A Pre Recession Comparative Study

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A PRE RESCISSION COMPARATIVE STUDY ON EMPLOYEES PRODUCTIVITY AND COST IN INDIAN BANKING INDUSTRY  ARTICLE · FEBRUARY 2012

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Contents A peep into the Indian two wheeler market

1 Dr. Dr. Soumendu Bhattacharya

A pre rescission comparative study on employees productivity and cost in Indian banking industry Dr S.M.Tariq Zafar Dr D.S.Chaubey Dr. Dr. Adeel Maqbool

16

Environmental taxation: Issues, challenges and prospects

27 Dr. Dr. Minakshi Paliwal

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

33

Growth and trend of development revenue expenditure in Mizoram Dr. Dr. R. Lalnuntluanga Lalnuntluang a Dr. Dr. L. Shashikumar Sha shikumar Sharma

41

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

47

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

53

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore Dr. Dr. Lakshmi Jagannathan S. Deepalakshmi Taraya Srivilas Srivila s

58

Talent management practices and its relationship with with employees turnover: a study on employees working in insurance sector industries in Uttarakhand: An empirical study Dr. Dr. D.S. Chaubey Chau bey Vishal Gupta

64

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

73

Total quality quality management concepts and the Indian scenario scenario

84 P.G. Dangwal Dan gwal

Book Review Review of Business Statistics

91 Dr. N. D. Vohra i

Contents A peep into the Indian two wheeler market

1 Dr. Dr. Soumendu Bhattacharya

A pre rescission comparative study on employees productivity and cost in Indian banking industry Dr S.M.Tariq Zafar Dr D.S.Chaubey Dr. Dr. Adeel Maqbool

16

Environmental taxation: Issues, challenges and prospects

27 Dr. Dr. Minakshi Paliwal

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

33

Growth and trend of development revenue expenditure in Mizoram Dr. Dr. R. Lalnuntluanga Lalnuntluang a Dr. Dr. L. Shashikumar Sha shikumar Sharma

41

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

47

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

53

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore Dr. Dr. Lakshmi Jagannathan S. Deepalakshmi Taraya Srivilas Srivila s

58

Talent management practices and its relationship with with employees turnover: a study on employees working in insurance sector industries in Uttarakhand: An empirical study Dr. Dr. D.S. Chaubey Chau bey Vishal Gupta

64

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

73

Total quality quality management concepts and the Indian scenario scenario

84 P.G. Dangwal Dan gwal

Book Review Review of Business Statistics

91 Dr. N. D. Vohra i

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

I am delighted to introduce the volume fourth of mana gement journa l Vedaang to our esteemed subscribers. Vedaang has now established itself very well among the corpor ate and academic community and the volume of literary work submitted by researchers is an indicator to that. The latest issue consists of high-quality and original research papers alongside relevant and insightful reviews. The litera ry work runs across length and brea dth of industria l sector from automobile to FMCG, and from technology to economics. As such, the current issue of the journal aspires to be vibrant, engaging and accessible, and at the same time integrative and challenging. I am sure that the issue will be received well among the readers as in acting as a source of valuable and reliable source of information. I congra tulate the editorial board of Vedaa ng for maintaining the standards of the  journa l issue after issue. Though any suggestions from the reader s a nd a dvisory  panel for further improvement will be appreciated.  Jai Hind!

 Dr. Shweta Sethi  Editor 

ii

A PEEP INTO THE I NDIAN TWO WH EELE R MARKET Dr. Soumendu Bhattachar ya*  ABSTRACT 

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

combination of two or more segments e.g. scooter and Motor-cycles . The market primarily comprises five players in the two wheeler segment with most of the companies having foreign collaborations with well-known Japanese firms earlier. But most of the companies are now planning 100% subsidiaries in India.

Introduction

Automobile is one of the largest industries in global market. Being the leader in product and  process technologies in the manufacturing sector, it has been recognised as one of the drivers of economic growth. During the last decade, welldirected efforts have been made to provide a new look to the automobile policy for realising the sector's full potential for the economy.. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realise its potential in the country. The liberalisation policies have led to continuous increase in competition which has ultimately resulted in modernisation in line with the global standards as well as in substantial cut in  prices. Aggressive marketing by the auto finance companies have also played a significant role in  boosting automobile demand, especially from the  population in the middle income group. The Indian two wheeler market has a size of over Rs 100,000 million. The Indian two whee ler segment contributes the largest volumes amongst all the segments in automobile industry. Though the segment can be broadly categorized into 3 subsegments viz; scooters, motorcycles and mopeds; some categories introduced in the market are a

In the last four to five years, the two-wheeler market has witnessed a marked shift towards motorcycles at the expense of scooters. In the rural areas, consumers have come to prefer sturdier bikes to withstand the bad road conditions. In the process the share of motorcycle segment has grown from 48% to 58%, the share of scooters declined drastically from 33% to 25%, while that of mopeds declined by 2% from 19% to 17% during the year 2000-01. The Euro emission norms led the existing players in the two stroke segment to install catalytic converters. All the new models are now being replaced by 4-stroke motorcycles. Excise duty on motorcycles has been reduced resulting in price reduction, which has aided in propelling the demand for motorcycles. Fierce competition has also forced players to cut prices in certain models. Cur rent Scenar io

The two-wheeler industry is passing through a very interesting phase. Developments such as the entry of more number of players into the motorcycle market, price discounts offered by producers, monsoon failure and growing competitive pressure have changed the underlying basics of the industry.

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

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

The impact of these developments is reflected in a change in market share, a divergent trend in share  price and the sharp swing in the price-earnings multiple. Hero Honda continues to be the market leader in the motorcycle segment with a 44.7 per cent share. But it has ceded vital market space to competitors such as Bajaj (23.7 per cent) and TVS Motor (19.2 per cent). The Hero Honda share, which  peaked at around Rs 400 in April 2002, has since  been on a steady downtrend. Its competitors (such as Bajaj and TVS Motor), though, have seen their share prices recover sharply from the lows recorded in October 2002. The reasons for this kind of a disparate trend are not far to seek. With more than 40  per cent of the motorcycle demand flowing from the rural sector, the success or failure of monsoon has a major influence on the sales volume.

industry. The success of the latest Pulsar has helped the company to stay clear of adopting an aggressive price reduction strategy. Besides, the recently launched Caliber 115 has also enjoyed a fair degree of success. As a result, and aided by its cash-rich status, the company has been able to hold its ground. In stark contrast to the situation that prevailed in the 1990s, the two-wheeler industry has now acquired the traits of any other consumer durables industry, of price wars, celebrity endorsements and everincreasing sales and other promotional outgo. In the 1990s, the profit margin of the top companies was not subject to the kind of strain that is being witnessed in the recent quarters. The entry of more players into the fast-growing four-stroke motorcycle market has led to higher competitive pressure for the companies. Earlier, Hero Honda and Bajaj were the only producers of four-stroke motorcycles. Now, TVS Motor, Kinetic, LML along with Bajaj and Hero Honda are jostling for space in the four-stroke market. This has led to an increase in the number of models and a consequent reduction in product lifecycle. In the  past couple of years, more than ten new four-stroke motorcycle models have hit the Indian roads the  popular ones include Victor, Passion and Pulsar. The  past few months also saw the launch of Byk, Ambition and Caliber 115. This has resulted in an increase in overall expenses, including promotional costs, for the companies. Apart from the capital expenditure, new product launches have an inflationary impact on expenses of a recurring nature, such as sales promotion and staff cost. This, coupled with the discounts that are being forked out, could have a negative impact on the profitability of the two-wheeler industry in the near term; at least until the volume growth manages to compensate this. The pressure on margins is not fully manifest owing to the cost control and indigenisation efforts undertaken by two-wheeler companies. Going forward, the constituents of the two-wheeler industry too would find profit margin being consistently under pressure once the scope for cost control diminishes. Growth in volume would the key driver of financial performance even as the scope for margin expansion wanes. Though Bajaj and Honda Motorcycles have been successful, the

During April-June 2002, motorcycle sales had zipped ahead by 50.9 per cent to 9.1 lakh units. However, in the last quarter of the previous fiscal, the sales growth dropped to 7 per cent to 8.9-lakh units. The sharp slowdown in growth rate is explained by the drought that prevailed across most  parts of the country last year. But for the recovery in the industrial economy and a soft interest rate regime, the situation would have been worse. Also,  price discounts and attractive hire purchase schemes have helped stem the declining trend in demand. However, these cannot sustain the demand for long unless there is a normal monsoon in the current year. A sub-normal monsoon in the current year could have a direct negative impact on the twowheeler off take, motorcycles in particular. The slowdown in the demand has prompted twowheeler majors to offer attractive discounts to lure customers. Hero Honda took the lead in April 2002 when it announced a Rs-1,001 discount across all  products. Earlier, TVS Motor had dropped the price of its two-stroke motorcycle, Max 100, and this had the desired impact of higher sales volume. The impact of competitive pressure and slowdown in growth is better reflected by TVS Motor's recent move to offer a discount of Rs 2,003 even for its top-selling four-stroke model, Victor. Bajaj has also been offering discounts and attractive financing options to protect its interest in the 2

A Peep into the Indian Two Wheeler Market

task of assessing or anticipating swings and changes in consumer preferences may not be an easy task. This is borne out in the case of Hero Honda's CBZ and the four-stroke scooter venture of Bajaj and TVS Motor. While Pulsar turned out to be a huge hit for Bajaj, Hero Honda's CBZ (launched much ahead of Pulsar) failed despite possessing similar features .

Taking into account the higher degree of uncertainty associated with earnings and the likelihood of a drop in valuation levels, existing holders of two-wheeler companies may look for opportunities to reduce exposures. Evidence of increase in motorcycle sales or signs of normal monsoon can be used to take exposures in two-wheeler majors.

Similarly, both Bajaj and TVS Motor did not make any progress in their four-stroke scooter venture. But the latest entrant Honda Motorcycle has enjoyed a huge success in this segment through the Activa. The inherent difficulty in assessing and addressing the developments or changes in the industry would mean a higher degree of uncertainty to the earnings growth of two-wheeler companies. That the success or failure of even a single product can have a major influence on the earnings  performance would aggravate the uncertainty  problem. Along with these factors, Honda Motorcycle's decision to venture into the motorcycle market next year could compound the  problems for companies such as Hero Honda, Bajaj and TVS Motor. The cumulative impact of these developments is reflected in the form of a divergent and volatile trend in share price movement of twowheeler companies Bajaj, Hero Honda, TVS Motor and LML. After lying low for quite a while, LML's share price has shot up in the past few months after the initial success of its Freedom model. Similarly, the pick-up in sales volume of Hero Honda's Ambition and CD Dawn models have resulted in a sharp recovery in share price of the company from the low of Rs 180 to the current level of about Rs 230. Considering that the stock market hates uncertainty, especially when it is associated with earnings stream, the valuation levels are likely to be stressed in the future.

Motorcycle sales grew by an annual average of 32% over 1995-2006, and constituted nearly 66% of total two wheeler sales in 2006, up from just 24% in 2005. Average monthly motorcycle sales have increased five-fold since 1995 to almost 250,000 units in 2006. in today's market hero Honda is the current market leader with a 49% market share. Hero Honda has been an early entrant in the 4 stroke segment of the two wheeler industry. With a right mix of product styling and pricing the company helped garner a larger market chunk of the 4-stroke market as compared to Bajaj Auto. A shifting consumer preference towards motorcycles also enabled the fast growth of the company in the last few years. Hero Honda motorcycle sales jumped 40.6% in 2006 at 135,961 units from 96,672 units it sold in the corresponding last year. The change in  product mix in favor of higher value products has resulted in improved realization for the company the growing popularity of the passion model appears to be the key factor behind improvement in unit realization. Taking into account the recent trend in performance, the company appears well  positioned to retain its top position in the motorcycle market and also sustain the recent rate of growth. Bajaj auto ltd is the second biggest manufacturer of motorcycles. The companies recent indigenous launch in 4-stroke segment viz; the 150 / 180 cc pulsar which has practically snatched the market share of the bikes like Hero Honda CBZ, Suzuki Fiero, LML Adreno etc, and it appears that pulsar would rule this segment till the time there are some new launches in this segment by other manufacturers, for Bajaj Pulsar has been the major contributor for the rise in its motorcycle sales along with its other popular models such as boxer, caliber Croma etc. well coming to the third largest share holder in the motorcycle segment which is the TVS motors, which has emerged as a 'victor' after the Suzuki break up, riding high on the success, of

This kind of a trend is already reflected in the valuation of software stocks. A similar kind of a trend could probably emerge in two-wheelers as well. From an investment perspective, the earlier approach of buy, hold and sell at a later date will  probably lose validity. The investment holding  period would tend to get shorter and riding the momentum associated with company-specific developments could well be the order of the day. 3

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

it's motorbike by the same name. TVS Victor is the first indigenously produced motorcycle from TVS motors. In fact with a six week waiting period, even six months after its launch, TVS motors plans to double its production capacity.

pulsar has arrived and the consumer choice clearly shows that this place will be reserved for pulsar for some time as a counter attack hero Honda too would be launching a bike in this segment but it is too early to comment on that.

The motorcycle market can be further segmented on the basis of the price tags which are the economy, executive and the premium segments. Basically all the three leading companies have a  presence in all of these sectors. Clearly, the race to the number one spot in the motorcycle segment has  been a one sided one. But times are changing, Given the fact that Bajaj is positioning itself at all feature and price points, it does have every model to satisfy the needs of a prospective motorcycle buyer, and also has the privilege of being the only one in the cruiser segment but except for the two bikes i.e Boxer CC and Pulsar no other Bajaj models seem to  be on the line of prosperity and the recently launched dawn by Hero Honda is a direct threat to the market of boxer ct price competitively at Rs 37,000/- which is just Rs 2,000/- more than the  boxer ct but then again boxer ct already enjoys a vast market share and is very popular especially in the rural areas it will be a tough job for dawn to displace this bike from its current position a lot remains to be seen by the feedback that it receives from riders. The pulsar has taken the market by storm in the  premium segment it has clearly displaced the CBZ and the other models of this segment and looks like the things will remain this way for some time but there are tough times ahead since Hero Honda plans to launch a new bike in this segment by the end of this year which means that there is a lot to look ahead from a consumers point of view.

Review of Studies

Contemporary research has examined market structure in order to explain consumer brand  preferences based on attributes of these brands. While Elrod (1988), Chintagunta (1994) and Elrod and Keane (1995) use static market structure models, Erdem (1996) uses a dynamic model. In another study, Bresnahan and Greenstein (1999) have examined the principal structural features of the computer industry in the U.S. at the industrywide and segment levels. They explain the  persistence of dominant computer firms, their decline in the 1990s and the changes in the competitive entry in this industry. They discover that technological competition in the industry has increased through a) the formation of young  platforms serving newly founded segments that challenged established platforms through the  process of indirect entry and b) divided technical leadership resulting from the vertical disintegration of platforms. Other studies that have examined industrial structure include Baldwin and Gorecki (1994), Adelman (1951), Golan et. al. (1996) and Amato (1995). It is noteworthy that all such studies of evolution of industries have largely been confined to the US and the Canadian experience. More specifically there does not exist any work along these lines for the Indian industrial sector. The Indian industrial sector has undergone profound regulatory changes in recent times as a consequence of the economic reforms program put together in  between 1988 and 1991. Consequent to these reforms some of the industries that have been influenced the most have been the consumer durables industry (such as two-wheelers, washing machines, televisions etc.), the automobile industry and certain financial services. Typically an economy undergoing industrial reforms resorts to regulatory changes and redefines the role of the  public sector in order to create a climate of growth

Let us first identify the current market leaders in each category. In the economy segment Bajaj is the leader with 46% of the market share with boxer  being the largest selling bike in this segment. In the executive segment Hero Honda is the clear leader with 67% market share with splendor and passion leading the market in this segment and will continue to do so in the near future well now we come to the most controversial segment which is the premium segment since the current market leader according to the sales of the past few months is CBZ but then 4

A Peep into the Indian Two Wheeler Market

and foster private competition. Therefore it is  pertinent to examine the structure and evolution of industries (suc h as consumer durables) in economies where reforms have taken place, for such industries show a propensity to evolve into oligopolies in the long run. It would be important in this context, to analyze the impact that economic reforms have had on industrial structure and to understand the implications thereof for the design of an appropriate regulatory mechanism in response.

durables industry but whether this indeed led to enhanced competition is an empirical question, not yet examined. This study addresses this question. Market imperfections are typically examined by calculating the Herfindahl index and the four-firm concentration ratios at the industry-wide and segment levels. Industrial economists have been debating the usefulness of these indices in assessing market concentration. While Posner (1976) argues that concentration ratios are but one of the indicators of collusive tendencies and that it is necessary to include fringe firms in the analysis, Adelman (1951), Amato (1995), Golan, Judge, and Perloff (1996), and, Baldwin and Gorecki (1994) have shown that the Herfindahl index forms a much sounder indicator of the structure and performance of a given industry than four-firm concentration ratios. The Herfindahl index is used, to a considerable extent, by the structuralist school, which postulates that competition, is a state of affairs (Reid, (1987)). While four firm concentration ratios and Herfindahl indices have their virtues as indicators of market concentration at a point in time, it is also important to understand the evolution of market power over time.

Posner (1976) argues that if antitrust laws are not formulated appropriately, competing sellers might be able to engage in “conscious parallelism” or tacit collusion and that the . The dealer margins have increased from around 5% to about 30% of the ex-factory price between 1988 and 1999. The number of exclusive dealerships has also increased. Bork (1978), however, asserts that only explicit collusion was likely to exist given that collusion without detailed communication and agreement (tacit) was not likely to be successful. In India, laws like the Monopolies and Restrictive Trade Practices Act (MRTP) and Foreign Exchange Regulation Act (FERA) were designed to control monopolistic tendencies in the markets. If these tendencies create welfare losses, then, there is a case for framing appropriate antitrust legislation. The competitive  policy so developed must be able to distinguish  between real competition and purely theoretical competition.

In this spirit Baldwin and Gorecki (1994) track the mobility of firms (which captures shifts in market structure) by using a variant of the instability index of Hymer and Pashigian (1962). We have used the Kendall's rank concordance test to put into  perspective the mobility of the firms. This is a more robust measure of tracking mobility of firms over time, since it also incorporates certain aspects of Lorenz type measurements to indicate relative  positions of firms over time. If this index is used along with the concentration ratios, one can identify the contributors towards concentration over time in a clearer manner. This test also enables us to examine whether the dominance of any given firm persists over time and if this dominance is increasing/decreasing. However, a study of dominance in terms of persistence of ranks needs to be supplemented with one on dominance in terms of levels. If the ranks of firms in terms of shares in sales do not alter much over time, one still needs to

Competitive policy is not a road to Utopia or a complete basis for public policy (Areeda and Kaplow (1988)). Yet as Stigler (1966) points out, an optimal policy on competition often prevents the defects of social organization from being made worse by preventing deliberate adoption of restrictive practices by firms. In this research work assess the degree of imperfection in the two-wheeler industry in  particular. The reason is that this industry underwent a sea change during 1985-2007 due to economic reforms introduced in this period. These reforms were aimed at encouraging competition. During this period, the two-wheeler industry saw the largest proliferation of brands in the consumer 5

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

assess whether differences between the sales shares of these firms are narrowing over time.

industry as a whole, tend to grow at similar rates in the long run and captures .the dynamics associated with the long-term growth of volumes and marketshares at the segment and industry-wide levels. This, then, sheds light on the inter-firm dependencies at these two levels, which in turn has implications for the competitive strategies of firms. We also conduct this test for production capacities of firms to test whether capacity expansion was the result of competition within the industry.

Contemporary research has examined market structure in order to explain consumer brand  preferences based on attributes of these brands. While Elrod (1988), Chintagunta (1994) and Elrod and Keane (1995) use static market structure models, Erdem (1996) uses a dynamic model. In another study, Bresnahan and Greenstein (1999) have examined the principal structural features of the computer industry in the U.S. at the industrywide and segment levels. They explain the  persistence of dominant computer firms, their decline in the 1990s and the changes in the competitive entry in this industry. They discover that technological competition in the industry has increased through a) the formation of young  platforms serving newly founded segments that challenged established platforms through the  process of indirect entry and b) divided technical leadership resulting from the vertical disintegration of platforms.

It attempts to analyze key aspects of the structural characteristics of consumer durables industry in India. An analysis of the evolution of this industry has implications for firms within the industry, as well as for regulators and policymakers. While inter-firm linkages would be pertinent to firms in the context of competitive strategies, the analysis of price movements in the industry and its segments relative to the general price level, and the structure of competition within the industry and individual segments therein are of importance to regulators. Capacity growth movements have implications for future policy making within the industry. Based on the results of this research paper we can make certain general conclusions about the consumer durables industries. For example, we establish that a) consumer durables industries will evolve as oligopolies at the industry-wide level and at the level of the segments, b) that he convergence of growth rates of sales volume and market-share is likely to be conditional at the level of the industry and absolute at the segment level. We can loosely define conditional convergence to imply that in the long run, its own past vector of means will determine growth rate of a firm. Absolute convergence implies that the growth rate of a firm is moving towards the vector of means of other firms in the industry in the long-run.

Other studies that have examined industrial structure include Baldwin and Gorecki (1994), Adelman (1951), Golan et. al. (1996) and Amato (1995). It is noteworthy that all such studies of evolution of industries have largely been confined to the US and the Canadian experience. More specifically there does not exist any work along these lines for the Indian industrial sector. The Indian industrial sector has undergone profound regulatory changes in recent times as a consequence of the economic reforms program put together in  between 1988 and 1991. Consequent to these reforms some of the industries that have been influenced the most have been the consumer durables industry (such as two-wheelers, washing machines, televisions etc.), the automobile industry and certain financial services. Typically an economy undergoing industrial reforms resorts to regulatory changes and redefines the role of the  public sector in order to create a climate of growth and foster private competition.

Evolution of th e Ind ian Two-wheeler Ind ustr y

The two-wheeler industry (henceforth TWI) in India has been in existence since 1955. It consists of three segments viz., scooters, motorcycles, and mopeds. The increase in sales volume of this industry is proof of its high growth. In 1971, sales were around 0.1 million units per annum. But by 1998, this figure had risen to 3 million units per

The Eva ns and Karras (1996) test of convergence is ideally suited for this purpose. This test enables us to examine whether firms within the 6

A Peep into the Indian Two Wheeler Market

annum. Similarly ,capacities of production have also increased from about 0.2 million units of annual capacity in the seventies to more than 4 million units in the late nineties. The Two wheeler Industry (TWI) in India began operations within the framework of the national industrial policy as espoused by the Industrial Policy Resolution of 1956. (See Government of India (1980, 1985, 1992). This resolution divided the entire industrial sector into three groups, of which one contained industries whose development was the exclusive responsibility of the State, another included those industries in which both the State and the private sector could participate and the last set of industries that could be developed exclusively under private initiative within the guidelines and objectives laid out by the Five Year Plans (CMIE, 1990).Private investment was channelised and regulated through the extensive use of licensing giving the State comprehensive control over the direction and  pattern of investment. Entry of firms, capacity expansion, choice of product and capacity mix and technology, were all effectively controlled by the State in a bid to prevent the concentration of economic power. However due to lapses in the system, fresh policies were brought in at the end of the sixties.4 All sales figures are from various issues of ACMA, capacity figures from various Five Year Plan documents. These consisted of MRTP of 1969 and FERA of 1973, which were aimed at regulating monopoly and foreign investment respectively. Firms that came under the purview of these Acts were allowed to invest only in a select set of industries. This net of controls on the economy in the seventies caused several firms to a) operate  below the minimum scale of efficiency (henceforth MES), b) under-utilize capacity and, c)use outdated technology. While operation below MES resulted from the fact that several incentives were given to smaller firms, the capacity under-utilization was the result of i) the capacity mix being determined independent of the market demand, ii) the policy of distributing imports based on capacity, causing firms to expand beyond levels determined by demand so as to be eligible for more imports. Use of outdated technology resulted from the restrictions  placed on import of technology through the

provisions of FERA .Recognition of the deleterious effects of these policies led to the initiation of reforms in 1975 which took on a more pronounced shape and acquired wider scope under the New Economic Policy (NEP) in 1985. As part of these reforms, several groups of industries were delicensed and 'broadbanding' was permitted in select industries. Controls over capacity expansion were relaxed through the specification of the MES of production for several industries. Foreign investment was allowed in select industries and norms under the MRTP Act were relaxed. These reforms led to a rise in the trend rate of growth of real GDP from 3.7% in the seventies to 5.4% in the eighties. However the major set of reforms came in 1991 in response Delicensed industries meant that firms no longer required licenses from the State to enter the industry or expand their plants. Broad banding meant that a firm could manufacture products related to the ones they were currently making without the need for a separate license. This meant that expansion of capacity till the MES did not now require a license. To a series of macroeconomic crises that hit the Indian economy in 1990-917. Several industries were deregulated, the Indian rupee was devalued and made convertible on the current account and tariffs replaced quantitative restrictions in the area of trade. The initiation of reforms led to a drop in the growth of real GDP between 1990 1992, but this averaged at about 5.5% per annum after 1992. The decline in GDP in the years after reforms was the outcome of devaluation and the contractionary fiscal and monetary policies taken in 1991 to address the foreign exchange crisis. Thus the Industrial Policy in India moved from a position of regulation and tight control in the sixties and seventies, to a more liberalized one in the eighties and nineties. The two-wheeler industry in India has to a great extent been shaped by the evolution of the industrial policy of the country. Regulatory policies like FERA and MRTP caused the growth of some segments in the industry like motorcycles to stagnate. These were later able to grow (both in terms of overall sales volumes and number of 7

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

 players) once foreign investments were allowed in 1981. The reforms in the eighties like 'broad  banding' caused the entry of several new firms and  products which caused the existing technologically outdated products to lose sales volume and/or exit the market. Finally, with liberalization in the nineties, the industry witnessed a proliferation in  brands .A description of the evolution of the two wheeler industry in India is usefully split up into four ten year periods. This division traces significant changes in economic policy making.

collaborations with foreign firms were encouraged. In the motorcycle segment FERA did not cause technological stagnation9, as a consequence of which, new products nor firms entered the market since this segment depended almost entirely on foreign collaborations for technology. The scooter and moped segments on the other hand were technologically more self-sufficient and thus there were two new entrants in the scooter segment and three in the moped segment. c) 1981 1990The technological backwardness of the Indian twowheeler industry was one of the reasons for the initiation of reforms in 1981. Foreign collaborations were allowed for all two-wheelers up to an engine capacity of 100 cc.

The first time-period, 1960-1969, was one during which the growth of the two-wheeler industry was fostered through mea ns like  permitting foreign collaborations and phasing out of The Indian economy was faced with several  problems at this time. Foreign exchange reserves were down to two month's imports, there was a large  budget deficit, double digit inflation, and with India's credit rating downgraded, private foreign lending was cut off. Also the Gulf war in 1990  brought about an increase in oil prices, and India had to import oil for over US$ 2 billion (GATT Secretariat, 1993)10non-manufacturing firms in the industry. The period 1970-1980 saw state controls, through the use of the licensing system and certain regulatory acts over the economy, at their peak. During 1981-1990 significant reforms were initiated in the country. The final time-period covers the period 1991-1999 during which the reform  process was deepened. These reforms encompassed several areas like finance, trade, tax, industrial  policy etc. We now discuss in somewhat greater detail the principal characteristics of each sub  period. a) 1960 1969The automobile industry  being classified as one of importance under the Industrial Policy Resolution of 1948 was therefore controlled and regulated by the Government. In order to encourage manufacturing, besides restricting import of complete vehicles, automobile assembler firms were phased out by 1952 (Tariff Commission, 1968), and only manufacturing firms allowed to continue. Production of automobiles was licensed, which meant that a firm required a licensing approval in order to open a plant. It also meant that a firm's capacity of production was determined by the Government. During this period,

The variety in products available also improved after 'broad banding' was allowed in the industry in 1985 as8 Between 1974-79, sales of two-wheelers increased by 60%, while that of cars declined by 21% and jeeps grew only by 11%. Indian motorcycles in the seventies had two major drawbacks viz., low fuel-efficiency and high weight. Worldwide however, there was a trend towards using high-strength, low-weight materials for various components which resulted in vehicles that were compact and had lower weight. Since fuelconsumption of a two-wheeler depended on its weight, lighter vehicles meant greater mileage. These drawbacks were overcome in the eighties when foreign collaborations were once again allowed a part of NEP. This, coupled with the announcement of the MES of production for the two-wheeler industry, gave firms the flexibility to choose an optimal product and capacity mix which could better incorporate market demand into their  production strategy and there by improve their capacity utilization and efficiency. These reforms had two major effects on the industry: First, licensed capacities went up to1.1 million units per annum overshooting the 0.675 million units per annum target set in the Sixth Plan. Second, several existing  but weaker players died out giving way to new entrants and superior products12 d) 1991 1999. The reforms that began in the late seventies underwent their most significant change in 1991through the 8

A Peep into the Indian Two Wheeler Market

liberalization of the economy. The two-wheeler industry was completely deregulated. In the area of trade, several reforms were introduced with the goal of making Indian exports competitive. The twowheeler industry in the nineties was characterized  by a) an increase in the number of brands available in the market which caused firms to compete on the  basis of Fuel-efficiency improved by (60-100)% in the new vehicles. In the seventies, motorcycle mileage was on an average between 25 to 50 km pl (kilometer per liter), which had now improved to 50 to 80 kmpl. For mopeds it improved from 50 km pl to 80 km pl. Output of the engines also increased from 3-4 HP to 10 HP per 100 cc.11 In the twowheeler industry, MES was pegged at 2,00,000 units and 5,00,000 units of annual licensed capacity for non-exporting and exporting firms respectively (CMIE, 1990). In the scooter segment, models with features like self-starter facility, automatic transmission system, gear-less riding etc. were introduced that were traditionally not available in scooters. In the motorcycle segment, the new100 cc models compared well against the existing heavier models of 250 cc, 350 cc etc. as these were lighter and more fuel-efficient. Joshi and Little (1996) discuss the economic crisis of 1991 and the policy response of the Indian government. The EXIM Scrip was introduced which granted exporters entitlements worth 40% of their export earnings.

1993). product features15 and b) increase in sales volumes in the motorcycle segment vis-à-vis the scooter segment reversing the traditional trend. Gr owth of Two Wheeler in In dia

The composition of the two-wheeler industry has witnessed sea changes in the post-reform  period. In 1991, the share of scooters was about 50  per cent of the total two -wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3 depicting total sales, share and annual growth during the period 1993-94 through 2003-04.  National Council of Applied Economic Research (NCAER) had forecast two-wheeler demand during the period 2002¬-03 through 201112. The forecasts had been made using econometric technique along with inputs obtained from a  primary survey conducted at 14 prime cities in the country. Estimations were based on Panel Regression, which takes into account both time series and cross section variation in data. A panel data of 16 major states over a period of 5 years ending 1999 was used for the estimation of  parameters. The models considered a large number of macro-economic, demographic and socio-

Similarly quantitative restrictions were replaced with import duties which were around 85% of the two-wheeler industry (GATT Secretariat,

Table 1: Demand Forecast for Motorcycles and Scooters for 2011-12 2-Wheeler Segment

Regions South

West

 North-Central

East & North-East

All India

Motorcycle

2835 (12.9)

4327 (16.8)

2624 (12.5)

883 (11.1)

10669 (14.0)

Scooter 

203 (2.6)

219 (3.5)

602 (2.8)

99 (2.0)

1124 (2.08)

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

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

9

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

economic variables to arrive at the best estimations for different two-wheeler segments. The projections have been made at all India and regional levels. Different scenarios have been presented based on different assumptions regarding the demand drivers of the two-wheeler industry. industry. The most likely scenario assumed annual growth rate of Gross Domestic Product (GDP) to be 5.5 per cent during 2002¬-03 and was anticipated to increase gradually to 6.5 per cent c ent during 2011--12. The all-India and region-wise region -wise projected proje cted growth trends trend s for fo r the th e motorcycles and scooters are presented in Table-1. The demand for mopeds is not presented in this analysis analy sis due to its already alread y shrinking shrinki ng status compared to' motorcycles and scooters.

the service sectors have shown high growth growth during this period at the rates of 8.0 and 9.5 per cent respectively. respectively. However, poor rainfall last year will pull down the GDP growth to some extent. Taking into account all these factors along a long with other leading indicators including government spending, foreign investment, inflation and export growth, NCAER has projected an average growth of GDP at 6.7 per cent during the tenth five-year plan. Its Its midterm forecast suggests an expected growth of 7.4 per cent in GDP during 2004-05 to 2008-09. Very recently, recently, IMF has portrayed a sustained global recovery in World Economic Outlook. A significant shift has also been observed in Indian households from th the lo lower in income gr group to to th the mi middle in income group in recent years. The finance companies are also more aggressive in their marketing compared to previous years. Combining all these factors, one may visualise a higher growth rate in two-wheeler demand than presented in Table-1 particularly for the motorcyclesegment.

