up/eng/2011/36701 issn: 2231-6353 hermeneutics · 2020. 8. 12. · hermeneutics: a biannual...
TRANSCRIPT
RNI – UP/ENG/2011/36701 ISSN: 2231-6353
A Biannual Refereed International Journal of Business and Social Studies
Volume 04 Number 01 March 2014
HermeneuticS
A Publication of Youth Empowerment and Research Association
Varanasi (U.P.) India
RNI – UP/ENG/2011/36701 ISSN: 2231-6353
HermeneuticS
Contents
Title of Paper Author (s) Page
No. Trends in Foreign Institutional Investment in India
Vartika Khandelwal 1
Child Immunization in Uttar Pradesh: An Assessment of Impact of Socio Demographic Variables
Brijesh P. Singh Sonam Maheshwari
7
Business Ethics and Green Marketing Initiative: A Global Prospective
Sarika Sharma & S. Prakash 10
Technological Intervention in Traditional Farming: Indian Context
Neeraj Singh 16
Cross-Border Capital Flows- Future Prospects of India
Subasish Mohanty 20
An Efficacy of the Doha Development Round and It’s Implications For the
Developing Countries
S.K Tannan, Md. Athar Ali
& Panna Lal
24
Self- Help Groups: An Important Tool for Empowerment of Women
Arpita Chaturvedi 27
Direct Cash Transfer Subsidy in India: Suggestions for Improvement
Meera Singh 32
Dupont Analysis of Return on Equity of Indian Banking Sector
Ajay Pratap Yadav, Awadhesh Kumar Tiwari &
Manish Kumar
37
Performance Review of Regional Rural Banks in India –With Special Reference
to Jharkhand Gramin Bank
Alok Kumar
43
An Assessment of Financial Performance of Gold Loan Nbfcs
Hariom Divakar 47
Carbon Sequestration- Economic Tool Against Environmental Pollution
Singh Ahuti 53
Challenges and Opportunities of Insurance Sector Towards Economic Development
Rahul Kanojia
57
The Importance of Locational Attributes: A Study of Independent Small Scale
Retailers
Vivek Kumar Pathak,
Chandan & MadanLal
60
Role of Corporate Governance in Sustainable Development
Triveni & Rajan 63
Human Resource Accounting –A Case Study of Infosys Technologies
Shweta Jaiswal 68
Convergence With IFRS: Context of India
Kishore Kumar Shah 73
Business Education and Ethics
Pushpraj Singh 77
A Review of Government Accounting in Indian Context
Ravish Chandra Verma 82
Corporate Blog: Creating Public Relations
Nilanjana Kumari 86
A Biannual Refereed International Journal of Business and Social Studies
Volume 04, No. 01, March 2014
A Publication of Youth Empowerment and Research Association Varanasi (U.P.) India
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 1 ISSN: 2231-6353
TRENDS IN FOREIGN INSTITUTIONAL INVESTMENT IN INDIA
Vartika Khandelwal *
ABSTRACT The Indian economy was liberalised following the Balance of Payment (BOP) crisis in the year 1991. After the launch of the reforms in the year 1991, there was a gradual shift in capital flows from debt to non-debt creating flows. The Government of India therefore, adopted the policy of encouraging foreign investment coming into the country. Foreign institutional investors
(FIIs) were allowed to invest in India from September, 1992 and foreign institutional investment (FII) since then have become an important source of foreign investment to India. In the light of this increasing significance of foreign institutional investment (FII) inflows to India, this paper tries to identify the trends associated with FII inflows to India in order to have a better understanding about the nature of these flows coming to India.
INTRODUCTION
The relationship between financial openness and
economic growth has been well established in the
existing literature. Financial openness has been
considered as a catalyst for economic growth; at the same time the possibility of feedback relationship
between the two cannot be denied. One way of
achieving financial openness is to encourage foreign
investment in the country. The increasing interlinkages
and liberalisation of financial markets have made the
emerging economies to embrace foreign capital.
Foreign investment plays an important role in the long
term economic development of a country by
augmenting availability of capital, raising productivity,
providing foreign exchange, meeting current account
deficit etc.
In the wake of economic liberalisation policy initiated
in 1991 in India, the Government of India has also
taken several measures to encourage foreign
investment in India, both direct and portfolio. In fact,
India has now become an attractive destination for
foreign investors owing, among other factors, to its
high potential for economic development. The foreign
investment in India as a percent of GDP has grown
from 0.05%in 1991-92 to 2.4% in 2004-05 and further
to 3.86% in 2010-11. The Foreign Direct Investment
(FDI) for the same period has increased from 0.05% to 1% and further to 1.9% whereas the percentage of
Foreign Portfolio Investment (FPI) to GDP was
negligible in 1991-92 which increased to almost 1.5%
in 2004-05 and to 2% in 2010-11(RBI, 2011).
FOREIGN INVESTMENT
Foreign Investment refers to investments made by
nationals of a country in financial assets and production
process of another country. Foreign investments in India
can take the form of investments in listed companies (FII
investments); investments in listed/unlisted companies other than through stock exchanges (Foreign Direct
Investment, Private Equity / Foreign Venture Capital
Investment route); investments through American
Depository Receipts / Global Depository Receipts
(ADRs/GDRs) or investments by Non Resident Indians
(NRIs) and Persons of Indian Origin (PIO) in various
forms (ISMR, 2011). It can be more simply classified
as: Foreign Direct Investment (FDI) and Foreign
Portfolio Investment (FPI).
FOREIGN INSTITUTIONAL INVESTORS The most significant part of investment through
portfolio inflows comes in the form of Foreign
Institutional Investment (FII) which is undertaken by a
category of investors called Foreign Institutional
Investors (FIIs). These institutional investors are
specialized financial intermediaries managing savings
collectively on behalf of certain investors towards
specific objectives in terms of risk, returns, and
maturity of claims. Formally, the term foreign
institutional investor has been defined by Securities
and Exchange Board of India (SEBI) under its (Foreign
Institutional Investors) Regulations, 1995 as: "an institution established or incorporated outside India
which proposes to make investment in India in
securities.‖ It also includes investment by a sub-
account. The entities those are eligible to get registered
in India as FIIs includes pension funds, mutual funds,
banks, university funds, foundations, etc.
IMPACT OF FOREIGN INSTITUTIONAL
FLOWS ON RECIPIENT ECONOMY
Benefits of FII
According to Pal (2006), mainstream economists suggest that the FPI can benefit the real sector of an
economy in three broad ways. First, the inflow of FII
can provide capital scarce developing countries like
India a non-debt creating source of foreign investment.
The inflow of portfolio investment can supplement
domestic saving for improving the investment rate. At
the same time by providing valuable foreign exchange
to the developing countries, FPI also reduces the
pressure of foreign exchange gap for countries like
India, thus enabling them to make the imports of
necessary investment goods easy. Second, it is suggested that increased inflow of foreign capital
increases the allocative efficiency of capital in a
country. The flow of resources into the capital-scarce
countries reduces their cost of capital, increases
investment, and raises output. The third and probably
the most important way by which FII affects the host
*Assistant Professor, Shri Ram College of Commerce, University of Delhi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 2 ISSN: 2231-6353
economy is through linkage effects via the domestic
capital market. Purchases by FIIs give an upward thrust
to the domestic stock market prices which has a
positive impact on the price-earning ratios of the firms.
A higher P/E ratio leads to a lower cost of finance,
which in turn can lead to a higher amount of investment.
Costs of FII First, a major concern relates to the sustainability of
such inflows. Since the basic motive of these flows is
profit, they are always prone to sudden withdrawals.
That is why the terms such as hot, reversible, short
term are therefore often used to describe portfolio
flows. Rangarajan (2000) says that the problem with
this nature of volatility of portfolio inflows is that if
capital inflows are volatile or temporary, the country
will have to go through an adjustment process in both the real and financial markets, which later will have to
be reversed. This reversal will be having some costs.
As the exchange rates, interest rates and share prices
become volatile due to sudden surges in inflows and
outflows, there is a rise in amplitude of fluctuations in
output and employment; producers become wary of
investing or entering into any long-term commitment;
and economic activities get seriously distorted. It is for
this reason that FPI in the form of FIIs and other easily
reversible capital flows pose serious obstacles to
monetary and fiscal authorities in attaining the twin objectives of macrostabilisation and growth (Rakshit,
2006). Second, there is also a problem of herd
behaviour and positive feedback trading with these
inflows which makes these flows volatile. FIIs are
driven mostly by short-term expectations, characterized
by ―herd‖ behaviour and prone to be volatile. Herding
refers to a situation where all investors act in a similar
manner, that is, large number of FIIs buy or sell
together. If the FIIs follow such kind of herd
behaviour, then there are sudden large inflows or
outflows from the recipient countries, sometimes with
no reason whatsoever. Feedback trading refers to investors‘ reaction to recent changes in equity prices. If
a gain (fall) in equity values tends to bring in more
(lesser) portfolio inflows, it is an instance of ‗positive
feedback trading‘ while a decline in inflows following
a rise in equity values is termed ‗negative feedback
trading‘. In a country like India where stock markets
are very thin, changes in the stock markets need not
necessarily imply changes in the macroeconomic
fundamentals of the country. If FIIs purely rely on the
stock market returns then there can be sudden inflows
and outflows without any significant changes in macro situation.
RATIONALE OF THE STUDY The foreign institutional investors (FIIs) were allowed
to invest in the domestic financial markets from
September 1992. The, FII investment however started
flowing into India in 1993. And since then, FII inflow
to India grew many times from US$0.20 million (net,
monthly) in January 1993 to about US$390 (net,
monthly) million1 within a year‘s time. Over the past
ten years or so, India has gradually emerged as an
important destination of global investors‘ investment in
emerging equity markets. The cumulative FII
investment (purchases) in India since November 1992 till end of November 2012 stood at around Rs.
6380223 crores while the net investment for the same
period stood at around Rs. 701680.12 crores. The total
number of registered FIIs was 1752 till the end of
November 2012 and the total number of Registered
Sub-accounts was 6306 on the same date
(www.sebi.gov.in). FII investments as a percentage of
market capitalization increased from 1.52 per cent in
1993-94, to 12.96 per cent in 2000-01 and further to
14.51 per cent in 2010-11 (SEBI, 2011). The gross
turnover of FIIs in the equity market segment on the
Indian stock exchanges (the NSE and the BSE) accounted for Rs.14,330,091 million in 2010–2011,
which marked a year-on-year growth of 12.39 percent.
The total turnover of the FIIs in the equity market
constituted 15.30 percent of the total turnover on the
BSE and the NSE in 2010–2011, an improvement from
11.56 percent recorded in 2009–2010 (ISMR, 2011).
However portfolio flows in the form of FII tend to be
volatile and the sudden flight of this form of
investment can have adverse consequences on the
recipient country‘s economy as happened in the East
Asian crisis and Mexico crisis. Given this volatile nature and the importance of FII inflows in the Indian
economy, the present study aims to analyse the trends
associated with FII inflows to enable a better
understanding of the FII flows coming to India.
TRENDS IN FOREIGN INSTITUTIONAL
INVESTMENT
1. Investment (inflows, outflows and net) by FIIs
The participation of FIIs in the Indian markets was
allowed from 1992-93. Initially it started with a net
investment of 4 million US dollars. But from 1993-94
onwards the FIIs have been net positive investors except for the years 1998-99 and 2008-09. These two
years are the years of the two financial crisis, East
Asian Financial crisis of the year 1997 and more recent
Global financial crisis of 2008.
Table 1 presents the gross purchase, gross sales and net
investment by FIIs for the year 1992-93 to 2010-11. The
table shows that FIIs made a record investment in the
Indian equity market in 2010-11, surpassing the inflows
in any of the previous years. The gross purchases of debt
and equity by FIIs increased by 17.3 percent to
Rs.9,92,599 crores in 2010-11 from Rs.8,46,438 crores
in 2009-10. The combined gross sales by FIIs also
increased by 20.2 percent to Rs.8,46,161 crores from
Rs.7,03,780 crores during the same period in previous
year. The total net investment of FII was Rs.1,46,438
1 www.sebi.gov.in
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 3 ISSN: 2231-6353
crores as compared to of Rs.1,42,658 crores in 2009-10.
This was the highest net FII investments into Indian
securities market in any financial year so far. The
cumulative net investment by FIIs as on May 2012 stood
at around Rs. 6,26,798.19 crores.
Table- 1: Investment by FIIs
Year
Gross
Purchases/Inflows
(crore)
Gross
Sales/outflows
(crore)
Net
Investment
(crore)
Net Investment
(US $ mn.)
Cumulative
Investment
(US $ mn.)
1992-93 18 4 13 4 4
1993-94 5,593 467 5,127 1,634 1,638
1994-95 7,631 2,835 4,796 1,528 3,167
1995-96 9,694 2,752 6,942 2,036 5,202
1996-97 15,554 6,980 8,575 2,432 7,635
1997-98 18,695 12,737 5,958 1,650 9,285
1998-99 16,116 17,699 -1,584 -386 8,899
1999-00 56,857 46,735 10,122 2,474 11,373
2000-01 74,051 64,118 9,933 2,160 13,532
2001-02 50,071 41,308 8,763 1,839 15,372
2002-03 47,062 44,372 2,689 566 15,937
2003-04 1,44,855 99,091 45,764 10,005 25,943
2004-05 2,16,951 1,71,071 45,880 10,352 36,294
2005-06 3,46,976 3,05,509 41,467 9,363 45,657
2006-07 5,20,506 4,89,665 30,841 6,821 52,478
2007-08 9,48,018 8,81,839 66,179 16,442 68,919
2008-09 6,14,576 6,60,386 -45,811 -9,837 59,082
2009-10 8,46,438 7,03,780 1,42,658 30,253 89,335
2010-11 9,92,599 8,46,161 1,46,438 32,226 1,21,561
Source: Annual report, SEBI. 2010-11
Figure 1 (based on table 1) shows that despite of the
high purchases by FIIs, the net investment has remained flat. This accounts for the fact that the FIIs
sales have also been high. This implies that the pace at
which FIIs invest in Indian markets, they also
withdraw their money at an equal pace as a result of
which the net investment remains small in comparison
to the gross inflows.
Fig- 1
Gross Purchases and Net Investment by FIIs
2. Number of FIIs registered in India
The FII in India is undertaken by the entities/ individuals that are registered as FIIs in India. Thus it
becomes important to have a look at the number of FIIs
registered in India. This is to identify whether the
increasing investment is also being accompanied by an
equivalent increase in the number of FIIs.
Table 2 shows the number of FIIs registered with
SEBI. From a small figure of 18 in 1993, the FIIs
registered with SEBI have increased tremendously and
as on December, this number stood at 1767. Except for
the years 1999 and 2002 there has been an addition in the number of FIIs willing to get registered in India to
invest in Indian markets. This increasing trend can be
taken as an increased preference by FIIs to consider
India as a desirable investment location.
The number of increasing FIIs also corresponds to the
increasing cumulative investment in India (in million
US dollars) by these FIIs.
Figure 2 show that both FIIs and cumulative
investment shows an increasing trend. In fact the year recording highest net investment by FIIs is same as the
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 4 ISSN: 2231-6353
year recording the highest number of FIIs registration
which is the year of 2011.
Table- 2
No. of FIIs registered with SEBI
Year
(as on 31st March ) No. of FIIs Cumulative FIIs
1993 18 18
1994 158 176
1995 308 484
1996 367 851
1997 439 1290
1998 496 1786
1999 450 2236
2000 506 2742
2001 527 3269
2002 490 3759
2003 502 4261
2004 540 4801
2005 685 5486
2006 882 6368
2007 997 7365
2008 1319 8684
2009 1635 10319
2010 1713 12032
2011 1722 13754
Till Dec 2011 1767 15521
Source: Handbook of Statistics on Indian Securities
Market, SEBI, 2011
Fig- 2
Number of FIIs and Cumulative Investment by FIIs
Another interesting feature about the FIIs registered in
India is the country of affiliation, that is to say the
countries of origin/source of FIIs. Table 3 and figure 3
presents the source countries of FIIs registered in India.
As on March 31, 2006, SEBI had registered FIIs from
37 countries. The highest number of FIIs, as on March
31, 2006, was from the USA (342), followed by the UK (148). In terms of country of origin, the USA
topped the list with a share of 40 per cent of the
number of FIIs registered in India, followed by UK‘s
17 per cent. Other countries of significance in terms of
origin of FIIs investing in India are Luxemburg, Hong
Kong, and Singapore. About 85 per cent FIIs come
from the top 11 countries.
Table- 3
Country-wise FIIs registered with SEBI
as on 31st march, 2006
Originating
countries
No. of
registered FIIs
% share to
total FIIs
USA 342 38.78
UK 148 16.78
Luxembourg 64 7.256
Singapore 47 5.329
Hong Kong 30 3.401
Canada 26 2.948
Australia 23 2.608
Ireland 23 2.608
Netherlands 23 2.608
Mauritius 22 2.494
Switzerland 19 2.154
Others 115 13.04
Total 882
Source: Annual Report, SEBI, 2005-06
Figure- 3
Country-wise FIIs registered with SEBI
as on 31st march, 2006
Source: Annual Report, SEBI, 2005-06
3. Net Investment by FIIs in Equity and Debt
Table 4 presents the bifurcation of net investment by
FIIs in the equity and debt segment of the Indian
markets for the year 1992-93 to 2011-12. The
investment in debt is starting from the year 1996-97.
This is due to the fact that bifurcation of net investment
data was available from the year 1997 from the month
of April.
Table 4 shows that for two consecutive years (2004–
2005 and 2005–2006), the net investment in equity showed a year-on-year increase of 10 percent. The year
2006-07 was marked by a decline in net equity
investment which again increased in the year 2007-08
by 112%. There was a decline in the net equity
investment in 2008-09.
The years of 2009-10 and 2010-11 has saw maximum
net equity investment in both the equity and debt
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 5 ISSN: 2231-6353
segments. The investment in equity has always been
higher than that of the investment in debt segment.
However, the investment in debt segment started
picking up from the year 2006-07. In fact in the year of
2011-12 the investment in debt segment has exceeded
that of equity. This could be due to the relaxations given by the government to FIIs to invest in debt
segment of the Indian markets.
Table- 4
Net Investments by FIIs (Rs. Crores)
Year Equity Debt Total
1992-93 13.4 0 13.4
1993-94 5,126.50 0 5,126.50
1994-95 4,796.30 0 4,796.30
1995-96 6,942.00 0 6,942.00
1996-97 8,545.60 28.9 8,574.50
1997-98 5,267.00 691.05 5,958.05
1998-99 -717.2 -867 -1,584.20
1999-00 9,669.50 452.6 10,122.10
2000-01 10,206.70 -273.3 9,933.40
2001-02 8,072.20 690.4 8,762.60
2002-03 2,527.20 162.1 2,689.30
2003-04 39,959.70 5,805.00 45,764.70
2004-05 44,122.70 1,758.60 45,881.30
2005-06 48,800.50 -7,333.80 41,466.70
2006-07 25,235.70 5,604.70 30,840.40
2007-08 53,403.80 12,775.30 66,179.10
2008-09 -47,706.20 1,895.20 -45,811.00
2009-10 110,220.60 32,437.70 142,658.30
2010-11 110,120.80 36,317.30 146,438.10
2011-12 43,737.60 49,987.90 93,725.50
Source: www.sebi.gov.in
Note: No bifurcation of net investment data available
before March 1997
Figure 4 (based on table 4) shows that equity has always
been the dominant portion of net FIIs investment in
India, though lately this trend has begun to change.
Since equity forms the major portion of total investment
by FIIs it is because of this reason that we have chosen
to measure our dependent variable in terms of the equity
inflows of FIIs.
4. Relationship between Net Investment by FIIs and
Stock Market Movement
Figure 5 shows the relationship between the net FII
inflows and the stock market returns in India which in
literature is considered to be the most important factor
in explaining FII inflows to India. There is a definite
pattern that can be observed from this figure. When
the markets were low, the net investment was also low.
In the year 2003-04 when the Sensex started showing
increasing pattern there was also an increase in the FII
inflows to India which continued till 2007-08. The year
2008-09 which saw a sharp decline in Sensex was also
marked by a decrease in the FII inflows, with FII inflows turning negative. The years 2009-10 and 2010-
11 have been the years of recovery for both Sensex and
FII inflows. The question as to what causes what, in
other words the issue of causality has been addressed
in the empirical literature quite well. Most of the
studies have found that it is the stock market returns in
India which attracts FII inflows to India and not the
other way round [Chakrabarti (2001), Mukherjee, Bose
and Coondoo (2002), Roy (2007), Kumar (2009)]
Thus, it can be said that because of saturation in the home markets, the FIIs are now looking towards
emerging economies like India for providing them
with higher returns on their portfolios. As a result of
which the FIIs are giving an increasing weightage to
the markets of emerging economies in their total
portfolio allocations. Because of this increasing
preference towards growing economies, these
economies are seeing huge inflow of funds. FII
inflows into India also have shown an increasing
trend after the 1997 Asian Financial Crisis. However
this analysis also reflects the fact that FIIs indulge in
feedback trading and herd behaviour. They invest when the returns in domestic financial markets are
high and withdraw funds when returns are low.
Fig 4: Net Investment by FIIs in Debt and Equity
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 6 ISSN: 2231-6353
Fig 5: Net Institutional Investment (Rs. Crore) and Monthly Average Sensex
Source: author‟s own compilation
This may result in FIIs withdrawing and infusing
huge funds to India without any substantial change in
the condition of the economy. This nature of FII
inflows coming to India has the tendency to destabilise Indian stock markets and the resultant
adverse consequences on the macroeconomic
management of the economy as a whole.
SUMMARY AND CONCLUSIONS
This paper makes an attempt to identify the trends
associated with the FII flows in order to have a better
understanding of these flows. The activities of FIIs in
the stock markets can be classified into purchase and
sale or inflows and outflows respectively. The net
outcome of sale and purchase activities is the net investment. Despite of the high inflows by FIIs, the
net investment has remained flat on account of high
outflows by FIIs. This probably suggests that FIIs
continuously adjust their portfolios in search of higher
returns. The net investment has however remained
positive (that is the inflows during any year has been
greater than the outflows) except for the two years of
1998-99 and 2008-09. These two years are mark by the
onset of two major financial crises, namely East Asian
Financial crisis and Global Financial Crisis. The equity
component of FII has remained high in comparison to
the debt part though in later years the FII in debt component has also increased. The number of FIIs
registered in India is also increasing. Thus, the FIIs are
active players in the Indian markets both in size and
number.
On the basis of analysis of the trends in FII flows it
can be said that FIIs are becoming a major players in
the Indian markets. They are increasing both in
numbers as well as quantity. However they seem to be
fair weather friends and withdraw their money
quickly in wake of any kind of internal and external disturbances.
The tendency of return chasing and herd behaviour on
part of FIIs makes the FII inflows coming to the Indian
equity markets volatile. The sudden changes in the
sentiments of FIIs can result in huge inflows/outflows
from the Indian markets. These results have important
implications for Indian policymakers. The
policymakers in India should try to develop some in-built cushions to protect the economy from the ill
effects resulting from volatile nature of FIIs. One such
way could be to encourage the domestic investors both
the retail as well as domestic institutional investor to
actively participate in the Indian equity markets so as
to broaden the investor base of the Indian equity
markets. Another way could be to discourage the
speculative part of the FII investment. Only then India
would be able to fully reap the benefits arising out of
increasing foreign investment.
REFERENCES
1. Chakrabarti, R. (2001), ―FII Flows to India:
Nature and Causes‖, Money & Finance, ICRA
Bulletin, October–December, pp. 61-81.
2. Indian Securities Market Review (ISMR), (2011),
National Stock Exchange.
3. Kumar, S. (2009), ―Investigating causal
relationship between stock return with respect to
exchange rate and FII: evidence from India‖.
Retrieved December 12, 2013, from
http://mpra.ub.uni-muenchen.de/15793/
4. Rakshit, M. (2006), ―On Liberalising Foreign Institutional Investments‖, Economic and
Political weekly, Vol. XLI # 11, March 18, pp.
991-998.
5. Rangarajan, C. (2000), ―Capital Flows: Another
Look,‖ Economic and Political Weekly,
December 9, pp. 4421-4427.
6. Reserve Bank of India (2011), Handbook of
Statistics on Indian Economy.
7. Roy, Nirmal V P. (2007), ―Foreign Portfolio
Capital flows into India: An Exploration into its
Openness and basic motives‖. Retrieved from 8. http://www.igidr.ac.in/money/mfc_10/Nirmal%20
Roy_submission_13.pdf (as on 30th January,
2011)
9. SEBI (2011) Handbook of Statistics on Indian
Securities Market.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 7 ISSN: 2231-6353
CHILD IMMUNIZATION IN UTTAR PRADESH:
AN ASSESSMENT OF IMPACT OF SOCIO DEMOGRAPHIC VARIABLES
Brijesh P. Singh *
Sonam Maheshwari **
ABSTRACT In order to understand the reasons for large proportion of child deaths continue to be caused by immunizable diseases, this study has identified the need for a closer investigation in child immunization. Vaccination coverage information focuses on the age group 12-23 months, the age by which children should have received all basic vaccinations. Immunization coverage in many parts of the country remains low despite the efforts to improve the services. Only 25.5 percent children were vaccinated in Uttar Pradesh, which is one of the most backward states in India. The objective of this study was to assess immunization coverage and its associated factors among children aged 12-23 months in Uttar Pradesh.
INTRODUCTION
Universal immunization of children against the six
vaccine-preventable diseases (namely, tuberculosis,
diphtheria, whooping cough, tetanus, polio, and
measles) is crucial to reducing infant and child
mortality. Differences in vaccination coverage among
subgroups of the population are useful for programme
planning and targeting resources to areas most in need. Additionally, information on immunization coverage is
important for monitoring and evaluation of the
Expanded Programmes on Immunization (EPI). The
immunization of children against six potentially
deadly, but preventable diseases-tuberculosis,
diphtheria, pertussis, tetanus, polio and measles has
been an important cornerstone of the child-health-care
system in India.
Vaccination has been shown to be one of the most cost
effective health interventions worldwide, through
which a number of serious childhood diseases have been successfully prevented or eradicated. The
immunization campaign carried out from 1967 to 1977
by the World Health Organization (WHO) eradicated
the natural occurrence of small pox. Despite the efforts
to improve vaccination services, approximately 27
million infants were not vaccinated against measles or
tetanus in 2007. As a result, 2-3 million children are
dying annually from easily preventable diseases, and
many more fall ill.
The 12-23 month age group was chosen for analysis because both international and Government of India
guidelines specify that children should be fully
vaccinated by the time they complete their first year of
life. The Universal Immunization Programme has met
with only limited success in Uttar Pradesh. Estimates
from the third wave of National Family Health Survey
(NFHS) indicate that in Uttar Pradesh, 77 percent of
children ages 12-23 months are not fully immunized,
and 2.7 percent have not received any immunizations
at all. Partly because of low immunization coverage,
infant and child mortality rates are higher in Uttar
Pradesh than in other states of India. The low
immunization coverage and high infant and child
mortality rates are of considerable concern to both
national and state governments. In this context, it is
important to analyze immunization coverage and its
effect on infant and child mortality in the state.
Findings reflect that, only children from urban area or
educational or working groups can afford to be fully
vaccinated in Uttar Pradesh.
DATA & METHODS
NFHS-3 collected information on vaccination coverage
for all living children born in the five years preceding
the survey. According to the guidelines developed by
the World Health Organization, children are considered
fully vaccinated when they have received a vaccination
against tuberculosis (BCG), three doses of the
diphtheria, whooping cough (pertussis), and tetanus
(DPT) vaccine; three doses of the poliomyelitis (polio)
vaccine; and one dose of the measles vaccine by the
age of 12 months. NFHS-3 asked mothers in India whether they had a vaccination card. If a card was
available, the interviewer was required to carefully
copy the day, month, and year that each vaccination
was received. For vaccinations not recorded on the
card, the mother‘s report that the vaccination was or
was not given was accepted. If the mother could not
show a vaccination card, she was asked whether the
child had received any vaccinations. If any
vaccinations had been received, the mother was asked
whether the child had received a vaccination against
tuberculosis (BCG); against DPT; against polio; and against measles. For DPT and polio, information was
obtained on the number of doses of the vaccine given
to the child. In such cases, mothers were not asked the
dates of vaccinations.
Univeriate Binary logistic regression was used to
determine the factors associated with full immunization
coverage among children aged 12-23 months old. Full
immunization status of the children (card plus mothers
recall) was included in the logistic regression model as
a dependent variable, while socio-demographic
characteristics of the mother, child characteristics were
* Assistant Professor (Statistics), Faculty of Commerce, Banaras Hindu University, Varanasi-221005
** JRF, Department of Statistics, Banaras Hindu University, Varanasi-221005
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 8 ISSN: 2231-6353
Table- 1
Distribution of mothers and immunization coverage
according to various socio-demographic
characteristics in Uttar Pradesh
Background
Characteristics
Distribution Percent
Immunization
coverage Frequency Percentage
Maternal age at Birth
15-20 182 15.7 19.2
20-25 451 38.8 27.7
25-30 304 26.2 27.9
30-35 151 13.0 25.2
35+ 74 6.4 17.6
Residence
Urban 383 33.0 37.1
Rural 779 67.0 19.8
Religion
Hindu 861 74.1 28.2
Non-Hindu 301 25.9 17.6
Respondent’s Education
Illiterate 706 60.8 13.2
Primary 118 10.2 28.0
Secondary 244 21.0 41.8
Higher 94 8.1 72.3
Respondent’s Occupation
Not working 1068 92.0 21.5
Service 94 8.0 70.2
Has Health Card
No 483 41.6 0.4
Yes 276 23.8 41.6
Yes but not
seen 400 34.4 14.8
Sex of Child
Male 637 54.8 27.2
Female 525 45.2 23.4
Place of Delivery
Home 845 72.7 16.7
Hospital 317 27.3 48.9
Prenatal Care
Doctor 272 23.4 41.2
Other health
personnel 539 46.4 29.9
Dai /Other 351 30.2 6.6
Total 1162 100.0 25.5
Table- 2
Likelihood of immunization coverage among
children aged 12–23 months in Uttar Pradesh
*reference category
used as independent variables. A child between 12-23
months old who received one BCG, at least three doses
of DPT and Polio and a measles vaccine is said to be
fully vaccinated.
RESULTS
A total of 1162 mothers of aged between 15-49 years
old were analyzed in this study. Out of the total surveyed children aged 12-23 months, vaccination card
was only seen and confirmed was 23.8 percent. Polio
was the most frequently received vaccine. Particularly,
Polio1 was taken by the majority of children (95.18),
followed by Polio2 (92.94 %) and Polio 3(88.55) on
the basis of card plus recall record. The prevalence of
DPT1, DPT2, DPT3 were 57.73, 46.04 and 32.79
percent respectively. The coverage showed a
decrement from the first doses of vaccine to the last
doses. If we study on the basis of card only then the
percentage of all intake vaccination was poor among
all. Measles (39.24 percent) coverage were the least
taken vaccines when compared with other vaccines.
From table 1 only 21 percent and 8.1 percent of the mothers attended secondary and higher education
respectively. The majority (92 percent) of women were
non-working. Mostly women belong to Hindu religion.
Still now place of delivery of large number of women
(72.7) is home. 67 percent of total were from rural
Background
Characteristics
Odds
Ratio
95%
Confidence
Interval
p-
value
Maternal Age at Birth
15-20* - - -
20-25 1.610 1.056-2.457 0.001
25-30 1.630 1.044-2.546 0.000
30-35 1.412 0.839-2.377 0.004
35+ 0.895 0.443-1.808 0.002
Residence
Urban 2.415 1.345-3.867 0.000
Rural* - - -
Religion
Hindu 1.554 0.986-2.005 0.000
Non-Hindu* - - -
Respondent’s Education
Illiterate* - - -
Primary 2.559 1.620-4.404 0.000
Secondary 4.735 3.387-6.619 0.000
Higher 17.239 10.437-
28.474 0.000
Respondent’s
Occupation
Not working* - - -
Working 8.588 5.649-11.613 0.000
Sex of Child
Male 1.821 0.628-2.072 0.000
Female* - - -
Place of delivery
Home* - - -
Hospital 4.777 3.593-6.352 0.000
Prenatal Care
Doctor 4.900 1.234-5.560 0.001
Other health
personnel 2.789 0.987-4.678 0.000
Dai/Other* - -
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 9 ISSN: 2231-6353
area. 30.2 percent of women were still received care by
Dai and other sources.
Table 2 shows bivariate logistic regression analysis of
socio-demographic characteristics of mothers and child
associated with complete immunization coverage (card plus recall) among children aged 12–23 months of age.
Bivariate analysis showed that education, religion,
place of residence, place of delivery, prenatal care is
significantly associated with complete immunization
status of children. The children of middle age group
women are significantly more likely to immunize than
younger and older women. Results obtained from this
study revealed the fact that there is a positive
association between maternal education and
immunization. Few of the possible ways that have been
focused so far are pointed out below for education as a
potential determinant for increasing vaccination uptake: (i) Education gives the basic ideas about the
path of wellbeing and also equips and encourages
increasing mother‘s knowledge on healthy living; (ii)
Education equips mothers with the knowledge of
proper health behavior and illness behavior for
preventive and curative measures. Hindu women‘s
children were 55 percent more likely to be vaccinated
as compared to Non-Hindu women‘s children.
Children of working women were more than eight
times more likely to be vaccinated because working
women were more aware about their child health due to knowledge about child health. Child‘s sex was
shown to be major confounders for full immunization
coverage. Sex discrimination against female children
was also seen in child immunization in Uttar Pradesh.
The study revealed that male children were more likely
to be fully immunized than females. Immunization in
case of hospital delivery is about five times higher than
non-hospital delivery group. It is also found
statistically significant with p-value 0.000. In Urban
area vaccination immunization is two times more likely
as compared to rural counterparts due to travel support,
education and mass media exposure and lack of health sectors. Women whose prenatal care were under
Doctor or trained Nurse/ health personnel were four
and two times more likely to be immunized their child
as compared to whose prenatal care was under Dai.
CONCLUSION
The utilization of immunization services in Uttar
Pradesh is far from good. The participants were not
aware of the immunization services being offered at the
health facilities and importance was not identified as
being disease preventive. There is need to strengthen
communication, education and information skills of
Health Workers to improve service provision and
health education to mothers. The surveillance and
referral systems in the area also need reinforcing so as
to identify defaulters of immunization and reduce the
drop-out rate.
REFERENCES
1. Ambo Woreda, Etana & Deress (2012) Factors
associated with complete immunization coverage
in children aged 12-23 months in‖ Central
Ethiopia. BMC Public Health 12:566.
2. Angela G, Zulfiqar B, Lulu B, Aly GS, Dennis
JGR & Anwar H. (2010): Pediatric disease burden
and vaccination recommendations: understanding
local differences. Int J Infect Dis, 30(30):1019-
1029.
3. Antai D. (2011) Rural-Urban Inequities in Childhood Immunisation in Nigeria: The Role of
Community Contexts. Afr J Prm Health Care Fam
Med. 3(1).
4. International Institute for Population Sciences &
ORC Macro National Family Health Survey India
2005/06. IIPS, Mumbai, India.
5. Lilian Chepkemoi Maina, Simon Karanja &
Janeth Kombich (2013) Immunization coverage
and its determinants among children aged 12-23
months in a peri-urban area of Kenya Pan African
Medical Journal. 6. Mosiur Rahman & Sarker Obaida-Nasrin (2010)
Factors affecting acceptance of complete
immunization coverage of children under five
years in rural Bangladesh salud pública de
méxico / vol. 52, no. 2, marzo-abril de.
7. Rakesh Munshi & Sang-Hyop Lee (2000) Child
Immunization in Madhya Pradesh National
Family Health Survey Subject Reports Number
15, International Institute for Population
Sciences.Mumbai, India.
8. Thomas Waldhoer, G. Haidinger, Christian
Vutuc, Ferdinand Haschke & Roswitha Plank (1997) The impact of sociodemographic variables
on immunization coverage of children European
Journal of Epidemiology 13: 145–149.
9. World Health Organization: Immunization
practice module 1and 2(1998) Expanded program
on immunization.
10. Zoe Matthews & Ian diamond (1997). Child
Immunisation in Ghana: The effects of family,
location and social disparity. Journal of Biosocial
Science, 29, pp. 327-343.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 10 ISSN: 2231-6353
BUSINESS ETHICS AND GREEN MARKETING INITIATIVE:
A GLOBAL PROSPECTIVE
Sarika Sharma*
S. Prakash**
ABSTRACT Ethics is a social Concern science of positive morality. It tells about the good and bad course of action by an individual or an organization. Social responsibility of the business stands for the objectives and subjective concern for the wellbeing of the society and environment. Social functions of marketing include survival, profitability, consumer services, social ethics and responsibilities. Social marketing activities would be regulated through private, public and business actions. Green marketing is the marketing of products that are presumed to be environmentally safe. Green marketing concern with scanning of green marketing environment, identifying ecologically sensitive customers and studying their green needs and motivates to designing products, their promotion distribution that have minimum detrimental impact on the environment. This paper reflects the social issues and ethical aspect of marketing, and also elaborates the green marketing initiatives
worldwide including India. Furthermore historical development of green marketing has also mentioned. Reasons for chosen of green marketing by the corporate, problems ahead in green marketing and some criteria for greater success of green marketing has also been discussed. Furthermore some marketing strategies for greenness are also suggested.
INTRODUCTION
Ethics is a science of morality. It speaks of what is
‗good‘ or ‗bad‘ for an individual may be natural or
artificial. It is not only a question ―good‖ or ―bad‖ but much more ―what is right‖ or ―what is wrong‖. Thus,
what is right is always good; however what is bed is
not necessarily wrong. The value system of good and
bad and right and wrong is the base for smooth and
satisfactory working a community. It means that, the
business community is allowed to make profits but not
at the cost of others.
HOW CAN ONE ENFORCE SUCH MORAL
RESPONSIBILITY?
One might think that the finest possible guide-lines can bring home moral responsibilities which can be
discharged by the employees of the corporate world.
Each executive faces very difficult ethical situations.
Thus, marketer is to act as marketer and not as
salesman. The following steps go a long way in getting
rid of many knotty and ticklish situations of ethical and
social situations.
I. Let moral concern be an integral part of
organizational goal: Concern for moral or ethical
values may be made an integral part of the
organizational goal along with the economic objective of profit maximization. The employees can then take
the right decisions with an eye on fair play confidently.
II. Let corporate ethical stance, be reflected in job
description: The Company‘s ethical stance may be
reflected in the job description of each and every
employee and included in the performance appraisal as
well to facilitate accountability.
III. Let there be, codes of ethical behaviour and
ombudsmen: Codes of ethical behaviour, ombudsmen and the like serve as more than palliatives for; they
cannot go to the root of a problem, however well-
intended. The moral perceptions are shaped by the
individual attitudes.
IV. Let there be, a carefully designed code of
conduct and its enforcement: The best way of
designing and enforcing ethical responsibility is to
institutionalize it through company constitution. A
model code conduct is the out of rich experience and
sharp experiment.
WHAT IS A SOCIAL RESPONSIBILITY OF THE
BUSINESS?
Social responsibility stands for the objectives and
subjective concern for the well-being of the society of which the business unit is a part and parcel. It is the
society that provides all the inputs to the business units
and sets certain limits or norms for the use of these in
delivering the goods and rendering services.
WHY CORPORATES CANNOT IGNORE THEIR
RESPONSIBILITY TO THE SOCIETY FOR
SEVERAL REASONS, SOME OF WHICH ARE
I. Dual objective of wealth and profit maximization:
While bottom line considerations are significant, the
corporate goal must be to focus on maximization of wealth and operating profits.
II. Sustaining the organizational image: Whenever
one hears the name of certain well established business
houses which are committed to any social cause, it
conjures up an image of a solid and professionally
managed organization. III. Drive towards self-
actualization: It has been an established fact that, in the
hierarchy of human needs as advocated by Abraham
Maslow, the highest state of achievement is self-
actualization, that is, the need of an individual to be socially acceptable. This can be easily applied even in
*Assistant Professor, Motilal Nehru College, University of Delhi, Delhi
**Assistant Professor, Shri Ram College of Commerce, University of Delhi, Delhi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 11 ISSN: 2231-6353
case of artificial person namely, the corporation, since
all professionally managed organizations wish to
establish a significant presence in the market.
These points make it amply clear that these corporates
that are readily willing to create and sustain a long legacy, will have to discharge their social
responsibilities. Social function and responsibilities can
be easily understood by the following figure.
Figure-1
Marketing social responsibility SOCIETY IN GENERAL
GOVERNMENT
1. LEGAL BUSINESS
2. REGULAR PAYMENT
OF TAXES
3. FACT REPORTING
4. BEHAVIOUR
SHAREHOLDERS
1. REGULAR DIVIDEND
2. REASONABLE DIVIDEND
3. CAPITAL APPRECIATION
4. TIMELY REPORTING
MARKETING
MANAGER
CUSTOMERS
1. DELIGHT
2. SAFE GOODS
3. REASONABLE PRICE
4. QUALITY PRODUCTS
EMPLOYEES
1. HIGHER WAGES
2. JOB SECURITY
3. JOB-SATISFACTION
4. MORE LIESURE
ALLOWED FOR CONVERSION
PO
LLU
TIO
N F
RE
E Q
UA
LIT
Y L
IFE
RE
SO
UR
CE
IN
PU
TS
SOCIAL FUNCTIONS OF MARKETING
There are four basic social function of marketing, they
are:
I. Survival: Survival is the fundamental and final
objective of a business especially when it is subjected
to changing environment and fluctuating forces of
competition and demand. Survival is one of the
parameters of performance.
II. Profitability: Business is not a charity. Business is
carried on to make profit and earning of profits justifies
its existence. Profitability is a mark of efficiency and is the rewards for the value added. Like, survival, profit
motive is the basic objective.
III. Consumer service: The marketing concept is
certainly consumer service oriented. Consumer care,
consumer satisfaction and the consumer delight are the
sure stepping stones towards reacting the goal of profit
making.
IV. Social responsibility. It goes without saying that
marketing is a sub-system of supra system of society. It thrives in a socio-economic environment with other
dimensions of ecology, technology, legal and cultural
tinges.
Management being a creative and team activity, the
managers at all the levels in the organization are
associated and involved in a challenging yet
thrilling, and hence, paying task of resolving the
conflicts and reconciling the major responsibilities
towards : 1. Consumer, 2. Employees, 3. Shareholders,
and 4. Government. There has been a deep socio-
economic interaction between the segments of the society and management or the organization which is
very clear from the figure.
