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International Journal of Management and Social Sciences Research (IJMSSR)

Volume 4, No. 7, July 2015

ISSN: 2319-4421

Impact of Maggi Row in India


Neha Garg, Student of M. Com., Department of Commerce, Kurukshetra University, Kurukshetra

ABSTRACT
Maggi, a well reputed brand, is known to all. Even a small
child can easily pronounce its name at a shop to buy it. It
has become the favourite snack of most of the population
of India. Maggi is the great contributor to the revenue of
Nestle India Ltd., a subsidiary of a Swiss company. Maggi
generally has remained in publicity for its taste. Now also
it is in publicity but there is a difference now, it is negative
publicity due to the presence of monosodium glutamate
and dangerous excessive level of lead in its products as
tested by FSSAI. This has shaken the trust of the
consumers fully. This Maggi row has become so much
critical due to the involvement of health aspect and
children in this case. As a result of this row, various
sections of the society have been impacted like workers,
suppliers, share market, Government, Company itself, etc.
in India. Nestle India Ltd. has done a lot to control the
situation but it was half heartened in the beginning which
has worsened the issue. Since the Maggi row has impacted
the whole India severely and owing to the importance of
assessing the damage done, in taking remedial measures,
it is vital to conduct research regarding the whole impact
of Maggi row. So, considering this hot issue, I have
conducted this research to assess the impact of Maggi row
in India. For this, I have approached secondary source of
data collection and collected information from various
websites like website of DNA, Nestle India ltd., FDA, etc.
along with various newspapers like The Hindu, Business
Standard, Economic Times, Financial Express, The
Tribune, etc. With the help of this information I have
assessed the impact of Maggi row in India. The
assessment shows that it has done a lot of damage within
just a month.

Keywords
Monosodium glutamate, Maggi, Nestle India Ltd., FSSAI,
brand value, BSE Sensex.

INTRODUCTION
Maggi, a well reputed brand, is known to all. Even a small
child can easily pronounce its name at a shop to buy it. It
is an international brand of instant noodles, seasonings and
soups owned by Nestle since 1947. The original company
was set up by Julius Maggi in Switzerland in 1872 and
merged with Nestle family in 1947. Maggi was first to
bring protein rich legume meal followed by readymade
soups to the market. When Maggi instant noodles arrived
in India in 1983- a memorable year for Indian history in

which India won its first Cricket World Cup- they


instantly caught everybodys imagination. With its launch,
an entirely new food category- instant noodle - was
created in the Indian packaged food market. It was
primarily targeted at the working women who were having
little time to prepare meals. But after a survey, it was
found that much of the consumers were children as
compared to women. So later on, Maggi was targeted at
children and their mothers. Within its first 25 years, Maggi
was having 90% of the instant noodles market. Today,
Maggi is particularly well known in India, Malaysia,
Pakistan, Nigeria, the Philippine and Singapore for its
instant Maggi noodles. It has become the favourite snack
of most of the population of India. Maggi is the great
contributor to the revenue of Nestle India Ltd. India is the
largest market for Maggi noodles. Maggi generally has
remained in publicity for its taste. Now also it is in
publicity but there is a difference now, it is negative
publicity due to all the wrong reasons- presence of
monosodium glutamate and dangerous excessive level of
lead in its products. This has shaken the trust of the
consumers fully.

HOW THE ROW BEGAN?


The Nestle Maggi-2 minute noodles row has puffed up as
the Indias worst food scare in a decade after that of
presence of pesticides in soft drinks. The scare over Maggi
instant noodles, Indias one of the most popular snacks,
has gripped increasingly the health conscious consumers.
Nestles woes began last year on the eve of Holi- Indias
festival of colours, when the inspectors were on lookout
for adulterated foods at the retailers in Barabanki, a town
of approximately 1,50,000 population in Uttar Pradesh.
That was the time of aggressive checking of adulterated
food products. Inspectors picked up the samples of Maggi
noodles from a local supermarket. The samples were sent
to a state laboratory in Gorakhpur, which on April 24,
2014 reported that, the labelling- No added MSG had
violated Indian regulations as MSG was found in test. But
Nestle appealed against the report stating that the noodles
contained MSG, i.e. Monosodium Glutamate, as a result of
a natural process and thus, the sample were sent for testing
at the Central Food Laboratory in Kolkata, a Government
referral lab. After more than a year, Kolkata lab presented
its results in a report dated April 27, 2015, confirming the
violation of labelling rules. Along with it, the samples also
tested positive for excessive level of lead content to 17.2
parts per million (ppm), compared with a legal limit of 2.5
parts per million (ppm), a copy of the lab report seen by
Reuters showed.

