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APRERESCISSIONCOMPARATIVESTUDYONEMPLOYEESPRODUCTIVITYANDCOSTININDIANBANKINGINDUSTRY

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ContentsA peep into the Indian two wheeler market

Dr. Soumendu Bhattacharya

A pre rescission comparative study on employees productivity and cost in Indian banking industry

Dr S.M.Tariq Zafar Dr D.S.Chaubey Dr. Adeel Maqbool

Environmental taxation: Issues, challenges and prospectsDr. Minakshi Paliwal

Factors influencing loyalty: An exploratory study of mobile consumers in KolkataJayanta Banerjee Dr Ajay K Garg

Growth and trend of development revenue expenditure in MizoramDr. R. Lalnuntluanga Dr. L. Shashikumar Sharma

Financial inclusion and SHG-bank linkage programme: A rural household study in KeralaDr. Minimol M.C. Dr. Makesh K.G.

A study & scope of SME's in Uttarakhand & problems faced by themMohammad Alam Khan

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

Dr. Lakshmi JagannathanS. DeepalakshmiTaraya Srivilas

Talent management practices and its relationship with employees turnover: a study on employees working in insurance sector industries in Uttarakhand: An empirical study

Dr. D.S. ChaubeyVishal Gupta

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized world

Shivani Nischal

Total quality management concepts and the Indian scenarioP.G. Dangwal

Book ReviewReview of Business Statistics

Dr. N. D. Vohra

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27

33

41

47

53

58

64

73

84

91

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From the Editor’s Desk.....?Dear Readers,

I am delighted to introduce the volume fourth of management journal Vedaang to our esteemed subscribers. Vedaang has now established itself very well among the corporate and academic community and the volume of literary work submitted by researchers is an indicator to that.

The latest issue consists of high-quality and original research papers alongside relevant and insightful reviews. The literary work runs across length and breadth of industrial sector from automobile to FMCG, and from technology to economics.

As such, the current issue of the journal aspires to be vibrant, engaging and accessible, and at the same time integrative and challenging. I am sure that the issue will be received well among the readers as in acting as a source of valuable and reliable source of information.

I congratulate the editorial board of Vedaang for maintaining the standards of the journal issue after issue. Though any suggestions from the readers and advisory panel for further improvement will be appreciated.

Jai Hind!

Dr. Shweta SethiEditor

ii

From the Editor’s Desk.....?Dear Readers,

I am delighted to introduce the volume fourth of management journal Vedaang to our esteemed subscribers. Vedaang has now established itself very well among the corporate and academic community and the volume of literary work submitted by researchers is an indicator to that.

The latest issue consists of high-quality and original research papers alongside relevant and insightful reviews. The literary work runs across length and breadth of industrial sector from automobile to FMCG, and from technology to economics.

As such, the current issue of the journal aspires to be vibrant, engaging and accessible, and at the same time integrative and challenging. I am sure that the issue will be received well among the readers as in acting as a source of valuable and reliable source of information.

I congratulate the editorial board of Vedaang for maintaining the standards of the journal issue after issue. Though any suggestions from the readers and advisory panel for further improvement will be appreciated.

Jai Hind!

Dr. Shweta SethiEditor

A PEEP INTO THE INDIAN TWO WHEELER MARKET

Dr. Soumendu Bhattacharya*

ABSTRACTThe steady growth of middle and upper middle class segments has pushed the demand of two wheelers. Automobile industry is one of the largest industries, which contributes substantially and is one of the key sectors of the growing economy. India is the next larger producers of two wheelers in the world after China. Not too many industries, in fact not even the other segments of the automobile industry, such as commercial vehicles, passenger cars and tractors, have posted its kind of growth reeling under the impact of dwindling demand. Manufactures have been always wondering adopt what the customers look for in a product. The companies are slugging it out to maintain or increase their market share but the consumers are a happy lot. At the stock market, the share prices of two-wheeler companies have seen a divergent trend.

1

Introduction combination of two or more segments e.g. scooter and Motor-cycles . The market primarily comprises

Automobile is one of the largest industries in five players in the two wheeler segment with most

global market. Being the leader in product and of the companies having foreign collaborations with

process technologies in the manufacturing sector, it well-known Japanese firms earlier. But most of the

has been recognised as one of the drivers of companies are now planning 100% subsidiaries in

economic growth. During the last decade, well-India.

directed efforts have been made to provide a new look to the automobile policy for realising the In the last four to five years, the two-wheeler sector's full potential for the economy.. Steps like market has witnessed a marked shift towards abolition of licensing, removal of quantitative motorcycles at the expense of scooters. In the rural restrictions and initiatives to bring the policy areas, consumers have come to prefer sturdier bikes framework in consonance with WTO requirements to withstand the bad road conditions. In the process have set the industry in a progressive track. the share of motorcycle segment has grown from Removal of the restrictive environment has helped 48% to 58%, the share of scooters declined restructuring, and enabled industry to absorb new drastically from 33% to 25%, while that of mopeds technologies, aligning itself with the global declined by 2% from 19% to 17% during the year development and also to realise its potential in the 2000-01. The Euro emission norms led the existing country. The liberalisation policies have led to players in the two stroke segment to install catalytic continuous increase in competition which has converters. All the new models are now being ultimately resulted in modernisation in line with the replaced by 4-stroke motorcycles. Excise duty on global standards as well as in substantial cut in motorcycles has been reduced resulting in price prices. Aggressive marketing by the auto finance reduction, which has aided in propelling the demand companies have also played a significant role in for motorcycles. Fierce competition has also forced boosting automobile demand, especially from the players to cut prices in certain models. population in the middle income group. The Indian

Current Scenario two wheeler market has a size of over Rs 100,000 million. The Indian two wheeler segment The two-wheeler industry is passing through a very contributes the largest volumes amongst all the interesting phase. Developments such as the entry segments in automobile industry. Though the of more number of players into the motorcycle segment can be broadly categorized into 3 sub- market, price discounts offered by producers, segments viz; scooters, motorcycles and mopeds; monsoon failure and growing competitive pressure some categories introduced in the market are a have changed the underlying basics of the industry.

*Faculty-Management Studies, Institute of Technology and Science, MohanNagar, Ghaziabad, U.P

A PEEP INTO THE INDIAN TWO WHEELER MARKET

Dr. Soumendu Bhattacharya*

ABSTRACTThe steady growth of middle and upper middle class segments has pushed the demand of two wheelers. Automobile industry is one of the largest industries, which contributes substantially and is one of the key sectors of the growing economy. India is the next larger producers of two wheelers in the world after China. Not too many industries, in fact not even the other segments of the automobile industry, such as commercial vehicles, passenger cars and tractors, have posted its kind of growth reeling under the impact of dwindling demand. Manufactures have been always wondering adopt what the customers look for in a product. The companies are slugging it out to maintain or increase their market share but the consumers are a happy lot. At the stock market, the share prices of two-wheeler companies have seen a divergent trend.

1

Introduction combination of two or more segments e.g. scooter and Motor-cycles . The market primarily comprises

Automobile is one of the largest industries in five players in the two wheeler segment with most

global market. Being the leader in product and of the companies having foreign collaborations with

process technologies in the manufacturing sector, it well-known Japanese firms earlier. But most of the

has been recognised as one of the drivers of companies are now planning 100% subsidiaries in

economic growth. During the last decade, well-India.

directed efforts have been made to provide a new look to the automobile policy for realising the In the last four to five years, the two-wheeler sector's full potential for the economy.. Steps like market has witnessed a marked shift towards abolition of licensing, removal of quantitative motorcycles at the expense of scooters. In the rural restrictions and initiatives to bring the policy areas, consumers have come to prefer sturdier bikes framework in consonance with WTO requirements to withstand the bad road conditions. In the process have set the industry in a progressive track. the share of motorcycle segment has grown from Removal of the restrictive environment has helped 48% to 58%, the share of scooters declined restructuring, and enabled industry to absorb new drastically from 33% to 25%, while that of mopeds technologies, aligning itself with the global declined by 2% from 19% to 17% during the year development and also to realise its potential in the 2000-01. The Euro emission norms led the existing country. The liberalisation policies have led to players in the two stroke segment to install catalytic continuous increase in competition which has converters. All the new models are now being ultimately resulted in modernisation in line with the replaced by 4-stroke motorcycles. Excise duty on global standards as well as in substantial cut in motorcycles has been reduced resulting in price prices. Aggressive marketing by the auto finance reduction, which has aided in propelling the demand companies have also played a significant role in for motorcycles. Fierce competition has also forced boosting automobile demand, especially from the players to cut prices in certain models. population in the middle income group. The Indian

Current Scenario two wheeler market has a size of over Rs 100,000 million. The Indian two wheeler segment The two-wheeler industry is passing through a very contributes the largest volumes amongst all the interesting phase. Developments such as the entry segments in automobile industry. Though the of more number of players into the motorcycle segment can be broadly categorized into 3 sub- market, price discounts offered by producers, segments viz; scooters, motorcycles and mopeds; monsoon failure and growing competitive pressure some categories introduced in the market are a have changed the underlying basics of the industry.

*Faculty-Management Studies, Institute of Technology and Science, MohanNagar, Ghaziabad, U.P

2

Vedaang Vol. 4 No. 1, January-June 2013 A Peep into the Indian Two Wheeler Market

The impact of these developments is reflected in a industry. The success of the latest Pulsar has helped change in market share, a divergent trend in share the company to stay clear of adopting an aggressive price and the sharp swing in the price-earnings price reduction strategy. Besides, the recently multiple. Hero Honda continues to be the market launched Caliber 115 has also enjoyed a fair degree leader in the motorcycle segment with a 44.7 per of success. As a result, and aided by its cash-rich cent share. But it has ceded vital market space to status, the company has been able to hold its ground. competitors such as Bajaj (23.7 per cent) and TVS In stark contrast to the situation that prevailed in the Motor (19.2 per cent). The Hero Honda share, which 1990s, the two-wheeler industry has now acquired peaked at around Rs 400 in April 2002, has since the traits of any other consumer durables industry, been on a steady downtrend. Its competitors (such of price wars, celebrity endorsements and ever-as Bajaj and TVS Motor), though, have seen their increasing sales and other promotional outgo. In the share prices recover sharply from the lows recorded 1990s, the profit margin of the top companies was in October 2002. The reasons for this kind of a not subject to the kind of strain that is being disparate trend are not far to seek. With more than 40 witnessed in the recent quarters. per cent of the motorcycle demand flowing from the

The entry of more players into the fast-growing rural sector, the success or failure of monsoon has a

four-stroke motorcycle market has led to higher major influence on the sales volume.

competitive pressure for the companies. Earlier, During April-June 2002, motorcycle sales had Hero Honda and Bajaj were the only producers of

zipped ahead by 50.9 per cent to 9.1 lakh units. four-stroke motorcycles. Now, TVS Motor, Kinetic, LML along with Bajaj and Hero Honda are jostling However, in the last quarter of the previous fiscal, for space in the four-stroke market. This has led to the sales growth dropped to 7 per cent to 8.9-lakh an increase in the number of models and a units. The sharp slowdown in growth rate is consequent reduction in product lifecycle. In the explained by the drought that prevailed across most past couple of years, more than ten new four-stroke parts of the country last year. But for the recovery in motorcycle models have hit the Indian roads the the industrial economy and a soft interest rate popular ones include Victor, Passion and Pulsar. The regime, the situation would have been worse. Also, past few months also saw the launch of Byk, price discounts and attractive hire purchase Ambition and Caliber 115. This has resulted in an schemes have helped stem the declining trend in increase in overall expenses, including promotional demand. However, these cannot sustain the demand costs, for the companies. Apart from the capital for long unless there is a normal monsoon in the expenditure, new product launches have an current year. A sub-normal monsoon in the current inflationary impact on expenses of a recurring year could have a direct negative impact on the two-nature, such as sales promotion and staff cost. This, wheeler off take, motorcycles in particular. The coupled with the discounts that are being forked out, slowdown in the demand has prompted two-could have a negative impact on the profitability of wheeler majors to offer attractive discounts to lure the two-wheeler industry in the near term; at least customers. Hero Honda took the lead in April 2002 until the volume growth manages to compensate when it announced a Rs-1,001 discount across all this. The pressure on margins is not fully manifest products. Earlier, TVS Motor had dropped the price owing to the cost control and indigenisation efforts of its two-stroke motorcycle, Max 100, and this had undertaken by two-wheeler companies. Going the desired impact of higher sales volume.forward, the constituents of the two-wheeler

The impact of competitive pressure and industry too would find profit margin being slowdown in growth is better reflected by TVS consistently under pressure once the scope for cost Motor's recent move to offer a discount of Rs 2,003 control diminishes. Growth in volume would the even for its top-selling four-stroke model, Victor. key driver of financial performance even as the Bajaj has also been offering discounts and attractive scope for margin expansion wanes. Though Bajaj financing options to protect its interest in the and Honda Motorcycles have been successful, the

task of assessing or anticipating swings and changes Taking into account the higher degree of uncertainty in consumer preferences may not be an easy task. associated with earnings and the likelihood of a drop This is borne out in the case of Hero Honda's CBZ in valuation levels, existing holders of two-wheeler and the four-stroke scooter venture of Bajaj and companies may look for opportunities to reduce TVS Motor. While Pulsar turned out to be a huge hit exposures. Evidence of increase in motorcycle sales for Bajaj, Hero Honda's CBZ (launched much ahead or signs of normal monsoon can be used to take of Pulsar) failed despite possessing similar features . exposures in two-wheeler majors.

Similarly, both Bajaj and TVS Motor did not Motorcycle sales grew by an annual average of make any progress in their four-stroke scooter 32% over 1995-2006, and constituted nearly 66% of

total two wheeler sales in 2006, up from just 24% in venture. But the latest entrant Honda Motorcycle 2005. Average monthly motorcycle sales have has enjoyed a huge success in this segment through increased five-fold since 1995 to almost 250,000 the Activa. The inherent difficulty in assessing and units in 2006. in today's market hero Honda is the addressing the developments or changes in the current market leader with a 49% market share. industry would mean a higher degree of uncertainty Hero Honda has been an early entrant in the 4 stroke to the earnings growth of two-wheeler companies. segment of the two wheeler industry. With a right That the success or failure of even a single product mix of product styling and pricing the company can have a major influence on the earnings helped garner a larger market chunk of the 4-stroke performance would aggravate the uncertainty market as compared to Bajaj Auto. A shifting problem. Along with these factors, Honda consumer preference towards motorcycles also Motorcycle's decision to venture into the enabled the fast growth of the company in the last motorcycle market next year could compound the few years. Hero Honda motorcycle sales jumped problems for companies such as Hero Honda, Bajaj 40.6% in 2006 at 135,961 units from 96,672 units it and TVS Motor. The cumulative impact of these sold in the corresponding last year. The change in developments is reflected in the form of a divergent product mix in favor of higher value products has and volatile trend in share price movement of two-resulted in improved realization for the company wheeler companies Bajaj, Hero Honda, TVS Motor the growing popularity of the passion model and LML. After lying low for quite a while, LML's appears to be the key factor behind improvement in share price has shot up in the past few months after unit realization. Taking into account the recent trend the initial success of its Freedom model. Similarly, in performance, the company appears well the pick-up in sales volume of Hero Honda's positioned to retain its top position in the

Ambition and CD Dawn models have resulted in a motorcycle market and also sustain the recent rate

sharp recovery in share price of the company from of growth. Bajaj auto ltd is the second biggest

the low of Rs 180 to the current level of about Rs manufacturer of motorcycles. The companies

230. Considering that the stock market hates recent indigenous launch in 4-stroke segment viz;

uncertainty, especially when it is associated with the 150 / 180 cc pulsar which has practically

earnings stream, the valuation levels are likely to be snatched the market share of the bikes like Hero stressed in the future. Honda CBZ, Suzuki Fiero, LML Adreno etc, and it

appears that pulsar would rule this segment till the This kind of a trend is already reflected in the time there are some new launches in this segment by valuation of software stocks. A similar kind of a other manufacturers, for Bajaj Pulsar has been the trend could probably emerge in two-wheelers as major contributor for the rise in its motorcycle sales well. From an investment perspective, the earlier along with its other popular models such as boxer, approach of buy, hold and sell at a later date will caliber Croma etc. well coming to the third largest probably lose validity. The investment holding share holder in the motorcycle segment which is the period would tend to get shorter and riding the TVS motors, which has emerged as a 'victor' after momentum associated with company-specific the Suzuki break up, riding high on the success, of developments could well be the order of the day.

3

2

Vedaang Vol. 4 No. 1, January-June 2013 A Peep into the Indian Two Wheeler Market

The impact of these developments is reflected in a industry. The success of the latest Pulsar has helped change in market share, a divergent trend in share the company to stay clear of adopting an aggressive price and the sharp swing in the price-earnings price reduction strategy. Besides, the recently multiple. Hero Honda continues to be the market launched Caliber 115 has also enjoyed a fair degree leader in the motorcycle segment with a 44.7 per of success. As a result, and aided by its cash-rich cent share. But it has ceded vital market space to status, the company has been able to hold its ground. competitors such as Bajaj (23.7 per cent) and TVS In stark contrast to the situation that prevailed in the Motor (19.2 per cent). The Hero Honda share, which 1990s, the two-wheeler industry has now acquired peaked at around Rs 400 in April 2002, has since the traits of any other consumer durables industry, been on a steady downtrend. Its competitors (such of price wars, celebrity endorsements and ever-as Bajaj and TVS Motor), though, have seen their increasing sales and other promotional outgo. In the share prices recover sharply from the lows recorded 1990s, the profit margin of the top companies was in October 2002. The reasons for this kind of a not subject to the kind of strain that is being disparate trend are not far to seek. With more than 40 witnessed in the recent quarters. per cent of the motorcycle demand flowing from the

The entry of more players into the fast-growing rural sector, the success or failure of monsoon has a

four-stroke motorcycle market has led to higher major influence on the sales volume.

competitive pressure for the companies. Earlier, During April-June 2002, motorcycle sales had Hero Honda and Bajaj were the only producers of

zipped ahead by 50.9 per cent to 9.1 lakh units. four-stroke motorcycles. Now, TVS Motor, Kinetic, LML along with Bajaj and Hero Honda are jostling However, in the last quarter of the previous fiscal, for space in the four-stroke market. This has led to the sales growth dropped to 7 per cent to 8.9-lakh an increase in the number of models and a units. The sharp slowdown in growth rate is consequent reduction in product lifecycle. In the explained by the drought that prevailed across most past couple of years, more than ten new four-stroke parts of the country last year. But for the recovery in motorcycle models have hit the Indian roads the the industrial economy and a soft interest rate popular ones include Victor, Passion and Pulsar. The regime, the situation would have been worse. Also, past few months also saw the launch of Byk, price discounts and attractive hire purchase Ambition and Caliber 115. This has resulted in an schemes have helped stem the declining trend in increase in overall expenses, including promotional demand. However, these cannot sustain the demand costs, for the companies. Apart from the capital for long unless there is a normal monsoon in the expenditure, new product launches have an current year. A sub-normal monsoon in the current inflationary impact on expenses of a recurring year could have a direct negative impact on the two-nature, such as sales promotion and staff cost. This, wheeler off take, motorcycles in particular. The coupled with the discounts that are being forked out, slowdown in the demand has prompted two-could have a negative impact on the profitability of wheeler majors to offer attractive discounts to lure the two-wheeler industry in the near term; at least customers. Hero Honda took the lead in April 2002 until the volume growth manages to compensate when it announced a Rs-1,001 discount across all this. The pressure on margins is not fully manifest products. Earlier, TVS Motor had dropped the price owing to the cost control and indigenisation efforts of its two-stroke motorcycle, Max 100, and this had undertaken by two-wheeler companies. Going the desired impact of higher sales volume.forward, the constituents of the two-wheeler

The impact of competitive pressure and industry too would find profit margin being slowdown in growth is better reflected by TVS consistently under pressure once the scope for cost Motor's recent move to offer a discount of Rs 2,003 control diminishes. Growth in volume would the even for its top-selling four-stroke model, Victor. key driver of financial performance even as the Bajaj has also been offering discounts and attractive scope for margin expansion wanes. Though Bajaj financing options to protect its interest in the and Honda Motorcycles have been successful, the

task of assessing or anticipating swings and changes Taking into account the higher degree of uncertainty in consumer preferences may not be an easy task. associated with earnings and the likelihood of a drop This is borne out in the case of Hero Honda's CBZ in valuation levels, existing holders of two-wheeler and the four-stroke scooter venture of Bajaj and companies may look for opportunities to reduce TVS Motor. While Pulsar turned out to be a huge hit exposures. Evidence of increase in motorcycle sales for Bajaj, Hero Honda's CBZ (launched much ahead or signs of normal monsoon can be used to take of Pulsar) failed despite possessing similar features . exposures in two-wheeler majors.

Similarly, both Bajaj and TVS Motor did not Motorcycle sales grew by an annual average of make any progress in their four-stroke scooter 32% over 1995-2006, and constituted nearly 66% of

total two wheeler sales in 2006, up from just 24% in venture. But the latest entrant Honda Motorcycle 2005. Average monthly motorcycle sales have has enjoyed a huge success in this segment through increased five-fold since 1995 to almost 250,000 the Activa. The inherent difficulty in assessing and units in 2006. in today's market hero Honda is the addressing the developments or changes in the current market leader with a 49% market share. industry would mean a higher degree of uncertainty Hero Honda has been an early entrant in the 4 stroke to the earnings growth of two-wheeler companies. segment of the two wheeler industry. With a right That the success or failure of even a single product mix of product styling and pricing the company can have a major influence on the earnings helped garner a larger market chunk of the 4-stroke performance would aggravate the uncertainty market as compared to Bajaj Auto. A shifting problem. Along with these factors, Honda consumer preference towards motorcycles also Motorcycle's decision to venture into the enabled the fast growth of the company in the last motorcycle market next year could compound the few years. Hero Honda motorcycle sales jumped problems for companies such as Hero Honda, Bajaj 40.6% in 2006 at 135,961 units from 96,672 units it and TVS Motor. The cumulative impact of these sold in the corresponding last year. The change in developments is reflected in the form of a divergent product mix in favor of higher value products has and volatile trend in share price movement of two-resulted in improved realization for the company wheeler companies Bajaj, Hero Honda, TVS Motor the growing popularity of the passion model and LML. After lying low for quite a while, LML's appears to be the key factor behind improvement in share price has shot up in the past few months after unit realization. Taking into account the recent trend the initial success of its Freedom model. Similarly, in performance, the company appears well the pick-up in sales volume of Hero Honda's positioned to retain its top position in the

Ambition and CD Dawn models have resulted in a motorcycle market and also sustain the recent rate

sharp recovery in share price of the company from of growth. Bajaj auto ltd is the second biggest

the low of Rs 180 to the current level of about Rs manufacturer of motorcycles. The companies

230. Considering that the stock market hates recent indigenous launch in 4-stroke segment viz;

uncertainty, especially when it is associated with the 150 / 180 cc pulsar which has practically

earnings stream, the valuation levels are likely to be snatched the market share of the bikes like Hero stressed in the future. Honda CBZ, Suzuki Fiero, LML Adreno etc, and it

appears that pulsar would rule this segment till the This kind of a trend is already reflected in the time there are some new launches in this segment by valuation of software stocks. A similar kind of a other manufacturers, for Bajaj Pulsar has been the trend could probably emerge in two-wheelers as major contributor for the rise in its motorcycle sales well. From an investment perspective, the earlier along with its other popular models such as boxer, approach of buy, hold and sell at a later date will caliber Croma etc. well coming to the third largest probably lose validity. The investment holding share holder in the motorcycle segment which is the period would tend to get shorter and riding the TVS motors, which has emerged as a 'victor' after momentum associated with company-specific the Suzuki break up, riding high on the success, of developments could well be the order of the day.

3

it's motorbike by the same name. TVS Victor is the pulsar has arrived and the consumer choice clearly first indigenously produced motorcycle from TVS shows that this place will be reserved for pulsar for motors. In fact with a six week waiting period, even some time as a counter attack hero Honda too would six months after its launch, TVS motors plans to be launching a bike in this segment but it is too early double its production capacity. to comment on that.

The motorcycle market can be further Review of Studiessegmented on the basis of the price tags which are

Contemporary research has examined market the economy, executive and the premium segments.

structure in order to explain consumer brand Basically all the three leading companies have a preferences based on attributes of these brands. presence in all of these sectors. Clearly, the race to While Elrod (1988), Chintagunta (1994) and Elrod the number one spot in the motorcycle segment has and Keane (1995) use static market structure been a one sided one. But times are changing, Given models, Erdem (1996) uses a dynamic model. In the fact that Bajaj is positioning itself at all feature another study, Bresnahan and Greenstein (1999) and price points, it does have every model to satisfy have examined the principal structural features of the needs of a prospective motorcycle buyer, and the computer industry in the U.S. at the industry-also has the privilege of being the only one in the wide and segment levels. They explain the cruiser segment but except for the two bikes i.e persistence of dominant computer firms, their Boxer CC and Pulsar no other Bajaj models seem to decline in the 1990s and the changes in the be on the line of prosperity and the recently competitive entry in this industry. They discover launched dawn by Hero Honda is a direct threat to that technological competition in the industry has the market of boxer ct price competitively at Rs increased through a) the formation of young 37,000/- which is just Rs 2,000/- more than the platforms serving newly founded segments that boxer ct but then again boxer ct already enjoys a vast challenged established platforms through the market share and is very popular especially in the process of indirect entry and b) divided technical rural areas it will be a tough job for dawn to displace leadership resulting from the vertical disintegration this bike from its current position a lot remains to be of platforms.seen by the feedback that it receives from riders.

Other studies that have examined industrial The pulsar has taken the market by storm in the structure include Baldwin and Gorecki (1994),

premium segment it has clearly displaced the CBZ Adelman (1951), Golan et. al. (1996) and Amato

and the other models of this segment and looks like (1995). It is noteworthy that all such studies of

the things will remain this way for some time but evolution of industries have largely been confined

there are tough times ahead since Hero Honda plans to the US and the Canadian experience. More

to launch a new bike in this segment by the end of specifically there does not exist any work along

this year which means that there is a lot to look these lines for the Indian industrial sector. The ahead from a consumers point of view. Indian industrial sector has undergone profound

regulatory changes in recent times as a consequence Let us first identify the current market leaders in of the economic reforms program put together in each category. In the economy segment Bajaj is the between 1988 and 1991. Consequent to these leader with 46% of the market share with boxer reforms some of the industries that have been being the largest selling bike in this segment. In the influenced the most have been the consumer executive segment Hero Honda is the clear leader durables industry (such as two-wheelers, washing with 67% market share with splendor and passion machines, televisions etc.), the automobile industry leading the market in this segment and will continue and certain financial services. Typically an to do so in the near future well now we come to the economy undergoing industrial reforms resorts to most controversial segment which is the premium regulatory changes and redefines the role of the segment since the current market leader according public sector in order to create a climate of growth to the sales of the past few months is CBZ but then

and foster private competition. Therefore it is durables industry but whether this indeed led to pertinent to examine the structure and evolution of enhanced competition is an empirical question, not industries (such as consumer durables) in yet examined. This study addresses this question. economies where reforms have taken place, for Market imperfections are typically examined by such industries show a propensity to evolve into calculating the Herfindahl index and the four-firm oligopolies in the long run. It would be important in concentration ratios at the industry-wide and this context, to analyze the impact that economic segment levels. Industrial economists have been reforms have had on industrial structure and to debating the usefulness of these indices in assessing understand the implications thereof for the design of market concentration. an appropriate regulatory mechanism in response.

While Posner (1976) argues that concentration Posner (1976) argues that if antitrust laws are ratios are but one of the indicators of collusive not formulated appropriately, competing sellers tendencies and that it is necessary to include fringe might be able to engage in “conscious parallelism” firms in the analysis, Adelman (1951), Amato or tacit collusion and that the . The dealer margins (1995), Golan, Judge, and Perloff (1996), and, have increased from around 5% to about 30% of the Baldwin and Gorecki (1994) have shown that the ex-factory price between 1988 and 1999. The Herfindahl index forms a much sounder indicator of number of exclusive dealerships has also increased. the structure and performance of a given industry

than four-firm concentration ratios. The Herfindahl Bork (1978), however, asserts that only explicit

index is used, to a considerable extent, by the collusion was likely to exist given that collusion

structuralist school, which postulates that without detailed communication and agreement

competition, is a state of affairs (Reid, (1987)). (tacit) was not likely to be successful. In India, laws

While four firm concentration ratios and Herfindahl like the Monopolies and Restrictive Trade Practices

indices have their virtues as indicators of market Act (MRTP) and Foreign Exchange Regulation Act

concentration at a point in time, it is also important (FERA) were designed to control monopolistic

to understand the evolution of market power over tendencies in the markets. If these tendencies create

time. welfare losses, then, there is a case for framing appropriate antitrust legislation. The competitive In this spirit Baldwin and Gorecki (1994) track policy so developed must be able to distinguish the mobility of firms (which captures shifts in between real competition and purely theoretical market structure) by using a variant of the instability competition. index of Hymer and Pashigian (1962). We have

used the Kendall's rank concordance test to put into Competitive policy is not a road to Utopia or a

perspective the mobility of the firms. This is a more complete basis for public policy (Areeda and

robust measure of tracking mobility of firms over Kaplow (1988)). Yet as Stigler (1966) points out, an

time, since it also incorporates certain aspects of optimal policy on competition often prevents the

Lorenz type measurements to indicate relative defects of social organization from being made

positions of firms over time. If this index is used worse by preventing deliberate adoption of

along with the concentration ratios, one can identify restrictive practices by firms.

the contributors towards concentration over time in In this research work assess the degree of a clearer manner. This test also enables us to

imperfection in the two-wheeler industry in examine whether the dominance of any given firm particular. The reason is that this industry persists over time and if this dominance is underwent a sea change during 1985-2007 due to increasing/decreasing. However, a study of economic reforms introduced in this period. These dominance in terms of persistence of ranks needs to reforms were aimed at encouraging competition. be supplemented with one on dominance in terms of During this period, the two-wheeler industry saw levels. If the ranks of firms in terms of shares in the largest proliferation of brands in the consumer sales do not alter much over time, one still needs to

A Peep into the Indian Two Wheeler MarketVedaang Vol. 4 No. 1, January-June 2013

4 5

it's motorbike by the same name. TVS Victor is the pulsar has arrived and the consumer choice clearly first indigenously produced motorcycle from TVS shows that this place will be reserved for pulsar for motors. In fact with a six week waiting period, even some time as a counter attack hero Honda too would six months after its launch, TVS motors plans to be launching a bike in this segment but it is too early double its production capacity. to comment on that.

The motorcycle market can be further Review of Studiessegmented on the basis of the price tags which are

Contemporary research has examined market the economy, executive and the premium segments.

structure in order to explain consumer brand Basically all the three leading companies have a preferences based on attributes of these brands. presence in all of these sectors. Clearly, the race to While Elrod (1988), Chintagunta (1994) and Elrod the number one spot in the motorcycle segment has and Keane (1995) use static market structure been a one sided one. But times are changing, Given models, Erdem (1996) uses a dynamic model. In the fact that Bajaj is positioning itself at all feature another study, Bresnahan and Greenstein (1999) and price points, it does have every model to satisfy have examined the principal structural features of the needs of a prospective motorcycle buyer, and the computer industry in the U.S. at the industry-also has the privilege of being the only one in the wide and segment levels. They explain the cruiser segment but except for the two bikes i.e persistence of dominant computer firms, their Boxer CC and Pulsar no other Bajaj models seem to decline in the 1990s and the changes in the be on the line of prosperity and the recently competitive entry in this industry. They discover launched dawn by Hero Honda is a direct threat to that technological competition in the industry has the market of boxer ct price competitively at Rs increased through a) the formation of young 37,000/- which is just Rs 2,000/- more than the platforms serving newly founded segments that boxer ct but then again boxer ct already enjoys a vast challenged established platforms through the market share and is very popular especially in the process of indirect entry and b) divided technical rural areas it will be a tough job for dawn to displace leadership resulting from the vertical disintegration this bike from its current position a lot remains to be of platforms.seen by the feedback that it receives from riders.

Other studies that have examined industrial The pulsar has taken the market by storm in the structure include Baldwin and Gorecki (1994),

premium segment it has clearly displaced the CBZ Adelman (1951), Golan et. al. (1996) and Amato

and the other models of this segment and looks like (1995). It is noteworthy that all such studies of

the things will remain this way for some time but evolution of industries have largely been confined

there are tough times ahead since Hero Honda plans to the US and the Canadian experience. More

to launch a new bike in this segment by the end of specifically there does not exist any work along

this year which means that there is a lot to look these lines for the Indian industrial sector. The ahead from a consumers point of view. Indian industrial sector has undergone profound

regulatory changes in recent times as a consequence Let us first identify the current market leaders in of the economic reforms program put together in each category. In the economy segment Bajaj is the between 1988 and 1991. Consequent to these leader with 46% of the market share with boxer reforms some of the industries that have been being the largest selling bike in this segment. In the influenced the most have been the consumer executive segment Hero Honda is the clear leader durables industry (such as two-wheelers, washing with 67% market share with splendor and passion machines, televisions etc.), the automobile industry leading the market in this segment and will continue and certain financial services. Typically an to do so in the near future well now we come to the economy undergoing industrial reforms resorts to most controversial segment which is the premium regulatory changes and redefines the role of the segment since the current market leader according public sector in order to create a climate of growth to the sales of the past few months is CBZ but then

and foster private competition. Therefore it is durables industry but whether this indeed led to pertinent to examine the structure and evolution of enhanced competition is an empirical question, not industries (such as consumer durables) in yet examined. This study addresses this question. economies where reforms have taken place, for Market imperfections are typically examined by such industries show a propensity to evolve into calculating the Herfindahl index and the four-firm oligopolies in the long run. It would be important in concentration ratios at the industry-wide and this context, to analyze the impact that economic segment levels. Industrial economists have been reforms have had on industrial structure and to debating the usefulness of these indices in assessing understand the implications thereof for the design of market concentration. an appropriate regulatory mechanism in response.

While Posner (1976) argues that concentration Posner (1976) argues that if antitrust laws are ratios are but one of the indicators of collusive not formulated appropriately, competing sellers tendencies and that it is necessary to include fringe might be able to engage in “conscious parallelism” firms in the analysis, Adelman (1951), Amato or tacit collusion and that the . The dealer margins (1995), Golan, Judge, and Perloff (1996), and, have increased from around 5% to about 30% of the Baldwin and Gorecki (1994) have shown that the ex-factory price between 1988 and 1999. The Herfindahl index forms a much sounder indicator of number of exclusive dealerships has also increased. the structure and performance of a given industry

than four-firm concentration ratios. The Herfindahl Bork (1978), however, asserts that only explicit

index is used, to a considerable extent, by the collusion was likely to exist given that collusion

structuralist school, which postulates that without detailed communication and agreement

competition, is a state of affairs (Reid, (1987)). (tacit) was not likely to be successful. In India, laws

While four firm concentration ratios and Herfindahl like the Monopolies and Restrictive Trade Practices

indices have their virtues as indicators of market Act (MRTP) and Foreign Exchange Regulation Act

concentration at a point in time, it is also important (FERA) were designed to control monopolistic

to understand the evolution of market power over tendencies in the markets. If these tendencies create

time. welfare losses, then, there is a case for framing appropriate antitrust legislation. The competitive In this spirit Baldwin and Gorecki (1994) track policy so developed must be able to distinguish the mobility of firms (which captures shifts in between real competition and purely theoretical market structure) by using a variant of the instability competition. index of Hymer and Pashigian (1962). We have

used the Kendall's rank concordance test to put into Competitive policy is not a road to Utopia or a

perspective the mobility of the firms. This is a more complete basis for public policy (Areeda and

robust measure of tracking mobility of firms over Kaplow (1988)). Yet as Stigler (1966) points out, an

time, since it also incorporates certain aspects of optimal policy on competition often prevents the

Lorenz type measurements to indicate relative defects of social organization from being made

positions of firms over time. If this index is used worse by preventing deliberate adoption of

along with the concentration ratios, one can identify restrictive practices by firms.

the contributors towards concentration over time in In this research work assess the degree of a clearer manner. This test also enables us to

imperfection in the two-wheeler industry in examine whether the dominance of any given firm particular. The reason is that this industry persists over time and if this dominance is underwent a sea change during 1985-2007 due to increasing/decreasing. However, a study of economic reforms introduced in this period. These dominance in terms of persistence of ranks needs to reforms were aimed at encouraging competition. be supplemented with one on dominance in terms of During this period, the two-wheeler industry saw levels. If the ranks of firms in terms of shares in the largest proliferation of brands in the consumer sales do not alter much over time, one still needs to

A Peep into the Indian Two Wheeler MarketVedaang Vol. 4 No. 1, January-June 2013

4 5

assess whether differences between the sales shares industry as a whole, tend to grow at similar rates in of these firms are narrowing over time. the long run and captures .the dynamics associated

with the long-term growth of volumes and market-Contemporary research has examined market

shares at the segment and industry-wide levels. structure in order to explain consumer brand

This, then, sheds light on the inter-firm preferences based on attributes of these brands.

dependencies at these two levels, which in turn has While Elrod (1988), Chintagunta (1994) and Elrod

implications for the competitive strategies of firms. and Keane (1995) use static market structure

We also conduct this test for production capacities models, Erdem (1996) uses a dynamic model. In

of firms to test whether capacity expansion was the another study, Bresnahan and Greenstein (1999)

result of competition within the industry.have examined the principal structural features of the computer industry in the U.S. at the industry- It attempts to analyze key aspects of the wide and segment levels. They explain the structural characteristics of consumer durables persistence of dominant computer firms, their industry in India. An analysis of the evolution of this decline in the 1990s and the changes in the industry has implications for firms within the competitive entry in this industry. They discover industry, as well as for regulators and policymakers. that technological competition in the industry has While inter-firm linkages would be pertinent to increased through a) the formation of young firms in the context of competitive strategies, the platforms serving newly founded segments that analysis of price movements in the industry and its challenged established platforms through the segments relative to the general price level, and the process of indirect entry and b) divided technical structure of competition within the industry and leadership resulting from the vertical disintegration individual segments therein are of importance to of platforms. regulators. Capacity growth movements have

implications for future policy making within the Other studies that have examined industrial

industry. Based on the results of this research paper structure include Baldwin and Gorecki (1994),

we can make certain general conclusions about the Adelman (1951), Golan et. al. (1996) and Amato

consumer durables industries. For example, we (1995). It is noteworthy that all such studies of

establish that a) consumer durables industries will evolution of industries have largely been confined

evolve as oligopolies at the industry-wide level and to the US and the Canadian experience. More

at the level of the segments, b) that he convergence specifically there does not exist any work along

of growth rates of sales volume and market-share is these lines for the Indian industrial sector. The

likely to be conditional at the level of the industry Indian industrial sector has undergone profound

and absolute at the segment level. We can loosely regulatory changes in recent times as a consequence

define conditional convergence to imply that in the of the economic reforms program put together in

long run, its own past vector of means will between 1988 and 1991. Consequent to these

determine growth rate of a firm. Absolute reforms some of the industries that have been

convergence implies that the growth rate of a firm is influenced the most have been the consumer

moving towards the vector of means of other firms durables industry (such as two-wheelers, washing

in the industry in the long-run.machines, televisions etc.), the automobile industry and certain financial services. Typically an Evolution of the Indian Two-wheeler Industryeconomy undergoing industrial reforms resorts to

The two-wheeler industry (henceforth TWI) in regulatory changes and redefines the role of the

India has been in existence since 1955. It consists of public sector in order to create a climate of growth

three segments viz., scooters, motorcycles, and and foster private competition.

mopeds. The increase in sales volume of this The Evans and Karras (1996) test of industry is proof of its high growth. In 1971, sales

convergence is ideally suited for this purpose. This were around 0.1 million units per annum. But by test enables us to examine whether firms within the 1998, this figure had risen to 3 million units per

annum. Similarly ,capacities of production have provisions of FERA .Recognition of the deleterious also increased from about 0.2 million units of effects of these policies led to the initiation of annual capacity in the seventies to more than 4 reforms in 1975 which took on a more pronounced million units in the late nineties. The Two wheeler shape and acquired wider scope under the New Industry (TWI) in India began operations within the Economic Policy (NEP) in 1985. As part of these framework of the national industrial policy as reforms, several groups of industries were espoused by the Industrial Policy Resolution of delicensed and 'broadbanding' was permitted in 1956. (See Government of India (1980, 1985, select industries. Controls over capacity expansion 1992). This resolution divided the entire industrial were relaxed through the specification of the MES sector into three groups, of which one contained of production for several industries. Foreign industries whose development was the exclusive investment was allowed in select industries and responsibility of the State, another included those norms under the MRTP Act were relaxed. These industries in which both the State and the private reforms led to a rise in the trend rate of growth of sector could participate and the last set of industries real GDP from 3.7% in the seventies to 5.4% in the that could be developed exclusively under private eighties. However the major set of reforms came in initiative within the guidelines and objectives laid 1991 in responseout by the Five Year Plans (CMIE, 1990).Private

Delicensed industries meant that firms no investment was channelised and regulated through

longer required licenses from the State to enter the the extensive use of licensing giving the State

industry or expand their plants. Broad banding comprehensive control over the direction and

meant that a firm could manufacture products pattern of investment. Entry of firms, capacity

related to the ones they were currently making expansion, choice of product and capacity mix and

without the need for a separate license.technology, were all effectively controlled by the State in a bid to prevent the concentration of This meant that expansion of capacity till the economic power. However due to lapses in the MES did not now require a license. To a series of system, fresh policies were brought in at the end of macroeconomic crises that hit the Indian economy the sixties.4 All sales figures are from various issues in 1990-917. Several industries were deregulated, of ACMA, capacity figures from various Five Year the Indian rupee was devalued and made Plan documents. These consisted of MRTP of 1969 convertible on the current account and tariffs and FERA of 1973, which were aimed at regulating replaced quantitative restrictions in the area of monopoly and foreign investment respectively. trade. The initiation of reforms led to a drop in the Firms that came under the purview of these Acts growth of real GDP between 1990 1992, but this were allowed to invest only in a select set of averaged at about 5.5% per annum after 1992. The industries. This net of controls on the economy in decline in GDP in the years after reforms was the the seventies caused several firms to a) operate outcome of devaluation and the contractionary below the minimum scale of efficiency (henceforth fiscal and monetary policies taken in 1991 to MES), b) under-utilize capacity and, c)use outdated address the foreign exchange crisis. Thus the technology. While operation below MES resulted Industrial Policy in India moved from a position of from the fact that several incentives were given to regulation and tight control in the sixties and smaller firms, the capacity under-utilization was the seventies, to a more liberalized one in the eighties result of i) the capacity mix being determined and nineties. The two-wheeler industry in India has independent of the market demand, ii) the policy of to a great extent been shaped by the evolution of the distributing imports based on capacity, causing industrial policy of the country. Regulatory policies firms to expand beyond levels determined by like FERA and MRTP caused the growth of some demand so as to be eligible for more imports. Use of segments in the industry like motorcycles to outdated technology resulted from the restrictions stagnate. These were later able to grow (both in placed on import of technology through the terms of overall sales volumes and number of

Vedaang Vol. 4 No. 1, January-June 2013 A Peep into the Indian Two Wheeler Market

6 7

assess whether differences between the sales shares industry as a whole, tend to grow at similar rates in of these firms are narrowing over time. the long run and captures .the dynamics associated

with the long-term growth of volumes and market-Contemporary research has examined market

shares at the segment and industry-wide levels. structure in order to explain consumer brand

This, then, sheds light on the inter-firm preferences based on attributes of these brands.

dependencies at these two levels, which in turn has While Elrod (1988), Chintagunta (1994) and Elrod

implications for the competitive strategies of firms. and Keane (1995) use static market structure

We also conduct this test for production capacities models, Erdem (1996) uses a dynamic model. In

of firms to test whether capacity expansion was the another study, Bresnahan and Greenstein (1999)

result of competition within the industry.have examined the principal structural features of the computer industry in the U.S. at the industry- It attempts to analyze key aspects of the wide and segment levels. They explain the structural characteristics of consumer durables persistence of dominant computer firms, their industry in India. An analysis of the evolution of this decline in the 1990s and the changes in the industry has implications for firms within the competitive entry in this industry. They discover industry, as well as for regulators and policymakers. that technological competition in the industry has While inter-firm linkages would be pertinent to increased through a) the formation of young firms in the context of competitive strategies, the platforms serving newly founded segments that analysis of price movements in the industry and its challenged established platforms through the segments relative to the general price level, and the process of indirect entry and b) divided technical structure of competition within the industry and leadership resulting from the vertical disintegration individual segments therein are of importance to of platforms. regulators. Capacity growth movements have

implications for future policy making within the Other studies that have examined industrial

industry. Based on the results of this research paper structure include Baldwin and Gorecki (1994),

we can make certain general conclusions about the Adelman (1951), Golan et. al. (1996) and Amato

consumer durables industries. For example, we (1995). It is noteworthy that all such studies of

establish that a) consumer durables industries will evolution of industries have largely been confined

evolve as oligopolies at the industry-wide level and to the US and the Canadian experience. More

at the level of the segments, b) that he convergence specifically there does not exist any work along

of growth rates of sales volume and market-share is these lines for the Indian industrial sector. The

likely to be conditional at the level of the industry Indian industrial sector has undergone profound

and absolute at the segment level. We can loosely regulatory changes in recent times as a consequence

define conditional convergence to imply that in the of the economic reforms program put together in

long run, its own past vector of means will between 1988 and 1991. Consequent to these

determine growth rate of a firm. Absolute reforms some of the industries that have been

convergence implies that the growth rate of a firm is influenced the most have been the consumer

moving towards the vector of means of other firms durables industry (such as two-wheelers, washing

in the industry in the long-run.machines, televisions etc.), the automobile industry and certain financial services. Typically an Evolution of the Indian Two-wheeler Industryeconomy undergoing industrial reforms resorts to

The two-wheeler industry (henceforth TWI) in regulatory changes and redefines the role of the

India has been in existence since 1955. It consists of public sector in order to create a climate of growth

three segments viz., scooters, motorcycles, and and foster private competition.

mopeds. The increase in sales volume of this The Evans and Karras (1996) test of industry is proof of its high growth. In 1971, sales

convergence is ideally suited for this purpose. This were around 0.1 million units per annum. But by test enables us to examine whether firms within the 1998, this figure had risen to 3 million units per

annum. Similarly ,capacities of production have provisions of FERA .Recognition of the deleterious also increased from about 0.2 million units of effects of these policies led to the initiation of annual capacity in the seventies to more than 4 reforms in 1975 which took on a more pronounced million units in the late nineties. The Two wheeler shape and acquired wider scope under the New Industry (TWI) in India began operations within the Economic Policy (NEP) in 1985. As part of these framework of the national industrial policy as reforms, several groups of industries were espoused by the Industrial Policy Resolution of delicensed and 'broadbanding' was permitted in 1956. (See Government of India (1980, 1985, select industries. Controls over capacity expansion 1992). This resolution divided the entire industrial were relaxed through the specification of the MES sector into three groups, of which one contained of production for several industries. Foreign industries whose development was the exclusive investment was allowed in select industries and responsibility of the State, another included those norms under the MRTP Act were relaxed. These industries in which both the State and the private reforms led to a rise in the trend rate of growth of sector could participate and the last set of industries real GDP from 3.7% in the seventies to 5.4% in the that could be developed exclusively under private eighties. However the major set of reforms came in initiative within the guidelines and objectives laid 1991 in responseout by the Five Year Plans (CMIE, 1990).Private

Delicensed industries meant that firms no investment was channelised and regulated through

longer required licenses from the State to enter the the extensive use of licensing giving the State

industry or expand their plants. Broad banding comprehensive control over the direction and

meant that a firm could manufacture products pattern of investment. Entry of firms, capacity

related to the ones they were currently making expansion, choice of product and capacity mix and

without the need for a separate license.technology, were all effectively controlled by the State in a bid to prevent the concentration of This meant that expansion of capacity till the economic power. However due to lapses in the MES did not now require a license. To a series of system, fresh policies were brought in at the end of macroeconomic crises that hit the Indian economy the sixties.4 All sales figures are from various issues in 1990-917. Several industries were deregulated, of ACMA, capacity figures from various Five Year the Indian rupee was devalued and made Plan documents. These consisted of MRTP of 1969 convertible on the current account and tariffs and FERA of 1973, which were aimed at regulating replaced quantitative restrictions in the area of monopoly and foreign investment respectively. trade. The initiation of reforms led to a drop in the Firms that came under the purview of these Acts growth of real GDP between 1990 1992, but this were allowed to invest only in a select set of averaged at about 5.5% per annum after 1992. The industries. This net of controls on the economy in decline in GDP in the years after reforms was the the seventies caused several firms to a) operate outcome of devaluation and the contractionary below the minimum scale of efficiency (henceforth fiscal and monetary policies taken in 1991 to MES), b) under-utilize capacity and, c)use outdated address the foreign exchange crisis. Thus the technology. While operation below MES resulted Industrial Policy in India moved from a position of from the fact that several incentives were given to regulation and tight control in the sixties and smaller firms, the capacity under-utilization was the seventies, to a more liberalized one in the eighties result of i) the capacity mix being determined and nineties. The two-wheeler industry in India has independent of the market demand, ii) the policy of to a great extent been shaped by the evolution of the distributing imports based on capacity, causing industrial policy of the country. Regulatory policies firms to expand beyond levels determined by like FERA and MRTP caused the growth of some demand so as to be eligible for more imports. Use of segments in the industry like motorcycles to outdated technology resulted from the restrictions stagnate. These were later able to grow (both in placed on import of technology through the terms of overall sales volumes and number of

Vedaang Vol. 4 No. 1, January-June 2013 A Peep into the Indian Two Wheeler Market

6 7

players) once foreign investments were allowed in collaborations with foreign firms were encouraged.1981. The reforms in the eighties like 'broad

In the motorcycle segment FERA did not cause banding' caused the entry of several new firms and

technological stagnation9, as a consequence of products which caused the existing technologically

which, new products nor firms entered the market outdated products to lose sales volume and/or exit

since this segment depended almost entirely on the market. Finally, with liberalization in the

foreign collaborations for technology. The scooter nineties, the industry witnessed a proliferation in

and moped segments on the other hand were brands .A description of the evolution of the two

technologically more self-sufficient and thus there wheeler industry in India is usefully split up into

were two new entrants in the scooter segment and four ten year periods. This division traces

three in the moped segment. c) 1981 1990The significant changes in economic policy making.

technological backwardness of the Indian two-The first time-period, 1960-1969, was one wheeler industry was one of the reasons for the

during which the growth of the two-wheeler initiation of reforms in 1981. Foreign collaborations industry was fostered through means like were allowed for all two-wheelers up to an engine permitting foreign collaborations and phasing out capacity of 100 cc. of The Indian economy was faced with several

The variety in products available also improved problems at this time. Foreign exchange reserves

after 'broad banding' was allowed in the industry in were down to two month's imports, there was a large

1985 as8 Between 1974-79, sales of two-wheelers budget deficit, double digit inflation, and with increased by 60%, while that of cars declined by India's credit rating downgraded, private foreign 21% and jeeps grew only by 11%. Indian lending was cut off. Also the Gulf war in 1990 motorcycles in the seventies had two major brought about an increase in oil prices, and India drawbacks viz., low fuel-efficiency and high had to import oil for over US$ 2 billion (GATT weight. Worldwide however, there was a trend Secretariat, 1993)10non-manufacturing firms in the towards using high-strength, low-weight materials industry. The period 1970-1980 saw state controls, for various components which resulted in vehicles through the use of the licensing system and certain that were compact and had lower weight. Since fuel-regulatory acts over the economy, at their peak. consumption of a two-wheeler depended on its During 1981-1990 significant reforms were weight, lighter vehicles meant greater mileage. initiated in the country. The final time-period covers These drawbacks were overcome in the eighties the period 1991-1999 during which the reform when foreign collaborations were once again process was deepened. These reforms encompassed allowed a part of NEP. This, coupled with the several areas like finance, trade, tax, industrial

policy etc. We now discuss in somewhat greater announcement of the MES of production for the two-wheeler industry, gave firms the flexibility to detail the principal characteristics of each sub

period. a) 1960 1969The automobile industry choose an optimal product and capacity mix which being classified as one of importance under the could better incorporate market demand into their Industrial Policy Resolution of 1948 was therefore production strategy and there by improve their controlled and regulated by the Government. In capacity utilization and efficiency. These reforms order to encourage manufacturing, besides had two major effects on the industry: First, licensed restricting import of complete vehicles, automobile capacities went up to1.1 million units per annum assembler firms were phased out by 1952 (Tariff overshooting the 0.675 million units per annum Commission, 1968), and only manufacturing firms target set in the Sixth Plan. Second, several existing allowed to continue. Production of automobiles was but weaker players died out giving way to new licensed, which meant that a firm required a entrants and superior products12 d) 1991 1999. The licensing approval in order to open a plant. It also reforms that began in the late seventies underwent meant that a firm's capacity of production was their most significant change in 1991through the determined by the Government. During this period,

liberalization of the economy. The two-wheeler 1993). product features15 and b) increase in sales volumes in the motorcycle segment vis-à-vis the industry was completely deregulated. In the area of scooter segment reversing the traditional trend. trade, several reforms were introduced with the goal

of making Indian exports competitive. The two- Growth of Two Wheeler in India wheeler industry in the nineties was characterized

The composition of the two-wheeler industry by a) an increase in the number of brands available has witnessed sea changes in the post-reform in the market which caused firms to compete on the period. In 1991, the share of scooters was about 50 basis of Fuel-efficiency improved by (60-100)% in per cent of the total two -wheeler demand in the the new vehicles. In the seventies, motorcycle Indian market. Motorcycle and moped had been mileage was on an average between 25 to 50 km pl experiencing almost equal level of shares in the total (kilometer per liter), which had now improved to 50 number of two-wheelers. In 2003-04, the share of to 80 kmpl. For mopeds it improved from 50 km pl motorcycles increased to 78 per cent of the total to 80 km pl. Output of the engines also increased two-wheelers while the shares of scooters and from 3-4 HP to 10 HP per 100 cc.11 In the two-mopeds declined to the level of 16 and 6 per cent wheeler industry, MES was pegged at 2,00,000 respectively. A clear picture of the motorcycle units and 5,00,000 units of annual licensed capacity segment's gaining importance during this period is

for non-exporting and exporting firms respectively exhibited by the Figures 1, 2 and 3 depicting total

(CMIE, 1990). In the scooter segment, models with sales, share and annual growth during the period

features like self-starter facility, automatic 1993-94 through 2003-04

transmission system, gear-less riding etc. were National Council of Applied Economic introduced that were traditionally not available in

Research (NCAER) had forecast two-wheeler scooters. In the motorcycle segment, the new100 cc demand during the period 2002¬-03 through 2011-models compared well against the existing heavier 12. The forecasts had been made using econometric models of 250 cc, 350 cc etc. as these were lighter technique along with inputs obtained from a and more fuel-efficient. Joshi and Little (1996) primary survey conducted at 14 prime cities in the discuss the economic crisis of 1991 and the policy country. Estimations were based on Panel response of the Indian government. The EXIM Regression, which takes into account both time Scrip was introduced which granted exporters series and cross section variation in data. A panel entitlements worth 40% of their export earnings. data of 16 major states over a period of 5 years

Similarly quantitative restrictions were ending 1999 was used for the estimation of replaced with import duties which were around 85% parameters. The models considered a large number of the two-wheeler industry (GATT Secretariat, of macro-economic, demographic and socio-

.

Table 1: Demand Forecast for Motorcycles and Scooters for 2011-12

2-Wheeler Segment Regions

South West North-Central East & North-East All India

Motorcycle 2835 (12.9)

4327 (16.8)

2624 (12.5)

883 (11.1)

10669 (14.0)

Scooter 203 (2.6)

219 (3.5)

602 (2.8)

99 (2.0)

1124 (2.08)

Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parenthesis

Source: Indian Automobile Industry: Optimism in the Air, Industry Insight, and NCAER

Vedaang Vol. 4 No. 1, January-June 2013 A Peep into the Indian Two Wheeler Market

8 9

players) once foreign investments were allowed in collaborations with foreign firms were encouraged.1981. The reforms in the eighties like 'broad

In the motorcycle segment FERA did not cause banding' caused the entry of several new firms and

technological stagnation9, as a consequence of products which caused the existing technologically

which, new products nor firms entered the market outdated products to lose sales volume and/or exit

since this segment depended almost entirely on the market. Finally, with liberalization in the

foreign collaborations for technology. The scooter nineties, the industry witnessed a proliferation in

and moped segments on the other hand were brands .A description of the evolution of the two

technologically more self-sufficient and thus there wheeler industry in India is usefully split up into

were two new entrants in the scooter segment and four ten year periods. This division traces

three in the moped segment. c) 1981 1990The significant changes in economic policy making.

technological backwardness of the Indian two-The first time-period, 1960-1969, was one wheeler industry was one of the reasons for the

during which the growth of the two-wheeler initiation of reforms in 1981. Foreign collaborations industry was fostered through means like were allowed for all two-wheelers up to an engine permitting foreign collaborations and phasing out capacity of 100 cc. of The Indian economy was faced with several

The variety in products available also improved problems at this time. Foreign exchange reserves

after 'broad banding' was allowed in the industry in were down to two month's imports, there was a large

1985 as8 Between 1974-79, sales of two-wheelers budget deficit, double digit inflation, and with increased by 60%, while that of cars declined by India's credit rating downgraded, private foreign 21% and jeeps grew only by 11%. Indian lending was cut off. Also the Gulf war in 1990 motorcycles in the seventies had two major brought about an increase in oil prices, and India drawbacks viz., low fuel-efficiency and high had to import oil for over US$ 2 billion (GATT weight. Worldwide however, there was a trend Secretariat, 1993)10non-manufacturing firms in the towards using high-strength, low-weight materials industry. The period 1970-1980 saw state controls, for various components which resulted in vehicles through the use of the licensing system and certain that were compact and had lower weight. Since fuel-regulatory acts over the economy, at their peak. consumption of a two-wheeler depended on its During 1981-1990 significant reforms were weight, lighter vehicles meant greater mileage. initiated in the country. The final time-period covers These drawbacks were overcome in the eighties the period 1991-1999 during which the reform when foreign collaborations were once again process was deepened. These reforms encompassed allowed a part of NEP. This, coupled with the several areas like finance, trade, tax, industrial

policy etc. We now discuss in somewhat greater announcement of the MES of production for the two-wheeler industry, gave firms the flexibility to detail the principal characteristics of each sub

period. a) 1960 1969The automobile industry choose an optimal product and capacity mix which being classified as one of importance under the could better incorporate market demand into their Industrial Policy Resolution of 1948 was therefore production strategy and there by improve their controlled and regulated by the Government. In capacity utilization and efficiency. These reforms order to encourage manufacturing, besides had two major effects on the industry: First, licensed restricting import of complete vehicles, automobile capacities went up to1.1 million units per annum assembler firms were phased out by 1952 (Tariff overshooting the 0.675 million units per annum Commission, 1968), and only manufacturing firms target set in the Sixth Plan. Second, several existing allowed to continue. Production of automobiles was but weaker players died out giving way to new licensed, which meant that a firm required a entrants and superior products12 d) 1991 1999. The licensing approval in order to open a plant. It also reforms that began in the late seventies underwent meant that a firm's capacity of production was their most significant change in 1991through the determined by the Government. During this period,

liberalization of the economy. The two-wheeler 1993). product features15 and b) increase in sales volumes in the motorcycle segment vis-à-vis the industry was completely deregulated. In the area of scooter segment reversing the traditional trend. trade, several reforms were introduced with the goal

of making Indian exports competitive. The two- Growth of Two Wheeler in India wheeler industry in the nineties was characterized

The composition of the two-wheeler industry by a) an increase in the number of brands available has witnessed sea changes in the post-reform in the market which caused firms to compete on the period. In 1991, the share of scooters was about 50 basis of Fuel-efficiency improved by (60-100)% in per cent of the total two -wheeler demand in the the new vehicles. In the seventies, motorcycle Indian market. Motorcycle and moped had been mileage was on an average between 25 to 50 km pl experiencing almost equal level of shares in the total (kilometer per liter), which had now improved to 50 number of two-wheelers. In 2003-04, the share of to 80 kmpl. For mopeds it improved from 50 km pl motorcycles increased to 78 per cent of the total to 80 km pl. Output of the engines also increased two-wheelers while the shares of scooters and from 3-4 HP to 10 HP per 100 cc.11 In the two-mopeds declined to the level of 16 and 6 per cent wheeler industry, MES was pegged at 2,00,000 respectively. A clear picture of the motorcycle units and 5,00,000 units of annual licensed capacity segment's gaining importance during this period is

for non-exporting and exporting firms respectively exhibited by the Figures 1, 2 and 3 depicting total

(CMIE, 1990). In the scooter segment, models with sales, share and annual growth during the period

features like self-starter facility, automatic 1993-94 through 2003-04

transmission system, gear-less riding etc. were National Council of Applied Economic introduced that were traditionally not available in

Research (NCAER) had forecast two-wheeler scooters. In the motorcycle segment, the new100 cc demand during the period 2002¬-03 through 2011-models compared well against the existing heavier 12. The forecasts had been made using econometric models of 250 cc, 350 cc etc. as these were lighter technique along with inputs obtained from a and more fuel-efficient. Joshi and Little (1996) primary survey conducted at 14 prime cities in the discuss the economic crisis of 1991 and the policy country. Estimations were based on Panel response of the Indian government. The EXIM Regression, which takes into account both time Scrip was introduced which granted exporters series and cross section variation in data. A panel entitlements worth 40% of their export earnings. data of 16 major states over a period of 5 years

Similarly quantitative restrictions were ending 1999 was used for the estimation of replaced with import duties which were around 85% parameters. The models considered a large number of the two-wheeler industry (GATT Secretariat, of macro-economic, demographic and socio-

.

Table 1: Demand Forecast for Motorcycles and Scooters for 2011-12

2-Wheeler Segment Regions

South West North-Central East & North-East All India

Motorcycle 2835 (12.9)

4327 (16.8)

2624 (12.5)

883 (11.1)

10669 (14.0)

Scooter 203 (2.6)

219 (3.5)

602 (2.8)

99 (2.0)

1124 (2.08)

Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parenthesis

Source: Indian Automobile Industry: Optimism in the Air, Industry Insight, and NCAER

Vedaang Vol. 4 No. 1, January-June 2013 A Peep into the Indian Two Wheeler Market

8 9

economic variables to arrive at the best estimations the service sectors have shown high growth during for different two-wheeler segments. The projections this period at the rates of 8.0 and 9.5 per cent have been made at all India and regional levels. respectively. However, poor rainfall last year will Different scenarios have been presented based on pull down the GDP growth to some extent. Taking different assumptions regarding the demand drivers into account all these factors along with other of the two-wheeler industry. The most likely leading indicators including government spending, scenario assumed annual growth rate of Gross foreign investment, inflation and export growth, Domestic Product (GDP) to be 5.5 per cent during NCAER has projected an average growth of GDP at 2002¬-03 and was anticipated to increase gradually 6.7 per cent during the tenth five-year plan. Its mid-to 6.5 per cent during 2011--12. The all-India and term forecast suggests an expected growth of 7.4 per region-wise projected growth trends for the cent in GDP during 2004-05 to 2008-09. Very motorcycles and scooters are presented in Table-1. recently, IMF has portrayed a sustained global The demand for mopeds is not presented in this recovery in World Economic Outlook. A significant analysis due to its already shrinking status shift has also been observed in Indian households compared to' motorcycles and scooters. from the lower income group to the middle income

group in recent years. The finance companies are It is important to remember that the above-

also more aggressive in their marketing compared mentioned forecast presents a long-term growth for

to previous years. Combining all these factors, one a period of 10 years. The high growth rate in

may visualise a higher growth rate in two-wheeler motorcycle segment at present will stabilise after a

demand than presented in Table-1 particularly for certain point beyond which a condition of

the motorcyclesegment.equilibrium will set the growth path. Another important thing to keep in mind while interpreting There is a large untapped market in semi-urban these growth rates is that the forecast could consider and rural areas of the country. Any strategic the trend till 1999 and the model could not capture planning for the two¬-wheeler industry needs to the recent developments that have taken place in last identify these markets with the help of available few years. However, this will not alter the regional statistical techniques. Potential markets can be distribution to a significant extent. identified as well as prioritised using these

techniques with the help of secondary data on socio-Table-1 suggests two important dimensions for

economic parameters. For the two-wheeler the two- wheeler industry. The region-wise numbers

industry, it is also important to identify the target of motorcycle and scooter suggest the future market

groups for various categories of motorcycles and for these segments. At the all India level, the

scooters. With the formal introduction of demand for motorcycles will be almost 10 times of

secondhand car market by the reputed car that of the scooters. The same in the western region

manufacturers and easy loan availability for new as will be almost 20 times. It is also evident from the

well as used cars, the two-wheeler industry needs to table that motorcycle will find its major market in

upgrade its market information system to capture the western region of the country, which will

the new market and to maintain its already existing account for more than 40 per cent of its total

markets. Availability of easy credit for two-demand. The south and the north-central region will

wheelers in rural and smaller urban areas also follow this. The demand for scooters will be the

requires more focussed attention. It is also maximum in the northern region, which will

imperative to initiate measures to make the presence account for more than 50 per cent of the demand for

of Indian two-wheeler industry felt in the global scooters in 2011-12.

market. Adequate incentives for promoting exports The present economic situation of the country and setting up of institutional mechanism such as

makes the scenario brighter for short-term demand. Automobile Export Promotion Council would be of Real GDP growth was at a high level of 7.4 per cent great help for further surge in demand for the Indian during the first quarter of 2004. Both industry and two-wheeler industry.

The production figures of motorcycles simply were divided between the motorcycles and mopeds.reflect the trend that is Prevalent in the industry, as

But now the trend indicates that people are the demand of motorcycles has increased so have

preferring motorcycles more than that of the their production. Demand for two-wheelers has

scooters. At present there is a huge demand for the grown at a rate of 17% in the year 2004/2005. Bajaj

motorcycles in India .There are a number of two Auto which is the one of the largest producer of two-

wheeler companies in India that produce vehicles of wheelers in the country has been able to achieve a

extremely high standard. Some of the leading two production of 1.8 million vehicles with manpower

wheeler manufacturers in India are Bajaj Auto., of 10,914 in 2004/2005 as compared to 1.5 million

TVS Motor, Kinetic Motor, Suzuki Motor vehicles in 2003/2004 with manpower of 11,531.

Corporation, Royal Enfield Motors India, Hero Many companies like the Honda motorcycles and

Honda Motors, Yamaha Motor India, LML India scooters India Limited are beefing up their

and Monto Motors. Many of two wheelers production capacities to reach a target of around

manufactured by these companies are exported to 300,000 per annum.

countries in South East Asia, Africa and South Though the metal geared scooters have fallen America.

out of favour of the Indian riders, the ungeared Motorcycles are usually priced higher than that

segment of scooters have been able to drive the of the scooters and mopeds. They are even equipped

volumes in this segment. This fact is reflected in the with more features for faster travel. Based upon the

dip in production during the early 2000. On a more engine displacements and power capacity

positive note the ungeared segment of scooters have motorcycles are further classified as: road bikes,

grown by over 13% in 2004/2005 thus driving the trail bikes, racing bikes and touring bikes . Most of

production in this segment. Bajaj Auto which has an the motorcycles in India come with engine capacity

overwhelming presence in this segment has of about 100 cc to 250 cc. The engine capacity of

produced 742,000 units during 2004/2005. scooters usually vary between 100 cc to 150 cc.

These entry level two-wheelers have seen a Mopeds have small engine capacity ranging steady decline in the production in the recent years, between 50cc to 100 cc. Most of the automobile though in the year 2005-2006 their production has companies in this segment are always coming up picked up but its too early to predict a revival of this with newer variants of different models of two segment of two- wheelers. As entry level wheelers. To be in the long run these companies are motorcycles become cheaper with every passing even adding more number of features to these day mopeds might see a further dip in production vehiclesand sales in the years to come.

