zenith vol-01,issue-05, september 2011

www.zenithresearch.org.in 

ZENITH 

International Journal of Multidisciplinary Research 

Vol.1 Issue 5, September 2011, ISSN 2231 5780 

ZENITH 

INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH 

Vol.1 Issue 5; September 2011; ISSN 2231-5780 

SR. NO. CONTENTS PAGE NO. 

1 

DIMENSIONALITY OF SERVICE QUALITY AND ITS CRITICAL 

PREDICTORS TO CUSTOMER SATISFACTION IN INDIAN RETAIL 

BANKING 

1-11 

2 

3 

4 

5 

ARORA VIBHA, DR. NRAVICHANDRAN, DR. N.K.JAIN 

THE NEW BASEL ACCORD – FRAME WORK AND ROLE OF BANKS 

S. POONGAVANAM 

CLUSTER ANALYSIS OF MUTUAL FUNDS 

MR. NOONEY LENIN KUMAR, DR. V. RAMA DEVI 

GLOBAL TERRORISM INSURANCE: AN OVERVIEW 

DR. RENU VERMA, DR MANISHA SINGH 

INVESTMENT IN EQUITY CAN BE STRESSFUL - CAUSES AND 

PRECAUTIONS 

12-23 

24-47 

48-68 

69-82 

6 

DR. (MS.) JAYASHREE AVINASH BHAKAY 

AN ANALYSIS OF FOREIGN EXCHANGE EXPOSURE MANAGEMENT 

BY MNCs IN INDIA 

83-105 

7 

DR. MANISHA GOEL, PROF. S.L. GUPTA, MR. LALIT GOEL 

CORPORATE GOVERNANCE INDEX FORMULATION: COMPLIANCE 

WITH COMMERCIAL BANKS OF NEPAL 

106-118 

8 

DR. PRASHANT KUMAR, TARA PRASAD UPADHYAYA 

MBNQA - A STRATEGIC INSTRUMENT FOR MEASURING 

PERFORMANCE IN HEALTHCARE ORGANIZATIONS: 

EMPIRICAL STUDY 

AN 

119-129 

9 

SUNIL C. D’SOUZA, A. H. SEQUEIRA 

CUSTOMER SERVICE AND BRAND IMAGE: 

RETROSPECTIVE VIEW OF PRIVATE BANKS IN INDIA 

A 

130-140 

10 

MS. CHHAVI DAGAR, DR. PARUL KHANNA 

A STUDY OF TV VIEWERSHIP PATTERNS AMONG YOUNGSTERS IN 

NORTHERN INDIA 

141-160 

11 

ER. KANWAL GURLEEN, DR. SUKHMANI 

ANALYSIS OF FINANCIAL PERFORMANCE OF TATA STEEL – A CASE 

STUDY 

161-174 

12 

SUVARUN GOSWAMI, ANIRUDDHA SARKAR 

EFFECTIVENESS OF IT EVENTS IN ACADEMIC INSTITUTIONS - 

STUDENTS’ PERSPECTIVE 

PROF. RANJITH P.V., PROF. MRS. NEHA CHOPADE, PROF. MS. VIDHYA 

RAO 

175-189


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13 

14 

15 

16 

17 

18 

19 

20 

21 

M-LEARNING: A NOVEL WAY TO ENHENCE YOGA EDUCATION 

ASHISH NAMDEVRAO SAWALE 

WOMEN ENTREPRENEURSHIP IN INDIA-PROBLEMS AND PROSPECTS 

MEENU GOYAL, JAI PARKASH 

FEMININE SURVIVAL: A COGNITIVE ASSESSMENT OF THE LEGAL 

REGIME IN INTERNATIONAL HUMANITARIAN LAW 

GAURAV ARORA, SUPRITHA PRODATURI 

EXPLORING THE BENEFITS OF MICROFINANCE ORGANISATIONS 

FOR POVERTY ALLEVIATION (A RESEARCH STUDY CONDUCTED IN 

PUNJAB) 

MANISHA SHARMA, VISHAL SARIN 

A STUDY ON EFFECTIVENESS OF SELF-EMPLOYMENT TO EDUCATED 

UNEMPLOYED YOUTH SCHEME IN INDIA 

DR. P.V.V. SATYANARAYANA 

ISSUES AND PROSPECTS OF PUBLIC PRIVATE PARTNERSHIP IN INDIA 

KARUNENDRA PRATAP SINGH 

A STUDY ON SOCIO-ECONOMIC CHARACTERISTICS OF INDIAN 

SHARE MARKET INVESTORS [WITH SPECIAL REFERENCE TO 

COIMBATORE] 

K.C.JOHN SASI KUMAR, DR.P.VIKKRAMAN 

ECO-FRIENDLY PRODUCTS AND CONSUMER PERCEPTION 

SUDHIR SACHDEV 

CREATIVITY AND INNOVATION IN MANAGEMENT - A Fuel for Growth 

MRS. YASHA AGGARWAL & MS NEHA BHATIA 

ZENITH VOL-01,ISSUE-05, SEPTEMBER 2011 

190-194 

195-207 

208-216 

217-230 

231-243 

244-256 

257-278 

279-287 

288-296 

1-296

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DIMENSIONALITY OF SERVICE QUALITY AND ITS CRITICAL 

PREDICTORS TO CUSTOMER SATISFACTION IN INDIAN RETAIL 

BANKING 

ABSTRACT 

VIBHA ARORA *; DR. NRAVICHANDRAN**; DR. N.K. JAIN*** 

*Faculty, IBS-Gurgaon, Haryana. 

**Faculty, Jamia Hamdard University, Delhi. 

***Academic Dean, Gautam Buddha University, Greater Noida, U.P. 

This paper investigates the various dimensions of service quality and how these dimensions 

determine customer satisfaction in Indian banking sector. Using Service performance (Servperf) 

model, the survey was undertaken in Delhi and National capital region on the sample of 318 

respondents to test dimensionality of servperf by using construct validity and reliability test. 

Servperf model proved to be four dimensional in context of Indian banking sector. Further 

multivariate regression analysis was used to see the impact of service quality dimensions on 

customer satisfaction. Reliability and service interaction were found to be significant variables to 

customer satisfaction in India. 

KEYWORDS: Customer satisfaction, Indian retail banking, Service quality, Servperf. 

INTRODUCTION 

The service quality has gained importance in last decade due to its unique characteristics of 

services involving intangibility, inseparability, variability and perishability. These characteristics 

make the process of service purchase and delivery very complex for both customer and seller. 

Over the last few decades, researchers have been coming up with different structure in regard to 

various dimensions of service quality. Technical - functional quality and image model by 

Gronroos (1984); GAP model (customer expectation and perception of expectations; 

management perception of customer expectation and setting quality specification; difference 

between service quality specification and service quality delivery; difference between service 

delivery and communication to service delivery; difference between customer expectation and 

perceived service) by Parasuraman et al (1985); Attribute service quality model involving 

physical facilities and processes; people behavior and professional judgment) Haywood- Farmer, 

1988; Synthesized model integrates company image, external influences and traditional 

marketing activities (Brogowicz et al, 1990); Performance only model (1992) suggesting service 

quality performance minus expectations as inappropriate and suggested performance only 

measurement as a better method (Cronin and Taylor, 1992); Ideal value model involves 

perceived ideal standard against which the experience is compared (Mattsson, 1992); Attribute 

and overall affect model (Dabholkar, 1996)came up with two alternative models of service 

quality that is attribute model incorporating what consumer expects, customer evaluation of 

attributes associated with technology based self service option to form expectation; and overall

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affect model incorporating customers feeling towards use of technology. The P-C-P attributes 

(Pivotal that is output, core and peripheral) model by Philip and Hazlett (1997); Internal service 

quality involving internal customer and internal suppliers model by Frost and Kumar (2000) 

have been developed in order to find the determinants of the concept of service quality as well as 

appropriate quality measurement techniques. But Servqual and Servperf remain widely used 

scales of service quality. This study proposes to test dimensionality of a widely used scale 

servperf and its significant dimensions in Indian context. 

REVIEW OF LITERATURE 

Parasuraman, Zeithaml and Berry (1988) attempted to develop SERVQUAL to assess perception 

of customer about service quality in service and retail organization. They came up with five 

dimensions namely tangibles, reliability, responsiveness, assurance and empathy. Parasuraman, 

Berry and Zeithaml (1991) investigated the impact of organizational barriers to deliver high 

quality service performance with the help of customer perceptions and expectations. The model 

developed by Zeithaml, Berry and Parasuraman was used and tested in which five gaps involving 

marketing information gap, standard gap, service performance gap, communication gap and 

service quality gap were studied. The results have shown that Gap 3 (service performance gap) 

and 4 (communication gap) found to be significant in explaining Gap 5 that is service quality. 

Cronin and Taylor (1992) investigated conceptualization and measurement of service quality. An 

alternative method of operationalizing relationship, significance of relationship, perceived 

service quality, customer satisfaction and purchase intentions were studied. 22 items of servqual 

were taken and unweighted measure of performance was compared with servqual, weighted 

servqual and weighted servperf. The sample size of 660 respondents was taken across for 

industries. The result of factor analysis has shown that Servperf scale measures more of variance 

in service quality than alternative scales. It has been observed that both service quality and 

satisfaction affect purchase intentions. Servqual had a good fit in two industries of four whereas 

ServPerf had an excellent fit in all four industries. 

Zeithaml, Berry and Parasuraman (1996) have undertaken with the objective to summarize the 

evidence about behavioural consequences at individual customer level. The sample size of 

respondent was 1316 respondents. The results have shown that increased level of service quality 

leads to positive loyalty and readiness to pay more for the service, decreased intentions to switch. 

Angur, Natarajan and Jahera (1999) studied various measures of service quality in a developing 

country, specifically the performance of alternative measure proposed by Cronin and Taylor 

(1992). 22 expectation, performance and importance statements were used. 143 respondents were 

covered. The results have shown that Servperf measure and Servqual measure have same 

convergent validity. Servqual gaps show greater variability across banks and greater diagnostic 

information than Servperf scale. But Servperf has higher discriminant validity and Servperf 

explains more variance in overall service quality than Servqual. But at the same time average 

difference in variance explained is very small that is negligible. 

Sureshchandar, Rajendran and Anantharaman (2003) conceptualized service quality as a 

multidimensional construct having five dimensions namely, core service (content of the service), 

service delivery (human elements such as reliability, responsiveness, assurance, empathy,


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moment of truth and critical incident and recovery) non human element (process, procedures, 

systems and technology) tangibles (equipment, machinery, signage and employee appearance, 

and social responsibility (well being of society). The results have shown significant different 

between service quality offered by public, private and foreign banks regarding all the five factors 

of service quality. Technological factor was found to be contributing more than human elements. 

Rai (2009) identified tangibility (seating, lighting, signage, and parking) competence 

(Knowledge and ability), responsiveness (willingness and adherence), safety (confidence), 

communication (content and quality) and understanding customers (approach towards customer) 

as important dimensions of service quality. Pal and Choudhury (2009) found out four dimensions 

of service quality namely customer – orientedness (prompt service, courteousness, knowledge, 

operating hours, personal attention, ability to understand) competence (responsiveness, right 

service, dependability, service timing, safety), tangibles (physical facilities and materials) and 

convenience (branch location and ATM location). 

Hazra and Srivastava (2009) used 22 item servqual scale and identified four factors involving 

assurance-empathy, reliability, tangibles and security. Customer commitment, satisfaction and 

trust have been identified as separate factors. Assurance – empathy being the most valued 

dimension of service quality and impacting customer loyalty to a company, willingness to pay, 

customer commitment and customer trust. Kumar, Kee and Charles (2010) undertook a study 

involving 22 item of servqual with additional 4 items relating to the dimension of convenience. 

The response was taken related to expectations and perceptions of the customer. The analysis has 

shown service quality consisted of four dimensions involving tangibility, reliability, convenience 

and competence. Competence and convenience were found to be relatively dominating factor as 

compared to tangibility and reliability. These two dimensions were found to be reducing 72 

percent of overall service quality gap. 

Monica Bedi (2010) indicated difference in customer perception of service quality in public and 

private sector banks. In majority of the factors, private sector banks were perceived to have high 

service quality. Private sector banks were found to be more satisfied than public sector bank 

customer. High propensity to switch was found in public sector bank customers than private 

sector bank customers. Product convenience, assurance, reliability, responsiveness and product 

availability were identified as predictors of customer satisfaction in private sector banks whereas 

responsiveness, product convenience, assurance, reliability and empathy were found as 

significant predictors in public sector banks. 

Taking in to consideration above studies, it has been identified that relevance and dimensionality 

of Servperf has not been tested in context of Indian banking sector. So, this paper aims to find 

out the relevance of Servperf and significant dimensions of service quality in context of Indian 

banking sector with the help of exploratory factor analysis and multivariate regression analysis. 

OBJECTIVES 

The primary objectives of the study is 

To investigate the dimensionality of servperf model of service quality in India;


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To find the relationship between service quality and customer satisfaction; 

To determine critical predictors to customer satisfaction. 

RESEARCH METHODOLOGY – MEASURE CONSTRUCTION 

In order to ascertain the perceptions of service quality, Servperf scale (Cronin and Taylor, 1992) 

and satisfaction measure (McDougall and Levesque, 1994) has been used to ascertain customer 

perception about various dimensions of service quality and its impact on satisfaction. The 

responses to statements were taken on five point likert’s scale to estimate the range and 

variations in the perceptions. The scale 1-5 represents “5” Strongly agree and “1” as “Strongly 

disagree”. The statements were modified according to the research objective and banking sector. 

SAMPLE 

The final questionnaire was administered on 318 customers out of which 294 questionnaire were 

used. The personal contact approach was used. The respondents were randomly stopped in the 

area where banks were located and asked if they have account in any of the four banks and have 

been using the services of the bank from last 1 year. Respondents fulfilling these eligibility 

criteria were requested to fill in the questionnaire. The demographic characteristics like age, 

education, income level, geographic location and profession were taken in to consideration. The 

composition of the sample involved 193 males and 101 females who have their account in the 

bank at least for one year. The average age of the sample was 28 years. Majority of the 

respondents were either graduate or post graduate. The geographical spread of the sample was in 

Delhi and NCR (National capital region). 

DATA ANALYSIS 

The data was fed in using SPSS (Statistical package for social sciences) was undertaken. Pre 

analysis testing for suitability of the entire sample for factor analysis was computed as 

recommended by Comrey (1978). The Kaiser Mayer- Olkin (table 1.1) measure of sampling 

adequacy was 0.917 and the Bartlett tests of sphericity was found to be significant at p < 0.001. 

TABLE (1.1) DEPICTING KMO AND BARTLETT'S TEST 

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .917 

Bartlett's Test of Sphericity Approx. Chi-Square 3728.790 

Degree of Freedom 276.000 

Significance .000

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In order to purify and refine the scale, further exploratory factor analysis using varimax, 

principal component method was conducted. Regarding factor analysis (depicted in table 1.2) of 

items four independent and one dependent factor emerged out and on the basis of content these 

were named service interaction, Reliability, tangibility and efficiency and satisfaction with eigen 

value greater than 1 and factor loading greater than 0.50. 

TABLE (1.2) DEPICTING FACTOR ANALYSIS 

Sr. 

No 

Q. No. Service 

Interaction 

Reliability Tangibility Timely 

Service 

Satisfaction 

1 8 (help) .739 

2 19 (personal attention) .732 

3 5 (individual Attention) .722 

4 3 (prompt) .691 

5 13 (never busy) .677 

6 10 (best interest) .659 

7 15 (understand need) .595 

8 14 (courteous) .595 

9 4 (confidence) .522 

10 12 (reliable) .797 

11 17(promised service) .740 

12 2 (promise) .734 

13 20 (error free record) .719 

14 7 (problem solving) .702 

15 9 (safe) .413 

16 6 (visual appeal) .869

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17 1(modern equipments) .795 

18 11 (neat appearance) .794 

19 16 (material Visu. 

Appeal) 

.789 

20 21(operating hrs.) .811 

21 22(know exact time) .546 

22 18 (knowledge to 

answer) 

.511 

23 23 (best interest) .924 

24 24(meet expectation) .907 

Items number 9 was dropped from reliability factor as it had factor loading less than 0.50. Item 

number 21 was dropped from efficiency factor as with item deletion method, it was observed that 

cronbach alpha increased from .657 to .705. 

TABLE (2) DEPICTING MEAN SCORE, STANDARD DEVIATION AND RELATED 

DETAILS OF ALL THE ANTECEDENTS AND CONSEQUENCES (N=294) 

Sr. 

no 

Variable 

No. of 

items 

Score 

range 

Cron Bach 

Alpha 

Mean 

score 

Std. 

Dev. 

Mean 

score 

as % * 

Dependent Variables: 

1 

Satisfaction 

2 

2-10 

.829 

6.5816 

1.9194 

.5727 

Independent variables: 

1 

Service interaction 

9 

9-45 

.886 

29.4218 

6.5929 

.5672 

2 

Reliability 

5 

5-25 

.846 

16.1395 

4.1864 

.5569 

3 

Tangibility 

4 

4-20 

.854 

13.9490 

3.3398 

.6218 

4 

Efficiency 

2 

2-10 

.705 

6.9150 

1.6241 

.6143

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*Since the score range of variables is not identical, the mean scores shown in this table cannot be 

directly compared. Hence, each mean score was converted in to a standardized (per cent) score 

through the following computation. 

Mean score (%)= Mean Score –(lowest point of the score range) 

(Highest – Lowest point of the score range) 

The table (2) last columns mean score as percentage depicts that mean score percentage range is 

49.1% (lowest) to 71% (highest). The relative status of the independent variables is shown below 

in the descending order. 

Sr 

no 

Variable 

Mean score percentage 

1 Tangibility 62% 

2 Efficiency 61% 

3 Service 

interaction 

57% 

4 Reliability 55% 

All the independent variables come within the range of 7% i.e. 55%- 62%. Regarding dependent 

variables, the mean score percentage is 57%. The above findings suggest that to improve the 

overall customer satisfaction banks can work upon above mentioned areas. 

Further, Regression analysis (table 3.1) of all the independent variables with respect to the 

dependent variable satisfaction was undertaken to see the variable entering in to stepwise 

regression results. The individual contribution of the variable entering in to step wise regression 

were calculated by multiplying the zero order correlation with standardized beta coefficient of 

the same dimension to find their relative importance in total variance of satisfaction and 

behavioual intentions.

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TABLE (3.1) DEPICTING REGRESSION ANALYSIS OF INDEPENDENT VARIABLES 

WITH RESPECT TO SATISFACTION IN INDIAN BANKING SECTOR 

Predictors of Satisfaction in 

public sector bank 

Zero Order 

Correlation 

(A) 

Standard Beta 

Coefficient 

(B) 

Individual 

Contribution 

(A X B) 

1 

Reliability 

.784 

.682*** 

.534 

2 

Service interaction 

.552 

.194*** 

.107 

Total R 2 .641 

Adjusted R 2 =.639, F value: 260.346***, *** P < 0.001 Level 

The result of regression analysis has shown the service areas that are important to improve upon 

customer satisfaction. The above table (3.1) reflects that out of all independent variables 

reliability and service interaction have been found as main predictors of customer satisfaction. 

The adjusted R 2 of .641 shows that about 64% of the variance can be explained with the help of 

these two variables. The individual contribution of reliability and service interaction is 53% and 

11% respectively. This finding shows that banks need to focus more on reliability of the service 

in order to keep their customer satisfied followed by service interaction. 

CONCLUSION AND DISCUSSION 

Results of exploratory factor analysis show service quality as a four dimensional construct 

involving tangibility, reliability, service interaction and efficiency. Arasli, Katircioglu and Smadi 

(2005) also found four dimensional structure of service quality involving tangibles, reliability, 

empathy and assurance as dimensions of service quality. Hazra and Srivastava (2009) used 22 

item servqual scales and identified four factors involving tangibles, reliability, security and 

assurance. Considering all the mentioned studies, it appears reasonably good to conclude that 

service quality in Indian retail banking may comprise of tangibility, reliability and third factor 

service interaction takes care of responsiveness, empathy, assurance, relation quality and 

employee- customer relationship etc. The possible explanation of this finding would be that 

tangibility and reliability has been perceived distinctively by customers whereas other factors are 

getting combined or coming separately depending on the nature of industry, culture and 

economic environment of the nation. 

Further, service quality analysis was performed at the dimension level with the use of regression 

analysis. The dimension specific analysis provides greater diagnostic value for understanding of 

customer satisfaction. This allows the management to identify problem areas at the dimension 

level to allocate resources in order to improve particular aspect of service quality. This study 

provides the areas such as reliability followed by service interaction for providing better service 

quality in Indian banking sector. As found by the present study, Lianxi and Zhou (2004); Gill, 

Flaschner and Shachar (2006) Yavas et al (2004) and Kantsperger and Kunz (2010) correspond

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with the results of present study as they also found reliability as a major predictor to satisfaction 

and tangibility, empathy and responsiveness were not found as important factors impacting 

satisfaction. The regression analysis of tangibility with customer satisfaction shows that 

tangibility is not an important predictor of customer satisfaction. In a study undertaken by 

Baumann, Burton and Elliott (2007) tangibility of the bank was found as a major determinant of 

customer satisfaction and increased performance. This finding further reinforces the difference 

between developed and developing nation. In a developing nation like India tangibility does not 

play much role. Customers are not concerned about the physical environment but they are 

concerned about reliability of the service received. 

MANAGERIAL IMPLICATIONS 

As importance of service quality and its impact on customer satisfaction has been recognized and 

reinforced by the present study in context of Indian banking sector. The present study shows 

reliability is the foremost important factor impacting satisfaction. The managerial implication of 

the finding is that employees should be keeping the promises and provide reliable and error free 

service to the customer. The realistic picture and not the rosy picture should be portrayed to the 

customer in order to provide promised service. Based on results of present study, providing 

reliable service is the final outcome and seems to be most appealing service criteria and has been 

given highest importance by customers. This study helps the bank management to gain useful 

insights regarding relative contribution of each service quality dimensions to customer 

satisfaction. As evident, reliability and service interaction have been found significant and 

tangibility and efficiency as insignificant. This finding highlights the very nature of the banking 

service where tangibility does not play as major role as reliability. So, management shall the 

spending maximum of the resources on increasing reliability in order to enhance customer 

satisfaction. However, given the limited nature of this study (restricted coverage of geographical 

region, restricted measures for service quality and satisfaction) further investigations can be 

undertaken. With the change in environment, e-banking coming in to existence the factor might 

change in future. 

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THE NEW BASEL ACCORD – FRAMEWORK AND ROLE OF BANKS 

ABSTRACT 

S. POONGAVANAM* 

*H.O.D., Department of Management studies, Ranippettai Engineering College, 

Thenkadapanthangal, Vellore District, Walaja Taluk - 632513. 

Basel I is an original accord was quite simple and adopted a “one size fits all approach” which 

does not distinguished different risk profiles and risk management standards across bank. It 

provides for the implementation of a credit risk measurement framework with a minimum capital 

standard of 8%. The Basel Committee on Banking Supervision has been developing a new 

accord, Basel II, to address the shortcomings of the current accord and to reflect the new 

developments in the assessment and management of risk. The Committee has developed several 

proposals for revising the existing accord and has conducted four quantitative impact studies 

related to these proposals. The greater the risk the bank is exposed, the greater the amount of 

capital the bank needs to hold to safeguard its solvency and overall economic stability. This 

paper focus on the different types of risk bankers is exposed and the approaches adopted to 

measure the risk. 

KEYWORDS: Credit risk, Operational risk, Market risk, Capital requirement, Supervisor 

review, Market discipline. 

INTRODUCTION 

Basel is a “pocket-sized metropolis”, the third largest in Switzerland, ensconced in a triangle 

bordering Germany and France where the Rhine takes a sharp northward bend. A ten-minute 

stroll (Leisurely walk )from the Rhine, through promenaded(Public walk) avenues,( Path) where 

motorists and cyclists stop and wait patiently to cross the road, is Bahnhof, the rail junction of 

Europe. Overlooking the Bahnhof, the majestic (royal) 18 storied glasses and metal structure of 

the Bank for International settlement (BIS), established in 1930. BIS is an oldest multilateral 

financial institution in the world. 

BIS houses, among other thing, the secretariat of the Basel committee on banking supervision 

(BCBS), formed in 1974 due to the failure of Bankhaus herstatt, which affected G-10 countries, 

signaling to lay down minimum banking standards. The Basel committee’s put forth series of 

efforts for the last 3 decades and it produced a best practice and standards in banking regulation 

and supervision. 

In 1974, Basel committee was established by the central bank Governors belonging to the group 

of ten countries. They meet regularly i.e., once in four month. It consists of 25 technical group 

and task force which also meet regularly. The committee members belong to Belgium, Canada, 

France, Germany, Italy, Japan, Luxembourg, Netherlands, Spain, Sweden, Switzerland, U.K.,

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and U.S. The present Chairman of this committee is Mr.Jaime Caruana, Governor, and Bank of 

Spain. The committee does not possess any formal supranational supervisory authority and its 

suggestion never intended to have a legal force. But it invent a broad supervisory standards and 

guidelines and recommends them in the expectation that individual authority take steps to 

implement them ,which are best suited to their own national .The committee reports to central 

governor of the group of 10 countries and seek Governors endorsement for its major program. 

BASEL I 

Basel I primarily focus banking, in the sense of deposit taking and lending so it targets on credit 

risk. Banks were subject to an 8% capital requirement. [Capital/credit risk ≥8%]. It was quite 

simple and adopted a “one size fits all approach” which does not distinguished different risk 

profiles and risk management standards across bank. 

But there were some defect in the Basel I norms. 

1. It focuses exclusively on credit risk and ignored all other types of risk a bank faces. 

2. Basel I is not structured to keep pace with the rapid rate of financial innovation as in 

internationally active bank. 

3. It is a simplistic approach to risk transference and credit risk mitigation. 

After serious discussion, the major shortcoming of Basel I was rectified and came up with a 

revised version titled “International convergence of capital measurement and capital standards: A 

revised framework” and more popularly known as the New Basel Accord or Basel II. 

BASEL II 

Basel II came out in 1999, followed by two more versions. Basel II was both pilloried and 

acclaimed (Commended) alike, but the opinion about Basel II is undivided that there was a need 

to change from the crude method, which would change the face of banking world. Major risks 

are Credit risk, Market risk and Operational risks are now covered in Basel II. 

he Basel II frame work has been constructed over three pillars: 

THREE PILLARS 

NEW ACCORD 

PILLAR - I PILLAR – II PILLAR – III 

Credit risk 

Operational risk 

To ensure banks maintain 

minimum capital requirement 

Better picture for the overall 

risk position of banks

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Market risk 

CAPITAL REQUIREMENT SUPERVISOR REVIEW MARKET DISCLOSURE 

1. MINIMUM CAPITAL REQUIREMENT –deals with maintenance of regulatory capital 

calculated for three major components of risk that a bank faces – credit, operational and market 

risk 

CAPITAL FOR CREDIT RISK 

a. Standardized approach 

b.Internal rating based approach (IRB) – foundation and advanced approach 

CAPITAL FOR MARKET RISK 

a. Standardized method – Maturity method and duration method 

b.Internal model method 

CAPITAL FOR OPERATIONAL RISK 

a. Basic indicator approach 

b. Standardized approach 

c. Advanced measurement approach 

2. SUPERVISORY REVIEW - This pillar seeks to ensure that a bank maintains minimum 

capital requirement under first pillar and using appropriate risk management techniques in 

measuring and managing risks in relation to bank risk profile .So RBI will intervene when 

deficiency are identified so that prompt and decisive action to rectify the situation is initiated 

instantly. It also provides a frame work for dealing with all other risk a bank face such as 

systematic risk, pension risk, concentration risk, strategic risk, reputation risk, liquidity risk and 

legal risk. 

3. MARKET DISCIPLINE - It greatly increases the disclosures that the banks make. This 

designed to allow the market to have a better picture of the over all risk position of the bank and 

to allow the counter party of the bank to price and deal appropriately. 

OPERATIONAL RISK 

Operational risk is the” loss arising from inadequate or failed internal processes, people and 

system or from external events”. With the increased use of highly automated technology, growth 

of e-commerce, large- scale mergers and acquisition, outsourcing of services, greater use of

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financing techniques, increases the operational risk. All these lead to an increased emphasis on 

the significance of sound operational risk management at banks. Operational risk could be 

broadly classified into internal and external risk. 

Operation risk calculation methods are - 

1. Basic Indicator Approach 

2. Standardized Approach 

3. Advanced measurement approach 

The first method is easiest to implement and involve high capital cost. Last method is tough to 

implement and involve low capital cost. Therefore banks must have a grip on operational risk to 

order to reduce the capital requirement. 

The following diagram depicts the various approaches for credit risk based on complexity and 

their impact on capital charge: 

FIGURE: 1 

COMPARISON OF CREDIT RISK AND OPERATIONAL RISK 

Credit risk 

Operational risk 

Simple 

Standardized approach 

Basic Indicator 

approach 

Intermediate 

Foundation IRB 

Approach 

Standardized approach 

Advanced 

Advanced IRB Approach 

Advanced 

Measurement approach

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APPROACHES FOR OPERATIONAL RISK CAPITAL ASSESSMENT 

Capital charges for operational risk, is the more controversial issue, can be based on one of the 

three approaches: 

A. BASIC INDICTOR APPROACH 

This is the simplest alternative with operational risk capital being factor (alpha) time’s gross 

revenue. It sets the capital requirements for operational risk at fixed percentage 

(% set by the Committee) of the average of the positive gross incomes for the previous three 

years. Years in which annual gross income is negative or zero should be excluded. 

The charges may be expressed as follows: 

KBIA = (∑GI 1…n X α)/N 

GI is positive annual gross income (net interest income plus net non interest income) over the 

previous 3 years 

α is set by the committee 

N is number of previous 3 years 

Sl.No. 

Income 

1 Interest receivable and similar income 

2 Interest payable and similar charges 

3 Income from share and other variable/fixed yield securities 

4 Commissions/fees receivable 

5 Commissions/fees payable 

6 Net profit or Net loss on financial operation 

7 Other operating income 

B.STANDARDISED APPROACH 

This is similar to BIA, but with different factor for each business line. This approach is more 

complex, the gross incomes are distributed among eight business lines. For each business line, 

the capital requirement is calculated by multiplying the average gross income generated by a 

business line over the three previous years by a factor assigned to each business line. Banks

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interested in applying Standardized approach must have good quality standards Viz., 

organization, management, control, audit etc. 

The total capital charge is calculated as 

K TSA = {∑max [∑ (GI 1-8 ß1-8)]} /3 

Where 

GI 1-8 is gross income in a given year for each of the eight business lines. 

ß 1-8 is a fixed percentage set by the committee relating the level of required capital to the level 

of the gross income for each of the eight business lines. 

Business lines 

1.Trading and sales 

2.Retail Banking 

3.Commercial Banking 

4.Corporate financing 

5.Payment and settlement 

6.Agency Services 

7.Asset Management 

8.Retail Brokerage 

Income 

Interest income, profit on sale of assets, fees 

do 

do 

Fees based income only 

do 

do 

do 

do 

C. ADVANCED MEASUREMENT APPROACH 

Under AMA banks internal operational risk measurement system is used. Internal measurement 

system is required to be vetted by the supervisor. This approach allows the capital charges to be 

derived from the banks own loss experiences, with in a regulatory framework. Capital charges 

for well managed bank are reduced in this method. Banks are required to estimate expected loss 

(EL) and unexpected loss (UL) at 99.9 % confidence level using 5 years operation loss data 

through statistical analysis. Sum of EL and UL will be the capital charge for operational risk.

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There are four different advanced operational approaches to calculate capital for operational 

risk.- Internal measurement approach (IMA), Scenario–based Advanced Measurement approach 

(SAMA), Loss Distribution Approach (LDA) and Risk Driver and Control approach (RDCA) 

CREDIT RISK 

Credit risk is defined as the possibility of losses associated with reduction of credit quality 

borrowers or counter parties. This requires extensive review of legal documents/contract, 

tracking of all credit and investment related transactions, including review of past due loan 

report, expired facilities, excess over limits and reporting of any trends and irregularities, follow 

up action taken reports on non compliance areas and status reporting. 

Banks should now have a keen awareness of the need to identify, measure, monitor and control 

credit risk as well as to determine that they hold adequate capital against these risks and that they 

are adequately compensated for risks incurred. The Basel Committee is issuing this document in 

order to encourage banking supervisors globally to promote sound practices for managing credit 

risk. 

MEASUREMENT OF CAPITAL FOR CREDIT RISK 

Credit risk are measured by two methods 

1. Standardized approach 

2. Internal rating based – Foundation and Advanced 

Standardized approach which will be in operation initially, involves fixed risk weight to various 

categories of exposure as presented in the accord with the provision that each bank’s risk grading 

of borrowers is to be vetted by an external rating agency. This method is simple to adopt while 

providing a fair estimate of capital requirement. 

Internal rating based approach both foundation and advanced are sophisticated system of 

computation determined through a combination of qualitative inputs of banks and applying Basel 

Formula for the purpose. Probabilities of Default (PD) data for a minimum period of five years, 

Loss given Default (LGD) data and Exposure at Default (EAD) data for a minimum period of 

seven years are required in the application of the approach. This method of computation is 

extremely complicated but provides a better estimate of capital requirements. 

Banks has option to apply any one of the above said methods, normally big banks keen to adopt 

IRB approach because of better risk management, but they have to allocate more capital for the 

increased risk

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COMPUTATION OF CAPITAL CHARGE FOR CREDIT RISK 

1. STANDARDIZED APPROACH - Banks are required to avail the service of external credit 

rating agencies to quantify required capital for credit risk. The important issue is rating agency 

must possess such length of data. The summary of risk weights in standardized approach. 

A. CLAIMS ON SOVEREIGNS 

Credit 

Assessment 

AAA to 

AA- 

A+ to A- BBB+ to 

BBB- 

B+ to B- Below B- Unrated 

Risk 

weightage 

0% 20% 50% 100% 150% 100% 

B.CLAIMS ON THE BIS, IMF, ECB, EC AND MDB 

Risk weightage 0% 

C.CLAIMS ON BANKS AND SECURITIES COMPANIES 

Credit 

Assessment 

AAA to 

AA- 

A+ to A- BBB+ to 

BBB- 

B+ to B- Below B- Unrated 

Risk 

weightage 

20% 50% 100% 100% 150% 100% 

D.CLAIMS ON CORPORATE 

Credit 

Assessment 

AAA to AA- A+ to A- BBB+ to 

BBB- 

B+ to B- unrated 

Risk 

weightage 

20% 50% 100% 150% 100% 

E. CLAIMS ON RETAIL PRODUCT 

This includes credit card, overdraft, auto loans, personal finance and small business. 

Risk weightage - 75%

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F.CLAIMS SECURED BY RESIDENTIAL PROPERTY 

Risk weightage – 35% 

G. CLAIMS SECURED BY COMMERCIAL REAL ESTATE 

Risk weightage - 100% 

H. OVERDUES – MORE THAN 90 DAYS OTHER THAN RESIDENTIAL MORTGAGE 

LOANS. 

Risk weightage 

150% for provisions are less than 20% of the outstanding amount. 

100% for provisions are between 20% - 49% of the outstanding amount 

100% with supervisory discretion to reduce to 50% for provisions are 50% and more of the 

outstanding amount. 

OTHER ASSETS 

Risk weight – 100% 

CASH 

Risk weightage – 0% 

INTERNAL RATING BASED APPROACH 

It is highly risk sensitive in nature, benefit in long run .Banks can identify the true nature of risk 

and would move towards lower risk assets that would reduce the capital requirement. Banks have 

to determine the following components of risk management 

1. Probability of default (PD) 

2. Exposure of default (EAD) 

3. Effective maturity (EM) 

Banks have to define risk weights by determining the cut off points between and within areas of 

the expected loss (EL) and unexpected loss (UL) where the regulatory capital should be held in 

the probability of default. 

FOUNDATION INTERNAL RATING BASED APPROACH – banks are allowed to develop 

their own empirical model to estimate the Probability of Default (PD) for individual clients or 

group, it can be used after getting permission from the regulator. Banks are required to apply 

regulator prescribed Loss Given Default (LGD) and other parameters required for calculating the

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Risk Weighted Assets (RWA).Total required capital is calculated as a fixed percentage of 

estimated RWA. 

ADVANCED INTERNAL RATING BASED APPROACH METHODS – banks are allowed 

to develop their own empirical model to quantify required capital for credit risk. Banks have to 

estimate probability of default(PD), Exposure of default(EAD),Loss give default(LGD)and other 

parameter required for calculating the Risk weighted asset(RWA).Then total capital required is 

calculated as a fixed percentage of RWA. 

MARKET RISK 

Market risk is defined as the risk of losses in on- balance sheet and off- balance sheet position 

arising from movement in market prices. The market risk positions that require capital charge are 

the following – interest rate related instruments in trading book, equities in trading book and 

foreign exchange open positions 

CAPITAL CHARGE FOR MARKET RISK 

Basel II suggested two broad methodologies for computation of capital charge for market risk. 

One is standardized method and the other is based on the banks internal risk management model 

method. Under standardized method there are two option available maturity method and duration 

method.RBI prescribed duration method to arrive capital charge for market risk. Thus banks will 

be required to measure the general market risk charge by calculating price sensivity (modified 

duration) of each position separately. 

Measurement of capital charge for equities in the trading book- capital charge for specific risk 

shall be 9% and specific risk is computed on the banks gross equity positions. 

The general market risk charge will also be 9% on the gross equity position. Foreign exchange 

open position and gold open position will have a capital charge 9%.The open position would be 

the limit or actual whichever is higher. 

Aggregation of the capital charge for market risk is arrived as follows 

Risk category 

Capital charge 

I. Interest rate(A+B) 

a. General market risk 

- Net position 

- Horizontal disallowance 

- Vertical disallowance

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- Options 

b.Specific risk 

II.Equity(C+D) 

c. General market risk 

d.Specific risk 

III.Foreign exchange and gold 

Total capital charge 

I+II+III 

CONCLUSION 

Implementation of Basel II norms (credit risk, market risk and operational risk) requires lot if 

information at the correct time and at the right place. It requires full computerization; lot of 

investment is required to set up risk management mechanism. It is easy for the public sector 

banks to get fund with the help of government support when compared to the private sectors they 

have to depend upon their own leg. By creating appropriate infrastructure facilities and by 

increasing the staff caliber banks would definitely be in a position to implement the guidelines 

fully. 

REFERENCE 

1.DimitrisN.Chorafas,Operational risk control with Basel II,Butterworth-Heinemann,2004,P.30- 

42. 

2.Ioannis S.Akkizidis;Vivianne Bouchereau,Guide to optimal Operational risk and Basel 

II,Auerbach publication,P.145-149. 

3.Anna S.Chernobai;Svetlozar T.Rachev;Frank J.Fabozzi,Operational risk,John urley and 

sons,Inc,2007,P.40-45. 

4.Michel crouhy;Dan galai;Robert mark,The essentials of risk management,P.325 

5.Consultative document,Operational risk,BIS,Jan.2005. 

6.Working paper on the regulatory Treatment of operational risk,BIS,September2001. 

7.www.investopedia.com 

8.www.indiainfoline.com

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9.www.finextra.com 

10.www.bis.org

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ABSTRACT 

CLUSTER ANALYSIS OF MUTUAL FUNDS 

MR. NOONEY LENIN KUMAR*; DR. V. RAMA DEVI** 

*Lecturer, Department of Business Studies, Nizwa College of Technology, 

P. O Box: 477, Postal Code 611, Nizwa, Oman. 

**Professor, School of Management, KL University, Vaddeswaram, 

Guntur (Dt.), Andhra Pradesh, India. 

Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and 

other assets have become mature and information driven. Small investors face a lot of problems 

in the share market due to lack of professional advice and lack of information. Mutual funds 

have come as a much needed help to these investors. 

Mutual funds which have been operating for greater than five years and performing during the 

period of study (i.e. 2003 – 2007) are selected for the present research. The sample for the study 

consists of 340 mutual funds belonging to 19 investment styles. The performance of selected 

funds is evaluated using rate of return of fund, standard deviation and coefficient of variation. 

Using cluster analysis, mutual funds are categorized into several groups based on different 

evaluation indices: rates of return, standard deviation, Sharpe index, Treynor index and Jensen 

index. 

KEYWORDS: Cluster analysis, Sharpe index, Treynor index and Jensen index. 

INTRODUCTION 

With the growth of the economy and the capital market in India, the size of investors has also 

increased rapidly. In fact, small investors in India have regularly invested in public issues to 

finance big and small green-field project of known promoters. They have been benefited from 

such investments in the past. As the stock market crumbled later on and new issues flopped, 

small investors again began looking for a good opportunity. In this situation, mutual funds 

proved that they are able to deliver the goods. 

A mutual fund is the ideal investment vehicle for today’s complex and modern financial 

scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, 

derivatives and other assets have become mature and information driven. Price changes in these 

assets are driven by global events occurring in faraway places. Small investors face a lot of 

problems in the share market due to lack of professional advice and lack of information. Mutual 

funds have come as a much needed help to these investors.

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NEED AND SIGNIFICANCE OF THE STUDY 

The impressive growth of mutual funds in India has attracted the attention of Indian researchers, 

individuals and institutional investors during past ten years. The Indian mutual fund industry is 

currently in the phase of consolidation and growth stage of the product life cycle. The 

competition would intensify in the coming years as it happened in other industries. Hence, it is 

appropriate, relevant and topical to focus our attention as to how the Indian mutual industry 

would emerge in the coming few years to ascertain what kind of products (mutual fund schemes) 

would be able to win the investors’ confidence and survive in the market place. 

OBJECTIVES OF THE STUDY 

The study will have a proper direction by setting the objectives of the study. The following 

objectives are formulated for the present study: 

1. To evaluate performance of different mutual funds schemes on the basis of risk- return 

parameters. 

2. To categorize different mutual funds into several groups based on different evaluation 

indices: rates of return, standard deviation, Sharpe, Treynor and Jensen index 

RESEARCH METHODOLOGY 

FUNDS SELECTED FOR THE STUDY 

Mutual funds which have been operating for greater than five years and performing during the 

period of study (i.e. 2003 – 2007) were selected for the present research. There were 340 such 

mutual funds belonging to 19 investment styles. This include 14 money market institutional 

funds, 11 debt institutional funds, 47 debt short term funds, 7 debt speciality funds, 60 debt long 

term funds, 12 debt floating rate funds, 56 equity diversified funds, 18 equity tax savings funds, 

3 equity FMCG funds, 7 Equity Technology funds, 3 Equity Pharmacy funds, 1 Equity Banking 

fund, 3 Equity MNC funds, 5 Equity Others funds, 21 Equity Index funds, 30 Balanced funds, 12 

Money Income Plan funds, 29 Money Market funds and 1 Hybrid fund. The reasons for studying 

the performance of mutual fund for a period of five years (2003 -2007) are: 

‣ A large number of mutual funds have been instigated during 2003 - 2007. 

‣ The mutual fund industry in India registered notable growth during 2003 – 2007 Period. 

‣ The Indian stock market has done exceptionally well during 2003 – 2007. 

DATA COLLECTION AND ANALYSIS 

The Research Study has been based on Secondary Data. To gain an overview of the current 

performance trends of the Indian mutual fund industry secondary data has been an important 

source and was collected from the fact sheets, newspapers, journals, books, periodicals, websites,

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etc. The data was collected from various websites of AMCs, AMFI, value research online, 

moneycontrol.com, etc. 

Performance measures like average rate of return, standard deviation, coeffiecient of variation, 

Sharpe, Treynor and Jensen index are calculated. A cluster analysis is done to categorize the 

huge amount of equity mutual funds into several groups based on different evaluation indices: 

rates of return, standard deviation, Sharpe, Treynor and Jensen index, that will aid investors in 

making the investment decision. 

RESULTS AND DISCUSSION 

COMPARISON OF DIFFERENT INVESTMENT STYLES BASED ON RETURN AND 

RISK PARAMETERS 

The return, risk and coefficient of variation are calculated for different investment styles and 

presented in table 1. It is observed that the average returns for investment styles range from 

3.88% to 55.87%. The Equity tax Savings funds have the highest returns followed by Equity 

Diversified and Equity others. These three investment style funds have average returns greater 

than 50%. Average returns are between 40% and 50% for Equity index and Equity MNC 

investment styles. The average returns for Equity Technology, Equity Pharmacy and Balanced 

investment styles are between 30% and 40%. Debt Speciality, Money Income Plan, Money 

Market, Money Market Institutional, Debt Short Term, Debt Long Term and Debt Institutional 

investment styles’ returns are less then 15%. Debt Institutional funds have the least average 

returns. 

As far as risk is concerned, Equity Diversified investment style has the highest risk. The average 

returns are also high for this investment style. This is followed by Equity Pharmacy and Equity 

others for which the risk is greater then 9. Money Market Institutional investment style has the 

lowest risk with 0.24. The risk per unit return ranges from 0.04 to 0.85. The risk per unit return 

ratio is highest for Debt Institutional investment style with 0.85. The average return for this fund 

is 3.88% and risk is 3.31. The risk per unit return ratio is lowest for Money Market Institutional 

investment style. 

CLUSTER ANALYSIS 

One can envisage significant room for growth in the mutual-fund business since a small fraction 

of the country's savings is invested in the capital markets. Foreign money managers have also 

started pouring money into the mutual fund market. In this vibrant trading atmosphere, the 

buyers face the challenge of diversifying their portfolio among different types of funds. A cluster 

analysis is done to categorize different mutual funds into several groups based on different 

evaluation indices: rates of return, standard deviation, Sharpe, Treynor and Jensen index, that 

will aid investors in making the investment decision. 

For an investor with inadequate knowledge and an urge for investment the results will indicate 

how one can diversify investment in mutual funds across sectors and styles or objectives. The 

past performance should be taken into account before making investment decisions since funds

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from different classifications may go together in terms of their performance as has been found in 

the clusters. 

The clusters obtained are given in Tables 2to 8. All 340 mutual funds are classified into five 

cluster centers out of which Cluster 2 is the largest cluster with 194 mutual funds which have the 

following parameters – Returns 5.80%, Risk 3.01, Sharpe -0.18, Treynor -0.58, Jensen -0.33 

and risk by return 0.85. 136 mutual funds belong to cluster 1, the next largest cluster with the 

following parameters: Returns 47.15%, Risk 30.14, Sharpe 1.43, Treynor 36.77, Jensen -1.95 

and risk by return 0.63. Next comes the cluster 4 which has eight mutual funds and the 

parameters in this cluster are Returns 44.31%, Risk 19.05, Sharpe 1.97, Treynor 101.90, Jensen 

23.33 and risk by return 0.48. Clusters 3 & 5 have only one mutual fund and the parameters for 

the clusters are Returns 46.24%, Risk 22.64, Sharpe 1.78, Treynor -1770.87, Jensen 41.13 & risk 

by return 0.49 and Returns 49.08%, Risk 15.22, Sharpe 2.83, Treynor -304.40, Jensen 46.42 and 

risk by return 0.31 respectively. 

Risk is highest in cluster one and this shows that the mutual funds in this cluster have high risk. 

Risk by return variable is highest in cluster 2 indicating that mutual funds in this category 

assume more risk to generate returns. Treynor ratio is highest in cluster four indicating that the 

funds in this cluster have performed better. Returns, Sharpe ratio and Jensen ratio are highest in 

cluster five indicating better returns. 

In cluster 1 almost all the funds belong to Balanced and Equity Category. In cluster 2 majority 

of the funds belong to Debt and Money Market Category. In cluster 3 & 5 there is only one fund 

which belongs to Equity Category and in cluster 4 majority are Equity Category funds. 

In cluster 1, out of 136 funds Twenty Seven are of Balanced Investment Style, 51 Equity 

Diversified, Three Equity FMCG, Twenty One Equity Index, Three Equity MNC, Four Equity 

Others, Three Equity Pharmacy, Eighteen Equity Tax Savings and six belong to Equity 

Technology Investment Styles. In cluster 2 one is Balanced, Twelve Debt Floating Rate, Eleven 

Debt Institutional, 60 Debt Long Term, 47 Debt Short Term, Seven Debt Speciality, one Hybrid, 

Twelve Money Income Plan, Twenty Nine Money Market and Fourteen Money Market 

Institutional. Cluster 3 has only one fund which belongs to Equity Banking. There are Five 

Equity Diversified, one Equity Others and Two Balanced funds in cluster 4. Cluster 5 has only 

one which belongs to Equity Technology fund. 

A summary picture of cluster centers is presented in Table 3. The mix of different categories 

performing similarly in terms of their variables provides important investment insights to the 

investors. 

CONCLUSION 

The tremendous success the fund industry has enjoyed is due to the fact that, it has done more 

than any other financial services industry to offer investors solid products tailored to meet real 

financial needs, and marketed those products responsibly. But it cannot be ignored that rapid 

changes and market pressures are challenging. It cannot be afforded to remain "pigeonholed" by

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outdated thinking or antiquated business practices. If the long-term health of the industry and 

investor protection is maintained, the record of success can be maintained in the future. 

REFERENCES 

BOOKS 

1. Ms. Rachana Baid. (2007), Mutual Funds Products and Services, Taxmann Publications 

Pvt. Ltd, New Delhi. 

2. Amit Singh Sisodiya. (2005), Mutual Fund Industry in India – An Introduction, ICFAI 

Publications. 

3. E. Mrudula. (2005), Mutual Fund Industry in India, ICFAI publications, 2005. 

4. H. Sadhak. (2003), Mutual Funds in India - Marketing Strategies and Investment 

Practices, Second Edition, Response Books, A division of Sage Publications India Pvt. 

Ltd. 

5. Gupta, O.P. and Sehgal, S. (1997), Investment Performance of Mutual Funds – The 

Indian Experience’, `Indian Capital Market – Trends and Dimensions’, Tata McGraw 

Hill Publishing Company Ltd. (on behalf of Institute of Capital Market, Navi Mumbai). 

6. Donald E.Fischer and Ronald J.Jordan. (1996), Security Analysis and Portfolio 

Management, Prentice Hall of India, New Delhi. 

JOURNAL ARTICLES 

1. Pendaraki, K., Zopounidis, C. and Doumpos, M. (2005), “On the construction of mutual 

fund portfolios: A Multi-criteria methodology and an application to the Greek market of 

equity mutual funds”, European Journal of Operational Research, 163 (2) :462-481. 

2. Banikanta Mishra, Mahmud Rahman. (2001), “Measuring mutual fund performance using lower 

partial moment”, Global Business Trends, Contemporary Readings. 

3. Reilly, F.K. and E. A. Norton. “Investments (South-Western, Mason, OH)”, 2003 

Statman , M. , “Socially responsible mutual funds”, Financial Analysts Journal 56, 2000 

:30-38. 

4. Jaydev, M. (1996), “Mutual Fund Performance: An Analysis of Monthly Returns”, 

Finance India, 10 (1):73-84. 

5. Sharpe, W.F. (1994), “The Sharpe ratio”, Journal of Portfolio Management, 21:49-59. 

6. Sharpe, W.F. (1992), “Asset Allocation: Management Style and Performance 

Measurement,” Journal of Portfolio Management, Winter: 7-19.

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7. Sharpe, W.F. (1988), “Determining a Fund’s Effective Asset Mix,” Investment 

Management Review: 59-69. 

8. Grossman,B.R. and W.F. Sharpe. (1986), “Financial implications of South African 

divestment”, Financial Analysts Journal , 49: 62-66. 

9. Sharpe, W.F. 1966, “Mutual Fund Performance”, Journal of Business, 34 (2): 119-138. 

RESEARCH PAPERS/ DOCTORAL DISSERTATION 

1. Sharad Panwar & Madhumati.R. “Characteristics and Performance Evaluation of 

Selected Mutual Funds in India”, Indian Institute of Capital Markets 9th Capital Markets 

Conference Paper. 

TABLE 1: RETURN AND RISK PARAMETERS FOR DIFFERENT INVESTMENT 

STYLES 

S. No Investment Style Return (%) Risk Coefficient of Variation 

1 Balanced 33.42 8.71 0.26 

2 Debt Floating Rate 5.49 0.43 0.08 

3 Debt Institutional 3.88 3.31 0.85 

4 Debt Long Term 4.64 1.44 0.31 

5 Debt Short Term 5.37 0.87 0.16 

6 Debt Speciality 12.57 2.67 0.21 

7 Equity Diversified 55.54 9.7 0.18 

8 Equity FMCG 38.69 8.95 0.23 

9 Equity Index 41.64 5.58 0.13 

10 Equity MNC 40.61 4.39 0.11 

11 Equity Others 50.96 9.07 0.18 

12 Equity Pharmacy 34.57 9.31 0.27 

13 Equity Tax Savings 55.87 8.61 0.15 

14 Equity Technology 35.1 8.59 0.25

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15 Money Income Plan 9.78 2.29 0.23 

16 Money Market 5.71 0.27 0.05 

17 Money Market Institutional 5.57 0.24 0.04 

TABLE 2: CLUSTER ANALYSIS 

Cluster 

Variables 

1 2 3 4 5 

Returns (%) 47.15 5.8 46.24 44.31 49.08 

Risk 30.14 3.01 22.64 19.05 15.22 

Sharpe 1.43 -0.18 1.78 1.97 2.83 

Treynor 36.77 -0.58 -1770.87 101.9 -304.4 

Jensen -1.95 -0.33 41.13 23.33 46.42 

Risk/Return 0.63 0.85 0.49 0.48 0.31 

Number of Cases in each Cluster 136 194 1 8 1 

TABLE 3: SUMMARY OF CLUSTER CENTRES 

Cluster No 

No of Mutual Funds from each 

Category 

No of Mutual Funds from each 

Investment Styles 

Balanced - 27 

Equity Diversified - 51 

Equity FMCG – 3 

Balanced - 27 Equity Index – 21 

Equity - 109 Equity MNC – 3 

1 

Equity Others – 4

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Equity Pharmacy -3 

Equity Tax Savings - 18 

Equity Technology - 6 

Total Mutual 

Funds 136 136 

Balanced - 1 Balanced – 1 

Debt - 137 Debt Floating Rate - 12 

Hybrid - 1 Debt Institutional - 11 

Money Market - 55 Debt Long Term – 60 

Debt Short Term – 47 

Debt Speciality – 7 

Hybrid – 1 

Money Income Plan - 12 

Money Market – 29 

2 

Money Market Institutional - 14 

Total Mutual 

Funds 194 194 

3 Equity - 1 Equity Banking – 1 

Total Mutual 

Funds 1 1 

Equity - 6 Equity Diversified – 5 

Balanced - 2 Equity Others – 1 

4 

Balanced – 2 

Total Mutual 

Funds 8 8

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5 Equity - 1 Equity Technology - 1 

Total Mutual 

Funds 1 1 

TABLE 4: CLUSTER 1 

S. No Fund Category Fund Name Investment Style 

1 Balanced SBI Magnum Balanced Fund Balanced 

2 Balanced HDFC Prudence Fund Balanced 

3 Balanced Escorts Balanced Fund Balanced 

4 Balanced ICICI Pru Child Care Plan - Gift Pl Balanced 

5 Balanced Tata Balanced Fund Balanced 

6 Balanced DSP-ML Balanced Fund Balanced 

7 Balanced Kotak Balance Balanced 

8 Balanced Birla Sun Life 95 Fund Balanced 

9 Balanced Principal Child Benefit Fund - Care Balanced 

10 Balanced Principal Child Benefit Fund - Future Balanced 

11 Balanced FT India Balanced Fund Balanced 

12 Balanced ICICI Pru Balanced Fund Balanced 

13 Balanced Principal Balanced Fund Balanced 

14 Balanced Sundaram BNP Paribas Balanced Fund Balanced 

15 Balanced JM Balanced Fund Balanced 

16 Balanced Birla Sun Life Balance Balanced 

17 Balanced LIC MF Balanced Fund - C Balanced 

18 Balanced ING Balanced Portfolio Balanced

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19 Balanced UTI Balanced Fund Balanced 

20 Balanced HDFC Balanced Fund Balanced 

21 Balanced LIC MF Unit Linked Insurance Scheme Balanced 

22 Balanced HDFC Childrens Gift Fund - Investment Balanced 

23 Balanced Tata Young Citizens Fund Balanced 

24 Balanced Escorts Opportunities Fund Balanced 

25 Balanced Templeton India Pension Plan Balanced 

26 Balanced UTI Mahila Unit Scheme Balanced 

27 Balanced UTI CRTS 81 Balanced 

28 Equity Reliance Growth Fund - Retail Plan Equity Diversified 

29 Equity Tata Equity Opportunities Fund - Pl Equity Diversified 

30 Equity Sundaram BNP Paribas Select Midcap Equity Diversified 

31 Equity Taurus Star Share Equity Diversified 

32 Equity Franklin India Prima Fund Equity Diversified 

33 Equity HSBC Equity Fund Equity Diversified 

34 Equity Reliance Vision Fund - Retail Plan Equity Diversified 

35 Equity SBI Magnum Multiplier Plus Equity Diversified 

36 Equity DSP-ML Equity Fund - Regular Plan Equity Diversified 

37 Equity Birla Sun Life Equity Fund Equity Diversified 

38 Equity DSP-ML Opportunities Fund - Regular Equity Diversified 

39 Equity Tata Select Equity Fund Equity Diversified 

40 Equity Tata Pure Equity Fund Equity Diversified 

41 Equity Birla Sun Life Midcap Fund Equity Diversified 

42 Equity DSP-ML Top 100 Equity Fund - Regular Equity Diversified

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43 Equity HDFC Top 200 Fund Equity Diversified 

44 Equity HDFC Equity Fund Equity Diversified 

45 Equity HDFC Capital Builder Fund Equity Diversified 

46 Equity Sundaram BNP Paribas Select Focus - Equity Diversified 

47 Equity Principal Resurgent India Equity Fu Equity Diversified 

48 Equity HDFC Growth Fund Equity Diversified 

49 Equity Sundaram BNP Paribas Growth Fund Equity Diversified 

50 Equity ICICI Pru Power Equity Diversified 

51 Equity Kotak 30 Equity Diversified 

52 Equity Templeton India Growth Fund Equity Diversified 

53 Equity Franklin India Prima Plus Fund Equity Diversified 

54 Equity DWS Alpha Equity Fund Equity Diversified 

55 Equity Franklin India Blue chip Fund Equity Diversified 

56 Equity Taurus Discovery Fund Equity Diversified 

57 Equity ICICI Pru Dynamic Plan Equity Diversified 

58 Equity Birla Sun Life Advantage Fund Equity Diversified 

59 Equity JM Equity Fund Equity Diversified 

60 Equity Franklin India Opportunities Fund Equity Diversified 

61 Equity Escorts Growth Plan Equity Diversified 

62 Equity Birla Sun Life Frontline Equity Fun Equity Diversified 

63 Equity Sahara Growth Fund Equity Diversified 

64 Equity DBS Chola Growth Fund Equity Diversified 

65 Equity UTI Master Value Fund Equity Diversified 

66 Equity UTI Master Equity Plan Unit Scheme Equity Diversified

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67 Equity UTI Master growth 93 Equity Diversified 

68 Equity Principal Growth Fund Equity Diversified 

69 Equity Birla Sun Life Dividend Yield Plus Equity Diversified 

70 Equity UTI Index Select Equity Fund Equity Diversified 

71 Equity ICICI Pru Growth Plan Equity Diversified 

72 Equity LIC MF Growth Fund Equity Diversified 

73 Equity UTI Master Plus Unit Scheme Equity Diversified 

74 Equity UTI Equity Fund Equity Diversified 

75 Equity Morgan Stanley Growth Fund Equity Diversified 

76 Equity LIC MF Equity Fund Equity Diversified 

77 Equity Canara Robeco Equity Diversified Equity Diversified 

78 Equity Birla Sun Life India Opportunities Equity Diversified 

79 Equity ICICI Pru FMCG Fund Equity FMCG 

80 Equity SBI Magnum FMCG Fund Equity FMCG 

81 Equity Franklin FMCG Fund Equity FMCG 

82 Equity Benchmark Nifty Junior BeEs Equity Index 

83 Equity HDFC Index Fund - Sensex Plus Plan Equity Index 

84 Equity ICICI Pru SPIcE Plan Equity Index 

85 Equity Tata Index Fund - Nifty Plan – A Equity Index 

86 Equity UTI Master Index Fund Equity Index 

87 Equity Tata Index Fund - Sensex Plan – A Equity Index 

88 Equity ICICI Pru Index Fund - Nifty Plan Equity Index 

89 Equity UTI Nifty Index Fund Equity Index 

90 Equity Franklin India Index Fund - NSE Nifty Equity Index

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91 Equity Birla Index Fund Equity Index 

92 Equity Benchmark Nifty BeEs Equity Index 

93 Equity Franklin India Index Tax Fund Equity Index 

94 Equity UTI SUNDER Equity Index 

95 Equity Franklin India Index Fund - BSE Sensex Equity Index 

96 Equity SBI Magnum Index Fund Equity Index 

97 Equity HDFC Index Fund - Sensex Plan Equity Index 

98 Equity HDFC Index Fund - Nifty Plan Equity Index 

99 Equity Principal Index Fund Equity Index 

100 Equity LIC MF Index Fund - Sensex Plan Equity Index 

101 Equity LIC MF Index Fund - Sensex Advantage Equity Index 

102 Equity LIC MF Index Fund - Nifty Plan Equity Index 

103 Equity Kotak MNC Equity MNC 

104 Equity Birla MNC Fund Equity MNC 

105 Equity UTI MNC Fund Equity MNC 

106 Equity Birla Sun Life Basic Industries Fund Equity Others 

107 Equity Tata Life Sciences & Technology Fund Equity Others 

108 Equity UTI Services Industries Fund Equity Others 

109 Equity UTI Energy Fund Equity Others 

110 Equity SBI Magnum Pharma Fund Equity Pharmacy 

111 Equity Franklin Pharma Fund Equity Pharmacy 

112 Equity UTI Pharma & Healthcare Fund Equity Pharmacy 

113 Equity SBI Magnum Tax Gain Scheme Equity Tax Savings 

114 Equity Birla Sun Life Tax Plan Equity Tax Savings

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115 Equity Birla Tax Plan 98 Equity Tax Savings 

116 Equity ICICI Pru Tax Plan Equity Tax Savings 

117 Equity HDFC Tax Saver Equity Tax Savings 

118 Equity Sundaram BNP Paribas Tax Saver Equity Tax Savings 

119 Equity HDFC Long Term Advantage Fund Equity Tax Savings 

120 Equity Principal Tax Savings Fund Equity Tax Savings 

121 Equity Birla Sun Life Tax Relief 96 Equity Tax Savings 

122 Equity Tata Tax Saving Fund Equity Tax Savings 

123 Equity Principal Personal Tax Savings Fund Equity Tax Savings 

124 Equity Franklin India Tax Shield Equity Tax Savings 

125 Equity Sahara Tax Gain Equity Tax Savings 

126 Equity Escorts Tax Plan Equity Tax Savings 

127 Equity Canara Robeco Equity Tax Saver Equity Tax Savings 

128 Equity BOB ELSS 96 Equity Tax Savings 

129 Equity UTI Equity Tax Savings Plan Equity Tax Savings 

130 Equity LIC MF Tax Plan Equity Tax Savings 

131 Equity Birla Sun Life New Millennium Equity Technology 

132 Equity ICICI Pru Technology Fund Equity Technology 

133 Equity SBI Magnum IT Fund Equity Technology 

134 Equity UTI Software Fund Equity Technology 

135 Equity Franklin Infotech Fund Equity Technology 

136 Equity Kotak Tech Equity Technology

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S. 

