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Table of Contents

Articles

E-BANKING -NEW EMERGING TRENDS IN INDIAN BANKING INDUSTRY

Pallavi Gupta

DOES FOREIGN DIRECT INVESTMENT ACCELERATE ECONOMIC GROWTH FOR BANGLADESH?

Abdullah Iftikhar

THE CRITIQUE OF USURY IN ORIENTAL, OCCIDENTAL AND ISLAMIC LITERATURE: A HISTORICAL PERSPECTIVE

Mohammed Galib Hussain

A STUDY ON THE PRODUCTION POTENTIAL OF SOYA IN MADHYA PRADESH

Kalpana Agrawal, Dr. Sukhjeet Matharu, Ravindra Nagar

ORGANIZED RETAILING IN RURAL INDIA – AN EXPLORATORY STUDY

Kalpana Agrawal, Nidhi Sharma, Ayush Sahu

BRANDING A GLOBAL TEAM OF SKILLED HUMAN RESOURCE IN GLOBAL VIRTUAL ORGANIZATIONS

Neelakanta Gugesh Jayaraman, Sunder Rao Sheelarani

SUSTAINABLE SOCIAL PRACTICES AT WIPRO

Dr. Leena James

www.theinternationaljournal.org > RJEBS: Volume: 01, Number: 10, August-2012 Page 1

E-Banking -New Emerging Trends in Indian

Banking Industry

Mrs Pallavi Gupta (Asst Prof at Jaipuria Group of Institution, Ghaziabad UP)

Dr. Chhaya Mangal Mishra (Principal In ILVA, Indore, MP)

Abstract

Today banking is known as innovative banking.

Information technology has given rise to new innovations in

the product designing and their delivery in the banking and

finance industries, customer services and customer

satisfaction are their prime work. Under the regime of

banking sector reforms, IT Act of 1999 gave new

dimensions to the Indian banking sector. IT has created

transformation in banking structure, business process, work

culture and human resource development. The new

evolution in same field is E-Banking i.e. though Electronic

channels, such as the telephone, the internet, the cell phone,

etc. The concept and scope of E-banking is still evolving. It

facilitates an effective payment and accounting system

thereby enhancing the speed of delivery of banking services

considerably. While E-banking has improved efficiency and

convenience, it has also posed several challenges to the

regulators and supervisors .The paper suggests some

measures to tackle the challenges faced by the banks

particularly public sector banks. At the end, paper suggests

how public sector banks can convert the emerging

challenges into opportunities.

Key words: Information Technology, Productivity,

Profitability, Efficiency, E-Banking Challenges,

Opportunity

Introduction:-

The traditional functions of banking are limited to

accept deposits and to give loans and advances. Today

banking is known as innovative banking. Information

technology has given rise to new innovations in the product

designing and their delivery in the banking and finance

industries, customer services and customer satisfaction are

their prime work. Current banking sector has come up with

a lot of initiatives that oriented to providing a better

customer services with the help of new technologies.

Banking sector mirrors the larger economy its linkages to all

sectors make it proxy for what is happening in the economy

as a whole. Indian banking sector today has the same sense

of excitement and opportunity that is evidence in the Indian

Economy. The going developments in the global markets

offer so many opportunities to the banking sector. In the

competitive banking word improvement day by day in

customer services is the most useful tool for their better

growth. Bank offers so many changes to access their

banking and other services.

Banks plays an important role in the economic

development of developing countries. Economic

development involves investment in various sectors of the

economy. The banks collect savings for investment in

various projects. In normal banking the banks perform

agency services for their customers and helps economic

development of the country. The purchase and sales

securities, shares, make payments, receive subscription

funds and collect utility bills for the Government

department. There for banks save time and energy of busy

peoples. Bank arranges foreign exchange for the business

transactions with other countries. Banking sector are not

simply collecting funds but also serve as a guide to the

customer about the investment of their money.

Objectives of study:- 1. To explain the changing banking scenario

2. to analysis of the impact of liberalization Privatization

and Globalization.

3. To explain the challenges of National and commercial

banks in changing banking scenario.

4. To study the opportunities for the national and

commercial banks in changing banking scenario.

Methodology of study:- This study is based on the analysis of the changing

banking scenario in the India with the help of secondary

data collection.

Secondary data: - The secondary sources of data are

banking books, annual reports of RBI, internet (websites)

and research papers etc.

Present scenario:-

Today role of banking industry is very important as one

of the leading and mostly essential service sector. India is

the largest economy in the world having more than 110

crore population. Today in India the service sector is

contributing half of the Indian GDP and the banking is most

popular service sector in India. The significant role of

banking industry is essential to speed up the social

economic development.

Progress of Indian Banking

(Up to 31st March 2011)

Sr. No. Type of Banks Branches

01 Nationalized Banks 39376

02 State Banks 16062

03 Old Private Sector Banks 4673

04 New Private Sector Banks 4204

05 Foreign Banks 293

Total 64608

(Source: - www. rbi .com)

The present banking scenario provides a lot of

opportunities as well as facing lot of challenges also. In the

past few years we observed that there was lot of down and

up trends in banking sector due to the global finance crisis.


In India it has not major affected but in America still the

economy is under the pressure of economic crisis. India is

being fundamentally strong supported by concrete economic

policies, decisions and implementations by the Indian

Government i.e. Prime Minister Dr. Manmohan Singh.

Banking sector is not major affected but definitely there was

reflection on the share market.

To improve major areas of banking sector Govt. of

India. RBI, Ministry of finance has made several notable

efforts. Many of leading banks operating in market have

made use of the changed rules and regulations such as CRR,

Interest Rates Special offers to the customers such as to

open account in zero balance. Now days almost all banks

entered into all areas of banking services. As a result of

innovation banking products are a reality now. Even saving

accounts have become subject of innovation. Due to

liberalization, Privatization and Globalization, Indian banks

going global and many global banks are setting up shops in

India. The Indian banking system is set to involve into a

totally new level. It will help the banking system to grow in

strength going into future. Due to liberalization banks are

operating on reduced spread main focus is highlighted on

consumerism and how to customers linked and remain

attached with the bank. Therefore banks are entered these

days in non banking products such insurance in which area

there are tremendous opportunities.

Challenges:-

1) Customer Satisfaction:- Today in sector customers are

more value oriented in their services because they have

alternative choices in it. So that each and every bank have to

take care about fulfill of our customers satisfaction.

2) To provide several personnel services:- The preset

times demanded that banks are to provide several services

for which they have to expanse in service, social banking

with financial possibilities, selective up gradation,

computerization and innovative mechanization, better

customer services, effective managerial culture, internal

supervision and control, adequate profitability, strong

organization culture etc. Therefore banks must be able to

provide complete personal service to the customers who

comes with expectations.

3) Nonperforming assets (N.P.A):- Nonperforming assets

are another challenge to the banking sector. Vehicle loans

and unsecured loans increases N.P.A. which terms 50% of

banks retail portfolio was also hit due to upward movement

in interest rates, restrictions on collection practices and

soaring real estate prices. So that every bank have to take

care about regular repayment of loans.

4) Competition:- The nationalize banks and commercial

banks have the competition from foreign and new private

sector banks. Competition in banking sector brings various

challenges before the banks such as product positioning,

innovative ideas and channels, new market trends, cross

selling ad at managerial and organizational part this system

needs to be manage, assets and contain risk. Banks are

restricting their administrative folio by converting

manpower into machine power i.e. banks are decreasing

manual powers and getting maximum work done through

machine power. Skilled and specialized man power is to be

utilized and result oriented targeted staff will be appointed.

5) Managing Technology:- Developing or acquiring the

right technology, deploying it optimally and then leveraging

it to the maximum extent is essential to achieve and

maintain high service and efficiency standards while

remaining cost effective and delivering sustainable return to

shareholders. Early adopters of technology acquire

significant competitive advances Managing technology is

therefore, a key challenge for the Indian banking sector.

6) Other Challenges:- a) Coping with regulatory reforms

b) Development of skill of bank personnel

c) Customer awareness and satisfaction

d) Corporate governance

e) Changing needs of customers

f) Keeping space with technology up gradation

g) Lack of common technology standards for mobile

banking

h) Sustaining healthy bottom lines and increasing

shareholders value

i) Structural changes

j) Man power planning

Opportunities:-

Where there are challenges, there must opportunities.

Following are the opportunities for the nationalised and

commercial banks.

1) Rural area customers: - Contributing to 70% of the

total population in India is a largely untapped market for

banking sector. In all urban areas banking services entered

but only few big villages have the banks entered. So that the

banks must reach in remaining all villages because majority

of Indian still living in rural areas.

2) Offering various Channels: - Banks can offer so many

channels to access their banking and other services such as

ATM, Local branches, Telephone/mobile banking, video

banking etc to increase the banking business.

3) Good Customer Services: - Good customer services are

the best brand ambassador for any bank for growing its

business. Every engagement with customer is an opportunity

to develop a customer faith in the bank. While increasing

competition customer services has become the backbone for

judging the performance of banks.

4) Internet Banking:- It is clear that online finance will

pickup and there will be increasing convergence in terms of

product offerings banking services, share trading, insurance,

loans, based on the data warehousing and data mining

technologies. Anytime anywhere banking will become

common and will have to upscale, such up scaling could

include banks launching separate internet banking services

apart from traditional banking services.


5) Retail Lending: - Recently banks have adopted

customer segmentation which has helped in customizing

their product folios well. Thus retail lending has become a

focus area particularly in respect of financing of consumer

durables, housing, automobiles etc., Retail lending has also

helped in risks dispersal and in enhancing the earnings of

banks with better recovery rates.

6) Indian Customers: - The growing Indian banking sector

with its strong home country linkages, seek a unique

combination of Indian ethnicity and global standards that

offers a valuable nice opportunities for Indian banks. The

biggest opportunity for the Indian banking sector today is

the Indian costumers. Demographic shifts in terms of

income level and cultural shifts in terms of life style

aspirations are changing the profile of the Indian customer.

This is and will be a key driver of economic growth going

forward. The Indian customers now seek to fulfill his

lifestyle aspirations at a younger age with an optimal

combination of equity and debt to finance consumption and

asset creation. The consumer represents a market for a wise

range of products and services he need a mortgage to

finance his house, an auto loan for his car, a credit card for

ongoing purchases, a bank account, a long term investment

plan to his children’s higher education, pension plans for

his retirement, a life insurance policy the possibilities are

endless and this consumer does not live just in India’s top

ten cities. He represents across cities, towns and villages i.e.

in rural areas. Consumer goods companies are already

tapping this potential it is for the banks to make the most of

the opportunity to deliver solutions to this market.

7) Other Opportunities:-

a) To enter new business and new markets

b) To develop new ways of working

c) To improve efficiency

d) To deliver high level of customer services.

Conclusion:-

Finally the banking sector will need to master a new

business model by building management and customer

services. Banks should contribute intensive efforts to render

better services to their customer, Nationalized and

commercial banks should overcome the challenges and to

get advantage of opportunities in changing banking

scenario.

References:- 1. Niti Bhasin: (2007) Banking development in India

1947 to 2007 century publication Delhi 110005

2. Romeo S. Mascarenhas (2008) Marketing in banking

and Insurance Vipul prakashan Mumbai 400004.

3. Uppal R.K. (2007) Banking services and information

Technology New century publications, new delhi.

4. The Chartered Accountant Volume 56 No 5 November

2007 edition.

5. Mishra S.K., Puri V.K.: Economic Environment of

Businss, Himalaya Publishing House, 2002, P. 28.

6. Clive, W. (2007). Academics Dictionary of Banking,

New Delhi, India: Arrangement Academic New Delhi.

7. Edet, O. (2008). Electronic Banking in Banking Industries

and its Effects. International Journal of Investment and

Finance, Vol. 3, A.P 10-16.

8 James, O. (2009, April 21). E-payment and its

Challenges. Daily Champion,

9. Mundu, H. (2010, May 21). Importance of e-payment on

Clearing and Forwarding. Daily Sun,

10. Oleka, J. (2009, April 21). E-payment and Its

Challenges. Daily Champion,

11 www.rbi.org.in

12 www.indiatoday.com

13 www.wikiepedia.com

14 www.moneyindia.com

***

http://www.rbi.org.in/

http://www.indiatoday.com/

http://www.wikiepedia.com/

http://www.moneyindia.com/


“Does Foreign Direct Investment Accelerate

Economic Growth for Bangladesh?”

