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Mat t er s
In this issue: RAJESH CHAKRABARTI WRITES ABOUT THE TRANSFORMATION IN BIHAR - A K 5HÌVA KUMAR
DISCUSSES THE NEED FOR UNIVERSAL HEALTHCARE IN INDIA - LEADER SPEAK RA0HURAM RAJAN ON THE STATE
OF THE WORLD ECONOMY - RAVEENDRA 0HÌTT00R SHARES HIGHLIGHTS OF SURVEY RANKING TRANSNATIONAL
COMPANIES FROM INDIA
Volume 10 Issue 1
RS 250
Pictures Irom Ì5B's new campus at Mohali
The Rose Garden at the Mohali campus
The Academic Square at the Mohali campus
contents
14
Volume 10 Issue 1
5
Cover Story
5 FINANCING UNIVERSAL
HEALTH COVERAGE
Noted economist A K Shiva
Kumar writes on India’s need for
Universal Health Coverage and
the financing options for UHC
8 NEIGHBOURHOOD
SEGREGATION AND COMMUNAL
ATTITUDES
Professor Sharon Barnhardt
writes from her research on a
neighbourhood with Hindu and
Muslim populations
13 THE AMAZING
TRANSFORMATION OF BIHAR
Professor Rajesh Chakrabarti
analyses the reasons behind
Bihar’s incredible turnaround
17 TACKLING CHILD
MALNUTRITION THROUGH
DEVELOPMENT ECONOMICS
How can we target
malnourishment in India?
Professor Prakarsh Singh writes
from his research
Leader Speak
20 RAGHURAM RAJAN ON THE
WORLD ECONOMY
Eminent economist and the Chief
Economic Advisor to the Indian
government, Raghuram G Rajan,
speaks with ISB faculty
Features
25 SME EXCHANGES: THE NEED
OF THE HOUR
Senior Researcher Nupur Pavan
Bang elaborates on the need for
SME Exchanges
28 IT IS NOT ABOUT BEING ON
SOCIAL, IT IS ABOUT BEING
SOCIAL
Professor Chris Dellarocas
explains how companies can tap
into social media
20
28
Editorial: Vimla Sriram and Sriram Gopalakrishnan
Print/Distribution: Laxmi Devi Pant and T A V Srinivas
Note: This issue of ISBInsight also combines ISB Insight Volume 9 Issue 4
Design & Cover Illustration By Trapeze | Resources: Learning Resource Centre at the ISB
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For subscriptions and advertisements contact isbinsight@isb.edu
31 RANKING TRANSNATIONAL
COMPANIES FROM INDIA
Professor Raveendra Chittoor
presents highlights from a joint
survey of Indian firms
34 THE ART OF SOCIAL
ENTREPRENEURSHIP: WHEN TO
BID ADIEU
Summary of a case study that
highlights a critical turning point
in the life cycle of the Madras
Craft Foundation (MCF)
37 DO ALL PRODUCT-ORIENTED
WEB TECHNOLOGIES REDUCE
PRODUCT RETURNS?
Academicians collaborate for
a study on the influence of web
technologies on product returns
Face to Face
42 INSURANCE IN INDIA:
THE PATH AHEAD
A discussion on bancassurance
and microinsurance in the Indian
context
Knowledge Sessions
46 ETHICS IN BUSINESS
A discussion on morals and
making ethical business choices
47 EIGHT SIMPLE TRUTHS ON
HOW “VALUES BRING VALUE”
A talk on values by the founder of
the Piramal group
49 BUSINESS ANALYTICS:
ESSENTIAL FOR DEFINING
COMPANY STRATEGY
A summary of a workshop on
Business Analytics
In Brief
50 Insights in brief
Book Review
52 A review of Arun Maira’s,
“Discordant Democrats”
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COVER STORY 6

ISB INSIGHT
no financial protection against ill-health and medical
expenses. Without financial protection, many families
become severely impoverished, ailments remain
untreated and hospitalisation costs are typically
financed by loans and the sale of assets.
Third, Indians largely get very low value for
money from both private and public providers.
A few top-end hospitals in the public sector do
offer excellent allopathic care but these are mostly
overcrowded, inefficiently managed and accessible to
those with political and bureaucratic influence. Many
of the health subcentres, primary health care centres
and community hospitals suffer from inadequate
facilities, insufficient staffing, high corruption, low
accountability and poor governance. The extremely
heterogeneous private sector also does not assure
value for money. India has superb private hospitals
that offer world-class services to foreign clients and
high-income Indians at internationally “reasonable”
prices. At the same time, there are also millions of
private “quacks” who offer medical care without
having any medical qualifications or training. In
between these two extremes are a large number of
clinics and low-cost hospitals accessible to those who
can afford to pay for their services. Given the virtual
absence of effective regulation, it is very difficult for
an individual to be assured of quality
services. Also, many private sector
providers are notorious for prescribing
unnecessary tests and procedures,
taking kickbacks for referrals and for
irrational prescription of drugs.
Dependable private sector providers
offering quality services are virtually
nonexistent in most rural areas. In many
rural areas and several urban settings,
the public sector is the only source of
any credible medical care. This is to be
expected given the extremely high levels
of rural poverty and the limited ability
of the poor to pay for health care.
The Case for Universal Health Coverage
(UHC)
The High Level Expert Group (HLEG) on Universal
Health Coverage (UHC) established by the Planning
Commission envisages that every Indian citizen (not
just the poor) shall be entitled to a national health
package of essential primary, secondary and tertiary
care, both in-patient and out-patient, that is cashless
at the point of service delivery. Health and medical
services shall be provided by a strengthened public
sector complemented by private providers who will
be “contracted in” to fill gaps in public provision
wherever necessary. Such contracted-in private
providers will have to deliver cashless services and
would be compensated based on a pre-determined
cost per package of health services rather than a “fee
for service” for each visit or procedure. The private
sector should act as an extension of the public sector
where needed and will not compete for the same set
of services for the same people.
How do we move towards UHC? The first
priority should be to greatly strengthen the delivery of
primary health care in the public sector by ensuring
improved and adequate facilities, appropriate staffing
and effective outreach and access to high quality care.
The second priority should be to greatly enhance the
size and quality of the health workforce by allocating
sufficient resources to the production and hiring of
community health workers, mid-level health workers
and doctors for sub-centres and general and specialist
nurses as well as non-specialist doctors for primary
health care centres. As a third priority, essential
medicines and diagnostics should be provided
free of cost at all public facilities. In addition, the
State should cover patient transport services and
focus on difficult-to-reach areas and vulnerable
population groups. The fourth priority should be to
establish effective regulatory systems – from hospital
accreditation to health professional education and
from drug licensing to mandatory adoption of
standard management guidelines – for the diagnosis
A K Shiva Kumar is
Development Economist
Advisor, UNICEF (India)
and Member, National
Advisory Council. He
is also visiting faculty
at the Indian School of
Business (ISB).
Dependable private sector providers offering quality
services are virtually nonexistent in most rural areas.
In many rural areas and several urban settings,
the public sector is the only source of any credible
medical care.
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7 LEADER SPEAK
and treatment of different disease conditions at each
level of health care. The fifth priority should be to
establish a national interoperable Health Information
Network to improve governance, accountability,
portability, storage of health records and management.
Lastly, larger investments should be made in health
promoting programmes in other related sectors such
as water, sanitation, nutrition, environment, urban
design and livelihood generation.
Financing UHC
How should financial resources be mobilised and
where should they be spent? UHC will have to be
primarily funded by taxes. Contributory options
are unlikely to succeed given that a large segment of
the workforce is in the unorganised sector and vast
numbers are below or near the poverty line. Second,
services should be provided cashless at the point of
delivery and all user fees should be abolished. Evidence
from across the world has firmly established that user
fees, by and large, tend to be inefficient, inadequate
and iniquitous. Third, it is important to ring-fence
a significant proportion of public spending to cover
the provision of primary health care. The HLEG has
suggested earmarking 70% for the purpose, though
the proportion may vary from state to state depending
upon the health care needs of the people. Fourth,
conventional health insurance schemes should be done
away with. There is overwhelming evidence to suggest
that quite apart from the problems of malpractice,
such schemes divert large sums for tertiary care, do
not incentivise preventive and promotive care and
do little to help with cost containment. Finally, new
and flexible mechanisms of transferring financial
resources from the centre to state governments must
be introduced such that better performance and
health outcomes are rewarded.
Embracing the vision
There is a growing consensus that India needs to
urgently invest in advancing the health of its population.
This is critical for assuring the constitutional right
of citizens to health, enhancing productivity and
promoting equity. The government of India has
committed itself to increasing public spending on
health to between 2 and 2.5% of GDP by the end
of the 12th Five Year Plan. This is a welcome move
as it will greatly reduce the burden of private out-
of-pocket expenses and bring enormous relief to the
public, especially to poor and middle income families.
India has a long way to go in terms of improving the
health status of its citizens. But every long journey
must begin with a small step in the right direction –
in this case by embracing the the vision of universal
health coverage.
REFERENCES
1. High Level Expert Group on Universal Health Coverage (November
2011), “High Level Expert Group Report on Universal Health
Coverage for India”, The Planning Commission, Government
of India, New Delhi accessed at planningcommission.nic.in/
reports/genrep/rep_uhc0812.pdf on May 21, 2012
2. A.K. Shiva Kumar, Lincoln C Chen, Mita Choudhury, Shiban
Ganju, Vijay Mahajan, Amarjeet Sinha and Abhijit Sen (2011),
“Financing health care for all: challenges and opportunities,”
The Lancet, 377:9766, pp 668-679
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ISB INSIGHT
Deutsch and Collins 1951). Such studies generally find
better attitudes toward minorities among individuals
who have more exposure to minorities in their
neighbourhoods. The main problem with this research
strategy is that a person who chooses to live among
people from another community is likely different,
in important ways, from a person who chooses to
remain in a neighbourhood dominated by her own
community. Thus, these early studies may confuse
the effects of openness and tolerance (or other pre-
existing, unobservable personal characteristics) with
the effects of exposure.
In laboratory settings, this challenge is dealt
with by randomly assigning many similar subjects to
either an integrated or homogeneous setting, having
many small groups drawn from either setting work
on an assigned task, and then asking questions to
measure attitudes toward other communities. Such
experiments generally find positive effects of the social
exposure they create. However, the degree to which the
experiment rewards cooperation versus competition
is pivotal in determining whether attitudes improve
or worsen with contact (Aronson 1975;
Aronson and Patnoe 1997; Pettigrew and
Tropp 2006).
In a laboratory, unfortunately, it is
hard to replicate the condition of being
neighbours over long periods of time.
But it is possible to find (or create)
randomised assignment in a real-world
setting. Sacerdote (2001) and Boisjoly et
al. (2006) studied students in the US who
were randomly assigned roommates by
university authorities. Boisjoly et al. find
white students who had been assigned an
African American roommate showed more empathy
for the African American community and more
support for affirmative action.
Are these results enough for us to conclude that
Hindus and Muslims mixed together in government
housing will learn to appreciate each other more?
Perhaps the answer is no, mainly because more
competition might exist where resources are scarcer. If
neighbourhoods full of poor people recently migrated
to find work are more competitive than cooperative,
theory and laboratory experiments would suggest
mixing would increase communal tensions.
The Effects of Communal Exposure in
Hyderabad
In recent research in Hyderabad, I was able to
investigate the effects of inter-religious interaction on
inter-group attitudes among neighbours from Hindu
and Muslim populations living in public housing. I
chose this setting for three reasons. First, it allows
me to provide evidence on a dramatically different
population. My sample is made up of victims of a
basti fire who were re-housed onsite in new four-
story buildings. Thus my estimates extend our
understanding of attitude change to a low-income,
less educated population.
Second, individual units in the new colony were
assigned using a public lottery. The government
responded to the basti fire by using a centre-state
government housing programme to build 1792 units
(enough for most of the victims) and the residents
selected their unit by picking a chit out of a bucket
(a random allocation). Consequently, the four units
sharing a corridor on a floor (a “cluster”) have
different numbers of Hindus and Muslims, but the
Sharon Barnhardt is
Assistant Professor
of Economics at the
Institute for Financial
Management and
Research, Chennai.
The pattern of children’s implicit associations basically
replicated the pattern of adults’ explicit attitudes.
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COVER STORY ISB INSIGHT

