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SuGyaan 1
Volume IV, Issue I
ISSN - 0975-4032 Volume IV Issue I Jan. - June, 2012
RESEARCH ARTICLES
Laila Memdani Social and environmental Disclosure and Corporate SocialResponsibility (CSR) in the UK and Indian Companies
Dr. Salabh Mehrotra India's Food Security Bill: A Burden for Economy orC.A. Ekta Jain Win for the Hungry?
Pardhasaradhi Madasu, CFPCM Innovative Financing Options for Renewable Energy Projects
Dr.D.Maheswara Reddy Liquidity and Cash Management of Infrastructure Companies:K.V.N.Prasad A Comparative Study of L&T Ltd and IVRCL Ltd.
Prof. Sonali Saha A Study on Workplace Environment and its Impact onDr. Abhay Kulkarni Employee Productivity in Selected IT Companies in Pune Region
Dr. S. F. Chandra Sekhar B-School's Students Orientation andMohit Nigam Students' Satisfaction: A Research Study
Arjit Santikary
BOOK REVIEWS
Dr.Pavan Patel HR Transformation: Building Human ResourcesFrom The Outside In
Chief Patron: Mrs. Aarathy SampathyPresident and CEOSiva Sivani Group of Institutions, Secunderabad.
Patron: Mr. Sailesh SampathyVice President and Deputy CEOSiva Sivani Group of Institutions, Secunderabad.
Editor: Dr. V. G. ChariDirector - AcademicSiva Sivani Institute of Management.
Assistant Editor: Dr. Kompalli Sasi Kumar AssociateProfessor, Finance Area Siva SivaniInstitute of Management.
Editorial Advisory and Review Panel
Dr. Ashish Sadh, Professor,Marketing area, IIM Indore
Dr. Cullen Habel, Lecturer in Marketing, The University of Adelaide Business School,South Australia
Dr. D. Dhanapal, CEO, KPR Educational Institutions, Coimbatore
Dr. C. Gopalkrishnan, Director & Professorof Strategic Management, Institute of Management, Nirma
University, Ahmedabad
Dr. H.K. Jayavelu, Professor-HR, IIM K
Dr. S. Hanuman Kennedy, Professor- HR, PESIT, Bangalore
Dr. Prashanth N Bharadwaj, Dean’s Associate and Professor,Indiana University of
Pennsylvania, USA
Dr. B. S. R. Rao, International Institute of Insurance and Finance, Hyderabad
Dr. B. Rajashekar, Reader, School of Management Studies, University of Hyderabad,
Dr. Rajendra Nargundkar, Director, IMT Nagpur, Nagpur
Dr. Srinivas Murthy, Associate Professor- Finance, IPE, Hyderabad
Dr.A.Sudhakar, Professor, Department of Commerce, Dr.B.R.A.O.U, Hyderabad.
Dr. G.B. Reddy, Associate Professor,Department of law, Osmania University, Hyderabad
Dr. Nilanjan Sen Gupta, Professor,SDM-IMD, Mysore
Dr. S.M. Vijaykumar, Professor- OB & HRM, Chairperson - Research & Ph.D. IMT Nagpur
Dr. Yerram Raju. B, Regional Director, PRMIA, Hyderabad
Dr. Shahaida .P, Associate Professor–Marketing, ASCI, Hyderabad
Prof. V. Venkaiah, Professorand Head, Department of Business Management, Dr. B. R.
Ambedkar Open University
Prof. M. Kamalakar, Operations and IT Area, SSIM
Dr. V. G. Chari, Professor –Finance Area & Director- Academic, SSIM,
Dr. P.V. S. Sai, Director, Training and Consultancy, SSIM
Dr. S. F. Chandrashekar, Head-HR, SSIM
Dr. S.V.Ramana Rao, Head –Finance, SSIM
ContentsTitle Page #
RESEARCH ARTICLES
Social and environmental Disclosure and Corporate Social Responsibility (CSR) 5in the UK and Indian Companies – Laila Memdani
India's Food Security Bill: A Burden for Economy or Win for the Hungry? 15Dr. Salabh Mehrotra & C.A. Ekta Jain
Innovative Financing Options for Renewable Energy Projects 29Pardhasaradhi Madasu, CFPCM
Liquidity and Cash Management of Infrastructure Companies: 40A Comparative Study of L&T Ltd and IVRCL Ltd.Dr.D.Maheswara Reddy & K.V.N.Prasad
A Study on Workplace Environment and its Impact on Employee 50Productivity in Selected IT Companies in Pune RegionProf. Sonali Saha & Dr. Abhay Kulkarni
B-School's Students Orientation and Students' Satisfaction: A Research Study 60Dr. S. F. Chandra Sekhar, Mohit Nigam & Arjit Santikary
BOOK REVIEWS
HR Transformation: Building Human Resources From The Outside in 67Dr.Pavan Patel
Steve Jobs 68Col. Dr. R. M. Naidu
Copyright: Siva Sivani Institute of Management, Secunderabad, India.
SuGyaan is a bi-annual publication of the Siva Sivani Institute of Management,NH-7, Kompally, Secunderabad- 500 014.
All efforts are made to ensure correctness of the published information. However, Siva Sivani Institute ofmanagement is not responsible for any errors caused due to oversight or otherwise. The views expressedin this publication are purely personal judgments of the authors and do not reflect the views of SivaSivani Institute of Management. All efforts are made to ensure that published information is free fromcopyright violations. However, authors are personally responsible for any copyright violation.
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Volume IV, Issue I
Editorial...
It gives me immense pleasure in presenting before you the Volume 4, Issue 1, of Sugyaan ManagementJournal of Siva Sivani Institute of Management. In its fourth year of existence SuGyaan has receiveda tremendous response from its readers and contributors. Our sincere gratitude to the readers,authors and reviewers for their support.
In our continuous effort to contribute to the cause of nation building by promoting quality researchthrough thought provoking ideas in the form of research papers, articles, case studies and bookreviews we, in the current issue of Sugyaan, have included six papers from different disciplines viz.,Marketing, Accounts, Finance, Human Resource, followed by two book reviews.
The first paper titled "Social and Environmental Disclosure and Corporate Social Responsibility (CSR)in the UK and Indian Companies", by Laila Memdani is a comparative study between the twocountries oil, gas exploration and refinery companies with reference to their disclosure practices.The study concluded that companies are disclosing enough practices in their annual reports andwebsites.
The second paper, "India's Food Security Bill: A Burden for Economy or Win for the Hungry? by Dr.Salabh Mehrotra & C.A. Ekta Jain examines the issues encompassing the India's Food Security Billlike Availability of Food, Accessibility, Absorption and highlights the key features of National FoodSecurity Bill (NFSB). With scanty rainfall in some states of India this season, the fate of National FoodSecurity Bill Hanges in suspense. We need to watch, fingers crossed, the outcome of parliamentarydeliberations on the bill.
Exploration of Renewable Energy assumes significance with fast depletion of resources and relianceon traditional methods of power generation like Hydel, Thermal and Gas should give way to innovationand renewable energy is one such kind. The third paper, "Innovative Financing Options for RenewableEnergy Projects" by Pardhasaradhi Madasu, explains the traditional as well as innovative financingoptions for renewable energy projects.
The fourth research paper, "Liquidity and Cash Management of Infrastructure Companies: AComparative Study of L&T Ltd and IVRCL Ltd" by Dr.D.Maheswar Reddy and K.V.N.Prasad measuresthe impact of various liquidity ratios on the performance of these companies.
The fifth paper "A Study on Workplace Environment and its Impact on Employee Productivity inSelected IT Companies in Pune Region" by Prof. Sonali Sha and Dr.Abhay Kulkarni. This paperdiscusses the linkage between quality of the employee's workplace environment and its impact onthe level of employee's motivation and subsequent productivity with the help of select factors.
The sixth paper focuses on "B-School's Students Orientation and Students' Satisfaction: A ResearchStudy", by Dr. S. F. Chandra Sekhar, & Mohit Nigam & Arjit Santikary. This paper highlights theperceptions of B-School students towards their orientation and satisfaction in the education system.
Lastly, we have two book reviews of the books, "HR Transformation: Building Human Resources FromThe Outside In" by Prof. Pavan Patel and "Steve Jobs" by Col. Dr. R.M. Naidu.
We hope you find this issue interesting and look forward to your feedback.
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Social and environmental Disclosure and corporate social responsibility(CSR) in the UK and Indian Companies
Abstract
Laila Memdani*
The research paper aims to study the corporate social responsibility and Social and Environmental Disclosureissues of UK and Indian companies. The paper also aims to do a comparative analysis of Social andEnvironmental Disclosure by companies of both the countries through the information given on their websites.The sample of companies chosen for the project includes oil and gas exploration and refinery companies ofboth the countries. Oil and gas exploration and refinery companies are specifically chosen since they by theirvery nature are most polluting ones. Five companies are chosen from UK and five are from India. Secondarydata i.e. the information available on their official website is used for the purpose and content analysis methodis used for studying, analyzing and comparing the date collected. The third chapter is on literature review ofstudies done for the purpose. The main findings of the research are that the companies of both the countrieshave devoted space on their website and the Indian companies are not lagging behind in way in comparison toBritish companies.
Introduction
Businesses provide number of benefits to thesociety. They produce goods and services, provideemployment and generate income help in increasingexports and thus increase foreign exchange reservesof the country. They also help in increasinggovernment’s revenue by paying taxes. But this isonly one side of the coin the other side is that theyexploit natural resources, exploit human resourcesby paying labour less and making them work more,spread pollution and harm the environment, sellharmful products like cigars and liquor, cause globalwarming and acid rain etc. All these are aspects ofcorporate sector raise concerns about corporatesector’s responsibility towards the society. Arebusinesses responsible to the society or what aretheir social responsibilities?
Definition and Meaning of Corporate SocialResponsibility:
According to Justice (2003) now a days CorporateSocial Responsibility has become a most importantsubject of public policy. According to Guy Ryder(2003), General Secretary of the InternationalConfederation of Free Trade Unions, ‘corporatesocial responsibility is it not about philanthropy,but about fundamental business practices’. A studyconducted by Stephen Erfle and MichealFrantantuono (2005) found that those firms whichwere ranked highest in terms of their social
responsibility also ranked higher in their financialperformance as well.
Corporate social responsibility Disclosureissues:
The concept of CSR includes involves large numberof aspects like corporate governance, ethics,philanthropy, human rights, employees welfare,environmental protection etc. According to Justice(2003) the present concept of CSR comes from thegeneral concern towards the damages caused toenvironment by the corporate sector. There fore itis suggested that Companies have to prepare theirsocial and environmental accounts and disclose itto public in order to fulfill their social responsibility.What is Social and Environmental Disclosure? It isa process by which corporate communicateinformation to the potential users. Disclosure bythe corporate includes communication of financialand non-financial information related to thecompany to the stake holders and to the generalpublic. Disclosure can be broadly segregated intotwo types: mandatory and voluntary disclosures.Mandatory disclosure refers to the informationwhich corporate are obliged to make it publicthrough regulatory frame work. This informationhas to be in conformity with accounting principles,conventions and practices. The extent of suchdisclosure varies from country to country anddepends on the strictness and slackness of the legal
•Senior Faculty, Badruka Institute of Management Studies, Kachiguda, Hyderabad E-mail: [email protected], Mobile:9866577491
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and regulatory system. In most of the countries itis mandatory to produce financial reports on yearlybasis which includes director’s report and financialstatements. Any disclosure over and above themandated requirements is termed as voluntarydisclosure. Information can be disclosed by thecompanies through various channels such as annualreport, newspapers, magazines, websites, pressmeets etc. The most accepted and effective meansof disclosure is through annual reports. Informationreleased voluntarily can also be a powerful indicatorof performance and “far the more likely to representa signal to markets” than required disclosures(Murray, Sinclair, Power, & Gray, 2006, p. 235)because it gives extra information than obligatorydisclosures. Such disclosures, however, have tendedto be underutilized and not uniformly understood(Engardio, 2007; Healy & Palepu, 2001; Lev, 1992).But now companies have begun to use voluntarydisclosures more often, usually for strategic reasons,and second, there is an increasing tendency to usecombinations of various types of disclosure (e.g.,social and environmental information) in tandemand in the context of existing financial data(Williams, 2008). Environmental issues havebecome very important and environmentallitigations are common in most parts of the worldtherefore corporate social responsibility hasincluded environmental matters as well. After theUnited Nations Conference on Environment andDevelopment (UNCED) held in Rio de Janeiro inJune 1992 the concept of environmental reportinghas received too much importance (Razeed, 2010).
Objectives:
• To determine the level of social andenvironmental accounting disclosure in UKand Indian companies
• To compare and contrast the form of disclosurein both the countries
Sources of Data:
In this paper secondary data is used. The reportson Corporate Social Responsibility as well as reportson Social and Environmental Disclosure of thecompanies from their websites are taken. Presenceof any information related to CSR, its nature,content and quantity, provided on the websites isone of the indicators of sensitivity of a particular
business entity to Social and EnvironmentalDisclosures and Corporate Social Responsibility.Content analysis was employed for screening ofinformation related to CSR provided by thecompanies on their officially maintained websites.The UK and Indian industry is used as an examplefor the purpose of understanding about thecorporate social responsibility (disclosure). Five UKand Indian oil and gas companies are selected forthe purpose. Petroleum refineries and other oil andgas companies are especially selected because theyare by their very nature most polluting. Andanother reason for the choice of Petroleumrefineries is that most of the empirical studiesstudied in literature review have covered otherindustries but have not covered these industries.And therefore these industries are selected for thepurpose. The names of companies chosen of Indianis:
1) Oil and Natural Gas Corporation (ONGC)
2) Gas Authority of India Limited (GAIL)
3) Reliance Petroleum Limited (RPL)
4) Tata Petrodyne Limited
5) Hindustan Petroleum Corporation Limited(HPCL)
The list of U.K. Companies are:
1) Murco Petroleum Limited
2) Shell UK
3) Total UK
4) BG Group
5) Star Energy
Literature Review:
Cynthia Clark Williams (2004) discusses ondisclosure issues of companies. According to himthere are two categories of disclosures: Mandatoryand voluntary. They have given the process ofdisclosure for mandatory as well as voluntarydisclosures. According to him the tasks andactivities related with disclosure are categorized intofour categories. They are: First is analysis whichincludes historical analysis of company’s disclosureissues, regulations specific to the country and alsoanalysis of financial statements. Second stage in theprocess is Interpretation, which requires them to
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find out the object of disclosure. Third isdocumentation, which implies annual or quarterlyreports or news releases etc. The last one iscommunication, which implies information toBoard of directors, shareholders and otherstakeholders.
Shahed Imam, (2000) studied about social andenvironmental accounting for Bangladeshcompanies. He found that a total of 25 per cent ofthe sample companies made community and 22.5per cent environmental disclosure. Only 10 per centof companies provided consumer related disclosure.Out of 40 companies only 9 (22.5 per cent) disclosedEI and the remaining ones did not show anyconcern for environmental issues.
David S. Waller and Roman Lanis (2009) studiedsocial and environmental disclosure issues of topsix global advertising companies. He found in hisstudy that two of the six companies, Omnicom andInterpublic, had no section with CSR disclosures,as the annual reports concentrated on primarily thefinancial disclosure, although Interpublic’s annualreport mentions the existence of a code of ethics,or “Code of Conduct,” It is worth mentioning herethat both are U.S.-based companies.
Reverte (2009), has studied CSR and social andenvironment disclosure practices of the listedcompanies of Spain. His study shows evidence thatûrms with higher CSR ratings present a tatisticallysigniûcant larger size and a higher media exposure,and belong to more environmentally sensitiveindustries, as compared to ûrms with lower CSRratings. However, neither proûtability nor leverageseem to explain differences in CSR disclosurepractices between Spanish listed ûrms. The mostinûuential variable for explaining ûrms’ variationin CSR ratings is media exposure, followed by sizeand industry. Therefore, it seems that the legitimacytheory, as captured by those variables.
Overall, however, international studies suggest thata majority of companies have for some time beenengaging in at least some form, however minimal,of social and environmental accountabilitydisclosures.
Benefits of Voluntary Disclosure to theCompanies: according to Cynthia ClarkWilliams (2004) companies get number of
advantages through voluntary disclosure: Theyare:
1) Through voluntary disclosures they avoidfurther regulations
2) They can get easy access to capital
3) They help to communicate social legitimacyof the company to the public
4) They serve as a differentiation tool.
The other advantages quoted in other studies are
1) Public image and relations with stakeholders(Robbins, 2003; Adams, 2002 cited inBhattacharyya) i.e it will lead to improvementof public image.
2) Value of intangible assets (Ernst and Young,2002:5 cited in Bhattacharyya) Can get bettervalue of the intangible assets
3) Relationships with customers (CRM) (Baker,2001 cited in Bhattacharyya), firms canmaintain better relationships with thecustomers and can retain customer’s loyalty.
4) Attracting and retaining of talent (Adams,2002, 2004 cited in Bhattacharyya): If firmsare responsible towards their employees theycan attract better talent and retain theiremployees. Their will be decline in attritionrate also.
5) Impact on government (Robbins, 2003 citedin Bhattacharyya): firms disclosure of socialand environmental activities will have positiveimpact on government.
6) Competitiveness, profitability, and share price(CERES, 2002 cited in Bhattacharyya), and
7) Internal decision making and cost savings(Adams, 2002 cited in Bhattacharyya).
Corporate Social Responsibility and Social andEnvironmental Disclosures in India:
Times Foundation, the CSR wing of the Bennett,Coleman & CO. Ltd., in partnership with TNSIndia and IRRAD conducted a national survey toanalyze current situation in India. CSR is in agrowing stage in India. It is practiced by a handfulof government companies and by a few privatecompanies, with international shareholding. Thus,
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according to the times Foundation, the situation isfar from perfect as the emphasis is not on socialgood but rather on a policy that needs to beimplemented.
As per the survey the situation is changing now.And CSR is becoming a ‘business necessity’ ratherthan philanthropy or doing social good. Corporatehouses are fast realizing that ‘what is good forworkers - their community, health, andenvironment is also good for the businesses.
The study found that CSR initiatives increased afterthe initiation of economic reforms in nineties since84% of the companies surveyed stated CSR duringthe period between 1990-2005. In many instancespeople living with in the vicinity of the companieswere the beneficiaries. The study found that Tatagroup ranks top in the list followed by Infosys, ITC,NTPC and Reliance Group.
Oil and Natural Gas Corporation (ONGC): It isrenowned in Oil and gas industry in India and alsoabroad. It mainly deals in exploration of oil andgas. It contributes to over 79% of country’s oil and54% of Country’s gas production. Its ONGC videshlimited has 40 projects spread over 15 countireswith assets in seven countries namely Russia,Vietnam, Syria, Sudan, Brazil, Columbia andVenezuela. It is ranked as third exploration andproduction company in the world. Its main productsare crude oil, natural gas and value added productssuch as naphtha, aviation turbine fuel (ATF),liquefied petroleum gas (LPG), superior keroseneoil (SKO) and others. It is a public sector companywith president’s share being 74.14% and rest is heldby Oil Corporation Limited, Gas Authority of India,Life Insurance Corporation of India and Banks andother financial institutions. It has got the status ofMaha Ratna. Its head quarter is located atDehradun.
Social and Environmental Accounting inONGC: ONGC is well aware of its responsibilitiestowards its shareholders and the Indian Society atlarge. It is committed to providing energy securityto the country. It consistently works to improvestandard of living through its efforts towardsresearch and development. It has established severalchairs in several universities/ institutions across thecountry. The ONGC Subir Rana Chair at IPE is one
such chair established in 2010. It was establishedwith an endowment of Rs.90 Lakhs. ONGC haspublished its sustainability report 2009-10, whichis available on its official website. Its contentanalysis of social and environmental disclosure isgiven in table 1.
Table 1: ONGC
Social and Environmental Reporting at ONGC
BroadTheme
Sub Themes No.oflines
Society
Environment
HumanResources
Total number of linesdevoted towards society
Total number of linesdevoted towardsEnvironment
Total number of linesdevoted towards HumanResouirces
216
382
275
Total number of lines 876
Reliance Petroleum Limited: It is the first privatesector company in oil and gas category in India. Itis also the first private sector company from Indiato feature in the Global 500 list of World’s LargestCorporations.
Social and Environmental Reporting at RIL: RIL’ssustainability report is prepared as per theguidelines of American Petroleum Institute/International Petroleum Industry EnvironmentalConservation Guidelines (API/IPECA). RIL is alsothe member of World Business Council forSustainable Development (WBSCD). The councilprovides a platform for RIL and other companiesto explore sustainable development, shareknowledge, experiences and best practices. It hasset up number of schools for poor and brilliantstudents. It has also set up ‘Dhirubhai AmbaniHospital’ in Lodhivali near PatalganagaManufacturing Division to provide quality medicalcare to surrounding community. Under its projectDrishti it has performed eye surgeries for over 8000poor visually challenged people. Its content analysisof social and environmental disclosure is given intable 2
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Broad Theme No. of lines
About CSR
Objectives and Principles
Resources for CSR
7
9
30
Total number of lines 46
Content Analysis of Social and EnvironmentDisclosureof HPCL
Society
Environment
HumanResource
Sum of lines devotedto Society
Environment total
HR Total
232
17
203
Grand Total 452
Table 2: Reliance Petroleum Limited
Content Analysis of Social and EnvironmentDisclosureof Reliance Petroleum Limited
Society
Environment
HumanResource
EnergySecurity
Sum of lines devotedto Society
Environment total
HR Total
Energy Security totalnumber of lines
240
178
134
93
Grand Total 645
Gas Authority of India Limited (GAIL): GAILis ranked no.1 in Gas utility company in Asia andsecond in the world. It is the fastest growing Asiancompanies.
Social and Environmental Disclosures in GAIL:Gail has allocated 2% of its annual budget towardsCSR activities:
Table 3: GAIL
Social and Environmental Disclosure at GAIL
Social and Environmental Disclosures byHPCL: HPCL publishes a book named “BringingSmiles” which gives details of its CSR activities.For its CSR activities it has bagged the CSR Award-Petrotech 2010. It undertakes large number of CSRactivities like Unnati- Computer training programfor students in semi- urban, and rural areas, NanhiKali-for educating girl child from very poor families,Muskan-to save children from trauma, Prayas-children’s home to transform the lives of streetchildren, Suraksha – to spread awareness andprovide training fro HIV/AIDS among truck driversand cleaners, Khushi clinics, Swavalamban-forproviding free vocational training to beneficiariesfrom low income group households, Navjyot – forincreasing health index and welfare of children,Chale Chalo to create social awareness and ensureright to education and health, Bahujan SamajikTrust – to build sustained movement and solidarityat state and national levels, Rasoi Ghar- forproviding access to cheaper modern fuels to ruralpoor etc. It also declares its commitment towardsits support to UN Global Compact Network. Itssocial and environmental disclosure is given in table4.
Table 4: HPCL
Tata Petrodyne Limited: Tata Industries limitedoriginally set up TPL with an aim to spearheadingtowards group’s move towards upstream sector ofoil and gas industry. It was incorporated in 1993. Itoperates in India, UK North sea, Australia andIndonesia. It isn’t giving anything neither aboutCSR nor about society and environment on itswebsite. It implies that there is no social andenvironmental disclosure by it. Tata group as awhole gives its CSR report but individually there isno CSR report for Tata petrodyne.
