖ by Nitin Bhasin, (2013).

CONTRIBUTIONS OF INSURANCE TO

ECONOMIC GROWTH AND DEVELOPMENT Insurance serves a number of valuable economic

functions that are largely distinct from other types of

financial intermediaries. In order to highlight

specifically the unique attributes of Insurance, it is worth focusing on those services that are not provided

by other financial services providers, excluding for

instance the contractual savings features of whole or

universal life products .The indemnification and risk

pooling properties of Insurance facilitate commercial

transactions and the provision of credit by mitigating

losses as well as the measurement and management of

non-diversifiable risk more generally. Typically

Insurance contracts involve small periodic payments in

return for protection against uncertain, but potentially

severe losses.

Among other things, this income smoothing effect

helps to avoid excessive and costly bankruptcies and

facilitates lending to businesses. Most fundamentally,

the availability of Insurance enables individuals and

entrepreneurs to undertake higher risk, higher return

activities than they would do in the absence of

Insurance, promoting higher productivity and growth.

IMPACT OF INSURANCE TO ECONOMIC

DEVELOPMENT

Impact of Insurance to economic development is significant and has rapidly grown in the last decade

with liberalization and private sector entry. The

numbers of people insured with life policies have

vastly increased; medical insurance has become

popular and benefited large number of people.

Insurance premium as come down as a result of

competition, insurance brokers are providing good

service to take insurance to the people and help them to

get the claims quickly in case of death or accident. The

companies are insuring their factories, offices,

vehicles, shops, equipments, hotels, hospitals, and the

households are insuring their properties assets. This has

considerable mitigated the risks of loss and damage to

the insurers. The money collected by the insurance companies have contributed to economic development

as these funds are deployed in industrial projects,

transport and infrastructure projects as well as socially

beneficial health and other projects.

Insurance promotes economic development through

various channels:

Insurance reduces the capital firms need to

operate.

Insurance fosters investment and innovation by

creating an environment of greater certainty.

Insurers are solid partners for the development of a workable supplementary system of social

protection, in particular in the field of retirement

and health provision.

As institutional investors, insurers contribute to

the modernization of financial markets and

facilitate firms‘ access to capital.

Insurance promotes sensible risk-management

measures through the price mechanism and other

methods and contributes to responsible and

sustainable economic development.

Insurance provides employment opportunities to the job seekers.

CHALLENGES

As insurance is a ‘push‘ rather than a ‘pull‘

product, it is a big challenge for the companies to

make their products meaningful to prospective

customers.

The key business challenge for most of the

insurers is to reduce the turnaround time and

improve their speed to market their products.

Shifting consumer‘s requirements.

Premiums rates will remain under pressure due to intense competition on the more profitable lines.

Insured adopted fraudulent practices for earning

profit from the insurance companies.

Delay in claim settlement process decreases the

trust level of insured.

Still some areas are isolated from insurance due to

bogus and outdated plans.

Another challenge in front of insurance

companies are heightened competition and global

economic meltdown.

The existing policy awareness towards the usage of the policy is very low.

Shortage of insurance professionals is an another

challenge in front of insurance companies.

OPPORTUNITIES

As insurance need is vertical as well as horizontal, the

insurance business is spreading across the country.

Insurance companies are focusing and spreading

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 59 ISSN: 2231-6353

network in rural markets as it has huge potential.

Technological development is helping this drive of

rural expansion. In future, online insurance will have a

key role in new business. There will be huge scope for

claim consultants who will help people to get insurance

claims. Insurance sector will slowly dominate the economy and there will be overall developments in

insurance sector. There will be huge revenue

generation from insurance business in India as well as

outsourced insurance businesses from outside India.

There are several important opportunities are available

in front of insurance industry and it is needed by

insurance industry to absorb these opportunities and

make its contribution to the economic development of

the country.

REMEDIAL MEASURES

New approaches and technology are needed to manage and develop an insurance product which

reduces the cost and time to market.

It is essential for the insurance company to

develop customer education through programme

to create awareness about the benefits of

insurance policies.

The brand image of the company should be built

by communicating the value addition which the

company possesses.

The customer relationship management is the

mantra for modern organization to retaining the customers. The insurance companies should have

an effective CRM programme to motivate the

agents who are involved in the customer

relationship.

There is a need to have regular effective

advertisements which will help the customer to

remember the company.

The policy terms and conditions should be

completely transparent to the people.

The rules and regulations should be transparent

and hassle free.

The insurance companies may provide the adequate guidelines facility which may able to

answer the quires of the customers through

customer care. The helpline toll free number can

be provided.

Use Business Intelligent (BI) to develop an

innovative product with wide range of

advantages.

Traditional distribution channels, especially tied

agents, need to be improved.

CONCLUSION The insurance sector plays a fundamental role in the

economy. A world without insurance would be much

less developed economically and much less stable. By

protecting firms and citizens against adverse events,

the insurance sector provides a safety net that allows policyholders to restart their activities whatever the

difficulties they have to cope with. Insurance plays, at

this level, a key role in economic stability. Moreover,

as institutional investors, the insurance sector provides

a long-term source of finance for investment in the

economy, thus contributing to sustainable growth.

India is leading towards one of the strongest economy

of the world and it is international phenomenon that

insurance sector always booms along with growing

economies. Insurance services are the foundation for

the smooth functioning of all business and commercial

activities. All industries in this scenario can be monetarily well protected from all types of catastrophic

and manmade risks. The role of insurance towards

economic growth and development is incredible.

REFERENCES 1. Bhat.Ramesh, et. (Insurance Industry in India:

Structure, Performance, and Future Challenges),

VIKALPA: THE JOURNAL FOR DECISION

MAKERS, Volume 30, No 3, July-September

2005.

2. Vadivalagan. G & Suganthi .N, (The Vehicle Insurance Holders Attention towards the

marketing strategies of Insurance Company),

JOURNAL OF FINANCE & MANAGEMENT,

Volume 1, No 2, July 2009.

3. Motihar. M, (PRINCIPLES AND PRACTICE OF

INSURANCE), Sharda pustak bhawan,

Allahabad, 2012-2013.

4. Bhasin. Nitin, (INDIAN FINANCIAL SYSTEM

REFORMS, POLICIES AND PROSPECTS),

New Century Publication, New Delhi, 2013.

5. Palande.S.P, Shah.S.R & Lunawat.L.M,

(INSURANCE IN INDIA), a division of Sage Publication, New Delhi, 2003.

6. Thoyts.Rob, (INSURANCE THEORY AND

PRACTICE), Routledge Publication, 2010.

7. www.insuranceeurope.eu

8. www.irda.org

9. www.insuranceinstituteofindia.in

10. www.tapstrynetwoks.com

11. www.economictimes.com

12. www.financialexpress.com

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RNI – UP/ENG/2011/36701 60 ISSN: 2231-6353

THE IMPORTANCE OF LOCATIONAL ATTRIBUTES:

A STUDY OF INDEPENDENT SMALL SCALE RETAILERS

Vivek Kumar Pathak*

Chandan**

MadanLal***

ABSTRACT Objective: To explore up to what extent independent small scale retailers attach importance to various locational attributes.

Design: A total of 100 independent small scale retailers from Varanasi city were approached, who self-completed a questionnaire. Non-probability convenience sampling was used to select the respondents. Results: It was found that the accessibility criterion is the most important criterion for small scale retailers followed by environmental criterion. Conclusion: The results of this study have direct implication for independent small scale retailers. Based on the importance attached to each of the attribute, the results of the study can guide them in making better location decisions.

INTRODUCTION

The retail sector in India has evolved over the past

decade with organized retail booming and unorganized

retail still having a share around 95%. Location which

is one of many considerations in a marketing strategy

involves an intricate decision making process. There

are many location analysis techniques available to

retailers, but, most of them require expertise and high

cost involvement.The locational decision making of small scale retailers is mostly constrained with their

inability to invest in such analytical techniques and

mostly based on ―Gut Feeling‖. In a research carried

out by Pioch et al. (2004), which tried to study the

importance of location in case of small independent

firms, a ground theory approach was used. This type of

approach is used when very less academic research has

been done in that field. Even in case of retail location

studiesvery limited studies have been done considering

small scale retailers (non-multiple retailing). This study

has tried to investigate various locational factors which independent small scale retailers consider important.

Literature review:According to Benito et al. (2005),

the key factors to bear in mind in the assessment of

retail locations can be classified into two broad types

(1) market factors- relating to the potential of the

location for attracting consumers and enhancing sales

(2)-operative factors (cost involved in operating a

location). According to Hand et al. (1986), nine basic

elements need to be considered in retail location

analysis, trading area, competition, laws related to

retail business, visibility and accessibility, artistic and aesthetic qualities associated with the location,

compatibility of the adjacent retail businesses,

convenience, history of the location and trading hours.

According to Mazze (1972), in selecting a site three

variables can be measured, (1) -product assortment

(measured by the number and type of like and unlike

stores surrounding the site selected), (2)- population

density and (3)-traffic configuration. Apart from this he

has suggested consideration of five additional factors-

accessibility, vehicular traffic, parking lots, cost of

occupancy and retail groupings. According to

Hemalatha et al. (2008), there are several principles

that guide site selection process, enough population

need to exist within a reasonable commuting distance.

Proximity to major roads, availability of public

transportation and local competitive retail environment

has a major influence on locational decision-making.

RESEARCH METHODOLOGY

A Total of 12 locational factors were extracted from

various literatures. These 12 factors were then

categorized according to the classification made

byBurnaz&Topcu (2006).

OBJECTIVE OF THE STUDY

The primary purpose of this study is to determine

which locational attributes small scale retailers deem

important.

SAMPLING & QUESTIONNAIRE DESIGN

The study was carried out in Varanasi city (Uttar

Pradesh). A non-probability convenience sampling

method was used to select small scale retailers selling

convenience goods. A total of 100 retailers were

approached. For the final study, a structured

questionnaire consisting of different sections was

compiled in accordance with the conceptual framework

and study objective. The various sections dealt with

locational attributes and demographic information. A

Likert-type importance scale varying from 1 to 5 was used to measure the degree to which the variables

under study vary with 1 = Not Very Important and 5 =

Extremely Important.

The data obtained was statistically analyzed using

various statistical tools such as mean, One–sample T

test etc. using SPSS package.

* Research Scholar, Faculty of Management Studies, Banaras Hindu University, Varanasi, Uttar Pradesh

** Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi, Uttar Pradesh-221005

*** Assistant Professor, Faculty of Management Studies, Banaras Hindu University, Varanasi, Uttar Pradesh

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

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RESULTS AND DISCUSSION

The results obtained from the study are presented here.

The sample (n=100) consists of retailers having low

daily average sales (µ=3000 INR). The daily average

no. of customers, store receives is also low (µ=103).

The average age of respondents is high (µ=41yrs). The average of years, the retailers have been in business is

also high (µ=18.7yrs). 45.2 % of the retailers have their

stores on rent.

In our study we found a hierarchy of three locational

criterions with accessibility as the most important

(µ=4.01) and criterion related to other retailers and

business district (µ=3.67) to be the least important. This is summarized in the given table-1.

Table- 1 : LOCATIONAL ATTRIBUTES (N=100)

Components p-**

value

Rank

S/O*

Result Composite/ p-

value

1 Criteria Related with Accessibility

A1 Availability of Parking Facilities 4.67 .000 1/2 Sig

4.01/.000

Significant

A2 Visibility of Store 4.30 .000 3/4 Sig

A3 Nearness to Source of Supply (Ease of Delivery) 2.62 .239 5/10 N-sig

A4 Accessibility by Public Transport 4.14 .000 4/7 Sig

A5 High Pedestrian/Vehicular Traffic 4.33 .000 2/3 Sig

2 Environmental Criteria

E1 High Population Density in the Vicinity 4.19 .000 1/5 Sig

3.75/.000

Significant E2 High Income of the Residents in the Vicinity

(Spending Patterns)

3.77 .011 2/8 Sig

E3 Ease of Recruitment of Store Personnel (Availability

of Labour)

2.95 .880 3/9 N-sig

3 Criteria Related with Other Retailers and Business District

R1 Store Composition in Vicinity-Similar 3.77 .007 3/8 Sig

3.67/.000

Significant

R2 Store Composition in Vicinity-Different 4.75 .000 1/1 Sig

R3 Reputation of Business District 4.16 .000 2/6 Sig

R4 Presence of a Magnet store 2.31 .016 4/11 Sig

*Section/Overall, **Statistically significant at p<0.05, mean value compared with the midpoint of the scale i.e. 3

CRITERION-1

The accessibility criterion was found to be the most

important criterion from the small scale retailer‘s point

of view. Within this the parking facility received the

highest mean (4.67). All the components under this

criterion except nearness to the source of supply (2.62)

received a mean greater than four. According to Chau

et al. (2000), accessibility generates extensive pedestrian/vehicular flow and the location is accepted

to have high retail drawing power. After application of

one sample T-test all the results were found to be

significant (p<.05), except for the component,nearness

to the source of supply (p=.239>.05)

CRITERION -2

In the words of Benito et al. (2005) although

population density is an important attribute for the

selection of location, the heterogeneity of consumers is

also fundamental. While the former is related to the

quantity of consumers, the latter is related to the quality of consumers. For the small scale retailers the

quantity of consumers in the vicinity of store is more

important than quality of consumers (4.19>3.77). The

retailers perceive that high income group of consumers

don‘t shop at small stores. Availability of labor

received the least score and was found to be

insignificant (p=.880>.05). The results for the rest of

the components were found to be significant after

application of one sample T-test.

CRITERION-3

This criterion is related to other retailers in vicinity of stores and the business district where the store is

situated. This criterion received the lowest composite

mean. According to Bravo et al. (2006), there are two

types of clustering of stores. One-different types of

stores that satisfies efficiently the needs and wants of

consumer‘s multipurpose shopping, two- stores of the

same type that allows consumers to reduce uncertainty

and helps in comparing prices. The type one received

the highest mean of 4.75. Reputation of the market was

another component that received a score greater than

four. After application of one sample T-test all the

results were found to be significant (p<.05). All the components under this criterion were found to be very

important except presence of a magnet store (a magnet

store draws consumers from distant places).

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CONCLUSION

Although the issue of retail location has attracted a

great deal of academic attention, most of the literature

pertains to large scale retailers. The results of this study

have direct implication for independent small scale

retailers. The importance attached to each of the attribute can guide them in making better location

decisions.

REFERENCES

1. Benito O G (2005), ―The Role of Geodemographic

Segmentation in Retail Location Strategy‖,

International Journal of Market Research, Vol.

