POST HARVEST MANAGEMENT \u0026 AGRO-FOOD RETAIL MARKET DEVELOPMENT IN DIFFERENT ALLIED SECTORS IN...

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Transcript of POST HARVEST MANAGEMENT \u0026 AGRO-FOOD RETAIL MARKET DEVELOPMENT IN DIFFERENT ALLIED SECTORS IN...

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

IMPACT FACTOR(GLOBAL)=0.376

Visit www.globalimpactfactor.com for verification

INDEX COPERNICUS VALUE (2011)=5.09

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

SR.

NO. P A R T I C U L A R

PAGE NO.

1.

RELATIONSHIP BETWEEN POST PURCHASE SERVICES BY PRIVATE

COMPANIES AGENTS AND FIRST YEAR POLICY LAPSATION RATE

IN LIFE INSURANCE SELLING

PROF. MITESH JAYSWAL

[PDF]

1-13

2.

A CONCEPTUAL FRAMEWORK OF EMPLOYEES’ CONTINUANCE

INTENTION TO USE E-LEARNING SYSTEM

DR. A. THIRUCHELVI, S. KOTEESWARI

[PDF] 14-20

3. PERFORMANCE OF INDEX FUNDS IN INDIA

DR. (MRS.) PRASHANTA ATHMA, MS. B. MAMATHA

[PDF] 21-29

4.

DEMOGRAPHIC DIFFERENCES & SHOPPING BEHAVIOR OF INDIAN

MIDDLE INCOME GROUP USERS WITH DEBIT CARDS:

AN EMPIRICAL ANALYSIS

VIVEK KUMAR TRIPATHI, TANU MARWAH

[PDF]

30-41

5.

INFORMAL WORKERS IN BANGLADESH: AN ANALYSIS FROM

SOCIO-ECONOMIC PERSPECTIVE

ABDUR RAZZAQUE SARKER

[PDF] 42-48

6.

IMPACT OF CREATIVE ADVERTISING STRATEGIES ON DOCTORS

BY MEDICAL REPRESENTATIVES FOR PHARMACEUTICAL

PRODUCTS

DR. P. T. CHAUDHARI, ABHIJEET HARIDAS GAHUKAR

[PDF]

49-60

7.

PROFITABILITY IN INLAND FISHERY SECTOR – A CASE STUDY IN

THE DISTRICT OF MIDNAPORE (EAST & WEST)

PRADIP KUMAR DASH

[PDF] 61-75

8.

A STUDY ON QUALITY OF WORK LIFE AT A GARMENT

MANUFACTURING UNIT IN PERNDURAI – A CASE STUDY

D. ANBUGEETHA

[PDF] 76-87

9.

EXPERIENCE IS A KEY TO SUCCESS IN POULTRY INDUSTRY

DR. S. C. VETRIVEL, DR. R. SOMASUNDARAM

[PDF] 88-95

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10.

A STUDY ON FACTORS INFLUENCING FOR NON MIGRATION TO

URBAN AREA WITH SPECIAL REFERENCE TO KANCHEEPURAM

TALUK

DR. K. S. MEENAKSHISUNDARAM, DR. N. PANCHANATHAM

[PDF]

96-100

11.

MINOR IRRIGATION DEVELOPMENT AND POLOCIES IN MODERN

SYSTEMS UNDER DIFFERENT SOURCES IN ANDHRA PRADESH

DR. RADHA RANI KOTHAKALLA

[PDF] 101-107

12.

CORPORATE SOCIAL RESPONSIBILITY AND PHILANTHROPY –

ESSENTIAL TOOLS FOR BUILDING STRONG BRANDS;

A MARKETING PERSPECTIVE

M V A L NARASIMHA RAO, S RAMESH BABU, DR. M KISHORE BABU

[PDF]

108-121

13.

NETWORKED READINESS INDEX IN BRICS – COMPARATIVE

ANALYSIS

DR. L. KRISHNA VENI

[PDF] 122-135

14.

HIGH WORLD FOOD PRICES-CAUSES AND CONSEQUENCES

DR. U. JAYALAKSHMI SRIKUMAR

[PDF] 136-146

15.

POST HARVEST MANAGEMENT & AGRO-FOOD RETAIL MARKET

DEVELOPMENT IN DIFFERENT ALLIED SECTORS IN INDIA

MRK MURTHY, V MURALI

[PDF] 147-159

16.

TOWARD HIGHER STUDIES IN BUSINESS SCHOOLS

DR. RUKHSAR AHMED

[PDF] 160-176

17. PROFIT RE-ENGINEERING FOR BUSINESS PROGRESS

K. V. MURALI

[PDF] 177-189

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

RELATIONSHIP BETWEEN POST PURCHASE SERVICES BY PRIVATE

COMPANIES AGENTS AND FIRST YEAR POLICY LAPSATION RATE

IN LIFE INSURANCE SELLING

PROF. MITESH JAYSWAL*

*Associate Professor,

S.V. Institute of Management,

Kadi, Gujarat. India.

ABSTRACT

PURPOSE: The purpose of this paper is to study the relationship between first year

policy lapsation rate and service quality provided by agents of private life insurance

companies. It check, whether first year policy lapsation rate differences is significant

on post purchase services of intermediary.

DESIGN/METHODOLOGY/APPROACH: The paper presents a survey of the

agents of private life insurance companies of Gujarat under descriptive- cross

sectional design. The statistical tools like exploratory factor analysis, confirmatory

factor analysis and MANOVA have been used.

MAJOR FINDINGS: First year policy lapsation rate differences of Private

Companies Agents is not found significant on post purchase services. It is significant

for exceptional services only.

ORIGINALITY/VALUE: The paper will be of value to those interested in insurance

distribution and specifically about agents performance of private life insurance

companies. It is suitable for academics and practitioners alike.

KEYWORDS: Service Quality, Policy Lapsation.

_____________________________________________________________________________

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INTRODUCTION

An agency relationship is defined as: a contract under which one or more persons (the

principal(s) engage another person (the agent) to perform some service on their behalf which

involves delegating some decision making authority to the agent (Jensen and Meckling, 1976).

Emphassing the importance of further bifarcation on this traditional meaning Lowry, Avila, &

Baird (1999) says that with increasing competition among agencies for the same clients, the need

for a strategy to differentiate one agency from another is critical. By focusing efforts on a niche

market, an agency can benefit by being the one of choice for consumers in the niche. Further

adding to marketing system Machiraju (2004) says that the job of marketing life insurance has

always been of a hybrid nature. The fact-finding and advice-giving phase at the contact level

may be considered as the work of counselor; the persuading phase as the work of a salesman.

Adding to this Cummins & Doherty (2005) specify the duty of an agent by saying that in

addition to placement of insurance, insurance intermediaries also help their clients understand

and measure their risk, advice them on how insurance can alleviate the costs of risk, help design

insurance coverage programs, and assist with claims settlement.

Emphasizing on latest change in insurance market article titled “Change Agents” (2008) mention

that the onset of competition also means that the role of the ubiquitous life insurance agent is

evolving, expanding and, in some cases, witnessing a complete turnaround. Increased

competition and proliferation of products are compelling agents to innovate and spend greater

amount of time understanding competing products. With new products from mutual funds and

insurance companies hitting the market every other day, the new-age agent is armed with

knowledge not just about his own portfolio, but also about financial products from competing

firms. Adding to this about Indian life insurance agents, Singhvi & Bhatt (2008) says that the

greater relationship and more face to face contact, consumers are used to the channel, experience

and greater knowledge of industry and cross selling ability are the strength of the agents while

higher cost for insurer and consumer because of higher commission rates, not as convenient as

other channels, old fashioned channel, not fully updated with latest technologies are the

weakness of the agent system. Not only emphasizing the role of agent in customer loyalty a

study finds evidnces that headquarters’ contribution to customer loyalty is significantly stronger

through the image path than through the delivery path (Andreassen & Lanseng, 1997).

ETHICAL ISSUES

An illuminating research by Banumathy & Manickam (2004) concludes that agents offer good

services before the policy is issued and while it is in operation but don’t offer good services at

the stage of maturity when a customer approaches them for settlement of claims. It, therefore,

makes sense to look at well-balanced, alternative channels of distribution. Talking on unethical

practices by agents Cummins & Doherty (2005) says that there is empirical evidence that most of

the contingent commissions is passed on to policyholders in the premium. On the bases of the

survey of LIC agents from Madurai district Arulsuresh & Rajamohan (2010) suggetsed that the

percentage of commission given to the agent should be the same for all policies because when

there is any differentiation between the rates of the commission of policies sold, the agent will be

attracted to policies which are giving higher rate of commission to them.

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RECRUITMENT OF AGENTS

In India where LIC a dominating players getting more than ninety percent of its market through

exclusive agents Machiraju (2004) commented on the prosess of recruitment of agents by saying

“LIC has adopted the rather crude process of recruiting a large number of agents and waiting for

a few successful ones to emerge. By this process, the calling of the agent was stamped almost

from the beginning as one that just anybody could follow, at least for a while.” According to

Shettewar & Dixit (2009) older agents and male agents would take lesser duration to get the

license as compared to duration taken by younger agents and female agents. It is also found that

the offline mode training would reduce the duration of licensing. It may be because of offline

mode of training is more accessible and convenient to the agents from different regions.

SHRINKING BUSINESS BY AGENTS

While World wide more than ninty percent of premium was procured by the individual agents

and brokers (Naga Raja Rao, 2004), evidence is found in the decrease of life insurers operating

in the U.S., industry demutualization, and the decreased number of affiliated agents combined

with the emergence and growth of direct and independent advisor distribution channels. Such

trends signal a fundamental restructuring of how life products are structured and delivered1.

According to Verma (2004) the life insurance players need to develop alternative distribution

channels, as the traditional channels alone are not financially viable. India Infoline article,

(August 2004) maintains that insurance agents are still the main vehicles through which

insurance products are sold but in a huge country like India, one can never be too sure about the

levels of penetration of a product. Insurers in a top-down product development approach create

products with features attractive to agents. Fleming, John D; President Fleming Advisor

International (2008) Observes a disturbing trend in North American Life insurance industry that

the number of people providing face to face advice to consumer is shrinking. More important, he

notes that new blood is being infused at an alarmingly slow rate. He also added that the company

leaders are aware of this situation; there are few concrete signs of companies doing something to

address this problem. In India nearly three fourth of the agents are about to go out from business

because of change in policy about Unit link Life insurance in September 2010 (New ULIP norms

may throw 1.2 million agents out of work, 2010).

Using primary data from two hundred fifty five insurance agent-insurance provider dyads Ross,

Anderson, & Weitz (1995) conclude that the Perceivers rate their performance outcomes from

the dyad (i.e. harmony and profit) highest when they believe they are less committed than their

counterpart. Conversely, they rate their own performance outcomes lowest when they believe

they are more committed than the other party.

POLICY LAPSATION & INTERMEDIARY SERVICE QUALITY

A life insurance policy lapses when the subscriber does not pay the premium within the grace

period. When a policy lapses, the holder forfeits the premium paid and the insurance cover. The

1 Report in TIAA-CREF Institute’s, Trends & Issues, December 2008 titled “Product and Distribution Evolution In

the Life Insurance Industry”.

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agent loses the renewal commission. It also impacts the growth of the insurance business and

solvency margins of the insurer. Lapsation of a life insurance policy is discontinuation of

premium payment by the policyholder during the period of operation of the policy, due to any

reason other than the death of the policyholder. The length of life of a lapsed policy can be

defined as the period between the month when the last premium installment was paid and the

month the policy was issued. According to Gummarra (2008) a cancelation of insurance contract

during the first year demonstrates the probable customer dissatisfaction and is an indicator of

lower level services by intermediary. Policyholders who had repeated unpleasant experience with

the services of an insurance company or the advisor, most typically, would prefer to end their

relationship with the company (Mallela at al. 2008). Reasons for lapsation are wrong selling,

forced selling, over selling, bogus selling, effect of competition, introduction of new plans, bad

service, awareness levels of customers, non-receipt of notices, no follow-up by agents,

requirement of medical check-ups, change of address, inadequate explanation of the product

riders, repayment of house finance, malpractice of agents an field force (Subramanian, 2008).

From search theory a number of factors that affect the service quality provided by insurance

intermediaries can be identified (Posey/ Yavas 1995; Posey/ Tennyson 1998; Seog 1999, 2005;

Eckardt 2007). On the demand side, consumers’ preferences in regard to insurance related

information and other transaction services and their transaction costs influence their make-or-buy

decision. Besides, many information services depend on privately held information by

consumers. Thus intermediation service quality depends also on the collaboration between

consumers and intermediaries. On the supply side, the distribution of the relevant information as

well as the search technology used are important factors that affect the search costs which have

to be incurred for producing information and other services of a certain quality level (Rose 1999;

Eckardt 2007). Most important inputs are the time spent for searching, processing and evaluating

information and investment in specific insurance-related human capital (knowledge and skills).

Since consumers act either under a “free price”-illusion or simply do not know about what

percentage of the premiums they pay go to insurance intermediaries, price competition is quasi

not existent in the market for insurance intermediation (Cummins and Doherty 2006). Thus,

insurance intermediary markets are characterized by monopolistic competition (Cummins and

Doherty 2006; Eckardt 2007). Insurance intermediaries compete for customers both by

horizontal and vertical product differentiation. In the former case they offer different kinds of

services, while in the latter they offer different quality levels.

LITERATURE GAP

An article by Arnold (2000) contains a survey of 750 executives, which found that the

distribution effectiveness and technological preparedness are the big concern for the life

insurance CEOs in Europe and North America. In lately liberalized Indian market where

alternate channels are having combine share of twenty two per cent of new premium it is need to

study the reasons for reduction in adoption rate of traditional channel. For Individual Agents

(having a share of 78.69 per cent in new business, 44.05 for private companies and 96.56 per

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cent for LIC)2, this is a pathetic situation for the industry experts who notice the consistently

shrinking share in last ten years.

While the key success factors for distribution are Productivity, Control, Turn Over and Customer

relationship (Shelton ,1995), the literature indicates that, In India the focus has been finding out

on getting new business only. Most of the problems and issues confronting the Indian life

insurance business in today’s situation are of because of more marketing orientation less focus

on the issues like recruitment and selection of intermediaries, retention, education and training,

productivity and morale, market conduct issues and research (Machiraju, 2003). The marketing

orientation is not only limited to insurer but also associated with intermediary. Like rebating in

the insurance industry has remained a bone of contention right from the colonial era.

Rajagopalan (2008) expects the variations in the lapse experience of the business transacted

through the channels and mention that it needs to be investigated separately. As there is no

attempt found to study the service quality of private life insurance agents in Indian market, the

study to relate the first year lapsation rate with service quality is novel phenomenon in Indian

context. So it is interesting to study the relationship between first year policy lapsation rate and

post purchase service quality of Individual Agents of private Life insurance companies and fulfill

this literature gap up to some extent.

STUDY OBJECTIVE

The broad aim of the proposed study is to know that whether there is a significant difference

among first year policy lapsation rate and post purchase services of the intermediary3. The

researcher believes that the intermediaries giving more importance to post purchase services

having low first year policy lapsation rate. The researcher would also like to explore the

categories of post purchase service variables on which the first year lapsation rate differs.

HYPOTHESIS

H1: Cancellation of policy due to first year leapsation is significant on post purchase services of

intermediary

H1a: Cancellation of policy due to first year leapsation is significant on Revival Services

H1b: Cancellation of policy due to first year leapsation is significant on Routine & Alteration

Services

H1c:Cancellation of policy due to first year leapsation is significant on Exceptional services

RESEARCH METHODOLOGY

An insurance market is characterized by incomplete and asymmetric information between

insurance companies and consumers (Cummins & Doherty 2006; Eckardt 2007). Insurance

2 IRDA Annual Report 2012 3 In this paper, the word Intermediary is used for individual agents of private life insurance companies.

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intermediary market is also characterized by incomplete and asymmetric information.

Information and counseling services are complex and long-term insurance purchase decisions

having experience and credence goods (Nelson 1970; Darby & Karni 1973; Hirshleifer 1973).

According to principal-agent theory this information asymmetry leads to low quality provision

due to differing objectives between principals and agents. Consumers as principals have only

incomplete information about an intermediary’s characteristics, knowledge and experience

before contract conclusion as well as about the intermediary’s proper intentions and actions after

contract conclusion. Therefore the performance of the intermediary can be only incompletely

assessed by the principal. So the service quality of life insurance intermediary can better assess

through survey of intermediaries than customers. This research begins with exploratory research

design as its immediate purpose is to develop hypothesis and questions for further research. The

formal study begins after the exploration leaves off. For making the study conclusive after

exploratory research, descriptive research design is used. Post purchase services include number

of activities carried out by the intermediary after conclusion of the contract. A list of different

activities is prepared on the bases of interaction with insurance professionals. In this case the list

of intermediaries is not available, so it is decided to go with non probability sampling methods

under which convenience sampling method is used.

EXPLORATORY FACTOR ANALYSIS (EFA)

To identify sources underlying the prepurchase services of intermediary, an exploratory factor

analysis was carried out. EFA is a technique aimed to identify number of latent constructs form

set of interrelated variables. Principle components method was used to extract the factors. The

KMO Measure of Sampling Adequacy was 0.771 indicating analysis results are meritorious

(Kaiser, 1970).Bartlett’s test of sphericity was significant at 0.000 levels demonstrating that a

high elevated degree of correlation between the variables exists (Hair et al., 1998) (Table 1).

TABLE 1: KMO, BARTLETT’S TEST OF SPHERICITY AND SIGNIFICANT LEVEL

Kaiser-Meyer-Olkin Measure of Sampling Adequacy 0.771

Bartlett's Test of Sphericity

Approx. Chi-Square 1063

Df 66

Sig. 0.000*

*significant at 0.001 level

In total, there were twelve (12) variables in the data. Items with higher cross loadings (more

than 0.20) and those with lower than 0.5. Varimax rotation method was used with factors

extraction with Eigen value over 1. It resulted into extraction of three factors, which explained

51.76 per cent of variance. The minimum factor loading observed was 0.499 and the maximum

loading was seen to be 0.852.The factors, their respective items with the numbers and their

corresponding factor loading are given in Table 2 and 3.

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TABLE 2: DESCRIPTION OF FACTORS

Factors Description % of

Variance

% of

Cumulative

variance

Routine & Alteration

Services

Services which are used by more number of

clients & Alteration Services

19.422 19.422

Exceptional Services Services which are used by very few clients 17.268 36.691

Revival Services Services related to non-commitment by clients 15.077 51.767

TABLE 3: COMPOSITION OF EACH FACTOR IDENTIFIED IN FACTOR ANALYSIS

Factor Items Factor

loadings

Routine & Alteration

Services

Grant of loan (V7) 0.762

Assignment (V6) 0.675

Settlement of surrender value (V9) 0.574

Settlement of claims (V11) 0.519

Payment of survival benefit (V8) 0.512

Alteration in policy terms (V10) 0.499

Exceptional Services Collection of premium (V2) 0.739

Policy delivery (V1) 0.695

Change in personal information (V12) 0.612

Nomination (V5) 0.512

Revival Services Revival / reinstatement of paid up policies (V3) 0.852

Revival / reinstatement of lapsed policies (V4) 0.838

CONFIRMATORY FACTOR ANALYSIS

The first order confirmatory factor analysis model fit indices are x2 = 183.740, x

2 / df = 3.603,

df = 51, GFI = 0.933, RMSEA = 0.082, PCLOSE = 0.000, NFI = 0.829, CFI = 0.869, TLI =

0.830, RMR = 0.051, AGFI = 0.897.

From table 4 it is easy to see that the regression weights of all variable loading on their

respective factors. All critical ratios are statistically significant at the 99 per cent confidence

level. The factor intercorrelations for the three first-order factors are presented in Table 4 and are

statistically significant at 99 per cent. The moderate correlation between factors suggests

adequate discriminant validity between these related aspects of temperament. In other words, as

specified by the theory, the scale measures related but still separate aspects of temperament.

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TABLE 4: LOADING OF THE FIRST ORDER CONFIRMATORY ANALYSIS FOR

POST SELLING SERVICE QUALITY

Standard first – order loading a

Variables R2 Routine &

Alteration Services

Exceptional

Services

Revival Services

posgrnloan7 0.237 0.487c

posassig6 0.312 0.559 (7.169)

possurrval9 0.245 0.495 (6.690)

posclaim11 0.325 0.570 (7.246)

possurvben8 0.316 0.562 (7.192)

posaltpol10 0.318 0.564 (7.204)

Routine

&Alteration

Servicesb

--- 0.714

0.566

poscollprem2 0.294 0.542c

pospoldel1 0.355 0.596 (7.441)

posperinf12 0.377 0.614 (7.542)

posnomi5 0.176 0.420 (5.986)

Exceptional

Servicesc

--- 0.486

posrevPUpo3 0.586 0.765 c

posrevLPpo4 0.711 0.843 (9.546)

Revival Servicesc ---

Notes: aStandard first order loading is the standard regression weight of the individual variables’

loading on to one of the component factors. Figures in parentheses are critical ratios from the

unstandardized solution; b Standard first order loading for component factors (i.e. Routine &

Alteration Services, Exceptional Services, Revival Services) is the covariance between any two

of these component factors; c The critical ratio is not available, because the regression weight of

the first variable of each component factor is fixed at 1; x2 = 183.740, x

2 /df= 3.603, df = 51, GFI

= 0.933, RMSEA = 0.082, PCLOSE = 0.000, NFI = 0.829, CFI = 0.869, RMR = 0.051, AGFI =

0.897.

The graphical presentation of the model is as under.

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LOADING OF THE FIRST ORDER CONFIRMATORY ANALYSIS FOR POST

SELLING SERVICE QUALITY

RELATING CANCELLATION OF POLICY DUE TO FIRST YEAR LEAPSATION TO

POST PURCHASE SERVICES OF INTERMEDIARY

The major objective of this research paper is to establish the relationship between cancellation of

policy due to first year leapsation and post purchase services of intermediary. Considering this,

Cancellation of policy due to first year leapsation is taken as independent variable while post

purchase service of intermediary is dependent variable. For this, MANOVA is administered

because MANOVA is a multivariate extension of the univariate techniques used for measuring

the differences between group means. As stated by Hair et al. (1998, p.14), MANOVA ‘…is a

statistical technique that can be used to simultaneously explore the relationship between several

categorical independent variables (usually referred to as treatments) and two or more metric

variables.’

To measure significant difference related to the independent variables, one Multivariate Analysis

of Variance (MANOVA) test with repeated measures were conducted. The MANOVA and

subsequent ANOVA results are shown in Table 5, and it was found that there is statistically

insignificant difference between cancellation of policy due to first year leapsation(i.e. 0 to 20, 21

.24

posgrnloan7

.31

posassig6

.24

possurrval9.33

posclaim11.32

possurvben8.32

posaltpol10.29

poscollprem2.35

pospoldel1.38

posperinf12.18

posnomi5.59

posrevPUpo3.71

posrevLPpo4

Rout_Alt_Ser

Excep_ser

Revival ser

e1

e2

e3

e4

e5

e6

e7

e8

e9

e10

e11

e12

.49

.56

.49

.57

.56

.56

.54

.60

.61

.42

.77

.84

.71

.57

.49

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to 40, 41 to 60 and 61 to 80) for the four dependent variables of post purchase services of

intermediary i.e. Routine & Alteration Services, Exceptional Services and Revival services

(Wilk’s Lamda = 0.847; Significance: p =0.055> 0.05).

As indicated in Table 5, the univariate F-ration were also significant for the one dependent

variables i.e. Exceptional Services (F=2.987, Sign. = 0.035) but statistically cancellation of

policy due to first year leapsation was non – significant on Calculation of Revival Services

(F=1.206, Sign. =0.312), Routine & Alteration Services (F=0.917, Sign. =0.435), In addition to

this, the means score of all the three dimensions of post purchase services of intermediary

(aggregate score) were checked and it was found that Cancellation of policy due to first year

leapsation of 0 to 20 per cent have more importance compare to other prospect in post purchase

services of intermediaries. Henceforth, overall results support H1c but H1, H1a, H1b, were not

supported (Table 5).

TABLE 5: MANOVA RESULTS FOR CANCELLATION OF POLICY DUE TO

FIRST YEAR LEAPSATION TO POST PURCHASE SERVICES OF INTERMEDIARY

(OVERALL) Effect Value F Significance

Multivariate tests

First year policy

lapsation rate

Pillai’s Trace 0.157 1.862 0.057

Wilks’ Lambda 0.847 1.886 0.055

Hotelling’s Trace 0.175 1.896 0.052

Roy’s Largest Root 0.136 4.580 0.005

ANOVA tests

Revival Services ----- 1.206 0.312

Routine & Alteration

Services

----- 0.917 0.435

Exceptional Services ----- 2.987 0.035

Cancellation of policy due to first

year leapsation

Revival Services Routine &

Alteration

Services

Exceptional Services

0 to 20 (n=79) 2.14 1.67 1.83

21 to 40 (n=21) 1.96 1.48 2.11

41 to 60 (n=14) 1.45 1.50 1.50

61 to 80 (n=10) 2.00 1.50 3.00

Note: * p < 0.05

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LIMITATION AND FUTURE RESEARCH

There are three limitations of this study. First, the survey has been conducted in Gujarat only so

the results may not be applicable to country wide. Second, the sampling method is of non

probability type so the sample’s representation about the population is questioned. And third,

Comrey and Lee (1992) (see Tabachnick & Fidell, 1996) say the sample size is 124 only, it is

poor for factor analysis.

This research is limited to the post purchase services only but further research can be done by

considering pre-selling services of intermediaries. That is interaction on various issues before

execution of insurance contract. Such study has been conducted in Germany but not in India

(Eckardt & Doppner, 2008). Guiding results can also be obtained by comparing the results of

various insurance intermediary namely agents, brokers, direct marketing and bancassurance. The

first year policy lapsation ratio can also be replaced with other positive variables like repeat

purchase and referral sales.

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American Agency System of Selling Insurance. Journal of Risk and Insurance (65), 637-669.

Andreassen, T. W., & Lanseng, E. (1997). The principal’s and agents’ contribution to customer

loyalty within an integrated service distribution channel: An external perspective. European

Journal of Marketing, , 31 (7), 487-503.

Arnold, C. (2000, December 4). Life CEOs: Distribution, Technology are Key. National

Underwriter , pp. 6.

Arulsuresh, J., & Rajamohan, S. (2010). Attitude of the Agents Towards the Marketing of

Insurance Services by the LIC of India. The IUP Journal of Risk & Insurance , VII (4), 47-71.

Banumathy, S., & Manickam, S. (2004, June). Customer services provided by Life Insurance

Corporation of India- A case study. The Insurance Times , 30-33.

Change Agents. (2008, October 19). Business Today .

Comrey, A. L., & Lee, H. B. (1992). A first course in factor analysis (2nd Edition ed.). Hillsdale,

NJ: Erlbaum.

Cummins, J. D., & Doherty, N. A. (2005). The Economics of Insurance Intermediaries. Wharton

School, University of Pennsylvania.

Cummins, J. D., & Doherty, N. A. (2005). The Economics of Insurance Intermediaries. Wharton

School, University of Pennsylvania.

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Cummins, J. D., & Doherty, N. A. (2006). The Economics of Insurance Intermediaries. Journal

of Risk & Insurance , 73: 359-396.

Darby, M. R., & Karni, E. (1973). Free Competition and the Optimal Amount of Fraud. Journal

of Law and Economics , 16: 67-88.

Eckardt, M. (2007). Insurance Intermediation: An Economic Analysis of the Information

Services Market. (Berlin, Heidelberg: Physica-Verlag) .

Eckardt, M., & Doppner, S. R. (2008). The Quality of Insurance Intermediary Services –

Empirical Evidence for Germany. Andrássy Working Paper Series No. XXV . Andrássy Gyula

University, Budapest.

Fleming, John D; President Fleming Advisor International. (2008). The plight of Face to Face

Insurance Distribution. LIMRA's MarketFacts Quarterly , 27 (3), pg 64.

Gummarra, L. T. (2008). Reason for coexistance of diffrent distribution channels: An Empirical

test for the German Insurance Market. The Geneva Papers on Risk and Insurance- Issues and

Practice , 389-407.

Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate Data Analysis

(5th Edition ed.). New Jersey: Prentice-Hall.

Hirshleifer, J. (1973). Where are we in Theory of Information? American Economic Review , 63:

31-39.

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and ownership structure. Journal of Financial Economics , 3, 305-60.

Kaiser, H. F. (1970). A second generation little jiffy. Psychometrica , 35,401-415.

Lowry, J. R., Avila, S. M., & Baird, T. R. (1999, Summer ). Developing a Niching Strategy for

Insurance Agents. CPCU Journal , 74-83.

Machiraju, A. (2003, March). Training Life Agents to Serve. IRDA Journal , 22-24.

Machiraju, A. (2004, December). A Noble Pro Called An Agent. IRDA Journal , 21-24.

Naga Raja Rao, P. (2004, January). Distribution Channels in Insurance Industry -New Trends.

Bima Vidya , 15-18.

Nelson, P. (1970). Information and Consumer Behavior. Journal of Political Economy , 78:

311-329.

Posey, L. L., & Tennyson, S. (1998). The Coexistence of Distribution Systems Under Price

Search: Theory and Some Evidence from Insurance. Journal of Economic Behavior and

Organization , 35: 95-115.

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Posey, L. L., & Yavas, A. (1995). A Search Model of Marketing Systems in Property-Liability

Insurance. Journal of Risk and Insurance , 62: 666-689.

Rajagopalan, V. (2008). Lapsation of Life Insurance Policies. IRDA Journal , 8-12

Rose, F. (1999). The Economics, Concept, and Design of Information Intermediaries.

(Heidelberg:Physica Verlag).

Seog, S. H. (1999). The Coexistence of Distribution Systems When Consumers Are Not

Informed. The Geneva Papers on Risk and Insurance Theory , 24: 173-192.

Seog, S. H. (2005). Distribution Systems and Operating Leverage. Asia-Pacific Journal of Risk

and Insurance , 1: 45-61.

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Singhvi, N., & Bhatt, P. (2008). Distribution Channesl in Life Isurance. Bimaquest , VIII (1),

20-40.

Varma, V. (2004, July-December). Insurance Broking In India : Scope Challenges and Prospects.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

A CONCEPTUAL FRAMEWORK OF EMPLOYEES’ CONTINUANCE

INTENTION TO USE E-LEARNING SYSTEM

DR. A. THIRUCHELVI*; S. KOTEESWARI**

*Faculty,

Department of Management Studies,

CEG Campus, Anna University,

Chennai, India.

**Student,

Department of Management Studies,

CEG Campus, Anna University,

Chennai, India.

ABSTRACT

We are now in an era where all organizations are orienting themselves towards

strategic human resource management initiatives. One such an initiative is the use of

Virtual Learning Environment (VLE) that enables the organizations to offer

consistent and convenient training to their employees at low cost. The investments

made in implementing VLE can have fruitful returns only when there is continuous

usage by the employees which is determined by satisfaction derived from it. Though

many studies have attempted to test the relationship between perceived usefulness,

perceived ease of use, self efficacy, learning style, technical know-how, interaction

with instructor & interaction with other learners and the e- learner satisfaction, no

study has holistically tested the relationship. This paper tries to fill the gap by

proposing a single conceptual framework depicting the relationship between all such

employee related variables and e-learning satisfaction which in turn influences the

continuance intention to use. The proposed framework will help organizations in

formulating strategies to enhance employees’ satisfaction towards e-learning and

thereby increasing their intention to use the e-learning system.

KEYWORDS: e Learning, e learner Satisfaction, continuance intention.

______________________________________________________________________________

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1 INTRODUCTION

The organizations consider training and improving the human resources as the crucial points of

development and put them on the top of their programs due to the rapid changes in technology

and knowledge raise (Hassan, Shahidi, Hosseini, & Nahad, 2011).The process of providing

consistent training to all employees spread across the world is a challenge for global firms. And

also the training and development department is highly responsible for returns on the

investments made in training the employees.

Information and Communication Technology (ICT) has become the saviour for

organisations to overcome these challenges. ICT has driven the evolution of e-learning as a

strategic initiative for training the employees (Schneckenberg, 2010). The number of e-learning

programs implemented in a corporate setting has increased dramatically over the last few years

and e-learning has become a major form of training and development within organizations (Ho &

Kuo, 2010).

There had been many research conducted on assessing success of e learning in

organisations. Though the initial acceptance of e learning is highly essential, real success can be

measured only with the continuance intentions among employees to undergo the courses through

e learning system. The Theory of Reasoned Action (TRA) and Theory of Planned Behaviour

(TPB) explain how attitudes of individuals lead to intentions. The Technology Acceptance

Model (TAM) applies TRA and TPB and explains how attitudes lead to actual usage of

information systems. The expectancy confirmation model says that satisfaction leads to

continuance intentions. Many works in the literature have used the above mentioned theories in e

learning context and have identified the measures of individual attitudes about e-learning system

resulting in satisfaction which in turn influences the continuance intention.

The purpose of this paper is to conceptualise a holistic model which brings together all

attributes that influences e learner satisfaction which leads to continuance intentions.

2 THEORETICAL DEVELOPMENT

2.1 E-LEARNING

E-Learning is the use of telecommunication technology to deliver information for education and

training (Sun, Tsa, Finger, Chen, & Yeh, 2008).

E-Learning systems include: web-based learning, computerized learning, virtual

classrooms, and digital cooperation. In an e-learning environment, learners are supplied with

learning materials via media, making e-learning systems a cost and time-effective approach to

train employees (Chen, 2010).

The shift from a product-based economy to a knowledge-based economy has resulted in

an increased demand for knowledge workers who are capable of higher-order thinking and

reasoning to solve intricate problems in the work place. There arises the need to build more cost-

effective and efficient learning environments in the workplace to meet both individual and

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organizational objectives. This requires organizations to educate and train employees at multiple

sites and times (Govindasamy, 2002).

Organizations are using technology to offer training programs for their employees due to

its beneficiary effects such as cost reduction in travel expenses and training time, flexibility in

pace and delivery of training, variety of available content, standardized and consistent course

delivery, permanent use of material within the company, boost worker productivity, increase in

number of people trained, stay competitive, etc (Ozturan & Kutlu, 2010).

2.2 ATTITUDES, SATISFACTION AND INTENTION

An attitude is a disposition to respond favourably or unfavourably to an object, person, intuition

or event. Attitudes are evaluative in nature. TRA argues that attitudes and subjective norms are

determinants of intention. TPB which is an extension of TRA depicts that there are three major

antecedents of intention towards behaviour. First is the attitude towards a behaviour, which is

determined by the beliefs about the consequences of the behaviour, termed as behavioural beliefs

and the evaluation of its outcome. Second is the subjective norm, which is determined by the

beliefs about approval or disapproval of performing the behaviour by social referents, termed as

normative beliefs and the individual’s motivation to comply with the referents. Third is the

perceived behavioural control, which is determined by the beliefs about the factors that facilitate

or obstructs the performance of the behaviour termed as control beliefs and the power of the

factor to assist or inhibit the performance of the behaviour (Ajzen, 2010).

The Expectancy Confirmation Theory (ECT) states that confirmations with expectations

about an object or event after experiencing it, results in satisfaction leading to continuance

intentions (Oliver, 1980). Thus combining the TPB and ECT it is inferred that behavioural belief

on outcome, evaluation of outcome, concerned normative belief, individual’s motivation, control

belief on resources and power to facilitate the behaviour influences satisfaction which in turn

influences continuance intention (Roca, Chiu, & Martinez, 2006).

2.3 CONTINUANCE INTENTION TO USE E-LEARNING SYSTEM

Organisations take great efforts to develop and implement e-learning program for their

employees. Although initial acceptance of e-learning is an important first step toward achieving

e-learning success, actual success still needs continued usage. Continuance intention is the

intention of employees to use the e learning system continuously after initial usage. Intentions

often predict behaviour. People do what they intend to do. To understand their behaviour we

must identify the determinants of intentions (Ajzen, 2010). Understanding the factors affecting

employees’ intention to continue using e-learning system helps in designing strategies that are

most likely to increase the use of e learning (Lee, 2010).

2.4 SATISFACTION ON E-LEARNING SYSTEM

The organizations should make sure that the employees are satisfied with e-learning courses,

only then they will have the intention to continually undergo more courses and also encourage

their peers to use e-learning setup. After taking up e learning courses employees should be glad

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about their decision and feel that the courses have satisfied their needs (Sun, Tsa, Finger, Chen,

& Yeh, 2008). Users’ satisfaction has a positive effect on e-learning continuance intention (Roca,

Chiu, & Martinez, 2006; Lee, 2010). Hence it is inferred that e- learner satisfaction influences

continuance intention to use e learning system.

Previous works in literature have measured e-learning success from many dimensions

like individual dimension, course dimension, technical dimension and environmental dimension,

of which individual dimension is the most important one, as the success of any system depends

on the user. Following independent variables are said to have influence on e-learning

satisfaction: perceived usefulness, perceived ease of use, self efficacy, learning style and

interaction. Apart from these variables motivation is proposed as an influential determinant of e-

learning satisfaction the framework.

2.5 PERCEIVED USEFULNESS

Davis (1989) has defined perceived usefulness as the degree to which a person believes that

using a particular system would enhance his/her job performance. Positive behavioural beliefs

help in deriving satisfaction resulting in positive intentions. The employees will be satisfied with

the e-learning system only if they perceive that it helps them to improve their job performance.

Realising that e-learning system increases their productivity and usefulness induces the

employees to derive satisfaction from it (Ong & Lai, 2006). Perceived usefulness while using the

e-learning system has a positive effect on satisfaction (Roca, Chiu, & Martinez, 2006; Lee, 2010;

Johnson, Hornik, & Salas, 2008). Hence it is inferred that perceived usefulness has influence on

e-learner satisfaction.

2.6 PERCEIVED EASE OF USE

Davis (1989) has defined perceived ease of use as the degree to which a person believes that

using a particular system would be free of physical and mental effort. Attitude towards behaviour

highly affects the level of satisfaction after performing the behaviour. Employees should believe

that the system is easily understandable and that they can easily get familiarized with the e

learning system which enables them to be satisfied with the e- learning system (Lee &

Lee, 2008).Perceived ease of use while using the e-learning system has a positive effect on

satisfaction (Roca, Chiu, & Martinez, 2006; Sun, Tsa, Finger, Chen, & Yeh, 2008). Hence it is

inferred that perceived ease of use has a role to play in e-learner satisfaction.

2.7 SELF EFFICACY

Roca (2006) has defined self efficacy as the degree to which an individual is confident that

he/she can perform a specific task or achieve a specific goal. Control beliefs of an individual

influences intentions through satisfaction. Employees should feel confident to use the e-learning

system. They should trust themselves that they have the ability to access and complete the

courses, only then they can gain satisfaction from the system. Perceived satisfaction in e-learning

will be influenced by the perceived self-efficacy (Liaw & Huang, 2013; Sun, Tsa, Finger, Chen,

& Yeh, 2008; Johnson, Hornik, & Salas, 2008). Hence it is inferred that Self Efficacy influences

the e-learner satisfaction noticeably.

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2.8 INTERACTION

Johnson (2008) has defined interaction as the exchange of information between the various

stakeholders in the course (e.g. peers, instructors, and other support staff). The e-learning system

should facilitate employees to share knowledge with other participants and encourage them to

get the doubts clarified from the course instructor, only then the employees can attain satisfaction

(Choi, Kim, & Kim, 2007).Learner perceived interaction with others will positively influence

perceived e-Learner satisfaction with e-Learning (Liaw & Huang, 2013; Sun, Tsa, Finger, Chen,

& Yeh, 2008; Johnson, Hornik, & Salas, 2008). Hence it is inferred that Interaction has

considerable influence on e-learner satisfaction.

2.9 LEARNING STYLE

For instructor based learning, learning style is irrelevant but for web based learning, learning

style is significantly important. Learners who learn through thinking and watching and thinking

would better learn with e-learning. There is statistically significant difference among those with

different learning styles (Lu, Yu & Liu, 2003). Hence it is inferred that learning style is an

inevitable factor on E-Learner Satisfaction. But many existing works do not include learning

style in the models that are used to judge whether employees are interested in the e-learning

system. This paper proposes a model for employees’ continuance intention to use e-learning

system that includes learning style as one of its parameters.