Hindustan Petroleum Corporation Limited(HPCL): It is a public sector enterprise with aNavratna Status by the Government of India. It isalso a Fortune 500 company with an annual turnover of 1,32,670 Crores. It operates in two places:Mumbai and Vishakhapatnam.
Corporate Social Responsibility and Social andEnvironmental Disclosures in UK:
In the recent (2002) KPMG survey (cited in Owen,2003) the UK is on the top with 49% of top 100companies producing separate environmentalreports. Other important countries for social andenvironmental reports are the Netherlands, Finlandand Germany, all showing around 30-40%reporting rates.
The list of U.K. Companies is:
1) Murco Petroleum Limited
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Content Analysis of Social and EnvironmentDisclosureof UK Total
Environment
HumanResource
Environment total
HR Total
487
17
Grand Total 504
2) Shell UK
3) Total UK
4) BG Group
5) Star Energy
Murco Petroleum Limited
Murco Petroleum Ltd is a UK-based oil company.It refines oil and also has a network of petrolstations. It was founded in 1960 and is a subsidiaryof the USA-based Murphy Oil Corporation. Thecompany owns a chain of convenience stores. It alsoowns and operates four refinery terminals withinthe UK, which receive oil by rail.
Social and Environmental Disclosures byMurco Limited: Murco Petroleum Limited givesonly one page under the head of Environmentwhich consists of 29 lines. Murco Limited has gotthe Social and Environmental full disclosure reportfor its Murphy oil Corporation which is US Based.It states that broad objective of the Board ofDirectors of Murco Petroleum Limited is to achievehighest standards of health, safety andenvironmental quality for employees. According toit if any time there is any conflict between theobjective of safety and operational efficiency, safetywill receive precedence. It also states that companyis committed to conduct its operations in such away that causes minimum damage to theenvironment. Its annual report is also not availableon the website.
Shell UK:
Royal Dutch Shell popularly known as Shell, isa global oil and gas company with its registeredoffice in London, United Kingdom. It undertakesexploration, mining, marketing and also powergeneration. It was recently in news for its oil spillfrom well in North Sea. According to TelegraphNews of 8th September, 2011 approximately 13000litres of oil spilled into the sea from a leakage in thewell. It was estimated that the sheen was createdon 37 KM area of the sea but according to Shellnow it is only in the area of half a KM
Social and Environmental Disclosures by ShellUK: Shell UK gives detail report on Social andEnvironmental efforts taken by it on its website.The details are given in the following table 5 below:
Table 5: Shell UK
Performance of Shell UK on Social andEnvironmental Disclosure
Area of disclosure Number of lines
Sustainable Development
Climate Change
Biodiversity
Preventing spills
Cleaner air
Reducing water use
Preventing spills
HSSE
29
10
9
10
4
12
9
24
Total 107
UK Total: Total is one of the world’s largestinternational oil and gas companies in the world.Its operations cover the entire supply chain,including oil exploration and production to trading,shipping and refining and marketing of petroleumproducts, as well as Chemicals. The Group hasoperations in over 130 countries and employs morethan 95,000 employees worldwide. The diversityof the Group’s worldwide business is reflected inthe UK with activity in all three key areas:exploration and production, refining andmarketing, and chemicals.
TOTAL UK is the UK refining and marketingoperation for the Total Group. It is the fourth largestoil company in the UK with a turnover of over£5billion, and employs over 5,000 people.
Social and Environmental Disclosures by UKTotal: It is giving a full report of Social andEnvironment for the year 2009. There is no suchreport for 2010. Its content Analysis is tabulated inthe table 6:
Table 6: UK Total
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Broad Theme Number of lines
People
Ethical Conduct
Safety, Health and Security
Environment
95
126
233
289
Total 743
BG Group: It is global oil and gas company with ithead quarter in UK. It has its operations in 25countries across the world, which includes Africa,Asia, Australia, Europe, North America and SouthAmerica.
Social and Environmental Disclosures by BGGroup: Its annual report is available on its websitebut there is no mention of Social andEnvironmental accounting in it. It gives a sectionon corporate governance. The BG group also givesquantitative information on its targets forenvironmental protection and numericalinformation on achievements. The BG Group alsogives detail report on Social and Environmentalefforts taken by it on its website. The details aregiven in the Table 7.
Table 7: BG group
Performance of BG Group on Social andEnvironmental Disclosure
Star Energy: Star Energy is UK’s major oilexploration company. After BG Group it is thesecond largest onshore oil company in the UK. Itwas established in 1999. It operates 20 oil and gasfields throughout UK.
Social and Environmental Disclosures by StarEnergy: On its Website (starenergy.co.uk) it givesits report on environment and safety whichcomprises of two parts: Health and safety andEnvironment. It states on is website that it isconcerned about the fears of public regarding theimpact of oil and gas storage on environment. Italso states that it takes its environmentalresponsibilities very seriously and abides by theregulations of environmental and safetymanagement systems. It also states that In its Healthand safety report it has covered five areas: Theyare: Objectives, Gas Storage, and Natural Stores forNatural Gas, National Regulations and RoSPAAwards. Under the category of Environment it hasgiven two broad categories they are: Responsibleand informed and clean operations.
Table 8: Content Analysis of Social and Environmental Disclosure by Star Energy
Social and Environmental Disclosure by Star Energy
Broad Area of disclosure Sub-Heads within the broad area Number of lines
Health and Safety Objective
Gas Storage
Natural stores for natural gas
National Regulations RoSPA
Awards
7
5
5
4
15
Environment Responsible and informed
Clean Operations
14
11
Total no. of lines 61
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Findings of the research: Following are thefindings from the case studies of five UK companiesand five Indian companies:
Contrary to the popular belief that compared to UKsocial and environmental disclosures in Indiancompanies is very less, it is found that CSRdisclosure by Indian companies is on par with UKcompanies. This is clear from the tables of contentanalysis of Social and Environmental disclosuresof companies of both the countries. Murco Limitedgives information only of 29 lines, while TataPetrodyne is not giving anything about social andenvironmental disclosure. But both thesecompanies’ parent companies are giving details oftheir social and environmental activities. Therefore,
in comparative analysis both are omitted. It is alsoclear from the table given in the following page onthe total disclosure by the companies of both thecountries. Comparing the disclosure by both thecountries companies we find that ONGC of Indiatops the list followed by UK total of UK. The averagedisclosure by Indian companies is 505 lines whileof UK is only 316 lines. This implies that Indiancompanies are well aware of there socialresponsibilities and they are not lagging behind thedeveloped world in performing their social
responsibilities and its disclosure. Coming to therange of number of lines it can be seen clearly therange for both the countries is very high.
Conclusions:
Social and Environmental reporting has becomepart and parcel of the organizations. Therefore, allthe companies in the sample had some or other formof reporting on their websites even though the rangeof the quantity of disclosure was very wide but allthe companies had some disclosure. This shows thatthe importance of social and environmentaldisclosure for the organizations. But still it isnecessary that the companies become more andmore responsible towards the society and
environment. In this context it is necessary to quoteabout the oil spill on North Sea by Shell in themonth of August 2011. According to BBC Newsapproximately 1300 barrels or 216 tons of oil spilledin North Sea due to a leakage in the well of Shell.This shows that corporate sector has to see thattheir actions do not cause damage to theenvironment. The damage done to environment isnot repairable and it threatens the very existenceof human race on the earth. If damage toenvironment is not controlled then day is not far
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when human beings will become extinct or earthwill become a lifeless planet. Presently we are seeingthe affect of pollution on human health. Food andeven water has already become a scarce commodity.Large number of people in African countries is notgetting even one meal a day. Natural calamities likedroughts, cyclones and floods are ever increasing.Corporate sector has got to play an important rolein this because the damage to the environment to alarge part is through their actions. We can not totallyclose the production process because our economicdevelopment depends on it. Therefore, it isnecessary that corporate sector gives top priorityto social and environmental issues in their activitiesand also disclose it to the public through media orwebsites or through their annual reports because itis the most potent form of marketing. No form ofadvertising will be as effective as their social andenvironmental disclosures.
References:
1. Bhattacharya, Cummings and Staib (n.d.)“Association between Firm Characteristics andLevels of Corporate Social and EnvironmentalReporting in Australian and IndianOrganisations.”
2. Campbell (2003) “Intra and IntersectoralEffects in Environmental Disclosures:Evidence for Legitimacy Theory?” BusinessStrategy and Environment 12: 357 – 371
3. Cynthia Clark Williams (2008) “Toward ATaxonomy Of corporate Reporting Strategies”Journal of Business Communication 45: 232-264
4. Deegan, C.M. (2002), “Introduction: thelegitimising effect of social and environmentaldisclosures – a theoretical foundation”,Accounting, Auditing & AccountabilityJournal 15: 282 - 311.
5. Friedman and Miles (2001)”SociallyResponsible Investment and Corporate Socialand Environmental Reporting in the UK: AnExploratory Study” British Academic Review33: 523-548
6. Gray, R., Dey, C., Owen, D., Evans, R. andZadek, S. (1997), “Struggling with the praxisof social accounting: stakeholders,
accountability, audits and procedures”,Accounting, Auditing & AccountabilityJournal 10: 325-64.
7. Gray, Kouthy, and Levers (1995) “ CorporateSocial and Environmental Reporting: AReview of Literature and a Longitudinal Studyof UK Disclosure” Accounting, Auditing andAccountability Journal 8: 47-77
8. Hirsch, P. (2006) Water Governance Reformand Catchment Management in the MekongRegion. Journal of Environment & Development15: 184 – 201.
9. Kassarijan H. H. (1977), “Content Analysisin Consumer Research”, Journal of ConsumerResearch, Vol. 4
10. Lehman, G. (1999), “Disclosing new worlds:a role for social and environmental accountingand auditing”, Accounting, Organizations andSociety 24: 217 - 41.
11. Parker (2005), “Social and EnvironmentalAccountability Research: A view fromcommentary box”Accounting, Auditing andAccountability Journal 18: 842-858.
12. Perrini, F., Pogutz, S. and Tencati, A. (2006)Developing Corporate Social Responsibility: AEuropean Perspective. Cheltenham: EdwardElgar Publishing Ltd.
13. Reverte (2009) “Determinants Of CorporateSocial Responsibility Disclosure Ratings BySpanish Listed Firms” Journal of BusinessEthics (2009) 88:351–366
14. Sadiq Khan and Uzma Nomani, (2002) “CSRand Natural Disaster Reduction in Pakisstan”Sustainable Development Policy Institute:www.sdpi.org
15. Sajjad and Razi (2005) “Sustainability: aModern Myth or a Genuine Business Case?”Association of Chartered CertifiedAccountants, London 1-33
16. Saleh M (2010) “Corporate SocialResponsibility and its relation on institutionalOwnership” Managerial Auditing Journal, Vol.25: 591 - 514
17. Shaeed Imam (2000)”Corportae SocialPerformance: Reporting in Bangladesh”
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Managerial Auditing Journal 15: 133 - 141
18. Shirley, Suan and Pau Leng “Corporate SocialResponsibility Reporting in Malaysia: AnAnalysis of Website Reporting of Second BoardCompanies Listed in Burma and Malaysia”
19. Siwar and Hossain (2009)”An Analysis ofIslamic CSR concept and the Opinions ofMalaysian Managers” ManagementEnvironmental Quality: An InternationalJournal Vol. 20: 290 -299
20. Tregidga (2010) “Reporting OrganisationalLegitimacy and Social and EnvironmentalReporting Research: The Potential ofDiscourse Analysis”
21. UN Division for Sustainable DevelopmentPublication on Environmental ManagementAccounting: Principles and Proceedures (2001)
22. Waller and Lanis (2009) “Corporate SocialResponsibility (CSR) Disclosure OfAdvertising Agencies: An ExploratoryAnalysis of Six Holding Companies’ AnnualReports” Journal of Advertising: 38, no. 1 10-124
23. Yakhou Mehenna and Dorweiler (2004)“Environmental Accounting: An EssentialComponent of Business Strategy” BusinessStrategy and the Environment 13: 65 – 77
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India’s Food Security Bill:
A Burden for Economy or Win for the Hungry?Dr. Salabh Mehrotra* and C.A. Ekta Jain**
Abstract
Home to over 25 per cent of the world’s hungry poor, India faces major food security challenges and thesituation has barely improved .Will the National Food Security Bill that the Indian Parliament is expectedto pass alleviate the country’s food insecurity? Ensuring food and nutrition security is a challenge for India,given its huge population and high levels of poverty and malnutrition. India is a net agricultural exporter,particularly of milk, fruits and vegetables, and cereals. However, food availability is threatened by the effectsof climate change and declining water resources on agriculture output. Economic access to food by about afourth of the population living below the poverty line is problematic, despite impressive economic growth inthe recent years. The level of food absorption is also low. About 44% of children under the age of 5 areunderweight, around half of pregnant women are anemic, and the majority of women do not have access totoilet facilities and safe drinking water. Ever since the Bill was first proposed it has led to an acrimoniousdebate between the supporters and opponents of the Bill. The supporters of the Bill point to the need to alleviatewidespread hunger in the country with many millions sleeping hungry each day. The opponents point to theeconomic impact of the Bill which will put pressure on already limited food production and increase the totalsubsidy bill leading to higher fiscal deficits. This paper analyses the objectives and economics of this new Billand reviews the debate/discussion on the Bill.
Key words: Food Security, Subsidy, Public Distribution System, Nutrition, Inflation and Hunger
Introduction:
With a population approaching almost 1.22 billionin 2011, India is likely to be the most populouscountry on this planet by 2030 with 1.6 billionpeople. It currently accounts for more than 17% ofthe global population and 456 million poor, or41.6% living on less than $1.25 a day (Chen andRavallion 2008). Ensuring food and nutritionsecurity is thus a challenge for India. For this theIndian Parliament is expected to pass a NationalFood Security Bill which pledges to deliver the ‘rightto food’ to its people. Undertaking to providesubsidized grains and food assistance to 63.5 percent of its population, the ‘Food Bill’ is expected tobe popular with voters, but critics argue that it willdo little to address food insecurity and may evenaggravate the country’s food subsidiary bill.
According to the Food Security Bill, India will need60 – 61 million tons of grain to feed people whowill be eligible for assistance. This means foodsubsidies will increase to about $18.05 billion inthe first year of implementation. The government
will also have to increase its spending onagricultural production.
Food security concerns can be traced back to theexperience of the Bengal Famine in 1943duringBritish colonial rule. With the launching of majorreforms in 1991, although liberalization was alreadyunder way since the 1980s, India has grown out ofa period of acute shortages and heavy dependenceon food aid to self-sufficiency, or broadly, self-reliance in food. The agriculture sector in India hashad quite a revolutionary past with the GreenRevolution in the late 1960s and 1970s, WhiteRevolution (Operation Flood) in the 1970s and1980s, and efforts to usher in a second GreenRevolution to re-energize the food grain sector in2010. India’s agriculture system is also undergoinga structural transformation, especially the high-value segment. Production patterns are diversifyingtoward high-value commodities such as fruits andvegetables, milk, eggs, poultry, and fish, in responseto changing demand patterns fuelled by a growingeconomy and rising income levels. While theachievements of Indian agriculture since the early
*Assistant Professorat Vidya International Schoolof Business, Baghpat Road, Meerut. 413 TILAK ROAD, BEGUM BAGH, MEERUT(U.P.) 250001, cell no- 09837542451. [email protected]; **Assistant Professorat Vidya School of Business, Baghpat Road,Meerut. [email protected]
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1970s, together with a robust economy and buoyantexternal sector, have helped to ensure macro-levelfood security to a large extent, a considerablenumber of people continue to live in poverty andhunger.
The key question is, can India feed itself in the nearand medium-term future? Can it enhanceagricultural productivity in an environmentallysustainable manner, exploit the untapped potentialof eastern India, and play on the world agriculturalmarkets to satiate domestic demand? Raisingproductivity of staples like rice and wheat is achallenge as the area under these grains is likely toremain constant or even decrease due to increasingpressure on land for nonagricultural uses. Unlikein the past when the country had to suffer foreignexchange constraints and depend heavily on foodaid, India today is in a much better position to enterthe global markets with $293.3 billion (as on 27th
January 2012) in foreign exchange reserves. Whileincreased investments and technologicalbreakthrough can improve availability, these maynot necessarily translate into increased accessibilityand absorption of food. With nearly 43.5% ofchildren under the age of 5 being underweight (thehighest rate in the world), and 50% of pregnantwomen being anemic (comparable to Africancountries), the nutritional security of children andwomen is a serious issue that needs to be addressedurgently (World Bank 2009).
Food and nutrition security is broadly characterizedby three pillars: availability, accessibility, andabsorption (nutritional outcomes). In an effort toattain these, it is almost certain that it will benecessary to innovate and consider out-of-the-boxpolicy options. The role of various stakeholders andpartnerships among them will be critical. Theseinclude public and private sectors, communitygroups, multilateral agencies, and philanthropicfoundations as well as bilateral collaborationbetween nations. In analyzing the past trends offood and nutrition security status in India, thispaper provides an overview of the extent of publicsector intervention through various programs andalso explores opportunities for future investmentand knowledge partnership between variousstakeholders.
Availability of Food (Physical Access)
The policy goal to attain self-sufficiency in foodgrains in a sustainable manner resulted in a majoreffort led by the national government in partnershipwith domestic partners and international agenciesto mobilize technical, administrative, and financialresources to launch the Green Revolution. Whileall-India production of wheat grew at 3.8% in thetriennium ending (TE) 1959–1960, it registered agrowth of 10.3% in the triennium ending in 1969–1970. The trends observed in Haryana (from –1.1%to 27.2%) and Punjab (from 3.8% to 25.1%) werespectacular. Between 1950–1951 and 2009–2019,production of food grains and its categories (rice,wheat, coarse cereals, and pulses) increased but thegrowth patterns have been volatile. Food grainscomprise nearly 64% of the gross cropped area andaccount for less than 25% of the total output valueof agriculture in TE 2008–2009 (which in India isdefined as crop, livestock, and fisheries). Yet cereals(probably for food security reasons) continue todominate the policy debate in agriculture. The high-value segment accounts for 48.4% of the value ofagricultural output in triennium ending in 2008–2009 and is likely to drive future growth inagriculture.
India has emerged as the largest producer of milk(108.5 million tons in 2008–2009) and the secondlargest producer of fruits and vegetables (197.6million tons in 2008–2009). Production of fish hasalso nearly doubled since 1990–1991. Agriculturaltrade in India has been growing steadily, especiallyduring 1990–2009. Net agricultural exportsincreased from $2.7 billion in 1990–1991 to $10.7billion in 2008–2009. Between 2001–2002 and2008–2009, India has exported a cumulative totalof 33.2 million tons of rice. Despite volatility inproduction patterns, there have been times whenIndia accumulated large stocks of rice and wheat.As of 30 April 2010, the central pool has nearly 60million tons of rice and wheat.
One of the issues pertaining to the ongoing debateon food security is the per capita availability of food.The overall trend in per capita availability of foodgrains, though fluctuating has been noted that whileavailability is a concern, changing demand patterns,especially diversifying toward high-valuecommodities; have to be taken into account. The
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issue of food security is not so much aboutavailability of food grains but the composition ofthe overall food basket as observed from changingconsumption patterns. As economic growth picksup, it is common to observe a change in dietarypatterns wherein people substitute cereals withhigh-value food.
Given the present policy imperative of seeking self-sufficiency in food production, as revealed in thefive-year plans, India will have to largely feed itself.The challenge, therefore, is to do it in anenvironmentally and financially sustainablemanner. Issues related to the impact of climatechange on agricultural production systems anddepleting water reserves need to be addressed. Thegovernment’s flagship programs such as theNational Agriculture Development Programme(Rashtriya Krishi Vikash Yojana or RKVY) andNational Food Security Mission (NFSM), andprograms related to irrigation like the AcceleratedIrrigation Benefit Program, Integrated WatershedManagement Program, Micro Irrigation Mission aregeared toward providing the much needed boost toenhance agricultural productivity and, thereby,higher agricultural growth. For high-valueagriculture, the National Horticulture Mission(NHM) is an initiative by the public sector.
The private sector has a greater role to play in termsof investments in value chains and strengtheningthe firm–farm linkages critical for scaling upprocessing and retailing operations. The issue ofhuge post-harvest losses (nearly 20%–30% in thecase of fruits and vegetables).The Food andNutrition Security Status in India and poorprocessing levels arising from fragmented valuechains will require large investments andknowledge partnerships. Several private players,both domestic and multinational, are venturing intoagriculture and developing models of better firm–farm linkages. The private sector has alreadyemerged as a significant player in the seed marketand there is opportunity for its greater presence inother input services related to high-valueagriculture.
Accessibility (Economic Access)
Alongside the rising middle class in India steeringthe changes in consumption patterns and driving
up demand for quality food, there is a large sectionof the population dwelling below the poverty line.Although the proportion of poor people has comedown from 55% in 1973–1974 to
27.5% in 2004–2005, the rate of decline hassomewhat slowed down in the post-reform periodand more than 300 million people continue to livein poverty. Food accounts for more than 50% ofthe monthly per capita expenditure in India andeven more for the low income groups. Hence,economic access to food is an issue for the poorand vulnerable groups. However, a dietarytransformation is under way, with the consumptionof cereals declining and that of high-value foodincreasing. Consumption of cereals has declinedover time: per capita monthly consumption ofcereals has come down from nearly 15 kg in 1983to 12 kg in 2004–2005 in rural areas, while it hasdeclined in urban areas from 11.3 kg in 1983 toalmost 10 kg in 2004–2005 during the above period.The change in consumption pattern is observedacross income classes in both rural and urban areas.
Growth alone may not be able to ensure foodsecurity for the poor and vulnerable. Social safetynet programs and employment-generating programswill play an important role in improvingaccessibility of food to the poor and vulnerable.
The Public Distribution System (PDS) is the largestpublic sector-managed network for the distributionof essential commodities, primarily rice, wheat,sugar, and kerosene. The functioning of the PDS isa joint responsibility of both central and stategovernments. The PDS imposes an enormousfinancial burden on the public exchequer, which isquite visible from the rising food subsidy bill(Rs555.8 billion in 2010–2011). The efficacy of thesystem in terms of targeting and coverage variesfrom state to state and is often questioned. One ofthe most critical questions is targeting andidentifying the poor. Innovations such as socialaudits for identification of the poor, food couponsto reach out to the beneficiaries, or even direct cashtransfers are being discussed and experimented onin some cases. The National Rural EmploymentGuarantee Act (NREGA) of 2005 aims at improvingthe livelihood security of rural households byproviding at least 100 days of guaranteed wageemployment in a financial year to every household
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whose adult members volunteer to undertakeunskilled manual work. The Mahatma GandhiNational Rural Employment Guarantee Scheme(MNREGS) has helped create rural jobopportunities, which has an impact on the supplyof agricultural laborers. The latest effort made bythe national government to promote food securityis through the National Food Security Bill. Thegovernment proposes to ensure that every familybelow the poverty line in the country shall beentitled to 25 kg (or 35 kg) of wheat or rice permonth at Rs3 per kg.