11
size and architecture are consistent. This design
allows me to provide causal estimates of the effect of
exposure through neighbours on attitudes.
The random distribution of religious groups in
the colony is maintained through strong rules and
economic incentives. This colony has not encountered
the high turnover of relocation programmes that
move slum residents to the urban periphery because
it was built on the same site where the basti stood.
The high subsidy created an incentive for families
to accept the new unit (which they all did). The fact
that programme regulations prevent households from
selling or renting their units also helped maintain the
assignment for a relatively long period of time.
The third reason I chose this setting is its relevance
for low-income housing policy in the developing
world. As developing countries face rapid, massive
urbanisation (and the urbanisation of poverty) plus
mandates to be “slum-free,” more households will be
relocated to new neighbourhoods.
Explicit and Implicit Attitudes
We conducted a household survey in the colony in
Hyderabad (95% responded) and asked each owner a
series of questions regarding her attitudes about people
from other communities. This is what psychologists
call an “explicit” attitude – one that people are
consciously aware of having. I find that Hindus with
more Muslim neighbours have statistically significantly
more favorable explicit attitudes toward Muslims,
suggesting policies promoting greater contact could
be beneficial in this context. For Muslims, the change
in explicit attitudes toward Hindus is not statistically
significant, meaning there is no effect of having more
Hindu neighbours.
Unfortunately, explicit attitudes encounter
the challenge of “self-presentation” bias, in which
the respondent prefers to give a false answer than
reveal a socially unacceptable view (Cannell, Miller,
and Oksenberg 1981). I addressed this challenge
by complementing survey-based measures with a
computer-based Implicit Associations Test (IAT)
designed by Greenwald, McGhee, and Schwartz
(1998).
An “implicit attitude” is one that the individual
may not be aware of, but which can affect his or her
behaviors (see implicit.harvard.edu to learn more
and take a test). Our IAT was designed to get an
unbiased measure of the relative strength of automatic
associations between “good” and “Muslim,” versus
“good” and “Hindu.” A sub-sample of 359 women
and their children took the test. What we found
was surprising. The pattern of children’s implicit
associations basically replicated the pattern of adults’
explicit attitudes. Hindu children assigned more
Muslim neighbours have better implicit attitudes
toward Muslims. However, women’s implicit
associations toward both Hindus and Muslims were
about the same on average and the improvement in
Hindu women’s implicit attitudes toward Muslims
was marginally significant.
Interpreting the Results
Why would attitudes toward Muslims change and
attitudes toward Hindus stay the same? If we believe
the benefit of exposure is providing new information,
then perhaps Muslims already have fairly accurate
When deciding whether
to allocate houses on a
first-come-first-served,
most “deserving” first,
or by lottery, the benefits
of the lottery should be
understood to include
building inter-community
tolerance.
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ISB INSIGHT
REFERENCES
Allport, Gordon W. 1954. The nature of prejudice. Boston: Beacon Pr.
Amir, Yehuda. 1969. “Contact hypothesis in ethnic relations.”
Psychological Bulletin, 71:5, pp. 319-42.
Aronson, Elliot. 1975. “The Jigsaw Route to Learning and Liking”
Psychology Today, 8:9, pp. 43-50.
Aronson, Elliot and Shelley Patnoe. 1997. The jigsaw classroom:
building cooperation in the classroom. New York: Longman.
Boisjoly, Johanne, Greg Duncan, Michael Kremer, Dan Levy, and
Jacque Eccles. 2006. “Empathy or Antipathy? The Consequences
of Racially and Socially Diverse Peers on Attitudes.” American
Economic Review, 96:5, pp. 1890-906.
Cannell, Charles F., Peter V. Miller, and Lois Oksenberg. 1981.
“Research on Interviewing Techniques.” Sociological Methodology,
12, pp. 389-437.
Deutsch, Morton and Mary Evans Collins. 1951. Interracial Housing:
A Psychological Evaluation of a Social Experiment. Minneapolis:
University of Minnesota Press.
Government of India. “Housing for Weaker Sections.” Ministry of
Housing and Urban Poverty. August 23, 2011. Web. May 20, 2012.
http://pib.nic.in/newsite/PrintRelease.aspx?relid=74882
Greenwald, Anthony G., Debbie E. McGhee, and Jordan L. K.
Schwartz. 1998. “Measuring individual differences in implicit
cognition: The implicit association test.” Journal of Personality and
Social Psychology, 74:6, pp. 1464-80.
Pettigrew, Thomas F. and Linda R. Tropp. 2006. “A meta-analytic
test of intergroup contact theory.” Journal of Personality and Social
Psychology, 90:5, pp. 751-83.
Sacerdote, Bruce. 2001. “Peer Effects with Random Assignment:
Results for Dartmouth Roommates.” The Quarterly Journal of
Economics, 116:2, pp. 681-704.
Sengupta, Roshni. 2008. “Muslims on television: news and
representation on satellite channels,” in Television in India:
Satellites, Politics and Cultural Change. Nalin Mehta ed. Milton
Park and New York: Routledge, pp. 87-105.
Stephan, Walter G. 1978. “School desegregation: An evaluation of
predictions made in Brown v. Board of Education.” Psychological
Bulletin, 85:2, pp. 217-38.
ideas about Hindus because they live in a country
numerically dominated by Hindus. If the general
environment is full of neutral or positive images
about Hindus, there may be fewer bad associations
to overcome. And if that same environment is missing
positive images of Muslims (Sengupta 2008), then
Hindus may have more negative beliefs about Muslims.
Thus, having Muslim neighbours gives Hindus a
chance to gather new information about Muslims and
update their beliefs.
The pattern of results (adults’ explicit attitudes
toward Muslims improve but their implicit attitudes
stay about the same) also suggests that what has
changed for Hindus may be what is acceptable to think
and to say about Muslims. This is not trivial, however,
since children’s implicit attitudes toward Muslims
have improved. It may be that another mechanism
through which children’s implicit attitudes changed
was by not hearing parents say bad things about
another community.
Policy implications of findings
This research provides credible evidence about the
benefits of inter-religious exposure in similar settings.
The most direct implication of these findings for
housing policy is to understand the importance of
the allocation rule and the opportunity provided by
mixing communities. When deciding whether to
allocate houses on a first-come-first-served, most
“deserving” first, or by lottery, the benefits of the
lottery should be understood to include building
inter-community tolerance.
COVER STORY ISB INSIGHT

13
The latest Central Statistical Organisation (CSO)
estimates portray India’s GDP growing at 6.88% in
2011-12, a bit less than the 8.39% clocked in the
previous year. But this growth figure hides considerable
interstate variation. In 2010-11, the growth rates
in state GDP ranged from a low of less than 4% in
Nagaland to a high of almost 15% in Bihar. The range
is almost as wide this year - from a low of 3.65% in
Arunachal to a high of 13.13%, once again in Bihar.
States increasingly matter more in the Indian polity
and growth story, and it is in this varied landscape that
the story of Bihar’s turnaround from a basket case to
a case of almost model growth deserves a close look.
In 2005 when the current government came to
power, over two-fifths of Bihar’s total population,
which was larger than Germany’s, was below the
poverty line. Its literacy rates and student-teacher
ratio were the worst in the country, with the latter
exceeding 90:1 in primary schools. The state had
worse than sub-Saharan levels of child mortality
rates, with just over one in ten children being fully
immunised in 2000. Of the 69 backward districts in
India, identified on the basis of poverty ratios, hunger,
infant mortality rate, immunisation, literacy rate and
enrolment ratios, 26 belonged to Bihar. With a total of
38 districts, this number accounts for more than two-
thirds of the state! Only 13% of Bihar’s households had
an electricity connection, the lowest in the country. In
2000, teledensity remained below 1%. Bihar needed
help. Ironically, it also had the lowest utilisation rate
for centrally-funded programmes, forfeiting a full
20% of central plan assistance during 1997-2000.
It was also outright dangerous to be in Bihar
during that time. The phrase “jungle law” was being
used rampantly in the media to describe the state
of affairs. Kidnapping for ransom had become an
What were the factors behind the dramatic transformation of Bihar from a state with a dismal record in education,
health, and law and order to a model of growth and governance? Professor Rajesh Chakrabarti traces the story
of Bihar’s astonishing turnaround. This article is based on his forthcoming book, tentatively titled, “The Bihar
Breakthrough: How a Troubled State Turned the Corner.”
The Amazi ng
Tr ansfor mat i on of Bi har
BY RAJESH CHAKRABARTI
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COVER STORY 14

ISB INSIGHT
industry. Women avoided venturing out after dark
even in its capital, Patna. Politically protected gangs
brazenly roamed its streets in jeeps, with firearms in
open view.
A little over six years on, all that seems like the
phantasmagoria of a nightmare past. Patna is more
like a normal Indian city now, complete with its
traffic snarls and crowds. The newly built Eco Park
is thronged by young couples as well as families, and
spotting women there at nine in the evening hardly
raises an eyebrow. When the first Domino’s Pizza
outlet opened in Patna, it recorded the highest sales
anywhere in the nation. The number of cars at the
P&M Mall that opened in 2011 – Bihar’s first – are
often twice as many as the 150 parking spaces available.
The price of land in the Patliputra Industrial Area has
shot up from R 6 lakhs per acre to R 2.5 crores.
What did Bihar do right? Several things, in
fact. The Bihar transformation story is the result of
many individual innovations enabled, incented and
monitored by a leadership focused on performance.
In the paragraphs that follow, we provide a quick
sketch of the broad governance approach as well as
a few of the key innovations that made this major
change possible.
The Overarching Strategy
Having come to power on a slogan of good
governance (Sushasan) in a state on the verge of
complete administrative breakdown, the Nitish
Kumar-led NDA government adopted the slogan of
“Development with Justice.” Based on this broad
vision, the government quickly chalked up a simple,
four-fold, clearly measurable mission:
t &WFSZ *OEJBO QMBUF NVTU IBWF POF FEJCMF JUFN
from Bihar;
t #JIBS TIPVME QSPEVDF BU MFBTU MBLI MJUSFT PG
milk per year;
t 1FPQMF TIPVME CF BCMF UP USBWFM
from anywhere in Bihar to Patna in less
than six hours; and
t "#JIBSJTIPVMEFBSOOPMFTTUIBO
R 300 per day.
This broad mission would guide the
overall development approach of the
government. It also demanded a “zero-
tolerance” approach to lawlessness,
communal violence and corruption. This
was a prerequisite for any development
to occur, and this would be the most
visible part of governance as well.
The System Delivers
In much of popular discourse, the Indian bureaucracy
receives far more brick-bats than bouquets. But the
primary credit for the turnaround in Bihar has to go
to innovative solutions that emerged from within the
bureaucracy – notwithstanding its usual problems
of heterogeneity in officer performance, more than
occasional partisanship and lack of initiative. In
Bihar’s case, the political leadership’s role was to
push the bureaucratic machinery to deliver the goods
and at the same time create an atmosphere where
bureaucrats could try out innovative approaches
to solving major administrative problems. It was
essentially “management by objectives” that did
the job – a combination of freedom to experiment
combined with ceaseless monitoring, in most cases
directly from the CM’s office. Following are a few
examples of key innovations that helped turn the state
around.
Law and Order
This was Bihar’s Achilles’ heel and the first issue that
had to be tackled for any other development to take
place. Three major innovations – “speedy trials,” the
contractual hiring of retired armed forces personnel to
create the State Auxiliary Police (SAP) and the tireless
prosecution of criminal-politicians (bahubalis) from
across the political spectrum – marked the turnaround
here. The ideas behind at least the first two of these
are attributable in large part to the current Bihar DGP,
Abhayanand, who was an Additional Director General
during the initial years of the new regime.
Law and order, like currency, works on public
faith. Once the public and lawbreakers come to doubt
it, the ranks of the latter swell and crime becomes
uncontrollable. In 2005, this threat was looming
dangerously over Bihar. The challenge was not just
to lock up the miscreants but also project a visible
image of effective law and order so as to tilt the risk-
return balance of the potential lawbreaker in the right
direction.
The “speedy trial” approach rightly identified
post-arrest prosecution as the missing link, focused
The primary credit for the
turnaround in Bihar has to
go to innovative solutions
that emerged from within
the bureaucracy.
Rajesh Chakrabarti
is Clinical Associate
Professor of Public Policy,
and Executive Director
of the Bharti Institute of
Public Policy at the Indian
School of Business (ISB).
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COVER STORY ISB INSIGHT

15
on improving police “court-craft” and concentrated
on the relatively innocuous crime of violating the
Arms Act (carrying illegal weapons) to speed up
criminal trials and get miscreants off the streets. A
trickle of 29 Arms Act convictions in January 2006
swelled to 1,068 in December with an annual total of
5,230 convictions as opposed to 1,609 under other
Indian Penal Code (IPC) cases. The following years
witnessed even more staggering conviction rates –
8,774 and 10,994 Arms Act convictions (against
1,154 and 1,018 under IPC). In the three years, the
combined Arms Act convictions were just two shy of
25,000.
The SAP solved the problem of a severely
understaffed police force with a constabulary vacancy
number of almost 30,000. They emerged as a crack
team skilled in encounters, including in the Naxal-
dominated areas. The tireless prosecution of dreaded
crime overlords (and usually legislators in the state or
in Delhi) of the likes of Muhammad Shahabudin and
Anand Mohan, cutting across caste and party lines,
sent a clear message that the government was keen
on establishing law and order in a non-partisan, non-
casteist manner.
Roads
Roads, the most visible sign of a state’s development,
lay in shambles in Bihar in 2005. The length of
roads built increased almost tenfold from 385 km
in 2004-05 to 3,474 km in 2009-10, cutting travel
times by more than 50% between most parts of the
state. The Secretary Roads (currently Union Home
Secretary) R K Singh pushed road building – an area
frequently mired in corruption and scams – on a war
footing. A few small changes made a big difference.
Reducing the contractor registration rules from a
12-page document to two pages helped bring in
new contractors to break the road contractor cartel
that could hold the government to ransom. The
simplification of the bidding document created
incentives for contractors to finish projects early
and helped speed up project completion. Creating
a viable government arm dedicated to constructing
roads and bridges helped keep the bargaining power
of contractors in check. This was the existing Bihar
Rajya Pul Nirman Nigam (BRPNN) that itself was
turned around from a near-bankrupt organisation to
profitability by Singh’s trusted deputy and eventual
successor, Pratyaya Amrit.
Health
If roads were bad in Bihar, health services were next
to non-existent in the pre-2005 scenario. Despite
the existence of a network of primary health centres,
very few centres were actually in operation. The
doctors on the rolls there rarely bothered to show up
at the facilities, preferring to focus on their private
practices in district towns. Both demand and supply
of health services in Bihar were unacceptably low. The
government responded with the distribution of free
medicines at primary health centres coupled with
cash incentives to boost demand. Institutional child
delivery, for instance, carried an incentive of R 1,400.
Similar incentives were offered for family planning and
the prevention and treatment of kala azar, a parasitic
disease.
On the supply side, monitoring of doctor
attendance was critical. This was done through a
public-private partnership with a call centre operated
by a BPO company that monitored doctor attendance,
with stiff penalties imposed for repeated no-shows.
Diagnostic machinery which, when operated by
government, tended to have unusually large downtimes
in order to facilitate private providers, was now
contracted out to private players. Given the massive
shortage of medical personnel, a strategy was adopted
to focus on block level hospitals that would run 24X7
even at the cost of village level services.
The net effect of these measures was remarkable.
The average number of patients visiting Bihar’s
The average number of patients visiting Bihar’s health
care facilities per month rose from below 50 to close
to 5,200, institutional deliveries increased from about
45,000 a year (of Bihar’s roughly 27 lakh births)
to 12.46 lakhs, and the immunisation rate among
children rose to 67%, better than the national average.
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ISB INSIGHT
health care facilities per month rose from below 50
to close to 5,200, institutional deliveries increased
from about 45,000 a year (of Bihar’s roughly 27 lakh
births) to 12.46 lakhs, and the immunisation rate
among children rose to 67%, better than the national
average.
Education
Just as with health, cash incentives played a big role
in creating demand at the primary level in education.
The now-famous “bicycle for girl students” scheme –
not the first in India but perhaps the most successful
– became instrumental in lifting the number of young
girls continuing in school. Cash for uniforms also
played a similar role. On the supply side, as in health,
monitoring of teacher attendance and hiring of
temporary teachers improved classroom instruction.
The effects of these education initiatives were
equally dramatic, as demonstrated in the decrease in
the number of out-of-school children by 85%, the
drop-out rate to a sixth of what it was in 2005 and
the teacher student ratio by 40%.
Industry
While industry is beginning to pick up and build
on the successes of the other key sectors, the early
adoption of a Single Window Clearance system and
an industry-friendly Incentive Policy as well as the
Infrastructure Development Enabling Act and Land
Acquisition Policy helped raise proposed investments
by more than 15 times in six short years, though
this accounts for a minuscule 1.5% of the entire
investment in India.
The Secret Behind the Turnaround
These are but a few examples of conscious, innovative
public policy interventions that made a difference
in Bihar. E-governance and administrative reforms
have made significant strides in the state. Bihar has
pioneered the Right to Public Service (RTPS) Act,
subsequently adopted by the centre. An ambitious
socio-economic transformation is being attempted, by
welding a Bihari identity in place of caste affiliations.
Without taking away from the innovative
contribution of individual bureaucrats and police
officers, it is fair to ask what made it all fall in place.
How was it that virtually the same bureaucracy that
had witnessed the decline of Bihar to the verge of
collapse was now coming up with so many solutions?
The credit doubtlessly goes to the political leadership
that put its faith in senior bureaucrats and monitored
them ceaselessly through fortnightly meetings to
discuss specific issues, even to the point of earning
the blame for unleashing afsarshahi (officer rule). The
style that the Nitish Kumar administration adopted
was doubtlessly one of centralised control (detractors
would use the term “autocratic”) wherein the CM’s
office directly monitored key bureaucrats as many
ministers, while formally part of the drive, failed to
keep abreast of the developments.
If there is one single key to the turnaround story,
it has to be ceaseless and untiring monitoring of the
key departments and bureaucrats by the CM’s office,
and in turn, by the key officers of the functionaries
in the field. It is important to note that much of the
funding for the Bihar turnaround actually came from
central sources, the PM Gram Sadak Yojana for roads,
National Rural Health Mission for health and Sarva
Siksha Abhiyaan for education. The main contribution
of the political leadership was effective and innovative
implementation. The battle was literally won one
project, one school, one hospital at a time.
The challenge of pulling off this extraordinary
turnaround in the caste-ridden political landscape of
Bihar within the constraints of a coalition government
was no less creditable. Here the political stature of
Nitish Kumar in Bihar, where he stood head and
shoulders above any rivals, proved useful.
Does the Bihar miracle serve as a model for other
states? To a large extent, the answer is yes, particularly
for the backward states that share similar challenges.
While the details may not apply unaltered everywhere,
the broad approach of committed governance is
relevant across the board. Most importantly, the Bihar
experience has put to rest doubts about the feasibility
of governance-oriented politics in India. If it could
happen in Bihar, why not elsewhere?
1
Indicus Analytics
2
Indicus Analytics and Prabhat Khabar, 2010, Bihar Development
Report 2010.
Cover St or y
COVER STORY ISB INSIGHT