Abdullah Iftikhar, Lecturer, School of Business Studies, Southeast University

Room # 309, House # 64, Road# 18, Block-B, Banani Dhaka-1213. Bangladesh.

Abstract:

The aim of this study is to explore the causality relationship

between Foreign Direct Investment and economic growth in

Bangladesh, which has liberalized foreign capital inflows

especially after mid 1980s. Granger causality analysis was

used in order to test the hypotheses about the presence of

causality between Foreign Direct Investment and Economic

Growth. The study, which used the yearly data covering the

period between 1975-2009, showed causality relationship

from Foreign Direct Investment to Economic Growth in

Bangladesh. In other words, there is a one-way relationship

between Foreign Direct Investment and Economic Growth

and the direction of this relationship is from Foreign Direct

Investment to Economic Growth.

Keywords: Foreign Direct Investment, Economic Growth,

Granger Causality.

Introduction

Though the gains from FDI inflows are unquestionable as it

contributes to economic growth through an increase in

productivity by providing new investment, better

technologies and managerial skills to the host countries,

however, the effect of FDI on domestic investment is an

issue of concern as there is a possibility of displacement of

domestic capital due to competition from foreign investors

with their superior technologies and skills (Agosin and

Mayer, 2000). Thus the ultimate impact of FDI on economic

growth depends on the degree of capacity of the host

country to use FDI as efficiently as possible (Sahoo, 2006).

Thus, it is a challenge for Bangladesh to find out the

appropriate direction of the role of FDI in economic growth.

FDI inflows have been considered as one of the important

sources of economic growth in developing countries

(Agrawal, 2000). Though the gains from FDI inflows are

unquestionable as it contributes to economic growth through

an increase in productivity by providing new investment,

better technologies and managerial skills to host countries

(Balasubramanyam et al. 1996), however, the effect of FDI

on domestic investment is an issue of concern as there is a

possibility of displacement of domestic capital due to

competition from foreign investors with their superior

technologies and skills (Alexiou and Tsaliki, 2007). The

transfer of new techniques and technology spill over from

the subsidiaries of multinational to domestic firms and

enhances economic growth. On the other hand, others found

that FDI follow economic growth (Waheed,2004).

Economic growth first provides necessary and conducive

economic factors for FDI to play a positive role for

economic development (Zhang, 2002). For example, the

spill over effect of technology transfer through FDI can only

be successful if the absorbing capacity of host countries is

developed. In this regard, understanding the causal

relationship between economic variables is very important

because it provides useful information on the variables of

government and agencies (Melina Dritsaki et al.2004). FDI

and economic growth may be linked in one of the three

possible ways. Firstly, if causality is found from economic

growth to FDI, it means that economic growth is a

prerequisite for attracting and absorbing FDI (Abdus Samad,

2009). In this case, government would employ policies that

accelerate economic growth in order to encourage foreign

investment inflows. Secondly, causal link perhaps run from

FDI to economic growth (Ram, 1987). In this case, it leads

to the belief that FDI not only leads capital formation and

employment generation but also provides economic growth

to host countries. The policy implication in this case,

suggests that corporate rules and regulations of host

countries must address to attract FDI. Finally, causal

relation may run in both ways (Nair-Reichert and Weinhold,

2001). If the causal link is bidirectional, then both economic

growth and FDI have reinforcing effects on each other. As a

developing country, Bangladesh was also concerned with

issues pertaining to foreign private capital inflow and trade

liberalization initially (Blomstrom et al. 1994). However, it

later moved to liberalize their trade and investment policies

to include various investment incentives, particularly, for

foreign investors. Along with these, Bangladesh has

maintained high and steady economic growth, single-digit

inflation rate; have a growing domestic market, a large

number of low-paid workers with growing number of skilled

personnel and a more favorable investment climate. As a

consequence, Bangladesh has been successful in attracting a

significant amount of FDI and raising its volume of trade

(export plus import) as percentage of GDP during the last

one and half decades. The question which naturally arises

here is whether the increase in growth was brought about by

FDI inflows. Therefore, it is important to explore the impact

of FDI on the growth process for a better understanding

about the linkages among FDI and economic growth.

Bangladesh has been turning into the most generous FDI

recipient country in South Asia despite having a number of

impediments, such as poor infrastructure, scarcity of power

supply, political instability, poor law and order situation etc.

have been able to make the country a centre of attention of

the overseas investors Razzaque et al. (2001). Until the

1980s, Bangladesh was skeptical of the intentions of FDI

and considered it as tools for promoting foreign interest.

FDI inflows have risen during the period 1980-1990 and it

went up about $1090 million in 2008, (Table 1).


FDI Inflows of Bangladesh (US $ in million)

Constructed from UNCTAD,Major FDI indicators(WIR 2009)

YEAR

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

Va

lue

FD

I

1200

1000

800

600

400

200

0

-200

Table 1: Trend of FDI Inflows in Bangladesh

The Board of Investments of Bangladesh has been playing a

significant role to make Bangladesh the most favorable FDI

region by offering convenient facilities and promotion of

investments to the overseas investors. According to

UNCTAD (2011), the sharpest rise in FDI inflows occurred

during the period of 1995-1997. In the fiscal year 2005-

2008, Bangladesh became the most liberalized investment

regime in the South Asian region. However, the empirical

studies on the direction of causality between variables

remain scanty. Therefore, the objective of this study is to

investigate the causality relationship between FDI and

economic growth in Bangladesh using time series data over

the period 1975- 2010. This paper is motivated by a number

of factors. First, there is a lack of other published studies

dealing with the causal links between FDI and economic

development (as measured by GDP per Capita) in

Bangladesh and investigating the whole period 1975-2010.

Secondly, it enriches the existing literature focusing on the

causality analysis of FDI on the dynamics of growth

measured by GDP per capita. Thirdly, it covers a period,

which includes some of the most important political, social

and economic transformations leading to a more integrated

therefore more globalize Bangladesh economy. The plan of

the paper is as follows: Section 2 briefly presents the

literature. Section 3 presents the data and methodology

employed. Analysis and empirical results in Section 4 and

Section 5 presents concluding remarks.

Literature Review

During the last two decades a large number of studies

focused on the role of FDI in stimulating economic growth

in the LDC. The considerable increase in FDI, especially in

developing countries as of 1990s has led to emergence of

some ideas that focus on the growth dynamics that are

measured by Gross Domestic Product (Pan, 2003). As a

result, the complex relationship between FDI and economic

growth resulted in a large number of empirical studies in

developed and developing countries. In the literature

regarding the causal links between FDI and economic

growth, De Mello (1997) showed that the rate of growth of

FDI inflows as a share of GDP in selective countries of

Southeast Asia and Latin America has outpaced exports as a

share of GDP over the period from 1980 to 1994.

Borensztein, Gregorio and Lee (1998) found that FDI

contributed economic growth to countries when the labor

force has attained certain level of educational standard.

Hansen and Rand (2006) found strong causal link from FDI

to GDP for a group of 31 developing countries during

(1970-2004). Ilhan Ozturk and Huseyien Kalyoncu (2007)

examined the effect of FDI on economic growth of Turkey

and Pakistan during 1975-2004 periods. The authors

employed both Engle- Granger co-Integration and Granger

causality techniques to analyze the direction of causality

between FDI and economic growth. The econometric results

indicated that it is GDP that causes FDI in the case of

Pakistan, while bi-directional causality was reported

between the variables for Turkey. Ericsson and Irandoust

(2001) calculated the cause and effect relationships between

FDI and economic growth by using the data collected from

four OECD countries (Denmark, Finland, Norway and

Sweden) in 2001. The researchers failed to find a causality

relationship for Denmark and Finland and they claimed that

the reason for this was the unique dynamics and nature of

FDI in these countries. Furthermore, Chakraborty and Basu

(2002) examined the causality between FDI and output

growth in India. Utilizing annual data from 1974-1996, they

found that the real GDP in India is not Granger-caused by

FDI and the causality runs from real GDP to FDI. Carkovic

and Levine (2002) scrutinized the effect of FDI on


economic growth and calculated that FDI had no impact on

long term economic growth. They argued that the lack of

positive impact of FDI on economic growth is not

conditional upon human capital, level of economic

development or openness of the economy. Similarly Wang

(2002) tried to explore which types of FDIs contribute

economic growth considerably. Within the context of the

study, he used the data between 1987-1997 fiscal years from

12 Asian countries and suggested that manufacturing FDIs

have positive impact on economic growth and this positive

effect is due to spillover effect of FDIs. Moreover, Liu,

Burridge and Sinclair (2002) tested the existence of a long

run relationship among economic growth, FDI and trade in

china. Using a Co-integration framework with quarterly data

for exports, imports, FDI and growth from 1981 to 1997, the

research found the existence of a bi-directional causal

relationship among FDI, growth and exports. Makki and

Somwaru (2004) used the data from 66 countries classified

in three decades (1971-80, 1981-90, and 1991-2000). This

study was extended replication of Borenzstein’s analysis in

a way to include 1990s as well. The results showed no

significant differences between these two empirical studies.

It has been found that FDIs affect economic growth to a

large extent together with foreign trade, human capital and

domestic capital and finally FDI has direct or indirect

positive effects on economic growth. Frenkel, Funke and

Stadmann (2004) examined the mutual effects of pushing

and pulling factors in developed countries with FDI

outflows and developing countries with FDI inflows. 22

countries and 1990- 2002 fiscal year data was used in this

study and it was found that as the GDP increase rate is

getting higher in developing countries with FDI inflows,

FDI volume is also increasing. Kholdy and Sohrabian

(2005) found no causal link between FDI and economic

growth. Chowdhury and Mavrotas (2006) found relationship

of bidirectional causality between FDI and economic

growth. Sridharan et al. (2009) analyzed the causal link

between FDI and economic growth among BRICS

countries. The results revealed a bi directional causal

relationship between growth and FDI for Brazil, Russia and

South Africa while unidirectional causality runs from FDI to

growth in the case of India and China. In Nigeria, Olusegun

Omisakin et al (2009) investigated causal and long run

relationships among FDI, trade openness and growth

between 1970 and 2006. The results indicated that a

unidirectional causality runs from FDI to output growth.

Kumar and Pradhan (2002) investigated the

relationships between FDI, economic growth and domestic

investment for a sample of 107 developing countries

between 1980 and 1999. The causality tests showed that

where as the direction is not clear for most countries,

causality runs from economic growth to FDI in a

considerable number of countries. Zhang (2001) examined

11 countries of Asia and South Africa and found no uniform

pattern of direction with regard to FDI and economic

growth. Hermes and Lensink (2003) examined role of

financial system of 67 countries and concluded that the

development of financial system was an important factor for

FDI to have a positive impact on economic growth.

Causality between FDI and economic growth had not

seemed to be valid for some countries. One of the studies on

this issue was conducted by Frimpong and Oteng-Abayie

(2006), who examined the causality between FDI and

economic growth in Ghana based on the data covering

1970-2002 fiscal years. Causality test done for two different

periods (1970-1983 and 1984-2002) produced conflicting

results for the period mentioned. Thus the empirical

evidence on the causal link between FDI and economic

growth is mixed that deserves fresh enquiry into the issue.

Methodology & The Model:

The present study employs data that consist of annual

observations during the period 1975-2009 to avoid the

seasonal biases. Furthermore, Hassapis et al. (1991) noted

that cointegration is a long run concept and thus requires

long spans of data to give the tests for cointegration more

power than merely increasing the data frequency. All data

are obtained from the World Bank (WDI) database and are

transformed into logarithmic returns in order to achieve

mean reverting relationships and to make econometric

testing procedures valid.

Finally, the econometric software, namely Microfit 4.1 and

Eviews 5.1 are used to complete the analysis in this study.

The model intends to establish the relationship between

foreign direct investment and national income of

Bangladesh where it can be expressed in the following basic

bivariate model.

ttt FY (1)

Where, tY is real gross domestic product (GDP) and tF is

the Foreign Direct Investment and t is white noise.

Logarithmic transformation of the above equation and

inclusion of a trend variable would leave the basic equation

as follows

ttt FEtLY 10 (2)

where, t is the trend variable.

While conducting an econometric study, the direction of

causal relationship among variables is determined according

to the information obtained from the theory. Classical

regression analysis is based on the assumption that the

method used is correct and the direction of the causality is

determined in the model. Therefore, in this study Granger

causality test will be used in order to test the hypothesis

regarding the presence and direction of causality between

FDI and economic growth. In order to apply Granger

causality test, the series that belong to variables should be

stationary. Therefore, it is necessary to make test for unit

roots to examine whether the series for these two variables

are stationary or not.