2.10 MOTIVATION

Motivation is defined as the process that accounts for an individual’s intensity, direction, and

persistence of effort toward attaining a goal. Motivation is a part of subjective norm which

greatly influences intention through satisfaction. Porter Lawler theory of motivation (1968)

explains the process of how employee motivation helps in attaining satisfaction in workplace. In

the flow of motivation process it is well explained that extrinsic and intrinsic rewards help an

individual to attain satisfaction. Hence this paper includes motivation as a major parameter in the

model of employees’ continuance intention to use e-learning system. E-learner satisfaction is

influenced by their level of motivation with rewards as their drive. Self motivation drives

employees to have a strong desire to take-up the e-learning courses. When employees are given

rewards like credit points for the e-learning courses, their satisfaction level will be enhanced.

Hence it is inferred that motivation as an additional parameter helps to improve e-learner

satisfaction.

2.11 THE CONCEPTUAL MODEL

A framework of employees’ continuance intention to use e-learning system is conceptualized as

shown in figure 1. This framework gives a holistic view of how perceived usefulness, perceives

ease of use, self efficacy, interaction, learning style and motivation influences the satisfaction

derived from e-learning which in turn influences intention to use the e-learning system. The

major contribution of this paper is that the independent variables – learning style and motivation

are included to study about employees’ satisfaction and continuance intention towards e-learning

systems used in the organisations.

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FIGURE 1. THE CONCEPTUAL FRAMEWORK OF EMPLOYEES’ CONTINUANCE

INTENTION TO USE E-LEARNING SYSTEM

3 CONCLUSION

To improve the continuance intention to use e-learning system among employees all factors that

have influence on e-learning satisfaction should be considered. Employees should be made to

perceive that E-Learning will be useful for improving their performance. They should also be

made to perceive that the system can be used without much effort. Organization should give

them the confidence that they can successfully learn from the system. Interaction among

employees and with instructor should be facilitated. Learning Style of employees should be

oriented towards field independence. Motivation of employees to undergo e-learning courses

should be seriously considered to improve e-learning satisfaction.

To reap the fruits of E-Learning, organizations should concentrate on all the employee

attributes as mentioned in the framework.

REFERENCES

Ajzen, I. (2010). Attitudes, personality and behaviour. Tata McGraw Hill education private

limited.

Chen, H.J. (2010). Linking employees’ e-learning system use to their overall job outcomes:

An empirical study based on the IS success model. Computers & Education, 55, 1628-1639.

Choi, D.H., Kim, J., & Kim, S.H. (2007). ERP training with a web-based electronic learning

system: The flow theory perspective. Int. J. Human-Computer Studies 65, 223–243.

E- Learning satisfaction

Learning style

Interaction

Self efficacy

Perceived ease of use

Perceived usefulness

Motivation

Intention to use

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Govindasamy, T. (2002). Successful implementation of E-Learning: Pedagogical considerations.

Internet and Higher Education 4, 287–299.

Hassan, M., Shahidi, M.R., Hosseini., & Nahad, R.F. (2011). Classroom Training rather than

ETraining Effectiveness for Promotion Managerial Skills in Iran: A Comparative

Study.International Conference on E business, Management and Economics IPEDR vol.3.

Ho, L.A., & Kuo,T.S. (2010). How can one amplify the effect of e-learning? An examinationof

high-tech employees’ computer attitude and flow experience. Computers in Human Behavior 26,

23–31.

Johnson, R.D., Hornik,S., & Salas,E. (2008). An empirical examination of factors contributingto

the creation of successful e-learning environments. Int. J. Human-Computer Studies 66,

356–369.

Lee, J.K., & Lee, W.K. (2008). The relationship of e-Learner’s self-regulatory efficacy

andperception of e Learning environmental quality. Computers in Human Behavior 24, 32–47.

Lee, M.C. (2010). Explaining and predicting users’ continuance intention toward e-learning:

An extension of the expectation–confirmation model. Computers & Education 54, 506-516.

Liaw, S.S., & Huang, H.M. (2013). Perceived satisfaction, perceived usefulness and

interactivelearning environments as predictors to self-regulation in e-learning environments.

Computer & Education 60, 14–24.

Lu, J., Yu,C.S., & Liu, C. (2003). Learning style, learning patterns, and learning performance in

a WebCT-based MIS course. Information & Management 40, 497–507.

Oliver, R.L. (1980). A Cognitive Model of the Antecedents and Consequences of Satisfaction

Decisions. Journal of Marketing Research, 17, No. 4, 460-469.

Ong, C.S., & Lai, J.Y. (2006). Gender differences in perceptions and relationships among

dominants of e learning acceptance. Computers in Human Behavior, 22, 816–829.

Ozturan, M., & Kutlu, B. (2010). Employee satisfaction of corporate e-training programs.

Procedia Social and Behavioral Sciences 2, 5561–5565.

Rocaa, J.C., Chiu, C.M., & Martinez, F.J. (2006). Understanding e-learning continuance

intention: An extension of the Technology Acceptance Model. Int. J. Human Computer

Studies 64, 683–696.

Schneckenberg, D. (2010). Overcoming barriers for eLearning in universities—portfolio models

for e Competence development of faculty. British Journal of Educational Technology 41 No.6,

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Sun, P.C., Tsai, R.J., Finger, G., Chen, Y.Y., & Yeh, D. (2008). What drives a successful

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

PERFORMANCE OF INDEX FUNDS IN INDIA

DR. (MRS.) PRASHANTA ATHMA*; MS. B. MAMATHA**

*Professor,

Department of Commerce,

Osmania University,

Hyderabad, A.P., India.

**Research Scholar,

Department of Commerce,

Osmania University,

Hyderabad, A.P., India.

ABSTRACT

Mutual Fund is a trust that pools money from a group of investors (sharing common

financial goals) and invest the money thus collected into asset classes that match the

stated investment objectives of the scheme. Index Funds (IFs) focuses on the

performance of specific stock indices, as opposed to other types of ETFs that are

based on oil or other commodities. Index funds spread the risk factor over the entire

index, As such; large institutional investors like pension funds as well as older

individual investors who are looking to reduce the risk in their portfolios often find

Index Funds a preferable alternative to buying stock of individual companies.

The study is based on secondary data covering a period of 14 years for Index Funds

i.e. 1999 to 2012 to reflect upon the growth of Index Funds over a period of time

since their inception.

The parameters for evaluating the performance are Net Asset Value, standard

deviation, Return, Beta, Reward to Variability (Sharpe) and Treynors Performance

Evaluation Ratio. The statistical tools like Standard Deviation, Beta, Sharpe Ratio,

and Treynors Ratio are used for data analysis.

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INTRODUCTION

Mutual Fund is a trust that pools money from a group of investors (sharing common financial

goals) and invest the money thus collected into asset classes that match the stated investment

objectives of the scheme.

The Fund Manager manages the Mutual Fund and uses his investment management skills and

necessary research works and ensures much better return than what an investor can manage on

his own. The capital appreciation and other incomes earned from these investments are passed on

to the investors (also known as unit holders) in proportion to the number of units an investor

owns.

Mutual Fund was introduced in the year 1963 in India. From an historical point of view, Mutual

Funds have been around four hundred years, but they are a relatively new investment

phenomenon to the novice investors. Mutual Funds are a conglomeration of stocks, bonds,

securities and even real estate, put together by a smart Fund Manager who hand-picks winners

for a winning combination.

INDEX FUND

An Index Fund is a Mutual Fund that aims to replicate the movements of an index of a specific

financial market. An Index Fund follows a passive investing strategy called Indexing. It involves

tracking an index say for example, the Sensex or the Nifty and builds a portfolio with the same

stocks in the same proportions as the index. The Fund makes no effort to beat the index and in

fact it merely tries to earn the same return. Index Funds, an instrument of Mutual Fund, came in

to existence in India in the year 1998.

REVIEW OF LITERATURE

Philippe Jorion (2003)1 in his article explored the risk and return relationship of active portfolios

subject to a constraint on tracking-error volatility (TEV), which can also be interpreted in terms

of value at risk. Such a constrained portfolio is the typical setup for active managers who are

given the task of beating a benchmark. The problem with this setup is that the portfolio manager

pays no attention to total portfolio risk, which results in seriously inefficient portfolios unless

some additional constraints are imposed. The study reflected that TEV-constrained portfolios are

described by an ellipse on the traditional mean–variance plane. This finding yields a number of

new insights. Because of the flat shape of this ellipse, adding a constraint on total portfolio

volatility can substantially improve the performance of the active portfolio. In general, plan

sponsors should concentrate on controlling total portfolio risk.

Manuel Ammann, Stephan Kessler and Jurg Tobler (2006)2 stated that for investors, it is

important to know what trading strategies an asset manager pursues to generate excess returns. In

this paper, they proposed an alternative approach for analyzing trading strategies used in active

investing. They used tracking error variance (TEV) as a measure of activity

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Benchmark Funds Asset Management Company(2008)3 research department did research in

early 2008 on the topic of “Myth of Eternal Alpha” It has often been argued that individual

active fund managers are consistently able to exploit anomalies and aberrations that may exist in

the market and while considering out performance/ under performance one should look at longer

periods.

J. Christopher Hughen, Prem G. Mathew (2009)4 “The efficiency of international information

flow: Evidence from the ETF and CEF prices” stated that closed-end funds (CEFs) and

exchange-traded funds (ETFs) differ in their liquidity and ease of arbitrage. We compare their

price transmission dynamics using a sample of funds that invest in foreign securities and are

most likely to show the deficiencies in the manner in which they process information. Our

analysis shows that ETF returns are more closely related to their portfolio returns than are CEF

returns. However, both fund types under react to portfolio returns but overreact to domestic stock

market returns. A simple trading strategy using these results is profitable with roundtrip trading

costs less than 1.38% for CEFs and 0.71% for ETFs.

Sangheon Shin, Gökçe Soydemir (2010)5 “ Exchange- Traded Funds, persistence in tracking

errors and information dissemination” stated that tracking errors from 26 exchange-traded funds

(ETFs) utilizing three different methods and test their relative performance using Jensen's model.

We find that tracking errors are significantly different from zero and display persistence. Based

on Jensen's alpha, risk adjusted returns are significantly inferior to benchmark returns for all

ETFs with two exceptions at conventional significance levels revealing that passive investment

strategy does not outperform market returns. We then examine the degree to which frequently

used factors such as expense ratio, dividends, exchange rate and spreads of trading prices may be

underlying sources of tracking errors causing this underperformance.

RESEARCH GAP

The above review of literature points out that the studies are based on tracking errors, risk

returns, price Transmission etc. Though the Index Funds came in to existence in 1988 in US, and

growth over a period of time is not reflected. Hence, the study is undertaken to reflect upon the

growth of Index Funds over a period of time since their inception and evaluate its performance in

terms of risk and return.

OBJECTIVES OF THE STUDY

The objectives of the study are

To present the trends and progress of Index Funds in India and

To evaluate the performance of Index Funds in India.

SOURCES OF DATA

The study is based on secondary data. The Secondary data sources include Fact sheets of Mutual

Funds, Articles, News papers, SEBI Manuals, AMFI Reports and Websites.

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PERIOD OF THE STUDY

The study covers a period of 14 years from 1999 to 2012 i.e. since their inception to study the

trends and evaluate the performance.

SAMPLE SIZE

There are 44 Index Funds in India. Data with regard to all the parameters selected for the

evaluation of performance are available only for 23 Index funds which were operating between

the period of 1999 – 2012. Hence, the study is made only for 23 Index Funds.

PARAMETERS

The parameters for evaluating the performance are Net Asset Value, standard deviation, Return,

Beta, Reward to Variability (Sharpe) and Treynors performance evaluation Ratio.

STATISTICAL TECHNIQUES

The data are analyzed with the help of statistical tools like Standard Deviation, Sharpe Ratio,

Treynors Ratio and Beta.

GROWTH OF INDEX FUNDS

The growth of Index Funds in terms of the number of Funds and NAV is given in Table-1.

Starting with 1 Index Fund in the year 1999 viz., Principal Index Funds the number of IFs

increased to 24 by the end of the year 2012 registering a CAGR of 25.48%.The awareness and

popularity of the Mutual Fund Schemes is reflected in the addition of 20 more Mutual Funds

Schemes in the year 2013 in addition to the existing 24 schemes, which is a welcome sign. The

same is provided in Table -2.

TABLE-2 NEWLY INTRODUCED MUTUAL FUND SCHEMES DURING 2013

S.No Name of the Fund Launch Date

1 FRANKLIN INDIA INDEX BSE SENSEX DIRECT Jan 2013

2 FRANKLIN INDIA INDEX NSE NIFTY DIRECT Jan 2013

3 HDFC INDEX NIFTY DIRECT Jan 2013

4 HDFC INDEX SENSEX DIRECT Jan 2013

5 ICICI PRUDENTIAL INDEX DIRECT Jan 2013

6 ICICI PRUDENTIAL NIFTY JUNIOR INDEX DIRECT Jan 2013

7 IDBI NIFTY INDEX DIRECT Jan 2013

8 IDBI NIFTY JUNIOR INDEX DIRECT Jan 2013

9 IIFL DIVIDEND OPPORTUITIES INDEX DIRECT Jan 2013

10 LIC NOMURA MF INDEX NIFTY DIRECT Jan 2013

11 LIC NOMURA MF INDEX SENSE X DIRECT Jan 2013

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12 PRINCIPAL INDEX DIRECT Jan 2013

13 RELIANCE INDEX NIFTY DIRECT Jan 2013

14 RELIANCE INDEX SENSEX DIRECT Jan 2013

15 TATA INDEX NIFTY PLAN A DIRECT Jan 2013

16 TATA INDEX SENSEX PLAN A DIRECT Jan 2013

17 UTI NIFTY INDEX DIRECT Jan 2013

18 CANARA ROBACCA NIFTY INDEX DIRECT Jan 2013

19 GOLDMAN SACHS S&P 500 INDEX FUND DIRECT Jan 2013

20 BIRLA SUN LIFE INDEX DIRECT Jan 2013

Source: www.valueresearch.com

Net Asset Value (NAV) is a term used to describe the value of an entity’s assets less the value of

its liabilities. The term is most commonly used in relation to Mutual Funds due to the fact that

shares of such funds are redeemed at their Net Asset Value. It may represent the value of the

total equity, or it may be divided by the number of shares outstanding and, thereby, represent the

per share Net Asset value.

NAV as per IRDA is calculated as follows:

NAV = (Market Value of the Investment held by the Fund + Value of Current Assets-Value of

Current Liabilities and provisions) /Number of units existing on valuation date (before creation

/redemption of units)

The Table-1 shows NAV per share over a period of time for the various IFs .The overall CAGR

during the period is 42.42%. It can be observed that the Principal Index Fund and Birla Sun Life

Index Fund have a growth rate more than the overall growth rate. It is Birla Sun Life IFs which

Rank 1st with a CAGR of 84.56% followed by Principal IFs with 80.93%, TATA Index Sensex

Plan –A with 16.37% and HDFC sensex Index Fund with 15.99%.

The last five ranks were scored by Taurus Nifty, Reliance Index nifty, Quantum Index Fund,

Reliance Index Sensex and GOLDMAN SACHS S&P 500 Index Fund. Out of these 5 IFs,

excepting Quantum Index Fund, GOLDMAN SACHS S&P 500 Index Fund all other IFs are just

2 years old. Though HDFC Index Nifty .Franklin India Index BSE Sensex, Franklin India Index

NSE Sensex IFs entered early in IF Market, their ranks are in the middle order viz., 11,12,13

respectively reflecting upon the fact that it is not the age of the Fund but their efficiency level

that yields better results.

ANNUAL RETURNS OF INDEX FUNDS

One of the parameters for the evaluation of the IFs is the annual returns, which is presented in

Table-4. The Fund is rank based on the average returns which is the simple average of the returns

over a period of time. Higher the ratio better the performance of the Fund compare to the Other

IFs.

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On the basis of average returns, TATA Index Sensex PLAN A occupied the Rank 1st with a

average return of 23.92% followed by HDFC Index Fund with 23.81%, SBI MAGNUM Index

Fund with 21.64%, LIC NOMURA MF INDEX Fund with 19.50%, TATA Index Fund with

19.24%

RISK ANALYSIS OF INDEX FUNDS

The variability in the returns is called as risk and the same is measured with the help of Standard

Deviation and Beta. Standard deviation is a measure of the deviation in the returns of the Fund.

A volatile stock would have a high standard deviation. It tells us how much the return on a Fund

is deviating from the expected returns based on its historical performance.

The below tables give the details relating to Standard deviation, Sharpe ratio, Beta and Treynors

Ratio.

TABLE – 4 RISK ANALYSIS OF INDEX FUNDS

S.No.

Name of the Fund

Standard

Dev (%)

Sharpe

Ratio (%) Beta

Treynors

Ratio (%)

1 Principal Index 34.14 15.78 (12) 0.59 1.81(11)

2 Birla Sun Life Index 39.01 14.82 (14) 0.51 -1.37( 12)

3 Franklin India Index Bse Sensex 48.66 11.73 ( 17) 0.27 -19.46(17)

4 Franklin India Index Nse Nifty 41.05 16.59 ( 8 ) 0.65 3.82(13)

5 HDFC Index Nifty 41.58 18.00 ( 6 ) 0.76 7.13(8)

6 UTI Nifty Index 39.03 17.87 ( 10 ) 0.75 6.85(9)

7 HDFC Index Sensex 40.53 23.61 ( 2 ) 1.20 16.78(4)

8 ICICI Prudential Index Reg 25.46 13.41 ( 19 ) 0.29 -15.74(17)

9 LIC Nomura Mf Index Nifty 34.56 15.79 ( 11 ) 0.41 -4.538 (-15)

10 LIC Nomura Mf Index Sensex 39.28 19.29 ( 4 ) 0.59 5.38( 10)

11 SBI Magnum Index 39.24 21.43 ( 3 ) 0.71 9.82( 6)

12 Tata Index Nifty Plan A 36.39 19.02 ( 5 ) 0.80 8.79( 7)

13 Tata Index Sensex Plan A 37.83 23.70 ( 1) 1.15 16.63( 5)

14 Canara Robecca Nifty Index Reg 38.94 14.60 ( 16 ) 0.43 -4.40( 14)

15 Quantum Index 49.01 10.98 ( 20 ) 0.18 -35.47( 21)

16 Goldman Sachs S&P 500 Index Fund 54.48 4.11 ( 23 ) -0.29 32.56( 3)

17 ICICI Prudential Nifty Junior Index 22.3 8.36 ( 21 ) -0.03 238.49( 1)

18 IDBI Nifty Index 22.36 6.03 ( 22) 0.25 -26.42( 19)

19 IDBI Nifty Junior Index 13.39 15.78 ( 12 ) 0.17 -40.40( 22)

20 Reliance Index Nifty 18.89 14.82 ( 14 ) 0.43 -14.60( 16)

21 Reliance Index Sensex 0.249 11.73 ( 17 ) -0.09 101.41( 2)

22 Tauras Nifty Index 23.55 16.59 ( 8 ) 0.23 -28.96( 20)

23 IDFC Nifty Index Fund 20.80 18.00 ( 6 ) 0.09 -85.28( 23 )

Source: www.valueresearch.com

Note: IIFL Dividend Opportunity Index is not taken for analysis as it is only one year old.

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Figures in Parentheses indicate ranking.

STANDARD DEVIATION

It is found that among the Index Funds, Goldman Sachs S&P 500 Index Fund is having the

highest risk i.e. 54.581 per cent and Reliance Index Sensex has the lowest risk i.e. 0.2489 per

cent.

SHARPE RATIO

It shows the return to variability. Higher the ratio better would be the performance of the Fund in

terms of the returns for the risk taken. It is found that all the Index Funds are showing a positive

Sharpe ratio justifying the risk taken for earning a return,

TREYNORS RATIO

While Sharpe Ratio takes σ in the denominator, Treynors Ratio considers β as the denominator.

While total risk is considered in Sharpe Ratio, only systematic risk (β) is considered in Treynors

Ratio. A higher Ratio of Treynors indicates better performance compared to the other funds. On

the basis of ranking according to Treynors Ratio, ICICI Prudential Nifty Junior Index occupied

Rank 1st with 238.49 % followed by Reliance Index Fund with 101.41%, Goldman Sachs S&P

500 Index Fund with 32.56%, HDFC with 16.78%, and TATA Index Fund with 16.63 %.

A note worthy feature is that all the three Funds VIZ., ICICI Prudential Index Reg, Quantum

Index and Reliance Index Fund ranked the first three positions respectively which have showed

in negative Beta.

BETA VALUE

Beta measures the systematic risk and explains the nature of the volatility of the security return

with that of the market return. If beta values are less than one, it means that Funds risk is less

than the market risk; if it is one, it means the Funds risk is same as that of the market risk and if

the beta is more than one, the risk of the Funds is greater than that of the market. The beta value

can be less than zero, means the stock is losing money while the market is gaining.

We can find Beta with more than 1 in case of HDFC Index Fund and TATA Index Fund

implying higher risk in these Funds compared to market risk. In case of Goldman Sachs S&P

500 Index Fund, ICICI Prudential Nifty Junior Index and Reliance Index Fund, Beta is negative

indicating that the stocks are losing while the market is gaining, and rest of the Funds are having

a risk lower than the market risk as their Beta is less than 1.

CONCLUSION

Mutual Funds are a conglomeration of stocks, bonds, securities and even real estate, put together

by a smart Fund Manager who hand-picks winners for a winning combination. An Index Fund is

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a Mutual Fund that aims to replicate the movements of an index of a specific financial market.

An Index Fund follows a passive investing strategy called Indexing.

The study is undertaken to reflect upon the growth of Index Funds over a period of time since

their inception and evaluate its performance in terms of risk and return. The parameters for

evaluating the performance are Net Asset Value, standard deviation, Return, Beta, Reward to

Variability (Sharpe) and Treynor’s Performance Evaluation Ratio. The data are analyzed with

the help of statistical tools like Standard Deviation, Sharpe Ratio, Treynors Ratio and Beta.

Starting with 1 Index Fund in the year 1999, the number of IFs increased to 24 by the end of the

year 2012 registering a CAGR of 25.48%. The awareness and popularity of the Mutual Fund

Schemes is reflected in the addition of 20 more Mutual Funds Schemes in the year 2013 in

addition to the existing 24 schemes, which is a welcome sign.

The overall CAGR for NAV during the period is 42.42%. The age of the Fund and the growth in

NAV are not related but their efficiency level that yields better results. It is found that among the

Index Funds, GOLDMAN SACHS S&P 500 INDEX FUND is having the highest risk i.e.

54.581 per cent and RELIANCE INDEX SENSEX has the lowest risk i.e. 0.2489 per cent. All

the Index Funds are showing a positive Sharpe ratio justifying the risk taken for earning a return;

We can find Beta with more than 1 in case of HDFC Index Fund and TATA Index Fund

implying higher risk in these Funds compared to market risk. In case of GOLDMAN SACHS

S&P 500 INDEX FUND, ICICI PRUDENTIAL NIFTY JUNIOR INDEX and Reliance Index

Fund Beta is negative indicating that the stocks are losing while the market is gaining, rest of the

Funds are having a risk lower than the market risk as their Beta is less than 1.

KEYWORDS

MF-Mutual Funds

IFs-Index Funds

NAV-Net Assets Value

REFERENCES

1. Philippe Jorion, ―Portfolio Optimization with Tracking-Error Constraints‖, Financial

Analysts Journal, September/October 2003, pp-70-82.

2. Joel T. Harper, Jeff Madura and Oliver Schnusenberg “Performance comparison between

exchange-traded funds and closed-end country funds” (2006)

3. Benchmark Funds Research Department “Myth of Ethernal Alpha” (2008), by

Benchmark Mutual Funds

4. J. Christopher Hughen, Prem G. Mathew “The efficiency of international information

flow: Evidence from the ETF and CEF prices” (2009)

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5. Shin, Sangheon and Soydemir, Gokce, “Exchange-Traded Funds, Persistence in Tracking

Errors and Information Dissemination” (2010). Journal of Multinational Financial

Management, Vol. 20, Nos. 4-5

WEBSITES

1. www.mutualfundsindia.com

2. www.etftrends.com

3. www.indexfunds.com

4. www.moneycontrol.com

5. www.valueresearch.com

6. www.bseindia.com

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

DEMOGRAPHIC DIFFERENCES & SHOPPING BEHAVIOR OF INDIAN

MIDDLE INCOME GROUP USERS WITH DEBIT CARDS:

AN EMPIRICAL ANALYSIS

VIVEK KUMAR TRIPATHI*; TANU MARWAH**

*Assistant Professor,

Department of Business Studies,

Hindustan College of Science & Technology,

Mathura, India.

**Assistant Professor,

Department of Business Studies,

Hindustan College of Science & Technology,

Mathura, India.

ABSTRACT

With the advancement of technology and need towards better service provision

plastic money in form of cards- debit or credit cards are becoming common now a

days. These tools of purchase management are reaching into wallet of nearly all. As

a result companies are also eying to leverage the cards benefits as shopping /

purchase facilitator. As with the emerging equalities of men and women and their

equal and balanced role in shaping up the society, both the genders establish quite

active response patterns with respect to debit/credit card spending and use.

According to the survey of Reserve Bank of India (RBI) more card holders have

reduced the number of cards in their wallet and consolidated spending with a single

card in 2011.The proportion of single card holders has grown most in India in 2011

at 90 per cent. The second was the Philippines with 84 per cent, followed by

Malaysia (80 per cent). The use of cards is perceived differently by various

consumer classes. Women might be bigger spenders than men, but they use their

debit cards less frequently, says a survey by the RBI published in business today. The

present study explores various behavioural aspects associated with two broad

consumer classes Men and Women belonging to middle income group of tier II cities

towards this tool.

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KEYWORDS: service provision, purchase facilitator, middle income group, tier II

cities.

____________________________________________________________________________

INTRODUCTION

Shopping is now an integral activity of today’s individual. As market goes on progressing with

the development of various avenues- merchandise stores, hyper and supermarkets, shopping

Malls and moreover emergence of e shopping destinations shopping as a necessary activity has

been replaced with the concept of enjoyment. Todays generation is becoming more and more

expense oriented as compared to the older concept of saving orientation of Indian consumers. To

facilitate the purpose of shopping marketers are always eying on various offerings that can

stimulate the purchase process, change the purchase orientation and facilitate purchase and

shopping behaviour. This can range from – opening outlets near population, heavy sales

promotion, customised service and products offerings and so on. One such major development is

the development of plastic money Debit cards. A debit card provides electronic access to ones

financial accounts any time and with much ease and convenience. Earlier model suggests use of

cash only if one wishes to purchase anything. Thus is a restricting condition and thus impulse

purchasing was much reduced. Emergence of cards thus removes this barrier of cash balance at

any point of shopping and offers more access to cash in electronic formats and thus purchase and

shopping intentions. Freedom of dispensing cash and access any time model provokes various

shopping intentions. Here Debit cards came into existence as an suitable option to shoppers. To

further lure the buyers of positive shopping intention various other tools were also introduced

viz. credit card offering cash affordability even if actual cash balance is declining or negative at a

certain point.

Statistics released by the Reserve Bank of India (RBI) in Jan2012 shows a clear shift in the use

of plastic money. Indians, especially those who are not big spenders, are increasingly using

credit cards for debit cards. Data shows that the number of debit cards issued by banks was ten

times higher than credit cards. Over the past five years, debit card usage both in terms of number

of transactions and growth in value has outstripped credit card spending by a huge margin.

According to new research report, “Indian Payment Card Market Forecast to 2012”, the number

of payment cards, categorized as credit and debit cards, is increasing rapidly in India .The

research found that credit card market have been showing tremendous growth performance and

emerged as a potential investment area for players of credit market. According to the data of

capital Mind, india has witnessed rapid and significant growth in terms of number and volume of

credit and Debit cards over a period of time. The graph below represents the use of debit and

credit cards by Indian users. Debit card is more in use as compared to credit card and there are

various contributing factors towards the popularisation of debit card.

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Source- Secondary,Capital Mind

While analysing trends on the data furnished by RBI shows increasing trend towards use of debit

card which can be attributed to various actors viz. Consumer demographics, lifestyle orientation

of consumers, market development and encashing upon these factors banks also liberalised in

provisions for getting a debit card as a value added service to there customers and hence

facilitating sales through cards by increasing swapping machines and ATM installations at

multiple merchandisers.

USAGE OF DEBIT CARDS

Card Payments

Year/ Period No. of outstanding cards Number Amount

mn. bn.

2003-04 -- 37.76 48.74

2004-05 -- 41.53 53.61

2005-06 49.76 45.69 58.97

2006-07 74.98 60.18 81.72

2007-08 102.44 88.31 125.21

2008-09 137.43 127.65 185.47

2009-10 181.97 170.17 264.18

2010-11 227.84 237.06 386.91

Total (up to Jan 2012) 268 268.8 443.89

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# Card Payments figures pertain only to Point of Sale (POS) transactions.

* Debit Cards figures for 2003-04 and 2004-05 are estimated based on 2005-06 figures.

** Cards issued by banks (excluding those withdrawn/blocked).

(Source: Secondary, Reserve bank of India)

The present study tries to understand various variables / factors that influence the choice of use

of cards- credit and debit cards taking into consideration two prominent demographic factors-

Gender and income group which is restricted towards rising Middle Income Group.

LITERATURE REVIEW

The usage of any product is determined by various factors and personality variables are one

prominent factor in choice and selection and usage behaviour of a product/service. In Recent

years several changes in market has happened with emergence of new markets/ products and

emerging role of females in personal and social decision making. Better education penetration ,

changing social orientation, rise of working and independent female segment has allowed

females to be more independent in there choice of purchase decision making starting from choice

of low investment product to expensive purchases. As a result it is imperative to understand

purchase behaviour individually towards different product categories. Philip Kotler mentioned-

“if you want to influence your customer you will have to understand your customer first”.

Several studies have been undertaken at various parts of globe to understand demographic

influences on purchase decisions. In line of this payment mode is also crucial in understanding

buyers choice .Today there are various payment options available to shoppers such as –cash,

credit card, debit card, shopping cards. Plastic money is increasingly replacing cash as payment

option at Point of Sale (POS). But the use of these Modern payment tools is highly subjective.

To understand demographic patterns in the adoption of payment methods, several studies have

been undertaken. Kennickell and Kwast (1997), Stavins (2001) and Zinman (2005) find that

newer technologies such as electronic banking and bill payment or debit cards are used most

frequently by younger, better-educated individuals. Carow and Staten (1999) specifically

examine debit card use early in its diffusion, while Rysman (2004) focuses on the role of

demographics in consumers’ choice of credit card brands; Hayashi and Klee (2003) examine

consumer adoption of debit cards as well as direct deposit and electronic bill payment. Also,

Jonker (2005) and Loix, Pepermans and Van Hove (2005) also worked on analysing adoption

process of payment methods.

Using cash is convenient because it is accepted almost everywhere (with the notable exception of

online retailers), but carrying large amounts of cash entails both a substantial opportunity cost

and a physical risk of being the target of crime. Credit cards, while costly from the perspective of

payees (as noted above), offer consumers many advantages. A substantial period of float, limited

liability in the case of theft or loss, dispute resolution assistance, consolidation of bill payment,

itemized bills, and the ability to borrow are just Some of the standard features of most bank

issued debit cards. These cards are accepted at the same locations where credit cards are

accepted. The major advantages of the debit card are that it normally doubles as an ATM card,

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thus allowing the consumer to carry one less card, and it also allows the user to receive cash back

after purchases are made when used in combination with a personal identification number.

Like credit cards, debit cards also offer consolidated billing/record keeping and ease of telephone

and Internet based transactions. Drawbacks to the debit card include limited acceptance and the

loss of all float in the case of online debits and most float in the case of offline debits. One branch

of research has focused on the demographics of consumers who choose to use electronic rather

than more traditional methods of payment. Mantel (2000) finds that use of electronic payments in

general is positively related to income, wealth, and age. Kennickell and Kwast (1997) show that

those who use debit cards are younger, have higher levels of education. There are some key

differences in the findings of Mantel (2000) and those of Kennickell and Kwast (1997). For

example, Mantel’s (2000) education result differs from that of Kennickell and Kwast (1997).

Mantel (2000) argues that the education variable in his results was insignificant because of the

inclusion of other demographic variables that are closely related to level of education. On the

other hand, if one considers only debit cards, as in Kennickell and Kwast (1997), then it is

reasonable to see more use among younger people since they tend to adopt newer technologies

more quickly than older people.

Caskey and Sellon (1994) found that consumers do see debit cards as substitutes for cash and

checks, implying that small enticements could convince consumers to choose debit cards over

paper checks. They argue that the 30% growth in debit card usage between 1990 and 1993 was

most likely because of (1) the integration of the ATM networks that allow for the transfer of

funds and (2) the introduction of the VISA and MasterCard debit programs. They predicted that,

as the importance of network effects declined because of changes in technology and in the way

the banking industry did business, debit card usage would increase. Indeed, between 1993 and

1997 debit card usage grew at an average annual rate of 53.3%. Credit card usage grew at an

annual rate of only 7.8% during the same time period (Weiner, 1999). This rapid increase in

debit card usage has been attributed to consumers substituting debit for cash and check

purchases. It is clear why consumers might not see debit cards as a substitute for credit cards

(borrowing capacity), but aren’t credit cards a very close substitute for debit cards? If this were

the case, consumers should have already switched from cash and checks to credit cards and we

shouldn’t see such rapid growth in the use of debit cards. Studies have found that demographic

attributes are important determinants of consumer payment adoption (Stavins 2001, Mester 2003,

Bertaut and Haliassos 2006, Klee 2006, Zinman (2009). However, demographics leave a

substantial variation in payment behaviour unexplained. Schuh and Stavins (2010) found that

payment characteristics are significant in explaining consumer payment use. The present study

tries to further the understanding of consumer’s perception towards debit cards among particular

category- young Middle Income Group Indian consumers and tries to investigate Demographic

roles in selection of this payment method through use related behaviours.

RESEARCH METHODOLOGY

The study was conducted on Primary and Secondary data. Primary data is collected through tool

of Structured Questionnaire. Secondary data is collected by exploring the credential financial

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data from RBI and other banking portals. The sample size of the research is 50 respondents

which consist of different age, income and of different occupation.

The research tool used for analysis:

1. factor Analysis

2. Mean standard deviation Analysis

3. ANOVA-Table

RELIABILITY TEST

The value of cronbach alpha is 0.842 which shows the significant reliability status.

Total

% of

Variance

Cumulative

% Total

% of

Variance

Cumulative

% Total

% of

Variance

Cumulative

%

1 10.503 40.395 40.395 10.503 40.395 40.395 6.834 26.286 26.286

2 2.853 10.972 51.367 2.853 10.972 51.367 4.187 16.104 42.389

3 2.118 8.146 59.513 2.118 8.146 59.513 2.694 10.361 52.751

4 1.959 7.534 67.047 1.959 7.534 67.047 2.302 8.855 61.606

5 1.531 5.888 72.935 1.531 5.888 72.935 2.264 8.709 70.316

6 1.165 4.482 77.417 1.165 4.482 77.417 1.593 6.128 76.443

7 1.039 3.997 81.414 1.039 3.997 81.414 1.293 4.971 81.414

8 0.88 3.386 84.8

9 0.756 2.908 87.708

10 0.535 2.057 89.765

11 0.476 1.831 91.596

12 0.425 1.633 93.23

13 0.381 1.465 94.695

14 0.303 1.165 95.859

15 0.251 0.966 96.825

16 0.2 0.771 97.596

17 0.14 0.54 98.136

18 0.134 0.517 98.653

19 0.104 0.399 99.053

20 0.087 0.336 99.389

21 0.067 0.257 99.646

22 0.053 0.203 99.849

23 0.019 0.074 99.923

24 0.012 0.046 99.969

25 0.005 0.017 99.987

26 0.003 0.013 100

Total Variance Explained

Component

Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings

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The complete set of interdependent relationship is examined by using factor analysis tool.

A varimax rotation measure is used which yields results which make it as easy as possible to

identify each variable with a single factor. The value of extraction sum of squared loading is

81.414 which limit the factors no. to 7 which reduces overlapping and makes the study more

focused. Certain factors related to association of a card user towards debit cards for consideration

which can influence a particular prospective buyer or user towards use are identified. Further

these were common factors identified in past studies leading to diffusion of this tool of payment

in market.

FACTORS AFFECTING DIFFUSION

Ease of use against traditional payment methods

Convenience in payment

Time saving in transaction (retail payments)

Safety in transaction

FACTORS TO ASSESS ROLE ON INDIVIDUAL’S LIFE

Use is related to availability of outlets accepting cards as payment tool

Carrying Card is used as status option

Card is integrated into there lives as cell phones

Confidence and Reliability factors associated with card shopping

Gender

Mean

N

SD

Mean

N

SD

Mean

N

SD 1.2752 1.08722 1.43442 1.43839 1.2911

50 50 50 50 50

1.4658 1.15281 1.52315 1.55183 1.49775

2.92 3.04 2.94 3.18 2.92

50 50 50 50 50

1.05828 1.38541 1.43684 1.15703

Total

2.88 3.24 3.08 3.2 3.04

32 32 32 32

1.55413 1.13192 1.524 1.57475 1.48106 1.46154

32 32 32 32 32 32

2.75 2.8438 3.0938 2.875 3 2.625

0.8726 1.16175 1.55193 1.42457 1.38148

FEMALE

2.8125 3.4063 3 3.1875

18 18 18 18 18

1.32842 1.16175 1.55509 1.55509 1.42343

3.0556 2.9444 3.0556 3.5 3.4444

18 18 18 18 18

availability part of life confidence reliability

MALE

3 2.9444 3.2222 3.2222 3.5556

easy to use fear of loss convenience time saving safety in

transactionstatus

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To further understand Gender differences in debit card use behaviour. Some factors were taken

into consideration which has potential to restrict the use of card for multipurpose. The factors

are-

Card purchase leads to over purchases many times

Use is restricted since availability of use is not similar across all markets and

geographical areas

It acts as facilitator for e-shopping

Limited potential use of card because of awareness about other features and

Fear factor associated with card shopping.

Gender

over

purchase

Selective

outlet facilitator

Good

feeling Awareness

fear of

frauds

MALE Mean 2.6667 3.3333 3.8889 3.0000 2.3333 3.1111

N 18 18 18 18 18 18

SD .90749 1.32842 1.13183 1.23669 1.53393 1.32349

FEMALE Mean 2.3125 2.7813 2.7188 2.6563 2.9667 3.1000

N 32 32 32 32 30 30

SD 1.11984 1.06965 1.44209 1.28539 1.58622 1.02889

Total Mean 2.4400 2.9800 3.1400 2.7800 2.7292 3.1042

N 50 50 50 50 48 48

SD 1.05289 1.18649 1.44293 1.26636 1.58100 1.13437

The result shows an equal variation values in respect of over purchase of cards whereas male

shows high relation with the choice of outlet and high preference for using debit cards as a

facilitator for e-shopping with a feeling of goodness.

The female attitude towards all factors is uniformly distributed except they have fear of fraud

with high mean value of 3.1042.which shows lack of confidence while using debit cards.

Reliability is much less in female as compare to male behaviour related to use of debit cards.

ANNOVA is used to identify significance of Demographic profiles (age, income and profession)

of individuals. The data is analyzed converting them in to various factors .The f-value and their

relative significance value is generated. The dimension of Age, Income and Profession is

considered and relationship is developed with various factors. The results of analysis are as

follows:

There is a significant relationship of age parameter with availability factor.

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There is a significant relationship of the choice of outlet with the various income groups.

The business professionals use the withdrawal facility more as one of the use of debit cards.

The detailed analysis is done by using relative mean and standard deviation values. The below

table shows the result which measures the value of demographic profile with significant factor

mean values.

