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Table of Contents Articles PERFORMANCE EVALUATION OF RURAL INSURANCE IN INDIA Raja Babu Puppala ARE FEMALE WORKERS MORE

PRODUCTIVE THAN MALE WORKERS? AN EMPIRICAL STUDY IN BANGLADESH Munshi Samaduzzaman, Masoom Ahmed, Fazluz Zaman A COMPARATIVE STUDY OF NPA OF STATE BANK OF INDIA GROUP & NATIONALISED BANKS Tanmaya kumar pradhan AGRICULTURE CRISIS AND SUSTAINABLE ECONOMIC DEVELOPMENT : A GLOBAL PERSPECTIVE Geetanjali Singh BUSINESS INCUBATOR FOR LOCAL ECONOMIC DEVELOPMENT Sukumaran Sankaran THE LAW OF WASTAGE A CONCEPTUAL THOUGHT FOR SUSTAINABLE ECONOMIC DEVELOPMENT Vijay Anand Venugopal, Dr. S. Sampath ECONOMIC ANALYSIS ON THE MARKET PARTICIPATION DECISION OF THE RED ONION FARMERS IN JAFFNA DISTRICT, SRI LANKA. Shylanthi Thangarajah RURAL INFRASTRUCTURAL DEVELOPMENT THROUGH RURAL ROADS: WITH SPECIAL REFERENCE TO PRADHAN MANTRI GRAM SADAK YOJANA (PMGSY) Rajasekaran Sampath, Damodaran Murugan FINANCIAL PERFORMANCE ANALYSIS OF GOHE COOPERATIVES SAVINGS AND CREDIT UNION IN BURE WOREDA, ETHIOPIA Sambasivam Yuvaraj, Biruk Ayalew Wondem SIGNIFICANCE OF ASSET QUALITY OF STATE CO-OPERATIVE BANKS IN INDIA AND IMPACT OF NONPERFORMING ASSET ON THE LIQUIDITY, SOLVENCY AND PROFITABILITY Tarasankar Das BOARD COMPOSITION, OWNERSHIP STRUCTURE AND FIRM PERFORMANCE Jyotsna Ghildiyal Bijalwan, Pankaj Madan CORPORATE SOCIAL RESPONSIBILITY: ETHICS AND CHALLENGES IN INDIA Vandana Gupta A STUDY ON IMPACT OF URBANIZATION ON AGRICULTURE AND URBAN SPRAWL - SPECIAL REFERENCE TO CHIDAMBARAM TOWN Govindarajan Vedanthadesikan, Uthirapathy Mathivanan BARRIERS TO INNOVATION ADOPTION: A STUDY ON SMES OPERATING IN THE KNITWEAR CLUSTER OF TIRUPUR DISTRICT Savitha Nair, Poornima S ROLE OF SELF-HELP GROUP IN SOCIO-ECONOMIC DEVELOPMENT OF INDIA Dr. A. Sundaram STANDARD OF LIVING OF RURAL FISHER FOLK IN SOUTHERN COASTAL DISTRICTS OF TAMIL NADU Ramesh Kumar S

Performance evaluation of Rural Insurance in India


Dr. P. Raja Babu, Associate Professor, KLU Business School, KL University, Vaddeswaram, Guntur District, Andhra Pradesh, India Abstract: Rural insurance has to play important role for the sake of weaker section of the society as well as encouragement of saving in rural households as a result for the development of the economy. In this article the author has to highlighting rural business and potentiality for expansion of insurance companies in rural areas have to be highlighted. Introduction: Insurance is the protection of the economic value of assets. In case of destroyed asset through an accident or other unfortunate event the owner of the asset will get the benefit through insurance. And it will be helpful sudden death of insurer in that position income would normally cease. With the help of insurance those people who are dependent on the income through the insurance to meet their needs. The scope of bringing more individuals into the life insurance net is undeniable, provided the right type of products and services are made available. The level insurance penetration being positively correlated to the level of economic development must take place, but it should be wide spreads for any dramatic increase to take place in the insurance penetration. In India more than seventy percent of the population lives in rural areas. The impact of risks associated with life is far severe on rural population as compared to the urban population because of with their higher levels of income. In the decade of 2000 some of private companies were started different rural schemes to the rural populace of India. With changing times and with increasing variable incomes in rural areas, the public and private sector companies improving their solutions to the rural population and launching different insurance products which are terms and return of premium products. The policyholder has to pay premium amount with flexibility days between 30 to 180 days. The rural insurance has to refer the protection provided to the rural class is specified and customized according to their needs. Through a multiple channel system we not only provide agricultural protection but also health, motor and other covers. Various products offered in rural insurance are: Health Insurance: It has to provide protection to the health of the rural folk through our comprehensive Family Health Insurance plan, which covers the entire family in one policy. Home Insurance: This policy protects much more than just the home. Through the network channels, ensure that the houses in the rural sector are insured against natural and other perils. Tractor Insurance: Tractors are one of the most precious assets to the rural folk. The package of this policy has to covers not just own damage but also third party liability and personal accident. Weather Insurance: Weather Insurance is an insurance cover against losses incurred due to uncertainties in climatic conditions. It can be used to hedge any vulnerability of assets or any other damage incurred due to erratic and irregular weather. Shop Insurance: Shop Insurance is a comprehensive policy that covers both the structure and the contents of a shop and protects it against any financial loss in case of an unfortunate incident. Rural insurance: Need and potential has highlighted that the Government should pay serious attention to the rural areas. In fact, Life Insurance Corporation of India (LIC) stipulates that a considerable percentage of its business should be from rural areas. And it has some social security schemes covering the rural and urban poor, landless labor, and so on. Yet it was not possible for it to penetrate into the interiors to tap the rural business. Two main reasons were the cost involved in www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 11

servicing, and the policies not meeting the credit requirements of the farmers. They were accustomed to old methods of borrowing etc. Crop insurance was also a failure because of misuse and false claims. And agents as well as insurers are not interested in policies of small sums assured and premiums. So, the Insurance Regulating Authority should insist that the business of every insure r should have a particular percentage of rural business and of small policies. The insurers LIC as well as the new entrants -- could introduce cost-effective collection methods by involving post offices. They should introduce innovative schemes such as `Crop linked life insurance', with proper credit facilities, easy claim settlement methods. PERFORMANCE OF LIC IN BUSINESS FORCE AND NEW BUSINESS BEFORE LIBERLIZATION (FROM 1981-82 TO 2000-01): The rural new business of LIC as a percentage of its overall new business has grown well during the 1980s and 1990s. The penetration in the rural areas was more pronounced in the 1990s than in the 1980s. The number of policies 6.9 lakhs in 1981-82 out of 21 lakhs policies as against 109.1 lakhs in 2000-01 out of 196.6 lakhs policies. As such the sum assured in rural areas were Rs.927 crores out of Rs.3, 479 crores as against in 2000-01 total contribution of rural area Rs.59, 641 crores out of Rs.1, 24,772 crores. It is half of contribution than one third contribution in 1981-82. The following table has been shown that the Performance of LIC of India during the period of 1981-82 to 2000-01. PERFORMANCE OF LIC OF INDIA BEFORE THE PERIOD OF 2000-2001 YEAR Business in Force All India No.of No.of Offices Policies (Rs. In Lakhs) 889 236 958 243.8 1,023 252.7 1,107 264.8 1,197 279.9 1,280 298 1,353 323.5 1,427 360.8 1,528 403.4 1,651 455.1 1,774 508.6 1,906 566.1 2,008 608.7 2,021 654.5 2,024 708.8 2,023 776.7 2,046 849.2 2,048 916.4 2,048 1,013.00 2,048 1,130.20 Sum Assured (Rs.Cr) 23,998 26,264 30,266 33,785 40,404 47,906 58,798 74,129 94,408 1,18,651 1,45,929 1,77,268 2,07,601 2,53,333 2,94,336 343,018 3,98,959 4,57,435 5,34,589 6,43,241 All India No. Policies (in Lakhs) 21 22.3 23.7 27 32.9 38.7 46.9 59.8 73.9 86.5 92.4 99.6 107.3 108.7 110.2 122.7 133.1 148.4 169.7 196.6 New Business All India Rural No. Sum of Policies Assured (in Lakhs) (Rs.Cr) 3,479 6.9 3,974 7.3 4,387 1.26 5,376 9.5 7,056 12.2 9,068 14.8 12,435 18.3 17,223 24.1 23,220 30.5 28,139 36.8 32,064 41.3 35,957 44.4 41,814 48.6 55,229 49 51,816 52.6 56,741 60.3 63,618 68.4 75,316 81.2 91,214 97 1,24,772 109.1 Sum Assured (Rs.Cr) 927 1,038 1,260 1,570 2,177 2,916 3,997 5,818 8,086 10,295 12,440 14,085 16,680 21,571 21,264 24,279 27,551 35,373 44,169 59,641

1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

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AREA-WISE INSURANCE OFFICES: Another remarkable feature for the life insurance offices is their distribution over different areas of the country. The growth in life insurance offices is observed to be not confined mainly to metropolitan centers and cities. The insurers have opened their branch offices in semi-urban and rural areas as a way to spread insurance service to these areas. This indicates clearly that the insurance industry has widely campaigned the insurance service in all areas and developed accordingly. The following Table shows the details on the area-wise distribution of life insurance offices as on 31st March, 2010. The total number of offices established by the life insurers is 12,018. Out of which 8,768 offices are established by the private sector insurers and the remaining 3,250 offices are established by the LIC. As regards the number of offices established in metro and urban areas taken together, both the public and private sector players spread only a 28 per cent their branches. But, there is an increase in the number of offices in semi-urban and rural areas of both the sectors of the insurance players mainly to tap the insurance market in these areas. Consequently, around threefourths, i.e. 72 per cent of the branches are established by the LIC and also the private sector units in these areas. Further, for meeting competition from the public sector giant, LIC and also for promoting the business in untapped areas, the private sector insurers also have established a good number of branches in semi-urban and rural areas. AREA-WISE DISTRIBUTION OF LIFE INSURANCE OFFICES AS ON 31ST MARCH, 2010 Area LIC Private Sector Industry No. of offices Percentage No. of offices Percentage No. of offices Percentage to total to total to total Metro 347 10.68 897 10.23 1244 10.35 Urban 550 16.92 1555 17.73 2105 17.52 Semi-Urban 923 28.40 3607 41.14 4530 37.69 Rural 1430 44.00 2709 30.90 4139 34.44 TOTAL 3250 100.00 8768 100.00 12018 100.00 Sources: IRDA Annual Report, 2009-10 The LIC of India has to introduce some training centers in rural areas to educate the policy holders and LIC agents to increase the awareness of the significance of Life insurance then it may be increase rural area insurance business. It has to build team work of the agents and development officers of LIC in order to keep business from rural areas in the hands of LIC. Insurance Corporations can take projects in rural areas for creation of employment opportunities in off-season. Income so generated will provide the ability to the rural people for the payment of insurance premium. The LIC of India has to establish some more branch offices both in rural and urban areas keeping the growth of LIC business during the period of 20 years from 1981-82 to 2001-02. As private firms has established several their branches offices in the vicinities of municipalities and cities. Both the sectors can be used to conduct campaign on insurance awareness. Film stars can be utilized to conduct such campaign, as it is the best way of attracting rural people in the present day world. MICRO INSURANCE AGENTS In offering micro-insurance, micro-insurance agents are allowed to carry out the collection of proposal forms, remittance of premium, settlement of claims, nominations and policy administration services. The conventional models may not be able to accomplish the desired target in the rural area of micro-insurance. The intermediary may have to do the role of an integrated financial advisor. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 13

The Self-Help Group members get income by way of interest every year. A part of this amount can be utilized by the members for buying insurance products because they are prone to various risks. The following Table shows information on the growth rate and market share of microinsurance agents appointed by the life insurers during 2006-07 to 2009-10. With the notification of IRDA (Micro-insurance) Regulations, 2005 by the Regulator, there has been a steady growth in the design of products catering to the needs of the poor and under-privileged. As the concept of micro insurance agent is new as per the IRDAs Regulations in 2005, only the information for four years is considered. The number of micro insurance agents as on 31st March, 2010 was 8,676, of which 7,906 were for the LIC and 770 for the private sector companies. The number of micro insurance agents is increased by 6.62 times in the insurance industry, i.e. 6.42 times in LIC and 9.75 times in the private sector. It shows a significant increase in the number of micro insurance agents in the industry. LIC contributed to a greater extent to this increase. But, the response with regard to the sale of micro insurance products by the private sector is not up to the mark. It is marginal and meant only for fulfilling the regulatory obligations. GROWTH RATE AND MARKET SHARE OF MICRO-INSURANCE AGENTS OF LIFE INSURERS DURING 2007-08 TO 2009-10 LIC Private Sector Amount % Amount % 2006-07 1,232 93.97 79 6.03 2007-08 4,166 90.88 418 9.12 (238.15) (429.11) 2008-09 6,647 91.68 603 8.32 (59.55) (44.26) 2009-10 7,906 91.12 770 8.88 (18.94) (27.69) Note: Figures in brackets are annual growth rate percentage % indicates market share of the insurers Source: Compiled from the Annual Reports of IRDA Year (in Percentage) Total Amount % 1311 100.00 4,584 100.00 (249.65) 7,250 100.00 (58.16) 8,676 100.00 (19.67)

Conclusion: In most of the villages send their children to the school as mid-meal is provided to those who are enrolled in the school. The agricultural laborers are every-day earners. Therefore, the rural people are will to pay insurance premium on a monthly basis. Particularly, health insurance schemes are to be made known and introduced in rural areas. Unnatural death also provides an opportunity for insurance penetration, health insurance, in rural India. The insurance companies have to be providing various insurance schemes for the coverage of land, cattle and sheep, which will provide a safety for rural insurers. As a matter of fact risk point of view rural people having much more risk than urban. The main reason is that medical facilities are very low than city living people. Hence, the insurance companies will be providing various schemes under the coverage of various risks with very low premium. And premium can be collected according to the convenience of agricultural laborers. To create awareness programmes among the rural population efforts are to be taken by the insurance corporation. It is therefore, the insurance companies arrangements will be made for selling their products in the rural areas both in life and non-life sectors. Finally, the insurance companies are having enough opportunities for insurance penetration in rural areas.

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References: 1. By P.Raja Babu, Dr.TN.Murthy, Rizwana; Performance Evaluation: Ways for winning confidence, The ICFAI Journal of Risk and Insurance, volume-April/2009. 2. Mrinalini Shah and Shweta Dixit, Distribution Channels for Incumbent Rural Insurance Industry Confidence, The Journal of Risk & Insurance, The ICFAI University Press, Vol.VI. No: 3&4, July-October, 2009. 3. Murthy, T.N., Raja Babu, P. and Riswana Ansari, Performance Evaluation of LIC: Ways of Winning Confidence, The Journal of Risk & Insurance, The ICFAI University Press, Vol.VI. No:2, April, 2009. 4. Pranav Prashad, Catalyst for Financial Inclusion Insurance in the Rural and Social Sector, IRDA Journal, April, 2009. 5. Priya Kapoor, Same Protection, Lower Premiums, The Economic Times, December 20, 2010. 6. Rajan, R.V., Covering the Countryside Opportunities and Issues in Rural Insurance, IRDA Journal, September, 2003. 7. Arman Oza, Importance of Delivery Mechanism Role in Micro-Insurance, IRDA Journal, December, 2006, p.8. 8. www.irda.org. 9. Annual Report of LIC 2008-2009.

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Are female workers more productive than male workers? An empirical study in Bangladesh
Masoom Ahmed, PhD Candidate, Glyndwr University, UK Fazluz Zaman, Lecturer, North South University, Dhaka, Bangladesh Munshi Samaduzzaman, Assistant Professor, American International University-Bangladesh (AIUB) ABSTRACT Job satisfaction is one of the most heavily researched employee attitudes over the last 50 years. Pleasing employees by appealing to their intrinsic and extrinsic needs is essential for obtaining maximum contribution of employees towards organisational objectives. To investigate gender differences on job satisfaction and are female workers are more productive than male worker, we have distributed 450 questionnaires among the respondents, 256 were returned, which shows a response rate of 56.7%. Data analysis tests were carried out by using statistical package for social sciences (SPSS) 20.0 version for Windows. Multivariate logistic regression analysis was used to find answers for the research questions. The findings of the Logit models indicate that female were significantly more satisfied than men and female workers performance is better than male worker. Key Words. Gender, job satisfaction, performance. INTRODUCTION Job satisfaction is one of the most heavily researched employee attitudes over the last 50 years (Rayton, 2006). Locke (1976, p. 1300) defined it as a pleasurable or positive emotional state resulting from an appraisal of ones job or job experiences. It is an effective response to specific aspects of the job and plays a role in enhancing employee commitment to an organisation. Studies have shown that employee absenteeism, turnover and other behaviours are related to a persons satisfaction with his or her job and the organisation (Vroom, 1964). Several theories have been used by researchers to explain the concept of job satisfaction. These theories fall in two groups, namely process and content theories. Content theories attempt to identify the factors which contribute to job satisfaction and job dissatisfaction. These theories include Maslows hierarchy of needs (1954), Herzbergs two factor theory (1959) and McGregors Theory X and Y (1960). On the other hand, process theories attempt to describe the interaction among variables in their relationship to job satisfaction. These theories include equity theory, expectancy theory and goal setting theory among others. Studies have shown that job satisfaction is a multidimensional construct consisting of intrinsic job satisfaction and extrinsic job satisfaction (Volkwein and Zhou, 2003). Intrinsic aspects of the job comprise motivators or job content factors such as feelings of accomplishment, recognition, autonomy, achievement, advancement among others. Extrinsic aspects of the job, often referred to as hygiene factors are job context factors which include pay, security, physical working conditions, company policies and administration, supervision, hours of work, union relations with management among others. Herzberg found that hygiene factors were mainly disruptions in the external work context while motivators dealt with internal states of the mind (Smerek and Peterson, 2007). Most studies have found that job satisfaction is influenced by an array of personal and job characteristics such as age, gender, tenure, autonomy, teamwork, relationships with co-workers and supervisors, job variety, satisfaction with pay, training among others (Volkwein and Parmley, 2000; Volkwein and Zhou, 2003; Lambert, 2004). Stressful work conditions were found to negatively affect employees job satisfaction (Volkwein and Zhou, 2003; Fisher, 2001). Gender has also received a great deal of attention in job satisfaction studies, but again the research is inconclusive. In 1997, Thompson and McNamara reviewed all job satisfaction studies
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published in the Educational Administration Quarterly over the past six years and showed no significant difference between male and female satisfaction levels. Other studies that have shown no significant difference between gender and job satisfaction levels include Barbash (1976). Smith, et al., (1998) arrived at similar insignificant findings until they compared the gender of the employee to the gender of the employer. They found that women were more significantly more satisfied than men in small companies with female supervision, while males were significantly more satisfied in larger companies with male supervisors. Studies suggesting that gender does affect job satisfaction are available, and data can be found to suggest that either man are more satisfied (Weaver, 1977) or that women are generally more satisfied (Kramen-Kahn & Hansen, 1998). So, this study focused on, first gender differences on job satisfaction and secondly, are female workers are more productive than male workers? METHODOLOGY The purpose of this study was to determine the factors that contribute to job satisfaction among the workers 256 of Bangladesh. In conducting the review of literature, the researcher found there have not been enough studies in Bangladesh related to gender differences and performance. There have been few studies conducted throughout the nation related to retention, attrition, and health. A quantitative method study was conducted to gain an understanding of factors related job to satisfaction among industrial workers of Bangladesh. Questionnaires were conducted to find out a broader understanding of the contributing female and male performance on workplace. Of the 450 questionnaires distributed among the respondents, 256 were returned, which shows a response rate of 56.7%. The sample was applied to represent the population and underlying structure because of examining the reliable correlations and prediction power of factors (Hair et al., 2006; Tabachnick and Fidell, 2007). According to Comery and Lee (1992), a sample size of 50 - 100 is treated as poor, 200 as fair, 300 as good and 500 as very good and 1000 is treated as excellent. Thus, this study covered a fair sample and provided a substantive representation of the total population garments industries. Data analysis tests were carried out by using statistical package for social sciences (SPSS) 20.0 version for Windows. EMPIRICAL FINDINGS AND ANALYSIS OF THE LOGIT MODEL Following relevant literature (Field, 2006; Hosmer and Lemeshow, 2000), three steps were implemented in reporting the results of a logistic or Logit model, namely (1) fitting an initial or unsophisticated model, (2) estimating a more sophisticated or adjusted model, and lastly (3) evaluating the predicted probabilities of the Logit model. The literature (Hosmer and Lemeshow, 2000; Begg and Lagakos, 1990) also reveals that there are two types of models presented in estimating a logistic regression model rudimentary and adjusted. A rudimentary, initial or simple model looks at how a single independent affects regression outcomes and ignores potential covariates. The literature (Hosmer and Lemeshow, 2000; Hauck et al., 1991) indicates that it always best practice to start with a simpler model and then move gradually to an adjusted model. This method is known in the literature as a step-wise regression procedure. In addition, the practice of omitting covariates leads to biased estimates of the logistic parameters and decreases the precision of effect estimates (Gail et al., 1984; Lagakos and Schoenfeld, 1984).

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For the purpose of including explanatory variables in the Logit model, the above significant variables are of interest in this thesis because they tell us whether or not the performance scores differ for male and female workers. The column of real interest contains the significance values of these F-ratios (Table 1). For these data, it appeared that all test statistics were highly significant, with p values being less than 0.01 (1%). From this initial result, it can be concluded that the performance scores, which were perceived by the workers, do indeed differ among different workers characteristics and the corresponding company policy. However, this effect needs to be broken down for further examination using the Logit model. A detailed examination of Table 1 indicates that the Wilks lambda () is (0.85). Other MANOVA statistics such as Pillai's Trace, Hotelling's Trace and Roy's Largest Root were not discussed due to practical considerations and similar measures (Tabachnick and Fidell, 2007; Field, 2006; Hosmer and Lemeshow, 2000). Following the relevant literature (Tabachnick and Fidell, 2007), Wilks lambda () is a number between 0 and 1. A small value (close to 0) means that the groups (less productive and more productive workers) are very well separated by the above independent variables such as income, workers age, job enrichment policy and others. Apparently, although these groups (based on their performance) could be divided significantly by these competing variables (because of highly significant and p values less than 0.001), was found to be 0.370, which is not relatively close to 0. However, the literature (Field, 2006) reveals that the independent variables are significantly valid as separators, regardless of the value not being close to 0, with the significance level of being less than 0.01 (the last column in Table 1). Effect Value Table 1 Multivariate Testsd F Hypoth Error Si esis df df g. 1760.2 71a 1760.2 71a 1760.2 71a 1760.2 71a 3.650 4.823 6.932 29.058
c

Intercept

Performa nce

Pillai's Trace Wilks' Lambd a Hotelli ng's Trace Roy's Largest Root Pillai's Trace Wilks' Lambd a Hotelli ng's Trace Roy's Largest Root

.996 .004 277.0 80 277.0 80 .158 .03 5 6.598 4.470

34.000 34.000 34.000 34.000 204.000 204.000 204.000 34.000

216.00 0 216.00 0 216.00 0 216.00 0 1326.0 00 1287.4 39 1286.0 00 221.00 0

.0 00 .0 00 .0 00 .0 00 .0 00 .0 00 .0 00 .0 00

Partia l Eta Squar ed .996 .996 .996 .996 .360 .429 .524 .817

Noncen t. Parame ter 59849. 203 59849. 203 59849. 203 59849. 203 744.69 9 966.96 6 1414.0 64 987.95 7

Obser ved Power


b

1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000

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A forward stepwise regression procedure was employed to examine the significance of the competing explanatory variables into the Logit model, such as companys reward policy, the companys workers age, the companys promotional policy, workers income, the companys job enrichment policy, however, some of the findings were not significant and had wrong sign. It appeared that only workers gender (X1) and age (X2) jointly together were strong predictors of the workers perceived performance scores (Y). Several attempts were made to include the possible interaction effects of X1X2 and other competing explanatory variables (such as the companys promotional policy, workers income and the companys job related policy), however, the results were not significant and not presented in the main report. Apart from the insignificance of the interaction effects, the independent variables (X1 and X2) were highly significant at less than 1% (p values < 0.01, see column Sig. of Table1). Table: 2 Variables in the Equation B S.E. Step 1a AGE(1) -1.330 .325 Constant 1.933 .228 a. Variable(s) entered on step 1: AGE. Wald 16.781 71.797 df 1 1 Sig. .000 .000 Exp(B) .265 6.909 95% C.I.for EXP(B) Lower Upper .140 .500

Overall results from the Logit model are presented in Table 2. The results reveal that the variables X1 and X2 (workers gender and age) are significant predictors of the result with p < 0.05, which is indicated by the Sig. column in Table 2. In Variables in the Equation in Table 2, the B column represents the estimated log odds ratio. The Sig. column represents the p-value for testing whether age is significantly associated with the level of a workers perceived performance, whilst the EXP(B) column represents the odds ratio. As mentioned earlier, several attempts were made to include a possible interacting variable (a joint impact of the variables of age and income, age and integration policy etc); however, the results were not significant and therefore not reported. The Logit regression model can be rewritten in simple and multiple regressions (in either additive or multiplicative form). Based on Table 2) Table 3 revealed that the estimation of the Logit model terminated by using a MLE method at iteration number 4, because parameter estimates changed by less than 0.001. Under Model Summary, it can be seen that the -2 log likelihood statistic is 153.771. This statistic measures how robustly the model predicts the decisions since the smaller the statistic, the better the model is. Adding the age variable reduced the -2 log likelihood statistic by 153.771 130.066 = 23.705. In addition, the value of Cox and Snell R2 (as a measure of the explanatory power of a regression model) has increased from 48% to 52%. R2 here can also be defined as the proportion of variability in a data set that is accounted for by the model, so that the bigger R2 (close to 100%), the more robust the model. For example, R2 equal to 99% indicates that about 99% variability of the dependent variable is explained by the model, whilst the remaining 1% (100%-99%) variability is explained by random error or other variables outside the model. However, in a logistic regression context, the literature (Menard, 1995; Kleinbaum, 1994) also indicates that R2 statistics do not quite measure the goodness of fit of the model, but instead sow how useful the explanatory variables are in predicting the response variable or, as it can be referred to, measures of effect size. For example, the value of 0.61, or 61%, indicates that the logistic model is useful in predicting the productivity score perceived by the workers. As indicated by Table 3 below (Model Summary), the Cox and Snell R2 were found to be 53% for the second model, while the Nagelkerke R2 was estimated to be 74%. This Model Summary shows measures of how well the logistic regression fits the data. These measures are useful when comparing
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several different, competing logistic regression models. The coefficient here can be interpreted in the same way as R2 in an ordinary regression. Hence, in this case, the model is considered relatively good, since the independent variables (the variables of productivity and age) explain about 53% to 74% variation of the variation in the dependent variable. Table: 3 Model Summary Step -2 Log likelihood Cox & Snell R Square Nagelkerke R Square a 1 153.771 .480 .671 b 2 130.066 .526 .736 a. Estimation terminated at iteration number 5 because parameter estimates changed by less than .001. b. Estimation terminated at iteration number 6 because parameter estimates changed by less than .001. Table: 4 Hosmer and Lemeshow Test Step 1 2 Chi-square .83 1.301 df 1 2 Sig. .12 .254

The table Hosmer and Lemeshow test provides a formal test for determining whether the predicted probabilities for a covariate match the observed probabilities. A large p-value indicates a good match (column Sig.), whereas a small p-value indicates the opposite, indicates to look for some alternative logistic models to describe the relationship between this covariate and the outcome variable. Table 4 indicates that the p-values are relatively large 0.254, therefore, indicating support for the predicted and observed probabilities. HL test, a further contingency table (Table 5) for the HL test can produce more details. This test divides the data up into ten groups, which are defined by increasing the order of estimated probability. The first group corresponds to those subjects who have the lowest predicted probability. Table: 5 Contingency Table for Hosmer and Lemeshow Test Demography = Demography = Male Female Observed Expected Observed Expected Total Step 1 1 29 29.000 53 53.000 82 2 22 22.000 152 152.000 174 The findings of the Logit models indicate that increasing age decreases the log odds of being better performance. In addition, being female workers are increases the log odds of being better performance relative to those being male workers. A classification table (Table 6) is useful for logistic regression models which involve diagnostic testing. The classification table displays the agreement between predicted (vertical column) and actual results (horizontal row), and basically indicates that the incorrect answer is never predicted. This would be the same as the intercept-only model, without independent variables, where the

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probability of a correct answer is equal to <the number of correct answers>/<the total number of answers>, which in this case is 0.80 or 80%. Table : 6 Classification Tablea Predicted Demography Observed Male Female Step 1 Demograph Male 0 51 y Female 0 205 Overall Percentage a. The cut value is .500

Percentage Correct .0 100.0 80.1

The findings of the Logit models indicate that female workers performance is better than male worker. CONCLUSION This study was conducted in Bangladesh where it was proposed that employees of organisations could be more satisfied and perform better on the basis of psychological and financial needs. This study reveals that female were significantly more satisfied than men workers. For the purpose of including explanatory variables in the Logit model, the above significant variables are of interest in this study because they would tell us whether or not the performance scores differ for male and female workers. This logit analysis shows measures of how well the logistic regression fits the data. The findings of the Logit models indicated that female workers performance is better than male worker. Despite the promising results, some limitations of the study should be noted that could be addressed in future research. Examining employees job satisfaction only in garment might limit generalisability. It is possible that people who seek employment in other sectors might react differently. Thus, these predictor variables of the theoretical framework should be tested in other organisations in the same culture which may present confounding effect in those organisations. Thus, more tests are necessary to strengthen its generalisability. REFERENCES Adams, J.S. (1963), Toward the understanding of inequality, Journal of Abnormal and Social Psychology, Vol. 67 No. 3, pp. 422-36. Ahmed, Masoom (2005), Role of Grammen Bank in enhancing the Socio- Economic Condition of Women. Journal of Business Studies, Vol. XXIV No. 1, pp. 15-35. Annual Report, BGMEA (20042009), Dhaka, Bangladesh. Barbash, J., (1976). Job satisfaction attitudes surveys. Organisation for Economic Co-operation and Development (Paris and Washington). Begg, M.D & Lagakos, S.W., (1990). On the consequences of model misspecification in logistic regression. Env Health Persp; 87:6975. Comery, A. L & Lee, H. B. (1992). A first course in factor analysis, 2nd edn, L. Erlbaum Associates, Hillsdale, NJ. Field, A. 2006, Discovering Statistics Using SPSS, Second Edition edn, SAGE Publications, London.

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Fisher, R.T. (2001), Role stress, the type a behavior pattern, and external auditor job satisfaction and performance, Behavioral Research in Accounting, Vol. 13, pp. 143-69. Gail, M.H., Wie and Piantadosi, S.,(1984). Biased estimates of treatment effect in randomized experiments with nonlinear regressions and omitted covariates. Biometrika, 71(3):432444. Ghazzawi, I. (2008), Job Satisfaction Among Information Techlogy Professionals in the U.S.: An Empirical Study. Journal of American Academy of Business. , 1-15. Glisson, C. and Durick, M. (1988), Predictors of job satisfaction and organizational commitment in human service organizations, Administrative Science Quarterly, Vol. 33 No. 1, pp. 61-81. Hair, J. F. , Black, Jr. W.C., Babin, B.J., Anderson, R.E. & Tatham, R.L. (2006).Handbook of industrial and organizational psychology (pp. 1297-1349). Chicago: Hauck, W.W., Neuhaus, J.M., and Kalbfleisch, J.D.,(1991). A consequence of omitted covariates when estimating odds ratios. J Clin Epidemiol; 44(1):7781. Hertzberg, F. (1966), Work and the nature of man. Cleveland, OH: The World Publishing Company. Herzberg, F. (1987), One more time: how do you motivate employees?, Harvard Business Review, Vol. 65 No. 5, pp. 109-20. Herzberg, F., (1964), The motivation-hygiene concept and problems of manpower, Personnel Administration, 27 (1), p.3-7. Herzberg, F., Maunser, B. and Snyderman, B. (1959), The Motivation to Work John Wiley and Sons Inc., New York, NY. Hosmer, D. W., and Lemeshow, S., (2000). Applied Logistic Regression, John Wiley and Sons Inc., New York, NY. 2nd Edition. IL: Rand McNally. Islam, S. and Shazali, S.T. (2011). Determinants of manufacturing produciviyt\; pilot study on labor intensive industries, International Journal of Producitivty and Performance management, Vol.60.pp 567-582. Judge, T .A. & Bono, J. E. (2001), Relationship of core self-evaluations traits Selfesteem, generalized self-efficacy, locus of control, and emotional stability With job satisfaction and job performance: A meta-analysis, Journal of Applied Psychology, 86, 80-92. Kramen-Kahn, B. & Hansen, N. (1998). Rafting the Rapids: Occupational Hazards, Rewards, and Coping Strategies of Psychotherapists. Professional Psychology: Research and Practice, 29(3), 130-134. Kuo, H.T., Yin, T.J.C. and Li, I.C. (2008), Relationship between organizational empowerment and job satisfaction perceived by nursing assistants at long-term care facilities, Journal of Clinical Nursing, Vol. 17 No. 22, pp. 3059-66. Lacy, F.J. and Sheehan, B.A. (1997), Job satisfaction among academic staff: an international perspective, Higher Education, Vol. 34 No. 3, pp. 305-22. Lagakos, S.W., & Schoenfeld, D.A., (1984). Properties of proportional-hazards score tests under misspecified regression models. Biometrics; 40:10371048. Lambert, E. G. (2004). The impact of job characteristics on correctional staff members. The Prison Journal, 84(2), 208227. Lee, J. (2005), Effects of leadership and leader-member exchange on commitment, Leadership & Organization Development Journal, Vol. 26 No. 8, pp. 655-72. Locke, E., (1976), The nature and causes of job satisfaction. In M. D. Dunnette. (Ed.), Handbook of Industrial and Organizational Psychology, Chicago: Rand Mc Nally, 1297-1349. Luthans, F. (2002), Positive organizational behavior: developing and managing psychological strengths, Academy of Management Executive, Vol. 16 No. 1, pp. 57-72. Maslow, A.H. (1954), Motivation and Personality. Harper & Row Publishers, New York, NY. McGregor, D. (2002), Theory X and Theory Y, Workforce, Vol. 81 No. 1, p. 32. Rayton, B. A. (2006). Examining the interconnection of job satisfaction and organizational commitment: An application of the bivariate probit model. International Journal of Human Resource Management, 17(1), 139-154.

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Smerek, R. E., and Peterson, M. (2007) Examining Herzbergs theory : Improving Job Satisfaction among Non- Academic Employess at a Univerzity. In Research in Higher Education, Vol. 48, No. 2, s. 229-250. Smith, P. L., Smits, S. J., and Hoy, F., ( 1998). Employee work attitudes: the subtle influence of gender. Human Relations (HR), 51(5), 649 - 66. Spector, P. E. (1982), Behavior in organizations as a function of employees locus of Control, Psychological Bulletin, 91, 482-497. Spector, P.E. (1997), Job Satisfaction: Application, Assessment, Causes, and Consequences, Sage,Thousand Oaks, CA. Tabachnick, B. G., & Fidell, L. S. (2007). Using multivariate statistics (5th ed.). Upper Saddle River, NJ.: Pearson International. Thompson, D., & McNamara, J. (1997). Job satisfaction in educational organizations: A synthesis of research findings. Educational Administration Quarterly, 33(1), 1-31. Volkwein, J. F. and Parmley, K. (2000). Comparing administrative satisfaction in public and private universities. Research in Higher Education, 41, 95-116. Volkwein, J. F. and Zhou, Y. (2003). Testing a model of administrative job satisfaction. Research in Higher Education, 44, 149-171. Vroom, V. H. (1964), Work and motivation. New York: Wiley. Weaver, C. (1977). Relationships among pay, race, sex, and job satisfaction. Personnel Psychology, 30(3), 437-445.

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A Comparative Study of NPA of State Bank of India Group & Nationalized Banks
Dr. Tanmaya Kumar Pradhan, Asst. Professor, Dept. of Economics, NM Institute of Engineering and Technology, Sijua, Patrapada, Khandagiri, Bhubaneswar, Orissa, India. Abstract: Gross NPA of both SBI group & Nationalised Banks exhibit an increasing trend except the year 2008 of Nationalised Banks. As risk management becomes more sophisticated, the simple and static rules of 1998 Accord are becoming less relevant, Emphasis needs to be given on innovative banking. Autonomy is a sine qua non of innovation. Which needed a new capital framework and ways to manage risks. To solve these problems, Basel-II framework is an indicator approach for risk management. The study is based on the secondary data. The scope the study is limited to five years data. The study is related to SBI group and Nationalised banks. KEY WORDS: NPA, GROSS NPA, OVER HANG & BANKS 1. Introduction:- Financial sector reform was undertaken early in the reform cycle in India. However, the banking sector reforms were not driven by any immediate crisis as has often been the case in several emerging economies. The design and detail of the reform were evolved by domestic expertise, while taking on board the international experience in this regard. And, enough space was created for the growth and healthy competition among public and private sectors as well as foreign and domestic sectors. The Government preferred that public sector banks manage the over-hang problems of the past rather than cleanup the balance sheets with support of the Government. It was also felt that there is enough room for growth and healthy competition for public and private sector banks as well as foreign and domestic banks. The twin governing principles are non-disruptive progress and consultative process. In order to ensure timely and effective implementation of the measures, RBI has been adopting a consultative approach before introducing policy measures. Suitable mechanisms have been instituted to deliberate upon various issues so that the benefits of financial efficiency and stability percolate to the common person and the services of the Indian financial system can be benchmarked against international best standards in a transparent manner. 2. Objectives:-

(i) To determine gross NPA of SBI group and Nationalised banks. (ii) To study Basel Committee-II Recommendations (iii) To suggest measures to curb the growing NPA 3. Methodology:- The study is based on the secondary data. The scope the study is limited to five years data. The study is related to SBI group and Nationalised banks. 3.1 Gross NPA of SBI group & Nationalised Banks(Amount in Lakh) Year Gross NPA SBI Group Gross NPA Nationalised Banks 2007 1226000 2629100 2008 1503700 2511900 2009 1881255 2680380 2010 2133767 3547031 2011 2814002 4290739 Source: Department of Banking Supervision, RBI www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 24

The Table 3.1 shows that gross NPA of both SBI group & Nationalised Banks exhibit an increasing trend except the year 2008 of Nationalised Banks. 3.1 Basel Committee-II Recommendations Advancement in technology, telecommunications and markets have changed the way banks collect, measure and manage their risks. As risk management becomes more sophisticated, the simple and static rules of 1998 Accord are becoming less relevant, Which needed a new capital framework and ways to manage risks. To solve these problems, Basel-II framework is an indicator approach for risk management. Basel-II Consists of three mutually reinforcing pillars. The first pillar aligns the minimum capital requirements more closely to banks actual underlying risks. It will be helpful in credit rating of risks on the basis of external measures issued by external rating agencies. The second pillar supervisory review allows supervisors to evaluate each banks assessments of its own risks and to determine whether these assessments are reasonable or not. The third pillar market discipline recognizes the power of marketplace participants to motivate prudent risk management, which leads to enhancing transparency in banks financial reporting. Each pillar provides something that the other two can not . So it is suggested that each is essential to achieve overall objective of financial stability. Hence, implementation of Basel II in Indian banking sector will help to focus on risk, to improve skills in measuring and managing the risks and to enhance efficiency. 3.2 Suggestions to curb NPA

The findings of the study make it abundantly clear that banking sector reforms have strengthened the Indian banking system which has come up to meet the challenges emerging from global competition. But the menace of NPA has not completely gone. The severity of the problem has been reduced to some extent. Banks are now no longer functioning under the protected environment. Therefore, their very survival depends upon their economic viability. One of the major source of NPA has been priority sector lending under different schemes of the government. Sometime in the past the populist approach of democratically elected government with regard to rural credit puts the bank in trouble. Therefore, NPA arising out of priority sector lending should not be reflected in the performance assessment of banks nor in the estimation of NPA. The high percentage of NPA erodes public confidence in the performance of the banks. Non inclusion of NPA arising out of non payment of priority sector loans would provide a proper yardstick for the measurement of efficiency as well as accountability of banks. Another major obstacle in the way of efficient functioning of banks has been the sluggish legal system of our country. Debt Recovery Tribunals should be converted in to special courts with the power of the high courts, the appeal against which can only be heard by the Supreme Court. The present system of internal vigilance of banks needs to be strengthened with adequate power conferred on the management to deal with cases of fraud and misappropriation by members of staff. Emphasis needs to be given on innovative banking. Autonomy is a sine qua non of innovation. Every branch head should have the autonomy to decide upon the credit delivery & loan recovery www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 25

processes. Instead of fixing targets for them it would be more prudent to leave each of them to set their own target for themselves. The views and suggestions of the branch managers should be given due importance while framing the credit policy of a bank. Incentives in the form of promotion, desired place of posting and advanced increments would imbibe a spirit of involvement and responsibility among the lower cadre officers. Financial markets in India are many and varied standard norm can be prescribed for all kinds of financial markets dealing with short term loans. The present practice of unhealthy competition among the private and public sector banks in comparatively developed markets creates a lot of confusion in the minds of middle class investors/savers. In their endeavor to offer higher rate of return to the depositors very often banks get in to capital market transactions which are risky and uncertain. This has been the major cause of NPA of private sector banks. The expenditure now banks are making for mobilization of savings should be curtailed. Very purpose of social banking will be served when the nationalized commercial banks, instead of running after capital market investment will involve them in the process of economic development in the country by extending their credit base through system of micro finance. Investment in human resource development, employment generating programmes through direct participation, agricultural and industrial productivity enhancement programmes, rural industrialization and such other schemes would make the commercial banks effective agents of economic development. A shift from the role of mediation to that of direct participation in the best way for achieving economic viability. There is a need for a formal apex body for constant monitoring & assessment of commercial banks which would be an advisory body and which will have no conflict or overlapping of power with the Reserve Bank of India. It will function under the Ministry of Finance Government of India with a specific purpose of monitoring continuous reforms in the banking sector. The activities of all institutions both public and private, registered and unregistered, foreign & indigenous banks operating in the money market should be under the purview of the apex body. The main thrust of the proposed apex institution would be to provide ways and means for preventing unhealthy competition among the aforesaid institutions. 4. Conclusions:

Gross NPA of both SBI group & Nationalised Banks exhibit an increasing trend except the year 2008 of Nationalised Banks. Very purpose of social banking will be served when the nationalized commercial banks, instead of running after capital market investment will involve themselves in the process of economic development in the country by extending their credit base through system of micro finance. Investment in human resource development, employment generating programmes through direct participation, agricultural and industrial productivity enhancement programmes, rural industrialization and such other schemes would make the commercial banks effective agents of economic development.. References: 1) A.V. Aruna Kumari (2002), Economic Reforms and Performance of Indian Banking: Across Structural Analysis, Indian Economic Panorama, A Quaterly Journal of Agriculture,Industry, Trade and Commerce ,Special Banking Issue, pp. 19-21. 2) Reserve Bank of India, master circular on Prudential norms on income recognition. Asset classification and provisioning. 3) Bhasin, N. (2008), Banking Developments in India 1947 to 2007, New Delhi, Century Publications. 4) Malyadri, P. (2003), NPAs in Commercial Banks An Overview, Banking Finance, Monthly, January 2003, Vol. XVI, pp.6-9. 5) Rajaraman, I & Vashistha, G. (2002), Non-Performing Loans of Indian Public Sector Banks Some Panel Results, Economic and Political Weekly. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 26

6) Vasanthi, G. (2006), effect of Non-Performing Assets on Operational Efficiency of Central CoOperative Banks, Indian Economic Panaroma, 16, pp33-39. 7) Bloem, A.M., & Goerter, C.N (2001), The Macroeconomic Statistical Treatment of Non-Performing loans, Discussion Paper, Statistics Department of the IMF. 8) Taori,K.J.(2000,Aug). Management of NPAs in Public Sector Banks. Banking Finance, August Issue. (pp.98-101). 9) Sergoi, M. (1996). Non-Performing bank loans: Cyclical patterns and sectoral risk. Review of Economic Conditions in Itally. Rome : Jan-June 1996.Issue.1. 10) Mohan, Rakesh (2003). Transforming Indian Banking : In Search of a Better Tomorrow, Reserve Bank of India. Reserve Bank of India Bulletin, Speech article, January,2003. 11) Mor, N. & Sharma, B. (2003). Rooting Out Non-Performing Assets. Fifth Annual Conference on Money and Finance in the Indian Economy. Indira Gandhi Institute of Development Research (IGIDR).Mumbai, January 30-February 1, 2003. 12) Misra, B.M. & Dhal, S. (2010,Jun). Procyclical management of non-Performing loans by the Indian public sector banks. BIS Asian Research Papers. June, 2010. 13) Pal Ved & Malik N.S. (2007), A Multivariate Analysis of the financial characteristics of Commercial Banks in India. The Icfai Journal of Bank Management. VI (3). 14) WELLS Fargo & Co.(2003), Big Banks Report Strong Gains, Led by Wells Fargo, Bank One, Wall Street Journal Eastern Edition, Vol.242, Issue 80, p.C5 15) Prashanth K Reddy (2002), A Comparative Study of Non-Performing Assets in India in the global context Similarities and dissimilarities , remedial measures, The Indian Institute of Management, Ahmedabad, India 16) 26.Woo,David, (2000), Two Approaches to resolving Non Performing Assets During Financial Crises, IM Working Paper, WP/oo/33 17) 27. Chandrasekhar, C.P.2009. How sound is Indian banking. The Economic & Political Weekly. May,pp.8

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Agriculture Crisis and Sustainable Economic Development: A Global Perspective


Geetanjali Singh, India Abstract World agriculture has entered a new, unsustainable, and politically risky period. Agriculture and the natural resources it depends onhas been overexploited ecologically, has suffered from underinvestment, has recently been exposed to ill-designed bio- energy programs, and has been politically sidelined for too long. It is now at a critical point. Appropriate responses to the food and agriculture price and productivity crises are lacking. A global initiative for accelerated agriculture productivity is necessary now; such an initiative makes economic sense, is pro-poor and sustainable, and serves security. The initiative needs political leadership and coordination. There is no effective governance architecture at the global level and national levels to address the matter. Industrialized economies, including the United States, should substantially accelerate their investment in international agricultural research and development (R&D) in cooperation with new players. Introduction World agriculture depends mostly on small farms. More than 400 million small farms in the developing world do hardly appear on the radar screens of economic policymakers, though the households connected to these farms are home to the majority of the worlds hungry and poor people. Pressures on food availability are particularly affecting those who can afford it the least the poor and food insecure. Agriculture is being re-identified as an essential element of economic growth in developing countries where food security also relates to broader security concerns, but this recognition has been too slow in coming. What is required now is a new vision for a transforming, productive and economically sustainable agricultural sector in the developing world. When it comes to climate change, agriculture is part of the problem and part of the solution because it adds to greenhouse gases and offers opportunities for carbon mitigation. Emerging climate change impacts in developing countries, such as water scarcity and policies for biomass and CO2, further complicate the food supply and price situation. Globalization of retail industries and high-value commodity diversification strengthen the geographical and cross-sectoral linkages in the food system. Though such global economic integration could help the poor, there will be not only winners but also losers. How can agricultural growth be accelerated and translated into pro-poor and sustainable development in light of the new challenges and pressures. This paper will discuss some recent key changes in the world food system: rapidly globalizing agricultural markets, the integration of the agribusiness chain, increased trade, changing trade policies, high food prices, closer agricultureenergy sector linkages, sustainability threats, and security synergies. Globalization of the agri food system Agriculture growth is today very much driven by the demand sidetoward consumers who are getting richer and the retail industries that cater to them. The regional and intercontinental integration of the agrifood system is both a consequence of and a factor in the larger process of globalization. The 6.5 billion global consumers are served by a variety of suppliers that include food retailers standing next to the road in Africa as well as modern supermarkets. Supermarkets are supplied by the food processing www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 28

and trading industries, which in turn are supplied by the farm sector, which receives its inputs from companies producing fertilizers, agrochemicals, seeds, and other inputs (Figure 1). In this system, international corporations have been increasing their power and leverage. Between 2004 and 2006, the sales of the top 10 food retailers soared by more than 40 percent, while the sales of the top food processors and agricultural input companies grew by 13 and 10 percent, respectively (von Braun 2007). The sustainability of agriculture can no longer be defined by fields or farms or ecologies. Today, agriculture sustainability spans the globe, the whole value chain of food- and agriculturerelated inputs and outputs, and includes outcomes such as nutrition, health, and safety. Figure 1. The global agrifood business chain, 2006

The new global power structure of agriculture Developing countries and middle-income economies are playing an increasingly important role in the global agrifood system. Higher incomes and urbanization are raising food spending in developing countries. In the past 20 years, the United States and Western Europes share of world agricultural production has decreased by 9 and 19 percent, respectively, while the share of Brazil, China, and India has substantially increased (Figure 2). The share of agriculture in the economy has fallen in all of the sample countries; its share in the United States and Western Europe is currently at a mere 1 and 2 percent of Gross Domestic Product (GDP), respectively (World Bank 2007a). In contrast, the agricultural sector in Africa currently contributes 20 to 40 percent of overall GDP and employs 60 percent of the labor force (World Bank 2007a, Beintema and Stads 2004). The integration of the agrifood system becomes most evident in global agricultural trade. Between 1985 and 2005, world trade in agricultural products increased more than threefold (FAO 2008a). Trade is also an area that provides evidence for new developments in the global power system of agriculture. The share of world agricultural exports of one of the major producersthe United Stateshas declined by 33 percent since 1983-1985 (FAO 2008a). In some of the largest developing countries China, India, and Brazilthe share has remained almost constant despite rising production due to increased domestic demand. A more open trade regime in agriculture would have far-reaching positive effects, but the negotiations through theDoha Round are currently stalled. Developed countries continue to be a major import market for agricultural commodities and their trade and domestic protection policies have major implications for developing countries.