As the business unit uses the resources of the society,
processes them and the output as the result is expected
to be of two sided namely beneficial to both the
business house and the society at large. Everlasting
interaction between the society and the organization in
terms of a cycle of Input, Processing and The Output
has a very interesting story of its own. This cycle clears
the relationship between the business house and the
society and mutual accommodation in terms of gains and pains. This can also be understood by the
following figure.
Figure-2
Business and the Society
PROCESSING
CONVERSIONINTO PRODUCT
AND SERVICES
INPUTS OUTPUT
THE
BUSINESSUNIT
PRODUCTS ANDSERVICES AS
PER THE
SOCIOECONOMICEXPECTATIONS
THE FEED-BACK
HUMAN
AND
MATERIAL
ACTIONS TO REGULATE SOCIAL
MARKETING ACTIVITIES
It is amply clear that it is the business which itself is
the root cause of economic and social ills. Therefore,
two sets of actions have been up surging to keep the
business to behave. These actions are ―private‖ and
―public‖ that have kept the business community on its
toes.
(I) PRIVATE ACTIONS
The private actions to regulate the marketing activities
have been seen in the form of CONSUMERISM as the social movements that have caught fancy of general
public in private attempt. Let us note those in brief.
Consumerism
Consumerism is the strongest social and organized
movement of citizens and the government agencies to
strengthen the rights and the powers of consumers as
against those of sellers.
Traditionally, the rights of sellers have been:
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 12 ISSN: 2231-6353
The right of introducing any product in any size
and style, provided it is not hazardous to the
personal health or safety; or if it is, to include
proper worming and controls.
The right of charging any price for the product
provided no discrimination exists among similar kind of consumers.
The right of spending any amount to promote the
product provided it is not defined as unfair
competition.
The right of using any product message provided
it is not misleading or dishonest in content or
execution.
The right of using any buying incentive schemes
provided they are not unfair or misleading.
As against these rights of sellers, the buyers or the consumers do have certain rights to counteract and
balance between the two parties for mutual benefit.
These consumer rights are:
The right of not buying a product that is offered
for sale.
The right of expecting the safe products.
The right of expecting of better product
performance.
The right of being informed about the important
aspects of the product.
The right of protection against questionable products and marketing practices. and
The right of influencing the products and
marketing practices in ways that will improve the
quality of life.
(II) PUBLIC ACTIONS TO REGULATE
MARKETING
In case the manufacturers and the marketers do not
understand the implications of their operations, the
general public will play a vital role through resistance
finally forcing the government to pass Acts and Laws, amend and existing ones. Thus, we have M.R.T.P. Act
of 1969, Consumer Protection Act of 1986 and others
to contain the strength of manufacturers and the
marketers to bend to the demands of consumers so that
their products and services will be more consumer
friendly and environment friendly.
(III) BUSINESS ACTIONS TOWARDS
SOCIALLY RESPONSIBLE MARKETING
It is but natural that to start any movement that appears
quite challenging the prevailing freedom, there will be
resistance. Thus, the business community, to start with, opposed the two movements of consumerism and
environmentalism tooth and nail. They flout the attacks
by consumers and environmentalists were either
insignificant or unfair and fabricated. However, with
the passage of time majority of companies have
realized that there is truth in the arguments‘ of
consumers and environmentalists. They are out now to
accept and act in favor of the members of society.
Enlightened marketing is made up of five basic
principles namely, Consumer Oriented Marketing—
Innovative Marketing—Value Marketing-Sense of
Mission Marketing and Social Marketing. It will not be
out of place if we learn as to what these principles
stand for how they are bring about change in the future.
Figure-3
Legal issues facing marketing management
Selling decisions. Bribing : Stealing trade secrets? Disparaging
customers? Misrepresenting? Disclosure of consumer rights?Unfair discrimination
Competitive relations decisions : Anti-competitive acquisition?Barriers to entry? Predatory competition?
Product decisions : Product additions and deletions? Patentprotection? Product quality and safety? Product warranty?
Packaging decisions : Fair packaging and labelling? Excessivecosts? Scarce resources? Pollution?
Advertising decisions : False advertising? Deceptive advertising?
Bait and switch advertising? Promotion allowances and services?
Channel decisions : Exclusive dealing? Exclusive territorialdistributorship? Tying agreements? Dealers right?
Price decisions : Price flxing? Resale price maintenance? Price
discrimination? Minimum pricing? Price increases? Deceptive pricing?
T
H
E
D
E
C
I
S
I
O
N
M
A
K
E
R
Innovative marketing: ―Innovate or die‖ that applies
to the world of marketing as it is the sub-servants of
the society. There should be continuous improvement
in the real value of goods and services used by the
consumers and marketing improvements.
Value marketing: Value marketing is an attempt to
see that the consumers get added value or real value for
their society. It means building long-run consumer
loyalty by continuously improving the value that
consumers receive from the firm‘s marketing efforts.
Sense of mission marketing: It means an effort to
define the company‘s mission in broad ―social‖ terms
than narrow ―product‖ terms. Such an attempt of
defining social mission brings about better work
satisfaction and a clearer sense of direction on the part
of the employees.
Societal marketing: Societal marketing stands for
making the firms marketing decisions by giving due
weightage to consumer wants and genuine long-run
interests in the framework of firm‘s resource constraints and opportunities. One cannot afford to
neglect the long-run consumer interests.
GREEN MARKETING
Green marketing is an extension societal marketing
concept where top priority is given to environmental
protection that is environmental balance is maintained
and further improved. Green marketing is the
movement by companies to develop marketing
environmentally response products. Green marketing
can be defined as various marketing activities
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 13 ISSN: 2231-6353
concerned with scanning of green marketing
environment, identifying ecologically sensitive
customers and studying their green needs and
motivates to designing products,
HISTORICAL EVOLUTION OF GREEN
MARKTING
The term Green Marketing came into prominence in
the late 1980s and early 1990s. The American
Marketing Association (AMA) held the first workshop
on ―Ecological Marketing‖ in 1975. The proceedings
of this workshop resulted in one of the first books on
green marketing entitled ―Ecological Marketing‖. In
1987 a document prepared by the World Commission
on Environment and Development defined sustainable
development as meeting ―the needs of the present
without compromising the ability of future generations
to meet their own need‖, Two tangible milestones for wave 1 of green marketing came in the form of
published books, both of which were called Green
Marketing.
OBJECTIVES OF GREEN MARKEING
1. Develop products that balance consumers need
for quality, performance, affordable pricing and
conveniences with environmental compatibility
that is minimal impact on the environment.
2. To project an image of high quality, including
environmental sensitivity relating to both a products and its manufacturing record for
environmental achievement.
3. Products should be either consumable or durable.
Consumables can be either eaten or placed into
the ground so that they turn into soil without any
harm to the environment.
GREEN MARKETING INITIATIVE
(A) INDIAN INITIATIVE
Tata motors ltd. is setting up an eco-friendly showroom using natural material for its flooring
and energy efficient lights. The taj chain, is in the
process of creating eco-rooms which have energy
efficient mini bars, organic bed linen and napkins
made up of recycled papers. The rooms will have
CFLs or Leds. Launched a low cost water purifier
made up of natural ingredients. Developing indica
EV, an electric car that would run on polymer
lithium ion batteries.
Recently launched Samsung solar mobile guru.
Battery operated L.G TV.
Introduction of C.N.G in Delhi
(B) GLOBAL INITIATIVE
1. Philips Light's "Marathon" Philips Lighting's first shot at marketing a standalone
compact fluorescent light (CFL) bulb was Earth Light,
at $15 each versus 75 cents for incandescent bulbs. The
product had difficulty climbing out of its deep green
niche. The company re-launched the product as
"Marathon, ―underscoring its new "super long life"
positioning and promise of saving $26 in energy costs
over its five-year lifetime. Finally, with the U.S. EPA's
Energy Star label to add credibility as well as new
sensitivity to rising utility costs and electricity
shortages, sales climbed 12 percent in an otherwise flat market.
2. Car sharing services Car-sharing services address the longer-term solutions
to consumer needs for better fuel savings and fewer
traffic tie-ups and parking nightmares, to complement
the environmental benefit of more open space and
reduction of greenhouse gases. They may be thought of
as a "time-sharing ―system for cars. Consumers who
drive less than 7,500 miles a year and do not need a car
for work can save thousands of dollars annually by
joining one of the many services springing up, including Zip Car (East Coast), I-GO Car (Chicago),
Flex Car (Washington State), and Hour Car (Twin
Cities).
3. Product and Services
Now companies are offering more eco-friendly
alternatives for their customers. Recycled products for
example, are one of the most popular alternatives that
can benefit the environment. These benefits include
sustainable forestry, clean air, energy efficiency, water
conservation and a healthy office.
4. Electronics sector The consumer electronics sector provides room for
using green marketing to attract new customers. One
example of this is HPs promise to cut its global energy
use 20 percent by the year 2010. To accomplish this
reduction below 2005 levels, The Hewlett-Packard
Company announced plans to deliver energy-efficient
products and services and institute energy-efficient
operating practices in its facilities worldwide.
WHY IS GREEN MARKETING CHOSEN BY
MOST MARKETERS? Most of the companies are venturing into green
marketing because of the following reasons:
I. Opportunity In India, around 25% of the consumers prefer
environmental-friendly products, and around 28% may
be considered healthy conscious. Therefore, green
marketers have diverse and fairly sizeable segments to
cater to. The Surf Excel detergent which saves water
(advertised with the message—"do bucket paanirozbachana") and the energy-saving LG
consumers durables are examples of green marketing.
II. Social Responsibility Many companies have started realizing that they must
behave in an environment-friendly fashion. They
believe both in achieving environmental objectives as
well as profit related objectives. The HSBC became the
world's first bank to go carbon-neutral last year. Other
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 14 ISSN: 2231-6353
examples include Coca-Cola, which has invested in
various recycling activities.
III. Governmental Pressure Various regulations rare framed by the government to
protect consumers and the society at large. The Indian government too has developed a framework of
legislations to reduce the production of harmful goods
and by products.
IV. Competitive Pressure
Many companies take up green marketing to maintain
their competitive edge. The green marketing initiatives
by niche companies such as Body Shop and Green &
Black have prompted many mainline competitors to
follow suit.
CHALLENGES OR PROBLEMS AHEAD IN
GREEN MARKETING
Ensuring that marketing activities are not
misleading to customers in the problem of green
marketing.
Green products require renewable and recyclable
material, which is costly.
It requires a technology, which needs huge
investment in Research and Development.
Majority of the people are not aware of green
products and their uses.
Majority of the customers are not willing to pay a premium for green products.
HOW CAN WE MAKE GREEN MARKETING A
GREATER SUCCESS?
Green marketing though well developed in other
countries, India is to make it a greater success. The
requirements for success are:
I. Commitment from Top Management: Since, it is
related with the short-run and long-run profits,
performance and results, affecting everyone in the organization, top management should grant whole-
hearted support to the philosophy and efforts of green
marketing.
II. Turning Employees and others as
Environmentalists: The internal environment that
encourages employees should change their mind set
from being ordinary employees to environmentalists.
This can be done by establishing new positions like
vice-president of environment health and safety.
III. Avoid abuse of Green Marketing: It is also learnt
that some socially irresponsible companies have taken
undue advantage of green-marketing just by using
puffery. Just as Indian companies use the word ‗herbal‘
to get tax concessions or incentives. Some companies
are engaged in similar use of language that leads to
misleading understanding and results.
IV. Proper and Effective Communication: Some
companies have not been able to launch successfully
their green marketing programs. It is equally true that
some consumers have not responded well to green
marketing products because of confusing language
used to couch these products. Thus, ‗recyclable‘, ‗recycled‘, ‗degradable‘ ‗bio-degradable,
‗environmentally friendly‘ and ‗Ozone-Safe‘ are the
words that are confusing. That means green marketing
requires the expressions shall be simple and precise
that justify the claims made in their language used.
Instead of telling, ‗environmentally friendly‘ or ‗eco
friendly‘-the statement should made of ―This product
contains 67 percent recycled material‖.
V. Packaging Waste: There is need to reduce
environmental damaged caused by packing waste
which involves its collection, transport and disposal. These points of reducing waste are based on Helsinki
1971, Council of Decision on Packing and Packaging
waste. These are:
To reuse packaging material and reduce the
overall cost of packaging
To request local authorities to deal with the
situation effectively
To make efforts for recovering from packaging
waste according to packers institutions or other
waste
To integrate work done by transportation packer, recover of waste and local authorities
VII. Zero Waste. Discards are valuable sources. The
manufacturer look at the entire cycle of product: from
design phase of recovery. He should take back the used
product and packaging for manufacture or reuse.
Certain states in USA require than manufacture and
sale of enrichmentally preferable digital alternative to
memory thermometers. Denmark gives tax incentive to
environment friendly light recyclable packaging. New
Zealand provides funds for zero-waste activities, Germany urges suppliers to opt for refillable plastic
bottles instead of disposable cause. Canada requires
sense of glass bottles for refilling Xerox Company
takes back office equipment for recycling at the end of
useful life.
MARKETING STRATEGIES TO GREENNESS
Companies which embark on green marketing should
adopt the following strategies in their path towards
"greenness."
Adopt new technology/process or modify existing technology/process so as to reduce environmental
impact.
Establish a management and control system that
will lead to the adherence of stringent
environmental safety norms.
Using more environment-friendly raw materials at
the production stage.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 15 ISSN: 2231-6353
Explore possibilities of recycling of the used
products so that it can be used to offer similar or
other benefits with less wastage.
Marketing Audit (including internal and external
situation analysis)
Develop a marketing plan outlining strategies with regard to 7 P's.
CONCLUSION
Without civic morality the communities perish, without
personal morality their survival has no value. In the
initial days, one was surprised as to whether ethics has
any place in business and business decisions. However,
now there is no scope for such a surprise as one knows
the ethical and social issues have their own place and
are to be respected. Therefore, there is a growing
realization that the decisions involving moral and social considerations need not be dismissed as a
questionable indulgence in value judgment beyond the
pale of corporate concern. Marketing social
responsibilities exist mainly toward customer,
employees, shareholders and government. Through
private, public and business action social
responsibilities could be fulfilled. Private Acton
includes consumerism and environmentalism, public
action includes MRTP act 196, and consumer
protection act 1986. Business action mainly includes
selling decisions, branding, competitive relation
decisions, product decisions, packaging decisions, advertising decisions, distribution channel decisions
and price decisions. Green marketing initiatives are
appreciating, like use of CFL light bulbs, car sharing
services, use of electronic sectors, introduction of
CNG, solar electric system etc. in India around 25%
of the consumers prefer green products and more than
28% customer very conscious about their health. There
are few challenges in the way of green marketing like,
its product require renewable and recyclable material,
which is very costly. It needs new technology and
huge investment in research and development is also needed. In many developing countries majority of the
people are not fully aware about green products and
its uses. Thought some sort of action these problems
could be resolved easily. There are some marketing
strategies to encourage greenness, they are marketing
audit, development of a marketing plan outlining
strategies with regards to 7 Ps, exploration of reusable
and recycling products, establishment of management
control system and many more.
REFERENCES
1. S. Prakash, C.N. Sontakki,(2013) ―Strategic
Marketing‖ Kalyani Publishers, Delhi
2. S. Prakash, C.N. Sontakki((2013) ―Marketing and
Services Management‖ Kalyani publishers, Delhi
3. S. Prakash, C.N. Sontakki(2012) ― Principles of Marketing‖ Kalyani publishers, Delhi
4. S. Prakash, C.N. Sontakki(2013)― Marketing
Management Text and Cases‖ Kalyani publishers,
Delhi
5. Beri G.C (2009), Marketing Research, 4th
Edition, pp.369-380, Tata McGraw Hill, New
Delhi.
6. Dr.H.CPurohit (editor) (2006),‖Rural Marketing.
Challenging and Opportunities‖, New Delhi:
Shree publishers & Distributors.
7. Baumann, H., Boons, F., Bragd, A. (2002),
"Mapping the green product development field: engineering, policy and business perspectives",
Journal of Cleaner Production, Vol. 10.
8. Yi, Youjae (1990), "A Critical Review of
Consumer Satisfaction," in Review of Marketing.
Valerie A. Zeithaml, ed., Chicago: American
Marketing Association,
9. Pujari, D., Wright, G., Peattie, K. (2003), "Green
and competitive: influences on environmental
new product development performance", Journal
of Business Research, Vol. 56 No.8,
10. Polonsky, M., Ottman, J. (1998a), "Exploratory examination of whether marketers include
stakeholders in the green new product
development process", Journal of Cleaner
Production, Vol. 6 No.3
11. Menon, A., Menon, A. (1997), "Enviropreneurial
marketing strategy: the emergence of corporate
environmentalism as market strategy‖, Journal of
Marketing, Vol. 61 No. January,
12. Bolton, R.N. (1998), "A dynamic model of the
duration of the customer's relationship with a
continuous service provider: the role of
satisfaction", Marketing Science, Vol. 17 No.1, 13. Jacquelyna. Ottama‖ The New Rules of Green
Marketing: Strategies,Tools, and Inspiration for
Sustainable BrandingStrategies, Tools, and
Inspirationfor Sustainable Branding ‖January
2011.
14. http://www.blonnet.com/2009/07/14/stories/2009
071450970500.htm
15. http://knowledg.wharton.upenn.edu/india/article.c
fm?articleid.cfm?articleid=4386
16. http://www.dancewithshadows.com/pillscribe/mn
s-pharma-firms-line-up-to-tap-indias-rural-market/
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 16 ISSN: 2231-6353
TECHNOLOGICAL INTERVENTION IN TRADITIONAL FARMING:
INDIAN CONTEXT
Neeraj Singh *
ABSTRACT India is also called a nation of villages and the villagers are having very few options for income generation for their livelihood. Livelihood is defined as a set of activities, involving securing water, food, fodder, medicine, shelter, clothing and the capacity to acquire above necessities working either individually or as a group by using endowments (both human and material) for meeting the requirements of the self and his/her household on a sustainable basis with dignity. Farming has always been the backbone of livelihood of Indian families. India ranks second worldwide in farm output. Agriculture in India is a major economic sector and it creates plenty of employment opportunities as well. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005, employed 60% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-
economic development of India. This article throws some light on the scenario of Indian Agricultural and the technical practices being followed in farming.
MODERNIZATION OF TRADITIONAL
FARMING
Traditional farming here refers to the agricultural
practices that farmers have been following over generations. Technologies are being adopted by
farmers at various steps of farming. The general
process of farming includes the following steps:
Selection of crop- This step can easily be the
most important step. It is very important to take a
decision regarding the crop. The further steps will
be decided only once the crop is selected as
different crops may require different sets of
cultivation practices. The main consideration in
selecting the crops for smallholder production is of course fulfilling their own needs and the
demands of the market. However, among crops
for which there is a sure demand some require
agronomic practices or environmental controls
which make them particularly suitable, or
particularly unsuitable, for smallholder producers.
This process of selection of crops is now being
influenced under certain circumstances by some
factors such as establishment of processing units
in nearby areas, increase in demand of cut flowers
etc.
Preparation of land- This is the first practical
step in farming. This involves a lot of time,
energy and labour and is one of the costliest step
in farming. The purpose of land preparation is to
provide the necessary soil conditions which will
enhance the successful establishment of the crop.
Apart from normal tillage, this process may also
include:
i. bush clearing;
ii. removal of stones and rocks;
iii. levelling of the field iv. installation of irrigation and drainage systems
There is an increasing trend of use of modern
implements, some of which are named below:
Tractor / Two-wheel tractor
Tracked tractor / Caterpillar tractor
Cultivator (of two main variations)
Dragged teeth (also called shanks) that pierce the
soil.
Rotary motion of disks or teeth.
Chisel plow
Harrow Plow or plough {various specialized
types}
Stone / Rock / Debris removal implement
(e.g. Destoner, Rock windrower/ rock rake, Stone
picker / picker)
Subsoiler
Rotator
Roller
Strip till toolbar
Use of these implements is helpful in saving
labour, time and also overall cost of cultivation.
Recently, there has been an emphasis on the use of
zero till seed drills and some other implements which
are used for reduced tillage or minimum tillage
operations.
Sowing of seeds- once the land is prepared, sowing starts. Sowing is the process of
planting seeds. Hand sowing or (planting) is the
process of casting handfuls of seed over prepared
ground. Usually, a drag, a swan-neck hoe
or harrow is employed to incorporate the seed into
the soil. Though labour-intensive, this method is
still used in some situations. Practice is required
to sow evenly and at the desired rate. The
following implements are now becoming popular
among the farmers:
Planter (farm implement)
Plastic mulch layer
Potato planter
Broadcast Seeder
* Assistant Professor, Department of Agricultural Economics, BHU, Varanasi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 17 ISSN: 2231-6353
Seed drill
Air seeder
Precision drill
Transplanter (e.g. Rice transplanter)
Irrigation- Irrigation means the action of applying water to land in order to supply crops
and other plants with necessary water. Irrigation
is done mainly to assist the growth of agricultural
crops and maintenance of landscapes in dry areas
and during periods of inadequate rainfall.
Additionally, irrigation also has a few other uses
in crop production, which include protecting
plants against frost, suppressing weed growth in
grain fields preventing soil consolidation.
Sometimes nutrients may be applied via irrigation
as well. Irrigation represents 92% of the consumption of water and by 2025, the capacity
will probably touch the figure of 1,050 km2, with
the equilibrium justifying both household and
industrial usage. Emphasis these days is in
adoption of such irrigation systems which saves
water. Some of the irrigation systems are named
below:
Center pivot irrigation
Drip irrigation
Hydroponics
Microjet System
Fertilization- Fertilization is defined as nutrient-
containing materials, called fertilizers, generally
into the soil in proximity to receptor plants.
However, some are added to water, or to air, or
applied as foliar spray. In agriculture, Fertilizer is
a substance added to soil to improve plants'
growth and yield. First used by ancient farmers,
fertilizer technology developed significantly as
the chemical needs of growing plants were
discovered. Modern synthetic fertilizers are
composed mainly of nitrogen, phosphorous, and potassium compounds with secondary micro
nutrients added. The use of synthetic fertilizers
has significantly improved the quality and
quantity of the food available today, although
their long-term use is debated by
environmentalists. Some of the equipments used
for fertilization are mentioned below:
Fertilizer spreader
Terragator
Liquid manure/slurry spreader (slurry tanker)
Manure spreader
Sprayer
Slurry agitator
Pest and Disease control- Wherever agriculture
takes place, pests have attacked the crop. Pest
here includes animals (mostly insects), fungi,
plants, bacteria, and viruses. Various chemicals
are used to make sure that the crop is free from
pests and diseases. The focus these days is to
promote use of integrated pest control methods or
biological control of the pests. These technologies
reduce the use of chemicals and fertilizers. Also
the plant breeders are concentrating on the
development of high yielding crop varieties which are disease resistant.
Harvesting- In agriculture, harvesting is the
process of gathering mature crops from the fields.
It includes cutting of grain or pulse for harvest,
typically using a scythe, sickle, or reaper. The
harvest marks the end of the growing season for a
particular crop. Harvesting in general usage
includes an immediate post-harvest handling, all
of the actions taken immediately after removing
the crop—cooling, sorting, cleaning, packing—up
to the point of further on-farm processing, or shipping to the wholesale or consumer market.
Grading and Packaging- It is the final step of
the agricultural process. Grading refers to the
process of classification of products into different
categories on the basis of quality, size etc.
Grading is done in agricultural products-fruits and
vegetables. Graded products are of uniform
quality and it becomes easy to market.
Packaging- Packaging of agricultural produce
can be defined as wrapping or containing it in some form of material that will protect it during
storage, transport and distribution. Packaging
prevents food from getting damaged due to
external factors like insects and micro-organisms,
moisture, air or odours. An attractive packaging
may surely attract the customer and get some
extra profit.
Weight sorter
Color sorter
Blemish sorter
Diameter sorter
Shape sorter
Density Sorter
Internal/taste sorter
SOME OTHER TECHNOLOGICAL AND
POLICY ADVANCEMENTS
(A) USE OF COMPUTERS IN AGRICULTURE
AND E-AGRICULTURE
The process of agriculture includes selection of crop,
Preparation of land, Sowing of seeds, Irrigation, Fertilization, Pest and Disease control, Harvesting,
Grading and Packaging. All concerned persons need
the information and knowledge about these phases to
manage them efficiently. Here the role of computer
comes in the picture. Computers and their applications
have changed the face of most traditional practices of
agriculture.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 18 ISSN: 2231-6353
Since the farmers need to take actions and he lacks in
capital and other resources so the information becomes
the only base on which the critical decisions can be
made-
Computers are used for record-keeping,
predicting weather conditions, generating information related to costs involved in
production, transport, agricultural processes, and
calculation of profit and/or loss.
The Internet enables communication between
farmers and agriculture experts. This leads to an
exchange of knowledge and serves as guidance
for farmers to improve production and earn
profits.
Use of technology reduces human labour but
significantly increases output.
Automatic tractors, fertilizers sprayers having
computers are present in the market. Farmers can easily adjust the amount of fertilizers according to
the requirements of soil and crops.
E-Agriculture is an emerging field focusing on the
enhancement of agricultural and rural development
through updated information and communication
processes. Focusing on agriculture, E-Agriculture
includes the conceptualization, design, development,
evaluation and application of innovative ways to use
information and communication technologies (IT) in
the rural areas.
Use of Internet in Agriculture (Agri Portals)
The following are the links of a few agri portals which
provide continuous help to the farmers:
Agriwatch.com
Echoupal
Agmarknet
www.indiaagristat.com
(ISAP) Indian society of Agribusiness
Professional www.isapindia.org
Food Corporation of India www.fciweb.nic.in
http://agricoop.nic.in http://www.apeda.com
http://fert.nic.in
http://mofpi.nic.in
http://dackkms.gov.in/KKMS/homepage.do Kisan
Call Center
ITC Limited www.itcportal.com
(B) INITIATIVES TAKEN BY GOVERNMENT
The Indian Council of Agricultural Research (ICAR) is
the principal authority in farming and ancillary
industries, which comprise learning and research. This council facilitated the establishment of a network of
agricultural research institutes and agricultural
universities throughout the country. ICAR had started
coordinated research projects which revolutionised the
agriculture. They had a key role in the studies and
explorations that resulted in the Green Revolution in
the decade of the 1970s.
The Government of India has been trying its level best
to increase investment or outlay in merchandizing and
commercializing agriculture. Some of the known plans
and strategies of the Indian Government include the
following:
Market Research and Information Network Construction of Rural Godowns
Grading and Standardization
Development/Strengthening of Agricultural
Marketing Infrastructure
Table-1
India ranks first in terms of production of
following items
Anise
Fresh fruit
Badian
Fennel
Tropical fresh
fruit Coriander
Pigeon peas
Jute
Spices
Pulses
Castor oil
seed
Millets
Safflower
seeds Buffalo milk
Guavas
Turmeric
Goat milk
Mangoes
Sesame seeds
Limes
Lemons
Dry chillies and
peppers
Cow's milk Cashew nuts
Chickpeas
Ginger
Okra
India ranks second in terms of production of
following items
Cabbages
Cashews
Fresh vegetables
Cotton seed and
lint
Brinjal Garlic
Silk
Potatoes
Goat meat
Cardamom
Wheat
Squashes
Inland fish
Cauliflowers Green peas
Pumpkins
Onions
Sugarcane
Rice
Dry beans
Lentil
Tea Groundnut
Gourds
India ranks third in terms of production of
following items
Sorghum
Tobacco
Coconuts
Hen's eggs
Rapeseed
Tomatoes
Tobacco
The Government of India has established Farmers
Commission to fully assess the cultivation plan.
Nonetheless, the suggestions received varied
responses.
There are 600+ ICAR governed Krishi Vigyan
Kendra (KVK) functioning in India. These KVK‘s are
often called ―Clinic for Crops‖ as they provide
solutions to the farmers. Every State Agriculture
University is involved in running KVK‘s so the
updated technology is provided to the farmers.
The major objectives of KVK‘s are:
To promptly demonstrate the latest agricultural
technologies to the farmers as well as extension
workers of State Departments of Agriculture
/Horticulture/ Fishery/ Animal Science/ NGOs
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 19 ISSN: 2231-6353
with a view to reduce the time lag between the
technology generation and its adoption.
To test and verify the technologies in the socio-
economic conditions of the farmers with a view to
study the production constraints and to modify the
technologies & making them appropriate. To impart trainings to the practising farmers/ farm
women, rural youth and field level extension
functionaries by following the methods of
―Teaching by doing‖ and ―Learning by doing‘.
SCENARIO OF AGRICULTURE IN INDIA
At present, in terms of agricultural production, the
country holds the second position all over the world. In
2007, agriculture and other associated industries such
as lumbering and forestry represented around 16.6% of
the gross domestic product of the country. The sector
recruited about 52% of the entire manpower. The following states in India are the most developed states
in terms of agricultural contribution:
Punjab
Uttar Pradesh
Madhya Pradesh
Haryana
Bihar
Andhra Pradesh
Maharashtra
West Bengal
The total arable territory in India is 1,269,219 km2,
which represents about 56.78% of the overall land zone
of the country. The percentage of land under
agriculture is decreasing due to increase in population
and resulting shift of land use in urbanization.
The overall water surface area of the country is 31440
km2 and the country experiences a mean yearly
precipitation of 1,100 mm. Total production of food
grains, vegetables, fruits and animal products have
registered phenomenal increase since independence primarily due to adoption of advanced technologies. It
is evident from Table-1 that India ranks among the top
three producers in various agricultural products.
CONCLUSION
Agriculture has been the major recruiter of manpower
in India (52.1%) and there is a wide scope of
development. The Government has an important role to
play. The five-year plan (Panchabarshiki Parikalpana)
was an admirable step and repetition of such kind of
steps is required. Central government bodies and State
government bodies are doing a fantastic job but until and unless the mass is unable to utilize it, the efforts
are going in vain.
The result of modernization is reflected as India now
finds itself among the top ranks in the world when it
comes to agricultural production.
REFERENCES
1. http://www.mapsofindia.com/indiaagriculture/
2. http://jaskarankullar.blogspot.in/2013/06/14-jan-
2013-computer-in-agriculture_25.html
3. http://en.wikipedia.org/wiki/ICT_in_agriculture 4. http://in.answers.yahoo.com/question/index?qid=
20090609021810AAMUV4I
http://www.buzzle.com/articles/uses-of-
computers-in-agriculture.html
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 20 ISSN: 2231-6353
CROSS-BORDER CAPITAL FLOWS- FUTURE PROSPECTS OF INDIA
Subasish Mohanty *
ABSTRACT Ever since the adoption of the Liberalisation, Privatisation and Globalisation (LPG) policy by the Government of India, our national economy has gone a long way further. India is now being considered as one of the emerging super powers and a prospective market leader of near future. Various foreign investors had shown faith in Indian concerns in the earlier phase of
investment. But over the years, their faith went diminishing as FDI inflows reduced consistently. Now, the recent trend shows that rather investing directly, they prefer to put their money in the route of Foreign Institutional Investments. This route is relatively safer and enables them to withdraw money in case of any adversity. The basic reason behind FIIs is the lack of faith or trust on the Government of India due to its faulty policies and highly volatile political fluctuations. This adverse situation has made India to slip to 14th rank in attracting FDI worldwide from a commanding position of 8th rank in 2009. A study has been made to figure out the quantum of FDI inflows during past 10 years and a special focus is being given from the period 2008 to 2014. After analysing the data, some suggestions and recommendations have been drawn. This piece of work may help the policy makers to identify the loopholes in FDI sector and help in taking adequate and appropriate policies. This will enable the reader to figure out the current scenario of Foreign Investments in India and its future
opportunities.
The World‘s capital markets were undergoing
tremendous expansion. Between 1980 and 2007, the volume of global capital flows increased dramatically
the free flow of capitals is the life blood of sustainable
economic growth and expanding prosperity therefore it
is the duty of a nation to facilitate and safeguard the
flow of capital across borders. Between 2002 and 2007,
the number of listed companies on the Nasdaq stock
market and New-York Stock Exchange (NYSE)
dropped by 16% and 3% respectively, while the Asian
markets increased significantly, with India growing
47%. South -Korea 157% and Singapore 62%. A
similar upward movement has been observed with regard to market capitalisation of the World‘s stock
exchanges. Between 2003 and 2008, the Nasdaq and
NYSE decreased by 16% and 19% respectively, while
the Asian market enjoyed significant increases. India
surged 132%, Shanghai 296%, and Hong Kong 86%.
Since the introduction of reform process in the
early 1990s, India has witnessed a significant increase
in capital inflows- in the form of foreign direct
investment, foreign portfolio investment, external
commercial borrowing and non resident Indians‘
inward remittances. The size of net capital inflows to
India rose from $7.1 billion in 1990-91 to $108 billion in 2007-08. Today, India has one of the highest net
capital inflows among the emerging market economies
of Asia.
TYPES OF FOREIGN INVESTMENT
Broadly there are two types of foreign investment,
namely, foreign Direct Investment (FDI) and Portfolio
Investment. FDI refers to investment in foreign country
where the investor retains control over the investment.
It typically takes the form of a starting a subsidiary,
acquiring a stake in an existing firm or starting a joint venture in the foreign country. Direct policy, industrial
and economic prospects etc. influence the FDI
decision. Portfolio investments are generally much
more sensitive than FDIs. Direct investors have direct
responsibility with the promotion and management of
the enterprise. Portfolio investors do not have such direct involvement with the promotion and
management.
Since the economic liberalisation of 1991, there has
been a surge in the FDI and portfolio investments in
India. There are mainly two routes of portfolio
investments in India, viz, by Foreign Institutional
Investors (FIIs) like mutual funds and through Global
Depository Receipts (GDRs), American Depository
Receipts (ADRs) and Foreign Currency Convertible
Bonds (FCCBs). GDRs/ADRs, and FCCBs are instruments issued by Indian companies in the foreign
markets for mobilising foreign capital by facilitating
portfolio investment by foreigners in Indian securities.
Since 1992, Indian companies, satisfying certain
conditions, are allowed to access foreign capital
markets by Euro issues.
BENEFITS OF FDI FDI comes with benefits for both the investor and the
economy where the investment is made. For the
investor, this could be a chance to tap markets where
he could make profits. The investors are wooed with techniques such as tax breaks, easier regulations, low
interest rate on loans and so on. For the company, FDI
has provided a much needed push in terms of injecting
liquidity apart from bringing in better technology,
creating more job opportunities and so on.
REGULATIONS ON FDI The government has laid down rules both on the basis
of the sector as well as the nature of activity that is
meant to be undertaken with the FDI. For instance, FDI
in an actively like mining for diamonds and precious stones does not require prior permission. A notification
simply needs to be sent to RBI within 30 days of
receiving the remittances and documents needs to be
submitted in a period of 30 days after the shares are
* Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi- 221005
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 21 ISSN: 2231-6353
issued to the foreign investor. However, in certain
other sectors like broadcasting, the proposal needs to
be sent and approved by the Foreign Investment
Promotion Board (FIPB). There are also restrictions on
the amount of foreign investment in particular sector
and in certain cases, this is inclusive of both FDI and FII investment.
FACTORS AFFECTING INTERNATIONAL
INVESTMENT The following factors are affecting the international
investment;
1. Rate of Interest
One of the most important incentives to international
capital movements is the difference in the interest rate
prevailing at different places. Capital has a tendency to
move from a country with a low rate of interest to a
country where it is higher, other things being equal.
2. Speculation
Short term capital movements may be influenced also
by speculation pertaining to anticipated changes in the
interest rates or foreign exchange rates.
3. Profitability
Private foreign capital movement is influenced by the
profit motive. Hence, other things being equal, private
capital will be attracted to countries where the return
on investment is comparatively higher.
4. Costs of production
Private capital movements are encouraged by lower
costs of production in foreign countries. We may
distinguish between two steps of cost reducing
investment. The first arises from the need to obtain raw
materials from abroad. Such materials may be either
unavailable at home or obtainable only at extremely
high costs, but they are essential for the production and
sale of final products at home or abroad. Without them
profit opportunities would remain unexploited. Indeed,
vast investments in the extractive industries are motivated by the fact that the capital must go where the
resources are. The second type of cost- reducing
investment pertains to cost of commodities other than
materials, primary labour.
5. Economic Conditions
Economic conditions, particularly the market potential
and infrastructural facilities, influence private foreign
investment. The size of the population and the income
level of a country have an important bearing on the
market opportunities.
6. Government Policies
Government policies, particularly towards foreign
investment, foreign collaboration, remittances, profits,
taxation, foreign exchange controls, tariffs, and
monetary, fiscal and other incentives, are important
factors that may influence the foreign investment in a
country.
7. Political Factors
Political factors like political stability, nature of
important political parties and relations with other
countries also influence the capital investments.
Table- 1
Sectors Attracted Highest FDI equity inflows
(US $ Million)
Sector 2004-
05
2005-
06
2006-
07
2007-
08
Apr2000-
feb08*
%
Total
inflows
Service 444 543 664 5492 11934 22.42
Computer
software &
Hardware
539 1375 2614 373 7241 14.03
Telecom. 125 624 478 1198 3778 07.23
Construction
(Including
roads &
Highways)
152 151 985 527 2947 05.49
Housing &
real-estate 0 38 467 792 2324 04.21
Automobile 122 143 276 553 2115 04.10
Power 53 87 157 503 1741 03.40
Metallurgical 182 147 173 971 1557 02.86
Chemicals
(Other than
fertilisers)
198 390 205 216 1373 02.67
Drugs &
Pharma. 292 172 215 334 1276 02.46
Source: Economic Times, Dt: 30.04.2008
*Cumulative Sector wise inflows
Important factors that have contributed materially to
India‘s economic growth and its ability to attract
foreign capital include the following;
1. Corporate governance has a significant effect on
inward FDI flows, suggesting host country
governments and authorities should shape policy
in this area to maximise such flows. The impact
of transparency in corporate governance on FDI and firm performance is well documented.
2. In the early part of 1990‘s the government of
India abolished the import licensing policy for
which a free trade regime was found as a result of
which many small business firms have ventured
to make stride negotiations with the foreign
countries.
3. After reformation there were significant changes
which have been noticed in the area of tariff and
customs duty structure. The custom duty structure
has come down from 400% to less than 25% on an average.
4. Convertibility of the Country‘s current account,
allowing greater availability of foreign exchange
into and out of the country to meet business
requirements.
Ever since the adoption of LPG policy by the
Government of India, we have come a long way
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 22 ISSN: 2231-6353
further. India is now being treated as one of the
prospective super power of the entire globe. Our
economy showed a steady growth and there was a
phase when our national economy was compared with
big guns like The United States of America, European
Unions and China.
Over the years, different new sectors have been
emerged and FDI is being allocated to those new
sectors now a days. The following table shows the
recent pattern of allocation of FDI in different sectors.
TABLE- 2
Sector/ Industry wise FDI Inflows to India
(In US $ Million)
Industry 2008-
09
2009-
10
2010-
11
2011-
12
2012-
13(P)
Manufacture 4777 5143 4793 9337 6528
Construction 2237 3516 1599 2634 1319
Financial
Services 4430 2206 1353 2603 2760
Real Estate
Activities 1886 2191 444 340 197
Electricity &
Other Energy
Sector
669 1877 1338 1395 1653
Communication
Services 2067 1852 1228 1458 92
Business
Services 643 1554 569 1590 643
Miscellaneous
Services 1458 888 509 801 552
Computer services
1647 866 843 736 247
Restaurants and
Hotels 343 671 218 870 3129
Retail &
Wholesale Trade 294 536 391 567 551
Mining 105 268 592 204 69
Transport 401 220 344 410 213
Trading 400 198 156 06 140
Education,
Research &
Development
243 91 56 103 150
Others 1097 384 506 419 43
Total 22697 22461 14939 23473 18286
Source: Compiled from Annual reports of RBI,2012-13
(P) - Provisional
The recent trends show a relatively negative
performance in the FDI sector. More foreign players
are no more interested in putting their money in Indian
firms; rather, they want to grab the Indian market by investing in institutional mode. Reasons like political
fluctuation, reduction in the value of rupee ultimately
shattered the FDI inflow in recent years.
Graphical Representation of Total FDI Inflows of
Different Years (US $ Million)
TABLE- 3
Trends in Foreign Investment Inflows
(US $ Billions)
(India Slips from 8th
to 14th
Rank)
Rank
(According
to 2010)
Country 2009
Inflows
2010
Inflows
1 United
States 153 228
2 China 95 106
3 Hong Kong 52 69
4 Belgium 24 62
5 Brazil 26 48
6 Germany 38 46
7 United
Kingdom 71 45
8 Russian
Federation 36 41
9 Singapore 15 39
10 France 34 34
11 Australia 26 32
12 Saudi
Arabia 32 28
13 Ireland 26 26
14 India 36 25
Source: The Economic Times, 30th July, 2011
The above table shows the disastrous performance of
Indian players in attracting foreign capital. The global
ranking of attracting foreign capital for India has
already slipped down to 14 from 8th rank in the year
2009. This scenario shows that the foreign investors are
losing their faith on Indian economy, which is,
obviously a negative sign for our economy.
If we try to analyse the table 4, we will find that the
FDI inflow has steadily fallen from 2008. Those
declining FDI Inflows areas are marked with gray
shade. Barring 2011-12, all other years witnessed a consistent fall in the FDI inflow. 2008-09 remained a
bad year for Foreign Institutional Investors as well. A
heavy quantum of investment was withdrawn from
Indian market during this one year phase. After that,
things got opposite ways and FIIs started to reinvest in
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 23 ISSN: 2231-6353
Indian markets. Now the current position of declining
FDI and consistent FII implies that probably such
foreign investors are losing faith on Indian market as
they are not investing in Indian ventures; rather, they
prefer to play in institutional mode.
TABLE- 4
Sluggish Foreign Investment Scenario
(FDI & FII Inflows)
FY
(Apr-Mar)
FDI Inflows to India FIIs in
India Total FDI Growth (%)
2000-01 4029 -- 1847
2001-02 6130 (+) 52 1505
2002-03 5035 (-) 18 377
2003-04 4322 (-) 14 10918
2004-05 6051 (+) 40 8686
2005-06 8961 (+) 48 9926
2006-07 22826 (+) 146 3225
2007-08 34843 (+) 53 20328
2008-09 22697 (-) 35 (-) 15017
2009-10 22461 (-) 1 29048
2010-11 14939 (-) 34 29422
2011-12 23473 (+) 57 16812
2012-13 (P) 18286 (-) 22 27583
2013-14 (P) 12988 (-) 29 NA
Source: The Economic Times, 12th Nov, 2013 and RBI
Annual Report, 2012-13.(P)- Provisional
Although the above mentioned period of 2008 to 2014
encouraged the flow of FIIs, still we have to look for
some other areas and, if proper steps will be taken at
the right time, we can attract further additional foreign
capital for the development of our country. In this
context the following suggestions and recommendations may have some role to play:
RECOMMENDATIONS AND POLICY
IMPLICATIONS
1. Now it has been noticed that retail sector is
expanding tremendously. Similarly, due to the
advent of the private insurance companies there is
a better hope that the sector will grow further in
future. Now it is necessary to liberalise the
investment norms so that more funds can be
obtained from the foreign countries by way of Foreign Direct Investment.