17
Every Thursday evening between 1924 and 1936, an
influential group of philosophers and mathematicians
met at a café in Vienna to discuss how knowledge
should be accumulated. They came to the conclusion
that only scientific observation and experimentation
in the real world could lead to true understanding.
1
Much of modern development economics follows this
principle underlying the physical sciences.
An example is the experimentation conducted
within the programme PROGRESA, which began in
1997 as a national programme in Mexico that was
designed to address the problem of extreme poverty
through a large-scale intervention. The Mexican
government provided conditional cash transfers to
parents amounting to 20-30% of their household
income. The cash transfer was conditional on the child
being enrolled in school and having regular school
and clinic attendance. Parents received governmental
money only if the child’s school and clinic attendance
was above a designated minimal threshold. In the
first three years of the programme, the benefits were
extended to approximately 2.6 million families in
50,000 rural villages, which constituted about 40%
of rural families and 10% of all families in Mexico.
Villages were equally likely to be chosen as part of the
treatment group, and on average, the villages receiving
the treatment were very similar to the villages that
were left untreated (the control group). This allowed
for a comparison of the outcomes before and after
the monetary intervention and for the experiment to
produce conclusive evidence on the effectiveness of
PROGRESA in improving children’s grades and health.
A significant improvement in the health of children
was found in response to PROGRESA. This effect of
the programme appeared to increase the longer the
children stayed in the programme, suggesting that its
benefits were cumulative. However, there were many
different elements interacting with one another in the
programme. In order to deal with the massive increase
in demand for schools and health services, the Mexican
government began hiring more teachers, increased
teacher wages and began training more medical
personnel. The programme resembled a combined
intervention in which many individual components
came together to make it successful. However, we
do not know which of these components was more
effective than another. From a policy perspective, we
remain unaware of the most cost-effective form of
intervention, which may be making the cash transfers
conditional on just school attendance or on trips
to the clinic or whether the interventions are most
effective when employed simultaneously. Modern
development economics attempts to disentangle these
different types of treatment effects in order to focus
on the most cost-effective form of intervention and
improve public health policy.
Close to 1.3 million children die every year in India
due to malnutrition, according to the World Health
Policy recommendations should be based on experiments conducted in the real world to have a deep and
lasting impact, argues Professor Prakarsh Singh, citing results from his study on child malnutrition in the
slums of Chandigarh.
Tackl i ng Chi l d
Mal nut r i t i on t hr ough
Devel opment Economi cs
BY PRAKARSH SINGH
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ISB INSIGHT
Organisation. 99% of all under-five deaths occur in
developing countries, with the most common causes
of death being pneumonia, diarrhoea and malaria.
These are illnesses to which children are particularly
vulnerable, especially when they are malnourished,
a condition that weakens their immune systems.
Malnutrition contributes to more than a third of all
child deaths.
2
Worldwide, over 100 million children
are underweight. While it is a serious problem in
sub-Saharan Africa, even higher rates of stunting are
found in South Asia, particularly in India. Along with
Nepal and Bangladesh, India has the world’s highest
rate of malnutrition. The graph below from the
DHS (2005-06) shows us the normal distribution
for weight-for-age z-scores. The blue curve on the
right is the US curve. In the US, only a little more
than 2% of children under the age of five years
are undernourished in a normal population, with
underweight being defined as less than a -2 standard
deviation from the mean. The area under the curve
shows the percentage of malnourished children. In a
normal population it is a small area, but in India it is
an area about 20 times larger.
One way to fix the problem is to teach mothers
about the right nutrition for their children or to
give them money (as in PROGRESA). Distributing
information is an important part of a solution,
although it does not always lead to behavioural
changes. Mothers are advised that when their child
has diarrhoea they should increase their child’s fluid
intake and continue to feed them normally. According
to the National Family Health Survey-3, nine out of
10 mothers do not follow this recommendation. In
fact, four out of 10 mothers actually decrease their
child’s fluid intake.
Medical solutions to the problem of malnutrition
include deworming and nutritional supplements.
Deworming campaigns are quite effective and have
been conducted in many day care centres and health
encampments. The treatment has been
especially popular in Kenya and other
parts of Africa, and now in India, the
practice has become compulsory in
all schools. Popularly used nutritional
supplements include vitamin A, zinc,
iron, and various minerals. In addition,
iodised salt has been a popular weapon of
the government of India as they continue
to try and promote its consumption over
normal salt.
There is also a behavioural approach,
which has very little to do with the advances in science
and technology, but instead attempts to simply alter
the behaviour of mothers and workers who interact
with the child. This includes giving children the
right type and amount of nutrition. We can focus on
trying to change behaviour towards calorific food and
encourage the consumption of a variety of foods.
My research focuses on the slums that surround
the city limits of Chandigarh, a union territory located
in Northern India. About 50,000 people live in these
slums. Less than 5% of the houses have working
water filters. At the same time, however, 70% of the
households own mobile phones. The people living in
these slums are typically migrants from rural areas
where wages are extremely low. The mothers in this
treatment group are women who send their children
to day care centres in the slums. India is home to
the world’s largest child care programme, Integrated
Child Development Services (ICDS), which started
in 1978. There are currently over one million of
these day care centres (Anganwadis) run by the
government across India. Each day care centre serves
around 30 children on average. The children go to
the centre every morning at 9 am and are fed their
mid-day meals by day care workers. The meals are
prepared by a good local agency that the government
hires on contract. The workers are given training on
child health and nutrition when they are hired by the
government. Another aspect of the day care workers’
responsibilities is to visit and communicate with the
mothers whose children attend the centre, giving
them advice on how to keep their children healthy.
The day care centres offer two potential channels
through which they help children living in the slums.
The first is by the distribution of the mid-day meal and
the second is by providing information and counsel
to the mothers. However, a World Bank report on
the ICDS finds leakages in the provision of meals and
almost no effective communication between workers
and mothers.
The experiment tackles the question of whether
it is the lack of information on nutrition given to
mothers or the lack of child care worker motivation
that makes child malnutrition persist. In the first
group, mothers receive recipe books written in
Hindi. As around half of these mothers cannot
read, the information is also distributed to other
family members, including fathers, older sons and
daughters. Government workers may also assist by
reading and sharing information from the recipe
book. The recipe book is designed with the help of
Prakarsh Singh is
Assistant Professor of
Economics at Amherst
College, Massachusetts.
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COVER STORY ISB INSIGHT

19
a local nutritionist and contains 10 recipes, which
provided an array of vitamins and minerals as well as
sufficient calories.
In the second treatment group, I provide
incentives for child care workers to perform better.
They are paid bonuses of Rs 100 for each child
whose weight they successfully increase so that he or
she is no longer classified as malnourished after three
months. For each child under their care, the workers
are given a goal card with the weight at which the child
will no longer be considered malnourished. If a child
at a normal weight becomes malnourished, however,
I subtract Rs 100 from the total. This motivates the
worker to make the necessary household visits.
To test how the two types of treatments interact,
the informational and incentives treatments are
combined in the third group. Complementarity
may exist if incentivised workers are able to be
more effective with nutritional information available
to the mother. On the other hand, one of the two
treatments may be sufficient for improving weight. A
separate set of centres form the control group where
no intervention is assigned.
Results show that malnutrition is reduced
significantly in three months for children in the
combined treatment group by 4.2% but there are
negligible effects in the individual treatment groups.
The combined treatment effect persists for a year even
after the incentives are removed after three months.
One estimate suggests that the country gains Rs 20
for every rupee spent on the combined treatment in
terms of increase in wages for these children due to
an improvement in health and attendance.
I believe that policy recommendations should
be based on evidence from experiments and that
increasing fixed wages will not solve the problem.
Similarly, offering performance pay is likely to
be ineffective unless mothers have nutritional
information available to them. Not only does this
empower them, but it also facilitates communication
between mothers and workers such that behavioural
change can occur. Mothers receiving combined
treatment begin feeding their children more
protein and calories. A small push is required on
the demand side as well as the supply side to target
child malnutrition in India. Further experimentation
in development economics can bring us closer to
understanding how this serious problem can be fixed
efficiently and permanently.
REFERENCES
• Bobonis, G.J., E. Miguel, and C.P. Sharma. 2004. “Iron Deficiency
Anemia and School Participation.” Poverty Action Lab Paper No.
7.
• Census of India, 2001, Government of India. Web. September 1,
2010. http://www.censusindia.net/ Deaton, A., J.
• Dreze. 2008. “Nutrition in India: Facts and Interpretations.”
Working Paper 1071, Princeton University.
• DHS India (2005-06). 2007. Final Report, International Institute
for Population Sciences (IIPS) and Macro International Inc.
Calverton, Maryland, US.
• Gertler, P.J. and S. Boyce. 2001. “An Experiment in Incentive-
Based Welfare: The Impact of PROGRESA on Health in Mexico.”
University of California at Berkeley mimeo.
• ICDS Guidelines. 2007. Ministry of Women and Child Development,
Government of India. Web. June 13, 2012. http://wcd.nic.in
• Statistical Abstract of Chandigarh. 2007. Chandigarh
Administration, Government of India. Web. September 1, 2010.
http://chandigarh.gov.in/knowchd_stat_ab07/.
• Singh, P. 2011. “Performance Pay and Information: Reducing
Child Malnutrition in Urban Slums.” MPRA Working Paper 29403,
University Library of Munich, Germany.
• WHO, Global Database on Child Growth and Malnutrition. 1999.
Compiled by Mercedes de Onis and Monika Blössner in the
Programme of Nutrition, Geneva. Web. June 13, 2012. http://
whqlibdoc.who.int/hq/1997/WHO_NUT_97.4.pdf
1
Ludwig Wittgenstein who wrote on the subject of logical empiricism
heavily influenced the Vienna Circle.
2
There are three types of indicators for malnutrition. The long-term
indicator is stunting, which measures low height for age. The short-
term indicator is wasting, which measures low weight for height.
The third indicator is underweight, which measures low weight for
age. This final indicator captures both stunting and wasting.
Cumulative Distribution of Weight-for-Age Z-scores
Source: DHS (2005-06)
100
80
60
40
20
0
-5 -4 -3 -2 -1 0 1 2 3 4 5
P
e
r
c
e
n
t
Z-scores
Cumulative normal curve
WHO Child Growth Standards
NCHS/WHO Reference
Leader Speak
20

ISB INSIGHT LEADER SPEAK
What is your assessment of the world economic
situation? Is the worst behind us?
We do not know. There are two reasons for this:
First, Europe is still muddling through. Earlier,
there were concerns about Italy. Some of these have
been addressed but Italy still has to take some hard
reform steps. Until there is growth in these countries,
the spiral downwards will eventually become very
problematic, both economically and politically. We
hope that will not happen. Currently, Spain is in the
limelight more than Italy. With its large deficits, the
banking sector in deep trouble and the housing sector
problem is still not fully reflected in the banking
sector’s balance sheet. The European Central Bank
(ECB) has bought time by taking on considerable
credit risk on its balance sheet, and we have to wait
and see if the governments can do enough to convince
the bond markets.
The second reason is geopolitical uncertainty
of which, Iran and the Strait of Hormuz are just an
indication. Whether in fact there is an attack by Israel,
and what consequences, intended or unintended,
emerge from that attack are clearly a big source of
concern. It is not just a question of whether the Strait
would be blocked; that would be disastrous. There
are other possibilities, such as that of Iran’s proxies in
different countries escalating conflict here and there
and of course the general uncertainty that would
prevail in the Middle East if in fact there is an attack
by Israel. I hope that dialogue prevails.
Another concern, which is not getting as much
attention but is one I think we should keep an eye
on, is China. The political uncertainty in China may
be perceived as relatively small. There is a transition
taking place, and just as the last transition occurred
very peacefully, the next transition will, in all
likelihood, also be peaceful. However, there is the
question of whether there is some sort of internal
battle happening there which we do not see. We see
only the external manifestations. It is possible that
there could be more uncertainty in China. Chinese
uncertainty could be quite problematic because China
relies on confidence in the government. For instance,
people do not worry too much that the banking sector
has big bad loan problems because they think it will
get fixed by the government.
What do you feel about Spain’s economic situation?
Has joining the Euro zone helped Spain?
Whenever there is a crisis, the Keynesian view is
that the level of demand before the crisis is what we
must return to because it is the appropriate level.
Obviously we have a demand shortfall, as the people
who borrowed cannot spend now because they over-
leveraged and now have to figure a way to get around
that. It is questionable whether the nature or level
of the demand was stable before the crisis. Thus,
to say that we must go back to that level may not be
the solution. If Spain grew because they built many
houses, and the demand for houses has now fallen,
Raghuram G Rajan, Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago’s
Booth School of Business and the Chief Economic Advisor to the Indian government, was at ISB in April 2012.
Following is an excerpt of the interview between Professors Sankar De, Rajesh Chakrabarti and Krishnamurthy
Subramanian with the eminent economist.
Raghur am Raj an on
t he Wor l d Economy
Leader Speak
ISB INSIGHT

21 LEADER SPEAK
how do you restore that level of demand? Certainly,
you are not going to get demand for housing to the
same level it was earlier, which means you are going
to shift the nature of demand. Increasing aggregate
demand may not create the right amount of demand
for the kind of things that are in trouble. I keep
arguing that there is also a supply problem, which is
that there are too many houses and too many people
in the construction sector. This has to change as
supply was pushed unsustainably because households
had easy access to borrowing.
Spain spent as though there was no tomorrow,
and now they want to get out of the mess. It is a bit
like the Chakravyuha (labyrinthine military formation)
described in Mahabharata. You know how to get in,
but you have not memorised the path to get yourself
out. People are saying that they should quit the Euro
and get their own currency, in other words, go back
to devaluation. That, however, was never a long-term
solution. Devaluation soon resulted in higher inflation,
so while they became more competitive for a while,
eventually higher wages made them uncompetitive.
Moreover, everybody knew they would devalue
frequently and have higher inflation, so there was an
inflation premium built into their bonds, which made
Whenever there is a crisis, the Keynesian view is that
the level of demand before the crisis is what we must
return to because it is the appropriate level. Obviously
we have a demand shortfall, as the people who borrowed
cannot spend now because they over-leveraged and now
have to figure a way to get around that. It is questionable
whether the nature or level of the demand was stable
before the crisis. Thus, to say that we must go back to
that level may not be the solution.
Raghuram G Rajan
Leader Speak
22