It is important to remember that the abovementioned forecast presents a long-term growth for a period of 10 years. The high growth rate in motorcycle segment at present will stabilise after a certain point beyond which a condition of equilibrium will set the growth path. Another important thing to keep in mind while interpreting these growth rates is that the forecast could consider the trend till 1999 and the model could not capture the recent developments that have taken place in last few years. However, this will not alter the regional distribution to a significant extent.

There is a large untapped market in semi-urban and rural areas of the country. country. Any strategic planning for the two¬-wheeler industry needs to identify these markets with the help h elp of available statistical techniques. Potential markets can be identified as well as prioritised using these techniques with the help of secondary data on socioeconomic parameters. For the two-wheeler industry, it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets. Availability of easy credit for twowheelers in rural and smaller urban areas also requires more focussed attention. It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Adequate incentives for promoting exports and setting setting up of institutional institutional mechanism such as Automobile Export Promotion Council would be of great help for for further surge in demand for the Indian two-wheeler industry. industry.

Table-1 suggests two important dimensions for the two- wheeler industry. The region-wise numbers of motorcycle and scooter suggest the future market for these segments. At the all India level, the demand for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be almost 20 times. It is also evident from the table that motorcycle will find its major market in the western region of the country, which will account for more than 40 per cent of its total demand. The south and the north-central region will follow this. The demand for scooters will be the maximum in the northern region, which will account for more than 50 per cent of the demand for scooters in 2011-12. The present economic situation of the country makes the scenario brighter for short-term demand. Real GDP growth was at a high level of 7.4 per cent during the first quarter of 2004. Both industry and 10

A Peep into the Indian Two Wheeler Market

The production figures of motorcycles simply reflect the trend that is Prevalent in the industry, industry, as the demand of motorcycles has increased so have their production. Demand for two-wheelers has grown at a rate of 17% in the year 2004/2005. Bajaj Auto which is the one of the largest producer of twowheelers in the country has been able to achieve a  production of 1.8 million vehicles ve hicles with manpower manpo wer of 10,914 in 2004/2005 as compared to 1.5 million vehicles in 2003/2004 with manpower of 11,531. Many companies like the Honda motorcycles and scooters India Limited are beefing up their  production capacities to reach a target of around 300,000 per annum. Though the metal geared scooters have fallen out of favour of the Indian riders, the ungeared segment of scooters have been able to drive the volumes in this segment. This fact is reflected in the dip in production during the early 2000. On a more  positive note the ungeared segment of scooters have grown by over 13% in 2004/2005 thus driving the  production in this segment. Bajaj Auto which has an overwhelming presence in this segment has  produced 742,000 units during 2004/2005. These entry level two-wheelers have seen a steady decline in the production in the recent years, though in the year 2005-2006 their production has  picked up but its its too early to predict a revival of this this segment segme nt of two- wheelers. whee lers. As entry entr y level leve l motorcycles become cheaper with every passing day mopeds might see a further dip in production and sales in the years to come. Major P layer layer s in Two Two Wheeler Wheeler Indu stry

The two wheelers have played a pivotal role in the surging growth of the Indian automobile industry. industry. Over the years yea rs the domestic sale of various  brand of two wheelers have grown in large numbers. Even in the sphere of exports, the two wheelers have  been able to maximize the profit margin of various two wheeler manufacturers. There are mainly three Models of two wheelers, which are classified as scooters, motorcycles and mopeds. In the recent years the two wheeler industry has witnessed sea change. During the yesteryears the scooters used to have about 50% of the market share and the rest

were divided between the motorcycles and mopeds. But now the trend indicates that people are  preferring motorcycles more than that of the scooters. At present there is a huge demand for the motorcycles in India .There are a number of two wheeler companies in India that produce vehicles of extremely high standard. Some of the leading two wheeler manufacturers in India are Bajaj Auto., TVS Motor, Kinetic Motor, Suzuki Motor Corporation, Royal Enfield Motors India, Hero Honda Motors, Yamaha Motor India, LML India and Monto Motors. Many of two wheelers manufactured by these companies are exported to countries in South East Asia, Africa and South America. Motorcycles are usually priced higher than that of the scooters and mopeds. They are even equipped with more features for faster travel. Based upon the engine displacements and power capacity motorcycles are further classified as: road bikes, trail bikes, racing bikes and touring bikes . Most of the motorcycles in India come with engine capacity of about 100 cc to 250 cc. The engine capacity of scooters usually vary between 100 cc to 150 cc. Mopeds have small engine capacity ranging between 50cc to 100 cc. Most of the automobile companies in this this segment are always coming up with newer variants of different models of two wheelers. wheelers. To be in the long run these companies companies are even adding more number of features to these vehicles Motorcycles have increased so have their  production. Demand for two-wheelers two-wheelers has grown at a rate of 17% in the year 2004/2005. Bajaj Auto which is the one of the largest producer of twowheelers in the country has been able to achieve a  production of 1.8 million vehicles ve hicles with manpower manpo wer of 10,914 in 2004/2005 as compared to 1.5 million vehicles in 2003/2004 with manpower of 11,531. Many companies like the Honda motorcycles and scooters India Limited are beefing up their  production capacities to reach a target of around 300,000 per annum. Though the metal geared scooters have fallen out of favour of the Indian riders, the ungeared segment of scooters have been able to drive the volumes in this segment. This fact 11

Vedaang Vol. 4 No. 1, January-June 2013 Effort: An Investigation Across general Product categories”, Journal of Consumer Research, 14(June),pp88-95.

is reflected in the dip in production during the early e arly 2000. On a more positive note the ungeared segment segmen t of scooters have grown by over 13% in 2004/2005 thus driving the production in this segment. Bajaj Auto which has an overwhelming presence in this segment has produced 742,000 units during 2004/2005.

Berlyne, D.E (1963), “Motivational Problems Raised By Exploratory And Epistenic Behaviour”, Psychology : A stydy of Science, Vol Vol 5, S.Koch, S.K och, Mc Graw Hil l. Bettman, James R (1974), Buyer / Consumer Information Procrssing: G.D Huges Huges and M.L.Ray , ( Ed), Chapel Chapel Hill : University of North Corolina Press.

These entry level two-wheelers have seen a steady decline in the production in the recent years, though in the year 2005-2006 their production has  picked up but its too early to to predict a revival revival of this segment of two-wheelers. As entry level motorcycles become cheaper with every passing day mopeds might see a further dip in production and sales in the years to come.

Bettman, James R (1979), An Information Theory of Choice,  New York: Addison Wesley Bettman, James R and Michal A. Zims (1979), “Information Format and Choice Task Effects in Decision Making”, Journal of Consumer Resesarch, 6(September), pp,141153. Bettman, James R and Pradeep Kakkar (1977), “Effect of Information Presentation Format on Consumer Information Acquisition Strategies”, Journal of Consumer Resesarch, 3 (March), pp 233-240.

Conclusion

Blattberg, Robert C, Peter Peacock and Subrata K Sen (1976), “Purchasing Strategies Across Product Categories”, Journal of Consumer Resesarch, 3(December), ,pp143154.

The two-wheeler industry is passing through a very interesting business phase. While the companies are slugging it out to maintain or increase their market share, the consumers are a happy lot. At the stock market, the share prices of two-wheeler companies have seen a divergent trend. The reshuffling of market share in the motorcycle segment has been the key factor driving the share price of the top three two-wheeler  producers Bajaj, Hero Honda and TVS Motor. With a slew of new models slated to be launched by almost all top companies, the earnings growth could turn out to be more uncertain and volatile. Considering that the share prices of Bajaj, Hero Honda, LML and TVS Motor have recovered from their lows recorded a few weeks back, existing holders could pare exposures. Fresh buying may be considered on the evidence of a sustained improvement in motorcycle sales. Alternatively, equity exposure may also be considered in companies that enjoy success in new models.

Brucks, Marrie Marrie (1985), (1985), “ The Effects Effects of Product Class Knowledge on Information Search Behaviour”, Journal of Consumer Resesarch,12(June),pp 1-16 Burnkrant, Robert E (1976), “ A Motivational Model Of Information Processing Intensity”, Journal of Consumer Resesarch,3(June),pp21-29 Bush, R.R and Mosteller F. F. (1955)., Stochastic Stochastic Models of Learning, New York : John Willey and Sons. Calder, Bobby L. (1977), “Focus Group and The Nature of Qualitative Marketing Research”, Journal of Consumer Resesarch, pp, 353-364. Capon, Noel and Marian Brurke (1980), “ Individual Product Class and Task Related Factors In Consumer Information  processi  proc essi ng”, Jour nal of Consume Con sume r Rese sarch, sarc h, 7 (May),pp,314-326 Cohen, D (1986), “Trademark Strategy”, Journal Of Marketing,50, No 1 (January),pp 61-74. Coleman, J.S (1964), Models Of Change And Response, Englewood Cliffs N.J : Prentice Hall Cravens, David W (1987), Strategic Marketing, Homewood, Illinois: Richard D. Irwin Inc.

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Sheth, J.N (1973), “ A Model Of Indutrial Buyer Behaviour”, rd  Journal Of Marketing, 3 October, pp,50-5

Tybzee, Tyzoon T. (1979), “Research Time, Conflict and Involvement in Brand Choice”, Journal of Consumer Research, 6 (December), 295-304.

Simonson, Itmar, Joel Huber and John Payne (1988), “The Relationship Between Prior Brand Knowledge and Information Acquisition Order”, Journal of Consumer Research, 14 (March), pp,566-577.

Urbany, Joel E., Peter R. Dickson William L. Wilkie (1989). “Buyer Uncertainly and Information Search”, Journal of Consumer Research, 16(September), pp,208-215.

Stanfield, J.D, Clark J.A, Lin Non and Roger (1965) , “Computer Simulation Of Innovation Diffusion illustration From A Latin American Village.”, Paper press at a aJoint Association of The American Sociology Society Chicago : American Sociological Society.

Westbrook, Robert A. and Claes Fornell (1979), “Patterns of Information Source Usage Among Durable Goods Buyers”, Journal of Marketing Research, 16 (August),  pp,303-312.

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

15

A PRE RESCISSION COMPARATIVE STUDY ON EMPLOYEES PRODUCTIVITY AND COST I N INDIAN BANKING INDUSTRY Dr S.M.Tar iq Zafa r *, Dr D.S.Chau bey**, Dr Adeel Maq bool***  ABSTRACT 

To maintain equilibrium between employee productivity and cost and global standard between demand and supply in present global economic environment, technological and metamorphic environmental developments within and outside the political boundary there is a need of cost prone efficiency revolution in India n banking sector which can effectively mobilize and productively utilize  public savings to optimum. It is expected that the modern banking financial supermarkets survival largely depend upon employee productivity and cost efficient new high breed financial products and specialized services. Thus in this paper an attempt is made to explore employee potential in relation to cost and for the purpose employee productivity and employee cost ratios comparison has been car ried out between the tra ditional, modern hybrid and Universa l banks. Pre recession per iod from 1997 to 2008 has been taken for the purpose of study. The study revealed the fact that during the  period performance of modern hybrid, universa l foreign banks and private sector banks were much superior to the traditional social sector and private banks. However it is also found that by implementing effective and efficient measures the per formance gap between traditional and modern hybrid and Universa l banks have declined competitively. Key Wor ds : Tra ditional Banks, Modern Banks, Universal Banks, Ga p Index, Productivity, Cost JEL : Classif ications: G18, G 21, G 23, G24, G29

Introduction

Banking and finance is a spirit of economic  body without it no economy can survive. At earlier  period banking services was confined to rich and city dwellers but in present scenario banks is accessible to common man and their activities extended to diversified and untouched areas. With  passing time banks have transformed from traditional banks to hybrid banks, universal banks and virtual banks. Apart from traditional function they have adopted national responsibility as their core vision. They cater to the needs of agriculture, industrialist, corporate, traders and all other sections of the society and accelerate the economic growth of the country and speed the wheels of nation economy in achieving self sufficiency in all regards. They are depository institutions and distinct from other financial institutions. The large  portion of banks funding is contributed by the deposits and significant portion of which is repayable on demand. Banks collectively are largest players and

visible of all financial intermediaries in the Indian financial services sector and hold apex position in economic integration, promotion and overall growth & development. The elaborate framework of laws and regulations governed Indian banking sector. The statuary framework of Indian banks is headed by the Reserve bank of India (RBI). It is an apex regulator of Indian banking industry and operate as nation's Central bank followed by Indian scheduled commercial banks which are divided into two fold, “scheduled and non scheduled banks and are categorized into five different groups. These groups are (i) State bank of India (SBI) and its associates (ii) major nationalize scheduled banks, (iii) Private Sector banks (iv) Foreign banks (v) other joint stock banks, co-operatives banks, Regional Rural Banks. Thus, the Indian banking sector comprises the public sector commercial  banks, private sector banks, co-operative banks and regional rural banks. The RBI Act, 1934 governs the working of RBI and Banking Regulatory Act, 1949 empowered RBI to regulate the listed scheduled banks. Other acts that are part of statuary framework

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

16

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

are the State Bank of India (SBI) Act, 1955 and the SBI Subsidiary Act, 1959. The Banking Companies (Acquisition and Transfer of Undertaking) Act, 1969 was passed in order to nationalize 14 private owned banks and later in 1980, in second round of nationalization 5 more banks were nationalize by using the Acquisition Act. Or igin of Bank ing

Differe nt countries have their historical evidence of banking activities and regulations. There is no unanimous view regarding the origin of the word bank. It is said that French word 'Banco' or 'Bancus' or 'banc' or'Banque are the mother of word  bank which means ' a bench'. It is said that in Lambardly Jews use to transact their banking  business by sitting on the benches and when their  business failed the benches were broken and the word bankrupt came into vogue. According to Macleod that money changers were never called 'Benchieri' in middle ages thus the word Bank derivation many be a mere conjecture. Another common view in regard to existence of word 'Bank' that it might be originated from the German ward 'Back' which means a joint stock found and later, it was Italianized into “Banco, Frenchised into “Bank” and in last Anglicised into “ Bank” Ind ian Banking Evidence

It is found that in ancient India during Vedic  period (1750 BC) Indians were having financial transaction in the form of loan and advances. It is found that in the year '1770' Bank of Hindustan started and became defunct, later in1786 very first  bank of India was established. In the year 1806 Bank of Calcutta started and after short existence it was converted into Bank of Bengal. During the  period three presidency banks 'Bank of Bengal', 'Bank of Bombay', 'Bank of Madras' were established under the charter of British East India Company and acted as Quassi Central Bank and in 1921 all the presidency bank merged and formed Empirical Bank of India which after independence  became State Bank of India (SBI) in 1955. During the Colonial Period, Merchant in Calcutta established the Union bank in 1839 which failed in 1840 due to economic crises. In 1860, foreign banks

started their operations. The Comptor d, Es Compte e Paris opened their branches in 1860 in Calcutta and in Bombay in 1862, and then in Madras and in Pondicherry. The Allahabad bank was established in 1865which is considered as an oldest Joint Stock bank in India. In the year 1869 HSBC was established. In the year 1881 in Faizabad, first entirely Indian Joint Stock Bank 'Ouadh Commercial Bank' was established. In 1895 Punjab national bank was established in Lahore. During the  period of Mutiny many small banks came into existence and served ethnically and religiously. Most of the banking business was dominated by  presidency banks with some Exchange Banks & Joint Stock Banks. The period of between 1906 and 1911 (Swadeshi movement) saw establishment of Banks. Due to I world war (1914-1918), 94 banks failed, later partition paralyzed economy and  banking. RBI was established in 1935 and was nationalized in January 1949. Banking Regulation Act was passed in 1949 and empowered RBI to regulate, control and inspect banks in India. Cur rent scenar io of Indian ban king industry

Cataclysmic structural reforms in Indian economic system following the government policy of tectonic economic liberalization, globalization, financial deregulation and digitalization, rising global competition and tumbling of trade barriers coupled with metamorphic liberalized policy in financial sector and recommendation of Narsiham Committee brought revolution in Indian banking industry and impacted changes in the operating environment for banks to a large extent. Indian  banking structure is a result of efficient and effective process of expansion, reorganization and consolidation. At early stage after independence economic considerations govern the growth of  banks nationalization but in present scenario with growing economy greater emphasis have been accorded on social objectives like 'expansion, network penetrating deeply in all part of the nation and efficient and effective utilization of banking assets.  New policies with greater degree of operational autonomy replaced regulated and overadministered banking industry which resulted entry 17

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

of new domestic and international financial players, minimized distinction between banks and non bank, introduction of innovative and path-breaking communicational and computational technology, freedom of fixing financial products price, deregulation of interest rate system and adoption of floating exchange rate system, income recognition and capital adequacy, effective changes in credit delivery mechanism, redefining prudential norms of assets classification, strategic flexibility in credit assessment process and increasing trend of disinterme diation has explored comp etitiv e environment in Indian financial sector and gave regulated freedom to the market forces to decide the future of banking and other financial institutions under the shadow of new investments, new windows and new opportunities, along with these new challenges. In present volatile global economic scenario and fiercely competitive environment Indian public sector banks hold over 75 percent of total assets of the banking industry and remaining held with  private and foreign banks. In competing global standard Indian banking industry has managed  protective economic and services sector growth due to which demand for banking services especially retail banking, mortgages and investment services will accelerate and will further lead to M&As, takeovers, and asset sales in large. This demand will develop challenge in the form of competitive  pressures and will result change in demands both from foreign banks and new private sector banks. In India most of the public sector banks and private sector banks are operating in traditional mode and requires up gradation to compete or become hybrid universal bank. Deregulation and new policies have opened up new vistas for banks to augment revenues; it has entailed greater competition and consequently greater risks. Banks main sources of operating revenue are interest and discount on loans, dividends on investment, and services charges on deposit accounts, services charges and fee on banks and other charges and major expenditures are salaries and wages, interest payment and deposit liabilities and other current operating expenses. In

order to survive smoothly they have to offer wide array of customized products and services in convenient atmosphere at economical rate under one roof with recognized and distinct identity. And on other hand they have to protect and consolidate their presence and market share, for the purpose have to adopt efficiency in order to ensure future growth, to arrest performance deterioration, to avail the advantage of emerging opportunities, to retain the existing customers and to attract new customers. For this they have to be efficient, effective and have to evolve a strategy that is forever morphing and conforming itself to emerging opportunities and incipient trends. To become global financial leader it became necessary for policy makers to identify the shortcoming and later converting these gray areas into strength by implementing scientific approach, efficient policy and effective rules and regulation. For the purpose policy makers ultimately requires progno stic diagno sis of the proble ms and challenges along with emerging opportunities and assessment of existing strengths and weakness of Indian banks? Policy makers considering present global economic scenario investigated minutely and analyzed that inefficiency in Indian banking structure is the major factor contributing to the high cost of banking services which ultimate ly impacting the smooth survival of the banking industry. Further they found that problem of pressure on profitability, prob lem of low pr od uc ti vi ty, Pr ob le m of e ve r- gr ow in g nonperforming assets (NPA), problem of resource crunch, problem of assets and liabilities mismatch, problem of growing competitive and qualitative change in Indian and global banking paradigm,  problems of diversified strata customers, growing domestic and global competition, competition from disintermediation, problem of managing duality of ownership, problem of continuous changing technology, problem of growing collective financial market uncertainty and risk, problem due to unskilled work force and scarcity of talents, To fight the competitive odds Indian banking system opted to become modern banking system at par to global norms and employed a number of 18

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

measures in order to improve its operational efficiency , meeting customer expectations and reduction of operating costs. In process of change Indian banks strategically tried to control and minimized banking weakness like “low operating size and high operating costs, they gradually converted inadequate deposit mobilization efforts into adequate and speedy, they tried to arrest high level of nonperforming assets in order to maintain sound liquidity and financial stability, they minimized financial exclusion, they converted complex and non responsive organizational structure into customer friendly, and responsive, they controlled credit to non productive sectors like commercial estate, they converted poor customers services into efficient and effective, they utilized existing capacity to optimum and converted unsatisfactory work culture into satisfactory, feudalistic attitude of the staff transformed into consumer friendly and cooperative, they implemented effective measures to control ethnocentric and action flippant management and adopted employees friendly target oriented policies in order to balance the employee motivation and growth, they offered VRS to their employees, training and retraining of staff been adopted, lateral induction of specialist been adopted, new fully automated technology with business process reengineering been adopted by banks to make global financial market accessible and adequate, they adopted electronic based multiple service delivery channels, they adopted business process outsourcing and established back offices and data centers, importance of marketing and promotional activities been realized, customer relationship management and brand image improvisation  became important part of policy, diversified economic activities became core of banking  business, to become global banking player some of the banks have taken help from international consulting agencies to remove bottleneck in their operation and undergone restructuring process. These changes were considered paramount by the  banks to become internationally at par and to achieve competitive edge over global and domestic competitors. This paper is organized in six sections. Section I

provides Introduction in which Origin of Banking, Indian Banking Evidence and Current scenario of Indian banking industry has been given. Section II discusses the objective of the study. Section III represents the data and methodology. In Section IV Survey of literature is given. In Section V analysis and interpretation of data is given. In Section VI concluding remarks is been given. Obj ective of the Stud y

Employees play important role in overall growth and achievement of the organization and their efficient utilization cannot be ignored and underestimated. The core objective of the study is to compare the parameters of employee's productivity and employee cost in Indian banking sector. In employee productivity “business per employee” (BPE) and “profit per employee” (PPE) between traditional and Modern banks in India are been compared and in employee cost comparison is been done between employee cost to operating expenses, employees cost to total business and employee cost to total assets. Resear ch Meth odology

The study is carried out to make qualitative and comprehensive evaluation of employee's  productivity and employee cost in Indian public and  private sector banks. For the purpose data for the  period of 12 years from 1996- 97 to 2007-08 has  been analyzed in order to observe the impact of implemented measures by the traditional banks to counter challenge geared by the modern banks. The data used in study are extracted from the Statistical tables published in annual reports of Reserve Banks India (RBI). Table has been prepared to make comparison between modern and traditional banks on the selected parameters of employees'  productivity and employees' cost. The gap index is  prepared to indicate the percentage of difference of the value of variables between modern banks (MI) and traditional banks (TB) as a ratio of their aggregate value. The main objective of Gap Index construction is to analyze whether or not gap  between modern and traditional banks are reduced after implementing various measures. The outcome of the study depends on the selected period 19

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

 by the researchers which may differ from other analysis. Review of Liter atu re:

To develop new parameters in any area of study literature revues play important role. They provide vital inputs and directions to the study as they base on past which help in forecasting the future. A number of studies have been carried out to compare different type of banks operating in India using different parameters depending upon time and importance. The judicious outcome of these studies indicate that they differ in opinion due to many reasons like global economic condition, nature of economy, time period of the study, banks futuristic  policies and other competitive considerations etc. Therefore, keeping futuristic development in view this study is authentically designed to understand and investigate the Productivity and Cost in Indian  banking Industry and their overall impact and their survival in global competitions by critically examining and evaluating different theories and empirical studies conducted universally by financial experts and academicians. The outcome of the study will provide insights regarding operational characteristics and efficiency of  banking companies to the end users in the both segments long term and short term and will also explore new dimensions and will set new  parameters to be followed by others.  Nationalization of banks leads unprecedented expansion of banking operations in India and explored economic revolution with certain visible and invisible draw backs. There was growing concern on the deteriorating of banking and financial institutions efficiency in all spheres. To control this deterioration the Reserve Bank of India (RBI) the apex regulatory body responsible for maintaining the external value of the rupee, acting as a bankers banks, Central bank playing developmental role and ensuring better customer services, constituted a number of committees and study groups, notably among them Daheja Study Group (1968), Tondon Committee (1975), K.B. Chore Study Group, Luther Committee (1977) Charkarvarty Committee (1986) M. Narsimham Committee (1991), E. Nayak Committee (1991),

Khan Working Group. All these committee and working groups examined various parameters of efficiency minutely and given numbers of relevant suggestions to explore efficiency in Indian banks.  Nag and Shvanaswamy (1990) in their study compared the performance of foreign banks operating in India with the Indian scheduled commercial banks in terms of growth of deposits and loans and revealed that foreign banks have  performed better than Indian scheduled commercial  b a n k s d u r i n g t h e p e r i o d . S w a m i a n d Subramanayam (1994) in their study examined the inter- bank differences in the performances of  public sector banks in India by using taxonomic method and found that most of the banks had a wide disparities in their measures of performance, Bhattacharya et al. (1997) in his study examined the impact of privatization on the performance of  banks. The study revealed that public sector banks have performed better in comparison to private sector banks, Shankar and Das (1998) in their study compared private sector, public sector banks and foreign banks by using 15 indicators based on major criteria representing efficiency like profitability,  productivity and financial management, Mukherjee et al. (2002) examined the technical efficiency and  benchmark performance of 68 commercial banks. He found that India public sector banks have proven  better than private sector banks and are more efficient than private and foreign banks and also found that public sector banks have deep presence than their competitors, Qamar (2002) examined the use of profitability, resource and efficiency in Indian scheduled commercial banks. For the  purpose he used modern techniques to evaluate  performance of the banks and found that new tech savvy private sector banks and foreign banks are having marginal edge over old and traditional  private and public sector banks in urban area, Petya Koeva (2003) examined the impact of financial liberalization on the performance of Indian commercial banks. In his study he examined the  behavior and determinants of banks intermediation costs and profitability during the liberalization  period and found that ownership play important role on some performance indicators, Sathye (2005) examined the impact of privatization on the 20

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

 performance of banks and found that under  prevailing circumstances in India private sector  banks have performed better than public sector  banks, Vradi, Vijay, Mauluri, Nagarjuna (2006) examined the stability of profitability, productivity, assets quality and financial management of banking industry as a whole. For the purpose they used development analysis and concluded that public sector banks are more efficient than other banks in India, Brijesh K Saho, Anandeep Singh (2007) examined the performance trend of the Indian commercial banks. The study revolves around trend in technical efficiency, higher cost efficiency and concerning the scale elasticity behavior and their collective impact on banking industry performance, coordination and competitiveness, B Satish Kumar (2008) in his study found that with the adopted effective economic reforms new generation banks with modern technology and professional attitude have revolutionized the sector, Roma Mitra, Shankar Ravi (2008) evaluated the efficiency of 50 Indian banks. The study found that performance can  be result of policy of the banks depending upon  priority area in which they like to operate.

It is found that productivity is one of the most important factors affecting profitability of a bank. Generally it is a function of an input and output relation. Productivity of banks is said to be high when for the same quantity of inputs, a greater quantity of output is generated or when same output is achieved with lesser quantity of inputs. It is considered that Banks are socio- economic entity and earning profit is not their prime objective. Being a social entity it has social obligations to promote economic development and to achieve the same have to channelize their resources and efforts towards social ends. Acceptance of social responsibility dilutes the profit of banks and increases the operational cost and risk along with diversion of managerial time and talent apart from scare economic resources of the bank. It is hard and fast fact that economic goals and social goals are opposite to each other. It is found that social desirable obligations become economic suicide. However, in long run economic goals and social responsibilities become compatible with each other and reinforce each other. In fact, basic responsibility of a bank is to operate profitably and efficiently utilize the resources at its disposal. Society cannot gain if banks performance suffers. Bank can serve society and help economy to develop only when it operate successfully. Thus, in order to fulfill its economic goal, banks must utilize its all resources and factor of production to optimum.

Ana lysis of Dat a Emp loyees Pr oductivity

In a ferociously competitive environment,  banks, to achieve sustainable competitive prowess, must have to develop competitive strength over its competitors. This is possible if the banks have efficient and productive employees who have ability to attract customers and have strength to defend the competitors. In order to cater the growing competition Banks took number of measures to develop efficiency and productivity among their employees. Banks with support of  business process engineering and innovative technology can posse's unique strength that allow it to achieve superior efficiency, quality, innovation and customer responsiveness which ultimately translate into surplus. In fact, economic surplus is an index of efficient and effective deployment of resources. It is a fundamental truth that for survival operating revenue must be more than operating expenditure. Profit provides cushion to the banks as it is an index of efficiency.

As per table 1, the employees' productivity ratios are represented by 'business per employee' and profit per employee' for the period of 12 years in respect of traditional and modern banks operating in India. During the study period it is found that traditional banks have performed remarkably better than modern banks in both business per employee and in profit per employee. Business per employee for traditional banks has shown upward trend and has continuously improvised. During the study  period it has increased from Rs. 75.28 lakhs to Rs. 549.21 lakhs, which is 7.29 times. On other hand modern banks have also shown upward trend and their business per employee have also increased from 397.50 lakhs to 1216.75 lakhs which is said to  be 3.06 times. It has been found that the ratios of  business per employee between modern and 21

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

Table 1: Employee Productivity Ratios (Rs. Lakhs)

Year*

1 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Business Per Employee (Median)

Pr ofit Per Emp loyee (Median)

Traditional Banks

Modern Banks

Traditional Banks

Modern Banks

2 75.28 97.53 112.93 136.26 166.23 192.30 223.36 263.12 302.02 355.79 439.96 549.21

3 397.50 689.90 638.66 735.20 690.83 667.41 717.00 758.46 745.56 891.52 790.44 1216.76

4 0.57 0.81 0.57 0.79 0.71 1.27 1.68 2.23 1.29 1.68 2.84 3.87

5 6.50 7.90 5.66 7.49 5.84 5.37 9.17 10.41 7.82 9.01 11.48 17.74

*represents end of financial year 

traditional banks have declined to a great extend, from 5.28 times in 1997 to 2.21 times in 2008. This decline is due to effective measures and efforts made by traditional banks. Further it has been found that during the period of study profit per employee in traditional banks is significantly higher than modern banks. It is been found that profit per employee in traditional banks was 6.79 times as compared to modern banks that have 2.73 times.

improve profitability and always try to minimize them in relation to operating expenses, total business and total assets. The employee cost in respect to selected variables for the selected period of study in respect to traditional and modern banks are presented in table No.2. It may be noted from the table that the employee cost as a ratio of operating expenses in respect of traditional banks remained more or less constant from 1997 to 2002 and later got reduced gradually. On contrary modern banks, the ratio fluctuated narrowly; it declined marginally up to the year 2006 and further increases in 2007 - 2008. The study revealed that till 2006 employee cost to operating expenses of traditional banks were more than double of modern banks, but after implementation of controlling measures this ratio decreased significantly during 2007-2008 and was1.77 and 1.65 times respectively. This indicate that efforts made by traditional banks to control and minimize the wage bills in relation to operating cost made an impact on changing composition of banks input output, and reduction in total cost.

Employee Cost Ratios

In any economic entity cost play important role. Profitability fluctuates according to cost fluctuation. Banking is a service industry whose output consists not of any physical product but a  bundle of services, thus not easy to measure its efficiency. Every step of competition has its impact on cost which ultimately impact margin of safety. Banks average business is the sum of average deposits and advances which is the output generated  by the input of human efforts. In this study employees cost is represented by “employee cost to operating expenses”, employee cost to total  business and by employee cost to total assets” which are based on individual banks wage bill data. Banks consider it as an important factor in order to

It is found that during the period of study 22

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

Table 2: Employee Cost Rates (Per cent)

Year 

1

Employee Cost to Employee Cost Employee Cost Operating to Total to Total Assets Expenses Business Tradition Modern Tradition Modern Tradition Modern al Banks Banks al Banks Banks al Banks Banks

2

3

4

5

6

7

1997

71.78

30.41

1.45

0.57

2.05

0.81

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

72.20 71.81 72.28 74.23 71.52 70.13 68.42 66.92 65.26 60.99 58.63

29.52 27.64 30.07 27.79 29.36 26.49 26.96 27.39 30.43 34.35 35.53

1.33 1.34 1.30 1.30 1.15 1.09 1.04 0.99 0.95 0.79 0.68

0.55 0.63 0.63 0.63 0.63 0.63 0.64 1.23 1.14 0.80 0.88

1.90 1.88 1.80 1.98 1.62 1.57 1.49 1.39 1.35 1.13 0.96

0.78 0.79 0.75 0.69 0.55 0.60 0.62 0.64 0.69 0.87 0.92

employee to total business of traditional banks has reduced consistently, in the year 1997 it was 1.45  per cent and in the year 2008 it reduced to 0.68 per cent. On the other hand in modern banks it has marginally increased, it was 0.57 per cent to 0.64  per cent up to 2004, but increased drastically in the following year 2005 to 1.23 percent and reduced to 0.88 percent in 2008. The study revealed that till 2004, the employee cost to total business of traditional banks were higher than modern banks  but from 2005 modern banks was found on increasing trend and traditional banks on decreasing. This declining trend indicates that traditional banks have managed their efforts in effective manner to compete modern banks challenge of business expansion.

Gap Ind ex Analysis

The Gap Index has been defined as the  percentage of difference of the value of variables  between modern banks (MB) and traditional banks (TB) as a ratio of their aggregate value. To find the gap value and to prepare Gap Index of Business per Employee (BPE) following formula has been used. BPE (MB) - BPE (TB) BPE (MB) + BPE (TB)

X 100

In order to get positive value and to find out cost related variables the cost of modern banks have been subtracted from the traditional banks. It was expected that the value of modern banks will be lower in comparison to traditional banks. In the study Table No, 3, gives the gap indices of 5 variables.

