Vol 15

VOL.
15, MARCH, 2010
Journal of
The Department of Commerce with Farm Management
Vidyasagar University
Editoral Board
EDITOR-IN-CHIEF
K.C. PAUL
EXECUTIVE EDITOR
Tagar Lal Khan
ASSOCIATE EDITORS
A. Gupta K. Bandopadhyay S. Ghosh

Vidyasagar University Vidyasagar University Vidyasagar University
A. Sinha T.N. Sahu

Vidyasagar University Vidyasagar University
MEMBERS
Amit Kr. Mallik S. Srinivasan D. Obul Reddy

Former V.C. IIT, Kharagpur Formerly,
University of Burdwan Osmania University
Jaydeb Sarkhel Sudipti Banerjea K. Eresi

University of Burdwan University of Calcutta Bangalore University
M. Ranganatham G. Soral Lalit Gupta

University of Madras Maharshi Dayanand University J.N. Vyas University
Bharati V. Pathak A. K Singh

Gujrat University 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.
CONTENTS
SI. No. Title of Article Page No.
1. MEASURES OF SHAREHOLDERS’ VALUE CREATION : 1

AN ASSESSMENT
Prof. Arup Chattopadhyay & Dr. Debdas Rakshit
2. COMMERCE EDUCATION IN THE CHANGING BUSINESS 18
SCENARIO IN INDIA : CHALLENGES AND OPPORTUNITIES
Prof. Prithul Chakraborty
3. JOB STRESS OF WORKING NURSES : CAUSES AND 27
CONSEQUENCES-A STUDY AT NORTH BENGAL MEDICAL
COLLEGE, DARJEELING
Dr. Debabrata Mitra & Mr. Durlav Sarkar
4. RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A 41
VILLAGE IN JALPAIGURI DISTRICT
Dr. Bhaskar Bagchi & Dr. Jaydeb Bera
5. GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN 53
TEXTILE INDUSTRY : AN ANALYTICAL STUDY
Mr. V. Neelamegam
6. GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON 63
INDUSTRY AND EMPLOYMENT IN INDIA
Dr. Sanjit Kumar Das & Dr. Indranil Chakrabarty
7. PERFORMANCE ANALYSIS OF CENTRAL PUBLIC SECTOR 74
ENTERPRISES (CPSES) IN INDIA
Dr. Kartik Chandra Nandi
8. FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION 89
Dr. Pranam Dhar & Mr. Anirban Sarkar
Students’ Section :
9. ENVIRONMENTAL IMPACT ASSESSMENT : A STRATEGIC 101
MANAGERIAL DECISION MAKING TOOL
Mr. Somnath Paul
EDITORIAL
A hearty welcome to this fifteenth annual issue of our Departmental journal-Vidyasagar
University Journal of Commerce. We have been carefully nurturing it towards maturity. It is the
readers, contributors, and editorial board members who have lent us unstinted support all through
the past years to bring it up to the present stage. We are grateful to all of them with the desired
expectation to have continued cooperation in the future years to come.
One important critical quality factor for sustenance and enhancement of the quality of the
journal is the ‘blind review’ process. 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. Another important feature is the earmarked space for ‘Students’
Section’, objectively maintained to motivate students for contributing articles. We are delighted
that this issue presents a write up from one of our students.
This volume contains nine articles including one in ‘Students’ Section’. Almost all of them
are from different areas of finance, accounting, human resource management, economics, or
from common areas like commerce education and environment. The specific issues studied in
five of the articles cover subjects like shareholders’ value creation, job stress of working nurses,
case study of rural credit in West Bengal, performance analysis of Central Public Sector
Enterprises operating in India, and forensic accounting. 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).
I must gratefully recognise the gesture of my departmental colleagues for their cooperation
and sharing of the editorial tasks. Mr. Tagar Lal Khan deserves special mention for tactfully and
carefully managing the stupendous task in his capacity as the Executive Editor. I cannot leave
without recognizing the role of our Mentor, Prof. S. K. Pramanick, the honourable Vice-Chancellor
of our University. He has been with us all the time with his valuable and novel suggestions for
continuous improvement of the quality of the journal. For example, one of his novel ideas was to
dedicate a particular issue of the journal on a focused theme. We are sorry that we are yet to
attain that level. In the end, Mr. Parimal Giri, the Proprietor of M/s. Giri Printers deserves equal
credit for crashing the printing time without sacrificing its quality. We’ll perceive our efforts to
be successful only if this journal is well accepted by the readers.
Dated : Midnapore Sd/- K. C. Paul

The 31st March 2010 Editor-in chief
Vidyasagar University Journal of Commerce
Vol. 15, March, 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. But none of these is free from limitations. A modest attempt
has been made in the study to measure this value actually from shareholders’ point of view
using a new methodology. It is proposed that instead of traditionally computing MV/BV,
EVA, MVA or SVA the shareholders’ value creation should simply be calculated as: Market
value of equity multiplied by (Shareholders’ return – Ke). 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, of course, after the
eliminating short-term volatilities in share prices.
Empirically it is observed that this proposed conceptually sound method is totally different
from other existing methods of value creation.
Introduction
In the present era of globalization companies of emerging economies are facing new challenges.
Severe competition, rapid technological change, wide volatility in real and financial markets
etc. have increased the burden on executives to deliver superior performance in general and
value for their shareholders in particular. To generate value for shareholders value based
management system has been developed, which seeks to integrate financial hypotheses with
strategic and economic philosophy of the company.
But value creation process has been given emphasis exclusively by the scholars using different
matrices over time. Martin and Petty (2000) have postulated that it can be best measured
within the company using an economic profit metric, given the amount of total capital used to
generate those profits. 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,
including the cost of capital, EVATM accurately captures the combined productivity of all
factors of production in a single measure”. Morin and Jarrell(2001) opine that “traditional
performance metrics such as earnings per share(EPS), book value(BV), return on equity(ROE),
* Professor, Department of Economics, The University of Burdwan, Golapbag- Burdwan, W.B., Pin-
713104 E-mail: arup.chatto@yahoo.co.in
** Reader, Department of Commerce, The University of Burdwan, Golapbag- Burdwan, W.B., Pin-713104
E-mail: debdas_rakshit@yahoo.co.in
MEASURESOFSHAREHOLDERS’VALUECREATION:AN......
return on assets (ROA), 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”.
In November 1996, the Former Chairman and the Chief Executive Officer [Roberto C.
Goizueta] of Coca Cola, made a lengthy statement in favour of value creation as noted below:
“At the Coca Cola Company, our publicly stated mission is to create value over time for the
owners of our business. In fact, in our society, that is the mission of any business: to create
value for its owners----. We live in a democratic capitalist society, and here, people create
specific institutions to help meet specific needs. Governments are created to help meet civic
needs. Philanthropies are created to help meet social needs. And companies are created to
help meet economic needs. Business distributes the lifeblood that flows through economic
system, not only in the form of goods and services, but also in the form of taxes, salaries and
philanthropies. Creating value is a core principle on which our economic system is based; it is
the job we owe to those who have entrusted us with their assets. We work for our share
owners. That is – literally – what they have put us in business to do. Saying that we work for
our share owners may sound simplistic- but we frequently see companies that have forgotten
the reason they exist. They may even try in vain to be all things to all people and serve many
masters in many different ways. In any event, they miss their primary calling, which is to stick
to the business of creating value for their owners”.
Against this backdrop, the present paper makes an attempt to give the relevant answers to the
following questions :
I. Do executives really influence the creation of value or is it just the general
market movement that brings stock prices up and down?
II. Does the higher growth as well as profitability or EVA lead to increased value
to shareholders?
III. How can shareholders’ value be created and analyzed?
IV. 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. Data base and
methodology of the study are included in section-III. 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.
[6] Vidyasagar University Journal of Commerce
Arup Chattopadhyay & Debdas Rakshit
Review of Literature
For the last seventeen years, researchers, corporate professionals and consultant firms engaged
in the field of finance have been paying their attention on the EVA, admitting the limitations of
traditional measures of performance; 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. The present section briefly
thrashes out the notable researches carried out so far by the scholars in the field.
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. It is directly linked to the
creation of the shareholders’ wealth over time. 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 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. 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.
Tully (1993) has postulated that there is no tricky situation about the technique through which
the EVA can be augmented. It is a fundamental measure of return on capital and there are just
three ways to increase it:
I. Earn more profit without using more capital;
II. Use less capital and
III. Invest capital in high return projects.
Stewart (1994) has opined that “EVA is a powerful new management tool that has gained
growing international acceptance as the standard of corporate governance. It serves as the
centerpiece of a completely integrated frame-work of the financial management and incentive
compensation”. He also argues that it can transform energies and resources to create
sustainable value for companies, customers, employees, management, government and
shareholders.
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. Traditionally corporate
performance has been measured in terms of earning per share (EPS). This concept is believed
to encourage myopic behavior and considers that shareholders are a free source of funds.
The EVA has been proposed as more sensible alternative.
Vidyasagar University Journal of Commerce [7]

Mayfield (1997) has observed that investing in all of those projects, 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. The traditional accounting techniques are
familiar with concept of residual value, 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. EVA provides an excellent tool for strategy planning, capital
budgeting decision, pricing decision and also basis for incentive compensation.
KPMG-BS Study (1998) has selected top100 companies from bs-1000 list of companies
and examined their data on EVA, Sales, PAT and MVA criteria for the year 1996-97.
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.
Banerjee and Jain (1999) carried out an empirical research in this field. Five
independentvariables, namely earning per share ( EPS), average return on net worth
(ARONW), capital productivity (KP), 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. 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. 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.
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). The author concludes that there is no relationship between
EVA and MVA in almost all sample companies during the study period. 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. They also found no significant relationship
between these two performance matrices.
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. Now the business
world is moving towards greater transparency and superior corporate governance. Shareholder
value creation aspect is of utmost importance in the present scenario of corporate performance
and management. So one cannot deny the present necessity of an exclusive study in this field
in any country.
[8] Vidyasagar University Journal of Commerce

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, viz Hindustan UniLever
Ltd (HUL) and Colgate Palmolive (India) Ltd (CPIL) have been selected. The period of the
study is last five years, from 2002-03 to 2006-07. The relevant data for the study have been
collected from the secondary sources like BSE Stock Exchange Official Directory, Capita
line -2000 data base package, Business newspaper, Internet etc.
The following four approaches are generally employed for measuring and analyzing the
shareholders’ value creation:
I. The Market value to Book value approach.
II. The Economic Value Added (EVA) approach
III. The Market Value Added (MVA) approach
IV. The Shareholder Value Added (SVA) approach.
Each of these approaches is briefly discussed below.
(I) The Market value to Book value approach.
A firm is said to create shareholders’ value when its market value per share is greater than its
book value. If we rely on the Fundamental Analysis, then the market value of a share may be
considered as the present value of the expected stream of dividend per share (DPS). DPS
depends on the firm’s payout ratio (1-b) and the earnings’ growth (g). But g depends on the
retention ratio (b) and the return on equity (ROE). More specifically,
g = b x ROE.
The stream of DPS is discounted at the cost of equity (Ke). For calculating Ke, the Capital
Asset Pricing Model (CAPM) or Dividend Growth Model (DGM) can be used. 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. As per the CAPM, the cost of equity can be determined as follows:
Ke = Rf + β ( Rm – Rf)
Where,
Rf is the Risk free return, Rm indicates market rate of return and β represents the systematic
risk of the company’s equity share.
Vidyasagar University Journal of Commerce [9]
The market value per share (MV) is then given by:

∞DPSt
MV = Σ —————————
t=1 (1+ Ke )t
∞EPSt (1-b)
= Σ ————————— (1)
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)
MV = —————— (2)
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 = —————————— (3)
Ke – g
MV ROE X (1-b)
—— = —————————
BV Ke – g
MV ROE - ROE X b
—— = —————————
BV Ke – g
[ 10 ] Vidyasagar University Journal of Commerce
MV ROE - g
—— = —————— (4)
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.,
Vidyasagar University Journal of Commerce [ 11 ]

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
reflects the firm’s history. All the items of financial statements, which explain what has happened
during a certain year and also of the balance sheet, which reflects the state of a firm’s assets
and liabilities at a certain point of time are historic data. But conceptually a company creates
value for its shareholders when the shareholders’ return exceeds the equity’s cost (the required
return to equity). A company destroys value when the opposite situation occurs. 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. As usual Ke is to be calculated using
CAPM based on estimating market line.
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. 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. Further,
both these parameters should be estimated from the over time general movement of share
marketwhichisfrequentlycharacterizedbyshort-termvolatilities.Toavoidshorttermvolatilities,
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.e., -
0.1<∆ Pt<+0.1]. Corresponding to the dates of normal values of Nifty, we have taken each
company’s share prices for computing β as well as market return. But, as mentioned above,
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, if any. Accordingly we have collected
share price data for the period 2000-01 to 2006-07 though our period of study is from 2002-
03 to 2006-07. For instance, 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. Similarly, to
compute β of any sample company for the year 2003-04, we have regressed share price
return on the Nifty return taking respective normal data for the period 2000-01 to 2003-04.
This analysis is based on weekly data which is free from any day-effects.

Major Computations and Findings

Table - 1
Year 2006-07 2005-06 2004-05 2003-04 2002-03
Particulars HUL CPIL HUL CPIL HUL CPIL HUL CPIL HULL CPIL
Market Value to
Book Value ratio 17.78 16.12 19.58 21.68 28.63 9.91 13.52 7.26 10.47 6.02
(in times)
Economic Value
Added (Rs.in 1189.95 155.75 1088.30 100.34 971.58 83.78 1482.15 75.65 1189.67 54.75
crores)
Market Value
Added (Rs.in crores 4367.42 -1355.14 11831.45 3406.55 -13471.34 697.63 5051.75 118.99 -9223.03 -263.82
Shareholder Value
Added (Rs.in crores) 5692.9 -1225.94 12932.07 3508.55 -12370.72 792.83 6650.95 200.59 -8012.34 -206.02
Share holders’
return (%) 1 22.03 7 25.66 -9 8.05 -5 -3.12 1 -13.06
Cost of
Equity (%) 13.11 14.63 12.28 11.91 13.82 13.31 15.35 13.37 15.55 14.69
Closing Market
Value (Rs in Crores) 47786.09 4520.31 43418.67 5875.45 31587.22 2468.9045058.58 1771.27 40006.81 1652.28
Shareholders’
Value Creation -5786.9 334.48 -2292.51 807.67 -7208.2 -129.79 -9169.42 -292.00 -582.99 -458.50
(Rs in Crores)
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. In the case of HUL, on an average, it is found to be 18 during the period under
study, ranging from 28.63 (2004-05) to 10.47 (2002-03). On the other hand, in the case of
CPIL it ranges from 21.68 (in the F.Y.2005-06) to6.02 (in the F.Y. 2002-03) and the average
value is 12.20 during the study period. The Table also shows that both the companies have
been always able to create shareholders’ value based on market to book value approach.
EVA-based performance measurement not only provides a far more accurate report card on
corporate financial performance than conventional measures, but also has considerable
implications for companies on how to make strategic decisions and manage the healthier
financial performance for creating shareholders’ value. EVA created by the sample companies
during last five years (i.e., 2002-03 to 2006-07) is also depicted in Table-1. It discloses that
EVA of HUL registered a fluctuating trend during the period under study. On an average it
was Rs.1184.33 crore during the said period. On the other hand CPIL was able to improve
the EVA steadily during the study period. 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.
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. The highest MVA & SVA in the last five
years were Rs.11831.45 crore & Rs.12932.07 crore in the F.Y.2005-06 of HUL and
Rs.3406.55 Crore & Rs.3508.55 Crore in the F.Y. 2005-06 of CPIL respectively. MVA &
SVA were positive in the F.Y. 2003-04, 2005-06 and 2006-07 of HUL and from 2003-04
to 2005-06 of CPIL, implying thereby that the shareholders’ value was created in these
years.
But the Market value to Book value ratio, EVA, 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; but in the above approaches shareholders’ return is not computed.
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.
For instance, the CPIL’s share price at the end of FY 2001-02 (i.e. 31-3-2002) was Rs.141.20
and at the end of FY 2006-07 (i.e. 31-03-2007) was Rs.332.65. Shareholders holding
CPIL’s share during this period also received dividends. 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
i.e.,
4.25 6 7 7.5 (9.5 + 332.65)
141.20 = ———— + ——— + ——— + ——— + —————
(1+r)1 (1+r)2 (1+r)3 (1+r)4 (1+r)5
We find that during 2001-02 to 2006-07, the CPIL’s shareholders earned a discounted cash
flow return on equity, r, of approximately 22.03%. The net return can be computed by
considering CPIL’s cost of equity, which is estimated at about 14.63%. Thus the shareholders
earned 7.40% net return which is in excess of the cost of equity. If we consider the period
from 2000-01 to 2005-06 (instead of taking 2000-01 to 2006-07), the DCF return on
equity (as per estimating CAPM) comes to 25.66%. In the same way we have also computed

return on equity of HUL. In case of CPIL the company is able to create value for shareholders
only for two years (i.e., F.Y 2005-06 & 2006-07) and destroys value for the rest years. But
the most noticeable point is that under this method HUL’s shareholders have destroyed value
for all the years during study period.
Conclusion
Empirically it is observed that the proposed definitionally sound method is total different from
other existing methods of value creation. The shareholders value should depend on future
cash flows and their risk. 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. Shareholder value
creation then actually emphasises the present value of future cash flows rather than earnings.
Earnings suffer from accounting policy biases and subjectivism. They are not directly linked to
value. The effective orientation of shareholders’ value creation necessitates a change in the
culture and mindset of the company. 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.
References :
• Al Ehrbar, “EVA: The Real Key to Creating Wealth”, John Wiley & Sons Inc
• Banerjee, A. (2000) “Linkage between Economic Value Added and Market Value: An
Analysis”, Vikalpa, Vol.25, No-3, July – September, Pp.23-36.
• Banerjee, A. and Jain, S.C (1999), “Economic Value Added and Shareholder Wealth:
An Empirical Study of Relationship”, Paradigm, Vol.3, No-1, January –June, Pp- 99-
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Annexure - I
HINDUSTAN UNILEVER 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 219.4 205 272 131.25 174
Book Value per share 12.34 10.47 9.5 9.71 16.62
Market value to Book value Ratio 17.78 19.58 28.63 13.52 10.47
Computation of Economic Value Added (EVA)