2. An easy process towards the convertibility of
country‘s capital account should be accepted so
that it will facilitate easy flow of foreign capital
into and out of the country.
3. No doubt, due to reformation of the financial
sector we are enjoying a stable economy still than
in certain regions the required financial literacy
has not proved to be very much effective for
which it is now necessary to take up the matter
seriously and it is necessary to push ahead the
financial sector reform and enhance India‘s role as a major hub for global finance.
4. In order to increase the import and export trade
there is an urgent need to issue licence for the
establishment of SEZs in our country. To develop
a giant industrial base in our country attempt
should be made to have a simplified land reform
policy. The applications which are kept pending for the approval of the SEZs should be made clear
earlier to facilitate the SEZs to work earlier.
5. Reformation in the educational sector needs to be
made on an urgent basis. More emphasis is to be
given towards the vocational education system
and the course curriculum should be updated
taking the present needs of the society. Skill
development will broaden the participation in
India‘s growth.
6. It is necessary to build on changes in tax policy,
industrial policy and general economic policy by
further reducing redtapism and bureaucratic hurdles that remain an important concern that
discourages foreign investment.
7. It is necessary to enhance innovative technologies
and strengthen intellectual property protection in
India. An international accounting standard
should be put into practice in order to bring more
transparency in the valuation of the business
entities located in foreign countries.
8. Now India is having a satisfactory level of foreign
exchange reserves which will no doubt stimulate
trade and commerce for the future. Further additional reserve of foreign exchange will
improve the absorption of capital inflows in the
short run and to develop foreign exchange earning
capacity that will enable an appropriate return on
invested capital.
CONCLUSION India has differentiated itself as a dynamic recipient
and source of global capital. India‘s prospects are
brighter now and in future it will remain as the leading
master in cross boarder capital flows. Investment Guru
Marc Faber remarked ―Asia will be the economic hotspot for the next 50 years‖. India and China have
prominently figured in the famous ‗BRICS 2050‘as
reported by Goldman Sachs. Previously, often
Question was asked by the foreigners before investing
―why India?‖ now a days, fund managers have replaced
the word and using ―How much in India?‖
REFERENCES
1. Shukla, R.; (2013) ―The necessity and Rationality
behind FDI‖, The Economic Times, 22 June,
2013 Lucknow Edition. 2. RBI Annual Report;, (2012-13) The reserve Bank
of India, Mumbai
3. Rajan, R.; ―Moving towards FDI- Role of
Regulators‖, Yojana, Sep, 2013 Issue.
4. Various Issues of ―The Economic Times‖
Newspaper.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 24 ISSN: 2231-6353
AN EFFICACY OF THE DOHA DEVELOPMENT ROUND AND
IT’S IMPLICATIONS FOR THE DEVELOPING COUNTRIES
S.K Tannan *
Md. Athar Ali **
Panna Lal ***
ABSTRACT The Doha Development Agenda, launched with much fanfare in December 2001 with a strong resolve to focus on development, has not made much progress since talks collapsed in December 2008 over the treatment of agricultural subsidies and tariff reduction. The previous two WTO Ministerial Conferences held at Geneva in 2009 and 2011 failed to break the logjam.Unlike the previous two ministerial meetings, WTO members have now pinned greater hope on the next WTO Ministerial Conference at Bali, Indonesia. There is a near consensus among the members that Bali Meeting should be about deliverables. The three areas on which they have zeroed in on to bridge the gaps are trade facilitation, food security and development dimension. While trade facilitation is pushed hard by the developed Nations, the G33 groups of Nations have put forward the proposal on food security. The third element is development, which includes LDC (Least Developed
Countries) specific issues-namely duty and quota free market access, operationalization of waiver on services, cotton and preferential rules of origin. The failure to conclude the Doha Round after more than a Decade of negotiations has had its biggest fallouts on the private sector and other key stakeholders. There has been growing disillusionment about the utility of the multilateral trading system. It has been observed that in recent years, the private sector in both developed and developing countries has shown greater preference for the free trade agreements. This is perhaps one of the key factors why WTO members are struggling to amass political capital to conclude the Doha deal.Consensus over three key deliverables and a strong political message emanating from G20 leaders at St Petersburg has enthused Indian Industry. The time has come to change our mindset so that we can collectively reach a consensus without compromising on the developmental aspects which has been the core of the
Doha Round.
DOHA DECLARATION The fourth Ministerial meeting of WTO was held in Doha, Qatar in November, 2001 in which Ministers
from the 142 member countries participated. This
Ministerial meeting had attracted a lot of attention
because of the conflict of interests of the developed
and developing countries. The developed countries
wanted a new round of Multilateral Trade Negotiations
to be launched soon, covering what are known as
Singapore Issues (a list of seven items :) which were
proposed at the Ministerial Meeting in Singapore in
1996 for future negotiations. The seven items included:
1. Investment,
2. Competition Policy, 3. Trade Facilitation,
4. Transparency in Government Procurement,
5. Environment
6. Agriculture, and
7. Trade Related Aspects of Intellectual Property
Rights (TRIPs).
Developing countries, on the other hand, held that the
Implementation Issues should be resolved before a
New Round. India had fought almost single-handedly
against the developed countries. The Doha Meet concluded by drawing up the ―Doha Development
Agenda‖ for new trade liberalization talks; with India
approving the Ministerial Declaration only after it was
satisfied that the Conference Chairman‘s Statements
had addressed the country‘s concerns in the four
Singapore Issues:
1. Foreign investment,
2. Competition policies, 3. Transparency in Government Procurement and
4. Trade Facilitation
The Agenda agreed upon should be seen as a game
plan for negotiations over the next few years. The
Doha Development Agenda includes:
Cutting tariffs on Industrial goods and services
Phasing out subsidies to agricultural producers
Reducing barriers to cross-border investment
Limiting the use of anti-dumping laws
The Doha Ministerial adopted three major declarations:
1. On the Negotiating Agenda for the new WTO
Round.
2. On implementation concerns of the developing
countries for assisting such countries implementing
the trade rules that came out of the Uruguay Round.
3. On the political statement dealing with Patents and
Public Health.
One of the remarkable achievements of the Doha
Ministerial for developing countries was that in the
case of TRIPs and Public Health, it allowed compulsory licensing which would allow companies
within the developing countries to produce generic
versions of patented drugs, if the situation was serious
enough. Now it will be possible for the developing
countries to set aside the patent laws if they have to
*Professor and HOD, Alabbar School of Management, Raffles University, Neemrana , Rajasthan
**Professor, Alabbar school of Management, Raffles University, Neemrana, Rajasthan.
***Assistant Professor, PGDAV (EVE) College, University of Delhi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 25 ISSN: 2231-6353
face the epidemics such as Malaria, Tuberculosis, and
AIDS. Each country has been given the freedom to
define a National Emergency. Doha Declaration on
TRIPs and Public Health was a milestone that
recognized that Intellectual Property Rights were
subservient to public health concerns. It clearly stated that TRIPs Agreement does not, and should not prevent
members from taking measures to protect public
health.
In Agriculture, it was concluded by all the countries
that subsidies need to be reduced and should ultimately
be phased out. However, in the case of food security
concerns, exceptions were permitted. All forms of
export subsidies will be phased out. This is a big
problem for the developed countries which have been
providing mounting subsidies. The success or failure of
the interests of the developing countries will depend on to what extent India can muster the support of the other
developing countries to fight for their common cause.
OBJECTIVES OF DOHA DEVELOPMENT
ROUND The main objective of the Doha Development Round
or Doha Development Agenda (Current Trade
Negotiation Round of the World Trade Organization
which commenced in November 2001) was to lower
the trade barriers around the world to enable the
countries to increase their trade globally. However, talks have been stalled over a divide on major issues
such as Agriculture, Industrial tariff and non-tariff
barriers, services and trade remedies.
The most significant differences are between the
developed nations (led by the European Union (EU),
the United States (USA), and Japan) and the major
developing countries (led and represented mainly by
India, Brazil, China and South Africa). The U.S wants
China, India, Brazil and South Africa, who are often
referred to as emerging countries, to undertake
commitments in market access and rules that are far in excess of what the Doha mandate stipulate.
Indeed the U.S stance also finds resonance with the
positions adopted by WTO‘s Director General Pascal
Lamy. In his inaugural statement at the Ministerial
meeting held in Geneva on December 15-17, 2009 ,
Lamy said ― You (the Ministers) will need to address
the essential question behind the current impasse;
different views as to what constitutes a fair balance of
rights and obligations within the trading system, among
members with different levels of development‖ There is also considerable contention against and between the
EU and U.S.A over their maintenance of agricultural
subsidies-seen to operate effectively as trade barriers.
CURRENT STATUS OF DOHA DEVELOPMENT
ROUND Doha Round began with a Ministerial level meeting in
Doha, Qatar in 2001. Subsequent meetings took place
in Cancun, Mexico (2003), Hongkong (2005). Related
negotiations took place in Geneva, Switzerland (2004,
2006 and 2008), Paris, France (2005), and Potsdam,
Germany (2007). The further Round of Negotiations
(July 23-29, 2008) in Geneva broke down after failing
to reach a compromise on agricultural import rules.
WTO‘S Eighth Ministerial meeting held in Geneva
during December 15-17, 2009 was also not a success as
it was held primarily for book-keeping. The most
complex set of issues the WTO is currently faced with,
are those it is trying to address through the Doha
Round, which commenced in Doha, Qatar in 2001.
The largest of the disputes has essentially resulted in a
split between developed members, such as the U.S,
Japan and EU, and developing Nations, led by India
and Brazil, over the large agricultural subsidies maintained by the richer nations. At subsequent trade
talks held in Cancun, Mexico, Brazil and its alliance of
developing nations-known as Group of 22-walked out
of negotiations when EU and Japan turned the focus of
the talks to international investment rules and anti-trust
policies without first addressing the issue of farm
subsidy programs.
A year following Cancun, the WTO pronounced U.S
cotton subsidies to be illegal , and the U.S, in
subsequent negotiations, agree to cut farm subsidies for such crops as cotton, corn, rice, wheat, and Soya beans
in order to appease demands made by Brazil and its
allies by 20%. Despite these advances, the Doha
Round‘s effectiveness and WTO‘s ability to handle the
large number of interests and issues presented in it are
still not certain.
Subsequently, intense negotiations took place between
the USA, China and India in the end of 2008 in order
to agree on negotiations modalities. However, these
negotiations did not result in any considerable
progress. Several countries called for negotiations to start again. Brazil and Pascal Lamy, the then Secretary
General, WTO led this process. Luiz Inacio Lula da
Silva, the then President of Brazil called upon several
countries leaders to urge them to renew negotiations.
Lamy visited India to discuss possible solutions to the
impasse.
The declaration at the end of G20 Summit of World
leaders in London in 2009 included a pledge to
complete the Doha Round. In early 2010, Brazil and
Lamy focused on the role of the United States in overcoming the deadlock. The President of Brazil
urged Barrack Obama to end the trade dispute between
the Brazil and the U.S over cotton subsidies following
his increase in tariffs on over 100 U.S goods.
Lamy highlighted the difficulty of obtaining agreement
from the U.S without the President‘s fast track
authority and biennial elections. One of the
consequences of the economic crisis of 2008-2009 was
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 26 ISSN: 2231-6353
the desire of the political leaders to shelter their
constituents from the increasingly competitive market
experienced during market contractions. Lamy hoped
that drop in trade of 12% in 2009, quoted as the largest
drop since the Second World War, could be countered
by successful conclusion of the Doha Round.
The failure to conclude the Doha Round after more
than a Decade of negotiations has had its biggest
fallouts on the private sector and other key
stakeholders. There has been growing disillusionment
about the utility of the multilateral trading system. It
has been observed that in recent years, the private
sector in both developed and developing countries has
shown greater preference for the free trade agreements.
This is perhaps one of the key factors why WTO
members are struggling to amass political capital to
conclude the Doha deal. Consensus over three key deliverables and a strong political message emanating
from G20 leaders at St Petersburg has enthused Indian
Industry. The time has come to change our mindset. So
that we can collectively reach a consensus without
compromising on the developmental aspects. which
has been the core of the Doha Round.
Unlike the previous ministerial meetings, WTO
members have now pinned greater hope on the next
WTO Ministerial Conference at Bali, Indonesia. There
is a near consensus among the members that Bali Meeting should be about deliverables. The three areas
on which they have zeroed in on to bridge the gaps are
trade facilitation, food security and development
dimension. While trade facilitation is pushed hard by
the developed Nations, the G33 groups of Nations have
put forward the proposal on food security. The third
element is development, which includes LDC (Least
Developed Countries) specific issues-namely duty and
quota free market access, operationalization of waiver
on services, cotton and preferential rules of origin.
ECONOMIC BENEFITS OF THE DOHA ROUND A study by the World Bank Economist Kym Anderson
found that global income could increase by more than
$ 3000 Billion per year, $ 2500 Billion of which would
go to the developing world. Pascal Lamy has
conservatively estimated that the deal would bring an
increase of $ 130 Billion. Several think tanks and
public organizations have assessed that the conclusions
of the trade round would result in a net gain. However,
the restructuring and adjustment costs required to
prevent the collapse of local industries, particularly in
developing countries, is a global concern.
The Copenhagen Consensus, which evaluates solutions
for global problems regarding the Cost-benefit ratio, in
2008 ranked the Doha Development Round as the
second best investment for global welfare. However,
One study presents several scenarios regarding the
economic costs of a failed Doha Round. For example,
in a scenario where the applied tariffs of major
economies would go to currently bound tariff rates,
world trade would decrease by 7.7 %. In a more
modest scenario, where countries would raise tariffs to
maximum rates applied during the past 13 years, world
trade would decrease by 3.2 %.
RESEARCH AREAS 1. A detailed and more accurate analysis of the
impact of trade policies on both developing and
developed countries is required to be undertaken.
2. To devise a new path breaking Model of global
trade as a tool to analyze the potential impacts of
the Negotiations and underlying economic
interests of the WTO‘s diverse members.
3. A more scientific assessment of the Cost-benefit
ratio which pertains to the economic benefits in
adopting the Doha Development Agreement as
well as the restructuring and adjustments costs required to prevent the collapse of the local
industries, particularly in developing countries.
4. The potential costs of the failed Doha Round.
Several studies have been undertaken on this
issue. However, a more comprehensive and
analytical study is required to be undertaken to
address the issue to address the issue in its
prosper perspective.
5. A proper and more scientific analysis has to be
undertaken to know the impact of the highest
applied or bound rates imposed by the countries for the 1995 to 2011.
6. To ascertain the problems faced by the
developing countries for implementation of the
Doha Round and also the technical assistance for
capacity building required by these countries.
7. The outstanding implementation issues in the area
of market access, investment measures, and
safeguards, rules of origin, and subsidies and
countervailing measures, among others.
8. The impact assessment study of the Doha Round
has to be undertaken using the economic
projections made by the various study groups.
REFERENCES
1. WTO‘s Hongkong Conference-I, Imbalanced
Outcome, Published in Economic and Political
Weekly, December 24, 2005
2. PCT System and its impact on the developing
countries, by Mr. Rajiv Ranjan, Ministry of
Commerce and Industry, New Delhi
3. Biotechnology, Intellectual Property Rights and
the Rights of Farmers in Developing Countries by
Emmanuel Ooru Awanku published in the Journal of World Intellectual Property, Volume 8, No 1,
January 2005
4. International Business Law and its Environment
by Schaffer, Earle and Augusti published by
Thomson-South-Western, 2005.
5. National Conference on TRIPS-CBD at the WTO,
Jointly organized by Ministry of Commerce and
Industry and UNCTAD, August 2005
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 27 ISSN: 2231-6353
SELF- HELP GROUPS: AN IMPORTANT TOOL FOR EMPOWERMENT OF WOMEN
Arpita Chaturvedi *
ABSTRACT Women have long been neglected in their role as beneficial in the process of development. In the present day context women empowerment, is crucially important because of the rapid changing scenario. The empowerment of women is one of the central issues in the process of development of countries all over the world. The central and state government of India have
been launched several kinds of women development related programmes. But these progerammes is not working in proper and successful manner due less participation of women. The absence of the role of women in their developing process arises more corruption, exploitation and gender bias Therefore, the active participation of women is very much important in her development and empowerment and also successfulness of government‟s efforts. . SHGs have emerged as the most successful strategy, in the process of participatory development and empowerment of women. It helps to arose self-confidence, women begin to be recognized as an economic entity as an individual in their own right. They get a platform to impress themselves, share their problem and gain social acceptance. In this respect, the above topic has selected to convey the contribution of Self-Help Groups in economic women of empowerment.
INTRODUCTION
The word Empowerment captures the sense of gaining
control over lines of participation and of decision
making. The process of empowerment is both
individual and collective, since it is through
involvement in groups that people most often begins to
develop the awareness and the ability to organize to
take action and bring about change. Women in India
are victims of a multiple socio- economic and cultural
factors. Through women need to be empowered in all
the areas, it is economic independence, which is the most prominent means of the empowerment.
Therefore, enhancing income-earning opportunity is
increasingly viewed as an effective means for
empowering women and improving their status. SHGs
have emerged as the most successful strategy, in the
process of participatory development and
empowerment of women. The Self-Help programmes
in the form of saving and credit or micro-credit
schemes have succeeded in changing the lives of poor
women enhancing the standards of living, particularly
in rural areas. These programmes would increase the levels of income sources, purchasing power, and also
self-esteem. It helps to arose self-confidence, women
begin to be recognized as an economic entity as an
individual in their own right. They get a platform to
impress themselves, share their problem and gain
social acceptance.
METHODOLOGY For the purpose of data analysis, the data pertaining to
providing loans and finance assistance against the
SHGs for the period of 10 years from 2000-01 to 2010-
11 covered. The data relating to Loan and refinance assistance SHG are collected from the Annual Reports
of NABARD, Annual Reports of RBI, and Report on
Status of Microfinance in India published by the
NABARD for various years. The data has been
tabulated and analyzed by exercising simple statistical
techniques like average, percentages, growth and
correlation.
CONCEPT OF SELF-HELP GROUPS
According to Reserve Bank of India, a ―Self-help
group (SHG) is a registered or unregistered group of
micro entrepreneurs having homogeneous social and
economic background, voluntarily coming together to
save small amounts regularly, mutually agree to
contribute to a common fund and to meet their
emergency needs on mutual help basis‖. The group
members use collective wisdom and peer pressure to
ensure proper end-use of credit and timely repayment thereof. In fact, peer pressure has been recognized as
an effective substitute for collaterals. Like the little
drop of water making an ocean, their saving will
slowly grows into large sums and this saving are kept
with the bank. This is the common fund in the name of
the SHGs. The SHGs gives small loans to member
from its common funds. After six month, if the SHGs
satisfy the bank as per the checklist for equality, bank
will give loans to the SHGs. In this context, NABARD
have emerged a linkage pregame between SHGs and
banks.
OBJECTIVES OF SELF-HELP GROUP
The SHGs comprise very poor who do not have access
to get financial assistance from financial institutions.
They act as the forum for the members to provide
space and support to each other on mutual basis. It also
enables the members to learn to cooperate and work in
a group environment. The SHGs provide savings
mechanism, which suits the needs of the members and
provides a cost effective delivery mechanism for small
credit to its members. The SHGs significantly
contribute to the empowerment of poor people. In this process the micro-finance can change the lives of the
poor and it is possible to ensure a reasonable rise in the
income of the poor in various activities. The SHGs are
presently promoted by government, development
banks, voluntary agencies and NGOs, with a focus on
socio-economic issue, mainly thrift and credit
programs.
*Research Scholar, Department of Commerce and Business Administration, University of Allahabad, Allahabad
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 28 ISSN: 2231-6353
They are also taking up issue relating to rural industries
and modernization of agriculture. Generally, the SHGs
are formed by the Development Agencies and NGOs,
which account for over 90 percent of SHGs promoted.
GENESIS OF SELF- HELP GROUPS The SHGs represent a marine grassroots to lend
mobilization of poor rural women into small in formal
associations capable of forming links with formal
system to help access financial and other services
needed for their socio-economic development.
Basically, the SHGs are being promoted as a part of the
micro-finance aimed to help the poor to obtain easily
financial services like saving, credit and insurance.
Micro-finance, which is being promoted widely in the
developing countries, mainly works through bringing
to gather group of the poor. The promotion of SHGs in
India began formally in 1992 with the launch of the SHGs-Bank Linkage programme by NABARD. The
programme main aim was to improve rural poor‘s
access to formal credit system in a cost effective and
sustainable manner by making uses of SHGs. The
SHG- bank linkage programme is targeted to reach the
poorest sections, which are bypassed by the formal
banking system. Therefore, it is essential that only the
very poor be considered as the target group of SHG-
Bank linkage programme. A SHG can be all-women
group, or even a mixed group. However, it has been the
experience that women‘s group perform better in all the important activities of SHGs. The SHGs are
sustainable as member come together due to felt need,
own platform of affinity and commonality of problems.
The SHGs are saving led and act as adhesive and they
are characterized by collective participatory wisdom.
They give doorstep access to micro-finance with near
zero transaction cost and offer interface with banking
network. These SHGs act as platform for women‘s
empowerment in all direction.
RELEVANCE OF SHGS IN RESPECT OF
WOMEN EMPOWERMENT The self-help groups have gained considerable
importance and have been instrumental in
empowerment by enabling women to work together in
collective agency. Women‘s networks to do not usually
obtain business or political favours as the command
few economic resources and frequently rely on time
and non-monetized labour exchange. However, Self-
Help groups, when combine with savings and credit,
have enabled women to benefit economically by
monetizing their contribution consequently it
empowered them to become agents of change in the rural sector in particular. The Self-Help groups have
facilitated the formation of social capital, where people
learn together for a common purpose in a group or
organization (Putnam 2000). Therefore, the relevance
of SHG has emerged in account of the following
reasons:
Access credit facilities: A SHGs works on the
principle of unity, which helps the poor to come
together the pool their saving and access credit
facilities. A SHG by tapping social capital like trust
and reciprocation helps in replacing physical
collateral, a major hurdle faced by the poor in
obtaining formal credit. Then, through principle of
joint liability and peer pressure, a SHG ensures prompt loan recovery from the members.
Empowerment: The SHG is seen as a term
expected to empower the women members. The
participation in SHG and the access the savings and
credit can play transformational role of women,
both socially and economically. The access the
savings and credit helps a women member to take
care of her family‘s financial needs for
consumption and production purposes.
Better Gender Relations: The ability to meet the
needs of their family has enhanced the standing of the women in the family leading to better gender
relations. In many cases women are also considered
in the decision making process of the family. Given
the widespread gender bias against women in
various field of socio-economic development in
countries like India, these are arguments that
intervention like micro-finance has the potential to
enhance women‘s capabilities that can make a
significant difference to overall development of
women.
Social Recognition: The continued participation in
SHG is further likely to enhance the awareness, skill and other abilities of the women resulting in
building in building of individual self-esteem and in
getting due social recognition. While the study
found good evidence to support the role of micro-
finance in increasing women‘s access to financial
services and their ownership of assets within the
household, the evidence was only mixed about the
role of micro-finance in either increasing women‘s
economic activity or increasing women‘s
awareness, mobility and skill development or
enhance women‘s status in the household as income contributors and decision makers.
Self- management: The SHG model often
compared to grameen group model which is largely
a self-managing one. The women members are
expected to manage on their own the affair of the
group and outside agencies. As a result of self –
management not only would women develop their
abilities at individual and group level but also
augment the scope for exercising control and
ownership over financial resources and institutions.
Thus, SHG can potentially contribute towards
women‘s over all development through meeting their practical needs, developing their skill and
abilities and by increasing the scope for their
control over institutions capable of contributing
towards socio-economic development.
Poverty Eradication: The primary role expected
of SHG is one of improving for the poor the access
to saving the credit seems to have enhanced the
independence of the poor women as a result of
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 29 ISSN: 2231-6353
participation in SHGs. The borrowing members of
the SHGs have been able to reduce their reliance on
moneylender very drastically. The members have
not only been able to come out of the control of
these moneylenders but also have been able to save
or generate a sizeable amount of income by way of cheaper interest rate on loans obtained from SHGs.
Further, the families of the members have made
efforts both to guard themselves from various
vulnerabilities as well as build their economic base
so that they are able to escape from poverty.
Economic Activities: SHG members are using
quite significantly loan for their regular economic
activities like animal husbandry, agriculture and
petty business, in the process of trying to both
consolidate and improve the economic situation.
The formation of SHG has not only helped the
women to be women to be socially independent but economically also
Socio-economic Development: apart from the help
to build their own equity, the SHG are helping are
women to leverage the savings for accessing larger
credit. The SHG are utilizing the savings mobilized
to lend small loans internally among their members.
This helps the member to meet their very urgent
consumption and social credit needs which
normally they would borrow from informal sources.
The personal abilities, ownership of economic
assets development of skills, ability to decide about self and extent of participation in political sphere
are likely to improve for the better if the women
member continues to participate in SHG for the
longer period.
Attention from Bank: The SHGs are also able to
borrow from banks to meet the bigger and
productive credit needs of the member. More and
more SHGs are getting credit linked to banks which
is increasing the members‘ access to formal source
of credit. Thus, SHGs have been able to add a new
source from where members can obtain loans which is helping the poor women to build their financial
resources.
Co-relation between WSHGs and Panchayat:
The members can play and important role in
decision making at gram sabhas by influencing,
formulating and implementing programme for the
benefit of women like health, diet, family welfare,
drinking water, family planning etc. they can
understand better their problems, identify them,
give priorities towards its solution. Thus, their
active participation will not only enhance their
status at village level but development of the village and nation.
PROGRESS OF SELF-HELP GROUPS
MOVEMENT
The progress of Self-Help Groups movement in India
so for, has been promising and impressive. The No. of
SHGs over the ten years was recorded as high as
89,64,626. It is observed that poor can organized them
and do things to promote their well-being.
The Table 1 presents the details of the progress of
SHGs in India. It is observed from the table that the
numbers of SHGs are increased from 1, 97,653 in the
year 2001-02 to 89, 64,626 in the year 2010-11. But in
the concern of the growth rate, it show that the
progress is not satisfactory, cumulative progress in
SHGs found decreased trend in year to year. SHGs
growth rate in the year 2001-02 was highest 74.92 among the ten years and with decreasing manner it was
38.31 in 2005-06, 25.67 in 2009-10 and lowest 15.40
in 2010-11. It indicates that the growth rates of the
SHGs are not satisfactory and consistently decreasing
due to various constraints in infrastructure
development and other promotional measures.
The table 2 shows the details of bank finance to SHGs
for the last ten years. It is noticed that the bank loan to
SHGs are gradually increased from Rs. 1026.34 crore
in the year 2001-02 to Rs. 68073.29 crore on the year 2010-11 with annual average of Rs. 23072.95 crore.
However, previously it had been seen that growth rate
was increased significantly but after the year 2001-02 it
has found in decreasing trend. The growth rate was
113.14 in the year 2001-02 and it is found low growth
rate of 27.18 in the year 2010-11 with decreasing rate
year by year. It indicates that the bank loan to SHGs
are not meeting requirement due to lake of sufficient
financial sources.
Table 1. Progress of Self-Help Groups in India
Years No. of
SHGs
Growth
Rates
Cumulative
No of SHGs
Cumul.
Growth
Rates
2001-02 1,97,653 32.61 4,61,478 74.92
2002-03 2,55,882 29.46 7,17,360 55.45
2003-04 3,61,731 41.37 10,79,091 50.43
2004-05 5,39,365 49.11 16,18,456 49.98
2005-06 6,20,109 14.97 22,38,565 38.31
2006-07 11,05,749 78.31 33,44,314 49.40
2007-08 12,27,770 11.04 45,72,084 36.71
2008-09 16,09,586 23.72 61,81,670 35.20
2009-10 15,86,822 -(1.44) 77,68,492 25.67
2010-11 11,96,134 -(32.66) 89,64,626 15.40
Average 8,70,080.1 21.39 36,94,613.6 43.15
Source: Hand Book of Statistics on the Indian
Economy, 2010-11
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 30 ISSN: 2231-6353
Table 2. Progress of Self-Help Groups- Bank Loan with Bank Linkage Programme
Years No. of SHGs Bank Loan
(Rs. Crore)
Bank Loan
Growth
Rates
Cumulative
No of SHGs
Cumulative
Bank Loan
(Rs. Crore)
Cumulative
Bank Loan
Growth Rates
2001-02 1,97,653 545.47 89.47 4,61,478 1026.34 113.43
2002-03 2,55,882 1022.33 87.42 7,17,360 2048.67 99.61
2003-04 3,61,731 1855.53 81.50 10,79,091 3904.20 90.57
2004-05 5,39,365 2994.26 61.37 16,18,456 6898.46 76.69
2005-06 6,20,109 4499.09 50.26 22,38,565 11397.55 65.22
2006-07 11,05,749 6570.34 46.04 33,44,314 17967.89 57.65
2007-08 12,27,770 8849.23 34.68 45,72,084 26817.12 49.25
2008-09 16,09,586 12254.06 38.48 61,81,670 39071.18 45.69
2009-10 15,86,822 14453.65 17.95 77,68,492 53524.83 36.99
2010-11 11,96,134 14548.46 0.66 89,64,626 68073.29 27.18
Average 8,70,080.1 6759.24 50.78 36,94,613.6 23072.95 66.22
Source: Hand Book of Statistics on the Indian Economy, 2010-11
Table 3. Refinance Assistance to SHGs
Years No. of SHGs
Refinance
Assistance
(Rs. Crore)
Refinance
Assistance
Growth
Rates
Cumulative
No of SHGs
Cumulative
Refinance
Assistance
(Rs. Crore)
Cumulative
Refinance
Assistance
Growth Rates
2001-02 1,97,653 395.26 61.43 4,61,478 790.24 100.07
2002-03 2,55,882 622.47 57.48 7,17,360 1412.71 78.77
2003-04 3,61,731 705.44 13.33 10,79,091 2118.15 49.94
2004-05 5,39,365 967.76 37.19 16,18,456 3085.91 45.69
2005-06 6,20,109 1067.72 10.33 22,38,565 4153.63 34.60
2006-07 11,05,749 1293.26 21.12 33,44,314 5446.89 31.14
2007-08 12,27,770 1615.67 24.93 45,72,084 7062.56 29.66
2008-09 16,09,586 2620.48 62.19 61,81,670 9683.04 37.10
2009-10 15,86,822 3173.86 21.11 77,68,492 12856.90 32.78
2010-11 11,96,134 2544.57 19.83 89,64,626 15401.47 19.79
Average 8,70,080.1 1500.65 32.89 36,94,613.6 6201.13 45.95
Source: Hand Book of Statistics on the Indian Economy, 2010-11
The table 3 shows the detail of refinance SHGs. It is observed that the numbers of SHGs are tremendously
increased year by year from 4,61,478 to 89,64,626 with
an annual average of 36,94,613.6. The refinance
assistance to SHGs are also increased from Rs. 790.24
crore in the year 2001-02 to Rs. 15,401.47 in the year
2010-11 with an annual average of Rs. 6201.13 crore
the growth rate of financial assistance is not
satisfactory. The growth rates in prescribed years are found fluctuating nature. The overall performance is
found negative except two year (2008-09 & 2009-10).
It is recorded 100.07 in the year 2001-02 and with
decreasing trend, it established a low growth rate of
17.79 in the year 2010-11. It is noticed that the
refinance assistance to SHGs are increased but it is not
meeting the requirements of increased SHGs. It is
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 31 ISSN: 2231-6353
found the banks are not giving refinance assistance to
SHGs due to improper recycling of funds.
Table 4. Correlation between No. of SHGs and
Bank Loan
Years No. of SHGs Bank Loan (Rs.
Crore)
2001-02 1,97,653 545.47
2002-03 2,55,882 1022.33
2003-04 3,61,731 1855.53
2004-05 5,39,365 2994.26
2005-06 6,20,109 4499.09
2006-07 11,05,749 6570.34
2007-08 12,27,770 8849.23
2008-09 16,09,586 12254.06
2009-10 15,86,822 14453.65
2010-11 11,96,134 14548.46
r = 0.936358
Source: Hand Book of Statistics on the Indian
Economy, 2010-11
Table 5. Correlation between No. of SHGs and
Refinance Assistance
Years
No. of SHGs Refinance
Assistance (Rs.
Crore)
2001-02 1,97,653 395.26
2002-03 2,55,882 622.47
2003-04 3,61,731 705.44
2004-05 5,39,365 967.76
2005-06 6,20,109 1067.72
2006-07 11,05,749 1293.26
2007-08 12,27,770 1615.67
2008-09 16,09,586 2620.48
2009-10 15,86,822 3173.86
2010-11 11,96,134 2544.57
r = 0.930797
Source: Hand Book of Statistics on the Indian
Economy, 2010-11
The table 4 represents the relationship between
numbers of SHGs to bank loans. It is clearly shows that
there is high positive relationship between number of
Self-Help Groups to bank loans (r = 0.936358).
The table 5 represents the relationship between number of SHGs to refinance assistance. It is clearly shows that
there is high positive relationship between number of
Self-Help Groups to refinance assistance (r =
0.930797).
CONCLUSION
The SHGs models for development have gained lot of
importance for empowering the rural women. The
government of India as well as state government
concerned is making hectic efforts in order to promote,
nurture and develop the SHGs with micro-finance
systems as an important tool for women empowerment through various policies, programmes and financial
supports. Though most of Self-Help Groups are
achieving laudable progress, the success rate is not up
to the mark as expected due to various factors. To erase
these constraints there is a need of arising group
liability among members to repay loan properly and
banks should focus to provide loan to more productive
activities. In order to plug the loopholes in the existing
system, the women beneficiaries should be motivated
in right direction towards achievement of success in
their respective economic activities. The members of Self-Help Groups should feel as ―Self-Help is the Best
Help‖ in improving their socio-economic status in the
society. Apart from government supports the rural
people should realize and work together to improve
their living standards which lead to empowerment of
people in all dimension. Women empowerment is a
vital factor for the overall economic development for
the country. Let us hope that all the women would
empower in all respects.
REFERENCES
1. National Council of Applied Economic Research (NCAER) ―Impact and Sustainability of SHG
Bank Linkage Programme‖ NCAER, New Delhi,
India (2008).
2. Nirbachita, Smita and Gundimeda, Haripriya,
―Self Help Group Bank Linkage model and
financial inclusion in India‖ Report of the
committee on Financial Inclusion in India (2008).
3. NABARD‘s Annual Report on Status of
microfinance in India 2006-2012.
4. RBI Report on trend and progress of Banking in
India 2010-12. 5. Development Monthly, ―Role of SHG‘s‖ Vol.50,
Oct (2006).
6. Lalitha, N. and B.S. Nagarajan, ―Self-help Groups
in Rural Development‖ Dominant Publishers and
Distributors, New Delhi, 2002.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 32 ISSN: 2231-6353
DIRECT CASH TRANSFER SUBSIDY IN INDIA: SUGGESTIONS FOR IMPROVEMENT
Meera Singh*
ABSTRACT Subsidy refers to a transfer of resources by the government to the buyer or seller of a good or service that has the effect of reducing the price paid by the buyers, increasing the price received by the sellers, or reducing the cost of production of the good or service. Many developing economies have recently introduced cash transfer programs, which provide money to poor
families contingent on certain behaviour, usually investments in human capital, such as sending children to school or bringing them to health centres. The Government of India has announced that subsidies on fertilisers, kerosene and liquefied petroleum gas will be replaced by cash transfers to end users. It is a poverty reduction measure in which government subsidies and other benefits are given directly to the poor in cash rather than in the form of subsidies. It can help the government reach out to identified beneficiaries and can plug leakages. Cash transfer can be a good way of helping the poor in many circumstances. Indeed, many schemes that are not directly cash transfer schemes also work mainly through cash transfer, such as the National Rural Employment Guarantee programme, which certainly has helped the poor through creating jobs and generating cash income for many poor people in rural India. This paper tries to examine the proposals to subsidies with cash transfers to the end users. A close examination of the objectives of the cash transfer subsidies is also
furnished in this paper.
INTRODUCTION
In the Union Government spending subsidies on food, petroleum and fertilizer make up for over 90 per cent of
the total subsidies with Food Subsidy accounting for
the highest average share (44 per cent). The average
annual growth rate of the Union Government spending
on subsidies has been about 14 per cent from 2000-01
to 2012-13, with the growth rate during 2006-07 to
2012-13 being higher as compared to the previous
phase of 2000-01 to 2005-06 (due to an overall
increase in food prices as well as higher expenses
towards petroleum subsidy over the last few years).
Cash transfer can be a good way of helping the poor in many circumstances. Indeed, many schemes that are
not directly cash transfer schemes also work mainly
through cash transfer, such as the National Rural
Employment Guarantee programme, which certainly
has helped the poor through creating jobs and
generating cash income for a great many poor people in
rural India. Cash is easy to handle and can be, in many
cases, easily monitored. It cannot be sensible to be
generically against cash transfer schemes, in a country
with a lot of poverty and a commitment to use public
money to make the very poor a bit less poor. The
government of India had implemented the scheme for cash transfer to the beneficiary's account in 51 districts
from January 1, 2013. Electronic Benefit Transfer
(EBT) has already begun on a pilot basis in Andhra
Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu,
West Bengal, Karnataka, Pondicherry and Sikkim. The
government claims the results are encouraging.
CASH TRANSFER SUBSIDY PROGRAM
It is a poverty reduction measure in which government
subsidies and other benefits are given directly to the
poor in cash rather than in the form of subsidies. It can help the government reach out to identified
beneficiaries and can plug leakages. The money is
directly transferred into bank accounts of beneficiaries.
LPG and kerosene subsidies, pension payments,
scholarships and employment guarantee scheme
payments as well as benefits under other government welfare programmes will be made directly to
beneficiaries. Cash Transfers are programs that transfer
cash directly, generally to poor households, with or
without conditions. The purpose of a cash transfer is:
To provide a monetary benefit for a specific
purpose or use- such as for education through a
scholarship, for healthcare through a medical
assistance program, etc.
Direct income support– such as old age income
support through a pension, unemployment
assistance through an unemployment benefit, etc.
This is predicated on the assumption that there is
a need to redistribute income as a public policy
objective. Often, the purpose is to enhance private
consumption levels and achieve a minimum
consumption floor.
To provide a direct subsidy for specific products –
such as for food, fuel, agricultural inputs,
electricity, books, etc.
OBJECTIVES OF THE STUDY
This study is specifically focused on the plans, existing
status and feasibility of cash transfer schemes for energy commodities such as PDS kerosene, LPG and
agricultural Products such as fertilisers.
PRESENT SCHEME OF SUBSIDY IN INDIA
The government in India has been subsidizing crucial
items like food, fuel etc. since Independence. These
subsidies have been very important in the Indian
context where a significant share of the population both
in rural as well as urban areas is not always capable of
affording even the necessary goods and services at the
market prices. Like most medicine, cash transfers are a cure, but not a cure all. Over the years, studies of the
Public Distribution System show that some states
manage supply of in-kind transfers fairly well, while in
* Assistant Professor, Department of Commerce, Udai Pratap Autonomous PG College, Varanasi- 221002
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 33 ISSN: 2231-6353
a large number of cases, the pipeline connecting
citizens to ration supplies is prone to leakage and
corruption. Money at the top, spent by state treasuries
for the distribution system, produces little food or fuel
for PDS beneficiaries at the bottom. The development
of technologies such as biometrics and centralised fund-flow management systems have created new
pipelines through which cash can flow cheaply and
accurately to recipients. Political Parties linking the
scheme directly with the next election, because many
studies have assessed positive impacts of such
schemes, few have looked at their political benefits.
The Union Government spending on subsidies food,
petroleum and fertilizer make up for over 90 per cent of
the total subsidies (as per data from 2000-01 to 2012-
13), with Food Subsidy accounting for the highest
average share (44 per cent). The average annual growth
rate of the Union Government spending on subsidies has been about 14 per cent from 2000-01 to 2012-13,
with the growth rate during 2006-07 to 2012-13 being
higher as compared to the previous phase of 2000-01 to
2005-06 (due to an overall increase in food prices as
well as higher expenses towards petroleum subsidy
over the last few years).
The central government provides subsidies to
commodities such as food, fertilisers, petroleum, and a
few other services.
Kerosene Since 2002-03 the kerosene subsidy has increased more
or less uniformly from INR 4.14 per litre in 2002-03 to
INR 27.26 per litre in 2011-12. According to a
conservation estimate by the Union Oil Ministry, in
2012 as much as 40 per cent of the kerosene supplied
was siphoned off and sold on the black market. It is
then used as furnace oil in industries and even used for
adulteration of diesel and lubricants. The central
government procures and supplies kerosene to the state
governments and Union Territories. Kerosene is one of
the six commodities that are sold through Public Distribution System (PDS) to ration card holders. The
subsidy is provided to participating companies who
supply kerosene for the PDS. The quantity of kerosene
on which subsidy is allowed for each state are limited
to the allocations made by the Ministry of Petroleum
and Natural Gas. Currently, Indian Oil Corporation
Limited, Hindustan Petroleum Corporation Limited,
Bharat Petroleum Corporation Limited and IBP
Company Limited are allowed to supply the kerosene.
LPG
The total subsidy provided to LPG consumers between years 2009-10 and 2012-13, which increased from INR
160.71 billion in 2009-10 to INR 321.34 billion in
2011-12. The provisional figure for April to September
2013 is INR 196.22 billion, which is more than half of
last year‘s subsidy value. In ‗per unit‘ terms, LPG
subsidy increased from INR 200.71 per cylinder in
2009-10 to INR 342.88 per cylinder in 2011-12 and
INR 405.67 per cylinder for the first half (April to
September) of 2012-13. The subsidy is given to four
companies which supply LPG: Indian Oil Corporation
Limited, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited and IBP
Company Limited. The central government also gives a
freight subsidy for supplying kerosene and LPG to
areas such as north-eastern regions, Jammu & Kashmir,
Andaman & Nicobar Islands, Lakshadweep Island.
