Astitva International Journal of Commerce Management and Social Sciences- April 2013

Astitva International Journal of Commerce Management and Social Sciences ISSN- 2320-0626 (Online)

A Journal of International Repute

By:

Astitva Consultancy Services

Volume 2, No. 1, April 2013

MANAGING EDITOR

Dr. Vandana Shriharsh


Address: 5/869, Vikas Nagar, Lucknow E- mail: [email protected], Website: www.astitvajournals.astitvaonline.co.in

FROM THE DESK OF MANAGING EDITOR

It is my pleasure to acknowledge you about the international journal of Commerce Management

and Social Sciences, which is the platform for research & development practices to all respected

professors, lecturers, researchers & eminent scholars. Our journal focuses on core competencies as

well as some methodological and industrial practices adopted in the modern era.

As I think about research, it is sure that I consider three distinguished formats:

1. Research paper

2. Research article

We will like to have a high impact papers with extensive research methods along with testing as

well as statistical analysis which is quite necessary for the sake of development in the industrial

practices adopted by the industrialists. Really these types of working will carry out a better

conclusion & findings for the upcoming global business scenario.

We will also appreciate the case studies which include critical analysis by doing thorough

investigation of cases and come to know about proper findings & recommendations.

In last, I on behalf of our journal will say welcome to all to our journal which is devoted &

dedicated to the research in the field of Commerce Management and Social Sciences.

Thank You


Managing Editor

TABLE OF CONTENTS

S. No Contents Page

No.

1 Editorial Board 4

2 Copyrights and Disclaimer 5

3 Company Overview 6

4 An Empirical Evaluation of Critical Success Factors of Knowledge Management for

Organizational Sustainability

Dr. Anli Suresh

7

5 The Study of Reasons of Stress among Human Capital in Delhi

Mr. Vaibhav Misra

19

6 An Empirical Study on Attitudes of B. Tech Students towards E-Learning

Ms. Akansha Misra

29

7 The Theoretical Study of Lying and Micro Expressions

Abhijatya Dhar and Dr. Vandana Shriharsh

46

8 How to Solve Case Study

Jatin Tekriwal

60

9 Guidelines for the Author 62

Patron

Mrs. Geeta Misra

Managing Editor


Editorial Board

Dr. R Venkataraman

Professor

Department of Management Studies

Presidency Business School

Bangalore, India

Mr. Manish Kumar Srivastava

Department of Management,

Shri Ramswaroop Memorial Group of

Professional Colleges

Lucknow, India

Dr. Anli Suresh, Assistant Professor

Department of Commerce

Madras Christian College, Chennai, India

Distinguished Fellow Global Strategic

Management Inc.

Michigan, USA

Dr. Suman Pathak

Assistant Professor

School of Business Management

Sharda University

Greater Noida, India

Dr. Ratna Vadra

Assistant Professor- Economics and

International Business

Institute of Management and Technology

Ghaziabad, India

Dr. Aaruni Saxena, MD, PhD

Institute of Pharmacology

University of Duesseldorf

Duesseldorf, Germany


5

VOL 2, NO.1, APRIL 2013

COPYRIGHTS AND DISCLAIMER

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6


ASTITVA CONSULTANCY SERVICES- AN OVERVIEW

Astitva Consultancy Services is a Human Capital Services and Research Oriented organization

with a focus on providing Recruitment and Soft Skills Training and Research Consultancy to the

client organization. Astitva Consultancy Services is one of the leading organizations based at

Lucknow with the aim of providing overall human capital and research solutions to the institutes

and organizations. The Astitva Consultancy Services provides recruitment in the domains such

as- ITES/ BPO, FMCG, Telecommunication, Hospitality, Education and Software.

Astitva Consultancy Services provides suitable candidates for specific permanent positions,

according to the requirements communicated by the client. The client shall reserve the complete

right and responsibility of establishing the eligibility of employment and subsequent employment

of the prospected candidate/s.

Astitva Consultancy Services provides suitable research consultancy concerning the different

domains such as Marketing, Human Resource, Legal, and Financial consulting to the client

organizations. The activities such as conducting the market research, data collection, report

preparation and data analysis is conducted for the corporate.

ABOUT ASTITVA INTERNATIONAL JOURNAL OF COMMERCE MANAGEMENT

AND SOCIAL SCIENCES

Astitva International Journal of Commerce Management and Social Sciences (AIJOCMSS),

peer-reviewed and published bi-monthly, is committed to publishing scholarly empirical and

theoretical research articles that have a high impact on the commerce, management and social

sciences fields as a whole. Astitva International Journal of Commerce, Management and Social

Sciences encourage new ideas or new perspectives on existing research. Manuscripts that are

suitable for publication in Astitva International Journal of Commerce, Management and Social

Sciences is not limited to any particular domains instead it covers domains such as commerce,

marketing, information technology, financial management, psychology, sociology, business

strategy and policy, entrepreneurship, human resource management, organizational behavior,

organizational theory, and research methods.