The study revealed that employee cost to total assets of traditional banks has also declined constantly, in the year 1997 it was 2.05 percent and declined to 0.96 percent in the year 2008; accept in the year 2001 it has increased marginally to 1.98  percent. Modern banks has also recorded decline in employee cost to total assets during the period of study. In the year 1997 it was 0.81 percent; in 2002 they recorded the lowest 0.55 percent and recorded highest of 0.92 percent in 2008.

From the Table No, 3, it has been found that employee cost ratios of modern and traditional banks have declined consistently from 1997 to 2008. The study revealed that percentage reduction in case of employee cost to total business was highest to 129 percent, which drastically came down and assumed negative value from the year 23

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

Table 3: Gap Index Year

Business  per  Employee (Rs. Lakhs)

Profit per  Employee (Rs. Lakhs)

Employee Cost to Total Business (per cent)

Employee Cost to Operating Expenses (per cent)

Employee Cost to Total Assets (per cent)

1

2

3

4

5

6

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Percentage Reduction from 1997 to 2008 (per cent)

68.15 75.23 69.95 68.73 61.21 55.26 52.50 48.49 42.34 42.95 28.49 29.86

83.84 81.35 81.63 80.86 78.24 61.79 69.08 64.77 71.62 68.53 60.34 64.18

2005 to 2008. It has also been found that the gap of employee cost to total assets between traditional and modern banks have reduced at a significant rate. In the year 1997 it was 43.41 and came down to 2.13 in the year 2008, means 95.09 per cent reduction. It is also been found that gap between traditional and modern banks in case of employee productivity ratios and business per employee have also reduced at a significant rate. In the year 1997 it was 68.15 and came down to 29.86 in 2008, means reduction of 56.18 percent. The study also revealed that the gap between traditional and modern banks in respect of profit per employee also reduced significantly. In the year 1997 it was 83.84 and came down to 64.18 respectively in the year 2008, means 23.45 percent reduction during the period. Further, it has been found that the gap in absolute terms was still high in respect of business per employee, profit  per employee and employee cost to operating expenses and was 29.86, 64.18, and 24.53 respectively by the end of March 2008. Thus, to compete growing challenge of modern banks,

43.34 41.48 36.04 34.40 35.02 28.86 27.10 23.70 -10.93 -9.17 -0.63 -12.82

40.48 41.96 44.42 41.24 45.52 41.80 45.16 43.47 41.92 36.39 27.94 24.53

43.41 41.83 41.08 41.38 48.51 49.58 44.46 41.41 37.32 32.40 13.00 2.13

traditional banks have to adopt quality, efficiency, productivity and profitability as their core policy and in process have to improve their productivity and cost reduction efforts perpetually. Concluding Remar ks

The foregoing analysis reveals that there has been discernible improvement in operational efficiency of traditional banks in comparison to modern banks in India. The study revealed that in productivity factors (Business per Employee' and 'Profit per Employee) modern banks performed better than traditional banks and similarly in employee cost factors (Employee Cost to total Business', 'Employee Cost to total Assets' and 'Employee Cost to Operating Expenses) modern banks performed much superior than traditional banks. The increasing trend in efficiency has been fairly uniform, irrespective of the ownership. However study found that the gap between the performance of modern and traditional banks on all the five variables was on declining trend and has 24

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry Winners and Losers in the Banking Industry', Journal of Economics and Business, Vol.52,

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

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

The approach to improve the efficiency is  broadly in consonance and undergoing deregulation and transformation. The traditional banks are still to resolve a number of legacy issues related to people and processes for improving the productivity and reducing cost in order to compete with the modern  banks. Even though in prevailing competitive environment all the banks have registered efficiency to a particular strength but the  performance of the traditional banks was found  below in comparison to the modern banks on studied variables except on 'Employee Cost to total Business in which they have performed better during the period from 2005 to 2008. Further, the study found that the measures taken by the traditional banks to cater the growing challenge from modern banks have positive impact. It has  been found that overall operational efficiency of traditional banks has improved. However sustaining the current trend in efficiency, there remains scope for banks to expand their assets relative to their input usage by adopting innovative  product technology and to control operating expenditure. In last it can be said that modern banks have recorded higher efficiency as compared to their traditional Indian counterparts and trend has to  be closely monitored to come to a firm conclusion

Ganti, Subragmanyam (1999), Universal Banking: Pros and Cons', in L.C. Gupta, India's Financial Markets & Institutions, Society for capital Market Research and Development, N. Delhi. Indian Banks' Association, Performance Highlights of Banks in India, Various Issues. Kamal Sehgal (2011) Universal Banking the Road Ahead, www.indianfoline.com, Milima, Aziz Ponary and Lennart Hjalmarsson (2002), Measurement of Inputs and Output in the Banking Industry', Tanzanet Journal, Vol.3 (1) M.S Gupta (2006,) 'The universal banking Introduction Concept, Pros and Cons. Journal of Professional Banker  Reserve Bank of India (1977), Report of the Productivity, Efficiency and Profitability Committee on Banking, (Luther Committee). Reserve Bank of India (1975), Report of the Study Group to Frame Guidelines to Banks for the Follow-up Credit, (Tandon Committee). Reserve Bank of India Annual report 1990 t o2008 Reserve Bank of India, Trend and Progress of Banks in India, various Issues (1997 to 2008). The World Bank Report on Universal Banking and the Financing of Industrial Development. RBI (1999), Discussion Paper on Universal Banking, January Reserve Bank of India, (1999-2000). Excerpt from the MidTerm Review of the Monetary and Credit Policy of Reserve Bank of India.

References

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

Adalat, Muge (2002), 'Were Universal Banks More Vulnerable to Banking Failures? Evidence from the 1931 German Banking Crises' University of California, Berkely, November 19.

RBI (2002) Universal banking: Introduction, RBI rules and Regulation, Universal banking in India, www.banknetindia.com/banking/ubfeature.htm,

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

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

Benston, George J (1994), Universal Banking', Journal of Economic Perspectives, Vol.8, No. 3

Rudi Vander, Vennet (2002), 'Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe', Journal of Money, Credit and Banking, Vol. 34,  No. 1

Berger, Allen N (1999), The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future', Journal of Banking and Finance, Vol. 23.

Rime, Bertrand and Kevin J. Strioh (2003),'The Performance of Universal Banks: Evidence from Switzerland', Journal of Banking and Finance, Vol.27.

Bhole, L.M (2004), Financial Institutions and Markets, Tata McGraw Hill Company, N. Delhi

Rakesh Mohan (2005), Reforms, Productivity and Efficiency in Banking, The Indian Experience, Address Delivered at st the 21 Annual General Meeting and Conference of the

B.N.V. Parthasarathi, Consolidation of Indian Banks Challenges, The ICFI University Press Cyree, Ken B (2000), 'The Erosion of the Glass- Steagall Act:

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Vedaang Vol. 4 No. 1, January-June 2013 Pakistan Society of Development Economists at Islamabad in December 2005.

International Referred Quarterly Journal, April- 2011, pp.85-99.

S.M.Tariq Zafar, (2013) Nonperforming Assets and Its Impact on Indian Public Sector Banks” published in international Journal of Marketing Financial Services and th Management (ISSN ONLINE: 2277-3622), on 15 FEB, 2013.

S.M.Tariq Zafar, (2010) “A Fundamental Analysis of Public Sector Banks in India” published in I M S Manthan, Greater Noida, The Journal of Innovations, an International Refereed Journal and Volume 5 Issue 2 Reg.  No. UPENG/2007/23486, ISSN 0974-7141 (Print0, ISSN 0976-1713 (Online) December, 2010, pp. 107-114.

S.M.Tariq Zafar, (2012) “A Study on Universal Banking and its Impact on Indian Financial Market” published in Research Journal of Business Management & Social Sciences Research (ISSN: 2319-5614), “Blue Ocean Research Journals”.

S.M.Tariq Zafar, (2010) “A Comparative Study of the Performance of Hybrid Banks in India” published in Journal, 'Al-Barkaat Journal of Finance and Management' “Indian Publication house” Print ISSN: 0974-7281. Online ISSN: 22294503, Volume-4, Isue-2 (July).

S.M.Tariq Zafar, (2012) “A Study of Financial Performance of Selected Indian Scheduled Commercial Banks using CAMELS Methodology for 2006 - 2010” published in IMS Manthan, Greater Noida, and Volume 7 Issue 1. The Journal of Innovations, an International Refereed Journal, Reg. No. UPENG/2007/23486, ISSN 0974-7141 (Print, ISSN 0976-1713 (Online), July 2012. http://www.imsmanthan.com,

S.M.Tariq Zafar, (2011) “Non - Performing Assets and Indian Banking” published in biannual referred research journal of OIMT Business Review, ISSN: 0976-3236, Volume 1, Issue 1, and Feb-2011. S. Sbankaran (2011), 'Universal banking by DFI: handy but no Solution to NPA's, Business Line, 2, International Journal of Latest Trends in Engineering and Technology (IJLTET), Vol. 1 Issue 1, ISSN: 2278-621X.

S.M.Tariq Zafar, (2012) “A Study on Dividend Policy and its Impact on the Shareholders Wealth in Selected Banking Companies in India” published in international refereed  j o u r n a l “ I n t e r n at i o na l J o u rn a l o f F i n a n c i a l Management”, Publishing India, ISSN, NO.2229-5682, and September Issue-2012.

www.banknetindia.com/banking/ubfeature.htm: Universal Banking: introduction, RBI rules and regulations, Universal Banking in India www.arabfinance.com/glossary/u.htm

S.M.Tariq Zafar, (2011) “A Study on Impact of Leverage on the Profitability of Indian Banking Industry” published  by Publishing Indian Group in International Journal of Financial Management, ISSN, NO.2229-5682 (P), an

www.hss.caltech.edu/~fohlin/bookout-ger-nov00.pdf. www.thehindu.com/2002/07/23/stories/2002072304301300. htm

26

ENVIRONMENTAL TAXATIO N: ISSUES, CHALLENGES AND PROSPEC TS Dr. Minakshi P aliwal*  ABSTRACT 

Recently, many governments are looking at environmental taxation as a possible way to make up the shortfall from declining tax intake due to the recession. Before they do this, they will need to ensure that business and their electora tes support this approach a nd are able to see what the environmental taxes are achieving. In this light the present paper makes an attempt to discuss various issues and challenges in environmental taxation. In the end of paper some policy measures are suggested for successful implementation of environmental taxation. Key Wor ds: Environmental Taxation, Command- and- Control; Pollution; Fisca l Incentive JE L Codes:   H23, Q38, Q58

Introduction The design of environmental policies has assumed a more urgent tone in recent years. In part, this reflects the continued interest of the general  public, mass media and policy makers in many developed, developing and even poor countries. Traditionally, the developed economies have mainly relied on command and control methods (regulations) or public investment to rectify the effects of pollutants. Regulation is often the  p refe rre d a p p ro ac h b y g o v er nm e nts to environmental management mainly for reasons of effectiveness. It is generally perceived that regulation offers better protection than taxation since the environmental objectives are clearly specified in terms of physical limits that cannot be exceeded and the technology to reach such objectives is often prescribed. This preference also reflects the important role that engineers played in environmental decision-making. Another reason for politicians to prefer regulation was its ability to hide full costs and their distribution, avoiding difficult debates on equity. Regulators' (i.e. governments') preferences have been mirrored by regulated firms' preferences, which have for a long time seen environmental regulation as a cost factor and have chosen to minimise the costs of complying with command-and-control regulations. Firms relied primarily on problem avoidance and risk management rather than exploiting opportunities in the form of markets for new products and processes

or gaining a competitive advantage from environmental decisions. As long as the costs of environmental protection remained relatively limited and/or exposure to international competition was low, there was little need for other instruments that could provide better incentives to exploit the opportunities of environmental legislation. Yet the governments have started recognising the limits of regulatory approaches while realising the potential of markets in environmental management. During the 1980s and the 1990s, not the least due to increased international competition and a general trend towards a preference for 'markets', economists,  politicians and businesses (especially in the OECD member states) became interested in a regulatory reform of environmental policies, introducing a shift towards the increased use of incentive-based and fiscal or economic instruments and voluntary agreements (collectively known as market based economic instruments). The common element of all these instruments is that they operate on a decentralised level through their impact on market signals. Under most scenarios, they shift the costs and responsibilities associated with pollution back on to the polluter more efficiently than do command and control, which rely on mandated technologies and/or pollution reduction targets applied 2 universally across polluters (UNEP, 2004). Market-based instruments, such as environmental taxes, tradable permit systems or targeted subsidies,

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

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are a cost-effective way to protect and improve the environment. They provide incentives to firms and consumers to opt for greener production or  products. Governments can also opt for an Environmental Fiscal Reform or the reform of Environmentally Harmful Subsidies. Economic instruments also provide ongoing incentives for innovation in pollution control; they may also be less prone to influence by polluters themselves than regulations negotiated case-by-case with individual firms. However, they are not a panacea. They can encourage costly avoidance activities, such as illegal waste dumping, and in some cases they may have significant distributional consequences,  placing heavy burdens on the poor. They are most useful when wide-ranging changes in behaviour are needed across a large number of polluters-the costs of regulation in such cases are large, and the efficiency benefits of economic instruments are likely to be greater (Don et al, 2008). Little will be gained, however, making the tax structure too sophisticated when the environmental costs are low.

Mak ing the Sense of Environm ental Taxation From the above discussion it is clear that the choice and design of instrument should be clear. The tax system can be a powerful device for changing  behaviour. Consequently, environmental taxation, which was almost unheard of 20 years ago, is now  being widely used to assist in the fight against climate change, with taxes around the world on everything from plastic bags to energy consumption, car use and waste disposal. There is no single definition of an environmental or green tax, but the UN, OECD and the European Commission have agreed upon a definition of: “An environmental tax is a tax whose tax base is a  physical unit (or a proxy of it) that has a proven specific negative impact on the environment. Four subsets of environmental taxes are distinguished: energy taxes, transport taxes, pollution taxes and resources taxes. Environmental Taxes are a kind of economic instruments to address environmental  problems. They are designed to internalize environmental costs and provide economic incentives for people and businesses to promote

ecologically sustainable activities. Taxes should not  be confounded neither with payments of rent nor with purchase of an environmental protection service.” By internalizing the environmental costs, (for example, activities that burden the environment will  be taxed, whereas activities that contribute to the  preservation of the environment will get tax break), environmental taxes provide incentives for  businesses and individuals to integrate environmental concerns into economic activities, and minimize negative environmental impacts. Tax revenues of environmental taxes can be used for environmental preservation or other nonenvironmental welfare. The revenues from environmental taxes can be used to cut taxes such as income tax, corporate tax and social insurance  premium. Environmental taxes have many important advantages, such as environmental effectiveness, economic efficiency, the ability to raise public revenue, and transparency. Also, environmental taxes have been successfully used to address a wide range of issues including waste disposal, water pollution and air emissions. Regardless of the policy area, the design of environmental taxes and political economy considerations in their implementation are crucial determinants of their overall success.

Int ern ational Experiences Many European countries, most notably  perhaps the Scandinavian countries but also countries such as the United Kingdom, Germany and France, have introduced various environmental taxes to control emission of CO2 and SO2. In 1990, Finland became the first country to introduce a carbon tax. Australia introduced a small levy on fertiliser as early as 1986. Although this does not raise significant amounts in tax revenues, it has had an impact on the type and amount of fertiliser used. Germany has implemented taxation on emissions on transport, which are calculated directly on the level of emissions. The UK has implemented a range of environmental taxes, including the Climate Change Levy, a tax on the end-use of 'taxable commodities' (principally electricity, gas and coal) 28

Environmental taxation: Issues, Challenges and Prospects

 by commercial customers, and the Landfill Tax, which taxes people and organisations when they discard waste in landfill sites. China taxes the disposal of household and commercial waste and has a further tax on the disposal of waste water, while companies that red uce the ir wat er consumption are offered corporate income tax allowances. China's Ministry of Finance is also drawing up plans for an environmental taxation system for polluting companies. The US has implemented tax measures to increase investment in renewable energy sources enacting tax credits for the expansion of wind, solar, biomass and other renewable energy technologies. President Barack Obama has increased the impact of these measures in the recent US economic stimulus package. The US administration is also now committed to negotiating a new climate change treaty and introducing a 'cap and trade' system. Further, in the United States, markets for tradeable pollution  permits have been established to help control SO2 emissions and other air pollution problems with the Acid Rain Program implemented under Article IV of the Clean Air Act amendment of 1990 being the most famous and successful example. The interest in establishing markets for tradeable pollution  permits is also present in Europe where the Commission of the European Union, having failed to gain support for a common CO2 tax in the early 1990s, is setting up a market for greenhouse gas emission permits starting from year 2005. In addition to this, one of the cornerstones of the socalled flexibility mechanism under the Kyoto Protocol (Article 17) is to develop an international market for CO2 emission permits. The broad picture is fairly clear: the tendency is to move away from direct command-and-control regulation towards the use of green taxes and markets for tradeable  pollution permits to combat air pollution (and other environmental) problems.

modern tax system. These taxes in turn should st im ul at e th e de ve lo pm en t of ne w, le ss environmentally damaging products. But there are still many issues and questions that need to be answered in terms of environmental taxation. First, the fatal flaw in terms of environmental taxation would be for politicians to view it as a panacea. Tax shifting to environmental taxation cannot both solve the environmental crisis and raise significant income via taxation in the long-term. Taxes on polluting activities and products are small and have not increased significantly over the past 15 years, despite growing concern about the environment and g r o w in g e n t h u si a s m f o r m a r k e t - b a s e d environmental policies. Second, the aim and purpose of environmental taxes is to curb or reduce the extent and amount of the use or consumption of harmful substances or activities, or depletion of a resource. When the imposition of the tax is well targeted, it will add to the costs of the subject paying the tax. The adding of costs to a producer within one country or region that is not imposed on producers outside that country or region may of course impact on the competitiveness of the local producer. The result may be that a polluting activity is reduced in geographical areas where environmental standards are higher, and increased or taken over by competitors in places with laxer regulatory regimes. Governments therefore may need to consider a smooth introduction of a new environmental tax over a phasing in period, rather than abruptly imposing tax that dramatically changes the terms of market competition overnight. Other measures may be to exempt certain industries or parts thereof, or to couple the levying of a tax with refund mechanisms or to economically support certain sectors in a transitional period, thus abating the effects of the tax. Such measures to cushion the effects of a tax will tend to reduce its effectiveness, but may be politically necessary in order to introduce the tax in the first place. Also, introducing a general environmental related tax may have distributional effects that raise concerns, in particular where such effects are regressive in the sense that they impact more on consumers with low capability to pay and relatively less on the wealthy part of the population. If, for example, a significant levy is introduced on

Issues and Challenges in Environmental Taxation Environmental taxes are an efficient way for governments to raise revenue, and most policy makers now agree that making the polluter pay should be one of the principles of an effective 29

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driving motor vehicles in certain urban areas, the levy may be effective in reducing the total amount of traffic but also have the effect that less wealthy households are prevented from driving children to school while it does not affect the well off. In order to mitigate the overall negative economic distributive effects of certain taxes and levies, Governments may need to consider other changes to the tax system to alleviate the tax burden of low income citizens, e.g. by adjusting the lower tax  brackets. Third, issue that needs to be addressed is the administrative costs and difficulties. Environmental taxes often can be simple and easy to administer at low costs, but where exemptions and refund mechanisms are applied this may change the  picture. A recent example demonstrating how difficult considerations needed to be balanced when a new environment tax was introduced was the  Norwegian tax on nitrogen oxides (NOx), first imposed from 1 January 2007. The introduction of the tax was deemed necessary in order that Norway shall be able to meet the obligations under the Gothenburg Protocol and reduce NOx-emissions by 2010. The main sources of such emissions in  Norway are the domestic shipping, petroleum extraction, road transport, the coastal fisheries and certain industries. Although the tax rate at the introduction was at the low level of 15 NOK per kilo, and for practical reasons only energy  production by larger engines and plant in sectors representing 55% of the emissions were targeted, it was deemed necessary to couple the tax with significant compensatory payments to support certain affected industries whilst also establishing subsidy arrangement in support of other direct measures to reduce NOx-emissions. Fourth, it is very difficult to guarantee-will taxes be used creatively as agents to modify and change  behaviour, or imposed in a blunt manner to penalise 'bad' environmental practices? Fifth, the level of  pollution abatement achieved by an environmental tax depends on individual polluters' responses to the abatement incentive that the tax creates. It is not  possible to guarantee that an environmental tax will achieve a particular environmental impact;  polluters' behavioural responses may be less, or

more, than expected. In cases where the precise achievement of an environmental target is a high priority, this may be an important drawback of environmental taxes. Sixth, in the past, the lack of experience with environmental taxes may have been a significant obstacle to their adoption in any particular practical context. Last but not the least, Both environmental taxes and conventional co mm an d- an d- co nt ro l re gu la ti on re qu ir e mechanisms for administration and enforcement. For example, a pollution tax may require counting tons of emissions, whereas a design standard simply requires authorities to confirm the use of a particular kind of pollution control equipment. Government inspectors can easily check that the plant has a working scrubber, but for some kinds of emissions, they may have much difficulty trying to confirm the exact number of tons to be able to collect a tax or  permit price.

Designing Viable Environmental Taxation Policy Environmental taxation should be designed to work effectively and the level of the tax should match the cost of the environmental damage. There are some recommendations to policymakers in terms of the design of future environmental taxes. These include the following. First, an environmental tax generally should be levied as directly as possible on the  pollutant or action causing the environmental damage. Using the tax to increase the market cost of the polluting activity helps to incentivise the full range of potential abatement options: cleaner  production processes; end-of-pipe abatement (i.e., measures to capture and neutralise emissions before they enter the environment); adoption of existing  products which cause less pollution; development of new, less-polluting products; and reducing output or consumption. Second, concern with levying taxes on intermediate goods is that the implicit tax rates on emissions are not necessarily transparent, which can contribute to mis-specification of tax rates. For example, a “carbon” tax of a fixed amount  per litre that applies to both gasoline and diesel would not reflect the fact that a litre of diesel  produces more CO2 emissions than a litre of 30

Environmental taxation: Issues, Challenges and Prospects

gasoline. This kind of mis-specification can weaken the efficacy of carbon taxes by implicitly favouring a “dirtier” fuel. Third, the appropriate scope of an environmental tax depends on the scope of the environmental damage being addressed. This has implications for the level of the political jurisdiction that imposes the tax. For some problems, like soil contamination, the impacts are generally limited to a relatively small area. Therefore, a tax or charge on waste disposal or harmful garden chemicals might effectively be imposed at the level of a municipality or township. Fourth, governments should therefore try to implement environmental taxes as  broadly as possible, with few or no exemptions. It is usually preferable to address distributional impacts outside the tax in order to preserve the incentive effect of the tax. Fifth, the tax rate should generally be set to reflect society's value of the environmental damage, other negative spillover effects of the activity, as well as the need to raise  p u b l i c r e v e n u e s . S i x t h , r e v e n u e f r o m environmental taxes should be treated as general government revenue and used to maintain spending in other areas, reduce debt, or reduce taxes. While in theory some of the revenues could be used to compensate those most affected by the environmental damage. However, in practice it is very difficult. Seventh, governments also need to ensure that the results are thoroughly analysed and that they are prepared to amend or reverse the policy if it has unintended or damaging consequences. Eight, Part of the challenge with an environmental tax is business awareness. If a company is paying environmental taxes but does not realise it, then it is less likely to change its behaviour. It is therefore vital that there is clarity in terms of what an environmental tax is and what the aim of the tax is. Last but not the least; environmental taxation is often aimed to a significant extent, at business. Although business largely accepts and supports the fact that it should be responding to the climate change issue, it often has a negative attitude towards environmental taxation. The reason for this is that environmental taxation, if applied unevenly, puts those businesses in countries with environmental

taxation at a disadvantage relative to competitors in countries without comparable measures, driving costs up even further and adding to the business  burden. Further, as already stated there is little point in imposing a tax if the taxed behaviour will simply relocate to another country and continue to do the same damage. Hence, the need for global coordination.

Concluding R emarks Environmental taxation has a significant role to  play in addressing environmental challenges. Taxes can be extremely effective when they are properly designed, are levied as close to the environmentally damaging pollutant or activity as possible, and are set at an adequate rate. Administration costs or  barriers may necessitate the taxation of proxies to environmentally harmful activities, but care should  be take n to ensure this does not impa ir environmental outcomes. The revenues generated can be used to help with fiscal consolidation or reduce other tax rates. Environmental taxes give rise to distributional or competitiveness concerns,  but these are usually best addressed through other  policies tools. Providing information, transparency, and certainty is critical to public acceptance and to the effectiveness of environmental taxation. Finally, taxes may need to be combined with other instruments to obtain the most efficient and effective environmental policy package, but care should be taken to assess the impact of overlapping instruments. References

Bovenberg, A. L. and L. H. Goulder (2002), “Environmental taxation and regulation”,  in A. J. Auerbach and M. Feldstein (eds.), Handbook of Public Economics, Vol. 3, Amsterdam: North Holland, Elsevier. Bovenberg, A. L. and R. de Mooij (1994), “Environmental levies and distortionary taxation”, American Economic Review, Vol. 84, No. 4, pp. 108589. Cornwell, A. and J. Creedy (1996), “ Carbon taxation, prices and inequality in Australia”,  Fiscal Studies, Vol. 17, No. 3, pp. 2138. Don Fullerton; Andrew Leicester and Stephen Smith (2008) “Environmental Taxes”,  Prepared for the Report of a Commission on Reforming the Tax System for the 21st Century, Chaired by Sir James Mirrlees, The Institute of Fiscal Studies.

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Vedaang Vol. 4 No. 1, January-June 2013 Fullerton, D. and S. West (2000), Tax and Subsidy Combinations for the Control of Vehicle Pollution,  NBER Working Paper No. 7774, Cambridge, MA.:  NBER.

municipal solid waste”,  Journal of Policy Analysis and Management, Vol. 13, No. 4, pp. 68198.

O E C D ( 1 9 9 3 ) , Taxation and the Environment: Complementar yP olicies, Paris, OECD.

Fullerton, D. and S. West (2002), “Can taxes on vehicles and on gasoline mimic an unavailable tax on emissions?”, Journal of Environmental Economics and Management, Vol. 43, No. 1, pp. 13557.

OECD (1996), Implementation stra tegies for environmental taxes. Paris: OECD. OECD (2006), The Political Economy of Environmentally Related Taxes , Paris: OECD.

Fullerton, D. and W. Wu (1998), “ Policies for green design” , Journal of Environmental Economics and Management, Vol. 36, no. 2, pp. 13148.

Toke Skovsgaard Aidt and Jayasri Dutta (2004) “Transitional  pol itics: emergin g inc entive-b ased ins tr uments in environmental regulation”, Journal of Environmental Economics and Management, Vol. 47, pp 458479.

Fullerton, Don; Andrew Leicester and Stephen Smith (2008) “Environmental Taxes”, Working Paper 14197, NBER, July.

UNEP (2004) “The Use of Economic Instruments in Environmental Policy: Opportunities and Challenges”, United Nations Publication, UNEP/ETB/2003/9, September.

Katri, Kosonen and Gaetan, Nicodeme (2009) “ The Role of Fiscal Instrument in Environment Policy”,   Working Paper No. 19, 2009.

Veena, Hudson and Chas Roy-Chowdhury (2009) Green Taxation in Recession,  ACCA Position Paper.

Miranda, M. L., J. W. Everett, D. l. Blume and B. A. Roy Jr. (1994), “Market-based incentives and residential

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FACTO RS INFLUENCING LOYALTY: AN E XPLOR ATORY STUDY OF MOBILE CONSUMER S IN KOLKATA J ayanta Baner jee*, Dr Ajay K Gar g**  ABSTRACT 

More and more companies make recourse to loyalty programs within the framework of a defensive stra tegy. After the libera lization of the Indian telecom industry and the a dvent of both private a nd the  public ser vice providers, this sector saw stiff competition. P rices were reduced; service qualities increased and with all mobile service providers offering undifferentiated services, retaining subscribers and making them loyal has become an ever escala ting challenge. Operating in a market which will eventually be saturated with intense competition, frequently changing government  policies and increasing opera tional costs, the stra tegy of consumer loyalty development seems to be a good option. This paper attempts to illustrate the factors which are r esponsible for crea tion bra nd loyalty among mobile subscribers in Kolkata. Key word:  Subscriber churn, Brand Switching, Loyalty strategies, Mobile service providers,

Customer ca re service.

Introduction

Human beings methods of communicating with  persons far off have evolved from the smoke signals, drums, lamps to wired and much later wireless telecommunication. Telecommunication is an intriguing fast-growing industry. From the educated urban bureaucrat to the uneducated urban slum dweller, mobile users can be found in every strata of our society. Even in villages devoid of  proper roads and electric connection, mobile  phones are used with much contentment. Offering a wide portfolio of services like the simple voice telephone calls, access to the Internet, high speed data communications, weather report, surfing the World Wide Web, bill payment, video conferencing all can be done through the mobile. India and China are on the top of the class when it comes to global telecom growth rates, with India having the second largest mobile subscriber base. According to the telecom regulatory authority of India (TRAI) the mobile phone industry at  present is growing at a phenomenon rate with robust subscriber addition in every quarter. But with a high growth rate, competition follows and with twenty one different mobile service providers, customers are spoilt with choice of selecting their preferred

mobile service provider. Many organizations understand that retaining customer is very important. Traditionally companies tried to retain customers by offering incentives in the form of offers, reduced tariffs, free night calls within their own network in the same circle etc. But with time it has been seen that customer retention is not satisfactory using such strategy only. Subscribers can switch for a number of reasons. To retain subscribers and lessen the effects of churn, service  providers are using strategies like- offering service reliability, being more responsive to address subscriber dissatisfaction and developing  personalized service packs and prices. Now service  providers believe that tempting a person to choose a  particular service provider is just the first step in a long relationship where profit can be made only in the years to come. Mobile telecom bu siness environmen t

The Indian mobile industry was set up in 1992 (Mukherjee 2008). Back then mobile phones were a symbol of fashion but presently have evolved to  become a symbol of necessity. In the last few years we have seen a tremendous growth in the mobile telecom industry. The role of

* Assistant Professor, School of Management Studies, Narula Institute of Technology **Faculty Member, Department of Masters of Administrative Sciences. Petrocelli College, Fairleigh Dickin son University, Vancouver, Canada

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the mobile phone service providers have increased to a great extent in the sense that apart from fulfilling the basic needs of the customers, the service providers are also providing additional facilities to remain competitive in the market.

handset manufacturers have also noticed this market shift and have augmented their product portfolio accordingly. This technology have benefitted the consumers as two networks can be used using the same mobile. But this technology has fragmented the money a consumer used to spend on a telecom service provider. Now the same money is split between two service providers. As a result the Average Revenue per User (ARPU) of the service providers which already is quite low is getting lower. According to a report published in Business Line 2nd October, 2009, the voice based average revenue per user for GSM operators falls below Rs 200. The ARPU for CDMA services declined by 7.2 per cent from Rs 99 in March quarter to Rs 92 in June quarter(CAG,2011). The popularity of dual SIM mobiles can have multiple consequences affecting the subscribers, hand set manufacturers and the MSP's (Secker, Matthew, 2002).

The year 2003-04 witnessed a dramatic increase in the number of mobile users in India (Dhananjayan 2005). It was largely propelled by decreasing tariffs and entry cost and also the increase in area of network coverage. The reasons can be summarized as below a) Free incoming call charges announced by the telecom authority from May 2003, leading to substantial reduction in the usage charges for customers. It made mobiles far more affordable than all other regulatory changes had done till then.  b) Reduction in the tariff plans for local, STD and ISD calls, which made calling through mobile cheaper than through a landline. The tariffs went down to 40 paisa per minute for local call against Rs. 1.20 per pulse of 3 minutes through a landline. The reduction in the roaming charges, further enthused the customers to go in for mobile and travel all over with a mobile. c) The entry of the CDMA mobile phones, which started as a limited mobility phone, but turned out to be a complete mobile phone. The telecom industry is considered as having the highest potential for investment in India (Srikant, 2006). Recognizing that the telecom sector is one of the prime movers of the economy, the government's regulatory and policy initiatives have also been directed towards establishing a world class telecommunication infrastructure in India. From April 1991 to March 2003 the total Foreign Direct Investment (FDI) in telecom was Rs. 9590.7 cr.