Total Subsidy on PDS Kerosene and Domestic LPG to Consumers (in INR)
PDS Kerosene per litre Domestic LPG per cylinder
Year
From
Government
Budget
By Public
Sector Oil
Companies
Total
Subsidy
From
Government
Budget
By Public
Sector Oil
Companies
Total
Subsidy
2002-03 2.45 1.69 4.14 67.75 62.27 130.02
2003-04 1.65 3.12 4.77 45.18 89.54 134.72
2004-05 0.82 7.96 8.78 22.58 124.89 147.47
2005-06 0.82 12.10 12.92 22.58 152.46 175.04
2006-07 0.82 15.17 15.99 22.58 156.08 178.66
2007-08 0.82 16.23 17.05 22.58 214.05 236.63
2008-09 0.82 24.06 24.88 22.58 234.88 257.46
2009-10 0.82 14.85 15.67 22.58 178.13 200.71
2010-11 0.82 17.39 18.21 22.58 249.94 272.52
2011-12 0.82 26.44 27.26 22.58 320.30 342.88
2012-13 0.82 31.16 31.98 22.58 427.14 449.72
Source: PPAC, (2013a)
Fertiliser Chemical fertilizers play a significant role in the
development of agriculture sector and successful
management of food security concerns in the country.
The government has been pursuing policy conducive to
increase availability and consumption of fertilizers to
meet the objective of increased productivity and higher
agricultural growth in the country. Fertilizer subsidy
has been one of the important features of the fertilizer
policy of Government of India. The objective of
fertilizer subsidy has been to provide adequate
fertilizers to farmers at affordable prices so as to induce
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 34 ISSN: 2231-6353
consumption. The subsidy has been transferred to the
farmers in the form of subsidized Maximum Retail
Prices (MRPs) of a basket of fertilizer products. The
government provides subsidy for urea, 21 grades of
phosphatic and potash (P&K) fertilisers, and 15 grades
of NPK (nitrogen, phosphorous and potash) complex. Farmers pay 25 to 40 per cent of the actual cost and the
rest is borne by the government in the form of a
subsidy, which is reimbursed to the manufacturers and
importers. In 2010-11, Rs52,840 crore was allocated
for fertiliser subsidy. Presently, urea is mostly
produced domestically while phosphatic and potash
(P&K) fertiliser is imported.
Annual Subsidy Spending on Petroleum Products and Fertilisers (2000-01-2010-11) (Rs. in crore)
Year PDS
Kerosene
Domestic
LPG Petrol Diesel Fertiliser Food
2000-01 7522 6724 0 7522 13811 12010
2001-02 5310 5830 0 5310 12596 17494
2002-03 3018 5760 5225 3018 11015 24176
2003-04 3751 9158 6292 0 11847 25181
2004-05 10627 10146 150 2154 15879 25798
2005-06 15441 11851 2723 12647 18460 23077
2006-07 18853 12255 2027 18776 26222 24014
2007-08 20080 17186 7332 35166 32490 31328
2008-09 29199 19314 5181 52286 75849 43627
2009-10 18321 16071 5151 9279 61264 52490
2010-11 20496 23746 2227 34384 62301 63844
2011-12 (RE) 28215 32134 ... 81192 67199 72823
2012-13 (BE) 30151 41547 ... 92061 60974 75000
Source: Ministry of Finance; Indian Public Finance Statistics: 2012-13
Indian Petroleum & Natural Gas Statistics 2012-13and Union Budget 2012-13
Agriculture Fertiliser promotion and use was one of the key
components of the green revolution package of
inputs and practices, which collectively have been
widely credited for India attaining food grain security through a huge increase in agricultural
production, albeit regionally concentrated. Importantly,
over this time, while fertiliser consumption has
continued to rise substantially, the elasticity of output
with increased fertiliser inputs has been dropping
sharply. While the average crop response to fertiliser
use was around 25 kg of grain per kg of fertiliser
during the 1960s, this fell to only 8 kg of grain per kg
of fertiliser by the late 1990s. Between 2000-01 and
2009-10, while annual fertiliser consumption in India
grew by over 50%, food grain output grew by just 11%. In addition to its impact on soil quality, the most
severe consequence of fertiliser use is on highly
stressed water resources. As India considers its
options regarding the fertiliser subsidy and its
objectives, it is important to fully understand the
effects that the over-use of fertiliser in certain parts
of India have had not only on agriculture and its
sustainability, but on the availability and quality of
water for household and industrial purposes.
DESIRED ELEMENTS OF A SUBSIDY
FRAMEWORK The design and implementation of any Cash Transfer
system has many elements, all of which need to be
addressed for the cash transfer system to operate
smoothly. Once a decision is taken for introducing a
cash transfer system, either for distributive reasons or
for other reasons, it needs to be designed and rolled out
with a lot of planning and advance action. Any
effective subsidy regime has to incorporate the
following elements:
1. Empowerment and choice for beneficiaries-
The subsidy regime today for various products is
designed with the objective of delivering specific
goods and services to pre-defined categories of
citizens. Accordingly, the PDS is intended to deliver
food grains and kerosene to eligible beneficiaries. In
case of the PDS, the consumers have to purchase their
subsidized products from the designated Fair Price
Shops. The direct transfer of subsidy to beneficiaries
makes it possible for the beneficiary to access the
product or service from more than one pre-defined channels and locations. Government distribution
channels can co-exist with private providers in this
subsidy framework and the beneficiary could be
provided a choice. This enhances the delivery of goods
and services for the ultimate beneficiary.
2. Transparency in subsidy administration and
information visibility- An important challenge with improving the
effectiveness of any subsidy program lies in bridging
the information asymmetry. A large section of society
is often unaware of their rights and the welfare services offered by Governments. A direct subsidy transfer
framework facilitates monitoring the subsidy
transactions carried out at different levels. Information
such as the availability of the product, list of
beneficiaries, and details of benefits drawn, among
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 35 ISSN: 2231-6353
other things, provides a powerful reconciliation and
social audit mechanism. Performance of vendors who
are servicing beneficiaries on behalf of the Government
can be routinely published on the Government‘s
website. Civil society organizations, activists,
researchers, analysts, and local residents themselves can use this information to highlight discrepancies and
irregularities in social programs.
3. One price for subsidized goods- The price of subsidized goods should preferably be the
market price, or an administered price that is close to
the market price. This can reduce market distortions
introduced by dual pricing, improve the productivity of
manufacturing and distribution, and reduce the
incentives to pilfer. The subsidy, when directly
transferred to the resident or their family, provides the
Government with a targeting framework that can improve the effectiveness of the subsidy budget.
4. Efficiency in production- Subsidies today are extensively used to incentivize the
production and distribution of certain goods and
services. The direct transfer of subsidies to
beneficiaries helps address such distortions, since the
manufacturers are no longer recipients of subsidies and
can compete in the market. Efficiency in production
will be further encouraged by the absence of
disincentives and uncertainty introduced by subsidies on manufacture.
5. Transfer Mechanism – There is a large back-end infrastructure that is needed
consisting of payment systems, bridges between
different IT systems (of banks, clearing houses,
Aadhaar, etc.), clearing systems, and soon, each of
which has to be linked up with the other to be inter-
operable. Fully electronic service delivery:
There is a high level of user acceptance for electronic
services, largely due to e-recharge for prepaid mobile connections. Like users of prepaid mobile connections,
while appreciating the convenience of e-recharge, and
the choice of locations, also have developed an
expectation of real-time delivery, beneficiaries would
be in a position to accept real time transfer of subsidy
to their accounts.
6. Effective MIS Reporting: MIS modules that provide Governments with data and
reports about the entire supply chain and service
delivery are an important part of the proposed subsidy framework. This would make it possible for
Government to take data-driven decisions and improve
the quality of services.
ADVANTAGES OF DIRECT CASH TRANSFER
PROGRAMMES
Poor families get cash in hand which they can use
according to their needs. In case of cash flow
problem, they may not have to borrow from
money lenders or micro-credit institutions which
charge high interest rates.
Cash transfer programmes reduce dependence on
government functionaries who are mostly not
responsive to the needs of the poor.
If conditions are attached to the cash transfer,
other social goals such as school attendance,
immunisation and registration of births can be
achieved.
Cash transfer programmes eliminate the cost of
managing the public distribution system, and
preventing leakages. According to a Planning
Commission study, the government spends about
Rs 3.65 to transfer Re 1 of food to eligible
recipients under the Public Distribution System.
Cash transfers programmes can be more sharply targeted so that it benefits only the recipients who
are eligible.
Scholarships – Merit, SC, ST and OBC
scholarships, sports scholarships, cultural
scholarships, etc. Many states also operate fee
reimbursement schemes.
Pensions – These include old age pensions,
pensions for destitute, etc. With additional
amounts added by state governments.
DISADVANTAGES OF DIRECT CASH
TRANSFER PROGRAMMES
The main disadvantage if scheme is that, only
Aadhar card holders will get cash transfer. As of
today, only 22 crore out of the 121 crore people
have Aadhar cards. Two other drawbacks are that
most BPL families don't have bank accounts and
several villages don't have any bank branches.
These factors can limit the reach of cash transfer.
Critics fear that poor families may waste the cash
on non-essential items. Also, adult members of a
family may tend to rely on cash handouts rather
than search for gainful employment.
The government may withdraw resources from
schemes which complement the social goals that
the government wants to achieve through
conditional cash transfers.
The success of cash transfer programmes depends
on correctly identifying and targeting
beneficiaries, which is the responsibility of the
central and state governments. According to the
N.C. Saxena committee on BPL Census, about
61% of the eligible population is excluded from
the BPL list.
Cash transfers work only with a well-functioning
private sector system, which may not be available
for a number of services.
If there is a time lag in opening an account in a
bank or post office, to receive the cash transfer
and the subsidised food disappears, will lose
doubly through not having the cash, and through
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 36 ISSN: 2231-6353
the fact that others will have the cash to buy food
which would keep the food prices high.
PROPOSED SYSTEM OF CASH TRANSFER
Cash transfer of subsidy provides cash directly to a
specific part of the population. Cash can be transferred to the targeted population without stipulating any
conditions. Alternately, cash can be given if the
targeted population meet certain conditions in order to
avail of the cash. The Dhanalakshmi Scheme of the
Ministry of Women and Child Development is an
example of conditional cash transfer where each time
certain conditions are fulfilled for a girl child, the
family gets cash. The conditions include: registration
of the birth, immunisation, and enrolment in a school.
Other programmes which use conditional cash transfer
are Janani Suraksha Yojana and the Balika Samriddhi
Yojana. A third variant is that credit vouchers are provided which can be used to avail of services from
private sector providers. These service providers will
be reimbursed by the government. For example, the
Rashtriya Swasthya Bima Yojana enables persons
below the poverty line to access health benefits from
private hospitals.
RECOMMENDATIONS FOR THE DIRECT
CASH TRANSFER A Task Force on Direct Transfer of Subsidies on
Kerosene, LPG and Fertiliser was constituted under the Chairmanship of Shri Nandan Nilekani, Chairman,
UIDAI to recommend to the Government and
implement a solution for direct transfer of subsidies on
Kerosene, LPG and Fertilizer to the intended
beneficiaries. The recommendations of the Task Force
in its Interim Reports are:
Fertilizer Subsidy: The Task Force has recommended
the direct transfer of fertilizer subsidy in a phased
manner:
Phase I – Focus on Information visibility till the Retailers.
Phase II – Subsidy Payment to the retailers
Phase III – Subsidy Payment to the farmers
(Intended Beneficiaries)
LPG Subsidy: The Task Force has recommended the
direct transfer of subsidy for LPG in a phased manner
as follows:
Phase I - Cap on consumption of subsidized
cylinders for all customers
Phase II - Direct transfer of subsidy to customers‘ bank account using Aadhaar-enabled
platform.
Phase III – Identify and target segmented
customers for subsidy.
Kerosene Subsidy: The Task Force has recommended
the direct transfer of subsidy for Kerosene in a phased
manner as follows:
Phase I – Direct Transfer of Subsidy through
State/ UT Governments in the bank account of
beneficiaries.
Phase II- Phase II will aim at transferring the
cash equivalent of subsidy directly to
beneficiaries through their bank accounts by linking transactions to Aadhaar.
CONCLUSION
This paper has examined the proposals to substitute
fertiliser LPG and kerosene subsidies with cash
transfers to the end users. In both cases, a close
examination of the objectives of the subsidies in the
first instance and the implications of the shift raises
some demanding questions. In particular, unless
discussions on transfer‘s subsidies for cash transfers
are part of a broader strategy they will simply amount to tactical differences and not address long-term
challenges. The three items- fertiliser, kerosene and
LPG that are the focus of the budget proposals are not
only important for the high costs on the budget but they
constitute two of the most singular challenges that
India has faced in the past and will undoubtedly face
even more in the future: food and energy security, both
at the national level and for the hundreds of millions of
India‘s poor at the household level as well. It is for this
reason that this paper argues that the cash transfer
proposals in the budget are ultimately limited to
thinking about tactics and not about larger strategies. Starting from the vantage point of strategy, it is not
clear that a cash transfer is the appropriate policy
option in the case of kerosene subsidies, and in the case
of fertilisers there are a host of implementation
challenges and long-term environmental ones. It would
be much more valuable if we use the process initiated
by the shift to cash transfers as a proverbial
Archimedean lever: one that opens more imaginative
possibilities in addressing India‘s mounting agricultural
and energy challenges.
REFERENCE
1. http://planningcommission.gov.in/aboutus/co
mmittee/wrkgrp12/wg_fert0203.pdf
2. http://www.cbgaindia.org
3. http://www.finmin.nic.in/reports/IPFStat2012
13.pdf
4. Government of India (2010): ―Indian Public
Finance Statistics: 2010-2011‖, Ministry on
Petroleum and Natural Gas.
5. India Expenditure Budget, Vol. I: 2011-2012‖,
Ministry of Finance, Deptt of Eco. Affairs.
6. Perspectives on Cash Transfers, Economic & Political Weekly, Ma 21,2011 vol. xlvi no 21.
7. http://www.mit.gov.in/content/information-
technology-act
8. http://www.mit.gov.in/content/draft-
electronic-service-delivery-bill-1
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 37 ISSN: 2231-6353
DUPONT ANALYSIS OF RETURN ON EQUITY OF INDIAN BANKING SECTOR
Ajay Pratap Yadav *
Awadhesh Kumar Tiwari **
Manish Kumar ***
ABSTRACT Bank capital has been in the spotlight in academic and professional galleries since the financial crisis began. Issuing and holding loans is generally more profitable than owning securities, so banks prefer to maintain a much higher percentage of loans than securities on their balance sheet and therefore earn more interest. Loans are also higher risk. This combination was the main reason behind an unprecedented liquidity crunch. Further, exposure with weak consumer and corporate credit,
banks currently view the risk of providing new loans to be too high and they will have to reserve more in equity capital to offset this risk. The secondary market for selling loans has still not fully recovered, so the ability to reduce this burden through loan sales is difficult. Hence, while handling with the situation with more equity capital, ROE becomes one of the important considerations to retain the same. One of the most important profitability metrics is Return on Equity (ROE). ROE reveals how much profit a company earns on total amount of shareholder equity found on the balance sheet. Shareholder equity is equal to total assets minus total liabilities. It's what the shareholders "own". Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners. Objective of study is to evaluate the extent to which, factors identified as per Du Pont analysis affects ROE of Indian
Nationalized Banks and Private sector banks. As far as Indian nationalized banks and private sector banks are concerned, net profit margin and asset equity ratio significantly affects return on equity. Therefore, it can be observed that according to three step Du-Pont analysis, net profit margin and asset equity ratio are the prime factors in deciding return on equity for Indian banking sector.
INTRODUCTION
One of the most important profitability metrics is
Return on Equity (ROE). ROE reveals how much
profit a company earns on total amount of shareholder
equity found on the balance sheet. Shareholder equity is equal to total assets minus total liabilities. It's what
the shareholders "own". Shareholder equity is a
creation of accounting that represents the assets created
by the retained earnings of the business and the paid-in
capital of the owners. While comparing between ROE
and EPS, ROE is a better gauge than simple EPS. ROE
reveals how a company is deploying its capital to build
a profitable business. The higher the ROE, the more
wealth the company is creating for its shareholders and
the better return they can expect from their investment.
Thus ROE serves towards achieving a company‘s
ultimate goal of shareholders wealth maximization. Whereas EPS, accompanied by and P/E ratios are
better used as a gauge of whether the shares themselves
are over or undervalued.
Some industries have a high ROE as they require little
or no assets while others require large infrastructure
builds before they generate profit. For this reason ROE
is best used to compare companies in the same
industry.
As far as banks are concerned, like any other standard businesses, they need to earn financial returns on its
employed capital. The ROE for banks is a common
measurement they use to assess the returns made on the
initial capital invested. Without a substantial return on
this capital, a bank may suffer low income and be
unable to pay for its administrative expenses or other
standard costs. The money, a bank earns from its initial
capital can also be part of the net income earned by the
bank. Investors are often quite interested in
the return on equity for banks.
Many banks start like any other business; after meeting
the legal requirements for stating operations, the
owners then seek capital for making transactions.
These funds can either come from the entrepreneur,
Govt., or from a group of readied investors looking to
draw passive income. Equity funds represent money
given to a business without a stated return date or other
repayment plan. The return on equity for banks helps
pay small financial returns to investors for the use of
this capital. Higher equity returns, therefore, are
typically more favorable than smaller returns.
The probability of loss is just as prevalent or as
dangerous for banks as it is for normal companies.
Failure to measure the return on equity for banks can
result in not discovering decreasing financial returns.
Low returns often turn into lower net profit, which
leads to a bank‘s inability to pays expenses and other
financial obligations. As this occurs, the company will
lose investors and equity, making it harder to make
financial gains.
Moreover, issuing and holding loans is generally more profitable than owning securities, so banks prefer to
maintain a much higher percentage of loans than
securities on their balance sheet and therefore earn
more interest. Loans are also higher risk. This
combination was the main reason behind an
* Assistant Professor, Shaheed Bhagat Singh Evening College, University of Delhi.
** Assistant Professor, P.G.D.A.V. (Eve.) College, University of Delhi.
*** Assistant Professor, Shaheed Bhagat Singh Evening College, University of Delhi.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 38 ISSN: 2231-6353
unprecedented liquidity crunch last fall. The market
value of loan assets was dropping because there was
not a liquid market to value or trade the loans. As a
result, many banks could not meet daily funding
requirements and others needed to take enormous
write-downs to compensate for the loss in loan values.
The most basic balance sheet equation is total assets
must equal liabilities plus equity and therefore most of
the write-downs went straight to equity, as the value of
the liabilities was largely unchanged. Fundamentally,
equity is the margin by which creditors will be covered
if a bank‘s assets were liquidated. As this margin
shrinks, a bank‘s borrowing cost gets much higher. As
well, if equity capital is depleted, a bank‘s liabilities
become greater than the value of their assets and they
are insolvent. Bank capital has been in the spotlight in
academic and professional galleries since the financial crisis began.
Further, exposure with weak consumer and corporate
credit, banks currently view the risk of providing new
loans to be too high and they will have to reserve more
in equity capital to offset this risk. The secondary
market for selling loans has still not fully recovered, so
the ability to reduce this burden through loan sales is
difficult. Hence, while handling with the above
mentioned situation with more equity capital, ROE
becomes one of the important considerations.
On the basis of above theoretical observation, present
study aims at finding out extent of impact of factors
affecting ROE of Indian Nationalized Banks. Further
the study follows the DuPont system of financial
analysis created in 1919 by a finance executive at E.I.
du Pont de Nemours and Co., of Wilmington. This
system is used around the world today and serves as
the basis of examination of components that make
up ROE for the present study.
Primarily, there are three components in the calculation of return on equity using the traditional Du Pont
model;
Net Profit Margin
Asset Turnover and
Equity Multiplier. (Asset Equity Ratio)
By examining each input individually, we can observe
the extent of impact on ROE.
NET PROFIT MARGIN
The net profit margin is simply the after-tax profit a company generated for each rupee of revenue. Net
profit margins vary across industries, making it
important to compare a potential investment against its
competitors. It is calculated as follows:
Net Income ÷ Revenue
Implications: However a key point should be reserved
in the mind that an increase in sales should not be
understood as a proportionate increase in profits. This
notion does not take into account the associated costs.
As a company grows, its expenses will at times grow
along with it, perhaps at a greater rate than sales. As
the expense of a company rises, the net profit margin
may shrink. Even attempts to compensate the added expenses with an increase in the sales price of the
product, may result in a decrease in the quantity of
sales as consumers may not be as willing to purchase
the product at the higher price. If this were to happen,
total revenues could decrease despite the increase of
price per product. The opposite may happen as the cost
of production could decrease as production increases.
ASSET TURNOVER RATIO (ATR)
The asset turnover ratio is a measure of how effectively
a company converts its assets into sales. It is calculated
as follows: Asset Turnover = Revenue ÷ Assets
This ratio determines the efficiency with which assets
are being utilized. It indicates firm‘s ability to generate
sales per rupee of investment in assets. Further the
asset turnover ratio tends to be inversely related to the
net profit margin; i.e., the higher the net profit margin,
the lower the asset turnover. The result is that the
investor can compare companies using different
models (low-profit, high-volume vs. high-profit, low-
volume) and determine which one is the more attractive business.
Bank assets consist mainly of various kinds of loans
and marketable securities and of reserves of base
money, which may be held either as actual central bank
notes and coins or in the form of a credit (deposit)
balance at the central bank.
Implications: It should be noted that the asset turnover
ratio formula does not look at how well a company is
earning profits relative to assets. The formula only
looks at revenues and not profits. This is the distinct difference between return on assets (ROA) and the
asset turnover ratio, as return on assets looks at net
income, or profit, relative to assets.
EQUITY MULTIPLIER
It is possible for a company with terrible sales and
margins to take on excessive debt and artificially
increase its return on equity. The equity multiplier, a
measure of financial leverage, allows the investor to
see what portion of the return on equity is the result of
debt. The equity multiplier is calculated as follows: Equity Multiplier = Assets ’ Shareholders‘ Equity.
The nature of the banking business makes maintaining
adequate levels of equity capital crucial and current
guidelines were promulgated during the Basil accords
in 1998. The reason why banks are distinct from other
industries is primarily because bank assets are
intangible – the asset side of a bank‘s balance sheet is
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 39 ISSN: 2231-6353
comprised of loans and securities, not inventories and
accounts receivable, as is common in more traditional
businesses. Bank Capital includes tier 1 capital (paid-
up shares and common stock), which is a common
feature in all countries' banking systems, and total
regulatory capital, which includes several specified types of subordinated debt instruments that need not be
repaid if the funds are required to maintain minimum
capital levels (these comprise tier 2 and tier 3 capital).
Implications: It is possible for a company with terrible
sales and margins to take on excessive debt and
artificially increase its return on equity. Thus equity
multiplier allows the investor to see what portion of the
return on equity is the result of debt.
LITERATURE REVIEW
Hawawini and Viallet (1999) in their study, proposed a change to the existing DuPont model which resulted in
extension in form of five different ratios that combine
to form ROE. In their revision they acknowledged that
the financial statements that firms prepare for their
annual reports are not always useful to managers
making operating and financial decisions. They can
make better decision by undertaking wider approach
towards factors affecting important ratios. This in fact
led to the extension of Du-pont model into five factor
model incorporating tax burden and interest burden.
Brigham and Houston, (2001) supported this extension
saying that the modified model as a powerful tool to
illustrate the interconnectedness of a firm‘s income
statement and its balance sheet and to develop straight-
forward strategies for improving the firm‘s ROE.
Nissim & Penman (2001) suggested using a modified
version of the traditional DuPont model in order to
eliminate the effects of financial leverage and other
factors not under the control of those managers. Using
operating income to sales and asset turnover based on
operating assets limits the performance measure of management to those factors over which the
management has the most control. Thus the extension
has lead to both advantages and disadvantages in using
the model to measure the performance of the
management.
Sundararajan, (2002), stated that while ROA, ROE,
and interest margin (and non-interest expenses) to
gross income remain the key measures and they should
ideally be supplemented by the analysis of other
operating ratios.
S.Christina Sheela, (2011), while Studying association
among firm size, capital structure and financial
performance, ROE of Turkey based companies,
summarized that there was significant relationship
between the financial performance, utilization of fixed
assets and working capital. This study revealed that
assets turnover is the prime driver of ROE.
Ahmed Arif Almazari (2012), examined the financial
performance of the Jordanian Arab commercial bank
for the period 2000- 2009 by using the DuPont system
of financial analysis which was based on analysis of
return on equity model. He found that the financial
performance of Arab Bank to be relatively steady and reflected minimal volatility in the return on equity
during study period.
The study based on Indian steel industry by Ramudu P
Janaki, Parasuraman N R, and Nusrathunnisa (2012)
concluded that that ROE was primarily driven by the
equity multiplier in most of the years during the study
period. The factors like operating profit margin, assets
turnover, tax burden and interest burden could not
influence shareholders‘ return. Further they concluded
that the firms failed to leverage internal factors like
operating profit margin and assets turnover to maximize the return which should have been the actual
case. Thus the study proves that the capital structure
decisions or the way the firms design their capital
structure would impact ROE in real life situation
according the statistical results obtained in the study.
OBJECTIVES OF THE STUDY
Objective of study is to evaluate the extent to which,
factors identified as per Du Pont analysis affects ROE
of Indian Nationalized Banks and Private sector banks.
Further the study also aims at exhibition of comparison between nationalized banks and Private sector banks
on the basis of factors affecting their ROE.
RESEARCH DESIGN The research design followed for this study is hybrid in
nature.
Data Collection: For the concerned study 20
nationalized banks and 18 private sector banks have
been considered. Data have collected from website of
RBI and website of moneycontol
(www.moneycontrol.com).
Period of Study: The study covers 5 years period
(2008-2012).
Limitations of Study: The study is limited to the extent
of analyzing only ROE. Basically the scope of the
study is extended to three step Du-Pont model. The
three step model does not reveal the impact of
leverage. For better interpretation it is obvious that
ROE should be accompanied by other important ratios.
Further, the findings from the historical data may not be representative of the future. Findings and
conclusions are purely based on statistical testing that
may have certain limitations. A better insight may be
achieved through applying five-step Du-Pont Model.
Finally, the external factors have not been taken into
account while analyzing shareholders‘ return.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 40 ISSN: 2231-6353
THE MODEL
As already mentioned above, according to Du-Pont
analysis, primarily, there are three factors affecting
ROE. Therefore, these three factors namely net profit
margin, asset turnover ratio (ATR) and asset equity
ratio have considered as independent factors and ROE as dependent factor. Multiplication of these three
factors provides ROE. Multiple regression run has been
conducted for the purpose of examining level of impact
of independent factors.
ROE = β0 + β1 (net profit margin) + β2 (ATR) + β3
(asset equity ratio) + e
Where,
ROE = Dependent factor
β0 = the intercept of the equation
β1, β2 & β3 = coefficients of variables
e = Error term
On the basis of above equation framed above,
following hypothesis has been developed.
1. H0: Net profit margin does not significantly affect
the ROE
H1: Net profit margin significantly affects ROE.
2. H0: Asset turnover ratio does not significantly
affect the ROE
H1: Asset turnover ratio significantly affects ROE.
3. H0: Asset equity ratio does not significantly affect
the ROE
H1: Asset equity ratio significantly affects ROE.
OBSERVATIONS AND FINDINGS
Table- 1
Descriptive Statistics- Nationalized Banks
Average
Sta
nd
ard
Devia
tion
Med
ian
Sk
ew
ness
Ku
rto
sis
CV
ROE 17.86 4.35 18.20 -0.233 -0.049 0.24
Net Profit
Margin 10.54 3.21 10.70 -0.022 -0.658 0.30
Asset
Equity
Ratio
18.78 3.38 18.13 0.955 1.53 0.18
Asset
Turnover Ratio
8.67 0.64 9.00 0.409 -0.669 0.074
Table- 2
Regression - Nationalized Banks
Coefficient St. Error t value P (2 tail)
Result at 5%
significance level
Intercept -13.27 4.44 -2.99 .004 Significant
Net Profit Margin 1.31 0.083 15.87 <.001 Significant
Asset Turnover Ratio 0.38 0.39 0.97 0.335 Insignificant
Asset Equity Ratio 0.74 0.083 8.94 <.001 Significant
Adjusted R2 = 0.7262
Analysis of Variance
Source Sum of Square Degree of Freedom Mean Sq F P value
Regression 1321.37 03 440.45 84.98
< .001 Error 476.80 92
5.18
Total 1798.17 95
The t-statistic measures how many standard errors the
coefficient is away from zero, therefore higher the t-
value, the greater the confidence we have in the
coefficients as predictors. Results (Table 2) exhibit that
all independent variable have positive impact on ROE
but net profit margin and asset equity ratio significantly
affect ROE. Particularly net profit margin with
coefficient of 1.31 followed by asset equity ratio
(coefficient: 0.74) makes highest contribution in
explaining the dependent variable (ROE).
The adjusted R2 also called the coefficient of multiple
determinations, is the percent of the variance in the
dependent explained uniquely or jointly by the
independent variables and is 72.62% which shows that
there is 72.62% variation in the dependent variable
attributable to the independent variables. The intercept
is the constant, where the regression line intercepts the
y axis, representing the amount the dependent y will be
when all the independent variables are 0. In this case it
is -13.27.
Test statistic for the F-test on the regression model. It
tests for a significant linear regression relationship
between the response variable and the predictor
variables. Observed results exhibit significant
relationship between dependent variable and
independent variables (F static: 84.98, P value: <.001).
SUMMARY OF RESULTS
Results for private sector banks exhibit the same
bearing as it is in case of nationalized banks.
According to the observations exhibited in Table 6, all
independent variable have noteworthy positive impact
on ROE but extent of impact of net profit margin and
asset equity ratio observed to be higher. Net profit
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 41 ISSN: 2231-6353
margin with coefficient of 1.27 makes highest
contribution towards explaining the dependent variable
(ROE).
Table- 3
Correlation Matrix - Nationalized Banks
Ret
urn
on N
et
wort
h
Net
Pro
fit
Mar
gin
Ass
et T
urn
over
Rat
io
Ass
et t
o E
quit
y
Rat
io
Return
on
Equity
Pearson
Correlation 1 0.70 -.015 0.093
Sig.(2 tail) 0.00* 0.883 0.366
Net
Profit
Margin
Pearson
Correlation 1 0.137 -0.48
Sig.(2 tail) 0.182 0.00*
Asset
Turnover
Ratio
Pearson
Correlation 1 -0.352
Sig.(2 tail) 0.00*
Asset to
Equity
Ratio
Pearson
Correlation 1
Sig.(2 tail)
*Significant at 5% significance level.
Table- 4
Nationalized Banks
Hypothesis (5%
significance level) H0 H1
1. Rejected Accepted
2. Accepted Rejected
3. Rejected Accepted
Table- 5
Descriptive Statistics: Private Sector Banks
Average
Sta
nd
ard
Devia
tion
Med
ian
Sk
ew
ness
Ku
rto
sis
CV
ROE 12.45 7.86 13.56 -2.14 6.21 6.63
Net
Profit
Margin
10.37
5.87
11.89
-1.96 5.10 0.57
Asset
Equity
Ratio
13.59 3.47 14.0 0.089 -0.226
0.25
Asset
Turnover
Ratio
9.82 1.06 10.0 0.315 0.064 0.11
Table- 6
Regression - Private Sector Banks
Coefficient St. Error t value P (2 tail)
Result at 5%
significance level
Intercept -21.37 3.69 -5.78 <0.001 Significant
Net Profit Margin 1.27 .054 23.68 <0.001 Significant
Asset Turnover Ratio 0.82 0.30 2.69 0.009 Significant
Asset to Equity Ratio 0.92 0.095 9.61 <0.001 Significant
Adjusted R2 = 0.87
Analysis of Variance
Source Sum of Square Degree of Freedom Mean Sq F P value
Regression 4754.59 03 1584.86 195.07
< .001 Error 682.45 84 8.12
Total 5437.04 87
Table- 7
Correlation Matrix- Private Sector Banks
Ret
urn
on
Net
wort
h
Net
Pro
fit
Mar
gin
Ass
et
Turn
over
Rat
io
Ass
et t
o
Equit
y
Rat
io
Return
on
Equity
Pearson
Correlation
1 0.86 0.112 0.106
Sig.(2 tail) 0.0* 0.298 0.326
Net
Profit
Margin
Pearson
Correlation 1 0.146 -0.277
Sig.(2 tail) 0.176 0.009*
Asset
Turnover
Ratio
Pearson
Correlation 1 0.338
Sig.(2 tail)
Asset to
Equity
Ratio
Pearson
Correlation 1
Sig.(2 tail)
*Significant at 5% significance level.
The adjusted R2 in case of private sector banks is 87%
which shows that there is 87% variation in the
dependent variable attributable to the independent
variables. The intercept, in this case is -21.37. Results
of F-test in this case indicates (F static: 195.07, P
value: <.001) significant association between
dependent variable and independent variables.
SUMMARY OF RESULTS
Table- 8
Private Sector Banks
Hypothesis (5%
significance level)
H0 H1
1. Rejected Accepted
2. Rejected Accepted
3. Rejected Accepted
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 42 ISSN: 2231-6353
CONCLUSION The company profitability for most investors is a
landmark in terms of earnings they could obtain by
placing capital. Profits earned by a company, taken the
absolute amount, provides an overview of a company‘s
activity without giving details about the extent to which the company manages dividends, debts,
liabilities or other indicators.
Maximization of shareholders‘ return remains as
central point of action in any corporate. Every strategic
decision undertaken by a firm would ultimately be
oriented towards this goal and therefore ROE has been
viewed as the bottom line of the performance the
management of the firms. As far as Indian nationalized
banks and private sector banks are concerned, net
profit margin and asset equity ratio significantly affects
return on equity. Therefore, it can be observed that according to three step Du-Pont analysis, net profit
margin and asset equity ratio are the prime factors in
deciding return on equity for Indian banking sector.
REFERENCES 1. Ramudu P Janaki, Parasuraman N R, and
Nusrathunnisa (2012), “What Drives
Shareholders‟ Return? Evidence from Indian
Steel Sector” World Journal of Social Sciences
Vol. 2. No. 7. November 2012 Issue. pp. 9 – 23
2. Soliman, M. (2008). ―The use of Du Pont analysis by market participants”. The Accounting Review,
83(3), pp.823-853.
3. Ahmed Arif Almazari, (2012), ‗Financial
performance analysis of the Jordanian Arab bank
by using the DuPont system of financial analysis‟,
International Journal of Economics and Finance
Vol. 4, no. 4, pp. 86-94.
4. Nissim, D and Penman, SH (2001), ‗Ratio Analysis and Equity Valuation: From Research
Practice‟, Review of Accounting Studies, no. 6
(1), pp. 109-154.
5. Brigham, Eugene F. and Joel F. Houston, (2001).
Fundamentals of Financial Management, Ninth
Edition, Horcourt College, United States of
America
6. Hawawini, G., & Viallet, C. (1999). Finance for
executives, South-Western College Publishing.
7. Kapil Sheeba (2011), Financial Management,
Pearson Publication, New Delhi.
8. Kishore Ravi M (2004), Financial Management, Taxman Publication New Delhi.
9. James C Van Horne, Financial Management and
Policy- Prentice Hall, India
10. www.economist.com/blogs/freeexchange/.../equit
y-capital-requirements
11. www.aei-ideas.org/2013/02/should-banks-hold-a-
lot-more-equity-capital
12. http://lexicon.ft.com/Term?term=bank-capital
13. www.investopedia.com/articles/fundamental-
analysis/08/dupont-analysis.asp
14. http://en.wikipedia.org/wiki/Return_on_equity 15. www.moneycontrol.com
ANNEXURE
List of Banks Considered for the Study
Nationalized Banks (20) Private Sector Banks (18)
Allahabad Bank Bank of Rajasthan Ltd.
Andhra Bank Indian Overseas Bank Ltd.
Bank of Baroda Dhanlaxmi Bank Ltd.
Bank of India Federal Bank Ltd.
Bank of Maharashtra Jammu and Kashmir Bank Ltd.
Canara Bank Karnataka Bank Ltd.
Central Bank of India Karur Vysya Bank Ltd.
Corporation Bank City Union Bank Ltd.
Dena Bank Lakshmi Vilas Bank Ltd.
Indian Bank South Indian Bank Ltd.
Indian Overseas Bank ING Vysya Bank Ltd.
Oriental Bank of Commerce ICICI Bank Limited
Punjab National Bank Axis Bank Ltd.
Syndicate Bank IndusInd Bank Ltd.
Punjab & Sind Bank Yes Bank Ltd.
Union Bank of India HDFC Bank Ltd.
United Bank of India Development Credit Bank Ltd.
UCO Bank Kotak Mahindra Bank Ltd.,
Vijaya Bank ------------
SBI ------------
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 43 ISSN: 2231-6353
PERFORMANCE REVIEW OF REGIONAL RURAL BANKS IN INDIA –
WITH SPECIAL REFERENCE TO JHARKHAND GRAMIN BANK
Alok Kumar *
ABSTRACT Regional rural Banks plays a vital role in the agriculture and rural development of India. At Present, most of the regional rural banks are facing the problems of overdue, recovery, nonperforming assets and other problems. Therefore, it is necessary to study financial performance of RRBs in India. This paper attempts to analyze the financial performance of Regional Rural Banks in India with special reference to Jharkhand Gramin Bank. The study is mainly based on secondary data which is collected, compiled and calculated mainly from annual reports of the Jharkhand Gramin Bank. Other related information collected from journals, conference proceedings and websites. For data analysis Seven years, 2006-2007 to 2011-2012 were taken as the reference period. An analytical research design of Key Performance Indicators Analysis such as number of branches, deposits, loans, loans, investments and growth rate index is followed in the present study. The study
finds and concludes that performance of Jharkhand Gramin Bank has significantly improved.
INTRODUCTION
Banks play an important role in mobilization and allocation of resources in any country. Rural people in
India are facing problems in the inadequate supply of
credit. The major source of credit to rural households,
particularly-low income working households, has been
the informal sector. Informal sector advances loans at
very high rates of interest; the terms and conditions
attached to such loans have given rise to an elaborate
structure of intimidation of both economic and non-
economic conditions in rural population in India. The
Banking Commission (1972) recommended establish
an alternative institution for rural credit and ultimately
Government of India established Regional Rural Banks as a separate institution basically for rural credit on the
basis of the recommendations of the Working Group
under the Chairmanship of M. Narashimham.
Subsequently, the Regional Rural Banks were setup
through the promulgation of RRB Act of 1976.
Regional Rural Banks (RRBs) was created to meet the
excess demand for institutional credit in the rural areas,
particularly among the economically and socially
marginalized sections. RRBs are jointly owned by
Government of India, the concerned State Government
and Sponsor Banks; the issued capital of a RRB is shared by the owners in the proportion of 50%, 15%
and 35% respectively. The first five RRBs were set up
in four States in Haryana, West Bengal, Rajasthan,
with one each two in Uttar Pradesh, which were
sponsored by different commercial banks. At present,
there are 82 regional rural banks run successfully in all
over India.
The objectives as given in the preamble of RRBs Act
of 1976 were ―to develop the rural economy in
providing for the purpose of development of agriculture, trade commerce, industry and other
productive activities in the rural areas, credit and other
facilities particularly to the small and marginal farmers,
agricultural labourers, artisans and small entrepreneurs
and for matter connected therewith and incidental
thereto‖
JHARKHAND GRAMIN BANK - AN OVERVIEW
Jharkhand Gramin Bank, sponsored by Bank of India, was established on 12th June, 2006, consequent upon
amalgamation of four erstwhile Regional Rural Banks
– namely, Ranchi Kshetriya Gramin Bank, Singhbhum
Kshetriya Gramin Bank, Hazaribag Kshetriya Gramin
Bank, and Giridih Kshetriya Gramin Bank. The
amalgamation took place vide Government of India
Notification no. F.No.1/4/2006 dated 12.06.2006, and
the amalgamated entity, Jharkhand Gramin Bank,
continues to function under the ambit of the Regional
Rural Banks Act, 1976, an Act enacted by the
Government of India for ―... developing the rural
economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other
productive activities in the rural areas, credit and other
facilities, particularly to the small and marginal
farmers, agricultural labourers, artisans and small
entrepreneurs, and for matters connected therewith and
incidental thereto. Head Office of Jharkhand Gramin
Bank (JGB) is located in Ranchi, the Capital of
Jharkhand State, India. JGB is operating in 15 out of 24
districts in the State of Jharkhand, and it has a network
of 233 branches, under the jurisdiction of four Regional
Offices. The Regional Offices are Ranchi Region, Singhbhum Region, Hazaribag Region and Giridih
Region. The Authorised Share Capital of Jharkhand
Gramin Bank is Rs. 5 Crore and the paid up Share
Capital is Rs. 4 Crore contributed by Govt. of India
(50%), Sponsor Bank – Bank of India (35%) and Govt.
of Jharkhand (15%). The Bank has also received
additional share capital of Rs. 102.17 Crore contributed
by the share holders.
REVIEW OF LITERATURE
The literature obtained from the reports of various committees, commissions and working groups
established by the Central Government, NABARD and
Reserve Bank of India, the research studies and articles
of researchers, bank officials is briefly reviewed in this
part. Literatures of reviews on financial performance
are as follows:
* Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 44 ISSN: 2231-6353
Patel and Shete (1980) of the National Institute of
Banking Management made a valuable analysis of
performance and prospects of RRBs. They also gave a
comparative picture of performance in deposits, branch
expansion and credit deployment of the co-operative
banks, commercial banks and RRBs in a specified area. This was an eye opener for many researchers engaged
in this field of rural credit.
NABARD (1986) published ―A study on RRBs
viability‖, which was conducted by Agriculture
Finance Corporation in 1986 on behalf of NABARD.
The main suggestions of the study included
improvement in the infrastructure facilities and
opening of branches by commercial banks in such
areas where RRBs were already in function.
Khusro Committee (1989) argued that RRBs have no justifiable cause for continuance and recommended
their mergers with sponsor banks. The Committee was
of the view that ―the weaknesses of RRBs are endemic
to the system and non-viability is built into it, and the
only option was to merge the RRBs with the sponsor
banks. The objective of serving the weaker sections
effectively could be achieved only by self-sustaining
credit institutions.‖
Kalkundrickars (1990) in his study on ―Performance
and Growth of regional Rural Banks in Karnataka‖ found that these banks had benefited the beneficiaries
in raising their income, productivity, employment and
use of modern practices and rehabilitate rural artisans.
Narasimham Committee (1991) stressed the poor
financial health of the RRBs to the exclusion of every
other performance indicator. 172 of the 196 RRBs were
recorded unprofitable with an aggregate loan recovery
performance of 40.8 percent. (June 1993). The low
equity base of these banks (paid up capital of Rs. 25
lakhs) didn't cover for the loan losses of most RRBs. In
the case of a few RRBs, there had also been an erosion of public deposits, besides capital. In order to impart
viability to the operations of RRBs, the Narasimham
Committee suggested that the RRBs should be
permitted to engage in all types of banking business
and should not be forced to restrict their operations to
the target groups, a proposal which was readily
accepted. This recommendation marked a major
turning point in the functioning of RRBs.
