Saiprasad29akuthota@gmail.com GITAM UNIVERSITY

Cast based reservation system – The dirty politics of votes

2012-10-10T23:58:00.000-07:00

Our preamble of the Indian Constitution says, that India is “sovereign, socialist, secular, democratic, republic” then how can the caste system prevail and consequently reservations? Today, this evil system persists and plays a vital role in the society as the major weapon for vote bank politics.

The whole perspective of Mandal commission regarding reservations are gradually being extended and expanded to sections of people, demanding reservations within reservations, in State and Central jobs. Earlier we had seen the agitation of the Gujarat and now the Jat’s. The agitators have found a simple way to force the attention of political leaders and the concerned Government, by affecting the rail movement. Consciously, they try to influence the economy of the country.

Recently, casteism in Indian politics, surfaced with the Jat agitation for reservation, has taken a serious turn and has brought the State to a grinding halt by affecting the rail movement. The Jat community had given an ultimatum to the Central Government to consider their demand for reservation. Moreover, they have assured to refer the cause of reservation for Jats to the NBCC (National Backward Classes Commission).In this context, neither the Jat community nor the Government is in conciliatory mood and as it appears, Government will not to be a silent spectator, if violence broke out.

The rail blockade and the announcement to disrupt the movement of essential commodities to New Delhi, has prompted the Union Home Minister to invite the agitators for discussion. On Wednesday the 30^th of March the discussion was held on the intervention of the Prime Minister. A 15 member delegation from the State of UP, Haryana, and other parts of the country took part in the meeting. Whatever is the outcome of the meeting, if the issue is not specifically announced, the Jat agitation will continue. Meanwhile the Congress party is noticeably refraining itself from making any comments, apprehending political ramification.

On the other hand, RLD supremo, Ajit Singh has openly supported few demands of the Jats and suggested that the Union Government should review the situation. His contention was, since the Jats are given reservation status in the State jobs, why the Center should not provide for the same. Many political parties are watching and contemplating to encash this casteism with a political motive. He went a step ahead and openly blamed the Mayawati Government for the uprise in the Jat movement and refuted her for her devious aspiration to gain a political foothold, among the Jats keeping in view the forthcoming assembly elections.

It is ridiculous that the political parties involved in exploiting casteism in the reservation scheme. While evaluating the political situation in UP, it is observed that, although Mayawati Government is for the Dalit, only a few sections of SC and ST has the high handed opportunity. In UP the Schedule Tribes are negligible in count, thus the larger benefit is being enjoyed by a selected section of Schedule Castes.

Apart from politics, other issue like reservations in education and in best jobs is also becoming controversial, each day. The major stress in education is to help prevent the socio-economic disparity among various societies by reservations in different stages and faculties. The law of the land allows 7.5% reservation for ST, a staggering 15% for SC and another 27% for OBC, in higher education alone. Government is spending crores to uplift them, but the blossoming result is yet to be seen. A very delicate situation is observed these days among the reserved and scheduled groups, with their caste and creed notions. They are becoming increasingly demanding, which may have a negative consequence, when the so-called majority group will be devoid of its proportional benefit. Is it not proper to have an audit on the reservation policy for examining the expenses, implementation and benefits, that has been achieved by various Governments, after so many years of Independence?

There are few questions that come to the mind: Was the reservation system necessary after a certain period of Independence? Has the country been benefited by such scheme? Is it not a fact that the political parties are exploiting the sentiment of people by instigating casteism? I fail to understand when our preamble of the Indian Constitution says, that India is “sovereign, socialist, secular, democratic, republic” how can the caste system prevail and consequently reservations? It is purely for political mileage.

Reservation should be based upon financial grounds not on the basis of caste.

Financial Sector Reforms in India

2012-10-10T04:38:00.001-07:00

The period immediately after independence posed a major challenge to the country. Due to centuries of exploitation at the hands of foreign powers, there were very high levels of deprivation in the economy—both social as well as economic. To take up the Herculean task of rapid growth with socio-economic justice, the country adopted the system of planned economic development after independence. Due to paucity of economic resources and limitations of availability of capital for investment, the government also came up with the policy of setting up public enterprises in almost every field.

The fiscal activism adopted by the government resulted in large doses of public expenditures for which not only the revenues of the government were utilized but the government also resorted to borrowing at concessional rates, which kept the financial markets underdeveloped. The growth of fiscal deficit also continued unabated year after year. Complex structure of interest rates was a resultant outcome of this system.

Nationalisation of major commercial banks in the late sixties and early seventies provided the government with virtually the complete control over the direction of the bank credit. The emphasis was mainly on control and regulation and the market forces had very limited role to play.

The economic system was working to the satisfaction of the government. The social indicators were gradually improving and the number of people below poverty line also declined steadily. The only problem area had been that the growth rate of the economy had been very low, and till late seventies, the growth rate of the GDP was hovering around 3.5 per cent per annum. It was only during mid-eighties that the growth rate touched 5 percentage points.

The situation became difficult by the eighties. Financial system was considerably stretched and artificially directed and concessional availability of credit with respect to certain sectors resulted in distorting the interest rate mechanism. Lack of professionalism and transparency in the functioning of the public sector banks led to increasing burden of non-performance of their assets.

Late eighties and early nineties were characterised by fluid economic situation in the country. War in the Middle East had put tremendous pressure on the dwindling foreign exchange reserves of the country. The country witnessed the worst shortages of the petroleum products. High rate of inflation was another area of serious concern. Most of the economic ailments had resulted due to over regulation of the economy. The international lending and assisting agencies were ready to extend assistance but with the condition that the country went in for structural reforms, decontrols and deregulation, allowing increased role for the market forces of demand and supply.

The precarious economic conditions left the country with no alternative other than acceptance of the conditions for introducing the reforms.

Post Reforms
Rationalisation of the taxes has already taken place on the basis of the recommendations of Raja Challiah Committee Report during mid-nineties. The government has been able to tighten its fiscal management through the FRBMA and the continuing increase in the fiscal deficit has been contained significantly. Reforms in the external sector management have yielded results in the form of increased foreign capital inflows in terms of Foreign Direct Investment (FDI), Foreign Institutional Investment (FII) and the exchange rate has also represent true international value of Indian rupee vis-à-vis hard global currencies.

The primitive foreign exchange regulation regime controlled by FERA has been replaced by a liberalized foreign exchange rate management system introduced by FEMA. Introduction of such a modern management law was perhaps a pre-condition for allowing FDI and FII. In 1993, the RBI issued guidelines to allow the private sector banks to enter the banking sector in the country, a virtual reversal of the policy of bank nationalisation. Foreign banks were also given more liberal entry.

The thrust of the monetary policy after the introduction of the process of reforms has been able to develop several instruments of efficient financial management. A Liquidity Adjustment Facility (LAF) was introduced in June 2000 to precisely modulate short-term liquidity and signal short-term interest rates. A lot of reliance is being placed on indirect instruments of monetary policy. Strengthening and upgradation of the institutional, technological and physical infrastructure in the financial markets has also improved the financial framework in the country.

Economy and Reforms
The introduction of financial sector reforms has provided the economy with a lot of resilience and stability. The average annual growth rate of the economy during the post-reform period has been more than 6 per cent, which was unimaginable a decade before that. The economy withstood boldly the Asian economic crisis of 1997-98. Even the economic sanctions by the US and other developed countries after the nuclear testing did not affect the economy to the extent apprehended. The current global slowdown and sub-prime crisis affecting the banking system all over the world has not impacted the Indian economy to that extent.

Banking and insurance sectors are booming. While the private and foreign banks are giving stiff but healthy competition to the public sector banks, resulting in overall improvements in the banking services in the country, the insurance sector has also witnessed transformation. The consumer is a gainer with the availability of much better and diversified insurance products.

The stock exchanges in the country are in the process of adopting the best practices all over the world. The RBI has also been able to control and regulate effectively the operations and growth of the Non-Banking Financial Companies (NBFCs) in the country.

A few changes which are on the anvil pertain to the legal provisions relating to fiscal and budget management, public debt, deposits, insurance etc. As per the Finance Minister, future reforms by making legal changes also pertain to banking regulations, Companies Act, Income Tax, Bankruptcy, negotiable instruments etc.

But there are certain issues that call for more cautious approach towards the financial sector reforms in the future. The social sector indicators—like availability of doctor per 1000 population, availability of health institutions, quality of elementary education, literacy rate, particularly among the females—are some of the areas of serious concern. Countries like China, Indonesia and even Sri Lanka are much better than India in most of the social sector indicators.

Despite being among the most rapidly developing economies of the world, the literacy rate and poverty percentage are two biggest embarrassments and the country still languishes at 128th position in the Human Development Index of the UNDP, where it is virtually stagnating for the last about five years. Further, the systems should also be able to check any unusual rise in prices to protect the common man from inflation.

One of the major criticisms of the government policy has been that the reforms have lacked the human face, as the government has been over-obsessed with the idea of achieving higher growth rate and fiscal and monetary management, rather than addressing the needs for equitable and inclusive growth. The reforms process has ignored the common man and the trickle down theory has actually failed to deliver.

The Planning Commission, while finalising the Eleventh Five-Year Plan has now sought to achieve the overall objective of achieving the ‘inclusive growth’, i.e., to include all those in the process of economic growth, who has remained excluded from the process of economic growth experienced by the country during the past decades.

A perspective on management education in India

2012-10-09T05:25:00.002-07:00

The recent Satyam episode has rekindled interest in media, industry, academia and society about the content, scope and relevance of management education. India, given its cultural, economic and social diversity has not adequately articulated the relevance of management education in these contexts.

Management education in India is predominately a derivative of western management thought and practice. Occasionally, management schools draw some inferences from Indian epics, shastras and practices. It may be worthwhile to notice that management itself as a discipline has evolved from fundamental disciplines of philosophy, psychology, economics, accounting, computer science, mathematics, statistics and industrial engineering.
The core objective of western management education is to evolve a system which would be useful to enterprises, industry and hence society thereby creating a symbiotic relationship with stakeholders of wealth creation process. This symbiotic relationship between the industry and the education system has lead to a very healthy exchange of knowledge creation and sharing and also a funding support system. Inadvertently, this arrangement has evolved to a situation where the funding agencies (rightly or otherwise) are able to influence the direction, content and scope of management education.

Western corporate world is obsessed with operational efficiency and not necessarily effectiveness. This has brought tremendous desire and motivation to top management of organizations to focus on performance (quarter to quarter, year to year) rather than organizational purpose. This unintended transformation is possibly the root cause of the morality crisis, governance issues, irresponsible behavior of corporate citizens in the overall global context.

In India, management education is seen as elitist. Often, young men and women are attracted to management education not because they need some education, exposure and experience to create something wonderful, and hence useful to society but are usually motivated by the positive economic consequences (nothing wrong about this) associated with management education.

An individual who has been educated in a reputed management school should be oriented towards accomplishment of the tasks given to him. Such accomplishments in the early stage of the chosen profession would create a sense of ego, which would eventually change into pride and joy of doing work. Such accomplished individuals would gain greater visibility, evolve as a brand and eventually reach an iconic status.
While this may be extremely satisfying to an individual, the same individual’s contribution to the society can be much more enhanced if they are groomed with issues relevant to personality development and leadership, character building, purpose in life, dignity, self respect and respect for others, compassion and spirituality.
The modern management education in India emphasizes on performance and very little on purpose. It equips the young men and women to generate wealth and does not provide them the capacity to enjoy and share this wealth. It projects the use of the information technology as an enabler to improve efficiency but not as a supporting tool in resolving large complex social issues. It motivates individuals to accomplish their objectives with or without regard to means. As a rule, management education has completely detached itself from the under managed sectors.