The standard Granger causality test (Granger, 1969) seeks to determine whether past values of a variable helps predict

changes in another variable. In the context of this analysis the Granger method involves the estimation of the following

equations:


tit

q

i

iit

q

i

it LFLYLY 1

1

2

1

10

(3)

tit

r

i

iit

r

i

it LYLFiLF 2

1

2

1

10

(4)

where, LYt and LFt represent real GDP and Foreign Direct Investment, respectively, t1 and t2 are uncorrelated stationary

random process, and subscript t denotes the time period. Failing to reject 0...: 222210 qH implies that

Foreign Direct Investment do not Granger cause real income activities. On the other hand, failing to reject

0 21 22 2: ... 0rH implies that real GDP do not Granger cause Foreign Direct Investment.

Empirical works based on time series data assume that the underlying time series is stationary. However, many studies have

shown that majority of time series variables are nonstationary or integrated of order 1 (Engle and Granger, 1987). The time

series properties of the data at hand are therefore studied in the outset.

The above specification of the causality test assumes that the time series at hand are mean reverting process. However, it is

highly likely that variables of this study are nonstationary. Formal tests will be carried out to find the time series properties

of the variables. If the variables are I (1), Engle and Granger (1987) asserted that causality must exist in, at least, one

direction. The Granger causality test is then augmented with an error correction term (ECT) as shown below:

ttit

q

i

iit

q

i

it ZLFLYLY 111

1

2

1

10

(5)

ttit

r

i

iit

r

i

it ZLYLFiLF 211

1

2

1

10

(6)

where Zt–1 is the ECT obtained from the long run cointegrating relationship between real GDP and Foreign Direct

Investment. The above error correction model (ECM) implies that possible sources of causality are two: lagged dynamic

regressors and lagged cointegrating vector. Accordingly, by equation (5), Foreign Direct Investment Granger causes real

GDP, if the null of either 210

q

ii

or 1 0 is rejected. On the other hand, by equation (6), real GDP Granger

causes Foreign Direct Investment, if 1 is significant or 21

r

ii

are jointly significant. Real output and Foreign Direct

Investment granger cause each other i.e. presence of bidirectional causality), if causality exists in both directions.

Results and Discussion

Table 2 reports the descriptive statistics for the sample of two variables under investigation. Overall calculations indicate that

GDP and FDI are not normally distributed and are characterized as leptokurtic and skewed.

Table 2: Descriptive Statistics

GDP FDI

Mean 3.884557 8.704907

Median 3.922462 8.811030

Maximum 4.491337 9.728750

Minimum 3.157563 7.380211

Std. Dev. 0.349487 0.580046

Skewness -0.308467 -0.683098

Kurtosis 2.353133 2.490166

Jarque-Bera 0.987118 3.284203

Probability 0.610450 0.303497

Observations 35 35

Note: LY: Log of real GDP; LF: Log of Foreign Direct Investment

Table 3 displays the estimates of the ADF & Phillips-Perron

(PP) unit root test in levels and in first differences of the

data with an intercept, with an intercept and trend and with

no intercept or trend. The co-integration test among the

variables that are used in this research requires previously

the test for the existence of unit root. The tests have been

performed on the basis of 1 percent significance level, using

the McKinnon Critical Values. The minimum values of the

Akaike (AIC) statistics have provided the better structure of

the ADF equations. According to these calculations the null

hypothesis of a unit root in the time series cannot be rejected

at 1 percent level of significance in variable levels and for

all three types of ADF procedure. However, when the data

sets are transformed into their first differences, all types of

ADF test results imply that GDP per capita and FDI are both

stationary. So, these variables are integrated of order one i.e.

I (1).


Table 3: Augmented Dickey- Fuller & Phillips-Perron(PP) Tests Unit Root Test Results

Variables Augmented Dicky-Fuller (ADF) Tests Phillips-Perron(PP) Tests Process

Statistics P-values Unit

Root

Process Statistics P-values Unit

Root

Test equation: intercept

LF -1.070639 0.7135 Yes I(1) -1.5286 0.5069 Yes I(1)

LY 4.215263 1 Yes I(1) 1.771304 0.9995 Yes I(1)

Δ F -3.356104** 0.0228 No I(0) -10.8786*** 0 No I(0)

Δ Y -

4.715276***

0.0021 No I(1) -11.8185*** 0 No I(0)

Test equation: trend and intercept

LF -4.572819 0.0062 No I(0) -6.34771*** 0 No I(0)

LY 1.798917 1 Yes I(1) -4.23461 0.0107 Yes I(1)

Δ F -3.469366* 0.0649 No I(0) -15.8342*** 0 No I(0)

Δ Y -

11.48783***

0 No I(0) -39.1524*** 0 No I(0)

Note: The variables ‘Foreign Direct Investment’stand for the log of ‘Foreign Direct Investment’ as defined

before and the log of real GDP respectively. Δ denotes the first difference and ΔΔ denotes second difference

of the variable. The null hypothesis states that the variable has a unit root. P-values are used to decide the

unit roots at the 1 percent significance level. The critical values and details of the tests are presented in

Dicky and Fuller (1979, 1981) and Phillips and Perron (1988). The AIC determines the lag length (P) in the

ADF tests ( see Stock and Watson 2007:561 for details). Test equation: trend and intercept. *,**, and ***

denote rejection of null at 10%, 5%, and 1% level of significance.

Source: World Development Indicators ( WDI-World Bank 2011)

Since it has been determined that the variables under examination are integrated of order one, the co-integration test is

performed. Table 4 provides the results from the application of Johansen co-integration test among the data sets. Evidence

show that both the maximum eigen value and the trace tests reject the null hypothesis of no co-integration at the one percent

significance level according to critical value estimates. So, these results suggest that the number of statistically significant

co-integration vectors is equal to one.

Table 4: Results of Johansen co-Integration test

Date: 02/03/2012 Sample (adjusted): 1975 2010

Series: FDI RGDP

Lags Interval: 1 to 1

Hypothesized No. of

CE(s)

Eigenvalue Trace Statistics 5 percent Critical

value

1 percent Critical

value

None ** 0.423063 20.58740 15.41 20.04

At most 1* 0.169098 5.186800 3.76 6.65

*(**) denotes rejection of the hypothesis at 5%(1%) level

Trace test indicates 2 co integrating equation(s) at the 5% level

Trace test indicates 1 co integrating equation(s) at the 1% level

Hypothesized No. of

CE(s)

Eigenvalue Max –Eigen

Statistics

5 percent Critical

value

1 percent Critical

value

None ** 0.423063 15.40060 14.07 18.63

At most 1* 0.169098 5.186800 3.76 6.65

*(**) denotes rejection of the hypothesis at 5%(1%) level

Max-Eigen test indicates 2 co integrating equation(s) at the 5% level

Max-Eigen test indicates no co integration at the 1% level

After determining that the selected macroeconomic

variables are co-integrated, the Granger-causality analysis

is examined to find the causal links between the variables

under examination. As a testing criterion the F-statistic

was used. Table 5 reports the estimations of the Granger

causality tests. The outcome of the Granger causality tests

is shown in Table 4. Results of the Granger-causality test

showed that the null hypotheses of FDI does not Granger-

cause GDP per capita is rejected in 1 and 2 year lags, at

the 5% and the 10% levels, respectively. On the other

hand, the null hypotheses of GDP does not Granger-cause

FDI is not rejected. This leads to the conclusion that there

is only a one-way causality running from FDI to GDP.


Table 5: Granger Causality Test results

F - Statistics

Null Hypothesis Lag 1 Lag 2 Lag 3 Lag 4

FDI does not Granger–cause GDP per Capita 10.4221** 6.1223* 0.0021 0.5225

GDP per Capita does not Granger-cause FDI 0.142271*** 0.9212*** 1.8272 0.3996

* Reject the null hypothesis at the 10 percent significant level.

** Reject the null hypothesis at the 5 percent significant level.

*** Reject the null hypothesis at the 1 percent significant level.

Concluding Remarks and Policy Implications:

This study examines the relationship between FDI and GDP

per capita in the economy of Bangladesh, using the

methodology of Granger causality and Johansen co-

Integration test.

Strong evidence emerges that the economic growth as

measured by GDP in Bangladesh is Granger-caused by the

FDI. This means that there is a unidirectional causality

running from FDI to GDP. There is no evidence that the

causality link between FDI and GDP is bi-directional in

Bangladesh. Bangladesh appears to harbor the most

systematic foreign investment regime in South Asia,

especially since the beginning of 1990s, due to various

facilitating steps taken to attract FDI. Since the mid-1980s,

Bangladesh was one of the frontrunners in implementing

trade related reforms and measures in this regard which

included a significant decline in quantitative restrictions,

opening up of trade in many restricted items, rationalization

of import tariffs, and liberalization of the foreign exchange

regime. As a result, Bangladesh has been successful in

maintaining a considerable level of economic growth over

the years. The results of this study also reflect the outcomes

of the abovementioned reform measures. The results clearly

indicate that FDI causes economic growth in the perspective

of Bangladesh. It is also found that FDI has a dynamic and

positive impact on the domestic investment of Bangladesh

with positive and dynamic impact of domestic investment

itself. Thus the respective authorities ought to put efforts in

encouraging more FDI inflows to Bangladesh and review

the existing policies in liberalizing trade.

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***


The critique of usury in Oriental, Occidental and

Islamic literature: A historical perspective

Prof.(Dr.) Mohammed Galib Hussain,

Emeritus Professor & Rector,Islamiah College (Autonomous), Vaniyambadi,India

Abstract

In the interest based present day global economy the intense

criticism of interest by philosophers, social reformers and

religious traditions is not properly highlighted.On the

grounds of cultural ethical social justice, economic stability,

ecological preservation and inter generational equity the

institution of interest is attacked. This paper presents

historical evidence of critique of usury in oriental ,

occidental and Islamic traditions over a period of 4000

years.

Keywords

Interest, Usury, Riba, Hinduism, Buddhism, Judaism,

Christianity,Islam, Greek philosophy, Western economists.

Introduction

Interest is usually conceptualized as the practice of charging

extra money over and above the principle amount of a loan.

The condemnation of usury can be traced back

approximately from thousand years and during this period it

has been disapproved, sometimes out rightly condemned,

scorned on moral, ethical and legal grounds. The semantic

religious institutions of Judaism, Christianity, Islam have

outrightly prohibited it. Non semantic religious like

Hinduism Buddhism have condemned this practice. To the

list of these religious traditions we may add Greek

philosophers like Aristotle in outright condemnation of

interest as well as modern western economists. This paper

traces the history of criticism of interest and the rationale

employed by these critics.

Oriental Religious Literature(1)

The critique of interest in Hinduism and Buddhism the

Vedic texts of ancient India (2000-1400 BC) speak about

interest. Vedic texts refer usurer (kasidin) at several places

and interpreted as money lender for interest . Sutra texts

(700-100 BC) give frequent and detailed reference to

interest payment; they speak condemning usury.

Buddists Jatakas (600-400) BC express strong

condemnation for usury. It was during this period, Vashishta

a well-known Hindu law maker of that time prohibited

higher castesof Brahmanas (priests) and Kshatriyas

(warriors) from practicing money-lending business

atinterest. However the definition of interest was modified

and interpreted as to mean “stipulated interest beyond the

legal rate”. It means law prescribed ratewas accepted. Such

contracts were enforceable. Interest beyond legal rate of

interest was termed usury; the amount beyond the legally

permitted limit could not be recovered.

This dilution was brought about by the laws of Manu.

Through the remaining course of financial history of India,

though the usury is repugnant to public morality, but

acceptable as long as it was within the socially and legally

acceptable limits.

Interest in Greek Philosophy

Aristotle(2) says in his politics, the most hatred sort of such

exchange is usury, which makes again of money itself and

from its natural use. For money was intended as an

instrument of exchange and not as the mother of interest.

“This usury (tokes), which means the birth of money from

money… is of all modes of gain, the most Unnatural”.

Aristotle contention was that money should not breed. He

felt that a free man should not engage himself in money

making or finance. Function of money should be restricted

to medium of exchange and not as a store of value. If time

dependent values are assigned to the money supply, it

undermines thestabilityof money as a measure of value.This

was the view of Italian philosopher Thomas Aquinas (13th

century A.D). Even among the ancient western philosophers

who condemned usury are Plato, Roman Stoic, Seneca (65

AD), Cicero and Plutarch. The writings of these

philosophers is reflected in the civil law of that period which

outlawed interest altogether in Republican Rome (340 BC).