ANNOVA AND MEAN TABLES

Factors

Age Income Profession

F-value sig F-value sig F-value sig

bank familiarization 0.446 0.643 1.616 0.21 0.492 0.487

having own credit/debit card 0.589 0.559 2.061 0.139 1.559 0.218

use for shopping 0.16 0.853 5.223 0.009 2.71 0.106

use of card in past 1 month 0.16 0.011 1.305 0.281 6.526 0.014

no. of transactions by cards 5.007 0.037 1.512 0.232 7.319 0.01

bill payment 3.548 0.701 0.655 0.524 4.704 0.035

loan payment 0.358 0.014 0.689 0.507 4.57 0.038

withdrawal 4.666 0.115 0.904 0.412 0.007 0.933

fund transfer 2.266 0.412 1.749 0.185 9.546 0.003

e-shopping 0.905 0.062 0.572 0.568 0.735 0.396

easy to use 2.954 0.51 8.222 0.001 38.686 0

fear of loss 0.682 0.479 3.11 0.054 3.001 0.09

convenience 0.748 0.173 4.391 0.018 29.368 0

time saving 1.82 0.032 9.515 0 35.695 0

safety 3.71 0.411 5.513 0.007 33.495 0

status 0.906 0.346 6.108 0.004 14.167 0

availability 1.086 0.874 1.338 0.272 3.926 0.053

part of life 0.135 0.01 2.791 0.072 6.678 0.013

confidence 5.118 0.137 7.404 0.002 54.622 0

reliability 2.074 0.111 10.378 0 22.276 0

over purchase 2.303 0.127 6.96 0.002 10.152 0.003

select outlet 2.154 0.031 0.292 0.748 3.242 0.078

facilitator 3.74 0.109 2.381 0.103 24.374 0

good feeling 2.324 0.456 9.31 0 17.957 0

awareness 0.798 0.303 7.762 0.001 27.361 0

fear of fraud 1.227 0.235 3.112 0.054 1.06 0.309

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AGE AVAILABILITY

Under25 Mean 2.95

N 20

SD 0.99868

25-40 Mean 3.12

N 25

SD 1.20139

40-55 Mean 3

N 5

SD 1

Total Mean 3.04

N 50

SD 1.08722

INCOME AVAILABILITY

lower middle Mean 2.8333

N 12

SD 1.11464

middle middle Mean 2.9667

N 30

SD 1.18855

middle higher Mean 3.25

N 8

SD 1.38873

Total Mean 2.98

N 50

SD 1.18649

The mean value of 3.12 falls under the age 25-40 age group which shows that if availability of

debit cards acceptance increases then the use is most prominent under age group of21-40years

which is treated as young working class.

As per income group it shows that the availability of outlet as a dominating factor. It shows

that middle higher income group people are highly affected by the choice of outlet if things

are available at more outlet use of card for shopping will further increase. The mean value of

3.25 with standard deviation of 1.38 shows a significant importance of the factor.

As per profession the business professional use debit cards more for withdrawal purpose with

high mean values.

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CONCLUSION

The use related patterns are quite common in both the Genders except certain factors that are of

concern for Males and Females using Debit card as payment tool and shopping facilitator.

Though Females are considered as more shopping savvy but Debit card as shopping facilitator

has enhanced shopping of males more as compared to there counterparts. Further cards go on for

providing confidence in transactions as this is more reliable for shopping transactions. Electronic

payment gateways are more in use by males then females. This is attributed to there better

awareness towards cards and electronic fund management as awareness factor is found to be

more in case of Male.

Female has more of fear factor associated with transactions through debit card. This is majorly

because of lack of awareness of various use functions of a card apart from withdrawal from

ATMs.

Also because of different market structures use is not homogenously dispersed. Metropolitan

cities witness more use of cards as payment mode by Middle-Middle income groups then in tier

II cities of same group because of availability of outlets offering swapping machines. Thus use is

restricted in these areas although use can increase in this income group if number of outlets

offering swapping machines increase.

REFERENCES

[1] Ashish das, Rakhi Agarwal (2010). Cashless payment system in India- A roadmap. Technical

report

[2] Carow KA, Staten M E (1999). Debit, credit, or cash: survey evidence on gasoline purchases.

Journal of Economics and Business, 51, 210–224.

[3] Durkin TA (2000). Credit cards: use and consumer attitudes 1970–2000. Federal Reserve

Bulletin, 86,623–634.

[4] Evans DS, Schmalensee R (1999). Paying with plastic. Cambridge, MA: The MIT Press.

[5] Feinberg R A (1986). Credit card as spending facilitating stimuli: a conditioning

interpretation. Journal of Consumer Research, 13, 348–356.

[6] Gerdes G, Walton JK (2002). The use of checks and other non-cash payment instruments in

the United States. Federal Reserve Bulletin, August, 360–374.

[7] Greene WH (1997). Econometric Analysis (3rd ed.) New York, NY: Prentice Hall.

[8] Jonathan Zimman (2009). Debit or credit? Journal of banking& finance, 33(2), 358-366

[9] Jinkook lee, Fahzy Abdul Rahman MS, Hyungsoo kim (2007) Debit card usage: an

examination of its impact on household debt. Financial service Review 16, 73-87

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[10] Kennickell A B, Kwast M L (1997). Who uses electronic banking? Results from The 1995

Survey of Consumer Finance. Annual Meetings of the Western Economic Association, Seattle,

WA.

[11] King A S, King JT (2005). The decision between debit and credit: finance charges, float,

and fear. Financial Services Review, 14, 21–36.

[12] Mann R J (2002). Credit cards and debit cards in the United States and Japan. Monetary and

Economic Studies, 20, 123–159.

[13] Young Sik kim, Manjong Lee (2010) A model of debit card as a means of payment. Journal

of Economic Dynamics and control, 34(8), 1359 -1368

[14] Zinman J (2004). Why use debit instead of credit? Consumer choice in a trillion-dollar

market. Federal Reserve Bank of New York Staff Reports (191).

[15] Gerdes, G., & Walton, J. K. (2002). The use of checks and other non-cash payment

instruments in the United States. Federal Reserve Bulletin, August, 360 –374.

[16] Rook, D. W. (1987). The buying impulse. Journal of Consumer Research, 14, 189 –199

[17] www.rbi.org.in.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

INFORMAL WORKERS IN BANGLADESH:

AN ANALYSIS FROM SOCIO-ECONOMIC PERSPECTIVE

ABDUR RAZZAQUE SARKER*

International Centre for Diarrhoeal Disease Research, Bangladesh

Health Economics and Financing Research Group

JAHANGIR A.M. KHAN

International Centre for Diarrhoeal Disease Research, Bangladesh

Health Economics and Financing Research Group

Associate Professor

Karolinska Institutet, Sweden

.

ABSTRACT

Informal sector is a very important area of the economy for any developing country

like Bangladesh. Workers in informal sector employment in Bangladesh are mostly

in agriculture, hunting and forestry, wholesale and retail trade, manufacturing,

transport, storage and communication. The current study have explore the present

circumstances of informal workers, contribution, wage differentials and other aspect

of informal sectors’ workers along with that of formal sectors. The mean wage of

formal and informal workers is enormously different. In agriculture sector informal

workers receive least wage but in financial intermediation they are drawing highest

among the informal workers. Since in Bangladesh informal workers are largely

dominates the labor market and constitute significant part of labor force concerned

authority should show much concern to improve their working condition, earnings,

job security and social security.

KEYWORDS: Informal worker, economy, Bangladesh.

____________________________________________________________________________

1. INTRODUCTION

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Informal sector is a one of the most dominated area of the economy for any developing country

like Bangladesh. The informal sector represents the dominant share of many sectors across the

country, especially in manufacturing, commerce, finance and agriculture both in urban and rural

areas. The volume of this sector is growing faster in Bangladesh. Alam (2012) defined the

characteristics of informal economy where is the absence of rights and social protection of the

workers. They living in extensive poverty; exploited, with no place to go for protection; lacking

access to basic social services; no basic safety conditions at work; holding little or no hope that

life can be better; struggling on a daily basis just to survive, they are street vendors, hotel

workers, wage laborers working in small enterprises on a regular, casual or contract basis; unpaid

workers including family workers and apprentices, home-workers, paid domestic workers and

more; and a smaller number are the owners of tiny enterprises.

The concept of total employment in the informal economy is used by the ILO (2012) to refer to

the sum of the jobs in the informal sector and the jobs in informal employment as employment in

the informal sector. The informal sector consists of unregistered and/or small unincorporated

private enterprises engaged in the production of goods or services for sale or barter. The

enterprises typically operate at a low level of organization, with little or no division between

labor and capital as factors of production and on a small scale.

Kith Hart’s (1973) introduced the terminology “informal sector”, based on a research in a low-

income neighborhood in Ghana. Hart proposed that the activities of informal sector be contrasted

with the ‘formal’ economy of government and organized capitalism as ‘informal income

opportunities’. Moreover, he suggested that the aggregate intersectoral relationship between the

two sources of employment might be of some significance for models of economic development

in the long run

2. BACKGROUND

Industrialization introduced in Bangladesh in the early 1960’s. After the independent in1971

government nationalized all the major industries and factories. Then from early 1980s Govt.

starts privatization and encourages private investment and started the privatization. As a result

informal sectors are opened in large scale and non-regular workers have been increasing as well

in both formal and informal sector. Informal sector workers (in agriculture and non-agriculture

sector) alone constitute 87% of total labor force and contributed 64% of Gross Domestic Product

of Bangladesh.

3. CHARACTERISTICS OF INFORMAL SECTOR

There are many debates about the definition and characteristics of the informal sector. Generally

two characteristics signifying to the informal activities, one is based on the labor intensive and

the other this sector avoid formal state supervision and regulation. As per Alam N (2002) defined

that these two characteristics combine to reduce substantially the input costs of goods and

services, thereby cheapening the price of the outputs. Long and strenuous hours contributed by

the individual owner, by unpaid kin and others, absence of state supervision and regulation,

greater ease in avoiding taxation, avoiding rigidities of labor legislation, rare payment of official

minimum wage and inadequate access to health insurance, unemployment compensation, and old

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age pension characterize the sector. According to ILO (2011) a matrix develops to explain the

employment in the informal economy. According this matrix informal jobs and formal jobs of

informal sector enterprises consist of the total persons employed in the informal sector. The

current study have explore the present circumstances of informal workers, contribution, wage

differentials and other aspect of informal sectors’ workers along with that of formal sectors.

3.1 PRESENT SITUATION OF INFORMAL WORKERS

In Bangladesh, informal workers become an important component of the whole economy. The

frontier of informal sector and the size of informal workers are increasing per year. In fiscal year

2002-03, total informal workers counted 35.1 million. After four years in 2005-06 informal

workers increased by closely two million. But in next four years quantity of informal workers

increased nearly ten million. In contribution of male and female worker, the male worker

increased only 5 million from 2002 to 2010. But the growth of female worker is quite prominent.

In 2010 the total number of informal female worker has been increased by exactly double rate

form the year 2002. The scenario is different in the case of formal female worker. This signifies

due to lower wage compare to formal sector (Table-3) male workers tend to work less in

informal sector and employment opportunity is created by employer for women workforce due to

cheap wage. The following table indicates employment opportunity has been increasing in

informal sector comparing formal sector which is offering unregulated, lower paid and risky job

to the workers.

TABLE 1: TOTAL INFORMAL WORKER VS. FORMAL WORKER (MILLION)

Sector Year

2002‐03 2005‐06 2010

Form

al

Sec

tor

Male 7.3 8.6 5.5

Female 2 1.6 1.3

Total 9.3 10.2 6.8

Info

rmal

Sec

tor

Male 27.2 27.5 32.4

Female 7.9 9.7 14.9

Total 35.1 37.2 47.3

Source: Bangladesh labor force survey 2002, 2006, & 2010

3.2 SECTOR WISE INFORMAL WORKERS

There is a tremendous gap between formal and informal workers employed different sub-sector

which indicates that job opportunity for informal sectors’ workers is much higher than formal

sectors’ workers. From the below table the information about total number of informal workers

per sector can be gathered along with that of formal sectors. In agricultural sector highest

(51.97%) amount of informal workers are engaged. After agriculture, wholesale, retail trade and

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repairs absorb highest number of informal workers although the proportion of formal workers is

nearly same. Table-2 flickered that formal workers are numerously involved in manufacturing,

public administration, defense, and education sector. Where involvement of informal workers is

very low, one of the reasons might be due to lack of merit and competency. Form the simulation

it is explored that total number of informal workers is nearly four crore (1 crore =10 million) and

the summation of formal workers are nearly half crore. These indicate a large opportunity to

work with different types of informal sub sectors.

TABLE 2: FORMAL AND INFORMAL WORKERS OF DIFFERENT SECTORS IN

BANGLADESH

Type of Worker

Type of Sector Formal Informal

Frequency Percentage Frequency Percentage

Agriculture, hunting and forestry 86,076 1.48 21,585,741 51.97

Fishing 41,368 0.71 1,053,834 2.54

Mining and quarrying 5,002 0.09 46,046 0.11

Manufacturing 1,554,892 26.72 3,669,243 8.83

Electricity, gas and water supply 45,516 0.78 30,967 0.07

Construction 80,665 1.39 1,443,677 3.48

Wholesale and retail trade, repairs, etc. 770,471 13.24 6,337,639 15.26

Hotels and restaurants 100,163 1.72 612,070 1.47

Transport, storage, and communications 433,156 7.44 3,542,741 8.53

Financial intermediation 411,954 7.08 95,082 0.23

Real estate, renting, and business

activities 66,708 1.15 171,896 0.41

Public administration and defense, social

security 714,916 12.29 166,818 0.4

Education 1,028,854 17.68 277,361 0.67

Health and social work 218,841 3.76 143,268 0.34

Other community, social and personal

services 248,313 4.27 1,599,045 3.85

Private households with employed

persons 7,254 0.12 761,527 1.83

Others 4,434 0.08 1,054 0

Total 5,818,582 100 41,538,009 100

Source: Bangladesh Informal Sector Survey, 2010

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3.3 WAGE DIFFERENTIATION BETWEEN FORMAL AND INFORMAL SECTOR

Generally, wage differentiation exists in Bangladesh economy for various socio-economic

reasons. But wage differentiation between formal and informal workers is not discussed so to a

large extent because informal workers are not competent with formal sector in terms of

education, merit and social status as well as human capital. Form table 3, it can be seen that on

an average there are BDT 4,691. The wage gap is higher in electricity, gas & water supply,

construction, mining, transport & communication, health & social work, and others sectors.

Wage differentiation is found to have lower in agriculture, hunting & forestry, fishing,

manufacturing, private household and education.

TABLE 3: MEAN WEEKLY WAGES OF WORKERS IN BANGLADESH, BY NATURE

OF INDUSTRY, IN BDT (BANGLADESHI TAKA [1 BDT= 79 USD DURING 2010]

Industry Classification Formal Informal Difference

Agriculture, hunting and forestry 2,737.60 652.9 2,084.70

Fishing 2,535.30 890.7 1,644.60

Mining and quarrying 5,635.80 1,038.10 4,597.80

Manufacturing 3,881.60 1,419.40 2,462.30

Electricity, gas and water supply 8,467.90 2,472.80 5,995.10

Construction 7,278.50 942.3 6,336.20

Wholesale and retail trade, repairs, etc. 5,505.40 2,077.60 3,427.80

Hotels and restaurants 4,601.60 1,702.40 2,899.20

Transport, storage, and communications 6,026.70 1,622.10 4,404.60

Financial intermediation 9,693.30 6,047.40 3,645.90

Real estate, renting, and business activities 5,732.50 2,892.00 2,840.60

Public administration and defense, social security 6,882.00 3,997.20 2,884.90

Education 6,251.20 4,196.00 2,055.10

Health and social work 8,303.00 3,353.00 4,950.00

Other community, social and personal services 5,292.70 1,683.40 3,609.30

Private households with employed persons 2,109.20 971.9 1,137.20

Others 6,297.80 600 5,697.80

Average 5,880.20 1,189.10 4,691.10

Source: Dalisay, Sining, and Alei Rosario.2010. “Informal employment in Bangladesh”.

Highest wage gap found in construction sector between formal and informal workers which is

noted as BDT 6,336. In the branch of private household with employed persons is observed in

the lowest wage gap. We found that both formal and informal workers are receiving highest

mean weekly wage in financial intermediation sector. Highest percent (51.97%) of informal

workers are employed in agriculture sector but they are getting lowest weekly wage (652 tk.)

from this sector. This is only happen due to disguised unemployment and excess labor supply in

agriculture sector. Generally in most of the sector there is a healthy wage differentiation exists

between formal and inform workers which indicates higher living standard and social welfare of

formal workers and hand to mouth living status of informal workers.

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3.4 ECONOMIC CONTRIBUTION OF INFORMAL WORKERS

The importance of informal workers is significant in the economy of Bangladesh. According to

ADB (2009) 90 percent of informal workers don’t receive any other employment benefit (i.e.

bonus, provident fund, gratuity, transportation, dress, health care, telephone service, housing,

incentives) excluding free meal and lodging but their contribution is higher than formal workers

in different economic sector. The following table distributed the total share of different types of

informal sub sector in GDP. Here the contribution of formal workers is higher only in

manufacturing, transport & communication, public administration, and education sector

compared to informal workers. In aggregate the collective share of formal workers is 36.9% to

our GDP. The highest share of informal workers is observed in agriculture, construction,

wholesale and real state. In electricity, gas, and water supply, financial intermediation, and

Public administration and defense the share of informal workers is found to have zero. Besides,

the contribution to GDP by informal workers is calculated as 63.6% which is nearly double than

that of formal workers. Only in manufacturing sector the contribution of formal workers seems

to be high than informal workers. Here the contribution of informal workers in manufacturing

sector is 12.6% out of 17.6% share to the GDP.

Source: ADB, 2010

3. ONCLUDING REMARKS

It is found that Bangladeshi labor market is largely dominated by informal workforce. More than

85% of our labor force are counted as informal and their contribution is significant in the

productive activities of the economy as a whole (Maligalig 2010). Workers in informal sector

TABLE 4: CONTRIBUTION OF INFORMAL SECTOR AS A PERCENTAGE OF GDP

(%)

Type of sector Total share of GDP Sub- share of GDP

Formal Informal

Agriculture 16.6 1 15.7

Fishing 4.7 0.7 4

Mining and quarrying 1.2 0.8 0.4

Manufacturing 17.6 12.6 5

Electricity, gas and water supply 1.6 1.6 0

Construction 9.2 2.8 6.4

Wholesale and retail trade 14.2 1.4 12.4

Hotel and restaurants 0.7 0.5 0.2

Transport, storage and communication 9.9 7.4 2.5

Financial intermediation 1.7 1.7 0

Real estate, renting and business activities 7.6 0.5 7.2

Public administration and defense 2.8 2.8 0

Education 2.5 2.1 0.5

Health and social works 2.3 2 0.3

Community, social and personal service 7.1 0.7 6.4

Total 100 36.9 63.6

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employment are mostly in agriculture, hunting and forestry, wholesale and retail trade,

manufacturing, transport, storage and communication. The mean wage of formal and informal

workers is enormously different. In agriculture sector informal workers receive least wage but in

financial intermediation they are drawing highest among the informal workers. The total value

addition by informal workers is much higher than the wage they receive.

Government should amend and expand the labor law to ensure the workers’ right and regulate

the informal economy. Extension of small and medium entrepreneur, set up agro procession

zone, promoting agro based industry, needful training, vocational and skill development institute

can help to increase formal employment opportunity and it will reduce informal work. Since

informal workers are largely dominates the labor market and constitute significant part of labor

force concerned authority should show much concern to improve their working condition,

earnings, job security and social security.

REFERENCE (S)

Alam N (2012). “A Socio-economic Study of Informal Sector Workers of Dhaka City”,

Bangladesh e-Journal of Sociology. Volume 9, Number 2. 2012

Bangladesh Bureau of Statistics (2010) Government of the People's Republic of Bangladesh,

“Bangladesh Labor force Survey”, 2005-06 .

Bangladesh Bureau of Statistics (2010) Government of the People's Republic of Bangladesh,

“Statistical Yearbook 2010”, Dhaka, Bangladesh

Dalisay, SM., Sining, C and Rosario, A. (2009) “Informal Employment in Bangladesh”, ADB

Economics Working Paper Series No. 155.

Hart, K. 1973. Informal income opportunities and urban employment in Ghana. Journal of

Modern African Studies 11, 61–89

Hossain M. (2010) “Informal workers and Non-Regular Work: Bangladesh Perspective”,

Ministry of Labour and Employment, Bangladesh Secretariat. retrieve from www.adbi.org/conf-

seminar/3566.non.regular.workers.bangladesh/

ILO - Department of Statistics (2012). Statistical update on employment in the informal

economy. Available: http://laborsta.ilo.org/informal_economy_E.html

Informal Employment in Bangladesh. ADB Economics Working Paper Series (Number 155).

URL: http://www.adb.org/Documents/Working-Papers/2009/Economics-WP155.pdf

Maligalig, D. & Barcenas, M.(2008). “Examining Bangladesh’s Integrated Multi-Purpose

Sample Design.” Paper presented at the Inception Mission to Bangladesh for RETA 6430:

Measuring the Informal Sector, 14–18 September, Bangladesh Resident Mission, Asian

Development Bank, Dhaka.

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Roy, Diponkor (2012) “Women in rural areas, women’s employment in informal sector and

unpaid work” paper presented at Global Forum on Gender Statistics, Jordan, 27-29 March 2012.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

IMPACT OF CREATIVE ADVERTISING STRATEGIES ON DOCTORS

BY MEDICAL REPRESENTATIVES FOR PHARMACEUTICAL

PRODUCTS

DR. P. T. CHAUDHARI*; ABHIJEET HARIDAS GAHUKAR**

*Head,

Department of Commerce,

M J College,

Jalgaon.

**Research Student,

Akola.

ABSTRACT

Pharmaceutical industry is the second largest industry in India. In this era of market

competition advertising is the most important component of the marketing

communication. Pharmaceutical industry spending worldwide now exceeds 350

billion dollar per year on advertising which help to create and place our self strong

in the market. In the entire moment toward final action of purchasing starting from

awareness- knowledge- purchase, awareness which form a cognitive part of buying

is brought about by various forms of advertisements. Business of the pharmaceutical

industry is mostly depending upon the creative advertising and effective use of it by a

Medical Representative which positively strikes the sales. Advertisement is any paid

form of non-personal presentation and promotion of ideas, goods or services by an

identified sponsor. Marketing department of the pharmaceutical industry draft the

creative advertising strategies by using the promotional materials hence the impact

of the advertisement on doctors for prescribing particular product is revealed in this

research. Advertising is a key area of marketing keeping this in mind advertising

decision is of crucial importance. An advertising strategy is a campaign developed to

communicate ideas about products and services to potential consumers in the hopes

of convincing them to buy those products and services. This strategy, when built in a

rational and intelligent manner, will reflect other business considerations (overall

budget, brand recognition efforts) and objectives (public image enhancement, market

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share growth) as well. Hence by considering the present scenario this paper

discusses the impact of creative advertising strategies adopt by a Medical

Representative.

KEYWORDS: Creative Strategies, strikes, sales, sponsor.

______________________________________________________________________________

INTRODUCTION

Advertising is the most important component of the marketing communication. “Advertising is

telling and selling.” From this pithy statement we can summed up the importance of advertising.

Through an advertisement the advertiser intends to spread his ideas about his product/offerings

among his customer and prospect popularization of the products is the basic aim of advertising

activity. Advertising, a form of commercial mass communication designed to promote the scale

of product or services, or a message on behalf of an institution, organization or candidate for

political office. Advertising can be divided into two broader categories.

A) CONSUMER ADVERTISING: Directed at public.

B) TRADE ADVERTISING: Directed at wholesaler or distributors who resale to the public.

HOW DOES ADVERTISEMENT ATTRACT AND PERSUADE THE CONSUMER

The first requirement is that the advertisement should capture the attention of the target audience

in other words it has to get through the attention filter attention of the target audience to achieve

this, it has to provide the audience with information that is of interest to them. In this case the

advertising message should interest the audience it is essential that an advertisement provide

information that is of interest to the audience it is not enough if the audience listen to the

advertisement and interprets it, the way the advertiser or communicator expects is to be

interpreted it should also be appeal to the audience and influence their attitude, through process

and purchase behavior in favor of advertised offer. Factors in an advertisement that bring about

audience persuasion are-

a) The source or the endorser,

The creditability of source

Likeability/ Attractiveness of the source

The source approach to the views and disposition of audience

b) Message structure

c) Message strategies

d) Message appeal

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ADVERTISING STRATEGIES IN PHARMACEUTICAL INDUSTRY

Today, in pharmaceuticals most advertising strategies focus on achieving three general goals, as

1) promote awareness of a business and its product 2) stimulate sales directly and "attract

competitors' customers"; and 3) establish or modify a business' image. In other words,

advertising seeks to inform, persuade, and remind the consumer. With these aims in mind,

pharmaceutical industry follow a general process which ties advertising into the other

promotional efforts and overall marketing objectives of the business.

ELEMENTS OF CREATIVE ADVERTISING STRATEGY IN PHARMACEUTICAL

INDUSTRY

Medical Representative considered following elements of the advertising strategy: target

audience i.e. doctors, product concept, communication media, and advertising message. These

elements are at the core of an advertising strategy in pharmaceuticals, and are often referred to as

the "creative mix." Again, what most advertisers stress from the beginning is clear planning and

flexibility and key to these aims is creativity, and the ability to adapt to new market trends. A

rigid advertising strategy in pharmaceuticals often leads to a loss of market share. Therefore, the

core elements of the advertising strategy in pharmaceuticals need to mix in a way that allows the

message to envelope the target consumer, providing ample opportunity for this consumer to

become acquainted with the advertising message.

TARGET DOCTORS

The target consumer is a complex combination of persons. It includes the doctors who ultimately

prescribe the medicine, as well as those who decide what product will be prescribing (but don't

physically buy it). In order to identify the target consumer, and the forces acting upon any

purchasing decision of pharmaceutical products, it is important to define three general criteria in

relation to that consumer:

1. Demographics, age, gender, income, ethnicity, and hobbies.

2. Behaviors considering the doctor’s behavior, an advertiser need to examine the doctor’s

awareness about the medicine and its competition.

3. Needs and Desires, an advertiser must determine the doctor’s needs both in practical terms

and in terms of self-image, etc and the kind of pitch/message that will convince the doctor

that the advertiser's medicine can fulfill those needs.

PRODUCT CONCEPT

The product concept grows out of the guidelines established in the "positioning statement." How

the product is positioned within the market will dictate the kind of values the product represents,

and thus how the target consumer will receive that product. Therefore, it is important to

remember that no product is just itself, but, as Courtland L. Bovee and William F. Arens stated

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in Contemporary Advertising, a "bundle of values" that the consumer needs to be able to identify

with.

COMMUNICATION MEDIA

The communication media is the means by which the advertising message is transmitted to the

consumer. In addition to marketing objectives and budgetary restraints in pharmaceutical

industry, the characteristics of the target consumer i.e. doctors need to be considered as an

advertiser i.e. pharmaceutical company decides what media to use. The types of media categories

from which advertisers can choose include the following:

Magazines printed with medicine name.

Literatures with the name of medicine and branded inputs with medicine name.

Infomercials and reminders for example, pen with the brand name of medicine.

Visual aid i.e. folder of products

After deciding on the medium that is 1) financially in reach, 2) most likely to reach the target

audience, an advertiser needs to schedule the broadcasting of that advertising. The media

schedule, as defined by Hills, is "the combination of specific times (for example, by day, week,

and month) when advertisements are inserted into media vehicles and delivered to target

audiences."

ADVERTISING MESSAGE

An advertising message is guided by the "advertising or copy platform," which is a combination

of the marketing objectives, copy, art, and production values. This combination is best realized

after the target consumer has been analyzed, the product concept has been established, and the

media and vehicles have been chosen. At this point, the advertising message can be directed at a

very concrete audience to achieve very specific goals. Hiam and Schewe listed three major areas

that an advertiser should consider when endeavoring to develop an effective "advertising

platform":

What are the product's unique features?

How do doctors evaluate the product? What is likely to persuade them to prescribe the

product?

How do competitors rank in the eyes of the doctors? Are there any weaknesses in their

positions? What are their strengths?

COPY

When composing advertising copy it is crucial to remember that the primary aim is to

communicate information about the business and its products. The "selling proposal" can act as a

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blueprint here, ensuring that the advertising fits the overall marketing objectives. Many

companies utilize a theme or a slogan as the centerpiece of such efforts, emphasizing major

attributes of the business's products or services in the process of pharmaceutical industry.

When writing the copy, direct language (saying exactly what you mean in a positive, rather than

negative manner) has been shown to be the most effective. So for an advertiser trying to get

attention in a world awash in advertising images, it makes sense to try this message-in-an-eye-

blink route to the public consciousnesses it for a sales slogan or even a product name."

The copy content needs to be clearly written, following conventional grammatical guidelines. Of

course, effective headings allow the reader to get a sense of the advertisement's central theme

without having to read much of the copy.

ART, WORK AND LAYOUT

Pharmaceutical companies also need to consider the visual rhetoric of the advertisement, which

simply means that the entire advertisement, including blank space, should have meaning and

logic. Most industry experts recommend that advertisers use short paragraphs, lists, and catchy

illustrations and graphics to break up and supplement the text and make the document both

visually inviting and easy to understand. Remember, an advertisement has to capture the doctor’s

attention quickly.

RESEARCH OBJECTIVE

The objectives are as follows:

1) To study the impact of different creative advertising strategy of pharmaceutical products

on prescribing behavior of doctors.

2) To find out elements of advertising strategy that influence doctors to prescribe a

particular medicine or brand.

HYPOTHESIS

For the proposed research work, hypothesizes, which have been formulated are as stated below:

1) HYPOTHESIS ONE

Ho: Creative advertising strategies used by Medical Representatives on doctors have

impact on the prescribing behaviour of medicine.

H1: Creative advertising strategies used by Medical Representatives on doctors do

not have impact on the prescribing behaviour of medicine.

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2) HYPOTHESIS TWO

Ho: Medical representatives not using the proper creative advertising strategies

elements because of that there is no proper impact of it on doctor and decreases sales.

H1: The elements of creative advertising strategies and their intensity used properly

by Medical representatives’ increases the sales of the medicines of a particular

company.

RESEARCH METHODOLOGY

For this study, research methodology will be presented in the context of research design, data

sources, tools of the data collection, sampling.

A. RESEARCH DESIGN

A research design appropriate for a proposed research problem, will involve the consideration

of the following factors.

1. The means of obtaining information.

2. The availability and skills of the researcher.

3. The objectives of the problems to be studied.

4. The nature of the problem to be studied.

5. The availability of time and money for the research work.

Thus, the research design in case of the proposed study is a comparative design throwing

light on all points narrated above and will be prepared keeping in view the objectives of the

study and resources available. The said design can be appropriately referred to as a survey design

since it takes into account all the steps involved in a survey concerning a phenomenon to be

studied.

B) SOURCES OF DATA COLLECTION

SECONDARY DATA: It means data that already exist or available. It refers to data that

have already been collected and analyzed by someone else.

For this various books written by prominent authors, articles / documents published in

various national and international journals are used.

PRIMARY DATA: Primary data will be collected by survey and through interviews of the

respondents.

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TOOLS AND TECHNIQUES: Structured questionnaire will be drafted to collect the opinion;

views of the respondents. Questionnaire for this purpose will be design keeping in mind the

objectives of the research. Satisfaction variables will be measured through fill-in-the-blank

questions as well as five- point liker scale responses.

Questionnaires will be prepared to collect primary data from the following categories of

informants.

1) Medical Representatives of reputed company and registered in MRA (Medical

Representative Association).

2) Registered Doctors in IMA (Indian Medical Association).

C) SAMPLING: Sampling design begin by specifying the target population.

I) UNIVERSE: The target population is Medical representatives and doctors .

II) SAMPLING ELEMENTS: It is the object about which or from which the information is

desired for the study. Respondents are a Registered Medical Representatives of Pharmaceutical

Companies, and a registered doctor and a registered pharmacist. The age of the respondents

ranged between 20-40 years and they all belonged to middle or upper middle strata of the

society.

III) SAMPLING UNIT: It is an element or a unit containing the element, which is available for

selection at some stage of the sampling process. Registered Medical Representatives of

Pharmaceutical Companies, and a registered doctor and a registered pharmacist and some

patients will be sampling unit for the proposed study.

IV) SAMPLING TECHNIQUES: To select the sample from the universe Purposive Random

Technique will be used.

SAMPLE SIZE: The proposed research study is an in depth study focused on studying the

IMPACT OF CREATIVE ADVERTISING STRATEGIES ON DOCTORS BY MEDICAL

REPRESENTATIVE FOR PHARMACEUTICAL PRODUCTS So vast efforts are required to

get the information about the study if large proportion of the Universe is selected. Sample size of

50 respondents is selected considering the efforts possible to make by researcher during the

stipulated period of research.

RESPONDENTS (50)

1) Medical Representatives of reputed company and registered in MRA(Medical

Representative Association) -25

2) Registered Doctors of in IMA(Indian Medical Association)-25

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CONCLUSION

1) The finding of this research indicates that, creative advertising strategies used by a

Medical Representatives have impact on doctors prescribing behavior of pharmaceutical

products.

2) Medical Representatives used the different creative advertising inputs to attract doctors

for example, table top with brand name, paper weight, costly pen having brand name of a

medicine so that when doctor write the prescription he can remember the name of the

brand which doctor have to prescribe.

3) It is found that almost all the respondents look upon creative advertising strategies of

Medical Representatives and attract towards it and prescribed medicines of the advertised

pharmaceutical company.

4) Medical representatives experienced that doctors having very less time for a call but their

creative advertising strategies really works. Product concept and advertising message this

are the two creative advertising strategies widely accepted by doctors.

5) Doctors look upon creative advertising strategies used by a Medical Representative

which have impact on them for prescribing behavior of pharmaceutical products and

literatures having the total information of the product hence it is most widely accepted

input by doctors.

6) Product content, brand name, product qualities are very important content and price and

easy availability are important content of creative advertising strategies. Advertisement

by a medical representative is the important information source which influence to

prescribe a particular brand of medicine

REFERENCES

FROM BOOKS, TEXT BOOKS, AUDIO ETC.

1. S. Batra “Advertising Management”

2 M.N. Mishra. “Advertising Management”

3. Clow Back: Integrated Advertising , Promotion And Marketing Communication

publisher- Pearson Education (Third Edition)

4. Philip Kotler , Kevin Lane Keller : “Marketing Management” Publisher- Pearson

Education (Twelfth Edition)

JOURNALS AND MAGAZINES

1. Tim Ambler - Honorary Senior Research Fellow in Marketing - London Business School,

International Journal For Advertising.

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2. Dayna M. Porter,Grand Valley State University, Direct-to-Consumer (DTC)

Pharmaceutical Marketing: Impacts and Policy Implications.

3. Emerald, International Journal For Pharmaceutical Marketing and Management.

4. Informa Healthcare, Journal of Pharmaceutical Marketing and Management, issue 65.

5. Journal of Advertising Research, Vol. 52, No. 4, 2012.

6. Hanif M. Lakdawala, Latest Trends in A Pharmaceutical Marketing and Promotion.

7. J.H.Phillips, Journal of pharmaceutical marketing & management. 3(4):51-63.

FROM WEBSITE LINKAGES

1. Advertising Strategy of Pharma-(www.googlebook.com),

2. Pharmaceutical advertising (www.wikipedia.com)

3. Pharmaceuticals marketing (www.scholarworks.gvsu.edu.co.in),

4. E-Notes on advertising (www.enotes.com/advertising-strategy-reference/advertising-

strategy)

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ANNEXURE

QUESTIONAIRE (FOR MEDICAL REPRESENTATIVES)

ABHIJEET H. GAHUKAR

Dear Sir/ Madam,

I am student of PhD in Sant Gadge Baba Amravati University, Amravati, undertaken a research

project as entitled IMPACT OF CREATIVE ADVERTISING STRATEGIES ON DOCTORS

BY MEDICAL REPRESENTATIVE FOR PHARMACEUTICAL PRODUCTS The information

collected from you will be kept strictly confidential and shall be use for academic purpose only.

Thanking you,

Abhijeet Haridas Gahukar

1. Name :-

2. Address :-

3. Age :-

4. Gender :- a) Male b) Female

5. Is creative advertising strategies used by you have impact on doctors prescribing behavior

of pharmaceutical products?

a) Yes b) No

6. Which information sources influence doctor for changing prescribing behavior?

a) Branded Inputs b) Books with brand name

c) Literatures d) Other (Specify)

7. Doctor having very less time for your call. Is your creative advertising strategy really

works?

a) Yes b) No

8. Which creative strategy is most widely accepted by doctors?

a) Product concept b) Communication media,

c) Advertising message d) Art and Work Layout

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QUESTIONAIRE (FOR DOCTORS)

ABHIJEET H. GAHUKAR

Dear Sir/ Madam,

I am student of PhD in Sant Gadge Baba Amravati University, Amravati, undertaken a research

project as entitled IMPACT OF CREATIVE ADVERTISING STRATEGIES ON DOCTORS

BY MEDICAL REPRESENTATIVE FOR PHARMACEUTICAL PRODUCTS The information

collected from you will be kept strictly confidential and shall be use for academic purpose only.

Thanking you,

Abhijeet Haridas Gahukar

1. Name :-

2. Address :-

3. Age :-

4. Gender :- a) Male b) Female

5. Have you look upon creative advertising strategies used by a Medical Representative

which have impact on your prescribing behavior of pharmaceutical products?

a) Yes b) No

6. Which inputs mostly attract you while Medical Representative advertises their products?

a) Branded Inputs b) Books with brand name

c) Literatures d) Other (Specify)

7. While selecting a particular brands of pharmaceutical products which following factor

you consider most? Please tick.

Factors Very

Important

Important Slightly

Important

a. Product Contents

b. Brand Name

c. Product quality

d. Price

e. Easy availability

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8. Which information sources influence you to prescribe a particular brand of medicine?

a) Advertisement b) Campaign

c) Friends or Colleagues d) Other (Specify)

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM: A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

PROFITABILITY IN INLAND FISHERY SECTOR –

A CASE STUDY IN THE DISTRICT OF MIDNAPORE (EAST & WEST)

DR. PRADIP KUMAR DASH*

*Associate Professor & Head,

Department of Commerce,

Vivekananda Mission Mahavidyalaya,

Chaitanyapur, Purba Medinipur.

ABSTRACT

Inland water resource is such a source, which is yet to be properly utilized by the

rural people. If the water bodies, private or public, are fully utilized to cultivate

fishes adopting scientific fish culture, it may provide huge money in the hands of the

rural people throughout the year as fish has a good market round the year in our

country and abroad. It may be noted that all sizes of ponds generate much higher

return on investment, indicating that the fish farming is one most profitable

operation. Through the types of work involved in fish cultivation, the rural people

generate extra income by way of the opportunity cost of notional wages of family

labour. As the demand of fish remains throughout the year, the fish culture is also

continued throughout the year for which the scope of employment in this sector is

never reduced. In this paper, an attempt has been made to evaluate and analyse, with

the help of relevant data and information from various Govt. institutions and field

survey, the performance of fish farmers adopting either the scientific culture or

traditional fish culture.

____________________________________________________________________________

INTRODUCTION

India is a large producer of inland fish, ranking next only to Japan. With an abundance of

freshwater resource, India has still not been able to tap even 30% of the potential area for inland

fish production. Out of the total inland fish production, more than 60% is contributed by fish

culture in ponds and reservoirs. Fish culture is adopted by all kinds of farmers – small and

marginal ones, relatively larger farmers, and those who do it on commercial scale. Ponds can be

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perennial or seasonal. Seasonal ponds can be used for short-term fish culture provided they retain

water for at least four to five months; perennial ponds are, however, suited for fish culture on a

larger scale. The main advantage that gives fish culture its unique place, is the fact that pond-

raised fishes are of a desired species, of a known quality, and of a known number.

The landing of fishes from the cultivated pond is under complete control and can be supplied to

the market, taking advantage of the demand positions there anytime. As there remains the

demand for inland fishes throughout the year, culture of fish alone can help regulate price line of

inland fish in the market. Fish culture may be practiced on economic and commercial

considerations. Profit is the residual income of the proprietor and profitability is the ready index

of economic worth of his proprietorship. Profit motive induces an entrepreneur to come into a

business but it is the profitability that stimulates his urge to remain there. In fact, the

attractiveness of a business lies with its profitability, although other factors like work conditions,

etc. may not be of less importance. The inland-fish produced in the district of Midnapore (East&

West – since Midnapore district has been divided into two – Midnapore East & Midnapore West)

in West Bengal is taken up for study as it is the largest producer of inland fish in West Bengal.

The cultivated water area in Midnapore district (undivided) is about 11% of total cultivated water

area of West Bengal but Midnapore district (undivided) is so far the largest producer of inland

fish, as reported by Monitoring Evaluation & Marketing Statistics (MEMS), Dept. of Fisheries,

Govt. of West Bengal (vide Tables - I & II below).

TABLE-I PRODUCTION IN INLAND FISHERY SECTOR FIGURES ARE WEIGHTS

IN ‘000 TONES

Year

Midnapore W.B.