47,No.3, p295-316

2. Bravo M E (2006), ―Do Business Density and

Variety Determine Retail Performance‖,Business

Economics Series 17 (Working Paper)

3. Burnaz et al. (2006), ―A Multiple-Criteria Decision-making Approach for the Evaluation of

Retail Location‖,Journal of Multi-Criteria

Decision Analysis, Vol.14, p67–76

4. Chau W K (2000), ―The Determinants of Street

Level Retail Shop Prices in Hong Kong‖, Paper

Presented in Pacific Rim Real Estate Society

Conference 5. Hand H H (1979), ―Economic Feasibility Analysis

of Retail Location‖, Journal of Small Business

Management, Vol.17, p28-36

6. Hemalatha et al. (2008), ―Multiattribute Analysis

of the Retail Store Location Decision‖, Journal of

Contemporary Research in Management,p43-52

7. Mazze E M (1986), ―Identifying the Key Factors

in Retail Store Location‖, Journal of Small Bsiness

Management, Vol-10, p17-21

8. Pioch E (2004), ― Small Independent Retail Firms

and Locational Decision Making: Outdoor Leisure

Retailing by the Craigs‖, Journal of Small Business and Enterprise Development, Vol.11,

No.2, p222-232

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ROLE OF CORPORATE GOVERNANCE IN SUSTAINABLE DEVELOPMENT

Triveni *

Rajan **

ABSTRACT „Corporate Governance has attained unprecedented prominence in recent years.‟ Both the failures and the successes are responsible for it. CSR is an important part of governance as it tries to satisfy the needs of all major stakeholders in terms of their economic, social, and environmental demands and also the financial demands from shareholders. Also among the most important issues facing business today is sustainability. Sustainability is concerned with meeting the needs of the present

without compromising the ability of future generations to meet their own needs. A sustainable enterprise is one that considers its impacts on the environment and on society in general, while maintaining financial profitability. In this research paper, we are trying to evaluate these concepts and analyze the relationship between corporate governance and sustainability. Thus, keeping these objectives in mind, the paper is divided into four sections. Section I deals with the introduction of the concepts. Section II explains the conceptual relationship between corporate governance, corporate social responsibility and sustainable development. Section III dealt with the glimpse of Hindustan Unilever Limited and ITC Limited responsible corporate governance and sustainable practices, Section IV gives the critical analysis and conclusion.

INTRODUCTION

John Hooker of Carnegie Mellon University suggests

business ethics revolves around the question "How can

one do good by doing well?" Conceptualizing business

ethics starts with the idea that owners/managers desire

to do something good on both the personal and

community level and determine how to accomplish

good through a business. Simply obeying the law but

trying to squeeze every possible penny out of every

transaction is not practicing good business ethics.

We can look at the ethical responsibilities of the MNEs

through three lenses – political strategies, corporate

social responsibility (CSR) and corruption. Within the

MNE, these three lenses influence one another in an

integrated manner.

With the lens of political strategies, each MNE must

choose to either be assertive in its relations with

government, relying on its bargaining power, or be

cooperative, working independently with the government. With CSR lens, MNE ethical activities

can be divided into philanthropic contributions, ethical

codes, organisational credibility, and resource

accommodation.

From the third lens of corruption, it is clear that it

increases the transaction costs. When confronted with

corruption, MNEs that focus more on ethics tend to use

arm‘s length bargaining, while those who focus less on

ethics rely on social connections.

Globally, there are two players involved in ethical scenario – one the MNE, and the other one is the

manager of the MNE. MNEs deal with global ethical

issues in two ways – one treating all cultures as

legitimate and the values and norms dependent on that

culture. On the other hand some MNEs believe into

ethical universalism. It means some truths never

change irrespective of culture. Ethical universalism

may lead to ethnocentricity and problems associated

with it. MNE managers may follow ‗convenient

relativism‘, which is equal to ethical relativism. If it is

legal in the country to employ child labour, let MNE

also employ. Donaldson opines that MNEs have a

higher moral responsibility than ethical relativism. He

suggests that MNEs should follow ethical universalism

based on moral languages. Moral languages are the

truths on which ethical decisions are taken. He has

recommended three universal languages on which MNEs may strive to become more ethical. The moral

languages are – Avoid harm (to its stakeholders),

follow rights/duties (as promised), and social contract

(with the employees). Any nation it may be but ethical

conduct will be the same and never against any culture.

Since International businesses are established in the

societies they too have responsibility towards those

societies. The company on its part must take care of the

welfare of its stakeholders. They must proactively go

in for initiatives so that nobody‘s legitimate interest is harmed and each employee must be guided to

overcome ethical dilemmas.

Corporate governance and Corporate Social

responsibility are the major prevalent issues related to

ethics. Corporate governance (CG) is an age-old issue

but becomes fresh whenever cases of corporate looting,

mismanagement and frauds get into limelight.

Separation of ownership and management is the crux

of the problem of corporate governance.

Every time society faces a new problem or threat then a new legislative process of some sort are introduced

which tries to protect that society from a future

reoccurrence (Romano, 2004). Recently we have seen

a wide range of problems with corporate behaviour,

which has arguably led to prominence being given to

corporate social responsibility (see for example Boele

et al., 2001).

* Assistant Professor Shaheed Bhagat Singh Evening College, University of Delhi

** Assistant Professor Shaheed Bhagat Singh Evening College, University of Delhi

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Part of this effect is to recognize the concerns of all

stakeholders to an organisation, and this has been

researched by many people (for example Johnson and

Greening, 1999; Knox and Maklan, 2004) with

inconclusive findings. Accordingly therefore

corporations, with their increased level of responsibility and accountability to their stakeholders,

have felt that there is a need to develop a code for

corporate governance so as to guide them towards

appropriate stakeholder relations.

Since corporate governance can be highly influential

for firm performance, firms must know what are the

corporate governance principles and how it will

improve strategy to apply these principles. The four

principles articulated by the OECD to governance are:

• Accountability – to shareholders

• Responsibility – to stakeholders • Transparency – in all actions

• Fairness – in treatment of shareholders.

All these principles are related with the firm‘s

corporate social responsibility. The CSR has three

perspectives. From a technological perspective, CSR

aims to improve ethical standards in the organizational

decision-making process and should guarantee that

management practices are in accordance with

commonly accepted standards of behaviour. From a

political perspective, CSR describes corporate engagement with ecological and social issues that

extend beyond the firm‘s activities. The third

perspective addresses corporations as intermediate

actors bearing specific subsidiary co-responsibilities in

society. This view describes non-voluntary

responsibility of corporations and allows for defining

corporate duties that go beyond good management

practices and are more concrete than voluntary

engagement. These practices are not only beneficial for

an organization‘s sustainable growth but if practiced

ethically and truly will give a support to sustainable

growth of the society as well.

Since, an organization is working for the society and

get benefitted from the society in terms of resources,

market, money etc., therefore preserving and

safeguarding societies welfare is, for sure, a duty of an

organization and here we come across with the concept

of sustainable development.

―Sustainable Development is a development that meets

the needs of the present without compromising the

ability of future generations to meet their own needs.‖ (World Commission on Environment and

Development, 1987). The three main pillars of

sustainable development include economic growth,

environmental protection and social equality. While

many people agree that each of these three ideas

contribute to the overall idea of sustainability, it is

difficult to find evidence of equal levels of initiatives

for the three pillars in countries' policies worldwide.

With the overwhelming number of countries that put

economic growth on the forefront of sustainable

development, it is evident that the other two pillars

have been suffering, especially with the overall well

being of the environment in a dangerously unhealthy

state. Economic and social well-being cannot be improved with measures that destroy the environment.

RELATIONSHIP BETWEEN CORPORATE

GOVERNANCE, CORPORATE SOCIAL

RESPONSIBILITY AND SUSTAINABLE

DEVELOPMENT

Corporate governance principles therefore are

important for a firm but the real issue is concerned with

what corporate governance actually is. Management

can be interpreted as managing a firm for the purpose

of creating and maintaining value for shareholders.

Corporate governance procedures determine every aspect of the role for management of the firm and try to

keep in balance and to develop control mechanisms in

order to increase both shareholder value and the

satisfaction of other stakeholders. In other words,

corporate governance is concerned with creating a

balance between the economic and social goals of a

company including such aspects as the efficient use of

resources, accountability in the use of its power, and

the behaviour of the corporation in its social

environment (Sethi,2002).

One view of good corporate performance is that of

stewardship and thus, just as the management of an

organisation, is concerned with the stewardship of the

financial resources of the organisation, so too would

management of the organisation be concerned with the

stewardship of environmental resources. The difference

however is that environmental resources are mostly

located externally to the organisation. Stewardship in

this context therefore is concerned with the resources

of society as well as the resources of the organisation.

RESPONSIBLE CORPORATE GOVERNANCE:

A GLIMPSE FROM HINDUSTAN UNILEVER

LIMITED AND ITC LIMITED

In the current state of the world, where dependency and

complexity are major factors, managing sustainability

problems faced at both the global and the regional level

requires shared responsibilities. Among all societal

actors, corporations face extended responsibilities, as

they are major constructors of global product chains

and contributors to global environmental and social

concerns. As the impact areas of their activities extend,

governance implications become inevitable, leading to a dramatic shift in the balance between private actors

and government agencies in international product

chains (Moltke and Kuik,1998,p.11).

As decisions taken and operations run by corporations

may affect a wide range of communities and cultural

backgrounds along product chains, their

responsibilities extend beyond the culture, social

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networks and geography of their headquarters. Due to

their economic and political influence, specifically

high-impact sectors (such as mining, chemicals,

automotive industries) are continuously facing

expectations to assume stricter responsibilities for their

management decisions and activities in developing countries (Sullivan and Frankental, 2002,p.80).

In response to stakeholder demands, now a days

corporations, particularly multinational corporations

(MNCs) have gradually taken action and adapted

various sustainability concepts to respond to

stakeholder expectations. But still, the potential of

corporations to support sustainable development and to

attain a role in supporting public policies remains

untapped.

Currently, companies might tend to concentrate their CSR efforts on activities that have an external rather

than internal focus that is, producing reports publicly

issuing codes of conduct etc. This emphasize on the

concept of ‗Green washing‘ of public awareness. Thus,

the result is that companies‘ attention might often be

diverted from the internal task of actually

implementing the policies set out in their codes of

conduct for public relations activities. Thus, to analyze

the reality behind the transparency we studied the

performance by HUL and ITC in terms of corporate

governance and sustainability.

HINDUSTAN UNILEVER LIMITED

In 1931, Unilever set up its first Indian subsidiary,

Hindustan Vanaspati Manufacturing Company,

followed by Lever Brothers India Limited (1933) and

United Traders Limited (1935). These three companies

merged to form HUL in November 1956.

Hindustan Unilever Limited (HUL) is India's largest

Fast Moving Consumer Goods Company with a

heritage of over 75 years in India. HUL is a subsidiary

of Unilever, one of the world‘s leading suppliers of fast

moving consumer goods with strong local roots in more than 100 countries across the globe with annual

sales of about €46.5 billion in 2011. Unilever has about

52% shareholding in HUL. With over 35 brands

spanning 20 distinct categories such as soaps,

detergents, shampoos, skin care, toothpastes,

deodorants, cosmetics, tea, coffee, packaged foods, ice

cream, and water purifiers, the Company is a part of

the everyday life of millions of consumers across India.

Its portfolio includes leading household brands such as

Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely,

Pond‘s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr,

Kissan, Kwality Wall‘s and Pureit. The Company has

over 16,000 employees and has an annual turnover of

around Rs. 21,736 crores (financial year 2011 - 2012).

The CSR initiatives

Since inception HUL is working towards CSR but the

concentration shifted to India during year 2000.

Project Shakti: In year 2000, a rural sales initiative

Project SHAKTI has been launched in India to increase

rural distribution and help create women entrepreneurs.

During year 2006 Shakti reaches 100000 villages

through 30000 entrepreneurs. In 2011 Company has

extended the Shakti initiative by adding 30,000 Shaktimaan (male family members of existing Shakti

entrepreneurs who have enrolled for the programme),

to sell the products by visiting the surrounding villages

on bicycles.

Lifebuoy Swasthya Chetna: For the hygiene and well

being of the Indian population Lifebuoy Swasthya

Chetna hand washing campaign was launched in 2002.

This campaign reached 120 million people in nearly

51000 villages over the period of 2002-2008.

Signal/Pepsodent/Close Up toothpaste brands reached

more than 44 million children in school-based oral hygiene programmes over the period 1996–2008. In

2010-11, Lifebuoy‘s hygiene programme reached more

than 30 million people in India, spreading hygiene

awareness and encouraging behaviour change.

Company has taken steps to ensure that the food brands

have a better nutritional profile. Around 60% of the

major food and beverage brands, viz. Brooke Bond,

Bru, Knorr, Kissan and Kwality Wall‘s, comply with

the ‗Healthy Choice‘ guidelines as on date.

Environmental Concerns:

Pureit in-home water purifier delivers safe

water, without requiring running water or

electricity, and at a low cost, to over 30 million

people in India.

In 2011, Company reduced CO2 emissions by

14.7% (per tonne of production over 2008

baseline); water use by 21.5%; and waste by

52.8% in factories in India.

Company has improved CO2 efficiency in

transportation by 17.8% despite significant

increase in volumes.

During the year, the Frozen Dessert business

has deployed over 23,775 environment friendly

HC-based freezers in its fleet.

Company is also working in partnership with

governments and NGOs to implement water

conservation projects in more than 180 villages in

17 districts of India.

Unilever Sustainable Living Plan (USLP):

In November 2010, Unilever launched the Sustainable

Living Plan, which puts sustainability at the heart of its business strategy. The central objective of the Unilever

Sustainable Living Plan is to decouple growth from

environmental footprint, while at the same time

increasing Company‘s positive social impacts. The

Unilever Sustainable Living Plan (USLP) has three

significant outcomes by 2020:

Help more than a billion people to improve their

health and well-being

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Halve the environmental footprint of their

products

Source 100% of agricultural raw materials

sustainably

The Unilever Sustainable Living Plan represents a long term goal and progress in 2010-11. By the end of 2011,

almost two-thirds of the palm oil used in products

globally was being purchased from certified sources. In

India, 60% of tomatoes are sourced sustainably. By

2015, Company aims to create water conservation

capacity of a hundred billion litres to enable a better

future for a million people.