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Table 1. World Cereal production , 2000-2007 (million tones)

. Figure 2. Agricultural production by country and region, % of total

Source: FAO 2008a. Note: W. Europe includes Belgium, France, Germany, Liechtenstein, Luxembourg, the Netherlands, and Switzerland. Agriculture policy is today increasingly made outside of the domain of agriculture, and often as an offshoot of energy or infrastructure policy. While the U.S. farm bill includes some biofuel support programs, for example, most government support for biodiesel production is outlined in the energy bill and entails large subsidies. Developing countries are unable to provide agricultural support on such a scale, and especially not in new markets such as for bio-fuels and for CO2 sequestration. The global power system of agriculture now consists of a conglomerate of different players. The playing field includes new actors, such as energy and retail market players, and traditional ones, such as the input industries and food processors. However, global agriculture issues currently have only a limited decision making architecture relating to public goods such as water, climate, and food safety. What is missing is a recognized governance platform that addresses the growth opportunities and sustainability threats on a global scale. The current state of multiple agricultural agendas is risky and leads to serious lack of attention to the management of and investment in agriculture-related global public policy issues. This lack of a coordinated global response is visible in the field of agriculture-energy policies, climate change mitigation and adaptation policies for agriculture, food aid policies, and agriculturehealth and food safety policies. It also is evident in the lack of a coordinated response to rising world food prices.

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Table 2. Change in food-consumption quantity, ratios 2005/1990

Rising food prices Surging food and oil prices have turned the attention of policymakers and the public to the world food equation and foodenergy price linkages. Between 2000 and 2008, the prices of wheat and petroleum in dollar terms increased more than threefold, while the prices of corn and rice more than doubled (Figure 3). When adjusted for inflation or reported in euros, the price increases are smaller, but also drastic. Figure 3. Commodity prices (US$/ton), January 2000January 2008

Sources: Data from FAO 2008b and IMF 2008. The major drivers of increases in cereal prices have been the high demand for food (and feed) due to income growth (and less so due to population growth), high demand for biofuels, and slow production responses to that rising demand. Between 2000 and 2006, cereal supply increased by mere 8 percent and stocks declined to low levels (von Braun 2007). A rise in cereal prices has uneven impacts across countries and population groups. Households that are net buyers of food, which represent the large majority of the worlds poor, are negatively impacted (von Braun 2007). It is largely the poor who respond to food prices with reduced consumption and changed patterns of demand, leading to calorie and nutrition deficiencies. Since food accounts for a large share of their total expenditures, the impact on the poor can be dramatic. Faced with higher prices, the poor switch to foods with lower nutritional value and to foods lacking important micronutrients.

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Expanding biofuel production The expansion of new sources of biofuels such as ethanol and biodiesel has a strong effect on agricultural prices, since biofuel production largely draws on natural vegetation. Second-generation technology is still a long way away. Incorporating new developments in supply and demand, as well as actual biofuel investment plans IFPRIs International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT)11 projects that the prices of maize and oilseeds will increase by 26 and 18 percent respectively by 2020. A more drastic expansion scenario doubling the production levels assumed in the first scenario projects even more dramatic increases in the price of maize and oil seeds by 72 and 44 percent (von Braun 2007). In addition, biofuels have indisputably created new linkages, trade-offs, and competition between the agricultural and energy sectors. The concentration of demand in developed countries also implies potential for biofuel exports from the rest of the world. Removing trade barriers will facilitate the establishment and expansion of biofuel production in countries with a comparative advantage. On the other hand, distorting subsidy regimes for biofuels and agricultural products used as biofuel feedstock will undermine the comparative advantage of developing countries. The threats to agricultural sustainability and resources Agricultural production has experienced impressive growth in many developing countries, but is this growth sustainable. In Sub-Saharan Africa, agriculture has been reaching almost 6 percent growth in recent years (IMF 2007). Yet, when it is driven by area expansion, this growth can undermine natural resources, forests, and water systems. In the main domains of natural resources that are key to agriculture, new threats have become more visible in recent years, and outlooks raise concerns. Water Climate change, population growth, irrigation, and industrial expansion increase competition for water. About 1.4 billion people now live in river basins where water use surpasses recharge rates. In many countries, developed water sources are almost fully utilized, and new sources are becoming increasingly expensive to develop (UNDP 2006). Irrigation provides productivity gains and greater food security, yet it also exerts substantial pressures on limited water resources. In developing countries, irrigated agriculture is the largest user of water resources, accounting for more than 80 percent of water use (FAO 2008c). However, this does not mean that irrigation in the developing world is widely or equally spread. Sub-Saharan Africa, for example, is highly dependent on rainfed agriculture and accounts for less than 5 percent of global irrigation (UNDP 2006). The potential for agricultural expansion needs to be evaluated against existing water resources and the constraints to their expansion. For agricultural growth to be sustainable, efficiency and equity of water use in agricultural production needs to be increased. Soils Overgrazing, deforestation, and inappropriate agricultural practices have been some of the major forces behind soil degradation. Inappropriate agricultural practices are often associated with insufficient use of mineral fertilizers, rather than overuse. Farmers apply about 9 kg/ha of fertilizer in Africa, compared to 142 kg/ha in Southeast Asia. Soil degradation affects one-fourth of the worlds agricultural land and the pace of degradation has increased in the past 50 years. Soil quality is a major variable influencing agricultural yields, and erosion has already had significant impacts on the productivity of about 16

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percent of the agricultural land in developing countries (Scherr 1999). The goal of simultaneously protecting the environment, assuring the sustainability of global soil resources, and increasing agricultural production should build on increased agricultural productivity and improved agricultural practices. Biodiversity Biodiversity conservation is severely impacted by the conversion of forests and wild lands to farmland and pastures. Maintaining the genetic richness of crops and varieties is of key importance to farm productivity. Crop genetic improvements have increased resistance to pests, diseases, and climatic shocks. Biotechnology can enhance these positive effects. As a result, yields have increased, but at the same time, crop genetic diversity is eroding as traditional varieties are being widely replaced by genetically uniform and stable modern varieties. Plants that have been guarded and bred by generations of farmers are in danger of being lost and many have recently been placed into storage in the new permafrost genebank in Spitzbergen, Norway. Climate change and climate risks Climate-change risks will have adverse impacts on food production, compounding the challenge of meeting global food demand.Consequently, food import dependency is projected to rise in many regions of the developing world (IPCC 2007).With the increased risk of droughts and floods due to rising temperatures, crop-yield losses are imminent. In more than 40 developing countriesmainly in Sub-Saharan Africacereal yields are expected to decline, with mean losses of about 15 percent by 2080 (Fischeret al. 2005). Other estimates suggest that although the aggregate impact on cereal production between 1990 and 2080 might be smalla decrease in production of less than1 percent large reductions of up to 22 percent are likely in South Asia . In contrast,developed countries and Latin America are expected to experience absolute gains.Impacts on the production of cereals also differ by crop type. Projections show that land suitable for wheat production may almost disappear in Africa. Nonetheless, global land use due to climate change is estimated to increase minimally by less than 1 percent. In many parts of the developing world, especially in Africa, an expansion of arid lands of up to 8 percent may be anticipated by 2080 (Fischer et al. 2005).World agricultural GDP is projected to decrease by 16 percent by 2020 due to global warming. Again, the impact on developing countries will be much more severe than on developed countries. Output in developing countries is projected to decline by 20 percent, while output in industrial countries is projected to decline by 6 percent (Cline2007). Carbon fertilization3 could limit the severity of climate-change effects to only 3percent. However, technological change is not expected to be able to alleviate output losses and increase yields to a rate that would keep up with growing food demand (Cline 2007).Agricultural prices will thus also be affected by climate variability and change.Temperature increases of more than 3C may cause prices to increase by up to 40 percent (Easterling etal. 2007). The riskier climate environment that is expected will increase the demand for innovative insurance mechanisms, such as rainfall-indexed insurance schemes that include regions and communities of small farmers.This is an area for new institutional exploration. Underutilized opportunity: The agricultural growth and poverty-reduction link The vision of the future of agriculture in the developing world should not focus on conserving small farms, but should center on a measured and appropriate transformation toward viable farm units and clusters of part-time and specialized farms. Subsistence agriculture is not a viable option for getting out of poverty (von Braun and Kennedy 1994). Increasing ruralurban migration is affecting labor availability for agricultural activities and the flows of goods and money between rural and urban areas. Projections show that urban transformation will continue to occur at an increasingly rapid pace; 61 www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 33

percent of the worlds population is projected to live in urban areas by 2030 (Cohen 2006). Droughts, land scarcity, and low wages in rural areas, compared to better job opportunities and lower or different risks in urban areas, are increasing labor-related migration out of rural areas (von Braun 2005). However, three-quarters of the poor remain in rural areas and rural poverty is projected to be higher than urban poverty for decades to come (Ravallion et. al. 2007). A massive transformation is in the makingglobal farm employment is estimated to decrease by about 300 million people by 2020, while employment in services and industry both in urban and rural areas is expected to grow by 400 million people. Further development of labor-market institutions is needed to enable the participation of rural areas in the national economy. The underrated agriculture and security risks Sustainability of agriculture is today not only a matter of appropriate management and utilization of natural resources and eco-systems, but also a matter of sustainability of states and political systems. For example, energy security objectives led to subsidized expansion of biofuel production, driving up food prices around the world. The poorest suffer silently for a while, but the middle class typically has the ability to organize, protest, and lobby early on. Although domestic causes such as neglect of agriculture and the rural economy may play an important role, the peoples disenchantment is frequently diverted by political leaderships to external causes. The trivial energy security gain brought about by biofuel production here may be largely overwhelmed by broader losses in political security emerging from frustration and aggression. Increased engagement of the United States in international agriculture capacity strengthening could correct the problems. Making the world more peaceful is directly linked to making the world more food secure and affluent. It has long been recognized that social conflict increases food insecurity, but it also needs to be pointed out that food insecurity can be a key source of conflict. Some of the trigger conditions of violence can be directly related to change in the prices of staple foods or cash crops. Un channeled frustration that is insufficient organized or repressed can lead to conflict (Messer and Cohen 2008). Rising prices of tortillas in Mexico City and bread in Uzbekistan have led to riots. Conclusion: Serving Sustainability: Toward a Global R&D Initiative

An urgent global R&D initiative for accelerated agricultural productivity Central to the sustainability of world agriculture is a global R&D initiative for accelerated agriculture productivity; such an initiative makes economic sense, is pro-poor and sustainable, and serves security. The R&D initiative needs political leadership and coordination. Industrialized economies, including the United States, should substantially accelerate their investment in international agricultural research and development. Enhanced collaboration of old and new key global agricultural players In order to effectively implement such a global R&D initiative for accelerated agriculture productivity, a new agriculture, food, and nutrition governance architecture is needed to provide the appropriate political response to the global price and productivity crisis. A coordinated global response is needed in the form of agricultureenergy policies, climate change mitigation and adaptation policies for agriculture, food aid policies, and agriculturehealth and food-safety policies. Agricultural power has become more spread around the world, with the result that there is no governance architecture that can generate appropriate political responses to the food and agriculture price and productivity.crisis at the global and national levels. Under such a new global architecture, new partnerships among old and new players such as the United States, Europe, China, India, Brazil, UN agencies, the CGIAR, and foundations, and the private sector must be facilitated.

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References Ahmed, A., R. Hill, L. Smith, D. Wiesmann, and T. Frankenburger. 2007. The worlds most deprived: Characteristics and causes of extreme poverty and hunger. 2020 Discussion Paper 43. Washington, D.C.: International Food Policy Research Institute. Beintema, N. M., and G. Stads. 2004. Investing in Sub-Saharan African Agricultural Research. 2020 Africa Conference Brief 8. Washington, D.C.: International Food Policy Research Institute. Birthal P.S., P.K. Joshi, D.Roy, and A. Throat. 2007. Diversification in Indian Agriculture towards High-Value Crops: The Role of Smallholders. Discussion Paper 00727. Washington, D.C: International Food Policy Research Institute. Cline, W. R. 2007. Global warming and agriculture: Impact estimates by country. Washington, D.C.: Center for Global Development and Peterson Institute for International Economics. Clive J. 2007. Global Status of Commercialized Biotech/GM Crops: 2007. ISAAA Brief 37. Ithaca, NY: International Service for the Acquisition of Agri-Biotech Applications. Cohen, B. 2006. Urbanization in developing countries: Current trends, future projections, and key challenges for sustainability. Technology in Society 28: 6380. FAO (Food and Agriculture Organization of the United Nations). 2003. Food Outlook No.5 November 2003. Rome. ______. 2006. The State of Food Insecurity in the World 2006. Rome. ______. 2007. Food Outlook November 2007. Rome. ______. 2008a. FAOSTAT database. Available at: www.faostat.fao.org/default.aspx. ______. 2008b. International Commodity Prices Database. Available at: www.fao.org/es/esc/prices/PricesServlet.jsp.lang=en. ______. 2008c. AQUASTAT database. Available at: http://www.fao.org/nr/water/aquastat/main/index.stm. Fargione, J., J. Hill, D. Tilman, S. Polasky, P. Hawthorne. 2008. Land Clearing and the Biofuel Carbon Debt. Science Express Report. Fischer, G., M. Shah, F. Tubiello, and H. van Velhuizen. 2005. Socio-economic and climate change impacts on agriculture: An integrated assessment, 1990-2080. Philosophical Transactions of Royal Society B 360: 2067-83. IMF (International Monetary Fund). 2007. World Economic Outlook Database. Washington, D.C. Available at: www.imf.org/external/pubs/ft/weo/2007/02/weodata/index.aspx India Ministry of Finance. 2008. Union Budget 2008-2009. Available at; http://indiabudget.nic.in/ Messer E. and Cohen M. 2008. Conflict, Food Insecurity, and Globalization. Chapter in J. von von Braun J.and E. Daz-Bonilla. 2008. Globalization of Food and Agriculture and the Poor. Forthcoming. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 35

OECD (Organisation for Economic Co-operation and Development). 2007. Main Science and Technology Indicators (MSTI): 2007/2 edition. Paris. OMB (Office of Management and Budget). 2008. Budget of the United States Government: Fiscal Year 2009. Available at: http://www.whitehouse.gov/omb/budget/fy2009/. ______. 2006. Budget of the United States Government: Fiscal Year 2006. Available at: http://www.whitehouse.gov/omb/budget/fy2006/. Pardey, P. G., J. M. Alston, and R.R. Piggott, eds. 2006. Agricultural R&D in the Developing World: Too Little, Too Late. Washington, D.C.: International Food Policy Research Institute. Searchinger, T., R. Heimlich, R.A. Houghton, F. Dong, A. Elobeid, J. Fabiosa, S. Tokgoz, D. Hayes, and T.-H. Yu. 2008. Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land Use Change. Science Express Report. Ravallion, M., S. Chen, and P. Sangraula. 2007. New Evidence on the Urbanization of Global Poverty. Washington D.C.: World Bank. Reserve Bank of India. 2008. RBI Bulletin. Available at: http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx Scherr S. 1999. Soil degradation: a threat to developing-country food security by 2020.. 2020 Vision Discussion Paper 27. Washington, D.C: International Food Policy Research Institute. Torero, M. and J. von Braun, eds. 2006. Information and Communication Technologies for Development and Poverty Reduction: The Potential of Telecommunications. Baltimore: The Johns Hopkins University Press for the International Food Policy Research Institute. UNDP (United Nations Development Programme). 2006. Human Development Report 20006: Beyond scarcity: Power, poverty and the global water crisis. New York. USDA (United States Department of Agriculture). 2008. World Agricultural Supply and Demand Estimates No. 455. Available at: http://www.usda.gov/oce/commodity/wasde/index.htm. von Braun, J. 2005. Agricultural economics and distributional effects. Agricultural Economics 32 (s1), 120. Malden, Mass.: Blackwell for IAAE von Braun, J. 2007. The World Food Situation: New Driving Forces and Required Actions. Washington, D.C.: International Food Policy Research Institute. World Bank. 2007a. World Development Indicators 2007. Washington, D.C. ______. 2007b. World Development Report 2008: Agriculture for Development. Washington DC.

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Business Incubator for local Economic Development


VS Sukumaran, Associate Sr. Faculty, Entrepreneurship Development Institute of India, Ahmedabad, India Abstract Local Economic Development is the process by which public, business, local government and non-governmental sector partners work collectively to create better conditions for economic growth and employment generation in a defined administrative area. In this process, the local area will provide a conducive environment for economic growth of the public. This may be, creating appropriate wage or self employment. There are various mechanism to create sustainable employment avenues such as investment subsidy, infrastructure development, business incubator, etc. Business incubator will provide infrastructure facilities to the upcoming entrepreneurs in a given area. This will reduce the investment burden of the entrepreneurs. In addition to this the incubator will also give business process support, such as technology, developing systems, marketing, etc. This paper illustrate the importance of business incubator in promoting entrepreneurship and employment avenues in the local area. INTRODUCTION Local Economic Development is the process by which public, business, local government and non-governmental sector partners work collectively to create better conditions for economic growth and employment generation in a defined administrative area. In Local Economic Development (LED) local governments and community-based groups manage their existing resources and enter into new partnership arrangements with the private sector. Regardless of the form it takes, LED has one primary goal, which is to increase the number and variety of job opportunities available to people. In performing these activities, local governments and/or community groups must take on an initiating rather than a passive role. Practicing local economic development means working directly to build up the economic strength of a local area to improve its economic future and the quality of life of its inhabitants. Prioritizing the local economy is crucial if local bodies are to be able to compete in the fast changing world. Each local body has unique local conditions that can help or hinder its economic development. These local attributes will form the seeds from which a local economic development strategy can be developed. To build competitiveness each local body needs to understand and act on its own strengths, weaknesses, opportunities and threats. It will then make its local area attractive to business, new employers, skilled workers and supporting institutions. Local Economic Development is necessary because:

Economic development raises overall productivity and incomes. Additional development can help maintain a high level of employment and job quality. It can help to create the jobs necessary for providing opportunities for the jobless and working poor. It can help to increase the revenue of local self government. It will increase the standard of living of people.

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It can provide the earnings needed to make further investments in education, government services, amenities, infrastructure, and quality of life.

PRINCIPLES OF LED LED focuses on enhancing competitiveness as also increasing sustainable growth. It also ensure that the growth is inclusive. Therefore LED encompasses many different disciplines, such as planning, economics and marketing. The key principles of LED consists of :

Prioritize job creation and poverty alleviation Target disadvantaged people, marginalized communities and geographical regions. Promote local ownership, community involvement, local leadership and joint decision making Uses local resources and skills and maximizes opportunities for development Involves the integration of diverse economic initiatives in an all-inclusive approach to local development. Help the local governments to augment their income/infrastructure Help to improve the standard of living.

LED STRATEGY i) Resource & skill mapping :To increase the employability of the locale, either for wage or self employment, it necessary to understand the current status of resources. Therefore, a resource mapping will be the first step. This will include both the human and natural resources. This will help in identifying the viable business opportunities in the local area. Further skill mapping will help in identifying the skill gap, if any, required for both self and wage employment. ii) New enterprise creation : Enterprises are considered as the engine for economic growth. New enterprise creation needs concerted efforts. Facilitating the emergence of new enterprises needs a systematic approach. Various strategies are followed to develop the new entrepreneurs. .iii) Facilitate Wage Employment : Employability of the individual is the major hindrance to get the quality job. To attain the local economic development at the optimum level, the local people should get quality job. It is therefore necessary to understand the skill level of the entrepreneurs look for. Comparing this to the exiting skill of the local people, one can understand the skill gap. Bridging the gap through proper training the local people will get quality job. iv) Strengthening the Existing Entrepreneurs Including Clusters : Most of the trade and business in the local area is struggling for their survival. By virtue of being the business, they are carrying out their activities. As a part of the LED, one should work for their sustenance and growth. The interventions will include the following : Providing business counseling Help in functional management areas like finance and accounts, quality control, system development, market development, etc. Net working Mentoring Help in expansion and diversification Increasing the competitiveness of cluster members v) Provide a Conducive Environment/Climate for business growth and investment attraction: Many investors are apprehensive as their hard earned money should not be blocked due to cumbersome procedures and formalities. It is the local body to create a conducive environment for investment attraction. This may be either providing physical infrastructure such as parks/incubators or improving the processes and procedures for business registration. vi) Equip the Panchayat Raj Institutions on LED : Local self government is the focal point for LED. The members involved in the institutions should be sensitized about the various facets of local economic developments.
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BUSINESS INCUBATOR For the successful initiation of this strategy, it is recommended to implement the entrepreneurship model focusing resource mapping and investment mobilization. The so called entrepreneurship development programmes are mainly focusing providing funding support and to a certain extent facilitate the start ups. Business as such encounter multifarious problems. These problems are at times may not be solved by the entrepreneur and the result may be the closing down of the unit. It is therefore needed to create an enabling environment for the survival and growth of the units. A business incubator can give this environment for the survival and growth of business. There are various definitions for business incubator and there is no single way by which one can categorize an incubator. One of the definitions for Business Incubator is an economic development tool designed to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services. A business incubators main goal is to produce successful firms that will make the programme financially viable and self-sustainable. The key factor for the success of a business incubator is the acceptance by the local business and the ability of the local community to generate new entrepreneurs. It has been proven over the years that when enterprises are created they draw up on the local resources including the human resources. This in turn ensures the utilization of hitherto untapped or unidentified resources thereby optimizing the wealth creating abilities in the local community. SERVICES TO BE PROVIDED BY BUSINESS INCUBATOR Basic Physical Infrastructure like; Land, Building, Electricity (Power), Water, Telecommunications. Sharing of certain physical infrastructure to reduce the initial investment cost and also recurring costs; for e.g. Common power installation cost will reduce the investment cost and sharing of telephone lines will reduce the recurring cost of telecommunications. Based on the needs assessment, the Business Incubator will work on promoting enterprises, which would require common technological facilities. To ensure reduction on investment costs and also to ensure optimum utilization of investments, common machinery to be used by the enterprises would be provided under a common facility center. This will be supplemented with adequate management and skill training to local population for, both using the common facility center machinery and also to identify potential entrepreneurs for enterprise building. The Incubator, using its technical and financial experts, will work with the entrepreneur to prepare viable business plans (project reports) and in association with the local selfgovernment, the state government, will work on providing adequate funding support for the proposed enterprises. It has been felt that in the initial phases of enterprise creation, the entrepreneur faces a starting crises, most of which is due to lack of experience. To ensure that the Incubator Entrepreneur does not face such problems, services of experts on a retainer ship basis will be provided to the enterprises. These services would be mainly on consultancy basis and would essentially cover, accounting & auditing services, legal services, financial and tax consultancy, technical and technology identification and transfer services, marketing and distribution consultancy, human resources training services, ISO and TQM facilities etc. Apart from these, even low services like secretarial, communication, housekeeping and facility management services could also be envisaged. Since all these services are being shared, they are expected to reduce the overall management costs of the enterprise. Specialized services like common effluent treatment plants, Internet caf, common facilities for workers like cafeteria, recreation facilities and medical facilities can also add value to the incubator.
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The incubator will also work towards ensuring proper banking services, postal services, courier & transport services for smooth financial and product logistics. The Business Incubator will also provide adequate warehousing services for storage of raw materials and finished products of the tenant enterprises. It will strive to create a clustering phenomenon by building trust and better communication among the tenant enterprises. Thus, the warehousing services can be converted into a raw material bank and the finished products warehouse can be used as a tool for common marketing and distribution. It can also work on common branding of the outputs of the incubator.

The services provided under the banner of the Business Incubator will not be restricted to the tenants of the incubator but will also be extended to the local population thereby making it a hub of economic activity to ensure a commercially driven local economy. STAKEHOLDER ANALYSIS FOR BUSINESS INCUBATOR A business incubator for Local Economic Development should have various stakeholders Therefore it is necessary to identify proper stakeholders for the LED incubators. While the LED Business Incubator is expected to operate at a local level, the stakeholder analysis has to be done in the macro-economic context. Hence the stakeholder analysis has to be done on a national or even an international level. However for this purpose, the stakeholder analysis has to be done based on how they can contribute to the LED Business Incubator. The Central Government: The central government through its decentralization process has been providing funding to the local self-government bodies under various heads. These funds could be utilized for the purpose of creating the Business Incubator. Apart from the direct financial support, many Central Government Agencies and Organisations like Development Commissioner Small Scale Industry, Development Commissioner Handicrafts, Small Scale Service Institutes, etc could also provide support for such initiatives like Business Incubator for Local Economic Development. The State Government: The state government supports the local economy through various measures. The Kerala Government has already transferred powers for planning of social and physical infrastructure development to the panchayat level. This has been benefitting the local areas as the people have been deciding the nature of development and the quantum and quality of development they want. To support such development, the goverment has been encouraging Grama Sabhas and grass roots movement and awareness programmes. The government has also been providing new programmes which could be adopted by the local governments; like the water, sanitation and health programmes, organic farming programmes, women and child welfare programmes. To support the initiatives, the state government has been providing support to the local self government institutions through supplementing the funding support extended by the central government. Special projects and missions of the Kerala government also extend support to the local self government bodies, significant among them are the Information Kerala Mission and the Kudumbashree project as a part of computerisation of all records in the local self government bodies and state poverty eradication mission respectively. Panchayat Raj Institutions: Local self-government department of the State Government is implementing various schemes like Swarnajayanti Swarojgar Yojana (SJSRY), National Rural Livelyhood Mission (NRLM), etc. These projects are being directly implemented by the local self government bodies under the de-centralized 3-tier governing system namely; Village Panchayat, Block Panchayat and Jilla Panchayat. This system gives more autonomy to Panchayat Raj Institutions (Local Self-Government Institutions). Panchayat Raj Institutions can play a better role in resource mapping, infrastructure development and a catalyst
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for the entire process. The Parliament under the 73rd Constitutional Amendment provided wide ranging powers to the Panchayat Raj Institutions, which included poverty alleviation, building the local physical and social infrastructure etc. Thus it is now clear that under the mandate given to the Panchayat Raj Institutions, they may facilitate in creating an environment conducive for business and developing an entrepreneurial culture in the local area. The flow of adequate funds and manpower resources to create the LED Incubator would essentially be the role of these institutions. These institutions are key to the success of the LED Incubator. Banking Institutions: Providing adequate financial support to the tenants is the key factor for the success of local economic development. Through various interventions, the local community exhibited saving habits and an inclination to income generation activities. Availability of adequate and low cost credit without collateral security is a major hindering factor for the local population venturing into entrepreneurial activities. Banking Institutions would be prime stakeholders ensuring the success of the LED Incubator. Banking Institutions in Kerala have over the years been slack in credit off take. This is mainly due to lack of investment within the state in Industry and Commerce. This concept of LED Incubator provides the Banking Institutions an opportunity to lend to a scientifically planned investment. This would give the bankers an opportunity to participate in local asset building. The Banking Institutions would not only be called upon to support the industry within the Incubator but also in financing the incubator itself. Kerala has a host of formal Banking Institutions in both the public sector and the private sector. The State Bank of Travancore, Kerala State Industrial Development Corporation, Kerala Financial Corporation, Kerala State Financial Enterprises are key financial institutions in the public sector operating in Kerala. The South Indian Bank, The Federal Bank, Catholic Syrian Bank, Lord Krishna Bank and many other private business houses have created banking and financial institutions of good repute in Kerala. There are also a large number of Regional Rural Banks and Agriculture Credit Cooperatives. Apart from these institutions, there are many informal financial institutions in the form of chit-funds and blade companies, which are at the moment ruling the roost due to lack of depth in the banking and financial institutions in percolating to the rural areas. It is also a measure of the high bureaucracy and long stretching formalities that the existing businesses turn to informal credit. Another aspect of banking institutions is their ability to create credit and develop financial intermediation in the rural areas. At the moment, lack of financial intermediation is creating problem with people transacting large transactions in cash. A good banking system will provide the financial backbone to the LED Incubator. It is however, necessary that the bankers are provided appropriate training to provide support the entrepreneurs of the Incubator and to understand the banking needs of such entrepreneurs. The Local Industry Associations and Trade Bodies: It is necessary to have role models for motivating local people. This is more prominent in a society bereft of entrepreneurial spirit. The involvement of local Industry Associations and Trade Bodies will help the incubator in various ways. They can enthuse their members to take tenancy in the incubator. They can also provide technical information to the tenants through a mentoring process. Over and above this, a vibrant entrepreneurial fraternity in the local area could also ensure social development and public utility development. The members of the Local Industry Associations and Trade Bodies could also provide viable market access to the tenant units. Local Population: The Local Population is the greatest beneficiary of the LED Incubator. However, it is also the stakeholder, which will provide the entire resource base of the incubator. The key success parameter of the LED Incubator is the exploitation of the local resources in terms of Raw materials, Local Skills or Natural Environment. The local populations willingness to part with or share these resources is very important. Also, the acceptance of such a concept in the local area by the population is also a key
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factor. This is not an easy proposition in Kerala. Hence, before planning an LED Incubator in an area a baseline survey to understand the demographic characteristics of the local populace as also a needs assessment survey to be done to ensure viability of the project in the local area. BUSINESS PROCESS OF LED INCUBATOR The business incubator for LED will be implemented through a special purpose vehicle called LED Incubator Company. The LED Incubator will also have a common facility centre (CFC) and each LED Incubator will be expect to host at least 30 units based on the needs assessment survey. Of these units, some may be service providers like banks, courier and transportation company etc. The CFC will be managed as a commercial venture by the LED Incubator company.

LED Incubator Promotion Company

Responsible for Identifying Common Facilities Opportunity, Centre Mobilising Resources Planning, Implementing & Managing the Incubator Entrepreneur (Tenant of the Incubator)

The LED Incubator will be managed by key stakeholders representing the entire gamut of beneficiaries. These board members would include Tenant Entrepreneurs, Bank and Financial Institutions representatives, Local Population representatives, Trade Union Representatives, Key Management Consultants, Local Area Executives of the Government (Collector/BDO etc). The company will essentially be a not for profit venture. However, it will strive for generation of surpluses, which will not be used to pay dividends to contributors of equity or stakeholders. The surpluses so generated will be used to develop physical and social infrastructure in the Local area including the incubator itself. This company will also be eligible to invest in other LED incubators or organizations created to support the tenant enterprises. THE MAIN FUNCTIONS OF THE COMPANY ARE AS UNDER: Identifying viable business opportunities based on natural resources, skills available, and the needs of the local area or the market. Ideally, opportunities chosen should be interdependent as this helps in creation of a new cluster in the long run. Provide appropriate infrastructure to support creation of new enterprises. Provide administrative support like manpower (secretarial, accounting, housekeeping etc) so as to ensure reduced cost of operations for the tenant units. Inculcate entrepreneurial spirit amongst the community through motivational and management training through outreach programmes. Identifying and sourcing resources, both technical and financial start-up of tenant units. Help them in marketing the products and provide them with market intelligence.
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Hand-holding for business development and growth through empanelled consultants (also trained in-house.) Create Common facility center to support the tenant units and to reduce the cost of investment for the tenant units.

The revenue for the company shall come from usage fees paid by the entrepreneur for the services provided by the company, surplus generated by the common facility center and the usage charges paid by the Local Population for the physical infrastructure created by the Company out of the surplus generated by the company. The company may also invest the investible surplus of the company in income generating securities specified by the Government. There may be an income stream from such interest also. The company can also generate some revenues from the training programmes that it may conduct for Entrepreneurship and Management. ENTREPRENEUR The Tenant Entrepreneur is the greatest beneficiary of the LED Incubator. Therefore, his involvement in the process of creation and running of the LED Incubator is very important. The services and benefits provided by the LED Incubator shall depend on the demands of the tenants and the more demands that the entrepreneur makes the more services shall he get. However, this is also based on his ability and willingness to pay for the services provided by the Incubator. SOCIAL COST BENEFIT ANALYSIS Will create an entrepreneurial culture amongst the locals Facilitate setting up of enterprises in the local area Direct Employment in the local area Check the unwarranted migration of the locals Utilization of local resources effectively, providing income benefits to the local produces. By providing self-employment opportunities to the unemployeds, social evils will be minimized. Provide support to existing entrepreneurs for their further growth Develop industrial clusters Increase in local trades and other commercial activities Facilitate a quality way of life to the locals

In short the Business incubator will create an attractive business environment in the local body. This will help in attracting investment for new enterprise creation. Further it can also help the existing entrepreneurs for expansion and diversification. The following figure will give a gist of benefits through Business Incubators.
Good Jobs Good Income Good Tax Base

Attractive Economic Environment

Enhanced Quality of Life

More investment in Infrastructure

Saloni Shah (2003) Planning for Local Economic Development, a Case of Ahmedabad

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ROLE OF LOCAL SELF GOVERNMENT IN LED Following the 73rd and 74th Constitutional Amendments, decentralization efforts in the country have received increasing emphasis. Government of Kerala decentralized all relevant functions to local institutions with an adequate financial backing and transfer of staff from the line departments clearly marks a new era in decentralization within the state. In Kerala, LED could be implemented for a village panchayat, block, district or a municipal township area. Local self Governments of Kerala have made immense progress in the infrastructure development of their area. However, the efforts to entrepreneurship development are to be further sharpened. CONCLUSION For Economic Development, there are various business models such as Rural Business Hubs, Technology Parks, Industrial estates etc. All these have its own uniqueness. However, a Business Incubator will provide not only the logistic support to the entrepreneurs but also provide business advocacy services for its survival and growth. This business incubator should ]be managed by professionals and should develop a business model for its own growth. It was observed that for social cause Common Facility Centres have been initiated. However, without a sustainable business model, these CFCs are not able to survive. While advocating a Business Incubator for Local Economic Development, it is necessary to develop a sustainable business model for the incubators survival. This model will pave vistas for developing business as well as a creating entrepreneurial society. Reference: Sukumaran VS, Umesh Menon, (2004), A concept note on Business Incubator for Local Economic Development, KILA Journal of Local Goveornance, Trichur, Kerala Deutache Gesellachast Fur, (2003), A Guide to Rural Economic and Enterprise Development (internet : www.gtz.de http://web.worldbank.org/ http://www.upjohninstitute.org/ http://www.mesopartner.com/fileadmin/user_files/working_papers/mp-wp11_Local-BE.pdf http://www.unescap.org/huset/hangzhou/paper/economic.htm http://india.ashoka.org/achieving-local-economic-development http://www.nbia.org http://sustainablebusinessincubator.com/ www.iimahd.ernet.in/users/anilg/files/Articles/Anshul%20Saxena.ppt http://www.techmonitor.net/tm/images/a/a7/11may_jun_startup_venture.pdf

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Economic Analysis on the Market Participation Decision of the Red Onion Farmers in Jaffna District, Srilanka
Shylanthi.T & Umashankar.K Abstract Marketing plays a vital role in determining the profitability of the producers. Availability of market information and the right choice of a marketing channel is crucial in deciding the producer margins. Hence it is important to identify the factors which have been influencing the farmers decision in choosing the marketing channels. Therefore this research has taken effort to identify the demographic and socioeconomic characteristics of the red onion farmers influencing the choice of marketing channel in Jaffna district, Sri Lanka. A purposive random sampling technique was used to select the samples from the population. Structured questionnaire was prepared and pretested prior to the data collection. Total sample size was 200, which is representing the 10 percentage of the total commercial red onion producers in the district. The compiled data were analyzed within the frame work of multinomial logit regression model by using the econometric software STATA version 10. The results revealed that the investment in future season and knowing the market price are found to be significant increase the log ratio of participation in the wholesale market through middleman based on the participation in the direct retailing market by 3.148, 3.532 respectively. The investment in last year and membership in a producer group manifested a significant negative impact and decrease the log ratio of choice of performing direct transporting based on the participation in the direct retailing by 19.438, 1.985 respectively. The investment in last year manifested a significant negative impact and decreases the log ratio of choice of participation in the wholesale market through middleman based on the participation in the direct retailing by 14.058. From this the research concludes that the availability of market information vastly deciding the choice of the marketing channels. Hence it is important to both government and non government sectors to take effort in disseminating the market information using current electronic medias like mobile phones, radio, internet, and television to the red onion farmers is expected to increase the farmers share via choosing a most profitable channel. government organizations or any other non-governmental organization can take effort to connect the buyer and producer by Moreover if any of the non profiteering organization could come forward to perform the transport function on behalf of the farmers is expected to increase the farmers share tremendously. Organizing the red onion farmer societies or organizations is expected to increase the bargaining power collectively on behalf of the individual farmers. And this will intern expect to help the farmers to choose the most suitable and profitable marketing channel. Key words: Red onion, Multinomial logit model, Choice of a marketing channel, Jaffna district. INTRODUCTION It has been reported that two third of the Sri Lankan population who have been involved with agricultural production living in the rural areas (DCS,2010). The GDP contribution of the Agriculture sector in Sri Lanka in 2010 was estimated as 12.6 percent (DCS, 2010/2009). Out of which GDP contribution by cash crop sector was estimated to be 10.7 percent (CBSL, 2010). Red onion is one of the valuable and prominent cash crops of the dry and intermediate zones of Sri Lanka which fetches considerable income to the cultivators. In Sri Lanka, the production of red onion was around 51,200 MT harvested from 5276 ha in the year of 2008 (Suthamathy, et al, 2011). In Jaffna, among all the cash crops red onion is one of the successful cash crops to cultivate and is expected to generate considerable income to the farmers. Even though Jaffna district has high potential for red onion production, farmers are still finding difficulty in obtaining a reasonable and stable price for their produce. Particularly the red onion market in Jaffna district is susceptible to price uncertainties.
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During the last season red onion farm gate price disparity ranged from Rs.40 to Rs.340. Simply this alone stands as an evidence for the existence of poor market arrangement in Jaffna peninsula. Local farmers are finding difficulty in predicting the future market prices which may help them to make a decision on choosing a particular marketing channel and to perform the storage function. Choice of a marketing channel plays a vital role in determining the producer margins. Availability of market information and the right choice of a marketing channel are crucial in deciding the producer margins. Hence it is important to identify the factors which have been influencing the farmers decision in choosing the marketing channels. Therefore this research has taken effort to identify the demographic and socioeconomic characteristics of the red onion farmers influencing the choice of marketing channel in Jaffna district, Sri Lanka. Therefore the research has defined its objectives in the following manner: How far the socio economic characters such as age of the farmer, gender, educational level of farmer, cropped land area and crop income influence the choice of a marketing channel. How far the market infrastructures such as frequency of selling, information about the market price, number of market information sources, preference for contract arrangement, availability of own storage facilities, buyer terminate business, own a mobile phone and access to extension services have been influencing the farmers choice of a marketing channel. How far the investment decisions such as Investment during last season and investment for the future season influence the choice of a marketing channel.

Materials and Methods In Jaffna approximately 145,000 families are doing farming as their livelihood (DOAE,2010/2009). The total population of the district is around 600,000. Agriculture and fisheries have been the principal economic activities of the district. Over 60 percent of the work force in the district depends on agriculture for their livelihood (DS,2010). Agriculture in the district contributes substantially to the GNP of the country. The agriculture sector, including crop and livestock has contributed around 65 percent of the total gross domestic product of the district. In terms of production, major cash crops like chilli, onion, tobacco, potato and banana are produced in large extent to meet the substantial portion of the local requirement. Total extent of high land available for cultivation is 7,851 ha (DS,2010). The study covered entire Jaffna district and the samples were selected by using purposive random sampling technique. The total red onion farmers list was obtained from the department of agricultural extension and then the respondents were selected randomly excluding two extremes of those who are cultivating below 1 lachcham and above 20 lachchams. A structured questionnaire was prepared and pretested prior to the data collection. Total sample size was 200, which was representing the 10 percentage of the total commercial red onion producers in the district. The compiled data were analyzed within the frame work of multinomial logit regression model by using the econometric software STATA version 10. Here marketing channel1(Directly performing retailing) was considered as a base channel for the analysis. Assuming the hederoscedastisity problem the outliers were removed from the sample.