The telecommunication as it stands presently can be summarized The mobile industry can briefly  be summarized as- having the second largest subscriber base in the world with 21 service  providers battling for survival in 22 telecom circles after offering the lowest call charges anywhere in the world(The Telegraph,2011). The industry contributes 2% to our countries GDP and provides direct employment to 2.8 million and indirect employment to 7 million persons (COAI Press release, August 2011). With high growth, competition also follows and it become extremely important for companies to tries to match their offering to the expectation of the existing as well as  prospective customers. Review of litera ture

Multiple factors cause subscribers to exhibit loyal or disloyalty to their mobile service provider. Research, as well as logic suggests that improving service quality satisfy subscribers and thus makes them loyal (Keaveney, 2001; Zeithaml, Berry and Parasuraman, 1996).In Japanese way of life, quality means zero defect product and service. It emphasizes doing the things right for the first time. In the case of tangible goods, the measurement of quality is comparatively an easy chore since

Presently the demand for dual SIM (Subscriber Identity Module) mobiles in India has increased by an extraordinary level. First the grey market Chinese mobiles and now the new “Indian” brands have made dual SIM mobiles affordable and within the reach of the bottom line segment. Established 34

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

uniform quality standards can be met every time. But the dis tin cti venes s of servic e makes measurement of quality difficult (Cronin et al. 1992). The three basic character of service makes it a challenge for service providers are intangibility, heterogen eity and insepa rability. Intangible character a service product makes it complicated for the service provider to measure subscriber's  perception about service quality. The second character of a service is heterogeneity which makes every service experience different and varies from customer to customer and from provider to  provider. The characteristics of inseparability underline the fact that production and consumption of service takes place simultaneously. (Lemmink et.al 2003) has concluded in their research paper that service quality has two parameter process and output. Process quality extols on the way service is catered to a consumer and output quality is evaluated once service is delivered.

customers who perceive service quality to be better than competitors develop a constructive image of the organization. Price stands out as another important factor for switching, for example, in insurance and banking (Roos, Edvardsson and Gustafsson, 2004). Yet pricing decisions can have important consequences for the service provider. Pricing low makes it attractive to subscribers but if the organization fails to build volumes, profitability decline s. Low profits makes the company vulnerable to market changes especially up gradation of infrastructure, fees related to spectrum etc. The price has specific relationship with other components of marketing mix. Actually the price is the only component that generates revenue, while other components generate costs. From the literature review it was found out that researchers has contemplated on service quality, corporate image/ positioning subscribers overall satisfaction and price as some of the factors responsible for switching behavior in subscribers.

A positive corporate/ brand image can increase sales through better customer satisfaction followed  by loyalty. Corporate image also benefits the organization In attracting both investors and future employees as well (Andreassen & Lanseng, 1998). In their research paper Nguyen and LeBlanc (1998) experimented on the correlation between service quality and brand image and conclude that

Methodology

This research was carried out in two levels. Brainstorming and latter data collection using a pre structured questionnaire hosted in Google docs for convenient access to respondents. The respondents are full time students and faculties of two private

Table 1: Rank order of the factors affecting brand loyalty

Price

      k     n     a       R

1

Factors influencing loyalty with current service provider  Loyalty Technical Peer Customer Brand image Other factors  pr ogr ams service group care service (Positioning) quality influence quality

2

3

4

5

6

7

Factors influencing intention to switch from current service provider  Technical Price Loyalty Peer Customer Other factors Brand image service  pr ograms group care service (Positioning) quality influence quality       k     n     a       R

1

2

3

4

5

Source: Primary data collected using questionnaire

35

6

7

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

engineering college located in West Bengal. Convenience sampling technique was used to draw the sample. The sample is composed of male and female respondents in the age group of 25 to 55 years using mobile for at least last one year. Initially brainstorming was done to identify the  primary factors responsible for creating brand loyalty in a subscriber. Latter these factors were used to create a questionnaire using Likert scale and respondents were asked to rank these factors according to importance, illustrated in Table: 1. Brainstorming was carried out during August 2012 and the questionnaire was used in September the same year. A total of 140 students and 36 faculties  participated as respondents from both the colleges. To minimize biases, care was taken to select an equal number of subscribers from both the colleges. For statistical interpretation SPSS 17 has been used.

?

 Loyalty programs- Offers and schemes to make subscribers loyal (like Aircell- rate cutter: recharge with Rs. 65, benefits- tariff reduced for six month, Aircell to Aircell 1paisa for three seconds and 2 paisa for three seconds for other network) are an attraction when the competitors' loyalty schemes tempt subscriber to switch to another service provider. MTS has recently introduced loyalty card as a similar strategy.

?

?Peer

group influence- This factor was mainly contributed by students and refers to the influence of family, friends, and close associates in continuing with a particular mobile service  provider because of economical and value added service benefits.

?

Brand image (positioning)- Certain perception regarding quality expectation was seen among respondents regarding corporate / brand image, that the firm will deliver expected benefits for the long run.

?

Other factors- Certain other factors were also noted and are clubbed under this point. Certain subscribers may switch or choose a second service provider because of impulse (like a free SIM offer, or sales promo- handset/ reduced tariff), advertising or maybe relocation to a  place where present service provider is not operating.

Find ings and Discussions

From brainstorming five factors were identified which according to respondents influence their decision to remain loyal to a mobile subscriber. The factors are?

?

?

Price- Respondents are unanimous that tariff rates are responsible to change subscriber's cost- benefit equation. Competitors offers in monetary value, including items such as a handset subsidy(in case of costly handsets like Iphone and Samsung Galaxy), fees waived, and monthly subscription fees tempt brand switching. Technical service quality- As mobile quality can vary due to technical reasons and human interaction these two points are separated out. Technical service quality include quality aspect relates to the physical service elements like extent of coverage, signal strength, call drop or network congestion.

The next stage of the research phase is summarized in Table 1. In the figure, respondents  preferred ranking of the above mentioned factors are tabulated. This section enumerates the respondent's opinion about the importance of the factors related to purchasing decision. The relative importance of the sub-variables has been derived by comparing the opinion scores assigned to each sub-variable. Since a seven-point scale has been used, the interval for breaking the range in measuring each variable is calculated as:

Customer care service quality- As service encounter in mobile telecom at one time or the other involve human beings, customer care executive are also found out to be important in this study, specially the level of problem solving and customer-friendly attitude.

(7 - 1)/7 = 0.86 ?

36

The opinion score between 1 to 1.86 has been considered of most importance;

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

Table 2 : Factors affecting Loyalty Factor s

N

 price Loyalty Prg TechQty Peer Gr  Cust Care Br Image Other  Valid N (listwise)

Mean

30 30 30 30 30 30 30 30

1.3000 1.9333 2.8667 4.1000 4.9000 6.2667 6.7000

Std. Deviation .46609 .78492 .50742 .54772 .54772 .52083 .46609

Importance

Most Important Medium Important Important  Neutral Moderate Important Least Important Least Important

Table 3 : Factors affecting Switching  N

TechQty Price LoyaltyPrg Peer Gr  Cust Care Other  Br Image Valid N (listwise)

Mean

30 30 30 30 30 30 30 30

Std. Deviation .56832 .69149 .88668 .66868 .43417 .58329 .47946

1.4333 1.9333 2.8000 4.0333 4.8667 6.2667 6.6667

?

The opinion score between 1.87 to 2.72 has been considered of medium importance;

?

The opinion score between 2.73 to 3.59 has been considered of importance;

?

The opinion score between 3.60 to 4.46 has been considered of neutral; and

?

The opinion score between 4.47 to 5.33 has been considered of moderate importance.

?

The opinion score between 5.34 to 6.20 has been considered of low importance.

?

The opinion score above 6.20 has been considered of least importance.

Importance

Most Important Medium Important Important  Neutral Moderate Important Least Important Least Important

respondents as they have a mean higher than 2.6. Only two factors, namely, beautiful packaging and imported shoes, are given least importance by the respondents which scored less than 2.6. It is observed from Table 2 that `value for price  paid' has been assigned as the highest important factor. The high importance given to `same quality  but lower price than that of competitors' indicates that the respondents compare the prices of different competitors before making their final decision. However, they also do not go by the cheapest price mainly due to the high importance assigned to quality in the product factor. H01: There is no significant relationship between gender a nd loyalty factors.

It is inferred from Table 1 that the factors, quality and durability, have emerged as the most important variable considered by consumers in their  purchase decision. The other two variables with high importance are design and product warranty. It is concluded that eight of the variables under  product factors are considered important by the

It is observed from Table 3 that there is no significant difference in opinion between male and female for loyalty factors. H02: There is no significant relationship between age and loyalty factors.

37

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

It is observed from Table 4 that there is no significant difference in opinion between male and female for maximum number of loyalty factors. Only in case of price and loyalty programmes a difference in opinion between different income group people has been observed. ?

There is a significant difference in opinion about the importance of price as a factor to continue with the same service provider. Higher income groups give more preference to design and quality than the lower income groups.

significant difference in opinion between male and female for loyalty factors. H04: There is no significant relationship between age and switching factor s.

It is observed from Table 6 that there is no significant difference in opinion between male and female for switching factors except for loyalty  programmes, customer care and other factors, where a difference in opinion between different income group people has been observed. Major Findings

H03: There is no significant relationship between gender a nd switching factors.

It is observed that there is a significant difference of opinion among respondents of different age group in terms of loyalty program

It is observed from Table 5 that there is no Table 4: Results of T test for Loyalty Factors Mean male  price

Std. Importance Deviatio n male 1.2857 .46881

Mean Female

Loyalty Prg

1.9286

.73005

1.9375

TechQty

2.9286

.61573

Peer Gr 

4.0000

Cust Care

Importance Std. Deviation Female .47871

-.154

28

.878

Decision at 5% level of significance Accept

.85391

-.031

28

.976

Accept

2.8125

.40311

.618

28

.541

Accept

.55470

4.1875

.54391

-.933

28

.359

Accept

4.9286

.47463

4.8750

.61914

.263

28

.795

Accept

Br Image

6.1429

.53452

6.3750

.50000

-1.229

28

.229

Accept

Other 

6.7857

.42582

6.6250

.50000

.940

28

.355

Accept

1.3125

t

df 

Sig. (2-tailed)

Table 5: Results of ANOVA for Loyalty Factors Fcators  price Loyalty Prg

24.772

29

.000

8.441

29

.001

Decision at 5% level of significance Reject Reject

TechQty Peer Gr  Cust Care Br Image Other

.298 1.767 .135 .115 .135

29 29 29 29 29

.745 .190 .874 .891 .190

Accept Accept Accept Accept Accept

Mean Age 1.00 2.00 3.00 Total

Tech Qt y 1.5000 1.3333 1.4000 1.4333

Value

Price 1.6875 2.0000 2.6000 1.9333

df 

Sig. (2-tailed)

Loyalty Pr g 2.8750 3.1111 2.0000 2.8000

Peer G r  4.0000 3.7778 4.6000 4.0333

38

Cust Care 4.9375 5.0000 4.4000 4.8667

Other  6.1250 6.3333 6.6000 6.2667

Br Image 6.8750 6.4444 6.4000 6.6667

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

Table 6: Results of T test for Switching Factors Mean male TechQty Price LoyaltyPrg Peer Gr  Cust Care Other  Br Image

1.2857 1.8571 3.0714 3.9286 4.9286 6.2143 6.7143

Std. Deviation male .46881 .53452 .73005 .61573 .47463 .57893 .46881

Mean Female 1.6291 2.0000 2.5625 4.1250 4.8125 6.3125 6.6250

Std. t Deviation Female .15729 -1.350 .81650 -.558 .96393 1.611 .71880 -.798 .40311 .725 .60208 -.454 .50000 .502

df 

Sig. (2-tailed)

28 28 28 28 28 28 28

.188 .581 .118 .432 .475 .654 .619

Decision at 5% level of significance Accept Accept Accept Accept Accept Accept Accept

Table 7: Results of ANOVA for Switching Factors Fcators

Value

Price* age Loyalty Prg* age TechQty* age Peer Gr* age Cust Care* age Br Image* age Other* age Mean Age 1.00 2.00 3.00 Total

Loyalty Pr g 2.3125 1.7778 1.0000 1.9333

df 

.245

29

Sig. (2-tailed) .785

4.098

29

.028

3.014 2.775

29 29

.066 .080

4.337

29

.023

1.383 3.901

29 29

.268 .032

TechQty

Peer Gr 

2.8750 2.7778 3.0000 2.8667

3.9375 4.2222 4.4000 4.1000

offered by the mobile service providers. Thus to enhance brand loyalty different loyalty based schemes should be developed for different age groups.

Decision at 5% level of significance Accept Reject

Accept Accept Reject Accept Reject

Cust Br Image Care 5.0625 6.2500 4.7778 6.3333 4.6000 6.2000 4.9000 6.2667

Other 

6.6875 6.6667 6.8000 6.7000

significant difference in opinion amongst different age group of respondent. The higher age respondent generally put more importance towards the customer care service compared to the young. In general this factor is of very less importance.

Further it is also inferred that different age group of respondents have difference in opinion regarding promotional factors like free SIM offer, or 3G handset offer. But they took this factor as a least important one thus there is no such need for developing this king of subscriber retention strategy.

Gender wise switching and loyalty behavior is not significant. Thus there is no need to make different strategy gender wise. Conclusion

From the findings it can be observed that price ranks as the most important parameter when loyalty is concerned. Alteration in tariff/ price perceptions may cause the loyalty-switching transition. Price

In relation to quality of customer care and age the hypothesis is rejected. Hence there is a 39

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

can be used to displace seemingly satisfied and loyal customers from their providers. Price based strategy implies that after switching over competitors subscribers, mobile firms must continue to offer value to these customers or risk losing them to another competitor. But service quality is the most important reason for switching. Subscribers may regard service quality as a 'hygienic' factor; expecting superior service levels and not accepting poor service.

Andreassen, T.W., & Lanseng, E. (1998). Customer loyalty and complex services: The impact of corporate image on quality, customer satisfaction and loyalty for customers with varying degrees of service expertise. International Jour nal of Service Industry Mana gement, 9(1)723. Business Line “Bharti Airtel surges after deal collapse” Friday, Oct 02, 2009 CAG, Report No. CA35 of 2010-11, Rajyasabha session paper, Page:10. COAI Press release 21,WWW. Coai.com August 2011. Cronin, J.J., & Taylor, S.A. (1992). Measuring service quality: A re-examination and extension. Journal of Marketing, 56(3), 5568.

Furthermore, loyalty programs cause loyalty and unsatisfactory loyalty programs cause brand switching. Loyalty programs are determinants of switching and loyalty; respondents rank loyalty  programs both as an attraction to switch and as a switching deterrent. Mobile service providers should therefore consider initiating loyalty  programs because of their twin benefits; luring competitor's customers and retaining own subscribers. Certain different factors such as impulse buying and advertising illustrate some new reasons for brand switching.

Dhananjayan.G, 2005, “The next Mobile Revolution in India” Marketing mastermind, January 2005,ICFAI University Press, Page: 65-69. Keaveney, S. M., and Parthasarathy, M., 2001. Customer Switching Behavior in Online Services: An Exploratory Study of the Role of Selected Attitudinal, Behavioral, and Demographic Factors. Journal of Academy of Marketing Science 29 (4), 374-390. Lemmink, J., Annelien, S.. & Sandra , S . (2003). The role of corporate image and company employment image in explaining application intentions. Journal of Economic Psychology 24 1 15 .

Limitation and contr ibutions to futu re r esearch

Muhkerjee Arindam,2008, “Genesis, Growth and Future Trends of Mobile Service Providers, Page 3-13, ICFAI University Press, , Page: 3-5,12.

This study is exploratory in nature and aims at developing a base on which future research can be done. Future research should be conducted on a larger sample base drawn in random stratified manner. As loyalty is company specific and can vary according to demographic character of a subscriber, nore strata of samples can be chosen.

 Nguyen, N., & LeBlanc, G. (1998). The mediating role of corporate image on customers' retention decisions: An investigation in financial services. International Jour nal of Bank Marketing, 16(2), 5265. Roos, I., Edvardsson, B., and Gustafsson, A., 2004. Customer Switching Patterns in Competitive and Noncompetitive Service Industries. Journal of Service Research 6 (3), 256-271.

Secondly, these findings emerge by subjecting  participants to hypothetical situations (like- if a competitor offers twin SIM , with two consecutive mobile number topped with a attractive tariff scheme between the two number ) and gauging their switching/ loyalty response. Future researcher can conduct longitudinal research that addresses actual intentions and in the process highlight more on the subscribers psychological thought process while choosing a different mobile subscriber. Lastly, this research did not explore the issue of 'zone of tolerance' or the extent to which a subscriber tolerates the service provider.

Secker, Matthew, 2002, “Is ARPU a valid performance th metric?” accessed 20 December 2009, available at http://www.highbeam.com/ doc/1G1-92586867.html, Page: 4,9. Srikant.A, 2006, “Cellular Mobile Industry in India: A study”. The Icfai Journal of Service Marketing, March 2006, Page: 32. The Telegraph,2011,Kolkata edition, “Tele-tomorrow (specifics on hold)"Page1, 11 October 2011. Zeithaml, V. A., Berry, L. L., and Parasuraman, A., 1996. The Behavioral Consequences of Service Quality. Journal of Marketing 60 (2), 31-46.

40

GROW TH AND TREND OF DEVELOP MENT REVENUE EXPENDITURE I N MIZO RAM Dr. R. Lalnuntluanga*, Dr. L. Shashikumar Sharm a**  ABSTRACT 

In the literature of Indian fiscal federalism, the key features of the economic and fiscal scenar io of most of the States have been slow economic growth and high dependence on Centra l support. Our State is also no exception to this group. It is therefore relevant to ha ve a brief review and highlight on the performance of India economy during the past few year s. The present paper focus on the trends of development expenditure on revenue account of the government of Mizoram. The paper also highlights the changing composition of expenditure of government and examine how the expenditure of the state government has been increasing over the past 37 year s, the distribution a nd composition of this increase and the extent to which this distribution conforms to the broad scheme of social  prior ities is also discussed. Key Words:  Fisca l Federalism, Economic and Fisca l Policies, Development and Non-Development

Expenditure, etc.

non-development expenditure. Development expenditure is, on the other hand, presumed to have direct relation with the pace of economic development of a backward economy. The term 'development expenditure' has an obvious growth implication in the sense that expenditure classified as development should be such that can be considered to promote growth. Development expenditure may be understood to mean expenditure incurred on development programmes for the purpose of promoting social welfare and for accelerating the tempo of economic development. Following the functional classification, development expenditure will be dealt with under two broad heads i) Social & Community Services and ii) Economic Services. Expenditures incurred on items such as education, medical and public health, water supply, sanitation, housing and urban development, labour and employment are booked under Social & Community Service, while agriculture, animal husbandry, co-operation, rural and community development projects, irrigation, electricity, industry and minerals, transport and communication, forest and other miscellaneous services fall under Economic Services. Expenditure incurred on these items both on revenue and capital accounts are treated as development expenditure.

Introduction

The Indian economy is expected to register a growth rate of 5.0 per cent in the fiscal 2012-13 in terms of Gross Domestic Product at factor cost at constant 2004-05 prices. The growth rate in 2011-12 was, however, 6.2 per cent. In view of the decadal average growth rate of 7.9 per cent during 2003-04 to 2012-13, the growth rate in the last two years is on the lower side. As pointed out by the title, it is attempted here to analyse the trends of development expenditure on revenue account of the government of Mizoram. The changing composition of expenditure will also be analysed. We shall examine how the expenditure of the state government has  been increasing over the past 37 years, the distribution and composition of this increase and the extent to which this distribution conforms to the  broad scheme of social priorities. The total expenditure of government has been classified into Development and Non-development expenditure. Non-development expenditure arises for the maintenance of law and order, expenditure incurred for the collection of revenues and for the maintenance of the existing set up. Expenditure under the heads such as defence, collection of taxes and duties, administrative services, interest on debt and other services, stationery and printing and other expenditure on general services is grouped under

In the federal set up of India, State Government

* Associate Professor, Deptt. of Economic,Govt. Aizawl North College **Associate Professor & Head, Department of Management, Mizoram Univers ity, Aizawl, Mizoram.

41

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

has to take responsibility for performing social and development functions. But these initiatives require large amount of expenditure. Besides, the introduction of Five Year Plan since 1951 and the  bending towards socialistic pattern of society required the government to play a pivotal role in initiating the process of economic development on all fronts. It is indispensable for the government to incur an increasing amount of expenditure. This is more relevant to a backward and remote state like Mizoram where all the infrastructures are at an initial stage. Government has to play a dominant role in initiating development programmes in order to keep pace with the rest of the country. Mizoram was formerly one of the remotest districts of Assam, it was elevated to a status of Union Territory in the year 1972 and to a full-fledged state in 1986. It is, therefore, true to say that Mizoram is a late starter in development planning as the state had always been one of the neglected remotest districts of Assam.  No meaningful planning programme had been taken up in the district while the rest of the country reaped the fruit of economic planning. It was, practically from Seventh Five Year Plan that Mizoram joined the ambit of planning process of the country. Therefore, it would be interesting to analyse the growing trend of public expenditure particularly on revenue account in the following discussion. Table 1 presents a clear picture and trend of revenue expenditure in Mizoram from the period 1974 - 1975 to 2011- 2012. During this period of 37 years, there has been a tremendous growth in the volume of the total revenue expenditure at current  prices. In the year 1974 -1975, the total revenue expenditure was Rs. 24.94 crores which had grown up within ten years in 1984-85 to Rs. 120.66 crores. This was 4.83 times more or in percentage term, the expenditure grew up by 383.80 % within a short span of ten years. There has been a continuous increase in the expenditure in absolute term over the following years. While the total revenue expenditure was Rs. 449.99 crores in 1994 - 95, it had grown up to Rs. 1295.51crores in 2004 05 and again to Rs. 3886.85 crores in 2011 12 Revised Estimate. A comparison of expenditure in absolute term between 1974 - 75 and 2011 - 12 shows that  public expenditure in Mizoram has increased

155.85 times within 37 years of this study period. The causes of rapid increase in the volume of the total revenue expenditure was mainly due to the multiplicity of government departments and expanding functions that have been taken up by these new departments. In addition to this, the government has to take care of the welfare of the increasing population by importing almost all commodities from outside the State as Mizoram had no infrastructure for production. The State is lagging far behind the rest of the country in all respects. Private enterprise can hardly come up due to lack of infrastructure and exorbitant cost of production. Government has to play a vital role in initiating development programmes and the emergence of price spiral and the mounting inflationary pressure in the economy has resulted in a serious budget deficit. Since the government quite often availed itself of the provision of 'ways and means advances' and even resorted to short term commercial loan to meet its financial deficit, the expenditure on debt services and interest payment rose to an alarmingly high level. The same table exhibits that there has been a continuous increase of development revenue expenditure in absolute terms over the years. It went up from Rs. 19.00 crores in 1974 - 75 to Rs. 104.32 crores in 1985 - 86 which is 5.49 times higher. The expenditure has continuously been increasing and then touched a staggering figure of Rs. 2648.69 crores in 2011 12 R.E. This increase is a multiple of 139.40 time over 1974 75. In percentage term, the growth of development revenue expenditu re shows a remarkable increase as high as 13840 % in 2011 - 12 over the year 1974 - 75. Taking plan-wise growth trend of development revenue expenditure in absolute term, it indicated an ever increasing trend, having grown to Rs. 132.95 crores in the Fifth Plan, Rs.312.47 crores, Rs.737.65 crores, Rs. 481.26 crores, Rs. 1694.41 crores, Rs. 2933.78 crores, Rs. 4457.34 and Rs. 9321.55 crores in the Sixth, Seventh, Two Annual Plans, Eight and  Ninth, Ten and Eleventh Plan respectively. But the  percen tage variation in the prop ortion of development expenditure to total revenue 42

Growth and Trend of Development Revenue Expenditure in Mizoram

Table 1 : Percentage Growth of Development and Revenue Expenditure Rs. In crores Year

Total Development Expenditure

1 

2 

1974 - 75 1975 - 76 1976 - 77 1977 -78 1978 - 79 5th Plan 1979 - 80 (A.P.) 1980 - 81 1981 - 82 1982 - 83 1983 - 84 1984 - 85 6th Plan 1985 - 86 1986 - 87 1987 - 88 1988 - 89 1989 - 90 7th Plan 1990 - 91 1991 - 92 Annual Plan 1992 - 93 1993 - 94 1994 - 95 1995 - 96 1996 - 97 8th Plan 1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02 9th Plan 2002 - 03 2003 - 04 2004 - 05 2005 - 06 2006 - 07 10th Plan 2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12 (R.E.) 11th Plan

19.00 24.51 31.45 24.33 33.66 132.95 40.50 43.78 53.69 61.17 66.50 87.33 312.47 104.32 31.03 204.39 195.63 202.28 737.65 219.70 261.56 481.26 246.85 289.20 321.92 388.70 447.74 1694.41 445.06 465.84 600.26 686.76 735.86 2933.78 725.33 804.43 780.86 1046.35 1100.37 4457.34 1262.74 1510.65 1755.06 2145.01 2648.69 9322.15

Total Revenue 2 as a Expenditure  per cent of 3 3 

24.94 33.39 39.88 32.89 44.51 175.50 52.41 58.01 71.42 85.24 95.35 120.66 432.90 143.44 46.31 268.01 254.06 260.44 972.27 307.78 349.38 657.16 332.16 400.60 449.99 553.70 633.36 2369.81 661.57 690.83 894.28 1021.61 1128.23 4396.53 1128.96 1266.97 1295.51 1587.98 1717.29 6996.71 1908.62 2313.62 2702.81 3155.83 3886.85 13967.73

4 

76.20 73.41 78.87 73.98 75.63 75.76 77.27 75.47 75.18 71.76 69.75 72.38 72.18 72.73 67.01 76.26 77.00 77.67 75.87 71.38 74.86 73.23 74.32 72.19 71.54 70.20 70.69 71.50 67.27 67.43 67.12 67.22 65.22 66.73 64.25 63.49 60.27 65.89 64.08 63.71 66.16 65.29 64.93 67.97 68.14 66.74

Source : Annual Financial Statement, Government of Mizoram

expenditure was not so impressive. While it was 75.76% in the Fifth Plan, it went down to 66.74% in the Eleventh Five Year Plan. Taking a yearly expenditure during the Fifth Plan period, the  proportion of development expenditure to total revenue expenditure in percentage term varies from 73.41% to 78.87%. The Sixth Five Year Plan showed a decreasing percentage of development expenditure which was well above 70% excepting the year 1983 - 84 which recorded 69.75%. During Seventh Five Year Plan, the overall percentage of development expenditure to total revenue expenditure increased to 75.87% but the lowest  percentage during this Five Year Plan was recorded in 1986 - 87 at 67.01%. It increased gradually every year to 77.67% in 1989 - 90. The two Annual Plans showed 71.38% and 74.86% in the year 1990 - 91 and 1991 - 92 respectively. The first year of the Eight Plan recorded an expenditure at 74.32 % which fell to 72.19 % and then falling down consecutively to 71.54%, 70.20% and 70.69 % in the following three years. During the Ninth Plan, the first four years recorded more or less a constant level of development expenditure hovering around 67%,  but declined to 65.22% in 2001 - 02. During Tenth Plan, the development expenditure shows falling  percentage at a minimum of 60.27% in 2004 05, but gradually increases during the Eleventh Plan. The total development expenditure on revenue account in 2011 - 2012 is estimated at Rs. 2648.69 crores which recorded an increase of 23.48 % over the  previous year 2010 - 11 which was at Rs. 2145.01 crores. The average development expenditure as a  proportion to total revenue expenditure during Eleventh Plan stood at 66.74% which indicated a decrease of 9% from the Fifth Five Year Plan. In the accounting and Budgeting system of the State Government, there is no reflection of expenditure in terms of physical targets. Moreover, the plan framework gives only lists of demands for financial outlay without specific target achievements. At the end of the financial year, the statement of expenditure is compiled to show the amount of money actually spent for the various  programmes. It is thus well-nigh impossible to 43

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

Plan and the increase in the percentage of expenditure on Social Services (11166.80 %) was considerably higher than that of the expenditure on Eco nom ic Services (46 53. 54 %). While expenditure on Social Services witnessed a sharp increase as a proportion to total development revenue expenditure from 36 per cent in the Fifth Plan to 57 per cent in the Eleventh Plan, the expenditure on Economic Services on the other hand, fell from 64 per cent to 43 per cent. In other words, expenditure on Economic Services in the Fifth Five Year Plan recorded nearly 2 times more than the expenditure on Social Services, but the growth trend had been reversed in the Eleventh Plan showing a higher percentage of expenditure on Social Services to Economic Services. This changing ratio of expenditure between Social

evaluate physica l achie vement of publi c expenditure programmes in details as all the dealings in the Government Account remain opaque. At best, it is possible to analyse the different components of development expenditure in terms of financial outlays for a given period. Table 2 and 3 show the growth and pattern of development expenditure in Mizoram from the Fifth Five Year Plan to the Eleventh Five Year Plan. A close examination of the figure indicates the following results :1) Social Services and Economic Services which accounted for 36 : 64 per cent of the total development revenue expenditure in the Fifth Plan  period changed to 57 : 43 per cent in the Eleventh

Table 2 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Social Services Rs. In crores Constituents of Development Expenditure

Fifth Plan

Sixth Plan

Seventh Plan

Annual Plans

Eight Plan

 Ninth Plan

Tenth Plan

Eleventh Plan

1 SOCIAL SERVICES

2 47.62 (35.82) 22.74 (17.60) 7.56 (5.85)

3 140.86 (45.08) 56.96 (18.90) 20.88 (6.93)

4 350.15 (47.47) 134.71 (19.06) 49.71 (7.03)

5 215.67 (44.81) 99.42 (21.52) 31.59 (6.84)

6 873.84 (51.57) 386.78 (23.69) 130.13 (7.97)

7 1608.87 (54.84) 784.60 (27.43) 255.42 (8.93)

8 2458.94 (53.66) 1226.37(2 6.76) 376.72 (8.22)

9 5365.25(5 6.95) 2530.51(2 6.86) 896.45 (9.51)

8.90 (6.89)

42.15 (13.99)

90.58 (2.82)

45.01 (9.74)

167.74 (10.27)

242.85 (8.49)

319.45 (6.97)

688.74 (7.31)

7639

0.74 ( 0.57 )

1.77 (0.59)

4.05 ( 0.57 )

2.67 ( 0.58 )

8.54 ( 0.52)

13.56 ( 0.47 )

19.05 (0.42)

31.44 (0.33)

4149

24.07 (3.41)

18.69 (4.05)

98.98 ( 6.06 )

197.63 (6.91)

302.67 (6.60)

695.45 (7.38)

Education Health & Family Welfare Water Supply, Sanitation, Housing & Urban Dev. Information & Broadcasting Welfare of SC/ST & Other Backward Classes

% increase in the 11th Plan over the 5th Plan 10 11166.8

11028 11758

Labour & Employment

0.29 ( 0.22 )

1.03 ( 0.34 )

2.47 ( 0.35 )

1.60 ( 0.35 )

5.52 ( 0.34 )

9.79 ( 0.34 )

18.78 (0.41)

28.86 (0.31)

9852

Social Welfare &  Nutrition

7.05 ( 5.46 )

17.73 ( 5.88 )

43.44 ( 6.15 )

15.50 ( 3.36 )

70.30 ( 4.31 )

105.48 ( 3.69 )

179.89 (3.93)

456.26 (4.84)

6372

Others

0.34 ( 0.27 )

0.34 ( 0.11 )

1.12 ( 0.16 )

1.19 ( 0.26 )

5.85 ( 0.36 )

11.24 ( 0.39 )

16.06 (0.35)

37.54 (0.40)

10942

Source : Computed and Arrange from Financial Statement, Government of Mizoram Figures in the brackets are percentage to Total Development Revenue expenditure

44

Growth and Trend of Development Revenue Expenditure in Mizoram

Services and Economic Services clearly indicates that the Government of Mizoram has put more importance to welfare programme with immediate result than to long term development programme. It is now of utmost importance for the planners and  policy makers to seriously look into the pattern of  public expenditure in the State. A backward state like Mizoram cannot afford to enhance too much welfare programmes at the cost of long-term development programmes. This is the reason why even after four decades of economic planning of the State, Mizoram has poor infrastructural facilities and no industrial base. If the trend goes on like this, the economy of the State is bound to entangle in secular stagnation and be capsized in a vicious circle of poverty.

expenditure during the last 37 years under study which recorded an expenditure of Rs. 5242 crores. Agriculture and Allied Services in Economic Services group occupies the second place with a total expenditure of Rs. 3528 crores. While Water supply, Sanitation, Housing & Urban Development head ranks third with an expenditure of Rs. 1605.42crores and generation of power and energy in the Economic Services group comes next with a very close total expenditure of Rs. 595.33 crores. 3) As regards the percentage increase in the Eleventh Plan over the Fifth Plan, the constituent head of expenditure called Energy in the Economic Services group and General Economic Services comprising Secretariat Economic Services, Tourism, Census and Statistics, Civil Supplies, Public Works shows an unprecedented increase recording the highest and the second highest respectively. This soaring increase is largely

2) A close examination of the constituent heads of expenditure in the table shows that Education in Social Services occupies the highest proportion of

Table 3 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Economic Services Rs. In crores

Constituents of Development Expenditure 1 Economic Services Agriculture & Allied Activities Rural Development Special Area Programme Irrigation & Flood Control Energy Industry & Minerals Transport General Eco. Service

Fifth Plan

Sixth Plan

Seventh Plan

Annual Plans

Eight Plan

 Nint h Plan

Tenth Plan

Eleventh Plan

2 85.33 (64.18)

3 171.61 (54.92)

4 387.50 (52.53)

5 265.59 (55.19)

6 820.57 (48.43)

7 1331.57 (45.11)

8 2123.05 (46.33)

25.46 (19.71)

57.39 (19.05)

143.90 (20.36)

92.57 (20.04)

308.30 (18.88)

431.87 (15.10)

742.41 (16.20)

9 4056.20 (43.05) 1725.81(18.32)

3.83 (2.96) 3.10 (2.40)

6.64 ( 2.20 ) 9.71 (3.22 )

33.50 ( 4.74 ) 26.06 ( 3.69 )

57.21 159.16 (12.38) (9.75) 1.65 4.60 ( 0.36 ) ( 0.28 )

154.99 (5.42) 54.83 ( 1.92 )

163.91 (3.58) 60.57 (1.32)

0.68 (0.53)

1.65 ( 0.55 )

6.98 ( 0.99 )

6.16 ( 1.33 )

11.92 ( 0.73 )

13.38 ( 0.47 )

20.85 (0.45)

2.23 (1.73) 3.76 (2.91) 45.45 (35.18) 0.82 (0.63)

20.46 ( 6.79 ) 11.16 ( 3.70 ) 61.75 (20.49) 2.85 ( 0.95 )

66.62 ( 9.43 ) 30.92 ( 4.38 ) 66.88 ( 9.46) 12.64 (1.79)

42.47 ( 9.19 ) 19.32 ( 4.18 ) 36.29 (7.86) 9.92 (2.15)

147.91 ( 9.06 ) 61.74 ( 3.78 ) 87.72 (5.37) 39.22 (2.40)

315.64 (11.03) 91.53 ( 3.20 ) 186.42 (6.52) 82.91 (2.90)

618.32 (13.49) 143.18 (3.12) 251.57 (5.49) 122.24 (2.67)

Source : Computed and Arrange from Financial Statement, Government of Mizoram Figures in the brackets are percentage to Total Development Revenue expenditure

45

% increase in th e 11th Plan over the 5st Plan 10 4653.54 6679

240.40 (2.55) 170.21 (1.81)

6177 5391

33.59 (0.36) 4840 979.75 (10.40) 210.77 (2.24) 426.38 (4.52) 269.29 (2.86)

43835 5506 838 32740

Vedaang Vol. 4 No. 1, January-June 2013 Expenditure,' The Economic Weekly, 1961.

explained by the low base in the initial years. In absolute terms, the total development expenditure on revenue account during the Fifth Five Year Plan on Energy was Rs. 2.23 crores which increased to Rs. 979.75 crores in the Eleventh Plan. Total Development expenditure on the head 'General Economic Service' in Economic Services was Rs. 0.82 crore in the Fifth Plan which increased to Rs. 269.29 crores in the Eleventh Plan. The low base of development expenditure during the Fifth and Sixth Plans may be explained by the fact that Mizoram was one of the poorest and remotest Union Territories where no major developmental  programme had been taken up so far and the government set up was confined to small pockets of establishment during this period. It was only since Mizoram became a full-fledged State, Government establishment has become expanded and its activities also increased manifolds. Expenditure also inevitably increased tremendously.