With the passage of time in practice, ways of circumventing

such legislation were found, usury was once again life. The

sufferings of the people under the burden of the debt was

realized by the democratic party in Rome, which

rededicated itself to the cause of debt ridden people under

the banner of Julius Caesar, a ceiling of 12 percent was set.

Interest in Judaism

Interest is forbidden, discouraged in several

bibliginal passages in the Old Testament (Torah) “Neshekh”

is the Hebrew word used in Torah forinterest which means

“a bite” and it refers to the extraction of money from the

doctor. In the exodus and Liviticus texts, this word is used

to mean extracting extra money from the poor and destitute.

Deuteronomy, another text of the Torah expressly prohibits

interest based loans even for business dealings. Every loan

remaining outstanding seventh year was to be cancelled.

Taking any type of interest was defined and condemned

usury. However, these regulations were applied to fellow

members of Jews, but for non-Israelic partners; it was

nothing wrong in acceptinginterest.


Interest in Christianity

Basing on the authority of the Old Testament and

the New Testament as early as fourth century AD, Roman

Catholic Church prohibited the taking of interest by the

priests, a rule which was extended to the common Christians

in fifth century. It was declared as criminal offence in the

eighth century. Anti-interest movement gained momentum

all through the middle ages. In 1311 Pope Clement V

banned usury and declared null and void.

However with the growth of Protestantism and pro-

capitalism, Christians found loopholes in the law and

contradictions in the agreement of church. Interestingly both

Luther and Calvin expressed reservations about usury but

they did not condemn its universal acceptability. In

17thcentury, the concept of usury underwent metamorphosis

from being an offence against public morality to being a

matter of private conscience. The present day Christian

moralist have redefined usury as excess interest.

Western economists and Interest

To be sure, none of the main stream western

economistshave advocated an interest free economy.

However they recognized the problems associated with

interest. Even Adam Smith,(3) though advocated pure

capitalistic economy, supported strongly the idea of

controlling usury. To ensure availability of funds to low

riskborrowers instead of making funds available to

speculative ventures, he felt, these should an interestceiling.

John Maynard Keynes(4) too was critical of the

role played by interest rate and bank credit in cyclical

process.

Fisher(5) gives logical explanation of the role

played by interest and banking sector in exacerbating

depression. When there is excessive leverage, once profit

and asset prices begin to tumble, firms and speculators find

themselves with dept servicing commitments that plays high

burden on cash flows leading to liquidation of assets. This

has two results: distress selling reduce asset values and loss

of confidence; the hoarding of currency when the

collateralrates fall, banks stop lending which further

aggravates the depression. The net result is decline in

production and employment.

Usury and Islam#

The word used in Islam is riba; etymologically it means as

increase in common parlance it refers to interest.

The definition of riba in Islam is very simple as in all other

religions: It is surplus value to be paid at the repayment of

loan. For example if loan taken at point O time is $ 10,000

at the end of the year if the borrower repays $11,000 the

excess amount of $1000 is riba.

The Quran and the Sunnah, two main sources of Islam

specifically and categorically prohibit riba. On the topic of

riba the first verse to be revealed was Surah al Rum, “

Whateverriba you give so that it may increase in the wealth

of the people it does not increase with Allah.( The Quran

30:39)

The Quran mentions about riba eight times and surah

Baqarah usesstrong language in the following words: O you

who believe! Fear God, and forgo what remains of usury, if

you are believers.

If you do not, then take notice of a war by God and His

Messenger. But if you repent, you may keep your capital,

neither wronging, nor being wronged.

But if he is in hardship, then deferment until a time of ease.

But to remit it as charity is better for you, if you only

knew(The Quran,2:277-280).

The Prophet declared the practice of ribaworse than

committing adultery with one’s mother.

Notes #Authentic translation of the Quran and the Hadith are

quoted.

1 Jain L.C.(1929),Indigenous Banking in India

,London:Macmillan & Com(pp. 3-10).

2. Aristotle.(1999), Politics, Translated by Benjamin

Jowett. Batoche Books. Kitchener.

3 Adam Smith(1982), The Wealth of The Nations,New

York: Penguin Books .

4 John Maynard Keynes( 1936), The General Theory of

Employment , Macmillan Cambridge University Press, for

Royal Economic Society.

5Fisher, Irving (1933), "The Debt-Deflation Theory of

GreatDepressions", Econometrica

***

http://en.wikipedia.org/wiki/Irving_Fisher

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

http://en.wikipedia.org/wiki/Econometrica


A study on the production potential of soya in

Madhya Pradesh

Dr. Kalpana Agrawal, Assistant Professor, Prestige Institute of Management and Research, Indore

Dr. Sukhjeet Matharu, Assitant Professor, Prestige Institute of Management and Research, Indore &

Ravindra Nagar, Prateek Namdev, students, Prestige Institute of Management and Research Indore.

Abstract

Madhya Pradesh is the highest producer of Soyabean due to

various favorable factors. Soybean is the most important

kharif crop of Madhya Pradesh. In fact it is the agricultural

crop touching the lives of nearly 100 percent of the farming

families in Madhya Pradesh. The purpose of this research is

to determine the production potential of Soya in Madhya

Pradesh on the basis of past records. The present study has

used secondary data which was collected from reliable

sources for forecasting the production potential of soya in

the upcoming years. The results of this study will be helpful

for determining the contribution of the state in the

international trade for soya export & thus contribution in the

Indian economy. This study will enable to produce efficient

and useful results for the entrepreneurs, government and

who so ever it may concern. The study revealed that on an

average a growth rate of 21.35% is expected in soya

production in Madhya Pradesh. The present study will

encourage stake-holders to initiate the exports of concerning

sector along with the sustainable growth and that will not

only lead to promotion of exports of Madhya Pradesh, but

also this will give the pace to growth of emerging Indian

economy.

Keywords: export potential, sustainable growth, Indian

economy.

Introduction

The soybean or soya bean is a species of legume native to

East Asia, widely grown for its edible bean which has

numerous uses. It is an important protein source for millions

of people for over five thousand years. It can be grown on a

variety of soils and a wide range of climates. The plant is

classed as an oilseed rather than a pulse by the Food and

Agricultural Organization.

In 2008 the soybean production of the world ( in million

metric tons) United States 80.5, Brazil 59.9, Argentina

46.2, China 15.5, India 9.0, Paraguay 6.8, Canada 3.3,

Bolivia 1.6, European Union 0.6 and Worlds Total

production 230.9. The main producers of soybean are the

United States (35%), Brazil (27%), Argentina (19%), China

(6%) and India* (4%). In India Madhya Pradesh,

Maharashtra, Rajasthan and Andhra Pradesh are the major

producers of soybeans. Madhya Pradesh tops the list. Nearly

88% of soya bean is produced in the state. During 1997-98

total soya bean production in the state was 49.19 metric tons

which was about 84.2% of the total produce.

History of soya

The origin of soybean can be traced to China and was

introduced to India centuries ago through the Himalayan

routes, and also brought in via Burma (now Myanmar) by

traders from Indonesia. As a result, soybean has been

traditionally grown on a small scale in Himachal Pradesh,

the Kumaon Hills of Uttar Pradesh (now Uttaranchal),

Eastern Bengal, the Khasi Hills, Manipur, the Naga Hills,

and parts of central India covering Madhya Pradesh. Today

Madhya Pradesh is the highest producer of soybean.

Basically India is a land of agriculture, so agriculture and its

trading have an enormous importance as far as the Indian

economy is concerned. In fact soybean is the most important

kharif crop of Madhya Pradesh. Soyabean is the agricultural

crop touching the lives of nearly 100 percent of the farming

families in Madhya Pradesh and the set of people dependent

on the farming activities namely labor. Soybean also known

as the miracle crop is highly rich in proteins and oil content,

and other attributes such as it has beneficial effects on soil

fertility, several attempts were made in the past to

popularize soybean cultivation in India. Mahatma Gandhi

himself had taken initiative in 1935.

Government of India has taken many initiatives for

enhancing the production of soyabean in India. The first

systematic attempts to develop improved varieties of

soybean suitable for Indian environments were made in the

early 1900s at the Pusa Agricultural Research Farm in Bihar

State, and the work was eventually extended to West

Bengal, Orissa, Uttar Pradesh, Delhi, Punjab, Madhya

Pradesh, Maharashtra, Tamil Nadu, and Rajasthan

(Woodhouse and Taylor, 1913; 1914; Lal, 1968).

Literature review

Williams et al. (1974) estimated that if all the fallow and

marginal lands were brought under soybean, Madhya

Pradesh alone would have over two million hectares under

soybean. This eventually came to be true, thanks to the

concerted efforts of the Madhya Pradesh Government and

the M P State Cooperative Oilseed Growers Federation in

promoting soybean cultivation and marketing in the State.

As a step towards increasing the yield of soybean, initiatives

were taken to develop improved, high yielding soybean

varieties with good seed viability. Seed viability during

storage was observed to be related to seed size: varieties

with a 100-seed mass of more than 15 gram lost viability

quickly, whereas varieties with a 100-seed mass of 10 gram

or less showed little loss of viability even after a year.


However, these small-seeded varieties had low yield and

low oil content. On the other hand, varieties with a 100-seed

mass of 12–15 gram maintained good viability for 7–8

months, had good yield potential, and contained high levels

of oil and protein. Therefore, seed mass became one of the

selection criteria in the breeding program for improved seed

viability. These findings paved the way for a systematic

soybean breeding program, and a number of new improved

varieties were developed (Singh, 1975; Singh and Saxena,

1975).

Along with the variety improvement program, considerable

research was also done by agronomists, microbiologists,

plant pathologists, entomologists, food scientists, and

economists under the auspices of the national coordinated

project (Saxena et al., 1971). This led to the development of

a complete package of practices for soybean production for

different agro climatic zones and cropping systems, and to

the initial spread of soybean cultivation in parts of Uttar

Pradesh and Madhya Pradesh.

Objectives of the Study

To study the rate of growth of soybean production in

Madhya Pradesh.

To envisage the role of Madhya Pradesh in soya

production.

To develop a model for future prediction upon

production of soya in Madhya Pradesh.

Research Methodology

The study:

The paper attempts to study the potential growth of soya in

Madhya Pradesh.

Tools for Data Collection:

The study is based on secondary data. The Data

were collected from various sources like Internet,

Books, journals and SOPA (The Soybean

Processors Association of India).

Tools for Data Analysis:

The Data was tabulated in Excel sheet and the collected data

was analyzed with the help of Trend Analysis Method.

Findings

Soyabean production data of Madhya Pradesh and India for

the past 10 years from 2002-03 to 2011-12 was analyzed

with the help of Trend Analysis Method. Findings of the

study reveal that there is positive growth rate of soyabean

production in Madhya Pradesh as well as India as a whole.

A growth rate of 21.35% in Madhya Pradesh and 19.12%

growth rate in India as a whole was revealed by the study.

The data collected was tested by applying trend analysis

method.

Conclusion

On the basis of this study it can be concluded that there is a

positive growth trend in soybean yield in Madhya Pradesh

as well as India as a whole. This positive trend can be

attributed to the initiations and efforts taken by the

government in the form of research and development in

soybean production. In Madhya Pradesh a significant

growth was observed in the past years on account of

intensified research and development undertaken by the

scientists at the National Research Centre for Soybean,

Indore. Apart from the private sector investment, the

financial support from the government can go a long way in

facilitating high soybean production in Madhya Pradesh.

Presently the greatest challenge for Indian scientists and

development programs is to increase the average yield of

soybean.

Reference

Lal, M.S. (1968). Soybean research. Technical

Bulletin 10. Jawaharlal Nehru Krishi Vishwa

Vidyalaya, Jabalpur, Madhya Pradesh, India.

Joshi, M. Kabra, R., Diwakar,A. Maal, R. (2011) ,

Gravity. “ A Study on the Export Potential of Soya,

Leather and Textile from Madhya Pradesh”, pp.

127- 155

Singh, B.B. and Saxena, M.C. (1975). Soybean

varieties for different agroclimatic zones in India.

Seed Technology News 5:5–7.

Singh, B.B. 1975. High yielding varieties of

soybean. Indian Farmer’s Digest VIII:39–40.

Saxena, M.C., Pandey, R.K., and Hymowitz, T.

