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15, MARCH, 2010
Journal of The Department of Commerce with Farm Management Vidyasagar University
EDITOR-IN-CHIEF K.C. PAUL Vidyasagar University EXECUTIVE EDITOR Tagar Lal Khan Vidyasagar University ASSOCIATE EDITORS A. Gupta Vidyasagar University A. Sinha Vidyasagar University K. Bandopadhyay Vidyasagar University T.N. Sahu Vidyasagar University MEMBERS Amit Kr. Mallik Former V.C. University of Burdwan Jaydeb Sarkhel University of Burdwan M. Ranganatham University of Madras Bharati V. Pathak Gujrat University S. Srinivasan IIT, Kharagpur D. Obul Reddy Formerly, Osmania University K. Eresi Bangalore University Lalit Gupta J.N. Vyas University S. Ghosh Vidyasagar University
Sudipti Banerjea University of Calcutta G. Soral Maharshi Dayanand University A. K Singh Delhi School of Economics
Members of the Editorial Board and the Department of Commerce with Farm Management, Vidyasagar university are not responsible for any of the views expressed by the contributors in the Vidyasagar University Journal of Commerce.
Title of Article
MEASURES OF SHAREHOLDERS’ VALUE CREATION : AN ASSESSMENT Prof. Arup Chattopadhyay & Dr. Debdas Rakshit COMMERCE EDUCATION IN THE CHANGING BUSINESS SCENARIO IN INDIA : CHALLENGES AND OPPORTUNITIES Prof. Prithul Chakraborty JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES-A STUDY AT NORTH BENGAL MEDICAL COLLEGE, DARJEELING Dr. Debabrata Mitra & Mr. Durlav Sarkar RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN JALPAIGURI DISTRICT Dr. Bhaskar Bagchi & Dr. Jaydeb Bera GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE INDUSTRY : AN ANALYTICAL STUDY Mr. V. Neelamegam GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY AND EMPLOYMENT IN INDIA Dr. Sanjit Kumar Das & Dr. Indranil Chakrabarty PERFORMANCE ANALYSIS OF CENTRAL PUBLIC SECTOR ENTERPRISES (CPSES) IN INDIA Dr. Kartik Chandra Nandi FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION Dr. Pranam Dhar & Mr. Anirban Sarkar Students’ Section : ENVIRONMENTAL IMPACT ASSESSMENT : A STRATEGIC MANAGERIAL DECISION MAKING TOOL Mr. Somnath Paul
case study of rural credit in West Bengal. human resource management. I cannot leave without recognizing the role of our Mentor.K. Tagar Lal Khan deserves special mention for tactfully and carefully managing the stupendous task in his capacity as the Executive Editor. We’ll perceive our efforts to be successful only if this journal is well accepted by the readers. and forensic accounting. economics. He has been with us all the time with his valuable and novel suggestions for continuous improvement of the quality of the journal. Giri Printers deserves equal credit for crashing the printing time without sacrificing its quality. The specific issues studied in five of the articles cover subjects like shareholders’ value creation. We are sorry that we are yet to attain that level. Mr. C. Almost all of them are from different areas of finance. For example. We have been carefully nurturing it towards maturity. I must gratefully recognise the gesture of my departmental colleagues for their cooperation and sharing of the editorial tasks. accounting. Prof. Two of them addressed the impacts of Global Economic Recession in India (one on Textile industry and the other on industry in general and on employment). We are sorry that it might have delayed the publication of a few articles till the next issue due to the failure to complete the process of revision in line with the suggestions of the reviewers. We are grateful to all of them with the desired expectation to have continued cooperation in the future years to come. one of his novel ideas was to dedicate a particular issue of the journal on a focused theme. Parimal Giri. or from common areas like commerce education and environment. S. This volume contains nine articles including one in ‘Students’ Section’. K. the Proprietor of M/s. objectively maintained to motivate students for contributing articles. job stress of working nurses. Paul Editor-in chief . Mr. It is the readers. Dated : Midnapore The 31st March 2010 Sd/. In the end. contributors. and editorial board members who have lent us unstinted support all through the past years to bring it up to the present stage. performance analysis of Central Public Sector Enterprises operating in India. Pramanick. the honourable Vice-Chancellor of our University.EDITORIAL A hearty welcome to this fifteenth annual issue of our Departmental journal-Vidyasagar University Journal of Commerce. We are delighted that this issue presents a write up from one of our students. One important critical quality factor for sustenance and enhancement of the quality of the journal is the ‘blind review’ process. Another important feature is the earmarked space for ‘Students’ Section’.
Department of Economics.co.. which seeks to integrate financial hypotheses with strategic and economic philosophy of the company.B. March. 15. W.chatto@yahoo. Golapbag. Pin-713104 E-mail: firstname.lastname@example.org . Martin and Petty (2000) have postulated that it can be best measured within the company using an economic profit metric. Ehrber (1998) observes that “by accounting correctly for the economics of the business and by subtracting the cost of all resources required to produce revenues. wide volatility in real and financial markets etc.Vidyasagar University Journal of Commerce Vol. given the amount of total capital used to generate those profits.Burdwan. The University of Burdwan. To generate value for shareholders value based management system has been developed. The University of Burdwan. after the eliminating short-term volatilities in share prices. Golapbag.B. EVA. * Professor.. EVATM accurately captures the combined productivity of all factors of production in a single measure”.Burdwan. 2010 MEASURES OF SHAREHOLDERS’ VALUE CREATION : AN ASSESSMENT Arup Chattopadhyay* Debdas Rakshit** ABSTRACT Different measures have been employed by different scholars for the measurement of shareholders’ value creation. MVA or SVA the shareholders’ value creation should simply be calculated as: Market value of equity multiplied by (Shareholders’ return – Ke). return on equity(ROE). have increased the burden on executives to deliver superior performance in general and value for their shareholders in particular. Department of Commerce. Empirically it is observed that this proposed conceptually sound method is totally different from other existing methods of value creation. rapid technological change.co. Here shareholders’ return should be determined as the long-term return on equity on the discounted cash flow basis and Ke should be calculated as usual by estimating â from security market line. Morin and Jarrell(2001) opine that “traditional performance metrics such as earnings per share(EPS). Severe competition. book value(BV).in ** Reader. A modest attempt has been made in the study to measure this value actually from shareholders’ point of view using a new methodology. W. It is proposed that instead of traditionally computing MV/BV. of course. including the cost of capital. But none of these is free from limitations. But value creation process has been given emphasis exclusively by the scholars using different matrices over time. Pin713104 E-mail: arup. Introduction In the present era of globalization companies of emerging economies are facing new challenges.
return on invested capital(ROIC) etc. do a poor job of capturing the three fundamental determinants of value creation: the amount. timing and risk of the future cash flows of a company”. Do executives really influence the creation of value or is it just the general market movement that brings stock prices up and down? Does the higher growth as well as profitability or EVA lead to increased value to shareholders? III. In November 1996.  Vidyasagar University Journal of Commerce . Governments are created to help meet civic needs. that is the mission of any business: to create value for its owners----. the Former Chairman and the Chief Executive Officer [Roberto C. Against this backdrop. but also in the form of taxes. it is the job we owe to those who have entrusted us with their assets. In any event.. Data base and methodology of the study are included in section-III. When can one say that a firm has added shareholders’ value? The remaining portion of the article is structured as follows: Section-II concentrates on reviewing the literature relevant to this study. Business distributes the lifeblood that flows through economic system. our publicly stated mission is to create value over time for the owners of our business. How can shareholders’ value be created and analyzed? IV. people create specific institutions to help meet specific needs. That is – literally – what they have put us in business to do. salaries and philanthropies.. they miss their primary calling. Creating value is a core principle on which our economic system is based.MEASURESOFSHAREHOLDERS’VALUECREATION:AN.. not only in the form of goods and services. In fact.but we frequently see companies that have forgotten the reason they exist. II. made a lengthy statement in favour of value creation as noted below: “At the Coca Cola Company. return on assets (ROA).. and here. which is to stick to the business of creating value for their owners”. Saying that we work for our share owners may sound simplistic. Goizueta] of Coca Cola.. in our society. We work for our share owners. And companies are created to help meet economic needs. Philanthropies are created to help meet social needs. They may even try in vain to be all things to all people and serve many masters in many different ways. We live in a democratic capitalist society. the present paper makes an attempt to give the relevant answers to the following questions : I. Section-IV deals with the major computations and findings of the study and finally the last one (section-V) is devoted to draw the conclusion.
The author also argues that the best way of maximizing for shareholder return is to offer incentives to managers for making decisions that boost long term value. II. The EVA has been proposed as more sensible alternative.Arup Chattopadhyay & Debdas Rakshit Review of Literature For the last seventeen years. It serves as the centerpiece of a completely integrated frame-work of the financial management and incentive compensation”. customers. It is a fundamental measure of return on capital and there are just three ways to increase it: I. admitting the limitations of traditional measures of performance. Traditionally corporate performance has been measured in terms of earning per share (EPS). It is directly linked to the creation of the shareholders’ wealth over time. The managers may be guided by EVA and they can be remunerated a proportion of both the total EVA and the positive change in EVA. government and shareholders. Use less capital and III. researchers. Earn more profit without using more capital. but the majority of them have drawn inferences about the theoretical discussion of it and a few of them have concentrated to make the concept as a legitimate tool of corporate financial performance measurement. employees. Vidyasagar University Journal of Commerce  . Stern (1990) has observed that “as a performance measure EVA comes closer than any other tool to capture the true economic profit of an enterprise. EVA based financial management and incentive system gives manager superior information and motivation to make decision that will create the greatest shareholder of a private enterprise”. The present section briefly thrashes out the notable researches carried out so far by the scholars in the field. This concept is believed to encourage myopic behavior and considers that shareholders are a free source of funds. O’Hanlon and Peasvell (1996) consider that the ability to create wealth of shareholders is crucial for the survival of companies in the present business environment. Tully (1993) has postulated that there is no tricky situation about the technique through which the EVA can be augmented. Stewart (1994) has opined that “EVA is a powerful new management tool that has gained growing international acceptance as the standard of corporate governance. corporate professionals and consultant firms engaged in the field of finance have been paying their attention on the EVA. He also argues that it can transform energies and resources to create sustainable value for companies. Invest capital in high return projects. management.
Rakshit (2006) has made a study to find out the relationship between EVA and MVA of five selected multinational companies in Indian pharmaceutical industry over a time span of ten years (1993-94 to 2002-03). and its application in economic value measurement as a means of evaluating underlying business performance is nothing short of an overhaul of traditional accounting concepts. capital budgeting decision. The authors observed that EVA was the most important significant explanatory variable for shareholders’ wealth and thus they claimed the superiority of EVA over the other explanatory variables. They also found no significant relationship between these two performance matrices. Now the business world is moving towards greater transparency and superior corporate governance. Sales.. Banerjee and Jain (1999) carried out an empirical research in this field. KPMG-BS Study (1998) has selected top100 companies from bs-1000 list of companies and examined their data on EVA. labour productivity (LP) and economic value added (EVA) were chosen in the study to establish their relation with market value added which is taken as the surrogate of shareholders’ wealth.. capital productivity (KP). EVA provides an excellent tool for strategy planning. pricing decision and also basis for incentive compensation.MEASURESOFSHAREHOLDERS’VALUECREATION:AN.  Vidyasagar University Journal of Commerce . The author concludes that there is no relationship between EVA and MVA in almost all sample companies during the study period. which give a positive NPV and harvesting all those existing products and projects whose return on capital is more than the cost of capital enhance shareholder value. average return on net worth (ARONW).. So one cannot deny the present necessity of an exclusive study in this field in any country. Shareholder value creation aspect is of utmost importance in the present scenario of corporate performance and management. The traditional accounting techniques are familiar with concept of residual value. From this study it is revealed that sixty two companies have been found to be able to create positive shareholder value where as thirty eight companies have been found to destroy it. PAT and MVA criteria for the year 1996-97... A similar study was made by Chattopadhyay and Gupta (2001) to examine the relation between EVA and MC using time series data of Hindustan Liver Ltd. From this brief review of literature it is evident that the scholars have given much important to EVA while measuring performance or value creation of any company. namely earning per share ( EPS). Five independentvariables. Mayfield (1997) has observed that investing in all of those projects. Top 50 companies from Drug & Pharmaceutical industry in India were selected as the sample companies and data were collected for the period of 8 years from 1990-91 to 1997-98.
g = b x ROE. Business newspaper. (I) The Market value to Book value approach. The period of the study is last five years. The Market value to Book value approach. then the market value of a share may be considered as the present value of the expected stream of dividend per share (DPS). Capita line -2000 data base package. Rm indicates market rate of return and β represents the systematic risk of the company’s equity share. Rf is the Risk free return. The Economic Value Added (EVA) approach III. DPS depends on the firm’s payout ratio (1-b) and the earnings’ growth (g). The relevant data for the study have been collected from the secondary sources like BSE Stock Exchange Official Directory. from 2002-03 to 2006-07. The stream of DPS is discounted at the cost of equity (Ke).Arup Chattopadhyay & Debdas Rakshit Data base and Methodology For the purpose of the study the first moving consumer goods (FMCG) industry has been chosen purposively and from this industry two sample companies. The Market Value Added (MVA) approach IV. The following four approaches are generally employed for measuring and analyzing the shareholders’ value creation: I. More specifically. the Capital Asset Pricing Model (CAPM) or Dividend Growth Model (DGM) can be used. II. If we rely on the Fundamental Analysis. A firm is said to create shareholders’ value when its market value per share is greater than its book value. But the advantage of the CAPM over DGM is that the former explicitly incorporates premium for risk and all its parameters are market determined while the latter uses accounting historical based data for calculating Ke. The Shareholder Value Added (SVA) approach. For calculating Ke. Vidyasagar University Journal of Commerce  . the cost of equity can be determined as follows: Ke = Rf + β ( Rm – Rf) Where. As per the CAPM. But g depends on the retention ratio (b) and the return on equity (ROE). viz Hindustan UniLever Ltd (HUL) and Colgate Palmolive (India) Ltd (CPIL) have been selected. Each of these approaches is briefly discussed below. Internet etc.
The market value per share (MV) is then given by:
DPSt MV = Σ ————————— t=1 (1+ Ke )t
EPSt (1-b) = Σ ————————— t=1 (1+ Ke)t
In Equation (1), DPS may be expected to grow at a constant rate, g. That is DPSt = DPS(t-1) (1+g) = DPS0 (1+g)t On the assumption that Ke is greater than g, for an infinite series Equation (1) can be simplified as : DPS1 MV = —————— Ke – g
EPS1 (1-b) (2) MV = —————— Ke – g Since EPS is the product of the book value of firm’s share and its return on equity (i.e., EPS = ROE X BV), Equation (2) can be written as follows. ROE X (1-b) X BV MV = —————————— Ke – g MV ROE X (1-b) —— = ————————— BV Ke – g MV ROE - ROE X b —— = ————————— BV Ke – g
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Arup Chattopadhyay & Debdas Rakshit
MV ROE - g —— = —————— BV Ke – g
The Equation (4) indicates that the difference between ROE and Ke determines the MV / BV ratio. The difference must be positive to create shareholder value. g depends on the firm’s retention ratio and return on equity. Given the firm’s ROE, higher the retention ratio, higher will be the growth rate. However, a higher growth rate does not necessarily increase the shareholders’ value because it has also negative effect on the value if the Ke is more than ROE, which is assumed to be lessthan g. Economic Value Added (EVA) approach EVATM is actually Stern Stewart & Co’s trade mark for a specific method of calculating economic profit. EVA is defined as: operating profit of a business after charging cost of capital. EVA focuses on clear surplus in contradiction to the traditionally used profit available to the shareholders. It is defined as: EVAt = NOPATt – WACC X CEt Where, NOPATt = Net operating profit before interest after tax during period t, WACC = Weighted average cost of capital and CEt = Capital employed at the end of period t. It is free from subjective assumptions that need to be adopted while identifying profit and cost of capital. Here for calculating WACC cost of equity is derived on the basis of CAPM. For EVA analysis certain accounting policies, which Indian companies generally follow as per Companies Act and relevant Accounting Standard are not always suitable. To find out the meaningful EVA certain accounting adjustments are required. Sometimes it is alleged that EVA talks too much about the shareholders value added rather than focusing on the interest of all stakeholders. But EVA is a powerful performance measurement tool and it is also argued that if a company is able to serve its shareholders then it can also serve its all other stakeholders. Market Value Added (MVA) approach According to Stewart MVA is the spread between company’s market capitalization and book value of capital, i.e.,
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MVA = Market Capitalization – Equity Where Equity implies Equity share capital + Reserve & Surplus – Miscellaneous Expenditure – P&L (Dr.) balance. MVA represents only unrealized capital gain. But the empirical results observed in our study using this definition of MVA are absurd. One should define MVA as the difference between firms’s closing market capitalization minus opening market capitalization. Thus MVA should be computed as: MVAt = MVt – MV(t-1) Where MVt = Market capitalization at period t and MV(t-1) = Market capitalization at period (t-1). However, this definition is applicable if the number of outstanding shares of a company between‘t’ and ‘(t-1)’ period remains same. If the number of outstanding shares changes due to issue of bonus share, right issue, buy back of share or conversion of preference share into equity shares between two points of time, stock split, etc. determination of MVA by direct comparison of market capitalization at two different time points leads to erroneous conclusions. Taking into account all these situations the actual MVA, should be computed using the following formula: Closing market price of equity shares at time ‘t’ multiplied by the number of outstanding shares at time ‘t’ minus closing market price of equity shares at time (t-1) multiplied by number of outstanding shares at time ‘t’. However, this definition of MVA could be operationalised if one can avoid the short-term volatilities in share prices. Shareholders’ Value Added approach SVA is the total value added to the shareholders, both realized and unrealized. SVA in any period t is measured in the following way: SVA = MVAt +EDIVt Where MVAt indicates market value added at time‘t’ and EDIVt implies equity dividend at time‘t’. Proposed Approach of shareholders value creation When managers try to increase the ROI, EVA, MVA or SVA, are they really creating value for the shareholders? The answer is clearly no because EVA and MVA, as per Stern Stewart recommendation are computed based on financial statement. But financial statement only
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we have constructed first a 10% band around the changes of the Nifty and then we have taken only those values of Nifty as the general normal values which lie within the band [i. both these parameters should be estimated from the over time general movement of share marketwhichisfrequentlycharacterizedbyshort-termvolatilities. both these parameters have been computed on a long-term basis (taking at least three years’ past data) to iron out the short term irratic movements. Instead of using single data we have computed year-wise data for these two parameters on the presumption that risk structure may not remain constant over time either in the market or in any company. All the items of financial statements.. Corresponding to the dates of normal values of Nifty. to compute market return for the year 2003-04 we have estimated average value of the normal Nifty returns for the years 2000-01 to 2003-04. we have regressed share price return on the Nifty return taking respective normal data for the period 2000-01 to 2003-04. But conceptually a company creates value for its shareholders when the shareholders’ return exceeds the equity’s cost (the required return to equity). So shareholders’ value creation should simply be calculated as: Shareholder value creation = Market value of equity x (shareholders’ return – Ke) Shareholder return is to be determined as the long-term return on equity on the discounted cash flow basis from the shareholder’s point of view. which reflects the state of a firm’s assets and liabilities at a certain point of time are historic data. 0. which explain what has happened during a certain year and also of the balance sheet. if any. Vidyasagar University Journal of Commerce [ 13 ] .Arup Chattopadhyay & Debdas Rakshit reflects the firm’s history.e. A company destroys value when the opposite situation occurs. Accordingly we have collected share price data for the period 2000-01 to 2006-07 though our period of study is from 200203 to 2006-07. we have taken each company’s share prices for computing β as well as market return. Further. For share-holders’ value creation we have computed year-wise long-term market return in its annualized form and also year-wise value of â for each company.1<∆ Pt<+0. As usual Ke is to be calculated using CAPM based on estimating market line. This analysis is based on weekly data which is free from any day-effects. to compute β of any sample company for the year 2003-04. But.Toavoidshorttermvolatilities.1]. For instance. as mentioned above. Similarly.
.28 11.82 792. EVA created by the sample companies during last five years (i.35 13.02 19.31 15. In the case of HUL.91 13..09 Shareholders’ Value Creation (Rs in Crores) -5786.68 (in the F.11 22.99 -458.63 (2004-05) to 10..06 15.37 Closing Market Value (Rs in Crores) 47786.. on an average.83 6650.75 4367.20 during the study period.51 807.9 4520.in crores) Market Value Added (Rs.50 Note : Fot detailed computations see Annexures I and II From Table-1 it is observed that for both the companies MV/BV ratios (in times) are greater than one.34 5692. ranging from 28.81 1652.45 3406.65 1189.91 -9 13. 2002-03) and the average value is 12.59 -8012.94 12932..2 -129.55 14. It discloses that [ 14 ] Vidyasagar University Journal of Commerce . in the case of CPIL it ranges from 21.78 1482.75 1088.12 1 -13.34 971.67 5875.52 7.27 40006.45 31587.9045058.68 1189. but also has considerable implications for companies on how to make strategic decisions and manage the healthier financial performance for creating shareholders’ value.58 1771.67 -7208.in crores) Share holders’ return (%) Cost of Equity (%) 2006-07 HUL 17.66 12.63 7 25.26 10.07 3508. Major Computations and Findings Table .05 -5 -3.22 2468.75 118.2005-06) to6.30 100.e.95 155.95 200.72 1 13.03 14.00 -582.. it is found to be 18 during the period under study.02 (in the F.47 (2002-03).14 11831.58 83.MEASURESOFSHAREHOLDERS’VALUECREATION:AN.47 6.79 -9169.28 334. EVA-based performance measurement not only provides a far more accurate report card on corporate financial performance than conventional measures.55 -13471.42 -292.42 -1355.31 43418.Y.34 -206.12 2005-06 HUL CPIL 2004-05 HUL 28.78 CPIL 16.48 -2292. On the other hand.63 5051.9 -1225.82 697.03 -263.99 -9223.Y.67 54.in crores Shareholder Value Added (Rs.55 -12370.02 8.1 Year Particulars Market Value to Book Value ratio (in times) Economic Value Added (Rs.15 75.69 13.63 2003-04 2002-03 CPIL HUL CPIL HULL CPIL 9. 2002-03 to 2006-07) is also depicted in Table-1.58 21. The Table also shows that both the companies have been always able to create shareholders’ value based on market to book value approach.