Net profit before interest after tax 1554.01 1383.99 1345.29 1853.91 1764.71
Less Cost of capital 364.06 295.69 373.71 371.76 575.04
EVA 1189.95 1088.30 971.58 1482.15 1189.67
Computation of MVA & SVA

Closing Market Value of Equity 47786.09 43418.67 31587.22 45058.56 40006.81
Shareholders' Fund
Less Opening Market Value of Equity 43418.67 31587.22 45058.56 40006.81 49229.84
Shareholders' Fund
MVA 4367.42 11831.45 -13471.34 5051.75 -9223.03
Add Dividend 1325.48 1100.62 1100.62 1599.20 1210.69
SVA 5692.90 12932.07 -12370.72 6650.95 -8012.34
Computation of Shareholders' return for one year

Financial Year 2006-07 2005-06 2004-05 2003-04 2002-03
Opening Market Price -272 -131.95 -154.4 -148.35 -225.15
CL Market Price + Dividend 211.2 277 136.95 159.9 153.85
Closing Market price 205.2 272 131.95 154.4 148.35
Dividend 6 5 5 5.50 5.5
Shareholders' return for one year -22% 110% -11% 8% -32%
Computation of Shareholders' return for Five years

Financial Year 2006-07 2005-06 2004-05 2003-04 2002-03
Opening Market Price -225.15 -219.25 -241.24 -226.50 -159.24
Dividend -1st Year 5.5 5 3.5 2.90 2.20
Dividend -2nd Year 5.50 5.5 5 3.50 2.90
Dividend -3rd Year 5 5.50 5.5 5.00 3.50
Dividend -4th Year 5 5 5.50 5.5 5.00
Dividend -5th year+Closing Share Price 211.2 277 136.95 159.9 153.85
Shareholders' return for Five years 1% 7% -9% -5% 1%

Computation of WACC
Net Shareholder Funds 2723.49 2305.62 2092.71 2138.72 3658.87
Secured Loans 37.13 24.50 1453.06 1603.70 19.62
Unsecured Loans 35.47 32.44 18.06 100.61 38.68
Total Debt 72.60 56.94 1471.12 1704.31 58.30
Capital Employed 2796.09 2362.56 3563.83 3843.03 3717.17
Equity proportion 0.97 0.98 0.59 0.56 0.98
Debt Proportion 0.03 0.02 0.41 0.44 0.02
Interest Rate 14.78 33.72 8.84 3.92 15.75
Cost of debt 9.61 21.92 5.74 2.55 10.23
Cost of Equity under CAPM 13.11 12.28 13.82 15.35 15.55
WACC 13.02 12.52 10.49 9.67 15.47
Computation of cost of equity
Risk free rate (%) 9.00 9.00 9.00 9.00 9.00
Systematic Risk coefficient (Beta) 0.22 0.30 0.36 0.32 0.34
Expected market return (%) 27.98 20.12 22.41 28.70 28.18
Cost of Equity under CAPM (%) 13.11 12.28 13.82 15.35 15.55

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) 332.65 432.15 182.05 130.5 121.75
Book Value per share (Rs) 20.63 19.93 18.37 17.97 20.22
Market value to Book value Ratio 16.12 21.68 9.91 7.26 6.02
Computation of Economic Value Added (EVA)

Net profit before interest after tax 197.43 133.02 117.77 108.69 95.31
Less cost of capital 41.68 32.68 33.99 33.04 40.56
EVA 155.75 100.34 83.78 75.65 54.75
Computation of MVA & SVA

Closing Market Value of Equity 4520.31 5875.45 2468.90 1771.27 1652.28
Shareholders' Fund
Less Opening Market Value of Equity 5875.45 2468.90 1771.27 1652.28 1916.10
Shareholders' Fund
MVA -1355.14 3406.55 697.63 118.99 -263.82
Add Dividend 129.20 102.00 95.20 81.60 57.80
SVA -1225.94 3508.55 792.83 200.59 -206.02
Shareholders' return for one year

CL Market Price + Dividend 342.15 439.65 189.05 136.50 126
Closing Market price 332.65 432.15 182.05 130.50 121.75
Dividend 9.5 7.5 7 6.00 4.25
Shareholders' return for one year -20.83% 141.50% 44.87% 12.11% -10.76%
Shareholders' return for five years

Financial Year 2006-07 2005-06 2004-05 2003-04 2002-03
Dividend -1st Year 4.25 8.25 3.00 3.00 3.00
Dividend -2nd Year 6.00 4.25 8.25 3.00 3.00
Dividend -3rd Year 7.00 6.00 4.25 8.25 3.00
Dividend -4th Year 7.50 7.00 6.00 4.25 8.25
Dividend-5thyear+ClosingSharePrice 342.15 439.65 189.05 136.50 126.00
Shareholders' return for Five years 22.03% 25.66% 8.05% -3.12% -13.06%

Computation of WACC
Financial Year 2006-07 2005-06 2004-05 2003-04 2002-03
Net Shareholder Funds 280.52 271.07 249.77 244.31 275.02
Secured Loans 0.00 0.00 0.00 0.00 0.00
Unsecured Loans 4.28 4.36 3.98 2.17 2.14
Total Debt 4.28 4.36 3.98 2.17 2.14
capital employed 284.80 275.43 253.75 246.48 277.16
Equity proportion 0.98 0.98 0.98 0.99 0.99
Debt Proportion 0.02 0.02 0.02 0.01 0.01
Interest Rate 22.90 13.53 29.15 27.19 11.21
Cost of debt 14.88 8.80 18.94 17.67 7.29
WACC 14.63 11.86 13.40 13.40 14.63
Computation of cost of equity

Risk free rate (%) 9.00 9.00 9.00 9.00 9.00
Systematic Risk coefficient (Beta) 0.30 0.26 0.32 0.22 0.30
Expected market return (%) 27.98 20.12 22.41 28.70 28.18

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, there has been a
sweeping transformation in almost all spheres of trade, industry and commerce. In
this scenario, the organizations have to face new challenges, threats and
opportunities in terms of technology, quality, fierce competition, customer relations,
human resource development, hedging of financial risk and so on. 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, analytical power, responsiveness to real-life situations, problem-
facing attitudes, opportunity-identifying and utilizing capabilities and so on to face
the challenges of tomorrow. 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.
Introduction
Today India holds a very high position, next to China only, among the fast growing economies
in the world. The annual growth rate of GDP in India has increased from 2-3% during 1950s
to 8-9% in 2006-07. With the transformation from regulations to liberalization, nationalization
to globalization and from planned economy to open market economy, there has been a sea
change in the trading and industrial spheres of the country. The wave of change also enters
into the service sector. On the other hand, India witnesses a considerable growth in the field of
higher education also. The ratio of enrollment of the students with higher educational institutions
has increased from 1% of the total number of eligible population (i.e., people belonging to the
age group of 18-23 years) in 1950-51 to 10% at present. In this backdrop, a few questions
may hover in our minds regarding commerce education – what roles commerce education is
expected to play in this changing scenario; can it fulfill the expectation adequately; if not, why
; and how commerce education can be modernized according to the changing demands of the
society.
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.
Professor, Centre for Management Studies, JIS College of Engineering, Kalyani, Nadia PIN : 741235
E-mail : prithul_cb@yahoo.co.in
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. Wealth creation brings about
success in business, ensures survival of the business and establishes a reputation for it in the
eyes of the society. But in India creation of excellent entrepreneur or businessman was not the
objective behind introduction of commerce education in the British period. When a commerce
school was set up for the first time in Calicut by the British government in 1895, the objective
behind that was to produce efficient domestic clerks to meet the requirement of typists,
stenographers, store-keepers and book-keepers of the mercantile and government offices.
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, undergraduate (UG) and post-graduate (PG) levels during that period, it was
very insignificant and limited to a few number of schools, colleges and universities. But during
the pre-independence period and even after independence till 1960s, commerce was more
recognized as a vocational stream of education than an academic one. The main purpose of
vocational commerce education was to provide the students with essential occupational and
technical skills and knowledge. A number of vocational institutions were set up here and there
to offer packages like office secretaryship, typing and stenography, accounting, marketing
and salesmanship, purchasing and store-keeping, banking, etc. Such vocational courses were
very much popular since the students became employment worthy through pursuing these
courses and got clerical, secretarial and accounting jobs in different industrial and commercial
houses both in the public and private sectors.
However, after independence with the regional growth of trade and industry in India during
the successive five year plan periods, there has been a gradual increase in the number of
schools and colleges introducing commerce education both in urban and rural areas. 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.
Previously commerce education was basically restricted to accounting education although
along with accountancy some other papers like economics, statistics, auditing, tax, laws, business
management, etc. were taught at the UG and PG levels. 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. A number of leading universities and colleges in India have introduced certificate or
diploma courses in emerging areas like finance and control, banking and insurance management,
international trade, travel and tourism, marketing, foreign exchange management, cooperative
management, etc. With the advancement of trade, commerce and industry in the country,
COMMERCE EDUCATION IN CHANGING BUSINESS SCENARIO IN ...............
commerce education has achieved an important position for the aspiring students’ community.
This is substantiated by the fact that enrolment of commerce students has been substantially
increased from 0.36lakh 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.
Professional Commerce Education – An Important Dimension
On the other hand, setting up of the Institute of Chartered Accountants of India in 1949
added one new dimension to the commerce education in India, i.e., professional education in
audit and accountancy. 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. Meanwhile, a number of management institutes were also established in
different parts of the country. There is no room of doubt that emerging progress in trade and
industry, enactment of the new company laws and many other relevant laws in the country and
an urge for having discipline, transparency, credibility, value addition and up-gradation in the
commercial, financial and accounting and other managerial activities of the corporate bodies
have led to the inception of these professional institutions. On the other hand, throughout their
long journey, 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. At the same time through promulgating different
standards, guidelines and norms, these institutions are rendering valuable services to the industrial
and commercial sectors in the matter of bringing quality, credibility and acceptability in their
financial and cost accounting reports, achieving global convergence of financial reporting,
efficient utilization of resources, corporate governance, compliance with statutory rules and
regulations, protection of the interest of all stakeholders and so on.
Perceptions of Corporate Houses regarding Commerce Education in India
Now let us consider the views of the industrial and commercial houses regarding the value,
credence and importance of the commerce education in India. The experience in this regard
was not encouraging at any time. From the very beginning there has been a panicky realization
among the employers’ circle both in public and private sectors that irrelevant, inadequate and
outdated commerce curriculum imparted by the colleges and universities generate a large
number of unemployable graduates and post graduates every year. To them most commerce
degree-holders are at best fit for becoming clerks and not managers. Previously the corporate
houses were reluctant to consider the candidature of even a 1st Class M.Com degree-holder
for the post of an officer in the Finance and Accounts Department unless he had any professional
qualification. This uncaring attitude of the employers towards commerce degree-holders is
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. 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. The pedagogy
of commerce education is mostly text book and class room-based, theory-oriented and far
away from what happens in practice.
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, E-business
or E-commerce, Information System Management, Risk Management, Portfolio Management,
Financial Markets and Services, Consumer Behaviour, Strategic Management, International
Trade and Finance, etc. The answer to this question is very simple. The open economic
environment and the WTO regime have led to a sweeping transformation in almost all facets
of trade and industry. In this critical juncture, the organizations have to face new challenges,
threats and opportunities in terms of technology, quality, fierce competition, customer relations,
human resource development, financial risk hedging, remodeling of organizations through
merger / de-merger, joint venture, and so on. In this situation, if growth be a dream to an
organization, survival has become its nightmare. Only that organization can survive now which
is able to show excellence in all spheres of its activities. Therefore, 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.
Paradigm Shift in the Nature and Quality of Jobs and Commerce Education
Now with the blessing of information technology, many routine jobs like accounting, budgeting,
store-keeping, inventory control, etc. can be done using sophisticated software packages
with maximum accuracy and perfection and minimum time, labour and cost. Even under the
ERP system, 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 well-
coordinated manner. The revolution of IT has given rise to e-commerce, e-finance, e-marketing,
e-banking, e-governance, e-filing of tax returns and so on. All these provide an impulsion to
the modern organizations for restructuring and reengineering their operations to tap the benefit
of such technological advancements. These amazing developments have caused a paradigm
shift in the nature and quality of jobs required by the companies from their employees. Need
for a clerk is diminishing gradually. Now the employers demand adequate IT skills, more

analytical power, critical thinking and responsiveness to real-life situations, problem-facing

attitudes, opportunity-identifying and utilizing capabilities, ability to locate, obtain and organize
information etc. from the young generation employees.
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. It creates a mismatch between the aforesaid demands and
supply of standard human resources. 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, project works, practical training, business communication, group
discussion, soft skill development, business game, etc. Unfortunately these are given less
emphasis in the ongoing commerce curriculum of most of the colleges and universities. 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.
Is It Necessary for Commerce Education to be more Profession and Management-
Oriented?
A pertinent question may now be raised – where there are professional courses like CA,
CWA and MBA, 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.
First, the value and importance of commerce education to the society is more concerned with
generating employable students than scholars. So it should be more job-oriented than academic
one. Therefore, commerce education may gradually loose its importance, popularity and even
existence, if it fails to inject professionalism and managerial aspects in its course contents.
Second, today the corporate employers are vigorously looking for those prospective
employees who have specialization in specific areas like finance, accounting, marketing, HR
and IT. There is a general impression that a commerce degree-holder is a jack of all trades but
master of none. For shirking off this impression, the commerce curriculum at UG and PG
levels should focus more on specialization aspects in different domains of business.
Thirdly, in order to generate employable graduates and postgraduates, the commerce education
needs to be more practical-oriented. 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. But it is equally
true that no theoretical knowledge is perfect and complete unless it is supported by practical
experiments. This is also applicable for commerce education.
Prithul Chakraborty
Fourthly, knowledge in commerce should not and cannot remain static. For development of
such knowledge and creation of new knowledge, research is very much imperative. The
academic institutions may continue to contribute towards research activities in their own manner.
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. If there is a greater interface among academic institutions,
professional institutions and industrial sectors in respect of research works, the outcomes
therefrom shall lead to the growth of knowledge and development of trade and industry.
Finally, instead of maintaining a meaningless boundary between the professional institutes and
academic institutes, a closed integration, cooperation, coordination and interaction should be
developed between them in the matter of communication of knowledge in commerce, creation
of new knowledge in commerce and extension of the same. 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.
Sheer possession of technical skill may not be adequate for facing all sorts of on-the-job
problems. Sound theoretical knowledge base coupled with practical skill should be the ideal
combination and commerce education needs to be re-oriented in that way.
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. Although recently many universities have thoroughly
revamped the commerce syllabus to make it more industry-friendly, 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, back-dated and irrelevant to provide employable students to them.
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. Nor any
measure is taken by those institutions to market their courses before the corporate executives.
It is true that education should not be treated as a marketable commodity. But under the
regime of GATS, there is influx of many foreign institutions in India. They are very much
concerned with marketing their courses and curriculums in India. In these circumstances, the
Indian institutions should not have any dogma. At least for the sake of survival in so highly
competitive environment, it is very much imperative for the Indian institutions to market their
courses and curriculums before the corporate bodies. There should be a close link and
interaction between industrial activities and commerce education. For development of industry-
friendly courses and curriculum, the universities may obtain the opinion of the industrial
representatives. The institutions may invite the corporate personalities in seminars, workshops
and panel discussions to exchange their views, opinion and practical experiences with the
teachers and students on many contemporary topics. Industrial visits may be arranged for the
students. During the summer recess, the students may be allowed by the industries, banks and
insurance companies to observe the functions of their finance, accounts, marketing and other
relevant departments. 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. The
academic institutions may invite the experienced executives from different areas of the corporate
houses to deliver lectures before their students. 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.
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, trade and industrial sectors. It
has recognized the need for arranging skill up-gradation of the students as required by the
industrial and commercial houses. 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 suggested that colleges may supplement their degree courses with certificate
/ diploma programmes. To this end, the UGC has offered the undergraduate colleges a special
grant of Rs.1 lakh per course introduced. The UGC also constituted expert committee to
encourage revision of syllabus once in every five years to keep pace with the changing business
environment.
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. For
instance, ICICI Bank has recently introduced e-learning course on banking foundation. 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.
Their target is to produce at least 15 lakhs skilled and knowledgeable students by 2011. IBM
has introduced a web-based and self-directed training course under the name “IBM Web
Sphere Commerce Fundamentals”. 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.