No 

Fund 

Category Fund Name Investment Style 

1 Balanced UTI Childrens Career Balanced Plan Balanced 

2 Debt Templeton Floating Rate Income Fund Debt Floating Rate 

3 Debt Templeton Floating Rate Income Fund Debt Floating Rate 

4 Debt HDFC Floating Rate Income Fund - ST Debt Floating Rate 

5 Debt ICICI Pru Floating Rate Plan B Debt Floating Rate 

6 Debt Birla Floating Rate Fund - Long Term Debt Floating Rate 

7 Debt HDFC Floating Rate Income Fund - LT Debt Floating Rate 

8 Debt Kotak Floater Short Term Plan Debt Floating Rate 

9 Debt Birla Floating Rate Fund - Short Te Debt Floating Rate 

10 Debt JM Floater Fund - Short Term Plan Debt Floating Rate 

11 Debt DSP-ML Floating Rate Fund - Regular Debt Floating Rate 

12 Debt UTI Floating Rate Fund - STP Debt Floating Rate 

13 Debt JM Liquid Plus Fund - Regular Plan Debt Floating Rate 

14 Debt ICICI Pru Short Term Plan - Institutional Debt Institutional 

15 Debt ICICI Pru Income Plan - Institution Debt Institutional 

16 Debt Birla Sun Life Liquid Plus Fund - I Debt Institutional 

17 Debt Principal Income STP - Institutional Debt Institutional 

18 Debt Principal Income Fund - Institution Debt Institutional 

19 Debt ING Income Fund - Institutional Opt Debt Institutional 

20 Debt IDFC Liquid Plus Fund - Treasury Plan Debt Institutional 

21 Debt HSBC Income Fund - Investment Plan Debt Institutional

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22 Debt JM Short Term Plan - Institutional Debt Institutional 

23 Debt HSBC Income Fund - STP - Institutional Debt Institutional 

24 Debt 

DBS Chola Freedom Income - STF 

Institutional 

Debt Institutional 

25 Debt ICICI Pru Long Term Plan Debt Long Term 

26 Debt Templeton India Govt. Sec. - Long Term Debt Long Term 

27 Debt Escorts Income Plan Debt Long Term 

28 Debt Birla Sun Life Income Fund Debt Long Term 

29 Debt Reliance Gilt Securities Fund - Long Debt Long Term 

30 Debt Templeton India Short Term Income Plan Debt Long Term 

31 Debt Birla Sun Life Gilt Plus (Regular Plan) Debt Long Term 

32 Debt ICICI Pru Flexible Income Plan Debt Long Term 

33 Debt DWS Short Maturity Fund Debt Long Term 

34 Debt ICICI Pru Gilt - Treasury Plan Debt Long Term 

35 Debt Reliance Income Fund Debt Long Term 

36 Debt IDFC Super Saver Income Fund - STP Debt Long Term 

37 Debt UTI Gilt Advantage Fund - Long Term Debt Long Term 

38 Debt ICICI Pru Gilt - Investment Plan Debt Long Term 

39 Debt UTI Bond Fund Debt Long Term 

40 Debt Birla Sun Life Income Plus - Retail Debt Long Term 

41 Debt Principal Govt Sec. Fund - Investment Debt Long Term 

42 Debt DWS Premier Bond Fund - Regular Plan Debt Long Term 

43 Debt HSBC Income Fund - Investment Plan Debt Long Term 

44 Debt ICICI Pru Income Plan Debt Long Term

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45 Debt Birla Sun Life Gilt Plus (PF Plan) Debt Long Term 

46 Debt Kotak Gilt Investment Plan Regular Debt Long Term 

47 Debt Templeton India Income Fund Debt Long Term 

48 Debt Templeton India Govt Sec - Composition Debt Long Term 

49 Debt DSP-ML Govt. Sec. Fund - Plan A Debt Long Term 

50 Debt LIC MF Bond Fund Debt Long Term 

51 Debt IDFC Super Saver Income Fund Debt Long Term 

52 Debt Birla Sun Life G-Sec. Fund - Long T Debt Long Term 

53 Debt DBS Chola Gilt - Investment Plan Debt Long Term 

54 Debt JM G-Sec Fund - PF Plan Debt Long Term 

55 Debt HDFC Income Fund Debt Long Term 

56 Debt Reliance Medium Term Fund Debt Long Term 

57 Debt HDFC Gilt Fund - Short Term Plan Debt Long Term 

58 Debt UTI G-Sec Fund Debt Long Term 

59 Debt SBI Magnum Gilt - Long Term Plan Debt Long Term 

60 Debt Templeton India Income Builder Account Debt Long Term 

61 Debt Tata Gilt Securities Fund B (App) Debt Long Term 

62 Debt Taurus Libra Bond Debt Long Term 

63 Debt JM Income Fund Debt Long Term 

64 Debt Escorts Gilt Fund Debt Long Term 

65 Debt HDFC High Interest Fund Debt Long Term 

66 Debt Canara Robeco Gilt PGS Debt Long Term 

67 Debt SBI Magnum Income Fund Debt Long Term 

68 Debt JM G-Sec Fund (RP) Debt Long Term

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69 Debt LIC MF Govt. Sec. Fund Debt Long Term 

70 Debt Sundaram BNP Paribas Bond Saver Debt Long Term 

71 Debt HDFC Gilt Fund - Long Term Plan Debt Long Term 

72 Debt Birla Sun Life Short Term Opportunities Debt Long Term 

73 Debt UTI Gilt Advantage Fund - LTP - PF Debt Long Term 

74 Debt Tata Gilt High Fund Debt Long Term 

75 Debt UTI Gilt Advantage Fund - LTP- PF Debt Long Term 

76 Debt Sahara Gilt Fund Debt Long Term 

77 Debt Taurus Libra Gilt Debt Long Term 

78 Debt BOB Gilt Fund Debt Long Term 

79 Debt Tata Gilt Retirement Plan (28/02/13 Debt Long Term 





84 Debt Franklin Indian International Fund Debt Long Term 

85 Debt Reliance Short Term Plan Debt Short Term 

86 Debt ING Short Term Income Fund Debt Short Term 

87 Debt Tata Short Term Bond Fund Debt Short Term 

88 Debt ICICI Pru Short Term Plan Debt Short Term 

89 Debt Kotak Bond - Short Term Plan Debt Short Term 

90 Debt JM Short Term Plan Debt Short Term 

91 Debt Birla Sun Life Short Term Fund Debt Short Term 

92 Debt Kotak Bond (Regular Plan) Debt Short Term

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93 Debt HDFC High Interest Fund - Short Term Debt Short Term 

94 Debt Principal Income Fund - Short Term Debt Short Term 

95 Debt Birla Sun Life Gilt Plus (Liquid Plan) Debt Short Term 

96 Debt Birla Sun Life Liquid Plus Fund - R Debt Short Term 

97 Debt IDFC Dynamic Bond Fund Debt Short Term 

98 Debt Tata Income Fund Debt Short Term 

99 Debt HDFC Short Term Plan Debt Short Term 

100 Debt DWS Insta Cash Plus Fund Debt Short Term 

101 Debt IDFC Liquid Plus Fund - Treasury Plan Debt Short Term 

102 Debt DBS Chola Freedom Income - Short Te Debt Short Term 

103 Debt Canara Robeco Income Debt Short Term 

104 Debt Canara Robeco Liquid Plus - Retail Debt Short Term 

105 Debt DSP-ML Short Term Fund Debt Short Term 

106 Debt HSBC Income Fund - Short Term Plan Debt Short Term 

107 Debt Principal Income Fund Debt Short Term 

108 Debt SBI Magnum Gilt - Short Term Plan Debt Short Term 

109 Debt Templeton India Govt Sec - Treasury Debt Short Term 

110 Debt Kotak Bond (Deposit Plan) Debt Short Term 

111 Debt Kotak Gilt Savings Plan Debt Short Term 

112 Debt DSP-ML Govt. Sec. Fund - Plan B Debt Short Term 

113 Debt Tata Dynamic Bond Fund - Plan A Debt Short Term 

114 Debt Tata Dynamic Bond Fund - Plan B Debt Short Term 

115 Debt Tata Income Plus Fund - Plan B Debt Short Term 

116 Debt Tata Gilt Securities - Short Maturity Debt Short Term

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117 Debt Sahara Income Fund Debt Short Term 

118 Debt IDFC G-Sec. Fund - Investment Plan Debt Short Term 

119 Debt Tata Income Plus Fund - Plan A Debt Short Term 

120 Debt IDFC Super Saver Income Fund - Media Debt Short Term 

121 Debt LIC MF Short Term Plan Debt Short Term 

122 Debt ING Income Fund Debt Short Term 

123 Debt Principal Govt Sec. Fund - Savings Debt Short Term 

124 Debt BOB Income Fund Debt Short Term 

125 Debt IDFC G-Sec. Fund - Short Term Plan Debt Short Term 

126 Debt DSP-ML Bond Fund - Retail Plan Debt Short Term 

127 Debt UTI Liquid Plus Fund - Retail Plan Debt Short Term 

128 Debt Birla Sun Life G-Sec. Fund - Short Debt Short Term 

129 Debt Reliance Gilt Securities Fund- Short Debt Short Term 

130 Debt ING Gilt Fund - Regular Plan Debt Short Term 

131 Debt DBS Chola Triple Ace Debt Short Term 

132 Debt LIC MF Childrens Fund Debt Speciality 

133 Debt Canara Robeco CIGO Debt Speciality 

134 Debt ICICI Pru Child Care Plan - Study P Debt Speciality 

135 Debt SBI Magnum Childrens Benefit Plan Debt Speciality 

136 Debt HDFC Childrens Gift Fund - Savings Debt Speciality 

137 Debt DSP-ML Saving Plus Fund - Moderate Debt Speciality 

138 Debt UTI Monthly Income Scheme Debt Speciality 

139 Hybrid UTI Variable Investment Scheme - Income Hybrid 

140 Money Market FT India Monthly Income Plan Money Income Plan

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141 Money Market Birla Sun Life Monthly Income Money Income Plan 

142 Money Market LIC MF Monthly Income Plan Money Income Plan 

143 Money Market Templeton Monthly Income Plan Money Income Plan 

144 Money Market ICICI Pru Monthly Income Plan Money Income Plan 

145 Money Market Birla Sun Life Monthly Income Plan Money Income Plan 

146 Money Market Principal Monthly Income Plan Money Income Plan 

147 Money Market SBI Magnum Monthly Income Plan Money Income Plan 

148 Money Market Tata Monthly Income Fund Money Income Plan 

149 Money Market DBS Chola Monthly Income Plan - Regular Money Income Plan 

150 Money Market JM Monthly Income Plan Money Income Plan 

151 Money Market Templeton Monthly Income Plan Money Income Plan 

152 Money Market LIC MF Liquid Fund Money Market 

153 Money Market Canara Robeco Liquid Money Market 

154 Money Market HDFC Cash Management Fund - Saving Money Market 

155 Money Market SBI Magnum Insta Cash Fund - Liquid Money Market 

156 Money Market Birla Sun Life Cash Manager Money Market 

157 Money Market HDFC Cash Management Savings Plus - Money Market 

158 Money Market Birla Cash Plus - Retail (Plan B) Money Market 

159 Money Market HDFC Liquid Fund Money Market 

160 Money Market SBI Magnum Insta Cash Fund (Cash) Money Market 

161 Money Market Tata Liquid Fund Money Market 

162 Money Market Templeton India Treasury Mgmt Account Money Market 

163 Money Market UTI Money Market Fund Money Market 

164 Money Market ING Liquid Fund Money Market

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165 Money Market Sundaram BNP Paribas Money Fund Money Market 

166 Money Market HSBC Cash Fund Money Market 

167 Money Market DBS Chola Liquid Fund - Regular Money Market 

168 Money Market ICICI Pru Liquid Plan Money Market 

169 Money Market Principal Cash Mgmt - Liquid Fund Money Market 

170 Money Market DSP-ML Liquidity Fund Money Market 

171 Money Market BOB Liquid Fund Money Market 

172 Money Market Reliance Liquid Fund - Treasury Plan Money Market 

173 Money Market JM High Liquidity Fund Money Market 

174 Money Market Kotak Liquid Regular Money Market 

175 Money Market UTI Liquid Fund - Short Term Plan – Money Market 

176 Money Market HDFC Cash Management Fund - Call Plan Money Market 

177 Money Market IDFC Cash Fund Money Market 

178 Money Market UTI Liquid Fund - Cash Plan - Growth Money Market 

179 Money Market ICICI Pru Liquid (Sweep Plan) Money Market 

180 Money Market Reliance Liquid Fund - Cash Plan Money Market 

181 Money Market ICICI Pru Liquid - Institutional Pl 

182 Money Market HDFC Liquid Fund - Premium Plus 

Money Market 

Institutional 

Money Market 

Institutional 

183 Money Market HDFC Liquid Fund - Premium Plan 

184 Money Market Tata Liquid Fund - High Investment 

185 Money Market Birla Sun Life Cash Manager - Inst. 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional

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186 Money Market Tata Liquid - Super High Investment 

187 Money Market Birla Sun Life Cash Plus - Institutional 

188 Money Market DBS Chola Liquid Fund - Institution 

189 Money Market Kotak Liquid - Institutional Plan 

190 Money Market Principal Cash Mgmt - Liquid - Inst 

191 Money Market JM High Liquidity Fund - Institutional 

192 Money Market IDFC Cash Fund - Institutional Plan 

193 Money Market ICICI Pru Liquid Plan - Institution 

194 Money Market HSBC Cash Fund - Institutional Plan 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 

Money Market 

Institutional 



1 Equity Reliance Banking Fund Equity Banking 



1 Equity SBI Magnum Contra Fund Equity Diversified 

2 Equity SBI Magnum Global Fund Equity Diversified 

3 Equity ING Core Equity Fund Equity Diversified

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4 Equity BOB Growth Fund Equity Diversified 

5 Equity UTI Master share Equity Diversified 

6 Equity Birla Sun Life Buy India Fund Equity Others 

7 Balanced BOB Balance Fund Balanced 

8 Balanced Templeton (I) Childrens Asset Plan Balanced 


S. No Fund Category Investment Style Investment Style 

1 Equity DSP-ML Technology.Com - Regular Plan Equity Technology


48 

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ABSTRACT 

GLOBAL TERRORISM INSURANCE: AN OVERVIEW 

DR. RENU VERMA*; DR MANISHA SINGH** 

*Faculty, IBS, IDPL Complex, Old Delhi Gurgaon Road, 

Dundahera, Gurgaon – 122016. 

**Faculty, IBS, IDPL Complex, Old Delhi Gurgaon Road, 

Dundahera, Gurgaon – 122016. 

Terrorist attacks today, are not limited to any specific part of the world but have acquired an all 

pervasive and global nature. The risk of terrorism is proving to be a complicated and most 

important challenge for the insurance industry, governments as well as society as a whole. In this 

regard, the governments of various countries have taken strategic steps for creating laws and 

policies related to terrorism insurance. This paper is an attempt to throw light on the growing 

need of terrorism insurance as a risk mitigating tool across the nations. It also tries to examine 

the present status of terrorism insurance market in global perspective as well as challenges and 

issues faced by Indian terrorism market. 

KEYWORDS: Terrorism Insurance, Terrorism Insurance Pool, Risk mitigating tool, Premium 

rates, Reinsurance, political risk atlas, Risk coverage. 

INTRODUCTION 

Opportunities exist where uncertainties lie. And there is no dearth of uncertainties in today‘s fast 

paced life due to various catastrophic disasters. It is not that catastrophic perils were not there 

earlier. However, with passage of time, they have taken gigantic proportion. This is mainly 

because of a major addition to the natural calamities in the form of man made catastrophe which 

includes war, disasters due to mad-made errors, as well as terrorism. So much so that, these manmade 

disasters have outnumbered the natural calamities happening in a year. The following 

graph reveals the number of occurrences globally due to various catastrophic (natural and manmade) 

events: 

FIGURE -1 NUMBER OF NATURAL CATASTROPHIC EVENTS AND MAN MADE 

DISASTERS WORLD WIDE

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It is clearly evident from the graph that man made disasters have always been higher in number 

than natural disasters and there has been a sharp increase in the number of such disasters globally 

during the last decade. Though these man made disaster are result of various human activities 

like war, war like situation, rebels, maritime and aviation disasters etc., the most alarming factor 

responsible for increase in the number worldwide has been terrorism. Most noteworthy fact is 

that these terrorist activities are increasing in spite of increasing government expenditure on 

security systems of the countries worldwide and so is the losses incurred due to these attacks. 

This speaks about the need of an extra measure to combat the situation by compensating the 

losses incurred. And here in lies the opportunities for terrorism insurance market world wide. 

This paper is an attempt to throw light on the growing need of terrorism insurance as a risk 

mitigating tool across the nations. It also tries to examine the present status of terrorism 

insurance market in global perspective. An attempt has also been made to analyze various issues 

and challenges faced by Indian insurance market. 

WHAT IS TERRORISM INSURANCE? 

Terrorism insurance is the insurance protection against the risk of terrorist attacks. In other 

words, in terrorism insurance, the insured (individual or business house) is assured by the insurer 

(insurance company) of either partial or full compensation in case of loss caused to life/property 

due to terrorist attacks. This need based form of insurance is the result of global terror 

phenomenon. The terror attacks, especially the bombing of World Trade Center, U.S.A in 2001, 

have highlighted the fact, to the entire world, about its global reach. After this event, the 

governments of various countries have taken relevant steps for providing this coverage. In this 

regard, they have adopted different criteria to design products related to terrorism insurance 

according to the prevailing acts or regulations in those countries. This is the reason; the terrorism 

insurance products are not similar globally in all respect. 

In our own domestic front, the terror attack in Mumbai on November 26 th , 2008 has made all the 

concerned parties to realize its need. Terrorism insurance coverage is provided as an additional 

cover to all risk underwritten; under fire, engineering and property damage. Recently (after 

26/11), insurance companies in India have also started offering standalone terrorism insurance 

products (mostly the terror cover is offered as an add-on cover with personal accident policy 

cover). In Indian context, in case of property covered under terrorism insurance, the coverage is 

against loss by fire due to terrorist activities. Among individual covers, terror attacks are a part of 

the standard cover in motor insurance. 

Terrorism insurance covers life as well as non life risks. In life insurance policies terrorism cover 

is mostly inbuilt in their product whereas in case of non life policies, the coverage is optional, 

i.e., by paying an additional amount, a person can get cover against terrorism. This cover is taken 

at the time of inception of the policy but mid term cover is also provided at differential premium 

rates since 2009 as per IRDA guidelines. Premium rates for terrorism insurance vary on the basis 

of risk and sum insured. Therefore the premium rates are different for life, residential properties, 

industrial and non industrial properties as well as different slabs of sum assured.

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Very few studies have been conducted on terrorism insurance as it is a recent phenomenon. In 

fact it was rarely heard concept before 9/11 attack in 2001. Therefore not much data is available 

on terrorism insurance. As far as developed countries are concerned, some organized reports and 

data related to terrorism insurance is available but the availability of the same in Indian context is 

very poor. Major portion of data has been extracted from IRDA website. Researchers have tried 

to review the literature available on this topic. Following few studies can be quoted here: 

Dwight M. Jaffee and Prof. Thomas Russell 1 (2005) have concluded that private insurers are 

capable of handling terrorism losses up to the magnitude of those incurred on 9/11. Even if 

terrorism insurance became unavailable, the equity market alone would provide enough of a risk 

transfer mechanism and therefore the case for a permanent program of government support to the 

insurance industry has not been made. 

Erwann Michel-Kerjan, Paul Raschkyc 2 (2011) in their working paper have examined the effects 

of Government intervention on the market for corporate terrorism insurance. On the basis of their 

study, they have concluded that, a decade after 9/11, the role of government remains critical, not 

only in trying to prevent future attacks, but also in providing a necessary backstop to stabilize 

terrorism insurance markets. 

Erwann O. Michel-Kerjan 3 with P. Raschky and H. Kunreuther (2010) has undertaken a study 

showing that 60% of large corporations in the US have TRIA insurance, but 40% of them have 

declined that coverage and larger companies more likely to purchase coverage. Property 

insurance costs 8 times more than terrorism insurance for the same coverage nationally. Finally, 

corporate demand for catastrophe insurance is found to be more price inelastic (i.e. less sensitive 

to price) than for non-catastrophe insurance (different than results on homeowners‘) 

Kumar Jagendra 4 (2010) has concluded that while international terrorism will continue to be the 

focus of insurers'/reinsurers attention through the 2010s, domestic terrorist attacks should also be 

monitored. There have been several high profile domestic attacks recently, with bombings in 

Russia, Northern Ireland and Spain, while the military defeat of the Tamil Tigers in Sri Lanka in 

2009 was an important development. 

Manoj Kumar 5 (2003) found out that putting a price tag on a terror attack is extraordinarily 

difficult. This is no surprise as risk modeling and simulation techniques on terrorism are further 

being strengthened by dedicated researches. Coverage is likely to further get broadened with 

business interruption getting its due share and the pricing becoming logical, affordable and 

reasonable. 

Maplecroft 6 has prepared a political risk atlas 2010, where in it has rated and ranked 196 

countries across the political risk issues most commonly found on corporate risk registers. These 

include: conflict and terrorism, regime stability, the rule of law, corruption, expropriation, etc. It 

has found that out of the South Asian nations (neighboring countries of India), most of them rank 

very high in term of terrorism risk.

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G V Rao 7 (2010) in his study suggested that the lending institutions including the Banks and the 

RBI need to look at the insurance coverage, covering all their credit repayment exposures to 

determine if their risk exposures, including the terrorism risk, are fully covered. The banks 

should re-examine the nature of their NPAs and assess the extent to which lack of adequate 

insurance has been responsible to magnify their NPA losses. He also noted that it is for the 

authorities and the players to change the risk perceptions of the buyers and to create superior 

awareness of risk exposures among them. 

The Marsh Report 8 (2010) reveals that despite an ever-changing terrorism risk insurance market, 

businesses from every industry sector in USA, continue to purchase coverage - more than 60 

percent of organizations surveyed by Marsh bought coverage in 2009. Terrorism insurance and 

associated risk management strategies are dynamic and complex issues, with many 

interdependent factors contributing to managing and risk. Foreign relations, the effectiveness of 

homeland defense, and the ambiguous nature of the risk make terrorism losses extremely 

challenging to predict and quantify. It is difficult for insurers to effectively price and reserve 

capacity for their potential exposure to catastrophic terrorism losses. 

Verma Renu and Dr. Manisha Singh 9 (2011) have concluded that the demand and supply side 

factors, which are responsible for the development of terrorism insurance business, seem to be 

very weak. To find an optimum solution of the entire problem related to terrorism insurance, an 

integrated approach by all concerned parties is a must. Consolidated efforts by all the 

stakeholders (government, regulator, insurance companies and policyholders) can help to 

develop this sector, provided they play their roles in a very positive and innovative manner. 

After reviewing the existing literature on terrorism insurance, researchers have found that no 

attempts have been made to compare Indian terrorism market scenario with that of rest of the 

world. This paper is an attempt to research on this particular aspect of the problem. 


1. To study as to why terrorism insurance has attracted the attention of all the stakeholders 

since last decade. 

2. To study the present scenario of terrorism insurance in India vis-a-vis rest of the world. 

3. To analyze various critical issues related to terrorism insurance market in India and 

suggest various measures for further development. 

WHY IS TERRORISM INSURANCE REQUIRED? 

Terrorism has become a global phenomenon. The recent world history has witnessed frequent 

terrorist attacks, whether big or small and the number of such attacks per year has increased 

rapidly. The new millennium has started with a major terrorist attack of 9-11-2001 on World 

Trade Center in USA which is one of the most powerful nations of the world. This itself speaks 

volume about growing audacity and technological sophistication of the terrorist outfits.

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Terrorism insurance, thus, has become a need based insurance product. This is evident from the 

attacks that we have witnessed in the recent years as shown in the following table: 

TABLE-1 TERRORISM EVENTS IN 2010 

Date Country/Place Event No. of victims 

1/1/2010 Pakistan, Lakki 

Marwat 

Car bomb explodes in a crowded 

volleyball stadium 

101 dead, 60 

injured 

20/1/2010 Mexico, Durango Riots in Prison 24 dead 

18/2/2010 Pakistan, Terah 

valley 

Suicide bomb attack outside a mosque 29 dead, 50 

injured 

26/2/2010 Mali, Timbuktu Stampede in mosque 24 dead, 55 

injured 

1/3/2010 Nigeria, Zamfara, 

Anka, Bungudu 

8/3/2010 Pakistan, Punjab, 

Lahore 

Lead poisoning outbreak from illegal 

gold mining 

Suicide bomb attack on a police 

intelligence unit 

400 dead 

15 dead, 60 

injured 

12/3/2010 Pakistan, Lahore 2 suicide bombings in residential area 

and shopping district 

29/3/2010 Russia, Moscow Bomb explosion at the metro stations 

Lubyanka and Park Kultury 

45 dead, 120 

injured 

40 dead,160 

injured 

6/4/2010 Pakistan, Lowerdir, 

Timergarah 

Suicide bomb attack on a political party 

rally 

38 dead, 100 

injured 

7/4/2010 – 

8/4/2010 

Kyrgyzstan, 

Bishkek 

Clashes between demonstrator and police 75 dead, 1500 

injured 

10/4/2010 Thailand, Bangkok Clashes between security forces and anti 

government protestors 

21 dead, 312 

injured 

19/4/2010 Pakistan, North 

West Frontier 

Suicide bomb attack on protest rally at 

Qissa Khwani Bazar 

24 dead, 42 

injured 

22/4/2010 Thailand, Bangkok Clashes between military troops and anti 


3 dead, 75 

injured 


- 

Thailand, Bangkok 

Clashes between military troops and anti 

government protestors (over 30 buildings 

24 dead, 198

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16/5/2010 damaged) injured 

19- 


Thailand, Bangkok 

Clashes between military troops and anti 


41 dead, 346 

injured 

28/5/2010 Pakistan, Lahore Bomb attacks on two mosque 80 dead, 107 

injured 

10/6/2010 Afghanistan, 

Kandahar, 

Arghandab 

Suicide bombing at a wedding party 66 dead, 70 

injured 

10- 


Kyrgyzstan, Osk, 

Jalalabat, Batken 

Riots between ethnic communities 118 dead, 600 

injured 

1/7/2010 Pakistan, Lahore Suicide bombings at shrine 50 dead 

9/7/2010 Pakistan, 

Mohmand Agency 

Suicide bombings at tribal meeting 

105 dead 

15/7/2010 Iran, Zahedan Suicide bombings at mosque 27 dead, 270 

injured 

24/7/2010 Germany, Duisburg Stampede at Loveparade 2010 21 dead, 500 

injured 

11/8/2010 Uganda, Kampala Series of bombs explode on World Cup 

Final gathering 

84 dead, 114 

injured 

1/9/2010 Pakistan, Lahore Series of bombs explosions in Lahore 38 dead 

2/9/2010 Pakistan, Lahore Series of suicide bombings in mosques 35 dead 

3/9/2010 Pakistan, Quetta Suicide bombing at religious procession 65 dead, 150 

injured 

7/9/2010 Pakistan, Kohat Suicide bombing at police station 20 dead, 50 

injured 

4/10/2010 Hungary, Ajka, 

Kolontar 

Toxic leak at aluminum factory 9 dead, 150 

injured 

11/11/2010 Pakistan, Karachi Suicide bombing at government building 20 dead 

22/11/2010 Combodia, Koh 

Pich, Phnom Penh 

Stampede on bridge during a festival 375 dead, 758 

injured

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2/12/2010 Nigeria, Lagos Fuel tanker explodes on motorway 21 dead 

10/12/2010 Pakistan, Khyber- 

Pakhtunkhwa, 

Hangu 

Suicide bombing at hospital 

20 dead 

24/12/2010 Nigeria, Jos Series of bomb explosions at churches on 

Christmas eve 

32 dead, 74 

injured 

25/12/2010 Pakistan, Khar, 

Bajaur 

Suicide bombing at UN food distribution 

centre 

45 dead 

Source: Swiss Re Economic Research and Consulting 

The list is endless and so is the number of people who have been affected due to these attacks. 

Numerous lives have been lost besides huge material damage in the form of property and 

business. If we closely analyze this table, we find that out of 36 incidents in the year 2010 

claiming so many lives, incidents relating to terrorism counts up to 21 claiming 979 lives out of 

the total 2135, besides injuring almost 1500 people (1482 to be exact). Besides loss of life, loss 

to the property and business and therefore livelihood is also immense. These attacks have created 

a need for taking sincere efforts in the area of terrorism insurance as the loss of life and property 

is enormous and beyond the capacity of any single institution to compensate. To take serious 

measures against and devise appropriate policies against terrorism is not only necessary to cover 

millions of lives and property but also for long term economic development of the emerging 

countries like India. 

India is in close proximity with countries ranking in top 30 list of extreme risk category 

according to ‗Maplecroft Political Risk Atlas 2010‘ as shown in the following table: 

TABLE -2 RANKING ON THE BASIS OF RISK CATEGORY 

Rank Country Category: Risk 

3 Iraq Extreme Risk 

4 Myanmar Extreme Risk 

5 Afghanistan Extreme Risk 

6 Sudan Extreme Risk 

11 Pakistan Extreme Risk 

23 Bangladesh High Risk

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27 India High Risk 

29 Sri Lanka High Risk 

Source: ‗Maplecroft Political Risk Atlas 2010‘ 

This table speaks volume about the need and importance of terrorism insurance. India itself is 

rated high risk in the categories of conflict and political violence, and terrorism. The news that 

world‘s most wanted terrorist who was killed recently was hiding just 100 km away from Indian 

boundary itself puts forward a strong case of greater terrorism coverage in India. Therefore, in 

the light of these facts, terrorism today, can be said to be in its worst form than ever and requires 

urgent attention from all the stakeholders. After 26/11 Mumbai terror attack, terrorism insurance 

is rapidly gaining importance in India. 

India is, at present, an investment hub world wide, however terrorism in neighboring countries 

has been creating hurdles in the way of development by reducing the inflow of foreign capital 

due to fear of terrorist attacks. This is evident from the news of killing of Osama Bin Laden in 

Pakistan by US security forces on 2 nd May 2011 and subsequent rise in global stocks as well as 

huge foreign investment of $ 1.61b in Indian equities market. This shows how terrorism threat 

has been largely responsible in curbing economic growth and development world wide. 

COMPARISION BETWEEN INDIAL AND GLOBAL TERRORISM INSURANCE 

MARKET 

This section compares and analyses the Indian terrorism insurance market scenario with world 

scenario. As the subject has attracted the attention only after the terrorist attacks of 9/11, the 

systematic data is not available world wide. Few variables have been selected as per the 

availability of data for the purpose of comparison. These variables include: features of terrorism 

insurance programs in different countries, extent and scope of terrorism insurance coverage, 

terrorism pool across the nations and its members, and premium rate structure. 

I. Most of the countries have terrorism insurance program as per their policies and legal 

framework which may vary in terms of degree of government support, mandatory or optional 

nature of the program, etc. Following table shows the features of terrorism insurance program 

world wide: 

TABLE -3 FEATURE OF THE TERRORISM INSURANCE PROGRAM 

Country Program sponsored 

or supported by the 

Government 

Mandatory/ Optional 

Who are authorized to 

withdraw from the pool 

Australia 

The act is federal & 

the ARPC is a 

government- backed 

Mandatory. Coverage is 

Automatic & arises from 

the statutory act deeming 

Terrorism exclusions to be 

All insurers of Australian 

risks are obligated to 

provide cover. They can 

access ARPC for

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corporation redundant reinsurance protection. 

Austria 

No support from the 

government 

Optional 

All the insurers if they are 

members of the Austrian 

Terrorism Pool 

Belgium Government support 

but funded by the 

state, direct insurers 

and reinsurers. 

Mandatory for certain 

lines and certain risks 

(Workers' Compensation, 

Auto Liability, Strict 

Liability in case of fire & 

explosion, Accident & 

Illness, Life & Property 

insurance for certain risks) 

All the insurers 

France 

Private-public 

Partnership with 

unlimited state cover 

to CCR for GAREAT, 

reinsurance is taken 

over by CCR on 

unlimited basis 

Mandatory. 1986 law 

made terror coverage 

compulsory 

All the insurers if 

authorized to operate in 

France 

Germany 

Private up to €2B; 

government is 

Optional - Not mandatory 

All the insurers but only by 

special request 

reinsurer in excess of 

€2B annual aggregate 

up to €10B 

Netherlands Supported by 

government 

Optional i.e., Not 

mandatory but 

free of charge 

All the insurers as long as 

they join 

the pool in place 

Spain 

Government 

sponsored 

Mandatory All the insurers if 

authorized to operate in 

Spanish territory 

U.K. Government supported Optional All the member insurers of 

Pool RE

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USA 

Government supported Optional. All qualifying 

Insurers must make an 

offer of insurance on 

eligible lines of business, 

though policyholders may 

decline cover 

All the insurers but they 

must be 

on-shore captives regulated 

by a US state or US 

territory 

India No Government 

support; managed by 

GIC (national 

reinsurer) 

Optional 

Only if they are pool 

member. 

PD/BI – Property Damage/ Business Interruption, CCR –Caisse Centrale de Réassurance, 

TRIA – Terrorism Reinsurance Act 2002, ARPC – Australian Reinsurance Pool Corporation 

Source: www.willis.com 

If we analyze the table, we find that in most of the countries, terrorism insurance program is 

either government sponsored or supported, that varies from a certain percentage of compensation 

to unlimited guarantee. As far as India is concerned, there is clear lack of direct government 

support. It‘s only the public sector insurance companies under the leadership of GIC that have 

taken initiative to set up a terrorism pool. Although India is a developing economy with limited 

financial resources, one must not forget the sensitivity of this issue. The government should 

show more active participation and support both in monetary as well as in administrative terms. 

In this way, the availability of terrorism insurance would be ensured and also the premium rates 

are more realistic. 

II. The second criterion under study is the scope and extent of coverage against terrorism losses 

in different countries. As far as coverage against NBC losses is concerned, different countries 

have different norms as to their treatment. Following table reveals scope and extent of coverage 

against terrorism losses world wide: 

TABLE -4 SCOPE AND EXTENT OF COVERAGE 

Country Scope of Coverage Maximum Limits 

Applicable 

Coverage for 

NBC 

(Nuclear, 

Biological, 

Chemical)? 

Australia Covers‖ eligible property‖ 

under ―eligible insurance 

contracts‖ as defined by the 

Act. Principally PD/BI and 

also Public Liability are 

covered, if liability arises out 

Individual policy limits to 

apply to each policy holder. 

Overall supporting program 

limit A$10.3B. This fund made 

up of hybrid insurance, LOC& 

B&C but not N

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of the ownership or 

occupation of ―eligible 

property‖ 

government funding 

Austria Flexa Perils & BI Up to €5M for PD/BI 

combined. Maximum 

indemnity per insured & 

location. Overall Pool limit is 

€200M for a single terror 

attack. An additional €20M 

available outside the pool at a 

high premium 

NO 

Belgium 

Workers' Compensation, Auto 

Liability, 

Direct insurers, €300M; 

reinsurers, €400M; 

YES 

Strict Liability in case of fire 

& explosion, Accident & 

Illness coverage, Life 

&Property insurance for 

certain risks 

Belgian government, €300M. 

Sublimit per location of €75M 

Property Damage 

France 

Applies to Property 

lines including Direct 

Damages & BI 

Per local policy. CCR covers 

all losses in excess of €2.2B. 

Below €2.2B is covered by the 

Terrorism pool 

YES. All acts 

of 

Terrorism 

covered 

Germany PD/BI €1.5B per insured. 

NO 

Netherlands Applies to all lines of 

business including all life 

insurance 

Total €10B on annual 

aggregate basis 

€1B per year with a sublimit of 

€75M per 

insured per location for nonlife 

claims 

YES 

Spain Property Damage, BI, 

Vehicles & Accident 

As per local policy 

YES if part of 

a 

terrorist attack

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U.K. Coverage available for PD/BI As per local policy issued YES as long as 

covered in 

local policy 

USA 

Applies to most commercial 

P&C lines but excludes Crop, 

Livestock, Mortgage, Medical 

Malpractice, Health, Flood, 

Commercial Auto, Burglary 

and Theft, Surety, 

Professional Liability, Farm 

Owners Multiple Peril or Life 

insurance; reinsurance or 

retrocessional reinsurance. 

Up to $100B per year Same 

limits and 

sublimit as Property policy 

Insurers retain 20% of prior 

year earned premium and 

coinsure 15% of the loss above 

the retention 

Insurers are 

supported if 

they provide 

NBC cover, 

but there is no 

mandate to 

provide 

coverage 

broader than 

that which is 

allowed for 

other perils. 

India 

Residential, Industrial and 

Non-Industrial Risk 

Rs 750 cr per risk per location 

No 

PD/BI – Property Damage/ Business Interruption, N – Nuclear, B – Biological, C – Chemical, 

Flexa – Fire, Lightening, Explosion, Aircraft 

Source: www.willis.com 

Analyzing the table, we find that the scope of terrorism insurance in India is confined only to 

residential, non-industrial and industrial properties. In other countries, especially USA, we find a 

detailed specification regarding the property insured, what is included, what is excluded etc. 

India too may benefit if there is detailed specification of scope in order to minimize the 

subjectivity that may arise during claim settlements. 

Though the countries are divided in their opinion as to include NBC losses in their terrorism 

coverage or not, we can not deny the fact that terrorists today have become more techno savvy 

and are increasingly using sophisticated modern weapons of mass destruction. In such a scenario, 

the exclusion of NBC does not look justified. 

As far as limit of coverage is concerned, India is clearly lagging behind. The present limit of Rs 

750 crore is too meager a sum to compensate in case of a major terrorist attack. Add to this, the 

coverage is for one location only. This means that a complex with 4-5 major industrial 

establishments would be treated as one location. And irrespective of all such establishment 

taking terrorism coverage worth 750 crore each, in case of loss due to terrorist strike, the 

maximum amount that would be compensated to all of them combined would be Rs 750 crore. 

This is grossly inadequate in case of major loss. The increase in the limit of coverage is the need 

of the hour and the regulating body should take serious steps in this direction.

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III. The third variable which has been used is the extent of coverage against the terrorism and 

share of different stakeholders in the coverage across the countries globally. The following table 

displays the comparative size of the terrorism insurance coverage and composition of the pool 

world wide: 

TABLE -5 COMPOSITION OF TERRORISM POOL AND COVERAGE 

Countries 

Name of the Pool /Act 

Terrorism 

Insurance 

coverage 

Pool 

members/stakeholders 

USA Terrorism Risk Insurance Act $ 100 billion Treasury, insurance 

(TRIA) 

companies & reinsurers 

Pool Reinsurance Companies Ltd. 100000 Euros + 295 members 

UK 

(Pool Re) 

excess up to the comprising of 

limit of primary insurance and 

Australian Reinsurance Pool coverage AUD 300 

Australia 

by million pool reinsurance Out of companies total 99 

Corporation (ARPC) 

from pool + AUD insurance companies in 

1 billion bank Australia, 90% are Pool 

France GAREAT credit 2 billion + Euros AUD + 9 members 192 members 

billion unlimited govt. 

comprising of 

guarantee insurance companies 

Germany Extremus 

2 billion Euros + 8 16 members 

and Caisse Centrale 

billion Euros comprising of 

de Réassurance 

guarantee by govt. insurance 

& 

Belgium Terrorism Reinsurance & 1 billion Euros p.a. 

reinsurance 

more than 90% 

groups 

of the 

Insurance Pool (TRIP) 

insurance 

Non-Life Insurance 

Taiwan Terrorism insurance pool USD 32 million companies Association- Taiwan, are 

members Central of Pool 

Finland Terrorism pool 3 million Euros 

Reinsurance 

All Finnish insurance 

Corporation, 

companies, 

& private 

except 

Netherlands 

Nederlandse 

1 billion Euro p.a. insurance 

Pohjola Primary & 

companies 

If insurers, 

Herverzekeringsmaatschappijvoor 

international reinsurers 

Terrorismeschaden (NHT) 

and the Dutch 

India 

India Market Terrorism Pool 

Rs 750 crore government 

19 members, Public 

(IMTP) 

and private insurance 

companies and GIC Re 

Source: Consolidated from websites of different countries (reinsurer) 

Analyzing the composition of the terrorism insurance pool, one can easily conclude that the 

major portion of the pool is created by insurance companies operating in that particular country 

with at least one reinsurance company providing support. India is no exception to this rule. 

However the difference lies in presence of government representatives in the pool composition 

like treasury or specially created terrorism insurance company by the government such as Caisse 

Centrale de Réassurance in France.

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As far as provision of terrorism coverage is concerned, the present condition in India cannot be 

considered satisfactory. Careful analysis of the table reveals that most of the countries have 

better insurance coverage against terrorism risk. No doubt, developed countries like US and UK 

are much ahead in this aspect due to their strong economic background. However, India is 

lagging behind even the smaller countries like Taiwan, Finland and Belgium. This shows that 

there is much more needed to be done in this area. Most surprising fact emerging from the table 

is the absence of government participation in the pool. Even the governments of developed 

countries are providing support in the compensation which ranges from a certain amount to 

unlimited guarantee. At this juncture, we would like to stress on the fact that, in these developed 

countries, insurance market is much developed and needs little support from outside. Compared 

to that, in India even the overall insurance market is in its infancy, less said about the terrorism 

insurance market the better. To top it up, the high risk ratings of neighboring countries as well as 

the high and increasing frequency of such attacks in these countries indicate the seriousness of 

terrorism problem in India and urgent need of government support. 

IV. The fourth criterion to compare is premium rates for terrorism insurance market across the 

nations. The premium rates vary according to the sum insured, location factor, risk category, 

property value etc. In India, the premium rates vary on the basis of sum insured as well as risk 

category of the property insured as shown in the following table: 

TABLE -6 TERRORISM INSURANCE PREMIUM RATES IN INDIA 

Sum Insured per location 

(MD + LOP) 

Risk Category 

Rate (per Mille) as on 

1-4-2009 

Up to Rs 750 crore Industrial Risk 0.30 

Non-Industrial Risk 0.20 

Residential Risk 0.10 

Over Rs 750 crore and up 

to Rs 2000 crore 

First 500 crs. as per (1) above +up to 

Rs.2000 crs. balance Sum Insured as 

under : 

Industrial Risk 0.25 

Non-Industrial Risk 0.12 

Over Rs 2000 crore 

First 2000 crs. as per (2) above PLUS 

balance Sum Insured as under : 

Industrial Risk 0.20 

Non-Industrial Risk 0.12

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*Per-mille (‰): Per-mille or per-mil means parts per thousand. (One per-mille is equal to 

1/1000 fraction:1‰ = 1/1000 = 0.001) 

MD – Material damage, LOP – Loss of Profit 

Source: IRDA Annual Report 2009-10 

TERRORISM INSURANCE PREMIUM RATES IN FRANCE: Pricing of terrorist cover by 

GAREAT depends on a single factor i.e., sums insured. As the rates for terrorist cover and basic 

fire insurance are same in France, the price of terrorist insurance is very easy to calculate. The 

system is based on the following rule: 

TABLE -7 TERRORISM INSURANCE PREMIUM RATES IN FRANCE 

Sum Insured 

Between 6 and 20 million Euros 

Property and casualty line Basic commercial 

Premium rates 

6% of the coverage 

Between 20 and 50 million Euros 12% 

Between 50 and 750 million Euros 18% 

More than 750 million Euros 

Premium rates on case by case basis 

Source: http://www.guycarp.com 

TERRORISM INSURANCE PREMIUM RATES IN GERMANY: As is the case in France, 

the price of coverage depends on the total value insured by the firm and not on location of the 

risk. Furthermore, the price varies with the maximum annual amount of compensation for 

terrorist risk chosen by the firm. The following examples of pricing are based on data supplied 

by Extremus management: 

TABLE-8 TERRORISM INSURANCE PREMIUM RATES IN GERMANY 

TIV (Total Insured 

Value) 

MAC (Maximum annual 

compensation) 

Premium amount and rates 

25 million Euros 25 million Euros 6250 euro, (0,025% of TIV and 

0,025% of MAC) 

75 million Euros 25 million Euros 10 625 euro; (0,014% of TIV and 

0,043% of MAC) 

200 million Euros 100 million Euros 84 038 euro; (0,042% of TIV and 

0,084% of MAC)


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Source: Data based on Extremus Versicherungs-AG 

TERRORISM INSURANCE PREMIUM RATES IN UK: Insurers in the Pool Re scheme are 

free to decide the price of the terrorism covers they offer to their customers. As a result, different 

insurers may give different quotes. Although it is open to each insurer to determine the price it 

charges, the most important factors tend to be the total value of the property, its location and 

whether the policy is to cover property damage only, or also business interruption losses. 

TERRORISM INSURANCE PREMIUM RATES IN USA: In U.S., TRIA leaves it up to 

insurers to set rates under state regulations. Accordingly, there is price differentiation with 

respect to risk location in the U.S. Moreover, the U.S. program is the only one that provides 

governmental reinsurance free of charge. According to the findings of the study conducted by 

Erwann O. Michel-Kerjan with P. Raschky and H. Kunreuther, the average terrorism premium 

rates for the years 2003 to 2008 were as below: 

Companies with TRIA- type coverage – All regions 

Premium per $ 1000 of TRIA Insurance (USA): $0.592 

Premium per $ 1000 of property coverage: $ 4.848 

Companies with TRIA- type coverage – New York region 

Premium per $ 1000 of TRIA Insurance (USA): $1.362 

Premium per $ 1000 of property coverage: $ 6.149 

Among the countries under analysis, majority have a system of determining the premium rates 

on the basis of single criterion i.e., sum assured or location. In UK there is no fixed specific 

criterion in this regard. In USA, the rates vary depending upon the location factor and not 

specifically on sum assured. Therefore we find that rates there vary significantly for New York 

and other regions in US. Compared to these countries India enjoys a better position as the rates 

here vary on the basis of both risk involved as well as sum insured. However, if the location 

factor too is taken into consideration, the premium rates would be more realistic and appropriate. 

CHALLAGES AND ISSUES IN INDIAN CONTEXT 

After comparing India with world terrorism insurance scenario, we can shortlist certain critical 

issues pertaining to Indian terrorism insurance market. 

India has terrorism pool by the name of IMTP, presently having the corpus at around 

Rs.1500 cr, out of which the ceiling for a single event per location loss is 750 cr. The 

coverage which was earlier at just Rs 200 crore per location in 2002-03, has gradually 

increased to Rs 750 crore. Despite this impressive growth in coverage amount, it can not be 

considered sufficient enough in present conditions. Insurance coverage, only up to this 

amount, can be allowed by the writing companies. Beyond this limit, coverage can be


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obtained only from the international market. Presently, with so many events happening with 

terrorist threats looming large on them, the pool looks hugely inadequate. 

No government support is also very concerning issue. Whereas in almost all other countries 

under study, it has been found that, there is presence of government support either directly or 

indirectly, irrespective of the fact that terrorism insurance market there is far more developed 

than Indian insurance market. Indian terrorism insurance market at present is in its nascent 

stage and requires government support. 

Even though the insurance business shows an upward trend, the growth is in terms of amount 

of coverage and premiums collected. According to IRDA data, total premium collected for 

terrorism insurance accounted for Rs 155.97 crore in 2004 which rose to Rs 306 crore in 

2009-10 showing almost 100% increase in the amount. However, when it comes to reaching 

the masses, the number of clientele are still less and limited to rich corporate class. Mass 

penetration is still an issue especially with less participation from insurance player, fewer 

products and higher premiums. 

For terrorism insurance business globally, the difficulty lies in determination of the premium 

charges. With years of research and data collection, the insurance companies have been able 

to estimate the potential losses as well as the probability of occurrence of natural calamities 

with reasonable accuracy. However the same is not true in case of terrorism insurance. Here 

the risk cannot be modeled because of lack of data as well as difficulties in calculating the 

probability of occurrence of terrorist strikes. As far as data regarding losses or damage due to 

terrorist attack is concerned, security agencies hesitate to make such information public for 

obvious security reasons. Secondly our understanding about the motivation and psychology 

that works behind the organized terrorist attack is very poor. These factors together make it 

very difficult to reach at an optimum premium charges. This results in companies passing the 

risk and uncertainty to the insured in the form of unreasonably higher premium and therefore 

less business. 

Secondly, while determining premium rates, location factor is not taken into account in India. 

Some places are industrially advanced and hence economically more developed compared to 

others and therefore more prone to risk of terrorist attacks. However the rate of premium is 

same for all these places. This poses a great challenge for the insurers to develop their 

business in economically less developed areas. 

SUGGESTIONS AND RECOMMENDATIONS: 

Creating awareness among public a requirement common to entire insurance industry. In 

this case too, the present level of awareness regarding any product related to terrorist 

insurance is very low. Awareness can be created through media, NGOs, or most 

importantly, by the insurance companies and government. Here the innovative step taken 

by an insurance firm is noteworthy and can set an example for the others. The 

click2insure.in is a Delhi based insurance broking firm which has tied up with state run 

non life insurance company New India Assurance Company for offering free terrorism 

cover for all Indian citizens above age of 25 years. Under this scheme Rs 1 lakh would be


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given to next kin of any person who is covered under the policy if he dies due to a terror 

attack. Other company too can follow suit and adopt such innovative methods to create 

awareness. 

Public private partnership is the key to success of the terrorism insurance sector. It can be 

safely said that behind every successful terrorist strike, there is an unsuccessful security 

system of the government. In this way it also becomes the moral responsibility of the 

government to share some financial burden due to the loss of the terrorist attacks. For this 

the government can contribute in the fund meant for the payments for the claims to the 

insured. Or the government can guarantee the payment of compensation by the insurance 

companies in cases the losses are enormous and beyond the capacity of these companies. 

This fund, although, must be repaid from future premiums. For this, the government can 

follow the model prevalent in France. In France, the premiums collected by insurers are 

shared among the pool (30%), insurers (50%), reinsurers (10%) and the government 

(10%). The government receives the share of premiums in exchange for unlimited 

guarantee. 

Quick and hassle free settlement of the claims of the insured is the key factor responsible 

for the success of these insurance companies. On the one hand it will help build the trust 

of the people on the other it will also encourage more and more people to buy terrorism 

insurance. This will require certain modification in the policy norms. At present, the onus 

of proving that losses are caused due to act of terrorism is on the claimer which brings lot 

of subjectivity in the claim process. As a result, the procedure becomes cumbersome and 

time consuming. The example can be given of 26/11 attack. The process of paying 

compensation to the victims of Mumbai carnage is still not over. These situations 

discourage buyers from taking insurance policy. Hassle free and quick settlement is thus, 

need of the hour. 

Innovation is considered a key factor in success of any industry and same is true for 

insurance sector as well. This will help in providing better services and differentiating the 

products from that of competitor‘s. Newer and advance technology will lead to efficiency 

in operation and reduction in cost thus improving profitability. Customization of the 

insurance products to cater to the needs of all segments of prospective buyers ranging 

from small shopkeeper to a giant business conglomerate is the success mantra. It would 

also be helpful in strengthening relationship with the customers thereby building their 

loyalty. 

India has become a hub for foreign investment across the continents. However, some of 

the areas, which are able to attract more investments, are industrially more developed 

than others. For example our national capital Delhi, our commercial capital Mumbai, IT 

capital Bangalore, etc. are much ahead in terms of economic development and therefore 

have higher risk probability compared to others. In such case, rates can be decided 

depending upon the locational factor. Simply put, premium rates for developing regions 

should be lower than that of economically advanced regions. Lower premium rate would 

reduce the financial burden of businesses and encourage them to take the terrorism


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insurance policy less hesitatingly. This, in turn, would increase the coverage for 

insurance sector resulting in better profitability. 

To encourage the safety practices among insured as well as to lower the probability of an 

attack, the insurance companies can offer discounts in premium rates on the basis of 

additional security measures adopted by the insured companies. The investment in such 

risk mitigation measures by the insured will have two fold advantages. On one hand it 

will reduce the financial burden on the insured in terms of lower premium rates; on the 

other hand it will help to reduce the risk up to some extent. 

Importance should be given to arrive at a reasonable premium charged by from the 

customers by the insurance companies which, at present is very high. The insurance 

companies should give maximum attention and importance to determination of optimum 

premium amount. No matter how much security a terrorism insurance cover provides, it 

still poses a financial burden to the insured. In such a scenario, the insurers can offer 

some benefits in the form of discounts or lower premium rates. For example, if a client 

has been purchasing terrorism insurance policy for last 5 years continuously without 

claim, insurance company may offer a discount in the premium or charge a lower 

premium rate for the same coverage from 6 th year onwards. It will serve twin purposes. 

Firstly, it would increase the insurer‘s business through such incentive and secondly, it 

would encourage the loyalty from the clients thereby ensuring a steady flow of revenue. 

Another way of reaching at a reasonable premium is that the government may subsidize 

the premium till the market grows from its nascent stage to maturity. 

Most of the times, the insurance companies do not have major claims against any of their 

policies and therefore have huge inflow of funds. Most of it is invested in the market and 

a huge return is also generated. In such a situation, these companies may play important 

role towards the corporate social responsibility by contributing a part of the premiums. In 

the other words, it can set the premium without expecting much profit from such policies. 

The general perception of the public about the insurance companies is not very positive. 

Despite a very high premium, customer finds it very difficult to get the claims in time and 

sometimes does not get anything due to many flaws in the policies. A special mention 

should be given to a GIC circular dated 11-13 March 2002. The circular says that any 

damage or loss incurred because of controlling, preventing or suppressing any act of 

terrorism would not be covered under terrorism insurance. Even though, some companies 

do give benefit of doubt to the insured, the burden of proving, that the loss was actually 

caused due to terrorist attack and not due to control and prevention measures, lies on the 

shoulders of the insured. This process may be very cumbersome and costly affair and 

may affect the policyholder adversely. This policy should be relooked and modified, if 

necessary, to build the trust of the customers to bring more business. This calls for some 

serious steps to be taken by authorities to ensure more transparency and fairness in the 

system. 

CONCLUSION: Terrorist attacks today, are not limited to any specific part of the world but 

have acquired an all pervasive and global nature. Occurrence of such events almost everyday has

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reinforced the belief that terrorism continues to be the biggest threat to the world at present. The 

risk of terrorism is proving to be a complicated and most important challenge for the insurance 

industry, governments as well as society as a whole. In this regard, the governments of various 

countries have taken strategic steps for creating laws and policies related to terrorism insurance. 

Insurance industry, on its part, has put in enormous effort to combat, manage and alleviate the 

risk posed by terrorism. They have tried to devise innovative risk management tools on the basis 

of the relevant data collected and organized on a global scale. As far as India is concerned, 

terrorism insurance scenario is at a crossroad, especially in the absence of government support. 

The insurance companies in India under the leadership of national reinsurer GIC have begun well 

by creating IMTP (India Market Terrorism Pool) in 2002 realizing the need and importance of 

terrorism insurance after 9/11/2001 World Trade Center attack in US. However, 10 years have 

passed and there has been lot of changes in the global scenario. Looking at the magnitude of 

losses and inadequacy of our pool, lot more is to be done. To find an optimum solution of the 

entire problem related to terrorism insurance, an integrated approach by all concerned parties is a 

must. Consolidated efforts by all the stakeholders (government, regulator, insurance companies 

and policyholders) can help to develop this sector, provided they play their roles in a very 

positive and innovative manner. 

REFERENCES 

1. Dwight M. Jaffee and Prof. Thomas Russell (2005), ‖Should governments Support the 

Private Terrorism Insurance Market?‖, WRIEC conference, Salt Lake City, August 2005. 

2. Erwann Michel-Kerjan and Paul Raschky, ― The Effects of Government Intervention on The 

Market for Corporate Terrorism Insurance‖ Working Paper, Risk Management and Decision 

Processes Center, The Wharton School, University of Pennsylvania, 2011 

3. Erwann O. Michel-Kerjan, P. Raschky And H. Kunreuther (2010) Corporate Demand for 

Terrorism Insurance: An Empirical Analysis; OECD International Conference Paris, France 

– June 1-2, 2010 

4. Kumar Jagendra, ―Insurance and Reinsurance of Terrorism Risk‖, The Insurance Times, 

August 2010 

5. Kumar Manoj (2003), ―Terrorism Insurance: Coming out of Shadows‖, "Asia Insurance 

Review", Singapore, March 2003. 

6. Maplecroft, ‗Political Risk Atlas 2010‘, ―Identification of growing investment risk in 

India and regional economies‖, 2010 

7. Rao G V, ―Terrorism Insurance—A Global Perspective‖, Insurance Chronicle, ICFAI 

University Press Hyderabad, February, 2010 

8. The Marsh Report, Terrorism Risk Insurance 2010, ―Major issues and trends in terrorism 

insurance‖, 2010

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9. Verma Renu and Dr. Manisha Singh, ―Terrorism Insurance: Responding to Emergent 

Requirement‖, Marketing Mastermind, ICFAI University Press Hyderabad, March, 2011 

WEBSITES 

1. articles.economictimes.indiatimes.com/2008-12-23/news/27710597_1_terror-insurance-pool 

2. http://books.google.co.in/books?id=2tQVOtGQxNwC&pg=PA247&lpg=PA247&dq=insura 

nce+company+members+in+extremus+germany&source=bl&ots=M_6euQhc1m&sig 

3. http://www.bimabazaar.com/index.php?option=com_content&view=article&id=185:insuranc 

e-and-reinsurance-of-terrorism-risk&catid=95:reinsurance&Itemid=70 

4. http://www.guycarp.com/portal/extranet/insights/reportsPDF/2009/Global_terror_2009 

5. http://www.guycarp.com/portal/extranet/pdf_2007/GCPub/Terror%20Report%202007.pdf 

6. http://www.insurancehq.com.au/general/insurancecompanies.html 

7. http://www.tripvzw.be/documents/OECD_Conference_Terrorism_Risk%20Insurance_Belgiu 

m.pdf 

8. Wikipediawww.fas.org/sgp/crs/terror 

9. www.arpc.treasury.gov.au/content/default.asp 

10. www.institut.veolia.org 

11. www.institut.veolia.org/en/cahiers/protection-insurability-terrorism 

12. www.irda.com

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ABSTRACT 

INVESTMENT IN EQUITY CAN BE STRESSFUL 

- CAUSES AND PRECAUTIONS 

DR. (MS.) JAYASHREE AVINASH BHAKAY* 

*Professor, Chetana’s R.K. Institute of Management & Research, 

Survey No. 341, Government Colony, 

Bandra (East), Mumbai – 400051, India. 

The role of corporate securities in household savings is quite important. Corporate securities 

function as an important medium for household savings. Stocks are becoming an essential tool in 

the wealth creation process even in India. Stock ownership is unique due to market trading 

facility. The ease of buying and selling of shares provides liquidity to investment and helps 

creating short term profits and long term wealth. 

India is a growing economy with a demographic advantage of a large population of young 

savers. The economy has modified rules regarding new issues or IPOs in the capital market 

followed by electronic trading facilities in the stock market. The market is further made 

attractive by the tax planners of our country. Since 2004, short-term capital a gain in stocks is 

taxed at 10% and long-term gains has zero tax liability. However, we observe that responses to 

this investment option are on a lower side. Majority of investors do not consider equity as an 

investment option. 

In this paper an attempt is made to reason out the poor response to equities as an investment 

option from behavioral and psychological perspective and chalk-out an investment strategy. 

KEYWORDS: Behavioral finance, investment psychology, investor personality, rationality, 

self-servicing bias. 

INTRODUCTION 

Generally, investment is the application of money for earning more money. Investment also 

means savings or savings made through delayed consumption. 

Finance professionals define it as money utilized for buying financial assets like stock, bonds, 

real assets and gold etc. According to them the practice of buying a financial product or any 

valued item with anticipation that positive returns will be received in future is to be called as 

investment. 

With reference to this approach, investors’ choices and preferences are a product of many 

complex and interactive factors. They can be pointed out as:


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Savings capacity and income levels 

Relative rates of return 

Ability to evaluate product choices and performances. 

Tax incentives 

Market access. 

Confidence in products, service providers and regulators. 

Risk appetites and tolerance levels. 

The role of corporate securities in household savings is quite important. Stocks are becoming an 

essential tool in the wealth creation process even in India. The reasons for investments in equities 

are: 

Market trading facilities 

The liquidity to investment 

Creation of short term profits and long term wealth 

Modifications regarding new issues or IPOs 

Attractive capital gains taxation policy. 

However, a large portion of Indian households are not using these facilities and those who are 

already there, they are not doing well. The movement of stock exchange index causes some 

reactions from the investors’ side, which shows the existence of stress in investments too. 

It is therefore necessary to understand the reason behind this poor response to investment in 

equities the country. Is it because of economic factors or behavioral forces? 

An attempt is been made through this research study based on only published sources of 

information and secondary data to reason out the real factors responsible for the lower 

performance of financial products in the country. 

This paper, therefore, is divided into three parts. Part one provides a general overview of stress in 

investment by reviewing literature in the area of behavioral finance and neurofinance along with 

some major theories and concepts. The second part discusses the recent trends in household 

savings and stock market in India. The paper concludes with some guidelines to assist investors 

to develop their own model of investment by using the concepts of behavioral finance and 

neurofinance.

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PART-I 

STRESS IN INVESTMENT 

The word ―stress‖ is one of the most frequently used words today. We live in a world developing 

fast, requiring constant adaptation. Stress occurs as an inevitable consequence of our relations 

with our constantly changing environment we have to adapt to. 

In medical sciences stress is defined as ―a way of physical adaptation to new circumstances, a 

reply to irritations that disturb the individual balance.‖ 

Stress is also defined as ―a complex pattern of emotional states, physiological reactions and 

related thoughts in response to external demands.‖ The ―demands‖ emanating from the 

environment are stressors. A few stressors in the current world are workplace stress, relationship 

stress, social stress and economic stress. There are a number of causes of stress. The major 

causes are pointed out as work, family, personal concerns, personal health and safety, personal 

relationships, death and above all finance. Most studies agree that ―finances‖ are a leading cause 

of stress. 

According to one study, stress is most damaging when one feels a loss of control. Unfortunately 

for investors, control is exactly the thing they lack over the markets. 

If a stressful event is predictable, then it evokes a decreased stress response. The financial/ stock 

markets are anything but predictable leading to greater stress among investors, who are trying to 

forecast future price movements. 

Investors spend a substantial part of their leisure time discussing investment, reading about 

investments or gossiping about others’ success or failures in investing. 

Traders who watch price quotes, tick by tick, are particularly susceptible to chronic stress and 

burnout. The more one checks stock quotes, the more likely they are to see volatility. Stress is 

increased by a lack of control and a perception of conditions worsening. 

Many investors operate in isolation from others, acquiring information via impersonal computer 

monitors or telephone calls with strangers. Many investors have little intimate contact with their 

families, friends and even colleagues. This also results in stress in investment. 

Many investors are not prepared for any contingencies. As positions deteriorate, stress levels rise 

and the brain becomes cognitively inflexible. 

Some people seem addicted to accumulating money. As we come to understand more about 

money’s effect on us, it is emerging that some people’s brains can react to it as they would to a 

drug, while to others it is like a friend. 

Some studies even suggest that the desire for money gets cross-wired with our appetite for food. 

And, of course, because having a pile of money means that you can buy more things, it is

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virtually synonymous with status – so much so that losing it can lead to depression and even 

suicide. 

Considering the importance of finance, scholars and practitioners from a variety of fields like 

psychology, sociology, neurology, economics and business management conducted several 

empirical studies on financial markets and investors’ behavior. This resulted in a new approach 

to financial markets, which is widely recognized as ―behavioral finance‖, ―behavioral 

economics‖, ―investor psychology‖ and ―neurofinance and neuroeconomics‖. 

THE RATIONAL MAN AND EFFICIENT MARKET HYPOTHESIS 

The model of rational man was largely solidified by the rational expectation theorists of 1970s. 

The underlying premise behind rational expectations is that human beings are able to properly 

weight the probabilities of future outcomes and form a logical conclusion as to the appropriate 

decisions to undertake. Rational expectations theory assumes that economic actors posses the 

requisite cognitive capacity to make such calculations. Human beings act like rationalist with 

total disregards to emotions, display time consistency and constant level of risk aversion. 

Based on these rational expectations, there emerged Efficient Market Hypothesis. The hypothesis 

is: When all people are rational, markets are efficient by definition. 

When some people are irrational, their behavior is usually uncorrelated and the impact of their 

trades is too weak to influence prices. 

Finally, when sometimes irrational investors behave in a correlated manner and they sometimes 

have enough of a market force to drive the prices away from fundamentals, then active and 

unlimited traders of rational arbitrageurs will countervail and bring the prices back to right 

levels. 

EMH states the premise that all information has already been reflected in a securities market 

value, and that the current price the stock is trading today is its fair value. Since stocks are 

considered to be at their fair value, proponents argue that active traders or portfolio managers 

cannot produce superior returns over time that beat the market. Therefore, they believe investors 

should just own the ―entire market‖ rather attempting to outperform the market. 

However, these features are not always confirmed true in life. If humans are rational in the 

traditional sense, then markets naturally will reflect such rationality through purely efficient 

pricing. Humans are rarely fully rational. We, human beings, are characterized by numerous 

biases and internal conflicts, resulting in decision making often contradicting that of rational 

man. So long as prices are determined by the aggregate decisions of human beings, they will 

convey not only fundamental valuation, but fear and paranoia, exhilaration and euphoria as well. 

Markets do indeed reflect the human psyche, but the human psyche is imperfect. 

BEHAVIORAL FINANCE AND INVESTOR PSYCHOLOGY 

Behavior finance is an area within the finance discipline that focuses on investors’ behavior and 

the decision making process in order to understand the happenings in financial markets. It


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combines psychology and economics to explain the what, why and how investors act and to 

analyse how their behavior affects the market. 

One of its primary observations holds that investors and people in general make decisions on 

imprecise impressions and beliefs rather than rational analysis. 

The second observation states that the way a question or problem is framed to an investor will 

influence the decision he/she ultimately makes. 

These two observations explain market inefficiencies. It further states that markets are 

sometimes inefficient because people are not mathematical equations. Empirical studies on 

investor’ psychology pointed out certain causes for irrationality of investor behavior. These are: 

Investor’s overconfidence and optimism 

Financial cognitive dissonance 

Loss aversion and reference dependence 

Human emotions and moods 

Social influence and interaction with other people 

Herd behavior 

Sunk cost effect 

―Self Deception Theory‖ 

―Prospect Theory‖ 

The behavior and emotions of investors during a price bubble. Detailed fundamental 

analysis goes out the window; many investors begin to purchase assets without even 

understanding what they are buying. As depicted by the cycle of investor emotions, 

psychological influences can cause investors to "buy high" during the thrilling and 

euphoric stages of a bubble, and "sell low" at the panic and capitulation stages. Buying 

high and selling low is not a winning strategy. This is why Warren Buffet recommends 

that you be "fearful when others are greedy and greedy when others are fearful."