(1971). Agronomic requirements of soybean

[Glycine max (L.) Merr]. Indian Journal of

Agricultural Sciences 41:339–344.

SOPA (The Soybean Processors Association of

India), Accessed on 1stFeb’12. ( Production data

of Soya)

Williams, S.W., Hendrix, W.E., and von Oppen,

M.K. (1974). Potential production of soybean in

North Central India. INTSOY Series 5. University

of Illinois, Urbana, Illinois, USA.

Woodhouse, E.J. and Taylor, C.S. (1913). Varieties

of soybean found in Bengal, Bihar, Orrissa and

their commercial possibilities. Memoirs of the

Department of Agriculture of India 3:103–176.

Woodhouse, E.J. and Taylor, C.S. (1914). The

value of Indian soybean. Agriculture Journal of

India 9:308–309.

http://finance.indiamart.com/markets/commodity/s

oyabean.html

http://www.antya.com/topic/soya-products/indore

http://en.wikipedia.org/wiki/Soybean on 7th

feb’12, 04:27 pm (Production rank of India around

the World of Soybean)

http://finance.indiamart.com/markets/commodity/soyabean.html

http://finance.indiamart.com/markets/commodity/soyabean.html

http://www.antya.com/topic/soya-products/indore

http://en.wikipedia.org/wiki/Soybean%20on%207th%20feb'12

http://en.wikipedia.org/wiki/Soybean%20on%207th%20feb'12


Annexure

Table 1: Past Production & future growth potential of Soya in India

The model used for trend analysis is:-

S= a + b*t

S= yield forecast India*

a= Growth production value of soya per year*

b= calculated value production of soya per year*

t= forecast year*

S = 4352+ 711*t

Years ALL INDIA

( ‘000 Tons)

2002-03 4300

2003-04 6932

2004-05 6122

2005-06 7388

2006-07 7150

2007-08 9642

2008-09 9308

2000-10 9725

2010-11 10128

2011-12 11929

2012-13 12173

2013-14 12884

2014-15 13595

2015-16 14306

2016-17 15017 ∑S= Na + ∑Tb …….1

∑ST= a ∑T + b ∑T2 …….2

82624 = 10a + 55 b …….1

513082 = 55a + 385 b …….2

(……1 *55) 4544320 = 550 a + 3025 b

(…..2 *10) 5130820 = 550 a + 3850 b

586500 _____ + 825 b

b = 586500/825

b = 710.9

b = 711

(….1*385)

31810240 =

3850 a

+ 211756 b

(….2*55)

28219510 =

3025 a

+ 211756 b

3590730 =

825 a

+ ________

a = 3590730/825

a = 4352.4

a = 4352


Table 2: Past Production & future growth potential of Soya in MP

Years Production in MP

( ‘000 Tons)

2002-03 2850

2003-04 4169

2004-05 3660

2005-06 4450

2006-07 3943

2007-08 5100

2008-09 5195

2009-10 5508

2010-11 6099

2011-12 6170

2012-13 6582

2013-14 6921

2014-15 7261

2015-16 7600

2016-17 7940

The model used for trend analysis is:-

S= a + b * t

S= yield forecast Madhya Pradesh*

a= growth production value of soya per year*

b= calculated value production of soya per year*

t= forecast year*

S= 2847+ 339.5*t

47144 = 10a + 55 b ……1

287303 = 55a + 385b ……2

(….1 * 55) 2592920 = 550 a + 3025 b

(….2 * 10) 2873030 = 550 a + 3050 b

280110 = ______+ 825 b

b = 280110/825

b = 339.527273

b = 339.52

(…1 * 385) 18150440 = 3850 a + 21175 b

(….2 * 55) 15801665 = 3025 a + 21176 b

2348775 = 825 a + ______

a = 2348775/825

a = 2847


Organized Retailing in Rural India – An

Exploratory Study

Dr. Kalpana Agrawal, Assistant Professor, Prestige Institute of Management and Research, Indore

Nidhi Sharma, Assitant Professor, Prestige Institute of Management and Research, Indore &

Ayush Sahu, Student, Prestige Institute of Management and Research Indore

ABSTRACT:

Organized retail is increasingly taking off in India and as

more than 65% of India’s population is living in rural areas,

retailers are fast penetrating rural markets with different

models to serve the shoppers of rural and semi-urban India

with many innovative ideas like smaller size products that

appeal to this segment. This project first studies some of the

retailers who have already entered these markets with rural

supermarket format: Future group and Godrej’s joint

venture Aadhar, ITC’s Choupal Saagar, DCM’s Hariyali

Kisaan Bazaar, Triveni Khushali Bazaar. The objective of

the project is to study the organized rural retailers to discuss

some of the opportunities and challenges for the organized

rural retailer and thereafter to give useful suggestions to the

retailers so that they can successfully tap and satisfy rural

markets.

KEY WORDS:

Rural Retailing, Rural India, Organized Retailing.

INTRODUCTION:

According to the provisional data released by Census India

(2011), the population of India is 1.21 billion comprising

rural and urban population that is 68.84 percent and 31.16

percent respectively. A vast majority of country’s

population resides in rural areas. In mid 1990s, the story of

organized retail in India started in modest way in metro

cities like Madras, Hyderabad and Bangalore – mainly in

urban India. Today, the retail sector is witnessing

exponential growth with retail development taking place not

only in major cities and metros, but also in Tier-II and Tier-

III cities including some of the rural and semi-urban areas.

Therefore, the next phase of growth, after saturating urban

retail markets, is expected to come from rural India which

accounts almost half of the domestic retail market. Retail

companies are expected to tap the rural segment of the

country further as their key engine of growth. Therefore,

companies like HUL and ITC are focusing on the rural

market as it constitutes over 33 percent of India’s total

FMCG consumer base. Organized retailing, especially in

rural India, is still in a nascent stage. With rising income

level and improving lifestyle of rural consumer, the retail

sector is promising a huge growth in rural India.

In a National Retail and FMCG Summit (2011) organized

by the Confederation of Indian Industry, Mr. Thomas

Varghese, Chairman, CII National Committee said,

“Farmers who earn less than 25 per cent of consumer price

can make up to 30 per cent more through organized retail. It

will benefit consumers by making common goods more

affordable, leading to a savings of $25 to 30 billion or

almost 0.5 per cent of country’s GDP by 2020.” Another

report by A.T Kearney’s Global Retail Development Index

(2011) ranked India fourth among the top 30 developing

countries for retail expansion world-wide. Organized retail

accounts for 7 percent of India’s roughly $435 billion retail

market and it is expected to reach 20 percent by 2020.

Moreover, retail sales account for 33 percent of India’s GDP

and employs over 38 million people in the country.

According to KPMG report (2011), Indian retail industry is

the fifth largest in the world. Organized retail industry is one

of the fastest growing industries in India and with growing

market demand. Retail industry is expected to grow at a

pace of 25 to 30 percent annually. Growing young

population, rising disposable income, increasing number of

working women and growing urbanization coupled with

changing consumer preferences are some of the strong

growth drivers of India’s organized retail industry.

KEY PLAYERS IN ORGANIZED RETAILING

SEGMENT IN RURAL INDIA

The retail market in rural India is highly fragmented and

mainly dominated by small and independent traditional

shops. Following are some major retailers, who are, at

present, catering to rural segment of India except ‘Khushali

Bazaar’ which discontinued its business from April, 2010.

Triveni Khushali Bazaar (2005 – 2010):

Triveni Engineering & Industries Ltd (TEIL) is the third

largest sugar producer in India with a presence in the

engineering sector. It is also the market leader for

manufacturing steam turbines, high speed gears and gear

boxes and water and waste water treatment equipments. It

was incorporated in 1932, under the name Ganga Sugar

Corporation and renamed as Triveni Engineering &

Industries Ltd. on 31 March, 2000. TEIL is a diversified

business model having two unrelated businesses – Sugar

production and Engineering. In February 2005, the company

introduced ‘Khushali Bazaar’ – a chain of stores for rural

and semi urban customers mainly to support its sugar

business. It operated over 0.125 million square feet with 42

stores concentrated only in UP and Uttrakhand. It launched

this new enterprise to meet the demands of the farming

community by offering variety of products and services like

agri-products, farming equipments, cattle feed, plastic

furniture etc.


Range of Products and Services offered by ‘Khushali

Bazaar’

Retailing Services

Agri-inputs - Fertilizers and Pesticides

Farming - Farming instruments and Tractors

Others - FMCG, Cattle feed, Plastic furniture etc.

Insurance* - Agriculture, Consumer, Financial and

General

Hariyali Kisaan Bazaar:

It is the division of DCM Shriram Consolidated Limited

(DSCL)’s Agri- Business. The company (DSCL) operates in

two lines of business – Agri/Rural, Chemicals and polymers.

Their Agri-business offerings comprise agricultural inputs,

both manufactured and merchandised, outputs, distribution

and services. The company initiated a ‘Rural Retailing’

initiative with the objective to move towards providing total

solutions to the farmers. Hence, it can be said one-stop shop

for meeting farming and family needs of the rural

population. It has 264 outlets in many villages of eight

different states – Haryana, Punjab, Uttar Pradesh, Rajasthan,

Uttrakhand, Madhya Pradesh, Maharashtra and Andhra

Pradesh. It serves approx. 4 million rural families in

catchment area of around 2.2 million square feet. Each

‘Hariyali Kisaan Bazaar’ store offers multiple products and

services to the rural and farming community and each of its

centers operates in a catchment of about 20 kms. A typical

centre caters to agricultural land of about 50000-70000 acres

and impacts the life of approx. 15000 farmers.

Range of Products and Services in ‘Hariyali Kisaan Bazaar’

Retailing Services

Agri-inputs – Fertilizers, Pesticides, Diesel and

Petrol (under alliance with BPCL)

Farming – Farming instruments, Contract farming

Others – FMCG, durables, apparels, Seed

Processing etc.

Insurance – Agriculture, Agronomy advisory,

Insurance, Credit etc.

Others – Output Procurement & Trading

Aadhaar:

Started in December 2003, Aadhaar Retailing was Godrej

Agrovet’s rural retail initiative catering to the growing

consumption demand in rural India. Godrej Agrovet Ltd., a

part of the Godrej Group, is a market leader in animal feeds,

branded chicken, innovative agri- products & oil palm

development in India. In March 2008, Aadhar Retailing

entered into a joint-venture between Future Ventures India

Limited (FVIL) which held 70 percent stake and Godrej

Agrovet which held rest of the 30 percent stake in Aadhar

Retailing Limited. FVIL is part of Future Group – an

established leader in Indian retail sector. It had purchased

the stake for Rs 30.18 core from its promoter Godrej Agro

vet. Aadhar is a rural and semi-urban retailer of agricultural

products and consumer products. Besides retailing, it

provides Agri-services in rural area and operating through

51 exclusive outlets (as of February, 2011). The combined

entity is expected to create more value that is driven by

Future Group’s excellent knowledge in retailing and

Godrej’s reach of rural consumers as well as vast experience

in rural marketing in the country.

Range of Products and Services in ‘Aadhaar’ Retailing

Services

Agri-inputs – Fertilizers and Pesticides

Durables – Mobile phones & accessories,

appliances, Kitchenware etc.

Others – Furniture from Godrej Interio, Toys,

Cosmetics, Stationery and gift items, fresh fruits &

vegetables etc.

Credit and Financing – Agriloans to the farmers

(by HDFC Bank), Life insurance (ICICI

Prudential) etc.

Others – food-court, Soil testing and provide

advice to farmers.

ITC Choupal Saagar:

ITC launched the Choupal Saagar in 2004 and it is one of

the first organized retail forays into the hinterland. Choupal

Sagar is a rural hypermarket which is managed by ITC’s

agri-business division. Farmers can sell their commodities

and can buy almost everything including cosmetics,

garments, electronics, appliances and even tractors.

Currently, there are 24 Choupal Saagars: 11 in Madhya

Pradesh, 5 in Maharashtra and 8 in Uttar Pradesh. With the

success of e-Choupal (world’s largest rural digital

infrastructure), ITC is engaged in scaling up the rural

retailing initiative to establish a chain of 100 Choupal

Saagars in the near future. Local sourcing of vegetables and

fruits allows the company to deliver fresh and save on the

expense of a cold chain. Moreover, ITC’s procurement

centers functions to provide farmers the option of selling

their produce directly to ITC instead of bringing it to the

mandi. ITC’s Agri Business Division conceived e-Choupal

as a more efficient supply chain aimed at delivering value to

its customers around the world on a sustainable basis. It is

an initiative to link directly with rural farmers for

procurement of agricultural/ aquaculture produce like

soybeans, wheat, coffee and prawns (Dangi & Singh, 2010).