Motorcycles have increased so have their Major Players in Two Wheeler Industry production. Demand for two-wheelers has grown at

a rate of 17% in the year 2004/2005. Bajaj Auto The two wheelers have played a pivotal role in

which is the one of the largest producer of two-the surging growth of the Indian automobile

wheelers in the country has been able to achieve a industry. Over the years the domestic sale of various

production of 1.8 million vehicles with manpower brand of two wheelers have grown in large numbers.

of 10,914 in 2004/2005 as compared to 1.5 million Even in the sphere of exports, the two wheelers have

vehicles in 2003/2004 with manpower of 11,531. been able to maximize the profit margin of various

Many companies like the Honda motorcycles and two wheeler manufacturers. There are mainly three

scooters India Limited are beefing up their Models of two wheelers, which are classified as

production capacities to reach a target of around scooters, motorcycles and mopeds. In the recent

300,000 per annum. Though the metal geared years the two wheeler industry has witnessed sea

scooters have fallen out of favour of the Indian change. During the yesteryears the scooters used to

riders, the ungeared segment of scooters have been have about 50% of the market share and the rest

able to drive the volumes in this segment. This fact

Vedaang Vol. 4 No. 1, January-June 2013

10 11

A Peep into the Indian Two Wheeler Market

economic variables to arrive at the best estimations the service sectors have shown high growth during for different two-wheeler segments. The projections this period at the rates of 8.0 and 9.5 per cent have been made at all India and regional levels. respectively. However, poor rainfall last year will Different scenarios have been presented based on pull down the GDP growth to some extent. Taking different assumptions regarding the demand drivers into account all these factors along with other of the two-wheeler industry. The most likely leading indicators including government spending, scenario assumed annual growth rate of Gross foreign investment, inflation and export growth, Domestic Product (GDP) to be 5.5 per cent during NCAER has projected an average growth of GDP at 2002¬-03 and was anticipated to increase gradually 6.7 per cent during the tenth five-year plan. Its mid-to 6.5 per cent during 2011--12. The all-India and term forecast suggests an expected growth of 7.4 per region-wise projected growth trends for the cent in GDP during 2004-05 to 2008-09. Very motorcycles and scooters are presented in Table-1. recently, IMF has portrayed a sustained global The demand for mopeds is not presented in this recovery in World Economic Outlook. A significant analysis due to its already shrinking status shift has also been observed in Indian households compared to' motorcycles and scooters. from the lower income group to the middle income

group in recent years. The finance companies are It is important to remember that the above-

also more aggressive in their marketing compared mentioned forecast presents a long-term growth for

to previous years. Combining all these factors, one a period of 10 years. The high growth rate in

may visualise a higher growth rate in two-wheeler motorcycle segment at present will stabilise after a

demand than presented in Table-1 particularly for certain point beyond which a condition of

the motorcyclesegment.equilibrium will set the growth path. Another important thing to keep in mind while interpreting There is a large untapped market in semi-urban these growth rates is that the forecast could consider and rural areas of the country. Any strategic the trend till 1999 and the model could not capture planning for the two¬-wheeler industry needs to the recent developments that have taken place in last identify these markets with the help of available few years. However, this will not alter the regional statistical techniques. Potential markets can be distribution to a significant extent. identified as well as prioritised using these

techniques with the help of secondary data on socio-Table-1 suggests two important dimensions for

economic parameters. For the two-wheeler the two- wheeler industry. The region-wise numbers

industry, it is also important to identify the target of motorcycle and scooter suggest the future market

groups for various categories of motorcycles and for these segments. At the all India level, the

scooters. With the formal introduction of demand for motorcycles will be almost 10 times of

secondhand car market by the reputed car that of the scooters. The same in the western region

manufacturers and easy loan availability for new as will be almost 20 times. It is also evident from the

well as used cars, the two-wheeler industry needs to table that motorcycle will find its major market in

upgrade its market information system to capture the western region of the country, which will

the new market and to maintain its already existing account for more than 40 per cent of its total

markets. Availability of easy credit for two-demand. The south and the north-central region will

wheelers in rural and smaller urban areas also follow this. The demand for scooters will be the

requires more focussed attention. It is also maximum in the northern region, which will

imperative to initiate measures to make the presence account for more than 50 per cent of the demand for

of Indian two-wheeler industry felt in the global scooters in 2011-12.

market. Adequate incentives for promoting exports The present economic situation of the country and setting up of institutional mechanism such as

makes the scenario brighter for short-term demand. Automobile Export Promotion Council would be of Real GDP growth was at a high level of 7.4 per cent great help for further surge in demand for the Indian during the first quarter of 2004. Both industry and two-wheeler industry.

The production figures of motorcycles simply were divided between the motorcycles and mopeds.reflect the trend that is Prevalent in the industry, as

But now the trend indicates that people are the demand of motorcycles has increased so have

preferring motorcycles more than that of the their production. Demand for two-wheelers has

scooters. At present there is a huge demand for the grown at a rate of 17% in the year 2004/2005. Bajaj

motorcycles in India .There are a number of two Auto which is the one of the largest producer of two-

wheeler companies in India that produce vehicles of wheelers in the country has been able to achieve a

extremely high standard. Some of the leading two production of 1.8 million vehicles with manpower

wheeler manufacturers in India are Bajaj Auto., of 10,914 in 2004/2005 as compared to 1.5 million

TVS Motor, Kinetic Motor, Suzuki Motor vehicles in 2003/2004 with manpower of 11,531.

Corporation, Royal Enfield Motors India, Hero Many companies like the Honda motorcycles and

Honda Motors, Yamaha Motor India, LML India scooters India Limited are beefing up their

and Monto Motors. Many of two wheelers production capacities to reach a target of around

manufactured by these companies are exported to 300,000 per annum.

countries in South East Asia, Africa and South Though the metal geared scooters have fallen America.

out of favour of the Indian riders, the ungeared Motorcycles are usually priced higher than that

segment of scooters have been able to drive the of the scooters and mopeds. They are even equipped

volumes in this segment. This fact is reflected in the with more features for faster travel. Based upon the

dip in production during the early 2000. On a more engine displacements and power capacity

positive note the ungeared segment of scooters have motorcycles are further classified as: road bikes,

grown by over 13% in 2004/2005 thus driving the trail bikes, racing bikes and touring bikes . Most of

production in this segment. Bajaj Auto which has an the motorcycles in India come with engine capacity

overwhelming presence in this segment has of about 100 cc to 250 cc. The engine capacity of

produced 742,000 units during 2004/2005. scooters usually vary between 100 cc to 150 cc.

These entry level two-wheelers have seen a Mopeds have small engine capacity ranging steady decline in the production in the recent years, between 50cc to 100 cc. Most of the automobile though in the year 2005-2006 their production has companies in this segment are always coming up picked up but its too early to predict a revival of this with newer variants of different models of two segment of two- wheelers. As entry level wheelers. To be in the long run these companies are motorcycles become cheaper with every passing even adding more number of features to these day mopeds might see a further dip in production vehiclesand sales in the years to come.

Motorcycles have increased so have their Major Players in Two Wheeler Industry production. Demand for two-wheelers has grown at

a rate of 17% in the year 2004/2005. Bajaj Auto The two wheelers have played a pivotal role in

which is the one of the largest producer of two-the surging growth of the Indian automobile

wheelers in the country has been able to achieve a industry. Over the years the domestic sale of various

production of 1.8 million vehicles with manpower brand of two wheelers have grown in large numbers.

of 10,914 in 2004/2005 as compared to 1.5 million Even in the sphere of exports, the two wheelers have

vehicles in 2003/2004 with manpower of 11,531. been able to maximize the profit margin of various

Many companies like the Honda motorcycles and two wheeler manufacturers. There are mainly three

scooters India Limited are beefing up their Models of two wheelers, which are classified as

production capacities to reach a target of around scooters, motorcycles and mopeds. In the recent

300,000 per annum. Though the metal geared years the two wheeler industry has witnessed sea

scooters have fallen out of favour of the Indian change. During the yesteryears the scooters used to

riders, the ungeared segment of scooters have been have about 50% of the market share and the rest

able to drive the volumes in this segment. This fact

Vedaang Vol. 4 No. 1, January-June 2013

10 11

A Peep into the Indian Two Wheeler Market

Effort: An Investigation Across general Product is reflected in the dip in production during the early categories”, Journal of Consumer Research, 2000. On a more positive note the ungeared segment 14(June),pp88-95.

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Exploratory And Epistenic Behaviour”, Psychology : A Auto which has an overwhelming presence in this stydy of Science, Vol 5, S.Koch, Mc Graw Hill.segment has produced 742,000 units during Bettman, James R (1974), Buyer / Consumer Information 2004/2005. Procrssing: G.D Huges and M.L.Ray , ( Ed), Chapel Hill

: University of North Corolina Press.These entry level two-wheelers have seen a

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Calder, Bobby L. (1977), “Focus Group and The Nature of almost all top companies, the earnings growth could Qualitative Marketing Research”, Journal of Consumer turn out to be more uncertain and volatile. Resesarch, pp, 353-364.

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Vedaang Vol. 4 No. 1, January-June 2013

12 13

A Peep into the Indian Two Wheeler Market

Effort: An Investigation Across general Product is reflected in the dip in production during the early categories”, Journal of Consumer Research, 2000. On a more positive note the ungeared segment 14(June),pp88-95.

of scooters have grown by over 13% in 2004/2005 Berlyne, D.E (1963), “Motivational Problems Raised By thus driving the production in this segment. Bajaj

Exploratory And Epistenic Behaviour”, Psychology : A Auto which has an overwhelming presence in this stydy of Science, Vol 5, S.Koch, Mc Graw Hill.segment has produced 742,000 units during Bettman, James R (1974), Buyer / Consumer Information 2004/2005. Procrssing: G.D Huges and M.L.Ray , ( Ed), Chapel Hill

: University of North Corolina Press.These entry level two-wheelers have seen a

Bettman, James R (1979), An Information Theory of Choice, steady decline in the production in the recent years, New York: Addison Wesley

though in the year 2005-2006 their production has Bettman, James R and Michal A. Zims (1979), “Information

picked up but its too early to predict a revival of this Format and Choice Task Effects in Decision Making”, segment of two-wheelers. As entry level Journal of Consumer Resesarch, 6(September), pp,141-motorcycles become cheaper with every passing 153.

day mopeds might see a further dip in production Bettman, James R and Pradeep Kakkar (1977), “Effect of Information Presentation Format on Consumer and sales in the years to come.Information Acquisition Strategies”, Journal of

Conclusion Consumer Resesarch, 3 (March), pp 233-240.

Blattberg, Robert C, Peter Peacock and Subrata K Sen (1976), The two-wheeler industry is passing through a “Purchasing Strategies Across Product Categories”, very interesting business phase. While the Journal of Consumer Resesarch, 3(December), ,pp143-

companies are slugging it out to maintain or 154.increase their market share, the consumers are a Brucks, Marrie (1985), “ The Effects of Product Class happy lot. At the stock market, the share prices of Knowledge on Information Search Behaviour”, Journal two-wheeler companies have seen a divergent of Consumer Resesarch,12(June),pp 1-16

trend. The reshuffling of market share in the Burnkrant, Robert E (1976), “ A Motivational Model Of Information Processing Intensity”, Journal of Consumer motorcycle segment has been the key factor driving Resesarch,3(June),pp21-29the share price of the top three two-wheeler

Bush, R.R and Mosteller F. (1955)., Stochastic Models of producers Bajaj, Hero Honda and TVS Motor. With Learning, New York : John Willey and Sons.a slew of new models slated to be launched by

Calder, Bobby L. (1977), “Focus Group and The Nature of almost all top companies, the earnings growth could Qualitative Marketing Research”, Journal of Consumer turn out to be more uncertain and volatile. Resesarch, pp, 353-364.

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A Peep into the Indian Two Wheeler Market

(1970), Research in Consumer Behaviour, New York: (September), pp,155-172.Hort. Rineha\rt and Winston Inc. Mizerski, Richard W., Linda I. Golden and Jerome B. Kernan

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Behaviour, Glenview, Illinois : Scot and Co. Nicosia, Francesco(1967), Consumer Decision Process: Marketing And Advertising Implications, Englewood Kotler, P. (1965) Behaviour For Analysing Buyer's Of Cliffs, N.S: Prentice HallMarketing, 29(April), pp,37-45.

O' Brien Rerrence V. (1971), “Tracking Consumer Decision Kotler, P. (1973), “ Mathematical Models Of Individual Buyer Making”, Journal of Marketing, 35(January),pp, 34-40.Behaviour” in Kassarjian, H.H. et al, Perspective in

Consumer Behaviour, Glenview, Illinois: Scot and Olshavky Richard W. and Donald H. Granbois (1979), Foresman Co. “Consumer Dicision Marketing-Fact or Fiction?”,

Journal of Consumer Research, 6 (September), pp,93-Kuehn, A.A, “A Model For Bdgeting Advertising”, Bass et al, 100.Mathematical Models and Methods in Processing,

Howood III : Richard D. Irwin, pp,302-356. Oosen, denis L. and Richard W. Olshavsky (1987), “A Protocal Analysis of Brand Choice strategies Involving Lazer, William (1962), “ The Role of Models in Marketing”, Recommendation”, Journal of Consumer Research 14 Journal of Marketing, 26(September), pp,36-43.(December), pp,440-444.

Levy, S.J and D.W. Rook (1981), “Brands, Trademarks and Park, C. Whan and V. Parker Lessing (1981) “Familiarity Its The Law”, B.N Enis and K.J Roering (Ed), Review of

Impact on Consumer Decision Biases and Heuristics”, Marketing, Chicago: American Marketing Association, Journal of Consumer Research, 8 (September), pp,223-pp,185-194.229.

Loudan , David L. and Albert J. Della Bitta (1988), Consumer Patra, S.K (1992)” A Search Behaviour For Marketing Behaviour : Concepts and Applications, New York :

Durable Goods”, An unpublished Ph.D Thesis Submitted Mcgrew- Hill Inc.to Berhampur University.

Mackin, M.Carole (1987), “Preschooler's Understanding of Petty, R.E, J.T. Cacioppo and D. Schuman (1983), Central and the Informational Function of Television Advertising”

Peripheral Routes To Advertising Effectiveness: The Journal of Consumer Research, (14 (September), pp,229-Moderating Role Of Involvement”, Journal of Consumer 239.Research, 10September, pp,135-146

Mahajan, Vijay, Eiton Muller and Frank M. Bass (1990) “New Petty, R.E., J.T. Cacioppo and D. Schumann (1983), “Central Product Diffusion Models in Marketing: A review and

and Peripheral Routes of Advertising Effectiveness: The Direction for Research”, Journal of Consumer Research, Moderating Role of Involvement”, Journal of Consumer 54 (January), pp,1-26.Research, 10 (September),pp, 135-146.

Majumder, Ramanuj (1993), Product Management In India, Punj, Girish N. and David W. Stewart (1983) “An Interaction New Delhi: Prentice Hall.

Framework of Consumer Decision Making”, Journal of Malhotra, Naresh K., Arun K. Jain and Stephen W. Lagakos Consumer Research, 10 (December), pp,181-195.

(1982), “The Informational Overload Controversy: An Punj, Girish N. and Richard Stealin (1983), “A Model of Alternative Viewpoint”, Journal of Marketing,

Consumer Information Search Behaviour for New 46(Spring), pp,27-37.Automobiles”, Journal of Consumer Research,9

Malothra, Naresh K. (1984), “Reflections on the Information (September),pp, 366-380. Overload paradigm in Consumer Decision Making”,

Ramaswami, V.S and Namakumari (1990), Marketing Journal of Consumer Research, 10 (March), pp,436-439.Management: Planning Implementation and Control-The

Margulies, Walter P. (1980), “How Banks Stress Corporate Indian Context, Madras: Macmillian India Ltd.Image”, Advertising Age, May,pp,85-86

Rudd, Joeland, Frank J. Kohout (1983), “Individual and Mejer, Robert J. (1987), “The Learning of Multi Attribute Group Consumer Information Acquisition in Brand

Judgement Policies”, Journal of Consumer Research, 14

Choice situations”, Journal of Consumer Research, 10 Fundamentals Of Marketing, Singapore: Mcgrew- Hill (December),pp, 303-309. Inc.

Scammon, Debra L. (1977), “BInformational Load and Sujan, Mita and James R. Bettman (1989), “The Effects of Consumers”, Journal of Consumer Research, 5 Brand Positioning Strategies on Consumer's Brand and (September), pp,148-155. category Perceptions: Some Insights from Schema

Research”, Journal of Marketing Research, 26 Schiffman, Leon G and Laslie Lazar Kanuk, Consumer (November), pp,454-467.Behaviour, Englewood Cliffs, N.J: Prentice Hall Inc,

pp,653-654 Summers, John O. (1974), “Less Information is Better ?”, Schlinger, M.J. Rowlins Linda F. Alwitt, Lathleen E. Mccarthy Journal of Marketing Research, 11 (November), pp,467-

468.and Leila Green (1983), “Effect of Time compression on Attitudes and Information processing”, Journal of Tellis, Gerald J. and Gary J. Gaeth (1990), “Best Value, Price-Marketing, 17 (winter),pp, 79-85. Seeking and Price Aversion: The Impact of Information

Shelug, David A., James Jaccard and Jacob Jacoby (1979), and Learning on Consumer Choices”, Journal of “Preference, Search and Choice: An Integrative Marketing, 54 (April), pp,34-45.Approach”, Journal of Consumer Research, Troutman C. Michael and James Shanteau (1976), “Do 6(September), pp,166-175.] Consumer Evaluate Products by Adding or Averaging

Attribute Information”, Journal of Consumer Research, Sheth, J.N (1973), “ A Model Of Indutrial Buyer Behaviour”, rd 3(September),pp, 101-106.Journal Of Marketing, 3 October, pp,50-5

Tybzee, Tyzoon T. (1979), “Research Time, Conflict and Simonson, Itmar, Joel Huber and John Payne (1988), “The Involvement in Brand Choice”, Journal of Consumer Relationship Between Prior Brand Knowledge and Research, 6 (December), 295-304.Information Acquisition Order”, Journal of Consumer

Research, 14 (March), pp,566-577. Urbany, Joel E., Peter R. Dickson William L. Wilkie (1989). “Buyer Uncertainly and Information Search”, Journal of Stanfield, J.D, Clark J.A, Lin Non and Roger (1965) , Consumer Research, 16(September), pp,208-215.“Computer Simulation Of Innovation Diffusion

Westbrook, Robert A. and Claes Fornell (1979), “Patterns of illustration From A Latin American Village.”, Paper press Information Source Usage Among Durable Goods at a aJoint Association of The American Sociology Buyers”, Journal of Marketing Research, 16 (August), Society Chicago : American Sociological Society.pp,303-312.

Stanton, William J, Michael Jetzel and Bruce J Walker (1994),

Vedaang Vol. 4 No. 1, January-June 2013

14 15

A Peep into the Indian Two Wheeler Market

(1970), Research in Consumer Behaviour, New York: (September), pp,155-172.Hort. Rineha\rt and Winston Inc. Mizerski, Richard W., Linda I. Golden and Jerome B. Kernan

Kollat, David T. , Roger D. Blackwell and James F, Engel, (1979), “The Attribution Process in Consumer Decision (1970), Research in Consumer Behaviour, New York: Making”, Journal of Consumer Research, 6 (September). Hort, Rinehart and Winston Inc. Pp,110-117.

Kotler , P. (1965), “ Behavour For Analysing Buyers” , Journal Moore, William L. and R. Leman (1980), “Individual Of Marketing, 29 April, pp,37-45 Difference in Search Behaviour for a Nondurable”,

Journal of Consumer Research, 7 (December), pp,296-Kotler , Philip (1985), Marketing Management : analysis , 307.Planning And Control, Englewood Cliff, New York :

Prentice Hall Inc. Nicosia, Francesco (1967), Consumer Decision Process: Marketing and Advertising Implications, Englewood Kotler, P (1973), Mathematical Models of Individual Buyer Cliffs, N.J: Prentice Hall.Behaviour”, In Kassarjian , H.H.et al. (ed), in Consumer

Behaviour, Glenview, Illinois : Scot and Co. Nicosia, Francesco(1967), Consumer Decision Process: Marketing And Advertising Implications, Englewood Kotler, P. (1965) Behaviour For Analysing Buyer's Of Cliffs, N.S: Prentice HallMarketing, 29(April), pp,37-45.

O' Brien Rerrence V. (1971), “Tracking Consumer Decision Kotler, P. (1973), “ Mathematical Models Of Individual Buyer Making”, Journal of Marketing, 35(January),pp, 34-40.Behaviour” in Kassarjian, H.H. et al, Perspective in

Consumer Behaviour, Glenview, Illinois: Scot and Olshavky Richard W. and Donald H. Granbois (1979), Foresman Co. “Consumer Dicision Marketing-Fact or Fiction?”,

Journal of Consumer Research, 6 (September), pp,93-Kuehn, A.A, “A Model For Bdgeting Advertising”, Bass et al, 100.Mathematical Models and Methods in Processing,

Howood III : Richard D. Irwin, pp,302-356. Oosen, denis L. and Richard W. Olshavsky (1987), “A Protocal Analysis of Brand Choice strategies Involving Lazer, William (1962), “ The Role of Models in Marketing”, Recommendation”, Journal of Consumer Research 14 Journal of Marketing, 26(September), pp,36-43.(December), pp,440-444.

Levy, S.J and D.W. Rook (1981), “Brands, Trademarks and Park, C. Whan and V. Parker Lessing (1981) “Familiarity Its The Law”, B.N Enis and K.J Roering (Ed), Review of

Impact on Consumer Decision Biases and Heuristics”, Marketing, Chicago: American Marketing Association, Journal of Consumer Research, 8 (September), pp,223-pp,185-194.229.

Loudan , David L. and Albert J. Della Bitta (1988), Consumer Patra, S.K (1992)” A Search Behaviour For Marketing Behaviour : Concepts and Applications, New York :

Durable Goods”, An unpublished Ph.D Thesis Submitted Mcgrew- Hill Inc.to Berhampur University.

Mackin, M.Carole (1987), “Preschooler's Understanding of Petty, R.E, J.T. Cacioppo and D. Schuman (1983), Central and the Informational Function of Television Advertising”

Peripheral Routes To Advertising Effectiveness: The Journal of Consumer Research, (14 (September), pp,229-Moderating Role Of Involvement”, Journal of Consumer 239.Research, 10September, pp,135-146

Mahajan, Vijay, Eiton Muller and Frank M. Bass (1990) “New Petty, R.E., J.T. Cacioppo and D. Schumann (1983), “Central Product Diffusion Models in Marketing: A review and

and Peripheral Routes of Advertising Effectiveness: The Direction for Research”, Journal of Consumer Research, Moderating Role of Involvement”, Journal of Consumer 54 (January), pp,1-26.Research, 10 (September),pp, 135-146.

Majumder, Ramanuj (1993), Product Management In India, Punj, Girish N. and David W. Stewart (1983) “An Interaction New Delhi: Prentice Hall.

Framework of Consumer Decision Making”, Journal of Malhotra, Naresh K., Arun K. Jain and Stephen W. Lagakos Consumer Research, 10 (December), pp,181-195.

(1982), “The Informational Overload Controversy: An Punj, Girish N. and Richard Stealin (1983), “A Model of Alternative Viewpoint”, Journal of Marketing,

Consumer Information Search Behaviour for New 46(Spring), pp,27-37.Automobiles”, Journal of Consumer Research,9

Malothra, Naresh K. (1984), “Reflections on the Information (September),pp, 366-380. Overload paradigm in Consumer Decision Making”,

Ramaswami, V.S and Namakumari (1990), Marketing Journal of Consumer Research, 10 (March), pp,436-439.Management: Planning Implementation and Control-The

Margulies, Walter P. (1980), “How Banks Stress Corporate Indian Context, Madras: Macmillian India Ltd.Image”, Advertising Age, May,pp,85-86

Rudd, Joeland, Frank J. Kohout (1983), “Individual and Mejer, Robert J. (1987), “The Learning of Multi Attribute Group Consumer Information Acquisition in Brand

Judgement Policies”, Journal of Consumer Research, 14

Choice situations”, Journal of Consumer Research, 10 Fundamentals Of Marketing, Singapore: Mcgrew- Hill (December),pp, 303-309. Inc.

Scammon, Debra L. (1977), “BInformational Load and Sujan, Mita and James R. Bettman (1989), “The Effects of Consumers”, Journal of Consumer Research, 5 Brand Positioning Strategies on Consumer's Brand and (September), pp,148-155. category Perceptions: Some Insights from Schema

Research”, Journal of Marketing Research, 26 Schiffman, Leon G and Laslie Lazar Kanuk, Consumer (November), pp,454-467.Behaviour, Englewood Cliffs, N.J: Prentice Hall Inc,

pp,653-654 Summers, John O. (1974), “Less Information is Better ?”, Schlinger, M.J. Rowlins Linda F. Alwitt, Lathleen E. Mccarthy Journal of Marketing Research, 11 (November), pp,467-

468.and Leila Green (1983), “Effect of Time compression on Attitudes and Information processing”, Journal of Tellis, Gerald J. and Gary J. Gaeth (1990), “Best Value, Price-Marketing, 17 (winter),pp, 79-85. Seeking and Price Aversion: The Impact of Information

Shelug, David A., James Jaccard and Jacob Jacoby (1979), and Learning on Consumer Choices”, Journal of “Preference, Search and Choice: An Integrative Marketing, 54 (April), pp,34-45.Approach”, Journal of Consumer Research, Troutman C. Michael and James Shanteau (1976), “Do 6(September), pp,166-175.] Consumer Evaluate Products by Adding or Averaging

Attribute Information”, Journal of Consumer Research, Sheth, J.N (1973), “ A Model Of Indutrial Buyer Behaviour”, rd 3(September),pp, 101-106.Journal Of Marketing, 3 October, pp,50-5

Tybzee, Tyzoon T. (1979), “Research Time, Conflict and Simonson, Itmar, Joel Huber and John Payne (1988), “The Involvement in Brand Choice”, Journal of Consumer Relationship Between Prior Brand Knowledge and Research, 6 (December), 295-304.Information Acquisition Order”, Journal of Consumer

Research, 14 (March), pp,566-577. Urbany, Joel E., Peter R. Dickson William L. Wilkie (1989). “Buyer Uncertainly and Information Search”, Journal of Stanfield, J.D, Clark J.A, Lin Non and Roger (1965) , Consumer Research, 16(September), pp,208-215.“Computer Simulation Of Innovation Diffusion

Westbrook, Robert A. and Claes Fornell (1979), “Patterns of illustration From A Latin American Village.”, Paper press Information Source Usage Among Durable Goods at a aJoint Association of The American Sociology Buyers”, Journal of Marketing Research, 16 (August), Society Chicago : American Sociological Society.pp,303-312.

Stanton, William J, Michael Jetzel and Bruce J Walker (1994),

Vedaang Vol. 4 No. 1, January-June 2013

14 15

A Peep into the Indian Two Wheeler Market

A PRE RESCISSION COMPARATIVE STUDY ON EMPLOYEES PRODUCTIVITY AND COST IN INDIAN BANKING INDUSTRY

Dr S.M.Tariq Zafar*, Dr D.S.Chaubey**, Dr Adeel Maqbool***

ABSTRACTTo maintain equilibrium between employee productivity and cost and global standard between demand and supply in present global economic environment, technological and metamorphic environmental developments within and outside the political boundary there is a need of cost prone efficiency revolution in Indian banking sector which can effectively mobilize and productively utilize public savings to optimum. It is expected that the modern banking financial supermarkets survival largely depend upon employee productivity and cost efficient new high breed financial products and specialized services. Thus in this paper an attempt is made to explore employee potential in relation to cost and for the purpose employee productivity and employee cost ratios comparison has been carried out between the traditional, modern hybrid and Universal banks. Pre recession period from 1997 to 2008 has been taken for the purpose of study. The study revealed the fact that during the period performance of modern hybrid, universal foreign banks and private sector banks were much superior to the traditional social sector and private banks. However it is also found that by implementing effective and efficient measures the performance gap between traditional and modern hybrid and Universal banks have declined competitively.

Key Words : Traditional Banks, Modern Banks, Universal Banks, Gap Index, Productivity, Cost

JEL: Classifications: G18, G 21, G 23, G24, G29

*Director, Charak Institute of Business Management, GBTU, Lucknow, U.P**Director, United Institute of Business Studies, Dehradun***Associate Professor & Head, Integral University, Luckhnow, U.P.

Introduction visible of all financial intermediaries in the Indian financial services sector and hold apex position in

Banking and finance is a spirit of economic economic integration, promotion and overall

body without it no economy can survive. At earlier growth & development. The elaborate framework

period banking services was confined to rich and of laws and regulations governed Indian banking

city dwellers but in present scenario banks is sector. The statuary framework of Indian banks is

accessible to common man and their activities headed by the Reserve bank of India (RBI). It is an

extended to diversified and untouched areas. With apex regulator of Indian banking industry and

passing time banks have transformed from operate as nation's Central bank followed by Indian

traditional banks to hybrid banks, universal banks scheduled commercial banks which are divided into

and virtual banks. Apart from traditional function two fold, “scheduled and non scheduled banks and

they have adopted national responsibility as their are categorized into five different groups. These

core vision. They cater to the needs of agriculture, groups are (i) State bank of India (SBI) and its

industrialist, corporate, traders and all other associates (ii) major nationalize scheduled banks,

sections of the society and accelerate the economic (iii) Private Sector banks (iv) Foreign banks (v)

growth of the country and speed the wheels of other joint stock banks, co-operatives banks,

nation economy in achieving self sufficiency in all Regional Rural Banks. Thus, the Indian banking

regards. They are depository institutions and sector comprises the public sector commercial

distinct from other financial institutions. The large banks, private sector banks, co-operative banks and

portion of banks funding is contributed by the regional rural banks. The RBI Act, 1934 governs the

deposits and significant portion of which is working of RBI and Banking Regulatory Act, 1949

repayable on demand.empowered RBI to regulate the listed scheduled

Banks collectively are largest players and banks. Other acts that are part of statuary framework

are the State Bank of India (SBI) Act, 1955 and the started their operations. The Comptor d, Es Compte SBI Subsidiary Act, 1959. The Banking Companies e Paris opened their branches in 1860 in Calcutta (Acquisition and Transfer of Undertaking) Act, and in Bombay in 1862, and then in Madras and in 1969 was passed in order to nationalize 14 private Pondicherry. The Allahabad bank was established owned banks and later in 1980, in second round of in 1865which is considered as an oldest Joint Stock nationalization 5 more banks were nationalize by bank in India. In the year 1869 HSBC was using the Acquisition Act. established. In the year 1881 in Faizabad, first

entirely Indian Joint Stock Bank 'Ouadh Origin of Banking

Commercial Bank' was established. In 1895 Punjab Different countries have their historical national bank was established in Lahore. During the

evidence of banking activities and regulations. period of Mutiny many small banks came into existence and served ethnically and religiously. There is no unanimous view regarding the origin of Most of the banking business was dominated by the word bank. It is said that French word 'Banco' or presidency banks with some Exchange Banks & 'Bancus' or 'banc' or'Banque are the mother of word Joint Stock Banks. The period of between 1906 and bank which means ' a bench'. It is said that in 1911 (Swadeshi movement) saw establishment of Lambardly Jews use to transact their banking Banks. Due to I world war (1914-1918), 94 banks business by sitting on the benches and when their failed, later partition paralyzed economy and business failed the benches were broken and the banking. RBI was established in 1935 and was word bankrupt came into vogue. According to nationalized in January 1949. Banking Regulation Macleod that money changers were never called Act was passed in 1949 and empowered RBI to 'Benchieri' in middle ages thus the word Bank regulate, control and inspect banks in India.derivation many be a mere conjecture. Another

common view in regard to existence of word 'Bank' Current scenario of Indian banking industrythat it might be originated from the German ward

Cataclysmic structural reforms in Indian 'Back' which means a joint stock found and later, it economic system following the government policy was Italianized into “Banco, Frenchised into of tectonic economic liberalization, globalization, “Bank” and in last Anglicised into “ Bank” financial deregulation and digitalization, rising

Indian Banking Evidence global competition and tumbling of trade barriers coupled with metamorphic liberalized policy in It is found that in ancient India during Vedic financial sector and recommendation of Narsiham period (1750 BC) Indians were having financial Committee brought revolution in Indian banking transaction in the form of loan and advances. It is industry and impacted changes in the operating found that in the year '1770' Bank of Hindustan environment for banks to a large extent. Indian started and became defunct, later in1786 very first banking structure is a result of efficient and bank of India was established. In the year 1806 effective process of expansion, reorganization and Bank of Calcutta started and after short existence it consolidation. At early stage after independence was converted into Bank of Bengal. During the economic considerations govern the growth of period three presidency banks 'Bank of Bengal', banks nationalization but in present scenario with 'Bank of Bombay', 'Bank of Madras' were growing economy greater emphasis have been established under the charter of British East India accorded on social objectives like 'expansion, Company and acted as Quassi Central Bank and in network penetrating deeply in all part of the nation 1921 all the presidency bank merged and formed and efficient and effective utilization of banking Empirical Bank of India which after independence assets. became State Bank of India (SBI) in 1955. During

the Colonial Period, Merchant in Calcutta New policies with greater degree of operational established the Union bank in 1839 which failed in autonomy replaced regulated and over-1840 due to economic crises. In 1860, foreign banks administered banking industry which resulted entry

16 17

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

A PRE RESCISSION COMPARATIVE STUDY ON EMPLOYEES PRODUCTIVITY AND COST IN INDIAN BANKING INDUSTRY

Dr S.M.Tariq Zafar*, Dr D.S.Chaubey**, Dr Adeel Maqbool***

ABSTRACTTo maintain equilibrium between employee productivity and cost and global standard between demand and supply in present global economic environment, technological and metamorphic environmental developments within and outside the political boundary there is a need of cost prone efficiency revolution in Indian banking sector which can effectively mobilize and productively utilize public savings to optimum. It is expected that the modern banking financial supermarkets survival largely depend upon employee productivity and cost efficient new high breed financial products and specialized services. Thus in this paper an attempt is made to explore employee potential in relation to cost and for the purpose employee productivity and employee cost ratios comparison has been carried out between the traditional, modern hybrid and Universal banks. Pre recession period from 1997 to 2008 has been taken for the purpose of study. The study revealed the fact that during the period performance of modern hybrid, universal foreign banks and private sector banks were much superior to the traditional social sector and private banks. However it is also found that by implementing effective and efficient measures the performance gap between traditional and modern hybrid and Universal banks have declined competitively.

Key Words : Traditional Banks, Modern Banks, Universal Banks, Gap Index, Productivity, Cost

JEL: Classifications: G18, G 21, G 23, G24, G29

*Director, Charak Institute of Business Management, GBTU, Lucknow, U.P**Director, United Institute of Business Studies, Dehradun***Associate Professor & Head, Integral University, Luckhnow, U.P.

Introduction visible of all financial intermediaries in the Indian financial services sector and hold apex position in

Banking and finance is a spirit of economic economic integration, promotion and overall

body without it no economy can survive. At earlier growth & development. The elaborate framework

period banking services was confined to rich and of laws and regulations governed Indian banking

city dwellers but in present scenario banks is sector. The statuary framework of Indian banks is

accessible to common man and their activities headed by the Reserve bank of India (RBI). It is an

extended to diversified and untouched areas. With apex regulator of Indian banking industry and

passing time banks have transformed from operate as nation's Central bank followed by Indian

traditional banks to hybrid banks, universal banks scheduled commercial banks which are divided into

and virtual banks. Apart from traditional function two fold, “scheduled and non scheduled banks and

they have adopted national responsibility as their are categorized into five different groups. These

core vision. They cater to the needs of agriculture, groups are (i) State bank of India (SBI) and its

industrialist, corporate, traders and all other associates (ii) major nationalize scheduled banks,

sections of the society and accelerate the economic (iii) Private Sector banks (iv) Foreign banks (v)

growth of the country and speed the wheels of other joint stock banks, co-operatives banks,

nation economy in achieving self sufficiency in all Regional Rural Banks. Thus, the Indian banking

regards. They are depository institutions and sector comprises the public sector commercial

distinct from other financial institutions. The large banks, private sector banks, co-operative banks and

portion of banks funding is contributed by the regional rural banks. The RBI Act, 1934 governs the

deposits and significant portion of which is working of RBI and Banking Regulatory Act, 1949

repayable on demand.empowered RBI to regulate the listed scheduled

Banks collectively are largest players and banks. Other acts that are part of statuary framework

are the State Bank of India (SBI) Act, 1955 and the started their operations. The Comptor d, Es Compte SBI Subsidiary Act, 1959. The Banking Companies e Paris opened their branches in 1860 in Calcutta (Acquisition and Transfer of Undertaking) Act, and in Bombay in 1862, and then in Madras and in 1969 was passed in order to nationalize 14 private Pondicherry. The Allahabad bank was established owned banks and later in 1980, in second round of in 1865which is considered as an oldest Joint Stock nationalization 5 more banks were nationalize by bank in India. In the year 1869 HSBC was using the Acquisition Act. established. In the year 1881 in Faizabad, first

entirely Indian Joint Stock Bank 'Ouadh Origin of Banking

Commercial Bank' was established. In 1895 Punjab Different countries have their historical national bank was established in Lahore. During the

evidence of banking activities and regulations. period of Mutiny many small banks came into existence and served ethnically and religiously. There is no unanimous view regarding the origin of Most of the banking business was dominated by the word bank. It is said that French word 'Banco' or presidency banks with some Exchange Banks & 'Bancus' or 'banc' or'Banque are the mother of word Joint Stock Banks. The period of between 1906 and bank which means ' a bench'. It is said that in 1911 (Swadeshi movement) saw establishment of Lambardly Jews use to transact their banking Banks. Due to I world war (1914-1918), 94 banks business by sitting on the benches and when their failed, later partition paralyzed economy and business failed the benches were broken and the banking. RBI was established in 1935 and was word bankrupt came into vogue. According to nationalized in January 1949. Banking Regulation Macleod that money changers were never called Act was passed in 1949 and empowered RBI to 'Benchieri' in middle ages thus the word Bank regulate, control and inspect banks in India.derivation many be a mere conjecture. Another

common view in regard to existence of word 'Bank' Current scenario of Indian banking industrythat it might be originated from the German ward

Cataclysmic structural reforms in Indian 'Back' which means a joint stock found and later, it economic system following the government policy was Italianized into “Banco, Frenchised into of tectonic economic liberalization, globalization, “Bank” and in last Anglicised into “ Bank” financial deregulation and digitalization, rising

Indian Banking Evidence global competition and tumbling of trade barriers coupled with metamorphic liberalized policy in It is found that in ancient India during Vedic financial sector and recommendation of Narsiham period (1750 BC) Indians were having financial Committee brought revolution in Indian banking transaction in the form of loan and advances. It is industry and impacted changes in the operating found that in the year '1770' Bank of Hindustan environment for banks to a large extent. Indian started and became defunct, later in1786 very first banking structure is a result of efficient and bank of India was established. In the year 1806 effective process of expansion, reorganization and Bank of Calcutta started and after short existence it consolidation. At early stage after independence was converted into Bank of Bengal. During the economic considerations govern the growth of period three presidency banks 'Bank of Bengal', banks nationalization but in present scenario with 'Bank of Bombay', 'Bank of Madras' were growing economy greater emphasis have been established under the charter of British East India accorded on social objectives like 'expansion, Company and acted as Quassi Central Bank and in network penetrating deeply in all part of the nation 1921 all the presidency bank merged and formed and efficient and effective utilization of banking Empirical Bank of India which after independence assets. became State Bank of India (SBI) in 1955. During

the Colonial Period, Merchant in Calcutta New policies with greater degree of operational established the Union bank in 1839 which failed in autonomy replaced regulated and over-1840 due to economic crises. In 1860, foreign banks administered banking industry which resulted entry

16 17

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

of new domestic and international financial players, order to survive smoothly they have to offer wide minimized distinction between banks and non bank, array of customized products and services in introduction of innovative and path-breaking convenient atmosphere at economical rate under communicational and computational technology, one roof with recognized and distinct identity. And freedom of fixing financial products price, on other hand they have to protect and consolidate deregulation of interest rate system and adoption of their presence and market share, for the purpose floating exchange rate system, income recognition have to adopt efficiency in order to ensure future and capital adequacy, effective changes in credit growth, to arrest performance deterioration, to avail delivery mechanism, redefining prudential norms the advantage of emerging opportunities, to retain of assets classification, strategic flexibility in credit the existing customers and to attract new customers. assessment process and increasing trend of For this they have to be efficient, effective and have disintermediation has explored competitive to evolve a strategy that is forever morphing and environment in Indian financial sector and gave conforming itself to emerging opportunities and regulated freedom to the market forces to decide the incipient trends. future of banking and other financial institutions

To become global financial leader it became under the shadow of new investments, new

necessary for policy makers to identify the windows and new opportunities, along with these

shortcoming and later converting these gray areas new challenges.

into strength by implementing scientific approach, In present volatile global economic scenario efficient policy and effective rules and regulation.

and fiercely competitive environment Indian public For the purpose policy makers ultimately requires sector banks hold over 75 percent of total assets of prognostic diagnosis of the problems and the banking industry and remaining held with challenges along with emerging opportunities and private and foreign banks. In competing global assessment of existing strengths and weakness of standard Indian banking industry has managed Indian banks? Policy makers considering present protective economic and services sector growth due global economic scenario investigated minutely to which demand for banking services especially and analyzed that inefficiency in Indian banking retail banking, mortgages and investment services structure is the major factor contributing to the high will accelerate and will further lead to M&As, cost of banking services which ultimately takeovers, and asset sales in large. This demand will impacting the smooth survival of the banking develop challenge in the form of competitive industry. Further they found that problem of pressures and will result change in demands both pressure on profitability, problem of low from foreign banks and new private sector banks. In product ivi ty, Problem of ever-growing India most of the public sector banks and private nonperforming assets (NPA), problem of resource sector banks are operating in traditional mode and crunch, problem of assets and liabilities mismatch, requires up gradation to compete or become hybrid problem of growing competitive and qualitative universal bank. change in Indian and global banking paradigm,

problems of diversified strata customers, growing Deregulation and new policies have opened up

domestic and global competition, competition from new vistas for banks to augment revenues; it has

disintermediation, problem of managing duality of entailed greater competition and consequently

ownership, problem of continuous changing greater risks. Banks main sources of operating

technology, problem of growing collective financial revenue are interest and discount on loans,

market uncertainty and risk, problem due to dividends on investment, and services charges on

unskilled work force and scarcity of talents, deposit accounts, services charges and fee on banks and other charges and major expenditures are To fight the competitive odds Indian banking salaries and wages, interest payment and deposit system opted to become modern banking system at liabilities and other current operating expenses. In par to global norms and employed a number of

measures in order to improve its operational provides Introduction in which Origin of Banking, efficiency , meeting customer expectations and Indian Banking Evidence and Current scenario of reduction of operating costs. In process of change Indian banking industry has been given. Section II Indian banks strategically tried to control and discusses the objective of the study. Section III minimized banking weakness like “low operating represents the data and methodology. In Section IV size and high operating costs, they gradually Survey of literature is given. In Section V analysis converted inadequate deposit mobilization efforts and interpretation of data is given. In Section VI into adequate and speedy, they tried to arrest high concluding remarks is been given.level of nonperforming assets in order to maintain

Objective of the Studysound liquidity and financial stability, they minimized financial exclusion, they converted Employees play important role in overall complex and non responsive organizational growth and achievement of the organization and structure into customer friendly, and responsive, their efficient utilization cannot be ignored and they controlled credit to non productive sectors like underestimated. The core objective of the study is to commercial estate, they converted poor customers compare the parameters of employee's productivity services into efficient and effective, they utilized and employee cost in Indian banking sector. In existing capacity to optimum and converted employee productivity “business per employee” unsatisfactory work culture into satisfactory, (BPE) and “profit per employee” (PPE) between feudalistic attitude of the staff transformed into traditional and Modern banks in India are been consumer friendly and cooperative, they compared and in employee cost comparison is been implemented effective measures to control done between employee cost to operating expenses, ethnocentric and action flippant management and employees cost to total business and employee cost adopted employees friendly target oriented policies to total assets.in order to balance the employee motivation and

Research Methodologygrowth, they offered VRS to their employees, training and retraining of staff been adopted, lateral The study is carried out to make qualitative and induction of specialist been adopted, new fully comprehensive evaluation of employee's automated technology with business process productivity and employee cost in Indian public and reengineering been adopted by banks to make private sector banks. For the purpose data for the global financial market accessible and adequate, period of 12 years from 1996- 97 to 2007-08 has they adopted electronic based multiple service been analyzed in order to observe the impact of delivery channels, they adopted business process implemented measures by the traditional banks to outsourcing and established back offices and data counter challenge geared by the modern banks. The centers, importance of marketing and promotional data used in study are extracted from the Statistical activities been realized, customer relationship tables published in annual reports of Reserve Banks management and brand image improvisation India (RBI). Table has been prepared to make became important part of policy, diversified comparison between modern and traditional banks economic activities became core of banking on the selected parameters of employees' business, to become global banking player some of productivity and employees' cost. The gap index is the banks have taken help from international prepared to indicate the percentage of difference of consulting agencies to remove bottleneck in their the value of variables between modern banks (MI) operation and undergone restructuring process. and traditional banks (TB) as a ratio of their These changes were considered paramount by the aggregate value. The main objective of Gap Index banks to become internationally at par and to construction is to analyze whether or not gap achieve competitive edge over global and domestic between modern and traditional banks are reduced competitors. after implementing various measures. The

outcome of the study depends on the selected period This paper is organized in six sections. Section I

18 19

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

of new domestic and international financial players, order to survive smoothly they have to offer wide minimized distinction between banks and non bank, array of customized products and services in introduction of innovative and path-breaking convenient atmosphere at economical rate under communicational and computational technology, one roof with recognized and distinct identity. And freedom of fixing financial products price, on other hand they have to protect and consolidate deregulation of interest rate system and adoption of their presence and market share, for the purpose floating exchange rate system, income recognition have to adopt efficiency in order to ensure future and capital adequacy, effective changes in credit growth, to arrest performance deterioration, to avail delivery mechanism, redefining prudential norms the advantage of emerging opportunities, to retain of assets classification, strategic flexibility in credit the existing customers and to attract new customers. assessment process and increasing trend of For this they have to be efficient, effective and have disintermediation has explored competitive to evolve a strategy that is forever morphing and environment in Indian financial sector and gave conforming itself to emerging opportunities and regulated freedom to the market forces to decide the incipient trends. future of banking and other financial institutions

To become global financial leader it became under the shadow of new investments, new

necessary for policy makers to identify the windows and new opportunities, along with these

shortcoming and later converting these gray areas new challenges.

into strength by implementing scientific approach, In present volatile global economic scenario efficient policy and effective rules and regulation.

and fiercely competitive environment Indian public For the purpose policy makers ultimately requires sector banks hold over 75 percent of total assets of prognostic diagnosis of the problems and the banking industry and remaining held with challenges along with emerging opportunities and private and foreign banks. In competing global assessment of existing strengths and weakness of standard Indian banking industry has managed Indian banks? Policy makers considering present protective economic and services sector growth due global economic scenario investigated minutely to which demand for banking services especially and analyzed that inefficiency in Indian banking retail banking, mortgages and investment services structure is the major factor contributing to the high will accelerate and will further lead to M&As, cost of banking services which ultimately takeovers, and asset sales in large. This demand will impacting the smooth survival of the banking develop challenge in the form of competitive industry. Further they found that problem of pressures and will result change in demands both pressure on profitability, problem of low from foreign banks and new private sector banks. In product ivi ty, Problem of ever-growing India most of the public sector banks and private nonperforming assets (NPA), problem of resource sector banks are operating in traditional mode and crunch, problem of assets and liabilities mismatch, requires up gradation to compete or become hybrid problem of growing competitive and qualitative universal bank. change in Indian and global banking paradigm,

problems of diversified strata customers, growing Deregulation and new policies have opened up

domestic and global competition, competition from new vistas for banks to augment revenues; it has

disintermediation, problem of managing duality of entailed greater competition and consequently

ownership, problem of continuous changing greater risks. Banks main sources of operating

technology, problem of growing collective financial revenue are interest and discount on loans,

market uncertainty and risk, problem due to dividends on investment, and services charges on

unskilled work force and scarcity of talents, deposit accounts, services charges and fee on banks and other charges and major expenditures are To fight the competitive odds Indian banking salaries and wages, interest payment and deposit system opted to become modern banking system at liabilities and other current operating expenses. In par to global norms and employed a number of

measures in order to improve its operational provides Introduction in which Origin of Banking, efficiency , meeting customer expectations and Indian Banking Evidence and Current scenario of reduction of operating costs. In process of change Indian banking industry has been given. Section II Indian banks strategically tried to control and discusses the objective of the study. Section III minimized banking weakness like “low operating represents the data and methodology. In Section IV size and high operating costs, they gradually Survey of literature is given. In Section V analysis converted inadequate deposit mobilization efforts and interpretation of data is given. In Section VI into adequate and speedy, they tried to arrest high concluding remarks is been given.level of nonperforming assets in order to maintain

Objective of the Studysound liquidity and financial stability, they minimized financial exclusion, they converted Employees play important role in overall complex and non responsive organizational growth and achievement of the organization and structure into customer friendly, and responsive, their efficient utilization cannot be ignored and they controlled credit to non productive sectors like underestimated. The core objective of the study is to commercial estate, they converted poor customers compare the parameters of employee's productivity services into efficient and effective, they utilized and employee cost in Indian banking sector. In existing capacity to optimum and converted employee productivity “business per employee” unsatisfactory work culture into satisfactory, (BPE) and “profit per employee” (PPE) between feudalistic attitude of the staff transformed into traditional and Modern banks in India are been consumer friendly and cooperative, they compared and in employee cost comparison is been implemented effective measures to control done between employee cost to operating expenses, ethnocentric and action flippant management and employees cost to total business and employee cost adopted employees friendly target oriented policies to total assets.in order to balance the employee motivation and

Research Methodologygrowth, they offered VRS to their employees, training and retraining of staff been adopted, lateral The study is carried out to make qualitative and induction of specialist been adopted, new fully comprehensive evaluation of employee's automated technology with business process productivity and employee cost in Indian public and reengineering been adopted by banks to make private sector banks. For the purpose data for the global financial market accessible and adequate, period of 12 years from 1996- 97 to 2007-08 has they adopted electronic based multiple service been analyzed in order to observe the impact of delivery channels, they adopted business process implemented measures by the traditional banks to outsourcing and established back offices and data counter challenge geared by the modern banks. The centers, importance of marketing and promotional data used in study are extracted from the Statistical activities been realized, customer relationship tables published in annual reports of Reserve Banks management and brand image improvisation India (RBI). Table has been prepared to make became important part of policy, diversified comparison between modern and traditional banks economic activities became core of banking on the selected parameters of employees' business, to become global banking player some of productivity and employees' cost. The gap index is the banks have taken help from international prepared to indicate the percentage of difference of consulting agencies to remove bottleneck in their the value of variables between modern banks (MI) operation and undergone restructuring process. and traditional banks (TB) as a ratio of their These changes were considered paramount by the aggregate value. The main objective of Gap Index banks to become internationally at par and to construction is to analyze whether or not gap achieve competitive edge over global and domestic between modern and traditional banks are reduced competitors. after implementing various measures. The

outcome of the study depends on the selected period This paper is organized in six sections. Section I

18 19

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

by the researchers which may differ from other Khan Working Group. All these committee and working groups examined various parameters of analysis.efficiency minutely and given numbers of relevant

Review of Literature:suggestions to explore efficiency in Indian banks.

To develop new parameters in any area of study Nag and Shvanaswamy (1990) in their study literature revues play important role. They provide compared the performance of foreign banks vital inputs and directions to the study as they base operating in India with the Indian scheduled on past which help in forecasting the future. A commercial banks in terms of growth of deposits number of studies have been carried out to compare and loans and revealed that foreign banks have different type of banks operating in India using performed better than Indian scheduled commercial different parameters depending upon time and banks du r ing the pe r iod . Swami and importance. The judicious outcome of these studies Subramanayam (1994) in their study examined the indicate that they differ in opinion due to many inter- bank differences in the performances of reasons like global economic condition, nature of public sector banks in India by using taxonomic economy, time period of the study, banks futuristic method and found that most of the banks had a wide policies and other competitive considerations etc. disparities in their measures of performance, Therefore, keeping futuristic development in view Bhattacharya et al. (1997) in his study examined the this study is authentically designed to understand impact of privatization on the performance of and investigate the Productivity and Cost in Indian banks. The study revealed that public sector banks banking Industry and their overall impact and their have performed better in comparison to private survival in global competitions by critically sector banks, Shankar and Das (1998) in their study examining and evaluating different theories and compared private sector, public sector banks and empirical studies conducted universally by foreign banks by using 15 indicators based on major financial experts and academicians. The outcome of criteria representing efficiency like profitability, the study will provide insights regarding productivity and financial management, Mukherjee operational characteristics and efficiency of et al. (2002) examined the technical efficiency and banking companies to the end users in the both benchmark performance of 68 commercial banks. segments long term and short term and will also He found that India public sector banks have proven explore new dimensions and will set new better than private sector banks and are more parameters to be followed by others. efficient than private and foreign banks and also

found that public sector banks have deep presence Nationalization of banks leads unprecedented than their competitors, Qamar (2002) examined the expansion of banking operations in India and use of profitability, resource and efficiency in explored economic revolution with certain visible Indian scheduled commercial banks. For the and invisible draw backs. There was growing purpose he used modern techniques to evaluate concern on the deteriorating of banking and performance of the banks and found that new tech financial institutions efficiency in all spheres. To savvy private sector banks and foreign banks are control this deterioration the Reserve Bank of India having marginal edge over old and traditional (RBI) the apex regulatory body responsible for private and public sector banks in urban area, Petya maintaining the external value of the rupee, acting Koeva (2003) examined the impact of financial as a bankers banks, Central bank playing liberalization on the performance of Indian developmental role and ensuring better customer commercial banks. In his study he examined the services, constituted a number of committees and behavior and determinants of banks intermediation study groups, notably among them Daheja Study costs and profitability during the liberalization Group (1968), Tondon Committee (1975), K.B. period and found that ownership play important role Chore Study Group, Luther Committee (1977) on some performance indicators, Sathye (2005) Charkarvarty Committee (1986) M. Narsimham examined the impact of privatization on the Committee (1991), E. Nayak Committee (1991),

performance of banks and found that under It is found that productivity is one of the most prevailing circumstances in India private sector important factors affecting profitability of a bank. banks have performed better than public sector Generally it is a function of an input and output

relation. Productivity of banks is said to be high banks, Vradi, Vijay, Mauluri, Nagarjuna (2006) when for the same quantity of inputs, a greater examined the stability of profitability, productivity, quantity of output is generated or when same output assets quality and financial management of banking is achieved with lesser quantity of inputs. It is industry as a whole. For the purpose they used considered that Banks are socio- economic entity development analysis and concluded that public and earning profit is not their prime objective. Being sector banks are more efficient than other banks in a social entity it has social obligations to promote India, Brijesh K Saho, Anandeep Singh (2007) economic development and to achieve the same examined the performance trend of the Indian have to channelize their resources and efforts commercial banks. The study revolves around trend towards social ends. Acceptance of social in technical efficiency, higher cost efficiency and responsibility dilutes the profit of banks and concerning the scale elasticity behavior and their increases the operational cost and risk along with collective impact on banking industry performance, diversion of managerial time and talent apart from coordination and competitiveness, B Satish Kumar scare economic resources of the bank. It is hard and (2008) in his study found that with the adopted fast fact that economic goals and social goals are effective economic reforms new generation banks opposite to each other. It is found that social with modern technology and professional attitude desirable obligations become economic suicide. have revolutionized the sector, Roma Mitra, However, in long run economic goals and social Shankar Ravi (2008) evaluated the efficiency of 50 responsibilities become compatible with each other Indian banks. The study found that performance can and reinforce each other. In fact, basic responsibility be result of policy of the banks depending upon of a bank is to operate profitably and efficiently priority area in which they like to operate.utilize the resources at its disposal. Society cannot

Analysis of Data gain if banks performance suffers. Bank can serve society and help economy to develop only when it Employees Productivityoperate successfully. Thus, in order to fulfill its

In a ferociously competitive environment, economic goal, banks must utilize its all resources banks, to achieve sustainable competitive prowess, and factor of production to optimum.must have to develop competitive strength over its

As per table 1, the employees' productivity competitors. This is possible if the banks have ratios are represented by 'business per employee' efficient and productive employees who have and profit per employee' for the period of 12 years in ability to attract customers and have strength to respect of traditional and modern banks operating in defend the competitors. In order to cater the India. During the study period it is found that growing competition Banks took number of traditional banks have performed remarkably better measures to develop efficiency and productivity than modern banks in both business per employee among their employees. Banks with support of and in profit per employee. Business per employee business process engineering and innovative for traditional banks has shown upward trend and technology can posse's unique strength that allow it has continuously improvised. During the study to achieve superior efficiency, quality, innovation period it has increased from Rs. 75.28 lakhs to Rs. and customer responsiveness which ultimately 549.21 lakhs, which is 7.29 times. On other hand translate into surplus. In fact, economic surplus is an modern banks have also shown upward trend and index of efficient and effective deployment of their business per employee have also increased resources. It is a fundamental truth that for survival from 397.50 lakhs to 1216.75 lakhs which is said to operating revenue must be more than operating be 3.06 times. It has been found that the ratios of expenditure. Profit provides cushion to the banks as business per employee between modern and it is an index of efficiency.

20 21

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

by the researchers which may differ from other Khan Working Group. All these committee and working groups examined various parameters of analysis.efficiency minutely and given numbers of relevant

Review of Literature:suggestions to explore efficiency in Indian banks.

To develop new parameters in any area of study Nag and Shvanaswamy (1990) in their study literature revues play important role. They provide compared the performance of foreign banks vital inputs and directions to the study as they base operating in India with the Indian scheduled on past which help in forecasting the future. A commercial banks in terms of growth of deposits number of studies have been carried out to compare and loans and revealed that foreign banks have different type of banks operating in India using performed better than Indian scheduled commercial different parameters depending upon time and banks du r ing the pe r iod . Swami and importance. The judicious outcome of these studies Subramanayam (1994) in their study examined the indicate that they differ in opinion due to many inter- bank differences in the performances of reasons like global economic condition, nature of public sector banks in India by using taxonomic economy, time period of the study, banks futuristic method and found that most of the banks had a wide policies and other competitive considerations etc. disparities in their measures of performance, Therefore, keeping futuristic development in view Bhattacharya et al. (1997) in his study examined the this study is authentically designed to understand impact of privatization on the performance of and investigate the Productivity and Cost in Indian banks. The study revealed that public sector banks banking Industry and their overall impact and their have performed better in comparison to private survival in global competitions by critically sector banks, Shankar and Das (1998) in their study examining and evaluating different theories and compared private sector, public sector banks and empirical studies conducted universally by foreign banks by using 15 indicators based on major financial experts and academicians. The outcome of criteria representing efficiency like profitability, the study will provide insights regarding productivity and financial management, Mukherjee operational characteristics and efficiency of et al. (2002) examined the technical efficiency and banking companies to the end users in the both benchmark performance of 68 commercial banks. segments long term and short term and will also He found that India public sector banks have proven explore new dimensions and will set new better than private sector banks and are more parameters to be followed by others. efficient than private and foreign banks and also

found that public sector banks have deep presence Nationalization of banks leads unprecedented than their competitors, Qamar (2002) examined the expansion of banking operations in India and use of profitability, resource and efficiency in explored economic revolution with certain visible Indian scheduled commercial banks. For the and invisible draw backs. There was growing purpose he used modern techniques to evaluate concern on the deteriorating of banking and performance of the banks and found that new tech financial institutions efficiency in all spheres. To savvy private sector banks and foreign banks are control this deterioration the Reserve Bank of India having marginal edge over old and traditional (RBI) the apex regulatory body responsible for private and public sector banks in urban area, Petya maintaining the external value of the rupee, acting Koeva (2003) examined the impact of financial as a bankers banks, Central bank playing liberalization on the performance of Indian developmental role and ensuring better customer commercial banks. In his study he examined the services, constituted a number of committees and behavior and determinants of banks intermediation study groups, notably among them Daheja Study costs and profitability during the liberalization Group (1968), Tondon Committee (1975), K.B. period and found that ownership play important role Chore Study Group, Luther Committee (1977) on some performance indicators, Sathye (2005) Charkarvarty Committee (1986) M. Narsimham examined the impact of privatization on the Committee (1991), E. Nayak Committee (1991),

performance of banks and found that under It is found that productivity is one of the most prevailing circumstances in India private sector important factors affecting profitability of a bank. banks have performed better than public sector Generally it is a function of an input and output

relation. Productivity of banks is said to be high banks, Vradi, Vijay, Mauluri, Nagarjuna (2006) when for the same quantity of inputs, a greater examined the stability of profitability, productivity, quantity of output is generated or when same output assets quality and financial management of banking is achieved with lesser quantity of inputs. It is industry as a whole. For the purpose they used considered that Banks are socio- economic entity development analysis and concluded that public and earning profit is not their prime objective. Being sector banks are more efficient than other banks in a social entity it has social obligations to promote India, Brijesh K Saho, Anandeep Singh (2007) economic development and to achieve the same examined the performance trend of the Indian have to channelize their resources and efforts commercial banks. The study revolves around trend towards social ends. Acceptance of social in technical efficiency, higher cost efficiency and responsibility dilutes the profit of banks and concerning the scale elasticity behavior and their increases the operational cost and risk along with collective impact on banking industry performance, diversion of managerial time and talent apart from coordination and competitiveness, B Satish Kumar scare economic resources of the bank. It is hard and (2008) in his study found that with the adopted fast fact that economic goals and social goals are effective economic reforms new generation banks opposite to each other. It is found that social with modern technology and professional attitude desirable obligations become economic suicide. have revolutionized the sector, Roma Mitra, However, in long run economic goals and social Shankar Ravi (2008) evaluated the efficiency of 50 responsibilities become compatible with each other Indian banks. The study found that performance can and reinforce each other. In fact, basic responsibility be result of policy of the banks depending upon of a bank is to operate profitably and efficiently priority area in which they like to operate.utilize the resources at its disposal. Society cannot

Analysis of Data gain if banks performance suffers. Bank can serve society and help economy to develop only when it Employees Productivityoperate successfully. Thus, in order to fulfill its

In a ferociously competitive environment, economic goal, banks must utilize its all resources banks, to achieve sustainable competitive prowess, and factor of production to optimum.must have to develop competitive strength over its

As per table 1, the employees' productivity competitors. This is possible if the banks have ratios are represented by 'business per employee' efficient and productive employees who have and profit per employee' for the period of 12 years in ability to attract customers and have strength to respect of traditional and modern banks operating in defend the competitors. In order to cater the India. During the study period it is found that growing competition Banks took number of traditional banks have performed remarkably better measures to develop efficiency and productivity than modern banks in both business per employee among their employees. Banks with support of and in profit per employee. Business per employee business process engineering and innovative for traditional banks has shown upward trend and technology can posse's unique strength that allow it has continuously improvised. During the study to achieve superior efficiency, quality, innovation period it has increased from Rs. 75.28 lakhs to Rs. and customer responsiveness which ultimately 549.21 lakhs, which is 7.29 times. On other hand translate into surplus. In fact, economic surplus is an modern banks have also shown upward trend and index of efficient and effective deployment of their business per employee have also increased resources. It is a fundamental truth that for survival from 397.50 lakhs to 1216.75 lakhs which is said to operating revenue must be more than operating be 3.06 times. It has been found that the ratios of expenditure. Profit provides cushion to the banks as business per employee between modern and it is an index of efficiency.

20 21

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

traditional banks have declined to a great extend, improve profitability and always try to minimize from 5.28 times in 1997 to 2.21 times in 2008. This them in relation to operating expenses, total decline is due to effective measures and efforts business and total assets. The employee cost in made by traditional banks. Further it has been respect to selected variables for the selected period found that during the period of study profit per of study in respect to traditional and modern banks employee in traditional banks is significantly higher are presented in table No.2. than modern banks. It is been found that profit per

It may be noted from the table that the employee employee in traditional banks was 6.79 times as

cost as a ratio of operating expenses in respect of compared to modern banks that have 2.73 times.traditional banks remained more or less constant

Employee Cost Ratios from 1997 to 2002 and later got reduced gradually. On contrary modern banks, the ratio fluctuated In any economic entity cost play important role. narrowly; it declined marginally up to the year 2006 Profitability fluctuates according to cost and further increases in 2007 - 2008. The study fluctuation. Banking is a service industry whose revealed that till 2006 employee cost to operating output consists not of any physical product but a expenses of traditional banks were more than bundle of services, thus not easy to measure its double of modern banks, but after implementation efficiency. Every step of competition has its impact

on cost which ultimately impact margin of safety. of controlling measures this ratio decreased Banks average business is the sum of average significantly during 2007-2008 and was1.77 and deposits and advances which is the output generated 1.65 times respectively. This indicate that efforts by the input of human efforts. In this study made by traditional banks to control and minimize employees cost is represented by “employee cost to the wage bills in relation to operating cost made an operating expenses”, employee cost to total impact on changing composition of banks input business and by employee cost to total assets” output, and reduction in total cost.which are based on individual banks wage bill data.