Unfortunately, the management education in India has never connected to the fundamental disciplines from which it has evolved and has become narrow in its content. A handful of management institutions in this country are trying to realign the management education by using a multi dimensional approach. The first dimension of this would focus on the individuals. The second dimension (of this education) would focus on the standard tools and techniques of management education. The third dimension would connect the individual to the society by compassion, entrepreneurship and social sensitivity.

We hope such institutions not only succeed in their objective, but are also able to influence other management institutions to move in this direction to contribute to the society by a contextually relevant management education. We only hope under such scenario the Satyam like episodes will become rare.

Walmart’s Strategy through the World

2012-10-09T05:14:00.001-07:00

Mexico:
Walmart, which is No 1 here, entered through a 50:50 joint venture with the leading retailer. They soon acquired the partner completely. In their business, local marketshare is critical. So what Walmart sells in Canada, which is right next to the US, over 85% of it is sourced from Canada. It is all about local economies of scale, local purchasing power and local logistics. Discount retailing is a very “multi-local” business.
When Company A competes with Company B, local scale and local market power determine the cost structure, branding and retail presence in eyes of customer. Wherever Walmart did not pursue this logic they ran into trouble. In the 1990s when Walmart opened its first store in Mexico, they had a huge American-style parking lot. They found all the shopping carts were piled at far end of parking lot – because customers came in via buses not cars and went to one side which was closer to the bus stop. They made mistakes in terms of the product mix. They were selling the same thing as in the US.

There was a story about them selling golf balls to customers whose income levels were low. The mistakes they made in Mexico were relatively early and non-fatal. They recovered from them very quickly. That was really the first non-US foray so they were learning on the fly. Today Mexico is a fantastic story for Walmart.

Brazil: In Brazil it took them more time to become No 1 because they had tough competitors like Ahold and Carrefour. As the competitors stumbled, they acquired the Ahold stores. Over time Walmart strengthened in Brazil. They made mistakes again with regard to localization of the product mix.

Argentina: Argentina hasn’t been a high priority market for Walmart. They entered in 1995 by setting up 100%-owned greenfield stores. They were pretty tiny: by 2007 they had only 13 stores. Argentina is a small economy compared to Brazil and Mexico. In 2007, according to a Citigroup report, Walmart’s marketshare of organized retail was 4% and the combined marketshare of the two biggest players was 22%. No 3 is not a desirable position in discount retailing because it requires local scale and local marketshare. One could ask: what are you doing in Argentina? Become No 1 or get out.

Costa Rica, Guatemala, Honduras, Nicaragua: All these came through the acquisition of Central American Retail Holdings Company in 2007. This company had operations in these economies. These are small markets, not strategically critical. But from Day One Walmart was No 1 in these markets because the acquired businesses were already No 1. They were already adapted to the local economy and there was a high degree of localization.

Hong Kong: Hong Kong was their first foray into Asia. It was a brief disaster. Walmart knew nothing about Asia. They entered Hong Kong through a joint venture with a Thai conglomerate. This was unwise because instead of picking a Taiwanese or Hong Kong company as a local partner, they picked a Thai partner. They opened three stores and shut them down very quickly. Hong Kong is a very compact place and they didn’t factor in how customers would get to the stores. There was nothing wrong with the product mix.
They did not factor in the broader ecosystem – how customers will come and go. They chose a very inconvenient location for customers. In 1995, they had 2,900 stores worldwide and if three bombed, it didn’t matter so much. It shows that Walmart from time to time, hasn’t been the smartest company in terms of joint venture partners.

Indonesia: I wouldn’t fault Walmart’s strategy here. They went to Indonesia in the days of Suharto, and then you couldn’t do anything in Indonesia, unless you worked with someone from Suharto’s network. There was political unrest.
They entered via a non-equity route – there was no money in the agreement with the Lippo group. There were riots in Indonesia and the store was burnt down. Walmart didn’t own or run the store. So it was not so much of an issue. The agreement with Lippo fell apart after Suharto went out of power.

Korea: Walmart entered Korea in 1999. They entered by acquiring four units from Macro (a Dutch chain, now owned by Metro). Korea is fairly mature market and there was a local company called Emart, which is the market leader. Emart warned Walmart that this is a very local industry and it doesn’t matter that you are the biggest retailer in the world – we are the biggest retailer in Korea. Walmart made an acquisition offer to Emart which Emart rejected. Walmart entered as a small player and could never become big. Seven years later they sold their stores to Emart and got out.

China: Walmart is still too early in the game in China. It’s a respected retailer in China. They do a good job in terms of localization of the product mix and store format. There have been no big mistakes. Carrefour entered at roughly same time as Walmart – but it is growing faster, has double of the number of stores and is much more profitable than Walmart. Walmart appears to be looking at China as one big national market – the same way it views the US. Carrefour looks at China as a portfolio of regional/local markets. Unlike Carefour Walmart has centralised sourcing and a centralised distribution centre.

Carrefour gives greater autonomy to store managers. It is not even relying on local economies of scale, forget global. China’s infrastructure is better than India’s but it is in the process of being built up – when you have weak infrastructure for consumer goods, you have national manufacturers and not local manufacturers. In terms of food products, Chinese like to buy fresh meat so local sourcing is much smarter than centralised sourcing. Just like any developing economy, heterogeneity across China in terms of what people want to buy is very high.

What is the difference between Money Market and Capital Market?

2012-10-09T05:11:00.001-07:00

Money market is distinguished from capital market on the basis of the maturity period, credit instruments and the institutions:

1. Maturity Period:

The money market deals in the lending and borrowing of short-term finance (i.e., for one year or less), while the capital market deals in the lending and borrowing of long-term finance (i.e., for more than one year).

2. Credit Instruments:

The main credit instruments of the money market are call money, collateral loans, acceptances, bills of exchange. On the other hand, the main instruments used in the capital market are stocks, shares, debentures, bonds, securities of the government.

3. Nature of Credit Instruments:

The credit instruments dealt with in the capital market are more heterogeneous than those in money market. Some homogeneity of credit instruments is needed for the operation of financial markets. Too much diversity creates problems for the investors.

4. Institutions:

Important institutions operating in the' money market are central banks, commercial banks, acceptance houses, nonbank financial institutions, bill brokers, etc. Important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, mortgage banks, building societies, etc.

5. Purpose of Loan:

The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc.

6. Risk:

The degree of risk is small in the money market. The risk is much greater in capital market. The maturity of one year or less gives little time for a default to occur, so the risk is minimised. Risk varies both in degree and nature throughout the capital market.

7. Basic Role:

The basic role of money market is that of liquidity adjustment. The basic role of capital market is that of putting capital to work, preferably to long-term, secure and productive employment.

8. Relation with Central Bank:

The money market is closely and directly linked with central bank of the country. The capital market feels central bank's influence, but mainly indirectly and through the money market.

9. Market Regulation:

In the money market, commercial banks are closely regulated. In the capital market, the institutions are not much regulated.

FDI in Retail sector in India: How does this affect you?

2012-10-07T12:53:00.007-07:00

Retailing defines the direct interface between the manufacturers and the end users who are basically individual consumers.

The retail business owners stock up all goods after purchasing it directly from the manufacturers and then sell it to individual customers keeping a profit margin for themselves. Of late the retailing industry in India has bloomed with much coveted success causing positive impact on the national economy.

As per the recent revelations by the popular International Management Consultancy AT Kearney, India has been considered the second most lucrative destinations of the world for retail business.

Organized retailing entails trading conducted by licensed retailers and unorganized retailing includes all types of low cost trading like local shops, small roadside stores and temporary shops or door to door selling of various goods.Until now, according to the Indian retailing laws, Foreign Direct Investment in multi-brand retail market was prohibited.

But government is thinking to open the FDI in retail in India which implies that foreign investment in retailing is possible up to 51%. Now the announcement of retail FDI in India has triggered a series of debates on both positive and negative notes and become political issue. So let’s discuss these things, what all this means to you through advantages and disadvantages:

Growth in economy: Due to coming of foreign companies’ new infrastructure will be build, thus real estate sector will grow consequently banking sector, as money need to be required to build infrastructure would be provided by banks.

Job opportunities: Estimates shows that this will create about 80Lakh jobs. These career opportunities will be created mostly in retail, real estate. But it will create positive impact on others sectors as well. Read about career options in Retail sector…..

Benefits to farmers: In most cases, in the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their actual share of profit margin as the lion’s share is eaten up by the middle men. This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not to search for buyers.

Benefits to consumers: Consumer will get variety of products at low prices compared to market rates, and will have more choice to get international brands at one place.

Lack of infrastructure in the retailing chain has been one of the common issues in India for years which has led the process to an incompetent market mechanism. For example, in spite of India being one of the largest producers of vegetables and fruits, lack of proper count of cold storages has significantly affected the selling of these perishable items. FDI might help India overcome such issues by channelizing the resources in the right manner.

In the last years, the Public distribution system is proved to be significantly ineffective. In spite of the fact that the government arranged for subsidies, the food inflation has caused its negative impact continuously and it can be handled by FDI.

Disadvantages of FDI in retail sector in India:

According to the non-government cult, FDI will drain out the country’s share of revenue to foreign countries which may cause negative impact on India’s overall economy.

The domestic organized retail sector might not be competitive enough to tackle international players and might loose its market share.

Many of the small business owners and workers from other functional areas may lose their jobs, as lot of people are into unorganized retail business such as small shops.

However the government is quite stringent on this issue and determined to allow FDI in India. The actual impacts would be observed over time and till then the laymen have nothing but to hope for the best!

FDI in Retail sector in India: How does this affect you?

2012-10-07T12:53:00.001-07:00

Retailing defines the direct interface between the manufacturers and the end users who are basically individual consumers.

The retail business owners stock up all goods after purchasing it directly from the manufacturers and then sell it to individual customers keeping a profit margin for themselves. Of late the retailing industry in India has bloomed with much coveted success causing positive impact on the national economy.

As per the recent revelations by the popular International Management Consultancy AT Kearney, India has been considered the second most lucrative destinations of the world for retail business.

Organized retailing entails trading conducted by licensed retailers and unorganized retailing includes all types of low cost trading like local shops, small roadside stores and temporary shops or door to door selling of various goods.Until now, according to the Indian retailing laws, Foreign Direct Investment in multi-brand retail market was prohibited.

But government is thinking to open the FDI in retail in India which implies that foreign investment in retailing is possible up to 51%. Now the announcement of retail FDI in India has triggered a series of debates on both positive and negative notes and become political issue. So let’s discuss these things, what all this means to you through advantages and disadvantages:

Growth in economy: Due to coming of foreign companies’ new infrastructure will be build, thus real estate sector will grow consequently banking sector, as money need to be required to build infrastructure would be provided by banks.

Job opportunities: Estimates shows that this will create about 80Lakh jobs. These career opportunities will be created mostly in retail, real estate. But it will create positive impact on others sectors as well. Read about career options in Retail sector…..

Benefits to farmers: In most cases, in the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their actual share of profit margin as the lion’s share is eaten up by the middle men. This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not to search for buyers.

Benefits to consumers: Consumer will get variety of products at low prices compared to market rates, and will have more choice to get international brands at one place.

Lack of infrastructure in the retailing chain has been one of the common issues in India for years which has led the process to an incompetent market mechanism. For example, in spite of India being one of the largest producers of vegetables and fruits, lack of proper count of cold storages has significantly affected the selling of these perishable items. FDI might help India overcome such issues by channelizing the resources in the right manner.

In the last years, the Public distribution system is proved to be significantly ineffective. In spite of the fact that the government arranged for subsidies, the food inflation has caused its negative impact continuously and it can be handled by FDI.

Disadvantages of FDI in retail sector in India:

According to the non-government cult, FDI will drain out the country’s share of revenue to foreign countries which may cause negative impact on India’s overall economy.

The domestic organized retail sector might not be competitive enough to tackle international players and might loose its market share.

Many of the small business owners and workers from other functional areas may lose their jobs, as lot of people are into unorganized retail business such as small shops.