ITC LIMITED (IMPERIAL TOBACCO

COMPANY)

ITC Limited was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India

Limited. As the Company's ownership progressively

Indianised, the name of the Company was changed

from Imperial Tobacco Company of India Limited to

India Tobacco Company Limited in 1970 and then to

I.T.C. Limited in 1974. The company now with effect

from September 18, 2001, stands as ITC limited

without full stops. It is a leading Fast Moving

Consumer Goods marketer in India. Company having a

multi business portfolio encompassed a wide range of

businesses. Fast Moving Consumer Goods comprising

Foods, Personal Care, Cigarettes and Cigars, Branded Apparel, Education and Stationery Products, Incense

Sticks and Safety Matches, Hotels, Paperboards &

Specialty Papers, Packaging, Agri-Business and

Information Technology. Over the last sixteen years,

company‘s Gross Revenues and Net Profits recorded

an impressive compounded growth of 12.7% and

21.8% per annum respectively. During this period,

return on Capital Employed improved substantially

from 28.4% to 45.4% while Total Shareholder Returns,

measured in terms of increase in market capitalization

and dividends, grew at a compounded annual growth rate of 25.7%.

The CSR initiatives

ITC Limited is majorly working towards capacity

building of rural regions.

Project e- Choupal: This project was launched in June

2000 so as to creatively leverages information

technology to set up a meta-market in favour of India's

small and poor farmers, who would otherwise continue

to operate and transact in 'un-evolved' markets. 'e-

Choupal' services today reach out to over 4 million farmers growing a range of crops - Soyabean, coffee,

wheat, rice, pulses, and shrimp - in over 40,000

villages through 6500 kiosks across ten states (Madhya

Pradesh, Haryana, Uttarakhand, Karnataka, Andhra

Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Kerala

and Tamil Nadu).

Mission Sunehra Kal: ITC,s this mission is to build

rural based community capacity to remove the adverse

conditions and create the basis for renewed agrarian

prosperity by helping farmers to achieve higher farm

productivity, enable communities to develop and

manage water, soil and forest resources for long term ecology security, empower rural men and women by

creating non-farm livelihoods, facilitate development

of infrastructure for primary education, health and

sanitation.

Primary Education: The inability of economically

weak rural families to access primary education and

primary health services is a major obstacle to rural

development. Assistance provided to Government

Primary Schools includes drinking water tanks, toilets,

lights and fans, desks and chairs, structural additions

and improvements, along with training for teachers and support for recreation and cultural activities. Mobile

Rural Libraries are being supported across 288 schools

to spread and inculcate the habit of reading in children.

280 schools are also being covered under the Roaming

Laptop programme to encourage learning through

interactive modules on the computer in schools.

Waste Land Development: ITC has also worked with

State Governments in pioneering public-private

partnerships. In Andhra Pradesh, 3,596 hectares of

wasteland have been developed so far through collaboration with the State Government‘s rural

poverty reduction project, Indira Kranthi Padham, and

its Comprehensive Land Development programme.

Social & Farm Forestry Now

Area developed ( hectares ) 1,25,868

Saplings planted (nos.) 548

million

Employment generated ( person-days ) 56.64

million

Women Empowerment: The confidence and skills

generated among women by forming credit groups and

managing businesses become assets to their

communities. Groups of 10-20 women form common

funds through individual monthly contributions, raising a buffer against family expenses and emergencies.

Women have gone into the making and marketing of a

range of cottage products – pickles, dried fish, organic

manure, spices, agarbattis, tailoring, embroidery, etc.

Backed by ITC‘s marketing support, cottage products

like agarbattis and chikan embroidery are emerging as

profitable rural industries.

Higher Milk Productivity: In collaboration with

BAIF Institute for Rural Development, a national NGO

specializing in livestock development, ITC focuses on

small and landless farmers, assisting them to genetically upgrade their cattle through artificial

insemination with semen from superior strains such as

Jersey and Holstein-Friesian for cows, and Murrah for

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buffaloes. ITC trains and equips technicians to provide

an integrated package consisting of artificial

insemination, cattle health and nutrition, pregnancy and

post-natal services right at the farmer‘s doorstep.

Healthcare: Healthcare services have been provided through 652 health camps benefitting over 53,600

patients. Over 8 years, ITC has assisted over 3600

families to construct their own sanitary units.

CRITICAL ANALYSIS OF RESPONSIBLE

CORPORATE GOVERNANCE AND

SUSTAINABILITY

The Asia monitor Resource Centre has presented a

report on the impact of CSR on workers in China,

South Korea, India and Indonesia. It was alleged that

Hindustan Unilever Limited‘s glossy CSR hide the

truth. The CSR report of Hindustan Unilever on ―improving health and well-being of People‖ in India is

in extreme contrast with the company‘s ruthless ways

of dealing with workers. In its Doom Dooma factory in

Assam about 700 workers and union leaders have been

attacked since 2007 for asserting their basic rights.

Hindustan Unilever has been involved in a number of

CSR initiatives by promoting programmes such as

Project Shakti of Unilever. As per the HUL‘s annual

report the project is aimed at creating rural

entrepreneurs by providing training to 13,000 underprivileged Indian women , who are trained to

distribute the company‘s products to 70 million rural

consumers. Working with women‘s self-help groups,

the company teaches them selling and book-keeping

skills and equips them with commercial knowledge.

The case clearly shows that CSR initiative is merely a

marketing gimmick and an effective exercise in green-

washing. On the one hand, the company deliberately

neglects the rights of its own workers at the workplace,

while, on the other hand, builds a good image of

contributing to the society. Exploiting a large number

of women under the banner of CSR by involving them in selling and distributing the Unilever‘s products,

Hindustan Unilever in fact has increased its profit

manifold. The women participating in the project have

been reaching out to the Indian domestic market that

helped Unilever to get 30 per cent more consumers in

rural areas since the inception of the project in 2000.

With regards to ITC we found that an NGO, Karmayog

Organization, had rated ITC 0/5 in their Survey in

which they covered largest top 500 companies finding

their efforts towards CSR and ITC being tobacco products marketer doesn‘t fulfilled their criteria. HUL

being rated 2/5 in the year 2010 which shows a decline

in rating from 3/5 to 2/5 in 2010

CONCLUSION

Through whole of the analysis we came across with the

theoretical relationship between corporate governance

and sustainability. The objective of sustainable

development can only be achieved with good corporate

governance. If corporates follow the ethical way of

doing business considering their responsibility towards

society, being accountable and transparent towards

their approach then any sustainability policy when executed gives fruitful, worthful development for the

corporates as well as to society too. Thus, it is

nowadays very much required to be transparent in their

approach and execution of policies. With responsible

corporate governance sustainable development is

directly achievable.

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ethics and corporate social responsibility‖,

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HUMAN RESOURCE ACCOUNTING –A CASE STUDY OF INFOSYS TECHNOLOGIES

Shweta Jaiswal *

ABSTRACT Success of an organization depends to a great extent upon its people i.e., Human Resources. It is the most vital part of any organization. It is the most important „M‟ which is considered while taken care of 4M‟s associated with any organization they are Money, Machines, Materials and Men. But the most interesting thing is that the first three are recognized and find a

place in the assets side of the Balance Sheet of the organization and in case of fourth ones ambiguity prevails among the accountants. HRA emphasizes that human resources should be treated as assets like physical & financial assets. HRA involves identifying, measuring, analyzing the potential of human resources of company & communicating the relevant information to the stakeholders of the company. This paper aims at analyzing the HRA practices of Infosys Technologies Limited & its usefulness in HR decisions. Infosys had always given utmost importance to the role of employees in contributing the company‟s success. Analysts felt that Human Resource Accounting was a step further in Infosys‟ focusing on its employees.

INTRODUCTION

Human resources have certain distinct characteristics

from other physical assets like personality, self control,

devotion, quality, skill, talents, loyalty & initiativeness.

It is the basic need of present time to improve

productivity that can be improved by the human force.

An organization having immense physical resources

with latest technology may suffer financial crises as it

does not have right people to manage and to conduct its affairs. Thus, in spite of technological developments,

the importance of human resources to ensure the

organization‘s success has no way abridged.

The first attempt to value human beings in monetary

terms was developed by Sir William Petty in the year

1691 but research into true Human Resource

Accounting began in the year 1960 by Rensis Likert.

Human Resource Accounting has been defined by the

Committee of American Accounting Association as

―the process of identifying and measuring data about

human resources and communicating this information to the interested parties‖. In the words of Stephen

Knauf (1983) ―the measurement and quantification of

human organizational inputs such as recruiting,

training, experience and commitment.‖

Eric.G.Flamholtz have defined ― Human Resource

Accounting involves measuring the cost incurred by

the business firms and other organizations to recruit,

select, hire, train & develop human assets. It also

involves measuring the economic value of people to

organizations. In brief, it involves accounting for

people as organizational resources for managerial as well as financial accounting purposes.‖ In simple word,

we can say that HRA is the systematic recording of the

transaction relating to the value of human resources. It

is the measurement of cost & value of people for the

organization.

From the above, it may be concluded that HRA

comprises of three aspects:

(i) Evaluation of Human Resources.

(ii) Recording the valuation in the books of accounts.

(iii) Presenting the information in the financial

statements for communication to the interested

parties.

BASIC PREMISES OF HRA

The basic premises underlying the theory of HRA are:

(i) People are valuable resources of an enterprise.

(ii) The usefulness of manpower as an organizational

resource is determined by the way in which it is managed.

(iii) Information on investment & value of human

resource is useful for decision making in the

enterprise.

COMPANY PROFILE

INFOSYS TECHNOLOGIES LIMITED

Infosys was established in 1981 by seven engineers

with just US$ 250. Infosys is a NYSE listed global

consulting and IT services company with more than

1,58,000 employees. From a capital of US$ 250, it has

grown to become a US$ 8.095 billion company with a market capitalization of approximately US$ 33 billion.

In the journey of over 30 years it has catalyzed some of

the major changes that have led to India‘s emergence

as the Global Delivery Model & became the first IT

Company from India to be listed on NASDAQ. Its

employee stock options program created some of

India‘s first salaried millionaires.

Infosys service offering span business and technology

consulting, application services, system integration,

product engineering, custom software development, maintenance, re-engineering, custom software

development, maintenance, re-engineering,

independent testing and valuation services, IT

infrastructure services and business process

outsourcing. Infosys has a growing global footprints

with over 73 offices and 94 development centers in

United States, India, China, Australia, Japan, Middle-

East, & Europe.

Infosys started using Human Resource Accounting in

the year 1995-96 & it became first Software Company

*Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi.

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RNI – UP/ENG/2011/36701 69 ISSN: 2231-6353

to value its Human Resources. Infosys had always

given utmost importance to the role of employees in

contributing to the company‘s success. HRA was a step

further in Infosys‘ focus on its employees. Narayana

Murthy, the then chairman and managing director of

Infosys, said: ―comparing this figure over the years will tell us whether the value of our human resources is

appreciating or not. For a knowledge intensive

company like ours, that is vital information.‖

OBJECTIVES OF THE STUDY

This paper is an attempt to achieve the following

objectives:

1. To evaluate the HRA practices adopted by

Infosys Technologies.

2. To make analysis of the HRA data provided by

Infosys Technologies for evaluating its usefulness

in HR decision.

RESEARCH METHODOLOGY

With a view to achieve the aforesaid objectives the

scope of the present study are restricted to the analysis

of the HRA practices of Infosys Technologies for the

last two year under four head namely method of

valuation, disclosure of HRA, form of presentation and

usefulness in human resource decision. This study is

based on the secondary data which is gathered from the

annual reports and websites of Infosys Technologies

for the accounting year 2011-12 & 2012-13. Lastly, some suggestions have been made to improve the HRA

practices of Infosys. The major limitation of this study

is the lack of adequate corporate disclosure practices in

India.

LITERATURE REVIEW

―The concept of Human Resource Accounting was first

developed by Sir William Petty in the year 1691.‖ He

believed that labor as the ‗father of wealth‘ and it must

be taken into consideration in estimating the national

wealth. For the first time HRA was implemented by

R.G Barry Corporation, Ohio (USA) in 1967 under the guidance of Dr. Rensis Likert & Pyle. Some notable

efforts for the development of HRA were made by

Schultz(1960),William C Pyle (1967), Flamholtz

(1971, 1972 & 1975), Moorse (1973), Lev &

Schwartz(1971), Jaggi & Lau(1974), Kenneth Sinclare

(1978) etc. Various methods and models developed by

these scholars are broadly classified as monetary

measurement (cost based & value based methods) and

non-monetary measurement methods.

In India also several research studies have been conducted by various scholars among these are

Chakravorty,S.K. (1997), Ranga Rao, Y. (1979),

Rajeshwar, N. (1981), Gupta (1990), Batra and Bhatia

(1994), Verma (1999), Patra and Khalik (2003), Sonara

and Patel (2009). These studies are conducted to know

the current status of Human Resource Accounting in

Indian context.

OBJECTIVES OF HUMAN RESOURCE

ACCOUNTING

1. To know whether the human resources have been

properly utilized and allocated.

2. To evaluate the return on investment on human

capital. 3. To measure the cost incurred on human resources

by firms.

4. Decision regarding cost reduction and to provide

information about productivity of the

organization.

5. To furnish cost value information for making

proper and effective management decisions about

acquiring, developing, motivating and

maintaining human resources.

6. To help in development of management principles

by clarifying the financial consequences of the

various practices. 7. To communicate the organization and the public

at large about the worth of human resources of an

organization.

HUMAN RESOURCE ACCOUNTING

PRACTICES IN INDIA

The concept of HRA was not new in India a leading

public sector enterprise Bharat Heavy Electricals Ltd.

(BHEL) had introduced HRA in its annual reports of

the financial year 1974-75 for the first time in India. In

the subsequent year some other corporate enterprises such as Infosys, Steel Authority of India Ltd. (SAIL),

ONGC, NTPC, MMTC, HSL, OIL, TELCO, ITL,

Satyam computers, DSR Software etc. In the Indian

context Lev & Schwartz model (present value of future

earnings) has an edge over the other model. This model

has been widely adopted by the Indian companies

including Infosys. But in the year 2012 Infosys

developed a new model to quantify the value of its

employees named GIST HCX Model in partnership

with GIST Advisory.

HRA has not been introduced so for as a system in India. The Indian Companies Act 1956, which governs

the preparation of financial statements of company in

India, is silent about the incorporation of Human

Resource Accounting. Moreover the ASB of the ICAI

neither formulated nor made mandatory any standard

regarding HRA. However, few companies in India

have voluntarily begun to include the statement of

HRA in their annual report.