It is found that during the period of study Banks consider it as an important factor in order to

employee to total business of traditional banks has Gap Index Analysisreduced consistently, in the year 1997 it was 1.45

The Gap Index has been defined as the per cent and in the year 2008 it reduced to 0.68 per

percentage of difference of the value of variables cent. On the other hand in modern banks it has

between modern banks (MB) and traditional banks marginally increased, it was 0.57 per cent to 0.64

(TB) as a ratio of their aggregate value. To find the per cent up to 2004, but increased drastically in the

gap value and to prepare Gap Index of Business per following year 2005 to 1.23 percent and reduced to

Employee (BPE) following formula has been 0.88 percent in 2008. The study revealed that till

used.2004, the employee cost to total business of traditional banks were higher than modern banks but from 2005 modern banks was found on increasing trend and traditional banks on decreasing. This declining trend indicates that In order to get positive value and to find out cost traditional banks have managed their efforts in related variables the cost of modern banks have effective manner to compete modern banks been subtracted from the traditional banks. It was challenge of business expansion. expected that the value of modern banks will be

lower in comparison to traditional banks. In the The study revealed that employee cost to total

study Table No, 3, gives the gap indices of 5 assets of traditional banks has also declined

variables.constantly, in the year 1997 it was 2.05 percent and declined to 0.96 percent in the year 2008; accept in From the Table No, 3, it has been found that the year 2001 it has increased marginally to 1.98 employee cost ratios of modern and traditional percent. Modern banks has also recorded decline in banks have declined consistently from 1997 to employee cost to total assets during the period of 2008. The study revealed that percentage reduction study. In the year 1997 it was 0.81 percent; in 2002 in case of employee cost to total business was they recorded the lowest 0.55 percent and recorded highest to 129 percent, which drastically came highest of 0.92 percent in 2008. down and assumed negative value from the year

22 23

Table 1: Employee Productivity Ratios

(Rs. Lakhs)

*represents end of financial year

Year* Business Per Employee (Median)

Profit Per Employee (Median)

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

1 2 3 4 5

1997

75.28

397.50

0.57

6.50

1998

97.53

689.90

0.81

7.901999

112.93

638.66

0.57

5.662000

136.26

735.20

0.79

7.492001

166.23

690.83

0.71

5.842002

192.30

667.41

1.27

5.372003

223.36

717.00

1.68

9.172004

263.12

758.46

2.23

10.412005

302.02

745.56

1.29

7.822006

355.79

891.52

1.68

9.012007

439.96

790.44

2.84

11.482008

549.21

1216.76

3.87

17.74

Table 2: Employee Cost Rates

(Per cent)

Year

Employee Cost to Operating Expenses

Employee Cost to Total Business

Employee Cost to Total Assets

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

1 2 3 4 5 6 7

1997 71.78 30.41 1.45 0.57 2.05 0.81

1998 72.20 29.52 1.33 0.55 1.90 0.781999 71.81 27.64 1.34 0.63 1.88 0.792000 72.28 30.07 1.30 0.63 1.80 0.752001 74.23 27.79 1.30 0.63 1.98 0.692002 71.52 29.36 1.15 0.63 1.62 0.552003 70.13 26.49 1.09 0.63 1.57 0.602004 68.42 26.96 1.04 0.64 1.49 0.622005 66.92 27.39 0.99 1.23 1.39 0.642006 65.26 30.43 0.95 1.14 1.35 0.692007 60.99 34.35 0.79 0.80 1.13 0.872008 58.63 35.53 0.68 0.88 0.96 0.92

BPE (MB) - BPE (TB)X 100

BPE (MB) + BPE (TB)

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

traditional banks have declined to a great extend, improve profitability and always try to minimize from 5.28 times in 1997 to 2.21 times in 2008. This them in relation to operating expenses, total decline is due to effective measures and efforts business and total assets. The employee cost in made by traditional banks. Further it has been respect to selected variables for the selected period found that during the period of study profit per of study in respect to traditional and modern banks employee in traditional banks is significantly higher are presented in table No.2. than modern banks. It is been found that profit per

It may be noted from the table that the employee employee in traditional banks was 6.79 times as

cost as a ratio of operating expenses in respect of compared to modern banks that have 2.73 times.traditional banks remained more or less constant

Employee Cost Ratios from 1997 to 2002 and later got reduced gradually. On contrary modern banks, the ratio fluctuated In any economic entity cost play important role. narrowly; it declined marginally up to the year 2006 Profitability fluctuates according to cost and further increases in 2007 - 2008. The study fluctuation. Banking is a service industry whose revealed that till 2006 employee cost to operating output consists not of any physical product but a expenses of traditional banks were more than bundle of services, thus not easy to measure its double of modern banks, but after implementation efficiency. Every step of competition has its impact

on cost which ultimately impact margin of safety. of controlling measures this ratio decreased Banks average business is the sum of average significantly during 2007-2008 and was1.77 and deposits and advances which is the output generated 1.65 times respectively. This indicate that efforts by the input of human efforts. In this study made by traditional banks to control and minimize employees cost is represented by “employee cost to the wage bills in relation to operating cost made an operating expenses”, employee cost to total impact on changing composition of banks input business and by employee cost to total assets” output, and reduction in total cost.which are based on individual banks wage bill data.

It is found that during the period of study Banks consider it as an important factor in order to

employee to total business of traditional banks has Gap Index Analysisreduced consistently, in the year 1997 it was 1.45

The Gap Index has been defined as the per cent and in the year 2008 it reduced to 0.68 per

percentage of difference of the value of variables cent. On the other hand in modern banks it has

between modern banks (MB) and traditional banks marginally increased, it was 0.57 per cent to 0.64

(TB) as a ratio of their aggregate value. To find the per cent up to 2004, but increased drastically in the

gap value and to prepare Gap Index of Business per following year 2005 to 1.23 percent and reduced to

Employee (BPE) following formula has been 0.88 percent in 2008. The study revealed that till

used.2004, the employee cost to total business of traditional banks were higher than modern banks but from 2005 modern banks was found on increasing trend and traditional banks on decreasing. This declining trend indicates that In order to get positive value and to find out cost traditional banks have managed their efforts in related variables the cost of modern banks have effective manner to compete modern banks been subtracted from the traditional banks. It was challenge of business expansion. expected that the value of modern banks will be

lower in comparison to traditional banks. In the The study revealed that employee cost to total

study Table No, 3, gives the gap indices of 5 assets of traditional banks has also declined

variables.constantly, in the year 1997 it was 2.05 percent and declined to 0.96 percent in the year 2008; accept in From the Table No, 3, it has been found that the year 2001 it has increased marginally to 1.98 employee cost ratios of modern and traditional percent. Modern banks has also recorded decline in banks have declined consistently from 1997 to employee cost to total assets during the period of 2008. The study revealed that percentage reduction study. In the year 1997 it was 0.81 percent; in 2002 in case of employee cost to total business was they recorded the lowest 0.55 percent and recorded highest to 129 percent, which drastically came highest of 0.92 percent in 2008. down and assumed negative value from the year

22 23

Table 1: Employee Productivity Ratios

(Rs. Lakhs)

*represents end of financial year

Year* Business Per Employee (Median)

Profit Per Employee (Median)

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

1 2 3 4 5

1997

75.28

397.50

0.57

6.50

1998

97.53

689.90

0.81

7.901999

112.93

638.66

0.57

5.662000

136.26

735.20

0.79

7.492001

166.23

690.83

0.71

5.842002

192.30

667.41

1.27

5.372003

223.36

717.00

1.68

9.172004

263.12

758.46

2.23

10.412005

302.02

745.56

1.29

7.822006

355.79

891.52

1.68

9.012007

439.96

790.44

2.84

11.482008

549.21

1216.76

3.87

17.74

Table 2: Employee Cost Rates

(Per cent)

Year

Employee Cost to Operating Expenses

Employee Cost to Total Business

Employee Cost to Total Assets

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

1 2 3 4 5 6 7

1997 71.78 30.41 1.45 0.57 2.05 0.81

1998 72.20 29.52 1.33 0.55 1.90 0.781999 71.81 27.64 1.34 0.63 1.88 0.792000 72.28 30.07 1.30 0.63 1.80 0.752001 74.23 27.79 1.30 0.63 1.98 0.692002 71.52 29.36 1.15 0.63 1.62 0.552003 70.13 26.49 1.09 0.63 1.57 0.602004 68.42 26.96 1.04 0.64 1.49 0.622005 66.92 27.39 0.99 1.23 1.39 0.642006 65.26 30.43 0.95 1.14 1.35 0.692007 60.99 34.35 0.79 0.80 1.13 0.872008 58.63 35.53 0.68 0.88 0.96 0.92

BPE (MB) - BPE (TB)X 100

BPE (MB) + BPE (TB)

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

2005 to 2008. It has also been found that the gap of traditional banks have to adopt quality, efficiency, employee cost to total assets between traditional productivity and profitability as their core policy and modern banks have reduced at a significant rate. and in process have to improve their productivity In the year 1997 it was 43.41 and came down to 2.13 and cost reduction efforts perpetually.in the year 2008, means 95.09 per cent reduction. It

Concluding Remarksis also been found that gap between traditional and modern banks in case of employee productivity The foregoing analysis reveals that there has ratios and business per employee have also reduced been discernible improvement in operational at a significant rate. In the year 1997 it was 68.15 efficiency of traditional banks in comparison to and came down to 29.86 in 2008, means reduction modern banks in India. The study revealed that in of 56.18 percent. The study also revealed that the productivity factors (Business per Employee' and gap between traditional and modern banks in 'Profit per Employee) modern banks performed respect of profit per employee also reduced better than traditional banks and similarly in significantly. In the year 1997 it was 83.84 and came employee cost factors (Employee Cost to total down to 64.18 respectively in the year 2008, means Business', 'Employee Cost to total Assets' and 23.45 percent reduction during the period. Further, 'Employee Cost to Operating Expenses) modern it has been found that the gap in absolute terms was banks performed much superior than traditional still high in respect of business per employee, profit banks. The increasing trend in efficiency has been per employee and employee cost to operating fairly uniform, irrespective of the ownership. expenses and was 29.86, 64.18, and 24.53 However study found that the gap between the respectively by the end of March 2008. Thus, to performance of modern and traditional banks on all compete growing challenge of modern banks, the five variables was on declining trend and has

significantly declined during the period of study. These gaps will further reduce due to effective and efficient measures taken by the traditional banks.

The approach to improve the efficiency is broadly in consonance and undergoing deregulation and transformation. The traditional banks are still to resolve a number of legacy issues related to people and processes for improving the productivity and reducing cost in order to compete with the modern banks. Even though in prevailing competitive environment all the banks have registered efficiency to a particular strength but the performance of the traditional banks was found below in comparison to the modern banks on studied variables except on 'Employee Cost to total Business in which they have performed better during the period from 2005 to 2008. Further, the Reserve Bank of India (1977), Report of the Productivity,

Efficiency and Profitability Committee on Banking, study found that the measures taken by the (Luther Committee).traditional banks to cater the growing challenge

Reserve Bank of India (1975), Report of the Study Group to from modern banks have positive impact. It has Frame Guidelines to Banks for the Follow-up Credit, been found that overall operational efficiency of (Tandon Committee).

traditional banks has improved. However Reserve Bank of India Annual report 1990 to2008sustaining the current trend in efficiency, there Reserve Bank of India, Trend and Progress of Banks in India, remains scope for banks to expand their assets

various Issues (1997 to 2008).relative to their input usage by adopting innovative product technology and to control operating expenditure. In last it can be said that modern banks have recorded higher efficiency as compared to their traditional Indian counterparts and trend has to be closely monitored to come to a firm conclusion

Reserve Bank of India (1986), Report of the Committee to Review the Working of the Monetary System, (Chakravarty Committee).

Reserve Bank of India (1991), Report of the Committee on the Financial System, (Narasimham Committee)

Winners and Losers in the Banking Industry', Journal of Economics and Business, Vol.52,

Gande et al (1997), 'Bank Underwriting of Debt Securities: Modern Evidence', The Review of Financial Studies, Vol.10, No.4

Ganti, Subragmanyam (1999), Universal Banking: Pros and Cons', in L.C. Gupta, India's Financial Markets & Institutions, Society for capital Market Research and Development, N. Delhi.

Indian Banks' Association, Performance Highlights of Banks in India, Various Issues.

Kamal Sehgal (2011) Universal Banking the Road Ahead,

Milima, Aziz Ponary and Lennart Hjalmarsson (2002), Measurement of Inputs and Output in the Banking Industry', Tanzanet Journal, Vol.3 (1)

M.S Gupta (2006,) 'The universal banking Introduction Concept, Pros and Cons. Journal of Professional Banker

The World Bank Report on Universal Banking and the Financing of Industrial Development.

RBI (1999), Discussion Paper on Universal Banking, January

Reserve Bank of India, (1999-2000). Excerpt from the Mid- Term Review of the Monetary and Credit Policy of Reserve Bank of India.

References

Adalat, Muge (2002), 'Were Universal Banks More Vulnerable to Banking Failures? Evidence from the 1931 German Banking Crises' University of California, RBI (2002) Universal banking: Introduction, RBI rules and Berkely, November 19. R e g u l a t i o n , U n i v e r s a l b a n k i n g i n I n d i a ,

Approach to Universal banking (2007), www.banknetindia. com

Benston, George J (1994), Universal Banking', Journal of Economic Perspectives, Vol.8, No. 3 Rudi Vander, Vennet (2002), 'Cost and Profit Efficiency of

Berger, Allen N (1999), The Consolidation of the Financial Financial Conglomerates and Universal Banks in Services Industry: Causes, Consequences, and Europe', Journal of Money, Credit and Banking, Vol. 34, Implications for the Future', Journal of Banking and No. 1 Finance, Vol. 23. Rime, Bertrand and Kevin J. Strioh (2003),'The Performance

Bhole, L.M (2004), Financial Institutions and Markets, Tata of Universal Banks: Evidence from Switzerland', Journal McGraw Hill Company, N. Delhi

B.N.V. Parthasarathi, Consolidation of Indian Banks Challenges, The ICFI University Press

Cyree, Ken B (2000), 'The Erosion of the Glass- Steagall Act:

www.indianfoline.com,

www.banknetindia.com/banking/ubfeature.htm,

of Banking and Finance, Vol.27.

Rakesh Mohan (2005), Reforms, Productivity and Efficiency in Banking, The Indian Experience, Address Delivered at

stthe 21 Annual General Meeting and Conference of the

24 25

Table 3: Gap Index

Year Business per

Employee

(Rs. Lakhs)

Profit per

Employee

(Rs. Lakhs)

Employee Cost to

Total

Business

(per cent)

Employee Cost to

Operating

Expenses

(per cent)

EmployeeCost toTotal

Assets(per cent)

1 2 3 4 5 6

1997

68.15

83.84

43.34

40.48

43.41

1998

75.23

81.35

41.48

41.96

41.831999

69.95

81.63

36.04

44.42

41.082000

68.73

80.86

34.40

41.24

41.382001

61.21

78.24

35.02

45.52

48.512002

55.26

61.79

28.86

41.80

49.582003

52.50

69.08

27.10

45.16

44.462004

48.49

64.77

23.70

43.47

41.412005

42.34

71.62

-10.93

41.92

37.322006

42.95

68.53

-9.17

36.39

32.402007

28.49

60.34

-0.63

27.94

13.002008

29.86

64.18

-12.82

24.53

2.13Percentage Reduction from 1997 to 2008

(per cent)

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

2005 to 2008. It has also been found that the gap of traditional banks have to adopt quality, efficiency, employee cost to total assets between traditional productivity and profitability as their core policy and modern banks have reduced at a significant rate. and in process have to improve their productivity In the year 1997 it was 43.41 and came down to 2.13 and cost reduction efforts perpetually.in the year 2008, means 95.09 per cent reduction. It

Concluding Remarksis also been found that gap between traditional and modern banks in case of employee productivity The foregoing analysis reveals that there has ratios and business per employee have also reduced been discernible improvement in operational at a significant rate. In the year 1997 it was 68.15 efficiency of traditional banks in comparison to and came down to 29.86 in 2008, means reduction modern banks in India. The study revealed that in of 56.18 percent. The study also revealed that the productivity factors (Business per Employee' and gap between traditional and modern banks in 'Profit per Employee) modern banks performed respect of profit per employee also reduced better than traditional banks and similarly in significantly. In the year 1997 it was 83.84 and came employee cost factors (Employee Cost to total down to 64.18 respectively in the year 2008, means Business', 'Employee Cost to total Assets' and 23.45 percent reduction during the period. Further, 'Employee Cost to Operating Expenses) modern it has been found that the gap in absolute terms was banks performed much superior than traditional still high in respect of business per employee, profit banks. The increasing trend in efficiency has been per employee and employee cost to operating fairly uniform, irrespective of the ownership. expenses and was 29.86, 64.18, and 24.53 However study found that the gap between the respectively by the end of March 2008. Thus, to performance of modern and traditional banks on all compete growing challenge of modern banks, the five variables was on declining trend and has

significantly declined during the period of study. These gaps will further reduce due to effective and efficient measures taken by the traditional banks.

The approach to improve the efficiency is broadly in consonance and undergoing deregulation and transformation. The traditional banks are still to resolve a number of legacy issues related to people and processes for improving the productivity and reducing cost in order to compete with the modern banks. Even though in prevailing competitive environment all the banks have registered efficiency to a particular strength but the performance of the traditional banks was found below in comparison to the modern banks on studied variables except on 'Employee Cost to total Business in which they have performed better during the period from 2005 to 2008. Further, the Reserve Bank of India (1977), Report of the Productivity,

Efficiency and Profitability Committee on Banking, study found that the measures taken by the (Luther Committee).traditional banks to cater the growing challenge

Reserve Bank of India (1975), Report of the Study Group to from modern banks have positive impact. It has Frame Guidelines to Banks for the Follow-up Credit, been found that overall operational efficiency of (Tandon Committee).

traditional banks has improved. However Reserve Bank of India Annual report 1990 to2008sustaining the current trend in efficiency, there Reserve Bank of India, Trend and Progress of Banks in India, remains scope for banks to expand their assets

various Issues (1997 to 2008).relative to their input usage by adopting innovative product technology and to control operating expenditure. In last it can be said that modern banks have recorded higher efficiency as compared to their traditional Indian counterparts and trend has to be closely monitored to come to a firm conclusion

Reserve Bank of India (1986), Report of the Committee to Review the Working of the Monetary System, (Chakravarty Committee).

Reserve Bank of India (1991), Report of the Committee on the Financial System, (Narasimham Committee)

Winners and Losers in the Banking Industry', Journal of Economics and Business, Vol.52,

Gande et al (1997), 'Bank Underwriting of Debt Securities: Modern Evidence', The Review of Financial Studies, Vol.10, No.4

Ganti, Subragmanyam (1999), Universal Banking: Pros and Cons', in L.C. Gupta, India's Financial Markets & Institutions, Society for capital Market Research and Development, N. Delhi.

Indian Banks' Association, Performance Highlights of Banks in India, Various Issues.

Kamal Sehgal (2011) Universal Banking the Road Ahead,

Milima, Aziz Ponary and Lennart Hjalmarsson (2002), Measurement of Inputs and Output in the Banking Industry', Tanzanet Journal, Vol.3 (1)

M.S Gupta (2006,) 'The universal banking Introduction Concept, Pros and Cons. Journal of Professional Banker

The World Bank Report on Universal Banking and the Financing of Industrial Development.

RBI (1999), Discussion Paper on Universal Banking, January

Reserve Bank of India, (1999-2000). Excerpt from the Mid- Term Review of the Monetary and Credit Policy of Reserve Bank of India.

References

Adalat, Muge (2002), 'Were Universal Banks More Vulnerable to Banking Failures? Evidence from the 1931 German Banking Crises' University of California, RBI (2002) Universal banking: Introduction, RBI rules and Berkely, November 19. R e g u l a t i o n , U n i v e r s a l b a n k i n g i n I n d i a ,

Approach to Universal banking (2007), www.banknetindia. com

Benston, George J (1994), Universal Banking', Journal of Economic Perspectives, Vol.8, No. 3 Rudi Vander, Vennet (2002), 'Cost and Profit Efficiency of

Berger, Allen N (1999), The Consolidation of the Financial Financial Conglomerates and Universal Banks in Services Industry: Causes, Consequences, and Europe', Journal of Money, Credit and Banking, Vol. 34, Implications for the Future', Journal of Banking and No. 1 Finance, Vol. 23. Rime, Bertrand and Kevin J. Strioh (2003),'The Performance

Bhole, L.M (2004), Financial Institutions and Markets, Tata of Universal Banks: Evidence from Switzerland', Journal McGraw Hill Company, N. Delhi

B.N.V. Parthasarathi, Consolidation of Indian Banks Challenges, The ICFI University Press

Cyree, Ken B (2000), 'The Erosion of the Glass- Steagall Act:

www.indianfoline.com,

www.banknetindia.com/banking/ubfeature.htm,

of Banking and Finance, Vol.27.

Rakesh Mohan (2005), Reforms, Productivity and Efficiency in Banking, The Indian Experience, Address Delivered at

stthe 21 Annual General Meeting and Conference of the

24 25

Table 3: Gap Index

Year Business per

Employee

(Rs. Lakhs)

Profit per

Employee

(Rs. Lakhs)

Employee Cost to

Total

Business

(per cent)

Employee Cost to

Operating

Expenses

(per cent)

EmployeeCost toTotal

Assets(per cent)

1 2 3 4 5 6

1997

68.15

83.84

43.34

40.48

43.41

1998

75.23

81.35

41.48

41.96

41.831999

69.95

81.63

36.04

44.42

41.082000

68.73

80.86

34.40

41.24

41.382001

61.21

78.24

35.02

45.52

48.512002

55.26

61.79

28.86

41.80

49.582003

52.50

69.08

27.10

45.16

44.462004

48.49

64.77

23.70

43.47

41.412005

42.34

71.62

-10.93

41.92

37.322006

42.95

68.53

-9.17

36.39

32.402007

28.49

60.34

-0.63

27.94

13.002008

29.86

64.18

-12.82

24.53

2.13Percentage Reduction from 1997 to 2008

(per cent)

Vedaang Vol. 4 No. 1, January-June 2013 A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

ENVIRONMENTAL TAXATION: ISSUES, CHALLENGES AND PROSPECTS

Dr. Minakshi Paliwal*

ABSTRACTRecently, many governments are looking at environmental taxation as a possible way to make up the shortfall from declining tax intake due to the recession. Before they do this, they will need to ensure that business and their electorates support this approach and are able to see what the environmental taxes are achieving. In this light the present paper makes an attempt to discuss various issues and challenges in environmental taxation. In the end of paper some policy measures are suggested for successful implementation of environmental taxation.

Key Words: Environmental Taxation, Command- and- Control; Pollution; Fiscal Incentive

JEL Codes: H23, Q38, Q58

* Assistant Professor, Department of Commerce, Ramjas College, University of Delhi, Delhi-7, INDIA

or gaining a competitive advantage from Introduction environmental decisions. As long as the costs of

The design of environmental policies has environmental protection remained relatively assumed a more urgent tone in recent years. In part, limited and/or exposure to international this reflects the continued interest of the general competition was low, there was little need for other public, mass media and policy makers in many instruments that could provide better incentives to developed, developing and even poor countries. exploit the opportunities of environmental Traditionally, the developed economies have legislation. Yet the governments have started mainly relied on command and control methods recognising the limits of regulatory approaches (regulations) or public investment to rectify the while realising the potential of markets in effects of pollutants. Regulation is often the environmental management. During the 1980s and preferred approach by governments to the 1990s, not the least due to increased environmental management mainly for reasons of international competition and a general trend effectiveness. It is generally perceived that towards a preference for 'markets', economists, regulation offers better protection than taxation politicians and businesses (especially in the OECD since the environmental objectives are clearly member states) became interested in a regulatory specified in terms of physical limits that cannot be reform of environmental policies, introducing a exceeded and the technology to reach such shift towards the increased use of incentive-based objectives is often prescribed. This preference also and fiscal or economic instruments and voluntary reflects the important role that engineers played in agreements (collectively known as market based environmental decision-making. Another reason economic instruments). The common element of all for politicians to prefer regulation was its ability to these instruments is that they operate on a hide full costs and their distribution, avoiding decentralised level through their impact on market difficult debates on equity. Regulators' (i.e. signals. Under most scenarios, they shift the costs governments') preferences have been mirrored by and responsibilities associated with pollution back regulated firms' preferences, which have for a long on to the polluter more efficiently than do command time seen environmental regulation as a cost factor and control, which rely on mandated technologies and have chosen to minimise the costs of complying and/or pollution reduction targets applied with command-and-control regulations. Firms 2universally across polluters (UNEP, 2004). relied primarily on problem avoidance and risk

Market-based instruments, such as environmental management rather than exploiting opportunities in

taxes, tradable permit systems or targeted subsidies, the form of markets for new products and processes

26 27

Pakistan Society of Development Economists at International Referred Quarterly Journal, April- 2011, Islamabad in December 2005. pp.85-99.

S.M.Tariq Zafar, (2013) Nonperforming Assets and Its Impact S.M.Tariq Zafar, (2010) “A Fundamental Analysis of Public on Indian Public Sector Banks” published in international Sector Banks in India” published in I M S Manthan, Journal of Marketing Financial Services and Greater Noida, The Journal of Innovations, an

thManagement (ISSN ONLINE: 2277-3622), on 15 FEB, International Refereed Journal and Volume 5 Issue 2 Reg. 2013. No. UPENG/2007/23486, ISSN 0974-7141 (Print0,

ISSN 0976-1713 (Online) December, 2010, pp. 107-114.S.M.Tariq Zafar, (2012) “A Study on Universal Banking and its Impact on Indian Financial Market” published in S.M.Tariq Zafar, (2010) “A Comparative Study of the Research Journal of Business Management & Social Performance of Hybrid Banks in India” published in Sciences Research (ISSN: 2319-5614), “Blue Ocean Journal, 'Al-Barkaat Journal of Finance and Management' Research Journals”. “Indian Publication house” Print ISSN: 0974-7281.

S.M.Tariq Zafar, (2012) “A Study of Financial Performance of Online ISSN: 22294503, Volume-4, Isue-2 (July).Selected Indian Scheduled Commercial Banks using S.M.Tariq Zafar, (2011) “Non - Performing Assets and Indian CAMELS Methodology for 2006 - 2010” published in Banking” published in biannual referred research journal IMS Manthan, Greater Noida, and Volume 7 Issue 1. The

of OIMT Business Review, ISSN: 0976-3236, Volume 1, Journal of Innovations, an International Refereed Journal,

Issue 1, and Feb-2011.Reg. No. UPENG/2007/23486, ISSN 0974-7141 (Print, S. Sbankaran (2011), 'Universal banking by DFI: handy but no I S S N 0 9 7 6 - 1 7 1 3 ( O n l i n e ) , J u l y 2 0 1 2 .

Solution to NPA's, Business Line, 2, International Journal http://www.imsmanthan.com,of Latest Trends in Engineering and Technology S.M.Tariq Zafar, (2012) “A Study on Dividend Policy and its (IJLTET), Vol. 1 Issue 1, ISSN: 2278-621X.Impact on the Shareholders Wealth in Selected Banking

www.banknetindia.com/banking/ubfeature.htm: Universal Companies in India” published in international refereed journal “Internat ional Journal of Financial Banking: introduction, RBI rules and regulations, Management”, Publishing India, ISSN, NO.2229-5682, Universal Banking in Indiaand September Issue-2012. www.arabfinance.com/glossary/u.htm

S.M.Tariq Zafar, (2011) “A Study on Impact of Leverage on www.hss.caltech.edu/~fohlin/bookout-ger-nov00.pdf.the Profitability of Indian Banking Industry” published

www.thehindu.com/2002/07/23/stories/2002072304301300.by Publishing Indian Group in International Journal of htmFinancial Management, ISSN, NO.2229-5682 (P), an

Vedaang Vol. 4 No. 1, January-June 2013

ENVIRONMENTAL TAXATION: ISSUES, CHALLENGES AND PROSPECTS

Dr. Minakshi Paliwal*

ABSTRACTRecently, many governments are looking at environmental taxation as a possible way to make up the shortfall from declining tax intake due to the recession. Before they do this, they will need to ensure that business and their electorates support this approach and are able to see what the environmental taxes are achieving. In this light the present paper makes an attempt to discuss various issues and challenges in environmental taxation. In the end of paper some policy measures are suggested for successful implementation of environmental taxation.

Key Words: Environmental Taxation, Command- and- Control; Pollution; Fiscal Incentive

JEL Codes: H23, Q38, Q58

* Assistant Professor, Department of Commerce, Ramjas College, University of Delhi, Delhi-7, INDIA

or gaining a competitive advantage from Introduction environmental decisions. As long as the costs of

The design of environmental policies has environmental protection remained relatively assumed a more urgent tone in recent years. In part, limited and/or exposure to international this reflects the continued interest of the general competition was low, there was little need for other public, mass media and policy makers in many instruments that could provide better incentives to developed, developing and even poor countries. exploit the opportunities of environmental Traditionally, the developed economies have legislation. Yet the governments have started mainly relied on command and control methods recognising the limits of regulatory approaches (regulations) or public investment to rectify the while realising the potential of markets in effects of pollutants. Regulation is often the environmental management. During the 1980s and preferred approach by governments to the 1990s, not the least due to increased environmental management mainly for reasons of international competition and a general trend effectiveness. It is generally perceived that towards a preference for 'markets', economists, regulation offers better protection than taxation politicians and businesses (especially in the OECD since the environmental objectives are clearly member states) became interested in a regulatory specified in terms of physical limits that cannot be reform of environmental policies, introducing a exceeded and the technology to reach such shift towards the increased use of incentive-based objectives is often prescribed. This preference also and fiscal or economic instruments and voluntary reflects the important role that engineers played in agreements (collectively known as market based environmental decision-making. Another reason economic instruments). The common element of all for politicians to prefer regulation was its ability to these instruments is that they operate on a hide full costs and their distribution, avoiding decentralised level through their impact on market difficult debates on equity. Regulators' (i.e. signals. Under most scenarios, they shift the costs governments') preferences have been mirrored by and responsibilities associated with pollution back regulated firms' preferences, which have for a long on to the polluter more efficiently than do command time seen environmental regulation as a cost factor and control, which rely on mandated technologies and have chosen to minimise the costs of complying and/or pollution reduction targets applied with command-and-control regulations. Firms 2universally across polluters (UNEP, 2004). relied primarily on problem avoidance and risk

Market-based instruments, such as environmental management rather than exploiting opportunities in

taxes, tradable permit systems or targeted subsidies, the form of markets for new products and processes

26 27

Pakistan Society of Development Economists at International Referred Quarterly Journal, April- 2011, Islamabad in December 2005. pp.85-99.

S.M.Tariq Zafar, (2013) Nonperforming Assets and Its Impact S.M.Tariq Zafar, (2010) “A Fundamental Analysis of Public on Indian Public Sector Banks” published in international Sector Banks in India” published in I M S Manthan, Journal of Marketing Financial Services and Greater Noida, The Journal of Innovations, an

thManagement (ISSN ONLINE: 2277-3622), on 15 FEB, International Refereed Journal and Volume 5 Issue 2 Reg. 2013. No. UPENG/2007/23486, ISSN 0974-7141 (Print0,

ISSN 0976-1713 (Online) December, 2010, pp. 107-114.S.M.Tariq Zafar, (2012) “A Study on Universal Banking and its Impact on Indian Financial Market” published in S.M.Tariq Zafar, (2010) “A Comparative Study of the Research Journal of Business Management & Social Performance of Hybrid Banks in India” published in Sciences Research (ISSN: 2319-5614), “Blue Ocean Journal, 'Al-Barkaat Journal of Finance and Management' Research Journals”. “Indian Publication house” Print ISSN: 0974-7281.

S.M.Tariq Zafar, (2012) “A Study of Financial Performance of Online ISSN: 22294503, Volume-4, Isue-2 (July).Selected Indian Scheduled Commercial Banks using S.M.Tariq Zafar, (2011) “Non - Performing Assets and Indian CAMELS Methodology for 2006 - 2010” published in Banking” published in biannual referred research journal IMS Manthan, Greater Noida, and Volume 7 Issue 1. The

of OIMT Business Review, ISSN: 0976-3236, Volume 1, Journal of Innovations, an International Refereed Journal,

Issue 1, and Feb-2011.Reg. No. UPENG/2007/23486, ISSN 0974-7141 (Print, S. Sbankaran (2011), 'Universal banking by DFI: handy but no I S S N 0 9 7 6 - 1 7 1 3 ( O n l i n e ) , J u l y 2 0 1 2 .

Solution to NPA's, Business Line, 2, International Journal http://www.imsmanthan.com,of Latest Trends in Engineering and Technology S.M.Tariq Zafar, (2012) “A Study on Dividend Policy and its (IJLTET), Vol. 1 Issue 1, ISSN: 2278-621X.Impact on the Shareholders Wealth in Selected Banking

www.banknetindia.com/banking/ubfeature.htm: Universal Companies in India” published in international refereed journal “Internat ional Journal of Financial Banking: introduction, RBI rules and regulations, Management”, Publishing India, ISSN, NO.2229-5682, Universal Banking in Indiaand September Issue-2012. www.arabfinance.com/glossary/u.htm

S.M.Tariq Zafar, (2011) “A Study on Impact of Leverage on www.hss.caltech.edu/~fohlin/bookout-ger-nov00.pdf.the Profitability of Indian Banking Industry” published

www.thehindu.com/2002/07/23/stories/2002072304301300.by Publishing Indian Group in International Journal of htmFinancial Management, ISSN, NO.2229-5682 (P), an

Vedaang Vol. 4 No. 1, January-June 2013

are a cost-effective way to protect and improve the ecologically sustainable activities. Taxes should not environment. They provide incentives to firms and be confounded neither with payments of rent nor consumers to opt for greener production or with purchase of an environmental protection

service.”products. Governments can also opt for an Environmental Fiscal Reform or the reform of

By internalizing the environmental costs, (for Environmentally Harmful Subsidies. Economic example, activities that burden the environment will instruments also provide ongoing incentives for be taxed, whereas activities that contribute to the innovation in pollution control; they may also be preservation of the environment will get tax break), less prone to influence by polluters themselves than environmental taxes provide incentives for regulations negotiated case-by-case with individual businesses and individuals to integrate firms. However, they are not a panacea. They can environmental concerns into economic activities, encourage costly avoidance activities, such as and minimize negative environmental impacts.illegal waste dumping, and in some cases they may

Tax revenues of environmental taxes can be have significant distributional consequences, used for environmental preservation or other non-placing heavy burdens on the poor. They are most environmental welfare. The revenues from useful when wide-ranging changes in behaviour are environmental taxes can be used to cut taxes such as needed across a large number of polluters-the costs income tax, corporate tax and social insurance of regulation in such cases are large, and the premium. Environmental taxes have many efficiency benefits of economic instruments are important advantages, such as environmental likely to be greater (Don et al, 2008). Little will be effectiveness, economic efficiency, the ability to gained, however, making the tax structure too raise public revenue, and transparency. Also, sophisticated when the environmental costs are low.environmental taxes have been successfully used to

Making the Sense of Environmental Taxation address a wide range of issues including waste disposal, water pollution and air emissions. From the above discussion it is clear that the Regardless of the policy area, the design of choice and design of instrument should be clear. The environmental taxes and political economy tax system can be a powerful device for changing considerations in their implementation are crucial behaviour. Consequently, environmental taxation, determinants of their overall success.which was almost unheard of 20 years ago, is now

being widely used to assist in the fight against International Experiencesclimate change, with taxes around the world on

Many European countries, most notably everything from plastic bags to energy perhaps the Scandinavian countries but also consumption, car use and waste disposal. There is countries such as the United Kingdom, Germany no single definition of an environmental or green and France, have introduced various environmental tax, but the UN, OECD and the European taxes to control emission of CO2 and SO2. In 1990, Commission have agreed upon a definition of:Finland became the first country to introduce a

“An environmental tax is a tax whose tax base is a carbon tax. Australia introduced a small levy on physical unit (or a proxy of it) that has a proven fertiliser as early as 1986. Although this does not specific negative impact on the environment. Four raise significant amounts in tax revenues, it has had subsets of environmental taxes are distinguished: an impact on the type and amount of fertiliser used. energy taxes, transport taxes, pollution taxes and Germany has implemented taxation on emissions resources taxes. Environmental Taxes are a kind of on transport, which are calculated directly on the economic instruments to address environmental level of emissions. The UK has implemented a problems. They are designed to internalize range of environmental taxes, including the Climate environmental costs and provide economic Change Levy, a tax on the end-use of 'taxable incentives for people and businesses to promote commodities' (principally electricity, gas and coal)

by commercial customers, and the Landfill Tax, modern tax system. These taxes in turn should which taxes people and organisations when they stimulate the development of new, less discard waste in landfill sites. China taxes the environmentally damaging products. But there are disposal of household and commercial waste and still many issues and questions that need to be has a further tax on the disposal of waste water, answered in terms of environmental taxation. First, while companies that reduce their water the fatal flaw in terms of environmental taxation consumption are offered corporate income tax would be for politicians to view it as a panacea. Tax allowances. China's Ministry of Finance is also shifting to environmental taxation cannot both drawing up plans for an environmental taxation solve the environmental crisis and raise significant system for polluting companies. The US has income via taxation in the long-term. Taxes on implemented tax measures to increase investment polluting activities and products are small and have in renewable energy sources enacting tax credits for not increased significantly over the past 15 years, the expansion of wind, solar, biomass and other despite growing concern about the environment and renewable energy technologies. President Barack g rowing en thus iasm fo r marke t -based Obama has increased the impact of these measures environmental policies. Second, the aim and in the recent US economic stimulus package. The purpose of environmental taxes is to curb or reduce US administration is also now committed to the extent and amount of the use or consumption of negotiating a new climate change treaty and harmful substances or activities, or depletion of a introducing a 'cap and trade' system. Further, in the resource. When the imposition of the tax is well United States, markets for tradeable pollution targeted, it will add to the costs of the subject paying permits have been established to help control SO2 the tax. The adding of costs to a producer within one emissions and other air pollution problems with the country or region that is not imposed on producers Acid Rain Program implemented under Article IV outside that country or region may of course impact of the Clean Air Act amendment of 1990 being the on the competitiveness of the local producer. The most famous and successful example. The interest result may be that a polluting activity is reduced in in establishing markets for tradeable pollution geographical areas where environmental standards permits is also present in Europe where the are higher, and increased or taken over by Commission of the European Union, having failed competitors in places with laxer regulatory regimes. to gain support for a common CO2 tax in the early Governments therefore may need to consider a 1990s, is setting up a market for greenhouse gas smooth introduction of a new environmental tax emission permits starting from year 2005. In over a phasing in period, rather than abruptly addition to this, one of the cornerstones of the imposing tax that dramatically changes the terms of socalled flexibility mechanism under the Kyoto market competition overnight. Other measures may Protocol (Article 17) is to develop an international be to exempt certain industries or parts thereof, or to market for CO2 emission permits. The broad picture couple the levying of a tax with refund mechanisms is fairly clear: the tendency is to move away from or to economically support certain sectors in a direct command-and-control regulation towards the transitional period, thus abating the effects of the use of green taxes and markets for tradeable tax. Such measures to cushion the effects of a tax pollution permits to combat air pollution (and other will tend to reduce its effectiveness, but may be environmental) problems. politically necessary in order to introduce the tax in

the first place. Also, introducing a general Issues and Challenges in Environmental environmental related tax may have distributional Taxation effects that raise concerns, in particular where such

effects are regressive in the sense that they impact Environmental taxes are an efficient way for more on consumers with low capability to pay and governments to raise revenue, and most policy relatively less on the wealthy part of the population. makers now agree that making the polluter pay If, for example, a significant levy is introduced on should be one of the principles of an effective

28 29

Vedaang Vol. 4 No. 1, January-June 2013 Environmental taxation: Issues, Challenges and Prospects

are a cost-effective way to protect and improve the ecologically sustainable activities. Taxes should not environment. They provide incentives to firms and be confounded neither with payments of rent nor consumers to opt for greener production or with purchase of an environmental protection

service.”products. Governments can also opt for an Environmental Fiscal Reform or the reform of

By internalizing the environmental costs, (for Environmentally Harmful Subsidies. Economic example, activities that burden the environment will instruments also provide ongoing incentives for be taxed, whereas activities that contribute to the innovation in pollution control; they may also be preservation of the environment will get tax break), less prone to influence by polluters themselves than environmental taxes provide incentives for regulations negotiated case-by-case with individual businesses and individuals to integrate firms. However, they are not a panacea. They can environmental concerns into economic activities, encourage costly avoidance activities, such as and minimize negative environmental impacts.illegal waste dumping, and in some cases they may

Tax revenues of environmental taxes can be have significant distributional consequences, used for environmental preservation or other non-placing heavy burdens on the poor. They are most environmental welfare. The revenues from useful when wide-ranging changes in behaviour are environmental taxes can be used to cut taxes such as needed across a large number of polluters-the costs income tax, corporate tax and social insurance of regulation in such cases are large, and the premium. Environmental taxes have many efficiency benefits of economic instruments are important advantages, such as environmental likely to be greater (Don et al, 2008). Little will be effectiveness, economic efficiency, the ability to gained, however, making the tax structure too raise public revenue, and transparency. Also, sophisticated when the environmental costs are low.environmental taxes have been successfully used to

Making the Sense of Environmental Taxation address a wide range of issues including waste disposal, water pollution and air emissions. From the above discussion it is clear that the Regardless of the policy area, the design of choice and design of instrument should be clear. The environmental taxes and political economy tax system can be a powerful device for changing considerations in their implementation are crucial behaviour. Consequently, environmental taxation, determinants of their overall success.which was almost unheard of 20 years ago, is now

being widely used to assist in the fight against International Experiencesclimate change, with taxes around the world on

Many European countries, most notably everything from plastic bags to energy perhaps the Scandinavian countries but also consumption, car use and waste disposal. There is countries such as the United Kingdom, Germany no single definition of an environmental or green and France, have introduced various environmental tax, but the UN, OECD and the European taxes to control emission of CO2 and SO2. In 1990, Commission have agreed upon a definition of:Finland became the first country to introduce a

“An environmental tax is a tax whose tax base is a carbon tax. Australia introduced a small levy on physical unit (or a proxy of it) that has a proven fertiliser as early as 1986. Although this does not specific negative impact on the environment. Four raise significant amounts in tax revenues, it has had subsets of environmental taxes are distinguished: an impact on the type and amount of fertiliser used. energy taxes, transport taxes, pollution taxes and Germany has implemented taxation on emissions resources taxes. Environmental Taxes are a kind of on transport, which are calculated directly on the economic instruments to address environmental level of emissions. The UK has implemented a problems. They are designed to internalize range of environmental taxes, including the Climate environmental costs and provide economic Change Levy, a tax on the end-use of 'taxable incentives for people and businesses to promote commodities' (principally electricity, gas and coal)

by commercial customers, and the Landfill Tax, modern tax system. These taxes in turn should which taxes people and organisations when they stimulate the development of new, less discard waste in landfill sites. China taxes the environmentally damaging products. But there are disposal of household and commercial waste and still many issues and questions that need to be has a further tax on the disposal of waste water, answered in terms of environmental taxation. First, while companies that reduce their water the fatal flaw in terms of environmental taxation consumption are offered corporate income tax would be for politicians to view it as a panacea. Tax allowances. China's Ministry of Finance is also shifting to environmental taxation cannot both drawing up plans for an environmental taxation solve the environmental crisis and raise significant system for polluting companies. The US has income via taxation in the long-term. Taxes on implemented tax measures to increase investment polluting activities and products are small and have in renewable energy sources enacting tax credits for not increased significantly over the past 15 years, the expansion of wind, solar, biomass and other despite growing concern about the environment and renewable energy technologies. President Barack g rowing en thus iasm fo r marke t -based Obama has increased the impact of these measures environmental policies. Second, the aim and in the recent US economic stimulus package. The purpose of environmental taxes is to curb or reduce US administration is also now committed to the extent and amount of the use or consumption of negotiating a new climate change treaty and harmful substances or activities, or depletion of a introducing a 'cap and trade' system. Further, in the resource. When the imposition of the tax is well United States, markets for tradeable pollution targeted, it will add to the costs of the subject paying permits have been established to help control SO2 the tax. The adding of costs to a producer within one emissions and other air pollution problems with the country or region that is not imposed on producers Acid Rain Program implemented under Article IV outside that country or region may of course impact of the Clean Air Act amendment of 1990 being the on the competitiveness of the local producer. The most famous and successful example. The interest result may be that a polluting activity is reduced in in establishing markets for tradeable pollution geographical areas where environmental standards permits is also present in Europe where the are higher, and increased or taken over by Commission of the European Union, having failed competitors in places with laxer regulatory regimes. to gain support for a common CO2 tax in the early Governments therefore may need to consider a 1990s, is setting up a market for greenhouse gas smooth introduction of a new environmental tax emission permits starting from year 2005. In over a phasing in period, rather than abruptly addition to this, one of the cornerstones of the imposing tax that dramatically changes the terms of socalled flexibility mechanism under the Kyoto market competition overnight. Other measures may Protocol (Article 17) is to develop an international be to exempt certain industries or parts thereof, or to market for CO2 emission permits. The broad picture couple the levying of a tax with refund mechanisms is fairly clear: the tendency is to move away from or to economically support certain sectors in a direct command-and-control regulation towards the transitional period, thus abating the effects of the use of green taxes and markets for tradeable tax. Such measures to cushion the effects of a tax pollution permits to combat air pollution (and other will tend to reduce its effectiveness, but may be environmental) problems. politically necessary in order to introduce the tax in

the first place. Also, introducing a general Issues and Challenges in Environmental environmental related tax may have distributional Taxation effects that raise concerns, in particular where such

effects are regressive in the sense that they impact Environmental taxes are an efficient way for more on consumers with low capability to pay and governments to raise revenue, and most policy relatively less on the wealthy part of the population. makers now agree that making the polluter pay If, for example, a significant levy is introduced on should be one of the principles of an effective

28 29

Vedaang Vol. 4 No. 1, January-June 2013 Environmental taxation: Issues, Challenges and Prospects

driving motor vehicles in certain urban areas, the more, than expected. In cases where the precise levy may be effective in reducing the total amount achievement of an environmental target is a high of traffic but also have the effect that less wealthy priority, this may be an important drawback of households are prevented from driving children to environmental taxes. Sixth, in the past, the lack of school while it does not affect the well off. In order experience with environmental taxes may have to mitigate the overall negative economic been a significant obstacle to their adoption in any distributive effects of certain taxes and levies, particular practical context. Last but not the least, Governments may need to consider other changes to Both environmental taxes and conventional the tax system to alleviate the tax burden of low command-and-control regulation require income citizens, e.g. by adjusting the lower tax mechanisms for administration and enforcement. brackets. For example, a pollution tax may require counting

tons of emissions, whereas a design standard simply Third, issue that needs to be addressed is the

requires authorities to confirm the use of a particular administrative costs and difficulties. Environmental

kind of pollution control equipment. Government taxes often can be simple and easy to administer at

inspectors can easily check that the plant has a low costs, but where exemptions and refund

working scrubber, but for some kinds of emissions, mechanisms are applied this may change the

they may have much difficulty trying to confirm the picture. A recent example demonstrating how

exact number of tons to be able to collect a tax or difficult considerations needed to be balanced when

permit price.a new environment tax was introduced was the Norwegian tax on nitrogen oxides (NOx), first Designing Viable Environmental Taxation imposed from 1 January 2007. The introduction of Policythe tax was deemed necessary in order that Norway

Environmental taxation should be designed to shall be able to meet the obligations under the work effectively and the level of the tax should Gothenburg Protocol and reduce NOx-emissions by match the cost of the environmental damage. 2010. The main sources of such emissions in There are some recommendations to policy-Norway are the domestic shipping, petroleum makers in terms of the design of future extraction, road transport, the coastal fisheries and environmental taxes. These include the certain industries. Although the tax rate at the following. First, an environmental tax generally introduction was at the low level of 15 NOK per should be levied as directly as possible on the kilo, and for practical reasons only energy pollutant or action causing the environmental production by larger engines and plant in sectors damage. Using the tax to increase the market cost of representing 55% of the emissions were targeted, it the polluting activity helps to incentivise the full was deemed necessary to couple the tax with range of potential abatement options: cleaner significant compensatory payments to support production processes; end-of-pipe abatement (i.e., certain affected industries whilst also establishing measures to capture and neutralise emissions before subsidy arrangement in support of other direct they enter the environment); adoption of existing measures to reduce NOx-emissions. Fourth, it is products which cause less pollution; development very difficult to guarantee-will taxes be used of new, less-polluting products; and reducing output creatively as agents to modify and change or consumption. Second, concern with levying behaviour, or imposed in a blunt manner to penalise taxes on intermediate goods is that the implicit tax 'bad' environmental practices? Fifth, the level of rates on emissions are not necessarily transparent, pollution abatement achieved by an environmental which can contribute to mis-specification of tax tax depends on individual polluters' responses to the rates. For example, a “carbon” tax of a fixed amount abatement incentive that the tax creates. It is not per litre that applies to both gasoline and diesel possible to guarantee that an environmental tax will would not reflect the fact that a litre of diesel achieve a particular environmental impact; produces more CO2 emissions than a litre of polluters' behavioural responses may be less, or

gasoline. This kind of mis-specification can weaken taxation at a disadvantage relative to competitors in countries without comparable measures, driving the efficacy of carbon taxes by implicitly favouring

a “dirtier” fuel. costs up even further and adding to the business burden. Further, as already stated there is little point Third, the appropriate scope of an in imposing a tax if the taxed behaviour will simply environmental tax depends on the scope of the relocate to another country and continue to do the environmental damage being addressed. This has same damage. Hence, the need for global implications for the level of the political jurisdiction coordination.that imposes the tax. For some problems, like soil

contamination, the impacts are generally limited to Concluding Remarksa relatively small area. Therefore, a tax or charge on

Environmental taxation has a significant role to waste disposal or harmful garden chemicals might play in addressing environmental challenges. Taxes effectively be imposed at the level of a municipality can be extremely effective when they are properly or township. Fourth, governments should designed, are levied as close to the environmentally therefore try to implement environmental taxes as damaging pollutant or activity as possible, and are

broadly as possible, with few or no exemptions. It set at an adequate rate. Administration costs or

is usually preferable to address distributional barriers may necessitate the taxation of proxies to

impacts outside the tax in order to preserve the environmentally harmful activities, but care should incentive effect of the tax. Fifth, the tax rate should be taken to ensure this does not impair generally be set to reflect society's value of the environmental outcomes. The revenues generated environmental damage, other negative spillover can be used to help with fiscal consolidation or effects of the activity, as well as the need to raise reduce other tax rates. Environmental taxes give publ ic revenues . S ix th , revenue f rom rise to distributional or competitiveness concerns, environmental taxes should be treated as general but these are usually best addressed through other government revenue and used to maintain spending policies tools. Providing information, transparency, in other areas, reduce debt, or reduce taxes. While in and certainty is critical to public acceptance and to theory some of the revenues could be used to the effectiveness of environmental taxation. Finally, compensate those most affected by the taxes may need to be combined with other environmental damage. However, in practice it is instruments to obtain the most efficient and very difficult. Seventh, governments also need to effective environmental policy package, but care ensure that the results are thoroughly analysed and should be taken to assess the impact of overlapping that they are prepared to amend or reverse the policy instruments.if it has unintended or damaging consequences.

References Eight, Part of the challenge with an environmental

Bovenberg, A. L. and L. H. Goulder (2002), “Environmental tax is business awareness. If a company is paying taxation and regulation”, in A. J. Auerbach and M. environmental taxes but does not realise it, then it is Feldstein (eds.), Handbook of Public Economics, Vol. 3, less likely to change its behaviour. It is therefore Amsterdam: North Holland, Elsevier.

vital that there is clarity in terms of what an Bovenberg, A. L. and R. de Mooij (1994), “Environmental levies and distortionary taxation”, American Economic environmental tax is and what the aim of the tax is. Review, Vol. 84, No. 4, pp. 108589.Last but not the least; environmental taxation is

Cornwell, A. and J. Creedy (1996), “Carbon taxation, prices often aimed to a significant extent, at business. and inequality in Australia”, Fiscal Studies, Vol. 17, No. Although business largely accepts and supports the 3, pp. 2138.

fact that it should be responding to the climate Don Fullerton; Andrew Leicester and Stephen Smith (2008)

change issue, it often has a negative attitude towards “Environmental Taxes”, Prepared for the Report of a environmental taxation. The reason for this is that Commission on Reforming the Tax System for the 21st

Century, Chaired by Sir James Mirrlees, The Institute of environmental taxation, if applied unevenly, puts Fiscal Studies.those businesses in countries with environmental

30 31

Vedaang Vol. 4 No. 1, January-June 2013 Environmental taxation: Issues, Challenges and Prospects

driving motor vehicles in certain urban areas, the more, than expected. In cases where the precise levy may be effective in reducing the total amount achievement of an environmental target is a high of traffic but also have the effect that less wealthy priority, this may be an important drawback of households are prevented from driving children to environmental taxes. Sixth, in the past, the lack of school while it does not affect the well off. In order experience with environmental taxes may have to mitigate the overall negative economic been a significant obstacle to their adoption in any distributive effects of certain taxes and levies, particular practical context. Last but not the least, Governments may need to consider other changes to Both environmental taxes and conventional the tax system to alleviate the tax burden of low command-and-control regulation require income citizens, e.g. by adjusting the lower tax mechanisms for administration and enforcement. brackets. For example, a pollution tax may require counting

tons of emissions, whereas a design standard simply Third, issue that needs to be addressed is the

requires authorities to confirm the use of a particular administrative costs and difficulties. Environmental

kind of pollution control equipment. Government taxes often can be simple and easy to administer at

inspectors can easily check that the plant has a low costs, but where exemptions and refund

working scrubber, but for some kinds of emissions, mechanisms are applied this may change the

they may have much difficulty trying to confirm the picture. A recent example demonstrating how

exact number of tons to be able to collect a tax or difficult considerations needed to be balanced when

permit price.a new environment tax was introduced was the Norwegian tax on nitrogen oxides (NOx), first Designing Viable Environmental Taxation imposed from 1 January 2007. The introduction of Policythe tax was deemed necessary in order that Norway

Environmental taxation should be designed to shall be able to meet the obligations under the work effectively and the level of the tax should Gothenburg Protocol and reduce NOx-emissions by match the cost of the environmental damage. 2010. The main sources of such emissions in There are some recommendations to policy-Norway are the domestic shipping, petroleum makers in terms of the design of future extraction, road transport, the coastal fisheries and environmental taxes. These include the certain industries. Although the tax rate at the following. First, an environmental tax generally introduction was at the low level of 15 NOK per should be levied as directly as possible on the kilo, and for practical reasons only energy pollutant or action causing the environmental production by larger engines and plant in sectors damage. Using the tax to increase the market cost of representing 55% of the emissions were targeted, it the polluting activity helps to incentivise the full was deemed necessary to couple the tax with range of potential abatement options: cleaner significant compensatory payments to support production processes; end-of-pipe abatement (i.e., certain affected industries whilst also establishing measures to capture and neutralise emissions before subsidy arrangement in support of other direct they enter the environment); adoption of existing measures to reduce NOx-emissions. Fourth, it is products which cause less pollution; development very difficult to guarantee-will taxes be used of new, less-polluting products; and reducing output creatively as agents to modify and change or consumption. Second, concern with levying behaviour, or imposed in a blunt manner to penalise taxes on intermediate goods is that the implicit tax 'bad' environmental practices? Fifth, the level of rates on emissions are not necessarily transparent, pollution abatement achieved by an environmental which can contribute to mis-specification of tax tax depends on individual polluters' responses to the rates. For example, a “carbon” tax of a fixed amount abatement incentive that the tax creates. It is not per litre that applies to both gasoline and diesel possible to guarantee that an environmental tax will would not reflect the fact that a litre of diesel achieve a particular environmental impact; produces more CO2 emissions than a litre of polluters' behavioural responses may be less, or

gasoline. This kind of mis-specification can weaken taxation at a disadvantage relative to competitors in countries without comparable measures, driving the efficacy of carbon taxes by implicitly favouring

a “dirtier” fuel. costs up even further and adding to the business burden. Further, as already stated there is little point Third, the appropriate scope of an in imposing a tax if the taxed behaviour will simply environmental tax depends on the scope of the relocate to another country and continue to do the environmental damage being addressed. This has same damage. Hence, the need for global implications for the level of the political jurisdiction coordination.that imposes the tax. For some problems, like soil

contamination, the impacts are generally limited to Concluding Remarksa relatively small area. Therefore, a tax or charge on

Environmental taxation has a significant role to waste disposal or harmful garden chemicals might play in addressing environmental challenges. Taxes effectively be imposed at the level of a municipality can be extremely effective when they are properly or township. Fourth, governments should designed, are levied as close to the environmentally therefore try to implement environmental taxes as damaging pollutant or activity as possible, and are

broadly as possible, with few or no exemptions. It set at an adequate rate. Administration costs or

is usually preferable to address distributional barriers may necessitate the taxation of proxies to

impacts outside the tax in order to preserve the environmentally harmful activities, but care should incentive effect of the tax. Fifth, the tax rate should be taken to ensure this does not impair generally be set to reflect society's value of the environmental outcomes. The revenues generated environmental damage, other negative spillover can be used to help with fiscal consolidation or effects of the activity, as well as the need to raise reduce other tax rates. Environmental taxes give publ ic revenues . S ix th , revenue f rom rise to distributional or competitiveness concerns, environmental taxes should be treated as general but these are usually best addressed through other government revenue and used to maintain spending policies tools. Providing information, transparency, in other areas, reduce debt, or reduce taxes. While in and certainty is critical to public acceptance and to theory some of the revenues could be used to the effectiveness of environmental taxation. Finally, compensate those most affected by the taxes may need to be combined with other environmental damage. However, in practice it is instruments to obtain the most efficient and very difficult. Seventh, governments also need to effective environmental policy package, but care ensure that the results are thoroughly analysed and should be taken to assess the impact of overlapping that they are prepared to amend or reverse the policy instruments.if it has unintended or damaging consequences.

References Eight, Part of the challenge with an environmental

Bovenberg, A. L. and L. H. Goulder (2002), “Environmental tax is business awareness. If a company is paying taxation and regulation”, in A. J. Auerbach and M. environmental taxes but does not realise it, then it is Feldstein (eds.), Handbook of Public Economics, Vol. 3, less likely to change its behaviour. It is therefore Amsterdam: North Holland, Elsevier.

vital that there is clarity in terms of what an Bovenberg, A. L. and R. de Mooij (1994), “Environmental levies and distortionary taxation”, American Economic environmental tax is and what the aim of the tax is. Review, Vol. 84, No. 4, pp. 108589.Last but not the least; environmental taxation is

Cornwell, A. and J. Creedy (1996), “Carbon taxation, prices often aimed to a significant extent, at business. and inequality in Australia”, Fiscal Studies, Vol. 17, No. Although business largely accepts and supports the 3, pp. 2138.

fact that it should be responding to the climate Don Fullerton; Andrew Leicester and Stephen Smith (2008)

change issue, it often has a negative attitude towards “Environmental Taxes”, Prepared for the Report of a environmental taxation. The reason for this is that Commission on Reforming the Tax System for the 21st

Century, Chaired by Sir James Mirrlees, The Institute of environmental taxation, if applied unevenly, puts Fiscal Studies.those businesses in countries with environmental

30 31

Vedaang Vol. 4 No. 1, January-June 2013 Environmental taxation: Issues, Challenges and Prospects

Fullerton, D. and S. West (2000), Tax and Subsidy municipal solid waste”, Journal of Policy Analysis and Combinations for the Control of Vehicle Pollution, Management, Vol. 13, No. 4, pp. 68198.NBER Working Paper No. 7774, Cambridge, MA.: OECD (1993), Taxation and the Environment: NBER. Complementary Policies, Paris, OECD.

Fullerton, D. and S. West (2002), “Can taxes on vehicles and OECD (1996), Implementation strategies for environmental on gasoline mimic an unavailable tax on emissions?”, taxes. Paris: OECD.Journal of Environmental Economics and Management,

OECD (2006), The Political Economy of Environmentally Vol. 43, No. 1, pp. 13557.Related Taxes, Paris: OECD.

Fullerton, D. and W. Wu (1998), “Policies for green design”, Toke Skovsgaard Aidt and Jayasri Dutta (2004) “Transitional Journal of Environmental Economics and Management,

politics:emerging incentive-based instruments in Vol. 36, no. 2, pp. 13148.environmental regulation”, Journal of Environmental

Fullerton, Don; Andrew Leicester and Stephen Smith (2008) Economics and Management, Vol. 47, pp 458479.“Environmental Taxes”, Working Paper 14197, NBER,

UNEP (2004) “The Use of Economic Instruments in July.Environmental Policy: Opportunities and Challenges”,

Katri, Kosonen and Gaetan, Nicodeme (2009) “The Role of United Nations Publication, UNEP/ETB/2003/9, Fiscal Instrument in Environment Policy”, Working September.Paper No. 19, 2009.

Veena, Hudson and Chas Roy-Chowdhury (2009) Green Miranda, M. L., J. W. Everett, D. l. Blume and B. A. Roy Jr. Taxation in Recession, ACCA Position Paper.

(1994), “Market-based incentives and residential

FACTORS INFLUENCING LOYALTY: AN EXPLORATORY STUDY OF MOBILE CONSUMERS IN KOLKATA

Jayanta Banerjee*, Dr Ajay K Garg**

ABSTRACTMore and more companies make recourse to loyalty programs within the framework of a defensive strategy. After the liberalization of the Indian telecom industry and the advent of both private and the public service providers, this sector saw stiff competition. Prices were reduced; service qualities increased and with all mobile service providers offering undifferentiated services, retaining subscribers and making them loyal has become an ever escalating challenge. Operating in a market which will eventually be saturated with intense competition, frequently changing government policies and increasing operational costs, the strategy of consumer loyalty development seems to be a good option.

This paper attempts to illustrate the factors which are responsible for creation brand loyalty among mobile subscribers in Kolkata.

Key word: Subscriber churn, Brand Switching, Loyalty strategies, Mobile service providers, Customer care service.

*

**Faculty Member, Department of Masters of Administrative Sciences. Petrocelli College, Fairleigh Dickinson University, Vancouver, Canada

Assistant Professor, School of Management Studies, Narula Institute of Technology

Introduction mobile service provider. Many organizations understand that retaining customer is very

Human beings methods of communicating with important. Traditionally companies tried to retain

persons far off have evolved from the smoke customers by offering incentives in the form of

signals, drums, lamps to wired and much later offers, reduced tariffs, free night calls within their

wireless telecommunication. Telecommunication is own network in the same circle etc. But with time it

an intriguing fast-growing industry. From the has been seen that customer retention is not

educated urban bureaucrat to the uneducated urban satisfactory using such strategy only. Subscribers

slum dweller, mobile users can be found in every can switch for a number of reasons. To retain

strata of our society. Even in villages devoid of subscribers and lessen the effects of churn, service

proper roads and electric connection, mobile providers are using strategies like- offering service

phones are used with much contentment. Offering a reliability, being more responsive to address

wide portfolio of services like the simple voice subscriber dissatisfaction and developing

telephone calls, access to the Internet, high speed personalized service packs and prices. Now service

data communications, weather report, surfing the providers believe that tempting a person to choose a

World Wide Web, bill payment, video conferencing particular service provider is just the first step in a

all can be done through the mobile. India and China long relationship where profit can be made only in

are on the top of the class when it comes to global the years to come.

telecom growth rates, with India having the second largest mobile subscriber base. Mobile telecom business environment

According to the telecom regulatory authority The Indian mobile industry was set up in 1992 of India (TRAI) the mobile phone industry at (Mukherjee 2008).Back then mobile phones were a

present is growing at a phenomenon rate with robust symbol of fashion but presently have evolved to subscriber addition in every quarter. But with a high become a symbol of necessity.growth rate, competition follows and with twenty

In the last few years we have seen a tremendous one different mobile service providers, customers growth in the mobile telecom industry. The role of are spoilt with choice of selecting their preferred

32 33

Vedaang Vol. 4 No. 1, January-June 2013

Fullerton, D. and S. West (2000), Tax and Subsidy municipal solid waste”, Journal of Policy Analysis and Combinations for the Control of Vehicle Pollution, Management, Vol. 13, No. 4, pp. 68198.NBER Working Paper No. 7774, Cambridge, MA.: OECD (1993), Taxation and the Environment: NBER. Complementary Policies, Paris, OECD.

Fullerton, D. and S. West (2002), “Can taxes on vehicles and OECD (1996), Implementation strategies for environmental on gasoline mimic an unavailable tax on emissions?”, taxes. Paris: OECD.Journal of Environmental Economics and Management,

OECD (2006), The Political Economy of Environmentally Vol. 43, No. 1, pp. 13557.Related Taxes, Paris: OECD.

Fullerton, D. and W. Wu (1998), “Policies for green design”, Toke Skovsgaard Aidt and Jayasri Dutta (2004) “Transitional Journal of Environmental Economics and Management,

politics:emerging incentive-based instruments in Vol. 36, no. 2, pp. 13148.environmental regulation”, Journal of Environmental

Fullerton, Don; Andrew Leicester and Stephen Smith (2008) Economics and Management, Vol. 47, pp 458479.“Environmental Taxes”, Working Paper 14197, NBER,

UNEP (2004) “The Use of Economic Instruments in July.Environmental Policy: Opportunities and Challenges”,

Katri, Kosonen and Gaetan, Nicodeme (2009) “The Role of United Nations Publication, UNEP/ETB/2003/9, Fiscal Instrument in Environment Policy”, Working September.Paper No. 19, 2009.

Veena, Hudson and Chas Roy-Chowdhury (2009) Green Miranda, M. L., J. W. Everett, D. l. Blume and B. A. Roy Jr. Taxation in Recession, ACCA Position Paper.

(1994), “Market-based incentives and residential

FACTORS INFLUENCING LOYALTY: AN EXPLORATORY STUDY OF MOBILE CONSUMERS IN KOLKATA

Jayanta Banerjee*, Dr Ajay K Garg**

ABSTRACTMore and more companies make recourse to loyalty programs within the framework of a defensive strategy. After the liberalization of the Indian telecom industry and the advent of both private and the public service providers, this sector saw stiff competition. Prices were reduced; service qualities increased and with all mobile service providers offering undifferentiated services, retaining subscribers and making them loyal has become an ever escalating challenge. Operating in a market which will eventually be saturated with intense competition, frequently changing government policies and increasing operational costs, the strategy of consumer loyalty development seems to be a good option.

This paper attempts to illustrate the factors which are responsible for creation brand loyalty among mobile subscribers in Kolkata.

Key word: Subscriber churn, Brand Switching, Loyalty strategies, Mobile service providers, Customer care service.

*

**Faculty Member, Department of Masters of Administrative Sciences. Petrocelli College, Fairleigh Dickinson University, Vancouver, Canada

Assistant Professor, School of Management Studies, Narula Institute of Technology

Introduction mobile service provider. Many organizations understand that retaining customer is very

Human beings methods of communicating with important. Traditionally companies tried to retain

persons far off have evolved from the smoke customers by offering incentives in the form of

signals, drums, lamps to wired and much later offers, reduced tariffs, free night calls within their

wireless telecommunication. Telecommunication is own network in the same circle etc. But with time it

an intriguing fast-growing industry. From the has been seen that customer retention is not

educated urban bureaucrat to the uneducated urban satisfactory using such strategy only. Subscribers

slum dweller, mobile users can be found in every can switch for a number of reasons. To retain

strata of our society. Even in villages devoid of subscribers and lessen the effects of churn, service

proper roads and electric connection, mobile providers are using strategies like- offering service

phones are used with much contentment. Offering a reliability, being more responsive to address

wide portfolio of services like the simple voice subscriber dissatisfaction and developing

telephone calls, access to the Internet, high speed personalized service packs and prices. Now service

data communications, weather report, surfing the providers believe that tempting a person to choose a

World Wide Web, bill payment, video conferencing particular service provider is just the first step in a

all can be done through the mobile. India and China long relationship where profit can be made only in

are on the top of the class when it comes to global the years to come.

telecom growth rates, with India having the second largest mobile subscriber base. Mobile telecom business environment

According to the telecom regulatory authority The Indian mobile industry was set up in 1992 of India (TRAI) the mobile phone industry at (Mukherjee 2008).Back then mobile phones were a

present is growing at a phenomenon rate with robust symbol of fashion but presently have evolved to subscriber addition in every quarter. But with a high become a symbol of necessity.growth rate, competition follows and with twenty

In the last few years we have seen a tremendous one different mobile service providers, customers growth in the mobile telecom industry. The role of are spoilt with choice of selecting their preferred

32 33

Vedaang Vol. 4 No. 1, January-June 2013

the mobile phone service providers have increased handset manufacturers have also noticed this to a great extent in the sense that apart from market shift and have augmented their product fulfilling the basic needs of the customers, the portfolio accordingly. This technology have service providers are also providing additional benefitted the consumers as two networks can be facilities to remain competitive in the market. used using the same mobile. But this technology has

fragmented the money a consumer used to spend on The year 2003-04 witnessed a dramatic increase

a telecom service provider. Now the same money is in the number of mobile users in India

split between two service providers. As a result the (Dhananjayan 2005). It was largely propelled by

Average Revenue per User (ARPU) of the decreasing tariffs and entry cost and also the

service providers which already is quite low is increase in area of network coverage. The reasons

getting lower. According to a report published in can be summarized as below

Business Line 2nd October, 2009, the voice based a) Free incoming call charges announced by the average revenue per user for GSM operators falls

telecom authority from May 2003, leading to below Rs 200. The ARPU for CDMA services substantial reduction in the usage charges for declined by 7.2 per cent from Rs 99 in March customers. It made mobiles far more affordable quarter to Rs 92 in June quarter(CAG,2011). The than all other regulatory changes had done till popularity of dual SIM mobiles can have multiple then. consequences affecting the subscribers, hand set

manufacturers and the MSP's (Secker, Matthew, b) Reduction in the tariff plans for local, STD and

2002).ISD calls, which made calling through mobile

The telecommunication as it stands presently cheaper than through a landline. The tariffs can be summarized The mobile industry can briefly went down to 40 paisa per minute for local call be summarized as- having the second largest against Rs. 1.20 per pulse of 3 minutes through subscriber base in the world with 21 service a landline. The reduction in the roaming providers battling for survival in 22 telecom circles charges, further enthused the customers to go in after offering the lowest call charges anywhere in for mobile and travel all over with a mobile.the world(The Telegraph,2011). The industry

c) The entry of the CDMA mobile phones, which contributes 2% to our countries GDP and provides started as a limited mobility phone, but turned direct employment to 2.8 million and indirect out to be a complete mobile phone. employment to 7 million persons (COAI Press

release, August 2011). With high growth, The telecom industry is considered as having competition also follows and it become extremely the highest potential for investment in India important for companies to tries to match their (Srikant, 2006). Recognizing that the telecom offering to the expectation of the existing as well as sector is one of the prime movers of the economy, prospective customers.the government's regulatory and policy initiatives

have also been directed towards establishing a Review of literatureworld class telecommunication infrastructure in

Multiple factors cause subscribers to exhibit India. From April 1991 to March 2003 the total loyal or disloyalty to their mobile service provider. Foreign Direct Investment (FDI) in telecom was Rs. Research, as well as logic suggests that improving 9590.7 cr. service quality satisfy subscribers and thus makes

Presently the demand for dual SIM (Subscriber them loyal (Keaveney, 2001; Zeithaml, Berry and Identity Module) mobiles in India has increased by Parasuraman, 1996).In Japanese way of life, quality an extraordinary level. First the grey market means zero defect product and service. It Chinese mobiles and now the new “Indian” brands emphasizes doing the things right for the first time. have made dual SIM mobiles affordable and within In the case of tangible goods, the measurement of the reach of the bottom line segment. Established quality is comparatively an easy chore since

uniform quality standards can be met every time. customers who perceive service quality to be better But the distinctiveness of service makes than competitors develop a constructive image of measurement of quality difficult (Cronin et al. the organization Price stands out as another 1992). The three basic character of service makes it important factor for switching, for example, in a challenge for service providers are intangibility, insurance and banking (Roos, Edvardsson and heterogeneity and inseparability. Intangible Gustafsson, 2004). Yet pricing decisions can have character a service product makes it complicated for important consequences for the service provider. the service provider to measure subscriber's Pricing low makes it attractive to subscribers but if perception about service quality. The second the organization fails to build volumes, profitability character of a service is heterogeneity which makes declines. Low profits makes the company every service experience different and varies from vulnerable to market changes especially up customer to customer and from provider to gradation of infrastructure, fees related to spectrum provider. The characteristics of inseparability etc. The price has specific relationship with other underline the fact that production and consumption components of marketing mix. Actually the price is of service takes place simultaneously. (Lemmink the only component that generates revenue, while et.al 2003) has concluded in their research paper other components generate costs. From the that service quality has two parameter process and literature review it was found out that researchers output. Process quality extols on the way service is has contemplated on service quality, corporate catered to a consumer and output quality is image/ positioning subscribers overall satisfaction evaluated once service is delivered. and price as some of the factors responsible for

switching behavior in subscribers.A positive corporate/ brand image can increase

sales through better customer satisfaction followed Methodologyby loyalty. Corporate image also benefits the

This research was carried out in two levels. organization In attracting both investors and future

Brainstorming and latter data collection using a pre employees as well (Andreassen & Lanseng, 1998).

structured questionnaire hosted in Google docs for In their research paper Nguyen and LeBlanc (1998)

convenient access to respondents. The respondents experimented on the correlation between service

are full time students and faculties of two private quality and brand image and conclude that

.