Prithul Chakraborty
Commerce Education to Produce Job - creators also

Commerce education is not only for the job-seekers; it can produce job-creators also through
development of entrepreneurship. 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 students
may be imparted theoretical and practical training on promotion of new venture, project planning,
feasibilitystudies,projectfinancing,etc. Theinstitutionsmayundertakesuchtrainingprogramme
in collaboration with the industries and banks. The banks may come forward with attractive
loan packages to encourage the students in starting new business.
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, there will be more industrialization in the country in near future along with further
development in trade, commerce and service sectors also. This will call for improvement in
the quality and quantity of commerce graduates streaming out of the colleges and universities.
With the increase of the FDI in the country and also with more internationalization of Indian
economy, the demand for such commerce students will grow up who can speak different
languages, who can move easily between cultures and countries and, above all, who have
adequate skill to work efficiently in global environment. Since the present commerce education
system fails to provide this kind of students, industrial and business enterprises are becoming
increasingly anxious about the ensuing crisis of the talented and skilled manpower. 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. This will have an adverse
implication for unemployment problem in India in the long run.
The silver-lining is that a few leading universities and colleges have already taken serious
concern on this issue. They have adopted a number of measures like modernization of
curriculum, introduction of need-based and relevant job-oriented courses, replacement of
teaching by chalk and duster with new pedagogy like audio-visual training, business games,
computer-aided teaching, case study, group discussion, project works, etc. They have also
arranged for soft skill development of their students. But having considered the vast requirement
of the business world and the vast size of the eligible students’ community of the country, very
little progress has taken place so far in respect of modernization of commerce education and
many miles are there to go.
Conclusion
As forecasted by the management guru, Peter Drucker, in the 21st century manufacturing

sector would loose its importance and service sector would make significant contribution
towards national income; knowledge and information rather than capital would be main source
of economic development; business office would be “paper-less” due to IT revolution; HR
managers would be more concerned with HRD rather than HRM; and because of information
boom and communication revolution, there would be little distance between producer and
consumer. So the 21st century is going to experience a radical change in the socio-economic
system and when such change is inevitable, it would be more prudent to anticipate such
change well in advance and take appropriate action for adapting to such change. Then only
one can exploit the best opportunity of the change and deserve a prospective future. 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. 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.
References
• Bhalla, G.S. and Bawa, S. (2004), Environment, Economics And Commerce Education,
Deep & Deep Publications.
• Gupta, V., Gollakota, K. and Sreekumar, A. (2003), Quality in Business Education: A
Study of the Indian Context, Paper presented in the Conference on Business Education
and Emerging Market Economies: Trends and Prospects, Atlanta, Georgia, USA.
• Reddy, D. Obul,(2007), “Revitalising Commerce Education”, Vidyasagar University
Journal of Commerce, Vol.12, March 2007.
• Reddy, D. Obul,(1998), “Redesigning of Commerce Education in India in the Context
of Changing Business Environment”, The Indian Journal of Commerce, Vol.51, No.1,
March 1998.
• Tiwari, S.A., (2005), Commerce Education in the Global Era, Adhyayan Publishers.
• Trivedi, I.V., (2002), Commerce Education in the New Millennium, Rbsa Publishers.
• Importance of Commerce Education, http://www.scribd.com/doc/8232053/commerce-
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discuss.itacumens.com/index.php?topic=48715.0 (accessed on 24-05-2009).

JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES-A

STUDY AT NORTH BENGAL MEDICAL COLLEGE, DARJEELING
Debabrata Mitra*
Durlav Sarkar**
ABSTRACT
Job stress is an important phenomenon in an employee’s working life. The
tremendous work pressure in an organization may lead to job stress which may, in
turn, lead to some serious consequences. Physiological, psychological and
behavioral consequences may generate high blood pressure, heart diseases,
hypertension, alcoholism and may even lead to death. In today’s fast world, people
are running for success. Due to a high degree of competition, organizations are
putting too much pressure on employees for better performance. However, due to
some causes like lack of infrastructure, lack of support from top management, role
conflict, lack of training, etc., employees are not always in a position to respond to
the high expectations of them. And, this mismatch leads to high frustration and
stress. 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. A
questionnaire was developed by using the ORS Scale suggested by Pareek and was
distributed, in a random manner, among 68 nurses.The questionnaire comprises 50
questions. 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.
Multiple Regression Analysis was done to find out these causes of job stress and
the consequences that follow. 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, psychological and behavioral consequences.
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, 1976). Stress arises
from an opportunity, demand, constraint, threat or challenge when the outcome of the event is
important and uncertain (Robbins, 2003, p.577). 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). Uncertainties and unexpected changes are common in
*
Head, Department of Management, University of North Bengal, Darjeeling, West Bengal. E-mail:
debabrata_nbu@yahoo.co.in
**
Lecturer, Department of Management, University of North Bengal, Darjeeling, West Bengal. E-mail:
durlavsarkar1@rediffmail.com
JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES - A STUDY ...............
our lives. People often do not behave as we expect. Major events are often beyond our
control and things do not work out as we want. Stress is therefore unavoidable in human life
(Pestonjee, 1999, pp.15-34).
Stress is a subject which is hard to avoid. Different people have different views about it as
stress can be experienced from a variety of sources. The concept of stress was first introduced
in the life sciences by Hans Selye in 1936.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.
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. 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.
Brown (1977) pointed out that which disease occurs and which internal process is involved,
is the consequence of a very complex interaction of psychological, constitutional or genetic
and environmental factors. The pattern will be unique for each individual. For example one
person may suppress anger and eventually develop the mental dysfunction of depression;
another may suppress anger and eventually develop the migraine headaches. However even
though the development of the specific psychosomatic disease is unique to each individual the
underlying principles are the same. Emotional stress leads to psychological and this results in
an eventual breakdown (disease) of the target organ system. 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, disturbed sleep, loss of appetite, etc.
q Psychosomatic phase : If the stress condition continues these symptoms become more
pronounced, along with the beginnings of generalized physiological symptoms such as
occasional hypertension and tremors.
q Somatic phase : This phase is marked by increased function of the organs, particularly
the target, or involved organ. At this stage one begins to identify the beginnings of a
disease state.
q 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.

Debabrata Mitra & Durlav Sarkar
Sources of Job Stress

Though occupational stress initially arises from constituent factors of job and its psycho-
physical environment, these factors are not inherently stressors. Infact, 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.
This is the reason that we can only hypothetically predict the potency of the job factors or
situations for causing stress, but we cannot categorize or generalize any work-setting variable
as a universal stressor. However some job factors or work conditions such as extreme heat or
cold, chronic dangers, demotion, losses of job, etc. are likely to cause stress to majority of the
workers. But stress resulted from these factors also vary from one worker to another. The
pressures caused from the job factors, in fact, are mediated by the personal characteristics of
the focal worker. Moreover certain psychological and behavioral specialties of the employee
also become consistent sources of stress to him. Thus we can broadly classify all the sources
of occupational stress in two categories i.e. individual characteristics and work setting variables.
Role Stress
Stress resulting from occupation of an organizational role is known as Organizational Role
Stress (ORS). ORS construct developed by Pareek (1983) is relevant for the study of role
stress in organizations. It comprises the following ten types of role stress.
m Inter-Role Distance (IRD) is the result of conflict experienced between different
roles played by the role occupant.
m Role Stagnation (RS) is experienced when the role occupant is given a new role
without adequate preparation. He/she does not accept the new role and keeps on
stagnating in the old role which is more familiar and comfortable.
m Role Expectation Conflict (REC) is the result of conflicting expectations from different
role senders.
m 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.
m Role Overload (RO) is the result of too many or too high expectations.
m Role Isolation (RI) is experienced when the role occupant feels cut off from the channels
of communication.
m Personal Inadequacy (PI) is the result of lack of knowledge, skills or expertise
experienced by the role occupant.
m Self-Role Distance (SRD) arises when a role occupant has to do what he/she does
not like, 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.
m Role Ambiguity (RA) arises from the lack of clarity about role expectations.
m Resource Inadequacy (RIn) is the result of lack of external resources (human resources,
buildings, infrastructure, materials, machines, tools, equipments, books, documents and
information) required for performing the role.
Consequences of Stress
Physiological/Physical Consequences
According to Srivastav (1999) “The relationship of mind and body has fascinated philosophers
and scientists throughout the history. It was believed that a person’s mental state and physical
activities were parts of the individual as a whole”. Researchers in health and medical sciences
have concluded that stress could create changes in metabolism, increased heart and breathing
rates, increased blood pressure, and bring on headaches, and induce heart attacks. In the
following section each of the reported symptoms of the respondents on seven different
Physiological problems are analyzed. These are:
l Tension and Headache
l Weakness
l High Blood Pressure
l Heart Pounding
l Indigestion
l Constipation
l Muscle Aches
Psychological Consequences
On the basis of self-report the identified Psychological problems of the respondents have
been analyzed in this section. The role elements of a job, an employee associated with is the
main source of his/her mental state. Researchers like French and Caplan et al., (1975),
Christopher (1982), and many other have identified role variables to affect various Psychological
states of the role occupants. Srivastav (1985) has established the relationship between role
stress and mental ill health in his extensive study on different group of working people. Srivastav
and Jagdish (1983) identified role conflict as a major factor negatively correlated with
psychological well being of the supervisory personnel. Bannerjee (1996) in his work with
employees of service department has established relationship between role stress and mental
health of the concerned job occupants. Some symptoms of psychological consequence are
Not satisfied with the job
l
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
Robins (1998) describes behavioral consequences as follows: “Behavioral related stress
symptoms include changes in productivity, absence and turnover as well as changes in eating
habits, increased smoking or consumption of alcohol, rapid speech, and sleep disorder.
l Feel like doing strikes
l Feel like early retirement
l Feel Burnout
l Smoking
l Alcohol Consumption
l Remain absent
l Less adjustment with colleagues
l 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.
l Is there any physical consequence of the staff nurses due to IRD, RS, REC, RE, RO, RI,
PI, SRD, RA, RIn variables of role stress?
l Is there any psychology consequence of the staff nurses due to IRD, RS, REC, RE, RO,
RI, PI, SRD, RA, RIn variables of role stress?
l Is there any behavioral consequence of the staff nurses due to IRD,RS, EC, RE, RO,
RI, PI, SRD, RA, RIn variables of role stress?

Methodology
Sample size, 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. 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.
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. 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. The respondent is asked to assign'0' to a statement if she never or
scarcely feels this way;'1' to a statement if she occasionally feels this way and '4' if she very
frequently feels this way. Hence the score of each role stress may range between 0 to 20 and
the total ORS score may vary between 0 to 200.The ratings of the respondents may be added
row wise to give the scores on the 10 role stress dimensions. According to Pareek (1983a and
1983c), the ORS scale can be used for several purposes. 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, groups and organizations. The ORS is certainly one of the best instruments
available today for measuring a wide variety of role stresses.
Hypotheses
H01 : Psychological problem is not correlated with the combination of the variables
(IRD, RS, REC, RE, RO, RI, PI, SRD, RA, RIn) of role stress.
Justification of this Hypothesis is that to check out the impact of ten role stress variables on
Psychological consequences combinedly.
H02 : Physical problem is not correlated with the combination of the variables (IRD,
RS, REC, RE, RO, RI, PI, SRD, RA, RIn) of role stress.
Physical consequences combinedly.
H03 : Behavioral problem is not correlated with the combination of the variables (IRD,
RS, REC, RE, RO, RI, PI, SRD, RA, RIn) of role stress.
Behavioral consequences combinedly.

Findings and Analysis

Causes of Job Stress
After sample survey the responses got from the nurses the Mean, 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.
Thus it gets rank 1 which impacts most on stress level of the staff nurses. 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 (3.09 &
2.49) 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.
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. For this purpose the following scales have been
followed as suggested by Srivastav (1999).
1. Respondents scoring less than 50% of the total score (4×50=200) i.e. 99 or below
are assumed to have low stress or below are assumed to have low stress or no
stress.

2. Respondents scoring more than 50% of the total score (4×50=200) i.e. 100 or
more but below 140 (70%) are assumed to be moderately stressful.
3. Respondents scoring 70% or more of the total Score (4×50=200) i.e. 140 (70%)
and above are considered to be highly stressful.
68 Staff Nurses respond to the questionnaire .The numbers of ORS questions are 50 in total.
In addition to that there are other questions in relation to respondents profile, their physical
problems, psychological problems etc.
The ORS measurements of all these staff are found out with various variables attached to the
same .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. Other factors here
considered are pay scale, qualification, age etc.
TABLE-2
Distribution of ORS score of the total sample population
ORS Score No of nurses Percentage (%)
0-99 60 88.24
100-139 08 11.76
140 & Above NIL NIL
Total 68 100
Respondents scoring less than 50% of the total score (4C50=200) I, e. 99 or below are
assumed to have low stress or no stress. From this table we get that 11.76 percentages of the
nurses are lying in a moderately stressful zone.
TABLE-3
Basic Pay-wise distribution of ORS Score of Nurses
ORS Score Rs. 7500 (%) Rs. 6500 (%) Rs. 4000 (%) Total (%)
& More & More & More
0-99 12 17.65 18 26.47 30 44.12 60 88.24
100-139 2 2.94 1 1.47 5 7.35 8 11.76
140 & Above NIL NIL NIL NIL NIL NIL NIL NIL
Total 14 20.59 19 27.94 35 51.47 68 100.00

Table 3 shows that out of 68 nurses 14 belonging to the basic pay of Rs. 7500 and 2 nurses
are in the moderate or high stressful area. Table shows that 19 nurses belonging to the Basic
pay range of Rs. 6500 and 1 employee of them is in the high stressful area. 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. 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.
TABLE-4
Experience –wise distribution of ORS Score of Nurses
Yrs of ORS ORS ORS
Experience
0-99 % 100-139 % Total %
No
0-4 08 11.76 02 2.94 10 14.70
5-9 22 32.35 04 5.88 26 38.23
10-14 21 30.88 02 2.94 23 33.82
15-19 08 11.76 08 11.76
20-24 01 1.47 01 1.47
24-29
30-34
35 and
above
Total 60 88.24 08 11.76 68 100
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. Nurses of 0-4, 5-9,10-14 yrs experience are more stress full than the
other groups. It depicts that increasing of experiences helps to cope up with the stress in a
better way.

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 35 nurses of 12th standard 4 of them are
in high stress zone and out of 33 nurses having graduation, 4 of them are in the high stress
zone.
TABLE-6
OTHER CAUSES OF JOB STRESS
Table 6 depicts that there are some other causes of job stress of the working nurses. Out of
68 respondents all of them demanded for more training. They demanded for reward system
for good performance. More than 50 percent of the nurses are not happy with their salary and
promotion structure. Most of them are not happy with their superior. They are not happy at all
regarding their infrastructural facility. So these are the other causes for the occupational stress
among nurses.
Impact of Job Stress on Physiological, 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. A multiple regression analysis
is done to find out the multiple correlation coefficient R and the co-efficient of determination
R2.
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=0.689 and the Co-efficient of determination (the proportion of total variation explained by
the multiple regression equation) R2 =0.475
Here R is significant at 5% as well as 1% level of significance, which states that the Hypothesis
-H01 is rejected.
That is there is a correlation between psychological problem and the role stress variables.
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.

-H02 is rejected.
That is there is a correlation between physical problem and the role stress variables.
behavioral 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.
-H03 is rejected.
That is there is a correlation between behavioral problem and the role stress variables.
The findings suggest that a good number of ORS stress variable is causing Physical,
Psychological and Behavioral consequences to the staff nurses of North Bengal Medical
College and Hospital. Now the question arises how to reduce the level of stress of the nurses.
Issues like excessive work pressure, lack of training, harsh behavior from authority, lack of
infrastructure, lack of communication, present pay structure etc are creating stress among the
nurses.
So work redesign, supportive infrastructure, establishing social recognition of the nursing staff,
regular counseling, strong training system, computerization, clear expectation from job etc
can minimize stress of the nurses.
Today private nursing homes are doing a great deal of business in health sector. The

infrastructures are good in private nursing homes. Govt hospitals should be equipped with the
good infrastructure as available in private nursing homes.
Conclusion
The role of an individual worker in an organization has two-fold aspects: Role Demand and
Role Performance. Role Demand is the state of condition that constantly determines the exact
role of the workers in a system. Workers in a system are defined with the role demand
assigned to them. Role Performance on the other hand is the portion of role demand actually
met by a worker. Role performance as such could be measured by the disposition of an
employee made while he/she is at work. The imbalances between those two role factors in
many cases are inevitable and thus produce stress for the individuals in many occasions.
Today the number of patients who have been affected by stress are many. Most of them need
counseling by the experts. Good organizations understand the need for counseling today to
get the motivated workforce. They are conducting assessment centers for the psychological
treatment of their employees. To cope up with the occupational stress, employees should
listen music regularly, should exercise regularly, and communicate to their superiors regarding
any problem, should spend as much time as possible with their family members.
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Behavior,Vol.V,No.1,pp.73-79