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International Journal of Management and Social Sciences Research (IJMSSR)


Volume 4, No. 7, July 2015

After a meeting with Nestle bosses, FSSAI (Food Safety


and Standards Authority of India) on June 5, 2015 ordered
the withdrawal of Maggi Noodles by a notice that stated
that the Nestle bosses argued that the tests at the Kolkata
Lab had showed a very high level of lead because the
samples remained open for a long time period before being
tested, but they were unable to elaborate on how that could
have resulted in excessive lead and MSG, so the argument
was rejected by FSSAI.
From there, what began as a minor labelling issue that
according to a local Magistrate could have been settled
with a fine of INR 25000, mushroomed into Nestls worst
public relations crisis to date in India since its presence.

NEED OF THE STUDY


Nestle India Ltd.s Maggi-2 minute noodles row has led to
a sort of chaos in the whole country. Parents, children,
workers, investors, suppliers, etc. just do not know how to
deal with the situation. This is the Indias worst food scare
in a decade after that of presence of pesticides in soft
drinks. The scare over Maggi instant noodles, Indias one
of the most popular snacks, has gripped increasingly
various sections of the society. So, the research is
imperative to assess that upto what extent this Maggi row
has impacted India so that future plans for remedy can be
prepared accordingly.

STATEMENT OF PROBLEM
The well renowned Swiss based Nestle companys Maggi2 minute noodles has defaulted on FSSA (Food Safety and
Standards Act)regulations owing to the presence of lead
detected in product in excess of the maximum permissible
levels of 2.50 parts per million (ppm), misleading labelling
information on the package reading No added MSG, and
thirdly, the release of a non standardized food product
Maggi Oats Masala Noodles with Taste maker in the
market, without risk assessment and grant of product

ISSN: 2319-4421

approval. It has led to the imposition of ban on 9 variants


of Maggi product and shuffle in the whole food industry
and Indian economy. It has impacted various parts of
Indian economy. This study helps us to know the impact
of Maggi row in India.

RESEARCH OBJECTIVE
The paper aims to:
To examine the root cause of the Maggi row.
To assess the impact of Maggi row in India.

RESEARCH METHODOLOGY
In order to achieve the research objectives, the study is
based on secondary data. The data has been collected from
various websites like Wikipedia, nestle.org, reuters.com,
www.dnaindia.com, etc. and newspapers like Business
Standard, Economic Times, The Tribune, etc. With the
help of this data, the impact of Maggi row has been
assessed.

DISCUSSION AND ANALYSIS


WHAT IS THE ROOT CAUSE OF THE MAGGI ROW
The whole issue is all about health and safety. MSG and
lead are the main culprit here. The presence of these two
contents in Maggi products have brought them under the
scanner of FSSAI. So, basically what are they and what is
the problem due to their presence?
MSG i.e. Monosodium Glutamate is a flavour enhancer
that occurs naturally in many foods, such as tomatoes and
cheeses. People have been eating glutamate rich foods
throughout the world. USA FDA (Food & Drug
Administration) considers the addition of MSG to food to
be generally recognized as safe (GRAS). So, what is the
problem here? The problem is the labeling on Maggi
products of No added MSG. It was misleading and in
violation of the FSS (Packaging & Labeling) Regulation,

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International Journal of Management and Social Sciences Research (IJMSSR)