Table 1: Rank order of the factors affecting brand loyalty

34 35

Source: Primary data collected using questionnaire

Factors influencing loyalty with current service provider

Ran

k

Price Loyalty programs

Technical service quality

Peer group

influence

Customer care service

quality

Brand image (Positioning)

Other factors

1

2

3

4

5

6

7

Factors influencing intention to switch from current service provider

Ran

k

Technical service quality

Price

Loyalty programs

Peer group

influence

Customer care service

quality

Other factors Brand image(Positioning)

1

2

3

4

5

6

7

Vedaang Vol. 4 No. 1, January-June 2013 Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

the mobile phone service providers have increased handset manufacturers have also noticed this to a great extent in the sense that apart from market shift and have augmented their product fulfilling the basic needs of the customers, the portfolio accordingly. This technology have service providers are also providing additional benefitted the consumers as two networks can be facilities to remain competitive in the market. used using the same mobile. But this technology has

fragmented the money a consumer used to spend on The year 2003-04 witnessed a dramatic increase

a telecom service provider. Now the same money is in the number of mobile users in India

split between two service providers. As a result the (Dhananjayan 2005). It was largely propelled by

Average Revenue per User (ARPU) of the decreasing tariffs and entry cost and also the

service providers which already is quite low is increase in area of network coverage. The reasons

getting lower. According to a report published in can be summarized as below

Business Line 2nd October, 2009, the voice based a) Free incoming call charges announced by the average revenue per user for GSM operators falls

telecom authority from May 2003, leading to below Rs 200. The ARPU for CDMA services substantial reduction in the usage charges for declined by 7.2 per cent from Rs 99 in March customers. It made mobiles far more affordable quarter to Rs 92 in June quarter(CAG,2011). The than all other regulatory changes had done till popularity of dual SIM mobiles can have multiple then. consequences affecting the subscribers, hand set

manufacturers and the MSP's (Secker, Matthew, b) Reduction in the tariff plans for local, STD and

2002).ISD calls, which made calling through mobile

The telecommunication as it stands presently cheaper than through a landline. The tariffs can be summarized The mobile industry can briefly went down to 40 paisa per minute for local call be summarized as- having the second largest against Rs. 1.20 per pulse of 3 minutes through subscriber base in the world with 21 service a landline. The reduction in the roaming providers battling for survival in 22 telecom circles charges, further enthused the customers to go in after offering the lowest call charges anywhere in for mobile and travel all over with a mobile.the world(The Telegraph,2011). The industry

c) The entry of the CDMA mobile phones, which contributes 2% to our countries GDP and provides started as a limited mobility phone, but turned direct employment to 2.8 million and indirect out to be a complete mobile phone. employment to 7 million persons (COAI Press

release, August 2011). With high growth, The telecom industry is considered as having competition also follows and it become extremely the highest potential for investment in India important for companies to tries to match their (Srikant, 2006). Recognizing that the telecom offering to the expectation of the existing as well as sector is one of the prime movers of the economy, prospective customers.the government's regulatory and policy initiatives

have also been directed towards establishing a Review of literatureworld class telecommunication infrastructure in

Multiple factors cause subscribers to exhibit India. From April 1991 to March 2003 the total loyal or disloyalty to their mobile service provider. Foreign Direct Investment (FDI) in telecom was Rs. Research, as well as logic suggests that improving 9590.7 cr. service quality satisfy subscribers and thus makes

Presently the demand for dual SIM (Subscriber them loyal (Keaveney, 2001; Zeithaml, Berry and Identity Module) mobiles in India has increased by Parasuraman, 1996).In Japanese way of life, quality an extraordinary level. First the grey market means zero defect product and service. It Chinese mobiles and now the new “Indian” brands emphasizes doing the things right for the first time. have made dual SIM mobiles affordable and within In the case of tangible goods, the measurement of the reach of the bottom line segment. Established quality is comparatively an easy chore since

uniform quality standards can be met every time. customers who perceive service quality to be better But the distinctiveness of service makes than competitors develop a constructive image of measurement of quality difficult (Cronin et al. the organization Price stands out as another 1992). The three basic character of service makes it important factor for switching, for example, in a challenge for service providers are intangibility, insurance and banking (Roos, Edvardsson and heterogeneity and inseparability. Intangible Gustafsson, 2004). Yet pricing decisions can have character a service product makes it complicated for important consequences for the service provider. the service provider to measure subscriber's Pricing low makes it attractive to subscribers but if perception about service quality. The second the organization fails to build volumes, profitability character of a service is heterogeneity which makes declines. Low profits makes the company every service experience different and varies from vulnerable to market changes especially up customer to customer and from provider to gradation of infrastructure, fees related to spectrum provider. The characteristics of inseparability etc. The price has specific relationship with other underline the fact that production and consumption components of marketing mix. Actually the price is of service takes place simultaneously. (Lemmink the only component that generates revenue, while et.al 2003) has concluded in their research paper other components generate costs. From the that service quality has two parameter process and literature review it was found out that researchers output. Process quality extols on the way service is has contemplated on service quality, corporate catered to a consumer and output quality is image/ positioning subscribers overall satisfaction evaluated once service is delivered. and price as some of the factors responsible for

switching behavior in subscribers.A positive corporate/ brand image can increase

sales through better customer satisfaction followed Methodologyby loyalty. Corporate image also benefits the

This research was carried out in two levels. organization In attracting both investors and future

Brainstorming and latter data collection using a pre employees as well (Andreassen & Lanseng, 1998).

structured questionnaire hosted in Google docs for In their research paper Nguyen and LeBlanc (1998)

convenient access to respondents. The respondents experimented on the correlation between service

are full time students and faculties of two private quality and brand image and conclude that

.

Table 1: Rank order of the factors affecting brand loyalty

34 35

Source: Primary data collected using questionnaire

Factors influencing loyalty with current service provider

Ran

k

Price Loyalty programs

Technical service quality

Peer group

influence

Customer care service

quality

Brand image (Positioning)

Other factors

1

2

3

4

5

6

7

Factors influencing intention to switch from current service provider

Ran

k

Technical service quality

Price

Loyalty programs

Peer group

influence

Customer care service

quality

Other factors Brand image(Positioning)

1

2

3

4

5

6

7

Vedaang Vol. 4 No. 1, January-June 2013 Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

engineering college located in West Bengal. ? Loyalty programs- Offers and schemes to make Convenience sampling technique was used to draw subscribers loyal (like Aircell- rate cutter: the sample. The sample is composed of male and recharge with Rs. 65, benefits- tariff reduced for female respondents in the age group of 25 to 55 six month, Aircell to Aircell 1paisa for three years using mobile for at least last one year. seconds and 2 paisa for three seconds for other Initially brainstorming was done to identify the network) are an attraction when the competitors' primary factors responsible for creating brand loyalty schemes tempt subscriber to switch to loyalty in a subscriber. Latter these factors were another service provider. MTS has recently used to create a questionnaire using Likert scale and introduced loyalty card as a similar strategy.respondents were asked to rank these factors

??Peer group influence- This factor was mainly according to importance, illustrated in Table: 1. contributed by students and refers to the Brainstorming was carried out during August 2012 influence of family, friends, and close associates and the questionnaire was used in September the in continuing with a particular mobile service same year. A total of 140 students and 36 faculties provider because of economical and value participated as respondents from both the colleges. added service benefits.To minimize biases, care was taken to select an

equal number of subscribers from both the colleges. ?Brand image (positioning)- Certain perception For statistical interpretation SPSS 17 has been used.regarding quality expectation was seen among

Findings and Discussions respondents regarding corporate / brand image, that the firm will deliver expected benefits for From brainstorming five factors were identified the long run.which according to respondents influence their

decision to remain loyal to a mobile subscriber. The ?Other factors- Certain other factors were also factors are- noted and are clubbed under this point. Certain

subscribers may switch or choose a second ?Price- Respondents are unanimous that tariff service provider because of impulse (like a free rates are responsible to change subscriber's SIM offer, or sales promo- handset/ reduced cost- benefit equation. Competitors offers in tariff), advertising or maybe relocation to a monetary value, including items such as a place where present service provider is not handset subsidy(in case of costly handsets like operating.Iphone and Samsung Galaxy), fees waived, and

monthly subscription fees tempt brand The next stage of the research phase is switching. summarized in Table 1. In the figure, respondents

preferred ranking of the above mentioned factors ?Technical service quality- As mobile quality can are tabulated.

vary due to technical reasons and human This section enumerates the respondent's interaction these two points are separated out.

opinion about the importance of the factors related Technical service quality include quality aspect to purchasing decision. The relative importance of relates to the physical service elements like the sub-variables has been derived by comparing extent of coverage, signal strength, call drop or the opinion scores assigned to each sub-variable. network congestion.Since a seven-point scale has been used, the interval

?Customer care service quality- As service for breaking the range in measuring each variable is encounter in mobile telecom at one time or the calculated as: other involve human beings, customer care

(7 - 1)/7 = 0.86executive are also found out to be important in ?The opinion score between 1 to 1.86 has been this study, specially the level of problem solving

and customer-friendly attitude. considered of most importance;

respondents as they have a mean higher than 2.6. ?The opinion score between 1.87 to 2.72 has been Only two factors, namely, beautiful packaging and considered of medium importance; imported shoes, are given least importance by the ?The opinion score between 2.73 to 3.59 has been respondents which scored less than 2.6.

considered of importance; It is observed from Table 2 that `value for price ?The opinion score between 3.60 to 4.46 has been

paid' has been assigned as the highest important considered of neutral; and

factor. The high importance given to `same quality ?The opinion score between 4.47 to 5.33 has been but lower price than that of competitors' indicates

considered of moderate importance. that the respondents compare the prices of different competitors before making their final decision. ?The opinion score between 5.34 to 6.20 has been However, they also do not go by the cheapest price considered of low importance.mainly due to the high importance assigned to

?The opinion score above 6.20 has been quality in the product factor. considered of least importance.

H : There is no significant relationship between 01It is inferred from Table 1 that the factors, gender and loyalty factors.

quality and durability, have emerged as the most It is observed from Table 3 that there is no important variable considered by consumers in their

significant difference in opinion between male and purchase decision. The other two variables with female for loyalty factors. high importance are design and product warranty. It

is concluded that eight of the variables under H : There is no significant relationship between 02product factors are considered important by the age and loyalty factors.

36 37

Table 2 : Factors affecting Loyalty

Factors N Mean Std. Deviation

Importance

price 30 1.3000 .46609 Most Important

Loyalty Prg 30 1.9333 .78492 Medium Important

TechQty 30 2.8667 .50742 Important

Peer Gr

30

4.1000

.54772

Neutral

Cust Care

30

4.9000

.54772

Moderate Important

Br Image

30

6.2667

.52083

Least Important

Other

30

6.7000

.46609

Least Important

Valid N (listwise) 30

Table 3 : Factors affecting Switching

N Mean Std. Deviation

Importance

TechQty 30 1.4333 .56832 Most Important

Price 30 1.9333 .69149 Medium Important

LoyaltyPrg 30 2.8000 .88668 Important

Peer Gr 30 4.0333 .66868 Neutral

Cust Care 30 4.8667 .43417 Moderate Important

Other 30 6.2667 .58329 Least Important

Br Image 30 6.6667 .47946 Least Important

Valid N (listwise) 30

Vedaang Vol. 4 No. 1, January-June 2013 Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

engineering college located in West Bengal. ? Loyalty programs- Offers and schemes to make Convenience sampling technique was used to draw subscribers loyal (like Aircell- rate cutter: the sample. The sample is composed of male and recharge with Rs. 65, benefits- tariff reduced for female respondents in the age group of 25 to 55 six month, Aircell to Aircell 1paisa for three years using mobile for at least last one year. seconds and 2 paisa for three seconds for other Initially brainstorming was done to identify the network) are an attraction when the competitors' primary factors responsible for creating brand loyalty schemes tempt subscriber to switch to loyalty in a subscriber. Latter these factors were another service provider. MTS has recently used to create a questionnaire using Likert scale and introduced loyalty card as a similar strategy.respondents were asked to rank these factors

??Peer group influence- This factor was mainly according to importance, illustrated in Table: 1. contributed by students and refers to the Brainstorming was carried out during August 2012 influence of family, friends, and close associates and the questionnaire was used in September the in continuing with a particular mobile service same year. A total of 140 students and 36 faculties provider because of economical and value participated as respondents from both the colleges. added service benefits.To minimize biases, care was taken to select an

equal number of subscribers from both the colleges. ?Brand image (positioning)- Certain perception For statistical interpretation SPSS 17 has been used.regarding quality expectation was seen among

Findings and Discussions respondents regarding corporate / brand image, that the firm will deliver expected benefits for From brainstorming five factors were identified the long run.which according to respondents influence their

decision to remain loyal to a mobile subscriber. The ?Other factors- Certain other factors were also factors are- noted and are clubbed under this point. Certain

subscribers may switch or choose a second ?Price- Respondents are unanimous that tariff service provider because of impulse (like a free rates are responsible to change subscriber's SIM offer, or sales promo- handset/ reduced cost- benefit equation. Competitors offers in tariff), advertising or maybe relocation to a monetary value, including items such as a place where present service provider is not handset subsidy(in case of costly handsets like operating.Iphone and Samsung Galaxy), fees waived, and

monthly subscription fees tempt brand The next stage of the research phase is switching. summarized in Table 1. In the figure, respondents

preferred ranking of the above mentioned factors ?Technical service quality- As mobile quality can are tabulated.

vary due to technical reasons and human This section enumerates the respondent's interaction these two points are separated out.

opinion about the importance of the factors related Technical service quality include quality aspect to purchasing decision. The relative importance of relates to the physical service elements like the sub-variables has been derived by comparing extent of coverage, signal strength, call drop or the opinion scores assigned to each sub-variable. network congestion.Since a seven-point scale has been used, the interval

?Customer care service quality- As service for breaking the range in measuring each variable is encounter in mobile telecom at one time or the calculated as: other involve human beings, customer care

(7 - 1)/7 = 0.86executive are also found out to be important in ?The opinion score between 1 to 1.86 has been this study, specially the level of problem solving

and customer-friendly attitude. considered of most importance;

respondents as they have a mean higher than 2.6. ?The opinion score between 1.87 to 2.72 has been Only two factors, namely, beautiful packaging and considered of medium importance; imported shoes, are given least importance by the ?The opinion score between 2.73 to 3.59 has been respondents which scored less than 2.6.

considered of importance; It is observed from Table 2 that `value for price ?The opinion score between 3.60 to 4.46 has been

paid' has been assigned as the highest important considered of neutral; and

factor. The high importance given to `same quality ?The opinion score between 4.47 to 5.33 has been but lower price than that of competitors' indicates

considered of moderate importance. that the respondents compare the prices of different competitors before making their final decision. ?The opinion score between 5.34 to 6.20 has been However, they also do not go by the cheapest price considered of low importance.mainly due to the high importance assigned to

?The opinion score above 6.20 has been quality in the product factor. considered of least importance.

H : There is no significant relationship between 01It is inferred from Table 1 that the factors, gender and loyalty factors.

quality and durability, have emerged as the most It is observed from Table 3 that there is no important variable considered by consumers in their

significant difference in opinion between male and purchase decision. The other two variables with female for loyalty factors. high importance are design and product warranty. It

is concluded that eight of the variables under H : There is no significant relationship between 02product factors are considered important by the age and loyalty factors.

36 37

Table 2 : Factors affecting Loyalty

Factors N Mean Std. Deviation

Importance

price 30 1.3000 .46609 Most Important

Loyalty Prg 30 1.9333 .78492 Medium Important

TechQty 30 2.8667 .50742 Important

Peer Gr

30

4.1000

.54772

Neutral

Cust Care

30

4.9000

.54772

Moderate Important

Br Image

30

6.2667

.52083

Least Important

Other

30

6.7000

.46609

Least Important

Valid N (listwise) 30

Table 3 : Factors affecting Switching

N Mean Std. Deviation

Importance

TechQty 30 1.4333 .56832 Most Important

Price 30 1.9333 .69149 Medium Important

LoyaltyPrg 30 2.8000 .88668 Important

Peer Gr 30 4.0333 .66868 Neutral

Cust Care 30 4.8667 .43417 Moderate Important

Other 30 6.2667 .58329 Least Important

Br Image 30 6.6667 .47946 Least Important

Valid N (listwise) 30

Vedaang Vol. 4 No. 1, January-June 2013 Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

It is observed from Table 4 that there is no significant difference in opinion between male and female for loyalty factors. significant difference in opinion between male and

female for maximum number of loyalty factors. H : There is no significant relationship between 04Only in case of price and loyalty programmes a

age and switching factors. difference in opinion between different income group people has been observed. It is observed from Table 6 that there is no

significant difference in opinion between male and ?There is a significant difference in opinion female for switching factors except for loyalty

about the importance of price as a factor to programmes, customer care and other factors, continue with the same service provider. Higher where a difference in opinion between different income groups give more preference to design income group people has been observed. and quality than the lower income groups.

Major FindingsH : There is no significant relationship between 03

It is observed that there is a significant gender and switching factors. difference of opinion among respondents of

It is observed from Table 5 that there is no different age group in terms of loyalty program

offered by the mobile service providers. Thus to significant difference in opinion amongst different enhance brand loyalty different loyalty based age group of respondent. The higher age respondent

generally put more importance towards the schemes should be developed for different age customer care service compared to the young. In groups.general this factor is of very less importance.

Further it is also inferred that different age Gender wise switching and loyalty behavior is group of respondents have difference in opinion

not significant. Thus there is no need to make regarding promotional factors like free SIM offer, different strategy gender wise.or 3G handset offer. But they took this factor as a

least important one thus there is no such need for Conclusion developing this king of subscriber retention

From the findings it can be observed that price strategy.ranks as the most important parameter when loyalty

In relation to quality of customer care and age is concerned. Alteration in tariff/ price perceptions the hypothesis is rejected. Hence there is a may cause the loyalty-switching transition. Price

Vedaang Vol. 4 No. 1, January-June 2013

38 39

Table 4: Results of T test for Loyalty Factors

Mean male

Std. Deviation male

Importance Mean Female

Std. Deviation

Female

Importance t df Sig. (2-tailed)

Decision at 5% level of significance

price 1.2857 .46881 1.3125 .47871 -.154 28 .878 Accept

Loyalty Prg 1.9286 .73005 1.9375 .85391 -.031 28 .976 Accept

TechQty 2.9286

.61573 2.8125

.40311

.618

28

.541

Accept

Peer Gr 4.0000

.55470

4.1875

.54391 -.933

28

.359

Accept

Cust Care

4.9286

.47463

4.8750

.61914

.263

28

.795

Accept

Br Image

6.1429

.53452

6.3750

.50000

-1.229

28

.229

Accept

Other 6.7857 .42582 6.6250 .50000 .940 28 .355 Accept

Table 5: Results of ANOVA for Loyalty Factors

Fcators Value df Sig. (2-tailed) Decision at 5% level of significance

price 24.772 29 .000 Reject Loyalty Prg 8.441 29 .001

Reject TechQty

.298

29

.745

Accept

Peer Gr

1.767

29

.190

Accept

Cust Care

.135

29

.874

Accept Br Image

.115

29

.891

Accept

Other .135 29 .190 Accept

Mean Age

Tech Qty Price Loyalty Prg

Peer Gr Cust Care

Other Br Image

1.00 1.5000 1.6875 2.8750 4.0000 4.9375 6.1250 6.87502.00

1.3333

2.0000

3.1111 3.7778

5.0000

6.3333

6.4444

3.00

1.4000

2.6000

2.0000 4.6000

4.4000

6.6000

6.4000

Total 1.4333 1.9333 2.8000 4.0333 4.8667 6.2667 6.6667

Table 6: Results of T test for Switching Factors

Mean male

Std. Deviation

male

Mean Female

Std. Deviation

Female

t df Sig. (2-tailed)

Decision at 5% level of

significance TechQty 1.2857 .46881 1.6291 .15729 -1.350 28 .188 Accept

Price 1.8571 .53452 2.0000 .81650 -.558 28 .581 Accept LoyaltyPrg

3.0714

.73005

2.5625

.96393

1.611

28

.118

Accept

Peer Gr

3.9286

.61573

4.1250

.71880

-.798

28

.432

Accept

Cust Care

4.9286

.47463

4.8125

.40311

.725

28

.475

Accept

Other

6.2143

.57893

6.3125

.60208

-.454

28

.654

Accept

Br Image 6.7143 .46881 6.6250 .50000 .502 28 .619 Accept

Table 7: Results of ANOVA for Switching Factors

Fcators Value df Sig. (2-tailed)

Decision at 5% level of significance

Price* age .245 29 .785 Accept Loyalty Prg* age

4.098 29 .028 Reject

TechQty* age

3.014

29

.066

Accept

Peer Gr* age

2.775

29

.080

Accept

Cust Care* age

4.337

29

.023

Reject

Br Image* age

1.383

29

.268

Accept Other* age 3.901 29 .032 Reject

Mean Age

Loyalty Prg

TechQty Peer Gr Cust Care

Br Image Other

1.00 2.3125 2.8750 3.9375 5.0625 6.2500 6.68752.00 1.7778

2.7778

4.2222

4.7778

6.3333

6.6667

3.00

1.0000

3.0000

4.4000 4.6000

6.2000

6.8000

Total 1.9333 2.8667 4.1000 4.9000 6.2667 6.7000

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

It is observed from Table 4 that there is no significant difference in opinion between male and female for loyalty factors. significant difference in opinion between male and

female for maximum number of loyalty factors. H : There is no significant relationship between 04Only in case of price and loyalty programmes a

age and switching factors. difference in opinion between different income group people has been observed. It is observed from Table 6 that there is no

significant difference in opinion between male and ?There is a significant difference in opinion female for switching factors except for loyalty

about the importance of price as a factor to programmes, customer care and other factors, continue with the same service provider. Higher where a difference in opinion between different income groups give more preference to design income group people has been observed. and quality than the lower income groups.

Major FindingsH : There is no significant relationship between 03

It is observed that there is a significant gender and switching factors. difference of opinion among respondents of

It is observed from Table 5 that there is no different age group in terms of loyalty program

offered by the mobile service providers. Thus to significant difference in opinion amongst different enhance brand loyalty different loyalty based age group of respondent. The higher age respondent

generally put more importance towards the schemes should be developed for different age customer care service compared to the young. In groups.general this factor is of very less importance.

Further it is also inferred that different age Gender wise switching and loyalty behavior is group of respondents have difference in opinion

not significant. Thus there is no need to make regarding promotional factors like free SIM offer, different strategy gender wise.or 3G handset offer. But they took this factor as a

least important one thus there is no such need for Conclusion developing this king of subscriber retention

From the findings it can be observed that price strategy.ranks as the most important parameter when loyalty

In relation to quality of customer care and age is concerned. Alteration in tariff/ price perceptions the hypothesis is rejected. Hence there is a may cause the loyalty-switching transition. Price

Vedaang Vol. 4 No. 1, January-June 2013

38 39

Table 4: Results of T test for Loyalty Factors

Mean male

Std. Deviation male

Importance Mean Female

Std. Deviation

Female

Importance t df Sig. (2-tailed)

Decision at 5% level of significance

price 1.2857 .46881 1.3125 .47871 -.154 28 .878 Accept

Loyalty Prg 1.9286 .73005 1.9375 .85391 -.031 28 .976 Accept

TechQty 2.9286

.61573 2.8125

.40311

.618

28

.541

Accept

Peer Gr 4.0000

.55470

4.1875

.54391 -.933

28

.359

Accept

Cust Care

4.9286

.47463

4.8750

.61914

.263

28

.795

Accept

Br Image

6.1429

.53452

6.3750

.50000

-1.229

28

.229

Accept

Other 6.7857 .42582 6.6250 .50000 .940 28 .355 Accept

Table 5: Results of ANOVA for Loyalty Factors

Fcators Value df Sig. (2-tailed) Decision at 5% level of significance

price 24.772 29 .000 Reject Loyalty Prg 8.441 29 .001

Reject TechQty

.298

29

.745

Accept

Peer Gr

1.767

29

.190

Accept

Cust Care

.135

29

.874

Accept Br Image

.115

29

.891

Accept

Other .135 29 .190 Accept

Mean Age

Tech Qty Price Loyalty Prg

Peer Gr Cust Care

Other Br Image

1.00 1.5000 1.6875 2.8750 4.0000 4.9375 6.1250 6.87502.00

1.3333

2.0000

3.1111 3.7778

5.0000

6.3333

6.4444

3.00

1.4000

2.6000

2.0000 4.6000

4.4000

6.6000

6.4000

Total 1.4333 1.9333 2.8000 4.0333 4.8667 6.2667 6.6667

Table 6: Results of T test for Switching Factors

Mean male

Std. Deviation

male

Mean Female

Std. Deviation

Female

t df Sig. (2-tailed)

Decision at 5% level of

significance TechQty 1.2857 .46881 1.6291 .15729 -1.350 28 .188 Accept

Price 1.8571 .53452 2.0000 .81650 -.558 28 .581 Accept LoyaltyPrg

3.0714

.73005

2.5625

.96393

1.611

28

.118

Accept

Peer Gr

3.9286

.61573

4.1250

.71880

-.798

28

.432

Accept

Cust Care

4.9286

.47463

4.8125

.40311

.725

28

.475

Accept

Other

6.2143

.57893

6.3125

.60208

-.454

28

.654

Accept

Br Image 6.7143 .46881 6.6250 .50000 .502 28 .619 Accept

Table 7: Results of ANOVA for Switching Factors

Fcators Value df Sig. (2-tailed)

Decision at 5% level of significance

Price* age .245 29 .785 Accept Loyalty Prg* age

4.098 29 .028 Reject

TechQty* age

3.014

29

.066

Accept

Peer Gr* age

2.775

29

.080

Accept

Cust Care* age

4.337

29

.023

Reject

Br Image* age

1.383

29

.268

Accept Other* age 3.901 29 .032 Reject

Mean Age

Loyalty Prg

TechQty Peer Gr Cust Care

Br Image Other

1.00 2.3125 2.8750 3.9375 5.0625 6.2500 6.68752.00 1.7778

2.7778

4.2222

4.7778

6.3333

6.6667

3.00

1.0000

3.0000

4.4000 4.6000

6.2000

6.8000

Total 1.9333 2.8667 4.1000 4.9000 6.2667 6.7000

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

Referencescan be used to displace seemingly satisfied and Andreassen, T.W., & Lanseng, E. (1998). Customer loyalty loyal customers from their providers. Price based

and complex services: The impact of corporate image on strategy implies that after switching over quality, customer satisfaction and loyalty for customers competitors subscribers, mobile firms must with varying degrees of service expertise. International

continue to offer value to these customers or risk Journal of Service Industry Management, 9(1)723.losing them to another competitor. But service

Business Line “Bharti Airtel surges after deal collapse” quality is the most important reason for switching. Friday, Oct 02, 2009Subscribers may regard service quality as a CAG, Report No. CA 35 of 2010-11, Rajyasabha session paper, 'hygienic' factor; expecting superior service levels Page:10.and not accepting poor service. COAI Press release 21,WWW. Coai.com August 2011.

Cronin, J.J., & Taylor, S.A. (1992). Measuring service quality: Furthermore, loyalty programs cause loyalty A re-examination and extension. Journal of Marketing, and unsatisfactory loyalty programs cause brand 56(3), 5568.

switching. Loyalty programs are determinants of Dhananjayan.G, 2005, “The next Mobile Revolution in India” switching and loyalty; respondents rank loyalty

Marketing mastermind, January 2005,ICFAI University programs both as an attraction to switch and as a Press, Page: 65-69.switching deterrent. Mobile service providers Keaveney, S. M., and Parthasarathy, M., 2001. Customer should therefore consider initiating loyalty Switching Behavior in Online Services: An Exploratory programs because of their twin benefits; luring Study of the Role of Selected Attitudinal, Behavioral, and

Demographic Factors. Journal of Academy of Marketing competitor's customers and retaining own Science 29 (4), 374-390.subscribers. Certain different factors such as

Lemmink, J., Annelien, S.. & Sandra , S . (2003). The role of impulse buying and advertising illustrate some new corporate image and company employment image in reasons for brand switching.explaining application intentions. Journal of Economic Psychology 24 1 15 .Limitation and contributions to future research

Muhkerjee Arindam,2008, “Genesis, Growth and Future This study is exploratory in nature and aims at Trends of Mobile Service Providers, Page 3-13, ICFAI

developing a base on which future research can be University Press, , Page: 3-5,12.

done. Future research should be conducted on a Nguyen, N., & LeBlanc, G. (1998). The mediating role of corporate image on customers' retention decisions: An larger sample base drawn in random stratified investigation in financial services. International Journal manner. As loyalty is company specific and can vary of Bank Marketing, 16(2), 5265. according to demographic character of a subscriber,

Roos, I., Edvardsson, B., and Gustafsson, A., 2004. Customer nore strata of samples can be chosen.Switching Patterns in Competitive and Noncompetitive Service Industries. Journal of Service Research 6 (3), Secondly, these findings emerge by subjecting 256-271.participants to hypothetical situations (like- if a

Secker, Matthew, 2002, “Is ARPU a valid performance competitor offers twin SIM , with two consecutive thmetric?” accessed 20 December 2009, available at mobile number topped with a attractive tariff http://www.highbeam.com/ doc/1G1-92586867.html,

scheme between the two number ) and gauging their Page: 4,9.switching/ loyalty response. Future researcher can

Srikant.A, 2006, “Cellular Mobile Industry in India: A study”. conduct longitudinal research that addresses actual The Icfai Journal of Service Marketing, March 2006, intentions and in the process highlight more on the Page: 32.subscribers psychological thought process while The Telegraph,2011,Kolkata edition, “Tele-tomorrow choosing a different mobile subscriber. Lastly, this (specifics on hold)"Page1, 11 October 2011.

research did not explore the issue of 'zone of Zeithaml, V. A., Berry, L. L., and Parasuraman, A., 1996. The Behavioral Consequences of Service Quality. Journal of tolerance' or the extent to which a subscriber Marketing 60 (2), 31-46.tolerates the service provider.

Vedaang Vol. 4 No. 1, January-June 2013

GROWTH AND TREND OF DEVELOPMENT REVENUE EXPENDITURE IN MIZORAM

Dr. R. Lalnuntluanga*, Dr. L. Shashikumar Sharma**

ABSTRACTIn the literature of Indian fiscal federalism, the key features of the economic and fiscal scenario of most of the States have been slow economic growth and high dependence on Central support. Our State is also no exception to this group. It is therefore relevant to have a brief review and highlight on the performance of India economy during the past few years. The present paper focus on the trends of development expenditure on revenue account of the government of Mizoram. The paper also highlights the changing composition of expenditure of government and examine how the expenditure of the state government has been increasing over the past 37 years, the distribution and composition of this increase and the extent to which this distribution conforms to the broad scheme of social priorities is also discussed.

Key Words: Fiscal Federalism, Economic and Fiscal Policies, Development and Non-Development Expenditure, etc.

***Associate Professor & Head, Department of Management, Mizoram University, Aizawl, Mizoram.

Associate Professor, Deptt. of Economic,Govt. Aizawl North College

Introduction non-development expenditure. Development expenditure is, on the other hand, presumed to have

The Indian economy is expected to register a direct relation with the pace of economic

growth rate of 5.0 per cent in the fiscal 2012-13 in development of a backward economy. The term terms of Gross Domestic Product at factor cost at 'development expenditure' has an obvious growth constant 2004-05 prices. The growth rate in 2011-12 implication in the sense that expenditure classified was, however, 6.2 per cent. In view of the decadal as development should be such that can be average growth rate of 7.9 per cent during 2003-04 considered to promote growth. Development to 2012-13, the growth rate in the last two years is on expenditure may be understood to mean the lower side. As pointed out by the title, it is expenditure incurred on development programmes attempted here to analyse the trends of development for the purpose of promoting social welfare and for expenditure on revenue account of the government accelerating the tempo of economic development. of Mizoram. The changing composition of Following the functional classification, expenditure will also be analysed. We shall examine development expenditure will be dealt with under how the expenditure of the state government has two broad heads i) Social & Community Services been increasing over the past 37 years, the and ii) Economic Services. Expenditures incurred distribution and composition of this increase and the on items such as education, medical and public extent to which this distribution conforms to the health, water supply, sanitation, housing and urban broad scheme of social priorities.development, labour and employment are booked

The total expenditure of government has been under Social & Community Service, while classified into Development and Non-development agriculture, animal husbandry, co-operation, rural expenditure. Non-development expenditure arises and community development projects, irrigation, for the maintenance of law and order, expenditure electricity, industry and minerals, transport and incurred for the collection of revenues and for the communication, forest and other miscellaneous maintenance of the existing set up. Expenditure services fall under Economic Services. Expenditure under the heads such as defence, collection of taxes incurred on these items both on revenue and capital and duties, administrative services, interest on debt accounts are treated as development expenditure. and other services, stationery and printing and other

In the federal set up of India, State Government expenditure on general services is grouped under

40 41

Referencescan be used to displace seemingly satisfied and Andreassen, T.W., & Lanseng, E. (1998). Customer loyalty loyal customers from their providers. Price based

and complex services: The impact of corporate image on strategy implies that after switching over quality, customer satisfaction and loyalty for customers competitors subscribers, mobile firms must with varying degrees of service expertise. International

continue to offer value to these customers or risk Journal of Service Industry Management, 9(1)723.losing them to another competitor. But service

Business Line “Bharti Airtel surges after deal collapse” quality is the most important reason for switching. Friday, Oct 02, 2009Subscribers may regard service quality as a CAG, Report No. CA 35 of 2010-11, Rajyasabha session paper, 'hygienic' factor; expecting superior service levels Page:10.and not accepting poor service. COAI Press release 21,WWW. Coai.com August 2011.

Cronin, J.J., & Taylor, S.A. (1992). Measuring service quality: Furthermore, loyalty programs cause loyalty A re-examination and extension. Journal of Marketing, and unsatisfactory loyalty programs cause brand 56(3), 5568.

switching. Loyalty programs are determinants of Dhananjayan.G, 2005, “The next Mobile Revolution in India” switching and loyalty; respondents rank loyalty

Marketing mastermind, January 2005,ICFAI University programs both as an attraction to switch and as a Press, Page: 65-69.switching deterrent. Mobile service providers Keaveney, S. M., and Parthasarathy, M., 2001. Customer should therefore consider initiating loyalty Switching Behavior in Online Services: An Exploratory programs because of their twin benefits; luring Study of the Role of Selected Attitudinal, Behavioral, and

Demographic Factors. Journal of Academy of Marketing competitor's customers and retaining own Science 29 (4), 374-390.subscribers. Certain different factors such as

Lemmink, J., Annelien, S.. & Sandra , S . (2003). The role of impulse buying and advertising illustrate some new corporate image and company employment image in reasons for brand switching.explaining application intentions. Journal of Economic Psychology 24 1 15 .Limitation and contributions to future research

Muhkerjee Arindam,2008, “Genesis, Growth and Future This study is exploratory in nature and aims at Trends of Mobile Service Providers, Page 3-13, ICFAI

developing a base on which future research can be University Press, , Page: 3-5,12.

done. Future research should be conducted on a Nguyen, N., & LeBlanc, G. (1998). The mediating role of corporate image on customers' retention decisions: An larger sample base drawn in random stratified investigation in financial services. International Journal manner. As loyalty is company specific and can vary of Bank Marketing, 16(2), 5265. according to demographic character of a subscriber,

Roos, I., Edvardsson, B., and Gustafsson, A., 2004. Customer nore strata of samples can be chosen.Switching Patterns in Competitive and Noncompetitive Service Industries. Journal of Service Research 6 (3), Secondly, these findings emerge by subjecting 256-271.participants to hypothetical situations (like- if a

Secker, Matthew, 2002, “Is ARPU a valid performance competitor offers twin SIM , with two consecutive thmetric?” accessed 20 December 2009, available at mobile number topped with a attractive tariff http://www.highbeam.com/ doc/1G1-92586867.html,

scheme between the two number ) and gauging their Page: 4,9.switching/ loyalty response. Future researcher can

Srikant.A, 2006, “Cellular Mobile Industry in India: A study”. conduct longitudinal research that addresses actual The Icfai Journal of Service Marketing, March 2006, intentions and in the process highlight more on the Page: 32.subscribers psychological thought process while The Telegraph,2011,Kolkata edition, “Tele-tomorrow choosing a different mobile subscriber. Lastly, this (specifics on hold)"Page1, 11 October 2011.

research did not explore the issue of 'zone of Zeithaml, V. A., Berry, L. L., and Parasuraman, A., 1996. The Behavioral Consequences of Service Quality. Journal of tolerance' or the extent to which a subscriber Marketing 60 (2), 31-46.tolerates the service provider.

Vedaang Vol. 4 No. 1, January-June 2013

GROWTH AND TREND OF DEVELOPMENT REVENUE EXPENDITURE IN MIZORAM

Dr. R. Lalnuntluanga*, Dr. L. Shashikumar Sharma**

ABSTRACTIn the literature of Indian fiscal federalism, the key features of the economic and fiscal scenario of most of the States have been slow economic growth and high dependence on Central support. Our State is also no exception to this group. It is therefore relevant to have a brief review and highlight on the performance of India economy during the past few years. The present paper focus on the trends of development expenditure on revenue account of the government of Mizoram. The paper also highlights the changing composition of expenditure of government and examine how the expenditure of the state government has been increasing over the past 37 years, the distribution and composition of this increase and the extent to which this distribution conforms to the broad scheme of social priorities is also discussed.

Key Words: Fiscal Federalism, Economic and Fiscal Policies, Development and Non-Development Expenditure, etc.

***Associate Professor & Head, Department of Management, Mizoram University, Aizawl, Mizoram.

Associate Professor, Deptt. of Economic,Govt. Aizawl North College

Introduction non-development expenditure. Development expenditure is, on the other hand, presumed to have

The Indian economy is expected to register a direct relation with the pace of economic

growth rate of 5.0 per cent in the fiscal 2012-13 in development of a backward economy. The term terms of Gross Domestic Product at factor cost at 'development expenditure' has an obvious growth constant 2004-05 prices. The growth rate in 2011-12 implication in the sense that expenditure classified was, however, 6.2 per cent. In view of the decadal as development should be such that can be average growth rate of 7.9 per cent during 2003-04 considered to promote growth. Development to 2012-13, the growth rate in the last two years is on expenditure may be understood to mean the lower side. As pointed out by the title, it is expenditure incurred on development programmes attempted here to analyse the trends of development for the purpose of promoting social welfare and for expenditure on revenue account of the government accelerating the tempo of economic development. of Mizoram. The changing composition of Following the functional classification, expenditure will also be analysed. We shall examine development expenditure will be dealt with under how the expenditure of the state government has two broad heads i) Social & Community Services been increasing over the past 37 years, the and ii) Economic Services. Expenditures incurred distribution and composition of this increase and the on items such as education, medical and public extent to which this distribution conforms to the health, water supply, sanitation, housing and urban broad scheme of social priorities.development, labour and employment are booked

The total expenditure of government has been under Social & Community Service, while classified into Development and Non-development agriculture, animal husbandry, co-operation, rural expenditure. Non-development expenditure arises and community development projects, irrigation, for the maintenance of law and order, expenditure electricity, industry and minerals, transport and incurred for the collection of revenues and for the communication, forest and other miscellaneous maintenance of the existing set up. Expenditure services fall under Economic Services. Expenditure under the heads such as defence, collection of taxes incurred on these items both on revenue and capital and duties, administrative services, interest on debt accounts are treated as development expenditure. and other services, stationery and printing and other

In the federal set up of India, State Government expenditure on general services is grouped under

40 41

has to take responsibility for performing social and 155.85 times within 37 years of this study period. development functions. But these initiatives require The causes of rapid increase in the volume of the large amount of expenditure. Besides, the total revenue expenditure was mainly due to the introduction of Five Year Plan since 1951 and the multiplicity of government departments and bending towards socialistic pattern of society expanding functions that have been taken up by required the government to play a pivotal role in these new departments. In addition to this, the initiating the process of economic development on government has to take care of the welfare of the all fronts. It is indispensable for the government to increasing population by importing almost all incur an increasing amount of expenditure. This is commodities from outside the State as Mizoram had more relevant to a backward and remote state like no infrastructure for production. The State is Mizoram where all the infrastructures are at an lagging far behind the rest of the country in all initial stage. Government has to play a dominant respects. Private enterprise can hardly come up due role in initiating development programmes in order to lack of infrastructure and exorbitant cost of to keep pace with the rest of the country. Mizoram production. Government has to play a vital role in was formerly one of the remotest districts of Assam, initiating development programmes and the it was elevated to a status of Union Territory in the emergence of price spiral and the mounting year 1972 and to a full-fledged state in 1986. It is, inflationary pressure in the economy has resulted in therefore, true to say that Mizoram is a late starter in a serious budget deficit. Since the government quite development planning as the state had always been often availed itself of the provision of 'ways and one of the neglected remotest districts of Assam. means advances' and even resorted to short term No meaningful planning programme had been taken commercial loan to meet its financial deficit, the up in the district while the rest of the country reaped expenditure on debt services and interest payment the fruit of economic planning. It was, practically rose to an alarmingly high level.from Seventh Five Year Plan that Mizoram joined

The same table exhibits that there has been a the ambit of planning process of the country.

continuous increase of development revenue Therefore, it would be interesting to analyse the

expenditure in absolute terms over the years. It growing trend of public expenditure particularly on

went up from Rs. 19.00 crores in 1974 - 75 to Rs. revenue account in the following discussion.

104.32 crores in 1985 - 86 which is 5.49 times Table 1 presents a clear picture and trend of higher. The expenditure has continuously been

revenue expenditure in Mizoram from the period increasing and then touched a staggering figure 1974 - 1975 to 2011- 2012. During this period of 37 of Rs. 2648.69 crores in 2011 12 R.E. This years, there has been a tremendous growth in the increase is a multiple of 139.40 time over 1974 volume of the total revenue expenditure at current 75. In percentage term, the growth of prices. In the year 1974 -1975, the total revenue development revenue expenditure shows a expenditure was Rs. 24.94 crores which had grown remarkable increase as high as 13840 % in 2011 - 12 up within ten years in 1984-85 to Rs. 120.66 crores. over the year 1974 - 75. This was 4.83 times more or in percentage term, the

Taking plan-wise growth trend of development expenditure grew up by 383.80 % within a short

revenue expenditure in absolute term, it indicated an span of ten years. There has been a continuous

ever increasing trend, having grown to Rs. 132.95 increase in the expenditure in absolute term over the

crores in the Fifth Plan, Rs.312.47 crores, Rs.737.65 following years. While the total revenue

crores, Rs. 481.26 crores, Rs. 1694.41 crores, Rs. expenditure was Rs. 449.99 crores in 1994 - 95, it

2933.78 crores, Rs. 4457.34 and Rs. 9321.55 crores had grown up to Rs. 1295.51crores in 2004 05 and

in the Sixth, Seventh, Two Annual Plans, Eight and again to Rs. 3886.85 crores in 2011 12 Revised

Ninth, Ten and Eleventh Plan respectively. But the Estimate. A comparison of expenditure in absolute

percentage variation in the proportion of term between 1974 - 75 and 2011 - 12 shows that

development expenditure to total revenue public expenditure in Mizoram has increased

expenditure was not so impressive. While it was 75.76% in the Fifth Plan, it went down to 66.74% in the Eleventh Five Year Plan. Taking a yearly expenditure during the Fifth Plan period, the proportion of development expenditure to total revenue expenditure in percentage term varies from 73.41% to 78.87%. The Sixth Five Year Plan showed a decreasing percentage of development expenditure which was well above 70% excepting the year 1983 - 84 which recorded 69.75%. During Seventh Five Year Plan, the overall percentage of development expenditure to total revenue expenditure increased to 75.87% but the lowest percentage during this Five Year Plan was recorded in 1986 - 87 at 67.01%. It increased gradually every year to 77.67% in 1989 - 90. The two Annual Plans showed 71.38% and 74.86% in the year 1990 - 91 and 1991 - 92 respectively. The first year of the Eight Plan recorded an expenditure at 74.32 % which fell to 72.19 % and then falling down consecutively to 71.54%, 70.20% and 70.69 % in the following three years.

During the Ninth Plan, the first four years recorded more or less a constant level of development expenditure hovering around 67%, but declined to 65.22% in 2001 - 02. During Tenth Plan, the development expenditure shows falling percentage at a minimum of 60.27% in 2004 05, but gradually increases during the Eleventh Plan. The total development expenditure on revenue account in 2011 - 2012 is estimated at Rs. 2648.69 crores which recorded an increase of 23.48 % over the previous year 2010 - 11 which was at Rs. 2145.01 crores. The average development expenditure as a proportion to total revenue expenditure during Eleventh Plan stood at 66.74% which indicated a decrease of 9% from the Fifth Five Year Plan.

In the accounting and Budgeting system of the State Government, there is no reflection of expenditure in terms of physical targets. Moreover, the plan framework gives only lists of demands for financial outlay without specific target achievements. At the end of the financial year, the statement of expenditure is compiled to show the amount of money actually spent for the various programmes. It is thus well-nigh impossible to

Vedaang Vol. 4 No. 1, January-June 2013 Growth and Trend of Development Revenue Expenditure in Mizoram

42 43

Rs. In crores

Year Total Development Expenditure

Total Revenue Expenditure

2 as a per cent

of 3

1

2

3

41974 -

75

19.00

24.94 76.20

1975 -

76

24.51

33.39 73.411976 -

77

31.45

39.88 78.871977 -78

24.33

32.89 73.981978 -

79

33.66

44.51 75.635th Plan

132.95

175.50 75.761979 -

80 (A.P.)

40.50

52.41 77.271980 -

81

43.78

58.01 75.471981 -

82

53.69

71.42 75.181982 -

83

61.17

85.24 71.761983 -

84

66.50

95.35 69.751984 -

85

87.33

120.66 72.386th Plan

312.47

432.90 72.181985 -

86

104.32

143.44 72.731986 -

87

31.03

46.31 67.011987 -

88

204.39

268.01 76.261988 -

89

195.63

254.06 77.001989 -

90

202.28

260.44 77.677th Plan

737.65

972.27 75.871990 -

91

219.70

307.78 71.381991 -

92

261.56

349.38 74.86Annual Plan

481.26

657.16 73.231992 -

93

246.85

332.16 74.321993 -

94

289.20

400.60 72.191994 -

95

321.92

449.99 71.541995 -

96

388.70

553.70 70.201996 -

97

447.74

633.36 70.698th Plan

1694.41

2369.81 71.501997 -

98

445.06

661.57 67.271998 -

99

465.84

690.83 67.431999 - 00 600.26 894.28 67.122000 - 01 686.76 1021.61 67.222001 - 02 735.86 1128.23 65.229th Plan 2933.78 4396.53 66.732002 - 03 725.33 1128.96 64.252003 - 04 804.43 1266.97 63.492004 - 05 780.86 1295.51 60.272005 - 06 1046.35 1587.98 65.892006 - 07 1100.37 1717.29 64.0810th Plan 4457.34 6996.71 63.712007 - 08 1262.74 1908.62 66.162008 - 09 1510.65 2313.62 65.292009 - 10 1755.06 2702.81 64.932010 - 11 2145.01 3155.83 67.97

2011 - 12 (R.E.) 2648.69 3886.85 68.1411th Plan 9322.15 13967.73 66.74

Source : Annual Financial Statement, Government of Mizoram

Table 1 : Percentage Growth of Development and Revenue Expenditure

has to take responsibility for performing social and 155.85 times within 37 years of this study period. development functions. But these initiatives require The causes of rapid increase in the volume of the large amount of expenditure. Besides, the total revenue expenditure was mainly due to the introduction of Five Year Plan since 1951 and the multiplicity of government departments and bending towards socialistic pattern of society expanding functions that have been taken up by required the government to play a pivotal role in these new departments. In addition to this, the initiating the process of economic development on government has to take care of the welfare of the all fronts. It is indispensable for the government to increasing population by importing almost all incur an increasing amount of expenditure. This is commodities from outside the State as Mizoram had more relevant to a backward and remote state like no infrastructure for production. The State is Mizoram where all the infrastructures are at an lagging far behind the rest of the country in all initial stage. Government has to play a dominant respects. Private enterprise can hardly come up due role in initiating development programmes in order to lack of infrastructure and exorbitant cost of to keep pace with the rest of the country. Mizoram production. Government has to play a vital role in was formerly one of the remotest districts of Assam, initiating development programmes and the it was elevated to a status of Union Territory in the emergence of price spiral and the mounting year 1972 and to a full-fledged state in 1986. It is, inflationary pressure in the economy has resulted in therefore, true to say that Mizoram is a late starter in a serious budget deficit. Since the government quite development planning as the state had always been often availed itself of the provision of 'ways and one of the neglected remotest districts of Assam. means advances' and even resorted to short term No meaningful planning programme had been taken commercial loan to meet its financial deficit, the up in the district while the rest of the country reaped expenditure on debt services and interest payment the fruit of economic planning. It was, practically rose to an alarmingly high level.from Seventh Five Year Plan that Mizoram joined

The same table exhibits that there has been a the ambit of planning process of the country.

continuous increase of development revenue Therefore, it would be interesting to analyse the

expenditure in absolute terms over the years. It growing trend of public expenditure particularly on

went up from Rs. 19.00 crores in 1974 - 75 to Rs. revenue account in the following discussion.

104.32 crores in 1985 - 86 which is 5.49 times Table 1 presents a clear picture and trend of higher. The expenditure has continuously been

revenue expenditure in Mizoram from the period increasing and then touched a staggering figure 1974 - 1975 to 2011- 2012. During this period of 37 of Rs. 2648.69 crores in 2011 12 R.E. This years, there has been a tremendous growth in the increase is a multiple of 139.40 time over 1974 volume of the total revenue expenditure at current 75. In percentage term, the growth of prices. In the year 1974 -1975, the total revenue development revenue expenditure shows a expenditure was Rs. 24.94 crores which had grown remarkable increase as high as 13840 % in 2011 - 12 up within ten years in 1984-85 to Rs. 120.66 crores. over the year 1974 - 75. This was 4.83 times more or in percentage term, the

Taking plan-wise growth trend of development expenditure grew up by 383.80 % within a short

revenue expenditure in absolute term, it indicated an span of ten years. There has been a continuous

ever increasing trend, having grown to Rs. 132.95 increase in the expenditure in absolute term over the

crores in the Fifth Plan, Rs.312.47 crores, Rs.737.65 following years. While the total revenue

crores, Rs. 481.26 crores, Rs. 1694.41 crores, Rs. expenditure was Rs. 449.99 crores in 1994 - 95, it

2933.78 crores, Rs. 4457.34 and Rs. 9321.55 crores had grown up to Rs. 1295.51crores in 2004 05 and

in the Sixth, Seventh, Two Annual Plans, Eight and again to Rs. 3886.85 crores in 2011 12 Revised

Ninth, Ten and Eleventh Plan respectively. But the Estimate. A comparison of expenditure in absolute

percentage variation in the proportion of term between 1974 - 75 and 2011 - 12 shows that

development expenditure to total revenue public expenditure in Mizoram has increased

expenditure was not so impressive. While it was 75.76% in the Fifth Plan, it went down to 66.74% in the Eleventh Five Year Plan. Taking a yearly expenditure during the Fifth Plan period, the proportion of development expenditure to total revenue expenditure in percentage term varies from 73.41% to 78.87%. The Sixth Five Year Plan showed a decreasing percentage of development expenditure which was well above 70% excepting the year 1983 - 84 which recorded 69.75%. During Seventh Five Year Plan, the overall percentage of development expenditure to total revenue expenditure increased to 75.87% but the lowest percentage during this Five Year Plan was recorded in 1986 - 87 at 67.01%. It increased gradually every year to 77.67% in 1989 - 90. The two Annual Plans showed 71.38% and 74.86% in the year 1990 - 91 and 1991 - 92 respectively. The first year of the Eight Plan recorded an expenditure at 74.32 % which fell to 72.19 % and then falling down consecutively to 71.54%, 70.20% and 70.69 % in the following three years.

During the Ninth Plan, the first four years recorded more or less a constant level of development expenditure hovering around 67%, but declined to 65.22% in 2001 - 02. During Tenth Plan, the development expenditure shows falling percentage at a minimum of 60.27% in 2004 05, but gradually increases during the Eleventh Plan. The total development expenditure on revenue account in 2011 - 2012 is estimated at Rs. 2648.69 crores which recorded an increase of 23.48 % over the previous year 2010 - 11 which was at Rs. 2145.01 crores. The average development expenditure as a proportion to total revenue expenditure during Eleventh Plan stood at 66.74% which indicated a decrease of 9% from the Fifth Five Year Plan.

In the accounting and Budgeting system of the State Government, there is no reflection of expenditure in terms of physical targets. Moreover, the plan framework gives only lists of demands for financial outlay without specific target achievements. At the end of the financial year, the statement of expenditure is compiled to show the amount of money actually spent for the various programmes. It is thus well-nigh impossible to

Vedaang Vol. 4 No. 1, January-June 2013 Growth and Trend of Development Revenue Expenditure in Mizoram

42 43

Rs. In crores

Year Total Development Expenditure

Total Revenue Expenditure

2 as a per cent

of 3

1

2

3

41974 -

75

19.00

24.94 76.20

1975 -

76

24.51

33.39 73.411976 -

77

31.45

39.88 78.871977 -78

24.33

32.89 73.981978 -

79

33.66

44.51 75.635th Plan

132.95

175.50 75.761979 -

80 (A.P.)

40.50

52.41 77.271980 -

81

43.78

58.01 75.471981 -

82

53.69

71.42 75.181982 -

83

61.17

85.24 71.761983 -

84

66.50

95.35 69.751984 -

85

87.33

120.66 72.386th Plan

312.47

432.90 72.181985 -

86

104.32

143.44 72.731986 -

87

31.03

46.31 67.011987 -

88

204.39

268.01 76.261988 -

89

195.63

254.06 77.001989 -

90

202.28

260.44 77.677th Plan

737.65

972.27 75.871990 -

91

219.70

307.78 71.381991 -

92

261.56

349.38 74.86Annual Plan

481.26

657.16 73.231992 -

93

246.85

332.16 74.321993 -

94

289.20

400.60 72.191994 -

95

321.92

449.99 71.541995 -

96

388.70

553.70 70.201996 -

97

447.74

633.36 70.698th Plan

1694.41

2369.81 71.501997 -

98

445.06

661.57 67.271998 -

99

465.84

690.83 67.431999 - 00 600.26 894.28 67.122000 - 01 686.76 1021.61 67.222001 - 02 735.86 1128.23 65.229th Plan 2933.78 4396.53 66.732002 - 03 725.33 1128.96 64.252003 - 04 804.43 1266.97 63.492004 - 05 780.86 1295.51 60.272005 - 06 1046.35 1587.98 65.892006 - 07 1100.37 1717.29 64.0810th Plan 4457.34 6996.71 63.712007 - 08 1262.74 1908.62 66.162008 - 09 1510.65 2313.62 65.292009 - 10 1755.06 2702.81 64.932010 - 11 2145.01 3155.83 67.97

2011 - 12 (R.E.) 2648.69 3886.85 68.1411th Plan 9322.15 13967.73 66.74

Source : Annual Financial Statement, Government of Mizoram

Table 1 : Percentage Growth of Development and Revenue Expenditure

Vedaang Vol. 4 No. 1, January-June 2013 Growth and Trend of Development Revenue Expenditure in Mizoram

44 45

Plan and the increase in the percentage of evaluate physical achievement of public expenditure on Social Services (11166.80 %) was expenditure programmes in details as all the considerably higher than that of the expenditure on dealings in the Government Account remain Economic Services (4653.54 %). While opaque. At best, it is possible to analyse the expenditure on Social Services witnessed a sharp different components of development expenditure increase as a proportion to total development in terms of financial outlays for a given period. revenue expenditure from 36 per cent in the Fifth

Plan to 57 per cent in the Eleventh Plan, the Table 2 and 3 show the growth and pattern of

expenditure on Economic Services on the other development expenditure in Mizoram from the

hand, fell from 64 per cent to 43 per cent. In other Fifth Five Year Plan to the Eleventh Five Year Plan.

words, expenditure on Economic Services in the A close examination of the figure indicates the

Fifth Five Year Plan recorded nearly 2 times more following results :-

than the expenditure on Social Services, but the 1) Social Services and Economic Services which growth trend had been reversed in the Eleventh Plan accounted for 36 : 64 per cent of the total showing a higher percentage of expenditure on development revenue expenditure in the Fifth Plan Social Services to Economic Services. This period changed to 57 : 43 per cent in the Eleventh changing ratio of expenditure between Social

Services and Economic Services clearly indicates expenditure during the last 37 years under study that the Government of Mizoram has put more which recorded an expenditure of Rs. 5242 crores. importance to welfare programme with immediate Agriculture and Allied Services in Economic result than to long term development programme. It Services group occupies the second place with a is now of utmost importance for the planners and total expenditure of Rs. 3528 crores. While Water policy makers to seriously look into the pattern of supply, Sanitation, Housing & Urban Development public expenditure in the State. A backward state head ranks third with an expenditure of Rs. like Mizoram cannot afford to enhance too much 1605.42crores and generation of power and energy welfare programmes at the cost of long-term in the Economic Services group comes next with a development programmes. This is the reason why very close total expenditure of Rs. 595.33 crores. even after four decades of economic planning of the

3) As regards the percentage increase in the State, Mizoram has poor infrastructural facilities

Eleventh Plan over the Fifth Plan, the constituent and no industrial base. If the trend goes on like this,

head of expenditure called Energy in the Economic the economy of the State is bound to entangle in

Services group and General Economic Services secular stagnation and be capsized in a vicious

comprising Secretariat Economic Services, circle of poverty.

Tourism, Census and Statistics, Civil Supplies, 2) A close examination of the constituent heads of Public Works shows an unprecedented increase expenditure in the table shows that Education in recording the highest and the second highest Social Services occupies the highest proportion of respectively. This soaring increase is largely

Table 2 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Social ServicesRs. In crores

Constituents of Development Expenditure

Fifth Plan

Sixth Plan

Seventh Plan

Annual Plans

Eight Plan

Ninth Plan

Tenth Plan

Eleventh Plan

% increase in the 11th Plan over

the 5th Plan

1

2

3

4

5

6

7

8

9 10SOCIAL

SERVICES

47.62 (35.82)

140.86 (45.08)

350.15 (47.47)

215.67 (44.81)

873.84 (51.57)

1608.87 (54.84)

2458.94 (53.66)

5365.25(56.95)

11166.8

Education

22.74 (17.60)

56.96 (18.90)

134.71 (19.06)

99.42 (21.52)

386.78 (23.69)

784.60 (27.43)

1226.37(26.76)

2530.51(26.86)

11028

Health & Family Welfare

7.56 (5.85)

20.88 (6.93)

49.71 (7.03)

31.59 (6.84)

130.13 (7.97)

255.42 (8.93)

376.72 (8.22)

896.45 (9.51)

11758

Water Supply, Sanitation, Housing & Urban Dev.

8.90 (6.89)

42.15 (13.99)

90.58 (2.82)

45.01 (9.74)

167.74 (10.27)

242.85 (8.49)

319.45 (6.97)

688.74 (7.31)

7639

Information & Broadcasting

0.74 ( 0.57 )

1.77 (0.59)

4.05 ( 0.57 )

2.67 ( 0.58 )

8.54 ( 0.52)

13.56 ( 0.47 )

19.05 (0.42)

31.44 (0.33)

4149

Welfare of SC/ST & Other Backward Classes

24.07 (3.41)

18.69 (4.05)

98.98 ( 6.06 )

197.63 (6.91)

302.67 (6.60)

695.45 (7.38)

Labour & Employment

0.29 ( 0.22 )

1.03 ( 0.34 )

2.47

( 0.35 )

1.60 ( 0.35 )

5.52 ( 0.34 )

9.79 ( 0.34 )

18.78 (0.41)

28.86 (0.31)

9852

Social Welfare & Nutrition

7.05 ( 5.46 )

17.73 ( 5.88 )

43.44 ( 6.15 )

15.50 ( 3.36 )

70.30 ( 4.31 )

105.48 ( 3.69 )

179.89 (3.93)

456.26 (4.84)

6372

Others0.34

( 0.27 )0.34

( 0.11 )1.12

( 0.16 )1.19

( 0.26 )5.85

( 0.36 )11.24

( 0.39 )16.06 (0.35)

37.54 (0.40)

10942

Source : Computed and Arrange from Financial Statement, Government of Mizoram Figures in the brackets are percentage to Total Development Revenue expenditure

Table 3 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Economic Services Rs. In crores

Source : Computed and Arrange from Financial Statement, Government of Mizoram Figures in the brackets are percentage to Total Development Revenue expenditure

Constituents of

Development Expenditure

Fifth Plan

Sixth Plan

Seventh Plan

Annual Plans

Eight Plan

Ninth Plan

Tenth Plan

Eleventh Plan % increase in the 11th

Plan over the 5st Plan

1 2 3 4 5 6 7 8 9 10Economic Services

85.33 (64.18)

171.61 (54.92)

387.50 (52.53)

265.59 (55.19)

820.57 (48.43)

1331.57 (45.11)

2123.05 (46.33)

4056.20 (43.05)

4653.54

Agriculture & Allied Activities

25.46 (19.71)

57.39 (19.05)

143.90 (20.36)

92.57 (20.04)

308.30 (18.88)

431.87 (15.10)

742.41 (16.20)

1725.81(18.32) 6679

Rural Development

3.83 (2.96)

6.64 ( 2.20 )

33.50 ( 4.74 )

57.21 (12.38)

159.16 (9.75)

154.99 (5.42)

163.91 (3.58)

240.40 (2.55) 6177

Special Area Programme

3.10 (2.40)

9.71 (3.22 )

26.06 ( 3.69 )

1.65 ( 0.36 )

4.60 ( 0.28 )

54.83 ( 1.92 )

60.57 (1.32)

170.21 (1.81) 5391

Irrigation & Flood Control

0.68 (0.53)

1.65 ( 0.55 )

6.98 ( 0.99 )

6.16 ( 1.33 )

11.92 ( 0.73 )

13.38 ( 0.47 )

20.85 (0.45)

33.59 (0.36) 4840

Energy

2.23 (1.73)

20.46 ( 6.79 )

66.62 ( 9.43 )

42.47 ( 9.19 )

147.91 ( 9.06 )

315.64 (11.03)

618.32 (13.49)

979.75 (10.40) 43835

Industry & Minerals

3.76 (2.91)

11.16 ( 3.70 )

30.92 ( 4.38 )

19.32 ( 4.18 )

61.74 ( 3.78 )

91.53 ( 3.20 )

143.18 (3.12)

210.77 (2.24) 5506

Transport

45.45 (35.18)

61.75 (20.49)

66.88 ( 9.46)

36.29 (7.86)

87.72 (5.37)

186.42 (6.52)

251.57 (5.49)

426.38 (4.52)

838

General Eco. Service

0.82 (0.63)

2.85 ( 0.95 )

12.64 (1.79)

9.92 (2.15)

39.22 (2.40)

82.91 (2.90)

122.24 (2.67)

269.29 (2.86)

32740

Vedaang Vol. 4 No. 1, January-June 2013 Growth and Trend of Development Revenue Expenditure in Mizoram

44 45

Plan and the increase in the percentage of evaluate physical achievement of public expenditure on Social Services (11166.80 %) was expenditure programmes in details as all the considerably higher than that of the expenditure on dealings in the Government Account remain Economic Services (4653.54 %). While opaque. At best, it is possible to analyse the expenditure on Social Services witnessed a sharp different components of development expenditure increase as a proportion to total development in terms of financial outlays for a given period. revenue expenditure from 36 per cent in the Fifth

Plan to 57 per cent in the Eleventh Plan, the Table 2 and 3 show the growth and pattern of

expenditure on Economic Services on the other development expenditure in Mizoram from the

hand, fell from 64 per cent to 43 per cent. In other Fifth Five Year Plan to the Eleventh Five Year Plan.

words, expenditure on Economic Services in the A close examination of the figure indicates the

Fifth Five Year Plan recorded nearly 2 times more following results :-

than the expenditure on Social Services, but the 1) Social Services and Economic Services which growth trend had been reversed in the Eleventh Plan accounted for 36 : 64 per cent of the total showing a higher percentage of expenditure on development revenue expenditure in the Fifth Plan Social Services to Economic Services. This period changed to 57 : 43 per cent in the Eleventh changing ratio of expenditure between Social

Services and Economic Services clearly indicates expenditure during the last 37 years under study that the Government of Mizoram has put more which recorded an expenditure of Rs. 5242 crores. importance to welfare programme with immediate Agriculture and Allied Services in Economic result than to long term development programme. It Services group occupies the second place with a is now of utmost importance for the planners and total expenditure of Rs. 3528 crores. While Water policy makers to seriously look into the pattern of supply, Sanitation, Housing & Urban Development public expenditure in the State. A backward state head ranks third with an expenditure of Rs. like Mizoram cannot afford to enhance too much 1605.42crores and generation of power and energy welfare programmes at the cost of long-term in the Economic Services group comes next with a development programmes. This is the reason why very close total expenditure of Rs. 595.33 crores. even after four decades of economic planning of the

3) As regards the percentage increase in the State, Mizoram has poor infrastructural facilities

Eleventh Plan over the Fifth Plan, the constituent and no industrial base. If the trend goes on like this,

head of expenditure called Energy in the Economic the economy of the State is bound to entangle in

Services group and General Economic Services secular stagnation and be capsized in a vicious

comprising Secretariat Economic Services, circle of poverty.