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, savings are inadequate to finance
farming and other economic activities. This, together with the differences between
income and expenditure and lack of fixed capital investment of the rural poor, makes
availability of timely credit at affordable rates of interest an essential pre-requisite
for improving rural livelihoods and accelerating rural development.
This paper presents a case study of credit transactions in Nurpur, a village located
in the remote area of Alipurduar sub-division in Northern West Bengal, 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.
Introduction
The provision of credit and generation of savings have long been recognized as an essential
element in any rural development strategy. Credit plays a crucial role in the modernization of
agriculture but its role in the fight against rural poverty has seldom been recognized. In India
rural financial services have mostly been controlled by rich farmers, who are able to use their
large endowment base and influence within the local power structure to secure loans at very
advantageous terms. Credit policies are also generally concentrated on land based agricultural
production programmes, neglecting off-farm activities in which the poor are mainly engaged.
The rural poor- men and women, landless, artisans, 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. The erroneous view is that the poor do not have any
resources, do not save, that they cannot invest in view of immediate consumption needs, and
that they are ignorant of the basic principles of sound money management (Karmakar, 2001).
In the fierce competition for a minute quantum of financial resources, the rural poor naturally
*Senior Lecturer in Commerce, Alipurduar College, P.O. Alipurduar Court, Dist.: Jalpaiguri, W.B., Pin -
736122; E-mail: bhaskarbagchi_apd@rediffmail.com
**Senior Lecturer in Commerce, Pingla Thana Mahavidyalaya, P.O. Maligram, Dist.: Paschim Medinipur,
W.B., E-mail: jaydebbera_2007@rediffmail.com
RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN .......
lost out in the institutional markets and were forced to resort to exploitative informal sources
of credit such as moneylenders and traders. The private moneylenders, landlords and traders
(henceforth termed as professional moneylenders in our study), who are able to respond
quickly thus exploit the poor and further compound their poverty.
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). 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. Though RFIs comprising of Commercial Banks, Regional Rural Banks
(RRBs) and the co-operatives have a large network with an outlet for a population of under
5000 on an average, a large number of the rural poor, particularly weaker sections of the
society, marginal farmers and women continue to remain inaccessible (Dubhashi, 2004).
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. The present study specifically aims at:
o evaluation and analysis of rural credit delivery system in Nurpur;
o identify the prevailing sources of rural credit in Nurpur;
o categorize the problems of rural indebtedness; and
o offer some remedial measures to overcome the problems of rural indebtedness.
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, interest structure of village debt, sources of credit and
purposes of credit. Section 3 analyses the findings of the case study and concluding
observations and suggestions are presented in section 4.
Credit Transactions in Nurpur : A Case Study
One day during our visit to the village Nurpur, in the month of May, 2009, we met a man
named Surendra Oraon who used to weave beautiful wall hangings and other decorative bits
and pieces made of cane. He is a landless labourer who only earns his bread by his expertise
in weaving cane handicrafts. He borrowed Rupees 250.00 from one of the wholesalers of
cane handicrafts for purchasing raw materials i.e. cane, with an agreement that he had to sell
all his finished goods to that wholesaler only to pay off his debt. With this raw material he can
weave 15 pieces which he sold at the rate of Rupees 22.00 per piece and usually it took 3
days to complete the assignment. Thus his total earnings for 3 days stood up at Rupees 80.00
only. When we asked him that why he did not have a loan of from somebody else, he told us
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. During that time it was
2 % to 11.5% per month.
Uttar Banga Kshetriya Gramin Bank (a state run rural bank), which operates in the districts of
Northern West Bengal, runs a local branch at Shamuktala, which is about 10 kilometers away
from Nurpur. Interestingly, Surendra never approached the bank because of its long
cumbersome process and requirement of collateral for credit approval. He is of the opinion
that “if you don’t have any influential person to pursue for your loan, you won’t get it”.
This story exemplifies some interesting aspects of rural credit delivery system that prevails in
Nurpur. It demonstrates the present status of village credit market, difficulties of the assetless
labourer like Surendra in obtaining loans at reasonable rate of interest, 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.
Field study was conducted during April, 2009 to September, 2009 and all credit-related data
were collected during this period covering all 151 households of the village. As the information
on credit is quite susceptible in character, 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. 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.
Village Profile
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. Situated
at a distance of 35 kilometers from the sub-divisional town of Alipurduar, most of the villagers
are small and marginal farmers and landless labourers. Few villagers have been able to find
jobs in primary/secondary schools, anganwadis, government offices and other business
establishments outside the village. Some of them earn their livelihoods by weaving cane
handicraft items which they sold to their Mahajans at Shamuktala, a locality which is 10
kilometers away from Nurpur.
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. Almost 59.00% (494 individuals) of the
total villagers belong to scheduled castes, 23.06% (193 individuals) belong to scheduled
tribes and 17.94 % (150 individuals) belong to upper castes like Brahmins, Kayastha, Kshatriya,
etc. Other prominent castes are Rajbanshi, Rava, Nageshia and Oraon. However, all the
village households belong to Hindu community. The Oraons of which Surendra is a member,
are the most insolvent and impoverished castes of the village along with Ravas and Nageshias.
Amongst 8 Rava households 3 have cultivation land of less than 1 bigha, 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.
Surprisingly none of the households amongst these 3 castes have possession of land of more
than 1 bigha. Amongst 151 village households, 60 households (39.74%) are landless and
only 8 households (5.30%) possess land of more than 2 bighas. Literacy rate is also very low
among the Nageshias followed by Oraons and Ravas. 4 Oraon households (26.67% out of
total Oraon households) and total 18 households (11.92% out of 151 households) have monthly
income of less than Rs. 1000. This clearly explains the pitiable condition of these Nurpur
households. Detail demographic and socio-economic status of the households is classified in
Table 1.
Table -1
Demographic and Socio-Economic Status of the Villagers
Source: Field Survey # Figures in parenthesis indicates number of individuals.

Note: 6.4 bigha =1 acre; C=Cultivation; J=Jobholders; CL=Casual labour; SE=Self employed

Features of Credit Transactions

The rural credit markets in Nurpur have presented many fascinating features. Traditionally,
villagers relied primarily on professional moneylenders, relatives and friends to meet their
social expenditures as well as for their survival. 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, 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, medical needs,
meeting expenses on litigation, etc. they are forced to approach non-institutional sources (like
local village moneylenders, traders, relatives and friends). For the rural poor, there is a very
thin boundary line between consumption and production credit needs. Rural borrowers are
more interested on timely and sufficient loans with low transaction costs.
Credit transactions in Nurpur are quite high and total outstanding debt of all Nurpur households
approximately sum up to Rs. 8, 97,655.00 as on September, 2009. This huge debt also
includes amount of long term loan borrowed by 9 villagers from different public lending
institutions. Interestingly all of these 9 villagers are employed either in primary/secondary
schools or in various government departments. 124 households (82.12%) are involved in
credit transactions and 23 households (28.48%) are engaged in money lending business to
their fellow Nurpur villagers. Out of these 23 households 12 of them have outstanding debt
either to the public lending institutions or to the private moneylenders. 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. A profile on the structure
of village debt is given in Table 2.
Table -2
Debt Profile of Nurpur (as on September, 2009)
Source: Field Survey # Figures in parenthesis indicates percentage of households.

Interest Structure of Village Debt

It is interesting to note that about 1.8% of total village debts are interest free and 2.4% are
obtained at concessional rate (i.e. at the rate of 4% to 14% per annum). The main sources of
interest free and concessional credit are friends, helpful relatives, neighbours, and other allies
and patrons. 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, while the interest structure of public lending institutions varied from 8.5% 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.
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. 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, while Nadia district in
the same state is less prosperous and the interest rates range from 72% to 120% per annum)
(Karmakar, 2001).
Out of total credit obtained in Nurpur, 81.6% (Rs. 732405.00) of the amount has been
obtained at an interest rate ranging from 8.5% to 16% which also includes Rs. 9873.00
(1.1% of total debt) borrowed by Nurpur households from private money lenders at
concessional rate, and the rest 80.5% of the amount from public lending institutions. Total
outstanding debt owed by the villagers to different lending institutions according to the rate of
interest is given in Table 3.
Table - 3
Total Outstanding Debt of Nurpur Households According to the Rate of Interest
Source: Field Survey. * Rounded off to nearest rupee.

Sources of Credit
In our study it is revealed that though public lending institutions sanctioned 80.5% of the total
village credit, none of the single household with average monthly income of up to Rs. 2500
per household was able to obtain even a slightest amount from these formal institutions. All
these 68 households do have some debt to professional moneylenders, relatives, friends,
neighbours, allies etc. The public institutions being inaccessible to the poor households of
Nurpur, they have no other alternatives than borrowing from professional moneylenders at
very expensive rate of interest. Though the amount of private credit is very undersized in
comparison to institutional credit, yet these private credits do matter a lot to many Nurpur
households.
Public lending institutions in Nurpur include Commercial Banks (State Bank of India, United
Bank of India, Central Bank and UCO Bank), 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, professional moneylenders (including landlords,
agricultural moneylenders and traders), neighbours, relatives and friends etc. The distribution
of total debt according to credit sources and monthly income are given in Table 4 and Table 5.
Table - 4
Total Outstanding Debt: Share of Different Credit Agencies (as on September, 2009)
Source: Field Survey.

Table-5
Total Credit Sanctioned to Different Income Groups by Different Credit Agencies
(as on September, 2009)
Source: Field Survey. # Figures in parenthesis indicates percentage of Debt.

* Rounded off to nearest rupee.
Credit According to Purposes
Our survey of village debt also provides information regarding the distribution of credit by
means of purposes. 72.6% of total debt was sanctioned for farm and non-farm expenses
including capital expenditure whereas 27.4% was sanctioned for meeting household expenses,
social expenses and other personal needs details of which is given in Table 6.
Table - 6
Purpose-wise Distribution of Village Debt (as on September, 2009)
Source: Field Survey. # Figures in parenthesis indicates percentage of Debt.

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’. They are also termed as ‘marginal farmers’ or ‘agricultural
labourers’ who have no land and depend only upon their skill and physical labour. As
these landless poor operate from a very slim economic base, 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.
(b) Within the existing system, 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, lack of sufficient knowledge about these schemes,
inability to interact with bank/government officials, etc. Thus the poorest of the poor are
left out of the formal credit system. 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, a large section, particularly assetless poor
and marginal farmers continue to remain inaccessible.
(c) In Nurpur, we have found that the poor villagers are not unproductive, but by virtue of
their sheer numbers, labour potential and expertise in cane handicrafts they can be
considered as one of the most productive segments of the population. Unfortunately their
labour does not yield adequate returns, as because control over financial resources is in
the hands of better-off segments. So a credit programme should be designed for the poor
that can fulfill their genuine credit needs.
(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. They prefer to follow government ‘norms and
instructions’ rather than meeting borrowers’ requirements. This is one of the major causes
for the continuance of the professional moneylenders in spite of their high interest rates.
(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. Also informal credit is more readily available to borrowers,
whose urgent credit needs tend to be neglected by the public lending institutions due to
high risk factors, lack of collateral and high cost of administering small loans.

(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. On the other hand, Rural Financial Institutions have high transaction costs
due to:
l poor monitoring due to absence of marketing information;
l high default rate due to political intervention;
l high documentation/procedural costs for borrowers and
l lack of market-orientation and improper targeting.
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.
(g) The market orientation of the professional moneylenders of Nurpur is unique. Their loans
are ‘packaged’ for the rural borrowers while the loan schemes of Rural Financial Institutions
are not targeted properly. Though professional moneylenders concentrate on lending for
consumption needs and other social and medical contingencies, 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.
Conclusion
Based on our study of credit transactions in Nurpur, we can conclude that the rural credit
market in this village is intensely segmented, with different rationing instruments regulating the
allocation of credit from different sources, leading to the persistence of a wide range of interest
rates (ranging from 0% to 138% per annum) within the village. Interest-free and concessional
credits are governed by relatively strict societal norms and are also quite limited in scope.
Institutional credit is comparatively cheaper (interest rate ranging from 8.5% 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. This is notwithstanding
the threat of losing their means of production, indebtedness and sometimes even bondedness
– an indication of their struggle to survive against all odds. Their ability of repaying loans at
such high rates of interest only exemplifies their tremendous risk bearing capacity, exceptional
ability to optimize on their frugal resources, the ‘real’ potential of their scanty income generation
and the possibility of mobilizing ‘tiny’ savings.
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

repayment and if the income situation of the borrower worsens, the supply of cash is tightened
and interest rates (representing higher risk cost) are raised. Moreover, the terms of further
loans are set in such a manner that the borrower is never able to repay the principal. As Rural
Financial Institutions of Nurpur do not cater consumption loans to the poor, this market is
controlled by professional moneylenders. If this system continues for another 20 years or so,
the rural poor will be sucked dry of whatever assets they may have and become bonded to
the professional moneylenders.
In order to reduce dependence of the poor rural people on these greedy professional
moneylenders, 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. A viable
rural credit delivery system should be designed to cater all types of rural credit such as:
q consumption credit – currently given only by professional moneylenders, relatives,
friends, neighbours and other allies;
q production credit – given by public lending institutions, professional moneylenders
and others; 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 adequacy of loan amounts even for consumption purposes to the marginal farmers,
landless labourers and artisans;
q collateral should not be insisted upon for loans below Rs. 1000 for the marginal
farmers, landless labourers and artisans who has been approved loan for the first
time. If the previous history of repayment is good then the loan amount could be
further raised depending upon borrowers needs;
q loans sanctioned in time and without long-drawn procedures;
q low transaction costs for borrowers and loan transaction costs for banks;
q low interest costs;
q adequate repayment period, with some gestation period;
q savings and thrift opportunities;
q proper and courteous services without additional ‘rent’ costs;
q single window credit facilities for all types of rural credit;
q effective monitoring of service area plans for rural credit agencies without opening
new branches and enhancing manpower costs; and
q better recovery of outstanding debts based on Bangladesh Grameen Bank model.

References
• Anand, V.V. (2008), “For Rural Development”, Yojana, January.
• Datt, R. and Sundharam, K.P.M. (2008), Indian Economy, S. Chand, New Delhi.
• Dooner, M. and Srinivasan, S. (2008), “Credit Needs of Farmers”, Yojana, January.
• Dre‘ze, J. (1990), “Poverty in India and the IRDP Delusion”, Economic and Political
Weekly, September.
• Dre‘ze, J. and Sen, A. (1996), Indian Development: Selected Regional Perspectives,
Oxford University Press, New Delhi.
• Dubhashi, M. (2004), “Expert Committee on Rural Credit: Findings and
Recommendations”, Kurukshetra, February.
• Ghatak, S. (1976), Rural Money Markets in India, Macmillan, New Delhi.
• Karmakar, K.G. (2001), Rural Credit and Self-Help Groups, Sage Publications, New
Delhi.
• Mishra, J.C. and Thanvi, R.K. (2004), “Indian Banking System and Microfinance”,
Kurukshetra, February.
• Patel, A. (2004), “Micro-Credit and Role of Banks”, Kurukshetra, February.
• Rajivan, A. (2008), “Microinsurance in India”, Yojana, January.
• Sinha, A. (2004), “Micro Finance for Women’s Empowerment”, Kurukshetra, April.
• Subbiah, A. and Selvakumar, M. (2005), “Regional Rural Banks and Agricultural Credit”,
Kurukshetra, December.
• Yunus, M. (2001), Grameen Bank O Aamar Jiban, Ananda Publishers, Kolkata.
• Yunus, M. with Jolis, A. (1998), Banker to the Poor: The Autobiography of Muhammad
Yunus, Founder of the Grameen Bank, The University Press Limited, Dhaka.

GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE

INDUSTRY : AN ANALYTICAL STUDY
V. Neelamagam*
ABSTRACT
The Global Financial Crisis of 2008 is a major financial crisis, which is ongoing as of
January 2009. It became prominently visible in September 2008 with the failure,
merger or conservator ship of several large United States-based financial firms. The
underlying causes leading to the crisis had been reported in business journals for
many months before September, with commentary about the financial stability of
leading U.S. and European investment banks, insurance firms and mortgage banks
consequent to the subprime mortgage crisis. Beginning with failures of large financial
institutions in the United States, it rapidly evolved into a global crisis resulting in a
number of European bank failures and declines in various stock indexes, and large
reductions in the market value of equities (stock) and commodities worldwide. The
crisis has led to a liquidity problem and the de-leveraging of financial institutions
especially in the United States and Europe, which further accelerated the liquidity
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, 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, leading many emergent economies to seek aid from the
International Monetary Fund. The crisis was triggered by the subprime mortgage
crisis and is an acute phase of the financial crisis of 2007–2008. This article provides
an overview of the Global Financial Crisis and its impact on Indian Textile Industry.
The global financial crisis, brewing for a while, really started to show its effects in the middle
of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions
have collapsed or been bought out, and governments in even the wealthiest nations have had
to come up with rescue packages to bail out their financial systems.
On the one hand many people are concerned that those responsible for the financial problems
are the ones being bailed out, while on the other hand, a global financial meltdown will affect
the livelihoods of almost everyone in an increasingly inter-connected world. The problem
could have been avoided, if ideologues supporting the current economic models weren’t so
vocal, influential and inconsiderate of others’ viewpoints and concerns.
* Senior Lecturer, Faculty of Science and Humanities, SRM University, Kattangulathur- 603 203,Tamil
Nadu, India, E-mail : vnmegam@rediffmail.com
GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN TEXTILE.....
The Global Financial Crisis of 2008 is a major financial crisis, which is ongoing as of January
2009. It became prominently visible in September 2008 with the failure, merger or conservator
ship of several large United States-based financial firms. The underlying causes leading to the
crisis had been reported in business journals for many months before September, with
commentary about the financial stability of leading U.S. and European investment banks,
insurance firms and mortgage banks consequent to the subprime mortgage crisis.
Beginning with failures of large financial institutions in the United States, it rapidly evolved into
a global crisis resulting in a number of European bank failures and declines in various stock
indexes, and large reductions in the market value of equities (stock) and commodities worldwide.
The crisis has led to a liquidity problem and the de-leveraging of financial institutions especially
in the United States and Europe, which further accelerated the liquidity 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, 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, leading many emergent economies
to seek aid from the International Monetary Fund. The crisis was triggered by the subprime
mortgage crisis and is an acute phase of the financial crisis of 2007–2008.
This article provides an overview of the crisis with links to the impact on Indian textile Industry.
From Economic to Political Problem
The problem ceased to be an economic problem months ago. More precisely, the economic
problem has transformed into a political problem. Ever since the collapse of Bear Stearns, the
primary actor in the drama has been the federal government and the Federal Reserve, with its
powers increasing as the nature of potential market outcomes became more and more unsettling.
At a certain point, the size of the problem outstripped the legislated resources of the Treasury
and the Fed, so they went to Congress for more power and money. This time, they were
blocked.
It is useful to reflect on the nature of the crisis. It is a tale that can be as complicated as you
wish to make it, but it is in essence simple and elegant. As interest rates declined in recent
years, investors particularly conservative ones sought to increase their return without giving up
safety and liquidity. They wanted something for nothing, and the market obliged. They were
given instruments ultimately based on mortgages on private homes. They therefore had a very
real asset base a house and therefore had collateral. The value of homes historically had risen,
and therefore the value of the assets appeared secured. Financial instruments of increasing
complexity eventually were devised, which were bought by conservative investors. In due
V. Neelamegam
course, these instruments were bought by less conservative investors, who used them as
collateral for borrowing money. 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.
Unfortunately, housing prices declined. A period of uncertainty about the value of the paper
based on home mortgages followed. People claimed to be confused as to what the real value
of the paper was. In fact, they were not so much confused as deceptive. They didn’t want to
reveal that the value of the paper had declined dramatically. At a certain point, the facts could
no longer be hidden, 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, but also the more conservative investors trying to put their money in a secure space
while squeezing out a few extra points of interest. The decline in housing prices triggered
massive losses of money in the financial markets, as well as reluctance to lend based on
uncertainty of values. The result was a liquidity crisis, 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.
The Financial Crisis and the Developing World
For the developing world, 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.
High fuel costs, soaring commodity prices together with fears of global recession are worrying
many developing country analysts.
Summarizing a United Nations Conference on Trade and Development report, the Third
World Network notes the impacts the crisis could have around the world, especially on
developing countries that are dependent on commodities for import or export:
Uncertainty and instability in international financial currency and commodity markets, coupled
with doubts about the direction of monetary policy in some major developed countries, are
contributing to a gloomy outlook for the world economy and could present considerable risks
for the developing world, the UN Conference on Trade and Development (UNCTAD) said.…
Commodity-dependent economies are exposed to considerable external shocks stemming
from price booms and busts in international commodity markets.
Market liberalization and privatization in the commodity sector have not resulted in greater
stabilityofinternationalcommodity prices.There iswidespreaddissatisfactionwiththe outcomes
of unregulated financial and commodity markets, which fail to transmit reliable price signals