EVALUATION OF HRA PRACTICES OF

INFOSYS With a view to evaluate the HRA practices of Infosys

the data are collected from the website and annual

reports for the last two years have been analyzed under

four major heads namely method of valuation,

disclosure of HRA, form of presentation and human

resource ratios. A summary of the findings of each

head is as under:

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(1) Method of Valuation:

As a standard practice, Infosys reports the value of its

employees using the Lev & Schwartz Model but it had

developed a new model in the year 2011-12 to quantify

its human resources value in partnership with GIST

Advisory this year called ‗GIST HCX Model‘. It is based on a present value calculation of the increase in

future earnings of employees during their employment

at Infosys. Unlike conventional model, it also accounts

for the impact of attrition on human capital value, and

therefore also quantifies the value of positive human

capital externality being generated by Infosys. Human

capital externality refers to the benefit derived by the

society when employees whose capital values has

increased due to training & employee development at

Infosys, leave the company. The model discounts

future earning at an appropriate discount rate & utilizes

the long run inflation rate consistent with the RBI targets for inflation expectations. It assumed 5% long

run inflation rate and 4% discounting rate in both the

year.

(2) Disclosure of HRA:

It was found that the valuation of HR has been

disclosed by Infosys for all the years continuously

without gap. Infosys has disclosed HR valuation in its

annual report in the form of supplementary statement

as well as a part of ‗Balance Sheet including Intangible

Assets‘. However, it has not got its HRA data audited from the auditors.

(3) Form of Presentation:

It was found that Infosys has presented HRA

information along with comparative figures of previous

year. However, the number and value of human

resources have been shown category wise only and not

age wise.

(4) Usefulness in Human Resource Decision:

The HRA data provided by Infosys include the

information regarding the number, cost and value of human resources through these data some HR ratios

have been calculated. An analysis of these information

is as under:

A. It was found that in the year 2011-12 the total

number of employees was 1,49,994 which increased to

1,56,688 in 2012-13 i.e. an increase of 4.46% during

the last year. The number of software professionals and

support staffs has increased by 3.68% and 17.96%

respectively. It is seen that the number of human

resources in Infosys is increasing (see exhibit)

B. Total employee cost has increased from 18,340

crore in 2011-12 to 22,566 i.e. an increase of 18.72%

during the year while the cost per employee was found

Rs. 0.122 crore and Rs. 0.144 crore in the year 2011-12

and 2012-13 respectively, i.e. an increase of 18.03%

during the year.

C. As far as total human resource value is concerned, it

has increased from Rs. 1,25,717 crore to Rs. 1,37,845

crore during the year i.e. an increase of 9.65%.

Similarly the value of software professional and

support staff has increased by 7.74% and 32.20%

respectively. The value of human resources in each category shows continuous increase. Inspite of no

change in discount rate used for valuation of human

resources under GIST HCX Model which was kept on

changing under the conventional model.

D. Total value of human capital externality has

increased from Rs. 6831 to Rs. 7645 during the year

i.e., an increase of 11.92%. Similarly the value of

software professional and support staff has increased

by 9.46% and 35.29% respectively. Human capital

externality refers to the benefit derived by the society

when employees whose capital values has increased due to training & employee development at Infosys,

leave the company.

E. Some human resource ratios have also been

disclosed by Infosys. In the analysis of these ratios it

was found that the value of human resources per

employee has increased from Rs. 0.84 crore to Rs. 0.88

crore i.e. an increase of about 4.76% during the period

of study. Percentage of employee cost to human

resource value has also increased from 14.58% to

16.37%, these two ratios indicates increasing trends however percentage of employee cost to human

resource value should be decreased so that the

efficiency of human resources of Infosys could be

improved because of higher value at lower cost. Total

income to human resource value has increased from

Rs. 0.27 crore to Rs. 0.29 crore during the year 2011-

12 to 2012-13, while value added to human resource

value ratio has also increased from 0.25 to 0.26 during

the period. Similarly, return on human resource value

has also increased from 6.6% to 6.8% in the period of

study. So overall there was a favorable condition

except the employee cost to human resource value. So we can say that Infosys provides some useful HRA

data like the number of human resources and cost and

value of human resources. We found that earlier the

change in the discount rate each year makes HR value

and HR ratio data incomparable and misleading which

affects HR decisions adversely but because of these

new ‗GIST HCX Model‘ the rate of discount was same

in both the year which makes the data comparable.

BENEFITS

Benefit experienced by Infosys by valuing its human resources may be listed as below;

Infosys could determine whether its human asset

was appreciating over the years or not.

The company could also use this information

internally to compare the performance and

productivity of employees in various departments.

The company ensured that it compensated each

employee according to his / her net worth.

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EXHIBIT: Analysis of HRA Practices of Infosys

Source: Annual Reports of Infosys 2011-12 &2012-13.

HRA also helped Infosys in identifying and

retaining valuable employees.

When human resources gets quantified it gave Infosys investors and other clients true insights

into the organization and its future potential. It

restored faith amongst shareholders.

It helped organization to take managerial decisions

based on the availability and the necessity of

human resources.

By adopting HRS the following information could

be obtained –

Cost per employee.

Human capital investment ratio.

The amount of wealth created by each employee.

The profit created by each employee.

The ratio of salary paid to the total revenue

generated.

Average salary of each employee.

Employee absenteeism rates.

Employee turnover rate and retention rate.

SUGGESTIONS

Some useful suggestions to improve the disclosure of

HRA practices of Infosys Technologies and its

usefulness in HR decision are as under:

1. Infosys should also get its HRA information

audited so that the trustworthiness of HR data can

be ensured.

2. The elements of employee cost should be

disclosed separately by Infosys in various tables.

It has not disclosed the elements of employees cost such as training and development cost,

induction cost etc.

3. The number and valuation of human resources in

various age-groups should also be disclosed by

Infosys.

4. In the valuation of human resources it should also

disclose the information regarding the inclusion

of other variables like amortization of human

resources, lock outs, loyalty of employees, idle

time, etc.

5. Some HR ratios in relation to total resources,

sales, PBT, PAT, gross profit, operating profit should also be disclosed to improve HR decision.

6. The ASB of the ICAI should devise the standards

for the valuation, accounting and disclosure of

such valuable assets. Besides, the disclosure of

HRA practices should be made mandatory by the

Indian companies Act 1956.

7. Initiatives should be taken by the government,

professional bodies and scholars to develop an

objective model for the valuation of human

resources.

CONCLUSION

The most valuable assets of a 21st century organization

are its knowledgeful workers and their productivity.

Today people are generally classified as expense on the

income statement and liabilities on the Balance Sheet –

not as an investable asset & we also find that HRA is

still in a developing stage but Infosys the global

technology company successfully applied Human

Resource Accounting to value their human resources

and disclosing HR information regularly in its annual

reports since 1995-96. Although it has voluntarily adopted HRA practices as it is not mandatory and reap

many benefits also by adopting HRA. We also find that

its Balance Sheet also includes value of their human

resources. Other companies should also follow the lead

of company like Infosys, and begin to quantify the

value that people add to their organizations.

To sum up, it can be said that the HRA practices of

Infosys is satisfactory. However the above mentioned

As at March 31 2013 2012

Employees (No.)

Software Professional 1,47,008 1,41,788

Support 9,680 8,206

Total 1,56,688 1,49,994

Value of Human Capital

Software Professional 1,24,867 1,15,900

Support 12,978 9,817

Total 1,37,845 1,25,717

Value of Human Capital

Externality

Software Professional 6,767 6,182

Support 878 649

Total 7,645 6,831

Rate of discounting

future earnings of employees 4% 4%

Total income 40,352 33,734

Total Employee Cost 22,566 18,340

Value Added 36,483 30,960

Net Profit excluding exceptional

items 9,421 8,316

HR Ratio

Value of HR per employee 0.88 0.84

Employee Cost/ HR Value (%) 16.37% 14.58%

Total Income/HR Value (Ratio) 0.29 0.27

Value Added/HR Value (Ratio) 0.26 0.25

Return on HR Value (%) 6.8% 6.6%

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RNI – UP/ENG/2011/36701 72 ISSN: 2231-6353

suggestions must also be taken into account so that that

it can overcome with the aforesaid limitations or

weaknesses.

REFRENCES

1. Gupta, Shashi K. and Sharma, R.K., Management.

2. Accounting- Principles and Practices, Kalyani

Publishers, tenth edition.

3. Rao, V S P, Human Resource Management, (Text

and Cases), Excel Books, reprint 2004.

4. Caplan, Edwin H. and Landekich, Stephen.,

(1974) Human Resource Accounting: Past,

Present and Future. New York: National

Association of Accountants.

5. Singh A.K. and Gupta N., Measurement of

Human Assets: An empirical Analysis, Indian

Journal of Accounting, June, 2008. 6. Flamholtz, Eric. Human Resource Accounting:

Advances in Concepts, Methods, and

Applications. 2nd edition San Francisco: Jossey-

Bass, 1985.

7. Jaiswal, Manish Kumar., (2013) ―Impact of

Human Resource Management on Organizational

Growth of Public Company in India: A Case

Study on NTPC. International Journal of Business

and Social Studies, pp64-67.

8. Sharma Shalini, and Shukla R.K., (2010)

―Application of Human Resource Accounting in

Heavy Industries.‖

9. Singh H.K. & Singh Vivek., (2009)―Human Resource Accounting Practices In Infosys

Technologies Ltd. – An Evaluation.‖

Management Insight, pp68-73.

10. R. Narayan., (2010) Human Rresource

Accounting: A New Paradigm in the Era of

Globalization. Asian Journal of Management

Research, pp237-24.

11. Singh M., (1999) Human Resource Accounting

Challenge for Accountant, Shodh Samiksha aur

Mulyankan.

12. (case-study-on-human-resource-accounting.html)

13. www.wikipedia.com 14. http://www.managementexchange.com/hack/valu

e-people-asset-financial-statements

15. http://www.infosys.com/about/who-we-

are/history.asp

16. http://www.infosys.com/about/what-we-

do/default.asp

17. Annual report of Infosys 2011-12 and 2012-13.

Retrieved from www.infosys.com

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CONVERGENCE WITH IFRS: CONTEXT OF INDIA

Kishore Kumar Shah *

ABSTRACT The International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) are increasingly being recognized as Global Reporting Standards. Convergence with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) has gained momentum in recent years all

over the World. More than 120 countries currently require or permit the use of or have a policy of convergence with IFRS. The present article primarily discusses the convergence of IFRS in India and Need for Globalization of Financial Reporting Standards. This article consists of several sections dealing with meaning of International Financial Reporting Standards and Indian Accounting Standards, Structure of IFRS, Structure of Financial Statements under Indian GAAP and IFRS, Global Status of IFRS, Need for Convergence with IFRS, Present Status of the Converged India Accounting Standards, Roadmap for Convergence with IFRS, Need for Globalization of Financial Reporting Standards, Risks associated with Convergence and Conclusion.

INTRODUCTION

International Financial Reporting Standards (IFRSs)

are standards and interpretations issued by the

International Accounting Standards Board (IASB) and

its predecessor body, viz., International Accounting

Standards Committee (IASC), the objective of

IFRS….to develop and introduce a single set of top

quality global Accounting Standards to produce

transparent, top quality, information in Financial reporting statements to make the statements more

comparable and more comprehensive to the concerned

users for taking appropriate decisions based on the

reporting statements. Hence the global use of IFRS can

be able to boost the confidence of the investors

throughout the world.

IFRS are the accounting rules by the International

Accounting Standard Board (IASB), an independent

accounting standard setting body based in London. It

consists of 15 members from nine countries including

China, Japan, Australia, France, Canada, Mexico, Netherlands, Ireland and United Kingdom. The IASB

began operations in 2001 when it succeeded the

International Accounting Standards Committee

(IASC). It is funded by contributions from major

accounting firms, private financial institution and

industrial companies central and development banks,

national funding regimes and other international and

professional organization throughout the world. In

2002, a year after their establishment the IASB got

united with the Financial Accounting Standards Board

(FASB) to combine their knowledge and develop a set of high quality accounting standards that would be

compatible with all counties in order to successfully

carry out international business affairs and their

accounting. This set of global accounting standard is

referred to as the International Financial Reporting

Standards (IFRS)

RESEARCH METHODOLOGY

This study is primarily qualitative in nature and do not

uses any quantitative tool to analyses the data. It has

been conducted mainly on the basis of literature survey

and secondary information. Various journals,

magazines, articles and published data from various

issues of the Institute of Chartered Accountants of

India (ICAI), have been referred to in writing this

paper

STRUCTURE OF IFRS

International Financial Reporting Standards (IFRSs)

are standards and interpretations issued by the International Accounting Standards Board (IASB) and

its predecessor body, viz., International Accounting

Standards Committee (IASC). International Financial

Reporting Standards comprise of:

International Financial Reporting Standards

(IFRS) - standards issued after 2001

International Accounting Standards (IAS) -

standards issued before 2001

Interpretations originated from the International

Financial Reporting Interpretations Committee

(IFRIC) - issued after 2001

Interpretations originated from Standing Interpretations Committee (SIC) - issued before

2001

IFRS & IAS

IFRS stands for International Financial Reporting

Standards and includes Standards & Interpretations

adopted by International Accounting Standards Board

(IASB), International Accounting Standards (IAS),

Interpretations originated from Standing Interpretations

Committee (SIC) and Interpretations developed by

International Financial Reporting Interpretation Committee (IFRIC). Hence, IFRS is a wider term and

includes previously issued IAS as well.

INDIAN ACCOUNTING STANDARDS

The Accounting Standards Board (ASB) of the

Institute of Chartered Accountants of India (ICAI) was

constituted on 21 April, 1977, to formulate Accounting

Standards applicable to Indian enterprises. Initially, the

Accounting Standards were recommendatory in nature

and gradually the Accounting Standards were made

mandatory. The legal recognition to the Accounting

* Assistant Professor, Department of Commerce, P.G.D.A.V. College (Eve.) Delhi University

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RNI – UP/ENG/2011/36701 74 ISSN: 2231-6353

Standards was accorded for the companies in the

Companies Act, 1956, by introduction of Section

211(3C) through the Companies (Amendment) Act,

1999, whereby it is required that the companies shall

follow the Accounting Standards notified by the

Central Government on a recommendation made by the National Advisory Committee on Accounting

Standards (NACAS) constituted under section 210A of

the said Act. The council of the Institute of Chartered

Accountants of India has, so far, issued thirty two

Accounting Standards. However, AS 8 on Accounting

for Research and Development has been withdrawn

consequent to the issuance of AS 26 on Intangible

Assets. Thus effectively there are 31 Accounting

Standards at present

Structure of Financial Statements under Indian

GAAP and IFRS

Under the

Indian GAAP Under the IFRS

1. Balance Sheet

2. Profit and Loss

Account

3. Cash Flow

Statement

4. Notes,

comprising of

significant

accounting

policies and other

explanatory

information

1. Statement of financial position

as at the end of the period

2. Statement of comprehensive

income for the period

3. Statement of changes in equity

for the period

4. Statement of cash flows for the

period

5. Notes, comprising a summary of

significant accounting policies,

and other explanatory information

6. Statement of financial position

as at the beginning of the

earliest comparative period

when an entity applies an

accounting policy

retrospectively or makes a

retrospective restatement of

items in its financial statements,

or when it classifies items in its

financial statements

IFRS - GLOBAL STATUS

The use of International Financial Reporting Standards

(IFRS) as a universal financial reporting language is

gaining momentum across the globe. Several countries

have implemented IFRS and converged their national

GAAP to IFRS. More than 120 countries throughout

the world, including the 27 European Union member

states, Australia, New Zealand, and Russia currently

require or permit the use of International Financial

Reporting Standards (IFRSs), developed by the IASB.