Absorption (Nutritional Outcomes)
An interrelated and important aspect yet to beeffectively addressed is nutritional security. Despiteintervention through several food-based socialsafety net programs, some of them running overdecades, malnutrition levels continue to be severeand persistent. There is an urgent need to envisagean integrated nutrition and health program for allvulnerable groups, focusing on the role of genderand governance. Poor nutritional outcomes ofinfants and children arise from the poor healthstatus of women, overall poverty and lack ofhygiene, and inadequate health facilities. Inparticular, women’s access to clean drinking water,toilet facilities, and clean cooking fuel influencetheir health outcomes, which are critical for childhealth and nutrition. Over 53% of women do nothave access to toilet facilities, 55% do not havedrinking water in their premises, and only 29%have access to clean fuel. In India, 35.6% of womensuffer from chronic energy deficiency, indicated bya body mass index below 18.5 (Jose andNavaneetham 2010). Micronutrient deficienciesalone may cost India $2.5 billion annually(Gragnolati et.al. 2005). What is the relationbetween agricultural performance and nutritionaloutcomes? Gulati and Shreedhar (2010) observe anegative correlation between value of agriculturaloutput per hectare and malnutrition status acrossIndian states. The Integrated Child DevelopmentScheme and Mid Day Meal Scheme are two flagshippublic programs directed toward addressing thenutritional outcomes for women and children.There are other food-based programs targeted toensure the nutritional security of the vulnerablegroups.
National Food Security Bill:
1) India and Hunger – A Dismal Record
Despite high growth in the last decade, India’ssocial indicators still remain very poor. Onesuch indicator is hunger. IFPRI’s GlobalHunger Report-2011 ranks India at 67th placein a ranking of 81 countries. Its neighbors inthe list are African countries like Djibouti,Madagascar, Mozambique, Sierra Leonne etc.This is a list India is unlikely to be proud ofconsidering it lists as one of the top growingeconomies in the world. Other facts from thereport are:
• In 1990, India’s hunger index was at 30.4and was ranked 62 in a list of 74 countries.In 2011 the index is at 23.7 and India isplaced at 67 in a list of 81 countries. Inthe period 1990-2011, there are 47countries that have lowered hunger morethan India with Peru topping the list.
• What is even more disappointing is India’strack record from 2001-11 a period whereIndia registers its highest growth. In thisperiod, India’s hunger index declines from24.1 to 23.7 registering a decline of just1.7%. There are 73 countries which haveperformed better in reducing the hungerlevels with Uzbekistan at top. Thecountries which fare worse than India in2001-11 period are Burundi and Chad.
• The hunger index is based on threeindicators – undernourishment, childunderweight and child mortality. Barringchild mortality, India fares poorly in allthe three sub-indicators.
This ranking comes despite the currently ongoingPublic Distribution Scheme (PDS) which entitlesevery citizen subsidized food. The PDS caters to 65million families below the poverty line (BPL) and115 million other families above the povertyline (APL).
It is assume that The PDS – on paper – meets thefood requirement of 900 million people. If this istrue, then there is no reason why the country shouldhave the largest population of hungry in the world.If the PDS had been even partially effective, there
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should have been no reason for Punjab – and forthat matter Kerala, the best performing States interms of hunger – to be ranked below Gabon,Honduras and Vietnam. Extending the same failedPDS to more families, or introducing a revampedPDS is therefore unlikely to make any meaningfuldifference to the plight of the hungry andmalnourished.
Similar views are forwarded by Prof. SudiptoMundle of NIPFP who evaluates India’sperformance in achieving MillenniumDevelopment Goals till date. One of the eight goalsis Eradicate Extreme Poverty and Hunger and inthis the target is to halve the proportion of peoplewho suffer from hunger between 1990 and 2015.The main indicator used for this is percentage ofunderweight children. India had an initial burdenof underweight children of nearly 54% percent in1990 which was to be lowered to 26.8% by 2015but is likely to be around 40.7%. We also get someevidence of malnutrition and under-nourishmentfrom NHFS surveys. According to the NationalFamily Health Survey 2005-06, 40.4% of childrenunder the age of three are underweight, 33% ofwomen in the age group of 15-49 have a body massindex below normal and 78.9% of children in theage group of 6-35 months are anemic.
II. National Food Security Bill
The National Food Security Bill (NFSB) aims toaddress these challenges of food security andundernourishment of Indian public. It iscontinuation of the inclusive growth agendafollowed by UPA government. The idea of providingbasic food to majority of the population was firstproposed by President Pratibha Patil. In her addressto the Joint Parliament in Jun-09, she said:”MyGovernment proposes to enact a new law — theNational Food Security Act — that will provide astatutory basis for a framework which assures foodsecurity for all. Every family below the poverty linein rural as well as urban areas will be entitled, bylaw, to 25 kilograms of rice or wheat per month atRs. 3 per kilogram. This legislation will also be usedto bring about broader systemic reform in the publicdistribution system.”
Based on this, Government prepared a ConceptNote after consultations with Central Ministries,
State Governments and other stakeholders. Basedon initial comments/suggestions andrecommendations of National Advisory Council(NAC) and other Experts the Government prepareda draft National Food Security Bill. The draft billwas put up on the website of Ministry of ConsumerAffairs, Food and Public Distribution for publiccomments.
The salient features of the Bill are summarized inTable 1. Apart from food security, NFSB also seeksto provide nutritional support to children andwomen.
The mid-day meals schemes for children ingovernment schools to be fortified withmicronutrients and of certain calorific value. Thediet to include proteins as well. The idea is to notjust provide food but food of certain quality whichhelps get rid of other deficiencies like iron, proteinsetc. (Table : 1)
Apart from this the Bill also looks at other aspectsto provide food and nutrition security:
• Revitalization of Agriculture: increase ininvestments in agriculture, including inresearch & development, ensuringremunerative prices, credit to farmers, cropinsurance, etc
• Procurement, storage and movementrelated interventions: incentivizingdecentralized procurement includingprocurement of coarse grains, augmentationof adequate decentralized modern andscientific storage etc.
• Reforms in Targeted Public Distributionsystem: application of information andcommunication technology tools to improvePDS system, leveraging ‘aadhaar’ for uniqueidentification of beneficiaries for propertargeting of benefits under this Act etc
• Others: Provision of Safe and adequatedrinking water and sanitation, Nutritionalhealth and education support to adolescentgirls senior citizens, persons with disability andsingle women.
In a way, the Bill is much more than just provisionof food security. The Government is lookingforward to use NFSB to usher much-needed reforms
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in agriculture sector. Since NFSB will become anAct and a legal obligation, it will force both centreand state governments to usher much neededimpetus in the entire agriculture chain.
III. Economics of NFSB
PM’s Economic Advisory Council released its reportreviewing the Food security bill. EAC remarked thatNAC had basically used Oct-10 population numbersfor both phases. As population grows every year, itis important to look at population projections ofthe month in which the program begins. Otherwise,the food grain requirement will be under-reported.At the time of EAC report, it was assumed thatPhase I of the program to start around Oct-11 andPhase II in Oct-13. Hence, EAC updated thenumbers based on population projections for Oct-11 and Oct-13 (Table 2). As the program has notstarted even on Oct-11 these numbers will need tobe revised further from the month of inception.
EAC looks at two scenarios apart from thescenario projected by NAC.
• Scenario 2 assumes off take of food grains by95% of priority households and 85% ofgeneral households. Based on this, food grainrequirement in Phase I will be 64.04 MTagainst NAC off take scenario of 57.36 MT andin Phase II the figures are 68.58 MT against
64.04 MT specified by NAC.
• In Scenario 3, off take is assumed by 100% ofboth general and priority off take. Hence fooddemand is much higher at 68.76 MT in PhaseI and 73.98 in Phase II. This is because theproposed prices for food grains under NFSBare lower than other food programs. Hence,there are strong chances that there is 100%off take.
Overall, as per EAC food grain requirement is likelyto be higher by 11.7 MT in both phases underScenario I and around 21.8 MT in Scenario II.(Table : 2)
EAC also analyses food grains procured by thegovernment. EAC assumes the program to startaround Oct-10 and hence the first phase ends in2011-12 and second phase in 2013-14. However, itis likely to start in 2012-13; hence we have assumedPhase I to end in 2012-13 and Phase II in 2014- 15.The average government procurement of foodgrains in 2000-10 is around 26.4%. EAC estimatesthe average procurement at 30%. Based on theseassumptions, in Phase I the likely food grainprocurement will be around 57.01 MT and in PhaseII around 59.52 MT. (Table 3)
If we look at both demand and supply of food grainsdue to NFSB, one can clearly see deficit in
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procurement. Either the government has to takemeasures to increase production or increase itsprocurement ratio from 30% to around 31-33% forScenario II and 35-38% for Scenario 3. EAC saysin view of the cycles in agricultural procurement,it may be imprudent to assume an averageprocurement level of more than 30%. This shortfallwill imply government will have to procure foodfrom open market which will push up food grainprices for the entire population. (Table : 4)
Interestingly as per NSS findings, the average percapital monthly intake of wheat and rice in ruralareas is around 10.11 kg and for urban it is 9.35 kg.NFSB provides 7 kg per capita which is lesser thanthe average monthly intake. This would means bothrural and urban will have to buy the remainingdemand from the market. As government starts tobuy food grains from open market pushing higherprices, it will lead to higher prices for both ruraland urban population. This will hurt the budgetsof the populations which the government isattempting to protect at the first place. Looking atthe economics of NFSB, increasing food grainproduction needs to be one of the most importantpriorities of the government.
IV. Other Issues with NFSB
Food Subsidy: This is one of the most criticized
aspects of food subsidy bill. Subsidies as percent ofNon-Plan expenditure (NPE) have been a worryingtrend in recent years. It was around 11.9% of non-plan expenditure between 2000-03 (before FRBM)and actually rises to 12.3% of NPE in FRBM phase.Following the great recession FRBM was scrappedand subsidies as a % of NPE rose sharply to touch18.6% of NPE. Within subsidies, share of foodsubsidy remained steady around 6.5% of NPEbetween 2000-08 and rose to 7.6% of NPE in 2008-12 period. The average annual growth in foodsubsidy in 2000-12 period is 17.2%. This is lowerthan 18.6% average growth rate for all the subsidieswhich are driven by surge in petroleum
Figure 1
Source: Union Budget Document
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Food subsidy for 2011-12 is budgeted at Rs 60,573Cr which is marginally higher than Rs. 60,600 Crfor 2010-11. In the Second Supplementary Demandfor Grants for Expenditure of the Government, anadditional Rs 2,297.52 Cr is added to the foodsubsidy bill. Most market analysts believe thesenumbers are still lower and final numbers releasedduring Budget 2012-13 likely to be higher.
EAC has projected the additional food subsidy billunder various scenarios listed above. EAC assumescurrent food subsidy at Rs 56,700 Cr which is lowerthan the Budgeted figure for 2011-12. We justreplace Rs 56,700 Cr with the budgeted figures for2011-12. (Table : 5)
Based on EAC’s methodology, additional subsidyburden under various scenarios is in the range ofRs 9000 Cr to Rs 22700 Cr in Phase I and Rs 17000Cr to Rs 29,000 Cr in Phase II. It is again importantto point that these numbers are based on Oct-11populations and if it starts from Apr-12 onwards,the final numbers expected are to be higher.
As third scenario is the most likely scenario andwith revised numbers for population, food subsidycould easily touch a figure of Rs, 1, 00,000 Cr whichhas raised huge concern in the markets. This willlead to higher fiscal deficit and higher marketborrowings. Planning Commission chief Mr.Montek Singh Ahluwalia suggested that as we nowhave a food security bill, we should do away withoil subsides in the budget. As this looks unlikely in
the near future due to political reasons, NFSB willeither be funded via higher tax revenues or viahigher borrowings.
Pressure on Food Inflation: Food inflation hasbeen a long term challenge in India. Dr Subir
Gokarn in a recent speech pointed how foodinflation has remained high since the 1960s and itis just that drivers have changed from cereals andsugar to protein items (pulses, milk, eggs, meat etc)recently. With NFSB demand for food is expectedto rise sharply but as supply remains sluggish it willput pressure on already elevated food inflation. AsFood security bill also talks about increasing thenourishment in population, it will put pressure onprices of protein items as well.
Identifying the Beneficiaries and FixingLeakages: This has been a perennial problem forIndia’s social programs. India has social and povertyschemes touching most aspects of human life butstill continues to fare poorly in most socialindicators. As India had abject poverty even at timeof Independence, policymakers have introducedprograms for food, poverty, housing, health etc.However, due to corruption and delays there havebeen leakages in most of the schemes leading tomuch lesser benefits reaching the people. There hasbeen numerous research pointing how the severalprograms are not benefitting the poor and areactually being used by better-off population.
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The same criticism has been applied to NFSB aswell. As we still do not know how to classify anddefine poor, identifying beneficiaries of NFSB againremains a major question mark as seen in otherschemes as well. Unique Identification Program(UID) is to be used for this program (and otherprograms as well) but that is far from complete andhas recently run into rough weather with higherauthorities. So, UID’s status is itself not clear as ofnow.
Then distribution via the PDS system is going tobe an issue as the PDS system still needs majoroverhaul. It is a very ambitious program with a nearuniversal coverage and also becomes a legalentitlement for the government. Without properidentification of the beneficiary and continuedLeakages in the system, the scheme will turn out tobe another costly program with limited benefits.
Ideally, all these various issues should have beenfirst settled before launching a program as ambitiousas NFSB. It is like putting the cart before the horse.The policymakers however see NFSB as a way toachieve the much needed reforms in agriculture andsocial sector. It is like the classic chicken and eggproblem as of now.
V. Debate on NFSB
The passage of NFSB has divided the expertsinto two camps.
Opposing camp: Here arguments mainly look atthe economic reasons pointed above. Some othersin the camp have remarked that government shouldnot determine the prices of private goods like food.Ashok Gulati, chairman of the Commission forAgricultural Costs and Prices asked “Where willthe money come from?”as India is already unlikelyto meet its target to cut its fiscal deficit to 4.6 percentof GDP in the fiscal year that ends in March, asslower-than-expected economic growth crimps taxcollections and poor markets prevent India fromselling stakes in government companies. “There isa limit beyond which you cannot spend. Oil, food,and fertilizer subsidies are already too high,” hesaid.
According to estimate, the plan would cost thegovernment more than 810 billion rupees in thefiscal year that starts in April, an increase of about
34 percent over the budgeted food subsidy level inthe current fiscal year.
Food Minister KV Thomas has said it could cost asmuch as 1 trillion rupees while analysts have peggedit at 850-900 billion rupees in the 2012/13 fiscalyear.
The figure would include the cost of additionalgrains that the Food Corporation of India, the statefirm that procures on behalf of the government,would need to buy from farmers.
Its cost could also be open-ended in a drought yearwhen India would be forced to turn to potentiallycostly imports, and have the unintendedconsequence of adding to inflation.
India’s grain warehouses are currently overflowing,with latest figures showing rice stocks at 27.1million tonnes and wheat inventory of 27.6 milliontonnes — both well above targets and both able tocover at least a third of annual demand.
But with 60 percent of India’s farmland dependenton monsoon rains, drought years can slashproduction and force the country, one of the world’stop consumers of rice and wheat, to import.
“If India goes to the market for even five milliontonnes, the (global rice) price will go over $1,000per tonne. If it went for 10 million tonnes, themarket would explode,” Gulati said. Internationalrice prices are currently under $600 per tonne.
In addition, the bill’s focus on rice and wheat goesagainst the trend for many Indians who aregradually diversifying their diet to protein-richfoods such as dairy, eggs and poultry, as well as fruitand vegetables — all recent drivers of inflation.
Gulati said the government may have to raiseprocurement prices for rice and wheat to encouragefarmers to increase production of these staples.
Thus government should instead take measures toaugment the income levels of poor by increasingeducation and employment opportunities. Byproviding highly subsidized food to so many peoplejust distorts private markets and sends wrongsignals. Most draw comparisons to the MahatmaGandhi National Rural Employment Guarantee Act(MGNREGA) which had similar noble intentionsbut the experiences have been mixed. It has
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provided a floor for rural wages and reversedmigration to urban areas. But has created its ownproblems as finding labor for work in urban areasand has reported increase in corruption. The workdone under MGNREGA has also been found of lowquality and is seen as a wasteful expenditure bymost analysts.
There are others who claim one should not rely onhunger and poverty statistics published byinternational think-tanks as they always look atsensationalizing and exaggerating these numbers.If one looks at Indian sources, the situation hasbecome better over the years. And then India’sgrowth story is just around 7-8 years old. Withhigher sustained growth, these numbers will onlybecome better overtime. India had very poornumbers at the time of independence and due towrong policies these problems of poverty andhunger were never really addressed. We have onlygot our priorities right in the last few years and it isa matter of time before these problems will beaddressed. They say focus should be on growth andequity will follow.
Supporting camp: Those who argue in favor ofthe bill say that we should not look at economicsalone especially when we are looking at the hungernumbers. Their point is simple. In the world’slargest democracy and now one of the fastestgrowing economy as well, one cannot have so manypeople sleeping hungry. They argue over utility of9% growth when a large number of people andmoreover children remain deprived of as basicthings as food and nourishment. They pointeconomic growth itself will be under pressure aswe fail to maintain a healthy population. They pointhow lower poverty and high growth move hand inhand and as in India’s case this has been limitedand given the scale of deprivation, governmentintervention is needed.
On subsidies they say it is not the rich and middleclass that are providing subsidies for the poor butthe other way round. Poor people provide plenty ofcheap services which otherwise will cost much moreif there is a proper market for the same. On cost ofsubsidies to the government they assert how can agovernment in a democratic country like India keeppeople hungry? They even say that Food securityBill is actually not inclusive but actually excludes
people. Earlier there were no targets like 90% ofrural population and 100% inclusion was assumed.But with the new NFSB Bill this basic human righthas been taken away from people and argue for a100% coverage against the 90% in the proposedBill. They also criticize that the Bill fails to look atthe inter-state differences as in some statespopulations could be better off and worse-off inothers. How will this inter-state disparity beresolved is not clearly stated in the Bill.
VI. Concluding Thoughts
Both camps provide equally strong points on theissue and it is extremely difficult to take a sidetowards one camp. Hence, it is not surprising toread such diverse views on the food security issue.As both have a point, instead of being divided bothcamps should work together to come out with amore practical approach towards eliminating thesevere hunger problem in the country. If not thebest of both of the worlds there could be someconsensus on a middle ground. Now as the foodsecurity bill is to become a reality we cannot avoidit. However, the debate can move on to how it canbe made more effective. The Government shouldrelease updated projections of the economics of thefood bill and subsidy burden that will help guidethe debate. If this hunger problem is not resolvedquickly it could shake the basic democraticfoundations of the country. People are unlikely totolerate a scenario where one section of thepopulation gains from the growing economy andother is just deprived of something as basic as food.
References
1. Amol Agrawal.2011. National Food SecurityBill: A Discussion
2. Akhila Vijayaraghavan 2012. India NeedsMore then the Food Security Bill to AlleviateHunger
3. Asiafruit. 2009. Looking beyond the low-hanging fruit. No. 83. March–April. SouthMelbourne, Australia.
4. Bhalla, G.S., Peter Hazell, and John Kerr. 1999.Prospects for India’s cereal supply and demandto 2020. Food, Agriculture, and EnvironmentDiscussion Paper 29. International
5. Food Policy Research Institute, Washington,DC.
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6. Brown, L.R. 1995. Who Will Feed China?Wake-Up Call for a Small Planet. New York.W.W. Norton & Co.
7. Business Standard. 2010. Govt upgrades microirrigation scheme. 10 June. Press Trust ofIndia,New Delhi.
8. Chaturvedi, S. 2010. Innovation andtechnology development: Evidence fromIndian seed industry. Draft paper submittedto International Food Policy Research Institute,New Delhi.
9. Chen, S., and Martin Ravallion. 2008. Thedeveloping world is poorer than we thought,but no less successful in the fight againstpoverty. Policy Research Working Paper 4703.August. The World Bank Group, Washington,DC.
10. Dyson, T., and Amaresh Hanchate. 2000.India’s demographic and food prospects: Statelevel analysis. Economic & Political Weekly, 11November, 4021–4035.
11. The Economist. 10 September 2009. India’swater crisis: when the rains failwww.economist.com/node/14401149 Accessdate: 03rd March 2009
12. Food and Agriculture Organization andGovernment of India. 2009. The impacts ofclimate change on wheat production in India:Adaptation, mitigation and future directions.Review for the Government. September.
13. Food and Agriculture Organization. 2002. TheState of Food Insecurity in the World 2001. Foodand Agriculture Organization. Rome.
14. Fan, S., Ashok Gulati, and Sukhadeo Thorat.2008. Investment, subsidies and pro-poorgrowth in rural India. Agricultural Economics39:163–170.
15. Government of India. Various Issues.Economic Survey. Department of EconomicAffairs, Economic Division. Ministry ofFinance. New Delhi.
16. ———. 2010a. First Advance Estimates ofProduction of Foodgrains for 2010–2011.
17. ———. 2010b. Economic Survey 2009–2010.Ministry of Finance.
18. ———. 2010c. Export Import Data Bank.Ministry of Commerce.
19. ———. 2010d. Household ConsumerExpenditure in India, 2007–2008. NationalSample Survey 64th Round, July 2007–June2008. Ministry of Statistics and ProgramImplementation, March 2010. New Delhi.
20. ———. 2010e. Mahatma Gandhi NationalRural Employment Guarantee Act 2005.Report to the People, 2 February 2006–2February 2010. Ministry of RuralDevelopment, Department of RuralDevelopment. New Delhi.
21. ———. 2010f. Department of Food and PublicDistribution.
22. ———. 2010g. Union budget documents.
23. ———. 2009a. Agricultural Statistics at aGlance 2009. Directorate of Economic andStatistics. Department of Agriculture andCooperation. Ministry of Agriculture.
24. ———. 2009b. National Accounts Statistics2009. Central Statistical Organization.Ministry of Statistics and ProgramImplementation.
25. ———. 2009c. National Horticulture Board.2009. Indian Horticulture Database 2009.Ministry of Agriculture. Government of India.
26. ———. 2009d. Report of the Expert Group toReview the Methodology for Estimation ofPoverty. Planning Commission, November.The Food and Nutrition Security Status inIndia
27. ———. 2007. Level and pattern of consumerexpenditure, 2004–2005. Report No. 508 (61/1.0/1). National Sample Survey 61st Round(July 2004–June 2005). National SampleSurvey Organization. Ministry of Statistics andProgram Implementation.
28. ———. 1997. Consumption of some importantcommodities in India. Report 404. NationalSample Survey, 50th Round (1993–1994).National Sample Survey Organization.Ministry of Statistics and ProgramImplementation.
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29. Gragnolati, Michele, Meera Shekar, MonicaDas Gupta, Caryn Bredenkamp, and Yi-Kyoung Lee. 2005. India’s undernourishedchildren: a call for reform and action. HealthNutrition and Population Discussion Paper.The World Bank. Washington D.C.