Tourism, Census and Statistics, Civil Supplies, 2) A close examination of the constituent heads of Public Works shows an unprecedented increase expenditure in the table shows that Education in recording the highest and the second highest Social Services occupies the highest proportion of respectively. This soaring increase is largely

Table 2 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Social ServicesRs. In crores

Constituents of Development Expenditure

Fifth Plan

Sixth Plan

Seventh Plan

Annual Plans

Eight Plan

Ninth Plan

Tenth Plan

Eleventh Plan

% increase in the 11th Plan over

the 5th Plan

1

2

3

4

5

6

7

8

9 10SOCIAL

SERVICES

47.62 (35.82)

140.86 (45.08)

350.15 (47.47)

215.67 (44.81)

873.84 (51.57)

1608.87 (54.84)

2458.94 (53.66)

5365.25(56.95)

11166.8

Education

22.74 (17.60)

56.96 (18.90)

134.71 (19.06)

99.42 (21.52)

386.78 (23.69)

784.60 (27.43)

1226.37(26.76)

2530.51(26.86)

11028

Health & Family Welfare

7.56 (5.85)

20.88 (6.93)

49.71 (7.03)

31.59 (6.84)

130.13 (7.97)

255.42 (8.93)

376.72 (8.22)

896.45 (9.51)

11758

Water Supply, Sanitation, Housing & Urban Dev.

8.90 (6.89)

42.15 (13.99)

90.58 (2.82)

45.01 (9.74)

167.74 (10.27)

242.85 (8.49)

319.45 (6.97)

688.74 (7.31)

7639

Information & Broadcasting

0.74 ( 0.57 )

1.77 (0.59)

4.05 ( 0.57 )

2.67 ( 0.58 )

8.54 ( 0.52)

13.56 ( 0.47 )

19.05 (0.42)

31.44 (0.33)

4149

Welfare of SC/ST & Other Backward Classes

24.07 (3.41)

18.69 (4.05)

98.98 ( 6.06 )

197.63 (6.91)

302.67 (6.60)

695.45 (7.38)

Labour & Employment

0.29 ( 0.22 )

1.03 ( 0.34 )

2.47

( 0.35 )

1.60 ( 0.35 )

5.52 ( 0.34 )

9.79 ( 0.34 )

18.78 (0.41)

28.86 (0.31)

9852

Social Welfare & Nutrition

7.05 ( 5.46 )

17.73 ( 5.88 )

43.44 ( 6.15 )

15.50 ( 3.36 )

70.30 ( 4.31 )

105.48 ( 3.69 )

179.89 (3.93)

456.26 (4.84)

6372

Others0.34

( 0.27 )0.34

( 0.11 )1.12

( 0.16 )1.19

( 0.26 )5.85

( 0.36 )11.24

( 0.39 )16.06 (0.35)

37.54 (0.40)

10942

Source : Computed and Arrange from Financial Statement, Government of Mizoram Figures in the brackets are percentage to Total Development Revenue expenditure

Table 3 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Economic Services Rs. In crores

Source : Computed and Arrange from Financial Statement, Government of Mizoram Figures in the brackets are percentage to Total Development Revenue expenditure

Constituents of

Development Expenditure

Fifth Plan

Sixth Plan

Seventh Plan

Annual Plans

Eight Plan

Ninth Plan

Tenth Plan

Eleventh Plan % increase in the 11th

Plan over the 5st Plan

1 2 3 4 5 6 7 8 9 10Economic Services

85.33 (64.18)

171.61 (54.92)

387.50 (52.53)

265.59 (55.19)

820.57 (48.43)

1331.57 (45.11)

2123.05 (46.33)

4056.20 (43.05)

4653.54

Agriculture & Allied Activities

25.46 (19.71)

57.39 (19.05)

143.90 (20.36)

92.57 (20.04)

308.30 (18.88)

431.87 (15.10)

742.41 (16.20)

1725.81(18.32) 6679

Rural Development

3.83 (2.96)

6.64 ( 2.20 )

33.50 ( 4.74 )

57.21 (12.38)

159.16 (9.75)

154.99 (5.42)

163.91 (3.58)

240.40 (2.55) 6177

Special Area Programme

3.10 (2.40)

9.71 (3.22 )

26.06 ( 3.69 )

1.65 ( 0.36 )

4.60 ( 0.28 )

54.83 ( 1.92 )

60.57 (1.32)

170.21 (1.81) 5391

Irrigation & Flood Control

0.68 (0.53)

1.65 ( 0.55 )

6.98 ( 0.99 )

6.16 ( 1.33 )

11.92 ( 0.73 )

13.38 ( 0.47 )

20.85 (0.45)

33.59 (0.36) 4840

Energy

2.23 (1.73)

20.46 ( 6.79 )

66.62 ( 9.43 )

42.47 ( 9.19 )

147.91 ( 9.06 )

315.64 (11.03)

618.32 (13.49)

979.75 (10.40) 43835

Industry & Minerals

3.76 (2.91)

11.16 ( 3.70 )

30.92 ( 4.38 )

19.32 ( 4.18 )

61.74 ( 3.78 )

91.53 ( 3.20 )

143.18 (3.12)

210.77 (2.24) 5506

Transport

45.45 (35.18)

61.75 (20.49)

66.88 ( 9.46)

36.29 (7.86)

87.72 (5.37)

186.42 (6.52)

251.57 (5.49)

426.38 (4.52)

838

General Eco. Service

0.82 (0.63)

2.85 ( 0.95 )

12.64 (1.79)

9.92 (2.15)

39.22 (2.40)

82.91 (2.90)

122.24 (2.67)

269.29 (2.86)

32740

Vedaang Vol. 4 No. 1, January-June 2013

FINANCIAL INCLUSION AND SHG-BANK LINKAGE PROGRAMME: A RURAL HOUSEHOLD STUDY IN KERALA

Dr. Minimol M.C.*, Dr. Makesh K.G.**

ABSTRACTDeliberations and discussions on the subject of Financial Inclusion has formulated a consensus among people that merely having a bank account need not necessarily be a good indicator of financial inclusion. Further, indebtedness as quantified in the NSSO 59th round (2003) may not also be a reflective indicator. The ideal definition should look at people who want to access financial services but are denied the same. If genuine claimants for credit and financial services are denied the same, then that is a case of exclusion. This would require re-engineering of existing financial products or delivery systems and making them more in tune with the expectations and absorptive capacity of the intended clientele. Based on the above consideration, a broad working definition of financial inclusion could be the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (Committee on Financial Inclusion, 2008). The SHGS-Bank linkage programme is considered to be an effective strategy to ensure financial inclusion. It is against this backdrop, the present study has been undertaken with the specific objective of analyzing the impact of SHG-Bank Linkage Programme on the financial inclusion in rural Kerala. The study was taken up in Kottayam district of Kerala and covered a sample of 300 SHG members. Results of this study clearly show that the SHG-Bank linkage programme has increased the flow of institutional credit to landless and marginal farm households and discouraged non-institutional borrowing through the thrift creation. Financial inclusion index, which measures the degree of financial inclusion, has been computed for each household by giving appropriate weight to the selected financial services.

Key Words : Financial Inclusion, Self help Groups, Financial Exclusion, Institutional Credit, Financial Services

***Associate Professor, School of Communication and Management Studies [SCMS]

Assistant Professor, Rajagiri Centre for Business Studies, Rajagiri College of Social Sciences

Introduction SHGs with banks in 1992, the programme has reached to linking of 69.5 lakh saving-linked

The SHGs - Bank Linkage Programme can be SHGSs and 48.5 lakh credit-linked SHGs and thus

regarded as the most potent initiative since about 9.7 crore households are covered under the

Independence for delivering financial services to programme, envisaging synthesis of formal

the poor in a sustainable manner. The programme financial system and informal sector[1]. has been growing rapidly and the number of SHGSs

financed increased to 29.25 lakhs on 31 March The programme involves forming SHGSs of the 2007. The Self Help Group (SHG)-Bank Linkage poor, encouraging them to pool their thrift regularly Programme, in the past eighteen years, has become and using the pooled thrift to make small interest a well known tool for bankers, developmental bearing loans to members, and in the process agencies and even for corporate houses. SHGSs, in learning the nuances of financial discipline. Bank many ways, have gone beyond the means of credit to such SHGs followed. NABARD saw the delivering the financial services as a channel and promotion and bank linking of SHGs not merely as turned out to be focal point for purveying various a credit programme but as part of an overall services to the poor. The programme, over a period, arrangement for providing financial services to the has become the common vehicle in the development poor in a sustainable manner leading to process, converging important development empowerment of the members of these SHGs [3]. In programmes. With the small beginning as Pilot this backdrop, this study has been undertaken with Programme launched by NABARD by linking 255 the specific objective of analyzing the impact of

46 47

Expenditure,' The Economic Weekly, 1961.explained by the low base in the initial years. In Gupta, B.N., Government Budgeting, Asia Publishing House, absolute terms, the total development expenditure

New Delhi, 1967.on revenue account during the Fifth Five Year Plan Reddy, K.N., and Sudhakar, S., Incidence of Public on Energy was Rs. 2.23 crores which increased to

Expenditure in India, Commonwealth Publishers, New Rs. 979.75 crores in the Eleventh Plan. Total Delhi, 1989.

Development expenditure on the head 'General Sharma, Atul and Tulsidhar, V.B., Economic Impact of Economic Service' in Economic Services was Rs.

Government Expenditure, Concept Publishing 0.82 crore in the Fifth Plan which increased to Rs. Company, New Delhi, 1984.269.29 crores in the Eleventh Plan. The low base of Sury, M.M., Government Budgeting in India, Commonwealth development expenditure during the Fifth and Sixth Publishers, New Delhi, 1990.Plans may be explained by the fact that Mizoram Thangchungnunga, 'Financial Management in Mizoram,' was one of the poorest and remotest Union Dialogue Quarterly, (July September, 2002), A Journal

of Astha Bharati, New Delhi.Territories where no major developmental programme had been taken up so far and the Goverrnment of Mizoram, Annual Financial Statement

(Budget), Finance Department, Aizawl, from 1974 75 to government set up was confined to small pockets of 2011 12).establishment during this period. It was only since

Government of Mizoram, explanatory Memorandum on the Mizoram became a full-fledged State, Government Budget (As laid before the Legislative Assembly), from establishment has become expanded and its 1974 75 to 2011 12.

activities also increased manifolds. Expenditure Government of Mizoram, Demand for Grants, Finance

also inevitably increased tremendously. Department, Aizawl, for the year 1974 75 to 2011 12.References Government of Mizoram, Reports of the Comptroller and

Auditor General of India, (various years).Bhuyan, P. K., The Regional Fiscal Economics of Assam, Chugh Publication, Allahabad, 1984 Government of Mizoram, Reports of the Public Accounts

Committee, (various reports relating to different Das, H.N., 'The Present Financial Crisis in Assam,' Dialogue departments, Government of Mizoram.Quarterly, (July September, 2002), Vol. 4, No. 1,

AJournal of Astha Bharati, New Delhi. Government of Mizoram, Reports of the Estimate Committee, (various action taken report relating to different Gadhok, N., Parliamentary Control OverGovernment departments, Government of Mizoram.Expenditure, Sterling, 1976.

Government of Mizoram, Reports of the Committeeon Public Gulati, I.S., 'An Analysis of Central Government

Vedaang Vol. 4 No. 1, January-June 2013

FINANCIAL INCLUSION AND SHG-BANK LINKAGE PROGRAMME: A RURAL HOUSEHOLD STUDY IN KERALA

Dr. Minimol M.C.*, Dr. Makesh K.G.**

ABSTRACTDeliberations and discussions on the subject of Financial Inclusion has formulated a consensus among people that merely having a bank account need not necessarily be a good indicator of financial inclusion. Further, indebtedness as quantified in the NSSO 59th round (2003) may not also be a reflective indicator. The ideal definition should look at people who want to access financial services but are denied the same. If genuine claimants for credit and financial services are denied the same, then that is a case of exclusion. This would require re-engineering of existing financial products or delivery systems and making them more in tune with the expectations and absorptive capacity of the intended clientele. Based on the above consideration, a broad working definition of financial inclusion could be the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (Committee on Financial Inclusion, 2008). The SHGS-Bank linkage programme is considered to be an effective strategy to ensure financial inclusion. It is against this backdrop, the present study has been undertaken with the specific objective of analyzing the impact of SHG-Bank Linkage Programme on the financial inclusion in rural Kerala. The study was taken up in Kottayam district of Kerala and covered a sample of 300 SHG members. Results of this study clearly show that the SHG-Bank linkage programme has increased the flow of institutional credit to landless and marginal farm households and discouraged non-institutional borrowing through the thrift creation. Financial inclusion index, which measures the degree of financial inclusion, has been computed for each household by giving appropriate weight to the selected financial services.

Key Words : Financial Inclusion, Self help Groups, Financial Exclusion, Institutional Credit, Financial Services

***Associate Professor, School of Communication and Management Studies [SCMS]

Assistant Professor, Rajagiri Centre for Business Studies, Rajagiri College of Social Sciences

Introduction SHGs with banks in 1992, the programme has reached to linking of 69.5 lakh saving-linked

The SHGs - Bank Linkage Programme can be SHGSs and 48.5 lakh credit-linked SHGs and thus

regarded as the most potent initiative since about 9.7 crore households are covered under the

Independence for delivering financial services to programme, envisaging synthesis of formal

the poor in a sustainable manner. The programme financial system and informal sector[1]. has been growing rapidly and the number of SHGSs

financed increased to 29.25 lakhs on 31 March The programme involves forming SHGSs of the 2007. The Self Help Group (SHG)-Bank Linkage poor, encouraging them to pool their thrift regularly Programme, in the past eighteen years, has become and using the pooled thrift to make small interest a well known tool for bankers, developmental bearing loans to members, and in the process agencies and even for corporate houses. SHGSs, in learning the nuances of financial discipline. Bank many ways, have gone beyond the means of credit to such SHGs followed. NABARD saw the delivering the financial services as a channel and promotion and bank linking of SHGs not merely as turned out to be focal point for purveying various a credit programme but as part of an overall services to the poor. The programme, over a period, arrangement for providing financial services to the has become the common vehicle in the development poor in a sustainable manner leading to process, converging important development empowerment of the members of these SHGs [3]. In programmes. With the small beginning as Pilot this backdrop, this study has been undertaken with Programme launched by NABARD by linking 255 the specific objective of analyzing the impact of

46 47

Expenditure,' The Economic Weekly, 1961.explained by the low base in the initial years. In Gupta, B.N., Government Budgeting, Asia Publishing House, absolute terms, the total development expenditure

New Delhi, 1967.on revenue account during the Fifth Five Year Plan Reddy, K.N., and Sudhakar, S., Incidence of Public on Energy was Rs. 2.23 crores which increased to

Expenditure in India, Commonwealth Publishers, New Rs. 979.75 crores in the Eleventh Plan. Total Delhi, 1989.

Development expenditure on the head 'General Sharma, Atul and Tulsidhar, V.B., Economic Impact of Economic Service' in Economic Services was Rs.

Government Expenditure, Concept Publishing 0.82 crore in the Fifth Plan which increased to Rs. Company, New Delhi, 1984.269.29 crores in the Eleventh Plan. The low base of Sury, M.M., Government Budgeting in India, Commonwealth development expenditure during the Fifth and Sixth Publishers, New Delhi, 1990.Plans may be explained by the fact that Mizoram Thangchungnunga, 'Financial Management in Mizoram,' was one of the poorest and remotest Union Dialogue Quarterly, (July September, 2002), A Journal

of Astha Bharati, New Delhi.Territories where no major developmental programme had been taken up so far and the Goverrnment of Mizoram, Annual Financial Statement

(Budget), Finance Department, Aizawl, from 1974 75 to government set up was confined to small pockets of 2011 12).establishment during this period. It was only since

Government of Mizoram, explanatory Memorandum on the Mizoram became a full-fledged State, Government Budget (As laid before the Legislative Assembly), from establishment has become expanded and its 1974 75 to 2011 12.

activities also increased manifolds. Expenditure Government of Mizoram, Demand for Grants, Finance

also inevitably increased tremendously. Department, Aizawl, for the year 1974 75 to 2011 12.References Government of Mizoram, Reports of the Comptroller and

Auditor General of India, (various years).Bhuyan, P. K., The Regional Fiscal Economics of Assam, Chugh Publication, Allahabad, 1984 Government of Mizoram, Reports of the Public Accounts

Committee, (various reports relating to different Das, H.N., 'The Present Financial Crisis in Assam,' Dialogue departments, Government of Mizoram.Quarterly, (July September, 2002), Vol. 4, No. 1,

AJournal of Astha Bharati, New Delhi. Government of Mizoram, Reports of the Estimate Committee, (various action taken report relating to different Gadhok, N., Parliamentary Control OverGovernment departments, Government of Mizoram.Expenditure, Sterling, 1976.

Government of Mizoram, Reports of the Committeeon Public Gulati, I.S., 'An Analysis of Central Government

SHGs-Bank linkage programme on the financial Objective of the Studyinclusion.

The study was undertaken with the specific Review of literature objective to analyze the impact of SHGs-Bank

linkage programme on the financial inclusion.Financial Inclusion covers a wide array of

services by banking sector. Financial inclusion, at a Hypotheses minimum, may be interpreted to mean the ability of

The hypotheses formulated for the empirical every individual to access basic financial services

verification through this study are;which include savings, loans and insurance in a manner that is reasonably convenient and flexible in ?SHGs-Bank linkage programme positively terms of access and design and reliable in the sense contributed to the flow of institutional credit to that savings are safe and that insurance claim will be the vulnerable section,paid with certainty [2]. Though financial inclusion

?There exists association between the degree of covers a wide array of services by the banking financial inclusion and the participation in sector, one crucial area relate to borrowings from SHGs.banks by the lower strata of the unorganized

segment of the economy. Further, debt owed to Methodology

institutional and non institutional source could be The study is based on the primary data collected used as barometer of degree of financial inclusion in

from Kanjirapplly Taluk of Kottayam district in the the two sectors [7]. Studies reveal that in the rural state of Kerala. Agriculture forms the livelihood of areas 70 per cent of borrowings of the richest the majority in the Taluk. Though the Taluk is being households were institutional in nature while this served by 120 branches of commercial banks and 60 share was only 18 per cent for the poorest branches of regional rural banks besides a large households. A huge untapped population is still number of credit cooperative societies, cent percent denied of these formal banking services [5]. financial inclusion continued to be a major According to an estimate by the World Bank, the challenge. Government agencies and many NGOs credit requirement of the poorer sections in India are promoting SHGs to face this challenge. The was placed at aroundRs.50,000 crore per annum in socio-economic environment of the district 2002. Against this requirement, the credit provides strong case for the purposeful selection of outstanding of the poorer sections with the formal the district for this study.banking sector is stated to be Rs.5,000 crore or 10

per cent of the total demand(Planning Commission, Sampling Design and Data Collection

2007). Furthermore, the physical outreach of the In the first step four Panchayats of the Taluk rural credit has not been effective in achieving

were randomly selected. Households of each income expansion and poverty reduction, and Panchayat were stratified into five segments Lower access to needed financial services is still an issue in segment(less than 25 cents), marginal (25-50 cents), the rural areas [4].

small (50 cents-1 acres), medium (1- 2 acres) and significance of the association between the large (more than 2 acres) farm category in the

degree of financial inclusion and the membership in second stage. From each Panchayat, considering the the SHGs.land holding distribution, 2 landless, 2 marginal, 6

small, 10 medium and 5 large farm households were Data Analysis and Interpretationrandomly selected in the third stage. Thus, totally

Financial Inclusion Index 100 rural households were selected by using multistage stratified random sampling method. Index which measures the degree of financial Primary data were elicited from these households inclusion has been developed by giving appropriate by using pre-tested, well structured schedule weights to the selected financial services. Bank

officials and knowledgeable farmers were Analytical Frameworkconsulted in order to understand the farmers'

In this study the total borrowing made during financial needs. In the light of the experience gained

2009-2010 from institutional and non-institutional through consultation, some important financial sources were computed separately for “households services were selected and the weights were without SHGs' and “households with SHGs'. assigned for computing the financial inclusion Significance in the difference in mean values of index [6]. Details of financial services selected for borrowing was tested by using t' test. Further, seven developing the financial inclusion index and their important financial services were selected and the corresponding weight are given in table 2. The extent of households' inclusion into these services household which availed all the financial services was estimated in terms of percentages. The Chi-will get 100 weights whereas the one which did not

square test (χ2) was made to verify the avail any of these services will get 0 weights. The

Table 2: Financial Services and Corresponding Weights

48 49

Table 1: Distribution of Sample Respondents

Farm Size Category Without SHGs With SHGs Total Lower segment 3(23.08) 10(76.92) 13(100) Marginal segment 11(42.30) 15(57.70) 26(100) Small segment 6(22.22) 21(77.78) 27(100) Medium segment

12(57.15)

9(42.85)

21(100)

Large segment

8(61.53)

5(38.47)

13(100)

Total 40(40) 60(60) 100(100)

Weight if answer is Maximum

weight Yes

No

Borrowings

from Institutional Sources

i) B orrowed directly from institutional Agencies and/or through SHG during 10-11?

30

0

ii) B orrowed directly from institutional Agencies and/or through SHG during 09-10?

10

0

50

iii) B orrowed directly from institutional Agencies and/or through SHG during 08-09?

10

0

Savings

in Institutional Agencies

i) H aving at least one SB account in bank or post office

10

0

ii) H aving at least one recurring and/or

Fixed deposit in bank or post office?

10

0

25

iii) Have savings in SHG 5 0

Other Financial Services

i) Adult member/s of family covered under life Insurance

10 0

ii) Family asset/s covered under insurance 5 0

iii) Family having at least one ATM card 5 0 25

iv) Family having at least one credit card 5 0

Total 100 0 100

Vedaang Vol. 4 No. 1, January-June 2013 Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

SHGs-Bank linkage programme on the financial Objective of the Studyinclusion.

The study was undertaken with the specific Review of literature objective to analyze the impact of SHGs-Bank

linkage programme on the financial inclusion.Financial Inclusion covers a wide array of

services by banking sector. Financial inclusion, at a Hypotheses minimum, may be interpreted to mean the ability of

The hypotheses formulated for the empirical every individual to access basic financial services

verification through this study are;which include savings, loans and insurance in a manner that is reasonably convenient and flexible in ?SHGs-Bank linkage programme positively terms of access and design and reliable in the sense contributed to the flow of institutional credit to that savings are safe and that insurance claim will be the vulnerable section,paid with certainty [2]. Though financial inclusion

?There exists association between the degree of covers a wide array of services by the banking financial inclusion and the participation in sector, one crucial area relate to borrowings from SHGs.banks by the lower strata of the unorganized

segment of the economy. Further, debt owed to Methodology

institutional and non institutional source could be The study is based on the primary data collected used as barometer of degree of financial inclusion in

from Kanjirapplly Taluk of Kottayam district in the the two sectors [7]. Studies reveal that in the rural state of Kerala. Agriculture forms the livelihood of areas 70 per cent of borrowings of the richest the majority in the Taluk. Though the Taluk is being households were institutional in nature while this served by 120 branches of commercial banks and 60 share was only 18 per cent for the poorest branches of regional rural banks besides a large households. A huge untapped population is still number of credit cooperative societies, cent percent denied of these formal banking services [5]. financial inclusion continued to be a major According to an estimate by the World Bank, the challenge. Government agencies and many NGOs credit requirement of the poorer sections in India are promoting SHGs to face this challenge. The was placed at aroundRs.50,000 crore per annum in socio-economic environment of the district 2002. Against this requirement, the credit provides strong case for the purposeful selection of outstanding of the poorer sections with the formal the district for this study.banking sector is stated to be Rs.5,000 crore or 10

per cent of the total demand(Planning Commission, Sampling Design and Data Collection

2007). Furthermore, the physical outreach of the In the first step four Panchayats of the Taluk rural credit has not been effective in achieving

were randomly selected. Households of each income expansion and poverty reduction, and Panchayat were stratified into five segments Lower access to needed financial services is still an issue in segment(less than 25 cents), marginal (25-50 cents), the rural areas [4].

small (50 cents-1 acres), medium (1- 2 acres) and significance of the association between the large (more than 2 acres) farm category in the

degree of financial inclusion and the membership in second stage. From each Panchayat, considering the the SHGs.land holding distribution, 2 landless, 2 marginal, 6

small, 10 medium and 5 large farm households were Data Analysis and Interpretationrandomly selected in the third stage. Thus, totally

Financial Inclusion Index 100 rural households were selected by using multistage stratified random sampling method. Index which measures the degree of financial Primary data were elicited from these households inclusion has been developed by giving appropriate by using pre-tested, well structured schedule weights to the selected financial services. Bank

officials and knowledgeable farmers were Analytical Frameworkconsulted in order to understand the farmers'

In this study the total borrowing made during financial needs. In the light of the experience gained

2009-2010 from institutional and non-institutional through consultation, some important financial sources were computed separately for “households services were selected and the weights were without SHGs' and “households with SHGs'. assigned for computing the financial inclusion Significance in the difference in mean values of index [6]. Details of financial services selected for borrowing was tested by using t' test. Further, seven developing the financial inclusion index and their important financial services were selected and the corresponding weight are given in table 2. The extent of households' inclusion into these services household which availed all the financial services was estimated in terms of percentages. The Chi-will get 100 weights whereas the one which did not

square test (χ2) was made to verify the avail any of these services will get 0 weights. The

Table 2: Financial Services and Corresponding Weights

48 49

Table 1: Distribution of Sample Respondents

Farm Size Category Without SHGs With SHGs Total Lower segment 3(23.08) 10(76.92) 13(100) Marginal segment 11(42.30) 15(57.70) 26(100) Small segment 6(22.22) 21(77.78) 27(100) Medium segment

12(57.15)

9(42.85)

21(100)

Large segment

8(61.53)

5(38.47)

13(100)

Total 40(40) 60(60) 100(100)

Weight if answer is Maximum

weight Yes

No

Borrowings

from Institutional Sources

i) B orrowed directly from institutional Agencies and/or through SHG during 10-11?

30

0

ii) B orrowed directly from institutional Agencies and/or through SHG during 09-10?

10

0

50

iii) B orrowed directly from institutional Agencies and/or through SHG during 08-09?

10

0

Savings

in Institutional Agencies

i) H aving at least one SB account in bank or post office

10

0

ii) H aving at least one recurring and/or

Fixed deposit in bank or post office?

10

0

25

iii) Have savings in SHG 5 0

Other Financial Services

i) Adult member/s of family covered under life Insurance

10 0

ii) Family asset/s covered under insurance 5 0

iii) Family having at least one ATM card 5 0 25

iv) Family having at least one credit card 5 0

Total 100 0 100

Vedaang Vol. 4 No. 1, January-June 2013 Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

total weights of an individual household show its Among lower segment household, the mean degree of financial inclusion. value of institutional borrowing by the families with

SHG (Rs 4038.5) was found to be considerably Borrowings of the Households

more compared to the households without SHG (Rs. Percentage share of institutional and non- 769.23). The calculated't' value between these two

institutional sources in the total borrowing of the means was found to be greater than the critical respective farm size group was computed for both value at 5 percent level of significance. Therefore, the groups of households. Percentage share of the difference is statistically significant. In case of institutional sources in the total borrowing is more lower segment households, institutional credit is among the households with SHGS compared to the frequently available through the SHGs. Though households without SHGS in the entire farm size there is difference between the households without group but the difference is more among the lower SHGs and with SHGs in the mean values of and small household group. It is generally believed institutional borrowing by the small, medium and that the flow of institutional credit to vulnerable large farm size group, they are very minimal. groups will increase with the SHGS-Bank linkage Another important finding of this study is that all the programme. For the empirical verification of this size groups of households with SHG, borrow hypothesis borrowings of the households with considerably lower amount from non-institutional SHGs and Without SHGs during the year 2009 - sources compared to their counterparts without 2010 were tested using “t test”. The results are given SHG. This difference was found to be statistically in Table 3. significant for pooled as well as marginal size

group. It might be because SHGs, besides creating the households with SHGS compared to their counterparts without SHGs. Since the saving is thrift culture, discourage their members to borrow compulsory for the SHGS members, the percentage from non-institutional sources. Thus SHGs have of households which saved with the formal definitely increased the flow of institutional credit institutions is cent percent in the households with to credit-thirsty landless and marginal farm the SHGS and without SHGs irrespective of their households and discouraged non-institutional farm size group and membership in SHGSs. borrowing through the thrift creation.

Degree of financial inclusion The percentage of households included in seven important financial services The degree of financial inclusion of each

household was computed by using the method Percentage of households which borrowed from explained in the financial inclusion index table. The institutional sources during 2009-10 increases with two way classification of the respondents based on farm size. The borrowing was considerably more in their degree of financial inclusion and the

50 51

Table 3: Arithmetic Mean values of borrowings during 2009-2010

Sources of Borrowing

Farm size Group With SHG

Without SHG ‘t’ value

Lower segment(13) 4038.5(72.41) 769.23(50.01) .795 Marginal segment(26) 6000.00(83.87) 30769.23(88.8)

institutional Small segment(27) 9000.00(94.18) 18518.51(72.9) .462 Medium segment(21) 9285.71(100.0) 19047.61(94.1) .460 Large segment(13) 6923.07(100.0) 23076.92(100) .670 Pooled(100) 7365.00(91.89) 20100.00(86.2) Lower segment(13) 1538.5(27.59) 769.23(49.99) .577 Marginal segment(26)

1153.84(16.13)

3846.15(11.20)

.670

Non institutional

Small segment(27)

555.55(5.82)

6851.85(27.10)

.915

Medium segment(21)

0.00(0.00)

1190.47(5.90)

1.00

Large segment(13)

0.00(0.00)

0.00(0.00)

0

Pooled(100)

650.00(8.11)

3200.00(13.80)

.780

Lower segment(13)

5577.00(100)

1538.00(100)

.698

Marginal segment(26)

7153.84(100)

34615.38(100)

Total

Small segment(27)

9555.55(100) 25370.37(100)

Medium segment(21)

9285.71(100) 20238.09(100)

.491

Large segment(13)

6923.07(100) 23076.92(100)

.670

Pooled(100) 8015.00(100) 23300.00(100)

Figures in parentheses indicate percentage to the total borrowing of the respective farm size group

Vedaang Vol. 4 No. 1, January-June 2013 Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

Table 4 : Association between degree of financial inclusion and membership in SHGs

Note: figures in parenthesis are percentage to the respective row total

Farm size group Degree of financial inclusion χ2

Low (0-40) Medium (41-75)

High (76-100)

total

Lower segment Without SHGS 1(33.33) 1(33.33) 1(33.34) 3(100) With SHGS 0(0.0) 7(70.00) 3(30.00) 10(100) 10.791

TOTAL 1(7.70) 8(61.53) 4(30.77) 13(100) Marginal segment Without SHGS 3(27.28) 5(45.45) 3(27.27) 11(100) With SHGS 0(0.00) 5(33.33) 10(66.67) 15(100) 6.291 TOTAL

3(11.53)

10(38.47)

13(50.00)

26(100)

Small segment

Without SHGS

1(16.67)

5(83.33)

0(0.0)

6(100)

With SHGS

1(4.77)

13(61.90)

7(33.33)

21(100)

3.178

TOTAL

2(7.40)

18(66.68)

7(25.92)

27(100)

Medium segment

Without SHGS

2(16.67)

9(75.00)

1(8.33)

12(100)

With SHGS

0(0.0)

6(66.67)

3(33.33)

9(100)

3.225

TOTAL

2(9.53)

15(71.42)

4(19.05)

21(100) Large segment

Without SHGS

4(50.00)

4(50.00)

0(0.0)

8(100) With SHGS

0(0.0)

4(80.00)

1(20.00)

5(100)

4.581

TOTAL

4(30.77)

8(61.53)

1(7.70)

13(100) Pooled

Without SHGS

11(27.50)

24(60.00)

5(12.50)

40(100) With SHGS

1(1.67)

35(58.33)

24(40.00)

60(100)

30.902

TOTAL 12(12.00) 59(59.00) 29(29.00) 100(100)

total weights of an individual household show its Among lower segment household, the mean degree of financial inclusion. value of institutional borrowing by the families with

SHG (Rs 4038.5) was found to be considerably Borrowings of the Households

more compared to the households without SHG (Rs. Percentage share of institutional and non- 769.23). The calculated't' value between these two

institutional sources in the total borrowing of the means was found to be greater than the critical respective farm size group was computed for both value at 5 percent level of significance. Therefore, the groups of households. Percentage share of the difference is statistically significant. In case of institutional sources in the total borrowing is more lower segment households, institutional credit is among the households with SHGS compared to the frequently available through the SHGs. Though households without SHGS in the entire farm size there is difference between the households without group but the difference is more among the lower SHGs and with SHGs in the mean values of and small household group. It is generally believed institutional borrowing by the small, medium and that the flow of institutional credit to vulnerable large farm size group, they are very minimal. groups will increase with the SHGS-Bank linkage Another important finding of this study is that all the programme. For the empirical verification of this size groups of households with SHG, borrow hypothesis borrowings of the households with considerably lower amount from non-institutional SHGs and Without SHGs during the year 2009 - sources compared to their counterparts without 2010 were tested using “t test”. The results are given SHG. This difference was found to be statistically in Table 3. significant for pooled as well as marginal size

group. It might be because SHGs, besides creating the households with SHGS compared to their counterparts without SHGs. Since the saving is thrift culture, discourage their members to borrow compulsory for the SHGS members, the percentage from non-institutional sources. Thus SHGs have of households which saved with the formal definitely increased the flow of institutional credit institutions is cent percent in the households with to credit-thirsty landless and marginal farm the SHGS and without SHGs irrespective of their households and discouraged non-institutional farm size group and membership in SHGSs. borrowing through the thrift creation.

Degree of financial inclusion The percentage of households included in seven important financial services The degree of financial inclusion of each

household was computed by using the method Percentage of households which borrowed from explained in the financial inclusion index table. The institutional sources during 2009-10 increases with two way classification of the respondents based on farm size. The borrowing was considerably more in their degree of financial inclusion and the

50 51

Table 3: Arithmetic Mean values of borrowings during 2009-2010

Sources of Borrowing

Farm size Group With SHG

Without SHG ‘t’ value

Lower segment(13) 4038.5(72.41) 769.23(50.01) .795 Marginal segment(26) 6000.00(83.87) 30769.23(88.8)

institutional Small segment(27) 9000.00(94.18) 18518.51(72.9) .462 Medium segment(21) 9285.71(100.0) 19047.61(94.1) .460 Large segment(13) 6923.07(100.0) 23076.92(100) .670 Pooled(100) 7365.00(91.89) 20100.00(86.2) Lower segment(13) 1538.5(27.59) 769.23(49.99) .577 Marginal segment(26)

1153.84(16.13)

3846.15(11.20)

.670

Non institutional

Small segment(27)

555.55(5.82)

6851.85(27.10)

.915

Medium segment(21)

0.00(0.00)

1190.47(5.90)

1.00

Large segment(13)

0.00(0.00)

0.00(0.00)

0

Pooled(100)

650.00(8.11)

3200.00(13.80)

.780

Lower segment(13)

5577.00(100)

1538.00(100)

.698

Marginal segment(26)

7153.84(100)

34615.38(100)

Total

Small segment(27)

9555.55(100) 25370.37(100)

Medium segment(21)

9285.71(100) 20238.09(100)

.491

Large segment(13)

6923.07(100) 23076.92(100)

.670

Pooled(100) 8015.00(100) 23300.00(100)

Figures in parentheses indicate percentage to the total borrowing of the respective farm size group

Vedaang Vol. 4 No. 1, January-June 2013 Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

Table 4 : Association between degree of financial inclusion and membership in SHGs

Note: figures in parenthesis are percentage to the respective row total

Farm size group Degree of financial inclusion χ2

Low (0-40) Medium (41-75)

High (76-100)

total

Lower segment Without SHGS 1(33.33) 1(33.33) 1(33.34) 3(100) With SHGS 0(0.0) 7(70.00) 3(30.00) 10(100) 10.791

TOTAL 1(7.70) 8(61.53) 4(30.77) 13(100) Marginal segment Without SHGS 3(27.28) 5(45.45) 3(27.27) 11(100) With SHGS 0(0.00) 5(33.33) 10(66.67) 15(100) 6.291 TOTAL

3(11.53)

10(38.47)

13(50.00)

26(100)

Small segment

Without SHGS

1(16.67)

5(83.33)

0(0.0)

6(100)

With SHGS

1(4.77)

13(61.90)

7(33.33)

21(100)

3.178

TOTAL

2(7.40)

18(66.68)

7(25.92)

27(100)

Medium segment

Without SHGS

2(16.67)

9(75.00)

1(8.33)

12(100)

With SHGS

0(0.0)

6(66.67)

3(33.33)

9(100)

3.225

TOTAL

2(9.53)

15(71.42)

4(19.05)

21(100) Large segment

Without SHGS

4(50.00)

4(50.00)

0(0.0)

8(100) With SHGS

0(0.0)

4(80.00)

1(20.00)

5(100)

4.581

TOTAL

4(30.77)

8(61.53)

1(7.70)

13(100) Pooled

Without SHGS

11(27.50)

24(60.00)

5(12.50)

40(100) With SHGS

1(1.67)

35(58.33)

24(40.00)

60(100)

30.902

TOTAL 12(12.00) 59(59.00) 29(29.00) 100(100)

52 53

membership in the SHGs was made and the results counterparts without SHG.

are given in table 4. The Chi-square test (χ2) ?SHG bank linkage program enhance its members contributions to their total household was made to verify the significance of the income.

association between the degree of ?A high degree of financial inclusion can be achieved by linking formal (banking and non- financial inclusion and the membership banking) institutions with SHGs.

in the SHGs. The calculated chi-square ?SHG linkage program improves cash

(χ2) value (30.902) was found to be statistically management of its members.significant at 5 percent level of significance. ?It also improves the social participation of its Therefore, it could be inferred that the degree of

members especially women. financial inclusion could be increased with implementat ion of SHGs-Bank l inkage 8. Conclusion

programme. Though the percentage of household Results of this study clearly show that the SHG-Bank linkage programme has increased the flow of reached the medium and high degree of institutional credit to landless and marginal farm

financial inclusion is relatively more households and discouraged non-institutional borrowing through the thrift creation. Financial among the SHGs member households inclusion index, which measures the degree of financial inclusion, has been computed for each compared to Non-member households in household by giving appropriate weight to the

all the farm size groups, the chi-squire selected financial services. Based on the index value, households were classified into the value (χ2) was found to be statistically households with low, medium and high degree of

significant only for lower and marginal financial inclusion. Percentage of household which reached the medium and high degree of financial household segments. Therefore it could be inferred inclusion, increased with the size of the land that SHGs-Bank linkage programme increased the holding. The percentage of households, which degree of financial inclusion among lower and reached the higher degree of financial inclusion, is marginal household segments. But no such relatively more among SHG member households inference could be drawn with respect to small,

medium and large household segments. compared to non-member households The chi-

Findings square (χ2) results lead to the conclusion ?SHG bank linkage program increase the flow of

that the SHG-Bank linkage programme institutional credits to poor and weaker sections of the society. increased the degree of financial inclusion

?There exists association between the degree of among landless and marginal household financial inclusion and the participation in

category.SHGs

References?All segments of households with SHG, borrow Chavan Pallavi (2007), “Access to Bank Credit: Implications considerably lower amount from non-

for Dalit Rural Households”, Economic and Political institutional sources compared to their Weekly, August, Vol. XLII (31), pp 3219-3224.

A STUDY & SCOPE OF SME'S IN UTTARAKHAND & PROBLEMS FACED BY THEM

Mohammad Alam Khan*

ABSTRACTAfter the formation of Uttarakhand state the people of the Uttarakhand region are having the

high expectation from the government are of the local people related to the development of the state, better job opportunities, better growth, & better standard of living & etc. TheState Infrastructure & Industrial Development Corporation of Uttarakhand Limited (SIDCUL), a government of Uttarakhand enterprise, was incorporated as a limited company in the year 2002 to promote industrial development in the state. It provides financial assistance to promote industries and develop industrial infrastructure in the state of Uttarakhand directly. Most of its major industrial infrastructure has been developed in the plains with limited concentration in the hills. As the government knowing the importance of SMEs Uttarakhand appears headed for another push to their growth through a new industrial policy. The government has contemplated a move to bring in a new policy for industrial growth in the year 2010 for further growth of SMEs in the state. As government formed various policies just to develop the industrial backward and remote areas & hilly region of the state just to develop the industrial infrastructure & to encourage the entrepreneurial development & financial support to the various industries in the state. As this paper highlighting the various reasons for the growth of SMEs & the limitation of SMEs in the Uttarakhand state.

* Assistant Professor, HIPR, Dehradun(U.K)-248001, India

?Sports goodsINTRODUCTION TO SMES IN INDIA:

?Plastic ProductsIndia has nearly 3 million SMEs, ?Computer Softwarewhich account for almost 50 percent industrial

output and 42 percent ofIndia's total export. They Indian SMEs have been passing through a constitute the most important employment transitional period, keeping competitive spirit high, generating sector and an effectivetool for balanced with a willingness to restructure themselves, facing regional development. They account for 50 percent the challenges and come out with shining colors and of private sector employment and30-40 percent of contribute to Indian economy.value addition in manufacturing. They produce a

What is a SME?diverse range of products (about8000) including consumer items, and capital and intermediate SME stands for Small and Medium Enterprises.goods.

By SME business, we mean small and medium In India, SMEs have been established in almost enterprises that maintain revenues or a number of

all major sectors in Indian industry like: employees below a certain standard. Every country has its own definition of what is considered as a ?Food Processingsmall and medium-sized enterprise. In India, an ?Agricultural Inputsindustrial undertaking that has investments in fixed

?Chemicals & Pharmaceuticalsassets which do not exceed more than Rs.10 million

?Engineering Electrical & Electronics or 1 crores falls under the category of small ?Electro-medical Equipment business. A small-sized enterprise is a company

with less than 50 employees while a medium-sized ?Textiles & Garmentsenterprise is one with fewer than 250 employees.?Leather & Leather Goods

Enterprises qualify as micro, small and ?Bio-engineering

Vedaang Vol. 4 No. 1, January-June 2013

52 53

membership in the SHGs was made and the results counterparts without SHG.

are given in table 4. The Chi-square test (χ2) ?SHG bank linkage program enhance its members contributions to their total household was made to verify the significance of the income.

association between the degree of ?A high degree of financial inclusion can be achieved by linking formal (banking and non- financial inclusion and the membership banking) institutions with SHGs.

in the SHGs. The calculated chi-square ?SHG linkage program improves cash

(χ2) value (30.902) was found to be statistically management of its members.significant at 5 percent level of significance. ?It also improves the social participation of its Therefore, it could be inferred that the degree of

members especially women. financial inclusion could be increased with implementat ion of SHGs-Bank l inkage 8. Conclusion

programme. Though the percentage of household Results of this study clearly show that the SHG-Bank linkage programme has increased the flow of reached the medium and high degree of institutional credit to landless and marginal farm

financial inclusion is relatively more households and discouraged non-institutional borrowing through the thrift creation. Financial among the SHGs member households inclusion index, which measures the degree of financial inclusion, has been computed for each compared to Non-member households in household by giving appropriate weight to the

all the farm size groups, the chi-squire selected financial services. Based on the index value, households were classified into the value (χ2) was found to be statistically households with low, medium and high degree of

significant only for lower and marginal financial inclusion. Percentage of household which reached the medium and high degree of financial household segments. Therefore it could be inferred inclusion, increased with the size of the land that SHGs-Bank linkage programme increased the holding. The percentage of households, which degree of financial inclusion among lower and reached the higher degree of financial inclusion, is marginal household segments. But no such relatively more among SHG member households inference could be drawn with respect to small,

medium and large household segments. compared to non-member households The chi-

Findings square (χ2) results lead to the conclusion ?SHG bank linkage program increase the flow of

that the SHG-Bank linkage programme institutional credits to poor and weaker sections of the society. increased the degree of financial inclusion

?There exists association between the degree of among landless and marginal household financial inclusion and the participation in

category.SHGs

References?All segments of households with SHG, borrow Chavan Pallavi (2007), “Access to Bank Credit: Implications considerably lower amount from non-

for Dalit Rural Households”, Economic and Political institutional sources compared to their Weekly, August, Vol. XLII (31), pp 3219-3224.

A STUDY & SCOPE OF SME'S IN UTTARAKHAND & PROBLEMS FACED BY THEM

Mohammad Alam Khan*

ABSTRACTAfter the formation of Uttarakhand state the people of the Uttarakhand region are having the

high expectation from the government are of the local people related to the development of the state, better job opportunities, better growth, & better standard of living & etc. TheState Infrastructure & Industrial Development Corporation of Uttarakhand Limited (SIDCUL), a government of Uttarakhand enterprise, was incorporated as a limited company in the year 2002 to promote industrial development in the state. It provides financial assistance to promote industries and develop industrial infrastructure in the state of Uttarakhand directly. Most of its major industrial infrastructure has been developed in the plains with limited concentration in the hills. As the government knowing the importance of SMEs Uttarakhand appears headed for another push to their growth through a new industrial policy. The government has contemplated a move to bring in a new policy for industrial growth in the year 2010 for further growth of SMEs in the state. As government formed various policies just to develop the industrial backward and remote areas & hilly region of the state just to develop the industrial infrastructure & to encourage the entrepreneurial development & financial support to the various industries in the state. As this paper highlighting the various reasons for the growth of SMEs & the limitation of SMEs in the Uttarakhand state.

* Assistant Professor, HIPR, Dehradun(U.K)-248001, India

?Sports goodsINTRODUCTION TO SMES IN INDIA:

?Plastic ProductsIndia has nearly 3 million SMEs, ?Computer Softwarewhich account for almost 50 percent industrial

output and 42 percent ofIndia's total export. They Indian SMEs have been passing through a constitute the most important employment transitional period, keeping competitive spirit high, generating sector and an effectivetool for balanced with a willingness to restructure themselves, facing regional development. They account for 50 percent the challenges and come out with shining colors and of private sector employment and30-40 percent of contribute to Indian economy.value addition in manufacturing. They produce a

What is a SME?diverse range of products (about8000) including consumer items, and capital and intermediate SME stands for Small and Medium Enterprises.goods.

By SME business, we mean small and medium In India, SMEs have been established in almost enterprises that maintain revenues or a number of

all major sectors in Indian industry like: employees below a certain standard. Every country has its own definition of what is considered as a ?Food Processingsmall and medium-sized enterprise. In India, an ?Agricultural Inputsindustrial undertaking that has investments in fixed

?Chemicals & Pharmaceuticalsassets which do not exceed more than Rs.10 million

?Engineering Electrical & Electronics or 1 crores falls under the category of small ?Electro-medical Equipment business. A small-sized enterprise is a company

with less than 50 employees while a medium-sized ?Textiles & Garmentsenterprise is one with fewer than 250 employees.?Leather & Leather Goods

Enterprises qualify as micro, small and ?Bio-engineering

Vedaang Vol. 4 No. 1, January-June 2013

medium-sized enterprises (SMEs) if they fulfill the districts comprise the hill region of the state.The criteria laid down in the recommendation which are formation of the new state had to fulfill the high summarized in the table below. In addition to the expectations of the local people related to staff headcount ceiling, an enterprise qualifies as an development and better living standards. However, SME if it meets either the turnover ceiling or the within Uttarakhand there is a geographical balance sheet ceiling, but not necessarily both. inequality between the hills and the plains that

divides the state critically.Types of SMEs

The State Infrastructure & Industrial According to the Micro, Small and Medium

Development Corporation of Uttarakhand Limited Enterprise Development Act (MSMEDA), 2006,

(SIDCUL), a government of Uttarakhand the micro, small and medium enterprises inIndia are

enterprise, was incorporated as a limited company defined as follows:

in the year 2002 to promote industrial development Role of SMEs in Uttarakhand in the state. It provides financial assistance to

promote industries and develop industrial Uttarakhand State was carved out of the state of

infrastructure in the state of Uttarakhand directly or Uttar Pradesh on November 9, 2000. It is divided

through Special Purpose Vehicles, Joint Ventures, into two broad regions--Garhwal and Kumaon. The

assisted companies, etc. Most of its major industrial state is comprised of 13 districts, namely, Chamoli,

infrastructure has been developed in the plains with Pauri, Tehri, Uttarkashi, Dehradun, Haridwar and

limited concentration in the hills. Rudraprayag in the Garhwal region and Nainital, Almora, Pithoragarh, Udham Singh Nagar, Some of its major projects include the Champawat and Bageshwar in the Kumaon region. Integrated Industrial Estate at BHEL inHaridwar, Of these 13 districts, four districts (Nainital, the Integrated Industrial Estate at Pantnagar, and an Haridwar, Dehradun and Udham Singh Nagar) have IT Park in Dehradun, Pharma City in Selaqui, large areas in the plains, whereas the other nine Dehradun, the Growth Centre at Pauri, and the

54 55

A study & scope of Sme's in Uttarakhand & problems faced by them

Integrated Industrial Estate at Sitarganj. SIDCUL facilitation in the state to expedite project enables industrial projects to be set up in a short clearances and to provide an investor-friendly time. The Corporation administers all promotional climate. It also looks to provide and facilitate schemes of the government for industries and uses expeditious land availability for setting up the single-window system. industrial ventures and infrastructure projects. The

policy aims to provide assured, good quality, The state has seen strong industrialization since

uninterrupted and affordable power for industries 2003, but that was mainly in the plains, following

and to simplify and rationalize labour laws and the special package announced by the Centre in

procedures in line with current requirements while 2003. Thus an Integrated Industrial Development

ensuring that workers get their due share in the Policy 2008 was launched in February especially

economic prosperity of the state. For small-scale for the industrial development of hilly and remote

industries, cottage, khadi and village industries, areas in the state. This policy has aimed at the

handicrafts, and the silk and handloom sectors, it economic development of the hill region. With the

will assist them in modernization and technological objective of inclusive growth, the main

upgrading and provide necessary common facilities concentration is now on the hill districts. This policy

and backward and forward linkages, including aims to celebrate industrial development in the

product design and marketing support so as to make industrially backward and remote hill districts of the

them globally competitive and remunerative. state, to develop industrial infrastructure, and to encourage entrepreneurial development through market encouragement and financial support to entrepreneurs. The creation of employment opportunities along with the removal of economic backwardness is expected to help control the migration of the population towards the plains and other states in search of better livelihoods. This policy targets industries in the manufacturing and services sectors. These steps are in addition to the Industrial Policy, 2003, which aimed to provide a comprehensive framework to enable a facilitative, investor-friendly environment to ensure rapid and sustainable industrial development in Uttarakhand and, through this, to generate additional employment opportunities and to bring about a significant increase in the State Domestic Product and eventual widening of the resource base of the state.

The policy looks at providing single-window

There has been an impressive increase of 18 per cent in SSI units in India from 2001-02 to 2006-07 and in Uttarakhand this increase is 22.8 per cent. Of these SSIs registered units showed an increase of about 50 per cent and unregistered of about 15 per cent in Uttarakhand, whereas the figures for India are 32 percent and 15 percent, respectively. This increase in scale of SSIs in Uttarakhand can be attributed to the industrial policy of 2003. Thus, after the industrial policy of 2008 is implemented, the industrialization process is expected to strengthen even in the hill regions.

Knowing the importance of Small and Medium Enterprises (SMEs), Uttarakhand appears headed for another push to their growth through a new industrial policy. The government has contemplated a move to bring in a new policy for industrial growth in the year 2010 for further growth of SMEs in the state.

Enterprise category Headcount Turnover or

Medium-sized < 250 = € 50 million = € 43 million

Small < 50 = € 10 million = € 10 million

Micro < 10 = € 2 million = € 2 million

Balance sheet total

Nature of the Enterprise

Micro Enterprise Small Enterprise Medium Enterprise

Manufacturing Sector

Investment in plant & machinery does not exceed INR 2.5

million (USD 62.5 Thousand)

Investment in plant & machinery more than INR 2.5

million (USD 62.5 thousand) but does not exceed INR 50 million (USD 1.25 million)

Investment in plant& machinery more

than INR 50 million(USD 1.25 million)

but does notexceed INR 100million (USD 2.5

million)

Service Sector

Investment in

equipment does

not exceed INR

1.0 million (USD 25

Thousand)

Investment in

equipment is

more than INR 1.0

million (USD 25

thousand) but doesnot exceed INR 20million (USD 500

thousand)

Investment inequipment more

than INR 20million (USD 500thousand) but doesnot exceed INR 50million (USD 1.25

million)

Table: Number of small-scale industrial units in India and Uttarakhand (2001-02 and 2006-07)

Source: Indiastat (www.indiastat.com). Outsourced from Annual Report 2006-07, 2009-10 Ministry of SSI, Govt. of India and various

Annual Surveys of India.

Type of Industry

Uttarakhand India2006-07 2009-10 2006-07 2009-10

Small-Scale Industry Units

106484

137618

10521190 12843774Registered 15285 30268 1374974 2031910

Un-registered 91199 107350 9146216 10811864

Vedaang Vol. 4 No. 1, January-June 2013

medium-sized enterprises (SMEs) if they fulfill the districts comprise the hill region of the state.The criteria laid down in the recommendation which are formation of the new state had to fulfill the high summarized in the table below. In addition to the expectations of the local people related to staff headcount ceiling, an enterprise qualifies as an development and better living standards. However, SME if it meets either the turnover ceiling or the within Uttarakhand there is a geographical balance sheet ceiling, but not necessarily both. inequality between the hills and the plains that

divides the state critically.Types of SMEs

The State Infrastructure & Industrial According to the Micro, Small and Medium

Development Corporation of Uttarakhand Limited Enterprise Development Act (MSMEDA), 2006,

(SIDCUL), a government of Uttarakhand the micro, small and medium enterprises inIndia are

enterprise, was incorporated as a limited company defined as follows:

in the year 2002 to promote industrial development Role of SMEs in Uttarakhand in the state. It provides financial assistance to

promote industries and develop industrial Uttarakhand State was carved out of the state of

infrastructure in the state of Uttarakhand directly or Uttar Pradesh on November 9, 2000. It is divided

through Special Purpose Vehicles, Joint Ventures, into two broad regions--Garhwal and Kumaon. The

assisted companies, etc. Most of its major industrial state is comprised of 13 districts, namely, Chamoli,

infrastructure has been developed in the plains with Pauri, Tehri, Uttarkashi, Dehradun, Haridwar and

limited concentration in the hills. Rudraprayag in the Garhwal region and Nainital, Almora, Pithoragarh, Udham Singh Nagar, Some of its major projects include the Champawat and Bageshwar in the Kumaon region. Integrated Industrial Estate at BHEL inHaridwar, Of these 13 districts, four districts (Nainital, the Integrated Industrial Estate at Pantnagar, and an Haridwar, Dehradun and Udham Singh Nagar) have IT Park in Dehradun, Pharma City in Selaqui, large areas in the plains, whereas the other nine Dehradun, the Growth Centre at Pauri, and the

54 55

A study & scope of Sme's in Uttarakhand & problems faced by them

Integrated Industrial Estate at Sitarganj. SIDCUL facilitation in the state to expedite project enables industrial projects to be set up in a short clearances and to provide an investor-friendly time. The Corporation administers all promotional climate. It also looks to provide and facilitate schemes of the government for industries and uses expeditious land availability for setting up the single-window system. industrial ventures and infrastructure projects. The

policy aims to provide assured, good quality, The state has seen strong industrialization since

uninterrupted and affordable power for industries 2003, but that was mainly in the plains, following

and to simplify and rationalize labour laws and the special package announced by the Centre in

procedures in line with current requirements while 2003. Thus an Integrated Industrial Development

ensuring that workers get their due share in the Policy 2008 was launched in February especially

economic prosperity of the state. For small-scale for the industrial development of hilly and remote

industries, cottage, khadi and village industries, areas in the state. This policy has aimed at the

handicrafts, and the silk and handloom sectors, it economic development of the hill region. With the

will assist them in modernization and technological objective of inclusive growth, the main

upgrading and provide necessary common facilities concentration is now on the hill districts. This policy

and backward and forward linkages, including aims to celebrate industrial development in the

product design and marketing support so as to make industrially backward and remote hill districts of the

them globally competitive and remunerative. state, to develop industrial infrastructure, and to encourage entrepreneurial development through market encouragement and financial support to entrepreneurs. The creation of employment opportunities along with the removal of economic backwardness is expected to help control the migration of the population towards the plains and other states in search of better livelihoods. This policy targets industries in the manufacturing and services sectors. These steps are in addition to the Industrial Policy, 2003, which aimed to provide a comprehensive framework to enable a facilitative, investor-friendly environment to ensure rapid and sustainable industrial development in Uttarakhand and, through this, to generate additional employment opportunities and to bring about a significant increase in the State Domestic Product and eventual widening of the resource base of the state.

The policy looks at providing single-window

There has been an impressive increase of 18 per cent in SSI units in India from 2001-02 to 2006-07 and in Uttarakhand this increase is 22.8 per cent. Of these SSIs registered units showed an increase of about 50 per cent and unregistered of about 15 per cent in Uttarakhand, whereas the figures for India are 32 percent and 15 percent, respectively. This increase in scale of SSIs in Uttarakhand can be attributed to the industrial policy of 2003. Thus, after the industrial policy of 2008 is implemented, the industrialization process is expected to strengthen even in the hill regions.

Knowing the importance of Small and Medium Enterprises (SMEs), Uttarakhand appears headed for another push to their growth through a new industrial policy. The government has contemplated a move to bring in a new policy for industrial growth in the year 2010 for further growth of SMEs in the state.

Enterprise category Headcount Turnover or

Medium-sized < 250 = € 50 million = € 43 million

Small < 50 = € 10 million = € 10 million

Micro < 10 = € 2 million = € 2 million

Balance sheet total

Nature of the Enterprise

Micro Enterprise Small Enterprise Medium Enterprise

Manufacturing Sector

Investment in plant & machinery does not exceed INR 2.5

million (USD 62.5 Thousand)

Investment in plant & machinery more than INR 2.5

million (USD 62.5 thousand) but does not exceed INR 50 million (USD 1.25 million)

Investment in plant& machinery more

than INR 50 million(USD 1.25 million)

but does notexceed INR 100million (USD 2.5

million)

Service Sector

Investment in

equipment does

not exceed INR

1.0 million (USD 25

Thousand)

Investment in

equipment is

more than INR 1.0

million (USD 25

thousand) but doesnot exceed INR 20million (USD 500

thousand)

Investment inequipment more

than INR 20million (USD 500thousand) but doesnot exceed INR 50million (USD 1.25

million)

Table: Number of small-scale industrial units in India and Uttarakhand (2001-02 and 2006-07)

Source: Indiastat (www.indiastat.com). Outsourced from Annual Report 2006-07, 2009-10 Ministry of SSI, Govt. of India and various

Annual Surveys of India.

Type of Industry

Uttarakhand India2006-07 2009-10 2006-07 2009-10

Small-Scale Industry Units

106484

137618

10521190 12843774Registered 15285 30268 1374974 2031910

Un-registered 91199 107350 9146216 10811864

Vedaang Vol. 4 No. 1, January-June 2013

?Low investment requirementsImportance of SMEs in Global Economy

?Significant export earningsGlobal economic integration is changing the competitive paradigm in which all businesses ?Capacities to develop appropriate indigenous operate, requiring an international expansion technologystrategy to positively impact long-term growth and ?Operational flexibilitysurvival (Karagozoglou and Lindell, 1998). The

?Contribution towards defense productionsmall businesssector has become more important as they emerge as a dominant force impacting the ?Technology - oriented industriesgrowth of national economies (Shridhar, 2006). ?Location wise mobilityThere are a number of disadvantages inherently

?Low intensive importsfaced by SMEs as they transition into international environments (Chen and Huang, 2004). Managers ?Competitiveness in the domestic marketof non-exporting SMEs perceive the international ?Competitiveness in the export marketsenvironment as being risky, unprofitable and

Limitations of SMEsunmanageable, due primarily to misinformation and lack of experience with global business Inspite of making significant contribution (Malekzadeh and Nahavandi, 1985). SMEs, due to towards global economy, SMEs face a lot of their size limitations, often have limited financial limitations in their growth and performance. Some capital and a lack of necessary human resources. of them are:Many operators of small businesses lack experience

?Low capital basein developing an international strategy (Tesar and ?Low utilization of installed capacityMoini, 1998). There are also disadvantages related

to a lack of competitive power as a consequence of ?Problem of specialized training and skilled the size of the organization. SMEs have difficulty in managementinfluencing global pricing as they rely on a small

?Unavailability of high quality of inputscustomer base, and arelimited in expansion due to

?Less innovation actionsminimal access to financial resources (Kalantaridis, 2004). ?Lack of proper market information

?Low level of research & developmentEven though faced with the need to overcome significant weaknesses, the strategic importance of ?Lack of awareness of global trade lawsSMEs has been identified as the following:

?Inadequate accession to the monetary ?They are responsible for growing employment institutions

at a faster rate than largerorganizations;?Less exposure to international environment

?They increase the competitive intensity of the ?Lack of Professionalismmarket and reduce the monopolisticpositions of Referenceslarge organizations; andSMEs, Entrepreneurship and Innovation,DOI :10.1787/ ?They encourage the development of

9789264080355-en www.oecd.org/ innovation/strategyentrepreneurial skills and innovation.

The Business Finance Market: A Survey, Industrial Systems Research Publications, Manchester UK, 3rd. revised Reasons behind growth in SMEsedition 2008.[1]There are various reasons due to which the small

UN/ECE Secretariat. "SMEs Their role in foreign trade". scale business in India has witnessed a spurt of www.unece.org. United Nations Economic Commission growth like:for Europe (UN/ECE). http://www.unece.org/indust/ sme/foreignt.htm. Retrieved 2007-06-28.?Import substitution

Tyler Biggs. ”Is small beautiful and worthy of subsidy”. ?High contribution to domestic productionw w w. u n e c e . o r g . Wo r l d B a n k ( U N / E C E ) .

56 57

A study & scope of Sme's in Uttarakhand & problems faced by them

http://rru.worldbank.prg/Documents/ PapersLinks/ /g/SME.htmlTylerPaperonSMEs.pdf. Retrieved 2008-05-30. The Improtance of SMEs in the ecnomywww.itdweb.org,

www.oecd.org."OECD-APEC Keynote Paper on Removing Barriers to SME Access to International Markets". www.oecd.org. OECD. SMEs India,India's SMEscenario, SMEsrole in Indian 2 0 0 6 . h t t p : / / w w w . o e c d . o r g / d a t a o e c d / economy, SMEswww.tradeindia.com/ newsletters/... 4/16/37818320.pdf. Retrieved 2007-06-28. /tips_13_feb_2007.html

Adapted from: Berger, A.; G. Udell (2005). "A More Complete SMEOvercoming Barriers to Innovation for Indian Conceptual Framework for SME Finance". SMEswww.annualmeeting2005. in sme.org/ . . . http://ideas.repec.org/p/ wbk/ wbrwps/3795.html. /14.4.../presentation_stuti.doc

Newberry, Derek (2006). "The role of small- and medium- Reasons behind growth in SME business. There are various sized enterprises in the futures of emerging economies". reasons due to which the small scale business in India has http://earthtrends.wri. org/features/ view_feature.php? witnessed a spurt of growth. blogs.siliconindia.com/.../ theme=5&fid=69. Retrieved 2008-05-19.

An_Overview_of_Scope_and_Growth_of_SME_BusinJournal of Small Business and Enterprise Development ess_in_India-bid On284gb518532640.html

Volume List, ISSN: 1462-6004, vol 16 -17The reason for SME's all-out attack on JYJ 9 Jan 2011

Article: International entrepreneurship: towards a theory of www.seiofbluemountain.com/ en/search/detail. SME internationalization, Journal of International php?id=4310Business and Economics , Article date: January 1, 2009

SME Problems, www.hutex.com/Problems.htmAuthor: Schulz, Anja; Borghoff, Thomas; Kraus, Sascha.Challenges facedby SMEs. Presented By. Lynette P Holder. Tambunan, Tulus (Oct 2007). 'Development of SMES in a

OUTLINE. Overview of CASME; Projects to Date; developing country : The Indonesian story', Journal of Sector Analysis; Challenges FacedbySMEs... Business and Entrepreneurship.www.ttbs.org.tt/sme/day2/Lynette%20Holder.ppt

Journal of technology management & innovation, versión On-Competitivechallenges facedby small and medium enterprises line ISSN 0718-2724

(SMEs ...1 article on Competitive challenges faced by Journal of Technology Management & Innovation v.4 n.4 s m a l l a n d m e d i u m e n t e r p r i s e s ( S M E s )S a n t i a g o d i c . 2 0 0 9 , d o i : 1 0 . 4 0 6 7 / S 0 7 1 8 -www.helium.com/.../275119-competitive-challenges-27242009000400005, J. Technol. Manag. Innov. 2009, faced-by-small-and-medium-enterprises-smes Volume 4, Issue 4

Overview of the problemsfacedby micro and small businesses SME Innovative Capacity, Competitive Advantage and whenwww.ueapme.com /docs/pos.../0710_Guido_ Performance in a 'Traditional' Industrial Region of problems_SME.pdfPortugal, Carla Susana Marques , João Ferreira

EUROPA Enterprise The new SME definition User guide Business Directory with Free CRM of Top Companies in and. www.ec.europa.eu/ enterprise/ policies/ sme/.../ India, Delhi ...Fundoodata.com is a Business Directory sme.../ sme_user_ guide_ en.pdf with Free CRM consisting of India Top 100 , Top 500 ,

Top 1000 , MNCs companies in India, Delhi NCR , SME Definition - Small and medium sized enterprises (SME... Mumbai, www.fundoodata.com6 May 2003 ... European Commission - Enterprise and

Industry - This page ... ec.europa.eu/enterprise/policies/ http://www.beemanagement.com/pdf/2005/pn4.pdfsme/.../sme.../index_en.html

http://www.business-standard.com/india/news/uttarakhand-SME Small Medium Enterprise SME Definition What is an to-redrawindustrial-policy/400416/

SME (Small to Medium Enterprise, SME definition http://www.icrier.org/pdf/Working_Paper_217.pdfexplains. sbinfocanada.about.com/od/businessinfo

Vedaang Vol. 4 No. 1, January-June 2013

?Low investment requirementsImportance of SMEs in Global Economy

?Significant export earningsGlobal economic integration is changing the competitive paradigm in which all businesses ?Capacities to develop appropriate indigenous operate, requiring an international expansion technologystrategy to positively impact long-term growth and ?Operational flexibilitysurvival (Karagozoglou and Lindell, 1998). The

?Contribution towards defense productionsmall businesssector has become more important as they emerge as a dominant force impacting the ?Technology - oriented industriesgrowth of national economies (Shridhar, 2006). ?Location wise mobilityThere are a number of disadvantages inherently

?Low intensive importsfaced by SMEs as they transition into international environments (Chen and Huang, 2004). Managers ?Competitiveness in the domestic marketof non-exporting SMEs perceive the international ?Competitiveness in the export marketsenvironment as being risky, unprofitable and

Limitations of SMEsunmanageable, due primarily to misinformation and lack of experience with global business Inspite of making significant contribution (Malekzadeh and Nahavandi, 1985). SMEs, due to towards global economy, SMEs face a lot of their size limitations, often have limited financial limitations in their growth and performance. Some capital and a lack of necessary human resources. of them are:Many operators of small businesses lack experience

?Low capital basein developing an international strategy (Tesar and ?Low utilization of installed capacityMoini, 1998). There are also disadvantages related

to a lack of competitive power as a consequence of ?Problem of specialized training and skilled the size of the organization. SMEs have difficulty in managementinfluencing global pricing as they rely on a small

?Unavailability of high quality of inputscustomer base, and arelimited in expansion due to

?Less innovation actionsminimal access to financial resources (Kalantaridis, 2004). ?Lack of proper market information

?Low level of research & developmentEven though faced with the need to overcome significant weaknesses, the strategic importance of ?Lack of awareness of global trade lawsSMEs has been identified as the following:

?Inadequate accession to the monetary ?They are responsible for growing employment institutions

at a faster rate than largerorganizations;?Less exposure to international environment

?They increase the competitive intensity of the ?Lack of Professionalismmarket and reduce the monopolisticpositions of Referenceslarge organizations; andSMEs, Entrepreneurship and Innovation,DOI :10.1787/ ?They encourage the development of

9789264080355-en www.oecd.org/ innovation/strategyentrepreneurial skills and innovation.