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In short, behavioral finance changes the way we should look at capital markets. According to this 

approach market is not always efficient and investors who make a better than average use of 

available information are able to make abnormal returns. Behavioral market models concentrate 

on predicting deviations from traditional models. They focus on investors’ irrationality and 

attempt to identify factors responsible for its direction and strength. 

When mispricing is noticed investors should ask themselves about the reasons for the situation 

and should try to predict its future development. 

Psychological aspects are important when communicating with the market. People usually 

overreact to good information and under react to bad news. They pay attention to a descriptive 

report than to statistical or numeric data. They are sensitive to the context in which the 

information is given. It is crucial for investors to cultivate opinions without value judgment, to 

detach ego and to maintain flexible expectations. Investors who pressure themselves to achieve 

specific outcomes are at risk of choking if pressure is too high. Rumination or deliberation about 

past events is self-defeating. It is crucial to remain present with what is happening in the markets. 

For most people, the possibility of being wrong is threatening. It gives rise to anxiety, especially 

if one has internal or external performance pressures or benchmarks that will not be met. 

NEUROFINANCE 

Neurofinance is a new science that analyses financial markets by applying neurotechnology to 

trading behavior. The goals of neurofinance are:


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To improve trading results and our understanding of financial markets by identifying 

which physiological traits affect trading behavior. 

To correlate these traits with trading success or failure 

To develop tools, technology and training methods to improve trading performance. 

Neurofinancial theory holds that our inability to behave rationally is rooted in our 

psychophysiology. Because neurofinance is based on the assumption that individuals have 

varying psycho physiological make-ups, which in turn play a strong role in both their ability to 

make rational decisions and in their success as financial market operators, it represents a contrary 

approach to that of the efficient market hypothesis. 

Recently behavioral economists have leveraged the findings from psychology and neurology, 

developing the field of neureconomics. Neuroeconomics research has made observations that 

human beings are neurologically wired in a fashion which is inconsistent with the assumptions of 

hyper-rationality. 

It has also attempted to show that overconfidence, herd mentality, time preference, risk aversion, 

and tastes have a neural basis and humans differ starkly with respect to such psychological 

concepts. This is also expected to challenge the market efficiency theory as accepted in standard 

finance. 

Psychological surveys often gather information on the cues (triggers) and cognitions (thoughts) 

that accompany or activate gambling behavior. Neuroscience studies attempt to understand how 

the brains of pathological gamblers operate differently than normal brains. 

Pathological gambling is psychiatrically classified as an impulse control disorder and it is 

characterized by a psychological insensitivity to risk, increased impulsivity, a lack of selfcontrol, 

a loss of appropriate social value priorities and the pursuit of pleasure through risk 

taking. Pathological gamblers have higher rates of emotional afflictions such as depression, 

anxiety and substance abuse than others. 

PERSONALITY FACTORS 

One of the keys to investing success is to heavily exploit one’s strengths while strictly avoiding 

areas of weakness. Personality is a collective pattern of character, behavior, temperament, 

emotional and mental traits. Therefore, personality strengths can be listed as 

Personality style, 

Cognitive faculties- mental activity, critical thinking, speed and intelligence, 

Emotional intelligence- motivation and passion, courage, self-awareness, emotional 

coping skills, 

Conditioning- training that improves personal weaknesses and enhances strengths.


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Accordingly investors can be broadly classified as ―Recreational Investor‖ and a ―Gambler‖. 

A recreational investor trades with money that he can afford to lose. He does not lie about or 

misrepresent his wins or losses when describing to others. His statistical ―risk of ruin‖ is very 

low. 

Investors can be easily classified as ―conservative‖, ―moderate‖ and ―aggressive‖ investors on 

the basis of their risk tolerance levels. 

Some investors turn into gamblers during bull markets. They start making money easily. They 

increase their position sizes. They do well and feel invincible. Money comes to them effortlessly. 

They do not realize how much risk exposure they have taken on. Then one day they find 

themselves rapidly losing and they do not understand what is happening. Because their illusion 

of control has been reinforced by early gains, they continue with the same old strategy and they 

lose more and more until they have lost not only their paper profits, but also their principal. 

Many attempts have been made to categorize the characteristics of individual investors; the 

Bailard, Biehl and Kaiser (BB&K) model provides some help. They have defined individual 

investor types as follows: 

Individualist : careful, confident and often takes a do-it yourself approach 

Adventurer : volatile, entrepreneurial and strong willed 

Celebrity : follower of the latest investment fad 

Guardian : highly risk averse; wealth preserver 

Straight Arrow: shares the characteristics of all the above equally. 

In order to understand what type of investor one is, it is necessary for the individual to know 

about personal risk tolerance level and then decide what kind of investment plans is ideal. These 

tests also try to point out the weaknesses in ones personality which also gives guidelines about 

the investment path to be followed by the investors. 

PART-II 

SAVINGS AND INVESTMENTS SURVEY OF INDIA 

It is really interesting to go through the findings of two relevant reports about the savings and 

investment patterns followed by Indians. First is the countrywide survey conducted by Invest 

India Economic Foundation and published by IIMS Dataworks in July 2007 whose major 

findings were published by Economic Times on 16 th ,17 th and 18 th July,2007. Simultaneously the 

Mint (Wall Street Journal) also provided an analysis of the same report during that period. The 

findings are presented as it is for proper understanding about the behavioral approach of Indian 

investors.


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The relevant findings are listed for reference: 

That the bulk of the financial savings of households are parked in bank deposits and post 

office schemes and state run banks were preferred over private banks due to government 

guarantees. 

Every earner needs to save for contingencies including health, retirement and means of 

livelihood for the family in the event of something unfortunate happening to him. 

The first preference, therefore, would be to invest in assets that guarantee security while 

earning a reasonable return, hence the bank deposits and the post office schemes. Only 

when these concerns are taken care of does the investor usually think of return 

maximisation, that is invest in equities or mutual funds. 

Majority of urban Indians don’t invest. 

Over 50 percent of respondents felt investing in equities was risky and only 5.6 million 

had an electronic share holding account. 

The lure of the high yielding equities is low even among the high income categories. 

The underlying reason is the inadequacy of surplus for most investors. 

For most of the respondents, stock market is a jungle of Bulls and Bears. 

Across education levels, only a handful believe that over a long period, returns from scrip 

and mutual funds score over bank deposits. 

This is so despite the fact that a majority of individuals understand that investments that 

garner higher returns also imply higher risk. Risk perception on equities, for instance, 

varies from 56% — for high-income earners, above Rs 5 lakh — to over 65% — for 

those earning Rs 90,000-2,00,000 per year. 

The major reason for 67.2% of the 321 million paid workers — not investing in a life 

insurance cover is, yes, affordability — for 60% uncovered individuals -- no one, least 

the agent, has cared to explain the need for insurance or the product benefits per se. 

Even for a hybrid investment product like Unit-linked insurance plan, even among 

individuals who are aware of the product, a majority blame the agent’s failure to offer the 

product for not buying. 

The survey also mentions that there are certain market entry barriers for the bank customers who 

are aware of equity investments. Major entry barriers listed by the survey are: 

The risk perceptions


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Market volatility 

Inability to understand the stock market. 

Preference to life insurance rather than equity 

Bank deposits are more preferable to a class of investors. 

Complicated procedures. 

Have been advised against equity investment 

Do not know where to purchase from. 

Few prefer mutual funds 

Do not have sufficient funds to invest into equity. 

In spite of this a good percentage of the respondents think that equities will give higher returns 

than the bank savings in a long run. 

RESERVE BANK OF INDIA SURVEY ON HOUSEHOLD SECTOR SAVINGS 

India's gross domestic savings rate was 32 percent in 2005/06 -- its highest since 1950-51 and 

one of the highest in the Asia-Pacific region, according to the Reserve Bank data. But the data 

presented for the year 2008-09 reveals a different picture of the economy (which was presented 

very well in one of the articles and which is reproduced as it is for unbiased understanding). 

―Financial savings of Indian households took a hard knock in 2008-09, as a result of the financial 

crisis. 

According to Reserve Bank of India data presented in its annual report, gross financial savings of 

households increased by a low 4.3% in 2008-09, compared with a growth of 10.1% in the 

previous year. As a percentage of the gross domestic product (GDP) at current market prices, 

gross financial savings of households have fallen from 15.8% in 2006-07 to 15.2% in 2007-08 

and now to 14% in 2008-09. 

What contributed to this decline? Not bank deposits, which continued to grow handsomely in 

2008-09, accounting for 54.9% of total household financial saving, compared with 50.4% in 

2007-08. Not life insurance funds, which rose to 19.5% of financial savings in 2008-09 

compared with 17.4% in the previous year. The real decline occurred in household investments 

in shares and debentures. Shares and debentures accounted for a mere 2.6% of gross household 

financial saving in 2008-09, compared with 12.4% in 2007-08. It’s very clear the meltdown in 

the market has made investors risk-averse. 

However they continued to invest in shares and debentures of private firms, most probably in 

debentures rather than shares. Incidentally, deposits with non-banking companies also rose 

substantially, probably because of their higher interest rates.


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But even though the percentage of shares and debentures in gross financial savings of the 

household sector fell in 2008-09, the fall has not been as steep as during the last downturn in the 

markets, when it fell to 0.1% in 2003-04. Also, financial savings of households reached a low of 

11.9% of GDP at market prices in 2000-01. For Indian households, the current downturn hasn’t 

been as bad as the previous one.‖ 

HOW DO INVESTORS CHOOSE THEIR STOCKBROKER? 

The top five qualities investors look for when choosing a stockbroker (as reported by the survey 

and published by Mint) are: 

Good advice- 

33% of respondents


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Reliability and Trust-30% of the respondents 

Good behavior- 

27% of respondents 

Response Servicing- 22% of respondents 

Proven track record -21% of respondents. 

OBSERVATIONS 

All these reports and news analysis raise a few questions about the investment environment in 

India and also the investor behavior and psychology of Indian investors. It is a time to think 

about these findings and look into the matter from different perspective. 

The main observations are: 

PART-III 

There is availability of investable surplus with Indian investors( household saving data) 

People are aware about the risk and return relationship. 

They want to have information about different products. 

They experience difficulty in getting the information, i.e. who, where, from whom? And 

hence, confused investor. 

It may be due to communication barrier between the investor and the intermediary. 

Financial literacy is the need of the hour. 

There are certain personality traits which need to be handled through training or 

counseling. 

Need to make investing a financially and emotionally rewarding activity. 

CONCLUSIONS 

Investing is an art of putting your money to work for you. It is the source of wealth creation. 

True investment does not happen without some action on the investor’s part. Even if there is a 

risk, there are no guarantees, it has become a necessity. The responsibility of planning for 

retirement is shifting from the government towards the individual. Hence it is advisable to know 

about equity market, understand the risk-return trade-off and know the risk tolerance level by our 

self. 

Looking at the research work done in several fields on financial markets, one can certainly get a 

feel that stress in investment is a universal concept. But one can handle this stress with


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confidence and positive attitude in order to attain the objectives of investment. Therefore, it is 

necessary for investors to accept certain realities of financial markets. They are: 

Accept that investing is an inexact science. 

Understand that trading is not for everyone. 

Short-term strategies usually don’t work, with certain exceptions. 

Successful investing is not a one-decision process. 

Change is constant- both opportunities and risks present themselves at increasing speed 

and investment strategies have to adapt to change. 

Know yourself very well. 

Listen to your own voice rather than following the herd. 

Be faithful to the investing style you choose. 

Trust what you already know about certain businesses. 

Treat investing as a normal part of life, neither complicated nor scary. 

Accept uncertainty. 

Listen to others, but rely on your own judgment. 

Compete only with yourself and not others. 

Avoid being too troubled by mistakes. 

Welcome the gratification of growing rich. 

Decide your investment objectives. 

Be clear about the time horizon to keep your money invested. 

Changing the perceptions of risk and facing it with ease is the need of the time. 

REFERENCES 

BOOKS 

‣ Bodie Zvi, Kane Alex (2009), Investments, Tata McGraw Hill, 

‣ Peterson Richards L. (2007), Inside the Investor’s Brain, John Wiley & Sons,

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‣ Norman Doidge, M.D. (2007) The Brain That Changes Itself, Penguin Publications 

‣ Mark Hirschey, John Nofsinger,(2008), Investments –Analysis and Behavior Tata 

McGraw Hill 

REPORTS 

‣ Invest India Income and Savings Survey, 2007 by IIMS Datawork 

‣ Annual Reports of Reserve Bank of India, 2006-07, 2007-08, and 2008-09. 

JOURNALS AND ARTICLES 

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Portfolio Management Vol.24 

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Investor Behavior, SSRN research Journals, 

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Choice, Science 211 

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And Human Decision Processes. 

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research Journals 

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Equilibrium Asset Pricing, Journal of Finance 3 

‣ Kahneman, D. and Tvesky, (1979) Prospect Theory: An Analysis of Decision under Risk, 

Econometrica 47, 263-291.

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AN ANALYSIS OF FOREIGN EXCHANGE EXPOSURE MANAGEMENT 

BY MNCs IN INDIA 

ABSTRACT 

DR. MANISHA GOEL*; PROF. S.L. GUPTA**; MR. LALIT GOEL*** 

*Associate Professor, YMCA University of Science & Technology, 

Faridabad, Haryana, India. 

**Department of Management Studies, Kurukshetra University, 

Kurukshetra, Haryana, India. 

***Assistant General Manager, Mahavier Die Casters Pvt Ltd., 

Faridabad. 

With globalization and liberalization being adopted by almost all countries, scope as well as 

sphere of international business has become much larger. The high volatility of exchange rates is 

a fact of life faced by every company engaged in international business, bringing in uncertainties 

in their bottom line. In recent years, variations in value of rupee have been very impulsive and 

unpredictable. These fluctuations have had a profound impact on domestic and foreign sales, 

profit levels and profit margins of MNCs operating in India. Many of the companies have turned 

into ashes as a result of unfavorable exchange rate fluctuations. The present study portrays a 

thumbnail sketch of foreign exchange exposure management as practiced by various 

multinational companies in India. Due to the international dependence of its economy, India is 

extremely well suited as subject for this kind of study. This article is based on a questionnaire 

study undertaken in 2004-2008 using a sample of 200 Indian and foreign MNCs operating in 

India. The purpose of this study is to make a comparative analysis of management of foreign 

exchange exposure by banking and non banking as well as foreign and Indian MNCs operating 

in India. This study deals with various other questions such as what is their attitude towards 

exposure management and their policy for management of foreign exchange exposure. Whether 

or not there is a separate management system for management of their foreign exchange 

exposure? The results of the study evidence that majority of firms face all of three foreign 

exchange exposures; transaction exposure, translation exposure and economic exposure. More 

over majority of the companies under study have proper exposure management system. There is 

not so significant difference between attitude of foreign and Indian MNCs towards development 

of separate management system to hedge their foreign exchange exposure. Most of the 

companies who are aware of foreign exchange exposure make estimation of their exposure 

despite their level of exposure. There is significant effect of objective of management on 

estimation of exposure. Most of the companies under the present study are managing only their 

transaction exposure. Few of them are managing both transaction as well as economic exposure. 

There is no significant difference between attitude of Indian and Foreign companies towards 

review of their exposure and hedging policy regularly. 

KEYWORDS: Exchange Rate Fluctuations, Foreign Exchange Exposure, Economic Exposure, 

Exposure Management, International Business, Transaction Exposure, Translation Exposure.

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INTRODUCTION 

The turmoil in the global financial markets, the volatility of the foreign exchange rates and the 

intensified global competition in the product and the resource market have complicated the 

decision making process and have increased the level of uncertainty regarding the outcome of 

international business activities. Undoubtedly, Indian economy has proven to be resilient to 

substantial exchange rate fluctuations. Arguably, this resilience has strengthened over time, as 

firms have learned to adapt to exchange rate variability, including through the development of 

the hedging practices of financial institutions and non-financial firms. Changes in information 

technologies have also increased the speed and the accuracy of information while the surge of 

financial innovations is providing the decision makers with new hedging techniques to deal with 

the uncertainty regarding financial flows. 

The magnitude of foreign exchange exposure has increased at a mind boggling rate in the recent 

times. Foreign exchange exposure is what is at risk of exchange rate variations. It is a measure of 

sensitivity of firm’s cash flows of changes in exchange rate. This exchange rate risk may be 

transaction exposure, translation exposure or economic exposure. Transaction exposure is 

adverse movements of the exchange rate from the time foreign currency denominated 

transactions are initiated till the time of their final settlement. The exposure arises due to 

conversion of transactions from one currency into another currency. While buying or selling 

products in any foreign currency, there is always a time gap between the dates of entering into a 

contract and its final settlement. During this time gap, the business firm is exposed to exchange 

rate fluctuations. These fluctuations may be favorable as well as unfavorable. The unfavorable 

fluctuations may turn a profitable deal unprofitable by the time of actual settlement of contracts; 

the longer the gap between the signing of a contract and its completion, the higher the level of 

exchange rate risks. Businesses that source their products from foreign countries also face the 

exchange rate risk. The exchange rate movements erode gross margins if competition prevents 

selling prices from rising in tandem. 

Translation exposure arises from the need to "translate" foreign currency assets or liabilities into 

the home currency for the purpose of finalizing the accounts for any given period. Multinational 

corporations having operations in many countries have to prepare their consolidated financial 

statements to have a complete knowledge of result of all their business operations. Usually, 

foreign subsidiaries prepare their accounting records and financial statements in the currency of 

the country where they operate. For this, it is necessary to translate foreign currency 

denominated accounts of subsidiary companies into the currency of parent company. But the 

currency fluctuations can create currency gains or losses from such translations. Economic 

exposure reflects the extent to which the present value of future cash flows is affected by 

exchange rate movements. A change in the rate affects the company's competitive position in the 

market and hence indirectly the bottom-line that it affects the profitability over a longer time 

span than transaction and even translation exposure. It has neither time limit nor a defined 

direction of movement. It is simple to spot the influence of the expected change in exchange 

rates on forecasted sales volumes. 

The foreign exchange exposures emanating from unexpected corner have a definite impact on 

the company. Tackling these exposures is the biggest challenge that companies face today. It

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requires a broad based proactive risk management approach at the strategic level. Unmanaged 

foreign exchange exposure can cause significant fluctuations in the earnings and the market 

value of the firm. A very large exchange rate movement may cause special problems for a 

particular company, perhaps because it brings a competitive threat from a different country. At 

some level, the currency change may threaten the firm’s viability, bringing the costs of 

bankruptcy to bear. It is more advisable to bear certain costs rather than giving chance to 

uncertainties to cause disproportionately high costs to the firm. Foreign exchange exposure not 

only affects firm’s financial position but also its competitive position in the market and value of 

firm, if ignored it can paralyze the financial position of the company. 

Success of a business firm largely depends on how effectively it manages foreign exchange risk. 

Foreign exchange exposure management is a multi-staged process that begins with the 

identification of foreign exchange exposure. Foreign exchange exposure is then monitored, 

quantified and corrected on a daily or weekly basis to ensure that the risk profile of the firm 

remains aligned with the objectives of foreign exchange exposure management. They must 

regularly enter into hedging strategies that minimize the impact of exchange rate fluctuations on 

their operating costs. Hedging refers to a strategy that strives to minimize the risk of exchange 

rate fluctuations, thereby minimizing the uncertainty of future transactions denominated in a 

foreign currency and providing some stability to earnings and cash flows. The task of managing 

these risks has been facilitated by the increasing availability of a variety of instruments to 

transfer financial price risks to other parties. This may be one of the reasons that the market for 

derivative instruments has grown at a breathtaking pace in the past few decades in India. Foreign 

exchange exposure management can not eliminate foreign exchange exposure completely. But 

the planned course of action brings risk to manageable level. 

2. LITERATURE REVIEW 

Foreign exchange exposure is very crucial now a days as cross border trade is increasing day by 

day at a very fast pace. But it is also regarded as very complex. One possible reason for the 

absence of empirical evidence in the literature may be related to the difficulty in devising the 

appropriate measures of a firm’s ability to construct its hedging strategies. There is a dearth of 

good literature on this subject, especially in India. Some of the studies identified in this area are 

as follow; 

Bengt Pramborg, in this study, “Foreign Exchange Risk Management by Swedish and Korean 

Non Financial Firms: A Comparative Survey”, 2002, makes a comparison of hedging practices 

of Swedish and Korean Firms. The evidence suggests that Korean firms are more concerned 

about fluctuations in their cash flows whereas Swedish firms focus on accounting numbers. 

Derivatives usage is more popular for hedging among Swedish firms as compared to Korean 

firms. It may be a result of relative immaturity of Korean derivative markets. In both of the 

countries, majority of firms use a profit based approach to evaluate any risk management 

strategy. The study depicts that the decision to hedge foreign exchange exposure is driven by the 

level of exposure and size of a firm. 

Bradford Cornell and Alan C. Shapiro, in their article, “Managing Foreign Exchange Risks”, 

provide step by step guidance for the formulation of an effective strategy for managing currency

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risk. First step is to determine the extent of its exposure to currency risk. Second step is to 

identify the objectives of its exchange risk management program. Third step is to design a set of 

companywide policies to achieve its objectives. It is observed that the changes in security prices 

generally reflect changes in cash flows rather than reported earnings. Currency risk affects all the 

facets of a company’ operations and therefore, should not be the concern of financial managers 

alone. Operating managers should develop marketing and production initiatives that help to 

ensure profitability over the long run. It also pointed out the alarming need for the creation of a 

committee including senior officers and top functional executives in order to adopt an integrated 

approach for managing foreign currency exposure. 

Chand Sooran, in his article, “What is hedging? Why do companies hedge?” presents his views 

on hedging of exposures. This article will give a brief overview of the different ways in which 

firms approach their financial price risk. They also introduce the rationale for using derivative 

products. Companies attempt to hedge the price changes because these risks are peripheral to the 

central business in which they operate. Another reason for hedging the exposure of the firm to its 

financial price risk is to improve or maintain the competitiveness of the firm. In this article, he 

points out that hedging objectives vary widely from firm to firm. The core problem when 

deciding upon a hedging policy is to strike a balance between uncertainty and the risk of 

opportunity loss. 

Chris Becker and Daniel Fabbro, in their paper, “Limiting Foreign Exchange Exposure Through 

Hedging: The Australian Experience, 2006-09, examine foreign exchange hedging of direct 

balance sheet and transaction exposures and assesses their broader implications for the 

Australian economy. This study makes use of quantitative results of Australian Bureau of 

Statistics (ABS) surveys in 2001 and 2005 for comprehensive data on foreign currency 

exposures and hedging practices. This paper examines the available evidence on the nature and 

extent of this hedging behavior. In this paper, they show that foreign currency-denominated 

assets exceed foreign currency-denominated liabilities, even before accounting for hedging, 

thereby conferring a transfer of wealth from the rest of the world to Australian residents in the 

event of exchange rate depreciation. Furthermore, overseas demand for Australian Dollar assets 

has allowed Australian residents to further hedge their net foreign currency exposures back into 

local currency terms through the use of derivatives, insulating the economy against the wide 

fluctuations that can be observed in the exchange rate. They have also observed that despite wide 

swings in the Australian Dollar, the economy and, specifically, the banking sector, have proved 

resilient to variability in the nominal exchange rate. 

DAO Van Quynh, writes an essay on “Hedging Foreign Exchange Exposures in a Multi-National 

Computer Peripheral Manufacturing Business”, 2004-2005. In this essay, he has discussed 

various methods and procedures that a MNC can use to hedge its cash flows and investments 

against foreign exchange risk through an example of an unreal MNC – ABC Inc. As MNCs have 

subsidiaries located in different countries and products sold to different countries, they bear 

heavily the risk of exchange rate changes. However, like domestic firms, MNCs also expose to 

other risks that are not less importance than foreign exchange one, for example, interest rate or 

commodity prices exposures. These exposures can also be hedged using various kinds of 

financial derivatives such as swap, forward contract and option contract.

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David A. Carter, Christos Pantzalis and Betty J. Simkins, in a study, “Asymmetric Exposure to 

Foreign – Exchange Risk: Financial and Real option Hedges Implemented by U.S. Multinational 

Corporations”, 2003, argue that exchange risk exposure and hedging are endogenous. The study 

proves that the magnitude of foreign exchange exposure affects the hedging decisions of the firm 

and in turn hedging decisions affect the firm’s exposure to fluctuations in exchange rates. It 

demonstrates that operational hedges and financial hedges can effectively reduce foreign 

currency exposure. The real option aspect of multi-nationality allows the firm to utilize its 

network structure to increase exposure to favorable currency movements and minimize exposure 

to unfavorable currency movements. 

Ian H. Giddy and Gunter Dufey, in their article “The Management of Foreign Exchange risk”, 

explore the impact of currency fluctuations on cash flows, on assets and liabilities and on the real 

business of the firm. It is demonstrated that there are numerous realistic situations where the 

economic effects of exchange rate changes differ from those predicted by the various measures 

of translation exposure. It emphasizes the distinctions between the currency of location, the 

currency of denomination and the currency of determination of a business. It suggests some basic 

principles for managing foreign exchange risk. 

Sohnke Bartram, in his paper presents the results of his comprehensive study of the foreign 

exchange rate exposure of 447 German non-financial corporation during the period of 1981-95. 

The empirical evidence indicates that the firms with more international sales exhibit 

systematically larger and more significant foreign exchange rate exposures. In addition, firm 

liquidity variables, especially cash flow/total assets, are significantly negatively related to the 

exposure. Moreover, industry sectors are important determinants of the foreign exchange rate 

exposure. As the choice of hedging tools is determined by the exposure profile, nonlinear foreign 

exchange rate exposures suggest the use of hedging instruments with nonlinear payoff profiles 

such as financial and/or real options. 

3. SIGNIFICANCE OF STUDY: 

It has been well documented that the vast size of daily foreign exchange trading, combined with 

the global interdependencies of the foreign exchange market and payment systems involves risks 

stemming from exchange rate fluctuations. Continuous fluctuations in exchange rate impose 

threats for international business. As a result of change in exchange rate, importers may require 

to pay extra for their imports, exporters may get lesser value for their exports, borrowers may 

required to pay extra and lenders may recover also possible that a viable foreign investment 

project may twin into a exchange rate fluctuations. Moreover the financial position and 

profitability of a foreign subsidiary may also change. Large scale fluctuations can even bring 

dramatic changes in the competitive structure of markets which may even cause some companies 

to be driven out of the market. It results in too many questions; whether or not companies in 

Indian, are seriously managing their foreign exchange exposure? If not, what is the reason? All 

of these questions are required to be answered which initiate this research work.

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4. OBJECTIVES OF STUDY 

While the risk management strategy of non-financial firms has been the subject of intense 

theoretical and empirical research, very little is known about the actual hedging practices of 

multinational firms. This article includes the study of existence of various types of foreign 

exchange exposures in MNCs operating in India. Transaction exposure arises at the actual 

conversions of unsettled contracted cash flows from one currency to another at the time of their 

final settlement. Translation exposure is the result of translation of foreign currency assets or 

liabilities into the home currency for the purpose of finalizing the financial statements. Economic 

exposure is the adverse effect of exchange rate movements on the present value of expected 

future cash flows. It also brings into light various factors affecting foreign exchange exposure 

management by the companies. The present study examines the available evidence on the nature 

and extent of hedging behavior of companies in India. The focal point of the study is 

identification, measurement and management of foreign exchange exposure in selected corporate 

sector units in India. Other objectives of the study have been to determine the factors which are 

of special importance while managing foreign exchange exposure, examine the facilities 

available for managing foreign exchange exposure in India, investigate and verify the techniques 

used for managing foreign exchange exposure by corporate units in India. 

5. HYPOTHESIS 

In this research the following hypothesis have been tested; 

1. 20 % of companies do not manage their exposure. 

2. Management system of companies does not depend on consideration for effect of 

fluctuations and objective of exposure management. 

3. Only 40 % of companies managing exposure follow the policy of active management. 

4. There is no significant effect of objective of management, management system and 

management policy on decision of estimation of exposure. 

5. There is no significant effect of origin of company on periodicity of review of their 

exposure & hedging policies. 

6. There is no significant effect of objective, management system and management policy 

on periodicity of review of their exposure and management policies. 

6. RESEARCH METHODOLOGY 

Using a field study and proprietary data, it unfolds the difference between attitude of various 

banking and non banking Indian and foreign MNCs engaged in international business in India 

towards management of their various foreign exchange exposures. The results presented in this 

study are based on a questionnaire study undertaken in 2004-2008. As such the aim is not to 

create a large sample selected randomly but to create a sample of information rich cases selected 

purposefully. The sample is composed of 200 companies out of fortune 500 companies which

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were ranked on the basis of their sales during the financial year from 1 st Jan to 31 st December 

2003, as published in Economic Times in May 2004. Out of 200 companies, 95 companies 

responded back to the questionnaire. 

All companies are heavily internationally oriented as significant proportion of their turnover 

originates from foreign markets as per their published accounts. The selected companies cover a 

broad specter of players of various sectors such as automobiles, pharmaceuticals, oil, cement, 

FMCG, chemicals, steel, IT, textile, nuts, consumer durables, electricity & energy, banking, 

paper & paper products and miscellaneous. Management policies for managing foreign exchange 

exposure have been divided into mainly three groups; Active management, Regular management 

and no management. Three point scales has been used for this purpose. Number 3 has been used 

for active management, 2 for regular management and 1 for no management of foreign exchange 

exposure. A scale of 1 to 5 has been used to analyze results. Significance was discussed on 5 % 

level in all tests used for hypothesis testing. Z test and ANOVA have been applied to test 

hypothesis and interpret the results. Graphs and tables have also been used to facilitate the 

analysis of data. 

7. RESULT & DISCUSSION 

On the basis of the study of management of foreign exchange exposure by MNCs in India, the 

followings are the findings of the study; 

7.1 EXISTENCE OF VARIOUS FOREIGN EXCHANGE EXPOSURES 

The speed of international business activities has magnified the impact of variable exchange 

rates on every business. MNCs have to face different types of foreign exchange exposures such 

as transaction exposure, economic exposure and translation exposure. The results for existence of 

various exposures are depicted in table 1 and chart 1. 

TABLE 1 EXISTENCE OF VARIOUS FOREIGN EXCHANGE EXPOSURES 

S. No. Type of Exposure Total 

1 Both Transaction & Economic Exposure 22 

2 All Three Exposures 73 

3 No Exposure 0 

Total 95


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CHART 1 EXISTENCE OF VARIOUS FOREIGN EXCHANGE EXPOSURES 

Both Transaction & 

Economic Exposure 

23% 

All Three Exposures 

77% 

Results of the study confirm the general view that the majority of the companies (approx. 77% 

companies) face all of three exposures; transaction, economic and translation exposure. Even the 

companies which do not have any foreign subsidiary are also facing translation exposure because 

of their foreign currency assets and liabilities. There is not even a single company under study 

which has been left untouched by any of these exposures. 

7.2 COMPARISON OF ATTITUDE TOWARDS MANAGEMENT OF FOREIGN 

EXCHANGE EXPOSURE OF BANKING AND NON BANKING COMPANIES 

Usually it is observed that companies in India do not manage their exposure. On the basis of this 

general observation, null hypothesis has been formulated and tested with the help of z test. A 

comparison has also been made between banking and non-banking companies. The results of 

comparison are depicted in table 2 and chart 2. 

NULL HYPOTHESIS: 20 % of companies do not manage their exposure. 

TABLE 2 & CHART 2 

ATTITUDE TOWARDS MANAGEMENT OF FOREIGN EXCHANGE EXPOSURE 

Companies Facing Exposure Manage Do not Manage Total 

Non Banking Companies 76 7 83 

Banking Companies 12 0 12 

Total 88 7 95


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Do not Manage Exposure 

7% 

Manage Exposure 

93% 

RESULT OF Z TEST 

Ho: = 0. 20 Sample 

p = 7 / 95 

P = 0.073 Z 

= - 3.094 

Results of Z test show that the computed value of z lies outside the acceptance region as 

compared to the critical value of z = + 1.96 at 5 % level of significance, therefore, null 

hypothesis is rejected. Hence, based on this data the hypothesis that 20 % of companies do not 

manage their exposure is rejected. Graph depicts that most of the companies which identify the 

effect of exchange rate fluctuations (approx. 93 % companies as shown in table 2) accept the 

need of management of their foreign exchange exposure. Comparative study of banking and nonbanking 

companies shows that all of the banking companies accept the need for managing their 

foreign exchange exposure as in India; it has been made mandatory by RBI for all the banks 

dealing in foreign exchange in India. Only 7 % of companies (non-banking companies) which do 

not accept even the effect of foreign exchange exposure do not realize any need for managing 

their exposure. 

7.3 OBJECTIVES FOR FOREIGN EXCHANGE EXPOSURE MANAGEMENT 

Different companies have different objectives for their foreign exchange exposure management. 

The results showing various objectives of MNCs under the present study are presented in table 3.

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TABLE 3 OBJECTIVES OF EXPOSURE MANAGEMENT 

Objective Responses Objective Respondents 

Eliminate All Risk 31 Actively Seek Profits 3 

Eliminate Risk Selectively 27 Improving Ability to Make Value 

Adding Investments 

3 

Minimizing Net Foreign 10 Reducing Stakeholders Perceived 4 

Exchange Exposure 

Risk 

Stabilization Purpose 5 Seek Competitive Advantages 2 

Allow Profits 3 

Results of the study do not comply with general view about companies in India. It shows that 35 

% companies have proper management system in order to eliminate all of their exposure. 31 % 

of the companies try to eliminate their risk selectively whereas 11 % of companies wish to 

minimize their risk. Some of the companies follow the policy of stabilization. Only few of the 

respondent companies have the other objectives in their mind. 

7.4 COMPARISON OF INDIAN AND FOREIGN COMPANIES REGARDING 

DEVELOPMENT OF SEPARATE EXPOSURE MANAGEMENT SYSTEM 

Firm should take foreign exchange exposure management as a system which provides strategies, 

techniques and an approach to recognizing and confronting any threat faced by a firm due to 

exchange rate fluctuations. A proper foreign exchange exposure management policy is required 

to be framed. The difference between attitude of Indian and foreign companies has been depicted 

in table 4 and chart 4. 

TABLE 4 & CHART 4 EXISTENCE OF SEPARATE EXPOSURE MANAGEMENT 

SYSTEM 

Origin of Company 

Existence of Management System 

Yes 

No 

Total 

Indian 56 26 82 

Foreign 9 4 13 

Total 65 30 95


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32% 

100% 

80% 

68% 

60% 

31% 

69% 

40% 

20% 

0% 

Yes 

No 

yes 

Indian 

Foreign 

Results of the study do not comply with general observation. It has been observed that there is no 

significant difference between Indian and foreign companies regarding their attitude towards 

development of management system to hedge their foreign exchange exposure. 

7.5 FACTORS AFFECTING ESTABLISHMENT OF SEPARATE MANAGEMENT 

SYSTEM FOR FOREIGN EXCHANGE EXPOSURE MANAGEMENT 

Whether or not any company will establish a separate management system for management of its 

foreign exchange exposure, it depends on many factors. But in this study two factors are 

considered to be more important for this purpose. First foremost factor is the identification of 

effect of exchange rate variations on the company. Those companies which do not agree that 

such kind of variations in exchange rate can adversely affect their business; they will never 

establish any system for its management. Another factor is the objective of exposure 

management policy of the company. Any company who is willing to minimize or mitigate 

exposure by applying various strategies will definitely have separate system for its management. 

To study the dependence of management system of companies on these two factors, ANOVA 

techniques has been applied where management system is the dependent variable and effect of 

fluctuations and objective of exposure management are independent variables. The results are 

depicted in table 5. 

NULL HYPOTHESIS: Management system of companies does not depend on consideration 

for effect of fluctuations and objective of exposure management.

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TABLE 5 

FACTORS AFFECTING ESTABLISHMENT OF SEPARATE MANAGEMENT 

SYSTEM FOR FOREIGN EXCHANGE EXPOSURE MANAGEMENT 

Source 

Type III Sum of df Mean F Sig. 

Squares 

Square 

Corrected Model 11.352(a) 2 5.676 54.782 .000 

Intercept .419 1 .419 4.044 .047 

Effect of Fluctuations .179 1 .179 1.729 .192 

Objective of Exposure 

7.922 1 7.922 76.462 .000 

Management 

Error 9.532 92 .104 

Total 287.000 95 

Corrected Total 20.884 94 

a R Squared = .544 (Adjusted R Squared = .534) 

The results of ANOVA show that at 5 % level of significance, objective of exposure 

management affects significantly the management system of companies. It also shows that 

management system of companies does not depend so much on their consideration for effect of 

exchange rate fluctuations. 

7.6 MANAGEMENT POLICIES OF COMPANIES 

MNCs in India follow different management policies for management of their foreign exchange 

exposure. There are mainly three policies; no management, regular management and active 

management. It is usually stated that most of the companies ignore their foreign exchange 

exposure. On the basis of general observation, hypothesis regarding the behavior of companies in 

India has been formulated and tested with the help of Z Test. The results are depicted in table 6 

and chart 5. 

NULL HYPOTHESIS: Only 40 % of companies managing exposure follow the policy of active 

management. 

TABLE 6 & CHART 5 

MANAGEMENT POLICIES OF COMPANIES 

Management Policies of Companies 

Responses 

Do not Manage 7 

Actively Manage 55 

Regularly Manage 33 

Total 95


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Do Not Manage 

7% 

Regularly Manage 

35% 

Actively Manage 

58% 

RESULT OF Z TEST 

Ho: = 0. 40 

Sample p = 55 / 88 

P 

= 0.625 Z 

= 4.31 

Results of Z test show that the computed value of z is beyond the acceptance region of the 

critical value of z = + 1.96 at 5 % level of significance, therefore, null hypothesis is rejected. 

Hence, based on this data the hypothesis that only 40 % of companies actively manage their 

exposure is not true. Graph shows that majority of companies under study are managing their 

foreign exchange exposure. The results depict that 35 % of companies manage their exposure 

regularly whereas 58 % companies are actively managing their exposure. 

7.7 ESTIMATION OF FOREIGN EXCHANGE EXPOSURE 

Foreign exchange exposure management is not possible without accurate estimation of exposure. 

Estimation of foreign exchange exposure requires expertise in applying various forecasting and 

statistical tools such as VaR, regression, simulation etc. Not all the companies make estimation 

of their foreign exchange exposure. Usually it has also been observed that foreign companies 

possess expertise to make estimations whereas Indian companies do not indulge in such tedious 

activities. The results showing attitude of companies towards estimation of their foreign 

exchange exposure are depicted in table 7. Whether or not any company will make estimation of 

their exposure also depends on many other factors. In this study hypothesis has been formulated 

to judge the effect of objective, management system and management policy on estimation of 

their exposure. The hypothesis has been tested with the help of ANOVA technique where 

estimation of exposure is dependent variable and effect of fluctuations and effect of objective,


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management system and management policy are independent variables. The results of the test are 


TABLE 7 & CHART 6 ESTIMATION OF FOREIGN EXCHANGE EXPOSURE 

Origin of Company 

Estimation of Exposure 

Total 

Yes 

No 

Indian 76 6 82 

Foreign 12 1 13 

Total 88 7 95 

E 

S 

T 

I 

M 

A 

T 

I 

O 

N 

100% 

80% 

60% 

40% 

20% 

0% 

7% 

93% 

7% 

Indian 

93% 8% 

No 

yes 

ORIGIN 

Foreign 

92% 

Results show that most of the companies who are aware of foreign exchange exposure make 

estimation of their exposure. It denies the general view that Indian companies do not estimate 

their exposure. Indian companies also estimate their foreign exchange exposure despite their

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level of exposure. It has also been observed that majority of companies rely on expectations of 

foreign exchange market for measurement of their foreign exchange exposure. Some of the 

companies also consider major indicators such as exchange controls, import restrictions, interest 

rates and inflation rate while making the analysis of fluctuations in foreign exchange rate. 

NULL HYPOTHESIS: There is no significant effect of objective of management, management 

system and management policy on decision of estimation of exposure. 

TABLE 8 EFFECT OF VARIOUS FACTORS ON DECISION OF 

ESTIMATION OF FOREIGN EXCHANGE EXPOSURE 

Source 

Type III Sum of df Mean F Sig. 

Corrected Model Squares 11.523(a) 3 Square 3.841 33.904 .000 

Intercept 1.584 1 1.584 13.983 .000 

Management System .012 1 .012 .106 .746 

Objective 4.542 1 4.542 40.089 .000 

Management Policy .094 1 .094 .832 .364 

Error 10.309 91 .113 

Total 197.000 95 



The results of ANOVA show that at 5 % level of significance, there is significant effect of 

objective of management on estimation of exposure. But the effect of management system and 

management policy on estimation of exposure is not so significant. 

7.8 REASONS FORCING EXPOSURE MANAGEMENT 

Foreign exchange exposure, if ignored, can put survival of any company in danger any moment 

which may result in huge losses of financial distress. Moreover it has always been arduous to 

harmonize investment and financing activities of the company which usually pose the problem of 

currency, amount or timing disparity of cash flows. Managers and shareholders of the company 

have different interest. Shareholders are more interested in market value of the firm where as 

mangers pay more attention towards profits. It may result in agency conflicts about the decision 

of management of foreign exchange exposure. Convexity of tax functions also poses threat to 

the companies. Usually it is observed that companies consider the question of hedging foreign 

exchange exposure as a critical activity as they wish to evade the loss of financial distress. The 

results of the study showing the reasons for which companies in India management their foreign 

exchange exposure are depicted in table 9 and chart 7. 

TABLE 9 

REASONS FORCING EXPOSURE MANAGEMENT 

Reasons Forcing Exposure Management Responses % age 

Costs of Financial Distress 60 63


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Problems of Synchronizing Investments & Financing Activities 40 

42 

Costs of External Funding 45 47 

Agency Conflicts Between Managers and Shareholders 20 21 

Convexity of Tax Function 22 23 

Costs of External 

Funding 

Agency conflicts Convexity 

of tax 

Problem of 

Synchronization 

Costs of Financial 

Distress 

Results of the study match with general statements. It shows that most of the companies in India 

are worried about the costs of financial distress. Problems of synchronizing investments and 

financing activities also force them to take care of their foreign exchange exposure. Few of the 

companies consider the force of cost of external funding, agency conflicts and convexity of taxes 

while considering the issue of management of their foreign exchange exposure. 

7.9 MANAGEMENT OF VARIOUS EXPOSURES 

Though everyone knows that unmanaged foreign exchange exposure can cause significant 

fluctuations in the earnings and the market value of the firm yet it is also argued that hedging is 

not so simple exercise. In fact, risk management, essentially, is a strategic function. It requires 

specialized skills. It has been observed that companies have different attitude towards 

management of their various foreign exchange exposures. This study makes a comparison 

between attitude of banking and non-banking companies towards their various foreign exchange 

exposures. The results are depicted in table 10 and chart 8. 

TABLE 10 MANAGEMENT OF VARIOUS EXPOSURES 

Type of Exposure 

Non Banking Companies Banking Companies Total 

Only Transaction Exposure 48 0 48 

All Three Exposures 20 11 31 

Both Transaction & Economic Exposure 7 1 8 

Only Economic Exposure 1 0 1 

No Hedging 7 0 7


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Total 83 12 95 

CHART 8 MANAGEMENT OF VARIOUS EXPOSURES 

The results of the study confirm the general observation. It shows though 77% of companies 

under study face all of three exposures; transaction, economic and translation exposure yet only 

24 % of companies are managing all of their exposures. Most of the companies (approx. 60 %) 

are managing only their transaction exposure. 8 % of companies are managing their transaction 

and economic exposure. Only 7 % of companies (non-banking companies) which do not accept 

even the effect of foreign exchange exposure do not manage their exposure. 

7.10 FACTORS OF CONSIDERATION FOR EXPOSURE MANAGEMENT 

There are many factors which should be duly taken care of while considering any decision of 

foreign exchange exposure management. The results of the study show that most of the 

companies are worried about few of the factors like inflow-outflow mismatches, timing 

mismatches, benefits of hedge and contracted foreign currency cash flows etc. They are not so 

serious about many of the other crucial factors such as degree of foreign involvement by foreign 

subsidiaries, variability of expected future cash flows, location of subsidiaries, their accounting 

methods, elasticity of demand of their inputs and out puts, strategies of its competitors and 

flexibility of their production processes etc. which if duly taken care of, may be prove to be boon 

for the company in case of adversities. 

7.11 NUMBER OF TECHNIQUES USED FOR EXPOSURE MANAGEMENT 

Generally it is observed that companies in India do not manage their foreign exchange exposure 

as actively as they do not take it so seriously. Moreover, not many options are available to for


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hedging exposure completely. Companies use few of techniques for hedging their exposure. No. 

of techniques used for exposure management has been treated as an indicator of their seriousness 

towards exposure management. The results are depicted in table 11 and chart 9. 

TABLE 11 & CHART 9 NUMBER OF TECHNIQUES USED FOR EXPOSURE 

MANAGEMENT 

No. of Techniques 

Responses 

0 7 

1 51 

2 15 

3 5 

4 13 

5 4 

More Than 5 0 

Total 95 

4% 7% 

5% 14% 

16% 54% 

Do not Hedge Use 1 Technique Use 2 Techniques Use 3 Techniques Use 4 Techniques Use 5 Techniques 

RESULTS OF STATISTICAL ANALYSIS 

Mean = 1.778947368 

Median & Mode = 1 

Standard Deviation = 0.46588033

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Skewness = 1.671980549 

Statistical analysis shows that frequency of companies using only one technique is highest. 

Graph depicts that 54 % of companies are using only one technique to manage their exposure. 16 

% of companies use two techniques. Very few companies use more than two techniques. 5 % of 

companies are using three techniques. 14 % of companies are more serious about their exposure 

management and use four techniques for hedging their exposure. Whereas only 4 % of 

companies apply 5 or more than 5 techniques as they make their best efforts to eliminate 

exposure completely. 

7.12 COMPARISON OF ATTITUDE OF INDIAN & FOREIGN COMPANIES 

TOWARDS REVIEW OF EXPOSURE / HEDGING POLICIES 

Success of exposure management requires not only establishment of exposure management 

system or applying various hedging strategies. There should be periodic reporting and evaluation 

of effectiveness of those hedging policies. System should be developed to smell out danger at the 

earliest stage and quicker decision making to handle it. Having a foreign exchange exposure 

management system in place will not protect a firm or enhance its performance unless it is 

embedded in a risk aware corporate culture. Moreover constant eye on market fluctuations and 

exposure is also essential. On one hand, some of the companies do not pay attention for review 

of their exposure and hedging policies on the other hand; some of the companies have the system 

of daily review. Some of the companies even follow the policy of weekly, monthly or quarterly 

review system. Usually it is observed that foreign companies take exposure management very 

seriously and they develop systematic periodic review system for regular evaluation of 

effectiveness of their hedges whereas Indian companies are no so serious about review and 

evaluation. To study the difference in attitude of Indian and foreign companies towards 

periodicity of review of exposure and hedging policies, hypothesis has been formulated. The 

hypothesis has been tested with the help of ANOVA where periodicity of review is the 

dependent variable and origin of company (Indian or Foreign) is independent variable. The 

results of comparison are depicted in table 12 and table 13. 

NULL HYPOTHESIS: There is no significant effect of origin of company on periodicity of 

review of their exposure & hedging policies.

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TABLE 12 COMPARISON OF ATTITUDE OF INDIAN & FOREIGN COMPANIES 


Origin of 

Company 

Daily/ 

weekly 

Periodicity of Review 

Monthly Quarterly Yearly 

No 

Review 

Total 

Indian 45 27 4 4 7 82 

Foreign 6 3 2 1 1 13 

Total 51 30 6 4 7 95 

TABLE 13 COMPARISON OF ATTITUDE OF INDIAN & FOREIGN COMPANIES 


Source 

Type III Sum df Mean Square F Sig. 

of Squares 

Corrected Model .310(a) 1 .310 .875 .352 

Intercept 35.527 1 35.527 100.344 .000 

Origin of Company .310 1 .310 .875 .352 

Error 28.678 81 .354 

Total 357.000 83 


a R Squared = .011 (Adjusted R Squared = -.002) 

Graph shows that there is both Indian and foreign companies have similar attitude for review of 

their exposure and hedging policies. Most of the Indian as well as Foreign companies review 

their exposure and hedging policy on regular basis. ANOVA table shows that at 5 % level of 

significance, null hypothesis is accepted. So, there is no significant difference between Indian 

and foreign companies regarding their periodicity of review of their exposure and hedging 

policies. 

7.13 FACTORS AFFECTING ATTITUDE OF COMPANIES TOWARDS REVIEW OF 

EXPOSURE / HEDGING POLICIES

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The attitude of any company towards periodicity of review of their exposure and hedging 

policies depends on many factors. In this article, to study the effect of objective, management 

system and management policy on periodicity of review of their exposure and hedging policies 

hypothesis has been formulated. ANOVA has been applied to test the hypothesis where 

periodicity of review is dependent variable and effect of fluctuations and effect of objective, 

management system and management policy are independent variables. The results of the test are 


NULL HYPOTHESIS: There is no significant effect of objective, management system and 

management policy on periodicity of review of their exposure and management policies. 

Source 

TABLE 14 FACTORS AFFECTING ATTITUDE OF COMPANIES TOWARDS 

REVIEW OF EXPOSURE / HEDGING POLICIES 

Type III Sum of 

Squares 

df Mean Square F Sig. 

Corrected Model 26.665(a) 3 8.888 112.864 .000 

Intercept 3.693 1 3.693 46.899 .000 

Objective 10.932 1 10.932 138.813 .000 

Management System .001 1 .001 .016 .899 

Management Policy .145 1 .145 1.835 .179 

Error 7.167 91 .079 

Total 430.000 95 



Since value of p is 0.899 for management system and 0.179 for management policy which is 

higher than 0.05 (5 % level), management system and management policy do not have any 

significant effect on periodicity of review of their exposure and hedging policies. But objective 

of exposure management have significant effect on periodicity of review. 

8. CONCLUSION 

Majority of the companies face all of three exposures; transaction, economic and translation 

exposure. Even the companies which do not have any foreign subsidiary are also facing 

translation exposure because of their foreign currency assets and liabilities. Comparative study 

shows that as most of the banking companies have spread their wings in international market, no 

banking company under the study has been escaped of foreign exchange exposure. Only those 

non banking companies which have neither any foreign subsidiary nor any foreign currency 

denominated asset or liability are not facing translation exposure. There is not even a single 

company under study which has been left untouched by any of these exposures. 

All of the banking companies accept the need for managing their foreign exchange exposure as 

in India; it has been made mandatory by RBI for all the banks dealing in foreign exchange in

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India. Few of the non-banking companies do not accept even the effect of foreign exchange 

exposure do not realize any need for managing their exposure. Majority of the companies have 

proper management system in order to eliminate all of their exposure. Some of the companies try 

to eliminate their risk selectively whereas some of them also try actively to seek profits or 

competitive advantages. Few of them follow the policy of stabilization. Companies also consider 

other objectives such as to reduce stake holder’s perceived risk, to improve their ability of 

investments and to minimize their risk. Both foreign and Indian MNCs have similar attitude 

towards development of separate management system to hedge their foreign exchange exposure. 

The results also show that management system of companies does not depend so much on their 

consideration for effect of exchange rate fluctuations. 

Most of the companies who are aware of foreign exchange exposure make estimation of their 

exposure. Both Indian and foreign companies estimate their foreign exchange exposure despite 

their level of exposure. There is significant effect of objective of management on estimation of 

exposure. But the decision of estimation of exposure is not so much affected with existence of 

separate management system and management policy of the company. Most of the companies in 

India are worried about the costs of financial distress. Problems of synchronizing investments 

and financing activities also force them to take care of their foreign exchange exposure. Few of 

the companies consider the force of cost of external funding, agency conflicts and convexity of 

taxes while considering the issue of management of their foreign exchange exposure. Majority of 

companies under study are actively managing their foreign exchange exposure. Though most of 

the companies suffer from all of the exposures; transaction, economic and translation exposure 

yet only few of them are managing all of their exposures. Most of them are managing only their 

transaction exposure. Few of them are managing both transaction as well as economic exposure. 

Majority of the companies are using only one technique to manage their exposure. Very few 

companies are taking help of two or more than two techniques. These include those companies, 

which make their best efforts to eliminate exposure completely. Both Indian and foreign 

companies have similar attitude for review of their exposure and hedging policies. Most of the 

Indian as well as Foreign companies review their exposure and hedging policy on regular basis. 

Management system and management policy do not have any significant effect on periodicity of 

review of their exposure and hedging policies. But periodicity of review is significantly affected 

by objective of exposure management. 

9. BIBLIOGAPHY 

Aabo, Tom (2001), “E-Commerce and Exchange Rate Exposure Management: A tilt towards 

Real Hedging”, Journal of E-Business, Vol. 1, Issue-1 June 2001. 

Aliber, Robert Z., 1978, “Exchange Risk and Corporate International Finance”, Hasted Press, 

New York. 

Allayannis, George and E. Ofek, 1997, “Exchange rate Exposure, Hedging, and the Use of 

Foreign Currency Derivatives”, Working Paper, University of Virginia.



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Davis, Henry A., and Frederick C. Militello, Jr., 1995, “Foreign Exchange Risk Management: A 

Survey of Corporate Practices”, (Financial Executives Research Foundation, Morristown, New 

Jersey, USA) 44 

He, Jia and Lilian K. Ng, 1998, “The Foreign Exchange Exposure of Japanese Multinational 

Corporations”, the Journal of Finance 53 (2), 733-753. 

Hiten Jhaveri, “Strategies for Managing Risks”, Chartered Financial Analyst, Dec. 2002. 

Jorion, Philippe, 1990, “The Exchange Rate Exposure of U.S. Multinationals”, Journal of 

Business 63 (3), 331-45. 

Laurent L. Jacque, “Management of Foreign Exchange Risk: A Review Article”, Journal of 

International Business Studies, Spring/Summer 1981. 

Pringle, John J., 1991, “Managing Foreign Exchange Exposure”, Journal of Applied Corporate 

Finance 73-82. 

Schrand, Catherine, and Haluk Unal, 1998, “Hedging and Coordinated Risk Management: 

Evidence from Thrift Conversions”, Journal of Finance, Vol. 53, No. 3, 979-1013. 

Shapiro, Alan C., and Sheridan Titman, 1986, “An Integrated Approach to Corporate Risk 

Management”, in Joel Stern and Donald Chew, Eds.: The Revolution in Corporate Finance (Basil 

Blackwell, Ltd. Oxford, England and Basil Blackwell, Inc., Cambridge, Mass.). 

Shapiro, Alan C., 1996, “Multinational Financial Management”, 5 th edition, Prentice Hall Inc., 

Upper Saddle River, New Jersey. 

T. Ramanan, “Risk Management”, Chartered Financial Analyst, Feb. 2003.

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ABSTRACT 

CORPORATE GOVERNANCE INDEX FORMULATION: 

COMPLIANCE WITH COMMERCIAL BANKS OF NEPAL 

DR. PRASHANT KUMAR*; TARA PRASAD UPADHYAYA** 

*Senior Professor, Faculty of Commerce, Vanarasi Hindu University, 

Varanasi, India. 

**Ph.D. Scholar in the Faculty of Commerce, Banarsa Hindu University, 

BHU, Varanasi, India. 

The collapse of the US energy Company Enron in 2001 and followed by other major failure of 

WorldCom, Xerox etc. as well as the liquidation case of Nepal Development bank Ltd., 

management takeover of some prime commercial banks by NRB, Unity Scandal created an 

environment in Nepal for the formulation and adaptation of Code of Corporate Governance 

immediately. This paper attempted to construct corporate Governance Index for Commercial 

Banks of Nepal because there was no any prescribed and followed Code of Corporate 

Governance applicable for the concerned except the provision laid down in Banking and 

Financial Institution act, Companies act and Nepal Rastra Bank act . The objective of 

Construction of CGI was to assist the Promoters, Common share holders, Creditors, Investors, 

other stake holders and the BOD to determine the Corporate Governance status of the Firm 

where they Concern. The Corporate governance index construction method was carried out for 

class “A” commercial banks with due assessment of annual disclosures and following the 

applicable provisions laid down in the concerned acts and provisions. OECD code of Corporate 

Governance is taken as major basis for construction of Index. The Index was constructed with 

110 questions distributed as 33 to Board Responsibility, 16 to Board Structure, 14 to 

shareholders rights, 33 to Transparency and disclosures and rest 14 to Audit Committee having 

yes no pattern with value 1to yes and 0 values to No. 

KEYWORDS: Organization for Economic Cooperation and Development, Corporate 

Governance Index, Nepal Rastra Bank (The Central bank of Nepal). 

INTRODUCTION 

Corporate Governance has become the hot topic of debate in the world just after the major failure 

of Enron in 2001, WorldCom, and Xerox etc. in USA. Likewise Harshad Mehta Scam in 1992, 

M.S Shoes insider trading 1994 in India created havoc in Corporate Governance field. Many 

studies point out that poor corporate governance was one of the major factors that caused the 

1997 Asian financial crisis. Despite signs of mounting currency pressures in the East Asian 

countries, most business leaders and policy makers did not expect that East Asia would face a 

crisis of such intensity in 1997. Similarly liquidation of Nepal Development Bank Ltd. 

management takeover action of Nepal Rastra Bank concerned to Nepal Bangladesh Bank and 

Kumari Bank ltd has attracted the eyes and minds of Nepalese academic, professionals, corporate

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bodies, regulatory authorities, promoters, common shareholders, all the stakeholders including 

the Government of Nepal. In simple form the corporate governance includes the interrelated and 

interlocked relation of the players like shareholders, the management, the board of directors, all 

the stakeholders including the society and the Government of the Nation. Academician treats it 

as a problem of separation of management and ownership and so on. 

The one and only major objective of this paper is to make a frame work on the basis of relevant, 

applicable laws and provisions of Nepal for the development of Corporate Governance Index 

with special reference of OECD code of Governance. 

A descriptive research design is followed to frame the Corporate Governance Index formulation 

principle especially concerned to the Commercial Banks of Nepal. All the Commercial Banks 

which are listed in Nepal Stock Exchange Limited the one and only stock exchange are targeted. 

The Corporate Governance Index for Nepalese Commercial Banks runs from 0(Zero) to 

110(hundred and ten) where higher values indicate the better Governed firm vice versa. The 

Index construction procedure follows the answering of 110 yes/no questions on the basis of 

prevailing rules and provisions of applicable act concerned to CB. While Constructing the CGI 

principles no direct questionnaire interviews and field observation is carried out. The Index 

formulation procedure follows the answering of 110 questions distributed as 33 to Board 

Responsibility, 16 to Board Structure, 14 to shareholders rights, 33 to Transparency and 

disclosures and rest 14 to Audit Committee having yes no pattern with value „1‟to yes and „0‟ to 

No.( Varuna L Ramlal, Ananchotikut:2008). The CGI of Nepal for the CB is formed as a 

composite Index. Each of five areas of CGI total is to be divided by each group total value and 

multiplied by the weight of that group to find out the each group value. Finally each group value 

so calculated is summed up for getting the CGI in composite form. When the CGI of all the CB 

is calculated then they are easily ranked with highest to the lowest Index firm. 

(1)This study covers the only the CB‟s of Nepal 

(2) CGI is calculated relying on the disclosure of CB‟s annual Publications 

(3) The study is merely limited to the construction procedure and method of CGI of CB 

Corporate Governance is the set of relationships between a company‟s management, its board, 

shareholders and other stake holders (OECD, 2004) . Good Corporate Governance should 

facilitate effective monitoring and provide proper incentives for the board and its shareholders 

(OECD, 2004). The relationship among various participants in determining the direction and 

performance of Corporations is Corporate Governance (Monks & Minow, 2001). Corporate 

Governance is a system, by which corporates are directed and controlled.It deals with how a 

company fulfils its obligations to investors and other stakeholders. It is about commitment to 

values and ethical business conduct and a hgh degree of transparency. (Cadbury Committee 

report, 1991). The Organisation for Economic Cooperation and Development was one of the 

earliest non-govermental Oraganization to work on and spell out the Code of Corporate 

Governance for the overall benefit of the concerned. The summarised code of Corporate 

Governance of OECD are as follows:

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(1) THE RIGHTS OF SHAREHOLDERS: The rights of shareholders include a set of 

rights to secure ownership of their shares, the right to full disclosure of 

informations,voting rights, participation in decissions on sale or modification of corporate 

assets, mergers and issue of new shares. 

(2) EQUITABLE TREATMENT OF SHAREHOLDERS: The protection of minority 

shareholders rights, by setting up systems that keep insiders, including managers and 

directors, from taking undue advantage of their roles. For example insider trading is 

explicitly prohibited and directors should disclose any material interest regarding 

transaction. 

(3) STAKEHOLDERS AND CORPORATE GOVERNANCE: OECD pointed out that 

besides the Shareholders there are numerous stakeholders concerned to the company 

example Bond Holders, Bankers, Creditors, Employees, the Society and the Government 

as well. The OECD has lain down several provisions for the protection of all the 

stakeholders. 

(4) DISCLOSURE AND TRANSPARENCY: This principle covers the areas of Board 

Structure, Directors remuneration, audit committee and role, key financial indicators to 

be communicated to the shareholders and the stake holders as their rights concerned. 

(5) THE RESPONSIBILITIES OF THE BOARD: The OECD principles set the way for 

director‟s responsibilities and accountabilities concerned to their rights and duties. These 

include corporate strategy, risk, executive compensation and performance as well as 

accounting and reporting systems. (OECD, 2004) 

Quality Governance, restoration of investors Confidence, protection of investors by improving 

the accuracy and reliability of corporate disclosures, are the key areas of Corporate Governance. 

(Sarbanes-Oxley Act: 2002) 

BASIS FOR CONSTRUCTION OF CB’S CGI: 

The CGI have been constructed by many authors, Researchers‟, academician as well as by body 

corporate but the irony of the fact is that all the indices are directly concerned to the developed 

nations. The economies of developing nations also needed the indices for the measurement of 

Corporate Governance status of their company form of organization as well. The available 

Corporate Governance Indices which are notable could be the index developed by 

Ananchotikul(2008), Black, jang and Kim(2003), khanna et al(2001), klapper and love(2002) out 

of them the Index developed by Ananchotikul(2008) is directly concerned to developing Nations. 

According to Ananchotikul the major aspects of Corporate Governance are: Board structure, 

Board responsibility, Conflict of interest, Shareholders rights and Disclosure and transparency. 

In total 87 criteria are considered for construction of CGI in Thailand by Ananchotikul and She 

collected the related information concerned to the above sub indices from the sources like 

Company Disclosure Reports, Company Website, Stock Exchange of Thailand etc.

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Since our CGI are to be constructed for the Commercial Banks of Nepal the major Provisions of 

NRB, BAFIA no 6/2010 for Corporate Governance are duly considered for the Construction of 

CGI. Besides the BAFIA the following mentioned acts and bodies provisions are also taken into 

consideration 

TABLE: I 

SHOWING THE ACTS, BODIES AND PROVISIONS CONCERNED TO CGI OF CB IN 

NEPAL 

SN 

Title of the Acts or concerned Authentic body Code 

1 Company Act 2003 ca 

2 Company Registrar office cro 

3 Unified directives of Nepal Rastra Bank-2010 udnrb 

4 Banks and Financial Institutions Act, 2006 bafia 

5 Banking Offence and Punishment Act, 2008 bopa 

6 Contract Act 2000 coa 

7 Securities Act 2006 sa 

8 Securities exchange board of Nepal regulation 2064 sebon 

9 Nepal Stock exchange Ltd.( NEPSE) nepse 

10 Securities Exchange Act. 1983 sea 

11 Nepal Chartered Accountants Act, 1997 ncaa 

12 Nepal Accounting Standards ns 

13 Nepal Standards on Auditing nsa 

14 Insurance Board of Nepal ibn 

15 Nepal Rastra Bank nrb

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16 Institute of chartered Accountants of Nepal ican 

17 Nepal Rastra Bank Act, 2002 nrba 

18 Income tax act 2000 ita 

19 Labor act 1992 la 

Nepal is a developing country and reeling with the problem of political instability, lower 

economic growth, and higher inflation and around an environment of stagnation for the 

development of manufacturing sector and export trade. The financial sector is showing an 

optimistic environment but how long there is a big question….? on account of afore mentioned 

problems. There is no any code of Corporate Governance prevailing in the nation. Therefore the 

attempt has been done to show the path way of construction of CGI on the basis of above 

mentioned Acts, Bodies and their applicable provisions so far is associated and duly concerned 

to CB‟s of Nepal for Governance. The OECD principles of Corporate Governance are also taken 

as the primary basis for the Construction of CGI of CB‟s in Nepal. There are all together 110 

questions being divide into five classes having a weight of 30% to Board responsibilities,14.55% 

for Board structure,12.72% for shareholders rights, 30% for transparency and disclosures and 

12.72% for audit Committee concerned to construction of CGI for CB‟s of Nepal. 

TABLE: II 

SHOWING THE PROBABLE KEY AREA OF CORPORATE GOVERNANCE 

PRACTICES IN NEPAL 

Category: I ( Board Responsibilities) 

Sn. Questions Yes No 

1 Has the board stated its business objectives? 

2 Is the board able to show strategic guideline? 

3 Has the board established the qualification and competence of CEO or MD 

besides the NRB? 

4 Is the Board consulting supervisors when assessing senior managers? 

5 Does the board approve major activities such as loans, liquidity, investment, 

insurance underwriting etc? 