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Table : Variable label and expected signs -----------------------------------------------------------------------------------------------------------------------Variable Label Variable name Chnl1 Chnl2 Chnl3 -----------------------------------------------------------------------------------------------------------------------AGE Age of the farmer + GEN Gender EDU Education level of farmer + + FRE Frequency of selling + + MARKTP Information about the market price + + + MKTINFO Number of Market information sources + BTBUSS Buyer terminate business + + INLAST Invested during last year INFUTURE Invested for future year + OWNMOB Own a mobile phone + PERCON Preference for contract arrangement + OWNSTOR Availability of own storage facilities + CRPIN Crop income + + CRPLAND Cropping land area + + EXT Access to extension service ----------------------------------------------------------------------------------------------------------------------Model Equation Ln (p1/1-p1) = 0 + 1AGE + 2DGEN + 3EDU+ 4FRE + 5DMARKTP + 6 MKTINFO + 7DBTBUSS + 8DINLAST + 9DINFUTURE + 10DOWNMOB + 11DPERCON + 12 DOWNSTOR + 13CRPIN + 14CRPLAND + 15 DEXT + Ut Here, AGE-age of the farmer, GEN-gender, EDU-educational level of farmer, FRE-frequency of selling, MARKTP-information about the market price, MKTINFO-number of market information sources, BTBUSS-buyer terminate business, OWNSTOR-availability of own storage facilities, OWNMOB-own a mobile phone, INLAST-investment during last season, INFUTURE-investment for the future season, PERCON-preference for contract arrangement, CRPIN-crop income CRPLANDcropped land area, and EXT-access to extension services. Among these three explanatory variables namely MKTINFO, PERCON and EXT were dropped from the model in order to overcome the dummy variable trap and the collinearity problem. Multinomial regression for market channel choice. Number of obs = 191 LR chi2(24) = 35.74 Prob > chi2 = 0.0004 Log likelihood = -79.725758 Pseudo R2 = 57.06

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Table Mch2 Age Dgen Edu Fre Dmrktp Dbsprob Dinlast Dinfuture Ownmob Cropland Dorgmem Downstor Cropin cons Mch3 Age Dgen Edu Fre Dmrktp Dbsprob Dinlast Dinfuture Ownmob Cropland Dorgmem Downstor Cropin cons Coef. 0.01 -0.15 0.16 0.46 3.53* -0.35 -14.05*** 3.14** 0.33 0.01 -0.44 -1.33 0 10.29 -0.02 -1.58 0.01 0.41 0.07 0.07 -19.43*** 2.21 -0.26 0.01 -1.98* 1.03 0.01 18.3 1.88 0.65 4.23 1.10 0.64 0.06 0.62 0.85 0.00 3.65 0.04 1.16 0.20 0.80 2.14 1.03 3.95 1.48 1.07 0.11 1.06 1.25 0.00 Std. Err 0.03 0.89 0.11 0.59 Z 0.39 -0.18 1.00 0.79 1.88 -0.54 -3.32 2.86 0.51 0.25 -0.77 -1.57 0.63 2.82 -0.69 -1.37 0.49 0.51 0.04 0.07 -4.92 1.49 -0.27 0.13 -1.88 0.81 1.29 . P>/Z/ 0.70 0.86 0.32 0.43 0.06 0.59 0.00 0.00 0.61 0.80 0.44 0.12 0.53 0.01 0.49 0.17 0.63 0.61 0.97 0.95 0.00 0.14 0.79 0.90 0.06 0.42 0.20

Mchl 1 is the base outcome. ***, ** and * indicates significance level at 1%, 5% and 10% respectively. Here Mch1: Directly performing retailing, Mch2: Selling whole seller through middleman and Mch3: Directly transporting to southern part of Sri Lanka. Results and Discussion Except the variables such as knowing the market price, investment in last year and future investment the other variables were found to be statistically insignificant in choosing the marketing channel 2. Knowing the market price found to be statistically significant at 10 percent level and manifested a positive sign in choosing marketing channel 2: selling to wholesaler through middle man. If the farmer is more dynamic and knows the market price well then that will expect to increase farmers market participation through the marketing channel 2. This means that the log ratio of selling to wholesaler through middle man based on channel 1 (performing retailing) is 3.532. This is because if a farmer is well aware of the market price then it will be difficult for the middlemen to get higher margins. If farmer is well informative then he will be much confident when he is bargaining for his
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produce. If the producer is unaware of the market price then that will lead to market imperfections and finally producer may end up with a lower producer margins. Same variable also exerted a positive impact and encouraging farmers participation in the marketing channel 3 (directly selling to the transporter). Since the coefficient is found to be insignificant there no point in discussing the impacts based on that value. Hence it is obvious that dissemination of market information is quite crucial in enhancing the farmers share in the market. Market information should be readily available and it has to reach the farmers field regularly. If farmers could access the market information from some reliable sources then that will in turn help the farmers to get reasonable margins in the red onion business. In the mean time market will also move towards competitive nature. The variable last year investment found to be statistically significant at 1 percent level and exerting a negative impact on the market participation via both channel 2 and channel 3: directly performing transporting. Increasing the investment in last season by one unit will expected to increase the respondents market participation in market selling to wholesaler through middle man by the log ratio of selling to wholesaler through middle man based on directly performing retailing is -14.058. This means that increasing the investment in last season is expected to discourage the market participation of the farmer in the market selling to wholesaler through middle man. The second regression also implies the same. The farmers would have been discouraged to sell their produce directly to the transporter. More investment during the last season will expected to discourage the farmers participation in the marketing activity by the log ratio of channel 3 to channel 1 is -19.438. Even though previous adverse seasonal experience de motivate the red onion farmers to participate in the marketing activities but it prominently discourage the farmers to participate in the marketing activity particularly through the marketing channel 3 rather than the marketing channel 2. Unexpected heavy rain followed by a flood destructed most of the farmers during the last season and that would have discouraged the farmers to cultivate more in this season and may resulted a reduced participation in the red onion marketing channel. To overcome this farmer can be given credit during the successive seasons. More over crop insurance or income subsidies to the affected farmers will also expect to increase the farmers participation in the marketing activities. The variable investment in future is also found to be statistically significant at 5 percentage level and exhibited a positive sign in choosing the marketing channel 2 (selling to wholesaler through middle man). Increasing the investment in future by one unit will expected to increase the respondents market participation in market selling to wholesaler through middle man by the log ratio of selling to wholesaler through middle man based on directly performing retailing is 3.148. This means that increasing the investment in future is expected to encourage the market participation of the farmer in the market selling to wholesaler through middle man. If the farmer would have invested heavily on the production then it is reasonable for him to expect a quick return for his harvest. This is primarily due the opportunity cost of the capital that farmer has invested. In most instances farmers have less contacts and poorly knowledge about the market arrangements. Unless farmers have some contract or coordination it is fairly difficult for them to organize a market for their products. This could be the reason why farmers prefer to go to the middlemen to market their products without delay. To overcome this, government organizations or any other non-governmental organization can take effort to connect the buyer and producer by using current electronic medias like mobile phones, radio, internet, and television. Member in a producer group found to be statistically significant at 10 percent level and manifested a negative sign in choosing the marketing channel 3. Being a member in a producer organisation will expect to decrease the farmers market participation in the marketing channel 3 by the log ratio of -1.985. This is obvious because the farmer organizations bargain on behalf of its members and participate in the market. So the farmer may not be able to participate in the market directly. Instead the farmer organization takes effort to market the harvest. But unfortunately farmer organizations in the Jaffna district are not well established yet. These organizations are suffering from
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lack of capital. The local farmer organizations lack very basic facilities like storage and transport. Due to these reasons they are mostly confined their activities within the Jaffna district. This situation has given provision to the private hands and middlemen to exploit the red onion market in Jaffna peninsula. To overcome this the farmer organization or cooperatives has to be strengthen. Conclusions and Recommendations Knowing the market price and investment in future are encouraging the market participation of the farmer. In contrast last year investment and Member in a producer group are discouraging red onion producers to participate in the market. From this the research concludes that the availability of market information vastly deciding the choice of the marketing channels. Hence it is important to both government and non government sectors to take effort in disseminating the market information to the red onion farmers is expected to increase the farmers share via choosing a most profitable channel. Moreover if any of the non profiteering organization could come forward to perform the transport function on behalf of the farmers is expected to increase the farmers share tremendously. Organizing the red onion farmer societies or organizations is expected to increase the bargaining power collectively on behalf of the individual farmers. This will intern expect to help the farmers to choose the most suitable and profitable marketing channel. REFERENCE Boger, S. (2001), Quality and contractual choice: a transaction cost approach to the Polish hog market, European Review of Agricultural Economics 28: 241-261. Gow, H.R., & Swinnen, J.F.M. (1998), Up- and down-stream restructuring, foreign direct investment and hold-ups in agricultural transition, European Review of Agricultural Economics 24: 331-350. King, R. P. (1992), Management and Financing of Vertical Coordination: An Overview, American Journal of Agricultural Economics, 74 (5) (December): 1217-1218. Den Ouden, M., Dijkhuizen, A.A., Huirne, R.B.M., & Zuurbier, P.J. P. (1996), Vertical Cooperation in Agricultural Production-Marketing Chains, with Special Reference to Product Differentiation in Pork. Agribusiness, 12 (3) 277-290. Peterson, H.C. & Wysocki, A. (1997), The Vertical Coordination Continuum and the Determinants of Firm-Level Coordination Strategy, Michigan State University Staff Paper No. 97-64, 1997. Poole, N.D., Del Campo Gomis, F.J., Igual, J.F.J. and Gimnez, F.V. (1998), Formal contracts in fresh produce markets. Food Policy, 23, 131-142. Weleschuk, I.T. and Kerr, W.A. (1995), The Sharing of Risks and Returns in Prairie Special Crops: A Transaction Cost Approach, Canadian Journal of Agricultural Economics 43: 237-258. Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) and Ministry of Finance, Planning and Economic Development (MFEPD), 2000, Plan for Modernization of Agriculture: Eradicating Poverty in Uganda. Final draft, April 2000, Government of the Republic of Uganda, 32-40.

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Rural Infrastructural Development through Rural Roads: with special reference to Pradhan Mantri Gram Sadak Yojana (PMGSY)
R. Sampath, Assistant Professor, Economics Wing, DDE, Annamalai University, Annamalai Nagar. D. Murugan Assistant Professor, Department of Economics, Annamalai University, Annamalai Nagar. 1. Introduction and Background Rural roads are the basic infrastructure requirement and play a vital role in socio-economic upliftment of rural community. They contribute significantly in rural development by creating opportunities to access goods and services located in nearby villages or major town/market centers. Provision of rural roads increases mobility of men and materials thus facilitating economic growth. These, in turn, assist in reducing poverty and leads over all social development. Several studies have already established that there exist a strong relationship between rural roads and socio-economic development. Hine (1982) reviewed several impact studies conducted in about 16 countries. Most of these case studies considered are optimistic about the relationship between road investment and agricultural development. In India, even during the 80s, studies on socio-economic aspects of rural roads were conducted in selected nine districts under the aegis of Indian Roads Congress. The objective of these studies was to find out and quantify the possible impact of roads on socio-economic development in rural areas. CRRI (1987) carried out the compilation and analysis of the data for the nine districts, to quantify the aggregate impacts. Some of the findings are: (a) increase in agricultural production due to road facility, (b) increase in fertilizer consumption,(c) increase in non-agricultural activities, and (d) better utilization of existing facilities like, school, health, banks and post offices. Similarly, a socio-economic survey conducted in a remote area in India by CRRI in 1989, showed that the villages located on the main road are comparatively well developed than those away from the road. The rural transport study carried out (NCAER and IIMB,1989) for two different periods in 1979 and 1989 revealed that after the development of rural roads, there was a change in transport modes in rural areas and also an increase in economic activities. The economic analysis of rural roads carried out for selected rural road projects original i.e. unpaved roads. The economic analysis carried out for rural access project (World Bank, 1999) in Bhutan has shown significant transport cost saving. The mule transport costs are as high as 6 times of truck transport cost. The net agricultural benefits , educational benefits and health benefits were calculated and added in the benefit the Agricultural Development Programme (ADP) in Rajasthan. The benefits are estimated by taking net incremental agricultural production value, net agricultural transport cost savings and non-agricultural vehicle operating cost savings. The overall average IRR for the selected 21 road projects was found to be 15.64 per cent. In addition, this study results also showed positive relationship between the road improvement interventions with socio-economic Parameters. In rural infrastructural development rural roads connectivity is one of the key components. It promotes access to economic and social services and thereby generating increased agricultural income and productive employment opportunities in rural India as well as ensures sustainable poverty reduction. The Ministry of Rural Development (MORD) is involved with the task of reducing poverty and bringing about rapid sustainable development and socio-economic transformation in rural India. To enable the process of developing rural India, various schemes are being implemented across the districts of the country. As a part of this, Pradhan Mantri Gram Sadak Yojana (PMGSY) was launched to increase rural road connectivity with a view to promote greater access to economic and social services and thereby, generating increased economic and social opportunities in rural India. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 51

It may be seen that alleviation of rural poverty has been a major objective of the Government's Social Sector Programme and this is being emphasized in successive Five Year Plans. In this context, Ministry of Rural Development, launched various programmes for bringing about rapid and sustainable development as well as socio-economic transformation in rural India. Further, transformation of rural India in real senses would also entail provision of basic infrastructural facilities to rural poor like, transport, electricity road/rail network etc. Despite all these efforts over the years at the State and Central levels through different Programmes, about 40% of the habitations in the country are still not connected by all weather roads. It is well known that even where connectivity has been provided, the roads constructed are of such quality that they cannot be categorized as all weather roads. In view of above, the Ministry of Rural Development (MoRD) has launched Pradhan Mantri Gram Sadak Yojana (PMGSY), a 100 % Centrally Sponsored Scheme, on 25th December, 2000.for providing connectivity to all unconnected habitations in rural areas through all-weather roads. The main objective of PMGSY is to connect all unconnected habitations in the rural areas through construction of all-weather roads with necessary culverts and cross-drainage structures, in a manner that will provide the most economic and efficient connectivity thus promoting access to economic and social infrastructure as well as assist the habitants who are below poverty line. It may be brought out that Pradhan Mantri Gram Sadak Yojana (PMGSY) was launched on 25th December, 2000 with the objective of providing All-weather roads (with necessary culverts and crossdrainage structures, which is operable throughout the year), to the eligible unconnected habitations in the rural areas. In addition, the Programme envisages connecting all habitations having population of 500 persons and above (as per 2001 census) in plain areas and in respect of the hill states such as North-East, Sikkim, Himachal Pradesh, Jammu & Kashmir and Uttarakhand, Desert areas which are identified under the Desert Development Programme in the Tribal areas and in the Selected Tribal and Backward Districts under Integrated Action Plan (IAP) as identified by Ministry of Home Affairs / Planning Commission, having population of 250 persons and above as per 2001 census. In addition, it also has an element of up gradation, though it is not central to the Programme. The rural connectivity is essential for the overall development of the rural areas. There is a close link between rural connectivity and socio-economic aspects, such as, economic growth, employment, education and health care. In addition, habitations, which are unconnected, do not have availability and accessibility to several facilities and socio-economic services. There are a number of habitations in the country, which are still not connected by All-weather roads which or are connected with poor quality roads due to poor construction or maintenance. They cannot be categorized as All-weather roads and the rationale for launching PMGSY scheme is thus, to redress this situation so that certain opportunities and services viz., employment, education, health, transport, marketing facilities etc., which are not available in the unconnected habitation, become available to the residents, it is seen that in addition to Pradham Mantri Gram Sadak Yojana, the President of India, in his address to Parliament on 25th February, 2005, announced a major business plan for rebuilding rural India called Bharat Nirman. The Finance Minister, in his Budget Speech of 28th February, 2005, identified Rural Roads as one of the six components of Bharat Nirman and has set a goal to provide connectivity to all habitations with a population of 1000 persons and above (500 persons and above in the case of hilly or tribal areas) with an all-weather road. A total of 59564 habitations are proposed to be provided new connectivity under Bharat Nirman. This would involve construction of 1, 46,185 Kms of rural roads. In addition to new connectivity, Bharat Nirman envisages up gradation/renewal of 1,94,130 Kms of existing rural roads. This comprises 60% up gradation from Government of India and 40% renewal by the State Governments. According to latest figures made available by the State Governments under a survey to identify Core Network as part of the PMGSY programme, about 1.67 lakh Unconnected Habitations are eligible for coverage under the programme. This involves construction of about 3.71 lakh km. of roads for New Connectivity and 3.68 lakh km. under up gradation. In this context, the present study makes an attempt to analyse the role of PMGSY and Bharat Nirman in the development of rural road development in India.

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II. Objectives i. ii. to examine the role of PMGSY in developing rural connectivity. to bring out the performance of Bharat Nirman Bhawan in rural road development.

III. Results and Discussions This section brings out the physical achievement and the targets under PMGSY. Further, it brings out the target and achievements in rural connectivity under PMSGY for six years from 2006 to 2012. Table -1 Pradhan Mantri Gram Sadak Yojana(PMGSY)- Physical progress
Year Target No.of Targethabitations Length of to be Road Works connected to be completed(in Kms.) 7895 17454 13857 45395 14015 55020 18100 64440 13000 55000 4000 34090 4000 33000 Achievement No. of Achievement Habitations Length of Connected Road Works completed (in kms.) 8202 10892 11336 14454 7896 7584 4142 22756 30710 41231 52405 60117 45109 21750 % of achievement Habitations Works connected completed

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

103.89 78.60 80.88 79.85 60.74 189.6 103.55

130.37 67.65 74.93 81.32 109.30 132.32 -65.90

Source: Ministry of Rural Development, Annual Report 2011-12. The above table exhibits the number of habitations to the connected and target of length of road works to the completed in KMS. Similarly, it shows no of habitations connected in kms and achievements in length of kms completed. It is observed from the results that the number of habitations connected exceeded the number of habitations to be connected from 7895 in 2005-06 to 8202. As against this in the subsequent period from 2006-2007 to 2009-2010 the number habitation connected has shown a declining trend. It shows that there had been a tardyness in the implementation of number of habitations connected. In contract, in the recent years the trend in the number of habitation has shown a noticeable increase in it. Further, it shows that the number of habitations connected has been increasing under PMGSY. The similar trend has been observed from the results that the length of road works was high in the initial period in the year 2005-06 and it is also noticed to be above the targeted level from 17454kms to 22756 kms. Further, in the subsequent years from 2006 to 2009. On the contrary, there has been an encouraging trend in the length of kms of road connectivity from 2010 to 2012. By and large, it could be inferred from the results that the progress under road connectivity interms kms has shown an encouraging trend in the recent years.

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S.No 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Table - 2 Progress under Bharat Nirman Length of Roads (Number) New Connectivity Up-gradation(km) Achievement during 2011 - 12 Achievement Target Target States During (2011Up(2011-12) Renewal Total 2011-12 12) gradation 2 3 4 5 6 7 8 Andhra pradesh 300 169.49 720 87.37 0.00 87.37 Arunachal 166 8.69 0 0.00 0.00 0.00 pradesh Assam 250 566.31 24 3.10 0.00 3.10 Bihar 3200 883.21 2000 44.62 0.00 44.62 Chhattisgarth 1000 110.87 500 88.38 0.00 88.38 Goa* 0 0.00 0 0.00 0.00 0.00 Gujarat 462 223.27 198 119.77 284.78 404.55 Haryana 0 0.00 0 0.00 33.65 33.65 Himachal 500 7.30 250 101.08 0.00 101.08 pradesh Jammu&Kashmir 500 110.35 250 48.48 0.00 48.48 Jharkhand 1000 356.09 0 0.00 0.00 0.00 Karnataka 0 0.00 0 0.00 0.00 0.00 Kerala 25 9.05 250 80.85 53.96 134.81 Madhya pradesh 1200 321.75 2000 194.00 0.00 194.00 Maharastra 400 38.08 0 0.00 55.00 55.00 Manipur 150 72.65 0 8.71 0.00 8.71 Meghalaya 100 10.07 0 0.00 0.00 0.00 Mizoram 100 39.86 0 0.00 0.00 0.00 Nagaland 20 6.00 150 2.00 15.00 17.00 Odisha 900 556.17 1200 564.28 210.74 775.02 0.00 Punjab 0 0.00 0 0.00 0.00 Rajasthan Sikkim Tamilnadu Tripura Uttar pradesh Uttarakhand West Bengal Total 250 154 20 100 220 333 650 12000.00 2.90 1.00 8.00 13.95 9.99 140.64 191.48 3857.17 0 50 960 215 780 0 203 9750 0.00 0.00 414.40 0.00 206.28 0.00 16.32 1979.64 280.00 0.00 0.00 29.88 0.00 0.00 0.00 963.01 280.00 0.00 414.40 29.88 206.28 0.00 16.32 2942.65

Table-2 shows road connectivity and upgradation status across the states of India. In regard to the new connectivity of roads among the states, it may be observed that among the states Assam, Bihar, Chattishgarh, Jammu and Kashmir and Madhya prades have should an increasing trend in road connectivity interms of kms. Further, in the rest of the states the progress is slow. It shows that the rural connectivity in the rest of the states showed be given importance and that will lead to development in the rural road infrastructural development. In the upgraduation of rural roads, it may be observed that Andra Pradesh, Gujarat, Kerala, Himachal Pradesh, Madhya Pradesh, Rajasthan, Uttrapradesh and Tamil Nadu have shown a progressive trend as compared to the rest of the states in Indai. It implies the fact that in new connectivity of roads and up gradation, there is progress among www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 54

the states but at the same time there should be proper monitoring and more funds should be allocated to the states like Goa, Haryana, Himmachal Pradesh, Jarkand, Manipur, Magalaya, Mizoram and other states which and lagging behind in new connectivity of roads and upgradation. Table-3 Projects Sanctioned during 2011-12 under PMGSY (till Dec 2011
S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 State Bihar-RWD Chhattisgarh Gujarat Himachal Pradesh Jharkhand Madhya pradesh Meghalaya Nagaland Odisha Punjab Rajasthan Sikkim Tripura Uttarpradesh Uttarkhand West Bengal Total 915 100 54 156 635 1043 95 356 1467 235 886 206 348 425 72 612 7604 Value Rs. Crore Number of roads/Bridges 647 101 46 112 531 roads+49 bridges 743 18 56 886 36 1076 80 roads + 15 bridges 69 roads + 40 bridges 555 12 roads +24 bridges 247 5343 Length in km 1899 326 137 601 2006 3105 106 955 3550 499 3603 352 370 957 98 1269 19833

Table 3 exhibits the funds allocated in crores for construction of roads and bridges. It shows that the state Odisha ranks first in getting more funds allocated at Rs.1467 crores followed Madhya Pradesh, Bihar, Rajasthan, West Bengal and other states. The similar trend has been observed in the number of bridges constructed in the 2011-12. In the case of road in kms the state Rajasthan occupied the first place followed by Punjab, Madhya Pradesh, Jarkhand, Bihar and other states. In this context, it may be inferred from the results that the PMGSY has been in progress in extending rural road connectivity as well as construction of bridges across the major states of India. At the same time, there should be more focus on the states like Gujarat, Tripura and Sikkim and other states where the rural road infrastructural development is tardy. IV. Conclusion In the light of the above results and discussion, the following conclusion could be drawn. i. It may be inferred that in the new connectivity of road among the states, Assam, Bihar, Chattish Garh, Jammu and Kashmir and Madhya Pradesh have recorded a progressive trend under PMGSY. As a result, the over all productive economic activities have increased. ii. In the case of road construction in kms, the states Rajasthan, Punjab, Madhya Pradesh, Jarkhand and Bihar have recorded a remarkable performance in rural road infrastructural development. iii. Regarding funds allocation fro construction of roads and bridges, odisha has shown a commendable progress and it is closely followed by Madhya Pradesh Bihar Rajasthan and Bengal iv. By and Large, the rural road infrastructural development has been progressive in the rural areas of India states and its overall progress and performance is highly encouraging.

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References Chandrasekhar, B P., et al (2006), Asset Management for Rural Roads Need for a Policy Framework in India, In Indian Roads Congress, Technical Paper No.528. New Delhi: IRC. Available from http://irc.org.in/ENU/knowledge/ archive/Technical Papers for IrcJournals/Asset Management of Rural Roads-Need for A Policy Framework in India.pdf. 2. Dewan, R (2012a), Gendering PMGSY, Power Point Presentation at the GEPD forum IV, Institute of Social Studies Trust (ISST) and Heinrich Boll Foundation (HBF), at the India Habitat Centre, 10 September 2012, PPT available with ISST Dewan, R (2012b), Infrastructural Empowerment via Gendering Transport Through Pradhan Mantri Gram Sadak Yojana (PMGSY), Policy Brief for UN Women at the National Consultation, Mumbai (April 2012), Centre for Gender Economics, Department of Economics, University of Mumbai, and United Nations Women Eapen, M (2012), PMGSY : Need for Engendering and Flexibilising Guidelines: Case of Kerala, Power Point Presentation at the GEPD forum IV, Institute of Social Studies Trust (ISST) and Heinrich Boll Foundation (HBF), at the India Habitat Centre, 10 September 2012, PPT available with ISST Eapen, M & Mehta, A K (2012), Gendering the Twelfth Plan: A Feminist Perspective Economic & Political Weekly, Vol 47 no 17, pp 42-49 Kapur, A (2011), Budget Briefs-Pradhan Mantri Gram Sadak Yojana Accountability Initiative, Vol 3 Issue 8, February 2011, pp 1-6 Kar, K & Bongartz, P (2006), Update on Some Recent Developments in Community-Led Total Sanitation, Supplement to IDS Working Paper 257, IDS MoRD (2010), Government of India Pradhan Mantri Gram Sadak Yojana, Rural Roads Project II, Environment and Social Management Framework, National Rural Roads Development Agency, Ministry of Rural Development Nayyar G (2005), Growth and Poverty in Rural India: An Analysis of Inter -State Differences In Economic and Political Weekly, Vol. 40, No. 16 (Apr. 16-22, 2005), pp. 1631-1639 Planning Commission & MoRD (October 2011), Final Report Working Group on Rural Ro ads- In the 12th Five Year Plan, available at http://planningcommission.nic.in/aboutus/committee/wrkgrp12/transport/wgrep_rural.pdf Sarkar K A (2011) Development of a Sustainable Rural Roads Maintenance System in India: Key Issues, In Transport and Communications Bulletin for Asia and the Pacific, No. 81 Planning for accessibility and rural roads, UN ESCAP, Thailand, 2011 http://pmgsy.nic.in/ http://rural.nic.in/sites/downloads/right-information-act/03_CIC_Part_3_PMGSY_F.pdf www.aacountabilityindia.india http://accountabilityindia.academia.edu/AvaniKapur/Papers/948741/Pradhan_Mantri_Gram_Sadak_Y ojana_GOI_Budget_Briefs_2011-12 http://rural.nic.in/sites/downloads/our-schemes-glance/SalientFeatures.pdf http://pmgsy.nic.in/downloads/WorldBank/ESMF1.PDF

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Financial Performance analysis of GOHE Co-Operatives Savings and Credit Union in Bure Woreda, Ethiopia
Dr. Sambasivam Yuvaraj, Associate Professor, Department of Management, College of Business and Economics, Debre Markos University, Debre Markos, Ethiopia Mr. Biruk Ayalew Wondem, Lecturer, Department of Accounting and Finance, College of Business and Economics, Debre Markos University, Debre Markos, Ethiopia Abstract This study was conducted in Gohe Cooperatives Saving and Credit Union in Bure Woreda to analyze the financial performance by using the data set disclosed in four years annual audit reports of the financial statements and questionnaire Survey that was carried out on 132 general assembly member representatives to collect information on the saving mobilization strategies efficiencies and loan services. Participatory discussion with management boards; and in depth interview with control committee, manager, and accountant were carried out on saving mobilization and loan services of the union on how they are mobilizing members saving and delivering quality credit to members. This paper examines the financial performance on the financial health, sign of growth trends, efficiency of saving mobilization and the loan services strategies. The health check up and sign of growth trend conducted in the framework of most common financial ratios of PEARLS on the basis of available financial data concludes that Gohe has unhealthy position on liquidity; inadequacy of capital; though healthy assets quality in delinquency non-earning assets are greater than the standard set by the WOCCU model. The efficiencies of saving mobilization & loan service, however, the union able to get good members attitude and perception on saving security, return on members saving, professional services, credit appraisal technique and loan service the union faces the problem of loan able funds, absence of technical assistance of professionals, and sometimes members were not able to pay loan repayment on the due date, limitation in providing diversified services. Key words: Asset Quality, Capital Adequacy, Financial Structure, Liquidity, Loan, Saving, sign of Growth. 1. INTRODUCTION Cooperation has been the very basis of human civilization. The inter-dependence and the mutual help among human beings have been the basis of social. It is the lesson of universal social history that man cannot live by him-self and for him-self alone. The spirit of association is essential to human progress. Since the beginning of human society individuals have found advantage in working together and helping one another; first in foraging, then in hunting later in agriculture and still in manufacture (Krishnaswami and Kulandiswamy, 2000). Cooperative is a user-owned and user controlled business that distributes benefits on the basis of use. More specifically, it is distinguished from other business three concepts or principles: first, the user owner principle. Persons who own and finance the cooperative are those that use it. Second the user-control principle. Control of the cooperative business is by those who use the cooperative. Third, the user benefits principle. Benefits of the cooperative are distributed to its user on the basis of their use (Cobia, 1998). The current government of Ethiopia has put agriculture at the heart of its policies. There is a particular emphasis on promoting adoption of fertilizer, improved seeds and the efficiency of input marketing and distribution. In order for cooperatives to meet their stated objectives they should have properties and funds. The sources of the funds are different. That is used to acquire assets and also to run the activities of the societies. Unless the properties and funds of societies are managed according to the
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existing cooperative legislation, regulation, and its by-law; it is difficult for a cooperative to win the confidence and the support of its members (Oromya farmers development bureau, 1998). Due to the limited outreach of the commercial banking system and NGO-supported credit schemes, and the uncertainty surrounding the future of the input supply loan programme have galvanized the Government to establish a legal and policy framework conducive to the growth of Micro Finance Institutions (MFIs) and Rural Savings and Credit Cooperative Societies (RUSACCOs) in rural Ethiopia. Since Proclamation 40/1996, 19 MFIs have been licensed by the National Bank of Ethiopia (NBE). Over the last four years, the microfinance industry has recorded remarkable growth, with a network of about 500 branches and sub-branches, an outstanding loan portfolio of about USD 33.5 million, net savings of about USD 16 million, and expanded outreach to nearly 500 000 poor rural households. Over 40% of the industrys clients are women. Overall the financial performance of the sector has been good, with operational viability averaging 135% over the past three years. Despite rapid growth, however, the overall outreach as of 31 December 2000 represented less than 5% of rural households. Ethiopians have a strong tradition of saving, which is evident from the widespread existence of informal rotating savings and credit organizations such as iqubs and iddirs. There is also a promising history in the country of successful savings and credit cooperatives in urban areas. Recent government policy and legal framework augur well for the development of politically independent RUSACCOs, owned and managed by their members. With agriculture remaining the backbone of Ethiopias economy, the provision of financial services is expected to have a substantial impact in activating the largely under-utilized productive potential in the rural areas. Financial analysis of a typical cross-section of investments in on-, off- and non-farm enterprises shows significantly high returns on investments in crop production, draught animal power, livestock fattening, bee-keeping, tailoring and petty trading (IFAD, 2001). Following this proper financial management is noteworthy for the success of the financial service to the poor. And the starting point for sound financial management is the timely and accurate production of financial reports, which requires punctual and accurate financial records. This begins with accounting: the process of recording financial transactions, grouping them together by category and summarizing them for a certain period or at a certain point in time. The summarized information of all these transactions is placed in standardized financial statements. Frequently, RUSACCOs must produce financial statements based on a format required by lenders, donors, local regulators, or network organizations. Such statements may satisfy reporting requirements of one or more of those groups, but the required format may not be helpful as a management tool. Despite efforts to create standard accounting practices or terminology, such as the International Financial Reporting Standards (IFRS) and the Financial Definitions Guidelines, few attempts to harmonize the content and presentation of financial statements have been made. Financial management presents financial management tools for analysis of the microfinance institutions and or (SACCOs) financial health. The financial statements created in the accounting part provide basic information on which financial analysis and management is based in finance management. International best practice for microfinance suggests that good financial system is the basis for successful and sustainable operations. Quality financial analysis depends on the quality of recorded information to be analyzed. This information comes largely from the accounting system, so accounting information is fundamental for financial analysis to gauge the financial health of SACCOs (AEMFI, 2008). 1.2 STATEMENT OF THE PROBLEM Traditionally, the role of finance was considered as passive in the development process in general and rural development in particular. However, it was recently recognized that rural finance is a strong tool to reduce poverty and contribute towards rural development. Despite the importance there are limited financial institutions delivering financial services in rural Ethiopia. As a result, the bulk of finance is coming from the informal financial service providers. Though, the informal sector is the major rural finance providers, the financing is only meant to address short term demand for finance such as
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consumption during cash shortage and for other emergencies which neglects productive investment (Kalifa Abdula, 2006). Following the above problems rural savings and credit cooperative unions have: Inadequate capital base, Restrictive capital structure, Inadequate mix of financial products, Poor investment decision making (without sufficient research on possible success and impacts on members),Lack of observance of basic principles of banking and financial management, and RUSACCOs have also threats or challenges because of liberalization the cost of borrowing has become to prohibitive because of high borrowing, access to credit by RUSACCOs to other financial institution has become very limited and cost of living has shot up astronomically hence the members of the RUSACCOs cannot live comfortably without from their RUSACCOs this has created a high demand for the loan able funds whose supply is constant and since RUSACCOs easily meet this demand for loans members loyalty is at cross roads (Associates in Integrated Development (AFRICA) Limited, 2007). According to Berhane Kidanu (2008), RUSACCOs are operated and managed by elected committee members. Most committee members are illiterate, even who attend elementary school and high school lack the capacity to operate and manage efficiently. They lack basic knowledge and skill to perform the day- to day activities of SACCOs. Hence, it is difficult to assume an efficient performance, which meets the required standard in such condition. There is poor recording and book keeping. Besides, a lack of savings facilities creates problems at three levels: (i) the level of the individual; (ii) the level of the financial institution; and (iii) the level of the national economy. At the level of the individual, the lack of appropriate institutional savings facilities forces the individual to rely upon in-kind savings such as savings in the form of gold, animals or raw materials, or upon informal financial intermediaries, such as Rotating Savings and Credit Associations (ROSCAs) or money-keepers. These informal savings options, however, do not offer a combination of security of funds, ready access or liquidity, positive real return and convenience in order to meet the various needs of the particular saver. At the institutional level, RUSACCOs have micro product service windows on both sides of the balance sheet, serving micro and small savers and borrowers with an average savings balance or loan amount below the average per capita annual income in the respective countries. Yet the number of RUSACCOs that exclusively offer credit is much larger than RUSACCOs with both savings and credit facilities. Empirical studies have demonstrated that the performance records of credit-only RUSACCOs in outreach and sustainability have not been widely successful (Schmidt/Zeitinger, 1996; Christen et al. 1995, Yaron 1992). On the other hand, those RUSACCOs lacking effective savings mobilization strategies are unable to increase their outreach to a significant number of clients. In addition, few RUSACCOs that do not mobilize savings have attained full financial self-sufficiency, independently covering their expenses for operations, loan loss, cost of funds and inflation with their revenues. Throughout the world, RUSACCOs have often experienced that exclusively offering credit services can lead to undue dependency on external sources of financing. This dependency can cause the RUSACCOS to concentrate on the demands of the donors rather than on the demands of potential clients, especially potential savings clients. At the level of the national economy, high levels of savings increase the amount of national resources and decrease the need to resort to foreign indebtedness in order to cover domestic investment and consumption demand. Numerous countries with low internal savings rates must borrow from abroad, which results in a debt service burden. This clearly underlines the importance of savings mobilization to sustain economic growth with national financial resources (Elser, et.al 1999).The poor need sustainable access to financial services to be out of poverty. So before dealing further on the issue of sustainability, it would be prudent to investigate first the key issues that limit the expansion of the service. Why is there still low financial intermediation in Ethiopia, particularly in rural areas?

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1.3 THE RESEARCH QUESTIONS 1. What is the financial health of the union in performing the financial activities in line with the WOCCU proposed standards? 2. What is the sign of growth trend of the union in relation to its financial performance in profit, members share capital, institutional capital, total assets, loans, savings, and membership? 3. How is the union efficient in its saving mobilization strategies? 4. How is the union effective on its loan service and credit administration? 1.4 OBJECTIVES OF THE STUDY The general objective of the study is to analyze the financial performance of Gohe cooperatives saving and credit union. The specific objectives of the study are: 1. To check up the financial health of the union in performing the financial activities. 2. To determine the sign of growth trends of the union in terms of profit, members share capital, institutional capital, total assets, loans, savings, and membership. 3. To gauge the efficiency of saving mobilization strategies of the union. 4. To examine the value of loan service of the union. 1.5 RESEARCH METHODOLOGY This study was conducted in Gohe saving and credit union found in Bure Woreda district. Data for the study were collected from primary and secondary sources. The Primary data were collected through survey, in depth interview and FGD. The primary data were analyzed in simple descriptive stastics from and qualitatively. All general assembly members of the union were selected from each primary level cooperatives and total of 132 member respondents were taken as sample size from the union to get the required information on saving mobilization and loan services of the union to conduct the survey. The secondary data were collected from audited financial statements of four years and portfolio reports which were analyzed by using WOCC model with references to PEARLS and to measure the financial health of the union by ratio analysis. The WOCCUs proposed standards of excellence were used as measure of excellence and the software PEARLS monitoring system were used for analyzing based on the data appropriateness. 1.6. RESULTS AND DISCUSSION Regular health check-up has a supreme to maintain the confidence of members in financial system and activities of their union; to protect the interest of members, depositors, lenders, and any other stakeholders in the union; and to detect the adverse effect of various financial risks on the financial performance of the union. Due to the fact that, Health of an individual Financial institution is a function of multiple factors such as liquidity position, earnings and cost, solvency, capital adequacy, asset quality, financial structure and growth trends of the union results on these key indicators are presented in tabular form to check up the financial healthiness of Gohe cooperatives saving and credit union in the following sections one by one and WOCCUs model was used to interpret and assess the financial performance of the union in a meaningful manner.

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Table.1. Liquidity of Gohe Cooperatives Saving and Credit Union (Years in E.C) Indicators of Liquidity Proposed standard Savings 60%-70% 1998 66.5% 1999 215% 2000 64% 2001 298%

L1:Loan Outstanding /Total deposits 10% L2:Liquidity Reserve/Saving Deposits L3:Non Earning Liquid Assets / Total Max.5% Assets 1:1 L4:Current Assets / Current Liabilities Source: Worked Out From Audit Reports of the Union

0.00% 0.00% 0.00% 0.00% 20.41% 0.68% 78.03% 2.96% 2:1 1.7:1 1.9:1 1.4:1

The result loan to saving (L1) of Gohe cooperatives saving and credit union in the year of 1998 and 2000 (Table 1), indicates the union was in the position to the proposed standard which reflects the union was funding loans to members from the balance sheet accounts i.e. from members saving deposits, where as in the year 1999 and 2001 the union was not able to fund members loan from members savings deposits and shares which forced the union to go for external credit and the union was not in a position to meet the required standard showing lack of sustainable financial services to finance loan from members savings deposits. The liquid reserve requirement (L2) is out of the WOCCUs proposed standard. The WOCCUs model proposed to maintain saving deposits as liquid assets a minimum of 10% after paying all short-term obligations (30 days and under) and Gohe cooperatives saving and credit union did not maintain such liquidity reserve in any of the study periods (Table 1). This suggests Gohe cooperatives saving and credit union couldnt meet cash needed for withdrawals, however, this reflects also the union able to avoid the opportunity cost lost on idle liquid assets due to the fact that funds in checking accounts and simple savings accounts earn negligible returns, in comparison with other investment alternatives. Investment in non-earning liquid assets increases the liquidity position of a cooperative but it does not earn anything. So, investment in such assets should be minimal. As we can see here in the result Table 1, non-earning liquid assets to total assets (L3) indicates, in the year 1999 and 2001 Gohe cooperatives saving and credit union was in line with the proposed standards or WOCCUs model which suggests the union have no any problem of liquidity and problem of idle funds where as in the study years of 1998 and 2000 the union could not perform in line with the proposed standards though, the liquidity position is good there was too much investment in non-earning assets this indicated unhealthy functioning on earnings in these periods. The percentage of non-earnings assets to total assets of Gohe cooperatives saving and credit union in the year 1998 and 2000 was far beyond the proposed standards which increase the liquidity position of the union that is in the union cash has occupied the considerable amount of non-earning liquid assets in the year 2000 and in the year 1998 checking account (current account) which is another non-earning liquid assets occupied the larger portion. The non-earning assets yield nothing and have their own impact on L3 as well as the earnings or profitability of the union. The considerable amount of such nonearning liquid assets threats the liquidity position of Gohe cooperatives saving and credit union further. L4 measures the adequacy of the liquid current assets to satisfy the current obligations request. L4 is showing during the study period the union was able to meet its current obligation which goes in line with the proposed standard but there is also too much investment on current assets of the union. Overall, liquidity position is showing unhealthy condition according to WOCCU proposed standards; Gohe cooperatives saving and credit union may fail to satisfy the deposit withdrawal request because the union has no any liquid reserve funds to come across such request.

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Table 2: Earnings and Cost Allocation of Gohe Cooperatives Saving and Credit Union (Years in E.C) Indicators of Earnings and Costs Proposed 1998 1999 2000 2001 Allocation standard >=interest rate 13.38% 16.93% 20.28% 7.65% E1:Loan Yield >interest rate .99% 4.06% 4.47% 2.89% E2:Return On Assets 3.97% 3.27% 1.92% 1.93% E3:Total Operating Expenses/Average 5% total Assets 40%-50% 9% 39% 37% 20% E4:Cost Of Funds 15%-20% 51% 14% 10% 23% E5:Staff Cost 8%-12% 70% 26% 18% 32% E6:Operational Costs Source: Worked Out From Audit Reports of the Union As stated in the literature, indicators of this component are categorized into two categories: indicators relating to rates of return or earnings and indicators of costs or allocation of expenses. Firstly, earnings here the loan portfolio are the most important and profitable asset of the savings and Credit cooperatives. Hence Interest on loans is the major income for the cooperative. Table 2; E1 measures the yield on the loan portfolio. For the purpose of calculation of E1, interest income is inclusive to commission, fee, and penalty charges. According to the WOCCUs proposed standard, E1 should be greater than the entrepreneurial rate (interest rate charged on loan). Entrepreneurial return covers interest expenses, cost of operation and administration on financial activities. In addition, it should earn enough to contribute to capital levels which maintain institutional capital at least 10 percent of total assets. Though E1 is seemed quite high during the study periods, yet loan yield is not enough to cover the entrepreneurial return particularly in the year 2001 which is very low. This entails the union was not able to generate sufficient profit to maintain a strong capital position in the study year 2001 which impairs its financial health. Saving and Credit unions are not-for-profit, member-owned financial institutions. Saving and Credit unions need to earn sufficient profits so that they can build up institutional capital to the minimum 10% institutional capital to total assets ratio. Here Gohe cooperatives saving and credit union has low levels of institutional capital (F8); therefore, although they are showing positive unadjusted Return on Assets (E2), Gohe cooperatives saving and credit union couldnt not generating sufficient profit to maintain a strong capital position. This fluctuating unadjusted Return on Assets (E2) reflects the inconsistency in the earning and institutional capital building capacity of Gohe cooperatives saving and credit union during the study years. Secondly, allocation of expenses: total Operating Expenses to Average total assets- the primary ratio determining efficiency (E3) indicates that management is increasing its efficiency in controlling the operating expenses below the proposed standard for the whole study years; Cost of funds (E4) including interest paid on savings and deposits, plus interest paid on loans. Allocation of financial income for cost of funds is lower than staff costs and operational costs in the first year of the study period but in the rest of the study period Gohe cooperatives saving and credit union able to allocate more income on cost of funds which gives profit for the union though this was the case in none of the study years the union able to meet the proposed standards this reveals Gohe cooperatives saving and credit union provides noncompetitive interest rates on members savings and deposits which links to savings deposit growth trends of the union; staff cost allocation in the first and last year of the study period is beyond the standard which implies the union allocates more of its income on salaries and benefits; and operational costs never meets the standard set in any of the study period this concludes that Gohe cooperatives saving and credit union is not managing the expenses as per the proposed standard of excellence.