Chavan and Pallavi (2004) have examined the growth
and regional distribution of rural banking over the period 1975-2002. Chavan‘s paper documents the gains
made by historical underprivileged region of east,
northeast and central part of India during the period of
social and development banking. These gains were
reversed in the 1990s: cutbacks in rural branches in
rural credit deposits ratios were the steepest in the
eastern and north-eastern states of India. Policies of
financial liberalization have unmistakably worsened
regional inequalities in rural banking in India.
Professor Dilip Khankhoje and Dr. Milind Sathye
(2008) have analysed to measure the variation in the
performance in terms of productive efficiency of RRBs
in India and to assess if the efficiency of these institutions has increased post-restructuring in 1993-94.
RESEARCH DESIGN
The present study is diagnostic and exploratory in
nature and makes use of secondary data. The study is
confined only to the specific areas like number of
branches, district coverage, deposits mobilized, credits
and investments made by the Jharkhand Gramin Bank
for the six years period starting from 2006-07 to the
year 2011-12. Performance indicators, the year 2011-
2012 was taken as the current year and year 2010-2011
was base year for the calculation of growth rate. Analytical Techniques Employed-Growth rate analysis
was undertaken with a view to studying financial
performance related to the Jharkhand Gramin Bank.
Growth rate is measured with the help of following
formula- The financial performance of the Jharkhand
Gramin Bank has been analyzed with the help of key
Growth Rate = B – C / B
B =Base Year, C= Current Year.
OBJECTIVES OF STUDY The present study is based upon the macro approach to analyze performance of Jharkhand Gramin Bank.
Specifically the objectives of the study are:
1. To analyze the financial performance of
Jharkhand Gramin Bank
2. To analyze the key performance indicators of
Jharkhand Gramin Bank
3. To evaluate progress of the Jharkhand Gramin
Bank during 2006-07 to 2011-12
4. To study the growth-pattern of Jharkhand Gramin
Bank
AREA OF THE STUDY
The study is based on the performance of Jharkhand
Gramin Bank. Therefore, study covers only one Bank
to the fulfilment of objectives of the study.
PERIOD OF THE STUDY
For collection of the secondary data on financial
performance of the Jharkhand Gramin Bank, six years
i.e. from 2006-2007 to 2011-2012 were taken as the
reference period.
METHOD OF DATA COLLECTION
The study is mainly based on secondary data which is
collected, compiled and calculated mainly from annual
reports of the Jharkhand Gramin Bank. Other related
information collected from journals, conference
proceedings and websites.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 45 ISSN: 2231-6353
SIGNIFICANCE OF THE STUDY
The research study is significant to evaluate financial
performance of Jharkhand Gramin Bank. The results/
findings of the present study are useful to the policy
planners in their efforts to improve the working of the
Jharkhand Gramin Bank.
RESULTS AND DISCUSSION
Table 1 presents the key performance indicators and
growth of Jharkhand Gramin Bank from year 2006-07
to 2011-2012
Table- 1: Key Performance Indicators of Jharkhand Gramin Bank (Figures: - Rs. in Lakhs)
Parameters 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Growth %
No. Of Branches 210 210 215 217 221 233 5.43
Dist. Covered 12 15 15 15 15 15 0
Total Staff 832 824 821 804 847 832 0
Deposit 106074 122194 146036 166082 184157 196552 6.73
Borrowings 2397 1798 1989 1786 7953 8421 5.88
Investments 67355 76882 101922 111671 126412 135300 7.03
Gross Loan (o/s) 31295 34878 37552 45199 53162 61171 15.06
Loan Issued 8580 10583 15928 24249 34999 48461 38.46
C/D Ratio (%) 30 29 26 27 29 31
Accumulated Losses 666717 585913 432290 211452 47188 0 0
Profit & Loss 1623 808 1536 2208 1643 2098 27.69
Branch Productivity 654 744 854 956 1074 1106 2.97
Staff Productivity 165 191 223 263 280 309 10.35
Source: Various Annual Reports of Jharkhand Gramin Bank.
Observation of the Table 1 No. of Branches in
Jharkhand Gramin Bank increased from 221 to 233
during the year registering growth rate of 5.43%.
Deposits of Jharkhand Gramin Bank increased from
Rs. 184157 lakhs as on 31st March, 2011 to Rs. 196552
lakhs as on 31st March, 2012 registering growth rate of
6.73%. Borrowings of Jharkhand Gramin Bank
increased from Rs. 7953 lakhs as on 31 March 2011 to Rs. 8421 lakhs as on 31 March 2012 registering an
increase growth rate of 5.88%. Investments of
Jharkhand Gramin Bank increased from Rs. 126412
lakhs as on 31 March 2011 to Rs. 135300 lakhs as on
31 March 2012 registering an increase growth rate of
7.03%. Gross Loan (O/S) of Jharkhand Gramin Bank
increased from Rs. 53162 lakhs as on 31 March 2011
to Rs. 61171 lakhs as on 31 March 2012 registering an
increase growth rate of 15.06%. Loan issued from
Jharkhand Gramin Bank increased from Rs. 34999
lakhs as on 31 March 2011 to Rs. 48461 lakhs as on 31 March 2012 registering an increase growth rate of
38.46%. C/D Ratio of Jharkhand Gramin Bank
increased from 29% as on 31 March 2011 to 31% as on
31 March 2012. Accumulated losses decreased from
Rs. 47188 lakhs as on 31st March, 2011 to Rs. 0 as on
31st March, 2012. Profit & Loss of Jharkhand Gramin
Bank before tax increased from Rs. 1643 lakhs as on
31 March 2011 to Rs. 2098 lakhs as on 31 March 2012
registering an increase growth rate of 27.69%. The
branch productivity increased to Rs. 1106 lakhs in
2011-12 from Rs. 1074 lakhs in 2010-11 with a growth
of 2.97%. Similarly, staff productivity in 2011-12 increased to Rs. 309 lakhs from Rs. 280 lakhs in 2010-
11 with a growth of 10.35%.
WEAKNESS OF JHARKHAND GRAMIN BANK
Although Jharkhand Gramin Bank had a rapid
expansion of branch network and increase in volume of
business, these institutions went through a very
difficult evolutionary process due to the following
problems.
a) Very limited area of operations
b) High risk due to exposure only to the target group
c) Public perception that Jharkhand Gramin Bank is
poor man's banks d) Switch over to narrow investment banking as a
turn-over strategy
e) Heavy reliance on sponsor banks for investment
avenues with low returns barring exceptions, step-
motherly treatment from sponsor banks
f) Burden of government subsidy schemes and
inadequate knowledge of customers leading to
low quality assets
g) Unionized staff with low commitment to profit
orientation and functional efficiency
h) Inadequate exposure and skills to innovate products limiting the lending portfolios
i) Inadequate effort to achieve desired levels of
excellence in staff competence for managing the
affairs and business as an independent entity
j) Serious undermining of the Board by compulsions
to look up to sponsor banks, Govt. of India and
Govt. of Jharkhand for most decisions
SUGGESTIONS FOR IMPROVEMENT OF
JHARKHAND GRAMIN BANK
a) Efforts should be made to ensure that the non-
interest cost of credit to small borrowers is kept as low as possible.
b) Policy should be made by government for
opening more branches in weaker and remote
areas of state.
c) Productivity can be improved by controlling the
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 46 ISSN: 2231-6353
costs and increasing the income
d) Jharkhand Gramin Bank has to make an important
change in their decision making with regard to
their investments.
e) Jharkhand Gramin Bank has to give due
preference to the micro-credit scheme and encourage in the formation of self help group.
f) Jharkhand Gramin Bank has must strengthen
effective credit administration by way of credit
appraisal, monitoring the progress of loans and
their efficient recovery.
g) Jharkhand Gramin Bank may relax their
procedure for lending and make them easier for
village borrowers.
CONCLUSION
From the above analysis, the performance of Jharkhand
Gramin Bank, an attempt has been made to analyze the performance in terms of certain defined parameters like
number of branches, district covered and mobilization
of deposits, borrowers and investments made by this
bank. Jharkhand Gramin Bank successfully achieve its
objectives like to take banking to door steps of rural
households particularly in banking deprived rural area,
to avail easy and cheaper credit to weaker rural section
who are dependent on private lenders, to encourage
rural savings for productive activities, to generate
employment in rural areas and to bring down the cost
of purveying credit in rural areas. After all, let us hope, in the coming years through dedication and hard work,
Jharkhand Gramin Bank in Jharkhand would improve
their performance towards the achievement of their
corporate mission and goals in a better way.
REFERENCES 1. (n.d.). Retrieved from www.jharkhand gramin
bank.org.
2. (March, 1981). A study on the viability of RRBs.
RBI Bulletin.
3. Anil Kumar Soni and Abhay Kapre. (vol. No. 1, Issue No. 11, Nov. 2013). Performance
Evaluation of Regional Rural Banks in India.
ABHINAV- National Monthly Reffered Journal of
Research in Commerce & Management , 132-144.
4. Annual Reports. Jharkhand Gramin Bank.
5. Ibrahim, D. M. (vol. 3, No. 4, Oct. 2010).
Performance Evaluation of Regional Rural Banks
in India. International Business Research , 203-
211.
6. India, G. o. (1986). Report of the Working Group
on Regional Rural Banks. New Delhi:
Government of India. 7. Khusro, A. (1989). Report of the committee on
Agricultural credit Review committee. New Delhi:
Government of India.
8. Monthly Bulletins. RBI.
9. Narasimhan, M. (1991). Report of the committee
on the financial system. Reserve Bank of India.
10. Pati, A. P. (2005). Regional Rural Banks in
Liberalized Environment. New Delhi: Mittal
Publications.
11. Prof. Dilip Khankhoje and Dr. Milind Sathe. (Vol.
1, No. 2, 2008). International Business Research-CCSE. International Business Research .
12. Shete, K. V. (Jan.- March, 1981). RRB
Performance and Prospectus. Prajanan , 1-40.
13. Uddin, N. (2003). Regional Rural Banks And
Development. New Delhi: Mittal Publications.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 47 ISSN: 2231-6353
AN ASSESSMENT OF FINANCIAL PERFORMANCE OF GOLD LOAN NBFCs
Hariom Divakar *
ABSTRACT One of the major concerns of the growth story of the gold loan companies is the pace at which their assets size has grown in volume as well as the expansion of branch network. The rapid growth of their assets, borrowings and branch network needs to be viewed with circumspection and measures to moderate such growth to more sustainable levels are desirable.
An analysis of the sources of funds of gold loan NBFCs revealed that their dependence on the banking sector witnessed an increase during the last five years. Borrowings from the banking sector were the biggest source of funds for the gold loan NBFCs. The consistent increase in the dependence of the gold loan NBFCs on the banking sector raises concerns. Gold loan NBFCs should gradually reduce their dependence on the bank finance so as to bring down the inter-connectedness with the formal financial system. The capital adequacy ratio of gold loan NBFCs witnessed a continuous declining trend during period under study. Further, the capital adequacy ratio of gold loan NBFCs was also lower than that of the NBFCs-ND-SI sector as a whole. The decline in the capital adequacy ratio despite increase in capital funds points to the aggressive asset growth that took place during the period under study. The gold loans NBFCs should strive to improve their capital.
The research paper is based on analytical approach, wrote in APA style, and secondary sources of data is used.
INTRODUCTION
Gold has always been a valued commodity. Particularly in India, it is considered as auspicious, and
used in the form of jewellery, coins and other assets.
Due to their high value, people have been taking loans
against gold ornaments for centuries. Till about a
decade ago, most of such lending activities used to take
place in the unorganized sector through pawnbrokers
and money lenders. However, the scenario has changed
with the entry of organized players. In the past few
years, banks and non-banking finance companies
(NBFCs) have made a significant presence in the gold
loan market. It is anticipated that the organized gold loan market will grow at a compound annual rate of
25.5% during FY 2012 to FY 2015.
A new trend of gold financing for purchasing has also
been observed in the industry. The region-wise analysis
revealed that the organized gold loan market is mainly
concentrated in the Southern India, while other regions
are witnessing a comparatively low presence of
organized players. It has been observed that the
organized players are exploring the potential, and
expanding their networks into North, East and West
regions. Our report analyzes the Indian gold loan industry, including its market size, penetration, type of
institutions, and share of major players, and presents
forecasts. We also studied how the government
regulations are impacting the industry. The
comprehensive research work covers the competitive
landscape, by including the profiles of major public
and private banks and specialized NBFCs
(Manappuram & Muthoot Finance) operating in the
market.
The high rate of growth witnessed in the volume of business of the Systemically Important Non-Deposit
Taking NBFCs (NBFCs-ND-SI), which are primarily
engaged in the business of lending against the
collateral of gold jewellery (hereafter referred to as
gold loan NBFCs) during the recent years warranted an analysis of the financial performance as well as
soundness of these companies. Further, though all these
companies are based in Kerala, their business is spread
across the country through a large network of branches
having implications for the entire financial system.
This also underlined the need for analyzing the
performance of these companies in the larger interest of
the entire financial system. Accordingly, in this
Research paper, an analysis of the financial
performance of gold loan NBFCs during the period
March 2008 to March 2012 is presented.
OBJECTIVES OF STUDY
The research paper assesses the financial performances
of Gold Trading NBFCs in india. It uses the different
ratio to analyse the financial information of last five
years from 2008 to 2012 which is obtained through
secondary source of data.
RESEARCH METHODOLOGY
The research paper is based on analytical approach to
analyse the data and data is derived through secondary
sources.
THE FINANCIAL PERFORMANCE OF GOLD
LOAN NBFCS
The Research paper seeks data on financial parameters
from all Non- Deposit taking systemically important
NBFCs (with asset size of Rs.100 crore and above) for
off-site surveillance on a monthly basis. The basic data
for this analysis has been extracted from these on-line
monthly returns submitted by the gold loan NBFCs to
the Department of Non-Banking Supervision, Reserve
Bank of India. The data are presented at aggregate level for six gold loan NBFCs which are predominantly into
gold loan business.
*Research Scholar, Department of Commerce, University of Lucknow
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 48 ISSN: 2231-6353
Gold Loan NBFC-ND-SI
Item (Rs. Crore) Growth (y-o-y)
2007-08 2008-09 2009-10 2010-11 2011-12 2008-09 2009-10 2010-11 2011-12
1. Share Capital 128 135 404 633 911 5.4 200.6 56.5 43.9
2. Reserves & Surplus 381 620 1145 3419 5970 62.9 84.7 198.6 74.6
3. Debentures 1632 2284 3453 5532 11199 39.9 51.2 60.2 102.4
4. Bank Borrowings 922 1574 4568 12903 21306 70.7 190.2 182.5 65.1
5. Borrowings from FIs 39 0 20 65 142 -100.0 - 225.0 117.9
6. Inter-Corporate Borr 34 60 173 0 13 77.5 190.6 -99.7 2654.4
7. Commercial Paper 0 0 140 1846 1012 - - 1217.6 -45.2
8. Other Borrowings 313 778 1024 2107 3674 148.8 31.6 105.7 74.4
9. Current Liabilities 67 146 372 187 454 117.7 153.7 -49.8 143.5
10. Provisions 63 97 239 513 648 55.5 145.8 114.6 26.5
Total Assets/Liabilities 3577 5694 11538 27206 45479 59.2 102.7 135.8 67.2
1. Loans & Advances 2981 3860 9179 22666 39230 29.5 137.8 146.9 73.1
2. HP & Lease Assets 7 38 31 5 0 451.9 -19.6 -84.8 -99.5
3. Investments 71 66 232 169 375 -7.8 253.3 -27.2 122.3
3.1. Govt. Securities 14 1 1 0 0 -92.5 -42.5 -48.8 -100.0
3.2. Equity Shares 6 8 11 21 11 24.8 41.1 100.6 -47.5
3.3. Preference Shares 0 0 0 0 0 - - - -
3.4. Debentures & Bonds 0 0 0 0 0 - - -100.0 -
3.5. Units of Mutual Funds 2 4 156 84 264 75.2 4159.6 -46.0 214.0
3.7. Other Investments 45 52 64 63 100 15.7 23.3 -2.3 58.9
4. Cash & Bank Balances 217 1163 1158 2357 2150 436.3 -0.4 103.5 -8.8
5. Other Current Assets 58 292 591 1354 2735 405.1 102.3 129.0 102.0
6. Other Assets 243 274 347 655 989 12.7 26.8 88.9 50.9
Source: Reserve Bank of India, DNBS Data Base
GROWTH OF GOLD LOAN NBFCS VIS-À-VIS
NBFCS-ND-SI SECTOR
The gold loan NBFCs witnessed very high rate of
growth of balance sheet during the recent years. It is pertinent to note that the growth rate of gold loan
NBFCs was always higher than the growth rate of
NBFCs-ND-SI sector as a whole during the last four
years. However, there was a moderation in the growth
rate of gold loan NBFCs during 2011-12 as compared
with the previous year. (Table 1 & Chart 1).
SHARE OF GOLD LOAN NBFCS IN THE
NBFCS-ND-SI SECTOR
As the assets of gold loan NBFCs were growing at a
very high rate as compared to the growth of the assets
of the NBFCs-ND-SI sector during the period from
2009 to 2012, the share of assets of gold loan NBFCs
in the total assets of NBFCs-ND-SI sector witnessed
consistent increase during the same period. As at end-March 2012, the gold loan NBFCs accounted for
almost five per cent of the total assets of the NBFCs-
ND-SI sector. Further, assets of gold loan NBFCs
constituted around 19 per cent of the total assets of
loan companies as at end-March 2012.
Chart- 1
Growth of Gold Loan NBFCs vis-a-vis
NBFCs-ND-SI Sector
Source: Reserve Bank of India DNBS Data Base
Table- 1
Assets of Gold Loan NBFCs vis-à-vis
NBFCs-ND-SI Sector (As at end-March) (Rs.crore)
Item 2008 2009 2010 2011 2012
Total Assets
of NBFCs-
ND-SI sector
408705 482907 588806 730366 918904
Total Assets
of Gold
Loan
NBFCs
3577 5694 11538 27206 45479
Source: Reserve Bank of India, DNBS Data Base
0
20
40
60
80
100
120
140
160
2009 2010 2011 2012
Gold Loan NBFCs
NBFCs-ND-SISector
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 49 ISSN: 2231-6353
Source: Reserve Bank of India DNBS Data Base
FACTORS CONTRIBUTED TO THE BALANCE
SHEET GROWTH OF GOLD LOAN NBFCS
On the liabilities side, the growth of balance sheet of
gold loan NBFCs was mainly contributed by borrowings from banks followed by debentures. On the
positive side, the capital funds of gold loan NBFCs
also contributed for the growth in balance sheet of gold
loan NBFCs during the period under review.
Source: Reserve Bank of India, DNBS Data Base
Note: Composition of incremental increase in the
balance sheet during the period between 2008 to 2012
is plotted in the chart.
On the assets side, the growth in balance sheet of gold
loan NBFCs was mainly contributed by the increase in
loans and advances since these companies are mainly
into lending against gold jewellery.
Note: contribution to incremetal increase in the
balance sheet during the period 2008-2012 is plotted in the chart.
Source: Reserve Bank of India, DNBS Data Base
SOURCES AND USES OF FUNDS OF GOLD
LOAN NBFCS
Sources of Funds There was a change in the pattern of sources of funds
of gold loan NBFCs during the recent years. Notably, since 2010, borrowings from banks have emerged as
the most important source of funds for the gold loan
NBFCs. Consequently, there has been a decline in the
share of resources raised through debentures since
2010. Yet debentures are the second major source of
funds for gold loan NBFCs. During the period under
review, the share of owned funds remained more or
less at the same level. Another point to be noted in this
context is the emergence of commercial paper as a
source of fund since 2010.
Source: Reserve Bank of India, DNBS Data Base
Uses of Funds
On the other hand, the pattern of uses of funds of gold
loan NBFCs remained almost unchanged during the period under review. The loans and advances continue
to be the largest use of fund for the gold loan NBFCs.
It may be noted that the gold loan NBFCs deployed
very less funds in current assets and other liquid assets
such as cash and bank balances.
Source: Reserve Bank of India DNBS Data Base
PROFITABILITY
Profitability of gold loan NBFCs has been much above
than that of the NBFCs- ND-SI sector as a whole
during the period under review. As at end-March 2012,
the return on assets of gold loan NBFCs was at 4.6 per
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 50 ISSN: 2231-6353
cent as against the return on assets of the NBFCs-ND-
SI sector as a whole at 1.8 per cent. Further, during the
period under study, while the return on assets of the
entire NBFCs-ND-SI sector hovered around two per
cent, the return on assets of gold loan NBFCs
witnessed substantial increase.
Source: Reserve Bank of India DNBS Data Base
Similarly, the return on equity of the gold loan NBFCs
has also been consistently above the NBFCs-ND-SI
sector as a whole during the study period. Higher return on equity displays better prospects for resource
mobilization of these companies vis-à-vis other
companies in the NBFCs-ND-SI sector.
FINANCIAL SOUNDNESS
CAPITAL TO RISK WEIGHTED ASSETS RATIO
The capital adequacy ratio of both the NBFCs-ND-SI
sector as also the gold loan NBFCs witnessed
substantial decline during the period under
study.4 Notably, the decline in the capital adequacy
ratio of gold loan companies was more than the decline in the capital adequacy ratio of the NBFCs-ND-SI
sector as a whole.
Further, capital adequacy ratio of gold loan NBFCs
remained lower than the capital adequacy ratio of the
NBFCs-ND-SI sector as whole since 2010. However,
on the positive side, the capital adequacy ratio of gold
loan NBFCs always remained above the regulatory
minimum prescribed by the Reserve Bank.
Source: Reserve Bank of India, DNBS Data Base
LEVERAGE RATIO The leverage ratio of gold loan NBFCs has been
consistently above than that of the NBFCs-ND-SI
sector as a whole during the period under
review.5 However, it is important to note that since
2009, the leverage ratio of gold loan NBFCs witnessed
a declining trend, though marginally. Decrease in
leverage ratio indicates NBFCs‘ gradual improvement
in owned fund either by infusion of additional capital
or retained earnings.(chart-10)
Source: Reserve Bank of India, DNBS Data Base
ASSET QUALITY
As gold loan NBFCs grant loans against security of
gold/gold jewellery, gross NPAs to gross advances
ratio of gold loan NBFCs was much less than that of
the NBFCs-ND-SI sector. However, the GNPA ratio of
gold loan NBFCs increased during 2011-12 as
compared with the previous years. (Chart-11)
Source: Reserve Bank of India, DNBS Data Base
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 51 ISSN: 2231-6353
DATA ANALYSIS OF FINANCIAL
PERFORMANCE OF THE GOLD LOAN NBFCS
As compared with the NBFCs-ND-SI sector as a
whole, the gold loan NBFCs displayed better
performance in terms of profitability during the period
under review. This is evident from a number of performance indicators such as return on assets and
return on equity. Though the capital adequacy ratio of
gold loan NBFCs always remained above the
regulatory minimum prescribed by the Reserve Bank,
the ratio witnessed a declining trend during the period
under review. Further, the leverage ratio of gold loan
NBFCs has been above than that of the NBFCs-ND-SI
sector as a whole, though it witnessed a declining trend
during the recent years. Asset quality of gold loan
NBFCs was always better than that of the NBFCs-ND-
SI sector as a whole. The higher profits and lower NPA
ratios reported by gold loan NBFCs were mainly due to the secured lending against gold jewellery. Further, the
future prospects of these companies in terms of
resource mobilization from the market are also
positive, as these companies report high return on
equity.
Relatively high leverage as compared with other
companies in the NBFCs- ND-SI Sector: Leverage of
gold loan companies has been higher than that of
NBFCs- ND-SI sector as a whole during the period
under study. Though the leverage ratio witnessed a marginally declining trend during the recent years,
there may be a further need to limit the leverage of
gold loan companies.
Increasing Share of Gold Loan NBFCs in the
NBFCs-ND-SI Sector: As alluded to, earlier, NBFCs-
ND-SIs include those companies whose assets are more
than Rs. 100 crore. The major gold loan NBFCs fall
into the NBFCs-ND-SI sector. Though the share of
gold loan NBFCs in the NBFCs-ND-SI sector is still
low at around five per cent as at end-March 2012, the
consistent increase in the share of gold loan NBFCs in the NBFCs-ND-SI sector deserves attention.
Concentration of Assets in the Gold Loan Segment:
Gold loan companies are into lending against the
security of gold jewellery. There are instances where
the companies lent up to 85 per cent of the value of
gold earlier till the loan to value ratio was brought
down to 60 per cent recently. One disquieting feature
here is the fact that bulk of the gold loan NBFCs‘
assets are from one activity i.e., gold loan with
majority concentration.
Resources mobilisation by NBFCs: Gold Loan
companies have been taking recourse to bank
borrowings and issuance of Non-Convertible
Debentures (NCDs) for resource mobilisation. While
banks are supposed to appraise the NBFCs‘ credit
needs before sanctioning credit facilities, the
mobilization of funds by these companies through issue
of NCDs to retail customers in the guise of secured
debentures raises concerns.
Profitability and Lending Practices: The profitability
of gold loan NBFCs has been unusually high when
compared with the NBFCs-ND-SI sector. The growth in profits of was mainly due to increase in the volume
of business. However, an interaction with the aggrieved
borrowers revealed some questionable practices
followed by the gold loan NBFCs could also be partly
the source of high profits. Some of the gold loans
NBFCs are charging of usurious interest rates,
appropriating the pledged gold jewellery and adopting
questionable auctioning procedures.
CONCLUSION & SUGGESTIONS
I. The rapid growth of their assets, borrowings and
branch network needs to be monitored continuously One of the major concerns of the growth story of the
gold loan companies is the pace at which their assets
size has grown in volume as well as the expansion of
branch network. The rapid growth of their assets,
borrowings and branch network needs to be viewed
with circumspection and measures to moderate such
growth to more sustainable levels are desirable.
II. Need to reduce the interconnectedness with the
formal financial system
An analysis of the sources of funds of gold loan NBFCs revealed that their dependence on the banking
sector witnessed an increase during the last five years.
Borrowings from the banking sector were the biggest
source of funds for the gold loan NBFCs. The
consistent increase in the dependence of the gold loan
NBFCs on the banking sector raises concerns. Gold
loan NBFCs should gradually reduce their dependence
on the bank finance so as to bring down the
interconnectedness with the formal financial system.
To clarify, what we mean by the need to reduce the
interconnectedness with the formal financial system,
we explain that given the large dependence of the NBFCs on the banking system to source the funds in
the recent years, the Working Group suggests that there
is a need for the NBFCs to reduce their over-
dependence on any one source and should develop a
balanced structure of sources of finance, while
strengthening their capital funds as a risk buffer. In this
context, the AGLOC pleaded that FII flows, ECBs and
securitization may be permitted as additional sources of
funds to the gold loan NBFCs. DNBS may examine
this request in consultation with other relevant
Departments.
III. Declining capital adequacy ratio – Need to
improve the capital.
The capital adequacy ratio of gold loan NBFCs
witnessed a continuous declining trend during period
under study. Further, the capital adequacy ratio of gold
loan NBFCs was also lower than that of the NBFCs-
ND-SI sector as a whole. The decline in the capital
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 52 ISSN: 2231-6353
adequacy ratio despite increase in capital funds points
to the aggressive asset growth that took place during
the period under study. The gold loans NBFCs should
strive to improve their capital
IV. Need to review the current stipulations
pertaining to raising resources through NCDs
Some gold loans NBFCs have been circumventing
Reserve Bank (IDMD) stipulations on Non-Convertible
Debentures (NCDs) and mobilization of funds on retail
form bearing ticket size of as less as rupees five
thousands from public practically on tap at their
branches.
REFERENCE
1. Khan & Jain, ―Financial Management‖ tata Mc-
Graw Hill Publications.
2. Roy, Nibedita.(2013) "The Golden Route to
Liquidity: A Performance Analysis of Gold Loan
Companies." International Journal of Research in Commerce, IT & Management 3.6 (2013).
3. Bhunia, Amalendu, and Somnath Mukhuti (2013).
"The impact of domestic gold price on stock price
indices–An empirical study of Indian stock
exchanges."Universal Journal of Marketing and
Business Research 2.2 (2013): 35-43.
4. http://www.rncos.com/Report/IM423.htm
5. http://www.rbi.org.in
6. NBFCs= Non-Banking Financial Corporations
7. ND-SI= Non-deposit- Systemically Important
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 53 ISSN: 2231-6353
CARBON SEQUESTRATION-
ECONOMIC TOOL AGAINST ENVIRONMENTAL POLLUTION
Singh Ahuti*
ABSTRACT It is understood that carbon emission is responsible for global warming. In Kyoto protocol it is considered that global warming is the most dreaded problem of the Millennium. Even then also the human beings are busy in destroying the vegetation & promoting the Industries & technological advancement in present scenario. Trees are important sinks for atmospheric carbon i.e. CO2. The 50% of standing biomass its carbon itself. Importance of forest areas in carbon sequestration is amply clear yet hardly any attempts have been made to study the potential of trees in carbon sequestration in urban areas. In this study we made & attempt to explore ecological conservation values of such areas. Such green areas are pockets act as hot spot in urban biodiversity. Therefore, to evaluate the status of such a green pockets, this study were undertaken on vegetation. For convenience the paper is divided under following sub heads.
INTRODUCTION What is Sequestration-- Terrestrially, carbon is stored
in vegetation and in the soil. Plants store carbon for as
long as they live, in terms of live biomass. Once they
die, the biomass becomes a part of the food chain and
eventually enters the soil as soil carbon.
There are four components of carbon storage in a forest
ecosystem. These are trees, plants growing on the
forest floor (under-storey material), detritus such as
leaf litter and other decaying matter on the forest floor,
and forest soils. Simultaneously, plants grow on the forest floor and add to this carbon store. Over time,
branches, leaves and other materials fall to the forest
floor and may store carbon until they decompose.
Forest transitions from one ecological condition to
another will produce substantial carbon flows – forests
can be a carbon source or a sink Net forest carbon may
be released, thereby making the forest a source, due to
biomass reductions from fire, tree decomposition, or
logging, any of which will reduce the forest biomass.
Global carbon is held in a variety of different stocks.
Natural stocks include oceans, fossil fuel deposits, the
terrestrial system and the atmosphere. In the terrestrial system carbon is sequestered in rocks and sediments, in
swamps, wetlands and forests, and in the soils of
forests, grasslands and agriculture. About two-thirds of
the globe‘s terrestrial carbon, exclusive of that
sequestered in rocks and sediments, is sequestered in
the standing forests, forest under-storey plants, leaf and
forest debris, and in forest soils.
A stock that is taking-up carbon is called a "sink" and
one that is releasing carbon is call a ―source." The
potential for agricultural crops and grasses to act as a sink and sequester carbon appears to be limited, due to
their short life and limited biomass accumulations.
Their role for human management of carbon could
increase as we learn more about their potential.
OBJECTIVE
1. Kyoto protocol & carbon sequestration
2. To analyze the activities in carbon sequestration
3. Carbon sequestration in Indian perspective 4. Carbon sequestration & economic growth
5. How can emissions be offset?
IMPORTANT CLAUSES OF KYOTO
PROTOCOL RELATED TO CARBON
SEQUESTRATION The Kyoto Protocol to the UN Framework Convention
on Climate Change (UNFCCC, 1997) has provided a
vehicle for considering the effects of carbon sinks and
sources, as well as addressing issues related to fossil
fuels emissions.
There are at least four important points to recognize:
Forests are definitely included in the Protocol.
The Protocol provides for credit for some human
induced forest based emission reduction activities
begun in 1990 or later. However,
Credits accrue only for carbon sequestered during
the 2008-2012 commitment period.
Forest management, conservation and agricultural
soil sinks are not specifically mentioned and
hence their role in obtaining credits is currently
subject to varying interpretations. The approach of the Kyoto Protocol clearly is not
comprehensive in its treatment of sinks, being
inherently restrictive in its focus. To treat carbon sinks
is interrelated to afforestation, reforestation
&deforestation undertaken after 1990. Thus, the
Protocol ignores carbon changes during some periods
and from some sources, many human-induced. For
example, management and many human-induced
actions will generate far more carbon sequestration
than credit received. The Protocol specifically
mentions emissions from sources and removals by sinks resulting from direct human-induced land-use
change and forest related activities – Deforestation,
reforestation and afforestation – undertaken since
1990. However, the Protocol is silent on the role of
other sinks in meeting national emission inventories.
Agricultural land, for example, is mentioned as a
possible carbon source, which must be included in a
country‘s emission inventory.
* Assistant Professor, Department of Economics, Udai Pratap College Varanasi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 54 ISSN: 2231-6353
Kyoto protocol & LULUCF – Land use, land use
change and forestry (LULUCF) have the potential to
either be sources of emissions or ‗‘Sinks ‗‘ and are thus
treated specially in the Kyoto protocol. Generally,
activities such as reforestation and afforestation that
potentially remove GHG from the atmosphere as well as deforestation and other activities that deplete forests
must be accounted for in Annex I countries during their
commitment period. The use of sinks is restricted in
certain ways so as to not under mine the overall
environmental integrity of the protocol. The Marrakesh
accords (COP7) of the Kyoto protocol recognize the
following activities that can be used to meet targeted
reductions.
1. Afforestation
2. Reforestation
3. deforestation
4. Forest management 5. Crop land management
6. Grazing management
7. Re- vegetation
CARBON SEQUESTRATION ACTIVITIES
There are various activities that can increase the carbon
sequestration value of forestland. It is important to
remember that forests both sequester and emit carbon:
forest management will affect the magnitude. Forest
management affects the overall size of several direct
and indirect pools of stored carbon. The magnitude and direction of the flux will depend on how much the size
of each of these pools change.
The main activity options include;
1. Afforestation- increasing the area of forestland
being managed.
2. Reforestation- returning a forest more rapidly
than would otherwise occur to an area where a
forest has been eliminated.
3. Improved Forest management- e.g. increasing
productivity on existing forestland, reduction of
fires, control of losses from insects and diseases. 4. Increased use of biomass fuels
5. Increased resource efficiency in the forestry and
wood products industry.
6. forestland conservation- avoiding the loss of
forestland
Afforestation
This has been the most common activity used in lessor-
developed nations. The most partial application is the
planning of trees in areas that were deforested for
agriculture or grazing generations ago. After the loss of trees, the areas become either occupied by grasses or
shrubs that currently exclude the natural regeneration
of trees or the area suffered such severe erosion that
trees are unable to regenerate naturally. These lands
would not return to forests for many years if left to
themselves. Afforestation has the potential benefit for
increasing all five pools of carbon.
Reforestation
Many areas where forests have been destroyed either
from natural disturbances such as fire or anthropogenic
disturbances would naturally return to forests
eventually but the time necessary for full occupancy by
tree species could take decades. Planting and early tending can restore these forests
more quickly. Reforestation will increase the carbon
pools on site and by shortening rotation time, lead to
increases in the product pools as well.
Improved forest management
These types of activities have the greatest potential for
increased sequestration of carbon through forestry
because they encompass so many actions that could
take place over such a large area of the landscape. The
activities fall into three types;
1. Those that increase growth of the standing crop of
trees,
2. Those that decrease the release of carbon through
mortality from insects and diseases as well as
forest fires and
3. Those that reduce the total time period when
sequestration per hectare is reduced after harvests
because of less than full site occupancy.
The first type includes treatments such as the addition
of fertilizers and changing the water regime either through drainage or irrigation. These treatments may
have a dramatic effect on the pool of standing biomass
and will indirectly effect all other pools of carbon.
Forest fires and mortality from insect‘s attacks and
diseases release very large amounts of carbon into the
atmosphere. Treatments to reduce these releases mast
be assessed over entire landscapes to be sure that
protecting carbon stocks in some stands does not just
shift these disturbances are so important over large
areas,consequenceson other attributes of the forest such
as wild life habitat, biodiversity, and hydrology must
be assessed.
The third group of activities includes practices more
sophisticated than simple reforestation to reduce times
when the growing space is vacant after4 harvest. These
practices include multi-age management including
shelter wood harvests that encourage rotation
overlapping advance regeneration, greater use of
retention trees and areas left for more than one rotation
period, and simple lengthening of rotation periods. All
these activities have to be carefully planned to be sure
that increasing the standing biomass pool is not more than offset by reductions in other pools, particularly the
product pool. In situations where the product pool must
be debited from the carbon account upon removal these
practices will have a greater impact on the carbon
budget.
Increased use of biomass fuels- Wood energy power
plants have very little economy of scale. This means
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 55 ISSN: 2231-6353
that it is possible to build small, decentralized plants
in rural areas. If the new energy reduces the amount of
petroleum products that would otherwise be used ,
significant carbon sequestration effects can be gained
not only by direct reduction in petroleum combustion
but also by decreased carbon emissions caused by refinement and transportation of the petroleum
products. Benefiting from increased use of biomass
fuels depends upon the assumption that the fuel wood
is being harvested in a sustainable manner and the
harvests would not have been used for semi
permanent product pools.
Increased resource efficiency in the forestry and
wood products industry.- The industry has made
major changes in the last few decades to increase
utilization and reduce waste. Early actions were based
on cleaner harvests that left less wood on the site. Many of these activities were discovered to have
deleterious effects on the ecosystem. More recent
activities have been based on reducing waste and
breakage after the wood has left the site. These
activities have made the industry more cost efficient
as well as allowing more carbon to be sequestered
through larger pools of carbon in products , increased
use of bioenergy, or reduction in the amount of dead
(rapidly decomposing )materials left in the wood yards.
This opportunity could be expanded to paper and wood
composite industries through the increased used of secondary products such as recycled paper and waste
fiber.
Forest land conservation
Forest lands (especially working forests) can sequester
significant amounts of carbon .Much can be gained by
not converting forestlands to other uses (such as
building and development )society will keep expanding
the area of developed land , but instead of converting
forestland , this land can be converted from uses that
are less effective in the sequestration of carbon .
Specific cases of alternative lands include the use of previously degraded areas (abandoned farm land) or
brown fields. Protecting forests from land conversion
can take advantage of all five pools of carbon.
CARBON SEQUESTRATION IN INDIAN
PERSPECTIVE
The total biomass above & under the ground in our
country is estimated to be about 8,375 million tons for
the year 1986, of which the carbon storage would be
4,178 million tones. The total carbon stored in forests,
including soil is estimated to be 9578 m t.
On the other hand, carbon emissions from fossil based
energy production and consumption activities in India
have been estimated at 152-205 m t per year. Clearly,
there are wide differences in the estimates made by
different scientists and ecologists. The corresponding
estimate from agriculture activities including fuel
burning ranges from 43 m t to as high as 115 m t. The
current rate of carbon emission from agricultural and
forestry sectors are just about being balanced by the
current rate of reforestation. This still leaves the entire
fossil-based emissions unabated. So, does India have any additional potential to sequester more carbon
through forestry? If it does, what Wold it cost? India
has nearly 53 million of degraded lands. According to a
study by the Delhi based Institute of Economic
Growth, at least 39 m ha of the degraded lands
mentioned above are clearly feasible for carbon
sequestration.
These estimates are based on their land capabilities,
feasible forestry options, and demand patterns for
different types of forest products. 6 m ha of
miscellaneous tree crop and other than current fallow lands can be for long timber plantations, 12 m ha of
partially degraded areas for natural regeneration and 6
m ha of fully degraded forests for enhanced
regeneration. Such a mix of forestry Options with land
capability can enhance the sequestration potential by
78 million tones of additional carbon per year by the
year 2020.
CARBON SEQUESTRATION & ECONOMIC
GROWTH
To check growth of carbon in the environment, the afforestation & reforestation of plants is compulsory,
by afforestation, the plants of medicinal values are
produced which are sold out and help in development
of economy. Besides this, from certain plants, furniture
wood is obtained and sold to get benefits.
By reforestation, the number of plants increased emits
more oxygen which is beneficial for environment and
Carbon sequestration
Afforestation Reforestation
Remove G.H.Gs from the
atmosphere
& emit O2
Medicinal
values
Beneficial for
environment
Carbon
sinks
Furniture
goods
Better agriculture Help in
determing
the age of
plants
Export More production
Foreign
currency
Economic development
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 56 ISSN: 2231-6353
better climatic condition. During better climatic
condition, the production of food grains are increased
which fetches good amount of help in economy. The
more production helps in export of woods to foreign
countries and helps in rebuilding its economy.
How can emissions be offset?
The concept of carbon sequestration is quite simple.
Whether you consider geological, oceanic or biological
carbon sequestration they all involve removing carbon
dioxide from the atmosphere and storing it in a‘ sink‘‘.
A sink, in this instance, can be described as a physical
state or geological location in which the carbon dioxide
can have no greenhouse effect in the atmosphere.
The World Land Trust operates carbon sequestration
schemes involving Land Use, Land use Change and
Forestry (LULUCF). The principle behind storing carbon using LULUCF activities is based on the fact
that plants use carbon dioxide from the atmosphere as
building blocks for cellular growth.
Tree biomass, when dry, is made up pf approx. 50%
carbon. Thus if an area of forest is planted and a
respective increase in tree biomass is measured, carbon
will have been stored, or sequestered, in that area.
Furthermore due to natural processes associated with
cycles of tree growth and the physical processes that
trees undergo, carbon will be stored in the soils and organic litter that surround the forest.
This above ground & below ground increase in carbon
storage has been the subject of extensive study over the
last 20 years, it has been found that it is measurable
and more importantly region and species specific.
REFERENCES
1. Roger Sedjo and Brent Sohngen (2012). "Carbon
Sequestration in Forests and Soils". Annual
Review of Resource Economics (Annual
Reviews) 4:127–144.doi:10.1146/annurev-
resource-083110-115941. 2. "Glossary of climate change acronyms"
UNFCCC. Retrieved July 15, 2010.
3. "Squaring the circle on carbon capture and
storage"(PDF). Claverton Energy Group
Conference, Bath,. October 24, 2008. Retrieved
May 9, 2010.
4. "Energy Terms Glossary S". Nebraska Energy
Office. Retrieved May 9, 2010.
5. Richard Lovett (May 3, 2008). "Burying biomass
to fight climate change". New Scientist (2654).
Retrieved May 9, 2010.(registration required)
6. http://www.nationalaglawcenter.org/wp-
content/uploads/assets/crs/RL31432.pdf
7. Nelson, Robert (July 1999). "Carbon Sequestration: A Better Alternative for Climate
Change?"
8. Pete Smith. "Soil Organic Carbon Dynamics and
Land-Use Change". In Ademola K.
Braimoh. Land Use and Soil Resources.
Springer. ISBN 1-4020-6777-1.
9. "FACTBOX: Carbon farming on rise in
Australia". Reuters. June 16, 2009. Retrieved
May 9, 2010.