6 Does the board ensure and approve that the compensation of the senior

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management members and key personnel is in keeping with the institution‟s 

culture around? 

7 Does the board ensure and approve that senior management has stated policies 

and procedures to ensure that their activities are in keeping with the approved 

business 

Strategy? 

8 Does the board approve the company‟s methods of control and ensure that 

they are functioning properly? 

9 Does the board ensure that there is an effective form of risk management in 

place? 

10 Does the board understand the statutory obligations of financial Institutions? 

11 Does the board ensure that the compliance of statutory obligations of financial 

Institutions is fulfilled? 

12 Does the board monitor financial performance of the firm? 

13 Does the board establish standards of conduct and ethical behavior for persons 

in the organization? 

14 Does the board communicate with supervisors and convene meetings when 

they request? 

15 Is the board informed of reports issued by supervisors and ensures that and 

their recommendations are implemented? 

16 Does the board self assess periodically? 

17 Does the board report to shareholders on the financial conditions of the 

company? 

18 Does the board consult the shareholders when deciding on activities which will 

influence them? 

19 Does the board report significant and material information to the shareholders? 

20 Does the board report shareholders agreements that might affect their 

investment decisions? 

21 Does the board submit compensation reports to shareholders for approval 

before such compensation packages are implemented?

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22 Does the board have a formal program for new directors and persons identified 

as possible successors to senior management and for other critical functions 

within the firm? 

23 Does the succession program cover the financial regulatory system? 

24 Do the board members sign the NRB‟s code of ethics? 

25 Does the board members fell that the codes of NRB is Ok? 

26 Have you received credit and funds base facility and loan after being BOD of 

this bank?( Other than FDloan,Gov./NRB bonds loans and employee facility 

loan) 

27 Have you recommended Loan officer/ CEO for granting any kind of loan to 

your friends, relatives or others from this bank? 

28 Does the board face pressure while deciding on important institutional issues 

from Customer association, trade union, and political leader? 

29 Does your bank holds the following policies: 

(a) Policy relating to Human Resource Development? 

(b) Policy relating to Credit? 

© Policy relating to Assets and liability? 

(d) Profit planning Policy? 

(e) Investment Policy? 

(f) Procurement policy 

30 Does the board meetings are pre scheduled and communicate to each member 

at the beginning of the financial year except the cases of emergencies? 

31 Does the board respect the laws relating to stakeholders? 

32 Whether the board has adopted the policy of employees participation or not? 

33 Whether the board allows the stakeholders for better corporate Governance or 

not?

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Yes 

No 

Category :II ( Board structure) 

1 Is the chairperson of the board a different person from the CEO of the 

company? 

2 Is the division of responsibilities, and authorities of Chairperson and CEO is 

clear? 

3 Are all the board members in keeping with fit and proper guidelines? 

4 Does the firm have a conduct review committee? 

5 Does the firm have a remuneration committee? 

6 Does the firm have a compensation committee? 

7 Does the firm have a nomination committee? 

8 Does the firm have a risk management committee? 

9 Does the firm have a loan review committee? 

10 Does the firm have a procurement committee? 

11 Does the firm have an independent audit committee? 

12 Does BOD consume full time of meeting? 

13 Does BOD meeting commence on scheduled time? 

15 Does BOD meeting‟s agenda communicated within due period? 

16 Does BOD meeting conducted within proper code? 

Category: III( Shareholders Rights) Yes 

No 

1 Does the firm hold an annual general shareholders meeting on prescribed time 

duly? 

2 Does the firm use the one share one vote rule? 

3 Does the firm informed shareholders about Annual General meeting before

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21days? 

4 Does the firm allow proxy voting? 

5 Does the firm allow cumulative voting? 

6 Does the firm allows voting by an electronic means (email,fax,text message 

voting)? 

7 Does the firm have a clearly disclosed dividend policy? 

8 Does the firm state why the dividend is set a particular value? 

9 Does the AGM conducted according to NRB and Company Act Provisions? 

10 Does the AGM commences and ends within the scheduled time? 

11 Does the firm let the shareholders the secure method of ownership registration, 

transfer of their shares? 

12 Does the board allowed the shareholders to raise queries relating to External 

Audit and ancillaries in the AGM? 

13 Whether all series of shareholders are treated equally? 

14 Whether the board is aware about the Minority shareholders? 

Category: IV(Transparency and disclosure) Yes 

No 

1 Does the full board meet in accordance with the stipulations in the company‟s 

by-laws and articles? 

2 Has the NRB requested more frequent board meetings? 

3 Do all the directors meet when boards meet? 

4 Does the firm state the attendance of individual directors at meeting? 

5 Do the directors honor their commitments to the committees and subcommittee 

of the board? 

6 Does the firm state the attendance of individual directors at heir committee 

meeting?

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7 Are documents concerning the agenda , board minutes and papers forwarded 

to directors prior to meeting and with enough time to allow perusal of such 

documents? 

8 Is the meeting attendance recorded? 

9 Does the board keep a record of how persons attended the meeting-in person, 

via phone or other technology? 

10 Are minutes taken at each board meeting? 

11 Do the minutes record which board member abstained from voting on a 

particular issue/s? 

12 Does the chairperson maintained controlled at all board meeting? 

13 Does the chairperson do so without dominating the discussion? 

14 Does the chairperson stimulate debate by ensuring that each member 

contributes to the discussion? 

15 Does the chairperson guide discussion but make sure that disagreements and 

discussion are resolved? 

16 Does the Chairperson ensure that the decision made are properly understood 

and properly recorded? 

17 Does the company a website? 

18 Is the annual report available for download from the company website? 

19 Does the website or annual reports contain information on the biography of 

directors? 

20 Does the company get published its unaudited income statement and balance 

sheet quarterly? 

21 Does the company disclose its Income statement and balance sheet within due 

period after the end of Financial Year? 

22 Does the company disclose the full name as well as the description of their 

business? 

23 Does the company disclose their registered address? 

24 Does the company disclose the address of their registrar?

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25 Does the company disclose their directors names and address? 

26 Does the company disclose their date of incorporation? 

27 Does the company give a brief history of their operations? 

28 Does the company disclose the structure of authorized and issued capital? 

29 Does the company disclose the recent capital history? 

30 Does the company disclose the history of dividend? 

31 Does the company state any special conditions related to company share 

transfer? 

32 Does the income statement and Balance sheet of the company discloses off 

balance sheet items in compliance with Nepal Accounting Standard and Nepal 

Standards on audit? 

33 Does company discloses the financial target in the Annual report? 

Category: V(Audit Committee) Yes No 

1 Does the firm have an independent audit committee? 

2 Do the firms audit committee lead by non executive director with employee‟s 

participation? 

3 Is the chairman of audit committee is independent? 

4 Has the audit committee been able to review the financial statements and issue 

a report to the board before the statements have been approved? 

5 Does the audit committee monitor management and staff compliance with 

policies, law, regulations and guidelines? 

6 Does the audit committee review investment and transactions that may 

adversely affect the institution? 

8 Does the audit committee supervise audits to ensure that both internal and 

external auditors are acting independently of management? 

9 Does the audit committee monitor the efforts of management to correct 

shortcomings identified by external and internal auditors? 

10 Does the audit committee conduct their meeting according to the provision of

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NRB and Company Act? 

11 Does the audit committee pursue meetings with the full board to discuss 

matters of concerns to this committee? 

12 Does the audit committee review returns that the NRB specifies? 

13 Does the audit committee ensure that the risk management function is 

independent and comprehensive? 

14 Has the audit committee ensured that an independent audit firm is hired to 

audit management‟s financial statement? 

The path way for construction of CGI for Nepal demonstrated in this paper is especially 

applicable to the Commercial Banks but it does not mean that the way could not be followed for 

other company form of organization. Since there is no any specific Code of Corporate 

Governance in Nepal it creates an immense goodwill path for the Governance part of 

Institutions. The CGI index shall help the Organization to assess and value them where they 

stand in Corporate Governance environment. It will also help the Common Shareholders, 

Promoters, Bond holders, Depositors‟, Employees and all the stake holders to know the 

Governance status of the organization where they are going to associate. The Good Governance 

Status with high rank leads the better performance of the organization. 

This is a minor effort so the further research on the same field is awaited. The Government of 

Nepal, through its own System will have to Formulate and Implement the Code of Corporate 

Governance for better functioning of Organizations and must create the Environment of 

trustworthiness among the players of Corporate Governance. 

BIBLIOGRAPHY 

A.C.farnando. (2008). Corporate Governance principles, policies and practices. Dorling 

Kindersley(India) pvt.Ltd. 

Ananchotikul, N. (2008). Does Foreign Direct Investment Really Improve Corporate 

Governance? Evidence from Thailand. 

Black, S. B., Hasung, j., & Woochang, K. (2003a). Does Corporate Governance affect firm 

value?Evidence from Korea. 

Chhotray, V., & Stoker, G. (2009). Governance theory and Practice A cross Disciplinary- 

Approach. 1-3.

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Committee, C. (1991). 

F.Klapper, L., & Lnessa, L. (2002). Corporate Governance, Investor Proction and Performamce 

in Emerging markets. 

Gopalsamy, N. (2006). A Guide to Corporate Governance. New Age International (p) limited. 

Jr., J. C. (2006). Gatekeepers The Professions and Corporate Goernancev. In J. C. Jr., 

Gatekeepers The Professions and Corporate Goernancev (pp. 2-4). Oxford University press. 

Khana, T., Joe, K., & Krishna, P. (2001). Globolisation and Corporate Governance 

Convergence? A Cross country Analysis. 

meshram, p. (2005). corporate Governance. Wide Vision. 

Monks, R., & Minow, N. (2001). Corporate Governance. 

NRB. (n.d.). Retrieved May 5th, 2011, from www.nrb.org.np 

(2004). OECD. 

OECD. (2004). OECD code of Corporate Governance. OECD. 

OECD. (2004). OECD Code of Corporate Governance. OECD. 

Sarbanes-OxleyAct. (2002).

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ABSTRACT 

MBNQA - A STRATEGIC INSTRUMENT FOR MEASURING 

PERFORMANCE IN HEALTHCARE ORGANIZATIONS 

: AN EMPIRICAL STUDY 

SUNIL C. D’SOUZA*; A. H. SEQUEIRA** 

*Department of Humanities, Social Sciences and Management, 

National Institute of Technology Karnataka, Surathkal, Manglore,India. 

**Department of Humanities, Social Sciences and Management, 

National Institute of Technology Karnataka, Surathkal, Manglore, India. 

In a free market economy, achieving the highest performance and thereby the organization‟s goal 

is the ultimate responsibility of management. Quality awards have been increasingly promoted 

by governments, public, and private organization with intention of promoting and motivating 

quality management practices. The literature review indicates that the strategic determinants are 

a key for a competitive advantage and essential ingredient for effective performance in the 

organization. The research paper applied Malcolm Baldrige Model to evaluate performance in 

healthcare organizations. It is observed that there is significant number of healthcare 

organizations that has a silver line performance based on MBNQA criteria. The findings of the 

study shows that MBNQA determinants are not only indicators of quality management but also 

directly affect the performance of healthcare organizations. The results of the study provide 

potential benefits for quality management and performance in healthcare organizations. The 

study concludes with recommendations to ensure the successful application of Malcolm Baldrige 

Quality Framework criteria in the healthcare organizations. 

KEYWORDS: Healthcare Organization, Malcolm Baldrige Quality Framework, Performance, 

Strategic determinants. 

INTRODUCTION 

The Oxford dictionary describes an organization as “an organized body of people with a 

particular purpose”. Organizations, whether business, government or non-profit, play an 

important part in satisfying the complex and changing needs of the society. In doing so, 

organizations bring together their human, capital, financial, physical and information resources 

and produce products and services that meet the needs of the society. Performance management, 

a relatively new concept to the field of management, in its simplest form involves all activities 

that are put in place by an organization to ensure that its goals are consistently being met in an 

efficient and effective manner. Performance management can focus on the performance of an 

organization, a department in the organization, a process to produce a product or service or an 

individual or group of employees McNamara, 1997). Managing performance helps to maximize 

the contribution of both individuals and teams in an organization. While helping to identify key 

issues and organizational priorities, effective management of individuals and teams will result in

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the organization achieving high levels of organizational performance (Armstrong & Baron, 

2004). As with any industry, the healthcare industry is also under extreme pressure from the 

challenges it faces. These challenges include rising costs, reduced profitability and increasing 

inefficiency and patient expectations. There is also increasing pressure from competitors, 

governments and regulatory bodies to constantly improve performance, quality, safety and 

access and drive organizational excellence (Microsoft, 2008). This requires that the health care 

industry also focus its attention on maintaining standards of care in addition to the areas of 

business, quality and management, making it difficult for healthcare organizations to use „off the 

shelf ‟ systems and methods for measuring and managing performance both at individual and 

organizational levels. Also, the industry being service driven, many of the current performance 

management tools and methods which work well in other industries may not be directly 

applicable to the healthcare industry. Performance management in health systems becomes more 

difficult due to several factors including the lack of effective methods for enhancing 

performance, lack of leadership, accountability and line management as well as poor strategic 

planning. An appropriate model for managing performance in the healthcare industry should be 

flexible, adaptable and responsive to changes in the healthcare industry. There is a need for 

strategic determinants to improve Service quality and performance was the crux of this paper. 

This paper expected to serve as a practical implementation of strategic determinants for the 

transformation of service quality, and specifically improving the performance and to develop 

performance excellence strategies. These strategies will need to promote continuous performance 

improvements in quantity, quality and equity of service provision. 

LITERATURE REVIEW 

Some of the popular contributions for managing the performance are Malcolm Baldridge 

National Quality Award (MBNQA), European Foundation for quality management (EFQM) and 

the balanced score card (BSC). The Balance score card (BSC), frame work lack basic guidelines 

for selecting performance measures and complexity in financial and customer perspectives. 

Neely et al. (1995), state that there is a serious flaw is the absence of competitiveness dimension 

in this framework, which is also outlined by Fitzgerald et al. (1991). The balanced scorecard also 

shows a lack of consideration to the measurement of human resources, employee satisfaction, 

supplier performance, product/service quality and environmental/community perspective 

(Brown, 1996; Lingle and Schiemann, 1996; Maisel, 1992). The system of performance 

measurement, if properly designed and implemented, will focus organizational efforts on to a 

common purpose by directing everyone‟s attention into a set of key goals and objectives. 

Furthermore, it will constitute the basis to encourage the appropriate behaviours, assess 

individual and team performance and reward significant contributions towards quality. 

Dabholkar et al., (1996) developed retail service quality scale taking into account retailing 

service quality dimensions and developed five dimensions, which are personal interaction, 

policy, physical aspects, reliability and problem solving. Sureshchandar et.al., (2001),identify 

twelve strategic determinants of quality management for service organization which includes, top 

management commitment and visionary leadership, human resource management ,technical 

system, information and analysis system, benchmarking, continuous improvement, customer 

focus, employee satisfaction, union interventions, social responsibility, servicescapes, and 

service culture. Finally, to measure or assess the performance, a comprehensive system is 

necessary.

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Organizational performance excellence means different things to different organizations 

(Prescott, 1998). According to Robson (1988), the absence of a comprehensive and integrated 

practical model has caused the demise of many efforts to introduce organizational performance 

excellence. Therefore construction a definition of organizational performance excellence seems 

to be quite a challenging task (Kanuft et al., 1991). Samson and Challis (1999) state that the 

world‟s truly excellent companies illustrate definite observable patterns. These patterns include: 

a single, integrated improvement strategy, a conscious focus on using a set of fundamental 

principles of management to guide behaviour in their organization, active management of 

performance, linking rewards for all employees to organizational performance, benchmarking 

themselves against other leading companies and setting corresponding stretch goals and most 

importantly, linking together the elements of strategy, actions and operations, performance and 

rewards in powerful, sensible ways. Rhinesmith (1966) is of the opinion that no business can 

excel and succeed without a proper business strategy, which must be translated into appropriate 

policies, processes, structures, procedures and plans of action. This implies that the integration of 

these elements into an efficient and effective management system is a prerequisite for corporate 

success and also the foundation of a global strategy. Marquardt (1999) identifies the elements of 

business success and refers to what he calls “global competencies”, which the defines as a “a 

strategic mastery of identified global business skills, an ability to operationalise key global 

concepts, and a mastery of global competitive and organizational dynamics.” These have been 

further defined as follows: describing the forces behind the globalization of business, 

recognizing and connecting global market trends, technological innovation and business strategy, 

identifying issues essential to effective strategic alliance, farming day-to-day management issues, 

problems and goals in a global context, thinking and planning beyond historical, cultural and 

political boundaries, structures, systems and processes; creating and effectively leading 

worldwide business teams, and establishing a functional global organizational structure. 

Against the background of premises formulated by different scholarships, and for the purpose of 

this study, organizational performance excellence, therefore, can be conceptualized as a goal, 

based on corporate culture, values and belief systems (mindsets), underlined by an integrated 

framework and fundamental strategic determinants. These strategic determinants provide the 

foundation stones on which an organization committed to excellence can build it strategic 

competitiveness (Denton & Campbell, 1999). It is internationally accepted that excellence model 

provide potential benefits for organizations to enhance service delivery and performance 

excellence. Excellence models identify organizational accepted theoretical frameworks and 

recognized criteria (strategic determinants) for performance excellence. They provide 

organization-wide assessment and create a conceptual framework for the way organizations can 

strategically position themselves. 

MALCOLM BALDRIGE MODEL 

The strategic determinants of Malcolm Baldrige National Quality Framework includes 

leadership, strategic planning, customer focus, measurement, analysis, and knowledge 

management, workforce focus, process management, and results (Figure1). These dimensions are 

termed as seven categories and points (US DoCNBS 2008).


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Source: US Department of Commerce National Institute of Standards and Technology 

FIGURE: 1 MALCOLM BALDRIGE NATIONAL QUALITY AWARD (MBNQA) 

MODEL 

LEADERSHIP 

As for any management innovation or change, strong and committed leadership is essential for 

successful quality programmes (Deming W.E.1986; Flynnet.al 1994) Leadership provides the 

energy and motivation for continuous improvement and innovation (Beer, 2003). In MBNQA, 

leadership is defined as the guidance and visible participation that senior leaders provide in 

setting organizational values, directions, performance expectations and social responsibilities 

(US DoCNBS 2003). 

STRATEGIC PLANNING 

This determinant represents the relationship between an organization‟s quality planning and the 

overall organizational strategy (Deming W.E. 1986; Juran, J.M., 1993). In order to achieve 

quality excellence, quality improvement plans must be fully integrated into the corporate 

competitive strategy (Barclay, C.A., 1993). Strategic quality planning should address 

development and deployment of action plans, along with clear priorities, and required resources. 

CUSTOMER AND MARKET FOCUS 

This determinant examines the effectiveness of an organization‟s key processes for knowledge 

acquisition concerning current and future customers and markets. The organization must have 

formal processes to research the ever-changing market conditions, customer requirements and

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expectations, and new approaches to improve customer relationships and satisfaction (Steeples, 

1992). 

MEASUREMENT, ANALYSIS AND KNOWLEDGE MANAGEMENT 

This determinant is the newest dimension among the MBNQA criteria. It evaluates an 

organization‟s processes to measure its performance in terms of the scope, validity, and 

management of relevant data and information. It also measures the effectiveness of the firm‟s 

processes for information and knowledge management (US DoCNBS. 2003). 

HUMAN RESOURCE FOCUS 

Achieving and maintaining high levels of quality depend on the effective use of human talents 

and abilities (Steeples1992). Human resource focus addresses key practices that the organization 

uses for creating and maintaining a high-performance workplace through developing, 

empowering and rewarding employees (US DoCNBS. 2003). 

PROCESS MANAGEMENT 

This determinant evaluates an organization‟s systematic approaches to value creation and quality 

management processes. It includes the quality of product/service design, manufacturing process, 

and product variance reduction (US DoCNBS. 2003). 

BUSINESS RESULTS 

This determinant is an overall score for quality management that measures results of customer 

focus, products and services, financial and market outcomes, human resources, organizational 

effectiveness, and governance and social responsibility (US DoCNBS. 2003). 

TABLE 1: MBNQA CRITERIA, 2008-2009 

Sl. No. Criteria (Strategic determinants) Category points 

1 Leadership 120 

2 Strategic planning 85 

3 Customer focus 85 

4 Measurement, analysis, and knowledge management 90 

5 Workforce focus 85 

6 Process management 85 

7 Results (Performance outcomes) 450

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Total points 1,000 

Source: US Department of Commerce National Institute of Standards and Technology 

In a free market economy, achieving the highest performance and thereby the organization‟s 

goals is the ultimate responsibility of management. Performance needs to be managed to ensure 

that the organization is meeting its vision and goals. The Malcolm Baldridge healthcare criteria 

provide a system perspective for healthcare organization to achieve the organizational 

performance excellence. The system criteria which include leadership, strategic planning, 

customer focus, measurement, analysis, and knowledge management, workforce focus, process 

management, and results. Quality awards schemes have been increasingly promoted by 

Governments, public, and private organization with intention of promoting and motivating 

quality management practices. In reviewing the literature, MBNQA elements are useful in 

evaluating the healthcare organizational performance. As stated above using a MBNQA elements 

to manage performance has the advantage of improving organizational performance by 

measuring what matters to the organization, increase focus on strategy and results, improve 

communication and monitor organization‟s performance against future strategic goals. This 

study develops an evaluation framework based on the MBNQA criteria and creates a system 

approach to measure the performance of healthcare organizations. 

DATA COLLECTION PROCEDURE 

In order to achieve the objectives of the study, the hospitals affiliated to medical colleges of 

southern India were considered as the population of this study. The population consisted of 76 

medical college hospitals (healthcare organizations) and the sample survey was derived from the 

database of healthcare organizations prepared based on official report of Medical Council of 

India in 2009, and it was found majority of medical colleges hospitals(38 %) were concentrated 

in southern India. One of the healthcare organizations was selected for the unit analysis to obtain 

an overall glimpse of administration, operations, standards and practices as it is uniform under 

the Medical Council of India. To obtain clear representation of samples from southern India, 

healthcare organizations of Karnataka, Kerala, Andhra Pradesh and Tamil Nadu were 

purposively selected based on inclusion and exclusion criteria for this study. The study was 

designed with cooperation from 12 healthcare organizations. Among the 12 participating 

healthcare organizations, 7 were private (58.33 %), 2 were public (16.66 %), and 3 were 

charitable (25 %) based on their ownership. 

Inclusion criteria includes large healthcare organization more than 500 beds, quality certified, 

multi-specialty, minimum five years of existence, emergency department, should have a 

divisional / state representation. Exclusion criteria includes small healthcare organization less 

than 500 beds, single specialty, super specialty, and less than five years of existence. 

Purposive sampling technique was used taking into consideration the respondent‟s availability, 

willingness to share information and location of healthcare organizations. The purposive 

sampling technique considered 130 administrative executives in which 76 departmental heads,

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MBNQA Points 

ZENITH 



38 administrative staff, 13 nursing superintendents, and 3 medical superintendents. The survey 

questionnaire consist of 119 statements on Likert scale, ranging from 1 = strongly disagree, 2 = 

disagree, 3 = neither agree nor disagree, 4 = agree, 5 = strongly agree. Out of 250 

questionnaires, 130 were obtained in complete with a response rate of 52 percent. The validity 

of the instrument was obtained by experts and piloted for a small group of respondents and 

reliability by cronbach's alpha. The analysis was done using SPSS package. 

RESULTS AND DISCUSSION 

The MBNQA criteria assessed the performance excellence in healthcare organizations. MBNQA 

criteria consists total of 119 statements on likert scale for assessing quality performance were 

ranging from 1 = strongly disagree, 2 = disagree, 3 = neither agree nor disagree, 4 = agree, 5 = 

strongly agree. Respondent‟s ratings were averaged for each criteria of MBNQA. The average 

rating was converted into MBNQA points with reference to its maximum points. Total MBNQA 

points indicated the performance level of the healthcare organizations. 

1000 

900 

800 

700 

600 

500 

400 

300 

200 

100 

0 

648.41 647.18 

664.80 

634.51 

648.55 

588.20 

610.78 

597.54 

551.58 540.52 

477.97 

442.02 

HCO1 HCO2 HCO3 HCO4 HCO5 HCO6 HCO7 HCO8 HCO9 HCO10 HCO11 HCO12 

Healthcare organisations 

FIGURE 2: TOTAL MBNQA POINTS OF PARTICIPATING HEALTHCARE 

ORGANISATION

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PERFORMANCE EVALUATION 

Figure 2 represents performance excellence levels in Healthcare organizations. There were a 

significant number of healthcare organizations that had a silver line(less than 750 MBNQA 

points) performance based on MBNQA points (83.33%). Of the twelve healthcare organizations, 

HCO5 had highest (664.8 points) MBNQA points and HCO6 had the lowest (442 points). Total 

MBNQA points of the healthcare organizations strongly imply the need of adopting the MBNQA 

strategic determinants to improve their performance. 

STRATEGIC DETERMINANTS ANALYSIS OF MBNQA MODEL 

The Strategic determinants analysis of MBNQA, „Leadership‟ weighted highest (82.18/120) for 

HCO 2, lowest (60.29/120) for HCO6; „Strategic planning‟ weighted highest (59.02/85) for 

HCO1, lowest (24.48/85) for HCO6; „Customer focus‟ weighted highest (59.30/85) for HCO1, 

lowest (45.70/85) for HCO6; „Measurement, analysis, and knowledge management‟ weighted 

highest (62.64/90) for HCO1, lowest (40.61/90) for HCO6; „Workforce focus‟ weighted highest 

(59.98/85) for HCO1, lowest (34.14/85) for HCO6; „Process management‟ weighted highest 

(59.57/85) for HCO1, lowest (33.05/85) for HCO6; and „Results‟ weighted highest (307.44/450) 

for HCO5, lowest (197.28/450) for HCO4 (Table 2). 

TABLE 2: STRATEGIC DETERMINANTS ANALYSIS ANALYSIS OF MBNQA 

MODEL 

HCOs L SP CF MAK WF PM PO 

HCO1 80.06 59.02 59.30 62.64 59.98 59.57 267.84 

HCO2 82.18 57.66 58.21 61.20 56.58 58.48 272.88 

HCO3 74.11 45.83 52.63 54.29 50.32 51.82 259.20 

HCO4 70.85 31.82 50.18 48.82 41.62 37.40 197.28 

HCO5 81.41 52.77 56.85 58.90 50.86 56.58 307.44 

HCO6 60.29 24.48 45.70 40.61 34.14 33.05 203.76 

HCO7 72.19 42.30 50.73 52.99 45.42 47.46 240.48 

HCO8 68.93 38.22 53.86 53.57 47.06 47.06 231.84 

HCO9 74.69 53.04 54.94 57.02 53.31 52.09 265.68 

HCO10 76.80 55.49 54.26 57.60 53.86 54.26 282.24

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HCO11 74.50 52.90 53.58 57.74 54.26 53.99 250.56 

HCO12 79.30 54.94 56.44 59.62 55.49 55.49 287.28 

NOTE: 

Maximum points MBNQA determinants: 

1. Leadership (L) = 120, Strategic planning (SP) = 85, Customer focus (CF) = 85, 

Measurement, analysis, and knowledge management (MAK) = 90, Workforce focus (WF) = 

85, Process management (PM) = 85, and Results/performance outcomes (PO) = 450. 

2. HCO1-HCO12= Code of Participating Healthcare organizations 

RECOMMENDATIONS AND CONCLUSIONS 

The application of the Malcolm Baldrige Model Criteria ensures the corporate performance 

excellence profile of case healthcare organizations. The corporate performance excellence 

enables the healthcare organization to assess its organizational performance objectively against a 

number of internationally recognized criteria, identify the strengths of the organization, single 

out areas for improvement and set improvement plans in action. There were a significant number 

of healthcare organizations that had a silver line performance based on MBNQA points. The 

findings of the study showed that MBNQA strategic determinants are not only indicators of 

quality management but also directly affect the performance of healthcare organizations. The 

results of the study provide potential benefits to quality management and performance in 

healthcare organizations. This study could be considered as a baseline to determining the current 

organizational performance excellence levels of the healthcare organizations. In the light of the 

results of this study, it is recommended that follow-up studies should be conducted to establish 

tables of comparison and changes in the performance excellence levels. Studies to examine the 

qualitative and quantitative nature of the strategic determinants for assessing performance 

excellence introduced in this study must be encouraged. Evidence of effectiveness of the 

application and excellence models in healthcare organization is still lacking. There scope the 

extensions this research work considering “contextual factors” in addition to the strategic 

determinants used in MBNQA framework. 

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Barclay, C.A., 1993.Quality strategies and TQM policies: empirical evidence. Management 

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Beer, M. 2003. Why total quality management programs do not persist: the role of management 

quality and implications for leading a TQM transformation. Decision Science. 2003, 34, b 623- 

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Brown, M.G. 1996. Keeping Score: Using the Right Metrics to Drive World-Class Performance. 

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Deming W.E. 1986.Out of crises. Cambridge, MA: MIT Press. 

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Measurement in Service Businesses. The Chartered Institute of Management Accountants, 

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Gryna, F.M. 1991. The quality director of the '90s. Quality Program 24, 51-54. 

Juran, J.M., 1993. Why quality initiatives fail. Journal of Business management. 14, 35-38. 

Kanulf, E. B., Berger, R.A. and Gray, S.T.1991. Profile of excellence: Achieving success in the 

non-profit sector. San Francisco: Jesssy -Bass Publishers. 

Lingle, J.H. and Schiemann, W.A. 1996. Balanced Score Card to strategy gauge: is measurement 

worth it. Management Review, March: 56-62. 

Maisel, L.S. 1992. Performance measurement: the Balanced Score Card approach. Journal of 

Cost Management, 5/2:47-52. 

Marquardt 1999. Global advantage- How world class organizations improve performance 

through globalization. Houston: Gulf Publications. 

Mcnamara, C.1997.PerformanceManagementBasicConcepts. 

Availableat ttp://www.managementhelp.org/perf_mng/perf_mng.htm. 

Micro Soft Corporation. 2008. Map Point in the Healthcare Industry: Today's Challenges in the 

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Moullin, M. 2002. Delivering Excellence in Health and Social Care. Open University Press, 

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Moullin, M. 2004.Evaluating a health service taskforce. International Journal of Health Care 

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literature review and research agenda', International Journal of Operations & Productions 

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Ovretveit, J. 2000.Total quality management in European healthcare. International Journal of 

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Pescott, B.D.1988. Creating a world - class organization: Ten performance measures of business 

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Robson M.1988. The Journey to excellence. Wantage: M.R.A. International Ltd. 

Samson,D. and Challis,D. 1999. Patterns of Excellence: The new principles of corporate success. 

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CUSTOMER SERVICE AND BRAND IMAGE: A RETROSPECTIVE 

VIEW OF PRIVATE BANKS IN INDIA 

ABSTRACT 

MS. CHHAVI DAGAR*; DR. PARUL KHANNA** 

*Research Scholar, Singhania University, 

Rajasthan. 

**MBA, Ph.D., Life Member NHRD & ICA, Dean R & D, 

IMT, Faridabad. 

Customer service is the life of any business and when customers are not happy, the life of any 

business is threatened. The way a customer is treated goes a long way in projecting brand image. 

Banking industry also is no exception to it. The financial services industry heavily depends on 

high-quality customer service, as customers need to feel secure that their money is in the right 

hands. This paper tries to project the importance of customer service, its impact on customer 

satisfaction. This is a descriptive paper and author has used secondary sources to collect 

information. Also an attempt has been made to identify some customer service strategies of 

banks and its effect on the overall brand image of banks. 

KEYWORDS: Customer Service, Customer Satisfaction, CRM, Data Mining. 

INTRODUCTION 

Several companies across the globe consider customer care/service as an important component of 

their business model. However, Rushton et al (2006) state that not all of these companies 

understand the meaning of customer service. These companies focus on assumptions of what 

customers want on a broad scale, rather than acknowledging their real needs and perceptions. 

CUSTOMER SERVICE 

Ian Roberts (2001), “Customer service involves putting the customers and their needs at the heart 

of an organisation’s policies and methods. It can be seen as the front-of-house delivery of 

marketing. It is the business of ensuring that the customers get exactly what they want”. 

According to Roberts, it consists of two most crucial elements: 

Staff/employees and their behavior and attitude towards the customer 

Design of facilities and systems to help the customer. 

The importance of customer service too differs as regards industry and company. For instance, 

most retail stores have a separate desk handling customer issues like returns, complaints or 

exchanges; whereas in the banking industry, phone banking and internet banking have taken the

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customer service department by a storm. Customer service delivered through the internet is a 

type of self-service. It is important for companies to deliver the best possible service at 

sustainable rates. This is because if the customer is not satisfied with the company, they will 

switch to a rival in no time. Much of a company’s revenues depend on repeated sales, hence it is 

vital to keep them satisfied. In this part, customer satisfaction plays a crucial role. 

CUSTOMER SATISFACTION 

Customer Satisfaction, a term often used in the marketing context, is a measure of how well a 

product or service offered by an organisation has met or surpassed customer expectations. It is 

the primary indicator of the performance of the product in the market, and is also a component of 

the Balanced Scorecard. In the advent of increasing competition in the marketplace, customer 

satisfaction has become the key differentiator and an essential element of any business strategy. 

Companies are increasingly looking up to customer satisfaction, fuelled by increasing 

competition and shrinking markets. More and more importance is being given to customer 

satisfaction as a means of retaining customers for a longer period, rather than simply investing 

capital in finding new customers. The main factor driving the growth for customer satisfaction 

and retention is the belief that it costs organisations five to eight times as much to gain new 

customers than to retain old ones. 

Measurement of customer satisfaction is the key to not only survive, but also grow in the market. 

It is only through customer satisfaction are organisations coming to understand the mindset of 

consumers and frame better strategy to attract them. 

IMPORTANCE OF CUSTOMER SERVICES 

Banking sectors also emphasis on providing the best customer services as they face a lot of 

competition and always need to provide the best solutions in order to retain their customers. If 

the customer gets a bad service experience then that would result into the low balances of the 

banks. Hence the banks always try to provide the best of services and mostly attract the 

customer through their Fast, deliberate and sincere services, thereby gaining the trust and overall 

satisfaction of the customer. Retail Banks have started taking innovative customer service 

approach. At times the banks when introduce new products fail as they fail to put the customer’s 

first and focus on them. A lot banks have the tendency to maintain the customer service feedback 

and other data and save it as well. Now the banks use such data in order to learn from their 

mistakes, meet the customer needs and wants that they could not do before and to come up with 

some new insights from the already existing data of their customers. A lot of banks have grown 

and succeed because they tried to look at the things from the customer’s point of view in order to 

solve the problems. Bad customer service creates perception problems for the brand in question 

because word of mouth goes a long way in either building or destroying a brand. Good customer 

service is all about bringing customers in and about sending them away happy - happy enough to 

pass positive feedback about your business along to others, who may then try the product or 

service you offer for themselves and in their turn become repeat customers.

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ROLE OF CUSTOMER SERVICE EXECUTIVES IN CUSTOMER SATISFACTION 

Customer service personnel are important in developing a long-term bond with the customers. 

Service situations with the customer have many a times been found to be an important 

determinant of customer satisfaction (Surprenant and Soloman, 1987). Such a person also 

epitomizes the service delivered to the customer (Lewis and Entwistle, 1990; Booms and 

Nyquist, 1981). 

IMPACT OF CUSTOMER SERVICE ON CUSTOMER SATISFACTION 

It can be understood that the customer services is the “input” that the companies implement and 

customer satisfaction is the expected “output”. Hence if the customer services are implemented 

properly then the customer satisfaction would be higher and at times maximum, but if the 

customer services are not up to the mark then the customer satisfaction would be less and at 

times negligent. 

Customer feedback is very important as the entire company or people who are involved in the 

process of providing a better product or service gets chance to understand the end user/customer 

in a direct and indirect manner. 

IMPACT OF MARKETING STRATEGIES ON CONSUMER BEHAVIOR 

Marketing strategies affect the daily lives of the consumer significantly: they act as the source of 

information for new products/ services available in the market, influence the way they think and 

perceive their beliefs, thoughts and attitudes and lastly, their buying decisions. Promotional 

activities are mostly successful in changing negative approaches to positive. For instance, if a 

consumer is loyal to a particular brand, advertisements may change their frequency of purchase.

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Outcomes 

Individual 

Firm 

Society 

Consumer Decision Process 

Problem recognition 

Information search 

Alternative evaluation 

Purchase 

Use 

Marketing Strategy 

Evaluation 

Product, Price, Distribution, 

Promotion, Service 

Market Segmentation 

Identify product-related need 

sets 

Group customers with similar 

need sets 

Describe each group 

Select attractive segments to 

target 

Marketing Analysis 

Use 

Company 

Evaluation 

Competitors 

Conditions 

FIGURE 1: MARKETING STRATEGY & ITS IMPACT ON CONSUMER BEHAVIOR 

Consumers 

(SOURCE: HAWKINS (2006); “CONSUMER BEHAVIOR”)

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IMPACT OF CUSTOMER SERVICE ON BRAND LOYALTY 

Brand Loyalty is moreover understood as repurchasing a particular brand. A customer 

repurchases the brand when he perceives the product to be the appropriate for him and trusts it. 

Customer service also helps in forming the brand loyalty among the consumers. If a Customer is 

happy with the services and satisfied then he would like to buy that or brand again and again. It 

also helps to reduce the brand switching and enhances retaining. 

Brand loyalty helps the companies to uphold a lasting position in the competitive world. Brand 

loyalty is also considered to be a deliberate asset of a company. To create Brand loyalty 

companies try to break the existing habit of the consumer, instigate new habits through 

advertising, promotions etc. and form new habits in order to make the new brand more 

acceptable and then creating the loyalty towards their brands. Providing best customer services is 

one such way of creating brand loyalty. 

CUSTOMER SERVICE STRATEGIES OF BANKS 

There are various instruments through which banks help customers directly and indirectly by 

providing their services. They are as follows: 

a) ONLINE BANKING/ INTERNET BANKING: Helps customers to execute the 

financial transactions through their website which is functioned by the retail or virtual 

bank, credit union as well as building society. Some online banking services provide the 

account aggregation which allows customers to observe and monitor all of their financial 

records, accounts etc. in one place. 

b) MOBILE BANKING: It is also termed as M-Banking, m-banking and SMS Banking 

Such services are meant for performing various financial transactions through mobile 

phones. The medium of mobile banking are SMS as well the Mobile Internet. Easy 

Accessibility and security lure people to mobile banking. 

c) AUTOMATED TELLER MACHINES (ATM): It is also termed as ABM i.e. 

Automated Banking Machine, Cash machine as well as Cash Point. ATM helps 

customers to access their bank accounts for various purposes like making cash 

withdrawal, credit card cash advances, as well as check the account balance. Most of the 

banks in India have ATM services that provide customers with best and quick withdrawal 

and other benefits. There were times when customers had to stand in line and make 

applications for getting a cheque book or similar other needs. With the help of ATM’s it 

is just a click away. 

d) PHONE BANKING: Most of the people do not have adequate time to go to the bank 

and deal with the banking transactions. Phone banking provides customer to perform 

their financial transactions through telephone. For security reasons, customers are first 

authenticated over a numeric or verbal password as well as security questions asked by 

the bank representative. Along with the provision of cash withdrawals as well as deposits,

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phone banking offers almost all the features of an ATM like the account or balance 

information also a list of latest transactions, electronic bill payments, funds transfers etc. 

e) MOBILE VAN/BANKING MOBILE ATMs: Mobile vans also called as banking 

mobile ATM is a movable banking service executed and initiated by some of the banks as 

a pilot project which would help to extend the banking services and offerings in the rural 

areas. These services help to enhance trust and are also meant to be perceived as 

postman-like regular coverage of a few locations. 

f) BUSINESS CORRESPONDENTS: They are the retail agents affianced by banks to 

provide banking services at various different locations apart from a bank branch or an 

ATM. 

There are number of ways to attract customers like use of promotional gifts and attractive shortterm 

interest rates. Once a customer comes to a bank good customer service can ensure brand 

loyalty for a long term relationship. 

Banks must also keep in mind the factors considered by customers while selecting a bank like: 

Convenience of location, Online resources for example online banking sites to find if they're 

user-friendly and offer a wide range of services, Products and services, Cost of services and 

Overall satisfaction of a customer with its services. 

DATA MINING IN CRM OF INDIAN BANKING INDUSTRY FOR BETTER 

CUSTOMER SATISFACTION AND BRAND IMAGE 

Data Mining is the process of extracting previously known information, typically in the form of 

patterns and associations, from large databases (Bhasin, 2006). It allows the extraction of the 

most crucial information from the historical data to predict a future outcome. Bhasin (2006) 

asserts that it helps optimize business and strategic decisions, increase the value of every 

customer and effectively enhance customer satisfaction. It helps organisations gain a competitive 

edge over its competitors. 

Data mining has in the banking industry become a very important tool for decision making 

process of the management. Kaptan (2003) states that with the help of data mining technologies, 

banks have not only been able to retain old customers; but also acquire new ones. Muralidharan 

(2009) uses two terms to explain that data mining in CRM can help banks improve customer 

satisfaction: 

- Data warehousing: It helps in providing better transaction experiences for customers over 

different transaction channels, by bringing all the transactions from different channels 

come under one roof 

- Data mining: It helps banks analyse and measure customer transaction patterns and 

behavior. Helps in improving customer service quality and exploring new business 

arenas.

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Data mining in banks can be used for the following purposes: 

- Card marketing: By classification and identification of customer segments, banks issuing 

cards and similar products can enhance profitability through targeted product 

development, accurate acquisition and retention strategies and customized pricing 

- Cardholder Pricing/Profitability: Data mining technology can be used by banks to price 

their products and services in a way that profits are maximized and loss of customers are 

minimized. This also comprises of risk-based pricing 

- Fraud Detection: This is extremely expensive. Banks can synchronies past transaction 

data that turned out to be fraudulent to identify future patterns 

- Life-Cycle Management: Data mining helps banks predict every customer’s LFV (Life 

time value) and to give every class of customer dignified, customized service (example, 

offering discounts and special deals to regular customers). 

CUSTOMER SERVICE STRATEGIES OF BANKS 

There are various instruments through which banks help customers directly and indirectly by 

providing their services. They are as follows: 

g) ONLINE BANKING/ INTERNET BANKING: Helps customers to execute the 

financial transactions through their website which is functioned by the retail or virtual 

bank, credit union as well as building society. Some online banking services provide the 

account aggregation which allows customers to observe and monitor all of their financial 

records, accounts etc. in one place. 

h) MOBILE BANKING: It is also termed as M-Banking, m-banking and SMS Banking 

Such services are meant for performing various financial transactions through mobile 

phones. The medium of mobile banking are SMS as well the Mobile Internet. Easy 

Accessibility and security lure people to mobile banking 

i) AUTOMATED TELLER MACHINES (ATM): It is also termed as ABM i.e. 

Automated Banking Machine, Cash machine as well as Cash Point. ATM helps 

customers to access their bank accounts for various purposes like making cash 

withdrawal, credit card cash advances, as well as check the account balance. Most of the 

banks in India have ATM services that provide customers with best and quick withdrawal 

and other benefits. There were times when customers had to stand in line and make 

applications for getting a cheque book or similar other needs. With the help of ATM’s it 

is just a click away. 

j) PHONE BANKING: Most of the people do not have adequate time to go to the bank 

and deal with the banking transactions. Phone banking provides customer to perform 

their financial transactions through telephone. For security reasons, customers are first 

authenticated over a numeric or verbal password as well as security questions asked by

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the bank representative. Along with the provision of cash withdrawals as well as deposits, 

phone banking offers almost all the features of an ATM like the account or balance 

information also a list of latest transactions, electronic bill payments, funds transfers etc. 

k) MOBILE VAN/BANKING MOBILE ATMs: Mobile vans also called as banking 

mobile ATM is a movable banking service executed and initiated by some of the banks as 

a pilot project which would help to extend the banking services and offerings in the rural 

areas. These services help to enhance trust and are also meant to be perceived as 

postman-like regular coverage of a few locations. 

l) BUSINESS CORRESPONDENTS: They are the retail agents affianced by banks to 

provide banking services at various different locations apart from a bank branch or an 

ATM. 

It is also very important to gain feedback from customers in respect of customer service. This 

helps the brand to succeed and retain a strong pedigree. Effective listening helps in knowing and 

identifying the needs of the customers. When customers are listened to, it creates an atmosphere 

of trust and ultimately, builds loyalty for the brand. This is also important as customers feel 

important and appreciated. 

EFFECT OF CUSTOMER SERVICES ON BRAND IMAGE WITH SPECIAL 

REFERENCE TO BANKING INDUSTRY 

A bank's image is based upon a customer's unique experience. And the customer experience, in 

turn, drives his or her recommendations: both positive and negative. So, a bank literally lives or 

dies based upon how well it treats customers. 

There are various factors that contribute to the higher customer retention ratio and higher level of 

customer satisfaction based on the services and offerings of the banks for the potential and 

existing customers. Some of the factors are listed below. 

a) SAFETY: Most of the customers opt to keep their money matters in the safe hands of 

banks. Major reason after banking being so important in India and around the world is 

perception of banks being a safety and a good investing solution. 

b) CONVENIENCE: Lot of customers doesn’t have enough time to take care of the day to 

day banking transactions. Hence with the avail of various banking options that are very 

easy to use and customers don’t really need to go to bank, it helps them not only to save 

the time but is just a click away and call away. The mobile banking or internet banking 

services as well as personal representative help who himself goes to meet the customer 

and helps them deal with the regular banking transactions, are highly recognized and 

accepted by the wide segment of customers. 

c) TRUST: When money matters are involved, customers need to get a sense of trust to 

handle their money in the safe hands. Most of the banks today try to tab the customers by 

winning their trust and making them feel that the money they have invested or deposited

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is in safe hands. When taking decisions, a reputed bank with a better and strong image is 

always opt by the customers. 

d) BENEFITS AND ADVANTAGES: When the customers deposit their money as well 

invest their money with the banks they always expect to get some real good return. A lot 

of banks provide various luring offers to win the customers and maintain a long lasting 

relation with them. Besides when the customer is really happy with the services provided 

to him, he may also refer it to some of the other people he may know. Hence banks also 

win customers through word of mouth. Providing customer services is an ongoing 

process. It is much more different from selling a product once. 

e) CONFIDENCE IN BANKING SYSTEM: It becomes very essential for banks to 

provide their best services in the process of financial matters and transactions and gain 

utmost confidence. For banks to be able to perform their key role in this process of 

financial intermediation, it is obvious that customers must have the utmost confidence in 

the banking system. Banks and financial institutions play a vital role in the country's 

economic growth. 

f) EXPERIENCE: When customers are provided with the best of services by the banks 

they are bound to get the satisfaction. Smooth functioning of transactions, easy 

availability of financial resources, feedback systems, time saving procedures, better 

responding system, good infrastructure, displaying information for different departments 

and even a welcoming gesture are some of the key aspects of a good experience at banks. 

Hence when the customers get a better experience and satisfaction he would like to opt 

for the same bank and its services on a regular basis. 

g) RISK: Banks are perceived as most reliable and trustworthy institutions when money 

matters are concerned. People consider it more appropriate to hand their money in the 

hands of banks and transfer the risk to them. Besides it is perceived that keeping money 

with them (self) may involve high risk. A less risk also results into more safety. Various 

banks also undertake risk mitigation processes. 

h) VALUE: Banks value the money of their customers. With the help of various banking 

facilities and financial offers the value of customer’s money is not only secured but 

increases with time. Hence the banks which provide better customer and financial 

solutions have a positive image in the minds of a consumer. 

i) BETTER INFRASTRUCTURE: Banks provide easy access of financial transactions 

i.e. anywhere and anytime processing of transactions which makes the task of financial 

transaction easier for the customers. Also better infrastructure makes the entire banking 

process more smooth and comfortable as compared to the previous years when customers 

had to wait in lines for long time. A better infrastructure also helps in a contented 

information exchange between the customers and the bank employees.


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j) SECURITY: Banks enhances a secure access to customer history and transactions with 

higher security and confidentiality. Also the customer can access the previous financial 

transactions whenever he wishes. Banks keep the past records in a more secure way. 

k) TECHNOLOGY: Banks provide customers with better technology and expertise in 

order to create higher customer satisfaction. Sometimes even the self-service technology 

is a unique way to attract customers. The below table states the important functions of 

self-service technology. 

FIGURE 2: FUNCTION ON SELF SERVICE TECHNOLOGY (SOURCE: MEUTER, M. 

L., OSTROM, A. L., ROUNDTREE, R. I., & BITNER, M. J. (2000) “SELF-SERVICE 

TECHNOLOGIES: UNDERSTANDING CUSTOMER SATISFACTION WITH 

TECHNOLOGY-BASED SERVICE ENCOUNTERS”. JOURNAL OFMARKETING, 

64(3), 50-64) 

CONCLUSION 

Providing exceptional customer service is essential to maintaining long-term customer 

relationships and a positive brand image. The first step to good customer service is to know the 

customer. When you know the customer, you build a relationship and the customer becomes a 

fan of the brand. There should be a Customer Value Proposition for any service, product or


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brand. There should be a database that provides useful information about your customers, 

wedding anniversaries, and birthdays among others. Building relationship with customers will 

sustain brand loyalty. 

REFERENCE 

Customer satisfaction: tools, techniques, and formulas for success By Craig Cochran, 

2003 

Turban, Efraim (2002). Electronic Commerce: A Managerial Perspective. Prentice Hall 

Marketing Communications By Ludi Koekemoer, Steve Bird, 2004 

Nation branding: concepts, issues, practice By Keith Dinnie, 2008 

Customer – Driven Marketing strategy and integrated marketing Mix By Kotler 

Self service banking: value creation models and information exchange. By Ragnvald 

Sannes (2001) 

Customer service: Meaning and Measurement” Published by National Council of 

Physical Distribution Management. By Bernard J. Lalonde and Paul H. Zinszer (1976) 

The Situational Impact of Brand Image Beliefs, Journal of Consumer Psycholagy, By 

Rajeev Batra. 

Brand management: research, theory and practice by Tilde Heding, Charlotte F. 

Knudtzen, Mogens Bjerre, 2009 

Marketing Communications By Ludi Koekemoer, Steve Bird, 2004.

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A STUDY OF TV VIEWERSHIP PATTERNS AMONG YOUNGSTERS IN 

NORTHERN INDIA 

ABSTRACT 

ER. KANWAL GURLEEN*; DR. SUKHMANI** 

*Assistant Professor, Apeejay Institute of Management, 

Jalandhar. 

**Assistant Professor, Apeejay Institute of Management, 

Jalandhar. 

Today, television is considered to be a major source of entertainment and leaning for many, 

especially the young. All television programs, especially the commercials, news, documentaries 

and cartoons, affect people of all ages in different ways. Youngsters constitute one of the groups 

in society who spend a lot of time watching television. In recent years, youngsters are even 

named as “active media users”. The study was conducted to make note of various televisionviewing 

habits among youngsters of Northern India and to identify the factors, which encourage 

television viewership among youngsters. A Sample of 750 respondents from 5 states of Northern 

India were selected for analysis. Factor Analytic approach was applied on 14 statements to find 

the reasons for television viewership. The study also highlighted the TV program preferences 

among youngsters. 

KEYWORDS: TV Viewing Habits, Progam preferences, Factor analytic approach, TV viewing 

patterns of young population of Northern India. 

INTRODUCTION 

Television has become one of the most important mass media tools especially in recent years. 

Dorr(1986) states that TV stands out from other media as it is generally used more and can 

present more life like content than most of other media. Television habits consist of patterns of 

behavior determined by the amount of time and importance individuals give to watching 

television broadcasts and recorded videos and DVDs. Ever since the 1ate 1940s when television 

first became available, social scientists have been interested in its effect on behavior. Originally 

seen as entertainment for adults and older children, television in the twenty-first century is 

watched by all age groups, including infants. Television has capability to provide substantial 

benefits for youngsters when it is used with awareness and for education purposes. However, 

generally speaking, television programs that include violence events increase youngster‟s level 

of aggression, and commercials shape consumption habits through younsgters. Exposure to 

scenes of violence matters negative role models on TV may increase direct, indirect, relational 

and social aggression in both girls and boys. Different changes were seen on TV-viewing habits 

of younsgters in recent years. It is observed that the duration of TV-viewing in general and the 

duration of watching TV alone have increased.


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Most of the researches done on television viewing habits have taken children as sampling unit, 

but usefull inferences were taken and included in the present study. Valaskakis (1983) in his 

study examined television viewing tastes and habits among the Inuit Indians of the Eastern and 

Central Arctic. The findings revealed that the amount of different types of programming was 

significantly different among the Inuit Indians. Accordingly, the underlying assumption is that, 

the Inuit males who are heavily engaged in television's sports fare, would underestimate the 

mean world of television. Lowery and DeFleur (1988) showed in their research that children tend 

to watch more television than do adults, prefer to watch adult programs, and usually watch as 

late into the night as do adults. Despite their emergence from the more limited world of 

childhood and their increased reliance on peers, adolescents continue to spend a great deal of 

their time watching television. Sinichi Shimizu (1993) in her study found that MTV programmes 

are changing the entire music scene in Asia. Multinational rock music or world music is 

becoming the mainstream popular music among the youth in Asia, while the traditional style is 

becoming obscure and obsolete. Unnikrishnan and Bajpai (1996) found in their study that about 

48% upper class and 62% middle-class Indians watch Television for more than two hours per 

everyday. Fatima (2000) suggests through research that TV has a long-term effect on people‟s 

thinking. Therefore, instead of glamorization, portrayal of crime and commercialization, positive 

trends need to be introduced on the TV channels in order to save our values. Bukhari (2002) 

concludes that the youth is getting liberated ideas regarding the placement and position of 

women in the society. Giacomo Corneo (2002) found out in his research that in OECD 

countries watching television is by far the most time-consuming form of leisure. 

Surprisingly, television viewing is positively correlated with work hours across countries. 

Workers and capitalists are shown to exhibit opposite preference orderings over equilibria. The 

relative ability of those two groups in capturing a country's government may explain which 

equilibrium is selected. Verma and Larson (2002) in their study found that adolescents watch 

television for 12 hour per week on an average.The study further indicats that Television viewing 

is seen as a major source of stress relieving activity.It was conluded in the study that 29% of 

viewers watch television for purpose of learning/education. Ahluwalia and Singh (2011) found in 

their study that on an average, children watch two hours or less of TV daily and most of them 

indulged in bedtime TV Viewing. They watched TV primarily for entertainment and for 

learning. Childrens‟ most preferred program was childrens‟ shows/serials, followed by 

cartoon/animated programs. 

RESEARCH OBJECTIVES 

The study has been conducted to identify the TV Viewing habits of Young Population of India. 

The specific objectives of the study are: 

To identify the frequency and time spent on watching television by Young population 

of India. 

To identify the various reasons for watching television programs.


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To gain an insight into the categories of programs being preferred by young 

population of India. 

DATA BASE AND METHODOLOGY 

This study has been conducted in Northern region of India, a sample of minimum respondents 

were selected from the different states which includes Punjab, Haryana, Himachal Pradesh, 

Jammu & Kashmir and Jharkhand. An effort had been made to select the respondents evenly. 

The survey was carried out on 800 respondents. However, 47 Questionnaires were found to be 

incorrect, so a total of 50 questionnaires were deliberately rejected. Hence the study sample was 

reduced to 750 respondents. The data was collected personally (and via emails) in the months of 

October 2010 to April 2011. The respondents were delibrately selected to maintain equal 

distribution in age and gender specifications. There were 375 males and 375 females whose 

responses were selected for analysis. Also an effort has been made for equal distribution in age 

groups, 250 respondents being selected for analysis in each of the 3 categories of 16-20, 21-25 

and 26-30 age groups. Most of the respondents were well educated, 68% of the total respondents 

were either graduates and post graduates, with only around 27% being undergraduates. Also 

around 60% of the respondents have their monthly income in the range of Rs.10,000 to 

Rs.30,000. 

For the purpose of research convenience sampling technique was used. The questionnaire 

comprised of a rank question, close-ended questions, a 5 point likert scale questions. The data 

collected through questionnaires was coded and tabulated keeping in context with the objective 

of the study. It was further suitably analyzed by calculating percentages, frequencies and Crosstabulation 

techniques.The data was analyzed using SPSS throughout the study. 

DATA ANALYSIS 

FREQUENCY OF WATCHING TELEVISON 

The youngsters were asked how often they watched television, the responses were collected on 4 

pointer scale of „Always‟, „Most often‟, „Sometimes‟, „Very rare‟ with weightages of 4,3,2 and 1 

respectively. It can be seen from Table 1 that most of the respondents watch television either 

„Most often‟(41.0%) or „Sometimes‟(33.3%) followed by „Always‟(17.2%) with the overall 

average score being 2.67 indicating „sometimes‟. 

Gender wise analysis in Table 1 indicates that there is no signficant difference in frequency of 

watching television between Males and Females, with almost equal mean average scores of 

around 2.67.This was also confirmed by t-value (0.16), which shows no significant difference 

among males and females with respect to mean values of watching Television. 

Age wise analysis in Table 1 indicates the similar trend of watching television across all the age 

groups.79% of the respondents in 16-20 age group watch television either „Most often‟ or 

„Sometimes‟, while this percentage is around 71% for 21-25 and 26-30 age groups. The F-ratio 

(0.28) also confirmed that average mean scores of frequency of watching television for different 

age groups do not differ significantly. The education wise analysis shows that most of „under

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graduates‟(52.9%) watch television „Most often‟ while most of the post graduates (45.4%)watch 

television „Some times‟. The F-ratio (0.31) shows that average mean scores of frequency of 

watching television for different education groups do not differ significantly. The income wise 

analysis has F-ratio of 1.21 which shows a significant difference of average mean scores of 

frequency of watching television for different income groups. It was seen that with different 

income groups the overall average mean scores varied between 3.01 to 2.27. 

TABLE 1 : FREQUENCY OF WATCHING TELEVISION 

Respondents Always Most 

often 

Sometimes 

Very 

Rare 

Total 

Mean 

GENDER 

Male 71(18.9) 140(37.3) 134(35.7) 30(8.00) 375 2.67 

Female 58(15.4) 168(44.8) 116(30.9) 33(8.80) 375 2.66 

Overall 129(17.2) 308(41.0) 250(33.3) 63(8.40) 750 2.67 

t-value = 0.16 

(Not significant) 

AGE 

16-20 33(13.2) 92(36.8) 108(43.2) 17(6.80) 250 2.56 

21-25 58(23.2) 71(28.4) 109(43.6) 12(4.80) 250 2.70 

26-30 39(15.6) 145(58.0) 33(13.2) 33(13.2) 250 2.76 

Overall 129(17.3) 308(41.0) 250(33.3) 63(8.40) 750 2.67 

F-ratio = 0.28 


EDUCATION 

Under Graduate 25(12.1) 109(52.9) 38(18.4) 34(16.5) 206 2.60 

Graduate 45(15.9) 129(45.7) 99(35.1) 09(3.1) 282 2.74 

Post Graduate 54(23.3) 55(23.8) 105(45.4) 17(7.3) 231 2.63

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Any other 05(16.1) 15(48.3) 09(29.0) 02(6.4) 31 2.74 

Overall 129(17.2) 308(41.0) 250(33.4) 63(8.40) 750 2.67 

F-ratio = 0.31 


INCOME 

Under 10,000 08(17.3) 21(45.6) 13(28.2) 4(8.6) 46 2.71 

10,000-20,000 62(34.6) 75(41.8) 25(13.9) 17(9.4) 179 3.01 

20,000-30,000 17(6.0) 138(49.4) 112(40.1) 12(4.3) 279 2.57 

Above 30,000 33(29.4) 41(36.6) 21(18.7) 17(15.1) 112 2.80 

Not Employed 09(6.7) 33(24.6) 79(58.9) 12(8.9) 134 2.27 

Overall 129(17.2) 308(41.0) 250(33.3) 63(8.40) 750 2.67 

F-ratio = 1.21* 

(at 1% significance level) 

NUMBER OF HOURS SPENT ON WATCHING TELEVISION 

Regarding the number of Hours spent on watching television, it was seen that most of the 

respondents (41.2%) watch 3-5 hours of television followed by those (32.9%) who watch 1-3 

hours of television. It can be seen from Table 2 that 38.6% of Males and 43.7% of Females 

watch 3-5 Hours of Television daily while only a small percent (15.4% of males and 8.8% of 

females) watch less than 1 Hour of television. It was seen that females spends more time in front 

of television as compared to males. The chi-square value of 9.27 at 5% significance level also 

reveals significance association between gender and duration of watching television. The chisquare 

test was only applied after clubbing the „less than 1 hour‟ category with „1-3 hour‟ and „3- 

5 hour‟ category with „more than 5 hour‟ category. 

The general pattern in case of age of youngsters is that as the age increases the younsgters watch 

less of television. As compared to 30.0% of 16-20 age group, only 3.2% and 8.0% of 21-25 and 

26-30 age groups respectively watch more than 5 hour of television. The chi-square value of 

14.61 at 1% significance level confirms that when youngsters get older they watch less of 

television. It was seen(Table 2) that as the education level increases the tendency to watch more 

television also increases. The chi-square value of 17.24 at 5% significance level also reveals that 

the more the education the higher will be the tendency to watch television. The income wise

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analysis shows that higher income respondents watch more television as compared to those who 

earn less, this is despite of the fact that higher income respondents generally have less time to 

watch television. As compared to 36.9% of „under Rs.10,000‟ respondents who watch less than 1 

hour of television, there were only 10.7% of such respondents in „above Rs.30,000‟ category. 

The chi-square value of 21.13 at 5% significance level confirms the above fact that higher 

income respondents watch more television as compared to less income respondents. 

TABLE 2 : HOURS OF TELEVISION VIEWING PER DAY 

Respondents Less than 1 

Hour 

GENDER 

1-3 Hour 3-5 Hour More than 5 

Hour 

Total 

Male 58(15.4) 135(36.0) 145(38.6) 37(9.8) 375 

Female 33(8.8) 112(29.8) 164(43.7) 66(17.6) 375 

Overall 91(12.1) 247(32.9) 309(41.2) 103(13.7) 750 

Chi Square = 9.27 

(at 5% significance level and clubbing first 2 and last 2 categories) 

AGE 

16-20 25(10.0) 96(38.4) 54(21.6) 75(30.0) 250 

21-25 33(13.2) 79(31.6) 130(52.0) 08(3.2) 250 

26-30 34(13.6) 71(28.4) 125(50.0) 20(8.0) 250 

Overall 91(12.1) 247(32.9) 309(41.2) 103(13.7) 750 



EDUCATION 

Under Graduate 54(26.2) 88(42.7) 46(22.3) 18(8.7) 206 

Graduate 12(4.2) 112(39.7) 121(42.9) 37(13.1) 282 

Post Graduate 17(7.3) 33(14.2) 130(56.2) 51(22.0) 231

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Any other 07(22.5) 11(35.4) 11(35.4) 02(6.4) 31 

Overall 91(12.1) 247(32.9) 309(41.2) 103(13.7) 750 



INCOME 

Under 10,000 17(36.9) 13(28.2) 16(34.7) 00(0.0) 46 

10,000-20,000 33(18.4) 71(39.6) 63(35.1) 12(6.7) 179 

20,000-30,000 29(10.3) 67(24.0) 137(49.1) 46(16.4) 279 

Above 30,000 12(10.7) 05(4.4) 66(58.9) 29(25.8) 112 

Not employed 00(0.0) 92(68.6) 25(18.6) 17(12.6) 134 

Overall 91(12.1) 247(32.9) 309(41.2) 103(13.7) 750 

Chi Square =21.13 

(at 5 % significance level) 

REASONS FOR WATCHING TELEVISION 

The factor analysis was applied on the responses provided by respondents. Factor analysis is a 

good way of identifying latent or underlying factors from an array of seemingly important 

variables. In a more general way, factor analysis is a set of techniques, which, by analyzing 

correlations between variables, reduces their number into fewer factors, which explain much of 

the original data, more economically.(Malhotra,2002). In the present study, the factor analysis 

was applied in order to identify the various reasons for watching television by the youngsters,the 

responses obtain were put to factor analysis and the result so obtain were subject to Kaiser- 

Meyer- Olkin (KMO) measure of sampling adequacy and Bartlett‟s Test of Sphericity. The 

approximate chi-square value is 511.101 with df 270, which is significant at 0.000 level.(Table 

3).The value of KMO statistics (0.821) is also large (> 0.5). Hence, all factors are not considered 

equally important for Television viewing. An eigen value represents the amount of various 

associated with the factors. From table 4, it is evident that the first four variables represent the 

61.714 % of variance. Therefore, only these four factors with the variance greater than 1.0 are 

retained and the other factors are not included in the model. Thus, from eigen values in table 4, 

we extract only 4 factors from the 14 variables.