The Business Finance Market: A Survey, Industrial Systems Research Publications, Manchester UK, 3rd. revised Reasons behind growth in SMEsedition 2008.[1]There are various reasons due to which the small

UN/ECE Secretariat. "SMEs Their role in foreign trade". scale business in India has witnessed a spurt of www.unece.org. United Nations Economic Commission growth like:for Europe (UN/ECE). http://www.unece.org/indust/ sme/foreignt.htm. Retrieved 2007-06-28.?Import substitution

Tyler Biggs. ”Is small beautiful and worthy of subsidy”. ?High contribution to domestic productionw w w. u n e c e . o r g . Wo r l d B a n k ( U N / E C E ) .

56 57

A study & scope of Sme's in Uttarakhand & problems faced by them

http://rru.worldbank.prg/Documents/ PapersLinks/ /g/SME.htmlTylerPaperonSMEs.pdf. Retrieved 2008-05-30. The Improtance of SMEs in the ecnomywww.itdweb.org,

www.oecd.org."OECD-APEC Keynote Paper on Removing Barriers to SME Access to International Markets". www.oecd.org. OECD. SMEs India,India's SMEscenario, SMEsrole in Indian 2 0 0 6 . h t t p : / / w w w . o e c d . o r g / d a t a o e c d / economy, SMEswww.tradeindia.com/ newsletters/... 4/16/37818320.pdf. Retrieved 2007-06-28. /tips_13_feb_2007.html

Adapted from: Berger, A.; G. Udell (2005). "A More Complete SMEOvercoming Barriers to Innovation for Indian Conceptual Framework for SME Finance". SMEswww.annualmeeting2005. in sme.org/ . . . http://ideas.repec.org/p/ wbk/ wbrwps/3795.html. /14.4.../presentation_stuti.doc

Newberry, Derek (2006). "The role of small- and medium- Reasons behind growth in SME business. There are various sized enterprises in the futures of emerging economies". reasons due to which the small scale business in India has http://earthtrends.wri. org/features/ view_feature.php? witnessed a spurt of growth. blogs.siliconindia.com/.../ theme=5&fid=69. Retrieved 2008-05-19.

An_Overview_of_Scope_and_Growth_of_SME_BusinJournal of Small Business and Enterprise Development ess_in_India-bid On284gb518532640.html

Volume List, ISSN: 1462-6004, vol 16 -17The reason for SME's all-out attack on JYJ 9 Jan 2011

Article: International entrepreneurship: towards a theory of www.seiofbluemountain.com/ en/search/detail. SME internationalization, Journal of International php?id=4310Business and Economics , Article date: January 1, 2009

SME Problems, www.hutex.com/Problems.htmAuthor: Schulz, Anja; Borghoff, Thomas; Kraus, Sascha.Challenges facedby SMEs. Presented By. Lynette P Holder. Tambunan, Tulus (Oct 2007). 'Development of SMES in a

OUTLINE. Overview of CASME; Projects to Date; developing country : The Indonesian story', Journal of Sector Analysis; Challenges FacedbySMEs... Business and Entrepreneurship.www.ttbs.org.tt/sme/day2/Lynette%20Holder.ppt

Journal of technology management & innovation, versión On-Competitivechallenges facedby small and medium enterprises line ISSN 0718-2724

(SMEs ...1 article on Competitive challenges faced by Journal of Technology Management & Innovation v.4 n.4 s m a l l a n d m e d i u m e n t e r p r i s e s ( S M E s )S a n t i a g o d i c . 2 0 0 9 , d o i : 1 0 . 4 0 6 7 / S 0 7 1 8 -www.helium.com/.../275119-competitive-challenges-27242009000400005, J. Technol. Manag. Innov. 2009, faced-by-small-and-medium-enterprises-smes Volume 4, Issue 4

Overview of the problemsfacedby micro and small businesses SME Innovative Capacity, Competitive Advantage and whenwww.ueapme.com /docs/pos.../0710_Guido_ Performance in a 'Traditional' Industrial Region of problems_SME.pdfPortugal, Carla Susana Marques , João Ferreira

EUROPA Enterprise The new SME definition User guide Business Directory with Free CRM of Top Companies in and. www.ec.europa.eu/ enterprise/ policies/ sme/.../ India, Delhi ...Fundoodata.com is a Business Directory sme.../ sme_user_ guide_ en.pdf with Free CRM consisting of India Top 100 , Top 500 ,

Top 1000 , MNCs companies in India, Delhi NCR , SME Definition - Small and medium sized enterprises (SME... Mumbai, www.fundoodata.com6 May 2003 ... European Commission - Enterprise and

Industry - This page ... ec.europa.eu/enterprise/policies/ http://www.beemanagement.com/pdf/2005/pn4.pdfsme/.../sme.../index_en.html

http://www.business-standard.com/india/news/uttarakhand-SME Small Medium Enterprise SME Definition What is an to-redrawindustrial-policy/400416/

SME (Small to Medium Enterprise, SME definition http://www.icrier.org/pdf/Working_Paper_217.pdfexplains. sbinfocanada.about.com/od/businessinfo

Vedaang Vol. 4 No. 1, January-June 2013

A STUDY ON IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY

IN A PRIVATE PTFE PRODUCTS MANUFACTURING COMPANY, BANGALORE

1 2 3Dr. Lakshmi Jagannathan , Mrs. S Deepalakshmi , Ms Taraya Srivilas

ABSTRACTThe most important asset of any organization is its customers. Customers who are satisfied will increase in number, buy more and buy more frequently. Increasingly manufacturing and service organizations are using customer satisfaction as the measure of quality. Customer satisfaction is one of the major purposes of Quality Management systems. From customer perspective, Quality means meeting or exceeding customer expectations. The factors of performance, features, service, and warranty are part of the product or service quality; Therefore it is evident that product and service quality are important than price. Customer service is the set of activities an organization uses to win and retain customers' satisfaction. Organizations' that emphasize service never stops looking and finding ways to serve their customers better, even if their customers are not complaining. Providing excellent service is different from and more difficult to achieve than excellent product quality. In this research the impact of service quality on customer loyalty was identified in a PTFE product manufacturing company at Bangalore. For that sample of size 25 was taken by using stratified sampling considering Indian clients and Foreign clients as strata. Online questionnaires were sent and data was collected. Using suitable statistical techniques data was analyzed and interpretation and Suggestions were provided.

Key words: Service Quality, Customer Satisfaction, Quality Management, Customer Loyalty

1 Professor and Head of the Department, Department of Management Studies, Dayananda Sagar College of Engineering, Bangalore. 2

3 Student , Department of Management Studies, Dayananda sagar College of Engineering, Bangalore.Assistant Professor, Alliance College of Commerce, Alliance University, Bangalore.

Introduction new customers, create a pool of referrals for capturing new accounts, improve employee

In recent years, quality is a key competitive productivity, satisfaction, and retention.

weapon in the global marketplace. Quality engenders competitive advantage by providing Researcher reported two simple reasons for

satisfaction being linked to loyalty: (1) satisfied products that meet or exceed customer needs and customers are more likely to stay with the company, expectations. In other words, quality products and continue to buy from the company over the longer services are essential for firms seeking to compete term, and to increase their expenditures; and (2) globally. Research indicates that customer service satisfied customers are more likely to tell others has been influential on customer satisfaction. about their positive experiences, which generates

Customer satisfaction and loyalty are critical new business for the company (E. Neumann, P. elements of long-term business growth and Williams and M. Sajid Khan 2009). It is possible for profitability, usually because attracting new a customer to be loyal without being highly satisfied customers is more expensive than retaining existing (e.g., when there are few other choices) and to be ones. Higher customer satisfaction and loyalty can highly satisfied and yet not be loyal (e.g., when have a much broader impact on industrial business many alternatives are available) (Shankar ad Amy, by enabling them to achieve lower costs of selling, 2002). According to Mittal et al. (1999) the increase repeated purchases from existing relationship between satisfaction and loyalty customers, improve brand equity or price premium, changes over time. The relationship between

satisfaction and loyalty is expected to be dependent increase retention rates for supplies sales, leverage satisfaction rates in marketing messages to attract on the quality of the product and services. However,

service quality, product quality, customer ?How well the business fulfills the customers' satisfaction and loyalty can be measured at different requests (Response to meet exigencies/urgent stages, for example, at the beginning of the requirements)purchase, and one or two years after purchase ?Time required to address customers' needs (Asghar 2011).

(Time taken for developing customer's product)The aim of this research was to identify the ?Effective communication with customers (Our

impact of service quality on customer loyalty of this response to customer's communication)company.

?Innovative at meeting customers' needs (Our Theoretical Framework of the Study response to customer's special requirement)

?Relative service quality Service Quality

?Follow-up on service performance (Resolution Customer service is one of the organizational of customer's complaints)processes which companies perform considering

?Invoice accuracy the growing competition and for attracting entrepreneurial opportunities for increasing ?Ability to minimize employee turnoverprofitability and better access to the market and

1) Customer Loyaltyincreasing the customer satisfaction and loyalty level (Calif, 1987). According to Goofin and Prince Customer loyalty is one of the most important (1996) customer service has higher value because it issues organizations face today. Creating loyal ends in increasing product quality, gaining

customers has become more important due to competitive advantage, gaining profitable

significant increase in competition and opportunities, and as a result increasing sales and

concentrated markets. As suggested by several income. researchers (Kumar and Shah, 2004; Back and

Dimensions of Service Quality Parks, 2003; Bell et al, 2005 and Dean, 2007) there are two types of loyalty; behavioral and attitudinal Research suggests several quality elements will loyalty. The behavioral aspects of the customer predict satisfaction, positive word-of-mouth, and loyalty were characterized in terms of repurchase loyalty (dependent variables). A few of the elements intentions (Nadiri, et al. 2008; Karatepe and Ekiz, have been studied in B2B relationships. Most of the 2004; Yi, 1990; Zeithaml et al., 1996). On the other elements have been researched only in business to

customer (B2C) relationships. According to the hand, attitudinal concepts can be identified as study of these elements in B2B customer providing positive word of mouth (e.g. Zeithaml et relationships, Kristen and Adam (2007) showed the al., 1996; Andreassen and Lindestad, 1998), dimension of service quality as following. recommending the service to others (Zeithaml et al., ?Anticipating and meeting the underlying needs 1996), and encouraging others to use the service

of the customer (Meeting specification) (Bettencourt and Brown, 1997).

58 59

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

Customer Services in PTFE industry

Objective

Research service Research material requirement and material testing for customer. Design service Design products to meet customers' specific needs Information services

Providing customer about products and services information.

Communication service

After sold, establish a long term relationship with customers for any request.

Delivery service Providing delivery service to customer as schedules

Table 6.2: The different kinds of customer service in PTFE industry

A STUDY ON IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY

IN A PRIVATE PTFE PRODUCTS MANUFACTURING COMPANY, BANGALORE

1 2 3Dr. Lakshmi Jagannathan , Mrs. S Deepalakshmi , Ms Taraya Srivilas

ABSTRACTThe most important asset of any organization is its customers. Customers who are satisfied will increase in number, buy more and buy more frequently. Increasingly manufacturing and service organizations are using customer satisfaction as the measure of quality. Customer satisfaction is one of the major purposes of Quality Management systems. From customer perspective, Quality means meeting or exceeding customer expectations. The factors of performance, features, service, and warranty are part of the product or service quality; Therefore it is evident that product and service quality are important than price. Customer service is the set of activities an organization uses to win and retain customers' satisfaction. Organizations' that emphasize service never stops looking and finding ways to serve their customers better, even if their customers are not complaining. Providing excellent service is different from and more difficult to achieve than excellent product quality. In this research the impact of service quality on customer loyalty was identified in a PTFE product manufacturing company at Bangalore. For that sample of size 25 was taken by using stratified sampling considering Indian clients and Foreign clients as strata. Online questionnaires were sent and data was collected. Using suitable statistical techniques data was analyzed and interpretation and Suggestions were provided.

Key words: Service Quality, Customer Satisfaction, Quality Management, Customer Loyalty

1 Professor and Head of the Department, Department of Management Studies, Dayananda Sagar College of Engineering, Bangalore. 2

3 Student , Department of Management Studies, Dayananda sagar College of Engineering, Bangalore.Assistant Professor, Alliance College of Commerce, Alliance University, Bangalore.

Introduction new customers, create a pool of referrals for capturing new accounts, improve employee

In recent years, quality is a key competitive productivity, satisfaction, and retention.

weapon in the global marketplace. Quality engenders competitive advantage by providing Researcher reported two simple reasons for

satisfaction being linked to loyalty: (1) satisfied products that meet or exceed customer needs and customers are more likely to stay with the company, expectations. In other words, quality products and continue to buy from the company over the longer services are essential for firms seeking to compete term, and to increase their expenditures; and (2) globally. Research indicates that customer service satisfied customers are more likely to tell others has been influential on customer satisfaction. about their positive experiences, which generates

Customer satisfaction and loyalty are critical new business for the company (E. Neumann, P. elements of long-term business growth and Williams and M. Sajid Khan 2009). It is possible for profitability, usually because attracting new a customer to be loyal without being highly satisfied customers is more expensive than retaining existing (e.g., when there are few other choices) and to be ones. Higher customer satisfaction and loyalty can highly satisfied and yet not be loyal (e.g., when have a much broader impact on industrial business many alternatives are available) (Shankar ad Amy, by enabling them to achieve lower costs of selling, 2002). According to Mittal et al. (1999) the increase repeated purchases from existing relationship between satisfaction and loyalty customers, improve brand equity or price premium, changes over time. The relationship between

satisfaction and loyalty is expected to be dependent increase retention rates for supplies sales, leverage satisfaction rates in marketing messages to attract on the quality of the product and services. However,

service quality, product quality, customer ?How well the business fulfills the customers' satisfaction and loyalty can be measured at different requests (Response to meet exigencies/urgent stages, for example, at the beginning of the requirements)purchase, and one or two years after purchase ?Time required to address customers' needs (Asghar 2011).

(Time taken for developing customer's product)The aim of this research was to identify the ?Effective communication with customers (Our

impact of service quality on customer loyalty of this response to customer's communication)company.

?Innovative at meeting customers' needs (Our Theoretical Framework of the Study response to customer's special requirement)

?Relative service quality Service Quality

?Follow-up on service performance (Resolution Customer service is one of the organizational of customer's complaints)processes which companies perform considering

?Invoice accuracy the growing competition and for attracting entrepreneurial opportunities for increasing ?Ability to minimize employee turnoverprofitability and better access to the market and

1) Customer Loyaltyincreasing the customer satisfaction and loyalty level (Calif, 1987). According to Goofin and Prince Customer loyalty is one of the most important (1996) customer service has higher value because it issues organizations face today. Creating loyal ends in increasing product quality, gaining

customers has become more important due to competitive advantage, gaining profitable

significant increase in competition and opportunities, and as a result increasing sales and

concentrated markets. As suggested by several income. researchers (Kumar and Shah, 2004; Back and

Dimensions of Service Quality Parks, 2003; Bell et al, 2005 and Dean, 2007) there are two types of loyalty; behavioral and attitudinal Research suggests several quality elements will loyalty. The behavioral aspects of the customer predict satisfaction, positive word-of-mouth, and loyalty were characterized in terms of repurchase loyalty (dependent variables). A few of the elements intentions (Nadiri, et al. 2008; Karatepe and Ekiz, have been studied in B2B relationships. Most of the 2004; Yi, 1990; Zeithaml et al., 1996). On the other elements have been researched only in business to

customer (B2C) relationships. According to the hand, attitudinal concepts can be identified as study of these elements in B2B customer providing positive word of mouth (e.g. Zeithaml et relationships, Kristen and Adam (2007) showed the al., 1996; Andreassen and Lindestad, 1998), dimension of service quality as following. recommending the service to others (Zeithaml et al., ?Anticipating and meeting the underlying needs 1996), and encouraging others to use the service

of the customer (Meeting specification) (Bettencourt and Brown, 1997).

58 59

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

Customer Services in PTFE industry

Objective

Research service Research material requirement and material testing for customer. Design service Design products to meet customers' specific needs Information services

Providing customer about products and services information.

Communication service

After sold, establish a long term relationship with customers for any request.

Delivery service Providing delivery service to customer as schedules

Table 6.2: The different kinds of customer service in PTFE industry

The literature review ended up with the research companies in India all and all around the world. In that 25 companies are selected to be sample question “ Is there any impact of service quality on respondents by sampling method. The respondents B2B Customers' loyalty in this PTFE products are business-functional managers of the client manufacturing company?”companies. Multistage sampling method was used.

The objectives were framed from the research At the first stage using stratified sampling two strata problem as follows: were identified as Indian clients and foreign clients.

At the second stage convenience sampling method 1. To identify the impact of service quality on was used to select 15 from total of 50 Indian clients customer loyalty at this company.and 10 were selected from a total of 30 Foreign

2. To find the relationship between satisfaction clients.and loyalty of customers' at this company

2. Data collection planResearch Design

Primary data are original sources from which Research design is the specification of methods the researcher directly collect data that have not

been previously collected. Primary data plays an and procedures for acquiring the information needed. It is the over-all operational pattern or important role in the study of this kind.framework of the project that stipulates what

Primary data was collected through online information is to be collected from which sources questionnaire which was structured using Likert's by what procedures. five point scale for measurement. Some closed end

questions and open end questions also were The research design selected for this research is included in that questionnaire. These online descriptive research design. The major purpose of questionnaires were sent to the respondents for data description of the state of affairs as it exists at collection.present. The characteristic of this method is that the

researcher has no control over the variables: he can Analysis and Interpretationonly report what has happened or what is

After data collected, collected data was happening. analyzed to find the impact of service quality on

1. Sampling plan customer satisfaction. For that Hypothesis 1 was framed as followsThe study was conducted to find out customer

loyalty so the population chosen for this research Hypothesis1 : There is relationship between was client companies of this PTFE products service quality and customer satisfaction at the manufacturing company. There are 80 client company

This hypothesis was tested using correlation was framed and tested.analysis.

From table 1, it was come to know that p value is equal to 0.006 which shows that at 1% level of significance, overall satisfaction rating with service

From Table 2, it was come to know that p value quality and about the company were correlated.

is equal to 0.049which shows that at 5% level of This test showed that there is an impact of service

significance, overall satisfaction rating with the quality on B2B customer satisfaction at the PTFE

company and repurchasing of the company product manufacturing company.

products were correlated. This test showed that In order to prove that there is a positive impact customer loyalty is affected significantly by

of service quality on customer loyalty, as per the customer satisfaction at the PTFE product literature review behavioral as well as attitudinal manufacturing company.loyalty were checked.

Findings and RecommendationsFrom figure 1, it was understood that nearly

Overall the Organization is performing well in 60% of the respondents told that they definitely

maintaining customer satisfaction and creating would continue repurchasing with the company and

customer loyalty. The majority of customers are definitely would recommend the company's products and services to others and definitely would continue to repurchase with it. The company can continuously improve in quality especially in i n c r e a s i n g c u s t o m e r s a t i s f a c t i o n i n accommodation/modification in delivery schedules and pricing for retaining existing customers and attract new customers.

As this descriptive study provide evidence that customer loyalty is affected by customer satisfaction at this organization, it is essential to effectively maintain and improve customer satisfaction to increase the level of customer loyalty. Perceived quality can be measured by

remaining respondents told that they probably would continue repurchasing. No customer told that they would not continue repurchasing. It showed the behavioral loyalty of the customers of that company.

From figure 2, it was understood that majority of the customers would recommend the company to others which showed the attitudinal loyalty of the customers. In order to find out whether customer satisfaction leads to customer loyalty, Hypothesis 2

Hypothesis 2 : Customer loyalty is affected significantly by customer satisfaction at the company

60 61

Vedaang Vol. 4 No. 1, January-June 2013

Table 1: Serviced Quality Vs. Customer Satisfaction

Overall satisfaction rating with our service quality

Overall satisfaction rating with our

company Overall satisfaction rating with our service quality

Pearson Correlation 1 .534**

Sig. (2-tailed) .006 N 25 25

Overall satisfaction rating with our company

Pearson Correlation

.534**

1

Sig. (2-tailed)

.006

N

25

25

**. Correlation is significant at the 0.01 level (2-tailed).

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

The literature review ended up with the research companies in India all and all around the world. In that 25 companies are selected to be sample question “ Is there any impact of service quality on respondents by sampling method. The respondents B2B Customers' loyalty in this PTFE products are business-functional managers of the client manufacturing company?”companies. Multistage sampling method was used.

The objectives were framed from the research At the first stage using stratified sampling two strata problem as follows: were identified as Indian clients and foreign clients.

At the second stage convenience sampling method 1. To identify the impact of service quality on was used to select 15 from total of 50 Indian clients customer loyalty at this company.and 10 were selected from a total of 30 Foreign

2. To find the relationship between satisfaction clients.and loyalty of customers' at this company

2. Data collection planResearch Design

Primary data are original sources from which Research design is the specification of methods the researcher directly collect data that have not

been previously collected. Primary data plays an and procedures for acquiring the information needed. It is the over-all operational pattern or important role in the study of this kind.framework of the project that stipulates what

Primary data was collected through online information is to be collected from which sources questionnaire which was structured using Likert's by what procedures. five point scale for measurement. Some closed end

questions and open end questions also were The research design selected for this research is included in that questionnaire. These online descriptive research design. The major purpose of questionnaires were sent to the respondents for data description of the state of affairs as it exists at collection.present. The characteristic of this method is that the

researcher has no control over the variables: he can Analysis and Interpretationonly report what has happened or what is

After data collected, collected data was happening. analyzed to find the impact of service quality on

1. Sampling plan customer satisfaction. For that Hypothesis 1 was framed as followsThe study was conducted to find out customer

loyalty so the population chosen for this research Hypothesis1 : There is relationship between was client companies of this PTFE products service quality and customer satisfaction at the manufacturing company. There are 80 client company

This hypothesis was tested using correlation was framed and tested.analysis.

From table 1, it was come to know that p value is equal to 0.006 which shows that at 1% level of significance, overall satisfaction rating with service

From Table 2, it was come to know that p value quality and about the company were correlated.

is equal to 0.049which shows that at 5% level of This test showed that there is an impact of service

significance, overall satisfaction rating with the quality on B2B customer satisfaction at the PTFE

company and repurchasing of the company product manufacturing company.

products were correlated. This test showed that In order to prove that there is a positive impact customer loyalty is affected significantly by

of service quality on customer loyalty, as per the customer satisfaction at the PTFE product literature review behavioral as well as attitudinal manufacturing company.loyalty were checked.

Findings and RecommendationsFrom figure 1, it was understood that nearly

Overall the Organization is performing well in 60% of the respondents told that they definitely

maintaining customer satisfaction and creating would continue repurchasing with the company and

customer loyalty. The majority of customers are definitely would recommend the company's products and services to others and definitely would continue to repurchase with it. The company can continuously improve in quality especially in i n c r e a s i n g c u s t o m e r s a t i s f a c t i o n i n accommodation/modification in delivery schedules and pricing for retaining existing customers and attract new customers.

As this descriptive study provide evidence that customer loyalty is affected by customer satisfaction at this organization, it is essential to effectively maintain and improve customer satisfaction to increase the level of customer loyalty. Perceived quality can be measured by

remaining respondents told that they probably would continue repurchasing. No customer told that they would not continue repurchasing. It showed the behavioral loyalty of the customers of that company.

From figure 2, it was understood that majority of the customers would recommend the company to others which showed the attitudinal loyalty of the customers. In order to find out whether customer satisfaction leads to customer loyalty, Hypothesis 2

Hypothesis 2 : Customer loyalty is affected significantly by customer satisfaction at the company

60 61

Vedaang Vol. 4 No. 1, January-June 2013

Table 1: Serviced Quality Vs. Customer Satisfaction

Overall satisfaction rating with our service quality

Overall satisfaction rating with our

company Overall satisfaction rating with our service quality

Pearson Correlation 1 .534**

Sig. (2-tailed) .006 N 25 25

Overall satisfaction rating with our company

Pearson Correlation

.534**

1

Sig. (2-tailed)

.006

N

25

25

**. Correlation is significant at the 0.01 level (2-tailed).

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

comparing customer's perceptions and expectations longer buy solely on the basis of price. They of company's service performance. In addition, this compare the total package of products and services organization is already concentrating on quality that a business offers called 'consumer benefit

package 'with the price and with competitive improvement efforts to make their customers offerings. If competitors offer netter choices for a always happy and to attract new customers. In order similar price, consumers will rationally select the to keep up the customer loyalty, the five variables on package with the highest perceived quality.which the company should focus its attention for

qua l i t y improvemen t a re cons i s t ency, In addition to value, satisfaction and loyalty are serviceability, features, responsiveness, and price.

influenced greatly by service quality, Integrity and the relationships that organizations build with the Finally, this organization has built its name on

quality, innovation and customer service in PTFE customers.industry. In order to retain customer satisfaction and

As per the theory, from this research also, it is improve customer loyalty, service quality requires a well understood that Customer satisfaction has a synergistic relationship between the firm and its positive impact on Customer loyalty. It is clear that internal and external customers.customer loyalty and satisfaction are affected by

Conclusion service quality at this company shows that theory matches with it. This research can be extended to Customer Satisfaction and loyalty are two whole PTFE Manufacturing Industry and other different concepts. To quote Patrick Mehne the industries to find the impact of service quality on chief Quality officer at Ritz Carlton Hotel company, Customer loyalty.L.L.C.: “Satisfaction is an attitude; Loyalty is a

behavior” Customers who are merely satisfied may Referencesoften purchase from competitors because of Besterfield et.al., “Total Quality Management”,Pearson

thconvenience, promotions and other factors. Loyal Education Inc.,9 edition, 2003.customers place a priority on doing business with a J.M Juran, “Juran on Quality by Design” (Newyork: The free particular organization and will often go out of their press, 1992), 7way or pay a premium to stay with the company. (Andreassen and Lindestad, 1998): Andreassen, TorWallin

and BodilLindestad,“ Customer loyalty and complex Customer satisfaction occurs when products

services”, International Journal of Service Industry and services meet or exceed customer expectations. Management, Vol.9 (1), 7-23.To exceed expectations an organization must (Asghar 2011): Asghar Afshar Jahanshahi,Mohammad et.al., deliver ever improving value to the customers. “Study the Effects of Customer service and Product Value is quality related to price. Consumers no quality on customer satisfaction and Loyalty”

62 63

Vedaang Vol. 4 No. 1, January-June 2013

Onternational Journal of Humanities and Social Science, satisfaction and loyalty: A study of hotel guests in Northern Cyprus”. Managing Service Quality, Vol.1 No.7; June 2011,pp 253-260vol.14(6),pp 476-86(Back and Parks, 2003); Back.K.,Parks.S.C, “A brand loyalty

(Kristen and Adam,2007): Kristen Bell Detienne,Adam S. model involving cognitive, affective and conative brand Holland, “ An Empirical Investigation of the components loyalty and Customer Satisfaction”, Journal of Hospitality of Quality service operations: A B2B Anlaysis” Decision and Tourism Research, 27(4),419-435Science Institute, South West region Conference (Bell et al, 2005): Bell.S.J, Auh.S, & Smalley.K. “Customer proceedings, 2007 Meeting San Diego, CA March 13-Relationship Dynamics: Service Quality and Customer 17,2007, http://www.swdsi.org/ swdsi07/2007 Loyalty in the Context of varying levels of customer _proceedings/papers/706.pdfexpertise and switching costs”, Journal of Academy of

(Kumar and Shah, 2004): Kumar V Shah D, “Building and Marketing science, 33 (2), 169-182.stSustaining Profitable Customer Loyalty for the 21 (Bettencourt and Brown, 1997): Bettencourt,Lance A. and

century”, Journal of Retailing, Vol.80: pp 317-330Stephen W. Brown,” Contact Employees: Relationships ), among Workplace fairness, Job Satisfaction and (Mittal et al. 1999): Mittal.V., P.Kumar, M.Tsiros (1999

“Attribute level performance, satisfaction and Behavioral Prosocial Service Behaviors”, Journal of Retailing, 73(1), Intentions over time: A consumption system approach”, 39-61.Jouranl of Marketing 63(2), pp 88-101(Calif, 1987): “Waste Audit Study:Automotive repairs”,

(Nadiri, et al. 2008): Nadiri.H, Hussain K, Ekiz E.H., Erdogan Prepared by Wesley M.Toy, P.E Saratoga, Calif., for the S, “An investigation on the factors influencing California Department of health Services, Toxic passengers' loyalty in the North Cyprus National airlines” Substances Control Division, Alternative technology The TQM Journal, Vol 20 (3), 265-280Section. May 1987, pp 131-142

“Customer The impact of the Customer (Shankar and Amy, 2002): Shankar,V. Amy K.S, (Dean, 2007): Dean A.M. “ satisfaction and loyalty in online and offline Orientation of Call centre Employees on Customers' Environmentsaffective commitment and Loyalty ”, International Journal of research in ”. Journal of Service Marketing, e Business Research centre, pp 3-42Research, Vol.10, no.2, pp.161-173.

A critical Review of Consumer ,” service (Yi, 1990); Yi.Y. “(Goofin and Prince (1996)): Goofin K, Prince DSatisfactionDocumentation and the Biomedical Engineer: Result of a ”, in Zeithaml V. (Ed), Review of Marketing,

survey 1 9 9 0 , A m e r i c a n M a r k e t i n g A s s o c i a t i o n , ” Biomedical Instrumentation and Technology, Chicago,IL,PP.68-123Vol.30, No.3, pp.223-230

(Zeithaml et al., 1996): Zeithaml, Valarie A., Leonard L.Berry (Karatepe and Ekiz, 2004): Karatepe O.M., and Ekiz.H.E. The behavioral consequences of “The effects of organizational responses to complaint on and A. Parasuraman,”

Table 2: Customer Loyalty Vs. Customer satisfaction

Repurchasing with us

Overall satisfaction

rating with our company

Repurchasing with us Pearson Correlation 1 .398*

Sig. (2-tailed) .049 N

25

25

Overall satisfaction rating with our company

Pearson Correlation

.398*

1

Sig. (2-tailed)

.049

N

25

25

*. Correlation is significant at the 0.05 level (2-tailed).

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

comparing customer's perceptions and expectations longer buy solely on the basis of price. They of company's service performance. In addition, this compare the total package of products and services organization is already concentrating on quality that a business offers called 'consumer benefit

package 'with the price and with competitive improvement efforts to make their customers offerings. If competitors offer netter choices for a always happy and to attract new customers. In order similar price, consumers will rationally select the to keep up the customer loyalty, the five variables on package with the highest perceived quality.which the company should focus its attention for

qua l i t y improvemen t a re cons i s t ency, In addition to value, satisfaction and loyalty are serviceability, features, responsiveness, and price.

influenced greatly by service quality, Integrity and the relationships that organizations build with the Finally, this organization has built its name on

quality, innovation and customer service in PTFE customers.industry. In order to retain customer satisfaction and

As per the theory, from this research also, it is improve customer loyalty, service quality requires a well understood that Customer satisfaction has a synergistic relationship between the firm and its positive impact on Customer loyalty. It is clear that internal and external customers.customer loyalty and satisfaction are affected by

Conclusion service quality at this company shows that theory matches with it. This research can be extended to Customer Satisfaction and loyalty are two whole PTFE Manufacturing Industry and other different concepts. To quote Patrick Mehne the industries to find the impact of service quality on chief Quality officer at Ritz Carlton Hotel company, Customer loyalty.L.L.C.: “Satisfaction is an attitude; Loyalty is a

behavior” Customers who are merely satisfied may Referencesoften purchase from competitors because of Besterfield et.al., “Total Quality Management”,Pearson

thconvenience, promotions and other factors. Loyal Education Inc.,9 edition, 2003.customers place a priority on doing business with a J.M Juran, “Juran on Quality by Design” (Newyork: The free particular organization and will often go out of their press, 1992), 7way or pay a premium to stay with the company. (Andreassen and Lindestad, 1998): Andreassen, TorWallin

and BodilLindestad,“ Customer loyalty and complex Customer satisfaction occurs when products

services”, International Journal of Service Industry and services meet or exceed customer expectations. Management, Vol.9 (1), 7-23.To exceed expectations an organization must (Asghar 2011): Asghar Afshar Jahanshahi,Mohammad et.al., deliver ever improving value to the customers. “Study the Effects of Customer service and Product Value is quality related to price. Consumers no quality on customer satisfaction and Loyalty”

62 63

Vedaang Vol. 4 No. 1, January-June 2013

Onternational Journal of Humanities and Social Science, satisfaction and loyalty: A study of hotel guests in Northern Cyprus”. Managing Service Quality, Vol.1 No.7; June 2011,pp 253-260vol.14(6),pp 476-86(Back and Parks, 2003); Back.K.,Parks.S.C, “A brand loyalty

(Kristen and Adam,2007): Kristen Bell Detienne,Adam S. model involving cognitive, affective and conative brand Holland, “ An Empirical Investigation of the components loyalty and Customer Satisfaction”, Journal of Hospitality of Quality service operations: A B2B Anlaysis” Decision and Tourism Research, 27(4),419-435Science Institute, South West region Conference (Bell et al, 2005): Bell.S.J, Auh.S, & Smalley.K. “Customer proceedings, 2007 Meeting San Diego, CA March 13-Relationship Dynamics: Service Quality and Customer 17,2007, http://www.swdsi.org/ swdsi07/2007 Loyalty in the Context of varying levels of customer _proceedings/papers/706.pdfexpertise and switching costs”, Journal of Academy of

(Kumar and Shah, 2004): Kumar V Shah D, “Building and Marketing science, 33 (2), 169-182.stSustaining Profitable Customer Loyalty for the 21 (Bettencourt and Brown, 1997): Bettencourt,Lance A. and

century”, Journal of Retailing, Vol.80: pp 317-330Stephen W. Brown,” Contact Employees: Relationships ), among Workplace fairness, Job Satisfaction and (Mittal et al. 1999): Mittal.V., P.Kumar, M.Tsiros (1999

“Attribute level performance, satisfaction and Behavioral Prosocial Service Behaviors”, Journal of Retailing, 73(1), Intentions over time: A consumption system approach”, 39-61.Jouranl of Marketing 63(2), pp 88-101(Calif, 1987): “Waste Audit Study:Automotive repairs”,

(Nadiri, et al. 2008): Nadiri.H, Hussain K, Ekiz E.H., Erdogan Prepared by Wesley M.Toy, P.E Saratoga, Calif., for the S, “An investigation on the factors influencing California Department of health Services, Toxic passengers' loyalty in the North Cyprus National airlines” Substances Control Division, Alternative technology The TQM Journal, Vol 20 (3), 265-280Section. May 1987, pp 131-142

“Customer The impact of the Customer (Shankar and Amy, 2002): Shankar,V. Amy K.S, (Dean, 2007): Dean A.M. “ satisfaction and loyalty in online and offline Orientation of Call centre Employees on Customers' Environmentsaffective commitment and Loyalty ”, International Journal of research in ”. Journal of Service Marketing, e Business Research centre, pp 3-42Research, Vol.10, no.2, pp.161-173.

A critical Review of Consumer ,” service (Yi, 1990); Yi.Y. “(Goofin and Prince (1996)): Goofin K, Prince DSatisfactionDocumentation and the Biomedical Engineer: Result of a ”, in Zeithaml V. (Ed), Review of Marketing,

survey 1 9 9 0 , A m e r i c a n M a r k e t i n g A s s o c i a t i o n , ” Biomedical Instrumentation and Technology, Chicago,IL,PP.68-123Vol.30, No.3, pp.223-230

(Zeithaml et al., 1996): Zeithaml, Valarie A., Leonard L.Berry (Karatepe and Ekiz, 2004): Karatepe O.M., and Ekiz.H.E. The behavioral consequences of “The effects of organizational responses to complaint on and A. Parasuraman,”

Table 2: Customer Loyalty Vs. Customer satisfaction

Repurchasing with us

Overall satisfaction

rating with our company

Repurchasing with us Pearson Correlation 1 .398*

Sig. (2-tailed) .049 N

25

25

Overall satisfaction rating with our company

Pearson Correlation

.398*

1

Sig. (2-tailed)

.049

N

25

25

*. Correlation is significant at the 0.05 level (2-tailed).

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

TALENT MANAGEMENT PRACTICES AND ITS RELATIONSHIP WITH EMPLOYEES TURNOVER: A STUDY ON EMPLOYEES WORKING IN

INSURANCE SECTOR INDUSTRIES IN UTTARAKHAND: AN EMPIRICAL STUDY

Dr. D.S. Chaubey*, Vishal Gupta**

ABSTRACT

In the present economic circumstances the country is witnessing rapid expansion of industrial activity. With enrichment and enhancement of information & Communication Technology the complexity of human factor have also increased substantially. Insurance industry in the country is passing through the acid test. Human resource mobalisation has become the important element for the survival and growth of the organization. Today Human Resources function is expected to identify potential talent and also comprehend, conceptualize and implement relevant strategies to enable and empower them to contribute effectively to achieve organizational objectives. Talent management refers to the process of developing and integrating new entrants, retaining current employees, and attracting highly skilled people to work for a company. Present research paper focus on understanding underlying factors of talent management strategies and its relationship with employee turnover in some selected insurance organization of Uttarakhand. Research tried to know the organizational challenges of talent retention faced by the insurance organization in Uttarakhand. Study indicates some underlying factors that company should exert some effort and undertake some analyses to determine the non-monetary interests and preferences of its key employees, and then attempt to meet these preferences in action. In this context organizations need to dig novel approaches of talent management that is helpful to retain the most effective manpower. Looking carefully into many organizations - retention strategies are very competitive.

Key words: Talent management, talent retention, turnover ,human resource mobalisation etc.

* Director, RCMCA, Roorkee**Research Scholar, Pacific University Udaipur (Rajasthan)

employees profitably, has become increasingly Introduction competitive leading to the situation called "the war

In the present economic circumstances the for talent” between firms of strategic importance. A country is witnessing rapid expansion of industrial serious concern of every Human Resource manager, activity. With enrichment and enhancement of in order to survive this 'War for Talent', is to information & Communication Technology the optimize attracting a limited and diminishing pool complexity of human factor have also increased of qualified and available candidates to replace substantially. Insurance industry in the country is valuable employees when they leave- underscoring passing through the acid test. Human resource the challenge to motivate and retain the best talent in mobalisation has become the important element for an organisation. Empirical study on the subject the survival and growth of the organization. Today reveals only about 5 percent of organizations have a Human Resources function is expected to identify clear talent management strategy and operational potential talent and also comprehend, conceptualize programs in place today.and implement relevant strategies to enable and

Talent management is a process that emerged in empower them to contribute effectively to achieve the 1990s and continues to be adopted, as more organizational objectives. Talent management companies come to realize that their employees' refers to the process of developing and integrating talents and skills drive their business success. new entrants, retaining current employees, and Companies that have put into practice talent attracting highly skilled people to work for a management have done so to solve an employee company. The process of attracting and retaining

retention problem. The issue with many companies Branham clearly states that one major reason why today is that their organizations put tremendous people leave their organisations is because of the effort to attract employees, but spend little time to organisation's failure to bring about a correlation retain and develop talent. A talent management between pay and performance. Human Resource system must be worked into the business strategy experts in the industry also believe that matching and implemented in daily processes throughout the the right blend of talent with the right job profile can company as a philosophy to be practiced. It cannot lead to superior performance. be left solely to the human resources department

The present scenario with abundant alone to attract and retain employees, but rather

opportunities has triggered a wave of employees, must be practiced at all levels of the organization.

perpetually “on the move”, seeking better The business strategy must include responsibilities

opportunities whenever, wherever and however for line managers to develop skills of their

they can. What is behind the restlessness of these immediate subordinates. Divisions within the

hard to keep employees? By focusing on company should be openly sharing information

productivity, organisations are realising that it is with other departments so that employees gain

imperative to hire employees who can do the job knowledge of the overall organizational objectives.

and be successful at it. The organisation no longer Companies that have integrated plans and processes

want to just hire for the sake of hiring; in fact they to track and manage their employee talent, focus on

are striving to find the right people, bring them into the following strategic issues:

the organisation and retain their services. One of the ?Sourcing, attracting, recruiting and on boarding critical functions of HR is a sound Human Resource

qualified candidates with competitive Planning through which they are able to project the backgrounds demand for human resource and thereafter

formulate strategies for acquiring them. As the ?Defining and Managing competitive salariesleading HR heads of the country point out, the ?Training and development solution is not just about finding the correct

?Performance Management Systems & retention mechanisms , but it starts from the very Processes beginning by devising ways to acquire the right

?Career Planning & Retention programs people for the right jobs.

?Promotion and transitioning Or perhaps, there is another option - Talent Management “A conscious, deliberate approach Today, companies have become fiercely undertaken to attract, develop and retain people competitive in action when it comes to attracting with the aptitude and abilities to meet current and and retaining talent. According to Branham, 75 per future organizational need” Organization need to cent of the senior executives admit that employee have a vision and a well defined strategy on hiring retention is a major concern today, the obvious for the future. India has become the outsourcing reason being the 'increasing turnover'. This dynamic capital of the world and this has created its own set and volatile demand-supply equation with such of HR challenges. India's biggest problem is that erratic attrition trends and cut-throat competition qualified graduates are becoming scarce. Despite has led organisations to focus on mechanisms to the large population, the supply of talented attract and retain talent. It is accepted that turnover manpower cannot keep up with the sharply will happen and companies need to device a strategy increased demand. So, do we have the right talent to curb unexpected turnover from affecting within to attract and retain the best available talent? organisational effectiveness and success. Despite The supply side discussed puts pressure on intense competition being the key to market companies to attract the best talent and ensure that development and success, organisations have failed employees join the company and choose to stay in to identify some of the major reasons which the organization rather than look for opportunities highlight why 'good performers' leave. In his study,

64 65

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

TALENT MANAGEMENT PRACTICES AND ITS RELATIONSHIP WITH EMPLOYEES TURNOVER: A STUDY ON EMPLOYEES WORKING IN

INSURANCE SECTOR INDUSTRIES IN UTTARAKHAND: AN EMPIRICAL STUDY

Dr. D.S. Chaubey*, Vishal Gupta**

ABSTRACT

In the present economic circumstances the country is witnessing rapid expansion of industrial activity. With enrichment and enhancement of information & Communication Technology the complexity of human factor have also increased substantially. Insurance industry in the country is passing through the acid test. Human resource mobalisation has become the important element for the survival and growth of the organization. Today Human Resources function is expected to identify potential talent and also comprehend, conceptualize and implement relevant strategies to enable and empower them to contribute effectively to achieve organizational objectives. Talent management refers to the process of developing and integrating new entrants, retaining current employees, and attracting highly skilled people to work for a company. Present research paper focus on understanding underlying factors of talent management strategies and its relationship with employee turnover in some selected insurance organization of Uttarakhand. Research tried to know the organizational challenges of talent retention faced by the insurance organization in Uttarakhand. Study indicates some underlying factors that company should exert some effort and undertake some analyses to determine the non-monetary interests and preferences of its key employees, and then attempt to meet these preferences in action. In this context organizations need to dig novel approaches of talent management that is helpful to retain the most effective manpower. Looking carefully into many organizations - retention strategies are very competitive.

Key words: Talent management, talent retention, turnover ,human resource mobalisation etc.

* Director, RCMCA, Roorkee**Research Scholar, Pacific University Udaipur (Rajasthan)

employees profitably, has become increasingly Introduction competitive leading to the situation called "the war

In the present economic circumstances the for talent” between firms of strategic importance. A country is witnessing rapid expansion of industrial serious concern of every Human Resource manager, activity. With enrichment and enhancement of in order to survive this 'War for Talent', is to information & Communication Technology the optimize attracting a limited and diminishing pool complexity of human factor have also increased of qualified and available candidates to replace substantially. Insurance industry in the country is valuable employees when they leave- underscoring passing through the acid test. Human resource the challenge to motivate and retain the best talent in mobalisation has become the important element for an organisation. Empirical study on the subject the survival and growth of the organization. Today reveals only about 5 percent of organizations have a Human Resources function is expected to identify clear talent management strategy and operational potential talent and also comprehend, conceptualize programs in place today.and implement relevant strategies to enable and

Talent management is a process that emerged in empower them to contribute effectively to achieve the 1990s and continues to be adopted, as more organizational objectives. Talent management companies come to realize that their employees' refers to the process of developing and integrating talents and skills drive their business success. new entrants, retaining current employees, and Companies that have put into practice talent attracting highly skilled people to work for a management have done so to solve an employee company. The process of attracting and retaining

retention problem. The issue with many companies Branham clearly states that one major reason why today is that their organizations put tremendous people leave their organisations is because of the effort to attract employees, but spend little time to organisation's failure to bring about a correlation retain and develop talent. A talent management between pay and performance. Human Resource system must be worked into the business strategy experts in the industry also believe that matching and implemented in daily processes throughout the the right blend of talent with the right job profile can company as a philosophy to be practiced. It cannot lead to superior performance. be left solely to the human resources department

The present scenario with abundant alone to attract and retain employees, but rather

opportunities has triggered a wave of employees, must be practiced at all levels of the organization.

perpetually “on the move”, seeking better The business strategy must include responsibilities

opportunities whenever, wherever and however for line managers to develop skills of their

they can. What is behind the restlessness of these immediate subordinates. Divisions within the

hard to keep employees? By focusing on company should be openly sharing information

productivity, organisations are realising that it is with other departments so that employees gain

imperative to hire employees who can do the job knowledge of the overall organizational objectives.

and be successful at it. The organisation no longer Companies that have integrated plans and processes

want to just hire for the sake of hiring; in fact they to track and manage their employee talent, focus on

are striving to find the right people, bring them into the following strategic issues:

the organisation and retain their services. One of the ?Sourcing, attracting, recruiting and on boarding critical functions of HR is a sound Human Resource

qualified candidates with competitive Planning through which they are able to project the backgrounds demand for human resource and thereafter

formulate strategies for acquiring them. As the ?Defining and Managing competitive salariesleading HR heads of the country point out, the ?Training and development solution is not just about finding the correct

?Performance Management Systems & retention mechanisms , but it starts from the very Processes beginning by devising ways to acquire the right

?Career Planning & Retention programs people for the right jobs.

?Promotion and transitioning Or perhaps, there is another option - Talent Management “A conscious, deliberate approach Today, companies have become fiercely undertaken to attract, develop and retain people competitive in action when it comes to attracting with the aptitude and abilities to meet current and and retaining talent. According to Branham, 75 per future organizational need” Organization need to cent of the senior executives admit that employee have a vision and a well defined strategy on hiring retention is a major concern today, the obvious for the future. India has become the outsourcing reason being the 'increasing turnover'. This dynamic capital of the world and this has created its own set and volatile demand-supply equation with such of HR challenges. India's biggest problem is that erratic attrition trends and cut-throat competition qualified graduates are becoming scarce. Despite has led organisations to focus on mechanisms to the large population, the supply of talented attract and retain talent. It is accepted that turnover manpower cannot keep up with the sharply will happen and companies need to device a strategy increased demand. So, do we have the right talent to curb unexpected turnover from affecting within to attract and retain the best available talent? organisational effectiveness and success. Despite The supply side discussed puts pressure on intense competition being the key to market companies to attract the best talent and ensure that development and success, organisations have failed employees join the company and choose to stay in to identify some of the major reasons which the organization rather than look for opportunities highlight why 'good performers' leave. In his study,

64 65

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

elsewhere. Present study is supposed to find out the control employee turnover for the benefit of the talent retention strategies and its impact on business organization. The current literature on employee performance with specific reference to some turnover is primarily divided into three groups, viz: selected industries in Uttrakhand state. - sources of employee attrition, effects of employee Accessibility of researcher with the respondents of turnover and the strategies used in order to some selected organisation of Uttrakhand state has minimize turnover. motivated her to select them for proposed study.

Incentive and Talent retention Review of Related Literature

Incentives are monetary benefits paid to encourage executives with talent in recognition of In this fast-paced, cutthroat, wireless world of their outstanding performance. The primary work, performance improvement and bottom-line

performance both depend on retaining the top advantage of incentives is the inducement and talent. Companies can't take on the work, collect motivation of talent for higher efficiency and revenue, and grow unless there are people in place innovative ideas. It may not be difficult to get to do the work. In short, retaining top talent and people for fixed wages and salaries. But with fixed business performance go hand in hand in the new remuneration, it is difficult to motivate executives economy. Human resources of a company is saying to remain with the organization. Positive response to be one of the important capital is playing such an will surely come when incentives are included as a important role in the operation of an organisation. part of the total remuneration in the form of loyalty Pfeffer (1994) argued that human capital has long to the firm. Earnings of employees would be been held to be a critical resource in most firms. enhanced due to incentives. There are instances Companies are now trying to add value with their where incentive earnings exceed to three times the human resources and human resource (HR) time rated wages or salaries. Increased earnings department has been set up in order to manage their would enable the senior and mid-level employees to human capital, where as organisation in last decade, improve their standard of living. The company's managed their human capital trough personnel performance management systems must resonate department which is only a small division of the with employees needs, and should assure company. well.Long-term incentive plans keeping an

employee's interest in mind and creating the Employees turnover has been studied from proverbial 'win-win' between employees and the various aspects. One theory highlight that company. In managing talent and rewarding people employees' decision to resign is influenced by two companies still struggle the most with issues around factors: their “perceived ease of movement”, which pay.refers to the assessment of perceived alternatives or

opportunity and “perceived desirability of According to Mueller and Price (1990: p. 321), movement”, which is influenced for instance by job pay is considered as a part of the sanctions system satisfaction (Morrell et al., 2004; Abdullah et al., used by the organization to motivate employees to 2012). This describes how balance is struck both be in compliance with its regulations and rules. The for the organization and its employees in terms of wage payment plays an important role in their inducements, such as pay, and contributions, such current as well as in possible future employment. as work, which ensures continued organizational The lower the salary is in his existent organization, efficiency. the more an employer will aim to change this

situation. Furthermore it is to assume, that better According to Meaghan et al (2002) the value of paid employees within the same hierarchy level employees to an organization is a very crucial tend to stay in the organization (Henneberger element in organizations success. This value is &Sousa-Poza, 2007: p. 61). However, there are intangible and cannot be easily replicated therefore, well-established literatures concerning motivation it becomes very important that managers should

(e.g. McGregor 1957) suggesting that for at least follow up telephonic calls were made in order to some individuals, pay is not the sole motivating encourage respondents to complete and return the factor. It is told that motivation has some link with survey. After follow-up 125 questionnaires were

returned. After editing 107 responses were found job choice and that pay will not be the sole criterion suitable which was taken up for the proposed study?used when people decide to choose a job, or when

they decide to continue within an existing job. Demographic characteristics are facts about the make up of a population. Demographic Employees talent and Business performance can variables, also known as personal characteristics, also be enhanced by effective Recruiting and are widely used in management research. Training the employees. It is seen that many Demographic determinants are examined to assess companies invest a lot of effort into recruiting these talent management practices and its relationship employees, but then do very little by way of talent with employees turnover. Demographic variable management and talent development to retain them. such as age gender, marital status education Another way of managing talent is the employee qualification and tenure having direct bearing on development strategies by effective mentoring Organizational strategies of talent management and through structured mentoring programs. These can in turn employees turnover The data obtained be a very powerful tool in acclimating employees to through surveys reveals that sample is dominated by the corporate culture and values.another way of middle age group younger lot , male and married talent management is giving high potential and well educated people. It also reveals that sample employees high visibility and meaningful is the composition of experienced person as almost assignments to keep them engaged. Stablishing the 40% employees are having experience ranging effective communication and investing in their from 5 years and above. 10.3% employees learning and development and building proper indicated that they are fresher and having system for measuring progress are also some the

important strategies for managing talent in the organization.

Objectives and Research Methodology

The objective of this research work is to identify and understand underlying factors of talent management strategies and its relationship with employee turnover in some selected insurance organization of Uttarakhand. Another objective was to know the organizational challenges of talent retention faced by the insurance organization in Uttarakhand. . To achieve these objectives both quantitiave and qualitative methods were employed to understand talent management strategies and its relationship with employees turnover This research was conducted in some selected private and public sector insurance oranisation located in Dehradun district. A random sample of employees working in insurance organization was selected which included employees of various rank and file Surveys along with a cover letter explaining the significance and the need for conducting the same were sent to all 200employees across 10 different offices of Dehradun. In order to ensure a good response rate,

66 67

Vedaang Vol. 4 No. 1, January-June 2013

Category

Count

Percentage

Age Upto 25 Years

25-35 Years

35-45 Years

45 to 55 Years

From 55-65 Years

18

22

24

33

10

16.820.622.430.89.3

Gender Male

Female

79

28

73.826.2

Marital Status

Married

Un Married 70

37 65.434.6

Education level

Up to matriculation Intermediate Graduation Post Graduation Professional Qualification Others

2 4

29 50 21

1

1.93.7

27.146.719.6

.9

Tenure Less than 1 year 1 to 3 years

3 to 5 years 5to 10 years 10-20 years years

20-30 years more than 30 years

11 40 13 33 4 5 1

10.337.412.130.83.74.7

.9

Table 1 : Demographic determinants

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

elsewhere. Present study is supposed to find out the control employee turnover for the benefit of the talent retention strategies and its impact on business organization. The current literature on employee performance with specific reference to some turnover is primarily divided into three groups, viz: selected industries in Uttrakhand state. - sources of employee attrition, effects of employee Accessibility of researcher with the respondents of turnover and the strategies used in order to some selected organisation of Uttrakhand state has minimize turnover. motivated her to select them for proposed study.

Incentive and Talent retention Review of Related Literature

Incentives are monetary benefits paid to encourage executives with talent in recognition of In this fast-paced, cutthroat, wireless world of their outstanding performance. The primary work, performance improvement and bottom-line

performance both depend on retaining the top advantage of incentives is the inducement and talent. Companies can't take on the work, collect motivation of talent for higher efficiency and revenue, and grow unless there are people in place innovative ideas. It may not be difficult to get to do the work. In short, retaining top talent and people for fixed wages and salaries. But with fixed business performance go hand in hand in the new remuneration, it is difficult to motivate executives economy. Human resources of a company is saying to remain with the organization. Positive response to be one of the important capital is playing such an will surely come when incentives are included as a important role in the operation of an organisation. part of the total remuneration in the form of loyalty Pfeffer (1994) argued that human capital has long to the firm. Earnings of employees would be been held to be a critical resource in most firms. enhanced due to incentives. There are instances Companies are now trying to add value with their where incentive earnings exceed to three times the human resources and human resource (HR) time rated wages or salaries. Increased earnings department has been set up in order to manage their would enable the senior and mid-level employees to human capital, where as organisation in last decade, improve their standard of living. The company's managed their human capital trough personnel performance management systems must resonate department which is only a small division of the with employees needs, and should assure company. well.Long-term incentive plans keeping an

employee's interest in mind and creating the Employees turnover has been studied from proverbial 'win-win' between employees and the various aspects. One theory highlight that company. In managing talent and rewarding people employees' decision to resign is influenced by two companies still struggle the most with issues around factors: their “perceived ease of movement”, which pay.refers to the assessment of perceived alternatives or

opportunity and “perceived desirability of According to Mueller and Price (1990: p. 321), movement”, which is influenced for instance by job pay is considered as a part of the sanctions system satisfaction (Morrell et al., 2004; Abdullah et al., used by the organization to motivate employees to 2012). This describes how balance is struck both be in compliance with its regulations and rules. The for the organization and its employees in terms of wage payment plays an important role in their inducements, such as pay, and contributions, such current as well as in possible future employment. as work, which ensures continued organizational The lower the salary is in his existent organization, efficiency. the more an employer will aim to change this

situation. Furthermore it is to assume, that better According to Meaghan et al (2002) the value of paid employees within the same hierarchy level employees to an organization is a very crucial tend to stay in the organization (Henneberger element in organizations success. This value is &Sousa-Poza, 2007: p. 61). However, there are intangible and cannot be easily replicated therefore, well-established literatures concerning motivation it becomes very important that managers should

(e.g. McGregor 1957) suggesting that for at least follow up telephonic calls were made in order to some individuals, pay is not the sole motivating encourage respondents to complete and return the factor. It is told that motivation has some link with survey. After follow-up 125 questionnaires were

returned. After editing 107 responses were found job choice and that pay will not be the sole criterion suitable which was taken up for the proposed study?used when people decide to choose a job, or when

they decide to continue within an existing job. Demographic characteristics are facts about the make up of a population. Demographic Employees talent and Business performance can variables, also known as personal characteristics, also be enhanced by effective Recruiting and are widely used in management research. Training the employees. It is seen that many Demographic determinants are examined to assess companies invest a lot of effort into recruiting these talent management practices and its relationship employees, but then do very little by way of talent with employees turnover. Demographic variable management and talent development to retain them. such as age gender, marital status education Another way of managing talent is the employee qualification and tenure having direct bearing on development strategies by effective mentoring Organizational strategies of talent management and through structured mentoring programs. These can in turn employees turnover The data obtained be a very powerful tool in acclimating employees to through surveys reveals that sample is dominated by the corporate culture and values.another way of middle age group younger lot , male and married talent management is giving high potential and well educated people. It also reveals that sample employees high visibility and meaningful is the composition of experienced person as almost assignments to keep them engaged. Stablishing the 40% employees are having experience ranging effective communication and investing in their from 5 years and above. 10.3% employees learning and development and building proper indicated that they are fresher and having system for measuring progress are also some the

important strategies for managing talent in the organization.

Objectives and Research Methodology

The objective of this research work is to identify and understand underlying factors of talent management strategies and its relationship with employee turnover in some selected insurance organization of Uttarakhand. Another objective was to know the organizational challenges of talent retention faced by the insurance organization in Uttarakhand. . To achieve these objectives both quantitiave and qualitative methods were employed to understand talent management strategies and its relationship with employees turnover This research was conducted in some selected private and public sector insurance oranisation located in Dehradun district. A random sample of employees working in insurance organization was selected which included employees of various rank and file Surveys along with a cover letter explaining the significance and the need for conducting the same were sent to all 200employees across 10 different offices of Dehradun. In order to ensure a good response rate,

66 67

Vedaang Vol. 4 No. 1, January-June 2013

Category

Count

Percentage

Age Upto 25 Years

25-35 Years

35-45 Years

45 to 55 Years

From 55-65 Years

18

22

24

33

10

16.820.622.430.89.3

Gender Male

Female

79

28

73.826.2

Marital Status

Married

Un Married 70

37 65.434.6

Education level

Up to matriculation Intermediate Graduation Post Graduation Professional Qualification Others

2 4

29 50 21

1

1.93.7

27.146.719.6

.9

Tenure Less than 1 year 1 to 3 years

3 to 5 years 5to 10 years 10-20 years years

20-30 years more than 30 years

11 40 13 33 4 5 1

10.337.412.130.83.74.7

.9

Table 1 : Demographic determinants

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

experience of less than 1 years. More than one third advancement opportunity that they would not (37.4%) were having experience from 1 to 3 years. receive in the short term when they stayed with their

present employer, This organization provide better Principle components and Underlying Factor of

opportunity for career development, My education Talent Management Strategies : A Descriptive

and job matches well and gives me a feeling of Study

achievement., The company stablish the proper Value propositions are the heart, soul, and progress monitoring system and recognizes my

epicenter of a business, because they reflect an achievements., There are opportunities for me to organization's market positioning while develop my skill and improve my performance and communicating the core promises that companies grow in this organisation., experience, skills and make to their customers. Qualitative data that was performance are well recognized in this obtained both from questionnaires and interviews organisation, In the present organization, I am includes the different statement like Recruitment empowered enough to do my job., I have got and selection process of my organization efficient freedom and I can make my own decision in my and suitable and is able to attract talent, HR job., I always feel that my contribution is important department use the most effective and efficient in achieving organization mission, I am free to system of talent acquisition and management., My choose my own method of working. on which organization is attracting the right kind of employees were asked to rate on the scale of 1 to 5 personnel that help it grow the organization., My and mean and SD were calculated with the help of organization Endeavour tries to design plan to help SPSS software and, was grouped into 8 important employee development, Each employees in this factor and this was done to make a comparative organization get equal opportunity and know how to analysis of the data collected from interviews and get into the talent pool, My organization support the the survey, which helped to identify talent policy of open communication and give one to one management practices which influence employee to attention with all level of management for foster remain with the organization. The first, quantitative creativity, talent management system in this data obtained from surveys was analyzed using organization is transparent all help are provided to descriptive statistics technique in order to the employees for talent pool, Accelerated route are summarize the data set obtained. This provided a opted in the organiza t ion to enhance meaningful insight of various underlying factors of communication for talent progress, Organisation talent management practices influencing Supports managers to better know the composition employees to remain with present organization. of talent in their individual pools by stablishing These factors includes recruitment, Work better communication, My organisation prepare a autonomy and empowerment, Training and plan to Assists with the timing of succession development, communication, Succession planning planning decisions, the organization's priorities are career development and opportunity for well communication to all the level of employees., advancement, Promoting work autonomy creativity Employees in this organisation are always Ready and innovativeness, Long term bonding and social For Advancement and movement, Employees in security, Feed back system, . The mean and SD thus this organisation are always Well-Placed In their obtained of each factor is presented in the table Role, Employees in this organisation are always below.Developed in their Current Role, Employees in this

An effort was directed to know the different organisation are always requires a lateral move for .

factor of talent management There are various better fit elsewhere in organizational structure,

factors that influence an individual's decision to Employees in this organisation are given post

move or remain with the present organization. retirement opportunity for knowledge sharing and

According to mean rating of different factor, feed knowledge transfering., I understand how my job

back system of the organization has scored highest aligns with the company's mission., A career

mean of 3.243 with SD 1.2547. it was followed by

effective recruitment and selection policy of the orgaisation with the mean 3.2212 and SD .94365. Succession planning career development and opportunity for advancement ( Mean 3.0315 and SD.71393) has also influencing employees to remain in.

It is seen from the above table that mean rating of Long Term Binding And Social Security has scored highest mean of 4.100 among the employees in the age group of 55-65 years. Recruitment and selection policy has scored highest mean in the age group of 35-45 years. However feed back has motivated a large number of respondents as this factor has been rated higher by all the respondents as it scored mean of 3.2727.

It is seen from the above table that mean rating of Long Term Binding And Social Security has scored highest mean of 5.0000 among the employees of other professional qualification.

68 69

Vedaang Vol. 4 No. 1, January-June 2013

Overall feed back system of the organization has scored highest mean in the employees among all the category.

In the present economic and fast changing business environment, “There are many challenge before the management for talent retention . To retain the employees, one needs to understand the pulse, needs & expectations of employees. Previous research proves that Salary is not one of the biggest components for employee retention. There are various other factor like Providing Job Challenges ,Building an open environment and culture ,Giving competitive remuneration packages ,Clarifying Job Responsibilities and career paths ,Providing continuous training opportunities for skill up gradation which are the great challenge before management to handle it. With this in mind an attempt was made to assess the employees opinion about Challenges in retaining employees in

Table 2 : Principle components and Underlying Factor of Talent Management Strategies : A Descriptive Study

N Mean Std. DeviationRecruitment and Selection Policy 107 3.2212 .94386Work autonomy and empowerment 107 2.3396 .71078Training and development 107 2.9720 .47884communication 107 2.9860 .88610Succession planning career development and opportunity for advancement

107 3.0315 .71393

Promoting work autonomy creativity and innovativeness

107

2.7103

.88498

Long term bonding and social security

107

3.0000

1.22089Feed back system

107

3.2430

1.29470

Valid N (listwise) 107

Table 3 : Mean of Different Talent Management strategies across the age category of Respondents

Age wise Classification

Recruitmentand selection

policy

Work

Autonomy And Empowerment

Training And Development

Communication Succession Planning Career

Development And

Opportunity For Advancement

Promoting Work

Autonomy Creativity And Innovativeness

Long Term

Binding And

Social Security

Feed Back

System

Upto 25 Years

3.3889

2.4630

3.0926

2.9583

3.0463

2.8333

3.0000 3.611125-35 Years

2.9091

2.7121

3.0758

2.8182

2.9924

2.4318

2.6818 3.500035-45 Years

3.4306

1.9444

2.9306

3.0937

2.8681

2.8333

3.0000 2.791745 to 55 Years

3.2727

2.3030

2.8485

3.1061

3.0869

2.8636

2.8788 3.2727

From 55-65 Years

2.9333

2.3667

3.0333

2.7500 3.3000

2.3000

4.1000 3.0000

Total

3.2212

2.3396

2.9720

2.9860 3.0315

2.7103

3.0000 3.2430

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

experience of less than 1 years. More than one third advancement opportunity that they would not (37.4%) were having experience from 1 to 3 years. receive in the short term when they stayed with their

present employer, This organization provide better Principle components and Underlying Factor of

opportunity for career development, My education Talent Management Strategies : A Descriptive

and job matches well and gives me a feeling of Study

achievement., The company stablish the proper Value propositions are the heart, soul, and progress monitoring system and recognizes my

epicenter of a business, because they reflect an achievements., There are opportunities for me to organization's market positioning while develop my skill and improve my performance and communicating the core promises that companies grow in this organisation., experience, skills and make to their customers. Qualitative data that was performance are well recognized in this obtained both from questionnaires and interviews organisation, In the present organization, I am includes the different statement like Recruitment empowered enough to do my job., I have got and selection process of my organization efficient freedom and I can make my own decision in my and suitable and is able to attract talent, HR job., I always feel that my contribution is important department use the most effective and efficient in achieving organization mission, I am free to system of talent acquisition and management., My choose my own method of working. on which organization is attracting the right kind of employees were asked to rate on the scale of 1 to 5 personnel that help it grow the organization., My and mean and SD were calculated with the help of organization Endeavour tries to design plan to help SPSS software and, was grouped into 8 important employee development, Each employees in this factor and this was done to make a comparative organization get equal opportunity and know how to analysis of the data collected from interviews and get into the talent pool, My organization support the the survey, which helped to identify talent policy of open communication and give one to one management practices which influence employee to attention with all level of management for foster remain with the organization. The first, quantitative creativity, talent management system in this data obtained from surveys was analyzed using organization is transparent all help are provided to descriptive statistics technique in order to the employees for talent pool, Accelerated route are summarize the data set obtained. This provided a opted in the organiza t ion to enhance meaningful insight of various underlying factors of communication for talent progress, Organisation talent management practices influencing Supports managers to better know the composition employees to remain with present organization. of talent in their individual pools by stablishing These factors includes recruitment, Work better communication, My organisation prepare a autonomy and empowerment, Training and plan to Assists with the timing of succession development, communication, Succession planning planning decisions, the organization's priorities are career development and opportunity for well communication to all the level of employees., advancement, Promoting work autonomy creativity Employees in this organisation are always Ready and innovativeness, Long term bonding and social For Advancement and movement, Employees in security, Feed back system, . The mean and SD thus this organisation are always Well-Placed In their obtained of each factor is presented in the table Role, Employees in this organisation are always below.Developed in their Current Role, Employees in this

An effort was directed to know the different organisation are always requires a lateral move for .

factor of talent management There are various better fit elsewhere in organizational structure,

factors that influence an individual's decision to Employees in this organisation are given post

move or remain with the present organization. retirement opportunity for knowledge sharing and

According to mean rating of different factor, feed knowledge transfering., I understand how my job

back system of the organization has scored highest aligns with the company's mission., A career

mean of 3.243 with SD 1.2547. it was followed by

effective recruitment and selection policy of the orgaisation with the mean 3.2212 and SD .94365. Succession planning career development and opportunity for advancement ( Mean 3.0315 and SD.71393) has also influencing employees to remain in.