10. Jump up^ "Environmental Co Benefits of
Sequestration Practices. 2006. June 1,
2009. http://www.epa.gov/sequestration/co-benefits.html
11. Gerald Traufetter (01/02/2009). "Cold Carbon
Sink: Slowing Global Warming with Antarctic
Iron". Spiegel.de. Retrieved May 9, 2010.
12. Richard Monastersky (September 30, 1995). "Iron
versus the Greenhouse - Oceanographers
cautiously explore a global warming therapy".
Science News. Retrieved May 9, 2010.
13. Planktos,http://www.planktos-science.com/
14. "WWF condemns Planktos Inc. iron-seeding plan
in the Galapagos". Biopact.com. June 27, 2007. Retrieved May 9, 2010.
15. David Fogarty (December 15, 2008). "Reuters
AlertNet -RPT-FEATURE-Scientists urge caution
in ocean-CO2 capture schemes". Alertnet.org.
Retrieved May 9, 2010.
16. Lavery T.J. et al. (2010). "Iron defecation by
sperm whales stimulates carbon export in the
Southern Ocean".Proceedings of the Royal
Society B 277: 3527–3531.doi:10.1098/rspb.2010.
0863. PMC 2982231.PMID 20554546.
17. Anna Salleh (November 9, 2007). "Urea 'climate
solution' may backfire". Australian Broadcasting Commission. Retrieved May 9, 2010.
18. Lovelock JE; Rapley CG (September 27, 2007).
"Ocean pipes could help the earth to cure
itself". Nature 449 (7161):
403. Bibcode:2007Natur.449..403L.doi:10.1038/4
49403a. PMID 17898747.
19. Fred Pearce (September 26, 2007). "Ocean
pumps could counter global warming". New
Scientist. Retrieved May 9, 2010.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 57 ISSN: 2231-6353
CHALLENGES AND OPPORTUNITIES OF INSURANCE SECTOR
TOWARDS ECONOMIC DEVELOPMENT
Rahul Kanojia *
ABSTRACT Among all financial services Insurance has a unique identity. Insurance plays a very important role to overall development of the economy. In the past few years, several interesting lines of research have begun to map the specific contributions of Insurance to the economic growth process as well to the well-being of the poor. The evidence suggests that Insurance contributes materially to economic growth by improving the investment climate and promoting a more efficient mix of activities. This contribution is magnified by the complementary development of banking and other financial systems. The purpose of writing this paper is to study the role and impact of Insurance industry to economic development in India. To find out the various available opportunities and challenges in Insurance industry.
INTRODUCTION
There are several factors which are responsible for the
economic development of a country like literacy,
public welfare schemes, investments, capital formation,
financial services like banking and insurance etc. All
these factors are important for making a country
economically sound and developed. This paper is an
attempt to focus on the role and contribution of
Insurance to economic development in India. Insurance
is a social device .It tries to reduce the cost of loss to
society by reducing risk. It accumulates funds to meet individual losses. The fund is the way of transferring
individual loss to a group. The loss was uncertain from
individual‘s side. But for a group the loss becomes
certain. It is a mechanism of spreading risk falling on
one over many facing the same risk.
Insurance is an integral part of the Indian financial
system, made tremendous growth over the past few
years. Insurance performs multifarious function some
of which are specifically related to individual classes of
insurance business, such as marine, fire, life and accident and some of which are common functions
related to all classes of insurance business particularly
focusing towards economic activities as a means of
economic development. Whilst specific functions
mainly deal with individuals in mitigating their
financial losses, the common functions mainly aim at
providing boost to economic development of a country.
Insurance is a business where insurance companies are
constantly receiving sums of money in the form of
premium and much of this money they receive to be
paid in the shape of claims. Not all such money they
receive is in fact required at a time and, therefore, in the position of custodians of vast sums they are able to
invest it for earning interest in the capital market.
Whilst the general insurance investment has to be on
short-term basis, life funds can necessarily be invested
on long-term basis. The investment is usually made in
government securities, mortgages, industrial loans and
shares, debentures etc. The insurance market as such is
largely relied upon by commerce and industry as one
of the main sources of investment capital and therefore,
it obviously contributes much in the overall economic
development of a country. Insurance companies have a
pivotal role in offering insurance products which meet
the requirements of the people, and at the same time,
are affordable.
LITERATURE REVIEW
According to Ramesh Bhat (2005) ―Insurance does
influence the growth and development of an economy
in several ways. The availability of insurance can
mitigate the impacts of risk by providing products
which help organizations and individuals to minimize the consequences of risk and has a positive effect on
industry growth as entrepreneurs are able to cover their
risks. In the absence of a full range of insurance
products and/or deficient products in terms of coverage
and scope, the risk-taking abilities would be hampered
and chances are that the economic activities would turn
out to be high-risk activities. The implications of
leaving various risks uncovered can be significant and
the impact of losses can be devastating creating a huge
burden on the governments. Therefore, a strong and
competitive insurance industry is considered imperative for economic development and growth.
However, the contribution of the insurance companies
is also dependent on the fact that they are able to pool
risks effectively. Only then would it be possible to
cover these risks at an affordable and reasonable cost
as the insurance provider will be able to spread the
risks throughout the economy.‖
―Due to globalization, the number of entries of
insurance companies is dramatically increasing and
leading to hyper competition. The insurance companies
are in stress to focus on the strategic issues. Some of the insurance companies are providing competitive
presents of super-fast services, easy documentation
process, extra benefits for awarded customers,
complete cover and EMI benefits. The companies
should create a separate identity which may help the
customer to be choosy enough and demand for better
insurance companies which fulfills the requirement of
the target audience.‖ By G.Vadivalagan &
N.Suganthi,( July 2009).
*Research Scholar, Department of Commerce & Business Administration University of Allahabad.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 58 ISSN: 2231-6353
According to M.Motihar, (2013) ,‖The practice of
insurance has many secondary or subsidiary functions
which contribute to the welfare of the individual or
society. It tends more and more to transform our
modern social order, foster both private and public
interests, individual prudence, acts as an accelerator and as stabilizer of economic growth. Insurance has
attained so great a popularity and importance these
days that it has now become almost a ‗home-word‘.
The socio-economic significance of insurance has been
well realized all over the world and it will be no
exaggeration to say that industrial world without
insurance is like a car without shock-absorber.‖
―The increased competition has led to rapid product
innovations for catering to the diverse requirements of
the various segments of the population. Besides
statutory commitments in respect of weaker sections of society, competitive pressures are pushing life
insurers to adopt innovative marketing strategies to
extend insurance penetration, especially targeting
lower income groups‖ by Nitin Bhasin, (2013).
CONTRIBUTIONS OF INSURANCE TO
ECONOMIC GROWTH AND DEVELOPMENT Insurance serves a number of valuable economic
functions that are largely distinct from other types of
financial intermediaries. In order to highlight
specifically the unique attributes of Insurance, it is worth focusing on those services that are not provided
by other financial services providers, excluding for
instance the contractual savings features of whole or
universal life products .The indemnification and risk
pooling properties of Insurance facilitate commercial
transactions and the provision of credit by mitigating
losses as well as the measurement and management of
non-diversifiable risk more generally. Typically
Insurance contracts involve small periodic payments in
return for protection against uncertain, but potentially
severe losses.
Among other things, this income smoothing effect
helps to avoid excessive and costly bankruptcies and
facilitates lending to businesses. Most fundamentally,
the availability of Insurance enables individuals and
entrepreneurs to undertake higher risk, higher return
activities than they would do in the absence of
Insurance, promoting higher productivity and growth.
IMPACT OF INSURANCE TO ECONOMIC
DEVELOPMENT
Impact of Insurance to economic development is significant and has rapidly grown in the last decade
with liberalization and private sector entry. The
numbers of people insured with life policies have
vastly increased; medical insurance has become
popular and benefited large number of people.
Insurance premium as come down as a result of
competition, insurance brokers are providing good
service to take insurance to the people and help them to
get the claims quickly in case of death or accident. The
companies are insuring their factories, offices,
vehicles, shops, equipments, hotels, hospitals, and the
households are insuring their properties assets. This has
considerable mitigated the risks of loss and damage to
the insurers. The money collected by the insurance companies have contributed to economic development
as these funds are deployed in industrial projects,
transport and infrastructure projects as well as socially
beneficial health and other projects.
Insurance promotes economic development through
various channels:
Insurance reduces the capital firms need to
operate.
Insurance fosters investment and innovation by
creating an environment of greater certainty.
Insurers are solid partners for the development of a workable supplementary system of social
protection, in particular in the field of retirement
and health provision.
As institutional investors, insurers contribute to
the modernization of financial markets and
facilitate firms‘ access to capital.
Insurance promotes sensible risk-management
measures through the price mechanism and other
methods and contributes to responsible and
sustainable economic development.
Insurance provides employment opportunities to the job seekers.
CHALLENGES
As insurance is a ‘push‘ rather than a ‘pull‘
product, it is a big challenge for the companies to
make their products meaningful to prospective
customers.
The key business challenge for most of the
insurers is to reduce the turnaround time and
improve their speed to market their products.
Shifting consumer‘s requirements.
Premiums rates will remain under pressure due to intense competition on the more profitable lines.
Insured adopted fraudulent practices for earning
profit from the insurance companies.
Delay in claim settlement process decreases the
trust level of insured.
Still some areas are isolated from insurance due to
bogus and outdated plans.
Another challenge in front of insurance
companies are heightened competition and global
economic meltdown.
The existing policy awareness towards the usage of the policy is very low.
Shortage of insurance professionals is an another
challenge in front of insurance companies.
OPPORTUNITIES
As insurance need is vertical as well as horizontal, the
insurance business is spreading across the country.
Insurance companies are focusing and spreading
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 59 ISSN: 2231-6353
network in rural markets as it has huge potential.
Technological development is helping this drive of
rural expansion. In future, online insurance will have a
key role in new business. There will be huge scope for
claim consultants who will help people to get insurance
claims. Insurance sector will slowly dominate the economy and there will be overall developments in
insurance sector. There will be huge revenue
generation from insurance business in India as well as
outsourced insurance businesses from outside India.
There are several important opportunities are available
in front of insurance industry and it is needed by
insurance industry to absorb these opportunities and
make its contribution to the economic development of
the country.
REMEDIAL MEASURES
New approaches and technology are needed to manage and develop an insurance product which
reduces the cost and time to market.
It is essential for the insurance company to
develop customer education through programme
to create awareness about the benefits of
insurance policies.
The brand image of the company should be built
by communicating the value addition which the
company possesses.
The customer relationship management is the
mantra for modern organization to retaining the customers. The insurance companies should have
an effective CRM programme to motivate the
agents who are involved in the customer
relationship.
There is a need to have regular effective
advertisements which will help the customer to
remember the company.
The policy terms and conditions should be
completely transparent to the people.
The rules and regulations should be transparent
and hassle free.
The insurance companies may provide the adequate guidelines facility which may able to
answer the quires of the customers through
customer care. The helpline toll free number can
be provided.
Use Business Intelligent (BI) to develop an
innovative product with wide range of
advantages.
Traditional distribution channels, especially tied
agents, need to be improved.
CONCLUSION The insurance sector plays a fundamental role in the
economy. A world without insurance would be much
less developed economically and much less stable. By
protecting firms and citizens against adverse events,
the insurance sector provides a safety net that allows policyholders to restart their activities whatever the
difficulties they have to cope with. Insurance plays, at
this level, a key role in economic stability. Moreover,
as institutional investors, the insurance sector provides
a long-term source of finance for investment in the
economy, thus contributing to sustainable growth.
India is leading towards one of the strongest economy
of the world and it is international phenomenon that
insurance sector always booms along with growing
economies. Insurance services are the foundation for
the smooth functioning of all business and commercial
activities. All industries in this scenario can be monetarily well protected from all types of catastrophic
and manmade risks. The role of insurance towards
economic growth and development is incredible.
REFERENCES 1. Bhat.Ramesh, et. (Insurance Industry in India:
Structure, Performance, and Future Challenges),
VIKALPA: THE JOURNAL FOR DECISION
MAKERS, Volume 30, No 3, July-September
2005.
2. Vadivalagan. G & Suganthi .N, (The Vehicle Insurance Holders Attention towards the
marketing strategies of Insurance Company),
JOURNAL OF FINANCE & MANAGEMENT,
Volume 1, No 2, July 2009.
3. Motihar. M, (PRINCIPLES AND PRACTICE OF
INSURANCE), Sharda pustak bhawan,
Allahabad, 2012-2013.
4. Bhasin. Nitin, (INDIAN FINANCIAL SYSTEM
REFORMS, POLICIES AND PROSPECTS),
New Century Publication, New Delhi, 2013.
5. Palande.S.P, Shah.S.R & Lunawat.L.M,
(INSURANCE IN INDIA), a division of Sage Publication, New Delhi, 2003.
6. Thoyts.Rob, (INSURANCE THEORY AND
PRACTICE), Routledge Publication, 2010.
7. www.insuranceeurope.eu
8. www.irda.org
9. www.insuranceinstituteofindia.in
10. www.tapstrynetwoks.com
11. www.economictimes.com
12. www.financialexpress.com
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 60 ISSN: 2231-6353
THE IMPORTANCE OF LOCATIONAL ATTRIBUTES:
A STUDY OF INDEPENDENT SMALL SCALE RETAILERS
Vivek Kumar Pathak*
Chandan**
MadanLal***
ABSTRACT Objective: To explore up to what extent independent small scale retailers attach importance to various locational attributes.
Design: A total of 100 independent small scale retailers from Varanasi city were approached, who self-completed a questionnaire. Non-probability convenience sampling was used to select the respondents. Results: It was found that the accessibility criterion is the most important criterion for small scale retailers followed by environmental criterion. Conclusion: The results of this study have direct implication for independent small scale retailers. Based on the importance attached to each of the attribute, the results of the study can guide them in making better location decisions.
INTRODUCTION
The retail sector in India has evolved over the past
decade with organized retail booming and unorganized
retail still having a share around 95%. Location which
is one of many considerations in a marketing strategy
involves an intricate decision making process. There
are many location analysis techniques available to
retailers, but, most of them require expertise and high
cost involvement.The locational decision making of small scale retailers is mostly constrained with their
inability to invest in such analytical techniques and
mostly based on ―Gut Feeling‖. In a research carried
out by Pioch et al. (2004), which tried to study the
importance of location in case of small independent
firms, a ground theory approach was used. This type of
approach is used when very less academic research has
been done in that field. Even in case of retail location
studiesvery limited studies have been done considering
small scale retailers (non-multiple retailing). This study
has tried to investigate various locational factors which independent small scale retailers consider important.
Literature review:According to Benito et al. (2005),
the key factors to bear in mind in the assessment of
retail locations can be classified into two broad types
(1) market factors- relating to the potential of the
location for attracting consumers and enhancing sales
(2)-operative factors (cost involved in operating a
location). According to Hand et al. (1986), nine basic
elements need to be considered in retail location
analysis, trading area, competition, laws related to
retail business, visibility and accessibility, artistic and aesthetic qualities associated with the location,
compatibility of the adjacent retail businesses,
convenience, history of the location and trading hours.
According to Mazze (1972), in selecting a site three
variables can be measured, (1) -product assortment
(measured by the number and type of like and unlike
stores surrounding the site selected), (2)- population
density and (3)-traffic configuration. Apart from this he
has suggested consideration of five additional factors-
accessibility, vehicular traffic, parking lots, cost of
occupancy and retail groupings. According to
Hemalatha et al. (2008), there are several principles
that guide site selection process, enough population
need to exist within a reasonable commuting distance.
Proximity to major roads, availability of public
transportation and local competitive retail environment
has a major influence on locational decision-making.
RESEARCH METHODOLOGY
A Total of 12 locational factors were extracted from
various literatures. These 12 factors were then
categorized according to the classification made
byBurnaz&Topcu (2006).
OBJECTIVE OF THE STUDY
The primary purpose of this study is to determine
which locational attributes small scale retailers deem
important.
SAMPLING & QUESTIONNAIRE DESIGN
The study was carried out in Varanasi city (Uttar
Pradesh). A non-probability convenience sampling
method was used to select small scale retailers selling
convenience goods. A total of 100 retailers were
approached. For the final study, a structured
questionnaire consisting of different sections was
compiled in accordance with the conceptual framework
and study objective. The various sections dealt with
locational attributes and demographic information. A
Likert-type importance scale varying from 1 to 5 was used to measure the degree to which the variables
under study vary with 1 = Not Very Important and 5 =
Extremely Important.
The data obtained was statistically analyzed using
various statistical tools such as mean, One–sample T
test etc. using SPSS package.
* Research Scholar, Faculty of Management Studies, Banaras Hindu University, Varanasi, Uttar Pradesh
** Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi, Uttar Pradesh-221005
*** Assistant Professor, Faculty of Management Studies, Banaras Hindu University, Varanasi, Uttar Pradesh
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 61 ISSN: 2231-6353
RESULTS AND DISCUSSION
The results obtained from the study are presented here.
The sample (n=100) consists of retailers having low
daily average sales (µ=3000 INR). The daily average
no. of customers, store receives is also low (µ=103).
The average age of respondents is high (µ=41yrs). The average of years, the retailers have been in business is
also high (µ=18.7yrs). 45.2 % of the retailers have their
stores on rent.
In our study we found a hierarchy of three locational
criterions with accessibility as the most important
(µ=4.01) and criterion related to other retailers and
business district (µ=3.67) to be the least important. This is summarized in the given table-1.
Table- 1 : LOCATIONAL ATTRIBUTES (N=100)
Components p-**
value
Rank
S/O*
Result Composite/ p-
value
1 Criteria Related with Accessibility
A1 Availability of Parking Facilities 4.67 .000 1/2 Sig
4.01/.000
Significant
A2 Visibility of Store 4.30 .000 3/4 Sig
A3 Nearness to Source of Supply (Ease of Delivery) 2.62 .239 5/10 N-sig
A4 Accessibility by Public Transport 4.14 .000 4/7 Sig
A5 High Pedestrian/Vehicular Traffic 4.33 .000 2/3 Sig
2 Environmental Criteria
E1 High Population Density in the Vicinity 4.19 .000 1/5 Sig
3.75/.000
Significant E2 High Income of the Residents in the Vicinity
(Spending Patterns)
3.77 .011 2/8 Sig
E3 Ease of Recruitment of Store Personnel (Availability
of Labour)
2.95 .880 3/9 N-sig
3 Criteria Related with Other Retailers and Business District
R1 Store Composition in Vicinity-Similar 3.77 .007 3/8 Sig
3.67/.000
Significant
R2 Store Composition in Vicinity-Different 4.75 .000 1/1 Sig
R3 Reputation of Business District 4.16 .000 2/6 Sig
R4 Presence of a Magnet store 2.31 .016 4/11 Sig
*Section/Overall, **Statistically significant at p<0.05, mean value compared with the midpoint of the scale i.e. 3
CRITERION-1
The accessibility criterion was found to be the most
important criterion from the small scale retailer‘s point
of view. Within this the parking facility received the
highest mean (4.67). All the components under this
criterion except nearness to the source of supply (2.62)
received a mean greater than four. According to Chau
et al. (2000), accessibility generates extensive pedestrian/vehicular flow and the location is accepted
to have high retail drawing power. After application of
one sample T-test all the results were found to be
significant (p<.05), except for the component,nearness
to the source of supply (p=.239>.05)
CRITERION -2
In the words of Benito et al. (2005) although
population density is an important attribute for the
selection of location, the heterogeneity of consumers is
also fundamental. While the former is related to the
quantity of consumers, the latter is related to the quality of consumers. For the small scale retailers the
quantity of consumers in the vicinity of store is more
important than quality of consumers (4.19>3.77). The
retailers perceive that high income group of consumers
don‘t shop at small stores. Availability of labor
received the least score and was found to be
insignificant (p=.880>.05). The results for the rest of
the components were found to be significant after
application of one sample T-test.
CRITERION-3
This criterion is related to other retailers in vicinity of stores and the business district where the store is
situated. This criterion received the lowest composite
mean. According to Bravo et al. (2006), there are two
types of clustering of stores. One-different types of
stores that satisfies efficiently the needs and wants of
consumer‘s multipurpose shopping, two- stores of the
same type that allows consumers to reduce uncertainty
and helps in comparing prices. The type one received
the highest mean of 4.75. Reputation of the market was
another component that received a score greater than
four. After application of one sample T-test all the
results were found to be significant (p<.05). All the components under this criterion were found to be very
important except presence of a magnet store (a magnet
store draws consumers from distant places).
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 62 ISSN: 2231-6353
CONCLUSION
Although the issue of retail location has attracted a
great deal of academic attention, most of the literature
pertains to large scale retailers. The results of this study
have direct implication for independent small scale
retailers. The importance attached to each of the attribute can guide them in making better location
decisions.
REFERENCES
1. Benito O G (2005), ―The Role of Geodemographic
Segmentation in Retail Location Strategy‖,
International Journal of Market Research, Vol.
47,No.3, p295-316
2. Bravo M E (2006), ―Do Business Density and
Variety Determine Retail Performance‖,Business
Economics Series 17 (Working Paper)
3. Burnaz et al. (2006), ―A Multiple-Criteria Decision-making Approach for the Evaluation of
Retail Location‖,Journal of Multi-Criteria
Decision Analysis, Vol.14, p67–76
4. Chau W K (2000), ―The Determinants of Street
Level Retail Shop Prices in Hong Kong‖, Paper
Presented in Pacific Rim Real Estate Society
Conference 5. Hand H H (1979), ―Economic Feasibility Analysis
of Retail Location‖, Journal of Small Business
Management, Vol.17, p28-36
6. Hemalatha et al. (2008), ―Multiattribute Analysis
of the Retail Store Location Decision‖, Journal of
Contemporary Research in Management,p43-52
7. Mazze E M (1986), ―Identifying the Key Factors
in Retail Store Location‖, Journal of Small Bsiness
Management, Vol-10, p17-21
8. Pioch E (2004), ― Small Independent Retail Firms
and Locational Decision Making: Outdoor Leisure
Retailing by the Craigs‖, Journal of Small Business and Enterprise Development, Vol.11,
No.2, p222-232
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 63 ISSN: 2231-6353
ROLE OF CORPORATE GOVERNANCE IN SUSTAINABLE DEVELOPMENT
Triveni *
Rajan **
ABSTRACT „Corporate Governance has attained unprecedented prominence in recent years.‟ Both the failures and the successes are responsible for it. CSR is an important part of governance as it tries to satisfy the needs of all major stakeholders in terms of their economic, social, and environmental demands and also the financial demands from shareholders. Also among the most important issues facing business today is sustainability. Sustainability is concerned with meeting the needs of the present
without compromising the ability of future generations to meet their own needs. A sustainable enterprise is one that considers its impacts on the environment and on society in general, while maintaining financial profitability. In this research paper, we are trying to evaluate these concepts and analyze the relationship between corporate governance and sustainability. Thus, keeping these objectives in mind, the paper is divided into four sections. Section I deals with the introduction of the concepts. Section II explains the conceptual relationship between corporate governance, corporate social responsibility and sustainable development. Section III dealt with the glimpse of Hindustan Unilever Limited and ITC Limited responsible corporate governance and sustainable practices, Section IV gives the critical analysis and conclusion.
INTRODUCTION
John Hooker of Carnegie Mellon University suggests
business ethics revolves around the question "How can
one do good by doing well?" Conceptualizing business
ethics starts with the idea that owners/managers desire
to do something good on both the personal and
community level and determine how to accomplish
good through a business. Simply obeying the law but
trying to squeeze every possible penny out of every
transaction is not practicing good business ethics.
We can look at the ethical responsibilities of the MNEs
through three lenses – political strategies, corporate
social responsibility (CSR) and corruption. Within the
MNE, these three lenses influence one another in an
integrated manner.
With the lens of political strategies, each MNE must
choose to either be assertive in its relations with
government, relying on its bargaining power, or be
cooperative, working independently with the government. With CSR lens, MNE ethical activities
can be divided into philanthropic contributions, ethical
codes, organisational credibility, and resource
accommodation.
From the third lens of corruption, it is clear that it
increases the transaction costs. When confronted with
corruption, MNEs that focus more on ethics tend to use
arm‘s length bargaining, while those who focus less on
ethics rely on social connections.
Globally, there are two players involved in ethical scenario – one the MNE, and the other one is the
manager of the MNE. MNEs deal with global ethical
issues in two ways – one treating all cultures as
legitimate and the values and norms dependent on that
culture. On the other hand some MNEs believe into
ethical universalism. It means some truths never
change irrespective of culture. Ethical universalism
may lead to ethnocentricity and problems associated
with it. MNE managers may follow ‗convenient
relativism‘, which is equal to ethical relativism. If it is
legal in the country to employ child labour, let MNE
also employ. Donaldson opines that MNEs have a
higher moral responsibility than ethical relativism. He
suggests that MNEs should follow ethical universalism
based on moral languages. Moral languages are the
truths on which ethical decisions are taken. He has
recommended three universal languages on which MNEs may strive to become more ethical. The moral
languages are – Avoid harm (to its stakeholders),
follow rights/duties (as promised), and social contract
(with the employees). Any nation it may be but ethical
conduct will be the same and never against any culture.
Since International businesses are established in the
societies they too have responsibility towards those
societies. The company on its part must take care of the
welfare of its stakeholders. They must proactively go
in for initiatives so that nobody‘s legitimate interest is harmed and each employee must be guided to
overcome ethical dilemmas.
Corporate governance and Corporate Social
responsibility are the major prevalent issues related to
ethics. Corporate governance (CG) is an age-old issue
but becomes fresh whenever cases of corporate looting,
mismanagement and frauds get into limelight.
Separation of ownership and management is the crux
of the problem of corporate governance.
Every time society faces a new problem or threat then a new legislative process of some sort are introduced
which tries to protect that society from a future
reoccurrence (Romano, 2004). Recently we have seen
a wide range of problems with corporate behaviour,
which has arguably led to prominence being given to
corporate social responsibility (see for example Boele
et al., 2001).
* Assistant Professor Shaheed Bhagat Singh Evening College, University of Delhi
** Assistant Professor Shaheed Bhagat Singh Evening College, University of Delhi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 64 ISSN: 2231-6353
Part of this effect is to recognize the concerns of all
stakeholders to an organisation, and this has been
researched by many people (for example Johnson and
Greening, 1999; Knox and Maklan, 2004) with
inconclusive findings. Accordingly therefore
corporations, with their increased level of responsibility and accountability to their stakeholders,
have felt that there is a need to develop a code for
corporate governance so as to guide them towards
appropriate stakeholder relations.
Since corporate governance can be highly influential
for firm performance, firms must know what are the
corporate governance principles and how it will
improve strategy to apply these principles. The four
principles articulated by the OECD to governance are:
• Accountability – to shareholders
• Responsibility – to stakeholders • Transparency – in all actions
• Fairness – in treatment of shareholders.
All these principles are related with the firm‘s
corporate social responsibility. The CSR has three
perspectives. From a technological perspective, CSR
aims to improve ethical standards in the organizational
decision-making process and should guarantee that
management practices are in accordance with
commonly accepted standards of behaviour. From a
political perspective, CSR describes corporate engagement with ecological and social issues that
extend beyond the firm‘s activities. The third
perspective addresses corporations as intermediate
actors bearing specific subsidiary co-responsibilities in
society. This view describes non-voluntary
responsibility of corporations and allows for defining
corporate duties that go beyond good management
practices and are more concrete than voluntary
engagement. These practices are not only beneficial for
an organization‘s sustainable growth but if practiced
ethically and truly will give a support to sustainable
growth of the society as well.
Since, an organization is working for the society and
get benefitted from the society in terms of resources,
market, money etc., therefore preserving and
safeguarding societies welfare is, for sure, a duty of an
organization and here we come across with the concept
of sustainable development.
―Sustainable Development is a development that meets
the needs of the present without compromising the
ability of future generations to meet their own needs.‖ (World Commission on Environment and
Development, 1987). The three main pillars of
sustainable development include economic growth,
environmental protection and social equality. While
many people agree that each of these three ideas
contribute to the overall idea of sustainability, it is
difficult to find evidence of equal levels of initiatives
for the three pillars in countries' policies worldwide.
With the overwhelming number of countries that put
economic growth on the forefront of sustainable
development, it is evident that the other two pillars
have been suffering, especially with the overall well
being of the environment in a dangerously unhealthy
state. Economic and social well-being cannot be improved with measures that destroy the environment.
RELATIONSHIP BETWEEN CORPORATE
GOVERNANCE, CORPORATE SOCIAL
RESPONSIBILITY AND SUSTAINABLE
DEVELOPMENT
Corporate governance principles therefore are
important for a firm but the real issue is concerned with
what corporate governance actually is. Management
can be interpreted as managing a firm for the purpose
of creating and maintaining value for shareholders.
Corporate governance procedures determine every aspect of the role for management of the firm and try to
keep in balance and to develop control mechanisms in
order to increase both shareholder value and the
satisfaction of other stakeholders. In other words,
corporate governance is concerned with creating a
balance between the economic and social goals of a
company including such aspects as the efficient use of
resources, accountability in the use of its power, and
the behaviour of the corporation in its social
environment (Sethi,2002).
One view of good corporate performance is that of
stewardship and thus, just as the management of an
organisation, is concerned with the stewardship of the
financial resources of the organisation, so too would
management of the organisation be concerned with the
stewardship of environmental resources. The difference
however is that environmental resources are mostly
located externally to the organisation. Stewardship in
this context therefore is concerned with the resources
of society as well as the resources of the organisation.
RESPONSIBLE CORPORATE GOVERNANCE:
A GLIMPSE FROM HINDUSTAN UNILEVER
LIMITED AND ITC LIMITED
In the current state of the world, where dependency and
complexity are major factors, managing sustainability
problems faced at both the global and the regional level
requires shared responsibilities. Among all societal
actors, corporations face extended responsibilities, as
they are major constructors of global product chains
and contributors to global environmental and social
concerns. As the impact areas of their activities extend,
governance implications become inevitable, leading to a dramatic shift in the balance between private actors
and government agencies in international product
chains (Moltke and Kuik,1998,p.11).
As decisions taken and operations run by corporations
may affect a wide range of communities and cultural
backgrounds along product chains, their
responsibilities extend beyond the culture, social
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 65 ISSN: 2231-6353
networks and geography of their headquarters. Due to
their economic and political influence, specifically
high-impact sectors (such as mining, chemicals,
automotive industries) are continuously facing
expectations to assume stricter responsibilities for their
management decisions and activities in developing countries (Sullivan and Frankental, 2002,p.80).
In response to stakeholder demands, now a days
corporations, particularly multinational corporations
(MNCs) have gradually taken action and adapted
various sustainability concepts to respond to
stakeholder expectations. But still, the potential of
corporations to support sustainable development and to
attain a role in supporting public policies remains
untapped.
Currently, companies might tend to concentrate their CSR efforts on activities that have an external rather
than internal focus that is, producing reports publicly
issuing codes of conduct etc. This emphasize on the
concept of ‗Green washing‘ of public awareness. Thus,
the result is that companies‘ attention might often be
diverted from the internal task of actually
implementing the policies set out in their codes of
conduct for public relations activities. Thus, to analyze
the reality behind the transparency we studied the
performance by HUL and ITC in terms of corporate
governance and sustainability.
HINDUSTAN UNILEVER LIMITED
In 1931, Unilever set up its first Indian subsidiary,
Hindustan Vanaspati Manufacturing Company,
followed by Lever Brothers India Limited (1933) and
United Traders Limited (1935). These three companies
merged to form HUL in November 1956.
Hindustan Unilever Limited (HUL) is India's largest
Fast Moving Consumer Goods Company with a
heritage of over 75 years in India. HUL is a subsidiary
of Unilever, one of the world‘s leading suppliers of fast
moving consumer goods with strong local roots in more than 100 countries across the globe with annual
sales of about €46.5 billion in 2011. Unilever has about
52% shareholding in HUL. With over 35 brands
spanning 20 distinct categories such as soaps,
detergents, shampoos, skin care, toothpastes,
deodorants, cosmetics, tea, coffee, packaged foods, ice
cream, and water purifiers, the Company is a part of
the everyday life of millions of consumers across India.
Its portfolio includes leading household brands such as
Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely,
Pond‘s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr,
Kissan, Kwality Wall‘s and Pureit. The Company has
over 16,000 employees and has an annual turnover of
around Rs. 21,736 crores (financial year 2011 - 2012).
The CSR initiatives
Since inception HUL is working towards CSR but the
concentration shifted to India during year 2000.
Project Shakti: In year 2000, a rural sales initiative
Project SHAKTI has been launched in India to increase
rural distribution and help create women entrepreneurs.
During year 2006 Shakti reaches 100000 villages
through 30000 entrepreneurs. In 2011 Company has
extended the Shakti initiative by adding 30,000 Shaktimaan (male family members of existing Shakti
entrepreneurs who have enrolled for the programme),
to sell the products by visiting the surrounding villages
on bicycles.
Lifebuoy Swasthya Chetna: For the hygiene and well
being of the Indian population Lifebuoy Swasthya
Chetna hand washing campaign was launched in 2002.
This campaign reached 120 million people in nearly
51000 villages over the period of 2002-2008.
Signal/Pepsodent/Close Up toothpaste brands reached
more than 44 million children in school-based oral hygiene programmes over the period 1996–2008. In
2010-11, Lifebuoy‘s hygiene programme reached more
than 30 million people in India, spreading hygiene
awareness and encouraging behaviour change.
Company has taken steps to ensure that the food brands
have a better nutritional profile. Around 60% of the
major food and beverage brands, viz. Brooke Bond,
Bru, Knorr, Kissan and Kwality Wall‘s, comply with
the ‗Healthy Choice‘ guidelines as on date.
Environmental Concerns:
Pureit in-home water purifier delivers safe
water, without requiring running water or
electricity, and at a low cost, to over 30 million
people in India.
In 2011, Company reduced CO2 emissions by
14.7% (per tonne of production over 2008
baseline); water use by 21.5%; and waste by
52.8% in factories in India.
Company has improved CO2 efficiency in
transportation by 17.8% despite significant
increase in volumes.
During the year, the Frozen Dessert business
has deployed over 23,775 environment friendly
HC-based freezers in its fleet.
Company is also working in partnership with
governments and NGOs to implement water
conservation projects in more than 180 villages in
17 districts of India.
Unilever Sustainable Living Plan (USLP):
In November 2010, Unilever launched the Sustainable
Living Plan, which puts sustainability at the heart of its business strategy. The central objective of the Unilever
Sustainable Living Plan is to decouple growth from
environmental footprint, while at the same time
increasing Company‘s positive social impacts. The
Unilever Sustainable Living Plan (USLP) has three
significant outcomes by 2020:
Help more than a billion people to improve their
health and well-being
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 66 ISSN: 2231-6353
Halve the environmental footprint of their
products
Source 100% of agricultural raw materials
sustainably
The Unilever Sustainable Living Plan represents a long term goal and progress in 2010-11. By the end of 2011,
almost two-thirds of the palm oil used in products
globally was being purchased from certified sources. In
India, 60% of tomatoes are sourced sustainably. By
2015, Company aims to create water conservation
capacity of a hundred billion litres to enable a better
future for a million people.
ITC LIMITED (IMPERIAL TOBACCO
COMPANY)
ITC Limited was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India
Limited. As the Company's ownership progressively
Indianised, the name of the Company was changed
from Imperial Tobacco Company of India Limited to
India Tobacco Company Limited in 1970 and then to
I.T.C. Limited in 1974. The company now with effect
from September 18, 2001, stands as ITC limited
without full stops. It is a leading Fast Moving
Consumer Goods marketer in India. Company having a
multi business portfolio encompassed a wide range of
businesses. Fast Moving Consumer Goods comprising
Foods, Personal Care, Cigarettes and Cigars, Branded Apparel, Education and Stationery Products, Incense
Sticks and Safety Matches, Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business and
Information Technology. Over the last sixteen years,
company‘s Gross Revenues and Net Profits recorded
an impressive compounded growth of 12.7% and
21.8% per annum respectively. During this period,
return on Capital Employed improved substantially
from 28.4% to 45.4% while Total Shareholder Returns,
measured in terms of increase in market capitalization
and dividends, grew at a compounded annual growth rate of 25.7%.
The CSR initiatives
ITC Limited is majorly working towards capacity
building of rural regions.
Project e- Choupal: This project was launched in June
2000 so as to creatively leverages information
technology to set up a meta-market in favour of India's
small and poor farmers, who would otherwise continue
to operate and transact in 'un-evolved' markets. 'e-
Choupal' services today reach out to over 4 million farmers growing a range of crops - Soyabean, coffee,
wheat, rice, pulses, and shrimp - in over 40,000
villages through 6500 kiosks across ten states (Madhya
Pradesh, Haryana, Uttarakhand, Karnataka, Andhra
Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Kerala
and Tamil Nadu).
Mission Sunehra Kal: ITC,s this mission is to build
rural based community capacity to remove the adverse
conditions and create the basis for renewed agrarian
prosperity by helping farmers to achieve higher farm
productivity, enable communities to develop and
manage water, soil and forest resources for long term ecology security, empower rural men and women by
creating non-farm livelihoods, facilitate development
of infrastructure for primary education, health and
sanitation.
Primary Education: The inability of economically
weak rural families to access primary education and
primary health services is a major obstacle to rural
development. Assistance provided to Government
Primary Schools includes drinking water tanks, toilets,
lights and fans, desks and chairs, structural additions
and improvements, along with training for teachers and support for recreation and cultural activities. Mobile
Rural Libraries are being supported across 288 schools
to spread and inculcate the habit of reading in children.
280 schools are also being covered under the Roaming
Laptop programme to encourage learning through
interactive modules on the computer in schools.
Waste Land Development: ITC has also worked with
State Governments in pioneering public-private
partnerships. In Andhra Pradesh, 3,596 hectares of
wasteland have been developed so far through collaboration with the State Government‘s rural
poverty reduction project, Indira Kranthi Padham, and
its Comprehensive Land Development programme.
Social & Farm Forestry Now
Area developed ( hectares ) 1,25,868
Saplings planted (nos.) 548
million
Employment generated ( person-days ) 56.64
million
Women Empowerment: The confidence and skills
generated among women by forming credit groups and
managing businesses become assets to their
communities. Groups of 10-20 women form common
funds through individual monthly contributions, raising a buffer against family expenses and emergencies.
Women have gone into the making and marketing of a
range of cottage products – pickles, dried fish, organic
manure, spices, agarbattis, tailoring, embroidery, etc.
Backed by ITC‘s marketing support, cottage products
like agarbattis and chikan embroidery are emerging as
profitable rural industries.
Higher Milk Productivity: In collaboration with
BAIF Institute for Rural Development, a national NGO
specializing in livestock development, ITC focuses on
small and landless farmers, assisting them to genetically upgrade their cattle through artificial
insemination with semen from superior strains such as
Jersey and Holstein-Friesian for cows, and Murrah for
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 67 ISSN: 2231-6353
buffaloes. ITC trains and equips technicians to provide
an integrated package consisting of artificial
insemination, cattle health and nutrition, pregnancy and
post-natal services right at the farmer‘s doorstep.
Healthcare: Healthcare services have been provided through 652 health camps benefitting over 53,600
patients. Over 8 years, ITC has assisted over 3600
families to construct their own sanitary units.
CRITICAL ANALYSIS OF RESPONSIBLE
CORPORATE GOVERNANCE AND
SUSTAINABILITY
The Asia monitor Resource Centre has presented a
report on the impact of CSR on workers in China,
South Korea, India and Indonesia. It was alleged that
Hindustan Unilever Limited‘s glossy CSR hide the
truth. The CSR report of Hindustan Unilever on ―improving health and well-being of People‖ in India is
in extreme contrast with the company‘s ruthless ways
of dealing with workers. In its Doom Dooma factory in
Assam about 700 workers and union leaders have been
attacked since 2007 for asserting their basic rights.
Hindustan Unilever has been involved in a number of
CSR initiatives by promoting programmes such as
Project Shakti of Unilever. As per the HUL‘s annual
report the project is aimed at creating rural
entrepreneurs by providing training to 13,000 underprivileged Indian women , who are trained to
distribute the company‘s products to 70 million rural
consumers. Working with women‘s self-help groups,
the company teaches them selling and book-keeping
skills and equips them with commercial knowledge.
The case clearly shows that CSR initiative is merely a
marketing gimmick and an effective exercise in green-
washing. On the one hand, the company deliberately
neglects the rights of its own workers at the workplace,
while, on the other hand, builds a good image of
contributing to the society. Exploiting a large number
of women under the banner of CSR by involving them in selling and distributing the Unilever‘s products,
Hindustan Unilever in fact has increased its profit
manifold. The women participating in the project have
been reaching out to the Indian domestic market that
helped Unilever to get 30 per cent more consumers in
rural areas since the inception of the project in 2000.
With regards to ITC we found that an NGO, Karmayog
Organization, had rated ITC 0/5 in their Survey in
which they covered largest top 500 companies finding
their efforts towards CSR and ITC being tobacco products marketer doesn‘t fulfilled their criteria. HUL
being rated 2/5 in the year 2010 which shows a decline
in rating from 3/5 to 2/5 in 2010
CONCLUSION
Through whole of the analysis we came across with the
theoretical relationship between corporate governance
and sustainability. The objective of sustainable
development can only be achieved with good corporate
governance. If corporates follow the ethical way of
doing business considering their responsibility towards
society, being accountable and transparent towards
their approach then any sustainability policy when executed gives fruitful, worthful development for the
corporates as well as to society too. Thus, it is
nowadays very much required to be transparent in their
approach and execution of policies. With responsible
corporate governance sustainable development is
directly achievable.
REFERENCES
1. Bushman, R.M. and Smith, A.J. (2001),
―Financial accounting information and corporate
governance‖, Journal of Accounting and
Economics, Vol. 32, pp. 237-333. 2. Carroll, A. B. (1979) – “A three-dimensional
Conceptual Model of Corporate Social
Performance”, Academy of Management
Review, 4: 497-505.
3. Durnev, A. and Kim, E.H. (2005), ―To steal or
not to steal: firm attributes, legal environment,
and valuation‖, Journal of Finance, Vol. 60 No. 3,
pp. 1461-93.
4. Ebner, Daniela & Rupert J. Baumgartner (2008) –
“The relationship between Sustainable
Development and Corporate Social Responsibility”, Corporate Responsibility
Research Conference, CRRC 2008: 7-9
September, Queen's University Belfast: 1-17.
5. Elkington, J. (1998) – “Cannibals with Forks.
The Triple Bottom Line of the 21st Century”,
Capstone Publishing, Oxford.
6. Hermalin, B.E. (2005), ―Trends in corporate
governance‖, Journal of Finance, Vol. 60 No. 5,
pp. 2351-84.
7. ITC Annual Reports and Sustainability
Reports(2010-11)
8. Joyner, B.E. and Payne, D. (2002), ―Evolution and implementation: a study of values, business
ethics and corporate social responsibility‖,
Journal of Business Ethics, Vol. 41, pp. 297-311.