(Series 1) (Series 2)

2002-03 130.00 939.00

2001-02 139.00 915.00

2000-01 138.00 879.00

1999-2000 100.00 865.00

1998-99 86.01 824.00

1997-98 82.14 786.00

1996-97 79.96 760.00

1995-96 76.19 740.00

1994-95 69.00 669.00

1993-94 67.50 653.00

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TABLE – II DISTRICT WISE IMPOUNDED WATER AREAS IN WEST BENGAL

(IN HECTARES)

Sl. No. Sl.No Name of the District Culturable

1. Cooch-behar 1598.11

2. Jalpaiguri 386.36

3. Dinajpur (Uttar + Dakshin) 9678.66

4. Malda 2967.94

5. Birbhum 15260.62

6. Murshidabad 11161.76

7. Nadia 4579.56

8. Burdwan 20618.79

9. Howrah 4240.45

10. Hoogly 9224.22

11. 24 Parganas (N) 8641.45

12. 24 Parganas (S) 11237.79

13. Midnapore

(E+W) 21886.55

14. Bankura 17553.56

15. Darjeeling -

16. Purulia 50078.06

TOTAL 194113.88

Source: MEMS, Dept. of Fisheries, Govt. of West Bengal

OBJECTIVES OF THE STUDY

Based on the above discussion, the issues involved in the study i.e., the objectives of the present

study, for which we have undertaken this study, are summarized below:

i) To find out the profitability in cultivation of different types of inland fishes in

different size of ponds;

ii) To identify the involvement of the family laborers in the cultivation of Inland fish;

iii) To identify the adoption of different methods of cultivation of Inland Fish.

PERIOD OF THE STUDY

The present study relates to the period ranging from 1993 -1994 to 2005-2006. The secondary

data is collected for the period 1993-94 to 2002-2003 and primary data is collected during the

period 2003-2004 to 2005-2006.

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METHODOLOGY

Due to the unorganized nature of the subject under study, I have concentrated mainly upon the

analyses of data collected during the survey on different aspects of fishermen and fish farmers in

some selected areas of Midnapore district with the help of structured and unstructured

questionnaires. During our survey, both the stratified and random sampling methods have been

used at different stages of sample selection in the study area. I have divided the entire population

(320 fish-farmers) into four strata based on the area of cultivation and types of adopted fish

culture. I have also identified the fish farmers / fishermen at random (not statistically), on the

basis of a list provided by the FFDA, Midnapore and different Panchayat offices in the district.

TYPES OF FISH CULTIVATION

Fish culture is practiced in several ways depending upon several different aspects upon which the

emphasis is laid, singly or jointly, in a particular consideration. In this survey, I have considered

and analysed various fish cultures adopted by the fish farmers in the district on commercial basis.

The types of fish culture, generally adopted by the people in the district are as follows:

A. INDIAN MAJOR CARP: Under this culture, variety of Indian Major Carps i.e., Katla,

Rohu, Mrigala, Bata, etc. are cultivated in a pond.

B. INDIAN MAJOR CARP AND EXOTIC CARPS: Under this culture, variety of Indian

Major Carps i.e., Katla, Rohu , Mrigala , Bata, etc. and Exotic carps i.e., Silver carp, Grass carp,

Common carp, etc. are cultivated together. The ratio among the fishes that are cultivated in the

pond is not specific. Most of the owners of the ponds in villages, who do not follow the scientific

method of fish culture, adopt this type of culture. A modest yield, raised on the natural food,

nothing more than the natural production, is obtained in this culture.

D. COMPOSITE FISH CULTURE EXCLUDING PRAWN: Here, fingerlings of fast

compatible species of fishes with different feeding habits are employed. Indian Major carps and

Exotic carps are stocked together. It is the best-managed form of fish farming, in which fishes

are fed on artificial food and the pond is improved by use of fertilizers. In this culture, various

species are cultivated adopting the ideal ratio (Table-III).

C) COMPOSITE FISH CULTURE INCLUDING PRAWN: In this composite fish culture,

fresh water prawn is also cultivated with Indian Major Carp (IMC) and Exotic carps.

TABLE – III PERCENTAGE OF DIFFERENT SPECIES IN FISH CULTURE

Types of Fish 4 Species Combination (No.) 6 Species Combination (No.)

Catla 30 10

Rohu 15 15

Mrigal 30 20

Common Carp 25 20

Silver Carp - 25

Grass Carp - 10

Total 100 100

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ECONOMIC RETURN ON FISH CULTIVATION

In this study, Economic Return on fish culture has been measured considering various types of

costs like annual costs on pond preparation, fish seeds/fingerlings, supplementary feed, netting &

medicine, wages of hired labour, notional interest on working capital, notional rent on pond, and

imputed value of family labour. I have also calculated costs under various concepts like A1

(Total Direct cost), B (Cost as per concept A1 + Notional Interest on working capital + Notional

Rent of pond), and C (Cost as per concept B + Notional cost of family labour) and have

presented that in Table-VI. Under A1 concept, the various costs included are all actual expenses

incurred by the owner in cash and kind for production. The total returns are measured in the

following way:

a) Net profit = Total Returns – Total costs(C)

b) Percentage of Net profit on Total costs = (Net profit / Total costs) x 100

c) Return on Capital Employed = [(Average net profit + Average opportunity cost of

family labour) / Average Direct costs] x 100

d) Pure profit = Net profit + Notional expenses (i.e., Interest on working capital + Rent

on pond + Opportunity cost of family labour)

e) Extra Profit on Direct costs (A1) = (Notional expenses / Direct costs) x100

f) Input-Output ratio = Total Returns / Total Costs

CASE STUDY

I have prepared four tables to find out the Return on Investment compiling the available data on

survey of 320 fish farmers of the district (undivided). In preparing the said tables, I have

categorized the opinions of fish farmers in this survey, based on four types of fish culture i.e., i)

Culture of Major Carps, ii) Culture of Major Carps & Exotic Carps, iii) Composite Fish Culture

excluding Prawn, iv) Composite Fish Culture including Prawn and also based on area of ponds

like: i) Up to 1 hectare water area (Small Pond), ii) Above 1 hectare to 1.5 hectares (Medium

Pond), iii) Above 1.5 hectares to 2 hectares (Big Pond), and iv) Above 2 hectares (Large Pond).

Calculations have been made to compute Net profit and Percentage of Net profit on Total Costs

for various types under both the bases i.e., adopted fish culture and category of pond. A table

(Table-IV) presents the results on profitability in fish culture based on various water areas. With

the help of various data on costs, incomes, and ratios, profitability is computed and presented in

various forms like Return on Capital Employed, Pure profit, Extra Profit on Direct Costs and

Input-Output ratio. The data presented in Table V have been compiled from the tables prepared

on various types of fish culture i.e., i) Culture of Major Carps, ii) Culture of Major Carps &

Exotic Carps, iii) Composite Fish Culture excluding Prawn, iv) Composite Fish Culture

including Prawn. Averages of various costs and incomes based on area of ponds i.e. i) Up to 1

hectare water area, ii) Above 1 hectare to 1.5 hectares, iii) Above 1.5 hectares to 2 hectares, and

iv) Above 2 hectares have been computed. Though the analytical financial data are not available

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from all the fish farmers under this survey, I have tried to categorize them in a systematic way

according to the requirements. While preparing the tables, I have shown separately the notional

interest on average working capital, notional expenses for wages of family labours, and notional

rent on pond. The notional rent of pond per hectare per year is shown as Rs. 20000. The rent of

pond is not equal in all areas of the district, yet it is around the said figure of Rs. 20000.

Considering the rent on leased-in pond in various areas of the district and the opinions of sample

fish farmers in the district, the rent per hectare is considered to be Rs. 20000 at a flat rate. The

net profit has been calculated after taking into account the expenses on notional cost. I have also

prepared a table to show the pure profit which is calculated after subtracting the notional

expenses like notional rent on pond, interest on capital, and opportunity cost for wages of family

workers (Table-V). From Table-V, it is evident that the total cost for fish cultivation in small

pond is much higher than that in large pond (as per concept C); but the direct cost for fish

cultivation in small pond is much lower than that in larger pond. It indicates that the extra

expenditure on account of notional wages is actually the income in the hands of fish farmer. On

the basis of available data, I have tried to find out net profit on total cost, extra profit on direct

cost, and pure profit (deducting notional expenses) on four categories of ponds based on areas.

If we consider the FFDA (Fish Farmers Development Agency) schemes, where

composite fish culture is in operation, the economic return is 127 % (Scheme-1). In the scheme

where prawn is included in fish culture, the economic return is calculated to be 163 % on

investment due to high rate and demand of prawn (Scheme-2). In those schemes, labour cost is

not included, as it might have been thought that fish farmers and their family members would

have met the labour requirements. If we consider the labour cost (including notional wages of

family labour), which is estimated at about Rs. 50,000 calculated @ Rs.70/- per man-day, the

profit would have been lower by Rs. 50,000; at the same time if we take into account the revised

govt. rate of fish which is Rs.57 i.e., an increase of Rs.22 per kg. (Economic Review, 2002-2003)

as compared to the calculated rate in the above schemes, the income would be increased to

Rs.55000 such that the profit figure would not be so much affected in case of either of the

schemes.

So if a person cultivates fish in his pond, he may get fair return on his investment and

may also create employment opportunities not only to himself but also to other persons in the

society. Considering the earnings from notional wages of family labours and notional rent of

pond, a fish farmer, following the scientific method of fish culture in fish cultivation, earns more

profit on his investment with a minimum amount of risk. A fish farmer can also earn 100 %

profit on cost by cultivating prawn, which is measured at Rs.10, 000 in one Bigha (about 0.5

hectare ; as the total decimals for 1 Bigha varies in various parts of the district) of pond (as per

FFDA Report). It takes a period of 2½ to 3 months to make fries. So, in a pond, the cultivation of

fry may be operated 4 to 5 times a year.

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TABLE- IV STATEMENT SHOWING THE MARGIN OF PROFIT IN VARIOUS

METHODS OF FISH CULTURE

(MARGINS IN %)

Source: Compiled from Tables based on areas of ponds.

TABLE- V STATEMENT SHOWING PROFITABILITY IN FISH CULTURE (UNIT 1H)

Aver

ag

e

91741

91.1

2

57291

2865

20000

20370

43235

77.8

1

134975

198.2

9

1.9

1

Ab

ove

2 H

98869

102.5

6

65825

3291

20000

6815

30106

45.7

4

128975

160.5

5

2.0

3

Ab

ove

1.5

H

up

to

2H

94708

95.5

7

58850

2943

20000

16775

39718

67.4

9

134426

189.4

4

1.9

6

Ab

ove

1H

Up

to

1..5 H

89957

88.1

0

53850

2693

20000

25050

47743

88.6

6

137700

213.5

7

1.8

8

Up

to

1H

83428

78.2

4

50638

2532

20000

32840

55372

104.4

1

138800

229.6

1

1.7

8

Siz

es o

f

Ponds

Surv

ey

ed

Aver

ag

e N

et

pro

fit

(Rs.

)

(A)

Rat

e of

Net

pro

fit

on

Tota

l

Cost

(%)

Tota

l

Dir

ect

Cost

(Rs.

)

(B)

Aver

ag

e Inte

rest

on

Work

in

g

Cap

ital

(Rs.

)

(C)

Noti

ona

l R

ent

on

pond

(Rs.

)

(D)

Aver

ag

e Noti

ona

l Wag

es

of

Fam

ily

labour

(Rs.

)

(E)

Extr

a

Pro

fit

(Rs.

)

(F)

Rat

e of

Extr

a

Pro

fit

on

Dir

ect

Cost

(%)

F/B

x10

0

Pure

Pro

fit

(Rs.

)

(A+

C+

D+

E)

Ret

urn

on

Cap

ital

Em

plo

y

ed (

%)

(A+

E)/

Bx100

Input

Outp

ut

Rat

io

Types of Fish

culture

SIZES OF PONDS SURVEYED Average

Rate Up to 1 H Above 1 H

To 1.5 H

Above 1.5H

To 2 H

Above 2 H

Major Carp 62.09% 71.94 % 80.53% 89.74% 76.08%

Major Carp &

Exotic Carp

75.28% 85.75 % 92.90% 98.53% 88.12%

Composite Fish

culture excluding

Prawn

83.07% 93.03 % 99.35% 107.68% 95.78%

Composite Fish

culture including

Prawn

92.52% 101.71 % 109.50% 114.32% 104.51%

Average 78.24% 88.10 % 95.57% 102.56% 91.12%

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Source: Compiled from the Tables for i) Major Carp, ii) Major Carp & Exotic Carp, III)

Composite Fish culture excluding Prawn, and iv) Composite Fish culture including Prawn fish

cultivations.

TABLE-VI COST OF FISH PRODUCTION PER HECTARE UNDER DIFFERENT

COST CONCEPTS (UNIT-1 HECTARE)

(FIGURES IN RS.)

Source: Compiled from Field Survey

TABLE – VII STATEMENT SHOWING THE PROFIT ON TOTAL COST IN VARIOUS

METHODS OF FISH CULTURE (UNIT – 1 H)

(FIGURES IN RS.)

Source: Compiled from Field Survey

Cost

Concepts

Up to 1 H Above

1 H to 1.5H

Above

1.5 H to 2H

Above 2 H Average

Cost A1 50638 53850 58850 65825 57291

Cost B 73170 76543 81793 89116 80156

Cost C 106090 101593 98568 95931 100546

Types of

Fish Culture

Total

Direct

Costs

(A)

Noti

on

al

Cost

Tota

l C

ost

Sales Profit Pure

Profit

(Profit +

Notional

cost)

(B)

Rate

of

Pure

profit

(B/A x

100)

Major Carp 52712 43766 96478 169412 72934 116700 221.39

Major Carp

& Exotic

Carp

54763 43038 97801 183475 85674 128712 235.03

Composite

Fish culture

excluding

Prawn

53625 42956 96581 188800 92219 135175 252.07

Composite

Fish culture

including

Prawn

68062 43169 111241 227175 115944 159113 233.78

Average 57290.5 43232.25 100525.25 192215.50 91692.75 134925 235.57

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SCHEME NO. 1 (AREA: 1 HECTARE): This is a scheme for fish culture in cultured tank by

introducing composite fish culture. The details of the scheme are presented below:

(A) BREAK UP OF UNIT COST OF CULTURABLE POND: RS.

I. CAPITAL COSTS

i) Rearing of embankment, leveling, de-weeding, etc. 1,200

ii) Equipments (like nets and hapas) 2,000

3,200

II. COSTS OF CULTURE

i) Mohua Oil Cake 2500 kg. @ Rs.550 per quintal (qtl.) 13,750

ii) Lime 300 kg. @ 400 per qtl. 1,200

iii) Cow Dung 100 qtl. @ Rs.35 per qtl. 3,500

iv) Single Super phosphate 500 kg @ Rs.335 per qtl. 1,675

v) Urea 350 kg. @ Rs.480 per qtl. 1,680

vi) Fish Seed (10 cm. and above) 5,000 Nos. @ Rs.600 per 1,000 Nos. 3,000

vii) Fish Feed 2500 kg. @ Rs.500 per qtl. 12,500

viii) Netting, Prophylactic, Medicine, etc. 1,200

38,505

SUMMARY

I. Capital Cost 3, 200

II. Costs of Culture 38, 505

41, 705

Total Cost per hectare Say, Rs.41, 700

(B) PRODUCTION & INCOME: RS.

a) Production 2,500 kg.

b) Income by sale of fish @ Rs.35 per kg. 87, 500

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(C) SOURCES OF FUNDS

a) Subsidy 20 % of project cost (ceiling/hectare) 6,000

b) Bank Loan 35,000

Total 41,000

(D) ECONOMICS

a) Gross Income by sale of fish 87,500

b) Less: Fixed Costs (same per hectare p.a.): Rs.

i) Culturable Cost 38, 505

ii) Repayment of Bank Loan in equitable

installment (repayment period 3 years

including grace period of 1 year) 11,900

iii) Interest on Bank Loan @ 14 % p.a. 3, 332 53, 737

Net Profit Rs. 33, 763

Note: In case of SC/ST farmers, subsidy is available @ 25 % of project cost subject to limitation

of Rs.7500 per hectare.

Source: FFDA, Midnapore.

SCHEME NO. 2: Polyculture of Fresh Water Prawn with Carps (IMC& Exotic Carps) in

culturable ponds (Area: 1 Hectare):

(A) BREAK UP OF UNIT COST OF CULTURABLE POND: Rs.

I. CAPITAL COSTS

i) Rearing of embankment, leveling, de-weeding, dewatering,

and drying of pond bed 1,200

ii) Equipments (like tools, nets, etc.) 2,000

3,200

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II. COSTS OF CULTURE

i) Mohua Oil Cake 2000 kg. @ Rs.550 per quintal (qtl.) 11,000

ii) Lime 300 kg. @ 400 per qtl. 1,200

iii) Cow Dung 100 qtl. @ Rs.35 per qtl. 3,500

iv) Single Super phosphate 500 kg @ Rs.335 per qtl. 1,675

v) Urea 350 kg. @ Rs.480 per qtl. 1,680

vi) Fish Seed (10 cm. and above) 3,500 Nos. @ Rs.600 per 1,000 Nos. 2,100

vii) Prawn seed (5 cm. size) 15,000 Nos. @ Rs. 1000 per 1000 Nos. 15,000

viii) Fish Feed 2000 kg. @ Rs.500 per qtl. 10,000

ix) Prawn feed 900 kg. @ Rs.21 per kg. 18,900

x) Netting, Prophylactic, Medicine, etc. 2,000

67,055

SUMMARY

I. Capital Cost 3, 200

II. Costs of Culture 67, 055

70,255

Total Cost per hectare Say, Rs. 70, 300

(B) PRODUCTION & INCOME: RS.

Production & Sale:

Prawn 500 kg. @ Rs.230 per kg. 1,15,000

Carp 2000 kg. @ Rs. 35 per kg. 70,000

1,85,000

(C) SOURCES OF FUNDS

a) Subsidy 20 % of project cost (ceiling / hectare) 13,411

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b) Bank Loan 56,844

Total 70,255

(D) ECONOMICS

a) Gross Income by sale of fish 1,85,000

b) Less: Fixed Costs (same per hectare p.a.): Rs.

i) Culturable Cost 67,055

ii) Repayment of Bank Loan in equitable

installment (repayment period 3 years

including grace period 1 year) 18,948

iii) Interest on Bank Loan @ 14 % p.a. 5,305 91,308

Net Profit Rs. 93,692

Note: In case of SC/ST farmers, subsidy is available @ 25 % of project cost per hectare.

Source: FFDA, Midnapore.

OBSERVATION

1. It is analysed that 28 % of the sample fish farmers prefers to the historical method of

fish cultivation; rather they have lack of interest in increasing their present production. It

is also seen that 70% of the fish farmers hold less than 1.5 hectares who do not prefer fish

cultivation on commercial basis and they opt for cultivating in large area adopting

scientific method of fish culture.

2. It may be observed from Table-VI that the cost of fish production is higher on small &

medium size ponds (Cost C - about Rs. one lakh) than that in large and big ponds (Cost C

- about Rupees ninety seven thousand) but the paid out cost (Cost A1) is comparatively

lower in small and medium size ponds than that in big and large ponds. The difference

between Cost B and Cost C is comparatively higher in small and medium size ponds (Rs.

twenty eight thousand) than that of big ponds (about Rs. sixteen thousand) and large

ponds (about Rs. six thousand). It clearly indicates the use of large number of family

labour in fish production on small and medium ponds. It is also analysed that the fish

farmers operating small and medium size ponds used larger number of family labour in

fish production and they could earn extra income realizing the opportunity cost in the

form of wages of family labour (Table-V).

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3. It is also seen that the marginal farmers are shifting towards the inland fish cultivation

for their assured income due to stable employment facility in this sector throughout the

year. As the supply of inland fish is controlled by the fish cultivator as to the demand in

the market, there is every scope of increasing income from time to time. The marginal

farmers generally cultivate fishes without adopting composite fish culture and they earn

profit at the rate of about 80% to 90% on cost excluding the income generated from the

notional wages of family workers (Table-IV).

4. It may be observed from Table IV that the net profit on total cost, on an average, is

estimated to be 91.12% in case of sample ponds but it is the highest in case of large

ponds (102.56%) followed by big ponds (95.57%), medium ponds (88.10%), and small

ponds (78.24%); it indicates that the profit is increased with the increase in size of ponds

due to decrease in direct cost for cultivation per hectare. It is analysed from Table-V that

the return on capital employed, on an average, as calculated is 198.29%. But it is the

highest in small ponds (229.61%), followed by medium ponds (213.57%), big ponds

(189.44%), and large ponds (160.55%). That reveals that the extra profit, on an average,

is estimated to be 77.81%, but it is the highest in small ponds (104.41%), followed by

medium ponds (88.66%), big ponds (67.49%), and large ponds (45.74%). It is also seen

that pure profit is highly encouraging which, on an average, is estimated at Rs. one lakh

thirty four thousand but it is the highest in small pond (Rs.1.38 lakh) followed by

medium pond (Rs.1.37 lakh), big pond (Rs. 1.34 lakh), and large pond (Rs.1.28 lakh).

5. It is measured from the Table- IV that the ‘Net profit on total cost’ per hectare of

water area in composite fish culture including prawn is the highest (104.51%) followed

by the composite fish culture excluding prawn (95.78%), culture of major carp & exotic

carp (88.12%), and culture of major carp (76.08%).

6. It may be observed that the return per rupee of investment i.e., input-output ratio, on

an average, is 1.91 but it is the highest in case of large pond (2.03), followed by big pond

(1.96), medium pond (1.88), and small pond (1.78); it indicates that fish culture is viable

in large pond in better return to own factor of production (Table- V). It may be noted that

all sizes of ponds generate much higher return on investment, indicating that the fish

farming is one most profitable operation. Moreover, it is also evident that higher return

on investment is directly related to the size of ponds; the larger the size of the pond, the

higher is the return on investment.

7. It may be observed that total cost in Composite Fish culture is the highest

(i.e. Rs. 1,11,241) in comparison to the other types of fish culture. It is measured that the

pure profit per hectare in composite fish culture with prawn is the highest (i.e. Rs. 1,

59,113) but rate of pure profit on direct cost is the highest in ‘composite fish culture

excluding prawn’ (i.e. 252.07 %) followed by i) Major Carp & Exotic Carp fish culture

(235.03 %), ii) ‘composite fish culture including prawn’ fish culture (233.78 %), and iii)

Major Carp fish culture (221.39 %). It is also observed that the rate of pure profit in

‘composite fish culture including prawn’ is lower in comparison to other types of fish

culture due to the highest direct cost in this culture (Table-VII).

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CONCLUSION

In the district, almost every villager having land is the owner of ponds, whatever may be its size.

They cultivate fishes only to meet domestic requirement. The rural people who have some

culturable water areas may be motivated for fish cultivation at least under traditional method of

fish culture where only fingerlings are to be put into the water. Proper awareness programme

may be organized by the Govt. in every remote village to induce the villagers for cultivation of

fishes by adopting scientific method of fish culture. In this way Inland fishery may be developed

rapidly so that it may not only create a source of extra income to the villagers but also solve the

problem of rural seasonal unemployment directly or indirectly; it is more so as the demand for

Inland fishes remains more or less constant throughout the year. Incidence of labour cost in such

proportion speaks of high labour intensive nature of this type of activities. Therefore, it appears

that a reduction of wages cost may render fish culture more profitable. Due to limited

opportunities for employment and near stagnation in agriculture, people in rural areas are

compelled to live on hand to mouth and are always engaged in searching for employment, no

matter how less remunerative it might be. The problems get aggravated by the presence of

disguised unemployment along with under-employment in agriculture. In such a situation the

opportunity cost of rural labours, particularly the women and children, is almost zero. Hence,

with a view to supplementing a part of their family income, this workforce may be engaged in

less remunerative jobs in small scale household activities like inland fisheries etc. where the

marginal value of labour is, at least, positive. Besides, the workers in villages do not consider the

unpaid cost elements of wages, depreciation on assets as well as interest on capital, in their cost

estimation. They consider earnings from their traditional pursuits as sufficiently meaningful and

a way of gainful occupation for the members of their family.

Cultivation of Prawn is a profitable business. Some fish farmers cultivate prawn with carps. Due

to the nature of low survival of the prawn, all fish farmers are not interested in cultivating them.

They cannot also enjoy the reasonable price advantage due to some market players like

middlemen of the fish market. If proper training is given to the fish farmers regarding scientific

culture of ‘prawn with carps’ and the provision of sales at reasonable price is guaranteed, the

production of prawn can be increased rapidly. At present the demand as well as the selling price

of prawn is high in foreign market; so the export of prawn may be possible to earn foreign

exchange. The Govt. should extend its support in the form of provision for export facilities to the

rural people in every block of the district.

REFERENCES

1. Quoted from Shukla, M. C., Business Organization and Management, S. Chand &

Company Ltd., New Delhi, 2001, p.709.

2. First Five- Year Plan, Govt. of India.

3. Kahlon, A. S. & George, M. V., Agricultural Marketing and Price Policies, Allied

Publishers Pvt. Ltd., New Delhi, 1985, p.12.

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4. Datta, R. & Sundaram, K. P. M., Indian Economy, S. Chand & Company Ltd., New

Delhi, 2000, p. 580.

5. Rao, Darsi Vishnu Sankar, & Raju V. T., Economics of Fisheries Technologies, Ambika

Book Agency, Jaipur-16, 1998, p. 107.

6. Srivastava, C.B.L., A textbook of Fishery Science and Indian Fisheries, Kitab Mahal,

Allahabad, 2002, p. 256.

7. Ibrahim, P., Fisheries Development in India, Classical, New Delhi, 1992, p. 51.

8. Singh, R. K. P, Economics of Aquaculture, Daya Publishing House, Delhi-110035, 2003.

9. Biswas, K. P., A Text Book of Fish, Fisheries & Technology, Narendra Publishing

House, Delhi, 1996, p. 540.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

A STUDY ON QUALITY OF WORK LIFE AT A GARMENT

MANUFACTURING UNIT IN PERNDURAI – A CASE STUDY

D. ANBUGEETHA*

*Senior Research Fellow,

Bharathiar School of Management and Entrepreneur Development,

Bharathiar University,

Coimbatore, India.

ABSTRACT

Quality of work life refers to the favourable and unfavourableness of the job

environment for people. Since people and environment have changed, increased

attention needs to be given to improve the quality of work life. Quality of work life

has three aspects, the psychological, the physical and the economical aspect.

The psychological aspect of QWL is what people do at work and the way they do

work. The physical aspect of QWL is the condition in which people work and the

management’s attitude towards safety, pollution, work environment etc., The

economic aspect of QWL is what they are paid for what they do and the standard of

living.

The paper entitled “A STUDY ON QUALITY OF WORK LIFE AT A GARMENT

MANUFACTURING UNIT IN PERUNDURAI- A CASE STUDY” tries to identify,

the quality of work life in the selected organization and also to identify the factors

influencing quality of work life.

KEYWORDS: Quality of work life, Psychological aspect, Physical Aspect,

Economic aspect.

_____________________________________________________________________________

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INTRODUCTION

THE INDUSTRY

Indian textile industry is one of the leading industries in the world. Currently it is estimated to be

around US$ 52 billion and is also projected to be around US$ 115 billion by the year 2012. The

current domestic market of textile in India is expected to be increased to US$ 60 billion by 2012

from the current US$ 34.6 billion. The textile export of the country was around US$ 19.14

billion in 2006-07, which saw a stiff rise to reach US$ 22.13 in 2007-08. The share of exports is

also expected to increase from 4% to 7% within 2012. Though during the year 2008-09, the

industry had to face adverse agro-climatic conditions, it succeeded in producing 290 lakh bales

of cotton comparing to 315 lakh bales last year, and yet managed to retain its position as world's

second highest cotton producer.

STRENGTH OF THE INDUSTRY

Vast textile production capacity

Large pool of skilled and cheap work force

Entrepreneurial skills

Efficient multi-fibre raw material manufacturing capacity

Large domestic market

Enormous export potential

Very low import content

Flexible textile manufacturing systems

WEAKNESS OF THE INDUSTRY

Increased global competition in the post 2005 trade regime under WTO

Imports of cheap textiles from other Asian neighbours

Use of outdated manufacturing technology

Poor supply chain management

Huge unorganized and decentralized sector

High production cost with respect to other Asian competitors

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Post liberalization environment gave rise to a number of textile units which brought about

a competitive business war in India. These units have to face the competition and survive. Every

organization is facing unique problems, some organizations may have old technology, some may

lag in financial strength and some may pause by having obsolete products, some may not have

good working environment, and some may not have job security which may affect the quality of

work life. However many Indian Textile industries are not exceptional one to face the same. Any

attempt at improving the performance of the organization can be successful only if the

organization is able to develop a strong quality of work life. The basic purpose of an organisation

is to develop jobs and working conditions that are excellent for people as well as for the

economic health of the organization. The elements in QWL program include-open

communication, equitable reward systems, a concern for employee job security and satisfying

careers and participation in decision making.

THE CONCEPT

This article reviews literature on quality of work life (QWL) in terms of its meaning and

constructs specifically from the perspective of garment manufacturing. We first review the

definitions of QWL in order to come up with a conclusive meaning of QWL. As the work culture

changes drastically in the recent years, the traditional concept of work to fulfils humans’ basic

needs are also facing out. The basic needs are continued to diversify and change according to the

evolution of the work system and standards of living of a workforce. Thus a definition by Suttle

(1977) on the QWL as the degree to which work are able to satisfy important personal basic

needs through their experience in the organisation is no longer relevant.

Generally jobs in the contemporary work environment offer sufficient rewards, benefits,

recognition and control to employees over their actions. Although to some extent contemporary

workforce are compensated appropriately, their personal spending practices, lifestyles, leisure

activities, individual value systems, health and so forth can affect their levels of need. It is

similar to the argument posted in the Maslow’s hierarchy of needs in which each individual has

different level of needs because in reality what is important to some employees may not be

important to others although they are being treated equally in the same organization. This

definition, focusing on personal needs has neglected the fact that the construct of QWL is

subjective and continuously evolves due to ever growing needs of each and every employee.

Hackman and Oldhams (1980) further highlight the constructs of QWL in relation to the

interaction between work environment and personal needs. The work environment that is able to

fulfill employees’ personal needs is considered to provide a positive interaction effect, which

will lead to an excellent QWL. They emphasized the personal needs are satisfied when rewards

from the organisation, such as compensation, promotion, recognition and development meet their

expectations.

Parallel to this definition, Lawler (1982) defines QWL in terms of job characteristics and

work conditions. He highlights that the core dimension of the entire QWL in the organization is

to improve employees ’well-being and productivity. The most common interaction that relates to

improvement of employees’ well-being and productivity is the design of the job. Job design that

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is able to provide higher employee satisfaction is expected to be more productive. However, he

accepted the fact that QWL is complex, because it comprises physical and mental well being of

employees.

Later definition by Beukema (1987) describes QWL as the degree to which employees

are able to shape their jobs actively, in accordance with their options, interests and needs. It is the

degree of power an organization gives to its employees to design their work. This means that the

individual employee has the full freedom to design his job functions to meet his personal needs

and interests. This definition emphasizes the individual’s choice of interest in carrying out the

task. However, this definition differs from the former which stresses on the organization that

designs the job to meet employees’ interest. It is difficult for the organization to fulfill the

personal needs and values of each employee. However if the organization provides the

appropriate authority to design work activities to the individual employees, then it is highly

possible that the work activities can match their employees ’needs that contribute to the

organizational performance.

In the same way Heskett, Sasser and Schlesinger (1997) define QWL as the feelings that

employees have towards their jobs, colleagues and organizations that ignite a chain leading to the

organizations’ growth and profitability. A good feeling towards their job means the employees

feel happy doing work which will lead to a productive work environment. This definition

provides an insight that the satisfying work environment is considered to provide better QWL.

Proceeding to previous definitions, Lau, Wong, Chan and Law (2001) operationalised

QWL as the favorable working environment that supports and promotes satisfaction by providing

employees with rewards, job security and career growth opportunities. Indirectly the definition

indicates that an individual who is not satisfied with reward may be satisfied with the job

security and to some extent would enjoy the career opportunity provided by the organization for

their personal as well as professional growth.

The recent definition by Serey (2006) on QWL is quite conclusive and best meet the

contemporary work environment. The definition is related to meaningful and satisfying work. It

includes (i) an opportunity to exercise one’s talents and capacities, to face challenges and

situations that require independent initiative and self-direction; (ii) an activity thought to be

worthwhile by the individuals involved; (iii) an activity in which one understands the role the

individual plays in the achievement of some overall goals; and (iv) a sense of taking pride in

what one is doing and in doing it well. This issue of meaningful and satisfying work is often

merged with discussions of job satisfaction, and believed to be more favorable to QWL. This

review on the definitions of QWL indicates that QWL is a multi-dimensional construct, made up

of a number of interrelated factors that need careful consideration to conceptualize and measure.

It is associated with job satisfaction, job involvement, motivation, productivity, health, safety

and well-being, job security, competence development and balance between work and non work

life as is conceptualized by European Foundation for the Improvement of Living Conditions.

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A CONCEPTUAL MODEL OF QWL

Job characteristics

Significance

Autonomy

Variety

Challenge etc

Personality Traits

Need Patterns

Growth need

Work Ethic. Etc.

Job

involvement

Sense of

competence

Job Satisfaction

Low absenteeism

Low turnover

Productivity

Thus we can define QWL as the degree to which work in an organization contributes to

material and psychological well being of its members. Quality of work life represents a concern

for the human dimensions of work and has a direct response to the problems of increasing

unemployment and declining levels of productivity. It is argued that the problem is very zealous

and desires serious consideration.

The advocates of the viewpoint stress that

(a) Worker alienation and job dissatisfaction are increasing.

(b) The productivity of workers and industry is declining, while counter-productive

behaviour (eg. absenteeism, etc.) is increasing.

(c) The confidence of the public in large institutions is eroding.

Since QWL is directly related to productivity it has become the need of the hour and is

gaining more importance from the organization’s point of view.

CONSTITUENTS OF QWL

The Constituents of Quality of Work Life are Adequate and fair compensation, Safe and healthy

working conditions, Immediate opportunity to use and develop human capacities, Future

opportunity for continued growth and security, Social integration in work environment,

Constitutionalism or the ‘rule of law’ in the work organization, Work and the total life space and

the social relevance of work life.

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The model carries the thinking about the relationship between quality of work life

interventions and productivity. It shows that if a particular quality of work life intervention

improves productivity directly, it also can influence productivity indirectly.

Where employee satisfaction increases, as a result of the intervention and improved

productivity, this can ultimately have a positive influence on productivity by attracting good

employees to work for the organisation and by reducing turnover.

MEASUREMENT OF QWL

The following indices may be used to judge the QWL in an organization.

1. JOB INVOLVEMENT

It represents the degree of an individual’s identification with or ego involvement in the job. The

more central the job is to the individual’s life, the greater is his involvement in it. Therefore the

individual spends more time and energy on the job. People with high job involvement are better

motivated and more productive. Research reveals that skill variety, achievement and challenge

help to improve job involvement.

2. JOB SATISFACTION

It implies the worker’s satisfaction with the environment of his job environment consisting of the

nature of work, quality of supervision, pay, coworkers, opportunities for promotion, etc. Job

satisfaction is related to job involvement and people involved in their jobs are satisfied with their

jobs and vice versa.

3. SENSE OF COMPETENCE

It refers to the feeling of confidence that an individual has in his own competence. Sense of

competence and job involvement reinforce each other. An individual acquires a greater sense of

competence as he engages himself more and more in work activities

4. JOB PERFORMANCE

When an individual’s job involvement, job satisfaction and sense of competence increase, there

is a rise in job performance.

5. PRODUCTIVITY

When the level of job performance increase the output per unit of input goes up. Thus match

between job characteristics and productivity traits of employees generally result in higher

productivity.

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QWL intervention

Improved Communication

Co - ordination

Improved

Motivation

Improved

Capabilities

Improved

Productivity

Productivity

Productivity

Effect of opportunity on the Quality of work and on productivity

Enhanced

Quality of Work

Experience+

Productivity

Quality of W

ork

THE RELATIONSHIP BETWEEN QUALITY OF WORK LIFE AND PRODUCTIVITY

The figure shows that there are three primary ways a quality of work life intervention or

practice can improve productivity; it can improve communication / coordination, motivation and

employee performance capabilities. Then make a reasonable estimate regarding whether the

intervention will lead to improved productivity.

OPPORTUNITY TO USE AND DEVELOP CAPACITIES

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There are a number of ways that a quality of work life intervention can have a positive

effect on productivity. However, improving productivity is dependent on the degree to which the

intervention increases employee satisfaction, communication, motivation, and performance

capability. Indeed, there is reason to believe that the intervention may have to influence

motivation, communication, and capability in order to lead to improved productivity. This

rationale is based on the view that for productivity to increase - motivation, performance

capability, and coordination - all needs to be high in an organisation. If any one of these is low or

missing, the organisation cannot be effective.

From the above discussion it is evident that there is relationship between QWL and

productivity and hence a study has been conducted in a garment manufacturing unit to establish

the relationship between the two variables.

INTRODUCTION TO THE COMPANY

The selected organisation was started in 1993 with 11,000 spindles; this unit has 40,000 spindles

today. The weaving department was started in the year 1997 with 184 looms, which is now

extended to 422 looms, manufacturing different varieties of cotton and synthetic fabrics. The

counts produced in this unit range from 12s to 110s in hanks and cones. The growth rate is

tremendous as reflected by the sales turnover from about Rs 126 lakhs in 1998 – 99 to Rs 462

lakhs in 2004 – 05. The current installed spinning capacity of the group is 2,184 rotors and it

produces 12,500 tonnes of cotton yarn per annum in addition to large volumes of recycled cotton

waste. Recently it has acquired one ring spinning unit having 11,800 spindles, which is

producing around 2 tonnes of yarn per day. The company wants to become an integrated textile

giant producing a range of products from fibre to garments with the most modern plants and

technology. The company is also engaged in the field of manufacturing, supplying and exporting

of high quality knitted and hosiery garments. They started with a zeal and determination to

redefine fashion in the industry. Standing on the grounds of style and elegance, they offer knitted

and hosiery garments that are abreast of the changing international trends. They combine

marketing expertise and creative imagination to deliver designer garments with unique textures,

designs and colors. Each garment is exclusively designed as per the changing fashion trends that

reflect fine craftsmanship and elegance that suit the aesthetic tastes of their clients all across the

globe. They serve their customers with high quality of products along with a wide range of

variety of designs and fabrics. The range of products they deal in are: men’s wear, ladies wear,

casual wear and knit wear. The company’s garments have made inroads in the international

market and have etched a respectable place for our company by catering to the needs and wants

of their clients in the overseas markets.

OBJECTIVES OF THE STUDY

1. To identify the opinion of the employees about the quality of work life in their

organization.

2. To identify the relationship between QWL and productivity.

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LIMITATIONS OF THE STUDY

(a) Some of the respondents showed resistance in giving the actual facts, only the

lower level workers were considered for the study.

(b) The study was conducted only among the employees of general shift.

(c) The study may not be applicable to other companies.

RESEARCH METHODOLOGY

The research design used for the study is Descriptive. The study started with the literature survey

through various journals, magazines that helped to comprehend the various facets about work-

life balance and its importance.

DESIGN OF QUESTIONNAIRE

The questionnaire was designed, based on the objectives of the study. The questionnaire

consisted of mainly closed questions and was pilot – tested on a small group. The questionnaire

was used to collect primary data.

THE WORKING HYPOTHESIS

A working hypothesis (H0) was set, based on the objectives of the study.

H01 = There is no significant association between QWL and productivity.

SAMPLE DESIGN

The sample size was 92 respondents from the lower level. The respondents were selected based

on simple random sampling.

ANALYSIS OF DATA

The questionnaire used consisted of 30 questions, which was split into three parts. First part

elicits demographic information. The second part consisted of 17 questions, which elicited

information about the psychological, physical and economic aspects of QWL. The third part

consisted of 4 questions which elicited information about productivity.

The scale used was Likert’s scale with four points; neutral response was removed to

avoid respondent’s biasness. Fully Agree, Agree, Disagree, Fully Disagree with 1 to 4 point

respectively for positive questions points was reversed. The points gained by an individual in the

second part is calculated and the average was used to identify the opinion an employee had about

the quality of work life in the organisation. Higher the score better is his/her opinion. i.e., if the

individual’s score was between 1 to 2, then in his opinion the QWL is moderate, 2 to 3 then in

his opinion the QWL is good, 3 to 4 then in his opinion the QWL is very good in the

organisation. Similarly the points gained by an individual in the third part were calculated and

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the average was used to identify his productivity in the organisation. Higher the score, better is

his/her productivity i.e., if the individual’s score was between 1to2, then his productivity is low,

2 to3 then his productivity is medium, 3 to 4 then his productivity is high in the organisation.