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Table 3, Solvency of Gohe Cooperatives Saving and Credit Union (Years in E.C) Indicators of Solvency Proposed standard S1:Loan Loss Allowance/Delinquency 100% >12 Months S2:Net Allowance For Loan Losses / 35% Delinquency Of 1-12 Months >=100% S3:Solvency <1 S4:External debt / deposits Source: worked out from Audit Reports of the Union 1998 100% 100% 1999 100% 100% 2000 100% 100% 2001 100% 100%

110.5% 116.71% 117.78% 118.64% 0.00 .25 0.00 5

The result of solvency on Table 3 shows that Gohe cooperatives saving and credit union complied with the WOCCU model in provision for loan loss standards. The WOCCU model prescribed that any saving and credit union should provide 100 percent allowances for loan past due for more than one year. S1 is 100 percent in all fiscal years of the study periods which implies that Gohe cooperatives saving and credit union has adequate provision to cover the bad debt losses. And S 2 shows that loan loss provision of the union is above the standard given by WOCCU to cover the possible loan loss on substandard and doubtful loan. According to the WOCCU model, allowance for the loan delinquent from 1-12 months should be 35 percent of such loans. But, this ratio is far above the WOCCU standard. This implies that its assets are not inflated, earnings are not overstated, provision for loan loss is not lacking, dividends are not over stated and erroneously paid out, and members savings are in safe condition. Here this result is due to the fact that the union doesnt have any delinquency report and loan loss provision account record and taken as zero delinquency and loan loss provision that points out no delinquency mean there is full protection. Instead of maintaining loan loss provision making delinquency report they followed maladjustment either from the accounts of the person or guarantors. Though, there is protection or solvency Gohe cooperatives saving and credit union has not followed the specified policy for loan loss provision stated by the WOCCU model. Solvency (S3) indicates the cash value of the union per monetary unit of deposits, shares and savings held at maturity is in a safe condition as we can see in Table 3, in the whole years of the study periods solvency of Gohe cooperatives saving and credit union was showing vigorous financial performance on WOCCUs model. S4 shows Gohe cooperatives saving and credit union is relatively self sufficient and generating funds internally which promotes cooperatives on self reliance over the study period and enable to finance its activities from members deposits that can reduce external financial costs but in the year 2001 there is over reliance on external sources of funds. In general, the union is showing in a safe status on solvency and protection position in the study period. Table 4.Capital Adequacy of Gohe Cooperatives Saving and Credit Union (Years in E.C) Indicators of Capital Adequacy Proposed standard 1998 1999 2000 2001 Mini.8% 0.9% 3% 5% 4% C1:Reserve Funds+net Profit / Total Assets 0.00% 0.00% 0% 0% C2:Loan Loss Reserves / Loans outstanding Max. Source: Worked Out From Audit Reports of the Union The Capital adequacy of Gohe cooperatives saving and credit union (C1) on Table 4, indicates the requirement of capital to cover claims on assets in the event of both expected and unexpected losses is not going in line with the standard and entails inadequacy of capital base in the union. Capital Adequacy is as measure of Gohe cooperatives saving and credit union financial strength, in particular its ability to cushion operational and abnormal losses was not showing vigorous. Any Financial institution should have adequate capital to support its risk assets in accordance with the risk-weighted capital ratio framework as stated earlier. But here all in all this indicator of capital adequacy indicates that Gohe cooperatives saving and credit union was not doing in line with the proposed standard to
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have an adequate amount of capital to protect the interest of the members, depositors, creditors, and the stakeholders that ensures solvency of the union also in the study periods. Reserve to loan outstanding (C2) in the study periods shows Gohe cooperatives saving and credit union has no any loan loss reserve in the study years. The reason for this unhealthy financial performance on capital adequacy is the union could not maintain adequate reserves from their earnings to build up their capital base or unable to get adequate return from their investment, may be paying more dividend to the members instead of maintaining as reserve, and not able to maintain reserves for the loan outstanding. Table 5, Assets Quality of Gohe Cooperatives Saving and Credit Union (Years in E.C) Indicators of Asset Quality Proposed standard Loan <=5% 1998 0.00% 1999 0.00% 2000 0.00% 2001 0.00%

A1:Total Delinquency/Total Outstanding <=5% A2:Non-earning Assets/Total Assets A3:Net Zero Cost Funds/Non-Earning >200% Assets <1 A4:Delinquent Loan/Reserve Source: Worked Out From Audit Reports of the Union

28.04% 8.51% 92.96% 141. 4% 0.00% 0.00%

80.03% 6.84% 65.65% 127.10% 0.00% 0.00%

The most worrisome aspect of RUSACCO union financial performance is delinquency (portfolio at risk calculated on outstanding balance). Total delinquency to total loan outstanding (A1) measures the proportion of delinquent loan in the gross loan portfolio and (A1) of Gohe cooperatives saving and credit union in all years of the study period shows zero percent (Table 5). This reveals that assets quality of Gohe cooperatives saving and credit union is going in line with the standard prescribed by the WOCCU model and Gohe cooperatives saving and credit union has efficient credit management to control delinquency and also the union has effective portfolio management which helps to maintain the financial health. The reason behind the delinquent ratio becomes far below the WOCCU benchmark is from the obtained data of Gohe cooperatives saving and credit union there has not been any delinquency revealed so far in the study periods. However, this does not mean that they are free from delinquency. As per to their lending by-laws (procedures) and as the information explored during the focused group discussion with the management boards of Gohe cooperatives saving and credit union, all loans are backed up by collaterals and they can recover if a member fails to pay his loan on time the union will replenish it from the accounts of the Guarantors and they did not maintain any delinquency records. This is not a usual practice to record such type of maladjustment Gohe cooperatives saving and credit union did not write off the loan delinquent instead take the stringent or strict action against defaulters. Similarly, the quality of assets can be measured in term of the proportion of nonearning assets (A2) such as cash, non-interest earning money checking accounts, account receivable, fixed assets, to the total assets of a financial cooperative. Such assets should not exceed 5 percent of total assets of a financial cooperative. But in the case of Gohe cooperatives saving and credit union (Table 5) percent of such assets is in excess to 5 percent of its total assets during the study period. Proportion of nonearning assets has very high in each year during the study period particularly in the year 2000 there is high investment in non-earning assets which influence the profitability of the union. This is because of very large amount of cash is reported on their balance sheet which is one of the non earning assets that is 78% of total non-earning assets in 2000 is cash. If they are financed with net zero cost funds, investment in non-earning assets does not affect the profitability adversely but if Gohe cooperatives saving and credit union finances such assets from its members saving deposits the profitability of the union could be adversely affected. In general, non-earning assets should be financed with zero cost funds. The decrease in net zero cost funds to non-earnings assets ratio (A3) shows deterioration of asset quality and vice versa. It should not come down below 200 percent of total non-earning assets of a
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financial cooperative. In the case of Gohe cooperatives saving and credit union, this ratio is far below this benchmark of the WOCCU proposed standard during the study years. This reflects also the existence of low level of institutional capital of Gohe cooperatives saving and credit union during the study years; and delinquent loans to reserves (A4) measure the adequacy of reserves to cover the delinquent loans shows the union doing its financial activities in delinquency control in line with WOCCUs proposed standard as stated above in A1 and as we can see Table 5, the union is following stringent credit policy and collection procedure has no any problem with delinquent loan over the whole study periods. At the end, Gohe cooperatives saving and credit union has good financial health in its assets quality (loan portfolio) though the union has a problem of too much investment in nonearning assets and inadequacy of institutional capital. Table 6: Financial Structure of Gohe Cooperatives Saving and Credit Union (Years in E.C) Indicators of Financial Structure Proposed 1998 1999 2000 2001 standard 70%-80% 29.47% 91.49% 19.97% 93.16% F1:Net Loan/Total Assets <=16% 42.50% 0.00% 0.00% 0.00% F2:Liquid investments/Total Assets <=2% 0.00% 0.00% 0.00% 0.00% F3:Financial Investments/Total Assets 0.00% 0.00% 0.00% 0.00% F4:Non-Financial Investments/Total Assets 0% 70%-80% 44.29% 24.70% 25.33% 17.15% F5:Saving Deposits/Total Assets 0-5% 0.00% 45.52% 0.00% 60.05% F6:External Credit/Total Assets <=20% 29.65% 17.73% 22.13% 14.11% F7:Member Share Capital/Total Assets >=10% 8.03% 7.09% 8.22% 3.96% F8:Institutional Capital/Total Assets >=10% 8.03% 7.09% 8.22% 3.96% F9:Net Institutional Capital/Total Assets Source: Worked Out From Audit Reports of the Union As stated earlier, the financial structure of saving and credit union is the most important factor in determining growth potential, earnings capacity and overall financial strength of the union. So that unhealthy financial structure hinders the growth, and weakens the earnings capacity and financial strength of saving and credit cooperative unions. It may lead to the verge of liquidation or force the management to run away and cause the management to lose the confidence of member-clients. This part of the indicators focuses on the effective management of sources and uses of funds of the union. Management of use of funds seems unsatisfactory particularly net loans to total assets (F1) on Table 6, of Gohe cooperatives saving and credit union is showing in none of the study years achieved the right balance between net loans outstanding and liquid assets and showing also lack of sustainability during the study period this reflects the problem that Gohe cooperatives saving and credit union couldnt manage loan portfolios as a portion of total assets to keep net loans to total assets in the goal range WOCCUs model proposed which entails the union was not working on business planning and setting targets for expanded lending. Liquid investments to total assets (F2), indicates that signals the effective use of funds within the range fixed by the WOCCU model except the first year of the study period the union shows zero percent liquid investment. (F3) and (F4) indicate that Gohe cooperatives saving and credit union has invested most of its funds in more productive assets, and less in non-earning and less productive assets during the study period. It has minimal level of liquid investment and financial investment, and no non-financial investment during the study period. Majority of the indicators of management of sources of funds show that Gohe cooperatives saving and credit union has managed the sources of funds effectively during the study period. The percentage of total assets financed by member savings deposits were still below the 70 -80% targets (F5) in the study periods. The declining saving deposits to total asset ratios (unhealthy percentage) suggests that members are "saving" in order to borrow money; the union no longer able to offer competitive rates on members saving; the effects of implementing new savings products were yet to be felt which implies also that Gohe cooperatives saving and credit union has no effective marketing
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programs and the union was doing on the wrong way on achieving financial independence during the study periods. External credit to total assets (F6) the target is less than or equals to 5% but the result on table 6, points out Gohe cooperatives saving and credit union is in line with the target only in the study years 1998 and 2000 which entails that the union able to finance its activities from members saving deposit this the low external credit to total assets ratios suggested that the union was not dependent on external funds or borrowings whereas, in the year 1999 and 2001 the union is out of the proposed standards i.e., there is too much reliance on external credit this reflects the union has no effective marketing program to sell its saving products and gained financial independency in the study years 1999 and 2001 indicating lack of sustainable financial operation. The members shares to total assets (F7) the target is to finance 10% - 20% of the assets of the union as we can see from the result Gohe cooperatives saving and credit union was able to finance a sustainable proportion of the union assets though it able to perform in line with the proposed standard only in the year 1999 and 2001 as per WOCCU model suggests the larger portion of the union capital is members share capital which clashes with the new capitalization system, member shares are de-emphasized and replaced with institutional capital. Both (F8) and (F9) are far below the WOCCU benchmark. Institutional capital is the second line of defense to absorb unexpected losses. Institutional capital includes all legal reserves and surplus created either from the accumulation of net income or from capital donation. Low level of institutional capital (F8) implies that Gohe cooperatives saving and credit union has set aside insufficient reserves and retained low level of earning in the financial activities which reveals a downward trend towards dangerously insufficient capital reserves. (F9) is below the WOCCU benchmarks in the consecutive years of the study period. The negative (F9) shows that its institutional capital is not enough even to cover 100 percent of delinquent loan greater than 1 year and 35 percent of delinquent loan from 1 to 12 months. This analysis of institutional capital concludes that second line of defense of Gohe cooperatives saving and credit union was weak during the study period. Table 7: Sign of Growth of Gohe Cooperatives Saving and Credit Union on Its Key Indicators Key indicators Operational Years in E.C 1998 1999 2000 NA 7.96 34.70 G1:Saving Deposits NA 500.94 -71.33 G2:Net Loan NA 93.55 31.39 G3:Total Assets NA 15.77 63.94 G4:Member Share Capital NA 71.01 52.30 G5 Institutional Capital NA 500.4 68 G6:Profit NA 0 11.8 G7:Membership 10.6 15.8 25.3 Inflation (Annualized) Source: Worked Out From Audit &Portfolio Reports of the Union Note: source of inflation rate is NBE. 2001 22.47 744.13 80.91 15.32 -12.83 3 15.8 36.4

The sign of growth trends of Gohe cooperatives saving and credit union in its key indicators are presented on Table 7, in summary form and discussed one by one in the following sections: Although a cooperative does not make profits, profit is not their primary motive; it is reasonable and desirable for it to run up surpluses. Surpluses are created in the cooperative because the world we live in is full of uncertainties. To protect itself against these uncertainties, the cooperative must marginally increase the amount collected to cover its annual expenses and the surplus created as a result will be used to implement the fourth principle of cooperation provision of dividend (division among members based on their participation or transaction in the union). Table 7, indicates profitability growth trends
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of Gohe cooperatives savings and credit union is showing positive growth trends at a decreasing rate. The operating efficiency of the union and its ability to ensure adequate return to its members depends on the profit earned by it. Profitability and sustainability reflects the ability of the union to continue operating and to grow in future. This graph entails Gohe cooperatives saving and credit union is not striving for the sustainability of profit growth trends as we have seen in the result the percentage change in the year 1999 is 500.4% which shows higher change whereas, in the study period of 2000 and 2001 it is showing a decreasing trend this Lowers profitability resulting to diminishing ability to provide for operational costs including staff wages and slow build-up of institutional capital. In general, Gohe cooperatives saving and credit union financial performance in profitability reflects in today's increasingly competitive environment, there is problem of marketing creatively in order to sell the maximum quantity of financial products to members, ineffective management, lack of accountability for adequate margins and lack of strict control over expenditures to maintain sustainable sign of growth trends in profitability during the study period. The capital needed for development and growth of a cooperative can come from three sources: the members themselves, net surpluses generated by the cooperative, external finance such as bank loans. The best source of financing for a cooperative is from members. The more financing members provide, the less the cooperative business will need to borrow from other sources which helps to reduce the costs of borrowing. The result Table 7, the members share capital growth indicates a positive change but there is no sustainability on its growth although member shares capital are de-emphasized under the WOCCU model, Gohe cooperatives saving and credit union does not maintain a dependence on shares for growth but there is a signal of dependence problem on the year 2000 which shows 63.94% growth trend and in the rest of the study period shows the same growth trend. If sing of growth trends in this area are excessive, it usually signals an inability of the Gohe cooperatives saving and credit union to adapt to the new system of promoting deposits over shares. So that as result of the study though it couldnt maintain growth sustainability Gohe cooperatives saving and credit union is in a safe place as to level of members shares. As stated earlier, the WOCCU model, under the new capitalization system, growth on member shares capital are de-emphasized and it should be replaced with institutional capital this due to the fact that this capital never exists if the member leaves the union. In general, Gohe cooperatives saving and credit union shows the sign of quality members shares capital growth trend as per WOCCUs model though in the year 2000 the sign of growth trend of is very high and unable to show sustainability during the study period. Institutional capital growth is the best indicator of profitability within saving and credit unions. A static or declining growth trend in institutional capital usually indicates a problem with earnings. If earnings are low, the saving and credit union will have great difficulty in adding to institutional capital reserves. One of the indisputable signs of success of a robust saving and credit union in transition is a sustained growth of institutional capital, usually greater than the growth of total assets. As we have seen on Table 7, the growth trends of Gohe cooperatives saving and credit union was showing a declining rate in the study years which suggests that Gohe cooperatives saving and credit union is unhealthy in its institutional capital growth. Here except year 2000 the growth trend of institutional capital is lesser than the growth of the total assets in the rest of study periods. Particularly in the year 2001 it indicates negative growth trend which implies the union is not in a position to finance nonearning assets from its institutional capital, unable to improve earnings and absorb losses and sufficient capital is unavailable implies, the Gohe cooperatives saving and credit union is forced to use more expensive deposit savings or member shares to finance its fixed assets requirements and abnormal losses. Since, the only successful way to maintain asset values is through strong, accelerated growth of assets, accompanied by sustained profitability. Growth in total assets is one of the most important ratios. Many of the formulas used in the PEARLS ratios include total assets as the key denominator. Strong, consistent growth in total assets improves many of the PEARLS ratios. By comparing the growth in
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total assets to other key areas, it is possible to detect changes in the balance sheet structure that could have a positive or negative impact on earnings. The ideal goal for all saving and credit unions is to achieve real positive growth (i.e., net growth after subtracting for inflation) each year. The result on the sign of growth trends of total assets of Gohe cooperatives saving and credit union (Table 7), indicates that the union was showing positive trends in total assets growth over the study periods still as stated in the above key indicators the union faces the problem of keeping sustainable growth trends in its total assets also. As to the real growth of the union the WOCCUs model proposed total assets growth rate must be above the inflation rate and Gohe cooperatives saving and credit union performed total assets growth in line with this proposed standard this entails the union was maintaining the real value of the members assets and able protect from the impact of inflation. Loan portfolio is the most important asset of rural saving and credit cooperative unions. Sign of growth in total loan portfolio should keep the same pace of the sign of growth in the total assets. Lower growth rate in loan portfolio relative to the growth in total assets implies the investment of funds in less profitable assets and conversely the higher growth in loan portfolio signals good probability of maintenance of profitability. Table 7, shows the sign of growth trends of Gohe cooperatives saving and credit union in its net loans portfolio is not sustainable. In the year 1999 and 2001 it indicates positive change in percentage i.e., 500.94% and 744.13% respectively whereas, in year 2000 the percentage change is -71.33% which suggests lack of sustainable growth in loan portfolio and even the sign of loan growth trend 1999 and 2001 is not going in the same pace as the sign of total asset growth trend. As stated earlier the loan portfolio is the most important and profitable asset for saving and credit cooperative union, If growth in total loans keeps pace with growth in total assets sustainably, there is a good likelihood that profitability will be maintained in the union. Conversely, if loan growth trends drop faces sustainability problems, this suggests that other less profitable areas are growing more quickly than loan portfolio. In general, as we can see from the result Gohe cooperatives saving and credit union has no the strategy to maintain sustainable growth trends in its loan portfolio in the same pace as total assets growth trends so as to go up the union profitability. Members savings are a source of funds with low financial costs i.e., interest costs, compared to other commercial funds so that rural saving and credit cooperative unions should encourage members to save and strives to attract new members by giving attractive interest and security on their saving. It is often argued that small saving deposits entail high administrative costs that will turn rural saving and credit cooperative unions into an unprofitable business for sustainable growth. Table 7 highlights the sign of growth trends from 1998 to 2001 in the volume of saving deposits in Gohe cooperatives saving and credit union. The fact that the total saving deposits grew by 7.96% in 1999; by 34.7% in the year 2000; and by 22.47% in the year 2001 Though, in the first two years the union able to show fast sign of growth trends Gohe cooperatives saving and credit union couldnt sustain this growth trends in the year 2001 and declining percentage trends implies that Gohe cooperatives saving and credit union has not been successful in both attracting new savers by giving attractive interest rate on their saving, delivering modernize services, making the union more competitive and in convincing existing members to increase their savings levels in the union which helps to finance members lending demand from savings deposit from the union itself. One of the essential tenants of saving and credit union philosophy is that saving and credit unions should offer access to quality financial services to as many members as possible; due to the fact that one of the key indicators of growth of RUSACCOs union is the number of member primary cooperatives in the union. Membership growth of the RUSACCOs union is measured by number of the primary cooperatives under the union over its operational years. Gohe cooperatives saving and credit union has 17 primary cooperatives in the study years 1998 and 1999; 19 and 22 in the study year 2000 and 2001 respectively in number. Table 7, indicates the percentage sign of growth trends of the primary cooperatives in the union which shows sustainable growth in membership of primary cooperatives. Here the percentage sign of growth proposed by WOCCUs model is minimum 5% and
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Gohe cooperatives saving and credit union was showing membership growth in line with the proposed standard as well as showing sustainable growth trends to expand its outreach to rural areas that are unattractive to commercial banks which helps to provide access to members of the population who would not normally save in the formal sector, nor be able to physically access a traditional financial institution, especially commercial, due to locality and deposit restrictions. 1.6.1 RESULTS FROM DESCRIPTIVE STATISTICS ANALYSIS The efficiency of saving mobilization strategies and the value of loan services of rural saving and Credit cooperative unions could be clearly assessed on a variety of competitive savings and credit products offered that will meet the needs of their members. In view of low income and high risks in the rural areas, effective provision of these services serves important goals of accelerated growth, poverty alleviation and reduced exposure to vulnerability. In this section of the study the efficiency of saving mobilization strategy and the value of loan services of Gohe cooperatives saving and credit union was assessed from survey data, and validated by information explored from interview, and focus group discussion.

As it can be seen from graph No.1, the profile of respondents by cooperative type in the union from the total general assembly member respondents 42%, 37%, and 5% of the respondents are male respondents from Multipurpose, RUSACCOs, and Irrigation primary cooperatives respectively; 8% of female respondents from multipurpose and 8% of female respondents from RUSACCOs primary cooperatives were exists and none of the respondents were female from irrigation primary cooperatives that suggests there is gender gap either in the voting of females members in the general assembly representatives or there is less females participation in the rural SACCOs membership. 1.6.1.1. SAVING MOBILIZATION STRATEGIES OF GOHE COOPERATIVES SAVING AND CREDIT UNION This part of the study analyzed and presented on Gohe cooperatives saving and credit unions savings mobilization strategies efficiency outcomes of members attitude, perceptions and opinion on the salient features that members give more value on their savings i.e., security, returns on saving deposits, professional image on member services, diversification of services and members awareness creation on saving mobilization strategies from a rural saving and credit cooperative union financial performance perspective. In the survey general assembly members of Gohe cooperatives saving and credit union were asked why they have saved in Gohe cooperatives saving and credit union. As shown in Table 8 below, majority of the respondents are motivated by the safety of depositing their money in saving account (53%) as well as ease of access to credit once one becomes a member (25%). To get interest income is the third most important reason (14.4%) and for emergency use is the least reason as
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responded by (7.6%) of the members. This indicates members in Gohe cooperatives saving and credit union more value their saving security, secondly access to credit to get loan and thirdly return on their savings. Table 8, Reasons of Respondents on Having Saving Account in the union Reasons of Respondents on Having Saving Account in Gohe Frequency Percent Cooperatives Saving and Credit Union 70 53 Security 10 7.6 Emergency Use 19 14.4 To Get Interest Income 33 25 Ease of Loan Access 132 100 Total Source: Worked out from 2002 E. C. Members Survey Data The WOCCU saving mobilization strategy technical guide states1, which Savers Most Value Safety Savers most frequently report that the key feature they seek is safety for their savings. They want to feel confident that their deposits will be available when they need them. 1.6.1.2 LOAN SERVICE STRATEGIES OF GOHE COOPERATIVES SAVING AND CREDIT UNION. On this section of the study the researcher assessed members attitude, opinion and knowledge results on the value of loan services effectiveness of the union on loan repayment capacity analysis, credit policy, interest rate charged on loan, weakness in the union, loan evaluation processes, quality of the unions loan services and the overall appropriateness of financial services of Gohe cooperatives saving and credit union; and discussed the outcomes of the study. WOCCU states1 effective credit screening practices improve asset quality and protect client savings. Credit risk is measured most accurately when loans are approved and processed on the basis of the five Cs: character, capital, capacity, collateral, and conditions. Rural saving and credit cooperative unions have managed to mitigate loan repayment risks in their loan portfolios while engaging in rural micro-credit. Given the fluidity of funds between the household and the union, best practice in individual lending is for lenders to evaluate the risk not of a single activity listed by the borrower on the loan application but rather of all the diverse cash flows of all household members. To cope with the heterogeneity, seasonality, and the risk of agriculture, the best rural micro lenders tailor loans to the production cycles of each borrower and check that the household can repay with non-farm income even if crops fail or if livestock die. Through time and repeated contact, loan officers grow to know the character and cash flows of borrowers and so can judge their risk better. In the survey members of Gohe cooperatives saving and credit union asked on their knowledge that the Gohe cooperatives saving and credit union followed on loan evaluation to determine quality credit. The rural saving and credit cooperative unions main asset is the loan portfolio that occupies the largest proportion in total assets of saving and credit unions. The largest source of risk of any saving and credit cooperative union resides in its loan portfolio which largely depends on the quality of loan portfolio. The gravest danger to this asset is the delinquency. The higher delinquency ratio implies more severity in the financial condition and presence of higher risk to the member-client savings. To overcome the occurrence of this danger Gohe cooperative saving and credit union used the lending methodology that relies in part on the existing bonds of the farmer groups and follows stringent credit policy. The collateral for loan is savings, while additional guarantors are required to secure the remaining value of loans such as group guarantee. The collateralized savings cannot be withdrawn until the completion of loan repayment. This is likely to encourage low income members into a habit to save and of cash management, in addition to acting as a safety net. Loans are disbursed to needy members according to the given loan Criterias which are stated in the by-laws of the union. The union
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provides loans to their members mainly for purchase of agricultural inputs (seeds, fertilizer, tools, etc), animal fattening, animal rearing, and off-farm activities such as loan for marketing and warehousing activities; While practicing group lending the union taken into account the business plan, the audit report of the cooperatives, and the requirement of loan and articles of agreement on the loan requirement of primary cooperatives. In addition, Gohe cooperatives saving and credit union to maintain loan security and to avoid delinquency considered whether the loan requested goes in line with their plan, giving training on accounting, and the union check if the loan requested is for purchase of cereals the union first checks whether there is cereals or not in that area. Sometimes the loan utilization problem under primary cooperative levels they used the loan on cereals acquisition and when they are requested they couldnt pay on time which creates difficulty of making regular financial audit report. The union maintained general reserve, work appreciation reserve and social reserve as per its by-law, though, it was not practicing Provisions for loan losses one of WOCCUs safety principles which is the first line of defense to protect savings against identified risk of losses to the saving and credit union. Due to the fact that Gohe cooperatives saving and credit union has regulatory standards followed a more stringent policy on loan loss provisioning. As per their service diversification and awareness creation Gohe cooperatives saving and credit union was providing loan for marketing and warehousing activities as diversified services though, the union unable perform as expected on awareness creation due to the existence of budget limitation. The loan services of Gohe cooperatives saving and credit union faces many challenges in Bure woreda, however, it strives to provide financial intermediation by resisting these problems. Low population density of the rural members creates high transactions costs; limited technological advancement; poor infrastructure; difficulties in assessing the creditworthiness of a member and the limited possibility to ask for collateral add to the high transaction costs. Though the union able to avoid loan delinquency and the problem of getting collateral from the rural poor members the union overcome these problems by using group guarantee and granting loan based on their demand deposits they have in the union. The Loan demand is very high and incompatible compared with the availability of loan able funds that is the union couldnt met the primary cooperatives needs which constrained the loan out reach of the union. Loan able funds are in short supply for the following main reasons: small size of saving accounts of RUSACCOs members of the union due to the incidence of high rural poverty; poor saving habits of members; small membership size of RUSACCOs; lack of vertical and horizontal linkages among cooperatives and funding other institutions the union was not even in a position to mobilize surplus funds; Poor linkages with banking and other financial Institutions like Insurance; negligible external revolving fund to the union; rural and agricultural credit (food security revolving fund) are directed and managed by multi-purpose cooperatives; Low net surplus generated and retained within the union due to small-scale operations. Similarly, Lack of entrepreneurial skills or know how to utilize the available fund even. Hence, the loan types are limited and similar in usage ; they lack diversity and peculiarity in character the interviewee integrated this problem with the Zonal level professionals they stated the professionals have no the required skills in financial management and even they couldnt render technical assistance on financial management semi-annually which mean that looseness of the zonal promotion Bureau on assigning qualified technical assistance for the sustainable financial intermediation of the union in the area. 1.7 CONCLUSIONS Ethiopias Agriculture Development led industrialization strategy has the basic objective of reducing rural poverty, increasing agricultural production and productivity in rural Ethiopia. To meet these objectives, rural financial service has its own tremendous role these services are rendered by the rural saving and credit cooperatives. Rural financial cooperatives are user-owned financial intermediaries and significant providers of financial services in rural areas which required sound financial
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management; Gohe cooperatives saving and credit union is the rural saving and credit union found in West Gojam Zone Bure Woreda which provides rural financial intermediation service in that area. The financial health on the liquidity position of the union indicated that unhealthy condition according to WOCCU proposed standards Gohe cooperatives saving and credit union may fail to satisfy the deposit withdrawal request due to the fact that the union has no any liquid reserve funds to come across such request; deteriorating liquidity position provide members with unsafe place to deposit their money. Earnings and costs allocation position pointed out the loan yield is not enough to cover the entrepreneurial return particularly in the year 2001 not able to generate sufficient profit to maintain a strong capital position in the study year 2001 which maintain the institutional capital at least 10 percent and pay the returns on member share capital. In other words, its earning is not sufficient to make the second line of defense against non-performing assets and pay attractive dividend on member share capital; inconsistency in the earning and institutional capital building capacity of Gohe cooperatives saving and credit union during the study years. Gohe cooperatives saving and credit union is not managing the expenses as per the proposed standard of excellence. Solvency or protection of Gohe cooperatives saving and credit union for delinquent loan greater than 12 months and 1-12 months there is 100% protection of delinquent loans outstanding that enables the union is showing in a safe status on protection in the study period and the solvency position also comply with the WOCCU model in the whole of the study years. However, Gohe cooperatives saving and credit union has not followed the specified policy for loan loss provision, bad debt written of, and no delinquency report due to the fact that the credit policy followed in the union is stringent and they make loan recovery for any loan delinquent from the balance of defaulters or from the accounts of guarantors which enables to have hundred percent solvency or protection to cover the possible loan losses from doubtful loans. In a nut shell, the union is showing in a safe status on solvency and protection position in the study period. Capital adequacy of Gohe cooperatives saving and credit union signified the union was not able to maintain adequate capital in line with the proposed standard to protect the interest of members, depositors, creditors, and the stakeholders that ensures solvency of the union also in the study periods. Inadequacy Capital base indicated the union was not in a position to overcome unexpected and expected losses yet, it was not able to maintain any loan loss reserve in the whole study years that is the union could not provide members with a safe place to deposit their money. The financial health on the asset quality position pointed out the Percentages of delinquent loan ratio of Gohe cooperatives saving and credit union complied with the proposed standards that the union has good financial health in its assets quality particularly in its delinquency control though non-earning assets are greater than the standard set by the WOCCU model and percent of net zero cost funds is less than the set benchmark. All these suggest that quality of assets of Gohe cooperatives saving and credit union is in line with the standard on its delinquency ratios and is not up to the standard as set by the WOCCU model on its non-earning assets and net zero cost funds. Financial structure Gohe cooperatives saving and credit union has invested most of its funds in more productive assets and less in non-earning and less productive assets, and managed the sources of funds effectively from saving deposits. But the union no longer able to offer competitive rates on members saving to encourage members saving which enables the union to finance loan requested from members saving this total assets financed from members saving showed in none of the study periods agree with the WOCCUs model and it has a weak institutional capital base as a second line of defense against non-performing assets.

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Sign of growth trends of key indicators of Gohe cooperatives saving and union indicated the highly fluctuating sign of growth trends which imply that Gohe cooperatives saving and credit union does not have sound strategy for sustainable growth in its financial service activities. But the signs of growth of membership show sustainable growth that it has achieved desirable growth trends during the study period. Gohe cooperatives saving and credit union control committee and management boards also follows stringent credit policy to avoid loan delinquency. As to the overall appropriateness of financial intermediation Gohe cooperatives saving and credit union financial service is considered necessary and accepted by the great majority of the members in the union. REFERENCES: Associates in Integrated Development (AFRICA) Limited (2007). Refresher Course for RUSACCO Union Managers in Ethiopia. Addis Ababa: AEMFI. Association of Ethiopian microfinance institutions (AEMFI) (2008): Financial ratio analysis and interest rate setting for saving and credit cooperatives. Addis Ababa: AEMFI. Berhane, K. (2008). The status of RUSACCOs in Ethiopia Report. Work shop held on22-24 July 2008, Addis Ababa: http://www.afraca.org/puplications.RUSACCOs.doc. (Accessed on October.5/2009) Branch Brian and Christopher Baker. (2000). Overcoming Credit Union Governance Problems. in Safe Money, edited by Glenn Westley and Brian Branch. Washington, D.C.: Inter-American Development Bank. http://www.WOCCU.org. (Accessed on September, 29/2009). Bureau of Finance and Economic Development (BoFED) (2009). Baseline Data and Report. Bahir Dar: unpublished. Consultative Group to Assist the Poorest (CGAP) (2005). Working with saving and credit cooperatives. Washington DC: CGAP. http: //www.saccol.org.za/saccos.htm. (Accessed on September, 29/2009). Christen R., E. Rhyne, R. Vogel, and C. McKean. (1995). Maximizing the Outreach of Microenterprise finance an Analysis of Successful Microfinance Programs, USAID Program and Operations Assessment Report No. 10, Washington DC: USAID. Cobia, D. W. 1989. Cooperatives in Agriculture. Prentice Hall, Englewood Cliffs, New Jersey. Central Statistical Agency (CSA) (2007). Statistical base line report. Addis Ababa: Ethiopia. Elser, L., Hannig, A., Wisniwski,S.E. (1999).Comparative Analysis of Savings Mobilization Strategies. Washington D.C: CGAP Food and Agricultural Organization (FAO) (2001). Safeguarding deposits: Learning from experience. Rome. Agricultural service bulletin 116. International Fund for Agricultural Development (IFAD) (2001). Report and Recommendation of the President to the Executive Board on a proposed Loan to the Federal Kalifa, A. (2006). The experience of Oromia credit and saving Share Company in growth management. Addis Ababa, Ethiopia paper published on AEMFI proceedings of the bi-annual conference of microfinance development in Ethiopia, Mekelle, Tigray. Krishnaswami, O. R., Kulandiswamy, V. (2000). Cooperation concept and theory. India: Arudra Academy. Schmidt, R.H. C.P. Zeitinger. (1996). Prospects, Problems and Potential of Credit-Granting NGOs, in: Journal of International Development 8 (2), pp. 241-258.

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Significance of asset quality of State Co-operative Banks in India and impact of Non-Performing Asset on the liquidity, solvency and profitability
Tarasankar Das, Fakirchand College, University Of Calcutta, West Bengal, India Abstract The State Co-operative bank (StCBs) is the leader of the co-operatives in a state and acts as a supervisory body at the top and arranges to spread the co-operative movement. Asset quality is an important aspect of the evaluation of banks. Position and growth of different kinds of assets of StCBs of India from 2002-03 to 2010-11 are assessed in the present study. The study found that Compound annual growth rate (CAGR) of sub-standard assets, doubtful assets, loss assets and gross NPAs are 8.74%, 0.29%, 21.28% and -1.21% respectively. Multiple regression analysis is employed to assess the impact of asset quality on the profitability, liquidity and solvency of StCBs in India. The study observes that profitability of the banks is negatively associated with independent variables. Whereas the liquidity and solvency are positively associated with the independent variables under this study. The study suggests for maintaining the proper provisions for loss assets and improving the recovery performance in order to survive in the competition. Keywords: Asset quality, Liquidity, Non-performing assets (NPAs), profitability, Solvency. INTRODUCTION Banks play a pivotal role in building and developing the every economy. The present banking scenario in India is witnessing sea changes. The business of banking revolves around optimum mobilization and application of funds. Co-operative banks are the most important source of rural financing and hold the significant position in the Indian banking system. The structure of short-term co-operative sector comprises of State Co-operative Banks (StCBs) at the apex level (state), District Central Co-operative Banks (DccBs) at the intermediate level and Primary Agricultural Credit Societies (PACS) operating at grass roots level. Similarly, long term co-operatives are the State Co-operative Agriculture and Rural Development Banks (SCARDBs) at the state level and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs) operating at district/block level. The State Co-operative bank is the leader of the co-operatives in a state and acts as a supervisory body at the top and arranges to spread the co-operative movement. State Co-operative banks (StCBs) in India over the years grown substantially in terms of coverage and outreach, and at end-march 2011, number stood at 31. Asset quality is an important aspect of the evaluation of banks. Composition of the loan portfolio affects the asset quality of the banks. It is an important parameter to evaluate the strength of the bank. The asset quality indicates the type of loans and advances issued by the banks. The prudential norms of income recognition and asset classification were implemented for co-operative banks in India in 1996-97 (RBI circular no RPCD.Be 155/07.37.02/95-96 dated 22 June 1996) in order to strengthen them and improve their performance. It will be pertinent to mention the views of the committee on the financial system, 1991 popularly known as Narasimhom Committee 1. The committee believes that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of the banking system. A proper asset classification will however, have to precede this exercise. The primary objective behind measuring the asset quality is to ascertain the quality of the assets and to know the nature and types of non-performing assets (NPAs). In the present study it has been tried to assess the asset quality of the State Co-operative Banks in India and impact of NPAs on the operational efficiency from the year 2002-03 to 2010-11. The present study has been divided into seven sections. First section covers the brief idea about nonperforming asset. Asset classification and provisioning of loans covered in the second section. In
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section three brief review of literature are discussed. Objectives of the study are covered in section four. In section five methodology and data are discussed. Section six covers empirical results and in the section seven conclusion and suggestions are made. 1. Brief idea of Non-performing asset. A non-performing asset is defined as credit facility in respect of which interest or instalment of principal is past due for two quarters. In respect of advances for agricultural purposes, if interest has not been paid during the last two seasons of harvest (covering two half years), after it has become past due then such advance should be treated as NPA. However, international rating agencies like Standard and Poor are of the view that the asset quality in the Indian banking system is far below. According to them Indian banking practices are not up to the international mark as laid down by Basle Norms which considers an account as NPA if principal or interest is not paid for a quarter. In order to comply with the international benchmark and ensure more transparency, it has been decided to adopt the 90 days overdue norms for identification of NPAs from the year ending 31.03.04. 2. Asset classification and provisioning norms. I. Asset classification. According to the prudential norms the classification of assets has to be done on the basis of objective criteria which would ensure a uniform and consistent application of norms. Assets are classified into the following four heads: a) Standard Assets:The assets which does not disclose any problem and which does not carry more than normal risk attached to business. Thus in general all the current loans which have not become NPA may be treated as standard assets. b) Sub-standard Assets:Loans in which either interest or instalments are overdue for more than 90 days to 36 months are classified as sub-standard assets. c) Doubtful Assets:If the loan is overdue for beyond a period of 36 months, it is classified as doubtful assets. The doubtful assets itself is further subdivided into three categories:i) Doubtful Assets I if it is overdue for a period of 36 to 48 months. ii) Doubtful Assets II if it is overdue for a period of 49 to 72 months. iii) Doubtful Assets III if it is overdue for a period more than 72 months. d) Loss assets:The last category is the loss assets which are loans accounts identified by the banks or its auditors or supervisors (RBI/NABARD) as irrecoverable for any reason. In this case, loan is considered as NPA only if it is overdue for two crop seasons and the 90 days norms is not applicable. II. Provisioning norms The prudential norms also cover the provisioning for bad loans in respect of different kinds of assets. The details of provisioning requirements in respect of the different kinds of assets stated above are explained below:i) ii) Standard Assets: - 0.25% of all outstanding standard loan assets to provide cover for any normal business losses that may arise in future. Sub-Standard Assets: - 10% of the outstanding loan amount has to be provided towards anticipated losses.
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iii)

iv)

Doubtful Assets:a) Doubtful assets I20% of the outstanding amount. b) Doubtful assets II30% of the outstanding amount. c) Doubtful assets III60% of the outstanding amount. The provisions had been increased to 100% by 31st march 2010 for 3rd category of doubtful assets. Loss Assets:The entire loss assets should be written of. 100% of such loans shall have to be provided for certain relaxations, however, have been allowed for loans for agricultural purposes.

3. Review of literature. In the past some studies relating to financial performance of commercial banks and cooperative banks in India and abroad have been conducted. A brief review of these efforts at research in the field of liquidity, solvency, growths, profitability and non-performing assets of banks has been presented in the following paragraphs. Mehta Basant (1994), attempts to measure the Performance of Udaipur Central Co-operative Bank (UCCB .The survey clearly indicates that cent percent beneficiaries were not repaying regularly the installments of their loans and only 20 % beneficiaries repay their half or more than half amount of loans, so it was suggested that UCCB should organize recovery camps and the District administration should take suitable actions without delay. Kulwantsing and Singh (1998) measured the performance of the Himachal Pradesh Cooperative Banks. On the basis of certain parameters such as capital, deposits, working capital, loans issued they observed that improvement is satisfactory over a period of five years. But recovery performance was unsatisfactory and over dues had increased steadily. This was due to after effects of loan waiver scheme. Shekhar et al (1999) measured the performance of Karimnagar District Central Co-operative Bank in Andhra Pradesh, India by the financial ratio analysis. With the help of financial ratios solvency, liquidity, profitability, efficiency and strength of the banks were analysed for the period 1985-86 to 1994-95. Sharma.K.C, Josh.J.C, Kumar Sanjay, AmalorpaVanathan. R, Bhaskaran.R (2001) analyse the conceptual aspects of overdues, recovery and prudential norms of rural financial institutions (RFI). They also studied about the factors affecting recovery of loans in RFI. In this paper they also suggest methods and strategies for better recovery and NPA management in RFI. Michael. Justin Nelson, Vasanthi. G and Selvaraju. R. (2006), analyse the effect of nonperforming assets on operational efficiency of Central Co-operative Banks. The study argued that quantum increase in various classes of NPAs- substandard, doubtful and loss assets deplete asset quality of the banks. As a result not only liquidity and profitability decline but also solvency of the banks is at stake. They concluded that only prompt, preventive and curative measures of credit monitoring can curb the menace of NPAs. Bhardwaj. R, Priyanka, RahejaRekha (2011), analysed the role of co-operative banks in agricultural credit in India from 2001-02 to 2006-07 with the help of AGGR. The study reveals that AGGR of agricultural credit by co-operative banks always less as comparison to AGGR of all India institutional agricultural credit during the period under consideration and the level of NPAs in cooperative banking system is very high as compare to other financial institutions. They suggest that cooperative banks in India should control their NPAs level for surviving in credit market of India in future. Dharmendran. A (2011), assesses the position and growth of nonperforming assets (NPAs), in DCCBs in India for the eight years from 2001 to 2008. In his study he analysed that the accumulation of NPAs has been detrimental to the financial health of the banks. The banks have faced the additional burden by creating more provision for management of NPAs. He concluded that there was a need for
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effective recovery management, particularly of short-term loans and stringent measures must be taken to control and prevent NPAs. Veerakumar.K (2012), analyses the priority sector advances by the public, private and foreign banks in India group-wise, target achieved by them and comparative study on priority and non-priority sector NPAs over the period of 10 years between 2001-02 to 2010-11. He concluded that non-recovery of credit in time and lower recovery of NPAs are the major reasons of mounting NPAs of Schedule commercial banks. Shyamala. A (2012), attempts to measure the impact of NPAs on profitability of SBI group, Nationalised banks group and private banks group in India from 2000-2001 to 2009-10.The study concluded that introduction of prudential norms has improve the performance of the banks and accordingly resulted into orderly down of NPAs as well as enhancement in the financial strength of the Indian banking structure. Chisti, Khalid Asraf (2012), assess the effect of loan quality on performance of the private banks in India during the period 2006-07 to 2010-11. Operating performance of the sample banks is estimated with the help of financial ratios. Multiple regression has been employed and result showed that a bad asset ratio is negatively associated with banking operating performance. Siraj. K. K and Pillai. P Sundaram (2012), attempt to analyse whether the Indian banking sector is able to manage the NPAs during post-millennium period or not. The study includes NPAs from bank- group wise that provide understanding on management of NPA by different bank groups. They concluded that even though the NPAs indicators showed recovery of NPA during first half of last decade, it remained challenging in the second half of the period. Dharmendran. A (2012), seeks to examine the position and growth of NPAs of the State Cooperative Banks of India from 2000-01 to 2007-08. The study found that gross and net NPAs are relatively high during the study period. He suggested about the additional provision for various categories of assets. 4. Objective of the study. Attempts have been made to assess the asset quality of StCBs of India and the impact of NPAs in operational efficiency during the period 2002-03 to 2010-11. The specific objectives of the study are: a) To assess the position and growth of different kinds of asset of StCBs of India from 2002-03 to 2010-11. b) To examine the asset quality of the StCBs in India from 2002-03 to 2010-11. c) To analyse the impact of NPAs on profitability, liquidity and solvency position of the StCBs in India from 2002-03 to 2010-11. 5. Methodology and data. NPAs should be considered against the loans and advances issued by the banks, cause the NPAs primarily arise. According to the prudential norms banks have to consider provisions when there is a question of NPAs. When the provisions are adjusted against the gross NPAs it gives rise to the net NPAs. The following ratios are adopted to measure the asset quality of the StCBs in India from 200203 to 2010-11. a) Gross NPAs to Gross Advances. (GNGA) b) Net NPAs to Net Advances. (NNNA). c) Total Investment to Total Assets (TITA). d) Net NPAs to Total Assets (NNTA). e) Gross NPA Coverage ratio Multiple regressions have been employed to measure the degree of impact of asset quality on profitability, liquidity and solvency of the banks under study. Mean of profitability ratios, liquidity
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ratios and solvency ratios are taken as dependent variable and various ratios used to measure the asset quality have been taken as independent variable. In the present study the ratios taken to measure the profitability, liquidity and solvency are stated below: I) For profitability a) Spread to total Asset. b) Return on Asset. c) Interest income to total income. d) Non-interest income to total income. e) Profit margin ratio (Net profit/ Total income). f) Burden to Total Asset. The equation of multiple regression used in this study are Profitability = + 1GNGA + 2 NNNA+ 3 TITA +4 NNTA+ II) For liquidity a) Liquid asset to total deposit. b) Liquid asset to total asset. c) Deposit to total asset d) Loan to total deposit The equation of multiple regression used in this study are Liquidity = + 1GNGA + 2 NNNA+ 3 TITA +4 NNTA+ III) For solvency a) Investment to deposit b) Credit Deposit ratio c) Spread to total assets d) Net worth to total assets. e) Borrowing to Working fund. The equation of multiple regression used in this study are Solvency = + 1GNGA + 2 NNNA+ 3 TITA +4 NNTA+ For the purpose of the study, the secondary data for 9 years from 2002-03 to 2010-11 are used. The secondary data has been collected from the data bases of Reserve Bank of India (RBI) and National Bank for Agricultural and Rural Development (NABARD). The trend and growth of the variables taken for study are addressed by using CAGR (Compound Annual Growth Rate). In order to analyse and interpret the data in this study SPSS software have been used. 6. Empirical results. Asset quality of the State co-operative banks in India is shown in the table 1. The aggregate NPAs of the State Co-operative Bank in India in 2002-03 are Rs. 6284 crore consisting of Rs 3535 crores in sub-standard category, Rs 2443 crores in doubtful category and the remaining Rs 306 crore in loss category. The overall NPAs of State Co-operative Banks (StCBs) declined in the year 2004-05 although the share of loss assets is the alarming. NPAs of the StCBs in India varied widely across the states /UTs at end march 2005. In some states such as Haryana and Punjab, NPAs are less than 3%, while in some other states (Arunachal Pradesh, Assam, Manipur and Nagaland) NPAs are more than 50%. Only in nine out of 31StCBs in India NPA ratio is less than 10%.