ISB INSIGHT LEADER SPEAK
it harder for them to borrow.
If Spain devalues and leaves the Euro, it will
restore competiveness for a while. After that, they will
return to the same old problems, this time without
the safety net of the Euro as a stable currency. This
solution is temporary.
You are obviously not satisfied with the pace of financial
reforms in India. Where are we stuck and what can we
do?
I think we have been making some progress on
financial reforms. There is virtue in the financial
sector proceeding steadily but cautiously, especially
because of the great potential volatility of this sector.
Over time I have become more convinced by the
RBI’s strategy of experimenting – letting things start
in a small way and then rolling them out. I believe that
we should adopt the strategy more widely. You may
wonder sometimes if the experiment is structured
to succeed or fail, but you can’t fault the basic idea
that this step-by-step process is better than dramatic
changes. Mostly, I think we are moving in the right
direction of steady liberalisation.
In the financial sector, I worry about the need to
finance the current account deficit. It would be better
if FDI flowed into the country in a big way, rather
than financing this deficit through short- to medium-
term capital flows. This is where policy uncertainty in
the rest of the economy hurts us. Some policy makers
still believe that the India story is alive and well, and
that because we are set to grow at 7-8%, people
would be foolish not to invest in India no matter how
much uncertainty there is. I think that is overstating
the attractiveness of India in the perspective of the
international investor. Investors have interesting
opportunities in Burma, Brazil and a number of
African countries. Why do they need the uncertainty
in India?
Take the case of Vodafone. The government’s
attempt to issue retrospective tax legislation on
Vodafone and nullify the court verdict is hard to
defend. Essentially the government is saying that even
if it gets a judgment from the legal system, it can decide
whether to accept it or not. There is a huge amount of
policy uncertainty created by this. The notion that the
government can do what it wants could hurt FDI.
Anybody who looks at our macroeconomic
picture, at the recent headlines, at the policy paralysis
and asks, “Is this a country I want to invest in?” is
probably not going to give us the answer we would
like.
You have authored models that have looked at different
classes that have pushed for reforms. There were times
when the constellations worked towards change and
sometimes people blocked them. Is there a broader
political economic story here?
I don’t fully understand it, but it seems to me that
we are seeing a reversal in the preference for urban-
and upper middle class-oriented policies towards
more rural-oriented policies. If this was done in a way
that would expand productive resources, it would be
wonderful. We need better schools in the rural areas
and more investment in certain areas of agriculture,
such as seeds. My worry is two-fold:
The problem with much of these reforms is that
they are not increasing productive capacity as much
as catering to consumption. Moreover, they are not
catering to consumption by increasing choice, but
by telling rural people that they must have grain or
services whether or not they are going to use them
and whether or not they are going to be provided
efficiently. While these reforms may be redressing an
imbalance, they are doing so in a way that does not
increase productivity or growth, but instead increases
demand and consumption. Some of it is sustainable,
but there has to be growth elsewhere.
This is why it is important for reforms to expand
growth in the other areas. If you don’t, you end up
Investors have interesting
opportunities in Burma,
Brazil and a number of
African countries. Why do
they need the uncertainty in
India?
Leader Speak
ISB INSIGHT

23 LEADER SPEAK
placing tremendous pressure on government finances
and then something has to give way. They have to find
new ways to generate revenues that will not upset the
rural electorate. Hence, all the talk about increasing
the tax rate on the rich or applying retrospective tax
on Vodafone. The search for revenue alights on the
classes that are already paying. The one good thing
we did was have fairly low tax rates across the board,
which creates incentives to declare income and
generate growth. We are headed in a bad direction
along with the rest of the world by increasing rates.
Instead, we should focus more on expanding the
tax base. Far more people stay outside the net than
within it. For instance, industrial houses don’t have
a particularly high tax rate because they find every
loophole, and rich farmers have a way to evade taxes
completely. I worry about the political constellation
changing and I don’t think that the response is the
right one.
A few years ago, in a newspaper interview, you pointed
out that India has the second highest number of
billionaires per trillion dollars of GDP (after Russia).
You also said that most of them made their money by
manipulating the government. You went to the extent
of saying that if you call Russia an oligarchy, how long
can we resist calling India one? Having seen what
we have seen in recent months, whether it is the 2G
spectrum, coal or defence scam, what is your thinking
on those lines?
With our stock market decline, some of our billionaires
have become millionaires once again. Evidently,
we’re not doing that badly on that dimension! There
are people who have made money the right way, by
building better products, standing by them and selling
them more widely. I have enormous respect for that.
You also have to respect people who have found a way
within the system to create value. What I worry about
is creating a structure that enables people to make
their money from the system itself rather than from
better products. My point in that interview was that
we have too many of those people as well. This goes
back to the fundamental issue of government reform
in India. How do you generate the pressure for those
reforms? The middle class did join in the protest
against corruption headed by Anna Hazare last year.
Unfortunately, that middle class movement for better
governance seems to have died down. How do you
get a sustainable movement against corruption,
particularly when a politician knows he can bypass it
by appealing directly to the rural lower middle class
voter on caste grounds or on hand-outs ? We have seen
some evidence in recent elections that those voters are
also anxious about governance, but politicians have to
change their mind-sets to accept that governance is
an issue on which people will base their votes. Some
politicians still believe that the old ways will work. We
will have to see how it evolves. There is a lot of churn
in the Indian economy now, which can be good for
the medium term. We have a democracy, imperfect
though it sometimes may be. I think that churn will
bring us something better than we have now.
There are people who have made money the right way,
by building better products, standing by them and selling
them more widely. I have enormous respect for that.
You also have to respect people who have found a way
within the system to create value. What I worry about is
creating a structure that enables people to make their
money from the system itself rather than from better
products.
24

ISB INSIGHT FEATURES
Feat ur es
25 SME EXCHANGES: THE NEED OF THE HOUR
28 IT IS NOT ABOUT BEING ON SOCIAL, IT IS ABOUT
BEING SOCIAL
31 RANKING TRANSNATIONAL COMPANIES FROM INDIA
34 THE ART OF SOCIAL ENTREPRENEURSHIP: WHEN TO
BID ADIEU
37 DO ALL PRODUCT-ORIENTED WEB TECHNOLOGIES
REDUCE PRODUCT RETURNS?
ISB INSIGHT

25 FEATURES
Feat ur es
Micro, Small and Medium Enterprises (MSME)
are often associated with employment generation,
poverty alleviation and innovation. Their smaller size
and entrepreneurial passion enable these businesses
to be more productive, promote competition and
efficiency and contribute significantly to the exports
and growth story of nations. According to a World
Bank study on Small and Medium Enterprises (SMEs),
the contribution of organised and unorganised SMEs
to the employment and GDP of nations is highly
significant (See Table 1).
In India, the MSME sector is the largest generator
of employment in the economy. In 2008, 92% of
India’s total workforce of 457.46 million people was
employed by the informal sector, which is largely
dominated by micro, small and medium enterprises
(MSMEs).
The definition of MSMEs or SMEs varies in
different countries. They may be defined in terms
of their employee numbers, investments in assets,
revenues, paid up capital or a combination of these.
In the Indian context, as per the MSME Development
Act, 2006, micro, small and medium enterprises are
defined on the basis of of their investment in plant
and machinery (for manufacturing enterprises) and
on equipment for enterprises providing or rendering
services. The World Bank defines MSMEs in terms of
number of employees, total assets and total sales (See
Table 2).
In India, the registered MSME sector is estimated
to comprise 1,563,974 working enterprises. Micro,
small and medium enterprises account for 94.94%,
4.89% and 0.17% of this number respectively .
Funding Constraints
The ability of MSMEs to grow depends on their ability
to raise funds for investing in technology, expansion,
innovation and research. This is the biggest challenge
MSMEs face all over the world, whether they are in
developed nations such as the US or in developing
nations such as India or China. Once they have tapped
the resources of family, friends and well-wishers, they
are unable to raise additional funds as easily as larger
and more established businesses.
Research shows that the reasons for these financial
constraints range from regulatory obstacles (US) and
legal and institutional barriers (Canada) to high costs
of disclosure requirements during and post Initial
Public Offering (IPO) for listed companies (India).
Limited access to capital makes
access to credit important for this
sector. However, a 2009 study by the
National Council for Enterprises in the
Unorganised Sector (NCEUS) on the
challenges of employment in India, with
a focus on the informal economy, shows
that the growth in credit extended to
micro and small enterprises was only
9.7% between 2007 and 2008. It was
much higher for other sectors such as
the services, construction and real estate
sectors (See Table 3).
Can SME Exchanges be the answer to the financial constraints that plague Small and Medium Enterprises (SMEs)
and frustrate their ability to grow? Nupur Pavan Bang writes from her research.
Nupur Pavan Bang is a
Senior Researcher at the
Centre for Investment
at the Indian School of
Business (ISB).
BY NUPUR PAVAN BANG
SME Exchanges:
The Need of t he Hour
26

ISB INSIGHT FEATURES
Feat ur es
The same report also highlights that the overall
availability of credit to small and micro enterprises as
a percentage of net bank credit (NBC) of Scheduled
Commercial Banks (SCB) declined from 15.5%
in 1996-97 to 6.6 % in 2007-08. Ghatak (2009)
explains that banks are reluctant to extend credit
to small enterprises for several reasons, such as the
high administrative costs of small-scale lending,
asymmetric information, high risk perception and
lack of collateral.
The lack of financial support to enable these
enterprises to grow or meet their working capital
requirements has a disastrous impact on them.
Government Support
The government has been taking steps to improve
the situation on two fronts, bank loans and credit
flows. In 2000, it launched a credit guarantee scheme
for collateral free credit to meet working capital
requirements and provide term loans. The Micro
Finance Scheme, under which the government provides
a security deposit to micro finance institutions against
loans taken by the MSMEs, has been in operation
since 2003.
The Small Industries Development Bank of India
(SIDBI) along with Dun & Bradstreet Information
Services India Private Limited (D&B) and several other
leading banks in India launched SMERA (SME Rating
Agency) to provide comprehensive, transparent and
reliable ratings for SMEs. The aim is to help SMEs
get access to better credit at better rates and longer
tenures. It also enables banks to make more informed
decisions when extending credit to SMEs.
Apart from the above, other initiatives by the
government include promoting the use of technology
and marketing, setting up clusters to build common
infrastructure, providing guidelines to banks on
priority sector lending and introducing the Credit
Linked Capital Subsidy Scheme, among others.
Despite these efforts, the gap between access to
finance and the needs of MSMEs remains vast.
SME Exchanges
In a bid to address this issue, the Prime Minister’s Task
Force recommended the establishment of a dedicated
Stock Exchange/ Platform for SMEs in January 2010.
The Bombay Stock Exchange (BSE) and the National
Stock Exchange (NSE) launched their SME trading
platform in March 2012.
To be eligible for listing, an SME must have paid
up capital of R 10 crores. Its paid up capital post issue
must not exceed R 25 crores. If it goes beyond the
Table 1: Contribution of the SMEs in terms of GDP and Employment
Contribution of Organised
Sector SMEs
Contribution of Unorganised
Sector SMEs
GDP (%) Employment (%) GDP (%) Employment (%)
Lower
Income
15.6 17.6 47 30
Middle
Income
39 48 30 31
Higher
Income
51.5 57.2 13 16
Source: www.worldbank.org
Table 2: Classification of MSMEs
Classification Manufacturing
Enterprises
(investment in Plant
& Machinery)
Service
Enterprises
(investment in
Equipment)
World Bank
No. of Employees (up to) Total Assets (up to) Total Sales (up to)
Micro $50000 $20000 10 $10000 $100000
Small $1million $0.4million 50 $3million $3million
Medium $2million $1million 300 $15million $15million
Source: www.msme.gov.in and Ayyagari et. al. (2003)
Note: The figures for India have been converted from Indian Rupees to US$ taking an exchange rate of Rs50/$
Table 3: Increase in Credit between 2007-2008
Increase in Credit (%)
Credit Cards 86.3
All Services Sectors 35.3
Construction 48.3
Real Estate 46.3
Agriculture and Allied
Activities
18.5
Micro and Small
Enterprises
9.7
Source: NCEUS Report (2009)
ISB INSIGHT

27 FEATURES
Feat ur es
R 25 crore limit, there will be a compulsory transfer
of the SME to the main exchange.
SEBI has ensured that the costs of meeting listing
requirements are minimal in the case of the SMEs.
For example, SMEs may send abridged versions of
their annual reports to investors instead of the full
annual report and make the entire report available
on their website. However, SMEs are charged for
underwriting, sub-underwriting and responsibility of
market making for three years. SEBI has mandated
that the issues be 100% underwritten by merchant
bankers, with 15% on their own accounts. The
merchant bankers must also provide market making
(that is, acting as a counter party to each trade), by
providing two way quotes for 75% of the total trading
hours every day for a period of at least three years, in
order to infuse liquidity into the system.
Benefits to SMEs
SME exchanges give SMEs the opportunity to raise
equity through an Initial Public Offering (IPO) and
then get listed on the exchange. Equity financing will
provide them opportunities to grow, acquire, innovate
and contribute. Their reliance on debt will decrease,
lowering their leverage and promoting healthier
balance sheets. Liquidity of the stocks will attract more
investors, which in turn will help the SMEs to obtain
further financing through FPOs, private placements
and increased accessibility to debt.
The listing alone gives an SME greater credibility
and visibility.
Benefits to the Investors
Investors view SMEs as risky investments because they
lack information about these companies and their
credit histories. Listing on the SME exchange would
increase the visibility, analysis and media coverage
of an SME, which means that there would be more
credible information available to investors.
It provides an immense opportunity for investors
to identify and invest in emerging, high-growth SMEs
and participate in the valuation of companies. This
will ultimately create wealth for all the stakeholders,
including investors. In addition, there are tax benefits
for investors. If one invests in an unlisted SME, the
applicable short-term and long-term capital gains tax
will be 30% and 10% respectively. However, if one
invests in a listed SME, the applicable short-term
and long-term capital gains tax will be 10% and 0%
respectively.
It will also enhance liquidity, making entry and
exits easier in the secondary market. Increased
liquidity will attract venture capitalists and angel
investors who are generally sceptical about investing
in smaller firms due to a lack of exit options.
Apart from the above, investors will receive
most of the other benefits offered on the main
exchange. For example, the existing clearing and
settlement mechanisms, Investor Protection Fund
(IPF) provisions, risk management systems and
corporate governance requirements will also apply
to the SME exchanges.
Ensuring Success
The launch of SME exchanges is laudable. But it is
still too early to celebrate. SEBI and the exchanges
must make a sustained effort to attract SMEs, hold
their hands through the process and ensure a liquid
secondary market.
SMEs must be made aware of the existence of the
SME exchanges, the process of listing and the benefits
they will gain through listing. Investors must be lured
into the markets and educated about the profile of
these SMEs and their growth potential. Merchant
bankers and market makers need to be incentivised
and their doubts alleviated. Regular interventions
to make the systems and processes healthier will be
required from time to time.
1
NCEUS Report, 2008
2
Carpentier et al. (2008) and Ganbold (2008)
3
Source:http://www.msme.gov.in/MSME-Annual-Report-2011-12-
Hindi.pdf. Translated from Hindi to English by the author. Accessed
on May 7, 2012.
According to a World Bank study on Small and Medium
Enterprises (SMEs), the contribution of organised and
unorganised SMEs to the employment and GDP of
nations is highly significant.
28