Launched in June 2000, ‘e-Choupal’, has already become

the largest initiative among all Internet-based interventions

in rural India. Among those discussed above, there are few

others: HUL’s Shakti, Reliance Retail’s Fresh & Fresh Plus,

Mahindra & Mahindra’s Shubhlabh and Tata’s Kisan

Sansar, who are capitalizing on rural India’s potential by

partnering with farmers and establishing rural retail chains.

REVIEW OF LITERATURE:

To know the market as well as consumers is a challenging

task. It is imperative for retailers to gain insights of rural

consumers. Kulkarni (2011) emphasized that the marketers

who want the effective penetration and reach in the rural

markets need to understand the ever-changing nature of the

rural markets because it has always been difficult to judge

the rural market as well as rural consumers. The size of rural

market is estimated to be 42 million households and rural

market has been growing at five times the pace of the urban

market


Rural India is at the centre-stage of all retail growth in the

future. However it continues to suffer from lack of basic

infrastructure. Caught in the vicious poverty-cycle, rural

India, in absence of adequate infrastructure, finds it difficult

to undertake activities that can accelerate economic growth.

Home to close to 69 per cent of India’s total population,

rural India faces the daunting task of providing sustainable

income and employment opportunities to a major section of

the population, especially the lower income households. In

absence of infrastructure facilities, there is lack of market-

access to rural population, slow growth in organized retail

and thus, limited livelihood opportunities, stagnation in

agriculture and aggravation of rural poverty-levels. Absence

of infrastructure also makes rural markets fragmented,

characterized by high costs of transactions and high

information asymmetry.

As India moves into modern retailing with several changes

with regard to its markets, bands and consumers there are

unique challenges that a multinational company entering

India has to cope up with, whether it is a fast moving

consumer goods (FMCG) company or a multinational retail

chain like Tesco or Wal-Mart. There are unique retailing

aspects that need to be studied in detail by these companies.

While the world over the retail density (number of shops per

1000 consumers) is on the decline, the retail density in India

is on the increase. This is because of the fact that small

neighbourhood shops called kirana shops about eleven

million in India. They have been a part of the Indian

shopping culture for several decades and even toady

organized retailing (modern retail outlets) contribute just 2-

3% of the total retail sale in the country. Point of Purchase

(POP) materials are used both by kirana shops and by

organized supermarket retail outlets. This study investigates

the impact of POP materials on kirana shop purchases and

the purchases of consumers from supermarkets. Given the

importance of POP material on the purchase of

FMCG purchases, the authors feel that this study will be

useful to bridge the gap between theory and practice and

will provide valuable insights to managers involved in

retailing.

Rural Marketing: Success Stories:

Over the past few years schemes like ITC's echaupal, HUL's

project Shakti, shampoo sachets launched by Chick, BSNL's

rural schemes have made a mark in rural India. Many retail

hubs like Kisan Sansar (Tata), Haryali Kisan Bazar (DMC),

Reliance Fresh, Naya Yug Baazar, etc has been able to make

a dent in the village economy. The most successful story is

that of HUL, the Indian subsidy of Uniliver. The trigger

point for HUL came when a local firm Nirma, through its

new product formulation, pricing and distribution

challenged HUL's detergent business. Nirma's strategy was

to attack from below or at the bottom of the pyramid. This

made HUL not only realise its vulnerability but also identify

a new opportunity. Since then, HUL has launched various

initiatives to reach out to the rural consumer. It has not only

changed its packaging and product compositions but has

successfully tried to broaden and strengthen its distribution

channels into the grassroots level. HUL has also empowered

rural women by assisting them in obtaining financial

assistance through its Project Shakti.

According to figures released by market researcher AC

Nielsen, demand for personal care products grew faster in

rural areas than urban areas during the period April-

September 2009. Several FMCG companies such as Godrej

Consumer Products, Dabur, Marico have increased their

marketing efforts in rural India and small towns in order to

establish a local distribution networks and increase

visibility. 'Rural melas' are being organised by Godrej in

order to access potential rural consumers. Major domestic

retailers like AV Birla, ITC, Godrej, Reliance and many

others have already set up farm linkages. Hariyali Kisan

Bazaars (DCM) and Aadhars (Pantaloon-Godrej JV),

Choupal Sagars (ITC), Kisan Sansars (Tata), Reliance

Fresh, Project Shakti (Hindustan Unilever) and Naya Yug

Bazaar have established rural retail hubs. Coca-Cola and

Pepsi soft drink brands suffered a setback in August 2008

due to a product contamination scare. Both of them had

already cut profit margins in order to fend off competition

from low-priced local fruit drinks. This prompted their focus

to shift to the rural belts. Indian consumers are accustomed

to drinking a variety of locally-produced soft drinks that are

sold in small stands throughout the country. Rural India is

still a highly price-sensitive marketplace. Moreover the

average consumer has insufficient income to engage in

discretionary spending. In order to position themselves for

sales growth, the major soft drink companies priced a 200-

ml bottle at Rs 5 per bottle. In order to remain cost

competitive, soft drink companies had to contain the

transportation costs involved in expanding their distribution

network into distant towns and villages. Faced with high

fuel and vehicle costs, companies are turning to less

expensive means of transportation including ox carts and

rickshaws.

OBJECTIVES OF THE STUDY:

(a) To study the formats of key players in organized

retailing segment in rural India;

(b) To analyze the factors affecting rural retailing in India.

(c) To study the opportunities and challenges faced by rural

retailers.

RESEARCH METHODOLOGY:

TYPE OF STUDY: the study is Exploratory in nature.

This type of research is conducted for a problem that

has not been clearly defined. We have collected primary

data with the help of self-designed close ended

questionnaire dully filled by the rural people.

SAMPLE SIZE- For collecting data, convenience

sampling method was used. Various nearby villages

were surveyed and the sample size was 100.

TOOLS OF DATA COLLECTION- Self designed

closed ended Questionnaire was used as a tool to collect

the data.

TOOLS OF DATA ANALYSIS- Data is analyzed

using percentage analysis with the help of pie charts.

Opportunities and Challenges for Retailers in Rural

Markets


Opportunities:

There are enormous opportunities for the retailers that can

be enchased if they enter rural markets with suitable formats

in order to serve the rural consumers by focusing on all key

elements.

Growing Farm and Non-Farm Income:

According to The National Council for Applied Economic

Research (NCAER), India’s annual per capita income

almost doubled from Rs.23, 198 in 2004-05 to Rs.46, 492 in

2010-11. Rural growth far outstripped that in cities because

of growing farm and non-farm incomes and government

largesse in terms of loan waivers, guaranteed jobs and better

support prices for crops. By 2015-2016, the rural income

from non-farm and farm activities is expected to be 68 per

cent and 32 per cent respectively compared with 60 per cent

and 40 per cent respectively in 2007-2008. Similarly, there

is change in consumption of food and non-food articles

among consumers in rural India. From financial year 1988

to 2010, the consumption of non-food articles have

increased from 36 per cent to 46 per cent of total spends.

During the same period, consumption of food articles has

been reduced from 64 per cent to 54 per cent of the total

spends. Therefore, growing income of population in rural

India will cause growth in consumption for food as well as

non-food (car, bikes, fashion accessories etc.). So, there are

clear signs of demand coming from rural segment of the

country and therefore, a bouquet of opportunities for

retailers to cater to their demand in the way it is required.

Challenges:

As many as opportunities, so many challenges too exist for

organized retailing in rural India.

1. Difference between Organized and Unorganized

Retailing in India: In the United States, 15 percent of

retailing is unorganized, while 85 percent is organized.

In India, it is just contrary i.e., out of total retail sector,

95 percent is unorganized and only 5 percent is

organized. India’s unorganized sector competes with

the organized sector in four main ways: Last mile

delivery, Store locations, Consumer relationship

building, and Credit based delivery.

2. Geographical and Cultural Differences: the culture of

India is an amalgamation of diverse sub-cultures spread

all over the Indian subcontinent. And cultural

differences, most often, become very important factor

for retailers to address. For instance, cultural

differences were partly responsible for Wal-Mart’s

difficulties in Germany and South Korea. So, retailers

need to address this issue well before they enter Indian

rural markets.

3. Urban –Rural Inequality: the main occupation of the

Indian rural population is agriculture and related

occupations. And they draw their livelihoods from crop

cultivation, livestock, forestry or fishing etc. Whereas,

the main livelihood drawn by urban population is

mainly within the continuum of non-agricultural

production or making/selling goods or services.

By understanding these differences, the retailers can

decide a merchandise-mix that matches the needs of

rural consumers. For instance, Aadhar Retailing –

(Future Venture India Ltd.) subsidiary mainly stocks

FMCG and Durable products but also stocks agri-input

products to cater to farmer community and their needs.

Lack of adequate infrastructure coupled with high

penetration of small retailers makes retailing in rural

markets highly fragmented. So, for a retailer, before

entering rural markets, it is very important to gain

knowledge and insight of target consumers as well as

markets. They need to formulate their strategies that

could be different from urban markets, to encase given

opportunities and address some of the challenges

discussed above.

CONCLUSION:

Various management scholars and economists have

addressed the issues regarding rural markets and consumers

in India. But, very less attention has been given to explore

the sustainable business proposition for retailers to access

Indian rural markets. The project depicts the understanding

of rural market and rural consumers and Factors affecting

rural retailing in India. This project provides suggestions to

the retailers to play active role in adapting to the prevailing

environment in Indian rural markets and help overcome

challenges which are main obstacles for the growth of rural

India. On the basis of the analysis done from the primary

data collected from the rural people, following conclusions

have been drawn:

Large number of rural people prefers to visit Hariyali

bazaar rather than other grocery stores. The most

important thing is that people are well aware of rural

malls and its benefits.

Large group of people admit that they enjoy shopping

from retail malls and they find items to be cheaper.

32% people agreed that they get better financial returns

from retail chains for their grains.

Farmers are the one who are benefited at its best

because they could easily get complete agricultural

solution and all the consumable and household items in

these stores.

Rural people get complete variety of products and

services there, which reduces their trips to urban areas.

Rural people are not much aware of private brands.

44% of total respondents agreed that FDI in rural India

will contribute to the growth of retailing.

SUGGESTIONS:

Try to generate more awareness of varied products

among rural consumers that can be done by different

promotional techniques.

Retailer must work upon the supply chain management

to provide better quality products at reasonable prices.


Government and big corporate houses must try to

improve the (infrastructure, Electricity, Road, Internet.)

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Kulkarni, P.M. (2011). Fortune in Rural India -An

Overview. Advances In Management, Vol. 4(8), pp. 43-

49.

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www.cii.in

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dhruv-sawhney-cmd-triveniengineeringindustries/

437863/

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September, pp. 53-64.

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Khushali-plans- 200-out.html

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16.Paper Title: Rural Retail and Infrastructure

Constraints in India Author(s): Amir Ulla Khan

***

http://www.itcportal.com/about-itc/newsroom/pressreports/

http://www.itcportal.com/about-itc/newsroom/pressreports/

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http://www.trivenigroup.com/


Abstract— In U.S.A. the propensity to observe U.S.

companies growth in developing and emerging markets is

the norm. What goes less noticed is the march of India and

Argentina companies expanding across the world? The

foreign multinational acceleration is fast catching up to the

proliferation of American companies conducting business

across the globe. From Asia, the Japanese companies

accelerated global expansion in the 1980s, the Korean

companies in the 1990s, the Indian companies in the 2000s

and, increasingly, Chinese giants looking to build a global

footprint. In this article, we look at the challenges faced by

the multinational corporations in attracting and retaining a

top-level senior team in different parts of the world from

their home region.

I. INTRODUCTION

Globalization implies accepting that cultural diversity in

management composition and management style contributes

to the competitive advantage of the global agency. Also,

effective globalization calls for the pursuit of a number of

management approaches that, on paper, may seem

contradictory, but that can truly be effective only through

their simultaneous and balanced application. Global human

resource management provides an organized framework for

developing and managing people who are comfortable with

the strategic and operational paradoxes embedded in global

organizations and who are capable of managing cultural

diversity.2

To develop and manage a global organization implies

developing and managing people who can think, lead, and

act from a global perspective, and who must possess a

global mind as well as global skills. Not one, two, or a

dozen international specialists, but a multitude of

executives, managers, and professionals are needed to form

the core of a global agency.3 The process of globalization

requires a progressive transformation of thinking about the

role and tools of human resource management in the public

sector. The argument proposed is that human resource

management can and should make a contribution to the

competitive strategy of a global village.