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TABLE 3 : KMO AND BARTLETT’S TEST 

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .821 

Bartlett's Test of Sphericity Approx. Chi-Square 511.101 

Degree of Freedom 270 

Significance .000 

TABLE 4: TOTAL VARIANCE EXPLAINED 

Initial Eigenvalues 

Extraction Sums of Squared 

Loadings 

Rotation Sums of Squared 

Loadings 

Total % of Cumulative 

Component Variance % 

Total 

% of Cumulative 

Variance % 

Total 

% of Cumulative 

Variance % 

1 5.150 24.118 24.118 5.150 24.118 24.118 3.357 24.384 24.384 

2 3.944 16.380 40.498 3.944 16.380 40.498 3.134 16.120 40.504 

3 2.418 11.120 51.618 2.418 11.120 51.618 2.529 10.643 51.147 

4 1.301 10.096 61.714 1.301 10.096 61.714 2.480 9.401 60.548 

5 0.984 6.068 67.782 

6 0.946 5.730 73.512 

7 0.818 5.103 78.615 

8 0.731 4.903 83.518 

9 0.690 4.350 87.868 

10 0.649 4.143 92.011 

11 0.532 2.859 94.870 

12 0.417 2.387 97.257 

13 0.389 1.980 99.237

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14 0.229 0.763 100.00 

EXTRACTION METHOD: PRINCIPAL COMPONENT ANALYSIS 

Factor loadings are simple correlations between the variables and factors. The most commonly 

used method is the Varimax rotation procedure. This is an orthogonal method of rotation that 

minimizes the number of variables with high loadings of a factor, thereby enhancing the 

interpretability of the factors. Orthogonal rotations results in factors that are uncorrelated. 

TABLE 5:ROTATED COMPONENT MATRIX 

Component 

S.No. Statements 1 2 3 4 

1 Majority of the people watch television for pleasure 

seeking 

2 TV viewing helps the viewers to be acquainted with 

latest in various fields, be it sports, academics, politics 

3 etc. The daily television soaps which are melodramatic in 

nature lead to purgation of emotions of viewers. 

4 TV viewing is one of the most common leisure 

activities among the masses. 

5 People get ideas for myriad of activities like cookery, 

interior designing etc. 

6 The various dance shows,music shows etc being 

telecasted provide learning experience to the viewers. 

7 The various spiritual channels cater to spiritual 

awakening among the viewers. 

8 Television also generates knowlegde about various 

cultures,rituals and traditions. 

9 Knowledge about the rich heritage of various nations 

can be obtained from television viewership. 

.720 .813 .531 .478 

.518 .407 .326 .320 

.209 .627 .779 .235 

.361 .521 .389 .260 

.212 .317 .412 .352 

.341 .489 .656 .419 

.285 .223 .311 .591 

.603 .326 .262 .270 

.425 .336 .316 .296 

10 Familiarity with rare and distinct plant and animal life .680 .352 .272 .480 

can be acquired by viewing television. 

11 The advertisements make the audience know about .402 .326 .561 .413 

newly launched product and services. 

12 Television proves out to be a stress buster for many. .542 .561 .452 .797

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13 The family members can spend quality time together in 

todays‟ hectic scheduled world 

14 Various health oriented serve as a break from wordly 

pressure. 

.502 .646 .463 .371 

.564 .449 .472 .722 

Principal Component Analysis under the rotation method (Varimax with Kaiser Normalization), 

rotation converged in 15 iterations. The following four components (Table 6) may be extracted: 

Component 1: Factor 2,8,9,10 (Generation of Knowledge and learning) 

Component 2:Factor 1,4,13 (Medium of relaxation and time pass) 

Component 3:Factor 3,5,6,11 (Upliftment of hidden talents) 

Component 4:Factor 7,12,14 (Stress management tools) 

The rotated component matrix suggests presence of the four interrelated factors. 

TABLE 6: NAMING OF FACTORS 

Factor 

No. 

Name of 

Dimension 

Item 

No. 

Variables 

Factor 

loading 

F1 

Generation 

of 

Knowledge 

and Learning 

2 TV viewing helps the viewers to be acquainted with 

latest in various fields, be it sports, academics, 

politics etc. 

8 Television also generates knowlegde about various 

cultures,rituals and traditions. 

.518 

.603 

9 Knowledge about the rich heritage of various nations 

can be obtained from television viewership. 

.425 

F2 Medium of 

Relaxation 

and Pass 

time 

10 Familiarity with rare and distinct plant and animal 

life can be acquired by viewing television 

1 Majority of the people watch television for pleasure 

seeking 

4 TV viewing is one of the most common leisure 

activities among the masses 

.680 

.813 

.521 

13 Audience gets to know about the variety available in 

one product. 

.646

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F3 

Upliftment of 

hiddent 

talents 

3 The daily television soaps, which are melodramatic 

in nature, lead to purgation of emotions of viewers. 

5 People get ideas for myriad of activities like 

cookery, interior designing etc. 

6 The various dance shows,music shows etc being 

telecasted provide learning experience to the 

viewers. 

11 The advertisements make the audience know about 

newly launched product and services. 

.779 

.412 

.656 

.561 

F4 

Stress 

management 

tool 

7 The various spiritual channels cater to spiritual .591 

awakening among the viewers. 

12 Television proves out to be a stress buster for many. .797 

14 Various health oriented serve as a break from wordly 

pressure. 

.722 

GENERATION OF KNOWLEDGE AND LEARNING: It is the most significant factor with 

24.118 percent of total variance explained. This explains the intent of indian viewers while 

watching various television programs. Most of the viewers seeks knowledge and learning from 

various television programs, or they prefer to watch such programs which help them refresh their 

knowledge. 

MEDIUM OF RELAXATION AND PASS TIME: It is the second most significant factor with 

16.380 percent of total variance explained. Most of the indian viewers as expected watch 

television as a leisure activity or their favorite pass time. Women prefer to kill time by watching 

various daily soaps when their husbands are out for work, although the sample in this study 

contains young population, the trend remains the same. Television is still seen as a major source 

of time pass by many households in india. 

UPLIFTMENT OF HIDDENT TALENTS: It is the third most significant factor with 11.120 

percent of total variance explained. The young population has understood the importance of 

various television programs based on jugding talents or other such activities. Most of the young 

respondents have valued this factor as third most important factor. 

STRESS MANAGEMENT TOOL: It is the fourth most significant factor with 10.096 of total 

variance explained. As contrary to passing time, most of the respondents see television as major 

source of stress management. The television programs which focus on comedy,laughter etc have 

been a hug hit among the young population, which seems to enjoy such programs and give a 

break to a hectic worklife.

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PREFERENCES FOR DIFFERENT CATEGORIES OF TELEVISION PROGRAMS 

The youngsters were asked to express their preferences with respect to various programs. Eight 

type of programs were asked from respondents.Overall there were three choices (I,II and III) for 

ranking preferences for watching Television programs. The weighted average score of 

preferences were computed by allocating weights of 3,2 and 1 to 1st Preference, 2nd Preference 

and 3rd Preference respectively. The „News Coverage‟ (Table 7) category with average score of 

2.53 was rated as Number 1 Preference by the respondents, followed by „Reality shows‟ (2.44) 

and „Daily Serials‟(2.19). The least preferred categories includes „Animal/Adventure 

shows‟(1.88) at Number 6th, „Knowledge based programs‟ (1.83) at Number 7 and „Cartoon 

Shows‟(1.56) at Number 8. 

TABLE 7 : PREFERENCES FOR DIFFERENT CATEGORIES OF TV PROGRAMS 

TV Program Preferences Weighted 

Average 

Score 

Overall 

Preferences 

(WAS) 

1 2 3 

Daily Serials 366 

179 


2.19 III 

(48.8) 

(23.8) 

(27.3) 

Reality Shows 425 

233 

92 

2.44 II 

(56.6) 

(31.0) 

(12.2) 

Music Programs 279 

204 

267 

2.01 V 

(37.2) 

(27.2) 

(35.6) 

News Coverage 504 

142 

104 

2.53 I 

(67.2) 

(18.9) 

(13.8) 

Movies 317 

221 

212 

2.14 IV 

(42.2) 

(29.4) 

(28.2) 

Knowledge Based 

Programs 

171 

(22.8) 

283 

(37.7) 

296 

(39.4) 

1.83 VII

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Cartoon Shows 101 

225 

424 

1.56 VIII 

(13.4) 

(30.0) 

(56.5) 

Animal/Adventure 

Shows 

229 

(30.5) 

204 

(27.2) 

317 

(42.2) 

1.88 VI 

Gender-wise preferences as shown in Table 8, reveals that Males preferred „Knowledge Based 

Programs‟ (WAS =2.72) and females mostly prefer watching „Movies‟(WAS =2.89). It could be 

seen that „Music programs‟ are least preferred by males and females(WAS of 1.45 and 1.56). 

The t-values show significant difference at 1% level between males and females with respect to 

program preferences such as „Daily Serials‟(t=4.76),Reality shows‟(t=1.45),„Movies‟(t=2.78) 

and „Knowledge based programs‟(t=2.12). Also table 8 reveals that there is no signficant 

difference in watching preferences of males and females in categories of „Music 

programs‟(t=0.56), „News coverage‟(t=0.12), „Cartoon Shows‟ (t=0.78) and „Animal/Adventure 

Shows‟(t=0.89). It could be concluded from table 8 that on 4 out of 8 categories there is 

significant difference in watching preferences of males and females. 

TABLE 8: GENDER-WISE PREFERENCES FOR DIFFERENT TV PROGRAMS 

(WEIGHTED AVERAGE SCORES) 

TV Program Male Female t-Value 

Daily Serials 1.79 2.76 4.76* 

Reality Shows 2.65 1.98 1.45* 

Music Programs 1.45 1.56 0.56 (ns) 

News Coverage 2.34 2.14 0.12 (ns) 

Movies 1.56 2.89 2.78*

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Programs 

2.72 1.67 2.12* 

Cartoon Shows 1.90 2.21 0.78(ns) 

Animal/Adventure Shows 2.16 1.96 0.89(ns) 

*At 1% significance level, ns represents not significant in this table 

Age-wise preferences as revealed in Table 9 shows that all the age groups consistently preferred 

„Reality shows‟ whereas „News coverage‟ was more preferred by higher age groups. This shows 

that as the age increases the respondents begin to watch more of News related programs. The 16- 

20 Age group‟s least preference was „Knowledge based programs‟ (WAS=1.11) while 21-25 age 

groups‟ least preferences was „Animal/Adventure Shows‟ (WAS= 1.34) and 26-30 age groups‟ 

least preference was „Music programs‟(WAS=1.90). The F-ratio values shows significant 

difference at 5% level between various age groups with respect to program preferences such as 

„Daily serials‟ (F-ratio=8.91), „News Coverage‟(F-ratio=4.09), „Knowledge based programs‟ (Fratio=5.56), 

„cartoon shows‟(F-ratio=6.91) and „Movies‟(F-ratio=2.87). This means that as the 

age increases the watching preferences of respondents changes for most of the categories. 

However the F-ratio values for „reality shows‟(F-ratio=1.10), „Music programs‟(F-ratio=1.89) 

and „Animal adventure shows‟(F-ratio=1.09) do not show any signficant difference for various 

age groups. 

TABLE 9: AGE-WISE PREFERENCES FOR DIFFERENT TV PROGRAMS 


TV Program 16-20 Yrs 21-25 Yrs 26-30 Yrs F-ratio 

Daily Serials 1.43 1.97 2.43 8.91* 

Reality Shows 2.21 2.39 2.67 1.10 (ns) 

Music Programs 1.23 1.81 1.90 1.89 (ns) 

News Coverage 1.12 2.13 2.91 4.09*

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Movies 1.31 2.12 2.58 2.87* 


Programs 

1.11 1.89 2.01 5.56* 

Cartoon Shows 2.34 1.60 1.75 6.91* 


Shows 

1.22 1.34 1.98 1.09 (ns) 


Education-wise preference as shown in table 10 reveals that Under graduate prefer watching 

„Cartoon shows‟ (WAS=2.89) and as the education level increases the preference shifts to 

„Reality shows‟(WAS=2.51) and „News coverage‟(WAS=2.81). The Under graduates least 

prefer „Music Programs‟ (WAS=1.08),the graduates least prefer „Music Programs‟ (WAS=1.82) 

and Post graduates least prefer „Animal/adventure‟ shows (WAS=1.45). The F-ratio values 

shows significant difference at 5% level between various education levels with respect to 

program preferences such as „News coverage‟ (F-ratio=3.91) , „Knowledge based programs‟(Fratio=2.45), 

„Cartoon shows‟(F-ratio=4.90) and „Animal/adventure shows‟(F-ratio=6.14). It can 

be concluded that on 4 out of 8 categories there is significant difference in watching preferences 

of various television programs with different education levels. 

TABLE 10: EDUCATION WISE PREFERENCES FOR DIFFERENT TV PROGRAMS 


TV Program 

Under 

Graduate 

Graduate Post Graduate F-ratio 

Daily Serials 2.78 2.12 2.02 1.14 (ns) 

Reality Shows 2.06 2.51 2.32 1.36 (ns) 

Music Programs 1.08 1.82 2.02 1.18 (ns) 

News Coverage 2.02 2.67 2.81 3.91*

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Movies 2.12 2.08 2.21 1.01 (ns) 


Programs 

2.16 2.71 2.63 2.45* 

Cartoon Shows 2.89 2.01 1.72 4.90* 


Shows 

2.53 1.90 1.45 6.14* 


Income-wise preferences for various Television programs (Table 11) reveals that as the income 

increases the preference shift s from „Daily Serials‟ to „News coverage‟.The respondents with 

income less than Rs.10000 have least preference for „Cartoon shows‟ (WAS=1.18), those with 

income between Rs.10,000 and Rs.20,000 have least preference for „Music 

programs‟(WAS=1.22), those with income between Rs.20,000 and Rs.30,000 have least 

preference for „Cartoon shows‟(WAS=1.32) and those with income above Rs.30,000 also have 

least preference for „Cartoon shows‟(WAS=1.23). The F-ratio values shows significant 

difference at 5% level between various income levels with respect to program preferences such 

as „Daily serials‟(F-ratio=4.22), „Reality shows‟(F-ratio=3.87), „Movies‟(F-ratio=3.08) and 

„Animal/adventure shows‟ (F-ratio=3.01). It can be concluded that on 4 out of 8 categories there 

is significant difference in watching preferences of various television programs with different 

income levels. 

TABLE 11: INCOME-WISE PREFERENCES FOR DIFFERENT TV PROGRAMS 


TV Program 

Under 

Rs.10,000 

Rs.10,000- 

Rs.20,000 

Rs.20,000- 

Rs.30,000 

Above 

Rs.30,000 

F-ratio 

Daily Serials 2.34 2.09 1.92 1.51 4.22* 

Reality Shows 2.11 2.23 2.41 2.32 3.87* 

Music Programs 1.01 1.22 1.43 1.90 1.03 (ns)

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News Coverage 2.09 2.89 2.91 2.73 1.14 (ns) 

Movies 2.01 2.36 2.11 2.56 3.08* 


Programs 

2.29 2.76 2.21 2.68 1.01 (ns) 

Cartoon Shows 1.18 1.29 1.32 1.23 1.78 (ns) 


Shows 

2.13 2.57 2.21 2.03 3.01* 


CONCLUSION 

The findings of the study reveals that most of the young indians watch television either „most 

often‟ or „sometimes‟ and spend about 3-5 hours daily. It can be further concluded from the 

study that there is no signficant difference in frequency of watching television between Males 

and Females, with almost equal mean average scores of around 2.67 as shown by the t-values. 

With increase in age and changes in education levels, there is no significant change in the pattern 

of television viewing, as shown by similar mean and f-ratio values. However with increase in 

income the viewers tends to watch less television. 

The study also highlights the various reasons for Indian youth to watch television, mainly four 

factors emerged as most significant which includes, Generation of Knowledge and Learning, 

Medium of Relaxation and Pass time, Upliftment of hiddent talents and Stress management tool. 

It can be concluded that most of the young Indians view television as a learning tool and their 

favorite time pass activity. Some of the respondents view it as technique to polish their talents 

and others use television as a stress management tool to counter their stressfull worklife. 

It can be concluded from the study that Males preferred „Knowledge Based Programs‟and 

females mostly prefer watching „Movies‟.It could be seen that „Music programs‟ are least 

preferred by males and females. All the age groups consistently preferred „Reality shows‟ 

whereas „News coverage‟ was more preferred by higher age groups.Also it was seen that Under 

graduates prefer watching „Cartoon shows‟ and as the education level increases the preference 

shifts to „Reality shows‟ and „News coverage‟. Also it can be concluded that with increase in 

income the preference shifts from „Daily Serials‟ to „News coverage‟. Marketers and advertisers 

to identify the best-fit slot for putting their advertisement in television can use the findings of this

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study. In addition, Marketers according to their target segments can advertise their products in 

those programs, which their audience prefers to watch. The study leaves the scope for further 

research in understanding of consumer preferences for particular programs, the time of watching 

television for different age, income and educationa level groups. 

REFERENCES 

Ahluwalia, A.K and Singh, R. (2011), TV Viewing Habits Amongst Urban Children, IUP 

Journal Of Marketing Management, Vol. 10(1),45-62 

Bukhari, Bushra (2002).The Effect of Television Programmes on Youth. M.A. Thesis, 

University of the Punjab, Lahore, 67. 

Dorr Aimme (1986).Television And Children:A Special Medium For Special 

Audience,Sage,Thousand Oaks. 

Fatima, Nabiha (2000). Effects of Satellite Channels (ZEE TV) on Middle Class of Lahore. M.A. 

Thesis, University of the Punjab, Lahore, 60 

Giacomo Corneo, (2002).Work and Television, CESifo Working Paper Series No. 829; IZA 

Discussion Paper No. 376 

Lowery, Shearon and Melvin L. DeFleur (1988) Milestones in Mass Communication Research. 

New York, NY: Longman Inc. 

Malhotra, Naresh, K. (2002), Marketing Research -An Applied Orientation, 3rd Edition, Pearson 

Education: New Delhi. 

Shmizu, S. (1993). The Implication Of Trans-Border Television For Natural Cultures And 

National Broadcasting: A Japanese Perspective. Media Asia. Singapore: An Asian Mass 

Communication Quarterly, 20,183-197. 

Unnikrishnan N and Bajpai (1996). Impact Of Television Advertising On Children, 4 th Edition, 

Sage, New Delhi 

Valaskakis, Gail (1983), Television Viewing Tastes and Habits among the Inuit of the Eastern 

And Central Arctic," Anthropologica 25(1), 71-83. 

Verma S and Larson R W (2002).TV in Indian adolescents‟ lives:A member of the family, 

Journal of youth and Adolescene,Vol 31(3),177-183

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APPENDIX 

TABLE 12: DEMOGRAPHIC PROFILE OF RESPONDENTS 

Demographics No. of Respondents Percentage of Respondents 

Age: 

16-20 

21-25 

26-30 

250 

250 

250 

33.3 

33.3 

33.3 

Total 750 100 

Gender: 

Female 

Male 

375 

375 

50 

50 

Total 750 100 

Education: 

Under Graduate 

Graduate 

Post Graduate 

Any Other 

206 

282 

231 

31 

27.4 

37.6 

30.8 

04.1 

Total 750 100 

Monthly Income: 

Under Rs.10000 

Rs.10000-Rs.20000 

Rs.20000-Rs.30000 

More than Rs.30000 

46 

179 

279 

112 

06.1 

23.8 

37.3 

15.0

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Not Employed 134 17.8 

Total 750 100

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ANALYSIS OF FINANCIAL PERFORMANCE OF TATA STEEL – 

A CASE STUDY 

INTRODUCTION 

SUVARUN GOSWAMI*; ANIRUDDHA SARKAR** 

*Assistant Professor in Commerce, Rishi Bankim Chandra Evening College, 

Naihati, North 24 Parganas, West Bengal. 

**Junior Research Fellow, Department of Commerce, The University of Burdwan, 

Burdwan - 713104, West Bengal, India. 

Working capital in business is considered as life blood in human body. It is a capital required to 

operate business on day to day basis and it varies according to the nature of business, production, 

sales policies, turnover, credit period etc. Liquidity means the capacity of the firm to convert the 

assets into realizable value in money. It measures the ability of the firm to honor all the maturing 

obligations. No firm can survive without liquidity. A firm not making profit may be considered 

as sick, but having no liquidity may soon meet its downfall and ultimately die. Liquidity 

management has thus become a basic and broad aspect of judging the performance of corporate 

entity. It is, therefore, essential to maintain an adequate degree of liquidity for smooth running of 

the business operations. The liquidity should be neither excessive nor inadequate. Excessive 

liquidity indicates accumulation of idle funds, which do not earn any profit for the firm and 

inadequate liquidity not only adversely affected the credit worthiness of the firm but also 

interrupts the production process and hampers its earning capacity to a great extent. In the wave 

of globalization and economic liberalization, growth and survival stability of the enterprises 

largely depend on the effective management of working capital, which has a direct bearing on 

the economic well being of the country as a whole. Thus, it is felt that there is a need to manage 

various components of working capital in such a way that an adequate amount of working capital 

is to maintaining for smooth running of the wheel of an enterprise for the fulfillment of twin 

objectives of liquidity and profitability with the volatility of various components of working 

capital in the firm‟s operating environment. The emphasis of the present study is to measure & 

analyze the operating risk, financial risk, and total risk by way of computing the Degree of 

Operating Leverage (DOL), Degree Of Financial Leverage (DFL), and Degree Of Total 

Leverage (DTL) of the selected company viz.Tata Steel for the accounting period from 2000-01 

to 2009-10. 

OBJECTIVE OF THE STUDY 

i) To measure, test and evaluate the liquidity position of Tata Steel. 

ii) 

iii) 

iv) 

To determine the profitability position of Tata Steel. 

To find out the degree of association between liquidity and profitability, being two 

key determinants of financial performance, of the company under study. 

To establish the linear relationship between liquidity and profitability.

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v) To assess the degree of association between the various leverage ratios with the wellknown 

profitability indicator viz. ROE of Tata Steel during the period under study. 

vi) 

To provide valid recommendations these deserve the attention of the management of 

the studying company and government. 

DATA BASE AND METHODOLOGY 

The study is based on secondary data collected from the audited Profit & Loss A/c and Balance 

Sheet associated with schedules, annexure available in the published annual reports of Tata Steel 

for the period of 10 years (i.e. from 2000-01 to 2009-10). For the purpose of the study, Journals, 

Conference proceedings and other relevant documents have also been consulted to supplement 

the data. In the present study the liquidity and profitability position have been taken into 

consideration by calculating different key liquidity and profitability ratios in order to judge their 

financial performance for the period under study. The ratios which have been applied for 

highlighting the efficiency of working capital management are current Ratio (CR), Quick Ratio 

(QR), Current Assets to Total Assets Ratio (CATAR), Current Assets to Sales Ratio (CASR), 

Working Capital to Turnover Ratio (WCTR), Inventory Turnover Ratio (ITR), Debtors Turnover 

Ratio (DTR), and Cash Turnover Ratio (CTR) and the measure of profitability which has been 

selected is Return on Capital Employed (ROCE).For measuring the operating risk, financial risk 

and total risk Degree of Operating Leverage (DOL), Degree of Financial Leverage(DFL) and 

Degree of Total Leverage(DTL) have been computed. For assessing the degree of association 

between the various liquidity ratios with the return on capital employed (ROCE) and various 

leverage ratios with Return on Equity (ROE) Pearson‟s simple correlation coefficient has been 

applied and Students„t‟ test has been used for the purpose of testing the results obtained 

empirically. 


SAMILOGLU & DAMIRGUNES (2008) said that even though the profitability is constantly 

positive, inaccurate working capital management procedures may lead to bankruptcy of the firm. 

They suggest that current, acid test, and cash ratios as traditional measures of liquidity are 

incompetent and static balance sheet measures that cannot provide detailed and accurate 

information about working capital management effectiveness. In their research formulas used for 

calculating them consider both liquid and operating as sets in common and traditional ratios are 

not meaningful in terms of cash flow. 

NANDI (2011) made an attempt to examine the influence of working capital management on 

corporate profitability. For assessing impact of working capital management on profitability of 

National Thermal Power Corporation Ltd. during the period of 10 years i.e., from 1999-2000 to 

2008-09 Pearson‟s coefficient of correlation and multiple regression analysis between some 

ratios relating to working capital management and the impact measure relating to profitability 

ratio (ROI) had been computed and applied. An attempt had been undertaken for measuring the 

sensitivity of return of investment (ROI) to changes in the level of working capital leverage 

(WCL) of the studying company.

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KARADUMAN, AKBAS & CALISKAN (2011) have tried to shed light on the empirical 

relationship between efficiency of working capital management and corporate profitability of 

selected companies in the Istanbul Stock Exchange for the period of 2005-2009. The companies 

should focus on working capital management in order to increase their profitability by seriously 

and professionally considering the issues on their cash conversion cycle which was derived from 

the number of day‟s accounts payable, the number of day‟s accounts receivable and the number 

of days of inventories. The findings suggested that it may be possible to increase profitability by 

improving efficiency of working capital. 

MALLICK AND SUR (1998) made an attempt to analyze the impact of working capital 

management on profitability in Indian Tea industry with the help of some statistical tools and 

techniques. The study revealed that, out of the nine ratios relating to working capital 

management five ratios registered positive association and the remaining four ratios showed 

negative correlation with the profitability indicator. Rao & Rao (1999) undertook a similar type 

of study where ten ratios relating to working capital management were selected. Out of these 

indicators, positive association was noticed only in three. 

CHEAKRABORTY (2008) evaluated the relationship between working capital and profitability 

of 25 selected companies in the Indian pharmaceutical industry during the period 1996-97 to 

2007-08.Inadequacy of working capital may lead to the firm to insolvency, whereas excessive 

working capital implies idle funds which earns no profits. Therefore, efficient management of 

working capital is an integral part of the overall corporate strategy to improve corporate 

profitability. The partial regression coefficients shown in the multiple regression equation of 

ROCE on CR, ITR and DTR fitted in this study revealed that the liquidity management, 

inventory management and credit management made positive contribution towards improvement 

of the corporate profitability. 

SINGH AND PANDEY (2008) said that working capital management is the management of 

current assets and current liabilities. Maintaining high inventory levels reduces the cost of 

possible interruption in the production process or of loss of business due to the scarcity of 

products, reduces supply costs and protects against price fluctuations. Granting trade credit 

favors the firm‟s sales in various ways. Trade credit can act as an effective price cut and 

incentives to customers to acquire merchandise at times of low demands. Thus, greater the 

investment in current assets, lower is the risk, and profitability obtained. Similarly trade credit is 

a Spontaneous source of financing that reduces that amount required to finance the sums tied up 

in the inventory and account receivables. Profitability and liquidity comprises the salient and all 

too often conflicting goals of working capital management. The conflicts arise because the 

maximum of firm‟s returns could seriously threaten liquidity and on the other hand, the pursuit 

of liquidity has a tendency to dilute returns. 

ALAM AND HOSSAIN (2000) found that the capital structure management of Khulne 

Shipyard Ltd. (KSL) was in a poor shape because the interest coverage ratio was negative, as 

there is the possibility of non-payment of interest charges to creditors. Hull (2002) found that the 

industry debt to equity norms are significantly more negative than returns for the firms‟ moving 

closer to these norms. Nissim and Penman (2003) stated that the financial statement analysis 

distinguishes leverage in financing activities from leverage in operations. Azhagaiah and

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Gangadevi (2008) studied the leverage and financing decision for the selected 30 electronic 

companies for the five years period ranging from1998 to 2003. In his study he found that the 

company has a high operating leverage should kept low financial leverage and vice-versa. So, it 

is desirable that a company has low operating leverage and a high financial leverage. 

COMPANY PROFILE 

Tata Steel Ltd is the world's 10th largest steel company and the world's 2nd most geographically 

diversified steel producer. The company is a diversified steel producer with major operations in 

India, Europe and South East Asia. They have manufacturing units in 26 countries and at 

presence in 50 European and Asian markets. The company together with their subsidiaries, 

engages in the manufacture and sale of steel products in India and internationally. They offer hot 

and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rubbers and 

bearings. The company also involves in prospecting, discovering, and mining iron ore, coal, 

Ferro alloys, and other minerals; designing and manufacturing plants and equipment for steel, oil 

and natural gas, energy and power, mining, railways, ports, aviation, and space industries; and 

agricultural implements. Further, they offers alumina, dolomite, and monolithic refractories, as 

well as silica refractories for coke ovens and the glass industry; manufactures bricks; sponge iron 

lumps and fines; and rolls for applications in integrated steel plants, power plants, and 

government mint, as well as paper, textile, and food processing sectors .Tata Steel's operations 

are grouped under six Strategic Business Units include Bearings Division, Ferro Alloys and 

Minerals Division, Agrico Division, Tata Growth Shop (TGS), Tubes Division and Wire 

Division. They have introduced several branded steel products, including Tata Steelium (the 

world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata 

Tiscon ( rubbers), Tata Pipes, Tata Bearings, Tata Structural, Tata Agrico (hand tools and 

implements) and Tata Wiron (galvanized wire products) Tata Steel Ltd was incorporated in the 

year 1907 with the name Tata Iron & Steel Company Ltd. In the year 1911, the company 

commenced the operations of the first Blast Furnace or the 'A' Blast Furnace. In December 2, 

1911, the fist collieries were obtained and the first cast of pig iron was produced. In the year 

1912, the first ingot of steel rolled out of the Sakchi Plant and in October 1912, the Bar Mills 

started their commercial production. Also, the B Blast Furnace became operational during the 

year. In the year 1918, India's first steel (coke) plant was established in Jamshedpur. In the year 

1925, the New Rail Mill, Merchant Mill and Sheet Mill went into operation. In the year 1931, 

they opened a apprentice shop. In the year 1941, they started manufacture of special steel for war 

purpose. They produced a wide variety of special steels required for defense purposes including 

armoured cars called 'Tatanagars'. In the year 1943, Howrah Bridge was constructed from steel 

supplied by the company. In the year 1955, the company signed an agreement with Kaiser 

Engineers for two million tonne expansion programme. In the year 1980, they started the first 

phase of the four-phased modernization programme.

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COMPUTATIONS AND MAJOR FINDINGS OF THE STUDY 

TABLE-1: SIMPLE CORRELATION ANALYSIS BETWEEN THE SELECTED 

RATIOS RELATING TO WORKING CAPITAL MANAGEMENT AND RETURN ON 

CAPITAL EMPLOYED OF TATA STEEL FOR THE PERIOD 

FROM 2000-01 TO 2009-10 

Year CR QR CATAR CASR WCTR ITR DTR CTR ROCE 

2000-01 0.95 0.78 0.34 0.47 0.04 8.31 6.30 3.50 14.98 

2001-02 0.76 0.69 0.38 0.46 0.01 7.82 6.46 3.27 10.51 

2002-03 0.70 0.60 0.49 0.42 -0.06 9.01 9.64 4.28 24.82 

2003-04 0.67 0.36 0.36 0.26 -0.14 9.93 14.81 2.34 38.18 

2004-05 0.65 0.42 0.42 0.28 -0.08 10.17 25.74 1.70 63.79 

2005-06 0.71 0.40 0.35 0.28 -0.06 8.47 30.57 1.91 50.13 

2006-07 1.27 1.73 0.58 0.78 0.41 8.77 33.75 44.00 36.63 

2007-08 2.88 4.39 0.82 1.88 1.48 8.99 37.77 2.37 23.27 

2008-09 2.30 0.73 0.19 0.44 0.03 8.82 45.52 6.53 17.23 

2009-10 1.05 0.90 0.20 0.49 0.08 8.16 49.98 12.97 13.70 

Correlation 

-0.33 -0.20 0.16 -0.24 -0.17 0.71 0.034 0.007 - 

(r) 

Calculated 

value of \t\ 

with (n-2) 

d. f. 

0.994 0.58 0.46 0.70 0.49 2.85 0.09 0.0187 - 

Note: (i) Tabulated value of „t‟ with (n-2) d .f. i.e., 8 d. f. both at 5% and 1% levels of 

significance for both tailed tests are 2.31 and 3.36 respectively. 

(ii) Since, the calculated value of \t\ of the correlation coefficient between ROCE and ITR is 

higher than the tabulated value of„t‟ at 5% level of significance, so, the correlation coefficient 

between ROCE and ITR is statistically significant at 5% level of significance. Except this, in all 

other cases, the calculated values of \t\ are lower than the tabulated values of„t‟ both at 5% and


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1% levels of significance so, the correlation coefficients are not statistically significant both at 

5% and 1% levels of significance. 

r × √ (n– 2) 

(iii) Formula used for calculating |t| =………………….. With (n-2) d. f. 

√ (1 – r2) 

Source: Complied and computed from Published annual reports of the company. 

CHART-1: DIAGRAMMATIC REPRESENTATION OF SELECTED LIQUIDITY 

RATIOS OF TATA STEEL FOR THE PERIOD FROM 2000-01 TO 2009-10


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TABLE-2: ANALYSIS OF PROFITABILITY OF TATA STEEL FOR THE PERIOD 

FROM 2000-01 TO 2009-10 

Year G.P. Ratio Op. Pro. Ratio N. P. Ratio ROCE 

2000-01 16.01 22.04 11.85 14.98 

2001-02 11.58 17.60 5.21 10.51 

2002-03 20.85 24.77 13.46 24.82 

2003-04 30.75 32.87 17.44 38.18 

2004-05 40.82 42.40 24.21 63.79 

2005-06 39.74 40.89 23.17 50.13 

2006-07 40.56 42.00 24.66 36.63 

2007-08 40.20 44.93 22.26 23.27 

2008-09 34.04 40.16 20.46 17.23 

2009-10 33.27 40.68 17.73 13.70 

CHART-2: DIAGRAMMATIC REPRESENTATION OF TABLE-2

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MAJOR FINDINGS OF THE STUDY IN RESPECT OF WORKING CAPITAL 

MANAGEMENT 

In table-1 an attempt has been made to measure the impact of working capital management on 

profitability by computing Karl Pearson‟s correlation coefficients between ROCE and the 

selected measures relating to the working capital management. Table-1 shows that the 

correlation coefficient between ROCE and CR is (-) 0.33, which indicates that there is a 

moderately negative association between the profitability and the liquidity of the company and 

correlation coefficient is found to be statistically insignificant both at 5% and 1% levels 

respectively. That means there is an insignificant association between ROCE and CR during the 

period under study. 

It is observed from table-1 that the correlation coefficient between ROCE and QR during the 

period under study is negative and is calculated at (-) 0.20, which is found to be statistically 

insignificant both at 5% and 1% levels respectively. It is evident from these two ratios that the 

higher the Company‟s margin of safety to the short term creditors, the lower is the profitability 

of the company. The computed value of correlation coefficient between ROCE and QR for the 

study period conforms to the accepted principle. 

It is highlighted from table-1 that the coefficient of correlation between ROCE and CATAR 

during the study period is 0.16. It implies that there is a positive association between the 

profitability and the Current Assets to total assets ratio. The coefficient of correlation is found to 

be statistically insignificant both at 5% and 1% levels during the study period. The generally 

accepted rule is that the greater the CATAR, the lower will be the profitability of the company. 

The computed value of correlation coefficient between ROCE and CATAR for the study period 

does not conform to the accepted principle. 

Table-1 exhibits that the coefficient of correlation between ROCE and Current ratio to Sales ratio 

(CASR) during the study period is (-) 0.24, which is also found to be statistically insignificant 

both at 5% and 1% levels respectively. This indicates that there is a low degree of negative 

association between the two variables. Generally speaking the lower the current assets to sales 

ratio (CASR), the greater will be the efficiency of the employment of working capital and larger 

will the scope of profitability and vice-versa. The calculated value of correlation coefficient 

between CASR and ROCE conforms to that principle. 

It is seen from table-1 that the correlation coefficient between ROCE and WCTR is (-) 0.17 

which implies that there is negative association between these two variables. The calculated 

value of correlation coefficient is found to be statistically insignificant both at 5% and 1% levels 

respectively. It is an accepted principle that faster the working capital turnover ratio (WCTR) the 

slower the relative investment and greater is the profitability of the company. The computed 

value of correlation coefficient between ROCE and WCTR under the study period does not 

conform to the accepted principle. 

It is observed from table-1 that the correlation coefficient between ROCE and ITR is positive 

and is computed at 0.71 during the period under study. The coefficient is found to be statistically 

significant at 5% level of significance. The most accepted principle is that higher the Inventory

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turnover ratio (ITR), greater is the efficiency of inventory management and larger is the scope of 

profitability. The computed value of correlation coefficient between ROCE and ITR conforms to 

the accepted principles during the period under study. It can be concluded that the inventory 

management has a significant influence on the profitability of the company during the study 

period. 

Table-1 highlights that the correlation coefficient between ROCE and DTR is positive and is 

computed at 0.034 during the period under study. It is found to be statistically insignificant at 5% 

and 1% levels respectively. The study of relationship between the profitability (measured in 

terms of ROCE) and the credit management (measured in terms of DTR) conforms to the 

generally accepted rule that greater the DTR, the lower is the relative investment in the 

receivable and higher is the profitability. 

Lastly, the correlation coefficient between ROCE and CTR shows (from table-1) a very low 

degree of positive association and is computed at 0.007 which is found to be statistically 

insignificant both at 5% and 1% levels of significance respectively. The more acceptable 

principle is that higher the CTR, the more will be the efficiency of cash management and larger 

will be the scope of improving capital productivity. The study of correlation coefficient between 

ROCE and CTR reveals that the computed value of correlation coefficient conforms to the 

accepted principle. 

TABLE-3: SIMPLE CORRELATION ANALYSIS OF VARIOUS LEVERAGE RATIOS 

WITH ROE OF TATA STEEL FOR THE PERIOD FROM 2000-01 TO 2009-10 

Year DOL DFL DTL ROE 

2000-01 1.49 1.68 2.50 11.32 

2001-02 1.80 2.61 4.70 6.83 

2002-03 1.35 1.27 1.71 31.41 

2003-04 1.22 1.09 1.32 38.66 

2004-05 1.11 1.04 1.16 49.06 

2005-06 1.14 1.03 1.18 37.53 

2006-07 1.13 1.04 1.17 29.69 

2007-08 1.10 1.13 1.25 17.63 

2008-09 1.11 1.20 1.34 17.04 

2009-10 1.12 1.26 1.41 14.11

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Correlation 

-0.513 -0.665 -0.60 - 

(r) 

Calculated value 

of \t\ with (n-2) 

d. f. 

1.69 2.46 2.12 - 

Note: (i) Tabulated value of„t‟ with (n-2) d .f. i.e., 8 d. f. both at 5% and 1% levels of 

significance for both tailed tests are 2.31 and 3.36 respectively. 

(ii) Since, the calculated value of \t\ of correlation coefficient between ROE and DFL is higher 

than the tabulated value of„t‟ at 5% level of significance, so, the correlation coefficient between 

DFL and ROE is statistically significant at 5% level of significance. Except this, in all other 

cases, the calculated values of \t\ are lower than the tabulated values of„t‟ both at 5% and 1% 

levels of significance so, the correlation coefficients are not statistically significant both at 5% 

and 1% levels of significance. 

r × √ (n– 2) 

(iii) Formula used for calculating |t| =………………….. With (n-2) d f. 

√ (1 – r2) 

Source: Complied and computed from Published annual reports of the company.


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CHART-3: DIAGRAMMATIC REPRESENTATION OF LEVERAGE RATIOS OF 

TATA STEEL FOR THE PERIOD FROM 2000-01 TO 2009-10 

MAJOR FINDINGS IN RESPECT OF LEVERAGE RATIOS 

1. Diagram-3 depicts that there is a decreasing trend in the values of DOL during the period 

under study except the financial year 2001-02. That means, on an average, the degree of 

operating risk decreases during the said accounting period. So, we can conclude that the 

ratio of fixed operating costs to total costs decreases during the period under study except 

in the accounting year 2001-02. 

2. The calculated value of correlation coefficient between the degree of operating leverage 

(DOL) and return on equity (ROE) is (-) 0.513. It signifies that there is a moderately 

negative association between these two variables and this relationship is statistically 

insignificant both at 5% and 1% levels of significance. So, we can conclude that with the

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decrease in the value of DOL the return on equity increases but this association is not 

statistically significant both at 5% and 1% levels of significance. 

3. Again, the computed value of correlation coefficient between DFL and ROE is (-) 0.665. 

It signifies that there is a moderately high degree of negative association between these 

two variables and this relationship is statistically significant at 5% level of significance 

during the study period. 

4. The computed value of correlation coefficient between DTL and ROE is (-) 0.60, which 

signifies that there is a moderately high degree of negative association between these two 

variables and also this association is not statistically significant both at 5% and 1% levels of 

significance during the study period. 

5. If we go through the rate of return on equity it can easily be seen that in the very first two 

years of study (i.e., 2000-01 and 2001-02) the rate of return is low and after that for the 

accounting years 2002-03 to 2006-07 this rate is high and then there is a decreasing trend in 

the rate of return, but there is no stability in that rate; rather there is a fluctuating trend in the 

rate of return on equity throughout the study period. 

CONCLUDING REMARKS 

The study of correlation coefficient reveals that out of eight ratios depicted on table-1 relating 

to the working capital management four have registered positive association and rest four have 

registered negative association with the selected profitability ratio (i.e. ROCE). Out of the 

above eight ratios reflected on table-1, relating to working capital management only ITR has a 

high degree of positive association with the profitability ratio (i.e., ROCE), and which has a 

significant influence on the profitability of the company at 5% level of significance. 

The basic proposition is that if a company has both the leverages at a high level, it will be a 

very risky position because the combined effect of the two is a multiple of these two leverages. 

Therefore, if a company has a high operating leverage, the financial leverage should be kept at a 

low level. Accordingly, if a company has high operating leverage and low financial leverage, it 

can partly dilute the effect of high operating leverage. A low operating leverage means high 

controllable costs (variable costs) and low uncontrollable costs (fixed costs) and therefore a less 

risky situation. In the present study, the company has the high operating and financial leverages 

during the first three years of the study. That means the company is in a very risky position 

during the first three years of the study as compared to the entire study period. 

RECOMMENDATIONS 

1. To cover the fixed operating costs the firm should have to improve its net sales so as to 

maintaining the operating risk within the manageable limit in the years to come. 

2. The company may use additional external capital (i.e., fixed charge bearing capital) in its 

capital structure in near future as the rewards to the external funds provider are tax deductible 

expenditure as a result earnings after tax can be enhanced which will ultimately lead to make

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the equity shareholders happy and reliable on the firm‟s operating as well as financing 

performance. 

3. The company should be maintaining a sound short-term debts paying capacity in future 

because the use of more amount of external funds may lead to short-term insolvency. 

4. For the very existence and growth, every company has to earn adequate profit. As regards 

profitability, the company witnessed a fluctuating trend throughout the study period, which is 

not desirable from the management of the company. To keep the shareholders‟ happy and 

reliable the rate of return to the equity shareholders should be consistent in the years to come. 

REFERENCES 

1. Bernstein, L A and Wild J J (2004), Analysis of Financial Statements, New Delhi, 

Tata Mcgraw Hill Publishing Co. Ltd., pp.111-150. 

2. Khan, M.Y and Jain, P.K. (2005), Financial Management-Text, Problems, and cases, 

New Delhi, Tata McGraw Hill Publishing Co. Ltd., pp. 7.1-7.66. 

3 Foster, G (2002), Financial Statement Analysis, Delhi, Pearson Education (Singapore) 

Pvt .Ltd. pp. 57-93. 

4. Pandey, I. M. (2004), Financial Management, New Delhi, Vikash Publishing House Pvt 

.Ltd. PP. 517-540. 

5. Krishnaveni. M (2008): “Performance appraisal of an Indian Chemical Industry after 

Liberalization,” Finance India, Indian Institute of Finance, Vol.XXII No.3, September 

2008, p p.971-980. 

6. Azhagaiah. R & Gangadevi. S (2008): “Leverage and Financial Decision”, The Indian 

Journal of Commerce, Vol.61. No.1. January-March 2008, pp.90-98. 

7. Bhattacharya, H., (1997), Total Management by Ratios, Sage Publication India Pvt. 

Ltd., New Delhi. 

8. Bardia S.C, 2004, “Liquidity Management: A Case Study of Steel Authority of India 

Ltd. The Management Accountants, June, Vol-39, No.-6, pp. 463-495. 

9. Chandra, P., 2006, Financial Management. Theory and Practice, Tata Mc Graw Hill 

Publishing Company Ltd.; New Delhi. 

10. Fees, P.E., 1978, “The Working Capital Concept”, Accounting Theory: Text and 

Readings L.D Mac cullers & R.G. Schroeder (Ed.), John Wiley & Sons, pp-200-205. 

11. Kumar, A.V. and Venkatachalam, A., 1995, “Working Capital & Profitability–An 

Empirical Analysis” The Management Accountant. Oct, Vol. 30, No. 10, pp. 748-750.

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12. Luther C.T.R, 2007, “Liquidity, Risk and Profitability Analysis: A Case Study of 

Madras Cements Ltd.”. The Management Accountant, Oct. Vol-42, No. 10, pp. 784-789. 

13. Official website of Tata Steel (http://www.tatasteel.co.in/) 

14. Reddy Y.V and Patkar S.B., 2004, “Working Capital and Liquidity Management in 

Factoring: A Comparative Study of SBI and Can Bank Factors”. The Management 

Accountant May, Vol-39, No.-5, pp. 373-378. 

15. Yadav, R.A., 1986, “Working Capital Management – A Parametric Approach”. The 

Chartered Accountant, May, p-952. 

16. Nandi, K. C (2011), “Impact of Working Capital Management on Profitability, A Case 

Study of National Thermal Power Corporation Ltd.”, The Management Accountant, 

January 2011, pp.22-27

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EFFECTIVENESS OF IT EVENTS IN ACADEMIC INSTITUTIONS- 

STUDENTS’ PERSPECTIVE 

ABSTRACT 

RANJITH P.V.*; MRS. NEHA CHOPADE**; 

MS. VIDHYA RAO*** 

*Sr. Lecturer, S.I.E.S College of Management Studies, 

Nerul, Navi-Mumbai. 

**Associate Professor, S.I.E.S College of Management Studies, 


***Lecturer, S.I.E.S College of Management Studies, 


BACKGROUND: IT events became far too popular in the past few years serving as a powerful 

platform to the students for sharing their knowledge , talents and improving skills like 

confidence, presentation, decision making, communication, problem solving to name a few. 

OBJECTIVE: This paper showcases our work on how effective the technical events are in 

enhancing the students’ career and motivating them to work individually as well as 

collaboratively. This paper also highlights the implications and the challenges faced when 

students organize and participate in these events. 

METHODOLOGY: This paper proposes a questionnaire based survey which will be conducted 

for students of M.C.A. course and their perceptions will be analyzed. This study is limited to the 

The sampling area is SIES College of Management Studies, Navi Mumbai. 

FINDINGS: From our research on this paper, it is found that the IT events play an important 

role in students’ academic growth. The participants and organizers learn new skills. It is found 

from the research that these kind of events pose a challenge for both the organizers and the 

participants. 

KEYWORDS: IT- Information Technology; MCA- Master in Computer Applications; LAN- 

Local Area Network. 

INTRODUCTION 

IT technical events, in every college and in different streams are basically organized to test the 

flame of competence and intellect in participants. Usually these IT events are scheduled for over 

a span of two to three days. These events are generally organized by an all students committee 

with minimal funding by the respective management of the institute and largely by way of 

sponsorships. The technical festival is open to students of outside colleges. It is the most awaited 

event of the year which brings the students and the staff members together and helps invigorating 

the bond between them. Every year the festival is jeweled with the benign presence of all

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students, staff members, the trust officials, renowned speakers from corporate world. The 

technical festivals provide a platform to the students where they can showcase their talents in 

these events. The objectives of the competitions set in these events are to encourage the students 

across colleges to develop originality, creativity and technical skills; to help promote the 

advancement our culture; and to foster the spirit of collaboration in joint production. There is 

wide media coverage and huge publicity campaigns to promote these inter college events. The 

students are encouraged to participate in these events by way of awarding certificates and also 

prizes are given to the winners both in the form of kind and/or cash. The best college trophy is 

awarded to that college from which the maximum numbers of students win the organized events. 


The study is qualitative in nature and population is defined as M.C.A. students of Mumbai. The 

sampling area is SIES College of Management Studies, Navi Mumbai. The samples were 

collected using convenient sampling method. Sampling unit is defined as a student. Sample size 

is taken to be 87. 

It includes two sections: 

1. Section 1 (Questions relating to event organizers) 

2. Section 2 (Questions relating to event participants ) 

(Questionnaire Annexure Enclosed-Annexure 1) 


1. To study the importance of IT events in the lives of students in addition to their academic 

growth. 

2. To find out the significance of various events in the order of their preference and 

popularity amongst the gender. 

3. To determine the most essential qualities required, their experiences and the challenges 

the students face while organizing and/or participating in these events. 

ANALYSIS AND INTERPRETATION 

This section consists of obtaining the findings and suggestions relating to organizing technical 

events. 

1.1

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TABLE 1: EVENTS IN ORDER OF RANKING 

Coding & 

debugging 

rank 

Technical 

quiz rank 

Web design 

rank 

Treasure 

hunt 

rank 

Poster designing 

rank 

LAN gaming 

rank 

N Valid 86 86 86 86 82 87 

Median 7.0000 7.0000 6.0000 6.0000 10.0000 3.0000 

Galli cricket 

rank 

Short film 

making rank 

Dance 

rank 

Rink 

rank 

football 

Badminton 

rank 

N Valid 85 83 80 85 85 

Median 2.0000 15.0000 12.0000 5.0000 6.0000 

Ad mad 

show 

rank 

Carrom 

rank 

Chess 

rank 

Robot 

football 

rank 

Java 

encoding 

rank 

Paper 

presentation 

rank 

Project 

presentation 

rank 

N Valid 84 86 81 85 84 76 75 

Median 10.0000 6.0000 8.0000 5.0000 10.0000 12.0000 12.0000 

As shown in the above table (marked in bold), galli cricket , LAN gaming, rink football rank, 

robot football , badminton, carom, web design, treasure hunt are important according to the 

respondents in the order of highest to lowest. Short film making event was given the lowest 

ranking by the respondents (All the results are interpreted using median). 

HYPOTHESIS TEST 1: 

H 0 : There is no significant difference between the responses of males and females in terms of 

ranking given to important events. 

H A : There is a significant difference between the responses of males and females in terms of 

ranking given to important events.

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FIGURE 1: MANN-WHITNEY U-TEST FOR COMPARISON OF GENDER 

IN TERMS OF IMPORTANT EVENTS 

The above figure shows that for the most important events there is no difference in perception 

between males and females. In all cases H 0 is acceptable.

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1.2 

Some of the challenges/issues faced by the organizers of the events to get the sponsorship were 

restriction(s) by management, calling and fixing appointments of the sponsors, communication 

gap between students, professors and office staff, difficulty in convincing the sponsors, lack of 

marketing skills of the organizers, most of the sponsors sponsoring the various events of the 

same academic institution, sponsors’ high demands, the timing of the festival which is 

somewhere near the end of financial year that makes the sponsors debilitate their funds and also 

many colleges have their events at the same time. 

1.3 

TABLE 2: SKILLS IN TERMS OF IMPORTANCE WHEN APPROACHING FOR 

SPONSORSHIP (FOR ORGANIZERS) 

Communication 

skills Negotiation skills Marketing skills Presentation skills 

N Valid 86 85 86 86 

Mean 4.6395 4.4706 4.4651 4.3023 

From the above table, we conclude that for approaching for sponsorship, the communication 

skills are of utmost importance (obtained from the mean values). 

1.4 

TABLE 3: QUALITIES WHILE ORGANIZING THE EVENTS 

Enhanced 

communication 

skills 

Enhanced 

negotiation 

skills 

Enhanced 

marketing 

skills 

Enhanced 

presentation 

skills 

Enhanced 

problem 

solving skills 

N Valid 83 79 83 81 82 

Mean 4.4819 4.0886 4.1566 4.1605 4.0732

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New problem 

solving skills 

Teamwork 

skills 

Enhanced 

confidence 

Skills of 

management 

of finance 

Skill of 

management 

of resource 

N Valid 82 83 79 79 79 

Mean 3.8780 4.5060 4.2152 4.0633 4.0253 

Skills of 

management 

of risk 

Skills 

decision 

making 

of 

Skills of 

time 

management 

N Valid 82 81 83 

Mean 3.9024 4.3827 4.4096 

Enhanced team work, communication skills, time management, decision making and confidence 

level are the major parameters of quality which are enhanced while organizing the event (As 

shown by the mean values in the table marked as bold). This is further scrutinized by the factor 

analysis given below: 

FACTOR ANALYSIS 

TABLE 4 : TOTAL VARIANCE EXPLAINED 

Initial Eigen values 

Extraction Sums of 

Squared Loadings 

Rotation Sums of Squared 

Loadings 

Compone 

nt 

Tota 

l 

% of 

Varianc 

e 

Cumulati 

ve % 

Total 

% of 

Varian 

ce 

Cumulati 

ve % 

Tota 

l 

% of 

Varian 

ce 

Cumulati 

ve % 

1 5.60 

9 

2 1.42 

6 

43.146 43.146 5.609 43.146 43.146 3.27 

0 

10.967 54.113 1.426 10.967 54.113 2.99 

7 

25.153 25.153 

23.056 48.209

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3 1.07 

0 

8.229 62.342 1.070 8.229 62.342 1.83 

7 

14.133 62.342 

4 .985 7.578 69.920 

Initial Eigen values 

Extraction Sums of Rotation Sums of Squared 

Squared Loadings Loadings 

Componen 

t 

Tota 

l 

% of 

Varianc 

e 

Cumulativ 

e % 

Tota 

l 

% of 

Varian 

ce 

Cumulati 

ve % 

Tota 

l 

% of 

Varian 

ce 

Cumulati 

ve % 

5 .678 5.219 75.138 

6 .643 4.945 80.083 

7 .579 4.454 84.537 

8 .534 4.105 88.642 

9 .411 3.164 91.806 

10 .301 2.319 94.124 

11 .287 2.209 96.333 

12 .272 2.094 98.427 

13 .205 1.573 100.000 

Extraction Method: Principal Component Analysis. 

TABLE 5 : ROTATED COMPONENT MATRIX A 

Component 

1 2 3 

Communication skills .300 .072 .774 

Negotiation skills -.032 .253 .828

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Marketing skills .111 .493 .383 

Presentation skills .292 .593 .289 

Problem solving skills .468 .482 .295 

New problem solving .477 .523 -.132 

Teamwork skills .712 .262 .230 

Confidence level .665 .331 -.074 

Finance management 

skills 

Resource 

management skills 

.113 .818 .249 

.281 .783 .120 

Risk management skills .520 .543 -.028 

Decision making skills .785 .265 .186 

Time 

skills 

Management 

.841 .036 .220 

Extraction Method: Principal Component Analysis. 

Rotation Method: Varimax with Kaiser Normalization. 

a. Rotation converged in 8 iterations. 

Factor analysis is valid as KMO value is found to be very high (not shown due to space 

constraint). First two components are found to be very important using Eigen value concept. The 

analysis is used as a tool for data reduction and to find out most important parameters which are 

improved after organizing the event. 

The rotated component matrix and total variance explained shows the importance of the 

parameters. This shows that some qualities are not enhanced while organizing the events. The 

events marked as bold are important qualities enhanced by organizing the events. The parameters 

which are having factor loading less than 0.6 is excluded as less important parameters. 

There are 3 components got after factor analysis. First factor contains skills like teamwork, 

confidence building, decision making and time management. 2 nd component contains skills of

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management of finance; management of resource and presentation skills, while 3 rd contains 

enhanced communication skills and enhanced negotiation skills. 

TABLE 6: SKILLS ENHANCED DURING PARTICIPATION IN THE EVENTS 

Communication 

skills 

Leadership 

skills 

Teamwork 

skills 

Presentation 

skills 

Technical 

skills 

Confidence 

skills 

Time 

management 

skills 

N Valid 80 79 79 79 78 79 79 

Mean 4.1000 4.0506 4.3418 3.8608 3.9487 4.2658 4.1772 

The table shows that the most important quality enhanced while participating in events is that of 

teamwork followed by confidence enhancement and time management skills. So the organizers 

have to make the events in such a way so as to encourage these qualities (Value close to 5 means 

the factor is enhanced by participating). 

TABLE 7: FACTORS MOTIVATING TO PARTICIPATE IN TECHNICAL FESTIVAL 

Having fun factor of motivation 

Frequency Percent Valid Percent 

Cumulative 

Percent 

Valid .00 39 44.8 48.1 48.1 

1.00 42 48.3 51.9 100.0 

Total 81 93.1 100.0 

Missing System 6 6.9 

Total 87 100.0 

Social interaction factor of motivation 


Cumulative 

Percent 

Valid .00 49 56.3 60.5 60.5

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1.00 32 36.8 39.5 100.0 

Total 81 93.1 100.0 


Total 87 100.0 

Passion factor of motivation 


Cumulative 

Percent 

Valid .00 49 56.3 60.5 60.5 

1.00 32 36.8 39.5 100.0 

Total 81 93.1 100.0 


Total 87 100.0 

College representation factor of motivation 


Cumulative 

Percent 

Valid .00 46 52.9 56.8 56.8 

1.00 35 40.2 43.2 100.0 

Total 81 93.1 100.0 


Total 87 100.0 

A value of 1.00 in the above tables show how that factor is given by the respondent and a value 

of 0.00 show that a respondent is not interested in that. If we look at the tables above we can see

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that the most important parameters for motivation are having fun, followed by representing the 

college. Social interaction and passion to win are also important factors (Only tables for 

important factors of motivation are shown). 

Some experiences carried by the participants are accounted as follows: 

A good platform to learn, compete and evaluate the talents and explore ones own abilities. Also 

these events help in increasing the personal contacts in other colleges. It drives for self 

confidence, self evaluation, evaluates one’s strengths and weaknesses. In addition, the 

participants affirm that they have lots of fun. 

FINDINGS 

1. Galli cricket and LAN gaming are found to be most important events followed by rink football 

rank, robot football , badminton, carom, web design and treasure hunt. So the organizers can 

give more emphasis on these events and can ideally provide more funds for this. Also, the 

marketing can be done improved for these events. 

2. Teamwork, confidence building, decision making and time management are some of the skills 

enhanced by organizing these events. So the events have to be organized or shaped in such a 

fashion that they can that help in building these qualities and also the event organizers can 

concentrate on organizing events which are focused towards these qualities. 

3. Participation in the events enhances qualities like that of teamwork followed by confidence 

enhancement and time management skills. So the events should be formed in such a way that 

they include occasions where these above mentioned parameters are in abundance and student 

participants get a chance to improve on these qualities which are essential for the corporate 

world. This means that the event management team has to think in lot of dimensions so as to give 

the participants the necessary skills and at the same time make them enjoy the events. 

4. The most important parameter which motivates the participants is having fun which means 

that the events have to combine intellectual inputs with fun element at the top to make a product 

which is saleable in the student community .Also the importance of competition is also a factor 

which has to be thrown to motivate the students. The events also have to generate passion and 

also a sense of social belonging for the students 

In short, these events have to bestow the necessary planning and organizing skills for the 

organizers. In addition to the necessary skills and the fun element, the participants also have to 

learn new skills and the feeling of representing their college. This is a challenge for both the 

organizers and the participants. 

SUGGESTIONS 

The essence of the entire study is to aim at making these technical events a striking success. The 

following are some of the suggestions reiterated as follows;

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1. In the process of organizing the technical events and the challenges faced by students in 

obtaining the sponsorship, it is important to keep in mind that corporate sponsorship is a 

form of brand advertising. This can be done by highlighting technical events that reflect 

the sponsors’ advertisement and/or logos at events or venues and in the media that 

advertise these events. Typical places for advertising the sponsors are banners over 

entrances, backs of spectator seats, any programs that are used by participants, t-shirts for 

participants as well organizers. Using a spreadsheet to handle these assets can be a handy 

way to keep track. 

2. Developing a website for the college event and finding out how many visitors have 

visited the website would help determine the popularity of the college event. 

3. Before sending off the initial query, it is important to locate and confirm a media partner. 

Research on the prospective companies that might be interested in sponsoring the event. 

To approach potential sponsors, it is advisable to write a one page proposal and/or 

prepare presentations that highlights/targets the type of participants. 

REFERENCES 

1. C.R. Kothari, 2009, Research Methodology, 2 nd Edition , New age Pub. 

2. Sanjay Gaur, 2009, Research Methods in Business(SPSS), Response Pub. 

ANNEXURE-1 –QUESTIONNAIRE 

Questionnaire on Effectiveness of IT events in academic institutions-students’ perspective 

Have you organized/participated a technical festival(s) in your/other colleges? 

1. Organized 2. Participated 3. Both 1 & 2 4. None 

SECTION I – FOR ORGANIZERS 

1.1 Rank the events on the basis of response from the participants (1 –highest and 18-lowest) 

Event Name 

Rank 

Event Name 

Rank 

Coding & Debugging 

Rink Football 

Technical Quiz 

Badminton 

Web Designing 

Ad Mad Show 

Treasure Hunt 

Carrom

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Poster Designing 

Lan Gaming 

Galli Cricket 

Short Film Making 

Dance 

Chess 

Robot Football 

Java Encoding 

Paper Presentation 

Project presentation 

1.2. While organizing the events what challenges/issues have you faced to get the sponsorship? 

…………………………………………………………………………………………………… 

1.3. Choose the following skills in terms of importance when approaching for sponsorship 

Sr. 

No. 

Characteristics 

Not Very 

Important 

Not 

Important 

Neutral Important Very 

Important 

1 Communication skills 

2 Negotiation skills 

3 Marketing skills 

4 Presentation skills 

5 Any other 

1.4 Choose the appropriate option which enhances below mentioned qualities while organizing 

the event. 

Sr. 

No. 

Qualities 

Not Very 

Much 

Not Much Neutral M uch Very Much 


2 Negotiation skills 

3 Marketing skills 

4 Presentation skills

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5 Problem-solving skills 

6 Developing new skills 

7 Team work 

8 Enhances confidence level 

9 Managing finance 

10 Managing 

resources/logistics 

11 Risk management 

12 Decision making skills 

13 Time management skills 

SECTION 2 FOR PARTICIPANTS 

2.1 Choose the appropriate option which enhances below mentioned qualities 

Sr. 

No. 

Qualities Not Very 

much 

Not 

much 

Neutral Much Very much 


2 Leadership 

3 Team Work 

4 Presentation skills 

5 Technical skills 

6 Confidence level 

7 Time Management skills 

2.2. Select the factors that motivate you to participate in technical festival? 

1 Competition with others 2. Self-evaluation 3. Having fun

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4. Increasing social interaction 5. Passion to win 6.Representing your college 

7. Any other: _____________________________ 

2.3. Comment on your experiences when you attended other college IT events 

……………………………………………………………………………………………………… 

DEMOGRAPHICS 

Name:_____________________________ 

Age-group 

1. 18-24 2. 24-30 3. 30-40 

Gender: 

4. 40-50 5. 50 & above 

1. Male 2. Female 

Educational Background: 

1. Undergraduate 2. Graduate 3. Post-graduate 4. Doctorate 

Class: _________________________ 

Email-ID: ___________________________

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M-LEARNING: A NOVEL WAY TO ENHENCE 

YOGA EDUCATION 

DR V.N.PATIL*: ASHISH NAMDEVRAO SAWALE** 

*Director, School of Educational Sciences, S.R.T.M. University, 

Nanded, Maharashtra, India. 

** Research Scholar,School of Educational Sciences, S.R.T.M.University, 

Nanded, Maharashtra, India. 

ABSTRACT 

Today we live in an era of information and communication technology due to the revaluation of 

mobile technology. Mobile technology in word open various ways for new educational 

technologies aimed at fulfilling the country‟s educational needs. M-learning is a new way of 

learning. In which mobile devices including handheld Pc, PDA, mobile phones, symbian and 

smart phones are used for teaching learning purposes. It is a novel concept which makes learning 

portable, spontaneous, effective and exciting. The most important future of M-learning is it 

decreases limitation of learning location. There are various ways to use mobile phones for Yoga 

Education. We can record the lectures, read E-books, provide feedback, access internet; 

multimedia materials, practical exercises and use Yoga related software for enhance Yoga 

Education. 

KEYWORDS: M-learning, Mobile learning, Yoga Education. 

INTRODUCTION 

According to Aristotle, „Education is the process of creating sound mind in the sound body‟. It is 

a short but full description of happy and healthy body. Yoga is an ancient pragmatic science 

which dealing with the physical, moral, mental and spiritual well being of man over thousands of 

years. It is both science and art which show the way and art of living. Through Yoga we realize 

how important a balanced mind is through experiencing deeper aspects of our own personality 

and then we begin to balance our essential needs and desires and develop insight. Yoga 

education can help students and teachers to relax the body, focus the mind and create healthy 

lifestyle. 

Today we live in an era of information and communication technology due to the 

revaluation of mobile technology. Mobile technology in word open various ways for new 

educational technologies aimed at fulfilling the country‟s educational needs. M-learning is a new 

way of learning. In which mobile devices including handheld Pc, PDA, mobile phones, symbian 

and smart phones are used for teaching learning purposes. It is a novel concept which makes 

learning portable, spontaneous, effective and exciting. The most important future of M-learning 

is it decreases limitation of learning location. There are various ways to use mobile phones for

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Yoga Education. We can record the lectures, read E-books, provide feedback, access internet; 

multimedia materials, practical exercises and use Yoga related software for enhance Yoga 

Education. 

WHAT IS YOGA EDUCATION? 

Yoga is a word from the ancient Sanskrit language; it derived from the ancient Sanskrit 

language root Yuj. That means Union, the attainment and merger of the individual human 

consciousness with the cosmic consciousness. The word Yoga is also used to describe the 

different Yogic Techniques employed the different disciplines that are used to facilitate the 

awareness and experience of Body, Mind and Spirit integration. Yoga is one of the six orthodox 

systems of ancient Indian philosophy. 

