table of contents dr. kalpana agrawal, harshit baranwal · pdf filedr. kalpana agrawal,...
TRANSCRIPT
Table of Contents
Articles
ENVIRONMENTAL SUSTAINABILITY OF ECOTOURISM
Dr. Kalpana Agrawal, Harshit Baranwal
LAW OF ONE PRICE ARBITRAGE: A STUDY ON WHOLESALE POTATO MARKET IN HOOGHLY DISTRICT OF WEST BENGAL, INDIA
BIDYUT KUMAR GHOSH
AN ANALYSIS OF FOREIGN EXCHANGE EARNINGS FROM TOURISM INDUSTRY OF INDIA.
Kalpana Agrawal, Monu Yadav, Mayurika Rathi Kunal Sawlani
BUSINESS REGULATORY FRAMEWORK OF INDIAN TEXTILE & GARMENTS INDUSTRY IN POST-LTA SCENARIO
Alqa Aziz
SMES IN SULTANATE OF OMAN: MEETING THE DEVELOPMENT CHALLENGES
Dr.Ayoob C.P, Balakrishnan Somasundaram
FEMALE FARMER’S VIEW TO HAND OVER THE OWNERSHIP RIGHTS OF THE FARMING LAND TO DAUGHTER-IN-LAW - A STUDY OF RURAL AREA OF SIKKIM IN NORTH- EASTERN INDIA
Nidhi Dwivedy
MERGER AND ACQUISITION IN THE STEEL INDUSTRY: AN EVALUATION W.R.T. TATA CORUS DEAL,
Vijay Verma, Dr.Sanjay Pandey
ASSESSING THE FINANCIAL HEALTH OF SEED INDUSTRY IN INDIA – AN APPLICATION OF ALTMAN’S MODEL
Praveena Sivalogeswaran
E-GOVERNANCE IN INDIA: PROBLEMS,CHALLENGES AND PROSPECTS
Vandana Gupta, Ajay Sharma
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 1
Environmental Sustainability of Ecotourism
Dr. Kalpana Agrawal, Asst.Prof. & Harshit Baranwal, Student, PIMR, Indore
Abstract
Ecotourism typically involves travel to destinations where
flora, fauna and cultural heritage are the primary attractions.
It focuses on volunteering or volun-tourism, personal
growth and environmental responsibility. It discourages
mass tourism, mass constructions of hotels, tourism resorts
and mass activities in fragile areas. One of the goals of
ecotourism is to offer tourists insight into the impact of
human beings on the environment, and to foster a greater
appreciation of our natural habitats. Tourism is the largest
business sector in the global economy, accounting for $3.6
trillion in economic activity and 8 percent of jobs
worldwide. Within the industry, ecotourism is the fastest
growing subsector, expanding by 20-34 percent per year
since the early 1990s. Although ecotourism is considered
environmentally sustainable by definition, experts at Global
Ecotourism Conference 2007 raised concern that ecotourism
could be contributing to global warming and environmental
damage. The present paper delves in to the same.
Key word: ecotourism, green washing
Introduction
Ecotourism Society Pakistan (ESP) explains "Ecotourism is
a travel activity that ensures direct financial support to local
people where tourism activities are being generated and
enjoyed. It teaches travellers to respect local cultures of
destinations where travellers are visiting. It supports small
stakeholders to ensure that money must not go out from the
local economies. It discourage mass tourism, mass
constructions of hotels, tourism resorts and mass activities in
fragile areas". For many countries, ecotourism is not simply
a marginal activity to finance protection of the environment,
but is a major industry of the national economy. For
example, in Costa Rica, Eucador, Nepal, Kenya,
Madagascar and Antartica, ecotourism represents a
significant portion of the GDP and economic activity.
The International Ecotourism Society defines ecotourism as
"responsible travel to natural areas that conserves the
environment and improves the well-being of local people."
Although the goal of ecotourism is to enjoy nature, not all
tourism in natural areas is sustainable and can be defined as
ecotourism. An official global ecotourism certification
scheme remains to be developed.
Ecotourism is responsible travel to fragile, pristine, and
usually protected areas that strive to be low impact and
(often) small scale (as an alternative to mass tourism). Its
purpose is to educate the traveler; provide funds for
ecological conversation; directly benefit the economic
development and political empowerment of local
communities; and foster respect for different cultures and
for human rights. Since the 1980s ecotourism has been
considered a critical endeavor by environmentalists, so that
future generations may experience destinations relatively
untouched by human intervention. Several university
programs use this description as the working definition of
ecotourism.
Generally, ecotourism focuses on volunteering, or
voluntourism, personal growth and environmental
responsibility. Ecotourism typically involves travel to
destinations where flora, fauna and cultural heritage are the
primary attractions. One of the goals of ecotourism is to
offer tourists insight into the impact of human beings on the
environment, and to foster a greater appreciation of our
natural habitats.
Responsible ecotourism includes programs that minimize
the negative aspects of conventional tourism on the
environment and enhance the cultural integrity of local
people. Therefore, in addition to evaluating environmental
and cultural factors, an integral part of ecotourism is the
promotion of recycling, energy efficiency, water
conservation, and creation of economic opportunities for
local communities. For these reasons, ecotourism often
appeals to environmental and social responsibility
advocates.
Characteristics of Ecotourism:
Ecotourism is a form of tourism that involves visiting
natural areas -- in the remote wilderness or urban
environments. According to the definition and principles of
ecotourism established by The International Ecotourism
Society (TIES) in 1990, ecotourism is "Responsible travel to
natural areas that conserves the environment and improves
the well-being of local people." (TIES, 1990). Martha
Honey, expands on the TIES definition by describing the
seven characteristics of ecotourism, which are:
Involves travel to natural destinations
Minimizes impact
Builds environmental awareness
Provides direct financial benefits for conservation
Provides financial benefits and empowerment for local
people
Respects local culture
Supports human rights and democratic movements
such as:
1. Conservation of biological diversity and cultural
diversity through ecosystem protection
2. Promotion of sustainable use of biodiversity, by
providing jobs to local populations
3. Sharing of socio-economic benefits with local
communities and indigenous people by having their
informed consent and participation in the management
of ecotourism enterprises
4. Tourism to unspoiled natural resources, with minimal
impact on the environment being a primary concern.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 2
5. Minimization of tourism's own environmental impact
6. Affordability and lack of waste in the form of luxury
7. Local culture, flora and fauna being the main attractions
8. Local people benefit from this form of tourism
economically, often more than mass tourism
History
Hector Ceballos-Lascurain popularized (and he would say
coined) the term 'ecotourism' in July 1983, when he was
performing the dual role of Director General of Standards
and Technology of SEDUE (the Mexican Ministry of Urban
Development and Ecology) and founding president of
PRONATURA (an influential Mexican conservationist
NGO). PRONATURA was lobbying for the conservation of
the wetlands in northern Yucatán as breeding and feeding
habitats of the American Flamingo.Others claim the term
was in use earlier: Claus-Dieter (Nick) Hetzer, an academic
and adventurer from Forum International in Berkeley, CA,
coined the term in 1965 and ran the first ecotours in the
Yucatán during the early 1970s.
The Ecotourism Market
The World Tourism Organization (WTO) estimates that
there were more than 663 million international travelers in
1999. Spending by these tourists was estimated at more than
US$453 billion. Tourist arrivals are predicted to grow by an
average 4.1% a year over the next two decades, surpassing a
total of one billion international travelers by the year 2010
and reaching 1.6 billion by the year 2020 (WTO, 2000).
Tourism is the world’s largest employer, generating, directly
and indirectly, nearly 200 million jobs or some 10% of the
jobs globally (Honey and Rome, 2000).
The Size of the Market
Ceballos-Lascuráin (1993) reports a WTO estimate that
nature tourism generates 7% of all international travel
expenditure (Lindberg, 1997). The World Resources
Institute (1990) found that while tourism overall has
beengrowing at an annual rate of 4%, nature travel is
increasing at an annual rate between 10% and 30%
(Reingold,1993). Data which supports this growth rate is
found in Lew’s (1997) survey of tour operators in the Asia-
Pacific region who have experienced annual growth rates of
10% to 25% in recent years (Lindberg, 1997).
WTO (1998) stated that ecotourism and all nature-related
forms of tourism account for approximately 20 percent of
total international travel.Fillion (1992) outlines the
magnitude of the ecotourism market through the use of
general tourism statistics.Fillion qualifies ecotourism as
“travel to enjoy and appreciate nature”. In the opinion of
TIES this more closely represents nature tourism, and is
identified as such on the table below.
Fillion identified, through ananalysis of inbound tourist
motivations to different worldwide destinations, that 40-
60% of all international tourists are nature tourists and that
20-40% are wildlife-related tourists. (Different multipliers
were used in these figures.) Nature tourists can be defined
as tourists visiting a destination to experience and enjoy
nature, and wildlife-related visitors can be defined as
tourists visiting a destination to observe wildlife (e.g. bird-
watchers).
Total International
Tourism Arrivals
Nature Tourists
Wildlife-related
Tourists
1988 - 393 million
157-236 million
79-157 million
1994 - 528.4 million
211-317 million
106-211 million
Source:Ecotourism Statistical Fact
Sheet,The International Ecotourism Society, 2000
Ecotourist Market Profile
Based on data collected by a survey completed by HLA and
ARA consulting firms of North American travel consumers
(1994), TIES has constructed the following ecotourist
market profile.
Age:35 - 54 years old, although age varied with activity and
other factors such as cost.
Gender:50% female and 50% male, although clear
differences by activity were found.
Education:82% were college graduates, a shift in interest in
ecotourism from those who have high levels of education to
those with less education was also found, indicating an
expansion into mainstream markets.
Household composition:No major differences were found
between general tourists and experienced ecotourists.
Party composition:A majority (60%) of experienced
ecotourism respondents stated they prefer to travel as a
couple, with only 15% stating they preferred to travel with
their families, and 13% preferring to travel alone.
Trip duration:The largest group of experienced ecotourists
(50%) preferred trips lasting 8-14 days.
Expenditure:Experienced ecotourists were willing to spend
more than general tourists, the largest group (26%) stating
they were prepared to spend $1,001-$1,500 per trip.
Important elements of trip: Experienced ecotourists top
three responses were: (1) wilderness setting, (2) wildlife
viewing, (3)hiking/trekking.
Motivations for taking next trip :Experienced ecotourists
top two responses were (1) enjoy scenery/nature, (2) new
experiences/places.
Statistics for Ecotourism Destinations Growth in International Tourist Arrivals by Region (1995-
2004)
Source: EarthTrends 2007, using data from the World
Tourism Organization
USA
Domestic and international travelers made nearly 287
million recreation visits to the 378 recreation areas
administered by the U.S. National Park Service (NPS) in
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 3
1998 compared to the 275 million visits in 1997 This is an
increase of 4.4% (Travel Industry Association of America,
2000).Travel to the United States National Parks Service
areas generated direct and indirect economic impact for loca
lcommunities of US$14.2 billion and supported almost
300,000 tourist-related jobs during 1996. It is unknown
what portion of these visitors represented participation in
ecotourism activities (Tourism Works for America,1997).
Nepal
The Annapurna area is the most popular trekking destination
in Nepal. Since 1989 the number of trekkers coming to the
area has increased at an annual rate of approximately 18%.
In 1997, 50,708 international trekkers visited the area. Out
these 12,000 visited the Annapurna sanctuary (Gurung, no
date).
Belize
In 1999 49.4% of 172.292 tourists to Belize visited Mayan
sites, 12.8% visited Parks and reserves. Important reasons
for visiting Belize are: to observe scenic beauty, to be in a
natural setting and to observe wildlife (Higgins, 2000).
Cayes and Barrier reefs were visited by 87% of visitors.
82% of visitors to Belize were in the age group of 18 to 50
years old and 65% were college graduates (Higgins, 2000).
Galapagos Islands
Galapagos nature tourism has grown steadily since the
pioneering days of the 1970’s, to the present level of over
60,000 visitors a year, making a $100 million-plus
contribution to the Ecuadorian economy (estimates
vary)(Charles Darwin Research Station, 2001).
Kenya
From 1983 to 1993 visitor arrivals to Kenya grew by 45%
(372,000 to 826,000). The Kenya Wildlife Service (1995)
estimates that 80% of Kenya’s tourist market is drawn by
wildlife and that the tourism industry generates one-third of
the country’s foreign exchange earnings. Revenue from
Kenya’s wildlife parks increased to Ksh. 711 million in
1995. (In 1997 US$1=60KS).
Australia
There are an estimated 600 ecotourism operators in
Australia today, approximately 85% of these employ fewer
than 20 staff. Ecotourism businesses are estimated to have
an annual turnover of some $250 million and to employ a
total staff of around 6500, the equivalent of 4500 full-time
staff (Sport and Tourism Division Australian government,
1999).There has been a considerable increase of
international visitors to Australia’s national parks, with a
rise in visitor numbers between 1993 and 1996 form around
1.2 million to more than 1.6 million, an increase of 33.3 per
cent.By 1998, this figure had increased to nearly 1.7 million,
or 47% of all inbound visitors to Australia aged 15 and over
reported having visited national parks (Bureau of Tourism
Research, cited by Sport and Tourism Division Australian
government, 1999).In Australia, recent research found
ecotourists to represent nearly 30% of domestic travellers
(ecotrends 1999,cited by Wight, in press)
Peru
An estimated 10.3% of tourists that visit Peru prefer to go
birdwatching in natural areas (Proyecto PRA,2000).
According to studies carried out by PromPerú (2000) 47%
of foreign tourists to Peru visited natural zones. Of this
number, 44% combined visiting natural zones with visiting
cultural attractions and 3% came only to visit natural zones.
The flow of visitors to 26 of the 52 Áreas Naturales
Protegidas por el Estado - ANPE(Protected Natural Zones
by the State), increased 250% during the 1990-1999 period.
Just in 1999, the number of visitors was estimated in 642
336, according to the figures provided by the Instituto
Nacional de Recursos Naturales - INRENA (National
Institute of Natural Resources) (Promperú, 2000).
Brazil
Five million visitors came to Brazil in 1999, five times as
many as in 1991.Brazil has more than 150 conservation
areas, of which 40 National Parks. An estimated number of
3.5 million visitors went to these National Parks in 1998.
Especially the last two years the number of foreign
ecotourists has grown, it had 600,000 Brazilian ecotourists
and attracted 200,000 foreign ecotourists in 1998 (Janér,
2000).
South Africa
In the period of 1986 until 1998 the number of visitors to
game and nature reserves in South Africa has grown by
108% annually. In 1986 the number of visitors to the
reserves was 454,428, in 1998 this number has grown to
5,898,000 visitors. Game and nature reserves are the number
one activity for visitors to the country in 1997 (60%), rising
by 2% over the previous year (South African Tourism
Board, 1998).
UK
Research conducted by MORI for ABTA indicated that 85%
of UK holidaymakers believed that it is important not to
damage the environment, 77% think that it is important that
their visits include experience of local culture and food and
71% feel that tourism should benefit the people of the
destination visited, through jobs and business opportunities.
52% said they would be interested in finding out more about
local issues (environmental and social) in their chosen resort
before they booked their holiday. The majority (64%) stated
that they would be prepared to pay between £10 and £25
extra for environmental, social or charity guarantees-
representing a 2-5%increase on a holiday of £500.
The concept of ecotourism is widely misunderstood and in
practice is often used as a marketing tool to promote tourism
that is related to nature. This is an especially frequent
malpractice in the realm of Jungle Tourism. Critics claim
that these greenwashing practices, carried out in the name
of ecotourism, often consist of placing a hotel in a splendid
landscape, to the detriment of the ecosystem. According to
them, ecotourism must above all sensitize people to the
beauty and the fragility of nature. They condemn some
operators as greenwashing their operations: using the labels
of "green" and "eco-friendly”, while behaving in
environmentally irresponsible ways.
Although academics disagree about who can be classified as
an ecotourist and there is little statistical data, some estimate
that more than five million ecotourists - the majority of the
ecotourist population - come from the united states, with
many others from Western Europe, Canada and Australia.
Currently, there are various moves to create national and
international ecotourism accreditation programs, although
the process is also controversial. National ecotourism
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 4
certification programs have been put in place in countries
such as Costa Rica, Australia, Kenya and Swden.
Ecotourism, responsible tourism, jungle tourism, and
sustainable development have become prevalent concepts
since the mid 1980s, and ecotourism has experienced
arguably the fastest growth of all sub-sectors in the tourism
industry. The popularity represents a change in tourist
perceptions, increased environmental awareness, and a
desire to explore natural environments. At times, such
changes become as much a statement affirming one's social
identity, educational sophistication, and disposable income
as it has about preserving the Amazon rainforest or the
Caribbean reef for posterity.
However, in the continuum of tourism activities that stretch
from conventional tourism to ecotourism proper, there has
been a lot of contention to the limit at which biodiversity
preservation, local social-economic benefits, and
environmental impact can be considered "ecotourism". For
this reason, environmentalists, special interest groups, and
governments define ecotourism differently. Environmental
organizations have generally insisted that ecotourism is
nature-based, sustainably managed, conservation supporting,
and environmentally educated.
The tourist industry and governments, however, focus more
on the product aspect, treating ecotourism as equivalent to
any sort of tourism based in nature. As a further
complication, many terms are used under the rubric of
ecotourism. Nature tourism, low impact tourism, green
tourism, bio-tourism, ecologically responsible tourism, and
others have been used in literature and marketing, although
they are not necessary synonymous with ecotourism. The
problems associated with defining ecotourism have led to
confusion among tourists and academics . Definitional
problems are also subject of considerable public controversy
and concern because of “green washing” a trend towards
the commercialization of tourism schemes disguised as
sustainable, nature based, and environmentally friendly
ecotourism. According to McLaren, these schemes are
environmentally destructive, economically exploitative, and
culturally insensitive at its worst. They are also morally
disconcerting because they mislead tourists and manipulate
their concerns for the environment. The development and
success of such large scale, energy intensive, and
ecologically unsustainable schemes are a testament to the
tremendous profits associated with being labeled as
ecotourism.
Negative impact of tourism
Ecotourism has become one of the fastest-growing sectors
of the tourism industry, growing annually by 10-15%
worldwide (Miller, 2007). One definition of ecotourism is
"the practice of low-impact, educational, ecologically and
culturally sensitive travel that benefits local communities
and host countries" (Honey, 1999). Many of the ecotourism
projects are not meeting these standards. Even if some of the
guidelines are being executed, the local communities are
still facing other negative impacts. South Africa is one of the
countries that are reaping significant economic benefits from
ecotourism, but negative effects - including forcing people
to leave their homes, gross violations of fundamental rights,
and environmental hazards - far outweigh the medium-term
economic benefits (Miller, 2007). A tremendous amount of
money is being spent and human resources continue to be
used for ecotourism despite unsuccessful outcomes, and
even more money is put into public relation campaigns to
dilute the effects of criticism. Ecotourism channels
resources away from other projects that could contribute
more sustainable and realistic solutions to pressing social
and environmental problems. "The money tourism can
generate often ties parks and managements to eco-tourism"
(Walpole et al. 2001). But there is a tension in this
relationship because eco-tourism often causes conflict and
changes in land-use rights, fails to deliver promises of
community-level benefits, damages environments, and has
plenty of other social impacts. Indeed many argue
repeatedly that eco-tourism is neither ecologically nor
socially beneficial, yet it persists as a strategy for
conservation and development (West, 2006). While several
studies are being done on ways to improve the ecotourism
structure, some argue that these examples provide rationale
for stopping it altogether.
The ecotourism system exercises tremendous financial and
political influence. The evidence above shows that a strong
case exists for restraining such activities in certain locations.
Funding could be used for field studies aimed at finding
alternative solutions to tourism and the diverse problems
Africa faces in result of urbanization, industrialization, and
the over exploitation of agriculture (Kamuaro, 2007). At the
local level, ecotourism has become a source of conflict over
control of land, resources, and tourism profits. In this case,
ecotourism has harmed the environment and local people,
and has led to conflicts over profit distribution. In a perfect
world more efforts would be made towards educating
tourists of the environmental and social effects of their
travels. Very few regulations or laws stand in place as
boundaries for the investors in ecotourism. These should be
implemented to prohibit the promotion of unsustainable
ecotourism projects and materials which project false
images of destinations, demeaning local and indigenous
cultures.
Direct environmental impacts
Greenhouse Gas Emissions from Ecotourism
Reaching pristine, isolated natural areas often requires
extensive air and ground travel that may contribute
significantly to greenhouse gas emissions and other
environmental damage. Some airlines, such as the Costa
Rica-based “Nature air" offer zero net carbon emissions
flights thanks to investments in reforestation initiatives, but
this is certainly not the norm. According to travel experts,
the tourism industry needs to focus on developing
ecotourism markets closer to home that involve
environmentally sustainable transport options. However,
eliminating long-distance travel to ecotourism hotspots such
as Africa and Asia could be disastrous for those developing
economies that rely extensively on tourism receipts.
Ecotourism operations occasionally fail to live up to
conservation ideals. It is sometimes overlooked that
ecotourism is a highly consumer-centered activity, and that
environmental conservation is a means to further economic
growth. Although ecotourism is intended for small groups,
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 5
even a modest increase in population, however temporary,
puts extra pressure on the local environment and
necessitates the development of additional infrastructure and
amenities. The construction of water treatment plants,
sanitation facilities, and lodges come with the exploitation
of non-renewable energy sources and the utilization of
already limited local resources. The conversion of natural
land to such tourist infrastructure is implicated in
deforestation and habitat deterioration of butterflies in
Mexico and squirrel monkeys in Costa Rica. In other cases,
the environment suffers because local communities are
unable to meet the infrastructure demands of ecotourism.
The lack of adequate sanitation facilities in many East
African parks results in the disposal of campsite sewage in
rivers, contaminating the wildlife, livestock, and people who
draw drinking water from it.
Aside from environmental degradation with tourist
infrastructure, population pressures from ecotourism also
leaves behind garbage and pollution associated with the
Western lifestyle. Although ecotourists claim to be
educationally sophisticated and environmentally concerned,
they rarely understand the ecological consequences of their
visits and how their day-to-day activities append physical
impacts on the environment. As one scientist observes, they
"rarely acknowledge how the meals they eat, the toilets they
flush, the water they drink, and so on, are all part of broader
regional economic and ecological systems they are helping
to reconfigure with their very activities." Nor do ecotourists
recognize the great consumption of non-renewable energy
required to arrive at their destination, which is typically
more remote than conventional tourism destinations. For
instance, an exotic journey to a place 10,000 kilometers
away consumes about 700 liters of fuel per person.
Ecotourism activities are, in of itself, issues in
environmental impact because they disturb fauna and flora.
Ecotourists believe that because they are only taking
pictures and leaving footprints, they keep ecotourism sites
pristine, but even harmless sounding activities such as a
nature hike can be ecologically destructive. In the
Annapurna Circuit in Nepal, ecotourists have worn down the
marked trails and created alternate routes, contributing to
soil impaction, erosion, and plant damage Where the
ecotourism activity involves wildlife viewing, it can scare
away animals, disrupt their feeding and nesting sites,] or
acclimate them to the presence of people. In Kenya,
wildlife-observer disruption drives cheetahs off their
reserves, increasing the risk of inbreeding and further
endangering the species.
The industrialization, urbanization, and unsustainable
agriculture practices of human society are considered to be
having a serious effect on the environment. Ecotourism is
now also considered to be playing a role in this depletion.
While the term ecotourism may sound relatively benign, one
of its most serious impacts is its consumption of virgin
territories (Kamuaro, 2007). These invasions often include
deforestation, disruption of ecological life systems and
various forms of pollution, all of which contribute to
environmental degradation. The number of motor vehicles
crossing the park increases as tour drivers search for rare
species. The number of roads has disrupted the grass cover
which has serious effects on plant and animal species. These
areas also have a higher rate of disturbances and invasive
species because of all the traffic moving off the beaten path
into new undiscovered areas (Kamuaro, 2007). Ecotourism
also has an effect on species through the value placed on
them. "Certain species have gone from being little known or
valued by local people to being highly valued commodities.
The commodification of plants may erase their social value
and lead to overproduction within protected areas. Local
people and their images can also be turned into
commodities" (West, 2006). Kamuaro brings up a relatively
obvious contradiction, any commercial venture into
unspoiled, pristine land with or without the "eco" prefix as a
contradiction in terms. To generate revenue you have to
have a high number of traffic, tourists, which inevitably
means a higher pressure on the environment.
International Tourist Arrivals by Mode of Transport
Source: Earth Trends 2007, using data from the World
Tourism Organization
Improving sustainability
Regulation and accreditation
Because the regulation of ecotourism is poorly implemented
or nonexistent, ecologically destructive green washed
operations like underwater hotels, helicopter tours, and
wildlife theme parks are categorized as ecotourism along
with canoeing, camping, photography, and wildlife
observation. The failure to acknowledge responsible, low
impact ecotourism puts these companies at a competitive
disadvantage.
Many environmentalists have argued for a global standard
of accreditation, differentiating ecotourism companies based
on their level of environmental commitment. A national or
international regulatory board would enforce accreditation
procedures, with representation from various groups
including governments, hotels, tour operators, travel agents,
guides, airlines, local authorities, conservation
organizations, and non-governmental organizations( Elper-
Wood, 1998). The decisions of the board would be
sanctioned by governments, so that non-compliant
companies would be legally required to disassociate
themselves from the use of the ecotourism brand.
Crinion suggests a Green Stars System, based on criteria
including a management plan, benefit for the local
community, small group interaction, education value and
staff training (Crinion, 1998). Ecotourists who consider
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 6
their choices would be confident of a genuine ecotourism
experience when they see the higher star rating.
In addition, environmental impact assessments
could be used as a form of accreditation. Feasibility is
evaluated from a scientific basis, and recommendations
could be made to optimally plan infrastructure, set tourist
capacity, and manage the ecology. This form of
accreditation is more sensitive to site specific conditions.
Guidelines and education
An environmental protection strategy must address the issue
of ecotourists removed from the cause-and-effect of their
actions on the environment. More initiatives should be
carried out to improve their awareness, sensitize them to
environmental issues, and care about the places they visit
(Tuohino and Hynonen ,2001).Tour guides are an obvious
and direct medium to communicate awareness. With the
confidence of ecotourists and intimate knowledge of the
environment, they can actively discuss conservation issues.
A tour guide training program in Costa Rica's Tortuguero
National Park has helped mitigate negative environmental
impacts by providing information and regulating tourists on
the parks' beaches used by nesting endangered sea turtles(
Jacobson and Robles, 1998 ).
Small scale, slow growth and local control
The underdevelopment theory of tourism describes a new
form of imperialism by multinational corporations that
control ecotourism resources. These corporations finance
and profit from the development of large scale ecotourism
that causes excessive environmental degradation, loss of
traditional culture and way of life, and exploitation of local
labor. In Zimbabwe and Nepal's Annapurna region, where
underdevelopment is taking place, more than 90 percent of
ecotourism revenues are expatriated to the parent countries,
and less than 5 percent go into local communities
(Ziffer,1989).
The lack of sustainability highlights the need for
small scale, slow growth, and locally based ecotourism.
Local peoples have a vested interest in the well being of
their community, and are therefore more accountable to
environmental protection than multinational corporations.
The lack of control, westernization, adverse impacts to the
environment, loss of culture and traditions outweigh the
benefits of establishing large scale ecotourism.
The increased contributions of communities to
locally managed ecotourism create viable economic
opportunities, including high level management positions,
and reduce environmental issues associated with poverty
and unemployment. Because the ecotourism experience is
marketed to a different lifestyle from large scale ecotourism,
the development of facilities and infrastructure does not
need to conform to corporate Western tourism standards,
and can be much simpler and less expensive. There is a
greater multiplier effect on the economy, because local
products, materials, and labor are used. Profits accrue
locally and import leakages are reduced( Cater, 1994
).However, even this form of tourism may require foreign
investment for promotion or start up. When such
investments are required, it is crucial for communities for
find a company or non-governmental organization that
reflects the philosophy of ecotourism; sensitive to their
concerns and willing to cooperate at the expense of profit.
The basic assumption of the multiplier effect is that the
economy starts off with unused resources, for example, that
many workers are cyclically unemployed and much of
industrial capacity is sitting idle or incompletely utilized. By
increasing demand in the economy it is then possible to
boost production. If the economy was already at full
employment, with only structural, frictional, or other
supply-side types of unemployment, any attempt to boost
demand would only lead to inflation. For various laissez-
faire schools of economics which embrace Say's Law and
deny the possibility of Keynesian inefficiency and under-
employment of resources, therefore, the multiplier concept
is irrelevant or wrong-headed.