Shareholders holding CPIL’s share during this period also received dividends.e. It is observed from Table-1 that both the companies have been constantly generating the positive EVA all the way through the period of last five years.12932.332.Y..66%. Thus the shareholders earned 7. For instance. r. EVA. the CPIL’s share price at the end of FY 2001-02 (i.65. 31-03-2007) was Rs. 2003-04.e. From Table-1 it is evident that there is a mixture of positive and negative MVA & SVA for both the companies during the period under study. 2005-06 and 2006-07 of HUL and from 2003-04 to 2005-06 of CPIL. which is estimated at about 14. As per the proposed method any company’s performance from the shareholders’ point of view is to determine the long term return on equity on the discounted cash flow (DC) basis.33 crore during the said period.3406. of approximately 22.45 crore & Rs.5 (9.2005-06 of HUL and Rs.20 = ———— + ——— (1+r)1 (1+r)2 + ——— (1+r)3 + ——— + ————— (1+r)4 (1+r)5 We find that during 2001-02 to 2006-07. but in the above approaches shareholders’ return is not computed.55 Crore in the F. Thus the DCF return on equity for the period 2001-02 to 2006-07 is as follows : DPS (2002-03) DPS(2003-04) DPS(2004-05) DPS(2005-06) DPS(2006-07)+ P(2006-07) P(2001-02) = ————— + ——— + ——— + ———— + ————— (1+r)1 (1+r)2 (1+r)3 (1+r)4 (1+r)5 4.25 6 7 7. implying thereby that the shareholders’ value was created in these years. MVA & SVA were positive in the F.07 crore in the F. But the Market value to Book value ratio.141.Y.63%.11831.40% net return which is in excess of the cost of equity.65) i. MVA and SVA can not really create value for the shareholders because a company creates value it when the shareholder return exceeds the equity’s cost. 141.e.Arup Chattopadhyay & Debdas Rakshit EVA of HUL registered a fluctuating trend during the period under study. If we consider the period from 2000-01 to 2005-06 (instead of taking 2000-01 to 2006-07).20 and at the end of FY 2006-07 (i.1184.03%. The net return can be computed by considering CPIL’s cost of equity. the CPIL’s shareholders earned a discounted cash flow return on equity. 2005-06 of CPIL respectively.55 Crore & Rs. On the other hand CPIL was able to improve the EVA steadily during the study period.5 + 332. The highest MVA & SVA in the last five years were Rs. 31-3-2002) was Rs.3508. the DCF return on equity (as per estimating CAPM) comes to 25. On an average it was Rs. In the same way we have also computed Vidyasagar University Journal of Commerce [ 15 ] .Y.
return on equity of HUL. “EVA. Vikalpa.. No-1. (2002). “Economic Value Added TM : A tool for Business Planning”. New York. John Wiley & Sons Inc Banerjee. January –June. McGraw-Hill Series in Finance. and Mayers Stewart. Economic Profit and Cash Value Added do not measure Shareholder Value Creation”. and Jain. A.. “Linkage Between Market Capitalisation and EVA. “Principle of Corporate Finance”. June. Vol. They are not directly linked to value. T. Paradigm. In case of CPIL the company is able to create value for shareholders only for two years (i.1-7 Fernandez. ICWAI Publication. No-3. Pp. A. Vol.MEASURESOFSHAREHOLDERS’VALUECREATION:AN.e.L.”.Y 2005-06 & 2006-07) and destroys value for the rest years..C (1999).. Banerjee. Conclusion Empirically it is observed that the proposed definitionally sound method is total different from other existing methods of value creation. 32. S.A Study with Reference to H. McGraw-Hill Inc.3. A. Earnings suffer from accounting policy biases and subjectivism. [ 16 ] Vidyasagar University Journal of Commerce • • • • .. Vol.. (2000) “Linkage between Economic Value Added and Market Value: An Analysis”.25. July. July – September. and Gupta. F. Indian Journal of Accounting. (1991).23-36. Shareholder value creation then actually emphasises the present value of future cash flows rather than earnings.. The shareholders value should depend on future cash flows and their risk. But the most noticeable point is that under this method HUL’s shareholders have destroyed value for all the years during study period. (2001).L.99135 Brealey Richard. C. University of Navarra. A.P.A.(1999). Shareholders’ true value orientation reporting system will generate new series of management information system to aid management in making relevant decision for creating shareholders’ value further. “EVA: The Real Key to Creating Wealth”. The cost of equity being accounting for the timing and risk of future cash flows should be used to determine the present value of cash flows. “Economic Value Added and Shareholder Wealth: An Empirical Study of Relationship”. Chattopadhyay. Pp. IESE. P. Pp. References : • • • Al Ehrbar. Research paper no 453 Pp-1-22 Ghosh. The effective orientation of shareholders’ value creation necessitates a change in the culture and mindset of the company.
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• • • • • • • • • • • • •
KPMG-BS, (1998), “Corporate India: An Economic Value Scoreboard”, The Strategy, Jan- March, PP-22-25 Mayfield, J. (1997), “Economic Value Management”, Management Accounting, Sept., Pp- 32-33 O’ttanlon, J. and Peasvell, K. (1996), “Measure for measure”, Accountancy – International edition, February , Pp-44-46 Pandey, I.M. “Financial Management”, Chapter 34, 8th Edn., Vikas Publishing India. Rakshit.D (2006), “Linkage between EVA and MVA: A Study of some Pharmaceutical companies in India”, IMM- Marketology, October- December, Pp-60-70 Stern, J. (1990), “One way to build value in your firm, Executive compensation”, Financial Executive, Nov/Dec,Pp- 51-54 Stewart, G. Bennett, (1994), “EVATM Fact and Fantasy”, Journal of Applied Corporate Finance, June- Pp-71-84 Stewart, G. Bennett, (1990), “The Quest for Value: the EVA TM Management guide”, Harper Business, New York, 1990. Tally, Shawn (1993), “The real key to creating wealth”, Fortune, September-20, 1993, p-563 Van Horne, J.C (1995), “Financial Management & Policy”, Prentice Hall of India Pvt. Ltd, New Delhi. http://www.few.se/1/12.html. http://www.Sternstewart.com. http://www.bham.ac.uk/EAA/eaa97/abstracts/guenther.html
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Annexure - I HINDUSTAN UNILEVER LTD.
Financial Year Market Price per share Book Value per share Market value to Book value Ratio 2006-07 219.4 12.34 17.78 2005-06 205 10.47 19.58 2004-05 272 9.5 28.63 2003-04 131.25 9.71 13.52 2002-03 174 16.62 10.47 Computation of Market value to Book value ratio
Computation of Economic Value Added (EVA) Net profit before interest after tax Less Cost of capital EV A 1554.01 364.06 1189.95 1383.99 295.69 1088.30 1345.29 373.71 971.58 1853.91 371.76 1482.15 1764.71 575.04 1189.67
Computation of MVA & SVA Closing Market Value of Equity Shareholders' Fund Less Opening Market Value of Equity Shareholders' Fund MVA Add Dividend SV A 47786.09 43418.67 4367.42 1325.48 5692.90 43418.67 31587.22 11831.45 1100.62 12932.07 31587.22 45058.56 -13471.34 1100.62 -12370.72 45058.56 40006.81 5051.75 1599.20 6650.95 40006.81 49229.84 -9223.03 1210.69 -8012.34
Computation of Shareholders' return for one year Financial Year Opening Market Price CL Market Price + Dividend Closing Market price Dividend Shareholders' return for one year 2006-07 -272 211.2 205.2 6 -22% 2005-06 -131.95 277 272 5 110% 2004-05 -154.4 136.95 131.95 5 -11% 2003-04 -148.35 159.9 154.4 5.50 8% 2002-03 -225.15 153.85 148.35 5.5 -32%
Computation of Shareholders' return for Five years Financial Year 2006-07 Opening Market Price -225.15 Dividend -1st Year 5.5 Dividend -2nd Year 5.50 Dividend -3rd Year 5 Dividend -4th Year 5 Dividend -5th year+Closing Share Price 211.2 Shareholders' return for Five years 1% 2005-06 -219.25 5 5.5 5.50 5 277 7% 2004-05 -241.24 3.5 5 5.5 5.50 136.95 -9% 2003-04 -226.50 2.90 3.50 5.00 5.5 159.9 -5% 2002-03 -159.24 2.20 2.90 3.50 5.00 153.85 1%
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Vidyasagar University Journal of Commerce
Arup Chattopadhyay & Debdas Rakshit Computation of WACC Net Shareholder Funds Secured Loans Unsecured Loans Total Debt Capital Employed Equity proportion Debt Proportion Interest Rate Cost of debt Cost of Equity under CAPM WACC Risk free rate (%) Systematic Risk coefficient (Beta) Expected market return (%) Cost of Equity under CAPM (%) 2723.49 37.13 35.47 72.60 2796.09 0.97 0.03 14.78 9.61 13.11 13.02 9.00 0.22 27.98 13.11 2305.62 24.50 32.44 56.94 2362.56 0.98 0.02 33.72 21.92 12.28 12.52 9.00 0.30 20.12 12.28 2092.71 1453.06 18.06 1471.12 3563.83 0.59 0.41 8.84 5.74 13.82 10.49 9.00 0.36 22.41 13.82 2138.72 1603.70 100.61 1704.31 3843.03 0.56 0.44 3.92 2.55 15.35 9.67 9.00 0.32 28.70 15.35 3658.87 19.62 38.68 58.30 3717.17 0.98 0.02 15.75 10.23 15.55 15.47 9.00 0.34 28.18 15.55
Computation of cost of equity
Vidyasagar University Journal of Commerce
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76% Shareholders' return for five years Financial Year Opening Market Price Dividend -1st Year Dividend -2nd Year Dividend -3rd Year Dividend -4th Year Dividend-5thyear+ClosingSharePrice Shareholders' return for Five years 2006-07 -141.93 21.82 57.90 3406.00 3..45 -1355.25 4.10 3.05 439. Annexure-II COLGATE PALMOLIVE (India) LTD Financial Year 2006-07 2005-06 2004-05 2003-04 2002-03 Computation of Market value to Book value ratio Market Price per share (Rs) Book Value per share (Rs) Market value to Book value Ratio 332..00 8.5 141.65 95.25 126.34 117.15 3.66% 2004-05 -146..27 1652..50 -3.00 7.50 342.28 1916.65 9.5 17.05% 2003-04 -180.99 81.2 126 121.91 130.00 439.90 1771.25 6.65 20.65 432.00 7.69 33.40 8.60 200.25 4.43 41.05 7 44.5 189.75 4.27 697.02 Shareholders' return for one year Opening Market Price CL Market Price + Dividend Closing Market price Dividend Shareholders' return for one year -432.68 155.50% -130.75 Computation of MVA & SVA Closing Market Value of Equity Shareholders' Fund Less Opening Market Value of Equity Shareholders' Fund MVA Add Dividend SV A 4520.00 8.31 5875.5 -20.63 95.03% 2005-06 -155.63 16.15 19.02 Computation of Economic Value Added (EVA) Net profit before interest after tax Less cost of capital EV A 197.05 182.00 3.10 -263.55 2468.65 25.20 792.75 133.28 118.05 18.12% 2002-03 -280.25 4.00 7.87% -121.20 -1225.12 432.50 6.31 40.22 6.68 100.78 108.25 -10.00 12.25 6.56 54.75 136.14 129.25 136.77 33.00 3508.25 6.00 8.68 182.97 7.50 130.05 8.26 121.11% -141..15 22.37 9.80 -206.94 5875.15 7.59 1652.75 20.55 102.99 83.00 3.04 75.MEASURESOFSHAREHOLDERS’VALUECREATION:AN.15 332.83% -182.00 3.02 32.45 2468.00 189.00 -13.15 342.83 1771.20 4.06% [ 20 ] Vidyasagar University Journal of Commerce .
69 14.14 277.91 11.01 27.86 2004-05 249.17 246.15 18.63 Computation of cost of equity Risk free rate (%) Systematic Risk coefficient (Beta) Expected market return (%) Cost of Equity under CAPM (%) 9.98 0.37 9.00 0.98 0.00 0.41 13.30 27.02 13.02 0.75 0.36 275.77 0.02 29.53 8.16 0.37 13.63 14.63 2005-06 271.19 17.36 4.12 11.00 2.32 22.28 4.98 3.28 284.69 Vidyasagar University Journal of Commerce [ 21 ] .01 11.99 0.31 0.30 28.00 4.02 22.40 2002-03 275.88 14.18 14.00 0.29 14.98 0.00 0.70 13.43 0.17 2.91 9.26 20.21 7.94 13.00 4.80 0.52 0.90 14.48 0.80 11.67 13.99 0.98 14.00 2.31 9.00 0.00 3.22 28.40 2003-04 244.98 253.14 2.Arup Chattopadhyay & Debdas Rakshit Computation of WACC Financial Year Net Shareholder Funds Secured Loans Unsecured Loans Total Debt capital employed Equity proportion Debt Proportion Interest Rate Cost of debt Cost of Equity under CAPM (%) WACC 2006-07 280.31 13.63 9.07 0.
quality. responsiveness to real-life situations. India witnesses a considerable growth in the field of higher education also. human resource development. opportunity-identifying and utilizing capabilities and so on to face the challenges of tomorrow. nationalization to globalization and from planned economy to open market economy. fierce competition. why . customer relations. Introduction Today India holds a very high position. On the other hand. Development of Commerce Education in India Knowledge in commerce is the core factor that makes an entrepreneur extra-ordinary from an ordinary businessman by providing something unusual and unexpected excellence to him. hedging of financial risk and so on..co. among the fast growing economies in the world. Nadia PIN : 741235 E-mail : prithul_cb@yahoo. and how commerce education can be modernized according to the changing demands of the society. problemfacing attitudes. industry and commerce. Professor. analytical power. can it fulfill the expectation adequately. The annual growth rate of GDP in India has increased from 2-3% during 1950s to 8-9% in 2006-07. there has been a sea change in the trading and industrial spheres of the country. With the transformation from regulations to liberalization. threats and opportunities in terms of technology. This calls for improvement in the quality commerce education in order to fulfill the demand of the corporate bodies for employable commerce graduates/ post graduates who have adequate skills. JIS College of Engineering. March. The ratio of enrollment of the students with higher educational institutions has increased from 1% of the total number of eligible population (i. next to China only.e. In this backdrop. 2010 COMMERCE EDUCATION IN THE CHANGING BUSINESS SCENARIO IN INDIA : CHALLENGES AND OPPORTUNITIES Prithul Chakraborty* ABSTRACT In the wake of globalization and liberalization of Indian economy. a few questions may hover in our minds regarding commerce education – what roles commerce education is expected to play in this changing scenario. Kalyani.in . Centre for Management Studies. In this scenario. 15. The wave of change also enters into the service sector. the organizations have to face new challenges.Vidyasagar University Journal of Commerce Vol. if not. there has been a sweeping transformation in almost all spheres of trade. The present article modestly attempts to address certain relevant issues in connection with the challenges and opportunities faced by the commerce education in India in this dynamic business scenario. people belonging to the age group of 18-23 years) in 1950-51 to 10% at present.
A number of vocational institutions were set up here and there to offer packages like office secretaryship. the objective behind that was to produce efficient domestic clerks to meet the requirement of typists. The main purpose of vocational commerce education was to provide the students with essential occupational and technical skills and knowledge. store-keepers and book-keepers of the mercantile and government offices. international trade. stenographers. Previously commerce education was basically restricted to accounting education although along with accountancy some other papers like economics. cooperative management. ensures survival of the business and establishes a reputation for it in the eyes of the society. banking and insurance management. secretarial and accounting jobs in different industrial and commercial houses both in the public and private sectors. commerce and industry in the country. Vidyasagar University Journal of Commerce [ 23 ] . banking. Wealth creation brings about success in business. colleges and universities. typing and stenography. there has been a gradual increase in the number of schools and colleges introducing commerce education both in urban and rural areas. accounting. But in India creation of excellent entrepreneur or businessman was not the objective behind introduction of commerce education in the British period. Such vocational courses were very much popular since the students became employment worthy through pursuing these courses and got clerical.Prithul Chakraborty Such commercial knowledge may help him in optimum utilization of the existing wealth and creation of new wealth rather than accumulation of wealth. commerce was more recognized as a vocational stream of education than an academic one. business management. etc. With the advancement of trade. purchasing and store-keeping. laws. it was very insignificant and limited to a few number of schools. Although the academic stream of commerce education found its genesis in India during the pre-independence period and the depth of such education increased from school level to intermediate. foreign exchange management. travel and tourism. But since 1990s in order to adapt to the changing environment of trade and industry and to meet the changing demands of the business world commerce education in India started to diversify and expand by leaps and bounds. But during the pre-independence period and even after independence till 1960s. When a commerce school was set up for the first time in Calicut by the British government in 1895. This has been further proliferated by the government policy of introducing multipurpose higher secondary course incorporating commerce as a separate discipline along with science and humanities. undergraduate (UG) and post-graduate (PG) levels during that period. However. A number of leading universities and colleges in India have introduced certificate or diploma courses in emerging areas like finance and control. marketing and salesmanship. marketing. were taught at the UG and PG levels. tax. auditing. etc. after independence with the regional growth of trade and industry in India during the successive five year plan periods. etc. statistics.
enactment of the new company laws and many other relevant laws in the country and an urge for having discipline... these institutions have been playing a paramount role in respect of dissemination of professional education and introduction of codes of conduct and other disciplinary mechanisms for their professional members. On the other hand. throughout their long journey.. The experience in this regard was not encouraging at any time. credence and importance of the commerce education in India.COMMERCE EDUCATION IN CHANGING BUSINESS SCENARIO IN . efficient utilization of resources. i. At the same time through promulgating different standards. Professional Commerce Education – An Important Dimension On the other hand. these institutions are rendering valuable services to the industrial and commercial sectors in the matter of bringing quality... setting up of the Institute of Chartered Accountants of India in 1949 added one new dimension to the commerce education in India.. a number of management institutes were also established in different parts of the country.. compliance with statutory rules and regulations.Com degree-holder for the post of an officer in the Finance and Accounts Department unless he had any professional qualification. This is substantiated by the fact that enrolment of commerce students has been substantially increased from 0.. To them most commerce degree-holders are at best fit for becoming clerks and not managers. This uncaring attitude of the employers towards commerce degree-holders is [ 24 ] Vidyasagar University Journal of Commerce . This dimension was more enriched with the setting up of the Institute of Costs and Works Accountants of India in 1959 and the Institute of Company Secretaries of India in 1980. credibility and acceptability in their financial and cost accounting reports. credibility.. corporate governance.e. Perceptions of Corporate Houses regarding Commerce Education in India Now let us consider the views of the industrial and commercial houses regarding the value... achieving global convergence of financial reporting. There is no room of doubt that emerging progress in trade and industry. financial and accounting and other managerial activities of the corporate bodies have led to the inception of these professional institutions. transparency. protection of the interest of all stakeholders and so on. value addition and up-gradation in the commercial. From the very beginning there has been a panicky realization among the employers’ circle both in public and private sectors that irrelevant.36lakh in 1950-51 to 20 lakh at present and the share of commerce students in total enrolment has increased from 17.1% in 1975-76 to 25% in 2005-06. Previously the corporate houses were reluctant to consider the candidature of even a 1st Class M... Meanwhile. inadequate and outdated commerce curriculum imparted by the colleges and universities generate a large number of unemployable graduates and post graduates every year. guidelines and norms.. commerce education has achieved an important position for the aspiring students’ community. professional education in audit and accountancy..
Only that organization can survive now which is able to show excellence in all spheres of its activities. can be done using sophisticated software packages with maximum accuracy and perfection and minimum time. remodeling of organizations through merger / de-merger. Consumer Behaviour. fierce competition. theory-oriented and far away from what happens in practice. Risk Management. e-finance. Portfolio Management. e-governance. many routine jobs like accounting. In this situation. Paradigm Shift in the Nature and Quality of Jobs and Commerce Education Now with the blessing of information technology. financial risk hedging. E-business or E-commerce. The revolution of IT has given rise to e-commerce. International Trade and Finance. it is quite natural and reasonable also that a corporate body should employ such a candidate who will not be a mere passenger but have a potentiality to contribute to its excellent functioning.Prithul Chakraborty observed even today in spite of the fact that there are at present several currently relevant and contemporary papers in the commerce curriculum which are similar to those in the professional courses. etc. The pedagogy of commerce education is mostly text book and class room-based. Even under the ERP system. inventory control. survival has become its nightmare. All these provide an impulsion to the modern organizations for restructuring and reengineering their operations to tap the benefit of such technological advancements. more Vidyasagar University Journal of Commerce [ 25 ] . store-keeping. Therefore. joint venture. e-filing of tax returns and so on. Financial Markets and Services. In this critical juncture. The open economic environment and the WTO regime have led to a sweeping transformation in almost all facets of trade and industry. Information System Management. budgeting. e-banking. The answer to this question is very simple. the organizations have to face new challenges. jobs under different modules starting from purchase to marketing including accounting and HR related jobs can be done through on-line in well-integrated and wellcoordinated manner. if growth be a dream to an organization. quality. Now the employers demand adequate IT skills. Need for a clerk is diminishing gradually. labour and cost. e-marketing. In this connection a question may arise in our mind : why the corporate houses are so skeptical about the employability of commerce degree-holders even today when the syllabus in commerce at UG and PG levels are no longer kept confined to the traditional papers but incorporate many need-based and currently relevant papers like IT and its business application. Strategic Management. The root cause behind such poor impression of the industrial and trading enterprises about the commerce students is that the students are not properly trained to link up the theory they learn with the practical aspects they have to face in course of their services. and so on. These amazing developments have caused a paradigm shift in the nature and quality of jobs required by the companies from their employees. threats and opportunities in terms of technology. etc. customer relations. human resource development.
business game. opportunity-identifying and utilizing capabilities. Therefore. from the young generation employees. This is also applicable for commerce education. if it fails to inject professionalism and managerial aspects in its course contents.. HR and IT. commerce education may gradually loose its importance.. So it should be more job-oriented than academic one. group discussion. It creates a mismatch between the aforesaid demands and supply of standard human resources.. First. practical training. the commerce education needs to be more practical-oriented. business communication.. popularity and even existence.. But the general perception of the corporate employers is that the present system of commerce education is too obsolete and ineffective to provide quality students to meet the changing demands of the corporate world. problem-facing attitudes. Second. today the corporate employers are vigorously looking for those prospective employees who have specialization in specific areas like finance. critical thinking and responsiveness to real-life situations.. accounting.. So it is very much essential for the universities and colleges to suitably and appropriately overhaul and restructure the commerce curriculum and place more emphasis on the managerial aspects of the organizations in order to provide an edge to the students in dealing with the changes in the industrial and trading environment. etc. It is true that yesterday’s theory makes today’s practice and no practice becomes viable and effective unless it is backed by a theory. [ 26 ] Vidyasagar University Journal of Commerce ..COMMERCE EDUCATION IN CHANGING BUSINESS SCENARIO IN . But it is equally true that no theoretical knowledge is perfect and complete unless it is supported by practical experiments. For shirking off this impression. analytical power. There is a general impression that a commerce degree-holder is a jack of all trades but master of none. soft skill development.. in order to generate employable graduates and postgraduates. is there any need for commerce education at UG and PG levels to be more management and profession-oriented and to place more importance on practical aspects of education? A number of points may be put forward in reply thereto. A student’s ability and skill to meet the present demands of the corporate employers may grow through different methods of commerce education involving case study. marketing. ability to locate. Thirdly. obtain and organize information etc... the value and importance of commerce education to the society is more concerned with generating employable students than scholars... Unfortunately these are given less emphasis in the ongoing commerce curriculum of most of the colleges and universities. project works. Is It Necessary for Commerce Education to be more Profession and ManagementOriented? A pertinent question may now be raised – where there are professional courses like CA. the commerce curriculum at UG and PG levels should focus more on specialization aspects in different domains of business. CWA and MBA..