Volume 4, No. 7, July 2015

2011.Another problem is the presence of lead content to


17.2 ppm in the noodles that is beyond the maximum
permissible limit of 2.50 ppm. This is a matter of serious
concern given the fact that most of the consumers of
Maggi are children and the children are more vulnerable to
the adverse effects of lead than adults. Lead accumulates
in the body and also gets absorbed quickly when taken on
empty stomach. It can cause mental injury, learning
difficulties, low IQ, growth delays, etc. Under FSS (Food
Safety & Standards) Act, every manufacturer has the
responsibility to ensure that the food that he sells is safe in
all respects and confirm to the standards prescribed under
the law. So due to these violations of major food
regulations, various states have banned the sale of nine
variants of Maggi- Uttar Pradesh, Delhi, Gujarat, Tamil
Nadu, Maharashtra, Kerala,, Madhya Pradesh, Jammu &
Kashmir, Telangana, Bihar and several other states.
WHETHER NESTLE COULD HAVE AVERTED THE
CRISIS
Yes, the senior officials also admit that Nestle could have
averted this crisis, and the impact would not have been so
much had Nestle been proactive. Also according to a local
Magistrate, the same could have been settled by paying a
fine of INR 25000. If Nestle would have paid INR 25000
fine in this case and not gone for appeal against the report,
the situation could have been different now. It could also
have changed the labelling to comply with the FSS
regulations. Later on also, as the matter intensified with
more states claiming Maggi as unsafe, the Company did
not do so much apart from issuing statements invalidating
these findings. By the time, the FSSAI issued ban and
recall order on June 5, 2015, the matter had gone out of
hand. Even the presence of Paul Bulcke, Nestls Global
CEO, in India could not help rescue.

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the employees and their families have been told to act as


Company ambassadors in these hard times. Nestle had also
moved to Bombay High Court for relief and to some
extent has got some relief with the court allowing the
export of Maggi outside India. A visit organized for the
media to the Companys production facility at Moga in
Punjab and Hassangarh plant in Haryana and opening the
doors of its production facilities to scrutiny is a sure sign
that Nestle is trying to bounce back at the earliest.
According to media reports, in an attempt to do some
damage control, Nestle India is looking to tie up with US
based public relations firm APCO Worldwide. Nestle has
also conducted tests of the samples at their accredited labs
and are also cooperating with the regulators in the enquiry.
They are also answering the questions of the public
regarding Maggi on their website- www.nestle.com, for
more information enquirer can contact the consumer
services
at
consumerservices@in.nestle.com
or
18002661188. Company has also provided the facility of
returning the bought but unused packets of Maggi so to
maintain better customer relationship.

IMPACT OF MAGGI ROW IN INDIA


Maggi noodles, which at estimated INR 2500crore
revenue that makes up over 30% of the Nestles revenue
and commands 80% of the market, has severely affected
India. Maggi noodles sales have been hit hard ever since it
was revealed that the samples tested by Government lab
contained MSG and lead beyond permissible limits. The
brand Maggi which has become the generic name of
noodles in India, has therefore also witnessed a severe
dent in its popularity and image. Following are the few
glimpses of the impact of Maggi row in India:

WHAT NESTLE INDIA LTD. HAS DONE TO


HANDLE THE SITUATION
Nestle India Ltd. has been on firefighting mode ever since
the Maggi row became the news headlines. No doubt, the
brands reputation has taken a serious hit and it takes some
time for the brand to regain the trust of customers. The
Indian subsidiary of the $100 billion Swiss based major,
after a slow response to the crisis initially is now moving
quickly to contain the damage and of course, to hasten its
comeback in the Indian market. Its crisis management
began on June 5, 2015, with the company releasing a press
statement to announce a voluntary recall of Maggi noodle
but maintained the product was actually safe as the
companys own analysis had shown. At press conference
in New Delhi, understanding the delicacy of the matter,
the senior management was there to answer the questions
and to maintain the trust of its customers. Global CEO
Paul Bulcke and Company Sri Lanka head Shivani Hegde,
who is believed to be the key person behind Maggis
success in early 1980s, were in the conference to control
the damage to the brand. Reports have also suggested that