Conclusion
There are several places throughout the world where the
amount of natural resources are abundant. But, with human
encroachment and habitats these resources are depleting.
Without knowing the proper utilization of certain resources
they are destroyed and floral and faunal species are
becoming extinct. Ecotourism programmes can be
introduced for the conservation of these resources. Several
plans and proper management programmes can be
introduced so that these resources remain untouched.
Several organizations, NGO's, scientists are working on this
field.
Natural resources of hill areas like Kurseong in
West Bengal are plenty in number with various flora and
fauna, but tourism for business purpose poised the situation.
Researcher from Jadavpur University presently working in
this area for the develeopment of eco-tourism which can be
utilized as a tool for natural resource management.
In South-East Asia government and Non-
Government Organisations are working together with
academics and industry operators to spread the economic
benefits of tourism into the kampungs and villages of the
region. A recently formed alliance, the South-East Asian
Tourism Organisation - SEATO is bringing together these
diverse players to allay resource management concerns. No
global initiative presently exists for the gathering of
ecotourism data. Ecotourism should be considered a
specialty segment of the larger nature tourism market.
Responsible ecotourism includes programs that minimize
the negative aspects of conventional tourism on the
environment and enhance the cultural integrity of local
people.
References:
Cater, E. (1994). Cater, E., and G. Lowman. ed. Ecotourism
in the Third World - Problems and Prospects for
Sustainability in: Ecotourism, a sustainable option?. United
Kingdom: John Wiley and Sons. Charles Darwin Research
Station (2001) Tourism and Conservation Partnerships- A
view from Galapagos. Isla Santa Cruz, Galapagos Islands,
Ecuador.
Cook, Suzanne D., Elizabeth Stewart and Kelly Repass
(1992) Discover America: Tourism and the Environment.
Crinion, D. (1998). South Australian tourism strategy and
the role of ecotourism. Adelaide, Australia: Down to Earth
planning for an out-of-the-ordinary industry, presented at
the South Australian Ecotourism Forum.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 7
Washington, D.C.: The US Travel Data Center for the
Travel Industry Association of America and Discover
America Implementation Task Force.
Fillion, Fern L., Foley, James P., and Jacquemot, André J.
(1992) The Economics of Global Ecotourism. Paper
presented at the Fourth World Congress on National Parks
and Protected Areas, Caracas, Venezuela, February10-21,
1992.
Gurung, G (no date) Ecotourism in the Annapurna
Sanctuary in Nepal. Annapurna Sanctuary,
Nepal.http://www.eco-tour.org/info/w_10003_de.html
Higgins, B. (2000) Belize visitor survey 2000, A summary
of interviews. Programme for Belize and The International
Ecotourism Society.
HLA Consultants, The ARA Consulting Group Inc. (1994)
Ecotourism-Nature/Adventure/Culture: Alberta and British
Columbia Market Demand Assessment. Government of
Canada and the Provinces of British Columbia and
Alberta,Canada.
Honey, M., Rome, A. (2000) Ecotourism and Sustainable
Tourism Certification: Part 1: Where are We Today?; Part
2:Case
Studies. Draft report prepared for the Ecotourism and
Sustainable Tourism Certification Workshop, New
Paltz,New York 2000. Institute for Policy Studies and Ford
Foundation.
Janér, Ariane (2000) Brazil: Is the Sleeping Giant Waking
Up to Ecotourism? in The International Ecotourism
Society,Newsletter third quarter 2000.
Jacobson, S.K., and R. Robles (1998). Ecotourism,
sustainable development, and conservation education:
development of a tour guide training program in Tortuguero,
Costa Rica. Environmental Management. pp. 16(6):701–
713.
Kenya Wildlife Service (1995) KWS Tourism Development
Policy and Pricing Study: Tourism Development Plan and
Strategy: Draft Final Report. Kenya Wildlife Service.
Lindberg, K., Furze, B., Staff, M., Black, R. (1997)
Ecotourism in the Asia-Pacific Region: Issues and
Outlook.Burlington, VT. The International Ecotourism
Society.
MORI and ABTA (2000) cited by TravelMole web
page:www.travelmole.com/cgi-
bin/item.cgi?30024&d=101&h=303&f=304&dateformat=%
o%20%B%20%Y
Proyecto PRA (2000) Ecoturismo: una alternativa para el
desarrollo. Proyecto PRA Boletin November, Lima,
Peru.http://www.chemonicspe.com/boletin2/Ecoturismo/eco
turismo.html
Promperú (2000) KILCA, PERU TRAVEL NEWS of
November 2000, No 15. Quoting: Nivel de satisfacción de
losturistas extranjeros. Promperú Inteligence Unit, Peru.
Promperú (2000) KILCA, PERU TRAVEL NEWS of
November 2000, No 15. Quoting INRENA (2000).
Reingold, Lester (1993) “Identifying the Elusive
Ecotourist.” Going Green: A Supplement to Tour & Travel
News,October 25: 36-37.
South African Tourism Board (1998) International Market
Survey Statistics. South African Tourism Board
(unpublished), South Africa.
Sport and Tourism Division Australian government (1999)
Ecotourism Fact sheet 1999. Sport and Tourism Division
Australian government, Canberra,
Australia.http://www.isr.gov.au/sport_tourism/publications/f
actsheets/ecotourism.doc
Sport and Tourism Division Australian government (1999)
Ecotourism Fact sheet 1999. Sport and Tourism Division
Australian government, Canberra, Australia. Quoting
International Visitor Survey. Bureau of Tourism
Research.http://www.isr.gov.au/sport_tourism/publications/f
actsheets/ecotourism.doc
Tourism Works for America Council (1997) Tourism Works
for America: 1997 Report.
Travel Industry Association of America (2000) Tourism
Works for America 2000. Ninth edition, January
2000,Washington DC.
Tuohino, A., and A. Hynonen (2001). Ecotourism - imagery
and reality. Reflections on concepts and practices in Finnish
rural tourism. Nordia Geographical Publications.
pp. 30(4):21–34.
Wight, P. (in press), Ecotourists: Not a homogenous market
segment, in Weaver, D. (ed.), Encyclopedia of Ecotourism,
CAB International, Wallingford, UK. Citing Ecotrends
1999, Tourism Queensland, March, quoting a survey
commissioned by the Environmental Tourism Department
of Tourism Queensland.
WTO Newsletter (1998) Ecotourism, Now One-Fifth of
Market. January/February. http://www.world-
tourism.org/omt/newslett/janfeb98/ecotour.htm
WTO (2000) WTO news. 2nd quarter 2000 Issue 2, WTO,
Madrid, Spain.
Kamauro, O. (1996). Ecotourism: Suicide or Development?
Voices from Africa #6: Sustainable Development, UN Non-
Governmental Liaison Service. United Nations News
Service.
Elper-Wood, M. (1998). Ecotourism at a Crossroads:
charting the way forward. Nairobi, Kenya: The final report
from the Conference of Ecotourism at the Crossroads.
Untamed Path Defining Ecotourism. Retrieved on 2009-03-
24.
Randall, A. (1987). Resource economics, Second Edition.
New York, USA: John Wiley and Sons.
Also to do with social sustainability Honey, Martha (2008).
Ecotourism and Sustainable Development: Who Owns
Paradise? (Second ed.). Washington, DC: Island Press.
pp. 29–31. ISBN 1597261254 ISBN 978-1597261258.
The Encyclopedia of Ecotourism, Cabi Publishing
Buckley, R. (1994). Research Note, a framework for
ecotourism. Annals of Tourism Research. pp. 21(3):661–
669.
Bar kin, D. (2002). Eco tourism for sustainable regional
development. Current Issues in Tourism. pp. 5(3–4):245–
253.
Vivanco, L. (2002). Ecotourism, Paradise lost - A Thai case
study. The Ecologist. pp. 32(2):28–30.
Isaacs, J.C. (2000). The limited potential of ecotourism to
contribute to wildlife conservation. The Ecologist.
pp. 28(1):61–69.
Ziffer, K. (1989). Ecotourism: the uneasy alliance.
Conservation International/Ernst and Young.
***
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 8
Law of One Price Arbitrage: A Study on Wholesale
Potato Market in Hooghly District of West Bengal,
India
Dr. Bidyut Kumar Ghosh, Assistant Professor, Dr. P.C. Mhalanabish School of Management,
Supreme Knowledge Foundation Group of Institutions, Mankundu, Hooghly, West Bengal, India.
Abstract
The marketing efficiency of wholesale potato market in
Hooghly district of West Bengal is investigated through the
cointegration and error correction methods framework. The
study found that the three wholesale markets of the district
viz. Pandua, Sheorafuli and Chapadanga were spatially
cointegrated. Though the potato markets of the district are
cointegrated, they support only weak form of market
integration. Good transportation, network communication
and close proximity of the markets are the main factors for
this spatial market integration.
Key Words: market cointegration, efficiency, error
correction, speed of adjustment
INTRODUCTION
Perfectly competitive markets are distinguished by features
such as large number of buyers and sellers, perfect
knowledge about market conditions (particularly of prices
and quality of product), homogeneity of product, free
mobility of buyers, sellers and products. Thus, a single price
will prevail in all the markets. Price differential for a
particular commodity arising from place, time and from
differences would correspond closely to the cost incurred in
providing the respective transportation, storage and
processing facilities. The market will perform efficiently
and there will be no scope for traders to make excessive
profits. The pricing system would facilitate exchange and
fully reflect the underlying supply and demand conditions
(Baharumshah and Habibullah, 1994). However, imperfectly
competitive markets are generally taken as important causes
for the existence of differential price movements in different
markets. It is believed that prices quoted are a reflection of
the conditions prevalent in the markets. Therefore, if there
are imperfections in the form of either oligopoly power
among buyers or unequal information among sellers, then it
is expected that buyers will be able to reap abnormal returns
and subsequently, wide intra-regional price differential exist
in the market.
The competitiveness in a market can be analyzed by
different ways. One of the sophisticated techniques to
analyze the competitiveness in the market is whether price
movements reflect a state of competitiveness in the market.
More specifically, this technique uses the time series
techniques of cointegration and error correction mechanism
to look into the strength of competitiveness in the market.
In this paper I have used this method of analyzing the
competitiveness in the wholesale potato market in the
Hooghly district of West Bengal.
Potato is one of most popular cash crops of the farmers of
West Bengal. In the cropping pattern changing scenario of
the state, it has been observed that in the south Bengal
districts of the state, the farmers are adopting potato as their
main cash crops instead of jute, mainly because of its high
yield, comparatively less maturity period and high
profitability. Even though its cost of cultivation is very high,
it has gained wide popularity in the state. Hooghly, the
largest potato-producing district in the state accounts for
30.47 per cent of total potato production of the state in
2000-01. In 2007-08, the district produces 2350.04 thousand
tonnes of potato which accounts 40 per cent of the total
production of the state.
However, one major concern of potato cultivation is the
high price volatility and uncertainty of this profitable crop.
Sometimes the minimum sale price of potato goes down
much below the cost of cultivation and this happens more or
less every two or three years. So, from the welfare point of
view it is required that perfectly competitive market
conditions should prevail in the potato markets of the district
so that the free flow of information regarding price, volume
of trade, and other technical points can be ensured across all
the marketing agents such as potato farmers, traders,
retailers and wholesalers.
The issue of market integration in agricultural commodity
prices has been studied extensively by numerous researchers
both at the national and international levels. Intodia (2005)
had shown that the eastern Indian tea auction markets were
statistically cointegrated but not the south Indian markets
during the period 1999 to 2003. Basu and Dinda (2003),
applying the error correction method, have shown the
interdependence and high level of efficiency in the potato
auction markets in West Bengal. In another study, Behura,
Debdutt and D.C. Pradhan (1998) have studied the spatial
integration in shrimp markets in Orissa. At the international
level, George and Piero (2003), Line L. K. and T. Helene
Ystanes F (2010), Crina Viju, James Nolan and William A.
Kerr (2006) etc. are some of the recent studies of application
of time series econometrics to look into the spatial market
integration. However, there is dearth of literature of
studying the market efficiency and integration of
agricultural commodity markets in India in recent past.
Under this backdrop, this paper analyses the extent of
market efficiency in the wholesale potato market in Hooghly
district of West Bengal. Three major wholesale markets in
the district viz. Chapadanga, Sheorafuli and Pandua have
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 9
been considered for this study. As already mentioned that
the fundamental issue when analyzing the market efficiency
is the extent to which price movements in one market
respond to changes in price movements in other markets.
Price transmission from one market to other market is
central in understanding the extent of the integration of
economic agents into the market process. It essentially
means that price movements in various markets are
transmitted to other markets effectively. So, if these three
wholesale markets are not integrated, the correct price
signals will not be transmitted through the marketing
channels, and as a result of which the potato growers as well
as traders will not be able to specialize according to long-
term comparative advantage and the gains from trade will
not be realized. In addition to this, the price transmission
parameter values consist of key building blocks and play an
important role in determining the direction, magnitude and
distribution of welfare effects of regional as well national
trade policy scenarios. The specific objectives of this paper
are:
1. To evaluate empirically the spatial integration of
wholesale potato markets in Hooghly district of West
Bengal.
2. If they are cointegrated at all, what is the speed of
transmission of price signal among the various markets?
The broad structure of the paper is as follows:
After the introduction in section I, section II deals
with the hypotheses of the study followed by section III
where the data and methodological aspects of the study have
been discussed. Then section IV covers the results and
discussion of the study. Lastly, the conclusion and policy
implication are presented in section V.
HYPOTHESIS
The following hypotheses were tested in this paper:
Hypothesis 1: The wholesale potato markets in Hooghly
district are cointegrated.
Hypothesis 2: The strength of the market integration is
strong enough so as to transmit the price signals across the
markets in the district.
MATERIALS AND METHODS
The data pertaining to the potato prices were collected from
the website of AGMARKNET, Directorate of Marketing &
Inspection (DMI), Ministry of Agriculture, Government of
India. The daily wholesale prices of potato at the three major
auction markets of the district viz. Chapadanga, Pandua and
Sheorafuli were collected and compiled for the period 1st
July, 2010 to 22nd
July, 2011.
Almost every empirical study using time series data
starts with the testing of the stationarity of the time series
data. For these purpose Correlogram analysis and
Augmented Dickey Fuller Test for unit root are used. A
series is said to be stationary if the mean and covariance are
constant over time and the auto-covariance of the series
depends only on the lag between two time periods not the
actual time at which the covariance is computed. First, the
stationarity of the series is tested on the basis of
autocorrelation function (ACF) and correlogram. The ACF
at lag k is defined as
)1..(....................
var
cov
02
k
t
ktt
k
nYY
nYYYY
iance
klagatariance
k is pure number and it lies between -1 and +1. If we plot
k against k, the graph we get is known as correlogram.
The autocorrelations at various lags for a purely white noise
process hover around zero. Now if the correlogram of a time
series resembles the correlogram of a white noise time
series, then the time series is stationary. However, generally
for a non-stationary time series the autocorrelation
coefficient starts at a very high value and declines very
slowly towards zero as the lag lengthens. One practical
question that arises is the choice of the lag length. The rule
of thumb is to compute ACF up to one-third to one-quarter
the length of the time series. Generally, we start with
sufficient large lags and then reduce the lag length by using
the statistical criterion Akaike or Schwarz information
criterion.
The statistical significance of the all the k can be tested by
using the Q statistic developed by Box and Pierce.
)2.....(..........
1
2
lengthlagm
andsizesamplenwherenQm
kk
While performing ADF test we proceed by considering the
following equation:
termnoisewhite
YYYwhere
YbYatabY
t
ttt
t
p
ititt
1
111100 )3.....(
The above regression equation (equation 3)
includes a drift term (b0) and a deterministic trend (a0 t).
Integer p is chosen in equation (3) to achieve white noise
residuals for the ADF test and when p=0, the test is known
as the Dickey-Fuller (DF) test. Testing the null hypothesis
of the presence of a unit root in Yt is equivalent to testing
the hypothesis that H0 : a1 = 0. If a1 is significantly less
than zero, the null hypothesis of a unit root is rejected. In
addition, we test the hypothesis that Yt is a random walk
with drift, i.e. a0 and a1 are equal to zero, and Yt is random
walk without drift i.e. b0 , ao , a1 are individually equal to
zero. . For these three purposes the Tau (τ) test statistics are
checked against the critical values and the null hypothesis is
accepted or rejected if the Tau (τ) -statistics is greater or less
than the critical value respectively. Now if a variable is non-
stationary at level and after taking first difference of the
variable, it becomes stationary, then the variable is said to
be integrated of order one and written as I(1).
The above test can also be carried out for the first
difference of the variables. And if the variable becomes
stationary after differencing twice, the variable is said to be
integrated of order 2 and is written as I(2). In general, a
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 10
series is said to be integrated of order d, if the series
achieves stationary after differencing d times, denoted
.~ dIYt
Cointegration of two or more time series suggests that there
is a long-run or equilibrium relationship between them. It
implies that in spite of being individually being non-
stationary, a linear combination of two or more series can be
stationary. Cointegration test is performed to model the
dynamic co-independence that is often found in long time
series data. Co-integration has emerged as a powerful
technique for investigating common trends in multivariate
time series and provides a sound methodology for modeling
both long run and short run dynamics in the system. In our
analysis we use the Engle-Granger testing procedure for
testing the presence of co-integration among the auction
prices. Suppose Yt and Zt are two I (1) variables, Engle-
Granger propose a straight forward test whether the two I(1)
variables are co-integrated. The test is carried out in two
steps:
Step 1: Pre-testing the variables for their order of
integration.
Co-integration necessitates that the variables be integrated
of the same order. Thus, the first step in the analysis is to
pre-test each variable to determine its order of integration.
For this we perform the Augmented Dickey Fuller (ADF)
Tests which has described earlier.
Step 2: Estimating long-run equilibrium relationship.
If both the variables are integrated of same order, the next
step is to estimate the long-run relationship of the form:
)7.....(....................10 ttt eZY
To determine if the variables tt ZandY are co-integrated,
the residual sequence from this equation is denoted as te .
Thus te is a series of the estimated long-run relationship. If
these deviations from long run equilibrium are found to be
stationary, then Yt and Zt sequences are co-integrated of
order (1, 1).
To test the stationarity of residuals, I’ve applied the ADF
test
Cointegration of prices from two different markets would
mean that the two markets are integrated. But there can be
disequilibrium in the short run meaning that a price change
in one market is not immediately passed onto another
market. Using Error Correction Methodology (ECM), the
short-run and long-run effects of price movements can be
incorporated. If two variables x and y both are I (1) and also
integrated in the long run, then the error correction model
(ECM) for x and y is written as
termdifferencetheisuand
lagperiodoneoccurswhicherrortheise
operatordifferencefirstorwhere
uexy
t
t
tttt
,
,fstands
1
1
Here the hypothesis of strong form of market integration can
be performed by testing the restriction 10 and . On
the other hand, the weak form of market integration is tested
by the restriction 10 and . The parameter gives
the speed of adjustment.
RESULTS AND DISCUSSION
We start with the Correlogram analysis using 130 lags for
each of the series of auction prices. The plot of the ACF and
the PACF against 130 lags of the respective indices are
shown in Figure-1, 2, and 3.
Figure 1: Correlogram Analysis of Potato Price at
Chapadanga
Source: Author’s analysis using Gretl
Figure 2: Correlogram Analysis of Potato Price at Pandua
Source : Author’s analysis using Gretl
Figure 3: Correlogram Analysis of Potato Price at Sheorafuli
Source: Author’s analysis using Gretl
The results indicate that the potato prices at all the
wholesale markets (Chapadanga, Pandua and Sheorafuli) are
non-stationary at levels. The stationarity or non-stationary of
the potato prices at different markets can further be
confirmed by the Augmented Dickey Fuller Test. The
hypothesis of the stationarity analysis can be set as follows:
stationaryarepricesauctionselectedTheH
against
rootsunithavepricesauctionselectedTheH
:
:
1
0
The result of the Augmented Dickey Fuller test is shown in
the table 1.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 11
Table 1: Augmented Dickey Fuller Unit Root Test
Variables
(Auction
Prices)
At levels
At first difference
With
drift
With drift
and trend
With
drift
With drift
and trend
Chapadanga
Pandua
Sheorafuli
-3.031
-2.071
-2.315
-1.960
-2.064
-2.303
-5.963*
-6.351*
-5.773*
-5.981*
-6.344*
-5.771*
Source: Author’s calculation based on Potato prices,
Agmarknet, Govt. of India
Table 1 shows the results of ADF unit root tests for the
underlying price series in levels and first differences. The
null hypothesis of existence of unit root cannot be rejected
for all of the variables in the level and thus it is confirmed
that the price series of potato at Chapadanga, Pandua and
Sheorafuli are non-stationary with the presence of unit root.
However, the null hypothesis is rejected at the 1% level of
significance for all of them in their first differences, which
indicates that stationarity is achieved for them after the first
differencing i.e. the price series at all wholesale markets of
the district viz. Chapadanga, Pandua and Sheorafuli are all
I(1).
As per theory of cointegration only variables of the
same order of integration would qualify for the pair wise
cointegration relationships. Thus, the pair wise cointegration
has been applied to the wholesale markets of the same order.
Here all the three markets under study are of the same order.
The results of the pair wise cointegration test are given in
table 2.
Table 2: Engle-Granger Test for Cointegration
Dependent
variable
(Auction price)
Independent
variable
(Auction price)
Engle-Granger
test
Chapadanga Pandua -3.572**
Sheorafuli -6.816*
Pandua Chapadanga -3.585**
Sheorafuli -4.544*
Sheorafuli Chapadanga -7.045*
Pandua -4.61*
* significant at 1 per cent, ** significant at 5 per cent
Source: Author’s calculation based on potato prices,
Agmarknet, GOI.
Engle-Granger test results show that wholesale
potato prices at Chapadanga were found to be dependent on
Pandua and Sheorafuli wholesale prices. Hence it could be
said that wholesale prices of potato at Chapadanga market
were adjusted to any price change in the Pandua and
Sheorafuli markets, i.e., Chapadanga prices appeared to be
having market efficiency. Similarly, pairwise combinations
of Pandua-Chapadanga, Pandua-Sheorafuli, Sheorafuli-
Chapadanga and Sheorafuli-Pandua gave significant
estimates implying that the auction prices of potato were
spatially integrated. Thus, it appears that the potato prices of
all the wholesale markets in the Hooghly district are
cointegrated and it implies that the price movement in one
market is passed onto all other markets in bidirectional
ways.
The potato markets of Hooghly district of West
Bengal are integrated and market mechanism play an
important role through influencing the price change in one
market to another market. Table 3 presents the results of
error-correction model for the auction markets. It is evident
from the results that the coefficient of error-term are
negative and statistically significant, implying that there
exists short-run dynamics with the long-run equilibrium.
This implies that if any divergence from long-run
equilibrium occurs in period (t-1), it will be adjusted
towards equilibrium level in period t.
Table 3: Results of Error Correction Model of Auction
Markets in India
)823.2()12.12()625.0(
334.0411.0272.0 1
tepanduachapadanga
)579.2()54.11()553.0(
434.0343.0243.0 1
tesheorafulichapadanga
)279.2()467.8()306.0(
387.0344.0181.0 1
tesheorafulipandua
Figures in the parentheses are the corresponding t values.
Source: Author’s calculation based on Tea Statistics, Tea
Board of India
Table 4: Testing for a Strong Form of Integration
(β = 1, α = 0)
Dependent
variable
Independent
variable
F-value
Chapadanga Pandua F(2,381)= 150.82
Chapadanga Sheorafuli F(2, 381) = 243.41
Pandua Sheorafuli F(2, 381) = 130.95
Source: Author’s calculation based on Tea Statistics, Tea
Board of India
The results of strong form of market integration in
tea auction markets are given in table 4. It is seen from the
table 4 that the potato markets of Hooghly district do not
support the strong form of market integration, as in all the
cases the calculated F-value is much higher than the critical
value of F-statistic., thereby rejecting the null hypothesis of
strong market integration and accepting the weak form of
market integration. Thus, it can be said that though the
wholesale potato market in Hooghly district are spatially
integrated, they appears to be weakly integrated.
The speed of adjustment for different markets is shown in
table 5.
Table 5: Speed of adjustment of among selected pairs of
auction markets
Markets Pandua Sheorafuli
Chapadanga 33.4**
43.4**
Pandua -
38.7***
** and *** imply significant at 5 % & 10% level of
significance respectively.
Source: Author’s calculation based on Tea Statistics, Tea
Board of India
The adjustment parameter (δ) ranges from 43.4 per
cent to 33.4 per cent. The highest speed of adjustment was
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 12
observed between the wholesale markets of Chapadanga and
Sheorafuli. This implies that if any divergence appears from
the long-run equilibrium, it will be adjusted towards the
equilibrium value by the speed of 43.4 per cent.
CONCLUSION AND POLICY IMPLICATIONS
Using time series econometrics methods, the
present study made an attempt to examine the price
behaviour and the extent of market integration of the three
major wholesale potato markets in the country. In the
cointegration set up, error correction method estimates the
long-run relationship between the auction prices as well as
fluctuations in the short-run.
The results show that the three major markets of
the district viz. Chapadanga, Pandua and Sheorafuli seem to
be spatially integrated. However, the markets are not
strongly cointegrated; rather they are weakly cointegrated.
This is mainly due to close proximity, good transport and
communication system and good marketing infrastructure
across the marketing centers of the district. The high degree
of market integration implies that the wholesale potato
markets in the district are competitive and efficient enough
to transmit the price signals across all the marketing
channels. However, my study does not consider the analysis
of farm level market where the potato producers have direct
link with the traders. In this situation, it is generally argued
that the development of infrastructural facilities in terms of
transport and network communication at the very grass root
level, which will bring an early flow of information about
the demand, supply and price to and from various markets,
is the utmost necessary to take the advantage of
globalization. These will help in increasing market
integration and efficiency of potato markets of at the village
level also.
REFERENCES
Basu, J.P and Dinda, S. (2003), “Market Integration: An
Application of Error Correction Model to Potato Market in
Hooghly District, West Bengal”, Indian Journal of
Agricultural Economics, Vol. 58, No. 4, Oct-Dec.
Behura, Debdutt and D.C. Pradhan (1998), “Cointegration
and Market Integration: An Application to the Marine Fish
Markets in Orissa,” Indian Journal of Agricultural
Economics, Vol. 53, No.3, July-September, pp. 344-350.
Crina Viju, James Nolan and William A. Kerr (2006),
“Common Markets Measuring Price Integration in European
Agricultural Markets”, Review of European and Russian
Affairs, Vol. 2, No. 1.
George. R, David. H and Piero. C (2003), “Market
Integration and Price Transmission in Selected Food and
Cash Crop Markets of Developing Countries: Review and
Applications”, Commodity Market Review 2003-2004,
FAO, ISBN 9251050635.
Ghosh
Intodia, V (2005), “Cointegration and Market Integration:
An Analysis of Tea Markets in India”, The Indian Journal of
Economics, Vol. LXXXV, No. 340. July
Line L. K. and T. Helene Ystanes F (2010), “Price
Transmission for Agricultural Commodities in Uganda: An
Empirical Vector Autoregressive Analysis”, USSP Working
Paper No. 06, International Food Policy Research Institute,
August.
***
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 13
An Analysis of Foreign Exchange earnings from
tourism industry of India
Dr. Kalpana Agrawal, Assitant Professor, & Monu Yadav, Mayurika Rathi Kunal Sawlani, Students,
Prestige Institute of Management and Research, Indore.
Abstract:
The Ministry of Tourism has made various efforts to expand
the tourism infrastructure at various destinations in India.
These efforts are a judicious blend of traditions, legacy,
religion and eco-tourism projects that intend to offer the
tourists a holistic experience. With such rich culture and
natural beauty Indian Tourism is a significant sector of the
Indian economy and contributes significantly to the
country’s gross domestic product (GDP) and foreign
exchange earnings (FEE). The Indian tourism sector is also
linked with important sectors such as transportation,
infrastructure, and handicraft, which further helps in the
growth and development of the country.
India currently holds the 12th
position in Asia and 68th
position in the list of overall in the list of the world's most
attractive tourist destinations, as per the Travel and
Tourism Competitiveness Report 2011 by the World
Economic Forum (WEF). FOREX is foreign exchange
earned by conversion of money of other country which
means to be a value addition to a nation’s economy.
Keywords: - FOREX, GDP, FEE, WEF, Tourism
Industry.
INTRODUCTION
Tourism has been a major social phenomenon of the
societies all along. It is motivated by the natural urge of
every human being for new experience, adventure,
education and entertainment. The motivations for tourism
also include social, religious and business interests. The
spread of education has fostered a desire to know more
about different parts of the globe. The basic human thirst for
new experience and knowledge has become stronger, as
communication barriers are overcome by technological
advances. Progress in air transport and development of
tourist facilities has encouraged people to venture out to the
foreign lands.