2G spectrum scam

2012-02-04T08:14:00.000-08:00

The 2G spectrum scandal involved officials in the government of India illegally undercharging mobile telephony companies for frequency allocation licenses, which they would use to create 2G subscriptions for cell phones.

The shortfall between the money collected and the money which the law mandated to be collected is estimated to be 176,645 crore (US$39 billion) as valued by Comptroller and Auditor General of India based on 3G and BWA spectrum auction prices which held in 2010.^[1] The issuing of licenses occurred in 2008, but the scam came to public notice when the Indian Income Tax Department was investigating political lobbyist Nira Radia.

The government's investigation and the government's reactions to the findings in the investigation were the subject of debate, as were the nature of the Indian media's reactions.

Much of the credit of bringing this whole scam into the public light (by pursuing it in the court of law) goes to Subramanian Swamy who is the chief petitioner for this case in the court of law.

Background

India is divided into 22 telecoms zones and there are a total 281 zonal licenses in the market.In 2008, 122 new 2G spectrum licenses were given to telecom companies at the price of 2001 and on first come first serve basis.
The Central Bureau of Investigation (CBI) says that several rules were violated and bribes were paid to favor certain firms while awarding 2G spectrum licenses.
The audit report of Comptroller and Auditor General of India says that several licenses were issued to firms with no prior experience in the telecom sector or were ineligible or had suppressed relevant facts..
In 2007, Telecom Regulatory Authority of India (Trai) had given its recommendations on pricing of 2G spectrum to A.Raja but he did not place the recommendations before the full Telecom Commission which, among others, would have included the Finance Secretary.
In November 2007 Prime Minister of India Dr Manmohan Singh had written a letter to telecom minister A. Raja directing him to ensure allotment of 2G spectrum in a fair and transparent manner and to ensure licence fee was properly revised.
Raja wrote back to the Prime Minister rejecting many of his recommendations.
In the same month "Finance Ministry" wrote letter to "Department of Telecom" raising concerns over the procedure adopted by it but "Department of Telecom" went ahead with its plan of giving 2G licenses. It preponderated the cut-off date to September 25, from October 1, 2007.
Later on the same day, DOT posted an announcement on its website saying those who apply between 3.30 and 4.30 pm would be issued licences in accordance with the said policy. Companies like Uni tech & Swan Telecom got licenses without any prior telecom experience. Swan Telecom got the license even though it did not meet eligibility criteria.
Swan got license for Rs. 1537 crore and then it sold 45% stake to UAE based company Etisalat for Rs. 4200 crore..
Uni tech Wireless, a subsidiary of the Uni tech Group, got license for Rs. 1661 crore and later sold 60% stake for Rs. 6200 crore to Norway based company Tenor.
Following is the list of companies who got the 122 2G licenses during the tenure of A. Raja as Telecom Minister. (The licenses were later quashed by Supreme Court)^.

Rise in Gold Prices Reason: Price Hike In Gold

2011-12-13T05:20:00.000-08:00

International market has experiencing surge in Gold Price since a year. On February 11, 2010 in London gold market rose to a near one week high at $ 1,090.85 an ounce. This surge implies the following reasons.

(1)   Downfall in the value of dollar.
(2)   Rising demand of gold jewellery.
(3)   No new reserves of Gold are being searched.

SPDR Gold trust said that gold could test new high in the coming months if the dollar remained on a week trend. It is a quoted as a consequence of 2008 economic meet down 2010 is said to be much more economic driven so dollar would not show influence. It will be more closely aligned with supply and demand.Looking into 2010, golden is not likely to recover in the first few months due to prospects for the dollar to fail to rise significantly. The huge US fiscal deficit will keep the dollar pressured while problems in housing loan repayments will weigh on bank’s financial health. The Federal Reserve is not expected to raise interstate. All these factors are dollar negative, which in turn benefits gold. A weak dollar boosts gold’s appeal as an alternative asset and makes dollar priced commodities cheaper for holder of other currencies. The economic crisis from late 2008 boosted gold, which investors bought as a safe heaven asset. Gold is also bought as a hedge against inflation, which erodes the value of paper assets

“The chaiman of Barrcek Gold crop the world’s largest gold Producer, said while gold prices may be volatile, its upward climb was not over.”
Gold’s popularity returns because investor fear inflation and sovereign downgrades and out look of paper currency in general. Gold prices jumped 2 percent in euro terms to a 796.57 euros on February 11. The world’s largest gold – backed exchange traded fund, SPDR Gold Trust said that its holdings stood at 1,111.922 tons. Gold also tends to track crude prices, as the metal can brought as a hedge against oil led inflation.

Global investment exceeded jewelery demand last year for the first time since 1980. In third quarter of 2009 gold demand or the mainland soared 12percent year on year to a record high of 120.2 tones. Glaringly, international arena does not show a surge in Gold demand but certain countries rush for it. For example in china it rose eight percent to 93.5 tones while retail investment rose a staggering 30% to a record 26.8 tones. The economic stability of the state also enables people to indulge themselves in such 14xury. Additionally, the role of traditions cannot be ignored. Albert cheng, Far East managing director for world Gold council said,
“The chinese have a deep affinity to gold which dates back thousands of years. No marriage will be ideal if the bride does not revieve gold jewellery”

Similarly India is expected to overtake china in this regard as it seemed to be a good buyer of Gold.
Most important, gold looks attractive to the government too. Last year Beijing revealed it had been buying gold since 2003 increasing its holdings from 600 to 1,054 tones. Recently India also bought gold from IMF. The reason for this buying of gold have following reasons.
Every state in the world keeps its foreign reserves in the form of foreign currency i.e $, Euro and pond. Gold is also taken as an asset in foreign reserve. Taking it as an asset was a tradition, very popular in the past that declined after the surge in value of dollar. Similarly the decline in the value of dollar give rise to the demand of gold as a part of foreign reserves.

Moreover, India & china bought is to increase their foreign reserves but IMF sold it for another reason. IMF help any state by two ways i.e SDRS (Special Drawing Rights) and ODRS (Ordinary Drawing Rights). In SDRS IMF have its special currency and Gold where as SDRS consist of $ and L. on that juncture, IMF was lacking holding of dollars so it sold its gold to India and china to increase its reserves in order to monitor other states.

The other element in the foreign reserves is international bonds. China is having world’s largest foreign exchange reserves at $ 2.27tr has largely invested in US government bonds. Focussing on US economy China is expecting to buy more gold internationally to diversify its assets.
On supply side South Africa’s statistics office said gold mine out put fell 8.8 percent in December in volime terms. The republic was the world’s 3rd largest mine produces in 2008 with out put of 233.2 tons. But South Africa’s firth biggest Gold producer DRD – Gold reported a 4 percent use in gold out put for the quarter to December and a retune to profile owing to lower operation cost. Global mine supply rise modestly including a 3.9% year over year gain, but these gains are unlikely to have a big impact on gold prices.
Additionally many mines in the world need to be discovered, that produce Gold. Many of them are not explored explicitly.

Recodick, a place in Balochistan, Pakistan, is rich in Gold and copper. It is estimated that it contains reserves of $ 70bn of Gold. During Former President General Pervez Musharaf, the tender of this Gold Treasure was given to Canadian Company named Chelian. On the condition that this company would give 20% share to federation and flew 80% to Canada. In current regime, the Provincial Government of Balouchistan had cancelled this contract.

Thus according to Reuters gold is heading for its ninth increase in as many years. Its not only gold but sugar, coca, copper and oil also saw surge in demand and prices, describing 2009 as a year of commodities. Some experts predict a long term rise in international price while other fear that prices could fall sharply and Gold may turn weaker towards the end of 2010 depending on economic data and views on the US interest rates. Moreover strength of US currency cuts gold’s appeal as an alternative asset and makes dollar priced commodities more expensive to holders of other currencies.

FDI in Retail sector in India: How does this affect you?

2011-12-12T05:35:00.000-08:00

Introduction:-
Retailing defines the direct interface between the manufacturers and the end users who are basically individual consumers. The retail business owners stock up all goods after purchasing it directly from the manufacturers and then sell it to individual customers keeping a profit margin for themselves. Of late the retailing industry in India has bloomed with much coveted success causing positive impact on the national economy. As per the recent revelations by the popular International Management Consultancy AT Kearney, India has been considered the second most lucrative destinations of the world for retail business.

In India, retailing industry is segregated into two classes- organized retailing and unorganized retailing. Organized retailing entails trading conducted by licensed retailers and unorganized retailing includes all types of low cost trading like local shops, small roadside stores and temporary shops or door to door selling of various goods.Until now, according to the Indian retailing laws, Foreign Direct Investment in multi-brand retail market was prohibited. But government is thinking to open the FDI in retail in India which implies that foreign investment in retailing is possible up to 51%. Now the announcement of retail FDI in India has triggered a series of debates on both positive and negative notes and become political issue. So let’s discuss these things, what all this means to you through advantages and disadvantages:

Advantages of FDI in retail sector in India:

Growth in economy: Due to coming of foreign companies’ new infrastructure will be build, thus real estate sector will grow consequently banking sector, as money need to be required to build infrastructure would be provided by banks.

Job opportunities: Estimates shows that this will create about 80Lakh jobs. These career opportunities will be created mostly in retail, real estate. But it will create positive impact on others secrtors as well.

Benefits to farmers: In most cases, in the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their actual share of profit margin as the lion’s share is eaten up by the middle men. This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not to search for buyers.

Benefits to consumers: Consumer will get variety of products at low prices compared to market rates, and will have more choice to get international brands at one place.

Disadvantages of FDI in retail sector in India:

According to the non-government cult, FDI will drain out the country’s share of revenue to foreign countries which may cause negative impact on India’s overall economy.

The domestic organized retail sector might not be competitive enough to tackle international players and might loose its market share.

Many of the small business owners and workers from other functional areas may lose their jobs, as lot of people are into unorganized retail business such as small shops.

Foreign Direct Investment in Indian Retail Sector – An Analysis

2011-12-12T05:31:00.000-08:00

Introduction

Just back from first frenzied shopping experience in the UK, a four year old ever-inquisitive daughter asked to her father, “Why do we not have a Harrods in Delhi? Shopping there is so much fun!” Simple question for a four-year-old, but not so simple for her father to explain.

As per the current regulatory regime, retail trading (except under single-brand product retailing — FDI up to 51 per cent, under the Government route) is prohibited in India. Simply put, for a company to be able to get foreign funding, products sold by it to the general public should only be of a ‘single-brand’; this condition being in addition to a few other conditions to be adhered to. That explains why we do not have a Harrods in Delhi.
India being a signatory to World Trade Organisation’s General Agreement on Trade in Services, which include wholesale and retailing services, had to open up the retail trade sector to foreign investment. There were initial reservations towards opening up of retail sector arising from fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities. However, the government in a series of moves has opened up the retail sector slowly to Foreign Direct Investment (“FDI”). In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 percent investment in a single brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India.

Definition of Retail
In 2004, The High Court of Delhi defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer.

Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customersRetailing is the last link that connects the individual consumer with the manufacturing and distribution chain. A retailer is involved in the act of selling goods to the individual consumer at a margin of profit.

Division of Retail Industry – Organised and Unorganised Retailing
The retail industry is mainly divided into:- 1) Organised and 2) Unorganised Retailing
Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.
Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.
The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers. The organized retail however is at a very nascent stage. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP.

FDI Policy in India
FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.
Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (‘RBI’) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time.
The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP).
The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (‘FIPB’) would be required.

FDI Policy with Regard to Retailing in India
It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities.
a)      FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.
b)      FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series).
c)      FDI is not permitted in Multi Brand Retailing in India.