30. Gulati, A. 2009. Food security: Time to changetrack? Livemint.com and the Wall StreetJournal.24 November.
31. Gulati, A., and Ganga Shreedhar. 2010.Agriculture, poverty and malnutrition:linkages and synergies. Unpublished draftpaper. International Food Policy ResearchInstitute,New Delhi.
32. Gulati, A., Kavery Ganguly, Neelmani Gupta,and Bharat Sharma. 2010. Punjab agriculture:Where do we go from here? Presentation tothe former Chief Minister of Punjab at IndianCouncil for Research on InternationalEconomic Relations, 25 February. New Delhi.
33. Gulati, A., and Kavery Ganguly. 2009. Plateto Plough. Unpublished manuscript.International Food Policy Research Institute.New Delhi Office.
34. Gulati, A., and Thomas Reardon. 2007. Asianfood market transformation: Policy challengesto promote “competitiveness withinclusiveness.” Prepared for Policy ForumAgricultural and, Rural Development forReducing Poverty and Hunger in Asia: InPursuit of Inclusive and Sustainable Growth,Session D, on Growth and Structural Changesin Asian Agriculture.” Organized byInternational Food Policy Research Instituteand Asian Development Bank, 9–10 August.ADB Headquarters, Manila.
35. Gulati, A., and Thomas Reardon. 2008.Organized retail and food price inflation:Opening the “black box.” Business Line, 24May. New Delhi.
36. Indian Council for Research on InternationalEconomic Relations. 2008. Impact of OrganizedRetailing on the Unorganized Sector. by Joseph,Mathew, Nirupama Soundararajan, ManishaGupta, and Sanghamitra Sahu. Indian Councilfor Research on International Economic
Relations, New Delhi.
37. Jose, S., and K. Navaneetham. 2010. Socialinfrastructure and women’s undernutrition.
38. Economic & Political Weekly 45 (13) (27March–2 April): 83–89.
39. Kumar, G., Ashok Gulati, and RalphCummings Jr. 2007a. Foodgrains policy andmanagement in India: Responding to today’schallenges and opportunities. Unpublishedmanuscript. International Food PolicyResearch Institute, New Delhi.
40. Kumar, P., Mruthyunjaya, and Madan M. Dey.2007b. Long-term changes in Indian foodbasket and nutrition. Economic & PoliticalWeekly (1 September): 3567–3572.
41. Kumar, P., P.K. Joshi, and Pratap S. Birthal.2009. Demand projections for foodgrains inIndia.Agricultural Economic Research Review22 (July–December): 237–243.
42. McKinsey Global Institute. 2010. India’s UrbanAwakening: Building Inclusive Cities,Sustaining Economic Growth. Delhi.McKinsey & Company.
43. Menon, P., Anil Deolalikar, and AnjorBhaskar. 2008. India State Hunger Index:Comparisons of Hunger Across States.International Food Policy Research Institute,Washington DC; Welthungerlife, Bonn; andUniversity of California, Riverside.
44. Mittal, S. 2008. Demand-supply trends andprojections of food in India. Working Paper No.209.Indian Council for Research onInternational Economic Relations, New Delhi.
45. National Dairy Development Board(NDDB).2009. Available at www.nddb.org/aboutnddb/ operationflood.html (16 June2009).
46. Nelson, G. C., Mark W. Rosegrant, Jawoo Koo,Richard Robertson, Timothy Sulser, TingjuZhu,Claudia Ringler, et al. 2009. Climatechange: Impact on agriculture and costs ofadaptation. Food Policy Report. InternationalFood Policy Research Institute, Washington,DC.
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47. Planet Retail. 2009. www.planetretail.net(accessible through paid subscription).
48. Reardon, T., and Ashok Gulati. 2008. The riseof supermarkets and their developmentimplications: International experience relevantfor India. IFPRI Discussion Paper 00752,IFPRI, New Delhi.
49. Sally Trethewie.2012. India’s Food SecurityBill: A waste or win for the hungry?
50. Shah, T., Avinash Kishore, and HemantPullabhotla. 2009. Will the impact of the 2009drought be different from 2002? Economic &Political Weekly 44 (37): 11–14.
51. Shah, T., and Shilp Verma. 2008. Co-management of electricity and groundwater:An assessment of Gujarat’s Jyotigram Scheme.Economic & Political Weekly: 43(7) 59–66.
52. Seednet India portal. http://seednet.gov.in/(access date 7 June 2010).
53. Von Braun, J. 2009. Food security risks mustbe comprehensively addressed. Annual ReportEssay 2008–2009. International Food PolicyResearch Institute, Washington, DC.
54. Wiesmann, D. 2006. A global hunger index:Measurement concept, ranking of countries,and trends. Food Consumption and NutritionDivision Discussion Paper 212. InternationalFood Policy Research Institute, Washington,DC.
55. World Bank.2007. Bihar Agriculture: Buildingon Emerging Models of “Success”. Agricultureand Rural Development Sector Unit. SouthAsia Region. Discussion Paper Series. ReportNo. 4. The World Bank Washington D.C.
56. World Bank. 2009. World DevelopmentIndicators. Washington, DC: The World Bank
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Innovative Financing Options for Renewable Energy Projects*Pardhasaradhi Madasu, CFPCM
Abstract
Energy is essential for economic and social development. Roughly ninety per cent of the world’s (commercial)energy supplies are provided by fossil fuels; the associated emissions cause local, regional and globalenvironmental problems. Too much investment is still directed towards conventional energy technologies,even where commercially available energy-efficient and renewable energy technologies (RETs) are technicallyfeasible and economically attractive. The fact that renewable energy accounts for only a modest proportion inmeeting the world’s (commercial) energy demand means that there is a missing link in their potential andtheir implementation - the barriers to their implementation. These barriers (either financial or non-financial)need to be identified and addressed in order to design innovative policy approaches for the international anddomestic financing of RETs. Apart from a favorable regulatory environment, financial innovations are alsorequired to promote a shift towards more investment in RETs. Examples include investment guarantees,energy service companies, convertible grants, venture capital, sub-licensing, leasing and carbon offsets. Thestudy focuseson the urgent need of new and innovative options of funding RE projects.
1.0 Financial Innovation and EconomicDevelopment
Financial innovation, in the positive sense of theword, can be regarded as any new development inthe financial system that either enhances its capital-allocation or operational efficiency. However,financial innovation is often driven by risk andreturn incentives at the level of the individualtrader, structured financier or institution.Innovative financing options are simply newcombinations or adjustments of existinginstruments and resources, rather than newfinancial instruments aimed exclusively ataddressing climate change or investment inrenewable energy.
However, financial innovation is not without riskand, as has recently been illustrated by the US sub-prime fallout, can even create or exacerbate risk.Corrigan (2004) identifies that Innovations canaffect financial intermediation and the effectiveworking of the financial intermediation process isinherently a matter of public interest. There is aneed for caution. Financial incentives at theindividual level, coupled with advancements intechnology and financial engineering skills, canresult in situations where new instruments, vehiclesand strategies outpace the existing market andregulatory infrastructures. Such developments havethe potential to present challenges for both marketparticipants and supervisors. The collapse ofLehman Brothers in September 2008 led to its
default on commercial paper, which caused onelarge holder of that paper, the Reserve Fund, tobreak the buck (Kacperczyk and Schnabl, 2010).
In general many empirical studies have shown apositive relationship between the financialinnovations and the economic development of anation. The development of financial markets haslong been recognized as a key determinant ofeconomic development. The notion that financialdevelopment stimulates economic growth datesback to Adam Smith (1776, p. 394), who noted thatonce the first banks had been established inScotland, “trade and industry […] increased veryconsiderably” and “that banks have contributed agood deal to this increase, cannot be doubted”.Walter Bagehot (1873) and Joseph Schumpeter(1912) similarly stressed a positive causalrelationship between financial development andeconomic activity. There is a firm consensusnowadays that a well-functioning financial sectoris a precondition for the exploitation of aneconomy’s growth potential.
There is growing national interest in renewableenergy development based on the economic,environmental, and security benefits that theseresources provide. Historically, greater developmentof domestic renewable energy resources has faceda number of hurdles, primarily related to cost,regulation, and financing. With the recent sustainedincrease in the costs and associated volatility offossil fuels, the economics of renewable energy
*Associate Professor – Finance Area, Siva Sivani Institute of Management – Kompally, Secunderabad, [email protected]. Cell 9912929493
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technologies have become increasingly moreattractive to investors, both large and small. As aresult, new entrants are investing in renewableenergy and new business models are emerging. Thisstudy surveys some of the current issues related torenewable energy project financing and identifiesboth barriers to and opportunities for increasedinvestment. The paper is organized into four majorsegments 1) Energy Markets Scenario in India; 2)Need for financial innovation for fundingrenewable energy projects; 3) Financing Optionsof Renewable Projects 4) Risk Management andInnovative Financing and 5)Conclusion and Scopefor further study.
The paper being a conceptual study primarilydepends on secondary data collected from theofficial websites of the energy marketadministrators. The scope of the study is not specificto any renewable energy source.
2.0 Energy Scenario in India
As per World Bank ‘India Country Data’ (2011) theIndian economy, driven by domestic consumption,is the eleventh largest in the world by nominal GrossDomestic Product (GDP) and the fourth largest bypurchasing power parity, growing at around 9% perannum . However, the country is currently facedwith enormous growth and development pressures.It must meet the needs of an enormous populationand help many millions out of poverty. Accordingto McKinsey Global Institute (2010) India mustprovide energy to the large part of the country thatstill remains off-grid. And it must satisfy theincreasing demand for goods and services, andabove all for energy, of the nearly 100 million peoplethat are expected to enter the ‘middle class’ bracketby 2030. As per UNEP (2011) the next ten yearswill see a huge economic transformation, withIndia’s growth rate expected to surpass that of Chinaas soon as next year. Growing its economy at thisrate under a business-as-usual (BAU) scenariomeans India’s demand for energy will continue toincrease exponentially, and by 2030 energyproduction could need to expand six-fold to keeppace. Even today, India spends 45% of exportearnings on energy imports. C Singh, N Robins, RPatel (2011) in their study conducted have statedthat by 2020 over 35% of the energy it consumes isexpected to come from outside the country, making
it vulnerable to external price changes
As per the Central Electricity Authority Report(2011) the size of India and its population wouldsuggest an energy use far in excess of currentfigures. The average per capita consumption ofelectricity, however, is only 30% of the worldaverage at 734 kWh (kilowatt hour) (2008-2009)compared with around 15,000 kWh in the US,around 1,800 kWh in China and the world averageof 2,300 kWh. In this connection KPMG (2010)states that notwithstanding the low per capita usage,India is the fifth largest generator of power in theworld (170 GW as of January 2011) producing 4%of the global total. The country’s 11th Five YearPlan (2007-2012) sets out a target to achieve anadditional 62 GW of capacity. By 2030 India willhave a GDP five times higher than at present. Itwill also have 100 million urban households in the‘middle class’ bracket with higher purchasing powerthan ever before. This population represents a hugemarket for housing, buildings, appliances, transport,infrastructure and utilities, all of which are energyintensive. Their need for jobs also suggests anaccompanying growth in India’s economy.However, if this growth is based on a high-carbonmodel of development, this will have significantresource and environmental consequences bothnationally and globally.
According to Central Electricity Authority MonthlyReview of January, 2011 most electricity currentlyconsumed in India derives from coal, whichproduces local air pollution and contributes to globalclimate change. Of the total electricity consumedin India 65.3% is generated by thermal powerplants, of which 53% is coal-based, 10.5% is gas-based and 0.9% is oil-based. Hydro sources providea further 21%, while nuclear delivers 4%.Currently, 20 nuclear power reactors produce 4.8GW but as per the Planning Commission Report ofExpert Committee (2006) the country hassignificant funds for new nuclear reactors targetinggeneration capacity of 63 GW by 2032. India’sdependence on this current fuel mix comes at a cost.In addition to the economic and environmentalimpacts associated with a high dependence onimported fossil fuels, India faces a major challengein satisfying energy demand as the economycontinues to expand. Large scale expansion of
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renewable energy and increased energy generationefficiency will be critical to helping resolve bothchallenges. Renewable energy technologies willhelp India to build energy supply withoutcompromising its Clean Revolution. Thesetechnologies include solar (especially concentratedsolar power), wind and biomass technologies.
3.1 Renewble Energy Scenario
As per HSBC Global Research, January 2011 reportIndia is already emerging as a world leader inrenewable energy, with a total installed capacity of17.2 GW that includes wind-generated electriccapacity of 11.8 GW. The details of renewableenergy components can be found in Governmentof India, Ministry of New and Renewable Energy,March 2010 report. As per this report India alsohas 2.7 GW of small hydro-electric power, 1.3 GWe(equivalent) of grid-connected cogeneration frombagasse and 865 MWe (megawatt -1,000 MW isequal to 1 GW) of biomass-based power from agroresidues 14. Waste-to-energy provides 65 MW. Off-grid power production adds 232 MWe of biomasscogeneration – 122 MW from biogas plants, 47 MWfrom waste-to-energy, 2 MW of solar power and 1MW of hybrid systems. India has set a target toachieve a cumulative, grid-connected renewableenergy capacity of 74 GW by 2022.
The potential for India’s renewable energygeneration market is huge. A study by India’s Centrefor Development Finance at the Institute forFinancial Management and the US-based WorldResources Institute showed that the clean energymarket in India’s rural ‘Base of the Pyramid’population could be worth as much as INR 9,728crore (USD 2.11 billion) per annum. In a studyconducted by United States Department ofCommerce it was found that the market forrenewables is growing at 15% per annum43 withglobal investment in clean energy reaching INR 1.1million crore (USD 243 billion) in 2010, up fromINR 851,400 crore (USD 186.5 billion) in 2009.Unsurprisingly, such growth has positiveimplications for employment. According to a reportof the Global Climate Network, India has thepotential to create 10.5 million new jobs if the plansof the country’s 2008 National Action Plan onClimate Change are fully realized.
Government of India is as of now concentrating onboth Grid-Based and Non-Grid Based renewableenergy generation. The success of renewable energyfor grid-based electricity supply, for example, willdepend on improvements in the grid infrastructureas well as the future costs of renewable energycomponents and fossil fuel. According to Wartsila(2010) in the long-term, the main opportunity inIndia is perhaps not to be found in grid-connectedrenewables, but in off-grid applications: from small-scale rural electrification to large scale captive powerfor industries suffering heavily from insufficientpower supply. In a survey conducted by GreenpeaceReport (2009) it was found that large part of thecountry is not yet connected to grid and to be moreprecise 40% of the household are not connected tothe grid. India can make a virtue of the proportionof the country that is currently off-grid. It can userenewable energy to leapfrog ahead of developedcountries and implement renewable energytechnologies in an economically attractive mini-gridset-up. What is needed are not so much newtechnology options, but rather good business modelswith functioning marketing and distributionchannels, service and maintenance networks as wellas financing options.
3.0 Need for Financial Innovation for FundingRenewable Energy Projects:
The following section discusses the need andurgency for creating new and improved financingoptions to fund the renewable energy project.Various finance-related risks and barriers arehindering faster growth. RE is site specific and mostsites are still not cost competitive with conventionalfossil-fuel energy sources in the short to mediumterm. The need for new options of funding emergesfrom the barriers that hinder the penetration ofRETs and also the financers risk perception of therenewable energy projects. Often the result ofbarriers is to put renewable energy at an economic,regulatory, or institutional disadvantage relative toother forms of energy supply. Barriers includesubsidies for conventional forms of energy, highinitial capital costs coupled with lack of fuel-pricerisk assessment, imperfect capital markets, lack ofskills or information, poor market acceptance,technology prejudice, financing risks anduncertainties, high transactions costs, and a variety
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of regulatory and institutional factors. Many ofthese barriers could be considered “marketdistortions” that unfairly discriminate againstrenewable energy, while others have the effect ofincreasing the costs of renewable energy relative tothe alternatives.
Too much investment is directed towardsconventional energy technologies, even wherecommercially available energy efficient andrenewable technologies are technically feasible andeconomically attractive. Within the energy sectorrenewable energies have to compete with the otherconventional segments of the industry. The fact thatrenewable energy technologies (RETs) account foronly a modest proportion of the world’s(commercial) energy demand means that there arebarriers to their implementation. These barriers(either financial or non-financial) need to beidentified and addressed in order to designinnovative policy approaches for the internationaland domestic sector financing of RETs. It is clearthat a strategy to increase the market share ofrenewable energy should address the full spectrumof barriers.
According to OECD (1997) RETs have to overcomea number of barriers before they can penetrate themarket. In the initial stages of development,technical barriers predominate. In order for atechnology to become cost-effective, market barrierssuch as inconsistent pricing structures typicallyhave to be overcome. Then there are institutional,political and legislative barriers which hinder themarket penetration of technologies, includingproblems arising from a lack of awareness of, andexperience with, new technologies and the lack ofa suitable institutional and regulatory structure.Finally, there are social and environmental barriers,which result mainly from a lack of experience withplanning regulations which hinder the publicacceptance of a technology. It is clear that a strategywhich aims to increase the market penetration ofrenewable energy should address the full spectrumof barriers. . As with most new technologies, avicious circle exists, with financiers andmanufacturers reluctant to invest the capital neededto reduce costs as long as demand is low anduncertain. But unless there is investment, demandstays low, because potential economies of scale
cannot be realized at low levels of production.
In terms of scale, capacity, energy resourcecharacteristics, points of sale for output, status oftechnology, and a number of other factors, REtechnologies are usually markedly different fromconventional energy systems. RE projects typicallyhave higher capital costs and lower operational coststhan conventional fossil-fuel technologies. Theexternal financing requirement is therefore highand must be amortized over the life of the project.The differences are not lost on financiers, asfinancing a RE plant is different from financingconventional fossil-fuelled power plants andrequires new thinking, new risk-managementapproaches, and new forms of capital. Sincefinanciers are typically averse to things that are new,the differences between RE and conventionalenergy systems and the risk perceptions they implycan become the most significant barriers toinvestment, even for RE technologies that are cost-competitive with conventional energy-supplyoptions. A fundamental financing problem is thatmost renewable energy investment is still notcurrently commercially viable if valued using‘conventional’ market pricing models. This isbecause the costs of emitting carbon and otherenvironmental externalities are not yet accuratelyreflected in market prices. Financiers thereforeperceive them as being high risk and are reluctantto provide non-recourse project finance. The abovestated reasons have led to innovation in financingoptions for renewable projects. The financingoptions can be better understood from twoperspectives a) Traditional Financing Options andInnovative Financing Options.
4.1 Traditional Funding for Renewable EnergyProjects
Renewable energy project developers can obtaintheir initial investment by borrowing it from a bankor other financial institutions (Debt) or by equityinvestments (Equity) or a combination of both.There can be several ways by which the debt andequity financing is done for any projects. A briefoverview of conventional funding for clean energyprojects is as follows:
1. Corporate Lending: Banks provide financeto companies to support everyday operations.
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The creditworthiness of the company isassessed based on the company’s financialstrength and stability and the interest rates ofthe debt are priced accordingly. In this form oflending, the bank may place a few restrictionson how the company can use the funds,provided certain conditions are met.
2. Project Finance or Limited RecourseFinance: In project finance, debt is borrowedfor a specific project only, the amount of debtmade available from the borrower will belinked to the revenue the project will generateover a period of time; this will be the means ofpaying back the debt. This amount is adjustedin such a way to reflect inherent risks of theproject, In case of a problem over loanrepayments the banks will establish first chargeor claim over the assets of a business.
3. Mezzanine finance: As its name implies, thistype of lending sits between the top level ofsenior bank debt and the equity ownership ofa project or company. Mezzanine loans are ofmore risk than senior debt repayments of themezzanine loan are made after those for seniordebt, however, the risk is less than equityownership in the company. These loans are ofa shorter period and are more expensive forborrowers, but pay a greater return to thelender. For a renewable energy project,mezzanine finance is sought for if the amountof bank debt it can access is insufficient: themezzanine loan may be a cheaper way ofreplacing some of the additional equity thatwould be needed in that situation, andtherefore can improve the cost of overallfinance.
4. Refinancing: Refinancing is where a projector a business has already borrowed money butdecides, or needs, to replace existing debtarrangements with new ones, i.e. debt isrestructured. The reasons for refinancinginclude more attractive terms becomingavailable in the market because lenders arebecoming more familiar with the technology,meaning more money can be borrowed againstthe asset; or the duration of the loan facility,e.g. loans are often structured to become moreexpensive over time because of the increasing
risk of changes to regulation or marketconditions. One of the results of the financialcrisis was that banks became extremelyreluctant to lend for more than six or sevenyears, which forced projects that requiredlonger-term loans, to refinance in the future,and take the risk of the terms available at thattime.
5. Venture Capital, Private Equity andInvestment Funds: Renewable energy equityinvestments taking an ownership stake in aproject, or company, involve investments by arange of financial investors including PrivateEquity Funds, Infrastructure Funds andPension Funds, into companies or directly intoprojects or portfolios of assets.
4.2 Innovative Financing Options
Three categories of actors play a central role in thefinancing of renewable energy products and services:(i) governments and international institutions, (ii)the private sector, and (iii) consumers Given theabove said barriers there is a need for innovativefinancial structures to fund projects in this sector(both RE and EE Projects). Innovative Finance isrequired at the various stages of the renewableenergy development cycle, from research anddevelopment to technology demonstration, to earlycommercialization, to large scale market diffusionMany studies have proved that there is ainterdependence between finance for product andtechnology development (supply side) and that forthe use of RE and EE products and technologies(demand side). The availability of financing forresearch and development and manufacturing ofRE and EE products is crucial for reducing the highcosts of RE and EE. Similarly, adequate consumerfinance enhances affordability and stimulatesfurther demand, which in turn, leads to furtherdevelopment of the RE industry.
Financial Innovation and creation of new financingproducts can be done in three ways:
1. Optimizing the utilization of public funds: Thereare clear indications that public finance, eitherthrough subsidy, fiscal incentives, or otherforms of financial support by the government,will remain crucial at the initial stages oftechnology and market development. At the
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same time, it is well understood thatsustainable market development is illusionaryas long as it solely depends on public subsidy.
2. Encouraging Private Sector Finance: Generallyunder this approach private sector agent, likeequipment manufacturers and suppliers,utilities, electricity suppliers and investors willbe encouraged through new schemes in REprojects. Private investment occurs wheninvestors can recover the investment madeover a reasonable period of time with a profit.
3. Leveraging Consumer Finance: This approachwill promote mechanisms that enableconsumers to pay a part or the full cost of REproducts and services under terms andconditions that are affordable to them.
By using a single approach or combing the abovethree approaches, various models can be formed tofund the RE and EE projects, some of the provenmodels are listed and discussed below:
A. Competitive bidding for minimumsubsidies : The competitive bidding forminimum subsidies is a mechanism where thegovernment provides a subsidy to privateinvestors through a competitive biddingprocess so as to reduce the level of subsidy inproject development by stimulatingcompetition among private investors, bothdomestic and foreign. The policy is acompetitive and incentive-based mechanismapplicable in the development of renewableenergy project such as large-scale wind farm.The private investors will recover the rest oftheir costs through user payment. Thesuccessful application of the policy requiresother instruments, such as tax reduction andaccess to bank lending.