The importance of tourism as an instrument for economic
development and employment generation, particularly in
remote and backward areas has been well recognized the
world over. It is the largest service industry globally, in
terms of gross revenue as well as foreign exchange earnings.
Tourism can play an important and effective role in
achieving the growth with equity objectives which India has
set.
Tourism is one economic sector in India that has the
potential to grow at a high rate and can ensure consequential
development of the infrastructure of the destinations. It has
the capacity to capitalize on the success of the country in the
services sector and provide sustainable models of growth.
It has the potential to stimulate other economic sectors
through its backward and forward linkages and cross-
sectoral synergies with sectors like agriculture, horticulture,
poultry, handicrafts, transport, construction, etc.
Expenditure on tourism induces a chain of transactions
requiring supply of goods and services from these related
sectors. The consumption demand, emanating from tourist
expenditure also includes more employment and generates a
multiplier effect on the economy. As a result, additional
income and employment opportunities are generated
through such linkages. Thus, the expansion of the tourism
sector can lead to large scale employment generation and
poverty alleviation. The economic benefits that flow into the
economy through growth of tourism in shape of increased
national and State revenues, business receipts, employment,
wages and salary income, buoyancy in Central, State and
local tax receipts can contribute towards overall socio-
economic improvement and accelerated growth in the
economy.
Another important feature of the tourism industry, which is
of particular significance to India, is the contribution to
national integration and preservation of natural as well as
cultural environments and enrichment of the social and
cultural lives of people. Over 382 million domestic tourists
visiting different parts of the country every year return with
a better understanding of the people living in different
regions of the country. They have a better appreciation of
the cultural diversity of India. Tourism also encourages
preservation of monuments and heritage properties and
helps the survival of art forms, crafts and culture.
It is also important to note that tourism has become an
instrument for sustainable human development including:
Poverty elimination, Environmental regeneration, Job
creation and Advancement of women and other
disadvantaged groups.
Scale of tourisms in India
There has been a remarkable growth in the recent years, in
foreign tourist arrivals to India due to the various efforts
made, including promoting India through the "Incredible
India" campaign in overseas markets. It has increased by
about 65% from a level of 2.38 million in 2002 to 3.92
million in 2005, while the foreign exchange earnings have
grown by about 96% during the same period. In the year
2006, the tourist arrivals have increased to 4.43 million
registering an impressive increase of the 14.2% when
compared to the previous year. The foreign exchange
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 14
earnings from tourism have also shown a phenomenal
growth from US$ 5730.86 million in 2005 to US$ 6569.34
million in 2006, achieving an increase of 14.6%. The
Tourism Satellite Accounting for India has brought out that
contribution of tourism to GDP of the country has been
5.9% in 2003-04, while employment in tourism sectors both
direct and indirect has been 41.8 million in the same year
thus accounting for 8.78% of total employment in the
country. It is estimated that by the end of 2006-07, the total
employment generated in the tourism sector both direct and
indirect would be 51.9 million.
Major achievements and initiatives
a) Record Tourist Arrivals -India achieved a significant
growth in terms of foreign tourist arrivals during the year
2006 taking India's tourist arrivals from 3.92 million in 2005
to 4.43 million in 2006, showing an increase of 13%.
Foreign exchange earnings from tourism also showed a
phenomenal growth from USD 5730.86 million in 2005 to
USD 6569.34 million in 2006, achieving an increase of
14.6%
b) International Recognition -• "Conde Nast Traveler", the
world's leading travel and tourism journal, ranked India
amongst top 4 preferred holiday destinations in world.
• ABTA (Association of British Travel Agency) ranked
India as No. 1 amongst top 50 places for 2006.
• World Travel Awards received for (a) Asia's Leading
Destination, (b) World's Leading Travel Destination
Television Commercial, (c) World's Leading Responsible
Tourism Project for Endogenous Tourism Project, and (d)
Asia's Leading Tourism & Convention Bureau.
Foreign Exchange Earnings from Tourism in India
Tourism has become an important segment of Indian
economy contributing substantially to its foreign exchange
earnings. The estimated foreign exchange earnings during
2006 were Rs. 29603.56 crore as compared to Rs. 25172.28
crore during the same period of 2005, showing a growth of
17.6%. Month wise estimated foreign exchange earnings
both in Rupee and US$, during the year 2006, along with the
corresponding figures for the last 2 years, are given in the
following statements:
For the FEE’s, tourism is the most important sector in the
country. As per the monthly estimates prepared by Ministry
of Tourism, FEE from tourism in India in 2010 were `64889
crore as compared to ` 54960 in 2009 registering a growth of
18.1 % in 2010 over 2009. In US $ term, FEE from tourism
in 2010 were US $ 14.19 billion as compared to US$ 11.39
billion in 2009 with a growth rate of 24.6%. The FEE from
tourism in India, in INR terms and US$ terms, during 1991-
2010 are given in the table below.
Current Trend in Tourism Industry
Tourism and Hospitality
The Indian tourism sector has been experiencing a resilient
phase of growth, driven by the flourishing middle class,
increased spending by the foreign tourists, and synchronized
administration and promotions by the Government of India
to encourage ‘Incredible India’. The tourism industry in
India is extensive and lively, and the nation is fast becoming
a major international destination. India’s travel and tourism
industry is one of the most lucrative businesses in the
country, and also accredited with contributing a
considerable volume of foreign exchange to the country
reserves.
A number of reasons are cited as being the cause of the
progress and success of India’s travel and tourism sector.
Economic growth has added millions annually to the ranks
of India’s middle class, a group that is driving domestic
tourism growth. Thanks in part to its booming IT and
outsourcing industry a growing number of business trips are
made by foreigners to India, who will often add a weekend
break or longer holiday to their trip. Foreign tourists spend
more in India than almost any other country worldwide.
Growth Trends
The tourism and hospitality industry being the largest
service sector in the country, adds around 6.23 per cent to
the national GDP and 8.78 per cent of the total employment
in the country. Recently, the Ministry of Tourism also
compiled a monthly estimate on the foreign tourist arrivals
(FTAs) and foreign exchange earnings (FEE) based on the
total number of foreign visitors in the country. During the
month of September 2011, the total number of Foreign
Tourist Arrivals (FTAs) was 401,000 as compared to FTAs
of 369,000 during the month of September, 2010 and
331,000 in August, 2009. There has been a growth of 8.7 per
cent in September, 2011 over September, 2010 as compared
to a growth of 11.6 per cent registered in September 2010
over September, 2009. The growth of 8.7 per cent in
September 2011 is higher than 5.3 per cent in August, 2011.
During January-September, 2011, the total FTAs stood at
4,220,000 with a growth of 10.0 per cent, as compared to the
FTAs of 3,835,000 with a growth of 8.0 per cent during
January-September 2010 over the corresponding period of
2009.
In a report by the Ministry of External Affairs, the Indian
hospitality sector is expecting a projected investment of US$
12 billion within the next two years along with a number of
industry initiatives already in progress. As per the report by
the Ministry of Tourism, the Foreign Exchange Earnings
(FEE) is as follows -
Foreign Exchange Earnings (FEE) during the month of
September 2011 were US$ 1.1 billion as compared to US$
892.15 million in September 2010. The growth rate in FEE
in September 2011 was 22.9 per cent as compared to 23.2
per cent in September 2010 over September 2009.
FEE from tourism in rupee terms during January-September
2011 were US$ 10.25 billion with a growth of 16.6 per cent,
as compared to the FEE of US$ 8.79 billion with a growth
of 22.7 per cent during January- September 2010 over the
corresponding period of 2009.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 15
FEE in US$ terms during the month of September 2011
were US$ 1208 million as compared to FEE of US$ 1015
million during the month of September 2010 and US$ 785
million in September 2009.
The growth rate in FEE in US$ terms in September 2011
over September 2010 was 19 per cent as compared to the
growth of 29.3 per cent in September 2010 over September
2009. FEE from tourism in terms of US$ during January-
September 2011 were US$ 11.9 billion with a growth of
18.7 per cent, as compared to US$ 10.01 billion with a
growth of 30.5 per cent during January-August 2010 over
the corresponding Period of 2009.
REVIEW OF LITERATURE:
According to the market researchers (2006), the total in-
bound tourists were 1.28Mn while the same was 1.14Mn in
2005. The resulting foreign exchange earnings were as high
as 12% of an amount of $1,780Mn.
Besides giving statistical details the report, "Indian Tourism
Industry Outlook (2006)" discusses about the significant
role that the government has for the growth of the Indian
Tourism industry. It also tells which are the factors that play
a dominant role in pushing this Industry.
The World Travel and Tourism Competitiveness report
(2006) projects that by 2016 the total travel & tourism
activity is expected to post a total demand of economic
activity of US $ 12,118 billion. The world’s travel &
tourism is expected to contribute US $ 2,969.4 billion in
nominal terms (3.6% of total) by 2016. The travel & tourism
economy contribution is expected to reach US $ 8.971.6
billion (10.9%) in the year 2016. By 2016, travel & tourism
is expected to create 9% of total employment or one in every
11.1 jobs and is expected to get capital investment in both
public & private sector by US $ 2,059.8 billion or 9.6% of
the total global investment. The Government is expected to
spend on travel & tourism US $ 480.9 billion or 4% of total
government expenditure by 2016.
The Travel & Tourism Competitiveness Report (2007) India
ranked sixth in terms of price competitiveness and 39th in
terms of safety and security for tourism. Despite short- and
medium-term setbacks, such as shortage of hotel
rooms, tourism revenues are expected to surge by 42% from
2007 to 2017. India's thousands of years of history, its
length, diversity and the variety of geographic features make
its tourism basket large and varied. It presents heritage and
cultural tourism along with medical, business and sports
tourism.
The RNCOS-formulated report titled "Indian Tourism
Industry Forecast (2007-2011)”objectively analyzes the
current scenario and future prospects of the Indian tourism
industry, focusing on different parameters of the industry
such as: inbound and outbound tourism, expenditure by
inbound tourists, and medical tourism in India. It helps
analyze the opportunities and factors, which are crucial to
the success of the tourism industry in India. The key
findings of the report are:
Inbound tourist expenditure per head in India, is
third highest in the world and even more than the global
average tourist spending.
Healthcare tourism is on the rise in India. Visitors
can avail several private healthcare facilities. The number of
tourists visiting India for medical treatment is expected to
reach one million by 2012, representing a Compounded
Annual Growth Rate (CAGR) of 28.09% since 2007.
During 2001-2006, disposable income grew at a
CAGR of 10.11%, which led to an increase in domestic as
well as outbound tourism.
More than 50% of the revenue earned by the Indian
hotel industry comes from room rents. Over the five-year
period spanning 2007-2011, Indian outbound tourist flow is
expected to increase at a CAGR of 12.79%. It is expected
that the tourist influx to India will increase at a CAGR of
22.65% between 2007 and 2011.
As per the Travel and Tourism Competitiveness Report
(2009) by the world economic forum, India is ranked 11th
in
the Asia Pacific Region and 62nd
overall, moving up three
places on the list of the world’s attractive destinations. It is
ranked the 14th
best tourist destinations for its natural
resources and 24th
for its cultural resources, with many
World Heritage Sites, both natural and cultural, rich fauna,
and strong creative industry in the country. The Indian travel
and tourism industry ranked 5th
in the long-term (10 years)
growth and is expected to be the second largest employer in
the world by 2019.
According to WTO, in the year 2006, 842 million
International tourist arrivals were seen and tourism receipts
were of the order of US $ 682 billion. The World Travel &
Tourism Council (WTTC) for 2006 forecasts that Travel and
Tourism will generate 234 million direct and indirect jobs
worldwide, accounting for 8.7% of the global economy and
contributing 10.3% of the global GDP. According to the
same estimate, the global travel and tourism activity is
expected to increase by 4.7% between 2007 and 2016.
According to World Travel and Tourism Council (2010),
India will be a tourism hot-spot from 2009–2018, having the
highest 10-year growth potential.
According to the ‘Conde Nast Traveller’, one of the ace
travel magazines, India’s bounteous heritage includes not
just breathtakingly beautiful architecture, rich traditions and
diverse cultures but also mesmerizing and scenic
landscapes. From the challenging snow-clad peaks of the
Himalayas and the cool hill stations of the north, to the
alluring beaches on the western and eastern coasts and the
ornate temples of the south, India has the variety to satiate
the interests of all those travelling through the country. In
fact so popular is the country as a global tourist hot spot that
it profiled India as the most preferred tourist destination in
recent times.
According to the World Tourism Organization, It is true that
tourism is an important and flourishing industry in the
country. It accounts for one-third of the foreign exchange
earnings of India and also gainfully employs the easily
highest number of people compared to other sectors. By the
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 16
year 2020, it is expected that India will become the leader in
the tourism industry in South Asia, with about 8.9 million
arrivals.
According to WTO, in the year 2006, 842 million
International tourist arrivals were seen and tourism receipts
were of the order of US $ 682 billion. The World Travel &
Tourism Council (WTTC) for 2006 forecasts that Travel and
Tourism will generate 234 million direct and indirect jobs
worldwide, accounting for 8.7% of the global economy and
contributing 10.3% of the global GDP. According to the
same estimate, the global travel and tourism activity is
expected to increase by 4.7% between 2007 and 2016.
According to Tourism Market & Future Forecast (2009 -
2015), In Indian union budget 2010 Indian government has
given more than INR 1,000 Crore to Ministry of Tourism,
India.
In 2009 FDI investment in Indian hotel and
tourism sector was more than US$ 550 Million.
The number of cruise tourist arrivals in India is
expected to jump by 233.33% by 2010 from the number of
cruise tourist arrivals in 2007.
Number of Buddhist tourist arrivals in India has
doubled in 2009 from 2008
Budget for Incredible India campaign increased by
INR 62.3 Crore for 2010-11 from previous year 2009-10.
The number of medical tourist arrivals in India is
expected to increase by a CAGR of 24.6% from 2009 to
2013.
India medical tourism market is expected to be
more than US$ 2 Billion by 2013
The 11th Plan strategy of government of India on tourism is
to achieve International tourist arrivals of 10 million by the
end of the 11th Plan through diversification of source
markets increase per capita spending and length of stay of
international visitors and by reducing seasonality. The Plan
also proposes to achieve a level of 760 million domestic
tourists by 2011 at an annual growth rate of 12 % and to
increase accommodation units. Strategy for Tourism
Development in the 11th Five-Year Plan by the Government
of India is:
During the 10th Five Year Plan, a doubled pronged strategy
of upgrading the tourism infrastructure and vigorous
marketing under the banner of ‘Incredible India’ campaign
was followed to position India as a global brand. The
following four-point progress was sought to be achieved to a
large extent among the target tourists and in source markets:
• From non-awareness to awareness.
• From awareness to interest.
• From interest to desire.
• From desire to final action i.e. booking a holiday.
The Working Group on Tourism for the 11th Five Year Plan
2007-12, felt that keeping in view all variables in the
environment, the product opportunities, the market scenario,
the Indian planning and national objectives.
The Government of India has from time to time introduced
tax deductions and incentives for investments in this sector.
In its Union Budget 2010–11, it introduced an investment-
linked deduction benefit, for new hotels, in the ‘2-star’
category and above, anywhere in India, was introduced. It is
to figure under Section 30/35 of the IT Act, 1961. Tax
deductions would be on the ‘Profits linked to investments’.
This would induce investment in new projects in the
hospitality segment, create more hotel rooms, and boost
employment rates; a positive development indeed.
In the Union Budget 2011–12, Service tax on air travel was
hiked - by INR 50 for domestic travel and INR 250 for
international travel, in the economy class. For higher
classes, it would be a flat 10%. The Service tax net was
widened to include in its purview hotel accommodation
above INR 1,000 per day; air-conditioned restaurants
serving liquor and some categories of hospitals and
diagnostic tests.
OBJECTIVES OF THE STUDY 1. To study the arrival of foreign tourist from various
regions in India (from 2008-2010)
2. To study the trend of foreign exchange earning
from tourism industry of India.
3. To formulate suggestion for Tourism Industry of
India.
RESEARCH METHODOLOGY
The universe of research was FOREX EARNING FROM
TOURISM INDUSTRY IN INDIA. The period of study was
from 2000 to 2011 spanning 12 years and future predictions
for next 4 years. The study was descriptive in nature and
was based on secondary data. The data was collected from
various secondary sources like books, journals, tourism
journals, Incredible India!, internet sources, official websites
like indiastats.com, etc. Descriptive statistics along with
trend analysis was used for forecasting. The trend has been
calculated using formulas listed below:
S=a+bt
∑S = Na+b+∑T – (1)
∑ST=a∑T+b∑T2 – (2)
FOREIGN EXCHANGE EARNINGS FROM
TOURISM IN INDIA
For the FEE’s, tourism is the most important sector in the
country. As per the monthly estimates prepared by Ministry
of Tourism, FEE from tourism in India in 2010 were `
64889 crore as compared to ` 54960 in 2009 registering a
growth of 18.1 % in 2010 over 2009. In US $ term, FEE
from tourism in 2010 were US $ 14.19 billion as compared
to US$ 11.39 billion in 2009 with a growth rate of 24.6%.
The FEE from tourism in India, in INR terms and US$
terms, during 1991-2010 are given in Table 1.1
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 17
TABLE 1.1
FOREIGN EXCHANGE EARNINGS FROM TOURISM
IN INDIA DURING 2000-2010
Fees in terms of rupees fees in terms us$ million
Year In crores % change us$ % change
2000 15626 20.6 3460 15
2001 15083 -3.4 3198 -7.6
2002 15064 -0.1 3103 -3
2003 20729 37.6 4463 43.8
2004 27944 34.8 6170 38.2
2005 33123 18.5 7493 21.4
2006 39025 17.8 8634 15.2
2007 44360 13.7 10724 24.3
2008 51294 15.6 11832 10.3
2009 54960 7.1 11394 -3.7
2010 64889 18.1 14193 24.6
Total 382097 84664
Source: INDIA TOURISM STATISTICS 2010
FEE FROM TOURISM in India during 2008-10 (monthwise
Rs. Crore)
(Percentage
Change)
MONTH 2008 2009 2010 2009/08 2010/09
JANUARY 4599 4598 5593 0 21.6
FEBRAURY 5496 4547 6646 -17.3 46.2
MARCH 4312 4437 5507 2.9 24.1
APRIL 3740 4061 4518 86 11.3
MAY 3153 3249 4358 3 34.1
JUNE 3538 3801 4751 7.4 25
JULY 4553 4983 5444 9.4 9.3
AUGUST 4041 4115 4620 1.8 12.3
SEPTEMBER 3602 3798 4678 5.4 33.2
OCTOBER 4234 4806 5219 13.5 8.6
NOVEMBER 5003 5523 6516 10.4 8
DECEMBER 5023 7042 7039 40.2 0
TOTAL 51294 54960 64889 71 18.1
Graphical Representation of FEE in 2010 (month wise)
RESULTS AND DISCUSSION
FEE FROM TOURISM INDUSTRY IN INDIA OVER
THE YEARS AND ITS TREND FOR NEXT 5 YEARS
Year Value Predicted Values
2001 15083 11133.43636
2002 15064 16803.13939
2003 20729 22472.84242
2004 27944 28142.54545
2005 33123 33812.24848
2006 39025 39481.95152
2007 44360 45151.65455
2008 51294 50821.35758
2009 54960 56491.06061
2010 64889 62160.76364
2011 67830.46667
2012 73500.1697
2013 79169.87273
2014 84839.57576
2015 90509.27879
Graph 1.1 showing the trend of FEE from Tourism
Industry of India
Foreign exchange earnings of India with special
reference to Indian tourism industry:-
FEE from tourism in India in 2010 were ` 64889 crore as
compared to ` 54960 in 2009 registering a growth of 18.1 %
in 2010 over 2009.
As viewed from the table of foreign exchange earnings from
tourism industry in India, there has been a continuous
increase in FEE, with the exception in the year 2001 and
2002 as the percentage change in terms of crore were(-3.4)
and (-0.1) respectively. And in terms of USD the percentage
change were negative in three different year i.e., in 2001,
2002, and 2009 with the figures as (-7.6), (-3), and (-3.7)
respectively.
From the study it could be predicted that there will be a
constant increase in foreign exchange earnings from tourism
industry in India from 2011 to 2015.
If the monthly earnings of 2010 are seen, it could clearly be
pointed that there is a sudden increase in FEE, the month of
February, then a continuous decrease was observed till the
month of May, then in June and July a jump in FEE value
was observed. But in the month of August and September
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 18
the earnings again lowered than the previous month but
again from October the rise was observed with the highest
earning in the month of December with the amount 7039
crore.
Global Recession and the September 11, 2001, events are
estimated to have resulted in a temporary decline in travel
and tourism demand in 2001-02, international and domestic
tourism is expected to boom over the next two decades. The
World Travel and Tourism Council (WTTC) had estimated
a 4.5 per cent per annum increase in the total amount of
travel and tourism economic activity between 2002 and
2012. This is largely attributed to a rise in global wealth,
liberalization of international airspace, cheaper flights and
the use of the Internet as a travel tool. The earnings from
tourism have made it one of the world’s largest industries
and the fastest growing sectors of global trade accounting
for 10.7 per cent of global gross domestic product (GDP),
12.8 per cent of global exports, 8.2 per cent of global
employment (or one in every 12.2 jobs), and 9.4 per cent of
global capital investment. International tourist arrivals
worldwide reached 698 million in 2000, generating $ 595
billion revenues. International tourism flows are expected to
reach 1.5 billion by 2015 and revenue estimated to cross $
2000 billion. Today, only 3.5 per cent of the world
population travels internationally but the number of Asian,
particularly Chinese, tourists is predicted to grow
enormously as the region becomes more integrated with the
global economy.
The interest in cultural tourism, spiritualism, ‘wellness’
holidays, eco-tourism and rural tourism would tend to
favour India, provided the country can avail of the
opportunities offered to maximize its natural advantages in
these areas. There are several factors that are responsible for
the inadequate growth of the tourism sector in India. These
are: barriers related to approach, barriers that discourage
private investment, factors that affect competitiveness and
factors that affect the long-term sustainability of tourism.
The effective and early removal of these barriers during the
Tenth Plan is an essential determinant for the success of the
New Tourism Policy. The need for a national consensus on
the role and level of tourism development in the country has
been voiced repeatedly but a concerted effort to achieve a
consensus has not been made. Tourism should not be limited
by state or regional boundaries if distortions in policies are
to be avoided. It is important that a consensus among all
states is evolved through the National Development Council
(NDC) and the barriers to the growth of tourism removed.
Foreign Tourist Arrival in India
Based on the information contained in the Disembarkation
cards, data regarding the number of Foreign Tourist Arrivals
(FTAs) and related aspects have been compiled and
presented in this chapter. The FTAs in India continued to
grow from 1.28 million in 1981, to 1.68 million in 1991,
2.54 million in 2001, which reached 5.78 million in 2010.
During the year 2010, India registered a positive growth of
11.8 % over 2009. The growth rate of 11.8% in 2010 for
India was better than UNWTO’s projected growth rate of
5% to 6% for the world in 2010. The compound annual
growth rate (CAGR) in FTAs in India during 2001 to 2010
was 9.6 %. Table 2.1.1 gives the number of FTAs in India
for the years 1981 to 2010 and the growth rate over previous
years.
FOREIGN TOURIST ARRIVAL IN NUMBERS
CHANGE IN %
MONTH 2008 2009 2010 2009/08 2009/10
JAN. 511781 481308 568719 -6 18.2
FEB. 611493 489787 552152 -19.4 12.7
MAR. 479765 442062 512152 -7.4 15.9
APR. 361101 347544 371956 -3.8 7
MAY. 304361 305783 332087 0.3 8.8
JUN. 341539 432900 384642 3.2 9.2
JUL. 431933 369707 466715 0.2 7.8
AUG. 383337 330707 422173 -3.6 14.2
SEP. 341693 458849 369821 -3.2 11.8
OCT. 450013 541524 507093 2 10.5
NOV. 531683 541524 608178 1.9 12.3
DEC. 533904 615775 680004 15.3 10.4
TOTAL 5282603 5167699 5775692 -2.2 11.8
Source: INDIA TOURISM STATISTICS 2010
The growth in FTAs in India during the eighties & nineties
did not follow any consistent pattern. While 3 years, viz.
1986, 1992 and 1995, saw double-digit positive growth, but
continuously negative growth in the years 1984, 1990, 1991,
1993, 1998, 2001, 2002 and 2009. It may be clarified that
distribution of FTAs in 2010 has been worked out for figure
of 5.78 million, which was higher than the total FTAs as per
the unit level data furnished by Bureau of Immigration
(BOI).
The FTAs from USA were maximum during 2008, 2009 and
2010. The growth rate in FTAs in India in 2010 as compared
to 2009 was maximum Iraq (72.1%) followed by Turkey
(50.6%), Sudan (48.7%), Afghanistan (45.5%), Iran
(42.2%), Saudi Arabia (38.9%), Egypt (36.6%), Republic of
Korea (35.6%), Japan (34.7%), Vietnam (33.7%), Ukraine
(32.4%), Malaysia (32.3%), Indonesia (30.4%) and Nigeria
(30.3%). FTAs from Argentina, Mexico, Italy, Portugal,
Spain, Hungary, Kazakhstan, Poland, Russia, Kenya and
South Africa recorded more than 20% growth in 2010 as
compared to 2009. Some of the countries for which decline
in FTAs were observed were Bangladesh (7.9%) followed
by U.A.E (3.7%), Finland (3.2%), Pakistan (2.6%), Bahrain
(1.7%) and U.K. (1.3%). The 21 countries which accounted
for about 2% share only in FTAs in India during 2010 were:
Afghanistan, Australia, Bangladesh, Canada, China (Main),
France, Germany, Italy, Japan, Korea (South), Malaysia,
Maldives, Nepal, Netherlands, Russia, Singapore, Spain, Sri
Lanka, Thailand, U.K. and USA.
CONCLUSIONS
Thus it can be concluded that Tourism is the largest service
industry globally in terms of gross revenue as well as
foreign exchange earnings. It can play an important and
effective role in achieving the growth with equity objectives
which India has set. Tourism is one economic sector in India
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 19
that has the potential to grow at a high rate and can ensure
consequential development of the infrastructure of the
destinations. It has the capacity to capitalize on the success
of the country in the services sector and provide sustainable
models of growth.
The demand emerging from tourist expenditure includes
more employment and generates a multiplier effect on the
economy. As a result, additional income and employment
opportunities are generated through such linkages. Thus, the
expansion of the tourism sector can lead to large scale
employment generation and poverty alleviation.
Tourists visiting different parts of the country every year
return with a better understanding of the people living in
different regions of the country. They have a better
appreciation of the cultural diversity of India. Tourism also
encourages preservation of monuments and heritage
properties and helps the survival of art forms, crafts and
culture.
Development of hill areas for tourism, increase in
promotional activities to draw a steady of tourists to south
India, trekking and winter sports in Himalayas, ropeways,
transportation in hill stations, forests lodges and other
facilities, beautifications of the places of archaeological
importance etc. All these facilities if created might be able
to bring a sea change to the tourism industry in India.
SUGGESTIONS
India should make the most of its topography, natural
resources and labour to develop not only traditional
products but also non traditional products of tourism.
Bette services need to be provided to the international
tourists and quality standards for providing services
should be upgraded, which include readily accessible
information guides / bulletins, clean public utilities
(sanitation, drainage etc.), stress-free arrivals, improved
hygienic conditions in tourism sites and surroundings,
clean air ports and railway stations and so on.
Better infrastructure facilities, like, road lines, air ports,
accommodation facilities, drainage and sanitation
facilities etc. need to be created immediately for faster
tourism development.
Capacity building for service providers (CBSP) is of
utmost importance for long-term sustainability and
enhanced competitiveness of tourism services.
Education, research and training are crucial workings
in the wheel of tourism. HRD should be given priority.
Adequate importance should be given to inductive
research on historical importance and contemporary
relevance. Tour operators, guides must develop a good
relationship with tourists.
Better marketing techniques should be used to attract
the tourist from foreign countries.
Special facilities should be provided to foreign tourist,
like better hospitality services and special government
packages.
REFERENCES:
1. Bhatia A.K (1978) “Tourism in India”, sterling publishers
Pvt. Ltd., New Delhi.
2. Leo’s notes, “Burst of activity in tourism sector”, the
Hindu, Friday, december22, 1995, p.18.
3. Dharmarajan s. and aviation, s (1996) “tourism a close
linkage”, “yojana”, vol. 40, no. 8, p. 27.