Japan plans to introduce IFRS by 2016, United States

of America has also taken-up convergence projects with the IASB with a view to permit filing of IFRS-

Compliant Financial Statements in the US Stock

Exchanges without requiring the presentation of

reconciliation statement between US GAAP and IFRS

NEED FOR CONVERGENCE WITH IFRS

In the present era of globalization and liberalization,

the World has become an economic village. The

globalization of the business world and the attendant

structures and the regulations, which support it, as well

as the development of e-commerce make it imperative to have a single globally accepted financial reporting

system. A number of multinational companies are

establishing their businesses in various countries with

emerging economies and vice versa. The entities in

emerging economies are increasingly accessing the

global markets to fulfill their capital needs by getting

their securities listed on the stock exchanges outside

their country. Capital markets are, thus, becoming

integrated consistent with this World-wide trend.

The use of different accounting frameworks in

different countries, which require inconsistent treatment and presentation of the same underlying

economic transactions, creates confusion for users of

financial statements. This confusion leads to

inefficiency in capital markets across the world.

Therefore, increasing complexity of business

transactions and globalization of capital markets call

for a single set of high quality accounting standards.

High standards of financial reporting underpin the trust

investors place in financial and non-financial

information. Thus, the case for a single set of globally

accepted accounting standards has prompted many countries to pursue convergence of national accounting

standards with IFRS.

PRESENT STATUS OF THE CONVERGED

INDIA ACCOUNTING STANDARDS

Indian Accounting Standards, (Ind-AS) are a set of

accounting Standards notified by the Ministry of

Corporate Affairs which are converged with

International Financial Reporting Standards (IFRS).

These accounting standards are formulated by

Accounting Standards Board (ASB) of Institute of

Chartered Accountants of India. The Ind-AS are name and number in the same way as the corresponding

IFRS. National Advisory Committee of Accounting

Standards (NACAS) recommends these standards to

the Ministry of Corporate Affairs (MCA). 25 February

2011, the Ministry of Corporate Affairs notified 35

Indian Accounting Standard (Ind-AS) which are given

as Annexure 1 to this article that are converged with

International Financial Reporting Standards (IFRS).

But is has not notified the date of Implementation of

the same.

ROADMAP FOR CONVERGENCE WITH IFRS

The Ministry of Corporate Affairs has announced to

apply the converged accounting standards to the

specified class of companies in different phases

commencing on 1st April, 2011. The specified class of

companies would be required to convert their opening

balance sheets as on the specified dates according to

the first set of Accounting Standards. The roadmap

HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014

RNI – UP/ENG/2011/36701 75 ISSN: 2231-6353

issued by the Ministry of Corporate Affairs in this

regard is as follows:

Road Map for companies (other than banking,

insurance and non-banking financial companies)

Ph

ase

Companies Covered

Op

en

ing

Bala

nce

Sh

eet

Fir

st

Fin

an

cial

Sta

tem

en

t

Ph

ase

1

Companies that are part of NSE

Nifty 50 index

Companies that are part of BSE

Sensex 30 index

Companies that have shares or

other securities listed in

overseas stock exchanges ,and

Listed and unlisted companies

with net worth in excess of

Rs.1000

Crores

1st

Apri

l

2011

31st

Mar

ch

2012

Ph

ase

2 Listed and unlisted companies

with net worth in excess of

Rs.500

crores but not exceeding

Rs.1000 crores

1st

Ap

ril

20

13

31

st M

arch

20

14

Ph

ase

3

listed companies with net worth

of Rs.500 crores or less

1st

Ap

ril

20

14

31

st

Mar

ch

20

15

NEED FOR GLOBALIZATION OF FINANCIAL

REPORTING STANDARDS

There are many beneficiaries of convergence with

IFRSs such as the economy, investors, industries and

accounting professionals.

The Economy

The convergence benefits the economy by increasing

growth of its international business. It facilitates

maintenance of orderly and efficient capital markets

and also helps to increase the capital formation and

thereby economic growth. It encourages international

investing and thereby leads to more capital flows into the country because the

People all over the globe will be able to understand the

financial statements based on the international

standards of a very high quality financial reporting.

Investors

Investors want the information that is more relevant,

reliable, timely and comparable across the

jurisdictions. Financial statements prepared using a

common set of accounting standards help investors

better understand investment opportunities as opposed to financial statements prepared using a different set of

national accounting standards. For better understanding

of financial statements, global investors have to incur

more cost in terms of the time and efforts to convert

the financial statements so that they can confidently

compare opportunities. Investors‘ confidence would be

strong if accounting standards used are globally

accepted. Convergence with IFRSs contributes to

investors‘ understanding and confidence in high quality

financial statements.

Road Map for Banking, Insurance and Non-

Banking Financial Companies

Class of

Companies

Criteria for phased

implementation

Opening

Balance

Sheet

First

Financial

Statement

Insurance

Companies

All insurance

companies

1st April

2012

31st March

2013

Banking

Companies

All scheduled

commercial banks

1st

April

2014

31st

March

2014

Urban co-operative

banks with net worth

in excess of

Rs.300crores

1st

April

2013

31st

March

2014

Urban co-operative

banks with net worth

in excess of Rs.200 crores but not

exceeding Rs300

crores

1st

April

2014

31st

March

2015

Non-

Banking

Financial

Companies (NBFC)

NBFCs that are part

of NSE-Nifty 50

index

NBFCs that are part

of BSE Sensex 30

index

Listed and Unlisted

NBFCs with network

in excess of

Rs.1000crores

1st

April

2013

31st

March

2014

All Listed NBFC that do not fall into

the above categories

1st April

2014

31st March

2015

Unlisted NBFC that

do not fall into the

above categories and

which have a net

worth in excess of

Rs.500 crores

1st

April

2014

31st

March

2015

The Industry

The industry would be able to raise capital from

foreign markets at lower cost if it can create confidence

in the minds of foreign investors that their financial statements comply with globally accepted accounting

standards. With the diversity in accounting standards

from country to country, enterprises which operate in

different countries face a multitude of accounting

requirements prevailing in the countries. The burden of

financial reporting is lessened with convergence of

accounting standards because it simplifies the process

of preparing the individual and group financial

statements and thereby reduces the costs of preparing

the financial statements using different sets of

accounting standards.

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The Accounting Professionals

Convergence with IFRSs also benefits the accounting

professionals in a way that they are able to sell their

services as experts in different parts of the world. The

thrust of the movement towards convergence has come

mainly from accountants in public practice. It offers them more opportunities in any part of the world if

same accounting practices prevail throughout the

world. They are able to quote IFRSs to clients to give

them backing for recommending certain ways of

reporting. Also, for accounting professionals in

industry as well as in practice, their mobility to work in

different parts of the world increases.

RISKS ASSOCIATED WITH CONVERGENCE

Regulatory endorsement and acceptance

Shortage of skilled resources

Huge cost of enhancement of IT systems Acceptance by tax authorities

Managing market expectations and investor

relationships

Managing day to day business issues – MIS, tax

planning, performance indicators, mergers and

acquisitions, etc.

In India there is no separate committee for

implementation, follow up and feedback process

of IFRS

Taxation system also impact after implementation

process of IFRS in India

Indian GAAP is different from IFRS. Due to this it

may impact of business decision and financial

performance

Lack of proper resources also effects the IFRS

implementation successfully

Implementation of ERP,SAP & other software

required

IFRS mainly focuses on presenting its financial

statement and focus is very less on the users of

accounting standard

External evaluation agencies must also understand

IFRS IFRS uses fair value as a measurement base for

valuing most of the items of financial statements

IFRS simply a principal set by IASC but it not

provide detailed rules to follow up.

CONCLUSIONS OF STUDY

Convergence of accounting standards is recognized as

the global accounting standards. Financial reporting

under IFRS provide high quality financial information

that is comparable, consistent and transparent, in order

to serve the needs of all stakeholders including shareholders (existing and potential ), suppliers

(existing and potential), trade creditors, investors,

auditors, accountants, rating agencies, customers,

employees, taxation authorities and other interested

parties.

Convergence to IFRS is expected to improve the

relevance, reliability and comparability of financial reports and thus benefit global investors. It is expected

that the global financial reporting process will

eventually be based on a single set of high-quality

accounting standards as issued by the IASB. The

efficiency and competitiveness of global capital

markets depend on the ability of financial statement

preparers to effectively communicate with investors

through financial reports. This effective

communication can be strengthened through

convergence to IFRS.

REFERENCES 1. www.ifrs.org

2. www.ifrs.co.in

3. www.icai.org

4. www.mca.org.in

5. www.sebi.gov.in

6. RSM astute consulting group (2011), report on

IFRS In India

7. Grant and Thompson (2010), report on road to

IFRS In India

8. Simardeep Singh ―Convergence with IFRS‖

9. Vandana Saxena (2009), IFRS Implementation and Challenge in India

10. ICAI, Concept Paper on Convergence with IFRSs

in India

11. Ghosh T.P. (2011), Indian Accounting Standards

(Ind ASs) and International Financial Reporting

Standards, Taxman Publications (P) Ltd. New

Delhi.

12. Pawan Jain (2011), IFRS Implementation in

India: Opportunities and Challenges

13. Banerjee Arindam. (2011).‖ Role of Cost and

Management Accountants in IFRS Regime‖

Journal of The Management Accountant (April), Vol, 46 No.4 pp268-271

14. V. Vinayak Pai (2011).‖ IFRS- The Operation

and Strategic Role of CMA ―Journal of The

Management Accountant (April) Vol, 46 No.4

pp278-280

15. Ray Rabin Kumar (2011). ―IFRS-Role of CMA in

IFRS Era‖ Journal of The Management

Accountant (April) Vol, 46 No.4 pp 284-287

16. Jain Pramod (2011). ―Convergence with IFRS:

Challenging, Interesting and Rewarding‖ Journal

of The Management Accountant (June) Vol, 46 No.6 pp533-534

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BUSINESS EDUCATION AND ETHICS

Pushpraj Singh*

ABSTRACT This paper outlines and argues against some criticisms of business ethics education. It maintains that these criticisms have been put forward due to a misunderstanding of the nature of business and/or ethics. Business ethics seeks a meaningful reciprocity among economic, social and moral concerns. This demands that business organizations autonomously develop

ethical goals from within, which in turn demands reciprocity between ethical theory and practical experience. Working toward such reciprocity, the ultimate goal of business ethics education is a moral business point of view through which one can live with integrity and fulfilment.

INTRODUCTION

Business ethics, and for that matter the entire recent

advance of applied ethics, grounds its importance and

legitimacy in the belief embodied in the above quote by Cicero. Ethics ought to be properly integrated into the

practice of business in order to develop good work for

a good society. Good in this sense merges the notions

of being successful and being moral - making

meaningful the often quoted and oblique phrase 'good

ethics is good business'. But it is here where business

ethics meets its critics, both from the ranks of

philosophy and business - sceptics who question

whether ethics can be applied to business either

meaningfully or successfully; and nowhere are they

more vociferous than in the concerns over business ethics education.

If indeed there is something wrong in the teaching of

business ethics, then these critics have a right to be

alarmed. In a recent curriculum survey on business

ethics conducted by the Centre for Business Ethics, it

was reported that since 1973 there has been a 500%

increase in such courses in higher education and a

370% increase in the member institutions of the

American Assembly of Collegiate Schools of Business

which are specifically oriented toward preparing

students for business careers. It is not at all unreasonable to assume that well over a hundred

thousand students are going through such higher

education courses now, with many more in the

planning stage, including high schools. Furthermore,

corporations are involved in management ethics

educational programs. An Applied Management Ethics

Workshop is going on at Lockheed in which over 3,000

employees have participated; an Ethics and

Management training program for executives is

happening at Cummins Engine; and a Business Ethics

Seminar at Allied Corporation is going into its eighth year. Similar educational programs are taking place at

Texas Instruments, ARCO, Exxon Research and

Engineering Company, North western National Bank,

Pillsbury, and many others.

Are all of these efforts on the wrong track? What is

underlying the unease of the critics of business ethics?

THE NATURE OF BUSINESS

Some of the critics are concerned over whether

business and ethics can be mixed substantially due to

their conception of the nature of business. We have heard Theodore Levitt say: Business must fight as if it

were at war. And, like a good war, it should be fought

gallantly, daringly and above all not morally.

Such a view has been identified as a functionalist

conception of business; business has certain functions

to perform, namely to provide goods and services for

society and make profits for its investors. In fact, it is

irresponsible for business to take on tasks relating to

moral decision making; that is the job of other units in

the society the accepted decisions of which business must obey. According to this view business is

structured into formal organizations, usually called

corporations, which are deliberately designed to seek

specific goals, and these goals are non moral ones.

Therefore, corporations can only be evaluated in terms

of how well they have met their goals, not in terms of

ethics; and this also applies to the agents of the

corporation who take on the responsibility of carrying

out these goals. As John Ladd has put this, if one asks

corporate agents Understanding the nature of business

in this functionalist way, it is not just impractical; it is

unintelligible to bring ethics into business. Teaching business ethics, therefore, has a conceptual problem in

its very roots, making business and ethics truly a

contradiction in terms.

It can be argued that Milton Friedman draws on this

same position in his analysis of the fiduciary

relationship of corporate managers to their

stockholding owners. Even though operationally it may

be a fact that stockholders no longer operate like

owners and that managers actually control the

corporation, nevertheless it is still true that managers have accepted the job and the accompanying

responsibilities of serving the interests of the owners,

which is assumed to be the increase of corporate

profits. Business executives cannot be expected to

factor ethical concerns into management decisions; in accepting a business role they have in effect

relinquished their character as autonomous moral

agents in favour of carrying out the purposes of their

* Faculty of Commerce, BHU, Varanasi

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shareholders. Like the attorney who takes on the role of

getting the best deal possible for the client, the business

executive is an organizational 'gamesman' responsible

for getting the best deal possible for the shareholders-

As long as the rules of the game set out by society are

not violated. Anything else is, according to Fried man, 'subversive' to the game, to the system, and ultimately

to society itself.