B. From Capital Subsidy to Interest Subsidy:Capital subsidy is a one-time subsidy given tothe end user /purchaser of renewable energyequipment. Normally, this subsidy is given asthe percentage of the capital cost of theequipment. Often government funds areprovided in the form of a one-time capitalsubsidy. Given that government funds areoften limited, the capital subsidy model resultsin putting high upfront costs on the public
finances, hence allowing the benefit ofsubsidies to a limited number of beneficiaries.The subsidy percentage varies up to 100 %maximum. On the other hand, interest subsidyis a subsidy offered by a government tocommercial financial institutions, such asbanks, to enable them to provide loans to themanufacturers and/or to the buyers of the REequipment at concessional interest rates ascompared to the commercial interest rates. Forexample, if the commercial interest rate is 12%,then under the interest subsidy scheme bankswould offer a reduced interest rate, of say 8%,to the buyer and the government reimbursesthe amount equivalent to the balance of 4%interest to the bank. The policy encouragesthe gradual shift from capital subsidy tointerest subsidy and use of subsidymechanisms along with the mainstreamfinancing/user’s contribution. Thus this policyoption improves the reach of the subsidyscheme and also integrates it withconventionally-accepted funding mechanisms.
C. Renewable energy promotion fund: Therenewable energy promotion fund refers tofunds that come from the central and localgovernment financial allocations, subsidies,low (deducted) interest loan and the variousspecial funds that are used to promote thedevelopment of renewable energy. The purposeof creating a renewable energy fund is toreduce capital-related obstacles in theimplementation of renewable energypromotion policies.
D. Market-based institutional finance :Designed to create a special purpose dedicatedfinancial institute to invest and fund REprojects, this policy option is effective inattracting and channelling funds from varioussources into the RE sector development.Special-purpose financial institutions for REoperate through instruments such as capitalfinance, debt and equity finance, lease financeor lending through financial intermediaries.The lending instruments should be able torespond to the needs various actors involvedin the financing of RE.
E. RESCO approach to financing: It is an
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approach to enterprise development similar toventure capital on a smaller scale and withsocio-environmental ends. This enables thesetting up of renewable energy servicecompanies (RESCO) that are private sectororganizations that provide renewable energyproducts and services and get thecorresponding service fee from the clients orother sources.
F. Administered Pricing or Renewable energyfeed-in-tariff: Renewable Energy Feed-in-Tariff (REFIT) is a policy whereby thegovernment legally guarantees access to thepower grid for renewable energy producerswith a guaranteed price. This guaranteeremoves the risk to the investors of possiblelower cost-effectiveness of renewable energyagainst other sources of energy feeding intothe grid and ensures a fair rate of return forthe investors. Electric utilities are obliged toenable renewable energy plants to connect tothe grid and they must purchase any electricitygenerated with renewable resources at a fixedprice. The quantity of renewable energysupplied is determined by the market. REFITis a policy operating under a mechanismopposite to Renewable Portfolio Standards orRenewable Obligation. The latter consists ofpolicies whereby the government mandates thequantity of renewable energy to be generated,and the market sets the price. Electricitygenerators are the main beneficiaries of REFIT.
G. Renewable Portfolio Standards (RPS): TheRenewable Portfolio Standard (RPS) is amarket-driven policy that ensures that aminimum amount of renewable energy isincluded in the portfolio of electricity resourcesof the licensed electricity suppliers serving astate or country. The required amount ofrenewable energy, which can be graduallyincreased over time, is set by the governmentwhich also determines renewable sourceseligible for the RPS.
H. Re newable Obligation Certificates(ROCs): The percentage of renewable energyset as per RPS is translated into RenewableObligation Certificates (ROCs), which verifythat a given amount of kilowatt-hours (kWh)
of electricity has been generated by arenewable-fuelled source. For example, if theRPS is set at 10%, a generator that sells100,000 kWhs in a given year would need topossess 10,000 ROCs at the end of that year.ROCs are a separate commodity from thepower itself and can be subject to transactions.This allows for open trading of certificates,enabling those who have surpassed their RPSrequirements to sell ROCs to those supplierswho have not been able to generate enoughelectricity from renewable energy sources. Inaddition, ROCs correct the bias againstrenewable energy in the electricity market byensuring that renewable generation companiesreceive payment for the environmental andother public benefits they produce. As analternative to proving compliance via ROCs,electricity suppliers can also choose to “buyout” their RPS requirements at a price (permegawatt-hours of electricity) set bygovernment.
I. Clean Development Mechanism (CDM): TheClean Development Mechanism is one of thethree Kyoto Protocol mechanisms that enablesdeveloped countries to meet their emissionreduction targets by implementing green housegas emission reduction projects in developingcountries. Renewable energy (RE) is expectedto benefit from the CDM as it mitigates greenhouse gases and advances sustainabledevelopment. Designed to function as amarket-based mechanism, the CDM poses asone of the creative financial tools for leveraginginvestments in renewable energy. Financialbenefits from the CDM can be structured asequity in the project, additional annual cashinflow and debt in lieu of CERs as returns.Most of the renewable sectors, namely RE gridpower, RE off grid power, RE-based thermaland mechanical applications are gainingsignificance under the CDM.
J. Global Environmental Facility (GEF):Besides the CDM, one of the most convincingclean climate initiatives has been the GlobalEnvironment Facility (GEF). The GEF, asquoted, is the largest source of funds forrenewable energy in the developing world. The
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GEF helps shift energy investments indeveloping nations in more sustainabledirections, working to remove barriers andbring down the cost of promising newtechnologies while minimizing subsidies forequipment and consumers. GEF has employedseveral strategies to promote, commercializeand streamline RE and its financial modelscomprise several innovative options.
K. Consumer Financing : For most people,especially in low income communities, payingthe full cost for renewable energy products andservices is too expensive. However, there areclear indications of a willingness byconsumers, even at very low income levels, topay for reliable products and services whenflexible financing terms are provided. Variouspolicy options can be envisaged to overcomethe hurdle of high up-front costs of RE to end-users. These include: 1) mechanisms ofstaggered payments over a reasonable periodof time; 2) financing through financialintermediaries whereby a manufacturer orretail distributor acquires loans which arereverted to consumers that buy products fromthat manufacturer or retail distributor; 3)micro-credit and self-help group financingwhich enable access to affordable credit withlong-term maturity periods; 4) fees for servicemodels that enable access to services withoutthe need to pay in full for the products; 5)mobilization of finance on a voluntary basisby consumers groups that are willing to payfor clean energy; and 6) system benefit chargeswhereby a small addition is made to theelectricity bills of users with the revenuefinancing the renewable energy projects. Thepolicy is useful to promote the use of REequipment for individual use, like solarcookers, solar lanterns, and also for providingincome-generating equipment such as solardryers, to women in villages. Under the policy,users take small loans for a short duration andthe loan repayment periods vary from daily tomonthly. The basic idea is to make capitalavailable to the poor strata of society andthereby improve their living conditions. It hasbeen observed that this also improves their
financial health due to better management ofavailable finances and to the opening of newavenues for income generation.
L. Community-based green power purchasing:Green power refers to power that is producedfrom renewable energy sources, as opposed topower produced from fossil fuel, nuclear andother types of generators. Generally, an electricutility offers blocks of green power tocustomers to finance the renewable energyprojects. Customers arrange to purchase acertain amount of green power (actuallyenergy, in kWh) per month (or year), for whichthey commonly pay a small premium tocompletely or partly offset any higher cost ofrenewable power sources. As the customers ofelectric power are willing to pay a higher price,the premium price, collected as a green powerfund, is used to support the development ofrenewable energy - for example, paying rationalpower prices for renewable power projects inorder to make such projects profitable.Consumers of the green power may receivecertificates of green power by Green PowerAuthentication Bodies. In some countries orregions these certificates have a monetaryvalue and can be traded in the market.
M. Develop- To- Sell : A typical greenfieldrenewable energy project in India could takeanywhere between two and five years indevelopment, depending on the renewableenergy source. Most of the capital involved isonly required during the last leg ofconstruction, especially in the case of biomassand wind where more than 80% of the projectcost is the turbine cost. In addition, asubstantial amount of local and technicalknowledge is required to develop the projectto make it construction ready, for landacquisition and regulatory approvals. As aresult, a ‘Develop-to-sell’ model has emergedin which developers without significant capitalbut with the necessary expertise take projectsto the point where they are construction-ready.At that stage, the developer sells the project toutilities who undertake the capital expenditureand financial closure. The risk to thesedevelopers is much higher than to project
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owners but they enjoy significantly higherreturns. Typically, these developers are localcompanies who have strong technical and localcapabilities.
N. Tripartite Funding Models: A uniquetripartite model – that has been successfullyimplemented outside India – is fast emergingin the field of property development. This is amodel where a holding company or non-banking finance company (NBFC) holds andfinances energy-efficient assets across variousprojects and earns revenues through the energysavings generated. These are typically equityfunded by property developers and energy-equipment manufacturers. Such companiesfind it relatively easy to raise debt financingas risk is spread across a number of projects asthey mitigate the risks of individual projectsand scale.
4.3 Risk Management And InnovativeFinancing
Risk management is a core element of attractingfinancing for a project. Investor confidence iscritical to attracting financing. As a result, the typeof financing available to renewable energy projectsis largely dependent upon the risk managementapproaches adopted by the project’s managementand the instruments available to mitigate real andperceived risks. Many RE projects do not getbeyond the planning stage as a result. There is aneed for innovative structures that can fill thefunding gap between the equity and debt availableto a project. Where risks are insurable, commerciallyavailable insurance can play an essential part inensuring that a successful project finance structureis achieved by transferring risks consideredunacceptable away from investors/lenders and tothe insurance markets. Insurance has an importantrole in supporting investment in RE projects bygiving financial protection from delays or damageduring the fabrication, transport, construction, andoperational stages of a RE project—whether fortechnical reasons, human error or the forces ofnature. Cover for loss of income can be a criticalissue from a lender’s perspective, as it not onlyaffects a project’s ability to pay its construction loan,but also affects the balance sheet of the entireproject.
Financiers may require explicit risk reductionmeasures in the form of extra investment, as a pre-condition for their investment, and may requirecontinuous monitoring and reporting, which alsohas a cost. Financiers are used to assessing risksassociated with financing large-scale renewableenergy projects in developing countries and havedeveloped risk management instruments to mitigatethese risks. Renewable Energy Projects are oftenperceived to have additional risks beyond traditionalfinancing risks. Financiers may be morecomfortable with an approach where a pilot projectis undertaken before scale-up, as this offers moreopportunities to mitigate risks in the future fromthe lessons learned in the pilot. On the other handfinanciers may be more comfortable with anapproach where a pilot project is undertaken beforescale-up, as this offers more opportunities tomitigate risks in the future from the lessons learnedin the pilot. Innovative financing can be attractedby matching higher perceived risk with higherreturn. Since financiers, public and private, assessa project in terms of returns and risks, in order tomake up for increased (perceived) risks, it isimportant to increase the potential returns of aproject. Actions taken to increase returns are calledreturns management, and focus on this area isessential to improve access to financing.
5.0 Conclusion
Financing is an essential element of renewableenergy promotion policies. Given the need forsubstantial funding at the various stages of therenewable energy development cycle, from researchand development to technology demonstration, toearly commercialization, to large scale marketdiffusion, policy-makers are often faced with a needfor trade-offs in funding between these differentstages. Policy options for financing RE range frominnovative modes of delivery of public finances tonew mechanisms of private finance and emergingforms of consumer financing. The policy optionspresented above therefore represent a package thatneeds to be adapted to the particular conditions ofa specific country, taking into account the maturityof RE technologies, the market size and pricingsystems, and the role RE may play in the context ofrural electrification. In most cases, a multi-instruments approach should be adopted as
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compared to a single-instrument approach.
Not only the development of innovative financingis required but also innovative insurance productsto cover the unique and specific risks of renewableprojects is required. An innovative insurance sectorwill certainly attract a good private participationin the renewable energy markets. Apart from theinsurance products, the RE market can attract newinvestments provided new variants of hedging areavailable. These include alternative risk transfer(ART) products, specialist underwriting vehicles,weather derivatives, credit derivatives, and politicalrisk insurance. Weather insurance and derivativesare the most widely used in the RE sector
6.0 Scope for Further Study
The present study being a conceptual study can betaken forward by undertaking a survey on theinnovative financing models suited for differentsources of renewable energy. Also further studyregarding the suitable regulatory and appropriatemarket structure can be taken up. The regulatorymechanism with regards to promotion of renewablesector in various countries can be undertaken.
References
1. Arora et al, Indian Renewable Energy StatusReport, Background Report for DIREC 2010.October 2010,
2. Bureau of Energy Efficiency (BEE), energymanager training, brochure on trigeneration.
3. C Singh, N Robins, R Patel, ‘Sizing India’sClimate Economy’, HSBC Global Research,January 2011.
4. Central Electricity Authority, ‘All IndiaInstalled Capacity (in MW) of Power StationsLocated in the Regions of Main Land andIslands’, Executive Summary, Power SectorReports, 2008, p. 1.
5. Central Electricity Authority, ‘Highlights ofPower Sector, Monthly Review of Power Sector(Executive Summary) for January 2011, p. 2.
6. Central Electricity Regulatory Commission,March 2011.
7. Central Electricity Authority, ‘All Indiagenerating installed capacity- region wise,
Monthly Review of Power Sector (ExecutiveSummary)’, January 2011, p. 8.
8. Corrigan, E. Gerald (2004), Large IntegratedFinancial Intermediaries and the PublicInterest, Goldman, Sachs & Co., April.
9. ‘Energy Requirements’, Integrated EnergyPolicy, Report of the Expert Committee,Planning Commission, 2006, p. 56.
10. Government of India, Ministry of New andRenewable Energy.
11. Global Climate Network, Low carbon Jobs inan Inter-Connected World, Global ClimateNetwork Discussion Paper No 3, GlobalClimate Network, March 2010.
12. Greenpeace Report: “Still Waiting”, 2009.
13. Greenpeace India, October 2010,
14. Kacperczyk, M., Schnabl, P., 2010. When safeproved risky: commercial paper during theûnancial crisis of 2007–2009. Journal ofEconomics Perspectives 24 (1), 29–50.
15. KPMG, ’Power Sector in India: White paperon Implementation Challenges andOpportunities’, 2010, p. 2.
16. Levine, R. (1997): “Financial Developmentand Economic Growth: Views and Agenda”,Journal of Economic Literature, Vol. 35 (2),pp. 688-726.
17. Levine, R. (2005): “Finance and Growth:Theory and Evidence”, in P. Aghion and S.Durlauf (eds.): Handbook of EconomicGrowth, Elsevier, Amsterdam, pp. 865–934.
18. McKinsey Global Institute, ‘India’s urbanawakening: Building inclusive cities,sustaining economic growth’, April 2010, p.45.
19. National Mission on Enhanced EnergyEfficiency goals, Bureau of Energy Efficiencyhttp://moef.nic.in
20. N Robins, C Singh, R Clover, Z Knight and JMagness, ‘Sizing the Climate Economy’, HSBCGlobal Research, September 2010.
21. Organisation for Economic Co-operation andDevelopment (1997). Penetration of
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Renewable Energy in the Electricity Sector,Annex I, Expert Group on the United NationsFramework Convention on Climate Change.Working Paper No. 15, Document ENV/EPOC(98)7, Paris.
22. Pagano, M. (1993): “Financial Markets andGrowth: An Overview”, European EconomicReview, Vol. 37 (2-3), pp. 613–622.
23. PowerLine. “Industrial Tariff Trends”. August2009.
24. S Bairiganjan, R Cheung, EA Delio, D Fuente,S Lall, S Singh, Power To The People: Investingin Clean Energy for the Base of the Pyramidin India, The Institute for FinancialManagement, Centre for DevelopmentFinance.
25. Sharma, S C Deo, ‘Coal-fired Power Plant HeatRate and Efficiency Improvement in India’,APEC Workshop on Options to Reduce CO2Emissions, February 2004, www.iea.org
26. The Pew Centre, ‘Global Clean Power: A $2.3Trillion Opportunity’, 2010, http://www.pewtrusts.org
27. UNEP, ‘Towards a Green Economy; Pathwaysto Sustainable Development and PovertyEradication – A synthesis for policy makers’,2011, www.unep.org/greeneconomy.
28. United States Department of Commerce, foundand viewed on 11 March 2011, http://www.commerce.gov/
29. Wartsila, ‘The Real Cost of Power’, 2010.
30. World Bank, ‘India Country Data’, March2011, viewed on 11 March 2011, http://data.worldbank.org/country/india>
31. Y Alagh, ‘Transmission and Distribution ofElectricity in India Regulation, Investment andEfficiency”, http://www.oecd.org
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Liquidity and Cash Management of Infrastructure Companies: AComparative Study of L&T Ltd and IVRCL Ltd.
* Dr. D. Maheswara Reddy and ** Mr. K. V. N. Prasad
Abstract
The success and failure of the company is largely depending on its efficient use of cash and management ofliquidity. Most of the organizations facing liquidity crises and cash crunch despite of profits earned duringthe accounting period where as some of the organizations have met their obligations successfully even thoughthey sustained a loss the reason behind that non-cash and non-operating items charged in profit and lossaccount. The rapid generation and active utilization of cash becomes the index of the efficiency of the business.Any flaw in this process that will jeopardize the cash flow cycle of the business and it compel the business inliquidity problems. As infrastructure companies’ playing a significant role in economic development of thecountry in general and industrial growth in particular, it is high time to assess liquidity and cash managementof those companies. In this context, it is an attempt made to assess the performance of cash and liquiditymanagement with reference to L&T Ltd and IVRCL Ltd as they were in the same industry and havingcertain similarities like identical face value of share and working capital intensive firms.
Key words: liquidity, cash usage, cash crisis, liquidity crunch.
Introduction
Monitoring of liquidity is becoming an everchallenging job for the organizations, managementof current assets must ensure liquidity and efficientuse of cash otherwise the whole of cash of theorganization will be drained out of the businessleaving it as lifeless body ready for burial. Therefore,liquidity management is a technique which dealtwith current assets and current liabilities. Currentassets are converted into cash with time and cost;where as fixed assets are amortized during theirlife period. Some current assets can be convertedwith minimum cost while some others require longtime and heavy discount for encashment.
When liquidity crisis will arise? It is not happenedsuddenly, but it has been creep up during the courseof time while flashing clear warnings. At some pointof time this situation may be turned out into criticalstage, if the early warnings remain unattended bythe management.
Reasons for liquidity problems : Usuallycompanies have been facing illiquidity problems onetime or other but the reasons may be one or more.The following are common symptoms of liquidityproblems in any organization:
• Inability to make payments which results intoloose of cash discount and credibility
• Excessive borrowing which compel thebusiness into liquidity crunch
• Low and negative working capital whichcaused by excessive payables, stock piling ofobsolete items and huge bad debts
• Over-trading which compels business incobweb of cash flow problems like; heavypayables to creditors rather than cash receiptsfrom debtors and credit period allowed bysuppliers is less than credit period offered tocustomers.
If malady is not cured in time, the whole of cashwill be drained out of the business leaving it aslifeless body ready for burial.
Review of Literature
After reviewing the following studies, it made meto study the liquidity and cash managementpractices in the construction industries that toowith special reference to two pioneering companiesnamely L&T Ltd and IVRCL Ltd.
ML Jose, C Lancaster (1996) they examined thatthe relationship between profitability measures anda management of ongoing liquidity needs for a largecross-section of firms over a twenty-year period.Long-run equilibrium relationships between thecash conversion cycle, a measure of ongoing
* Associate Professor, ITM Business School,Warangal, A. P., [email protected], Cell No : 09963601530, 09032099913; ** AssociateProfessor, ITM Business School,Warangal, A. P., [email protected], Cell No: 09291957847
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liquidity management, and alternative measures ofprofitability are tested using both nonparametricand multiple regression analysis.
Shin & Soenen (1998) have used net-trade cycle(NTC), to discover the relationship betweenworking capital management and profitability, as ameasure of working capital management. NTC isequal to Cash Conversion Cycle (CCC). Using acompustst of 58985 firm years covering the period1975-1994, in all cases, they found, a strongnegative relation between the length of the firm’snet-trade cycle and its profitability. In addition,shorter NTC are associated with higher risk-adjusted returns. In other words, they suggested thatone possible way the firm to create shareholdervalue is by reducing firm’s NTC.
Deloof (2003) has used 1009 sample of large Belgiannon-financial firms for the period of 1992-1996 todiscover the relationship between working capitalmanagement and profitability, as a measure ofworking capital management. However, he usedtrade credit policy and inventory policy aremeasured by number of days accounts receivable,accounts payable and inventories and the cashconversion cycle as a comprehensive measure ofworking capital management. He founds asignificant negative relation between grossoperating income and the number of days accountsreceivable, inventories and accounts payable. Thus,he suggests that managers can create value for theirshareholders by reducing the number of daysaccounts receivable and inventories to a reasonableminimum. He also suggests that less profitable firmswait longer to pay their bills.
Lyroudi & Lazaridis (2000) has used food industryGreek to examine the cash conversion cycle (CCC)as a liquidity indicator of the firms and tries todetermine its relationship with the current and thequick ratios, with its component variables, andinvestigates the implications of the CCC in termsof profitability, indebtness and firm size. The resultsof their study indicate that there is a significantpositive relationship between the cash conversioncycle and traditional liquidity measures of currentand quick ratios. The cash conversion cycle alsopositively related to the return on assets and thenet profit margin but had no linear relationship withthe leverage ratios.
Abuzar M.A. Eljelly,(2004) he examined therelation between profitability and liquidity on asample of joint stock companies in Saudi Arabia.Using correlation and regression analysis the studyfound significant negative relation between thefirm’s profitability and its liquidity level, asmeasured by current ratio. Finally, the results arestable over the period under study.
Manvir Kaur (2012) has made a study on cashmanagement of milk cooperatives with specialreference to Milkfeed and HDDCF and concludedthat Milkfeed has done better performance
as far as the cash solvency position and liquidityposition is concerned.
All the above literature has been focused on overallworking capital management (i.e inventory andcredit decisions). No scholar has made an attemptto analyses cash management and liquiditymanagement simultaneously. This gap made us toanalyze the liquidity and cash managementpractices of L&T Ltd and IVRCL Ltd.
Objectives of the Study
Keeping in view of the importance of the cash andliquidity management in an infrastructure companythe present study has been carried out (i) to assessliquidity strengths and weaknesses of selectivesample companies,(ii) assess the management ofcash and (iii) To identify various means and waysof improving the liquidity strength of the selectedsample companies.
Research Methodology
The study of liquidity and cash management is donefor two sample companies namely L&T Ltd andIVRCL Ltd and the period of study covers fivefinancial years i.e. from 2006-07 to 2010-11. Thesource of data is aceanalyzer.com. The collected datafor the study is secondary in nature. The toolsapplied for the studies are; a) financial metrics andb) statistical techniques. The financial metricsinclude; i) Current ratio ii) Quick ratio iii)Defensive interval ratio iv) Inventory turnover ratiov) Cash in current assets vi) Cash turnover to salesvii) Cash to total funds viii) Operating cash flow tosales xi) Operating cash flow to capital employedx) Operating cash flow to shares and xi) Debtaffordability ratio. The statistical techniques
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include; i) Mean ii) Mean difference iii) Standarddeviation iv) t-value and v) p-value.