ISB INSIGHT
I t i s not about bei ng
on Soci al , i t i s about
bei ng Soci al
Customers are social beings. Social beings
can be evangelists.
Every company is struggling to define its “social media
strategy” but half of them are failing to reap concrete
benefits. How can you make sure to be on the winning
side? The key lies not in mastering the bewildering
spectrum of digital social technologies but rather in
recognising that social media have enabled humans to
reassert their social nature in commercial settings.
Human beings are social animals; our behaviour
is fundamentally tribal. Given the opportunity, we
seek help from others when making important
decisions and willingly assist other members of our
tribe. In a business context, however, tribes have
barely been a factor. Our ability to tap into networks
of like-minded people had been previously limited by
space and time; this limitation has, to a large extent,
defined the transactional nature of supplier-consumer
relationships in the 20th century.
Digital technologies are fundamentally changing
the equation. Customers today can easily find each
other for advice and collaboration, and that is exactly
what they are doing. The resulting changes in market
dynamics are disrupting business at every level.
The companies that are able to embrace their
customers (and employees, one hopes) as social
beings first, and buyers next, are the ones who will
reap the highest benefits. The most successful social
media efforts open up a naturally flowing, mutual
- and mutually beneficial - exchange of ideas and
information between organisations and communities
who know what they like and are not afraid to share
it. Such exchanges go beyond traditional marketing
and, in some cases, have transformed customers into
influential evangelists, volunteer customer service
associates and product co-designers.
The fundamental guiding principle of successful
social media efforts is simple to articulate, though
often challenging to implement, as it goes against the
traditional mind set of many organisations.
Find your tribes, both inside and outside the
organisation, and get them to help one another across
functional areas.
Find your tribes…
Most traditional marketing is based on segmenting
consumers, gaining their exclusive attention, and
targeting them with corporate messages about a
firm’s products and services. This approach does
not work well in a social world. Digital technologies
have empowered people to reclaim their social, tribal,
dimension. When using social media, consumers are
not primarily interested in engaging with companies
and products, but rather to relate to other people or
tribes who share the same lifestyle, passions, interests
and concerns. Accordingly, companies are likely to
be much more successful in engaging consumers
online when they align their presence to lifestyles and
interests that relate to their products as services, as
opposed to directly promoting themselves and their
products.
An example will help illustrate this principle.
Fiskars is a 350 year-old Finnish company that
manufactures scissors with a distinctive orange-
Social media taps into the basic tribal instinct in humans – of seeking and giving help. The companies that embrace
this concept can benefit immensely, writes Professor Chris Dellarocas.
BY CHRIS DELLAROCAS
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ISB INSIGHT

29
coloured handle. It would be difficult to create
excitement about a social site that is centred on
Fiskars scissors. Instead, Fiskars sought their tribes
around the use of the scissors: what groups of people
had lifestyles and passions that involved the use of
scissors, and would be excited to discuss them online?
They quickly converged on such a tribe that appeared
particularly promising: scrap-bookers, mostly women,
impassioned with handicrafts and eager to talk about
them, and about their lives online.
Fiskars built “Fiskateers,” a very successful online
community of scrap-bookers. The community was
led by four women crafters hired part-time by Fiskars
to serve as ambassadors for crafting and hence, for
Fiskars. They have their own website, blog and forum,
and share their enthusiasm through hosting make-n-
takes (crafting sessions) at events.
Currently, there are over 5,000 Fiskateers
members worldwide – a powerful word-of-mouth
force for the company.
…both inside and outside the organisation...
The tribal principle applies to both sides of the
interaction between consumers and companies.
Consumers are more receptive and open to messages
from companies when these come, not from a dedicated
and nameless “social media communications”
department, but rather from employees who are
impassioned about their work and genuinely want to
help their customers. People usually choose to work
for companies for reasons that go beyond receiving
a paycheck. They are usually attracted to and are
passionate about some aspect of the job. Smart
companies can identify these passions and use social
media to enable their employees to engage in what
they feel most passionate about, while at the same
time helping their customers.
Best Buy, a US-based electronics retailer,
successfully applied this idea in their “Twelpforce”
programme. Best Buy employees are often passionate
about technology and love to showcase their
technical knowledge to the world. Best Buy put
together a Twitter account whereby consumers
(without any obligation to purchase from Best Buy)
can ask questions about product specs, product
recommendations, recommended solutions, etc.,
and any Best Buy employee can then spontaneously
answer these questions. The programme has been a
widely publicised success and has managed to not
only build customer loyalty, but also to increase the
job satisfaction of Best Buy employees who found an
additional outlet to engage with their passions and
display their abilities.
…and get them to help one another…
In the Fiskateers and Twelpforce examples,
companies successfully used social media to get others
(scrapbooking enthusiasts, Best Buy floor sales people
respectively), whose “job” did not require them to do
so, to help them do their job.
Carefully thinking through the incentives that
ensure participation and engagement in such efforts is
an important prerequisite of success. Very often, the
opportunity to connect with other like-minded people
and to showcase one’s passion and work provides
sufficient incentives for volunteer contribution. A
great example of this is Wikipedia. In other cases,
one must provide additional incentives that are
not necessarily monetary. As social beings we are
genetically programmed to seek status and distinction
within our communities. Social sites have found that
rewarding members with points, badges
of honour (e.g. most valuable member
of the month) and membership levels
(e.g. grandmaster, mayor, wizard, etc.)
can go a long way towards incentivising
contributions.
However, it is important to give the
right incentive. For example, consider
the following story from the SAP
Developer Network, a knowledge-sharing
community of SAP developers. Initially,
the community rewarded contributions
with points that could be redeemed for
personal rewards. More points could
be won if one’s contributions were
Chris Dellarocas is the
Chair of Information
Systems at Boston
University’s School of
Management. This article
is based on his keynote
speech at the conference
on Digital Marketing
Strategies at the ISB.
In social media, the most
powerful marketing
message now comes
from consumers and it
is most likely not based
on the firm’s marketing
campaigns, but on the
consumers’ first-hand
experiences with the firm’s
products, services and
customer support.
FEATURES
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30

ISB INSIGHT
“voted up” by other members. This reward system
resulted in a healthy contribution level. However,
the site administrators noticed that it also led to
“bullying behaviour,” where some members exerted
pressure on others to “vote up” their answers. Then
the administrators decided to change the incentive
system, so that points accumulated by a site member
could be sent to a charity of the member’s choosing.
Interestingly, they discovered that the change did
not affect contribution levels, but helped eliminate
bullying behaviour.
…across functional areas.
Social media efforts extend across traditional functional
areas. The Fiskateers community plays several roles
at the same time: it is a marketing and PR outlet, it
is a customer (self-)support community whereby
members help one another on how best to use Fiskars
tools . It is also a product co-creation community, to
the extent that Fiskars consults its members whenever
they develop new products. Similarly Twelpforce
plays several roles for Best Buy: it is a customer
service community with a strong PR implication. It
is also a knowledge sharing community for Best Buy
employees. Finally, its presence undeniably is a selling
point for Best Buy’s recruiting.
Nevertheless, the current mindset predominantly
associates social media as a marketing opportunity
and mostly assigns responsibility for social media
efforts to marketing departments. This is limiting
and, often, counter-productive. In social media, the
most powerful marketing message now comes from
consumers and it is most likely not based on the
firm’s marketing campaigns, but on the consumers’
first-hand experiences with the firm’s products,
services and customer support. Successful social
media presence, thus, requires coordination across at
least three areas.
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ISB INSIGHT

31
Ranki ng Tr ansnat i onal
Compani es fr om I ndi a
Transnational Companies (TNCs) account for over
a quarter of the world’s GDP. Since the turn of the
century, there has been a dramatic rise in multinationals
from emerging economies such as India, Brazil and
China, and this has caught the attention of many
management scholars and practitioners.
Despite the remarkable rise of TNCs from India
over the last decade, no systematic attempt has yet
been made to rank Indian TNCs using globally
accepted measures such as the Transnationality Index
(TNI). The TNI based ranking would enable a proper
comparison of Indian TNCs with each other as well as
with other global players. The Transnationality Index
combines three measures (Percentage of International
Assets to Total Assets, Percentage of International
Revenues to Total Revenues and Percentage of Overseas
Employees to Total Employees) to determine the
overall degree of internationalisation of companies.
The multi-dimensionality of the index accounts for
the variation in the three indicators across industries.
In India, it is not possible to calculate the
Transnationality Index and rank companies using TNI
based on secondary data alone, as some of the measures
are not publicly disclosed by firms. For example, the
number of international employees or foreign assets
cannot be obtained from public sources for all firms.
Thus, our study incorporates a mix of primary and
secondary research to arrive at the rankings.
Methodology
Of the top 100 firms ranked by their consolidated
international assets collected from secondary data,
the top 50 companies were asked to respond to a
questionnaire with information on their international
activities. As this was the first time such a survey was
being conducted, the scope of the questionnaire was
restricted to the three measures required to calculate
the TNI index. The internationalisation measures
were collected for the three financial years 2008-09,
2009-10 and 2010-11. The data collected through
primary research was validated again using available
secondary data and a composite TNI ranking was
created.
TNI Ranking
The ranking of companies by TNI is
split into two tables. Table 1 ranks those
companies which have an international
asset base greater than US$ 500 million
and Table 2 ranks companies with an
international asset base between US$ 150
million and US$ 500 million.
The top five companies listed in the
tables below have a TNI greater than 50%,
which is comparable to transnational
corporations from the developed
countries. A large number of companies
In the past decade there has been a dramatic growth in internationalisation of firms from India. Yet, there has
been no systematic effort to rank Indian companies based on their degree of internationalisation. For the first
time, a systematic ranking is being attempted in India using a globally accepted, multi-dimensional measure
of internationalisation, the Transnationality Index (TNI). The Indian School of Business, (ISB) and Brazil-based
business school, Fundação Dom Cabral (FDC), recently released the results of their joint survey on the Ranking of
Indian Transnational Companies. Professor Raveendra Chittoor and Arun Patro, a former research associate at the
ISB, present highlights of the survey.
BY RAVEENDRA CHITTOOR
Raveendra Chittoor is
an Assistant Professor
of Strategy at the ISB.
He was assisted in
his research by Arun
Chandra Patro, a former
research associate at
the ISB.
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32

ISB INSIGHT
Feat ur es
in the TNI rankings have followed the strategy
of inorganic growth through aggressive overseas
acquisitions. These include Tata Global Beverages,
Tata Steel, Hindalco, Suzlon, Dr. Reddy’s Labs, Bharti
Airtel and Subex, among others.
More than half of the top 15 TNCs are affiliated to
business groups, a phenomenon unique to emerging
economies, with companies from the Tata group
dominating the list. A key driver behind the Tata group
companies dominating this list could be its Chairman,
Ratan Tata’s vision of globalisation. Suzlon Energy and
Bharti Airtel are among the youngest companies in
the list and have internationalised rapidly.
Globalisation by India Inc: Recent Trends
India was ranked 21st in the world based on outward
FDI in 2010. However, the global economic crisis
slowed down the rapid internationalisation of Indian
companies between 2008 and 2010. The crisis had its
strongest effect in the financial year
3
2009-10, reducing
OFDI by 26% as compared to 2008-09. While the total
foreign revenues for the Top 50 companies remained
Table 1: Top 15 companies by TNI (International Asset Base > US$ 500 Million)
1
TNI
Rank
Asset
Rank
Name TNI Revenue FY 2010-11
(US$ Mn)
Assets FY 2010 - 11 (US$ Mn) Employees FY 2010 - 11
Total Foreign Total Foreign Total Foreign
1 1 Tata Steel Ltd. 64 24,902 18,246 22,900 14,273 81,251 46,339
2 19 Tata Global Beverages
Ltd.
61 1,218 856 1,167 905 3,166 1,144
3 4 Hindalco Industries
Ltd.
57 14,699 11,317 14,514 8,333 30,731 11390
4 6 Suzlon Energy Ltd. 56 3,640 2,315 5,948 4,189 13,397 3,823
5 15 H C L Technologies
Ltd.
55 3,202 3,051 2,830 1,486 77,046 13,875
6 3 Tata Motors Ltd. 49 25,066 15,704 18,737 10,395 53,151 16,000
7 9 Tata Consultancy
Services Ltd.
48 7,598 6,899 5,119 2,373 198,614 13,665
8 16 Punj Lloyd Ltd. 48 1,598 1,035 2,488 1,266 27,207 7,638
9 20 Dr. Reddy’s
Laboratories Ltd.
47 1,520 1,229 1,934 874 14,923 2,433
10 21 Jubilant Life Sciences
Ltd.
46 699 482 1,532 662 5,763 1470
11 22 Motherson Sumi
Systems Ltd.
45 1,712 990 1,030 601 35,310 6,166
12 14 Infosys Technologies
Ltd.
45 5,598 5,476 5,324 1,637 130,820 7,805
13 12 Tata Chemicals Ltd. 41 2,260 936 3,129 1,829 4,659 1,537
14 23 Indian Hotels Co. Ltd. 35 589 161 1,206 514 10,018 3650*
15 2 Bharti Airtel Ltd. 33 12,106 2,996 29,824 13,665 23,371 6,541
Table 2: Top 5 companies by TNI (International Asset Base < US$ 500 Million)
TNI
Rank
Asset
Rank
Name TNI Revenue FY 2010-11 (US$ Mn) Assets FY 2010 - 11 (US$ Mn) Employees FY 2010 – 11
Total Foreign Total Foreign Total Foreign
1 32 Core Education
& Technologies
Ltd.
84 222 218 443 360 1,194 850
2 27 Polyplex
Corporation Ltd.
66 499 384 628 453 1,420 690*
3 50 Subex Ltd. 61 98 62 214 167 1,051 422*
4 31 Strides Arcolab
Ltd.
2
52 345 333 897 367 2,700 500*
5 52 Manaksia Ltd. 51 294 204 399 187 3,355 1,276
* Data obtained from secondary
FEATURES
ISB INSIGHT