Although this view must be taken seriously, it is

fundamentally mistaken. One does not have to and

ought not to conceive the nature of business and its

corporate organizational units in this way. I believe

convincing analyses have already been offered which

point out that corporation are not rule and goal static

entities. They should be seen more developmentally

such that present corporate rules and goals are

constantly undergoing internal re-examination and self-study and new ones can be created and

institutionalized. Business organizations in this sense

are not like machines with fixed characters; instead,

like organisms, they are capable of evolving in

response to their environments. I will not at this time

take up the controversy as to whether the corporate

entity itself should be seen as an individual agent with

intentions and responsibilities distinct from the people

who make it up or whether talk about corporations is

really an elliptical way of referring to the decisions and

actions of its individual human agents. It is not necessary to settle this question to realize that

corporations can and do intentionally build new rules

and goals into their formal structure and this includes

moral rules and goals, if they do not already have them.

And, of course, business ethics is attempting to

discover what these moral rules and goals should be.

But the functionalist might still argue that determining

and institutionalizing moral goals is simply not the task

of business, even though it may be possible to do so. In

fact, it could interfere with the primary responsibility

of being a good businessperson. Ford, for example, should not be considered morally irresponsible for

manufacturing the Pinto. Even though it did not

withstand rear-end collisions of over 20 mph without

fuel tank rupture and granted it could have been made

safer, even after production, for as little as $10 per car,

Ford violated no federal safety standards and

obviously, as witnessed by Pinto sales, marketed a

product desirable to consumers. Ford tried to live up to

its charge of being a successful corporation Make

money and play by established game rules. To ask Ford

to set such game rules for competing in the marketplace conflicts with the primary function

corporations were charged to carry out. As a private

citizen I might vote and actively work for higher rear-

end collision standards, but as Ford engineer or

manager, it is not a part of my job description and

might even be counterproductive to my duties in my

assigned corporate role.

Although the Ford Pinto case is extremely complicated,

it does raise the relevant questions regarding the

corporation's relation to society. In contradiction to

Friedman and the function list view, thinkers from both

business and philosophy have focused on the notion of

a social contract implying that business corporations exist to serve the welfare of society. This is their reason

for being; and if society perceives that this contract is

not being fulfilled, then it has the right to change the

corporation, even eliminate it...

Henry Ford II himself stated in a 1969 speech to the

Harvard Business School: The terms of the contract

between industry and society are changing.... Now we

are being asked to serve a wider range of human

values and to accept an obligation to members of the

public with whom we have no commercial

transactions.

Seeking profit alone is not enough; the corporation

must assume responsibilities which go beyond those of

efficiency and legality and adopt ethical obligations

toward employees, consumers, and society as a whole.

Their obligations go far beyond stockholders to

stakeholders All those affected by corporate activities.

Furthermore, these ethical goals are not simply to be

imposed on corporations; rather corporations are being

asked to work with society, or better yet to see

themselves as a part of society, in developing and institutionalizing ethical goals.

One does not even have to look to a changing contract

between business and society to recognize a connection

between business and ethics; our economy as a whole

has always had a moral foundation. Adam Smith

himself, whom the functionalists often look to for their

ideological underpinnings, implies throughout his

writings that people, even in the pursuit of wealth, must

observe and enact ethical principles without which a

good society would be impossible. The free market

system is a product of our convictions about the nature of the good life and the good society, about how to

distribute goods and services fairly, and about what

kinds of goods and services to distribute. Even if it

were true that the sole goal of business traditionally has

been profit, a claim that is in and of itself debatable,

this does not make profit-making a morally neutral

activity. Everyone would agree that certain basic moral

standards underlie business practice, such as honouring

agreements, truth-telling etc., but more importantly we

have encouraged business to pursue profits because we

believed rightly or wrongly that its doing so violated no rights and would be best for society as a whole.

Friedman and the functionalists, I suspect, would

concur. The question is whether the pursuit of profit as

the sole goal by each individual businessperson and

corporation leads to the best for society today, if it ever

did. This has been exemplified for us today in the many

observations that economic progress does not in and of

itself lead to social progress. We have come to realize

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that much of business' activities have thrust heavy

external costs on the public pollution of our

environment, hazard ours products, poverty and social

unrest, unsafe working conditions, alienated labour,

etc. Such costs are being judged as intolerable to a

healthy society, primarily because of their violation of ethical rights and values of this and future generations.

Society is demanding, recently more than ever, that

corporations find a harmony and working reciprocity

between economic and social concerns, and this in turn

demands the infusion of moral rules and goals into the

corporation itself.

Furthermore, the only way this integration of business

and ethics can be meaningfully practically

accomplished is for corporations to do it themselves, or

at least to participate actively and freely in its

occurring. Corporations consist of individuals, persons, human beings. And to force a human being to be

ethical violates the necessary criterion of morality itself

namely, freedom or autonomy. One can force a person

or a collection of persons to do what is perceived to be

the good or right thing to do, but to act ethically one

must freely adopt a moral point of view and act out of

respect for its commands. In no other way is the notion

of moral responsibility intelligible.

Corporations cannot be ethical unless the human beings

that comprise it are ethical. And human beings cannot be seen as mere cogs in a machine if they are to

preserve their humanity and in turn their morality. I

suspect the functionalist would not be disturbed by the

fact that between 60% and 70% of the managers at

Pitney-Bowes and Uniroyal felt pressure to sacrifice

their personal ethics to satisfy corporate goals. But we

should be disturbed if we are in search of the moral

corporation. Corporations can institutionalize moral

goals and be ethically responsible only if the human

beings who make them up are autonomous agents,

because ethics requires autonomy. When the essential

freedom of the members of a corporation is eclipsed or alienated so too is the ability of the corporation to

develop a moral character and act ethically.

To meet these challenges and to accomplish this goal

business ethics education is indispensible. The study of

business ethics is an attempt to lay out issues crucial to

the institutionalization of corporate moral goals issues

such as the role and structure of corporate power, the

integrity and quality of corporate work, and the criteria

for responsible corporate interaction with its many

environments. It is also an effort to sensitize those involved in the study to moral values and to provide

tools of ethical analysis by which to work through the

issues. Furthermore, it contends that most of the ethical

problems in business do not result from immoral

people but rather from systemic failures which require

recognition, analysis, and correction. But most

fundamentally business ethics education is dedicated to

the maturation of the moral dimension which is an

essential part of all human beings a dimension which

can only be actualized through the recognition of one's

moral autonomy and the connecting responsibilities

that follow. Only when corporate agents see

themselves first and foremost as autonomous

individuals with ethical responsibilities will society see the emergence of the moral corporate culture.

THE NATURE OF ETHICS

Some critics question business ethics education

primarily due to their understanding of the nature of

ethics. I do not want to take on the position that it's too

late to teach ethics because our ethical characters are

formed much earlier in our childhood, or the position

that business ethics is a violation of 'pure' or 'real'

moral philosophy which supposedly focuses only on

theoretical principles and issues. Some people take

these positions seriously, but frankly I do not, although I suspect what I will take up will reflect on these

positions. The more serious question of the critics is

whether ethical theory, to which moral philosophy

seems to be wedded, can serve any useful purposes for

business practice. The ethical theories that moral

philosophy trots out as relevant to business all seem to

have their own set of special internal problems; for

example, they seem to lead to counterintuitive claims

or they fail to provide answers to decisions about what

one should do in a given situation. If an ethical theory

seems to condone actions morally repugnant to our basic ethical intuitions and feelings, which many

accuse teleological theories of doing, or if an ethical

theory cannot tell us which act to perform in a specific

context or adjudicate between conflicting obligations,

which many find true of deontological theories, then

what good are they the critics might also point out that

this ambivalence in trying to teach ethics is recognized

by even those who have been instrumental in its

revival. After a comprehensive study of the teaching of

ethics at The Hastings Centre, Daniel Callahan reports:

Whatever the reasons... educators, professional

organizations, and even the federal government are rushing about at a furious rate to revive an almost

dead interest in moral problems.... It is as if the

American people... are profoundly attracted to moral

problems and yet, at the same time, exceedingly

sceptical that they can be dealt with in a rational

fashion.

In his article 'Why Are the Problems of Business Ethics

Insoluble?' Alasdair Maclntyre states:

The corporate executive like many others finds him or

herself continuously faced with mutually incompatible demands. There is no higher order criterion for or

procedure available to him or her by means of which

these demands may be reconciled or even rationally

ordered. Those moral philosophies which have

promised to provide such a procedure or criterion and

utilitarianism is perhaps the best known example have

notoriously failed to keep their promises. Consequently

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we have to accept as inevitable the radical

imperfection of all present social action.

Such statements and admissions have led some to the

conclusion that the recent resurgence in ethics

advocates the teaching of ethics without any ethical foundations or principles to teach, or when such

foundations and principles are taught, there are no clear

answers to ethical questions so it's not worth spending

time on. If this is true, then the moral philosophy

Cicero advocates as indispensible for the good career is

really useless to the decision-making of the business

fractioned. Furthermore, in the absence of any true

ethical theory, to advocate one ethical position over

another reduces teaching ethics to arbitrary

indoctrination. And, on the other hand, if the pluralistic

tendencies of our society persuade us that all ethical

positions are permissible, then teaching ethics leads to a vicious relativism. Under either description ethics

education, whether business or any other, should not be

categorized as merely useless, but rather as dangerous.

This helps substantiate the belief that ethics cannot, and

should not, be taught especially when this is done with

the goal of helping to make people more ethical. Ethics

and ethical behaviour are learned through example;

imply the critics, not through theoretical analysis.

As with the view of amoral business developed in

Section II, which was founded on a misconception of the nature of business, this position is fundamentally

mistaken concerning the nature of ethics. The mistake

occurs primarily in the understanding of ethical theory

and its relationship to ethical practice. The critics seem

to assume that ethical theories are supposed to tell you

what to do and that by accepting an ethical theory one

should have all of one's moral problems solved. On this

view moral deliberation takes on the form of a practical

syllogism; the major premise is supplied by the theory,

the minor premise by the facts, and the conclusion

simply drops out of the inference providing a definitive

moral result. Unfortunately this is a gross oversimplification of moral reasoning. If the above

view of ethical theory were true, one presumably could

assume that by accepting the same ethical theory the

same moral judgment in a particular situation would

result. This is not always true. The pro and anti-

abortionist can each defend their stands by appeal to

the same ethical theory, whether it is consequentiality

or non-consequentiality.

Moral theories are necessary to making rational choices

in the arena of ethical activity. Without theories one would be unable to give reasons as to why he or she

made a certain ethical decision. There would be no

framework for moral deliberation, no way of even

interpreting or uncovering morally relevant facts. An

ethical theory may not tell one what to do in a given

situation, but it does tell one what to consider in the

existentially frustrating decision making process. We

answer the question 'Why should I do A' by referring to

standards and rules and justify those by higher

standards and rules until we arrive at those we have

accepted as supreme. We might call this the process of

moral validation a process which always takes place

within a moral system or theory. But if we are asked to

justify our moral system or theory which is grounded by supreme principles, we must use some

fundamentally different process which we might call

vindication. Here we are referring to a kind of

pragmatic justification looking to see if our practice

within the theory is yielding results which we value as

a way of life or as a morally rational point of view. If

our theory is yielding counterexamples to this, then,

just as in science, we may need to adjust, or even

question entirely, our moral theory. "A vindicated

value system", says Paul Taylor, "is one that 'works' in

practical life". And there is no way to find this out

other than to realize it through one's own experience by trying to live by the standards and rules that comprise

one's value system. Vindication will come only if we

find our life in harmony with a way of life that

embodies our ideals of the highest good. And it is here

we must make our final moral stand, our ultimate

moral commitment.

The foregoing hopefully outlines the essential

reciprocity between ethical theory and practice. Theory

is necessary to interpret and validate practical moral

choice. Such choice would be unintelligible without theoretical principles; there would be no systematic

framework for rational decision making. Practice is

necessary to test and vindicate an ethical system. Such

a system must satisfy the demands of moral

experience; it must work to harmonize one's moral way

of life. Business ethics, attempts to blend theory and

practice, attempts to find their proper mix. Many critics

see business ethics as impure, because it degrades pure

theory by demanding pragmatic justification, or as

impractical, because it thwarts productive action by

relying upon pure abstract speculation. On the contrary,

I see business ethics, and other applied ethics studies, bringing moral theories into the world of practical

activity for vindication and especially into specific

areas such as business, medicine, engineering, etc.

where sometimes new and certainly complex ethical

demands are encountered demands which are

particularly relevant to those who will be working in

those fields. Robert Audi articulates this well:

Applied ethics can certainly serve as an area in the

adequacy and feasibility of various normative ethical

theories is tested. Real world settings are excellent

laboratories for seeing what will and will not wash as far as moral principles and norms go. Anyone who

spends any time in a hospital ward or operating theatre

will quickly be made aware of the limits and

constraints imposed upon moral reflection in such

settings. Any normative moral theory should be able to

pass muster in coping with such constraints and those

in applied ethics are in a good position to test such

theories in this regard.

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Furthermore, through such application there will be

opportunities to adjust, expand, and even possibly

combine ethical theories, thereby progressing toward

the development of a complete and consistent ethical

system which will serve to validate our moral decision

making.

CONCLUSION

Some critics find fault with business ethics because of

their apparent misunderstanding of the intention or

purpose of business ethics itself although such

criticisms are usually tied to a misunderstanding of the

nature of business and/or the nature of ethics. Peter

Drucker is such a critic. I have dealt with Drucker's con

fusion in detail elsewhere, but here I will briefly deal

with what seems to be his main point in order to offer a

final clarification of the purpose and importance of the

study of business ethics. Drucker writes: There is only one code of ethics, that of individual

behaviour, for prince and pauper, for rich and poor,

for the mighty and the meek alike.... And this

fundamental axiom 'business ethics' denies.... For it

asserts that acts that are not immoral or illegal if done

by ordinary folk become immoral or illegal if done by

'business'.

This might best be called the argument from the special

status of business a variation on the critical position I

discussed in Section II Drucker's major claim is that business ethics implies that the business executive has

special ethical responsibilities and should be judged by

unique ethical standards because of his or her social

impact and power. Contrary to this charge, business

ethics is not seeking to develop special rules for

business nor is it claiming that the businessperson

ought to operate under different ethical principles than

the nurse, the consumer, or the university professor.

Rather, business ethics tries to apply universal ethical

principles to business activity. It is important and

appropriate not because there are special ethical rules

which need to be made up for businesspersons, but because there is a need for the application of traditional

ethical principles in the business environment and also

because there are unique issues regarding business

itself about which we need to reason normatively.