It is seen from the above table that mean rating of Long Term Binding And Social Security has scored highest mean of 4.100 among the employees in the age group of 55-65 years. Recruitment and selection policy has scored highest mean in the age group of 35-45 years. However feed back has motivated a large number of respondents as this factor has been rated higher by all the respondents as it scored mean of 3.2727.

It is seen from the above table that mean rating of Long Term Binding And Social Security has scored highest mean of 5.0000 among the employees of other professional qualification.

68 69

Vedaang Vol. 4 No. 1, January-June 2013

Overall feed back system of the organization has scored highest mean in the employees among all the category.

In the present economic and fast changing business environment, “There are many challenge before the management for talent retention . To retain the employees, one needs to understand the pulse, needs & expectations of employees. Previous research proves that Salary is not one of the biggest components for employee retention. There are various other factor like Providing Job Challenges ,Building an open environment and culture ,Giving competitive remuneration packages ,Clarifying Job Responsibilities and career paths ,Providing continuous training opportunities for skill up gradation which are the great challenge before management to handle it. With this in mind an attempt was made to assess the employees opinion about Challenges in retaining employees in

Table 2 : Principle components and Underlying Factor of Talent Management Strategies : A Descriptive Study

N Mean Std. DeviationRecruitment and Selection Policy 107 3.2212 .94386Work autonomy and empowerment 107 2.3396 .71078Training and development 107 2.9720 .47884communication 107 2.9860 .88610Succession planning career development and opportunity for advancement

107 3.0315 .71393

Promoting work autonomy creativity and innovativeness

107

2.7103

.88498

Long term bonding and social security

107

3.0000

1.22089Feed back system

107

3.2430

1.29470

Valid N (listwise) 107

Table 3 : Mean of Different Talent Management strategies across the age category of Respondents

Age wise Classification

Recruitmentand selection

policy

Work

Autonomy And Empowerment

Training And Development

Communication Succession Planning Career

Development And

Opportunity For Advancement

Promoting Work

Autonomy Creativity And Innovativeness

Long Term

Binding And

Social Security

Feed Back

System

Upto 25 Years

3.3889

2.4630

3.0926

2.9583

3.0463

2.8333

3.0000 3.611125-35 Years

2.9091

2.7121

3.0758

2.8182

2.9924

2.4318

2.6818 3.500035-45 Years

3.4306

1.9444

2.9306

3.0937

2.8681

2.8333

3.0000 2.791745 to 55 Years

3.2727

2.3030

2.8485

3.1061

3.0869

2.8636

2.8788 3.2727

From 55-65 Years

2.9333

2.3667

3.0333

2.7500 3.3000

2.3000

4.1000 3.0000

Total

3.2212

2.3396

2.9720

2.9860 3.0315

2.7103

3.0000 3.2430

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

70 71

Vedaang Vol. 4 No. 1, January-June 2013

organization. Analysis indicates that Managing strategies like deligation of responsibility, managing disputes , hiring the right candidate, expectations of employees is one of the most employees recognition stablishing proper important challenges before management as it was performance appraisal system, wage and salary indicated by 38.3% employees in the sample. administration, and effective HR policies to retain Matching persons to the job was indicated by 25.2% the employees into the organization. The survey employees where as Matching person to the culture reveals that Clarifying Job Responsibilities and of the firm, Provide adequate opportunities for career paths is one of the most important retention career growth and opportunities and Treat strategies as it was indicated by 29.9% employees in employees fairly through compensation, rewards the survey. Giving competitive renumeration was and recognition schemes was indicated by 16.8% indicated by 23.4% respondent in the sample. 10.3% and 9.3% employees respectively. Building an open environment and culture was

The employees who spend a considerable indicated by 20.6% , Providing continuous training amount of time tend to be loyal and committed opportunities for skill up gradation was indicated by towards the management and always decide in 17.8% respondents . Providing Job Challenges was favour of the organization. Management opt various

indicated by 8.4respondents in the sample. organization. 15.9% indicated to some extent where as 23.4% and 15% respondent respectively Talent is the critical success factor to any revealed that it influenced them to a little extent and organization. Talent pool management is the most not at all. challenging area to any organization. The challenge

of finding, attracting, developing and retaining the A regression analysis was carried out to have a right talent is taking up a major part of management relationship of all the talent management ractices and once the right talent is found the next with the employees willingness to remain with the demanding job is to retain that talent. Retaining present organization . On the basis of information employees involves understanding the intrinsic presented in the table 16 it can be expressed as motivators of them which many organizations Employees willingness to remain with present unable to identify. The reason is Individuals differ organization (Y) =-.174- Recruitment and Selection greatly in this regard. The analysis indicates that Policy -337 Work autonomy and empowerment+ 18.7% employees in the sample are of the opinion

. 5 7 7 Tr a i n i n g a n d d e v e l o p m e n t + . 0 9 9 that overall talent retention strategies of the present

communication +.135 Succession planning career organization influence then to a great extent to

d e v e l o p m e n t a n d o p p o r t u n i t y f o r remain with present organization. 27.1% employees

advancement+.137 Promoting work autonomy are of the opinin that overall talent retention creativity and innovativeness +.053 Long term strategies of the present organization influence bonding and social security-.054 Feed back systemthem to a considerable extent to remain with present

Table 4 : Mean of Different Talent Management strategies across the level of educational category of Respondents

Edn Qualification

Recruitment and

selection policy

Work Autonomy

And Empowerment

Training And

Development

Communication Succession Planning Career

Development And

Opportunity For

Advancement

Promoting Work

Autonomy Creativity

And Innovativeness

Long Term

Binding And

Social Security

Feed Back System

Up to matriculation

2.1667

2.0000

2.6667

2.2500

2.8333 2.2500 2.0000 3.0000

Intermediate

3.0833

2.4167

2.5417

2.6250

2.7500 3.2500 2.5000 2.5000Graduation 2.9655 2.5517 3.0402 2.8190 2.9943 2.4138 3.0690 3.4138Post Graduation

3.5000 2.2533 3.0167 3.2050 3.0540 2.8700 2.9800 3.3800

Professional Qualification

3.0317 2.2698 2.8730 2.8810 3.0794 2.7381 3.0476 2.9048

Others 3.3333 2.3333 3.1667 2.0000 3.5000 1.5000 5.0000 2.0000Total 3.2212 2.3396 2.9720 2.9860 3.0315 2.7103 3.0000 3.2430

Table 5 : Challenges in retaining employees in your organization

Frequency Percent Valid Percent

Cumulative Percent

Valid

Managing expectations of employees

41 38.3 38.3 38.3

Matching person to the job 27 25.2 25.2 63.6 Matching person to the culture of the firm

18 16.8 16.8 80.4 Provide adequate opportunities for career growth and opportunities

11

10.3

10.3

90.7

Treat employees fairly –

through

compensation, rewards and recognition schemes

10

9.3

9.3

100.0

Total 107 100.0 100.0

Table 6 : Employees Opinion about Most Important retention strategies

Frequency Percent Valid Percent

Cumulative Percent

Valid

Providing Job Challenges 9 8.4 8.4 8.4Building an open environment and culture

22 20.6 20.6 29.0

Giving competitive remuneration packages

25

23.4

23.4

52.3

Clarifying Job Responsibilities and career paths

32

29.9

29.9

82.2

Providing continuous training opportunities

for skill up gradation

19

17.8

17.8

100.0

Total 107 100.0 100.0

Table 7 : Overall talent retention strategies of the present organization influence you to remain with present organisation

Frequency Percent Valid Percent

Cumulative Percent

Valid

To a great extent 20 18.7 18.7 18.7To a considerable extent

29 27.1 27.1 45.8

To some extent

17

15.9

15.9

61.7To a little extent

25

23.4

23.4

85.0

Not at All

16

15.0

15.0

100.0Total 107 100.0 100.0

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

70 71

Vedaang Vol. 4 No. 1, January-June 2013

organization. Analysis indicates that Managing strategies like deligation of responsibility, managing disputes , hiring the right candidate, expectations of employees is one of the most employees recognition stablishing proper important challenges before management as it was performance appraisal system, wage and salary indicated by 38.3% employees in the sample. administration, and effective HR policies to retain Matching persons to the job was indicated by 25.2% the employees into the organization. The survey employees where as Matching person to the culture reveals that Clarifying Job Responsibilities and of the firm, Provide adequate opportunities for career paths is one of the most important retention career growth and opportunities and Treat strategies as it was indicated by 29.9% employees in employees fairly through compensation, rewards the survey. Giving competitive renumeration was and recognition schemes was indicated by 16.8% indicated by 23.4% respondent in the sample. 10.3% and 9.3% employees respectively. Building an open environment and culture was

The employees who spend a considerable indicated by 20.6% , Providing continuous training amount of time tend to be loyal and committed opportunities for skill up gradation was indicated by towards the management and always decide in 17.8% respondents . Providing Job Challenges was favour of the organization. Management opt various

indicated by 8.4respondents in the sample. organization. 15.9% indicated to some extent where as 23.4% and 15% respondent respectively Talent is the critical success factor to any revealed that it influenced them to a little extent and organization. Talent pool management is the most not at all. challenging area to any organization. The challenge

of finding, attracting, developing and retaining the A regression analysis was carried out to have a right talent is taking up a major part of management relationship of all the talent management ractices and once the right talent is found the next with the employees willingness to remain with the demanding job is to retain that talent. Retaining present organization . On the basis of information employees involves understanding the intrinsic presented in the table 16 it can be expressed as motivators of them which many organizations Employees willingness to remain with present unable to identify. The reason is Individuals differ organization (Y) =-.174- Recruitment and Selection greatly in this regard. The analysis indicates that Policy -337 Work autonomy and empowerment+ 18.7% employees in the sample are of the opinion

. 5 7 7 Tr a i n i n g a n d d e v e l o p m e n t + . 0 9 9 that overall talent retention strategies of the present

communication +.135 Succession planning career organization influence then to a great extent to

d e v e l o p m e n t a n d o p p o r t u n i t y f o r remain with present organization. 27.1% employees

advancement+.137 Promoting work autonomy are of the opinin that overall talent retention creativity and innovativeness +.053 Long term strategies of the present organization influence bonding and social security-.054 Feed back systemthem to a considerable extent to remain with present

Table 4 : Mean of Different Talent Management strategies across the level of educational category of Respondents

Edn Qualification

Recruitment and

selection policy

Work Autonomy

And Empowerment

Training And

Development

Communication Succession Planning Career

Development And

Opportunity For

Advancement

Promoting Work

Autonomy Creativity

And Innovativeness

Long Term

Binding And

Social Security

Feed Back System

Up to matriculation

2.1667

2.0000

2.6667

2.2500

2.8333 2.2500 2.0000 3.0000

Intermediate

3.0833

2.4167

2.5417

2.6250

2.7500 3.2500 2.5000 2.5000Graduation 2.9655 2.5517 3.0402 2.8190 2.9943 2.4138 3.0690 3.4138Post Graduation

3.5000 2.2533 3.0167 3.2050 3.0540 2.8700 2.9800 3.3800

Professional Qualification

3.0317 2.2698 2.8730 2.8810 3.0794 2.7381 3.0476 2.9048

Others 3.3333 2.3333 3.1667 2.0000 3.5000 1.5000 5.0000 2.0000Total 3.2212 2.3396 2.9720 2.9860 3.0315 2.7103 3.0000 3.2430

Table 5 : Challenges in retaining employees in your organization

Frequency Percent Valid Percent

Cumulative Percent

Valid

Managing expectations of employees

41 38.3 38.3 38.3

Matching person to the job 27 25.2 25.2 63.6 Matching person to the culture of the firm

18 16.8 16.8 80.4 Provide adequate opportunities for career growth and opportunities

11

10.3

10.3

90.7

Treat employees fairly –

through

compensation, rewards and recognition schemes

10

9.3

9.3

100.0

Total 107 100.0 100.0

Table 6 : Employees Opinion about Most Important retention strategies

Frequency Percent Valid Percent

Cumulative Percent

Valid

Providing Job Challenges 9 8.4 8.4 8.4Building an open environment and culture

22 20.6 20.6 29.0

Giving competitive remuneration packages

25

23.4

23.4

52.3

Clarifying Job Responsibilities and career paths

32

29.9

29.9

82.2

Providing continuous training opportunities

for skill up gradation

19

17.8

17.8

100.0

Total 107 100.0 100.0

Table 7 : Overall talent retention strategies of the present organization influence you to remain with present organisation

Frequency Percent Valid Percent

Cumulative Percent

Valid

To a great extent 20 18.7 18.7 18.7To a considerable extent

29 27.1 27.1 45.8

To some extent

17

15.9

15.9

61.7To a little extent

25

23.4

23.4

85.0

Not at All

16

15.0

15.0

100.0Total 107 100.0 100.0

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

72 73

Vedaang Vol. 4 No. 1, January-June 2013

Conclusions manpower. Looking carefully into many organizations - retention strategies are very

Insurance industry in the country is passing competitive. Companies try to provide their best to

through the acid test. Human resource mobalisation retain the employees of their competitors

has become the important element for the survival Referencesand growth of the organization. Today Human Mueller, C.W. & Price, J. (1990). Economic, Psychological, Resources function is expected to identify potential

and Sociological Determinants of Voluntary Turnover. talent and also comprehend, conceptualize and Journal of Behavioral Economics 19, 321-336.implement relevant strategies to enable and

Mueller, C.W.,Wallace, J.E., (1996). Justice and the Paradox empower them to contribute effectively to achieve of the Contented Female Worker.Social Psychology organizational objectives. Talent management Quarterly 59, 338349.refers to the process of developing and integrating Morrell, K., Loan-Clarke, J. & Wilkinson (2001). Unweaving new entrants, retaining current employees, and Leaving: The Use of Models in the Management of

Employee Turnover. Business School Research Series, 1-attracting highly skilled people to work for a 65.company. The process of attracting and retaining

Meaghan Stovel, Nick Bontis (2002), Voluntary turnover: employees profitably, has become increasingly knowledgemanagement-friend or foe? J. intellect. Cap. 3 competitive A company should exert some effort (3): 303-322

and undertake some analyses to determine the non-Pfeffer, J. (1994). Competitive advantage through people.

monetary interests and preferences of its key Boston: Harvard Business School Press .employees, and then attempt to meet these

Pfeffer, J. (1996). When it comes to "best practices'-Why do preferences in action. In this context organizations smart organizations occasionally do dumb things? need to dig novel approaches of talent management Organizational Dynamics, 25, 33-44 .that is helpful to retain the most effective

Table 8 : Regression Coefficients (a)

Model

Unstandardized Coefficients

Standardized Coefficients

t Sig.

B Std. Error

Beta B Std. Error

1 (Constant) .174 1.264 .138 .891Recruitment and Selection Policy

-.337 .173 -.232 -1.946 .056

Work autonomy and empowerment

.577 .226 .317 2.550 .013

Training and development

.365

.316

.137

1.153

.253

communication

.099

.203

.055

.488

.627Succession planning career development and opportunity for advancement

.135

.259

.064

.524

.602

Promoting work autonomy creativity and innovativeness

.197

.213

.110

.921

.360

Long term bonding and social security

.059

.131

.053

.455

.650

Feed back system -.054 .137 -.052 -.398 .692a Dependent Variable: overall environment and Switching Intentin

SERVICE QUALITY MEASUREMENT IN LIFE INSURANCE SECTOR-A HOT PHENOMENON IN TODAY'S COMMERCIALIZED WORLD

Shivani Nischal*

ABSTRACTService quality is a term which describes a comparison of expectations with performance. This aim may be achieved by understanding and improving operational processes; identifying problems quickly and systematically; establishing valid and reliable service performance measures and measuring customer satisfaction and other performance outcomes. The article explains various concepts related to quality and measurement of service in various sector of commercialised world. The gap model (also known as the "5 gaps model") of service quality is an important customer-satisfaction framework has been discussed in the paper with linkage to customer's satisfaction in life insurance sector. A wide review based literature and theoretical observations in the paper elaborated the various areas in which the service quality measurement has widen its arms and still growing need of the study is felt at various dimensions and research should be carrying on this particular field to investigate further about Service Quality Measurement. The earlier studies on measurement of customer perceived service quality were very few in the life insurance industry, more so in the Indian context. So, the topic therefore needs to be investigated.

Keywords: Service Quality Measurement, Literature Review, Life Insurance Sector, Gap Model, Customer Satisfaction.

* Research Fellow, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar

Introduction “those product features which meet customer needs and thereby provide customer satisfaction” These

“Quality is whatever customers say it and the basic definitions are commonly accepted and can

quality of particular product or service is whatever also be applied in service management. However

customer perceives to be” Thus the emphasis is on when it comes to more specific service quality

the customer and the perceived quality. Quality is an attributes and dimensions a wide variety of models

elusive and indistinct construct. Often mistaken for and frameworks exist and there is an intense

imprecise adjectives like "goodness, or luxury, or discussion on service quality measurement in

shininess, or weight" (Crosby 1979), quality and its different industry contexts. In particular, traditional

requirements are not easily articulated by concepts and measures of service quality and

consumers (Takeuchi and Quelch 1983). customer satisfaction have been questioned in the

Explication and measurement of quality also business-to-business environment. Let us look at

present problems for researchers (Monroea and some of the critical characteristics and design

Krishnan1983), who often bypass definitions and 1requirements in Service Quality .use unidimensional self-report measures to capture

the concept (Jacoby, Olson, and Haddock 1973; Review of literatureMcConnell 1968; Shapiro 1972). All organizations

Rand graham k. (2004) in his study “Diagnosis in manufacturing or in service business - encounter and improvement of service quality in the insurance difficulties in attaining Quality. During the last few industries of Greece and Kenya” identified decades extensive work has been done to identify determinants of quality and existing quality gaps in and solve quality problems in manufacturing sector. the insurance industries. Researcher also suggested With increasing competition, the product quality improvement strategies regarding each case. characteristics are becoming difficult to

differentiate. Customers have started considering SERVQUAL metrics had been used to diagnose the Service features to make buying decisions. Quality quality of service in the insurance industries of has been generally defined as “fitness for use” and Greece and Kenya. A well structured questionnaire

72 73

Vedaang Vol. 4 No. 1, January-June 2013

Conclusions manpower. Looking carefully into many organizations - retention strategies are very

Insurance industry in the country is passing competitive. Companies try to provide their best to

through the acid test. Human resource mobalisation retain the employees of their competitors

has become the important element for the survival Referencesand growth of the organization. Today Human Mueller, C.W. & Price, J. (1990). Economic, Psychological, Resources function is expected to identify potential

and Sociological Determinants of Voluntary Turnover. talent and also comprehend, conceptualize and Journal of Behavioral Economics 19, 321-336.implement relevant strategies to enable and

Mueller, C.W.,Wallace, J.E., (1996). Justice and the Paradox empower them to contribute effectively to achieve of the Contented Female Worker.Social Psychology organizational objectives. Talent management Quarterly 59, 338349.refers to the process of developing and integrating Morrell, K., Loan-Clarke, J. & Wilkinson (2001). Unweaving new entrants, retaining current employees, and Leaving: The Use of Models in the Management of

Employee Turnover. Business School Research Series, 1-attracting highly skilled people to work for a 65.company. The process of attracting and retaining

Meaghan Stovel, Nick Bontis (2002), Voluntary turnover: employees profitably, has become increasingly knowledgemanagement-friend or foe? J. intellect. Cap. 3 competitive A company should exert some effort (3): 303-322

and undertake some analyses to determine the non-Pfeffer, J. (1994). Competitive advantage through people.

monetary interests and preferences of its key Boston: Harvard Business School Press .employees, and then attempt to meet these

Pfeffer, J. (1996). When it comes to "best practices'-Why do preferences in action. In this context organizations smart organizations occasionally do dumb things? need to dig novel approaches of talent management Organizational Dynamics, 25, 33-44 .that is helpful to retain the most effective

Table 8 : Regression Coefficients (a)

Model

Unstandardized Coefficients

Standardized Coefficients

t Sig.

B Std. Error

Beta B Std. Error

1 (Constant) .174 1.264 .138 .891Recruitment and Selection Policy

-.337 .173 -.232 -1.946 .056

Work autonomy and empowerment

.577 .226 .317 2.550 .013

Training and development

.365

.316

.137

1.153

.253

communication

.099

.203

.055

.488

.627Succession planning career development and opportunity for advancement

.135

.259

.064

.524

.602

Promoting work autonomy creativity and innovativeness

.197

.213

.110

.921

.360

Long term bonding and social security

.059

.131

.053

.455

.650

Feed back system -.054 .137 -.052 -.398 .692a Dependent Variable: overall environment and Switching Intentin

SERVICE QUALITY MEASUREMENT IN LIFE INSURANCE SECTOR-A HOT PHENOMENON IN TODAY'S COMMERCIALIZED WORLD

Shivani Nischal*

ABSTRACTService quality is a term which describes a comparison of expectations with performance. This aim may be achieved by understanding and improving operational processes; identifying problems quickly and systematically; establishing valid and reliable service performance measures and measuring customer satisfaction and other performance outcomes. The article explains various concepts related to quality and measurement of service in various sector of commercialised world. The gap model (also known as the "5 gaps model") of service quality is an important customer-satisfaction framework has been discussed in the paper with linkage to customer's satisfaction in life insurance sector. A wide review based literature and theoretical observations in the paper elaborated the various areas in which the service quality measurement has widen its arms and still growing need of the study is felt at various dimensions and research should be carrying on this particular field to investigate further about Service Quality Measurement. The earlier studies on measurement of customer perceived service quality were very few in the life insurance industry, more so in the Indian context. So, the topic therefore needs to be investigated.

Keywords: Service Quality Measurement, Literature Review, Life Insurance Sector, Gap Model, Customer Satisfaction.

* Research Fellow, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar

Introduction “those product features which meet customer needs and thereby provide customer satisfaction” These

“Quality is whatever customers say it and the basic definitions are commonly accepted and can

quality of particular product or service is whatever also be applied in service management. However

customer perceives to be” Thus the emphasis is on when it comes to more specific service quality

the customer and the perceived quality. Quality is an attributes and dimensions a wide variety of models

elusive and indistinct construct. Often mistaken for and frameworks exist and there is an intense

imprecise adjectives like "goodness, or luxury, or discussion on service quality measurement in

shininess, or weight" (Crosby 1979), quality and its different industry contexts. In particular, traditional

requirements are not easily articulated by concepts and measures of service quality and

consumers (Takeuchi and Quelch 1983). customer satisfaction have been questioned in the

Explication and measurement of quality also business-to-business environment. Let us look at

present problems for researchers (Monroea and some of the critical characteristics and design

Krishnan1983), who often bypass definitions and 1requirements in Service Quality .use unidimensional self-report measures to capture

the concept (Jacoby, Olson, and Haddock 1973; Review of literatureMcConnell 1968; Shapiro 1972). All organizations

Rand graham k. (2004) in his study “Diagnosis in manufacturing or in service business - encounter and improvement of service quality in the insurance difficulties in attaining Quality. During the last few industries of Greece and Kenya” identified decades extensive work has been done to identify determinants of quality and existing quality gaps in and solve quality problems in manufacturing sector. the insurance industries. Researcher also suggested With increasing competition, the product quality improvement strategies regarding each case. characteristics are becoming difficult to

differentiate. Customers have started considering SERVQUAL metrics had been used to diagnose the Service features to make buying decisions. Quality quality of service in the insurance industries of has been generally defined as “fitness for use” and Greece and Kenya. A well structured questionnaire

had been used to collect data from the sample of 84 The results of multiple regression indicated that the main predictor of service quali ty was insurer's and 126 insured's from the four major responsiveness dimension of service quality insurance companies of Kenya and 168 respondents measurement in both insurance companies. from Greece insurance industry. GAP analysis of

both insurance industry suggested that (a) the most Ahmad Affiaine and Zalina Sungip (2008) in deficient dimensions were empathy and reliability their study,” An assessment of service quality in

Malaysia insurance industry” evaluated customer's found in Greek insurance industry & reliability and expectations in general and perceptions in ordered responsiveness were the most deficient dimensions to identify gaps between both about the services of service quality in Kenya insurance industry, (b) offered at insurance service counter on the basis of comparative analysis stated that quality gap service quality dimensions. The study further between these two insurance industries were largely examined relationship between demographic similar as the dimensions of reliability and empathy variables selected and SERVQUAL mean scores.

were the deficient part of service quality.Data had been gathered from the sample of 319

Marwa Simmy and Rand K. Grahm (2004) in policyholders through a structured questionnaire their study “Quality improvement in the Greek and based on SERVQUAL dimensions revenant for the Kenyan Insurance industries” measured service purpose of the study which contained personal quality with the identification of quality gap in the information, customers' expectations and Greek and Kenyan insurance industries. The customers' perceptions. Various techniques such as SERVQUAL metric had been used towards quality descriptive statistics, independent sample T-test, F-measurement in both industries through well test, Anova had been used to analyze the data. structured questionnaire based upon SERVQUAL Researcher conducted gap analysis on the basis of d imensions i .e . tangibi l i ty, re l iabi l i ty, five dimensions of SERVQUAL i.e. tangibility, responsiveness, assurance and empathy. A sample reliability, responsiveness, assurance and empathy. of 168 and 210 respondents had been chosen from Findings of the study revealed that (a) customers Greek and Kenya insurance industries respectively. expect highest (6.409) on responsiveness The findings revealed that (a) In the both industries, dimension and expect lowest (5.571) on tangibles reliability was most deficient part while measuring dimension (b) the gap of service quality dimensions service quality, (b) Greek insurance industry for reliability indicated (2.422) large gap and depicted reliability and empathy as most deficient technology indicated (0.811) small gap. The study dimensions, (c) In Kenya insurance industry, the concluded that tangibles which were perceived by most deficient dimensions were reliability had customers nearly met and reliability emerged as responsiveness showing highest gaps in terms of most critical determinant of SERVQUAL measure perceptions and expectations of service quality. of service quality which showed highest gap

between perceived and expected Service quality In Goswami Paromita (2007) in her study

Malaysia Insurance Industry.“Customer satisfaction with service quality in life insurance industry in India” attempted to identify Yusuf Tajudeen olalekan, Ayantunji Gbadamosi various dimensions related to service quality that and Dallah Hamadu (2009) in their study “Attitudes ensure maximum customer satisfaction and provide of Nigerians towards insurance services: An help to insurers to capture large market share. A well empirical study” measured the attitudes of structured questionnaire was designed to collect Nigerians towards insurance services through the data from the sample of 232 respondents in Kolkata, effect of socio-cultural and demographic factors. A a cosmopolitan city. Two database samples were sample of 500 respondents had been chosen in selected from LIC and ICICI prudential life Lagos, Nigeria through simple random sampling insurance. SERVQUAL scale and regression were technique. A set of set of structured questionnaire tools had been employed to measure service quality. contained 39 questions out of which 9 questions

74 75

were related to demographic factors and 7 were India. Various tools such as group statistics, likert scale items and remaining 23 deals with correlation, Anova and regression had been used to market strategies. Descriptive statistics like F-test, analyze the collected data. the results indications T-test were used to analyze the data collected for the were (a) the mean and standard deviation revealed purpose of the study. The study concluded that age, little difference between males and females on the marital status, profession, working status, four variables of online insurance i.e. Accessibility educational status, household income, and property factors, security factors, attitude factors and ownership had significant and greater positive availability of information (b) Pearson correlation attitude towards insurance except gender which had indicated significant and strongest correlation insignificant attitude towards insurance service between attitude and security (0.401), (c) Anova quality in Nigeria. results indicated (i) no difference regarding attitude

towards online insurance between various age Siddiqui Masood H. and Tripti Ghosh Sharma

groups except group differences towards security (2010) in their study “Measuring the customer

(0.030) and attitude (0.003) which were significant, perceives service quality for life insurance services:

(ii) only security factor revealed significant an empirical investigation” measured customer

difference related to gender and accessibility perceived service quality in life insurance sector. A

revealed significant difference (0.015) of well structured questionnaire had been used for the knowledge and awareness of customer about online collection of data from the sample of 868 insurance, (iii) Multiple regression indicated that respondents from various cities i.e. Lucknow, only security factor was significant and the best Delhi, Mumbai, Bangalore, Kolkata. Various predictor of attitude of customers towards online analytical techniques were employed such as insurance.exploratory factor analysis, SERVQUAL,

Siddiqui Masood H. and Tripti Hosh Sharma Analytical hierarchy process to analyze the data. (2010) in their study “Analysing customer The findings of the study revealed that (a) Six satisfaction with service quality in life insurance dimensions such as assurance, personalized services” explored the dimensions of consumer financial planning, competence, corporate image, perceptions of service quality towards life tangibility and technology were extracted from the insurance sector. The study also estimated the outcome of SERVQUAL instrument, (b) Results of multiple and inter-related casual relationships analytical hierarchy process highlighted that among perceptual service quality dimensions with assurance is the best predictor of service quality the overall satisfaction with life insurance services. followed by priority wise other dimensions of A sample of 868 respondents had been chosen to service quality such as competence, personalized collect the data through a well structured financial planning, corporate image tangibility and questionnaire from the various cities like Delhi, technology (c) gap scores indicated that Lucknow, Bangalore, Mumbai and Hyderabad. improvement zone is greater in all dimensions of Exploratory factor analysis had been used to study service quality. The study concluded with the various dimensions related to perceptions of suggestion that findings should be transformed into policyholders towards service quality and effective strategies for the achievement of customer structured equation modeling had been used to satisfaction and loyalty.study the causal and multiple relation between

Khare Arpita and Shaveta Singh (2010) in their perceptual service quality dimensions and overall study- “Antecedents to Indian customers towards satisfaction. The results indicated that: (a) six online insurance services” analyzed the attitude of factors had been extracted namely assurance (52%), customers towards online insurance services of personalized financial planning (65%), competence Indian insurance companies. Structured (70%), tangibles (73%), corporate image(76%) and questionnaire had been used to collect data from the technology(78%) which explained the respectively sample of 192 respondents in the cities of Northern stated percentage of cumulative variance, (b)

Vedaang Vol. 4 No. 1, January-June 2013 Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

had been used to collect data from the sample of 84 The results of multiple regression indicated that the main predictor of service quali ty was insurer's and 126 insured's from the four major responsiveness dimension of service quality insurance companies of Kenya and 168 respondents measurement in both insurance companies. from Greece insurance industry. GAP analysis of

both insurance industry suggested that (a) the most Ahmad Affiaine and Zalina Sungip (2008) in deficient dimensions were empathy and reliability their study,” An assessment of service quality in

Malaysia insurance industry” evaluated customer's found in Greek insurance industry & reliability and expectations in general and perceptions in ordered responsiveness were the most deficient dimensions to identify gaps between both about the services of service quality in Kenya insurance industry, (b) offered at insurance service counter on the basis of comparative analysis stated that quality gap service quality dimensions. The study further between these two insurance industries were largely examined relationship between demographic similar as the dimensions of reliability and empathy variables selected and SERVQUAL mean scores.

were the deficient part of service quality.Data had been gathered from the sample of 319

Marwa Simmy and Rand K. Grahm (2004) in policyholders through a structured questionnaire their study “Quality improvement in the Greek and based on SERVQUAL dimensions revenant for the Kenyan Insurance industries” measured service purpose of the study which contained personal quality with the identification of quality gap in the information, customers' expectations and Greek and Kenyan insurance industries. The customers' perceptions. Various techniques such as SERVQUAL metric had been used towards quality descriptive statistics, independent sample T-test, F-measurement in both industries through well test, Anova had been used to analyze the data. structured questionnaire based upon SERVQUAL Researcher conducted gap analysis on the basis of d imensions i .e . tangibi l i ty, re l iabi l i ty, five dimensions of SERVQUAL i.e. tangibility, responsiveness, assurance and empathy. A sample reliability, responsiveness, assurance and empathy. of 168 and 210 respondents had been chosen from Findings of the study revealed that (a) customers Greek and Kenya insurance industries respectively. expect highest (6.409) on responsiveness The findings revealed that (a) In the both industries, dimension and expect lowest (5.571) on tangibles reliability was most deficient part while measuring dimension (b) the gap of service quality dimensions service quality, (b) Greek insurance industry for reliability indicated (2.422) large gap and depicted reliability and empathy as most deficient technology indicated (0.811) small gap. The study dimensions, (c) In Kenya insurance industry, the concluded that tangibles which were perceived by most deficient dimensions were reliability had customers nearly met and reliability emerged as responsiveness showing highest gaps in terms of most critical determinant of SERVQUAL measure perceptions and expectations of service quality. of service quality which showed highest gap

between perceived and expected Service quality In Goswami Paromita (2007) in her study

Malaysia Insurance Industry.“Customer satisfaction with service quality in life insurance industry in India” attempted to identify Yusuf Tajudeen olalekan, Ayantunji Gbadamosi various dimensions related to service quality that and Dallah Hamadu (2009) in their study “Attitudes ensure maximum customer satisfaction and provide of Nigerians towards insurance services: An help to insurers to capture large market share. A well empirical study” measured the attitudes of structured questionnaire was designed to collect Nigerians towards insurance services through the data from the sample of 232 respondents in Kolkata, effect of socio-cultural and demographic factors. A a cosmopolitan city. Two database samples were sample of 500 respondents had been chosen in selected from LIC and ICICI prudential life Lagos, Nigeria through simple random sampling insurance. SERVQUAL scale and regression were technique. A set of set of structured questionnaire tools had been employed to measure service quality. contained 39 questions out of which 9 questions

74 75

were related to demographic factors and 7 were India. Various tools such as group statistics, likert scale items and remaining 23 deals with correlation, Anova and regression had been used to market strategies. Descriptive statistics like F-test, analyze the collected data. the results indications T-test were used to analyze the data collected for the were (a) the mean and standard deviation revealed purpose of the study. The study concluded that age, little difference between males and females on the marital status, profession, working status, four variables of online insurance i.e. Accessibility educational status, household income, and property factors, security factors, attitude factors and ownership had significant and greater positive availability of information (b) Pearson correlation attitude towards insurance except gender which had indicated significant and strongest correlation insignificant attitude towards insurance service between attitude and security (0.401), (c) Anova quality in Nigeria. results indicated (i) no difference regarding attitude

towards online insurance between various age Siddiqui Masood H. and Tripti Ghosh Sharma

groups except group differences towards security (2010) in their study “Measuring the customer

(0.030) and attitude (0.003) which were significant, perceives service quality for life insurance services:

(ii) only security factor revealed significant an empirical investigation” measured customer

difference related to gender and accessibility perceived service quality in life insurance sector. A

revealed significant difference (0.015) of well structured questionnaire had been used for the knowledge and awareness of customer about online collection of data from the sample of 868 insurance, (iii) Multiple regression indicated that respondents from various cities i.e. Lucknow, only security factor was significant and the best Delhi, Mumbai, Bangalore, Kolkata. Various predictor of attitude of customers towards online analytical techniques were employed such as insurance.exploratory factor analysis, SERVQUAL,

Siddiqui Masood H. and Tripti Hosh Sharma Analytical hierarchy process to analyze the data. (2010) in their study “Analysing customer The findings of the study revealed that (a) Six satisfaction with service quality in life insurance dimensions such as assurance, personalized services” explored the dimensions of consumer financial planning, competence, corporate image, perceptions of service quality towards life tangibility and technology were extracted from the insurance sector. The study also estimated the outcome of SERVQUAL instrument, (b) Results of multiple and inter-related casual relationships analytical hierarchy process highlighted that among perceptual service quality dimensions with assurance is the best predictor of service quality the overall satisfaction with life insurance services. followed by priority wise other dimensions of A sample of 868 respondents had been chosen to service quality such as competence, personalized collect the data through a well structured financial planning, corporate image tangibility and questionnaire from the various cities like Delhi, technology (c) gap scores indicated that Lucknow, Bangalore, Mumbai and Hyderabad. improvement zone is greater in all dimensions of Exploratory factor analysis had been used to study service quality. The study concluded with the various dimensions related to perceptions of suggestion that findings should be transformed into policyholders towards service quality and effective strategies for the achievement of customer structured equation modeling had been used to satisfaction and loyalty.study the causal and multiple relation between

Khare Arpita and Shaveta Singh (2010) in their perceptual service quality dimensions and overall study- “Antecedents to Indian customers towards satisfaction. The results indicated that: (a) six online insurance services” analyzed the attitude of factors had been extracted namely assurance (52%), customers towards online insurance services of personalized financial planning (65%), competence Indian insurance companies. Structured (70%), tangibles (73%), corporate image(76%) and questionnaire had been used to collect data from the technology(78%) which explained the respectively sample of 192 respondents in the cities of Northern stated percentage of cumulative variance, (b)

Vedaang Vol. 4 No. 1, January-June 2013 Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

assurance was the major predictor towards construct representing (a) proficiency, (b) media “satisfaction with agent”, (c) competence was the and presentations, (c) physical and ethical major predictor towards “satisfaction with excellence, (d) service delivery process and functionality services” and “satisfaction with purpose, (e) security and dynamic operations, (f) company” (d)out of three major constructs, credibility and (g) functionality had been extracted satisfaction with functional services with higher measuring customers perceptions about service 0.883 loading coefficient better explain the overall quality of Life Insurance Corporation of India.satisfaction through structured equation modeling.

Jajaee Sharareh Mansouri and Fauziah Binti Upadhyaya Deepika and Manish Badlani Sheikh Ahmad (2011) in their study “A study in the

(2011) in their study “Service quality perception perceived service quality in Australian car and customer satisfaction in life insurance insurance industry” measured service quality of car companies in India” indentified key success factors insurance by employing SERVQUAL scale which and importance of technology to improve service is an accepted instrument for measuring service quality in life insurance industry in terms of quality. An online questionnaire had been used to customer satisfaction so as to survive in intense collect data from sample of 384 respondents competition. A sample of 206 insurance residing in Melbourne, Australia. Respondents respondents had been chosen from major cities of were selected from 40 major insurance companies. Rajasthan and Maharashtra. Researcher used Descriptive statistics and SERVQUAL instrument SERVQUAL model for measuring service quality had been used to analyze the data collected for the across a broad range of service categories and purpose of the study. The mean or average of each discipline. A well structured questionnaire had been question answered by participants were greater than used to collect the data through e-mail. Findings of mean of population so the results indicated that the study revealed that: (i) tangibles and assurance service quality of car insurance industry was high features of LIC insurance service were good as and mean (4.27) was greater than population compared to reliability, responsiveness and mean(3).empathy, (ii) nine factors had been extracted to

Ifejionu Samson and Stella Toyosi (2011) in identify the dimensions of service quality affecting

their study “customer evaluation of the quality of customer satisfaction (iii) the study indicated higher

insurance services in Lagos, Nigeria” attempted to satisfaction level but suggestions had been made to

evaluate customer's assessment of service quality of improve the service quality and customer

insurance services. A well structured questionnaire satisfaction level in life insurance companies in

had been used to collect data from sample of 212 India.

respondents in Lagos state, commercial capital of Sandhu H.S. and Neetu Bala (2011) in their Nigeria. Descriptive tools such as percentages and

study “customer perceptions towards service tabular percentages had been used to analyze the quality of life insurance corporation of India: A collected data. The findings of study indicated that: factor analytic approach measured customer's (a) customers of life insurance companies perceptions towards service quality of life undertook prompt claim settlement which insurance corporation of India. A sample of 337 explained highest variance (71.2%) perceived as respondents had been driven from 3 major cities of most important factor for the measurement of Punjab. Various tools such as descriptive statistics, service quality followed by the subsequent factors items and reliability analysis, exploratory factor such as premium charged (50.9%), premises analysis, multiple regression had been used to (49.1%), caring for customers (45.3%), association measure customer perceptions towards service with other organization (39.2%), ability to reach quality. A well structures questionnaire had been customers (39.2%), deployment of technology used to collect data for the purpose of the study. The (36.8%), staff coordination(336.3%), financial findings of the study revealed that seven factor incentives (35.8%) and advertisements (32.1%)

76 77

Vedaang Vol. 4 No. 1, January-June 2013

respectively. of five dimensions of SERVQUAL. A well structured questionnaire had been used to collect

Bala Neetu and H.S. Sandhu (2011) in their data from the sample of 380 policyholders from

study “Analysis of factors influencing agents' Virudhunagar district of Tamilnadu. Researchers

perceptions towards Life Insurance Corporation of also examined the various significant relationships

India” investigated the major factors that influenced between demographic factors and SERVQUAL agents perceptions towards life insurance. A sample mean scores. Various tools like descriptive statistics of 225 respondents had been selected from 3 cities and percentages had been used to analyze the data. of Punjab namely Amritsar, Ludhiana, Jalandhar The findings of the study revealed (a) and Factor Analysis had been used to analyze the Responsiveness impact occupied the first place data collected by well structured questionnaire with Standard deviation (4.44) which is least among based upon 23-item perception scale. The results all dimensions showing consistence in the revealed that (1) staff co-ordination (20.9%) is the perceptions of the respondents and tangibility major factor that influenced customer perceptions dimension showed highest variation in perceptions followed by other six factors which are: (a) with standard deviation (4.96), (b) Relationship customer target (14.69%), (b) competitive between various demographic factors like gender, advantage predicators (10.25%), (c) material age, marital status, income and perceptions showed hallmarks (7.95%), (d) promising products and insignificant relationship, (c) only assurance process (6.336%), (e) service enhancements dimension showed significant relationship(0.029) (5.544%), (f) exclusive attention (4.753%), between occupation and perception mean scores. explaining respective variances and (2) one way The study concluded that different personal anova analysis indicated no statistical difference variables had no influence on the perception scores.existed among various group of respondents with

respect to their perceptions towards life insurance Toloir Abbas, Mohammad-Ali-Nasimi and corporation of India. alireza Poorebrahimi (2011) in their study on

“Assessing quality of insurance companies using Farivor Farveh, Mohammad Khanbashi and multiple criteria decision making” tried to assess the Osven Emaeelinezhad (2011) in their study “The quality of service of insurance companies. Multiple analysis of different customers and employees criteria decision making had been used for the perceptions from service quality in the insurance assessment of performance of insurance companies. industry of Iran” analyzed and differentiate the The study specified many aspect related to quality customers and employees perceptions about the of services which are tangible and subjective in insurance industry. Research questionnaire was nature. A well structured questionnaire had been framed from various dimensions of SERVQUAL used to collect data from sample of 196 respondents model. A sample of 254 respondents had been of Iran. AHP method, TOPSIS method had been selected consisting employees and customers. used to study average important level of each Pearson, Kolmogorov smrirnov, T-test were various criteria and ranking quality of insurance companies. statistical tools employed to analyze the collected The finding of study revealed that: (a) the main data. The findings of the study revealed that (a) specific dimensions for which customers are perceptions of both groups towards all dimensions seriously concerned about all physical aspects of the were similar except tangibility dimension (ii) there services and less worried about harmony, (c) was significant difference between customers and TOPSIS ranking resulted B company (0.83) was the employees towards tangibility dimension of providing best service quality in insurance measuring service quality.companies.

Rajehwari k and S. Kartheeswari (2011) in their Sharma Ravikant and M.R. Bansal (2011) in study “Perceptions of customers towards life

their study “Service quality assessment in insurance insurance services” tried to explore perceptions of sector, A comparative study between Indian and the policyholders towards LIC of India on the basis

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

assurance was the major predictor towards construct representing (a) proficiency, (b) media “satisfaction with agent”, (c) competence was the and presentations, (c) physical and ethical major predictor towards “satisfaction with excellence, (d) service delivery process and functionality services” and “satisfaction with purpose, (e) security and dynamic operations, (f) company” (d)out of three major constructs, credibility and (g) functionality had been extracted satisfaction with functional services with higher measuring customers perceptions about service 0.883 loading coefficient better explain the overall quality of Life Insurance Corporation of India.satisfaction through structured equation modeling.

Jajaee Sharareh Mansouri and Fauziah Binti Upadhyaya Deepika and Manish Badlani Sheikh Ahmad (2011) in their study “A study in the

(2011) in their study “Service quality perception perceived service quality in Australian car and customer satisfaction in life insurance insurance industry” measured service quality of car companies in India” indentified key success factors insurance by employing SERVQUAL scale which and importance of technology to improve service is an accepted instrument for measuring service quality in life insurance industry in terms of quality. An online questionnaire had been used to customer satisfaction so as to survive in intense collect data from sample of 384 respondents competition. A sample of 206 insurance residing in Melbourne, Australia. Respondents respondents had been chosen from major cities of were selected from 40 major insurance companies. Rajasthan and Maharashtra. Researcher used Descriptive statistics and SERVQUAL instrument SERVQUAL model for measuring service quality had been used to analyze the data collected for the across a broad range of service categories and purpose of the study. The mean or average of each discipline. A well structured questionnaire had been question answered by participants were greater than used to collect the data through e-mail. Findings of mean of population so the results indicated that the study revealed that: (i) tangibles and assurance service quality of car insurance industry was high features of LIC insurance service were good as and mean (4.27) was greater than population compared to reliability, responsiveness and mean(3).empathy, (ii) nine factors had been extracted to

Ifejionu Samson and Stella Toyosi (2011) in identify the dimensions of service quality affecting

their study “customer evaluation of the quality of customer satisfaction (iii) the study indicated higher

insurance services in Lagos, Nigeria” attempted to satisfaction level but suggestions had been made to

evaluate customer's assessment of service quality of improve the service quality and customer

insurance services. A well structured questionnaire satisfaction level in life insurance companies in

had been used to collect data from sample of 212 India.

respondents in Lagos state, commercial capital of Sandhu H.S. and Neetu Bala (2011) in their Nigeria. Descriptive tools such as percentages and

study “customer perceptions towards service tabular percentages had been used to analyze the quality of life insurance corporation of India: A collected data. The findings of study indicated that: factor analytic approach measured customer's (a) customers of life insurance companies perceptions towards service quality of life undertook prompt claim settlement which insurance corporation of India. A sample of 337 explained highest variance (71.2%) perceived as respondents had been driven from 3 major cities of most important factor for the measurement of Punjab. Various tools such as descriptive statistics, service quality followed by the subsequent factors items and reliability analysis, exploratory factor such as premium charged (50.9%), premises analysis, multiple regression had been used to (49.1%), caring for customers (45.3%), association measure customer perceptions towards service with other organization (39.2%), ability to reach quality. A well structures questionnaire had been customers (39.2%), deployment of technology used to collect data for the purpose of the study. The (36.8%), staff coordination(336.3%), financial findings of the study revealed that seven factor incentives (35.8%) and advertisements (32.1%)

76 77

Vedaang Vol. 4 No. 1, January-June 2013

respectively. of five dimensions of SERVQUAL. A well structured questionnaire had been used to collect

Bala Neetu and H.S. Sandhu (2011) in their data from the sample of 380 policyholders from

study “Analysis of factors influencing agents' Virudhunagar district of Tamilnadu. Researchers

perceptions towards Life Insurance Corporation of also examined the various significant relationships

India” investigated the major factors that influenced between demographic factors and SERVQUAL agents perceptions towards life insurance. A sample mean scores. Various tools like descriptive statistics of 225 respondents had been selected from 3 cities and percentages had been used to analyze the data. of Punjab namely Amritsar, Ludhiana, Jalandhar The findings of the study revealed (a) and Factor Analysis had been used to analyze the Responsiveness impact occupied the first place data collected by well structured questionnaire with Standard deviation (4.44) which is least among based upon 23-item perception scale. The results all dimensions showing consistence in the revealed that (1) staff co-ordination (20.9%) is the perceptions of the respondents and tangibility major factor that influenced customer perceptions dimension showed highest variation in perceptions followed by other six factors which are: (a) with standard deviation (4.96), (b) Relationship customer target (14.69%), (b) competitive between various demographic factors like gender, advantage predicators (10.25%), (c) material age, marital status, income and perceptions showed hallmarks (7.95%), (d) promising products and insignificant relationship, (c) only assurance process (6.336%), (e) service enhancements dimension showed significant relationship(0.029) (5.544%), (f) exclusive attention (4.753%), between occupation and perception mean scores. explaining respective variances and (2) one way The study concluded that different personal anova analysis indicated no statistical difference variables had no influence on the perception scores.existed among various group of respondents with

respect to their perceptions towards life insurance Toloir Abbas, Mohammad-Ali-Nasimi and corporation of India. alireza Poorebrahimi (2011) in their study on

“Assessing quality of insurance companies using Farivor Farveh, Mohammad Khanbashi and multiple criteria decision making” tried to assess the Osven Emaeelinezhad (2011) in their study “The quality of service of insurance companies. Multiple analysis of different customers and employees criteria decision making had been used for the perceptions from service quality in the insurance assessment of performance of insurance companies. industry of Iran” analyzed and differentiate the The study specified many aspect related to quality customers and employees perceptions about the of services which are tangible and subjective in insurance industry. Research questionnaire was nature. A well structured questionnaire had been framed from various dimensions of SERVQUAL used to collect data from sample of 196 respondents model. A sample of 254 respondents had been of Iran. AHP method, TOPSIS method had been selected consisting employees and customers. used to study average important level of each Pearson, Kolmogorov smrirnov, T-test were various criteria and ranking quality of insurance companies. statistical tools employed to analyze the collected The finding of study revealed that: (a) the main data. The findings of the study revealed that (a) specific dimensions for which customers are perceptions of both groups towards all dimensions seriously concerned about all physical aspects of the were similar except tangibility dimension (ii) there services and less worried about harmony, (c) was significant difference between customers and TOPSIS ranking resulted B company (0.83) was the employees towards tangibility dimension of providing best service quality in insurance measuring service quality.companies.

Rajehwari k and S. Kartheeswari (2011) in their Sharma Ravikant and M.R. Bansal (2011) in study “Perceptions of customers towards life

their study “Service quality assessment in insurance insurance services” tried to explore perceptions of sector, A comparative study between Indian and the policyholders towards LIC of India on the basis

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

Chinese customers” focused on the development of should design their services according to customer valid and reliable instrument to measure service expectations to attain higher customer satisfaction. quality and comparing these between Chinese and

Theoretical ObservationsIndian insurance companies. A well structured questionnaire based upon SERVQUAL dimensions Over the past few years, there has been a had been used to collect data from 145 and 242 considerable research on different aspects of service respondents in China and India respectively. quality leading to a sound conceptual base for both SERVQUAL instrument and Factor analysis had practioners and researchers. Authors (Parasuraman been used to analyze the data. The findings of the et al., 1988; 1991; Carman, 1990) agree that service study revealed that (a) gaps were positive for first quality is an abstract concept, difficult to define and two dimensions i.e. tangibility and competence for measure. Some of the contemporary definitions of both Indian and Chinese customers ensuring service quality are summarized in Table 1. On customer satisfaction and rest four factors that were service quality modeling, Gronroos (1984) divides corporate image, technology, personalized financial the customer's perceptions of any particular service planning and assurance showed negative gap into two dimensions, namely technical and indicating customer's dissatisfaction, (b) Adequate functional quality.number of branches, simple and less time

Parasuraman et al. (1985) proposed the gap consuming procedure for purchasing a policy, model of service quality that operationalised financially stable company, value for money and all service quality as the gap between expectation and the variables of personalized financial planning, performance perception of the customer.assurance and technology revealed higher level of

customer dissatisfaction through component wise Later on, service quality has also been defined analysis, (d) the both sample customers had very

broadly as “consumers' assessment of the overall similar perceptions and expectations on the various

excellence or superiority of the service” (Zeithaml dimensions of service quality.

et al., 1993). It is viewed as an attitude or global Barik Bhagabat (2012) in his study “Customer judgment about the overall excellence of a service,

expectation about insurance product in Indian life with comparison of expectations and performance insurance industry” tried to (i) understand the as the measuring tools. Researchers have tried to expectation of policyholders towards life insurance operationalize service quality from different product, (ii) judge the various factors which directly perspectives for different service applications. or indirectly impacting customer expectation and Based on their conceptual and empirical studies, satisfaction, (iii) describe the practices followed researchers derived and proposed different service and present situation of life insurance sector quality dimensions for various service regarding customer expectation, (iv) provide a applications. However, the most widely used modified dimension to new entrants for life service quality measurement tools include insurance companies market in India. Data was

SERVQUAL (Parasuraman et al., 1988; Boulding collected from multiple sources such as books,

et al., 1993) and SERVPERF (Cronin and Taylor, journals, websites, magazines, personal and

1992). SERVQUAL scale measures service telephonic interviews and discussions with quality, based on difference between expectation corporate personalities and policyholders of life and performance perception of customers using 22 insurance products. Exploratory research items and five-dimensional structure. In the methodology had been used to analyze the data. The SERVPERF sca le , s e rv ice qua l i ty i s study concluded that life insurance sector is operationalised through performance only score grooming one and expectations of customers have based on the same 22 items and five dimensional been increasing in terms of policy bond, claim,

2structure of SERVQUAL . relationship building, and technology. Researcher thereby suggested that life insurance companied

Parasuraman et al. (1988) developed the SERVQUAL scale a

78 79

Vedaang Vol. 4 No. 1, January-June 2013

widespread instrument to measure both the forming service expectations due to limited understanding of and familiarity with the service expectations and the service perceptions of (Johnston et al., 1984). At the same time, because of customers. This twin scale consists of 22 items. the amount of money that is typically invested in an The size of the gaps between internal customers' insurance policy, customers seek long-term service expectations and their perceptions indicate relationships with their insurance companies and the level of dissatisfaction. Expectations and respective agents in order to reduce risks and perceptions are measured across 5 dimensions of

3 uncertainties (Berry, 1995). Pure services like service quality .insurance may, therefore, conjure different

Tangibles : Physical facilities, equipment and expectations than that of services that include appearance of personnel. tangible products (Toran, 1993). An insurance

policy is almost always sold by an agent who, in Reliability: Ability to perform the promised 80% of the cases, is the customer's only contact service dependably and accurately.(Richard and Allaway, 1993; Clow and Vorhies,

Responsiveness: Willingness to help customers 1993; Crosby and Cowles, 1986). Customers are, and provide prompt service. therefore, likely to place a high value on their

agent's integrity and advise (Zeithaml et al., 1993) Assurance: Knowledge and courtesy of The quality of the agent's service and his/her employees and their ability to inspire trust and relationship with the customer serves to either confidence.mitigate or aggravate the perceived risk in

Empathy: Caring, individualized attention the purchasing the life insurance product. Putting the firm provides for its customers. customer first, and, exhibiting trust and integrity

have found to be essential in selling insurance Service quality in Life Insurance(Slattery, 1989). Sherden (1987) laments that high

Life insurance providers offer services that are quality service (defined as exceeding “customers' credence products with very few clues to signal expectations”) is rare in the life insurance industry quality. It has been suggested that consumers but increasingly demanded by customers.usually rely on extrinsic cues like brand image to

Toran (1993) points out that quality should be at ascertain and perceive service quality (Gronroos, the core of what the insurance industry does. 1984). This factor is especially true for a “pure” Customer surveys by Prudential have identified that service such as insurance, which has minor tangible customer want more responsive agents with better representations of its quality and is highly relational contact, personalized communications from the during most transactions. There is also a lack of insurer, accurate transactions, and quickly solved

price signal in the market due to specialized problems (Pointek, 1992). A different study by the

customer needs and difficulty in comparing prices; National Association of Life Underwriters found thus consumers cannot rely solely on price as an other important factors such as financial stability of extrinsic cue to signal quality. The outcomes of life the company, reputation of the insurer, agent insurance purchase are often delayed, and thus do integrity and the quality of information and not allow immediate post-purchase valuation. As such, the consequences of a purchase do not produce an immediate reaction towards overall satisfaction. This situation is more apparent as the future benefits of the “product” purchased are difficult to foresee and take a long time to “prove” its effects (Crosby and Stephens, 1987). Infrequent purchase and “usage” of such credence products by consumers would mean an inability or difficulty in

guidance from the agent (King, 1992). Clearly, understanding consumers' expectations of life insurance agent's service is crucial as expectations serve as standards or reference points against which service performance is assessed (Walker and Baker, 2000).Technology has also become an important factor in how the agent operates in the field including other functions such as distribution, claim costs and administration (Anonymous, 2004).

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

Chinese customers” focused on the development of should design their services according to customer valid and reliable instrument to measure service expectations to attain higher customer satisfaction. quality and comparing these between Chinese and

Theoretical ObservationsIndian insurance companies. A well structured questionnaire based upon SERVQUAL dimensions Over the past few years, there has been a had been used to collect data from 145 and 242 considerable research on different aspects of service respondents in China and India respectively. quality leading to a sound conceptual base for both SERVQUAL instrument and Factor analysis had practioners and researchers. Authors (Parasuraman been used to analyze the data. The findings of the et al., 1988; 1991; Carman, 1990) agree that service study revealed that (a) gaps were positive for first quality is an abstract concept, difficult to define and two dimensions i.e. tangibility and competence for measure. Some of the contemporary definitions of both Indian and Chinese customers ensuring service quality are summarized in Table 1. On customer satisfaction and rest four factors that were service quality modeling, Gronroos (1984) divides corporate image, technology, personalized financial the customer's perceptions of any particular service planning and assurance showed negative gap into two dimensions, namely technical and indicating customer's dissatisfaction, (b) Adequate functional quality.number of branches, simple and less time

Parasuraman et al. (1985) proposed the gap consuming procedure for purchasing a policy, model of service quality that operationalised financially stable company, value for money and all service quality as the gap between expectation and the variables of personalized financial planning, performance perception of the customer.assurance and technology revealed higher level of

customer dissatisfaction through component wise Later on, service quality has also been defined analysis, (d) the both sample customers had very

broadly as “consumers' assessment of the overall similar perceptions and expectations on the various

excellence or superiority of the service” (Zeithaml dimensions of service quality.

et al., 1993). It is viewed as an attitude or global Barik Bhagabat (2012) in his study “Customer judgment about the overall excellence of a service,

expectation about insurance product in Indian life with comparison of expectations and performance insurance industry” tried to (i) understand the as the measuring tools. Researchers have tried to expectation of policyholders towards life insurance operationalize service quality from different product, (ii) judge the various factors which directly perspectives for different service applications. or indirectly impacting customer expectation and Based on their conceptual and empirical studies, satisfaction, (iii) describe the practices followed researchers derived and proposed different service and present situation of life insurance sector quality dimensions for various service regarding customer expectation, (iv) provide a applications. However, the most widely used modified dimension to new entrants for life service quality measurement tools include insurance companies market in India. Data was

SERVQUAL (Parasuraman et al., 1988; Boulding collected from multiple sources such as books,

et al., 1993) and SERVPERF (Cronin and Taylor, journals, websites, magazines, personal and

1992). SERVQUAL scale measures service telephonic interviews and discussions with quality, based on difference between expectation corporate personalities and policyholders of life and performance perception of customers using 22 insurance products. Exploratory research items and five-dimensional structure. In the methodology had been used to analyze the data. The SERVPERF sca le , s e rv ice qua l i ty i s study concluded that life insurance sector is operationalised through performance only score grooming one and expectations of customers have based on the same 22 items and five dimensional been increasing in terms of policy bond, claim,

2structure of SERVQUAL . relationship building, and technology. Researcher thereby suggested that life insurance companied

Parasuraman et al. (1988) developed the SERVQUAL scale a

78 79

Vedaang Vol. 4 No. 1, January-June 2013

widespread instrument to measure both the forming service expectations due to limited understanding of and familiarity with the service expectations and the service perceptions of (Johnston et al., 1984). At the same time, because of customers. This twin scale consists of 22 items. the amount of money that is typically invested in an The size of the gaps between internal customers' insurance policy, customers seek long-term service expectations and their perceptions indicate relationships with their insurance companies and the level of dissatisfaction. Expectations and respective agents in order to reduce risks and perceptions are measured across 5 dimensions of

3 uncertainties (Berry, 1995). Pure services like service quality .insurance may, therefore, conjure different

Tangibles : Physical facilities, equipment and expectations than that of services that include appearance of personnel. tangible products (Toran, 1993). An insurance

policy is almost always sold by an agent who, in Reliability: Ability to perform the promised 80% of the cases, is the customer's only contact service dependably and accurately.(Richard and Allaway, 1993; Clow and Vorhies,

Responsiveness: Willingness to help customers 1993; Crosby and Cowles, 1986). Customers are, and provide prompt service. therefore, likely to place a high value on their

agent's integrity and advise (Zeithaml et al., 1993) Assurance: Knowledge and courtesy of The quality of the agent's service and his/her employees and their ability to inspire trust and relationship with the customer serves to either confidence.mitigate or aggravate the perceived risk in

Empathy: Caring, individualized attention the purchasing the life insurance product. Putting the firm provides for its customers. customer first, and, exhibiting trust and integrity

have found to be essential in selling insurance Service quality in Life Insurance(Slattery, 1989). Sherden (1987) laments that high

Life insurance providers offer services that are quality service (defined as exceeding “customers' credence products with very few clues to signal expectations”) is rare in the life insurance industry quality. It has been suggested that consumers but increasingly demanded by customers.usually rely on extrinsic cues like brand image to

Toran (1993) points out that quality should be at ascertain and perceive service quality (Gronroos, the core of what the insurance industry does. 1984). This factor is especially true for a “pure” Customer surveys by Prudential have identified that service such as insurance, which has minor tangible customer want more responsive agents with better representations of its quality and is highly relational contact, personalized communications from the during most transactions. There is also a lack of insurer, accurate transactions, and quickly solved

price signal in the market due to specialized problems (Pointek, 1992). A different study by the

customer needs and difficulty in comparing prices; National Association of Life Underwriters found thus consumers cannot rely solely on price as an other important factors such as financial stability of extrinsic cue to signal quality. The outcomes of life the company, reputation of the insurer, agent insurance purchase are often delayed, and thus do integrity and the quality of information and not allow immediate post-purchase valuation. As such, the consequences of a purchase do not produce an immediate reaction towards overall satisfaction. This situation is more apparent as the future benefits of the “product” purchased are difficult to foresee and take a long time to “prove” its effects (Crosby and Stephens, 1987). Infrequent purchase and “usage” of such credence products by consumers would mean an inability or difficulty in

guidance from the agent (King, 1992). Clearly, understanding consumers' expectations of life insurance agent's service is crucial as expectations serve as standards or reference points against which service performance is assessed (Walker and Baker, 2000).Technology has also become an important factor in how the agent operates in the field including other functions such as distribution, claim costs and administration (Anonymous, 2004).

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

Research has shown that the quality of services and expect and what managers think they expect the achievement of customer satisfaction and Clearly survey research is a key way to narrow loyalty are fundamental for the survival of insurers. this gap.The quality of after sales services, in particular, can ?Gap 2 is between management perception and lead to very positive results through customer

the actual specification of the customer loyalty, positive WOM, repetitive sales and cross-experience - Managers need to make sure the selling (Taylor, 2001). However, many insurers organization is defining the level of service they appear unwilling to take the necessary actions to believe is needed.improve their image. This creates problems for

them as the market is extremely competitive and ?Gap 3 is from the experience specification to the continuously becomes more so (Taylor, 2001). delivery of the experience - Managers need to

audit the customer experience that their It is therefore not surprising that measurement of organization currently delivers in order to make service quality has generated, and continues to sure it lives up to the spec.generate, a lot of interest in the industry (Wells and

Stafford, 1995). Several metrics have been used to ?Gap 4 is the gap between the delivery of the gauge service quality. In the United States, for customer experience and what is communicated example, the industry and state regulators have used to customers - All too often organizations "complaint ratios" in this respect. The “Quality exaggerate what will be provided to customers, Score Card”, developed by QIC and RIMS, has also or discuss the best case rather than the likely been used. However, both the complaints ratios and case, raising customer expectations and the quality scorecards have been found to be harming customer perceptions.deficient in measuring service quality and so a more ?Finally, Gap 5 is the gap between a customer's robust metric is needed. Although service quality

perception of the experience and the customer's structure is found rich in empirical studies on

expectation of the service - Customers' different service sectors, service quality modeling

expectations have been shaped by word of in life insurance services is not adequately

mouth, their personal needs and their own past investigated. Further, for service quality modeling,

experiences. Routine transactional surveys after a set of dimensions is required, but there seems to be

delivering the customer experience are no universal dimension; it needs to be modified as

important for an organization to measure per the service in consideration. Thus, the 7

customer perceptions of service .dimensions issue of service quality requires re-4

examination in context of life insurance services . The Link between Service Quality and customer satisfaction5

Service Quality Gap ModelService quality and customer satisfaction are

The gap model (also known as the "5 gaps inarguably the two core concepts that are at the crux model") of service quality is an important customer- of the marketing theory and practice (Spreng and satisfaction framework. In "A conceptual model of Mackoy, 1996). In today's world of intense service quality and its implications for future competition, the key to sustainable competitive research" (The Journal of Marketing, 1985), A. advantage lies in delivering high quality service that Parasuraman, VA Zeitham and LL Berry identify will in turn result in satisfied customers (Shemwell five major gaps that face organizations seeking to et al., 1998). Oliver (1997) describe satisfaction as meet customer's expectations of the customer “the consumer's fulfillment response, a post 6experience . consumption judgment by the consumer that a

service provides a pleasing level of consumption-The five gaps that organizations should related fulfillment, including under- or over-measure, manage and minimize:fulfillment”. Service quality is renowned as a multi-?Gap 1 is the distance between what customers dimensional construct. Its dimensions often vary

80 81

Vedaang Vol. 4 No. 1, January-June 2013

Fig. 1 : The Integrated Gap Model of Service Quality (Parasuraman, zeithaml, berry 1985)

from one researcher to other researcher, but still Service quality is an precursor of the broader theory there is some harmony that service quality mainly of customer satisfaction (Lee et al., 2000; Buttle, consists of three major features: “outcome quality, 1996) and the relationship between loyalty and “interaction quality, and “physical service service quality is intercede by satisfaction environment quality” (Brady & Cronin, 2002). (Caruana, 2002; Fullerton & Taylor, 2002). Numerous researchers more elaborate on sub- Although the organizations are operating in service aspects of these three broad dimensions e.g., the sector know that the service quality is of key factor most popular construct of service quality for success at national and international level (Berry SERVQUAL have five dimensions: “tangibles”, et al., 1989). even then companies were found that “reliability”, “responsiveness”, “empathy” and the instrument of service quality is relatively less “assurance” (Parasuraman et al., 1988). The appropriate in other than developed countries tangibles dimension contact with physical because of cultural context which lead to environment aspect, the reliability dimensions unsatisfactory and inappropriate sales and corresponds with service outcome aspect and marketing approaches in those cultural contexts remaining three signify interaction quality aspect. (Laroche et al., 2004). In today's economy, service

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

Research has shown that the quality of services and expect and what managers think they expect the achievement of customer satisfaction and Clearly survey research is a key way to narrow loyalty are fundamental for the survival of insurers. this gap.The quality of after sales services, in particular, can ?Gap 2 is between management perception and lead to very positive results through customer

the actual specification of the customer loyalty, positive WOM, repetitive sales and cross-experience - Managers need to make sure the selling (Taylor, 2001). However, many insurers organization is defining the level of service they appear unwilling to take the necessary actions to believe is needed.improve their image. This creates problems for

them as the market is extremely competitive and ?Gap 3 is from the experience specification to the continuously becomes more so (Taylor, 2001). delivery of the experience - Managers need to

audit the customer experience that their It is therefore not surprising that measurement of organization currently delivers in order to make service quality has generated, and continues to sure it lives up to the spec.generate, a lot of interest in the industry (Wells and

Stafford, 1995). Several metrics have been used to ?Gap 4 is the gap between the delivery of the gauge service quality. In the United States, for customer experience and what is communicated example, the industry and state regulators have used to customers - All too often organizations "complaint ratios" in this respect. The “Quality exaggerate what will be provided to customers, Score Card”, developed by QIC and RIMS, has also or discuss the best case rather than the likely been used. However, both the complaints ratios and case, raising customer expectations and the quality scorecards have been found to be harming customer perceptions.deficient in measuring service quality and so a more ?Finally, Gap 5 is the gap between a customer's robust metric is needed. Although service quality

perception of the experience and the customer's structure is found rich in empirical studies on

expectation of the service - Customers' different service sectors, service quality modeling

expectations have been shaped by word of in life insurance services is not adequately

mouth, their personal needs and their own past investigated. Further, for service quality modeling,

experiences. Routine transactional surveys after a set of dimensions is required, but there seems to be

delivering the customer experience are no universal dimension; it needs to be modified as

important for an organization to measure per the service in consideration. Thus, the 7

customer perceptions of service .dimensions issue of service quality requires re-4

examination in context of life insurance services . The Link between Service Quality and customer satisfaction5

Service Quality Gap ModelService quality and customer satisfaction are

The gap model (also known as the "5 gaps inarguably the two core concepts that are at the crux model") of service quality is an important customer- of the marketing theory and practice (Spreng and satisfaction framework. In "A conceptual model of Mackoy, 1996). In today's world of intense service quality and its implications for future competition, the key to sustainable competitive research" (The Journal of Marketing, 1985), A. advantage lies in delivering high quality service that Parasuraman, VA Zeitham and LL Berry identify will in turn result in satisfied customers (Shemwell five major gaps that face organizations seeking to et al., 1998). Oliver (1997) describe satisfaction as meet customer's expectations of the customer “the consumer's fulfillment response, a post 6experience . consumption judgment by the consumer that a

service provides a pleasing level of consumption-The five gaps that organizations should related fulfillment, including under- or over-measure, manage and minimize:fulfillment”. Service quality is renowned as a multi-?Gap 1 is the distance between what customers dimensional construct. Its dimensions often vary

80 81

Vedaang Vol. 4 No. 1, January-June 2013

Fig. 1 : The Integrated Gap Model of Service Quality (Parasuraman, zeithaml, berry 1985)

from one researcher to other researcher, but still Service quality is an precursor of the broader theory there is some harmony that service quality mainly of customer satisfaction (Lee et al., 2000; Buttle, consists of three major features: “outcome quality, 1996) and the relationship between loyalty and “interaction quality, and “physical service service quality is intercede by satisfaction environment quality” (Brady & Cronin, 2002). (Caruana, 2002; Fullerton & Taylor, 2002). Numerous researchers more elaborate on sub- Although the organizations are operating in service aspects of these three broad dimensions e.g., the sector know that the service quality is of key factor most popular construct of service quality for success at national and international level (Berry SERVQUAL have five dimensions: “tangibles”, et al., 1989). even then companies were found that “reliability”, “responsiveness”, “empathy” and the instrument of service quality is relatively less “assurance” (Parasuraman et al., 1988). The appropriate in other than developed countries tangibles dimension contact with physical because of cultural context which lead to environment aspect, the reliability dimensions unsatisfactory and inappropriate sales and corresponds with service outcome aspect and marketing approaches in those cultural contexts remaining three signify interaction quality aspect. (Laroche et al., 2004). In today's economy, service

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

quality has come out as critical component for the more so in the Indian context. The topic therefore top management of successful business (Blose et needs to be investigated.al., 2005) and human elements, as well, play Referencesessential role to determining the whole perception Asubonteng, P., McCleary, K. J. & Swan, J. E. (1996), of customers about service quality (Yavas et al., “SERVQUAL Revisited: A Critical Review of Service

Quality”, Journal of Services Marketing, 10(6), 62-81.1997) and retaining the customers (Ranaweera & 8 Bitner, M. J., Booms, B. H. & Tetreault, M. S. (1990), “The Service Neely, 2003) .