“Yoga is a set of physical and mental exercises, India in origin, which is intended to give control 

over the body and mind” 

- Cambridge Advanced Learner‟s Dictionary. 

Yoga, as a science and as a form of exercise, is not new science of health education. Yoga has a 

rich successful history of more than five thousand years. The Upanishads provided the base of 

yoga teaching. Yoga Education is one of the forms of physical or health education which help 

teachers and students to discover their self and help them to live a life where their body, mind, 

and spirit will be in harmony. Yoga education includes teachings of yoga to students of all ages. 

In this type of education yoga is learn and teach as a part of school curriculum for academic 

achievements. 

There are many institutes in world which offers various types of educational courses in 

yoga education. There are various introductory Yoga classes for people who not done before 

should in roll series or in beginning level class, special weekend workshops, teacher training 

program focusing on intensive studies in Asanas for advance learner of yoga. Yoga education 

includes all major concepts and practices of yoga. 

SIGNIFICANCE OF YOGA EDUCATION 

There are various significance of use Yoga Education in the Classroom, they are as 

fallows… 

* It helps students and teachers to relax their body. 

* It helps to provide effective treatment of a wide range of health problems or disorders. 

* It helps students and teachers to develop their imagination power. 

* It creates a healthy atmosphere for teaching-learning process.

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* It helps teacher and students to reduce their stress and tensions. 

* It helps teacher and students to bring concentration. 

* It heals to improve muscle tone, energy, stamina, strength and flexibility of teacher and 

students. 

*It helps to burn up body‟s extra fat and provide a much-improved body shape or figure. 

* It helps students and teachers to develop their decision making competency. 

WHAT IS M-LEARNING ? 

Today we live in an era of information and communication technology due to the 

revaluation of mobile technology. At the beginning mobile was considered as luxury. The price 

of a handset and call rates was beyond the reach of an ordinary person, but in present condition 

price fall, increasing demand and liberalization in government policy has given rise to Mobile 

Revolution. According to Telecom Regulatory Authority of India (TRAI), "India had 456.7 

million mobile subscribers; showed meaning about 40 percent of Indian's billion-plus population 

now had a phone. The most important future of M-learning is it decreases limitation of learning 

location. Adult peoples are largely adopters of new technologies that‟s why most of the students 

and teachers have their own mobile phones. Mobiles are not just a plaything but beyond it, it is 

an amazing educational tool for teaching and learning process. Mobile phones have all of the 

functional capabilities of modern computers so it can be used as educational tool. UNESCO 

mobile learning workshop in Tokyo (2005) serving as a sort of landmark event for the topic. The 

workshop report published as „Mobile Learning for Expanding Educational Opportunities‟ which 

focusing on the possible usage models and relevance for using mobile phones in a variety of 

ways to support new teaching-learning processes. 

“M-learning is a novel way of use mobile technology for teaching learning process”. 

“M-Learning is mobile learning using mobile technologies such as mobile phones & hand-held 

computers to enhance the learning process.” 

Mobile technology in word open various ways for new educational technologies aimed at 

fulfilling the country‟s educational needs. Information and communication technology has 

changed the way people looked at education. M-learning is a new way of learning. In which 

mobile devices including handheld Pc, PDA, mobile phones, symbian and smart phones are used 

for teaching learning purposes. It is a novel concept which makes learning portable, spontaneous, 

effective and exciting. The most important future of M-learning is it decreases limitation of 

learning location. 

ROSPECTIVES OF M-LEARNING TO ENHENCE YOGA EDUCATION 

There are various prospective of use M-learning system for enhance Yoga Education. 

They are as fallows ……….

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1) Yoga is a developing science. We can use MMS, SMS, E-mail and mobile calling to give 

latest information to teachers and students to update their knowledge about Yoga. 

2) We can give information related Yoga educational program me like conference, workshop, 

seminar through mobile calling and massaging to develop competencies of Yoga teacher. 

3) Due to the busy should, teachers and students could not able attend this voluble programmes. 

In such conditions we can make video clips of this programme and distribute it among them 

easily. 

4) the most important future of M-learning is, it decreases limitation of learning location. One 

can learn or practice yoga whenever he wants. 

5) We can solve our Yoga related quires by calling to yoga expert. 

6) We can use various type of Yoga software to learn and enhance Yoga Education. 

7) We can download various types of Yoga E-books and Audio Books on our mobile. 

8) We can download various types of Yoga postures Videos for practice yoga. 

9) We can browse various Yoga Institutional web sites and offered courses through mobile 

internet. 

10) M-leaning system is also useful for developing distance education strategies for 

Yoga education. 

11) M-learning helps us to record lectures and video clips of expert yoga teachers. 

CONCLUSION 

Yoga is an ancient pragmatic science which dealing with the physical, moral, mental and 

spiritual well being of man over five thousands of years. Bhagavat Gita is one of the sacred 

source book which deals with the yoga philosophy, in which Lord Krishna explains the meaning 

of yoga as a deliverance from pain and sorrow that is why Yoga Education is considered as a 

divine science of life. It aims at creates a positive learning environment for students and teachers, 

increases student performance and improves classroom management with the melodious progress 

of the mind, body and the soul. The main theme to Yoga is to achieve self-realization and 

attaining control over mind. Yoga Education is one of the forms of physical or health education 

which help teachers and students to discover their self and help them to live a life where their 

body, mind, and spirit will be in harmony.There are various ways to use of M-learning system 

for Yoga Education. M-learning is a new way of learning which makes learning portable, 

spontaneous, effective and exciting. The most important future of M-learning is it decreases 

limitation of learning location. M-learning helps us to record lectures, read E-books, provide 

feedback, access internet, multimedia materials, practical exercises, use Yoga related software‟s 

for enhance Yoga Education.

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REFERENCES 

* Cambridge Advanced Learner‟s Dictionary. 

*www.m-learning.org/archive/index.shtml 

* http//en.m.wikipedia.org/wiki/yoga 

*Saraswati, Swami Satyananda, 1993Asana Pranayama Mudra Bandha, 8 th Ed. 

Bihar School of YogaMunger, Bihar, India. 

*www.yogahealthfoundation.org 

* Trisha Lamb, 2005 Yoga and Education (Grades k-12).

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ABSTRACT 

WOMEN ENTREPRENEURSHIP IN INDIA-PROBLEMS AND 

PROSPECTS 

MEENU GOYAL*; JAI PARKASH** 

*Assistant Professor in Commerce, 

Sri Aurobindo College of Commerce and Management, 

Ludhiana – 142021, Punjab, India. 

**Assistant Professor in Commerce, 

Sri Aurobindo College of Commerce and Management, 

Ludhiana – 142021, Punjab. 

The educated Indian women have to go a long way to achieve equal rights and position because 

traditions are deep rooted in Indian society where the sociological set up has been a male 

dominated one. Despite all the social hurdles, Indian women stand tall from the rest of the crowd 

and are applauded for their achievements in their respective field. The transformation of social 

fabric of the Indian society, in terms of increased educational status of women and varied 

aspirations for better living, necessitated a change in the life style of Indian women. She has 

competed with man and successfully stood up with him in every walk of life and business is no 

exception for this. These women leaders are assertive, persuasive and willing to take risks. They 

managed to survive and succeed in this cut throat competition with their hard work, diligence 

and perseverance. 

The present paper endeavors to study the concept of women entrepreneur–Reasons women 

become entrepreneurs -Reasons for slow progress of women entrepreneurs in India - suggestions 

for the growth of women entrepreneurs-Schemes for promotion & development of women 

entrepreneurship in India-Case study of a women entrepreneur of Ludhiana. 

KEYWORDS: Entrepreneurship, Women, Business, Gender. 

INTRODUCTION 

The educated women do not want to limit their lives in the four walls of the house. They demand 

equal respect from their partners. However, Indian women have to go a long way to achieve 

equal rights and position because traditions are deep rooted in Indian society where the 

sociological set up has been a male dominated one. Women are considered as weaker sex and 

always made to depend on men folk in their family and outside, throughout their life. The Indian 

culture made them only subordinates and executors of the decisions made by other male 

members, in the basic family structure. While at least half the brainpower on earth belongs to 

women, women remain perhaps the world‘s most underutilized resource. Despite all the social 

hurdles, India is brimming with the success stories of women. They stand tall from the rest of the 

crowd and are applauded for their achievements in their respective field. The transformation of


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social fabric of the Indian society, in terms of increased educational status of women and varied 

aspirations for better living, necessitated a change in the life style of Indian women. She has 

competed with man and successfully stood up with him in every walk of life and business is no 

exception for this. These women leaders are assertive, persuasive and willing to take risks. They 

managed to survive and succeed in this cut throat competition with their hard work, diligence 

and perseverance. Ability to learn quickly from her abilities, her persuasiveness, open style of 

problem solving, willingness to take risks and chances, ability to motivate people, knowing how 

to win and lose gracefully are the strengths of the Indian women entrepreneurs. 

CONCEPT OF WOMEN ENTREPRENEURS 

Women Entrepreneurs may be defined as the women or a group of women who initiate, organize 

and operate a business enterprise. The Government of India has defined women entrepreneurs as 

―an enterprise owned and controlled by women having a minimum financial interest of 51 per 

cent of the capital and giving at least 51 per cent of the employment generated in the enterprise 

to women‖. Women entrepreneurs engaged in business due to push and pull factors which 

encourage women to have an independent occupation and stands on their on legs. A sense 

towards independent decision-making on their life and career is the motivational factor behind 

this urge. Saddled with household chores and domestic responsibilities women want to get 

independence. Under the influence of these factors the women entrepreneurs choose a profession 

as a challenge and as an urge to do some thing new. Such a situation is described as pull factors. 

While in push factors women engaged in business activities due to family compulsion and the 

responsibility is thrust upon them. 

OBJECTIVES AND RESEARCH METHODOLOGY OF THE STUDY 

The study is based on secondary data which is collected from the published reports of RBI, 

NABARD, Census Surveys, SSI Reports, newspapers, journals, websites, etc. The study was 

planned with the following objectives: 

To evaluate the factors responsible for encouraging women to become entrepreneurs 

To study the impact of assistance by the government on women's entrepreneurship. 

To study the policies, programmes, institutional networks and the involvement of support 

agencies in promoting women's entrepreneurship. 

To critically examine the problems faced by women entrepreneurs. 

REASONS FOR WOMEN BECOMING ENTREPRENEURS 

The glass ceilings are shattered and women are found indulged in every line of business. The 

entry of women into business in India is traced out as an extension of their kitchen activities, 

mainly 3P‘s, Pickle, Powder and Pappad. But with the spread of education and passage of time 

women started shifting from 3P‘s to modern 3E‘s i.e., Energy, Electronics and Engineering. 

Skill, knowledge and adaptability in business are the main reasons for women to emerge into

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business ventures. ‗Women Entrepreneur‘ is a person who accepts challenging role to meet her 

personal needs and become economically independent. A strong desire to do something positive 

is an inbuilt quality of entrepreneurial women, who is capable of contributing values in both 

family and social life. With the advent of media, women are aware of their own traits, rights and 

also the work situations. The challenges and opportunities provided to the women of digital era 

are growing rapidly that the job seekers are turning into job creators. Many women start a 

business due to some traumatic event, such as divorce, discrimination due to pregnancy or the 

corporate glass ceiling, the health of a family member, or economic reasons such as a layoff. But 

a new talent pool of women entrepreneurs is forming today, as more women opt to leave 

corporate world to chart their own destinies. They are flourishing as designers, interior 

decorators, exporters, publishers, garment manufacturers and still exploring new avenues of 

economic participation. The following flow chart shows the reasons for women becoming 

entrepreneurs 

Innovative 

thinking 

self identity 

and social status 

Education 

and qualification 

New challenges 

and 

opportunities for 

self fulfillment 

support of 

family members 

Employment 

generation 

REASONS 

WOMEN 

BECOME 

ENTREPRENEURS 

Role model 

to others 

Freedom to take 

own decision and 

be independent 

Success stories 

of friends 

and relatives 

Government 

policies 

and procedures 

Bright future of 

their wards 

Family occupation 

Need for 

additional income

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REASONS FOR SLOW PROGRESS OF WOMEN ENTREPRENEURS IN INDIA 

The problems and constraints experienced by women entrepreneurs have resulted in restricting 

the expansion of women entrepreneurship. The major barriers encountered by women 

entrepreneurs are: 

• The greatest deterrent to women entrepreneurs is that they are women. A kind of 

patriarchal- male dominant social order is the building block to them in their way towards 

business success. Male members think it a big risk financing the ventures run by women 

• Male chauvinism is still prevalent in many parts of the country yet. Women are looked 

upon as ―abla‖ i.e. weak in all respects. In a male dominated society, women are not 

treated equal to men that act as a barrier to woman‘s entry into business. 

• Women entrepreneurs have to face a stiff competition with the men entrepreneurs who 

easily involve in the promotion and development area and carry out easy marketing of 

their products with both the organized sector and their male counterparts. Such a 

competition ultimately results in the liquidation of women entrepreneurs. 

• Lack of self-confidence, will-power, strong mental outlook and optimistic attitude 

amongst women creates a fear from committing mistakes while doing their piece of work. 

The family members and the society are reluctant to stand beside their entrepreneurial 

growth. 

• Women in India lead a protected life. They are even less educated, economically not 

stable nor self-dependent which reduce their ability to bear risks and uncertainties 

involved in a business unit, 

• The old and outdated social outlook to stop women from entering in the field of 

entrepreneurship is one of the reasons for their failure. They are under a social pressure 

which restrains them to prosper and achieve success in the field of entrepreneurship 

• Unlike men, women mobility in India is highly limited due to many reasons. A single 

women asking for room is still looked with suspicion. Cumbersome exercise involved in 

starting with an enterprise coupled with officials humiliating attitude towards women 

compels them to give up their spirit of surviving in enterprise altogether. 

• Women's family obligations also bar them from becoming successful entrepreneurs in 

both developed and developing nations. The financial institutions discourage women 

entrepreneurs on the belief that they can at any time leave their business and become 

housewives again. 

• Indian women give more emphasis to family ties and relationships. Married women have 

to make a fine balance between business and family. The business success also depends 

on the support the family members extended to women in the business process and 

management.

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• Women‘s family and personal obligations are sometimes a great barrier for succeeding in 

business career. Only few women are able to manage both home and business efficiently, 

devoting enough time to perform all their responsibilities in priority. 

• The educational level and family background of husbands also influences women 

participation in the field of enterprise. 

• Absence of proper support, cooperation and back-up for women by their own family 

members and the outside world people force them to drop the idea of excelling in the 

enterprise field. They are always making many pessimistic feelings to be aroused in their 

minds and making them feel that family and not business is a place meant for them. 

• Many women take the training by attending the Entrepreneurial Development programme 

without an entrepreneurial bent of mind. Women who are imparted training by various 

institutes must be verified on account of aptitude through the tests, interviews, etc. 

• High production cost of some business operations adversely affects the development of 

women entrepreneurs. The installations of new machineries during expansion of the 

productive capacity and like similar factors discourage the women entrepreneurs from 

venturing into new areas. 

• Women controlled business are often small and it is not always easy for women to access 

the information they need regarding technology, training, innovative schemes, 

concessions, alternative markets, etc. Just a small percentage of women entrepreneurs 

avail the assistance of technology and they too remain confined to word processing 

software in the computer. They hardly make use of advanced software available like 

statistical software SAP, Accounting Package like TALLY, Animation software 3D 

MAX, internet, etc 

• Lack of awareness about the financial assistance in the form of incentives, loans, schemes 

etc. by the institutions in the financial sector. So the sincere efforts taken towards women 

entrepreneurs may not reach the entrepreneurs in rural and backward areas. 

• Achievement motivation of the women folk found less compared to male members. The 

low level of education and confidence leads to low level achievement and advancement 

motivation among women folk to engage in business operations and running a business 

concern. 

Apart from the above discussed problems there may occur other series of serious 

problems faced by women entrepreneurs as improper infrastructural facilities, high cost 

of production, attitude of people of society towards the women modern business outlook, 

low needs of enterprise. Women also tend to start business about ten years later than men, 

on average. Motherhood, lack of management experience, and traditional socialization 

has all been cited as reasons for delayed entry into entrepreneurial careers.

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SUGGESTIONS FOR THE GROWTH OF WOMEN ENTREPRENEURS 

Right efforts from all areas are required in the development of women entrepreneurs and their 

greater participation in the entrepreneurial activities. Entrepreneurship basically implies being in 

control of one‘s life and activities and women entrepreneurs need to be given confidence, 

independence, and mobility to come out of their paradoxes. The following measures are 

suggested to empower the women to seize various opportunities and face challenges in business. 

• There should be a continuous attempt to inspire, encourage, motivate and cooperate 

women entrepreneurs. 

• An Awareness programme should be conducted on a mass scale with the intention 

of creating awareness among women about the various areas to conduct business. 

• Attempts should be there to enhance the standards of education of women in 

general as well making effective provisions for their training, practical experience 

and personality development programmes, to improvise their over-all personality 

standards. 

• Organize training programmes to develop professional competencies in 

managerial, leadership, marketing, financial, production process, profit planning, 

maintaining books of accounts and other skills. This will encourage women to 

undertake business. 

• Vocational training to be extended to women community that enables them to 

understand the production process and production management. 

• Skill development to be done in women's polytechnics and industrial training 

institutes. Skills are put to work in training-cum-production workshops. 

• Educational institutes should tie up with various government and non-government 

agencies to assist in entrepreneurship development mainly to plan business 

projects. 

• International, National, Local trade fairs, Industrial exhibitions, seminars and 

conferences should be organized to help women to facilitate interaction with other 

women entrepreneurs. 

• Women in business should be offered soft loans & subsides for encouraging them 

into industrial activities. The financial institutions should provide more working 

capital assistance both for small scale venture and large scale ventures. 

• Making provision of micro credit system and enterprise credit system to the 

women entrepreneurs at local level.



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• The weaker section could raise funds through various schemes and incentives 

provided by the government to develop entrepreneurs in the state. E.g. the Prime 

ministers Rozgar Yojana, The Khadi and Rural village industries scheme, etc. 

• In the initial stages women entrepreneurs may face problems but they must 

persevere, believe in themselves and not give up mid way. 

• Attempts by various NGO‘s and government organizations to spread information 

about policies, plans and strategies on the development of women in the field of 

industry, trade and commerce. Women entrepreneurs should utilize the various 

schemes provided by the Government. 

• Women should try to upgrade themselves in the changing times by adapting the 

latest technology benefits. Women must be educated and trained constantly to 

acquire the skills and knowledge in all the functional areas of business 

management. This can facilitate women to excel in decision making process and 

develop a good business network 

• Self help groups of women entrepreneurs to mobilize resources and pooling 

capital funds, in order to help the women in the field of industry, trade and 

commerce can also play a positive role to solve this problem. 

• Women‘s entrepreneurship must be examined both at the individual level (i.e. the 

choice of becoming self-employed) and at the firm level (the performance of 

women owned and managed firms) in order to fully understand the differences 

between men‘s and women‘s entrepreneurship. 

• To establish all India forums to discuss the problems, grievances, issues, and 

filing complaints against constraints or shortcomings towards the economic 

progress path of women entrepreneurs and giving suitable decisions in the favor 

of women entrepreneurs and taking strict stand against the policies or strategies 

that obstruct the path of economic development of such group of women 

entrepreneurs. 

Thus by adopting the following aforesaid measures in letter and spirit the problems associated 

with women can be solved. Entrepreneurship is not a bed of roses to women. Women 

participation in many kinds of economic activities to complement to their family income, their 

participation in no way reduces their family duties. The task of women has become more tedious 

and full of challenges. Let us all make efforts to help women rediscover her. 

STEPS TAKEN BY THE GOVERNMENT 

Development of women has been a policy objective of the government since independence.Until 

the 70s the concept of women‘s development was mainly welfare oriented. In 1970s, there was a 

shift from welfare approach to development approach that recognised the mutually reinforcing 

nature of the process of development. The 80s adopted a multi-disciplinary approach with an


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emphasis on three core areas of health, education and employment. Women were given priorities 

in all the sectors including SSI sector. Government and non government bodies have paid 

increasing attention to women‘s economic contribution through self employment and industrial 

ventures. 

The First Five-Year Plan (1951-56) envisaged a number of welfare measures for women. 

Establishment of the Central Social Welfare Board, organization of Mahila Mandals and the 

Community Development Programmes were a few steps in this direction. 

In the second Five-Year Plan (1956-61), the empowerment of women was closely linked with 

the overall approach of intensive agricultural development programmes. 

The Third and Fourth Five-Year Plans (1961-66 and 1969-74) supported female education as a 

major welfare measure. 

The Fifth Five-Year Plan (1974-79) emphasized training of women, who were in need of income 

and protection. This plan coincided with International Women‘s Decade and the submission of 

Report of the Committee on the Status of Women in India. In1976, Women‘s welfare and 

Development Bureau was set up under the Ministry of Social Welfare. 

The Sixth Five-Year Plan (1980-85) saw a definite shift from welfare to development. It 

recognized women‘s lack of access to resources as a critical factor impending their growth. 

The Seventh Five-Year Plan (1985-90) emphasized the need for gender equality and 

empowerment. For the first time, emphasis was placed upon qualitative aspects such as 

inculcation of confidence, generation of awareness with regards to rights and training in skills for 

better employment. 

The Eight Five-Year Plan (1992-97) focused on empowering women, especially at the Gross 

Roots Level, through Panchayati Raj Institutions. 

The Ninth Five-Year Plan (1997-2002) adopted a strategy of Women‘s Component Plan, under 

which not less than 30 percent of funds/ benefits were earmarked for women related sectors. 

The Tenth Five-Year Plan (2002-07) aims at empowering women through translating the 

recently adopted National Policy for Empowerment of Women (2001) into action and ensuring 

Survival, Protection and Development of women and children through rights based approach. 

At present, the Government of India has over 27 schemes for women operated by different 

departments and ministries. Some of these are: 

Integrated Rural Development Programme (IRDP) 

Khadi And Village Industries Commission (KVIC) 

Training of Rural Youth for Self-Employment (TRYSEM)


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Prime Minister‘s Rojgar Yojana (PMRY) 

Entrepreneurial Development programme (EDPs) 

Management Development progammes 

Women‘s Development Corporations (WDCs) 

Marketing of Non-Farm Products of Rural Women (MAHIMA) 

Assistance to Rural Women in Non-Farm Development (ARWIND) schemes 

Trade Related Entrepreneurship Assistance and Development (TREAD) 

Working Women‘s Forum 

Indira Mahila Yojana 

Indira Mahila Kendra 

Mahila Samiti Yojana 

Mahila Vikas Nidhi 

Micro Credit Scheme 

Rashtriya Mahila Kosh 

SIDBI‘s Mahila Udyam Nidhi 

Mahila Vikas Nidhi 

SBI‘s Stree Shakti Scheme 

NGO‘s Credit Schemes 

Micro & Small Enterprises Cluster Development Programmes (MSE-CDP). 

National Banks for Agriculture and Rural Development‘s Schemes 

Rajiv Gandhi Mahila Vikas Pariyojana (RGMVP) 

Priyadarshini Project- A programme for ‗Rural Women Empowerment and Livelihood in 

Mid Gangetic Plains‘ 

NABARD- KfW-SEWA Bank project


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Exhibitions for women, under promotional package for Micro & Small enterprises 

approved by CCEA under marketing support 

The efforts of government and its different agencies are ably supplemented by NGOs that are 

playing an equally important role in facilitating women empowerment. Despite concerted efforts 

of governments and NGOs there are certain gaps. Of course we have come a long way in 

empowering women yet the future journey is difficult and demanding. 

RAJNI BECTOR: A CASE STUDY OF SUCCESSFUL WOMEN ENTERPRENEUR 

Cremica is one of the largest food processing companies of India with an annual growth rate of 

30%. The quality, the taste and the penchant for perfection is what has given the required thrust 

to sales. From a single plant at Phillaur, today Cremica has a number of plants situated at various 

locations all over India. Cremica‘s presence in the market is visible on account of its vast range 

of products, which include: Biscuits, Sauces, Jams and Ketchups, Indian Snacks, Ready to Eat 

Food, Condiments, Frozen Products and Bakery Products. 

A homegrown business, Cremica was founded by Mrs. Rajni Bector, who started making ice 

creams in her garage. Though she had no formal training or background, her recipes were a 

runaway success in Punjab. 

Rajni Bector is one of the first women entrepreneurs in Ludhiana. While she insists on being a 

woman entrepreneurship comes to her easily; it‘s been a long journey to success, nevertheless. 

Rajni Bector was just a housewife before she started selling her kitchen-made ice creams at 

Diwali Melas in the late 1970s. Today, Cremica group does sales of Rs.200 crore (Rs.2 billion) 

and is an important link in the supply chain to the fast food industry with an inventory of buns, 

breads, sauces, ketchups and ice creams toppings to the likes of McDonalds and syrups and 

mayonnaise to Barista.. 

Below are the steps of success in which Mrs. Bector made growth in her business to be the 

successful women entrepreneur. 

‣ 1980- Mrs. Rajni Bector an arts graduate, founder of the MRS. BECTOR‘S CREMICA 

started her new career from a housewife to an entrepreneur with a meager investment of 

Rs. 20000/- for the manufacturing of Ice Creams & Bakery items from the backyard of 

her residence. 

‣ 1982-Mr. Ajay Bector her eldest son joined her to help her with the increased business 

volumes. 

‣ 1986 : She started another unit at Ludhiana for the manufacturing of Bread and bakery 

biscuits with an investment of Rs. 1.00 Lac. 

‣ 1989 ::Mrs. Bector‘s younger sons Akshay Bector & Anoop Bector after completing their 

education joined the business in and a unit for manufacture of bread was established at 

Phillaur near Ludhiana for the manufacture of 50000 loaves of bread per day.



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‣ 1991: Mrs. Bector started another fully automated unit for the manufacture of Biscuits at 

Phillaur with a capacity of 7200 M.T. of Biscuits per annum with an investment of 

Rs.75.00 Lacs. 

‣ 1992:Mrs. Bector‘s Cremica established a manufacturing facility for confectionery items 

followed by a unit for the manufacture of Namkeens. 

‣ 1997: By seeing the quality of the products being manufactured McDonalds approached 

Mrs. Bector for supplies of various products i.e. buns, liquid products and batters & 

breading. This was a golden opportunity for the Bector Family and the family entered 

into various Joint ventures so that international expertise could help them produce 

international level products compared to the best in the world. 

‣ 2002: A modern Bun Manufacturing facility manufacturing over 150000 Buns per shift 

was established at greater Noida for supplies to McDonalds. This is one of the most 

modern units of its type in the country. 

‣ 2003: A foray was made into Fresh Vegetable Processing and a modern facility for 

processing of fresh vegetables like lettuce, cut vegetables etc for supplies to McDonalds 

was made at an investment of Rs. 15.00 Million. 

‣ 2004: Mrs. Bector‘s Cremica entering into an Agreement with ITC Ltd. for the 

manufacture of Biscuits on contract manufacturing basis at Tahliwal, Distt Una (H.P.). A 

state of the art facility was established for the manufacture of 60000 M.T. of biscuits at a 

cost of over Rs. 25.00 Crores producing biscuits valued at over Rs. 200 Crores P.A. This 

unit produces 30000 M.T. of biscuits for ITC under the SUNFEAST BRAND and 30000 

M.T. under the Mrs. Bector‘s Cremica label. 

The Group also entered in to an agreement with Cadbury India Ltd. for supply of 

Cadbury Bytes with an investment of Rs. 3.00 Crores producing goods valued at Rs. 

30.00 Crores annually. 

‣ 2007 :The Group was offered an opportunity for Equity participation by Goldman Sachs. 

The liquid products & biscuit operations were valued by Goldman Sachs at Rs. 500.00 

Crores. The group offered Goldman Sachs 15% equity for Rs. 75.00 Crores to help speed 

up its expansions with the equity infusion. 

McDonalds offered Mrs. Bector the bun business for West & South India and a new 

state of the art unit was established at Taloja, Navi Mumbai. 

Mrs. Bector acquired a unit at Karnal, Haryana for the manufacture of Indian 

Namkeens. 

The group has acquired new industrial sites at Ludhiana (Punjab), Kundli (Haryana), 

Raigad (Maharastra) & Pune in Maharastra for further expansions.

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Her mantra of success, ―Just remember that work is worship — whatever you do, be it at home 

or outside, treat it respectfully.‖ 

CONCLUSION 

It can be said that today we are in a better position wherein women participation in the field of 

entrepreneurship is increasing at a considerable rate. Efforts are being taken at the economy as 

brought promise of equality of opportunity in all spheres to the Indian women and laws 

guaranteed equal rights of participation in political process and equal opportunities and rights in 

education and employment were enacted. But unfortunately, the government sponsored 

development activities have benefited only a small section of women i.e. the urban middle class 

women. Women sector occupies nearly 45% of the Indian population. At this juncture, effective 

steps are needed to provide entrepreneurial awareness, orientation and skill development 

programs to women. The role of Women entrepreneur in economic development is also being 

recognized and steps are being taken to promote women entrepreneurship. Resurgence of 

entrepreneurship is the need of the hour emphasizing on educating women strata of population, 

spreading awareness and consciousness amongst women to outshine in the enterprise field, 

making them realize their strengths, and important position in the society and the great 

contribution they can make for their industry as well as the entire economy. Women 

entrepreneurship must be moulded properly with entrepreneurial traits and skills to meet the 

changes in trends, challenges global markets and also be competent enough to sustain and strive 

for excellence in the entrepreneurial arena. If every citizen works with such an attitude towards 

respecting the important position occupied by women in society and understanding their vital 

role in the modern business field too, then very soon we can pre-estimate our chances of out 

beating our own conservative and rigid thought process which is the biggest barrier in our 

country‘s development process. 

We always viewed that a smart woman can pick up a job any day, but if she becomes an 

entrepreneur she can provide a livelihood to 10 more women at least..!! Highly educated, 

technically sound and professionally qualified women should be encouraged for managing their 

own business, rather than dependent on wage employment outlets. The unexplored talents of 

young women can be identified, trained and used for various types of industries to increase the 

productivity in the industrial sector. 

REFERENCES 

Arora, R.;and Sood, S.K.(2005), ―Fundamentals of Enterpreneurship and Small Business‖ 

Baporikar, N. (2007) Entrepreneurship Development & Project Management- Himalaya 

Publication House. 

Brush, C. (1997). Taori ,Dr. Kamal - Entrepreneurship in the Decentralised Sector Women- 

Owned Businesses: Obstacles and Opportunities, Journal of Developmental Entrepreneurship. 

Desai, V: (1996) Dynamics of Entrepreneurial & Development & Management Himalaya 

publishing House - Fourth Edition, Reprint.

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Dhameja S K (2002), Women Entrepreneurs: Opportunities, Performance and Problems, Deep 

Publisher (P) Ltd., New Delhi. 

Gordon E. & Natarajan K.: (2007) Entrepreneurship Development – Himalaya Publication 

House, Second Revised edition. 

Hattangadi Dr. Vidya: (2007) Entrepreneurship – Need of the hour, Himalaya Publication House, 

First edition.Schemes and Programmes of Ministry of Small Scale Industries and Ministry of 

Agro & Rural Industries, Govt. of India Kalyani Publishers. 

Kumar, A. (2004), "Financing Pattern of Enterprises Owned by Women Entrepreneurs", The 

Indian Journal of Commerce, Vol. 57, No. 2. 

Mahanty Sangram Keshari – Fundamentals of Entrepreneurship – Prentice Hall of India 

Raheem A (2006), "Role of SHGs", Yojana, Vol. 50, No. 12. 

Renuka V. (2001) Opportunities and challenges for women in business, India Together, Online 

Report, Civil Society Information Exchange Pvt. Ltd. 

WEBSITES 

info@ijrcm.org.in accessed on 19 April 2011 

www. Smallindustryindia.com accessed on 4 April 2011 

www.dcmsme.gov.in/schemes/Schemes for the development and promotion of women 

entrepreneurs. PDF accessed on 4 April 2011 

www.ghallabhansali.com accessed on 4 April 2011 

www.icfaijournals.com accessed on 4 April 2011 

www.imer.com accessed on 7 April 2011 

www.ludhianadistrict.com/articles/article1184678891.html accessed on 20 April 2011 

www.ludhianadistrict.com/personality/rajni-bector.php accessed on 20 April 2011 

www.nawbo.org. "About NAWBO" National Association of Women Business Owners accessed 

on 2 April 2011 

www.newsweek.com/2010/07/06/women-will-rule-the-world. accessed on 20 April 2011 

www.referenceforbusiness.com/small/Sm-Z/Women-Entrepreneurs.html accessed on 20 April 

2011 

www.udyogini.org accessed on 2 April 2011

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FEMININE SURVIVAL: A COGNITIVE ASSESSMENT OF THE LEGAL 

REGIME IN INTERNATIONAL HUMANITARIAN LAW 

ABSTRACT 

GAURAV ARORA*; SUPRITHA PRODATURI** 

*Student, Rajiv Gandhi National University of Law, 

Patiala, Punjab, India. 

**Student, Rajiv Gandhi National University of Law, 

Patiala, Punjab, India. 

As name suggests this piece of writing reflects the theoretical deficiencies that exist in the legal 

regime of humanitarian law and does not contain a detailed description and critique of all the 

existing rules of the law of armed conflict that relate specifically to the protection of women, 

such as those that provide special protection for pregnant women and against rape. The argument 

of this article is that the existing provisions are totally inadequate. It has been accepted that 

provisions for special protection do exist in the legal regime of IHL but they reflect male 

perspective and have very little to do with how female see it. The aim of this article is also to 

extend the critique of human rights law by feminist scholars to humanitarian law. At the end 

paying heed to the ongoing important work of the ICRC, a modest proposal for reform i.e. a 

protocol to protect women in times of armed conflict has been put forward. 

KEYWORDS: Atrocities to women in warfare; Dominant Male Perspective; Inadequate Legal 

Regime; Reforms Proposed; Role of ICRC. 

INTRODUCTION 

IHL takes a particular male perspective on armed conflict, as a norm against which to measure 

equality. In a world where women are not equals of men, and armed conflict impacts upon men 

and women in a fundamentally different way, a general category of rules that is not inclusive of 

the reality for women cannot respond to their situation .A number of feminist academics 

increasingly maintain that international humanitarian law (IHL) continues to fail women. This is 

because IHL has not responded adequately to women’s experiences (Colletta et al., 2001). The 

opinion of the experts around the globe regarding the quality of international humanitarian 

law’s provisions for the protection of women diverges. Some are of the view that the existing 

provisions of the IHL are adequate whereas some jurists like Judith G. Gardam consider that the 

provisions are totally inadequate. For example, Judith Gardam and Michelle Jarvis concluded 

that, “It is apparent from a comparison between the reality of armed conflict for women and the 

existing relevant norms of international law, that the latter are inadequate” (Gardam & Javis, 

2001). And a number of contemporary feminist critics have also suggested that some aspects of 

the IHL rules regarding women are archaic and reflect the very stereotypical ideas about women 

that perpetuate discrimination (Benounce, 2006). These views suggest that implementation of 

present IHL through international criminal courts alone, though an important step, may not

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entirely remedy the problem. Instead, perhaps something must be done to modernize IHL, itself, 

in light of advances in understanding violence against women in conflict, especially those 

advances made in international human rights standards (Doswald – Beck & Vite, 2004). 

But the International Committee of the Red Cross (ICRC), which was recognized in the Geneva 

Conventions as the guardian of IHL, is of the opinion that sufficient rules exist in IHL to prevent 

violence against women in armed conflict and the real problem exist in the failure to implement 

this law. According to the ICRC, “If women have to bear so many of the tragic effects of 

conflict, it is not because of any shortcomings in the rules protecting them, but because those 

rules are not observed” (Benounce, 2006) . ICRC has always accused the governments of 

different countries for not observing the rules of IHL and has repeatedly been persuading the 

countries to respect and implement the existing norms. As according to Francoise Krill, “If 

women in real life are not always protected as they should be, it is not due to the lack of a legal 

basis. The international community will not succeed in remedying this situation merely by 

adopting new rules. Most of all, it must see that the rules already in force are respected” (Krill, 

1985). Hence, we can see there are different views regarding the existing provisions of IHL for 

the protection women. Nonetheless, there is any dearth of evils inflicted upon women in warfare 

when there exists some theoretical flaws in the existing legal regime which has further led to the 

continuous suffering of women in the armed conflict. 

HARMS TO WOMEN IN WARFARE 

Women experience warfare differently from men. This is because the women suffer violence 

which may be socially invisible. The international community has formally acknowledged in 

Security Council Resolution that “civilians, particularly women and children, account for the 

vast majority of those adversely affected by armed conflict, including as refugees and internally 

displaced persons, and increasingly are targeted by combatants and armed elements”. Though 

there is not enough information to support this view as traditionally men used to compile the data 

and inevitably treat women under the rubric of (male) civilians (Gardam, 1997) but still statistics 

on sexual violence against women in warfare are easily available which proves this beyond 

reasonable doubt. The centuries old sufferings of women thus remains hidden. It is no 

coincidence that there has been a marked difference in the coverage of the Yugoslav conflict due 

to the increased number of women reporters in that war. 

Generally, Women are not directly involved in warfare. The main actors in times of armed 

struggle are combatants, who are predominantly male. According to Boutros- Boutros, women, 

however, are arguably the major victims of warfare. The sexual violence of women during and 

after warfare is a settled fact and well documented. The atrocities on women in the former 

Yugoslavia are by no mean a new phenomenon. Forced impregnation, forced maternity, forced 

termination of pregnancy are specific violations that affect women and girls (Lindsey, 2001). 

Forcible prostitution has also been regarded as an inevitable and settled practice in such times. 

Rape in warfare crosses all cultural boundaries and has been consistently unreported and 

unrecorded, although it has resulted in death and suffering for countless women over the years 

(Chinkin, 1994).

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HARMS OTHER THAN SEXUAL VIOLENCE 

Although sexual abuse is the most noticeable area in which women suffer during warfare, this is 

just one aspect of their experience. Violence against women in war is widespread, often 

systematic, multi-faceted, and heinous. Other distinctive ways in which warfare impacts on 

women are, however, less easily identified as they are rarely the focus of attention, unlike the 

treatment of combatants(Gardam, 1997).The forms of gender-based abuse of women and girls in 

armed conflict that are most frequently documented in literature include: (Benounce, 2006) rape; 

sexual abuse and assault; deliberate infection with HIV/AIDS; pornography and recording of 

sexual violence; sexual mutilation; medical experimentation on sexual and reproductive organs; 

enslavement and sexual slavery; forced marriages or cohabitation; pregnancy complications, 

birth defects, and sterility following exposure to toxic or prohibited weapons; gender based 

forms of arbitrary detention and de facto arbitrary detention; forced impregnation; forced 

pregnancy and abortion; enforced sterilization; strip-searching, forced public nudity, and sexual 

humiliation; forced veiling or unveiling; trafficking in women and girls; enforced prostitution; 

failure to grant refugee status for gender-based harms. ICRC has further addressed the need of 

personal safety of women in armed conflict which encompasses safety from dangers, acts of 

violence or threats thereof against members of the civilian population not or no longer taking a 

direct part in hostilities (Lindsey-Curlet et al., 2004). 

There are still other types of abuses prevalent during warfare like the detention of women in 

conditions designed for men or without the presence of female guards and the deprivation of 

economic, social, and cultural rights in conflict situations has a particular impact on women. This 

includes: house destruction, demolition, and expropriation; property destruction and 

confiscation; denial and withholding of humanitarian assistance etc. Are these not for the part of 

violence or these are mere side effects of war? If we go by the recent human rights instrument to 

combat violence against women, it takes a broad approach to defining violence against women 

and might include the abuses against women listed above. So if ICRC has given this name of 

international humanitarian law to the law of armed conflict then it must cater to the requirements 

that its name demands and all the above listed violence should form a part of subject matter in 

IHL. The human rights perspective of IHL will help in better understanding the harms done to 

women or advocating the rights of women in warfare. 

HUMAN RIGHTS VS. THE LAW OF ARMED CONFLICT 

Although human rights law and the law of armed conflict have much in common, they also differ 

in significant aspects. The primarily focus of human rights has been on conferring rights on 

individuals and to protect them from arbitrary actions by the State where as the law of armed 

conflict, as traditionally known primarily confers rights on States that are designed to further 

military efficiency (Jochnick & Normand, 1994). Or in simple words, human rights law may 

have more to offer in civil conflicts than the law of armed conflict. Thus, although “international 

humanitarian law” is the preferred term of the ICRC to describe the law of armed conflict, it is 

misleading to the extent that it conveys an impression that these rules are based on purely 

humanitarian considerations. This is one of the reasons for the preference of writers for the term 

the law of armed conflict or the law of war, rather than humanitarian law. Some writers have 

gone as far as to claim that “the laws of war have been formulated deliberately to privilege

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military necessity at the cost of humanitarian values” (Jochnick & Normand, 1994). Moreover it 

is not state but military who primarily determine the extent to which warfare is regulated. To 

illustrate the power of the military in determining what the law will be, one has to consider their 

role in the law-making processes. 

A study of the development of the law of armed conflict reveals that the military have 

traditionally supported rules protecting combatants, such as the prohibition of weapons causing 

unnecessary suffering and the extremely detailed provisions protecting prisoners of war. These 

rules may appear humanitarian in nature but they in fact serve other interests (Jochnick & 

Normand, 1994). By contrast, there is no obvious military advantage to be gained in protecting 

civilians or women in fact quite often the reverse (Keen, 1965). So the ends of IHL are met by 

the so called “military necessity” not the humanitarian aspect. 

Feminists’ theoretical insights of the regime of human rights have a great deal to offer to a study 

of the law of armed conflict. Working on the western liberal ideals one of their major tasks has 

been to identify features of the existing legal regime of human rights that take no account of the 

realities of women’s lives. International law itself is a system of law developed by Western 

States and one would expect to find within its structures, evidence of the influence of the 

public/private distinction, and one does. The gendered aspects of the public/private distinction 

appear alive and well in the rules of international law, both creating and reinforcing the unequal 

protections offered to women by human rights law (Charlesworth et al., 1991). 

INADEQUACIES IN THE EXISTING LEGAL REGIME 

IHL in many ways represents a tremendous legal achievement as an international consensus on 

limiting the methods and means of warfare designed to minimize the suffering caused. Before 

discussing the minutes of the existing provisions of IHL related to the protection of women one 

must know that the core of conventional IHL is comprised of the Four Geneva Conventions 

adopted in 1949 and their two Additional Protocols adopted in 1977. The Geneva Conventions of 

1949 and their two Additional Protocols mark a watershed in the codification and development 

of international humanitarian law (Dixit, 2002). It has only been since the early 1990s that 

international human rights standards have begun to address violence against women seriously. 

Speaking on the theoretical lines, women are at same footing as men are in the general 

protections offered by IHL, including those shielding the wounded, combatants, and persons 

detained in connection with an armed conflict. However, in addition to the general provisions of 

IHL, there are some rules that are gender-specific. According to the ICRC, of the five hundred 

and sixty articles comprising the law of Geneva, approximately fifty provisions from the 

Conventions and Protocols deal with non-discrimination or otherwise provide “special protection 

for women”(Krill, 1985). On the other hand of some 34 provisions ostensibly providing 

safeguards for women, a closer inspection reveals that 19 of them are intended primarily to 

protect children. In the light of current understanding of women’s human rights, there is a fair 

amount to criticize, particularly in some of the unfortunate wording to be found in the 

Commentary on the key texts (Bennounce, 2006).

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BALANCE BETWEEN COMBATANTS AND CIVILIANS 

As evident from the names of the Four Geneva Conventions in the footnote, each of the treaties 

noted has a somewhat different focus. Women and girls do sometimes serve as combatants, a 

growing reality which must not be overlooked. However, they mostly fit into the category of 

civilians. Thus, the Fourth Geneva Convention, and the analogous provisions relating to internal 

armed conflict are particularly relevant to them. With the exception of Common Article 3 of 

the Geneva Conventions, the four Conventions relate exclusively to international armed conflict. 

Less protection is afforded in internal conflict which is covered only by Common Article 3 and 

Protocol II. This distinction has been likened by some feminist scholars to the lower level of 

protection offered by classical interpretations of human rights law for harms in the “private” 

sphere. 

The preference given to the protection of the predominantly male combatant by the regime of the 

law of armed conflict can be illustrated in a number of ways. For example, there are far more 

rules protecting combatants than non-combatants (Gardam, 1993). Moreover, many of the 

situations that require legal constraints are specific to combatants, such as the treatment of 

prisoners of war, wounded and sick in the field, and weapons causing unnecessary suffering. In 

this context the defects of the system from the perspective of women lies not so much in the fact 

that there are more rules protecting combatants, or even that their breach is taken more seriously, 

but in the balance within the rules themselves. 

This argument that the system has an inbuilt balance in favour of combatants can be 

demonstrated by considering one of the fundamental principles of this system, the principle of 

proportionality. This principle is the basis of the rules prohibiting the indiscriminate use of force 

and is intended to provide significant protections to civilians. However, it has failed in this task. 

For example, the treaty rule of proportionality in Article 51(5) of Protocol I to the Geneva 

Conventions says “which may be expected to cause incidental loss of civilian life, injury to 

civilians, damage to civilian objects, or a combination thereof, which would be excessive in 

relation to the concrete and direct military advantage anticipated” (Gardam,1993). The words 

“incidental” and “excessive” require assessments to be made(Wallikhanna, 2004) that will in 

many cases involve a relative judgment about the value of lives, a conclusion that must 

inevitably reflect the priorities of the decision by military men. 

GENDER INSUFFICIENCIES WITH REGARD TO CIVILIANS 

The legal regime of IHL is inadequate in recognizing that women being part of civilians 

experience warfare differently from men. This can be illustrated by the approach taken to the 

regulation of sexual violence against women in warfare, such as the failure of the law to specify 

in any detail the requirements for safeguarding women’s reproductive health in either the Third 

Geneva Convention dealing with prisoners of war or the Fourth Geneva Convention dealing with 

persons in occupied territories, although both these documents contain comprehensive provisions 

in relation to health generally. 

It was not until 1949 that the first attempts were made specifically to outlaw rape (Brouwer, 

2005). However, the topic was dealt with in a way that clearly reflects how rape in warfare is

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perceived by men, not its actual reality for women. Article 27(2) of the Fourth Geneva 

Convention requires that “Women shall be especially protected against any attack on their 

honour, in particular against rape, enforced prostitution, or any form of indecent assault.” It 

specifies rape as an attack on women’s honour. Such an approach has a great deal to do with a 

male view of rape and very little to do with how women see it (Chinkin, 1994). Women 

experience rape as torture and it should be recognised as such by the legal regime. Secondly the 

word used in the above-mentioned article is “protected” instead of “prohibited”. Rape is regarded 

as one of the worst practices of armed conflict; the law has not always shared this perception 

which can be seen in the bare wording of the articles of Geneva Conventions and their protocols. 

Finally, special treatment is given to pregnant women whether they are pregnant when taken 

prisoner, how can they become pregnant in custody despite the precautions taken. So one side 

they are protecting the interests of women and on the other hand leaving a scope for harms to be 

done even in the custody. 

Sexual violence in warfare is the most obvious distinctive experience of women in armed 

conflict; it is not something that they experience to any degree in common with civilians 

generally, it results in immense suffering and trauma, unrelated to any arguments as to military 

necessity, and is almost universal in all types of warfare. The law, however, does not reflect that 

reality so thinking about the protection of those categories of violence which are still considered 

by the international community under the private domain of human rights is a distant dream. 

REDEFINING THE FUTURE 

In this piece of writing the stress is on the critique of theoretical gender deficiencies that exist in 

the legal regime of IHL, so the conclusion is also based on redressing the same. Feminist critics 

of international humanitarian law suggest several possible strategies to address the gender 

deficiencies that they identify in IHL like law reform through new treaties or other international 

standards on women and armed conflict, or written reinterpretation of existing provisions in the 

legal regime. 

It is indisputable that the existing provisions of the law of armed conflict are designed primarily 

to protect combatants and that those for the protection of civilians fail to recognise the different 

needs of women in times of armed conflict. One possible way out for the problems that have 

been identified in this piece of writing can be that rather than having a new protocol to protect 

women in times of armed conflict, it would be better that all the conventions are redrafted with 

an updated perspective on gender. The problem is not with the nature of the Four Geneva 

Conventions and their Additional Protocols. They do include special provisions that offer 

additional protection for women in warfare but the problem lies in the way they have been 

drafted. As has already been discussed it essentially reflects the male perspective and has ignored 

feminist viewpoint. So the need is not to have new conventions at the international arena but to 

redraft the existing provisions. 

Going by the domestic experience of different countries while protecting the rights of women 

where they have drafted separate legislations focusing entirely on the protection of different 

interests of women, the other possible way is having an additional protocol focusing only on the 

protection of women in warfare. But the question is what would this protocol cover? Firstly, in

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the context of the sexual abuse of women, the legal position in relation to rape needs to be put 

beyond doubt. The words like “protection”, “honour” need to be omitted and the language of the 

articles should be such that it creates terror in the minds of those who commit these crimes. 

Moreover, there are many other aspects to women’s experience of sexual violence in armed 

conflict on which the law is silent. The language in which these provisions are drafted also 

continues to present a picture of women that is outdated and out of keeping with modern 

perceptions of women as individuals in their own right. From this perspective the rules 

protecting women against sexual violence must mirror those that regulate the torture and 

mistreatment of men and sexual violence in any form should not only be protected but 

prohibited. 

As dealt in the preceding text, sexual violence is not the only area of women’s experience of 

armed conflict that needs to be addressed. As ICRC has preferred the term “international 

humanitarian law” to describe the law of armed conflict, it would be the obligation of new 

protocol to stand by this name and should address every possible human violation of women in 

warfare. A comprehensive approach like this is required which can protect the interest of women 

in the regime of IHL in a better way. 

As far as the balance between the combatants and civilians is concerned, it is immature to expect 

a sudden shift in the priority given to the protection of the combatant in the law of armed conflict 

without a successful challenge to the doctrine of military necessity and what it represents. The 

question is not regarding ignoring the protection to the combatants but a balance that needs to be 

there in these two interests. The opinion may differ among the different theorists regarding 

having a new protocol for the protection of women in warfare or to redraft the existing 

provisions but the time has come for a Protocol to the Geneva Conventions to Protect Women in 

Times of Armed Conflict. But today it would be difficult to achieve a consensus on text like this 

each only a little more than a decade old. Thus, reopening the basic principles of the existing 

texts in this vital area of law by drafting a new instrument is a high stakes project. Also, 

tremendous resources would be needed to make such a document a reality. 

For achieving all these goals the commentaries of ICRC can be very helpful as these 

commentaries touch every angle of the legal regime of IHL. Apart from the operational help that 

ICRC has provided to the victims of sexual violence (Lindsey, 2001), it can play a big role for 

advocating and protecting the rights of women. In the recent past theorists like Gardam and 

Jarvis have criticized the methods employed by the ICRC to address the suffering of women, and 

indeed the patriarchal nature of the institution itself. Whilst acknowledging a recent “sea change” 

within the ICRC in its approach to this issue, they still feel that the ICRC has done too little too 

late and is institutionally not able to tackle deeply with the inherent complexities of a gender 

perspective. The ICRC, like any other part of the humanitarian community, must constantly 

reconsider its capacity to incorporate gender issues into its operational work. The pledge made at 

the 27 th International Conference, specifically addressing the issue of women and armed conflict, 

and the Women and War project are obvious examples of an institution seriously committed to 

reducing the suffering of women. The ICRC’s Women Facing War study, which resulted from 

the Women and War project, is far more than an academic piece of literature.


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Honest and righteous efforts must be made to bring the advances made in the area of women’s 

human rights to bear on the mainstream of IHL. Paying heed to the ongoing important work of 

the ICRC, any such efforts undertaken must be balanced with a significant emphasis on full and 

universal implementation of existing rules of IHL. Despite deficiencies in the overall framework, 

this might still go a long way toward greater protection for women in conflict. We must 

understand that everything is no more fairer in war and when it comes to protection of fairer sex, 

we do need to have fair laws to ensure their protection. 

REFERENCES 

BOOKS 

Brouwer, Anne-Marie de (2005), Supranational Criminal Prosecution of Sexual 

Violence: the ICC and the Practice of the ICTY and the ICTR, Intersentia, Belgium, 

p.103. 

Brownmiller, Susan (1975), Against our Will: Men, Women and Rape, Simon and 

Schuster, New York,p.51 . 

Colletta, Nat J. et.al. (2001), Social Cohesion and Conflict Prevention in Asia: Managing 

Diversity through Development ,World Bank Publications, United States,p.118. 

Gardam, J. & Jarvis, M. (2001), Women, Armed Conflict and International Law, Kluwer 

Law International, The Hague, p.93. 

Gardam, Judith G. (1993), Non-Combatant Immunity as a Norm of International 

Humanitarian Law, Martinus Nijhoff Publishers, The Hague, p.67. 

Keen, Maurice (1965), The Laws of War in the Late Middle Ages, Routledge & K.Paul, 

London. 

Lindsey, Charlotte (2001), Women facing war, ICRC, Geneva, p.51. 

Lindsey-Curlet, Charlotte et.al.(2004), Addressing the needs of Women Affected by 

Armed Conflict, ICRC, Geneva,p.17. 

WaliKhanna, Charu (2004), Women, Silent Victims in Armed Conflict: An Area Study 

of Jammu & Kashmir, Serials Publications, India, p.140 . 

ARTICLES 

Chris af Jochnik and Roger Normand (1994), The Legitimation of Violence: A Critical 

History of the Laws of War, Harvard Law Journal, Vol. 35, p.49. 

Christine Chinkin (1994), Rape and Sexual Abuse of Women in International Law, 

E.J.I.L, Vol. 53, p.26.


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Francoise Krill (1985), The Protection of Women in International Humanitarian Law, 

International Review of Red Cross, Vol. 249, p.337. 

Hilary Charlesworth, Christine Chinkin and Shelley Wright (1991), Feminist Approaches 

to International Law, A.J.I.L., Vol. 85, p. 613 . 

Judith G. Gardam (1993), Gender and Non-Combatant Immunity, Trans.L. & Contemp. 

Problems, Vol. 3, p. 345 . 

Judith G. Gardam (1993), Proportionality and Force in International Law, 

A.J.I.L.,Vol.87, p.391. 

Judith G. Gardam(1997), Women and the Law of Armed Conflict: Why the Silence, 

46(1) I.C.L.Q., Vol. 46(1), p.55 

Judith Gardam & Michelle Jarvis (2000), Women and Armed Conflict: The International 

Response to the Beijing Platform for Action, Colum. Hum. Rts. L. Rev., Vol.32, p.1 . 

Karima Bennoune (2004), Toward a Human Rights Approach to Armed Conflict: Iraq 

2003, U.C. DAVIS J. Int’l L. & POL’Y, Vol. 11, p.171 

Karima Bennoune (2006), Do we need New International Law to protect women in 

Armed Conflict?, Case W. Res. J. Int’l L., Vol.38, p.363. 

Louise Doswald-Beck & Sylvain Vite (1993), International Humanitarian Law and 

Human Rights Law, Int’l Rev. Red Cross Vol. 293, p.94. 

R.K. Dixit, Special Protection of Women during armed conflicts under the Geneva 

Conventions Regime (2002), ISIL Yearbook of International Humanitarian and Refugee 

Law, Vol.2, p.147.

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ABSTRACT 

EXPLORING THE BENEFITS OF MICROFINANCE 

ORGANISATIONS FOR POVERTY ALLEVIATION 

(A RESEARCH STUDY CONDUCTED IN PUNJAB) 

MANISHA SHARMA*; VISHAL SARIN** 

*Assistant Professor, Department of Commerce, 

A.P.J. College of Fine Arts, Jalandhar, Punjab. 

**Assistant Professor, Lovely Honors School of Business, 

Lovely Professional University, Phagwara, Punjab. 

This study is based upon the role of microfinance organizations in poverty alleviation. The study 

focuses on the identification of critical factors responsible for poverty and extent to which 

Microfinance organizations have helped in alleviating poverty. First of all meaning of poverty is 

ascertained and then factor analysis is used to bring out the factors which the clients or members 

feel that microfinance organizations are offering. Poverty is caused due to lack of finance and 

increased in credit can help people to provide other basic facilities. Microfinance organization 

facilitates access to credit which enables the poor to earn their livelihood. The factors include 

financial upliftment, women empowerment, empowerment, social upliftment, health, education 

and housing. Factor analysis is used to determine the critical order of significance on 26 

weighted factors. 

So the efforts of microfinance should be focused on seven identified factors. The study also 

analyses the reasons for joining Microfinance organizations. 

KEYWORDS: Empowerment, Factors, Poverty alleviation, Microfinance organization. 

INTRODUCTION 

Poverty is a condition characterized by severe deprivation of basic human needs. It depends not 

only on income but also on access to services. It includes a lack of income and productive 

resources to ensure sustainable livelihoods; hunger and malnutrition; ill health; limited or lack of 

access to education and other basic services; increased morbidity and mortality from illness; 

homelessness and inadequate housing; unsafe environments and social discrimination and 

exclusion. 

Englama and Bamidele (1997) aptly summarized the definition of poverty, in both 

absolute and relative terms as a state where an individual is not able to cater adequately for 

his/her basic needs of food, clothing and shelter, meet social and economic obligations; lacks 

gainful employment, skills, assets and self-esteem; and has limited access to social and economic 

infrastructures. In other words, the poor lacks basic infrastructure such as education, health, 

potable water, and sanitation, and as a result has limited chance of advancing his/her welfare to

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the limit of his/her limited access to social and economic infrastructures‖. In other words, the 

poor lacks capabilities. 

The history of poverty alleviation and microfinance are extricable interwoven. 

Microfinance has globally emerged as a major policy tool for eradication of poverty. To achieve 

the objective of poverty alleviation the stance of policy on micro credit was to ensure that 

sufficient and timely credit was reached as expeditiously as possible as large a segment of 

population at reasonable rates of interest. While there is no question that the poorest can benefit 

from primary health care and from basic education, it is not as intuitive that they can also benefit 

from microfinance, or that microfinance is an appropriate tool by which to reach the Millennium 

goals. 

The microfinance sector can be classified into two parts: 

1. The formal sector 

2. Informal sector 

Formal sector mainly concern with middle and lower level but now they are participating 

in the micro credit.It includes NABARD,RBI,Commercial Banks,Cooperative Banks. 

The informal financial sources generally include funds available from family sources or 

local money lenders. The local money lenders charge exhorbitant rates, generally ranging from 

36% to 60% interest due to their monopoly in the absence of any other source of credit for nonconventional 

needs. Chit Funds and Bishis are other forms of credit system operated by groups 

of people for their mutual benefit which however their own limitations have. 

Now a days SHG-BANK linkage model is becoming more popular. 

NABARD conducted a series of research studies independently and in association with 

MYRADA, a leading non-governmental organization (NGO) from Southern India, which 

showed that despite having a wide network of rural bank branches servicing the rural poor, a 

very large number of the poorest of the poor continued to remain outside the fold of the formal 

banking system. These studies also showed that the existing banking policies, systems and 

procedures, and deposit and loan products were perhaps not well suited to meet the most 

immediate needs of the poor. It also appeared that what the poor really needed was better access 

to these services and products, rather than cheap subsidized credit.To analyse the impact of 

MFI,s a survey has been conducted. 

LITERATURE OF REVIEW 

Godwin Chigozie Okpara in ―MICROFINANCE BANKS AND POVERTY 

ALLEVIATION IN NIGERIA‖ used factor analysis for identifying reasons of poverty and 

extent to which microfinance institutions are helpful. The result of the analysis identifies five 

factors: low profit, prices of commodities are too high, hard economic times, lack of finance to

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start or expend their business, and business not doing well, as critical factors causing 

poverty.Poverty is caused by low profits in the meager or petty business of less privileged 

people, high cost of commodities in the face of low income earning, lack of finance to take off 

or expand business, and hard economic times. 

Hulme, David and Paul Mosley (1997) in ―Finance for the Poor or Poorest? Financial Innovation, 

Poverty and Vulnerability ‖ defined poverty, techniques of measuring and deciding who constitute 

the poor. There is a controversy regarding defining poverty. Whether poverty is largely about 

material needs or whether it is about a much broader set of needs that permit well-being (or at least 

a reduction in ill-being). The former position concentrates on the measurement of consumption, 

usually by using income as a surrogate. 

Matin (1998) BRAC is to continue and extend its health programme, and almost all Microfinance 

NGOs in Bangladesh to provide weekly health education at meetings and offer special loans for 

clients to install tubewells and latrines—they are protecting their loan investments. But MF 

institutions are rarely, if ever, capable of delivering other key preventative health care services like 

immunization services and reproductive health care. 

Marcus, Rachel. Beth Porter and Caroline Harper (1999) finded in ―Money Matters: 

Understanding Microfinance‖ a wide range of experience and examines microfinance projects in 

light of current trends and research. They concluded that Microfinance can clearly help reduce 

poverty and vulnerability. Improvements to livelihood security are usually more incremental than 

the dramatic success stories sometimes quoted. However, for the people concerned, small changes 

in livelihoods may be significant. Microfinance clearly contributes to improvements in children‘s 

welfare through increased incomes and hence improved nutrition, housing, health and school 

attendance, and reductions in harmful child labour. Improvements in school attendance or in 

provision of educational materials are also widely reported. It clearly depicts increased household 

income. 

Robinson, M. (2001) ‗The Microfinance Revolution: Sustainable Finance for the Poor‘, World 

Bank, Washington. In a study of 16 different MFIs from all over the world shows that 

having access to microfinance services has led to an enhancement in the quality of life of 

clients, an increase in their self-confidence, and has helped them to diversify their 

livelihood security strategies and thereby increase their income. 

Mani Singh (2001) has explained in his article ―Self help group some organizational Aspects‖ 

that the organizational functions are motivation, fixation & collection of monthly thrifts, 

maintenance of books of accounts, formulation of rules and regulations, increase in membership 

and framing of policy and programmes. He has also revealed that the social functions are 

providing education, knowledge and information, providing idea of consumer protection and 

environment protection, preventing harmful diseases, eradication of poverty, linkage with other 

agencies for socially, useful activities. 

Shah, Neha (2003) In ―Institutional credit, employment generation And poverty alleviation: a 

comparative Analysis‖. examined the strength and weakness of the micro finance programme as

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a tool for poverty alleviation. They examined the extent to which micro finance supports the 

existing and alternative income generating activities. The study found that the growth of nonfarm 

economic activities has increased. 

Nirmala, V. sham Bhat, and P. Bhuvaneswari (2004) in their study ―Self help groups for poverty 

Alleviation in Pondicherry'' have discussed about the performance and impact of self help 

groups on the empowerment rural poor women in Pondicherry region. The study included he 

socio economic background of the sample respondents during survey and identified the main 

determinants of the monthly income of the respondents. They also examined the benefit and 

problems experienced by the self help group sample respondents. Such a study has contributed to 

an understanding of the functioning of the self help groups in rural Pondicherry. 

NABARD, in association with GTZ, conducted a study (2005 It also showed empowered women 

by enhancing their contribution to household income, increasing the value of their assets and 

generally by giving them better control over decisions that affect their lives. Further it reduced 

child mortality, improved maternal health and the ability of the poor to combat disease through 

better nutrition, housing and health - especially among women and children and contributed to a 

reduced dependency on informal money lenders and other non institutional sources. 

Ananta Basudev Sahu and Sandhya Rani Das (2007) in They concluded that habits of savings, 

economic independence, self confidence, social cohesion, asset ownership, freedom from debt, 

additional employment, etc. benefits are derived by the SHG members. Thus, SHGs have served 

the cause of women empowerment. 

Objectives 

The main objective of the study is to know the impact of microfinance organizations in poverty 

alleviation. It determines various factors which are important from respondent‘s point of 

view.i.e.How far microfinance organizations have satisfied poor people as far as determinants of 

poverty are concerned.The study also reveals the purpose of joining MFI's in Punjab. 

SAMPLE DESIGN 

For analyzing the impact of microfinance the SHG's linked model (co-operative banks of 

Punjab) has been used. `The concept of MFI‘s is relatively new to Punjab and there is dearth of 

empirical data regarding analysis of MFI‘s. Primary data is collected. 20 districts from Punjab 

have been covered. For the purpose of research 40 villages from different branches were selected 

for the study. Convenience sampling has been used, selecting 10 persons from each village, there 

by making a sample of 400 respondents for the purpose of analysis. However 134 respondents 

had not joined MFI,s.So 266 respondents were considered for the purpose. 

ANALYTICAL TOOLS 

This is purely a descriptive study. Factor analysis is used for the purpose. Beside cross 

tabulation is also used. Factor analysis is a statistical method used to describe variability 

among observed variables in terms of a potentially lower number of unobserved variables called

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factors. The term factor analysis was first introduced by Thurstone, 1931. In other words, it is 

possible, for example, that variations in three or four observed variables mainly reflect the 

variations in a single unobserved variable, or in a reduced number of unobserved variables. 