Profile of sample companies:
L&T Ltd was founded in Bombay (Mumbai) in 1938by two Danish engineers, Henning Holck-Larsenand Soren Kristian Toubro. Both of them werestrongly committed to developing India’sengineering capabilities to meet the demands ofindustry. The company has manufacturing facilitiesin India, China, Oman and Saudi Arabia. Customersinclude global majors in over 30 countries. Thebusiness areas of the company are: Hydrocarbon,Power, Infrastructure, Defense, Electrical,Information Technology & Engineering Services,Turbines, Forging, Boilers, Railway, Construction,Medical, Coal, Fertilizer, Steel, Cement, Paper, ShipBuilding, Aerospace, Finance.
IVRCL Infrastructures & Projects Ltd wasincorporated in 1987. It is engaged into engineeringprocurement and construction (EPC) activities inIndia. It conducts operations in 5 sectors namelyWater and Environment, Transportation,Buildings, Power and Industrial Structures.
Data Analysis and interpretation
Liquidity aims at ensuring availability of cashwhenever it is needed by the business. Two factorsthat decide the liquidity are conversion ofconvertible assets with minimum cost and time andefficient usage of cash.
The following hypothesis is being tested by usingvarious ratios.
H0: There is no significant difference between L&TLtd and IVRCL Ltd with respect to liquidity andefficient use of cash ratios
H1: There is a significant difference between L&TLtd and IVRCL Ltd with respect to liquidity andefficient use of cash ratios
The industry bench marks with respect to currentratio and quick ratio for the study period werefurnished in the table 1. The real time industrystatistics are playing crucial role in discovering thequalitative liquidity of the selective samplecompanies. The first four ratios measure theliquidity and the rest will assess the efficient use ofcash of L&T Ltd and IVRCL Ltd.
Table: 1 Industry benchmarks
Year Current Ratio Quick Ratio
2006-07 1.94 1.39
2007-08 1.96 1.42
2008-09 2.02 1.54
2009-10 2.09 1.61
2010-11 1.97 1.62
Average 1.996 1.516
Source: www.aceanalyzer.com
Testing of Liquidity:
1. Current Ratio (CR): It is the ratio of currentassets to current liabilities and which measures theliquidity of the business in a broad view. Furtherthis ratio reveals that whether the company is ableto meet its short-term obligations or not. Here theinfrastructure industry average bench mark(1.996:1) is most worthwhile to test the liquidityrather than traditional standard ratio (i.e 2:1). Thedata pertaining to the sample companies isfurnished in the table 2.
Table 2: Current ratio (in times)
Year L&T Ltd IVRC Ltd
2007 1.27:1 2.46:1
2008 1.19:1 3.16:1
2009 1.31:1 2.20:1
2010 1.23:1 1.79:1
2011 1.24:1 1.85:1
Mean 1.25 2.29
SD 0.04494 0.55621
MD -1.04400
T-value -4.183
Sig. value 0.003
Source: Annexure II
It is clear from the table 2; IVRCL Ltd is successfullymaintained the required benchmark of current ratiothroughout the study period with an average ofRs.2.29:1 while comparing with L&T Ltd. Themean difference in between L&T Ltd and IVRCLLtd is -1.044, the t-value between sample companiesis -4.183 with p-value 0.014 therefore the nullhypothesis is rejected. Therefore the CR of IVRCL
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Year L&T Ltd IVRC Ltd
2007 5.87 37.48
2008 5.88 23.57
2009 10.12 22.14
2010 20.86 21.62
2011 24.54 19.62
Mean 13.45 24.89
SD 8.71 7.18
MD -11.432
T-value -2.264
Sig.Value 0.53
Year L&T Ltd IVRC Ltd
2007 0.95:1 2.38:1
2008 0.91:1 2.95:1
2009 1.23:1 2.09:1
2010 1.17:1 1.70:1
2011 1.19:1 1.76:1
Mean 1.09 2.176
SD 0.14832 0.51179
MD -1.086
T-value -4.556
Sig.Value 0.002
Ltd is significantly differed from that of L&T Ltd.
2. Quick Ratio (QR): It is also known as ‘acidtest ratio’ and which considers only those assetswhich can be readily and easily converted into cashto meet the current liabilities. Here theinfrastructure industry average bench mark(1.516:1) is most worthwhile to test the liquidityrather than traditional standard ratio (i.e 1:1). Thedata pertaining to the sample companies isfurnished in the table 3.
Table 3: Quick ratio (in times)
Table 4: Inventory Turnover Ratio(times)
Source: Annexure II
It is clear from the table 3 that IVRCL Ltd has beenmaintained more than the industry benchmark(1.516) of quick ratio during the study period whereas L&T Ltd has been lagging behind in meetingthe industry bench mark (1.516) . This reveals thatthe IVRCL Ltd has been pursuing and practicingeffective financial management practices. However,it has been failed in searching out prudentinvestment avenues for the surplus cash availablewith it. The mean of quick ratio of L&T Ltd andIVRCL Ltd are 1.09 and 2.16 respectively. The meandifference between sample companies is -1.086, thet-value -4.557 with p-value 0.002 therefore thealternate hypothesis is accepted which means thereis a significant difference between samplecompanies.
3. Inventory Turnover Ratio (ITR) : Itdetermines the velocity of average inventory.Further this ratio reveals that how fast the inventoryis turned out in to sales. The data pertaining to thesample companies is furnished in the table 4.
Source: Annexure I and II
It is noticed from the table 4 that the low ratio (5.87times) of L&T Ltd indicates a pointer towards stockpiling of difficult -to- sell items during first two yearsof study period which means the inventory turnedout into sales was very much slow where as ITR ofIVRCL Ltd is in double digits throughout the studyperiod which indicates fast selling of items. In otherwords the liquidity of L&T Ltd is little bit gotaffected and the liquidity of IVRCL Ltd was stableduring the study period. The mean differencebetween the L&T Ltd and IVTCL Ltd is -11.432;the t-value -2.264 wit p-value 0.53 therefore the nullhypothesis is rejected.
Testing of Cash Management Practices:
4. Cash in Current Assets (CCA): This ratio ofcash balance to that of total current assets providesnecessary guide to assess the likely cash balancerequirements of a business on a broad basis asagainst the more detailed cash budgets. Further, itrepresents utilization of cash balances as it directlyaffects the profitability of an undertaking. As a rule,the lower the proportion of cash balances to currentassets, the greater is the profitability of theundertaking where as a high proportion of cashbalance in current assets also indicates betterliquidity position of a firm. The cash in relation tocurrent assets of two sample companies wasfurnished in the table 5.
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Year L&T Ltd IVRC Ltd
2007 11.98 9.38
2008 13.99 6.88
2009 18.73 17.14
2010 20.69 22
2011 14.7 11.72
Mean 16.02 13.42
SD 3.58 6.11
MD 2.594
T-value 0.819
Sig.Value 0.437
Year L&T Ltd IVRC Ltd
2007 30.19 9.62008 22.85 16.522009 35.19 28.122010 47.77 54.612011 30.66 34.38Mean 33.33 28.65SD 9.2 17.44MD 4.686T-value 0.531Sig.Value 0.610
Table 5: Cash in Current Assets (%)
Year L&T Ltd IVRC Ltd
2007 9.19% 9.80%
2008 5.88% 6.15%
2009 3.30% 2.41%
2010 5.20% 3.20%
2011 4.73% 2.40%
Mean 5.66 4.792
SD 2.18 3.2
MD 0.868T-value 0.501Sig.Value 0.630
Source: Annexure II
It is observed from the table 5 that both thecompanies were successful in making efficient usageof cash throughout the study period. Further itreveals that the companies have been performingwell year after year during the study period exceptin 2007. As far as efficiency of cash usage isconcerned the IVRCL Ltd (4.792%) was betterperformed rather than L&T Ltd (5.66%) The meandifference between the companies is 0.868; the t-value 0.501 with p-value 0.630 therefore it isconcluded that there is no significant differencewith respect to prudent cash management. Both thecompanies have not incurred any set of costs out ofcash surplus and cash deficit during the studyperiod. Hence the null hypothesis is accepted.
5. Cash Turnover to Sales (CTS): This ratiorepresents the number of times the initial cashbalance is turned over in terms of sales effectedduring a period. The processed data regarding salesand initial cash balance of both the companies wasfurnished in the table 6.
Table 6: Cash Turnover to Sales (times)
It is observed from the table 6 that the range of CTSof both L&T Ltd and IVRCL Ltd are 22.85 times to47.77 times and 9.6 times to 54.64 times respectivelyduring the study period. High rate of turnover willindicate a small cash balance which implies aneffective usage of cash. The mean of CTS of L&TLtd is 33.33 times where as it was 28.65 times forIVRCL Ltd during the study period. This meansthe L&T Ltd has been excelled in making efficientusage of cash when compare to IVRCL Ltd. Themean difference between the companies is 4.636;t-value 0.531 with p-value 0.610 therefore there isno significant difference with respect to CTSbetween the companies. Hence the null hypothesisis accepted.
6. Cash Turnover in Total Funds (CTF): It isanother important ratio to test the efficiency of cashmanagement and used it as a bench mark for thepreparation of future cash budget if it is satisfactory.It is the ratio of initial cash balance to the total fundflow during a particular period. It measures the ratioof turnover of cash in the total fund flow movementduring a given period. Higher the ratio is better theutilization of cash in the business. The processeddata regarding total fund flow and initial cashbalance of two sample companies for five years wasfurnished in the table 7.
Table 7: Cash in total funds(times)
Source: Annexure I and II
Source: Annexure I,II and III
It is observed from the table 7 that CTF of L&T Ltdis goes on increasing year after year during the studyperiod except in the year 2011. And the CTF ofIVRCL Ltd was fluctuated from 6.88 times to 17.14times during the study period. The mean difference
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Year L&T Ltd IVRC Ltd
2007 27.15 -6.71
2008 14.80 -14
2009 7.77 0.61
2010 21.84 5.18
2011 13.31 4.92
Mean 16.97 -2.02
SD 7.58 8.3
MD 18.998
T-value 3.779
Sig.Value 0.005
Year L&T Ltd IVRC Ltd
2007 12.10 -5.37
2008 7.78 -10.21
2009 4.36 0.39
2010 14.81 3.26
2011 8.79 3.56
Mean 9.57 -1.67
SD 4.03 5.97
MD 11.24
T-value 3.492
Sig.Value 0.08
between companies is 2.594; t-value 0.819 with p-value 0.437 therefore the null hypothesis is rejected.Finally, it is concluded that the L&T Ltd and IVRCLLtd have out performed side by side in efficientusage of cash.
7. Operating Cash Flow to Sales (OCF-S): Itestablishes the relationship between operating cashflow and sales. It shows the ability of a company toturn its sales into cash. and it has been expressedas a percentage. Ideally there should be a parallelincrease in operating cash flows with the increasein sales. It will be worrisome if the changes in cashflows are not parallel to the changes in sales revenue.If the cash flows do not increase with the increasein sales it may indicate the following two factors:a) the changes in terms of sales and b) inefficientor ineffective management of trade receivables. Theprocessed data regarding operating cash flow andsales of two sample companies for five years wasfurnished in the table 8
Table 8: Operating cash flow to sale (%)
11.24%; t-value 3.492% with p-value 0.08.Therefore the null hypothesis is rejected.
8. Operating Cash Flow to Capital Employed(OCF-CE): It measures the efficiency with whichcapital is utilized to earn cash profit and to thatextent is index of the prudent cash management.The processed data regarding operating cash flowsand capital employed of two sample companies forfive years was furnished in the table 9.
Table 9: Operating cash flow to CE(%)
Source: Annexure I and III
It is observed from the table 8 that the cash fromoperating activities to sales of L&T Ltd wasfluctuated and never turned into negative cash flowsduring the study period. Where as the cash fromoperating activities to sales of IVRCL Ltd wereshowing excess of cash outflow rather cash inflowin the year 2007 and 2008 with -5.37% and -10.21%respectively. The mean of OCF to sales of L&T Ltdand IVRCL Ltd are 9.57% and -1.67% respectively.In other words the L&T Ltd’s performance reflectssound cash management over the latter one. Themean difference between two sample companies is
Source: Annexure II and III
It is observed from the table 9 that the range of OCFto CE of L&T Ltd is 7.71% to 27.15% during thestudy period where as it is -6.71% to 5.18% forIVRCL Ltd. In other words the performance of L&TLtd with respect to OCF to CE is better than IVRCLLtd. The mean difference between two companiesis 18.998%; t-value 3.779% with p-value 0.005.Therefore the null hypothesis is rejected.
9. Operating Cash Flow to Shares (OCF-S): Thisratio measures the operating cash flow per share.Operating cash flow per share is used to measure acompany’s financial strength and is widely used byfinancial analysts in valuing stocks. It gives a betterguide as compared to the reported earnings pershare (EPS) as earnings data can easily bemanipulated while cash flow is more likely to beaccurate. The processed data regarding operatingcash flows and number of shares of two samplecompanies for five years was furnished in the table10.
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SD 4.9 1.86
MD 9.454
T-value 4.034
Sig.Value 0.004
Year L&T Ltd IVRC Ltd
2007 75.21 9.72
2008 66.54 28.29
2009 25.25 1.47
2010 91.09 6.73
2011 63.42 7.52
Mean 64.3 10.75
SD 24.33 10.26
MD 53.556T-value 4.535Sig.Value 0.002
Year L&T Ltd IVRC Ltd
2007 15.48 -2.18
2008 11.2 -3.24
2009 3.1 0.1
2010 8.6 0.83
2011 5.17 0.77
Mean 8.71 -0.74
Table 10: Operating cash flow to shares (Rs.)
Source: Annexure II
It is observed from the table 10 that the range ofOCF per Share of L&T Ltd and IVRCL Ltd areRs.25.25 to Rs.91.09 and Rs.1.49 to Rs.28.29 pershare respectively. However the L&T Ltd has beenmaintained Rs.63 per share through out the studyperiod except in the year 2009. The OCF per shareof IVRCL Ltd is maintained single digit of the ratiothrough out the study period except in the year2008. In other words the financial strength offormer is stronger than latter one. The meandifference of OCF per share between two companiesis 53.556; t-value 4.535 with p-value 0.002.Therefore the null hypothesis is rejected.
10. Debt Affordability Ratio (DAR): It throwslight on the capacity of the company to service itsfixed interest on borrowings in terms of operatingcash flow. The use of debt affordability studies anddebt capacity models is becoming more common,particularly by companies with “highest” or “high”credit ratings. The processed data regarding amountof fixed interest and operating cash flow of twosample companies was furnished in the table 11.
Table 11: Debt Affordability Ratio (times)
Source: Annexure II
It is observed from the table 11 that the debt capacityof L&T Ltd is stronger when compare to IVRCLLtd as its DAR is ranging from 3.1 times to 15.48times during the study period. The mean differencebetween two companies is 9.454 times; t-value 4.034with p-value 0.004. Therefore the null hypothesisis rejected.
The overall performance of two sample companieswas compressed in the table 12.
Table 12: Overall performance of samplecompanies
Ratios L&T Ltd IVRC Ltd
Current ratio ✓Quick ratio ✓Defensive-interval-ratio ✓Inventory turnover ratio ✓Cash in current assets ✓Cash turnover to sales ✓Cash in total funds ✓Operating cash flow tosales ✓Operating cash flow tocapital employed ✓
Operating cash flowto shares ✓Debt affordability ratio ✓
Source: Author’s judgment from the tables 1 to 12
It is observed from the table 13 that the L&T Ltdhas been out performed in 7 financial metrics whereas IVRCL Ltd has been excelled in three financialmetrics during the study period.
Finding:
The overall performance of the L&T Ltd was goodwhen compared to IVRCL Ltd. with reference toITR, there is no benchmark to compare each other.
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But it is used to compare with their pastperformance and look for improving. As such, theL&T Ltd’s ITR is suddenly dipped to 13.45 from24.54 in the year 2011.
There is no significant difference between twocompanies regarding maintaining minimum cashbalance without set of costs which is reflected inits cash to current assets ratio (i.e. 5.66% and4.79%). There is no significant difference betweentwo companies with respect to effective usage ofcash which proved with the help of CTS and CTF(i.e. 33.33times and 28.65 times; 16.02 times and13.42 times). The substantial portion of sales ofL&T Ltd was on cash basis as its average ratio ofOCF to sales is 9.57% which indicates a sign ofsound cash management. The L&T Ltd has shownexcellent performance in certain financial metricslike OCF-CE, OCF-Sh and DAR.
Suggestions:
IVRCL Ltd has to improve its quick assets bychannelizing them into short-term investmentavenues like treasury bills, rated bonds etc. Asaverage quick ratio of L&T Ltd (1.09) is still belowthe industry average bench mark (1.516), it has toimprove the same to the extent possible. L&T Ltdhas to improve its ITR while reducing the numberof stock outs. It is observed from the discussionsthat the IVRCL Ltd is lagging behind in managingtrade receivables, prudent cash management anddebt servicing capacity. Hence, it is suggested thatthe IVRCL Ltd needs to improve its OCF-S, OCF-CE and OCF-Sh by judicious use of cash andtightening its credit-terms. Then only it would earnbetter cash profits, boost its financial strength andhelp the financial analyst to value its stocks properlybetter than EPS metric.
References:
1. Abuzar M.A. Eljelly,(2004) “Liquidity -profitability tradeoff: An empiricalinvestigation in an emerging market”
International Journal of Commerce andManagement, Vol. 14 Issue: 2, pp.48 – 61.
2. Deloof, M. (2003) Does Working Capital AffectProfitability of Belgian Firms? Journal ofBusiness Finance & Accounting, 30 (3 & 4),573-587.
3. Jose ML, C Lancaster (Spring 1996) “CorporateReturns and Cash Conversion Cycles “Journalof Economics and Finance, Volume 20, IssueNumber 1, pp 33-46.
4. Joshi R.N. (2000) “Cash Managementperspectives principles and practice” New AgeInternational (P) Limited, Publishers. NewDelhi.
5. Lazaridis, I. and Tryfonidis, D. (2006)Relationship between working capitalmanagement and profitability of listedcompanies in the Athens Stock Exchange,Journal of Financial Management andAnalysis, 19(1), 26-35.
6. Lyroudi, K. & Lazaridis, Y. (2000) The CashConversion Cycle and liquidity analysis of theFood Industry in Greece (Electronic Version).EFMA 2000 Athens, from http://ssrn.com/paper=236175.
7. Manvir Kaur (February 2012) “CashManagement of Milk Cooperatives: AComparative study of Milkfeed and HDDCF”Zenith International Journal ofMultidisciplinary Research, Vol.2 Issue 2, pp1-12.
8. Periya Samy Dr P. (2009) “Working CapitalManagement” Himalaya Publishing House,New Delhi
9. Shin, H.H. and Soenen, L. (1998) Efficiencyof working capital management and corporateProfitability. Financial Practice and Education,8(2), 37-45.
10. www.aceanalyzer.com
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A Study on Workplace Environment and its Impact on EmployeeProductivity in Selected IT Companies in Pune Region
* Prof. Sonali Saha and Dr. Abhay Kulkarni
Abstract
The article commences with a summary of how the quality of the employee’s workplace environment impactson the level of employee’s motivation and subsequent productivity. What are the key factors in the employee’sworkplace environment that impact greatly on their level of motivation and productivity. The role of researcherintends to find out the relationship between workplace design and productivity. Since its conception, a numberof researches have been carried out on Employee Productivity, most of them in United States of America. Avisible research gap exists in the area of identification and measurement of drivers of Employee’s workplaceenvironment and its impact on Employee Productivity. This points out the relative importance of this conceptand hence the need for research on the same in the Indian context as well.
Keywords—Employee Productivity, Employee’s workplace environment, office design
I Background of the study
In the current changing scenario, as marketsbecome more globalized, rising wage cost and thedesire to move up the value chain for softwareservices has prompted many Indian IT firms to goin for personnel productivity enhancement.Competitive survival is causing companies to turnmore and more to examining the people side of theproductivity equation. A small increase in employeeproductivity can add a lot of money to the bottomline
Companies have started realizing Employeeproductivity is key to organizational success and toa country’s economy. Increasing employeeproductivity is one of the most important people-management issues. A high demand for theemployee productivity leaves management teamswondering exactly what to do. Increasing employeeproductivity is always on the forefront of anymanagerial mind. With the increased focus onemployee productivity, there is a correspondingincrease in employee stress experienced in theworkplace.
Employee productivity can be significantly hinderedby poor workplace environment which contributesto deterioration of employee health and well-being,which further reduces productivity. Good officedesign which includes elements that increasecollaboration and enable teamwork amongemployees, combined with flexible and ergonomiccan be a key to unlocking productivity and totransforming the working lives of many people for
whom Monday morning is an especially low pointof the week.
Employee Productivity is, arguably, the most criticalmetric for organizations in the twenty first century.The challenge at work is to create an environmentin which people are motivated about workpriorities.
This is leading employers to continually seek newand creative ways to maximize their employees’productivity and provide the most effective workenvironment (Marilyn, 2001). Companies havecome to realize the importance of comfort in theworkplace environment in order to retain qualitypersonnel, increase productivity, and maintain acompetitive edge (Luparello, 2004)
Employee productivity depends on the amount oftime an individual is physically present at a job andalso the degree to which he or she is “mentallypresent” or efficiently functioning while presentat a job. Companies must address both of theseissues in order to maintain high employeeproductivity, and this may occur through a varietyof strategies that focus on employee’s workplaceenvironment. The purpose of this study is toanalyze the impact of office design factors onemployees’ productivity.
II. Statement of the Problem
IT companies operates in a stressful environment,and the employees work under extreme deadlines.Furthermore, many studies have indicated thatmuch or some of the workspace inhibits, rather than
*Email:[email protected], Phone number: 9561004875, **Email: abhaykulkarni2@gmail .com, Phone number: 9822950405
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promotes, teamwork and flexibility, which are keyfactors in productivity (Laabs, 2000).
Today’s workplace is different, diverse, andconstantly changing. The typical employer/employee relationship of old has been turned upsidedown. Management’s new challenge is to create awork environment that attracts, keeps, andmotivates its workforce. The responsibility lies withmanagers at all levels of the organization.Businesses must step outside their traditional rolesand comfort zones to look at new ways of working.They have to create a work environment wherepeople enjoy what they do, feel like they have apurpose, have pride in what they do, and can reachtheir potential.
III. Research Objectives:-
a. To explore the significance of EmployeeProductivity Improvement Practices in ITCompanies.
b. To find out Co-relation between Employee’sWorkplace Environment and EmployeeProductivity
c. To identify and study Key drivers ofEmployee’s Workplace Environmentcontributing towards enhancement ofEmployee Productivity .
d. To assess whether office design is one of thefactors in affecting employees’ productivity.