Gupta, B.N., Government Budgeting, Asia Publishing House,  New Delhi, 1967. Reddy, K.N., and Sudhakar, S., Incidence of Public Expenditure in India, Commonwealth Publishers, New Delhi, 1989. Sharma, Atul and Tulsidhar, V.B., Economic Impact of Government Expenditure,   Concept Publishing Company, New Delhi, 1984. Sury, M.M., Government Budgeting in India, Commonwealth Publishers, New Delhi, 1990. Thangchungnunga, 'Financial Management in Mizoram,' Dialogue Quarterly, (July September, 2002), A Journal of Astha Bharati, New Delhi. Goverrnment of Mizoram, Annual Financial Statement (Budget), Finance Department, Aizawl, from 1974 75 to 2011 12). Government of Mizoram, explanatory Memorandum on the Budget (As laid before the Legislative Assembly), from 1974 75 to 2011 12. Government of Mizoram, Demand for Grants, Finance Department, Aizawl, for the year 1974 75 to 2011 12.

References

Government of Mizoram, Reports of the Comptroller and Auditor General of India, (various years).

Bhuyan, P. K., The Regional Fiscal Economics of Assam, Chugh Publication, Allahabad, 1984

Government of Mizoram, Reports of the Public Accounts Committee, (various reports relating to different departments, Government of Mizoram.

Das, H.N., 'The Present Financial Crisis in Assam,' Dialogue Quarterly, (July September, 2002), Vol. 4, No. 1, AJournal of Astha Bharati, New Delhi. Gadhok, N., Parliamentary Control OverGovernment Expenditure, Sterling, 1976.

Government of Mizoram, Reports of the Estimate Committee, (various action taken report relating to different departments, Government of Mizoram.

Gulati, I.S., 'An Analysis of Central Government

Government of Mizoram, Reports of the Committeeon Public

46

FINANCIAL INCLUSION AND SHG-BANK LINKAGE PROGRAMME: A RURAL HOUSEHO LD STUDY IN KERALA Dr. Minimol M.C.*, Dr. Makesh K.G.**  ABSTRACT 

Deliberations and discussions on the subject of Fina ncial Inclusion has formulated a consensus among people that merely having a bank account need not necessarily be a good indicator of financial inclusion. Further, indebtedness as quantified in the NSSO 59th round (2003) may not also  be a reflective indicator. The ideal definition should look at people who want to a ccess financial services but are denied the same. If genuine claimants for credit and financial ser vices are denied the same, then that is a case of exclusion. This would require re-engineering of existing financial  products or delivery systems a nd making them more in tune with the expectations a nd a bsorptive capacity of the intended clientele. Based on the a bove consideration, a broad working definition of financial inclusion could be the process of ensuring access to financial services and timely and adequate credit where needed by vulnera ble groups such a s weaker sections and low income groups at a n affordable cost (Committee on Fina ncial Inclusion, 2008). The SHGS-Bank linkage progra mme is considered to be an effective strategy to ensure financial inclusion. It is aga inst this backdrop, the  present study has been undertaken with the specific objective of ana lyzing the impact of SHG-Bank Linkage Progr amme on the financial inclusion in rur al Kera la. The study was ta ken up in Kottayam district of Kerala and covered a sa mple of 300 SHG members. Results of this study clearly show that the SHG-Bank linkage programme has increased the flow of institutional credit to landless and marginal farm households and discoura ged non-institutional borrowing through the thrift creation. Fina ncial inclusion index, which measures the degree of financial inclusion, ha s been computed for each household by giving appropr iate weight to the selected financial ser vices. Key Words : Financial Inclusion, Self help Groups, Financial Exclusion, Institutional Credit,

Fina ncial Services

Introduction

The SHGs - Bank Linkage Programme can be regarded as the most potent initiative since Independence for delivering financial services to the poor in a sustainable manner. The programme has been growing rapidly and the number of SHGSs financed increased to 29.25 lakhs on 31 March 2007. The Self Help Group (SHG)-Bank Linkage Programme, in the past eighteen years, has become a well known tool for bankers, developmental agencies and even for corporate houses. SHGSs, in many ways, have gone beyond the means of delivering the financial services as a channel and turned out to be focal point for purveying various services to the poor. The programme, over a period, has become the common vehicle in the development  process, converging important development  programmes. With the small beginning as Pilot Programme launched by NABARD by linking 255

SHGs with banks in 1992, the programme has reached to linking of 69.5 lakh saving-linked SHGSs and 48.5 lakh credit-linked SHGs and thus about 9.7 crore households are covered under the  programme, envisaging synthesis of formal financial system and informal sector[1]. The programme involves forming SHGSs of the  poor, encouraging them to pool their thrift regularly and using the pooled thrift to make small interest  bearing loans to members, and in the process learning the nuances of financial discipline. Bank credit to such SHGs followed. NABARD saw the  promotion and bank linking of SHGs not merely as a credit programme but as part of an overall arrangement for providing financial services to the  po or in a su stai na ble ma nn er lead in g to empowerment of the members of these SHGs [3]. In this backdrop, this study has been undertaken with the specific objective of analyzing the impact of

* Assistant Professor, Rajagiri Centre for Business Studies, Rajagiri College of Social Sciences **Associate Professor, School of Communication and Management Studies [SCMS]

47

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

SHGs-Bank linkage programme on the financial inclusion.

Obj ective of the Stud y

The study was undertaken with the specific objective to analyze the impact of SHGs-Bank linkage programme on the financial inclusion.

Review of litera tur e

Financial Inclusion covers a wide array of services by banking sector. F inancial inclusion, at a minimum, may be interpreted to mean the ability of every individual to access basic financial services which include savings, loans and insurance in a manner that is reasonably convenient and flexible in terms of access and design and reliable in the sense that savings are safe and that insurance claim will be  paid with certainty [2]. Though financial inclusion covers a wide array of services by the banking sector, one crucial area relate to borrowings from  banks by the lower strata of the unorganized segment of the economy. Further, debt owed to institutional and non institutional source could be used as barometer of degree of financial inclusion in the two sectors [7]. Studies reveal that in the rural areas 70 per cent of borrowings of the richest households were institutional in nature while this share was only 18 per cent for the poorest households. A huge untapped population is still denied of these formal banking services [5]. According to an estimate by the World Bank, the credit requirement of the poorer sections in India was placed at aroundRs.50,000 crore per annum in 2002. Against this requirement, the credit outstanding of the poorer sections with the formal  banking sector is stated to be Rs.5,000 crore or 10  per cent of the total demand(Planning Commission, 2007). Furthermore, the physical outreach of the rural credit has not been effective in achieving income expansion and poverty reduction, and access to needed financial services is still an issue in the rural areas [4].

Hypotheses

The hypotheses formulated for the empirical verification through this study are; ?

SHGs-Bank linkage programme positively contributed to the flow of institutional credit to the vulnera ble section,

?

There exists association between the degree of financial inclusion and the participation in SHGs.

Methodology

The study is based on the primary data collected from Kanjirapplly Taluk of Kottayam district in the state of Kerala. Agriculture forms the livelihood of the majority in the Taluk. Though the Taluk is being served by 120 branches of commercial banks and 60  branches of regional rural banks besides a large number of credit cooperative societies, cent percent financial inclusion continued to be a major challenge. Government agencies and many NGOs are promoting SHGs to face this challenge. The socio-economic environment of the district  provides strong case for the purposeful selection of the district for this study. Sampling Design and Data Collection

In the first step four Panchayats of the Taluk were randomly selected. Households of each Panchayat were stratified into five segments Lower segment(less than 25 cents), marginal (25-50 cents),

Table 1: Distribution of Sample Respondents Far m Size Category Lower segment Marginal segment Small segment Medium segment Large segment Total

Without SHGs 3(23.08) 11(42.30) 6(22.22) 12(57.15) 8(61.53) 40(40)

48

With SHGs 10(76.92) 15(57.70) 21(77.78) 9(42.85) 5(38.47) 60(60)

Total 13(100) 26(100) 27(100) 21(100) 13(100) 100(100)

Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

small (50 cents-1 acres), medium (1- 2 acres) and large (more than 2 acres) farm category in the second stage. From each Panchayat, considering the land holding distribution, 2 landless, 2 marginal, 6 small, 10 medium and 5 large farm households were randomly selected in the third stage. Thus, totally 100 rural households were selected by using multistage stratified random sampling method. Primary data were elicited from these households  by using pre-tested, well structured schedule

significance of the  association

between the degree of financial inclusion and the membership in the SHGs. Data Analysis and In terp retat ion Finan cial In clusion Index

Index which measures the degree of financial inclusion has been developed by giving appropriate weights to the selected financial services. Bank officials and knowledgeable farmers were consulted in order to understand the farmers' financial needs. In the light of the experience gained through consultation, some important financial services were selected and the weights were assigned for computing the financial inclusion index [6]. Details of financial services selected for developing the financial inclusion index and their corresponding weight are given in table 2. The household which availed all the financial services will get 100 weights whereas the one which did not avail any of these services will get 0 weights. The

Analytical Fra mework 

In this study the total borrowing made during 2009-2010 from institutional and non-institutional sources were computed separately for “households without SHGs' and “households with SHGs'. Significance in the difference in mean values of  borrowing was tested by using t' test. Further, seven important financial services were selected and the extent of households' inclusion into these services

The Chisquare test (χ2) was made to verify the was estimated in terms of percentages.

Table 2: Financial Services and Corresponding Weights Weight if answer is Yes No Borrowings from In stitutional Sour ces i) B orrowed directly from institutional Agencies and/or through SHG during 10-11? ii) B orrowed directly from institutional Agencies and/or through SHG during 09-10? iii) B orrowed directly from institutional Agencies and/or through SHG during 08-09? Savings in Institutional Agencies i) H aving at least one SB account in bank or post office ii) H aving at least one recurring and/or  Fixed deposit in bank or post office? iii) Have savings in SHG Other Financial Services i) Adult member/s of family covered under life Insurance ii) Family asset/s covered under insurance iii) Family having at least one ATM card  iv) Family having at least one credit card  Total

49

30

0

10

0

10

0

10

0

10

0

5

0

10

0

5 5 5 100

0 0 0 0

Maximum weight

50

25

25 100

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

total weights of an individual household show its degree of financial inclusion.

Among lower segment household, the mean value of institutional borrowing by the families with SHG (Rs 4038.5) was found to be considerably more compared to the households without SHG (Rs. 769.23). The calculated't' value between these two means was found to be greater than the critical value at 5 percent level of significance. Therefore, the difference is statistically significant. In case of lower segment households, institutional credit is frequently available through the SHGs. Though there is difference between the households without SHGs and with SHGs in the mean values of institutional borrowing by the small, medium and large farm size group, they are very minimal. Another important finding of this study is that all the size groups of households with SHG, borrow considerably lower amount from non-institutional sources compared to their counterparts without SHG. This difference was found to be statistically significant for pooled as well as marginal size

Borr owings of the Households

Percentage share of institutional and noninstitutional sources in the total borrowing of the respective farm size group was computed for both the groups of households. Percentage share of institutional sources in the total borrowing is more among the households with SHGS compared to the households without SHGS in the entire farm size group but the difference is more among the lower and small household group. It is generally believed that the flow of institutional credit to vulnerable groups will increase with the SHGS-Bank linkage  programme. For the empirical verification of this hypothesis borrowings of the households with SHGs and Without SHGs during the year 2009 2010 were tested using “t test”. The results are given in Table 3.

Table 3: Arithmetic Mean values of borrowings during 2009-2010 Sour ces of  Borrowing

institutional

 Non institutional

Total

Far m size Group Lower segment(13) Marginal segment(26) Small segment(27) Medium segment(21) Large segment(13) Pooled(100) Lower segment(13) Marginal segment(26) Small segment(27) Medium segment(21) Large segment(13) Pooled(100) Lower segment(13) Marginal segment(26) Small segment(27) Medium segment(21) Large segment(13) Pooled(100)

With SHG

Without SHG

4038.5(72.41) 6000.00(83.87) 9000.00(94.18) 9285.71(100.0) 6923.07(100.0) 7365.00(91.89) 1538.5(27.59) 1153.84(16.13) 555.55(5.82) 0.00(0.00) 0.00(0.00) 650.00(8.11) 5577.00(100) 7153.84(100) 9555.55(100) 9285.71(100) 6923.07(100) 8015.00(100)

769.23(50.01) 30769.23(88.8) 18518.51(72.9) 19047.61(94.1) 23076.92(100) 20100.00(86.2) 769.23(49.99) 3846.15(11.20) 6851.85(27.10) 1190.47(5.90) 0.00(0.00) 3200.00(13.80) 1538.00(100) 34615.38(100) 25370.37(100) 20238.09(100) 23076.92(100) 23300.00(100)

Figures in parentheses indicate percentage to the total borrowing of the respective farm size group

50

‘t’ value

.795 .462 .460 .670 .577 .670 .915 1.00 0 .780 .698

.491 .670

Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

group. It might be because SHGs, besides creating thrift culture, discourage their members to borrow from non-institutional sources. Thus SHGs have definitely increased the flow of institutional credit to credit-thirsty landless and marginal farm households and discouraged non-institutional  borrowing through the thrift creation.

the households with SHGS compared to their counterparts without SHGs. Since the saving is compulsory for the SHGS members, the percentage of households which saved with the formal institutions is cent percent in the households with the SHGS and without SHGs irrespective of their farm size group and membership in SHGSs.

The percentage of households included in seven importa nt finan cial services

Degree of financial inclusion

The degree of financial inclusion of each household was computed by using the method explained in the financial inclusion index table. The two way classification of the respondents based on their degree of financial inclusion and the

Percentage of households which borrowed from institutional sources during 2009-10 increases with farm size. The borrowing was considerably more in

Table 4 : Association between degree of financial inclusion and membership in SHGs Far m size group

2

Degree of financial inclusion Low (0-40)

Medium (41-75)

High (76-100)

 χ

total

Lower segment Without SHGS With SHGS TOTAL Marginal segment Without SHGS With SHGS TOTAL Small segment Without SHGS With SHGS TOTAL Medium segment Without SHGS With SHGS TOTAL Large segment Without SHGS With SHGS TOTAL Pooled Without SHGS With SHGS TOTAL

1(33.33) 0(0.0) 1(7.70)

1(33.33) 7(70.00) 8(61.53)

1(33.34) 3(30.00) 4(30.77)

3(100) 10(100) 13(100)

10.791

3(27.28) 0(0.00) 3(11.53)

5(45.45) 5(33.33) 10(38.47)

3(27.27) 10(66.67) 13(50.00)

11(100) 15(100) 26(100)

6.291

1(16.67) 1(4.77) 2(7.40)

5(83.33) 13(61.90) 18(66.68)

0(0.0) 7(33.33) 7(25.92)

6(100) 21(100) 27(100)

3.178

2(16.67) 0(0.0) 2(9.53)

9(75.00) 6(66.67) 15(71.42)

1(8.33) 3(33.33) 4(19.05)

12(100) 9(100) 21(100)

3.225

4(50.00) 0(0.0) 4(30.77)

4(50.00) 4(80.00) 8(61.53)

0(0.0) 1(20.00) 1(7.70)

8(100) 5(100) 13(100)

4.581

11(27.50) 1(1.67) 12(12.00)

24(60.00) 35(58.33) 59(59.00)

5(12.50) 24(40.00) 29(29.00)

40(100) 60(100) 100(100)

Note: figures in parenthesis are percentage to the respective row total

51

30.902

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

membership in the SHGs was made and the results

counterparts without SHG.

are given in table 4. The

Chi-square test (χ2) was made to verify the significance of the association between the degree of financial inclusion and the membership in the SHGs. The calculated chi-square (χ2) v alue (30.902) was found to be statistically significant at 5 percent level of significance. Therefore, it could be inferred that the degree of financial inclusion could be increased with implementation of SHGs-Bank linkage  programme. Though the percentage of household

reached the medium and high degree of financial inclusion is relatively more among the SHGs member households compared to Non-member households in all the farm size groups, the chi-squire value (χ2) was found to be statistically significant only for lower and marginal household segments. Therefore it could be inferred that SHGs-Bank linkage programme increased the degree of financial inclusion among lower and marginal household segments. But no such inference could be drawn with respect to small, medium and large household segments. SHG bank linkage program increase the flow of institutional credits to poor and weaker sections of the society.

?

There exists association between the degree of financial inclusion and the participation in SHGs

?

All segments of households with SHG, borrow considerably lower amount from noninstitutional sources compared to their

SHG bank linkage program enhance its members contributions to their total household income.

?

A high degree of financial inclusion can be achieved by linking formal (banking and non banking) institutions with SHGs.

?

SHG linkage program improves cash management of its members.

?

It also improves the social participation of its members especially women.

8. Conclusion

Results of this study clearly show that the SHGBank linkage programme has increased the flow of institutional credit to landless and marginal farm households and discouraged non-institutional  borrowing through the thrift creation. Financial inclusion index, which measures the degree of financial inclusion, has been computed for each household by giving appropriate weight to the selected financial services. Based on the index value, households were classified into the households with low, medium and high degree of financial inclusion. Percentage of household which reached the medium and high degree of financial inclusion, increased with the size of the land holding. The percentage of households, which reached the higher degree of financial inclusion, is relatively more among SHG member households compared to non-member households The chi-

Findings ?

?

square (χ2) results lead to the conclusion that the SHG-Bank linkage programme increased the degree of financial inclusion among landless and marginal household category. References

Chavan Pallavi (2007), “Access to Bank Credit: Implications for Dalit Rural Households”, Economic and Political Weekly,August, Vol. XLII (31), pp 3219-3224.

52

A STUDY & SCOPE OF SME' S IN UTTARAKHAND & PROBLE MS FACED BY THEM Mohammad Alam Kha n*  ABSTRACT 

After the formation of Uttarakhand state the people of the Uttarakhand region are having the high expectation from the government are of the local people related to the development of the state,  better job opportunities, better growth, & better standard of living & etc. TheState Infrastr ucture & Industrial Development Corporation of Uttarakhand Limited (SIDCUL), a government of Uttarakhand enterprise, was incorporated as a limited company in the year 2002 to promote industrial development in the state. It provides financial assista nce to promote industries and develop industrial infrastructure in the state of Uttarakhand directly. Most of its major industrial infrastructure has been developed in the plains with limited concentration in the hills. As the government knowing the importa nce of SMEs Uttarakhand appears hea ded for another push to their growth through a new industrial policy. The government has contemplated a move to br ing in a new  policy for industrial growth in the year 2010 for further growth of SMEs in the state. As government formed various policies just to develop the industrial backward and remote ar eas & hilly region of the state just to develop the industrial infra structure & to encourage the entrepreneurial development & financial support to the various industr ies in the state. As this paper highlighting the various rea sons for the growth of SMEs & the limitation of SMEs in the Uttar akhand state.

Sports goods Plastic Products  Computer Software 

INTRODUCTION TO SMES IN INDIA:



India has nearly 3 million SMEs, which account for almost 50 percent industrial output and 42 percent ofIndia's total export. They constitute the most important employment generating sector and an effectivetool for balanced regional development. They account for 50 percent of private sector employment and30-40 percent of value addition in manufacturing. They produce a diverse range of products (about8000) including consumer items, and capital and intermediate goods. In India, SMEs have been established in almost all major sectors in Indian industry like: Food Processing Agricultural Inputs  Chemicals & Pharmaceuticals  Engineering Electrical & Electronics  Electro-medical Equipment  Textiles & Garments  Leather & Leather Goods  Bio-engineering  

Indian SMEs have been passing through a transitional period, keeping competitive spirit high, with a willingness to restructure themselves, facing the challenges and come out with shining colors and contribute to Indian economy. Wha t is a SME?

SME stands for Small and Medium Enterprises. By SME business, we mean small and medium enterprises that maintain revenues or a number of employees below a certain standard. Every country has its own definition of what is considered as a small and medium-sized enterprise. In India, an industrial undertaking that has investments in fixed assets which do not exceed more than Rs.10 million or 1 crores falls under the category of small  business. A small-sized enterprise is a company with less than 50 employees while a medium-sized enterprise is one with fewer than 250 employees. Enterprises qualify as micro, small and

* Assistant Professor, HIPR, Dehradun(U.K)-248001, India

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

Enter pr ise category Medium-sized  Small Micro

Headcount < 250 < 50 < 10

Tur nover = € 50 million = € 10 million = € 2 million

medium-sized enterprises (SMEs) if they fulfill the criteria laid down in the recommendation which are summarized in the table below. In addition to the staff headcount ceiling, an enterprise qualifies as an SME if it meets either the turnover ceiling or the  balance sheet ceiling, but not necessarily both.

districts comprise the hill region of the state.The formation of the new state had to fulfill the high expectations of the local people related to development and better living standards. However, within Uttarakhand there is a geographical inequality between the hills and the plains that divides the state critically.

Types of SMEs

According to the Micro, Small and Medium Enterprise Development Act (MSMEDA), 2006, the micro, small and medium enterprises inIndia are defined as follows: Role of SMEs in Uttar akh and 

Uttarakhand State was carved out of the state of Uttar Pradesh on November 9, 2000. It is divided into two broad regions--Garhwal and Kumaon. The state is comprised of 13 districts, namely, Chamoli, Pauri, Tehri, Uttarkashi, Dehradun, Haridwar and Rudraprayag in the Garhwal region and Nainital, Almora, Pithora garh, Udham Singh Nagar, Champawat and Bageshwar in the Kumaon region. Of these 13 districts, four districts (Nainital, Haridwar, Dehradun and Udham Singh Nagar) have large areas in the plains, whereas the other nine  Nat ur e of th e Enterprise Manufacturing Sector 

Service Sector 

or   Balance sheet t otal = € 43 million = € 10 million = € 2 million

The State Infrastructure & Industrial Development Corporation of Uttarakhand Limited (SIDCUL), a government of Uttarakhand enterprise, was incorporated as a limited company in the year 2002 to promote industrial development in the state. It provides financial assistance to  promote indu stries an d deve lop industrial infrastructure in the state of Uttarakhand directly or through Special Purpose Vehicles, Joint Ventures, assisted companies, etc. Most of its major industrial infrastructure has been developed in the plains with limited concentration in the hills. Some of its major projects include the Integrated Industrial Estate at BHEL inHaridwar, the Integrated Industrial Estate at Pantnagar, and an IT Park in Dehradun, Pharma City in Selaqui, Dehradun, the Growth Centre at Pauri, and the

Micro Enterprise

Small Enter pr ise

Medium Enterprise

Investment in plant & machinery does not exceed INR 2.5 million (USD 62.5 Thousand)

Investment in  plant & machinery more than INR 2.5 million (USD 62.5 thousand) but does not exceed INR 50 million (USD 1.25 million) Investment in equipment is more than INR 1.0 million (USD 25 thousand) but does not exceed INR 20 million (USD 500 thousand)

Investment in plant & machinery more than INR 50 million (USD 1.25 million)  but does not exceed INR 100 million (USD 2.5 million) Investment in equipment more than INR 20 million (USD 500 thousand) but does not exceed INR 50 million (USD 1.25 million)

Investment in equipment does not exceed INR  1.0 million (USD 25 Thousand)

54

A study & scope of Sme's in Uttarakhand & problems faced by them

Integrated Industrial Estate at Sitarganj. SIDCUL enables industrial projects to be set up in a short time. The Corporation administers all promotional schemes of the government for industries and uses the single-window system. The state has seen strong industrialization since 2003, but that was mainly in the plains, following the special package announced by the Centre in 2003. Thus an Integrated Industrial Development Policy 2008 was launched in February especially for the industrial development of hilly and remote areas in the state. This policy has aimed at the economic development of the hill region. With the objective of inclusive growth, the main concentration is now on the hill districts. This policy aims to celebrate industrial development in the industrially backward and remote hill districts of the state, to develop industrial infrastructure, and to encourage entrepreneurial development through market encouragement and financial support to entrepreneurs. The creation of employment opportunities along with the removal of economic  backwardness is expected to help control the migration of the population towards the plains and other states in search of better livelihoods. This  policy targets industries in the manufacturing and services sectors. These steps are in addition to the Industrial Policy, 2003, which aimed to provide a comprehensive framework to enable a facilitative, investor-friendly environment to ensure rapid and sustainable industrial development in Uttarakhand and, through this, to generate additional employment opportunities and to bring about a significant increase in the State Domestic Product and eventual widening of the resource base of the state.

facilitation in the state to expedite project clearances and to provide an investor-friendly climate. It also looks to provide and facilitate expeditious land availability for setting up industrial ventures and infrastructure projects. The  policy aims to provide assured, good quality, uninterrupted and affordable power for industries and to simplify and rationalize labour laws and  procedures in line with current requirements while ensuring that workers get their due share in the economic prosperity of the state. For small-scale industries, cottage, khadi and village industries, handicrafts, and the silk and handloom sectors, it will assist them in modernization and technological upgrading and provide necessary common facilities and backward and forward linkages, including  product design and marketing support so as to make them globally competitive and remunerative. There has been an impressive increase of 18 per cent in SSI units in India from 2001-02 to 2006-07 and in Uttarakhand this increase is 22.8 per cent. Of these SSIs registered units showed an increase of about 50 per cent and unregistered of about 15 per cent in Uttarakhand, whereas the figures for India are 32 percent and 15 percent, respectively. This increase in scale of SSIs in Uttarakhand can be attributed to the industrial policy of 2003. Thus, after the industrial policy of 2008 is implemented, the industrialization process is expected to strengthen even in the hill regions. Knowing the importance of Small and Medium Enterprises (SMEs), Uttarakhand appears headed for another push to their growth through a new industrial policy. The government has contemplated a move to bring in a new policy for industrial growth in the year 2010 for further growth of SMEs in the state.

The policy looks at providing single-window

Table: Number of small-scale industrial units in India and Uttarakhand (2001-02 and 2006-07) Type of Industr y Small-Scale Industry Units Registered  Un-registered  Source:

Uttarakhand  2006-07 2009-10 106484 137618 15285 30268 91199 107350

India 2006-07 10521190 1374974 9146216

2009-10 12843774 2031910 10811864

Indiastat (www.indiastat.com). Outsourced from Annual Report 2006-07, 2009-10 Ministry of SSI, Govt. of India and various Annual Surveys of India.

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

Low investment requirements

Impor tan ce of SMEs in G lobal Economy



Global economic integration is changing the competitive paradigm in which all businesses operate, requiring an international expansion strategy to positively impact long-term growth and survival (Karagozoglou and Lindell, 1998). The small businesssector has become more important as they emerge as a dominant force impacting the growth of national economies (Shridhar, 2006). There are a number of disadvantages inherently faced by SMEs as they transition into international environments (Chen and Huang, 2004). Managers of non-exporting SMEs perceive the international environment as being risky, unprofitable and unmanageable, due primarily to misinformation and lack of experience with global business (Malekzadeh and Nahavandi, 1985). SMEs, due to their size limitations, often have limited financial capital and a lack of necessary human resources. Many operators of small businesses lack experience in developing an international strategy (Tesar and Moini, 1998). There are also disadvantages related to a lack of competitive power as a consequence of the size of the organization. SMEs have difficulty in influencing global pricing as they rely on a small customer base, and arelimited in expansion due to minimal access to financial resources (Kalantaridis, 2004).



Even though faced with the need to overcome significant weaknesses, the strategic importance of SMEs has been identified as the following:



Significant export earnings Capacities to develop appropriate indigenous technology



Operational flexibility



Contribution towards defense production



Technology - oriented industries



Location wise mobility



Low intensive imports



Competitiveness in the domestic market



Competitiveness in the export markets



Limitations of SMEs

Inspite of making significant contribution towards global economy, SMEs face a lot of limitations in their growth and performance. Some of them are: Low capital base



Low utilization of installed capacity



Problem of specialized training and skilled management



Unavailability of high quality of inputs



Less innovation actions



Lack of proper market information



Low level of research & development Lack of awareness of global trade laws



Inadequate accession to the monetary institutions



They are responsible for growing employment at a faster rate than largerorganizations;



Less exposure to international environment



They increase the competitive intensity of the market and reduce the monopolisticpositions of large organizations; and 



Lack of Professionalism



References

SMEs, Entrepreneurship and Innovation,DOI :10.1787/ 9789264080355-en www.oecd.org/ innovation/strategy

They encourage the development of entrepreneurial skills and innovation.



The Business Finance Market: A Survey, Industrial Systems Research Publications, Manchester UK, 3rd. revised edition 2008.[1]

Reasons behind growth in SMEs There are various reasons due to which the small scale business in India has witnessed a spurt of growth like:

UN/ECE Secretariat. "SMEs Their role in foreign trade". www.unece.org. United Nations Economic Commission for Europe (UN/ECE). http://www.unece.org/indust/ sme/foreignt.htm. Retrieved 2007-06-28.

Import substitution



Tyler Biggs. ”Is small beautiful and worthy of subsidy”. www.unece.org. World Bank (UN/ECE).

High contribution to domestic production



56

A study & scope of Sme's in Uttarakhand & problems faced by them http:// rru.worldba nk.prg/Docum ents/ PapersLink s/ TylerPaperonSMEs.pdf. Retrieved 2008-05-30.

/g/SME.html The Improtance of SMEs in the ecnomywww.itdweb.org, www.oecd.org.

"OECD-APEC Keynote Paper on Removing Barriers to SME Access to International Markets". www.oecd.org. OECD. 2 0 0 6 . h t t p : / / w w w . o e c d . o rg / d a t a o e c d / 4/16/37818320.pdf. Retrieved 2007-06-28.