Prithul Chakraborty Fourthly. Although recently many universities have thoroughly revamped the commerce syllabus to make it more industry-friendly. Interaction between Corporate Houses and Commerce Education Providers Still now a considerable distance is there between the commerce education providers and the industrial and commercial houses. For development of industryfriendly courses and curriculum. At least for the sake of survival in so highly competitive environment. Nor any measure is taken by those institutions to market their courses before the corporate executives. instead of maintaining a meaningless boundary between the professional institutes and academic institutes. the outcomes therefrom shall lead to the growth of knowledge and development of trade and industry. It is true that education should not be treated as a marketable commodity. the Indian institutions should not have any dogma. creation of new knowledge in commerce and extension of the same. coordination and interaction should be developed between them in the matter of communication of knowledge in commerce. research is very much imperative. back-dated and irrelevant to provide employable students to them. They are very much concerned with marketing their courses and curriculums in India. there is influx of many foreign institutions in India. professional institutions and industrial sectors in respect of research works. The academic institutions may continue to contribute towards research activities in their own manner. a closed integration. Finally. This will not violate the ethics on either side but help in creating a healthy academic and professional environment conducive to the development of the students’ community and development of trade and industry also. workshops Vidyasagar University Journal of Commerce [ 27 ] . In these circumstances. Sound theoretical knowledge base coupled with practical skill should be the ideal combination and commerce education needs to be re-oriented in that way. Anybody will appreciate that research works in different areas of commerce would be more productive and meaningful to the business world and the society as a whole if these are more related to the real life problems. very few corporate executives are aware of it. Most of them are still guided by the old belief that the commerce syllabus is too warped. the universities may obtain the opinion of the industrial representatives. For development of such knowledge and creation of new knowledge. Sheer possession of technical skill may not be adequate for facing all sorts of on-the-job problems. it is very much imperative for the Indian institutions to market their courses and curriculums before the corporate bodies. If there is a greater interface among academic institutions. The institutions may invite the corporate personalities in seminars. cooperation. There should be a close link and interaction between industrial activities and commerce education. Very little initiative is taken by the academic institutions to keep the corporate executives abreast of the present commerce course structure and remove their wrong belief. knowledge in commerce should not and cannot remain static. But under the regime of GATS.
For instance. Role of UGC in Making Commerce Education More Relevant and Updated The UGC has recognized that there has been a paradigm shift in the perception that commerce education has a strong potentiality to fetch jobs in the business. It has suggested that colleges may supplement their degree courses with certificate / diploma programmes. banks and insurance companies to observe the functions of their finance.. Industrial visits may be arranged for the students. During the 10th plan period the UGC has given green signal to launching of many value-added and job-oriented diploma programmes by the colleges and universities. It has recognized the need for arranging skill up-gradation of the students as required by the industrial and commercial houses. Even these organizations may provide some practical training to the students so that they can learn by doing and their technical competency can grow up... To this end. This will remove the distance between the commerce education providers and the corporate houses on one hand and enhance the recognition of the commerce-degree holders and their acceptability in the corporate world on the other hand.... marketing and other relevant departments. and panel discussions to exchange their views. The basic objective of this on line course is to provide a base point for those who are new to commerce and need an introduction to commercial knowledge and activities before undertaking any job in the commercial field. The academic institutions may invite the experienced executives from different areas of the corporate houses to deliver lectures before their students.. During the summer recess. accounts.1 lakh per course introduced. IBM has introduced a web-based and self-directed training course under the name “IBM Web Sphere Commerce Fundamentals”. the UGC has offered the undergraduate colleges a special grant of Rs. trade and industrial sectors.. The UGC also constituted expert committee to encourage revision of syllabus once in every five years to keep pace with the changing business environment. the students may be allowed by the industries..... Role of Corporate Houses in Development of Need-based Courses Many corporate houses have also started to invest a lot of funds to train up the college students to fulfill their own requirements in collaboration with the colleges and universities.. [ 28 ] Vidyasagar University Journal of Commerce . The bank bears the entire capital cost for opening e-Learning Centre at different colleges and universities of the country to impart training to the commerce students on banking operations.COMMERCE EDUCATION IN CHANGING BUSINESS SCENARIO IN . Their target is to produce at least 15 lakhs skilled and knowledgeable students by 2011. ICICI Bank has recently introduced e-learning course on banking foundation.. opinion and practical experiences with the teachers and students on many contemporary topics.
The students may be imparted theoretical and practical training on promotion of new venture. Since the present commerce education system fails to provide this kind of students. They have also arranged for soft skill development of their students. feasibilitystudies.Prithul Chakraborty Commerce Education to Produce Job . They have adopted a number of measures like modernization of curriculum. business games. there will be more industrialization in the country in near future along with further development in trade. Theinstitutionsmayundertakesuchtrainingprogramme in collaboration with the industries and banks. in the 21st century manufacturing Vidyasagar University Journal of Commerce [ 29 ] . Future Prospects of Commerce Education in the Changing Business Scenario If the Indian economy is to attain 9-10% annual growth rate of GDP as targeted in the 11th Plan period. introduction of need-based and relevant job-oriented courses. It is apprehended that shortage of skilled manpower will compel the corporate houses to resort to business process outsourcing and to import manpower from abroad. very little progress has taken place so far in respect of modernization of commerce education and many miles are there to go. To this end many schemes may be taken by the universities and colleges under the guidance and financial support of the UGC and AICTE. The silver-lining is that a few leading universities and colleges have already taken serious concern on this issue. replacement of teaching by chalk and duster with new pedagogy like audio-visual training. who can move easily between cultures and countries and. who have adequate skill to work efficiently in global environment. But having considered the vast requirement of the business world and the vast size of the eligible students’ community of the country. Peter Drucker. This will have an adverse implication for unemployment problem in India in the long run. computer-aided teaching. Conclusion As forecasted by the management guru. it can produce job-creators also through development of entrepreneurship.projectfinancing. the demand for such commerce students will grow up who can speak different languages.etc. project planning. With the increase of the FDI in the country and also with more internationalization of Indian economy. case study. commerce and service sectors also. above all. This will call for improvement in the quality and quantity of commerce graduates streaming out of the colleges and universities. etc. industrial and business enterprises are becoming increasingly anxious about the ensuing crisis of the talented and skilled manpower.creators also Commerce education is not only for the job-seekers. group discussion. The banks may come forward with attractive loan packages to encourage the students in starting new business. project works.
it would be more prudent to anticipate such change well in advance and take appropriate action for adapting to such change.S.. K. March 1998. http://www. Trivedi. sector would loose its importance and service sector would make significant contribution towards national income.. • • • • • • [ 30 ] Vidyasagar University Journal of Commerce . Economics And Commerce Education. (2004). Reddy. No.. So this is the crucial moment not only for the universities and colleges but also for the concerned policy makers and regulators to take all possible actions so that commerce education can proactively and pragmatically respond to the changing scenario of the industrial environment and perform a constructive role in development of trade and industry. Commerce Education in the Global Era. Rbsa Publishers.. References • • Bhalla. Gupta.. (2005). Vol. Obul. “Revitalising Commerce Education”. Environment. Atlanta. Deep & Deep Publications. Importance of Commerce Education. S.51. Gollakota. USA. HR managers would be more concerned with HRD rather than HRM.1. Vol. So the 21st century is going to experience a radical change in the socio-economic system and when such change is inevitable.. D. and Bawa. The Indian Journal of Commerce.. and Sreekumar.. I. G.(2007). A.. V. knowledge and information rather than capital would be main source of economic development.A. Vidyasagar University Journal of Commerce. there would be little distance between producer and consumer. business office would be “paper-less” due to IT revolution. Reddy.... Tiwari. (2002).COMMERCE EDUCATION IN CHANGING BUSINESS SCENARIO IN .com/doc/8232053/commerceEducation (accessed on 24-05-2009). (2003).. Obul. Then only one can exploit the best opportunity of the change and deserve a prospective future. March 2007. D.(1998). S.12. Quality in Business Education: A Study of the Indian Context. and because of information boom and communication revolution.. “Redesigning of Commerce Education in India in the Context of Changing Business Environment”.itacumens.php?topic=48715..V. Paper presented in the Conference on Business Education and Emerging Market Economies: Trends and Prospects. Impact of Globalisation on Business and Management Education.. Georgia.scribd.0 (accessed on 24-05-2009). This is more true for commerce education particularly because it is closely associated with the industrial and business environment which is ever dynamic in nature. Adhyayan Publishers..com/index. Commerce Education in the New Millennium. http:// discuss.
However. Department of Management. organizations are putting too much pressure on employees for better performance. A study has been done on the staff nurses working in the North Bengal Medical College and Hospital in the Darjeeling District of West Bengal with a view to assessing the job stress on them and different consequences they are facing. This study has tried to respond to the issues like influence of role stress variables on job stress and the impact of role stress variables on physiological. lack of training. 15. And. threat or challenge when the outcome of the event is important and uncertain (Robbins. lead to some serious consequences. lack of support from top management. DARJEELING Debabrata Mitra* Durlav Sarkar** ABSTRACT Job stress is an important phenomenon in an employee’s working life. people are running for success.577).co. 10 role stress variables have been used to find out the causes of job stress and the dependency of these variables on the consequences of job stress.com . psychological and behavioral consequences may generate high blood pressure. Darjeeling. 2010 JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES-A STUDY AT NORTH BENGAL MEDICAL COLLEGE. E-mail: durlavsarkar1@rediffmail. University of North Bengal. Stress is caused by internal or external demands that upset the balance of an individual and affect his/her physical and psychological well being (Lazarus and Cohen 1977). Due to a high degree of competition. March. this mismatch leads to high frustration and stress. In today’s fast world. among 68 nurses. constraint. West Bengal. p. A questionnaire was developed by using the ORS Scale suggested by Pareek and was distributed. heart diseases. hypertension. 1976). etc. alcoholism and may even lead to death. Introduction Stress is the result of a mismatch between a person and his/her environment and the perceived inability to cope with the constraints or demands encountered (Harrison. Department of Management. in a random manner. employees are not always in a position to respond to the high expectations of them. Stress arises from an opportunity.The questionnaire comprises 50 questions. Multiple Regression Analysis was done to find out these causes of job stress and the consequences that follow.. Darjeeling. West Bengal. role conflict. University of North Bengal. due to some causes like lack of infrastructure. in turn. Uncertainties and unexpected changes are common in * Head. Physiological. demand. The tremendous work pressure in an organization may lead to job stress which may. psychological and behavioral consequences. E-mail: debabrata_nbu@yahoo.Vidyasagar University Journal of Commerce Vol.in ** Lecturer. 2003.
The pattern will be unique for each individual.. loss of appetite. Brown (1977) pointed out that which disease occurs and which internal process is involved.A STUDY . constitutional or genetic and environmental factors. or involved organ.. Major events are often beyond our control and things do not work out as we want. particularly the target.. Emotional stress leads to psychological and this results in an eventual breakdown (disease) of the target organ system. In other words the way that we have been conditioned to react to our environment has resulted in internal physiological changes which either evolve into disease or allow disease states to exist. Organic phase : This phase is marked by the full involvement of a so-called disease state with physiological changes such as ulcerated stomach or chronic hypertension becoming manifest.. For example one person may suppress anger and eventually develop the mental dysfunction of depression. 1999. Stress is therefore unavoidable in human life (Pestonjee.. The concept of stress was first introduced in the life sciences by Hans Selye in 1936. Different people have different views about it as stress can be experienced from a variety of sources.. is the consequence of a very complex interaction of psychological.. disturbed sleep.There is a general agreement that a high percentage of diseases afflicting mankind are psychosomatic and that their primary causes are our thoughts attitudes and beliefs. along with the beginnings of generalized physiological symptoms such as occasional hypertension and tremors. However even though the development of the specific psychosomatic disease is unique to each individual the underlying principles are the same... another may suppress anger and eventually develop the migraine headaches. Udupa (1977) reported that psychosomatic diseases appear to progress through four distinct phases: q Psychic phase : This phase is marked by mild but persistent psychological and behavioral symptoms of stress such as irritability. Somatic phase : This phase is marked by increased function of the organs.. People often do not behave as we expect. our lives.. q q q [ 32 ] Vidyasagar University Journal of Commerce .JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES . Stress is a subject which is hard to avoid. When we speak of psychosomatic nature of disease we basically mean that the major source of the disease lies in one’s emotional. mental or perceptual and behavioral habits. Psychosomatic phase : If the stress condition continues these symptoms become more pronounced.. pp. etc...15-34). At this stage one begins to identify the beginnings of a disease state.
demotion.Debabrata Mitra & Durlav Sarkar Sources of Job Stress Though occupational stress initially arises from constituent factors of job and its psychophysical environment. ORS construct developed by Pareek (1983) is relevant for the study of role stress in organizations. etc. personal characteristics of the employee and his cognitive appraisal of the job factors in the framework of his capacity and resources determine the extent of stress he would experience from a job factor or situation. [ 33 ] m m m m m m Vidyasagar University Journal of Commerce . The pressures caused from the job factors. Role Stress Stress resulting from occupation of an organizational role is known as Organizational Role Stress (ORS). are likely to cause stress to majority of the workers. However some job factors or work conditions such as extreme heat or cold.e. in fact. Thus we can broadly classify all the sources of occupational stress in two categories i. Personal Inadequacy (PI) is the result of lack of knowledge. This is the reason that we can only hypothetically predict the potency of the job factors or situations for causing stress. He/she does not accept the new role and keeps on stagnating in the old role which is more familiar and comfortable. Infact. Role Erosion (RE) arises when some of the important functions of the role are performed by others or when the credit for achievements is given to others. It comprises the following ten types of role stress. Role Isolation (RI) is experienced when the role occupant feels cut off from the channels of communication. individual characteristics and work setting variables. skills or expertise experienced by the role occupant. m Inter-Role Distance (IRD) is the result of conflict experienced between different roles played by the role occupant. But stress resulted from these factors also vary from one worker to another. these factors are not inherently stressors. Role Stagnation (RS) is experienced when the role occupant is given a new role without adequate preparation. but we cannot categorize or generalize any work-setting variable as a universal stressor. losses of job. chronic dangers. are mediated by the personal characteristics of the focal worker. Role Overload (RO) is the result of too many or too high expectations. Moreover certain psychological and behavioral specialties of the employee also become consistent sources of stress to him. Role Expectation Conflict (REC) is the result of conflicting expectations from different role senders.
and many other have identified role variables to affect various Psychological states of the role occupants.. The role elements of a job. when his/her special knowledge and skills are not utilized or when there is a conflict between the images/needs/values of the role and the role occupant.. Srivastav and Jagdish (1983) identified role conflict as a major factor negatively correlated with psychological well being of the supervisory personnel.. Role Ambiguity (RA) arises from the lack of clarity about role expectations.. an employee associated with is the main source of his/her mental state. It was believed that a person’s mental state and physical activities were parts of the individual as a whole”. tools. Resource Inadequacy (RIn) is the result of lack of external resources (human resources. increased heart and breathing rates.... books..A STUDY . m m Consequences of Stress Physiological/Physical Consequences According to Srivastav (1999) “The relationship of mind and body has fascinated philosophers and scientists throughout the history... Bannerjee (1996) in his work with employees of service department has established relationship between role stress and mental [ 34 ] Vidyasagar University Journal of Commerce .. Researchers like French and Caplan et al. increased blood pressure. machines.. equipments. and induce heart attacks. Researchers in health and medical sciences have concluded that stress could create changes in metabolism. documents and information) required for performing the role. Christopher (1982). and bring on headaches... materials. m Self-Role Distance (SRD) arises when a role occupant has to do what he/she does not like. In the following section each of the reported symptoms of the respondents on seven different Physiological problems are analyzed.JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES . Srivastav (1985) has established the relationship between role stress and mental ill health in his extensive study on different group of working people. These are: l l l l l l l Tension and Headache Weakness High Blood Pressure Heart Pounding Indigestion Constipation Muscle Aches Psychological Consequences On the basis of self-report the identified Psychological problems of the respondents have been analyzed in this section. (1975).. infrastructure. buildings.
SRD. absence and turnover as well as changes in eating habits. RA. RE. and sleep disorder. PI. RO. EC. RI. SRD.Debabrata Mitra & Durlav Sarkar health of the concerned job occupants. RS. RI. SRD. l Is there any physical consequence of the staff nurses due to IRD. PI. l l l l l l l l Feel like doing strikes Feel like early retirement Feel Burnout Smoking Alcohol Consumption Remain absent Less adjustment with colleagues Frequency of Accidents or Errors from Nurses side Objectives of the Study l To study the organizational Role Stress levels amongst the working nurses of the Medical College and Hospital. RE. RIn variables of role stress? Vidyasagar University Journal of Commerce [ 35 ] . RO. increased smoking or consumption of alcohol. RE. REC. RI. RA. Some symptoms of psychological consequence are Not satisfied with the job l Bored with job l Anxiety l Depression l Irritation Feeling l Feel Sense of Low Self Respect l Feel Sense of no attachment l Feel Fatigue l Feel Low Satisfaction l Feel of Sexual Frustration Behavioral Consequences l Robins (1998) describes behavioral consequences as follows: “Behavioral related stress symptoms include changes in productivity. REC. RS. RA. RIn variables of role stress? l Is there any psychology consequence of the staff nurses due to IRD. RO. PI. RIn variables of role stress? l Is there any behavioral consequence of the staff nurses due to IRD. rapid speech.RS.
'1' to a statement if she occasionally feels this way and '4' if she very frequently feels this way. RO. An Organizational Role Stress (ORS) Questionnaire consisting of 50 questions was prepared on the lines suggested by Pareek (1993) and the same was translated in Bengali. Hypotheses H01 : Psychological problem is not correlated with the combination of the variables (IRD. RO. RI. SRD. RI. groups and organizations. RS... PI.. H02 : Physical problem is not correlated with the combination of the variables (IRD. [ 36 ] Vidyasagar University Journal of Commerce . Justification of this Hypothesis is that to check out the impact of ten role stress variables on Psychological consequences combinedly. RA. RE. RIn) of role stress. RS.. the ORS scale can be used for several purposes. Data Collection and Questionnaire An attempt was made to collect information from the nurses working in North Bengal Medical College and Hospital in Darjeeling District of West Bengal. REC.. RIn) of role stress. RS. RO. According to Pareek an ORS scale is used. ORS scale is a 5-point scale indicating how true a particular statement is for the role. For example it can be used to investigate the nature and dynamics of role stress in various organizations and to develop interventions for the use of individuals. Hence the score of each role stress may range between 0 to 20 and the total ORS score may vary between 0 to 200. Justification of this Hypothesis is that to check out the impact of ten role stress variables on Behavioral consequences combinedly. PI.. H03 : Behavioral problem is not correlated with the combination of the variables (IRD. SRD. RE... The ORS is certainly one of the best instruments available today for measuring a wide variety of role stresses. RA.The ratings of the respondents may be added row wise to give the scores on the 10 role stress dimensions. RI..JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES . PI. During the period of survey 68 staff nurses out of 264 who are working in that Hospital chosen randomly and a questionnaire is given to them... RA. RIn) of role stress. The respondent is asked to assign'0' to a statement if she never or scarcely feels this way.. REC.. SRD. RE. REC.A STUDY . Justification of this Hypothesis is that to check out the impact of ten role stress variables on Physical consequences combinedly.. According to Pareek (1983a and 1983c). Methodology Sample size.
09 & 2. [ 37 ] Vidyasagar University Journal of Commerce . 1. However the standard deviations of Role Erosion (RE) factor and Personal Inadequacy (PI) factor are very low which tells that the deviation of the individual scores from the mean score is minimum (3. Standard Deviation and Coefficient of Variation for ten different variables and their implications are discussed in these tables given below: TABLE-1 Rank of ORS Variables From this table we get the Role Overload (RO) factor which is the most important factor having the highest percentage of maximum score from the maximum ORS possible score. Respondents scoring less than 50% of the total score (4×50=200) i. Measures of ORS In this section the overall score of ORS will be discussed to measure the stressfulness of the nurses of North Bengal Medical College. 99 or below are assumed to have low stress or below are assumed to have low stress or no stress.49) which signifies that the scores are consistent and it tells that the two factors are also very important factors which cause stress on the nurses. Thus it gets rank 1 which impacts most on stress level of the staff nurses. For this purpose the following scales have been followed as suggested by Srivastav (1999).Debabrata Mitra & Durlav Sarkar Findings and Analysis Causes of Job Stress After sample survey the responses got from the nurses the Mean.e.
.47 NIL 27.24 11.e.76 NIL 100. From this table we get that 11.. 3. 7500 (%) & More 12 2 NIL 14 17. psychological problems etc.47 Total 60 8 NIL 68 (%) 88. The ORS measurements of all these staff are found out with various variables attached to the same ..JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES . In addition to that there are other questions in relation to respondents profile.00 [ 38 ] Vidyasagar University Journal of Commerce . 99 or below are assumed to have low stress or no stress.35 NIL 51.. TABLE-3 Basic Pay-wise distribution of ORS Score of Nurses ORS Score 0-99 100-139 140 & Above Total Rs. e..65 2. 140 (70%) and above are considered to be highly stressful.94 NIL 20.59 Rs. age etc.76 percentages of the nurses are lying in a moderately stressful zone.. 6500 & More 18 1 NIL 19 (%) Rs.76 NIL 100 Respondents scoring less than 50% of the total score (4C50=200) I. qualification. their physical problems. 2. Respondents scoring 70% or more of the total Score (4×50=200) i...12 7. 68 Staff Nurses respond to the questionnaire ..A STUDY . TABLE-2 Distribution of ORS score of the total sample population ORS Score 0-99 100-139 140 & Above Total No of nurses 60 08 NIL 68 Percentage (%) 88..47 1. Other factors here considered are pay scale.The numbers of ORS questions are 50 in total.A general picture can be drawn from these measures that how extensively the nurses are stressful and what other factors are responsible for such stressfulness.. Respondents scoring more than 50% of the total score (4×50=200) i. 100 or more but below 140 (70%) are assumed to be moderately stressful....e.94 30 5 NIL 35 44. 4000 (%) & More 26.24 11.