33
unaffected in 2009-10, international assets decreased
by 4% and the number of foreign employees by 2%
as compared to 2008-09. 2010-2011 saw a sharp
rebound, as foreign assets of the Top 50 companies
grew by 29%, international employees by 15% and
revenues by 25%. While Indian companies seem to
have resumed internationalisation this year, it remains
to be seen how Indian firms plan their international
expansion under uncertain economic conditions.
Overseas investments over the last few years
are flowing not only into developing economies,
but into developed countries as well. For expansion
into developed countries, most Indian companies
seem to prefer the M&A route. Companies affiliated
to Business Groups – primarily Tata, Aditya Birla,
Reliance, Mahindra and Mahindra and Godrej –
account for more than 60% of overseas acquisitions
by value. Among other private players, Bharti Airtel
and Suzlon Energy deserve special mention. Oil &
Natural Gas Corporation which operates outside
India through its overseas investment arm, ONGC
Videsh, is the primary public sector company among
the major Indian transnationals.
The Way Ahead
As the foremost research driven business school in
India, the ISB is keen to continue and enhance this
effort to rank Indian TNCs using systematic and
rigorous methods. Future reports will also include
insights on the key drivers of globalisation, geographic
spread of transnational companies, profitability
analysis across geographies, modes of entry, and so
on. The ISB is collaborating with FDC, which has
been leading a similar effort in Brazil over the last
few years, to compare and contrast transnational
companies from India and Brazil. Partnerships are
being forged with schools in Russia and China as well.
With transnational companies from Brazil, Russia,
India and China (BRIC) set to dominate the global
economy in the future, this report on BRIC TNCs
will truly be a unique and valuable source of insights
for management practitioners and scholars alike.
More than half of the top
15 TNCs are affiliated
to business groups, a
phenomenon unique to
emerging economies, with
companies from the Tata
group dominating the list.
1
Wipro Limited, a large transnational IT services company,
participated in the survey but was not able to provide a clear
demarcation of assets in India and overseas, and thus does not
figure in the rankings. We expect Wipro to be ranked at around the
14th position on the list, using industry sources to approximately
calculate its TNI.
2
Financial year ends in December and not March.
3
Financial Year for India : 01 April – 31 March
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ISB INSIGHT
Feat ur es
American-born Deborah Thiagarajan spent her 67th
birthday reviewing the past 26 years and contemplating
the future of Madras Craft Foundation (MCF) and
its offshoot Dakshina Chitra, a cross-cultural living
museum of art, architecture, lifestyles, crafts and
performing arts of a India. Established in 1984, MCF
was a non-profit organisation that showcased South
India’s cultural and economic heritage and generated
revenues from tourism, performances and cultural
activities. As she reflected on MCF’s evolution,
what made Thiagarajan particularly proud was that
the social venture had been self-sufficient for three
years, generating enough revenues each year to cover
its operating expenses. It was this self-sufficiency
that finally gave Thiagarajan pause to think about
succession. Now that her fledgling social venture had
grown enough to stand entirely on its own strength,
could or should she turn her attention to other
pursuits? She had at least three alternatives in mind:
to directly mentor and promote artisans from other
Indian states; run train-the-trainer programmes to
facilitate the replication of MCF’s successful Dakshina
Chitra model among other Indian artisans; or globalise
some of the features of the MCF model.
Madras Craft Foundation (MCF): A Journey
from Hobby to Passion
Deborah Thiagarajan, an American from Pittsburgh,
moved to Chennai, in the Indian state of Tamil
Nadu, with her husband, Raj Thiagarajan in 1970.
With a Masters in International and Development
Education, she soon developed an interest in the
society, structures, and culture of her newly adopted
hometown. She became particularly enthralled with
vernacular
1
architecture and traditional artisans.
During her volunteering days with different non-
governmental organisations (NGOs) in Tamil Nadu,
she soon found that despite its cultural richness,
rural India struggled with social marginalisation and
persistent poverty. She found that many artisans could
barely feed their families as they rarely had customers
for their art, with the result that they were giving up
their traditional livelihoods and lifestyles altogether.
Unable to ignore the poverty in Tamil Nadu that
threatened its traditional art forms, she decided to
give vent to her deep appreciation for local arts and
crafts. This marked the early beginnings of the Madras
Craft Foundation (MCF), a space where South India’s
rich history and diverse cultural traditions would get
The Ar t of Soci al
Ent r epr eneur shi p:
When t o bi d Adi eu
Madras Craft Foundation (MCF) was a boon to the poverty-stricken artisans of Tamil Nadu. After 26 long years of
struggle and success, MCF’s founder, Deborah Thiagarajan, was satisfied with her social venture’s achievements
and was eager to move on to the next phase of her life. Was it time to hand over the reins, and if so, to whom? Sonia
Mehrotra, Professor, Centre of Excellence for Case Development at Welingkar Institute of Management Development
and Research, Bangalore, under the supervision of Oana Branzei, Associate Professor, General Management at
Richard Ivey School of Business.
Many artisans could barely
feed their families as they
rarely had customers for
their art, with the result
that they were giving up
their traditional livelihoods
and lifestyles altogether.
BY SONIA MEHROTRA AND OANA BRANZEI
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ISB INSIGHT

35
a chance to come alive for the entire world to enjoy
and steward.
The journey to realise this dream had been
neither easy nor quick. Thiagarajan initially had to
rely on the support of her family, friends and small
grants. The three-year US$ 50,000 grant from the
Ford Foundation in 1987 and a 10-acre piece of
land overlooking the beautiful Bay of Bengal from the
Tamil Nadu government in 1991 helped Thiagarajan
streamline the activities of MCF. She focused on
building a team which gradually brought her original
idea to life by creating an interwoven set of activities,
including daily offerings of education and outreach
programmes, workshops, special events, music and
performing arts, and an art gallery. By 2009, moving on
from the external funding based model, MCF started
generating revenues from selling crafts in its crafts
bazaar, contributions by Indian and foreign visitors
(through gate donations, cultural tourism, educational
programmes, a restaurant and guest house), and from
special projects (including performances and special
events, both in India and abroad).
As convener of the Chennai chapter of INTACH
2
,
Thiagarajan met famous Indian cultural activists such
as Pupul Jayakar, Martand Singh, B K Tharpar, and
V R Devika. With small grants from INTACH in
1985 and 1986, MCF initiated several research and
training projects to study different South Indian folk
and performing arts. In 1987, the Craft Museum of
the government of India awarded MCF small grants to
document the vernacular architecture of Kerala and
Tamil Nadu. During this project, Thiagarajan became
acquainted with Laurie Baker
3
, a brilliant architect.
This auspicious encounter gave Thiagarajan new
impetus for raising the funds she needed for Dakshina
Chitra, the best known of MCF’s offerings.
Dakshina Chitra: A Dream Come True
Over the next five years, friends, money and land had
finally come together to give birth to Dakshina Chitra.
True to Thaigarajan’s initial vision, the living museum
honoured the traditional builders (stapathis) and
served as a reminder of past lifestyles and social history.
The architectural design of Dakshina Chitra reflected
Baker’s philosophy and style. Under the careful eye
of Baker’s former student, engineer and conservation
architect Benny Kuriakose, the 18th, 19th and early
20th century homes of the four southern states, Tamil
Nadu, Kerala, Karnataka and Andhra Pradesh, were
identified, dismantled and reconstructed at Dakshina
Chitra. Each home represented a generic style popular
in a region. However, at Dakshina Chitra, each house
stood for much more than architecture. It became a
home that embodied a particular community’s beliefs
about life, nature and society.
By the time Dakshina Chitra opened its doors to
the public in December 1996, MCF was organising
diverse activities relating to the cultural traditions
of South India. In 1997, MCF designed and
hosted children’s education and cultural outreach
programmes (CORP). The take-off of CORP also
accelerated networking among cultural groups in
Chennai and the region. To encourage artists, MCF
instituted a Virudhhu award for lifetime achievement
in folk performing arts. A well-equipped library with
a rare collection of books on the arts of South India
was also set up at Dakshina Chitra, which became a
venue for international seminars on library studies. In
2005, MCF pioneered a one-year arts management
course that instructed students on elements of the
managerial processes involved in implementing arts
projects. This course received funding of R 3.5 million
from the JRD Tata Trust .
Economic activities included crafts workshops to
assist artisans in identifying operational and technical
problems as well as markets for their traditional
products. Some of these resulted in exhibitions
presented by MCF for museums in India and abroad.
The crafts took a life of their own in 1997 when a
“fair trade shop” was opened to sell artisan and
Under the careful eye of Baker’s former student,
engineer and conservation architect Benny Kuriakose,
the 18th, 19th and early 20th century homes of the
four southern states, Tamil Nadu, Kerala, Karnataka
and Andhra Pradesh, were identified, dismantled and
reconstructed at Dakshina Chitra.
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36

ISB INSIGHT
NGO crafts directly to customers. Craftspeople from
Bengal, Orissa and Gujarat came to Dakshina Chitra
to take advantage of this direct selling opportunity.
MCF also started conducting free experimental
programmes dealing with production, accounting and
credit, quality control, new tools, packaging, design
and marketing for the benefit of the craftspeople.
MCF’s portfolio of projects was grouped into
four categories: education and programmes, craft
merchandising and craft development, library and
archiving, and special projects. It was hard to build a
team willing to work 18 km away from Chennai. They
outsourced certain functions such as public relations.
MCF’s executive committee and advisory committee
brought together top talent with a deep commitment
to India’s cultural and economic heritage and skills
and connections that could sustain and strengthen
MCF’s educational programmes. The marketing team
at MCF was very active in ensuring that Dakshina
Chitra was included in the itinerary of foreign tourists
visiting India.
Dakshina Chitra was also marketed as an
educational tourism destination for school children.
Overall, it had taken Thiagarajan and her MCF team
12 years of preparation, documentation, school
programmes, object collections, fundraising and
building to establish the Dakshina Chitra centre.
Visitors and revenues grew rapidly at Dakshina Chitra.
In the latest financial reporting period (the year
ending March 31, 2010), Dakshina Chitra welcomed
132,311 visitors from India and abroad.
The Decision
Thiagarajan wanted to change things and she was never
short of ideas. Several alternatives looked particularly
promising. Dakshina Chitra had accomplished so
much, and Thiagarajan wanted to train artisans across
India, who could then train others and bring similar
prosperity to their own villages. There was much to
do: she could display the arts and crafts that visitors
so enjoyed at Dakshina Chitra to the world. She could
also curate exhibitions that could tour the world and
bring others back to Dakshina Chitra to encourage
global exchanges and perhaps some cultural fusion.
But she was concerned about something - as MCF
grew, there was noticeable tension between the
volunteers on the executive and advisory committees
and the staff. The volunteers had worked really hard
for Dakshina Chitra and treated it like their own,
but the staff had to be trained and mentored, which
resulted in resentment and high employee attrition.
She would remember her 67th birthday as a
milestone, a marker of her decision that her own path
and that of her social venture had to fork. Yet she was
unsure about what should come next for herself or for
MCF. Well aware of the options and problems before
her, Thiagarajan decided to work on a succession
plan.
The case summary was written by Arohini Narain, Centre for
Teaching, Learning and Case Development (CTLC) at the ISB.
1
Vernacular architecture uses locally available resources and
traditions to address local needs and circumstances. It tends to
evolve over time to reflect environmental, cultural and historical
contexts in which a building exists.
2
The Indian National Trust for Art and Cultural Heritage (INTACH)
was a non-profit organisation set up in 1984 to involve its members
in protecting and conserving India’s vast natural, built and cultural
heritage.
3
Laurence Wilfred “Laurie” Baker was a British-born Indian
architect and Padma Shri recipient, renowned for his initiatives in
cost-effective, energy-efficient, simple but beautiful architecture.
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37
Feat ur es
FEATURES
Product returns are a significant problem for most
retailers. Returns cost US manufacturers and
retailers almost US$100 billion per year because of
product depreciation, and reverse logistics and return
rates could be as high as 25% for some retailers.
2
The problem of returns is more severe for online
retailers as consumers cannot “touch-and-feel”
the product before purchasing it in this case. Not
surprisingly, retailers – in particular, online retailers
– are constantly seeking ways to minimise returns. In
recent years, many such retailers have made significant
investments on product-oriented web technologies,
such as zoom, alternative photos, and colour swatch,
to help mitigate this problem. In short, zoom allows
a consumer to inspect the finer details of the focal
product; alternative photos allow the consumer to
look at the product, or a model wearing the product,
from different angles; and colour swatch enables the
consumer to change the colour of the product to
other available colours for better visualisation.
Naturally, it is important for managers to
understand how consumers use these product-
oriented technologies and how the use of these
technologies influences product returns. The normal
expectation would be a positive effect, i.e., each of
these technologies would reduce returns (and/ or
increase sales). But is it really so? Based on a recent
study, which we describe below, it turns out that
different technologies actually have different effects
on returns. In particular, a higher use of the zoom
technology leads to fewer returns, as one would
expect. However, contrary to normal expectations,
we find that the use of alternative photos increases
the likelihood of returns. Perhaps more importantly,
its use has a negative effect even on net sales (i.e.,
sales minus returns). In other words, this technology
is detrimental to the retailer in whichever way we look
at its impact! Colour swatch, on the other hand, does
not seem to have any impact on returns.
Study Description and Setting
The research setting of our study is the retailing of
clothing products on the Internet, an industry that
is currently undergoing rapid adoption of advanced
product-oriented technologies. We have obtained data
from a women’s clothing retailer that has implemented
all of the product-oriented technologies mentioned
Do Al l Pr oduct -Or i ent ed
Web Technol ogi es Reduce
Pr oduct Ret ur ns?
1
Contrary to normal
expectations, we find that
the use of alternative
photos increases the
likelihood of returns.
Perhaps more importantly,
its use has a negative effect
even on net sales.
BY PRABUDDHA DE, YU (JEFFREY) HU, AND MOHAMMAD S. RAHMAN
Retailers are increasingly using product-oriented web technologies to minimise product returns. Are these
technologies effective and how do they influence returns? Professors Prabuddha De, Jeffrey Hu and Mohammad S
Rahman present the results of their study.
38