for commodity producers. In recent years, 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.
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.
“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,” an official release said.
Trade and industry may send their suggestions to the committee, Earlier this week, Prime
Minister Manmohan Singh had interacted with the captains of Indian industry on impact of
global financial crisis on India.
“A crisis of this magnitude was bound to affect our economy and it has. International credit
has shrunk with adverse effects on our corporate and banks. Global uncertainty is also tending
to dampen investor sentiment,” the Prime Minister had said at the meeting.
He asked industry to refrain from any “knee-jerk” reaction such as large-scale layoffs, which
might lead to a negative spiral.
”Industry must bear in mind its societal obligations in coping with the effects of this global
crisis,” which the Prime Minister felt “is now likely to be more severe and prolonged,” he had
said.
Earlier, a separate committee was set up, headed by the Prime Minister, to coordinate the
government’s response on industry’s concerns in the wake of the global financial crisis.
An Introduction to Indian Handlooms
Indian hand woven fabrics have been known since time immemorial. Poets of the Mughal
durbar likened our muslins to baft hawa (woven air), abe rawan (running water) and shabnam
(morning dew). 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. On being severely rebuked, the princess
explained that she had not one but seven jamahs (dresses) on her body. Such was the fineness
of the hand woven fabrics.

V. Neelamegam
Historical Evidence
Though India was famous even in ancient times as an exporter of textiles to most parts of the
civilized world, few actual fabrics of the early dyed or printed cottons have survived. This, it
is explained is due to a hot, moist climate and the existence of the monsoons in India. It is not
surprising therefore, that Egypt which has an exceptionally dry climate would provide evidence
which India lacks. 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.
Later, fragments of finely woven and madder-dyed cotton fabrics and shuttles were found at
some of the excavated sites of Mohenjodaro (Indus valley civilization). Indian floral prints,
dating back to the 18th century A.D were discovered by Sir Aurel Stein in the icy waters of
Central Asia. The evidence shows that of all the arts and crafts of India, traditional handloom
textiles are probably the oldest.
Handlooms the largest Cottage Industry
Handlooms are an important craft product and comprise the largest cottage industry of the
country. Millions of looms across the country are engaged in weaving cotton, silk and other
natural fibers. There is hardly a village where weavers do not exist, each weaving out the
traditional beauty of India’s own precious heritage.
Government Schemes for the enlistment of the Handlooms Industry
To uplift the handloom industry, Government has introduced many schemes. Here we discuss
about the highlights of the Government Schemes and its effectiveness.
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.
(a) Five Schemes of 11th Five Year Plan
1. Integrated Handlooms Development Scheme (IHDS),
2. Mill Gate price scheme,
3. Handloom Weavers Welfare Scheme,
4. Marketing and Export Promotion Scheme,
5. Diversified Handloom Development Scheme.
(b) Diversified Handloom Development Scheme
q This scheme provides Technological up-gradation through a variety of programmes
which cover skill up-gradation of weavers, Development of Designs and Product

Development.
q Strengthening of :
l Weavers Service Centre, (WSC) ;
l Indian Institute of Handloom Technology (IIHTs) ;
l National Centre for Textile Designs (NCTD).
q Research and Development
q Jammu & Kashmir Wool Project and Weavers Service Centre
q Setting up of New IIHTs
q Starting Handloom Census and issuing Identify Cards to Handloom Weavers
(c) Export Promotion Scheme
q To identify and assist suitable Apex/Primary Handloom Co-op. Societies and
Corporation in developing the products that are Export - worthy.
q Market penetration through participation in International Exhibitions, and Buyer-
Seller Meets.
q Export project, International Fairs and Exhibitions, Setting up of Design Studios,
and Promotional Events. These components are under Export Promotion Scheme.
(d) Integrated Handlooms Development Scheme (IHDS)
q To form Handloom Weavers Groups
q To assist weavers for becoming self Sustainable
q To cover weavers within and outside the Co-op. fold
q To upgrade the skills of the Handloom Weavers
q To provide suitable work place to the weavers
q To orient Marketing, Designing and managing the production
q To facilitate credit from Banks
q To encourage Co-operative actions of weavers
q 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, but in monetary terms
it may not be having such importance. 38 lakhs handlooms are giving employment to about 65
lakhs families; but contributing only 13% of our Textile production. When considering the
foreign exchange earnings, it has considerable clout over other sectors of the industry because
it ranges between Rs.3000 crores to Rs.3500 crores per annum. Since now the industrial
world is worrying over the influence of the so called Global financial crisis, it is worth to think
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. The average increase per year in exports during the period of quota regime was around
5%, and for some years it was decreasing.
2. After the phase out of quota systems the rate of exports increased per year above 20%,
Since in the present financial crisis the epicenter is USA, we have to analyze the country wise
exports of handloom goods from India. 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. We all know
it is for the consumers who buy’s the items mostly from various stores/ through retail chain
stores. 95% of US retailers are the single store type and rest the chains like Wal-Mart, Ikea
etc. The sales figures as available with Retail sector : the annual sales in USA through retail is
of 3.8 trillion dollars with a per capita purchase of 11993 dollars. The Average sales growth
rate in retail in previous years is:

V. Neelamegam
Table-3
Fig:3
These facts show that in the Export front, the per capita consumption of USA consumers is in
the Driver seat or such consumption pattern accounts for the increase in international trade.
Since the present financial crisis is countering the spending pattern of US consumers it may
definitely hit our Exports. There are reports in the internet that even for apparels there is a
decrease in sales for 2.2% this November. The matter is now in the forefront.
How?
1. The sales of consumer goods in USA are mainly based on two seasons: Spring/Summer
& Autumn/ Winter. That also is the Handloom product mostly home furnishings which
fall under the categories of Christmas sales. This Christmas sales are definitely going to
decrease because of the change in spending pattern.
2. In response to this situation, many companies have started declaring discount in prices
and this will in turn give pressure on producers for lowering prices.
3. Many of the Exporting units in the country has long term contracts or links with buyers
abroad, so there may be a chance not to resort to price cut directly. They may intensify
their quantity & quality check, or redirect business terms or finding fault with domestic
producers in order to delay or decrease the taking up of stocks or replenishments.
4. During the financial crisis, the buying companies may be subjected to be taken over by
strong players in the field. This will change the company profile, product lines, and
supply chains. Due to this, our producers will fall into trouble to cope with new situation.
So we have to apprehend that even though the global financial crisis is not directly hitting us,
it is going to affect us indirectly. 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. 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. We cannot be paniky, but conceive it, study it, and counter it.
References
• Franklin A., Douglas G. (2007), Understanding Financial Crises, Oxford University
Press.
• Gerard C, James H, and Robert E. L (2005), Financial Crises: Lessons from the Past,
Preparation for the Future, (Ed), Brookings Institution Press and World Bank Group.
• John G. and Nicholas, B.( 2008), Indian Textiles, Anmol publication, New Delhi.
• Jewel R.,( 1998), Dictionary of Textiles, New Century Publications, New Delhi
• Kanaga R.,( 2008), Economic Outlook Gloomy, Risks to South, UNCTAD Third
World Network.
• “Structural Cracks: Trouble ahead for global house prices”, The Economist,The
Economist Newspaper Limited (2008-05-22). Retrieved on 15 October 2008.
• Landler, M. “Nations”, The New York Times. Retrieved on 24 October 2008.
• Fackler, Martin (2008-10-23). “Trouble without Borders”, The New York Times.
Retrieved on 24 October 2008.
• “Money Market Funds Enter a World of Risk” article by Tara Siegel Bernard in The
New York Times, September- 17, 2008
• Gray, M. “Almost Armageddon: Markets Were 500 Trades from a Meltdown
(September 21, 2008 ) New York Post
• www.fibre2fashion.com
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• www.handlooms.nic.in
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. It has affected almost all
countries in the world. The emerging economies like India suffered through spillover
effects. Industry and employment sector experienced a regressive jolt due to drying
up of credit, squeezing of market and slowdown in demand. The social cost of the
crisis is unemployment. This paper argues that in devising a proper policy for
combating recession, not only bailout packages but also a mix of monetary and
fiscal policy is required.
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, trade, investment and industrial channels. The introduction of structural adjustment
programmes for stabilizing the economies of these countries and uplifting the growth trajectory
has opened up. With the introduction of globalization and liberalization encompassing almos
every country and industry of the world, these countries and their industries are now opening
up on the world stage from the narrow confines of its national boundaries. In order to achieve
higher growth trajectory they became more dependent on their developed counterparts in
terms of exports, trade and technological agreement. The sudden collapse put a regressive
jolt on their growth story, which decelerates global growth to 4.5% in the first quarter of 2008
comparing 2007, 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. The United States, Europe and Asian economies all have experienced a collapse
of wealth due to sudden fall of stock prices and bursting of housing bubble. Started as a ‘sub-
prime’ crisis originated in purely financial sector of the world’s capitalist citadel it affected the
real sector. Reckoning the apocalyptic impact of the crisis and sustaining collapse of the
world’s richest financial institutions, a corner of the world’s intelligentsia termed it as “once a
* Reader in Commerce, Bhairab Ganguly College, Belghoria, Kolkata-700056, West Bengal,
E- mail ID: sanjit_msdl@yahoo.com
** Statistician, Directorate of Factories, Government of West Bengal, E- mail ID:chakrabarti@in.com
GLOBAL ECONOMIC RECESSION AND ITS IMPACT ON INDUSTRY.........
century’ event and more pragmatically ‘ the end of capitalism’. Considering its deflationary
nature some of the economists started to compare it with the “Great Depression” of 1930s.
A rough estimation of the total capital loss across the world hitherto available suggests almost
US $25 trillion, which is roughly 60% of the one year’s global income. So, it became a never
denying fact that rocked the world economy after great depression of 1930s. Again its impact
became broader based due to its contagion effect across the world’s leading economies.
Though the crisis in its early stage largely affected the developed world but its ripple effect
aggravatedthedownwardspiralsoftheeconomicactivityinemergingeconomies.Theimmediate
impact on most of the Asian economies was slowdown in economic activity. Earlier these
economies were heavily dependent on their manufacturing exports to the United States and
other developed countries. When the crisis occurs this inflicted through different trade and
financial channels to these economies. 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. But the financial sectors
suffered severely due to plummeting stock and commodity prices and a rise in unemployment
rate. The credit became costly and consumer demand plunged to lower level. In this situation
the present paper seeks to analyze the future prospect of industrialization program initiated in
these countries. The rest of the paper is organized as follows. Following an introduction in
section I, section II highlights the genesis of the crisis, 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.
Genesis of the crisis
The crisis, which started with a contraction of financial sector in most of the developed
economics and ultimately spilled over across the countries, has its epicenter in the United
States. In analyzing the genesis of the present crisis it is customary to put forward some
definitional aspects of the crisis. A crisis may be characterized as fall of expectation from a
high level to a low level. Financial crisis is a very broad term that covers a whole range of
events including crashes in the housing market, stock market, foreign exchange market, current
account of nations and of course the banking sector substantially lowering the growth of
output and employment. The severity of the crisis depends upon how much it can affect the
banking sector. In general, it may be defined as a variety of situations in which some financial
institutions or assets suddenly lose a large part of their value. In the 19th and early 20th
centuries, many financial crises were associated with banking sector performances, panics
created in the financial sectors, stock market crash, currency crisis, balance of payment crisis

Sanjit Kumar Das & Indranil Chakrabarty
and sovereign defaults. In the theory of business cycle, recession has been characterized as
periodic toughs of business cycle, which has been arrived in regular economic process. The
phase between every trough and peak in a business cycle has been classified as expansionary
phase. When this time phase expands for a longer period, a lack of confidence in economic
activities has been observed. We call it a depression. 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, there are certain other factors behind prolonging the recession.
Many economists have offered theories about how financial crisis develops and how they
could be prevented. Financial crisis are still a regular occurrence around the world as a general
phenomenon of financial system. According to Alvin Hansen, who described recession of US
economy before World War II, “American experience indicates that with a high degree of
regularity every other major business boom coincides roughly with a boom in building
construction, while the succeeding major cycle recovery is force to buck up against a building
slump”. However, the present crisis is more severe than the previous crisis. There is plethora
of explanation of the present crisis from many a section of the world’s intelligentsia. These
comprises with policy makers, industry professionals, management experts, financial engineers
and economists. Some of them opined it as the crisis of management, crisis of network and
valuation, accounting etc. The economists in the world tried to describe this crisis in their own
fads and fashion. In analyzing the causes of the crisis, economists across the world provided
different types of explanation. These can be divided in two broad categories. One school
advocated the Schumpeterian approach of creative destruction which is inherent in the capitalist
system and finally converted in a crisis. While other group accused the delinquent role of neo-
liberal philosophy which freed the financial capital from its regulatory shackles, which was
considered as an infallible panacea of market based approach on the one hand, 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. The former approach envisages these types of
shocks are necessary to keep the capitalist engine in motion, which comes from new technology,
final demand and new form of industrial production and purely new type of managerial skills
that the capitalist system nourishes. The later approach blamed the unscrupulous role of financial
capital, which was given high importance in the liberalized era and neglected the role of labour-
force by freeing them in the name of retrenchment; voluntary retirement scheme etc. over
years has ultimately come to the roost.
The unfolding of the nature and the impact of the present crisis in its full extent provides some
serious understandings. The head of U.S. Federal Reserve, Ben Bernake has publicly stated
that the current global economic slowdown is by far the worst crisis afflicting the center of
global capitalism since 1930s. It triggered by a dramatic rise in mortgage delinquencies and
foreclosure in the United States with major adverse consequences for banks, insurance sectors
and financial markets around the world. The crisis has exposed pervasive weaknesses during
2008 in financial industry regulation and the global financial system. The sub-prime crisis that
started in the latter half of 2007, soon transformed into a global financial crisis in September
2008 after the Government of United States has allowed the collapse of Lehman brothers. It
has affected the economy to a great extent by freezing credit flows, stopped commodity
market and plunged the equity market. 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. 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. When mortgage prices began to decline in 2006-07, mortgage delinquencies
generated and securities backed with sub-prime mortgages lost most of their value. The result
has been a large decline in the capital stock of many banks and USA government-sponsored
institutions.
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. The entire world seems to be sinking into recession. The industrial
houses are feeling the heat of financial crisis and the aftereffects are reduction of credit, slow
down of growth, abandon of production, reduction of sale price of commodity, increase of
cost of capital, reduction of employees and time and cost over-run. With this the economies
of other developed countries in Europe and Asia experienced the virtual collapse of global
trade, which led to a sharp downturn in their trade, manufacturing and employment. At the
same time commodity prices including oil prices have plummeted to record lows with further
falls expected in coming months. In order to combat the crisis, the developed economies
reacted sharply with a concerted effort by announcing huge bailout packages for their financial
arms. But their efforts were not beyond criticism. The impact of the crisis in the other Asian
countries was graver. The negative feedback report from export oriented economies like
China, 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. This has exerted a serious
implication for other emerging economies like India.
Impact of the crisis in India
India, like other developing emerging economies has experienced the crisis to a great extent.