Table shows that 19 nurses belonging to the Basic pay range of Rs.47 Table 4 depicts that the nurses working for 15-19 yrs and 20-24 yrs seem to be low stress full than the other groups.24 08 11. Vidyasagar University Journal of Commerce [ 39 ] .76 1. Table shows that the 35 nurses lie in the Basic pay range of Rs 4000 & more out of which 5 nurses are in the moderate or high stress zone.82 11.76 1.94 5. 7500 and 2 nurses are in the moderate or high stressful area.10-14 yrs experience are more stress full than the other groups. TABLE-4 Experience –wise distribution of ORS Score of Nurses Yrs of Experience 0-99 0-4 5-9 10-14 15-19 20-24 24-29 30-34 35 and above Total 60 88. It depicts that increasing of experiences helps to cope up with the stress in a better way.47 ORS 100-139 02 04 02 % 2. 5-9.35 30.88 11. 6500 and 1 employee of them is in the high stressful area.Debabrata Mitra & Durlav Sarkar Table 3 shows that out of 68 nurses 14 belonging to the basic pay of Rs. From the figures in the table it seems that the nurses falling in the medium and lowest category of Basic pay are more stressful than the employees falling in highest category.88 2.70 38.94 Total No 10 26 23 08 01 ORS % 14. Nurses of 0-4.23 33.76 68 100 08 22 21 08 01 ORS % 11.76 32.
A STUDY ...... TABLE-5 Educational Qualification-wise distribution of ORS score Table 5 depicts that out of 68 nurses 35 having the qualification of 12th standard pass and 33 of them having the qualification of Graduation. Out of 68 respondents all of them demanded for more training. More than 50 percent of the nurses are not happy with their salary and [ 40 ] Vidyasagar University Journal of Commerce .. They demanded for reward system for good performance. 4 of them are in the high stress zone.JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES ...... Out of 35 nurses of 12th standard 4 of them are in high stress zone and out of 33 nurses having graduation. TABLE-6 OTHER CAUSES OF JOB STRESS Table 6 depicts that there are some other causes of job stress of the working nurses....
That is there is a correlation between psychological problem and the role stress variables. Impact of Job Stress on Physiological. After data analysis by SPSS-12 through multiple regression method we have got these tables given below… Model Summary 1 Table-7 From this table the calculated multiple correlation for H01 (which is the main Hypothesis) is R=0.475 Here R is significant at 5% as well as 1% level of significance. Psychological and Behavioral Consequences H01 Hypotheses Testing The scores of ten role stress variables are taken as independent variables and the scores of psychological consequence are taken as dependent variables. So these are the other causes for the occupational stress among nurses. Model Summary 2 Table-8 Vidyasagar University Journal of Commerce [ 41 ] . H02 Hypotheses Testing The scores of ten role stress variables are taken as independent variables and the scores of physical consequence are taken as dependent variables. A multiple regression analysis is done to find out the multiple correlation coefficient R and the co-efficient of determination R2. Most of them are not happy with their superior. A multiple regression analysis is done to find out the multiple correlation coefficient R and the co-efficient of determination R2. which states that the Hypothesis -H01 is rejected. They are not happy at all regarding their infrastructural facility.Debabrata Mitra & Durlav Sarkar promotion structure.689 and the Co-efficient of determination (the proportion of total variation explained by the multiple regression equation) R2 =0.
strong training system. Model Summary 3 Table-9 From this table the calculated multiple correlation for H01 (which is the main Hypothesis) is R=0. That is there is a correlation between physical problem and the role stress variables. Now the question arises how to reduce the level of stress of the nurses..JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES . Today private nursing homes are doing a great deal of business in health sector. The [ 42 ] Vidyasagar University Journal of Commerce . lack of infrastructure. present pay structure etc are creating stress among the nurses...626 Here R is significant at 5% as well as 1% level of significance.A STUDY . From this table the calculated multiple correlation for H01 (which is the main Hypothesis) is R=0.. lack of training. Issues like excessive work pressure.786 and the Co-efficient of determination (the proportion of total variation explained by the multiple regression equation) R2 =0.792 and the Co-efficient of determination (the proportion of total variation explained by the multiple regression equation) R2 =0.551 Here R is significant at 5% as well as 1% level of significance. which states that the Hypothesis -H03 is rejected.. So work redesign. The findings suggest that a good number of ORS stress variable is causing Physical. establishing social recognition of the nursing staff. lack of communication... H03 Hypotheses Testing The scores of ten role stress variables are taken as independent variables and the scores of behavioral consequence are taken as dependent variables. That is there is a correlation between behavioral problem and the role stress variables.. regular counseling. Psychological and Behavioral consequences to the staff nurses of North Bengal Medical College and Hospital. which states that the Hypothesis -H02 is rejected..... computerization. harsh behavior from authority. clear expectation from job etc can minimize stress of the nurses. supportive infrastructure.. A multiple regression analysis is done to find out the multiple correlation coefficient R and the co-efficient of determination R2..
al. Mandira et. ICFAI Journal of Organizational Behavior. (2004). fire and ambulance officers”.No.4 Kang. L. S. Most of them need counseling by the experts.“Stress and Coping Mechanisms of Female Cashew Workers: A Study”. should exercise regularly. Vol.“Stress in the Organizational context”.32-40 Brough. R.Debabrata Mitra & Durlav Sarkar infrastructures are good in private nursing homes. should spend as much time as possible with their family members. No.No.V.V.“Comparing the influence of traumatic and organizational stressors on the psychological health of police. pp. International Journal of Stress Management.. M. They are conducting assessment centers for the psychological treatment of their employees.4.S and Singh. Today the number of patients who have been affected by stress are many.pp.1. Govt hospitals should be equipped with the good infrastructure as available in private nursing homes. and Kothari. employees should listen music regularly. Role performance as such could be measured by the disposition of an employee made while he/she is at work. Misra P. The imbalances between those two role factors in many cases are inevitable and thus produce stress for the individuals in many occasions. Susan (2006). The ICFAI Journal of Organizational Behavior..3. The ICFAI Journal of Organizational Behavior. Workers in a system are defined with the role demand assigned to them. M.11. Paula (2004).Vol. (2006). and communicate to their superiors regarding any problem.1.“Type A/B behavior pattern and occupation as predictors of occupational stress” Indian Journal Of Industrial Relations.P.No. (2002). Conclusion The role of an individual worker in an organization has two-fold aspects: Role Demand and Role Performance. Vol. [ 43 ] • • • • Vidyasagar University Journal of Commerce .4. References • • Bhatta(Sen).Vol.50-64 Ganesh.pp.227-244 Chirayath. Indian Journal of Industrial Relations.49-61 Jain. Good organizations understand the need for counseling today to get the motivated workforce.39. Role Demand is the state of condition that constantly determines the exact role of the workers in a system. Vol V. No. Vol 37.“Managing Organizational Stress: A study in electronic industry”.pp.No. Role Performance on the other hand is the portion of role demand actually met by a worker. “Work Motivation and Occupational Stress among Executives from Software and Manufacturing Industries: An Empirical Study”.(2006). To cope up with the occupational stress.
“Effects of Stressful job demands and control on Physiological and attitudinal outcomes in a hospital setting”.. Manning (1986).. The ICFAI Journal of Organizational Behavior. Academy of Management Journal.No.Vol. • Marilyn L.(1990). Journal of Applied Psychology.“Occupational Stress: Its Causes and Consequences for Job Performance”.al(2006)...27.K. (2006).K.. ICFAI Journal of Organizational Behavior.JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES . Indian Journal of Applied Psychology... et. and Michael R.Vol..3. Vol.65-73 Stephan J.pp. Dwyer.No.No..“A Study on Organizational commitment and Stress among Information Technology Professionals”. John S.V.A STUDY .pp..“Moderating Effort of Job attitudes on occupational stress-mental health relationship”.pp.98-102 Srivastava A.4. Vol 71.Vol. Ganster (1993). Fox.618-629 Vanitha..289-318 Srivastava A.Packard.No.“Coping Strategy for Role Stress Across Management Levels”. V.73-79 • • • • [ 44 ] Vidyasagar University Journal of Commerce .2.1. Deborah J..36... and Daniel C.V. Motowidlo.
W.com . Credit plays a crucial role in the modernization of agriculture but its role in the fight against rural poverty has seldom been recognized.Vidyasagar University Journal of Commerce Vol. The rural poor. 2010 RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN JALPAIGURI DISTRICT Bhaskar Bagchi* Jaydeb Bera** ABSTRACT For most of the Indian rural poor households. landless.B.: Jalpaiguri. In the fierce competition for a minute quantum of financial resources. Pin 736122. The erroneous view is that the poor do not have any resources. makes availability of timely credit at affordable rates of interest an essential pre-requisite for improving rural livelihoods and accelerating rural development. Maligram. savings are inadequate to finance farming and other economic activities. do not save.: Paschim Medinipur. This. with a purpose to review the existing status of rural credit system in a village in West Bengal and identify the areas of policy reforms for strengthening rural credit delivery mechanisms. who are able to use their large endowment base and influence within the local power structure to secure loans at very advantageous terms. E-mail: jaydebbera_2007@rediffmail. the rural poor naturally *Senior Lecturer in Commerce. Dist. neglecting off-farm activities in which the poor are mainly engaged. March. 2001). W. 15. artisans. In India rural financial services have mostly been controlled by rich farmers.men and women.. a village located in the remote area of Alipurduar sub-division in Northern West Bengal.O.B. together with the differences between income and expenditure and lack of fixed capital investment of the rural poor. E-mail: email@example.com **Senior Lecturer in Commerce. that they cannot invest in view of immediate consumption needs. P.. and that they are ignorant of the basic principles of sound money management (Karmakar. This paper presents a case study of credit transactions in Nurpur. Pingla Thana Mahavidyalaya. Alipurduar College. agricultural labourers and others-have almost been excluded from these financial services either because they were not available (collateral and procedural requirements rendered them inaccessible) or simply because they were not considered creditworthy. Alipurduar Court. Credit policies are also generally concentrated on land based agricultural production programmes. P. Dist. Introduction The provision of credit and generation of savings have long been recognized as an essential element in any rural development strategy.O.
. Though RFIs comprising of Commercial Banks. marginal farmers and women continue to remain inaccessible (Dubhashi. This is an issue of high concern and distress which is also reflected in the report produced by an Expert Committee on Rural Credit (ECRC) instituted by the National Bank for Agriculture and Rural Development (NABARD). who are able to respond quickly thus exploit the poor and further compound their poverty. 2009. we met a man named Surendra Oraon who used to weave beautiful wall hangings and other decorative bits and pieces made of cane. sources of credit and purposes of credit.00 from one of the wholesalers of cane handicrafts for purchasing raw materials i.. with an agreement that he had to sell all his finished goods to that wholesaler only to pay off his debt. a large number of the rural poor. Section 3 analyses the findings of the case study and concluding observations and suggestions are presented in section 4.e. cane. 2004).00 per piece and usually it took 3 days to complete the assignment. he told us [ 46 ] Vidyasagar University Journal of Commerce . Thus his total earnings for 3 days stood up at Rupees 80. in the month of May.. Credit Transactions in Nurpur : A Case Study One day during our visit to the village Nurpur. The Expert Committee observed that the poorest of the poor are left out of the formal credit system and the Rural Financial Institutions (RFIs) are not accessible to them. With this raw material he can weave 15 pieces which he sold at the rate of Rupees 22.RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN . The present study specifically aims at: o evaluation and analysis of rural credit delivery system in Nurpur. When we asked him that why he did not have a loan of from somebody else. He is a landless labourer who only earns his bread by his expertise in weaving cane handicrafts.. He borrowed Rupees 250. landlords and traders (henceforth termed as professional moneylenders in our study).. Regional Rural Banks (RRBs) and the co-operatives have a large network with an outlet for a population of under 5000 on an average. and o offer some remedial measures to overcome the problems of rural indebtedness. With this backdrop an in-depth field study of credit market was undertaken in village Nurpur in Northern West Bengal in order to understand the prevailing rural credit transactions scenario in the State. o identify the prevailing sources of rural credit in Nurpur.. To achieve the above stated objectives this paper is organized as follows: the next section discusses features of credit transactions in village Nurpur including demographic and economic profile of the village.00 only. particularly weaker sections of the society. The private moneylenders. lost out in the institutional markets and were forced to resort to exploitative informal sources of credit such as moneylenders and traders. interest structure of village debt. o categorize the problems of rural indebtedness.
Kshatriya. Field study was conducted during April. difficulties of the assetless labourer like Surendra in obtaining loans at reasonable rate of interest. Demographic and Economic Profile It is customary to present demographic and social background of the village inhabitants as they exert tremendous influence on credit availability.94 % (150 individuals) belong to upper castes like Brahmins. 2009 and all credit-related data were collected during this period covering all 151 households of the village. Vidyasagar University Journal of Commerce [ 47 ] . 23. Some of them earn their livelihoods by weaving cane handicraft items which they sold to their Mahajans at Shamuktala. Village Profile Nurpur. Surendra never approached the bank because of its long cumbersome process and requirement of collateral for credit approval. which operates in the districts of Northern West Bengal. you won’t get it”. Almost 59. Few villagers have been able to find jobs in primary/secondary schools. anganwadis. government offices and other business establishments outside the village. As the information on credit is quite susceptible in character. Discussions were also completed with the existing village moneylenders and officials of public lending institutions to cross-verify the data revealed by the village households. This story exemplifies some interesting aspects of rural credit delivery system that prevails in Nurpur. Uttar Banga Kshetriya Gramin Bank (a state run rural bank). It demonstrates the present status of village credit market. During that time it was 2 % to 11.5% per month.06% (193 individuals) belong to scheduled tribes and 17. we took necessary help from a local primary school teacher to extract the essential data from the village households by setting up a good association with them. which is about 10 kilometers away from Nurpur. a small village with only 151 households and 837 individuals falls under the stretches and boundaries of Alipurduar II block in Alipurduar sub-division in Jalpaiguri district. Interestingly. a locality which is 10 kilometers away from Nurpur. most of the villagers are small and marginal farmers and landless labourers. the continuing structure of exploitation of rural poor by the affluent classes and the failure of the institutional sources in sanctioning credit to the people living below poverty line.00% (494 individuals) of the total villagers belong to scheduled castes.Bhaskar Bagchi & Jaydeb Bera that Mahajans (affluent class of people who used to lend money at high rate of interest) used to charge exorbitant rate of interest which changes from time to time. Situated at a distance of 35 kilometers from the sub-divisional town of Alipurduar. 2009 to September. He is of the opinion that “if you don’t have any influential person to pursue for your loan. runs a local branch at Shamuktala. Kayastha.
30%) possess land of more than 2 bighas.. Surprisingly none of the households amongst these 3 castes have possession of land of more than 1 bigha.. However.. SE=Self employed [ 48 ] Vidyasagar University Journal of Commerce . 4 Oraon households (26. are the most insolvent and impoverished castes of the village along with Ravas and Nageshias.74%) are landless and only 8 households (5. C=Cultivation. etc. J=Jobholders.4 bigha =1 acre.67% out of total Oraon households) and total 18 households (11. Other prominent castes are Rajbanshi. only 8 out of 14 Nageshia households owns small pieces of land and 4 amid 15 Oraon households possess land of less than 1 bigha. 60 households (39.. Nageshia and Oraon. Amongst 8 Rava households 3 have cultivation land of less than 1 bigha. Literacy rate is also very low among the Nageshias followed by Oraons and Ravas. Detail demographic and socio-economic status of the households is classified in Table 1. 1000.. Amongst 151 village households. Note: 6. Table -1 Demographic and Socio-Economic Status of the Villagers Source: Field Survey # Figures in parenthesis indicates number of individuals.. This clearly explains the pitiable condition of these Nurpur households. all the village households belong to Hindu community. Rava.92% out of 151 households) have monthly income of less than Rs.RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN . CL=Casual labour. The Oraons of which Surendra is a member.
655. Rural borrowers are more interested on timely and sufficient loans with low transaction costs. they are forced to approach non-institutional sources (like local village moneylenders. medical needs. meeting expenses on litigation.12%) are involved in credit transactions and 23 households (28. 2009) Source: Field Survey # Figures in parenthesis indicates percentage of households. villagers relied primarily on professional moneylenders. 124 households (82. [ 49 ] Vidyasagar University Journal of Commerce . 8. relatives and friends to meet their social expenditures as well as for their survival. Traditionally. Agricultural Land and Rural Development Bank and Co-operative societies) for production and investment credit requirements but for consumption credit needs like celebrating social functions. births/deaths cases.00 as on September.Bhaskar Bagchi & Jaydeb Bera Features of Credit Transactions The rural credit markets in Nurpur have presented many fascinating features. 2009. etc. relatives and friends). Though some of the rural borrowers have been depending upon institutional sources (Commercial Banks and other Regional Rural Banks like Uttar Banga Kshetriya Gramin Bank. Credit transactions in Nurpur are quite high and total outstanding debt of all Nurpur households approximately sum up to Rs. This huge debt also includes amount of long term loan borrowed by 9 villagers from different public lending institutions. For the rural poor. 97. Table -2 Debt Profile of Nurpur (as on September. Out of these 23 households 12 of them have outstanding debt either to the public lending institutions or to the private moneylenders. A profile on the structure of village debt is given in Table 2. traders. Interestingly all of these 9 villagers are employed either in primary/secondary schools or in various government departments.48%) are engaged in money lending business to their fellow Nurpur villagers. Thus credit transactions have become one of the major facets of Nurpur’s economy both in terms of total outstanding debt and involvement of the significant number of village households. there is a very thin boundary line between consumption and production credit needs.
5% to 16% per annum. One of the main reasons of charging such a high interest rate by the professional moneylenders is that they disburse quick and easy loans to their fellow villagers without any collateral.00) of the amount has been obtained at an interest rate ranging from 8.3 Total Outstanding Debt of Nurpur Households According to the Rate of Interest Source: Field Survey.6% (Rs. Table . Interest Structure of Village Debt It is interesting to note that about 1. helpful relatives.4% are obtained at concessional rate (i. neighbours.00 (1.5% to 16% which also includes Rs....5% of the amount from public lending institutions. while the interest structure of public lending institutions varied from 8.e. * Rounded off to nearest rupee. 81.8% of total village debts are interest free and 2.. 9873. Professional moneylenders tend to give more credit for consumption and other needs whereas formal lending institutions like banks and co-operatives tend to specialize in areas where farmers have farm land titles and other collateral.. The main sources of interest free and concessional credit are friends. 2001). while Nadia district in the same state is less prosperous and the interest rates range from 72% to 120% per annum) (Karmakar. [ 50 ] Vidyasagar University Journal of Commerce . and the rest 80.. Out of total credit obtained in Nurpur. It has been already stated earlier that professional moneylenders offer loans at the interest rate ranging from 24% to 138% per annum depending upon the period of loan and the risks involved. at the rate of 4% to 14% per annum). It has been observed that rural areas with higher average incomes have lower interest rates (Burdwan district in West Bengal is more prosperous and the interest rates range from 36% to 84% per annum.1% of total debt) borrowed by Nurpur households from private money lenders at concessional rate. Total outstanding debt owed by the villagers to different lending institutions according to the rate of interest is given in Table 3. 732405.RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN . and other allies and patrons.
4 Total Outstanding Debt: Share of Different Credit Agencies (as on September. they have no other alternatives than borrowing from professional moneylenders at very expensive rate of interest. Regional Rural Banks (Uttar Banga Kshetriya Gramin Bank and Agricultural Land and Rural Development Bank) and Co-operative societies while non-institutional sources comprise of. neighbours. Vidyasagar University Journal of Commerce [ 51 ] . agricultural moneylenders and traders). relatives and friends etc. Though the amount of private credit is very undersized in comparison to institutional credit. Table . United Bank of India. Central Bank and UCO Bank).Bhaskar Bagchi & Jaydeb Bera Sources of Credit In our study it is revealed that though public lending institutions sanctioned 80. 2500 per household was able to obtain even a slightest amount from these formal institutions. The distribution of total debt according to credit sources and monthly income are given in Table 4 and Table 5. 2009) Source: Field Survey. yet these private credits do matter a lot to many Nurpur households. neighbours. Public lending institutions in Nurpur include Commercial Banks (State Bank of India. friends. All these 68 households do have some debt to professional moneylenders. allies etc. none of the single household with average monthly income of up to Rs. The public institutions being inaccessible to the poor households of Nurpur.5% of the total village credit. relatives. professional moneylenders (including landlords.
.. Table . 2009) Source: Field Survey.4% was sanctioned for meeting household expenses... Credit According to Purposes Our survey of village debt also provides information regarding the distribution of credit by means of purposes. [ 52 ] Vidyasagar University Journal of Commerce . * Rounded off to nearest rupee.6% of total debt was sanctioned for farm and non-farm expenses including capital expenditure whereas 27. # Figures in parenthesis indicates percentage of Debt. # Figures in parenthesis indicates percentage of Debt. social expenses and other personal needs details of which is given in Table 6. 72.6 Purpose-wise Distribution of Village Debt (as on September. 2009) Source: Field Survey..RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN . Table-5 Total Credit Sanctioned to Different Income Groups by Different Credit Agencies (as on September..
Vidyasagar University Journal of Commerce [ 53 ] . (d) Rural Financial Institutions (includes Commercial Banks and Regional Rural Banks) operating in Alipurduar town and in Alipurduar II block are more bureaucratic and are rarely guided by business considerations. a large section. Although Uttar Banga Kshetriya Gramin Bank and Agricultural Land and Rural Development Bank operating in the region have some subsidized credit schemes for the rural poor. (e) In Nurpur the cost of informal sector credit (with interest rate ranging from 24% to 138% per annum) is higher than that of formal sector credit even when the informal lender is not making monopoly profits. inability to interact with bank/government officials. They are also termed as ‘marginal farmers’ or ‘agricultural labourers’ who have no land and depend only upon their skill and physical labour. Thus the poorest of the poor are left out of the formal credit system. a great transformation in their economic base and mobility is possible if they had access to financial resources to support their physical and skilled labour resource. whose urgent credit needs tend to be neglected by the public lending institutions due to high risk factors. This is one of the major causes for the continuance of the professional moneylenders in spite of their high interest rates. Also informal credit is more readily available to borrowers. lack of collateral and high cost of administering small loans.Bhaskar Bagchi & Jaydeb Bera Findings of the Case Study The significant issues of concern are: (a) There are various shades of rural poverty but among the poorest of the poor like Surendra Oraon are termed as ‘landless’. particularly assetless poor and marginal farmers continue to remain inaccessible. labour potential and expertise in cane handicrafts they can be considered as one of the most productive segments of the population. but by virtue of their sheer numbers. lack of sufficient knowledge about these schemes. we have found that the poor villagers are not unproductive. As these landless poor operate from a very slim economic base. (b) Within the existing system. etc. (c) In Nurpur. So a credit programme should be designed for the poor that can fulfill their genuine credit needs. Unfortunately their labour does not yield adequate returns. as because control over financial resources is in the hands of better-off segments. They prefer to follow government ‘norms and instructions’ rather than meeting borrowers’ requirements. availability of credit resources is restricted to the few who are able to have recourse to credit under various government sponsored programmes. The majority of the rural poor in Nurpur are unable to avail the benefit of these credit programmes due to past indebtedness.