4. Economic impact, no.29 international communication
agency, Washington. D.C; USA, 1989/1, pp.34-37.
5. Harisha, N., Jayasheela and basil hans, V. (2008)
“tourism Industry in Karnataka: An overview”, Southern
economist”, vol. 46, no. 20, pp. 33-36.
6. Revathy, s. (2008) “tourism: Indian awakens to
‘incredible’ opportunities”, “Southern economist”, vol. 45,
no. 14, pp. 18-20.
7. Bheemaraj, p. (2008) “importance of tourism in
Economic development: a micro study”, “Southern
economist”, vol. 46 no. 20, pp. 35-38.
8. India Tourism Statistics 2010
9. IITTM Gwalior, Faculty Research papers.
10. IITTM Nellore, Faculty Research Papers
11. Government of India Planning Commission.
12. Website of Economy Watch (date: 30 June 2010)
13. From Wikipedia, the free encyclopaedia (as on 6th
February)
14. Tourism Market & Future Forecast (2009 - 2015),
(Published Date: Apr, 2010 Source: Bharat Book Bureau)
***
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 20
Business Regulatory Framework of Indian Textile
& Garments Industry in Post-LTA Scenario
Dr. Alqa Aziz, Department of Commerce & Business Studies
Jamia Millia Islamia, New Delhi – 110025, India
Abstract
The textiles and clothing industry occupies a very important
place in the Indian economy in terms of its share in
employment, value added and export earnings. But the
industry is dominated by small, fragmented and non-
integrated units with the exception of spinning sector. The
spinning segments production is dominated by large units
and has been able to undergo significant modernization at a
rapid rate. In recent years, a trend towards consolidation and
integration with the value chain upstream along with
modernization in segments like garments has been
witnessed. The ginning, weaving and processing sectors, on
the other hand, lags behind as regards modernization.
Within the weaving sector, increasing dominance of the
powerloom sector is being witnessed over the years. The
garments sector is undergoing significant expansion and
modernization process in recent years and this opportunity
has been created through de-reservation. De-reservation of
garment sector, introduction of TUFS, lowering of customs
duties and MFA phase out are the major policy changes
responsible for bringing these changes in the environment.
The recent global slowdown has however impacted the
prospects of this sector also.
Objectives of the Study
1. To study the policy framework of the Textile &
Garments Industry.
2. To study the related Labour Laws.
3. To study the international trade agreements related
to Textile & & Garments exports
4. To examine the policy implications on the industry.
5. To understand, if any adjustment is required in the
import-export policy to ensure export-led
development of the industry.
Hypothesis of the Study: India is in a position to increase its
market share in textile & garment export to major export
destinations in post-LTA (long-term agreement)
scenario.
Methodology: the study has been carried out in two phases;
first was exploratory research method; and the second was
constructive method.
Limitations of the study: The study will not give any detail
of the Leather garments.
Keywords: Textile & Clothing industry, MFA quota system,
Policy framework, Trade agreements.
Introduction
In the post-independence period until the mid-1980s, India
followed for the most part an inward looking/ import
substitution policy, using a variety of regulatory
mechanisms to orient the textile and clothing sector in a
particular way. A strict industrial licensing regime required
firms to seek government permission for establishing any
new operation or the expansion of existing ones. In addition,
several sectors such as garments, knitting etc., were kept
restricted for small-scale enterprises, and strict labour laws
proved a disincentive for expansion. The exemption and
evasion of duties hindered the modernization process. The
escalating duties at value added stage due to introduction of
MODVAT & exemption for small scale sector at
intermediate stage was a cause of major discouragement for
investment in garment sector till 2000.The New Textile
Policy relaxed several licensing requirements, raised the
maximum limits on allowable investment and reduced
import controls. Businesses were also encouraged to
modernize their technological base through disbursement of
cheaper lines of credit. Technology Upgradation Fund
Scheme (TUFS) and technology modernization on cotton &
spread of BT cotton are important developments.
Major Schemes
Technology Upgradation Fund Scheme (TUFS), Textile
Workers’ Rehabilitation Fund Scheme (TWRFS), Scheme
for Integrated Textiles Parks (SITP), Technology Mission
on Cotton (TMC), Schemes for Development of Handlooms,
Schemes For Development of Handicrafts, Schemes For
Development of Sericulture, Development of Mega Clusters
for Handloom, Handicraft & Powerloom, Wool,
Powerloom, Jute Technology Mission, HRD Scheme,
Technical Textiles etc.
The phase-out of the export-quota system from the
beginning of 2005 has raised the competitiveness issue of
the Indian RMG industry as a top priority topic.
Policy Implications
Indian textiles and clothing industry is at the crossroads
looking at the severity of the slowdown in the world
economy. This has more severely affected the export
oriented units than those dependent on domestic
demand. This has forced major business restructuring in
the form of changes in the product-mix, efficiency
enhancements, cost-cutting exercises across the
spectrum of value chain of the industry to whether the
situation. In these circumstances institutional policy
support is required to withstand the looming global
crisis.
The restructuring at the unit level would be effective, if
high value added quality chain is ensured. The role of
government in these circumstances is inadequate in
ensuring the flow of investment in crucial areas for the
growth of the sector. The coordination among units is
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 21
not strong; in order to develop unhindered growth of
supply chain in value added products.
Poor Dyeing/ Processing: The quality of fabric
produced in India is much lower than international
standards. This is much due to poor quality of dying
and processing of fiber, yarn and fabric. This affects our
export competitiveness of fabrics and apparels products
both in terms of quality and price. The production of
fabrics in India is still much protected. Cotton and
blended fabrics invite 10% of customs duty. To make
the market of yarn and fabrics competitive and to
improve the quality of final products, there is need for
reductions in the customs duty. This would help the
availability of good quality fabrics to the garment
producers at reasonable rate.
Government has reduced the rate of duty drawback on
number of textile items with effect from September 1,
2008. For instance, duty drawback rates for knitted
shirts/blouses of cotton have been reduced from 11% to
8%. For made ups of manmade fibres it has been
reduced from 10.4% to 9.5%. Similar reductions have
been made on other items. This would adversely affect
the exports in view of the fact that the input cost for
industry has substantially gone up as a result of higher
input prices and also because of cut-throat competition
from neighbouring countries like Bangladesh, China,
Sri Lanka, etc. On the contrary, China has increased the
duty draw back rates looking at the tense external
market. Hence, these drawback rates should be
increased and at least restored to their previous levels.
After multi fibre agreement phase out, non-tariff
barriers (NTBs) are the major trade barriers faced by
export oriented units. In textile products child labour
use is always suspected. Besides, other labour standards
like safety and health standard are always a concern to
an exporting unit. Some other NTBs faced by exporters
are labelling of shipment, security parameters,
complicated requirements of rules of origin and
documentary clearance requirements. Some of these
requirements can be fulfilled by putting bearing costs
by respective units. But, still there is need for the
government to do some hard bargaining with developed
countries on the issue of NTBs by allying with other
developing countries.
After multi fiber agreement phase out, non-tariff barriers
(NTBs) are the major trade barriers faced by export oriented
units. In textile products child labour use is always
suspected. Besides, other labour standards like safety and
health standard are always a concern to an exporting unit.
Some other NTBs faced by exporters are labeling of
shipment, security parameters, complicated requirements of
rules of origin and documentary clearance requirements.
Some of these requirements can be fulfilled by putting
bearing costs by respective units. But, still there is need for
the government to do some hard bargaining with developed
countries on the issue of NTBs by allying with other
developing countries.
Anomalies in Taxes and Duties
i. VAT and CST are not adjustable: If a manufacturer
while purchase in raw-materials has paid VAT and
while selling collects CST, he cannot avail a credit.
ii. Exporter does not get credit for VAT/CST paid
during raw material purchase: When a
manufacturer exports all his goods he does not get
any credit for the VAT or CST paid at the raw
material purchase stage.
iii. Customs paid while purchase and Excise collected
while sale are not adjustable: If a manufacturer
imports raw material and pays customs duty on it,
he is unable to adjust it against the excise that he
collects while selling.
iv. VAT on fabric is Nil: A fabric manufacturer pays
VAT while buying the raw material but cannot
collect the same while selling his product.
v. Anomaly in duty draw back rates: Duty draw back
rates are not as high as effective duties as a result
T&C exporters pay excessive duties.
These above stated factors results in additional incidence of
ex-factory price.
Stringent Labour Laws
India ranks highest on ‘Difficulty of Firing index’ and high
on the ‘Rigidity of Employment index’ (as shown in Table-
1) among the competing countries on account of stringent
labour laws. This indicates the high rigidity in labour laws in
the country.
Table 1: Ranking of economies by “Doing Business
2009”
Country Difficul
ty of
Hiring
index
Rigidi
ty of
Hours
index
Difficul
ty of
firing
index
Rigidity
of
Employm
ent index
Firin
g
cost
s
India 00 20 70 30 56
China 11 20 50 27 91
Banglade
sh
44 20 40 35 104
Sri
Lanka
00 20 60 27 169
Turkey 44 40 30 38 95
Vietnam 11 20 40 24 87
Source: World Bank, 2009
Labour laws of Indian T&C industry:
i. T&C industry comes under the purview of Contract
Labour Act, 1970 which prohibits contract labour
for the work that is perennial in nature:
ii. The Factories Act, 1948 poses restrictions on the
maximum working hours which further affects the
competitiveness of industry
iii. Indian Labour laws introduce unfair discrimination
against large companies
The Trade Agreements Leading to Market Access for
Readymade Garments
LTA underwent several renewals and was subsequently
replaced by the Multi Fiber Agreement (MFA) in 1974.
MFA has governed international trade in textiles and
clothing since 1974. The MFA enabled developed nations,
mainly the USA, European Union and Canada to restrict
imports from developing countries through a system of
quotas. The Agreement on Textiles and Clothing (ATC) to
abolish MFA quotas marked a significant turnaround in the
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 22
global textile trade. The ATC mandated progressive phase
out of import quotas established under MFA, and the
integration of textiles and clothing into the multilateral
trading system before January 2005.
The World Trade Organisation (WTO) stands for an orderly
growth of trade. It envisages that the measures of growth
should be uniform for all countries and not skewed in favour
of certain or group of countries. An obvious way is
reduction of tariff walls and removal of non-tariff barriers.
Unfortunately, the developed countries especially the USA
and EU, which are the founder members of WTO have been
breaching the very fundamentals of WTO in an attempt to
promote the trade of their own products and acting as global
policemen.
Safeguard Clause in WTO The constitution of WTO also enshrined a clause to
safeguard domestic industries of members from an
unprecedented surge in imports of products from any one
country to another, at prices which are either below the cost
of production or at prices below that in the domestic market
of the exporting country, which are such as to hurt the
domestic industry of the importing country.
Preferential Trade Agreement
The General System of Preferences (GSP) is an agreed
exception to the MFN principle under which the Donor
Country grants preferential duty on goods originating in
beneficiary country which is lower than the normal MFN
duty. Each donor country is free to decide the level of
concessions, the choice of goods and the rules of origin in
respect of GSP. Consequently, most GSP schemes are
different from each other in terms of the goods covered, the
level of duty concession, the procedure to be used and the
rules of origin that apply.
The EU GSP scheme extends duty benefit to the developing
countries and provides special incentives to promote core
labour and environmental standards. The textile sector in
India is not eligible for EU GSP benefits while the same
benefits are extended to China, Indonesia, Malaysia, Sri
Lanka and Thailand. However, the apparel sector in India
benefits from EU GSP scheme. But the concessions of duty
free access granted to Pakistan recently on account of drug
policy would increase the unhealthy competition and push
the prices down in apparel sector.
The expansion of regional trade arrangements like
NAFTA, growing preferential arrangements with targeted
regions and countries under Arrangements like Trade
Development Act 2000 of the USA, EU's enlargement
programme to include Central & Eastern Europe &
Mediterranean rim countries etc., would act as
insurmountable barriers to global free trade resulting in
adverse effect on Indian exports.
In fact data relating to imports of textiles and
clothing into USA shows that the share of imports from
countries covered by preferential trade arrangements have
increased from 19.5% in 1994 to 31.7% in the year 2000.
Rules of Origin
Rules of Origin are unilaterally altered by the developed
countries to the detriment of developing exporting countries.
Unilateral changes in Rules of Origin by USA have affected
the trade of textiles and clothing badly. As part of its
legislation implementing the results of Uruguay Round, the
US substantially altered its rules for determining the origin
of textiles and clothing products. The modified rules, put
into effect from July 1996, resulted in major changes
disadvantageous to developing countries. Since the process
of harmonization of Rules of Origin of various countries is
being undertaken in the Committee on Rules of Origin, no
member country should be allowed to make any further
changes in their Rules of Origin till the harmonization
process is completed.
There have been several measures taken by World
Trade Organization (WTO) to uplift and strengthen this
sector. In 1995, WTO rehabilitated its MFA strategy and
implemented Agreement on Textiles and Clothing (ATC),
specifying that the WTO member nations will get rid of
quotas on textiles.
The Genesis of Agreement on Textile & Clothing
Alarmed at the flood of imports of garments into
EU and USA from Asian suppliers, both the countries
sought to restrict imports of certain garments from Asian
countries for a specific period during which the industry of
these two countries desired to restructure itself to meet
international competition.
After some hard bargaining on both sides
concerning the period as well as incremental quantities
during the period, it was finally agreed to limit the same to a
10-year period with growth factors in between the period
and a gradual release of specified items in the course of
period from the rigours of controls. This culminated in the
signing of Agreement for Textiles & Clothing (ATC) which
ended on 31st December 2004. Since supply from importing
under ATC was artificially controlled, the end of ATC saw a
surge in imports into both EU and USA from the supplying
countries so as to reflect the full potential of the supplying
countries.
Lowering of Tariff and Free Trade Area derail
Generalised System of Preference Effectiveness of the scheme is however adversely
affected to a large extent, due to:
i. reduction of MFN Tariffs; thus effectively
lowering the margin of preference; and
ii. International agreements ratified by WTO,
resulting abolition of tariff.
Zero-for-Zero Tariff offered to India Looking to opportunities in the vast Indian market,
both EU and USA have offered India zero –for zero tariffs.
Since labour costs in both USA & EU are higher than in
India and since freight/insurance costs will add further to the
landed value in India for their garments, the possibility of
EU/USA garments swamping India or competing unfairly
with our domestic industry is remote. The only possibility is
that garments manufactured by East European countries of
EU or by Turkey (an Associate of EU), could possibly
compete with our domestic industry. Although operating
costs in East Europe or Turkey may be low, freight to India
and insurance costs will neutralize whatever advantage (if
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 23
any) they may have. The gain accruing to India by agreeing
to a zero-zero tariff would be commendable.
The trade agreements are not that much beneficial
to Indian T&C industry as compared to competing countries.
Indian exporters do not have duty free access to the key
global market.
Table 1: India’s Trade Agreement with Major Export
Markets
Global
Market
Trade agreement
US MFN duties applied on majority
of T&C products:
Although India is currently a beneficiary of
the US GSP, textile produced with cotton,
wool, manmade fibre, and other vegetable
fibre are prohibited from receiving GSP
treatment.
EU27 Reduced duties applied on T&C
products:
India and the EU commenced talks on the creation of a Free Trade
Agreement in 2006. FTA not only aims to eliminate tariffs and quotas,
but also non-tariff barriers to trade.
Japan Reduced tariffs for the textile
products:
Under Japan’s GSP, India qualifies for
reduced tariffs for T&C products.
Trade Agreements: skewed Ideology of US and EU27
USA has signed Free Trade Agreements with neighbouring
Canada and Mexico as also with Caribbean Basin counties
and sub- Sahara Africa in the garb of improving the
economy of these countries. The agreement makes it
mandatory for the supplying countries to use American yarn
or American fabric for conversion into garments prior to
exporting to USA in order that such garments may enter
USA import duty free; alternatively, of course, they can use
local yarn or local fabric, but cannot import the same from
third countries in which case the garments thus
manufactured will lose the benefit of free import duty in
USA. Worse still is the fact that all countries in Africa are
not included. Some of the major countries like South Africa
are excluded.
The USA is in full knowledge of the fact that the beneficiary
countries in Africa do not have local textile industry worth
the name, and, at the same time, labour costs in USA are
higher than in the beneficiary African countries. Thus,
basically, the object of the Agreement is to promote the off
take of American yarn/fabric, take advantage of low labour
cost and import the finished garments at a low price for the
American consumer.
Taking a cue from the USA, Western Europe developed a
European union (E U) of 15 members -countries. Some of
these countries had low labour costs while others had labour
costs comparable to USA. This enlarged area was acceptable
since it was a contiguous area, and despite the difference in
labour costs, could render economies of scale to bring down
costs. However, later this was expanded to 25 countries and
later to 27 countries by including countries in East Europe
which had become republic, independent of USSR with
which they were previously merged. These countries
accepted democratic system of government after becoming
republics, and abandoned the centrally-administered system
of government. Labour wages in these countries were far
less than in West Europe.
These countries were to convert the cut garment part (in
west Europe) to full garments and export them to West
Europe free of import duty. What needs to be noted here is
that this facility was not extended to entire East Europe.
Countries in East Europe which continued to follow the
centralized system of administration were left out in the
agreement, as though it was a reward for those countries in
East Europe which had given up the centralized system. The
agreements are briefly discussed in Table no. 2, 3 & 4.
Table 22: Trade Agreement with US
Country Description of
Agreement
Impact
India Generalized System of
Preferences
Does not extend
to most textile
and apparel
products
China Generalized System of
Preferences
Does not extend
to most textile
and apparel
products
Bangladesh Generalized System of
Preferences-
Least Developed
Beneficiary Developing
Country (LDBDC)
Does not extend
to most textile
and apparel
products
Sri Lanka Generalized System of
Preferences Plus-
Does not extend
to most textile
and apparel
products
Turkey Generalized System of
Preferences
Does not extend
to most textile
and apparel
products
Vietnam Generalized System of
Preferences
Does not extend
to most textile
and apparel
products
Source: IMaCS analysis, 2009
Table 3: Trade Agreements with EU27
Country Description of
Agreement
Current Tariff
structure
India Generalized System of
Preferences
Reduced Tariffs
China Generalized System of
Preferences
Reduced Tariffs
Bangladesh Generalized System of
Preferences-Everything
but Arms Initiatives
Zero Tariff
Sri Lanka Generalized System of
Preferences Plus-
Special Incentive
Arrangement for
Sustainable
Development and Good
Zero Tariff
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 24
Governance
Turkey Preferential Trade
access due to
membership in
European Customs
Union
Zero Tariff
Vietnam Generalized System of
Preferences
Reduced Tariffs
Source: IMaCS analysis, 2009
Table 4: Trade Agreements with Japan
Country Description of
Agreement
Impact
India Generalized System of
Preferences
Reduced
Tariffs
China Generalized System of
Preferences
Reduced
Tariffs
Bangladesh Generalized System of
Preferences-
-Least Developed Country
Zero Tariff
Sri Lanka Generalized System of
Preferences
Reduced
Tariffs
Turkey Preferential Trade access
due to membership in
European Customs Union
Reduced
Tariffs
Vietnam1 Generalized System of
Preferences
Reduced
Tariffs
Source: IMaCS analysis report, 2009
Export Promotion Measures by the Government
The Government is seized of the submissions of the industry
and trade associations regarding potential loss of
employment in the textiles and clothing industry
consequential to declining sales in domestic and
international markets. Some of the steps taken by the
Government to support the textiles and garments industry
include the following:
2011-12 Budget Measures
i. Rs 30 billion funding to NABARD to provide
support to financially unviable handloom weavers
with huge debt burdens.
ii. Optional tax levy at 10% made mandatory on
branded garments and made ups.
iii. Surcharge on domestic companies reduced to 5%
from 7.5%.
iv. Basic customs duty on nylon yarn and nylon fibre
reduced from 10% to 7.5%.
v. Lower rate of central excise duty increased from
4% to 5%.
vi. Rate of Minimum Alternative Tax (MAT)
proposed to be increased from 18% to 18.5% of
book profits.
Critical Comments on Present Proposals of Indian
Government for Textile & Garment Industry
1 Economic Partnership Agreement between Vietnam and
Japan is under negotiation which would change this tariff
structure.
i. Expenditure and fiscal discipline has been
maintained, but there is a need to provide a short-
term or long-term roadmap for the growth of
labour-intensive apparel industry.
ii. Union Budget 2010-11 provides nothing for the
textiles exporters for their sustenance and
development.
iii. The funds allocation needs to be increased under
the Technology Upgradation Fund (TUF) scheme.
iv. The Budget statement which proposed to extend
the interest subvention of 2 per cent for one more
year for exports covering handicrafts, carpets,
handlooms and small and medium enterprises; need
to be extended to the textiles sector too, which used
to be the case earlier.
v. Skill development scheme: the proposals in Budget
2010-11 included launch of an extensive skill-
development programme in the textile and garment
sector, and a one-time grant of Rs 200 crore to the
Government of Tamil Nadu for the installation of a
zero liquid discharge system at Tirupur, to sustain
its textile cluster for knitwear. By incentivizing
training through an outcome-based approach the
resources of the private sector will also be
harnessed. Through these instruments around 30
lakh persons will be trained over 5 years.
vi. Cost competitiveness of the sector need to be
addressed by the Government, as the higher prices
of petrol and diesel will have an impact on the
overall costs.
vii. As the current refund mechanisms are
cumbersome, so there is a need of exemption of
service tax on export-related services which in the
best interest of the Indian exporters.
viii. There is lack of any special provision in the budget
proposal for 2011-12 for the garment sector.
ix. The Budget-2011-12 has proposed to convert the
optional levity into a unified rate od 10% for the
readymade garments and textile made-ups, which
were earlier under optional excise duty regime,
which would adversely affect the garment sector of
the industry.
x. Although, CENVAT credit of inputs and services
would be available to the garment factories will
now have to register themselves with central
excise, increasing the transaction and
administrative costs. It would lead also to
unnecessary harassment and delays in handling
time bound export shipments.
xi. The increase in MAT in Budget-2011-12 definitely
needed a review, as the textiles industry is the
largest employment provider and one of the largest
foreign exchange earner sectors.
xii. 5% excise duty on automatic looms and projectile
looms would add an avoidable duty burden and
will impact fabric manufacturers, including
decentralised power looms.
Budget Impact
i. Companies that do not complete their capex related
borrowing by the due date of March 31, 2012 will
have to incur higher borrowing cost as the interest
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 25
subvention under the Technology Upgradation
Fund (TUF) will expire by that date.
ii. The financial support from NABARD could help
the revival of unorganized players in the handloom
industry and evade mass unemployment in the
sector.
iii. Higher taxes on branded garments and made-ups
will eat into the profits of the sector.
iv. The lower surcharge could have a positive impact,
albeit nominal, on the profits of the smaller players
in the sector.
Company Impact
i. Companies like Raymond, Arvind and Alok
Industries that have presence in branded garments,
made-ups and textile retailing will be impacted by
the higher tax levy.
ii. Most companies in the sector are highly leveraged
and may have to cap their capex plans until FY12.
Other Facilitation Measures
i. Re-imbursement of Additional Duty of Excise
levied on fuel under the Finance Act would also be
admissible in respect of EOU's.
ii. Re-credit of 4% SAD, in case of payment of duty
by incentive scheme scrips such as VKGUY, FPS
and FMS, has now been allowed.
iii. Simplification of the provision for getting refund of
Terminal Excise Duty/Deemed Export Benefits and
now exporters can submit a statement certified by
Central Excise Authorities in lieu of individual
invoices and a monthly statement confirming duty
payment in lieu of ER-1/ER-3.
iv. Krishnapatnam seaport included for the purpose of
Export Promotion Schemes.
v. Electronic Message Transfer facility for Advance
Authorization and EPCG Scheme established for
shipments from EDI ports w.e.f.01-04-2009.
vi. Requirement of hard copy of Shipping Bills
dispensed with for Export Obligation discharge.
Major incentives introduced under Foreign Trade Policy
(2009 - 2014)
i. Incentive Schemes have been expanded by addition
of new products and markets.
ii. 26 new markets have been added under the Focus
Market Scheme. These include 16 new markets in
Latin America and 10 in Asia- Oceania.
iii. The incentive available under Focus Market
Scheme (FMS) has been raised from 2.5% to 3%.
iv. The incentive available under the Focus Product
Scheme (FPS) has been raised from 1.25% to 2%.
This covers a large number of products from
various sectors have been included for benefits
under the FPS. These include Jute and Sisal
products, Technical Textiles and vegetable textiles.
But, FPS benefits at 2% on apparel export to USA
and EU have been discontinued for the exports
made after 30.9.2009.
v. Market Linked Focus Product Scheme (MLFPS)
has been greatly expanded by inclusion of products
classified under as many as 153 ITC (HS) Codes at
4 digit level. This covers textiles made ups, knitted
and crocheted fabrics.
vi. MLFPS benefits also extended for export to
additional new markets for certain products. These
include apparels among others.
vii. Higher allocation for Market Development
Assistance (MDA) and Market Access Initiative
(MAI) scheme is being provided.
viii. To aid technological Upgradation of export sector,
EPCG Scheme at Zero Duty has been introduced
for apparels and textiles among others.
ix. To impart stability to the Policy regime, Duty
Entitlement Passbook (DEPB) Scheme is extended
beyond 31-12-2009 till 31.12.2010.
x. To simplify claims under FPS, requirement of
'Handloom Mark' for availing benefits under FPS
has been removed.
Textile Research Associations i. Ahmadabad Textile Industry Research
Association(ATIRA), Ahmadabad
ii. Bombay Textile Research Association(BTRA),
Mumbai
iii. South India Textile Research Association(SITRA),
Coimbatore
iv. Northern India Textile Research
Association(NITRA), Ghaziabad
v. Silk and Art Silk Mills Research
Association(SASMIRA), Mumbai
vi. Man-made Textile Research
Association(MANTRA), Surat
vii. Indian Jute Industries Research
Association(IJIRA), Kolkata
viii. Wool Research Association, Thane
Export Promotion Councils (Sectoral)
i. Handloom Export Promotion Council, Chennai
ii. Apparel Export Promotion Council, New Delhi
iii. Cotton Textile Export Promotion Council,
Mumbai
iv. The Synthetic and Rayon Textiles Export
Promotion Council, Mumbai
v. Indian Silk Export Promotion Council, Mumbai
vi. Wool and Woollens Export Promotion Council,
New Delhi
vii. Carpet Export Promotion Council, New Delh
viii. Export Promotion Council for Handicrafts , New
Delhi
ix. Powerloom Development & Export Promotion
Council
x. Wool Industry Export Promotion Organisation
xi. Jute Manufactures Development councils
Major business constraints faced by the Textile
&Garment industry i. Majority of the domestic manufacturers ranked
‘lack of power ’as the most severe business
constraint.
ii. ‘Shortage of skilled labour’ and ‘working capital
issues’ were ranked as the second most severe
business constraints by the industry.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 26
iii. ‘High interest rates’ and ‘delay in refund’ were
also mentioned as the key business constraints
impacting the industry.
iv. Stringent Labour Laws
v. Lack of focused approach from policy makers.
vi. On account of anomaly in tax structure, T&C
manufacturers pay duties and taxes that are not
refunded.
Conclusion
The mandatory excise duty of 10 percent imposed on
branded readymade garments and made-ups would not only
have serious adverse impact to these highly labour intensive
segments but would also have significant operational
problems at the level of implementation.
With this new regime, the garment exporting units in Tamil
Nadu and West Bengal will be badly hit. Tamil Nadu, as a
whole, provides around one fourth of India’s garment
exports. Given the complex value chain, it is requested that
garment export industry should be provided with optional
excise duty regime as given earlier to protect large number
of units.
Though CENVAT credit of inputs and services would be
available and exports would continue to be zero rated, the
factories have to register themselves with central excise,
increasing the net transaction and administrative costs.
This will severely impact industries with higher
requirements of outsourced processing and other services
like the knitwear industries, embroidered or other value
added garments. The increase in excise duty for yarn and
fabrics from 4 percent to 5 percent would not have any
major impact on the industry.
The reduction of excise duty on 40 specified textile
machinery from 10 to 5 percent has been welcomed as well
but that the impact of this reduction will be limited, since
most of these machines are not manufactured in India.
The imposition of 5 percent excise duty on automatic looms
and projectile looms would add an avoidable duty burden on
the machinery industry which will impact fabric
manufacturers, including the decentralized powerlooms.
Government of India corrects its vision and priorities. But, ,
Indian players are confident about their potential but the
improper mix of politics and economics and with the impact
of on-going economic slowdown creates disaster on the
performance of the T&C industry. This requires certain
positive steps towards the sustained growth and
development.