ISB INSIGHT
Feat ur es
FEATURES
above, namely, zoom, alternative photos and colour
swatch. The company’s website provides consumers
with navigational features such as browsing, a search
function and a recommendation system, which help
them access a broad set of products. Once they are on
a product page, they can use any of the three product-
oriented technologies available. Matching each
consumer’s technology usage with her returns requires
the identification of her website sessions. Fortunately,
when a consumer makes a purchase online, the same
web order identification is recorded in both the server
log and the purchase database, enabling us to identify
all her purchase sessions. Thus, by combining the
server log with transaction data, which also records
whether a purchased product was returned or not, we
are able to measure the use of each of the technologies
by a consumer for a particular product by counting
the number of times the focal technology was used
for that product.
We use robust econometric models to study the
impact of using a specific technology on the likelihood
of return. In addition, we account for the impact
of technology usage on sales in a two-stage model,
where the first stage considers the impact of each
technology on sales and the second stage captures the
technology’s impact on returns. Thus, we are able to
quantify the effect of technology usage on net sales as
well. This is the first empirical study that examines
product-oriented technologies closely and quantifies
their impact on returns and sales.
Opening the Black Box
The key to deciphering the impact of
product-oriented technologies on returns
(in particular, why zoom usage leads to
lower returns, while alternative photo
usage results in higher returns) is to
examine the fundamental mechanisms
behind returns. As shown in prior
literature, the primary determinant of
return is dissatisfaction with the purchased
product. In general, the confirmation or
disconfirmation of pre-purchase expectations drives
consumer satisfaction or dissatisfaction.
3
Specifically,
when the perceived quality (or performance) after
a consumer receives a product matches her pre-
purchase expectation, her expectation is confirmed
and she becomes satisfied with the purchase. On the
contrary, if the post-purchase perceived quality turns
out to be lower than the expectation, it disconfirms the
expectation, which, in turn, leads to dissatisfaction.
Thus, the primary stimulant of product returns –
dissatisfaction – represents the degree of disparity
between the expectation and the perceived product
quality.
4
An important point to note here is that the pre-
purchase expectation itself can influence the perceived
product quality. If the gap between the expectation
and the perceived product quality is small enough
to fall within a consumer’s “latitude of acceptance,”
then the perceived quality often moves closer to the
expectation and the so-called “assimilation” effect sets
in. In contrast, if the gap extends beyond the latitude
of acceptance, then the consumer tends to amplify the
difference between the expectation and the perceived
product quality, i.e., the perceived quality diverges
further from the expectation, which is characterised
as the “contrast” effect.
4
Given the discussion above, the breakthrough to
the puzzle concerning returns lies in understanding
how pre-purchase expectations are shaped. Previous
studies have established that there are essentially two
types of product information – factual information
and impression-based (or evaluative) information.
5
In short, factual information refers to “logical,
objectively verifiable descriptions of tangible product
features,” whereas impression-based (or evaluative)
information conveys “emotional, subjective, impressions
of intangible aspects of the product.” Factual
information leads to a more realistic pre-purchase
expectation, which results in a smaller gap between
the pre-purchase expectation and the post-purchase
perceived quality and facilitates the assimilation effect
to set in, thereby reducing the chances of return.
Our study shows that, contrary to normal expectations,
all product-oriented technologies are not equally good
for the retailer. In fact, the alternative photo technology
is always found to be detrimental to the retailer, both in
terms of returns and net sales.
Prabuddha De is the
Accenture Professor of
Information Technology
at the Krannert School
of Management, Purdue
University.
ISB INSIGHT

39
Feat ur es
FEATURES
Conversely, impression-based information may inflate
a consumer’s pre-purchase expectation, resulting in a
larger gap between the expectation and the perceived
quality and paves the path for the contrast effect to set
in, thereby increasing the chances of return.
The last piece of the puzzle is to identify the
type of information one gains from each of the
product-oriented technologies. Following conventional
techniques, we have used independent raters to
identify the dominant type of information provided
by each technology for each product, and found that
the information zoom provides is primarily factual,
whereas the information alternative photos provide
is primarily impression based. The information
provided by colour swatch is found to be neither
predominantly factual nor predominantly impression
based. What are the reasons behind these findings?
With the use of zoom, consumers are able to see the
finer details of the product – its fabric, pattern, print,
stitches and small decorative features – which are all
factual in nature. By using alternative photos, on the
other hand, they see pictures of a beautiful model
wearing the focal product, typically against a scenic
backdrop, from different angles. These pictures, taken
by professional photographers, are designed to convey
ideas or impressions regarding how a consumer may
look herself while wearing the product. Hence, while
the consumer may gain some factual information by
observing the model from different angles, the use of
alternative photos is likely to draw her attention more
toward impression-based information. Moreover, it
is known that one’s impression is often guided by
the most positive image one sees
6
, thereby inflating
the pre-purchase expectation further. Finally, in our
context, by using the colour swatch technology, a
consumer can see the product in each of the available
colours separately on a larger frame and may obtain
a more vivid view of the colour than just by looking
at the small colour patch shown on the main product
page. While a more vivid viewing of the colour helps
the consumer gain factual information, this technology
also enables her to visualise how the focal product in
a certain colour would look on a beautiful model in
a scenic environment, conveying impression-based
information to her. Thus, the net effect of colour
swatch usage is that neither type of information
dominates.
In sum, while studying the impact of a specific
technology on returns, it is important to determine
the dominant type of information the technology
provides. Given the dominance of factual and
impression-based information in what one gains from
zoom and alternative photos, respectively, it is not
surprising after all that zoom usage reduces returns,
whereas alternative photo usage increases returns.
Additional Insights
Do our results remain the same across different
categories of clothing? The products of the retailer
in question can be divided primarily into two
categories – swimwear and fashion clothing. When
we consider these two categories separately, we
observe that the results show a stronger impact of
technology usage in fashion clothing compared to
swimwear. This contrast is in line with the fact that
there is relatively less room for gaining
information to influence pre-purchase
expectations in swimwear compared
to fashion clothing. This is because the
items in the swimwear category are quite
standardised, whereas those in fashion
clothing may vary greatly. Consequently,
in the case of the latter, consumers may
have a stronger inclination to form pre-
purchase expectations. Moreover, they
now have more room to glean information
– either factual or impression based
depending on the technology used – to
form these expectations.
Do the results vary depending on
whether the consumer is loyal to the
retailer in question (or not)? Interestingly,
we find that loyal consumers are more
likely to return compared to those who are
not loyal after using the alternative photo
technology. This is perhaps due to the fact
that, because of their familiarity with this
retailer, loyal consumers may have more
confidence in its products and they may
also be more confident about their own
quality evaluation of these products.
3
Therefore, for the same gap between the
pre-purchase expectation and the post-
The need to carefully
consider the type of
information while
examining product returns
is a major take-away from
this study
Jeffrey Hu is an Associate
Professor of Information
Technology Management
at the Scheller College
of Business, Georgia
Institute of Technology.
Mohammad S. Rahman is
an Assistant Professor of
Management Information
Systems and Fellow,
Centre for Digital
Economy at Haskayne
School of Business,
University of Calgary.
40

ISB INSIGHT
Feat ur es
FEATURES
purchase perceived quality, a loyal consumer may
be more disappointed or frustrated than a non-loyal
consumer.
7
As a result, the contrast effect would be
more prevalent in this case, thereby making the gap
larger. Consequently, when using alternative photos,
loyal consumers would be more prone to return the
product compared to non-loyal consumers.
Closing Thoughts
Our study shows that, contrary to normal expectations,
all product-oriented technologies are not equally
good for the retailer. In fact, the alternative photo
technology is always found to be detrimental to the
retailer, both in terms of returns and net sales. This
study is, however, based on the data collected from a
retailer of women’s clothing. Will alternative photos
remain detrimental for other product categories as
well? Not necessarily. The situation could be quite
different for a product category such as laptops. There,
pictures from different sides might provide important
facts, for example, how many and what type of slots
there are to hook up other devices or cables. Thus,
alternative photos would in this case provide primarily
factual information rather than simply creating
impressions. It is, therefore, crucial that we correctly
determine which type of information is predominant
while analysing the impact of the alternative photo
technology, in particular. In fact, the need to carefully
consider the type of information while examining
product returns is a major take-away from this study.
1
Details of the study can be found at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=2077135.
2
Blanchard, D. 2007. Supply chains also work in reverse.
Industry Week, http://www.industryweek.com/ReadArticle.
aspx?ArticleID=13947, Cleveland, OH.
3
Cadotte, E.R., R.B. Woodruff, R.L. Jenkins. 1987. Expectations and
norms in models of consumer satisfaction. Journal of Marketing
Research 24(3) 305-314.
4
Anderson, R.E. 1973. Consumer dissatisfaction: The effect of
disconfirmed expectancy on perceived product performance.
Journal of Marketing Research 10(1) 38-44.
5
Holbrook, M. B. 1978. Beyond attitude structure: Toward the
informational determinants of attitude. Journal of Marketing
Research 15(4) 545-556.
6
Chowdhury, R., G.D. Olsen, J.W. Pracejus. 2008. Affective response
to image in print advertising: Affect integration in a simultaneous
presentation context. Journal of Advertising 37(3) 7-18.
7
Woodruff, R.B., E.R. Cadotte, R.L. Jenkins. 1983. Modeling
consumer satisfaction processes using experience-based norms.
Journal of Marketing Research 20(3) 296-304.
Cover St or y
COVER STORY ISB INSIGHT

41
Face t o Face
42 INSURANCE IN INDIA: THE PATH AHEAD
42

ISB INSIGHT FACE TO FACE
Face t o Face
Can you tell us about your organisation?
Our organisation is a marriage of three large banks
– Canara Bank, Oriental Bank of Commerce and
HSBC, in a joint venture. The objective is to create
insurance for approximately five crore customers of
the three combined banks in India. The company
was born in 2008. Four years down the road, we are
at a transition point. We have transitioned from the
start-up mode into the growth mode. We are now
No.10 in the marketplace in terms of top line sales.
In terms of the growth environment, we are No. 3.
There are many interesting stories and complexities
in the growth story, but fundamentally we are in a
very strong position.

What is your outlook on the competition in this sector?
The top three players in terms of size are HDFC,
ICICI Prudential and SBI Life Insurance, which
shows the strength of the bancassurance model (in
this model, an insurance company uses the bank’s
sales channels to sell its products.) There are some
exclusively agency companies and there are other
bank insurance start-ups like ourselves. We are the
only unapologetic exclusive bank assurer in the
marketplace and we are pleased about that. Over the
last two years, changes in the market have created
many challenges for companies. There are companies
that struggle because they grew too fast, others that
have managed their sales but not their business
and there are some that do not have a model, or at
least, appear confused. We have to study the growth
pictures of other companies, look at various models
and decide which model we would like to adopt for
the next 10 years. An insurance company CEO has to
wrestle with many strategic challenges.
Are there other new models emerging in the market or
will we continue to rely on the traditional approaches
using the agency and bank insurance models?
There is nothing new in insurance. In terms of new
models, there is an emerging model of e-commerce
for online sales. Perhaps, this is the direction insurance
is headed, although I cannot say that this would be the
case in five or 50 years. Typically, online sales starts as
a small, simple, one-year renewable contract. If you
decide that you do not like it, you can exit quite easily.
Policy (Life Policy), on the other hand, is a much
more complex and long term affair. Once you have
made a decision to buy, you are committed to it. As
a result, people really want to look somebody in the
eye and understand the product before they buy it. I
think it would be a very slow process for long-term
life products to come into the online space. Currently,
agency is the biggest distribution model and channel
in India, and certainly in Asia. However, its share
is shrinking. As it shrinks, the share is taken up by
bancassurance. Now there is another feature in play –
the changing nature of agencies. Historically, agencies
comprise many part-time agents. In the future, there
will be more full-time, professionally-trained agents
I nsur ance i n I ndi a:
The Pat h Ahead
John Holden, Chief Executive Officer of Canara HSBC Oriental Bank of Commerce Life Insurance Co Ltd., speaks
with Geetha Krishnan from the Centre for Executive Education at the ISB, on the emerging trends and challenges in
the insurance sector and the unique opportunities in the Indian market.
ISB INSIGHT

43 FACE TO FACE
and fewer part-time agents. The third trend is the
emergence of Independent Financial Advisors (IFAs)
to fill the space in the face-to-face market place left
by the contraction of the agency business. It will be
interesting to watch IFA emerge in India.
You have seen UK and a few other countries through
the lens of life insurance. How do you compare India
with the other markets?
India is a very big market. Size is the challenge here.
I previously worked in South Korea where the major
bank partner has 650 branches. Here it is 5,000. The
size of the country and the logistics of moving people
and information across that distance with the existing
infrastructure is a challenge. We also see a tremendous
opportunity in the relatively low penetration of
insurance. At the same time, the market of the
number of people who have the need for, and the
means to buy insurance is growing every year. There is
growth unlike anywhere else in the world. That is very
exciting! The challenge is to reach that opportunity
with the available infrastructure and recognise that
India is not the same as other markets. You cannot
apply the one-size-fits-all approach here and you have
to understand the Indian consumer first.
India is being touted as a bottom-of-pyramid market
from the product industry perspective. Are the
products and insurance significantly different in India
from other markets?
The products in India are reasonably equivalent to the
products we have in many other countries across the
world. The problem is that none of those products
are suitable for people at the bottom of the pyramid.
If I could make a generalisation, the problem is
that insurance companies are taking conventional
products and conventional approaches and trying
to apply them to an unconventional situation, which
is microinsurance. It does not fit. We are using the
wrong tool for the job and the fact that the products
are good somewhere else does not mean that they are
good enough for that segment.
What I have learned is that you cannot confuse
micro with mass insurance.
If you look at the microinsurance market, the
people at the bottom of the pyramid have two needs:
health insurance and crop and livestock insurance,
not an immediate need for life insurance. If somebody
becomes very ill and presents a very large hospital bill,
it is a serious problem because he will have to sell
either livestock or land in order to generate the cash
to pay the bills. It may take one or two generations
to earn that asset back. Similarly, it is very serious if
someone loses livestock or crops.
The micro sector faces more fundamental risks
than the life or death of the main breadwinner. We are
doing some interesting work to try and understand this
scenario. It is important to note that there is the micro-
micro market, the R 100 range, and there might be an
interesting market emerging in the R 250-750 strata,
where people have slightly more money and different
needs. It is a mistake to take the wrong product to
people who cannot afford to get it wrong. The
consequence of wasting money on the wrong product
is terrible to contemplate. It is our responsibility to get
the product right and reduce the processing cost to as
close to zero as possible. I think those who can “think
differently” will emerge as winners.
Face t o Face
Geetha Krishnan (left) in conversation with John Holden (right)
44

ISB INSIGHT FACE TO FACE
Face t o Face
What are the challenges for the industry in India in
next few years?
First, the regulators are very active and will present
many challenges that we must either adhere to or
manage. Being nimble enough to negotiate those
challenges as well as to anticipate them, position
ourselves for them and embrace the change is going
to be very important going forward.
The second challenge is that there will be a
change in distribution models. Some people are in
denial about this and think that agencies are still the
best option. Bancassurance used to be perceived as
the weak option but it is now increasingly proving to
be strong. Standards of compliance required by the
regulator will become stricter. This is good for the
consumer and will drive the trend from part-time to
full-time agents because with part-time employees,
their cost of compliance is not justified by the
revenues they earn. On the other hand, when you
invest in full-time employees and increase their levels
of professionalism, they are more productive and can
be a profitable channel. Many people must rethink
what they have learned and accepted as conventional
wisdom.
What role can B-schools play in shaping the industry’s
thought process?
The world is changing and India has seen a great
deal of change over the last 20 years. People’s mind-
sets will also change. Business may not necessarily
take us where we want to be over the next 20 years.
Therefore, simply following yesterday’s rules is not
good enough. It will not deliver solutions. The people
who can break the rules appropriately and ethically
can help in innovation. The successful people will be
those who can make sense of what is around them and
recalibrate that and continue to do this each year. We
have partnered with the ISB because we are equipping
ourselves to emerge as winners. We need people who
have the intellect and the courage to change the plan
and recalibrate as the reality changes.
It is important to note
that there is the micro-
micro market, the R 100
range, and there might
be an interesting market
emerging in the R 250-750
strata, where people have
slightly more money and
different needs.
ISB INSIGHT

45
FACE TO FACE
Knowl edge Sessi ons
46 ETHICS IN BUSINESS
47 EIGHT SIMPLE TRUTHS ON HOW “VALUES BRING VALUE”
49 BUSINESS ANALYTICS: ESSENTIAL FOR DEFINING
COMPANY STRATEGY
46