(g) The market orientation of the professional moneylenders of Nurpur is unique.RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN .5% to 16% per annum) but due to collateral requirements and long cumbersome procedures poor villagers have to fall back upon professional moneylenders at high rates of interest. In most of the cases the primary objective of the professional moneylender is to set up an economic relationship with such terms and conditions that the poor borrower is squeezed for [ 54 ] Vidyasagar University Journal of Commerce . leading to the persistence of a wide range of interest rates (ranging from 0% to 138% per annum) within the village... Their ability of repaying loans at such high rates of interest only exemplifies their tremendous risk bearing capacity.. The transaction costs of these institutions are also very high due to low staff productivity and lack of motivation among urban oriented staff to work in rural branches. indebtedness and sometimes even bondedness – an indication of their struggle to survive against all odds. Conclusion Based on our study of credit transactions in Nurpur.. we can conclude that the rural credit market in this village is intensely segmented. some moneylenders also provide credit for capital assets acquisition and bridge loans to those rural borrowers who have been sanctioned loans from formal credit institutions but are yet to receive the funds.. exceptional ability to optimize on their frugal resources. high documentation/procedural costs for borrowers and lack of market-orientation and improper targeting. high default rate due to political intervention. Though professional moneylenders concentrate on lending for consumption needs and other social and medical contingencies. Institutional credit is comparatively cheaper (interest rate ranging from 8.. with different rationing instruments regulating the allocation of credit from different sources. This is notwithstanding the threat of losing their means of production. (f) The distinguishing feature of professional moneylenders of Nurpur is their informality and flexibility of lending operations that help make their transaction costs lower than in the formal sector. Interest-free and concessional credits are governed by relatively strict societal norms and are also quite limited in scope. On the other hand. Rural Financial Institutions have high transaction costs due to: l l l l poor monitoring due to absence of marketing information. the ‘real’ potential of their scanty income generation and the possibility of mobilizing ‘tiny’ savings. Their loans are ‘packaged’ for the rural borrowers while the loan schemes of Rural Financial Institutions are not targeted properly.
collateral should not be insisted upon for loans below Rs. q production credit – given by public lending institutions. low interest costs. If this system continues for another 20 years or so. relatives. effective monitoring of service area plans for rural credit agencies without opening new branches and enhancing manpower costs. professional moneylenders and others. Moreover. landless labourers and artisans. single window credit facilities for all types of rural credit. If the previous history of repayment is good then the loan amount could be further raised depending upon borrowers needs. loans sanctioned in time and without long-drawn procedures. friends. with some gestation period. and q term credit – given by public lending institutions and professional moneylenders only Thus a rural credit delivery mechanism needs to be implemented that ensures: q q q q q q q q q q q q adequacy of loan amounts even for consumption purposes to the marginal farmers. the supply of cash is tightened and interest rates (representing higher risk cost) are raised. In order to reduce dependence of the poor rural people on these greedy professional moneylenders. the terms of further loans are set in such a manner that the borrower is never able to repay the principal. neighbours and other allies. savings and thrift opportunities. As Rural Financial Institutions of Nurpur do not cater consumption loans to the poor. this market is controlled by professional moneylenders. landless labourers and artisans who has been approved loan for the first time. a time has come to revamp the ‘unhealthy’ rural credit delivery system which does not serves the purposes of rural poor who live at the margins of the society. Vidyasagar University Journal of Commerce [ 55 ] .Bhaskar Bagchi & Jaydeb Bera repayment and if the income situation of the borrower worsens. proper and courteous services without additional ‘rent’ costs. 1000 for the marginal farmers. A viable rural credit delivery system should be designed to cater all types of rural credit such as: consumption credit – currently given only by professional moneylenders. the rural poor will be sucked dry of whatever assets they may have and become bonded to the professional moneylenders. and better recovery of outstanding debts based on Bangladesh Grameen Bank model. low transaction costs for borrowers and loan transaction costs for banks. adequate repayment period.
K. Rural Money Markets in India. Macmillan. Rural Credit and Self-Help Groups. Yojana. and Sundharam. Kurukshetra. “Credit Needs of Farmers”.. M. References • • • • • • • • • • • • • • • Anand. (2001). Dhaka. Dubhashi. “Poverty in India and the IRDP Delusion”. and Sen. M.. New Delhi. A. (2008). (1976). A. R. Kurukshetra. Yojana. Banker to the Poor: The Autobiography of Muhammad Yunus. December. “Microinsurance in India”. and Srinivasan. Indian Development: Selected Regional Perspectives..RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN .V. (1998). Mishra.M. Yunus. J. New Delhi. and Thanvi. “Regional Rural Banks and Agricultural Credit”. Karmakar. V. A. Ananda Publishers. A. (2004). Sage Publications.K. J. Kolkata. April.. S. February. (1996). Sinha. A. (2008). (2001). Ghatak. “Indian Banking System and Microfinance”. Yunus. February. Economic and Political Weekly. M. (1990). Subbiah. “Micro Finance for Women’s Empowerment”.C. A. M. New Delhi. Kurukshetra.P. J. S. Indian Economy. (2004). Dooner. Datt. January. (2008). with Jolis. The University Press Limited. M. R. “Micro-Credit and Role of Banks”. Grameen Bank O Aamar Jiban.G. “For Rural Development”. Kurukshetra. (2004). (2008). Oxford University Press. September. New Delhi.. January. and Selvakumar. Dre‘ze. Founder of the Grameen Bank. February.. K. S. (2004). (2005). “Expert Committee on Rural Credit: Findings and Recommendations”. January. Rajivan. Yojana. Patel. Dre‘ze. [ 56 ] Vidyasagar University Journal of Commerce . Kurukshetra. Chand.
The problem could have been avoided. and large reductions in the market value of equities (stock) and commodities worldwide.S. * Senior Lecturer. The crisis has led to a liquidity problem and the de-leveraging of financial institutions especially in the United States and Europe. while on the other hand. The global financial crisis. This article provides an overview of the Global Financial Crisis and its impact on Indian Textile Industry. a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. India. Faculty of Science and Humanities. Neelamagam* ABSTRACT The Global Financial Crisis of 2008 is a major financial crisis. if ideologues supporting the current economic models weren’t so vocal.603 203.Vidyasagar University Journal of Commerce Vol. which further accelerated the liquidity crisis. and European investment banks. Around the world stock markets have fallen. large financial institutions have collapsed or been bought out. On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out. SRM University. Beginning with failures of large financial institutions in the United States. and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. March. with commentary about the financial stability of leading U. It became prominently visible in September 2008 with the failure. influential and inconsiderate of others’ viewpoints and concerns. which is ongoing as of January 2009. brewing for a while.Tamil Nadu. The underlying causes leading to the crisis had been reported in business journals for many months before September. World political leaders and national ministers of finance and central bank directors have coordinated their efforts to reduce fears but the crisis is ongoing and continues to change. E-mail : vnmegam@rediffmail. evolving at the close of October into a currency crisis with investors transferring vast capital resources into stronger currencies such as the yen. 15. The crisis was triggered by the subprime mortgage crisis and is an acute phase of the financial crisis of 2007–2008. the dollar and the Swiss franc. it rapidly evolved into a global crisis resulting in a number of European bank failures and declines in various stock indexes. leading many emergent economies to seek aid from the International Monetary Fund. insurance firms and mortgage banks consequent to the subprime mortgage crisis. 2010 GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE INDUSTRY : AN ANALYTICAL STUDY V. really started to show its effects in the middle of 2007 and into 2008. merger or conservator ship of several large United States-based financial firms. Kattangulathur.com .
From Economic to Political Problem The problem ceased to be an economic problem months ago. and large reductions in the market value of equities (stock) and commodities worldwide. This article provides an overview of the crisis with links to the impact on Indian textile Industry. so they went to Congress for more power and money. which further accelerated the liquidity crisis. Beginning with failures of large financial institutions in the United States. and European investment banks. insurance firms and mortgage banks consequent to the subprime mortgage crisis. evolving at the close of October into a currency crisis with investors transferring vast capital resources into stronger currencies such as the yen. the dollar and the Swiss franc. They were given instruments ultimately based on mortgages on private homes. the economic problem has transformed into a political problem. The value of homes historically had risen. with commentary about the financial stability of leading U. with its powers increasing as the nature of potential market outcomes became more and more unsettling. They therefore had a very real asset base a house and therefore had collateral. which were bought by conservative investors. which is ongoing as of January 2009. Ever since the collapse of Bear Stearns. merger or conservator ship of several large United States-based financial firms. and therefore the value of the assets appeared secured. As interest rates declined in recent years. At a certain point. In due [ 58 ] Vidyasagar University Journal of Commerce .. They wanted something for nothing.. It is useful to reflect on the nature of the crisis. World political leaders and national ministers of finance and central bank directors have coordinated their efforts to reduce fears but the crisis is ongoing and continues to change.S. leading many emergent economies to seek aid from the International Monetary Fund. the size of the problem outstripped the legislated resources of the Treasury and the Fed. the primary actor in the drama has been the federal government and the Federal Reserve. The underlying causes leading to the crisis had been reported in business journals for many months before September. This time. It is a tale that can be as complicated as you wish to make it. The crisis was triggered by the subprime mortgage crisis and is an acute phase of the financial crisis of 2007–2008. It became prominently visible in September 2008 with the failure. The crisis has led to a liquidity problem and the de-leveraging of financial institutions especially in the United States and Europe. The Global Financial Crisis of 2008 is a major financial crisis. but it is in essence simple and elegant.. investors particularly conservative ones sought to increase their return without giving up safety and liquidity. they were blocked. More precisely. Financial instruments of increasing complexity eventually were devised. and the market obliged.. it rapidly evolved into a global crisis resulting in a number of European bank failures and declines in various stock indexes.GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE.
There iswidespreaddissatisfactionwiththe outcomes of unregulated financial and commodity markets. are contributing to a gloomy outlook for the world economy and could present considerable risks for the developing world. Summarizing a United Nations Conference on Trade and Development report. Unfortunately.… Commodity-dependent economies are exposed to considerable external shocks stemming from price booms and busts in international commodity markets. as well as reluctance to lend based on uncertainty of values. housing prices declined. The Financial Crisis and the Developing World For the developing world. soaring commodity prices together with fears of global recession are worrying many developing country analysts. the Third World Network notes the impacts the crisis could have around the world. High fuel costs. They used this money to buy other instruments in a pyramiding scheme that rested on one premise: the existence of houses whose value remained stable or grew. especially on developing countries that are dependent on commodities for import or export: Uncertainty and instability in international financial currency and commodity markets. these instruments were bought by less conservative investors. In fact. coupled with doubts about the direction of monetary policy in some major developed countries. People claimed to be confused as to what the real value of the paper was. The result was a liquidity crisis. Neelamegam course. A period of uncertainty about the value of the paper based on home mortgages followed. the UN Conference on Trade and Development (UNCTAD) said. they were not so much confused as deceptive. which simply meant that a lot of people had gone broken and that those who still had money weren’t lending it — certainly not to financialinstitutions. which fail to transmit reliable price signals Vidyasagar University Journal of Commerce [ 59 ] . Market liberalization and privatization in the commodity sector have not resulted in greater stabilityofinternationalcommodity prices. the rise in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations are having a compounding effect. At a certain point.V. who used them as collateral for borrowing money. and vast amounts of value evaporated — taking with them not only the vast pyramids of those who first created the instruments and then borrowed heavily against them. the facts could no longer be hidden. They didn’t want to reveal that the value of the paper had declined dramatically. The decline in housing prices triggered massive losses of money in the financial markets. but also the more conservative investors trying to put their money in a secure space while squeezing out a few extra points of interest.
. to coordinate the government’s response on industry’s concerns in the wake of the global financial crisis. Earlier this week.. Earlier.. which might lead to a negative spiral. Poets of the Mughal durbar likened our muslins to baft hawa (woven air). On being severely rebuked. An Introduction to Indian Handlooms Indian hand woven fabrics have been known since time immemorial. International credit has shrunk with adverse effects on our corporate and banks. Prime Minister Manmohan Singh had interacted with the captains of Indian industry on impact of global financial crisis on India.” he had said.. He asked industry to refrain from any “knee-jerk” reaction such as large-scale layoffs. Global uncertainty is also tending to dampen investor sentiment. A tale runs that Emperor Aurangzeb had a fit of rage when he one day saw his daughter princess Zeb-un-Nissa clad in almost nothing. [ 60 ] Vidyasagar University Journal of Commerce .GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE. ”Industry must bear in mind its societal obligations in coping with the effects of this global crisis. a separate committee was set up. headed by the Prime Minister. Such was the fineness of the hand woven fabrics. “A crisis of this magnitude was bound to affect our economy and it has. Trade and industry may send their suggestions to the committee. for commodity producers.” which the Prime Minister felt “is now likely to be more severe and prolonged. In recent years. abe rawan (running water) and shabnam (morning dew). Government panel on Impact of Global Crisis on India The Government has constituted a committee to consider issues raised by India on global financial crisis and its impact on India. the global economic policy environment seems to have become more favorable to fresh thinking about the need for multilateral actions against the negative impacts of large commodity price fluctuations on development and macroeconomic stability in the world economy. the princess explained that she had not one but seven jamahs (dresses) on her body. “Prime Minister has approved constitution of a committee of officers to be chaired and convened by the Finance Secretary to consider issues raised by industry with regard to the current global financial situation and its impact on India.” the Prime Minister had said at the meeting.” an official release said.
The earliest Indian fragment of cloth (before the Christian era) with a hansa (swan) design was excavated from a site near Cairo where the hot dry sand of the desert acted as a preservative. it is explained is due to a hot. Later. This. that Egypt which has an exceptionally dry climate would provide evidence which India lacks. It is not surprising therefore. Here we discuss about the highlights of the Government Schemes and its effectiveness. The evidence shows that of all the arts and crafts of India. 5. Indian floral prints. The Ministry of Textiles announced the following five Schemes in the 11th Five year plan by merging the different Schemes of 10th Five year plan. Government Schemes for the enlistment of the Handlooms Industry To uplift the handloom industry. fragments of finely woven and madder-dyed cotton fabrics and shuttles were found at some of the excavated sites of Mohenjodaro (Indus valley civilization). There is hardly a village where weavers do not exist. (a) Five Schemes of 11th Five Year Plan 1. silk and other natural fibers. traditional handloom textiles are probably the oldest. 3.D were discovered by Sir Aurel Stein in the icy waters of Central Asia. Handloom Weavers Welfare Scheme. each weaving out the traditional beauty of India’s own precious heritage. 2. (b) Diversified Handloom Development Scheme q This scheme provides Technological up-gradation through a variety of programmes [ 61 ] Vidyasagar University Journal of Commerce . Government has introduced many schemes. Diversified Handloom Development Scheme. Integrated Handlooms Development Scheme (IHDS). few actual fabrics of the early dyed or printed cottons have survived. 4. moist climate and the existence of the monsoons in India. Handlooms the largest Cottage Industry Handlooms are an important craft product and comprise the largest cottage industry of the country. Mill Gate price scheme. Millions of looms across the country are engaged in weaving cotton. Marketing and Export Promotion Scheme. dating back to the 18th century A.V. Neelamegam Historical Evidence Though India was famous even in ancient times as an exporter of textiles to most parts of the civilized world.
but in monetary terms it may not be having such importance. fold To upgrade the skills of the Handloom Weavers To provide suitable work place to the weavers To orient Marketing. it has considerable clout over other sectors of the industry because it ranges between Rs. and BuyerSeller Meets. Research and Development Jammu & Kashmir Wool Project and Weavers Service Centre Setting up of New IIHTs Starting Handloom Census and issuing Identify Cards to Handloom Weavers (c) Export Promotion Scheme To identify and assist suitable Apex/Primary Handloom Co-op. (d) Integrated Handlooms Development Scheme (IHDS) q q q q q q q q q q To form Handloom Weavers Groups To assist weavers for becoming self Sustainable To cover weavers within and outside the Co-op. Development of Designs and Product Development... Designing and managing the production To facilitate credit from Banks To encourage Co-operative actions of weavers To intervene each cluster with specific holistic and flexible manner Global Financial Crisis and its Impact on Handloom Textiles in India The handloom Industry is the largest industry in terms of employment. and Promotional Events. When considering the foreign exchange earnings.. 38 lakhs handlooms are giving employment to about 65 lakhs families. (WSC) .. q q q q q which cover skill up-gradation of weavers. International Fairs and Exhibitions. q Export project.GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE. Societies and Corporation in developing the products that are Export . These components are under Export Promotion Scheme. Strengthening of : l Weavers Service Centre. l Indian Institute of Handloom Technology (IIHTs) . it is worth to think [ 62 ] Vidyasagar University Journal of Commerce . Since now the industrial world is worrying over the influence of the so called Global financial crisis. q Market penetration through participation in International Exhibitions. l National Centre for Textile Designs (NCTD). Setting up of Design Studios.3500 crores per annum.3000 crores to Rs.worthy. but contributing only 13% of our Textile production.
and for some years it was decreasing.V. Neelamegam about our handloom industry and how it spares with the present global crisis and what will be its effects in coming days. The volume of Handloom Exports in monetary terms as published by Government of India up to 2007-08 (Tentative) and the eight year record may be quoted as below: Table .1 Fig: 1 These figures show two points into consideration: 1. [ 63 ] Vidyasagar University Journal of Commerce . The average increase per year in exports during the period of quota regime was around 5%.
. we have to analyze the country wise exports of handloom goods from India. After the phase out of quota systems the rate of exports increased per year above 20%.. 2. The Average sales growth rate in retail in previous years is: [ 64 ] Vidyasagar University Journal of Commerce . The sales figures as available with Retail sector : the annual sales in USA through retail is of 3. Ikea etc.GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE.. It is as below in 2002-03 terms. Table:2 Fig:2 That means. the major export target for Handloom goods country wise is USA. 95% of US retailers are the single store type and rest the chains like Wal-Mart. We all know it is for the consumers who buy’s the items mostly from various stores/ through retail chain stores.. Since in the present financial crisis the epicenter is USA.8 trillion dollars with a per capita purchase of 11993 dollars.
2% this November. This Christmas sales are definitely going to decrease because of the change in spending pattern. The sales of consumer goods in USA are mainly based on two seasons: Spring/Summer & Autumn/ Winter. many companies have started declaring discount in prices and this will in turn give pressure on producers for lowering prices. That also is the Handloom product mostly home furnishings which fall under the categories of Christmas sales. In response to this situation. How? 1. 3. the per capita consumption of USA consumers is in the Driver seat or such consumption pattern accounts for the increase in international trade. There are reports in the internet that even for apparels there is a decrease in sales for 2. The matter is now in the forefront. Neelamegam Table-3 Fig:3 These facts show that in the Export front.V. so there may be a chance not to resort to price cut directly. They may intensify [ 65 ] 2. Since the present financial crisis is countering the spending pattern of US consumers it may definitely hit our Exports. Many of the Exporting units in the country has long term contracts or links with buyers abroad. Vidyasagar University Journal of Commerce .
. UNCTAD Third World Network. The New York Times. The New York Times.hepcindia. Understanding Financial Crises. We cannot be paniky. So we have to apprehend that even though the global financial crisis is not directly hitting us. “Structural Cracks: Trouble ahead for global house prices”. Fackler. and Nicholas. Our Human Assets instead of being thrown out has to be geared and rejuvenated for better performance so that we can look forward for sustainable markets including growing domestic market. New Century Publications. Jewel R. it is going to affect us indirectly. Dictionary of Textiles. and Robert E. References • • • • • • • • • • • • • Franklin A. our producers will fall into trouble to cope with new situation.( 2008). Oxford University Press. Martin (2008-10-23).fibre2fashion. L (2005).nic. “Trouble without Borders”. their quantity & quality check. study it.. Brookings Institution Press and World Bank Group. This will change the company profile.. B. Our industry has to be cautious about it and see that bad times have to be seen as an opportunity to tune our performance and quality too strict and healthy in long run. Anmol publication. The Economist. 2008 ) New York Post www.17.The Economist Newspaper Limited (2008-05-22). Landler. (2007). M.in [ 66 ] Vidyasagar University Journal of Commerce . Economic Outlook Gloomy. New Delhi.( 1998).( 2008).. John G. Risks to South. (Ed).GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE.. Retrieved on 24 October 2008. and supply chains. Gerard C. Retrieved on 24 October 2008.com www. 2008 Gray. “Almost Armageddon: Markets Were 500 Trades from a Meltdown (September 21. September. During the financial crisis. the buying companies may be subjected to be taken over by strong players in the field. and counter it. “Money Market Funds Enter a World of Risk” article by Tara Siegel Bernard in The New York Times. Douglas G.com www. New Delhi Kanaga R. Indian Textiles.handlooms. 4. James H. Retrieved on 15 October 2008. or redirect business terms or finding fault with domestic producers in order to delay or decrease the taking up of stocks or replenishments. “Nations”. but conceive it. Preparation for the Future. Due to this.. Financial Crises: Lessons from the Past. product lines. M..
investment and industrial channels. Europe and Asian economies all have experienced a collapse of wealth due to sudden fall of stock prices and bursting of housing bubble. It has affected almost all countries in the world.Vidyasagar University Journal of Commerce Vol. The United States. Industry and employment sector experienced a regressive jolt due to drying up of credit. Kolkata-700056.mail ID: sanjit_msdl@yahoo. Bhairab Ganguly College. a corner of the world’s intelligentsia termed it as “once a * Reader in Commerce.com ** Statistician. Belghoria. The introduction of structural adjustment programmes for stabilizing the economies of these countries and uplifting the growth trajectory has opened up.5% in the first quarter of 2008 comparing 2007. Reckoning the apocalyptic impact of the crisis and sustaining collapse of the world’s richest financial institutions. Started as a ‘subprime’ crisis originated in purely financial sector of the world’s capitalist citadel it affected the real sector. Government of West Bengal. With the introduction of globalization and liberalization encompassing almos every country and industry of the world. trade and technological agreement.com . March. Directorate of Factories. The social cost of the crisis is unemployment. Introduction Since the onset of economic depression caused due to fallout of financial sector in the United States in September 2008 and it’s consequent effect on world economy several questions comes out about the future prospects of the global economy especially for the developing countries who were erstwhile depended on the developed nations to a great extent through export. 2010 GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY AND EMPLOYMENT IN INDIA *Sanjit Kumar Das **Indranil Chakrabarty ABSTRACT The world economy faces the worst crisis since 1930s. which decelerates global growth to 4. squeezing of market and slowdown in demand. The emerging economies like India suffered through spillover effects. This paper argues that in devising a proper policy for combating recession. In order to achieve higher growth trajectory they became more dependent on their developed counterparts in terms of exports. has slowed down economic activity in both the advanced and emerging economies. Slowdowns of economic activities all over the world across the countries were observed. E. not only bailout packages but also a mix of monetary and fiscal policy is required. trade. 15. West Bengal. E. The sudden collapse put a regressive jolt on their growth story. these countries and their industries are now opening up on the world stage from the narrow confines of its national boundaries.mail ID:chakrabarti@in.