Explanation:
IV. The relationship between workenvironment and productivity.
There are two components to this environment; oneis the organization’s culture , the other is the climatewithin individual teams or work groups.Organizational culture – loosely defined as “the waywe do things around here” – is comprised of formaland informal factors that are constantly in tension.For example – the need to do things differently andthe need for consistent processes and procedures;the need to pay attention to the externalenvironment when making decisions and at thesame time to attend to the organizations internalneeds. Organizations that understand and canbalance such “creative tension” effectively are moreable to achieve performance goals in – Profitability
– Quality – Innovation – Market share – Salesgrowth – Employee satisfaction
The second connection between environment andproductivity is at the team or work group level. Thisis where the majority of work occurs ininformation-driven or knowledge-drivenorganizations. Much more than individuals, groupsare responsible for innovation and for processes andpractices that have the ability to move theorganization forward. Recent global research hasshown that there are only three things that have amaterial impact on the ability of groups ofknowledge worker to perform at high levels. Allare related to the environment or culture in whichthe team operates. With these components teamscan perform at unexpected levels. Without them,even the brightest, most energetic people lose focus.
V. Productivity in the Work Environment
According to the architecture and design firm’sGensler 2006 U.S. Workplace Survey, “Office designhas a direct correlation with optimal jobperformance. Businesses that ignore the design andlayout of their workplaces are failing to optimizethe full value of their human capital” (Beautyman,2006).
Good workplace design can make a big differencein staff satisfaction, attraction, motivation, andretention. It can also affect the level of knowledgeand skills of workers, how innovative and creatingthey are, and how they respond to business andtechnological change. Poor workplace design, bycontrast, is linked to lower business performanceand higher level of stress experienced by employees(Amble, 2005).
This trend among employers has led to a growingrecognition of the importance of designing a workenvironment that meets the physical and emotionalneeds of workers,so that they may be mostproductive (Proper, 1998). Proper (1998)emphasizes that an effective work environmentshould provide positive sensory stimulation throughthe proper use of color, lighting, aroma, space, andfurnishings. These elements are seen as critical toeffective work activities and workplaces, and theylead to increased productivity of employees. Afundamental element in increasing productivity is
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the physical work environment. According to areport by the Rocky Mountain Institute in Boulder(Training, 1997), employees could do a much betterjob if employers paid attention to the workenvironment.
VI. To assess whether office design is one ofthe factors in affecting employees’ productivity
It may not come as a complete surprise but the workwe do in our office week out and week in is farmore productive if the work takes place in a well-designed office. A well designed office signals thevalues and objectives of the company and the useof design in office interiors communicates acompany’s values and identity.
Good workplace design can make a big differencein staff satisfaction, attraction, motivation andretention.The study by the Commission forArchitecture & the Built Environment and theBritish Council for Offices has found even simplethings such as good lighting and having adequatedaylight can reduce absenteeism by 15 per cent andincrease productivity by between 2.8 per cent and20 per cent. In order for employees to be productive,they have to be comfortable in their workenvironment.
Business leaders are urged to take more account ofthe links between good workplace design andimproved business performance when planning anddesigning new buildings, and overhauling old ones.
Companies are striving to make offices a healthyand comfortable workplace, using ergonomicfurniture and accessories, proper lighting, and afunctional design to minimize discomfort anddistraction and consequently making employeeswork more productively.
Studies show that comfort and productivity areinterrelated, and most experts agree that almostevery office can benefit from a few changes in layoutand organization.
Office Design and Productivity
VII. To discuss the key factors in the employee’sworkplace environment that impact greatly on theirlevel of productivity and performance
To keep employees satisfied today, it takes anentirely different approach than it did just a fewyears ago. Indeed, one-third of the executivessurveyed by Robert Half International Inc. havechanged their opinions and now say the workenvironment is the most critical factor in keepingan employee satisfied in today’s business world. In1993, only 9% said that the work environment wasan important factor in keeping employees satisfied.Other critical factors include the importance ofpraise and recognition, and compensation each citedby 28% of those surveyed. Six years ago praise andrecognition was at the top of the list, cited by 47%of those surveyed. Other significant changes includeconcern over promotions. Only 4% of executivessay that promotions are a big factor in keepingemployees satisfied today, compared with 26% whosaid that in 1993. Furthermore, the importance ofcompensation and benefits has risen to 28% fromjust 7% in the 1993 survey.
An employee’s workplace environment is a keydeterminant of their level of productivity. How wellthe workplace engages an employee impacts theirlevel of motivation to perform.
(i)The key factors that affect employees’productivity and performance fall into twocategories:
(a) Those that are driven by procedures, protocolsand management requirements (workenvironment)
(b)The factors that arise from premises, office orfactory design (office design )
The following factors reveal the way in which thephysical, technological, and logical systems worktogether to promote work process and increaseemployee productivity while decreasing their stress:
Furniture Flexibility Communication Temperature (ii)Teamwork
Noise Comfort Lighting Air Quality The competitive pressures on today’s business are
Fig 1: Office Design and Productivity tremendous, and employees can no longer just worktogether; they must think together (Monroe, 1999).
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Fig2: Employees’ Performance& Productivity
Since teamwork has become a major component intoday’s work environment, creating a workspacethat will support it is very important. Monroe(1999) emphasizes that a physical environment thatfosters interaction
(iii)Ergonomics
A recent survey of 350 major corporations, bothprofessional services and small businesses, foundthat 82.5% believe that good ergonomics makesemployees more productive (Danner, 2001).Ergonomics involves adapting jobs and workspacesto the worker.
By applying ergonomic principles, the employer canreduce medical costs, decrease absenteeism, andpositively affect the employees, both physically andpsychologically. Ergonomics reduces strains suchas physical discomfort,fatigue, and tension.Promoting good posture, for example, can play animportant role in reducing worker fatigue andimproving productivity.
(iv)Ergonomics office furniture
Office furniture comprises of desks chairs, the filingsystem, shelves, drawers, etc. All these componentshave a specific role to play in the proper functioningof any office and the productivity and the efficiencyof the employees. And, one of the most importantthing to be considered while buying office furnitureis to ensure whether it is ergonomic or not.Ergonomics of office furniture is important becausean employee has to work with them for the entiretime that he is on office, and if they areuncomfortable and not user friendly, their workingstyle and efficiency gets hampered considerably, inturn affecting the overall organizations. Non-ergonomic office furniture can also lead to healthproblems of employees, which again has an adverse
effect on the productivity. Ergonomic officefurniture ensures that each employee gels well withthe things around him, like desks, chairs, computeralignment and even environmental factors. If theemployee is uncomfortable due to any reason, hiswork is bound to get affected. If all factorssurrounding the employee are ergonomicallycorrect, then the employee will be comfortable andremain motivated.
(v)Lighting
According to Frank (2000), lighting is a criticalelement in creating a comfortable workenvironment. Depending on the situation, thelighting around individuals and groups can eitherhelp or hinder productivity
(vi) Noise and Acoustics
Cooper, Dewe, and O’Driscoll (2001) suggest thatpoor noise conditions can have a severe impact ona worker’s physical health and psychological well-being. This statement confirms Hower’s (1995)findings that high noise levels can cause irritation,increase stress, and reduce productivity
(vii) Aroma.
According to Welch (1996), unpleasant odorsincrease the heart rate and that, in turn, mightincrease stress levels and result in a loss ofproductivity
(viii) Individual environment controls.
Operable windows, furniture with adjustableergonomic features, dimmable lighting, and tasklighting are different types of individualenvironmental control. Such benefits allowemployees to maximize their personal comfort(RSMeans, 2002).
The ability to control the workplace environment.Vangen (1999) points out that workplace stress isaffected by a person’s inability to control his/heroffice environment.
Clinical research has shown that ordinary officeactivities, such as ringing telephones,voice levels,temperature, and so on, lead to a chemical reactionthat increases stress and reduces productivity.
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(ix)Privacy.
Allie (1996) found that lack of privacy can be amajor cause of stress among employees. Not onlydo many tasks require a total absence of distraction,each individual has a different level of tolerancewhen it comes to privacy. Therefore, there
should be a variety of design solutions to addressthe privacy issue.
(x)Furniture
Office furniture comprises of desks chairs, the filingsystem, shelves, drawers, etc. All these componentshave a specific role to play in the proper functioningof any office and the productivity and the efficiencyof the employees. And, one of the most importantthing to be considered while buying office furnitureis to ensure whether it is ergonomic or not.Ergonomics of office furniture is important becausean employee has to work with them for the entiretime that he is on office, and if they areuncomfortable and not user friendly, their workingstyle and efficiency gets hampered considerably, inturn affecting the overall organizations. Non-ergonomic office furniture can also lead to healthproblems of employees, which again has an adverse
effect on the productivity. Ergonomic officefurniture ensures that each employee gels well withthe things around him, like desks, chairs, computeralignment and even environmental factors. If theemployee is uncomfortable due to any reason, hiswork is bound to get affected. If all factorssurrounding the employee are ergonomicallycorrect, then the employee will be comfortable andremain motivated .The furniture should provideadjustable ergonomic features and be made withouttoxic gas emitting dyes, finishes, foams, oradhesives. Furniture should be extremely durableto avoid early replacement.
VIII. HYPOTHESIS OF THE STUDY
Hypothesis 1: There is co-relation betweenEmployee’s work environment and EmployeeProductivity.
Hypothesis 2: There is difference in the level ofeffect of various Employee’s work environmentfactors on Employee Productivity.
Hypothesis 3: The identified key drivers ofEmployee’s work environment positively affect thelevel of Employee Productivity.
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X Research Methodology:
This is a basic research study that employs aresearcher developed survey. The purpose of thisstudy was to determine the impact of variousEmployee’s work environment factors on EmployeeProductivity in selected IT Companies.
In order to accomplish this, a Survey in Randomlyselected IT Companies was chosen so that theimpact could be documented quantitatively throughquestionnaire data. Quantitative data was collectedby means of 2 sets of questionnaires utilizing aLikert-scale. Questions are structured to find whichorganizational factors (i.e., workplace designfeatures, management support, technology andequipment, and coworker support) in relevantworkplace employees perceive to hamper orencourage their ability to perform effectively. Thefirst one was about the office design and its impacton employee productivity, and the secondquestionnaire was about the work environmentsand its impact on employee Productivity.
The study covers most of the business linesemployees including Project & HR Managers ofselected IT companies in Pune. Respondents ratedthe degree of impact of various employee’s workenvironment factors on Employee Productivity.
XI. Data Analysis and Interpretation:
The data was calculated and analyzed using graphictable for each question in section one and two ofthe questionnaire.
The questionnaires were sent to 150 business linesemployees including Project Managers and HRManagers of IT Companies. The respondentsconsisted of 50 business lines employees of smallscale companies, 50 business lines employees ofmid-size companies, and 50 business linesemployees of large scale companies. (Table-4)
The analysis of the results indicate a positivecorrelation between furniture and productivity (r= 0.194) and is significant at 0.05. This shows thatwhen the furniture of the office is not comfortableand according to the needs of the employees theirproductivity is affected. There is a positiverelationship between Noise and Productivity. Thecorrelation coefficient (r=0.429) is significant at0.01. The positive relationship between lighting andproductivity (r = 0.720) at 0.01 shows thatemployees’ productivity highly correlates to the
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lighting conditions in the offices.
The results of temperature reveal its significantcorrelation with productivity (r=0.467) at p=0.01.Spatial Arrangement is the space factor in officedesign; when the correlation was calculated in SPSSit gave a positive relation with productivity(r=0.380) where p=0.01. It means that the spatialarrangement has a considerable effect on theemployees’ Productivity .( Table 5)
Observations
It has been observed from the above table B that93.3% of respondents have realized a significantincrease in Employee Productivity due to practiceof Workplace design features, Technology andequipment followed by Management support. Only6.6% of respondents noticed that there is nosignificant change in employee productivity due toWorkplace design features, Technology andequipment.
It has been observed from the above table C that93.3% of respondents have realized a significantincrease in Employee Productivity due toappropriate lighting, Only 6.6% of respondentsnoticed that there is no significant change inEmployee Productivity .
86.6% of respondents have realized a significantincrease in Employee Productivity due toComfortable furniture with adjustable ergonomicfeatures, open space. Only 6.6% of respondentsnoticed that there is no significant change inEmployee Productivity and 3.3% of respondentsnoticed a slight decrease in employee productivityas a result of these factors.
80% of respondents have realized a significantincrease in Employee Productivity due to Spatialarrangement. Only 16.6% of respondents noticedthat there is no significant change in EmployeeProductivity and 3.3% of respondents noticed aslight decrease in Employee Productivity as a resultof Spatial arrangement.
This relationship between office design andproductivity was determined by using the Pearson’sCorrelation in standard statistical software“Statistical Package for Social Sciences” (SPSS).Pearson’s Correlation is a measurement of thestrength of a linear or straight line relationshipbetween two variables. The Correlation Coefficientsindicate both the direction of the relationship andits magnitude
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The coefficient of determination R. square = 0.576.This gives us the ratio of explained variation to totalvariation. On converting the R. square value topercentage it comes to be approximately 58 Percent.From this percentage it is concluded that 58 percentof the variability of employees’ productivity isaccounted for by the variables in this model.
The regression co-efficient for the predictorvariables; furniture, noise, lighting, temperature andspatial arrangements are 0.015, -0.068, 0.739, and0.021 and 0.162, respectively.
The coefficient values show, the change inproductivity with a unit change in a variable value,when all the other variables are held constant.When we analyze the coefficient value for thevariable, ‘lighting’ we can say that there is anincrease of 0.739 in the productivity of an employeefor every unit increase (betterment) in the lightingconditions of the office, keeping all the othervariables constant.
The Regression Equation:
Employee Productivity = -0.645 + .015 F -0.068 N+ 0.739 L + 0.021 T + 0.162 SA
(Where F=furniture, N=noise, L=lighting,T=temperature and SA=spatial arrangements)
XII. Recommendations:
Based on the results of the survey, the followingrecommendations are made:
1. Light and Daylight
Each occupation has its own potentialenvironmental sources of stress. For example,in jobs that require close detailed work, poorlighting or glare can create eyestrain. Withrespect to electrical light, employees need totake into consideration several aspects ofartificial lighting solutions.
• The quantity of light
• The quality of the lighting system. Qualityfactors include the color of the light
• Low mounted luminaries, which deliveruniform, balanced illumination withpleasing brightness
• Glare reduction by the use of fixtureshields or louvers
• Reduction of flicker sound by usingfluorescent lamps
Basic lighting design of offices must take intoaccount the amount of natural light, properwindows design.
2. Office Ergonomics.
Employers should be concerned aboutergonomics, since ignoring these principleswill result in reduced productivity andincreased medical costs. The following aresome of the suggestions that the employershould consider when seeking to improve theergonomic aspects of their work space:
• Provide chairs with range of motion.These include vertical, horizontal, andback adjustments.
• Give employees options in furnitureshapes, sizes, and arrangements, based ontheir height and the task that they will berequired to do, such as lifting, filing etc.
• Encourage moderate exercise during thework day.
• For computer users, consider buying largemonitors, footrests, ergonomic keyboards,and wrist support devices.
• For heavy phone users, provide headsetsfor hands-free talking.
3. Noise and acoustics.
Several strategies that employers can apply toreduce noise:
• High-performance acoustical ceilingsystems. The materials in the ceilingshould be able to absorb sounds strikingat angles of incidence of 45 to 55 degrees(the angles that allow sound to bounceover cubical walls rather than entering thecubicle).
• Carpeting or other sound-dampingflooring.
• Furniture should be higher than 53" toprovide seating acoustical privacy with aSound Transmission Class (STC)performance rating of 20 or greater.
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4. Personalization and control of theworkplace.
The employees say in the design of theirimmediate work environment increases theemployees’ morale and reduces their tension.Today’s employees expect to have more controlover their immediate office environment withkey elements like temperature, lighting,ventilation, and noise.
5. Meditation, relaxation, and exercise rooms
The purpose of these facilities is to provideemployees with an area, equipment, andqualified staff to encourage learning andpracticing stress management and relaxationtechniques. All of these features help theemployee relax and ultimately be moreproductive.
6. Fitness centers.
This is important, since physical fitness canbe promoted in the workplace for the benefitof everyone, both employers and employees.
XIII. Conclusion
The result of this study indicate that theproductivity of people in their workplace can begreatly influenced by the environment and physicalwork space they occupy on a daily basis. Thefollowing is a discussion of the result from thesurvey
1. As indicated by the result of the study, ITCompanies in Pune is realizing the value ofthe direct benefits of providing an improvedwork environment
2. As indicated by the results of the study,majority of managers surveyed believe thatabove mentioned practices are necessary toboost employees morale. Managers realize thatin order to maintain employees interest in theday to day operations, they need to bemotivated from time to time and need to beengaged both emotionally and intellectuallywith their job as well as with theirorganization. It appears that Good workingenvironments can help employers recruit andretain well-qualified employees, and anyimprovements in the well-being of employees
are in the best interests of the employersthemselves.
3. these tools are going to continue to thrive as avaluable tool for managers to improveproductivity of employees.
4. The study suggests that a company thatprovides a well-designed work environmentnot only enhances the wellbeing of itsemployees but also increases productivity andmay ultimately reduce its healthcare costs.
XIV. References
(i) Allie, P. (1996). Psychological stress in today’soffice environment. Supervision, 57, 3.Retrieved September 20, 2002, fromWilsonSelectPlus database.
(ii) Amble, B. (2005, May). Poor workplace designdamages productivity. Retrived May 20,2007,from http://www.management-issues.com/2006/8/24/research/poor-workplacedesign-damages-productivity.asp
(iii) Higley, A. (2003, April). EmployeePerformance; Benefits of chair massage.Employment Times. Retrived May 20, 2007,from http://w w w . e m p l o y m e n t t i m e s o n l i n e . c o m /career_advisor/article.php?ID=405
(iv) Hower, K. B. (1995, January/February). Themind and body connection. Interior &Resources, 64-67. September 15, 2001 fromWilsonSelectPlus database.93
Conceptual framework
Independent Variables - Dependent variable Figure3: The effect of five basic elements on productivity
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B-School’s Students Orientation and Students’ Satisfaction:A Research Study
Dr. S. F. Chandra Sekhar*, & Mohit Nigam** & Arjit Santikary***
Abstract
Higher education across the world is adopting a strategic marketing approach owing to the increasinglycompetitive educational environment. In response to such environment, customer orientation as a strategydifferentiates a college from other institutions and to better understand the needs of students. This studypresents the results pertaining to the Collegiate Student Orientation in one the premier B-schools in the twincities of Hyderabad and Secunderabad. Results reveal that 96 students randomly representing variousspecializations of management courses varied significantly over their perceptions about collegiate studentorientation scale scores. Besides, there exist positive and significant relationships between student orientationand student’s satisfaction. Implications are drawn in the light of improving students’ satisfaction with thehelp of student orientation.
Introduction
We are living in the era of customer-centricorganizations. As a response, such customerorientation is embraced by corporations across allsectors of business around the world (Levy, 2008).Managers, by and large, are increasingly challengedto build the customer base and retain them (Krushet.al, 2006). However, such efforts may not befruitful unless and until a strategy is evolved inconsultation with the line and staff functionariesin the organizations. Besides, there is also a needfor operationally defining what customerorientation is all about specifically for types ofservices offered (Bristow, and Schneider, 2002).
Customer Orientation focuses on meeting the needsof one’s customers, internal or external. Thisservice establishes specific customer satisfactionstandards and actively monitors client satisfaction,taking steps to clarify and meet customer needs andexpectations (both expressed and unexpressed). Atlower levels the service involves courteous andtimely responsiveness to the requests of customers,while at the higher levels; it involves developingthe relationship of partner and trusted advisor.Further, it means constantly focusing on a customerin all areas of business - philosophy, goals andvisions, customer support, marketing strategies andyour website (Coffey and Wood-Steed, 2001).
What are the outcomes of customer orientation?Being customer oriented has a significant effect onservice performance perceptions and outcomebehaviors. Specifically, it has effects on consumer
quality perceptions, customer satisfaction, andservice value (Pesch, et.al, 2008). In this researchthe customer orientation is named as college’sstudents’ orientation as opposed to students’orientation towards college which reflects students’attitude towards the college in which he/she isadmitted. The impact of being customer orientedon consumers’ outcome behaviors is employeeservice performance, physical goods, andservicescapes. Indirect effects on organizationalquality, customer satisfaction, value attributions,and outcome behaviors are also reported (Lages,and Nigel, 2012; Yuan, Yi-Hua and Wu, 2008).
Conceptual Background of the Study
Business school administrators with application ofmarketing concept to academia recognize theprominence of embracing customer orientation.Not merely for satisfying the needs of the students,but for providing quality educational experiencesto them which can never be forgotten in theirlifetime. Besides, marketing orientation in academiadoes not mean mere students orientation, but theneeds of the various stakeholders including,employees, are also including the framework. Thus,when such orientation is adopted, theadministrators attempt to provide the students withthe meaningful, useful and challenging quality ofeducation which spell success in their lives andprovide long term productive careers whichcontribute to the nation. In producing suchstudents, the needs of employers are met, and thereputation of the university is enhanced. In sum
*Professorand Head- Dept. ofHRM, **Research Associate,***Assistant Professor,. Siva Sivani Institute ofManagement, Secunderabad,AP, India
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and substance, acculturation of customerorientation in b-school setting suggests that theschool provides the educational experience from theperspective of the student. Therefore, tosuccessfully implementing the marketing conceptand adopting a customer orientation in b-school isto assess student perceptions of the schools’obsessive commitment to understanding andmeeting student needs. How does the b-schoolrealize such commitment in reality? There is a needto formally conduct survey about students’perceptions and empirically assess such orientationof the b-school students. Encouraged by suchthought, this study attempts to assess b-schoolstudents orientation and its correlate – studentssatisfaction.
The Present Study
Today, B-schools are in severe crisis across thecountry with lowered students’ admission rates andlowered job placements records. Therefore,administrators in higher education, these days, arefacing a dynamic marketplace that offers studentsa wide range of educational options andalternatives. Colleges and universities are graduallymoving towards and embracing the marketingconcept and a focus on consumer orientation asmuch as organizations more traditionally associatedwith marketing strategies and tactics.
Therefore, of all the reasons for such scenario, lackof customer orientation is prominent. Surprisingly,there is a lack of research on such an importantissue that is plaguing intuitions of higher learning.In such context, this study makes an attempt toexplore the extent to which the b-school under studyhas initiated orientation towards its students.Further, how such orientation by the school isviewed by the student in the light of theirsatisfaction with the school is also addressed. Suchconcerns are raised and addressed in this research.
Undoubtedly, clients’ satisfaction with the servicesoffered in the organizations has been a constantfocus of all organizations ever since they areestablished. But what determines clients’satisfaction has been conceptualized verydifferently so far in earlier research works. Partlycontributing is that fact that customer orientationon the part of the school administration might
influence students’ satisfaction. Such concern isalso addressed in this research. It also makes attemptat understanding to what extent the students aresatisfied with the b-school, is related to customerorientation.
Objectives and Hypothesis
In view of the background of the study, theobjectives are as follows:
1. To assess B-school students’ orientation asperceived by the students.
2. To assess student satisfaction with their b-schools as reported by the students.
3. To explore the relationships between b-schoolstudents’ orientation and their satisfaction.
While keeping in view the objectives stated, it washypothesized that,
H1 there is no variation in students’ orientationaccording to their course specializations to whichthey belong.
H2 there is no relationship between students’orientation and their satisfaction with the school.