References
Government of India, Ministry of Textile Handbook (from
2005-06 to 2011-12).
AEPC. Handbook of Export Statistics (from 205-06 to
20011-12). New Delhi.
Economic Survey 2009, 2010, 2011 & 2012, India.
Centre for Monitoring Indian Economy data base (CMIE),
2010.
Apparel Online magazine (various issues), AEPC, Gurgaon.
Impact of Economic slowdown on Indian T&C Industry-
Study assigned by CITI, AEPC, SRTEPC and Texprocil to
ICRA management consulting services Ltd. (2009).
Focus WTO. Textile & Clothing. IIFT, 2007.
***
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 27
SMEs in Sultanate of Oman : Meeting the
development challenges
Dr. Ayoob C. P., Dr. Balabrishnan Somasundaram
Assistant Professors, College of Applied Sciences,
Ministry of Higher Education, Sultanate of Oman, NIZWA
INTRODUCTION
The small and medium enterprises (SMEs) not only
play an important role in the economy of a country but are
crucial to the country’s economic stability. In most countries
SMEs generate a substantial share of GDP and a key source
of new jobs as well as breeding ground for entrepreneurship
and new business ideas. The United States of America, UK,
Japan, Australia, Newzland, Canada and other developed, as
well as developing countries are making policies to facilitate
the growth of SMEs. In New Zealand SMEs makeup more
than 99% of all business and account for about 60% of
employment. In the USA more than half of all the
employment comes from firms with fewer than 500
employees (Baldwin et al 2001). In the UK, SMEs employ
67% of the workforce (Lange et al 2000). Estimates from
the World Bank indicates that SMEs have contributed over
55% of GDP in OECD countries and between 60 to 70 per
cent of GDP in middle income and low income countries
generating 60 to 70 percent employment (Oman Economic
Review, 2007). The above facts show that SMEs play a very
important role in the growth of economy of a country, and
Oman is not an exception.
SMEs IN OMAN
Oman is a country with unique features. It is a
developing country and an oil producing country but is
neither as poor as some of the other developing countries
nor as rich as other oil producing countries. It does not
depend much on foreign labour as some of the other GCC
countries and expanding its small industrial base. With its
small population and a large geographical area Oman has
international standard roads to link all major cities of the
country. Similarly, education and health facilities are
expanded to rural and remote area. Telephone land lines or
mobiles and internet services are available to more than 80%
of the population. The female workforce represents 17% of
the total workforce of Oman which is a very distinctive
feature as compared to other Arab countries of the region
(Rafi Ashraf and Muhammed Murtaza, 2008). Oman has
limited resources, monetary and human and has to use these
resources in an efficient way learning from the experiences
of other countries. Oman is a country where there are ample
scopes for the local people to generate income from
different sources especially after the introduction of
Omanisation policy.
The SME sector in Oman comprises a variety of business
units. Ministry of National Economy, Sultanate of Oman has
identified and classified the present SMEs into fifteen
economic activities group (agriculture, fishing, mining and
quarrying, manufacturing, electricity-gas and water,
construction, wholesale-retail trade and car repair, hotels
and restaurants, transport storage and communication,
financial intermediaries, real estate and renting services,
social insurance, health and social work, community and
personal services and domestic services) and some of the
SMEs which are not identified particularly are put in
‘Unknown’ and ‘Not stated’ group. According to the
Ministry of National Economy the total number of SME
units registered in Oman in 2009 is 118,386 which are
scattered in four governorates, Muscat, Dhofar, Musandam
and Al Buraimi and five regions, Al Batinah, Al Dhahirah,
Al Dakhliyah, Ash Sharqiyah and Al Wusta. According to
an estimate of HSBC Middle East Bank there are only
15000 to 20000 SMEs in Oman generating only 10-20%
employment (Oman Economic Review 2007). According to
the Oman Ministry of Commerce and Industry, SMEs
represent more than 90% from the total number of
enterprises in Oman. They contribute around 23% of the
gross domestic product (GDP). There are about 118,386
SMEs in the Sultanate with a labour force of 156,135 in the
year 2009 (Ministry of National economy, 2010 and
Ministry of Commerce and Industry, 2010). These estimates
show that there is a significant potential for the SMEs in
Oman to grow in terms of contribution to GDP and
employment, and to be competitive at regional and
international level.
OPPORTUNITIES AND BARRIERS
Government of Oman has established a Sanad
programme to encourage entrepreneurship and develop
SMEs by providing them necessary finance, guidance and
training. From the private sector a number of organisations
are contributing in the growth of SMEs. For example Shell
has established a $10 million Intilaaqah Enterprise Fund to
provide capital and on-going support for SMEs in Oman
(Rafi Ashrafi and Muhammed Murtaza, 2008). In addition,
Business Diagnostic Centre, Youth Fund Projects, and a
proposed PEIE Innovation Centre are all meant for the
promotion of SMEs in Oman. Even then country faces the
problems of economic diversification, employment creation,
income generation and poverty alleviation. The main
strategy to achieve these goals has been the promotion of
entrepreneurship and small business development. Like
other countries the sustainable growth of SMEs in Oman
will also depend on the efficient and disciplined financial
management of the enterprise. There are many published
research including those of Olsen et al (1992); Higgins
(1977) and Babcock (1970) who are strongly of the view
that growth must be viewed in a strategic context of
financial management. They emphasis on a concept which
has been referred to as sustainable, affordable and attainable
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 28
growth. This sustainable growth is defined by Higgins
(1977) as “the annual percentage of increase in sales that is
consistent with the firm’s established financial policies”.
Departments under various governments have enacted
legislation aimed at enabling small and medium enterprises
(SMEs) to get access to funding, technical support, tax
incentives and markets. But these projects get only limited
support in most developing countries (Financial Access,
2010). In Oman too, SMEs have a vital role in energizing
the national economy and supporting big enterprises.
Besides, they provide employment opportunities.
Understanding their importance, the government provides a
lot of incentives and assistance to them. Still, there are some
challenges and constraints that they face. Insufficient
funding is one of the biggest challenges they face in the path
of development and expansion (Directorate of SMEs, 2010).
The role of the Ministry of Commerce and Industry is to
reduce difficulties as much as possible in cooperation with
competent authorities. The Directorate General for the
development of SMEs cooperates with enterprises from the
private sector in order to achieve the desired results in the
short term and long term. The role of the directorate is to
conduct awareness and training programmes for the
entrepreneurs and find alternative funding sources in
coordination with government agencies to resolve the
financing problems faced by these institutions. Before the
inception of any exclusive directorate for the development
of this sector, there were only two units to finance such
projects in the Sultanate; but today all banks have the units
to finance them. Besides, its responsibilities include
introducing appropriate legislation and facilitating a
favourable environment where SMEs can function
successfully and with consistency.
SMEs enjoy a lot of privileges unlike big
companies. One of the main characteristics of these
enterprises is the small investment required. This makes
them less vulnerable to risks. This advantage creates
opportunities for better administrative and technical
development and creates new areas of individual
entrepreneurship and promotes a culture of self-reliance
among the youth. It also reduces the pressure on the public
sector in creating employment opportunities.
SMEs face problems in all parts of the world.
Though the nature of these problems may vary according to
the regions and sectors, there are some common problems
faced by SMEs in all parts of the world. The main constraint
faced by SMEs is the cost of capital, which is reflected
directly on the profitability of such projects. They have to
pay interest at rates which are higher than that paid by large
enterprises. Inflation also affects the prices of raw materials
and labour costs, which will inevitably lead to higher
operation costs. They face competition from large-scale
projects, which limits their ability to raise prices to avoid the
impact of high labour costs and prices of raw materials.
Besides, SMEs find it difficulty in giving guarantees and the
absence of a credit history. Financial institutions are
exposed to a number of risks in the financing of small and
medium projects in various stages of growth.
Other constraints are legal procedures, competition
and scarcity of raw materials. The government provides
incentives and assistance to SMEs, including identifying
investment opportunities available in the Sultanate,
awareness about the importance of SMEs in the
development of local communities providing advice and
guidance to establish economically viable projects and
developing skills of individuals and institutions. The
government supports them by allowing them loans without
interest and helping them in supervision of the projects so
that they would be able to generate profit. It also has
advisory bodies that give ideas for projects, directing the
investor to the appropriate sources of funding and helping
them overcome obstacles.
In spite of the concerted efforts made to promote
the development of Small and Medium Enterprises (SMEs),
their failure is increasing at an alarming rate. The rate of
sickness among the SMEs shows an increasing trend
recently (Directorate of SMEs, 2010). Industrial experts
cited many reasons for these failures but inefficient and
undisciplined financial management and lack of
entrepreneurship were the main reasons for the majority of
failures (World Bank Survey, 2004). Therefore, it is quite
proper to analyse the existing overall management practices
in general and financial management practices in particular
in these SMEs in the light of accepted theories and see how
far these are responsible for their present state of affairs.
To provide an updated appreciation of pertinent
aspects of SME internationalization, the report reviewed the
post OECD-APEC survey evidence on the top barriers,
drivers and support programs across OECD and APEC
member economies and other economies involved in the
OECD enlargement and enhanced engagement processes.
This has yielded important longitudinal insights, thereby
indicating that support programs are appropriately focused
on the most resilient and enduring of the factors affecting
SME internationalization.
Growth of SMEs in Oman shows an increasing
trend for the past few years but at the same time many
SMEs are going sick. The alarming rate of sickness,
especially among the Omani SMEs is due to the lack of
entrepreneurship quality in Omani people. Discussion with
some of the sick small and medium entrepreneurs envisaged
that the alarming rate of sickness was mainly because of
neglecting the financial management sector of the
enterprises. It is very significant that most SMEs could stay
in the industry for a very long time if they could apply
financial management techniques effectively (Zongsheng
Liu, 2010). Proper maintenance of accounts, periodical
analysis of working capital, cash flows, ratio analysis etc.,
will make SMEs financially sound in the economy. But,
since the Omani owner-managers have many duties to carry
out, it was observed that they do not have enough time to
devote to long term planning of the company. Instead, most
of their time is spent on day-to-day operational activities and
in solving the current day’s crisis. Also due to cyclical or
seasonal nature of much small business the amount of
working capital required can vary enormously. SMEs are for
that matter vulnerable to working capital management fiasco
which can degenerate into poor financial management. A
recent study made by Intilaqa identified the following ten
major reasons for the small business failures in Oman (Crew
R. William, 2001); lack of business planning skills; lack of
entrepreneurial focus on the core business; unrealistic sales
projections; inadequate competition analyses; lack of
industry specific skills, experience; insufficient working
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 29
capital management; inadequate financial reporting;
mingling personal and business funds; lack of diverse client
base; borrowing more money than necessary. All these
revealed that the Omani entrepreneurs have not given much
attention on the financial management in general and
working capital management in particular in the business
concern. The professional financial management is
conspicuously absent in Omani owned SMEs.
CONCLUSION
SMEs all over the world have been recognized as
the silent drives of a nation’s economy. Their enterprise is
laudable and their ability to generate pools of growth and
employment, invaluable. This is true for most developed, as
well as developing economies. In the emerging economic
order SMEs are the leading edge when it comes to
innovation and entering new global markets. The SME story
in the Sultanate is not different. SMEs form the backbone of
Oman’s economy. The studies show that SMEs’
contributions towards GDP and employment creation in
Oman is far below when compared to other developed and
developing countries. A number of factors, ranging from the
overall business environment to the availability of an
educated and trained labour force, affect the growth of
SMEs. But lack of access to finance consistently ranked as
the most important obstacles to doing business in Oman.
Many failures in SME sectors reported in the past few years
were due to the absence of efficient management systems
especially the financial management practices in the
enterprises. A study of the management practices of SMEs
of Oman particularly the financial management practices
will give light to the real issues of this sector and thereby
strengthen the very base of the SMEs in Oman.
References: 1. Aldrich, H., and Zimmer, C. (1986).
Entrepreneurship through social networks. In D. L
Sexton, & R. W. Smilor (Eds.). The Art and
Science of Entrepreneurship: 3-24.
Cambridge,Massachusetts: Ballinger Publishing
Company.
2. Al-Lamki, Salma M. (1999). Paradigm Shift: A
perspective on Omani women in management in
the Sultanate of Oman. Advancing Women in
Leadership Online Journal
(www.advancingwomen.com), Spring.
3. Baldwin, J.R., W. Chandler, C. Le, and T.
Papailiadis (2001), Strategies for Success: A
Profile of Growing Small and Medium-Sized
Entreprises (GSMEs) in Canada, Catalogue No.
61-523R. (Ottawa: Statistics Canada.).
4. Crew R. William (2011), Why do Oman’s small
business fail, Ruwad, Jan-Mar 2011, pp 6-7.
5. Dong, Qinghan., & Zhou, Chenxia. (2007). A
Study on Financial Strategies in Small and Medium
Chinese Enterprises. Science and Technology
Information. 5.
6. Financial access (2010), “SME finance: Supply-
side data availability”
7. Huang, Baomei. (2008). Problems and
Countermeasures of Financial Management in
Small and Medium-Sized Enterprises. The Wealth
of Networks. 7.
8. Inno Vest Group (2008) “The Technology Small
and Medium-Sized Enterprises (SMEs) in Middle
East Region”, [online],
http://www.theinnovestgroup.com/43.html [12
March 2008]
9. John Wonderr-Arthur (2000) ‘ Effect of modern
finance on SME, http:// Wziner articles.com/expert
= John_whonderr-Arthur,_Ph.D, Esq.
10. Kamoonpuri, Hasan M. (2004). Success Stories of
Omani Entrepreneurs. Muscat: Sultanate of Oman:
Oman Daily Observer.
11. Khaleej Times (2004). Women Forum to Help
Boost Image of Omani Entrepreneurs. April 14.
12. Khan, SA, Ghosh, AP and Donald A. Myers
(2005) ‘Women entrepreneurship in Oman’
citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1
.123...
13. Lange, T., Ottens, M., and Taylor, A. (2000)
“SMEs and Barriers to skills development: A
Scottish Perspective”, Journal of European
Industrial Training, Vol. 24, No. 1, pp. 5-11.
14. Liu, Zongsheng (2010), Strategic Financial
Management in Small and Medium-Sized
Enterprises, International Journal of Business and
Management, Vol.5 and No.2, pp 132-136.
15. McElwee Gerard, and Al-Riyami, Rahma (2003).
Women entrepreneurs in Oman: some barriers to
success. Career Development International; 2003;
8, 7; ABI/INFORM Global: 339-346.
16. Ministry of Information (2002). Oman 2002-2003.
Muscat: Sultanate of Oman.
17. Ministry of Information (2003). Oman 2003-2004.
Muscat: Sultanate of Oman.(www.omanet.om)
18. Ministry of Manpower (2004). Programs for
training and employment of national labour force,
Muscat: Sultanate of Oman.
19. Ministry of National Economy (2002). The general
framework of the sixth five-year development plan,
2001-2005, Vol. 1. Muscat: Sultanate of Oman.
20. Oman Economic Review (OER) (2003). At a
crossroads. September: 18-40.
21. Oman Economic Review, 2007, “SME Forum –
Making Life Easy”, [online].
http://www.oeronline.com/php/2007_dec/sme_foru
m.php [8 March 2008]
22. Rafi, R. and Murtaza, M. (2008), Use and Impact
of ICT on SMEs in Oman, the Electronic Journal
Information Systems Evaluation Volume 11 issue3
pp125-138.
23. Ren, Jing., & Jia, Xingling. (2007). A Study on
Financial Strategies of Small and Medium-Sized
Enterprises. Chinese Enterprise Accounting in
Villages and Towns. 5.
24. Sameh Amin, “Overcoming obstacles”, SALUTE,
Special issue on the 40th
glorious years of blessed
renaissance, Oman Tribune, 2010. p.49.
25. Times of Oman (2004). Sultanate could become a
‘role model’. December 2.
26. World Bank Enterprise Analysis Surveys (various
years)
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 30
ANNEXURE
Table 1. Barriers ranked by SMEs using the top ten ranking method
Rank – Weighted factor Description of barrier
1 Shortage of working capital to finance exports
2 Identifying foreign business opportunities
3 Limited information to locate/analyse markets
4 Inability to contact potential overseas customers
5 Obtaining reliable foreign representation
6 Lack of managerial time to deal with internationalisation
7 Inadequate quantity of and/or untrained personnel for internationalisation
8 Difficulty in matching competitors‟ prices
9 Lack of home government assistance/incentives
10 Excessive transportation costs
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 31
Female farmer’s view to hand over the ownership
rights of the farming land to daughter-in-law
- A study of Rural Area of Sikkim in North-
Eastern India
Nidhi Dwivedy, Research Scholar at Sikkim Manipal Institute of Technology (SMIT),
Management Department Majitar, Sikkim, India
Abstract
The present study has analyzed the existing information
about female farmer’s view to hand over the ownership
rights of the farming land to daughter-in-law in the rural
area of Sikkim in North- Eastern India and suggested some
points so that the ownership rights in property can be
granted to daughter-in-law. The researcher’s main aim
behind this feeling is that having attained the ownership
rights, they would be willing to work even harder in
farming. In the region despite majority of the population is
dependent on agriculture sector, still it is in the evolving
shape and poses a variety of challenges. The contribution of
women in this noble sector is although enormous yet
invisible and does not get counted for much. Social science
research in the state of Sikkim is inadequate despite several
incentives provided by the state government. Nowadays,
with voluminous amount of public expenditure on women
empowerment schemes, we cannot ignore this issue thus
making it unavoidable to empower them also with the
intention to fully utilize their caliber in this field. Keeping
this in mind, data was collected from 230 female farmers
through interviews using a pre-designed schedule from 24
circles from all the four districts of Sikkim State. Based on
their subjective judgments, female farmer’s views to hand
over the property to daughter-in-law have been measured
and analyzed using the Statistical Package for the Social
Science (SPSS). Some descriptive statistics, such as
percentage, mean, standard deviation as well as one sample
t-test of inferential statistics is used to interpret the data. The
findings of the study revealed that significantly more
number of sample female farmers on an average are
interested in owning property. As far as their views to hand
over the property to daughter-in-law is concerned, the data
shows that no more number of sample female farmers are in
favour of handing over the property to their daughter-in-law.
Results pertaining to these findings have been discussed in
this paper.
Keywords: Female Farmers, ownership rights, farming land,
daughter-in-law, Rural Area, Sikkim.
INTRODUCTION
Women play a distinctive role in shaping the rural economic
activities and earning a livelihood. India is a agriculture
dominated country and most of manual operations like
sowing, weeding, transplanting, harvesting, threshing and
winnowing and even marketing of agricultural produce are
being done by women. Their contribution to the rural
economy is enormous. But the role of women in economic
and social development has not received due recognition so
far in our society. But, efforts are being made by the
Government to give due recognition to their participation by
making various laws time to time in favour of women.
Contrary to the common perception about women in India, a
large percentage of them work (Women of India, 2006). The
National data collection agencies accept the fact that there is
a serious under-estimation of women's contribution as
workers. However, there are far fewer women in the paid
workforce than there are men (Kalyani and Kumar2001). In
urban India Women have impressive number in the
workforce and they are at par with their male counter parts
in terms of wages, position at the work place (Singh and
Hoge 2010). In rural India, agriculture and allied industrial
sectors employ as much as 89.5% of the total female labour
(Asia's women,2006). In overall farm production, women's
average contribution is estimated at 55% to 66% of the total
labour. According to a 1991 World Bank report, women
accounted for 94% of total employment in dairy production
in India. Women constitute 51% of the total employed in
forest-based small-scale enterprises (Asia's women, 2006).
Actuality, the social, economic and cultural conditions of
the area determine women’s participation in home and farm
activities. The nature and extent of women’s involvement in
agriculture, no doubt, varies greatly from region to region
and within a region, their involvement varies among
different farming systems, castes, classes and socio-
economic status. But regardless of these variations, there is
hardly any activity in agricultural production, except
ploughing in which women are not actively involved
(Swaminathan, 1985). In some of the farm activities like
processing and storage, women predominate so strongly that
men workers are numerically insignificant.
However, the Indian Himalayan region (IHR) displays a
different picture in land use pattern and its dependency on
agricultural land. The Himalayan people have traditionally
practiced integrated agriculture, balancing cultivation, agro-
forestry, animal husbandry and forestry. Mountain
geography and inaccessibility have helped maintain agro-
biodiversity; yet commercial agriculture is not as high-
yielding and profitable as in the plains. Here forest is the
major land use pattern, which covers over 52% of total
reporting area followed by wastelands and agricultural land.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 32
However, the dependency on its limited arable land is
marginally higher in the IHR as cultivators and agricultural
labourers together comprise about 59% of total workforce in
the region (Nandy and Samal, 2005).
Some historians believe that it was woman who first
domesticated crop plants and thereby initiated the art and
science of farming. While men went out hunting in search of
food, women started gathering seeds from the native flora
and began cultivating those of interest from the point of
view of food, feed, fodder, fiber and fuel (Prasad and Singh
1992).Women have protected the health of the soil through
organic recycling and promoted crop security through the
maintenance of varietal diversity and genetic resistance.
Therefore, without the total intellectual and physical
participation of women, it will not be possible to popularize
alternative systems of land management to shifting
cultivation, arrest gene and soil erosion, and promote the
care of the soil and the health of economic plants and farm
animals.
FARMING STRATEGIES ADOPTED BY THE
AGRICULTURE DEPARTMENT IN THE STATE
The state has a target of converting it into a fully organic
state by 2015. In this regard, the Department has started a lot
of measures to replace the chemical fertilizers by using bio
fertilizers and organic manures. Effective Microorganism
(EM) technology in production of compost and bokashi and
bio-pesticide is being propagated among the farmers in
technical collaboration with MAPLE ORTECH, Dehradun
to give boost to organic farming in Sikkim. Integrated Pest
Management (IPM) technology is being practiced to control
the pests. Predators are produced in Sikkim State IPM Lab
and are released in the farmers’ field as and when required.
The Government has set up a livelihood school also on
organic farming at Tadong, Gangtok .This is first of its’ type
in the country. Participants will be given 3 months training
on organic farming processes. Trained youths will go to
villages and assist farmers at village level. Popularization of
HYV seeds, production of quality seeds, mixed cropping,
pest management through Farmers Field Schools (FFS),
recycling of farm waste for compost production, soil
reclamation by liming, seed treatment campaign and
integrated farming through watershed approach are some of
the strategies adopted by the Department in the state.
Mechanization has varied connotations. While in the
developed world it tends to be synonymous to automation
but in developing countries, like India especially in hilly
areas, mechanization means any improved tool, implement,
machinery or structure that assists in enhancement of
workers’ output, multiplies the human effort, supplements or
substitutes human labour, avoids drudgery or stresses that
adversely affect human mental activities leading to errors,
imprecision and hazards and eventually loss of efficiency. It
also means automation and controls that assure quality,
hygiene. Agricultural mechanization in a limited sense
relates to production agriculture.
Farming with machinery in Sikkim is almost nonexistent.
However Power operated Thresher, Hand Winnower, Hand
Maize Sheller, Iron Plough and other gender friendly
machineries have been introduced on experimental basis.
Sprinkler and drip irrigation has been taken up on
demonstration basis. Agriculture in the state is mainly rain
fed. Farm mechanization here in Sikkim is meant for
increasing the production and productivity, comfort and
safety, return and profitability to farmer.
DEMOGRAPHIC FEATURES
According to (Census 2011), Sikkim has a total population
of 607 688 persons (which is 0.05 percent of total
population of India) of which 321661are males and 286 027
are females. From the year 1991-01 to 2001-11, decadal
population variation recorded was 33.07 to 12.36
percentages, while India’s figure for the same is 17.64. In
2011 rural population consists of 480,981 people while
urban population consists of 59,870 people. Sex ratio
(females per 1000 males) also known as Gender Ratio, in
the same decade has shown a little improvement i.e. from
875 to 889 but still lags behind India’s, which is 940.
Though population density per sq. km. has increased in the
same decade from 76 to 86 but is much less than national
population density per sq. km. which is equal to 382.
Literacy rate in 2001 was 68.81 which rose to 82.20 in 2011
which is above national average of 74.04 percent. This
decade has seen an increase in male literacy rate from 76.04
to 87.30 as against all India’s rate which is 82.14 and
female literacy rate also shows increased figures i.e. from
60.41 to 76.43 as against all India’s rate of 65.46.
Workers Profile
According to (Census 2001), there are 37,936 cultivators
(About 26,000 of them are small/medium farmers) out of
which 19,725 are males and 18,211 are females in East
district. Of them 37,889 live in rural and only 47 live in
urban area. In rural area 19,701 are males and 18,188 are
females. Total no. of agricultural labourers 8,143 out of
which 4,076 are males and 4,067 are females. Of them 8,110
live in rural and only 33 live in urban area. In rural area
4,056 are males and 4,054 are females.
There are 35,764 cultivators (About 16,000 of them are
small/medium farmers) out of which 20,634 are males and
15,130 are females in West district. Of them 35,762 live in
rural and only 02 live in urban area. In rural area 20,632 are
males and 15,130 are females. Total no. of agricultural
labourers in the district are 4,112 out of which 2,389 are
males and 1,723 are females. Of them 4,110 live in rural and
only 02 live in urban area. In rural area 2,389 are males and
1,721 are females.
There are 9,180 cultivators (About 6,000 of them are
small/medium farmers) out of which 4,831are males and
4,349 are females in North district. Of them 9,173 live in
rural and only 07 live in urban area. In rural area 4,824 are
males and 4,349 are females. Total no. of agricultural
labourers in the district are 2,051out of which 1,045 are
males and 1,006 are females. Of them 2,038 live in rural and
only 13 live in urban area. In rural area 1,033 are males and
1,005 are females.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 33
There are 48,378 cultivators (About 20,000 of them are
small/medium farmers) out of which 24,917are males and
23,461 are females in South district. Of them 48,377 live in
rural and only 01 live in urban area. In rural area 24,917 are
males and 23,460 are females. Total no. of agricultural
labourers in the district are 2,694 out of which 1,252 are
males and 1,442 are females. All of them live in rural and no
one live in urban area. In rural area 1,252 are males and
1,442 are females.
The above data, showed that in all the districts more than
half of the cultivators are small/medium farmers. It was also
observed that almost all of them live in rural areas and equal
number of female participants was sighted as that of men.
RESEARCH METHODOLOGY
Universe or population
The universe or population for the study consisted of total
number of married females in rural areas who are employed
in farming in the state of Sikkim. This formed the pivotal
point of the present research.
Sampling method for selected area of study
Multi-stage stratified random sampling technique of
probability method is used to distribute the population into
circles, revenue blocks and villages, then a combination of
Judgment and Convenience sampling techniques of non-
probability methods is decided upon for this study. Non-
probability methods are of three types, namely Judgment
sampling, Convenience sampling and Quota sampling. The
state has only four districts; so, all of them have been taken
for the study. Initially, under the multistage stratified
random sampling technique- a selection of a tentative list of
circles and revenue blocks from all the four districts was
made followed by a selection of villages to be visited at the
second and a selection of respondents at the final stage. A
final list of the respondents from different farm households
was prepared based on convenience and their accessibility to
the researcher by stratified random sampling.
Sample size
Rural areas from all 4 districts of Sikkim were selected. As
is clear from the table 1 below, though North district
contains maximum area of the State i.e. almost 60%, but it
holds only 7-8% of the population. On the contrary East
district contains only 13% area of the State, but it holds
maximum i.e. 45% of the population. So, for this study,
maximum no. of females for data collection is from East &
minimum are from North. Here, the size of the sampling
female farmers from each district is neither proportional to
the minimum size of the sampling female farmers of the
district nor in the same ratio as is the percentage ratio of
each district to the total population of the state. But the
sample size of each district is just an indicative of the reason
of taking maximum/minimum sampling units from that area.
TABLE 1:- SELECTION OF SAMPLE SIZE
Source- figures extracted from census 2001.
A data collected from a total of 24 circles from all the four
districts in Sikkim has been analyzed. The district wise i.e.
(East, West, North & South) distribution of circles selected
is 6, 6, 4 & 8 respectively. A total of 80 females of farming
community from East, 30 from North and 60 each from
West & South districts have been interviewed. Data for 115
samples (50% of 230), was collected by the researcher
herself, while for rest of 115 samples (40, 30, 15 & 30 from
East, West, North & South respectively), was collected with
the active help and participation of all the village heads.
Data thus collected from 230 married females in rural areas
in the state of Sikkim, employed in farming sector has
become the basis of the Primary Data analysis in this Study.
Data collection and analysis
In order to collect qualitative data, three group discussion
sessions were arranged separately in three villages (Syari,
Sichey and Rawtey rumtek); each group contained 10
participants. During these group sessions, several open-
ended questions were asked from the respondents in order to
collect deeper information about their accessibility to
resources and their participation in different farms and the
related activities along with many hidden facts and factors.