Operating Process and Procedures

A market leader, especially from Asia and Europe comes to

America to open new markets and compete on the larger

stage. This same phenomenon occurs with Asian companies

going to Europe, European companies going to Asia and

Western companies expanding in established and emerging

global markets. Argentina companies lag the other regions

in his expansion, but Argentina certainly plays a significant

role in the overall global market. The multi-national sends

trusted executives from their home operations—as part of

their Professional development— to head up overseas

outposts. Asian, European, and Argentina executives are

often paid less than comparable executives in the new

country, and, restricted by home country pay scales, they are

unable to hire talented managers to work for the

organization. As a result, they create a team made up of

near to skilled people, which then underperforms relative to

the skilled people team competition. In addition, the senior

executive usually does not understand the local market in

detail, and performance deteriorates further. Just as he

(almost always he) is getting a grip on the local market, his

tour of duty ends, and a new executive is rotated in, who

makes the same mistakes.

Lack of Planning

In corporate life as in sports, you do not need a star player in

every position to build a winning team, but you do need top

talent in key roles. By performing a thorough market

assessment in advance of setting up shop overseas—in other

words, by doing your due diligence and homework first—

multi-national companies can identify the roles most critical

to the success of the business and invest in Skilled people

for those positions. Having the right plan in place—and

more significantly the right team to execute it—can increase

the chances of global success.

Building the skilled player Team

Many companies, for example, need little more than an

Skilled sales force management team to keep pace with the

global competition. Others require a different lineup or a

broader bench of talent. Businesses that will be subject to

stringent regulation (defense, media, renewables, food and

beverage, etc.) will need Skilled type regulatory people:

lawyers, lobbyists, insiders, etc. Those industries that

compete on innovation—pharmaceuticals, biotechnology or

software and consumer packaged goods and durables, for

instance—will need Skilled research and development and

commercial sales & marketing teams in order to have any

shot at all at the big league stakes. Likewise, in most

industries, even investment banking, the company probably

will need at least one local rainmaker on the team just to

gain entry to the game. There are many varying degrees and

extremes, for example a highly connected and effective

rainmaker in Europe or in the United States will be

expensive—outrageously so to many Asians’ eyes—but the

returns in new business opportunities that such an individual

will produce are likely to more than justify the initial

investment.

Branding a global team of skilled human resource

in global virtual organizations

J. Neelakanta Gugesh, Research Scholar, Sathyabama university,

Dr. S. Sheelarani, Associate Professor, Newcollege


Multi-national organizations that look to acquire companies

overseas for market entry should consider conducting

leadership due diligence. A thorough assessment of

executive capabilities (by a third party) will enable them to

build a shadow team (at least for critical roles) that includes

a mix of talent from both organizations. This shadow team

should be approved by the board and will ensure that an

Skilled player team is in place to run the company from day

one post-acquisition.

Branding and the Employee Value Proposition

Many multi-national companies are accustomed to attracting

the very best in their home countries, but they have a much

weaker employee value proposition in the global

marketplace. Attracting Skilled players often is a challenge

for multi-national companies as the brand may not be well-

known in other parts of the world. One way to overcome

this is to hire a leader with “star power” who has the ability

to attract others to the company’s brand. However, the

company first has to have the humility and appreciation to

understand that its brand lacks the same pulling power

internationally as domestically and then has to invest in a

high-profile executive to run the show. Another option is to

hire someone with his own strong international network

from which to draw. For example, some

multi-national companies have recruited CEOs from world-

renowned companies to their boards to help attract senior

talent to the team.

Having strong local players can make a firm more

competitive globally; however, hiring the best without

giving them the authority and resources to execute the

business plan is a waste of effort and will result only in high

rates of executive turnover.

Invest in People

The other important element relating to processes is global

human resources management—companies should use the

same criteria (even forms), processes and schedules across

the globe. For example, all the top 400 executives should

know that in November and May, no matter where they are

based, they will get a formal assessment and face-to-face

accountability review. All executives should feel they are

being fairly and appropriately managed.

Management Style and Cultural Fit

Management style the world over reflects cultural

differences, and the multi-national corporations must be

aware of its own style and hire executives who are a cultural

fit. For example, Chinese companies have a consensual and

less pressured style of running a company, which usually

sits better with European executives than with American

ones. Indian companies tend to be more conflict-oriented.

Taiwanese companies are pragmatic and are prepared to act

fast but lack forward planning and a road map. Argentina

companies tend to be situated between the Asian propensity

and the American propensity, but the leadership

personalities are more emotional and passionate. Japanese,

Korean and Chinese companies all prefer to debate in

private, find points of agreement and focus on saving face

rather than having open debate. They place high value on

relationships and may be less openly competitive. Most

Asian companies are very hierarchical and centralized, with

strong managerial and financial control from the center,

which can rile senior executives in Europe and America

who are used to significantly more empowerment. Asian

companies typically have a longer-term view that executives

can learn to appreciate but which initially may frustrate

those coming from a more short-term, bottom line-oriented

Western company. In our view, and that of many executives

in Argentina, one of the main factors restricting the overseas

growth of many Argentina businesses is a shortage of

managers who can work

effectively abroad. An even bigger challenge of

globalization is the increasing pressure on multinational

companies to become “local."

In Argentina, there a strong history of developing world-

class engineers and managers, and Latam does have an

adequate pool of talented people for the international

market. Once hired, young managers typically go through a

long process of in-house development before occupying

important positions. But as companies become more

international and the need for experienced executives grows,

this development routine breaks down, stymied by the

indifference of many Argentina executives to overseas

assignments. In countries such as Chile, and to a lesser

extent Brazil, these executives tend to put family and friends

ahead of successful global careers.

Many Argentina companies are—or started out as—family-

owned businesses, which have trouble attracting mid- and

high-level executives. These enterprises have a number of

advantages, such as the ability to take a longer-term view of

investments than their publicly held counterparts often will.

But there are also limitations. Our experience working in the

region shows that some family businesses have evolved

corporate cultures where informal networks are more valued

than formal processes, direct hires from other companies

tend not to be successful, and top managers are often

appointed based on a long history with the owning family.

There’s another issue that crops up even if a company can

find people willing to work abroad: some potential

managers are put off by


the fact that many of the bigger Argentina companies with

global aspirations are in basic materials—a sector that is

considered, rightly or wrongly, not to be very glamorous

and that has few well-known brands.

Building a Global Culture

In various parts of world, companies are successful as part

of an ecosystem made up of the government and other

companies (suppliers and distributors), as well as the local

market situation. This allows them to be successful despite a

relative lack of management sophistication and without

best-in-class business processes. But once they leave the

comfort of this ecosystem, life becomes much tougher. The

most successful multi-nationals have actively sought to

build a global culture, including at home at the global

headquarters. In Asia, this starts with the obvious—using

English as the working language so that executives from

Europe and the United States can fully participate in

management discussions. But beyond that, it includes

building a non-hierarchical decision-making process, with

flexibility in working hours, and, increasingly, locating

members of the leadership team in multiple locations around

the world rather than having all the executives co-located at

the global headquarters. Hiring the best talent regardless of

location is something with which Western and Latin

American companies still struggle, but the Asian and

European companies seem to be grasping this early and

were are seeing the results speak for themselves.

In the words of one multinational CEO: “Global leaders

must speak English, use best practice business processes, be

culturally sensitive and curious about other cultures, and

know how to use their influencing skills across cultures”.

Conclusion

The challenge of establishing successful operations in

foreign countries is hardly unique to and region of multi-

nationals. Any expansion into a new market requires a

bridging of cultural and operational gulfs, and many

businesses have difficulty doing it well. In summary, if a

company is to truly build an Skilled player team globally, a

complete rollout program—that encompasses everything

from basic due diligence and fundamental human resources

processes to more subtle and sophisticated ways of

localizing operations in the interest of preventing cultural

missteps that can thwart successfully going global—is

required. Those firms that have figured this out are not only

doing well in the global marketplace but also are benefiting

from having the Skilled player team’s leverage across the

world.

Global companies should consider devoting more resources

and senior-management time to liberating talent “trapped”

in national silos and more wholeheartedly supporting

global-mobility programs. Instilling a common set of talent

evaluation processes throughout the world—especially

standardized individual performance evaluations—will

underpin this effort and build the confidence of managers

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BIOGRAPHY

J. Neelakanta Gugesh, M.Tech, M.B.A, PMP, SSBB is a

research scholar in Management from Sathyabama deemed

university. Gugesh has over all 18 years of industry

experience. Gugesh is heading QA and Performance

Engineering in an American based multinational company,

Prior to that, Gugesh was working as Senior Manager in

Cognizant Technologies, Prior to that, Gugesh has been

working as Senior Project Manager for Verizon Data

Services India Pvt Ltd since October 1, 2007. Gugesh is a

member of PMI, Pennsylvania and a PMI certified Project

Management professional. Gugesh has also attained Six

Sigma Black Belt certificate.


Abstract— Sustainable Corporate Social Responsibility creates a

landing place in the minds of the target consumers. Business

organizations have walked up to the need for being committed

towards Corporate Social Responsibility. But still majority have

just been taking up some form of philanthropic activities for its

stakeholders. Wipro is a global IT services company that provides

Consulting, Business Process Outsourcing, Business Technology

Services, Enterprise Application Services, Infrastructure

Management, Testing, Product Engineering, Engineering Design

and Product Support through a sustainable process. Their services

are spread across a range of strategic domains. Nurturing a strong

corporate culture which emphasizes Corporate Social

Responsibility (CSR) values and competencies is required to

achieve the synergistic benefits. The Corporate social

responsibility effect has been creating a positive ripple in both

society and the corporate world. The initiative has changed the

landscape of India's development sector. A large number of public

and private sector organizations have their own foundations, which

work in close association with NGOs and the government.

Together they tackle a lot of local and public issues. Wipro focus

on education, primary healthcare, Environment etc.

Keywords: Sustainable corporate social responsibility, I.T

industry, Wipro

I. INTRODUCTION

The concept of Corporate Social Responsibility was first

mentioned 1953 in the publication ‘Social Responsibilities of the

Businessman’ by William J. Bowen. But, the term CSR became

popular only in the 1990s. The term is still imprecise and its

application differs widely. Worldwide, honoring of a triple bottom

line - people, planet, and profit has gained universal acceptance.

An approach to CSR that is becoming more widely accepted is

community-based development. In this approach, corporations

work with local communities to better themselves. Philanthropy,

where corporate give monetary donations and aid to local

organizations and impoverished communities, continues to

dominate CSR, though it faces serious criticism. Progressive

organizations do not support this form of CSR as it creates a

dependence syndrome amongst its recipients rather than

developing long-term capabilities. Another approach that is

garnering support is deliberate inclusion of ‘public interest’ and

‘fair trade’ in corporate decision making

II OBJECTIVES

1. To find out the initiatives taken by the Wipro towards

Social Sustainability.

2. To make a comparatative analysis of Social Sustainability

initiatives of the company for four years, i.e. 2008-2011.

III LITERATURE REVIEW

Kotler and Levy (2002), in their book, Corporate Social

Responsibility define corporate social responsibility as "a

commitment to improve community well-being through

discretionary business practices and contributions of corporate

resources". Some of the benefits of being socially responsible

include (a) enhanced company and brand image (b) easier to attract

and retain employees (c) increased market share (d) lower

operating costs and (e) easier to attract investors. A socially –

responsible firm will care about customers, employees, suppliers,

the local community, society, and the environment. CSR can be

described as an approach by which a company (a) recognizes that

its activities have a wide impact on the society and that

development in society in turn supports the company to pursue its

business successfully and (b) actively manages the economic,

social, and environmental and human rights. This approach is

derived from the principles of sustainable development and good

corporate governance. Prahalad (2004), the relationship between

resource consumption and value creation is important too. As that

is the real yardstick of sustainable gain, corporate must think and

understand the broader impact of business on society, on key

stakeholders. Thus, a clear vision is required on how business and

social agendas can have the perfect match to bring maximum

values for both. Such instances are not many, yet, not grossly

unseen. For example, TISCO (Sinha and Mohanty, 2004; Saidayin,

2001; Pandey, 1989; Lala, 1981), Wipro (Jose, 2003) and HLL

(Jose, 2003) and Smith (1987) are worth mentioning here. These

companies integrate CSR into their own strategic planning. They

engage in a host of improvement initiatives-from school education

to income generation to public health (Sinha and Mohanty, 2004).