. century’ event and more pragmatically ‘ the end of capitalism’. panics created in the financial sectors. Again its impact became broader based due to its contagion effect across the world’s leading economies. When the crisis occurs this inflicted through different trade and financial channels to these economies. A crisis may be characterized as fall of expectation from a high level to a low level. Genesis of the crisis The crisis. The countries like China and India have impacted much less due to their lower shares in export sector and higher domestic demand and comparatively more government involvement in the financial sector. Section III discusses about the impact of crisis on India and the possible policy response from the policymakers of the country and section VI gives concluding remarks. section II highlights the genesis of the crisis. has its epicenter in the United States. Financial crisis is a very broad term that covers a whole range of events including crashes in the housing market. foreign exchange market. In this situation the present paper seeks to analyze the future prospect of industrialization program initiated in these countries..GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY.Theimmediate impact on most of the Asian economies was slowdown in economic activity. which started with a contraction of financial sector in most of the developed economics and ultimately spilled over across the countries. balance of payment crisis [ 68 ] Vidyasagar University Journal of Commerce . Following an introduction in section I... it became a never denying fact that rocked the world economy after great depression of 1930s.. which is roughly 60% of the one year’s global income. Though the crisis in its early stage largely affected the developed world but its ripple effect aggravatedthedownwardspiralsoftheeconomicactivityinemergingeconomies. The severity of the crisis depends upon how much it can affect the banking sector. But the financial sectors suffered severely due to plummeting stock and commodity prices and a rise in unemployment rate. Earlier these economies were heavily dependent on their manufacturing exports to the United States and other developed countries. In analyzing the genesis of the present crisis it is customary to put forward some definitional aspects of the crisis. The rest of the paper is organized as follows. stock market. So. The credit became costly and consumer demand plunged to lower level. currency crisis... A rough estimation of the total capital loss across the world hitherto available suggests almost US $25 trillion. stock market crash. In general.. In the 19th and early 20th centuries. Considering its deflationary nature some of the economists started to compare it with the “Great Depression” of 1930s. many financial crises were associated with banking sector performances. current account of nations and of course the banking sector substantially lowering the growth of output and employment. it may be defined as a variety of situations in which some financial institutions or assets suddenly lose a large part of their value.
The later approach blamed the unscrupulous role of financial capital. We call it a depression. “American experience indicates that with a high degree of regularity every other major business boom coincides roughly with a boom in building construction. a lack of confidence in economic activities has been observed. who described recession of US economy before World War II. These comprises with policy makers. Federal Reserve. One school advocated the Schumpeterian approach of creative destruction which is inherent in the capitalist system and finally converted in a crisis. over years has ultimately come to the roost. Some economists believe that financial crisis are caused by recessions and even if a financial crisis is the initial shock that sets off a recession. financial engineers and economists. which was given high importance in the liberalized era and neglected the role of labourforce by freeing them in the name of retrenchment. Some of them opined it as the crisis of management. These can be divided in two broad categories. There is plethora of explanation of the present crisis from many a section of the world’s intelligentsia. The economists in the world tried to describe this crisis in their own fads and fashion. there are certain other factors behind prolonging the recession. Ben Bernake has publicly stated that the current global economic slowdown is by far the worst crisis afflicting the center of Vidyasagar University Journal of Commerce [ 69 ] . When this time phase expands for a longer period. The head of U. While other group accused the delinquent role of neoliberal philosophy which freed the financial capital from its regulatory shackles. voluntary retirement scheme etc. crisis of network and valuation. The unfolding of the nature and the impact of the present crisis in its full extent provides some serious understandings. In the theory of business cycle. According to Alvin Hansen. Financial crisis are still a regular occurrence around the world as a general phenomenon of financial system. final demand and new form of industrial production and purely new type of managerial skills that the capitalist system nourishes.S. The former approach envisages these types of shocks are necessary to keep the capitalist engine in motion. However.Sanjit Kumar Das & Indranil Chakrabarty and sovereign defaults. which has been arrived in regular economic process. which was considered as an infallible panacea of market based approach on the one hand. economists across the world provided different types of explanation. accounting etc. which comes from new technology. recession has been characterized as periodic toughs of business cycle. and keeping labour force away from production process on the other which started in the mid’ 60s just after the end of golden age of capitalism. industry professionals. Many economists have offered theories about how financial crisis develops and how they could be prevented. the present crisis is more severe than the previous crisis. while the succeeding major cycle recovery is force to buck up against a building slump”. The phase between every trough and peak in a business cycle has been classified as expansionary phase. management experts. In analyzing the causes of the crisis.
. like other developing emerging economies has experienced the crisis to a great extent. The industrial houses are feeling the heat of financial crisis and the aftereffects are reduction of credit.. East Asia and Central and Southern Europe further aggravating the downturn in core Organization for Economic Cooperation and Development (OECD) economies and developing into a vicious downward spiral cannot at this stage be ruled out. mortgage delinquencies generated and securities backed with sub-prime mortgages lost most of their value. At the same time commodity prices including oil prices have plummeted to record lows with further falls expected in coming months. insurance sectors and financial markets around the world. But their efforts were not beyond criticism.GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY. global capitalism since 1930s. This has exerted a serious implication for other emerging economies like India. Many companies in the United States issued mortgages in recent years and were made to sub-prime borrowers with lesser ability to repay the loan.. The negative feedback report from export oriented economies like China.. The result has been a large decline in the capital stock of many banks and USA government-sponsored institutions.. which led to a sharp downturn in their trade. The impact of the crisis in the other Asian countries was graver. The sub-prime crisis that started in the latter half of 2007. Impact of the crisis in India India. The entire world seems to be sinking into recession. It has affected the economy to a great extent by freezing credit flows.. abandon of production. [ 70 ] Vidyasagar University Journal of Commerce . The crisis has exposed pervasive weaknesses during 2008 in financial industry regulation and the global financial system. reduction of sale price of commodity. The sub-prime mortgage crisis and the bursting of other real estate bubbles around the world are widely expected to lead to recession in the United States and a number of other countries in 2008. reduction of employees and time and cost over-run.. soon transformed into a global financial crisis in September 2008 after the Government of United States has allowed the collapse of Lehman brothers. increase of cost of capital. the developed economies reacted sharply with a concerted effort by announcing huge bailout packages for their financial arms. It triggered by a dramatic rise in mortgage delinquencies and foreclosure in the United States with major adverse consequences for banks. In order to combat the crisis. When mortgage prices began to decline in 2006-07. slow down of growth. Global recession and corporate layoffs are occurring everywhere that really dampened the investors and they are still not in a position to take any positive step of investment because the recession is still continuing.. With this the economies of other developed countries in Europe and Asia experienced the virtual collapse of global trade. manufacturing and employment. stopped commodity market and plunged the equity market.
led to weakening labor markets and consumers reining in spending thereby reinforcing the vicious cycle that governments around the world are currently engaged in breaking. But some section of economists. This. The crisis become more severe than it was expected earlier. remained immune to the global economic shock. every developing country has suffered to a varying degree. developing economies have been hit not only by decline in trade but also by dropping domestic consumption. With investors pulling out from overseas markets. Given the origin and dimension of the crisis in the advanced countries. however.Sanjit Kumar Das & Indranil Chakrabarty It has been reflected by the overall performance of the structural variables.2% in 2007.” The shock. The International Monetary Fund (IMF) estimates Global Gross Domestic Product (GDP) to have grown by 3. policy makers decried at the time of crisis in the western economies that India is insulated from the western economies and the robust growth it has experienced earlier were mostly driven by domestic factors. collapse of stock markets and deterioration in financing conditions. The Economic Survey rightly envisaged that “The global financial meltdown and consequent economic recession in developed economies have clearly been major factor in India’s economic slowdown. Developed economies have been hit by a combination of collapse in demand for high tech exports as well as declining domestic demand. according to the Governor of Reserve Bank of India. which some have called the worst since the Great Depression. there has been a significant change in fundamentals of the economy. D.Subba Rao. industry has been forced to scale back production and defer capital expenditure plans. Vidyasagar University Journal of Commerce [ 71 ] . Here we shall discuss the effect of the shock on the industry and employment sector of the economy. No country. These changes have led to a major shift in assumptions on the basis of which industry operates and plans for the future. Increasing integration in the global economy. including India. The massive de-leveraging in financial markets has culminated in one of the worst economic contractions in history.2% in 2008 compared to 5. By this. comes from three channels. the trade channel.1% growth. foremost being decline in availability of cheap credit. fuelled by reversal of capital flows. But affected almost all section of economic activities trough forward and backward channels. a tightening credit market and declining consumption. What started out as a sub-prime crisis triggered by a housing-bubble in August 2007 transformed into a financial crisis by September 2008 and finally spilled over to the real economy late last year. Similarly. As a result of the foregoing developments. has led to hitherto de-linked economies to be hit by the crisis as hard as the developed ones. They hoped that the economy will remain resilient amidst the global crisis and the growth story will almost remain in the future like the past. the financial channel and the confidence channel. propped up by developing economies that registered a 6. they tried to promote the famous decoupling theory and with the passage of time their proposition becomes elusive. in turn.
low pre-boom investment in extractive industries.3 per cent in 2008-09 as against 5. With trade comprising a smaller share of the economy. Overall. supply restrictions. diversion of farmland for bio-fuels and export restrictions by governments have all moved in the opposite direction since. 2009 is likely to present challenges due to weakening demand with margins sustained only due to steep fall in input prices.6%. Commodity prices have stabilized within a broad range since December 2008 and are expected to remain so for the remainder of 2009. In sharp contrast to high levels of inflation seen last year. The Indian economy is expected to grow between 4.GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY. These challenges are further reinforced by political compulsions that push for growing protectionism.1 per cent in [ 72 ] Vidyasagar University Journal of Commerce . and other consumer durable goods.5% in the Financial Year 2009-2010.5 per cent. Declining prices and consumer demand are expected to affect agriculture with indications of lower acreage planned for 2009. the concern being whether policies will be enough to arrest the negative feedback between deteriorating financial conditions and weakening economies.. continues to be uncertain regarding timing of any possible recovery. Factors that drove prices higher including a weak dollar. electronics. emerging Asia is expected to continue to grow. Mining grew at 2. The index of industrial production for the year 2008-09 points towards a sharp slowdown with growth being placed at 2. Fiscal balances of developing countries are also under pressure as a result of falling tax revenues. with high income countries declining by 3..5% and 5..8% and growth in developing countries slowing down to 1. Commodity prices that peaked in July 2008 have more than halved now (crude oil is hovering in the $50-60 range. The IMF forecasts global GDP to decline by 1.. World trade too is expected to fall 9% in volume terms in 2009. higher yields and higher acreage under cultivation in response to high prices in the preceding period.. the deepest recession post World War II. the overall growth during that year remained as high as 8.4 per cent.3% in 2009. Though growth of the industrial sector started to slow down in the first half of 2007-08. India is less exposed to the decline in global demand with domestic consumption expected to remain relatively robust.1 trillion by the G20 is expected to help towards reaching a recovery by early 2010. led by China and India. Food prices fell 34% (IMF estimates) in the second half of 2008 driven by slowing demand. The outlook. down by ~60% from 2008 peaks)... however. Manufacturing growth was placed at 2.3 per cent in 2008-09 as compared to 9. while 2008 was a challenging year for business given the extreme volatility and supply side restrictions.0 per cent in 2007-08.. However. deflation is now a potential threat to economies already suffering from low investment and consumption. Advanced economies in Asia have been affected due to their high export dependence and large exposure to the drop in global demand for automobiles. Low demand has affected agriculture too. The recently announced stimulus package of US$1.
There was a deceleration in the growth of cement and finished steel reflecting the negative sentiments in the construction and manufacturing sectors. petroleum refinery products. has gone against the workers of other countries. The construction sector. The performance of six core industries comprising crude oil. In India. unlike other countries in developed world and Asia. There has been a job cut in almost all the sectors (except in government sector) has been observed throughout the world. The resultant effect was a decrease in employment.9 per cent in 2007-08. Conclusion India. electricity. At the same time slowdown in agriculture across the world and subsequent decline in investment in this sector has also lowered the employment in these sectors. according to labour bureau. has reduced its employment generating capacity due to lack of investment in that sector with the unfolding of the crisis. Due to slow production in Indian industrial sector (Index of Industrial Production lowest in November. This was due to slow down in investment and industrial growth. cement and finished steel (carbon) grew at 2. This all contributed near to a stagflation situation of the economy (Table 3). coal. lay off and retrenchment has been observed in the Indian manufacturing. information technology and Business Process Outsourcing (BPO) services including private banks) has suffered much (Table 2). The social cost of the recession is growing up of unemployment in most of the economics. construction. metal and metal products. The growth in index for crude oil turned negative 1. transport and some segment of service sector (mostly. Slower growth in all use-based categories. except consumer durables.4 per cent in 2007-08. The worst effect of the recession was on the employment sector. mining. At the same time a reduction in foreign direct investment was also observed. On the other hand. The bailout packages offered by their government with strict employment conditionality. The International Labour Organization (ILO) has presented the picture of reduction in employment across the world. textile and garments. high degree of protectionism was observed from the overseas front.8 per cent as compared to positive 0. India is no exception (Table 1). which absorbs a large section of workforce.4 per cent in 2007-08 to 2. This also freed the workforce from its regular employment in abroad. At the same time closure of BPO houses due to shortage in their work has also freed some of the workers from this sector.Sanjit Kumar Das & Indranil Chakrabarty 2007-08 while electricity showed a deceleration in growth from 6. contributed to the deceleration in the industrial sector.7 per cent as compared to 5. 2008) job cut. though affected less in the ongoing crisis but cannot escape unscathed in the present crisis because its economy has become Vidyasagar University Journal of Commerce [ 73 ] .8 per cent during 2008-09. Small producers and traders suffered much with the fall in prices and drying up of credit. gems and jewellery.
The plummeting stock market. Fiscal concession.. Providing special privileges such as subsidies should encourage the entry of the SMEs... This is not yet over. private etc. At the same time arrangement for credit to industrial sector especially for Small and Medium Enterprises and Small and Micro Enterprises are also necessary as it accounts for a major section of people in terms of employment and livelihood.. low market price of land may be offered to them in order to assure attractive return.g. and roads and ports to transport products to the market are critical to any country in this moment of economic downturn. more integrated with the rest of the world over last eighteen years. physical. education. Analogous to that.. maintaining fiscal and monetary stability is also a major task. airports. Infrastructure projects often take years to prepare but it is the right time to investment in education and health that will lay the foundation for the [ 74 ] Vidyasagar University Journal of Commerce . There may be variety of arrangements e. Energy to drive industry and create jobs. The major challenges before the government at that moment were to maintain the growth story of the economy almost intact. publicprivate enterprises. For countries such as India. tax concession and these can contribute to employment creation and entry of new industries.. Access to infrastructure services (financial. A recession proof industrial policy is of paramount important that really can pay rich dividend in the near future.. There is a need to take a proactive policy of wooing investors to invest in new projects in these sectors like electricity. Again. The right infrastructure financing can open doorways to the ‘post-recession’ period that many nations are expecting with interest and hope. Monetary policy is a string and can be pulled in time of inflation but cannot be pulled in time of depression. In constructing the monetary and fiscal framework for combating recession one must keep on its long run effectiveness (Friedman. Foreign Institutional Investors played an important role in keeping the Indian Stock Market attractive by supplying adequate liquidity. It is largely dependent on overseas investment for industrial and infrastructural development. growing unemployment. There may be some incentives for the private operators because of their superior efficiency. roads. water to support agricultural production. and decreasing prices were the major challenges appeared before the government with the advent of the crises.GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY.. keeping international markets open is very much important. fall in index of industrial production. labour) is crucial for economic growth and poverty reduction. The intention of this section is not to find out the blemishes of these measures. The government of India has taken several monetary and fiscal measures to combat the recessionary effects on the economy. The Foreign Direct Investments played an instrumental role in uplifting the growth trajectory. So the authority shall be cautious in taking further monetary stimuli to combat this recession. as they are need of the hour of that time. low interest loan. joint ventures. the decreasing demand. ports. 1948). and health through different arrangements.
38. New York: Harcourt Brace and Co.Mediasalsocanplayanimportantrolebydisseminatinginformation and promote serious debate over strategically important areas. Economic Survey. March 28-April 3. Panics. References • • • • • • • • • Bhaduri. Growth of output. Government of India. and Crashes: A History of Financial Crises. In order to reverse this massive investment in agriculture is required. Charles. and Anna. is purely an imported one. Wiley. No. (2005). Earlier in India its reliance on agriculture was unique in the world. S. India needs a policy for reviving the real economy through fiscal and monetary stimuli. [ 75 ] Vidyasagar University Journal of Commerce .3. Kindleberger and Robert. Friedman. Safety nets for pure and vulnerable section are also essential. With rising unemployment. Milton (1948). Domestic mobilization from non-bank sources through fresh capital issue in the primary market. Vol. A Monetary History of the United States. there is a great deal of fear and frustration.Sanjit Kumar Das & Indranil Chakrabarty future. Manias. In a nutshell. the investment on agriculture has declined remarkably which causes actualization of rural workforce and at the same time skyrocketing of food prices. American Economic Review. P. Economic and Political Weekly. This can be achieved by pumping finance into the development projects and effective use of all the available resources. Again. 1867-1960. M. There is an absolute need for effective use of public resources for reviving growth and to safeguard the interest of the masses through wide appreciation among thepublicandpoliticalclass. June. After liberalization. 5th ed. The crisis. 2009. external borrowing. Considering the present state of industrialization it is not important to emphasize on location-specific sentiment but to consider numerous other factors affecting internally or externally. (1971). Princeton University Press. A. A. ‘Understanding the Financial Crisis’. employment and well-being of the masses will be the ultimate aim. Chapter 12. F. which India is facing. Keynes. The General Theory of Employment. job losses and salary cuts. Milton. ‘A Monetary and Fiscal Framework for Stability’. J. (2009). (1936). Interest and Money. foreign direct investment and private placements has to be increased. insulation of financial sector from external shock is very essential.
P. 2008. 2009. ‘Slide calls for Bold Reforms’ Survey of Indian Industries. pp. ‘The Fate of India Unincorporated’ Economic and Political Weekly. March 28-April 3. B. London. New Left Review’. Ram. and Banking. T..11. ‘Subprime Crisis. 2008. (2009). Krugman.. March 28-April 3. August 10. Table-1 Performance Compared To Pre-Lehman Levels (figures in US $) Source : FactSet.GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY. “Macro is all that matters”. 11. IMF.. Economic and Political Weekly. Bloomberg Sharma.. March-April. ‘A model of balance-of-payments crises’.T. Mohan. Kogakusha Ltd.. D. Mcgraw-Hill. (2008). Samuelson.. Oct. P 254. Paul (1988). (1979). Journal of Money. • • • • • • • • • Nachane. Rajiv. The Hindu. August 10. (2009). Sharma.. The Economic Times. ‘Macro is all that matters’ The Economic Times. Ruchir. ‘The Impact of the Crisis on Indian Economy’. Robin. 2009 [ 76 ] Vidyasagar University Journal of Commerce . (2009). K. 2009 Wall Street Journal. Credit. World Economic Outlook.. Ruchir (2009)..
Sanjit Kumar Das & Indranil Chakrabarty Table 2 Rate of growth at factor cost at 1999-2000 prices (per cent) Source : Central Statistical Organization as quoted in Economic review. Government of India. 2009 Table 3 Quarterly estimates of GDP 2007-08 and 2008-2009 (percentage change) Source : Central Statistical Organization as quoted in Economic review. 2009 Vidyasagar University Journal of Commerce [ 77 ] . Government of India.
Employment Generation etc. In this paper. After a long period of cruel and rampant exploitations by the Britishers. and the economy experienced severe inequalities of income distribution. poor infrastructural facilities etc. 1956 of the Government of India ushered the Public Sector Enterprises in India with the noble objective to accelerate the pace of economic growth of India. B. West Bengal. Ushagram.1 Indeed. with the help of relevant data for the study period from 1999-2000 to 2007-08. 15. March. Asansol. At this juncture the economy needed a big push to overcome the deadlock. The Industrial Policy Resolution. after a long tragic suffering from cruelty and inhumanity by colonial power there were various socioeconomic problems confronting the country. Internal Resource Generation. acute unemployment problems and also grim picture of regional disparities and backwardness. India inherited at the time of its independence a destitute and poor agrarian economy and a weak industrial base. Therefore. Value Addition. College. But a change in evaluation methodology has emerged where the researchers and social scientists have vehemently opposed the practice of concentrating on financial parameters only for performance evaluation and they have recommended for the use of other relevant aspects for this purpose. In fact.Vidyasagar University Journal of Commerce Vol. Introduction The Public Sector Enterprises (PSEs) became the major concern for India’s state policy to play a significant role in the overall economic development process of it over the last few decades. Email ID: kartik_nandi@yahoo. This new evaluation ideology is appropriate for enterprises like Public Sector Enterprises (PSEs) which have not been established solely for profit motive.in . removal of regional imbalances. B. among the imperatives before the Government were the removals of poverty. equitable distribution of income. both financial and social performance measures have been considered. in order to examine the performance of an enterprise especially in case of public sector enterprises in India. 2010 PERFORMANCE ANALYSIS OF CENTRAL PUBLIC SECTOR ENTERPRISES (CPSES) IN INDIA Kartik Chandra Nandi* ABSTRACT It has been the long standing practice to evaluate the performance of business enterprises based on financial measures. which needed to be dealt with in a planned as well as in a systematic manner. generation of employment opportunities. accelerated growth of agricultural and industrial * Assistant Professor in Commerce.co. Contribution to Central Exchequer. an attempt has been made to appraise and critically explain the performance of the Central Public Sector Enterprises (CPSEs) in India through different parameters like Profitability. coupled with low level of savings and capital formation.
to reduce inequalities of income distribution. to prevent concentration of economic power in a few hands to the detriment of the common mass etc. As such. The noble objectives of setting up of public sector enterprises in India may be highlighted as follows: 1) 2) 3) 4) 5) 6) to ensure the rapid economic development and industrialization of the country and create the necessary infrastructure for economic development. Given the type and range of problems faced by the country on the economic. [ 79 ] Vidyasagar University Journal of Commerce . managerial skill and technological advancements nor the requisite guts to undertake the risk involved in long-gestation period projects so as to keep pace with the state of socio-economic and political environment prevailing in the country. to enhance the scope of employment opportunities. This philosophy of the government’s direct intervention in nurturing and fostering the weak and the destitute economy and its gracious mission to help the economy stumble along the growth trajectory gave birth the incarnation of the Public Sector Enterprises (PSEs) in India with much fervour and zeal in commensurate with the diversified public interests and sentiments whereby the Government of India started investing a huge public fund in a phased manner in different core and strategic sectors of the economy on a holistic approach to achieve a self-reliant economy with balanced socio-economic development programmes to develop both the agricultural and the industrial sectors. to promote redistribution of income and wealth. the Government of India took a strategic leading role through its different Five Year Plans to help stabilize the economy as well as to provide necessary infrastructural setup to break the bottleneck of its developmental process. it became inevitable to welcome the state’s intervention in almost all sectors of the Indian economy because of the fact that the private sector had neither the capacity to provide necessary infrastructure in terms of available funds. to create employment opportunities. to promote balanced regional development. social and strategic fronts. keeping in view the inherent style of its socialistic pattern of society. to induce effective utilization of scarce natural resources for the best interests of the society.Kartik Chandra Nandi production. save and earn foreign exchange for the economy. and to promote import substitutions. at the backdrop of India’s independence. it became a pragmatic compulsion to set up public sector enterprises in various core and strategic areas as the vital instrument for achieving selfreliant economic growth. to assist the development of small-scale and ancillary industries. better utilization of natural resources and a wider ownership of economic power to prevent its concentration into a few hands. Therefore.