Entry Options For Foreign Players prior to FDI Policy
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players ha\d been operating in the country. Some of entrance routes used by them have been discussed in sum as below:-
1.         Franchise Agreements
It is an easiest track to come in the Indian market. In franchising and commission agents’ services, FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. This is a most usual mode for entrance of quick food bondage opposite a world. Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good as Spencer, have entered Indian marketplace by this route.
2.         Cash And Carry Wholesale Trading
100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers.The wholesaler deals only with smaller retailers and not Consumers. Metro AG of Germany was the first significant global player to enter India through this route.
3.         Strategic Licensing Agreements
Some foreign brands give exclusive licences and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees. Mango, the Spanish apparel brand has entered India through this route with an agreement with Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Foodlands Pvt. Ltd
4.         Manufacturing and Wholly Owned Subsidiaries.
The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail. These companies have been authorised to sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary, Nike India Private Limited.
FDI in Single Brand Retail
The Government has not categorically defined the meaning of “Single Brand” anywhere neither in any of its circulars nor any notifications.
In single-brand retail, FDI up to 51 per cent is allowed, subject to Foreign Investment Promotion Board (FIPB) approval and subject to the conditions mentioned in Press Note 3 that
(a) only single brand products would be sold (i.e., retail of goods of multi-brand even if produced by the same manufacturer would not be allowed),
(b) products should be sold under the same brand internationally,
(c) single-brand product retail would only cover products which are branded during manufacturing and
(d) any addition to product categories to be sold under “single-brand” would require fresh approval from the government.
While the phrase ‘single brand’ has not been defined, it implies that foreign companies would be allowed to sell goods sold internationally under a ‘single brand’, viz., Reebok, Nokia, Adidas. Retailing of goods of multiple brands, even if such products were produced by the same manufacturer, would not be allowed.
Going a step further, we examine the concept of ‘single brand’ and the associated conditions:
FDI in ‘Single brand’ retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.
But, what is a ‘brand’?
Brands could be classified as products and multiple products, or could be manufacturer brands and own-label brands. Assume that a company owns two leading international brands in the footwear industry – say ‘A’ and ‘R’. If the corporate were to obtain permission to retail its brand in India with a local partner, it would need to specify which of the brands it would sell. A reading of the government release indicates that A and R would need separate approvals, separate legal entities, and may be even separate stores in which to operate in India. However, it should be noted that the retailers would be able to sell multiple products under the same brand, e.g., a product range under brand ‘A’ Further, it appears that the same joint venture partners could operate various brands, but under separate legal entities.
Now, taking an example of a large departmental grocery chain, prima facie it appears that it would not be able to enter India. These chains would, typically, source products and, thereafter, brand it under their private labels. Since the regulations require the products to be branded at the manufacturing stage, this model may not work. The regulations appear to discourage own-label products and appear to be tilted heavily towards the foreign manufacturer brands.
There is ambiguity in the interpretation of the term ‘single brand’. The existing policy does not clearly codify whether retailing of goods with sub-brands bunched under a major parent brand can be considered as single-brand retailing and, accordingly, eligible for 51 per cent FDI. Additionally, the question on whether co-branded goods (specifically branded as such at the time of manufacturing) would qualify as single brand retail trading remains unanswered.

FDI in Multi Brand Retail
The government has also not defined the term Multi Brand. FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof.
In July 2010, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce   circulated a discussion paper on allowing FDI in multi-brand retail. The paper doesn’t suggest any upper limit on FDI in multi-brand retail. If implemented, it would open the doors for global retail giants to enter and establish their footprints on the retail landscape of India. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores offering a range of household items and grocery directly to consumers in the same way as the ubiquitous ’kirana’ store.

Foreign Investor’s Concern Regarding FDI Policy in India
For those brands which adopt the franchising route as a matter of policy, the current FDI Policy will not make any difference. They would have preferred that the Government liberalize rules for maximizing their royalty and franchise fees. They must still rely on innovative structuring of franchise arrangements to maximize their returns. Consumer durable majors such as LG and Samsung, which have exclusive franchisee owned stores, are unlikely to shift from the preferred route right away.
For those companies which choose to adopt the route of 51% partnership, they must tie up with a local partner. The key is finding a partner which is reliable and who can also teach a trick or two about the domestic market and the Indian consumer. Currently, the organized retail sector is dominated by the likes of large business groups which decided to diversify into retail to cash in on the boom in the sector – corporates such as Tata through its brand Westside, RPG Group through Foodworld, Pantaloon of the Raheja Group and Shopper’s Stop. Do foreign investors look to tie up with an existing retailer or look to others not necessarily in the business but looking to diversify, as many business groups are doing?
An arrangement in the short to medium term may work wonders but what happens if the Government decides to further liberalize the regulations as it is currently contemplating? Will the foreign investor terminate the agreement with Indian partner and trade in market without him? Either way, the foreign investor must negotiate its joint venture agreements carefully, with an option for a buy-out of the Indian partner’s share if and when regulations so permit. They must also be aware of the regulation which states that once a foreign company enters into a technical or financial collaboration with an Indian partner, it cannot enter into another joint venture with another Indian company or set up its own subsidiary in the ‘same’ field’ without the first partner’s consent if the joint venture agreement does not provide for a ‘conflict of interest’ clause. In effect, it means that foreign brand owners must be extremely careful whom they choose as partners and the brand they introduce in India. The first brand could also be their last if they do not negotiate the strategic arrangement diligently.

Concerns for the Government for only Partially Allowing FDI in Retail Sector
A number of concerns were expressed with regard to partial opening of the retail sector for FDI. The Hon’ble Department Related Parliamentary Standing Committee on Commerce, in its 90th Report, on ‘Foreign and Domestic Investment in Retail Sector’, laid in the Lok Sabha and the Rajya Sabha on 8 June, 2009, had made an in-depth study on the subject and identified a number of issues related to FDI in the retail sector. These included:
It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector. Further, as the manufacturing sector has not been growing fast enough, the persons displaced from the retail sector would not be absorbed there.
Another concern is that the Indian retail sector, particularly organized retail, is still under-developed and in a nascent stage and that, therefore, it is important that the domestic retail sector is allowed to grow and consolidate first, before opening this sector to foreign investors.
Antagonists of FDI in retail sector oppose the same on various grounds, like, that the entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the unorganized retail sector employs an enormous percentage of Indian population after the agriculture sector; secondly that the global retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices received by the suppliers; thirdly, it would lead to asymmetrical growth in cities, causing discontent and social tension elsewhere. Hence, both the consumers and the suppliers would lose, while the profit margins of such retail chains would go up.

LIMITATIONS OF THE PRESENT SETUP

Infrastructure
There has been a lack of investment in the logistics of the retail chain, leading to an inefficient market mechanism. Though India is the second largest producer of fruits and vegetables (about 180 million MT), it has a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of 23.6 million MT. , 80% of this is used only for potatoes. The chain is highly fragmented and hence, perishable horticultural commodities find it difficult to link to distant markets, including overseas markets, round the year. Storage infrastructure is necessary for carrying over the agricultural produce from production periods to the rest of the year and to prevent distress sales. Lack of adequate storage facilities cause heavy losses to farmers in terms of wastage in quality and quantity of produce in general. Though FDI is permitted in cold-chain to the extent of 100%, through the automatic route, in the absence of FDI in retailing; FDI flow to the sector has not been significant.
Intermediaries dominate the value chain
Intermediaries often flout mandi norms and their pricing lacks transparency. Wholesale regulated markets, governed by State APMC Acts, have developed a monopolistic and non-transparent character. According to some reports, Indian farmers realize only 1/3^rd of the total price paid by the final consumer, as against 2/3^rd by farmers in nations with a higher share of organized retail.

Improper Public Distribution System (“PDS”)
There is a big question mark on the efficacy of the public procurement and PDS set-up and the bill on food subsidies is rising. In spite of such heavy subsidies, overall food based inflation has been a matter of great concern. The absence of a ‘farm-to-fork’ retail supply system has led to the ultimate customers paying a premium for shortages and a charge for wastages.

No Global Reach
The Micro Small & Medium Enterprises (“MSME”) sector has also suffered due to lack of branding and lack of avenues to reach out to the vast world markets. While India has continued to provide emphasis on the development of MSME sector, the share of unorganised sector in overall manufacturing has declined from 34.5% in 1999-2000 to 30.3% in 2007-08. This has largely been due to the inability of this sector to access latest technology and improve its marketing interface.

Rationale behind Allowing FDI in Retail Sector
FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario of low competition and poor productivity.
The policy of single-brand retail was adopted to allow Indian consumers access to foreign brands. Since Indians spend a lot of money shopping abroad, this policy enables them to spend the same money on the same goods in India. FDI in single-brand retailing was permitted in 2006, up to 51 per cent of ownership. Between then and May 2010, a total of 94 proposals have been received. Of these, 57 proposals have been approved. An FDI inflow of US$196.46 million under the category of single brand retailing was received between April 2006 and September 2010, comprising 0.16 per cent of the total FDI inflows during the period. Retail stocks rose by as much as 5%. Shares of Pantaloon Retail (India) Ltd ended 4.84% up at Rs 441 on the Bombay Stock Exchange. Shares of Shopper’s Stop Ltd rose 2.02% and Trent Ltd, 3.19%. The exchange’s key index rose 173.04 points, or 0.99%, to 17,614.48. But this is very less as compared to what it would have been had FDI upto 100% been allowed in India for single brand.
The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the Indian partner – foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. By partially opening this sector, the government was able to reduce the pressure from its trading partners in bilateral/ multilateral negotiations and could demonstrate India’s intentions in liberalising this sector in a phased manner.
Permitting foreign investment in food-based retailing is likely to ensure adequate flow of capital into the country & its productive use, in a manner likely to promote the welfare of all sections of society, particularly farmers and consumers. It would also help bring about improvements in farmer income & agricultural growth and assist in lowering consumer prices inflation.
Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of quality standards and consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards and cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade.
Lastly, it is to be noted that the Indian Council of Research in International Economic Relations (ICRIER), a premier economic think tank of the country, which was appointed to look into the impact of BIG capital in the retail sector, has projected the worth of Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to conclusion that investment of ‘big’ money (large corporates and FDI) in the retail sector would in the long run not harm interests of small, traditional, retailers.
In light of the above, it can be safely concluded that allowing healthy FDI in the retail sector would not only lead to a substantial surge in the country’s GDP and overall economic development, but would inter alia also help in integrating the Indian retail market with that of the global retail market in addition to providing not just employment but a better paying employment, which the unorganized sector (kirana and other small time retailing shops) have undoubtedly failed to provide to the masses employed in them.
Industrial organisations such as CII, FICCI, US-India Business Council (USIBC), the American Chamber of Commerce in India, The Retail Association of India (RAI) and Shopping Centers Association of India (a 44 member association of Indian multi-brand retailers and shopping malls) favour a phased approach toward liberalising FDI in multi-brand retailing, and most of them agree with considering a cap of 49-51 per cent to start with.
The international retail players such as Walmart, Carrefour, Metro, IKEA, and TESCO share the same view and insist on a clear path towards 100 per cent opening up in near future. Large multinational retailers such as US-based Walmart, Germany’s Metro AG and Woolworths Ltd, the largest Australian retailer that operates in wholesale cash-and-carry ventures in India, have been demanding liberalisation of FDI rules on multi-brand retail for some time.
Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely allowed but per contra should be significantly encouraged. Allowing FDI in multi brand retail can bring about Supply Chain Improvement, Investment in Technology, Manpower and Skill development,Tourism Development, Greater Sourcing From India, Upgradation in Agriculture, Efficient Small and Medium Scale Industries, Growth in market size and Benefits to govemment through greater GDP, tax income and employment generation.