Method
The study area is a premier B-school in the state ofAndhra Pradesh being the largest in South Indiafor its students’ intake. Having produced 20 batchesof students of postgraduate diploma in businessmanagement, its sponsoring parent body celebratedits golden jubilee year recently. Out of 126 studentsacross three specialization courses, 96 studentsresponded to a structured questionnaire consistingof three parts. Part A included Bristow andSchneider’s (2002) developed scale for measuringcollege students’ orientation (CSOS), which is astandardized 7-item scale to assess B-schoolStudents’ orientation as perceived by them. A newitem namely ‘the institute cares about the students’,has been added in this study to make it morecomplete. The CSOS has demonstrated adequateinternal reliability (.903). The CSOS consists ofseven items with 5-point likert-type responsecategories (where 1=strongly disagree and 5-strongly agree). Part B included a Billups’ (2008)6-item scale to assess college students’ satisfaction.These items also were assessed with a 5-point likert
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type response pattern (where strongly agree=5 andstrongly disagree=1). The alpha reliability of thescale is .76. Thus, both the scales have high internalhomogeneity. Part C included questions pertainingto demographic aspects of the students. Datacollected were processed using statistical softwarewhile treating students’ orientation as independentvariable and students’ satisfaction as dependentvariable. In order to test the hypotheses, means,standard deviations, f-values were computed on onehand and correlation and regression analyses onthe others. Results in this regard are presented inthe succeeding sections.
Results and Discussion
In this section the results of the study have beenpresented in three sections. Firstly, the profile ofthe students who have participated in the study isaddressed. Secondly the students’ orientation by theinstitute has been dealt with in relation to theclassification of students according to theirspecialization. Lastly, the correlations amongstudent orientation and student satisfaction havebeen presented.
Profile of the Students
The average age of the students is 22 years; followedby their average years of stay in the city is 15.36years. A majority of them are male (66.7 percent).A large number of them are B.Com holders (40.6per cent), followed nearly one third of them beingB-tech graduates (30.2 per cent). Majority of themare majoring in Finance (68.8 percent), followedby a little over one fourth of them in marketing(28.1 percent). The remaining of them is majoringin Human resources. A majority in them studiedin English medium (95.8perecent) before postgraduation. A large majority of them were domiciledin the Cities (85.4 percent). A large majority of themare unmarried (96.9percent). A majority of themare from nuclear families (66.7 percent). Theremaining of them are from joint families (33.3percent).
B-School’s Students Orientation by SpecializedCourses Offered
It is straightforward to state that specializationsoffered to students is absolute equivalent tocustomized services offered to the customers in
other businesses. Therefore, it is bit natural toassume that there will be variations in theorientation. Many times, even we as faculty forgetthis serious truth – the opposite of which ismarketing myopia.
The very nature of specializations mandates avariety of approaches towards treating students. Forexample, the students of marketing needs to beprovided with more versatile environment forexperimentation in their learning, besides infusingthem with more serious calculative businessorientation. Similarly, for students of HRM, thetreatment is different as they need to be providedwith a culture of human sensitivity, enabling themto create friendly atmosphere to understand humanbehaviour and working with and in the teams. Asin case of finance, the students are treated withmore rigor of numbers, the approach is certainlyclassical and more of mathematics and books driven.Therefore, it is quite natural to assume that studentorientation might vary according to the specializedservices offered to them.
Besides, the variations in pedagogicalmethodologies, the administrative and theextension activities outside classrooms are alsovaried which need to be conducted by the facultymembers, nonteaching and supported by themanagement of such colleges. Therefore, it is moreassuring to understand variations in studentorientation according to specialized services.
Therefore, it is hypothesized that there is novariation in students’ orientation according to theircourse specializations, means and standarddeviations were computed for each of the indicatorof students’ orientation. Further, in order to knowwhether the mean variation among the studentson each of the indicator is statistically significant,f-values were computed; results in this regard arepresented in table 1.
As we observed in Table 1, the students’ B-Schoolorientation with their mean scores, standarddeviation and f-values; there are quite interestingtrends. Amongst all the students, the HR students(mean=4.00) feel that the institute tries to helpthem in achieving their goals more when compareto the response of Finance students (mean=3.62)and Marketing students (mean=3.44).
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Interestingly the f-value also suggests that suchvariation in their mean-score reached statisticallevel of significance.
When asked whether the institute takes the timeto learn more about students; Finance students(mean=2.89) scored more than Marketing students(mean=2.52) and HR students (mean=2.33).Interestingly the f-value also suggests that suchvariation in their mean-score reached statisticallevel of significance.
Next to this, when they were asked whether theinstitute takes the needs of students intoconsideration, Finance students (mean=3.03)scored higher than HR students (mean=3.00) andMarketing students (mean=2.70). Interestingly thef-value also suggests that such variation in theirmean-score reached statistical level of significance.
When the group was asked whether the instituteprovides them good value for their money, HRstudents (mean=3.33) scored more than Finance
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students (mean=3.08) and Marketing students(mean=2.85). Interestingly the f-value alsosuggests that such variation in their mean-scorereached statistical level of significance.
Statistics shows that HR students (mean=3.33)scored higher than Finance students (mean=3.30)and Marketing students (mean=3.04) when askedwhether the institute feels that students areimportant. Interestingly the f-value also suggeststhat such variation in their mean-score reachedstatistical level of significance.
Again when asked whether the institute feels thatthe needs of students are at least as important theneed of faculty and staff, HR students (mean=3.33)were the one who scored higher than Financestudents (mean=3.18) and Marketing students(mean=2.81). Interestingly the f-value also suggeststhat such variation in their mean-score reachedstatistical level of significance.
When the group was asked whether the institute isconcerned with providing a satisfying educationalexperience for students, Marketing students
(mean=3.44) were the one who scored higher thanFinance students (mean=3.38) and HR students(mean=2.67). Interestingly the f-value alsosuggests that such variation in their mean-scorereached statistical level of significance.
When asked whether the institute cares aboutstudents; Finance students (mean=3.17) scoredhigher than HR students (mean=2.67) andMarketing students (mean=2.56). Interestingly thef-value also suggests that such variation in theirmean-score reached statistical level of significance.
In summary, school’s student orientation isrelatively better since on all the indicators of studentorientation, the response have been 3.0 scoresexcept in case of ‘institute is taking time to learnabout the students’ and ‘the institute cares aboutthe students’. Thus the null hypothesis, “there isno variation in students’ orientation according totheir course specializations to which they belong”stands rejected and the alternative hypothesis isaccepted.
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Students orientation and Satisfaction
It was hypothesized that ‘there is no relationshipbetween students’ orientation and their satisfactionwith the school. In order to test this hypothesis,correlation coefficients and regression analysis werecarried out. Results in this regard are presented intable 2.
It is interesting to observe from the table pertainingto the customer orientation and the students’satisfaction of the fact that all the items of studentorientation have yielded positive and statisticallysignificant correlation coefficients with students’satisfaction. This further indicates that studentsatisfaction indeed is an important outcome ofcustomer orientations. And such concern needs tobe further explored in future research. Of thestronger correlate of students satisfaction has been‘the institute trying to help students achieve theirgoals, followed by the ‘institute feels that studentsare important’, and ‘the institute provides goodvalue for the students’ money’. ‘The institute takestime to learn about the students’ has been the leastcorrelated indicator of students’ satisfaction.Nevertheless, the null hypothesis, ‘there is norelationship between Students’ orientation andtheir satisfaction with the School’, stands rejectedand the alternative hypothesis is accepted. In otherwords, students’ satisfaction is an importantoutcome of students’ orientation by the b-schools,amongst other important outcomes. All of suchissues need to be addressed in the strategy toimprove all aspects of customer orientation andstudents satisfaction by the school in their futureendeavors.
As regards coefficients of determination separatelycomputed for each of the individual item ofstudents’ orientation, the range of r2 is from0.10to 0.29. In other words, each of them could explainin the range of 10 to 29 percent of variance in thedependent variable namely student satisfaction.The composite r2 for all the eight indicators puttogether could explain 0.17 percent of variation inthe dependent variable which is statisticallysignificant. Thus, it could be concluded that therelationships between students orientation andstudents satisfaction is quite directional in nature.
Implications
This study brings out a mix of good and relativelynot good news since almost on all aspects ofstudents’ orientation items; they scored around 3and not phenomenally beyond. In other words,such orientation is only average and not above it.Such concern needs to be addressed in the contextof improving students’ orientation.
In the context of the future of the b-schools, itbecomes readily apparent that the studentorientation of the college, at least from theperspective of the students, warrants serious furtherconsideration. It advises administrators in thecollege to conduct additional research in order tounderstand such concern more seriously.
Secondly, it periodically should institute suchresearch works to understand how such orientationover the time is. Such efforts will add incrementalimprovements to the system of improving students’orientation. Various programmes, schemes whichare primarily focusing on providing a learningenvironment and delightful experience intrinsicallyand extrinsically as well will improve students’orientation by leaps and bonds.
Besides, there is a need to have a special students’cell which is authorized to prepare programmes andschemes which are geared towards fulfilling the goalof high customer orientation in the institute. Suchcell should be manned by young and energeticprofessionals who are accessible and approachableto the students, headed by a senior professor,academically sound, well qualified and also wellaccepted by the students.
In view of developing customer centric college thecell should have a structure which includes a seniorprofessor, a kind of mentor to be the director of thecell. Such role should be rotated every two years.Three functional heads will report to such director.They are: student counseling head, establishmenthead, and facilities/services head. The parallelstructure like academics (with academic director,PGP office, general administration) admissions andplacements will work in tandem with this cell. Thejob descriptions include student counseling willwork with all student grievances of academic andallied nature will be addressed. The establishment
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head will ensure that all the infrastructuralproblems are addressed in real-time. The facilitiesand services head will look into the workflow issuesof day today services offered to the students in F&B,accommodation, classrooms, lobbies etc. theacademic in-charge will address all aspects of regularclassroom instructions and evaluations. Theadmissions and placement functions will evolvestrategies in consultation with the other functionsstated and periodically ensure that needs of thecollege and the students as well. The cell needs toaddress the students problems in real-time andresolve the grievances expeditiously. Quarterly, thestudent satisfaction surveys needs to be conductedto estimate the progress of student orientation andsatisfaction, besides, students’ participation inacademic, and administrative functions should beencouraged to improve such orientation. This way,the customer centric strategy can be integrated withthe overall business strategy of the college.
Conclusion
The realization of customer orientation as a seriousmeasure to improve overall climate of a b-school isnever too late. In professional organizations, suchconcern is integral part of business strategy and inbureaucratic systems; it is learned eventually as anecessity by the foregone business opportunities.In the present study, the importance of students’orientation has been elaborated in the light of newchallenges and also in the context of improvingstudent’s satisfaction and the organizationalperformance in the long run. While all the nullhypotheses proposed have been rejected, indeed,customer orientation is a promising construct thatneeds to be subscribed by the organizations todayespecially the b-schools. Besides the superbinfrastructure, in any learning organization, it isthe customer and the customer orientation whichdrive the business. Such realization needs to beinternalized and lessons learned should be put topractice providing future research opportunities toimprove the concept and also evolve wide range ofprogrammes and schemes of student engagementand for providing student delightfulness.
References
1. Billups D. Felice (2008). Measuring CollegeStudent Satisfaction: A Multi-Year Study of theFactors Leading to Persistence, NERAConference Proceedings 2008. NortheasternEducational Research Association (NERA)Annual Conference
2. Levy, Francesca (2008) Business SchoolOrientation Is Getting Longer- Francesca Levy.Business Week, August.
3. Bristow, Dennis N. and Kenneth Schneider,(2002), “The Collegiate Student OrientationScale (CSOS): Application of the MarketingConcept to Higher Education.” Journal ofMarketing for Higher Education, 12 (2), 15-34.
4. Coffey, J. Steven and Ruth Wood-Steed (2001).“Center of Attention: College and UniversityStudent Centers Are Not Just Another CampusBuilding; They Have Become Marketing Toolsfor Institutions,” American School andUniversity, 74, 3, November pp. 351-353.
5. Krush, Michael, Dennis Bristow and KenSchneider (2006), “The StudentConnectedness Scale (SCS): A Tool forProactively Managing the Student-InstitutionRelationship,” International Journal ofBusiness Research, VI (2), 35-49.
6. Lages, R.Cristiana and Piercy, F.Nigel. (2012).Key Drivers of Frontline Employee Generationof Ideas for Customer Service ImprovementJournal of Service Research May 1, 2012 15:215-230
7. Pesch, Calhoun, Schneider, and Bristow(2008). The Student Orientation Of A CollegeOf Business: An Empirical Look From TheStudents’ Perspective, The MarketingManagement Journal Volume 18, Issue 1, Pages100 - 108
8. Yuan, Yi-Hua “Erin” and Wu, Chihkang“Kenny” (2008). Relationships AmongExperiential Marketing, Experiential Value,and Customer Satisfaction Journal ofHospitality & Tourism Research August 1,2008 32: 387-410
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Book Review
HR Transformation: Building Human Resources from the Outside in
Author: Dave Ulrich, Justin Allen, Wayne Brockbank, Jon Younger, Mark Nyman
Publisher: McGraw Hill, July 2009, 256 pp.
Book No: ISBN-13: 978-0071638708
Reviewer: Dr. Pavan Patel, Professor -HR, SSIM, Kompally, Secunderabad. 500014.
This book comes from the stable of some of thebest minds in HR who have made HR to thinkstrategically. Dave Ulrich is an author, speaker,management coach, and consultant, WayneBrockbank is a Clinical Professor of Business of theStrategic Human Resource Planning Program at theUniversity of Michigan’s Ross School of Business,Jon Younger’s career has been a mix of consulting,executive management and HR leadership, JustinAllen is the Managing Director of The RBL Instituteand a consultant with the firm, and Mark Nymanis a Principal with The RBL Group.
HR Transformation is divided into 12 chaptersaround the four themes of (a) Why transform HR(the business context), (b) what are the expectedoutcomes, (c) How does one redesign HR, and (d)Who is responsible. There are six chapters aroundthese four themes, one each on Why, What, andWho, and three on How. These six chapters havetwo bookends, an introduction and a conclusion(“Making it happen”). They are then followed byfour cases involving real organizations, each withdifferent dynamics and attempting to meet thechallenge of HR transformation: Flextronics(electronics manufacturing), Pfizer (largepharmacy), Intel (semiconductor), and Takeda(small pharmacy). These cases are authored by HRexecutives from the respective firms.
HR Transformation takes the idea of supplemental
materials in website (www. hrtransformationbook.com) to a new level. These add-ons include: (a)elaborated checklists, e.g., a Stakeholder AnalysisChecklist to assist in undertaking the inventory ofstakeholder needs; (b) videos, e.g., a clip of DaveUlrich introducing the HR transformation model,(c) assessments, e.g., a check-list to determineorganizational capability; and (d) worksheets, e.g.,additional ideas and approaches when launchingan HR transformation initiative. Taken togetherthese supplemental materials add a great deal to theusefulness of the book.
This book recommended highly for HR and ODconsultants, Management experts, Academicians,and as an additional reading for managementstudents in the subjects like Human ResourceManagement, Organizational Development, andStrategic Human Resource Management.Interesting aspect here would be the competenciesrequired for HR professionals to act at a strategiclevel and the tool sets available in the book arefeatured in a website dedicated to the book(www.hrtransformationbook.com).
Overall this book gives a detailed step by stepapproach to building Strategic HR professionals anddepartments. Strongly recommend this book to beread along with Human Resource Champions andHR value Propositions of Dave Ulrich.
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Siva Sivani Institute of ManagementS.P Sampathy’s Siva Sivani Institute of Management is promoted by the Siva Sivani Group of EducationalInstitutions, which has been running the prestigious and internationally renowned Siva Sivani Public Schools formore than four decades. Approved by the All India Council for Technical Education, Ministry of Human ResourceDevelopment, Government of India, New Delhi, Siva Sivani Institute of Management started functioning as anautonomous institute in 1992.
Located in Secunderabad, far from the maddening crowd, about 6 Km. from Bowenpally along the NationalHighway No.7, Siva Sivani Institute of Management has an enviable environment - serene, spacious andstupendous. It offers an ideal environment for imparting value- based management education. The Institute designsand updates courses at any given point of time, even if it is in the middle of an academic year or a term for thatmatter.
Stalwarts from both the industry and the academia constantly provide inputs for fine tuning the course curriculumto meet the needs of the industry. SSIM is consistently ranked amongst the top Business Schools in the country.Currently, SSIM is ranked 35th in the country amongst the B-Schools of Excellence as per Business BaronsSurvey March 2009. The other Group Institutions are: Siva Sivani Global Centre for HR Excellence, Siva SivaniInstitute of Global Studies, Siva Sivani Man Management Private Limited and Siva Sivani Degree College.
Siva Sivani Institute of Management offers Seven PGDM Programmes:
The PGDM (Triple Specialization) This program prepares a student towards building multifaceted functionality.PGDM (TPS) is designed in such a way that has evolved from the needs of the industry, which is continuallylooking for managers with cross functional skills embedded and supported by IT savvy acumen. A student ofPGDM (TPS) has a major specialization one of Finance/Marketing/HR/System along with one of the specializationart of Finance, Marketing, HR, System, Operations as minor specialization and also elective courses like Finance,Human Resources and Marketing, ERP, electives such as Retail Management, Banking, Event Management,BPO Management, Insurance Management etc.
PGDM (Marketing): This is a highly specialized two year management programme in Marketing. This programmeis completely tailor made to the requirements of industry with respect to marketing.
PGDM (HR) with IT: This is highly specialized programme in HR along with IT focus. The latest and globalconcepts in the area of HR that includes compensation management, Psychometrics HR audit, Negotiating skills,Managing diversity etc.
PGDM (Banking, Insurance, Finance and Allied Services) : This programme encompasses all the financerelated areas and we have included Banking and Insurance sectors as specializations in addition to core Finance.All the latest topics in Bankingand insurance have been included and to name the few are Risk management inBanks,Technology management in Banks, Claims management in insurance, Actuarial science etc. Siva SivaniInstitute of Management has started non residential PGDM programmes in the second shift. There are threeprogrammes in the second shift they are:
PGDM (Global Business) : Siva Sivani offers a highly specialized program – PGDM in Global business. Theworld is fast becoming a global village and there is a huge demand for students who are multi skilled and who cantransfer their skills and expertise seamlessly across countries and continents. This well thought out and executedcourse with a through exposure to global thoughts and latest global practices will equip the students to becometruly global managers.
PGDM (Banking, Insurance, Finance and allied services) : It is the first of its kind to be introduced in theCountry. This program covers sectors like banking, insurance and also focuses on finance and financial services;it encompasses all the facets of finance and its applications. These students are equipped to take up any job infinancial sector.
PGDM (Triple Specialization) : This program prepares a student towards building multifaceted functionality.PGDM (TPS) is designed in such a way that has evolved from the needs of the industry, which is constantlylooking for Managers with cross functional skills and equipped with IT acumen. A student of PGDM (TPS) hasoption of choosing one major and one minor specialization among Finance/Marketing/HR/System, ERP, alongwith one elective from Retail Management, Banking, Event Management, BPO Management, and InsuranceManagement etc.
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Rates of Annual Subscription
For Instituions (Two Issues) Rs. 500/-All Correspondences relating to Subscription may be addressed toAsst. EditorSiva Sivani Institute of ManagementNH-7, Kompally, Via-Hakimpet,Secunderabad-500014Phones: 040-65457236, 65457237, 040-27165450-54Fax No.040-27165452www.ssim.ac.in
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Call for PapersDear Author/s,SuGyaan is a medium for keen researchers to publish their unpublished research findings that are of interest toacademic community and industry. It is also a medium for industry professionals to share their best practices. Thejournal encourages publication of application of theory to real life management activitiesEditorial Advisory & Review Panel: Eminent persons from the academic community and industry are guiding thejournal in its Endeavour. Professors from reputed institutions from India and abroad are members of the reviewpanel.Frequency: The Journal is published bi-annually in the months of July and December.Content Mix: The journal prefers to publish conceptually sound and methodologically rigorous papers that advancethe body of knowledge. The journal would publish Empirical Research Findings, Conceptual Papers, LiteratureReviews, Case Studies, Synopsis of Doctoral Theses and Book Reviews, summaries of Ph.D. thesis, roundtable ofacademicians, policymakers, industry experts on any topic relevant to present business scenario and articles oncontemporary business issues.Review Process: SuGyaan is a referred journal. All manuscripts submitted for publication would be screened bythe editor for relevance to our journal. Appropriate manuscripts would be put through ‘double blind review process’that may normally take four to eight weeks. Accepted manuscripts may be edited to suit the journal’s format.Wherever possible reviewer’s feedback will be provided. However the journal has no binding to provide detailedfeedback in every case including the contributions rejected.Remuneration: A sum of Rs. 3000/- will be paid to authors whose contributions are published in SuGyaan.Copyright: Published manuscripts are exclusive copyright of SuGyaan, Management, Journal of Siva Sivani Instituteof Management. The copyright includes electronic distribution as well.Format and Style:• Articles should not exceed 10000 words (10-15 A-4 size pages, typed in double space) including charts,
tables and other annexure.• An abstract not exceeding 150 words should be included in the beginning of the paper.• Manuscripts should be submitted in duplicate.• Author’s name, designation, official address etc., should be mentioned only on the cover page. Author’s
identity should not be mentioned anywhere else in the paper.• Only those sources that are cited in the text should be mentioned. References should be listed as per the
standard publication norms for journals.• Tables and Figures: Their location in the text should be indicated as follows: Table-I about here• Endnotes: All notes should be indicated by serial numbers in the text and literature cited should be detailed
under reference in alphabetical order of the surnames followed by year of publications at the end of theauthor’s name. (Footnotes should be avoided)
• References: The list should mention only those sources actually cited in the text or notes. Author’s nameshould be the same as in the original source.
• In the text, the references should appear as follows: Hofstede (1983) has elucidated .. or recent studies(Frank 1993; Berry, 2001) indicate...
• Journal references should be listed as follows: Yagil, D (2002), Ingratiation and Assertiveness in the ServiceProvider-Customer Dyad. Journal of Service Research, Vol 3, Issue 2, pp 345-353.
• Books should be referred to as follows: Pfeffer, J. (1981). Power in Organizations, Boston, MA: Pittman.• Along with the manuscript, authors should provide a declaration that article is original, not published anywhere
else and not under review with any other publication.• Authors will receive a complimentary copy of the journal in which their article is published.• Authors have to submit a declaration stating that the paper is original and is not currently under review with
any other Journal.We look forward to your contributions for the next issue in December 2012. The last date for receipt of manuscriptsis October, 30, 2012..
Correspondence:Manuscript and all correspondence has to be addressed to
Dr. Kompalli Sasi Kumar, Asst. EditorSiva Sivani Institute of Management, NH-7, Kompally, Via-Hakimpet, Secunderabad-500014
Phones: 040-65457236, 65457237, 040-27165450-54, Fax : 040-27165452, Website : www.ssim.ac.in
Manuscript can also be submitted by electronic format via e mail [email protected], [email protected],
NH7, Kompally, Secunderabad - 500 014. A.P., IndiaPhone : 040-27165450-54, 65457236/37,
Fax : 040-27165452Website : http://www.ssim.ac.in