For collecting relevant data for the purpose of conducting this work internet surfing has also been made for obtaining the requisite and latest information.. It has been the long standing practice to evaluate the performance of business enterprises based on financial measures. [ 80 ] Vidyasagar University Journal of Commerce . Govt. to lessen the regional disparities and backwardness as well as to accelerate the pace of industrial development of India. Contribution to Central Exchequer. The required data have been collected from annual reports of the selected CPSEs in India published in Public Enterprise Survey. of India over the period of nine years i. in order to examine the performance of an enterprise especially in case of public sector enterprises in India. averages. This new evaluation ideology is appropriate for enterprises like Public Sector Enterprises (PSEs) which have not been established for profit motive. Internal Resource Generation.. Methodology of the Study For analysis and interpretation of data simple mathematical tools like percentages. Therefore.PERFORMANCE ANALYSIS OF CENTRAL PUBLIC .e... to reduce the inequality of income distribution... Data Source This research work is mainly based on secondary sources of information. Purpose of the Study The main objective of the study is to evaluate and critically explain the financial and social performance of the Central Public Sector Enterprises in India through different parameters like Profitability.. In addition these annual growth rates (g) of each parameter have been applied at appropriate places. Foreign Exchange Earnings. various conventional ratios have been used for measuring the financial and social performance of the CPSEs as a whole in India during the study period from 1999-2000 to 2007-08. Value Addition. Financial performance highlights the true and fair picture of an enterprise and fails to highlight the contribution towards social responsibility performance which is of great significance in case of PSEs.... both financial and social performance measures have been considered because the public sector enterprises (PSEs) in India have been set up primarily with the public money for the noble objectives to alleviate poverty. Employment generation etc. with the help of relevant data for the study period from 1999-2000 to 2007-08. But a change has emerged where the researchers and social scientists have vehemently opposed the practice of concentrating on financial parameters only for performance evaluation and they have recommended for the use of other relevant aspects side by side. 1999-2000 to 2007-08.
This concept may be defined as the ability of a given investment to earn a return from its use. It is considered the more rigorous test of profitability and gives a clear picture of the efficiency of the firm’s internal management. Performance Evaluation through Profitability Analysis The profitability of an enterprise is an important tool to evaluate the performance of that enterprise and it is the net result of a large number of policies and decisions. The tax collector gives more importance on profit before tax from the view point of revenue earnings. net profit ratio (NPR) etc. ii) Return on Net Worth (RONW) : This ratio shows the relationship between the amount of net profit after tax and the amount of funds invested by the owners. the accountants have given more emphasis on the concept of gross profit that takes note of depreciation but avoid or overlook the interest charged. In order to evaluate the profitability of the Central Public Sector Enterprises (CPSEs) as a whole in India. the amount of net profit have been taken and to assess the performance of them some important ratios like return on investment or return on capital employed (ROCE). profit is the most important measure of evaluating the performance of public sector enterprises and it can be viewed from different angles. However. the more efficient the enterprise is using its fund. the amount of operating profit (PBIT).3 So far as the profitability aspect is concerned. It enables the management to show whether the funds entrusted to the enterprise have been properly utilized or not. It measures the Vidyasagar University Journal of Commerce [ 81 ] . have been used under this study. It also reflects the ultimate impact of various policies and decisions adopted by the enterprise on its business operation. return on owner’s equity etc.Kartik Chandra Nandi A. On the other. return on net worth (RONW). The higher the ratio. There are various conventional methods for assessing the corporate performance but the most common ones are net profit ratio. It also indicates how well an enterprise has used long term funds invested by the owners and creditors. the public sector enterprises are expected to give adequate return on enormous investment made in them. return on investment. It acts as yardstick to measure the operating efficiency of an enterprise. These ratios are explained below in details: i) Return on Capital Employed (ROCE) : This ratio expresses the relationship between operating profit before interest and taxes (PBIT) and the amount of permanent funds invested in the enterprise. Generally.2 It may be considered as a relationship of the earnings to the total resources of an organization. the investors are interested obviously with the net profit after taxes that are readily available to reward them by way of dividend for their investment and also for their risk taking. The economists have taken the concept of gross margin to measure the return on investments to national economy but this concept of gross margin does not take into account the amount of depreciation or the usage cost of assets.
02 % in the year 2003-04 and the lowest annual growth rate of 5.49% in the year 2004-05 and the lowest ROCE of 13. It is observed from Table-1 that there is a continuous increasing trend in the amount of operating profit (PBIT) with peak annual growth rate of 31. the cost of merchandise or service..e.4 Analysis of Profitability of the CPSEs as a whole in India Table-1 highlights the amount of operating profit (PBIT). From Table-1 it is seen that the ROCE (i. Table-1 highlights that the amount of net profit increased continuously up to the year 2006-07 and it reduced in the last year (2007-08) of the study. return on the total equity funds of ordinary shareholders..54% in the next year (2006-07) and in the last year of the study the annual growth rate came down to 11.95% is found in the year 1999-2000. this ratio shows the degree to which the firm is able to convert profit into after tax profit that eventually can be claimed by the owners. This ratio essentially expresses the cost price effectiveness of the operation.. Table-1 highlights the efficiency of the internal management of the CPSEs [ 82 ] Vidyasagar University Journal of Commerce . ROCE. It indicates the management’s ability to operate the business with sufficient success not only to recover from revenues of the period.. but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. It measures the percentage of each rupee sales remaining after all costs and expenses including interest and taxes have been deducted..54% in the year 2005-06 followed by a recovery of 21. net profit and their annual growth rate achieved by the central public sector enterprises (CPSEs) as a whole in India over the study period and also shows the results of the selected measures of profitability (i.62%) is computed due to the decline in the net profit in the year 2007-08 as compared to the previous year (2006-07).e. the expenses of operating the business (including depreciation) and the cost of the borrowed funds..PERFORMANCE ANALYSIS OF CENTRAL PUBLIC .51%.. In other words.. It indicates how profitably the shareholders’ funds have been utilized by the enterprise.96%) is observed in 2001-02 and the negative growth rate (-1. Regarding the net profit.. PBIT as a percentage of Capital Employed) of the CPSEs as a whole in India witnessed an overall increasing trend up to the year 2004-05 and then it fluctuates slightly in the next three years. The highest ROCE over the study period is observed 21.. RONW & NPR) of them during the study period from 1999-2000 to 2007-08. iii) Net Profit Ratio (NPR) : This ratio expresses the relationship between the amount of net profit of a particular year and the amount of sales for that particular year. The highest annual growth rate of net profit (65.
it reached to 8. Net Profit as a percentage of Net Worth) of the CPSEs as a whole registered an overall increasing trend during the period under study. But it slightly decreased to 8. The overall rising trend in RONW of the CPSEs as a whole speaks of the increasing effectiveness of the enterprises’ management in utilizing the resources provided by the enterprises as a whole during the study period.68% in 1999-2000 which went up to 8. Net Profit as a percentage of Sales) of the CPSEs as a whole during the period from 1999-2000 to 2004-05 and then it fluctuates in the last three years of the study. The ratio of the CPSEs as a whole in India indicates the substantial position to withstand the challenge of falling operating income or declining demand for their products. it decreased to 7. This ratio is computed at 3.92% in the year 1999-2000 which continuously stepped up and reached the highest level at 19.38% in the last year of the study period. Again it increased to 21. The RONW is computed at 8. Again.2005-06.02% in 2004-05.41% in 2006-07.e. In the next year i.e. Table-1 shows a fluctuating trend in the NPR (i. it came down to 19.07% in the year 2006-07 and then it reduced to 15.73% in the year 2004-05.39% in the ultimate year of the study (2007-08).30% in the year 2005-06 and again.Kartik Chandra Nandi as a whole in India in utilizing its fund during the study period.54%.e. Table-1 depicts that the RONW (i. Table-1 Analysis of Profitability of the CPSEs as a whole in India during the study period From 1999-2000 to 2007-08 Vidyasagar University Journal of Commerce [ 83 ] .
5 The internal resources generated by the PSEs in India are the aggregate of the amount of Depreciation written off. [ 84 ] Vidyasagar University Journal of Commerce .35933 crore in the year 1999-2000 which has increased continuously and reached the highest level of Rs. of India. Source : Compiled and Computed from Public Enterprise Survey.96394 crore. the highest annual growth rate is seen at 38. the endeavours to explore new ways and means for mobilization of resources have always been given top priorities. The Public Sector Enterprises (PSEs) in India have been entrusted with a pompous and flagrant duty to pave the way for industrial development of India by giving due emphasis to the generation of internal resources by the PSEs so as to amass wealth to provide fund for development purposes.. As the traditional and convention mechanism of fund mobilization with the help of fiscal policy measures in the form of both direct and indirect taxes has some obvious limitations. Govt. 2007-08 B.PERFORMANCE ANALYSIS OF CENTRAL PUBLIC . The internal resources are increased continuously throughout the study period..... Depreciation written off..96% in the year 2001-02. Deferred Revenue Expenditure written off and Retained Profit) is Rs.99474 crore in the year 2007-08 showing a growth rate of 3. However. Performance Evaluation through Internal Resource Generation An economy can become a self-sustaining economy if it is in a position to generate internal resources and utilize the same for the furtherance of the development activities.. To a developing economy like India where resource crunch is a normal and regular phenomenon the generation of internal resources to help mobilize fund for development and growth aspect is of prime importance.e. The total amount of internal resources in the form of the three components (i.20% over the year 2006-07 in which the amount of internal resources generated to Rs. Analysis of Internal Resources Generated by the CPSEs as a whole in India Table-2 shows the detailed results of the internal resources generated by the CPSEs as a whole in India over the period of 9 years (1999-2000 to 2007-08) wherefrom it is evident that the CPSEs have achieved a significant improvement and have played a commendable role in augmenting the internal resources to provide funds for the development and growth purposes.. Vol-I ... Deferred Revenue Expenditure written off and Retained Profit.
Analysis of Contribution to Central Exchequer by the CPSEs as a whole in India Table-3 shows the detailed analysis of the contribution to central exchequer in the form of corporate tax. 2007-08 C. sales & other duty and dividend & interest etc. by the CPSEs as a whole in India over the period from 1999-2000 to 2007-08. customs. dividend & interest etc. Govt. These PSEs are obtaining a lot of advantages offered by the government to grow and survive under the support of the Department of Public Enterprises. there is a question of some positive attitude arises in the form of the performance of social responsibility on the part of the PSEs. to mobilize fund for financing the needs of the planned economic development of India. As a part of their performing social responsibilities. Govt. Performance Evaluation through Contribution to Central Exchequer In a developing country like India. the public sector enterprises have been making substantial contribution to the central exchequer in the form of corporate taxes. of India has come forward by providing necessary infrastructure and the capital outlay for setting up such enterprises in the core and priority sectors of the economy having a definite impact on the general public and the economy as a whole. the Public Sector Enterprises (PSEs) have occupied a key position in the economy whereby the Govt. customs duty. Therefore. From Table-3 is Vidyasagar University Journal of Commerce [ 85 ] . excise duty. excise duty. of India. Vol-I. of India and are also enjoying social prestige and status in comparison to other enterprises in case of the private sector. Ministry of Heavy Industries & Public Enterprises.Kartik Chandra Nandi Table-2 Internal Resources Generated by the CPSEs as a whole in India for the study period from 1999-2000 to 2007-08 Source : Compiled and Computed from Public Enterprise Survey.
.. of India.148790 crore during 2006-07 showing an increase of 11. observed that there is a steady growth of contribution to the central exchequer by the CPSEs as a whole in India. This is more relevant and appropriate to enterprises engaged in manufacturing/producing activities for delivering goods6 or for rendering services in the social spheres.. Govt.. 2007-08 D.56% in 2007-08 over the year 2006-07. Vol-I. Table-3 Contribution to Central Exchequer by the CPSEs as a whole in India for the period from 1999-2000 to 2007-08 (Rs.. The CPSEs in India with only 5 in numbers during the First Five Year Plan Period rose to 242 as on 31st March 2008 with a magnificent track record of producing goods and rendering services for the great cause of serving the Indian economy and helping a lot in the achievement of industrial development in India by adding value to the economy.46% in the year 2002-03.. Performance Evaluation through Value Additions by the CPSEs as a whole in India The economic as well as social justification of an enterprise lie in its contribution to the economy that may be measured in terms of value it has added. in Crore) Source : Compiled and Computed from Public Enterprise Survey.PERFORMANCE ANALYSIS OF CENTRAL PUBLIC .. The amount of contribution is highest (Rs.... [ 86 ] Vidyasagar University Journal of Commerce .165994 crore) in the year 2007-08 as against Rs. However. the peak rate of annual growth of contribution to the central exchequer is found at 30.
163558.73 crore in 2005-06). 163558. 193656.58 crore which is Rs.95% and followed by a steep rise of 18. 200102. Table-4 Value Added by CPSEs as a whole in India during the study period from 1999-2000 to 2007-08 (Rs. 2004-05 & 2007-08 Vidyasagar University Journal of Commerce [ 87 ] . 30097.Kartik Chandra Nandi Analysis of Value Additions by the CPSEs as whole in India The data contained in Table-4 relating to value added by Central Public Sector Enterprises (CPSEs) as a whole in India exhibit an overall increasing trend over the entire study period (1999-2000 to 2007-08) except a small departure in the year 2005-06 over 2004-05 (total value added amounted to Rs.78 crore in 2004-05) registering a negative growth of 1. Chart-1 depicts the picture of the value additions made by the CPSEs in India as a whole during the period from 19992000 to 2007-08 and Chart-2 shows the rate of annual growth of value added of the CPSEs as a whole in India for the same period. the highest annual growth rate in value added by CPSEs in India during 1999-2000 to 2007-08 is observed at 22% in the year 2000-01.85 crore more than the value added of Rs. Vol-I.40% in the year 2006-07 over 2005-06 (actual value added in 2006-07 amounted to Rs. 166819. in Crore) Source : Compiled and Computed from Public Enterprise Survey. However. Govt. of India.73 crore in 2005-06 as against Rs.
...PERFORMANCE ANALYSIS OF CENTRAL PUBLIC ....... [ 88 ] Vidyasagar University Journal of Commerce ..
2004-05 & 2007-08. Vidyasagar University Journal of Commerce [ 89 ] . 2001-02. Table-5 shows the foreign exchange earnings by the CPSEs as a whole in India for the period 1999-2000 to 2007-08. Performance Evaluation through Foreign Exchange Earnings by CPSEs as a whole in India One of the most important objectives of setting up of the public sector enterprises was to encourage import substitution.Kartik Chandra Nandi E.80%) was found in the year 2006-07 due to the highest amount received by way of interest. 2007-08) of the study. 52. in Crore) Source : Compiled and Computed from Public Enterprise Survey. save and earn foreign in order to mobilize fund for the development of the economy. Govt.Vol-I. Table-5 Foreign Exchange Earnings by CPSEs as a whole in India during the study period from 1999-2000 to 2007-08 (Rs.e. It is observed from Table-5 that the foreign exchange earnings was Rs. The peak annual growth rate (i. of India.e. 19737 crore in the year 1999-2000 which was increased continuously throughout the study period from 1999-2000 to 2007-08 and reached to Rs. dividend and other income as compared to other years of the study period. 74283 crore in the ultimate year (i.
growth of small scale and ancillary industries. resource utilization etc. But the fact that in the major areas of the country which have remained backward and undeveloped is both a challenge and an opportunity. industrialisation can play a vital role for the society in correcting the regional imbalances and accelerating the pace of industrial growth.. It was 18.... The lack of industriliasation in different parts of the country is often due to the factors such as nonavailability of raw materials or other factors of production.. The government of India has taken an important step to set up public sector enterprises for the extension of the scope of employment opportunities in the said backward regions or areas.. The pace of economic development of different states and regions has not been uniform over the years owing to some historical and other factors. both direct and indirect.. The data contained in Table-6 relating to the employment generated (excluding casual labour) by the Central Public Sector Enterprises (CPSEs) as a whole in India exhibit an over all decreasing trend over the entire study period (from1999-2000 to 2007-08).. [ 90 ] Vidyasagar University Journal of Commerce .40 lakh in the year 2000-01 and reached the highest level at 19.48% and then started decreasing with negative annual growth rate up to the last year of the study period. which has made the areas distinct from the other areas providing greater employment opportunities to the local people making the areas industrially developed and thus aggravating the imbalances in regional development. Performance Evaluation through the Employment Generation The Public Sectors being the pace setters have assumed the role of bringing out progressive elimination in regional imbalances and promoting balanced growth.92 lakh in the year 2001-02 registering the highest annual growth rate of 14. skilled labour.. Even the states which are fairly well developed have pockets and areas which have not been able to keep pace with the progress achieved elsewhere. in the states where the units are located. A concentration of industries in certain areas has also been due to the ready availability of raw materials.06 lakh in the year 1999-2000 which came down to 17. Therefore. In this context it may be highlighted that the setting up of PSEs in India has resulted in generation and extension of substantial employment.PERFORMANCE ANALYSIS OF CENTRAL PUBLIC . increased employment opportunities.. water supply etc. The states in which the Public Sector Enterprises are located became the direct beneficiaries and stand to gain manifold in terms of removal of regional imbalances. power. F.
the CPSEs in India have been set up and run from independence commensurate with the socio-economic status as well as the needs. the number of CPSEs as on 31st March. However. locational disadvantages. 2004-05 & 2007-08. there is no denying the fact that the PSEs. long gestation period projects. contribution to central exchequer. But unfortunately or otherwise the same is not duly reflected as apprehended in the overall Indian economic scenario. Over and above this. value addition and foreign exchange earnings while an overall decreasing trend is found in case of generation of employment. 29 crore as on 31st March 1951. in general. had to face many divergent constraints.Kartik Chandra Nandi Table-6 Employment in the CPSEs as a whole in India during the study period from 1999-2000 to 2007-08 Source : Compiled and Computed from Public Enterprise Survey. Govt. Despite a number of serious handicaps like high initial capital-intensive projects. these criticisms against CPSEs are substantially squashed if we have a close look to the social responsibility performance of CPSEs during the said period. Vol-I. As such. of India. internal resource generation. 455409 crore. the performance of CPSEs has unleashed the scope of side criticism on many occasions. aspirations Vidyasagar University Journal of Commerce [ 91 ] . 2008 has reached to 242 with a total investment of Rs. The analytical study of the performances of CPSEs in India with the help of empirical data over the study period from 1999-2000 to 2007-08 exhibit a continuous increasing trend in case of profitability. 2001-02. Conclusion Taking 5 CPSEs with a total investment of Rs. lack of technological advancement etc.
Institute of Public Enterprise Research. C. Tata McGraw-Hill Publishing Company Ltd. I. (2007) : Financial Management: Text. D.. Sarkar. and the sentiments of the common public. New Delhi Kishore. 495. Allahabad. 1995-96 Pandey. Khan. 6. www. Ltd. Howard. Kolkata. (2007): Financial Management..in • • • • • • • • [ 92 ] Vidyasagar University Journal of Commerce . B.. Taxmann Publication Pvt. 7th Ed.dpe. R. K. and Jain. Indian Journal of Public Enterprise. 150. Ravi. Mc Graw Hill Book Co. Y. M. New Delhi. keeping far away the inherent profit motive of business enterprises for the greater interest of the common mass.. Vol.nic.. New Delhi. References • Sarkar. The Management Accountant (July). p. (2002): op.). R. p. (2007): Financial Management. M.... p. (1961): Introduction to Business Finance. p. cit... Tata McGraw-Hill Publishing Company Ltd.. p. B. to upgrade the overall economic conditions of the weaker and the poor sections of the community as well as to reduce the inequalities of income as far as practicable... P.111.. M. 6th Ed.20..118. M..PERFORMANCE ANALYSIS OF CENTRAL PUBLIC . Sur.. of India. (2002): “Performance Appraisal of Public Sector Undertakings in India”. (1990): “Inter-company profitability analysis of Indian general insurance industry”.. New York. C. I.. Public Enterprise Survey. and Upton. Govt. all such steps and bold actions were taken at the State level to lessen the degree of regional disparities. Accordingly. Problems and Cases (5th Ed.
Department of Commerce and Management. Keywords : Forensic Accounting. West Bengal State University. more and more people are realizing that a new category of accountants is needed to substantiate fraud for companies that suspect fraudulent transactions. Essentially. according to these groups’ thought. auditing and investigative skills yields the speciality known as Forensic Accounting. Barasat. Now. 2010 FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION Pranam Dhar* Anirban Sarkar** ABSTRACT Just as forensic science has been helping catch the criminals for long. Barasat. *Reader. 15. Until the recent times. It is the area of specialization that is primarily concerned with the detection and prevention of financial fraud and other forms of economic crime. Thus. E-mail:firstname.lastname@example.org **Lecturer. was something internal and external auditors were supposed to provide safeguard against the same through their periodic audits. everybody’s perception was that detecting fraud was part of the accounting and auditing functions. Fraud.co. Corruption Introduction Forensic Accounting is a rapidly developing area of specialization in the field of accounting. the public. they realize that auditors can only check a company’s accounting reports in order to check the compliance to generally accepted accounting principles and company policy. This area of accounting is known as forensic accounting. The article discusses the role of accountants in the field of forensics and considers the areas where forensic accounting can be of immense help. West Bengal State University. Forensic accountants are becoming the rising stars of the accounting profession as more and more companies seek them out in order to avoid becoming the next Enron. Fraud.Vidyasagar University Journal of Commerce Vol. March. E-mail: email@example.com . West Bengal. management officials.Conceptual aspects The integration of accounting. West Bengal. Department of Commerce and Management. forensic accounting marries the skills of an auditor with the skills of an investigator. Third World Economies. forensic accounting is fast emerging in the arena of corporate accounting frauds to play a similar role. Financial crime. directors and even regulators. Forensic Accounting .