Thus slowly the business strength is shifting from short term

cheque-book-philanthropy (fancy) to deep involvement and

capacity building at the bottom of the pyramid. Chad Holliday

(2001), chairman and CEO of DuPont: Sustainable growth should

be viewed not as a program for stepped-up environmental

performance, but as a comprehensive way of doing business; one

that delivers tremendous economic value and opens up a vast array

of new opportunities. Capitalizing on these benefits may require

relentless determination and tenacity, but ultimately companies

will find that they can generate substantial business value through

sustainability, while both enhancing the quality of life throughout

the world and protecting the environment. Hetherington (1973),

states that “there is no reason to think that shareholders are willing

to tolerate an amount of corporate nonprofit activity which

appreciably reduces either dividends or the market performances of

the stock”. Dahl (1972), states that “every large corporation should

be thought of as a social enterprise that is an entity to an existence

and decisions can be justified in so far as they serve public or

social purposes”.

IV BACKGROUND OF WIPRO TECHNOLOGIES

Wipro started as a vegetable oil company in 1947 from an old mill

founded by Azim Premji's father. Azim Premji took on the

leadership of the company in 1966 approx. He repositioned it and

transformed Wipro (Western India Vegetable Products Ltd) into a

consumer goods company that produced cooking oils/fat company,

laundry soap, wax and tin containers. At that time, it was valued at

$2 million. In 1977, Wipro entered the information technology

sector. In 1979, Wipro began developing its own computers and in

1981, started selling the finished product. This was the first in a

string of products that would make Wipro one of India's first

computer makers. In 1980 Wipro moved in software development

and started developing customized software packages for their

hardware customers

Sustainable social Practices at Wipro

Dr. Leena James, Christ University, Bangalore


Wipro Limited (NYSE:WIT) provides comprehensive IT

solutions and services, including systems integration, information

systems outsourcing, IT enabled services, package implementation,

software application development and maintenance, and research

and development services to corporations globally. Wipro Limited

is the first PCMM Level 5(People Capability Maturity Model)

under the Software Engineering Institute-Carnegie Melon

University’s certification process. Wipro is the first company in the

world to win this certification. “PCMM Level 5 is an affirmation of

continued focus on people and business process improvements and

SEI CMM Level 5 certified IT Services Company globally. In the

Indian market, Wipro is a leader in providing IT solutions and

services for the corporate segment in India offering system

integration, network integration, software solutions and IT

services. In the Asia Pacific and Middle East markets, Wipro

provides IT solutions and services for global corporations. Wipro

also has profitable presence in niche market segments of consumer

products and lighting. Wipro’s ADSs are listed on the New York

Stock Exchange, and its equity shares are listed in India on the

Stock Exchange - Mumbai, and the National Stock Exchange.

Wipro Chairman Azim Premji has pledged to donate nearly Rs

10,000 crores for improving school education in the country.

In essence, this suggests that the fundamental business

practice in the 21st Century will be multiple entities working

together, as one value chain, to create superior flexibility,

productivity and financial performance - The 21st Century Virtual

Corporation.

V SOCIAL SUSTAINABILITY @ WIPRO

Wipro considered sustainability challenges as mobius like in many

ways. They follows eight sustainability mega forces namely the

climate change crisis, The looming Water disaster, Sustainable

Cities, Universal Education, Diversity, Inclusivity and Human

Rights, Ethics and Transparency, sustainable Food, Eliminating

Poverty.

FIGURE1

SUSTAINABILITY SOCIAL INITIATIVES AT WIPRO

EDUCATION

Wipro strongly believes that education is the basic enabler and

through Wipro Cares work with NGOs who in turn work with

underprivileged children. They offer them opportunities for holistic

development, run schools and also train them in vocational skills.

While supporting these education activities they also train teachers

to engage with children who come from struggling backgrounds.

WIPRO APPLYING THOUGHT IN SCHOOL

Education is recognized as a key investment in Wipro, not only

within, but also marked and leveraged as social initiatives.

Through the ‘Applying Thought in Schools Initiative’, putting

enough efforts to build a network of social organizations

committed to education reform. Education quality, research and

interventions are clearly defined that their program explores.

MISSION 10X

It is a platform for the rapidly growing academic community of

educators, learners and innovators and also helps them impart

education that enhances the employability skills of fresh

engineering graduates in India. Mission 10X reached the first

milestone and has empowered more than 10,000 faculty Members

across 20 states. On September 6th, 2010 the Phase II was

unveiled. This phase will Create 250 more Academic Leaders.

Mission 10X facilitate deployment of 2500 Learning Kits and

Empower 25000 more Engineering Faculty

FIGURE 2

SUMMARY OF WIPRO’S PROGRAMS IN EDUCATION

Source: Sustainability Report Wipro 2010-2011

COMMUNITY CARE

WIPRO CARE

Realities keep changing in an unpredictable world. Through Wipro

Cares; it strives hard to address the issues from community relief

and rehabilitation in times of disasters to education opportunities

and wellness programs for the needy. Wipro make sure that its

Social initiatives touch every level of society that needs help.

Wipro care program is executed with the help of employees who

are free to volunteer their services and other recognized voluntary

organizations who make sure the goal is never out of focus.

•Wipro Applying Thought in School

•Mission 10X-Transforming Engineering Education in India

Education

•Wipro Care-community Care Where it Matters

Community Care

Addresses Issues of deep

systemic reformin India's education

ecosystem

Comprises Mission 10X

a not- for- profit trust

Works with 700+

engineering colleges across 20 states,

reaching 10,000 faculty

Comprises Wipro Applying

Thought in Schools

(WATIS)

Through a network of 30 partners, reaches

2000+ schools

across the country


FIGURE 3

SUMMARY OF WIPRO’S PROGRAM IN COMMUNITY CARE

SOURCE: SUSTAINABILITY REPORT WIPRO 2010-2011

FIGURE 4

THE WIPRO CARES APPROACH TO MEANINGFUL

ENGAGEMENT WITH COMMUNITIES

COMPARATIVE ANALYSIS OF WIPRO’S SOCIAL

SUSTAINABILITY INITIATIVES

This analysis based on the study of Wipro’s sustainability Report

2007-2011.This table shows the list of social sustainability

dimensions of Wipro. It also indicates the addition and reduction in

the social sustainability dimension of the Wipro.

TABLE 1

AN OUTLOOK OF WIPRO’S SOCIAL SUSTAINABILITY DIMENSIONS FOR FOUR YEARS PERIOD

2007-08 2008-2009 2009-2010 2010-2011

Poverty alleviation Eliminating Poverty and

Inequality

Eliminating Poverty Eliminating

Poverty

Safety and health Safety and health Employee health and

safety

Safety and health

Universal access to primary and

secondary education

Ensuring Universal

education

Education and

community initiatives

Universal

Education

People development People development People development People

development

diversity Promoting diversity and

inclusivity

Diversity and Inclusivity Diversity,

Inclusivity

Human rights Non-Discrimination and

human rights

- Human Rights

Customer stewardship Customer stewardship Customer stewardship Customer

stewardship

Advocacy and public policy Advocacy and public

policy

Advocacy and public

policy

Advocacy and

public policy

- Making cities sustainable - Sustainable Cities

Transparency and

accountability

- Ethics and

Transparency

Sustainable Food

Source: Wipro sustainability reports

Addresses Long term disaster

rehabiliation & issues of health, Education and environment

Comprises

Wipro Cares

a not- for-profit

trust

Works with proximate

communities

through partners

Define ateas of

engagement

Identify communities & partners at

various ocations

across the contry

Deveop objectives and outcomes for

the project

Drive project implementati

on with appropriate

governance mechanism

Assess social impact of the project and address any

gaps


TABLE 2

SOCIAL SUSTAINABILITY PERFORMANCE HIGHLIGHTS

This table represents the performance highlight of Wipro toward Social sustainability from the year 2007-2011.

Areas 2007-08 2008-09 2009-10 2010-11

Employee

Health and

Safety

Enhance safety measure

for employees in 24x7

operations, with special

focus on women. Focus

on nutrition and excise.

All major centres have

gyms and yoga rooms.

Fit for life program launched in

mind-2008 to create widespread

awareness on the importance of

healthy lifestyles. Zero incidents

of accidents in our premises

during the year. All our new

buildings adequately meet safety

principles of the National

Building Code.

Launch of EHS

portal in India

Launch of the

People With

Disability initiative

Prevention of

Work Place

Harassment

training.

OHSAS

18001:2007

certification for

14 locations

Diversity and

Inclusivity

People with

disability(Hire)

- - 55 physically

challenged people

were recruited into

mainstream roles

83 Physically

challenged

people were

recruited.

Women% in

workforce

Ratio of females to

males in workforce

increased to 25.7%.

Women employees increased to

26.8% of the workforce.

Employees of non-Indian

nationalities were 5% of the

workforce.

- Women

employees

increased to 29%

of the workforce.

Education and

Community

initiatives

Wipro Applying

Thought in

Schools

(WATIS),

Worked with a new

network of over 30

social organizations

working on education

reform across 17 states.

worked on 22 projects in

collaboration with 20 partner

organizations,

With an effective reach of 675

schools.

program on holistic

school education –

10 of the 22 long-

term

projects were

initiated

10500

educators and

800000 children

across 2000

schools

Mission10X 1000 engineering faculty

has been trained in the

first year.

expanded its reach significantly

with 190 empowering workshops

that covered 5700 faculty across

485 colleges in 18 states.

Mission10X

reached a

cumulated total of

7777 engineering

faculty from across

19 states

3370 learning

assets in 18

engineering

disciplines

13000 faculty

members from

900 engineering

colleges across

24 states and

union territories

Wipro Cares started new projects in

Lake ecosystem restoration.

Zero drop out of girls in high

school. Schooling needs of

children of construction workers,

awareness of voting

responsibilities in India’s national

election. Rehabilitation of

displaced people after the floods

in the state of Bihar, India.

Nearly 20000 hours of volunteer

efforts logged in from Wipro

Employees.

community care

program,

launched Project

Sanjeevani, its first

healthcare project

at Waluj,

Aurangabad.

pilot project on

ecological

infrastructure in the

Areas affected by

the Kosi river

floods in Bihar.

primary health

care programs in

Tumkur

(Karnataka) and

Hindupur

(Andhra Pradesh)


FIGURE 6

SOCIAL SUSTAINABILITY DIMENSION

Source: Wipro sustainability reports

This chart represents the year wise no. of social sustainability dimensions considered by Wipro towards Social sustainability.

CONCLUSION

Wipro does not have a separate vision and mission for

Social Sustainability. Wipro sees its work as a social responsibility.

It believes that to have a sustainable business, the surrounding

society must be a successful. Thus, Social sustainability is being

seen as an integral part of it. Several forces are driving companies

to practice a higher level of Sustainability: rising customer

expectations, changing employee expectations, government

legislation and pressure, the inclusion of social criteria by

investors, and changing business procurement practices.

Companies need to evaluate whether they are truly practicing

ethical and socially responsible business. Business success and

continually satisfying the customer and other stakeholders are

closely tied to adoption and implementation of high standards of

business and its conduct. Wipro by a code of serving people's

interests, not only their own. But, for society to thrive, profitable

and competitive businesses.

REFERENCES

[1] Holliday, C. (2007). “Sustainable Growth, the DuPont Way”,

Harvard Business Review, 2001, September, 129–134, as well as Dunphy et al.

[2] Dahl R A (1972); “A prelude to corporate perform”; Business and

Society Review, spring (17-23) [3] Hetherington J A C (1973); “Corporate social responsibility audit, A

management tool of survival”, London, The foundation of business

responsibilities [4] Kotler and Levy (2002), “Corporate Social Responsibility”, Himalaya

publishing house

[5] Prahlad, C.K. (2004), “Fortune at the Bottom of the Pyramid”, Wharton School Publishing, U.S.A

[6] Sinha and Mohanty (2004) “Corporate Social Responsibility: Present

Practices and Future Possibilities”, Indian Journal of Industrial Relations, Vol. 40, No. 4, pp. 547-557.

[7] http: www ipro.com

[8] http://ebscohost.com

***

8

10

7

11

0

2

4

6

8

10

12

2007-08 2008-09 2009-10 2010-11

No.of Social Sustainability Dimension

No.of Social Sustainability Dimension

Years

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