Prerequisites before allowing FDI in Multi Brand Retail and Lifting Cap of Single Brand Retail

FDI in multi-brand retailing must be dealt cautiously as it has direct impact on a large chunk of population. Left alone foreign capital will seek ways through which it can only multiply itself, and unthinking application of capital for profit, given our peculiar socio-economic conditions, may spell doom and deepen the gap between the rich and the poor. Thus the proliferation of foreign capital into multi-brand retailing needs to be anchored in such a way that it results in a win-win situation for India. This can be done by integrating into the rules and regulations for FDI in multi-brand retailing certain inbuilt safety valves. For example FDI in multi –brand retailing can be allowed in a calibrated manner with social safeguards so that the effect of possible labor dislocation can be analyzed and policy fine tuned accordingly. To ensure that the foreign investors make a genuine contribution to the development of infrastructure and logistics, it can be stipulated that a percentage of FDI should be spent towards building up of back end infrastructure, logistics or agro processing units. Reconstituting the poverty stricken and stagnating rural sphere into a forward moving and prosperous rural sphere can be one of the justifications for introducing FDI in multi-brand retailing. To actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certain amount of farm produce be procured from the poor farmers. Similarly to develop our small and medium enterprise (SME), it can also be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India. PDS is still in many ways the life line of the people living below the poverty line. To ensure that the system is not weakened the government may reserve the right to procure a certain amount of food grains for replenishing the buffer. To protect the interest of small retailers the government may also put in place an exclusive regulatory framework. It will ensure that the retailing giants do resort to predatory pricing or acquire monopolistic tendencies. Besides, the government and RBI need to evolve suitable policies to enable the retailers in the unorganized sector to expand and improve their efficiencies. If Government is allowing FDI, it must do it in a calibrated fashion because it is politically sensitive and link it (with) up some caveat from creating some back-end infrastructure.
Further, To take care of the concerns of the Government before allowing 100% FDI in Single Brand Retail and Multi- Brand Retail, the following recommendations are being proposed .

Preparation of a legal and regulatory framework and enforcement mechanism to ensure that large retailers are not able to dislocate small retailers by unfair means.
Extension of institutional credit, at lower rates, by public sector banks, to help improve efficiencies of small retailers; undertaking of proactive programme for assisting small retailers to upgrade themselves.
Enactment of a National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the entire retail sector.
Formulation of a Model Central Law regarding FDI of Retail Sector.

Conclusion
A Start Has Been Made
Walmart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the ‘Best Price’ stores. It plans to have 15 stores by March and enter new states like Andhra Pradesh , Rajasthan, Madhya Pradesh and Karnataka.
Duke, Wallmart’s CEO opined that FDI in retail would contain inflation by reducing wastage of farm output as 30% to 40% of the produce does not reach the end-consumer. “In India, there is an opportunity to work all the way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-consumer,” Duke said, adding, that a similar trend was noticed when organized retail became popular in the US.
Many of the foreign brands would come to India if FDI in multi brand retail is permitted which can be a blessing in disguise for the economy.

Back-end logistics must for FDI in multi-brand retail
The government has added an element of social benefit to its latest plan for calibrated opening of the multi-brand retail sector to foreign direct investment (FDI). Only those foreign retailers who first invest in the back-end supply chain and infrastructure would be allowed to set up multi brand retail outlets in the country. The idea is that the firms must have already created jobs for rural India before they venture into multi-brand retailing.
It can be said that the advantages of allowing unrestrained FDI in the retail sector evidently outweigh the disadvantages attached to it and the same can be deduced from the examples of successful experiments in countries like Thailand and China; where too the issue of allowing FDI in the retail sector was first met with incessant protests, but later turned out to be one of the most promising political and economical decisions of their governments and led not only to the commendable rise in the level of employment but also led to the enormous development of their country’s GDP.
Moreover, in the fierce battle between the advocators and antagonist of unrestrained FDI flows in the Indian retail sector, the interests of the consumers have been blatantly and utterly disregarded. Therefore, one of the arguments which inevitably needs to be considered and addressed while deliberating upon the captioned issue is the interests of consumers at large in relation to the interests of retailers.
It is also pertinent to note here that it can be safely contended that with the possible advent of unrestrained FDI flows in retail market, the interests of the retailers constituting the unorganized retail sector will not be gravely undermined, since nobody can force a consumer to visit a mega shopping complex or a small retailer/sabji mandi. Consumers will shop in accordance with their utmost convenience, where ever they get the lowest price, max variety, and a good consumer experience.
The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian economy at one point of time or the other would be embraced by liberalization, privatization and globalization.FDI in multi-brand retailing and lifting the current cap of 51% on single brand retail is in that sense a steady progression of that trajectory. But the government has by far cushioned the adverse impact of the change that has ensued in the wake of the implementation of Industrial Policy 1991 through safety nets and social safeguards. But the change that the movement of retailing sector into the FDI regime would bring about will require more involved and informed support from the government. One hopes that the government would stand up to its responsibility, because what is at stake is the stability of the vital pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of the entire country.

Role of Banking in India

2011-10-25T06:53:00.000-07:00

Topic

ROLE OF BANKS IN INDIA

Index

v INTRODUCTION TO INDIAN BANKING INDUSTRY

v GROWTH OF BANKING

v REFORMS IN BANKING SECTOR

v OVERVIEW OF ROLE OF BANKS IN THE ECONOMY

v CONCLUSION

v BIBLOGRAPHY

INTRODUCTION TO INDIAN BANKING INDUSTRY

Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. This was followed by Bank of Hindustan. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806.The first fully Indian owned bank was the Allahabad Bank, which was established in 1865.By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers.

The Public Sector emerged as the driver of economic growth consequent to the industrial revolution in Europe. With the advent of globalization, the public sector faced new challenges in the developed economies. No longer the public sector had the privilege of operating in a sellers market and had to face competition both from domestic and international competitors. Further, in the second half of the 20th century in the developed economies, the political opinion started swinging towards the views that the intervention as well as investment by Government in commercial activities should be reduced to the extent possible.

WHY BANKING

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.

GROWTH OF BANKING

Journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

Phase I: Early phase from 1786 to 1969 of Indian Banks

Phase II: Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

Phase III: New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

Phase-I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in1935. There were approximately 1100 banks, mostly small. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948.

Phase-II

In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.14 major commercial banks in the country were nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalisation of State Bank of India.

1959: Nationalisation of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalisation of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

Phase-III

This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. Phone banking and net banking is introduced . The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

REFORMS IN BANKING SECTOR

I. RESERVE BANK OF INDIA:

Reserve Bank of India (RBI) is India's central bank - it formulates, implements and monitors India's monetary policy. Reserve bank of India was established in 1935 and nationalized in 1949. It is fully owned by the Government of India and its headquarters are located in Mumbai. RBI has 22 regional offices in the various state capitals of India. It has a majority stake in the State Bank of India.

Before the steps of nationalisation of Indian banks, only State Bank of India (SBI) was nationalised. It took place in July 1955 under the SBI Act of 1955. Nationalisation of Seven State Banks of India (formed subsidiary) took place on 19th July, 1960. The second phase of nationalisation of Indian banks took place in the year 1980. Seven more banks were nationalised with deposits over 200 crores. Till this year, approximately 80% of the banking segment in India was under Government ownership. After the nationalisation of banks in India, the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

1955: Nationalisation of State Bank of India.

1959: Nationalisation of SBI subsidiaries.

1969: Nationalisation of 14 major banks.

1980: Nationalisation of seven banks with deposits over 200 crores.

II. COMMERCIAL BANKS:

The commercial banks in India play a major role in the development of the country itself. These banks are primarily concerned with providing loans and accepting deposits. Several other facilities are also provided by the commercial banks in India. The commercial banks in India generate funds for the purpose of financing their various financial requirements through a definite process. The commercial banks in India accept deposits from different sources like businesses and individuals. A wide range of financial products have been developed by these banks to encourage the savings habit of the clients. There are savings deposits, term deposits and many more to attract the investors. These deposits are recycled in the economy through the loans and other credit products.

A.PSU banks

Nationalized banks dominate the banking system in India. The history of nationalised banks in India dates back to mid-20th century, when Imperial Bank of India was nationalised (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. Then on 19th July1960, its seven subsidiaries were also nationalised with deposits over 200 crores. These subsidiaries of SBI were State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Indore (SBIR), State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of Saurashtra (SBS), and State Bank of Travancore (SBT).

B. Private sector banks

Currently, India has 88 scheduled commercial banks (SCBs), 31 private banks and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, private and foreign banks holding 18.2% and 6.5% respectively, 0.3% non-scheduled commercial banks.

C. Foreign banks

Foreign banks working in India like Abn-amro, HSBC, CITI, Standard Chartered Bank brought the drastic changes in whole banking industry. Foreign Banks in India always brought an explanation about the prompt services to customers. After the set up foreign banks in India, the banking sector in India also become competitive and accretive.

Why Bank Nationalization?

The need for the nationalisation was felt mainly because private commercial banks were not fulfilling the social and developmental goals of banking which are so essential for any industrializing country. Despite the enactment of the Banking Regulation Act in 1949 and the nationalisation of the largest bank, the State Bank of India, in 1955, the expansion of commercial banking had largely excluded rural areas and small-scale borrowers. The developmental goals of financial intermediation were not being achieved other than for some favored large industries and established business houses. Whereas industry’s share in credit disbursed by commercial banks almost doubled between 1951 and 1968, from 34 per cent to 68 per cent, agriculture received less than 2 per cent of total credit. Other key areas such credit to exports and small-scale industries were also neglected.

The stated purpose of bank nationalisation was to ensure that credit allocation occur in accordance with plan priorities. Nationalisation took place in two phases, with a first round in1969 covering 14 banks followed by another in 1980 covering 7 banks. Currently there are 27nationalised commercial banks. Initially, the focus was on the physical extension of banking services. There is no doubt that the achievement has been impressive by any standards. From only 8261 in June 1969, the number of branches of commercial banks increased to 65,521 in 2000. (Indeed, they had increased to even more, but, as we shall see, the “reforms” of the nineties caused a decline in the number of rural branches.) The expansion of rural branches was especially noteworthy. The population covered by a branch decreased from 65,000 in 1969 to 15,000 in 2001. There were associated increases in both deposits and credit flow

III. CO - OPERATIVE BANKS:

Co-operative banks in this country are a part of vast and powerful structure of co-operative institutions which are engaged in tasks of production, processing, marketing, distribution, servicing and banking in India. The beginning co-operative banking in this country dates back to about 1904.

Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Initiatives towards development of co-operative banks

1. Reorganization of PACS’s (a scheme by NABARD).

2. Licensing of new USB’s liberalized.

3. National Co-operative Bank of India (NCBI) was registered in 1993. (Multi- state co-operative society)-it has no regulatory functions.

4. Co-operative development bank (set up by NABARD).

5. Lending and borrowing rates of all co-operative have been more or less completely freed or deregulated.

6. Allowing all PCB’s to undertake equipment leasing and hire-purchase financing

IV. DEVELOPMENT BANKS:

In other words, institutions undertaking financial and developmental functions are considered as development banks.

Structure of Development Banks/ Development Financial Institutions –

During the post-independence period, India is well-served by a network of development banks, at the national as well as state levels. At present, there are seven all India industrial development banks, viz.

(1) The Industrial Development Bank of India (IDBI)

(2) The Small Industries Development Bank of India (SIDBI)

(3) National Bank for Agriculture and Rural development of India (NABARD)

(4) Export Import Bank of India (EXIM)

(5)The Industrial Finance Corporation of India (IFCI)

(6)The Industrial Reconstruction Bank of India (IRBI)

(7) The National Small Industries Corporation (NSIC)

(8) The National Industrial Development Corporation (NIDC)

(9) Shipping credit and Investment Corporation of India (SCICI)

OVERVIEW OF ROLE OF BANKS IN THE ECONOMY

1. Capital Formation:

Capital formation implies the diversion of the productive capacity of the economy to the making of capital goods which increases future productive capacity. The process of Capital Formation involves three distinct but interdependent activities, viz., saving financial intermediation and investment.

However, poor country/economy may be, there will be a need for institutions which allow such savings, as are currently forthcoming, to be invested conveniently and safely and which ensure that they are channeled into the most useful purposes.