SMEs India,India's SMEscenario, SMEsrole in Indian economy, SMEswww.tradeindia.com/ newsletters/... /tips_13_feb_2007.html

Adapted from: Berger, A.; G. Udell (2005). "A More Complete Conceptual Framework for SME Finance". http://ideas.repec.org/p/ wbk/ wbrwps/3795.html.

SMEOvercoming Barriers to Innovation for Indian SMEswww.annualmeeting2005.in sme.org/... /14.4.../presentation_stuti.doc

 Newberry, Derek (2006). "The role of small- and mediumsized enterprises in the futures of emerging economies". http://earthtrends.wri. org/features/ view_feature.php? theme=5&fid=69. Retrieved 2008-05-19.

Reasons behind growth in SME business. There are various reasons due to which the small scale business in India has witnessed a spurt of growth. blogs.siliconindia.com/.../ An_Overview_of_Scope_and_Growth_of_SME_Busin ess_in_India-bid On284gb518532640.html

Journal of Small Business and Enterprise Development Volume List, ISSN: 1462-6004, vol 16 -17

The reason for SME's all-out attack on JYJ 9 Jan 2011 www.seiofbluemountain.com/ en/search/detail.  php?id=4310

Article: International entrepreneurship: towards a theory of SME internationalization, Journal of International Business and Economics , Article date: January 1, 2009 Author: Schulz, Anja; Borghoff, Thomas; Kraus, Sascha.

SME Problems, www.hutex.com/Problems.htm Challenges facedby SMEs. Presented By. Lynette P Holder. OUTLINE. Overview of CASME; Projects to Date; Sector Analysis; Challenges FacedbySMEs... www.ttbs.org.tt/sme/day2/Lynette%20Holder.ppt

Tambunan, Tulus (Oct 2007). 'Development of SMES in a developing country : The Indonesian story', Journal of Business and Entrepreneurship. Journal of technology management & innovation, versión Online ISSN 0718-2724 Journal of Technology Management & Innovation v.4 n.4 Santiago dic. 2009,doi: 10.4067/S071827242009000400005, J. Technol. Manag. Innov. 2009, Volume 4, Issue 4

Competitivechallenges facedby small and medium enterprises (SMEs ...1 article on Competitive challenges faced by small and medium enterprises (SMEs) www.helium.com/.../275119-competitive-challengesfaced-by-small-and-medium-enterprises-smes

SME Innovative Capacity, Competitive Advantage and Performance in a 'Traditional' Industrial Region of Portugal, Carla Susana Marques , João Ferreira

Overview of the problemsfacedby micro and small businesses whenwww.ueapme.com /docs/pos.../0710_Guido_  problems_SME.pdf 

EUROPA Enterprise The new SME definition User guide and. www.ec.europa.eu/ enterprise/ policies/ sme/.../ sme.../ sme_user_ guide_ en.pdf

Business Directory with Free CRM of Top Companies in India, Delhi ...Fundoodata.com is a Business Directory with Free CRM consisting of India Top 100 , Top 500 , Top 1000 , MNCs companies in India, Delhi NCR , Mumbai, www.fundoodata.com

SME Definition - Small and medium sized enterprises (SME... 6 May 2003 ... European Commission - Enterprise and Industry - This page ... ec.europa.eu/enterprise/policies/ sme/.../sme.../index_en.html

http://www.beemanagement.com/pdf/2005/pn4.pdf  http://www.business-standard.com/india/news/uttarakhandto-redrawindustrial-policy/400416/

SME Small Medium Enterprise SME Definition What is an SME (Small to Medium Enterprise, SME definition explains. sbinfocanada.about.com/od/businessinfo

http://www.icrier.org/pdf/Working_Paper_217.pdf 

57

A STUDY ON IMPACT OF SERVIC E QUALITY ON CUSTOMER LOYALTY IN A PRIVATE PTF E PRO DUCTS MANUFACTURI NG C OMPANY, BANGALOR E 1

2

Dr. Lakshmi Jaganna than , Mrs. S Deepalakshmi , Ms Tar aya Srivilas

3

 ABSTRACT 

The most important asset of any organization is its customers. Customers who are satisfied will increase in number, buy more and buy more frequently. Increasingly manufacturing and service organizations are using customer satisfaction as the measure of quality. Customer satisfaction is one of the major purposes of Qua lity Mana gement systems. F rom customer perspective, Quality means meeting or exceeding customer expectations. The factors of performance, features, service, and warr anty are pa rt of the product or service quality; Therefore it is evident that product and service quality are important than pr ice. Customer ser vice is the set of activities an organization uses to win and retain customers' satisfaction. Organizations' that emphasize service never stops looking and finding ways to ser ve their customers better, even if their customers a re not complaining. P roviding excellent service is different from and more difficult to achieve than excellent product quality. In this research the impact of service quality on customer loyalty was identified in a PTFE product manufacturing company at Bangalore. For that sample of size 25 was taken by using stratified sampling considering Indian clients and Foreign clients as stra ta. Online questionnaires were sent and data was collected. Using suitable statistical techniques data was analyzed and interpretation and Suggestions were provided. Key wor ds:   Service Quality, Customer Satisfaction, Quality Management, Customer Loyalty

Introduction

In recent years, quality is a key competitive weapon in the global marketplace. Quality engenders competitive advantage by providing  products that meet or exceed customer needs and expectations. In other words, quality products and services are essential for firms seeking to compete globally. Research indicates that customer service has been influential on customer satisfaction.

new customers, create a pool of referrals for capturing new accounts, improve employee  productivity, satisfaction, and retention. Researcher reported two simple reasons for satisfaction being linked to loyalty: (1) satisfied customers are more likely to stay with the company, continue to buy from the company over the longer term, and to increase their expenditures; and (2) satisfied customers are more likely to tell others about their positive experiences, which generates new business for the company (E. Neumann, P. Williams and M. Sajid Khan 2009). It is possible for a customer to be loyal without being highly satisfied (e.g., when there are few other choices) and to be highly satisfied and yet not be loyal (e.g., when many alternatives are available) (Shankar ad Amy, 2002). According to Mittal et al. (1999) the relationship between satisfaction and loyalty changes over time. The relationship between satisfaction and loyalty is expected to be dependent on the quality of the product and services. However,

Customer satisfaction and loyalty are critical elements of long-term business growth and  profitability, usually because attracting new customers is more expensive than retaining existing ones. Higher customer satisfaction and loyalty can have a much broader impact on industrial business  by enabling them to achieve lower costs of selling, increase repeated purchases from existing customers, improve brand equity or price premium, increase retention rates for supplies sales, leverage satisfaction rates in marketing messages to attract 1 2 3

Professor and Head of the Department, Department of Management Studies , Dayananda Sagar College of Engineering, Bangalore. Assistant Professor, Alliance College of Commerce, Alliance University, Bangalore. Student , Department of Management Studies, Dayananda sagar Colleg e of Engineering, Bangalore.

58

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

service quality, product quality, customer satisfaction and loyalty can be measured at different stages, for example, at the beginning of the  purchase, and one or two years after purchase (Asghar 2011).

?

?

The aim of this research was to identify the impact of service quality on customer loyalty of this company.

?

?

Theoretical Fr amework of the Stud y ?

Service Quality

Customer service is one of the organizational  processes which companies perform considering the growing competition and for attracting entrepreneurial opportunities for increasing  profitability and better access to the market and increasing the customer satisfaction and loyalty level (Calif, 1987). According to Goofin and Prince (1996) customer service has higher value because it ends in increasing product quality, gaining competitive advantage, gaining profitable opportunities, and as a result increasing sales and income. Dimensions of Service Qu ality

Research suggests several quality elements will  predict satisfaction, positive word-of-mouth, and loyalty (dependent variables). A few of the elements have been studied in B2B relationships. Most of the elements have been researched only in business to customer (B2C) relationships. According to the study of these elements in B2B customer relationships, Kristen and Adam (2007) showed the dimension of service quality as following. ? Anticipating and meeting the underlying needs of the customer (Meeting specification)

How well the business fulfills the customers' requests (Response to meet exigencies/urgent requirements) Time required to address customers' needs (Time taken for developing customer's product) Effective communication with customers (Our response to customer's communication) Innovative at meeting customers' needs (Our response to customer's special requirement) Relative service quality

?

Follow-up on service performance (Resolution of customer's complaints) Invoice accuracy

?

Ability to minimize employee turnover 

?

1) Customer Loyalty

Customer loyalty is one of the most important issues organizations face today. Creating loyal customers has become more important due to significant increase in competition and concentrated markets. As suggested by several researchers (Kumar and Shah, 2004; Back and Parks, 2003; Bell et al, 2005 and Dean, 2007) there are two types of loyalty; behavioral and attitudinal loyalty. The behavioral aspects of the customer loyalty were characterized in terms of repurchase intentions (Nadiri, et al. 2008; Karatepe and Ekiz, 2004; Yi, 1990; Zeithaml et al., 1996). On the other hand, attitudinal concepts can be identified as  providing positive word of mouth (e.g. Zeithaml et al., 1996; Andreassen and Lindestad, 1998), recommending the service to others (Zeithaml et al., 1996), and encouraging others to use the service (Bettencourt and Brown, 1997).

Table 6.2: The different kinds of customer service in PTFE industry Customer Services in PTFE industry Research service Design service Information services Communication service Delivery service

Objective Research material requirement and material testing for customer. Design products to meet customers' specific needs Providing customer about products and services information. After sold, establish a long term relationship with customers for any request. Providing delivery service to customer as schedules

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

The literature review ended up with the research question “ Is there any impact of service quality on B2B Customers' loyalty in this PTFE products manufacturing company?”

companies in India all and all around the world. In that 25 companies are selected to be sample respondents by sampling method. The respondents are business-functional managers of the client companies. Multistage sampling method was used. At the first stage using stratified sampling two strata were identified as Indian clients and foreign clients. At the second stage convenience sampling method was used to select 15 from total of 50 Indian clients and 10 were selected from a total of 30 Foreign clients.

The objectives were framed from the research  problem as follows: 1. To identify the impact of service quality on customer loyalty at this company. 2. To find the relationship between satisfaction and loyalty of customers' at this company

2. Data collection plan

Resear ch Design

Primary data are original sources from which the researcher directly collect data that have not  been previously collected. Primary data plays an important role in the study of this kind.

Research design is the specification of methods and procedures for acquiring the information needed. It is the over-all operational pattern or framework of the project that stipulates what information is to be collected from which sources  by what procedures.

Primary data was collected through online questionnaire which was structured using Likert's five point scale for measurement. Some closed end questions and open end questions also were included in that questionnaire. These online questionnaires were sent to the respondents for data collection.

The research design selected for this research is descriptive research design. The major purpose of description of the state of affairs as it exists at  present. The characteristic of this method is that the researcher has no control over the variables: he can only report what has happened or what is happening.

Analysis and Inter pr etation

After data collected, collected data was analyzed to find the impact of service quality on customer satisfaction. For that Hypothesis 1 was framed as follows

1. Sampling plan

The study was conducted to find out customer loyalty so the population chosen for this research was client companies of this PTFE products manufacturing company. There are 80 client

Hypothesis1 : There is relationship between service quality and customer satisfaction at the company

Table 1: Serviced Quality Vs. Customer Satisfaction Overa ll satisfaction Overa ll satisfaction r ating with our r ating with our service quality company

.534**

Overall satisfaction Pearson Correlation rating with our service Sig. (2-tailed) quality  N

1 25

25

Overall satisfaction rating with our company

Pearson Correlation

.534**

1

Sig. (2-tailed)

.006

 N

25

.006

**. Correlation is significant at the 0.01 level (2-tailed).

60

25

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

This hypothesis was tested using correlation analysis. From table 1, it was come to know that p value is equal to 0.006 which shows that at 1% level of significance, overall satisfaction rating with service quality and about the company were correlated. This test showed that there is an impact of service quality on B2B customer satisfaction at the PTFE  product manufacturing company. In order to prove that there is a positive impact of service quality on customer loyalty, as per the literature review behavioral as well as attitudinal loyalty were checked. From figure 1, it was understood that nearly 60% of the respondents told that they definitely would continue repurchasing with the company and

was framed and tested. Hypothesis 2 : Customer loyalty is affected significantly by customer satisfaction at the company

From Table 2, it was come to know that p value is equal to 0.049which shows that at 5% level of significance, overall satisfaction rating with the company and repurchasing of the company  products were correlated. This test showed that customer loyalty is affected significantly by customer satisfaction at the PTFE product manufacturing company. Findings and Recommendations

Overall the Organization is performing well in maintaining customer satisfaction and creating customer loyalty. The majority of customers are definitely would recommend the company's  products and services to others and definitely would continue to repurchase with it. The company can continuously improve in quality especially in increasing customer satisfaction in accommodation/modification in delivery schedules and pricing for retaining existing customers and attract new customers. As this descriptive study provide evidence that customer loyalty is affected by customer satisfaction at this organization, it is essential to effectively maintain and improve customer satisfaction to increase the level of customer loyalty. Perceived quality can be measured by

remaining respondents told that they probably would continue repurchasing. No customer told that they would not continue repurchasing. It showed the behavioral loyalty of the customers of that company. From figure 2, it was understood that majority of the customers would recommend the company to others which showed the attitudinal loyalty of the customers. In order to find out whether customer satisfaction leads to customer loyalty, Hypothesis 2 61

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

Table 2:  Customer Loyalty Vs. Customer satisfaction Repurchasing with us

*

Repurchasing with us Pearson Correlation 1

.398

Sig. (2-tailed)

.049

 N Overall satisfaction rating with our company

Overall satisfaction r ating with our company

25

25 *

Pearson Correlation .398 Sig. (2-tailed)

.049

 N

25

1 25

*. Correlation is significant at the 0.05 level (2-tailed).

comparing customer's perceptions and expectations of company's service performance. In addition, this organization is already concentrating on quality improvement efforts to make their customers always happy and to attract new customers. In order to keep up the customer loyalty, the five variables on which the company should focus its attention for quality improvement are consistency, serviceability, features, responsiveness, and price. Finally, this organization has built its name on quality, innovation and customer service in PTFE industry. In order to retain customer satisfaction and improve customer loyalty, service quality requires a synergistic relationship between the firm and its internal and external customers. Conclusion

Customer Satisfaction and loyalty are two different concepts. To quote Patrick Mehne the chief Quality officer at Ritz Carlton Hotel company, L.L.C.: “Satisfaction is an attitude; Loyalty is a  behavior” Customers who are merely satisfied may often purchase from competitors because of convenience, promotions and other factors. Loyal customers place a priority on doing business with a  particular organization and will often go out of their way or pay a premium to stay with the company.

longer buy solely on the basis of price. They compare the total package of products and services that a business offers called 'consumer benefit  package 'with the price and with competitive offerings. If competitors offer netter choices for a similar price, consumers will rationally select the  package with the highest perceived quality. In addition to value, satisfaction and loyalty are influenced greatly by service quality, Integrity and the relationships that organizations build with the customers. As per the theory, from this research also, it is well understood that Customer satisfaction has a  positive impact on Customer loyalty. It is clear that customer loyalty and satisfaction are affected by service quality at this company shows that theory matches with it. This research can be extended to whole PTFE Manufacturing Industry and other industries to find the impact of service quality on Customer loyalty. References

Besterfield et.al., “Total Quality Management”,Pearson th Education Inc.,9 edition, 2003. J.M Juran, “Jur an on Qua lity by Design” (Newyork: The free  press, 1992), 7 (Andreassen and Lindestad, 1998): Andreassen, TorWallin and BodilLindestad,“ Customer loyalty and complex services”, International Journal of Service Industry Management, Vol.9 (1), 7-23.

Customer satisfaction occurs when products and services meet or exceed customer expectations. To exceed expectations an organization must deliver ever improving value to the customers. Value is quality related to price. Consumers no

(Asghar 2011): Asghar Afshar Jahanshahi,Mohammad et.al., “Study the Effects of Customer service and Product quality on customer satisfaction and Loyalty ”

62

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore Onternational Journal of Humanities and Social Science, Vol.1 No.7; June 2011,pp 253-260

satisfaction and loyalty: A study of hotel guests in  Nor th er n Cyp r us ”. Managing Service Quality, vol.14(6),pp 476-86

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63

TALENT MANAGEME NT PRACT ICE S AND ITS RE LATIO NSHIP WI TH EMPL OYEES TURNOVER: A STUDY ON EMP LOYEES WOR KING IN INSURANCE SECTO R I NDUSTR IES IN UTTARAKHAND: AN EMPIR ICAL STUDY Dr. D.S. Cha ubey*, Vishal Gup ta** ABSTRACT 

In the present economic circumstances the country is witnessing rapid expansion of industria l activity. With enrichment and enhancement of information & Communication Technology the complexity of human factor have also increased substa ntially. Insurance industr y in the country is  passing through the acid test. Human resource mobalisation has become the important element for the sur vival a nd growth of the organization. Today Human Resources function is expected to identify  potential talent and also comprehend, conceptualize and implement relevant stra tegies to enable and empower them to contribute effectively to achieve organizational objectives. Talent management refers to the process of developing and integrating new entrants, retaining current employees, and attracting highly skilled people to work for a company. Present research paper focus on understanding underlying factors of talent management stra tegies and its relationship with employee turnover in some selected insurance orga nization of Uttara khand. Research tr ied to know the organizational challenges of talent retention faced by the insurance organization in Uttar akhand. Study indicates some underlying factor s that company should exert some effort and undertake some analyses to determine the non-monetary interests and preferences of its key employees, and then attempt to meet these preferences in action. In this context organizations need to dig novel approaches of talent mana gement that is helpful to reta in the most effective manpower. Looking carefully into many organizations - retention str ategies a re very competitive. Key wor ds: Talent mana gement, talent retention, turnover ,human resource mobalisation etc.

employees profitably, has become increasingly competitive leading to the situation called "the war for talent”  between firms of strategic importance. A serious concern of every Human Resource manager, in order to survive this 'War for Talent', is to optimize attracting a limited and diminishing pool of qualified and available candidates to replace valuable employees when they leave- underscoring the challenge to motivate and retain the best talent in an organisation. Empirical study on the subject reveals only about 5 percent of organizations have a clear talent management strategy and operational  programs in place today.

Introduction In the present economic circumstances the country is witnessing rapid expansion of industrial activity. With enrichment and enhancement of information & Communication Technology the complexity of human factor have also increased substantially. Insurance industry in the country is  passing through the acid test. Human resource mobalisation has become the important element for the survival and growth of the organization. Today Human Resources function is expected to identify  potential talent and also comprehend, conceptualize and implement relevant strategies to enable and empower them to contribute effectively to achieve organizational objectives. Talent management refers to the process of developing and integrating new entrants, retaining current employees, and attracting highly skilled people to work for a company. The process of attracting and retaining

Talent management is a process that emerged in the 1990s and continues to be adopted, as more companies come to realize that their employees' talents and skills drive their business success. Companies that have put into practice talent management have done so to solve an employee

* Director, RCMCA, Roorkee **Research Scholar, Pacific University Udaipur (Rajasthan)

64

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

retention problem. The issue with many companies today is that their organizations put tremendous effort to attract employees, but spend little time to retain and develop talent. A talent management system must be worked into the business strategy and implemented in daily processes throughout the company as a philosophy to be practiced. It cannot  be left solely to the human resources department alone to attract and retain employees, but rather must be practiced at all levels of the organization. The business strategy must include responsibilities for line managers to develop skills of their immediate subordinates. Divisions within the company should be openly sharing information with other departments so that employees gain knowledge of the overall organizational objectives. Companies that have integrated plans and processes to track and manage their employee talent, focus on the following strategic issues: Sourcing, attracting, recruiting and on boarding ? qualified candidates with competitive  backgrounds Defining and Managing competitive salaries ? ?

Training and development

?

?

Performance Management Systems & Processes Career Planning & Retention programs

?

Promotion and transitioning

Branham clearly states that one major reason why people leave their organisations is because of the organisation's failure to bring about a correlation between pay and performance. Human Resource experts in the industry also believe that matching the right blend of talent with the right job profile can lead to superior performance. The present scenario with abundant opportunities has triggered a wave of employees,  perpetually “on the move”, seeking better opportunities whenever, wherever and however they can. What is behind the restlessness of these hard to keep employees? By focusing on  productivity, organisations are realising that it is imperative to hire employees who can do the job and be successful at it. The organisation no longer want to just hire for the sake of hiring; in fact they are striving to find the right people, bring them into the organisation and retain their services. One of the critical functions of HR is a sound Human Resource Planning through which they are able to project the demand for human resource and thereafter formulate strategies for acquiring them. As the leading HR heads of the country point out, the solution is not just about finding the correct retention mechanisms , but it starts from the very  beginning by devising ways to acquire the right  people for the right jobs. Or perhaps, there is another option - Talent Management “A conscious, deliberate approach undertaken to attract, develop and retain people with the aptitude and abilities to meet current and future organizational need” Organization need to have a vision and a well defined strategy on hiring for the future. India has become the outsourcing capital of the world and this has created its own set of HR challenges. India's biggest problem is that qualified graduates are becoming scarce. Despite the large population, the supply of talented manpower cannot keep up with the sharply increased demand. So, do we have the right talent within to attract and retain the best available talent? The supply side discussed puts pressure on companies to attract the best talent and ensure that employees join the company and choose to stay in the organization rather than look for opportunities

Today, companies have become fiercely competitive in action when it comes to attracting and retaining talent. According to Branham, 75 per cent of the senior executives admit that employee retention is a major concern today, the obvious reason being the 'increasing turnover'. This dynamic and volatile demand-supply equation with such erratic attrition trends and cut-throat competition has led organisations to focus on mechanisms to attract and retain talent. It is accepted that turnover will happen and companies need to device a strategy to curb unexpected turnover from affecting organisational effectiveness and success. Despite intense competition being the key to market development and success, organisations have failed to identify some of the major reasons which highlight why 'good performers' leave. In his study, 65

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

elsewhere. Present study is supposed to find out the talent retention strategies and its impact on business  performance with specific reference to some se le ct ed in du st ri es in Ut tr ak ha nd st at e. Accessibility of researcher with the respondents of some selected organisation of Uttrakhand state has motivated her to select them for proposed study. Review of Related L iterat ur e

In this fast-paced, cutthroat, wireless world of work, performance improvement and bottom-line  performance both depend on retaining the top talent. Companies can't take on the work, collect revenue, and grow unless there are people in place to do the work. In short, retaining top talent and  business performance go hand in hand in the new economy. Human resources of a company is saying to be one of the important capital is playing such an important role in the operation of an organisation. Pfeffer (1994) argued that human capital has long  been held to be a critical resource in most firms. Companies are now trying to add value with their human resources and human resource (HR) department has been set up in order to manage their human capital, where as organisation in last decade, managed their human capital trough personnel department which is only a small division of the company. Employees turnover has been studied from various aspects. One theory highlight that employees' decision to resign is influenced by two factors: their “perceived ease of movement”, which refers to the assessment of perceived alternatives or opportunity and “perceived desirability of movement”, which is influenced for instance by job satisfaction (Morrell et al., 2004; Abdullah et al., 2012). This describes how balance is struck both for the organization and its employees in terms of inducements, such as pay, and contributions, such as work, which ensures continued organizational efficiency. According to Meaghan et al (2002) the value of employees to an organization is a very crucial element in organizations success. This value is intangible and cannot be easily replicated therefore, it becomes very important that managers should

control employee turnover for the benefit of the organization. The current literature on employee turnover is primarily divided into three groups, viz: - sources of employee attrition, effects of employee turnover and the strategies used in order to minimize turnover. Incentive and Talent r etention

Incentives are monetary benefits paid to encourage executives with talent in recognition of their outstanding performance. The primary advantage of incentives is the inducement and motivation of talent for higher efficiency and innovative ideas. It may not be difficult to get  people for fixed wages and salaries. But with fixed remuneration, it is difficult to motivate executives to remain with the organization. Positive response will surely come when incentives are included as a  part of the total remuneration in the form of loyalty to the firm. Earnings of employees would be enhanced due to incentives. There are instances where incentive earnings exceed to three times the time rated wages or salaries. Increased earnings would enable the senior and mid-level employees to improve their standard of living. The company's  performance management systems must resonate with employees needs, and should assure well.Long-term incentive plans keeping an employee's interest in mind and creating the  proverbial 'win-win' between employees and the company. In managing talent and rewarding people companies still struggle the most with issues around  pay. According to Mueller and Price (1990: p. 321),  pay is considered as a part of the sanctions system used by the organization to motivate employees to  be in compliance with its regulations and rules. The wage payment plays an important role in their current as well as in possible future employment. The lower the salary is in his existent organization, the more an employer will aim to change this situation. Furthermore it is to assume, that better  paid employees within the same hierarchy level tend to stay in the organization (Henneberger &Sousa-Poza, 2007: p. 61). However, there are well-established literatures concerning motivation 66

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

(e.g. McGregor 1957) suggesting that for at least some individuals, pay is not the sole motivating factor. It is told that motivation has some link with  job choice and that pay will not be the sole criterion used when people decide to choose a job, or when they decide to continue within an existing job.

follow up telephonic calls were made in order to encourage respondents to complete and return the survey. After follow-up 125 questionnaires were returned. After editing 107 responses were found suitable which was taken up for the proposed study? Demographic characteristics are facts about the make up of a population. Demographic variables, also known as personal characteristics, are widely used in management research. Demographic determinants are examined to assess talent management practices and its relationship with employees turnover. Demographic variable such as age gender, marital status education qualification and tenure having direct bearing on Organizational strategies of talent management and in turn employees turnover The data obtained through surveys reveals that sample is dominated by middle age group younger lot , male and married and well educated people. It also reveals that sample is the composition of experienced person as almost 40% employees are having experience ranging from 5 years and above. 10.3% employees indicated that they are fresher and having

Employees talent and Business performance can also be enhanced by effective Recruiting and Training the employees. It is seen that many companies invest a lot of effort into recruiting these employees, but then do very little by way of talent management and talent development to retain them. Another way of managing talent is the employee development strategies by effective mentoring through structured mentoring programs. These can  be a very powerful tool in acclimating employees to the corporate culture and values.another way of talent management is giving high potential employees high visibility and meaningful assignments to keep them engaged. Stablishing the effective communication and investing in their learning and development and building proper system for measuring progress are also some the important strategies for managing talent in the organization.

Tab le 1 : Demographic determinants

Objectives and Research Meth odology

Age

The objective of this research work is to identify and understand underlying factors of talent management strategies and its relationship with employee turnover in some selected insurance organization of Uttarakhand. Another objective was to know the organizational challenges of talent retention faced by the insurance organization in Uttarakhand. . To achieve these objectives both quantitiave and qualitative methods were employed to understand talent management strategies and its relationship with employees turnover This research was conducted in some selected private and public sector insurance oranisation located in Dehradun district. A random sample of employees working in insurance organization was selected which included employees of various rank and file Surveys along with a cover letter explaining the significance and the need for conducting the same were sent to all 200employees across 10 different offices of Dehradun. In order to ensure a good response rate,

Count 18 22 24 33 10

Percentage 16.8 20.6 22.4 30.8 9.3

Gender

Male Female

79 28

73.8 26.2

Marital Status Education level

Married  Un Married  Up to matriculation Intermediate Graduation Post Graduation Professional Qualification Others Less than 1 year   1 to 3 years 3 to 5 years 5to 10 years 10-20 years years 20-30 years more than 30 years

70 37

65.4 34.6

2 4 29 50 21 1

1.9 3.7 27.1 46.7 19.6 .9

11 40 13 33 4 5 1

10.3 37.4 12.1 30.8 3.7 4.7 .9

Tenure

67

Category Upto 25 Years 25-35 Years 35-45 Years 45 to 55 Years From 55-65 Years

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

experience of less than 1 years. More than one third (37.4%) were having experience from 1 to 3 years. Pr inciple components an d Und erlying Factor of Talent Management Strategies : A Descriptive Study

Value propositions are the heart, soul, and epicenter of a business, because they reflect an org an iz at io n' s ma rk et po si ti on in g wh il e communicating the core promises that companies make to their customers. Qualitative data that was obtained both from questionnaires and interviews includes the different statement like Recruitment and selection process of my organization efficient and suitable and is able to attract talent, HR department use the most effective and efficient system of talent acquisition and management., My organization is attracting the right kind of  personnel that help it grow the organization., My organization Endeavour tries to design plan to help employee development, Each employees in this organization get equal opportunity and know how to get into the talent pool, My organization support the  policy of open communication and give one to one attention with all level of management for foster creativity, talent management system in this organization is transparent all help are provided to the employees for talent pool, Accelerated route are o pt e d in th e o rg a n iz a ti o n to e n h a n c e communication for talent progress, Organisation Supports managers to better know the composition of talent in their individual pools by stablishing  better communication, My organisation prepare a  plan to Assists with the timing of succession  planning decisions, the organization's priorities are well communication to all the level of employees., Employees in this organisation are always Ready For Advancement and movement, Employees in this organisation are always Well-Placed In their Role, Employees in this organisation are always Developed in their Current Role, Employees in this organisation are always requires a lateral move for .  better fit elsewhere in organizational structure, Employees in this organisation are given post retirement opportunity for knowledge sharing and knowledge transfering., I understand how my job aligns with the company's mission., A career

advancement opportunity that they would not receive in the short term when they stayed with their  present employer, This organization provide better opportunity for career development, My education and job matches well and gives me a feeling of achievement., The company stablish the proper progress monitoring system and recognizes my achievements., There are opportunities for me to develop my skill and improve my performance and grow in this organisation., experience, skills and performance are well recognized in this organisation, In the present organization, I am empowered enough to do my job., I have got freedom and I can make my own decision in my job., I always feel that my contribution is important in achieving organization mission, I am free to choose my own method of working. on which employees were asked to rate on the scale of 1 to 5 and mean and SD were calculated with the help of SPSS software and, was grouped into 8 important factor and this was done to make a comparative analysis of the data collected from interviews and the survey, which helped to identify talent management practices which influence employee to remain with the organization. The first, quantitative data obtained from surveys was analyzed using descriptive statistics technique in order to summarize the data set obtained. This provided a meaningful insight of various underlying factors of ta le nt ma na ge me nt pr ac ti ce s in fl ue nc in g employees to remain with present organization. These factors includes recruitment, Work autonomy and empowerment, Training and development, communication, Succession planning career development and opportunity for advancement, Promoting work autonomy creativity and innovativeness, Long term bonding and social security, Feed back system, . The mean and SD thus obtained of each factor is presented in the table below. An effort was directed to know the different factor of talent management There are various factors that influence an individual's decision to move or remain with the present organization. According to mean rating of different factor, feed  back system of the organization has scored highest mean of 3.243 with SD 1.2547. it was followed by 68

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

Table 2 : Principle components and Underlying Factor of Talent Management Strategies : A Descriptive Study  N Recruitment and Selection Policy Work autonomy and empowerment Training and development communication Succession planning career development and opportunity for advancement Promoting work autonomy creativity and innovativeness Long term bonding and social security Feed back system Valid N (listwise)

effective recruitment and selection policy of the orgaisation with the mean 3.2212 and SD .94365. Succession planning career development and opportunity for advancement ( Mean 3.0315 and SD.71393) has also influencing employees to remain in.

Std. Deviation .94386 .71078 .47884 .88610

107

3.0315

.71393

107

2.7103

.88498

107 107 107

3.0000 3.2430

1.22089 1.29470

Overall feed back system of the organization has scored highest mean in the employees among all the category.

It is seen from the above table that mean rating of Long Term Binding And Social Security has scored highest mean of 4.100 among the employees in the age group of 55-65 years. Recruitment and selection policy has scored highest mean in the age group of 35-45 years. However feed back has motivated a large number of respondents as this factor has been rated higher by all the respondents as it scored mean of 3.2727. It is seen from the above table that mean rating of Long Term Binding And Social Security has scored highest mean of 5.0000 among the employees of other professional qualification.