TABLE 1 SHOWING THE ASSOCIATION BETWEEN QWL AND PRODUCTIVITY

Productivity level Opinion about QWL

Good Moderate

High 12

8

7

65 Moderate

χ2 (4) = 30.83, p < 0.05

Further Chi Square test was used to infer whether there is significant relationship

between QWL and productivity. Indices used to measure productivity were job involvement, job

satisfaction, sense of competence and job performance. The null hypothesis “there is no

significant association between QWL and Productivity” was formulated for the purpose. Since

the χ2 value (table 1) has achieved the level of statistical significance at 0.05 confidence level H0

is rejected. i.e., there is significant association between QWL and productivity.

FINDINGS OF THE STUDY

Majority (66%) of the respondents felt that the quality of work life was good in the organisation,

from the respondent’s responses it can be identified that all the three aspects of QWL i.e., the

psychological, physical and economical aspects was good in the organisation. But it can also be

understood from the study that only 18% of the respondents felt happy about the career prospects

available in the organisation. Majority (63%) of the respondent’s productivity was good and

there was a significant association between QWL and productivity.

SUGGESTIONS FOR IMPROVEMENT

The survey indicates that the respondents feel that the workload is high. The management

can consider this physical aspect of QWL. Work load can be reduced so as to improve the

quality of work life.

Most of the employees feel that they are insecure in their job. The organization shall

provide for permanent employment which may reduce this anxiety

Frequent counseling programmes can be conducted by the organization, so that the

workers can be relaxed and relieved from their personal problems too.

Grievances handling cell can be introduced. The employee can write their genuine

grievance to the cell to come out of their problems.

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CONCLUSION

Quality of work Life refers to the quality of relationship between employees and the total

working environment. It may be considered as industrial democracy or co-determination with

increased employee’s participation in decision making process. Since people and environment

have changed, increased attention needs to be given to improving the quality of work life. Jobs

are required to fit people as well as technology. It should cater to the psychological, physical and

economic aspect of QWL. Hence QWL programmes should look for active involvement of

people so that all employees can make significant contribution to the organizational goals and

purposes. Before initiating any QWL improvement programs, understanding of human

psychology at work is important. The companies that are the best at creating a good QWL will be

able to attract and retain the most skilled workers. The research study showed that the

organisation was good at providing all the aspects of QWL to its employees. On the whole, the

Quality of work life at the selected organization was good. Quality of work life exercises had a

significant influence on the productivity of the employees.

REFERENCES

1. Adhikari, D. R. (2005), Labor Legislation and Quality of Work Life in Nepal, paper

presented at International Society for Labor and Social Security Law, 8th Asian Regional

Congress, October 31- November 3, Taipei, Taiwan, 167-192.

2. Beukema L. Kwaliteit Quality of reduction of working hours. Groningen:

Karstapel, 1987.

3. Gupta. C.B, Human Resource Management, Sultan Chand and Sons, New Delhi

4. Hackman, J.R. & Oldham, G.R. (1980). Work redesign. Reading, MA: Addison-Wesley.

5. Heskett, J.L., Sasser, W.E., Jr, & Schlesinger, L.A. (1997). The service profit chain. New

York: The Free Press.

6. Kothari. C.R, Research Methodology Methods & Techniques, Wishwa Prakashan, New

Delhi, 2002.

7. Lau,T., Wong, Y.H., Chan, K.F., & Law, M (2001). Information Technology and the

work environment – does it change the way people interact at work” Human Systems

Management 20(3), pp.267 – 280.

8. Lawler, E.E. (1982). Strategies for improving the quality of work life. American

Psychologist, 37(5), 486-493.

9. Luthans Fred, Organizational Behaviour, McGraw Hill International Editions,

Singapore, 1992.

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10. Newstrom, Davis, Organization Behaviour at Work, Tata McGraw – Hill Publishing

Company, Ltd., New Delhi.

11. Pattanayak, Biswajeet , Human Resource Management, Prentice Hall of India Pvt. Ltd.,

New Delhi, 2001

12. Serey, T.T. (2006). Choosing a robust quality of work life. Business Forum, 27(2), 7-10

13. Suttle, J. L. (1977), Improving Life at Work: Problems and Prospects, in Hackman, J. R.

and Suttle, J. L. (eds.), Improving Life at Work: Behavioral Science Approach to

Organizational Change, California: Goodyear Publishing Company, 1-29.

14. http://www.eurojournals.com/ejss_7_1_05.pdf, retrieved on September 2012

15. http://www.teonline.com/apparel-garments/industry-overview.html, retrieved on

September 2012

16. http://business.mapsofindia.com/india-industry/textile.html, retrieved on September 2012

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

EXPERIENCE IS A KEY TO SUCCESS IN POULTRY INDUSTRY

DR. S. C. VETRIVEL*; DR. R. SOMASUNDARAM**

*Assistant Professor,

School of Management Studies,

Kongu Engineering College,

Perundurai, Erode, Tamilnadu, India.

**Professor & Head,

Department of Management Studies,

Kongu Engineering College,

Perundurai, Erode, Tamilnadu, India.

ABSTRACT

The poultry industry provides a good employment opportunity for both males and

females along with agricultural activities. The poultry industries were involved with

live stock, which is monitored around the clock and the poultry entrepreneurs are

very much concentrated in utilizing the farm optimally enriching maximum output

through selling the eggs and other allied products like feathers, gunny bags and

poultry litters etc. The poultry entrepreneurs have gained a good profit and a

particular portion of the profit was correctly paid towards income tax. Hence, the

Indian economy gain the momentum through poultry industries. But after the

introduction of globalization, many foreign countries launched their business in

various areas namely production, marketing, transporting, banking, insurance, IT

and IT enabled industries. In order to show much glamour for the industries and

offices they had consumed heavy electricity power and make their premises fully air-

conditioned for round the clock. The state government has not planned well to

distribute the electricity power equally for already existing industries, the newly

arrived foreign originated industries and service oriented organization. This affected

drastically and the frequent power cuts were vested with the shoulders of poultry

farms and feed mills and poultry egg packaging industries. Due to this frequent

power cut, the agriculturalist in the dry land finds difficult to produce first quality

maize, which is the core raw material for poultry feed. Hence, after liberalization

many of the small poultry entrepreneurs were found very difficult to produce the

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quality eggs in their poultry farms and these eggs finds difficult to compete in the

global market.

KEYWORDS: entrepreneurs, economy, globalization, industries, eggs.

____________________________________________________________________________

1. INTRODUCTION

India is the third largest producer of eggs the world, producing 34 billion eggs. Poultry sector

plays a pivotal role among the sub-sectors in potentiating the role of animal husbandry in the

process of rural economic development of the state. The Indian Poultry Sector within 7.3 per

cent growth in poultry population, has witnessed one of the fastest annual growth of about 6 per

cent in Eggs and 10 per cent in meat production over the last decade amongst all animal based

sectors. The high growth has placed India at 3rd position in Egg production and 5th in Chicken

meat production on global basis. Even with this development, the per capita vailability is only 52

eggs and 2.3 kg of poultry meat against the recommended levels of 180 Eggs and 11 kg of meat

per annum. Tamil Nadu is leading the states in broiler production with a record production of

397 thousand tonnes in 2009-10. Tamil Nadu ranks second in the country’s egg production with

a production of 10.8 billion eggs. Tamil Nadu accounts for 17.71 per cent of the poultry

population of the country. More than 90 per cent of poultry or poultry products exported from

India originates from Tamil Nadu. At present poultry concentration is restricted to certain poultry

belts such as Namakkal, Erode and Coimbatore. The poultry keeping has evinced great interest

among poultry farmers. There is a good potential for export of eggs, egg products and frozen

chicken meat from our State to Gulf countries, Russia etc. Further, due to the changes in

consumption behavior of the people in the state towards desi chicken and desi eggs, there is great

scope for the development of backyard poultry.

2. NEED FOR THE STUDY

In the last decades the livestock sector has been one of the fastest growing sectors in Indian

agriculture, currently accounting for about 25 percent of agricultural GDP as compared to less

than 14 percent in 1980 (GOI, 2006). These drivers include income growth and urbanization,

advances in production and processing technology and improvements along the supply chain (

Narrod et al., 2008). Within the livestock sector, poultry has been the fastest growing sub-

sector: between 1985 and 2005 poultry egg production grew by about 15% per year, compared

to an annual growth rate of 1.5 to 2% for beef, milk and mutton and lamb. At present, with an

average annual consumption of 1.5 kg of poultry meat and 1.8 kg of eggs (35-40 eggs) per

person, exclusive of milk though, poultry meat and eggs contribute almost 50 percent to the per

capita consumption of animal protein (GOI, 2006).

3. SIGNIFICANCE OF THE STUDY

The small poultry farm owners in the study area are taking more efforts to produce more

quantity of eggs through constant feeding and regular veterinary health check up for the birds.

This incurred an exorbitant cost to purchase high quality poultry feeds and high cost of

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maintenance. With all these efforts they have finds difficulty to achieve the expected production

regularly. Simultaneously it is noted that the same poultry farm owners doesn’t have adequate

knowledge to sell the product in the market. Due to the poor literacy and fear of going to urban

area, they are totally depends on middle man to market their products. Hence, a good portion of

profit has been very easily swallowed by middle man, further it was noticed that the poultry

farm owners suffering due to non- availability of regular transport facilities, to shift the eggs

from the poultry farm to various markets located at different parts of the country. During the

transit, there were more chances of getting damaged before reaching to market. With all these

sufferings they also, drastically affected due to non availability of laboures. On the other hand,

the poultry farm owners have obtained loan from banks and financial institutions are very much

affected due to non availability of loans as well as working capital on time. Most of them were

suffered because of refusal of bank loans or purposive delay in sanctioning the loan. Hence,

they were approached private financiers with higher rate of interest and they were under the

clutches and control of private financiers. Some of the farmers have engaged in a contract with

big egg processing units and selling their eggs at very lower price during the contract period,

even though the market price was high. Having witnessed all these problems faced by the

poultry farm owners, the researcher initiated this research work in the field of poultry eggs

production and marketing.

Based on the above issues, the researcher has probed the following questions.

a) How far the poultry farm entrepreneurs were affected by their experience in the poultry

field in the study area.

b) What were the major problems faced by the poultry farm owners during production and

marketing of poultry eggs in relation to their experience.

Based on the above objectives the following hypotheses have been formed.

There is a relationship between experience of the respondents and their success in poultry

industry.

4. REVIEW OF LITERATURE

Sinha and Giri (1989)1 states egg internal quality is measured in several ways including factors

like; yolk color, albumen height, yolk height, Hough unit, yolk width and nutritive values.

Egg’s internal quality could be influenced by factors like; genetic factors, environmental factors

(such as temperature, relative humidity and the presence of CO2), hen age, nutrition status, egg

storage condition and storage time. A good quality egg should be free from internal blemishes

such as blood spots, pigment spots and meat spots.

1 Sinha, P. and A. K. Giri, 1989. Consumption of Livestock Products-Analysis and Comparison of Data of

NSS 32nd and 38th Round. Livestock Economy of India, Oxford and IBH Publishing Co. Pvt. Ltd., New

Delhi.

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Juliet (2004)2.There are two components of yolk quality; the color of the yolk and the

strength of the perivitel line membrane which surrounds the yolk, where yolk color is measured

by using Roche color scale .

Samli (2005)3 and Kirunda et al. (2000)4 reported that the poultry industry identified

albumen quality not only to judge the freshness of an egg but also considered it as important for

the egg breaking industry because albumen and yolk have different markets. Although various

measures of albumen quality have been proposed, the Hough unit is used most commonly today

(Silversides, 1994)5.

According to the report of Shawkat (2002)8 both albumen height and Hough units

decreased over time. The color of the yolk is determined by the presence or absence of

xanthophylls, some of which are precursor of vitamin A. If the fed has plenty of yellow-orange

plant pigments, known as xanthophylls, it will be deposited in the yolk. Therefore, yolk color is

influenced by nutrition and dark yellow yolks can be produced by feeding laying birds on green

forage meal.

5. METHOD

The study was undertaken in the Namakkal District of Tamilnadu, India. The respondents were

the poultry farm entrepreneurs and selected using stratified Random Sampling method. The

study was aimed at unearthing the relationship between experience of poultry farm entrepreneurs

and managing the farm in the business success.

For this purpose, the primary data were collected from 523 poultry entrepreneurs who

were producing eggs from their poultry farms. The information was gathered through personal

interview method from the selected poultry entrepreneurs. Further, the details such as factors

influenced to start the business, knowledge on poultry business, the benefits enjoyed, the

problems faced during operational stages in the functional area were gathered. A well structured

Interview Schedule was prepared for the purpose.

6. RESULTS

EXPERIENCE AND SUCCESSFUL OPERATION OF POULTRY BUSINESS

Experience in any field will be counted for the success of any activity. In the case of poultry

business, it is considered as a vital factor for the success in the business. An attempt was made

2 Juliet Roberts, R. 2004. Factors affecting egg internal quality and egg shell quality in laying hens. Journal

of Poultry Science, 41: 161-177. 3 Samli Kondombo, R. 2005. Improvement of village chicken production in a mixed (chickenram)farming

system in Burkina Faso. Ph.D Thesis. Wageningen Institute of Animal Sciences, Animal Nutrition Group,

Wageningen University, the Netherlands. 4 Kirunda, D.F.K. and S.R. McKee. 2000. Relating quality characteristics of aged eggs and fresh eggs to

vitelline membrane strength as determined by texture analyze. Poultry Science Journal, 79: 1189 - 1193. 5 Silversides, E.G. 1994. The Haugh unit correction for egg weight is not adequate for comparing eggs from

chickens of different lines and ages. Journal of Applied Poultry Research, 3: 120-126.

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to analyze relationship between experience of the poultry farm entrepreneurs and their

successful operation in their business. For this purpose, the experience of the respondents was

classified into four categories. Viz., Up to 5 years, 6-10 years, 11-20 years and above 20 years.

The sample consists of 29 (5.5%) up to 5 years, 106 (20.3%) 6-10 years,277(53.0%) 11-20

years and 111 (21.2%) of the above 20 years poultry farm entrepreneurs. The distribution of

sample respondents according to experience and their successful operation of poultry business is

presented in the following table.

TABLE :1 EXPERIENCE AND SUCCESSFUL OPERATION OF POULTRY BUSINESS

S. No. Experience No. of

Respondents %

Ave

rage

Range S.D

Min Max

1. Up to 5 years 29 5.5 42.6 36.0 48.0 3.8

2. 6-10 years 106 20.3 43.3 36.0 49.0 2.3

3. 11-20 years 277 53.0 42.6 27.0 48.0 2.5

4. Above 20 years 111 21.2 42.4 35.0 48.0 2.6

Total 523 100.0

The above table shows that successful operation of poultry business by the respondents having

below 5 years experience ranges between 36 and 48 with an average of 42.6. The successful

operation of poultry business among the respondents having 6-10 years experience ranges

between 36 and 49 with an average of 43.3. The successful operation of poultry business by the

respondents having 11-20 years experience ranges between 27 and 48 with an average of 42.6.

Finally the successful operation of poultry business among above 20 years of experienced

respondents ranges between 35 and 48 with an average of 42.4. Thus the table reveals that the

respondents belonging to 6-10 years experience have the highest level of successful in poultry

business.

With a view to find the degree of association between the experience and successful operation

of poultry farm, a two - way table was prepared. The following table shows the distribution of

poultry farm entrepreneurs.

TABLE :2 EXPERIENCE AND SUCCESSFUL OPERATION OF POULTRY BUSINESS

(TWO-WAY TABLE)

S. No. Experience Successful operation of poultry business

Total Low Medium High

1. Up to 5 years 10

(14.5)

5

(1.4)

14

(13.3) 29

2. 6-10 years 8

(11.6)

71

(20.3)

27

(25.7) 106

3. 11-20 years 25

(36.2)

209

(59.9)

43

(41.0) 277

4. Above 20 years 26

(37.7)

64

(18.3)

21

(20.0) 111

Total 69 349 105 523

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In order to find the relationship between experiences of the respondents and their level of

successful in the poultry business, a chi-square table was prepared and is shown in the following

table.

H0: There is no significant relationship between experience of the respondents in the industry

and the successful operation of poultry business.

H1: There is a significant relationship between experience of the respondents in the industry and

the successful operation of poultry business.

TABLE: 3 EXPERIENCE AND SUCCESSFUL OPERATION OF POULTRY BUSINESS

(CHI-SQUARE TEST)

Factor Calculated 2

Value Table Value D.F Remarks

Experience 56.105 16.811 6 Significant at 1% level

7. DISCUSSION

It is revealed from the analysis that the percentage of high level of successful in poultry

business was the highest (41.0%) among the 11-20 years experienced poultry farm

entrepreneurs and the lowest (13.3%) among the up to 5 years experienced entrepreneurs. The

percentage of medium level of successful in the business was highest (59.9%) among the 11-20

years experienced entrepreneurs and the lowest (1.4%) among up to 5 years experienced

entrepreneurs. On the other hand, the percentage of low level of successful in the business was

the highest (37.7%) among above 20 years experienced entrepreneurs and the lowest (11.6%) of

the 6-10 years experienced poultry farm entrepreneurs.

The chi-square test reveals that the calculated chi-square value is more than the table

value and the result is significant at 1% level. Hence, the hypothesis “Experience of the

respondents and their successful operation in poultry business” holds good. From the analysis, it

is concluded that there is a close relationship between experience of poultry farm entrepreneurs

and their level of successful operation of poultry business.

8. FINDINGS

It is found from the analysis that the respondents having more than 6-10 years of experience

were identified as successful poultry entrepreneurs than the other categories. The chi-square test

is also proved that there is a close relationship between respondents’ experience in poultry

business and their successful operation.

9. CONCLUSION

The poultry industry occupies an important role in the economy of India because of its

contribution to the industrial output as well as the generation of the employment. As many

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restrictions are removed, the poultry entrepreneurs should concentrate on modern technologies,

innovative ideas and improved quality to compete with the global competition and to run the

industry with higher profitability. The state Government also has to take meticulous care and

should analyze the problems of poultry industry and create awareness among the poultry

entrepreneurs to manage efficiently by analyzing new trends in the study area.

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4. Acharya, S.S. and R.L. Jogi. “Minimum Support Prices in India: Some Issues”, Working

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poor countries with weak policy instruments?” Unpublished paper, University of

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

A STUDY ON FACTORS INFLUENCING FOR NON MIGRATION TO

URBAN AREA WITH SPECIAL REFERENCE TO KANCHEEPURAM

TALUK

DR. K. S. MEENAKSHISUNDARAM*; DR. N. PANCHANATHAM**

*Professor & Director,

SCSVMV University,

Enathur, Kancheepuram.

**Professor & Head,

Department of Business Administration,

Annamalai University,

Chidambaram.

ABSTRACT

Rural urban migration of agricultural labourers has created a huge cry for labour

and there is a problem of labour scarcity making the farming activities still worse.

But the fact remains that it is possible to get food grains owing to the fact that still

there are agricultural labourers (non migrants) who are the feeders. It becomes

essential to know why these agricultural labourers who remain in the villages and

what are the reasons for their non migration to urban areas. The results reveal these

non migrants have commitment and personal factors which have made them to

remain in the villages.

KEYWORDS: Rural urban migration, non migration & factor analysis.

__________________________________________________________________________

INTRODUCTION

Human migration is the movement made by humans from one place to another. It is common

and becomes easy also due to rapid transport facilities available for such quick movements.

Hence it is a known fact that not only people from the rural areas move but also people from

semi urban and rural areas also move to urban areas owing to the greater potential for

employment and better living conditions. Due to globalisation, liberalisation and due to rapid

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industrialisation agricultural labourers have also migrated creating big gap in their availability

and even the farmer who is interested to cultivate is not able to effectively do his occupation and

hence forced to sell his lands by exploitation of the real estate agents. But the very fact remains

that the entire World population have to depend only on the rural population who only feeds all.

Due migration, rapid urbanisation has taken place which leads to certain negative effects such

as heavy population, congestion, environmental pollution, scarcity for water, lack of shelter,

sanitation, lack of proper employment and thus leading to increase in crime rate. Taking in to

account of all the ill effects of migration to urban areas it becomes essential to know from the

angle of non migrants agricultural labouerers what reasons they will attribute for their non

migration to urban areas and why they wanted to remain in the villages though they are aware of

urban facilities and living conditions. Hence a research was conducted to know the reasons for

non migration by non migrants to urban areas.

REVIEW OF LITERATURE

Afsar (2003) stated in his research that the easier movement back and forth from rural and urban

areas serves to improve access to information. Due to the improvement in communication

systems, in many cases migrants are no longer faced with an unknown destination. This in turn

lowers the risks of movement, thereby increasing the chances of rural residents locating jobs in

the urban centers.

According to Ramasubramanian (2003), farmers involved only in agriculture would have

employment only during seasons and hence, they migrate during off-seasons. On the other hand,

when they have cattle in their farm, their presence is needed throughout the year. This restricts

their level of migration.

Reetika Khera (2006) in her open page essay on migration, in general, concluded that public

works offering relatively predictable employment opportunities are likely to be particularly

effective in slowing down rural-urban migration, and also said NREGA is a unique opportunity

to protect people from hardships of distress migration. She also highlighted her experience,

where the migration fell drastically, as the scale of relief works in the sample villages grew, in

the state of Rajasthan, India.

Soumya Mohanty (2012) MGNREGA (earlier known as NREGA) provides an alternative source

of livelihood which will have an impact on reducing migration, restricting child labour,

alleviating poverty, and making villages self-sustaining through productive assets creation such

as road construction, cleaning up of water tanks, soil and water conservation work, etc. which it

has been considered as the largest anti-poverty programme in the world. But the success of this

Act depends upon its proper implementation. MGNREGA also mitigates seasonal/distress

migration which has been a significant source of employment and income for a large proportion

of rural population

METHODOLOGY

Respondents for this study were selected based on the total number of agricultural labourer

population of Kancheepuram District as per 2001 census. For selection of district out of thirty

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districts one district Kancheepuram was selected in first stage. In the second stage one taluk

Kancheepuram was selected among the thirteen taluks and in third stage two blocks

Kancheepuram and Walajabad were selected. From each selected block three villages were

selected in the fourth stage. At last in the fifth stage 205non-migrants respondents were selected

from each selected village. The perception of non-migrants responsible for non-migration to

urban areas was obtained using a scale developed by Olayiwola (2005) with slight modification

.A scale was developed in a five point continuum and used for this study.

RESULTS AND DISCUSSION

FACTOR ANALYSIS

TOTAL VARIANCE EXPLAINED BY INITIAL EIGEN VALUES

Component

Initial eigen values

Total Percentage of

variance Cumulative Percentage

1 6.418 64.184 64.184

2 1.847 18.470 82.654

Extraction method: Principal component analysis

Varimax Rotated Factor Loading Matrix

Factors of Non-Migrants Responsible for Non-Migration to

Urban Areas (n=205)

Sl.

No.

Factors Responsible for Non-Migration

to Urban Areas

Factor loadings Communalities

(h2) F1 F2

1 To Manage Ancestral Family Property (X1) 0.696 0.758

2 Acting as Head in The Village (X2) 0.926 0.872

3

To take care of elderly relatives who are

sentimentally attached to

village (X3)

0.770 0.859

4 Self-Satisfied in the village (X4) 0.798 0.637

5 Engaged in the most willing occupation

(X5) 0.718 0.542

6 Proud to do family occupation and

maintain status in the village (X6) 0.913 0.908

7

Since Urban Migration will make to lose

the identity and will create a distance

among the villagers. (X7)

0.756 0.937

8 Like to Live in a peaceful environment

(X8) 0.905 0.889

9 Like to be in a clean natural environment 0.896 0.933

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(X9)

10 Since cost of living is cheaper (X10) 0.964 0.931

Eigen values 4.194 4.071

Percentage of variance explained 41.942 40.712

Percentage of cumulative variance

explained 41.942

82.654

Source: Primary Data

As evident from Table 4.112 that 2 factors extracted together account for

87 per cent of total variance. Hence the number of variables has been reduced from 10 to 2

underlying factors.

Variables X1- To Manage Ancestral Family Property loaded as 0.696, X2- Acting as

Head in The Village (0.926), X3- To take care of elderly relatives who are sentimentally attached

to village (0.770), X4- Self-Satisfied in the village (0.798) and X7- Since Urban Migration will

make to lose the identity and will create a distance among the villagers (0.756) on factor 1. These

factors can be named as “Commitment Factors”.

As for factor 2, it is evident that X10- Since cost of living is cheaper has the highest load

of 0.964, X6- Proud to do family occupation and maintain status in the village loaded as 0.913,

X8- Like to Live in a peaceful environment loaded as 0.905, X9 - Like to be in a clean natural

environment loaded as 0.896 and X5- Engaged in the most willing occupation loaded as 0.718,

this factors can be termed as “Personal Willing Factors”.

CONCLUSION

From the results it may be seen that there are farm labourers who does not wanted to migrate to

urban due to many factors and it is necessary to keep them engaged profitably in farming so as to

attract migrants also back to be involved in cultivation .Hence the following suggestions are

made to keep the farming activities interesting and profitable both the cultivators and labourers.

The wards of agricultural labourers have to be taken special care by allowing special concession

in admission of schools, colleges. The educational institutes may implement this as a measure of

social responsibility and it is a chance to serve to the poor who are toiling in hot sun and heavy

rains to feed the Nation

Agricultural labourers and his family members can be provided with free medical treatment. The

medical establishments can do this as a measure of social responsibility and it is a chance to

serve to the poor who are toiling in hot sun and heavy rains to feed the Nation.

It is essential that basic infrastructure facilities like hospitals, schools and other basic

requirements have to be made available in rural areas. This could be done through the scheme

Providing Urban Facilities in Rural Areas (PURA) which will attract the migrated agricultural

labourers.

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REFERENCES

1 Afsar, R. 2003. Dynamics of poverty, development and population mobility: The

Bangladesh case. Asia Pacific Journal, 19(2): 69-78.

2 Olayiwola, F.O. 2005. Perception of Rural-Urban Migration in Selected Rural

Communities in Ondo State, Nigeria. Available at: www.irsa-

world.org/XII/papers/16,17-3.pdf

3 Ramasubramanian, M. 2003. Developing strategies for sustainable dry farming. Unpub.

Ph.D. Thesis, TNAU, Coimbatore.

4 Reetika Khere.2006. “Employment Guarantee and Migration,” The Hindu 129(198),

Op.Ed 9.

5 Soumya Mohanty. 2012. “Mahatma Gandhi National Rural Employment Guarantee Act

(MGNREGA) and Tribal Livelihoods: A Case Study in Sundargarh District of Odisha”-

A Dissertation Submitted for the Master Degree in Development Studies, Department of

Humanities and Social Sciences, National Institute of Technology, Rourkela , Odisha,

India, May 2012.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

MINOR IRRIGATION DEVELOPMENT AND POLOCIES IN MODERN

SYSTEMS UNDER DIFFERENT SOURCES IN ANDHRA PRADESH

DR. RADHA RANI KOTHAKALLA*

*Department of Commerce,

U C C & B M,

Osmania University,

Hyderabad, India.

ABSTRACT

Minor irrigation holds the key for the equitable, quick and effective expansion in the

agriculture sector leading to a sustainable growth in the rural economy particularly

in undulating terrain of Deccan Peninsula. Centrality of minor irrigation in rural

economy was highlighted in no uncertain terms by the high level committee

constituted by the Government of Andhra Pradesh to study the implications and

factors responsible for the phenomenon of escalating farmer’s suicides. The Jayati

Ghosh Committee looking into the conditions responsible for creating an adverse

atmosphere for the farmer picked up the declining tank irrigation systems for special

mention as one of the factors precipitating farmer’s - insecurities. The key policy

focus of the new minor irrigation approach was focused integration between new

tanks, groundwater potential leading to a creation of additional capacity in the next

five years, revival and restoration of old tanks, etc. The success of the minor

irrigation strategy depends on accurate and implementation of the projects. The new

minor irrigation approach had expanded the focus from the traditional engineering,

pre- occupation of conducting civil works, to include a range of activities that the

department did not have the qualification and experience to undertake. This paper

stresses a new implementation strategy and institutional arrangement needed to be

created to enable establishment of a multi – disciplinary integrated water

management system in place.

____________________________________________________________________________

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INTRODUCTION

The secret of rapid agricultural progress in the underdeveloped countries is to be found much

more in agricultural extension, in fertilizers, in new seeds, in pesticides and in water supplies.

Water is indispensable to agricultural production. In areas as where rainfall is plentiful and well

distributed over the year, there is no problem of water. But rainfall in certain areas is usually

scanty as well as uncertain. An important constituent of the current strategy for raising

agricultural production is the increasing agricultural facilities particularly lies under minor

irrigational development through tanks, wells, tube wells and also adopting modern systems.

Minor irrigation holds the key for an equitable, quick and effective expansion in the

undulating terrain of Deccan Peninsula centrality of minor irrigation, in rural economy was

highlighted by the Government of Andhra Pradesh to study the implications and factors

responsible for the phenomenon of escalating farmers suicides. The Jayati Ghosh committee

looking into the conditions responsible for creating an adverse atmosphere for the farmer picked

up the declining tank irrigation systems for special mention as one of the factors precipitating

farmer’s insecurities.

In India irrigation works are classified into major and minor irrigation works. Our study

discusses the minor irrigation development under tanks, wells, tube wells and modern systems

and policies in Andhra Pradesh.

All ground water and surface water schemes that have a Cultivable Command Area

(CCA) up to 2,000 Hectors, individually are classified as minor irrigation schemes. The

development of ground water is mostly don through individual and co-operative efforts of the

farmer’s, with its help of institutional finance and through own savings. Surface water irrigation

schemes are generally funded from the public sector outlay.

The irrigation potential created and utilized under minor irrigation in various plan periods

by ministry of water resource is given in the table below

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IRRIGATION POTENTIAL CREATED AND UTILISED UNDER MINOR

IRRIGATION SCHEME

Period Potential Created (Million

Hectors)

Potential Utilized (Million

Hectors)

Up to 1951 (Pre-Plan Period) 12.90 12.90

First Plan 14.06 14.06

Second Plan 14.75 14.75

Third Plan 13.00 17.00

Annual Plans (1966-69) 19.00 19.00

Fourth Plan 23.50 23.50

Fifth Plan 27.30 27.30

Annual Plans (1978-80) 30.00 30.00

Sixth Plan 37.52 35.25

Seventh Plan 46.61 43.12

Annual Plans (1990-92) 50.35 46.54

Eight Plan 53.31 48.77

Ninth Plan (1997-2002) 56.90 49.05

Tenth Plan (2002-2007) 63.71 54.49

Source: Ministry of water resources ( 2007)

The above table shows the irrigational potential created and utilized during various plans

is shown.

The success of the minor irrigation strategy depended on accurate and tiny minor

approach had expanded the focus from the traditional energy works, to include a range of

activities that the department did not have the water management agenda of the tank bodies was

to include livelihoods to stakeholders of tank waters in all activities related to tank maintenance.

All the arrangement needed to be created to enable establishment of a multi-discipline in place.

Delineation of designated circles for minor irrigation works and created of PIM in tank

management there were two significant interventions made for management.

In Andhra Pradesh, minor irrigation in rural economy was highlighted by a high level

committee constituted by the Government of Andhra Pradesh to study and implications and

factors responsible for the phenomenon of escalating farmers suicides. The development of

minor irrigation in Andhra Pradesh, the Government of Andhra Pradesh constituted the Jayathi

Ghosh Committee to study the agricultural crises and increasing famer’s suicides in the state

in 2003.

In order to expand irrigational facilities the government of India adopted the following

program called NABARD.

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a) NABARD has set up Rural Infrastructure Development Fund (RIDF) under which loans

are granted to states for speedy completion of minor irrigational projects.

b) The Ministry of Water Resources has been implementing the centrally sponsored plan

scheme “rationalization of minor irrigation statistics (RMS)” since the seventh five year

plan.

MINOR IRRIGATION IN ANDHRA PRADESH

The State has the largest number of tanks amounting to almost 80,000 tanks and the largest area

estimates put the figure at almost 1.8 million hectors some even in the semi and drought prone

areas under irrigation in the country. If all the range of minor irrigation such as tanks, lift

irrigation systems and ground water based irrigation are included, the minor irrigation almost

67% of the irrigation in the state. In the total potential created by utilizing available water

resources through major, medium and minor irrigation sources which is almost 3.6 million

hectors, the minor irrigation component of 1,792 compares well with the potential created by the

major and medium irrigation (1.560 and 0.264 million Hectors).

The Jayathi Ghosh Committee constituted to study the agricultural crises and increasing

farmers suicides in the state in 2003 categorically highlighted the lack of policy focus on the

marginalized sections in rural areas. The committee traced the crises in agriculture in the state to

the public policy deficiency which reduced the protection accorded to farmers by exposing them

to volatility of markets, reduced critical expenditure that destroyed institutional protection and

the failure to generate alternate non-agricultural economic activities. The uneven distribution of

canal irrigation and the decline of surface water sources especially tanks were found to be

responsible for the escalating expenditure of the poor farmers for accessing water in drought

prone conditions.

The Jayathi Ghosh Committee reported that, “The top priority must be given to the

cleaning, repairing, maintenance and development of tanks and ponds”. This must be done in a

mission mode on an urgent basis, possibly using labour resources that will be made available

under the Employment Guarantee Programme of the Central Government. Further, feeder

channels to many tanks have been cut or destroyed must be restored. The direction of the policy

spotlight on the minor irrigation identified to address the agrarian crisis threw up a host of issues

and possibilities opening a new stage in irrigation development in the state.

NEW APPROACH IN MINOR IRRIGATION IN ANDHRA PRADESH

The minor irrigation has failed to generate political and administrative attention and operating in

a domain, long neglected by policy makers was the legacy which the department had to

improvise upon the deliberations and discussions initiated in this connection zeroed in one an

overall objective of reviving the potential of minor irrigation.

The key policy focus of the new minor irrigation approach was on targeting focused

integration between new tanks, dilapidated tanks and ground water potential leading to a creation

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of additional capacity in the next five years. The key areas of the focus were new tanks,

restoration of old tanks, ground water management, RIDF, etc.,

NEW TANKS: The first component of the minor irrigation strategy was on creating new

irrigation potential through the construction of new tanks especially in arid and Drought prone

districts like Adilabad, where there was little scope for providing alternative irrigation options.

Building of new tanks based on hydrological and financial feasibility studies was targeted to

generate an additional irrigation potential of about 10 lakh acres in the state. The tank revival and

restoration process has been incorporated within the guiding framework for the conduct of the

repair of National Projects, renovation and restoration of water bodies directly linked to

agriculture.

REVIVAL AND RESTORATION OF OLD TANKS

Andhra Pradesh by 2005 had an existing irrigation potential of 35 lakh acres. However operating

at 30% efficiency, the state was actually utilizing just above 10 lakh irrigation potential. The

state through revival and restoration of old tank structures intended to improve the water use

efficiency of these minor systems to almost 60% resulting in actualization of additional 10 lakh

acres irrigation capacity.

GROUND WATER MANAGEMENT

The third important focus in the minor irrigation strategy was on facilitation conjunctive use of

surface and ground water through addressing ground water management concerns. The thrust

was on creating additional capacity in tribal areas in Northern Andhra Pradesh that have

traditionally fallen outside conventional irrigation system.

FUNDING OF THE NEW MINOR IRRIGATION TANKS IN ANDHRA PRADESH

The building of New Minor tank water bodies were to be funded by accelerated irrigation benefit

programme – AIBP (The National Government Provides 90% grant to the state

Governments).The RIDF (the state governments are granted loan from NABARD) from the state

paln.

NEW MINOR IRRIGATION TANKS UNDER RURAL INFRASTRUCTURE

DEVELOPMENT FUND – (RIDF)

NABARD: The government has taken up 172 schemes under minor irrigation sector with

NABARD assistance at an estimated value of Rs.4,545.60 million. The newly proposed tanks are

being constructed in 21 districts except in Krishna and Hyderabad districts of Andhra Pradesh

which is to be completed in 5 year period.

ANDHRA PRADESH IRRIGATION AND LIVELIHOOD IMPROVEMENT PROJECT

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Funded by Japan Bank for international cooperation JBIC (Now renamed as Japan International

Cooperation Agency JICA). 39 new minor irrigation tanks are proposed under this project to

create new irrigation potential of 30,521 Ha with a tentative cost of Rs.3,571 million.

ACCELERATED IRRIGATION BENEFIT PROGRAMME IN ANDHRA PRADESH

New Minor irrigation projects taken up under AIBP in drought prone area programme (DPAP)

and tribal areas are constructed in Visakhapatnam, Prakasam, Kurnool, Chittoor, Nalgonda,

Mahaboob nagar and Adilabad districts and 61 minor irrigation projects are proposed to be

constructed with an amount of Rs.16872 lakhs.

NEW MINOR IRRIGATION SCHEMES UNDER STATE PLAN IN ANDHRA

PRADESH

About 112 minor irrigation projects taken up under this programme with a cost of Rs.38913

lakhs, New minor irrigation projects are also taken up under normal plan in Srikakulam,

Vizianagaram, Vaisakhapatnam, East Godavari, West Godavari, Prakasam, Nellore, Kurnool,

Kadapa, Chittoor, Ranga Reddy, Nalgonda, Mahaboob Nagar, Medak, Nizamabad, Adilabad,

Warangal, Karimnagar and Khammam.

REPAIR AND RESTORATION OF OLD TANKS OF MINOR IRRIGATION IN

ANDHRA PRADESH

The restoration of Old tanks undertaken by the Government of India Pilot Projects on “National

Project on repair, renovation and restoration of water bodies directly linked to agriculture in

January 2005. The following are the projects for restoration of existing tanks by Government of

India.

1. STATE PLAN: Restoration of 1939 minor irrigation tanks is being taken up under the state

plan in the 22 districts with a budget allocation of Rs.3195.70 millions.

2. RRR PROJECT: For restoration minor irrigation tanks in the state, the I & CAD

Department, Government of Andhra Pradesh has implemented a Pilot Project called repair,

renovate and restoration of water bodies directly linked to agriculture (RRR Project).

3. A.P.COMMUNITY BASED TANK MANAGEMENT PROJECT: The project envisages

rehabilitation and restoration of about 3000 minor irrigation tanks for agriculture

improvement and livelihood enhancement. The project cost of Rs.10,440 million for

modernization of all the tanks. The project is spread over 499 mandals in 21 districts of the

state with a time frame of 5 years. The project is implemented by I & CAD Department,

Government of Andhra Pradesh, with the financial assistance from Government of India

(25%) and World Bank (75%).

CONSOLIDATION OF MINOR IRRIGATION IN ANDHRA PRADESH

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The effective utilization of irrigational potential created by tank restoration depended upon the

regular and continuous maintenance of the tank infrastructure. The low operation and

maintenance funds and lack of political concern in minor irrigation were major constraints

seriously undermining the maintenance of tank systems. An effort was made to overcome this

inherent limitation by involving the community and laying grounds for the creation of a corpus

fund for financial sustainability of tanks. The Project – APCBTMP – undertaken as a part of the

externally aided RRR Project with loan from the World Bank attempted to create and develop a

strategy for continued physical and financial sustainability of tank systems.

The success of the minor irrigation strategy depended on accurate and timely

implementation of the Projects. The new minor irrigation approach had expanded the focus from

the traditional engineering pre occupation of conducting civil works, to include a range of

activities that the department did not have the qualification and experience to undertake. A new

implementation strategy and institutional arrangement needed to be created to enable

establishment of a multi-disciplinary integrated water management system in place. Another key

input of the new strategy on minor irrigation was factoring of community participation and

commitment into tank management. The key to the sustainability of the project was the

meaningful participation by the community in design and implementation of the project and in

accepting full responsibilities for future O & M the tank system in Andhra Pradesh.

REFERENCES

1. Brewer, J.Kolavalli, S.Kolro, A.H.Naik, G.Ramanarayan, S.Raju, K.V.Shaklivadival, R.

(1999) : Irrigation Management Transfer in India Policies Processes and Performance, A

collaborative study by IIM, Ahemadabad, Oxford & IBH Publishing Co.Pvt.Ltd.

2. Dr.Jaya Chatterji (2003): People participation in irrigation management, Kurukshetra,

October, pp 38-41.

3. Government of Andhra Pradesh Amendment (2003): The Andhra Pradesh farmers

management of irrigation systems act of 1997: Irrigation and command area development

department.

4. Datt & Sundaram 62nd

revised edition: irrigation and other agricultural inputs P – 540.

5. M.Devendar Reddy & R.Vijaya Kumari (2007): “Water Management in Andhra Pradesh,

India”, Indo-US workshop on innovative, E-Technologies for efficient water management,

ICRISAT, A.P, March 5-9.