A well-developed financial structure will therefore aid in the collections and disbursements of investible funds and thereby contribute to the capital formation of the economy. Indian capital market although still considered to be underdeveloped has been recording impressive progress during the post-interdependence period.

2. Support to the Capital Market:

The basic purpose of DFIs particularly in the context of a developing economy, is to accelerate the pace of economic development by increasing capital formation, inducing investors and entrepreneurs, sealing the leakages of material and human resources by careful allocation thereof, undertaking development activities, including promotion of industrial units to fill the gaps in the industrial structure and by ensuring that no healthy projects suffer for want of finance and/or technical services. Hence, the DFIs have to perform financial and development functions on finance functions, there is a provision of adequate term finance and in development functions there include providing of foreign currency loans, underwriting of shares and debentures of industrial concerns, direct subscription to equity and preference share capital, guaranteeing of deferred payments, conducting techno-economic surveys, market and investment research and rendering of technical and administrative guidance to the entrepreneurs.

3. Rupee Loans:

Rupee loans constitute more than 90 per cent of the total assistance sanctioned and disbursed. This speaks eloquently on DFI’s obsession with term loans to the neglect of other forms of assistance which are equally important. Term loans unsupplemented by other forms of assistance had naturally put the borrowers, most of whom are small entrepreneurs, on to a heavy burden of debt-servicing. Since term finance is just one of the inputs but not everything for the entrepreneurs, they had to search for other sources and their abortive efforts to secure other forms of assistance led to sickness in industrial units in many cases.

4. Foreign Currency Loans:

Foreign currency loans are meant for setting up of new industrial projects as also for expansion, diversification, modernization or renovation of existing units in cases where a portion of the loan was for financing import of equipment from abroad and/or technical know-how, in special cases.

5. Subscription to Debentures and Guarantees:

Regarding guarantees, it is well-known that when an entrepreneur purchases some machinery or fixed assets or capital goods on credit, the supplier usually asks him to furnish some guarantee to ensure payment of installments by the purchaser at regular intervals. In such a case, DFIs can act as guarantors for prompt of installments to the supplier of such machinery or capital under a scheme called ‘Deferred Payments Guarantee’.

6. Assistance to Backward Areas:

Operations of DFI’s in India have been primarily guided by priorities as spelt out in the Five- Year Plans. This is reflected in the lending portfolio and pattern of financial assistance of development financial institutions under different schemes of financing. Institutional finance to projects in backward areas is extended on concessional terms such as lower interest rate, longer moratorium period, extended repayment schedule and relaxed norms in respect of promoters’ contribution and debt-equity ratio. Such concessions are extended on a graded scale to units in industrially backward districts, classified into the three categories of A, B and c depending upon the degree of their backwardness. Besides, institutions have introduced schemes for extending term loans for project/area-specific infrastructure development. Moreover, in recent years, development banks in India have launched special programmes for intensive development of industrially least developed areas, commonly referred to as the No-industry Districts (NID’s) which do not have any large-scale or medium-scale industrial project. Institutions have initiated industrial potential surveys in these areas.

7. Promotion of New Entrepreneurs:

Development banks in India have also achieved a remarkable success in creating a new class of entrepreneurs and spreading the industrial culture to newer areas and weaker sections of the society. Special capital and seed Capital schemes have been introduced to provide equity type of assistance to new and technically skilled entrepreneurs who lack financial resources of their own even to provide promoter’s contribution in view of long-term benefits to the society from the emergence of a new class of entrepreneurs. Development banks have been actively involved in the entrepreneurship development programmes and in establishing a set of institutions which identify and train potential entrepreneurs. Again, to make available a package of services encompassing preparation of feasibility of reports, project reports, technical and management consultancy etc. at a reasonable cost, institutions have sponsored a chain of 16 Technical Consultancy organizations covering practically the entire country. Promotional and development functions are as important to institutions as the financing role. The promotional activities like carrying out industrial potential surveys, identification of potential entrepreneurs, conducting entrepreneurship development programmes and providing technical consultancy services have contributed in a significant manner to the process of industrialization and effective utilization of industrial finance by industry. IDBI has created a special technical assistance fund to support its various promotional activities. Over the years, the scope of promotional activities has expanded to include programmes for up gradation of skill of State level development banks and other industrial promotion agencies, conducting special studies on important issues concerning industrial development, encouraging voluntary agencies in implementing their programmes for the uplift of rural areas, village an cottage industries, artisans and other weaker sections of the society.

8. Impact on Corporate Culture:

The project appraisal and follow-up of assisted projects by institutions through various instruments, such as project monitoring and report of nominee directors on the Boards of directors of assisted units, have been mutually rewarding. Through monitoring of assisted projects, the institutions have been able to better appreciate the problems faced by industrial units. It also has been possible for the corporate managements to recognize the fact that interests of the assisted units and those of institutions do not conflict but coincide. Over the years, institutions have succeeded in infusing a sense of constructive partnership with the corporate sector. Institutions have been going through a continuous process of learning by doing and are effecting improvements in their systems and procedures on the basis of their cumulative experience.

The promoters of industrial projects now develop ideas into specific projects more carefully and prepare project reports more systematically. Institutions insist on more critical evaluation of technical feasibility demand factors, marketing strategies and project location and on application of modern techniques of discounted cash flow, internal rate of return, economic rate of return etc., in assessing the prospects of a project. This has produced a favorable impact on the process of decision-making in the corporate seeking financial assistance from institutions. In fact, such impact is not continued to projects assisted by them but also spreads over to projects financed by the corporate sector on its own.

The association of institutions in the management of corporate bodies has considerably facilitated the process of progressive professionalism of the corporate management. Institutions have been able to convince the corporate managements to appropriately re-orient their organizational structure, personal policies and planning and control systems. In many cases, institutions have successfully inducted experts on the Boards of assisted companies. As part of their project follow-up work and through their nominee directors, institutions have also been able to bring about progressive adoption of modern management techniques, such as corporate planning and performance budgeting in the assisted units. The progressive professionalism of industrial

CONCLUSION:

The banking system in India has undergone significant changes during last 16 years. There have been new banks, new instruments, new windows, new opportunities and, along with all this, new challenges. While deregulation has opened up new vistas for banks to augment incomes, it has also entailed greater competition and consequently greater risks. India adopted prudential measures aimed at imparting strength to the banking system and ensuring its safety and soundness, through greater transparency, accountability and public credibility. Banking sector reform has been unique in the world in that it combines a comprehensive reorientation of competition, regulation and ownership in a non-disruptive and cost-effective manner. Indeed banking reform is a good illustration of the dynamism of the public sector in managing the overhang problems and the pragmatism of public policy in enabling the domestic and foreign private sectors to compete and expand. There has been no banking crisis in India. The Government took steps to reduce its ownership in nationalised banks and inducted private ownership but without altering their public sector character. The underlying rationale of this approach is to assure that the salutary features of public sector banking were not lost in the Trans formation process. On account of healthy market value of the banks’ shares, the capital infusion into the banks by the Government has turned out to be profitable for the Government.

THANKS TO ALL

Any more doubts mail to me

Saiprasad29akuthota@gmail.com

Don’t Insult BPO Workers

2011-08-13T22:59:00.001-07:00

I’m a little tired of people equating BPO with the slave trade, and BPO workers with coolies. Take this article, for instance, which cites “the first major study of labour practices in Indian call centres,” and compares them with “Roman slave ships.” That is a ridiculous analogy, and it insults the people who work in BPO companies, who do so out of their own free will. They are not forced into taking up those jobs, and they do so presumably because they find it better than all the alternatives. They are aware of the working conditions that will be offered to them, and they can check out any time they want. Are these critics implying that BPO workers have made the wrong choices, and that they know better? This kind of condescending, self-righteous mindset is, sadly, rather too prevalent these days.
When I was in college, in the early 1990s, it was unheard of for a graduate to get a job without having any additional qualifications. Today, an English-speaking graduate in any major city of India can easily find employment, contrary to a decade ago. The choices for young people have expanded, and that is a fantastic thing. It is a pity that there are still regressive people around who, instead of wanting to expand those choices further, bemoan the improvements that have taken place. Ivory towers are a perfect environment for self-delusion.

What is SLR Rate ?

2011-07-27T13:46:00.000-07:00

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

How is SLR determined?

SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. .

What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds..

SLR to Control Inflation and propel growth

SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

What is a Personal Loan & How to Apply for it ?

2011-07-27T13:41:00.000-07:00

Get Loan without security

You do not have to provide any security. It is purely a unsecured loan given to you only on the basis of your financials.

Faster Loan approval

Banking system in India has improved a lot and the money in need can be availed within few days. Now a days banks are providing attractive personal loans.

Loans upto 20 lakhs

Generally personal loans are available from 50,000 to 20 lakhs. The amount eligible is based on your actual financials and profile. Some banks even offer more. Any Salaried or Self employed individual are eligible for personal loan. The repayment can be chosen from 12 to 60 months tenure. Repayments are done via EMI (equated monthly installments) Resonable interest rates are one of the attraction.

How do I know that I am Eligible for Personal loan?

Eligibility is measured based on your income, which is valuated with ITR(incom taxreturns) , salary or form 16. You can expect a personal loan equivalent to EMI one half of monthly income.

How is my monthly income of self employed calculated?

Monthly income for self employed or business man is calculated as follows :
1/12th x (Net Profit + Interest to Partners + Interest to unsecured loans + Depreciation)

How can I payback my loan?

You can pay back the loan in EMI’s (equated monthly installments) using post dated cheques favouring the Bank.

Is there any Age limit for applying for a personal loan?

Minimum age is 21 years.
Maximum age is of an applicant at the time of loan maturity should be 60 years (salaried) and 65 years (self employed).

Is there any additional charges for the loan?

Usually there will be a processing fee of 2% of the loan amount, which is payable upfront. This fees will be already deducted from the loan amount approved to you. Some banks even waive of the processing fee to attract more customers.

I want to prepay my loan, is it possible?

Partial prepayments are not allowed. You have to prepay the entire outstanding loan amount. It can be done any time. There are some charges for prepayment.

Any minimum income required to apply for a loan?

It varies on each bank’s policies. But in general the minimum annual income should be Rs. 1 lakh.

Do I have to open an account with the bank issuing loan?

It is not necessary to open an account with the bank issuing loan. But most of the banks will encourage you to open an account to start a banking relationship with you.

How do I apply for a Loan?

Most of the banks have online application, which can be done thru internet itself. Even some banks provide with SMS facility, after which a representative will fix an appointment with you to proceed further.

How many days does it take to get the loan approved?

It takes around 4~7 working days.

What is a Reverse Repo Rate?

2011-07-27T13:35:00.003-07:00

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.
Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

What is Repo Rate?

2011-07-27T13:35:00.001-07:00

Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.

What is Bank Rate ?

2011-07-27T13:34:00.002-07:00

Bank rate is the rate at which RBI gives to the commercial banks. Whenever RBI increases its rates, the effect will be shown on the commercial banks. In this case, the commercial banks have to increase the interest rates for their profits.

Relation between Inflation and Bank interest Rates

2011-07-27T13:34:00.000-07:00

Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India.
Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also.

What is Inflation ?

2011-07-27T13:33:00.001-07:00

Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods

What is CRR ?

2011-07-27T13:32:00.000-07:00

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

Internal and External environments

2011-07-19T06:45:00.000-07:00

Market environment consist of all factors that in one way or another affect or affected by the organization desicion.

there are external and internal factors.

1) Internal factor , these involve (5M's)

Management
Manpower
machine
material and
money.

2)External factors , these include

Macro factor and micro factors.
Macro factors are the one that affect the organization indirectly, these are (pestel)

Political
enviroment
socia-cultural
technological and
Ecological
leagal

while micro factors are those which affect the organization directly it involve

customers
competitors
suppliers and
public.