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Asset quality of the State Co-operative banks in India from 2002-03 to 2010-11 (Rs.in crores) Table-1 Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 CAGR(%) Sub-standard Asset 3535 3288 2961 2763 2957 2779 1627 1332 1700 -8.74 Doubtful Asset 2443 3010 1975 2292 2625 2652 3822 2219 2500 0.29 Loss Asset 306 250 1136 1680 1122 737 276 802 1500 21.98 Gross NPAs 6284 6548 6072 6735 6704 6168 5725 4353 5700 -1.21 Provision for NPAs 5690 3608 2982 3558 3200 3000 3310 4438 3997 -4.32 Net NPAs 594 2940 3090 3177 3504 3168 2415 -85 1703 14.07

Ratios for measurement of Asset quality of the State cooperative bank of India from 2002-03 to 2010-11 Table -2 Year Gross NPAs/ Gross Advances 16 15.28 13.98 13.81 12.4 11.01 10.57 8.06 8.2 12.14 2.89 23.8 -8.02 Net NPAs/ Net Advances 1.67 7.2 7.64 6.59 6.88 5.99 4.75 -0.17 2.62 4.79 2.78 58.03 5.79 Total Investment/ Net NPAs/ Total Assets 0.97 4.01 4.3 3.66 4.08 3.35 2.23 -0.07 1.32 2.65 1.59 60 3.93 Gross NPA coverage ratio 90.54 55.1 49.11 52.83 47.73 48.64 57.81 101.95 70.12 63.75 19.83 31.1 -3.14

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 AM SD CV CAGR(%)

Total Assets 29.74 34.06 32.43 36.21 28.14 33.2 43.07 45.02 38.55 35.6 5.72 16.06 3.3

The overall NPAs of StCBs have increased during 2005-06 in contrast to decline witnessed during previous year. Substantial asset slippage continued during the year with a decline in the sub-standard assets and increase in doubtful and loss assets. NPAs of StCBs varied widely across the states at end march 2006 also. During 2006-07, the NPAs of StCBs declined in both absolute and percentage term. The improvement in asset quality is also discernible from the decline in loss assets and partly due to migration from lower categories. Thus there is an increase in the sub-standard and doubtful assets categories. In the year 2006-07 it is observed that only 11 out of 31 StCBs the NPA ratio are less than 10%. During 2007-08 NPAs of StCBs posted a decline in absolute terms of the various categories of NPAs. Out of the various categories of NPAs Sub-standard and Doubtful assets each constitutes over 40% of the total NPAs of StCBs at end march 2008. There is a fall in terms of both growth and share of loss assets between 2007 and 2008. There is considerable variation in the asset quality of StCBs across states. While on the other hand, StCBs from the northern region had the lowest NPA
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Ratio of around 3% during 2007-08, the StCBs from the north eastern region had as high as 40% of their total loan assets classified as non-performing in nature. The asset quality of StCBs improved as at end march 2009 over the previous year. Category wise details of non-performing loans showed that highest decline observed are in the loss category. Similarly, sub-standard assets also witnessed a decline during 2008-09 over the previous year bringing down its share in total non-performing loans in 2008-09 as compared with the previous year. The asset quality of StCBs improved as at end march 2010 over the previous year with their NPAs declining both in absolute as well as percentage terms. From the table 1 it may be seen that the decline in NPAs are mainly due to decline in sub-standard and doubtful assets while there are steep increase in loss assets in 2009-10 as compared to previous year. There is deterioration in the NPAs position of StCBs in 2010-11. The high growth in NPAs in 2010-11 emanated from sub-standard assets, since the growth in doubtful assets showed a slight moderation over the previous year. From the table 1, it may be observed that CAGR of sub-standard assets, doubtful assets, loan assets and gross NPA are -8.74%, 0.29%, 21.28% and -1.21% respectively. It may be seen from the table 1 that provision for NPAs come down from Rs.5690 crore in 2002-03 to Rs. 3997 crore in 2010-11 growing at the rate of -4.32% p.a. Due to this reason net NPAs of the StCBs in India during the period of study went up from Rs.594 crore in 2002-03 to Rs.1703 crore in 2010-11 growing at the rate of 14.07% p.a. Gross NPAs to Gross Advances It is a measure of the quality of assets in a situation, where the bank has not provided any provision on NPAs. In that case gross NPAs are measured as a percentage of gross advances. A lower ratio indicates the better quality of advances. The ratio of gross NPAs to gross advances of the state cooperative banks in India from 2002-03 to 2010-11 are presented in the table 2. It is observed from the table that this ratio declines from 16% to 8.2% during the study period. The lower this ratio the better it is. The CAGR of this ratio during the study period are -8.02%. The average of this ratio for the study period is 12.14%. with co-efficient of variation 23.8%. Declining trend of this ratio clearly indicates that management of the StCBs in India is much conscious about the NPAs. Net NPA to Net Advances This ratio is the most standard measure of asset quality. Net NPAs are calculated by deducting net of provisions on non-performing assets and interest in suspense account from gross NPAs. It may be observed from the table 2 that this ratio fluctuated between 1.67% in 2002-03 and 2.62% in 2010-11. The average of this ratio during the study period stood at 4.79%. This ratio is showing the decreasing trend during the study period although the CAGR of this ratio is 5.79%. CV of this ratio during the study period is 58.03% which indicates existence of high fluctuation in this ratio at that time. Total Investment to Total Asset This ratio measures the proportion of total assets involved in investments. This ratio indicates the aggressiveness of banks in investing rather than lending. A higher ratio represents that the bank has maintained a high cushion of investments as a safeguard against NPAs by adopting a conservative policy. A high level of investment means lack of credit off-take in economy. It also affects the profitability of the banks adversely. It is observed from the table 2 that this ratio fluctuated between 29.74% in 2002-03 to 38.55% in 2010-11. The banks are witnessing increasing trend which means bank have conservatively kept a moderate cushion of investment to guard against NPAs. The average of this ratio during study period is 38.55% with CV 16.06%. CAGR of this ratio during the study period is 3.3%. Net NPAs to Total Assets This ratio indicates the efficiency of the bank in assessing credit risk and to an extent recovering the debts. Lower ratio indicates the better performance of banks. An analysis of this ratio reveals that the ratio varied between 0.97% in 2002-03 and 1.32% in 2010-11. The average of this ratio is worked out at 2.65% over the period of study. The analysis of CV (60%) shows that banks have widely fluctuated in this ratio during the period of study. CAGR of this ratio during the period of study is 3.93%.
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Gross NPA coverage ratio Provision for NPAs to gross advances is intimately connected with the prudential norms which are also known as Gross NPA Coverage ratio. It may be seen from the table 2 that this ratio varied between 90.54% in 2002-03 to 70.12% in 2010-11. It is also observed that provision for NPAs are decreasing during the period of study. The average of this ratio during the study period stood at 63.75% with CV 31.1%. As the provision against NPAs are growing @-3.14% p.a. the net NPA went up from Rs.594 crore in 2002-03 to Rs.1703 crore in 2010-11 grown @ 14.07%. As a result net NPA to net Advances ratios are grown @5.79%. The performance of the co-operative banks is reflected by their operational efficiency. Operational efficiency of the banks is affected by the volume of NPA in the loan portfolio, which in turns influences profitability, liquidity and solvency position of the co-operative banks in India, Impact of NPAs on profitability The prudential norms mainly cover the following four major aspects: Capital adequacy, income recognition, asset classification and provisioning. After the introduction of prudential norms profitability of the banks are adversely affected by the NPAs in two ways. First there is a loss of interest income to the extent of interest accrued on NPAs as income recognition is limited to only standard assets. Secondly, the bank has to maintain the loan loss provisions for NPAs from the operating profit. Continuous decline in profitability due to increase in NPAs would ultimately affects the viability of the bank. Results of determinants of Profitability of State Co-operative Bank of India Table-3 Variables Constant GNGA NNNA TITA R =0.594 Unstandardised co- efficient 23.245 -0.182 -0.010 -0.062 2 R = 0.353 SE t Significance Tolerance 3.236 7.197 0.001 0.115 -1.582 0.175 0.479 0.099 -0.096 0.092 0.703 0.059 -1.046 0.343 0.468 Adjusted Std. error of estimate-0.65240 R2= -0.036 VIF 2.086 1.423 2.138 F=0.908

Durbin-Watson- 2.111 *Significant at 1% level of significance The strengths of the relationship between the dependent variable profitability and all the independent variables taken together considered in this study and the impact of the independent variables on the profitability are shown in the table 3 after considering regression analysis under enter method. It is observed from the table 3 that an increase in gross NPA to gross advances by one unit the profitability of the banks decreased by 0.182 unit and that are statistically significant at 1% level of significance. When net NPA to net Advances increased by one unit the profitability of the banks are decreased by 0.010 units, which is statistically significant at 1% level of significance. When total Investment to total asset increases by one unit, the profitability of the banks decreased by 0.062 units and it is also significant at 1% level of significance. The multiple correlation co-efficient between the dependent variable profitability and the independent variables taken together are (R) 0.594. It indicates that the profitability of the banks is significantly responded by its independent variables. It is also evident from the value of R2 that 35% of the variation in profitability is accounted by the joint variation in independent variables. Standard error of regression co-efficient being low certifies that there exists really line of estimates among the variables. Adjusted R square signifies that ( -) 0.04 per cent of the variations in the profitability are explained by the independent variable. Though the adjusted R square is very much lower than the R Square, it demonstrates that regression equation perhaps over-fitted to the model and of some degree of generalizability. The value of F=0.908 is more than alpha (0.05); it is not significant and confirms at least one of the independent (asset quality) variables is useful in the prediction of profitability. The observed R2 and F statistics may thus be
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sufficient to draw an inference in favour of the goodness of the regression model to fit into the present bank of identifying the factors influencing the profitability of the banks during the study period. To facilitate pass up multicollinearity problem, one independent variable NNTA are removed from the regression equation to arrive the final table. VIF statistic is more than 1 and nearly 2 indicate that there is no multicollinearity problem. At the same time Durbin- Watson statistic (2.111) indicates that error terms are not auto correlated. The slope of the profitability that is profitability equation is associated with independent variables negatively under this study. Impact of NPA on liquidity Banks are in a business where liquidity is of prime importance. Increasing NPAs not only critically affect the liquidity of the banks but also force the banks to maintain more liquid assets thereby increasing cost. As fund is blocked in bad assets the bank is bound to borrow money or mobilize deposits for the shortest period of time in order to maintain minimum cash in hand which results additional cost to the banks. The lending capacity of the banks is adversely affected due to their inability to recycle the resources. Enhancement of capital is not always possible for the co-operative banks. Hence, every time NPAs increase, deposits are mobilized to fund the incremental NPAs thereby increasing interest expenditure. Due to the RBI guide line every bank in India has to maintain the minimum amount in SLR and CRR. So, the Co-operative banks not only have to fund the NPAs but for every Rs.100 of such assets, banks have to maintain more than Rs. 100 of resources. This can be expressed as follows. Deposit required= NPAs/ 1- (SLR+ CRR). Where SLR= Statutory liquidity ratio. CRR= Cash reserve ratio. Thus, as the level of NPAs as a proportion of total loans and advances issued by the banks increases, the liquidity risk of the banks also increases. Results of determinants of liquidity of State Co-operative Bank of India Table-4 Variables Constant GNGA NNNA R = 0.619 Unstandardised co- efficient 35.232 0.357 0.341 2 R = 0.384 SE t 3.833 9.191 0.353 1.013 0.366 0.931 Adjusted R2= 0.178 Significance Tolerance 0.000 0.350 0.756 0.388 0.756 Std.error of estimate-2.508 VIF 1.322 1.322 F= 1.867

Durbin-Watson- 2.202 The power of the affiliation between the dependent variable liquidity and all the independent variables taken together considered in this study and the impact of the independent variables on the liquidity are exposed in the table 4 after considering regression analysis under enter method. It is observed from the table 4 that an increase in gross NPA to gross advances by one unit the liquidity of the banks increased by 0.357 unit and that are statistically significant at 1% level of significance. When net NPA to net Advances increased by one unit the liquidity of the banks are increased by 0.341 units, which is statistically significant at 1% level of significance. The multiple correlation co-efficient between the dependent variable liquidity and the independent variables taken together are (R) 0.619. It indicates that the solvency of the banks is significantly responded by its independent variables. It is also evident from the value of R2 that 38% of the variation in liquidity is accounted by the joint variation in independent variables. Standard error of regression co-efficient being low certifies that there exists really line of estimates among the variables. Adjusted R square signifies that 17% per cent of the variations in the liquidity are explained by the independent variable. The value of F=1.867 is more than alpha (0.05); it is insignificant and authenticates in any case one of the asset quality variables is helpful in the prediction of solvency. The observed R2 and F statistics may accordingly be adequate to depict a conclusion in favour of the goodness of the regression model to fit into the present bank of
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identifying the factors influencing the liquidity of the banks during the study period. With the intention to keep away from multicollinearity problem, two independent variables TITA and NNTA are removed from the regression equation to arrive the final table. VIF statistic nearly 2 indicates that there is no multicollinearity problem. Simultaneously Durbin- Watson statistics (2.202) indicate that errors terms are not auto correlated. The gradient of the liquidity that is liquidity equation is associated with independent variables positively under this study. Impact of NPA on solvency Decline in the profitability and liquidity ultimately affects the solvency position of the State Cooperative banks in India. Since the loans and advances issued by the banks is a principal part of the net assets, loan defaults are a primary cause of potential losses. The solvency of a bank is exhibited by capital adequacy ratio which is directly related to quality of assets. As per the requirement of prudential norms provisions are charged to profit and loss account, as a result owned fund of the state co-operative banks are significantly reduced. If tax provisions are ignored, an increase in loan loss provisions or writing of an asset requires an equal amount of increase in the mandate capital (Beattie et al 1995). A substantial portion of NPAs in loan portfolio, thus affects the solvency position of the banks as accretion to owned funds is reduced due to higher amount of loan loss provisions and consequently less profit. So, every time NPAs increase, co-operative banks have to look for additional amounts to raise minimum capital to cover them. But it is difficult for the State Co-operative banks to have a large capital base due to some legal constraints. Raising capital from the public in general at large is not permissible by the rules of the co-operatives. Results of determinants of Solvency of State Co-operative Bank of India. Table-5 Variables Constant GNGA NNNA TITA R =0.62 Unstandardised co- efficient -1.028 1.392 0.555 0.328 R2 =0.39 SE t Significance Tolerance 29.601 -0.035 0.974 1.056 1.319 0.244 0.479 0.906 0.613 0.567 0.703 0.540 0.607 0.570 0.468 Adjusted Std. error of estimate-5.979 R2= 0.03 VIF 2.086 1.423 2.138 F=1.093

Durbin-Watson- 1.638 The forces of the association between the dependent variable solvency and all the independent variables taken together considered in this study and the impact of the independent variables on the solvency are shown in the table 5 after allowing for regression analysis under enter method. Table 5 illustrates that an increase in gross NPA to gross advances by one unit the solvency of the banks increased by 1.392 unit and that are statistically significant at 1% level of significance. When net NPA to net Advances increased by one unit the solvency of the banks are increased by 0.555 units, which is statistically significant at 1% level of significance. When total Investment to total asset increases by one unit, the solvency of the banks increased by 0.328 units and it is also significant at 1% level of significance. The multiple correlation co-efficient between the dependent variable solvency and the independent variables taken together are (R) 0.62. It indicates that the solvency of the banks is significantly responded by its independent variables. It is also apparent from the value of R2 that 39% of the variation in solvency is accounted by the joint variation in independent variables. Standard error of regression co-efficient being low certifies that there survives really line of estimates among the variables. Adjusted R square signifies that 0.03 per cent of the variations in the solvency are explained by the independent variable. Nevertheless the adjusted R square is immensely lower than the R Square; it demonstrates that regression equation perhaps over-fitted to the model and of some degree of generalizability. The value of F=1.093 is more than alpha (0.05); it is not significant and confirms at least one of the independent (asset quality) variables is useful in the prediction of solvency.
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The observed R2 and F statistics may therefore be satisfactory to draw a presumption in favour of the goodness of the regression model to fit into the present bank of identifying the factors influencing the solvency of the banks during the study period. To facilitate stay away from multicollinearity problem, one independent variable NNTA is removed from the regression equation to arrive the final table. VIF statistic is more than 1 and nearly 2 point out that there is no multicollinearity problem. All at once Durbin- Watson statistic (1.638) designates that error terms are not auto correlated. The slope of the solvency that is solvency equation connected with the independent variables positively under this study. 7. Conclusion and suggestions The quality of assets plays a crucial role in determining the financial strength of a bank. The quality of assets of a bank can be measured by considering the NPAs. More risky assets in the bank balance sheet indicate the more credit risk. The study found that CAGR of sub-standard assets, doubtful assets, loss assets and gross NPA are -8.74%, 0.29%, 21.28% and -1.21% respectively. It is also observed that provision for NPAs come down from Rs.5690 crore in 2002-03 to Rs. 3997 crore in 2010-11 growing at the rate of -4.32% p.a. Due to this reason net NPAs of the StCBs in India during the period of study went up from Rs.594 crore in 2002-03 toRs.1703 crore in 2010-11 growing at the rate of 14.07% p.a. So. management of the StCBs in India have to take the necessary steps in order to reduce the loss assets and maintaining the proper provisions in order to survive in the competition. The CAGR of the ratio Gross NPAs to Gross Advances during the study period are -8.02%. Declining trend of this ratio clearly indicates that management of the StCBs in India is much conscious about the NPAs. The ratio Net NPA to net Advances is showing the decreasing trend during the study period although the CAGR of this ratio are 5.79%. The banks are witnessing increasing trend in the ratio of Investment to Total asset which means bank have conservatively kept a moderate cushion of investment to guard against NPAs. It also affects the profitability of the banks adversely, so management of the StCBs should be cautious about the asset mix in future. Net NPA to total asset ratio of the banks during the period of study is satisfactory. Lower ratio indicates the better performance of banks. The study observes that profitability of the banks is associated with independent variables negatively. Whereas the liquidity and solvency of the StCBs is associated with independent variables positively under this study. Last, but not the least the banks should give the proper attention in respect of the recovery performance in order to survive in the competition. References. Bhavani Prasad, G. V. and Veena.D (2011), NPAS in Indian Banking Sector Trends and issues, Journal on Banking Financial Services and Insurance Research (JBFSIR).Vol. 1, No 9.67-84. Bhardwaj Rajesh, Priyanka, RahejaRekha (2011), Role of Co-Operative banks in agricultural credit: Organization, Growth and Challenges, Zenith International Journal of Business Economics and Management Research. Vol-1, No-2.20-30. Chisty, Khalid Ashraf (2012), The impact of asset quality on profitability of private banks in India: A case study of JK, ICICI, HDFC and YES banks. Journal of African macroeconomic review.Vol.2 No1,126-146. Dharmendran. A (2012), Non-performing assets in State Co-operative Banks in India- An empirical study. International Journal of Research in Commerce, Economics and Management.Vol no-2, issue no-5. Das, Banishree, Palai, Nirod Kumar, Das Kumar (2006), Problems and Prospects of the Co -operative movement in India under the globalization regime, Paper presented in xiv international economic history congress, Helsinki 2006, session72. 1-14 Dharmendran.A (2011), Management of NPAS in DCCB in India An empirical assessment, International Journal of Research in Commerce, IT and Management.Vol-1.No-2.136-140.

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Das, Sanjay Kanti (2012), Operational and Financial performance analysis of Meghalaya Co operative Apex Bank, Journal on Banking Financial Services and Insurance Research (JBFSIR).Vol 2. No-3, 20-39. Hunderkar. G. S (1994), Cost effectiveness and profitability of Co-operative Banks- A theoretic framework, Encyclopedia of Co-operative Management. Deep and Deep Publications. (New Delhi). 291-300. Harshitha, G. S (2007), Management appraisal of District Central Co-operative Bank- A case of D.C.C. Bank. Shimogo, Karnataka, Thesis submitted to the University of Agricultural Sciences. Dharwad. KulwantsinghPathania and Yoginder Singh (1998), A study of the performance of the Himachal Pradesh Co-operative Banks, Indian Co-operative Review.Vol-36.No-2.178-182. Misra, BiswaSwarup (2006), Performance of Primary Co-operatives in India: An empirical analysis, MPRA. Paper no- 21890. 1-33. Michael, Justin Nelson, Vasanti G, and Selvaraju.R (2006), Effect of non-performing assets on operational efficiency of Central Co-operative Banks, Indian Economic Panorama.Vol-16.No-3.33-34 & 39. Mehta Basant (1994), An evaluation of working of the District Central Co-operative Bank, Encyclopedia of Co-operative Management.Deep and Deep Publications (New Delhi).333-343. Shyamala. A (2012), NPAs in Indian Banking Sector : Impact on profitability. Indian Streams Research Journal.Volume-1, issue-vi, 1-7. Siraj. K. K and Pillai. P sundaram (2012), A Study on the performance of Non-performing Assets (NPAs) of Indian Banking during post millennium period. International Journal Of Business and Management Tomorrow. Vol-2.No-3. 1-12 Shekhar, E. C., Rao, G. V. and Narender.I (1999), Performance of the Karimnagar District Central Co-operative Bank in Andhra Pradesh An economic analysis, Indian Co-operative Review. Vol36.No-3.227-232. Shekhar, E. C., Rao, G. V. and Narender.I (2003), Growth analysisa critical review of the Karimnagar District Central Co-operative Bank, Journal of Research.ANGRAU.Vol-31.No-2.58-63. Sharma. K. C, Josh. P, Mishra. J.C, Kumar Sanjay, Amalorpavanathan. R, Bhaskaran. R (2001), Recovery management in rural credit, Occasional paper-21.NABARD.1-62. Veera Kumar. K (2012), Non-performing assets in priority sector: A threat to Indian Schedule Commercial Banks. International Research Journal of Finance and Economics.Issue 93.1-23.

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Board Composition, Ownership Structure and Firm Performance


Jyotsna Ghildiyal Bijalwan (Department of Management Studies,) Uttarakhand Technical University, India. Email-jyotsnaghildiyal@yahoo.com Dr. Pankaj Madan Associate Professor, Faculty of Management Studies, Gurukul kangri vishwavidyalaya, India. Email- pankaj_mad@yahoo.com Abstract The study primarily focuses on investigating the relationship between corporate governance and the firm performance. Board composition and Ownership structure are primarily taken as the factors of corporate governance, where as financial performance of the firm is measured with the financial ratios viz. Return on Capital employed, Return on the equity, Profit after tax and Return on assets. For the detail study purpose we have divided the board composition into two components a) Board size b) board composition. The study is based on the 121 small cap, mid cap and large cap companies listed on the Bombay Stock Exchange (BSE) India, for the period of 2010 -2011.Our empirical analysis of the data is suggestive of the result of that a relationship of positive and significant nature exists between board size & board composition and firms financial performance in India. We also found that there is no relationship exists between ownership structure and firm performance. Key words: board size, board composition, ownership structure, corporate governance, financial performance, India. Introduction Corporate governance can be viewed as a mechanism that ensures external investors receive proper returns on their investments. Effective corporate governance provides an assurance on the safety of the invested funds and the returns on investment (Shleifer and Vishny ,1997). The study primarily focuses on investigating the relationship between corporate governance and the firm performance. Many researchers have been investigating the relationship between corporate governance and firm performance by using the empirical data. There is no unanimous consent on the results of the studies (Patterson, 2000). Similarly another study shows that the corporate governance has a strong impact on the firm performance during the 1997-98 East Asian financial crises. The study further propounds that independent directors have traditionally been hailed as a way of improving, monitoring management (Kim and Lee, 2003). In an empirical study based on the Indian firms by Dwivedi and Jain (2005) with the sample size of 340 large listed Indian firms for the period of 1997 -2001. They found a positive and significant relationship between corporate governance and performance of Indian firms, by using a simultaneous equation regression model, whereby they used Tobin Q as the measure of firm performance and board size and ownership as components of corporate governance. Gupta (2006) in his study traced the difference in the corporate governance practices of three automobile companies in India named HeroHonda Ltd, Maruti Udhyog Ltd. and Escorts Ltd. The companies were randomly selected on the basis of their size and goodwill in the market. The study was focused on observing the compliance of the selected sample companies corporate governance practices with the Clause-49.The results of the study revealed that the Hero-Honda with 90%, Marurti with 80% and Escorts with 70% were in line with the Corporate governance norms as per Clause-49. A study by Lee (2008) based on Korean firms tries to study the relationship between corporate governance and firms financial performance. In t his study, the effect on Korean firms is empirically tested. The study is based on the agency theory of corporate governance. Ownership concentration and Ownership identity are taken as two components of the corporate governance and net income to total assets ratio (NIA) and ordinary income to total assets
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ratio (OIA) are taken as performance variables. The study with the multivariable regression analysis reveals the significant linear lump-shaped relationship between ownership concentration and firm performance and insignificant relationship between ownership identity and firm performance. In nutshell the study shows a positive and significant relationship between corporate governance and firms financial performance. In another study based on Chinese firms tried to find the relationship between the corporate governance and corporate performance of 106 High tech small and medium size enterprises in China. The study through empirical analysis finds the relationship between ownership concentration and corporate performance follows a positive correlation. It further states that the relationship between shareholding ratio of the 2nd to 10 shareholders, number of board and share holders meetings and executive remuneration shows a positive and significant relationship with corporate performance (Zhenyi, Li and Ying, 2010). There are some other studies which deny any relationship between corporate governance and firm performance. And many other studies show weak or insignificant relationship between corporate governance and the firms performance. For an e.g. study in Miami University, USA shows no relationship between corporate governance and firms performance (Daily and Dalton, 1992). There is no correlation between board independence and long term firm performance (Bhagat & Black, 1998). Similarly in another study by Bauer et al. (2004) on European firms found a negative relationship between corporate governance standards and firms performance. Some of the studies show a positive and significant relationship between corporate governance and firm performance, some studies reveal a negative and insignificant relationship or some studies even show a mixed result of the link between corporate governance and the firm performance. The results may vary due to different institutional environment across the countries (Carlin & Mayer, 2000). There is no unanimous consent on the results of the studies. Some of the studies show a positive and significant relationship between corporate governance and firm performance, some studies reveal a negative and insignificant relationship or some studies even show a mixed result of the link between corporate governance and the firm performance. Board composition (BC) and Ownership structure(OS) are primarily taken as the factors of corporate governance, where as financial performance of the firm is measured with the financial ratios i.e. Return on Capital employed (ROCE), Return on the equity (ROE), Profit after tax(PAT), Return on assets (ROA). For the detail study purpose the Board composition (BC) is further divided into two components a) Board size b) board composition. The study is based on the 121 small cap , mid cap and large cap companies listed on the Bombay Stock Exchange (BSE) India, for the period of 2010 -2011. The data are collected through Prowess database, maintained by CMIE (Center for monitoring Indian economy). Hypothesis development Board composition (BC) and firms performance Generally research on corporate governance and performance are based on principal-agent theory. Since the Berle and Means (1932) first proposed the characteristics of the modern corporation is the ownership and control power separation , mostly corporate governance and performance is researched from internal control and supervisory mechanisms that constitute by the specific forms of corporate governance the shareholders ' meeting, the board of directors and the management of the company, the results of our research focuses on the board size ,board composition and its effect on the firm performance. It further investigates the relationship between ownership structure and firm performance. Our study is also formulated on the grounds of the agency theory of corporate governance, where the management or board acts as agent and owners i.e. equity share holders are principal. Board size (BZ) Board size refers to the total number of the directors on the board for a particular financial year. There are no specific guidelines on the number of directors a company can have and there is no ideal board
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size as well. During our study it was observed that generally the public limited companies have a larger board size as compare to private limited companies in India. The board size cannot be specified at the country level also, as the countries differ in their legal, social, economic, and corporate environment. One size cannot be fit for all. The board size has a positive association with the firms performance. Larger board size led to better decision making which further results into better performance of the firm (Dalton et al., 1998). In another study in the University of Lagos, Nigeria, based on 30 firms listed on Nigerian stock exchange tries to study the impact of board structure on the firms financial performance in Nigeria. It further investigates the composition of the board of directors in the firm. By using Ordinary Least Square (OLS) regression the results show the positive relationship between the board size and firm performance (U. M. Uadiale, 2007). Larmou and Vafeas (2009) in their study focused on finding a relationship between board size and firm performance of the small firms with a history of poor operating performance. Multi-variable regression model was applied to test an empirical relationship between explained and explanatory variables. The results suggest that the larger board size is positively related to the shareholders value. Board composition (BC) Board composition is one of the most important components of corporate governance. It plays very crucial role in determining the governance strategy of any firm. Boards are composed of executive, non-executive and independent directors. Executive directors share a direct potential interest with the firm they are insiders. Non-executive directors and independent directors are outsiders. Independent directors do not have any direct or indirect interest or any relationship aligned with the firm. Board composition refers to the size of the boards i.e. the total number of the directors on the board for a particular financial year, their ratio and classification into executive, non-executive and independent directors. It also includes the independence of the board. Board composition reveals the level freedom or independence in the decision making process. In an empirical study by (Kim and Lee, 2003) it is showed that the corporate governance has a strong impact on the firm performance during the 1997-98 East Asian financial crisis. It further revealed that independent directors have traditionally been hailed as a way of improving, monitoring management. But further Bhagat and Black (2002) in their study presented the empirical evidence that challenges the previous study. The evidence shows that it is indifferent to have more independent directors on the board because the firms with more independent directors on their board do not perform better than other firms. On the basis of review of literature on the board size and board composition we formed argument that the board size and the board composition both are insignificant to the firms performance and this paved the way for development of hypothesis H01 and H02. H01: The board size has insignificant impact on the firms performance. H02: The Board composition has insignificant effect on the firms performance. Sr. no. 1 Factors Table no 1. Independent Variables Indicators Description a) Total no. of BOD sitting on board Symbolic a)BZ

Board composition a) Board size (BCN) b)Board Independence Ownership Structure

b) Ratios of DIRs to ID and ED to NED ect b) BI Percentages of shares held by various OS stake holders in the company

2.

Ownership Structure (OS)

Ownership structure (OS)

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The ownership structure can be defined as the distribution of equity with regard to votes and capital but also by the identity of the equity owners. These structures are of major importance in corporate governance because they determine the incentives of managers and thereby the economic efficiency of the corporations they manage. - Jensen and Meckling In a study based on 137 listed firms of Tehran Stock Exchange for the period of 2001-2006 by Fazlzadeh et.al.(2011) aimed at studying the role of ownership structure on firm performance. The study applied panel data regression analysis method. The results reveal that the ownership concentration did not have any significant effect on the firms performance. The study further reveals that the industry factor moderates the effectiveness of the relationship between ownership structure and firm performance. Some of the researcher also found the positive and significant relationship between ownership structure and the firm performance, such as there is a relationship between the ownership structure and the operating performance of the firm (Jensen and Warner, 1988).The agency problem could be solved with the help of the ownership structure and the ownership concentration can influence the firms performance (Shleifer and Vishny, 1997). Review of the literature on the ownership structure and firm performance gave us the basis for the argument that ownership structure is not related to firm performance and ownership structure has no effect on the corporate performance. There for to prove our point H03 was developed for the study. H03: The ownership structure has insignificant impact on the firms performance. Research design and methodology Data selection The sample is selected on Stratified Random Sampling basis, which involved two stages in sample selection. At the first phase, companies listed on the stock exchange are identified on the basis of their capital base i.e. as small cap, mid cap and large cap companies. Second phase involved qualified corporate governance report and financial reports by way of modification, qualification or adverse opinion. Initially the sample size was 200 companies listed on the Bombay Stock Exchange (BSE), India; due to unavailability of appropriate data the sample size shrink to 121 companies. Out of which forty companies are from large cap category, forty are from mid cap category and forty one companies are from the small cap category. The companies belong to different industrial sectors such as power, fuel, cement sugar, textile, telecommunication ,petroleum, automobile, entertainment, mining , iron , steel, pharmaceutical, fast moving consumer goods (FMCG) ect., for the period of 2010 -2011. The data is collected through Prowess database, maintained by CMIE (Center for Monitoring Indian Economy). Variable selection and model construction For the study purpose corporate governance is the independent variable which comprises of the factors of corporate governance as board composition and ownership structure, whereas firms performance is dependent variable. There are many other factors which affect the firms performance they are taken as control variables. Independent variables Based on the various conceptual and empirical studies in India and around the world few independent variables were selected, definition and description of which is given in the table no.1. Dependent variables Review of the literature on the corporate governance and the firm performance suggests that the firm performance can be mainly measured in two ways first market based performance and secondly accounting based performance. Market based performance measures and Accounting based performance measures differ in two main aspects. First is time based in which the market value is forward looking and accounting value is backward looking, whereas market based measure is what management will accomplish, where as accounting based measure is an estimates of what management has accomplished (Demsetz & Villalonga ,2001). Many researchers have utilized Tobin Q as a market based performance measure for the firm performance. Though the accounting value constrained by the standards set by the accountant, accounting policies opted by his firm and the accounting norms and
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standards prevailing in the country, still the accounting rates can be better as they are free from the investors bias and speculations to a large extent. Secondly the capital market in India is not as developed as of Western and European countries; therefore we preferred the accounting based method to measure the firm performance. Various financial ratios such as Return on Capital employed (ROCE), Return on the equity (ROE), Profit after tax (PAT), Return on assets (ROA) are utilized for the study. Control variables Control variables are described in the Table no 2. Table 2 Control Variable Description Description Total assets Debt/Equity Current assets /Current Liabilities

Sr.no 1 2. 3. 4.

Control Variables Size of the firm Leverage Liquidity Inventory Ratio

Symbolic TA LEV COR IR

Figure no 1: Test Model Corporate Governance and Firm Performance

Measurement of Corporate Governance Scores (CGS) and development of questionnaire The study is based on the structured questionnaire. The questionnaire consists of 51 questions related to the corporate governance factors. The Corporate Governance Scores (CGS) reflects the scores obtained by an individual company on a particular corporate governance factor or component. The corporate scores (CGS) are based on the information provided by the firms in their annual reports. The annual corporate governance report was carefully and extensively reviewed for the study. The corporate governance score (CGS) was developed on the bases of Standards & Poors (S&P) Governance, Management, Accountability Metrics and Analysis (GAMMA).GAMMA scores attempts to assess the effectiveness of individual company governance practices as a system of interaction among a companys management, board, shareholders and other stakeholders aimed at building company value and ensuring fair distribution of its earnings.
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Board size and firm performance Board size (BZ) here refers to the size of the board. It refers to the total number of board of directors sitting on the board. In order to find out the impact of board size on the firms financial performance the board size of the companies were divided into two categories a) companies with the smaller board size i.e. having less than 10 directors sitting on the board and b) companies with the smaller board size i.e. having more than 10 directors sitting on the board for the given particular financial year. Board composition and firm performance Further to find out the impact of board composition on the firms financial performance the board composition was categorized into four categories. It facilitated the evaluation of the nature of the relation, degree of dependence and the impact of the Independent variable i. e. board composition on the dependent variable i. e. firms performance. Small board size with non compliance (SBSNC).The first category has firms which have small board size but are not compliant with the provisions in the Clause 49 and Voluntary Regulation, Act 2009. (SBSNC). This category includes the firms who score up to 30 points in the board composition category. Small board size with compliance (SBSCL). Second categories has the firms with the small board size but are in full compliance with the regulatory provisions in the legislative framework of corporate governance in India (SBSCL). This category covers the firms who score between 31 points to 79 points in the board composition category of the questionnaire. Large board size with non compliance (LBSNC). Third category firms have larger board size but are showing the non compliance with the regulatory and legislative provisions (LBSNC). This category consists of the firms scoring between 80 points to 89 points in the board composition category of the questionnaire. Large board size with compliance (LBSCL). Fourth category covers the firms with large board size and they are compliant to the corporate governance norms, regulations and provisions in India (LBSCL). The firms who score above the 89 i.e. between 90 points to 100 points do come under this category. Ownership structure and firm performance Ownership structure gives a fair idea about the percentages of share held by the promoters, public, directors, private companies, institutional investors, government bodies and the foreign institutional investors in a firm. It also reveals the ownership pattern of the firm. In order to know the ownership pattern of the firms the ownership structure (OS) was categorized into three different patterns which includes, which are explained as follows. Concentrated ownership. The firm which has more than 50% and above shares held by an individual share holder or a particular family or group was termed as firm with concentrated ownership. The firms scoring 38 points in the ownership structure category of the questionnaire come under this category. Diversified ownership. The firm in which none of the stakeholders owns more than 25% share was termed as diversified ownership structure. In the questionnaire the firms scoring 33 points are termed as diversified ownership structure. Block holdings ownership. The firms with more than one individual holding above 25% or where more than one stakeholder holds between 25% to50% shares in the firm, such firm was termed as block holding ownership pattern. The firms scoring 43, 48 and 53 points in the questionnaire were put into the block holding category. Results and Interpretation The group statistics of Table no.3 displays the sample size, mean, standard deviation, and standard error for both group of companies (one with board size less than 10 and another with board size larger than 10). On average the Return on Capital Employed Percentage (ROCP) of companies having larger board size is 3.53% more than the companies having smaller board size. The other financial parameters like Profit after tax (PAT), Return on Asset (ROA) and Return on Equity (ROE) showed differences in averages of 2.31%, 0.4% and 6.07%, however the difference between the means is considerable among PAT, ROA and ROE.
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The procedure produces two tests of the difference between the two groups. One test assumes that the variances of the two groups are equal. The Levene statistic tests this assumption. In Table no. 4, the significance value of the F statistic is 0.579 (for ROCEP%), 0.000(for PAT), 0.045 (for ROA) & 0.123(for ROE), the values greater than 0.10 shows that equal variances can be assumed for those groups i.e. ROCEP, ROE and for PAT, ROA equal variances cannot be assumed and parameters having value greater than 0.10, you can assume that the groups have equal variances and ignore the second test. The t column displays the observed t statistic for each sample, calculated as the ratio of the difference between sample means divided by the standard error of the difference. The df column displays degrees of freedom. For the independent samples t test, this equals the total number of cases in both samples minus 2. The column labeled Sig. (2-tailed) displays a probability from the t distribution with 119 degrees of freedom where equal variances are assumed. The value listed is the probability of obtaining an absolute value greater than or equal to the observed t statistic, if the difference between the sample means is purely random. The Mean Difference is obtained by subtracting the sample mean for group 2 (where board size is more than 10) from the sample mean for group 1(where board size is less than 10). The 95% Confidence Interval of the Difference provides an estimate of the boundaries between which the true mean difference lies in 95% of all possible random samples of 121 companies. Since the significance value of the test is less than 0.05 in case of PAT and ROE, we can conclude that the average difference of 2.31% PAT between two groups and 6.07% among ROE is not due to chance alone. The companies now have to reconsider their decisions about board size. The t statistic provides strong evidence of a difference in PAT and ROE between companies having board size more and less than 10. The confidence interval suggests that in repeated samplings, the difference is unlikely to be much lower than 3108 (PAT) and 15.05% ROE. The companies will look into ways to retain these returns. Figure no. 2

Figure no. 3

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Figure no. 4

Figure no. 5

The Table no. 5 displays descriptive statistics for each group and for the entire data set with N indicating the size of each group and the standard deviation and standard error statistics confirm that as ROCEP, PAT, ROA, ROE increase, variation in performance decreases. One-Way ANOVA compares these sample estimates to determine if the population means differ. The standard deviation indicates the amount of variability of the scores in each group. These values should be similar to each other for ANOVA to be appropriate. Equality can be inspected via the Levene test. The 95% confidence interval for the mean indicates the upper and lower bounds which contain the true value of the population mean 95% of the time. The Levene statistic of Table no. 6 rejects the null hypothesis that the group variances are equal in case of ROA & PAT. ANOVA is robust to this violation when the groups are of equal or near equal size; however, we decided to continue to use F-test for other parameters too. As per data of corporate governance parameters in the research instrument, we are interested in finding out if financial parameters varied depending on different Board Compositions or not and for that ANOVA test is applied, the total variation is partitioned into two components. Between Groups represents variation of the group means around the overall mean. Within Groups represents variation of the individual scores around their respective group means. If desired, the between groups variation can be partitioned into trend components. According to Table no. 7 the significance value of the F test in the ANOVA table is 0.553 (ROCEP), 0.015(ROA), 0.185(ROE) and 0.001(PAT). Small significance value of 0.015(<.05) and 0.001 (<0.05) indicate group differences. Thus, we must reject the hypothesis that average financial parameters varied equally across different board compositions. The difference in financial parameters across different board compositions is significant for ROA and PAT only as the significance values of these parameters is less than 0.005. The test of between-subjects effects helps us to determine the significance of a factor. However, they do not indicate how the levels of a factor differ. The post hoc tests show the differences in modelpredicted means for each pair of factor levels. For more detailed analysis we used Tukey HSD Post
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hoc test for pair wise comparisons in One-Way ANOVA whose results are shown in Tale no 8. The groups differ in some way. The means plot helped us to "see and learn more about the structure of the differences in these structures. SBSNC and LBSNC showed higher mean ROCEP than their counterparts. Mean ROE of SBSNC, LBSNC & BSNC are far higher than SBSCL. Mean ROA of SBSNC is significantly higher than its other board composition categories while PAT is significantly higher of LBSNC than others. As it can be observed in figure no.2, 3, 4 and figure no.5. Figure no. 7

Figure no. 8

Figure no. 9

In this Table no. 13 displays descriptive statistics for each group and for the entire data set with N indicating the size of each group and the standard deviation and standard error statistics confirm that as ROCEP, PAT, ROA, ROE increase, variation in performance decreases. One-Way ANOVA compares these sample estimates to determine if the population means differ. The standard deviation indicates the amount of variability of the scores in each group. These values should be similar to each other for ANOVA to be appropriate. Equality can be inspected via the Levene test. The 95% confidence interval
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for the mean indicates the upper and lower bounds which contain the true value of the population mean 95% of the time. The Levene statistic of Table no.14 accepts the null hypothesis that the group variances are not equal in case of ROCE, ROA, ROE and PAT. ANOVA is robust to this violation when the groups are of equal or near equal size; however, we decided to continue to use F-test for other parameters too. As we are interested in finding out if financial parameters varied depending on different organization structures or not and for that ANOVA test is applied, the total variation is partitioned into two components. Between Groups represents variation of the group means around the overall mean. Within Groups represents variation of the individual scores around their respective group means. If desired, the between groups variation can be partitioned into trend components. According to Table no. 15 the significance value of the F test in the ANOVA table is 0.324(ROCEP), 0.326(ROA), 0.318(ROE) and 0.118(PAT). All the significant values are (>0.05) indicate no group differences. Thus, it is a must to accept the hypothesis that average financial parameters varied equally across different board compositions. The difference in financial parameters across different organization structures is insignificant for ROCE, ROA, ROE and PAT only as the significance values of these parameters is more than 0.005. The tests of between-subjects effects help us to determine the significance of a factor. However, they do not indicate how the levels of a factor differ. The post hoc tests show the differences in model-predicted means for each pair of factor levels. For more detailed analysis we used Tukey HSD Post hoc test for pair wise comparisons in One-Way ANOVA whose results are shown in Table no. 16. Now thus as we know the groups differ in some way, in order to learn more about the structure of the differences. The means plot facilitates to "see" this structure. The ownership structure is categorized into diversified ownership structure, concentrated ownership structure and block holdings structure. The graphs further reveals that the firms with the block holding have highest mean of ROCE, ROA, ROE and PAT as compare to their other counterparts. The graph related to the ownership structure categorization and ROCE shows that the firms with the block holding organization structure have the highest mean of ROCE, followed by the firms with the concentrated ownership structure. And the firms with the diversified ownership structure show the lowest level of mean of ROCE. Figure no.6. Further the graph related to the organization structure categorization and ROA shows that the firms with the block shareholding structure have the highest level of mean of ROA whereas the firm with the diversified organization structure has the lowest mean of ROA. Figure no.7. The graph related to the organization structure categorization and ROE shows that again the firms with block holding organization structure category have the highest mean of ROE, whereas the firms with the concentrated ownership have the lowest mean of ROE. Figure no. 8. Similarly the graph related to the organization structure categorization and PAT shows that the firms with the block holding organization structure have highest mean of PAT followed by the firms having diversified organization structure, and the firms with the diversified ownership structure show the lowest mean of PAT. Figure no. 9. Thus it can be concluded that the firms with the block holding category of organization structure have highest mean of all the financial parameters i.e. ROCE, ROA, ROE and PAT. Therefore the null hypothesis can be accepted. Conclusion The post liberalization period of the Indian economy has witnessed several structural and regulatory reforms. The journey of Indian economy from a caterpillar to a beautiful butterfly has given inputs to the more complex organizational structure, operational framework failure, frauds and unethical business practices. In order to safeguard the interest of the investors there are many provisions in the legal and regulatory framework of India, in spite of that last two decades witnessed the series of the financial scams. On establishing and analyzing the correlation among the independent variables as per the proposed model, it was found that relationship of significant nature exist between board size and firm performance. Hence, in simple words it can be concluded that firstly these factors are correlated and do have an impact on each other as well but the strength of relationship is not very strong. Secondly it can
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be said that the board size affects the firms performance. In India larger boards are less effective than smaller boards, except in the case of PSUs (Dey & Chouhan, 2007). Thirdly one size does not fit to all, standard board size vary from country to country and also depends on the nature of industry. In India smaller board are more successful particularly in private sector because of ease in decision making and less conflicts. These findings that there is a relationship between board size and firm performance are in congruence with the past studies carried out by (Dalton et al., 1998; Hermalin and Weisbach, 2003; U. M. Uadiale, 2007; Balasubramanian, 2008 and Larmou & Vafeas, 2009) which have identified the effects of board size on the firms performance, and found them to be correlated. Fourthly the study results found that relationship of significant nature exist between board composition and firm performance. Hence, in simple words we can say that these factors are correlated and do have an impact on each other as well but the strength of relationship is not very strong. It can be further said that the board composition affects the firms performance. Fifthly in India larger boards are less effective than smaller boards, except in the case of PSUs. Smaller board with non compliance and larger boards with compliance to standard corporate governance practices show higher levels of ROCE, ROA, and ROE the only change is in the case of PAT where the larger boards with the compliance and non compliance both are showing the higher degree of PAT. It can be possible because the firms with firms with the larger capital will show higher profits. The results can be backed by the previous research outcomes, many researchers have found the positive and significant relationship between board composition and firms performance such as (Kim and Lee, 2003; Tvevor W. Chamberlain, 2007; Ameer et.al., 2009) and many other researchers propounds the same. The number of independent directors on the board plays a very important role. The ratio of executive to non executive directors ensures the fair decision making. Sixthly both the number and proportion of outside directors are positively and significantly correlated to the firm performance. In the India majority of private sector firms are owned by the individuals, or families. The promoters are the dominant shareholders and ownership is spread amongst the family members and group of friends. Therefore it becomes very significant to have more number of independent directors on the board so that the interest of minority shareholders can be protected. Seventhly in the case of ownership structure and firm performance, it was found that relationship of insignificant nature exist between the dependent and independent variables. Hence, it can be said that these two variables are not correlated. It can be further said that the ownership structure does not affects the firms performance. In the nutshell we can say that there is a difference between the corporate governance system in UK, USA and INDIA. The corporate governance of the countries like UK and USA is based on the Anglo American model in which the ownership and management are separate, whereas in the India majority of the cases management and ownership is same. In India in case of majority of firms specially belonging to private sector ownership belongs to an individual or family or group of closely related corporate. In the case of state owned enterprises the ownership is with the government in both the cases the ownership pattern is either concentrated or is in bloc holding by government, corporate, and group of institutions. Capital market in India is not developed enough to encourage the diversified ownership structure. Therefore the study results suggest no relationship between the ownership structure and firm performance in India. The results can be backed by the previous research outcomes ,for instance in a study based on 137 listed firms of Tehran Stock Exchange for the period of 20012006 , (Alireza Fazlzadeh; Ali Tahbaz Hendi and Kazem Mahboubi, 2011) found that the ownership concentration did not have any significant effect on the firms performance. There are many other studies in the western countries who find the positive relationship between the ownership structure and firm performance. The reason for that outcome could be the difference in the political governance, legal and regulatory framework and the governance system. As mentioned before in the countries like UK and USA the ownership and management are separate from each other, where as in India in majority of the cases the ownership and the management is the same and the firms where both are separate suffers from the holding and agency problem.