It has been reflected by the overall performance of the structural variables. The crisis become
more severe than it was expected earlier. But some section of economists, 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. 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. By this, they tried to promote the
famous decoupling theory and with the passage of time their proposition becomes elusive.
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. Given the origin and dimension of the crisis in the advanced countries, which some
have called the worst since the Great Depression; every developing country has suffered to a
varying degree. No country, including India, remained immune to the global economic shock.”
The shock, according to the Governor of Reserve Bank of India, D.Subba Rao, comes from
three channels; the trade channel, the financial channel and the confidence channel. But affected
almost all section of economic activities trough forward and backward channels. Here we
shall discuss the effect of the shock on the industry and employment sector of the economy.
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. The massive de-leveraging in financial markets has culminated in one of the worst
economic contractions in history. With investors pulling out from overseas markets, a tightening
credit market and declining consumption, industry has been forced to scale back production
and defer capital expenditure plans. This, in turn, 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. The International Monetary Fund (IMF) estimates Global
Gross Domestic Product (GDP) to have grown by 3.2% in 2008 compared to 5.2% in 2007,
propped up by developing economies that registered a 6.1% growth. Increasing integration in
the global economy, however, has led to hitherto de-linked economies to be hit by the crisis as
hard as the developed ones.
Developed economies have been hit by a combination of collapse in demand for high tech
exports as well as declining domestic demand. Similarly, developing economies have been hit
not only by decline in trade but also by dropping domestic consumption, fuelled by reversal of
capital flows, collapse of stock markets and deterioration in financing conditions. As a result
of the foregoing developments, there has been a significant change in fundamentals of the
economy, foremost being decline in availability of cheap credit. These changes have led to a
major shift in assumptions on the basis of which industry operates and plans for the future.
Commodity prices that peaked in July 2008 have more than halved now (crude oil is hovering
in the $50-60 range, down by ~60% from 2008 peaks). Factors that drove prices higher
including a weak dollar, low pre-boom investment in extractive industries, supply restrictions,
diversion of farmland for bio-fuels and export restrictions by governments have all moved in
the opposite direction since. In sharp contrast to high levels of inflation seen last year, deflation
is now a potential threat to economies already suffering from low investment and consumption.
Low demand has affected agriculture too. Food prices fell 34% (IMF estimates) in the second
half of 2008 driven by slowing demand, higher yields and higher acreage under cultivation in
response to high prices in the preceding period. Fiscal balances of developing countries are
also under pressure as a result of falling tax revenues. These challenges are further reinforced
by political compulsions that push for growing protectionism.
The IMF forecasts global GDP to decline by 1.3% in 2009; the deepest recession post
World War II, with high income countries declining by 3.8% and growth in developing countries
slowing down to 1.6%. The Indian economy is expected to grow between 4.5% and 5.5% in
the Financial Year 2009-2010. The recently announced stimulus package of US$1.1 trillion
by the G20 is expected to help towards reaching a recovery by early 2010. The outlook,
however, continues to be uncertain regarding timing of any possible recovery, the concern
being whether policies will be enough to arrest the negative feedback between deteriorating
financial conditions and weakening economies. Commodity prices have stabilized within a
broad range since December 2008 and are expected to remain so for the remainder of 2009.
Declining prices and consumer demand are expected to affect agriculture with indications of
lower acreage planned for 2009. World trade too is expected to fall 9% in volume terms in
2009. Overall, while 2008 was a challenging year for business given the extreme volatility and
supply side restrictions, 2009 is likely to present challenges due to weakening demand with
margins sustained only due to steep fall in input prices.
Advanced economies in Asia have been affected due to their high export dependence and
large exposure to the drop in global demand for automobiles, electronics, and other consumer
durable goods. However, emerging Asia is expected to continue to grow, led by China and
India. With trade comprising a smaller share of the economy, India is less exposed to the
decline in global demand with domestic consumption expected to remain relatively robust.
Though growth of the industrial sector started to slow down in the first half of 2007-08, the
overall growth during that year remained as high as 8.5 per cent. The index of industrial
production for the year 2008-09 points towards a sharp slowdown with growth being placed
at 2.4 per cent. Manufacturing growth was placed at 2.3 per cent in 2008-09 as compared to
9.0 per cent in 2007-08. Mining grew at 2.3 per cent in 2008-09 as against 5.1 per cent in
2007-08 while electricity showed a deceleration in growth from 6.4 per cent in 2007-08 to
2.8 per cent during 2008-09. Slower growth in all use-based categories, except consumer
durables, contributed to the deceleration in the industrial sector. The performance of six core
industries comprising crude oil, petroleum refinery products, coal, electricity, cement and
finished steel (carbon) grew at 2.7 per cent as compared to 5.9 per cent in 2007-08. The
growth in index for crude oil turned negative 1.8 per cent as compared to positive 0.4 per
cent in 2007-08. There was a deceleration in the growth of cement and finished steel reflecting
the negative sentiments in the construction and manufacturing sectors.
The worst effect of the recession was on the employment sector. The social cost of the recession
is growing up of unemployment in most of the economics. India is no exception (Table 1).
There has been a job cut in almost all the sectors (except in government sector) has been
observed throughout the world. The International Labour Organization (ILO) has presented
the picture of reduction in employment across the world. In India, according to labour bureau,
mining, metal and metal products, textile and garments, gems and jewellery, construction,
transport and some segment of service sector (mostly, information technology and Business
Process Outsourcing (BPO) services including private banks) has suffered much (Table 2).
This was due to slow down in investment and industrial growth. At the same time a reduction
in foreign direct investment was also observed. Due to slow production in Indian industrial
sector (Index of Industrial Production lowest in November, 2008) job cut, lay off and
retrenchment has been observed in the Indian manufacturing. On the other hand, high degree
of protectionism was observed from the overseas front. The bailout packages offered by their
government with strict employment conditionality, has gone against the workers of other
countries. 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. The resultant effect was a decrease in employment. 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. The construction sector, which absorbs a large
section of workforce, has reduced its employment generating capacity due to lack of investment
in that sector with the unfolding of the crisis. Small producers and traders suffered much with
the fall in prices and drying up of credit. This all contributed near to a stagflation situation of
the economy (Table 3).
Conclusion
India, unlike other countries in developed world and Asia, though affected less in the ongoing
crisis but cannot escape unscathed in the present crisis because its economy has become

more integrated with the rest of the world over last eighteen years. It is largely dependent on
overseas investment for industrial and infrastructural development. Again, Foreign Institutional
Investors played an important role in keeping the Indian Stock Market attractive by supplying
adequate liquidity. Monetary policy is a string and can be pulled in time of inflation but cannot
be pulled in time of depression. So the authority shall be cautious in taking further monetary
stimuli to combat this recession. In constructing the monetary and fiscal framework for
combating recession one must keep on its long run effectiveness (Friedman, 1948). The
government of India has taken several monetary and fiscal measures to combat the recessionary
effects on the economy. The intention of this section is not to find out the blemishes of these
measures, as they are need of the hour of that time. The major challenges before the government
at that moment were to maintain the growth story of the economy almost intact. The plummeting
stock market, the decreasing demand, fall in index of industrial production, growing
unemployment, and decreasing prices were the major challenges appeared before the
government with the advent of the crises. This is not yet over. For countries such as India,
keeping international markets open is very much important. The Foreign Direct Investments
played an instrumental role in uplifting the growth trajectory. Analogous to that, maintaining
fiscal and monetary stability is also a major task. 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. Providing special privileges such as subsidies should encourage the entry of the
SMEs; low interest loan, tax concession and these can contribute to employment creation and
entry of new industries.
A recession proof industrial policy is of paramount important that really can pay rich dividend
in the near future. Access to infrastructure services (financial, physical, labour) is crucial for
economic growth and poverty reduction. Energy to drive industry and create jobs, water to
support agricultural production, and roads and ports to transport products to the market are
critical to any country in this moment of economic downturn. The right infrastructure financing
can open doorways to the ‘post-recession’ period that many nations are expecting with interest
and hope. There is a need to take a proactive policy of wooing investors to invest in new
projects in these sectors like electricity, roads, airports, ports, education, and health through
different arrangements. There may be variety of arrangements e.g. joint ventures, public-
private enterprises, private etc. There may be some incentives for the private operators because
of their superior efficiency. Fiscal concession, low market price of land may be offered to
them in order to assure attractive return. 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

future. Domestic mobilization from non-bank sources through fresh capital issue in the primary
market, external borrowing, foreign direct investment and private placements has to be
increased.
Earlier in India its reliance on agriculture was unique in the world. After liberalization, the
investment on agriculture has declined remarkably which causes actualization of rural workforce
and at the same time skyrocketing of food prices. In order to reverse this massive investment
in agriculture is required. 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.Mediasalsocanplayanimportantrolebydisseminatinginformation
and promote serious debate over strategically important areas. 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. Growth of output, employment and
well-being of the masses will be the ultimate aim. This can be achieved by pumping finance
into the development projects and effective use of all the available resources. With rising
unemployment, job losses and salary cuts, there is a great deal of fear and frustration. Safety
nets for pure and vulnerable section are also essential. Again, insulation of financial sector
from external shock is very essential. The crisis, which India is facing, is purely an imported
one. In a nutshell, India needs a policy for reviving the real economy through fiscal and monetary
stimuli.
References
• Bhaduri, A. (2009), ‘Understanding the Financial Crisis’, Economic and Political
• Weekly, March 28-April 3.
• Charles, P. Kindleberger and Robert, A. (2005), Manias, Panics, and Crashes: A History
of Financial Crises, 5th ed. Wiley.
• Friedman, Milton (1948), ‘A Monetary and Fiscal Framework for Stability’, American
• Economic Review, Vol. 38. No.3, June.
• Keynes, J. M. (1936), The General Theory of Employment, Interest and Money,
• Chapter 12. New York: Harcourt Brace and Co.
• Milton, F. and Anna, S. (1971), A Monetary History of the United States, 1867-1960.
Princeton University Press.
• Economic Survey, Government of India, 2009.

• Nachane, D. (2009), ‘The Fate of India Unincorporated’ Economic and Political

Weekly, March 28-April 3.
• Krugman, P. (1979), ‘A model of balance-of-payments crises’. Journal of Money,
Credit, and Banking, pp.11.
• Ram, Mohan, T.T. (2009), ‘The Impact of the Crisis on Indian Economy’, Economic
and Political Weekly, March 28-April 3.
• Rajiv, K. (2009), ‘Slide calls for Bold Reforms’ Survey of Indian Industries, 2009, The
Hindu.
• Robin, B. (2008), ‘Subprime Crisis, New Left Review’, March-April.
• Samuelson, Paul (1988), Mcgraw-Hill, Kogakusha Ltd., London. P 254.
• Sharma, Ruchir (2009), ‘Macro is all that matters’ The Economic Times, August 10.
• World Economic Outlook, IMF, 2008, 2009
• Wall Street Journal, Oct. 11, 2008,
Table-1
Performance Compared To Pre-Lehman Levels (figures in US $)
Source : FactSet. Bloomberg Sharma, Ruchir, “Macro is all that matters”, The Economic Times,
August 10, 2009

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, Government of India,

2009

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. 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.
This new evaluation ideology is appropriate for enterprises like Public Sector
Enterprises (PSEs) which have not been established solely for profit motive.
Therefore, in order to examine the performance of an enterprise especially in case of
public sector enterprises in India, both financial and social performance measures
have been considered. In this paper, 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, Contribution to Central Exchequer,
Internal Resource Generation, Value Addition, Employment Generation etc. with the
help of relevant data for the study period from 1999-2000 to 2007-08.
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. The Industrial Policy Resolution, 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. After a long period of cruel and rampant exploitations by the Britishers, India
inherited at the time of its independence a destitute and poor agrarian economy and a weak
industrial base, coupled with low level of savings and capital formation, poor infrastructural
facilities etc. and the economy experienced severe inequalities of income distribution, acute
unemployment problems and also grim picture of regional disparities and backwardness. At
this juncture the economy needed a big push to overcome the deadlock.1 Indeed, after a long
tragic suffering from cruelty and inhumanity by colonial power there were various socio-
economic problems confronting the country, which needed to be dealt with in a planned as
well as in a systematic manner. In fact, among the imperatives before the Government were
the removals of poverty, equitable distribution of income, generation of employment
opportunities, removal of regional imbalances, accelerated growth of agricultural and industrial
* Assistant Professor in Commerce, B. B. College, Ushagram, Asansol, West Bengal,
Email ID: kartik_nandi@yahoo.co.in
Kartik Chandra Nandi
production, better utilization of natural resources and a wider ownership of economic power
to prevent its concentration into a few hands. As such, at the backdrop of India’s independence,
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, 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. Given the type and range of problems faced by the country on the
economic, social and strategic fronts, it became a pragmatic compulsion to set up public
sector enterprises in various core and strategic areas as the vital instrument for achieving self-
reliant economic growth. Therefore, keeping in view the inherent style of its socialistic pattern
of society, 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. 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 reduce
inequalities of income distribution, to enhance the scope of employment opportunities, to
induce effective utilization of scarce natural resources for the best interests of the society, to
prevent concentration of economic power in a few hands to the detriment of the common
mass etc.
The noble objectives of setting up of public sector enterprises in India may be highlighted as
follows:
1) to ensure the rapid economic development and industrialization of the country and create
the necessary infrastructure for economic development;
2) to promote redistribution of income and wealth;
3) to create employment opportunities;
4) to promote balanced regional development;
5) to assist the development of small-scale and ancillary industries; and
6) to promote import substitutions, save and earn foreign exchange for the economy.
PERFORMANCE ANALYSIS OF CENTRAL PUBLIC ...........
It has been the long standing practice to evaluate the performance of business enterprises
based on financial measures. 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. This new evaluation ideology is appropriate for enterprises like Public Sector
Enterprises (PSEs) which have not been established for profit motive. Therefore, in order to
examine the performance of an enterprise especially in case of public sector enterprises in
India, 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, to reduce the inequality of income distribution, to
lessen the regional disparities and backwardness as well as to accelerate the pace of industrial
development of India. 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.
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, Contribution to Central Exchequer, Internal Resource Generation, Value
Addition, Foreign Exchange Earnings, Employment generation etc. with the help of relevant
data for the study period from 1999-2000 to 2007-08.
Data Source
This research work is mainly based on secondary sources of information. The required data
have been collected from annual reports of the selected CPSEs in India published in Public
Enterprise Survey; Govt. of India over the period of nine years i.e. 1999-2000 to 2007-08.
For collecting relevant data for the purpose of conducting this work internet surfing has also
been made for obtaining the requisite and latest information.
Methodology of the Study
For analysis and interpretation of data simple mathematical tools like percentages, averages,
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. In
addition these annual growth rates (g) of each parameter have been applied at appropriate
places.

A. 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. This concept
may be defined as the ability of a given investment to earn a return from its use.2 It may be
considered as a relationship of the earnings to the total resources of an organization. It acts as
yardstick to measure the operating efficiency of an enterprise. It also reflects the ultimate
impact of various policies and decisions adopted by the enterprise on its business operation.3
So far as the profitability aspect is concerned, the public sector enterprises are expected to
give adequate return on enormous investment made in them. There are various conventional
methods for assessing the corporate performance but the most common ones are net profit
ratio, return on investment, return on owner’s equity etc. Generally, profit is the most important
measure of evaluating the performance of public sector enterprises and it can be viewed from
different angles. 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. However, the accountants have given
more emphasis on the concept of gross profit that takes note of depreciation but avoid or
overlook the interest charged. The tax collector gives more importance on profit before tax
from the view point of revenue earnings. On the other, 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.
In order to evaluate the profitability of the Central Public Sector Enterprises (CPSEs)
as a whole in India, the amount of operating profit (PBIT), 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), return on net worth (RONW), net profit ratio (NPR)
etc. have been used under this study. 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. It is considered the more rigorous test of profitability and gives
a clear picture of the efficiency of the firm’s internal management. It enables the management
to show whether the funds entrusted to the enterprise have been properly utilized or not.
It also indicates how well an enterprise has used long term funds invested by the owners
and creditors. The higher the ratio, the more efficient the enterprise is using its fund.
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. It measures the
return on the total equity funds of ordinary shareholders. It indicates how profitably the
shareholders’ funds have been utilized by the enterprise. In other words, 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.
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. It measures
the percentage of each rupee sales remaining after all costs and expenses including interest
and taxes have been deducted. It indicates the management’s ability to operate the business
with sufficient success not only to recover from revenues of the period, the cost of
merchandise or service, the expenses of operating the business (including depreciation)
and the cost of the borrowed funds, but also to leave a margin of reasonable compensation
to the owners for providing their capital at risk. This ratio essentially expresses the cost
price effectiveness of the operation.4
Analysis of Profitability of the CPSEs as a whole in India
Table-1 highlights the amount of operating profit (PBIT), 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.e. ROCE,
RONW & NPR) of them during the study period from 1999-2000 to 2007-08.
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 31.02 % in the year 2003-04 and the lowest
annual growth rate of 5.54% in the year 2005-06 followed by a recovery of 21.54% in the
next year (2006-07) and in the last year of the study the annual growth rate came down to
11.51%.
Regarding the net profit, 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. The highest
annual growth rate of net profit (65.96%) is observed in 2001-02 and the negative growth
rate (-1.62%) is computed due to the decline in the net profit in the year 2007-08 as compared
to the previous year (2006-07).
From Table-1 it is seen that the ROCE (i.e. 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 21.49% in the year 2004-05 and the lowest ROCE of 13.95% is found in the
year 1999-2000. Table-1 highlights the efficiency of the internal management of the CPSEs

as a whole in India in utilizing its fund during the study period.