Supply , Demand and Governament policies

2011-07-19T06:20:00.000-07:00

In a free market system, market forces establish equilibrium prices and exchange quantities.

Controls on Prices:-
•Buyers always want lower prices, while sellers want higher prices.
• Thus, interests of these two groups conflict.
• Controls on prices are usually enacted when policymakers believe the market price is unfair to buyers or sellers.
• For this government creates price ceilings and price floors.

Controls on Prices Cont..:-
• Price Ceiling: – A legal “maximum” on the price at which a good can be sold.
• Price Floor: – A legal “minimum” on the price at which a good can be sold.

When govt. imposes price ceiling, following two outcomes are possible:

1. If price is set above the equilibrium price, price ceiling is not binding .
2.• Price ceiling has no effect on the price or quantity sold .

Controls on Prices Cont…
How Price Ceilings Affect Market Outcomes (Cont.):
• If price is set below the equilibrium price, price ceiling is a binding constraint.
• The forces of demand and supply move price towards equilibrium price.
• But when market price hits the ceiling, it can rise no further.
• Thus, market price equals price ceiling
• At this price, quantity demanded exceeds quantity supplied, creating shortage for the good.

i listend upto this only......

Is Business Management a Profession?

2011-07-18T13:13:00.000-07:00

Dear Friends,
i collected this topic through mail from Pro. Rakesh Khurana is the Marvin Bower Professor of Leadership Development at Harvard Business School. Sir mail id is rkhurana@hbs.edu.

Repeated and, as of this writing, ongoing revelations of corporate wrongdoing over the past two years have eroded public trust in business institutions and executives to levels not seen in decades. A recent Gallup poll indicates that Americans now have no more trust in business leaders than they do in Washington politicians.1 Fairly or not, people have become willing to believe that executives, as a class, are greedy and dishonest.
However natural it might be to ask how so many executives—not to mention accountants, investment bankers, stock market analysts, lawyers, money managers, and others implicated in recent acts of corporate malfeasance—could have become so depraved, this is probably the wrong question. Given that human nature does not change much from age to age, the real issue is the effectiveness of the constraints that society places on the purely selfish impulses of individuals. In response to the recent scandals, politicians and government officials have stepped in to pass new laws and create new regulations, while prominent persons on Wall Street and elsewhere in the business community have issued their own calls for reform in such areas as accounting practices and executive compensation. Yet while laws, regulations, and policies have a clear role to play here, they are a relatively expensive and inefficient way for a society to promote responsible conduct and trustworthy business leadership.
In the case of bad behavior on the part of business executives, the reason that the issue of trust arises is that these individuals are expected to exercise judgment—based on specialized knowledge and methods of analysis that they alone are thought to possess—in areas in which their decisions affect the well-being of others. When the need for such judgment has arisen in other spheres that are vital to the interests of society (such as law and government, military affairs, health, and religion, to consider the classic examples), modern societies have responded by creating the institutions that we know as professions. One way of diagnosing the cause of the recent epidemic of business scandals would be to speak of a widespread failure among CEOs and other senior executives (along with board members, auditors, financial analysts, and others) to uphold their professional obligations.
To speak of the professional obligations of individuals such as CEOs and other executives is to imply that business management itself is a profession—but is it? Sociologists who study the professions have employed a wide range of perspectives and criteria for determining what makes an occupation a profession. For the purposes of our present inquiry, we have chosen four traits and practices out of the network of those that have been found to be associated with professions. We use these traits and practices both to set forth our own notion of the essence of professionalism and to enable us to compare management with what we take to be the bona fide professions, in particular law and medicine.2 Our criteria for calling an occupation a bona fide profession are as follows:

a common body of knowledge resting on a well-developed, widely accepted theoretical base;
a system for certifying that individuals possess such knowledge before being licensed or otherwise allowed to practice;
a commitment to use specialized knowledge for the public good, and a renunciation of the goal of profit maximization, in return for professional autonomy and monopoly power;
a code of ethics, with provisions for monitoring individual compliance with the code and a system of sanctions for enforcing it.

In comparing management with the more traditional professions of law and medicine along these criteria, one inevitably finds it wanting.3 (We say this despite the inroads made by market values at the expense of traditionally professional ones that have been observable in both law and medicine in recent years.) This shortcoming, we believe, has a direct bearing on society's ability to demand and obtain responsible conduct from executives, as well as on management's ability to maintain the public trust required for the optimal functioning of our economic institutions. While not intending to idealize what we have called the bona fide professions, we believe that the comparison we undertake in this paper has merit as a way of suggesting how management as an institution might be reformed, other than through the blunt instruments of law and regulation on the one hand and well-meaning but ultimately toothless calls for greater individual integrity and ethics on the other.

To speak of the professional obligations of individuals ... is to imply that business management itself is a profession—but is it?

The sociology of the professions is too large a body of theoretical and empirical analysis to be more than sketched in this paper. It is also a field that has not yet taken management as a central subject of empirical study. We shall therefore deal only with some of the central problems of the structure of management. Even then, for lack of space, our objective in this essay is not to make an airtight case about the state of contemporary management, but rather to raise important questions. By comparing management with the legal and medical professions, we hope to stimulate discussion and debate that can lead to a deeper understanding of the current state of management.4
We have listed four criteria for determining whether management can be considered a genuine profession. Let us consider how management in its present institutional state matches up against each of these criteria.

Common body of knowledge resting on well-developed, widely accepted theoretical base

The traditional professions of law, medicine, and the clergy all have deep historical roots in another major institution of Western society: the university. Roman and canon law, medicine, and theology, in fact, constituted three of the four faculties of the medieval European university, and they survive to this day—in schools of law, medicine, and divinity, respectively—in the modem American university. The study of law in America today remains rooted in the centuries-old traditions of Roman and Anglo-American law, as systematized and interpreted by the discipline of legal philosophy, or jurisprudence. Law students now learn the law not as a collection of statutes but rather as a set of principles, doctrines, and rules that have evolved over the course of centuries and are said to constitute legal reasoning itself. The study of medicine, for its part, has been continually transformed since the Middle Ages by the rise and ongoing progress of modern science. The development of the germ theory of disease in the nineteenth century, for example, and of the science of genetics in the twentieth, have gone into the formation of a theoretical structure that undergirds the body of knowledge every medical student is now required to master. The medical school curriculum proceeds from the premise that in order to diagnose and treat disease, the would-be physician must have a firm grounding in what science (or, perhaps more accurately, what is generally accepted as science) currently understands to be its causes.
Turning to the body of systematized knowledge underpinning the claim that business management too is a profession, we find important differences between management as a science and the knowledge bases of the traditional professions. It is not just that the study of management was a latecomer to the university—which, since the creation of the modem American research university in the last three decades of the nineteenth century, has gained an effective monopoly on professional education 5 (the first university-based business school in America, the University of Pennsylvania's Wharton School of Finance, was not founded until 1881 6). For even as management was being gingerly accepted as a subject deserving of inclusion within the university, the discipline of management—following close behind the occupation itself—was having to be invented ex nihilo. The professionalization of management, which was what business schools were founded to undertake, began as a quest to delve beneath the practice of business, with its rule-of-thumb approach to business problems, to discover a set of underlying principles that could explain effective practice. These basic principles were by no means evident to the pioneers of academic business education—and, as we suggest, they remain by no means evident today.7
During the time that the first business schools were being constituted, at the beginning of the twentieth century, "scientific management" was in the air, as Frederick Taylor's application of scientific methods to the study of physical labor had begun to be extended to the organization of industry as well as to spheres such as higher education and government.8 While Taylorism was quickly jettisoned as the core of the business school curriculum, it made scientific reasoning and method appear to be applicable to business, thus helping to legitimate the study of business as an activity within the university. Yet what exactly a "science" of management should study would be puzzled over and debated for a great many years. Three curricular models emerged and competed with one another in the early decades of university business education. The first was a simple aggregation of courses taught elsewhere in the university and covering such obviously useful (if intellectually circumscribed) subjects as accounting and business law. The second model attempted to organize business education around specific industries such as banking, transportation, merchandising, mining, and lumber. The third model—increasingly adopted by the 1930s, and still the basis of the business school curriculum today—was the functional approach, as the grouping of courses began to mirror the differentiation of finance, administration, operations, and marketing as the major activities of the firm. Thus, the curricular structure evolved as a pragmatic response to the challenge of turning out graduates who could perform the tasks that would be required of them by employers.9
It is not that no attempts were made, in the meantime, to discover an underlying general theory that would inform the tasks of a manager. But the search for a theoretical model capable of explaining effective business practice—which was actually a search for an existing discipline or set of disciplines from which such a model could be produced—foundered for many years on disagreements about the nature of business firms and the ultimate purpose of business. The decision (made very early in the history of university-based business education) to remove the study of business from economics departments stemmed from the recognition that economics, at the time, had no interest in one of management's most pressing concerns—namely, the internal organization of the firm. When experimentation with various disciplines—including sociology, psychology, and even (at Harvard Business School's Fatigue Laboratory, from the 1920s to the 1940s) physiology—yielded results that were either too politically radical for the university's guardians and patrons (as happened at the Wharton School during the Progressive Era) or simply lacking in explanatory power and practical applicability, the resulting void at the center of the business school curriculum eventually caused business educators to take a second look at the discipline of economics.
Economics, in the decades prior to World War II, had occupied a relatively weak position in the disciplinary pecking order. Yet as the growing acceptance of Keynesian theory in the post-war years gave the subject greater prestige, and the 1958 reports on the state of business education in America by the Carnegie Corporation and the Ford Foundation led to a greater emphasis on the social sciences and quantitative method in business schools,10 economics began to move into the position of dominance that it enjoys in the MBA curriculum today. Building on the foundational work of Adolf Berle and Gardiner Means on the separation of ownership and control in the large corporation, and of Ronald Coase on the significance of transaction costs, economists such as Michael Jensen and Oliver Williamson began, in the 1970s, to develop a new theory of the firm that treated it not as a "black box" that converted inputs into outputs but rather as an institution requiring and rewarding economic analysis.11 It is undeniable that these and other recent economic theorists have contributed important insights into the internal workings of firms that are applicable to managerial practice. Yet they have also left business education with a dominant theory that, in adhering to many of the individualist assumptions and methodologies of neoclassical economics, is unable to account for much of the social environment of business—including the social and cultural factors that make themselves felt within organizations, as well as other essential aspects of the phenomenon that it purports to explain.12

System of certification

Besides having failed to develop a body of knowledge and theory comparable to those of the true professions, management differs from these other occupations in lacking a set of institutions designed to certify that its practitioners have a basic mastery of a core body of specialized knowledge and can apply it judiciously. In medicine and law, for example, there are institutions that specify the educational requirements (i.e., the MD or JD degree) that anyone desirous of practicing the profession must obtain. Beyond these educational requirements, aspirants to membership in these and other recognized professions must obtain a license to practice by passing a comprehensive exam designed to test mastery of the knowledge ostensibly acquired in professional school. Once the aspiring professional passes that exam, he or she must invest in a certain amount of continuing education in order to stay abreast of evolving knowledge in the profession and to maintain a license to practice.
Management differs from medicine, law, and other recognized professions in having neither a formal educational requirement nor a system of examination and licensing for aspiring members. Although the MBA has been the fastest-growing graduate degree for the past twenty years, it is not a requirement for becoming a manager.13 It is true that for those seeking access to senior executive positions or work in the fields of investment banking or consulting, an MBA has become a de facto requirement. Yet even in these cases, there is no requirement of passing a standard exam before being admitted to practice, nor are senior managers, investment bankers, or consultants required to participate in continuing education. There is no explicit obligation, for example, for experienced, high level managers to know anything about investing in innovative new financial derivatives or special-purpose vehicles, even if they serve on boards that are required to approve such potentially risky transactions. In fact, data on enrollment in executive education programs offered by business schools suggest that those who already possess an MBA are the least likely to pursue continuing education.14
How would having a formal educational requirement and a system of certification and mandatory continuing education advance the practice of management? Although such barriers to entry would have the effect of closing managerial positions to some who now aspire to them, all true professions are, almost by definition, closed systems that tightly control and carefully restrict access to their ranks. Closure in professions need not, as some might fear in the case of management, stifle innovation and progress. In the field of medicine, for example, the pace of discovery and creative progress rapidly accelerated in the wake of professionalization. In an open society, moreover, there will always be room for "rogue" entrepreneurs to challenge the existing order, as practitioners of alternative medicine are challenging the medical profession today. Meanwhile, from society's point of view, meanwhile, professional closure offers distinct benefits when the privilege of closure is granted in return for the commitments that true professionals make to serve the public good and to forgo certain forms of self-interested behavior.