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References Ameer ,R., Ramli,F., Zakaria,F. (2010) .A new perspective on board composition and firm performance in an emerging market. Corporate Governance, 10(5),647 661. Berle A, Means Q. (1932). The modem corporation and private property . NewYork,USA: Mac Millan. Bhagat, S. & Black, B. (1998).Uncertain relationship between board composition and firm performance. The Business Law,54, 921.Management, 5, 91-104. Bhagat, S.,Bernard, S.& Black,B.(2002). Board independence and long-term performance.Journal of Corporation Law, 27. Bauer, R., Guenster, N. & Otten, R. (2004). Empirical evidence on corporate governance inEurope: The effect on stock returns, firm value and performance. Journal of Asset Management, 5, 91-104. Balasubramanian, B., Black, B. & Khanna, V. (2008). Firm-level corporate governance inemerging markets: A case study of India. ECGI-Law Working Paper, 119, 08-011. Carlin, W. & Mayer, C. (2000). How do financial systems affect economic performance.Corporate Governance: Theoretical and Empirical Perspectives, 137-59. Chamberlain, T. (2007). Board composition and firm performance: some Canadian evidence. International Advances in Economic Research, 16, 421-422. Daily, C. M. & Dalton, D. R. (1992). The relationship between governance structure and corporate performance in entrepreneurial firms. Journal of Business Venturing, 7,375-386. Dalton, D. R., Daily, C. M., Ellstrand, A. E. & Johnson, J. L. (1998). Meta analytic reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19, 269-290. Demsetz, Harold & Villalonga, B .(2001). Ownership structure & corporate performance. Journal of corporate finance, 7 (3), 209-233. Dwivedi, N. & Jain, A. K. (2005). Corporate governance and performance of Indian firms: The effect of board size and ownership. Employee Responsibilities and Rights Journal, 17, 161- 172. Dey, D.K. & Chouhan, Y. K. (2007). Board composition and performance in Indian firms: A comparison. The IUP Journal of Corporate Governance, April 2007. Fazlzadeh, A., Hendi, A.T. & Mahboubi, K. (2011). The examination of the effect of ownership structure on firm performance in listed firms of Tehran stock exchange based on the type of the industry. International Journal of Business and Management, 6, 3. Gupta, C. D. (2006).Globalization, corporate legal liability and big business houses in India. Cambridge Journal of Economics, 34, 895-913. Governance, Accountability, Management Metrics & Analysis (GAMMA) Scores [online] http://www.standardandpoors.com/about-sp/gamma/en/eu, (Accessed 2 April 2008). Hermalin, B.E. and Weisbach, M.S.(2003). Boards of directors as an endogenously determined institution: A survey of the economic evidence. Economic Policy Review, 9, 7-26. Jensen, M. C. & Warner, J. B. (1988). The distribution of power among corporate managers, shareholders, and directors. Journal of Financial Economics, 20, 3-24. Kim, B. & Lee, I.(2003). Agency problems and performance of Korean companies during the Asian financial crisis: chaebol vs. non-chaebol firms. Pacific-Basin Finance Journal, 11, 327-348. Larmou, S., and Vafeas,N.(2009).The relation between board size and firm performance in firms with a history of poor operating performance. Journal of Management Governance, 14(1),61-85. Patterson, D. J. (2000). The link between corporate governance and performance, conference board, New York. Shleifer, A. & Vishny, R. W. (1997). A survey of corporate governance. The journal of finance, 52. Uadiale,O.M.(2007). The impact of board structure on corporate financial performance in Nigeria. International Journal of Business and Management, 5, 155. Zhenyi, W., Li, S. & Ying, T.(2010). Corporate governance and corporate performance of

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high-tech small and medium-sized enterprises: Based on analysis of the small and mediumsized listed enterprises empirical data. International Conference on Information Management, Innovation Management and Industrial Engineering (ICIII), 2010: Kunming, China, Vol.3, pp.378 383.

Annexure Tables
Table No 3 - Group Statistics
ROCE Percentage PAT ROA ROE Board Size Less than 10 More than 10 Less than 10 More than 10 Less than 10 More than 10 Less than 10 More than 10 N 54 67 54 67 54 67 54 67 Mean 15.9287 19.4549 4.7574E2 2.4408E3 1.78188E1 1.38717E1 7.57333 1.52733E1 Std. Deviation 18.05561 14.60148 1140.06534 4113.89345 62.327403 16.972589 25.774133 14.511155 Std. Error Mean 2.45706 1.78386 155.14324 502.59208 8.481685 2.073532 3.507415 1.772820

Table no 4 - Independent Samples Test


Levene's Test for Equality of Variances F Sig. ROCE Percentage Equal variances assumed Equal variances not assumed Equal variances assumed Equal variances not assumed Equal variances assumed Equal variances not assumed Equal variances assumed Equal variances not assumed .310 .579 t-test for Equality of Means T 1.188 1.161 22.013 .000 3.404 3.736 4.086 .045 .496 .452 Df 119 101.052 Sig. (2tailed) .237 .248 Mean Difference -3.52622 -3.52622 Std. Error Difference 2.96826 3.03632 95% Confidence Interval of the Difference Lower Upper -9.40367 2.35122 -9.54944 2.49699

PAT

119 78.292

.001 .000

1965.10058 1965.10058 3.947047 3.947047

577.30462 525.99261

3108.22139 3012.20992 -11.795268 -13.522396

821.97977 917.99124 19.689362 21.416491

ROA

119 59.354

.620 .653

7.950263 8.731467

ROE

2.415

.123

2.073 1.959

119 79.379

.040 .054

-7.699950 -7.699950

3.714946 3.929994

-15.055915 -15.521826

-.343986 .121925

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Mean

ROCE Percentage

ROA

ROE

PAT

SBSNC SBSCL LBSNC LBSNC Total SBSNC SBSCL LBSNC LBSNC Total SBSNC SBSCL LBSNC LBSNC Total SBSNC SBSCL LBSNC LBSNC Total

7 47 4 63 121 7 47 4 63 121 7 47 4 63 121 7 47 4 63 121

19.4514 15.4040 14.8725 19.7459 17.8812 6.60965E1 1.06285E1 8.57128 1.42083E1 1.56332E1 1.30071E1 6.76404 1.23700E1 1.54576E1 1.18369E1 1.2823E3 3.5561E2 5.6386E3 2.2378E3 1.5639E3

Table no.5 - Descriptive Std. Std. Error 95% Confidence Interval for Deviation Mean Lower Upper Bound Bound 12.20959 4.61479 8.1594 30.7434 18.81490 2.74443 9.8798 20.9283 12.95788 6.47894 -5.7464 35.4914 14.74426 1.85760 16.0326 23.4592 16.25871 1.47806 14.9548 20.8077 143.189447 5.412052E1 -66.33160 198.52470 37.336588 5.446101 -.33394 21.59093 9.137788 4.568894 -5.96898 23.11154 17.340297 2.184672 9.84119 18.57538 43.336642 3.939695 7.83292 23.43356 10.678417 4.036062 3.13125 22.88303 27.301288 3.982302 -1.25192 14.78000 9.592198 4.796099 -2.89333 27.63333 14.802992 1.865002 11.72953 19.18570 20.591031 1.871912 8.13069 15.54320 1668.30978 6.30562E2 -260.5878 2825.2706 1010.32335 1.47371E2 58.9686 652.2527 9011.64567 4.50582E3 -8700.9492 19978.1292 3658.53683 4.60932E2 1316.4209 3159.2020 3293.10417 2.99373E2 971.1180 2156.5939

Minimum

Maximum

2.57 -1.09 3.49 .23 -1.09 2.106 -91.762 .284 .067 -91.762 .530 -95.300 .780 -39.700 -95.300 1.27 -3052.05 1.13 .60 -3052.05

41.33 112.62 26.71 75.38 112.62 390.464 213.904 16.515 107.611 390.464 33.200 87.200 20.500 64.400 87.200 4904.74 4904.74 18924.00 20040.00 20040.00

Table no.6 - Test of Homogeneity of Variances


Levene Statistic df1 ROCE Percentage ROA ROE PAT .214 13.244 1.207 13.348 3 3 3 3 df2 117 117 117 117 Sig. .887 .000 .311 .000

Table no.7 - ANOVA


Sum of Squares ROCE Percentage Between Groups Within Groups Total ROA Between Groups Within Groups Total ROE Between Groups Within Groups Total PAT Between Groups Within Groups Total 560.926 31160.553 31721.479 19330.457 206037.285 225367.743 2046.121 48832.749 50878.869 1.642E8 1.137E9 1.301E9 Df 3 117 120 3 117 120 3 117 120 3 117 120 5.473E7 9719203.026 5.631 .001 682.040 417.374 1.634 .185 6443.486 1761.002 3.659 .015 Mean Square 186.975 266.330 F .702 Sig. .553

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Table no.8 - Multiple Comparisons Tukey HSD Post hoc test


Dependent Variable (J) Board Mean Difference Composition (I-J) Category ROCE Percentage SBSCL 4.04739 LBSNC 4.57893 LBSNC -.29444 SBSCL SBSNC -4.04739 LBSNC .53154 LBSNC -4.34183 LBSNC SBSNC -4.57893 SBSCL -.53154 LBSNC -4.87337 LBSNC SBSNC .29444 SBSCL 4.34183 LBSNC 4.87337 ROA SBSNC SBSCL 55.468057* LBSNC 57.525265 LBSNC 51.888263* SBSCL SBSNC -55.468057* LBSNC 2.057208 LBSNC -3.579794 LBSNC SBSNC -57.525265 SBSCL -2.057208 LBSNC -5.637002 LBSNC SBSNC -51.888263* SBSCL 3.579794 LBSNC 5.637002 ROE SBSNC SBSCL 6.243100 LBSNC .637143 LBSNC -2.450476 SBSCL SBSNC -6.243100 LBSNC -5.605957 LBSNC -8.693576 LBSNC SBSNC -.637143 SBSCL 5.605957 LBSNC -3.087619 LBSNC SBSNC 2.450476 SBSCL 8.693576 LBSNC 3.087619 PAT SBSNC SBSCL 926.73079 LBSNC -4356.24857 LBSNC -955.47000 SBSCL SBSNC -926.73079 LBSNC -5282.97936* LBSNC -1882.20079* LBSNC SBSNC 4356.24857 SBSCL 5282.97936* LBSNC 3400.77857 LBSNC SBSNC 955.47000 SBSCL 1882.20079* LBSNC -3400.77857 *. The mean difference is significant at the 0.05 level. (I) Board Composition Category SBSNC Std. Error 6.61163 10.22885 6.50189 6.61163 8.49994 3.14548 10.22885 8.49994 8.41486 6.50189 3.14548 8.41486 1.700117E1 2.630252E1 1.671898E1 1.700117E1 2.185678E1 8.088298 2.630252E1 2.185678E1 2.163800E1 1.671898E1 8.088298 2.163800E1 8.276783 1.280501E1 8.139400 8.276783 1.064067E1 3.937674 1.280501E1 1.064067E1 1.053416E1 8.139400 3.937674 1.053416E1 1.26303E3 1.95404E3 1.24207E3 1.26303E3 1.62376E3 6.00887E2 1.95404E3 1.62376E3 1.60751E3 1.24207E3 6.00887E2 1.60751E3 Sig. .928 .970 1.000 .928 1.000 .514 .970 1.000 .938 1.000 .514 .938 .008 .133 .013 .008 1.000 .971 .133 1.000 .994 .013 .971 .994 .875 1.000 .990 .875 .952 .127 1.000 .952 .991 .990 .127 .991 .883 .121 .868 .883 .008 .012 .121 .008 .154 .868 .012 .154 95% Confidence Interval Lower Bound Upper Bound -13.1848 -22.0809 -17.2406 -21.2795 -21.6222 -12.5400 -31.2388 -22.6853 -26.8054 -16.6517 -3.8564 -17.0586 11.15722 -11.02803 8.31293 -99.77889 -54.90898 -24.66065 -126.07856 -59.02340 -62.03298 -95.46360 -17.50106 -50.75898 -15.32901 -32.73707 -23.66452 -27.81521 -33.33915 -18.95649 -34.01136 -22.12724 -30.54321 -18.76357 -1.56934 -24.36797 -2365.1592 -9449.1316 -4192.7190 -4218.6208 -9515.0464 -3448.3153 -736.6345 1050.9123 -788.9271 -2281.7790 316.0863 -7590.4842 21.2795 31.2388 16.6517 13.1848 22.6853 3.8564 22.0809 21.6222 17.0586 17.2406 12.5400 26.8054 99.77889 126.07856 95.46360 -11.15722 59.02340 17.50106 11.02803 54.90898 50.75898 -8.31293 24.66065 62.03298 27.81521 34.01136 18.76357 15.32901 22.12724 1.56934 32.73707 33.33915 24.36797 23.66452 18.95649 30.54321 4218.6208 736.6345 2281.7790 2365.1592 -1050.9123 -316.0863 9449.1316 9515.0464 7590.4842 4192.7190 3448.3153 788.9271

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Table no.14 - Test of Homogeneity of Variances


ROCEPercentage ROA ROE PAT Levene Statistic 1.638 2.402 .863 2.582 df1 2 2 2 2 df2 118 118 118 118 Sig. .199 .095 .425 .080

Table no.15 - ANOVA


ROCEPercentage Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Sum of Squares 600.040 31121.440 31721.479 4238.990 221128.753 225367.743 977.676 49901.193 50878.869 4.629E7 1.255E9 1.301E9 Df 2 118 120 2 118 120 2 118 120 2 118 120 Mean Square 300.020 263.741 2119.495 1873.972 488.838 422.891 2.314E7 1.064E7 F 1.138 Sig. .324

ROA

1.131

.326

ROE

1.156

.318

PAT

2.176

.118

Dependent Variable ROCEPercentage

(I) Organization Structure Category Diversified Concentrated Block Holding

ROA

Diversified Concentrated Block Holding

ROE

Diversified Concentrated Block Holding

PAT

Diversified Concentrated Block Holding

Table No.16 - Multiple Comparisons Tukey HSD Post hoc test (J) Organization Mean Difference Std. Error Structure (I-J) Category Concentrated -6.66098 4.69627 Block Holding -7.56100 5.42110 Diversified 6.66098 4.69627 Block Holding -.90002 3.71026 Diversified 7.56100 5.42110 Concentrated .90002 3.71026 Concentrated -7.070392 1.251833E1 Block Holding -19.588336 1.445040E1 Diversified 7.070392 1.251833E1 Block Holding -12.517943 9.890006 Diversified 19.588336 1.445040E1 Concentrated 12.517943 9.890006 Concentrated .837369 5.946743 Block Holding -6.275343 6.864561 Diversified -.837369 5.946743 Block Holding -7.112712 4.698177 Diversified 6.275343 6.864561 Concentrated 7.112712 4.698177 Concentrated 668.63707 9.43094E2 Block Holding -865.61900 1.08865E3 Diversified -668.63707 9.43094E2 Block Holding -1534.25607 7.45084E2 Diversified 865.61900 1.08865E3 Concentrated 1534.25607 7.45084E2

Sig. .335 .347 .335 .968 .347 .968 .839 .368 .839 .417 .368 .417 .989 .632 .989 .288 .632 .288 .759 .707 .759 .103 .707 .103

95% Confidence Interval Lower Bound Upper Bound -17.8083 4.4863 -20.4288 5.3068 -4.4863 17.8083 -9.7069 7.9068 -5.3068 20.4288 -7.9068 9.7069 -36.78455 22.64377 -53.88857 14.71190 -22.64377 36.78455 -35.99338 10.95750 -14.71190 53.88857 -10.95750 35.99338 -13.27813 14.95287 -22.56943 10.01874 -14.95287 13.27813 -18.26455 4.03913 -10.01874 22.56943 -4.03913 18.26455 -1569.9402 2907.2144 -3449.6975 1718.4595 -2907.2144 1569.9402 -3302.8266 234.3144 -1718.4595 3449.6975 -234.3144 3302.8266

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Corporate Social Responsibility: Ethics and Challenges In India


Ms. Vandana Gupta, Assistant professor, Department of Management, Kasturi Ram College of Higher Education Narela, Delhi. Affiliated by Guru Gobind Singh Indraprastha University Delhi. Mail id- vandanakrche@gmail.com Dr.Vikrant Agarwal, Associate Professor, Department of Management, Kasturi Ram College of Higher Education Narela, Delhi. Affiliated by Guru Gobind Singh Indraprastha University Delhi. Mail.id- vikrantagarwal001@gmail.com Abstract Corporate Social Responsibility (CSR) is the responsibility of the corporate entity towards the society in consideration of the support given and sacrifices made by the society. The corporations exploit the natural resources of the country, cause incidental damage to environment and inconvenience to the people of the project area. Therefore, they have a responsibility towards the society to share a part of their profit. In India companies like TATA and Birla are practicing the Corporate Social Responsibility (CSR) for decades, long before CSR become a popular basis. CSR is in a very much budding stage. A lack of understanding, inadequately trained personnel, coverage, policy etc. further adds to the reach and effectiveness of CSR programs. Large no. of companies are undertaking these activities superficially and promoting/ highlighting the activities in Media. This article focuses on the finding & reviewing of the issues and challenges faced by CSR activities in India. Keywords: CSR, Corporate Social Responsibility, Societal Marketing, Central Public Sector Enterprises, incidental damage, Sustainable development. INTRODUCTION The concept of Corporate Social Responsibility (CSR) has been developing since the early 1970s. There is no single universally accepted definition of CSR, though there are some definitions given by certain authorities. CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. CSR is a term describing a companys obligation to be accountable to all of its stakeholders in all its operations and activities. Socially responsible companies consider the full scope of their impact on communities and the environment when making decisions, balancing the needs of stakeholders with their need to make profit. CSR is a concept whereby organizations serve the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. In simple terms CSR may be described as the responsibility of a corporation towards the society in consideration of the support given and the sacrifices made by the society. It is also important to bear in mind that there are two separate drivers for CSR. One relates to public policy. Because the impacts of the business sector are so large, and with a potential to be either positive or negative, it is natural that governments and wider society take a close interest in what business does. This means that the expectations on businesses are rising; governments will be looking for ways to increase the positive contribution of business. The second driver is the business driver. Here, CSR considerations can be seen as both costs (e.g., of introducing new approaches) or benefits (e.g., of improving brand value, or introducing products that meet sustainability demands). The remainder of this guide addresses the second of these drivers. Since businesses play a pivotal role both in job and wealth creation in society and in the efficient use of natural capital, CSR is a central management
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concern. It positions companies to both proactively manage risks and take advantage of opportunities, especially with respect to their corporate reputation and the broad engagement of stakeholders. The latter can include shareholders, employees, customers, communities, suppliers, governments, nongovernmental organizations, international organizations and others affected by a companys activities. Above all, CSR is about sensitivity to contextboth societal and environmentaland related performance. It is about moving beyond declared intentions to effective and observable actions and measurable societal impacts. Performance reporting is all part of transparent, accountableand, hence, crediblecorporate behavior. There is considerable potential for problems if stakeholders perceive that a firm is engaging in a public relations exercise and cannot demonstrate concrete actions that lead to real social and environmental benefits. Objectives: The paper is based on followings objectives: 1) To study the concept of CSR and its legal position in India. 2) To study the challenges for CSR in India. 3) To study the factors influencing of using CSR in India. 4) To study the companies using CSR in India. Methodology of the Paper: The study is based on secondary data. Secondary data had been and writings of various authors in the stream of industry, academician, and research. The Journals and books have been referred were described in the bibliography. IMPLEMENTING CORPORATE SOCIAL RESPONSIBILITY There is no one-size-fits-all method for pursuing a corporate social responsibility (CSR) approach. Each firm has unique characteristics and circumstances that will affect how it views its operational context and its defining social responsibilities. Each will vary in its awareness of CSR issues and how much work it has already done towards implementing a CSR approach. That said, there is considerable value in proceeding with CSR implementation in a systematic wayin harmony with the firms mission, and sensitive to its business culture, environment and risk profile, and operating conditions. Many firms are already engaged in customer, employee, community and environmental activities that can be excellent starting points for firm-wide CSR approaches. CSR can be phased in by focusing carefully on priorities in accordance with resource or time constraints. Alternatively, more comprehensive and systematic approaches can be pursued when resources and overall priorities permit or require. The bottom line is that CSR needs to be integrated into the firms core decision making, strategy, management processes and activities, be it incrementally or comprehensively. LEGAL POSITION RELATING TO CORPORATE SOCIAL RESPONSIBILITY IN INDIA In India CSR is in a very much budding stage and there is no such specific Act, Rule or Regulation relating to CSR However, there are voluntary guidelines issued by the Ministry of Corporate Affairs and guidelines issued by Ministry of Public Enterprises and Ministry of Heavy Industries of the Government of India. A. Voluntary Guidelines by Ministry of Corporate Affairs The Fundamental Principle of guidelines says, Each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals. The policy should be framed with
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the participation of various level executives and should be approved by the Board. The Guidelines provide certain core elements of CSR Policy, namely Care for all Stakeholders, Ethical functioning, Respect for Workers' Rights and Welfare, Respect for Human Rights, Respect for Environment and Activities for Social and Inclusive Development Further the Guidelines provides for the implementation guidance for business and Industrial entities: 1. The CSR policy of the business entity should provide for an implementation strategy; 2. Companies should allocate specific amount in their budgets for CSR activities and 3. The companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their websites, annual reports, and other communication media. B. Guideline for Corporate Social Responsibility for Central Public Sector Enterprises (CPSEs) by Ministry of Public Enterprises and Ministry of Heavy Industries This guideline on Corporate Social Responsibility (CSR) was issued by Ministry of Public Enterprises on 9th April 2010 The Salient Features of Guideline: 1. Planning of CSR Action Plan: The planning for Corporate Social Responsibility should start with the identification of the activities to be undertaken. Company specific Corporate Social Responsibility strategies should be developed that mandate the design of Corporate Social Responsibility Action Plan, with a shift from the casual approach to the project based accountability approach. Each of these plans should clearly specify requirements relating to baseline survey; activities to be undertaken, budgets allocated, time-lines prescribed, responsibilities and authorities defined and major results expected. 2. Implementation of CSR Action Plan: CSR initiatives of Central Public Sector Enterprises (CPSEs) should consider the following parameters for identification/selection of schemes/projects: a) The time-frame and periodic milestones should be finalized at the outset; b) CSR activities should help in building a positive image of the company in the public perception; c) CSR projects may be closely linked with the principles of sustainable development, ensure gender sensitivity, skill enhancement, entrepreneurship development and employment generation by co-creating value with local institutions/people; d) Public-Private Partnership between the Government and the Central Public Sector Enterprise could also be encouraged to leverage the strengths of the latter in Disaster management; e) CSR is to be implemented by Special Agencies and generally NOT by staff of the CPSE concerned and f) Activities related to Sustainable Development will form a significant element of the total initiatives of CSR. 3. National CSR Hub: The Department Of Public Enterprises, in conjunction with Standing Conference of Public Enterprises (SCOPE) and the CPSEs will create a National CSR Hub, which will undertake/facilitate the activities like Nation-wide compilation, documentation, and creation of database; Advocacy; Research; Conferences ,Seminars, Workshops - both national and international etc.

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4. Monitoring Monitoring of the CSR projects is very crucial and needs to be a periodic activity of the Enterprise. The Boards of CPSEs should discuss the implementation of CSR activities in their Board meetings. CSR projects should also be evaluated by an independent external agency. C. Amendment in Companies Act The Companies Bill 2009, which is expected to be brought before India Parliament for consideration in the forthcoming Budget session, stipulates companies to earmark 2% of their annual profits for taking up CSR activities. Factors influences companies using CSR Many companies think that corporate social responsibility is a peripheral issue for their business and customer satisfaction more important for them. They imagine that customer satisfaction is now only about price and service, but they fail to point out on important changes that are taking place worldwide that could blow the business out of the water. The change is named as social responsibility which is an opportunity for the business. Some of the drivers pushing business towards CSR include: The Shrinking Role of Government In the past, governments have relied on legislation and regulation to deliver social and environmental objectives in the business sector. Shrinking government resources, coupled with a distrust of regulations, has led to the exploration of voluntary and non-regulatory initiatives instead. Demands for Greater Disclosure There is a growing demand for corporate disclosure from stakeholders, including customers, suppliers, employees, communities, investors, and activist organizations. Increased Customer Interest There is evidence that the ethical conduct of companies exerts a growing influence on the purchasing decisions of customers. In a recent survey, more than one in five consumers reported having either rewarded or punished companies based on their perceived social performance. Growing Investor Pressure Investors are changing the way they assess companies' performance, and are making decisions based on criteria that include ethical concerns. The Social Investment Forum reports that in the US in 1999, there was more than $2 trillion worth of assets invested in portfolios that used screens linked to the environment and social responsibility Competitive Labour Markets Employees are increasingly looking beyond paychecks and benefits, and seeking out employers whose Philosophies and operating practices match their own principles. In order to hire and retain skilled employees, companies are being forced to improve working conditions.

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Supplier Relations As stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their partners conduct themselves in a socially responsible manner. Some are introducing codes of conduct for their suppliers, to ensure that other companies' policies or practices do not tarnish their reputation. Positive outcomes of using CSR policy The concept of corporate social responsibility is now firmly rooted on the global business agenda. But in order to move from theory to concrete action, many obstacles need to be overcome. A key challenge facing business is the need for more reliable indicators of progress in the field of CSR, along with the dissemination of CSR strategies. Transparency and dialogue can help to make a business appear more trustworthy, and push up the standards of other organizations at the same time. Some of the positive outcomes that can arise when businesses adopt a policy of social responsibility include: 1) Company Benefits Improved financial performance; Lower operating costs; Enhanced brand image and reputation; Increased sales and customer loyalty; Greater productivity and quality; More ability to attract and retain employees; Reduced regulatory oversight; Access to capital; Workforce diversity; Product safety and decreased liability. 2) Benefits to the Community and the General Public Charitable contributions; Employee volunteer programs; Corporate involvement in community education, employment and homelessness programs; Product safety and quality. 3) Environmental Benefits Greater material recyclability; Better product durability and functionality; Greater use of renewable resources; Integration of environmental management tools into business plans, including life-cycle assessment and costing, environmental management standards, and eco-labeling. Challenges in INDIA In India, over time, the expectations of the public has grown enormously with demands focusing on poverty alleviation, tackling unemployment, fighting inequality or forcing companies to take affirmative action. The historical driver of CSR has been philanthropy or a sense of ethics. After the Second World War, a variety of national and international regulations arose through bodies such as the International Labor Organization (ILO) emphasizing the need for an active social policy for transnational companies (TNCs). This additional driver, international institutions, has relevance for
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India through the work of the ILO, the OECD, Socially Responsible Investment (SRI), the SA8000 Social Accountability scheme and through the work of the UN Commission on Human Rights which tackled the human rights responsibilities of TNCs. In India, some public sector companies can spend up to 5% of their profits on CSR activities. Pressure groups have been quite successful in inducing companies to fund CSR schemes, even to the point of using kidnapping as a tactic! Forms of CSR differ according to the country or region. In Europe, for example, notions of CSR probably developed out of the Church and a sense of ethics. In India, CSR has evolved to encompass employees, customers, stakeholders and notions of sustainable development or corporate citizenship. In transnational companies, the approach to CSR typically emerges from one of three elements including a decentralized strategy (which might examine human rights), a centralized strategy (which would be company-wide) or a globally integrated strategy (which would include Coca Cola or oil companies where local actions can impinge globally).challenges for using CSR in front of companies as follows: Lack of Community Participation in CSR Activities: There is a lack of interest of the local community in participating and contributing to CSR activities of companies. This is largely attributable to the fact that there exists little or no knowledge about CSR within the local communities as no serious efforts have been made to spread awareness about CSR and instill confidence in the local communities about such initiatives. The situation is further aggravated by a lack of communication between the company and the community at the grassroots. Need to Build Local Capacities: There is a need for capacity building of the local non-governmental organizations as there is serious dearth of trained and efficient organizations that can effectively contribute to the ongoing CSR activities initiated by companies. This seriously compromises scaling up of CSR initiatives and subsequently limits the scope of such activities. Issues of Transparency: Lack of transparency is one of the key issues brought forth by the survey. There is an expression by the companies that there exists lack of transparency on the part of the local implementing agencies as they do not make adequate efforts to disclose information on their programs, audit issues, impact assessment and utilization of funds. This reported lack of transparency negatively impacts the process of trust building between companies and local communities, which is a key to the success of any CSR initiative at the local level. Non-availability of Well Organized Non-governmental Organizations: It is also reported that there is non-availability of well organized nongovernmental organizations in remote and rural areas that can assess and identify real needs of the community and work along with companies to ensure successful implementation of CSR activities. This also builds the case for investing in local communities by way of building their capacities to undertake development projects at local levels. Visibility Factor: The role of media in highlighting good cases of successful CSR initiatives is welcomed as it spreads good stories and sensitizes the local population about various ongoing CSR initiatives of companies. This apparent influence of gaining visibility and branding exercise often leads many nongovernmental organizations to involve themselves in event-based programs; in the process, they often miss out on meaningful grassroots interventions. Narrow Perception towards CSR Initiatives: Non-governmental organizations and Government agencies usually possess a narrow outlook towards the CSR initiatives of companies, often defining CSR initiatives more donor-driven than local in approach. As a result, they find it hard to decide whether they should participate in such activities at all in medium and long run. Non-availability of Clear CSR Guidelines: There are no clear cut statutory guidelines or policy directives to give a definitive direction to CSR initiatives of companies. It is found that the scale of

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CSR initiatives of companies should depend upon their business size and profile. In other words, the bigger the company, the bigger is its CSR program. Lack of Consensus on Implementing CSR Issues: There is a lack of consensus amongst local agencies regarding CSR projects. This lack of consensus often results in duplication of activities by corporate houses in areas of their intervention. This results in a competitive spirit between local implementing agencies rather than building collaborative approaches on issues. This factor limits companys abilities to undertake impact assessment of their initiatives from time to time. CORPORATE SOCIAL RESPONSIBILITY IN INDIA India has a large public sector with several huge corporations and companies operating in various sectors like petroleum, heavy industries, aviation, mining, steel, equipment manufacturing and shipping. The Indian public sector has had a long tradition of corporate social responsibility and the initiatives of corporations like the Oil and Natural Gas Corporation Ltd. (ONGC), Steel Authority of India Ltd (SAIL) and Gas Authority of India Ltd. (GAIL) have played an important role in the development of several backward regions of the country. Indian Airlines and Bharat Heavy Electronics Ltd (BHEL) have been widely acclaimed for their disaster management efforts. The National Mineral Development Corporation Ltd. (NMDC) has contributed a lot in building infrastructure like school buildings, roads, Anganwadi buildings and also providing ambulance and medical facilities in and around its operational area. Although CPSEs have started giving attention towards their social responsibility, the private sector has to go a long way in coming up to the expectations in the area of social responsibility. Indian companies following CSR Steel Authority of India Limited (SAIL): SAIL is the largest steel maker of India and amongst the top public sector enterprises in terms of turnover with the prestigious status of Maharatna. With this comes the responsibility of being a catalyst for positive change. Apart from the business of manufacturing steel, the objective of the company is to conduct business in ways that produce social, environmental and economic benefits to the communities in which it operates. One of SAILs Core Values Concern for People also reflects the companys commitment towards society at large, which it endeavors to fulfill through wide-ranging and diversified initiatives and activities under Corporate Social Responsibility (CSR).For SAIL, CSR was an integral part of its operations ever since the establishment of its production units in remote locations of the country since the early 1950s. Tata Steel: Tata Steels CSR initiatives have been recognized with many awards. Since 2006, the company has showcased an exceptional track record of receiving this coveted award initiated by the CII-ITC Centre of Excellence for Sustainable Development. Recently the Company has received the CNBC Asias Corporate Social Responsibility Award at CNBC-TV 18 India Business Leader Awards (IBLA) and the corporate social responsibility award at the seventh edition of NDTV Profit Business Leadership Awards. In addition to this, Tata Steel has been recognized by other prestigious awards like Safety and Health Excellence Recognition Award 2010 by the World Steel Association, was adjudged as the winner in Corporate Social Responsibility at the Procurement Leaders Forum- 2011 and honored with the Rashtriya Khel Protsahan Puruskar for the second consecutive year in 2010. Other esteemed awards include the CSR Excellence Award 2010 by ASSOCHAM, National CSR Committee and CSR Organizing Committee; the Business world-FICCI-SEDF Corporate Social Responsibility Award 2009; the Best Corporate Social Responsibility Practice Award at the 6th Social and Corporate Governance Awards 2010 by the Bombay Stock Exchange. Dabur: Daburs CSR initiatives are driven through Sustainable Development Society or SUNDESH, an outcome of the vision of Dabur India Ltd founder Dr. S.K Burman. Sustainable Development
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Society (SUNDESH) is sworn to the mission of ensuring overall socio-economic development of the rural & urban poor on a sustainable basis, through different participatory and need-based initiatives. It aims to reach out to the weaker and more vulnerable sections. CONCLUSION There is a need to promote a drive in Government Companies towards greater accountability on Corporate Social Responsibility (CSR). In order to attain the social objectives, there is a need for framing a CSR Policy in every company, as given under voluntary guidelines by Ministry of Corporate Affairs, for prioritization of activities for social spending and allocation of separate funds for this purpose. Moreover, to have an impact of the CSR spending and utilization of allocated budget, there should be a system of periodical monitoring and reporting to the Board of Directors as given in guidelines by Ministry of Heavy Industries and The Companies Bill 2009, which is expected to be brought before Parliament for consideration in the forthcoming Budget session. CSR is regarded as an important business issue of Indian companies irrespective of size, sector, and business goal. Therefore, CSR activity has to play a positive impact not only on development of community but also on their business Promotions. REFERENCES Kotler, Philip and Nancy Lee.,(2005) Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause, John Wiley and Sons, Mathur, (2005) Corporate Governance And Business Ethics: Text And Cases, McMillan India, Ltd. http://www.business-standard.com/india/news/govt/s-approach-to-csr-gives-scope-for corruption/407860/. (2009). CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY GUIDELINES. India Corporate Week, December 14-21, 2009, Ministry of Corporate Affairs, Government of India. (2009). CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY GUIDELINES. India Corporate Week. Ministry of Corporate Affairs, Government of India. Dr. Suri Sehgal, Chairman & Founder Institute of Rural Research & Development (IRRAD) Gurgaon. Professor Leo Burke, Associate Dean and Director, Executive Education, Notre Dame University, Indian Brand Equity Foundation, www.ibef.org. ACCSRs State of CSR in Australia Annual Review 2010/11. Trust and Corporate Social responsibility: Lessons from India by Ashwani Singla, Chief Executive Officer, & Prema Sagar, Founder & Principal, Genesis Public Relations Pvt. Ltd. Business Line, Business Daily from THE HINDU group of publications, Wednesday, Jun 23, 2010. EurAsia Bulletin Volume 10 No. 11&12 Nov-December 2006.
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Corporate Social Responsibility Practices in India, Times Foundation, the corporate social responsibility wing of the Bennett, Coleman & CO. Ltd. Cappelli, H. Singh, J. Singh, & M. Useem, The India Way, Academy of Management Perspectives, 24, 2, May 2010, page 6-24. CSR in India: Some Theory and Practice in Wall Street Journal dated Thursday, April 23, 2009. Ministry of Environment and Forest, (2003) Charter on Corporate Responsibility for Environmental Protection. Organisation for Economic Co-operation and Development, (2008), OECD Guidelines for Multinational Enterprises. Surinder Kumar, (2009). CSR: A Condition Precedent for Appropriate Response in Case of Industrial Disaster, Proceedings of International Conference on CSR and Industrial Disasters, Bhopal, India.

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A Study on impact of urbanization on Agriculture and Urban sprawl - Special reference to Chidambaram Town
Dr. G. Vedanthadesikan Sr.Assistant Professor, Centre for Rural Development, (On deputation to Rural Development Wing, Directorate of Distance Education, Annamalai University, Annamalai Nagar 608 002 U. Mathivanan Assistant Professor, Economics Wing, Directorate of Distance Education, Annamalai University, Annamalai Nagar 608 002 Introduction Urbanization happens because of the increase in the extent and density of urban areas. The density of population in urban areas increases because of the migration of people from less industrialized regions to more industrialized areas. Causes of urbanization Urbanization usually occurs when people move from villages to cities to settle, in hope of a higher standard of living. This usually takes place in developing countries. In rural areas, people become victims of unpredictable weather conditions such as drought and floods, which can adversely affect their livelihood. Consequently many farmers move to cities in search of a better life. This can be seen in Karnataka as well where farmers from Raichur, Gulbarga districts which are drought-stricken areas, migrate to Bangalore to escape poverty. Cities in contrast, offer opportunities of high living and are known to be places where wealth and money are centralized. Most industries and educational institutions are located in cities whereas there are limited opportunities within rural areas. This further contributes to migration to cities. But in the context of towns due to urbanization the adjacent agricultural areas are affected and the urban sprawl further deteriorated the town and the villages. Selection of the study area and the samples For the purpose of this study Chidambaram Town is divided into three circles. The first circle comprises four sannathi streets and four car streets. Second circle comprises the areas next to the car streets but before the extension areas. The third circle comprises the extension areas. From the four sides of the extension area 98 agricultural respondents were selected randomly who are affected by the urbanization. Now, the third circle (extension area) in the study area was previously the agricultural fields. Normally, the extension of human settlements affects the agricultural activities. For the past 15 to 20 years, the human settlements rapidly replaced the agriculture in all the four fields of the study area. The data of climate change at cuddalore district, particularly Chidambaram taluk is entirely different one. This taluk faced heavy flood and storm and or heavy drought. Authentic information from meteorological department pointed out that for the past ten years, this taluk received the rainfall not only during the monsoon and also during winter, particularly at the end of December and January. For example, during October and November
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2011, this district received surplus rainfall, that made the farmers much happy to continue their farming activities. Unfortunately, at the end of December 2011, the coastal areas of cuddalore, particularly Chidambaram taluk is totally affected by the famous cyclone Thane. The farmers were supposed to harvest the paddy during the second week of January 2012. But the thane cyclone destroyed the crops completely that left the farmers in lurch. It is a well known fact that farmers are unable to get even the production cost or at least the 75% of the investment. Hence, to the impact of urbanization on agriculture, it is divided to collect the information from the agricultural people from the study area. Fortunately, 98 respondents are available in the study area, which have been already selected as a sample from the three circles. First of all a particular question is raised that are you continuing the agricultural activities followed by the questions why you are not continuing the agricultural activities. The responses are tabulated as follows: Sl.No. Table 1 Classification of agricultural respondents on the basis of farm size Area Farm size Total Small Medium Marginal Large farmers farmers farmers farmers 1. First circle 11 12 5 6 34 (32.35) (35.29) (14.71) (17.65) (100.00) 2. Second circle 12 15 4 5 36 (33.33) (41.67) (11.12) (13.88) (100.00) 3. Third circle 15 9 2 2 28 (53.58) (32.14) (7.14) (7.14) (100.00) Total 38 36 11 13 98 (38.78) (32.65) (12.24) (16.33) (100) Source: computed Figures in parenthesis denotes percentage

Out of 98 respondents belong to agricultural as an occupation, 38 (38.78%) respondents are the small farmers, in which the respondents are in the third circle followed by 12 in second circle and 11 in the first circle. 32 (32.65%) respondents are the medium farmers in which 14 of them are in the second circle. 16 are the large farmers and 12 are the marginal farmers, in which maximum respondents living in the first circle. Table 2 Do you continue the farming activities Sl. NO Area Yes No 1. First circle 12 22 (35.29) (64.71) 2. Second circle 10 26 (27.78) (72.22) 3. Third circle 6 22 (21.43) (78.57) Total 28 7 (28.57) (71.43) Source: computed Figures in parenthesis denotes percentage Total 34 (100.00) 36 (100.00) 28 (100.00) 98 (100.00)

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Out of 98 respondents belong to agricultural group, 70 (71.43%) respondents stated that they did not continue the farming activities. Since, these 70 respondents come under small and medium farmers category. The 28 respondents are coming under marginal and large farmers category. Table 3 Reasons for not continuing the farming activities Sl.No. Reason Farm size Small farmers Medium Marginal Large N= 31 farmers farmers farmers N=25 N=6 N=8 1. Inclement monsoon 31 22 6 8 2. Surrounding field are 31 20 6 3 converted into plots 3. Plots reduced the water 31 23 6 6 column 4. Stagnation of water due 26 22 6 6 to plots 5. Forced by the real estate 31 20 2 2 people 6. Construction of bypass 28 22 5 4 roads 7. Unable to take up the 31 23 4 6 agricultural implements 8. Water channels are 31 25 5 6 disturbed or closed 9. Higher value of land 31 25 6 8 Source: computed Figures in parenthesis denotes percentage No doubt that urbanization made an impact on agriculture. Due to urbanization when compared with others, small farmers are more affected more in number. To find out this 9 reasons have been given to the respondents. This is the multi-response reasons. In the case of small farmers, except two reasons, i.e., stagnation of water due to plots and construction bypass, all the 31 respondents stated that the remaining other 7 are the reasons for urbanization. Even for the remaining two out of 31, 26 and 28 stated these two should also be in the reasons. Since, 5 and 3 small farmers did not have the problems of stagnation of water due to plots and construction of bypass respectively. Here, the main reason for not continuing the farming activities are the fields of small farmers are surrounded by the plots forced by the real estate people to sell and water shortage or non-availability of water made them to continue the farming activities. Moreover, they felt that instead of continuing the farming activities, it is better to sell the land at the higher price and the income could be deposited that fetches regular income instead of loss. In the case of medium farmers also all the 23 respondents felt that due to urbanization process water channels are either blocked or closed and the value of land is increased. Except few almost 95% of the medium farmers strongly felt the factors are the main reasons for destructing the agricultural activities.