Drucker and others view the rise of business ethics as a

result of widespread hostility toward business: "the

latest round in the hoary American blood sport of

business baiting". If there is such hostility, it has arisen,

I suggest, because a significant number of persons have

come to perceive business as having violated its social contract or the mutuality of the business society

relationship. Society has come to believe that the

business side of the relationship has failed to uphold its

obligations. Maybe society expects too much, but

where perception of such a failure has occurred, surely

it becomes necessary to spell out these mutual

obligations afresh.

What we are seeking through business ethics studies is

a meaningful reciprocity between economic and social

concerns. Such a reciprocity demands that business

organizations develop ethical goals from within, which

in turn requires that the businesspersons who make up the corporation view themselves and be treated as

autonomous moral agents. As I developed in Section II,

this is essential to the nature of good business.

Necessary to accomplish this goal is a meaningful

reciprocity between ethical theory and business

practice. Such reciprocity assumes the validation of

business decision making through the application of

ethical principles and the vindication of ethical theories

which make up one's moral system through the test of

practical experience. As I explained in Section III, this

is characteristic of the nature of good ethical reasoning.

By working toward such reciprocity between business and ethics, business ethics ultimately seeks a moral

business point of view through which

Will this be furthered through business ethics

education? "We may never know", says Harvard's

President Derek Bok, "but surely the experiment is

worth trying, for the goal has never been more

important to the quality of the society in which we

live". I wholeheartedly concur with this statement. I

might only add that although much more work is yet to

be done in business ethics education, I am optimistic that progress is being made toward the meaningful

reciprocity between business and ethics discussed in

this paper a goal worthy of our continued pursuit.

REFERENCE

1. W. Michael Hoffman and Jennifer Mills Moore,

'Results of a Business Ethics Curriculum Survey

Con ducted by the Center for Business Ethics',

Journal of Business Ethics 1 (1982), 81-83.

2. 'The Dangers of Social Responsibility', Harvard

Business Review (September? October 1958). 4

3. 'A Prelude to Corporate Reform', in Corporate Social Policy, ed. by Robert L. Heilbroner and

Paul London (Addison-Wesley, Reading, MA,

1975), pp. 18-19.

4. 'The Pressure to Compromise Personal Ethics',

Business Week (January 31, 1977), p. 107.

5. 'The Rebirth of Ethics', National Forum (spring,

1978), 9-12.

6. Archie J. Bahm, 'Teachings Ethics Without Ethics

to Teach', Journal of Business Ethics 1 (1982), pp.

43-47. 21

7. 'Morality and the Ideal of Rationality in Formal Organizations', the Monist 54 (1970), 500.

8. W. Michael Hoffman and Jennifer Mills Moore,

'What is Business Ethics? A Reply to Peter

Drucker', Journal of Business Ethics 1 (1982),

293-300

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A REVIEW OF GOVERNMENT ACCOUNTING IN INDIAN CONTEXT

Ravish Chandra Verma*

ABSTRACT Today, our government is expected to continuously review itself in light of the changes that are taking place and should not hesitate in implementing any meaningful change is the change in the country‘s accounting system from cash to accrual basis. In a government accounting environment, the entity has the responsibility of fiscal accountability which is demonstration of

compliance in the use of resources in a budgetary context. In the private sector, the budget is a tool in financial planning and it isn't mandatory to comply with it. The Government accounts and financial reporting currently followed in our country derive their ‗substance and form‘ largely from the accounting procedures introduced during the British rule.

INTRODUCTION Government Accounting refers to all the financial

documents and records of public institutions that relate

to the collection of tax payers‟ money, and the analysis, control of expenditure, administration of trust

funds, management of government stores and all the

financial responsibilities and duties of the relevant

organs. Government Accounting system is the way of

accountability through which the established

institutions of the public render stewardship on the

revenue of the Nation and how it has been disbursed.

Government accounting includes the process of

recording, analyzing, classifying, summarizing,

communicating and interpreting financial information

about Government in aggregate and in details, recording all transactions involving the receipt, transfer

and disposition of public funds and property. The

processes of Government Accounting are further

discussed as follows:

(a) Recording: Recording involves the process of

documenting the financial transactions and

activities in the necessary books of accounts are

cash book, ledger and vote book.

(b) Analyzing: Analyzing involves the process of

separating transactions according to their distinct

nature and posting them under appropriate heads

and sub-heads. (c) Classifying: Classifying has to do with the

grouping of the transactions into revenue and

expense descriptions and bringing them under

major classes as „Revenue Head‟ and „Sub-

heads‟, with their relevant code numbers of

accounts.

(d) Summarizing: Summarizing concerns the bringing

together of all the classes of accounts and

preparing them into reports periodically as are

statutorily or organizationally required.

(e) Communicating: Communicating is about making available financial reports on all the government

financial activities from the necessary accounting

summaries to various interested parties. The style

of communication adopted should be un-

ambiguous, lucid and devoid of jargons as much as

possible.

(f) Interpreting: Interpreting ends the process by

giving explanations on what has been reported in

the various financial statements and reports, as

regards the overall operations and performance of

the relevant government organization(s). This is to

enable the necessary parties and users to take relevant decisions based on their assessments of

the reports.

OBJECTIVES OF GOVERNMENT

ACCOUNTING

The objectives of Government accounting include the

following:

To fulfill legal requirement. The law requires that

government accounts are prepared and audited

annually. To perform the stewardship function. The ruling

government is the steward of the resources and

finances of the Nation. Government has to give

account of how these finances are used.

To enable Government to plan well the future

activities and programmes of the Nation.

To provide a process of controlling the use of the

financial and other resources.

To provide the means by which actual

performance may be compared with the target set.

To evaluate the economy, efficiency and

effectiveness with which governance is carried out.

ACCOUNTING SYSTEM IN UNION

GOVERNMENT OF INDIA

The Government accounts and financial reporting

currently followed in our country derive their

‗substance and form‘ largely from the accounting

procedures introduced during the British rule. The

system worked reasonably well in the early phase of

post-independence era. But over the last two to three

decades, there has been a significant change in the role and responsibilities of the government. Today, our

government is expected to continuously review itself in

light of the changes that are taking place and should

not hesitate in implementing any meaningful change is

the change in the country‘s accounting system from

cash to accrual basis. This is because an accounting

system is not an end in itself but rather a means to an

end.

*Research Scholar, Faculty of Commerce, B.H.U., Varanasi, U.P. – 221005

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A sound accounting system should assist the

Government in fulfilling its objectives in a changing

scenario by providing the desired inputs for decision-

making. It needs to disseminate information of high

quality in terms of understandability, relevance,

materiality, reliability, faithful representation, substance over form, neutrality, prudence and

comparability (across periods).The present system of

accounting does not fulfill the above requirements. On

the other hand accrual system of accounting has the

ability to generate information that is of more use in

decision-making. If accrual accounting is considered to

be a benchmark of an ideal accounting system for

government, it is necessary to look into the accounting

information that the present accounting system of our

country fails to provide but could otherwise be

available to the decision makers had the accrual system

of accounting been followed by our country.

The present accounting system of our country can best

be described as ‗cash basis of accounting‘ that records

a transaction only when either cash comes in or when

cash moves out, rather than recording the transaction or

event as it occurs. It also lays emphasis on transactions

vis-à-vis the budget. Under the present accounting

system, our Government generates the following

accounting documents:

1. The Appropriation Account

2. The Finance Accounts

The Appropriation Accounts list the original budget

estimate, supplementary grants, surrenders and re-

appropriation distinctly. It also records the actual

expenditure incurred against each of the above. In

addition to it, this account also indicates whether the

money that has been spent was legally available for the

purpose or not, and also whether the expenditure

incurred confirms to the authority.

In the event of any variation from the budgeted figures

explanations of the same are also recorded in this account. This document appears to be less of

accounting nature and more in nature of a document

that can be used for control purpose. This is because

the focus of this account is on whether the expenditure

is incurred as per the budgeted amount or not. This

account does not give an indication about the source of

funds and how they are spent or how much of what is

generated or spent relates to the current year. The

document as such should not even be considered as a

part of accounting system, as it is more in nature of

knowing the extent to which expense has been made as per the allocations in the budget.

In case more amounts have been spent than the budget,

whether the same has been explained and sanction of

the additional amount has been obtained. On the other

hand if amount less than the budget have been spent,

the reasons thereof have been indicated. This is a

control document rather than a part of government‘s

financial accounting. It is for this reason a considered

view has been developed that this document may not

be treated as the part of Government accounts but may

be considered as a report generated for control

purposes.

STRUCTURE OF GOVERNMENT’S ACCOUNTS

AND FLOW OF FUNDS

The financial management of any organization must

have a prudent financial system backed by sound and

effective accounting procedures and internal controls.

A well-designed and well managed accounting system

helps ensure proper control over funds.

Accounting policies and procedures are designed to

compile accounts fulfilling legal/procedural

requirements that govern financial control. Accounts

are an integral part of financial management of activities. On the basis of accounts, the Government

determines the shape of its monetary and fiscal

policies.

The accounts of Government are kept in three parts: -

(a) Consolidated Funds of India

(b) Contingency Funds of India

(c) Public Account

(a) CONSOLIDATED FUND OF INDIA

All revenues received by the Government by way of taxes like Income Tax, Central Excise, Customs and

other receipts flowing to the Government in connection

with the conduct of Government business i.e. Non-Tax

Revenues are credited into the Consolidated Fund

constituted under Article 266 (1) of the Constitution of

India. Similarly, all loans raised by the Government by

issue of Public notifications, treasury bills (internal

debt) and loans obtained from foreign governments and

international institutions (external debt) are credited

into this fund. All expenditure of the government is

incurred from this fund and no amount can be

withdrawn from the Fund without authorization from the Parliament.

(b) CONTINGENCY FUND OF INDIA

The Contingency Fund of India records the

transactions connected with Contingency Fund set by

the Government of India under Article 267 of the

Constitution of India. The corpus of this fund is Rs. 50

crores. Advances from the fund are made for the

purposes of meeting unforeseen expenditure which are

resumed to the Fund to the full extent as soon as

Parliament authorizes additional expenditure. Thus, this fund acts more or less like an imprest account of

Government of India and is held on behalf of President

by the Secretary to the Government of India, Ministry

of Finance, and Department of Economic Affairs.

(c) PUBLIC ACCOUNT

In the Public Account constituted under Article 266 (2)

of the Constitution, the transactions relate to debt other

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than those included in the Consolidated Fund of India.

The transactions under Debt, Deposits and Advances in

this part are those in respect of which Government

incurs a liability to repay the money received or has a

claim to recover the amounts paid. The transactions

relating to ‗Remittance‘ and `Suspense‘ shall embrace all adjusting heads. The initial debits or credits to these

heads will be cleared eventually by corresponding

receipts or payments. The receipts under Public

Account do not constitute normal receipts of

Government. Parliamentary authorization for payments

from the Public Account is therefore not required.

DISTINCTIVE FEATURES OF

GOVERNMENTAL ACCOUNTING

Although the basic principles of accounting apply in

government as in commerce, certain features of

governmental accounting make its pattern quite different from that of the typical set of commercial

accounts. The underlying differences should be

understood to avoid confusion that sometimes results

in attempting to apply, with little or no modification,

conventional commercial accounts to a governmental

unit.

The distinctive features of governmental accounting

are the reflection of the essential difference in the

method of financing governmental operations as

contrasted with business undertakings. Private business must obtain its capital from voluntary investments

made with the hope of deriving an increment. Private

business, then, to survive must realize a profit over and

above the cost of the commodities or services it sells in

order to preserve its capital and to return a profit to its

proprietors or shareholders. Accordingly, commercial

accounts are focused upon "net profit"-the amount

gained over costs, the difference between income and

expenses-and "net worth"-the current value of the

invested capital, the difference between assets and

liabilities.

Government furnishes services to all directly or

indirectly and levies taxes or provides other revenue

measures to meet the cost of those services.

Governmental accounting usually has no "net profit" to

report. Particular sources of revenue generally have no

direct relation to particular items of expenditures. An

excess of revenues over expenditures is not "net profit"

and is not necessarily an indication of good financial

policy in the government unit. Capital invested in

government by its citizen proprietors (represented by

such capital assets as land, buildings, highways, and equipment) is investment in future public services.

"Net worth," if that term can be employed, of a

governmental unit has an entirely different significance

from "net worth" of a commercial enterprise.

Still another peculiar characteristic of governmental

accounting is the employment of separate funds. A

business enterprise, even the largest and most

extensive, usually is engaged in activities closely

interrelated with the ultimate objective of profit in one

particular field. The governmental unit, on the other

hand, is engaged in an ever-growing number of

operations and activities which are quite unrelated to

each other. Particular sources of revenue or income often are dedicated to use for a particular phase of the

government's operations. The accounts must segregate

these especially dedicated resources and isolate them

from all other transactions in a separate "fund." While

a business concern can maintain a single set of

accounts for all of its transactions, a governmental

agency must maintain a number of independent sets of

accounts, one for each "fund."

STEPS TAKEN AND DIRECTIONS SUGGESTED

FOR INDIA

India at present is following cash basis of accounting. The following steps taken by India, however, indicate

that it is on its way to an accrual system accounting.

Very recently all the Local Bodies, Autonomous

Institutions and Universities have been instructed to

prepare their accounts on format basis that is just

equivalent to meeting the requirements of accrual

accounting. The Twelfth Finance Commission in its

report has suggested for a change in the nations

accounting system that has been accepted, indicating a

move from cash basis to accrual basis. A committee

has also been set up by the Comptroller and Auditor General of India to develop a framework and examine

the technical feasibility of reforming the Government

accounting system. The Government has also set up

Government Accounting Standards Board for the

developing Government accounting standards for the

country.

The activity of accounting reforms has already been

initiated at ‗Ministry of Surface Transport‘ on pilot

basis. The accounts there are initially planned to be

prepared on accrual basis parallel with cash basis.

Considering all this and the merits associated with the accrual system of accounting and also understanding

its strategic need for a nation in terms of providing

information which is more useful for decision making,

India certainly needs to quickly switch over to the

accrual system of accounting. However, it is also

important to mention that the exercise of moving from

cash system of accounting to accrual system of

accounting should be done in a phased manner and

some pilot studies may be conducted. Before the

government wishes to move from cash accounting

system to accrual accounting system it must ensure that:

The top level officers are fully involved in the

process and are committed to implementing it;

Sufficient knowledge has been imparted to the

officers involved at different levels;

The change should not be spontaneous but

gradually over a span of three to four years and all

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possible preparation should be done before

embarking on full implementation;

There must be sufficient resources with it to

implement the change;

It has examined the implications of presenting

financial statements in accrual manner; and The employees are trained not only to prepare the

statements based upon accrual system of

accounting but also to understand as to how to

analyze them.