Factor analysis searches for such joint variations in response to unobserved latent variables. The 

observed variables are modeled as linear combinations of the potential factors, plus "error" 

terms. The information gained about the interdependencies between observed variables can be 

used later to reduce the set of variables in a dataset. Factor analysis originated in psychometrics, 

and is used in behavioral sciences, social sciences, marketing, product management, operations 

research, and other applied sciences that deal with large quantities of data. Therefore, factor 

analysis is applied as a data reduction or structure detection method. 

LIMITATIONS 

Every research has some limitation. Efforts are however made to minimize to make study more 

effective. 

1. Many respondents were not sure about what they are responding to question. 

2. Since this is convenience sampling, personal bias may have also crept in due to 

respondents to rationalize their views. 

3. The secrecy and confidential factor was a limiting factor in collection of data. 

4. Because of limitation of time, the study is limited. 

5. Resource constraints are also limitation for the study. 

6. As a student, lack of experienced knowledge is also limitation for the study. 

7. Generalizations made based on the finding of the study may not be directly applicable 

to other areas and need to be sustained with other studies. 

ANALYSIS AND DATA INTERPRETATION 

Data were analyzed using SPSS 16.00 software. 

The respondents were asked to rate the 30 variables on a five-point scale. Since there are 

four variables which are not providing useful information. Hence by using factor reduction 

technique, these variables are deleted for further research. The values of factor loading of these 

four variables are less 0.50. Hence for more accurate result, these variables are not considered for 

further analysis. The test of validity of data was examined with the help of a Kaiser-Meyer-Ohlin 

(KMO) measure of sample adequacy and Barlett‘s test of sphericity. These two tests satisfied the 

validity of data for factor analysis. The results of these two tests are given below in table 1.

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TABLE NO.1 

KMO AND BARTLETT’S TEST 

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.839 

Bartlett's Test of Sphericity Approx. Chi-Square 3.407 

Df 325 

Sig. .000 

To determine the number of components, only the eigen values greater than or equal to 1 

were considered. In addition, the KMO measure and the Barlett Sphericity test were affected. 

The extraction method was Principal component; the rotation method was Varimax with Kaiser 

Normalization. The results are shown in table 2. 

TABLE NO2 

RESULTS OF PRINCIPAL COMPONENTS ANALYSIS 

Initial Eigenvalues 

Rotation Sums of Squared Loadings 

Component Total % of Variance Cumulative % Total % of Variance Cumulative % 

1 5.312 20.430 20.430 3.992 15.354 15.354 

2 3.934 15.130 35.560 2.870 11.037 26.392 

3 2.732 10.507 46.067 2.816 10.831 37.223 

4 2.083 8.013 54.080 2.805 10.788 48.012 

5 1.566 6.024 60.104 2.096 8.062 56.074 

6 1.270 4.884 64.988 1.780 6.846 62.920 

7 1.139 4.380 69.368 1.676 6.448 69.368 

8 .917 3.528 72.896 

9 .771 2.967 75.863 

10 .742 2.853 78.717 

11 .725 2.788 81.504 

12 .614 2.362 83.866 

13 .569 2.187 86.053 

14 .536 2.062 88.115 

15 .495 1.905 90.020 

16 .430 1.654 91.674 

17 .415 1.597 93.270 

18 .365 1.403 94.673 

19 .341 1.312 95.985 

20 .304 1.167 97.153 

21 .244 .938 98.090 

22 .222 .853 98.944 

23 .134 .514 99.458 

24 .086 .330 99.789 

25 .047 .179 99.968 

26 .008 .032 100.000 

As evident from above table, the total variance explained by seven factors is 69.368 

percent. The factor loadings are the weights and correlation between each variable and the factor. 

The higher the load indicates the more relevant in defining the factors dimensionality. The factor

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loading of the variables determining extent of satisfaction in each factor, the reliability 

coefficient (Cronbach alpha), the eigen value, and the percent of variation explained by the 

factors are shown in table 3. 

TABLE NO. 3 

ATTRIBUTE GENERATED FOR THE STUDY 

Factor Variable Factor 

Loading 

Financial 

Upliftment 

Women 

Empowerment 

Empowerment 

Social 

upliftment 

Health 

Education 

Housing 

Earnings has improved 

Enhanced Saving 

Reasonable rate of interest 

Easy access to credit 

More job opportunities 

Women at home are more 

socially & legally aware 

Women gained more 

confidence while travelling 

Decrease in violence 

Feel more aware 

More skilled now 

Enhanced confidence 

Increase in communication 

skills 

Urge to skill increase 

Added value to work 

Improved social out look 

Recognition in society 

Participation in decision 

making 

Hygienic food consumption 

Nutritional Diet 

Awareness towards family 

planning 

Child Education 

Financial Knowledge 

Operational Assistance 

Access to clean water 

Use of flush system 

Enabled pucca house 

facilities 

.948 

.976 

.965 

.968 

.854 

.790 

.819 

.750 

.776 

.748 

.644 

.600 

.787 

.740 

.818 

.778 

.762 

.793 

.742 

.668 

.669 

.818 

.665 

.717 

.744 

.529 

Reliability 

Coefficient 

0.986 

0.841 

0.789 

0.815 

0.729 

Eigen 

Value 

Percent of 

Variation 

Explained 

5.312 15.354 

3.934 11.037 

2.732 10.831 

2.083 10.788 

1.566 8.062 

0.626 1.270 6.846 

0.589 1.139 6.448 

The most important factor identified was found to be ―Financial upliftment,‖ since the 

eigen value and percent of variation explained by this factor are 5.312 and 15.354, respectively.

224 


ZENITH 



This factor consists of four variables with a reliability coefficient of 0.986. It shows that the 

included variables explain this factor to the extent of 98.6 percent. The percent variation 

explained by this factor is 15.354 percent which is highest among all the other factors. The eigen 

value is also highest compared to other factors. 

The second factor identified as ―Women Empowerment‖. The eigen value of this factor is 

3.934. This factor consists of four variables, with reliability coefficient of 0.841. The percent 

variation explained by this factor is 11.037. 

The next two factors important for Poverty alleviation as identified by factor analysis are 

―Empowerment‖ and ―social upliftment,‖ with five and four variables each, respectively, and 

with reliability coefficients of 0.789 and 0.815, respectively. The percent variation explained by 

these factors is 10.831 and 10.788, respectively. The eigen value of these factors are 2.732 and 

2.083 respectively. The variance explained and eigen value of these two factors are almost equal. 

The fifth factor identified as ―Health‖. It consists of three variables. The eigen value and 

percent variance explained by this factor are 1.566 and 8.062 respectively. The reliability 

coefficient of this factor is 0.729. 

The other two factors are identified as ―Education and Housing‖ which help to determine 

the poverty alleviation through Microfinance Organizations. Both factors consist of three 

variables each. The reliability coefficients are 0.626 and 0.529 respectively. The eigen value and 

percent variations explained by Education are 1.270 and 6.846 respectively. The eigen value and 

percent variations explained by Housing are 1.139 and 6.448 respectively. Both factors have all 

most equal eigen value and both are explaining equal percent of variation. But the reliability 

coefficient differs by 10 percent. 

The results provide statistical evidence to support identified determinants of poverty 

alleviation as Financial Upliftment, Women Empowerment, Empowerment, Social Upliftment, 

Health, Education and Housing. 

1. Financial Upliftment: Financial upliftment includes earnings, savings, less interest and 

easy access to loans. It is considered as most important aspect for poverty alleviation 

which is facilitated by microfinance organisations. 

2. Women Empowerment: Women empowerment considers the changes in the life of 

women from it‘s march from house to outside world. It is the second important factor. 

Decision making (Kabir 2001), confidence while travelling (Mahajan & Bansal 2008), 

enhanced confidence and decrease in violence are the determinants of women 

empowerment.It is another aspect of poverty alleviation facilitated by microfinance. 

3. Empowerment: It refers to the awareness, skill and confidence developed amongst 

members after joining self help group. It is the third important determinant for poverty 

alleviation. The members admitted that microfinance has benefitted them to develop 

these attributes.


225 

ZENITH 



4. Social Upliftment: It is the fourth important factor which involves value addition to work, 

participation in decision making and recognition in society. It is concerned with raising 

the status and change in outlook towards the society. 

5. Health: Health considered health as fifth important factor in poverty alleviation. Hygienic 

and nutritional food consumption, family planning measures (Murthy) are also important 

determinants of poverty. Though health is most important aspect yet microfinance 

organizations are not making much efforts in this regard. 

6. Education: Education is basically the most important aspect in poverty alleviation but 

here it is considered the sixth important aspect and involves child education, financial 

knowledge relating to filling up of various bank documents and operational assistances 

by the microfinance organization. 

7. Housing: Housing is again an important but here is the last factor considered by the 

members. It involves access to clean drinking water, type of flush system used and 

renovation or improvement in the structure of the house. Drinking water is taken as proxy 

indicator to estimate poverty (Kashif foundation, 2001).Microfinance organizations have 

neglected this aspect or are not upto the mark. 

FINAL CUSTOMER SATISFACTION MODEL 

On the basis of factor analysis, a model of poverty alleviation is proposed. In the model poverty 

alleviation is a dependent variable. Financial upliftment, social upliftment, empowerment, 

women empowerment, housing, health and education are independent variables. 

FIGURE NO. 1 

FINAL POVERTY ALLEVIATION MODEL DERIVED FROM FACTOR ANALYSIS

226 


ZENITH 



This model has been derived on the basis of statistical evidence; hence, it is validated. It can be 

further used and developed for similar other researches. 

FACTORS RESPONSIBLE FOR JOINING MFI’s 

Factors Frequency %age 

Family welfare 25 9.4 

Availing loans 96 36 

Availing subsidy 18 6.8 

Promoting saving habits & Social Security 81 30.5 

Technical Training 37 14 

Any other 9 3.3 

Total 266 100 

It is an important aspect to know the factors responsible for joining the MFI‘s. 36% of the 

respondents felt that they have joined MFI‘s just for the purpose of availing loans followed by 

30.5% who said that they have joined for developing saving habits and social security. 14% of 

the respondents joined it for technical assistance so that they can develop their skill and can do 

batter. 9.4% joined it for family welfare and 6.8% for the purpose of availing subsidy. It also 

gives an idea that though may people have joined MFI‘s, still they are unaware of the benefits 

being given to them by government i.e. subsidies. So it is just a secondary factor. Other factor 

include personal factors, lack of skills, marketing efforts etc. which comprises 3.3% of the 

respondents. P. Veeramani ,Dr. D. Selvaraju and D.J. Ajithkumar concluded that in the study 

area many people (43.28%) joined the SHGs for getting financial assistance, 32.84% of the 

respondents joined in the SHGs for the social status 14.92% of the respondents joined for 

improve their savings. One of the reasons for joining SHGs is to avail credit (V.M. Rao 2002), 

which is true in the present case. 

CONCLUSION 

This study highlighted the general determinants of poverty alleviation .It identified the 

extent of services and satisfaction provided by microfinance organizations. The purposed model 

may be used as basis to plan efforts towards poverty alleviation. Financial upliftment is the key 

factor which helps in poverty alleviation. Microfinance organizations must focus on other 

factors which includes empowerment, health, education, housing etc. also need attention of 

microfinance organizations. As far as the purpose of joining the microfinance organizations is 

concerned, maximum people join it for the purpose of availing loans and promoting saving 

habits. The relationship gives an idea that people join microfinance organizations for financial 

assistance and consider that MFI,s are assisting them in that respect. So the efforts of 

Microfinance organizations should be articulated on identified factors, especially on education, 

health and housing even though they occupy last position.

227 


ZENITH 



REFERENCES 

Ananta Basudev Sahu and Sandhya Rani Das (2007), Women Empowerment Thorough Self 

Help Groups- A Case Study 

Englama, A. & Bamidele, A. (1997), Measurement issues in poverty. In Poverty Alleviation in 

Nigeria, Selected Papers for the 1997 Annual Conference of the Nigerian Economics Society 

(pp. 141-156). 

Godwin Chigozie Okpara Microfinance banks and poverty alleviation in Nigeria. 

Hulme, D. and P. Mosley (1996), Finance against Poverty, Routledge, London. 

Kabeer N 2001, Conflicts over credit; Re-Evaluating the Empowerment potential of loans to 

women in rural Bangladesh, World development 29(1) p63-64. 

Kamal, A. (1996), Poor and the NGO Process: Adjustment and Complicitis, in H.Z. 

Mani Singh (2001), Self help group some organizational Aspects, The Co-operator,vol.38 

Marcus, Rachel. Beth Porter and Caroline Harper. 1999. Money Matters: Understanding 

Microfinance. Save the Children. London. 

Murthy, R.K.Raju, K.Kamath, Towards women empowerments and poverty reduction, lesson 

from the participatory impact assessment of South Asian Poverty alleviation Programe in 

Andhra Pradesh. 

NABARD (1995), Linking SHG‘S with banks- An Indian Experience. NABARD Bombay, 

pp. 1- 25. 

NABARD (2005), Comparative performance of SHG's bank linkage program vis-à-vis other 

priority sector credit. 

Nirmala, V. sham Bhat, and P. Bhuvaneswari (2004), Self help groups for poverty Alleviation in 

Pondicherry' journal of Rural Development,vol.23(2), pg.203-215 

P. Veeramani Dr. D. Selvaraju and D.J. Ajithkumar (2004) Women Empowerment through Micro 

Entrepreneurship‖Page 84 – Refereed Edition Vol V, Issue 2, October 2009, Indigenous Practices 

in Entrepreneurship 

Shah, Neha (2003), Institutional credit, employment generation And poverty alleviation: a 

comparative Analysis.

228 


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QUESTIONNAIRE 

ANNEXURE:-1 

NAME OF RESPONDENT:__________________________ 

1. After joining Microfinance organization, indicate the degree of satisfaction for the 

following: 

Where ‗1‘ represents ―Strongly Disagree‖, ‗2‘ represents ―Disagree‖, ‗3‘ represents 

―Neutral‖‗4‘ represents ―Agree‖ & ‗5‘ represents ―Strongly Agree‖ 

S.No Particular 1 2 3 4 5 

1 Earnings has improved 

2 Financial Knowledge 

3 Feel more aware 

4 Saving are used for loan 

5 Use of flush system 

6 Conventional banks have more schemes 

7 Enhanced confidence 

8 Decrease in violence 

9 Purpose of loan has been justified 

10 Added value to work 

11 Participation in decision making 

12 Urge to skill increase 

13 Improved social out look 

14 Women at home are more socially & legally aware 

15 Hygienic food consumption 

16 Access to clean water 

17 Increase in communication skills 

18 More skilled now 

19 Recognition in society 

20 Awareness towards family planning 

21 Enhanced Saving 

22 Material possession has increased 

23 Women gained more confidence while travelling 

24 Child Education 

25 Reasonable rate of interest 

26 More job opportunities 

27 Nutritional Diet 

28 Operational Assistance 

29 Enabled pucca house facilities

229 


ZENITH 



30 Easy access to credit 

2. What is the reason for joining MFI‘s? 

[ ] Family welfare [ ] Availing loans [ ] Availing subsidy 

[ ] Promoting saving habits & Social Security [ ] Technical Training 

[ ] Any other (Please specify)________________ 

ANNEXURE:-1 

EXPLORATORY FACTOR PATTERN MATRIX 

Rotated Component Matrix 

COD DISCRIPTION 

FACTORS 

E 

1 2 3 4 5 6 7 

Q1 Earnings has improved 0.94 

8 

- 

.008 

- 

.029 

0.02 

5 

0.11 0.11 0.09 

2 

Q21 Enhanced Saving 0.97 

6 

0.03 

9 

0.00 

7 

0.02 0.1 0.08 0.12 

1 

Q25 Reasonable rate of interest 0.96 0.00 0 0.00 0.06 0.03 0.07 

5 9 2 4 8 

Q30 Easy access to credit 0.96 

8 

0.03 

7 

0.02 

2 

0.04 0.10 

1 

0.08 

6 

0.11 

3 

Q24 Child Education 0.03 

6 

- 

.034 

0.06 - 

0.04 

- 

.132 

0.66 

9 

0.26 

7 

Q2 Financial Knowledge 0.04 

1 

- 

.203 

- 

.046 

0.08 

8 

0.16 0.81 

8 

- 

0.04 

6 

Q28 Operational Assistance 0.27 

1 

- 

.025 

0.10 

2 

0.03 

3 

0.29 0.66 

5 

0.06 

1 

Q15 Hygienic food consumption 0.09 - 

.098 

0 - 

.024 

0.79 

3 

0.09 0.02 

9 

Q27 Nutritional Diet 0.15 

4 

0.06 

2 

0.10 

3 

0.22 

9 

0.74 

2 

0.08 

8 

0.09 

3 

Q20 Use of awareness towards family 

planning 

0.08 

5 

0.05 

5 

0.07 

2 

0.30 

1 

0.66 

8 

0.02 0.30 

8 

Q16 Access to clean drinking water 0.12 

4 

0.23 

2 

0.19 

4 

0.19 - 

.033 

0.02 0.71 

7 

Q5 Use of flush system 0.21 

4 

- 

.103 

- 

.034 

0.09 

5 

0.21 

4 

0.09 

1 

0.74 

4 

Q29 Enabled pucca house facilities 0.06 0.01 0.15 - 0.31 0.25 0.52 

Q10 Edit value to work 0.15 

8 

9 

0.03 

9 

6 

- 

.036 

.089 5 

0.74 0.25 

1 

3 

0.16 

1 

9 

0.11

230 


ZENITH 



Q13 Improved social out look - 

.086 

Q19 Recognition in society - 

0.02 

Q11 Participation in decision making 0.04 

5 

Q3 Feel more aware - 

.073 

Q18 More skilled now 0.08 

3 

Q7 Enhanced confidence 0.13 

5 

0.07 - 

.043 


5 

0.10 

2 

0.13 

9 

0.09 

4 

0.32 

3 

0.21 

7 

0.18 

4 

0.77 

6 

0.74 

8 

0.64 

4 

0.81 

8 

0.77 

8 

0.76 

2 

0.08 

8 

0.17 

9 

- 

.149 

Q17 Increase communication skills 0.07 

3 

- 

.006 

0.6 0.29 

3 

Q12 Urge to skill increased - 0.07 0.78 - 

.147 5 7 .026 

Q26 More job opportunities 0.02 0.85 - 0.02 

3 4 .005 4 

Q14 Women at home are more socially & 0.02 0.79 0.19 0.08 

legally aware 

6 8 

Q23 Women gained more confidence while 0.00 0.81 0.13 0.18 

travelling 

5 9 9 5 

Q8 Decrease in violence 0.00 0.75 0.14 - 

5 6 .046 

0.14 

8 

- 

.023 

- 

0.02 

5 

0.11 

3 

0.02 

2 

0.16 

3 

0.00 - 

3 .008 

0.00 - 

2 .022 

- 0.04 

.023 6 

0.01 0.12 0.03 

7 

0.21 0.02 - 

8 0.12 

0.10 

9 

- 

.018 

0.00 

4 

- 

.071 

- 

.044 

0.09 

5 

- 

.049 

- 

.024 


8 

- 

.089 

- 

.046 

- 

.213 

2 

0.15 

0.02 

4 


4 

-0.05 

0.07 

4 

0.08 

8

231 


ZENITH 



ABSTRACT 

A STUDY ON EFFECTIVENESS OF SELF-EMPLOYMENT TO 

EDUCATED UNEMPLOYED YOUTH SCHEME IN INDIA 

DR. P.V.V. SATYANARAYANA* 

*Director & Associate Professor, 

V.S. Lakshmi Institute of Computer Application and Management Studies for Women, 

NFCL Road, Kakinada – 533005. 

In view of the increasing unemployment in the country the Promotion of Self-Employment and 

decentralized manpower planning have been adopted during the sixth Five Year Plan as the main 

planks of its policy to tackle the unemployment problem in the coming years by putting special 

emphasis on promotion of Self-Employment. It has also been emphasized by different 

groups/Committees that in order to make the Self-Employment Programme more effective, it is 

essential that the potential entrepreneurs are identified, motivated and informed of the various 

facilities and incentives available for taking-up such ventures. The genuine entrepreneur has 

some specific characteristics which are required to be assessed. To identify the Entrepreneurial 

Potentialities of job-seekers/youths, the Directorate General of Employment and Training have 

evolved Psychological Tools consisting of Three Tier approach. The objective of the Three Tier 

System is to elicit various behavioural Patterns/Traits symptomatic of success in Self- 

Employment Ventures and thus useful in identifying the entrepreneurs with requisite level of 

entrepreneurial potential 

KEYWORDS: Self-Employment Schemes, SEEUYS. 

I. INTRODUCTION 

The financial system is the lifeline of the economy. Banks are the backbone of the 

financial sector. They are the most dominant segment of the country’s financial system. Banks 

plays a pivotal role in the development of a sound economy and form the core of the money 

market. It facilitates payment mechanism, mobilized insured deposits, act as credit intermediaries 

and serve as the principal channel for transmission of monetary of monetary policy actions to the 

economy at large. The banks provided financial assistance only to the Industries which had 

already established, financially sound, capacity to repay the loan, favorable credit guarantee etc. 

After the independence in 1947, the Government was quite disturbing and needs much attention 

to eradicate poverty through employment opportunities. Therefore, the government had come up 

with different schemes to eradicate poverty 

The scheme for providing Self-employment to Educated Unemployed Youth was started 

in 1983 with an annual target of 2.5 lakh beneficiaries. Unemployed Youth in the age group of 

19-35 years who are Matriculates and above are eligible for assistance under this scheme. ITI 

passed, women, technically trained persons are given due weightage training plus two level are


232 

ZENITH 



given preference. A ceiling of income of Rs. 10,000 per annum, per family, has been fixed for 

eligibility under the scheme. A minimum of 50% ventures should be through industry-route and 

not more than 30% of the ventures should relate to business sector, except in hilly areas of the 

country. A composite loan not exceeding and Rs.15,000/- for business sector is provided. 25% 

subsidy is provided by the Govt. on the loans. Banks do not require collateral guarantee or 

margin money for such loads. 30% of the total beneficiaries are reserved for SC/ST persons. 

Promotional, financial and development agencies of the state and central governments at the field 

level would be involved in the implementation. Reputed NGOs would also be associated with the 

scheme, especially in the selection, training of entrepreneurs and preparation of projects. 

II. NEEDS FOR SELF – EMPLOYMENT TO THE SOCIETY 

The need for the creation of self-employment opportunies in the society becomes urgent 

due to the following factors. 

By providing self-employment, the village industries have high potential for income 

generation in rural areas. Thus, they help in reducing disparities in income between rural and 

urban areas. 

The industries encourage dispersal of economic activities in the society and promote 

balanced regional development. 

Self – employment serves as an anecdote to the widespread problems of disguised 

unemployment or underemployment in the society. 

Self-employment increases the economic progress of the country. 

It also protects the migration of rural people to the urban areas. 

It increases the standard of living of the people in the society. 

Self-employment motivates the people to start business or industry, which will lead to the 

development of the society. 

It increase the welfare of the society. 


Sexton, D.L., & Bowman, U.N. (1991) have made attempts to distinguish a self 

employment from a bread-winning businessperson. Krishna, K.V.S.M. (2003) consider an 

individual to be an entrepreneur if he/she exhibits a high propensity for growth. Cliff, J.E. 

(1998) views growth propensity as one’s desire to grow and change in future as well as his/her 

self-perceived power to achieve the same. As such, size and growth are typically used as criteria 

for evaluating organisational success. Carter, N. M., Williams, M., & Reynolds, P. D. (1997) 

and Bussey, K., & Bandura, A. (1999) have made un employed youth, however, conceive their 

businesses differently from the way men do which women have different socialization


233 

ZENITH 



experience which might shape varied strategic choices among themselves such as their prior 

professional experience and social network affiliation. Brush, C.G. (1992) and Cliff, J.E. (1998) 

have different approaches to venture creation and business growth expectancies. Johnson, S., & 

Storey, D. (1993) shows that women-owned businesses are no more likely to fail than menowned. 

Cooper, A., Gimeno-Gascon,F.J., & Woo, C. (1994) reported that women perform less 

well on quantitative measures such as job creation, sales turnover and profitability since women 

do not enter business for financial gain but to pursue intrinsic goals (for example, independence, 

and the flexibility to run business and domestic lives). Lerner, M., Brush, C., & Hisrich, R. 

(1997) identified women are deemed to assess success in relation to their achievement in 

attaining personal goals (i.e. self-fulfillment, goal attainment etc.). Cooper, A., Gimeno- 

Gascon,F.J., & Woo, C. (1994) found that differences in initial capital and goals explain the 

poorer performance in growth and survival of self-owned businesses. 

III OBJECTIVES OF THE STUDY 

To study the progress of SEEUY scheme in India. 

To identify the impact of SEEUY scheme in Indian economy. 

To analyze the effectiveness of SEEUY scheme in India. 

To have the SWOT analysis on SEEUY. 

To reveal the recovery of SEEUY loan in India. 

To analyze the effect on National Income and Per Capital Income of India by employment 

generation through SEEUY scheme. 

To know the effect of SEEUY scheme in reducing the rate of Poverty and unemployment in 

India. 

To evaluate the performance of SEEUY scheme in various five year plans. 

IV STATEMENT OF THE PROBLEM 

The SEEUY scheme encourages new generation entrepreneurs by granting financial 

assistance to the small business. The financial assistance is granted to start a new business or 

industry through banks. 

While going through the secondary data, the researcher has identified that the number of 

beneficiaries to the target fixed is very low. The rejection of major applications is due to 

ineligibility of applicants, non-viable project, poor recovery, defaulter to earlier scheme, nonfulfillment 

of terms of sanction, furnishing of incorrect/incomplete information by the applicant 

etc.


234 

ZENITH 



The main aim of the implementation of SEEUY scheme is to reduce the rate of 

unemployment and poverty and increase the per capita income of the people. It is essential to 

know the effectiveness of SEEUY scheme in the Indian economy. 

V. TOOLS OF ANALYSIS 

To find out the relationship between two variables, Co-efficient of correlation is 

employed. The formula for finding out the co-efficient of correlation is 

r 

xy 

x 

2 . y 2 

VI. FINANCIAL ASSISTANCE UNDER SEEUY IN INDIA 

The main aim of the SEEUY scheme was to provide easy subsidized financial assistance 

to educated unemployed youths for starting their own enterprise in production, service and trade 

sectors. 

TABLE 1 : PROGRESS OF SEEUY SCHEME IN INDIA 

SANCTIONED 

DISBURSED 

YEAR 

TARGET (NO) 

No 

% of the 

target 

No 

% to the 

target 

1996-97 40000 30029 75.01 23025 57.56 

1997-98 220000 185803 84.46 158863 72.21 

1998-99 260000 287218 110.47 241843 109.93 

1999-00 220000 271768 123.53 228495 103.86 

2000-01 220000 263622 119.83 209103 95.05 

2001-02 220000 271342 123.34 191351 86.98 

2002-03 220000 259088 117.77 203454 92.48 

2003-04 220000 237896 108.13 184890 84.04 

2004-05 220000 237392 107.91 189860 86.30 

2005-06 220000 228031 103.65 190521 86.60


235 

ZENITH 



2006-07 220000 264012 120.00 219444 99.75 

2007-08 250000 298003 119.20 248264 99.31 

2008-09 250000 314291 125.72 266971 106.79 

2009-10 

Upto Dec 

191250 

(255000) 

165693 86.64 91388 47.78 

Total 2995000 3314188 110.66 2647482 88.4 

Source: RBI Data 

Plan target was 220000 it was increased to 260000 to cover backlog. 

This is a permanent scheme of Government of India with framed modalities and 

guidelines for its successful implementation and to fulfill the purpose for which it is designed. 

The role of banks in the SEEUY process is quite crucial to perform the task of providing 

the most vital input namely capital to the enterprise. The banks have a higher level of 

responsibility in the whole process. 

The table 1 shows the target, sanctioned and disbursed number of beneficiaries during the 

period of its implementation from October 1996 up to December 2010. The planned target in the 

year of implementation was 40000 for the period of six months. It was increased from the next 

financial year to 220000. The planned target was increased to 260000 during 1995-96 in order to 

cover backlog. In the year 2004-05, it was again increased to 250000. It is clearly inferred from 

the table that the number of SEEUY beneficiaries is high during the years 2008-09 (266971) and 

2007-08 (248264). Considering target as the base, the sanctioned percentage to the target is the 

minimum in the year 1996-97 (75.01). 

VII. EMPLOYMENT GENERATION BY SEEUY 

The details of employment generation by SEEUY scheme and its share in total employed 

persons in India are shown in the table 2. 

TABLE 2: SHARE OF EMPLOYED SEEUY BENEFICIARIES TO THE TOTAL 

EMPLOYED PERSONS IN INDIA 

Year 

Total employed 

persons in India 

Employed SEEUY 

beneficiaries 

Share in total 

employed persons of 

India (%) 

1999-00 27177000 34553 0.13


236 

ZENITH 



2000-01 27375000 238295 0.87 

2001-02 27525000 362765 1.32 

2002-03 27941000 342743 1.23 

2003-04 28245000 313655 1.11 

2004-05 28166000 287027 1.02 

2005-06 28113000 305181 1.09 

2006-07 27960000 277335 0.99 

2007-08 27789000 284790 1.02 

2008-09 27206000 285782 1.05 

2009-10 27000000 329166 1.22 

Total 304497000 3061292 1.01 

Note: Employment generation is estimated @ 1.5 persons per case disbursed. 

Source: 

i) Office of the Registrar General of India, Ministry of Home Affairs 

ii) www.indiabudget.nic.in 

iii) RBI Data 

It is evident from the table 2 that the share of employed SEEUY beneficiaries to the total 

employed persons in India is maximum (1.32%) in the year 2001-02 and minimum (0.13%) in 

the year 1999-00. It reveals that the implementation of SEEUY scheme has some effects in the 

employment generation in the economy. 

VIII. EMPLOYMENT GENERATION & PER CAPITA INCOME 

The table 3 displays the relationship between employed SEEUY beneficiaries and per 

capita income of India. 

r 

xy 

x 

2 . y 2 

r 679310523 

77035342823*187683660 

r= 0.44

237 


ZENITH 



TABLE 3: EMPLOYED SEEUY BENEFICIARIES AND PER CAPITA INCOME 

Year 

Employed 

SEEUY 

beneficiaries 

(X) 

X= X 

x 2 

x 

Per 

capita 

income 

(Y) 

Y-Y 

(y) 

y 2 

Xy 

1999- 

00 

2000- 

01 

2001- 

02 

2002- 

03 

2003- 

04 

2004- 

05 

2005- 

06 

2006- 

07 

2007- 

08 

34553 -243746 59412112516 7690 -6449 41589601 1571917954 

238295 -40004 1600320016 8857 -5282 27899524 211301128 

362765 84466 7134505156 10149 -3990 15920100 -337019340 

342743 64444 4153029136 11564 -2575 6630625 -165943300 

313655 35356 1250046736 12707 -1432 2050624 -50629792 

287027 8728 76177984 14396 257 66049 2243096 

305181 26882 722641924 15625 1486 2208196 39946652 

277335 -964 929296 16563 2424 5875776 -2336736 

284790 6491 42133081 17947 3808 14500864 24717728 

2008- 

09 

2009- 

10 

285782 7483 55995289 19040 4901 24019801 36674183 

329166 50867 2587451689 20989 6850 46922500 348438950 

Total 3061292 3 77035342823 15527 -2 187683660 1679310523 

Source: 

i) RBI Data

238 


ZENITH 



ii) www.planningcommission.nic.in 

It is inferred from the above calculation that a positive correlation exists between the two 

variables – Employed SEEUY beneficiaries and Per Capital Income. Hence it is clear that if 

there is an increase in the employed SEEUY beneficiaries, Per Capita Income of India will also 

increase. 

IX. AMOUNT OF SEEUY LOAN DISBURSED & NATIONAL INCOME 

Table 4 IS prepared to represent the relationship between the amount of SEEUY loan 

disbursed and National income of India. 

TABLE 4: EMPLOYED SEEUY BENEFICIARIES AND PER CAPITA INCOME 

Year 

Employed 

SEEUY 

beneficiarie 

s (X) 

X=s 

X 

x 2 

x 

Per 

capita 

income 

(Y) 

Y-Y 

(y) 

y 2 

xy 

1998 

-99 

137 -1011 102212 

1 

685912 -821130 674254476900 830162430 

1999 

-00 

2000 

-01 


-02 

2002 

-03 

872 -276 76176 805981 -701061 491486525721 193492836 

1378 230 52900 941861 -565181 319429562761 -129991630 

1352 204 41616 1093962 -413080 170635086400 -84268320 

1218 70 4900 1224946 -282096 79578153216 -19746720 

2003 

-04 

2004 

-05 


-06 

1093 -55 3025 1224946 -91949 8454618601 5057195 

1269 121 14641 1415093 57006 3249684036 6897726 

1168 20 400 1564048 180776 32679962176 3615520


239 

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2006 

-07 

2007 

-08 

2008 

-09 

1185 37 1369 1687818 354075 125369105625 13100775 

1198 50 2500 1861117 501728 251730985984 25086400 

1368 220 48400 2008770 745028 55066720784 163906160 

2009 

-10 

1543 395 156025 2542921 103587 

9 

107304530264 

1 


Total 

13781 5 142407 

3 

1808449 

9 

-5 378498018484 

5 

141648457 

7 

Source: 

i) RBI Data 

ii) www.plannigcommission.nic.in 

r 

xy 

x 

2 . y 2 

r 

1416484577 

1424073*3784980184 845 

R= 0.61 

It is inferred from the above calculation that a positive correlation (0.61) exists between 

the two variables amount of SEEUY Loan disbursed and national income. Hence it is clear that if 

there is an increase in the amount of SEEUY loan, National income of India will also increase. 

X. POVERTY AND UNEMPLOYMENT 

The main aim of the SEEUY scheme is to reduce poverty and unemployment rate in 

India. Hence it is essential to know the effect of SEEUY scheme in reducing poverty and 

unemployment in India. The Table 5 displays the number of SEEUY beneficiaries, Poverty rate 

and Unemployment Rate in India. 

TABLE 5 : RATE OF POVERTY AND UNEMPLOYMENT IN INDIA 

Year 

SEEUY 

Beneficiaries 

(No) 

Poverty Rate 

(%) 

Increase / 

Decrease 

Unemployment 

Rate (%) 

Increase / 

Decrease 

2003-04 23025 36 - 5.99 -

240 


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2009-10 203454 26.1 -9.9 7.32 + 1.33 

Source: 

i) RBI Data 

ii) www.planningcommission.nic.in 

The table 5 depicts that the number of SEEUY beneficiaries in 2003-04 and 2009-10 is 

23025 and 203454 respectively. The rate of poverty in 2003-04 is 36 percent and reduced to 26.1 

percent in2009-10. But the rate of unemployment is 5.99 percent in 2003-04 and increased to 

7.32 percent in2009-10. The rate of poverty has reduced by 9.9% and unemployment has 

increased by 1.33% in the year2009-10. Hence it is clear that SEEUY scheme has little more 

effect in reducing the rate of poverty but not in unemployment. It is due to the higher growth rate 

of population in India. 

XI. THE TARGET AND ACHIEVEMENT OF SEEUY 

The target and achievement of SEEUY in IX th , X th and XI th Plan are shown in the table 6 

TABLE 6: PLAN-WISE TARGET AND ACHIEVEMENT OF SEEUY IN INDIA 

Plan 

Target Sanctioned Disbursed 

No 

No 

Percentage 

to the 

target 

No 

Percentage 

to the 

target 

Estimated 

employment 

generation 

No 

IX plan 

(1996-97 to 

2001-02) 

X plan 

(2002-03 to 

2006-07) up 

to Dec * 

700000 774818 110.69 652226 93.18 978356 

1100000 12699340 115.39 978658 88.97 2446344 

XI plan 

(2006-07 to 

2010-11) up 

January 

1100000 1270030 115.46 1016588 92.42 1524883 

Source: RBI 

Note: Employment generation is estimated @ 105 persons per case disbursed. 

* Provisional

241 


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It is inferred from the table 6 that SEEUY has been a successful scheme, not only in the 

IX plan but also in the X plan. It also shows that the sanctions have exceeded the target in all the 

Five Year Plans. 

XII. STATUS OF RECOVERY OF LOANS UNDER SEEUY 

As per reports received from RBI, the overall status of recovery under SEEUY is given in 

the Table 7. 

The table 7 predicts the fact rate of recovery of loans under PMRY has been around 34% 

to 40% in the last four years. The RBI and Government of India of India have initiated various 

steps for improving the recovery of loan overdues under the scheme by ensuring backward and 

forward linkages for the limits set up under the scheme. The government of India has advised to 

all state Government to notify SEEUY loan overdues as revenues dues under their respective 

Revenue Recovery Acts. All implementing banks have been advised to file criminal complaints 

against the borrowers who misutilise loans sanctioned under the scheme. 

TABLE 7 

Year Recovery of SEEUY Loan (%) 

2006-07 35.2 

2007-08 34-96 

2008-09 35-32 

2009-10 39-19 

XIII. SWOT ANALYSIS OF SEEUY 

STRENGTHS 

1. SEEUY has emerged as a major Central Sector Scheme creating employment 

opportunities for about 31.6 lakh persons since inception of the Scheme in the year 1998. 

The employment under the SEEUY will further increase over the years, as the SEEUY is 

an ongoing Central Sector Scheme. 

2. The Coverage of the Scheme is spread over both for Rural as well as Urban areas. As per 

findings of 2 nd round of evaluation of SEEUY conducted by the institution of Applied 

Manpower and Research (IAMR), disbursement of SEEUY beneficiaries in Rural and 

Urban areas is 49.9 percent and 50.1 percent respectively. 

3. The evaluation study has also revealed that assets have been created in 89-7 percent of 

cases disbursed under the SEEUY.

242 


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WEAKNESSES 

1. The recovery of loan overdues under the SEEUY scheme has not been satisfactory. The 

recovery of loan overdues was 34.9 percent for the half year ended March 2002, which 

stands at 34.96 percent for the year March 2004. 

2. Banks are under financing projects. The amount of loan disbursed under SEEUY is 

stagnating around Rs. 60000 per beneficiary. 

3. There is a gap between the cases sanctioned and disbursed made under SEEUY by banks. 

A total of 21.1 lakh cases have been disbursed by banks against the sanctions of 26.7 lakh 

cases since incepton of the scheme till January 2011. 

OPPORTUNITIES 

1. In the situation where employment opportunities in the organized sectors and 

Government sectors have been virtually stagnating or declined, SEEUY scheme has 

emerged as a major scheme of employment generation in the country for not too qualified 

and trained educated unemployed youth. 

2. The successful self employed units set up under the SEEUY scheme may graduate into 

higher scale units thus creating further employment opportunities for under unemployed 

persons. 

3. Up scaling of successful SEEUY units into higher scale units can be encouraged by 

providing subsequent loans with subsidy to these units. 

THREATS 

The implementation of the scheme could be improved by: 

1. Enhancing the family income ceiling from Rs. 40000 per annum to Rs. 100000 per 

annum. 

2. Enhancing the project cost from Rs. 100000 to Rs. 200000 for business sector and from 

Rs. 200000 to Rs. 500000 for service and industry sector. 

3. Enhancing subsidy ceiling of Rs. 7500 per beneficiary to Rs. 10000 per benefiary for 

State / UTs other than North Eastern States J&K, Himachal Pradesh and Uttaranchal to 

make the scheme attractive. 

XIV. CONCLUSION 

The study various issues for researchers to conduct in future. A further study may be 

conduced to analyze the effectiveness of the scheme in promoting entrepreneurship culture. With 

a narrow sense, the government shall broaden its view to avail the SEEUY loan in order to create 

employment opportunities. With a broader sense, the government shall extend its credit to the

243 


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society by crucial formalities and procedures in order to avoid educated unemployment, 

practically, SEEUY scheme is a welcoming among the educated unemployed youth. 

REFERENCES 

1. Brush, C.G. (1992). Research on women business owners: past trends, a new perspective and 

future directions. Entrepreneurship Theory and Practice, 17(4), 5-30. 

2.. Bussey, K., & Bandura, A. (1999). Social cognitive theory of gender development and 

differentiation, Psychological Review, 106, 676-713. 

3. Cliff, J.E. (1998). Does One Siza Fit All? Exploring the Relationship Between Attitudes 

Towards Growth, Gender, and Business Size. Journal of Business Venturing, 13(6), 523-542. 

4. Davenport.T.H. (1999) Putting the enterprise into the enterprise system. In 

B.L.Martin,G.Batchelder,W.P.Yetter and Newcomb(Eds), A Harvard Business review: on the 

business value of IT (pp.159-185) USA. Harvard Business School Projects. 

5. Gender and Home Based Employment by Charles B, Hennon , Published by Westport CT , 

2000 

6. Johnson, S., & Storey, D. (1993). Male and Female Entrepreneurs and Their Businesses, in S. 

Allen and C. Truman, eds. . 7. Women in Business: Perspectives on Women Entrepreneurs 

London: Routledge. 

8. Home-Based Employment and Financing Life By Ramona K.Z.Heck, published Auburn 

House, West Port CT 1995 

9. Krishna, K.V.S.M. (2003). Bridging the Gap: Conceptual Paradigms and Training for 

Entrepreneurship Development. The Journal of Entrepreneurship, 12(1), 91-116. 

10 Lerner, M., Brush, C., & Hisrich, R. (1997). Israeli Women Entrepreneurs: An Examination 

of Factors Affecting Performance. Journal of Business Venturing, 12(4), 315-339. 

11. Secrets of self employment by Sarah and Paul Edwards; Published by G.P.Putnam’s sonsm 

New York 1991 

12. Self Employment for Low |Income People by Steven Balkin, published by Praeger press, 

New York 1989 

13. Social Change and Innovation in Labour Market by Catherine Hakin publishers, New York 

2004 

14. The Economic of self- Employment and Entrepreneurship by Simon C Parker, Cambridge 

University Press 2004

244 


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ISSUES AND PROSPECTS OF PUBLIC PRIVATE PARTNERSHIP IN 

INDIA 

ABSTRACT 

KARUNENDRA PRATAP SINGH* 

*Assistant Professor, Department of Business Administration, 

Technical Education & Research Institute, Post Graduate College 

Ghazipur, Uttar Pradesh, India. 

It has been observed worldwide that it is difficult for the private sector to meet the financial 

requirements of infrastructure in isolation at the same time tackling the risks inherent to building 

infrastructure. Therefore, the PPP model has come to represent a logical, viable and necessary 

option for the Government and the private sector to work together. Public Private Partnership 

(PPP) project as per Government of India means a project based on a long term contract or 

concession agreement, between a Government or statutory entity on the one side and a private 

sector company on the other side, for delivering an infrastructure service on payment of user 

charges. The concession agreement is specifically targeted towards financing, designing, 

implementing and operating infrastructure facilities and the collaborative ventures are built 

around mutually agreed allocation of resources, risks and returns. In this paper author highlight 

the concept and growth of Public Private Partnership, analysis of various Public Private 

Partnership models as per industry requirements, advantages and disadvantages of Public Private 

Partnership in developing economy like India, Investigating the problems of Public Private 

Partnership model in India and suggesting probable solutions. 

KEYWORDS: Economy, Infrastructure, PPP, Projects. 

INTRODUCTION 

Public Private Partnership is a joint collaboration between public and private sectors so as 

meet the paucity of capital investment to fulfill the requirement of infrastructural 

development. To bridge the gap of the basic services the Government is using the concept 

of PPP. The PPPs have come into existence from over a decade but it has been more 

successful from past few years. PPPs are one of the best efforts that have been taken the 

Government of India. Such measures are necessary for the growth and development of the 

growing economies like India. It has been observed worldwide that it is difficult for the private 

sector to meet the financial requirements of infrastructure in isolation at the same time tackling 

the risks inherent to building infrastructure. Therefore, the PPP model has come to represent a 

logical, viable and necessary option for the Government and the private sector to work together. 

Public Private Partnership (PPP) project as per Government of India means a project based on a 

long term contract or concession agreement, between a Government or statutory entity on the 

one side and a private sector company on the other side, for delivering an infrastructure service

245 


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on payment of user charges. The concession agreement is specifically targeted towards 

financing, designing, implementing and operating infrastructure facilities and the collaborative 

ventures are built around mutually agreed allocation of resources, risks and returns. These are 

collaborative efforts, between private and public sectors, with clearly identified partnership 

structures, shared objectives, and specified performance indicators for delivery of services. India 

has seen real progress over the last 10 years in attracting private investment into the 

infrastructure sectors. All levels of government are aiming to use public private partnerships 

(PPPs) more intensively to help meet gaps in the provision of basic services. It involves 

the private enterprise (in the involvement of management expertise 

and/or monetary contributions) in the government projects aimed at public benefit. The 

government remains actively involved throughout the project’s life cycle. The private sector is 

responsible for the more commercial functions such as project design, construction, finance and 

operations. These schemes are sometimes referred to as PPP, P 3, or P3. 

In some types of PPP, the cost of using the service is borne exclusively by the users of the 

service and not by the taxpayer. In other types (notably the private finance initiative), capital 

investment is made by the private sector on the strength of a contract with government to provide 

agreed services and the cost of providing the service is borne wholly or in part by the 

government. Government contributions to a PPP may also be in kind (notably the transfer of 

existing assets). In projects that are aimed at creating public goods like in 

the infrastructure sector, the government may provide a capital subsidy in the form of a onetime 

grant, so as to make it more attractive to the private investors. In some other cases, the 

government may support the project by providing revenue subsidies, including tax breaks or by 

providing guaranteed annual revenues for a fixed period. 

TABLE 1: ATTRIBUTE COMPARISON BETWEEN PUBLIC, PRIVATE AND PPP 

Attribute Public Privatization PPP 

Responsibility Govt. Entrepreneur Govt. 

Ownership Govt./Public Private sector Govt. 

Nature of services Govt. Decided by private Mutual agreement 

operator 

Risk & reward Govt./Public Private sector Shared between Govt.& 

Private party 

Source: Report of Government of India Ministry of Finance Department of Economic Affairs, 

November 2009 

OBJECTIVE OF THE STUDY 

The proposed paper work has been carried out with following broad objectives: 

1. To study the concept and growth of Public Private Partnership. 

2. Analysis of various Public Private Partnership models as per industry requirements.

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3. To study advantages and disadvantages of Public Private Partnership in developing 

economy like India. 

4. Investigating the problems of Public Private Partnership model in India and suggesting 

probable solutions. 

GOVERNMENT EFFORTS FOR PROMOTION OF PPP IN INDIA 

EFFORTS AT THE CENTRAL GOVERNMENT AND STATE LEVEL 

Recognizing that strengthening the capacities of different levels of government to 

conceptualize, structure and manage PPPs will lead to more and better PPPs, DEA is 

facilitating mainstreaming PPP through Technical Assistance from ADB. The primary 

objective is effective institutionalization of the PPP cells to deliver their mandate 

through provision of 'in house' consultancy services to each of the selected entities at 

the Centre and State level. 

TECHNICAL ASSISTANCE 

The selected entities will be provided assistance for a period till December 2009 in the form of 

‣ One PPP Expert on an individual basis focusing on project financial analysis and risk 

management 

‣ One Management Information Systems expert focusing on information management. 

‣ A panel of three legal experts on retainer basis to provide legal expertise on PPPs. 

ELIGIBILITY 

The States wishing to avail this Technical Assistance are required to enter into an MOU with 

DEA detailing steps that would be taken to promote PPPs in the State. The MOU requires the 

State Government to: 

‣ Set up a PPP cell as the nodal agency for processing all PPP 

projects in the State with a designated PPP Nodal Officer and defined 

scope of work 

‣ Develop a robust shelf of projects amenable for PPPs and adhere to the following set of 

targets on the level of PPPs in the State: 

• During 2007-08 bid out at least 3 projects with a total cost of Rs. 750 cr or more in at 

least two sectors 

• During 2008-09 bid out at least 5 projects with a total cost of Rs.1250 cr or morein at 

least three sectors

247 


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• During 2009-10 bid out at least 5 projects with a total cost of Rs. 1500 cr or more in 

at least four sectors 

‣ Commit to establish such policies and regulatory andgovernance frameworks in the 

identified infrastructure sectors toenable a transparent and effective private sector 

participation 

‣ Prepare a 'Plan of PPP projects' in conjunction with its Annual Plan. 

COMMIT TO 

‣ Adopt standard concession agreements for PPP projects in defined infrastructure sectors 

‣ Adopt competitive bidding procedure for bidding and awarding of infrastructure projects 

under defined rules and procedures according to best international commercial practices 

and GOI guidelines 

‣ Designate a State-level dispute resolution mechanism for the speedy resolution of 

disputes relating to PPP projects 

‣ Adopt formal State policies on environment, resettlement and social safeguards with 

respect to the implementation of infrastructure projects, according to best international 

commercial practices. 

OUTCOMES 

The Technical Assistance aims to: 

‣ Help the participating State to implement PPP schemes effectively and efficiently 

‣ Enhance capacity of PPP cells in participating entities to prepare, evaluate and appraise 

PPPs in infrastructure. 

‣ Significantly improve monitoring of overall progress in PPPs in infrastructure at both 

central and state levels through well-knit databases. 

‣ Increase awareness among potential private sector partners about the project cycle of PPP 

projects in infrastructure and the expectations of Government with respect to value for 

money. 

‣ Over the long term, an increase in private sector participation in infrastructure 

development and management throughout the country. 

INDIA INFRASTRUCTURE PROJECT DEVELOPMENT FUND: 

Finance Minister in his Budget 2007-08 speech announced the setting up of IIPDF in DEA with 

an initial corpus of Rs. 100 cr for supporting the development of credible and bankable PPP

248 


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projects that can be offered to the private sector. The IIPDF will be available to the Sponsoring 

Authorities for PPP projects for the purpose of meeting the project development costs which may 

include the expenses incurred by the Sponsoring Authority in respect of feasibility Studies, 

environment impact studies, financial structuring, legal reviews and development of project 

documentation including concession agreement, commercial assessment studies (including 

traffic studies, demand assessment, capacity to pay assessment) etc. required for achieving 

technical close of such projects, on individual or turnkey basis, but would not include expenses 

incurred by the Sponsoring Authority on its own staff. 

ELIGIBILITY FOR IIPDF 

‣ Sponsors to include Central Government Ministries/Departments, State Governments, 

Municipal or Local Bodies or any other Statutory Authority. 

‣ Necessary for the sponsoring authority to create and empower a PPP cell to not only 

undertake PPP project development activities but also address larger policy and 

regulatory issues to enlarge the number of PPP projects in its shelf. 

‣ The IIPDF will finance an appropriate portion of the Transaction Advisor costs on a PPP 

Project where such Transaction Advisors are appointed by the Sponsoring Authority 

through a transparent system of procurement under a contract for services. 

GOVERNMENT SUPPORT FOR IIPDF 

‣ IIPDF will contribute upto 75% of the project development expenses to the Sponsoring 

Authority as an interest free loan. 25% will be co-funded by the Sponsoring Authority. 

‣ On successful completion of the bidding process, the project development expenditure 

would be recovered from the successful bidder. However, in the case of failure of the bid, 

the loan would be converted into grant. In case the Sponsoring Authority does not 

conclude the bidding process for some reason, the entire amount contributed would be 

refunded to the IIPDF. 

TRANSACTION ADVISERS FOR PPP PROJECTS: 

The Government has pre-qualified a panel of firms through International Competitive Bidding. 

The short listed consultants have been evaluated for their capability and experience in 

discharging a lead role in PPP transactions. The panel is intended to: 

‣ Streamline the tendering process for the engagement of transaction advisers for PPPs. 

‣ Enable fast access to firms that have pre qualified against relevant criteria. 

‣ Ensure transparency and accountability through clear definition of the processes and the 

role and responsibilities of the agencies and the private sector.

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This panel is available to all Central, State and Municipal Governments who are undertaking 

PPP transactions. They would be able to select any of the consultants from this panel through a 

limited financial bid without having to go through the lengthy and more complex technical bid. 

Firms on the panel will contract directly with the agencies concerned for provision of transaction 

management services. DEA would be kept informed on the use being made of the panel, and the 

performance of panel members. States can draw upon IIPDF to incur expenditure on hiring of 

Transaction Advisors. 

DEVELOPMENT AND USE OF PPPS FOR DELIVERING INFRASTRUCTURE 

SERVICES 

Development and use of PPPs for delivering infrastructure services has now at least 11 years of 

precedence in India, with the majority of projects coming in line in the last 5 years. Policies in 

favor of attracting private participation as well as innovation with different structures have met 

with varying degrees of success. Some sectors like power, and ports and roads, have done very 

good progress compared to limited success in other sectors. 

TABLE 2: TOTAL NUMBER OF PPP PROJECTS (STATE WISE) 

S T A T E W I S E F I G U R E S 

States 

Total Number of Projects based on value of contracts 

Total 

Number 

of 

Project 

s 

Based 

on 100 

crore 

Betwee 

n 100 to 

250 

crore 

Between 

251 to 

500 

crore 

More 

than 

500 crore 

Value of 

contacts 

Andhra Pradesh 63 1062.93 1554.27 3188.53 33473.7 39279.43 

Bihar 2 4 0 418.04 0 422.04 

Chandigarh 14 15 0 0 0 15 

Chhattisgarh 4 70 304 464 0 838 

Delhi 9 95 0 408.2 10374 10877.2 

Goa 2 30 220 0 0 250 

Gujarat 27 130.06 277.22 3360.9 14943.71 18711.89 

Haryana 2 0 0- 756 0 756 

Jharkhand 6 131 550 0 0 681 

Karnataka 95 980.39 1692.55 12203.31 24615.6 39491.85 

Kerala 11 114 112 615.5 11131 11972.5 

Madhya 37 1027.32 1117.28 2694.95 2949 7788.55 

Pradesh 

Maharashtra 285 118.5 745.5 1099.84 32061.95 34025.79 

Orissa 16 235.1 0 500 6888.34 7623.44 

Pudducherry 2 0 0 419 1867 2286 

Punjab 19 537.26 434.72 572 0 1543.98

250 


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Rajasthan 49 523.92 783.79 833 3112.7 5253.41 

Sikkim 24 175.59 558 2669 13708 17110.59 

Tamil Nadu 30 143.31 555.6 6412.87 5340 12451.78 

Uttar Pradesh 5 0 0 1458.57 649.21 2107.78 

West Bengal 5 0 200 1214.4 641 2055.4 

Inter-State 13 160.45 195 2294.67 5984 8634.12 

Total 450 5638.8 

3 

Source: http://www.pppinindia.com/ 

9299.93 41582.7 

8 

TABLE 3: SECTOR WISE PPP PROJECTS 

167739.2 

1 

224175. 

8 

S E C T O R 

W I S E F I G U R E S 

Sector 

Total 

Numbe 

r of 

Project 

s 

Based 

on 100 

crore 

Betwee 

n 100 

to 250 

crore 

Between 

251 to 

500 

crore 

More 

than 500 

crore 

Value 

of 

contacts 

Airports 5 0 0 303 18808 19111 

Education 1 93.32 0 0 0 93.32 

Energy 24 175.59 558 2669 13708 17110.59 

Ports 43 96 970 2440 62992.95 66498.95 

Railways 4 0 102.22 905 594.34 1601.56 

Roads 271 3162.5 5526.49 32861.87 60453.92 102004.7 

Tourism 29 742.56 674.52 0 1050 2467.08 

Urban 

73 1283.86 1468.7 2403.91 10132 15288.47 

Development 

Total 450 5638.8 

3 

9299.93 41582.7 

8 

167739.2 

1 

224175. 

8 


We see that road projects account for 60% of the total number of projects and 45% by total value 

because of the small average size of projects. Ports though account for 10% of the total number 

of projects have a larger average size of project and contribute 30% in terms of total value. It is 

noteworthy that if ports and central road projects are excluded from the total, there is in fact a 

relatively small value of deal flow, at only Rs 55757.02 Crores in basic infrastructure PPPs todate, 

suggesting a significant potential upside for PPP projects across sectors where states and 

municipalities have primary responsibility. The potential use of PPPs in e-governance and health 

and education sectors remains largely untapped across India as a whole, though off-late there 

have been some activities shaping in these sectors. Across states and central agencies, the leading

251 


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users of PPPs by number of projects have been Karnataka, Andhra Pradesh, and Rajasthan, with 

95, 63 and 49 awarded projects respectively and the National Highways Authority of India 

(NHAI), with about 77 projects. In terms of main types of PPP contracts, almost all contracts 

have been of the BOT/BOOT type (either toll or annuity payment models) or close variants. In 

terms of approach to provider selection, almost all the projects in the sample were competitively 

bid (either national or international competitive bidding) with the negotiated ones (through 

MOUs) primarily coming from the railway PPP projects, which is understandable given the lack 

of clear policy framework and standard contract still date. In terms of contract award method the 

International Competitive Bidding yielded 39% of total investment in India followed by 

Domestic Competitive Bidding with 33%. 

Sector 

TABLE 4: SECTOR WISE CONTRACT AWARD METHOD 

Total 

Numb 

er 

of 

Projec 

ts 

SECTOR WISE CONTRACT AWARD METHOD 

Total Number of Projects based on Contract 

Award Method 

Domestic 

Competitive 

Bidding 

International 

Competitive 

Bidding 

Negotiated 

MOU 

Value 

of 

Contra 

cts (Rs. 

Crore) 

Airports 5 0 18808 0 19111 

Education 1 93.32 0 0 93.32 

Energy 24 100 0 16014.59 17110.59 

Ports 43 4816 24037 34591.95 66498.95 

Railways 4 696.56 0 905 1601.56 

Roads 271 62779.2 34161.9 1259.2 102004.7 

8 

Tourism 29 1367.76 982.32 0 2467.08 

Urban 

Developm 

ent 

73 4645.83 9758.91 15 15288.47 

Total 450 74583.67 87748.13 52785.74 224175. 

8 


The primary reason for project being implemented through PPP has been qualitative benefits 

accrued from the project, it remains to be seen if these decisions are based on clear value-formoney 

calculations for the conceding authority. There is also relatively little available in terms 

of information on the actual contracts used.

252 


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DOMESTIC VERSUS FOREIGN PRIVATE PLAYERS PARTICIPATION IN PPP 

PROJECTS 

Private sector targeted towards financing, designing, implementing, and operating infrastructure 

facilities and services that were traditionally provided by the public sector have been a success 

story so far with the Government of India leading the process of promoting Public Private 

Partnerships (PPPs) in India. The Central Government is working with the State Governments 

and all other stakeholders to expand the horizon of PPPs in infrastructure development in the 

country. It has created a favorable atmosphere, provided fiscal incentives and facilitated funding 

of PPP projects. The Government now allows FDI in most infrastructure sectors to the extent of 

100 percent. The crucial initiatives to operational and institutionalize the flow of private capital 

for accelerated infrastructure development in the country through PPPs, has led to an investment 

of Rs. 135871.42 crore as per the sample of 300 in the PPP database. 

CHART 1: FOREIGN VS. DOMESTIC NUMBER OF PPP PROJECTS 

Foreign versus domestic number of PPP projects in India 

7% 

foreign investor 

indian private investor 

93% 

Source: www.hm-treasury.gov.uk/ppp_index.htm 

CHART 2: SECTOR WISE DOMESTIC PLAYER IN PPP PROJECTS 

Sector-wise domestic player investment in PPP projects 

1775, 1% 

1007, 1% 

19111, 14% 

17802, 13% 

51398, 39% 

roads 

ports 

airports 

energy 

urban development 

railways 

43053, 32% 

Source: www.hm-treasury.gov.uk/ppp_index.htm

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TABLE 5: DOMESTIC PLAYERS IN PPP PROJECTS 

Domestic players in PPP projects 

Domestic players 

Investment by 

private player 

(Rupees in crore) 

Number of 

projects 

Major domestic players 

Larsen & Toubro Transportation 

3497.95 10 

Infrastructure Ltd. 

GMR Infrastructure Ltd. 1287.98 6 

IVRCL Infrastructure & Projects Ltd. 936.6 4 

Small domestic players 

DS Constructions 319.42 4 

Sadbhav Engineering Limited 2085.68 11 

MSK Projects (India) Limited 238.84 15 

Total 8366.47 50 


November 2009 

TABLE 6: INVESTMENT IN PPP PROJECTS 

Foreign versus domestic investment in PPP projects in India 

Investor Type 

Total 

Investment 

% of total 

number of 

projects 

% of total 

project cost 

Foreign Investor 1725.85 7% 1% 

Indian Private Investor 134145.57 93% 99% 

Total 135871.42 100% 100% 


November 2009 

PPP PROJECT CONTRIBUTIONS 

PPPs do not mean reduced responsibility and accountability of the Government. The 

Government remains accountable for service quality, price certainty and cost-effectiveness 

(value for money) of the partnership. Government's role is one of facilitator and enabler by 

assuming social, environmental and political risks; private partner's role is one of financier, 

builder and operator of the service or facility and it typically assumes construction and 

commercial risk. Resources required by the project in totality along with the accompanying risks 

and rewards/returns are shared on the basis of a predetermined, agreed formula, which is 

formalized through a contract. Since the private sector assumes the risk of non-performance of 

assets and realizes its returns if the assets perform, the PPP process involves a full scale risk 

appraisal. This results in better cost estimation and better investment decisions. PPPs deliver 

efficiency gains and enhanced impact of the investments. PPP projects also lead to faster


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implementation, reduced lifecycle costs and optimal risk allocation. Private management also 

increases accountability and incentivizes performance and maintenance of required service 

standards. Finally, PPPs result in improved delivery of public services and also promote public 

sector reforms. PPP does not involve outright sale of a public service or facility to the private 

sector. Private Sector Company in a PPP means a company in which 51% or more of the 

subscribed and paid up equity is owned and controlled by a private entity. 

RISK & REVENUE SHARING 

Construction/implementation risk, arising from: 

‣ delay in project clearance; 

‣ contractor default; 

‣ environmental damage 

Market risk, arising from: 

‣ insufficient demand; 

‣ Impractical user levies. 

Finance risk, arising from: 

‣ inflation; 

‣ change in interest rates; 

‣ increase in taxes 

‣ Change in exchange rates. 

Operation and maintenance risk, arising from: 

‣ termination of contract; 

‣ technology risk; 

‣ labour risk. 

Legal risk, arising from: 

‣ changes in law; 

‣ changes in title/lease rights; 

‣ insolvency of developer/service provider;


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‣ change in security structure. 

PPP PROJECT PROCESS 

CONCLUSION 

India has witnessed an absolute metamorphosis over the last decade. Sprawling cities, flourishing 

businesses, higher standard of living are all indicators of unprecedented growth, globalization, 

urbanization, expansion and diversification. Infrastructure modernization and development is 

said to be the key driver of all the growth and economic activity. The public sectors alone can’t 

meet the required funds and technology for the projects. So the Government decided to 

accomplish this business by collaborating with the sector which could provide this requirement 

which was none other than the private parties. Thus PPP emerged as a joint collaboration of the 

public and private sectors. The Indian infrastructure sector is at an inflection point and there are 

immense opportunities for the private sector. The PPP has come in to existence from over a 

decade but it has shown remarkable results in past 5-6 years. Almost every sector is covered 

where PPP needs to be implemented. Many foreign companies also show their interests but their 

participation is not much as the domestic private companies. The sectors covered in this research 

are health, education, power and transport.

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Indian infrastructure growth has reached massive heights. Most PPPs have been restricted to the 

roads sector. And the sector still has lot of scope and the measures are taken also by the PPPs to 

achieve it. Ambitious project plans have been developed for various transport sectors to bridge 

the infrastructure gap. The sectors are booming but there are hindrances and constraints persist 

threatening to slow down growth in the smooth development of world-class infrastructure. This 

is because the private sectors which are involved in the PPPs have the prime motive of profit 

making rather than doing any social work. The companies which have the close contact with 

political parties can also take up a project with a view of making lot of profits. If the project 

reaches in the wrong hands that are if the tender is passed to a wrong person he may severely 

cause problems. But the Government is controlling all these constraints to have successful 

examples in PPP and heading towards the economic development of the country. It has taken 

various steps to accomplish the projects successful. 

REFERENCES 

1. report of government of india ministry of finance department of economic affairs, 

november 2009 

2. www.pppinindia.com 

3. www.hm-treasury.gov.uk/ppp_index.htm 

4. www.ifc.org/ifcext/eastasia.nsf/Content/ 

5. Infrastructure 

6. http://rru.worldbank.org/PapersLinks 

7. http://rru.worldbank.org/Toolkits/ 

8. http://rru.worldbank.org/PublicPolicy 

9. Journal 

10. http://rru.worldbank.org/Privatization 

11. www.ppiaf.org/ 

12. http://pppue.undp.org/toolkit/MOD112. 

13. html 

14. www.usaid.gov/our_work/economic_ 

15. growth_and_trade/eg/privatization.htm

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ABSTRACT 

A STUDY ON SOCIO-ECONOMIC CHARACTERISTICS OF 

INDIAN SHARE MARKET INVESTORS 

[WITH SPECIAL REFERENCE TO COIMBATORE] 

K.C.JOHN SASI KUMAR*; DR.P.VIKKRAMAN** 

*PhD Research Scholar, Velammal College of Engg.& Tech., Anna University, 

Coimbatore - 47, Madurai - 9. 

**Professor, School of Management Studies, Anna University, 

Coimbatore - 9. 

This paper while discussing the characteristics of the Indian individual investors along makes an 

attempt to discover the relationship between a dependent variable like Risk Tolerance level and 

independent variables such as Age, Gender of an individual investor on the basis of the survey. 