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Around 1500 workers and other employees


impacted: Around 1500 workers involved in
manufacturing of Maggi in India have been
impacted by the stoppage of production after ban on
Maggi. According to senior company official, these
workers have been redeployed, engaged in other
units and in a way impacted. Company has not fired
any of its permanent workers but has engaged them
in other activities like training, team building
exercise, etc. but their future is uncertain. Hundreds
of contractual workers have lost their jobs due to
Maggi production stop. Nestle India is not granting
leaves to the employees unless there is emergency
and the employees who were on leave have been
called back.
Suppliers impacted: Owing to the Maggi ban, the
production of Maggi has stopped and thus, the
suppliers have also been hit. Suppliers have to look
for new customers after the ban on Maggi. Nestle
Indias largest supplier of spices, Moga based Paras
Spices Ltd., has already ended the services of some

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International Journal of Management and Social Sciences Research (IJMSSR)


Volume 4, No. 7, July 2015

of the workers out of 200 temporary employees.


Due to Maggi ban, Paras Spices Ltd. has received a
serious jolt as Nestles Maggi used to be its only
major client consuming about 45% of its production
i.e. around 200 tonnes of spices per month.
Impact on share market: The Maggi row has not
even spared the share market from its impact. This
crisis has made the investors bearish. Since BSE
Sensex is considered as the best indicator of the

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economys position and also the benchmark index


of Indian equities market. So, taking BSE Sensex as
the base, position of Nestle India Ltd. has been
shown. Earlier during the year, the Nestle India Ltd.
had performed better than the BSE Sensex on
bourses. Its growth rate was better before the ban
on Maggi was imposed on June 5 as can be seen
from the graph.

FIGURE 1: Graph showing growth rate of Nestle India Ltd. share prices and BSE Sensex from January 1, 2015 to
June 30, 2015

Source: Business Standard (Nestle India Ltd. share prices live)


Three months before the ban on Maggi i.e. on March 5,
the picture was totally different as compared to now.
Growth rate of Nestle India Ltd. shares was 18.71% as
compared to 8.1% of BSE Sensex that means Nestle had
performed brilliantly well on bourses. On April 6, Nestle
Indias growth rate was 15.91% as compared to BSE
Sensex growth rate of 4.64%, also better progress than
BSE Sensex. On May 5, i.e. one month back from the
imposition of Maggi ban, the growth rate of Nestle India
Ltd. on bourses was 11.08% as compared to 0.73% of BSE
Sensex; it was extremely well i.e. gap of 10.35%. On May
27, growth rate of Nestle India Ltd. was 15.21% as
compared to 1.91% of BSE Sensex i.e. gap of 14.02%.
This all shows that Nestle India has performed well,
earlier than the Maggi ban. But as the Maggi row began to
emerge in media, share market suddenly collapsed for
Nestle India Ltd. On June 5, day on which Maggi ban was
imposed, the growth rate of Nestle India Ltd. was -2.81%
as compared to -1.74% of BSE Sensex i.e. BSE Sensex

had performed better as compared to Nestle India Ltd. in


the share market. The situation worsened on June 8 as the
growth rate of Nestle India Ltd. went down to -9.61% as
compared to -2.64% of BSE Sensex. On June 29, the
situation was recovering in the hope of getting some relief
as Nestle India Ltd. showed the growth rate of -1.05 % as
compared to 1.48% of BSE Sensex. On June 30, as a result
of Bombay High Court relief of permission to export
Maggi, Nestle India Ltd. showed the growth rate of 3.51%
as compared to 1.98% of BSE Sensex. It showed
improvement. Owing to Nestle India Ltd.s nearly three
decade old presence and considerable size, stock analysts
are even now somewhat patient and adopting BUY,
HOLD strategies till the final results are out i.e. analysts
are not in favour of selling Nestle India Ltd. shares.
Other noodle making companies affected: Maggi
row has also affected other noodle making
companies. It has provided an opportunity for its
competitors to take advantage of the situation and

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Volume 4, No. 7, July 2015

grab Nestls customers especially to the key


competitor ITC (Yippee noodles). But upto some
extent it has also affected them negatively also. As
Maggi has become the generic name for noodles, so
hearing anything wrong about Maggi make the
consumers conscious of all the noodles as they
associate other noodles with Maggi. Increased
frequency of advertisement by these competitor
companies during June and also more focus on
quality as compared to earlier in these
advertisements are the evidence that these
companies have also been impacted in some way or
other. After this Maggi row, various companies are
under the FSSAIs lens of suspicion which can be
seen as under in figure 2.
FIGURE 2: Showing various companies under the
FSSAIs lens of suspicion