6. www.india.gov.in

7. Hanumantha Rao, C.H., Mahendradeva.S. (2003) : Economic Reform and Challenges ahead,

on overview, Andhra Pradesh, Development Economic Reforms and Challenges ahead.

CESS Publication, Hyderabad.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

CORPORATE SOCIAL RESPONSIBILITY AND PHILANTHROPY –

ESSENTIAL TOOLS FOR BUILDING STRONG BRANDS;

A MARKETING PERSPECTIVE

M V A L NARASIMHA RAO*; S RAMESH BABU**; DR. M KISHORE BABU***

*Assistant Professor,

K L U Business School,

K L University,

Vaddeswaram, Guntur.

**Assistant Professor,

K L U Business School,

K L University,

Vaddeswaram, Guntur.

***Associate Professor,

K L U Business School,

K L University,

Vaddeswaram, Guntur.

ABSTRACT

Corporate social responsibility and corporate philanthropy are essential in building

a brand. In the current global scenario, corporate are adapting Corporate Social

Responsibility as an important strategy in order to maintain competitive advantage

and long term sustainability in the markets. Further, it is becoming an essential tool

to build strong brands. Corporate Philanthropy is done without any expectation of

direct corporate gain such as increase in revenue, but usually involves indirect gains

such as enhancing a company’s brand, Engaging employees, Recognition, etc.

Where as strong brand is another competitive advantage of the “Enlightened self-

interest.”

The purpose of this research paper is to explore the importance of Corporate Social

Responsibility and Corporate Philanthropy as tools to build strong brands. The

study is felt important in the context of globalization, increasing competition in the

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markets and the decreasing effectiveness of traditional brand building strategies

which can not make any distinction from among the players in the market.

This study is based on literature review covering the concepts of corporate social

responsibility, corporate philanthropy connected to brand building strategies. The

key concepts of building brands, developing competitive advantage, building trust

among the consumers and developing favorable corporate image are thoroughly

reviewed from different research papers and an attempt is made to discuss the

impact of corporate social responsibility and philanthropy on building strong

brands.

The paper highlights that, Corporate Social Responsibility and Corporate

Philanthropy are becoming more and more important elements in making strategies

for brand building. Further, it is identified that the favorable impact created among

consumers and in the society at large through the corporate social responsibility and

philanthropic activities can be leveraged to build the brand strength in the market.

KEYWORDS: Corporate Social Responsibility, Corporate Philanthropy, Brand

building, Brand image.

______________________________________________________________________________

INTRODUCTION

In the context of globalization and the emergence of global players in the market many of the

companies have been experiencing a great competition in the markets. Apart from regular

marketing efforts to cope up the increasing competitions, the organizations are adopting

Corporate Social Responsibility (CSR) and Corporate Philanthropy (CP) as the tools for

branding their products. “Doing good” has become the new slogan for the companies in 2010.

There is no agreed definition regarding this concept for 30 years. Later in 1960, Keith Davis

suggested that social responsibility refers to business.

World Business Council for Sustainable Development defines Corporate Social economic

development while improving the quality of life of the workforce and their families as well as of

the local community and society at large.”

In recent past many companies have focused on the strategic Implications of CSR. It is

defined by Mc Williams and Siegel (2001) as situations where the firm goes beyond compliance

and engages in ‘actions that appear to further some social good, beyond the interests of the firm

and that which is required by law’.

Jamshedji Tata the founder of the Tata Group has beautifully defined the Corporate Social

Responsibility by emphasizing the importance of community in business. He stated “The clear

definition of Corporate Social Responsibility is that the community is not just another

stakeholder in our business but the very purpose of our existence.”

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Corporate Social Responsibility provides benefits an organization in creating a good

reputation makes it easier to recruit employees, makes employees stay longer, helps in reducing

the costs and disruption of recruitment and retraining, in motivating the employees and making

them more productive, helps ensure you comply with regulatory requirements. Activities such as

involvement with the local community are ideal opportunities to generate positive press

coverage.

Maintaining good relationship with local authorities makes doing business easier. Even

understanding the wider impact of your business can help you develop new products and

services. CSR can make your organization more competitive and reduces the risk of sudden

damage to your reputation (and sales). Even, investors recognize this and they will be more

willing to finance.

Corporate Philanthropy is another beautiful tool which is adapted by many of the corporate

companies in India. Corporate Philanthropy is the act of corporations donating some amount of

their profits, or their resources, to non-profit organizations.

Many companies are following these practices to create a positive corporate image in the

minds of the consumers and society at large. The Corporate Social Responsibility is adapted by

the companies in different dimensions viz. Corporate Philanthropy, Ethical Business Processes

and Products offering.

TYPES OF CSR INITIATIVES

CSR has a wide scope of activities. Kotler and Lee (2005) identified six different types of CSR

initiatives: cause promotion, cause-related marketing, corporate social marketing, corporate

philanthropy, community volunteering, and socially responsible business practice.

CAUSE PROMOTION: A chief objective of ‘Cause Promotion” is to build awareness and

concern for social causes by creating awareness among the public of the facts and statistics about

a cause. It persuades people to find out more about the cause, donate time, donate money, donate

non monetary resources, and participate in events. Contributions or support provided to a cause

are not tied to the sale of specific products. Cause Promotion involves business activities such as

designing and distributing cause related material, volunteering, participating in public relations

activities, and engaging in sponsorships (Kotler & Lee, 2005).

CAUSE-RELATED MARKETING: “A corporation commits to making a contribution or

donating a percentage of revenues to a specific cause based on product sales. Most commonly

this offer is for an announced period of time and for a specific product and a specified charity”,

(Kotler & Lee, 2005, p. 81-82). The distinctive feature of cause related marketing is the

relationship with product sales. It is a mutual relationship between a corporate company and a

non-profit organisation. A corporate company develops a cooperative relationship with a non-

profit organization to establish a mutually benefited relationship that intentionally provides an

increase product sales as well as funds to the charity. Moreover, the marketing department will

take an active part in this activity, because its intention is to increase sales (Kotler & Lee, 2005).

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But there is some disadvantage because of this approach. According to Smith (2003), this

initiative potentially causes a problem when customers perceive that a company is engaging in

this activity only with an intention to increase the company’s sales and in turn profits.

CORPORATE SOCIAL MARKETING: Kotler and Lee (2005) refer to corporate social

marketing as when “a corporation supports the development and/or implementation of a behavior

change campaign intended to improve public health, safety, the environment, or community

well-being” (p. 23). In addition, it tends to be a cooperation between a company and the public

sector such as federal, state, health department, and utilities. Examples of this initiative are the

Philip Morris campaign to encourage parents to talk to their children about tobacco and Home

Depot’s collaboration with a water utility to promote water conservation tips.

CORPORATE PHILANTHROPY: Corporate philanthropy is the most traditional form of

CSR. In this kind of CSR initiative, a corporate company directly contributes to charity or

causes. Typical philanthropic programs include donating cash/products/services, providing

technical expertise, offering the use of equipment, and allowing the use of facilities and

distribution channels. Corporate philanthropy, in other terms, known as community giving,

community relations, corporate citizenship, or community affairs, has been strategically used to

build good corporate image. (Kotler & Lee, 2005).

COMMUNITY VOLUNTEERING: Kotler and Lee indicate community volunteering is an

initiative in which “a corporation supports and encourages employees, retail partners, and/or

franchise members to volunteer their time to support local community organizations and causes”

(2005, p. 24). They also state that a corporation may mandate a form of community volunteering

itself or let employees choose an activity to be supported by a company in the form of getting

paid time off. This initiative can build the strongest relationship between a corporation and a

community as a result of a sincere corporate spirit of doing something good for a community.

SOCIALLY RESPONSIBLE BUSINESS PRACTICES: In this type of CSR initiative, “A

corporation adopts and conducts discretionary business practices and investments that support

social causes to improve community well-being and protect the environment” (Kotler & Lee,

2005, p. 24). The conceptual jargon viz. discretionary activities, community, and well-being

distinguish this type of CSR initiatives from others. Discretionary activities are the activities

which are not mandated by law. They are because of the morality and ethics of a corporation.

Community refers to everyone who is involved with a business. Well-being refers to

psychological and emotional health and safety (Kotler & Lee, 2005).

CSR AS A MULTI-LAYER CONCEPT: Caroll (1991) proposed a model called “The Pyramid

of Corporate Social Responsibility’ which is a multi-layer concept encompassing four related

responsibilities: economic, legal, ethical, and philanthropic. These four levels of responsibility

are placed on an organization by society at any given point in time (Caroll & Buchholtz, 2000).

ECONOMIC RESPONSIBILITY: This facet is the very basic responsibility of business firms.

Historically, business firms are responsible for properly functioning as an economic unit in a

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society. They are basically responsible for providing products and services needed by a society.

This facet is considered a basis of subsequent facets (Caroll, 1991).

LEGAL RESPONSIBILITY: Business firms are also expected by a society to operate within

the framework of laws and regulations. Laws and regulations are codification of society’s norms;

thus, business firms must comply with them in order to fulfill their responsibility to a society. All

corporations must have this responsibility in order to continue to operate (Caroll, 1991).

ETHICAL RESPONSIBILITY: This facet reflects the ethical obligation for business firms to

do things that are considered right, fair, and just by a society, regardless of whether they are

codified into law. This facet is not just the next layer of the pyramid; it also has a dynamic

interplay with legal responsibility. In other words, ethical responsibility regularly broadens legal

responsibility and pushes business firms to operate their business above or at the same level

required by law (Caroll, 1991).

FIGURE 1: THE PYRAMID OF CORPORATE SOCIAL RESPONSIBILITY

(CAROLL, 1991, P. 42)

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Source: Caroll, A. B. 1991. The pyramid of corporate social responsibility: toward the moral

management of organizational stakeholders. Business Horizons

Philanthropic Responsibility: This responsibility is at the top of the pyramid. Business

firms are expected to be good corporate citizens by providing goodwill to a community, such as

engaging in charitable events and providing financial resources to a non-profit organization. This

facet is distinct from ethical responsibility. That is, philanthropic responsibility is not required by

society like ethical responsibility is. People will not consider a business firm unethical if it does

not have philanthropic responsibility, but it is the desire of society (Caroll, 1991).

COMMITTEE ENCOURAGING CORPORATE PHILANTHROPY

At global level a committee is also evolved to lead the business community towards the

philanthropic activities which is known as Committee Encouraging Corporate Philanthropy

(CECP). Many of the world’s most influential CEOs are CECP members, leading the charge to

make a difference through corporate philanthropy. Many people argue that companies have to

strategically use its charitable activities to create their own winning opportunities and for the

beneficiaries if the Philanthropy. The strategic relevance of this is more predominantly accepted

and its effectiveness will be varying substantially from one organization to other. This variance

is due to the difference in the way of understanding the spirit of philanthropy and the degree of

commitment towards that. We can easily understand this by the saying that “Effective

Philanthropy must be run no less professionally than the core Business”.

Benefits of Corporate Philanthropy will be like improving competitive advantages in

attracting and retaining employees, maintaining closer relationships with community leaders and

officials will enhance greater customer loyalty, creates increased name-recognition and brand

awareness, maintains beneficial business-to-business relationships with nonprofit organizations,

acts as reservoir of community goodwill that can serve you in a time of crisis, enhances

leadership development opportunities and improved internal communication and sense of

common purpose.

REVIEW OF LITERATURE

A lot of Research has been done not only in our country but also globally on how to build strong

Brands by using Corporate Social Responsibility and Corporate philanthropy as tools. Research

reveals that majority of the Top listed Multi National Companies are enjoying a considerably

high market share than other companies who have not incorporated these tools in their Brand

building Strategies.

Majority of the companies say that they included corporate social responsibility not only

because they are doing something good for society, but also because it strengthens their brand. If

a company plans improve the brand image they are supposed to include CSR &CP in an

appropriate degree along with their brand building strategies. Aligning these two tools with the

business strategy will fetch more social and business value for the organization.

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Economic Times of India made a survey regarding CSR reveals that majority of the

companies have increased the amounts they are spending towards donations has grew up to 8%

by the end of the fiscal year 2009.Around 108 companies have donated 20% more when

compared to the previous year.

Vaaland, Heide and Gronhaug (2008) suggest that corporations need to proactively manage

stakeholder concern for Ethical, Social and Environmental phenomena for the benefit of the

organization. In this context Castaldo, Perrini, Misani and Tencati (2009) have explained the link

between Corporate Social Responsibility and fair trade practices.

Sabyasachi Mishra, chief growth officer of Lowe Lintas India expressed his views on CSR

that it can be real force as a strategic and competitive branding tool among the consumers. CSR

offers in constructing reliable platforms for communication for a brand. As an agency they

explored this opportunity for some of their clients and they continued to improve their domain

understanding and know-how in order to advise their clients better.

Michael E. Porter and Mark R. Kramer (2002) expressed their views that seeing economic

and social objectives is been seen as the distinct and more often competing aspect. But, the

article says that it is a false Dichotomy and it represents an increasing outdated perspective in a

world of open and knowledge based competition where companies won’t be function in

separation from the society around them.

Michel E. Porter and Mark R. Kramer (2006) explained the four prevailing justifications for

CSR. Those four justifications are Moral obligation, sustainability, License to operate and

Reputation. Reputation is used by many of the companies in order to justify the initiatives of

CSR on the grounds that they will enhance a company’s image, strengthen its brand, invigorate

Morale, which also raises the value of the stock in turn.

Adam Lindgreen, et al (2009), expresses that CSR practices are more predominant in

organizations that adopt relational marketing practices. All types of these practices receive

positive influences by one or more types of relational marketing practices. In building and

engaging in relationships, networks, and interactions with all stakeholders, customers and

managers look after CSR initiatives those which generate support, trust and loyalty from

stakeholders, especially as product differentiation becomes increasingly difficult.

RELATIONSHIP BETWEEN CSR, ATTITUDE TOWARD BRAND AND PURCHASE

INTENTION

A lot of research has been undertaken all around the world to study the relationship between

CSR and customer attitude towards corporate and brands. Many research studies have

demonstrated a positive relationship between CSR and consumers’ attitudes toward companies

or brands (Brown & Dacin 1997; Sen & Bhattacharya, 2001; Maignan & Ferrell, 2001).

Organizations are a part of society. They have to rely on society’s acceptance to continue to

operate without interference. It is evident that, acceptance from society allows organizations to

build positive consumer attitudes toward their brands and services (Duagherty, 2001; Werder,

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2008). Consumers generally expect business firms to contribute to the public (Quelch & Jocz,

2009). Branco and Rodrigues (2006) state that firms are expected to fulfill stakeholders’

expectations to gain reputations. Thus, CSR is the most effective tool to demonstrate the firm’s

care about stakeholders and their expectations. Moreover, Fombrun, Gardberg, and Barnett

(2000) opined that CSR will endow with a positive image for the companies and help them to tie

themselves to stakeholders. Because corporate image comes from stakeholder support (Branco &

Rodrigues, 2006), many companies demonstrate their care towards stakeholders. Ben and

Jerry’s Ice Cream is one example of a successful company that enacts CSR campaigns. Ben and

Jerry’s Ice Cream was founded on the basis of fun, earning a living, and providing something of

value to the community. It also becomes evident that, if companies possess the same values as

their potential customers, they would not have to create a false image (Cohen & Greenfield,

1997). Likewise, Chahal and Sharma (2006) indicate that CSR initiatives can help a company

improve its image and build company equity. So, companies that are perceived as good at CSR

tend to build a good reputation.

In addition, the belief that CSR initiatives can influence consumers’ beliefs and attitudes

toward a company was supported by Werder’s study in 2008. The results of the study conclude

that salient beliefs predict attitudes, and those attitudes, in turn, predict behavioral intentions.

Perceptions of socially responsible behaviors of a company show impact on consumers’

evaluation of service and long-term loyalty to the company. According to Salmones, Crespo, and

del Bosque (2005), in service sectors, CSR positively influences the consumers in the overall

evaluation of services. As for the consumers’ loyalty, CSR has an indirect effect on loyalty

through service valuation.

Many CSR initiatives not only provide a positive image for companies and but also create

positive attitudes toward their brands, and they also positively influence consumers’ purchase

intentions. Creyer and Ross (1997) from their study concluded that ethics and consumer choices

have a positive relationship. In other words, since consumers develop favorable attitude toward

socially responsible companies, they remember those companies and will be more likely to

purchase their products and services. Consequently, CSR can result in good financial

performance.

According to Branco and Rodrigues (2006), a relationship between CSR and financial

performance has been an important topic since 1960. Although the relationship between CSR

and financial performance is still not clear due to a lack of theory and measurement of social

responsibility outcomes, there is limited evidence about the direction of the relationship between

CSR and increased financial performance. There is evidence to suggest that CSR and financial

performance have a positive relationship (Branco & Rodrigues, 2006). Many scholars believe

that CSR and financial performance are interrelated. They argue that social performance is both a

cause and a result of financial performance (i.e., Orlitzky, Schmidt, & Rynes, 2003; Waddock &

Graves, 1997). For instance, for firms that sell products that are consumed or used before

consumers can evaluate or value them, reputation is the primary criteria that consumers use to

decide whether they want to buy a product or not. It is more likely for consumers to choose

products from a company with a better reputation (Branco & Rodrigues, 2006). In contrast,

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companies that do not care about CSR can be perceived as socially irresponsible (Werder, 2008).

Because of this kind of perception among the consumers, these companies may fail to perform.

Especially in prevailing economic recession, CSR has become more significant

marketing strategy than ever before. CSR helps to reestablish consumers’ trust in a company.

The economic downturn has resulted in decreasing consumers’ trust in corporations and caused

people to review their core values. Materialistic value decreases and is replaced by idealistic

value. Consumers expect companies to be socially responsible to become more trustworthy.

Companies are able to build goodwill and develop long term relationship with consumers

because of their commitment demonstrated in social responsibility. The more they demonstrate

that commitment, the more they can build the goodwill and long term relationship (Quelch &

Jocz, 2009). Although there is a lot of acceptance on the positive relationship among CSR

initiatives, attitudes toward corporate organisations, and purchase intentions of the consumers,

some findings are found inconsistent with this. For example, Kim (2006) and Werder (2008) did

not find support for previous research results that favorable attitudes would be likely to influence

purchase intentions. Moreover, many studies have found that the effects of CSR initiatives are

restrained by other factors, such as the type of CSR initiatives and the congruence between a

brand and cause (Ellen, Mohr, &Webb, 2000; Menon & Kahn, 2003). Due to the inconsistency

in research findings related to CSR outcomes, it is important to try to gain more understanding

about whether CSR actually has a positive effect on consumers’ attitudes and purchase

intentions.

CORPORATE SOCIAL RESPONSIBILITY AND PHILANTHROPY IN INDIAN

CORPORATE

In India, many firms have taken the initiatives of CSR practices which have met with varying

needs of the society.

Wipro chairman, Azim Premji recently transferred 12.5% of his holding in Wipro, worth

US$2.2 billion, to the Azim Premji Trust. Wipro chairman He is the first person in the country to

sign up for the Giving Pledge, a commitment by the world's richest people to dedicate the

majority of their wealth to charity. P.N.C. Menon, founder of the Sobha group, has promised to

devote half of his fortune to philanthropic efforts.

P&G’s flagship Corporate Social Responsibility Program Shiksha is an integral part of

it’s global philanthropy program - Live, Learn & Thrive. Now in its 8th year, Shiksha has till

date helped 280,000 underprivileged children access their right to education. The program has

built & supported over 140 schools across India

IBM holds frequent awards for its industry leading employment practices and policies.

Company has a separate department for the operation of CSR initiatives. One of the important

initiatives of IBM is Indian women’s leadership council, whose main objective is to provide

technical, professional and personal development for women. Company issued its first corporate

policy on environmental affairs in the year 1971 and it is working on go green and preserving

natural resources.

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Tata Consultancy Services is India’s largest software service company and has won the

Asian CSR award for initiating community development work and implementing various

programs and devoting leadership and sincerity as ongoing commitment in incorporating ethical

values. Company has developed adult literacy programs to teach adults. Company has adopted

CSR initiatives like developing environment friendly products and services and providing

healthcare for children by supporting children’s hospital in Mumbai.

Infosys, as a leading software company, is into providing language and computer

education for unprivileged children. Company has a right policy towards conservation of energy

and environmental resources. Company is committed to work against the harmful impact of

business on environment.

Wipro is focussing on taking educational and health care initiatives for migrated

communities and environmental issues and rehabilitation for those who are affected in natural

calamities and disasters. The Women of Wipro (WOW), a council of Wipro, has initiated so

many programs to empower women.

Nestle is committed to work with small farmers, through its dairies, to pay higher prices

to the farmers. Company looks at corporate social responsibility in terms of creating shared

value.

ITC limited has been into the initiatives of corporate social responsibility over the past

many years and has been appreciated worldwide. E – Choupal project of ITC has been

specifically designed to help farmers by providing them the necessary inputs about the markets.

The project was launched in the year 2000, and has been successfully established in 40000

villages. ITC has been providing Information Technology education for rural people. The CSR

agenda of the company revolves among sustainable development and inclusive growth.

Britannia, Coca-Cola, Times of India, Reliance, Maruti, Bajaj Auto and so many other

corporate are demonstrating their commitment towards corporate social responsibility, through

their CSR initiatives and philanthropic activities.

DISCUSSIONS

“Most companies compelled to give charity. Few have figured out how to do it well”. This

statement is very rightly made as there are only few companies which only kept their efforts in

order to do something best for the society which in turn yielded a good reputation towards their

brand as well as the organization. Even this becomes the practice of the day in the today’s

business scenario. Many of the companies are taking the assistance of Corporate Social

Responsibility and Corporate Philanthropy as their tools for successful branding.

“Philanthropy can often be the most cost effective way for a company to improve its

competitive context, enabling companies to leverage the efforts and infrastructure of Non-profits

and other institutions” says Michael E. Porter and Mark R. Kramer (2002) in their article “The

competitive advantage of Corporate Philanthropy”.

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It is a well-known fact that huge amounts are being invested by many of the companies in

order to position their products in the customer minds through advertising and publicity. But we

don’t even know that how many people are purchasing the brands basing on the impact of

advertising and publicity. The efforts of the organization are sometimes not reaching the

intended target group because of increasing clutter in the advertising media. But, if a company

does something good for the society through donating some part of its profits then it makes a

favorable impact on the consumers. That impact created will last for a longer time and makes

people to contribute their best for the cause of the organization by purchasing the company’s

products. Consumers will take it as an opportunity to serve the society as they may not be in a

position to spare their time to take active part in social service activities.

“There is no inherent contradiction between improving competitive context and making a

sincere commitment for bettering society” (Porter and Kramer,2002).

This can be easily understood by the success of many big corporates like ITC, Aditya Birla

Group, Tata group, Hyundai Motors India Ltd., and many other companies have contributed

some money towards the wellbeing of the society. Hyundai motors India Ltd., is awarded the

best Corporate Social Responsibility award for 2009-10 by Govt. of Tamil Nadu and it is also

into Philanthropic activities under HMIF (Hyundai Motor India Foundation). Even Tata Steel is

setting up Health camps for healthcare of people in Jamshedpur under TSFIF (Tata steel family

Initiatives Foundation).

“The prevailing approaches to CSR are so disconnected from business as to obscure many

of the greatest opportunities for companies to benefit society” says Michael E. Porter and Mark

R. Kramer (2006) in their article “Strategy and Society- The link between Competitive

Advantage and Corporate Social Responsibility”.

They are saying that in order to advance CSR, we must root in a broader understanding of

the Interrelation between a corporation and society. That is in what way we can serve the society

in order to have an indirect benefit for our organization for a longer period. If that relationship is

maintained properly then it will be beneficial for both organization and society. It can be taken as

the duty of the business to conduct social responsibility programs to educate the people who are

illiterate and for motivating people who already know but neglect to follow some basic activities

which are good for themselves as well as for the people around him.

CONCLUSION

Corporate social responsibility (CSR) activities have the potential to create several distinct forms

of value for customers. In addition to this Corporate Philanthropy (CP) can create a valuable

corporate image in public. The customer perception of the value of CSR and CP counts and

builds the relationship between CSR activities and subsequent financial performance. CSR and

CP are two most efficient ways of building trust among the consumers and general public

towards the organization. However, by their very nature, CSR initiatives are felt difficult to plan

and implement and utmost care has to be taken to avoid consumer skepticism. Further, by

adopting CSR and CP as tools to build brands, the companies are able to develop a distinctive

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image and strength in the markets. In the present day global competitive scenario, many

organizations are making strategies to build strong brands, competitive advantage and long term

sustainability through Corporate Social Responsibility and Philanthropic initiatives. So many

Indian companies are also adopting the spirit of CSR and CP to reach the heights of success.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

NETWORKED READINESS INDEX IN BRICS –

COMPARATIVE ANALYSIS

DR. L. KRISHNA VENI*

*Professor,

Siva Sivani Institute of Management,

Secunderabad.

ABSTRACT

Net work Readiness Index (NRI) has become the most comprehensive and valued

international assessment of preparedness of economies to leverage the net worked

economy. This NRI represents three sub indexes like environment index, readiness

index and usage index . Against this backdrop, this paper makes an attempt to

examine the comparative status of India among the emerging economies like

BRICS in terms of NRI and its related indicators during the period 2007-08 to 2011-

12. All BRICS nations indicated moderately advantageous position in terms of rank

and score relating to NRI during the period under consideration. It is evident that

out of all BRICS, China is relatively more comfortable than the rest of the countries

during the study period. Based on the results this study suggests that Russia has to

focus on the scores of the indexes relating to RSI, PRE, BR, BU, and GU since these

are indicating disadvantageous position. It also suggests that India has to focus on

infrastructure environment for the rapid development of ICT.

___________________________________________________________________________

INTRODUCTION

Over the past decade, with the rapid development of Information and Communication

Technology (ICT) the world has become gradually ‘hyperconnected’. This hyper connectivity is

deeply redefining relationships between individuals, consumers and enterprises, and citizens and

governments; it is introducing new opportunities but also new challenges and risks in terms of

individual rights and privacy, security, cybercrime, the flow of personal data, and access to

information. As a result, our economies and societies will undergo fundamental transformations

(Robert Greenhill, Chief Business Officer, World Economic Forum).

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The networked readiness framework translates into the NRI, comprising three sub indexes that

measure the environment for ICT, together with the main stakeholders’ readiness and usage, with

a total of nine pillars as shown in the following chart .

Source -The Global Information Technology Report,2010-11

The final NRI score is a simple average of the three composing subindex scores, while each

subindex’s score is a simple average of those of the composing pillars. In this process it is

assumed that all Index components give a similar contribution to national networked readiness.

The NRI sub indexes have been changed as in the year 2012 with the introduction of Impact

Sub index(fourth) .However this paper is based on the old classification which consists of three

sub indexes like Environment Sub index, Readiness Sub index and Usage Sub index as shown

in the above chart.

REVIEW OF LITERATURE

here are many studies on IT related issues in the countries of BRICS individually. Similarly

many studies are made on different economic and social issues of BRICS countries, but there

are no significant studies on IT and its related services in BRICS.

Networked Readiness Index

Environment

Market Environment

Infrastucture environment

Political and regulatory environment

Usage

Individual usage

Business usage

Government usage

Readiness

Individual Readiness

Government readiness

Business readiness

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Punit Saurabh, Bhaskar Bhowmick, Amrita, and Dhrubes Biswas (2012) highlight the need for

initiating a healthcare business model in a grassroots, emerging-nation context. This paper

exposes that in BRICS countries, still huge percentage of populations remain deprived of basic

healthcare facilities and emergency services,therefore it suggests that there is an urgent need for

specialized (tertiary care) services at all levels. As a response to this challenge, an all-inclusive

health-exchange system (HES) model, which uses Information Communication Technology

(ICT) to provide solutions in rural India, has been developed. This innovative model emphasizes

on affordability, accessibility, and availability to the masses. The article concludes that the

healthcare challenges in the emerging nations can be mitigated with the help of ICT.

Against this backdrop, this paper makes an attempt to examine the NRI and measurement of

environment for ICT across the BRICS countries.

METHODOLOGY OF THE STUDY

OBJECTIVES OF THE STUDY

This study makes an attempt to study the following objectives:

To examine the status of Net worked readiness index (NRI) , its sub indexes and the

related pillars across BRICS countries during the period 2007-08 to 2011-12 at both

aggregate and disaggregate level

To classify the countries of BRICS based on the degree of Advantage ( advantageous,

Moderately advantageous and disadvantageous ) in terms of NRI , related sub indexes

and 9 pillars during the same period

PERIOD OF STUDY

This study covers five years i.e., from 2007-08 to 2011-12. The emerging economics BRICS are

taken into consideration as the sample group. It consists of five countries namely Brazil, Russia,

India, China and South Africa.

DATA COLLECTION

The basic data for this study has been drawn from various issues of ‘The Global Information

Technology Report’ (World Economic Forum) since 2007-08.

UNIVARIATE ANALYSIS

Statistical tools like Mean, Standard Deviation and Covariance are used for analyzing the data

during the study period. To identify the overall advantageous position of the BRICS countries,

percentiles are estimated for the ranks and scores of NRI , its related sub indexes and the pillars.

Further, in this study ranks are given to the BRICS countries based on estimated mean values of

ranks and scores during the study period.

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Against this background, this study is divided into six sections as follows:

This section initially provides an idea about the comparative picture of NRI in terms of ranks and

scores across the BRICS countries during the study period 2007-08 to 2011-12. The higher the

score indicates higher advantage and vice versa .Similarly lower rank represents higher status in

the world and vice versa. Table 1 discloses the mean, standard deviation (S.D) and co-efficient of

variance (C.V.) of the BRICS countries during the study period .

TABLE1-THE NETWORK READINESS INDEX IN BRICS – AVERAGE RANKS

&SCORES - 2007-08 TO 2011-12

Country Rank Mean S.D C.V Rank

Score

Mean S.D C.V Rank

Brazil 60 3.317 5.527 4 3.886 0.109 2.81 4

Russia 71.8 9.338 13.01 5 3.748 0.333 8.876 5

India 52.8 9.884 18.72 2 4.02 0.154 3.821 2

China 45.4 9.017 19.86 1 4.162 0.177 4.262 1

South Africa 59.6 8.562 14.37 3 3.91 0.153 3.908 3

It is evident from Table 1 that China occupied the top rank among BRICS with 45.4 mean

value and India occupied the second rank with 52.8 on average during the period 2008-08 to

2011-12 . The rest of the emerging economies of BRICS like South Africa,Brazil and Russia

have occupied the third, fourth and fifth ranks during the study period. Similar trends are noticed

in terms of average scores also.

In terms of rank, China recorded more variable dispersion but Brazil has shown more consistent

dispersion during the study period. Score value in terms of dispersion was more variable in case

of Russia ( 8.88%) and the dispersion was more consistent in Brazil (2.81%) during the

study period.

Further the three sub indexes and the related pillars are discussed in detail in the subsequent

sections.

This section is devoted to the discussion on first sub index of NRI- Environment Sub Index and

the related pillars during the study period under consideration.

From the Table 2 it is clear that South Africa occupied the first rank in environment sub index of

NRI during the period 2007-08 - 2011-12 in terms of average rank and score among the BRICS.

China, India, Russia and Brazil have occupied the second, third, fourth and fifth place

accordingly. Rank value of environment sub index in terms of dispersion was more variable in

case of Russia (20.21 %) followed by Brazil (16.19%) and Russia(15.97%) and the dispersion

was more consistent in South Africa( 2.34 %) during the study period.

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TABLE 2-ESI - RANK &SCORE OF BRICS -2007-08 - 2011-12

Country

Rank

Mean S.D C.V

Ran

k

Score

Mea

n S.D C.V

Ran

k

Brazil 82.8

13.4052

2

16.1898

8 5 3.51

0.23600

8

6.72388

8 5

Russia 79

15.9687

2

20.2135

7 4 3.564

0.06024

9

1.69050

2 4

India 60.6

10.1390

3

16.7310

8 3 3.79

0.13292

9 3.50735 3

China 59.8

4.86826

5

8.14091

1 2 3.8

0.17677

7

4.65201

8 2

South

Africa 38

2.34520

8 6.1716 1 4.264

0.25530

4

5.98742

4 1

However in terms of score, the dispersion was more variable in Brazil (6.72 %) and it was more

consistent in Russia (1.69 %).Besides the three pillars of ESI are analyzed as follows:

TABLE -3- ME INDEX - SCORES -2007-08 -2012

Country Mean S.D C.V Rank

Brazil 3.5575 0.42034 11.8156008 5

Russia 3.6325 0.18361 5.05464556 4

China 4.3275 0.27524 6.36025419 2

India 4.0075 0.11672 2.91253899 3

South Africa 4.605 0.2932 6.3669924 1

As the first pillar of ESI, Market Environment (ME) represents the highest score in South Africa

among BRICS during the study period. China, India, Russia and Brazil have occupied the

second, third, fourth and fifth positions. From the Table 3, it is evident that Brazil recorded more

variable dispersion but India has shown more consistent dispersion in terms of ME among the

BRICS during the study period.

TABLE-4-PRE INDEX–SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 3.875 0.377536 9.742861 5

Russia 3.5875 0.21093 5.879595 4

China 4.3125 0.143614 3.330181 2

India 4.32 0.384619 8.903207 3

South Africa 5.085 0.077244 1.51906 1

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The PRE (Index) pillar assesses the political and regulatory/legal framework which facilitates

ICT penetration for the safe development of business activities across the countries selected for

this study. PRE as the second pillar of ESI recorded the similar trend as in the case of first pillar

with the supremacy of South Africa among the BRICS during the period of study. China and

India have been suffering from weaknesses in their political and regulatory framework therefore

they occupied second and third positions only.

From the Table 4, it is evident that Brazil recorded more variable dispersion and South Africa

has shown more consistent dispersion among the BRICS in terms of PRE during the study

period.

As the third pillar of ESI, Infrastructure Environment (IE) has recorded top position in Russia

among BRICS. Brazil, India, South Africa and China have occupied the second, third, fourth and

fifth positions among BRICS.

TABLE -5- IE INDEX–SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 3.085 0.279225 9.051057 2

Russia 3.495 0.418927 11.98647 1

China 2.8275 0.183916 6.504536 5

India 2.96 0.3964 13.39191 3

South Africa 2.95 0.109247 3.703279 4

From the Table 5, it is evident that India (13.39 %) recorded more variable dispersion but South

Africa (3.70 %) has shown more consistent dispersion among the BRICS in terms of IE during

the study period.

This section deals with the second sub index of NRI- Readiness Sub Index (RSI) and its related

pillars across BRICS countries during the study period. RSI as the second sub index of NRI has

shown the similar picture in terms of rank and score. China and India have recorded first and

second positions among the BRICS during the study period (Table 6). Rest of the countries

Brazil, South Africa and Russia have occupied third, fourth and fifth positions during the period

under consideration.

As shown in Table 6, Russia (100.04%) recorded more variable dispersion and Brazil (9. 20 %)

has shown more consistent dispersion among the BRICS in terms of rank relating to Readiness

sub index during the study period. In terms of score of RSI, however South Africa (8.44%)

recorded more dispersion and India (2. 10%) recorded more consistent dispersion.

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TABLE-6- RSI RANK & SCORE -2007-08 TO 2011-12

Country Rank

Mean

S.D C.V Rank Score

Mean

S.D C.V Rank

Brazil 56.5 5.196152423 9.19672995 3 4.43 0.228473 5.157408 3

Russia 68.75 2.872281323 100.041779 5 4.31 0.186548 4.32825 5

India 33 7.874007874 23.8606299 2 4.935 0.103441 2.096065 2

China 31.25 17.53805386 56.1217724 1 4.9675 0.143272 2.884182 1

South

Africa 67.5 16.42153058 24.3281935 4 4.355 0.367469 8.43786 4

Readiness sub index (RSI) consists of three pillars like individual readiness (IR), business

readiness (BR) and government readiness (GR) as discussed below.

TABLE-7- IR INDEX-SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 4.555 0.583924 12.8194 4

Russia 5.1375 0.353777 6.886175 3

India 5.5 0.25807 4.692177 2

China 5.575 0.138924 2.491918 1

South Africa 4.4725 0.729263 16.3055 5

As shown in Table 7, Individual readiness as the first pillar of RSI has occupied the first position

in China among the BRICS during the study period. India occupied the second position as the

highly populous country next to China. Russia, Brazil and South Africa have shown third, fourth

and fifth positions during the study period among BRICS. It is clear from the Table 7 that IR

index score has more dispersion in South Africa (16.30%) and China (2.49%) indicated more

consistent dispersion in terms of score during the study period.

TABLE -8- BR INDEX- SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 4.65 0.219545 4.721398 3

Russia 4.045 0.259808 6.422933 5

India 4.85 0.271293 5.593674 1

China 4.57 0.160624 3.514744 4

South Africa 4.6625 0.300486 6.444734 2

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It is clear from the Table 8 that the business readiness (BR) index score has more dispersion in

India (16.30%) while China (2.49%) recorded more consistent dispersion in terms of score

during the study period. India has occupied the first rank in terms of BR index among BRICS

during the study period .South Africa. Brazil, China and Russia have recorded the second, third,

fourth and fifth positions.

TABLE -9-GR–SCORES-2007-08 TO 2011-12

Country Mea S.D C.V Rank

Brazil 4.2575 0.326228448 7.66244152 3

Russia 4.125 0.732871066 17.7665713 2

India 4.445 0.335310801 7.54355008 4

China 4.9775 0.269861075 5.42161879 5

South Africa 3.98 0.221359436 5.56179488 1

As shown in Table 9, South Africa occupied the first position among BRICS in terms of third

pillar of Government Readiness Index across the BRICS nations during the study period

however Russia, Brazil, India and China have occupied the second, third, fourth and fifth

positions among BRICS during the study period. Russia recorded more dispersion while China

has shown more consistent dispersion among BRICS.

This section deals with the third sub index of NRI- Usage Sub Index (USI) and its related pillars

across BRICS countries during the study period under consideration. USI assesses the individual

efforts of the main social agents such as individuals, business, and government to increase their

capacity to use ICT, as well as their actual use in their day-to-day activities. As the third index

of NRI, USI has shown the supremacy of China across BRICS during the period under

consideration. Brazil, India, South Africa and Russia have occupied the second, third, fourth and

fifth positions among BRICS in terms of both ranks and scores of usage sub index during the

study period (Table 9).

China has showed more dispersion and Brazil has indicated consistent dispersion in terms of

ranks of USI. However in terms of score, South Africa has recorded more dispersion and India

has recorded consistent dispersion as shown in Table 10.

TABLE -10-USI –SCORES-2007-08 TO 2011-12

Country Rank Mean S.D C.V Score

Mean

S.D C.V Rank

Brazil 47 6.041523 12.85430423 2 3.71 0.139463 3.759117434 2

Russia 73.2 9.884331 13.50318447 5 3.264 0.258031 7.905361 5

India 63.8 9.984989 15.65045256 3 3.398 0.119038 3.503172723 3

China 45 8.485281 18.85618083 1 3.8 0.198116 5.213582304 1

South

Africa 71 10.65364 15.00512377 4 3.278 0.188468 5.749466255 4

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The related pillars of USI are also analyzed in this context.

The individual usage (IU) index measures ICT penetration and diffusion at the individual level,

using indicators such as the number of mobile phone subscriptions, individuals using the

Internet, households with a personal computer (PC), households with Internet access, both fixed

and mobile broadband subscriptions, and the use of social networks.

TABLE-11- IU –SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 2.756 0.741438 26.90267752 2

Russia 3.124 0.864627 27.67692341 1

India 1.826 0.662216 36.26593521 5

China 2.516 0.828209 32.91768326 3

South Africa 2.272 0.470765 20.72030521 4

As shown in Table11, Russia has recorded the top in individual usage among BRICS during the

study period. Brazil, China, South Africa and India recorded the second, third, fourth and fifth

positions among the BRICS during the study period. It is also clear that India’s weakest

performance lies in its low penetration of ICT in terms of usage pillar. It is also evident that

India recorded more dispersion and South Africa has shown consistent dispersion across the

BRICS during the study period.

The business usage (BU) index captures the extent of business use of Internet as well as the

efforts of the firms in an economy to integrate ICT into an internal, technology-savvy,

innovation-conducive environment that generates productivity gains. Consequently, this pillar

measures the firm’s technology absorption capacity as well as its overall capacity to innovate

TABLE-12- BU INDEX –SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 4.246 0.737821 17.37685154 3

Russia 3.51 0.61086 17.40342021 5

India 4.27 0.8281 19.39344814 2

China 4.404 0.331783 7.533675333 1

South Africa 4.002 0.741802 18.53577862 4

It is clear from Table 12, that India has indicated more dispersion whereas China has recorded

more consistency during the study period in terms of scores. However China and India have

occupied the top two ranks among the BRICS. Brazil, South Africa and Russia occupied the

remaining three positions during the study period.