Commitment to specialized knowledge as a public good; renunciation of profit maximization

To be able to set and enforce standards of admission to a profession, determine how professional work is to be done, engage in self-regulation rather than be subjected to extensive regulation from without, and reap the economic benefits of a monopoly position in the marketplace—these are all privileges that society grants to professions in return for certain social benefits. The creation of these social benefits, in turn, places certain constraints on professionals. Because they possess specialized knowledge in areas of vital concern to society, genuine professionals are expected to place that knowledge at the disposal of all who require it and to provide services in a way that places the maintenance of professional standards and values ahead of the securing of individual advantage. The renunciation of unabashed self-interest that society expects of true professionals takes a very particular form: unlike actors in the marketplace, as envisioned by classical and neoclassical economics, professionals engage in work out of more than merely economic motives, and they eschew profit maximization (as opposed to profit making) as a goal.15 Indeed, because of the exemption they have been granted from certain laws of market exchange, professionals are specifically enjoined from using the laws of the market to reap economic gain at the expense of their professional obligations.
Implicit in this aspect of professionalism is the idea that, even when serving private clients, professionals are providing a public good. In economics, the provision of public goods has been widely recognized as a case that creates exceptions to the rules governing the provision of goods for purely private consumption. Lawyers serve private clients (be they individuals, corporations, or other private entities) but are understood to be providing a public good—if not justice in every case, then at least the implementation of the rule of law. Likewise, physicians serve private individuals but are understood, in so doing, to be providing the public good of health for the general population. That the advocacy system in American jurisprudence or the structure of the healthcare market in the United States (with its convoluted system of both private and public third-party payers) can tempt lawyers and doctors, respectively, to lose sight of professional obligations beyond serving the interests of particular clients does not invalidate this more general truth. Once a professional loses sight of the larger social benefit that his or her work is intended to provide, the line between professional services and commerce becomes dangerously blurred.
The notion that those who lead and manage our society's major private economic institutions might provide, or be responsible for providing, a public good is quite foreign to our customary way of thinking about management. Yet this idea was often voiced by those who led American business schools in the early decades of their existence. For example, in a speech titled "The Social Significance of Business," delivered at Stanford University's School of Business shortly after its founding in 1925 (and subsequently published as an article in the Harvard Business Review), Wallace B. Donham, the second dean of Harvard Business School, declared that the "development, strengthening, and multiplication of socially minded business men is the central problem of business."
As Donham went on to say: "The socializing of industry from within on a higher ethical plane, not socialism nor communism, not government operation nor the exercise of the police power, but rather the development from within the business group of effective social control of those mechanisms which have been placed in the hands of the race through all the recent extraordinary revolutionizing of material things, is greatly needed. The business group largely controls these mechanisms and is therefore in a strategic position to solve these problems. Our objective therefore, should be the multiplication of men who will handle their current business problems in socially constructive ways."16
Haunted by a belief that scientific, technological, and material progress was outstripping society's capacity for moral self-governance, and that the professions that had traditionally provided social and moral leadership (i.e., law and the clergy) were no longer up to the task, Donham looked to a new "profession of business" for nothing less than saving modern, industrial civilization from itself. As the professionalization project that had provided the agenda for American business education from its founding up until the outbreak of World War II was abandoned in the postwar decades, expectations of what managers should contribute to society became rather more modest, to say the least.
Today, in place of such notions as the "socializing of industry from within" and the concept of the business executive as an expert capable of, and responsible for, solving some of the most urgent problems facing modern societies, we find American business schools propagating the doctrine of shareholder primacy and the paradigm of the manager as the mere agent of the company's "owners". Taken in combination, these two concepts—both outgrowths of the intellectual domination of American business education by economics during the past three decades—make managers anything but disinterested experts oriented toward the needs of society that we take to be part of the essence of professionalism. The doctrine of shareholder primacy has legitimized the idea that the benefits of managerial expertise may be offered for purely private gain and that this is equivalent to advancing societal interests. Having given rise to the notion of making managers "think and behave like owners" through equity-linked compensation, agency theory can now be seen to have led directly to many of the worst profit-maximizing abuses unmasked in the recent wave of corporate scandals.17
Now that the traditional professions have come under attack for providing refuge from the disciplining forces of the market, it is worth noting that a great many American business leaders who have enriched themselves spectacularly in recent years without engaging in actual malfeasance have managed to do so by insulating themselves from such fundamental market imperatives as "pay for performance"—meanwhile declining to accept the constraints that prevent legitimate professionals from engaging in profit maximization. If the traditional professions are to be asked to accept a greater role for market forces, is it too much to ask businesspersons who enjoy exemptions from market discipline to accept a greater role for professionalism?18

Code of ethics

The fourth and final dimension on which, in our view, management differs significantly from the true professions is that its members are not governed by a shared normative code that is reinforced by institutions that promote adherence to it. Such a normative code, whether known as a code of ethics or a code of conduct, is a central feature of almost any occupational group that desires to be seen as a profession. Though normative codes exist among "professions" as diverse as librarianship and plumbing, the true professions go farther than simply having a written code by which members are encouraged to abide voluntarily. They teach the meaning and consequences of the code as a part of the formal education of their members. They test and verify this understanding through licensing exams. Once licensed, members are required to adhere to the code in order to maintain a license. A governing body, composed of respected members of the profession, oversees adherence to the code by establishing monitoring mechanisms, reviewing complaints, and administering sanctions—including the ultimate sanction of revoking an individual's license to operate as a professional.
Professions establish these codes, and the institutions to enforce them, as part of their implicit contract with society. "Trust us to exercise jurisdiction over an important occupational category," these professions essentially state. "In return, we will make every effort to ensure that the members of our profession are worthy of your trust, that they will not only be competent to perform the tasks with which they have been entrusted but will also adhere to high standards and conduct themselves with integrity." The privilege of self-regulation is granted out of society's recognition that in cases involving the use of highly specialized knowledge, laypersons may not be in a position to pass accurate and fair judgment on the conduct of specialists.
Most normative codes, like the ancient Hippocratic Oath for doctors, clearly articulate a profession's higher aims and social purposes and the manner in which these purposes must be pursued. Such role definitions have many benefits; one is that by establishing a normative standard for inclusion, they create and sustain a sense of community and mutual obligation among the members of a profession, as well as a sense of obligation to the profession as an abstract social entity. These bonds of membership create the social capital of a profession, which builds trust and significantly reduces transaction costs among members of that profession and between the profession and society. As we observed at the beginning of this paper, trust in management as an institution could not be much lower than it is in American society today. In light of that, the benefits of a true profession of management adopting a formal normative code would appear to be obvious—particularly in comparison with a regulatory regime that could all too easily stifle the innovation and risk taking that have contributed so much to the success of American capitalism.

A self-interested, self-indulgent corporate leadership is not inevitable.

Legal and regulatory overreaction to the crisis currently afflicting American business and management, however, is only one of the dangers that we now face. Another danger is that business education and its supporting institution of management—in heeding the cries for integrity and ethics that have gone up on all sides in the wake of the recent corporate scandals—will succeed in allaying the public's skepticism through such measures as new ethics curricula and corporate ethical codes (Enron famously possessed one of the latter while its top managers were busy destroying the wealth of their shareholders and the livelihoods of their employees) that merely create an appearance of reform without delivering the genuine article. As we have recently learned from such phenomena as the weak link between executive compensation and firm performance, and the impotence of so many corporate boards, American managers have become quite adept at decoupling the formal structures and symbols of their "professionalism"—those features that give them legitimacy in the eyes of the public—from their actual work activities.19
Our speculations about a genuine professionalization of management as a remedy for the crisis of legitimacy now facing American business may strike some as radical. But assuming, once again, that increased regulation is not the whole or the best answer to the problem at hand, we believe that our idea of making management into a bona fide profession has the virtue of asking a group that has seriously abused the public's trust to make a serious commitment to restoring it.
One way of looking at the problem with American management today, we would argue, is that it has succeeded in assuming many of the appearances and privileges of professionalism while evading the attendant constraints and responsibilities. Although it is now fashionable in some quarters, as we have suggested, to denigrate professionals as elites enjoying shelter from the rough-and-tumble of the marketplace, do we as a society really wish to surrender the benefits that we rightfully demand of professionals in return? And given the inevitable existence of elite knowledge workers, such as managers, in complex modem societies, ought we not to be concerned with producing elites who are motivated by something beyond the pursuit of self-interest under the laws of the marketplace, or the fear of punishment under the laws of the land? A self-interested, self-indulgent corporate leadership is not inevitable, and a model for something better lies at hand. We can find it in the flawed but durable institutions that serve society by meriting the label "profession."

Dhoni Management Skills

2011-07-18T12:31:00.001-07:00

What Mahendra Singh Dhoni as CEO of the Indian cricket team did to ensure the country won the World Cup will be etched as learnings for leaders across all walksof life. Captains of India Inc, leading business schools and HR leaders have taken note of Dhoni's style of management.

Experimentative, innovative and risk-taking are some of the characteristics being attributed to him. So what really is Dhoni's management style? "He sets stretch goals and works determinedly to achieve them by getting the best out of his team," says Adi Godrej, chairman, Godrej Group, who has also taken on a new role as chairman of The Indian School of Business.

Dhoni is being described as 'a true leader' who did not hesitate to push himselfup the batting order in the final, when the team needed him the most. "He led the attack from the front and was not afraid to make this change. He knew well that had he failed, he would have been severely criticized but yet he fearlessly took up the challenge at a critical time in the Indian innings," says Harsh Goenka, chairman, RPG Group.

Santrupt Misra, HR head, Aditya Birla Group, on the other hand, lauded Dhoni forbeing experimentative-that is innovative and, at the same time, prepared to face the consequences. "He's inclusive, but at the same time when the moment of truth comes, he doesn't hesitate to take decisions."

And what does one learn from Dhoni's leadership skills? "Take measured risks andback your team to deliver," said Gunit Chadha, CEO, Deutsche Bank India. "A leader should maintain his calm. He should know his business well and take appropriate decisions in changing contexts," said Misra.

One could see how these characteristics came to the fore when, in a crisis situation during the World Cup (India had lost two crucial wickets of Sachin Tendulkar and Virender Sehwag in the early overs), Dhoni kept his cool and led India tovictory. "Dhoni has been consistent match after match. He has stuck his neck outand accepted his mistakes," said Deepti Bhatnagar, faculty, Organisational Behaviour, IIM-Ahmedabad. What's more, the captain succeeded in building a team where young people can come up with their opinions. "In a situation where a much younger player like Virat Kohli can give his opinion towards a senior player like Sachin without inhibitions itself speaks volumes about the team culture," said Bhatnagar.

Nehra's comeback against Pakistan is another good example of how Dhoni's faith in him paid off. As co-authors Bill Conaty and Ram Charan have said in their book, 'The Talent Masters - Why smart leaders put people before numbers': "You can liberate your capacity and courage as a leader if you continually plumb the depthof your inner core. Only by doing this can you understand the role it plays inthe changing complexities of your job." Dhoni has proved to be a smart leader.