CONCLUSION

Traditionally governmental accounting is confined to

budget accounting for monitoring the collection of

revenue and the spending of appropriations. During the

last four decades, the financial accounting for

government emerged in response to the demands of the

financial community (e.g. investors in government bonds and bond rating agencies) and the general public

for greater fiscal accountability and transparency of

public institutions. Financial accounting measures the

financial consequences of actual transactions and

events, and produces financial statements to report

these consequences primarily to interested parties

outside of government.

As credibility and comparability are especially

important in external financial reports, the

development of standards to regulate government financial accounting gained prominence as well. In the

advanced English-speaking countries with a mature

accounting/auditing profession, government accounting

standards are developed by bodies that are subject to

the influence but not control of government, while the

government reserves the right to accept, modify or

reject them as official accounting policies. This

arrangement has been elevated to the international

level in the form of the International Public Sector

Accounting Standards (IPSAS) Board. The board

receives support from a number of important

international development and financial institutions,

which view IPSASs as a vehicle for promoting

government accounting reform in developing countries.

REFERENCES

1. Sachdeva, Pardeep (1993): Urban Local Government and Administration in India,

Allahabad: Kitab Mahal.

2. Local Governance in Developing Countries –

Edited by Anwar Shah, 2006 Constitution of India

by Durga Das Basu.

3. Grover, R. K (1998) Accounting Education: Need

for Professional Approach by Universities, Indian

Journal of Commerce, Vol.51, No.

4. Agarwal, N.C (1999), Commerce Education-

Vision 21st Century, The Indian Journal of

Commerce, Vol.52.No.4

5. Batra, Gurdip Singh (1997), Developments in Accounting Theory since Pacioli Era, ed.Modern

Trends in Accounting Research, Deep and Deep

Publications, New Delhi.

6. Rehman, A.R.M and Saha, A.B (1996),

Accounting Research in Changing Environment

and the Trend of Accounting Research in India-

with special reference to North East India, Journal

of Accounting and Finance, Vol.X, No.1 Issues in

Accounting Education, spring, pp. 59-77.

7. Government of India. 2004. Report of the Task

force on Implementation of the Fiscal Responsibility and Budget Management Act,

2003.Ministry of Finance, New Delhi, July.

8. 2008, 2009, 2010. Economic Survey. Economic

Division, Department of Economic Affairs,

Ministry of Finance, New Delhi.

9. Agrawal, A. and J. C. Ribot(1999).

"Accountability in Decentralization: a Framework

with South Asian and West African Cases."

Journal of Developing Areas 33(4): 473-502.

10. http://www.jstor.com

11. http://www.emrald.co

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CORPORATE BLOG: CREATING PUBLIC RELATIONS

Nilanjana Kumari *

ABSTRACT Blog, Facebook, twitter, and wikis, have become a raison d’être for both the producers and the consumers. A corporate without a web page is considered like life without oxygen. Today, social media has become the most cost effective and time friendly source for routing consumers towards the company. Social media is slowly changing the definition of promotion

from advertising to digitizing, and blogging being an integral part of it. It is binding the seller and the buyer into a strong and trustworthy relationship, creating brand loyalty and awareness. The study undertaken is an attempt to explore the effectiveness of blogging in the corporate world. Further it provides a bird‟s eye view of uses of corporate blogs along with a summarised view of the companies adopting blogging. An effort has also been made to represent the legal framework controlling the environment of blogging, by analysing the case social guideline structure of IBM.

INTRODUCTION

Truncation of the expression web blog gave birth to

blog. A blog can be defined as a discussion and

information sharing site on the World Wide Web

consisting of distinct entries known as ―posts‖,

displayed on the official page and website of the

developer. Rhonda (2007), in her work quoted that

blogging originated when Steve Crocker established the request for comments (RFC), which was intended

to be an informal form of fast distribution way to share

ideas with other network utilised to create a ―feedback

loop‖. However, as there is no reliable source of this

statement, it is considered that blogging became

popular in the 90‘s, specifically, when on 14 June

1993, Mosaic Communications Corporation maintained

their ―What‘s New‖ list of new websites, which used to

be updated daily and archived monthly. The Mosaic

web browser added a special ―What‘s New‖ button to

make it accessible for the public. It further gained popularity, when Justin Hall (a student at Swarthmore

College), began personal blogging, in 1994, where he

used to keep a running account of his personal life,

inspiring many tech geeks to diary their personal life

online.

OBJECTIVE OF STUDY

To provide a conceptual framework of blog and

corporate blog.

To study the use of blogs in formulating

marketing strategies.

To analyse the requirement of social computing guidelines by corporate, referring to the case of

IBM.

After a slow start, blogging gained popularity and even

the politicians, businessmen, consultants, lawyers,

technicians, etc. got addicted to it. By the end of 2004,

blogging became a source of gaining information, in-

depth analysis, and a space for sharing opinions. In

January 2005, Fortune magazine listed top eight

bloggers (specially businessmen), who couldn‘t be

avoided by other businessmen: Peter Rojas, Xeni Jardin, Ben Trott, Mena Trott, Jonathan Schwartz,

Jason Goldman, Robert Scoble, and Jason Calacanis. In

context of the study undertaken, let me first define a

few words associated with it.

Blogging – when people either read or write in a

blog.

Blog spot – an inlay, either in the form of a

comment, suggestion, original post, etc.

Blogosphere – a community of all blogs.

Micro blogging – practice of posting small pieces

of digital content, like a text, picture, link, videos,

etc.

Reverse/collaborative blog – a blog which

involves posts and writings of several authors.

Diary blog – a blog written about one‘s everyday

life.

Corporate blog - a blog used by companies for

providing updates about their business and

creating public relations.

Genre blog – blogs focusing on particular subject like politics, health, travel, fashion, education, etc.

Blogs are websites which are updated daily, weekly

and even monthly, to provide latest updates to

followers. Blogs are considered to be flexible, user –

friendly, inexpensive, interactive and self – centred

form of social media marketing. According to

Technocrati (search engine) there were more than 57

million blogs available in 2006, which has risen to

more than 70 million blogs in 2012.

CORPORATE BLOGS

People have always maintained diaries of their personal

lives, way before the term ―blog‖ was coined, except

for the fact that it was not published on W 2.0. With

the passage of time and by gaining popularity, blogs

have spread its routes even in the corporate sector.

Today corporates, companies and businessmen have

helped blog to evolve as a new branch on the tree of

blogosphere, which can be used to communicate and

share information with their customers. Corporates are

basically following two approaches to customize a blog, viz.:

*Research Scholar, Faculty of Commerce, B.H.U., Varanasi

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The product approach, where updates regarding

products are provided.

The customer approach where customers are

provided an in-depth insight and information

about products directly from the one who are

responsible for the product.

The first approach helps to build brand loyalty, on the

contrary the second approach tries to address issues or

provide assistance post purchase. Corporate blogs are

of two types:

Internal blogs: A silent wave

It exists within the firewall of the companies,

which work‘s on the intranet not being accessible

by public or through public URL‘s. It is a self-

authored blog by employees for efficient

communication and knowledge for sharing.

External blogs: A noisy affair

It is published on public URL‘s providing update

son products, and allowing solicits feedbacks and

discussions from customers.

Fig. 1

Types of corporate blog

It‘s inevitable that corporates are developing and

maintaining blogs to attract more customers, for increasing brand loyalty, utilising the availability of

virtual focus groups, increasing their ranking on search

engines and increasing their area of target customers.

FORMULATING MARKETING STRATEGY

A corporate blog is an expression of individuals

representing companies, which is in conversational

voice and cannot be replaced by any forms of on-off

internet marketing tools.

Blogging can be utilised as a creative source for formulating marketing strategies. It helps to understand

the requirements of customers and provide a wider

platform to develop big ideas, through discussions and

feedbacks. It is considered as the direct source of idea

for innovating new products and strategizing new

market strategies. Blogs being a newest form of viral

marketing, is adjunct to PR and helps in building trust

by consistently meeting the expectations of customers.

Effective corporate blogging can be achieved through

out reaching customers and pitching PR, SEO (search

engine optimization) and online marketing together for

gaining a wider market share. A sequential

representation of the strategy has been represented below.

Fig.- 2

Social media marketing strategy

MEASUREMNT OF PROFIT

In blogging the Return on investment is measured

through Return of Blog, as it is all about conversations, discussions, information, efficiencies and expertise

gained which cannot be measured in terms of metrics,

but is measured through the rankings available on

search engines. The most popular of which is WOMM:

word of Mouth Marketing, which actually determines

the success by measuring the staying duration and

retention power of a blog.

POSITION OF BLOG AMONG CORPORATES

In present era, when various forms of technology i.e.

social media, digital marketing and online marketing is becoming prevalent the old concept of marketing is

being replaced by new concept of digital marketing. It

is becoming necessary for companies to get involved

directly with customers through these networking sites.

Today companies are not known by their name and

brand but are known through their webpage.

As compared to other forms of online and digital

marketing, corporate blogging is harder to be

conceptualised as it requires greater degree of

precaution and carefulness, while deciding the right

tone of voice and building customer interest, as the

whole goodwill of the company is on stake. A few big companies, opting for corporate blogs are:

Facebook: this largest social media site has its

own blog, which it keeps updated from time to

time and provides special updates on privacy and

security from time to time. Available on

blog.facebook.com/

Red Cross: one of the biggest charity hospitals in

the world, which possess a blog to share the social

work done. Available on www.redcroschat.org

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BMW: amongst the biggest and richest car

brands, which has embraced its own blog to

discuss and share contents and videos on its new

products and update customers about the

engineering of products. Available on:

www.bmwblog.com

e-bay: an online seller corporate which provides

updates on regular basis about its sales, tips,

tricks, company‘s profits, achievements, etc.

available on: blog.ebay.com

Google: being inevitable to be avoided this site

maintains its own blog despite numerous blogs

dedicated to its products. It provides update on

the best contents available. Available on:

googleblog.blogspot.in

THE LEGAL VOICE OF BLOGGING: A CASE

OF IBM

IBM an American company manufactures and markets

computer hardware and software worldwide. Having a

wide customer base and target market, it has designed a

blog page only for its internal users and employees.

But this page is available on public URL‘s with the

drawback that the consumers can read it but cannot

comment or post on it. It has designed the blog to

encourage its staff for contributing their ideas, without

fearing to go against the company‘s views. This

freedom has motivated honest relevant and creative

suggestions, which are unaffected by corporate meddling.

SOCIAL COMPUTING GUIDELINES OF IBM

IBMers in 2005, created a set of guidelines for all the

employees who wanted to blog and provide helpful and

practical advice to protect the interest of bloggers and

IBM. These guidelines are set for all modes of social marketing: wikis, virtual worlds, twitter, Facebook,

blogs, etc. It states the following guidelines:

IBM is responsible for online published content,

so it is mind full for employees to protect their

privacy.

It is necessary for bloggers to quote their voice

and not represent or voice IBM.

Posts in personal capacity should have a

disclaimer ―Not copy from site‖.

No information about client‘s, partners, suppliers

and company should be discussed.

No use of ethic slurs, discriminatory remarks,

obscenity, etc. should be used at workplace or on

blog page.

One should not misuse the logo/trademark of IBM.

The discussion should be informative and should

add value to company‘s reputation.

The above guidelines apply to all online activities of

IBM. The company supports open discussions, and try

to create relationship among individuals. The

discussions done by employees amongst themselves or

with clients and outsiders should provide useful

information which can add value by improving

products, solving problems of associates, improve knowledge and skills of co-workers and promote value

of IBM. Discussions done with clients and customers

should be helpful to provide expertise about products

and should not misrepresent any fact. Discussions on

social sites should not investigate any kind of

necessary and unresponsive arguments.

The above discussed guidelines are not limited to IBM

only, rather every corporate blog carry their own

restrictions regarding posts on their site. Every

corporate entity should be very much aware of all the

discussions, posts and feedbacks on their site, as a small representation and negligence which might lead

to harming the goodwill of the company. It should

always be remembered that blogging is a form of

marketing and not advertising, so it might attract

customers or create brand loyalty but will not increase

the value of sales. At times corporates take blogs as a

magic word and expect instant traffic for their

webpage, but the reality is vice-versa.

Blogging needs long term commitments, which calls

for time to time development of innovative ideas for retaining the customers, as they might shift from blogs

to teaser feeds and e-mail notifications. Blog

controllers/owners/developers should not post rehashed

press releases or repeat the posts from some other

social site. Corporates should not have huge

expectations from their blogs rather they should be

conscious about the technical details and expertise

discussed, as their competitor‘s too read their blogs.

CONCLUSION

Corporate blogs are not a traditional marketing tool;

rather, it is a form of customer service provided post-purchase, to retain the customer base. Bloggers should

try to create a cordial relationship and avoid heated

arguments. A successful blogger should even get

involved in blogs of other companies to increase its

audiences in the community. Successful marketing

through blogs can be achieved by engaging its

customers in relevant industry related information and

technical details, updates on products and provide

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timely answer to customer‘s question. A corporate

entity should always acknowledge the customers for

their valuable discussion and feedbacks, which will

strengthen their brand loyalty. Since customers are

usually influenced by feedback of other customers, it is

necessary for companies to build such reference and focus groups which work in their favour. Beside the

benefits of direct response from customers, blogging

carries potential risk of hampering the company‘s

image, so a blog developer and controller should

review the privacy guidelines and provide its update on

the site, to avoid any discrepancy. He should be aware

of every action being performed on the company‘s

blog, as a blog is not a gizmo but it’s the face of the

company.

REFERENCES

1. Curtis, J.C. (2010), ―The new Handshake: Sales

meets social media‖, ABC-CLIO, LLC, U.S.A.

2. Cass G.J. (2007), ―Strategic & Tools for

Corporate blogging‖, Butterworth-Heinemann

Publications, U.S.A. 3. Scoble R., Israel S., ―Naked Conversations: How

blogs Re changing the Way Businesses Talk with

Customers‖, John Wiley & Sons Inc., U.S.A.

4. Cho D.J., ―Blog, Inc.: Blogging for Passion,

Profit, and to Create Community‖, Chronicle

Books, LLC, California.

5. www.ibm.com/blogs/zz/en/guidelines

6. www.simplyzesty.com/Blog/Article/September-

2012/

7. www.boagworld.com/marketing/corporate-

blogging/

RNI – UP/ENG/2011/36701 ISSN: 2231-6353

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