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TABLE-13-GU INDEX –SCORES-2007-08 TO 2011-12

Country Mean S.D C.V Rank

Brazil 4.15 0.319922 7.708960614 2

Russia 3.15 0.326497 10.36496998 5

India 4.086 0.190866 4.671229698 3

China 4.486 0.215476 4.803303985 1

South Africa 3.558 0.206567 5.805710522 4

The Government Usage index provides insights into the importance that governments place on

carrying out ICT policies for competitiveness and the well-being of their citizens. In terms of

GU, China topped the higher position among BRICS (Table13). Brazil, India, South Africa and

Russia have occupied the remaining positions in the order during the period under consideration.

Further it is evident that Russia recorded more dispersion and India recorded consistent variation

among BRICS during the study period.

This section makes an attempt to examine the status of NRI and its related indicators in BRICS

nations during the period 2007-08 to 2010-11 with the help of percentiles (Table14). Percentiles

are most often used for determining the relative standing of a country in BRICS.

TABLE – 14-NRI , SUB INDEXES AND THEIR INDEXES (PILLARS)

PERFORMANCE IN BRICS –2007-08 TO 2011-12

Index Advantageous Moderately

Advantageous

Disadvantageous

Net Work Readiness

Index(NRI)

Rank >1.6327 0.763585 -1.673585 < 0.763585

Nil Brazil Nil

Nil Russia Nil

Nil China Nil

Nil India Nil

Nil South Africa Nil

Score >1.06509 0.93433-1.06509 < 0.93433

Nil Brazil Nil

Nil Russia Nil

Nil China Nil

Nil India Nil

Nil South Africa Nil

Environment Sub Index(ESI)

Rank >1.26327 0.763585-1.26327 < 0.763585

Brazil China Russia

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Nil India South Africa

Score >1.06509 0.93433-1.06509 < 0.93433

South Africa Russia Brazil

Nil China Nil

Nil India Nil

ME-Score >1.10935 0.892946-1.10935 < 0.892946

South Africa Russia Brazil

Nil China Nil

Nil India Nil

PRE-

Score >1.11013 0.880843 -1.11013 < 0.880843

South Africa Brazil Russia

Nil China Nil

Nil India Nil

IE-Score >1.07349 0.942957-1.07349 < 0.942957

Russia Brazil India

Nil China Nil

Nil South Africa Nil

Readiness Sub Index (RSI)

Rank >1.32539 0.62500-1.32539 < 0.62500

Russia Brazil China

Nil India Nil

Nil South Africa Nil

Score >1.07648 0.94195 -1.07648 < 0.94195

China Brazil Russia

Nil India Nil

Nil South Africa Nil

IR –Score >1.09697 0.894166 -1.09697 < 0.894166

China Brazil South Africa

Nil Russia Nil

Nil India Nil

BR –Score >1.04395 0.945457-1.04395 < 0.945457

India Brazil Russia

Nil China Nil

Nil South Africa Nil

GR –

Score >1.08131 0.930112-1.08131 < 0.930112

China Brazil South Africa

Nil Russia Nil

Nil India Nil

Usage Sub Index(USI)

Rank >1.20167 0.766667-1.20167 < 0.766667

Russia Brazil China

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Nil India Nil

Nil South Africa Nil

Score >1.07593 0.937249 -1.07593 < 0.937249

China Brazil Russia

Nil India Nil

Nil South Africa Nil

IU –Score >1.17656 0.95806 -1.17656 < 0.95806

Russia Brazil South Africa

Nil India Nil

Nil China Nil

BU-Score >1.06133 0.919146 -1.06133 < 0.919146

China Brazil Russia

Nil India Nil

Nil South Africa Nil

GU-Score >1.11117 0.863098 -1.11117 < 0.863098

China Brazil Russia

Nil India Nil

Nil South Africa Nil

Table 14 presents the performance of NRI across the BRICS during the period 2007-08 to 2011-

12 . It is disappointing to note from the table that none of the BRICS nations have recorded

advantageous position but all the countries have maintained moderately advantageous position

during the period under consideration both in terms of rank and score.

ENVIRONMENT SUB INDEX (ESI)

ESI as the first sub index of NRI has shown advantageous position in Brazil and

disadvantageous position in Russia and South Africa in terms of rank. However in highly

populous countries in China and India it is moderate. In terms of score, South Africa is in

advantageous position and Brazil is in disadvantageous position. Russia, China and India had

indicated moderate performance.

The first index of ESI, ME has shown advantageous position in South Africa and

disadvantageous in Brazil and moderate in Russia, China and India. The second index - PRE is

advantageous in South Africa and disadvantageous in Russia and moderate in Brazil, China and

India. The last index- IE has shown the supremacy of Russia with advantageous position and

India occupied disadvantageous position among BRICS. However the rest of the countries of

BRICS have remained moderately advantageous position.

READINESS SUB INDEX (RSI)

In terms of rank, Russia is in advantageous position and China is in disadvantageous position

but their positions are reversed in terms of score. However the rest of the countries like Brazil,

India and South Africa remained in the moderately advantageous position and South Africa is in

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disadvantageous position .In terms of IR and GR, China is in advantageous position. However in

terms of business readiness India gained the advantageous position.

USAGE SUB INDEX (USI)

In terms of rank, Russia is in advantageous position and China is in disadvantageous position

but their positions are reversed in terms of score. China is in advantageous position in terms of

the score of IU but South Africa indicated the disadvantageous position. Rest of the BRICS

nations maintained the moderately advantageous position. In terms of BU and GU scores, China

remained in the advantageous position and Russia remained in the disadvantageous position.

However the remaining three countries maintained the moderately advantageous position only.

This last section summarizes the findings of this study and gives some suggestions.

All BRICS countries indicated moderately advantageous position in terms of rank and score

relating to NRI during the period under consideration.

Brazil occupied the advantageous position only in terms of ESI rank and occupied the

disadvantageous position in terms of score obtained in case of ME. In rest of the indicators, this

country occupied the moderately advantageous position. Based on the results, this country has to

focus on the market environment in order to improve NRI.

Russia gained advantageous position in terms of the ranks relating to sub indexes like RSI and

USI. Further it enjoyed the advantageous position in terms of scores relating to indexes like IE

and IU. But Russia has to focus on ESI(rank), and the scores of PRE,RSI BR,BU and GU for the

development of NRI.

India gained the advantageous position in BR and disadvantageous position only in terms of IE

scores. In the remaining indexes it maintained the moderately advantageous position. Results

suggest India has to focus on infrastructure environment to improve the NRI.

China gained the advantageous position in terms of the scores relating to RSI and USI and the

indexes like IR,GR,BU and GU. However the ranks of China in two sub indexes like USI and

RSI have shown disadvantageous position , therefore it has to focus on these issued for further

improvement. It is evident that out of all BRICS China is relatively more comfortable than the

rest of the countries.

South Africa occupied the advantageous position in terms of scores relating to ESI,ME and PRE.

However it indicated disadvantageous position in terms of rank relating to ESI and the scores of

IR, GR and IU have shown disadvantageous position in terms of scores. Thus these issues have

to be addressed adequately.

Though the BRICS are facing some challenges in this context, they must be tackled as early as

possible to fully adopt and leverage ICT. Thus the vision and commitment of the governments

of BRICS have to be focused to boost ICT since it is the driver of economic growth

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REFERENCES

1.Punit Saurabh, Bhaskar Bhowmick, Amrita, and Dhrubes Biswas REF-Developmental Impact

Analysis of an ICT-Enabled Scalable Healthcare Modelin BRICS Economies ,Technology

Innovation Management Review, June 2012,PP26-31

2.Soumitra Dutta , Insead Beñat Bilbao-Osorio, World Economic Forum Thierry Geiger, World

Economic Forum ,The Networked Readiness Index 2012: Benchmarking ICT 2012, Page 3

3. Global Information Technology Report - 2008-09, 2009-10&2010-11

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

HIGH WORLD FOOD PRICES-CAUSES AND CONSEQUENCES

DR. U. JAYALAKSHMI SRIKUMAR*

*Professor,

ITM Business School,

Chennai.

ABSTRACT

This article addresses the issue of “agflation”- agricultural commodity increases.

Both real and nominal prices have been looked into while looking at price rise. The

main highlight of the article is that it looks at price projections for the year 2017

based on a OECD report. A detailed analysis of the past, present and future rise in

prices have been taken into consideration. This detailed analysis is followed by the

causes for food price increases. The causes have been looked into from the demand

and the supply side. The article does not stop with identifying issues; it attempts to

give solutions also. The key solution lies in adopting sustainable agriculture

especially by the developing countries.

KEYWORDS: Food prices, OECD, causes for high food price, consequences,

solutions.

____________________________________________________________________________

INTRODUCTION

World over there is a new phenomenon affecting millions of people – “agflation”- agricultural

commodity inflation, otherwise known as rising food prices. The persistent increase in food

prices over the last couple of years has made millions hungry which in turn has prompted social

disturbances and food riots in many countries. Many say we are close to the world’s worst ever

food crisis of 2007-08. Overall there have been many factors which have contributed to this

phenomenon. Increases in demand due to economic and population growth as also supply

decreases due to climate change and resultant droughts in different parts of the world. Policy

makers have till now indulged more in blame game rather prescribing solutions. This directly

brings us to the question of what is a price increase. The first point that we have to note is that

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price data is descriptive. It is of no surprise that nominal price increases over time. This is

because when incomes increase prices will also increase because of an increase in purchasing

power. So when do we have to be worried about a price increase? This is when increase in the

prices of food items exceeds the rate of increase in the general level of prices and inflation

results. However at this point we must note that food demand in China and India is increasing as

their incomes are growing but food production in these countries is also growing. China has

consistently been a net exporter of cereals including rice. The Agricultural Outlook for China for

the next decade shows that net exports are to decline very gradually. The same is true for India

also. We can thus say that growing food demand especially for cereals in emerging economies is

not a concern as the production in these economies is also growing. So this leaves us with the

concern that the crisis has to be tackled in other countries. This is not a very difficult proposition

if all international bodies can engage in some quick action. The issue has to be looked at from

two different angles. The first is the impact that the crisis might cause on import dependent

economies. The second is to look at how to increase production of food world over.

HIGH WORLD FOOD PRICES-THE PAST, CURRENT AND FUTURE SITUATION

The high food prices witnessed in the recent past is unusual when viewed from the perspective of

the last decade or from a longer historical perspective. The graph below shows the price increase

in both real and nominal terms.

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Note: Real Prices deflated by USA GDP deflator 2007=1 Source: OECD-FAO Agricultural

Outlook 2008-17

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The prices of wheat, coarse grains, rice and oilseeds have been examined from 1971 to 2007 with

projections for 2008 to 2017. We do not have the spot prices for April – May 2008 but for these

commodities the price levels greatly exceeded the expected annual average for 2008. From this

analysis we have to get two points very clear. The first is that agricultural commodity markets

are highly volatile. The second one is that the present price spike is not the worst since the last

forty years. Poultry products have also seen price increases though this ahs not been mentioned

in the graph. In the years between 2005 and 2007 major producing countries of the world

experienced severe drought. This pushed the crop yields in those countries below the average

levels. It is to be noted that the world cereal output in 2007 was just 3% larger than in 2005. Also

there was a decline in the production of oilseeds

Between 2005 and 2007 there were coinciding spells of unfavourable weather in major

producing nations of the world, pushing crop yields in those areas below long term average

levels . World cereal output in 2007 was just 3% larger than in 2005. While there was a decline

in overall oilseeds output, nevertheless vegetable oil production rose by 7% due to rapid growth

in palm oil output.

Now let us look ahead to 2017. The average level of wheat and coarse grain is expected to

remain higher than in 2005 but well below the levels in 2007-08. World wheat and coarse grain

production is expected to grow. Oilseeds are expected to be strong. The supply shortages are

expected to prod increases in production world over. The production of palm oil is expected to

increase by 40% and rice is expected to grow modestly.

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The most alarming fact is that the biofuel production under the current policies is expected to

double between 2007 and 2017. This will increase the use of feed stocks particularly in countries

outside the OECD area as they experience economic growth. The point to note is that little rice is

used for feed but more is used in biofuel production. Demand for rice for food use is expected to

rise by 1% per year and this growth is expected to happen in developed countries. The use of

oilseeds in biofuel is forecasted to account for more than a third of the expected growth in

vegetable oil use from 2005 to 2017. The other uses are also expected to grow substantially.

Countries outside the OECD are expected to increase their oilseed consumption by more than

50% due to increase in incomes growth. In general over the next five years the prices of rice,

cereals and oilseeds is expected to be 35% to 60% higher than the past decade average. Increases

in productivity and increasing competition in trade from countries outside the OECD will

eventually overtake stronger demand. As this happens prices will resume their decline in real

terms though more gradually than in the past fig 1. For the 2008-17 period, average prices for

major agricultural products are projected to remain some 10% to 50% higher in real terms than

on average over the past ten years

Now let us look at some factors which might change these predictions.

Source: OECD-FAO Agricultural Outlook, Chapter 2

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Projections of the price made are under conditions of normal weather, unchanged policies and

stable economic performance. When we look at alternatives to these assumptions we can some

further insights into price increases. Key results of four alternative scenarios are illustrated in the

graph and summarized below.

It is estimated that the projected prices for coarse grains would be 12.5% lower and

vegetable oil price 15% lower in 2017 on the assumption that the biofuel production is

expected to remain at 2007 levels.

The projected prices for wheat and maize would fall by a further 10% and vegetable oils

by further 7% if the oil prices stay at their 2007 levels.

Wheat and coarse grain prices would fall by 1 to 2% and vegetable oil prices by 10% if

the rates of growth of GDP in Brazil, China, Indonesia, and South Africa are reduced to

half of the rate assumed in the outlook.

Little further change is expected in vegetable oil prices. The projected prices of wheat

and maize would be 6 to 8% lower if the cereals and oilseeds yields are 5% higher than

expected

All these assumptions tend in the same direction, to lower prices, and taken together would lead

to prices of wheat, coarse grains and vegetable oils that are 20 to 35% lower in 2017 than what it

is now projected.

It has to be noted that the baseline for these projections do not include the recent biofuels policy

initiatives. If initiatives such as the Energy Independence and Security Act of the United States

and the European Union’s Directive on Renewable Energy are included the impact on world

food prices could be worse. New research warns that the worse is yet to come. World prices are

set to record a all-time high in 2013. "The coming year will see the world economy re-enter a

period of agflation as grain and oilseed stocks decline to critically low levels, pushing the FAO

(Food and Agricultural Organisation) Food Price Index above record nominal highs set in

February 2011," they say. World food prices are forecast to reach record highs in 2013,

according to a Rabobank report. The trend is expected to extend well into the third quarter of

2013, the report said. Rabobank estimates that the Food and Agricultural Organisation

(FAO) Food Price Index will rise by 15% by the end of June 2013. In order for demand rationing

to take place, in turn encouraging a supply response, prices will need to stay high. Rabobank

expects prices, particularly for grains and oilseeds, to remain at elevated levels for at least the

next 12 months.

CAUSES FOR HIGH WORLD FOOD PRICES

The UN Economic and Social Commission for Asia and the Pacific (ESCAP) report on regional

cooperation for inclusive and sustainable development says that due to pressure on a shrinking

and neglected agriculture world over along side an increase in consumption have lead to high

food prices. In addition increase in the prices of fertilizers, competition for arable land, water

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resource and high oil prices all contribute to an increase in food prices. Commodity market

speculation has contributed to high volatility in the food prices.

We now list the factors which have contributed to high food prices across the world.

INCREASE IN THE DEMAND FOR FOOD: There is no doubt that the production of food is

increasing across the world. But the increasing consumption for food, biofuels, feedstock and

other commercial uses have increased the food prices.

INCREASED DEMAND FOR ANIMAL PROTEIN; In countries like China and India the

standards of living is increasing. So there has been an increase in the consumption of dairy,

poultry and animal protein products. This leads to an increase in the demand for food as feed

stock. This has pushed the prices up.

INCREASE IN FUEL PRICES have led to higher transport costs. This increases the prices of

agricultural inputs like fertilizers and pesticides. The cost of transport of finished products also

increase pushing up the prices of food in import dependent countries.

DROUGHTS IN MAJOR PRODUCING COUNTRIES HAVE BEEN ANOTHER

CAUSE: Severe droughts affected countries like Australia, the Balkans and the former Soviet

Union affecting the contribution of these countries to world production. Factors such as mold are

affecting grain production in South Asia.

GENERALLY LOW RESERVES OF FOOD GLOBALLY: The U.S. Department of

Agriculture has declared that their grain levels are lowest since 1960. Global stocks of wheat,

coarse grains—corn, barley, sorghum, millet and oats—and rice have decreased every year since

2001-2002, with the exception of 2004-2005. Thus we have to draw upon our buffers.

INCREASE OF GRAIN AND OILSEED CROPS DIVERTED FOR BIOFUEL

PRODUCTION: The use of corn for biofuels has largely affected the price of wheat and rice

and the use of palm oil for biofuels have increased the prices of soyabean and other vegetable

oils. It has been reported by the International Grains Council that 6.5 per cent of the worldwide

consumption of crop is consumed by biofuels. As much as 28 percent of the U.S. corn crop is

going into ethanol production, with plans to increase this amount.

Export bans and government price controls have domino effect on the prices.

There have been many years of under-investment in agricultural productivity, particularly in

developing countries. Lack of investment in agriculture, market infrastructure and related areas

has combined with the above factors, many of them policy decisions by our government and

others, to create the current situation of high food prices

POLITICAL TURMOIL IN NATIONS FACING POLITICAL CRISIS: When there is

disruption of public services supply shortage of food results. This is because the government in

all the countries is responsible for imports, maintain highways etc; When the government is

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unable to perform these duties due to change in leadership and other factors crisis results causing

increase in food prices which can be further aggravated by speculative activities.

CONSEQUENCES OF HIGH WORLD FOOD PRICES

The food crisis has impacted household budgets. According to the UN’s Food and Agricultural

Organization (FAO) about 75 per cent of the household income is spent on food. "In Bangladesh,

Nepal and Sri Lanka, for example, common response to food price rises have been to switch to

less expensive food items, reduce savings to spend on food and sell assets to buy food," the

report says. It further says that 40 per cent of the children in India and Bangladesh are

malnourished. Shortage of food has been the root cause of hunger in these areas relegating socio-

economic and social distribution causes. Spending on education and health care has to be

drastically reduced.

Recently, it has been suggested that high food prices have been one cause of instability in the

Middle East and North Africa region

Prices increases leads to violation of the international law of basic right to food. For example, it

exists in Article 24 of the convention on the Rights of the Child, Articles 25 and 28 of

Convention on the Rights of Persons with Disabilities, Article 12 of Convention on the

Elimination of All Forms of Discrimination against Women, Article 25 of the Universal

Declaration of Human Rights, and Article 11 of the International Covenant on Economic, Social

and Cultural Rights. In addition, the United Nations has a Special Rapporteur on the Right to

Food.

The scarcity of feed crops is expected to have major repercussions for the meat and dairy

industries, as the increase in the costs of feed stocks raises the prices faced by consumers.

In the short run higher slaughter rates might result as producers respond to rising feed costs

should temporarily increase the meat supply. But the ultimate result is expected be smaller

animal herd sizes, which will reduce meat and dairy production and ramp up prices in the long

run.

The British public, which consumes high levels of meat and dairy products, will definitely feel

the impact of this latest bout of agflation, says Rabobank. Nick Higgins, one of the report's

authors, says UK food prices "are going to rise in the coming year significantly." Still, while

consumers in developing countries show "elasticity" of demand as prices move, people in the

UK tend not to change their consumption patterns in response to prices, he notes. In other words,

even if meat gets more expensive, they will keep buying

SOME MITIGATING FACTORS

High food prices are a symptom, and not the disease. So while the international community must

take early action to prevent excessive price increases, it should also move to act on the root

causes behind such increases.

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In responding to the challenges of high food prices we are better placed today than we were in

2007-08. This is because we have developed new policies and new instruments, like the United

Nations High-Level Task Force on Global Food Security and AMIS, the G20’s Agricultural

Markets Information System, which improves transparency in global markets. We also have the

AMIS-related Rapid Response Forum, set up to facilitate coordinated policy responses by the

major world producers and traders of key cereals and soybeans in the event of market upheavals

The food crisis has taught us that not all are affected in the same way. The urban and rural poor

as also those in the import dependent countries are most affected. This is because high world

commodity prices get transmitted to the local markets and as said before this will severely affect

those spending more than 75 per cent of their incomes on food. Small farm holders who are also

poor can be made to benefit from the high food prices by making them a part of the solution by

reducing price spikes and improving overall food security. A twin-track approach has to be

adopted. This should support long term investments in agriculture especially small farms,

simultaneously ensuring that safety nets are in place to help poor food consumers and producers

avoid hunger, asset losses and poverty traps in the short run.

In many countries social protection systems are in place. These include assistance for

smallholder farmers, nutritional support to mothers and children, and school meals -- to ensure

that their poorest citizens have enough to eat. These need to be expanded significantly in poorer

countries. Such safety nets which are affordable and transparent are an absolute must to

safeguard against food crisis. But such nets in many developing countries like India are not

effective due to rampant corruption that upsets delivery and implementation. Small farmers need

to be supported to increase productivity of their small and marginal lands. The other poor should

be provided with decent jobs. The case of India is an ideal example where the rural employment

guarantee schemes and the forthcoming cash transfer scheme by the UPA government is a move

in the right direction.

International communities should help import dependent countries to promote sustainable food

production. There is potential in these countries to increase production. More food should be

made available in the local markets and more jobs and incomes should be provided in the rural

areas where 70 per cent of the world’s poor live.

Another point to be noted is that one-third of the food produced is wasted due to lack of storage

facilities, spoilage, damage and other factors. The Food and Agriculture Organization of the UN

(FAO), the International Fund for Agricultural Development (IFAD) and the World Food

Programme are helping poor people to eat today while building their resilience and capacity.

More needs to be done in the form of increased investment in agriculture and social protection

which will increase the access to food by the poor.

We need to review and adjust where policies currently in place that encourage alternative uses

of grains. For example, adjusting biofuel mandates when global markets come under pressure

and food supplies are endangered has been recommended by a group of international

organizations including FAO, IFAD, the International Monetary Fund, the Organisation for

Economic Co-operation and Development, the UN Conference on Trade and Development,

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WFP, the World Bank and the World Trade Organization. That recommendation, made to the

2011 G20 summit in Paris, still stands today

The people should be encouraged to buy local. This will reduce dependence on food that has to

travel from the field to the plate. Conservation of fuel used in transportation of food will reduce

the prices of food and reduce carbon emissions which will prevent further climate change.

When farm workers in other nations earn fair living wages and work under safe conditions, their

higher quality of life empowers them to be more involved as educated citizens, promoting

democracy and political stability.

People must be encouraged to grow their own food. During World War II, the United States

faced potential shortages of food and fuel as international trade was disrupted. The government

also had to adequately supply U.S. soldiers overseas. Reacting to this need the First Lady

Eleanor Roosevelt encouraged American families to start edible gardens in backyards. By the

end of the war, these backyard gardens were supplying 40 percent of U.S. produce. Home

gardening is an easy, healthy, eco-friendly way to lower your own family food budget while also

helping to reduce the price of food worldwide.

CONCLUSION

It can be concluded by saying that we need to be always vigilant and prepared for the worst

while simultaneously working on sustainable solutions. If we do not do the same the world’

poorest will be paying the highest food prices. Working in this direction will help us to put in

place the “Zero Hunger” challenge set by UN Secretary-General Ban Ki-moon of eradicating

hunger from the globe.

REFERENCES

1.Economic and Political weekly (2008) editorial “ Global Crisis in Food” 26 April 2008

2. G. Chandrasekhar (2008), “ Bio- Diesel Demand to Propel Grain Oil Prices Higher”- Business

Line 2 April 2008.

3. OECD (2008), Rising Food Prices- Causes and Consequences

4. Ramesh Chand ( 2008), “ The Global Food Crisis- Causes Severity and Outlook”, Economic

and Political weekly Vol 43, June –July 2008.

5. Rising Food Prices Kept 8 Million Indians Chained to Poverty, Times of India October 20

2012

6. Food Prices Push Retail Inflation, Times of India March 13 2013.

7. World Food Prices to Reach Record High in 2013-Rabobank, Times of India September 21

2012

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8. Telegraph March 28 2013

9. Why Food Prices will continue to Rise in the Coming Years?

http://www.firstpost.com/economy

10. High Food Prices Causes and Results- http://www.globalpolicyjournal.com/blog/18/02/2011

11. Tackling the Root Cause of High Food Price and Hunger- http://www.wfp.org/news/news-

release

12. The Causes of Global Food Crisis-http://crs.org/public-policy/food-crisis-causes.cfm

13 World Food Price Increase- Where Does the Buck Stop?

http://130.203.133.150/showciting;jsessionid=05FC1629FEFDA4712DD07B926544109E?cid=1

1393419

14. What’s causing Biofuel Food Price Inflation –

http://economistsview.typepad.com/economistsview/2008/07/whats-causing-g.htm

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

POST HARVEST MANAGEMENT & AGRO-FOOD RETAIL MARKET

DEVELOPMENT IN DIFFERENT ALLIED SECTORS IN INDIA

MRK MURTHY*; V MURALI**

*Research Associate,

National Academy of Agricultural Research Management (NAARM),

Rajendranagar, Hyderabad, A.P, India.

**Farm In-charge,

National Academy of Agricultural Research Management (NAARM),

Rajendranagar, Hyderabad, A.P, India.

ABSTRACT

With more than two thirds of the population dependent on agriculture and the ever

decreasing per capita land holding, production agriculture alone cannot assure

adequate livelihood security to 127 million Indian farmers and their dependents.

Therefore, it is necessary to provide occupational diversity for the rural areas for

enhancing income and employment generation. It is in this context that post harvest

management and processing in the production catchments has been proposed to be a

suitable alternative. Regionally differentiated packages of post harvest technologies

are being developed for promoting through the concept of agro-processing centers.

Latest technological interventions are necessary for ensuring cost effectiveness and

quality. Cooperative and contract farming concepts also augur well for promoting

post harvest practices in the production catchments. The goal is to minimize the post

harvest losses, value addition to the produce and utilize the by-products effectively

while maintaining consumer safety. To sum up, promotion of post harvest technology

in the production catchments will not only create more income and employment but

would also lead to better rural living standards and cleaner and healthy

environment.

KEYWORDS: Food grains, post harvest losses, food retailing, agro-processing.

_____________________________________________________________________________

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INTRODUCTION

A substantial portion of the agricultural produce gets wasted due to lack of adequate post-harvest

management facilities. For instance, in horticulture it is estimated that about 30 per cent produce

goes waste between production and consumption due to lack of cold storage facilities, proper

packaging, transportation losses etc. Even in cereals and pulses the post-harvest losses are

substantial even though to a lesser extent than in horticulture. An important aspect of post-

harvest management is value addition through processing of produce and its timely delivery. The

present level of modern processing, even with the stimulus given to food processing industry is

very low.

Agricultural produce from production catchments is taken to processing industries, cold

storages and wholesale markets located largely in the urban areas since the required skills and

infrastructure are not available in the production catchments. This results into very heavy post

harvest losses and avoidable transport of the agricultural produce depriving the income and

employment opportunities to the rural masses. Needless to say that these effects further lead to

social and environmental problems in the urban sector. Since 70 % of the consumers live in the

rural sector, the processed food is transported back to where it was produced at much higher

prices and after incurring substantial losses.

Had the produce been processed in the production catchment, the consumers there would

have accessed the food at lower prices, post harvest losses would have been minimized and more

employment would have been generated. Post harvest management practices find their relevance

in reducing post harvest losses, enhancing rural income, providing additional employment

opportunities, reducing poverty, and creating a cleaner environment for healthier living.

CURRENT STATUS OF HORTICULTURE

The current state of horticulture industry in India is not satisfactory. The average productivity of

horticulture produce is about 7 tons/ha compared to 30 tons/ha in many western countries.

India’s share in global fruits and vegetables trade is less than 1%, whereas, only 2% of the

horticulture produce in India is processed vis-à-vis more than 40% in other developing countries

like Brazil and Malaysia. India’s share in global processed food trade is only 1.5%. The first and

foremost reason for under developed horticulture industry is high proportion of wastage across

the value chain.

TABLE 1. PER CENT OF WASTAGE IN DIFFERENT CROPS

S.No. Crop Per cent of wastage

1 Tomato 30

2 Potato 22

3 Cabbage 22

4 Cauliflower 49

5 Onion 25

6 Papaya 40

7 Grapes 27

8 Apricot 28

9 Litchis 28

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This wastage happens in various stages and few of them are crop losses due to substandard

farming techniques, post harvest losses, storage losses, transportation losses and weight loss.

There is also a high proportion of wastage across the value chain, deterioration in quality of

produce, large fluctuations in prices, low availability of produce during off-season and less spend

on fresh fruits and vegetables as a proportion of total spend on food.

POOR STATE OF HORTICULTURE

The main reason for the poor state of horticulture appears to be the long and fragmented supply

chain. The supply chain ranges from farmer to orchard farm owner to consolidator/aggregator

(commission agent1) to Trader/Transporter (Commission agent 2) to wholesaler to small

roadside vendor/Retailer/Super market/Handcart vendor to finally consumer. In the entire supply

chain, each constituent in the supply chain functions independently with little or no overlap with

the next level and limited exchange of information, therefore, the constituents are constrained in

performing their roles effectively. An integrated supply chain may enable the critical linkages

between various constituents. This may provide better information flow, material flow and

money flow among various intermediaries.

STATUS OF FOOD PRODUCTION AND MARK SURPLUS

It is estimated that there may be a total production of 1100 million tons of food products mainly

food grains, oilseeds, sugarcane and fruits/vegetables during 2011-12 and leaving marketable

surplus of 870 million tons.

TABLE 2. PROJECTIONS OF MARKETABLE SURPLUS

(MILLION TONNES)

Commodity Production Marketable surplus

2001-02 2011-12 2001-02 2011-12

Food grains 213 321 110 166

Oilseeds 21 46 16 37

Sugarcane 297 433 276 402

Fruits & Vegetables 133 300 166 265

Total 664 1100 518 870

Source: IARI

The demand for high value commodities particularly fruits; vegetables and milk would go up

significantly during 2010 and 2020 in India. It is expected that the demand for fruits would go up

from 56 million tons to 77 million tons (2010-2020), vegetables 113 to 150 million tons (2010-

2020) and 104 to 143 million tons (2010-2020) for milk, as projected by IARI.

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CROP SECTOR

The crop sector includes production of food grains (cereal and pulses), oil seeds, sugarcane,

cotton, jute and mesta.

Fig 1 demonstrate the marginal increase in land availability for crop over the past half a century

and the growth in production mainly through improvement of yield, which in recent years has

trended to flatten.

FIG 1. TREND IN AREA, PRODUCTION AND YIELD OF FOOD GRAIN

Source: Ministry of agriculture, GoI, 2011

PRODUCTION OF MAJOR CROPS

Production of important crops during 1950-2010, and their growth rates are given in Table 3.

The food grain production has increased from 51 million tonnes in 1950-51 to about 234.47

million tonnes in 2009-2010. The productivity of food grain increased from about 0.5 t/ha since

independence. Growth rate declined from 3.72 per cent in 1980s to 2.35 per cent in 1990s

(Planning commission, 2004). About 60 per cent of agriculture potential is unrealized and the

productivity is only two-thirds of the world average.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1960-61 1970-71 1980-81 1990-91 2000-01 2006-07

Area (mill.ha.

Production (mill.MT)

Yield (kg/ha)

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TABLE 3. PRODUCTION OF MAJOR CROPS AND AGRICULTURE PRODUCE

(IN MILLION TONNES)

Crop 1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2009-10

Rice 20.58 34.60 42.22 53.63 74.29 85.5 87.56

Wheat 6.46 11.00 23.8 36.31 55.14 68.55 80.28

Other cereals 15.38 17.20 30.55 29.02 32.7 30.36 34.27

Pulses 8.41 8.40 11.82 10.63 14.26 11.72 14.27

Sugarcane 57.05 110.0 126.37 154.25 241.05 301.44 251.27

Cotton

(million bales)

3.04 5.60 4.76 7.01 9.84 11.48 22.31

Oilseeds 5.16 7.0 9.63 9.37 18.61 18.7 26.30

Source: Directorate of economics and statistics, Ministry of Agriculture, GoI, 2011.

India produce around 88 million tonnes of rice against world’s production of 700 million tonnes,

thus, accounting for 13 per cent of world rice production and it is second largest producer after

China.

LEADING STATE PRODUCING FOOD CROPS

During 2008-2009, India recorded maximum food grain production of 234 million tonnes. Five

leading states contributed nearly 54.3 per cent of the total production (Table 4).

TABLE 4. TOP FIVE FOOD GRAINS PRODUCING STATES DURING 2008-2009

S.No. State Food grain production

(million Tonnes)

Total production

(Per cent)

1 Uttar Pradesh 46.73 19.93

2 Punjab 27.33 11.65

3 Andhra

Pradesh

20.42 8.70

4 Rajasthan 16.68 7.11

5 West Bengal 16.30 6.95

All India 234.47 100

Source: Directorate of economics and statistics, Ministry of Agriculture and Cooperation, 2010.

GROWTH TARGETS FOR VARIOUS CROPS

The Eleventh Plan has targeted an overall growth rate of 4 per cent per annum for the GDP from

agricultural sector as a whole (Table 5). Within this overall target, the crop sector GDP

contribution is targeted to grow at 2.7 per cent.

The Working Group on Crop Husbandry1

constituted in connection with the formulation of

Eleventh Plan made the following observations while recommending the above growth scenario

for the crop sector.

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1. There cannot be exceptionally high expectation of growth from crop husbandry on

account of various factors associated with production system and factor of production.

However, the growth momentum can be energized and sustained at modest to moderate

levels in different crop segments.

2. In the case of food grains a modest growth of 2.3 per cent is envisaged, more on the

consideration of desirability than feasibility as this much of growth is must for

maintaining food security of the country.

3. The growth rates proposed for oilseeds 4 per cent and other crops 3.3 per cent are

desirable and feasible.

TABLE 5. PROPOSED GROWTH RATES OF GDP IN VARIOUS SUB-SECTORS OF

AGRICULTURE IN XI PLAN (2007-12)

Sub-sector GDP share in 2005-06 (%) Proposed annual growth rate (%)

Food grains 26 2.3

Oilseeds 6 4.0

Other Crops 14 3.3

All Crops 46 2.7

Source: Planning Commission, Report of the Working Group for the XI Five Year Plan

(2007-12) on Crop Husbandry, Agricultural Inputs, Demand and Supply Projections and

Agricultural Statistics, Dec.2006

The demand projected above has to be met through appropriate sectoral development activities

like adequately increasing facilities for producing high quality planting material, production and

post-harvest management. The demand and supply forecasts of food grains and other crops that

led to the above growth targets are given in the Table 4.

1Planning Commission, Report of the Working Group for Eleventh Five Year Plan (2007-12) on

Crop Husbandry, Agricultural Inputs, Demand and Supply Projections and Agricultural

Statistics, Dec.2006, pp 53-54.

It would be seen that the production levels in 2009-10 are in fact lower than in 2006-07 except

for oilseeds, and lower than the demand projected in all cases (except jute and mesta). In fact, the

Mid-Term appraisal of XI Plan indicates that the rates of gross value of output of crops have

been 6.1 per cent in 2007-08, (-) 2.5 per cent in 2008-09 and (-) 5.5 per cent in 2009-10,

averaging a growth rate of about (-) 1 per cent during the first three years of the XI Plan2. This

has implications for ensuring food security and calls for a much greater effort to attain the

growth rates postulated for these sectors in years to come.

HORTICULTURE PRODUCTION AND PRODUCTIVITY

The production of crops has been expanding steadily after independence. Driven by factors such

as the changing consumption pattern among the population in favour of fruits and vegetables and

overseas requirements from the demand side and the shrinking per farmer availability of

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cultivable land leading to a shift from extensive cultivation of crops such as cereals and pulses

towards to more rewarding intensive fruit and vegetable cultivation on the supply side, and the

stimulus received through growing public and investment in horticultural research, development

and post-harvest management, the sector witnessed significantly rapid growth 8th

Five Year Plan

in the cultivated area, production levels as well as productivity.

Area and Production under various horticultural crops during 2000-01 to 2008-09 are given in

Fig 2. The area and production under horticultural crops rose from 10.32 million hectares and

138.47 million tonnes (MT) average annual growth rate of 4.5 per cent during the period 2000-

01 to 2008-09, while production rose at a rate of 5.6 per cent, the productivity having gone up

from 9.57 MT per hectare in 2000-01 to 10.39 MT per hectare in 2008-09. Production, however,

increased at a faster rate of 7.4 per cent per annum during the Tenth Plan period (2002-2007), on

account of lunching of National Horticultural Mission.

2Planning Commission, Mid-Term Appraisal of XI Five Year Plan, 2010

FIG.2 TRENDS IN HORTICULTURE AREA AND PRODUCTION

Source: Ministry of Agriculture, GoI, 2010

0

50000

100000

150000

200000

250000

1991-92 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Area (000ha) Production (000MT)

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The performance of major horticultural crops is given in Table 6. India ranks second in the world

fruit production with an annual output of 48 million tonnes accounting for about 8 per cent of the

world’s fruit production.

TABLE 6. PRODUCTION OF HORTICULTURAL CROPS

Crop Production during 1999-2000

(Million tonnes)

Production during 2009-2010

(Million tonnes)

Fruits 46.5 68.5

Vegetables 95.0 129.1

Spices 3.1 4.14

Cashew 0.5 0.6

Arecanut 0.4 0.4

Coconut (billion nuts) 16.9 11.96

All 162.4 214.7

Source: Directorate of Economics and Statistics, Ministry of Agriculture, GoI and Indian

Horticulture Database, National Horticultural Board, Ministry of Agriculture, GoI, 2010.

The diverse agro-climatic zones in the country make it possible to grow almost all varieties of

fruits and vegetables in India. The country holds the first place in global production of bananas,

mangoes, coconut and cashew. Horticultural production – fruits and vegetables, flowers, cashew,

spices, etc., account for 25 per cent of total agricultural exports. Mango and mango-based

products constitute 50 per cent of exports. The present per capita fruits consumption is only

about 100 gms/day which is almost half the requirement of a balanced diet. It is estimated that

more than 20 per cent of the total production of fruits is lost due to spoilage at various post

harvest stages.

The fruit production in India has recorded a growth rate of 3.9 per cent, whereas the fruit

processing sector has grown at about 20 per cent per annum. However, the growth rates have

been extensively higher for frozen fruits & vegetables (121%) and dehydrated fruits and

vegetables (24%). There exist over 4000 fruit processing units in India with an aggregate

capacity of more than 1.2 million tonnes (less than 4 per cent of total fruits produced).

India is the second largest producer of vegetables in the world (rank next to China) and accounts

for 15 per cent of the world’s production of vegetables. The current production level is over 129

million tonnes and the total area under vegetable cultivation is around 8 million hectares, which

is about 4 per cent of the total area under cultivation in the country. The average yield of various

vegetables is low compared to those experienced in other countries of the world.

FRUITS AND VEGETABLE PROCESSING

Bulk of the perishable horticultural produce (fruits and vegetables) is consumed in domestic

market directly or exported. At present processing is done only to the extent of about 10 per cent

of the production, up from about 6 per cent in 2004-05.

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It is estimated that around 20-25 per cent of the total vegetables is lost due to poor post

harvesting practices. Less than 2 per cent of the total vegetables produced in the country is

commercially processed. Around 150,000 tonnes of vegetables is sold as processed products.

The 2015 vision document of Ministry of Food Processing Industries envisages an increase in

processing content of fruits and vegetables to the extent of 15 per cent by 2015.

EXPORTS OF PROCESSED FOOD

The scenario of exports of horticulture produce is also encouraging. The export of fresh as well

as processed foods, vegetables and their seeds increased from 581.93 thousand MT in 1991-91 to

3393.60 thousand MT in 2008-09. The quantity of exports nearly doubled since 2003-04 from

1726.27 thousand MT.

Export of processed vegetables has registered a compounded annual growth rate of 16 per cent in

volume and 25 per cent in value in recent times. Onions account for about 93 per cent (in

volume) of the total export of fresh vegetables from India.