Table-1 depicts that the RONW (i.e. Net Profit as a percentage of Net Worth) of the CPSEs
as a whole registered an overall increasing trend during the period under study. The RONW
is computed at 8.92% in the year 1999-2000 which continuously stepped up and reached the
highest level at 19.02% in 2004-05. In the next year i.e.2005-06, it came down to 19.54%.
Again it increased to 21.07% in the year 2006-07 and then it reduced to 15.39% in the
ultimate year of the study (2007-08). 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.
Table-1 shows a fluctuating trend in the NPR (i.e. 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. This ratio is computed at 3.68% in 1999-2000 which went up to
8.73% in the year 2004-05. But it slightly decreased to 8.30% in the year 2005-06 and
again, it reached to 8.41% in 2006-07. Again, it decreased to 7.38% in the last year of the
study period. 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.
Table-1
Analysis of Profitability of 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. of India. Vol-I ,
2007-08
B. 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. 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,
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.5 The internal resources generated by the PSEs in
India are the aggregate of the amount of Depreciation written off, Deferred Revenue Expenditure
written off and Retained Profit.
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. The internal resources are increased continuously throughout the study period. The
total amount of internal resources in the form of the three components (i.e. Depreciation
written off, Deferred Revenue Expenditure written off and Retained Profit) is Rs.35933 crore
in the year 1999-2000 which has increased continuously and reached the highest level of
Rs.99474 crore in the year 2007-08 showing a growth rate of 3.20% over the year 2006-07
in which the amount of internal resources generated to Rs.96394 crore. However, the highest
annual growth rate is seen at 38.96% in the year 2001-02.

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, Govt. of India, Vol-I, 2007-08
C. Performance Evaluation through Contribution to Central Exchequer
In a developing country like India, the Public Sector Enterprises (PSEs) have occupied a key
position in the economy whereby the Govt. 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. 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, Ministry of Heavy Industries
& Public Enterprises, Govt. of India and are also enjoying social prestige and status in
comparison to other enterprises in case of the private sector. Therefore, there is a question of
some positive attitude arises in the form of the performance of social responsibility on the part
of the PSEs. As a part of their performing social responsibilities, the public sector enterprises
have been making substantial contribution to the central exchequer in the form of corporate
taxes, customs duty, excise duty, dividend & interest etc. to mobilize fund for financing the
needs of the planned economic development of India.
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, excise duty, customs, sales & other duty and dividend & interest etc. by the
CPSEs as a whole in India over the period from 1999-2000 to 2007-08. From Table-3 is
observed that there is a steady growth of contribution to the central exchequer by the CPSEs
as a whole in India. The amount of contribution is highest (Rs.165994 crore) in the year
2007-08 as against Rs.148790 crore during 2006-07 showing an increase of 11.56% in
2007-08 over the year 2006-07. However, the peak rate of annual growth of contribution to
the central exchequer is found at 30.46% in the year 2002-03.
Table-3
Contribution to Central Exchequer by the CPSEs as a whole in India for the period
from 1999-2000 to 2007-08
(Rs. in Crore)
Source : Compiled and Computed from Public Enterprise Survey, Govt. of India, Vol-I, 2007-08
D. 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. This is more relevant and appropriate to
enterprises engaged in manufacturing/producing activities for delivering goods6 or for rendering
services in the social spheres. 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.

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. 163558.73 crore in 2005-06 as against Rs. 166819.78 crore
in 2004-05) registering a negative growth of 1.95% and followed by a steep rise of 18.40%
in the year 2006-07 over 2005-06 (actual value added in 2006-07 amounted to Rs. 193656.58
crore which is Rs. 30097.85 crore more than the value added of Rs. 163558.73 crore in
2005-06). However, 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. Chart-1 depicts the picture
of the value additions made by the CPSEs in India as a whole during the period from 1999-
2000 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.
Table-4
Value Added by CPSEs as a whole in India during the study period
from 1999-2000 to 2007-08
(Rs. in Crore)
Source : Compiled and Computed from Public Enterprise Survey, Govt. of India, Vol-I, 2001-
02, 2004-05 & 2007-08


E. 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, save and earn foreign in order to mobilize fund for the
development of the economy. Table-5 shows the foreign exchange earnings by the CPSEs as
a whole in India for the period 1999-2000 to 2007-08. It is observed from Table-5 that the
foreign exchange earnings was Rs. 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.
74283 crore in the ultimate year (i.e. 2007-08) of the study. The peak annual growth rate (i.e.
52.80%) was found in the year 2006-07 due to the highest amount received by way of
interest, dividend and other income as compared to other years of the study period.
Table-5
Foreign Exchange Earnings by CPSEs as a whole in India during the study
period from 1999-2000 to 2007-08
(Rs. in Crore)
Source : Compiled and Computed from Public Enterprise Survey, Govt. of India,Vol-I,
2001-02, 2004-05 & 2007-08.

F. 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. The pace of economic
development of different states and regions has not been uniform over the years owing to
some historical and other factors. 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. The
lack of industriliasation in different parts of the country is often due to the factors such as non-
availability of raw materials or other factors of production. A concentration of industries in
certain areas has also been due to the ready availability of raw materials, skilled labour, power,
water supply etc. 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. 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, increased employment opportunities, growth of small scale
and ancillary industries, resource utilization etc. Therefore, industrialisation can play a vital
role for the society in correcting the regional imbalances and accelerating the pace of industrial
growth. But the fact that in the major areas of the country which have remained backward and
undeveloped is both a challenge and an opportunity. 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. In this context it may be highlighted that
the setting up of PSEs in India has resulted in generation and extension of substantial
employment, both direct and indirect, in the states where the units are located.
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). It was 18.06
lakh in the year 1999-2000 which came down to 17.40 lakh in the year 2000-01 and reached
the highest level at 19.92 lakh in the year 2001-02 registering the highest annual growth rate
of 14.48% and then started decreasing with negative annual growth rate up to the last year of
the study period.

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. of India, Vol-I,
2001-02, 2004-05 & 2007-08.
Conclusion
Taking 5 CPSEs with a total investment of Rs. 29 crore as on 31st March 1951, the number
of CPSEs as on 31st March, 2008 has reached to 242 with a total investment of Rs. 455409
crore. 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, internal resource generation, contribution to central exchequer, value
addition and foreign exchange earnings while an overall decreasing trend is found in case of
generation of employment. But unfortunately or otherwise the same is not duly reflected as
apprehended in the overall Indian economic scenario. As such, the performance of CPSEs
has unleashed the scope of side criticism on many occasions. However, these criticisms against
CPSEs are substantially squashed if we have a close look to the social responsibility performance
of CPSEs during the said period. Over and above this, there is no denying the fact that the
PSEs, in general, had to face many divergent constraints. Despite a number of serious handicaps
like high initial capital-intensive projects, locational disadvantages, long gestation period projects,
lack of technological advancement etc. the CPSEs in India have been set up and run from
independence commensurate with the socio-economic status as well as the needs, aspirations

and the sentiments of the common public. Accordingly, all such steps and bold actions were
taken at the State level to lessen the degree of regional disparities, 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, keeping far away the inherent profit
motive of business enterprises for the greater interest of the common mass.
References
• Sarkar, C. R., (2002): “Performance Appraisal of Public Sector Undertakings in India”,
Indian Journal of Public Enterprise, Institute of Public Enterprise Research, Allahabad,
p.111.
• Howard, B. B. and Upton, M. (1961): Introduction to Business Finance, Mc Graw Hill
Book Co., New York, p. 150.
• Sur, D. (1990): “Inter-company profitability analysis of Indian general insurance industry”,
The Management Accountant (July), Kolkata, p. 495.
• Khan, M. Y. and Jain, P. K. (2007) : Financial Management: Text, Problems and Cases
(5th Ed.), Tata McGraw-Hill Publishing Company Ltd., New Delhi, p. 6.20.
• Sarkar, C. R., (2002): op. cit., p.118.
• Public Enterprise Survey, Govt. of India, Vol. I, 1995-96
• Pandey, I. M. (2007): Financial Management, 6th Ed., Tata McGraw-Hill Publishing
Company Ltd., New Delhi
• Kishore, Ravi. M. (2007): Financial Management, 7th Ed., Taxmann Publication Pvt.
Ltd., New Delhi.
• www.dpe.nic.in

FORENSIC ACCOUNTING : AN ACCOUNTANT’S VISION

Pranam Dhar*
Anirban Sarkar**
ABSTRACT
Just as forensic science has been helping catch the criminals for long, forensic
accounting is fast emerging in the arena of corporate accounting frauds to play a
similar role. The article discusses the role of accountants in the field of forensics
and considers the areas where forensic accounting can be of immense help.
Keywords : Forensic Accounting, Financial crime, Third World Economies, Fraud,
Corruption
Introduction
Forensic Accounting is a rapidly developing area of specialization in the field of accounting. It
is the area of specialization that is primarily concerned with the detection and prevention of
financial fraud and other forms of economic crime.
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.
Until the recent times, the public, management officials, directors and even regulators,
everybody’s perception was that detecting fraud was part of the accounting and auditing
functions. Fraud, according to these groups’ thought, was something internal and external
auditors were supposed to provide safeguard against the same through their periodic audits.
Now, 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. Thus,
more and more people are realizing that a new category of accountants is needed to substantiate
fraud for companies that suspect fraudulent transactions. This area of accounting is known as
forensic accounting. Essentially, forensic accounting marries the skills of an auditor with the
skills of an investigator.
Forensic Accounting - Conceptual aspects
The integration of accounting, auditing and investigative skills yields the speciality known as
Forensic Accounting.
*Reader, Department of Commerce and Management, West Bengal State University, Barasat, West Bengal.
E-mail: pranamdharit@yahoo.com
**Lecturer, Department of Commerce and Management, West Bengal State University, Barasat, West
Bengal. E-mail:anirban_sarkar77@yahoo.co.in
The term “Forensic”, according to the Webster’s Dictionary means, “Belonging to, used in or
suitable to courts of judicature or to public discussion and debate.”
According to AICPA, “Forensic Accounting is the application of accounting principles, theories
and discipline to facts or hypotheses at issues in a legal dispute and encompasses every
branch of accounting knowledge”
“Forensic Accounting”, provides an accounting analysis that is suitable to the court which will
form the basis for discussion, debate and ultimately dispute resolution. Forensic Accounting
encompasses both Litigation Support and Investigative Accounting. As Forensic Accountants,
we utilize accounting, auditing and investigative skills when conducting an investigation. Equally
critical is our ability to respond immediately and to communicate financial information clearly
and concisely in a courtroom setting.
Forensic Accountants are trained to look beyond the numbers and deal with the business
reality of the situation.
Literature Review in the Relevant field
Joshi (2003) ascribed the origination of forensic accounting to Kautilya, the first economist to
openly recognize the need for the forensic accountant who mentioned 40 ways of embezzlement
centuries ago. He, however, stated that the term “forensic accounting was coined by Peloubet
in 1946. Crumbley (2001) wrote on same when he stated that a form of forensic accounting
can be traced back to an 1817 court decision. 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. Investigation of fraud and corruption
is confirmed thus, not to be new, even in Nigeria. It is only gaining prominence because of the
growing wave of the crime under the seemingly new nomenclature the last five years (Coenen
2005). Forensic accounting, also called investigative accounting or fraud audit, is a merger of
forensic science and accounting. Forensic science according to Crumbley(2003) “may be
defined as application of the laws of nature to the laws of man”. 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. The science in question here is accounting
science, meaning that the examination and interpretation will be of economic information.
Joshi (2003) defined Forensic accounting as the application of specialized knowledge and
specific skill to stumble up on the evidence of economic transactions. Zysman(2001) put
Forensic accounting as the integration of accounting, auditing, and investigative skills. Simply
put, 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
Pranam Dhar & Anirban Sarkar
in a scientific fashion (Crumbley, 2006) Coenen (2005) stated that forensic accounting involves
the application of accounting concepts and techniques to legal problem. It demands reporting,
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, which will form the basis of discussion, debate and ultimately
dispute resolution (Zysman, 2001). 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. The persons practicing in this field (i.e. forensic accounting)
investigate and document financial fraud and white-collar crimes such as embezzlement and
investigate allegations of fraud, estimate losses damages and assets and analyse complex
financial transaction. They provide those services for corporation, attorneys, criminal
investigators and the Government (Coenen, 2005). Their engagements are usually geared
towards finding where money went, how it got there, and who was responsible. They are
trained to look beyond the numbers and deal with business reality of the situation (Zysman2001).
Need for forensic accounting
The need for forensic accounting arises because of the failure of audit system in the organizations.
A recent study by Kessler International shows that :
Table 1 : Kessler International Study
39 % of Organizations Considered the need for forensic accounting
28 % of Organizations Already sought help for forensic accountant
18 % of Organizations Do not require assistance
15 % of Organizations Unsure of whom or where they should ask for help
Source : www.ksi.org
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.
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.
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.

Tasks of a forensic accountant

A Forensic Accountant is often retained to analyze, interpret, summarize and present complex
financial and business related issues in a manner which is both understandable and properly
supported.
Forensic Accountants can be engaged in public practice or employed by insurance companies,
banks, police forces, government agencies and other organizations for the following tasks:
• Investigating and analyzing financial evidence;
• Developing computerized applications to assist in the analysis and presentation of financial
evidence;
• Communicating their findings in the form of reports, exhibits and collections of documents;
and
• Assisting in legal proceedings, including testifying in court as an expert witness and
preparing visual aids to support trial evidence.
In order to properly perform these services a Forensic Accountant must be familiar with legal
concepts and procedures. In addition, a Forensic Accountant must be able to identify substance
over form when dealing with any issue.
Thus, the services rendered by forensic accounting specialists can be divided into two broad
categories :
• Investigative Services, concerned with determining whether criminal activities or financial
irregularities have actually taken place. In this context Forensic Accountant can be of
assistance in various ways, including:
• Review of the factual situation and provision of suggestions regarding possible courses of
action.
• Assistance with the protection and recovery of assets.
• Co-ordination of other experts, including:
o Private investigators;
o Forensic document examiners;
o Consulting engineers
• Assistance with the recovery of assets by way of civil action or criminal prosecution.
• 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.
• Review of the relevant documentation to form an initial assessment of the case and
identify areas of loss.
• Assistance with Examination for Discovery including the formulation of questions to be

asked regarding the financial evidence.
• Attendance at the Examination for Discovery to review the testimony, assist with
understanding the financial issues and to formulate additional questions to be asked.
• Review of the opposing expert’s damages report and reporting on both the strengths
and weaknesses of the positions taken.
• Assistance with settlement discussions and negotiations.
• Attendance at trial to hear the testimony of the opposing expert and to provide assistance
with cross-examination.
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.
For example, a Forensic Accountant may be retained by the R.C.M.P., as well as by
regional or local police forces and organizations such as the Law Society.
A forensic Accountant’s report is prepared with the objective of presenting evidence in
a professional and concise manner.
(b) Shareholders’ and Partnership Disputes
These assignments often involve a detailed analysis of numerous years accounting records
to quantity the issues in dispute. For example, a common issue that often arises is the
compensation and benefits received by each of the disputing shareholders or partners.
(c) Personal Injury Claims / Motor Vehicle Accidents
A Forensic Accountant is often asked to quantity the economic losses resulting from a
motor vehicle accident. A Forensic Accountant needs to be familiar with the legislation
in place which pertains to motor vehicle accidents.
Cases of medical malpractice and wrongful dismissal often involve similar issues in
calculating the resulting economic damages.
(d) Business Interruption / Other Types of Insurance Claims
Insurance policies differ significantly as to their terms and conditions. Accordingly, these
assignments involve a detailed review of the policy to investigate coverage issues and the
appropriate method of calculating the loss.