Indian investors are high income, well educated, salaried, and independent in making investment 

decisions and conservative investors. The research design constitutes the blue print for the data 

collection, measurement and analysis of data. The descriptive research design has been employed 

for the present study. It is the overall operational pattern or framework of the research that 

stipulates what information is to be collected from which sources by what procedures. The 

results indicate that majority of the investors are regular traders. 

KEYWORDS: Investors, Share market, CSE. 

INTRODUCTION 

There is an extraordinary growth in the investment sector both in terms of volume and number of 

investors in India over the past decade due to the deregulation of Indian financial sector. There is 

a spurt of various investment products with numerous options to lure the investors to invest. The 

commodity market is getting momentum, the reality market is booming, the Gold market is at its 

peak, the capital market reforms also boosted the investors to invest huge fund in share market, 

the advancement in technology also heighten the investment opportunities to the small and 

medium investors at present. 

The number of regional stock exchanges in India has increased to 22. Equity shares as an 

investment option has come a long way from the mere higher dividend expectations to the 

greater capital appreciation. Price discovery through Book Building process has given 

tremendous boost to the Initial public offers (IPO) and further public offers (FPO). 

The structure of the Indian investment market -Investor, Issuer, intermediaries and 

Regulator, has strengthened by the SEBI Act and their continuous monitoring and various 

regulatory reforms. The pattern and dimension of investment has changed over time. The 

investment Scenario of Indian Financial market wears a new look, with a overwhelming response

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not only from the Indian investors but also from foreign institutional investors. The quality of 

ever changing regulations, the payment guarantee by the depositories, Productive involvement of 

the Government, vibrant intermediaries and up to date and technologically advanced exchanges, 

all have instilled a sense of confidence among the investors in India. 

A stock market or equity market is a public entity for the trading of company stock 

(shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well 

as those only traded privately. The size of the world stock market was estimated at about 

$36.6 trillion at the start of October 2008. The total world derivatives market has been estimated 

at about $791 trillion face or nominal value 11 times the size of the entire world economy. The 

value of the derivatives market, because it is stated in terms of notional values, cannot be directly 

compared to a stock or a fixed income security, which traditionally refers to an actual value. 

Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an 

event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such 

relatively illiquid securities are valued as marked to model, rather than an actual market price. 

Participants in the stock market range from small individual stock investors to large 

hedge fund traders, who can be based anywhere. Their orders usually end up with a professional 

at a stock exchange, who executes the order. 

Some exchanges are physical locations where transactions are carried out on a trading 

floor, by a method known as open outcry. This type of auction is used in stock exchanges and 

commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The 

other type of stock exchange is a virtual kind, composed of a network of computers where trades 

are made electronically via traders. 

Actual trades are based on an auction market model where a potential buyer bids a 

specific price for a stock and a potential seller asks a specific price for the stock. (Buying or 

selling at market means you will accept any ask price or bid price for the stock, respectively.) 

When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there 

are multiple bidders or askers at a given price. 

The purpose of a stock exchange is to facilitate the exchange of securities between buyers 

and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time 

trading information on the listed securities, facilitating price discovery. 

This paper while discussing the characteristics of the Indian individual investors along 

makes an attempt to discover the relationship between a dependent variable like Risk Tolerance 

level and independent variables such as Age, Gender of an individual investor on the basis of the 

survey. Indian investors are high income, well educated, salaried, and independent in making 

investment decisions and conservative investors. 


Horvath and Zuckerman (1993) suggested that one’s biological, demographic and 

socioeconomic characteristics; together with his/her psychological makeup affects one’s risk 

tolerance level. Malkiel (1996) suggested that an individual’s risk tolerance is related to his/her

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household situation, lifecycle stage and subjective factors. Mittra (1995) discussed factors that 

were related to individuals risk tolerance, which included years until retirement, knowledge 

sophistication, income and net worth. 

Literature suggests that major research in the area of investors’ behavior has been done by 

behavioral scientists such as Weber (1999), Shiller (2000) and Shefrin (2000). Shiller (2000) 

who strongly advocated that stock market is governed by the market information which directly 

affects the behavior of the investors. Several studies have brought out the relationship between 

the demographics such as Gender, Age and risk tolerance level of individuals. Of this the 

relationship between Age and risk tolerance level has attracted much attention. 

Guiso, Jappelli and Terlizzese (1996), Bajtelsmit and VenDerhei (1997), Powell and Ansic 

(1997), Jianakoplos and Bernasek (1998), Hariharan, Chapman and Domain (2000), Hartog, 

Ferrer-I-Carbonell and Jonker (2002) concluded that males are more risk tolerant than females. 

Wallach and Kogan (1961) were perhaps the first to study the relationship between risk 

tolerance and age. Cohn, Lewellen et.al found risky asset fraction of the portfolio to be positively 

correlated with income and age and negatively correlated with marital status. Morin and Suarez 

found evidence of increasing risk aversion with age although the households appear to become 

less risk averse as their wealth increases. Yoo (1994) found that the change in the risky asset 

holdings were not uniform. He found individuals to increase their investments in risky assets 

throughout their working life time, and decrease their risk exposure once they retire. Lewellen 

et.al while identifying the systematic patterns of investment behavior exhibited by individuals 

found age and expressed risk taking propensities to be inversely related with major shifts taking 

place at age 55 and beyond. 

Indian studies on individual investors' were mostly confined to studies on share ownership, 

except a few. The RBI's survey of ownership of shares and L.C. Gupta's enquiry into the 

ownership pattern of Industrial shares in India were a few in this direction. The NCAER's studies 

brought out the frequent form of savings of individuals and the components of financial 

investments of rural households. The Indian Shareowners Survey brought out a volley of 

information on shareowners. Rajarajan V (1997, 1998, 2000 and 2003) classified investors on the 

basis of their demographics. He has also brought out the investors' characteristics on the basis of 

their investment size. He found that the percentage of risky assets to total financial investments 

had declined as the investor moves up through various stages in life cycle. Also investors' 

lifestyles based characteristics has been identified. The above discussion presents a detailed 

picture about the various facets of risk studies that have taken place in the past. In the present 

study, the findings of many of these studies are verified and updated. 

STUDY AREA 

Coimbatore District is one of the more affluent and industrially advanced districts of the 

state of Tamil Nadu in India. It has the highest GDP among the districts of Tamil Nadu, even 

ahead of the state capital Chennai. The headquarters of the district is Coimbatore city, the second

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largest city in Tamil Nadu, which is highest revenue yielding district in the state, next to 

Chennai. 

It had a population of 2916620 as of 2001, with a decennial growth rate of 21.76 per cent. 

The literacy rate of the district is 69 per cent. Textiles are the major industry in the Coimbatore 

district; it is one of the important textile hubs of India. Coimbatore is also called the "Manchester 

of South India" because it houses many textile industries. In the rain shadow region of the 

Western Ghats, Coimbatore enjoys a very pleasant climate all the year round, aided by the fresh 

breeze that flows through the 25 kms long Palakkad gap. The rich black soil of the region has 

contributed to Coimbatore's flourishing agriculture industry and it is in fact the successful growth 

of cotton that served as a foundation for the establishment of its famous textile industry. The 

result has been a strong economy and a reputation as one of the greatest industrial cities in South 

India. 

There are more than 25000 small, medium, large sale industries and textile mill. 

Coimbatore is also famous for the manufacture of motor pump sets and varied engineering 

goods. There are many electric pump manufacturing companies in and around Coimbatore, such 

as Deccan, CRI, Texmo, KSB, Sharp. Coimbatore also houses some auto component 

manufacturing brands, such as Roots, Pricol and LGB. German auto component major Robert 

Bosch started their Research and Development facility in Coimbatore. Coimbatore also houses 

many Information Technology and Business Process Outsourcing companies, such as Cognizant 

Technology Solutions and Perot Systems. 

COIMBATORE STOCK EXCHANGE LIMITED 

The Coimbatore Stock Exchange Limited, (CSX) is located in Coimbatore, Tamilnadu, 

India. It is the youngest stock exchange in India. It was founded by K.G. Balakrishnan. The 

Exchange has successfully implemented Screen Based Trading (SBT) system and commenced its 

operations with effect from 9 th October, 1996. The system is capable of handling 25000 trades 

per day. All the members of the Exchange are connected in a Local Area Network (LAN). The 

system can be expanded to handle up to 400 members. 

The SBT system has been interfaced with the existing settlement system. The margins are 

monitored online on the SBT system. Each member is given a computer terminal, telephone 

connections which are accommodated in a cubicle. The communication facilities include the 

terminals of Reuters and Knight Ridder constantly updating economic and capital market related 

news. CSX is the youngest Stock Exchange in India. CSX was founded by K.G.Balakrishnan 

(founder president) and his group and is now governed by the Governing Board consisting of the 

member brokers. 

Currently the segregation of Coimbatore Stock Exchange is as follows: 

Individual Members - 136

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Corporate Members - 57 

Chartered Accountants/ Company Secretaries - 40 

MBAs - 17 

Engineers - 14 

Cost Accountants - 10 

Post Graduates - 25 

Coimbatore Stock Exchange Facilities Coimbatore Stock Exchange provides well 

equipped facilities to its members and investors. The facilities are library, canteen, spacious 

parking area, STD and Internet booths, Bank with security lockers, conference hall, gymnasium 

and other necessary services. 

In near future, the exchange is planning for the implementation of Interconnected Stock 

Exchange to bring more business to the centre. Apart from the infrastructure, the exchange is 

planning for the set up of a Training Academy, Software Development, Research Centre and 

other useful activities. It also has a plan to set up Additional Trading Floor (ATF) which will 

bring more traffic to the CSE building. Wide Area Networks through VSATs are also in the 

planning card. 


The research design constitutes the blue print for the data collection, measurement and 

analysis of data. The descriptive research design has been employed for the present study. It is 

the overall operational pattern or framework of the research that stipulates what information is to 

be collected from which sources by what procedures. 

Among the regional stock exchanges in India, the Coimbatore has been purposively 

selected for the present study. The share brokers and investors have been selected by adopting 

stratified random sampling technique through pre-tested, structured interview schedule through 

direct interview method. The data and information have been collected from 150 share brokers 

and 450 investors, thus, the total sample size for the present study is 600. The data and 

information collected from share brokers and investors pertains to the year 2009-2011. 

DATA ANALYSIS 

The socio-economic characteristics of investors were analyzed and the results are 

discussed in the following sub-headings.

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GENDER 

The distribution of gender of investors was analyzed and the results are presented in Table1 

TABLE-1 DISTRIBUTION OF GENDER OF INVESTORS 

Gender Frequency Per Cent Chi-Square Value Sig 

Male 351 78.00 

Female 99 22.00 

0.01 0.02 

Total 450 100.00 

Source: Primary & Computed Data 

From the above table, the results show that about 78.00 per cent are males while the rest 

of 22.00 per cent are females. 

The chi-square value of 0.01 is significant at five per cent level indicating that there is a 

significant difference among the gender of investors. The distribution of gender of investors is 

graphically presented in Figure-1. 

DISTRIBUTION OF AGE OF THE INVESTORS 

The distribution of age of investors was analyzed and the results are presented in Table .2. 

TABLE-.2. DISTRIBUTION OF AGE OF INVESTORS 

Age(Years) Frequency Per Cent Chi-Square 

Value 

Sig 

50 23 5.11 

Total 450 100.00 


From the results, it is observed that about 61.33 per cent of investors belong to the age 

group of 31-40 years followed by 41-50 years (18.00 per cent), less than 30 years (15.56 per 

cent) and more than 50 years (5.11 per cent).


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The chi-square value of 0.03 is significant at five per cent level indicating that there is a 

significant difference among the age group of investors and the same is graphically shown in 

Figure-2. 

EDUCATIONAL QUALIFICATION OF THE INVESTORS 

The distribution of educational qualification of investors was analyzed and the results are 

presented in Table 3. 

TABLE-3. DISTRIBUTION OF EDUCATIONAL QUALIFICATION OF 

INVESTORS 

Educational Qualification Frequency Per Cent Chi 

Square 

Value 

Sig 

Secondary 21 4.70 

Higher Secondary 47 10.40 

Under Graduation 145 32.20 

0.04 0.03 

Post Graduation 219 48.70 

Doctorate 18 4.00 

Total 450 100.00 

Source: Primary & Computed Data


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From the results, it is apparent that about majority of investors (48.70 per cent) are post 

graduates followed by under graduation (32.20 per cent), higher secondary (10.40 per cent), 

secondary (4.70 per cent) and doctorate (4.00 per cent). 


significant difference among the educational qualification of investors and the same is depicted 

in Figure-3. 

OCCUPATION OF THE RESPONDENTS 

The distribution of occupation of investors was analyzed and the results are presented in 

Table .4. 

The results indicate that about 14.70 per cent of investors are having occupation in 

banking followed by State Government (12.70 per cent), business (12.40 per cent), telecom 

(10.40 per cent) and teaching (10.20 per cent). 

The results also show that the occupation of investors is varying from Central 

Government (7.60 per cent) to doctor (3.10 per cent). The rest of the investors are having the 

occupation of insurance and real estate (7.30 per cent), accountant (5.10 per cent), auditor (4.90 

per cent) and lawyer (4.20 per cent)

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TABLE-4. DISTRIBUTION OF OCCUPATION OF INVESTORS 

Occupation Frequency Per Cent Chi-Square 

Value 

Sig 

Accountant 23 5.10 

Lawyer 19 4.20 

Auditor 22 4.90 

Banking 66 14.70 

Business 56 12.40 

Central Government 34 7.60 

Doctor 14 3.10 

0.11 0.03 

Insurance 33 7.30 

Teaching 46 10.20 

Real Estate 33 7.30 

State Government 57 12.70 

Telecom 47 10.40 

Total 450 100.00 



significant difference among occupation of investors. The distribution of occupation of investors 

is depicted in Figure-4.


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MARITAL STATUS 

The distribution of marital status of investors was analyzed and the results are presented 

in Table 5. 

TABLE-5. DISTRIBUTION OF MARITAL STATUS OF INVESTORS 

Marital Status Frequency Per Cent Chi Square 

Value 

Sig 

Married 403 89.60 

Unmarried 47 10.40 

0.02 0.03 

Total 450 100.00 


The results show that majority of the investors (89.60 per cent) are married while the rest 

of 10.40 per cent of investors are unmarried. 


significant difference among the marital status of investors and the same is graphically presented 

in Figure-5.


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ANNUAL INCOME 

The distribution of annual income of investors was analyzed and the results are presented 

in Table 6. 

TABLE-6. DISTRIBUTION OF ANNUAL INCOME OF INVESTORS 

Annual Income 

Frequency Per Cent F- Value Sig 

(Rs in Lakhs) 

< 2.00 17 3.78 

2.01-4.00 196 43.56 

4.01-6.00 200 44.44 

11.542 0.03 

> 6.00 37 8.22 

Total 450 100.00 



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From the results, it is apparent that about 44.44 per cent of investors belong to the income 

group of Rs. 4.01-6.00 lakhs followed by Rs.2.01-4.00 lakhs (43.56 per cent), more than six 

lakhs (8.22 per cent) and less than two lakhs (3.78 per cent). 

The F- value of 11.542 is significant at five per cent level indicating that there is a 

significant difference among annual income of investors and the same is graphically depicted in 

Figure-6. 

ANNUAL FAMILY INCOME 

The distribution of annual family income of investors was analyzed and the results are 


TABLE-7. DISTRIBUTION OF ANNUAL FAMILY INCOME OF INVESTORS 

Annual Family Income 

Frequency Per Cent F- Value Sig 

(Rs in Lakhs) 

< 3.00 34 7.56 

3.01-5.00 200 44.44 

5.01-7.00 192 42.67 

10.984 0.02 

> 7.00 24 5.33 

Total 450 100.00 



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From the results, it is clear that about 44.44 per cent of investors belong to the annual 

family income group of Rs. 3.01-5.00 lakhs followed by Rs.5.01-7.00 lakhs (42.67 per cent), less 

than three lakhs (7.56 per cent) and more than seven lakhs (5.33 per cent). 

The F- value of 10.984 is significant at five per cent level indicating that there is a 

significant difference among annual family income of investors and the same is graphically 

shown in Figure-7. 

FAMILY SIZE 

The distribution of family size of investors was analyzed and the results are presented in 

Table 5.1.8. 

TABLE-8. DISTRIBUTION OF FAMILY SIZE OF INVESTORS 

Family Size Frequency Per Cent F- Value Sig 

Three 21 4.70 

Four 128 28.40 

Five 188 41.80 

11.986 0.04 

Six 94 20.90 

Seven 19 4.20 

Total 450 100.00 



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The results show that about 41.80 per cent of investors belong to the family size of five 

followed by four (28. 40 per cent), six (20.90 per cent), three (4.70 per cent) and seven (4.20 per 

cent). 

The F-value of 11.986 is significant at five per cent level indicating that there is a 

significant difference among the family size of investors and the same is graphically depicted in 

Figure-8. 

NATIVE AREA 

The distribution of native area of investors was analyzed and the results are presented in 

Table 5.1.9. 

TABLE-9. DISTRIBUTION OF NATIVE AREA OF INVESTORS 

Native Area Frequency Per Cent Chi Square 

Value 

Sig 

Rural 213 47.30 

Urban 237 52.70 

0.02 0.03 

Total 450 100.00 



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The results show that majority of the investors (52.70 per cent) belong to urban area 

while the rest of 47.30 per cent of investors belong to rural area. 


significant difference among native area of investors and the same is graphically presented in 

Figure-9. 

EXPERIENCE IN SHARE MARKET 

The distribution of experience in share market of investors was analyzed and the results 

are presented in Table 10. 

TABLE-10. DISTRIBUTION OF EXPERIENCE IN SHARE MARKET OF INVESTORS 

Experience in Share Market Frequency Per Cent Chi-Square 

Value 

Sig 

Up to 1 year 22 4.90 

1 to 3 year 154 34.22 

3 to 5 year 245 54.44 

0.03 0.02 

Above 5 year 29 6.44 

Total 450 100.00 



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The results indicate that about 54.44 per cent of investors have the experience 3 to 5 

years in share market followed by 1 to 3 years (34.22 per cent), above 5 years (6.44 per cent) and 

up to 1 year (4.90 per cent). 


significant difference among experience in share market of investors and the same is graphically 


INVESTMENT EXPERIENCE 

The distribution of investment experience of investors was analyzed and the results are 


TABLE-11. DISTRIBUTION OF INVESTMENT EXPERIENCE OF INVESTORS 

Investment Experience Frequency Per Cent Chi-Square 

Value 

Sig 

Up to 1 year 37 8.22 

1 to 3 year 186 41.33 

3 to 5 year 191 42.45 

0.03 0.02 

Above 5 year 36 8.00 

Total 450 100.00 



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The results show that about 42.45 per cent of investors have the investment experience of 

3 to 5 years followed by 1 to 3 years (41.33 per cent), up to 1 year (8.22 per cent) and above 5 

years (8.00 per cent). 


significant difference among investment experience of investors and the same is graphically 


NATURE OF INVESTMENT 

The distribution of nature investment of investors was analyzed and the results are 


The results indicate that about 56.90 per cent of investors are regular traders followed by 

investor in both primary and secondary market (12.70 per cent), regular investor (11.30 per cent), 

occasional trader (7.60 per cent), occasional investor (5.60 per cent), investor in primary market 

only (5.30 per cent) and investor in secondary market (0.70 per cent). 

TABLE-12. DISTRIBUTION OF NATURE INVESTMENT OF INVESTORS 

Nature of Investment Frequency Per Cent Chi-Square 

Value 

Sig 

Regular Trader 256 56.90


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Regular Investor 51 11.30 

Occasional Trader 34 7.60 

Occasional Investor 25 5.60 

Investor in Primary Market 

Only 

Investor in Secondary Market 

Only 

Investor in both Primary and 

Secondary Market 

24 5.30 

3 0.70 

57 12.70 

0.06 0.03 

Total 450 100.00 



significant difference among nature of investment of investors and the same is graphically shown 

in Figure-12.

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FINDINGS 

The results show that about 78.00 per cent are males while the rest of 22.00 per cent are 

females. It is observed that about 61.33 per cent of investors belong to the age group of 31-40 

years followed by 41-50 years (18.00 per cent), less than 30 years (15.56 per cent) and more than 

50 years (5.11 per cent). 

The majority of investors (48.70 per cent) are post graduates followed by under 

graduation (32.20 per cent), higher secondary (10.40 per cent), secondary (4.70 per cent) and 

doctorate (4.00 per cent). 

The occupation of investors is varying from Central Government (7.60 per cent) to doctor 

(3.10 per cent). The rest of the investors are having the occupation of insurance and real estate 

(7.30 per cent), accountant (5.10 per cent), auditor (4.90 per cent) and lawyer (4.20 per cent). 

The majority of the investors (89.60 per cent) are married while the rest of 10.40 per cent of 

investors are unmarried. 

It is apparent that about 44.44 per cent of investors belong to the income group of Rs. 

4.01-6.00 lakhs followed by Rs.2.01-4.00 lakhs (43.56 per cent), more than six lakhs (8.22 per 

cent) and less than two lakhs (3.78 per cent). 

It is clear that about 44.44 per cent of investors belong to the annual family income group 

of Rs. 3.01-5.00 lakhs followed by Rs.5.01-7.00 lakhs (42.67 per cent), less than three lakhs 

(7.56 per cent) and more than seven lakhs (5.33 per cent). 

The results show that about 41.80 per cent of investors belong to the family size of five 

followed by four (28. 40 per cent), six (20.90 per cent), three (4.70 per cent) and seven (4.20 per 

cent). The results indicate that majority of the investors (52.70 per cent) belong to urban area 

while the rest of 47.30 per cent of investors belong to rural area. 

The results indicate that about 54.44 per cent of investors have the experience 3 to 5 

years in share market followed by 1 to 3 years (34.22 per cent), above 5 years (6.44 per cent) and 

up to 1 year (4.90 per cent). 

The results show that about 42.45 per cent of investors have the investment experience of 

3 to 5 years followed by 1 to 3 years (41.33 per cent), up to 1 year (8.22 per cent) and above 5 

years (8.00 per cent). 

The results indicate that about 56.90 per cent of investors are regular traders followed by 

investor in both primary and secondary market (12.70 per cent), regular investor (11.30 per cent), 

occasional trader (7.60 per cent), occasional investor (5.60 per cent), investor in primary market 

only (5.30 per cent) and investor in secondary market (0.70 per cent). 

CONCLUSION 

The Coimbatore Stock Exchange Limited, (CSX) is the youngest stock exchange in India. 

The Exchange has successfully implemented Screen Based Trading (SBT) and commenced its 

operations with effect from 9 th October, 1996. It is observed that more number of investors is

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interested to enter in to the stock market due to fear and risk aversion they are not ready to enter 

in to the capital market. The government and regional stock exchanges has to motivate the small 

and medium investors to invest so that the unutilized money will come to the market that 

consequently develop the economy of the nation. 

REFERENCE 

1. Admati, Anat and Paul Pfleiderer, 1997, “Does it All Add Up? Benchmarks and the 

Compensation of Active Portfolio Managers,” Journal of Business, Vol. 70, pp. 323–50. 

2. Arrow, K. J. (1971). Essays in the theory of risk-bearing. Chicago: Markham Publishing 

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3. Bajtelsmit, V. L., & Bernasek, A. (1996). Why do women invest differently Than men? 

Financial Counseling and Planning, 7, 1-10. 

4. Bajtelsmit, V. L., & Bernasek, A. &Jianakoplos, N. A. (1999). Gender differences in 

defined contribution pension decisions. Financila Services Review, 8(1), 1-10. 

5. Barberis, N., A. Shleifer, and R. Vishny, 1998. A Model of Investor Sentiment, Journal 

of Financial Economics 49, 307-343. 

6. Cohn, Richard A., W. G. Lewellen, R.C Lease and G. G Schlarbaum. (1975) “ Individual 

Investor Risk Aversion and Investment Portfolio Composition.” Journal of Finance, Vol. 

30, No.2, May 1975, pp.605-620. 

7. Daniel, K., D. Hirshleifer and A. Subrahmanyam, 1998. Investor Psychology and 

Security Market under- and Overreactions, Journal of Finance 53, 1839– 1886. 

8. Daniel, K., D.Hirshliefer and S.H.Teoh, 2002, “Investor Psychology in Capital Markets: 

Evidence And Policy Implication,”Journal of Monetary Economics, v49, pp.139 – 209. 

9. Froot, Kenneth A., and Emil A. Dabora, 1999. “How are stock prices affected By the 

location of trade?” Journal of Financial Economics 53, 189-216. 

10. Guiso, L., Jappelli, T., & Terlizzese, D. (1996). Income risk, borrowing Constraints, and 

portfolio choice. American Economic Review. 86(1), 158-172. 

11. Hanna, S. D., Gutter, M. S., & Fan, J. X. (2001). A measure of risk tolerance Based on 

economic theory. Financial Counseling and Planning, 12(2), 53-60. 

12. Hariharan, G., Chapman, K. S., & Domain, D. L. (2000). “Risk tolerance and asset 

allocations for investors nearing retirement”. Financial Services Review, 9(2), 159-170. 

13. Hinz, R. P., nccarthy, D. D., & Turner, J. A. (1997). Are women conservative Investors? 

Gender differences in participated-directed pension investments. In

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14. Micheal S. Gordon, Olivia S. Mitchell, and Marc M. Twinney (Eds.), Positioning 

Pensions for Twenty-Firt Century. Philadelphia: University of Pennsylvania Press. Pp 91- 

103. 

15. Horvath, P., & Zuckerman, M. (1993). Sensation seeking, risk appraisal and Risky 

behavior. Personality and Individual Differences, 14, 41-52. 

16. James J. Choi, David Laibson, How Does the Internet Affect Trading? Evidence from 

Investor Behavior in 401(k) Plans, The Wharton School University 

17. Malkiel, B. G. (1996). A random walk down Wall Street. New York: W. W. Norton & 

Co. 

18. Maccrimmon, K. R. & Wehrung, D. A. (1986). Taking risks.New York: The Free Press. 

Mittra, S. (1995). Practicing financial planning: A complete guide For professionals. 

Michigan: Mittra & Associates. 

19. Philip Kotler, Hermawan Kartjaya, S. David Young, Attracting Investors, Ed10, John 

Wiley & Sons, Inc., United States of America, 2004. 

20. Rajarajan.V (1998) “Stages in Life Cycle and Investment Pattern”, The Indian Journal of 

Commerce, Vol.51, No. 2 & 3, April-September 1998, pp.27-36. 

21. Rajarajan.V (2000) “Investors’ Lifestyles and Investment Characteristics”, Finance India, 

Vol. XIV, No. 2, June 2000, pp.465-478. 

22. An Empirical Study of Indian Individual Rajarajan.V (2003) “Investors’ Demographics 

and Risk Bearing Capacity”, Finance India, Vol. XVII, No. 2, June 2003, pp.565-576. 

23. Reserve Bank of India,(1965) “Survey of Ownership of Shares in Joint Stock Companies 

as at the End of December 1965.” Reserve Bank of India Bulletin, February 1968, pp. 

137-151. 

24. Robert A. Nagy and Robert W. Obenberger, “Factors Influencing Individual Investor 

Behaviour”, Financial Analysts Journal, July/August 1994. 

25. W.E. Warren, R.E. Stevens and C.W. mcconkey, “Using Demographic and Lifestyle 

analysis to segment Individual Investors”, Financial Analysts Journal, March/April 1990. 

26. Wallach, M. A. & Kogan, N. (1961). Aspects of judgment and decision making: 

Interrelationships and changes with age. Behavioral Science, 6, 23- 26. 

27. William B. Riley Jr. And K. Victor Chow, “Asset Allocation and Individual Risk 

Aversion”, Financial Analysts Journal,November/December 1992. 

28. Yao, R., Hanna, S. D., & Lindamood, S. (2004). Changes in financial risk Tolerance, 

1983-2001. Financial Services Review,13 (4), 249-266.

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29. Yao, R., Gutter, M.S., & Hanna, S.D. (2005). The financial risk tolerance of Blacks, 

Hispanics and whites. Financial Counseling and Planning, 16 (1), 51- 62. 

30. Yao, R. & Hanna, S.D. (2005). The effect of gender and marital status on Financial risk 

tolerance. Journal of Personal Finance, 4 (1), 66-85.

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ECO-FRIENDLY PRODUCTS AND CONSUMER PERCEPTION 

ABSTRACT 

SUDHIR SACHDEV* 

*Assistant Professor, Manav Rachna College of Engineering, 

Sector 43, Aravlli Hills, Delhi Surajkund Road, 

Faridabad, Haryana -121004. 

As resources are limited and scarce while human wants are unlimited, it is important for the 

marketers to utilize the resources effectively and efficiently without wastage as well as to 

achieve the organization's objective. Green marketing is inevitable for the attainment of longterm 

mission and vision of an organization. There has been rising awareness among the 

consumers all over the world concerning protection of the environment. People do desire to 

bequeath an uncontaminated earth to their offspring. This research paper covers various forms of 

environmentally concerned consumer behavior and their determinants. The understanding of 

environmentally concerned consumer behavior is of importance to consumers, business, market 

place, educationists, public policy makers, thinkers and academicians. 

The last decades have seen a progressive increase in environmental consciousness worldwide as 

the environment moved from a fringe to a mainstream issue and consumers became more 

concerned about it. However, despite positive forecasts, demand for environmentally friendly 

products didn‘t grow as expected and both attitude-behavior and intention-behavior gaps 

emerged. Thus, this study endeavors to explore why people do not buy environmentally friendly 

products by finding out which are the main constraints impeding them to translate their green 

intentions into actual purchase behavior. Needless to say, paramount significance is going to be 

attached to eco-friendly products as they shall come to occupy the centre stage in coming years. 

Commensurate with that, there will be a shift in consumer perception albeit at a low pace in 

coming years. 

KEYWORDS: Green Marketing, green consumer behavior, environmentally friendly products. 

INTRODUCTION 

Beginning in the 1970s, a significant amount of research has been conducted on consumer 

behavior for environmentally friendly products. Many variables were shown to drive consumer 

choice in regards to purchasing environmentally friendly products. The growing social and 

regulatory concerns for the environment lead an increasing number of companies to consider 

green issues as a major source of strategic change. For years, there have been warnings about the 

dangers of climate change, excessive natural resource consumption, and ever-increasing waste 

generation. Consumer Businesses are significant users of natural resources - water, energy, fuel, 

agricultural resources, forest and marine resources. Outputs from Consumer Business operations, 

including packaging waste, solid waste, emissions, and waste-water, also have significant

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environmental impact, both directly and indirectly through consumer usage and disposal 

behaviors. Media headlines consistently focus on stories predicting dire consequences associated 

with the environment. Ascertaining fact from fiction and prioritizing true risks can be a daunting 

task. 

Since society becomes more anxious with the natural environment, businesses have started to 

adjust their behavior in an attempt to address society's "new" concerns. Some businesses have 

been quick to accept concepts like environmental management systems and waste minimization, 

and have integrated environmental issues into all organizational activities. People are conscious 

about the less environment friendly product due to their own welfare that is why this issue is 

very modern topics for India. This paper tries to unearth consumer attitudes and perceptions 

towards ecofriendly products in FMCG sector and their willingness to pay on green products. 

WHAT IS GREEN MARKETING? 

Green marketing is inevitable for any type of organization. According to the American 

Marketing Association (AMA) ‗green marketing‘ is the marketing of products that are presumed 

to be environmentally safe. It incorporates a broad range of activities, including product 

modification, changes to the production process, packaging changes, as well as modifying 

advertising. Defining green marketing is not a simple task where several meanings intersect and 

contradict each other. Other similar terms used are ‗Environmental Marketing‘, ‗Sustainable 

Marketing‘ and ‗Ecological Marketing‘. 

As per Brundtland Commission (1987), ―Development that meets the needs of the present 

without compromising the ability of future gene rations to meet their own needs (Rowell, 1996)‖. 

Another definition is ―Green or Environmental Marketing consists of all activities designed to 

generate and facilitate any exchanges intended to satisfy human needs or wants, such that the 

satisfaction of these needs and wants occurs, with minimal detrimental impact on the natural 

environment‖. (Polonsky 1994b). 

‗It is the voluntary pursuit of any activity that encompasses concern for energy efficiency, 

environment, water, conservation and the use of recycled/recycled products & renewable energy‘ 

(Confederation of Indian Industry) Industry 

Peattie (2001) described evolution of green marketing in three phases. First phase is termed as 

"Ecological" green marketing, and during this period all marketing activities were concerned to 

help environment problems and provide remedies for environmental problems. Second phase is 

"Environmental" green marketing and the focus shifted on clean technology that involved 

designing of innovative new products, which take care of pollution and waste issues. Third phase 

was "Sustainable" green marketing came into prominence in the late 1990s and early 2000.

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METHODOLOGY 

In this section we briefly explain the research methods used in the data collection. The 

authors employed questionnaire method for data collection to explore consumers‘ purchasing 

behavior and reasoning for this behavior. The survey was completed in Faridabad (Haryana) and 

the sample size was 45. People belonging to SEC A and SEC B (socio-economic classification A 

and B) were interviewed. The purpose of selecting respondents from this group was to generate 

data from people who are well educated and have a decent purchasing power. This number of 

interviews enabled us to achieve theoretical saturation in our target group. Our recruitment 

strategy was to encompassing a range of green consumers from different age groups, genders and 

socio-economic groups. The secondary data were collected from relevant journals, books and 

other published data. 

The Main objective of the study is, to investigate the consumer attractiveness towards ecofriendly 

products in FMCG sector and their impact of purchasing decision. 

THE GREEN CONSUMER 

There is growing interest among the consumers all over the world for protection of the 

environment. The green consumers are the main motivating force behind the green marketing 

process. It is their concern for environment and their own well being that drives demand for ecofriendly 

products, which in turn encourages improvements in the environmental performance of 

many products and companies. Thus, for a marketer it is important to identify the types of green 

consumers. Although no consumer product has a zero impact on the environment, in business, 

the terms ―green product‖ and ―environmental product‖ are used commonly to describe those 

products that strive to protect or enhance the natural environment by conserving energy and/or 

resources and reducing or eliminating use of toxic agents, pollution, and waste. Worldwide 

evidence indicates people are concerned about the environment and are changing their behavior 

and there is growing awareness among the consumers all over the world regarding protection of 

the environment where they live. People do want to bequeath a clean earth to their offspring. 

Various studies by environmentalists indicate that people are concerned about the environment 

and are changing their behavior pattern so as to be less hostile towards it. Research reveals that 

increasing number of the consumers, both individual and industrial, are asking for environmentfriendly 

products. Most of them feel that environment-friendly products are safe to use. As a 

result, green marketing has emerged, which aims at marketing sustainable and sociallyresponsible 

products and services profitably but without having any adverse effect on the 

environment. Now is the era of recyclable, non-toxic and environment friendly goods. This has 

become the new mantra for marketers to satisfy the needs of consumers and earn better profits in 

a greener way. It includes a broad range of activities like product modification, changing the 

production process, modified advertising, change in packaging, etc., aimed at reducing the 

detrimental impact of products and their consumption and disposal on the environment. 

Companies all over the world are striving to reduce the impact of products and services on the 

climate and other environmental parameters. Marketers are taking the cue and are going green. 

Green marketer can attract customers on the basis of performance, money savings, health and 

convenience, or just plain environmental friendliness, so as to target a wide range of green


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consumers. The green consumers are the driving forces behind the green marketing process. It is 

they who drive consumer demand, which in turn encourages improvements in the environmental 

performance of many products and companies. Thus, for a marketer it is important to identify the 

types of green consumers. 

Demographically, ‗green customer,‘ our study reveals, are diversely spread along all income 

ranges, age brackets, education levels and various household sizes. On average green shoppers 

are a little older, tend to have higher income, and more education, but you will find substantial 

numbers of green shoppers can be found distributed across the consumer population. 

CONSUMER ATTITUDES IN EMERGING MARKETS 

According to various research reports, shoppers are thinking green, but not always buying that 

way 3 . (Mainieri, Barnett, Valdero, Unipan, and Oskamp 1997). We surveyed young business 

professionals about sustainable consumption in India. These young business people also 

represented young Indian consumers, mainly from the middle and upper socio-economic groups. 

Our research revealed that awareness and understanding of sustainable consumption among 

consumers was low; the majority of Indian consumers still buy small, unpackaged goods from 

low-cost, family-run shops. Even to wealthier Indian consumers, sustainable consumption was 

felt to imply only consuming less; the concept of consuming differently is ―a significant but 

missing factor‖. In addition to this, variety of barriers were identified, such as availability, 

affordability, convenience, product performance, conflicting priorities, skepticism and force of 

habit which prevent people from buying eco-friendly products. (McCarty and Shrum 1994) 

THE RISE OF CONSUMER POWER AND CONSUMER SKEPTICISM 

Many of the early products designed to be environmentally responsible, such as electric cars and 

recycled paper, did not meet the basic expectations of consumers. Rightly or wrongly, these early 

disappointments have made it tougher to convince today‘s consumers that green products work 

as well as those that they are intended to replace, or are worth higher prices. In their search for 

guidance on consumption choices, people trust each other more than any other source of 

information. 

At the same time, our research indicates that consumers are less trusting of brands than in the 

past, and increasingly believe that they have the power to significantly influence how responsibly 

a company behaves. A trusted source of peer-generated information: 61% of consumers now 

consider blogs a reliable source of information, and more than half trust consumer-generated 

media. In addition to the traditional marketing criteria, customers want to judge the following 

environmental elements too: 

How environmentally friendly is the product? 

Are the manufacturing, packaging and promotion of green products sustainable? 

How green is the business overall?


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Is the marketing credible or just ‗greenwash‘ (environmental claims that could be 

considered false, unsubstantiated and/or unethical)? 

However, during this study authors found that 

Neither customers nor manufacturers clearly state environmental benefits on product 

packaging. 

It is not clear to the general people that what kinds of benefits to expect in a given 

environmental friendly product. 

There is no legal authority that can certify environmental claims made by the 

manufacturers. 

Green Marketing here was only concerned with promotional activity with modest or no 

attempt being made in product development in the context of green product. 

Extremely modest promotional activities have been taken by the government authorities 

or Chambers of Commerce and the related authority as well. 

Sustainability considerations either drive or influence the buying decisions of more than half the 

shoppers interviewed in our study. However, for most green shoppers, sustainability 

considerations are an important purchase driver, but secondary to other dominant purchase 

drivers. For most shoppers sustainable considerations become a tie-breaker only when other 

factors are in relative parity. However, once a more sustainable product has captured the 

shopper‘s commitment it tends to create brand stickiness by retaining the shopper‘s loyalty 

through repurchase. We theorize that when a shopper makes a conscious selection of a green 

product that they are making a personal contract that implies social responsibility 

and they are less likely to change products in the future. 

This study found that although interest in buying green extended across all age, income and 

education levels, with 90 percent of respondents open to considering sustainable products, less 

than 25 percent of shoppers actively consider them when buying. Yet only 47 percent of those 

who consider buying eco friendly products actually found green products on retail shelves and 

just 22 percent actually purchased them. 

LACK OF UNDERSTANDING/CONFUSION – ON-PACK CLAIMS AND LABELS 

More than 50 percent consumers remain suspicious of ―greenwash‖ i.e. environmental claims 

that could be considered false, unsubstantiated and/or unethical (Ottman 1995). The products 

available in today‘s supermarkets carry a wide range of labels, on-pack claims and elements of 

design that are meant to inform and reassure consumers on health, safety, environmental or 

social concerns. Several brands, including grocery retailers, have developed their own labels; 

other brands use endorsements from non-certifying (but trusted) third parties, or on-pack claims 

(such as ―natural‖) to convey sustainability attributes. Many consumers remain confused about 

which products are better for society and the environment. In regards to eco-labeling, many

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experts have suggested that consumers are confused due to inappropriate labeling. Research has 

shown that consumers do not always understand environmentally friendly labels attached to 

products (Kangun and Polonsky 1995). Eco-labels such as ‗biodegradable,‘ ‗sustainable,‘ ‗fair 

wage/fair trade,‘ ‗environmentally friendly,‘ and ‗recyclable‘ are usually unfamiliar and/or 

unknown to consumers. Nevertheless, labels can play an important role in fostering sustainable 

consumption when used as part of a package of measures. Confusion remains among consumers 

about the differences between fair-trade, ethical, organic and other types of products. Further, 

there is an unrealistic expectation of consumers, who are not usually willing to spend time 

understanding these issues and are rarely prepared to pay more for sustainable products In the 

absence of green certifications, eco-labels, and other indications of a product‘s environmental 

performance, the final decision frequently comes down to corporate reputation. 

A little more than half of our intentional green purchasers surveyed indicated that they would 

pay more for green products. We also believe that in general our top two percent will pay more 

than 20 percent for many green products. The majority of shoppers are looking for parity in 

pricing related to more sustainable products. In the shopper‘s mind, using fewer resources is not 

usually more expensive. 

Our green shoppers tested as slightly more responsive to advertising and slightly less sensitive to 

promotions. Our interpretation of the statistics is that shoppers need more information related to 

green products and in general respond more favorably to an Every Day Low Price strategy than 

cyclical promotional strategies. This closely aligns with the strong evidence of a loyalty effect 

connected with sustainable characteristics. 

Consumer businesses are missing a substantial opportunity to market and provide greener 

products. Ninety percent of shoppers surveyed indicated they are ready and willing to consider 

more sustainable products, but green products were only purchased only in less than 20 percent 

of the shopping trips. There are substantial gaps between the market‘s readiness for sustainable 

products and the delivery of those products to the shopper‘s market basket. 

Many shoppers want green products, but retailers and brand marketers are losing green sales at 

several key points along the path to a purchase. The largest opportunities to capture shoppers 

interested in green products involve building awareness, educating shoppers, making green 

products easier to find and recognize, enhancing in-store communications and inspiring shoppers 

at the store shelf. Shoppers are becoming turned off about purchasing green at the last step. 

Although 47 percent of shoppers surveyed looked for and found green products, only 22 percent 

of the shoppers surveyed actually purchased one. 

Retailers and manufacturers are losing potential green sales from a quarter of shoppers at the 

store shelf. Inspiration and information will yield better conversion at the shelf level decision. 

For some shoppers, credibility and concerns about product performance enter into the equation. 

Green products are getting lost in the store. Surveyed shoppers often couldn‘t find the green 

products they wanted in the store. It is very possible for green products to become lost in the 

assortment. A good sustainable product strategy provides clear visibility and selling cues to the 

shopper to highlight green products in the assortment. Retailers and manufacturers need to work

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together to determine the appropriate assortment of green products, minimize out-of-stocks, and 

clearly identify green products in the store. Utilizing shopper marketing programs and leveraging 

vehicles to draw attention to green products will help increase the green conversion rates. 

One-third of shoppers surveyed who would buy green products indicated that they are not yet 

inspired to look for them. Awareness and education move people along their ―green learning 

curve‖. Shoppers do not always understand the social and environmental benefits of products and 

are often confused by the messages in the media. Many are unaware of what makes a product 

sustainable versus merely ―good for you.‖ A large number of shoppers remain unsure 

of what is green, and some are still unsure of the whole green movement. 

In-store communication strongly influences green purchasing. Some shoppers remain unsure of 

product performance or product quality; they assume sustainable products would not perform as 

well. Shoppers at this stage are questioning the product, so communicating brand and product 

attributes via in store signage and product packaging drives shoppers to purchase. The top three 

means of identifying a product as green for shoppers surveyed were through packaging/labeling, 

in-store signage and brand advertising. Retailers and manufacturers can leverage these vehicles 

to address quality and performance questions and motivate shoppers to become purchasers. 

To address these issues, retailers and manufacturers need to provide more coordinated 

communication and education about sustainability. They need to make the business case for 

buying green to the shopper. Education on product benefits, social and environmental benefits, 

and actions that shoppers and consumers can take are needed from both retailers and 

manufacturers. Consistent, aligned messaging in stores, online, in advertising and involving 

other touch points is a critical step to driving shoppers from interested to purchasers. 

THE ROLE OF BUSINESS: Participants felt that sustainability should be embedded into 

corporate strategies, including the responsible investment of company assets and the 

encouragement of social entrepreneurship. 

Significant opportunities exist in the development of new sustainable markets, such as for ecoproducts, 

nonpetroleum-based products, sustainable buildings and public transport. 

THE ROLE OF GOVERNMENT: Support from government is essential, since some 

businesses will always seek to place profit before cost, even if the majority behaves responsibly: 

―One of the most important aspects is to work closely with government – setting the law, 

regulations and tax framework.‖ 

KEY ISSUES FOR BUSINESS 

Green marketing must satisfy two objectives: improved environmental quality and customer 

satisfaction. The vast majority of consumers, however, will ask, ―If I use ‗green‘ products, 

what‘s in it for me?‖ the top reasons consumers do not buy green products included beliefs that 

they require sacrifices—inconvenience, higher costs, lower performance—without significant 

environmental benefits. In practice, green appeals are not likely to attract mainstream consumers

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unless they also offer a desirable benefit, such as cost-savings or improved product performance. 

To avoid green marketing myopia, marketers must fulfill consumer needs and interests beyond 

what is good for the environment. 

How do you create a green strategy that is pitch perfect and tuned for long-term success? Why 

should people believe a company‘s claim? To be effective, company‘s strategy and messages 

need to be convincing. This means that they must be backed by facts and figures. Companies 

need to make environmental friendly products easily available and affordable and without 

compromising on performance and at no extra costs for the consumer to make informed 

purchasing decisions, as they increasingly report a willingness to do so. In order to have a 

credible, sustainable brand, companies must have operational integrity and their communications 

have to strike the right balance between visibility and transparency 

An integrated marketing communications approach and/or a holistic approach, using eco-labels, 

may better educate consumers on the social and environmental impacts of their consumer 

purchasing decisions. What companies must remember, however, is that environmental labeling 

schemes are only a supplement to – not a substitute for – general environmental awareness and 

educational efforts (Thogersen 2000). In addition, studies have shown that, in making purchasing 

decisions, consumers use labels only when he/she trusts the message conveyed; therefore, labels 

should be promoted in a way that conveys trust. 

The purchase of many everyday products has a habitual character. It is performed in a stable 

context, often executed with high frequency and without much reflection. A familiar brand label 

or product look may serve as a cue initiating an automatic response or habit. During recent years 

consumers have been asked to show environmental concern. The automatic process should 

compete with a new behavioral intention: to make an environmentally benign choice. A frequent 

and successful implementation of this new intention will, it is hoped, result in a new habit that 

replaces the old one. 

REFERENCES 

Arbuthnot, J. (1977), ―The roles of attitudinal and personality variables in the prediction of 

environmental behavior and knowledge‖, Environment and Behavior, 9, 217 –232. 

Kangun, N. and M.J. Polonsky (1995), Regulation of Environmental Marketing Claims: A 

Comparative Perspective, International Journal of Advertising, 14, 1 – 24. 

Mainieri, Tina; Barnett, Elaine G. (1997), ―Green buying: The influence of environmental 

concern on consumer behavior‖, Journal of Social Psychology, Vol. 137, Iss.2, pp. 189 –205. 

McCarty, J.A. and Shrum, L.J. (1994), The recycling of solid wastes: personal values, value 

orientations, and attitudes about recycling as antecedents of recycling behavior‖, Journal of 

Business Research, Vol. 30, No. 1, pp. 53 – 62.

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Ottman, Jacquelyn. (1995), ―Today‘s consumers turning lean and green‖, Marketing News, Vol. 

29, Iss. 23, pp. 12 – 14. 

Peattie, Ken. (2001), ―Towards Sustainability: The Third Age of Green Marketing‖, The 

Marketing Review, Vol. 2 Iss. 2, pp.129 –146. 

Polonsky, Michael Jay. 1994a. "Green Marketing Regulation in the US and Australia: The 

Australian Checklist." Greener Management International 5: 44-53. 

Thogersen, John. (2000), ―Psychological Determinations of Paying Attention to Eco-labels in 

purchase decisions‖, Journal of Consumer Policy, Vol. 23, Iss. 3, pp. 285 – 315.

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CREATIVITY AND INNOVATION IN MANAGEMENT 

- A Fuel for Growth 

*MRS. YASHA AGGARWAL & MS NEHA BHATIA 

*Assistant Professor 

Institute of Innovation in Technology and Management, New Delhi 

Guru Gobind Singh Indraprastha University, New Delhi 

ABSTRACT 

Creativity plays a critical role in the innovation process, and innovation that markets value is a 

creator and sustainer of performance and change. The creative person spends more time in 

generating new ideas, analyzing it before attempting a solution , the less creative person 

satisfied with single solution in one attempt. It is a circular process. The more creative we are, 

the more we will periodically evaluate the worth of all existing practices and more we improve. 

This paper discusses the need of creativity and innovation in management to gain competitive 

world. Creativity and innovation has become indispensable for a firm to survive and to 

succeed. 

KEYWORDS: Competitive, Creativity, Idea Generation, Innovation, Organization. 

INTRODUCTION 

Everyone has predetermined ideas of the word creativity; however, these ideas may differ from 

individual to individual based upon one’s life experiences. Creativity is not an entity that may 

be easily defined but an operational definition of this construct is a paramount consideration for 

the effective executive within the effective organization. The need to change ideas is becoming 

more and more obvious as technology speeds up the path of progress. Creativity is directly 

linked to productivity and quality enhancement. Organizations, both for- and not-for-profit, 

need to generate some form of sustainable competitive advantage to stay ahead in the race. 

Creativity is apparent to precede innovation, and innovation fulfils this as the implementation 

of successful ideas in an organization. “All innovation begins with creative ideas…” Innovation 

is the successful implementation of creative ideas within an organization”. Hence, ideas that act 

as the starting point need to be generated quickly, qualitatively and quantitatively. 

In traditional thinking there are no methods for going beyond the adequate. Once we get 

satisfied with any idea, we just stop thinking. Yet there are many other ideas, better 

arrangements of information which are to be deliberately hunted. It is difficult to acquire any 

sort of idea- generating skill simply by reading about it. In order to develop one, one must 

practice and go on practicing it. Any where we look, there is something that can be done to 

eliminate unnecessary costs and improve customer value. There is scope for improvement in

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everything whether it is a man made article, human relation technique or any business 

operation. 


The term creativity and innovation are often used interchangeably (Man, 2001); however, there 

is a clear distinction between creativity and innovation, the former being the generation of ideas 

and the latter its implementation. In this era of globalization and competition, creativity and 

innovation are considered to be key factors for survival, success and excellence of 

organizations (Peter Cook, 1998). 

Cook (1998) considered creativity as an element of competitive advantage for organizations. 

The most profitable new products will be those that meet the customer needs more effectively 

than the competitor’s products, and are therefore preferred by more customers ( Mc Adam and 

McClelland, 2000). Innovation and creativity benefit companies beyond direct sales growth or 

efficiency improvements. A company that establishes an effective creativity and innovation 

process is also likely to realize social benefits that arise from team working and employee 

motivation (Cook, 1998). Majaro (1988) looks at innovation as a process where ideas are 

generated and transformed for implementation to business products and services. Creativity is 

seen as the front end of the innovation process. Innovation typically occurs through four stages, 

viz. idea generation, screening, feasibility and implementation. 

Dictionary.com defines creativity as “the ability to transcend traditional ideas, rules, patterns, 

relationships, or the like, and to create meaningful new ideas, forms, methods, interpretations, 

etc; originality, progressiveness, or imagination.” Creativity was once considered the province 

of artists, scientists, and writers. But the creative urge can express itself elsewhere and need not 

be limited by the job description. There is variety in typologies of creative people too: they can 

be quick and dramatic, or careful and quiet. It is also true that most new ideas are not flashes of 

inspiration in an inventor’s head; they come from how people identify, create, store, share, and 

use knowledge. According to the Snowflake Model of creativity of David Perkins, developed in 

the 1980s, the six common traits of creative people are (i) a strong commitment to a personal 

aesthetic, (ii) the ability to excel in finding solutions, (iii) mental mobility, (iv)a willingness to 

take risks, (v) objectivity, and (vi) inner motivation. The first three traits are largely cognitive; 

the last three are dispositional attributes. Because none of the six is thought to be genetic, 

Perkins argued that creativity can be taught, or at least encouraged. 

WHY CREATIVITY IN MANAGEMENT IS ESSENTIAL? 

Creativity is the most important human resource of all. It flourishes in organizations that 

support open ideas, these organizations create environments that inspire personnel and maintain 

innovative work places; those that fail are large organizations that stifle creativity with rules 

and provide no slack for change. Creativity and creative problem solving have become the 

thrust areas of business in this ever- changing and dynamic environment. The biggest challenge 

faced by organizations today is the ability to integrate the need for short term results with the 

vision for long term futuristic growth. Creativity and creative problem solving are different 

from invention. Any product, process or solution which emerges out of the creative process 

should be capable of commercial success. This is the reason why organizations are setting in

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motion, a monitoring mechanism to critically analyze the outcome of the innovation that has 

resulted from the institution of a creative process. Creativity is becoming an essential ingredient 

in business, because competence, information and technology are becoming commodities 

available to everyone. Creativity is achieved by removing mind blocks and by thinking of the 

unthinkable. Exercising our brain will lead to increased creativity. Management these days 

faces a whole lot of challenges in the dynamic business environment. To overcome these 

challenges and exploit them to our advantage, we need to exercise our creativity. 

THE ESSENCE OF CREATIVITY 

Everyone has predetermined ideas of word creativity: however, these ideas may differ from 

individual to individual. Creativity is the conception of the new idea and putting the old wine in 

new bottle. It can be studied as an output or as a process. Creativity helps in effective problem 

solving. 

The essence of creativity can be studied if we study some “primary intellectual characteristics” 

of highly creative person. These are: 

a) Problem Recognition- Realization of the fact that a problem exists. 

b) Idea Generation- It deals with the thinking process of the individual i.e., the ability of a 

person to think up a number of ideas against a given problem. The value is that the more ideas 

you get for a problem, the greater will be the chances that you will find a new idea or a better 

one. 

c) Original and feasible- Generation of original ideas by an individual. 

d) Flexible- Ability to move from one reference to another with ease. 

e) Strong drive- The urge of individual to implement the ideas practically. 

Some of the personality traits of highly creative people are: 

1) Self Judgment 

2) Different perspective from their peers 

3) Seeing authority as conventional rather than absolute. 

4) Willingness to act on their impulse. 

5) Good sense of humor 

It has been observed that people who have ingredients of creativity are unable to flourish 

because of barriers that hinder their creative instincts. There are both internal and external 

factors that may hinder the creativity of an individual. 

External Factors 

a) Organizational protocols- bureaucracy. 

b) Perceptions about the environment. 

c) Set routines established by companies. 

Internal Factors 

a) Psychological attributes


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Sub- conscious mind efficiency 

Absence of a relaxed mind 

b) Mental Attributes 

Rigidness 

Confidence 

Judgmentality 

Intrinsic factors that need to be overcome to be creative are: 

1) Fear of failure- To succeed in life one has to fail at one point of time, failure motivate an 

individual to succeed, but too much of it could play a paralyzing part. 

2) Cultural Factors- In a society, conformity reigns such conformity to conventions, a lack of 

initiation, resource availability and lack of playfulness can ruin creativity. 

3) Allergy to complexity- Many individuals are not comfortable with ambiguity situation. They 

tend to work better in a routine manner and don’t welcome uncertain situation which would 

demand ingenuity. 

4) Emotional Touchiness- This attribute of individual makes him afraid of getting criticism and 

makes him shy away from an uncomfortable situation. His ego gets hurt very easily and that 

holds low self- esteem. 

5) Resource Myopia- This refers to not recognizing all of the resources available at our disposal due 

to dependency on order, structure and predictable routines. 

6) Inflexible- Rigidity is having a firm approach to life and failure to adapt change despite a need. 

7) Imaginary Boundaries- Many of us impose too many boundaries and constraints during creative 

brainstorming. Rules that we carry with us certainly inhibit creativity and free flow of ideas 

8) Emotional Blocks- It is difficult to separate the head from the heart. When we face a difficult 

situation outgut reaction often comes from an emotional response. The intellect then kicks into 

reason with and support our initial emotion-based solution. Some debilitating factors include an 

over zealousness to succeed quickly, a lack of drive in carrying projects through to completion 

and an inability to relax 

9) Perceptual factors- The inability to come out from complacent situation or object, makes the 

individual harder to see it differently. Many of us fail to use all of our senses during 

observation. We have difficulty in isolating the problem, and identifying remotely related 

factors. 

10) Motivation- A person’s urge is the result of many forces, including family, education, job, 

ambition & self confidence. Attention must be focused towards flourishing healthy & creative 

motivations, while divisive ones must be weeded out.


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Creative People see differently and think in more than one way 

IDEA GENERATION 

Creativity is an inborn characteristics or a god given ability given only to certain people. There 

are other views that it is an inspiration to incite creative activity. Research has proved that 

creativity is always universally distributed that creative problem solving ability can be learned 

& strengthened. 

Having self- confidence that I can become more creative is the foremost step. Creative thinking 

demands application and a positive self image. We have to believe in ourselves and our 

decisions. 

TYPES OF CREATIVITY 

A) Individual Creativity- Laziness is a part of human life, even mind of an ambitious person 

tends to be lazy at times. When we get an idea we are often so satisfied with it as though the 

problem has been solved. But even if a solution has been found, it may not be the best or the 

right solution.


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While resolving a problem we should jot down our thought as they arise and when our brain 

stop giving ideas we should start reading back and ask these questions: What is this like? What 

is this related to? How is this different? We will get more ideas when we do this because one 

thought will spark another. One idea will lead to another. 

Individual should spend a definite time just in search of new ideas can be one of the most 

productive techniques one can adopt. There are several techniques that aid individual thinking. 

Some are listed below: 

Forced Relationships- Two or more different elements are forced fit together, in order to come 

up with a fresh idea. 

Checklist- Human brain bombard with different kinds of questions. We get all kinds of answersgood 

& bad. We discard the bad ones and collect the good ideas. 

Attribute Listing- Product get reshape with new qualities and characteristics. For example, we 

consider a sheet of paper what are all the ways this sheet of paper can be put into use? Now if 

we look we will see that it has a shape rectangular, a color white, translucent and so on. To find 

out all the uses we have to focus on every attribute separately. For example, white colors could 

be used as a symbol for peace and because of its porosity, as a filtering medium and so on. 

Looking Backward- The ideal situation is thought of first. Later on, we work backwards from the 

characteristics of such a solution to the technical capabilities it would have to incorporate. 

Black Box- In a box all input i.e. all element of the problem are listed and separate list of all the 

outputs is made. Then screen all possible transformation processes that might transform some 

or all of the inputs into all of the outputs i.e. if this input is used what would be required to get 

that desired output. 

Directed Dreaming- Dreams can be used as input to creativity or solutions to problems. Day 

dreaming enables one to relax and explore ideas, work efficiently, creative thinking, problem 

solving, decision making are all enhanced. In fact the best ideas come when we are at relaxed 

moments of day dreaming. This method requires a prolonged mental struggle of days, or even 

weeks with the problem. 

B) Group Creativity- If a problem is unstructured, and then groups are more effective in 

generating a creative solution. Groups are more effective than individuals in eliminating errors 

and avoiding mistakes. A solution developed by the group is more likely to be accepted than 

individual. If the members of a group must act on evidence, it is likely that they will be more 

productive. 

In a group, members learn from one another, stimulate one another and add to each other’s 

knowledge and skills. Group diversity enhances the effectiveness of group thinking. Some 

group creativity problem solving techniques are given below: 

1. Brainstorming- This technique of problem solving originated in India about 400 yrs ago and has 

been practiced ever since. It is one of the best techniques where individual creativity flows in a 

totally new and unique way. It consists of the gathering of a group of people from diverse field 

who state the problem and invite everyone to call out their respective ideas. The important rules 

are: 

‣ No criticism is allowed with respect to other members ideas. 

‣ Free-wheeling, wild ideas and unconventional ideas are welcome. 

‣ Emphasis is on quantity of ideas. 

‣ Improvements and flexibility should be required.

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2. Synectics- This technique can be explained with an example say we imagine ourselves as a steel 

manufacturer and list out the various ways we could redesign ourselves to be a safer steel 

manufacturer at a lower running cost. This is what we would be doing if we are practicing this 

technique which forces us to talk about the problem in a totally unconventional manner. By 

repeated analogies, what is familiar is made strange and the strange is made familiar. 

‣ Personal Analogy is an individual mental concentration of investigating thing and putting in the 

basket of the idea we are improving. 

‣ Direct Analogy compares parallel facts by identifying one element with another element of 

function, knowledge or method, one idea for another application. Like the idea of a person 

bending forward and lifting a material with forearms and lifting a material with forearms to the 

idea of a weight lifting crane. 

3. Bionics- This technique studies Nature to ascertain how plants and animals perform functions. 

How does the duck avoid getting wet? How can the hydrodynamics of a dolphin be applied to 

submarine design? Indeed, nature can teach us much. 

4. Morphology- This technique links with scrabble game which ensures that we do not overlook 

any combination when we have a series of variables which can be combined in various ways. 

For example, an organization may list its markets (elements of dimension 1) and its products 

(elements of dimension 2). Each product/ market combination can trigger off new idea with 

new product. 

5. Delphi- This is an approach where questionnaire is given to experts from their respective field. 

The members of the group are not familiar with each other. A central mechanism i.e. moderator 

is there to manage the alteration, transmission and summarizing of questionnaire data. Initially, 

suggestions by each group member are recorded independently and anonymously. Then 

moderator compiles and reproduces the same again to each member. Members then generate 

feedback on other member’s comments and a second round of feedback is written down and 

sent to the centrally located individual. The above steps are repeated until a consensus is 

reached. 

6. Nominal Group Techniques- This method structures the group’s creative process and combines 

both group and individual activities. It is coordinated by a leader. Initially, the question under 

study is posted in front of the group. The group then silently generates ideas with each 

individual writing his answers. Then the leader goes around the table and asks each member to 

share their ideas in a round- robin fashion, where participants take turns reading ideas to the 

group. These ideas are recorded. The ideas are then discussed for clarification of any question 

or points. The recorded ideas are then ranked by each individual. The mean average rankings 

are then used as a basis for the group’s decision.

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INNOVATION 

Innovation has become the most critical element of business in today’s scenario. In order to 

survive, sustain and grow, companies need to innovate constantly and not at any time be 

complacent with their market share or position. Innovation is all about out of the box thinking. 

It is about changing the way we do business and changing the business environment for the 

better. 

Creativity and innovation involve the creation of something new which is central to the 

organization. Innovation is considered an imperative for organizational survival. The approach 

of organizations should be to constantly rethink the product portfolio, the supply chain, the 

marketing, the distribution, the pricing, the services and so on. 

Innovation= Idea generation+ Concept Development+ Implementation+ Exploitation. 

Innovation is the creation, recognition and accomplishment of new thoughts, processes, 

products or services it is the process of developing them into practical use. 

Innovation needs to be Institutionalized 

Innovation has to be embedded in the system of the organization. It has to be system- driven 

rather than people- driven, so that even if people quit the organization, the innovative culture 

does not diminish. Innovation is everybody’s business. It should be embedded in all aspects of 

an organization like product innovation, process innovation, management innovation, business 

models innovations, etc. In the nascent stage, ideas are simple. But as more individuals become 

attached, there is ample chance of the ideas becoming complicated. When we look into 

improving products or services, we generally end up making things more complicated. Our aim 

should be to make things simpler, thereby reducing manufacturing, documentation, and 

customer service costs. Thus, we need to innovate to simplify and not to complicate. 

CONCLUSION 

In the world of organizations, be they private or public, lack of either leads to stagnation, and 

leaves an organization unable to perform or meet change. There is a role for management in the 

creative process but it is not to manage it, it is to manage for it. Creativity does not happen 

exclusively and tacitly in a person’s head but in interaction with a social context wherein it may 

be codified. 

In business, the company with the best ideas wins. Organizations should take that initiative to 

foster an environment of creativity. It is important to learn how to be creative. There is a need 

to learn the formal skills of lateral thinking which make creativity available to everyone. It is 

important for organizational decision makers to set parameters. They should specify what they 

are looking for and guide their employees. If we look at the employee innovation the direct 

benefit is competitive advantage but the secondary benefits are greater employee empowerment 

and satisfaction. In this age, individual and group creativity will have to be leveraged by 

organizations which have the vision for moving from “good to great”.

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REFERENCES 

1. Ray,S. (2006). Effective Executive “Creativity and Innovation in Management” Volume VIII 

No.11. pp 60-65 

2. Kotler, P. (2009). “Marketing Management” Pearson Publications, 13 th Edition. 

3. Perkins, D. N. (1981). “The Mind’s Best Work” Cambridge, Mass.: Harvard University Press, 

1981). 

4. Bruner, J.S (1964). “Contemporary Approaches to Creative Thinking” New York: Atherton 

Press. pp 1–30 

5. Arieti, S. (1976). “Creativity: The Magic Synthesis” New York: Basic Books 

6. Ahmed, P. K.(1998). “Benchmarking innovation best practice”, Benchmarking for Quality 

Management & Technology, Vol.5 No.1, pp.45-58. 

7. Khandwalla, P. N. and Mehta, K. (2004). “Design of corporate creativity”, Vikalpa, Vol. 29, No. 

1, pp. 13-28. 

8. Man, J. (2001). “Creating innovation”, Work study, Vol. 50, No. 6, pp. 229- 233.

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