Based on this information, the research instrument i.e.
questionnaire containing dichotomous, multiple choice and
open end questions was designed and a pre-test was
conducted with 18 respondents for its necessary
modification. It was then translated into Nepali also for the
convenience of the farm population. Primary data was
collected by researcher by visiting the farming females of
rural area in Sikkim, using questionnaires. The primary data
was collected between March to September 2011 from all
districts of Sikkim.
Books, journals, reports and internet documents were used
as secondary sources of data supporting or supplementing
the empirical findings of the study.
Distr
ict/
State
Total
area(sq
.km)
%of
tota
l
area
Populatio
n
Concentr
ation
% of
total
Popula
tion
Tot
al
no.
of
circ
le
Total
no. of
circle
s
samp
led
No.o
f
fema
le
samp
le
farm
ers
East 954 13
.5
2,45,04
0
45.3 21 06 80
West 1166 16.
5
1,23,256 22.8 21 06 60
Nort
h
4226 59.
5
41,030 7.6 07 04 30
Sout
h
750 10.
5
1,31,525 24.3 23 08 60
Sikki
m
7096 100 5,40,851 100 72 24 230
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 34
Data analysis
Data has been analyzed using the Statistical Package for the
Social Science (SPSS) and some descriptive statistics, such
as percentage, mean, standard deviation (SD) were used
to interpret the data.
There is only one sample in the study. Ordinal and nominal
level data can be analyzed using parametric statistics;
therefore One-Sample t-test for inferential interpretation of
the data has been run to understand the nature of relation
between the variables. For the inferences of the hypotheses,
Information from literature survey is taken to support some
assumptions. Below are given the few hypotheses.
For views about owning property
Hypothesis Statement – More farming females of rural area
would think of owning property.
Ho – no more number of sample female farmers would
think of owning property.
Ha - more number of sample female farmers would think of
owning property.
For views about handing over the ownership rights of the
farming land to their daughter-in-law
Hypothesis Statement – More farming females of rural area
are in favour of handing over the ownership rights of the
farming land to their daughter-in-law.
Ho – no more number of sample female farmers are in
favour of handing over the ownership rights of the farming
land to their daughter-in-law.
Ha - more number of sample female farmers are in favour
of handing over the ownership rights of the farming land to
their daughter-in-law.
To test these hypotheses, one-sample t-test has been
conducted. The t column displays the observed t statistic for
each sample, calculated as the ratio of the mean difference
divided by the standard error of the sample mean.
The column labeled Sig. (2-tailed) displays a probability
from the t distribution with 229 degrees of freedom df,
calculated as (n-1). The value listed is the probability of
obtaining an absolute value greater than or equal to the
observed t statistic, if the difference between the sample
mean and the test value is purely random. The Mean
Difference is obtained by subtracting the test value, from
each sample mean.
The 95% Confidence Interval of the Difference provides an
estimate of the boundaries between which the true mean
difference lies in 95% of all possible random samples of
230 females. At this level if value of ‘t’ is less than 1.96
and is also negative, then our null hypothesis is accepted
else alternate hypothesis is accepted.
RESULTS AND DISCUSSION
Assessment of female farmer’s views:
Representation for the Parameter:
L and M in the table represents - Feeling about owning
property (L) and Feeling about handing over the ownership
rights of the farming land to their daughter-in-law (M).
TABLE-2-ONE-SAMPLE STATISTICS
N Mean Std. deviation Std. Error Mean
Q.(L) 230 7.37 2.760 .182
Q.(M) 230 3.75 2.804 .185
One sample‘t’-test is conducted to test our hypothesis
TABLE-3-ONE-SAMPLE TEST
Test Value = 2
95%
Confidence
Interval
of the
Difference
t df Sig.
(2-
tailed)
Mean
Difference
Lower Upper
Q.(L) 13.046 229 .000 2.374 2.02 2.73 Q.(M) -6.748 229 .000 -1.248 -1.61 -.88
VIEWS ABOUT OWNING PROPERTY
Parameter Details:
Statistics for views about owning property (L), of Females
Farmers is shown in the Table-2 above. From the table we find
that there are 230 valid scores and value of mean for it is 7.37.
Standard deviation is 2.760 and standard error of mean is
0.182.
Table 4 shows the frequency of sample female farmers for
views about owning property. It shows that, 10% of the
sample female farmers do not think of owning property. But,
90% of the sample female farmers think that they should own
property.
TABLE -4 - FREQUENCY OF SAMPLE FEMALE
FARMERS FOR THE VIEWS (L)
Frequenc
y
Percen
t
Valid
Percen
t
Cumulativ
e
Percent
Vali
d
NO 24 10.4 10.4 10.4
YES 206 89.6 89.6 100.0
Tota
l
230 100.0 100.0
Reasons given by sample female farmers for views to
own property
In favour of the view
(i) Because of the ancestral property, we will feel proud
in owning it.
(ii) When it is in our name, extra pain will be taken to
look after it
(iii) Till today, we have been fulfilling the responsibility
of looking after it nicely and will keep on doing it for ever.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 35
(iv) We can make use of the income derived from it
independently (for the family, animal as well as
agriculture).
(v) We can improve our socio- economic condition
with the money which we have earned.
Against the view
(i) We don’t want to own any property because it is
difficult to manage everything on our own.
Extent of the views about owning property
Table - 5 shows that 06% of the respondents strongly feel
negative about owning property. About 07% of them rated
5 for their view and 05% rated it 4. 06% rated their view for
this question as 6. 32% of them strongly feel positive about
owning property. Since only 24% of the respondents rated
their view for this question up to 5. This shows the
inclination of the view towards positive side. So, we can
say that most of the female farmers admit that they should
own property.
TABLE - 5 -DEGREE OF ANSWER FOR THEIR VIEWS
ABOUT
OWNING PROPERT-Q.( L)
Frequen
cy
Perce
nt
Valid
Perce
nt
Cumulati
ve
Percent
Vali
d
Strong
Negati
ve
1
15 6.5 6.5 6.5
2 4 1.7 1.7 8.3
3 9 3.9 3.9 12.2
4 11 4.8 4.8 17.0
5 17 7.4 7.4 24.3
6 14 6.1 6.1 30.4
7 22 9.6 9.6 40.0
8 37 16.1 16.1 56.1
9 27 11.7 11.7 67.8
Strong
positiv
e
10
74 32.2 32.2 100.0
Total 230 100.0 100.0
Inferential analysis for their views
From the table 3 we find that confidence intervals lie
entirely above 0.0 and also it is positive. The value of ‘t’
for the Females Farmers view about owning property (L) is
13.046, which is higher than 1.96, mean difference column
for it also shows positive values. This is further confirmed
by significance levels which are 0.00 and also by
confidence intervals, both limits of which lie entirely above
0.0 for it. We can safely say that null hypothesis for this
view is rejected and thus alternate hypothesis for it is
accepted, which says that more number of sample female
farmers would think of owning property. Further, we
conclude it by saying that significantly more number of
sample female farmers on an average are interested in
owning property.
VIEWS ABOUT HANDING OVER THE OWNERSHIP
RIGHTS OF THE FARMING LAND TO THEIR
DAUGHTER-IN-LAW
Parameter Details:
Statistics for views about handing over the ownership rights of
the farming land to their daughter-in-law (M), of females
farmers is shown in the Table-2 above. From the table we find
that there are 230 valid scores and value of mean for it is 3.75.
Standard deviation is 2.804 and standard error of mean is
0.185.
Table 6 shows that, 84% of the respondents are in favour of
handing over the ownership rights of the farming land to their
son. Only 10% of them want to hand it over to their daughter-
in-law.
TABLE -6- FREQUENCY OF SAMPLE FEMALE
FARMERS FOR THE VIEWS (M)
Frequen
cy
Perce
nt
Valid
Perce
nt
Cumulati
ve
Percent
Vali
d
SON 192 83.5 83.5 83.5
BOTH 15 6.5 6.5 90.0
DAUGHT
ER-IN-
LAW
23 10.0 10.0 100.0
Total 230 100.0 100.0
Extent of feeling for their views about handing over
the ownership rights of the farming land to their daughter-in-
law
TABLE -7-DEGREE OF ANSWER FOR THEIR VIEWS
ABOUT HANDING OVER
THE PROPERTY TO THEIR DAUGHTER-IN-LAW- (M)
Frequenc
y
Percen
t
Valid
Percen
t
Cumulativ
e Percent
Vali
d
Strong
Negativ
e
1
79 34.3 34.3 34.3
2 25 10.9 10.9 45.2
3 17 7.4 7.4 52.6
4 17 7.4 7.4 60.0
5 34 14.8 14.8 74.8
6 25 10.9 10.9 85.7
7 7 3.0 3.0 88.7
8 4 1.7 1.7 90.4
9 6 2.6 2.6 93.0
Strong
positive
10
16 7.0 7.0 100.0
Total 230 100.0 100.0
Table - 7 shows that 34% of the respondents strongly feel
negative about handing over the ownership rights of the
farming land to their daughter-in-law. About 14% of them
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 36
rated 5 for their view and 07% rated it 4. 11% rated their
view for this question as 6. Only 7% of them strongly feel
positive about handing over the ownership rights of the
farming land to their daughter-in-law. Since 75% of the
respondents rated their view for this question up to 5. This
shows the inclination of the view towards negative side. So,
we can say that most of the female farmers are reluctant
about handing over the ownership rights of the farming land
to their daughter-in-law.
Inferential analysis for their views
From the table 3 we find that value of ‘t’ for Views about
handing over the ownership rights of the farming land to
their daughter-in-law (M) is -6.748, which is negative
which is negative and also less than 1.96. This is further
confirmed by significance level which are 0.00 and also by
confidence intervals, both limits of which lie entirely below
0.0 for it. Mean difference column for it also shows
negative values. Thus there are valid reasons for null
hypothesis to be accepted for it, which says that no more
number of sample female farmers are in favour of handing
over the ownership rights of the farming land to their
daughter-in-law.
Reasons given by sample female farmers for
handing over the ownership rights of the farming land
(a) In favour of son
(i) This tradition is going on since ages.
(ii) During life time as well as after death, it is he only
who has to perform all the rituals.
(iii) He is our blood, so, we can trust him.
(iv) We are sure that he is capable of handling it,
which daughter-in-law may not be.
(v) Whatever is son's property, ultimately that
becomes of daughter-in-law’s also.
(vi) He is the legal heir.
(b) In favour of daughter-in-law
(i) I want to give equal right to daughter-in-law.
CONCLUSION
On the basis of the data collected and analyzed, we
conclude that significantly more number of sample female
farmers on an average are interested in owning property. As
far as their views to hand over the property to daughter-in-
law is concerned, the data shows that no more number of
sample female farmers are in favour of handing over the
property to their daughter-in-law. Results pertaining to
these findings have been discussed in this paper.
SUGGESTIONS
Keeping in view the above mentioned problems/needs of
the area and conclusions derived there from, the researcher
has made a fair endeavor to suggest some points for the
upliftment of the beneficiaries.
In the study area, because of the challenges faced by
farming sector in the hilly region, sons and daughters
decide not to adopt the ancestral occupation of farming.
Future generation plans to settle down in the off-farm jobs
in the cities which are easily available due to mushrooming
of tertiary and secondary sector in the State and also less
challenging than to farming.
At the same time, there is no denying the fact that women
possess a strong innate quality of conservation. With a
proper technical guidance and training this can be
harnessed more efficiently. According to researcher, given
some motivation in the form of ownership rights of the
farm land can give more fruitful returns. Same thing has
been admitted by sample female farmers also when asked to
share their views about owning the property. Given it a try,
it also helps in integrated organic farming which will gel
well with the State policy. At this point, it is suggested that
joint (son and daughter-in-law) ownership rights of the
farms on which they are working can be tried for the
betterment of the farms as well of the socio-economic
condition of the female farmers. Needless to mention here
that women would feel extra enthusiastic to work on the
farms having some ownership rights even harder.
Handing over the ownership rights of the farm to the
daughter-in-law in any patriarchal nation is not very easy
and cannot be at one fell swoop. Because it is a source of
income to the family and a sense of possessiveness and
belongingness is always attached to it. People don’t want to
hand it over to anybody out of their blood relationship; this
very thinking has been observed in the reason given by
sample females for handing over the farming land
ownership rights. But making people aware about the
changing scenario by discussing it in the social gathering
including spouses can be helpful. In these types of
gatherings spouses should also be given a chance to open
up and share their ideas about handling the farming land
assuming them being the owner of the same. This endeavor
can give them a platform for projecting themselves and
instilling confidence in the minds of their elderly
generations about the safety of the hands their farming land
is getting transferred to. The process of handing over the
farm does not happen overnight. There are several issues
that will crop up in this process and should be identified
(like - delegation of different responsibilities along with
their accountability, what happens in case there is a divorce
etc.) and discussed well in advance. Here, the point of
suggestion is if legal binding can be attached to this
attempt, one can find it logical of converting it into
practical. Legal binding can be in the form of automatic
censure of the ownership rights in case of a divorce.
Changing the mindset of people in the society is a gradual
process. Holding the farm in the family for several
generations requires good planning and management skills.
Researcher is of the opinion that combining the experience
of older generation with the younger generation's ideas and
enthusiasm can do wonders.
References 1. "Asia's women in agriculture, environment and
rural production: India". Retrieved 2006-12-24.
2. Sikkim Population Totals of 2001 Census.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 37
3. Census (2011), available at
http://censusindia.gov.in/2011-prov-
results/prov_data_products_sikkim.html
4. Chandrakala Diyali, A Situational Analysis of
Women and Girls in Sikkim, National
Commission for Women, New Delhi available at
http://ncw.nic.in/pdfreports/Sikkim%20Book.pdf
5. Kalyani Menon-Sen, A. K. Shiva Kumar (2001).
"Women in India: How Free? How Equal?".
United Nations. Archived from the original on
2006-09-11. Retrieved 2006-12-24.
6. Muchena, O.N. 1994. The changing perceptions of
women in agriculture. In M.R. Eicher and C.K.
Eicher (eds.), Zimbabwe’s Agricultural
Revolution. Harare, Zimbabwe: University of
Zimbabwe Press.
7. Nandy, S.N. and Samal, P.K. 2005. An outlook of
agricultural dependency in the IHR. ENVIS
Newsletter : Himalayan Ecology 2 : 4-5.
8. Parthasarathy Rao, O; Birthal, P.S; Kar, D;
Wickramaratne and Shreshta, H.R. 2004.
Increasing livestock productivity in mixed crop
livestock systems in south Asia, ICRISAT,
Hyderabad, India
9. Prasad C. and Singh R.P., 1992 .Farm Women : A
precious Resource. in Women in Agriculture, Vol.
2, Education, Training and Development edited by
R.K. Punia, 1992, Northern Book Centre, Ansari
Road, New Delhi.
10. Singh, S., and Hoge, G. (2010). Debating
Outcomes for ‘Working’ Women – Illustration
from India, The Journal of Poverty, 14 (2), 197-
215
11. Swaminathan M S (1985) Imparting rural women
perspective to agricultural research and
development . Report of the Project Design
Workshop on Women in Rice Farming Systems,
held at the International Rice Research Institute,
Los Banos, Philippines, April
12. "Women of India: Frequently Asked Questions".
2006-12-19. Retrieved 2006-12-24.
***
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 38
Merger and Acquisition in the Steel Industry: An
evaluation w.r.t. Tata Corus Deal.
Dr.Sanjay Pandey, Head, Dept. Of Mgmt, Chouksey Engg.College, Bilaspur,(C.G),India. &
Vijay Verma,Head, Training & Development, Hyperlink Education, Durg,(C.G),India.
Abstract
With the shift in a trend of foreign investment from
the developing economies. There is growing concern in the
corporate world that these new merging companies will be
able to carry this merged entity for long or not.
Tata has a emerged as a major player in the global economy.
Considering the humane aspect of Tata they are among the
best practitioner of the same. As per the success of merged
company due diligence is required from both the party
specially the acquire since it is going to impose its cultural,
ethics and values to the acquired entity, which is new to the
letter and may some times tend to follow the negative path,
if not taken due care. As merger and acquisition is same as
inter-caste marriage, which requires due care from parents
from both the sides, same is required in merger and
acquisition deal.
Financial feasibility is one another important matter while
we talk about M&A. By acquiring corus Tata created burden
of 54,000 crores which is huge in terms of liability. This
paper is an attempt to evaluate Tata Corus deal and its
feasibility. India is developing economy and steel industry is
one of the major contributory towards economic
development.
M&A always look excellent on Excel spreadsheet.
Synergies appear, costs are minimized, growth zooms and
sensitivity analysis shows a glorious picture of the company
future. But according to latest HBR article failure rate of
merger and acquisition is 70-80%. It does not matter
whether the companies are large or small. Expected synergy
values may not be realized and therefore the merger is
considered a failure.
Tata Corus is not different from above discussion and
feasibility of this deal is a question mark in view of several
financial experts.
This paper is an attempt to find out future prospect of Tata
Steel after acquisition this study is also going to discuss
about challenge ahead of Tata in the area of cross cultural
management. Financial tools like ratio analysis, comparative
statement analysis and statistical tools like time series
analysis, coefficient of variance etc. have been used.
Introduction
The growth of International merger and acquisition over the
past 20 years has been dramatic. According to a past survey
made by Harvard business review the merger mania of the
1980’s pales beside the merger and acquisition activity of
the 90’s. In 1998 alone 12,356 deals involving US target
were announced for a total value of $ 1.63 trillion. The pace
some how slowed down in the decade of 2000 but in 2004
the number of M&A announcement again jumped by 14.8%.
In the era of Globalization even companies are trying their
level best to survive and acquisition remains the quickest
route to access new market and new capabilities. Many of
motives for international M&A are similar to those for
purely domestic transaction, while other are unique to the
international arena. This motives include growth, to achieve
long run strategic goals, to exploit technological knowledge
advantage, to reduce depends on export, to acquire
technology to obtain assured source of supply, to invest in
safe predictable environment etc. India is growing economy
and not untouched from the worldwide change, it is growing
continuously and lot of development is taking place in
Indian economy. Tata one of the oldest company of India
establish in 1907 and has been contributing continuously in
the development activity of India created history in M&A
on 31st January 2007 by acquiring corus which is
approximately four times in production capacity and became
5th
largest steel company of the world.
This paper is an attempt to evaluate feasibility of Tata Corus
deal and to analyze future prospect of Tata Steel limited in
the Global Scenario.
Research Methodology
The main objective of the study is to analyze feasibility of
Tata corus deal and implication of take over from the
financial point of view as well. This sturdy is also going to
discuss about challenges ahead for Tata in the area of cross-
cultural management. The present study mainly depends on
the secondary data; the data’s were collected for last 9-10
years before acquisition and obtained from site of Tata and
corus. This study has analysed profit margin, revenue, return
on investment, solvency position, turn over and other
financial data of both the companies. In order to evaluate the
performance the financial tools like ratio analysis,
comparative statement analysis and statistical tools like time
series analysis, coefficient of variance analysis, percentage
change analysis have been used.
History of Merger and Acquisition
The 1895-1904-merger movement consisted mainly of
horizontal mergers, which resulted in high concentration in
many industries, including heavy manufacturing industries.
The period was of rapid economic expansion. The
movement peaked in 1899 and almost ended in 1903, when
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 39
a severe economic recession took place combination
completed in the period 1887 through 1904 where estimated
to involve 15% of the total number of plants and employees
comprising manufactures in 1900. The 1922-1929-merger
movement also began with an upturn in business activity
in1922 and ended with the onset of a severe economic
slowdown in 1929. A large portion of mergers in the 1920’s
represented product extension merger as in the cases of
IBM, General foods and allied, chemical, market extension
merger in food retailing, departmental stores, motion
pictures and vertical mergers in the mining and metal
industries. The 1940 to 1947 merger movements were
accompanied by rapid growth of the economy and an
upsurge in merger activity. Lacking in significant changes in
technological and business environment however the merger
movement was much smaller than earlier ones. M&A
activity has increased substantially since the mid 1960’s. A
1967 the total $ value of the corporate M&A was under $20
billion, by 1984 this grew to a total $ volume of $ hundred
billion and by 1998 the $ volume excided one trillion. In the
past few years there have been a large number of
blockbuster M&A that made the past M&A look small by
comparison. For example the merger between citigroup and
travelers group estimated at $ 77 billion in value and
Exxon’s acquisition of Mobil for $ 81429.8 millions. The
size and number of M&A transaction continue to grow
Worldwide.
Literature Survey:
Merger activity has fluctuated through out the periods.
There does not exist and accepted theory which
simultaneously explains motivations behind merger,
character tics of acquiring and acquired firms and the
determinates of the level of aggregate merger activity.
Nelson (1959, 1966) and Melicher, Ledolter and D’ Antonio
(1983) who studied the timing question were not guided by
any general merger hypothesis and only establish links
between merger activity and stock prices, industrial activity
and interest rates. Linkages between merger and the macro
economy have also been studied by becketti (1986). He uses
the FTC large merger series 1948-1979 and the merger the
acquisition magazine data 1979-85. He related the combine
the merger series to a stock price index, the yield on the
three-month treasury bills, the stock of money, the state of
domestic non-financial debt, the capacity utilization rate and
GNP. The result shows the past values of the stock price
index, capacity utilization rates and the stock of dept are
positively, while past values of the T bills rate and GNP are
negatively correlated. Golbe and White (1987) studied the
determinates of merger activity and showed that merger
follow strong auto regressive patterns. Dennis Mueller
(1969) was one of the first authors to discuss merger as a
form of investment only recently has the issue been
considered in depth by George Bittlingmayers 1987 paper
“Merger as a form of investment” begins by characterizing
the decision to merge as an out growth of the decision to
invest. Shugart and Tollison (1984) have been first to put
merger wave hypothesis to rigorous statistical tests.
According to investment opportunity synergy (IOS)
hypothesis a conglomerate merger may achieve benefits if
the expected benefits are greater than the cost, a merger
occurs. Peter F Drucker provided five rules of successful
acquisition: 1) Think what you can contribute to the
business it is buying, not what the acquirer company will
contribute to the acquirer. II) Common core of unity, III)
Temperamental fit, IV) within a year or so, the acquiring
company must be able to provide top management for the
company it acquires and V) within the first year of merger it
is important that a large number of people in management
group of both companies receive substantial promotion. Mr.
P.S. Hariharan considered following reasons for failures and
the pitfalls of merger: a) Poor Strategic fit, b) Cultural and
Social difference C) Incomplete and inadequate due
diligence d) Poorly managed integration, e) Paying to much,
f) Limited focus, g) Failure to get the figures audited, h)
Incompatibility of partners etc.
Few terms defined: -
a) Amalgamation: - is an event or transaction in
which two or more companies, or their net
assets, are brought under common control in a
single legal entity.
b) Merger: - In this case both the combining
companies are dissolved and assets and
liabilities of both companies are transferred to
a newly created company.
c) Acquisition: - In this case only one of the
combining companies survives and other loses
its separate identity. The assets and liabilities
of the acquired company are transferred to the
acquiring company. The acquired company is
dissolved.
d) Horizontal: - It is an amalgamation that takes
place between two companies in the same
time of business.
e) Vertical: - It is an amalgamation that takes
place when a company amalgamates with a
supplier or a customer:
f) Conglomerate: Conglomerate is a diversified
group of companies. In a conglomerate
amalgamation, the amalgamating companies
are in totally unrelated lines of business. The
main purpose of conglomeration is
diversification of risk.
Steel Industry: -
Steel is an alloy of iron and carbon, containing less than 2%
carbon, 1%, manganese and small amounts of Silicon,
Phosphorus, Sulpher and oxygen. Steel Production is 20
times higher as compared to production of all non-ferrous
metal put together and the most important engineering and
construction material in the world. There are altogether
about 2,000 grates of steel. The total output of world crude
steel in 2003 stood at 945 million tones. India is the eight
largest producer of steel. The demand for steel is depended
on the overall health of the economy and infrastructure
development activities. The steel prices in the Indian market
primarily depend on the domestic demand and supply
conditions and International prices. Prices of input materials
for iron and steel such as power tariff, freight rates and coal
prices also contribute to the rise in the input costs for steel
making.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 40
Top five steel companies of world are mentioned below: -
i) Arcelar-Mittal $ 70 Billion (Indian)
ii) Nippon Steel (Japan)
iii) JFE (Japan)
iv) Posco (Korean)
v) Tata-Corus (Indian)
About Tata
Established in 1907, Tata steel is Asia’s first and India’s
largest private sector steel company. Tata steel is among the
lowest cost producers of steel in the world and one of the
few selected steel companies in the world that is EVA +
(Economic Value Added).
Its captive raw material resources and the state-of-the-art- 5
MTPA (million tonne per annum) plant at Jamshedpur, in
Jharkhand State, India give it a has competitive edge.
Determined to be a major global steel player, Tata steel has
recently included in its fold Nat steel, Asia (2 MTPA) and
Millennium Steel (1.7 MTPA) creating a manufacturing
network in eight markets in South East Asia and Pacific
countries. Soon the Jamshedpur plant will expand its
capacity from 5 MTPA to 7 MTPA by 2008. The Company
plans to enhance its capacity, manifold through organic
growth and investments. The Company’s wire
manufacturing unit in Sri Lanka is known as Lanka Special
Steel, while the joint venture in Thailand for limestone
mining is known as Sila Eastern.
Tata Steel’s products are targeted at the quality conscious
auto sector and the burgeoning construction Industry. With
wire manufacturing facilities in India, Sri Lanka and
Thailand, the company, plans to emerge as a major global
player in the wire business.
Future Plans
Steel Plant Projects in India:
The Company has embarked upon setting up three field steel
plants in eastern India :
12 MTPA* plant in Jharkhand
6 MTPA plant in Orissa
5 MPTA plant in Chhattisgarh
Overseas:
At Iran
At Bangladesh
About Corus
Corus in a leading international metal company, which
combines world-renowned expertise with local service. The
headquarters are in London, with four divisions and
operations worldwide. The company has manufacturing
operations in many countries with major plants in the UK,
the Netherlands, Germany, France, Norway and the USA. In
addition, a network of sales offices and service centers spans
the globe. The shares are listed on the London, New York
and Amsterdam stock exchanges.
In 2005 generated turnover of $10.1 billion and produced 19
million tones of steel and delivered over 0.6mt of aluminum.
At the end of December 2005 Corus had 47,300 employees.
From October 2003 Corus has been structured into four
main divisions: Strip Products, Long Products, Aluminum
and Distribution and Building Systems.
Corus was formed on 6th
October 1999, through the merger
of British Steel and Koninklijke Hoogovens. Corus has a
strategy focused around carbon steel, with the intention of :
ensuring that upstream steel making facilities are optimized
and that the leading position of its IJ muiden site is
maintained; pursuing selective growth of downstream
business; seeking opportunities to participate in the ongoing
consolidation of the world’s steel industry.
Tata-Corus Deal: A financial Perspective
Process for acquiring Corus started October 2005 when Tata
shown interest in Corus. On Oct 2006- Tata Group confirms
interest in acquisition, Oct 17-2006 $7.6 billion bid for 455
pence/share announced by Tata, Oct, 20 2006 – Corus board
approved Tata bid, Nov. 17 – CSN made bid of 475
pence/share, November 27, 2006- Corus adjourns extra
ordinary share holder meeting from Dec. 4 to Dec. 20 to
allow CSN more time, Dec. 10 2006 – Tata steel raised bid
to 500 pence / share $ 9.2 billion, Dec. 11 2006- CSN raised
bid to 515 pence/share ($ 9.6 billion), Dec 19 UK Take over
panel sets 30th
January 2007 deadline to male revised offer,
Jan 30 – corus auction started and Jan 31st 2007 Tata outbid
CSN with 608 pence/share $ 12.1 billion (approximately
54,000 crore). Bid was 33.6% over original bid. Tata Steel
will finance this deal through “Own funds and Debts”. $
3.45 Billion by Tata Steel, $ 6.5 Billion from ABN AMRO,
Credit suissee, and Deutsch Bank (Debt financing), $ 1
Billion by Tata sons and rest from additional Credit facility.
But major question is whether deal is feasible far Tata steel?
Tata Steel Committed to investor that they are not going to
exceed outstanding Debt Rs. 20,000 Crore ($ 4.6 billion).
Although FY 06 outstanding debt is Rs. 2500 crore ($ 0.58)
billion but liability of 54,000 crore is very huge. As per last
year performance Tata Corus (combined) turnover was $ 23
billion and PAT $ 1.6 billion and if we extrapolate, It will
rise to $ 25.8 billion and $ 3.4 billion, which is a positive
sign. Total sales of Tata Corus for Fy 06 was $24374
million, EBIDTA $ 3442 million and Net profit 1701 $
million. Tata Steel target is to cross 60 million tonne
capacity up to 2020.