A Forensic Accountant is often asked to assist from either an insured or insurer’s

perspective in the settlement of a case.
Examples of these types of assignments include; business interruptions, property losses
and employee dishonesty (fidelity) claims.
(e) Business / Employee Fraud Investigations
Business investigations can involve funds tracing, asset identification and recovery, forensic
intelligence gathering and due diligence reviews.
Employee fraud investigations often involve procedures to determine the existence, nature
and extent of fraud and may concern the identification of a perpetrator. These investigations
often entail interviews of personnel who had access to the funds and a detailed review of
the documentary evidence.
(f) Matrimonial Dispute
Matrimonial disputes from a Forensic Accounting point-of-view often involve the tracing,
locating and evaluation of assets. The assets to be evaluated and valued may be business,
property or other assets.
(g) Business Economic Losses
Examples of assignments involving business economic losses include; contract disputes,
construction claims, expropriations, product liability claims, trademark and patent
infringement and losses stemming from a breach of a non-competition agreement.
(h) Professional Negligence
These investigations are approached from two different but complimentary perspectives,
these being:
• Technical- has a breach of Generally Accepted Accounting Principles or Generally
Accepted Auditing Standards or other standards of practice occurred; and
• Loss Quantification.
If the professional in question is an accountant then a Forensic Accountant could be
involved with both perspectives. If the matter involves some other profession a Forensic
Accountant will normally be retained to perform only loss quantification.
(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).
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.
Steps in a forensic accounting assignment
Each forensic accounting assignment is unique. Accordingly, the actual approach adopted
and the procedures performed will be specific to it. However, in general many Forensic
Accounting assignments will include the steps detailed below.
(a) Meet with the client
It is helpful to meet with the client to obtain an understanding of the important facts,
players and issues at hand.
(b) Perform a conflict check
A conflict check should be carried out as soon as the relevant parties are identified.
(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. This will allow subsequent planning to be based upon a more
complete understanding of the issues.
(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.
(e) Obtain the relevant evidence
Depending on the nature of the case this may involve locating documents, economic
information, assets, a person or company, another expert or proof of the occurrence of
an event.
(f) Perform the analysis
The actual analysis performed will be dependent upon the nature of the assignment and
mayinvolve:
• Calculating economic damages;
• Summarizing a large number of transactions;
• Performing a tracing of assets;
• Performing present value calculations utilizing appropriate discount rates;
• Performing a regression or sensitivity analysis;

• utilizing a computerized application such as a spread sheet, data base or computer
model; and
• Utilizing charts and graphics to explain the analysis.
(g) Prepare the report
Often a report will be prepared which may include sections on the nature of the
assignment, scope of the investigation, approach utilized, limitations of scope and findings
and / or opinions. The report will include schedules and graphics necessary to properly
support and explain the findings.
Basic qualities of an ideal forensic accountant
In order to properly perform different services, a Forensic Accountant must be familiar with
the legal concepts and procedures and is desired to have complete knowledge of regulations,
guidelines and directions of the regulatory bodies like SEBI, DCA, ICAI, and RBI.
Thus, a capable Forensic Accountant should have the following characteristics:
1. Curiosity : to look behind the numbers
2. Creativity : to have innovative ideas in mind
3. Discretion: to the extent of variations from the specified matters as authorized by the
client
4. Organization: to sum up the whole things into one single unit.
Techniques used in forensic accounting
Two most popular mathematical techniques currently used for forensic accounting are:
1. Benford’s Law, and
2. 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. The basis of this law is that fabricated figures (an indicator
of fraud) possess a different pattern from random figures.
(b) Theory of Relative Size Factor
It detects unusual data, which may be due to either simple errors or frauds. 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. It is

measured as the ratio of the largest number to the second largest number of a given set.
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 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.
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”. It’s a good quote that every
auditor should know. This quote makes the definition of Forensic accountants even simpler.
The forensic Accountant is a bloodhound of Bookkeeping. These bloodhounds sniff out fraud
and criminal transactions in bank, corporate entity or from any other organization’s financial
records. They hound for the conclusive evidences. External Auditors find out the deliberate
misstatements only but the Forensic Accountants find out the misstatements deliberately.
External auditors look at the numbers but the forensic auditors look beyond the numbers.
Forensic accountants take a more proactive, skeptical approach in examining the books of
Accounting. 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, have
nothing to do with the Accounting or Assurance standards but are keen in exposing any
possibility of fraud. The traits of the forensic Accountants could be compared to well baked
Pizza. The base of forensic accounting is Accounting knowledge. Size and the extent of baking
decide the quality of the Pizza. A middle layer is a dispersed knowledge of auditing, internal
controls, risk assessment and fraud detection. It is like the spread of the cheese in Pizza. The
topping of this Pizza is a basic understanding of the legal environment. The legal environment
is essential in order to support the litigations. The Cherry on the toppings of the pizza is a
strong set of communication skills, both written and oral. It is just the beautification part.
Perfect combination of the Pizza base, Cheese spread and a good topping makes the pizza
delicious and the Forensic Auditor the perfect. It’s a combination that will be in demand for as
long as human nature exists.
The Opportunities for the Forensic Accountants are growing at a rapid speed. Collapse of
Enron and WTC twin towers have blessed the American Forensic Accountants with the
opportunities.
The profession of forensic accounting has not yet gained prominence in India. Recently there
are some institutions and agencies that have realized the importance of forensic accounting-
like Indian Forensic Research Foundation. KPMG, the global network of professional
services firm has very recently established its forensic and investigative accounting practice
division in India. Network Ltd. has started working in this field. Lain Parekh Committee has
recommended for setting up a separate body to investigate financial frauds. Dr. N L Mitra
Committee appointed by RBI has commended the same.
Table 2 : Bank Frauds in India in Recent Years
YEAR AMOUNT NUMBER OF CASE
(Rs. in crores)
2002 399.53 1744
2003 653.50 2207
2004 600.16 2663
Source : KPMG
In India the formation of Serious Fraud Investigation Office(SIFO) is the landmark creation
for the Forensic Accountants. Growing cyber crimes, failure of regulators to track the security
scams, series of co-operative banks bursting-all are pinpointing the need of forensic accounting,
irrespective of whether we understand the need or not.
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. Very few know about it.
It’s a thrill of hunt. Maurice E. 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. This statement is enough for the chartered accountants in India to foray in
this field. It is new child on the block. Both CBI and CID cops do the forensic accounting
work. Until recently there was no separate community in India. But now movement of India-

forensiccommunityisgatheringthepace.Thegrowingnumberofregulatorandtheadministrative
agencies will demand the services in the nature of forensic practice. Chartered Accountants
are going to find themselves more involved in what is essentially a type of forensic practice.
The changing nature of the Accounting and Auditing & assurance standards also confirms
this. Nearly 40 % of the top 100 American accounting firms are expanding their forensics and
fraud services, according to Accounting 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. Far from the humdrum stereotypic accountant your mind might
have initially conjured, the forensic accounting professional is more of a private investigator
with a financial sixth sense than the bookkeeper with a green eyeshade.
Conclusion
Today, forensic accounting is one of the fastest growing professions. But beyond a cursory
glance one recognizes that while the title is new, what the job intends to achieve is nothing
new. The job performed is not unlike what was done in the name of investigation previously.
There is one version of how the name ‘forensic accountant’ developed. Previously Investigation
Accountants assigned to analyze fraud findings found that this title made people uncomfortable.
Inspiration came from a very unlikely source, a popular TV, detective serial “Columbo”. 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”. The rest, as they say is “history”.
References
• Kasum A. S. (2009), The Relevance of Forensic Accounting to Financial Crimes in
Private and Public Sectors of Third World Economies: A Study from Nigeria,
Proceedings of The 1st International Conference on Governance Fraud Ethics
and Social Responsibility, June 11-13.
• Adefila, J. J., Kasum, A. S. and Olaniyi T. A. (2005), ‘The Global Endemic Nature
of Financial Malpractices: An Analytical Appraisal.’ African Journal of Management,
1(1), pp11-20.
• Ajisebutu, A. (2006), “Financial Statement Fraud: What Auditors should know”, The
Nigerian Accountant, 39(2), p17 Balarebe, I (2005) EFCC and the law,
www.efccnigeria.org.

• Brain C. Brush and Charles H. Breeden (1997), “A Taxonomy for the Treatment of
Taxes in Cases Involving Lost Earnings”, Journal of Legal Economics, Vol.6, No.2
(1997).
• Crumbley, D. L. (2001), Forensic Accounting:Older than you think, JFA, 2 (2) 181
Crumbley, D. L (2003), “What is Forensic Accounting”, www.edwardspub.com.
Crumbley, D. L (2006), “Forensic Accountants Appearing in the literature,
www.forensicaccounting.com.
• Elizabeth V. Mulig and Murphy Smith(2008), ‘Understanding and Preventing Money
Laundering’, Internal Auditing, Vol. 19, No. 5, pp. 22-25
• Grazoli, S, Janal, K. and Johnson, P.E. (2006) A cognitive approach to fraud detain
JFA, 7 (2) pp65-88
• Joshi, M. S. (2003), “Definition of Forensic Accounting” www.forensicaccounting.com.
Khan, S. A. (2005) “Corruption and Professional Practice: Issue and Challenges”,
The Nigerian Accountant, 38 (4), P 60
• S.W. Williams (2005), ‘Reflections on the Private Versus Public Policing of Economic
Crime’, The British Journal of Criminology, Vol. 45, Issue 3, pp. 316-339.
• Wayne, L. (2007), ‘AIFRS - A Practitioner’s Viewpoint’, Journal of Applied Research
in Accounting and Finance (JARAF), Vol. 2, No. 1, pp. 9-19, 2007
• Zysman, A. (2004), “Forensic Accounting Demystified”, world investigators network
Standard practice for investigative and forensic accounting engagements ? Canadian
Institute of Chartered Accountant, Nov 2006.
• World Bank Report, 2007.

Students’ Section :
ENVIRONMENTAL IMPACT ASSESSMENT : A STRATEGIC MANAGERIAL
DECISION MAKING TOOL
Somnath Paul*
Introduction
Recently in Copenhagen, the capital of Denmark, world conference on climate change had
been held. Many countries sent their representatives on various issues relating to world
environmental crisis- such as global warming and climate change etc.
In this regard “Environmental Impact Assessment” is a very important area to analyze. The
term “Environmental Impact Assessment” initially came to be used with the enforcement of the
N.E.P.A (the US National Environmental Policy Act) on January 1, 1970 in the USA. Since
then E.I.A has gained world wide acceptance. The E.I.A is focused largely on the bio-physical
environment outside the home and work place and its relevant social and economic contradictions.
Determination of Impact
Impact determination should be based upon five criteria namely:
i. The magnitude of the possible impact
ii. Its ecological significance
iii. Its extent in space and time
iv. The sensitivity or vulnerability of the elements in the country or the physical area
v. The degree of irreversible damage caused
Types of Environmental Impacts
There are various types which are mentioned below:-
i. Physical and socio-economic
ii. Direct (or primary) and indirect (secondary, tertiary, higher order)
iii. Immediate, short run and long run
iv. Local (micro-environmental) and strategic (macro-environmental-regional, national and
beyond)
v. Adverse (negative) and beneficial (positive)
vi. Quantitative and qualitative
*
Student of 4th semester, department of commerce with farm Management, Vidyasagar University
E-mail: me.somnath_paul@rediffmail.com
ENVIRONMENTAL IMPACT ASSESSMENT : A STRATEGIC .......
vii. Reversible and irreversible

viii. Intended and accidental
ix. Discrete and cumulative
x. Actual (objective) and perceived (subjective)
xi. Distribution by group and / or area
xii. 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. Most national legislations explicitly use the word, although it has not been clearly
defined at any point. The concept of ‘significance’ is thus, overly subjective and is mostly the
outcome of a collective judgment of assessment officers, legislators, decision makers and the
public.
With regard to ‘Environmental Impact Assessment’ the geographical diffusion of the concept
has resulted in a diverse nomenclature. By contrast, E.I.A is an official evaluation of the likely
effects of a proposed policy, program or project on the environment, of alternatives to the
proposal and of measures required to be adopted to protect the environment. The concept is
sufficientlycomprehensiveandisapplicablefromtheinceptionofaproposaltoitsimplementation
and involves post-project analysis (P.P.A) as well. Accordingly, E.I.A is complementary phases
of the total Environmental Review (E.R) process.
E.I.A is a systematic, integrative, proactive process of predicting and evaluating an action,
impacts on the natural and man-made environment, the conclusions of which are to be used as
a decision making tool.
E.I.A is an anticipatory, participatory environmental management tool that can help, prevent
environmental degradation by giving decision makers better information regarding the
consequences of developmental actions on environment.
Objectives of E.I.A
The objective of E.I.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. Social and economic factors may be far more constraining. Moreover, as decision-
makers need to handle a disparate range of information as a basis for their decisions aggregation
is always a recurrent problem. In this regard, E.I.A if rightly employed, can serve as an

Somnath Paul
integrative element in environmental protection policy, but is only one element in that policy,
for decision-makers will probably have other appraisal techniques at their disposal.
Conclusion
E.I.A is, thus, the outcome of a long evolutionary process, the nature and utility of E.I.A is a
function of time, space and the values and perspectives of those in its evaluation.
O’Riordon appropriately encapsulates the idea thus:-
“If one sees E.I.A not so much as a technique, rather as a process that is constantly changing
in the fall of shifting environmental politics and managerial capabilities, one can visualize it as a
sensitive barometer of environmental values in a complex environmental society. Long may
E.I.A thrive”.
References
• Ahmad, Y. (1995) ‘Technology Transfer, Environmental Auditing and E.I.A’ in
Environmental Management: Issues and solutions (ed. M. Atchia and S. Tropp) Chichester:
Wiley
• Glasson, J., Therival, R., and Chadwi, A. (2005), Introduction of Environment Impact
Assessment, Rout ledge Pub., New York.
• Mukherjee , K., E.I.A: in Quest of the frontiers of sustainable decision making, Business
studies, Vol XIX
• Srivastava, A. K., Environment Impact Assessment, S. B. Nangia Pub., New Delhi

NOTES TO CONTRIBUTORS
VIDYASAGAR UNIVERSITY JOURNAL OF COMMERCE invites contributions on all as-

pects of Commerce, Management, Economics and Finance. Articles should be accompanied by
a declaration that they have not been published or submitted for publication elsewhere. These
should be sent to the Executive Editor in duplicate in hard copy and soft copy with one and half
space typing along with an abstract of not more than 100 words (in any wordprocessing soft-
ware).
Academicians, Experts from Industry and Professionals are welcome to submit data-based
papers forconsideration.
Articles should be written in English and preferably be below 4000 words in length. Articles
should be prepared and presented following the style mentioned below.
Diagrams may be used only if absolutely essential.
Authors ofpublished articles will receive five free reprints. In case of joint authors, each author
will receive three free reprints.
STYLE OF PRESENTATION
Title of the articleUpper case, Front 12, Bold, Normal, Times New Roman, Middle Justified.
Author/s Title case, Front 11, Bold, Italic, Times New Roman (*,**), Right Justified.
Author/s Affiliation*,**, Title case, Front 11, Normal, Times New Roman, On the first page of
the write-up as a foot-note, E-mail id if any should be given at the end of in
italics.
Abstract The word ABSTRACT in Front 11, Bold, Normal, Times New Roman, Middle
Justified, Upper case, Text of Abstract in Sentence case, Front 10, Normal,
Times New Roman, Centrally aligned below Title and Author. Immediately
after ABSTRACT the main write-up will start giving a paragraph gap.
Section heading Title case, Front 12, Bold, Normal, Times New Roman, Left Justified.
Sub-section heading Title case, Front 11, Bold, Normal, Times New Roman, Left Justified.
Main article Front 11, Times New Roman, Normal
Reference (i) Book : Khan, M. Y. (1997), Financial Services, Tata McGraw-Hill
Publishing Co., New Delhi, p.56.
(ii) Journal : Gray, S. J. and Street, D. L. (2001), "Acceptance and Obser-
vance
of International Accounting Standards : Prospects and Problems", Indian
Accounting Review, June, pp.4-6
(iii) Website : www.wto.org.
Tables and Figures Table description in Title case, Bold, Normal, Times New Roman, Left
Justified in Front 12 at the top of content of the table after giving Table
No.as
Table-1 : .......
Figure description in Title case, Bold, Normal, mes New Roman, Left Jus-
tified
in Front 12 at the bottom of the figure after giving Figure No. as Figure-1 :
.....
Printed in India by Mr. Tagar Lal Khan at Giri Printers, Keranichati, Midnapore - 721102
and Published by the Registrar on behalf of the Department of Commerce with Farm
Management, Vidyasagar University, Midnapore, Pin -721102, West Bengal, India.

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VOL.

15, MARCH, 2010

A. Gupta K. Bandopadhyay S. Ghosh

A. Sinha T.N. Sahu

Amit Kr. Mallik S. Srinivasan D. Obul Reddy

Jaydeb Sarkhel Sudipti Banerjea K. Eresi

M. Ranganatham G. Soral Lalit Gupta

Bharati V. Pathak A. K Singh

SI. No. Title of Article Page No.

1. MEASURES OF SHAREHOLDERS’ VALUE CREATION : 1

Dated : Midnapore Sd/- K. C. Paul

MEASURES OF SHAREHOLDERS’ VALUE CREATION :

Vidyasagar University Journal of Commerce [7]

[8] Vidyasagar University Journal of Commerce

Data base and Methodology

The market value per share (MV) is then given by:

In Equation (1), DPS may be expected to grow at a constant rate, g. That is

Vidyasagar University Journal of Commerce [ 11 ]

MVA = Market Capitalization – Equity

Vidyasagar University Journal of Commerce [ 13 ]

Major Computations and Findings

Note : Fot detailed computations see Annexures I and II

Vidyasagar University Journal of Commerce [ 15 ]

• KPMG-BS, (1998), “Corporate India: An Economic Value Scoreboard”, The Strategy,

Vidyasagar University Journal of Commerce [ 17 ]

Computation of Economic Value Added (EVA)

Computation of MVA & SVA

Computation of Shareholders' return for one year

Computation of Shareholders' return for Five years

[ 18 ] Vidyasagar University Journal of Commerce

Vidyasagar University Journal of Commerce [ 19 ]

Computation of Economic Value Added (EVA)

Computation of MVA & SVA

Shareholders' return for one year

Shareholders' return for five years

[ 20 ] Vidyasagar University Journal of Commerce

Computation of cost of equity

Vidyasagar University Journal of Commerce [ 21 ]

COMMERCE EDUCATION IN THE CHANGING BUSINESS SCENARIO IN

Vidyasagar University Journal of Commerce [ 25 ]

analytical power, critical thinking and responsiveness to real-life situations, problem-facing

[ 28 ] Vidyasagar University Journal of Commerce

Commerce Education to Produce Job - creators also

Vidyasagar University Journal of Commerce [ 29 ]

[ 30 ] Vidyasagar University Journal of Commerce

JOB STRESS OF WORKING NURSES : CAUSES AND CONSEQUENCES-A

[ 32 ] Vidyasagar University Journal of Commerce

Sources of Job Stress

Vidyasagar University Journal of Commerce [ 35 ]

[ 36 ] Vidyasagar University Journal of Commerce

Findings and Analysis

Vidyasagar University Journal of Commerce [ 37 ]

[ 38 ] Vidyasagar University Journal of Commerce

Vidyasagar University Journal of Commerce [ 39 ]

Vidyasagar University Journal of Commerce [ 41 ]

[ 42 ] Vidyasagar University Journal of Commerce

Vidyasagar University Journal of Commerce [ 43 ]

• Marilyn L. Fox, Deborah J. Dwyer, and Daniel C. Ganster (1993),“Effects of Stressful

[ 44 ] Vidyasagar University Journal of Commerce

RURAL CREDIT IN WEST BENGAL : A CASE STUDY OF A VILLAGE IN

Source: Field Survey # Figures in parenthesis indicates number of individuals.

[ 48 ] Vidyasagar University Journal of Commerce

Features of Credit Transactions