9. Knox, S. and Maklan, S. (2004), ―Corporate
social responsibility: moving beyond investment
towards measuring outcomes‖, European
Management Journal, Vol. 22 No. 5, pp. 508-16.
10. Romano, R. (2004), ―The Sarbanes-Oxley Act
and the making of quack corporate governance‖,
working paper no. 52/2004, European Corporate
Governance Institute, Brussels. 11. Sustainable Development: Concept and Action-
UNECE
12. Unilever Sustainable Living Plan in India Report
and Progress (2009, 2010)
13. Donaldson, T. (1992), ―The language of
international ethics,‖ Business Ethics Quarterly,
2, pp. 272-81.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 68 ISSN: 2231-6353
HUMAN RESOURCE ACCOUNTING –A CASE STUDY OF INFOSYS TECHNOLOGIES
Shweta Jaiswal *
ABSTRACT Success of an organization depends to a great extent upon its people i.e., Human Resources. It is the most vital part of any organization. It is the most important „M‟ which is considered while taken care of 4M‟s associated with any organization they are Money, Machines, Materials and Men. But the most interesting thing is that the first three are recognized and find a
place in the assets side of the Balance Sheet of the organization and in case of fourth ones ambiguity prevails among the accountants. HRA emphasizes that human resources should be treated as assets like physical & financial assets. HRA involves identifying, measuring, analyzing the potential of human resources of company & communicating the relevant information to the stakeholders of the company. This paper aims at analyzing the HRA practices of Infosys Technologies Limited & its usefulness in HR decisions. Infosys had always given utmost importance to the role of employees in contributing the company‟s success. Analysts felt that Human Resource Accounting was a step further in Infosys‟ focusing on its employees.
INTRODUCTION
Human resources have certain distinct characteristics
from other physical assets like personality, self control,
devotion, quality, skill, talents, loyalty & initiativeness.
It is the basic need of present time to improve
productivity that can be improved by the human force.
An organization having immense physical resources
with latest technology may suffer financial crises as it
does not have right people to manage and to conduct its affairs. Thus, in spite of technological developments,
the importance of human resources to ensure the
organization‘s success has no way abridged.
The first attempt to value human beings in monetary
terms was developed by Sir William Petty in the year
1691 but research into true Human Resource
Accounting began in the year 1960 by Rensis Likert.
Human Resource Accounting has been defined by the
Committee of American Accounting Association as
―the process of identifying and measuring data about
human resources and communicating this information to the interested parties‖. In the words of Stephen
Knauf (1983) ―the measurement and quantification of
human organizational inputs such as recruiting,
training, experience and commitment.‖
Eric.G.Flamholtz have defined ― Human Resource
Accounting involves measuring the cost incurred by
the business firms and other organizations to recruit,
select, hire, train & develop human assets. It also
involves measuring the economic value of people to
organizations. In brief, it involves accounting for
people as organizational resources for managerial as well as financial accounting purposes.‖ In simple word,
we can say that HRA is the systematic recording of the
transaction relating to the value of human resources. It
is the measurement of cost & value of people for the
organization.
From the above, it may be concluded that HRA
comprises of three aspects:
(i) Evaluation of Human Resources.
(ii) Recording the valuation in the books of accounts.
(iii) Presenting the information in the financial
statements for communication to the interested
parties.
BASIC PREMISES OF HRA
The basic premises underlying the theory of HRA are:
(i) People are valuable resources of an enterprise.
(ii) The usefulness of manpower as an organizational
resource is determined by the way in which it is managed.
(iii) Information on investment & value of human
resource is useful for decision making in the
enterprise.
COMPANY PROFILE
INFOSYS TECHNOLOGIES LIMITED
Infosys was established in 1981 by seven engineers
with just US$ 250. Infosys is a NYSE listed global
consulting and IT services company with more than
1,58,000 employees. From a capital of US$ 250, it has
grown to become a US$ 8.095 billion company with a market capitalization of approximately US$ 33 billion.
In the journey of over 30 years it has catalyzed some of
the major changes that have led to India‘s emergence
as the Global Delivery Model & became the first IT
Company from India to be listed on NASDAQ. Its
employee stock options program created some of
India‘s first salaried millionaires.
Infosys service offering span business and technology
consulting, application services, system integration,
product engineering, custom software development, maintenance, re-engineering, custom software
development, maintenance, re-engineering,
independent testing and valuation services, IT
infrastructure services and business process
outsourcing. Infosys has a growing global footprints
with over 73 offices and 94 development centers in
United States, India, China, Australia, Japan, Middle-
East, & Europe.
Infosys started using Human Resource Accounting in
the year 1995-96 & it became first Software Company
*Research Scholar, Faculty of Commerce, Banaras Hindu University, Varanasi.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 69 ISSN: 2231-6353
to value its Human Resources. Infosys had always
given utmost importance to the role of employees in
contributing to the company‘s success. HRA was a step
further in Infosys‘ focus on its employees. Narayana
Murthy, the then chairman and managing director of
Infosys, said: ―comparing this figure over the years will tell us whether the value of our human resources is
appreciating or not. For a knowledge intensive
company like ours, that is vital information.‖
OBJECTIVES OF THE STUDY
This paper is an attempt to achieve the following
objectives:
1. To evaluate the HRA practices adopted by
Infosys Technologies.
2. To make analysis of the HRA data provided by
Infosys Technologies for evaluating its usefulness
in HR decision.
RESEARCH METHODOLOGY
With a view to achieve the aforesaid objectives the
scope of the present study are restricted to the analysis
of the HRA practices of Infosys Technologies for the
last two year under four head namely method of
valuation, disclosure of HRA, form of presentation and
usefulness in human resource decision. This study is
based on the secondary data which is gathered from the
annual reports and websites of Infosys Technologies
for the accounting year 2011-12 & 2012-13. Lastly, some suggestions have been made to improve the HRA
practices of Infosys. The major limitation of this study
is the lack of adequate corporate disclosure practices in
India.
LITERATURE REVIEW
―The concept of Human Resource Accounting was first
developed by Sir William Petty in the year 1691.‖ He
believed that labor as the ‗father of wealth‘ and it must
be taken into consideration in estimating the national
wealth. For the first time HRA was implemented by
R.G Barry Corporation, Ohio (USA) in 1967 under the guidance of Dr. Rensis Likert & Pyle. Some notable
efforts for the development of HRA were made by
Schultz(1960),William C Pyle (1967), Flamholtz
(1971, 1972 & 1975), Moorse (1973), Lev &
Schwartz(1971), Jaggi & Lau(1974), Kenneth Sinclare
(1978) etc. Various methods and models developed by
these scholars are broadly classified as monetary
measurement (cost based & value based methods) and
non-monetary measurement methods.
In India also several research studies have been conducted by various scholars among these are
Chakravorty,S.K. (1997), Ranga Rao, Y. (1979),
Rajeshwar, N. (1981), Gupta (1990), Batra and Bhatia
(1994), Verma (1999), Patra and Khalik (2003), Sonara
and Patel (2009). These studies are conducted to know
the current status of Human Resource Accounting in
Indian context.
OBJECTIVES OF HUMAN RESOURCE
ACCOUNTING
1. To know whether the human resources have been
properly utilized and allocated.
2. To evaluate the return on investment on human
capital. 3. To measure the cost incurred on human resources
by firms.
4. Decision regarding cost reduction and to provide
information about productivity of the
organization.
5. To furnish cost value information for making
proper and effective management decisions about
acquiring, developing, motivating and
maintaining human resources.
6. To help in development of management principles
by clarifying the financial consequences of the
various practices. 7. To communicate the organization and the public
at large about the worth of human resources of an
organization.
HUMAN RESOURCE ACCOUNTING
PRACTICES IN INDIA
The concept of HRA was not new in India a leading
public sector enterprise Bharat Heavy Electricals Ltd.
(BHEL) had introduced HRA in its annual reports of
the financial year 1974-75 for the first time in India. In
the subsequent year some other corporate enterprises such as Infosys, Steel Authority of India Ltd. (SAIL),
ONGC, NTPC, MMTC, HSL, OIL, TELCO, ITL,
Satyam computers, DSR Software etc. In the Indian
context Lev & Schwartz model (present value of future
earnings) has an edge over the other model. This model
has been widely adopted by the Indian companies
including Infosys. But in the year 2012 Infosys
developed a new model to quantify the value of its
employees named GIST HCX Model in partnership
with GIST Advisory.
HRA has not been introduced so for as a system in India. The Indian Companies Act 1956, which governs
the preparation of financial statements of company in
India, is silent about the incorporation of Human
Resource Accounting. Moreover the ASB of the ICAI
neither formulated nor made mandatory any standard
regarding HRA. However, few companies in India
have voluntarily begun to include the statement of
HRA in their annual report.
EVALUATION OF HRA PRACTICES OF
INFOSYS With a view to evaluate the HRA practices of Infosys
the data are collected from the website and annual
reports for the last two years have been analyzed under
four major heads namely method of valuation,
disclosure of HRA, form of presentation and human
resource ratios. A summary of the findings of each
head is as under:
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 70 ISSN: 2231-6353
(1) Method of Valuation:
As a standard practice, Infosys reports the value of its
employees using the Lev & Schwartz Model but it had
developed a new model in the year 2011-12 to quantify
its human resources value in partnership with GIST
Advisory this year called ‗GIST HCX Model‘. It is based on a present value calculation of the increase in
future earnings of employees during their employment
at Infosys. Unlike conventional model, it also accounts
for the impact of attrition on human capital value, and
therefore also quantifies the value of positive human
capital externality being generated by Infosys. Human
capital externality refers to the benefit derived by the
society when employees whose capital values has
increased due to training & employee development at
Infosys, leave the company. The model discounts
future earning at an appropriate discount rate & utilizes
the long run inflation rate consistent with the RBI targets for inflation expectations. It assumed 5% long
run inflation rate and 4% discounting rate in both the
year.
(2) Disclosure of HRA:
It was found that the valuation of HR has been
disclosed by Infosys for all the years continuously
without gap. Infosys has disclosed HR valuation in its
annual report in the form of supplementary statement
as well as a part of ‗Balance Sheet including Intangible
Assets‘. However, it has not got its HRA data audited from the auditors.
(3) Form of Presentation:
It was found that Infosys has presented HRA
information along with comparative figures of previous
year. However, the number and value of human
resources have been shown category wise only and not
age wise.
(4) Usefulness in Human Resource Decision:
The HRA data provided by Infosys include the
information regarding the number, cost and value of human resources through these data some HR ratios
have been calculated. An analysis of these information
is as under:
A. It was found that in the year 2011-12 the total
number of employees was 1,49,994 which increased to
1,56,688 in 2012-13 i.e. an increase of 4.46% during
the last year. The number of software professionals and
support staffs has increased by 3.68% and 17.96%
respectively. It is seen that the number of human
resources in Infosys is increasing (see exhibit)
B. Total employee cost has increased from 18,340
crore in 2011-12 to 22,566 i.e. an increase of 18.72%
during the year while the cost per employee was found
Rs. 0.122 crore and Rs. 0.144 crore in the year 2011-12
and 2012-13 respectively, i.e. an increase of 18.03%
during the year.
C. As far as total human resource value is concerned, it
has increased from Rs. 1,25,717 crore to Rs. 1,37,845
crore during the year i.e. an increase of 9.65%.
Similarly the value of software professional and
support staff has increased by 7.74% and 32.20%
respectively. The value of human resources in each category shows continuous increase. Inspite of no
change in discount rate used for valuation of human
resources under GIST HCX Model which was kept on
changing under the conventional model.
D. Total value of human capital externality has
increased from Rs. 6831 to Rs. 7645 during the year
i.e., an increase of 11.92%. Similarly the value of
software professional and support staff has increased
by 9.46% and 35.29% respectively. Human capital
externality refers to the benefit derived by the society
when employees whose capital values has increased due to training & employee development at Infosys,
leave the company.
E. Some human resource ratios have also been
disclosed by Infosys. In the analysis of these ratios it
was found that the value of human resources per
employee has increased from Rs. 0.84 crore to Rs. 0.88
crore i.e. an increase of about 4.76% during the period
of study. Percentage of employee cost to human
resource value has also increased from 14.58% to
16.37%, these two ratios indicates increasing trends however percentage of employee cost to human
resource value should be decreased so that the
efficiency of human resources of Infosys could be
improved because of higher value at lower cost. Total
income to human resource value has increased from
Rs. 0.27 crore to Rs. 0.29 crore during the year 2011-
12 to 2012-13, while value added to human resource
value ratio has also increased from 0.25 to 0.26 during
the period. Similarly, return on human resource value
has also increased from 6.6% to 6.8% in the period of
study. So overall there was a favorable condition
except the employee cost to human resource value. So we can say that Infosys provides some useful HRA
data like the number of human resources and cost and
value of human resources. We found that earlier the
change in the discount rate each year makes HR value
and HR ratio data incomparable and misleading which
affects HR decisions adversely but because of these
new ‗GIST HCX Model‘ the rate of discount was same
in both the year which makes the data comparable.
BENEFITS
Benefit experienced by Infosys by valuing its human resources may be listed as below;
Infosys could determine whether its human asset
was appreciating over the years or not.
The company could also use this information
internally to compare the performance and
productivity of employees in various departments.
The company ensured that it compensated each
employee according to his / her net worth.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 71 ISSN: 2231-6353
EXHIBIT: Analysis of HRA Practices of Infosys
Source: Annual Reports of Infosys 2011-12 &2012-13.
HRA also helped Infosys in identifying and
retaining valuable employees.
When human resources gets quantified it gave Infosys investors and other clients true insights
into the organization and its future potential. It
restored faith amongst shareholders.
It helped organization to take managerial decisions
based on the availability and the necessity of
human resources.
By adopting HRS the following information could
be obtained –
Cost per employee.
Human capital investment ratio.
The amount of wealth created by each employee.
The profit created by each employee.
The ratio of salary paid to the total revenue
generated.
Average salary of each employee.
Employee absenteeism rates.
Employee turnover rate and retention rate.
SUGGESTIONS
Some useful suggestions to improve the disclosure of
HRA practices of Infosys Technologies and its
usefulness in HR decision are as under:
1. Infosys should also get its HRA information
audited so that the trustworthiness of HR data can
be ensured.
2. The elements of employee cost should be
disclosed separately by Infosys in various tables.
It has not disclosed the elements of employees cost such as training and development cost,
induction cost etc.
3. The number and valuation of human resources in
various age-groups should also be disclosed by
Infosys.
4. In the valuation of human resources it should also
disclose the information regarding the inclusion
of other variables like amortization of human
resources, lock outs, loyalty of employees, idle
time, etc.
5. Some HR ratios in relation to total resources,
sales, PBT, PAT, gross profit, operating profit should also be disclosed to improve HR decision.
6. The ASB of the ICAI should devise the standards
for the valuation, accounting and disclosure of
such valuable assets. Besides, the disclosure of
HRA practices should be made mandatory by the
Indian companies Act 1956.
7. Initiatives should be taken by the government,
professional bodies and scholars to develop an
objective model for the valuation of human
resources.
CONCLUSION
The most valuable assets of a 21st century organization
are its knowledgeful workers and their productivity.
Today people are generally classified as expense on the
income statement and liabilities on the Balance Sheet –
not as an investable asset & we also find that HRA is
still in a developing stage but Infosys the global
technology company successfully applied Human
Resource Accounting to value their human resources
and disclosing HR information regularly in its annual
reports since 1995-96. Although it has voluntarily adopted HRA practices as it is not mandatory and reap
many benefits also by adopting HRA. We also find that
its Balance Sheet also includes value of their human
resources. Other companies should also follow the lead
of company like Infosys, and begin to quantify the
value that people add to their organizations.
To sum up, it can be said that the HRA practices of
Infosys is satisfactory. However the above mentioned
As at March 31 2013 2012
Employees (No.)
Software Professional 1,47,008 1,41,788
Support 9,680 8,206
Total 1,56,688 1,49,994
Value of Human Capital
Software Professional 1,24,867 1,15,900
Support 12,978 9,817
Total 1,37,845 1,25,717
Value of Human Capital
Externality
Software Professional 6,767 6,182
Support 878 649
Total 7,645 6,831
Rate of discounting
future earnings of employees 4% 4%
Total income 40,352 33,734
Total Employee Cost 22,566 18,340
Value Added 36,483 30,960
Net Profit excluding exceptional
items 9,421 8,316
HR Ratio
Value of HR per employee 0.88 0.84
Employee Cost/ HR Value (%) 16.37% 14.58%
Total Income/HR Value (Ratio) 0.29 0.27
Value Added/HR Value (Ratio) 0.26 0.25
Return on HR Value (%) 6.8% 6.6%
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 72 ISSN: 2231-6353
suggestions must also be taken into account so that that
it can overcome with the aforesaid limitations or
weaknesses.
REFRENCES
1. Gupta, Shashi K. and Sharma, R.K., Management.
2. Accounting- Principles and Practices, Kalyani
Publishers, tenth edition.
3. Rao, V S P, Human Resource Management, (Text
and Cases), Excel Books, reprint 2004.
4. Caplan, Edwin H. and Landekich, Stephen.,
(1974) Human Resource Accounting: Past,
Present and Future. New York: National
Association of Accountants.
5. Singh A.K. and Gupta N., Measurement of
Human Assets: An empirical Analysis, Indian
Journal of Accounting, June, 2008. 6. Flamholtz, Eric. Human Resource Accounting:
Advances in Concepts, Methods, and
Applications. 2nd edition San Francisco: Jossey-
Bass, 1985.
7. Jaiswal, Manish Kumar., (2013) ―Impact of
Human Resource Management on Organizational
Growth of Public Company in India: A Case
Study on NTPC. International Journal of Business
and Social Studies, pp64-67.
8. Sharma Shalini, and Shukla R.K., (2010)
―Application of Human Resource Accounting in
Heavy Industries.‖
9. Singh H.K. & Singh Vivek., (2009)―Human Resource Accounting Practices In Infosys
Technologies Ltd. – An Evaluation.‖
Management Insight, pp68-73.
10. R. Narayan., (2010) Human Rresource
Accounting: A New Paradigm in the Era of
Globalization. Asian Journal of Management
Research, pp237-24.
11. Singh M., (1999) Human Resource Accounting
Challenge for Accountant, Shodh Samiksha aur
Mulyankan.
12. (case-study-on-human-resource-accounting.html)
13. www.wikipedia.com 14. http://www.managementexchange.com/hack/valu
e-people-asset-financial-statements
15. http://www.infosys.com/about/who-we-
are/history.asp
16. http://www.infosys.com/about/what-we-
do/default.asp
17. Annual report of Infosys 2011-12 and 2012-13.
Retrieved from www.infosys.com
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 73 ISSN: 2231-6353
CONVERGENCE WITH IFRS: CONTEXT OF INDIA
Kishore Kumar Shah *
ABSTRACT The International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) are increasingly being recognized as Global Reporting Standards. Convergence with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) has gained momentum in recent years all
over the World. More than 120 countries currently require or permit the use of or have a policy of convergence with IFRS. The present article primarily discusses the convergence of IFRS in India and Need for Globalization of Financial Reporting Standards. This article consists of several sections dealing with meaning of International Financial Reporting Standards and Indian Accounting Standards, Structure of IFRS, Structure of Financial Statements under Indian GAAP and IFRS, Global Status of IFRS, Need for Convergence with IFRS, Present Status of the Converged India Accounting Standards, Roadmap for Convergence with IFRS, Need for Globalization of Financial Reporting Standards, Risks associated with Convergence and Conclusion.
INTRODUCTION
International Financial Reporting Standards (IFRSs)
are standards and interpretations issued by the
International Accounting Standards Board (IASB) and
its predecessor body, viz., International Accounting
Standards Committee (IASC), the objective of
IFRS….to develop and introduce a single set of top
quality global Accounting Standards to produce
transparent, top quality, information in Financial reporting statements to make the statements more
comparable and more comprehensive to the concerned
users for taking appropriate decisions based on the
reporting statements. Hence the global use of IFRS can
be able to boost the confidence of the investors
throughout the world.
IFRS are the accounting rules by the International
Accounting Standard Board (IASB), an independent
accounting standard setting body based in London. It
consists of 15 members from nine countries including
China, Japan, Australia, France, Canada, Mexico, Netherlands, Ireland and United Kingdom. The IASB
began operations in 2001 when it succeeded the
International Accounting Standards Committee
(IASC). It is funded by contributions from major
accounting firms, private financial institution and
industrial companies central and development banks,
national funding regimes and other international and
professional organization throughout the world. In
2002, a year after their establishment the IASB got
united with the Financial Accounting Standards Board
(FASB) to combine their knowledge and develop a set of high quality accounting standards that would be
compatible with all counties in order to successfully
carry out international business affairs and their
accounting. This set of global accounting standard is
referred to as the International Financial Reporting
Standards (IFRS)
RESEARCH METHODOLOGY
This study is primarily qualitative in nature and do not
uses any quantitative tool to analyses the data. It has
been conducted mainly on the basis of literature survey
and secondary information. Various journals,
magazines, articles and published data from various
issues of the Institute of Chartered Accountants of
India (ICAI), have been referred to in writing this
paper
STRUCTURE OF IFRS
International Financial Reporting Standards (IFRSs)
are standards and interpretations issued by the International Accounting Standards Board (IASB) and
its predecessor body, viz., International Accounting
Standards Committee (IASC). International Financial
Reporting Standards comprise of:
International Financial Reporting Standards
(IFRS) - standards issued after 2001
International Accounting Standards (IAS) -
standards issued before 2001
Interpretations originated from the International
Financial Reporting Interpretations Committee
(IFRIC) - issued after 2001
Interpretations originated from Standing Interpretations Committee (SIC) - issued before
2001
IFRS & IAS
IFRS stands for International Financial Reporting
Standards and includes Standards & Interpretations
adopted by International Accounting Standards Board
(IASB), International Accounting Standards (IAS),
Interpretations originated from Standing Interpretations
Committee (SIC) and Interpretations developed by
International Financial Reporting Interpretation Committee (IFRIC). Hence, IFRS is a wider term and
includes previously issued IAS as well.
INDIAN ACCOUNTING STANDARDS
The Accounting Standards Board (ASB) of the
Institute of Chartered Accountants of India (ICAI) was
constituted on 21 April, 1977, to formulate Accounting
Standards applicable to Indian enterprises. Initially, the
Accounting Standards were recommendatory in nature
and gradually the Accounting Standards were made
mandatory. The legal recognition to the Accounting
* Assistant Professor, Department of Commerce, P.G.D.A.V. College (Eve.) Delhi University
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 74 ISSN: 2231-6353
Standards was accorded for the companies in the
Companies Act, 1956, by introduction of Section
211(3C) through the Companies (Amendment) Act,
1999, whereby it is required that the companies shall
follow the Accounting Standards notified by the
Central Government on a recommendation made by the National Advisory Committee on Accounting
Standards (NACAS) constituted under section 210A of
the said Act. The council of the Institute of Chartered
Accountants of India has, so far, issued thirty two
Accounting Standards. However, AS 8 on Accounting
for Research and Development has been withdrawn
consequent to the issuance of AS 26 on Intangible
Assets. Thus effectively there are 31 Accounting
Standards at present
Structure of Financial Statements under Indian
GAAP and IFRS
Under the
Indian GAAP Under the IFRS
1. Balance Sheet
2. Profit and Loss
Account
3. Cash Flow
Statement
4. Notes,
comprising of
significant
accounting
policies and other
explanatory
information
1. Statement of financial position
as at the end of the period
2. Statement of comprehensive
income for the period
3. Statement of changes in equity
for the period
4. Statement of cash flows for the
period
5. Notes, comprising a summary of
significant accounting policies,
and other explanatory information
6. Statement of financial position
as at the beginning of the
earliest comparative period
when an entity applies an
accounting policy
retrospectively or makes a
retrospective restatement of
items in its financial statements,
or when it classifies items in its
financial statements
IFRS - GLOBAL STATUS
The use of International Financial Reporting Standards
(IFRS) as a universal financial reporting language is
gaining momentum across the globe. Several countries
have implemented IFRS and converged their national
GAAP to IFRS. More than 120 countries throughout
the world, including the 27 European Union member
states, Australia, New Zealand, and Russia currently
require or permit the use of International Financial
Reporting Standards (IFRSs), developed by the IASB.
Japan plans to introduce IFRS by 2016, United States
of America has also taken-up convergence projects with the IASB with a view to permit filing of IFRS-
Compliant Financial Statements in the US Stock
Exchanges without requiring the presentation of
reconciliation statement between US GAAP and IFRS
NEED FOR CONVERGENCE WITH IFRS
In the present era of globalization and liberalization,
the World has become an economic village. The
globalization of the business world and the attendant
structures and the regulations, which support it, as well
as the development of e-commerce make it imperative to have a single globally accepted financial reporting
system. A number of multinational companies are
establishing their businesses in various countries with
emerging economies and vice versa. The entities in
emerging economies are increasingly accessing the
global markets to fulfill their capital needs by getting
their securities listed on the stock exchanges outside
their country. Capital markets are, thus, becoming
integrated consistent with this World-wide trend.
The use of different accounting frameworks in
different countries, which require inconsistent treatment and presentation of the same underlying
economic transactions, creates confusion for users of
financial statements. This confusion leads to
inefficiency in capital markets across the world.
Therefore, increasing complexity of business
transactions and globalization of capital markets call
for a single set of high quality accounting standards.
High standards of financial reporting underpin the trust
investors place in financial and non-financial
information. Thus, the case for a single set of globally
accepted accounting standards has prompted many countries to pursue convergence of national accounting
standards with IFRS.
PRESENT STATUS OF THE CONVERGED
INDIA ACCOUNTING STANDARDS
Indian Accounting Standards, (Ind-AS) are a set of
accounting Standards notified by the Ministry of
Corporate Affairs which are converged with
International Financial Reporting Standards (IFRS).
These accounting standards are formulated by
Accounting Standards Board (ASB) of Institute of
Chartered Accountants of India. The Ind-AS are name and number in the same way as the corresponding
IFRS. National Advisory Committee of Accounting
Standards (NACAS) recommends these standards to
the Ministry of Corporate Affairs (MCA). 25 February
2011, the Ministry of Corporate Affairs notified 35
Indian Accounting Standard (Ind-AS) which are given
as Annexure 1 to this article that are converged with
International Financial Reporting Standards (IFRS).
But is has not notified the date of Implementation of
the same.
ROADMAP FOR CONVERGENCE WITH IFRS
The Ministry of Corporate Affairs has announced to
apply the converged accounting standards to the
specified class of companies in different phases
commencing on 1st April, 2011. The specified class of
companies would be required to convert their opening
balance sheets as on the specified dates according to
the first set of Accounting Standards. The roadmap
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 75 ISSN: 2231-6353
issued by the Ministry of Corporate Affairs in this
regard is as follows:
Road Map for companies (other than banking,
insurance and non-banking financial companies)
Ph
ase
Companies Covered
Op
en
ing
Bala
nce
Sh
eet
Fir
st
Fin
an
cial
Sta
tem
en
t
Ph
ase
1
Companies that are part of NSE
Nifty 50 index
Companies that are part of BSE
Sensex 30 index
Companies that have shares or
other securities listed in
overseas stock exchanges ,and
Listed and unlisted companies
with net worth in excess of
Rs.1000
Crores
1st
Apri
l
2011
31st
Mar
ch
2012
Ph
ase
2 Listed and unlisted companies
with net worth in excess of
Rs.500
crores but not exceeding
Rs.1000 crores
1st
Ap
ril
20
13
31
st M
arch
20
14
Ph
ase
3
listed companies with net worth
of Rs.500 crores or less
1st
Ap
ril
20
14
31
st
Mar
ch
20
15
NEED FOR GLOBALIZATION OF FINANCIAL
REPORTING STANDARDS
There are many beneficiaries of convergence with
IFRSs such as the economy, investors, industries and
accounting professionals.
The Economy
The convergence benefits the economy by increasing
growth of its international business. It facilitates
maintenance of orderly and efficient capital markets
and also helps to increase the capital formation and
thereby economic growth. It encourages international
investing and thereby leads to more capital flows into the country because the
People all over the globe will be able to understand the
financial statements based on the international
standards of a very high quality financial reporting.
Investors
Investors want the information that is more relevant,
reliable, timely and comparable across the
jurisdictions. Financial statements prepared using a
common set of accounting standards help investors
better understand investment opportunities as opposed to financial statements prepared using a different set of
national accounting standards. For better understanding
of financial statements, global investors have to incur
more cost in terms of the time and efforts to convert
the financial statements so that they can confidently
compare opportunities. Investors‘ confidence would be
strong if accounting standards used are globally
accepted. Convergence with IFRSs contributes to
investors‘ understanding and confidence in high quality
financial statements.
Road Map for Banking, Insurance and Non-
Banking Financial Companies
Class of
Companies
Criteria for phased
implementation
Opening
Balance
Sheet
First
Financial
Statement
Insurance
Companies
All insurance
companies
1st April
2012
31st March
2013
Banking
Companies
All scheduled
commercial banks
1st
April
2014
31st
March
2014
Urban co-operative
banks with net worth
in excess of
Rs.300crores
1st
April
2013
31st
March
2014
Urban co-operative
banks with net worth
in excess of Rs.200 crores but not
exceeding Rs300
crores
1st
April
2014
31st
March
2015
Non-
Banking
Financial
Companies (NBFC)
NBFCs that are part
of NSE-Nifty 50
index
NBFCs that are part
of BSE Sensex 30
index
Listed and Unlisted
NBFCs with network
in excess of
Rs.1000crores
1st
April
2013
31st
March
2014
All Listed NBFC that do not fall into
the above categories
1st April
2014
31st March
2015
Unlisted NBFC that
do not fall into the
above categories and
which have a net
worth in excess of
Rs.500 crores
1st
April
2014
31st
March
2015
The Industry
The industry would be able to raise capital from
foreign markets at lower cost if it can create confidence
in the minds of foreign investors that their financial statements comply with globally accepted accounting
standards. With the diversity in accounting standards
from country to country, enterprises which operate in
different countries face a multitude of accounting
requirements prevailing in the countries. The burden of
financial reporting is lessened with convergence of
accounting standards because it simplifies the process
of preparing the individual and group financial
statements and thereby reduces the costs of preparing
the financial statements using different sets of
accounting standards.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 76 ISSN: 2231-6353
The Accounting Professionals
Convergence with IFRSs also benefits the accounting
professionals in a way that they are able to sell their
services as experts in different parts of the world. The
thrust of the movement towards convergence has come
mainly from accountants in public practice. It offers them more opportunities in any part of the world if
same accounting practices prevail throughout the
world. They are able to quote IFRSs to clients to give
them backing for recommending certain ways of
reporting. Also, for accounting professionals in
industry as well as in practice, their mobility to work in
different parts of the world increases.
RISKS ASSOCIATED WITH CONVERGENCE
Regulatory endorsement and acceptance
Shortage of skilled resources
Huge cost of enhancement of IT systems Acceptance by tax authorities
Managing market expectations and investor
relationships
Managing day to day business issues – MIS, tax
planning, performance indicators, mergers and
acquisitions, etc.
In India there is no separate committee for
implementation, follow up and feedback process
of IFRS
Taxation system also impact after implementation
process of IFRS in India
Indian GAAP is different from IFRS. Due to this it
may impact of business decision and financial
performance
Lack of proper resources also effects the IFRS
implementation successfully
Implementation of ERP,SAP & other software
required
IFRS mainly focuses on presenting its financial
statement and focus is very less on the users of
accounting standard
External evaluation agencies must also understand
IFRS IFRS uses fair value as a measurement base for
valuing most of the items of financial statements
IFRS simply a principal set by IASC but it not
provide detailed rules to follow up.
CONCLUSIONS OF STUDY
Convergence of accounting standards is recognized as
the global accounting standards. Financial reporting
under IFRS provide high quality financial information
that is comparable, consistent and transparent, in order
to serve the needs of all stakeholders including shareholders (existing and potential ), suppliers
(existing and potential), trade creditors, investors,
auditors, accountants, rating agencies, customers,
employees, taxation authorities and other interested
parties.
Convergence to IFRS is expected to improve the
relevance, reliability and comparability of financial reports and thus benefit global investors. It is expected
that the global financial reporting process will
eventually be based on a single set of high-quality
accounting standards as issued by the IASB. The
efficiency and competitiveness of global capital
markets depend on the ability of financial statement
preparers to effectively communicate with investors
through financial reports. This effective
communication can be strengthened through
convergence to IFRS.
REFERENCES 1. www.ifrs.org
2. www.ifrs.co.in
3. www.icai.org
4. www.mca.org.in
5. www.sebi.gov.in
6. RSM astute consulting group (2011), report on
IFRS In India
7. Grant and Thompson (2010), report on road to
IFRS In India
8. Simardeep Singh ―Convergence with IFRS‖
9. Vandana Saxena (2009), IFRS Implementation and Challenge in India
10. ICAI, Concept Paper on Convergence with IFRSs
in India
11. Ghosh T.P. (2011), Indian Accounting Standards
(Ind ASs) and International Financial Reporting
Standards, Taxman Publications (P) Ltd. New
Delhi.
12. Pawan Jain (2011), IFRS Implementation in
India: Opportunities and Challenges
13. Banerjee Arindam. (2011).‖ Role of Cost and
Management Accountants in IFRS Regime‖
Journal of The Management Accountant (April), Vol, 46 No.4 pp268-271
14. V. Vinayak Pai (2011).‖ IFRS- The Operation
and Strategic Role of CMA ―Journal of The
Management Accountant (April) Vol, 46 No.4
pp278-280
15. Ray Rabin Kumar (2011). ―IFRS-Role of CMA in
IFRS Era‖ Journal of The Management
Accountant (April) Vol, 46 No.4 pp 284-287
16. Jain Pramod (2011). ―Convergence with IFRS:
Challenging, Interesting and Rewarding‖ Journal
of The Management Accountant (June) Vol, 46 No.6 pp533-534
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 77 ISSN: 2231-6353
BUSINESS EDUCATION AND ETHICS
Pushpraj Singh*
ABSTRACT This paper outlines and argues against some criticisms of business ethics education. It maintains that these criticisms have been put forward due to a misunderstanding of the nature of business and/or ethics. Business ethics seeks a meaningful reciprocity among economic, social and moral concerns. This demands that business organizations autonomously develop
ethical goals from within, which in turn demands reciprocity between ethical theory and practical experience. Working toward such reciprocity, the ultimate goal of business ethics education is a moral business point of view through which one can live with integrity and fulfilment.
INTRODUCTION
Business ethics, and for that matter the entire recent
advance of applied ethics, grounds its importance and
legitimacy in the belief embodied in the above quote by Cicero. Ethics ought to be properly integrated into the
practice of business in order to develop good work for
a good society. Good in this sense merges the notions
of being successful and being moral - making
meaningful the often quoted and oblique phrase 'good
ethics is good business'. But it is here where business
ethics meets its critics, both from the ranks of
philosophy and business - sceptics who question
whether ethics can be applied to business either
meaningfully or successfully; and nowhere are they
more vociferous than in the concerns over business ethics education.
If indeed there is something wrong in the teaching of
business ethics, then these critics have a right to be
alarmed. In a recent curriculum survey on business
ethics conducted by the Centre for Business Ethics, it
was reported that since 1973 there has been a 500%
increase in such courses in higher education and a
370% increase in the member institutions of the
American Assembly of Collegiate Schools of Business
which are specifically oriented toward preparing
students for business careers. It is not at all unreasonable to assume that well over a hundred
thousand students are going through such higher
education courses now, with many more in the
planning stage, including high schools. Furthermore,
corporations are involved in management ethics
educational programs. An Applied Management Ethics
Workshop is going on at Lockheed in which over 3,000
employees have participated; an Ethics and
Management training program for executives is
happening at Cummins Engine; and a Business Ethics
Seminar at Allied Corporation is going into its eighth year. Similar educational programs are taking place at
Texas Instruments, ARCO, Exxon Research and
Engineering Company, North western National Bank,
Pillsbury, and many others.
Are all of these efforts on the wrong track? What is
underlying the unease of the critics of business ethics?
THE NATURE OF BUSINESS
Some of the critics are concerned over whether
business and ethics can be mixed substantially due to
their conception of the nature of business. We have heard Theodore Levitt say: Business must fight as if it
were at war. And, like a good war, it should be fought
gallantly, daringly and above all not morally.
Such a view has been identified as a functionalist
conception of business; business has certain functions
to perform, namely to provide goods and services for
society and make profits for its investors. In fact, it is
irresponsible for business to take on tasks relating to
moral decision making; that is the job of other units in
the society the accepted decisions of which business must obey. According to this view business is
structured into formal organizations, usually called
corporations, which are deliberately designed to seek
specific goals, and these goals are non moral ones.
Therefore, corporations can only be evaluated in terms
of how well they have met their goals, not in terms of
ethics; and this also applies to the agents of the
corporation who take on the responsibility of carrying
out these goals. As John Ladd has put this, if one asks
corporate agents Understanding the nature of business
in this functionalist way, it is not just impractical; it is
unintelligible to bring ethics into business. Teaching business ethics, therefore, has a conceptual problem in
its very roots, making business and ethics truly a
contradiction in terms.
It can be argued that Milton Friedman draws on this
same position in his analysis of the fiduciary
relationship of corporate managers to their
stockholding owners. Even though operationally it may
be a fact that stockholders no longer operate like
owners and that managers actually control the
corporation, nevertheless it is still true that managers have accepted the job and the accompanying
responsibilities of serving the interests of the owners,
which is assumed to be the increase of corporate
profits. Business executives cannot be expected to
factor ethical concerns into management decisions; in accepting a business role they have in effect
relinquished their character as autonomous moral
agents in favour of carrying out the purposes of their
* Faculty of Commerce, BHU, Varanasi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 78 ISSN: 2231-6353
shareholders. Like the attorney who takes on the role of
getting the best deal possible for the client, the business
executive is an organizational 'gamesman' responsible
for getting the best deal possible for the shareholders-
As long as the rules of the game set out by society are
not violated. Anything else is, according to Fried man, 'subversive' to the game, to the system, and ultimately
to society itself.
Although this view must be taken seriously, it is
fundamentally mistaken. One does not have to and
ought not to conceive the nature of business and its
corporate organizational units in this way. I believe
convincing analyses have already been offered which
point out that corporation are not rule and goal static
entities. They should be seen more developmentally
such that present corporate rules and goals are
constantly undergoing internal re-examination and self-study and new ones can be created and
institutionalized. Business organizations in this sense
are not like machines with fixed characters; instead,
like organisms, they are capable of evolving in
response to their environments. I will not at this time
take up the controversy as to whether the corporate
entity itself should be seen as an individual agent with
intentions and responsibilities distinct from the people
who make it up or whether talk about corporations is
really an elliptical way of referring to the decisions and
actions of its individual human agents. It is not necessary to settle this question to realize that
corporations can and do intentionally build new rules
and goals into their formal structure and this includes
moral rules and goals, if they do not already have them.
And, of course, business ethics is attempting to
discover what these moral rules and goals should be.
But the functionalist might still argue that determining
and institutionalizing moral goals is simply not the task
of business, even though it may be possible to do so. In
fact, it could interfere with the primary responsibility
of being a good businessperson. Ford, for example, should not be considered morally irresponsible for
manufacturing the Pinto. Even though it did not
withstand rear-end collisions of over 20 mph without
fuel tank rupture and granted it could have been made
safer, even after production, for as little as $10 per car,
Ford violated no federal safety standards and
obviously, as witnessed by Pinto sales, marketed a
product desirable to consumers. Ford tried to live up to
its charge of being a successful corporation Make
money and play by established game rules. To ask Ford
to set such game rules for competing in the marketplace conflicts with the primary function
corporations were charged to carry out. As a private
citizen I might vote and actively work for higher rear-
end collision standards, but as Ford engineer or
manager, it is not a part of my job description and
might even be counterproductive to my duties in my
assigned corporate role.
Although the Ford Pinto case is extremely complicated,
it does raise the relevant questions regarding the
corporation's relation to society. In contradiction to
Friedman and the function list view, thinkers from both
business and philosophy have focused on the notion of
a social contract implying that business corporations exist to serve the welfare of society. This is their reason
for being; and if society perceives that this contract is
not being fulfilled, then it has the right to change the
corporation, even eliminate it...
Henry Ford II himself stated in a 1969 speech to the
Harvard Business School: The terms of the contract
between industry and society are changing.... Now we
are being asked to serve a wider range of human
values and to accept an obligation to members of the
public with whom we have no commercial
transactions.
Seeking profit alone is not enough; the corporation
must assume responsibilities which go beyond those of
efficiency and legality and adopt ethical obligations
toward employees, consumers, and society as a whole.
Their obligations go far beyond stockholders to
stakeholders All those affected by corporate activities.
Furthermore, these ethical goals are not simply to be
imposed on corporations; rather corporations are being
asked to work with society, or better yet to see
themselves as a part of society, in developing and institutionalizing ethical goals.
One does not even have to look to a changing contract
between business and society to recognize a connection
between business and ethics; our economy as a whole
has always had a moral foundation. Adam Smith
himself, whom the functionalists often look to for their
ideological underpinnings, implies throughout his
writings that people, even in the pursuit of wealth, must
observe and enact ethical principles without which a
good society would be impossible. The free market
system is a product of our convictions about the nature of the good life and the good society, about how to
distribute goods and services fairly, and about what
kinds of goods and services to distribute. Even if it
were true that the sole goal of business traditionally has
been profit, a claim that is in and of itself debatable,
this does not make profit-making a morally neutral
activity. Everyone would agree that certain basic moral
standards underlie business practice, such as honouring
agreements, truth-telling etc., but more importantly we
have encouraged business to pursue profits because we
believed rightly or wrongly that its doing so violated no rights and would be best for society as a whole.
Friedman and the functionalists, I suspect, would
concur. The question is whether the pursuit of profit as
the sole goal by each individual businessperson and
corporation leads to the best for society today, if it ever
did. This has been exemplified for us today in the many
observations that economic progress does not in and of
itself lead to social progress. We have come to realize
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 79 ISSN: 2231-6353
that much of business' activities have thrust heavy
external costs on the public pollution of our
environment, hazard ours products, poverty and social
unrest, unsafe working conditions, alienated labour,
etc. Such costs are being judged as intolerable to a
healthy society, primarily because of their violation of ethical rights and values of this and future generations.
Society is demanding, recently more than ever, that
corporations find a harmony and working reciprocity
between economic and social concerns, and this in turn
demands the infusion of moral rules and goals into the
corporation itself.