107 107 107 107

Mean 3.2212 2.3396 2.9720 2.9860

In the present economic and fast changing  business environment, “There are many challenge  before the management for talent retention . To retain the employees, one needs to understand the  pulse, needs & expectations of employees. Previous research proves that Salary is not one of the biggest components for employee retention. There are various other factor like Providing Job Challenges ,Building an open environment and culture ,Giving competitive remuneration packages ,Clarifying Job Responsibilities and career paths ,Providing continuous training opportunities for skill up gradation which are the great challenge before management to handle it. With this in mind an attempt was made to assess the employees opinion about Challenges in retaining employees in

Table 3 : Mean of Different Talent Management strategies across the age category of Respondents Age wise Classification

Upto 25 Years 25-35 Years 35-45 Years 45 to 55 Years From 55-65 Years Total

Recruitment and selection  policy

Work Autonomy And Empowerment

Training And Development

C om mu nica tion

Su ccession Planning Career Development And Opportunity For Advancement

Promoting Work Autonomy Creativity And Innovativeness

Long Term Binding And Social Security

Feed Back System

3.3889 2.9091 3.4306 3.2727

2.4630 2.7121 1.9444 2.3030

3.0926 3.0758 2.9306 2.8485

2.9583 2.8182 3.0937 3.1061

3.0463 2.9924 2.8681 3.0869

2.8333 2.4318 2.8333 2.8636

3.0000 2.6818 3.0000 2.8788

3.6111 3.5000 2.7917 3.2727

2.9333

2.3667

3.0333

2.7500

3.3000

2.3000

4.1000

3.0000

3.2212

2.3396

2.9720

2.9860

3.0315

2.7103

3.0000

3.2430

69

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

Table 4 : Mean of Different Talent Management strategies across the level of educational category of Respondents Edn Recruitment Work Training Communication Succession Promoting Long Qualification and Autonomy And Planning Work Term selection And Development Career Autonomy Binding  policy Empowerment Development Creativity And And And Social Opportunity Innovativeness Security For Advancement Up to 2.1667 2.0000 2.6667 2.2500 2.8333 2.2500 2.0000 matriculation Intermediate 3.0833 2.4167 2.5417 2.6250 2.7500 3.2500 2.5000 Graduation 2.9655 2.5517 3.0402 2.8190 2.9943 2.4138 3.0690 Post 3.5000 2.2533 3.0167 3.2050 3.0540 2.8700 2.9800 Graduation Professional 3.0317 2.2698 2.8730 2.8810 3.0794 2.7381 3.0476 Qualification Others 3.3333 2.3333 3.1667 2.0000 3.5000 1.5000 5.0000 Total 3.2212 2.3396 2.9720 2.9860 3.0315 2.7103 3.0000

Feed Back System

3.0000 2.5000 3.4138 3.3800 2.9048 2.0000 3.2430

Table 5 : Challenges in retaining employees in your organization Frequency

Valid 

Managing expectations of employees Matching person to the job Matching person to the culture of the firm Provide adequate opportunities for career growth and opportunities Treat employees fairly – through compensation, rewards and recognition schemes Total

organization. Analysis indicates that Managing expectations of employees is one of the most important challenges before management as it was indicated by 38.3% employees in the sample. Matching persons to the job was indicated by 25.2% employees where as Matching person to the culture of the firm, Provide adequate opportunities for career growth and opportunities and Treat employees fairly through compensation, rewards and recognition schemes was indicated by 16.8% 10.3% and 9.3% employees respectively. The employees who spend a considerable amount of time tend to be loyal and committed towards the management and always decide in favour of the organization. Management opt various

Percent

Valid Percent

Cumulative Percent

41

38.3

38.3

38.3

27

25.2

25.2

63.6

18

16.8

16.8

80.4

11

10.3

10.3

90.7

10

9.3

9.3

100.0

107

100.0

100.0

strategies like deliga tion of responsibility, managing disputes , hiring the right candidate, employees recognition stablishing proper  performance appraisal system, wage and salary administration, and effective HR policies to retain the employees into the organization. The survey reveals that Clarifying Job Responsibilities and career paths is one of the most important retention strategies as it was indicated by 29.9% employees in the survey. Giving competitive renumeration was indicated by 23.4% respondent in the sample. Building an open environment and culture was indicated by 20.6% , Providing continuous training opportunities for skill up gradation was indicated by 17.8% respondents . Providing Job Challenges was 70

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

Table 6 : Employees Opinion about Most Important retention strategies Frequency Providing Job Challenges Building an open environment and culture Giving competitive remuneration  packages Valid  Clarifying Job Responsibilities and career paths Providing continuous training opportunities for skill up gradation Total

Percent

Valid Percent

Cumulative Percent

9

8.4

8.4

8.4

22

20.6

20.6

29.0

25

23.4

23.4

52.3

32

29.9

29.9

82.2

19

17.8

17.8

100.0

107

100.0

100.0

Table 7 : Overall talent retention strategies of the present organization influence you to remain with  present organisation Frequency

To a great extent To a considerable extent Valid  To some extent To a little extent  Not at All Total

Percent

20

18.7

Valid Percent 18.7

29

27.1

27.1

45.8

17 25 16 107

15.9 23.4 15.0 100.0

15.9 23.4 15.0 100.0

61.7 85.0 100.0

indicated by 8.4respondents in the sample. Talent is the critical success factor to any organization. Talent pool management is the most challenging area to any organization. The challenge of finding, attracting, developing and retaining the right talent is taking up a major part of management and once the right talent is found the next demanding job is to retain that talent. Retaining employees involves understanding the intrinsic motivators of them which many organizations unable to identify. The reason is Individuals differ greatly in this regard. The analysis indicates that 18.7% employees in the sample are of the opinion that overall talent retention strategies of the present organization influence then to a great extent to remain with present organization. 27.1% employees are of the opinin that overall talent retention strategies of the present organization influence them to a considerable extent to remain with present

Cumulative Percent 18.7

organization. 15.9% indicated to some extent where as 23.4% and 15% respondent respectively revealed that it influenced them to a little extent and not at all. A regression analysis was carried out to have a relationship of all the talent management ractices with the employees willingness to remain with the  present organization . On the basis of information  presented in the table 16 it can be expressed as Employees willingness to remain with present organization (Y) =-.174- Recruitment and Selection Policy -337 Work autonomy and empowerment+ .577 Training and development+.099 communication +.135 Succession planning career development and opportunity for advancement+.137 Promoting work autonomy creativity and innovativeness +.053 Long term  bonding and social security-.054 Feed back system 71

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

Table 8 : Regression Coefficients (a)

Model 1 (Constant) Recruitment and Selection Policy Work autonomy and empowerment Training and development communication Succession planning career development and opportunity for advancement Promoting work autonomy creativity and innovativeness Long term bonding and social security Feed back system

Unstandardized Standardized Coefficients Coefficients B Std. Beta Error  .174 1.264

t

Sig.

B

.138

Std. Error  .891

-.337

.173

-.232

-1.946

.056

.577

.226

.317

2.550

.013

.365

.316

.137

1.153

.253

.099

.203

.055

.488

.627

.135

.259

.064

.524

.602

.197

.213

.110

.921

.360

.059

.131

.053

.455

.650

-.054

.137

-.052

-.398

.692

a Dependent Variable: overall environment and Switching Intentin

manpower. Looking carefully into many organizations - retention strategies are very competitive. Companies try to provide their best to retain the employees of their competitors

Conclusions

Insurance industry in the country is passing through the acid test. Human resource mobalisation has become the important element for the survival and growth of the organization. Today Human Resources function is expected to identify potential talent and also comprehend, conceptualize and implement relevant strategies to enable and empower them to contribute effectively to achieve organizational objectives. Talent management refers to the process of developing and integrating new entrants, retaining current employees, and attracting highly skilled people to work for a company. The process of attracting and retaining employees profitably, has become increasingly competitive A company should exert some effort and undertake some analyses to determine the nonmonetary interests and preferences of its key employees, and then attempt to meet these  preferences in action. In this context organizations need to dig novel approaches of talent management that is helpful to retain the most effective

References

Mueller, C.W. & Price, J. (1990). Economic, Psychological, and Sociological Determinants of Voluntary Turnover. Jour nal of Behaviora l Economics 19, 321-336. Mueller, C.W.,Wallace, J.E., (1996). Justice and the Paradox of the Contented Female Worker.Social Psychology Quarterly 59, 338349. Morrell, K., Loan-Clarke, J. & Wilkinson (2001). Unweaving Leaving: The Use of Models in the Management of Employee Turnover. Business School Research Series, 165. Meaghan Stovel, Nick Bontis (2002), Voluntary turnover: knowledgemanagement-friend or foe? J. intellect. Cap. 3 (3): 303-322 Pfeffer, J. (1994). Competitive advantage through people. Boston: Harvard Business School Press . Pfeffer, J. (1996). When it comes to "best practices'-Why do smart organizations occasionally do dumb things? Organizational Dynamics, 25, 33-44 .

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SERVICE QUALIT Y MEASUREMENT IN L IFE INSURANCE SECTOR  -A HOT P HENOMENON IN TODAY'S COM MERC IALIZE D WORLD Shivani Nischal*  ABSTRACT 

Service quality is a term which describes a compar ison of expectations with performance. This aim may be achieved by understanding and improving operational processes; identifying problems quickly and systematically; establishing valid and reliable service performance measures and measuring customer satisfaction and other performance outcomes. The article explains various concepts related to qua lity and measurement of service in various sector of commercialised world. The gap model (also known as the "5 gaps model") of service quality is an important customersatisfaction framework has been discussed in the paper with linkage to customer's satisfaction in life insurance sector. A wide review based literature a nd theoretical observations in the pa per ela bora ted the various a reas in which the service quality measurement has widen its ar ms and still growing need of the study is felt at various dimensions and research should be carrying on this particular field to investigate further about Service Quality Measurement. The earlier studies on measurement of customer perceived service quality were very few in the life insurance industry, more so in the Indian context. So, the topic therefore needs to be investigated. Keywords:  Service Quality Measurement, Literature Review, Life Insurance Sector, Gap Model,

Customer Satisfaction.

Introduction

“Quality is whatever customers say it and the quality of particular product or service is whatever customer perceives to be” Thus the emphasis is on the customer and the perceived quality. Quality is an elusive and indistinct construct. Often mistaken for imprecise adjectives like "goodness, or luxury, or shininess, or weight" (Crosby 1979), quality and its requirements are not easily articulated by consumers (Takeuchi and Quelch 1983). Explication and measurement of quality also  present problems for researchers (Monroea and Krishnan1983), who often bypass definitions and use unidimensional self-report measures to capture the concept (Jacoby, Olson, and Haddock 1973; McConnell 1968; Shapiro 1972). All organizations in manufacturing or in service business - encounter difficulties in attaining Quality. During the last few decades extensive work has been done to identify and solve quality problems in manufacturing sector. With increasing competition, the product characteristics are becoming difficult to differentiate. Customers have started considering Service features to make buying decisions. Quality has been generally defined as “fitness for use” and

“those product features which meet customer needs and thereby provide customer satisfaction” These  basic definitions are commonly accepted and can also be applied in service management. However when it comes to more specific service quality attributes and dimensions a wide variety of models and frameworks exist and there is an intense discussion on service quality measurement in different industry contexts. In particular, traditional concepts and measures of service quality and customer satisfaction have been questioned in the  business-to-business environment. Let us look at some of the critical characteristics and design 1 requirements in Service Quality . Review of litera tur e

Rand graham k. (2004) in his study “Diagnosis and improvement of service quality in the insurance industries of Greece and Kenya” identified determinants of quality and existing quality gaps in the insurance industries. Researcher also suggested quality improvement strategies regarding each case. SERVQUAL metrics had been used to diagnose the quality of service in the insurance industries of Greece and Kenya. A well structured questionnaire

* Research Fellow, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar 

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had been used to collect data from the sample of 84 insurer's and 126 insured's from the four major insurance companies of Kenya and 168 respondents from Greece insurance industry. GAP analysis of  both insurance industry suggested that (a) the most deficient dimensions were empathy and reliability found in Greek insurance industry & reliability and responsiveness were the most deficient dimensions of service quality in Kenya insurance industry, (b) comparative analysis stated that quality gap  between these two insurance industries were largely similar as the dimensions of reliability and empathy were the deficient part of service quality.

The results of multiple regression indicated that the main predictor of service quality was responsiveness dimension of service quality measurement in both insurance companies. Ahmad Affiaine and Zalina Sungip (2008) in their study,” An assessment of service quality in Malaysia insurance industry” evaluated customer's expectations in general and perceptions in ordered to identify gaps between both about the services offered at insurance service counter on the basis of service quality dimensions. The study further examined relationship between demographic variables selected and SERVQUAL mean scores. Data had been gathered from the sample of 319  policyholders through a structured questionnaire  based on SERVQUAL dimensions revenant for the  purpose of the study which contained personal information, customers' expectations and customers' perceptions. Various techniques such as descriptive statistics, independent sample T-test, Ftest, Anova had been used to analyze the data. Researcher conducted gap analysis on the basis of five dimensions of SERVQUAL i.e. tangibility, reliability, responsiveness, assurance and empathy. Findings of the study revealed that (a) customers expect highest (6.409) on responsiveness dimension and expect lowest (5.571) on tangibles dimension (b) the gap of service quality dimensions for reliability indicated (2.422) large gap and technology indicated (0.811) small gap. The study concluded that tangibles which were perceived by customers nearly met and reliability emerged as most critical determinant of SERVQUAL measure of service quality which showed highest gap  between perceived and expected Service quality In Malaysia Insurance Industry.

Marwa Simmy and Rand K. Grahm (2004) in their study “Quality improvement in the Greek and Kenyan Insurance industries” measured service quality with the identification of quality gap in the Greek and Kenyan insurance industries. The SERVQUAL metric had been used towards quality measurement in both industries through well structured questionnaire based upon SERVQUAL dimensions i.e. tangibility, reliability, responsiveness, assurance and empathy. A sample of 168 and 210 respondents had been chosen from Greek and Kenya insurance industries respectively. The findings revealed that (a) In the both industries, reliability was most deficient part while measuring service quality, (b) Greek insurance industry depicted reliability and empathy as most deficient dimensions, (c) In Kenya insurance industry, the most deficient dimensions were reliability had responsiveness showing highest gaps in terms of  perceptions and expectations of service quality. Goswami Paromita (2007) in her study “Customer satisfaction with service quality in life insurance industry in India” attempted to identify various dimensions related to service quality that ensure maximum customer satisfaction and provide help to insurers to capture large market share. A well structured questionnaire was designed to collect data from the sample of 232 respondents in Kolkata, a cosmopolitan city. Two database samples were selected from LIC and ICICI prudential life insurance. SERVQUAL scale and regression were tools had been employed to measure service quality.

Yusuf Tajudeen olalekan, Ayantunji Gbadamosi and Dallah Hamadu (2009) in their study “Attitudes of Nigerians towards insurance services: An empirical study” measured the attitudes of  Nigerians towards insurance services through the effect of socio-cultural and demographic factors. A sample of 500 respondents had been chosen in Lagos, Nigeria through simple random sampling technique. A set of set of structured questionnaire contained 39 questions out of which 9 questions 74

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

were related to demographic factors and 7 were likert scale items and remaining 23 deals with market strategies. Descriptive statistics like F-test, T-test were used to analyze the data collected for the  purpose of the study. The study concluded that age, marital status, professi on, work ing status, educational status, household income, and property ownership had significant and greater positive attitude towards insurance except gender which had insignificant attitude towards insurance service quality in Nigeria. Siddiqui Masood H. and Tripti Ghosh Sharma (2010) in their study “Measuring the customer  perceives service quality for life insurance services: an empirical investigation” measured customer  perceived service quality in life insurance sector. A well structured questionnaire had been used for the collection of data from the sample of 868 respondents from various cities i.e. Lucknow, Delhi, Mumbai, Bangalore, Kolkata. Various analytical techniques were employed such as exploratory factor analysis, SERVQUAL, Analytical hierarchy process to analyze the data. The findings of the study revealed that (a) Six dimensions such as assurance, personalized financial planning, competence, corporate image, tangibility and technology were extracted from the outcome of SERVQUAL instrument, (b) Results of analytical hierarchy process highlighted that assurance is the best predictor of service quality followed by priority wise other dimensions of service quality such as competence, personalized financial planning, corporate image tangibility and technology (c) gap scores indicated that improvement zone is greater in all dimensions of service quality. The study concluded with the suggestion that findings should be transformed into effective strategies for the achievement of customer satisfaction and loyalty. Khare Arpita and Shaveta Singh (2010) in their study- “Antecedents to Indian customers towards online insurance services” analyzed the attitude of customers towards online insurance services of Indian insurance companies. Structured questionnaire had been used to collect data from the sample of 192 respondents in the cities of Northern

India. Various tools such as group statistics, correlation, Anova and regression had been used to analyze the collected data. the results indications were (a) the mean and standard deviation revealed little difference between males and females on the four variables of online insurance i.e. Accessibility factors, security factors, attitude factors and availability of information (b) Pearson correlation indicated significant and strongest correlation between attitude and security (0.401), (c) Anova results indicated (i) no difference regarding attitude towards online insurance between various age groups except group differences towards security (0.030) and attitude (0.003) which were significant, (ii) only security factor revealed significant difference related to gender and accessibility revealed significant difference (0.015) of knowledge and awareness of customer about online insurance, (iii) Multiple regression indicated that only security factor was significant and the best  predictor of attitude of customers towards online insurance. Siddiqui Masood H. and Tripti Hosh Sharma (2010) in their study “Analysing customer satisfaction with service quality in life insurance services” explored the dimensions of consumer  perceptions of service quality towards life insurance sector. The study also estimated the multiple and inter-related casual relationships among perceptual service quality dimensions with the overall satisfaction with life insurance services. A sample of 868 respondents had been chosen to collect the data through a well structured questionnaire from the various cities like Delhi, Lucknow, Bangalore, Mumbai and Hyderabad. Exploratory factor analysis had been used to study various dimensions related to perceptions of  policyho lders towards service quality an d structured equation modeling had been used to study the causal and multiple relation between  perceptual service quality dimensions and overall satisfaction. The results indicated that: (a) six factors had been extracted namely assurance (52%),  personalized financial planning (65%), competence (70%), tangibles (73%), corporate image(76%) and technology(78%) which explained the respectively stated percentage of cumulative variance, (b) 75

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assurance was the major predictor towards “satisfaction with agent”, (c) competence was the major pred ictor towar ds “satisfac tion with functionality services” and “satisfaction with company” (d)out of three major constructs, satisfaction with functional services with higher 0.883 loading coefficient better explain the overall satisfaction through structured equation modeling.

construct representing (a) proficiency, (b) media and presentations, (c) physical and ethical excellence, (d) service delivery process and purpose, (e) security and dynamic operations, (f) credibility and (g) functionality had been extracted measuring customers perceptions about service quality of Life Insurance Corporation of India. Jajaee Sharareh Mansouri and Fauziah Binti Sheikh Ahmad (2011) in their study “A study in the perceived service quality in Australian car insurance industry” measured service quality of car insurance by employing SERVQUAL scale which is an accepted instrument for measuring service quality. An online questionnaire had been used to collect data from sample of 384 respondents residing in Melbourne, Australia. Respondents were selected from 40 major insurance companies. Descriptive statistics and SERVQUAL instrument had been used to analyze the data collected for the purpose of the study. The mean or average of each question answered by participants were greater than mean of population so the results indicated that service quality of car insurance industry was high and mean (4.27) was greater than population mean(3).

Upadhyaya Deepika and Manish Badlani (2011) in their study “Service quality perception and customer satisfaction in life insurance companies in India” indentified key success factors and importance of technology to improve service quality in life insurance industry in terms of customer satisfaction so as to survive in intense co mpetition. A samp le of 206 insuranc e respondents had been chosen from major cities of Rajasthan and Maharashtra. Researcher used SERVQUAL model for measuring service quality across a broad range of service categories and discipline. A well structured questionnaire had been used to collect the data through e-mail. Findings of the study revealed that: (i) tangibles and assurance features of LIC insurance service were good as compared to reliability, responsiveness and empathy, (ii) nine factors had been extracted to identify the dimensions of service quality affecting customer satisfaction (iii) the study indicated higher satisfaction level but suggestions had been made to improve the service quality and customer satisfaction level in life insurance companies in India.

Ifejionu Samson and Stella Toyosi (2011) in their study “customer evaluation of the quality of insurance services in Lagos, Nigeria” attempted to evaluate customer's assessment of service quality of insurance services. A well structured questionnaire had been used to collect data from sample of 212 respondents in Lagos state, commercial capital of Nigeria. Descriptive tools such as percentages and tabular percentages had been used to analyze the collected data. The findings of study indicated that: (a) customers of life insura nce companies un de rtook prompt claim settlement wh ich explained highest variance (71.2%) perceived as most important factor for the measurement of service quality followed by the subsequent factors such as premium charged (50.9%), premises (49.1%), caring for customers (45.3%), association with other organization (39.2%), ability to reach customers (39.2%), deployment of technology (36.8%), staff coordination(336.3%), financial incentives (35.8%) and advertisements (32.1%)

Sandhu H.S. and Neetu Bala (2011) in their study “customer perceptions towards service quality of life insurance corporation of India: A factor analytic approach measured customer's  perceptions towards service quality of life insurance corporation of India. A sample of 337 respondents had been driven from 3 major cities of Punjab. Various tools such as descriptive statistics, items and reliability analysis, exploratory factor analysis, multiple regression had been used to measure customer perceptions towards service quality. A well structures questionnaire had been used to collect data for the purpose of the study. The findings of the study revealed that seven factor 76

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

respectively. Bala Neetu and H.S. Sandhu (2011) in their study “Analysis of factors influencing agents'  perceptions towards Life Insurance Corporation of India” investigated the major factors that influenced agents perceptions towards life insurance. A sample of 225 respondents had been selected from 3 cities of Punjab namely Amritsar, Ludhiana, Jalandhar and Factor Analysis had been used to analyze the data collected by well structured questionnaire  based upon 23-item perception scale. The results revealed that (1) staff co-ordination (20.9%) is the major factor that influenced customer perceptions followed by other six factors which are: (a) customer target (14.69%), (b) competitive advantage predicators (10.25%), (c) material hallmarks (7.95%), (d) promising products and  process (6.336%), (e) service enhancements (5.544%), (f) exclusive attention (4.753%), explaining respective variances and (2) one way anova analysis indicated no statistical difference existed among various group of respondents with respect to their perceptions towards life insurance corporation of India. Farivor Farveh, Mohammad Khanbashi and Osven Emaeelinezhad (2011) in their study “The analysis of different customers and employees  perceptions from service quality in the insurance industry of Iran” analyzed and differentiate the customers and employees perceptions about the insurance industry. Research questionnaire was framed from various dimensions of SERVQUAL model. A sample of 254 respondents had been selected consisting employees and customers. Pearson, Kolmogorov smrirnov, T-test were various statistical tools employed to analyze the collected data. The findings of the study revealed that (a)  perceptions of both groups towards all dimensions were similar except tangibility dimension (ii) there was significant difference between customers and employees towards tangibility dimension of measuring service quality. Rajehwari k and S. Kartheeswari (2011) in their study “Perceptions of customers towards life insurance services” tried to explore perceptions of the policyholders towards LIC of India on the basis

of five dimensions of SERVQUAL. A well structured questionnaire had been used to collect data from the sample of 380 policyholders from Virudhunagar district of Tamilnadu. Researchers also examined the various significant relationships  between demographic factors and SERVQUAL mean scores. Various tools like descriptive statistics and percentages had been used to analyze the data. The findings of the study revealed (a) Responsiveness impact occupied the first place with Standard deviation (4.44) which is least among all dimensions showing consistence in the  perceptions of the respondents and tangibility dimension showed highest variation in perceptions with standard deviation (4.96), (b) Relationship  between various demographic factors like gender, age, marital status, income and perceptions showed insignificant relationship, (c) only assurance dimension showed significant relationship(0.029)  between occupation and perception mean scores. The study concluded that different personal variables had no influence on the perception scores. Toloir Abbas, Mohammad-Ali-Nasimi and alireza Poorebrahimi (2011) in their study on “Assessing quality of insurance companies using multiple criteria decision making” tried to assess the quality of service of insurance companies. Multiple criteria decision making had been used for the assessment of performance of insurance companies. The study specified many aspect related to quality of services which are tangible and subjective in nature. A well structured questionnaire had been used to collect data from sample of 196 respondents of Iran. AHP method, TOPSIS method had been used to study average important level of each criteria and ranking quality of insurance companies. The finding of study revealed that: (a) the main specific dimensions for which customers are seriously concerned about all physical aspects of the services and less worried about harmony, (c) TOPSIS ranking resulted B company (0.83) was the  providing best service quality in insurance companies. Sharma Ravikant and M.R. Bansal (2011) in their study “Service quality assessment in insurance sector, A comparative study between Indian and 77

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Chinese customers” focused on the development of valid and reliable instrument to measure service quality and comparing these between Chinese and Indian insurance companies. A well structured questionnaire based upon SERVQUAL dimensions had been used to collect data from 145 and 242 respondents in China and India respectively. SERVQUAL instrument and Factor analysis had  been used to analyze the data. The findings of the study revealed that (a) gaps were positive for first two dimensions i.e. tangibility and competence for  both Indian and Chinese customers ensuring customer satisfaction and rest four factors that were corporate image, technology, personalized financial  planning and assurance showed negative gap indicating customer's dissatisfaction, (b) Adequate number of branches, simple and less time consuming procedure for purchasing a policy, financially stable company, value for money and all the variables of personalized financial planning, assurance and technology revealed higher level of customer dissatisfaction through component wise analysis, (d) the both sample customers had very similar perceptions and expectations on the various dimensions of service quality.

should design their services according to customer expectations to attain higher customer satisfaction. Theoretical Observations

Over the past few years, there has been a considerable research on different aspects of service quality leading to a sound conceptual base for both  practioners and researchers. Authors (Parasuraman et al., 1988; 1991; Carman, 1990) agree that service quality is an abstract concept, difficult to define and measure. Some of the contemporary definitions of service quality are summarized in Table 1. On service quality modeling, Gronroos (1984) divides the customer's perceptions of any particular service into two dimensions, namely technical and functional quality. Parasuraman et al. (1985) proposed the gap model of service quality that operationalised service quality as the gap between expectation and  performance perception of the customer. Later on, service quality has also been defined  broadly as “consumers' assessment of the overall excellence or superiority of the service” (Zeithaml et al., 1993). It is viewed as an attitude or global  judgment about the overall excellence of a service, with comparison of expectations and performance as the measuring tools. Researchers have tried to operationalize service quality from different  perspectives for different service applications. Based on their conceptual and empirical studies, researchers derived and proposed different service quality dimensions for various service applications. However, the most widely used service quality measurement tools include SERVQUAL (Parasuraman et al., 1988; Boulding et al., 1993) and SERVPERF (Cronin and Taylor, 1992). SERVQUAL scale measures service quality, based on difference between expectation and performance perception of customers using 22 items and five-dimensional structure. In the SERVPERF scale, service quality is operationalised through performance only score  based on the same 22 items and five dimensional 2 structure of SERVQUAL . Parasuraman et al. (1988) developed the SERVQUAL scale a

Barik Bhagabat (2012) in his study “Customer expectation about insurance product in Indian life insurance industry” tried to (i) understand the expectation of policyholders towards life insurance  product, (ii) judge the various factors which directly or indirectly impacting customer expectation and satisfaction, (iii) describe the practices followed and present situation of life insurance sector regarding customer expectation, (iv) provide a modified dimension to new entrants for life insurance companies market in India. Data was collected from multiple sources such as books,  journals, websites, magazines, personal and telephonic interviews and discussions with corporate personalities and policyholders of life insurance products. Exploratory research methodology had been used to analyze the data. The study concluded that life insurance sector is grooming one and expectations of customers have  been increasing in terms of policy bond, claim, relationship building, and technology. Researcher thereby suggested that life insurance companied 78

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

widespread instrument to measure both the expectations and the service perceptions of customers. This twin scale consists of 22 items. The size of the gaps between internal customers' service expectations and their perceptions indicate the level of dissatisfaction. Expectations and  perceptions are measured across 5 dimensions of 3 service quality .

forming service expectations due to limited understanding of and familiarity with the service (Johnston et al., 1984). At the same time, because of the amount of money that is typically invested in an insurance policy, customers seek long-term relationships with their insurance companies and respective agents in order to reduce risks and uncertainties (Berry, 1995). Pure services like insurance may, therefore, conjure different expectations than that of services that include tangible products (Toran, 1993). An insurance  policy is almost always sold by an agent who, in 80% of the cases, is the customer's only contact (Richard and Allaway, 1993; Clow and Vorhies, 1993; Crosby and Cowles, 1986). Customers are, therefore, likely to place a high value on their agent's integrity and advise (Zeithaml et al., 1993) The quality of the agent's service and his/her relationship with the customer serves to either mitigate or aggravate the perceived risk in  purchasing the life insurance product. Putting the customer first, and, exhibiting trust and integrity have found to be essential in selling insurance (Slattery, 1989). Sherden (1987) laments that high quality service (defined as exceeding “customers' expectations”) is rare in the life insurance industry  but increasingly demanded by customers.

Tangibl es : Physical facilities, equipment and

appeara nce of personnel. Reliability: Ability to perform the promised

service dependably and accura tely. Responsiveness: Willingness to help customers

and provide prompt service. Assurance: Knowledge and courtesy of

employees and their ability to inspire trust and confidence. Empathy: Caring, individualized attention the

firm provides for its customers. Ser vice quality in Life Insur ance

Life insurance providers offer services that are credence products with very few clues to signal quality. It has been suggested that consumers usually rely on extrinsic cues like brand image to ascertain and perceive service quality (Gronroos, 1984). This factor is especially true for a “pure” service such as insurance, which has minor tangible representations of its quality and is highly relational during most transactions. There is also a lack of  price signal in the market due to specialized customer needs and difficulty in comparing prices; thus consumers cannot rely solely on price as an extrinsic cue to signal quality. The outcomes of life insurance purchase are often delayed, and thus do not allow immediate post-purchase valuation. As such, the consequences of a purchase do not  produce an immediate reaction towards overall satisfaction. This situation is more apparent as the future benefits of the “product” purchased are difficult to foresee and take a long time to “prove” its effects (Crosby and Stephens, 1987). Infrequent  purchase and “usage” of such credence products by consumers would mean an inability or difficulty in

Toran (1993) points out that quality should be at the core of what the insurance industry does. Customer surveys by Prudential have identified that customer want more responsive agents with better contact, personalized communications from the insurer, accurate transactions, and quickly solved  problems (Pointek, 1992). A different study by the  National Association of Life Underwriters found other important factors such as financial stability of the company, reputation of the insurer, agent integrity and the quality of information and guidance from the agent (King, 1992). Clearly, understanding consumers' expectations of life insurance agent's service is crucial as expectations serve as standards or reference points against which service performance is assessed (Walker and Baker, 2000).Technology has also become an important factor in how the agent operates in the field including other functions such as distribution, claim costs and administration (Anonymous, 2004). 79

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Research has shown that the quality of services and the achievement of customer satisfaction and loyalty are fundamental for the survival of insurers. The quality of after sales services, in particular, can lead to very positive results through customer loyalty, positive WOM, repetitive sales and crossselling (Taylor, 2001). However, many insurers appear unwilling to take the necessary actions to improve their image. This creates problems for them as the market is extremely competitive and continuously becomes more so (Taylor, (Taylor, 2001).

expect and what managers think they expect Clearly survey research is a key way to narrow this gap.

It is therefore not surprising that measurement of service quality has generated, and continues to generate, a lot of interest in the industry (Wells (Wells and Stafford, 1995). Several metrics have been used to gauge service quality. In the United States, for example, the industry and state regulators have used "complaint ratios" in this respect. The “Quality Score Card”, developed by QIC and RIMS, has also  been used. However, both the complaints ratios ratios and the quality scorecards have been found to be deficient in measuring service quality and so a more robust metric is needed. Although service quality structure is found rich in empirical studies on different service sectors, service quality modeling in life insurance services is not adequately investigated. Further, for service quality modeling, a set of dimensions is required, but there seems to be no universal dimension; it needs to be modified as  per the service servi ce in considera cons ideration. tion. Thus, the dimensions issue of service quality requires re4 examination in context of life insurance services .

Gap 2 is between management perception and the actual specification of the customer experience - Managers need to make sure the organization is defining the level of service they  believe is needed.

?

Gap 3 is from the experience specification to the delivery of the experience - Managers need to audit the customer experience that their organization currently delivers in order to make sure it lives up to the spec.

?

Gap 4 is the gap between the delivery of the customer experience and what is communicated to customers - All too often organizations exaggerate what will be provided to customers, or discuss the best case rather than the likely case, raising customer expectations and harming customer perceptions.

?

Finally, Gap 5 is the gap between a customer's  perception of the experience and the customer's expectation of the service - Customers' expectations have been shaped by word of mouth, their personal needs and their own past experiences. Routine transactional surveys after delivering the customer experience are important for an organization to measure 7 customer customer perceptions perceptions of service service .

The L ink between Ser Ser vice vice Quality and customer customer satisfaction

5

Ser Ser vice vice Quality Gap Model

Service quality and customer satisfaction are inarguably the two core concepts that are at the crux of the marketing theory and practice (Spreng and Mackoy, 1996). In today's world of intense competition, the key to sustainable competitive advantage lies in delivering high quality qu ality service that will in turn result in satisfied customers (Shemwell et al., 1998). Oliver (1997) describe satisfaction as “the consumer's fulfillment response, a post consumption judgment by the consumer that a service provides a pleasing level of consumptionrelated fulfillment, including under- or overfulfillment”. Service quality is renowned as a multidimensional construct. Its dimensions often vary

The gap model (also known as the "5 gaps model") of service quality is an important customersatisfaction framework. framework. In "A conceptual model of service quality and its implications for future research" (The Journal of Marketing, 1985), A. Parasuraman, VA Zeitham and LL Berry identify five major gaps that face organizations seeking to meet customer's expectations of the customer 6 experie experience nce . The five gaps that organizations should measure, manage and minimize: ?