Source: Business Standard

Consumers have become more conscious of their


food eating habits: Earlier, the most of the
consumers were ignorant about the ingredients of
the packaged food. What tasted better, was
preferred by them. If in some cases, they would
bother, then it would be for MRP (Maximum Retail
Price) and for manufacturing and expiry date and
not more than that. But after the Maggi row, the
eyes of consumers have opened up and they have
understood the importance of checking the
ingredients of the products also and see what
quality of food they are eating. Evidence can be
seen as most of the people are discarding the
consumption of Maggi noodles all over the country
leading to decline in sale of Maggi. As said by
some retailers, Maggi sales fell nearly 30% after the
issue came up.
Highlighted the shortcomings in the countrys
food safety network: Maggi has been in India
since one decade. If the FSSAI has reported now

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that it is hazardous for consuming so where were


they since long? After Uttar Pradeshs lab test,
other states have started testing of Maggi samples
and then are declaring it hazardous to consume. So,
why were they sleeping till now? Also after the first
test report, when Nestle appealed against it, then it
took more than one year for the report to come
(such a long time for a report to come). Even a case
of Maggi testing positive for MSG had come earlier
also in 2013 where only penalty of INR 25000 was
imposed and that was the end of the matter
according to a local Magistrate in Barabanki. So,
what about the food safety, what about consumers
who consumed that Maggi? Whether the duty for
food safety is only upto imposing penalty. Again
the same issue has heated up but now also, it is not
the food safety network that have worked totally on
its will but it is the media that is raising the issue
thereby compelling the authorities to investigate the
issue.
Hit Nestle revenue badly: The instant noodles
market is estimated at about INR 2500crore. Maggi
noodles contribute over 30% of the companys total
revenue (as can be seen under in figure 3) and have
80% of the market share. According to analysts, the
Maggi noodles controversy is eating into the Nestle
Indias maket size and could take away a big chunk
of its revenue for a few quarters. As a result of
countrywide ban on Maggi, large retailers like
Reliance, Big Bazar, Nilgiris, etc. took the Maggi
products off shelf. Some retailers said Maggi sales
fell down by 30% after the issue came up.
According to an analyst at a domestic brokerage,
Maggi was perhaps the only growing brand (in
volume) for Nestle India last quarter. Following this
controversy, companys volume growth in second
quarter (April-June) could even be negative. Losses
due to safety concerns are INR 320crore as a result
of recalling and destroying Maggi. Maggi issue has
also affected the sale of other Nestle products like
Tomato Ketchup and soups. Maggi was the
favourite snack for children, tourists, youngsters,
etc., but now, according to dhaba owners, many
tourists now prefer paranthas and other alternatives
instead of Maggi. So, on an all, in every state of the
country, Maggi row has affected Nestles revenue
adversely.
Loss of $200 million in brand value: According to
brand Finance, an independent asset valuation
consultancy, Maggi is going to lose $200 million in
brand value after imposition of ban on Maggis nine
variants (as can be seen from figure 3). Maggi is
going to destroy $50 million worth of noodles
labelled as unsafe and hazardous after imposition
of ban by FSSAI. $50 million loss of goods include
the estimated sales value of the stock in the market
including those with trading partners as

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International Journal of Management and Social Sciences Research (IJMSSR)


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INR210crore and estimated stock at its factories


and distribution centers of INR 110crore.
According to Brand Finance, the Maggi brand was
worth $2.4billion before the recall of Maggi
products. The brand was ranked as 23rd most
valuable food brand in the world as ranked by
Brand Finance. The consultancy calculated $50
million loss of goods along with a damage to brand
that resulted in a reduced Maggi brand value of
$2.2billion. Any health concern raised by any
reputed organization, such as FSSAI, most
negatively affects a food brand. Now, Nestle will
have to ensure its dominance in the Indian market.
FIGURE 3: Showing industry estimates of Nestle India
analysts regarding various effects of Noodles crisis
NOODLES CRISIS
Market size: Around Rs 2,500 crore
Sales: Makes up over 30 per cent of Nestle Indias
revenue
Losses due to safety concerns: Rs 320 crore
Brand value hit: $200 million (Rs 1,200 crore)
Source: Nestle India, analysts, industry estimates