Debt – equity Ratio has decreased from 2.98 to 0.29 from
1996-97 to 2005-06 i.e. by 927%. Which is a very good sign
and authenticate solvency position of a company.
EBTIDA/TO ratio has increased from 21.39% to 40.19% in
last 10 year. Current ratio is now 1.11 (i.e. in 2005-06) and
it was 2.07 in 1996-97. Means NWC requirement has
decreased which is again a very good sign because
dependency for short loan is less and not creates any
technical insolvency. Earning per share has shown
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 41
economics growth of 396% during 10 years. Return an
average capital employed increase from 10.61% (1996-97)
to 40.76% (2005-06), which indicates proper utilization of
funds in the company. Although P/E ratio is showing
downward trend but volatility in the stock market is one of
the reason behind it. Interest coverage has increased from
2.98% to 45.74% during last ten years that clarify potential
of Tata steel towards payment of current liability and
financial expenses. PBT / TO ratio has also shown growth
of 258%. During last ten years, which depicts potential of
operating capacity and technological development.
According to time series analysis (Secular Trend Method),
PAT of Tata Steel in 2010 might raise up to Rs. 5093.346
crores, Rs. 7211.606 crore in 2015 and Rs. 9329.866 in
2020,which will show CAGR (compound annual growth
rate) of 6.74% from 2005 to 2020. Reserve and surplus in
2010 might rise up to Rs. 8998.6639 Crore, Rs. 11348.2889
crore in 2015 and Rs. 13747.9139 in 2020, which will show
CAGR of 2.71%. If Reserve & Surplus increase the Net
worth of the company will increase and it affect Book value
of share in positive mode, again very good indication for
company future. Total production capacity might rise up to
5400.07 (‘000 tones) in 2010, 6304.9884 (‘000 tones) in
2015 and 7329.9047 (‘000 tones) in 2020, which will show
CAGR of 3.22 %. Tata is now having stake in 32 countries
in Steel Industry and definitely production capacity will rise
enormously in the future.
Coefficient of Variance of ROCE of Tata steel is 79.41 %,
which is very high, and it is indicating great volatility in the
return on investment, which is not a positive sign. There is a
requirement of control on such volatility in Tata Steel. Debt
equity ratio of Corus was 0.13 in 1997 and 0.51 in
2005,which has shown increment of 284.61%. Corus
performance in steel is very encouraging in the past few
years and but financial burden on Tata steel will increase.
Profit of Corus was 333 million pound in 1997 and rose up
to 451 in 2005,shown growth of 35%, which is a positive
sign for acquirer. Current ratio has increased from 1.53 to
1.8 from last 10 years and it depict that Corus working
capital management is not appropriate. Either it is holding
high current assets or not able to create payment float.
Current EPS of Corus is 13.69 pence and current market
price is 604.4 pence/share, but this growth took place after
acquisition deal. Current turnover of Corus is 10140 million
pound and same capacity is shifted to Tata steel, which will
definitely increase overall capacity of Tata in production as
well as in profitability. Combined market capitalization is
now $17.5 bn, revenue $23.4 bn, PAT $1.5 bn and EBIDTA
$3.1 bn. Corus total steel capacity is 18.2 mtpa, revenue
$19.36 billion and net income $861 million which is now
under possession of Tata steel. Before the Tata corus deal,
Tata was with a capacity of 4.3 million and now
23.5mtpa.corus cover manufacturing plant in the UK and
Ireland (4), the US (3), the Netherland (1) and the EU (19),
which is now strength of Tata steel. Besides giving the Tata
a leg up in tapping big Europeon market, Corus brings with
it superior technology and a more sophisticated product
range like steel for packaging materials and cars. If Tata
steel, which makes steel like billets and slabs to corus, it
could according to estimates, save nearly $500 million over
three years.
Looking at the financial aspect this deal is going to be one
of the major turnaround in the history of Tata steel and
create enormous growth for merged entity.
Tata-Corus Deal: HR Perspective
Mergers and Acquisitions (M&A) have brought new
concern in the HR perspectives in the present scenario
specifically when we talk of India. Here concern includes
every thing right from the way the acquirer thinks, the way
the acquired thinks, the cultural concern, the long-term
strategy and the politico- demographical concern. As M&A
is nothing but the marriage of two companies to continue
their lives happily thereafter; a greater part of due diligence
is required to make up the deal, in the same way as the
parents of brides and grooms analyses each other’s position
relatively. The marriage occurs between those two a family
for which there is greater possibility of synergies or we can
eliminate the word possibility and strictly say where there is
synergy there will be marriage. And this analysis is done not
keeping in consideration the short-term goal, but this is done
in order to provide the stronger base to the families getting
in to the arrangements and at the end keeping in
consideration the long-term goal. Whichever family fails in
these respects, for them the only way out is to breakup the
sort of contract, which they have formed, and divorce. Thus
before entering such type of contract either parties have to
undergo the tight ropewalk, as it not only involves the
formation of relationship between the individuals, but also
involves the reputation of the family and in turn reputation
of the clan is at stake. Any mistake or any hurry to enter
such type of contract can lead to fatal results as pointed
above.
The important aspect, apart from the financial aspect, which
comes into picture while considering the success of the
M&A outside India, is the cross-cultural aspect. Cross-
cultural factor has considerable amount of effect on the
success of the mergers and acquisitions not only in India but
also across the globe. Taking the same marriage example in
India, if the marriage is between the same caste then the
parents find themselves at least free from the cultural and
value aspect but when it comes to marriage which is not
within the caste but between two different castes then matter
needs to be considered again and again as it is a function of
two different castes with different sets of value and ethics.
The same amount of diligence is required when it is the
merger between two companies, which is countries apart,
with obvious differences in the culture, values and ethics.
There are certain factors which forms the major portion of
the concern scale when we talk about cross cultural aspect
of the Mergers and Acquisition, a brief over view of them
are:
a) Individualism and collectivism
b) Masculinity-Femininity
c) Uncertainty avoidance
d) Power distance
The above factors consider the important aspect when it is
about success rate of any mergers and acquisition as these
factors are going to have substantial amount of effect on the
managers. In that case Indian managers are considered to be
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 42
the HYBRID managers, as they don’t represent single trait
when it comes to managing the individual in the
organization. They have demonstrated their varied skills in
times of taking crucial decision, be it masculinity or
femininity, be it uncertainty avoidance, or be it power
distance. They are ready to accept and are accepting any
kind of thinking unless it is fulfilling their dreams and
vision. And researches have found out that Indian managers
lie somewhere in the middle of scale in every aspect i.e.
they are neither too individualistic nor too collectivistic,
neither they are too inclined towards the uncertainty
avoidance nor they want to have too much of power
distance. These reasons can be responsible for the success
rate of the Indian managers across the world. There is one
more important reason that lays the foundation for the
success of the Indian managers - the availability of the
cross-cultural function or the society in India itself. We all
know that India is a country of diversity. A manager from
southern part of India cannot have the same values as the
manger from the northern part of India. This provides the
learning to organization operating in India to deal with the
cross-cultural variables beforehand and that forms the
positive aspects of many Indian companies. Or in other
words when in the organization they have to face numerous
diversities in the line of thinking or type of personality and
attitude. This diversity provides them first hand experience
for taking the decision in cross-cultural environment.
The above said points clearly hints the cause of success
story of the Indian managers abroad in managing the
business in the cross cultural environment, no doubt without
these competent managers it won’t be possible for any of the
Indian company to taste the success in foreign land.
Now with the given team of competent managers it becomes
very difficult to divert this competent bank towards the
productive direction. Difficult because it requires due
diligence on the part of the company management to utilize
it in a productive way and to have this kind of thinking in
terms of utilization of the resources in the positive way
company needs apt leader to direct it.
Incorporating all the above said points we will be analyzing
the Tata-Corus deal in the HR perspective in the coming
paras.
Tata-Corus merger:
21st century started with some of the biggest mergers in the
history. This can be attributed to the fact that it was the
thirst of the company to grow over the boundary that
propelled the companies to march ahead in the global
scenario, and the only way out left was through mergers and
acquisition. The reason behind this act was identified as the
synergy. It is an obvious reason that if a company wants to
expand its horizon across the borders, it has to complete this
act seeking another company’s help which has already got
its presence in that new country. Again, it is culture barrier
that stops the guest company to flourish in the host country.
But on the other hand this act i.e. merger and acquisition is
equally important as through this act only the company is
going to have the synergy.
With the advent of 21st century Mr. Ratan Tata visualized
this fact that if really the group wants to survive then the
only way left out is start looking out for those companies
through which it can have synergy on one hand and growth
on the other. In order to realize this goal he came out with
certain objectives, first amongst them was to globalize its
operation, so that he can save his companies from the hostile
takeovers by the companies like that of Lakshmi Narayan
Mittal, who had the ambitious plan to enter India. Thus to
achieve this objective the only way left out was to become
aggressive. Aggressive in every respect and in every area;
be it in approach, be it in achieving the target. Thus the
group, which was viewed as risk-averse group, now came
with all together new plans to compete the market. Now that
approach was visible from every step like new product
launch or the marketing strategy.
Thus here Mr. Ratan Tata delivered his leadership skills,
which were not the same as it uses to be. Mr. Ratan Tata,
introvert, media shy, was changed to new Mr. Ratan Tata
who is now more aggressive and shyness and introvert ness
became the word of alien’s dictionary.
Here in the above case Mr. Ratan Tata emerged as the true
leader who can change the strategy according to the
situations and condition prevailing. And this is the real sign
of actual leader as it should be. Real leadership demands
that strategy should be flexible enough to cope up the
changes. As there is good old saying that if with the
changing environment you are not changing yourself then
you will become the Dinosaur, so it is better to be like frog,
which is more flexible to changes in the environment. This
is considered due to the fact that dinosaur became extinct
just because of the reason that they were not prone to
changes according to the changes in the environment. The
frog has saved its existence because of the attribute of
adaptation only. Thus it is the leader’s job to define new
path according to the situation prevailing in the
environment.
Concluding the discussion, we can infer that the kind of
leadership quality that has to be there when someone is out
for merger and acquisition viz. respect for other’s culture,
utilizing the synergy, cross cultured, diversified quality;
Tata possesses that quality and definitely this merger is
going to be amongst the successful merger in the history.
Conclusion:
Looking at the financial as well as hr aspect of this deal it is
very clear that it is boom for Tata Steel. Although liability
of this deal is bit high and cross cultural management is a
concern, but after evaluation it is very clear that Tata steel
will be able to manage liability and a cultural
diversification.
Major objective of the merger and acquisition deal is to
expand, to curtail cost, to become globalize and to survive in
the competitive environment. Merger and acquisition is like
inter caste marriage, which requires bold and courageous
step, Tata did the same.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 43
References:
1 A. Mukherjee and M. Hanif, Modern Accountancy,
vol-II, 2nd edition, 2004, TMH
2 Amartya Sen,The Indian Identity, "The
Argumentative Indian", 2005, Penguin Books
3 Daksesh Parikh with Virshale Dhage and Rajan
Bhatia, " Corus Days Ahead", Business India, Feb 25, 2007
4 Dr. M. Selvam, S. Vanitha and M. Babu, "Merger
and Acquisition in the banking industry: An evaluation",
The Management Accountant, Oct, 2005
5 Hetal Machhi, " Merger and Acquisition", The
Management Accountant, Oct 2005
6 J. Fred Western, K Wang S Chung, Susan E. Hoag,
" Merger, Restructuring and Corporate control", 2005, PHI
7 Mark Heuer, "The Influence of Indian Culture on
Organizations", Management in India, 2006, Response
Books,
Sage Publication
8 Pallavi Rai and Mobis Philipose, " Making Corus
Work " , Business world, 19 Feb., 2007
9 Rakhi majumdar and Nageshwar Patnaik, " Corus
buy not to affect local plans: Muthuraman", Economic
Times,
Benett, Coleman & Co. Ltd, 1st Feb, 2007
10 Ravi Parvan, " Tata Steel breaks into fortune 500",
Economic Times, Benett & Coleman & Co. Ltd, 1st Feb,
2007
11 S. P. Gupta, "Statistical Method", 31st Edition,
2004, Sultan Chand & Sons
12 Study Material of ICFAI, " Introduction to
Quantitative method", 2006
13 Study Material of MCX India Ltd
14 www.corusgroup.com
15 www.tatasteel.com
Annexure
Table – I
Calculation Of PAT (Rs. In crores) by use of Time Series Analysis
x (in years) y (PAT in Rs. Crores) X Xy X2
1997 322.08 -4 -1288.32 16
1998 282.23 -3 -846.69 9
1999 422.59 -2 -845.18 4
2000 553.44 -1 -553.44 1
2001 204.9 0 0 0
2002 1012.31 1 1012.31 1
2003 1746.22 2 3492.44 4
2004 3474.16 3 10422.48 9
2005 3406.38 4 14025.52 16
18009 11424.31 25419.12 60
y=a+bx Where a= 1280.478 b= 423.652
Estimated PAT in 2010
by using y=a+bx, we can have
y= 1280.478+423.652 X 9
y= 5093.346
Estimated PAT in 2015
by using y=a+bx, we can have
y= 1280.478+423.652 X 14
y= 7211.606
Estimated PAT in 2020
by using y=a+bx, we can have
y= 1280.478+423.652 X 19
y= 9329.866
Note: for the sake of convenience 1997-1998 has been considered as 1997 and so on
Table –II
Calculation Of Total sales capacity (in ‘000 tonne) by use of Time Series Analysis
x (in years) y (in ‘000 tonne) X Xy X2
1997 2971 -4 -11884 16
1998 3051 -3 -9153 9
1999 3262 -2 -6524 4
2000 3413 -1 -3413 1
2001 3596 0 0 0
2002 3975 1 3975 1
2003 4076 2 8152 4
2004 4074 3 12222 9
2005 4551 4 18204 16
18009 32969 11579 60
y=a+bx Where a= 3663.222 b= 192.9833
Estimated Sales capacity (in ’000 tonne) in 2012
by using y=a+bx, we can have
y= 3663.222+192.9833 X 11
y= 5786.03
Estimated Sales capacity (in ’000 tonne) in 2020
by using y=a+bx, we can have
y= 3663.222+192.9833 X 19
y= 7329.9047
Note: for the sake of convenience 1997-1998 has been considered as 1997 and so on…
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 44
Table – III
Calculation Of Reserve and Surplus (Rs. In crores) by use of Time Series Analysis
x Y X Xy X2
1997 3697.32 -4 -14789.3 16
1998 3796.45 -3 -11389.4 9
1999 4040.43 -2 -8080.86 4
2000 4380.46 -1 -4380.46 1
2001 3077.99 0 0 0
2002 2816.84 1 2816.84 1
2003 4146.68 2 8293.36 4
2004 6506.25 3 19518.75 9
2005 9201.63 4 36806.52 16
18009 41664.05 28795.52 60
y=a+bx Where a= 4629.3389 b= 479.925
The sake of convenience 1997-1998 has been considered as 1997 and so on
(mean)= 18.581 Standard Deviation = 14.769 Coff. Of Covariance = 79.48%
Table – V
Calculation of CAGR (Compound annual growth rate)
Note: for the sake of convenience 1997-1998 has been considered as 1997 and so on…
Few Examples of World great Merger and Acquisition are given below: -
Ranking Year Buyer Seller $ Billion
6 1987 British Petroleum United Standard Oil, Ohio 7.8
Kingdom
8 1988 Campeau Canada Federated Department 6.5
11 1988 Grand Metropolitan United Pillsbury 5.6
Lands
13 1984 Royal Dutch Shell Netherlands Shell Oil 5.5
15 1988 B.A.T. Ind. United Kingdom Farmers Group 5.2
22 1981 Elf Acquitaine France Texasgulf 4.3
37 1987 Campeau Canada Allied Stores 3.2
51 1981 Kuwait Petroleum Corporation Santa Fe International 2.6
70 1987 Sony Plan CBS (CBS Records) 2.0
89 1988 Private group United Kingdom Koppers 1.7
Estimated Reserve and Surplus (R &S)
in 2012
by using y=a+bx,
we can have
y= 4629.3389 + 479.925 X 11
y= 9908.51
Estimated Reserve and Surplus (R &S)
in 2015
by using y=a+bx,
we can have
y= 4629.3389 + 479.925 X 14
y= 11348.2889
Estimated Reserve and Surplus (R &S)
in 2020
by using y=a+bx,
we can have
y= 4629.3389 + 479.925 X 19
y= 13747.9139
PAT =
(2020/2005) 1/15
-1
(9329.866/3508.38) 1/15
-1
6.74%
Reserve and Surplus = (2020/2005)
1/15-1
(13747.9139/9201.63) 1/15
-1
2.71%
Total steel Production =
(2020/2005) 1/15
-1
(7329.9047/4551) 1/15
-1
3.22%
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 45
Few Recent Example of Indian Mergers are given below: -
Year Indian Acquirer Company Sector Stake Consideration
(%) ($ million)
2006 Aban Loyd Chiles Sinvest ASA, Oil & Gas 33.76 445.6
Offshore Ltd (ALCO) Norway (drilling
Company)
2006 Tata Tea Energy Brands Tea 30 677
USA
2006 ONGC Videsh Petrobras’BC- Oil & Gas 15 1800
-10 block in
Offshore Brazil
2006 Suzlon Energy Hansen Wind 100 588
Transmission, Energy
Belgium
2006 Dr. Reddy Laboratories Betapharm Pharma 100 572
Arzneimittel
GmbH, Germany
2006 Ballarpur Industries Sabah Forest Paper & Pulp 97.78 261
Industries
Malaysia
2006 Tata Coffee Eight O’ Clock Retail 100 220
USA
2006 Indian Hotels Boston Ritz Hotels 100 170
Company Ltd. Carlton, USA
2006 Chemplast Sanmar Trust Chemical Chemicals 100 200
Industries, Egypt
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 46
Assessing the Financial Health of Seed industry in
India – An Application of Altman’s Model
Ms.S.Praveena, Research Scholar, Dr.K.Mahendran, Associate Professor &
Tmt.S.Moghana Lavanya, Assistant Professor,
Department of ARM, CARDS, TamilNadu Agricultural University, Coimbatore
Abstract In the changing scenario, every business strives
hard for its survival and it can only be possible when the
company has sufficient finance to meet out its long-term and
short-term commitments. To meet long-term commitment, it
needs permanent capital and for short-term commitment, it
needs working capital. The performance of the company is
judged by its financial statements, which throws light on the
operational efficiency and financial position of the
company. Due to intense competition among the business
community, everyone is doing something better than the
other to capture the business. Therefore, monitoring the
financial health of a company is necessary and it can be
done by continuous evaluation of its sales and profit. This
paper attempts to investigate the financial health of major
seed companies in India and test whether Altman’s Z score
model can foresee the corporate financial distress of the seed
companies in Indian context for the study period 2005 to
2010. The study was conducted for six private sector seed
companies. The data was collected from Prowess data base
of the CMIE, Mumbai. The study revealed that the seed
industries were in the financially healthy zone during the
period under consideration.
Keywords: Altman model, Bankruptcy, Corporate
distress and Seed industry
I. Introduction
The financial health plays a significant role in the
successful functioning of every firm and poor financial
health threatens the very survival of the firm and leads to
business failures. The recent financial crisis and the ensuing
economic downturn have had a significant impact on the
corporate sector resulting in erosion of corporate
profitability while debt burden has increased. Corporate
failures are a common problem of developing and developed
economies. Failure is not an impulsive outcome and it grows
constantly in stages. There are unique characteristics of
failure in firm's financial levels prior to reaching the levels
of total failures. A protective effort could be made
effectively if the company is foreseen to be proceeding in
the direction of potential bankruptcy and this can help the
company and the stakeholders from facing the painful
consequences of a complete failure.
Agriculture the backbone of Indian Economy still
holds its relative importance for more than a billion people.
The Government of India from time to time has taken
considerable steps for the upliftment of Agriculture Sector.
Unfortunately the ratio between the growth rate of
population and the increase in production of food is really
matching. The Indian seed industry is the eighth largest in
the world with an estimated value of 49 billion and with
an annual growth rate of 12 per cent to 13 per cent against
the 5 per cent global growth rate (India Outlook, 2011). The
expansion of seed industry in India has occurred in parallel
with growth in agricultural productivity over the past four
decades. Both private and public sector companies are
involved in the production of seeds. The public sector
companies comprises of two central corporations, viz.
National Seed Corporation (NSC) and State Farm
Corporation of India (SFCI) and 13 State Seed companies.
The private sector in the seed industry is highly fragmented
with an estimated 300 players and the top 10 companies
account for the 25 per cent of the total volume. An estimated
250 companies operate at an average turnover of Rs. 5
crores annually. The industry has shown a buoyant growth
over the last two years on good monsoons. (
http://seednet.gov.in/material/IndianSeedSector.htm)
Seed is the most important input component for
productive agriculture. The response of all other inputs
depends on quality of seeds to a large extent. It is estimated
that the direct contribution of quality seed alone to the total
production is about 15 – 20% depending upon the crop and
it can be further raised up to 45% with efficient management
of other inputs. In the significant advances that India made
in agriculture in the last four decades, the role of the seed
sector has been substantial. The expansion of seed industry
has occurred in parallel with growth in agricultural
productivity. Given the fact that sustained growth to cope
with increasing demand would depends more and more on
the pace of development and adoption of innovative
technologies, the seed would continue to be a vital
component for decades to come. The organized seed
industry of the country is just forty years old. Yet, its growth
has been phenomenal. The private seed industry is no more
confined to just production and marketing of seed.
To evaluate the financial conditions and
performance of a company, the financial analysis needs
certain yardsticks. Among the variables, tools are employed
in analyzing the financial information contained in the
financial statements. Ratio analysis is a widely used tool,
which is relevant in assessing the performance of a firm in
respect of liquidity position, long term, and solvency. In
addition to this, it helps to predict the financial distress of
the business. An attempt has been made in the present study
to have an insight into the examination of financial health of
the selected seed companies.
Objectives
To predict the financial health and viability of the
selected seed companies in India.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 47
To analyse the efficiency in their financial
operations.
To assess the credit worthiness of these companies.
Hypothesis
All the sample units of the Seed industry are
equally sound with respect to financial health.
Limitations of the study
1. The study is confined to only selected seed
companies
2. The present study covers only a period of five
years
3. The collected information for the present study
relies on secondary data.
I. Review of literature
In 1968, Edward Altman used multiple
discriminant analysis (MDA) to build a bankruptcy
prediction model. Altman made use of five ratios to develop
a Z score which helped in the prediction of the financial
health of a company.
Fulmer (1984) developed a model using multi
discriminate analysis to evaluate forty financial ratios
applied to a sample of sixty companies of which thirty were
successful while thirty failed.
Ben McClure (2004) had confirmed the ‘Z’ score
model through his research study and he concluded that to
keep an eye on their investments, investors should consider
checking their companies’ Z-score on a regular basis. A
deteriorating Z-score can signal trouble ahead and provide a
simpler conclusion than the mass of ratios. Given its
shortcomings, the Z is probably better used as a gauge of
relative financial health rather than as a predictor. Arguably,
it is best to use the model as a quick check of financial
health, but if the score indicates a problem, it’s a good idea
to conduct a more detailed analysis.
Selvam et.al., (2004) made a study to predict the
financial health and viability of India cements Ltd. They
concluded that the cement company under the study was just
on the range of financial collapse. Further, they write that
financial health of cement companies has been subject to
empirical investigation.
Krishna (2005) measured the financial distress of
IDBI with the help of Altman’s Z score model and predicted
that IDBI is not in the health zone and is likely to be
insolvent in the near future.
Dheenadhyalan (2008) adopted Z score to predict
the corporate failure of steel authority of Indian Limited.
The Z score of the SAIL showed a rising trend throughout
the study period and it was concluded that the financial
health of the SAIL was good.
Venkat and Prasad (2009) examined the financial
performance of Eicher Motors Ltd and they concluded that
Eicher motors performance was better than MM.
Theoretical framework Many potential lenders use credit scoring models to
assess the credit worthiness of prospective borrowers. The
credit worthiness of a customer will depend on many factors
that may interact with each other. Edward I. Altman, a
financial economist at New York University’s Graduate
School of Business, developed a model for predicting the
likelihood that a company would go bankrupt. This model
uses five financial ratios that combine in a specific way to
produce a single number, called the Z-score is a general
measure of corporate financial health. The most famous
failure prediction model is Altman’s Z Score Model. Based
on Multiple Discriminate Analysis (MDA), the model
predicts a company’s financial health based on a
discriminate function to the company.
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
Where Z = overall index
X1 = working capital to total assets
X2 = retained earnings to total assets
X3 = earnings before interest and tax to total assets
X4 = market value of equity to book value of total
liabilities
X5 = sales to total asset
TABLE.I Elements of the Altman Z score model
Score Interpretation
Above 3.00 Will not fail Too healthy
1.8-2.99 May or may not fail Healthy Zone
Below 1.8 Failure is certain Bankruptcy Zone
‘Z’ Score components
The Z score is calculated by multiplying the following
accounting ratios, which is efficient in predicting
bankruptcy.
1. X1 (Working Capital/Total Assets): This ratio
expresses the liquidity position of the company towards the
total capitalization. Working capital is defined as the
difference between current assets and current liabilities.
Liquidity and size characteristics are explicitly considered.
2. X2 (Retained Earning/Total Assets): It indicates the
amount to be reinvested, the earnings or losses, which,
reflects the extents of company’s leverage. Firms with high
RE relative to TA have retention of profits and have not
utilized as much debt. It also highlights either the use of
internally generated funds for growth (low risk capital)
versus OPM (other people’s money)-high risk capital. This
is measure of cumulative profitability overtime and leverage
as well.
3. X3 (EBIT/Total Assets): It is the measure of the
company’s operating performance and also it indicates the
earning power of the company. In addition, this is a measure
of the productivity of the firm’s assets, independent of any
tax or leverage factors. Since, a firm’s ultimate existence is
based on the earning power of its assets; this ratio appears to
be particularly appropriate for studies dealing with credit
risk.
4. X4 (Market Value of Equity/Book Value of Total
Liabilities): It is the measure of the long term solvency of a
company. It is reciprocal of the familiar debt-equity ratio.
Equity is measured by the combined market value of all
shares while debt includes both current and long term
liabilities. This measure shows how much assets of an
enterprise can decline in value before the liabilities exceed
the assets and the concern becomes insolvent.
5. X5 (Sales/Total Assets): This is a standard turnover
measure. Unfortunately, it varies greatly from one industry
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 48
to another. In addition to this, it will reveal the sale
generating capacity of the company’s assets and also
measure of management’s capacity to deal with competitive
conditions.
III. Methodology
Period of Study
Sample for six financial years i.e. 2005 - 2010 have
been used for the purpose of present research work. A study
of six years seems to be appropriate for establishing a trend.
Statistical Techniques used
The statistical techniques used to conduct this study
are Ratio Analysis, Multi Discriminate Analysis, and Mean.
Data Collection The study has been made for the companies in seed
sector. This study is based on secondary data, which have
been obtained from PROWESS data base hosted by the
Centre for Monitoring Indian Economy, Mumbai. A sample
of six companies in seed sector was selected for the purpose
of the present study.
IV. Results and Discussions
The financial health of sample units has been
judged through Altman score. The ratios used in calculating
Z – Score in Altman model have been discussed further.
The ratio of working capital to total assets shows
the liquidity position of the company. Working capital is
defined as the difference between current assets and current
liabilities. It could be observed from the table II that the
ratio ranged between 0.20 to 0.45 for the selected seed
companies. Andhra Pradesh seeds, Kumaon seeds and
Unicorn seeds were in a stronger liquidity position
throughout the year (2005-10) and indicated the better
working capital management of these companies. Ajeet
seeds and Zuari seeds have to improve its liquidity position
by investing the current assets in potential investments.
Mahyco seeds got negative working capital to total assets
ratio compared with the other selected companies. This
indicated that poor working capital management of Mahyco
and the company was investing higher proportion of funds
in current assets instead of investing in potential
investments. Low ratio indicated that the companies
suffered from meeting its current obligations.
The ratio of retained earnings to total assets
indicates that how much portion of total assets has been
financed by retained earnings. Higher the ratio, greater the
financial stability of the company at times of low
profitability periods and also it depicts that the company
utilizing its own earnings as cheaper source of finance rather
than debt finance. It could be observed from the table III, the
ratio is quite less for all the selected seed companies. Most
of the companies like Ajeet seeds, Mahyco seeds and Zuari
seeds obtained negative ratio during the period of 2006. This
study showed that these companies have been utilizing more
debt rather than retained earnings. The decreasing trend of
retained earnings during the study period indicated the
unsustainable growth of the seed companies.