Encounter: Diagnosing Favourable and Unfavourable Growing Need of the study Incidents”, Journakl of Marketing, 54(1), 71-84.

Boulding, W., Karla, A., Staelin, R. & Zeithaml, V. A. (1993), The insurance industry affects money, capital “A Dynamic Process Model of Service Quality: From

markets and the real sectors in an economy, making Expectations to Behavioural Intentions” Journal of insurance facility necessary to ensure the Marketing Research, 30(1), 7-27.completeness of a market. It is an industry with Carman, J. M. (1990), “Consumer Perceptions of Service strategic importance for any country as it Quality: An Assessment of the SERVQUAL

Dimensions”, Journal of Retailing, 66 (Spring), 33-55.contributes to the financial sector as well as confers social benefits on the society. Although numerous Clow, K. F. & Vorhies, D. W. (1993), “Building a Competitive

Advantage for Service Firms”, Journal of Services researchers have made theoretical and empirical Marketing, 7(1), 22-32.contribution to the study of service quality in

Cooper, R. W. & Frank, G. L. (2001), “Key ethical issues various industries like banking, healthcare, facing the property and casualty insurance: has a decade education, etc the area of life insurance is not made a difference?” CPCU Journal, 54 (2), 99-111.

adequately researched. Previous studies in this area Cronin, J. J. Jr. & Taylor, S. A. (1992), “Measuring Service

focused exclusively on relational qualities (Crosby Quality: A Re-examination and Extension. Journal of and Stephens, 1987) and on the generic Marketing”, 56 (3), 55-68.SERVQUAL format of quality measurement Crosby, L. A. & Cowles, D. (1986), “Life Insurance Agents as (Parasuraman et al., 1994). In the light of this, the Financial Planners: A Matter of Role Consensus. Journal

of Professional Services Marketing”, 1 (Spring), 69-89.objective of this study is to first investigate service quality structure for life insurance. The relative Crosby, L. A. & Stephens, N. (1987), “Effects of relationship

marketing on satisfaction, retention, and prices in the life importance of these service quality dimensions insurance industry”, Journal of Marketing Research, 24 from customers' perspective need to be studied to (November), 404-411.

ensure optimal deployment of resources among Friedman , S. (2001), “RIMS launches quality process”, these dimensions, and thereby providing best value

National Underwriter, 105(19), 3-29.to the customers. Further, objective is to measure as

Friedman, S. (2001), RIMS plans to have third quality to how well services are being delivered i.e. up-to scorecard published in 2002, National Underwriter, what level performances are meeting the 105(18), 3-22.expectations. The life insurance players have a vast Gronroos, C. (1984) “A service-oriented approach to foray of products and services in their bouquet to marketing of services. European Journal of Marketing”,

12 (8), 588-601.meet the varying needs of various individuals. Besides this, almost all companies offer the Hampton, G. M. (1993), “Gap Analysis of College Student

Satisfaction as a Measure of Professional Service flexibility to customers to choose the most suitable Quality”, Journal of Professional Services Marketing, product or service for themselves by combining 9(1), 15-28.

features of a number of products and services ISHAQ Muhammad Ishtiaq (2011), “An Empirical together. Thus life insurance companies have

Investigation of Customer Satisfaction and Behavioural customized a lot the services to improve the quality Responses in Pakistani Banking Sector”, Management & of service to suit the customer as per their needs. A Marketing Challenges for the Knowledge Society, Vol. 6,

No. 3, pp. 457-470review of literature revealed that the earlier studies on measurement of customer perceived service Johnson, R. L., Tsiros, M. & Lancioni, R. A. (1995),

“Measuring Service quality: A Systems approach”, quality were very few in the life insurance industry, Journal of Services Marketing, 9 (5), 6-19.

82 83

Vedaang Vol. 4 No. 1, January-June 2013

Johnston, E. O., O'Connor, R. J. & Zultowski, W. H. (1984), Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1988), “The personal selling process in the life insurance “SERVQUAL: A Multi-Item Scale for Measuring industry”, in J. Jacoby, & C. S. Craig (Eds.), Personal Consumer Perceptions of Service Quality”, Journal of Selling: Theory, Research and Practice (pp. 136-164). Retailing, 64 (Spring), 21-40.

King, C. (1992), “Agents/policy owners split on service”, Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1994), National Underwriter, 41(October), 7. “Alternatives Scales for Measuring Service Quality: A

Comparative Assessment Based on Psychometric and Lehtinen, U. & Lehtinen, J. R. (1991), “Two Approaches to Diagnostic Criteria”, Journal of Retailing, 70(3), 201-Service Quality Dimensions”, The Service Industries 230.Journal, 11(3), 287-305.

Lewis, B. (1993), “Service quality: recent developments in financial services”, International Journal of Bank Marketing, 11(6), 19-25.

Loo, F. (2000), “Buying insurance on the net”, Financial Upadhyaya, Deepika (2011) “Service Quality Perception Planner, February, 58-60.

and Customer Satisfaction in Life Insurance Companies Marying, P. (2000), “Qualitative Content Analysis”, Forum: in India”, International Conference on Technology and

Qualitative Social Research. 1 (2), Art. 20:June 2000 Business Management, March 28-30.(www.qualitative-research.net/index.php/fqs/article/

Websites Referred.../1089) (Jan 7, 2010).www.bseindia.com

Mehta, S. C. & Lobo, A. (2002), “MSS, MSA and zone of www.businessdayonline.comtolerance as measures of service quality: A Study of the www.financialexpress.comLife Insurance Industry”, Second International Services www.findarticles.comMarketing Conference, University of Queensland. www.fdic.gov.com

Parasuraman, A. & Zeithaml, V. A. & Berry, L. L. (1985), “A www.gktoday.comConceptual Model of Service Quality and Its Implications www.google.com for Future Research”, Journal of Marketing, 49(4), 41-50 www.insuranceinstituteofindia.com

www.nytimes.comParasuraman, A., Berry, L. L. & Zeithaml, V. A. (1991), www.newssky.com“Refinement and reassessment of the SERVQUAL

scale”, Journal of Retailing, 67(4), 420-450.

Siddiqui and Sharma (2010), “Analyzing customer satisfaction with service quality in life insurance services”, Journal of Targeting, Measurement and Analysis for Marketing, Vol. 18, 3/4, 221238

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

quality has come out as critical component for the more so in the Indian context. The topic therefore top management of successful business (Blose et needs to be investigated.al., 2005) and human elements, as well, play Referencesessential role to determining the whole perception Asubonteng, P., McCleary, K. J. & Swan, J. E. (1996), of customers about service quality (Yavas et al., “SERVQUAL Revisited: A Critical Review of Service

Quality”, Journal of Services Marketing, 10(6), 62-81.1997) and retaining the customers (Ranaweera & 8 Bitner, M. J., Booms, B. H. & Tetreault, M. S. (1990), “The Service Neely, 2003) .

Encounter: Diagnosing Favourable and Unfavourable Growing Need of the study Incidents”, Journakl of Marketing, 54(1), 71-84.

Boulding, W., Karla, A., Staelin, R. & Zeithaml, V. A. (1993), The insurance industry affects money, capital “A Dynamic Process Model of Service Quality: From

markets and the real sectors in an economy, making Expectations to Behavioural Intentions” Journal of insurance facility necessary to ensure the Marketing Research, 30(1), 7-27.completeness of a market. It is an industry with Carman, J. M. (1990), “Consumer Perceptions of Service strategic importance for any country as it Quality: An Assessment of the SERVQUAL

Dimensions”, Journal of Retailing, 66 (Spring), 33-55.contributes to the financial sector as well as confers social benefits on the society. Although numerous Clow, K. F. & Vorhies, D. W. (1993), “Building a Competitive

Advantage for Service Firms”, Journal of Services researchers have made theoretical and empirical Marketing, 7(1), 22-32.contribution to the study of service quality in

Cooper, R. W. & Frank, G. L. (2001), “Key ethical issues various industries like banking, healthcare, facing the property and casualty insurance: has a decade education, etc the area of life insurance is not made a difference?” CPCU Journal, 54 (2), 99-111.

adequately researched. Previous studies in this area Cronin, J. J. Jr. & Taylor, S. A. (1992), “Measuring Service

focused exclusively on relational qualities (Crosby Quality: A Re-examination and Extension. Journal of and Stephens, 1987) and on the generic Marketing”, 56 (3), 55-68.SERVQUAL format of quality measurement Crosby, L. A. & Cowles, D. (1986), “Life Insurance Agents as (Parasuraman et al., 1994). In the light of this, the Financial Planners: A Matter of Role Consensus. Journal

of Professional Services Marketing”, 1 (Spring), 69-89.objective of this study is to first investigate service quality structure for life insurance. The relative Crosby, L. A. & Stephens, N. (1987), “Effects of relationship

marketing on satisfaction, retention, and prices in the life importance of these service quality dimensions insurance industry”, Journal of Marketing Research, 24 from customers' perspective need to be studied to (November), 404-411.

ensure optimal deployment of resources among Friedman , S. (2001), “RIMS launches quality process”, these dimensions, and thereby providing best value

National Underwriter, 105(19), 3-29.to the customers. Further, objective is to measure as

Friedman, S. (2001), RIMS plans to have third quality to how well services are being delivered i.e. up-to scorecard published in 2002, National Underwriter, what level performances are meeting the 105(18), 3-22.expectations. The life insurance players have a vast Gronroos, C. (1984) “A service-oriented approach to foray of products and services in their bouquet to marketing of services. European Journal of Marketing”,

12 (8), 588-601.meet the varying needs of various individuals. Besides this, almost all companies offer the Hampton, G. M. (1993), “Gap Analysis of College Student

Satisfaction as a Measure of Professional Service flexibility to customers to choose the most suitable Quality”, Journal of Professional Services Marketing, product or service for themselves by combining 9(1), 15-28.

features of a number of products and services ISHAQ Muhammad Ishtiaq (2011), “An Empirical together. Thus life insurance companies have

Investigation of Customer Satisfaction and Behavioural customized a lot the services to improve the quality Responses in Pakistani Banking Sector”, Management & of service to suit the customer as per their needs. A Marketing Challenges for the Knowledge Society, Vol. 6,

No. 3, pp. 457-470review of literature revealed that the earlier studies on measurement of customer perceived service Johnson, R. L., Tsiros, M. & Lancioni, R. A. (1995),

“Measuring Service quality: A Systems approach”, quality were very few in the life insurance industry, Journal of Services Marketing, 9 (5), 6-19.

82 83

Vedaang Vol. 4 No. 1, January-June 2013

Johnston, E. O., O'Connor, R. J. & Zultowski, W. H. (1984), Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1988), “The personal selling process in the life insurance “SERVQUAL: A Multi-Item Scale for Measuring industry”, in J. Jacoby, & C. S. Craig (Eds.), Personal Consumer Perceptions of Service Quality”, Journal of Selling: Theory, Research and Practice (pp. 136-164). Retailing, 64 (Spring), 21-40.

King, C. (1992), “Agents/policy owners split on service”, Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1994), National Underwriter, 41(October), 7. “Alternatives Scales for Measuring Service Quality: A

Comparative Assessment Based on Psychometric and Lehtinen, U. & Lehtinen, J. R. (1991), “Two Approaches to Diagnostic Criteria”, Journal of Retailing, 70(3), 201-Service Quality Dimensions”, The Service Industries 230.Journal, 11(3), 287-305.

Lewis, B. (1993), “Service quality: recent developments in financial services”, International Journal of Bank Marketing, 11(6), 19-25.

Loo, F. (2000), “Buying insurance on the net”, Financial Upadhyaya, Deepika (2011) “Service Quality Perception Planner, February, 58-60.

and Customer Satisfaction in Life Insurance Companies Marying, P. (2000), “Qualitative Content Analysis”, Forum: in India”, International Conference on Technology and

Qualitative Social Research. 1 (2), Art. 20:June 2000 Business Management, March 28-30.(www.qualitative-research.net/index.php/fqs/article/

Websites Referred.../1089) (Jan 7, 2010).www.bseindia.com

Mehta, S. C. & Lobo, A. (2002), “MSS, MSA and zone of www.businessdayonline.comtolerance as measures of service quality: A Study of the www.financialexpress.comLife Insurance Industry”, Second International Services www.findarticles.comMarketing Conference, University of Queensland. www.fdic.gov.com

Parasuraman, A. & Zeithaml, V. A. & Berry, L. L. (1985), “A www.gktoday.comConceptual Model of Service Quality and Its Implications www.google.com for Future Research”, Journal of Marketing, 49(4), 41-50 www.insuranceinstituteofindia.com

www.nytimes.comParasuraman, A., Berry, L. L. & Zeithaml, V. A. (1991), www.newssky.com“Refinement and reassessment of the SERVQUAL

scale”, Journal of Retailing, 67(4), 420-450.

Siddiqui and Sharma (2010), “Analyzing customer satisfaction with service quality in life insurance services”, Journal of Targeting, Measurement and Analysis for Marketing, Vol. 18, 3/4, 221238

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

TOTAL QUALITY MANAGEMENT CONCEPTS AND THE INDIAN SCENARIO

P.G. Dangwal*

ABSTRACTTotal Quality Management ( TQM ) wave swept India in early 90's particularly in view of challenges thrown up by Liberalisation , Globalisation and Privatisation ( LPG) initiatives of then prime minister Mr. P. V. Narsimha Rao and Finance minister Dr. Manmohan Singh. TQM became a management strategy that transcended every functional area and every level of organization to continuously improve products and services thereby impacting quality of human life and even that of businesses , government and society at large. This paper tries to examine the various popular concepts of TQM and to what extent TQM has become a part of Indian business philosophy.

* P. G. Dangwal Assistant Professor, Institute of Management Studies Dehradun, Research Scholar Pacific University, Udaipur

Introduction continuous improvement.

Concepts of Total Quality Management The means to improve quality lie in the ability to control and manage systems and processes

A) Deming's Approach to TQMproperly, and in the role of management

The theoretical essence of the Deming approach responsibilities in achieving this. Deming to TQM concerns the creation of an organizational advocated methodological practices, including the system that fosters cooperation and learning for use of specific tools and statistical methods in the facilitating the implementation of process design, management, and improvement of process, management practices, which, in turn, leads to which aim to reduce the inevitable variation that continuous improvement of processes, products, occurs from “common causes” and “special causes” and services as well as to employee fulfillment, both in production “Common causes” of variations are of which are critical to customer satisfaction, and systemic and are shared by many operators, ultimately, to firms survival. Deming stressed the machines, or products. They include poor product responsibilities of top management to take the lead design, non-conforming incoming materials, and in changing processes and systems. Leadership poor working conditions. These are the plays a significant role in ensuring the success of responsibilities of management. “Special causes” quality management system, because it is the top relate to the lack of knowledge or skill, or poor management's responsibility to create and performance. These are the responsibilities of communicate a vision to move the firm toward employees. Deming proposed 14 points as the continuous improvement. Top management is principles of TQM which are listed below:responsible for most quality problems; it should 1. Create constancy of purpose toward give employees clear standards for what is improvement of product and service, with the considered acceptable work, and provide the aim to become competitive and to stay in methods to achieve it. These methods include an business, and to provide jobs.appropriate working environment and climate for

2. Adopt the new philosophy. We are in a new work which is free from faultfinding, blame or fear. economic age. Western management must Deming also emphasized the importance of awaken to the challenge, must learn their identification and measurement of customer responsibilities, and take on leadership for requirements, creation of supplier partnership, use change.of functional teams to identify and solve quality

3. Cease dependence on mass inspection to problems, enhancement of employee skills, quality. Eliminate the need for inspection on a participation of employees, and pursuit of

84 85

mass basis by building quality into the product 13. Institute a vigorous program of education and in the first place. self-improvement.

4. End the practice of awarding business on the 14. Put everybody in the company to work to basis of price tag. Instead, minimize total cost. a c c o m p l i s h t h e t r a n s f o r m a t i o n . Move toward a single supplier for any one item, Transformation is everybody's job.on a long-term relationship of loyalty and trust.

B) Juran's Approach to TQM5. Improve constantly and forever the system of

TQM is the system of activities directed at production and service, to improve quality and achieving delighted customers, empowered productivity, and thus constantly decrease employees, higher revenues, and lower costs. Juran costs.believed that main quality problems are due to

6. Institute training on the job. management rather than workers. The attainment of 7. Institute leadership. The aim of supervision quality requires activities in all functions of a firm.

should be to help people and machines and Firm-wide assessment of quality, supplier quality gadgets to do a better job. Supervision of management, using statistical methods, quality management is in need of overhaul, as well as information system, and competitive benchmarking

are essential to quality improvement. Juran's supervision of production workers.approach is emphasis on team (QC circles and self-8. Drive out fear, so that people may work managing teams) and project work, which can effectively for the company.promote quali ty improvement, improve

9. Break down barriers between departments. communication between management and People in research, design, sales, and employees coordination, and improve coordination production must work as a team, to foresee between employees. He also emphasized the problems of production and in use that may be importance of top management commitment and encountered with the product or service. empowerment, participation, recognition and

rewards. According to Juran, it is very important to 10. Eliminate slogans, exhortations, and targets for the workforce asking for zero defects and new understand customer needs. This requirement levels of productivity. Such exhortations only applies to all involved in marketing, design,

manufacturing and services. Identifying customer create adversarial relationships, as the bulk of needs requires more vigorous analysis and the causes of low quality and low productivity understanding to ensure the product meets belong to the system and thus lie beyond the customers' needs and is fit for its intended use, not power of the workforce.just meeting product specifications. Thus, market 11. Eliminate work standards (quotas) on the research is essential for identifying customers' factory floor. Substitute leadership. Eliminate needs. In order to ensure design quality, he proposed management by objective. Eliminate the use of techniques including quality function

management by numbers, numerical goals. deployment, experimental design, reliability

Substitute leadership.engineering and concurrent engineering.

12. Remove barriers that rob the hourly worker of Juran considered quality management as three basic his right to pride of workmanship. The processes (Juran Trilogy): Quality control, quality responsibility of supervisors must be changed improvement, and quality planning. In his view, the from sheer numbers to quality. Remove approach to managing for quality consists of: barriers that rob people in management and in

engineering of their right to pride of ?The sporadic problem is detected and acted workmanship. This means abolishment of the upon by the process of quality control; annual or merit rating and of management by ?The chronic problem requires a different objective.

process, namely, quality improvement;

Total quality management concepts and the Indian scenario

TOTAL QUALITY MANAGEMENT CONCEPTS AND THE INDIAN SCENARIO

P.G. Dangwal*

ABSTRACTTotal Quality Management ( TQM ) wave swept India in early 90's particularly in view of challenges thrown up by Liberalisation , Globalisation and Privatisation ( LPG) initiatives of then prime minister Mr. P. V. Narsimha Rao and Finance minister Dr. Manmohan Singh. TQM became a management strategy that transcended every functional area and every level of organization to continuously improve products and services thereby impacting quality of human life and even that of businesses , government and society at large. This paper tries to examine the various popular concepts of TQM and to what extent TQM has become a part of Indian business philosophy.

* P. G. Dangwal Assistant Professor, Institute of Management Studies Dehradun, Research Scholar Pacific University, Udaipur

Introduction continuous improvement.

Concepts of Total Quality Management The means to improve quality lie in the ability to control and manage systems and processes

A) Deming's Approach to TQMproperly, and in the role of management

The theoretical essence of the Deming approach responsibilities in achieving this. Deming to TQM concerns the creation of an organizational advocated methodological practices, including the system that fosters cooperation and learning for use of specific tools and statistical methods in the facilitating the implementation of process design, management, and improvement of process, management practices, which, in turn, leads to which aim to reduce the inevitable variation that continuous improvement of processes, products, occurs from “common causes” and “special causes” and services as well as to employee fulfillment, both in production “Common causes” of variations are of which are critical to customer satisfaction, and systemic and are shared by many operators, ultimately, to firms survival. Deming stressed the machines, or products. They include poor product responsibilities of top management to take the lead design, non-conforming incoming materials, and in changing processes and systems. Leadership poor working conditions. These are the plays a significant role in ensuring the success of responsibilities of management. “Special causes” quality management system, because it is the top relate to the lack of knowledge or skill, or poor management's responsibility to create and performance. These are the responsibilities of communicate a vision to move the firm toward employees. Deming proposed 14 points as the continuous improvement. Top management is principles of TQM which are listed below:responsible for most quality problems; it should 1. Create constancy of purpose toward give employees clear standards for what is improvement of product and service, with the considered acceptable work, and provide the aim to become competitive and to stay in methods to achieve it. These methods include an business, and to provide jobs.appropriate working environment and climate for

2. Adopt the new philosophy. We are in a new work which is free from faultfinding, blame or fear. economic age. Western management must Deming also emphasized the importance of awaken to the challenge, must learn their identification and measurement of customer responsibilities, and take on leadership for requirements, creation of supplier partnership, use change.of functional teams to identify and solve quality

3. Cease dependence on mass inspection to problems, enhancement of employee skills, quality. Eliminate the need for inspection on a participation of employees, and pursuit of

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mass basis by building quality into the product 13. Institute a vigorous program of education and in the first place. self-improvement.

4. End the practice of awarding business on the 14. Put everybody in the company to work to basis of price tag. Instead, minimize total cost. a c c o m p l i s h t h e t r a n s f o r m a t i o n . Move toward a single supplier for any one item, Transformation is everybody's job.on a long-term relationship of loyalty and trust.

B) Juran's Approach to TQM5. Improve constantly and forever the system of

TQM is the system of activities directed at production and service, to improve quality and achieving delighted customers, empowered productivity, and thus constantly decrease employees, higher revenues, and lower costs. Juran costs.believed that main quality problems are due to

6. Institute training on the job. management rather than workers. The attainment of 7. Institute leadership. The aim of supervision quality requires activities in all functions of a firm.

should be to help people and machines and Firm-wide assessment of quality, supplier quality gadgets to do a better job. Supervision of management, using statistical methods, quality management is in need of overhaul, as well as information system, and competitive benchmarking

are essential to quality improvement. Juran's supervision of production workers.approach is emphasis on team (QC circles and self-8. Drive out fear, so that people may work managing teams) and project work, which can effectively for the company.promote quali ty improvement, improve

9. Break down barriers between departments. communication between management and People in research, design, sales, and employees coordination, and improve coordination production must work as a team, to foresee between employees. He also emphasized the problems of production and in use that may be importance of top management commitment and encountered with the product or service. empowerment, participation, recognition and

rewards. According to Juran, it is very important to 10. Eliminate slogans, exhortations, and targets for the workforce asking for zero defects and new understand customer needs. This requirement levels of productivity. Such exhortations only applies to all involved in marketing, design,

manufacturing and services. Identifying customer create adversarial relationships, as the bulk of needs requires more vigorous analysis and the causes of low quality and low productivity understanding to ensure the product meets belong to the system and thus lie beyond the customers' needs and is fit for its intended use, not power of the workforce.just meeting product specifications. Thus, market 11. Eliminate work standards (quotas) on the research is essential for identifying customers' factory floor. Substitute leadership. Eliminate needs. In order to ensure design quality, he proposed management by objective. Eliminate the use of techniques including quality function

management by numbers, numerical goals. deployment, experimental design, reliability

Substitute leadership.engineering and concurrent engineering.

12. Remove barriers that rob the hourly worker of Juran considered quality management as three basic his right to pride of workmanship. The processes (Juran Trilogy): Quality control, quality responsibility of supervisors must be changed improvement, and quality planning. In his view, the from sheer numbers to quality. Remove approach to managing for quality consists of: barriers that rob people in management and in

engineering of their right to pride of ?The sporadic problem is detected and acted workmanship. This means abolishment of the upon by the process of quality control; annual or merit rating and of management by ?The chronic problem requires a different objective.

process, namely, quality improvement;

Total quality management concepts and the Indian scenario

U n d e r s t a n d i n g , c o m m i t m e n t , a n d ?Such chronic problems are traceable to an communication are all essential. Crosby presented inadequate quality planning process. the quality management maturity grid, which can be Juran defined four broad categories of quality used by firms to evaluate their quality management costs, which can be used to evaluate the firm's maturity. The five stages are: Uncertainty, costs related to quality. Such information is awakening, enlightenment, wisdom and certainty. valuable to quality improvement. The four These stages can be used to assess progress in a quality costs are listed as follows:number of measurement categories such as

?Internal failure costs (scrap, rework, failure management understanding and attitude, quality analysis, etc.), associated with defects found organization status, problem handling, cost of prior to transfer of the product to the customer; quality as percentage of sales, and summation of

firm quality posture. The quality management ?External failure costs (warranty charges, maturity grid and cost of quality measures are the complaint adjustment, returned material, main tools for managers to evaluate their quality allowances, etc.), associated with defects found status. Crosby offered a 14-step program that can after product is shipped to the customer;guide firms in pursuing quality improvement. These

?Appraisal costs (incoming, in-process, and final steps are listed as follows:inspection and testing, product quality audits,

1) Management commitment: To make it clear maintaining accuracy of testing equipment,

where management stands on quality.etc.), incurred in determining the degree of

2) Quality improvement team: To run the quality conformance to quality requirements;improvement program.

?Prevention costs (quality planning, new product 3) Quality measurement: To provide a display of

review, quality audits, supplier qualitycurrent and potential nonconformance

?Evaluation, training, etc.), incurred in keeping problems in a manner that permits objective failure and appraisal costs to a minimum. evaluation and corrective action.

4) Cost of quality: To define the ingredients of the C) Crosby's Approach to TQMcost of quality, and explain its use as a

Crosby identified a number of important management tool.principles and practices for a successful quality

5) Quality awareness: To provide a method of improvement program, which include, for example, raising the personal concern felt by all management part ic ipat ion, management personnel in the company toward the responsibility for quality, employee recognition, conformance of the product or service and the education, reduction of the cost of quality quality reputation of the company.(prevention costs, appraisal costs, and failure costs),

6) Corrective action: To provide a systematic emphasis on prevention rather than after-the-event method of resolving forever the problems that inspection, doing things right the first time, and zero are identical through previous action steps.defects. Crosby claimed that mistakes are caused by

two reasons: Lack of knowledge and lack of 7) Zero defects planning: To investigate the attention. Education and training can eliminate the various activities that must be conducted in first cause and a personal commitment to excellence preparation for formally launching the Zero (zero defects) and attention to detail will cure the Defects program.second. Crosby also stressed the importance of

8) Supervisor training: To define the type of management style to successful quality

training that supervisors need in order to improvement. The key to quality improvement is to

actively carry out their part of the quality change the thinking of top managers-to get them not

improvement program.to accept mistakes and defects, as this would in turn

9) Zero defects day: To create an event that will reduce work expectations and standards in their jobs.

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Vedaang Vol. 4 No. 1, January-June 2013 Total quality management concepts and the Indian scenario

make all employees realize, through a personal permits what might be called total quality experience, that there has been a change. management to cover the full scope of the product

and service “life cycle” from product conception 10) Goal setting: To turn pledges and commitment through production and customer service. He into actions by encouraging individuals to claimed that effective TQM requires a high degree establish improvement goals for themselves of effective functional integration among people, and their groups.machines, and information, stressing a system

11) Error causal removal: To give the individual approach to quality. A clearly defined total quality employee a method of communicating to system is a powerful foundation for TQM. Total management the situation that makes it quality system is defined as follows:difficult for the employee to meet the pledge to

The agreed firm-wide operating work structure, improve.documented in effective, integrated technical and 12) Recognition: To appreciate those who managerial procedures, for guiding the coordinated participate.actions of the people, the machines, and the

13) Quality councils: To bring together the information of the firm in the best and most professional quality people for planned practical ways to assure customer quality communication on a regular basis. satisfaction and economical costs of quality.

14) Do it over again: To emphasize that the quality Feigenbaum emphasized that efforts should be

improvement program never ends.made toward the prevention of poor quality rather

D) Feigenbaum's Approach to TQM than detecting it after the event. He argued that quality is an integral part of the day-today work of

Feigenbaum defined TQM as an effective the line, staff, and operatives of a firm. There are

system for integrating the quality development, two factors affecting product quality: The

quality-maintenance, and quality-improvement technological-that is, machines, materials, and

efforts of the various groups in a firm so as to enable processes; and the human-that is, operators,

marketing, engineering, production, and service at foremen, and other firm personnel. Of these two

the most economical levels which allow for full factors, the human is of greater importance by far.

customer satisfaction. He claimed that effective Feigenbaum considered top management

quality management consists of four main stages, commitment, employee participation, supplier

described as follows:quality management, information system,

?Setting quality standards; evaluation, communication, use of quality costs, use of statistical technology to be an essential ?Appraising conformance to these standards;component of TQM. He argued that employees

?Acting when standards are not met; should be rewarded for their quality improvement suggestions, quality is everybody's job. He stated ?Planning for improvement in these standards.that effective employee training and education

The quality chain, he argued, starts with the should focus on the following three main aspects: identification of all customers' requirements and Quality attitudes, quality knowledge, and quality ends only when the product or service is delivered to skills.the customer, who remains satisfied. Thus, all

E) Ishikawa's Approach to TQMfunctional activities, such as marketing, design, purchasing, manufacturing, inspection, shipping, Ishikawa argued that quality management installation and service, etc., are involved in and extends beyond the product and encompasses after-influence the attainment of quality. Identifying sales service, the quality of management, the quality customers' requirements is a fundamental initial of individuals and the firm itself. He claimed that point for achieving quality. He claimed that it the success of a firm is highly dependent on treating

U n d e r s t a n d i n g , c o m m i t m e n t , a n d ?Such chronic problems are traceable to an communication are all essential. Crosby presented inadequate quality planning process. the quality management maturity grid, which can be Juran defined four broad categories of quality used by firms to evaluate their quality management costs, which can be used to evaluate the firm's maturity. The five stages are: Uncertainty, costs related to quality. Such information is awakening, enlightenment, wisdom and certainty. valuable to quality improvement. The four These stages can be used to assess progress in a quality costs are listed as follows:number of measurement categories such as

?Internal failure costs (scrap, rework, failure management understanding and attitude, quality analysis, etc.), associated with defects found organization status, problem handling, cost of prior to transfer of the product to the customer; quality as percentage of sales, and summation of

firm quality posture. The quality management ?External failure costs (warranty charges, maturity grid and cost of quality measures are the complaint adjustment, returned material, main tools for managers to evaluate their quality allowances, etc.), associated with defects found status. Crosby offered a 14-step program that can after product is shipped to the customer;guide firms in pursuing quality improvement. These

?Appraisal costs (incoming, in-process, and final steps are listed as follows:inspection and testing, product quality audits,

1) Management commitment: To make it clear maintaining accuracy of testing equipment,

where management stands on quality.etc.), incurred in determining the degree of

2) Quality improvement team: To run the quality conformance to quality requirements;improvement program.

?Prevention costs (quality planning, new product 3) Quality measurement: To provide a display of

review, quality audits, supplier qualitycurrent and potential nonconformance

?Evaluation, training, etc.), incurred in keeping problems in a manner that permits objective failure and appraisal costs to a minimum. evaluation and corrective action.

4) Cost of quality: To define the ingredients of the C) Crosby's Approach to TQMcost of quality, and explain its use as a

Crosby identified a number of important management tool.principles and practices for a successful quality

5) Quality awareness: To provide a method of improvement program, which include, for example, raising the personal concern felt by all management part ic ipat ion, management personnel in the company toward the responsibility for quality, employee recognition, conformance of the product or service and the education, reduction of the cost of quality quality reputation of the company.(prevention costs, appraisal costs, and failure costs),

6) Corrective action: To provide a systematic emphasis on prevention rather than after-the-event method of resolving forever the problems that inspection, doing things right the first time, and zero are identical through previous action steps.defects. Crosby claimed that mistakes are caused by

two reasons: Lack of knowledge and lack of 7) Zero defects planning: To investigate the attention. Education and training can eliminate the various activities that must be conducted in first cause and a personal commitment to excellence preparation for formally launching the Zero (zero defects) and attention to detail will cure the Defects program.second. Crosby also stressed the importance of

8) Supervisor training: To define the type of management style to successful quality

training that supervisors need in order to improvement. The key to quality improvement is to

actively carry out their part of the quality change the thinking of top managers-to get them not

improvement program.to accept mistakes and defects, as this would in turn

9) Zero defects day: To create an event that will reduce work expectations and standards in their jobs.

86 87

Vedaang Vol. 4 No. 1, January-June 2013 Total quality management concepts and the Indian scenario

make all employees realize, through a personal permits what might be called total quality experience, that there has been a change. management to cover the full scope of the product

and service “life cycle” from product conception 10) Goal setting: To turn pledges and commitment through production and customer service. He into actions by encouraging individuals to claimed that effective TQM requires a high degree establish improvement goals for themselves of effective functional integration among people, and their groups.machines, and information, stressing a system

11) Error causal removal: To give the individual approach to quality. A clearly defined total quality employee a method of communicating to system is a powerful foundation for TQM. Total management the situation that makes it quality system is defined as follows:difficult for the employee to meet the pledge to

The agreed firm-wide operating work structure, improve.documented in effective, integrated technical and 12) Recognition: To appreciate those who managerial procedures, for guiding the coordinated participate.actions of the people, the machines, and the

13) Quality councils: To bring together the information of the firm in the best and most professional quality people for planned practical ways to assure customer quality communication on a regular basis. satisfaction and economical costs of quality.

14) Do it over again: To emphasize that the quality Feigenbaum emphasized that efforts should be

improvement program never ends.made toward the prevention of poor quality rather

D) Feigenbaum's Approach to TQM than detecting it after the event. He argued that quality is an integral part of the day-today work of

Feigenbaum defined TQM as an effective the line, staff, and operatives of a firm. There are

system for integrating the quality development, two factors affecting product quality: The

quality-maintenance, and quality-improvement technological-that is, machines, materials, and

efforts of the various groups in a firm so as to enable processes; and the human-that is, operators,

marketing, engineering, production, and service at foremen, and other firm personnel. Of these two

the most economical levels which allow for full factors, the human is of greater importance by far.

customer satisfaction. He claimed that effective Feigenbaum considered top management

quality management consists of four main stages, commitment, employee participation, supplier

described as follows:quality management, information system,

?Setting quality standards; evaluation, communication, use of quality costs, use of statistical technology to be an essential ?Appraising conformance to these standards;component of TQM. He argued that employees

?Acting when standards are not met; should be rewarded for their quality improvement suggestions, quality is everybody's job. He stated ?Planning for improvement in these standards.that effective employee training and education

The quality chain, he argued, starts with the should focus on the following three main aspects: identification of all customers' requirements and Quality attitudes, quality knowledge, and quality ends only when the product or service is delivered to skills.the customer, who remains satisfied. Thus, all

E) Ishikawa's Approach to TQMfunctional activities, such as marketing, design, purchasing, manufacturing, inspection, shipping, Ishikawa argued that quality management installation and service, etc., are involved in and extends beyond the product and encompasses after-influence the attainment of quality. Identifying sales service, the quality of management, the quality customers' requirements is a fundamental initial of individuals and the firm itself. He claimed that point for achieving quality. He claimed that it the success of a firm is highly dependent on treating

quality improvement as a never-ending quest. A advancement, emergence of cheaper and better commitment to continuous improvement can substitute products, information technology ensure that people will never stop learning. He explosion, leaner and flatter organization and advocated employee participation as the key to the flexible manufacturing system have made at least successful implementation of TQM. Quality one thing clear to all enterprises only good circles, he believed, are an important vehicle to performances in isolated sporadic areas are not achieve this. Like all other gurus he emphasized the enough for the survival of an organization; the importance of education, stating that quality begins organization should have an all round performance and ends with it. He has been associated with the excellence to be the best among the betters for development and advocacy of universal education survival. Almost all the organizations across the in the seven QC tools . These tools are listed below: globe practice the TQM principles and practices for

their survival. However, what makes the difference ?Pareto chart;between the leader in the field and the also runs is ?Cause and effect diagram (Ishikawa diagram); that the leader practices the TQM principles and

?Stratification chart; practices in a holistic manner with proper strategic ?Scatter diagram; quality plan foundation infrastructure and total

quality management consisting of quality planning, ?Check sheet;quality control and quality improvement, whereas ?Histogram;the also runs practice the TQM principles and ?Control chart.practices in bits and pieces following only one aspect of total quality management, like either Ishikawa suggested that the assessment of Kaizen or ISO 9000 or TPM etc. thereby giving customer requirements serves as a tool to foster marginal results. cross-functional cooperation; selecting suppliers

should be on the basis of quality rather than solely The six sigma approach is adopted by all the

on price; cross-functional teams are effective ways Indian software and information technology firms

for identifying and solving quality problems. like Tata computer system Ltd. , Patni Computer

Ishikawa's concept of TQM contains the following system Ltd, Wipro Technologies Ltd, Infosys Ltd.,

six fundamental principles:Satyam Computers Ltd. etc. apart from the

?Quality first-not short-term profits first; attainment of the CMM level. The Tata group, including Tata Motors Ltd. , Tata Iron Steel Ltd, Tata ?Customer orientation-not producer orientation;Chemicals Ltd. , Tata International Ltd. and other ?The next step is your customer-breaking down Tata group companies follow a business excellence the barrier of sectionalism;model in line with the Malcolm Baldridge model of ?Using facts and data to make presentations-quality award criteria. The ISO 9000 quality

utilization of statistical methods;Management system implementation as well as the

?Respect for humanity as a management implementation of Juran's Quality improvement philosophy, full participatory management; JQI projects in various functional areas is practiced

?Cross-functional management. in all the Tata Group companies. The TQM principles and practices have become the mainstay The Indian Scenarioof the automobile industries. Tata Motors,

The Stress and strain of globalization and Mahindra & Mahindra automotive division and liberalization has created the business pressures tractors division, Maruti Suzuki Ltd., Hero Group, hitherto unseen and inexperienced by the most of Bajaj Auto Ltd., the RDSO of the Indian Railways the industries across the world. This situation is not as well the Indian Defence organization all insists unique to India, it is global in nature. The floodgates on the implementation of the TQM principles and of intense international competition have swept the practices to suppliers and ancillaries. The industries off their feet. The rapid technological Government of India gives an immediate

88 89

Vedaang Vol. 4 No. 1, January-June 2013

reimbursement for ISO 9000 certification cost upto consumer durable manufacturing industry and Rs. .75.000 to the business units registered under Marico Industry Ltd., Asian paints Ltd. in the the small scale industry (SSI Sector). FMCG Industry are the examples where in TQM

principles and practices have been adopted and the The TVS group is famous for the

resultant world class performance excellence and implementation of the TQM principles and

market leadership has been achieved and sustained. practices. Sundaram Fastners Ltd. was the first organization in India to get the prestigious ISO 9001 In the engineering industry, Bharat Heavy certification. Sundaram Clayton Ltd. From the Electricals Ltd, Carborrundum Universal same group was the first Indian organization to be manufacturing industries Ltd. Otis Elevators Ltd. awarded the prestigious Deming Quality Award Philips India Ltd. Hindustan Motors Ltd. ISUZU followed by TVS Motors Ltd. of the same group. Engine Plant at Prithampur, Bajaj tempo ltd. The other members of the group like the Lucas TVS Crompton Greaves Ltd. Godrej Group of Industries, Ltd. or the Brakes India Ltd. also got similar Larsen and Toubro Group of Industries, Aditya recognition in the implementation of the TQM Birla Group of Industries, Reliance Group of principles and practices to defend the market Industries, Modi Rubbers Ltd. Gujarat Heavy leadership of the products manufactured by the Chemicals Ltd. Amul, etc. are all the examples of organization. They have implemented various TQM companies attaining world class performance principles and practices like JQI projects, ISO 9001 excellence through the implementation of the TQM quality management system implementation, principles and practices. business process re-engineering , benchmarking,

India has already become one the prominent statistical process control, logistics and supply

global players in the field of the information chain management etc. Maruti Suzuki Motors being

Technology. We are now in for a grand success story an organization in collaboration with the world's

in the field of manufacturing, riding on the back of largest small car manufacturer from Japan has the implementation of the TQM principles and implemented all the TQM principles and practices practices. India is a warehouse of competent which is the key to its market leadership position qualified engineers for more than two million and its success at defending the same for the years working in the manufacturing sector, making it as together in spite of intense market competition. one the soundest, technically experienced and

The Ajay Piramal Group company Nicholas competent industry with many of the companies Piramal Ltd, Gujarat Glass Ltd. have reached the progressing at a revolutionary rate of growth. Indian market leadership position respectively in last Industry is on a journey towards total quality but it decade and half from an inconsequential position, has to refine the approach by adopting a holistic with the sheer implementation of the TQM approach to be an international leader in the principles and practices by way of ISO 9001 quality respective fields of operation. The interest shown by management system implementation, JQI projects the global manufacturing companies in sourcing implementation, implementation of logistics and parts and components from India is on the rise as the supply chain management , employees training etc. recognition to the Indian Industries commitment to

quality. Today the American, European and The TQM principles and practices can be employed Japanese firms are seeking outsourcing deals with in all sorts of industries in both the manufacturing the Indian manufacturing firms. Toyota is sourcing and service sectors. The Ritz Carlton Hotel in the transmission parts from India. Ford is sourcing the hospitality industry Bombay Dyeing Ltd, Mafatlal entire car engine from India. The Suzuki motors Industries and Arvind Mills in the textile Industry, corporation has leveraged on Maruti's capability to Tata Iron and steel Industries Ltd. (TISCO), Steel

Authorities India Ltd. (SAIL), Mukand Ltd etc in make it the sole manufacturing facility of manufacturing many of the Suzuki models for the the steel industry, Voltas Ltd, Godrej group of international market in India as well ass sourcing industries and Videocon International Ltd. in the

Total quality management concepts and the Indian scenario

quality improvement as a never-ending quest. A advancement, emergence of cheaper and better commitment to continuous improvement can substitute products, information technology ensure that people will never stop learning. He explosion, leaner and flatter organization and advocated employee participation as the key to the flexible manufacturing system have made at least successful implementation of TQM. Quality one thing clear to all enterprises only good circles, he believed, are an important vehicle to performances in isolated sporadic areas are not achieve this. Like all other gurus he emphasized the enough for the survival of an organization; the importance of education, stating that quality begins organization should have an all round performance and ends with it. He has been associated with the excellence to be the best among the betters for development and advocacy of universal education survival. Almost all the organizations across the in the seven QC tools . These tools are listed below: globe practice the TQM principles and practices for

their survival. However, what makes the difference ?Pareto chart;between the leader in the field and the also runs is ?Cause and effect diagram (Ishikawa diagram); that the leader practices the TQM principles and

?Stratification chart; practices in a holistic manner with proper strategic ?Scatter diagram; quality plan foundation infrastructure and total

quality management consisting of quality planning, ?Check sheet;quality control and quality improvement, whereas ?Histogram;the also runs practice the TQM principles and ?Control chart.practices in bits and pieces following only one aspect of total quality management, like either Ishikawa suggested that the assessment of Kaizen or ISO 9000 or TPM etc. thereby giving customer requirements serves as a tool to foster marginal results. cross-functional cooperation; selecting suppliers

should be on the basis of quality rather than solely The six sigma approach is adopted by all the

on price; cross-functional teams are effective ways Indian software and information technology firms

for identifying and solving quality problems. like Tata computer system Ltd. , Patni Computer

Ishikawa's concept of TQM contains the following system Ltd, Wipro Technologies Ltd, Infosys Ltd.,

six fundamental principles:Satyam Computers Ltd. etc. apart from the

?Quality first-not short-term profits first; attainment of the CMM level. The Tata group, including Tata Motors Ltd. , Tata Iron Steel Ltd, Tata ?Customer orientation-not producer orientation;Chemicals Ltd. , Tata International Ltd. and other ?The next step is your customer-breaking down Tata group companies follow a business excellence the barrier of sectionalism;model in line with the Malcolm Baldridge model of ?Using facts and data to make presentations-quality award criteria. The ISO 9000 quality

utilization of statistical methods;Management system implementation as well as the

?Respect for humanity as a management implementation of Juran's Quality improvement philosophy, full participatory management; JQI projects in various functional areas is practiced

?Cross-functional management. in all the Tata Group companies. The TQM principles and practices have become the mainstay The Indian Scenarioof the automobile industries. Tata Motors,

The Stress and strain of globalization and Mahindra & Mahindra automotive division and liberalization has created the business pressures tractors division, Maruti Suzuki Ltd., Hero Group, hitherto unseen and inexperienced by the most of Bajaj Auto Ltd., the RDSO of the Indian Railways the industries across the world. This situation is not as well the Indian Defence organization all insists unique to India, it is global in nature. The floodgates on the implementation of the TQM principles and of intense international competition have swept the practices to suppliers and ancillaries. The industries off their feet. The rapid technological Government of India gives an immediate

88 89

Vedaang Vol. 4 No. 1, January-June 2013

reimbursement for ISO 9000 certification cost upto consumer durable manufacturing industry and Rs. .75.000 to the business units registered under Marico Industry Ltd., Asian paints Ltd. in the the small scale industry (SSI Sector). FMCG Industry are the examples where in TQM

principles and practices have been adopted and the The TVS group is famous for the

resultant world class performance excellence and implementation of the TQM principles and

market leadership has been achieved and sustained. practices. Sundaram Fastners Ltd. was the first organization in India to get the prestigious ISO 9001 In the engineering industry, Bharat Heavy certification. Sundaram Clayton Ltd. From the Electricals Ltd, Carborrundum Universal same group was the first Indian organization to be manufacturing industries Ltd. Otis Elevators Ltd. awarded the prestigious Deming Quality Award Philips India Ltd. Hindustan Motors Ltd. ISUZU followed by TVS Motors Ltd. of the same group. Engine Plant at Prithampur, Bajaj tempo ltd. The other members of the group like the Lucas TVS Crompton Greaves Ltd. Godrej Group of Industries, Ltd. or the Brakes India Ltd. also got similar Larsen and Toubro Group of Industries, Aditya recognition in the implementation of the TQM Birla Group of Industries, Reliance Group of principles and practices to defend the market Industries, Modi Rubbers Ltd. Gujarat Heavy leadership of the products manufactured by the Chemicals Ltd. Amul, etc. are all the examples of organization. They have implemented various TQM companies attaining world class performance principles and practices like JQI projects, ISO 9001 excellence through the implementation of the TQM quality management system implementation, principles and practices. business process re-engineering , benchmarking,

India has already become one the prominent statistical process control, logistics and supply

global players in the field of the information chain management etc. Maruti Suzuki Motors being

Technology. We are now in for a grand success story an organization in collaboration with the world's

in the field of manufacturing, riding on the back of largest small car manufacturer from Japan has the implementation of the TQM principles and implemented all the TQM principles and practices practices. India is a warehouse of competent which is the key to its market leadership position qualified engineers for more than two million and its success at defending the same for the years working in the manufacturing sector, making it as together in spite of intense market competition. one the soundest, technically experienced and

The Ajay Piramal Group company Nicholas competent industry with many of the companies Piramal Ltd, Gujarat Glass Ltd. have reached the progressing at a revolutionary rate of growth. Indian market leadership position respectively in last Industry is on a journey towards total quality but it decade and half from an inconsequential position, has to refine the approach by adopting a holistic with the sheer implementation of the TQM approach to be an international leader in the principles and practices by way of ISO 9001 quality respective fields of operation. The interest shown by management system implementation, JQI projects the global manufacturing companies in sourcing implementation, implementation of logistics and parts and components from India is on the rise as the supply chain management , employees training etc. recognition to the Indian Industries commitment to

quality. Today the American, European and The TQM principles and practices can be employed Japanese firms are seeking outsourcing deals with in all sorts of industries in both the manufacturing the Indian manufacturing firms. Toyota is sourcing and service sectors. The Ritz Carlton Hotel in the transmission parts from India. Ford is sourcing the hospitality industry Bombay Dyeing Ltd, Mafatlal entire car engine from India. The Suzuki motors Industries and Arvind Mills in the textile Industry, corporation has leveraged on Maruti's capability to Tata Iron and steel Industries Ltd. (TISCO), Steel

Authorities India Ltd. (SAIL), Mukand Ltd etc in make it the sole manufacturing facility of manufacturing many of the Suzuki models for the the steel industry, Voltas Ltd, Godrej group of international market in India as well ass sourcing industries and Videocon International Ltd. in the

Total quality management concepts and the Indian scenario

parts and components from many Indian ?Quality is a systematic firm-wide activity from organization. Yahama and Mitsubishi have suppliers to customers. All functional activities, announced to make India a global sourcing hub for such as marketing, design, engineering, automobile components and parts in the two purchasing, manufacturing, inspection, wheeler segment. Tata Motors is selling Indica cars shipping, accounting, installation and service, to Rover for the United Kingdom market. Mahindra should be involved in quality improvement & Mahindra is selling its Scorpio model of SUV all efforts.over the world including Asian and European

Many success stories of Indian companies build countries successfully. Bajaj Auto Ltd has been

up the resolution for the companies who are not selling its scooter in the world market for many

implementing the TQM principles and practices to years. The United States market leader in retailing

immediately go for the same. This is the reason why and a global leader, Wal-mart intends to increase

most of the management and engineering institutes outsourcing from India from the current level of have introduced Total quality management as a USD 1 billion to USD 10 billion in the next couple compulsory subject in their syllabus. The only way of years. the organization can survive and excel in the current

global environment of intense international and Conclusion local competition is by the implementation of the

It is evident that each quality has his own TQM principles and practices. The most interesting distinctive approach but do share some common part of the entire exercise for the industries is that it points which are summarized as follows: is zero investment activity which maximizes the

productive use of the plant and machineries as well ?It is management's responsibility to provide as all other resources. The implementation of the commitment, leadership, empowerment, TQM principles and practices simultaneously gives encouragement, and the appropriate support to customer satisfaction as well as the market technical and human processes. It is top leadership position and maximization of return on management's responsibility to determine the investment, which are the vital factors for attaining environment and framework of operations global leadership and world class performance within a firm. It is imperative that management excellence. foster the participation of the employees in

quality improvement, and develops a quality Referencesculture by changing perception and attitudes P. N. Mukherji (2009), “Total Quality Management”, PHI toward quality. Learning Private Limited, New Delhi

Ahire, S.L., Waller, M.A. and Golhar, D.Y. (1996), “Quality ?The strategy, policy, and firm-wide evaluation management in TQM versus on-TQM firms: An empirical

activities are emphasized. investigation”, International Journal of Quality &Reliability Management, Vol. 13 No. 8, pp. 8-27.

?The importance of employee education and Cole, R.E. (1992), “The quality revolution“, Production and

training is emphasized in changing employees' Operations Management, Vol. 1 No. 1, pp. 118-20.beliefs, behavior, and attitudes; enhancing Crosby, P.B. (1979), “Quality Is Free”, McGraw-Hill, Inc., employees' abilities in carrying out their duties. New York.

Ishikawa, K. (1985), “What is Total Quality Control? The ?Employees should be recognized and rewarded Japanese Way”, Prentice-Hall, London.for their quality improvement efforts. Juran, J.M. (1994), “The upcoming century of quality”,

Quality Progress, Vol. 27 No. 8, pp. 29-37.?It is very important to control the processes and Zhang, Z.H. (2000), “Developing a model of quality

improve quality system and product design. The management methods and evaluating their effects on emphasis is on prevention of product defects, business performance”, Total Quality Management, Vol. not inspection after the event. 11 No. 1, pp. 129-137.

90 91

Vedaang Vol. 4 No. 1, January-June 2013

REVIEW OF BUSINESS STATISTICS

Dr. N. D. VohraDept. of Commerce,

Ramjas College, University of DelhiDelhi-7 (India)

ABSTRACTStatistics plays an important role in business. In the highly competitive business environment of today, a business can not survive by making decisions based merely on instinct, guesswork and approximations. Acquiring relevant data and information, and analysing such information accurately can help to make decisions that are likely to be more profitable for the business organizations. An organization that is strong in the core area of decision-making is likely to achieve greater success for its stakeholders in the long run, have less risk exposure, and have a lower chance of missing lucrative opportunities. Statistics provides managers with more confidence in dealing with uncertainty, enabling them to solve problems in a diversity of contexts, add substance to decisions, and reduce guesswork in taking decisions relating to both short and long terms. Given the role that statistics plays in fields such as marketing, finance, human resources, production, and logistics; it is necessary that the management students managers of the future - be acquainted with statistical tools and methods for developing decision-making skills.

While statistical analysis is essential to business decision-making and management, grasping of the underlying theory of data collection, organization and analysis is a challenge for business students and practitioners. There are many books available in the market, full of knowledge, instructions, illustrations and real world examples. To help stand out from the crowd, Dr. N. D. Vohra of Ramjas College, University of Delhi has written an exciting new book on the subject for the business students and teachers. This book is titled “Business Statistics”. It teaches how to use data to make informed decisions. The author provides strong connections between the statistical concepts in the text and the problems students will face as practitioners in their future careers by showing how to find patterns, create statistical models from the data, and deliver findings to an audience. Dr. Vohra is a well established author in the field of statistics and finance. Previously Dr. Vohra has written “Quantitative Techniques in Management” and “Futures and Options”, both with Tata McGrw Hill. The book “Business Statistics” is the result of nearly four decades of teaching experience of Dr. Vohra at Delhi University and many other international institutions.

The book surveys the statistical techniques commonly used, especially in business and economics. The book is written with the objective of developing students' abilities to describe, analyse and interpret data soundly, making effective use of computer software. The book is divided into 18 chapters in all covering Introduction to Statistics and Data Collection; Summarizing and Presenting Statistical Data; Measuring Central Tendency; Measures of Variation; Measures of Skewness and Kurtosis, and Moments; Theory of Probability; Statistical Decision Theory; Probability Distributions; Sampling and Sampling Distributions; Theory of Estimation; Testing of Hypotheses: Means and Proportions; Tests of Variance and Analysis of Variance (ANOVA), Simple Linear Correlation and Regression Analysis; Partial and Multiple Correlation and Multiple Regression Analysis; Chi-square and Other Non-Parametric Tests; Index Numbers; Time Series and Forecasting and ends with Statistical Quality Control. Each chapter first states its goals and ends with summarizing the contents to help the students review the material quickly and recap the important points and concept discussed in the chapter. Besides illustrative examples given within the text, Additional Solved Examples have been included in all chapters. Added to these, a large number of

BOOK REVIEW

parts and components from many Indian ?Quality is a systematic firm-wide activity from organization. Yahama and Mitsubishi have suppliers to customers. All functional activities, announced to make India a global sourcing hub for such as marketing, design, engineering, automobile components and parts in the two purchasing, manufacturing, inspection, wheeler segment. Tata Motors is selling Indica cars shipping, accounting, installation and service, to Rover for the United Kingdom market. Mahindra should be involved in quality improvement & Mahindra is selling its Scorpio model of SUV all efforts.over the world including Asian and European

Many success stories of Indian companies build countries successfully. Bajaj Auto Ltd has been

up the resolution for the companies who are not selling its scooter in the world market for many

implementing the TQM principles and practices to years. The United States market leader in retailing

immediately go for the same. This is the reason why and a global leader, Wal-mart intends to increase

most of the management and engineering institutes outsourcing from India from the current level of have introduced Total quality management as a USD 1 billion to USD 10 billion in the next couple compulsory subject in their syllabus. The only way of years. the organization can survive and excel in the current

global environment of intense international and Conclusion local competition is by the implementation of the

It is evident that each quality has his own TQM principles and practices. The most interesting distinctive approach but do share some common part of the entire exercise for the industries is that it points which are summarized as follows: is zero investment activity which maximizes the

productive use of the plant and machineries as well ?It is management's responsibility to provide as all other resources. The implementation of the commitment, leadership, empowerment, TQM principles and practices simultaneously gives encouragement, and the appropriate support to customer satisfaction as well as the market technical and human processes. It is top leadership position and maximization of return on management's responsibility to determine the investment, which are the vital factors for attaining environment and framework of operations global leadership and world class performance within a firm. It is imperative that management excellence. foster the participation of the employees in

quality improvement, and develops a quality Referencesculture by changing perception and attitudes P. N. Mukherji (2009), “Total Quality Management”, PHI toward quality. Learning Private Limited, New Delhi

Ahire, S.L., Waller, M.A. and Golhar, D.Y. (1996), “Quality ?The strategy, policy, and firm-wide evaluation management in TQM versus on-TQM firms: An empirical

activities are emphasized. investigation”, International Journal of Quality &Reliability Management, Vol. 13 No. 8, pp. 8-27.

?The importance of employee education and Cole, R.E. (1992), “The quality revolution“, Production and

training is emphasized in changing employees' Operations Management, Vol. 1 No. 1, pp. 118-20.beliefs, behavior, and attitudes; enhancing Crosby, P.B. (1979), “Quality Is Free”, McGraw-Hill, Inc., employees' abilities in carrying out their duties. New York.

Ishikawa, K. (1985), “What is Total Quality Control? The ?Employees should be recognized and rewarded Japanese Way”, Prentice-Hall, London.for their quality improvement efforts. Juran, J.M. (1994), “The upcoming century of quality”,

Quality Progress, Vol. 27 No. 8, pp. 29-37.?It is very important to control the processes and Zhang, Z.H. (2000), “Developing a model of quality

improve quality system and product design. The management methods and evaluating their effects on emphasis is on prevention of product defects, business performance”, Total Quality Management, Vol. not inspection after the event. 11 No. 1, pp. 129-137.

90 91

Vedaang Vol. 4 No. 1, January-June 2013

REVIEW OF BUSINESS STATISTICS

Dr. N. D. VohraDept. of Commerce,

Ramjas College, University of DelhiDelhi-7 (India)

ABSTRACTStatistics plays an important role in business. In the highly competitive business environment of today, a business can not survive by making decisions based merely on instinct, guesswork and approximations. Acquiring relevant data and information, and analysing such information accurately can help to make decisions that are likely to be more profitable for the business organizations. An organization that is strong in the core area of decision-making is likely to achieve greater success for its stakeholders in the long run, have less risk exposure, and have a lower chance of missing lucrative opportunities. Statistics provides managers with more confidence in dealing with uncertainty, enabling them to solve problems in a diversity of contexts, add substance to decisions, and reduce guesswork in taking decisions relating to both short and long terms. Given the role that statistics plays in fields such as marketing, finance, human resources, production, and logistics; it is necessary that the management students managers of the future - be acquainted with statistical tools and methods for developing decision-making skills.

While statistical analysis is essential to business decision-making and management, grasping of the underlying theory of data collection, organization and analysis is a challenge for business students and practitioners. There are many books available in the market, full of knowledge, instructions, illustrations and real world examples. To help stand out from the crowd, Dr. N. D. Vohra of Ramjas College, University of Delhi has written an exciting new book on the subject for the business students and teachers. This book is titled “Business Statistics”. It teaches how to use data to make informed decisions. The author provides strong connections between the statistical concepts in the text and the problems students will face as practitioners in their future careers by showing how to find patterns, create statistical models from the data, and deliver findings to an audience. Dr. Vohra is a well established author in the field of statistics and finance. Previously Dr. Vohra has written “Quantitative Techniques in Management” and “Futures and Options”, both with Tata McGrw Hill. The book “Business Statistics” is the result of nearly four decades of teaching experience of Dr. Vohra at Delhi University and many other international institutions.

The book surveys the statistical techniques commonly used, especially in business and economics. The book is written with the objective of developing students' abilities to describe, analyse and interpret data soundly, making effective use of computer software. The book is divided into 18 chapters in all covering Introduction to Statistics and Data Collection; Summarizing and Presenting Statistical Data; Measuring Central Tendency; Measures of Variation; Measures of Skewness and Kurtosis, and Moments; Theory of Probability; Statistical Decision Theory; Probability Distributions; Sampling and Sampling Distributions; Theory of Estimation; Testing of Hypotheses: Means and Proportions; Tests of Variance and Analysis of Variance (ANOVA), Simple Linear Correlation and Regression Analysis; Partial and Multiple Correlation and Multiple Regression Analysis; Chi-square and Other Non-Parametric Tests; Index Numbers; Time Series and Forecasting and ends with Statistical Quality Control. Each chapter first states its goals and ends with summarizing the contents to help the students review the material quickly and recap the important points and concept discussed in the chapter. Besides illustrative examples given within the text, Additional Solved Examples have been included in all chapters. Added to these, a large number of

BOOK REVIEW

92

Vedaang Vol. 4 No. 1, January-June 2013

True/False questions are provided to test the understanding of students. A distinguishing feature of the book is the inclusion of the applications at the end of the most of the chapters to enable the students to understand how the statistical tools may by usefully applied. Other resources available to the teachers are included in the website www.mhhe.com/vohrabs which are likely to prove a boon to the teachers of the subject.

With “Business Statistics”, Dr. Vohra has provided a non-comparable business statistics book that users can easily read and understand and apply. The Concepts are fully explained in simple, easy-to-understand language as they are presented, making the book an excellent source from which to learn and teach. After each discussion, readers are guided through real-world examples to show how book principles work in professional practice. By creating a text with the goals of accessibility and simplification in mind, Dr. Vohra has not only made the study of statistics comprehensible to students who do not think quantitatively, but he also has re-thought the idea of what a textbook is and can be.

Indeed, with rich pedagogy and user friendly features, “Business Statistics” seems to be perfectly tailored to programs that teach management at various levels. It is highly recommend that professors who teach statistics in business, management and economics consider Dr Vohra's text as either the main course textbook, or as a supplementary resource for the students without prior training in statistical analysis.

ReviewerDr. Suman Jeet Singh

Asst. Prof.Ramjas College, University of Delhi

Delhi-7 (India)

SUBMISSION DETAILS

?The manuscripts should be prepared using MS Word software with Times New Roman font and the text should be double space with 1 inch margin on all the sides on A4 normal size paper.

?The cover page should have the title of the paper, author(s) name(s), their affiliation, contact address (es), Email and phone no(s)

?The manuscript should accompany an executive summary(abstract) of about 200 words.

?The names of the authors(s) should not be used anywhere in the body of the manuscript to minimize any biases in the review process.

?References, Figure, Tables etc. should be put at the end of the paper. References should be in standard APA style.

?The editorial committee shall review all the submissions and the decision of the editorial committee shall be communicated to the authors. Editorial selection of work for publication will be made based on content, without regard to the stature of the authors.

?The manuscripts may be submitted through e-mail at vedaang.editor@gmail.com

* You can also refer to www.sgrrits.org for journal details

92

Vedaang Vol. 4 No. 1, January-June 2013

True/False questions are provided to test the understanding of students. A distinguishing feature of the book is the inclusion of the applications at the end of the most of the chapters to enable the students to understand how the statistical tools may by usefully applied. Other resources available to the teachers are included in the website www.mhhe.com/vohrabs which are likely to prove a boon to the teachers of the subject.

With “Business Statistics”, Dr. Vohra has provided a non-comparable business statistics book that users can easily read and understand and apply. The Concepts are fully explained in simple, easy-to-understand language as they are presented, making the book an excellent source from which to learn and teach. After each discussion, readers are guided through real-world examples to show how book principles work in professional practice. By creating a text with the goals of accessibility and simplification in mind, Dr. Vohra has not only made the study of statistics comprehensible to students who do not think quantitatively, but he also has re-thought the idea of what a textbook is and can be.

Indeed, with rich pedagogy and user friendly features, “Business Statistics” seems to be perfectly tailored to programs that teach management at various levels. It is highly recommend that professors who teach statistics in business, management and economics consider Dr Vohra's text as either the main course textbook, or as a supplementary resource for the students without prior training in statistical analysis.

ReviewerDr. Suman Jeet Singh

Asst. Prof.Ramjas College, University of Delhi

Delhi-7 (India)

SUBMISSION DETAILS

?The manuscripts should be prepared using MS Word software with Times New Roman font and the text should be double space with 1 inch margin on all the sides on A4 normal size paper.

?The cover page should have the title of the paper, author(s) name(s), their affiliation, contact address (es), Email and phone no(s)

?The manuscript should accompany an executive summary(abstract) of about 200 words.

?The names of the authors(s) should not be used anywhere in the body of the manuscript to minimize any biases in the review process.

?References, Figure, Tables etc. should be put at the end of the paper. References should be in standard APA style.

?The editorial committee shall review all the submissions and the decision of the editorial committee shall be communicated to the authors. Editorial selection of work for publication will be made based on content, without regard to the stature of the authors.

?The manuscripts may be submitted through e-mail at vedaang.editor@gmail.com

* You can also refer to www.sgrrits.org for journal details

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Individual SGRRITS Alumni

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* (Favoring SGRRITS, Dehradun)

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