AGRO-PROCESSING

Processing of agricultural crop produce takes place both in informal as well as in the organized

sectors. Apart from the traditional processes of milling of cereals and pulses, extraction of oil

from oilseeds, extraction and refining of sugar and various tobacco related activities,

manufacture of various value added food products of quality has been growing rapidly.

AGRI FOOD RETAIL MARKETING

The term ‘Agri-marketing’ refers to the entire range of business initiatives relating to food

production, and includes contract farming, seed supply, fertilizers and pesticides, farm

machinery and post-harvest activities like storage and transport, wholesale and retail trade of

agricultural commodities, processing and retail sales. An important development in recent years

has been the growth of organized retailing in food products, processed and un-processed. A

number of major retail players in the industry have diversified into retailing sector, which holds

out promise of phenomenal growth in years to come. Over the last decade, the Indian retail sector

has expanded dramatically, with the retail food sector growing at an annual rate of 5 per cent.

Even though small independent shops dominate most of retail food sales, supermarkets and

modern retail sectors, which have until recently occupied less than 2 per cent of the market

(compared to 75-80% in developed countries), have been rapidly expanding their share of

retailing business. It has been assessed that if current trends continue, the share could go up to

15-20 per cent by 2020. Consumer preference for purchases at supermarkets is led by growing

demand (due to low prices and better quality of product in modern retail stores, apart from

psychological and other factors). Chains operating in India in retailing agricultural commodities

include Reliance Fresh, ITC’s Chaupal Fresh, Food World, Food Bazaar, Big Bazaar, Mother

Dairy Fruits and Vegetables (Safal), Haryali Fresh, Spencer’s, etc. Some of these major players

buy their requirements of agricultural produce direct from the farmers (either through contract

farming or otherwise) and have a well-maintained supply chain such as collection centres

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refrigerated transport and pack houses, while others obtain their supplies from wholesale markets

or other retail majors also provide extension services to farmers through demos, advice, cold

store support, etc., through their technical teams.

POST HARVEST MANAGEMENT

Post-harvest management is extremely important for improving the quality of produce and

products. It reduces the current heavy post harvest losses estimated at about 20 to 30 per cent of

the production. In fact, as the land available for horticultural crops becomes scarce and more

scarce, it is the elimination of these post-harvest losses that would significantly contribute to the

availability of vegetables and fruits in future. For this purpose infrastructure such as, proper

collection centres with cold storage facilities, cold chain transport, cooling units for perishable

produce, adequate packaging at pack houses, well equipped markets, etc., are needed.

Available data indicate that there were 5,101 cold storages in 2006 in the country with a capacity

of 2,16,93,986 tonnes (IARI, Agricultural Research Data Book, 2009), i.e., with an average per

unit capacity of about 4,250 tonnes. Most of them (4,609) are in the private sector with an

average capacity of 4,480 tonnes each, while 358 in corporate sector and 134 in public sector are

much smaller in capacity. As per Eleventh Plan Working Group, 81.23 per cent of the available

cold stores catered to storage of potatoes and 0.21 per cent for fruits and vegetables, while 17.06

percent were multipurpose and the remaining 1.47 per cent catered to storage of meat products,

milk products and other products. The Working Group also indicated that the capacity available

(on 31 December 2003) was only 12.5 per cent of the total horticultural production.

Progress achieved under the National Horticultural Mission during the period 2005-06 to 2009-

10 included setting up of 254 cold stores, 815 pack houses and 217 regulated markets. Thus, the

number of cold stores in 2009-10 may be taken as 5,355. The number of pack houses at present

is not available, but as stated above, during the period 2005-10, the number of pack houses set up

was 815. It may be conservatively assumed that the total number of modern pack houses in

2009-10 is about 2,000 and in 2009-10, is likely to go up to 4,000 by 2020 @ 200 more per

annum, being the average progress achieved during 2005-06 to 2009-10.

With the same average capacity of about 4500 tonnes each as in the past, the cold storage

capacity in 2009-10 would cater to just 11 to 12 per cent of the total horticultural production.

Assuming that the coverage would reach 15 per cent by 2015 and 20 per cent by 2020, number

of cold storages of the current capacity required would increase from the present estimated 5,480

to 9,885 by 2014-15 and 16,091 by 2019-20, under the low growth scenario of horticultural

production (with a production of 360 million MT in 2020. In the high growth scenario of 5.6 per

cent per annum leading to a production of 400 million MT by 2020, the same 20 per cent

coverage would require 18,246 cold storages in 2019-20. The numbers would be less if the

capacity is raised from the current 4,500 MT to a higher level.

The Eleventh Plan also envisages setting up 7,000 Collection Centres, each in compact

horticultural crop area of 200-250 ha with facilities for sorting, grading and packing and

temporary storage facilities that can handle about 10 tonnes of horticultural produce per day (or

2,000 to 25,000 tonnes per annum), and 1,400 packing houses, each with a handling capacity of

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50 tonnes per day with facilities for automatic sorting, washing, grading, waxing lines, packing

equipment, pre-cooling units and cold storage in urban areas of concentration of production.

PROCESSING OF FRUITS AND VEGETABLES

A reasonable extrapolation to 2019-20 would be 20 per cent of the production. Assuming that

these rates of growth apply to the entire horticultural sector, the volumes of fruits and vegetables

to be processed are given in Table 7. Thus, the volume of horticultural produce processed is

projected to grow at an annual rate of 12 to 13 per cent. This is also the order of growth in

market potential assessed in the Vision 2015 of food processing industries.

TABLE 7. PROJECTIONS OF VOLUMES OF FRUIT AND VEGETABLES TO BE

PROCESSED

Year Per cent to

be processed

Volume to be processed

High Growth scenario

Volume to be processed

High Growth scenario

2009-10 10 224164 22416 226740 22674

2010-11 11 234027 25743 239438 26338

2011-12 12 244324 29319 252846 30342

2012-13 13 255074 33160 267005 34711

2013-14 14 266297 37282 281958 39474

2014-15 15 278014 41702 297747 44662

2015-16 16 290247 46440 314421 50307

2016-17 17 303018 51513 332029 56445

2017-18 18 316351 56943 350622 63112

2018-19 19 330270 62751 370257 70349

2019-20 20 344802 68960 390992 78198

CAGR 4.4 11.8 5.6 13.1

Source: Ministry of Food Processing Industries, cited in Agricultural Research Data Book, 2009,

IASRI

According to Vision 2015 document of Ministry of Food Processing Industries (FPI), the market

potential of various segments of food processing is assessed (Table 8.)

TABLE 8. MARKET POTENTIAL FOR PROCESSED FOODS AS PER VISION 2015

OF FPI

Sector of Food Processing

Industry

Market potential (Rs.

Billion) at 2003-04 prices

Implicit annual growth

rate (%)

2009-10 2014-15

Fruits and Vegetables 290 550 14.7

Spices 450 886 14.5

Alcoholic beverages 553 1153 15.8

Tea/coffee 169 253 8.4

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RETAIL FOOD SECTOR DEVELOPMENT

Over the last decade, the Indian retail sector has expanded dramatically, with the retail food

sector growing at 5 per cent. Even though small independent shops dominate most of retail food

sales, supermarkets and modern retail stores, which have until recently expanding their share of

retailing business. If current trend continue, the share could go up to 15-20 per cent by 2020.

Consumer preference for purchases at supermarkets is led by growing demand (due to lower

prices and better quality of product in modern retail stores, apart from psychological and other

factors). Chains operating in India in retailing of fruits and vegetables include Reliance Fresh,

ITC’s Chaupal Fresh, Food World, Food Bazaar, Big Bazaar, Mother Dairy Fruits and

Vegetables (Safal), Haryali Fresh, Spencer’s, etc. Some of these major players buy their

horticultural produce requirements direct from the farmers (either through contract farming or

otherwise) and have a well-maintained supply chain such as collection centres refrigerated

transport and pack houses, while others obtain their supplies from wholesale markets or other

retail majors which have such direct collection arrangements. Adani Agro Fresh, for instance,

have direct collection arrangements for apples in Himachal Pradesh. The volume of all retail

marketing in the country is estimated to have grown from $ 300 billion in 2006-07 to $ 427

billion by 2010 and is projected to grow to $ 637 billion by 2015. Modern retailing, estimated to

be only about $ 9 to 12 billion in 2006, was expected to grow $ 60 billion by 2011, thus, raising

the penetration of modern segment from about 3 to 4 per cent in 2006 to 10 per cent in 2011.

Apart from maintaining their supply chains, the retail majors also provide extension services to

farmers through demos, advice, cold store support, etc. through their technical teams.

PROMOTION OF POST HARVEST TECHNOLOGIES

The adoption of post harvest activities in the production catchments should lead to overall

improvement in food availability, income level and employment; there has not been

commensurate progress in the expansion of post harvest activities. There are number of reasons,

as indicated in earlier sections that require an integrated approach. However, an initiative which

has been found to be promising is that of establishing agro-processing centers in the rural sector.

Based on the agricultural commodities being produced in a given area and the demand for

processed commodities, appropriate post harvest operations are promoted in the form of small

units, managed and operated by some members of the farmers’ families. The necessary fund

requirement is met through personal savings, incentives and loans.

There is a need to institutionalize self-help groups and provide suitable policy support. These

units also deserve to have appropriate tax relief and other infrastructural support for their

sustainability and growth.

CONCLUSIONS

An effort has been made to analyze the agricultural production sector in India with a view to

place the post harvest technology in the proper perspective. The post harvest losses have been

estimated and the likely impact of the adoption of appropriate post harvest technologies on the

financial, social and environmental conditions has been envisaged. The relevance of cost

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competitiveness and food quality and safety in the globalized economy has been discussed. On

the basis of the available information and experience, a strategy for promotion of post harvest

processing in the production catchments has been proposed.

REFERENCES

1. Directorate of economics and statistics, Ministry of Agriculture and Cooperation, 2010.

2. Directorate of Economics and Statistics, Ministry of Agriculture, GoI and Indian

Horticulture Database, National Horticultural Board, Ministry of Agriculture, GoI, 2010.

3. Directorate of economics and statistics, Ministry of Agriculture, GoI, 2011.

4. Ministry of Agriculture, GoI, 2010

5. Ministry of agriculture, GoI , 2011

6. Ministry of Food Processing Industries, cited in Agricultural Research Data Book, 2009,

IASRI

7. Planning Commission, Mid-Term Appraisal of XI Five Year Plan, 2010

8. Planning Commission, Report of the Working Group for Eleventh Five Year Plan

(2007-12) on Crop Husbandry, Agricultural Inputs, Demand and Supply Projections and

Agricultural Statistics, Dec.2006, pp 53-54.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

TOWARD HIGHER STUDIES IN BUSINESS SCHOOLS

DR. RUKHSAR AHMED*

*Professor and Dean,

Preston University,

Karachi, Pakistan.

ABSTRACT

The change has been a constant phenomenon in educationist. However, it has been

comparatively very slow in developing countries like Pakistan, where a need to

prepare professionals with a blend of traditional and modern skills is still there.

Presently, eight universities have been offering regular programs. However, there

are serious quality issues regarding faculty, curriculum development, infrastructure,

assessments, etc. in these programs. Nonetheless, for the last few years, the Higher

Education Commission of Pakistan is pushing hard to induce and maintain the

quality of higher education.

The paper gives a brief account of the present scenario of post graduate programs,

identifies the basic issues regarding quality and information education in Pakistan,

and suggests the possible measures for Quality Assurance within Pakistan. The multi

method approach was used to collect the data for this study based on survey-

interviews focus-group discussions with peers and observation and experience of

author.

KEYWORDS: Higher Education, Business Schools.

______________________________________________________________________________

1. INTRODUCTION

Quality refers to the achievement of standards of researching and condition in the higher

education sector, and the achievements or outputs of an institution or system. Quality is a

multidimensional concept, and it is not possible to arrive at one set of global quality standards

against which local institutions can be assessed. Quality embraces all the major functions of

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higher education: teaching and academic programs, research and scholarship, staffing, students,

infrastructure and the academic environment. The concept of accountability is closely allied with

quality- no system of higher education can fulfill its mission unless it demands the highest

quality of itself. Continuous and permanent assessment is necessary to reach this objective.

Simultaneously, it is to be ensured that great care is exercised when making quality assessments,

as it involves matters of judgment, academic values and cultural understanding.

1.2 OBJECTIVES

Quality of education in the higher education institution of Pakistan has been under a great

criticism for long. The emergence of private institutions and their mushroom like growth is the

result of declining confidence of a common man on the public/private sector universities in

Pakistan. Keeping this fact in view, Higher Education Commission, Pakistan established Quality

Assurance Agency (QAA) in Islamabad and 10 Quality Enhancement Cells (QEC) at various

public sector universities in Pakistan. It was also decided to establish QEC in all the public sector

universities in the next phase of the programme private sector, realizing the importance of this

cell, decided to establish it in the university in 2006 for enhancing quality of teaching and

learning of various programmes of the university.

In this connection in the study has based design to fulfill the following objectives:

To examine the quality of education in business institution in Karachi.

To find out the preference of students /parents in the selection of business institutions

To high light the area in business institution studies require immediate attention for

improvement of quality of education.

1.3 HYPOTHESIS

1.3.1 QUALITY ASSURANCE

Students refers quality of education as compare to fee structure for taking admission in

private/public sector business institutions in Karachi

1.4 RESEACH METHODOLOGY

The following methods were used to collect data:

1. A telephonic survey

2. Interviews

3. A focus group

4. Discussions with peers

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The multi-method approach was used to collect the data for this study based on:

i. a survey conducted over telephone/in-person from the chairpersons/In-charge/ senior faculty

members of all universities to collect relevant information

ii. Interviews conducted with faculty members of the two schools that have poor quality

reputation

iii. A number of personal communication with peers , and

iv. Observation and experience of the author

2 ORGANIZATIONAL STRUCTURE OF BUSINESS SCHOOL

Assuring Meta Evaluation so as to assure that the evaluation systems and procedures meet the

requirement of international standards

2.1 ORGANIZATIONAL STRUCTURE

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It is said that more than 90 per cent of the country's business schools are located in Karachi, the

remaining have their regional centers or campuses in city. The reason for this is the fact that the

city is the country's centre of business and financial activities.

With an estimated population of over 12 million, the city has more than 50,000 big, medium and

small industries, besides numerous cottage industries, with four major industrial trading estates

which provide employment to more than half-a-million people.

Not only does the city have the headquarter of the State Bank of Pakistan, it also serve as a base

for over a 100 financial institutions including 25 foreign banks and other financial institutions as

well as a large number of trade organizations which all make use of the professionals in the

business management.

Realizing this need, some local investors saw this as an opportunity, and a large number of

business-oriented educators appeared on the scene to launch business schools. Some of them

claiming to have been affiliated with foreign universities and their curricula were designed as

those of the universities they claimed to be affiliated with.

Claiming an affiliation with a foreign university, on the other hand, is a guarantee of getting

students because of the preference for foreign things which persists in the country

2.2 THE ACADEMIC CULTURE

The issue of quality cannot be dissociated from the quest for excellence and the need to establish

evaluation criteria. In order to assess local institutions with a global perspective, reviewing

institutions against international quality benchmarks has gained priority.

2.3 QUALITY OF HIGHER EDUCATION

The key factors influencing the quality of higher education is the quality of faculty, curriculum

standards, technological infrastructure available, research environment, accreditation regime and

the administrative polices and procedures implemented in institutions of higher learning. It is

absolutely critical to monitor and regulate growth of sub-standard institutions of higher learning.

A comprehensive multi-level mechanism of accreditation is to be developed to ensure provision

of quality education. Accreditation needs to occur at the department or program level, as well as

the Institutional level.

The HEC prescribes the guidelines under which all institutions of higher education may open and

operate. It monitors all degree-awarding higher education programmes for quality assessment and

is responsible for chartering both public and private institutions of higher education

2.4 THE ROLE OF HIGHER EDUCATION COMMISSION (HEC) IN QA

The HEC, set up by the Government of Pakistan in 2002, has taken significant steps to assure

quality for higher education in Pakistan in the coming years. It has established a QA Cell that

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states, The need to develop a culture of evaluation is inseparable from the concept of quality.

Both internal self evaluation and external review are vital components of any well-developed

quality assurance system.

It is absolutely critical to monitor and regulate growth of sub-standard institutions of higher

learning. A comprehensive multi-level mechanism of accreditation is to be developed to ensure

provision of quality education. Accreditation needs to occur at the department or program level,

as well as the Institutional level. HEC has established:

The HEC has established a Quality Enhancement Cell (QEC) in universities to introduce and

implement the procedures of the Self-assessment Manual . This manual also gives eight major

criterion subdivided into related standards to be achieved. The Cell at PU is aggressively

working in this direction and workshops have been conducted to help in developing policies and

procedures, following the manual, maintain or improve quality. This author is the convener of

the departmental committee of QA and has prepared a report on the prevailing status and future

plans regarding QA while mentioning the prerequisites to improve the quality.

2.5 PUBLIC VS PRIVATE SECTOR INSTITUTES

Taking the advantage of strong awareness of business education in the general public, a large

number of private universities have cropped up over the years offering degrees in business

administration as well as in computer science and management Sciences

The implicit specialization, that has already emerged, is that academic business schools are

offering long-term programmes which lead to degrees, but with the increase in the competition,

and at the broadest level, some of these universities now offer degrees in executive programmes

requiring attendance during the weekends and for periods of between three and four months

only.

Following the same pattern, almost all the private universities now claim that they offer

executive training, and charge high fee whether the actual training is being provided or not, is

another story.

3. ACEDEMIC QUALITY CONTROL

3.1 DEGREE STRUCTURE

Offer programmes of international quality;

Respond to identified needs in the countries and regions which it serves;

Prioritise teaching and research which will inform and underpin intellectual innovation and

change;

Provide service to advance its educational and research mandate;

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Foster and develop leadership capacity through its education and research programmes;

Assess its impact and effectiveness;

Promote access and equity by taking positive measures to make the University inclusive of

all socio-economic groups, addressing the particular needs and circumstances of the

disadvantaged; promoting the welfare and advancement of women;

Engage in knowledge networking and emerging technologies;

3.2 DEGREES STRUCTURE OF BUSINESS INSTITUTIONS

Business schools having different degree programmes in management Sciences and Computer

Sciences with the respective speclizations. The Institute offers, among other programmes, a

three-year, full-time degree of bachelor of business administration (BBA Hons), followed by a

two-year, full-time master's degree in business administration (MBA), and MBA MIS

programme (Computer) an MBA banking course, a part-time MBA and a PhD programme.

•Bachelor (Pass) degree, 2 years, broad foundation study in a wide variety of areas

•Bachelor (Honours) degree, 3 years, and greater extent of specialization

•Master’s degree, 1 or 2 years, depending on entry qualification

•Master of Philosophy degree, further 2 years

PROGRAMMES OFFERING

MANAGEMENT

SCIENCES

COMPUTER SCIENCE

& IT

SOCIAL SCIENCE &

EDUCATION

BBA(H) 4 YEARS BS 4 YEARS IR

MBA 2 YEARS MCS 2 YEARS SOCIOLOGY

EMBA 1 YEAR MCS 1 YEARS CRIMINOLOGY

MS 1 YEAR MEDIA STUDIES

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3.3 SPECLIZATIONS

SPECLIZATION COURCES

MANAGEMENT SCIENCES COMPUTER

SCIENCE & IT

SOCIAL SCIENCE &

EDUCATION

BANKING AND FINANCE SOFTWARE

DEVELOPMENT SOCIOLOGY

MARKETING AND

ADVERTIZINIG NETWORKING CRIMINOLOGY

ISLAMIC BANKING TELECOMUNICATION MEDIA STUDIES

CORPORATE FINANCE AND

TRESURY ELECTRONICS PSCHYCOLOGY

HEALTH MANAGEMENT MIS IR

3.4 FEE STRUCTURE

Different business institution having different fee structure, on the basis of quality granting

business institutions having high fee structure and some have very low fees structure . Because

they maintain the quality, providing good faculty member, providing fresh environment to the

students. Good work material under the supervision of deans and faculty members. Following are

the fee structure one the basis of quality assurance in business institutions in Karachi.

3.5 GRANTING SCHOLARSHIPS

Though every university claims granting scholarships and waiving fees for deserving students,

however fees in all higher education institutions, public sector institutions and private sector are

not easily affordable for most of the public; especially in a country where millions of families live

below the poverty line. The students added that if, according to the president of Pakistan, the HEC

had been granted a large number of funds which would also be increased every year they consider

who would make these institutions accountable.

NAME OF UNIVERSITY PROGRAME TOTAL PACKAGE

BIZTEK

BECHELORS 289000

MASTER 166000

M.PHILL 95000

IBA

BECHELORS 312000

MASTER 360000

M.PHILL 115000

MAJU BECHELORS 283000

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MASTER 166000

M.PHILL 75000

SZABIST

BECHELORS 215000

MASTER 280000

M.PHILL 113000

NEWPORT

BECHELORS 198000

MASTER 12875

M.PHILL 70000

IQRA

BECHELORS 299000

MASTER 150000

M.PHILL -------------

KASBIT

BECHELORS 283000

MASTER 166000

M.PHILL ---------------

HUMDERED

BECHELORS 299000

MASTER 150000

M.PHILL ------------

PRESTON

BECHELORS 189000

MASTER 175000

M.PHILL --------------

GREEN WICH

BECHELORS 250000

MASTER 189000

M.PHILL ----------

DADABHOYE

BECHELORS 30000

MASTER 175000

M.PHILL ------------

INDUS

BECHELORS 350000

MASTER 188900

M.PHILL -----------

KARACHI UNIVERSITY

BECHELORS 150000

MASTER 134000

M.PHILL 90000

SIR SYED

BECHELORS 287000

MASTER 215000

M.PHILL -----------

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4. ADMINISTRATIVE ROLE

4.1 GOVERNANCE & MANAGEMENT

In previous public policy articulations, governance and management did not receive the specific

attention it deserved in concretized terms, clearly delineating roles of various tiers of

Government, in governance and management of education. As a result, the implementation of

goals set in different policy documents was not uniformly achieved due to unequal attention paid

at various tiers of implementation or adversarial environment concerning governance of

education. In the bargain, resources were either inequitably available or were wasted due to lack

of ownership by the managers at the ground level. In Pakistan, the relations between the Federal

and Provincial Governments are defined by the Constitution; while those between the provinces

and the local governments by the respective provincial local government ordinances. The

varieties of stakeholders demonstrate a clear lack of clarity on the perception of these rules.

Hence, a clear delineation of inter-tier roles and relationships and defined demarcation of

responsibility cannot be postponed if we are to achieve the targets that the State sets for itself for

a uniform human development of quality throughout the country.

5. METHODOLOGY

The following methods were used to collect data:

1. A telephonic survey

2. Interviews

3. A focus group

4. Discussions with peers

The multi-method approach was used to collect the data for this study based on:

i. a survey conducted over telephone/in-person from the chairpersons/In-charge/ senior faculty

members of all universities to collect relevant information

ii. Interviews conducted with faculty members of the two schools that have poor quality

reputation

iii. A number of personal communication with peers , and

DATA ANALYSIS

Observation and experience of the author

On the basis of hypothesis different questioner has been filled by the students of different

universities. This data analysis based on different questioner that’s gave very clear phase of

quality of education.

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Q1- YOUR FIRST PREFERENCE FOR TAKING ADMISSION?

Options Replies

Qualities 85%

Fee Structure 15%

In the answer of this 85% students goes to the quality and rest of them goes to the fee structure

Q2- IF YOU VISIT FOR ADMISSION TO THE UNIVERSITY, WHAT WILL BE

YOUR FIRST PREFERENCE?

Options Replies

Environment 55%

Feasibility 40%

Fee Structure 5%

In quality preference most of the people give first priority to the environment then feasibility and

in the last goes to fee structure

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Qualities fee Stru.

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Q3- WOULD YOU DESIRE TO RECOGNIZE RANKING OF UNIVERSITIES FOR

TAKING ADMISSION?

100% people agree with this statement with the reorganization of the university

Q4- WHAT QUALITIES REQUIRE FOR FACULTY IMPROVEMENT?

Options Replies

Teaching 40%

Industry Experience 38%

Interpersonal Skills 10%

Level of Knowledge 12%

Q5 COURSE OUTLINES SHOULD BE

0%

10%

20%

30%

40%

50%

60%

Enviroment Fesibility Fee. Stru.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Teaching Ind.Exp Interpersonal Know.

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Options Replies

Level of Student 20%

According to Course 40%

Advance Material 30%

Know. Material 10%

Q6 WHICH CORE REQUIRE FOR QUALITY ENHANCEMENT?

Ans. Most of the peoples articulate different views

Merit

Truth

Discipline

Creativity

Tolerance

Humanity

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

AccordingCourse Adv. Material Student Know. Material

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Q7- ACCORDING TO QUALITY OF EDUCATION, IS YOU AGREE WITH THE

FEE STRUCTURE

Options Replies

Yes 80%

No 20%

80% Peoples agree with fee structure according to quality

20% peoples disagree due to some reasons

INTERVIEWS ANALYSIS

On the interviews with different management people describes following aspects

QUALITY AND FEE STRUCTURE

A society acquires to successfully encounter all the future challenges offered by the rapidly

advancing world

Computing facilities are being continuously upgraded to keep them in sync with fast paced

advances in computing technologies.

Environment will allow easy accessibility to students, faculty, administration, as well as

parents and alumni, enabling them to interact with one another.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Yes No

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Some of the services provided by this department include E-mail and Internet Service, IT

Help Desk, Audio Visual Support, and Printing Services

Fee structure assistance for deserving Students

The publication Society is another popular committee among students that brings out an

annual magazine and a newsletter

The Seminar Society organizes symposiums with highly accomplished guests from the

corporate world.

Beside these qualities, fee structure also most important because they offer scholar ship and

different discount package

Give the relaxation in fee structure

This is very most important quality to give the assistance in the fee structure along with high

quality of education

CONCLUSION

The literature reviewed, data collected, discussions with peers, personal experience, and

observation reveals that the issues regarding quality assurance (QA) are very much similar with

other institutions.

Nonetheless, there is growing awareness regarding quality and a wave of healthy competition

among universities is rising.

The need for formal, external, and internal assessment strategies is felt and is in the suggestive

phase.

Regulation is one of the best things that could happen to the sector at this stage because that will

not only ensure quality education but will save people from being go through in the name of

business education.

A strict regulatory system through which entrance procedure, fee structures and academic

programmes are screened is the next pressing requirement. An urgent need is the regulation in

order to arrest the situation before it goes out of control.

Both the private and the public sector business educates agreed that the demand and supply

factor need to be managed in order to ensure that the business education in the country is not

overpriced and that national priorities are taken into account at the same time

Teams are responsible for developing proposals for Seminars and conferences that concern an

issue that is current and is also of importance to the future of the field they are assigned.

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RECOMONDATIONS

To assure quality, all schools should follow the HEC standards beginning with the

formulation of mission and goals of programs. These should be formulated considering the

local present and future professional scenario.

HEC and all other sources should be exploited following the required procedures, for better

physical facilities and development. University administration and faculty needs to be more

aggressively utilize the existing opportunities.

More collaboration among different library schools needs to be developed to share

knowledge and skills. Better-developed schools need to help less developed ones through

HEC programs. The HEC has funds for this kind of faculty exchange.

Their should be well maintain and flexible fee structure for all the sector of peoples

Provide discount facilities for deserving students

Shows in courgement at very high level

The procedure of curriculum revision should be efficient and regular

Alumni and student evaluation must be introduced to improve the quality.

A uniform assessment method is also important to maintain the quality.

The faculty needs to fully exploit available electronic resources for their instruction

And research purposes and explore faculty development opportunities.

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A P e e r R e v i e w e d I n t e r n a t i o n a l J o u r n a l

o f A s i a n R e s e a r c h C o n s o r t i u m

AJRBEM:

A S I A N J O U R N A L O F

R E S E A R C H I N B U S I N E S S

E C O N O M I C S A N D

M A N A G E M E N T

PROFIT RE-ENGINEERING FOR BUSINESS PROGRESS

K. V. MURALI*

*West Mambalam,

Chennai, India.

ABSTRACT

To quote Peter Drucker: You can’t manage it if you don’t measure it!

Many organisations are not able to achieve the targeted profits due to various

factors contributing to the erosion of profits. Hence an analysis on those factors and

understanding the drivers of those factors that cause negative influence on profits is

essential in order to address them in a timely and suitable manner. The factors that

can affect profit margin can be analysed on two categories as under:

A. Gross Profit Margin

B. Net Profit Margin

The stakeholders are generally interested in the above two margins as the result of

the analysis will throw light on areas of concern to enable them to take their

decisions for the future course of actions. For example, an increase in sales due to

cut in price may cause reduction in gross profit margin. Likewise, the analysis will

reveal the money-losing produces or services offered during the period, so that

corrective measures can be taken to improve the gross profit margin by either

reducing the sales of those items or use the production of some other profitable items

as the case may be.

Budgeted profits may not be achieved due to various uncontrollable factors. Hence a

further analysis to identify the controllable factors to understand their effects margin

is necessary. The impact of loss of profit due to the various factors can be known by

addition of the relevant percentages of Gross Profit and Net Profit actually achieved.

The recast of Profit and Loss account adjusting the effects of controllable factors but

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not controlled would make the business realise the impact of inefficiency built in the

system and will demand action for improvements.

____________________________________________________________________________

INTRODUCTION

The analysis on the margins will vary from industry to industry and hence there is no common

model available. However an overall analysis on the following will give enough inputs for

improvements of profitability level through identification of wastes made in the operations of

business.

01. Material cost analysis

02. Activity analysis

03. Waste, Rework, repair cost etc., analysis

04. Current assets analysis

05. Overhead analysis

06. Finance cost analysis

Finally, a recast of profit and loss account to be prepared considering cost impact of the

controllable portion on each adding the figures at each one of them.

The system should be so configured in such a manner so that data on the above areas have to be

pooled in a separate ledger for analysis purpose.

This is explained through analysis on the data on expenditure for two years a division of a

leading automobile company, TATA Motors Limited, India.

TABLE A (STAND ALONE)

Cost element

2010-11

%

2009-

10%

Best of 2009-10 &

2010-11

Difference with the

other

Materials 68.32 63.44 63.44 4.88

Operations & Other

expenses

10.34 12.60 10.34 2.24

Employees 4.38 4.57 4.38 0.19

Interest 2.19 2.74 2.19 0.55

Source:-tatamotors.com

The net sales figures (stand alone) are Rs.47807 cr and Rs.37873 cr for 2010-11 and 2009-10

respectively.

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The differential percentage shows there are variation in the cost elements to a great extent and

hence a thorough analysis is called for.

III. ANALYSIS OF EXPENDITURE

01. MATERIALS COST ANALYSIS

In accounting, the material cost is sum of the basic price, taxes and duties, delivery cost and

quantity of the items procured. There is another important factor directly impacting the materials

cost is quality of the materials chosen. But the overall cost is much more than accounted for

because material costs affect the value chain very much. If the relationships between material

costs and the other areas of the business are linked, the value of analysis will be based on actual

costs incurred and correct.

The cost can go up because of one or more in combination of the factors mentioned above. So it

becomes necessary to understand the links with materials, process/operation and customer as

some materials demand more operations/more process time.

In the above data, a drastic increase is shown from previous year. Instead of an increase at 4.88%

it should have been a decrease in percentage as in business it is a proven principle that cost and

volume are inversely related. However there are two categories of factors (Controllable & Non-

controllable) that affect the cost of materials.

Hence a reconciliation of standard with actual not only product materials cost but also customers

cost on sales can highlight the various other factors contributed to the increase in overall

materials cost. The impact on margin on this account towards controllable factors will trigger to

take decisions suitable to keep the materials cost at minimum to enhance profit margin to its best

level.

The impact of the controllable portion should be considered as forfeited profit.

02. ACTIVITY ANALYSIS

Process consumes activities and activities in turn consume resources. Hence a thorough analysis

is necessary to identify and removal of unnecessary activities in order to save time and cost.

An activity analysis should encompass all functions of a business such production, sales,

marketing, procurement, human resources, finance etc., The analysis should include a specific

detailed breakdown of each process which consume activities.

The next step should be to analyse the requirements such as HR, materials, equipment etc., for

each activity. The analysis looks specifically at how resources are consumed and their value

addition to the customer and hence business profits ultimately.

The analysis will be used by business to improve the operations with the target of achieving the

desired results. The operations & other expenses cost has come down from 12.60 % to 10.34 %.

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In employee cost also there is a minor reduction despite an increase in sale of 22 %. However

this only indicates that the more activities are carried out incurring additional employee cost.

Since employee cost is a fixed cost it should not have gone up proportionately to the extent of

increase in sales though there should have been increase in salaries due to annual increment /

wage revision/pension costs.

A detailed analysis can help identification of the wasteful activities, efficiency level of

employees, the activities which can be combined and performed by some instead of more, and

the activities which can be automated further etc., so that programs for cost reduction can be

redefined / initiated.

03. WASTE, REWORK, REPAIR COST ETC., ANALYSIS

The entire cost incurred towards rejection, rework, repairs etc., are actually unnecessary. The

cost could disappear on this head if systems and processes are perfect. So the entire cost to be

added to profit margin to see the impact on financial performance. The cost would have been

incurred due to the following which involve materials, labor, overheads and equipments.

In process rejections & rework

Repairing after production

Re-inspection, re-test etc.,

Additional Procurement time and cost

Discounts offered for delay

Complaints handling cost

Service cost during warranty

So if the details are drilled down the cost of the non-value added operation can be known.

In the Table A shown in introduction head, please see the reduction to the extent of 2.24 % under

the cost element “operations & other expenses” in the year 2010-11 achieved. This effect is

realized because of reduction in anyone or more of the above as far as overheads is concerned.

This is indication that there is an increase in efficiency level of operations.

The system should be so perfect that it should not produce defect product. If the input is not good

enough then the machine should not work on it in the initial process itself. Cost of poor quality is

more always than the cost of good quality.

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04. CURRENT ASSETS ANALYSIS

Theoretically, the best current ratio is 1:1. However in reality it is very difficult to achieve due to

reasons which are industry specific. However there could be improvement shown if progress is

achieved at a faster rate. Some items of current assets need special attention are:

1. Insurance claims receivable

2. Retention amount receivable

3. Loans of higher interest rates

4. Faster Collection on sales from slow progress areas

5. Inventory analysis

6. Surplus Bank balances

7. Prepaid expenses

8. Advances paid

The action plan should be worked out and results targeted should be seen as impact on

percentage of margin.

The table given below shows the figures of Tatamotors consolidated status as on 31.03.2011

TABLE-B - NET CURRENT ASSETS (CONSOLIDATED): RS. IN CR

Description As at Mar’31 Change %

2011 2010

Current assets ,

Loans & advances

51034 42445 8589 20.20

Current liabilities (37114) (34077) (3037) 9.00

Provisions (9869) (7643) (2226) 29.10

Net current assets 4051 724 3327 458.90

Source: tatamotors.com

There is a huge increase in net current assets status seen in the table B. As per the company

reports, the increase in inventory alone is Rs.2758 cr due to volumes. As a consequence

inventory carrying cost will go up. If not consumed faster there would be spoilages. There is an

inherent risk that change in design due to change in trends that would make the scenario worse.

The effect of interest on failure to collect to the extent applicable and inventory carrying cost as

well should be considered in forfeited profit account.

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05. OVERHEAD ANALYSIS

Overhead is also a basic cost into production process like raw materials and components.

However overhead cost cannot be easily identifiable with the product or activity. So overhead is

an invisible part of the finished product.

Unlike raw materials and labour, the controlling of overheads is difficult. There are of course,

two categories viz. 1. Variable 2. Fixed. The overhead cost percentage on total cost varies from

industry to industry depending on the nature of business. Examples of, fixed overheads include

interest, rent, employee cost etc., and variable overheads include power and fuel, transportation,

repairs and maintenance etc.,

While decrease can happen in variable overheads but increase can only be prevented in fixed

overhead. Hence fixed overheads need to be thoroughly studied before incurrence for avoidance.

The approach to control overheads and analysis should be done on two types. ie. Avoidable and

controllable.

TABLE-C MANUFACTURING AND OTHER EXPENSES (CONSOLIDATED)

RS. IN CR

2010-11 2009-10 change

Expenses for manufacture, administration and

selling

a. stores, spare parts and tools consumed 1189.24 1050.61 138.63

b. freight, transportation, port charges etc., 2436.93 2050.44 386.49

c. repairs to buildings 69.85 57.05 12.80

d. repairs to plant, machinery etc., 228.45 278.13 (49.68)

e. power & fuel 851.60 689.45 162.15

f. rent 104.72 106.71 (1.99)

g. rates & taxes 192.58 181.63 10.95

h. insurance 161.71 161.92 (0.21)

i. publicity 4089.95 2974.18 1115.77

j. incentive/commission to dealers 868.13 595.57 272.56

k. works operation and other expenses 11238.84 9124.72 2114.12

Expenses for manufacture, admn and selling 21432.00 17270.41 4161.59

The sales recorded during the year 2009-10 and 2010-11 net of excise duty are Rs.1,23,133 cr

and Rs.92,519 cr respectively. There is an increase of 33 %.

As per the company report, the increase stores , spare parts and tools is dur to higher level of

production and the publicity expenses have increased due to new products introduction. It may

be seen that though there is quantum jump in publicity , yet there is more than proportionate (

slaes to expenses ) increase in incentive/commission to dealers. So to some extent profit is

forfeited in combination by these two items of expenditure.

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However despite increase in volumes the overall cost has not gone up proportionaley and been

under control.

06. FINANCE COST ANALYSIS

The major contribution to finance cost is working capital gap. The other major component of

finance cost should be capital purchases.

In asset intensive sectors, business such as telecom, petrochemical, automobile etc., investment

will be huge in fixed assets for a very long period, whereas other category of business invests in

fixed assets only a small amount.

Finance cost analysis will lead to enquire fiancé options available in the market. Since there are

various options available the selection of the right option is important. The selection should be

made considering the risk associated with and cost of the product. That is because to cover risk

cost will have to be incurred.

TABLE-D NET INTEREST COST (CONSOLIDATED) RS. IN CR

2010-11 2009-10 change

Interest and discounting charges

Interest expenses 2229.72 2126.34 103.38

Discounting charges 666.78 671.30 (4.52)

Interest capitalized (511.23) (332.32) (178.91)

Interest received (339.85) (225.61) (114.24)

Interest expenses 2045.42 2239.71 (194.29)

The interest cost has come down Rs.2045 cr as against Rs.2239 cr in the previous year resulting

in Rs.190 cr or 8.50% less. This reduction has been achieved through borrowings at lower cost

and also by substituting part of the borrowings through issue of equity.

From the above it is understood the options of finance are changing from year to year and change

in components make impact on margins.

For finance cost every day counts and hence a dynamic control mechanism should be in place to

look at swapping the current loan with lower option and also to place greater emphasis on

receivables to ensure that only necessary finance cost is incurred..

CONCLUSION

The business management becomes simple and fruitful if plans and programs are made and

implemented to achieve the best. But since the business is complex, it is difficult the achieve the

desired results most of the time. So analysis has to be made and looked at seriously by all for

non-recurrence of those losses.

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There are two objectives:

1. Produce and sell more

2. Spend less

The simple way to improve profits is to sell more to achieve higher gross profit margin. The

most critical number is the gross profit margin. The achievement of a consistent healthy gross

profit margin is critical as the rest of your job will be a lot easier. But rejection, rework,

machinery break-down, non-availability raw material, non-availability etc., of component

contribute to sell less and incur more cost..

Cost control is important because most of the cost savings goes directly to the bottom line. This

is only sample.

To achieve the above, there are various programs pursued by business as per their requirement as

under:

critical success factor

waste stream mapping

benchmarking

cell concept

lean thinking

value engineering

Total Productivity maintenance ( TPM )

Total quality management ( TQM )

In order to achieve the best three things have to be in place in advance:-

1. Program planned for best processes and sales with their cost and benefits estimation.

2. Budget with best possible estimates

3. P & L considering the impact of the above.

For example, some Japanese companies experienced a 30% increase in productivity after

implementing TQM.

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After the end of the period the actual have to be compared with the entire all the three and the

variances have to be considered as forfeited profit. A forfeited profit statement has to be made

and communicated to all concerned for analysing the causes for variations and to take corrective

action for future.

The forfeited profit statement will communicate the shortfall in a serious way and also serve as a

threat to those who failed to achieve the best.

The business has evolved and it is going far more competitive and resources will be scarce. So

the minimum use of natural resources will be helpful to the society also.

REFERENCES

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