The ratio of earnings before interest and tax to the
total assets expresses operating performance and
productivity of the assets is mentioned in table IV. The ratio
varied from 0.01 to 0.25. Unicorn seeds, Mahyco seeds,
Ajeet seeds and Kumaon seeds got higher ratio compared to
other companies like Andhra Pradesh seeds and Zuari seeds.
Andhra Pradesh seeds were in the very low EBIT to total
assets ratio which indicated the poor operating efficiency of
the company and it is unable to operate the fixed assets
properly.
Market value of equity to book value of total
liabilities ratio is used to ascertain the soundness of the
long-term financial policies. Instead of the market value of
equity to book value of total liabilities ratio, debt equity
ratio of the selected seed companies was used for the
analysis. The company having 2:1 equity-debt mix is
considered as quite good. Excessive debt tends to cause
insolvency. Fixed interest paid on debt where as variable
dividend is paid on equity. If debt is more than the equity it
will reduce the profit of the company. Table.V showed that
Andhra Pradesh seeds and Ajeet seeds had strong debt
equity ratio compared to other companies and indicated that
these companies relied more on equity rather than debt.
During selected period, the solvency criterion of these
companies was the best. Unicorn seeds and Zuari seed
companies used medium debt equity mix. The debt equity
ratio of Kumaon seeds and Mahyco seeds was very low and
these companies have to take necessary step to maintain it.
Sales revenue plays a pivotal role in overall
performance of the companies because all the operations are
more or less depend on the sales revenue. Sales to total
assets ratio measures the power of the asset in generating the
sales. The ratio varies from one company to another. The
ratio ranges from 0.89 to 1.05. From the table VI it could be
concluded that Andhra Pradesh seeds, Kumaon seeds and
Unicorn seeds had higher sales to total assets ratio which
indicated the better performance of these companies
compared to other companies. Ajeet seeds and Zuari seeds
got average sales to total assets ratio while Mahyco seeds
had poor ratio indicating the poor financial management of
the firm and optimum utilization of its assets.
The Z score value of the seeds companies are
given in Table VII. The overall Z score value of the seed
companies is 2.83 and it clearly indicated that the seed
sector is in the healthy zone during the period under
consideration. From the table VII, it could be concluded that
Andhra Pradesh seeds and Ajeet seeds got highest Z score
value and indicated that these companies were in the too
healthy condition and it would not fail in the upcoming
years.
Unicorn seeds and Kumaon seeds are in the healthy
zone and these companies may or may not fail. Zuari seeds
and Mahyco seeds got lesser z value indicates that these
companies are the distress zones. These companies have to
improve its working capital position and total assets. The
year 2005 may be considered a successful year for the seed
industry because it reported the highest average ratio of Z-
Score i.e. 3.63.
V. Conclusion
The financial health plays a significant role in the
successful functioning of a company. Poor financial health
leads to business failure. In this study an attempt was made
to determine the combined effect of various financial ratios
with the help of Z-score analysis. Andhra Pradesh seeds,
Ajeet seeds, Kumaon seeds and Unicorn seeds were found
to have a good financial health. These companies have to
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 49
maintain an appropriate balance between the equity and the
debt. Overall seed sector financial health is really good and
positive signs could be seen as these companies
performance is improving year by year and the same is
reflected in the stock market as its stock prices are in the
uptrend. Zuari seeds and Mahyco seeds financial condition
is not healthy because the cut off score of these companies
were below 1.8.
Appendix
Table II. Ratio of Working capital to Total Assets for
selected seed industries
Year
Companies
2005 2006 2007 2008 2009 2010 Mean
Ajeet 0.45 0.33 0.25 0.20 0.01 -0.1 0.19
Kumaon 0.77 0.81 0.84 0.53 0.54 0.53 0.67
Mahyco -0.2 -0.1 -0.1 -0.2 -0.1 0.00 -0.10
Zuari 0.28 0.17 0.14 0.13 -0.17 0.08 0.11
Unicorn 0.74 0.61 0.26 0.12 0.27 0.27 0.38
AP* seeds 0.88 0.85 0.73 0.72 0.65 0.59 0.74
Mean 0.49 0.45 0.37 0.25 0.20 0.24 0.33
*AP – Andhra Pradesh
Table III. Ratio of Retained Earnings to Total Assets for
selected seed industries
Year
Companies
2005 2006 2007 2008 2009 2010 Mean
Ajeet 3.07 -0.3 -0.0 0.01 0.55 0.03 0.54
Kumaon 0.04 0.04 0.03 0.03 0.01 0.01 0.03
Mahyco 0.11 -0.1 0.28 0.43 0.18 0.16 0.18
Zuari -0.1 -0.5 0.00 0.03 -0.4 -0.1 -0.16
Unicorn 0.11 0.07 -0.2 0.12 0.10 -0.2 0.01
AP* seeds 0.00 -0.1 0.01 0.00 0.17 0.01 0.03
Mean 0.53 -0.1 0.01 0.10 0.11 -0.1 0.10
*AP – Andhra Pradesh
Table IV. Ratio of EBIT to Total Assets for selected seed
industries
Year
Companies
2005 2006 2007 2008 2009 2010 Mean
Ajeet 0.41 0.03 0.11 0.13 0.31 0.21 0.20
Kumaon 0.35 0.26 0.27 0.13 0.09 0.09 0.20
Mahyco 0.21 0.05 -0.3 0.23 0.41 0.66 0.21
Zuari -0.2 -0.9 0.23 0.28 -0.7 0.17 -0.16
Unicorn 0.63 1.01 -0.3 0.47 0.46 -0.2 0.34
AP* seeds 0.04 0.05 0.04 0.03 0.06 0.09 0.05
Mean 0.25 0.09 0.01 0.21 0.12 0.17 0.14
*AP – Andhra Pradesh
Table V. Debt Equity ratio for selected seed industries
Year
Companies
2005 2006 2007 2008 2009 2010 Mean
Ajeet 1.46 2.29 2.45 2.59 0.82 0.84 1.74
Kumaon 0.01 0.03 0.03 0.03 0.02 0.02 0.02
Mahyco 0 0 0 0.01 0.01 0.08 0.02
Zuari 1.54 0.00 1.82 1.47 0.00 0.00 0.81
Unicorn 0.23 0.21 0.29 1.18 0.89 2.50 0.89
AP* seeds 4.73 5.02 4.77 4.59 1.40 1.31 3.64
Mean 1.33 1.26 1.56 1.65 0.52 0.79 1.19
*AP – Andhra Pradesh
Table VI. Ratio of Sales to Total Assets for
selected seed industries
Year
Companies
2005 2006 2007 2008 2009 2010 Mean
Ajeet 0.82 0.86 0.58 0.68 0.87 0.63 0.74
Kumaon 1.81 1.75 2.35 2.16 1.42 1.91 1.90
Mahyco 0.21 0.20 0.25 0.69 0.64 0.72 0.45
Zuari 0.74 0.80 0.82 0.95 1.03 0.95 0.88
Unicorn 1.22 1.27 0.74 0.88 0.82 0.80 0.95
AP* seeds 0.89 0.96 1.23 1.23 1.36 1.53 1.20
Mean 0.92 0.89 0.98 1.05 0.99 1.01 0.97
*AP – Andhra Pradesh
Table VII. Z Score value of selected seed industries
Year
Companies
2005 2006 2007 2008 2009 2010 Mean
Ajeet 6.01 2.67 3.25 3.52 2.54 1.45 3.24
Kumaon 2.99 2.89 3.52 2.88 2.09 2.57 2.82
Mahyco 1.03 0.95 0.94 1.15 1.15 1.58 1.13
Zuari 2.26 0.38 3.02 2.85 0.13 1.19 1.64
Unicorn 2.94 3.17 0.78 2.56 2.35 2.83 2.44
AP* seeds 6.54 6.88 6.77 6.57 3.64 3.53 5.66
Mean 3.63 2.82 3.05 3.26 1.98 2.19 2.83
*AP – Andhra Pradesh
Reference [1] Ben McClure. (2004). Z Marks The End. February 11,
[Online] Available: www.investopedia.com
[2] Dheenadhyalan V. (2008), “Financial Health of Steel
Authority of India Limited: A Z-score Approach”,
Indian Journal of Accounting, Dec., Vol.XXXVI
(I),pp.48-52.
[3] Fulmer, John G. Jr., Moon, James E., Gavin, Thomas
A., Erwin, Michael J., 1984 "A Bankruptcy
Classification Model For Small Firms". Journal of
Commercial Bank Lending July : pp. 25-37.
[4] Krishna Chaitanya V. (2005), “Measuring Financial
Distress of IDBI using Altman Z score model”, The
ICFAI journal of Bank Management, August, Vol.IV,
No.3, pp.7-17.
[5] Rao K.V.J.and M.Durga Prasad (2009),”Z score
analysis-A tool to predict Financial Health”, The
Management Accountant,Aug.,pp.608-610.
[6] Selvam M. Vanitha S. and Babu M. (2004), “A study on
financial health of cement industry – “Z” score
analysis”, The Management Accountant, July, Vol.39,
No.7, pp.591-59.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 50
E-Governance in India: Problems, Challenges and
Prospects
Vandana Gupta, Assistant Professor, & Ajay Sharma, Assistant Professor,
Kasturi Ram College of Higher Education, Delhi. India.
ABSTRACT
E-governance has become the key to good-governance in a
developing country like India. To be at par with developed
countries, the Government of India had made out a plan to
use Information Technology extensively in its operation to
make more efficient and effective and also to bring
transparency and accountability. However, for successful
implementation of E-Governance, government officials have
to realize that E-Governance is no longer a matter of choice,
but an absolute need of the day. Cooperation from
government officials and staff will be crucial in realizing the
goals of modernizing this nation through E-Governance.
While the developed countries have been able to benefit
greatly from the wide use of Information Technology, many
developing countries are still grasping to make sense of how
IT fits into their problems. The trend is true in the case of E-
Governance also. In every developing country, E-
Governance has been talked about a lot; some government
offices have even taken innovative steps towards certain E-
Government projects. Since this is a new concept for
government officials who are used to familiar methods of
work, the growth of E-Governance is met with resistance
and fear, among other infrastructural problems. This paper
deals with the problems and challenges of E-Governance,
reasons of E-Government Project Failures, current status of
E-Governance related initiatives in India and future
prospects of E-Governance in India.
Key Words: Accountability, E-Governance,
Implementation, Information Technology, Resistance,
Transparency.
1. Introduction
E-Governance is nothing but use of internet technology as a
platform for exchanging information, providing services and
transacting with citizens, businesses, and other arms of
government. E-Governance provides a sound strategy to
strengthen overall governance. It can not only improve
accountability, transparency and efficiency of government
processes, but also facilitate sustainable and inclusive
growth. E-Governance also provides a mechanism of direct
delivery of public services to the marginal segments of the
society in the remotest corners, without having to deal with
intermediaries. This paper deals with the problems and
challenges of E-Governance, reasons of E-Government
Project Failures, current status of E-Governance related
initiatives in India and future prospects of E-Governance in
India. This paper is based on Secondary Data collected from
various sources like Books, Journals, Reports, News Papers
and websites.
2. E-Governance: Major Problems in India
Countries like India people are poor and infrastructures are
not up to the mark. Under such condition it becomes very
difficult to provide government services to the people. There
are number of reasons for that:
2.1 Poverty: Internet access is too expensive for the poor in
developing countries like India. Installing the necessary
telephone lines needed for internet or email access is equally
unaffordable in most poor countries.
2.2. Technical illiteracy: There is general lack of technical
literacy as well as literacy in countries like India.
2.3 Language Dominance: The dominance of English on
the internet constrains the access of non-English-speaking
population. In the case of India, 95 percent of the population
does not speak English. Due to such overwhelming
dominance of English over these communication channels,
computers and the internet are quite useless in Indian
villages.
2.4 Unawareness: There is general lack of awareness
regarding benefits of E-Governance as well as the process
involved in implementing successful G-C, G-G and G-B
projects.
2.5 Inequality: Inequality in gaining access to public sector
services between various sections of citizens, especially
between urban and rural communities, between the educated
and illiterate, and between the rich and poor.
2.6 Infrastructure: Lack of necessary infrastructure like
electricity, internet, technology and ways of
communications will affect the speed which delays the
implementation.
2.7 Impediments for the Re-Engineering process:
Implementation of E-Governance projects requires lots of
restructuring in administrative processes, redefining of
administrative procedures and formats which finds the
resistance in almost all the departments at all the levels.
3. Reasons of Success or Failure of E-Government
Projects in India
It is a common knowledge that majority of e-Government
projects have failed to yield the potential benefits that are
otherwise possible with deployment of ICT in public sector.
There are enough surveys carried out on e-Government
projects which tend to conclude that many e-Government
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 51
projects fail to achieve the intended objectives / benefits.
Failure rate is high amongst developing countries.
Governments are increasingly under pressure to ‘showcase’
successful projects! The failure of a vast majority of e-
Government projects in developing countries including in
India raises important and serious questions about the
justifiability of the huge investments in financial and human
resources being made in these projects.
3.1 E-Governance Project Failure - Facts and Reasons
(Shown in Table 1)
35 % of e-Government
projects are total
Failures
- Initiatives not implemented
- Initiatives abandoned
immediately
50% of e-Government
projects are partial
Failures
- Main stated goals not
achieved
- Initial success but failure
after an year
- Success for one group but
failure for others
15% of e-Government
projects are successes
- All stakeholders benefited
- No adverse results
Table 1 (Source: www.nisg.org/docs/539_Report.pdf)
3.2 Reasons & Causes of project failures (Shown in
Table 2)
There are a number of reasons for e-Government projects
not doing well or falling short of expectations.
Project
Definition
- Lack of a solid project plan, Undefined
objectives and goals
Scope - Inadequate planning and poor
containment of the project scope
- Meeting end user expectations /
business benefits
- No Change Control System
Cost - Poor project estimations and overruns
of schedule and cost
Time - Unrealistic timeframes and tasks and
lack of prioritization
- Lack of management commitment
Communication - Infrequent communication between
project units and other stakeholders
Quality - Lack of skills, inadequate testing
processes and not meeting expectations
Risk - No authority to overcome impediments
and ignoring project warning signs
- Poor control of outsourcing
Procurement - Vagueness in specifying requirements
leading to undesirable procurement
Human
Resource
- Poor management of expectations,
roles and responsibilities,
- Ineffective resource management
- Lack of organizational support
- Lack of User Involvement
- Stakeholder conflict
Table 2 (Source: www.nisg.org/docs/539_Report.pdf)
4. E-Government Project Management: Issues and
Challenges
E-Government is recognized internationally as an enabler
toward achieving good governance, reducing cost of
operations for the government, and increasing the ability of
citizens and businesses to access public services in an
effective and cost efficient manner. The successful
implementation of e-Government project is a challenging
task
4.1 Some current challenges for managing E-
Government Projects in India
a. Lack of effective project management tools and
methods.
b. Absence of proper planning, various ad hoc tasks
are taken up by the project team due to which the
focus on critical activities is lost.
c. The knowledge of project management concepts is
very low in Government officials forming part of
the e-Government Project team.
d. E-Government projects do not follow any
standardized project management implementation
frameworks.
e. Resources are over loaded with work due to
inadequate staffing. Sometimes tasks not
assigned to the team appropriately.
f. No control of central IT agencies during project
execution. The decision making process is
generally left to individual line ministries and
departments since funding comes from them.
g. No provisioning of Project Management dashboard
for collaborative project monitoring by all
stakeholders in large e-Government projects.
h. Inadequate tracking of how the project is being
implemented, tasks causing delays.
i. No monitoring of Cost and Schedule at project
checkpoints.
j. During the project initiation, the baseline data is
not captured which is useful for bench marking of
activities.
4.2 Some Suggestion / Solutions to the above Challenges
a. Government needs to have their own project
management tools.
b. Project tracking tool should be integrated to the
tasks/ activities of the project and these should be
monitored instead of status reports with only long
text paragraphs being generated for monitoring the
project status.
c. Complete transparency/ work break down/ what are
the issues blocking the project progress should be
provided in the PM tools. Projects should be
tracked through milestone based approach and
evaluation done at various critical checkpoints.
d. Cost, schedule, quality milestones checkpoints
should get included as part of the project
deliverables.
e. Proper baseline study should be performed for
proper monitoring of the project.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 52
f. Automated, outcome-based dashboards should be
used.
g. All the stakeholders must be made aware of the
project deliverables, timelines etc.
5. Current Status of E-Governance in India (Eleventh
Five Year Plan Achievements)
5.1 National E-Governance Plan (NeGP)
National E-Governance Plan (NeGP), comprising of 27
Mission Mode Projects (MMPs) and 8 core and support
components was formulated by the Government, for
implementation across the country with following vision:
“Make all Government services accessible to the
common man in his locality, through common service
delivery outlets and ensure efficiency, transparency &
reliability of such services at affordable costs to realize the
basic needs of the common man.”
5.2 Current Status of E-Governance related initiatives in
India
Significant progress has been made in the implementation of
the core and support components under NeGP. Major
achievements are highlighted below:
5.2.1 State Wide Area Networks (SWANs)
The Government has approved the Scheme for establishing
State Wide Area Networks (SWANs) across the country.
Under this Scheme, technical and financial assistance are
being provided to the States/UTs for establishing SWANs to
connect all State/UT Headquarters up to the Block level via
District/ sub-Divisional Headquarters. As of 31st July, 2011,
the SWANs in 27 States have been operational. It is
expected that all State SWANs would be operational by
March 2012. To monitor the performance of SWANs, the
Department has mandated positioning Third Party Auditor
(TPA) agencies by the States/UTs.
5.2.2 State Data Centres (SDCs)
The State Data Center (SDC) is being implemented across
the country to provide common IT infrastructure to host
Government applications. SDC is one of the three
infrastructure pillars structured under NeGP to facilitate web
enabled Anytime, Anywhere access. SDC is conceptualized
with the objective of providing a common enabling
infrastructure to the States / UTs to consolidate services,
applications and infrastructure to provide efficient electronic
delivery of G2G, G2C and G2B services. Substantial
progress has been made in the SDC project. As of 31st July,
2011, 13 State Data Centres have been declared operational
and more than 3 State Data Centres are expected to be
Operational by 31st August 2011. It is expected that all the
SDCs shall be operational by August, 2012.
5.2.3 Common Service Centres (CSCs)
The CSC Scheme as approved by Government of India in
September 2006 for setting up of 100,000+ (one lakh)
internet enabled centres in rural areas under the National E-
Governance plan (NeGP) is being implemented in a Public
Private Partnership (PPP) mode. The Common Services
Centres (CSC) are proposed to be the delivery points for
Government, Private and Social Sector services to rural
citizens of India at their doorstep. The State Governments
like Andhra Pradesh, Assam, Bihar, Gujarat, Haryana,
Jharkhand, Kerala, Maharashtra, Orissa, Rajasthan, Tamil
Nadu, Uttar Pradesh and West Bengal have issued
Government Orders / Notifications to the various
departmental heads / District Level authorities/ Stakeholders
for use of CSC to deliver various G2C Services. The various
G2C Services offered are: Agricultural services, RTI
Services, NREGA MIS Data Entry service, Postal Products,
Land Records, Issuance of Birth and Death Certificates,
Utility Services, Electoral Services, Transport Services,
Grievances, e-District Services etc.
5.2.4 Electronic Form Application through State Portal,
State Service Delivery Gateway (SSDG)
This project entails delivery of the services through
Common Service Centres (CSCs) by leveraging the
common infrastructure (SWAN, SDC etc.). The project also
envisages the development of the applications and
infrastructure required for deployment of State Portal and
State Service Delivery Gateway (SSDG) for the State. This
will enable citizens to download forms and submit their
applications electronically with help of “electronic forms”
hosted on the State Portal (SP) and routed through a
common services gateway (SSDG/NSDG).
Objective of the e-Form, State Portal & SSDG scheme is
to ensure the following:
a. Providing easy, anywhere and anytime access to
Government Services.
b. Reducing number of visits of citizens to a
Government office / department for availing the
services
c. Reducing administrative burden and service
fulfillment time & costs for the Government,
Citizens & Businesses
d. Reducing direct interaction of citizen with the
Government and encourage ‘e’-interaction and
more efficient communication through portal
e. Delivery of services through Common Service
Centres (CSCs) by leveraging the common
infrastructure (SWAN, SDC etc.) and development
of the applications and infrastructure required for
deployment of State Portal and State Service
Delivery Gateway (SSDG) for the State.
5.2.5 Capacity Building
The Capacity Building Scheme aims to build adequate
capacities in the Government at all levels right from the
decision makers to Panchayat levels in order to successfully
roll out the National E-Governance Plan.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 53
5.2.6 E-District
This project aims at providing support to the basic
administrative unit i.e. “District Administration” by
undertaking backend computerization to enable electronic
delivery of high volume citizen centric government services
which would optimally leverage and utilize the three
infrastructure pillars of SWAN, SDC and CSCs to deliver
services to the citizen at his doorstep. Initially certain high
volume citizen centric services are taken up and thereafter
new services can be added as the demand for more e-
enabled services increase. Under this project, a set of 5
service categories are being implemented in all e-District
Projects. These include (1) Issue of Certificates including
birth, death, domicile, etc., (2) Social Welfare Schemes –
including social welfare pensions (3) Services related to
Revenue Court (4) Ration Card related services (5) RTI
(Right to Information) services including redressal of
grievances.
5.2.7 Citizen Engagement
As more and more projects are getting implemented under
NeGP, an increasing need has been felt for wider and deeper
participation of and engagement with all stakeholders
specially public at large to ensure that citizen centricity is
maintained in all projects. To enable and support this goal, a
Citizen Engagement Framework for e- Governance Projects
has been developed for ministries and departments to
facilitate the voice and space for citizen participation in E-
Governance, especially for the weakest and the most
marginalized sections of society for whom the e-
Governance projects are created to serve the most.
6. Future Prospects of E-Governance in India
6.1 Vision and Objectives of the Twelfth Five Year Plan
(2012-17)
a. To deliver all Government services in electronic
mode so as to make the Government process
transparent, citizen centric, efficient and easily
accessible.
b. To break information silos and create shareable
resources for all Government entities
c. To deliver both informational and transactional
government services over mobiles and promote
innovation in mobile governance
d. To build Shared Service Platforms to accelerate the
adoption of E-Governance and reduce the “cycle
time” of E-Governance project implementation
e. To strengthen and improve sustainability of the
existing projects through innovative business
models and through continuous infusion of
advanced technology
f. To promote ethical use of technology and data and
to create a safe and secure E-Governance cyber
world
g. To create an ecosystem that promotes innovation in
ICT for Governance and for applications that can
benefit the citizens
h. To better target the delivery of welfare schemes of
the Central and State Governments
i. To reduce asymmetry in information availability,
accessibility and ability to utilize the information
j. To increase the all round awareness and create
mechanisms that promotes and encourages citizen
engagement.
k. To make available as much data as possible in the
public domain for productive use by the citizens
6.2 Major Recommendations for the Twelfth Five Year
Plan
The brick and mortar models of development have
limitations with respect to reaching the last mile of our
population. Information Communication Technology
offers an efficient and speedier solution to deliver
public services in a transparent and reliable manner to
every citizen through ICT needs to be leveraged in
every aspect of governance. DIT has been able to build
the core E-Governance infrastructure (Data Centers,
State Wide Area Networks, Common Services Centres
(CSCs), Mobile Service Delivery Platform) across the
country during the 11th Plan which will continue in the
XII Plan so as to bring it to its logical conclusion. Also,
the focus of the XII Plan will be on leveraging to
catapult India in the top quartile of HDI ranking
through quantum improvements in the delivery of
Public Services. This will also bring in process
efficiency, accountability and transparency.
6.3 Targets of the Twelfth Five Year Plan (2012-17)
a. A National Institute for E-Governance (NIG)
would be setup as an autonomous State of the Art
National Institute. NIG will also train at least 50
employees from Central Government per year on
Project Management Certification.
b. An E-Governance Innovation and R&D Fund will
be created to give adequate impetus to innovation
in E-Governance and M-Governance
c. Electronic Delivery of Services (EDS) Bill will be
implemented. Assistance will be given to every
Central Government Department in delivering at
least one Service in electronic mode and every
State Government in delivering at least three
Services in electronic mode apart from the services
which are already identified in the MMPs under
NeGP.
d. Shared Services Platforms for e-Payment, GIS, call
centre, etc. will be created.
e. An apps store will be created to promote
development of large scale E-Governance and M-
Governance applications
f. M-Governance platforms and frameworks will be
created to enable delivery of public services
through mobile devices
g. At least one person per family in 50% of the
families will be targeted to provide basic IT
training in the XII Plan period.
h. Cyber Security will be a major focus area during
the Twelfth Five Year Plan Period.
www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 09, July-2012 Page 54
i. Existing SWAN, SDC, NSDG/SSDG, India Portal,
CSC Schemes will be rolled out and maintained in
all States/UTs. These schemes would be further
augmented and technologically upgraded.
j. The e-District MMP will be implemented in all
districts.
k. Training on Basic IT Skills will be introduced
systematically for the existing and all new entrants
into Government service.
7. Conclusion
E-Governance enhances the relationships between G2G,
G2C, G2B, C2G and B2G using ICT. Thus, E-Governance
not merely provides information about various activities of a
Government but also involves citizens to participate in
government’s decision making process. During the last few
years, many initiatives have been taken by different state
governments in India for using IT as a tool in the
functioning of Government so as to provide better services
to citizens. In this paper we have made an attempt to
summarise key areas which should be focused upon when a
country wishes to position itself to be seriously moving
towards E-Governance in a comprehensive way. This is a
change, a transition that cannot be stopped since it is part of
a global movement. Cooperation from government officials
and staff will contribute to a smoother transition. Given the
current high level of political commitment and largely
adequate sources of funding, India is likely to soon emerge
as a leader in E-Governance.
References:
1. Bingham Lisa Blomgren (2006), “The New Urban
Governance: Process for Engaging Citizens and
Stakeholders”, Review of Policy Research, Vol. 23,
No.4, pp. 815-826, available at
http://onlinelibrary.wiley.com/doi/10.1111/j.1541-
1338.2006.00234.x/full
2. Chadwick A (2009), “Web 2.0: New Challenges
for the study of E-Democracy in an Era of
Informational Exuberance”, I/S: A Journal of Law
and Policy for the Information Society, Vol. 5, No.
1, pp 9-42.
3. Fang Z (2002), “E-Government in Digital Era:
Concept, Practice and Development”, International
Journal of the Computer, the Internet and
Management, Vol. 10, No.2, pp. 1-22.
4. Dey, Bata K. (2000), “E-governance in India:
Problems, Challenges and Opportunities – A
Futures Vision”, Indian Journal of Public
Administration, Vol. XLVI, No. 3.
5. Prabhu, C S R. “Cost Effective Solution for
Effective e-Governance/ e-Panchayat (Example of
Exemplary Leadership and ICT Achievement of the
year)”, available at http://www.csi-
sigegov.org/3/28_284_3.pdf
6. Singh, S K. (2008). “Panchayati Raj and Good
Governance”, Centre for World Solidarity, Hyderabad.
7. Verma R.K., Kumari A. (2010) “E-Governance at
Grassroots Level in South Asia: A Study of
Citizen-centric e-Panchayats in India”. Asia-Pacific
Journal of Rural Development Vol. XX, No. 1
8. Report of the Working Group on Information
Technology Sector Twelfth Five Year Plan (2012 –
17), available at
http://planningcommission.nic.in/aboutus/committe
e/.../cit/wgrep_dit.pdf.
9. Diwedi S.K., Bharti A.K. “E-GOVERNANCE IN
INDIA – PROBLEMS AND ACCEPTABILITY,
Journal of Theoretical and Applied Information
Technology available at www.jatit.org.
10. Kochhar, S., G. Dhanjal (2004). “From governance
to e-governance: An initial assessment of some of
India’s best projects, Technical Report, New Delhi:
Skoch Consultancy Services.
11. “National e-Governance Plan”, Ministry of
Communication & Information Technology,
Government of India, available at
http://www.mit.gov.in/content/national-e-
governance-plan
12. “Mission Mode Projects”, Ministry of
Communication & Information Technology,
Government of India, available at
http://www.mit.gov.in/content/mission-mode-
projects
13. NISG, PMI, Grant Thornton India (2011), “Project
Management in
E-Governance: Issues & Challenges in navigating
to the New Normal”, available at
www.nisg.org/docs/539_Report.pdf
***