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In the case of marginal farmers and large farmers almost all of them strongly agreed that the stated nine reasons are the cause of destruction of agriculture by means of urbanization. Further, it is important to note that since, some of the respondents are keeping their lands uncultivated; it led to lost to them. Out of 31 respondents from the small farmers category and 25 from medium farmers category 14 and 11 respectively sold out their lands for the best price. To keep their social status and prestige the marginal and large farmers are keeping their land. Another point to be noted is, since, they have to good health status, and they are expecting that further urbanization may increase the value of the land. Urban sprawl is also analyzed here. Urban sprawl means increase in spatial scale or increase in peripheral area of towns. But urban sprawl has its own drawbacks. They are: i. The town and its infrastructure may not be adequately planned. ii. Traffic is high with increased time needed for community. iii. Essential services are not reachable within time. iv. City administration becomes extremely difficult. To verify the above, four points have been converted into statements and opinion of the respondents has been collected on the basis of five point scale. Table 4 Opinion of the respondents on urban sprawl Sl. No. Area Town and its infra-structure is not adequately planned Agree Strongly agree Disagree Strongly No comment disagree 1. First circle 5 85 6 4 (5.00) (85.00) (6.00) (4.00) 2. Second 10 90 circle (10.00) (90.00) 3. Third circle 4 19 77 (4.00) (19.00) (77.00) Total 19 175 25 81 (20.00) (57.67) (19.00) (3.33) Table 4 continued. Sl. No. Area Traffic is high with increased time needed for commuting Agree Strongly agree Disagree Strongly No comment disagree 1. First circle 18 82 (18.00) (82.00) 2. Second 15 50 30 5 circle (15.00) (50.00) (30.00) (5.00) 3. Third circle 20 80 (20.00) (80.00) Total 33 132 50 85 (20.00) (57.67) (19.00) (3.33) Total 100 100 100 300 (100) Total 100 100 100 300 (100)

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Table 4 continued. Sl. No. Area Agree 1. 2. 3. First circle Second circle Third circle Total 2 (2.00) 15 (15.00) 29 (29.00) 46 (20.00)

Essential services not reached in time Strongly agree Disagree Strongly disagree 10 88 (10.00) (88.00) 28 16 41 (28.00) (16.00) (41.00) 41 16 14 (41.00) (16.00) (14.00) 69 42 143 (57.67) (42.00) (3.33)

Total No comment 100 100 100 300 (100) Total 100 100 100 300 (100)

Table 4 continued. Sl. No. Area Town administration become extremely difficult Agree Strongly Disagree Strongly No agree disagree comment 1. First circle 10 80 5 5 (10.00) (80.00) (5.00) (5.00) 2. Second 15 75 6 4 circle (15.00) (75.00) (6.00) (4.00) 3. Third circle 11 81 3 5 (11.00) (81.00) (3.00) (5.00) Total 36 236 14 14 (20.00) (57.67) (19.00) (3.33) Source: computed Figures in parenthesis denotes percentage

With regard to town and its insufficient planned infrastructure, 175 (58.33%) respondents from first and second circle strongly agreed this one and 19 (6.33%) of the first and second circle agreed this statement. Only 10 respondents from the first circle disagreed this statement. The reasons for agreement are due to the absence of order in the settlements and unauthorized encroachments. Whereas in the third circle 81 (27%) and 25 (8.33%) respondents respectively disagreed the statement since, they are in the extension area and their settlement and the common infra-structure is well-planned. Regarding the increase of traffic, out of 30 respondents 132(44%) and 33 (11%) respondents strongly agreed the statement. They are from first two circles in which 100 respondents are from the first circle itself. Whereas 35 from second circle and 100 from third circle disagreed the statement since there is no traffic congestion in their area. In the case of essential services normally the first two circles, (on the basis of the distance) get benefited, whereas the outskirts do not get the same. From the table, it is inferred that the same thing is happened. In the context of extreme difficulty in town administration, out of 300 respondents, 236 (78.67%) opined that the administration is facing much difficulty to and maintain and run the show. Because, when urbanization extends, it is very difficult to the administration to provide the basic needs and infrastructural facilities.

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Findings From the above analysis it is found that the urbanization affected the agricultural activities in the study area considerably and the urban sprawl affected the urbanized area of the study area. Policy suggestions 1. Regulation of agricultural filed is needed. 2. Conversion of agricultural land into residential area should be stopped by a government order. 3. Farmers are to be provided all infrastructural facilities to continue farming instead of selling 4. Avoiding further construction of houses particularly apartments in the first two circles. 5. A well planned construction having all the facilities in the third circle is needed References Kundu,A. Sarangi,N. Dash,B.P (2003)Rural Non-Farm Employment : An Analysis of Rural Urban Interdependence , Working Paper, 196, Overseas Development Institute, London. (Kundu, Lalitha and Arora (2001) Growth Dynamics of Informal Manufacturing Ssector in Urban India : An Analysis of Interdependence , in Kundu, A.and Sharma, A. N.(eds), Informal Sector in India, Institute of Human Development, New Delhi Kundu, A. and Gupta, S.( 2000) Declining population mobility, Liberalisation and growing Regional Imbalances -- The Indian Case in Kundu, A. (ed ) , Inequality, Mobility and urbanization, Indian Council of social Science Research, Manak Publications, New Delhi Moonis Raza and Kundu A.(1978) : Some aspects of Disfunctional Characteristics of Urbanisation. SocioEconomic Development Problems in South and South East Asia, Popular Prakashan, Bombay. Mukherji, Shekhar (1993) Poverty Induced Migration and Urban Involution in India : Cause and Consequences, International Institute for population Sciences. Pp 1-91. Mukherji, Shekhar (1995), Poverty Induced Migration and Urban Involution in ESCAPCountries, Paper presented at UN-ESCAP, Expert Group Meeting on Poverty and Population in ESCAP Region, Bangkok, Sept 1995.pp 1-45 Mukherji, Shekhar (2001), Linkage between Migration , Urbanisation and Regional disparities in India : Required Planning Strategies. IIPS Research Monograph, Bombay, pp. 1-226. Nayak, P. R. (1962): "The Challenge of Urban Growth to Indian Local Government" in Turner (ed.) India's Urban Future, University of California Press, Berkley. Pathak, P and Mehta, D. (1995) Recent Trend in Urbanisation and Rural-Urban Migration in India : Some Explanations and Projections , Urban India, vol.15, No.1, pp.1-17. Premi, M. K. (1991): "Indias Urban Scene and Its Future Implications", Demography India, 20(1) Registrar General (1991) Census of India , Emerging Trends of Urbanisation in India, Occasional paper No. 1 of 1993, Registrar General, New Delhi Registrar General, 2001: Census of India, 2001, India, 2A, Mansingh Road, New Delhi 110011, 25th July, 2001 Sen, A. and Ghosh, J. (1993): Trends in Rural Employment and Poverty Employment Linkage, ILO-ARTEP Working Paper, New Delhi Sovani, N. V. (1966): Urbanisation and Urban India, Asia Publishing House, Bombay United Nations (1993) World Urbanisation Prospects- The 1992 Revision ,United Nations.

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Barriers to Innovation Adoption: A study on SMEs operating in the knitwear cluster of Tirupur District
Dr. (Mrs.) S. Poornima, Associate Professor, Department of Business Management, PSGR Krishnammal College for Women, Peelamedu, Coimbatore, India. E mail: sripournima@gmail.com. Mrs. Savitha Nair, Assistant Professor, RVS Institute of Management Studies and Research, Sulur, Coimbatore, India. E mail: savipradhi@yahoo.com Abstract Innovation plays a crucial role in the economic development of nations. With increasing competition and paced information dissemination, the survival and success of enterprises indisputably depend on their ability to innovate. Facilitators of innovation have been largely researched in developed economies, whereas research on SMEs in emerging economies, especially with reference to barriers to innovation, has been largely neglected. Though it has been empirically proved that innovativeness will help organizations to enhance upon their performance, not all firms engage in innovative activities. SMEs are found to have lower propensity to engage in innovation on account of several barriers related to cost, market, technology, regulation etc. The present study investigates the barriers faced by the SMEs in the knitwear cluster of Tirupur, in their efforts to adopt different types of innovative practices in their organizations. The results throw light on the issues faced by the firms in the cluster and suggest the efforts that can be taken to mitigate the impact of such barriers, thereby promoting innovative practices essential to face the international business challenges. Key words: Innovation, Barriers, SMEs, Knitwear Cluster 1. Introduction Innovations have acquired a key role in the growth and competition strategies of firms today. The concept has received much attention over the past six decades from the industry as well as the academia. Innovation plays a crucial role in the economic development of nations. It is regarded as an essential tool to stimulate growth and enable firms to master the competition brought out by the forces of globalization and thereby drive organizational success (Tiwari, Buse, & Herstatt, 2007). There are empirical evidences indicating that implementing innovations improve organizational performance (Sawang, Unsworth, & Sorbello, 2007). In a business setting, innovation is considered to be central in creating strategic changes, through which a firm can develop positive outcomes in the form of improved business performance and competitive advantage. Innovation also means anticipating the needs of the market, offering additional quality or services, organizing efficiently, mastering details and keeping costs under control (Zhang, Lim, & Cao, 2004). A firms innovation strategy has to be multidimensional, ensuring the coordinated efforts of all the departments and functions involved. The dynamics of innovation is however complex as the decision to adopt innovations is surrounded by several factors that may either facilitate or create constraints for successful innovation adoption. This can be especially true for the Small and Medium enterprises (SMEs) operating in the Knitwear cluster of Tirupur competing in the international hosiery market with tough competitors from across the world. For these SMEs, constant innovative practices and their successful diffusion down their organizations have become imperative to face the stiffened international competition.

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2. Innovation: Meaning and Dimensions Organizational innovation is a vast multi-disciplinary area of research. Many authors have regarded innovation as a key factor for a company to survive and grow on a long term. While most researchers agree upon the definition of innovation, the research is fragmented from different perspectives with efforts being made towards a cumulative body of research and a general theory (Read, 2000). The concept of innovation is multidimensional. In general, innovation research can be approached from the perspectives of an individual, an organization, and a nation, focusing on personal traits, innovation management, and a nations source of competitiveness, respectively (Yeh-Yun & Yiching, 2007). According to Rogers (1998), innovation is an idea, practice or object that is perceived as new by an individual or other unit of adoption. According to Cooper (2003), innovation refers to alteration of what is established by the introduction of new elements or forms. In the context of SMEs, innovation can be treated as any change that adds value to the organization. This value need not be only financial, but may also represent product quality, employee satisfaction, customer satisfaction or other less tangible measures (O'Leary, 2005). Existing literature classifies organizational innovation into different classes. Innovations can be either technological (product, service, process) or administrative (organizational structure, administrative process or programmes) (Damanpour & Gopalakrishnan, 2001). OSLO manual suggests that innovations adopted in an organization can be classified as Technological (product, process), marketing or organizational (OECD, 2010). Technological innovations are those that occur in the operating component and affect the technical system of an organization. It can be the adoption of a new idea pertaining to a new product or service, or the introduction of new elements in an organizations production process or service operations. These innovations may be radical or incremental in nature. While marketing innovations involve new marketing methodologies to attract potential and existing customers, organizational or administrative innovations refer to new or improved working systems and methods in the organization to improve overall operational efficiency. 3. Barriers to Innovations Though it has been proven by experience and through research, that innovation adoption can lead to better firm performance and competitive advantage, not all firms undertake innovations. A number of studies show that firm differences in barriers to innovation were related to cost, institutional constraints, human resources, organizational culture, flow of information and Government policy (Baldwin & Lin, 2002). In most of the studies relating to barriers of innovation, cost involved had been identified as the major barrier. High innovation costs have a negative and significant influence on the innovation propensity (Shiang & Nagaraj, 2009). According to the Canadian Survey of Innovation and Advanced Technology (SIAT), apart from the cost related problems, impediments that arise from government policy, labour market imperfections, internal organization problems and imperfections in the market for information were identified to be barriers for advanced technology adoption (Baldwin & Rafiquzzaman, 1996). Regulatory environments impose unwarranted burdens on SMEs through high and regressive compliance costs, lack of transparency in the application of rules and legislation, inefficient bankruptcy laws and procedures, lack of clarity and lucidity in product standards in world markets, unfair or non-transparent competition policy and ineffective anti-corruption measures (OECD, 2010). SMEs, even in industrialized countries, are expected to face relatively more barriers to innovation than large firms due to inadequate internal resources and expertise (Hadjimanolis, 1999). The decision to innovate often takes place under great uncertainty (Rosenberg, 2004). The barriers internal to an SME, that may hamper its internationalization can be limited information on foreign markets, supply chain and technology partners; lack of time and resources for international engagement; lack of qualified personnel and knowledge to access markets; shortage of capital to

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finance innovations and promote exports and deal with slow supply chain payment schedules and lack of sufficient product and service quality to meet customer requirements (OECD, 2010). 4. The Knitwear Cluster of Tirupur Since 1870, Tirupur has evolved as an important centre of international textile business. Today, due to its constant performance excellence, it is the principal garment clusters in India, providing employment to more than 3 lakh people directly and indirectly. This dollar city accounts for almost 90% of Indias cotton knitwear exports, worth an estimated US$ 1 billion thus contributing significantly to the foreign exchange earnings of the country (SMERA, 2011). Tirupur knitwear industry has a number of units all along its value chain starting from spinning, knitting, wet processing, printing, garment manufacturing and exports. In addition, there are ancillary units supplying buttons, laces, embroidery, cones and yarn etc. The main stakeholders are exporters (700 approx.) and domestic manufacturers (1700 approx.) supported by allied manufacturers and suppliers. Staying innovative is especially important for the firms in this cluster as they are competing in the international market which has tough competitors from other Asian countries. For these firms, innovation is an essential precondition for their success as well as survival and hence any kind of barrier limiting innovations will have larger consequence on their business. Table 1: Number of Production Units in Tirupur (Industry Estimates) Operations Number of Units Knitting Units 1500 Dyeing and Bleaching 700 Fabric Printing 500 Garment making 2500 Embroidery 250 Other ancillary units 500 Compacting and Calendaring 300 Total 6250 Source: www.tiruppur.tn.nic.in/textile.html 5. Objectives and scope of the study The primary objective of the study is to identify the major barriers that affect the innovativeness of SMEs in the knitwear cluster of Tirupur. The study further explores the impact of such barriers on the innovativeness of these firms. For addressing these objectives, the following hypothesis has been formulated to be empirically tested through regression. H1: Barriers to innovation as perceived by the entrepreneurs will have a negative impact on firms propensity to adopt innovations 6. Methodology of the study The study is designed to describe the characteristics of the variables of interest and to further test the hypotheses framed to explain the nature of relationship between the variables. The researcher conducted an empirical study to collect and analyze data from the SMEs of the knitwear Industry of Tirupur. The population for the purpose of the study comprised of 6250 SMEs in the cluster, of which 384 constituted the sample. Stratified random sampling technique was adopted to ensure enough representations from all the six major segments of knitwear manufacturing such as knitting, wet processing, garmenting, printing/embroidery, compacting and others. A pre-tested questionnaire was administered on the entire sample to collect the required data. The primary data collected were sorted, filtered and tabulated for further analysis. Descriptive statistical analysis was conducted to measure the
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data appropriately. Inferences were drawn based upon the regression analyses performed to test the relationships between the variables. 7. Data Analysis and Findings Barriers to innovation adoption have been identified from literature (BIS, 2009) and validated by consulting the experts in the industry as well as academics. Initially, 12 variables of barriers were identified. The barriers were categorized into internal and external barriers. The variables measuring internal barriers were: lack of funds within business; lack of qualified personnel; lack of information on technology; lack of information on markets; lack of collaboration with universities/ labs; and no need due to prior innovations. The variables measuring external barriers were: lack of finance from outside; market domination by established businesses; uncertain demand for innovative products; no need because of no demand for innovations; excessive government regulation in industry; and lack of government incentives for innovation. Reliability and factor analysis were performed using SPSS. Insignificant variables as well as those which showed cross loading were removed during data purification. Based upon the results of EFA and reliability tests, 5 variables of barriers were dropped (Cronbach's Alpha= 0.642 after variables were dropped). The responses on barriers were collected and measured using Likerts five point scale. The technological (product and process related), administrative and marketing innovations were measured using Likerts five point scale. Technological innovations initially had 9 variables. To improve the reliability, 1 variable namely eliminating non value adding activities was dropped (Cronbach's Alpha =.899 after the variable was dropped). Marketing innovations were measured by 3 variables (Cronbach's Alpha= .826) and administrative innovations were measured by 6 variables (Cronbach's Alpha= .917) respectively. The results show that majority of the respondents are engaged in the garmenting function of knitwear manufacturing (34.9 %). There are adequate responses from all the segments meaning that the results on barriers and innovativeness will depict an overall picture of the entire population under the study. Table 2: Respondents Business Profile Segment of Knitwear Value Chain Frequency Knitting 78 Wet-Processing 41 Compacting 37 Garmenting 134 Printing/Embroidery 58 Others 36 Total 384 Source: Primary data Percentage 20.3 10.7 9.6 34.9 15.1 9.4 100.0

An analysis of respondents perception on the barriers to innovation adoption revealed that majority of the respondents has felt the presence of internal as well as external barriers affecting their businesses. The internal barriers are felt more in comparison with the external barriers. Among the internal barriers, lack of information on technology is felt to be the prominent barrier, followed by lack of qualified personnel and lack of information on markets. Among the external barriers, majority feel that market is sometimes dominated by established businesses.

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Table 3: Respondents Perception on Barriers to Innovation Adoption (Responses in %) Barriers to Innovation Adoption Never Rarely Sometimes Often Always Mean Statistics Lack of internal funds 5.5 31.5 33.6 23.7 5.7 3.05 Lack of qualified personnel 5.2 17.4 28.4 37.2 11.7 3.33 Lack of information on 3.4 9.9 29.4 47.7 9.6 3.50 technology Internal Lack of information on 6.5 13.8 40.4 26.8 12.5 3.25 markets No need due to prior 17.2 25.8 40.6 12.2 4.2 2.52 innovations Market dominated by .5 29.7 49.0 15.1 5.7 2.96 established businesses External Uncertain demand for 6.0 17.4 43.2 26.3 7.0 2.14 innovative products Source: Primary data Among the various forms of technological innovations, majority of the respondents often have introduced new/improved products/designs (52.9 %), invested in new and advance machineries (34.6 %) and took efforts to improve quality and processes. Majority are constantly improving upon the quality of their products (50.3 %). Majority of the respondents often try out innovative administrative practices and offer training to their employees (43.2 %). Marketing related innovations are also often pursued by majority of the respondents. On the technological frontier, innovations to improve quality and processes are prominent. Table 4: Innovation Adoption by the respondents (Responses in %)
Innovation adoption Technical New/improved products/designs Investment in advanced machineries Novelty in products/designs Fund allocation Improved quality Cost reduction Process improvement Variable cost reduction Administrative New administrative Practices Improved QMS Improved HRMS Improved Information on Technology Renewed org. structure Providing training Marketing Improved packaging/ appearance etc, Improved marketing techniques Renewed pricing mechanism Never 6.8 3.4 .5 1.1 3.4 .8 .8 3.4 1.2 .5 3.6 3.4 4.2 1.1 Rarely 14.6 17.2 12.0 14.1 6.1 9.9 4.2 8.3 2.1 9.1 7.1 3.2 2.1 3.4 2.6 13.8 5.7 Sometimes 20.6 18.2 30.2 44.8 15.9 19.3 16.9 37.2 28.4 18.0 22.2 28.1 22.6 24.0 23.2 19.0 27.8 Often 52.9 34.6 35.4 20.3 26.6 40.6 40.1 37.2 48.7 39.6 37.2 39.8 45.1 43.2 35.2 44.8 49.5 Always 12.0 23.2 19.0 20.3 50.3 26.8 38 16.4 17.4 33.3 32.3 28.4 26.6 26.0 34.9 22.4 15.9 Mean Statistics 3.62 3.50 3.55 3.46 4.20 3.78 4.10 3.60 3.75 3.97 3.94 3.93 3.95 3.85 3.94 3.76 3.76

Source: Primary data


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The regression analyses as shown in the table 5 reveals that there is significant inverse relationship between the barriers to innovation and the extent of innovations adoption by the firms. The regression coefficients calculated support the hypothesis set for the study. Among the internal and external barriers of innovation, the internal barriers seem to have more negative impact on the innovativeness of the firms (B= - 0.395). The results of the study show that internal barriers have higher negative impact on technological innovation adoption (B= -0.444) followed by administrative innovations (B= - 0.374). The external barriers related to innovations also have higher negative impact on the adoption of technological innovations (B= - 0.398) followed by the adoption of administrative innovations (B= - 0.324). Table 5: Regression results of barriers to innovation adoption Relationship among variables B t Barriers Innovation adoption -0.456 -12.485 Internal Barriers Innovation adoption -0.395 -9.710 Internal Barriers Tech. Innovation adoption -0.444 -11.665 Internal Barriers Admn. Innovation adoption -0.374 -6.707 Internal Barriers Mktg. Innovation adoption -0.319 -8.159 External Barriers Innovation adoption -0.377 -10.216 External Barriers Tech. Innovation adoption -0.398 -7.927 External Barriers Admn. Innovation adoption -0.324 -6.206 External Barriers Mktg. Innovation adoption -0.191 -4.276 Source: Primary data 8. Conclusion The results show that all the variables identified as barriers to innovation present a negative signal, due to which they can be considered as significant restraining factors that influence innovative activities and consequently, decrease the firms propensity for innovation. The relationships are also found to be significant meaning that as the barriers increase, innovativeness decline and vice versa. In the light of these findings, it is worth mentioning that supportive government policies should be designed and implemented. Suitable monetary schemes and incentives for innovation adoption and diffusion can be considered to be the need of the hour. Increase in the collaboration with universities and other research centres can help these firms a long way to innovate according to the needs of the time. The literature suggests that firms facing barriers to innovation, especially SME, tend to use network relationships to overcome these barriers (Biemans, 1992). Promotion and support for open innovation networks is vital as such networks promote access to information and enhance cooperation between firms and other partners for innovation. 9. References 1] Baldwin, J., & Lin, Z. (2002). Impediments to Advanced Technology Adoption for Canadian Manufacturers. Research Policy , 31, 1-18. 2] Baldwin, J., D. Sabourin and M. Rafiquzzaman. 1996. Benefits and Problems Associated with Technology Adoption in Canadian Manufacturing, Catalogue 88-514, Ottawa: Statistics Canada 3] Biemans, W. (1992). Managing Innovation within Networks. London: Rout-ledge. 4] BIS. (2009). UK Innovation Survey. London: BIS. 5] Cooper, L. P. (2003). A research agenda to reduce risk in new product development through knowledge management: a practitioner perspective. Journal of Engineering and Technology Management , 20 (1-2), 117-140. 6] Damanpour, F., & Gopalakrishnan, S. (2001). Dynamics of the adoption of product and process innovations in organizations. Journal of Management Studies , 38 (1), 45-65.
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R2 0.208 0.156 0.197 0.140 0.102 0.142 0.158 0.104 0.036

7] Hadjimanolis, A. (1999). Barriers to innovation for SMEs in a small less developed country(Cyprus). Technovation , 561-570. 8] OECD. (2010). Innovative SMEs and Entrepreneurship for Job Creation and Growth. SMEs and Entrepreneurship: Lessons from the Global Crisis and the Way Forward to Job Creation and Growth (pp. 1-15). Paris: BOLOGNA +10. 9] O'Leary, O. (2005). A tool for innovation management with small-medium enterprises. National University of Ireland, galway 10] Read, A. (2000). Determinants of successful organizational innovation: A review of current research. Journal of Management Practice , 3 (1), 95-119. 11] Rogers, M. (1998). The definition and measurement of innovation. Melbourne Institute of Applied Ecconomic and Social Research. 12] Rosenberg, N. (2004). Innovation and Economic Growth. OECD . 13] Sawang, S., Unsworth, K., & Sorbello, T. (2007). An exploratory study of innovation effectiveness measurement in Australian and Thai SMEs. International Journal of Organizational Behaviour , 12 (1), 110-125. 14] Shiang, L. E., & Nagaraj, S. (2009, October 23). Obstacles to innovation: Evidence form Malaysian manufacturing firms. Retrieved December 26, 2011, from http://mpra.ub.unimuenchen.de/18077/1/MPRA_paper_18077.pdf 15] SMERA. (2011). SMEs in the Textile Industry. D & B. 16] Tirupur Cluster-A Success Story. (2009). Retrieved March 15, 2010, from tiruppur.tn.nic.in: tiruppur.tn.nic.in/textile.html 17] Tiwari, R., & Buse, S. (2007). Barriers to Innovation in SMEs: Can the Internationalization of R&D Mitigate Their Effects? First European Conference on Knowledge for Growth: Role and Dynamics of Corporate R&D (CONCORD 2007). Spain. 18] Yeh-Yun, C. L., & Yi-ching, C. M. (2007). Does innovation lead to performance? An empirical study of SMEs in Taiwan. Taiwan Management Research News , 30 (2), 115-132. 19] Zhang, Q., Lim, J., & Cao, M. (2004). Innovation driven learning in new product development: A conceptual model. Industrial management & Data Systems , 104 (3), 252-261.

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Role of Self-help Group in Socio-economic development of India


Dr.A.Sundaram, Associate Professor, Dept. of Economics, Govt Saiha College, Affiliated to Mizoram University, Saiha, Mizoram, North East India Abstract: The main aim of this paper is to examine the Role of Self-help Group in Socio-economic development of India.Mostly Secondary data is used for this analysis. It analyses the Need of the Study and the present status of poverty and Self-employment in India, the concept of SGSY and Self-Help Group, role and accomplishments of SGSY and Self-Help Group, review and redesigning the SGSY and the Self-Help Group, failure of the SGSY program, suggestions, future directions. The SHG method is used by the government, NGOs and others worldwide. Thousands of the poor and the marginalized population in India are building their lives, their families and their society through Self help groups. Self-help Groups have been playing considerable role in training of Swarozgaris, infrastructure development, marketing and technology support, communication level of members, self confidence among members, change in family violence, frequency of interaction with outsiders, change in the saving pattern of SHG members, change in the cumulative saving pattern of SHGmembers per month, involvement in politics, achieving social harmony, achieving social justice, involvement in community action, sustainable quality and accountability, equity within SHGs,defaults and recoveries, and sustainability -financial value. Inspite of the concerted efforts taken by SGSY, it is clear that the failure of the programme is seen. But of course there are lot of advantages as well as disadvantages. Now MoRD has been taking a lot of initiatives to revamp the programme. Keywords: Poor, Self-Help Group, achieving Social Justice, Sustainable quality, Equity, Empowerment 1. Introduction:

The main aim of this paper is to examine the Role of Self-help Group in Socio-economic development of India. It analyses the Need of the Study and the present status of poverty and Selfemployment in India, the concept of SGSY and Self-Help Group, role and accomplishments of SGSY and Self-Help Group, review and redesigning the SGSY and the Self-Help Group, failure of the SGSY program, suggestions, future directions and conclusion. There are three main stages in the development of self-help groups: The formation stage, the stabilisation stage, and the economically productive and self-sufficient stage. There are two main types of self-help groups, the state sponsored ones, and the ones sponsored by the central government. The central governments major project is the Swarnjayanti Gram Swarozgar Yojana (SGSY). In the last ten years, there has been a paradigm shift in respect of development. The society and the nation are moving towards realization of the ideal of rights-based development. Right to education has been realised though not fully operationalised. Right to work is a functioning entitlement; right to food is in the offing; right to livelihood and right to social security are not far away. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 124

2.

Need of the Study and the present status of Poverty and Self-employment in India:

Alleviation of poverty remains a major challenge before the Government. Acceleration of economic growth, with a focus on sectors, which are employment-intensive, facilitates the removal of poverty in the long run. According to the 2011 Census of India has a population of 1.21 billion people as of 2011. The figures provided by Population Census of India shows that the country represents 17.31% of the world population. The latest poverty estimates by the Planning Commission show that poverty in India has declined by 7.4 per cent. According to the latest data, 29.8 per cent or 360 million Indians were poor in 2009-10 as compared to 37.2 per cent or 400 million in 2004-05. However, the decline is based on a poverty line calculated at Rs.22.43 per person per day in rural areas, and Rs.28.65 per person per day in urban areas, which is lower than the earlier Rs.32 a day mark. The all-India Head Count Rate has declined by 7.3 percentage points from 37.2% in 2004-05 to 29.8% in 2009-10, with rural poverty declining by 8.0 percentage points from 41.8% to 33.8% and urban poverty declining by 4.8 percentage points from 25.7% to 20.9%. In rural areas, Scheduled Tribes exhibit the highest level of poverty (47.4%), followed by Scheduled Castes (SCs), (42.3%), and Other Backward Castes (OBC), 31.9%), against 33.8% for all classes. In urban areas, SCs have HCR of 34.1% followed by STs (30.4%) and OBC (24.3%) against 20.9% for all classes. Nearly 50% of agricultural labourers and 40% of other labourers are below the poverty line in rural areas, whereas in urban areas, the poverty ratio for casual labourers is 47.1%. Monthly per capita incomes of Rs 859.60 in urban regions and Rs 672.80 in rustic regions, respectively, have been determined as the novel poverty line. Planning Commission deputy chairman Montek Singh Ahluwalia stated, "I firmly believe that when the final numbers of poverty till 2011-2012 come out in 2013-14, the actual decline in poverty would be much larger than 1.46 per cent per annum as 2009 was a drought year." The unemployment rate in India was last reported at 9.4 percent in 2009/10 fiscal year. Historically, from 1983 until 2010, India Unemployment Rate averaged 8.11Percent reaching an all time high of 9.4 Percent in December of 2009 and a record low of 5.9 Percent in December of 1994. The unemployment rate can be defined as the number of people actively looking for a job as a percentage of the labour force. While Indias unemployment rate has dropped from 8.2% in 2004-05 to 6.6% in 2009-10, the number of jobless is still huge in absolute terms. The country added some 11.7 million people to the workforce between 2004-05 and 2009-10, and the labour pool, based on the 2009-10 national sample survey, is estimated at 428.9 million. Over half the country's workforce is self-employed and women receive less pay than men for similar jobs, latest government data shows. While 51% of the country's total workforce is selfemployed, only 15.5% are regular wagers or salaried employees and 33.5% casual labourers, according to a survey by the National Sample Survey Office (NSSO) The proportion of the self employed (vulnerable workers) has declined significantly in the development process. The proportion of self employment in the total employment is as low as 8% and www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 125

10% for women and men respectively in developed regions and as high as 64% and 57% for women and men in developing regions. In India the overwhelming proportion of workers is in the self employment category. About 64% of the rural and 46% of the urban workforce is engaged in self-employment. In India 20.51% of the workforce are living below the poverty level. The proportion is highest (31.9%) among casual labour and second highest (17.17%) among the self employed. However, in terms of absolute number, the self employment category has the highest number of poor 45.28 million, followed by casual labour 41.45 million. The only way to lower the risk that the rural poor face would be to reduce their vulnerability through the use of microfinance to engage positively in capacity building. The strategies used for capacity building through microfinance can be divided into Ex Ante, that is, measures that are implemented before a disaster hits, and Ex Post, which refers to measures that are implemented to deal with a disaster after it has taken place (Duggal, Ananth et al. 2002). Some ex ante strategies include the diversification of income, the building up of assets in the form of cash, houses, livestock and land, and investments in education, health care and social networks. Some ex post strategies in dealing with disasters are cutting down on consumption, the mobilisation of labour, the liquidation of personal assets, and the obtaining of loans from informal and formal institutions. 3. The concept of SGSY and Self-Help Group:

For a multi-pronged and concerted attack on the poverty, the Government of India launched an integrated program for self-employment of the rural poor, with effect from 1 April 1999, known as Swarnjayanti Gram Swarozgar Yojana (SGSY). The scheme is an amalgamation of six earlier programs, viz. (1) Integrated Rural Development Program (IRDP), (2) Training of Rural Youth for Self-Employment (TRYSEM), (3) Supply of Improved Tools for Rural Artisans (SITRA), (4) Ganga Kalyan Yojana (GKY), (5) Million Wells Scheme (MWS) and (6) Development of Women and Children in Rural Areas (DWCRA). The objective of the scheme is to bring the assisted poor families above the poverty line by organizing them into Self Help Groups (SHGs) through the process of social mobilization, training and capacity building and provision of income generating assets through a mix of bank credit and government subsidy. SGSY is a credit based self employment program basically aimed at below poverty line (BPL) families. The objective of the program is to bring the assisted families (Swarozgaris) above the poverty line by ensuring appreciable sustainable levels of income over a period of time. For this purpose, the rural poor are organized into self-help groups through a process of social mobilization, training and capacity building and provision of income-generating assets (Tankha, Ajay, et al. 2008). It is a central scheme with cost sharing on the basis of 75:25 by central and state governments. For the north-eastern states the ratio is 90:10. It is being implemented by DRDA through Block Development Offices. Banks, other financial institutions, Panchayats Raj Institutions, NGOs and Technical Institutions in the district are being involved in the process of planning, implementation and monitoring of the scheme. NGOs help is being sought in the formation and nurturing of the Self Help Groups (SHGs) as well as in the monitoring of the progress of the Swarozgaris. The assisted families may be individually www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 126

addressed or in groups. Emphasis is on the group approach. The Scheme aims at establishing a large number of micro enterprises in the rural areas. The concept of a self-help group in India refers to a form of an accumulating saving and credit association (ASCA), promoted by government agencies, NGOs or banks. These groups manage and lend their accumulated savings and externally leveraged funds to their members (Tankha 2002). However, the self-help group typically needs about 10 to 12 years to fully develop, in order to realise substantial benefits. Most of the groups surveyed have only been in existence for about six years and are just coming into the stage of stabilisation. 4. Role and Accomplishments:

The progress of the program since inception assisted in formation of 35.7 lakh SHGs; assisted 1.24 Cr. Swarozgaris in establishing their own micro-enterprises. The Government of India released Rs.11, 486 Cr under the program; bank credit mobilization is Rs.19, 017; Total subsidy provided is Rs.9, 318 Cr. The program helped many participants in improving their economic conditions. It provided new market infrastructure and new marketing channels for the rural poor. The program developed many interesting development models (successful stories). Another good accomplishment of the program is that it has adopted the SHG strategy. The number of assisted SHG/ group Swarozgaris has increased from 35,000 in 1999 00 to 1.15 million in 2007 08. At the same time the number of assisted individual Swarozgar has declined from 586 thousand in 1999 00 to 254 thousand in 2007 08. The National Bank for Agriculture & Rural Development (Nabard) will create a Rs.15 billion fund to cater to women's Self-Help Groups in economically weaker districts in the country, According to the Chaitanya and Chalana study, it is an excellent program. If the scheme is implemented properly, there will be no need for another scheme (Chaitanya and Chalana (undated). Even though Self-help Groups have been playing considerable role in training of Swarozgaris, infrastructure development, marketing and technology support, communication level of members, self confidence among sample members, change in family violence, frequency of interaction with outsiders, change in the saving pattern of SHG members, change in the cumulative saving pattern of SHGmembers per month, involvement in politics, achieving social harmony, achieving social justice, involvement in community action, sustainable quality and accountability, equity within SHGs,defaults and recoveries, and sustainability - financial value, it is not so satisfactory up to the mark in achieving and fulfilling the objectives of the Scheme. 5. Review and Redesigning the SGSY and the Self-Help Group:

However the program has never taken off. It has progressed at snail pace from the inception. It has been chronically encountering numerous problems in the implementation. The success rate is modest at best and successful cases are few and far way in terms of space and time. Given the importance of poverty alleviation, the Government of India has been extending all kinds of support to the program. To overcome the challenges and to build on the positive gains, the MoRD got the program evaluated, experimented and got different aspects of the program studied through noted institutions like RBI, NIRD, BIRD, NIBM, NIPFP, etc and experts (e.g. Prof.Radhakrishna committee). The

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MoRD has been constantly reviewing and improving the program based on the findings and recommendations of different studies, experiments and experts advice. Recently the Ministry of Rural Development (MoRD) has undertaken a comprehensive review and redesigning of the Swarnjayanti Gram Swarozgar Yojana (SGSY) program to make it the flagship program for the alleviation of rural poverty by 2015. In the budget 2009 10, the Government announced renaming the program as National Rural Livelihood Mission (NRLM) and also mentioned to cover 50% of all rural households by organizing them in SHGs. The National Network Enabling Self Help Movement (NN-ABLE) feels that designing the NRLM should be based on a thorough analysis of SGSY experience gained over the last decade. As SGSY is closely intertwined with SHGs in general and SHG-bank linkage in particular, the performance of one will definitely have a large impact on the other. NNABLE, with a vision of a vibrant SHG movement in India, has been studying rather closely the SGSY program. That National Rural Livelihood Mission (NRLM) plans to connect at least one woman from each poor household with a SHG to empower and promote economic wellbeing. "Presently, there are three crore women who are members of SHGs and we plan to raise it to seven crore in the next five years,". 6. Failure of the SGSY program:

Though it was considered as a wonderful program by many stakeholders, the program failed on many counts. Only an indicative list of failures is provided as follows: a. Challenge of take off:

The program supported promotion of 292 thousand SHGs in the first year, i.e. 1999 00.The number remains around this level in all subsequent years with wide fluctuations from year to year. Similarly, 214 thousand groups passed Grade I, in the second year of the program, i.e. 2000 01. It remains around this level in all subsequent years. Though there is significant growth in the number of groups that passed Grade II, groups which have taken up economic activities are less. In total only 685 thousand groups have taken up economic activities. It is a little over one-fifth of groups promoted in the scheme. b. Funds allocation and utilization:

The allocation of funds for the SGSY scheme by both central and states governments was Rs.1, 472 cr. in 1999 00, the first year of the program. In the subsequent 7 years, the allocation remained below that of the first year. It was nearly half of the first year allocation in 2001 02 and 2002 03. The total amount allocated for the program during 10 years is Rs.14, 467 cr. It is less than half of the budgetary allocation of Rs.30, 100 cr. for NREG in just one year, i.e. 2009 10. The principal reason for stagnation in funds allocation is non-cooperation of banks. The allocated meagre amounts were not fully utilized even in one year during the last 10 years program period. Total utilization is 74% of funds made available. However, the utilization ratios are increasing over the years. It has increased from 49% in 1999 00 to 86% in 2003 04. It remains well over 80% in the subsequent years.

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Though there is provision for utilizing of 10% of allocated funds for training and another 20% for development of critical infrastructure, utilization of funds in these two activities is quite less and relatively more funds were used for providing subsidies and grants to SHGs and individual Swarozgaris. As a result the program is often known as subsidy oriented program. c. Credit mobilization:

Mobilizing bank credit is a major challenge of the program, due to which the governments at centre and states could not increase the allocations over the years. In total, the target of credit mobilization is Rs.29, 831 cr. But little over half of that amount was mobilized during the last 10 year. However, the proportion of actual mobilization to target is increasing over the years. It is a healthy sign. Because of lower than targeted mobilization of bank credit and allocation of a relatively higher proportion of funds for subsidy, the ratio of credit to subsidy was about two during the period and did not vary much from year to year. Thus, the credit-subsidy ratio remained much below the target ratio of 3:1 (GoI, 2009). It also resulted in less than planned investment per Swarozgar. d. Challenge to target the real poor and vulnerable sections:

A comprehensive study by BIRD, 2007 on coverage of SCs/ STs in SGSY, which covered 10,848 Swarozgaris and non-Swarozgaris (control sample), pointed out exclusion of SCs and STs in the following ways and for the following reasons. Physical exclusion by not being accepted as group members, Financial exclusion by denial of their due share either by group leaders or by implementing bank or block officials, Exclusion because they are already covered under some state government sponsored programs (often implemented by state (ST/ SC corporations) and in many cases are already defaulters of bank loans (BIRD, 2007). About 60% of the non-Swarozgaris (control sample) were found to be sure about their inclusion in the BPL list (BIRD, 2007). A more dismal picture is provided by a MoRD (2007) briefing, which shows that SGSY covers only 1% of the relevant household population, and only 33% of its beneficiaries are drawn from the poorest quintile, whereas as many as 14% are from the richest and 26% are from the two richest quintiles. Further, the total benefits are even more inequitably distributed with the richest quintile receiving as much as 50% as compared to 8% for the poorest (as quoted in Tankha, et al. 2008). The annual report of MoRD 2002 03, reported that in most of the areas, especially in Bihar and Uttar Pradesh, influential persons in villages were found to own a group (as quoted in GoI, 2009). e. Low survival rate of promoted micro-enterprises:

Many assisted Swarozgaris are either reluctant to create or acquire the planned assets or were disposing them immediately after acquiring. According to BIRDs study in northern states, the success rate in terms of whether units exists or not in case of units financed to group Swarozgaris turned out to be even worse than that in case of individual Swarozgaris as only 17.7% units were found to be existing in case of group Swarozgaris as against the 31.11% units intact in case of individual Swarozgaris. The results indicate just opposite pattern to what most of us believe/ perceive that group approach of financing is better than the individual financing. However, in case of southern states, www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 129

76.6% units were found to be existing at the time of field visits which shows the better care by the government department as far as monitoring of units is concerned (BIRD, 2007). The present author observed that in Andhra Pradesh some groups manipulated acquiring of assets/ livestock. According to the group members, they sent their buffaloes to their relatives'/ friends' houses a day before the proposed transaction. The next day they acted as if purchasing (their own) livestock from their relative/ friend in front of the officials. The Government of AP noticed these kinds of problems long ago and converted capital subsidy into interest subsidy in 2004. Now one hardly hears words like SGSY, subsidy and revolving fund among SHGs in rural areas of Andhra Pradesh. One can only hear the words Pavala Vaddi or 3% interest loans. In other states, many studies reported that groups focus is on subsidy. They dispose the capital/ livestock immediately, repay the bank loan and distribute the subsidy amount (see e.g. APMAS, 2008; Tankha, et al, 2008; BIRD, 2007). f. Low realized incremental income from Income generating activities:

The program envisaged that Swarozgaris would realize about Rs.2, 000 per month from the investment of about Rs.25, 000. Except a few case studies, no major evaluation study reported additional income anywhere close to Rs.2, 000 per month. In 2002 03, only 43% of the assisted Swarozgaris reported an increase in their income (as quoted in GoI, 2009). A rigorous study by Pathak and Pant (2006) in Jaunpur district of UP shows that SGSY has not contributed significantly to the change in the level of income of the beneficiaries (as quoted in Tankha, et al, 2008). According to a NIRD (2008) study, even in the better performing State of Andhra Pradesh the income gain to a Swarozgar from enterprise activities under SGSY was a mere Rs.1,228 per month (as quoted in GoI, 2009). BIRD presented an even grimmer picture. According to their study the poor income generation in both the cases of individual Swarozgaris (Rs.9, 391) and The group members shared these old stories (6 to 7 years old), since then they have repaid their loans and all officials got transferred.swarojgaries (Rs.6, 916 in northern states and Rs.11, 089 in southern states) per member per annum suggests for serious thinking about implementation of the program in its present format. Certain success stories, here and there should not be read as final outcome of the program and at the best, these can be documented and evaluated so that the reasons for success can be internalized into the future policy guidelines. The program also breaks the great myth that group approach of lending is always better than the individual approach of financing (BIRD, 2007). Needless to say, that the above figures are only of surviving units. If failed units were also included, the average incremental income would be around a few hundred rupees or less. It may be recalled that about 50% of the Swarozgaris have taken up dairy. About another quarter has taken up other livestock rearing, including poultry and other primary activities. It is surprising to note that Indian villagers need training in activities like livestock rearing, the primitive and primary occupation in the country.

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7. a.