ISB INSIGHT KNOWLEDGE SESSIONS
Knowl edge Sessi ons
Is it ever acceptable to break the rules? What drives
behaviour and ethical leadership? These and many
other questions were raised at the Ethics in Business
Forum’s curtain raiser, which brought together a
group of 60 students, faculty and staff in a highly
interactive session on “Inciting Authenticity,” led by
Rajiv C Lochan.
The Ethics in Business Forum’s vision is to become
a vibrant platform for exploring dilemmas in ethical
leadership, corporate responsibility and responsible
value creation. Lochan, who also supports the group
as an advisor along with faculty advisor Professor
Abhijeet Vadera, advocated the use of conversation
and introspection as tools to find answers to questions
that might arise in the practice of ethical leadership.
He described the learning process as a knowledge
staircase, in which one must steadily climb the steps
and move from being “unconsciously unskilled”
to becoming “unconsciously skilled.” Lochan also
elaborated on the concept of the “behavioural funnel,”
which comprises awareness, judgment, and intention,
and ultimately drives human behaviour and ethics in
a given situation.
The Indian growth story has brought to the
forefront the need to develop responsible business
practices. India is expected to be among the top
five nations (ranked by GDP) in the next 15 years.
This, according to Lochan, will only create greater
temptations for business leaders to tread less desirable
paths. The rise in the number of Indians in positions
of power will lead to a corresponding increase in
incentives and pressures to perform.
The session began with a discussion on breaking
rules, using the example of breaking a red light at 5 am.
The two traffic engineers in the audience vehemently
opposed any possible excuses for consciously
choosing to break a traffic signal. Some participants,
on the other hand, questioned the applicability of a
traffic signal in the absence of traffic, thereby shifting
the onus of decision making to the individual. This
apparently simplistic example ignited a debate on
more complex dilemmas.
Lochan went on to talk about the malleability of
morality and why it takes more than cognitive energy
to control impulsive, unethical actions. He also
highlighted the importance of laying down professional
and personal value systems to light the way when one
is confronted with more challenging and less obvious
“right vs. right” dilemmas. Lochan invited audience
members to offer their opinions on two real life right
vs. right situations from his professional experience
concerning dilemmas of truth vs. loyalty and justice
vs. mercy. Participants actively drew upon their own
experiences and judgment as they debated the two
situations and considered the subtle nuances in both
cases. The discussion triggered further examples
from the audience, such as confronting a mentor
who misrepresents one’s findings to an executive
during an important meeting, and dealing with an
underperforming but once exceptional staff member.
As the 90-minute session drew to a close, some
sceptics remained in the audience, but there was little
doubt that a new way of thinking about the question
of authenticity had begun.
Et hi cs i n Busi ness
For um I nci t es Debat e
on Aut hent i ci t y
The newly created “Ethics in Business Forum” at The Indian School of Business (ISB), invited Rajiv C. Lochan,
Retired Partner, McKinsey & Company and a key ISB liaison, to discuss dilemmas in ethical business practices and
responsible leadership.
Sudarshan Kasthurirangan and Abhishek A Hemrajani of PGP
Class of 2013 compiled this report for ISBInsight
ISB INSIGHT

47 KNOWLEDGE SESSIONS
During an hour-long session at the ISB, Ajay Piramal
described the Piramal group’s evolution from a
family-run textile company to its entry into the
pharmaceutical space and its growth into a global
multinational. He shared the fundamental guiding
principles of his success.
1. Integrity: Are our thoughts and actions aligned
with each other? Integrity is important not only
to individuals, but also to corporations. He spoke
about how his company has been able to command
greater value due to its integrity. Acquisitions they
made came at cheaper costs and divisions they sold
commanded higher prices.
2. Courage to make decisions: Piramal spoke
of the group’s game changing decision to enter the
pharmaceutical industry. This involved a paradigm
shift – from a labour- and manufacturing-intensive,
family-run textile business to a sector driven by
intellectual property, research and regulation.
No management research would have indicated
compatibility between the two sectors. However, the
courage to make that call and the belief in the idea
led the group into this space, in which it is currently
a global leader.
3. Perceive challenges as opportunities:
The group possessed a sick manufacturing unit in a
residential area of South Mumbai. Environmental
regulations, a large labour force and increasing
costs of real estate were adding greater complexity
to the situation. Instead of viewing this as an
inevitable defeat, the group sensed an opportunity.
It transformed the aging factory into India’s first
mall, Crossroads, thus turning a challenge into an
opportunity.
Ei ght Si mpl e Tr ut hs on
How “ Val ues Br i ng Val ue”
On a recent visit to the Indian School of Business (ISB), Ajay Piramal, billionaire businessman and founder of the
Piramal Group revealed the secrets of his success.
If you see the number of
Indian companies in the
Fortune 500, there are
about eight of them – five
from the public sector and
only three from the private
sector.
Knowl edge Sessi ons
Ajay Piramal
48

ISB INSIGHT
Knowl edge Sessi ons
KNOWLEDGE SESSIONS
4. Be passionate in your actions but
remain detached from the outcome:
Piramal posed the following questions to the
group: Why are over 70% of the world’s mergers
and acquisitions unsuccessful? Why then, are 99%
of the Piramal Group’s M&As successes? To answer
this, he recalled the Abbot deal, in which the group
sold its domestic healthcare business for Rs 18,000
crores. He believed it was the group’s composure and
detachment from the outcome that enabled success.
Unlike most M&As where the buyer tends to subdue
the disadvantaged seller, in this deal both the parties
were on an equal footing. The value it created was
equivalent to a tenfold growth in sales and 29 times
growth in EBIDTA.
5. Associate yourself with good people:
Associations with upright people can keep the
company on the right path, Piramal observed. He
spoke about how the wrong path can seem right on
many occasions and only through right associations
can the company stay on course.
6. Compassion: Piramal spoke about the practices
and ethics of companies, and how they are largely
represented by their contribution to society.
7. Health and family: Piramal stressed that we
must prioritise based on how we wish to lead our
lives and that we cannot take our health for granted.
8. Exercise humility: Speaking of arrogance as a
barrier that kills learning, Piramal urged students to
learn continually from all their interactions.
Varun Mundkur of PGP Class of 2013 compiled this report for
ISBInsight
ISB INSIGHT

49
A packed audience of students, CEOs, directors and
entrepreneurs listened intently as Professor Galit
Shmueli gave the introductory lecture of the much-
awaited workshop. Providing a brief overview of
business analytics, Professor Galit Shmueli spoke
about the evolution of analytics and how business
analytics differs from traditional statistical analytics
and optimisation. Her talk specifically focused on the
power of predictive analytics, clarifying a common
misconception on this subject. Companies often
classify Reporting and BI (Business Intelligence) tools
as analytics. Professor Shmueli explained the difference
between the retrospective nature of reporting and the
futuristic nature of predictive analytics and also the
aggregate level of reporting vs. the individual level of
personalisation in predictive analytics.
She provided the framework for the predictive
analytics process, stressing upon the importance
of each of the five stages – problem identification,
measurement to determine outcome and predictors,
data partitioning/split between training and holdout
datasets, data mining algorithms, and model
deployment and evaluation. She gave multiple
examples for implementing the framework using
various case studies – personalised offers in the online
retail industry, employee training selection, customer
churn identification, product level demand forecasting
and probability prediction for customer payments.
She also touched upon the logic underlying predictive
analytics with an example on direct marketing, in
the process highlighting the importance of data
partitioning, and introducing specific algorithms –
classification and regression trees, regression models
and K-nearest neighbour methods.
She concluded by highlighting the vast
opportunities for applying predictive analytics in
India citing the diversity in demography, consumer
behaviour and regional preferences.
Next, Kuldeep Parikh of HP Global Analytics
spoke about the “change in the world of data” – the
growth in distributed, unstructured and extreme data
analytics. Based on his experience, he elaborated on
what HP analytics does to support the business, the
challenges that they face and their positioning between
data sciences and business divisions.
His talk was followed by Ajay Kelkar’s vision on
how “data equity will rival or enhance brand equity in
near future.” Kelkar stressed on the power of analytics
in “decision making as against merely deriving” the
insights from data. He cited various examples of
company projects such as studying shopping behaviour
in the hypermarket retail trade and cash vs. credit
card customer profiling, and closed by reinforcing the
importance of “listening to data and bridging the last
mile gap.”
The final speakers, Kishore Rajgopal and Divyabh
Mishra, founders of Crowd Analytics, a boutique
analytics firm innovating crowd sourcing within
the analytics industry, described their vision of a
competitive platform for independent consultants.
The audience’s palpable excitement and enthusiasm
for the subject brought tremendous energy to the
discussion.
“Introduction to Business Analytics,” a workshop held recently at the Indian School of Business (ISB) helped
demystify some preconceived notions regarding business analytics. In addition to Professor Galit Shmueli,
Associate Professor of Statistics and SRITNE Chaired Professor of Data Analytics, the other prominent speakers
at the workshop included Kuldeep Parikh, Strategy Lead, HP Global Analytics; Ajay Kelkar, Chief Operating Officer,
Hansa Cequity; and Kishore Rajgopal and Divyabh Mishra, Founders of CrowdANALYTIX.
Busi ness Anal yt i cs:
(VVHQWLDOIRU'HÀQLQJ
St r at egy for Compani es
KNOWLEDGE SESSIONS
Knowl edge Sessi ons
Piyush Chourashiya from PGP Class of 2013 contributed to this
report.
Cover St or y
I n Br i ef
The newly launched ISB Women in Business Club
at Mohali began its journey with an engaging session
with Meher Pudumjee, Chairperson, Thermax Ltd.
Pudumjee observed that there were very few role
models in the corporate world from whom women
could learn, particularly when it came to managing
both their careers and personal lives successfully. “To
make up for that void, we can learn more from the
less privileged women in our society who, unlike us,
do not have a choice and still manage their family
and work,” Pudumjee said. She also spoke against
the prejudices that operate against women in the
workplace, for example, the perception that women
are too emotional to make tough decisions. She
argued that it is the decisions that are simple or tough
rather than the people making them.
An ent er t ai ni ng Q & A wi t h aut hor
of “ Q & A”
Meher Pudumj ee on Br eaki ng
St er eot ypes
50

ISB INSIGHT IN BRIEF
Vikas Swarup, diplomat and author of “Q &A,” on
which the movie Slumdog Millionaire was based, was
at ISB recently. He spoke to students about creative
thinking and shared his personal experiences and
journey from being an avid reader to a published
author. Swarup completed “Q&A” in just two months
in London. The catalyst for the story was Major
Charles Ingram, who was convicted of cheating on the
British version of the hit game show Who Wants to Be a
Millionaire? “If a British army major can be accused of
cheating, then an ignorant tiffin boy from the world’s
biggest slum can definitely be accused of cheating,”
said Swarup. He concluded on an encouraging and
witty note to all aspiring writers, stating, “I’m living
proof that if I can write a book, anyone can!”
Sunil Mittal, Founder, Bharti Enterprises, recently
inaugurated the Entrepreneurship and Venture Capital
(EVC) Club at the Mohali campus and spoke on
“Leadership: Translating Vision to Reality.” Recounting
his company, Bharti Enterprises’ success story, he
spoke on the values and spirit of entrepreneurship and
how he turned his dreams into a reality. Mittal urged
budding entrepreneurs to have aspirations greater
than available resources and said that holding on to
this belief is the essence of entrepreneurship. He also
cited examples on how some decisions made by Bharti
during difficult times helped shape the company’s
success. He gave an insight into the company’s
evolution and transition from entrepreneurially-
led professionally-supported to professionally-led
entrepreneurially-supported.
Shekhar Gupta, Editor-in-chief of The Indian Express
engaged the ISB community in a lively discussion
on whether good journalism is bad business. Good
journalism is an end in itself and it does not matter
whether it is good or bad for business, began Gupta.
“However, the state of the media business in India
today is interesting – in contrast to the slowdown of
other industries, there have been a slew of acquisitions
in media, most notably Aditya Birla’s acquisition of
Living Media and Reliance’s investment in TV18.
Both companies were floundering and the stock prices
of broadcast companies have plummeted. However,
media consumption, even print media, is growing
faster in India than anywhere is in the world,” he
said.
Aspi r e Beyond Your Means:
Suni l Bhar t i Mi t t al
Good Jour nal i sm i s Good for
Busi ness: Shekhar Gupt a
ISB INSIGHT

51 IN BRIEF
Cover St or y
COVER STORY 52

ISB INSIGHT 52

ISB INSIGHT BOOK REVIEW
India has lately witnessed the rise of a people’s
movement unlike any in recent memory. People
across the country have come out in protest against
what they perceive as a variety of systemic evils,
expressing strong views and opinions on issues like
corruption and probity in public life. This movement
has also created many armchair critics who freely
voice their views but may not necessarily have
made an effort to understand the nuances of how a
democracy functions. Against this backdrop, Arun
Maira’s “Discordant Democrats” aptly describes the
times we live in and has special relevance in light of
events that have recently transpired.
“Discordant Democrats” gives the reader
practical tools and principles to make
democracy work. It is a self-help book of
sorts, only its goal is to help us make our
democracy function better. Structured
in two parts, the book follows a very
simple narrative format that lends itself
to easy reading, and Maira effectively dots
the book with examples to illustrate his
ideas. Using the backdrop of his Gurgaon
residence, he analyses the working of the
Residence Welfare Association to explain
how a democracy functions (or does not
function) at the grassroots level.
The first part of the book makes
a case for why we need more dialogue in India to
achieve consensus and for democracy to function
effectively. Le Corbusier’s Plaza, originally conceived
as a place where citizens would gather to debate
the issues of the day, is now empty and devoid of
democratic discourse, observes Maira. Using an
analogy well suited to the increasingly computer savvy
reader, he argues that while most democracies have
adequate hardware (structures such as a constitution,
institutional set up and electoral process), the
difference in performance can be attributed to their
software (dialogue, discussion and deliberation). He
reminds us of India’s long tradition of dialogue and
tolerance toward different views. “Nevertheless, there
is discord in India, as there is in most democratic
countries – perhaps because democracies bring
out discord. India’s destiny is to prove that people
of different religions, of many races and speaking
different languages can live different democratically –
in one country of many people,” writes Maira.
The second part of the book brings out the
consultant in Maira. He prescribes a five-step process
to build consensus. The first three steps – aligning of
aspirations, clarification of underlying theories in use
and correct framing of the situation and problems –
establish the foundation required to form a consensus.
Comparing these steps with the first three gears in a
car, Maira says that once the foundation is strong, we
can cruise along in the fourth and fifth gears (steps
four and five), which are finding solutions and taking
decisions. Maira uses excellent examples from various
industry conclaves to illustrate the five steps, thus
adroitly reinforcing his points, and also suggests tools
that come in handy at each step.
Maira’s prescriptive manner and examples in
the book make it appear as though the process of
achieving consensus is a rather easy. If anything, it is a
long journey and requires skillful maneuvering. With
a driving instructor like Maira, one can start looking
at proliferating the new WMDs, tools that he calls
Weapons of Mass Dialogue. One step at a time.
Book Revi ew
Discordant Democrats
By Arun Maira
Reviewed by: Kumara Guru, Director, External
Relations, ISB
PUBLISHERS: Penguin, Viking 2007
I ndi an School of Busi ness
edi t or _i nsi ght @i sb.edu
www.i sb.edu