Equally critical is our ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting. meaning that the examination and interpretation will be of economic information. according to the Webster’s Dictionary means. auditing and investigative skills when conducting an investigation. auditing. He refers to forensic scientists as examiners and interpreters of evidence and facts in legal cases that also offers expert opinions regarding their findings in court of law. “Forensic Accounting is the application of accounting principles.FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION The term “Forensic”. stated that the term “forensic accounting was coined by Peloubet in 1946. and investigative skills. Joshi (2003) defined Forensic accounting as the application of specialized knowledge and specific skill to stumble up on the evidence of economic transactions. It is only gaining prominence because of the growing wave of the crime under the seemingly new nomenclature the last five years (Coenen 2005). Literature Review in the Relevant field Joshi (2003) ascribed the origination of forensic accounting to Kautilya. He. we utilize accounting. provides an accounting analysis that is suitable to the court which will form the basis for discussion. Crumbley (2001) wrote on same when he stated that a form of forensic accounting can be traced back to an 1817 court decision. Investigation of fraud and corruption is confirmed thus. forensic accounting is accounting that is suitable for legal review offering the highest level of assurance and including the now generally accepted connotation of having been arrived at [ 94 ] Vidyasagar University Journal of Commerce . however. As Forensic Accountants. The science in question here is accounting science. Forensic Accounting encompasses both Litigation Support and Investigative Accounting. also called investigative accounting or fraud audit. even in Nigeria.” According to AICPA. “Belonging to. Forensic accounting. theories and discipline to facts or hypotheses at issues in a legal dispute and encompasses every branch of accounting knowledge” “Forensic Accounting”. Forensic Accountants are trained to look beyond the numbers and deal with the business reality of the situation. debate and ultimately dispute resolution. the first economist to openly recognize the need for the forensic accountant who mentioned 40 ways of embezzlement centuries ago. Simply put. used in or suitable to courts of judicature or to public discussion and debate. is a merger of forensic science and accounting. Zysman(2001) put Forensic accounting as the integration of accounting. He stated also that a “young Scottish accountant issued a circular advertising his expertise in arbitration support in 1824” but that Peloubet was probably the first to publish the phrase forensic accounting. not to be new. Forensic science according to Crumbley(2003) “may be defined as application of the laws of nature to the laws of man”.
US News and World Report listed Forensic Accountant as one of the “20 hot job tracks” of the future and has made this branch of accounting trendy. criminal investigators and the Government (Coenen. estimate losses damages and assets and analyse complex financial transaction. It demands reporting. A study conducted by the Price Waterhouse Coopers titled Global Economic Crime Survey 2003 suggested a need to promote a greater transparency as well as to improve crime detection. and who was responsible.ksi. 2001). Their engagements are usually geared towards finding where money went. which will form the basis of discussion. The persons practicing in this field (i.org Considered the need for forensic accounting Already sought help for forensic accountant Do not require assistance Unsure of whom or where they should ask for help Some of the other studies in USA pointed out that since more companies are facing bankruptcy the intense pressure with jobs and careers are at risk and employees feel pressured to maintain and support performance levels forcing many to commit corrupt acts. These suggest that forensic accounting is a field of specialization that has to do with provision of information that is meant to be used as evidence especially for legal purposes.Pranam Dhar & Anirban Sarkar in a scientific fashion (Crumbley.e. Vidyasagar University Journal of Commerce [ 95 ] . Need for forensic accounting The need for forensic accounting arises because of the failure of audit system in the organizations. where the accountability of the fraud is established and the report is considered as evidence in the court of law or in the administrative proceeding (Joshi). It provides an accounting analysis that is suitable to the court. forensic accounting) investigate and document financial fraud and white-collar crimes such as embezzlement and investigate allegations of fraud. A recent study by Kessler International shows that : Table 1 : Kessler International Study 39 % of Organizations 28 % of Organizations 18 % of Organizations 15 % of Organizations Source : www. debate and ultimately dispute resolution (Zysman. They provide those services for corporation. 2005). They are trained to look beyond the numbers and deal with business reality of the situation (Zysman2001). attorneys. 2006) Coenen (2005) stated that forensic accounting involves the application of accounting concepts and techniques to legal problem. how it got there.
FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION Tasks of a forensic accountant A Forensic Accountant is often retained to analyze. o Forensic document examiners. including: • Review of the factual situation and provision of suggestions regarding possible courses of action. government agencies and other organizations for the following tasks: • • Investigating and analyzing financial evidence. Thus. summarize and present complex financial and business related issues in a manner which is both understandable and properly supported. exhibits and collections of documents. interpret. • Assistance with the protection and recovery of assets. a Forensic Accountant must be able to identify substance over form when dealing with any issue. police forces. In this context Forensic Accountant can be of assistance in various ways. and • Assisting in legal proceedings. including: o Private investigators. o Consulting engineers • Assistance with the recovery of assets by way of civil action or criminal prosecution. [ 96 ] Vidyasagar University Journal of Commerce . Developing computerized applications to assist in the analysis and presentation of financial evidence. Forensic Accountants can be engaged in public practice or employed by insurance companies. the services rendered by forensic accounting specialists can be divided into two broad categories : • Investigative Services. • Review of the relevant documentation to form an initial assessment of the case and identify areas of loss. In addition. • Communicating their findings in the form of reports. In order to properly perform these services a Forensic Accountant must be familiar with legal concepts and procedures. • Co-ordination of other experts. including testifying in court as an expert witness and preparing visual aids to support trial evidence. • Litigative Services are those services that are provided in the context of legal or regulatory proceedings and include: • Assistance in obtaining documentation necessary to support or refute a claim. concerned with determining whether criminal activities or financial irregularities have actually taken place. banks.
Assignments in forensic accounting Detailed below are the usual areas which Forensic Accounting generally encompass: (a) Criminal Investigations Forensic investigations often relate to criminal investigations on behalf of police forces.. Cases of medical malpractice and wrongful dismissal often involve similar issues in calculating the resulting economic damages. Accordingly. • Attendance at the Examination for Discovery to review the testimony. (c) Personal Injury Claims / Motor Vehicle Accidents A Forensic Accountant is often asked to quantity the economic losses resulting from a motor vehicle accident.M. A Forensic Accountant needs to be familiar with the legislation in place which pertains to motor vehicle accidents. • Attendance at trial to hear the testimony of the opposing expert and to provide assistance with cross-examination.C. • Review of the opposing expert’s damages report and reporting on both the strengths and weaknesses of the positions taken.Pranam Dhar & Anirban Sarkar • Assistance with Examination for Discovery including the formulation of questions to be asked regarding the financial evidence.P. a common issue that often arises is the compensation and benefits received by each of the disputing shareholders or partners. Vidyasagar University Journal of Commerce [ 97 ] . as well as by regional or local police forces and organizations such as the Law Society. • Assistance with settlement discussions and negotiations. assist with understanding the financial issues and to formulate additional questions to be asked. For example. (b) Shareholders’ and Partnership Disputes These assignments often involve a detailed analysis of numerous years accounting records to quantity the issues in dispute. (d) Business Interruption / Other Types of Insurance Claims Insurance policies differ significantly as to their terms and conditions. these assignments involve a detailed review of the policy to investigate coverage issues and the appropriate method of calculating the loss. A forensic Accountant’s report is prepared with the objective of presenting evidence in a professional and concise manner. For example. a Forensic Accountant may be retained by the R.
property or other assets. (g) Business Economic Losses Examples of assignments involving business economic losses include. business interruptions.has a breach of Generally Accepted Accounting Principles or Generally Accepted Auditing Standards or other standards of practice occurred. The assets to be evaluated and valued may be business. (f) Matrimonial Dispute Matrimonial disputes from a Forensic Accounting point-of-view often involve the tracing. Employee fraud investigations often involve procedures to determine the existence. If the professional in question is an accountant then a Forensic Accountant could be involved with both perspectives. asset identification and recovery. locating and evaluation of assets. If the matter involves some other profession a Forensic Accountant will normally be retained to perform only loss quantification. product liability claims. (h) Professional Negligence These investigations are approached from two different but complimentary perspectives. Examples of these types of assignments include. these being: • Technical. and • Loss Quantification. trademark and patent infringement and losses stemming from a breach of a non-competition agreement. (i) Mediation and Arbitration Because of their familiarity and comfort with legal issues and procedures some Forensic Accountants have special training and become involved in alternative dispute resolution (ADR). construction claims. expropriations. (e) Business / Employee Fraud Investigations Business investigations can involve funds tracing. forensic intelligence gathering and due diligence reviews. These investigations often entail interviews of personnel who had access to the funds and a detailed review of the documentary evidence. nature and extent of fraud and may concern the identification of a perpetrator. [ 98 ] Vidyasagar University Journal of Commerce .FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION A Forensic Accountant is often asked to assist from either an insured or insurer’s perspective in the settlement of a case. property losses and employee dishonesty (fidelity) claims. contract disputes.
the actual approach adopted and the procedures performed will be specific to it. (f) Perform the analysis The actual analysis performed will be dependent upon the nature of the assignment and mayinvolve: • • • • Calculating economic damages. in general many Forensic Accounting assignments will include the steps detailed below. Accordingly. another expert or proof of the occurrence of an event. [ 99 ] Vidyasagar University Journal of Commerce . (b) Perform a conflict check A conflict check should be carried out as soon as the relevant parties are identified. players and issues at hand. (c) Perform an initial investigation It is often useful to carry out a preliminary investigation prior to the development of a detailed plan of action. Performing present value calculations utilizing appropriate discount rates. (e) Obtain the relevant evidence Depending on the nature of the case this may involve locating documents. (d) Develop an Action Plan This plan will take into account the knowledge gained by meeting with the client and carrying out the initial investigation and will set out the objectives to be achieved and the methodology to be utilized to accomplish them. However. Performing a tracing of assets. economic information. assets. This will allow subsequent planning to be based upon a more complete understanding of the issues. Summarizing a large number of transactions. Steps in a forensic accounting assignment Each forensic accounting assignment is unique. a person or company. (a) Meet with the client It is helpful to meet with the client to obtain an understanding of the important facts.Pranam Dhar & Anirban Sarkar ADR services include both mediation and arbitration and are designed to help individuals and businesses resolve dispute with minimal disruption and in a timely fashion.
and 2. (b) Theory of Relative Size Factor It detects unusual data. Discretion: to the extent of variations from the specified matters as authorized by the client 4. Creativity : to have innovative ideas in mind 3. Organization: to sum up the whole things into one single unit. a Forensic Accountant must be familiar with the legal concepts and procedures and is desired to have complete knowledge of regulations. (g) Prepare the report Often a report will be prepared which may include sections on the nature of the assignment. Curiosity : to look behind the numbers 2. and • Utilizing charts and graphics to explain the analysis. limitations of scope and findings and / or opinions. ICAI. approach utilized. and RBI. a capable Forensic Accountant should have the following characteristics: 1. • utilizing a computerized application such as a spread sheet. DCA. which may be due to either simple errors or frauds. Techniques used in forensic accounting Two most popular mathematical techniques currently used for forensic accounting are: 1. scope of the investigation. Theory of Relative Size Factor (a) Benford’s Law The object of this law is to determine whether the field under study is free from any unintentional errors or frauds. guidelines and directions of the regulatory bodies like SEBI. The basis of this law is that fabricated figures (an indicator of fraud) possess a different pattern from random figures. Basic qualities of an ideal forensic accountant In order to properly perform different services. It is [ 100 ] Vidyasagar University Journal of Commerce . Benford’s Law. data base or computer model. Thus.FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION • Performing a regression or sensitivity analysis. The report will include schedules and graphics necessary to properly support and explain the findings. It is based on the basic concept that each field in any transaction has a normal range and any data falling outside the range is unusual or an outlier and need to be further investigated.
The tools help auditors in implementing auditing procedures such as: • Testing details of transactions and balances • Identifying inconsistencies and significant fluctuations • Testing general as well as application control of computer systems Another useful detection technique is the calculation of data analysis ratios for key numeric fields. Forensic accountants take a more proactive. The Cherry on the toppings of the pizza is a strong set of communication skills. have nothing to do with the Accounting or Assurance standards but are keen in exposing any possibility of fraud. It’s a good quote that every auditor should know. Cheese spread and a good topping makes the pizza Vidyasagar University Journal of Commerce [ 101 ] . The traits of the forensic Accountants could be compared to well baked Pizza. The legal environment is essential in order to support the litigations. External auditors look at the numbers but the forensic auditors look beyond the numbers. External Auditors find out the deliberate misstatements only but the Forensic Accountants find out the misstatements deliberately. skeptical approach in examining the books of Accounting. both written and oral. The base of forensic accounting is Accounting knowledge. These bloodhounds sniff out fraud and criminal transactions in bank. Perfect combination of the Pizza base. They make no assumption of management integrity (if they can assume so then there is no need for their appointment) show less concerns for the arithmetical accuracy. This quote makes the definition of Forensic accountants even simpler. It is like the spread of the cheese in Pizza. They hound for the conclusive evidences. Recently auditors are using Computer Assisted Auditing Tools (CAATS) to deal with huge data set and to process complex transactions thereby saving time and improving effectiveness. The forensic Accountant is a bloodhound of Bookkeeping. Three commonly employed ratios are: • The ratio of the highest value to the lowest value (max/min) • The ratio of the highest value to the second highest value • The ratio of the current year to the previous year • Redoing calculations performed by accounting systems Forensic Accounting in Indian Context “Auditor should be watchdog and not be the bloodhound”. Size and the extent of baking decide the quality of the Pizza. The topping of this Pizza is a basic understanding of the legal environment. internal controls. risk assessment and fraud detection. It is just the beautification part.Pranam Dhar & Anirban Sarkar measured as the ratio of the largest number to the second largest number of a given set. A middle layer is a dispersed knowledge of auditing. corporate entity or from any other organization’s financial records.
Recently there are some institutions and agencies that have realized the importance of forensic accountinglike Indian Forensic Research Foundation. In the Indian context the Forensic Accountants are the most required in the wake of the growing frauds. The law enforcement officers are the experts of analyzing the fingerprints and the Narcotics but what about the digital evidence analysis. It’s a thrill of hunt. Network Ltd. series of co-operative banks bursting-all are pinpointing the need of forensic accounting.FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION delicious and the Forensic Auditor the perfect. Table 2 : Bank Frauds in India in Recent Years YEAR 2002 2003 2004 Source : KPMG AMOUNT (Rs. It is new child on the block. Growing cyber crimes. failure of regulators to track the security scams.53 653. Maurice E.16 NUMBER OF CASE 1744 2207 2663 In India the formation of Serious Fraud Investigation Office(SIFO) is the landmark creation for the Forensic Accountants. in crores) 399.50 600. has started working in this field. The profession of forensic accounting has not yet gained prominence in India. Dr. Lain Parekh Committee has recommended for setting up a separate body to investigate financial frauds. KPMG. the global network of professional services firm has very recently established its forensic and investigative accounting practice division in India. Until recently there was no separate community in India. Collapse of Enron and WTC twin towers have blessed the American Forensic Accountants with the opportunities. The Opportunities for the Forensic Accountants are growing at a rapid speed. But now movement of India[ 102 ] Vidyasagar University Journal of Commerce . irrespective of whether we understand the need or not. Both CBI and CID cops do the forensic accounting work. It’s a combination that will be in demand for as long as human nature exists. Peloubet who coined the term Forensic Accountant in 1946 said that the preparation of financial statements has some but not all of the characteristics of forensic accounting. Very few know about it. N L Mitra Committee appointed by RBI has commended the same. This statement is enough for the chartered accountants in India to foray in this field.
www. p17 Balarebe.’ African Journal of Management. Kasum. The Relevance of Forensic Accounting to Financial Crimes in Private and Public Sectors of Third World Economies: A Study from Nigeria. Previously Investigation Accountants assigned to analyze fraud findings found that this title made people uncomfortable. The rest. • • Vidyasagar University Journal of Commerce [ 103 ] . The Nigerian Accountant. A. what the job intends to achieve is nothing new. (2009). 1(1). J. (2006). To some viewers Columbo’s most memorable attribute was the crumpled raincoat and ability to quickly solicit the co-operation of defendants and solve cases using a gentle approach styled “forensic evidence”. J. References • Kasum A. The changing nature of the Accounting and Auditing & assurance standards also confirms this. according to Accounting Today. ‘The Global Endemic Nature of Financial Malpractices: An Analytical Appraisal. 39(2). as they say is “history”. detective serial “Columbo”. There is one version of how the name ‘forensic accountant’ developed. Inspiration came from a very unlikely source. June 11-13. and Olaniyi T. A. Adefila. pp11-20. A. But beyond a cursory glance one recognizes that while the title is new. Far from the humdrum stereotypic accountant your mind might have initially conjured. Conclusion Today. If this data is of some sense to Indian scenario then the day is not far away when forensic practice will contribute maximum to the total revenue of the Indian CA firm. “Financial Statement Fraud: What Auditors should know”. I (2005) EFCC and the law.Pranam Dhar & Anirban Sarkar forensiccommunityisgatheringthepace. a popular TV. (2005).efccnigeria. S.. Proceedings of The 1st International Conference on Governance Fraud Ethics and Social Responsibility. the forensic accounting professional is more of a private investigator with a financial sixth sense than the bookkeeper with a green eyeshade. The job performed is not unlike what was done in the name of investigation previously. Nearly 40 % of the top 100 American accounting firms are expanding their forensics and fraud services.org. forensic accounting is one of the fastest growing professions. S. Chartered Accountants are going to find themselves more involved in what is essentially a type of forensic practice. Ajisebutu.Thegrowingnumberofregulatorandtheadministrative agencies will demand the services in the nature of forensic practice.
(2001). • • • • • • • • [ 104 ] Vidyasagar University Journal of Commerce . Forensic Accounting:Older than you think. P. A.E. (2006) A cognitive approach to fraud detain JFA. ‘Understanding and Preventing Money Laundering’. 38 (4). D.A Practitioner’s Viewpoint’. L. 2. Nov 2006. L. S. world investigators network Standard practice for investigative and forensic accounting engagements ? Canadian Institute of Chartered Accountant.forensicaccounting. D. The Nigerian Accountant. M.edwardspub. JFA. S. No. Brush and Charles H.forensicaccounting. D. (2003). K. 2007. 1. “Definition of Forensic Accounting” www. Khan. S. pp. (2005) “Corruption and Professional Practice: Issue and Challenges”. “Forensic Accounting Demystified”. 45. ‘AIFRS . Vol. L (2006). 22-25 Grazoli.W. Crumbley. Journal of Applied Research in Accounting and Finance (JARAF). 2 (2) 181 Crumbley. P 60 S. Issue 3.FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION • Brain C. No. Janal.com. Journal of Legal Economics. Williams (2005). Vol. Vol. Internal Auditing. Vol. 19. “Forensic Accountants Appearing in the literature. 2007 Zysman. A. www. (2004). 316-339. ‘Reflections on the Private Versus Public Policing of Economic Crime’. Wayne. The British Journal of Criminology. pp.com.6. Elizabeth V. No. www. World Bank Report.2 (1997). “A Taxonomy for the Treatment of Taxes in Cases Involving Lost Earnings”. 9-19. 5. Mulig and Murphy Smith(2008). and Johnson. Breeden (1997). pp. Crumbley. L (2003).com. (2007). 7 (2) pp65-88 Joshi. “What is Forensic Accounting”.
Determination of Impact Impact determination should be based upon five criteria namely: i. department of commerce with farm Management. In this regard “Environmental Impact Assessment” is a very important area to analyze.Vidyasagar University Journal of Commerce Vol. The magnitude of the possible impact ii. v.com . ii. short run and long run Local (micro-environmental) and strategic (macro-environmental-regional. iii. March. Its extent in space and time iv. 15. national and beyond) Adverse (negative) and beneficial (positive) vi.such as global warming and climate change etc. The sensitivity or vulnerability of the elements in the country or the physical area v. The term “Environmental Impact Assessment” initially came to be used with the enforcement of the N.E.A is focused largely on the bio-physical environment outside the home and work place and its relevant social and economic contradictions. tertiary. the capital of Denmark. 1970 in the USA. Vidyasagar University E-mail: me. Quantitative and qualitative * Student of 4th semester.P. The degree of irreversible damage caused Types of Environmental Impacts There are various types which are mentioned below:i. Physical and socio-economic Direct (or primary) and indirect (secondary. Many countries sent their representatives on various issues relating to world environmental crisis. world conference on climate change had been held.somnath_paul@rediffmail.A (the US National Environmental Policy Act) on January 1. Since then E.I. higher order) Immediate.I. iv. The E. 2010 Students’ Section : ENVIRONMENTAL IMPACT ASSESSMENT : A STRATEGIC MANAGERIAL DECISION MAKING TOOL Somnath Paul* Introduction Recently in Copenhagen.A has gained world wide acceptance. Its ecological significance iii.
impacts on the natural and man-made environment. as decisionmakers need to handle a disparate range of information as a basis for their decisions aggregation is always a recurrent problem.I. Intended and accidental Discrete and cumulative Actual (objective) and perceived (subjective) Distribution by group and / or area Relative to other developments1 A term that needs to be explained in connection with Environmental impacts is ‘significant’ so that we may judge whether an impact ‘significantly’ affects the quality of human environment.. xii. Objectives of E. vii.. ix.. program or project on the environment. With regard to ‘Environmental Impact Assessment’ the geographical diffusion of the concept has resulted in a diverse nomenclature. prevent environmental degradation by giving decision makers better information regarding the consequences of developmental actions on environment.I. can serve as an [ 106 ] Vidyasagar University Journal of Commerce . E.ENVIRONMENTAL IMPACT ASSESSMENT : A STRATEGIC . The concept is sufficientlycomprehensiveandisapplicablefromtheinceptionofaproposaltoitsimplementation and involves post-project analysis (P. integrative. Accordingly. although it has not been clearly defined at any point. E. Reversible and irreversible viii.I. Social and economic factors may be far more constraining.A is complementary phases of the total Environmental Review (E. decision makers and the public. overly subjective and is mostly the outcome of a collective judgment of assessment officers. E. participatory environmental management tool that can help.A The objective of E.I.I. E.A is an anticipatory.P.A is an official evaluation of the likely effects of a proposed policy. proactive process of predicting and evaluating an action. By contrast. Moreover.I. E. The concept of ‘significance’ is thus. Most national legislations explicitly use the word..A) as well.I. the conclusions of which are to be used as a decision making tool.R) process.. of alternatives to the proposal and of measures required to be adopted to protect the environment.A is not to force but only to guide decision-makers to adopt the least environmentally damaging alternative because environmental impact is just on the issues addressed by the decision-makers to adopt the least environmentally damaging alternatives as they seek to balance the conflicting demands of economic development and environmental protection. x. legislators..A if rightly employed.A is a systematic. In this regard. xi.
Long may E. O’Riordon appropriately encapsulates the idea thus:“If one sees E. New Delhi • • • Vidyasagar University Journal of Commerce [ 107 ] .. Conclusion E.A: in Quest of the frontiers of sustainable decision making. Environmental Auditing and E. Therival. space and the values and perspectives of those in its evaluation.. R. but is only one element in that policy.. the nature and utility of E. M. for decision-makers will probably have other appraisal techniques at their disposal. rather as a process that is constantly changing in the fall of shifting environmental politics and managerial capabilities. Environment Impact Assessment. Tropp) Chichester: Wiley Glasson. Atchia and S.I. Introduction of Environment Impact Assessment. B.Somnath Paul integrative element in environmental protection policy.A not so much as a technique.A thrive”. and Chadwi. Nangia Pub..I. Vol XIX Srivastava. S.A is a function of time. Y. one can visualize it as a sensitive barometer of environmental values in a complex environmental society. (2005). E.I. J.I. (1995) ‘Technology Transfer..I. K.A’ in Environmental Management: Issues and solutions (ed. A. thus.. New York. Rout ledge Pub. A.A is. the outcome of a long evolutionary process. References • Ahmad.I. K. Mukherjee . Business studies.
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