Suggestions:

Suggestions for designing the NRLM: As three-fourths of households in the country are either poor or vulnerable, NRLM may cover all willing rural households, irrespective their BPL or APL status, in the SHG program for effective financial inclusion. It may be divided into two sub-programs, viz. Financial Inclusion and Livelihood promotion. Two programs may be implemented sequentially. The first five years may be totally focusing on promotion and strengthening of SHG institutions and later focus may be on setting up of small and medium enterprises under SHG federations. b. Suggestions to promote Financial Inclusion: 1. SHG banking may be allowed to function as core banking activity without any outside interference like target fixing, interest cap, loan size, etc. 2. The Government may promote quality SHGs through village/ cluster level; sub-district/ block level and district level federations. 3. Wherever banks are not accessible or not responsive, federations may be prepared to take up financial intermediation 4. Promoting agencies play a crucial role in developing quality institutions. Promoting agencies may be given adequate financial and capacity building resources and timeframe. Available evidence indicate that investment of about Rs.15,000 per SHG for 8 to 10 years is required to promote quality SHGs with strong federations and effective livelihood opportunities. 5. Promoting agencies should have a clear role transformation strategy and should implement the same in letter and spirit 6. NRLM may work on sensitization and orientation to bankers about the commercial value of SHG banking. 7. NRLM may understand the banks concerns such as quality of groups, political interference in functioning of federations, wrong signals like loan waivers, etc and address them. 8. NRLM may provide interest subsidy as given in AP. c. Suggestions for promotion of small and medium enterprises: To obtain desirable employment transformation and to take full advantage of booming secondary and tertiary sectors, NRLM may focus on manufacturing and service sectors. The small and medium enterprises may be promoted to village/ cluster; sub-district/ block and district level SHG federations. 1. The potential units could be agro-processing units; milk processing units; common service providing units; cold storages; rural warehouses; market yards to organize weekly markets; etc 2. Appropriate institutions like commodity cooperatives and producer companies may be promoted under SHG federations to take up small and medium enterprises as per the pattern of the borrowing from the SHGs. 3. The federations could be assisted to have state of the art units by hiring professional consultancy firms, who can provide these units on turnkey basis. 4. NRLM may provide investment and working capital to the federations to set up these units 5. If banks are non-responsive, the apex financial institutions like state finance corporations/ SIDBI/ NABARD could be accessed. 6. Acquired units could be pledged as security to the banks and financial institutions. 7. These units would result in development of entrepreneurship in federations, provide a large number of regular employment opportunities to the members and boost the rural economies. 8.SHG concept should target the holistic development of women members. The ministry may bring out publications pertaining to different aspects of SHG and its development / empowerment. 9.It is felt that efficiency and effectiveness of SHG should be regularly monitored by a qualified and designated body to give corrective input wherever necessary as well as encourage the deserving ones. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 131

10.Timely release of adequate loans and the eligible subsidy is important.SHG member education and awareness on the high poverty regions should be viewed as long term investment in human capital development. All stakeholders should invest their time for capacity building, handholding and development support. d. Implementation machinery: Implementation mechanism may follow the design of the program. It may be kept in mind that a proper role transformation strategy and implementation of the same in letter and spirit is essential for the development of peoples institutions. 8. Future directions: To overcome the above described problems and make the program more effective the MoRD got the program studied by many important institutions and experts. It also took up wider consultations to revamp the program. Based on the inputs received, the MoRD is planning to redesign the program. Main features of the proposed re-designing of SGSY (extracts from MoRD, 2009) a. Demand Driven Strategy: More flexibility to the States for formulating their own poverty elimination plans and allocation of funds on the basis of the action plans. b. Universalizing of SHGs: To ensure that all the poor in the country become a part of the social mobilization process. c. Setting up of Peoples Institutions: Success of a Program like SGSY can be ensured only through peoples participation. Therefore, states should federate the SHGs at various levels. d. Setting up of Dedicated Implementation Structure: It is proposed to have a dedicated professional institutional structure from Sub-district level up to national level with suitable linkages with the existing network of DRDAs. e. Special focus on training & capacity building: with dedicated staff/ cells at the State, district and sub-district levels to ensure comprehensive training of SHGs and all other stakeholders. f. Setting up of one Rural Self Employment Training Institute (RSETI): In each district of the country for skill development training. States need to identify land for setting up these Institutes. g. Massive up-scaling of special projects for skill development and placement. h. Subsidy: Continuation of capital subsidy at enhanced rates and introduction of Interest Subsidy. i. Greater Emphasis on Infrastructure and Marketing through involvement of the Private Sector and adoption of the PPP model. j. Convergence for technical & other inputs with programs of different ministries in order to achieve synergies. k. Improved evaluation and monitoring: For ensuring complete transparency and accountability in the implementation of SGSY through social auditing of the scheme and third party evaluations. A national MIS for SGSY will also be put in place for better and continuous evaluation and monitoring. l. DRDA (ADMN.) Major issues on one hand DRDAs are over burdened with a multiplicity of schemes and on the other hand more than 40% of posts in DRDAs are vacant. m. Lack of professionals and specialists from different fields in DRDAs. n. The question is whether the DRDA should be an implementing body or an overseeing body for various Rural Development Programs.

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o.

Restructuring of the DRDA Administration scheme: The broad structure of DRDAs will consist of core wings like administration, Finance, Monitoring, Training etc. with subject specialists in each wing. p. Implementation of the programs will be through dedicated machineries of the respective programs. q. The cost of the implementation structure would be met out of program funds by earmarking a certain percentage of the allocation for the programs. 9. Conclusion:

From the above analysis we can conclude that inspite of the concerted efforts taken by SGSY, it is clear that the failure of the programme is seen. But of course there are lot of advantages as well as disadvantages. Now MoRD has been taking a lot of initiatives to revamp the programme. Let us hope that better solutions coming up to implement the programme in effective and efficient ways and means in the near future. 10. References: 1. Anonymous, 2005, Quick evaluation of beneficiary oriented (Sc/St) Programme of SGRY; Annual Report. Ministry of Rural Development, Government of India, KrishiBhavan, New Delhi. 2. Arunkumar, T.D., 2004, Profile of SHGs and their contribution for livestock development in Karnataka. M.Sc. (Agri.) Thesis, Univ. Agric. Sci., Dharwad. 3. E.A Prameswara Gupta ,Syed Rabmahulla and S.L.shankar Impact of microfinance: A critical analysis southern Economist, volume 48, No.18,January-15.2010,page No.29 4. Geeta Manmohan, Monika Tushir, Sumita chadha. (2008), Rural Banking and Micro finance Southern Economist, Vol: 47, No.2. 5. Hari, S. and Kumawat, R.C., 2006, Impact of Swarnjayanti Gram Swarozgar Yojana (SGSY) in Jhunijhuna (Rajasthan). Rural India, 69(8-9): 164-168. 6. K.Rajendren, microfinance millennium development Goats and poverty Eradication- A study in Vellore District TamilNadu Journal & co-operation, volume.10, No-1, November 12009. 7. M.P seach and analytical report, empowerment & women through Microfinance-a study of kerpada district, monthly public union surveys-volume,liv 648.No.12,September,2009,Page No 9. 8. Surender and Manoj Kumar., (2010), SHGs and their Impact on Employment Generation, Southern Economist, Vol: 48, No.23. 9. Y.S.P Thorat, Microfinance in India Sectorial issues and challenges, National Bank Reveview, volume.21, No.1, January-march, 2005.

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Standard of living of Rural Fisher Folk in southern coastal districts of Tamil Nadu
R. Karthikeyan, Ph.D., Research Scholar, Dr. S. Ramesh Kumar, Associate Professor and Head, Dr. G. Padma Parvathy & G.Subbulakshmi, Research Department of Commerce, V.O.C College, Tuticorin, India. ABSTRACT The aim of the present study is to examine the standard of living of rural fisher folk. Home and fishing field interviews of 926 randomly selected fisher folk representing all southern coastal districts of Tamil Nadu. Majority of the fisher folk resided in tiled house get medical treatment in private hospital. Most of the fisher folk do not have toilet facility in their house. The study also found that the educated respondents use scientific methods of fishing. All respondents consume essential food equally irrespective of their household sizes. Education and awareness programme is necessary to the fisher folk in using scientific method of fishing. Key words: Standard of living, Rural Fisher folk. INTRODUCTION Housing condition of fisher folk is generally not a satisfactory indicator of poverty, substandard housing is very common in the rural coastal belt, and majority of the fisher live in huts. They lack ownership of land and title deeds. Lack of availability amenities such as water, latrines, electricity the indicators of wealth and social status are average among the rural households (Dayananda, 2004). Fisher folk along the coastal area are social economically backward, and lack various basic amenities like education, drinking water, food. Thus their standard of living is not up to the expected level (Oladoja and Adeokun, 2009). Fisher folk along the rural coastal areas in Chennai dwell closest to the sea in thatched huts that are easily washed away by sea. Majority of the people do not even own a land, they live a poor quality of life. Their housing condition is very poor (Asha Krishna Kumar, 2010). Bay of Bengal Programme (1982) reported that nearly 60 per cent of the families go without any meal on some days. The major reason is low income due to low or no catch. As for food consumption vegetables, meat and milk are consumed occasionally, fish at least half the year. The children are born and brought up in remote fishing communities with limited or no access to education. Over 80% of children are illiterate in fisher folk community, while adult illiteracy is estimated at 60% (Lungu and Husken, 2010). 2. MATERIALS AND METHODS 2.1 SAMPLE SIZE The quantitative data for the study was collected from 926 fisher folk randomly selected from all southern coastal districts of Tuticorin, Tirunelveli, Kanyakumari and Ramnad in Tamil Nadu. In the field work, the data were collected through a well structured questionnaire through personal interview mode at the residence of fisher folk and fisher folk in the sea shore after obtaining consent from them. 2.2 RESEARCH DESIGN The survey analyses the standard of living of rural fisher folk during the period of January 2010 to January 2013 as a part of Doctoral research work. The questionnaire was divided into four sections
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(1) Measurement of standard of living (2) Consumption of essential food (3) Medical treatment during sickness (4) Fishing methods. 2.3 PILOT STUDY The questionnaire was pre-tested by collecting data from 90 respondents in rural coastal villages from November 2010 to January 2011. The questionnaire was revised and restructured based on the results of the pilot study. Some additional questions were added after evaluating the questionnaires in the pilot study. 2.4 DATA ANALYSIS The collected data were analysed by using a statistical package of SPSS 17.0. Scores for each category were calculated by assigning correct responses. Percentage analysis of standard of living is calculated and presented in tabular form. F test was used to analyse the consumption of essential food in different household size of fisher folk at 5% level of significance. Cross tabulation and chi square test have been used to find out the association between education level of fisher folk and their fishing methods among different age groups. 3. RESULTS AND DISCUSSION Table -1 Standard of Living of Fisher Folk Electric Power Telephone Bike Tri cycle Television Mixie Grinder Fridge Washing Machine Inverter Air Conditioner Toilet facility Four wheeler Source: Primary Data Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Respondents Percentage Available 822 (88.8%) 566 (61.1%) 155 (16.7%) 32 (3.5%) 747 (80.7%) 542 (58.5%) 393 (42.4%) 208 (22.5%) 69 (7.5%) 17 (1.8%) 26 (2.8%) 522 (56.4%) 10 (1.1%) Non-available 104 (11.2%) 360 (38.9%) 771 (83.3%) 894 (96.5%) 179 (19.3%) 384 (41.5%) 533 (57.6%) 718 (77.5%) 857 (92.5%) 909 (98.2%) 900 (97.2%) 404 (43.6%) 916 (98.9%) Total 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%) 926 (100%)

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Table 1 denotes the infrastructure facilities available in fisher folks house. Most of the fisher folk (88.8%) have electric power in their house. About, 80% of the fisher folk have television. Further, it is inferred that 58.5% of the fisher folk have mixie. Only 1.1% and 1.8% of the fisher folk have four wheeler and inverter respectively in their house. Further, majority of the fisher folk do not have washing machine in their house. Finally, it is inferred that 2.8% of the fisher folk have air conditioner in their house. It is concluded that majority of the fisher folk have electric facility in their house and followed by television. Very few fisher folk have four wheeler, Air conditioner and inverter in their house. DIFFERENT HOUSEHOLD SIZE AND CONSUMPTION OF ESSENTIAL FOOD The families dietary patterns showed quantitative and qualitative variations over the year, depending on the fishing seasons. 75% of the families spent Rs. 10 to Rs. 20 a day on food; while the daily income ranged from Rs. 10 to Rs. 30. Fish was the animal protein consumed almost every day by most families. Milk, meat and fruit were eaten rarely (BOBP, 1997). Table 2: Household Size and Consumption of Essential Food Null Hypothesis: The household size of the respondents does not influence the consumption of essential food. N F value P value X Vegetables Upto 3 46 Above 6 Total Fruits Upto 3 46 Above 6 Total Meat Upto 3 46 Above 6 Total Fish Upto 3 46 Above 6 Total Milk Upto 3 46 Above 6 Total Quality products Upto 3 46 Above 6 Total *Significant at 5% level 153 582 191 926 153 582 191 926 153 582 191 926 153 582 191 926 153 582 191 926 153 582 191 926 2.42 2.46 2.40 2.44 2.41 2.58 2.69 2.57 2.85 2.81 2.97 2.85 1.19 1.16 1.14 1.16 1.44 1.51 1.60 1.52 2.04 2.18 2.25 2.17 1.080 1.082 1.031 1.071 1.029 1.105 1.176 1.110 1.056 1.001 1.088 1.029 .571 .521 .558 .537 .952 1.022 1.128 1.034 1.272 1.394 1.514 1.400 .188 .829*

2.708

.067*

1.841

.159*

.342

.710*

1.021

.361*

.956

.385*

Table 2 shows the relationship between consumption of essential food and household size of fisher folk. It indicates that there is no significant relationship in consuming vegetables, fruits, meat, fish, milk and using quality products among different household sizes of fisher folk. Hence, it is
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concluded that the consumption of essential food not influence in the household size of fisher folk. Fisher folk consume essential food irrespective of their household size. POSSESSION OF HOUSE AND MEDICAL TREATMENT The housing condition of the fisher folk is poor. Density of population is the highest in areas of fisher folk. The housing conditions have marginally improved for the fisher folk since 1980s. The number of households living in huts declined from 48% in 1980 to 27% in1990. Majority of them lives in huts made of mud, only few of them reside in houses made of cement and bricks (Kerala Development Report, 2008). Table 3 Types of Residential House and Availability of Medical Treatment Treatment during sickness Types of House Hut Tiles Terrace Non-Professionals Respondents 6 13 5 Treatment (25.0%) (54.2%) (20.8%) Types of House [ 3.8%] [3.1%] [1.4%] Municipal Hospital Respondents 0 38 2 Treatment (.0%) (95.0%) (5.0%) Types of House [.0%] [9.0%] [.6%] Primary Health Centre Respondents 8 7 5 Treatment (40.0%) (35.0%) (25.0%) Types of House [5.1%] [1.7%] [1.4%] Government Hospital Respondents 83 146 102 Treatment (25.1%) (44.1%) (30.8%) Types of House [52.5%] [34.7%] [29.4%] Private Hospital Respondents 61 217 230 Treatment (12.0%) (42.7%) (45.3%) Types of House [38.6%] [51.5%] [66.3%] Through Medical Shops Respondents 0 0 3 Treatment (.0%) (.0%) (100.0%) Types of House [.0%] [.0%] [.9%] Total Respondents 158 421 347 Treatment (17.1%) (45.5%) (37.5%) Types of House [100.0%] [100.0%] [100.0%] Source: Primary Data The value within ( ) denotes row percentage The value within [ ] denotes column percentage

Total 24 (100.0%) [2.6%] 40 (100.0%) [4.3%] 20 (100.0%) [2.2%] 331 (100.0%) [35.7%] 508 (100.0%) [54.9%] 3 (100.0%) [.3%] 926 (100.0%) [100.0%]

Table 3 shows the house types of fisher folk and their medical treatment. More than half of the fisher folk (54.9%) get treatment in private hospitals. In it, 45.3% of them reside in terrace house, 42.7% of the fisher folk in tiled house and the remaining 12.0% of the fisher folk in huts. It is followed by 35.7% of the fisher folk prefer government hospital for treatment during their sickness. Among them, 44.1% of the fisher folk are in tiled house, 30.8% of the fisher folk are in terrace house and the least (25.1%) of them reside in huts. Further, 4.3% of the fisher folk prefer municipal hospital. In it, most of the fisher folk (95%) reside in tiled house. About 5% of the fisher folk reside in terrace house. Meanwhile 2.6% of the fisher folk prefer Non-professional for treatment. Among them, 54.2% of the fisher folk reside in tiled house. It is followed by, 25% of the fisher folk in huts and the remaining 20.8% of the fisher folk reside in terrace house. It is concluded that fisher folk resides in terrace house prefer private hospital for their treatment.

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FISHING METHODS USED BY DIFFERENT AGE GROUP OF FISHER FOLK The traditional fisher folk were undertaking fishing with a primarily subsistence focus with a sense of camaraderie and community participation. Through continuous interaction with the ocean and fish, the artisanal fisher folk have accumulated trans generationally a treasure of scientific knowledge on diverse marine eco-systems and fish behavior. The new modes of fish production and distribution have resulted in loss of traditional skills and knowledge systems, and have converted fishing passive gear to an active gear technology; a low cost to a high cost technology: and from an eco-friendly to an eco-destructive technology (Rajan, 2000). Table 4 Fishing Methods used by Different Age Group of Fisher folk Age Upto 15 16 - 30 31 - 45 46 - 60 Above 61 Respondents 1 138 272 172 48 Fishing Method (.2%) (21.9%) (43.1%) (27.3%) (7.6%) Age [20.0%] [63.9%] [71.2%] [68.5%] [66.7%] Scientific Respondents 4 78 110 79 24 Fishing Method (1.4%) (26.4%) (37.3%) (26.8%) (8.1%) Age [80.0%] [36.1%] [28.8%] [31.5%] [33.3%] Total Respondents 5 216 382 251 72 Fishing Method (.5%) (23.3%) (41.3%) (27.1%) (7.8%) Age [100.0%] [100.0%] [100.0%] [100.0%] [100.0%] Source: Primary Data Types of Fishing Method Traditional The value within ( ) denotes row percentage The value within [ ] denotes column percentage Table 4 indicates the type of fishing method followed by different age group of fisher folk in rural coastal fishing villages. Majority of the fisher folk (68.1%) follow traditional method for fishing. In which, less than half of the respondents (43.1%) are in the age group of 31 to 45 years. Subsequently, 27.3% and 21.9% of the respondents are in the age group of 46 to 60 years and 16 to 30 years respectively. It is followed by, 7.6% of the fisher folk are in the age group of above 61 years and 0.2% of the respondents are in the age group of below 15 years. Further, 31.9% of the fisher folk follow scientific method for fishing. In, it, 37.3% of the fisher folk are in the age group of 31 to 45 years. It is followed by, 26.8% and 26.4% of the respondents are in the age group of 46 to 60 years and 16 to 30 years respectively. Table 5 Association of Fishing Methods and Age Group of Fisher folk Null Hypothesis: The age of the fisher folk do not influence the fishing methods. Value df a Pearson Chi-Square 8.877 4 Likelihood Ratio 8.444 4 Linear-by-Linear Association 1.019 1 N of Valid Cases 926 *Significant at 5% level P value .064* .077 .313

Total 631 (100.0%) [68.1%] 295 (100.0%) [31.9%] 926 (100.0%) [100.0%]

This table explains the relationship between age group of fisher folk and their fishing methods. As the acceptance of null hypothesis, there is no association between age group and fishing methods.

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It is clear from the analysis that age group do not influence the fishing methods. It is concluded that different age group of the fisher folk followed different types of fishing methods. Education level of Fisher folk and their fishing method Education is a main basic amenity which are lacking among the fisher folk in rural coastal villages. Young boys above 10 years are engaged in fishing activities, Majority of them do not even know to write their name (Dayananda, 2004). Table 6 Education level of Fisher folk and their fishing method Educational Level Fishing Middle High Higher College Illiterate Primary Methods School School Secondary Level Respondents 181 219 151 59 11 10 Traditional Method (28.7%) (34.7%) (23.9%) (9.4%) (1.7%) (1.6%) Method Education [77.0%] [63.8%] [67.4%] [66.3%] [55.0%] [66.7%] Respondents 54 124 73 30 9 5 Scientific Method (18.3%) (42.0%) (24.7%) (10.2%) (3.1%) (1.7%) Method Education [23.0%] [36.2%] [32.6%] [33.7%] [45.0%] [33.3%] Respondents 235 343 224 89 20 15 Total Method (25.4%) (37.0%) (24.2%) (9.6%) (2.2%) (1.6%) Education [100.0%] [100.0%] [100.0%] [100.0%] [100.0%] [100.0%] The value within ( ) denotes row percentage, The value within [ ] denotes column percentage

Total 631 (100.0%) [68.1%] 295 (100.0%) [31.9%] 926 (100.0%) [100.0%]

Table 6 represents the relationship between the educational level of fisher folk and their fishing method. Majority of them (68.1%) followed traditional method of fishing. Among them, 34.7% of the respondents have studied up to primary level. It is followed by 28.7% of the respondents are illiterate. Consequently, 23.9% and 9.4% of the fisher folk have completed their middle school and higher secondary level respectively. The remaining 1.6% of the respondents finished college level education. Further, 31.9% of the fisher folk follow scientific method for fishing. In which, 42% of the fisher folk completed their primary level education. It is followed by 24.7% of the respondents completed their middle school level. About, 23% of the respondents are illiterate. It is concluded that majority of the respondents have completed primary level education and use traditional methods in fishing. Table 7 Association of Education and Fishing Methods Null Hypothesis: Fishing methods are not influenced by the education of fisher folk Value df Pearson Chi-Square 13.249a 5 Likelihood Ratio 13.616 5 Linear-by-Linear Association 4.798 1 N of Valid Cases 926 *Significant at 5% level

P value .021* .018 .028

This table describes the relationship of educational level of fisher folk and their fishing methods. As the rejection of null hypothesis, there is significant relationship between education level and fishing methods. It infers that the method of fishing is based on their educational level. The highly educated fisher folk used scientific and satellite method in fishing when compared to others. Hence, it is concluded that when the level of education increases, the recent methods followed in fishing.

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CONCLUSION Most of the fisher folk have electricity facilities followed by Television. They give first preference to the consumption of essential food and get treatment in private hospital. The different age of the respondents no influence in using scientific method of fishing, while the education of the fisher folk determines the method of fishing. The highly educated fisher folk use scientific method of fishing. The fisherman should be educated to improve their standard of living and using of recent methods in fishing activities. REFERENCES 1. Oladoja, M. A., &Adeokun O. A., (2009). Analysis of Socio-Economic Constraints of Fisher folks on Poverty Alleviation in Lagos State, NigeriaAgricultural Journal, Vol: 4(3).pp.130-134. 2. Reuben, N., Omwega, Richard Abila, &CaroylineLwenya (2000). Fishing and Poverty Levels Around Lake Victoria (Kenya), Kenya Marine and Fisheries Research Institute,pp. 193- 199. 3. Dayananda, L. P. D., (2004). Enhancing Sustainable Livelihoods In Puttalam Lagoon, Sri Lanka, Poverty, Livelihoods, And Ecosystems 2004. 4. Asha Krishnakumar, (2010), Population Density, Housing, and Other Problems Magnified by the Tsunami, Chennai Fisher Folk Poor Socio Condition, 2010, Population Reference Bureau. 5. Lungu, A., and Hsken, (2010). Assessment of access to Health Services and Vulnerabilities of Female Fish traders in the Kafue Flats, Zambia Analysis Report. 6. Glaesel, H., (2000) State and Local Resistance to the Expansion of two Environmentally Harmful Marine Fishing Techniques in Kenya, Society & Natural Resources, 13, 321-338. 7. Rajan, J., (2000) Fishing Economy of Kerala, Sujlee Publishing House, Chathanoor, Kollam.

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The Law of Wastage A Conceptual Thought for Sustainable Economic Development


Dr.S.Sampath Senior Assistant Professor, School of Education SASTRA University, Thanjavur 613 401. Tamilnadu, India. drssampath@gmail.com V. Vijay Anand Assistant Professor, School of Management SASTRA University, Thanjavur 613 401. Tamilnadu, India. vijay@mba.sastra.edu Abstract: Disposal of waste becomes a great head ache to the Administrators, Politicians, Industrialists and Environmentalists. Its all because of lack of planning. If there is a concept in economics to understand the nature of wastage and backed with equated pattern of production and consumption; the wastage can be largely reduced. The producers will get fair price for their produce and consumers will get maximum satisfaction by paying reasonable price for the products constantly. Generally Economic laws reflect the most essential and typical features of the operation and development of a given system of production and consumption patterns. Every economic law expresses the unity of the qualitative as well as quantitative aspect of economic phenomena with price. A new concept has been evolved in order to establish a new law in economics that is The Law of Wastage and the same has been presented in this article. This law has been established with the help of necessities of human being and on the basis of consumption patterns of consumers in response to the changes in the price of the commodity. Further the law has been proved with the suitable illustration of hypothetical data and curves. For this purpose three objectives have been framed and tested with the hypothetical data drawn from the vegetable market by observing for a period of six months. Preamble: Now-a-days, the concept of waste management becomes more challenging for the administrators, environmentalists, politicians and industrialists. Perhaps, it is more cumbersome to deal with every kind of waste, especially the waste which cannot be recycled and do not fetch any residual value. However, if we look into the nature of waste, the man hour lost and financial constraints attached to it are largely because of lack of planning. Sometimes, the usable products in good quality may not be used for long time and causes either deterioration of quality or not in order of usability because of efflux of time. It may be due to change in fashion, new technology, modernization etc. The laws of Economic are the necessary, stable and recurrent causal relationships and interdependences of economic phenomena in the course of the production, distribution and exchange of goods and services at various stages of development of human society. Economics laws reflect the most essential and typical features of the operation and development of a given system of production and consumption patterns. Every economics law expresses the relationship between the qualitative and quantitative aspects of economic phenomena with price. The author intends to establish a new conceptual thought in economics that is The Law of Wastage and has been illustrated with the necessities of human beings. This law is established based on the consumption patterns of consumers in response to the changes in price of the commodity. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 1

Objectives: The following objectives are framed in order to test the law of economics with the help of the hypothetical data that has been tabulated after observing a vegetable market and also intended to find the relationship between the prices of the commodity, quality of the commodity with the law of wastage. i. To establish the Law of Wastage in economics. ii. To find the relationship between the price of the commodity and the wastage. iii. To find the relationship between the quality of the commodity and the wastage. Need and Importance of the Law of Wastage: The behaviour pattern of both the shop keepers and the consumers changes in response to the price changes for the consumable commodities. Whenever the consumable commodities are sold at higher prices; the shop keepers procure lesser quantities of higher priced commodities and deals very cautiously. Care is taken by the shop keeper while displaying and arranging in the shelf. The salesmen are instructed to handle with care and we cannot find even a bit litter around in the shop. While procuring the commodities shop keepers select the items very carefully to ensure sale of all the procured commodity items without any wastages. Quality consciousness also increases among the vendors while procuring the commodities. Packing and packaging differs for the commodities which are sold at higher prices. If price of the commodity falls; the behaviour of the shop keepers changes and procure large quantities of low priced commodities. We cannot find the exhibiting of commodities in order and can easily notice the commodities littered around every corner. Salesmen too may not receive any instruction with regard to handling because the commodity price is lesser. While procuring larger quantities, perfunctural attention is paid and quality consciousness takes back seat. We can notice the peeling of outer layer and cleaning of the commodities (Vegetables) in different order as compared to the commodities which are procured and sold at higher price. The behaviour of the customer changes in accordance with the price changes. Higher priced commodities are bought with care by the customers and will have more quality consciousness. They select the best quality one and buy lesser quantities because of higher prices of the commodities. Sometimes, they argue with the shop keepers and salesmen with regard to the selection and quality aspects. Frequently, they bargain at the shop keepers. At the same time the buyers behav iour will change when the price of the commodity decreases. They buy larger quantities and the quality consciousness will take back seat. While bringing to home, we can find careless attitude among the buyers. Since, the commodity price is lesser, buyers wouldnt mind in shelling out money for buying larger quantities. In such circumstances, you can see the shop keepers cheating directly the customers by weighing skin, shells, dust, grass, leafs, etc. Shop keepers wouldnt allow the customers to choo se the quality one while selling at lesser price. If the customers are particular about the choosing of good quality commodities, they have been charged little extra than the usual price of the commodities. All gimmicks are followed by the shop keepers and vendors during the fall of price. Therefore, it is necessitated to evolve a new conceptual thought in economics The Law of Wastage. This law has been established by observing the market for a period of six months carefully. The period was chosen between December 2010 and June 2011 to observe the vegetable market by the Researchers because that particular period the entire country witnessed extreme changes in price of necessities. Vegetables which are used mostly by all sections of the society were taken into account to establish this law. The Law of Wastage: The Law of Wastage is operated on two important things that are Price and Quality. When the price of the commodity increases the wastage will tend to diminish; when the price of the same www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 2

commodity decreases the wastage will tend to increase (Author). At the same time When the price of the commodity increases the quality consciousness also increases and no compromise on the quality of the products; when the price of the commodity decreases the quality consciousness also diminishes and there seems to be compromise on the quality of the products. According to this law, when price of the commodity is higher; the wastage of the same commodity is lower and when price of the commodity is lower; the wastage of the same commodity is higher. When quality of the product is higher; the price of the same product is higher and when quality of the product is lower; the price of the same commodity is lower. The law of wastage operates on the basis of the behaviour of the customers in response to the rise and fall in the price of the commodity. The law of economics is always operated on the ceteris paribus which means Other things being equal is a very significant qualifying phrase in this law too. Lower wastage at higher prices and higher wastage at lower prices for a commodity depends on certain static conditions assumed. Factors influencing the wastage: i. Over Production: Over production of any consumable commodity leads to higher amount of wastage because of market operation, storage, handling, transportation, shipping, distribution, selling etc. Whenever there is a controllable limit of production; the wastage is also being minimized. ii. Universal consumption: The goods which has been consumed by everyone and universally used by all sections of the society will have higher amount of wastage than the goods which are sparingly used or consumed by certain sections of the society. iii. Number of Consumers: The number of consumers for the commodity also determines the amount of wastage. Larger the consumers, the amount of goods sold and distribution at different places will be higher and so is the amount of wastage too. iv. Number of Middlemen: The size of the middlemen channel also determines the amount of wastage. Larger the middlemen channel larger will be the wastage and smaller the middlemen channel the smaller will be the wastage. v. Income Effect: People consume more and more goods when they have more income at their disposal and the wastage of the commodity will be higher. The people never mind in spending money due to increased purchasing power. Whenever the disposal income of the people is less, the spending power will diminish and wastage of the commodity also diminishes. People will be more cautious in spending money on every product. vi. Substitutes: If there are no substitutes for the products, wastage will be higher and the product which has more number of substitutes will have lesser wastage. vii. Quality Attributes: The quality of the commodity also determines the amount of wastage for the product. If the quality of the commodity is enriched the wastage will be obviously lower as compared to the commodity which is of inferior quality. viii. Seasonal variations: The goods which are directly associated with the seasonal aspects will have strong impact on the wastage too. Certain goods are produced through out the year and certain goods are produced seasonally. The goods which are produced seasonally will have huge wastage during the season and lesser wastage during the off season. Goods which are produced throughout the year will have lesser wastage provided the demand for the product is constant and the production is equated to the demand. ix. Government Policies:

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Policies of the Government will have direct impact on the wastage of the commodity. If the government allows the producers to export the commodity because of over production the wastage will be higher; if it is the other way round there will be lesser wastage because of restriction on the exports. x. Transshipments: Number of transshipments also has a direct bearing on the wastage of the commodities. xi. Uses of Commodity: If the prices of the commodities are higher, the consumers either go for no-use-principle or uses only for necessity with lesser quantity and the wastage will be obviously lower. When prices of the commodities are lower, the consumers behaviour will be different and they use the commodity for various purposes in more quantity with the result the wastage will be obviously higher. xii. Packing and Packaging Effect: The commodity which has been packed in proper wrapper and sent to various places for distribution definitely will have lesser damage as compared to improper or no packing of commodity. For instance, during the season, paddy, wheat, rice and grains are transported from one place to other places for various reasons; may be to the warehouses or transporting to different places or to the distribution points. Observing these activities, we can notice they are mostly transported by trucks and tractors either with poor packing or with no packing. Whenever the trucks and tractors move on the state highways or highways by carrying grains, paddy, wheat, rice etc; we can find the grains littered around on the road everywhere. Like wise on the trucks and tractors also we can accumulate reasonable kilograms of pulses and grains which were transported by them. If these things are taken care and moved with proper packing and packaging wastage can be minimized. Hence, there is a direct impact of packing and packaging on the quantum of wastage. Behaviours of the Buyers during the period of price rise: The behaviour of the buyers changes totally when the commodity has been sold at higher prices. First of all they go for finding alternatives, if alternatives are not available or even nearby the suitable one, they go for buying lesser quantity of the commodity. Most probably, they buy either onefourth or one-tenth of the usual consumption. The worst affected is middle income and lower income groups. They live with only fixed income and the monthly budgeted provisions and necessities. Here, the authors observation is depicted as different cases for the understanding of the reality. For instances: Case I: During the period of price rice of Onion in the month of December 2010, all the nonvegetarian hotels displayed the board outside their premises that there is no onion omelet which is prepared with the help of an egg, green chilly and an onion. At that time per egg cost was only Re.1.80 (Rupees one and eighty paisa only), chilly cost hardly anything and an onion cost was Rs.10 (Rupees ten only) (average cost per onion piece considered) with as usual other ingredients for making the omelet. The price of one omelet was in a normal situation in a decent hotel ranging from Rs.5/- to Rs.10/-. They could not grace the customers with omelet because the onion cost was higher. Case II: In vegetarian hotels they have avoided making Onion chutney for idly and dosa and completely ignored giving salad. They were reluctant to prepare onion dosa and oothappam (Varieties of dishes) because of higher prices of the onion. At hotel, sambars are prepared without the onion which normally prepared (araithu vita masala crush afresh and mixed with sambar) with dhal, coriander seed, black pepper, red chilly etc dry paste or powder mix. Case III: At the social and family gatherings, ceremonies, functions and festivities, people found very difficult to spend on this particular vegetable. Mostly they avoided the dishes which has been prepared with the onion and concentrated on the dishes which would be prepared without the ingredient of onion. Coconuts were used maximum for preparing chutney. Onion chutney was not served during the breakfast and supper time in the functions. Those who arranged marriage and other family functions found very difficult to spend huge amount of money only for onion. Case IV: Individual homes cleverly avoided onion by making alternative dishes for all the three meals at home. Instead of onion sambar, they have gone for araithu vita masala crush afresh and www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 4

mixed with (dhal mixer) sambar and in fact most of the family not made at all. Instead they have gone for making sauce (Kuzhambu) which has been made with tamarind, red chilly, coriander mix and dhal combinations frequently. Dishes were made without adding onion or used very little because of higher prices. Behaviours of the Buyers during the period of price decline: Buyers behaviour changes drastically when the price of the same commodity declines. They buy larger quantities that are more than their usual requirements and uses without any hesitation for all the dishes. We can find the buyers handling of the commodity with utmost carelessness. The quality consciousness also takes back seat because of lower price of the commodity as compared to higher priced earlier. They breathe comfortably while purchasing such commodities. At storage room and kitchen we can find the commodities littered around with carelessness. Case I: At restaurant, use of onion will be in larger quantity and for all the dishes chef uses more than the required quantity. We can find no restriction to the consumers with regard to the onion and they have been graced with sufficient quantity of salad and other dishes whenever needed. Likewise, there is no restriction on any menu preparation and the owner will be in comfortable position to earn earmarked profits. At non-vegetarian hotels, omelet becomes prominent and the consumers enjoy with usual prices. In Vegetarian hotels, chef prepares all the dishes as usual with onion. Onion Sambar and onion chutney becomes prominent during the breakfast and supper, during the lunch time onion sambar is prepared and side dishes gets its charm by adding onion. Case II: At the social and family gatherings, ceremonies, functions etc people use huge quantities of onion for making variety of dishes. It never pinches the organizer while purchasing huge quantities for the functions. Case III: Individual family also uses more than the required quantities for their consumption. All the dishes are made with no hesitation. Alternatives for the onion uses will take back seat at the time of lowered prices of the stated commodity. Middle and lower income groups will find no difficulty in spending from the budget during the period of price decline. We can understand by going through these cases that over usage and consumption leads to quantum of wastage and lesser usage leads to either no wastage or lesser wastage. During the period of price rise, people are very miserly in buying the commodity; during the period of price decline, people are very lenient in buying the commodity. These behaviours will have direct effect on the wastages too. The Law of Wastage Schedule and a Curve: A statement showing how much of a commodity Onion is sold in a particular market at different prices during the period of six months is given under. It is one of the authors contributions to the technique of wastage theory. A wastage schedule may be an individual schedule or a market schedule. The former tells us the quantities of wastage at different prices by an individual and the latter tells us quantities of wastage in aggregate at different prices in the particular market. For the illustrative purpose, market wastage has been considered. In Tamil Nadu a C class city market has been observed between the months of December 2010 and June 2011.

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Wastage Schedule (Onion) Sl.No. 1. 2. 3. 4. 5. 6. 7. Price Per Kg. 80.00 60.00 40.00 25.00 15.00 10.00 05.00 Quantity sold in the Market (in Kgs.) 1000 1300 1800 2000 2500 2800 3000 Quantity of wastage (in Kgs.) 10 15 20 25 40 60 100

In a hypothetical illustration, a vegetable markets wastage at different price level is shown in the above table. At Rs.80/- per kilogram of Onion, the market wastage is only 10 kilograms and at Rs.5/- per kilogram the market wastage increases to 100 kilograms. Further, it has been noticed that the amount of Onion sold in the market at Rs.80/- per kilogram is only 1000 kilograms while the price of the onion decreases to Rs.5/- per kilogram; the quantity sold in the market was 3000 kilogram. From the above table, it is evident that when the price of the Onion was higher the quantity of onion wastage was only 10 kilograms and when the price of the Onion was lower the quantity of onion wastage was 100 kilograms. The wastage may be due to lack of quality consciousness by the consumers. When the consumers pay higher prices for the commodity they become more quality conscious and chooses the best one. Likewise the traders too will be more conscious in handling and procuring higher priced Onion as compared to lower priced season. Figure No:1 Wastage curve with units sold

P r i c e & W a s t a g e N

Quantity Sold Figure No:2 Wastage Curve

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w a s t a g e

Quantity Sold

The above curves depicts that when the onion price was at peak; the quantity sold was lesser and when the price starts declining; the quantity sold also increases considerably. Simultaneously the wastage curve starts at opposite direction when the quantity sold was lesser at higher prices; the wastage was lower, the wastage curve rises slowly and reaches to the maximum when the price of the commodity starts declining. Establishment of Normal Wastage: 1. If we analyze the curves of units sold and wastage both intersect at a point which has been named as N. The point has reached in the market when the price of the onion was Rs.25/ per kilogram and the units sold were 2000 kilograms where both curves intersect. The intersection point suggests that the wastage at this point is considered as normal and beyond certain level the wastage becomes abnormal. A commodity should find a reasonable price in the market without any adequate wastage with fair quantity of commodity sold. 2. Normal wastage at this point is only 1.5% which is quite reasonable and acceptable. 3. Normal wastage will not pinch the traders in any way with this 1.5% of wastage on the goods sold. 4. The individual consumers also wont mind if the normal wastage is at a minimal level. Need for establishing corporate bodies to equate the production and consumption: Case I: In Punjab, it has been witnessed many times an over production of potato and the farmers were left at dismay because of no takers of their produce. In 2002 and 2011, the potato farmers in Punjab threw their produce on the street because they could not get even minimum price. At that time it was sold for Re.0.50 paisa per kilogram at the retail outlets. Case II The same condition was witnessed in Tamil Nadu with regard to the production of Tomato and Mango. Recently, in the month of March 2012 the so called shallot onion fetches very lower price because of over production in Tamil Nadu. The farmers who are producing such type of commodity may not even fetch their spending per hectare. Relationship between the law of wastage and economic development of a nation:

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At the end of 2008 the entire world has witnessed the heat of recession and some countries have even gone to the depression. Revival from the depression made the political administrators, financial authorities, heads of organizations etc most worrisome and cumbersome too. Till now it continues and some countries revived and bounced back on the developing trend. These are all because of various reasons but one such and foremost reason behind either recession or depression is due to lack of foreseeing capacity of the administrators and improper planning of necessities. Here, the law of wastage would largely rescue all the countries from the catastrophe when the law has been understood in proper sense and implement it with farsighted approach. As the conceived law says When the price of the commodity increases the wastage will tend to diminish; when the price of the same commodity decreases the wastage will tend to increase, which tells us the significance of maintaining stable prices for at least the necessary commodities. If we want to maintain the stable prices for the necessities the supply should be regular as well as the quantities supplied also in accordance with the normal demand. Which means the supply of the commodities must exceed neither more nor less than the demand. We can put it in nutshell, the equated demand and supply. For this purpose, the planners should work out on yearly basis by taking into account of the availability of resources and possible productions. At any cost, the predetermined and estimated production of the commodities should be attained by the country as per the target to meet out the requirements. The requirements of each and every commodity should be based on that countrys policy as well as the people of that nations needs. The countrys policy may be only for the people of that nations consumption with certain precautionary measures of agreeable percentage of reserve for the unforeseen conditions or the countrys policy may be apart from the people of that nations consumption to export that particular commodity at a targeted level provided that the particular commodity can possibly be produced with the help of available national resources without affecting the further production capabilities. The country is having freedom to restrict its exports whenever the natural calamities disturb the production of certain commodities, which does not mean the country needs to maintain uniform EXIM policy throughout; the suitable mechanism of export policy may be drawn by taking into account the stock of the situation without disturbing the stable and reasonable price of the commodity in the domestic market. In order to ensure the smooth supply of essential commodities and to guarantee the regular production; it is imperative to set up national level exclusive ministry for the necessaries and under which a separate department should be created for every commodity by choosing the right persons from the stakeholders of the commodity. These departments would be altogether responsible to the ministry and works independently with proper planning and inevitably implementing as well as executing the works. There should be world wide consensus with regard to how much of what should be kept in storage and the amount of each and every essential commodities to avoid escalating prices of the commodity by en-cashing the opportunity of a countrys either draught conditions or poor production capabilities. The best possibility is to maintain the stock of the essential commodities for at least a couple of years which means even when there is no production for a year due to some natural calamities or man made disturbances to the country, these stocks will take care of that countrys need. Beyond certain level of increasing the storage capacity will tend to cause serious damages to the stored commodities. The over stored commodities more than the strategic requirement will either deteriorate the quality or completely become useless. Therefore, it is inevitable to plan at every stage and constantly watch the conditions of both stored goods and the markets. Facilities to be provided by the state for augmenting the economic development: The development of a country which comes over night or a day or two will not last long or sustainable for a long term. There is no such precedence that a country has got development over a short period of time. The development of anything needs at least germination period and constant and wholehearted assistance from the constituted body. Here the role of state is the most important to march towards the sustainable development. Following are the palpable functions that every state must seriously undertake in order to attain the sustainable development.

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The state should provide all sort of support to the identified potential producers of each and every essential commodity by effective use of the purposeful census that has been taken by the state. The requirements of the produce should be made available to them by free of cost for the benefit of the entire humanity. Transportation facilities should be provided to the producers of essential commodities at free of cost both at the time of taking the seeds, plants, fertilizers, pesticide etc to their field and to bringing their produce to the government regulated markets. The government must ensure that all their produce should be purchased by the government in order to augment the uninterrupted supply to the countrymen. The government should take necessary steps to procure everything from the producers and they should not be allowed to keep the stock at their disposal for any reason. For their needs too, they have to buy from the market alone. This sort of arrangement will give proper accountability and required processing of the commodities. The distribution of commodities from storage point to various markets should also be at free of transportation cost and for all these purpose national and state transportation units should be teamed up and used legibly. The cost of the commodity may be fixed uniformly by the state by adding administrative cost into the procured and processed essential commodities. For instance, the well branded as well as graded commodity are sold at the same price through out the country. This approach can be extended to all the essential commodities too. If the states come forward to ensure all these implementation with coordinated ideal programme on essential commodities, the unnecessary price rise would be avoided completely, black marketing is easily controlled, middlemen profit is completely avoided, uniform price and regular supply of commodities can be ensured, excess produce would be exported at reasonable price and lastly there shouldnt be any hue and cry from the people with regard to enhancement of Dearness Allowance on the basis of consumer index etc. Suggestions: 1. After going through the Law of Wastage, the question spark in our mind that if the price of the commodity is higher the wastage is at minimal which means we have to have higher prices for the commodity? Certainly not, the said law is demanding for the proper planning for the production of various necessary commodities at required level of consumption and proper distribution of the same throughout the year irrespective of the seasons. Uniform and reasonable price of the commodity will keep the check on wastage throughout the year. 2. The author strongly recommends that in order to control the wastage we need to have a perfect statistics about the various commodities with regard to the expected level of consumption pattern and possible production. 3. It is necessary to equate both the production and consumption. We should not allow the market to settle down by itself in respect of price of the commodity considering supply and demand in all the cases. 4. We need farsighted approach for the equated production and consumption. Which means by keeping in mind the unforeseen conditions and natural disasters; it is necessary to produce at least 25% more than the requirements. 5. By doing so, over production can be completely avoided. 6. There is an urgent need to set up large number of warehouses where we can store all the perishable commodities for our year long needs. 7. Government must make arrangements for procuring all the produces by the farmers in order to regularize the distribution throughout the country. 8. Transportation for the same can be provided by the competent agencies of the government at reasonable rate or at free of cost in order to keep the essential commodities price at stable. www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 9

9. The inflation can be easily controlled by making a separate corporation for all the consumable commodities to ensure regular supply at reasonable price through out the year. 10. The middlemen huge profits can be controlled easily by making certain arrangements. 11. The proposed corporation should take care of equating the production and consumption. 12. Exports and Imports may be easily taken care of. The country which is having potential to produce certain commodities need not procure from the other country and can be produced by proper planning. At one point, we open our exports and at the same time within few months, we revert back because of lack of planning and farsighted approach. Conclusion: The author has established all the three stated objectives with the help of hypothetical data and illustrations. The Law of wastage is inevitable for every countrys sustainable economic growth and to minimize the unnecessary escalation of commodity prices. This unexplored area in economics need to be studied thoroughly to avoid unexpected and unwanted economic slow down in any country. If necessities are taken care by every state, the economic development can be easily ensured with sustainable growth. By setting up of a Separate Corporation for every commodity the permanent head ache of inflation can be controlled. References: 1. P.N.Reddy and H.R.Appanniah, Principles of Business Economics, S.Chand & Co., New Delhi, 1999. 2. Ruddar Datt and K.P.M.Sundharam, Indian Economy, S.Chand & Co., New Delhi, 2007. 3. S.Sankaran, Indian Economy, Margham Publications, Chennai, 2007. 4. S.Sankaran, Macro Economics, Margham Publications, Chennai, 2007. 5. Kamarajar Vegetable Market, Thanjavur, Tamil Nadu. (Hypothetical data source November 2010 April 2011) 6. Dr. H.L. Ahuja, Modern Micro Economics (Theory & Applications) S.Chand, 2009. 7. Abha Mittal, Micro Economics II, S. Chand, 2012. 8. Campbell McConnell, Stanley Brue, Micro Economics, TATA McGRAW HILL, 2010. 9. David Colander, Micro Economics, TATA McGRAW HILL, 2010. 10. Paul Samuelson,William Nordhaus, Micro Economics, TATA McGRAW HILL, 2010. 11. James Miller, Principles of Micro Economics, .TATA McGRAW HILL, 2010. ******

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