Source: Business Standard

Brand ambassadors in trouble: Since an


ambassador plays a vital role in endorsing a product
to the consumers and the consumers are affected by,
who is endorsing the product, a lot. So, nowadays,
companies are contacting and making the filmstars,
famous sportspersons, etc. as their ambassadors.
This shot up the sale to large extent. In case of
Maggi also, Amitabh Bachchan, Preity Zinta and
Madhuri Dixit are the brand ambassadors whose
fan following has resulted in more favourable
response of consumers towards Maggi. Now as the
Maggi row has blared up, it has also put its brand
ambassadors, along with the company officials, in
trouble as a brand ambassador endorsing the
product in the advertisement is also equally
responsible for making the consumers fool. A
district court in Muzaffarpur had directed police to
register an FIR against two Nestle officials and
filmstars- Amitabh Bachchan, Preity Zinta, and
Madhuri Dixit, who have endorsed Maggi in
advertisements, and to arrest them if required in the
course of investigation. The FIR was made by a
complainant claiming that he fell sick after eating
Maggi purchased from a shop at Lenin Chowk of
Muzaffarpur on May 30, 2015. The case has been
filed under IPC section 270 (malignant act likely to
spread infection of disease dangerous to health),
273 (sale of noxious food or drink), 276 (sale of

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drug as a different drug or preparation) and 420


(cheating and dishonesty).
Central Government has used the provision of
complaining on its own to NCDRC for the first
time: In further troubles for Nestle over Maggi row,
the Central Government has filed a complaint with
the National Consumer Disputes Redressal
Commission (NCDRC) on its own in the interest of
consumers. Usually, NCDRC acts on the
complaints filed by a consumer but section 12-1-D
of the Consumer Protection Act, 1986 also provides
for Government to register a complaint on its own
if it deems fit. For the first time in three decades,
the Central Government has used this provision.
The raising of issue by the Central Government has
shown the seriousness of the issue.
So, the Maggi row has impacted the workers, suppliers,
share market, Nestles revenue, brand ambassadors,
Central Government, etc. The final verdict has not come
till now, so the issue has yet to impact a lot.

DILEMMA! A SORT OF DOUBT


The industry is unclear about testing mechanisms and
standards in India. FSSAI, a young organization with
limited resources and infrastructure, may not be final
organization on food standards, argue the company
executives. With Singapore, Australia, Newzealand, UK,
Canada and other countries giving a clean chit to India
made Maggi noodles, it has added to the doubt of whether
FSSAI is justified in its clamp down on Nestle on the basis
of test samples from a few states. Even the test of some of
the samples in several states have tested lower level of
lead and no MSG. according to Anupam Gogoi, food
analyst at the laboratory in Guwahati, presence of MSG is
not an offence in India since there is no prescribed limit
for it. But misleading labeling of no added MSG is the
issue. The company is saying that the product is safe for
consumption and FSSAI is saying the product is
dangerous for consumption. Both have been defending
ones own side. These have created a dilemma among the
consumers whether Maggi should be consumed or not but,
this row has impacted a lot in India and also will impact in
future also, till the final outcome will come. This is all
about what began as a minor labelling dispute that
according to a local magistrate could have been settled
with an INR 25000 fine, spiraled into Nestles worst
public relations crisis to date in India. This study will help
a lot to understand the real impact of Maggi row in
simplified and clear way.

SCOPE FOR FURTHER RESEARCH


I have conducted research only for a limited time period
i.e. upto June 30. Till June 30, the final outcome has not
come. Court hearings are pending and there is a lot to be

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Volume 4, No. 7, July 2015

happened in this Maggi row which will impact various


parts of the economy and it may be totally different from
now as the long term impact is usually different from short
term impact of any event. This is only a part. Further
extensive research can be done only after the final
outcome.

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[12] www.nestle.com
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