Furthermore, the only way this integration of business
and ethics can be meaningfully practically
accomplished is for corporations to do it themselves, or
at least to participate actively and freely in its
occurring. Corporations consist of individuals, persons, human beings. And to force a human being to be
ethical violates the necessary criterion of morality itself
namely, freedom or autonomy. One can force a person
or a collection of persons to do what is perceived to be
the good or right thing to do, but to act ethically one
must freely adopt a moral point of view and act out of
respect for its commands. In no other way is the notion
of moral responsibility intelligible.
Corporations cannot be ethical unless the human beings
that comprise it are ethical. And human beings cannot be seen as mere cogs in a machine if they are to
preserve their humanity and in turn their morality. I
suspect the functionalist would not be disturbed by the
fact that between 60% and 70% of the managers at
Pitney-Bowes and Uniroyal felt pressure to sacrifice
their personal ethics to satisfy corporate goals. But we
should be disturbed if we are in search of the moral
corporation. Corporations can institutionalize moral
goals and be ethically responsible only if the human
beings who make them up are autonomous agents,
because ethics requires autonomy. When the essential
freedom of the members of a corporation is eclipsed or alienated so too is the ability of the corporation to
develop a moral character and act ethically.
To meet these challenges and to accomplish this goal
business ethics education is indispensible. The study of
business ethics is an attempt to lay out issues crucial to
the institutionalization of corporate moral goals issues
such as the role and structure of corporate power, the
integrity and quality of corporate work, and the criteria
for responsible corporate interaction with its many
environments. It is also an effort to sensitize those involved in the study to moral values and to provide
tools of ethical analysis by which to work through the
issues. Furthermore, it contends that most of the ethical
problems in business do not result from immoral
people but rather from systemic failures which require
recognition, analysis, and correction. But most
fundamentally business ethics education is dedicated to
the maturation of the moral dimension which is an
essential part of all human beings a dimension which
can only be actualized through the recognition of one's
moral autonomy and the connecting responsibilities
that follow. Only when corporate agents see
themselves first and foremost as autonomous
individuals with ethical responsibilities will society see the emergence of the moral corporate culture.
THE NATURE OF ETHICS
Some critics question business ethics education
primarily due to their understanding of the nature of
ethics. I do not want to take on the position that it's too
late to teach ethics because our ethical characters are
formed much earlier in our childhood, or the position
that business ethics is a violation of 'pure' or 'real'
moral philosophy which supposedly focuses only on
theoretical principles and issues. Some people take
these positions seriously, but frankly I do not, although I suspect what I will take up will reflect on these
positions. The more serious question of the critics is
whether ethical theory, to which moral philosophy
seems to be wedded, can serve any useful purposes for
business practice. The ethical theories that moral
philosophy trots out as relevant to business all seem to
have their own set of special internal problems; for
example, they seem to lead to counterintuitive claims
or they fail to provide answers to decisions about what
one should do in a given situation. If an ethical theory
seems to condone actions morally repugnant to our basic ethical intuitions and feelings, which many
accuse teleological theories of doing, or if an ethical
theory cannot tell us which act to perform in a specific
context or adjudicate between conflicting obligations,
which many find true of deontological theories, then
what good are they the critics might also point out that
this ambivalence in trying to teach ethics is recognized
by even those who have been instrumental in its
revival. After a comprehensive study of the teaching of
ethics at The Hastings Centre, Daniel Callahan reports:
Whatever the reasons... educators, professional
organizations, and even the federal government are rushing about at a furious rate to revive an almost
dead interest in moral problems.... It is as if the
American people... are profoundly attracted to moral
problems and yet, at the same time, exceedingly
sceptical that they can be dealt with in a rational
fashion.
In his article 'Why Are the Problems of Business Ethics
Insoluble?' Alasdair Maclntyre states:
The corporate executive like many others finds him or
herself continuously faced with mutually incompatible demands. There is no higher order criterion for or
procedure available to him or her by means of which
these demands may be reconciled or even rationally
ordered. Those moral philosophies which have
promised to provide such a procedure or criterion and
utilitarianism is perhaps the best known example have
notoriously failed to keep their promises. Consequently
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 80 ISSN: 2231-6353
we have to accept as inevitable the radical
imperfection of all present social action.
Such statements and admissions have led some to the
conclusion that the recent resurgence in ethics
advocates the teaching of ethics without any ethical foundations or principles to teach, or when such
foundations and principles are taught, there are no clear
answers to ethical questions so it's not worth spending
time on. If this is true, then the moral philosophy
Cicero advocates as indispensible for the good career is
really useless to the decision-making of the business
fractioned. Furthermore, in the absence of any true
ethical theory, to advocate one ethical position over
another reduces teaching ethics to arbitrary
indoctrination. And, on the other hand, if the pluralistic
tendencies of our society persuade us that all ethical
positions are permissible, then teaching ethics leads to a vicious relativism. Under either description ethics
education, whether business or any other, should not be
categorized as merely useless, but rather as dangerous.
This helps substantiate the belief that ethics cannot, and
should not, be taught especially when this is done with
the goal of helping to make people more ethical. Ethics
and ethical behaviour are learned through example;
imply the critics, not through theoretical analysis.
As with the view of amoral business developed in
Section II, which was founded on a misconception of the nature of business, this position is fundamentally
mistaken concerning the nature of ethics. The mistake
occurs primarily in the understanding of ethical theory
and its relationship to ethical practice. The critics seem
to assume that ethical theories are supposed to tell you
what to do and that by accepting an ethical theory one
should have all of one's moral problems solved. On this
view moral deliberation takes on the form of a practical
syllogism; the major premise is supplied by the theory,
the minor premise by the facts, and the conclusion
simply drops out of the inference providing a definitive
moral result. Unfortunately this is a gross oversimplification of moral reasoning. If the above
view of ethical theory were true, one presumably could
assume that by accepting the same ethical theory the
same moral judgment in a particular situation would
result. This is not always true. The pro and anti-
abortionist can each defend their stands by appeal to
the same ethical theory, whether it is consequentiality
or non-consequentiality.
Moral theories are necessary to making rational choices
in the arena of ethical activity. Without theories one would be unable to give reasons as to why he or she
made a certain ethical decision. There would be no
framework for moral deliberation, no way of even
interpreting or uncovering morally relevant facts. An
ethical theory may not tell one what to do in a given
situation, but it does tell one what to consider in the
existentially frustrating decision making process. We
answer the question 'Why should I do A' by referring to
standards and rules and justify those by higher
standards and rules until we arrive at those we have
accepted as supreme. We might call this the process of
moral validation a process which always takes place
within a moral system or theory. But if we are asked to
justify our moral system or theory which is grounded by supreme principles, we must use some
fundamentally different process which we might call
vindication. Here we are referring to a kind of
pragmatic justification looking to see if our practice
within the theory is yielding results which we value as
a way of life or as a morally rational point of view. If
our theory is yielding counterexamples to this, then,
just as in science, we may need to adjust, or even
question entirely, our moral theory. "A vindicated
value system", says Paul Taylor, "is one that 'works' in
practical life". And there is no way to find this out
other than to realize it through one's own experience by trying to live by the standards and rules that comprise
one's value system. Vindication will come only if we
find our life in harmony with a way of life that
embodies our ideals of the highest good. And it is here
we must make our final moral stand, our ultimate
moral commitment.
The foregoing hopefully outlines the essential
reciprocity between ethical theory and practice. Theory
is necessary to interpret and validate practical moral
choice. Such choice would be unintelligible without theoretical principles; there would be no systematic
framework for rational decision making. Practice is
necessary to test and vindicate an ethical system. Such
a system must satisfy the demands of moral
experience; it must work to harmonize one's moral way
of life. Business ethics, attempts to blend theory and
practice, attempts to find their proper mix. Many critics
see business ethics as impure, because it degrades pure
theory by demanding pragmatic justification, or as
impractical, because it thwarts productive action by
relying upon pure abstract speculation. On the contrary,
I see business ethics, and other applied ethics studies, bringing moral theories into the world of practical
activity for vindication and especially into specific
areas such as business, medicine, engineering, etc.
where sometimes new and certainly complex ethical
demands are encountered demands which are
particularly relevant to those who will be working in
those fields. Robert Audi articulates this well:
Applied ethics can certainly serve as an area in the
adequacy and feasibility of various normative ethical
theories is tested. Real world settings are excellent
laboratories for seeing what will and will not wash as far as moral principles and norms go. Anyone who
spends any time in a hospital ward or operating theatre
will quickly be made aware of the limits and
constraints imposed upon moral reflection in such
settings. Any normative moral theory should be able to
pass muster in coping with such constraints and those
in applied ethics are in a good position to test such
theories in this regard.
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 81 ISSN: 2231-6353
Furthermore, through such application there will be
opportunities to adjust, expand, and even possibly
combine ethical theories, thereby progressing toward
the development of a complete and consistent ethical
system which will serve to validate our moral decision
making.
CONCLUSION
Some critics find fault with business ethics because of
their apparent misunderstanding of the intention or
purpose of business ethics itself although such
criticisms are usually tied to a misunderstanding of the
nature of business and/or the nature of ethics. Peter
Drucker is such a critic. I have dealt with Drucker's con
fusion in detail elsewhere, but here I will briefly deal
with what seems to be his main point in order to offer a
final clarification of the purpose and importance of the
study of business ethics. Drucker writes: There is only one code of ethics, that of individual
behaviour, for prince and pauper, for rich and poor,
for the mighty and the meek alike.... And this
fundamental axiom 'business ethics' denies.... For it
asserts that acts that are not immoral or illegal if done
by ordinary folk become immoral or illegal if done by
'business'.
This might best be called the argument from the special
status of business a variation on the critical position I
discussed in Section II Drucker's major claim is that business ethics implies that the business executive has
special ethical responsibilities and should be judged by
unique ethical standards because of his or her social
impact and power. Contrary to this charge, business
ethics is not seeking to develop special rules for
business nor is it claiming that the businessperson
ought to operate under different ethical principles than
the nurse, the consumer, or the university professor.
Rather, business ethics tries to apply universal ethical
principles to business activity. It is important and
appropriate not because there are special ethical rules
which need to be made up for businesspersons, but because there is a need for the application of traditional
ethical principles in the business environment and also
because there are unique issues regarding business
itself about which we need to reason normatively.
Drucker and others view the rise of business ethics as a
result of widespread hostility toward business: "the
latest round in the hoary American blood sport of
business baiting". If there is such hostility, it has arisen,
I suggest, because a significant number of persons have
come to perceive business as having violated its social contract or the mutuality of the business society
relationship. Society has come to believe that the
business side of the relationship has failed to uphold its
obligations. Maybe society expects too much, but
where perception of such a failure has occurred, surely
it becomes necessary to spell out these mutual
obligations afresh.
What we are seeking through business ethics studies is
a meaningful reciprocity between economic and social
concerns. Such a reciprocity demands that business
organizations develop ethical goals from within, which
in turn requires that the businesspersons who make up the corporation view themselves and be treated as
autonomous moral agents. As I developed in Section II,
this is essential to the nature of good business.
Necessary to accomplish this goal is a meaningful
reciprocity between ethical theory and business
practice. Such reciprocity assumes the validation of
business decision making through the application of
ethical principles and the vindication of ethical theories
which make up one's moral system through the test of
practical experience. As I explained in Section III, this
is characteristic of the nature of good ethical reasoning.
By working toward such reciprocity between business and ethics, business ethics ultimately seeks a moral
business point of view through which
Will this be furthered through business ethics
education? "We may never know", says Harvard's
President Derek Bok, "but surely the experiment is
worth trying, for the goal has never been more
important to the quality of the society in which we
live". I wholeheartedly concur with this statement. I
might only add that although much more work is yet to
be done in business ethics education, I am optimistic that progress is being made toward the meaningful
reciprocity between business and ethics discussed in
this paper a goal worthy of our continued pursuit.
REFERENCE
1. W. Michael Hoffman and Jennifer Mills Moore,
'Results of a Business Ethics Curriculum Survey
Con ducted by the Center for Business Ethics',
Journal of Business Ethics 1 (1982), 81-83.
2. 'The Dangers of Social Responsibility', Harvard
Business Review (September? October 1958). 4
3. 'A Prelude to Corporate Reform', in Corporate Social Policy, ed. by Robert L. Heilbroner and
Paul London (Addison-Wesley, Reading, MA,
1975), pp. 18-19.
4. 'The Pressure to Compromise Personal Ethics',
Business Week (January 31, 1977), p. 107.
5. 'The Rebirth of Ethics', National Forum (spring,
1978), 9-12.
6. Archie J. Bahm, 'Teachings Ethics Without Ethics
to Teach', Journal of Business Ethics 1 (1982), pp.
43-47. 21
7. 'Morality and the Ideal of Rationality in Formal Organizations', the Monist 54 (1970), 500.
8. W. Michael Hoffman and Jennifer Mills Moore,
'What is Business Ethics? A Reply to Peter
Drucker', Journal of Business Ethics 1 (1982),
293-300
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 82 ISSN: 2231-6353
A REVIEW OF GOVERNMENT ACCOUNTING IN INDIAN CONTEXT
Ravish Chandra Verma*
ABSTRACT Today, our government is expected to continuously review itself in light of the changes that are taking place and should not hesitate in implementing any meaningful change is the change in the country‘s accounting system from cash to accrual basis. In a government accounting environment, the entity has the responsibility of fiscal accountability which is demonstration of
compliance in the use of resources in a budgetary context. In the private sector, the budget is a tool in financial planning and it isn't mandatory to comply with it. The Government accounts and financial reporting currently followed in our country derive their ‗substance and form‘ largely from the accounting procedures introduced during the British rule.
INTRODUCTION Government Accounting refers to all the financial
documents and records of public institutions that relate
to the collection of tax payers‟ money, and the analysis, control of expenditure, administration of trust
funds, management of government stores and all the
financial responsibilities and duties of the relevant
organs. Government Accounting system is the way of
accountability through which the established
institutions of the public render stewardship on the
revenue of the Nation and how it has been disbursed.
Government accounting includes the process of
recording, analyzing, classifying, summarizing,
communicating and interpreting financial information
about Government in aggregate and in details, recording all transactions involving the receipt, transfer
and disposition of public funds and property. The
processes of Government Accounting are further
discussed as follows:
(a) Recording: Recording involves the process of
documenting the financial transactions and
activities in the necessary books of accounts are
cash book, ledger and vote book.
(b) Analyzing: Analyzing involves the process of
separating transactions according to their distinct
nature and posting them under appropriate heads
and sub-heads. (c) Classifying: Classifying has to do with the
grouping of the transactions into revenue and
expense descriptions and bringing them under
major classes as „Revenue Head‟ and „Sub-
heads‟, with their relevant code numbers of
accounts.
(d) Summarizing: Summarizing concerns the bringing
together of all the classes of accounts and
preparing them into reports periodically as are
statutorily or organizationally required.
(e) Communicating: Communicating is about making available financial reports on all the government
financial activities from the necessary accounting
summaries to various interested parties. The style
of communication adopted should be un-
ambiguous, lucid and devoid of jargons as much as
possible.
(f) Interpreting: Interpreting ends the process by
giving explanations on what has been reported in
the various financial statements and reports, as
regards the overall operations and performance of
the relevant government organization(s). This is to
enable the necessary parties and users to take relevant decisions based on their assessments of
the reports.
OBJECTIVES OF GOVERNMENT
ACCOUNTING
The objectives of Government accounting include the
following:
To fulfill legal requirement. The law requires that
government accounts are prepared and audited
annually. To perform the stewardship function. The ruling
government is the steward of the resources and
finances of the Nation. Government has to give
account of how these finances are used.
To enable Government to plan well the future
activities and programmes of the Nation.
To provide a process of controlling the use of the
financial and other resources.
To provide the means by which actual
performance may be compared with the target set.
To evaluate the economy, efficiency and
effectiveness with which governance is carried out.
ACCOUNTING SYSTEM IN UNION
GOVERNMENT OF INDIA
The Government accounts and financial reporting
currently followed in our country derive their
‗substance and form‘ largely from the accounting
procedures introduced during the British rule. The
system worked reasonably well in the early phase of
post-independence era. But over the last two to three
decades, there has been a significant change in the role and responsibilities of the government. Today, our
government is expected to continuously review itself in
light of the changes that are taking place and should
not hesitate in implementing any meaningful change is
the change in the country‘s accounting system from
cash to accrual basis. This is because an accounting
system is not an end in itself but rather a means to an
end.
*Research Scholar, Faculty of Commerce, B.H.U., Varanasi, U.P. – 221005
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 83 ISSN: 2231-6353
A sound accounting system should assist the
Government in fulfilling its objectives in a changing
scenario by providing the desired inputs for decision-
making. It needs to disseminate information of high
quality in terms of understandability, relevance,
materiality, reliability, faithful representation, substance over form, neutrality, prudence and
comparability (across periods).The present system of
accounting does not fulfill the above requirements. On
the other hand accrual system of accounting has the
ability to generate information that is of more use in
decision-making. If accrual accounting is considered to
be a benchmark of an ideal accounting system for
government, it is necessary to look into the accounting
information that the present accounting system of our
country fails to provide but could otherwise be
available to the decision makers had the accrual system
of accounting been followed by our country.
The present accounting system of our country can best
be described as ‗cash basis of accounting‘ that records
a transaction only when either cash comes in or when
cash moves out, rather than recording the transaction or
event as it occurs. It also lays emphasis on transactions
vis-à-vis the budget. Under the present accounting
system, our Government generates the following
accounting documents:
1. The Appropriation Account
2. The Finance Accounts
The Appropriation Accounts list the original budget
estimate, supplementary grants, surrenders and re-
appropriation distinctly. It also records the actual
expenditure incurred against each of the above. In
addition to it, this account also indicates whether the
money that has been spent was legally available for the
purpose or not, and also whether the expenditure
incurred confirms to the authority.
In the event of any variation from the budgeted figures
explanations of the same are also recorded in this account. This document appears to be less of
accounting nature and more in nature of a document
that can be used for control purpose. This is because
the focus of this account is on whether the expenditure
is incurred as per the budgeted amount or not. This
account does not give an indication about the source of
funds and how they are spent or how much of what is
generated or spent relates to the current year. The
document as such should not even be considered as a
part of accounting system, as it is more in nature of
knowing the extent to which expense has been made as per the allocations in the budget.
In case more amounts have been spent than the budget,
whether the same has been explained and sanction of
the additional amount has been obtained. On the other
hand if amount less than the budget have been spent,
the reasons thereof have been indicated. This is a
control document rather than a part of government‘s
financial accounting. It is for this reason a considered
view has been developed that this document may not
be treated as the part of Government accounts but may
be considered as a report generated for control
purposes.
STRUCTURE OF GOVERNMENT’S ACCOUNTS
AND FLOW OF FUNDS
The financial management of any organization must
have a prudent financial system backed by sound and
effective accounting procedures and internal controls.
A well-designed and well managed accounting system
helps ensure proper control over funds.
Accounting policies and procedures are designed to
compile accounts fulfilling legal/procedural
requirements that govern financial control. Accounts
are an integral part of financial management of activities. On the basis of accounts, the Government
determines the shape of its monetary and fiscal
policies.
The accounts of Government are kept in three parts: -
(a) Consolidated Funds of India
(b) Contingency Funds of India
(c) Public Account
(a) CONSOLIDATED FUND OF INDIA
All revenues received by the Government by way of taxes like Income Tax, Central Excise, Customs and
other receipts flowing to the Government in connection
with the conduct of Government business i.e. Non-Tax
Revenues are credited into the Consolidated Fund
constituted under Article 266 (1) of the Constitution of
India. Similarly, all loans raised by the Government by
issue of Public notifications, treasury bills (internal
debt) and loans obtained from foreign governments and
international institutions (external debt) are credited
into this fund. All expenditure of the government is
incurred from this fund and no amount can be
withdrawn from the Fund without authorization from the Parliament.
(b) CONTINGENCY FUND OF INDIA
The Contingency Fund of India records the
transactions connected with Contingency Fund set by
the Government of India under Article 267 of the
Constitution of India. The corpus of this fund is Rs. 50
crores. Advances from the fund are made for the
purposes of meeting unforeseen expenditure which are
resumed to the Fund to the full extent as soon as
Parliament authorizes additional expenditure. Thus, this fund acts more or less like an imprest account of
Government of India and is held on behalf of President
by the Secretary to the Government of India, Ministry
of Finance, and Department of Economic Affairs.
(c) PUBLIC ACCOUNT
In the Public Account constituted under Article 266 (2)
of the Constitution, the transactions relate to debt other
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 84 ISSN: 2231-6353
than those included in the Consolidated Fund of India.
The transactions under Debt, Deposits and Advances in
this part are those in respect of which Government
incurs a liability to repay the money received or has a
claim to recover the amounts paid. The transactions
relating to ‗Remittance‘ and `Suspense‘ shall embrace all adjusting heads. The initial debits or credits to these
heads will be cleared eventually by corresponding
receipts or payments. The receipts under Public
Account do not constitute normal receipts of
Government. Parliamentary authorization for payments
from the Public Account is therefore not required.
DISTINCTIVE FEATURES OF
GOVERNMENTAL ACCOUNTING
Although the basic principles of accounting apply in
government as in commerce, certain features of
governmental accounting make its pattern quite different from that of the typical set of commercial
accounts. The underlying differences should be
understood to avoid confusion that sometimes results
in attempting to apply, with little or no modification,
conventional commercial accounts to a governmental
unit.
The distinctive features of governmental accounting
are the reflection of the essential difference in the
method of financing governmental operations as
contrasted with business undertakings. Private business must obtain its capital from voluntary investments
made with the hope of deriving an increment. Private
business, then, to survive must realize a profit over and
above the cost of the commodities or services it sells in
order to preserve its capital and to return a profit to its
proprietors or shareholders. Accordingly, commercial
accounts are focused upon "net profit"-the amount
gained over costs, the difference between income and
expenses-and "net worth"-the current value of the
invested capital, the difference between assets and
liabilities.
Government furnishes services to all directly or
indirectly and levies taxes or provides other revenue
measures to meet the cost of those services.
Governmental accounting usually has no "net profit" to
report. Particular sources of revenue generally have no
direct relation to particular items of expenditures. An
excess of revenues over expenditures is not "net profit"
and is not necessarily an indication of good financial
policy in the government unit. Capital invested in
government by its citizen proprietors (represented by
such capital assets as land, buildings, highways, and equipment) is investment in future public services.
"Net worth," if that term can be employed, of a
governmental unit has an entirely different significance
from "net worth" of a commercial enterprise.
Still another peculiar characteristic of governmental
accounting is the employment of separate funds. A
business enterprise, even the largest and most
extensive, usually is engaged in activities closely
interrelated with the ultimate objective of profit in one
particular field. The governmental unit, on the other
hand, is engaged in an ever-growing number of
operations and activities which are quite unrelated to
each other. Particular sources of revenue or income often are dedicated to use for a particular phase of the
government's operations. The accounts must segregate
these especially dedicated resources and isolate them
from all other transactions in a separate "fund." While
a business concern can maintain a single set of
accounts for all of its transactions, a governmental
agency must maintain a number of independent sets of
accounts, one for each "fund."
STEPS TAKEN AND DIRECTIONS SUGGESTED
FOR INDIA
India at present is following cash basis of accounting. The following steps taken by India, however, indicate
that it is on its way to an accrual system accounting.
Very recently all the Local Bodies, Autonomous
Institutions and Universities have been instructed to
prepare their accounts on format basis that is just
equivalent to meeting the requirements of accrual
accounting. The Twelfth Finance Commission in its
report has suggested for a change in the nations
accounting system that has been accepted, indicating a
move from cash basis to accrual basis. A committee
has also been set up by the Comptroller and Auditor General of India to develop a framework and examine
the technical feasibility of reforming the Government
accounting system. The Government has also set up
Government Accounting Standards Board for the
developing Government accounting standards for the
country.
The activity of accounting reforms has already been
initiated at ‗Ministry of Surface Transport‘ on pilot
basis. The accounts there are initially planned to be
prepared on accrual basis parallel with cash basis.
Considering all this and the merits associated with the accrual system of accounting and also understanding
its strategic need for a nation in terms of providing
information which is more useful for decision making,
India certainly needs to quickly switch over to the
accrual system of accounting. However, it is also
important to mention that the exercise of moving from
cash system of accounting to accrual system of
accounting should be done in a phased manner and
some pilot studies may be conducted. Before the
government wishes to move from cash accounting
system to accrual accounting system it must ensure that:
The top level officers are fully involved in the
process and are committed to implementing it;
Sufficient knowledge has been imparted to the
officers involved at different levels;
The change should not be spontaneous but
gradually over a span of three to four years and all
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 85 ISSN: 2231-6353
possible preparation should be done before
embarking on full implementation;
There must be sufficient resources with it to
implement the change;
It has examined the implications of presenting
financial statements in accrual manner; and The employees are trained not only to prepare the
statements based upon accrual system of
accounting but also to understand as to how to
analyze them.
CONCLUSION
Traditionally governmental accounting is confined to
budget accounting for monitoring the collection of
revenue and the spending of appropriations. During the
last four decades, the financial accounting for
government emerged in response to the demands of the
financial community (e.g. investors in government bonds and bond rating agencies) and the general public
for greater fiscal accountability and transparency of
public institutions. Financial accounting measures the
financial consequences of actual transactions and
events, and produces financial statements to report
these consequences primarily to interested parties
outside of government.
As credibility and comparability are especially
important in external financial reports, the
development of standards to regulate government financial accounting gained prominence as well. In the
advanced English-speaking countries with a mature
accounting/auditing profession, government accounting
standards are developed by bodies that are subject to
the influence but not control of government, while the
government reserves the right to accept, modify or
reject them as official accounting policies. This
arrangement has been elevated to the international
level in the form of the International Public Sector
Accounting Standards (IPSAS) Board. The board
receives support from a number of important
international development and financial institutions,
which view IPSASs as a vehicle for promoting
government accounting reform in developing countries.
REFERENCES
1. Sachdeva, Pardeep (1993): Urban Local Government and Administration in India,
Allahabad: Kitab Mahal.
2. Local Governance in Developing Countries –
Edited by Anwar Shah, 2006 Constitution of India
by Durga Das Basu.
3. Grover, R. K (1998) Accounting Education: Need
for Professional Approach by Universities, Indian
Journal of Commerce, Vol.51, No.
4. Agarwal, N.C (1999), Commerce Education-
Vision 21st Century, The Indian Journal of
Commerce, Vol.52.No.4
5. Batra, Gurdip Singh (1997), Developments in Accounting Theory since Pacioli Era, ed.Modern
Trends in Accounting Research, Deep and Deep
Publications, New Delhi.
6. Rehman, A.R.M and Saha, A.B (1996),
Accounting Research in Changing Environment
and the Trend of Accounting Research in India-
with special reference to North East India, Journal
of Accounting and Finance, Vol.X, No.1 Issues in
Accounting Education, spring, pp. 59-77.
7. Government of India. 2004. Report of the Task
force on Implementation of the Fiscal Responsibility and Budget Management Act,
2003.Ministry of Finance, New Delhi, July.
8. 2008, 2009, 2010. Economic Survey. Economic
Division, Department of Economic Affairs,
Ministry of Finance, New Delhi.
9. Agrawal, A. and J. C. Ribot(1999).
"Accountability in Decentralization: a Framework
with South Asian and West African Cases."
Journal of Developing Areas 33(4): 473-502.
10. http://www.jstor.com
11. http://www.emrald.co
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 86 ISSN: 2231-6353
CORPORATE BLOG: CREATING PUBLIC RELATIONS
Nilanjana Kumari *
ABSTRACT Blog, Facebook, twitter, and wikis, have become a raison d’être for both the producers and the consumers. A corporate without a web page is considered like life without oxygen. Today, social media has become the most cost effective and time friendly source for routing consumers towards the company. Social media is slowly changing the definition of promotion
from advertising to digitizing, and blogging being an integral part of it. It is binding the seller and the buyer into a strong and trustworthy relationship, creating brand loyalty and awareness. The study undertaken is an attempt to explore the effectiveness of blogging in the corporate world. Further it provides a bird‟s eye view of uses of corporate blogs along with a summarised view of the companies adopting blogging. An effort has also been made to represent the legal framework controlling the environment of blogging, by analysing the case social guideline structure of IBM.
INTRODUCTION
Truncation of the expression web blog gave birth to
blog. A blog can be defined as a discussion and
information sharing site on the World Wide Web
consisting of distinct entries known as ―posts‖,
displayed on the official page and website of the
developer. Rhonda (2007), in her work quoted that
blogging originated when Steve Crocker established the request for comments (RFC), which was intended
to be an informal form of fast distribution way to share
ideas with other network utilised to create a ―feedback
loop‖. However, as there is no reliable source of this
statement, it is considered that blogging became
popular in the 90‘s, specifically, when on 14 June
1993, Mosaic Communications Corporation maintained
their ―What‘s New‖ list of new websites, which used to
be updated daily and archived monthly. The Mosaic
web browser added a special ―What‘s New‖ button to
make it accessible for the public. It further gained popularity, when Justin Hall (a student at Swarthmore
College), began personal blogging, in 1994, where he
used to keep a running account of his personal life,
inspiring many tech geeks to diary their personal life
online.
OBJECTIVE OF STUDY
To provide a conceptual framework of blog and
corporate blog.
To study the use of blogs in formulating
marketing strategies.
To analyse the requirement of social computing guidelines by corporate, referring to the case of
IBM.
After a slow start, blogging gained popularity and even
the politicians, businessmen, consultants, lawyers,
technicians, etc. got addicted to it. By the end of 2004,
blogging became a source of gaining information, in-
depth analysis, and a space for sharing opinions. In
January 2005, Fortune magazine listed top eight
bloggers (specially businessmen), who couldn‘t be
avoided by other businessmen: Peter Rojas, Xeni Jardin, Ben Trott, Mena Trott, Jonathan Schwartz,
Jason Goldman, Robert Scoble, and Jason Calacanis. In
context of the study undertaken, let me first define a
few words associated with it.
Blogging – when people either read or write in a
blog.
Blog spot – an inlay, either in the form of a
comment, suggestion, original post, etc.
Blogosphere – a community of all blogs.
Micro blogging – practice of posting small pieces
of digital content, like a text, picture, link, videos,
etc.
Reverse/collaborative blog – a blog which
involves posts and writings of several authors.
Diary blog – a blog written about one‘s everyday
life.
Corporate blog - a blog used by companies for
providing updates about their business and
creating public relations.
Genre blog – blogs focusing on particular subject like politics, health, travel, fashion, education, etc.
Blogs are websites which are updated daily, weekly
and even monthly, to provide latest updates to
followers. Blogs are considered to be flexible, user –
friendly, inexpensive, interactive and self – centred
form of social media marketing. According to
Technocrati (search engine) there were more than 57
million blogs available in 2006, which has risen to
more than 70 million blogs in 2012.
CORPORATE BLOGS
People have always maintained diaries of their personal
lives, way before the term ―blog‖ was coined, except
for the fact that it was not published on W 2.0. With
the passage of time and by gaining popularity, blogs
have spread its routes even in the corporate sector.
Today corporates, companies and businessmen have
helped blog to evolve as a new branch on the tree of
blogosphere, which can be used to communicate and
share information with their customers. Corporates are
basically following two approaches to customize a blog, viz.:
*Research Scholar, Faculty of Commerce, B.H.U., Varanasi
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 87 ISSN: 2231-6353
The product approach, where updates regarding
products are provided.
The customer approach where customers are
provided an in-depth insight and information
about products directly from the one who are
responsible for the product.
The first approach helps to build brand loyalty, on the
contrary the second approach tries to address issues or
provide assistance post purchase. Corporate blogs are
of two types:
Internal blogs: A silent wave
It exists within the firewall of the companies,
which work‘s on the intranet not being accessible
by public or through public URL‘s. It is a self-
authored blog by employees for efficient
communication and knowledge for sharing.
External blogs: A noisy affair
It is published on public URL‘s providing update
son products, and allowing solicits feedbacks and
discussions from customers.
Fig. 1
Types of corporate blog
It‘s inevitable that corporates are developing and
maintaining blogs to attract more customers, for increasing brand loyalty, utilising the availability of
virtual focus groups, increasing their ranking on search
engines and increasing their area of target customers.
FORMULATING MARKETING STRATEGY
A corporate blog is an expression of individuals
representing companies, which is in conversational
voice and cannot be replaced by any forms of on-off
internet marketing tools.
Blogging can be utilised as a creative source for formulating marketing strategies. It helps to understand
the requirements of customers and provide a wider
platform to develop big ideas, through discussions and
feedbacks. It is considered as the direct source of idea
for innovating new products and strategizing new
market strategies. Blogs being a newest form of viral
marketing, is adjunct to PR and helps in building trust
by consistently meeting the expectations of customers.
Effective corporate blogging can be achieved through
out reaching customers and pitching PR, SEO (search
engine optimization) and online marketing together for
gaining a wider market share. A sequential
representation of the strategy has been represented below.
Fig.- 2
Social media marketing strategy
MEASUREMNT OF PROFIT
In blogging the Return on investment is measured
through Return of Blog, as it is all about conversations, discussions, information, efficiencies and expertise
gained which cannot be measured in terms of metrics,
but is measured through the rankings available on
search engines. The most popular of which is WOMM:
word of Mouth Marketing, which actually determines
the success by measuring the staying duration and
retention power of a blog.
POSITION OF BLOG AMONG CORPORATES
In present era, when various forms of technology i.e.
social media, digital marketing and online marketing is becoming prevalent the old concept of marketing is
being replaced by new concept of digital marketing. It
is becoming necessary for companies to get involved
directly with customers through these networking sites.
Today companies are not known by their name and
brand but are known through their webpage.
As compared to other forms of online and digital
marketing, corporate blogging is harder to be
conceptualised as it requires greater degree of
precaution and carefulness, while deciding the right
tone of voice and building customer interest, as the
whole goodwill of the company is on stake. A few big companies, opting for corporate blogs are:
Facebook: this largest social media site has its
own blog, which it keeps updated from time to
time and provides special updates on privacy and
security from time to time. Available on
blog.facebook.com/
Red Cross: one of the biggest charity hospitals in
the world, which possess a blog to share the social
work done. Available on www.redcroschat.org
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 88 ISSN: 2231-6353
BMW: amongst the biggest and richest car
brands, which has embraced its own blog to
discuss and share contents and videos on its new
products and update customers about the
engineering of products. Available on:
www.bmwblog.com
e-bay: an online seller corporate which provides
updates on regular basis about its sales, tips,
tricks, company‘s profits, achievements, etc.
available on: blog.ebay.com
Google: being inevitable to be avoided this site
maintains its own blog despite numerous blogs
dedicated to its products. It provides update on
the best contents available. Available on:
googleblog.blogspot.in
THE LEGAL VOICE OF BLOGGING: A CASE
OF IBM
IBM an American company manufactures and markets
computer hardware and software worldwide. Having a
wide customer base and target market, it has designed a
blog page only for its internal users and employees.
But this page is available on public URL‘s with the
drawback that the consumers can read it but cannot
comment or post on it. It has designed the blog to
encourage its staff for contributing their ideas, without
fearing to go against the company‘s views. This
freedom has motivated honest relevant and creative
suggestions, which are unaffected by corporate meddling.
SOCIAL COMPUTING GUIDELINES OF IBM
IBMers in 2005, created a set of guidelines for all the
employees who wanted to blog and provide helpful and
practical advice to protect the interest of bloggers and
IBM. These guidelines are set for all modes of social marketing: wikis, virtual worlds, twitter, Facebook,
blogs, etc. It states the following guidelines:
IBM is responsible for online published content,
so it is mind full for employees to protect their
privacy.
It is necessary for bloggers to quote their voice
and not represent or voice IBM.
Posts in personal capacity should have a
disclaimer ―Not copy from site‖.
No information about client‘s, partners, suppliers
and company should be discussed.
No use of ethic slurs, discriminatory remarks,
obscenity, etc. should be used at workplace or on
blog page.
One should not misuse the logo/trademark of IBM.
The discussion should be informative and should
add value to company‘s reputation.
The above guidelines apply to all online activities of
IBM. The company supports open discussions, and try
to create relationship among individuals. The
discussions done by employees amongst themselves or
with clients and outsiders should provide useful
information which can add value by improving
products, solving problems of associates, improve knowledge and skills of co-workers and promote value
of IBM. Discussions done with clients and customers
should be helpful to provide expertise about products
and should not misrepresent any fact. Discussions on
social sites should not investigate any kind of
necessary and unresponsive arguments.
The above discussed guidelines are not limited to IBM
only, rather every corporate blog carry their own
restrictions regarding posts on their site. Every
corporate entity should be very much aware of all the
discussions, posts and feedbacks on their site, as a small representation and negligence which might lead
to harming the goodwill of the company. It should
always be remembered that blogging is a form of
marketing and not advertising, so it might attract
customers or create brand loyalty but will not increase
the value of sales. At times corporates take blogs as a
magic word and expect instant traffic for their
webpage, but the reality is vice-versa.
Blogging needs long term commitments, which calls
for time to time development of innovative ideas for retaining the customers, as they might shift from blogs
to teaser feeds and e-mail notifications. Blog
controllers/owners/developers should not post rehashed
press releases or repeat the posts from some other
social site. Corporates should not have huge
expectations from their blogs rather they should be
conscious about the technical details and expertise
discussed, as their competitor‘s too read their blogs.
CONCLUSION
Corporate blogs are not a traditional marketing tool;
rather, it is a form of customer service provided post-purchase, to retain the customer base. Bloggers should
try to create a cordial relationship and avoid heated
arguments. A successful blogger should even get
involved in blogs of other companies to increase its
audiences in the community. Successful marketing
through blogs can be achieved by engaging its
customers in relevant industry related information and
technical details, updates on products and provide
HermeneuticS: A Biannual Refereed International Journal of Business and Social Studies Volume 04, No. 01, March 2014
RNI – UP/ENG/2011/36701 89 ISSN: 2231-6353
timely answer to customer‘s question. A corporate
entity should always acknowledge the customers for
their valuable discussion and feedbacks, which will
strengthen their brand loyalty. Since customers are
usually influenced by feedback of other customers, it is
necessary for companies to build such reference and focus groups which work in their favour. Beside the
benefits of direct response from customers, blogging
carries potential risk of hampering the company‘s
image, so a blog developer and controller should
review the privacy guidelines and provide its update on
the site, to avoid any discrepancy. He should be aware
of every action being performed on the company‘s
blog, as a blog is not a gizmo but it’s the face of the
company.
REFERENCES
1. Curtis, J.C. (2010), ―The new Handshake: Sales
meets social media‖, ABC-CLIO, LLC, U.S.A.
2. Cass G.J. (2007), ―Strategic & Tools for
Corporate blogging‖, Butterworth-Heinemann
Publications, U.S.A. 3. Scoble R., Israel S., ―Naked Conversations: How
blogs Re changing the Way Businesses Talk with
Customers‖, John Wiley & Sons Inc., U.S.A.
4. Cho D.J., ―Blog, Inc.: Blogging for Passion,
Profit, and to Create Community‖, Chronicle
Books, LLC, California.
5. www.ibm.com/blogs/zz/en/guidelines
6. www.simplyzesty.com/Blog/Article/September-
2012/
7. www.boagworld.com/marketing/corporate-
blogging/
RNI – UP/ENG/2011/36701 ISSN: 2231-6353
CALL FOR PAPERS (September - 2014 Issue)
Hermeneutics
A Bi-annual Refereed International Journal for Business
and Social Studies, registered with Registrar of News Paper
of India (RNI No. UP/ENG/2011/36701) having ISSN:
2231-6353 is a publication of Youth Empowerment and
Research Association (YERA), registered under Societies
Registration Act, 1860 U/s 21, No. V-38138/9798 –
Varanasi.
The field of business and social studies is dynamic and
changing with an unforeseen pace, a lot of research and
investigations are going on. The requirement is to spread the
works done and invite valuable critics on findings. Our effort
is to serve this purpose and motivate young researchers for
the academic contribution. The main objective of journal is
to disseminate knowledge and concept which have practical
utility and meet the requirement of practicing professionals,
academicians and students by focusing primarily on applied
research and peer reviewed articles. The journal has been
classified into following sections.
The journal welcomes original empirical/ theoretical/
analytical research paper/ article/ research notes from
academicians, practitioners, research scholars and students
on business, management, social studies and other related
issues. The Journal is published by Youth Empowerment &
Research Association (YERA). The Articles of life/annual
members of the YERA will be preferred for the publication.
GUIDELINES FOR AUTHERS
All authors are requested to submit their contributions in
Times New Roman with font size 10, single spacing in
A4 size page setup, justified with margins of one inch from all sides. Reference should be in APA style. There
should be separate cover page containing the title of the article, author(s) name, designation, communication
address, contract no., e-mail address. The name of
author(s) should not appear on the manuscript to facilitate blind review.
The second page should contain (i) title of the article (in
bold) (ii) an abstract of the paper in about 100-150 words, Times New Roman Font size 10, single spacing, in italics
(iii) Full paper must not be more than 4000 words (iv) Research Notes must not exceed 1000 words (iv) paper
type: empirical/ theoretical/ analytical/ case study. The author(s) should certify on the separate page that
manuscript is original and free from plagiarism. It should also be mentioned that the paper is not submitted or
accepted for publication by any other journal.
Papers are processed through a blind referral system by the
review committee. Papers submitted to the journal are initially screened by the Managing Editor for relevance and
will be forwarded to review committee for final
acceptance. Author(s) may be asked to revise and resubmit their manuscript based on the comments of the review
committee. A separate list of references should be given at the end of the paper alphabetically on standardised pattern
preferably APA style of referencing. Footnotes may be given on the same page if any technical term needs some
explanation. All contributions are to be addressed to the Managing Editor and sent in electronic mode only at the
following e-mail address:
HermeneuticS A Biannual Refereed International Journal of Business and Social Studies
Last date for the submission of the manuscript through
mail for March Issue is 31st January and for September
Issue, it is 31st July. A specimen copy of journal will be
given free of cost to the first author unless otherwise
indicated. All correspondence relating to editorial and
related matters may kindly be addressed to;
Prof. F. B. Singh
Chief Editor - HermeneuticS
Faculty of Commerce
Banaras Hindu University
Varanasi U.P. -221005
Contact No.: +919015949610
+919415862408
Email: [email protected]
Website: http://www.yera.co.in
This Journal is published after blind review of the
papers so author(s) are requested to send the article and paper without mentioning their identity and
address.
No Responsibility for the view expressed by the
author(s) in this journal is assumed by the editorial board.
Copyright 2010. All rights reserved. No part of this journal may be reproduced and distributed in any
form or by any means without prior permission of publisher.
All Disputes are subject to Varanasi Jurisdiction only.
Printed and Published by Prof. F. B. Singh on behalf of Youth Empowerment and Research Association
(YERA).
DD for subscription/membership fee should be drawn
in favour of Youth Empowerment & Research
Association payable at Varanasi.
Youth Empowerment and Research Association Varanasi (U.P.) India
A Publication of