?

Gap 1 is the distance between what customers 80

Service quality measurement in life insurance i nsurance sector - A hot phenomenon in today's commercialized World  World 

Fig. 1 : The Integrated Gap Model of Service Quality (Parasuraman, zeithaml, berry 1985)

from one researcher to other researcher, but still there is some harmony that service quality mainly consists of three major features: “outcome quality, quality, “interactio n quality, quality, and “physical service environment environment quality” quality” (Brady & Cronin, Cronin, 2002).  Numerous researchers more elaborate on subaspects of these three broad dimensions e.g., the most popu lar construc con struc t of service serv ice quality qua lity SERVQUAL SERVQUAL have five dimensions: dimensions: “tangibles”, “reliability”, “responsiveness”, “empathy” and “assurance” (Parasuraman et al., 1988). The tangibles dimension contact with physical enviro environme nment nt aspect aspect,, the reliab reliabili ility ty dimens dimension ionss corresponds with service outcome aspect and remaining three signify interaction interaction quality aspect.

Service quality is an precursor of the broader theory of customer satisfaction (Lee et al., 2000; Buttle, 1996) and the relationship between be tween loyalty and service quality is intercede by satisfaction satisfaction (Caruana, 2002; Fullerton & Taylor, 2002). Although the organizations organizations are operating in service sector know that the service quality is of key factor for succes successs at nation national al and intern internati ational onal level level (Berry (Berry et al., 1989). even then companies were found that the instrument of service quality is relatively less appropriate in other than developed countries because of cultural context which lead to unsa tisfa ctor y and ina ppro pria te sale s and marketing approaches in those cultural contexts (Laroche et al., 2004). In today's economy, service 81

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quality has come out as critical component for the top management of successful business (Blose et al., 2005) and human elements, as well, play essential role to determining the whole perception of customers about service quality (Yavas et al., 1997) and retaining the customers (Ranaweera & 8  Neely, 2003) .

more so in the Indian Indian context. The topic therefore needs to be investigated. References

Asubonteng, P., McCleary, K. J. & Swan, J. E. (1996), “SERVQUAL Revisited: A Critical Review of Service Mar keting keting, 10(6), 62-81. Quality”, Jour nal of Services Mar Bitner, Bit ner, M. J., Booms, B. H. & Tetreau Tetreault, lt, M. S. (1990), (1990), “The Service Service Encounter: Diagnosing Favourable and Unfavourable Incidents”, Jour nakl of Mar Mar keting keting, 54(1), 71-84.

Gr owing owing Need Need of the study

Boulding, W., Karla, A., Staelin, R. & Zeithaml, V. V. A. (1993), “A Dynamic Process Model of Service Quality: From Expectations to Behavioural Intentions” Journal of Marketing Research, 30(1), 7-27.

The insurance industry affects money, capital markets and the real sectors in an economy, making insurance facility necessary to ensure the completeness of a market. It is an industry with strategic importance for any country as it contributes to the financial sector as well as confers social benefits on the society. Although numerous researchers have made theoretical and empirical contribution to the study of service quality in various industries like banking, healthcare, education, etc the area of life insurance is not adequately researched. Previous studies in this area focused exclusively on relational qualities (Crosby and Stephens, 1987) and on the generic SERVQUAL format of quality measurement (Parasuraman et al., 1994). In the light of this, the objective of this study is to first investigate service quality structure for life insurance. The relative importance of these service quality dimensions from customers' perspective need to be studied to ensure optimal deployment of resources among these dimensions, and thereby providing best value to the customers. Further, objective is to measure as to how well services are being delivered i.e. up-to what level performances are meeting the expectations. The life insurance players have a vast foray of products and services in their bouquet to meet the varying needs of various individuals. Besides this, almost all companies offer the flexibility to customers to choose the most suitable  product or service for themselves by combining features of a number of products and services together. Thus life insurance companies have customized a lot the services to improve the quality of service to suit the customer as per their needs. A review of literature revealed that the earlier ea rlier studies on measurement of customer perceived service quality were very few in the life insurance industry,

Carman, J. M. (1990), “Consumer Perceptions of Service Quality: An Assessment of the SERVQUAL Dimensions” , Journa l of Retailing Retailing, 66 (Spring), 33-55. Clow, K. F. & Vorhies, Vorhies, D. W. (1993), “Building “Bui lding a Competitive Advantage for Service Firms”, Journal of Services Marketing, 7(1), 22-32. Cooper, R. W. & Frank, G. L. (2001), “Key ethical issues facing the property and casualty insurance: i nsurance: has a decade made a difference?” di fference?” CPCU Journal, 54 (2), 99-111. Cronin, J. J. Jr. & Taylor, S. A. (1992), “Measuring Service Quality: A Re-examination and Extension. Journal of Marketing” , 56 (3), 55-68. Crosby, Crosby, L. A. & Cowles, D. (1986), “Life Insurance Agents as Financial Planners: A Matter of Role Consensus. Journal of Professional Services Services Marketing” Mar keting” , 1 (Spring), 69-89. Crosby, Crosby, L. A. & Stephens, N. (1987), “Effects of relationship marketing on satisfaction, retention, and prices in the life insurance industry”, Journal of Marketing Research , 24 (November), 404-411. Friedman , S. (2001), “RIMS launches quality process”,  National Underwriter , 105(19), 3-29. Friedman, S. (2001), RIMS plans to have third quality scorecard published in 2002,  National Underwriter , 105(18), 3-22. Gronroos, C. (1984) “A service-oriented approach to marketing of services. European Journal of Marketing” , 12 (8), 588-601. Hampton, G. M. (1993), “Gap Analysis of College Student Satisfaction as a Measure of Professional Service Quality”, Journal of Professional Services Marketing, 9(1), 15-28. ISHAQ Muhammad Ishtiaq (2011), “An Empirical Investigation of Customer Satisfaction and Behavioural Responses in Pakistani Banking Sector”, Management & Marketing Mar keting Cha llenges for the Knowledge Knowledge Society, Vol. 6,  No. 3, pp. 457-470 Johnson, R. L., Tsiros, M. & Lancioni, R. A. (1995), “Measuring Service quality: A Systems approach”, Jour nal of Services Services Marketing, 9 (5), 6-19.

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Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World  Johnston, E. O., O'Connor, R. J. & Zultowski, W. H. (1984), “The personal selling process in the life insurance industry”, in J. Jacoby, & C. S. Craig (Eds.), Personal Selling: Theory, Research and P ra ctice (pp. 136-164).

Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1988), “SERVQUAL: A Multi-Item Scale for Measuring Consumer Perceptions of Service Quality”, Journal of Retailing, 64 (Spring), 21-40.

King, C. (1992), “Agents/policy owners split on service”,  National Underwriter , 41(October), 7.

Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1994), “Alternatives Scales for Measuring Service Quality: A Comparative Assessment Based on Psychometric and Diagnostic Criteria”, Journal of Retailing, 70(3), 201230.

Lehtinen, U. & Lehtinen, J. R. (1991), “Two Approaches to Service Quality Dimensions”, The Service Industries Journal, 11(3), 287-305.

Siddiqui and Sharma (2010), “Analyzing customer satisfaction with service quality in life insurance services”, Journal of Targeting , Measurement and Analysis for Mar keting, Vol. 18, 3/4, 221238

Lewis, B. (1993), “Service quality: recent developments in financial services”, International Journal of Bank Marketing, 11(6), 19-25. Loo, F. (2000), “Buying insurance on the net”,   Financial Planner , February, 58-60.

Upadhyaya, Deepika (2011) “Service Quality Perception and Customer Satisfaction in Life Insurance Companies in India”, International Conference on Technology and Business Management, March 28-30.

Marying, P. (2000), “Qualitative Content Analysis”, Forum: Qualitative Social Research . 1 (2), Art. 20:June 2000 (www.qualitative-research.net/index.php/fqs/article/ .../1089) (Jan 7, 2010).

Websites Referred  www.bseindia.com www.businessdayonline.com www.financialexpress.com www.findarticles.com www.fdic.gov.com www.gktoday.com www.google.com www.insuranceinstituteofindia.com www.nytimes.com www.newssky.com

Mehta, S. C. & Lobo, A. (2002), “MSS, MSA and zone of tolerance as measures of service quality: A Study of the Life Insurance Industry”, Second International Services Marketing Conference, University of Queensland. Parasuraman, A. & Zeithaml, V. A. & Berry, L. L. (1985), “A Conceptual Model of Service Quality and Its Implications for Future Research”, Jour nal of Mar keting, 49(4), 41-50 Parasuraman, A., Berry, L. L. & Zeithaml, V. A. (1991), “Refinement and reassessment of the SERVQUAL scale”, Jour nal of Retailing, 67(4), 420-450.

83

TOTAL QUALITY MANAGEMENT CONCEPTS AND THE INDIAN SCENARIO P.G. Dangwal*  ABSTRACT 

Total Quality Management ( TQM ) wave swept India in early 90's particularly in view of challenges thrown up by Liberalisation , Globalisation and Privatisation ( LPG) initiatives of then prime minister Mr. P. V. Narsimha Rao a nd Finance minister Dr. Manmohan Singh. TQM became a management strategy that transcended every functional area and every level of organization to continuously improve products and services thereby impacting quality of human life and even that of  businesses , government and society a t large. This paper tries to examine the various popular concepts of TQM and to what extent TQM has become a part of Indian business philosophy.

Introduction

continuous improvement.

Concept s of Total Qua lity Management

The means to improve quality lie in the ability to control and manage systems and processes  properly, and in the role of management resp onsibil ities in achieving this . Deming advocated methodological practices, including the use of specific tools and statistical methods in the design, management, and improvement of process, which aim to reduce the inevitable variation that occurs from “common causes” and “special causes” in production “Common causes” of variations are systemic and are shared by many operators, machines, or products. They include poor product design, non-conforming incoming materials, and po or wo rki ng co nd iti on s. Th ese are the responsibilities of management. “Special causes” relate to the lack of knowledge or skill, or poor performance. These are the responsibilities of employees. Deming proposed 14 points as the principles of TQM which are listed below:

A) Deming's Approach to TQM

The theoretical essence of the Deming approach to TQM concerns the creation of an organizational system that fosters cooperation and learning for faci litating the implementation of proc ess management practices, which, in turn, leads to continuous improvement of processes, products, and services as well as to employee fulfillment, both of which are critical to customer satisfaction, and ultimately, to firms survival. Deming stressed the responsibilities of top management to take the lead in changing processes and systems. Leadership  plays a significant role in ensuring the success of quality management system, because it is the top mana gement's respon sibility to create an d communicate a vision to move the firm toward continuous improvement. Top management is responsible for most quality problems; it should give employees clear standards for what is considered acceptable work, and provide the methods to achieve it. These methods include an appropriate working environment and climate for work which is free from faultfinding, blame or fear. Deming also emphasized the importance of identification and measurement of customer requirements, creation of supplier partnership, use of functional teams to identify and solve quality  problems, enhancement of employee skills,  participation of employees, and pursuit of

1.

C re a te c on st a nc y of p ur po s e t ow a rd improvement of product and service, with the aim to become competitive and to stay in  business, and to provide jobs.

2.

Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.

3.

Cease dependence on mass inspection to quality. Eliminate the need for inspection on a

* P. G. Dangwal Assistant Professor, Institute of Management Studies Dehradun, Research Scholar Pacific University, Udaipur 

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Total quality management concepts and the Indian scenario

mass basis by building quality into the product in the first place.

13. Institute a vigorous program of education and self-improvement.

4.

End the practice of awarding business on the  basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.

14. Put everybody in the company to work to accomplish the transformation. Transformation is everybody's job.

5.

Improve constantly and forever the system of  production and service, to improve quality and  productivity, and thus constantly decrease costs.

6.

Institute training on the job.

7.

Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.

8.

Drive out fear, so that people may work effectively for the company.

9.

Break down barriers between departments. People in research, design, sales, and  production must work as a team, to foresee  problems of production and in use that may be encountered with the product or service.

10. Eliminate slogans, exhortations, and targets for the workforce asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity  belong to the system and thus lie beyond the  power of the workforce. 11. Eliminate work standards (quotas) on the factory floor. Substitute leadership. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership. 12. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. Remove  barriers that rob people in management and in engineering of their right to pride of workmanship. This means abolishment of the annual or merit rating and of management by objective.

 B) Ju ra n' s Approach to TQM

TQM is the system of activities directed at achieving delighted customers, empowered employees, higher revenues, and lower costs. Juran  believed that main quality problems are due to management rather than workers. The attainment of quality requires activities in all functions of a firm. Firm-wide assessment of quality, supplier quality management, using statistical methods, quality information system, and competitive benchmarking are essential to quality improvement. Juran's approach is emphasis on team (QC circles and selfmanaging teams) and project work, which can  p ro mo te q ua lity imp rov eme nt, impro ve communication between management and employees coordination, and improve coordination  between employees. He also emphasized the importance of top management commitment and empowerment, participation, recognition and rewards. According to Juran, it is very important to understand customer needs. This requirement applies to all involved in marketing, design, manufacturing and services. Identifying customer needs requires more vigorous analysis and understanding to ensure the product meets customers' needs and is fit for its intended use, not  just meeting product specifications. Thus, market research is essential for identifying customers' needs. In order to ensure design quality, he proposed the use of techniques including quality function deployment, experimental design, reliability engineering and concurrent engineering. Juran considered quality management as three basic  processes (Juran Trilogy): Quality control, quality improvement, and quality planning. In his view, the approach to managing for quality consists of:

85

?

The sporadic problem is detected and acted upon by the process of quality control;

?

The chronic problem requires a different  process, namely, quality improvement;

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

Such chronic problems are traceable to an inadequate quality planning process. Juran defined four broad categories of quality costs, which can be used to evaluate the firm's costs related to quality. Such information is valuable to quality improvement. The four quality costs are listed as follows:

?

Internal failure costs (scrap, rework, failure analysis, etc.), associated with defects found  prior to transfer of the product to the customer;

?

External failure costs (warranty charges, complaint adjustment, returned material, allowances, etc.), associated with defects found after product is shipped to the customer;

?

Appraisal costs (incoming, in-process, and final inspection and testing, product quality audits, maintaining accuracy of testing equipment, etc.), incurred in determining the degree of conformance to quality requirements;

?

Prevention costs (quality planning, new product review, quality audits, supplier quality

?

Evaluation, training, etc.), incurred in keeping failure and appraisal costs to a minimum.

Understanding, commitment, and communication are all essential. Crosby presented the quality management maturity grid, which can be used by firms to evaluate their quality management maturity. The five stages are: Uncertainty, awakening, enlightenment, wisdom and certainty. These stages can be used to assess progress in a number of measurement categories such as management understanding and attitude, quality organization status, problem handling, cost of quality as percentage of sales, and summation of firm quality posture. The quality management maturity grid and cost of quality measures are the main tools for managers to evaluate their quality status. Crosby offered a 14-step program that can guide firms in pursuing quality improvement. These steps are listed as follows: 1) Management commitment: To make it clear where management stands on quality. 2) Quality improvement team: To run the quality improvement program. 3) Quality measurement: To provide a display of current and potential nonconformance  problems in a manner that permits objective evaluation and corrective action. 4) Cost of quality: To define the ingredients of the cost of quality, and explain its use as a management tool. 5) Quality awareness: To provide a method of raising the personal concern felt by all  perso nnel in the company toward the conformance of the product or service and the quality reputation of the company. 6) Corrective action: To provide a systematic method of resolving forever the problems that are identical through previous action steps. 7) Zero defects planning: To investigate the various activities that must be conducted in  preparation for formally launching the Zero Defects program. 8) Supervisor training: To define the type of training that supervisors need in order to actively carry out their part of the quality improvement program.

C) Crosby's Approach to TQM

Crosby identified a number of important  principles and practices for a successful quality improvement program, which include, for example, management participation, management responsibility for quality, employee recognition, education, reduction of the cost of quality (prevention costs, appraisal costs, and failure costs), emphasis on prevention rather than after-the-event inspection, doing things right the first time, and zero defects. Crosby claimed that mistakes are caused by two reasons: Lack of knowledge and lack of attention. Education and training can eliminate the first cause and a personal commitment to excellence (zero defects) and attention to detail will cure the second. Crosby also stressed the importance of management style to successful quality improvement. The key to quality improvement is to change the thinking of top managers-to get them not to accept mistakes and defects, as this would in turn reduce work expectations and standards in their jobs.

9) 86

Zero defects day: To create an event that will

Total quality management concepts and the Indian scenario

make all employees realize, through a personal experience, that there has been a change.

permits what might be called total quality management to cover the full scope of the product and service “life cycle” from product conception through production and customer service. He claimed that effective TQM requires a high degree of effective functional integration among people, machines, and information, stressing a system approach to quality. A clearly defined total quality system is a powerful foundation for TQM. Total quality system is defined as follows:

10) Goal setting: To turn pledges and commitment into actions by encouraging individuals to establish improvement goals for themselves and their groups. 11) Error causal removal: To give the individual employee a method of communicating to management the situation that makes it difficult for the employee to meet the pledge to improve. 12) Recognition: To appreciate those who  participate. 13) Quality councils: To bring together the  professional quality people for planned communication on a regular basis. 14) Do it over again: To emphasize that the quality improvement program never ends. D) Feigenbau m' s Approach to TQM

Feigenbaum defined TQM as an effective system for integrating the quality development, quality-maintenance, and quality-improvement efforts of the various groups in a firm so as to enable marketing, engineering, production, and service at the most economical levels which allow for full customer satisfaction. He claimed that effective quality management consists of four main stages, described as follows: ?

Setting quality standards;

?

Appraising conformance to these standards;

?

Acting when standards are not met;

?

Planning for improvement in these standards.

The quality chain, he argued, starts with the identification of all customers' requirements and ends only when the product or service is delivered to the customer, who remains satisfied. Thus, all functional activities, such as marketing, design,  purchasing, manufacturing, inspection, shipping, installation and service, etc., are involved in and influence the attainment of quality. Identifying customers' requirements is a fundamental initial  point for achieving quality. He claimed that it

The agreed firm-wide operating work structure, documented in effective, integrated technical and managerial procedures, for guiding the coordinated actions of the people, the machines, and the information of the firm in the best and most  practic al ways to assure customer quality satisfaction and economical costs of quality. Feigenbaum emphasized that efforts should be made toward the prevention of poor quality rather than detecting it after the event. He argued that quality is an integral part of the day-today work of the line, staff, and operatives of a firm. There are two factors affecting product quality: The technological-that is, machines, materials, and  processes; and the human-that is, operators, foremen, and other firm personnel. Of these two factors, the human is of greater importance by far. Feigenbaum considered top management commitment, employee participation, supplier quality management, information system, evaluation, communication, use of quality costs, use of statistical technology to be an essential component of TQM. He argued that employees should be rewarded for their quality improvement suggestions, quality is everybody's job. He stated that effective employee training and education should focus on the following three main aspects: Quality attitudes, quality knowledge, and quality skills. E) Ishikawa' s Appr oach to TQM

Ishikawa argued that quality management extends beyond the product and encompasses aftersales service, the quality of management, the quality of individuals and the firm itself. He claimed that the success of a firm is highly dependent on treating 87

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

quality improvement as a never-ending quest. A commitment to continuous improvement can ensure that people will never stop learning. He advocated employee participation as the key to the successful implementation of TQM. Quality circles, he believed, are an important vehicle to achieve this. Like all other gurus he emphasized the importance of education, stating that quality begins and ends with it. He has been associated with the development and advocacy of universal education in the seven QC tools . These tools are listed below: ? ? ? ? ? ? ?

Pareto chart; Cause and effect diagram (Ishikawa diagram); Stratification chart; Scatter diagram; Check sheet; Histogram; Control chart.

Ishikawa suggested that the assessment of customer requirements serves as a tool to foster cross-functional cooperation; selecting suppliers should be on the basis of quality rather than solely on price; cross-functional teams are effective ways for identifying and solving quality problems. Ishikawa's concept of TQM contains the following six fundamental principles: ? ? ? ? ? ?

Quality first-not short-term profits first; Customer orientation-not producer orientation; The next step is your customer-breaking down the barrier of sectionalism; Using facts and data to make presentationsutilization of statistical methods; Respect for humanity as a management  philosophy, full participatory management; Cross-functional management.

The Indian Scenar io

The Stress and strain of globalization and liberalization has created the business pressures hitherto unseen and inexperienced by the most of the industries across the world. This situation is not unique to India, it is global in nature. The floodgates of intense international competition have swept the industries off their feet. The rapid technological

advancement, emergence of cheaper and better substitute products, information technol ogy explosion, leaner and flatter organization and flexible manufacturing system have made at least one thing clear to all enterprises only good performances in isolated sporadic areas are not enough for the survival of an organization; the organization should have an all round performance excellence to be the best among the betters for survival. Almost all the organizations across the globe practice the TQM principles and practices for their survival. However, what makes the difference  between the leader in the field and the also runs is that the leader practices the TQM principles and  practices in a holistic manner with proper strategic quality plan foundation infrastructure and total quality management consisting of quality planning, quality control and quality improvement, whereas the also runs practice the TQM principles and  practices in bits and pieces following only one aspect of total quality management, like either Kaizen or ISO 9000 or TPM etc. thereby giving marginal results. The six sigma approach is adopted by all the Indian software and information technology firms like Tata computer system Ltd. , Patni Computer system Ltd, Wipro Technologies Ltd, Infosys Ltd., Satyam Computers Ltd. etc. apart from the attainment of the CMM level. The Tata group, including Tata Motors Ltd. , Tata Iron Steel Ltd, Tata Chemicals Ltd. , Tata International Ltd. and other Tata group companies follow a business excellence model in line with the Malcolm Baldridge model of quality award criteria. The ISO 9000 quality Management system implementation as well as the implementation of Juran's Quality improvement JQI projects in various functional areas is practiced in all the Tata Group companies. The TQM  principles and practices have become the mainstay of the automobile industries. Tata Motors, Mahindra & Mahindra automotive division and tractors division, Maruti Suzuki Ltd., Hero Group, Bajaj Auto Ltd., the RDSO of the Indian Railways as well the Indian Defence organization all insists on the implementation of the TQM principles and  pra ctices to suppliers and ancillaries. The Government of India gives an immediate 88

Total quality management concepts and the Indian scenario

reimbursement for ISO 9000 certification cost upto Rs. .75.000 to the business units registered under the small scale industry (SSI Sector). The TVS group is famous for the implementation of the TQM principles and  practices. Sundaram Fastners Ltd. was the first organization in India to get the prestigious ISO 9001 certification. Sundaram Clayton Ltd. From the same group was the first Indian organization to be awarded the prestigious Deming Quality Award followed by TVS Motors Ltd. of the same group. The other members of the group like the Lucas TVS Ltd. or the Brakes India Ltd. also got similar recognition in the implementation of the TQM  principles and practices to defend the market leadership of the products manufactured by the organization. They have implemented various TQM  principles and practices like JQI projects, ISO 9001 quality management system implementation,  business process re-engineering , benchmarking, statistical process control, logistics and supply chain management etc. Maruti Suzuki Motors being an organization in collaboration with the world's largest small car manufacturer from Japan has implemented all the TQM principles and practices which is the key to its market leadership position and its success at defending the same for the years together in spite of intense market competition. The Ajay Piramal Group company Nicholas Piramal Ltd, Gujarat Glass Ltd. have reached the market leadership position respectively in last decade and half from an inconsequential position, with the sheer implementation of the TQM  principles and practices by way of ISO 9001 quality management system implementation, JQI projects implementation, implementation of logistics and supply chain management , employees training etc. The TQM principles and practices can be employed in all sorts of industries in both the manufacturing and service sectors. The Ritz Carlton Hotel in the hospitality industry Bombay Dyeing Ltd, Mafatlal Industries and Arvind Mills in the textile Industry, Tata Iron and steel Industries Ltd. (TISCO), Steel Authorities India Ltd. (SAIL), Mukand Ltd etc in the steel industry, Voltas Ltd, Godrej group of industries and Videocon International Ltd. in the

consumer durable manufacturing industry and Marico Industry Ltd., Asian paints Ltd. in the FMCG Industry are the examples where in TQM  principles and practices have been adopted and the resultant world class performance excellence and market leadership has been achieved and sustained. In the engineering industry, Bharat Heavy El ec tri ca ls Lt d, Ca rb or run du m U ni ve rsa l manufacturing industries Ltd. Otis Elevators Ltd. Philips India Ltd. Hindustan Motors Ltd. ISUZU Engine Plant at Prithampur, Bajaj tempo ltd. Crompton Greaves Ltd. Godrej Group of Industries, Larsen and Toubro Group of Industries, Aditya Birla Group of Industries, Reliance Group of Industries, Modi Rubbers Ltd. Gujarat Heavy Chemicals Ltd. Amul, etc. are all the examples of companies attaining world class performance excellence through the implementation of the TQM principles and practices. India has already become one the prominent global players in the field of the information Technology. We are now in for a grand success story in the field of manufacturing, riding on the back of the implementation of the TQM principles and  practices. India is a warehouse of competent qualified engineers for more than two million working in the manufacturing sector, making it as one the soundest, technically experienced and competent industry with many of the companies  progressing at a revolutionary rate of growth. Indian Industry is on a journey towards total quality but it has to refine the approach by adopting a holistic approach to be an international leader in the respective fields of operation. The interest shown by the global manufacturing companies in sourcing  parts and components from India is on the rise as the recognition to the Indian Industries commitment to quality. Today the American, European and Japanese firms are seeking outsourcing deals with the Indian manufacturing firms. Toyota is sourcing transmission parts from India. Ford is sourcing the entire car engine from India. The Suzuki motors corporation has leveraged on Maruti's capability to make it the sole manufacturing facility of manufacturing many of the Suzuki models for the international market in India as well ass sourcing 89

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

 pa rts an d co mp on en ts from ma ny In di an organization. Yahama and Mitsubishi have announced to make India a global sourcing hub for automobile components and parts in the two wheeler segment. Tata Motors is selling Indica cars to Rover for the United Kingdom market. Mahindra & Mahindra is selling its Scorpio model of SUV all over the world including Asian and European countries successfully. Bajaj Auto Ltd has been selling its scooter in the world market for many years. The United States market leader in retailing and a global leader, Wal-mart intends to increase outsourcing from India from the current level of USD 1 billion to USD 10 billion in the next couple of years. Conclusion

It is evident that each quality has his own distinctive approach but do share some common  points which are summarized as follows: ?

It is management's responsibility to provide commitment, leadership, empowerment, encouragement, and the appropriate support to technical and human processes. It is top management's responsibility to determine the environment and framework of operations within a firm. It is imperative that management foster the participation of the employees in quality improvement, and develops a quality culture by changing perception and attitudes toward quality.

?

The strategy, policy, and firm-wide evaluation activities are emphasized.

?

The importance of employee education and training is emphasized in changing employees'  beliefs, behavior, and attitudes; enhancing employees' abilities in carrying out their duties.

?

?

?

Quality is a systematic firm-wide activity from suppliers to customers. All functional activities, such as marketing, design, engineering,  purc hasi ng, manufa ctu ri ng, in specti on, shipping, accounting, installation and service, should be involved in quality improvement efforts.

Many success stories of Indian companies build up the resolution for the companies who are not implementing the TQM principles and practices to immediately go for the same. This is the reason why most of the management and engineering institutes have introduced Total quality management as a compulsory subject in their syllabus. The only way the organization can survive and excel in the current global environment of intense international and local competition is by the implementation of the TQM principles and practices. The most interesting  part of the entire exercise for the industries is that it is zero investment activity which maximizes the  productive use of the plant and machineries as well as all other resources. The implementation of the TQM principles and practices simultaneously gives customer satisfaction as well as the market leadership position and maximization of return on investment, which are the vital factors for attaining global leadership and world class performance excellence. References P. N. Mukherji (2009), “Total Quality Management”, PHI Learning Pr ivate Limited, New Delhi Ahire, S.L., Waller, M.A. and Golhar, D.Y. (1996), “Quality management in TQM versus on-TQM firms: An empirical investigation”, International Journal of Quality &ReliabilityManagement, Vol. 13 No. 8, pp. 8-27. Cole, R.E. (1992), “The quality revolution“, Production and Opera tions Mana gement, Vol. 1 No. 1, pp. 118-20. Crosby, P.B. (1979), “Quality Is Free”, McGra w-Hill, Inc.,  NewYork . Ishikawa, K. (1985), “What is Total Quality Control? The Japanese Way”, Prentice-Hall, London.

Employees should be recognized and rewarded for their quality improvement efforts.

Juran, J.M. (1994), “The upcoming century of quality”, Quality Progress, Vol. 27 No. 8, pp. 29-37.

It is very important to control the processes and improve quality system and product design. The emphasis is on prevention of product defects, not inspection after the event.

Zhang, Z.H. (2000), “Developing a model of quality management methods and evaluating their effects on  business performance”, Total Quality Management, Vol. 11 No. 1, pp. 129-137.

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BOOK REVIEW REVIEW OF BUSINESS STATI STICS Dr. N. D. Vohr a Dept. of Commerce, Ramjas College, University of Delhi Delhi-7 (India) ABSTRACT

Statistics plays an important role in business. In the highly competitive business environment of today, a business can not survive by making decisions based merely on instinct, guesswork and approximations. Acquiring relevant data and information, and analysing such information accurately can help to make decisions that are likely to be more profitable for the business organizations. An organization that is strong in the core area of decision-making is likely to achieve greater success for its stakeholders in the long run, have less risk exposure, and have a lower chance of missing lucrative opportunities. Statistics provides managers with more confidence in dealing with uncertainty, enabling them to solve problems in a diversity of contexts, add substance to decisions, and reduce guesswork in taking decisions relating to both short and long terms. Given the role that statistics  plays in fields such as marketing, finance, human resources, production, and logistics; it is necessary that the management students managers of the future - be acquainted with statistical tools and methods for developing decision-making skills. While statistical analysis is essential to business decision-making and management, grasping of the underlying theory of data collection, organization and analysis is a challenge for business students and practitioners. There are many books available in the market, full of knowledge, instructions, illustrations and real world examples. To help stand out from the crowd, Dr. N. D. Vohra of Ramjas College, University of Delhi has written an exciting new book on the subject for the business students and teachers. This book is titled “Business Statistics”. It teaches how to use data to make informed decisions. The author provides strong connections between the statistical concepts in the text and the  problems students will face as practitioners in their future careers by showing how to find patterns, create statistical models from the data, and deliver findings to an audience. Dr. Vohra is a well established author in the field of statistics and finance. Previously Dr. Vohra has written “Quantitative Techniques in Management” and “Futures and Options”, both with Tata McGrw Hill. The book “Business Statistics” is the result of nearly four decades of teaching experience of Dr. Vohra at Delhi University and many other international institutions. The book surveys the statistical techniques commonly used, especially in business and economics. The book is written with the objective of developing students' abilities to describe, analyse and interpret data soundly, making effective use of computer software. The book is divided into 18 chapters in all covering Introduction to Statistics and Data Collection; Summarizing and Presenting Statistical Data; Measuring Central Tendency; Measures of Variation; Measures of Skewness and Kurtosis, and Moments; Theory of Probability; Statistical Decision Theory; Probability Distributions; Sampling and Sampling Distributions; Theory of Estimation; Testing of Hypotheses: Means and Proportions; Tests of Variance and Analysis of Variance (ANOVA), Simple Linear Correlation and Regression Analysis; Partial and Multiple Correlation and Multiple Regression Analysis; Chi-square and Other Non-Parametric Tests; Index Numbers; Time Series and Forecasting and ends with Statistical Quality Control. Each chapter first states its goals and ends with summarizing the contents to help the students review the material quickly and recap the important  points and concept discussed in the chapter. Besides illustrative examples given within the text, Additional Solved Examples have been included in all chapters. Added to these, a large number of

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True/False questions are provided to test the understanding of students. A distinguishing feature of the book is the inclusion of the applications at the end of the most of the chapters to enable the students to understand how the statistical tools may by usefully applied. Other resources available to the teachers are included in the website www.mhhe.com/vohrabs which are likely to prove a boon to the teachers of the subject. With “Business Statistics”, Dr. Vohra has provided a non-comparable business statistics book that users can easily read and understand and apply. The Concepts are fully explained in simple, easy-tounderstand language as they are presented, making the book an excellent source from which to learn and teach. After each discussion, readers are guided through real-world examples to show how book  principles work in professional practice. By creating a text with the goals of accessibility and simplification in mind, Dr. Vohra has not only made the study of statistics comprehensible to students who do not think quantitatively, but he also has re-thought the idea of what a textbook is and can be. Indeed, with rich pedagogy and user friendly features, “Business Statistics” seems to be perfectly tailored to programs that teach management at various levels. It is highly recommend that professors who teach statistics in business, management and economics consider Dr Vohra's text as either the main course textbook, or as a supplementary resource for the students without prior training in statistical analysis.

Reviewer  Dr. Suman Jeet Singh Asst. Prof. Ramjas College, University of Delhi Delhi-7 (India)

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