7


FINANCIAL INNOVATIONS AND ITS IMPACT OF GLOBAL CRISES ON INDIAN

CAPITAL MARKETS

DR. ANLI SURESH

Assistant Professor of Commerce

Madras Christian College – India

[email protected]

Abstract

One of the bedrocks of our financial system is financial innovation and financial

innovation is the life blood of efficient and responsive capital markets. The last 25 years have

witnessed acceleration in the process of financial innovation. This has been spurred largely by

increased volatility of exchange rates, interest rates and commodity prices and an increase in the

pace of tax and regulatory change. Financial innovation enhances the allocation efficiency of the

financial intermediation process and improves the operational efficiency of the financial system

by reducing the costs and/or risk of transactions in the primary and secondary markets in which

financial instruments are traded. Financial innovation is necessary to achieve a high and stable

rate of growth through financial sector development in Emerging Market Economies (EMEs).

India’s financial markets – equity market, money market, forex market and credit market –

experienced the knock-on effects of the global financial crisis. The equity markets and forex

markets came under pressure because of the reversal of capital flows as part of the global

deleveraging process. With the reversal of capital flows and drying up of external sources of

funds, corporate shifted to domestic bank credit. This substitution of overseas financing by

domestic financing brought both money markets and credit markets under pressure. In this paper,

financial innovations and its impact of the crisis on various financial market segments in India

and policy responses to contain the damage and restore normalcy have been analyzed. The study

is based on the hypothesis that Foreign Investors are confident about the Indian Capital market

conditions that they divert funds to other profitable and more secured destinations. The

concluding remark is that Indian Financial Markets affected by the current global crisis from

January 2008 largely because of selling pressures by FIIs, besides weakened domestic sentiments

because of turmoil in international financial markets.

Keywords: Capital Market, Financial Crisis, Financial Innovation, Financial Markets,

Foreign Exchange Market, Government Securities Market, Money Market.


8


Introduction

Financial innovation refers both to technological advances which facilitate access to

information, trading, and means of payment, and to the emergence of new financial instruments

and services, new forms of organizations, and more developed and complete financial markets.

Financial innovations can be grouped as new products (e.g., exchange-traded index funds); new

services (e.g., on-line securities trading, internet banking); new ‘production’ processes (e.g.,

electronic record keeping for securities, credit scoring); or new organizational forms (e.g., a new

type of electronic exchange for trading securities, internet- only banks).all these reduce the

transactions costs and financial risks involved therein. The aim of financial innovation is to make

different services (loans, deposits, fund units, debt instruments, shares, derivatives for risk

management, currency exchange payments, etc.) offered by financial system cheaper and more

available for clients and to increase their quality, which is an assumption for a long-run

sustainable growth of emerging market economies. Financial innovations occur because market

participants are constantly searching for new ways to make greater profits. Whenever monetary

authorities restrict the operations of the market participants(commercial banks, financial

companies, co-operatives, thrift institutions, pension funds, and others), new financial

instruments come into the market. This is called financial innovation which assists market

participants to minimize risk and to maximize return. Such financial innovations and their

globally reaching migration from mature to emerging markets are generally construed as

beneficial to host financial sectors because their bring about a lower national cost of capital;

presumably by allowing the transfer of risk from firms less able to bear risk to those which are

better equipped to bear it (division of labor), financial intermediation is improved and national

welfare is enhanced.

The developments in the global economy during the past three decades indicate that the

process of financial development and globalization is, at times, susceptible to crisis. Initially, it

appeared that emerging market economies (EMEs) were in a better position to weather the storm

created by the global financial meltdown on the back of substantial foreign exchange reserve

cushions, improved policy frameworks and generally robust banking sector and corporate

balance sheets. However, any hope about EMEs escaping unscathed cannot sustained after the

failure of Lehman Brothers in September 2008 and the ensuing rise in global risk aversion and


9


the spillover effects of the macroeconomic turbulences created by the global financial meltdown.

Depressed consumer and investor spending in the advanced economies led to a slump in demand

for EME exports, which reinforced the inflow reversal (BIS Annual Report, 2008-09). However,

the effect varied across these economies depending on the level of global integration.

India’s financial markets – equity markets, money markets, forex markets and credit

markets – had all come under pressure from a number of directions. First, the substitution of

overseas financing by domestic financing brought both the money market and credit market

under pressure. Second, the forex market came under pressure because of reversal of capital

flows as part of the global deleveraging process and, simultaneously, corporate were converting

the funds raised locally into foreign currency to meet their external obligations. Third, the

Reserve Bank’s intervention in the forex market to manage the volatility in the rupee further

added to liquidity tightening. Fourth, Indian banks as well as corporate were finding it difficult to

raise funds from external sources as a consequence of the global liquidity squeeze and, as a

result, pressure escalated sharply on banks for the credit requirements of corporate. In addition,

in their frantic search for substitute financing, corporate withdrew their investments from

domestic money market mutual funds, putting redemption pressure on the mutual funds and,

down the line, on non-banking financial companies (NBFCs) where the mutual funds had

invested a significant portion of their funds. Finally, India also witnessed large capital outflows,

exchange rate depreciation, protracted contraction in merchandise exports, and a steep fall in

equity prices in the second half of 2008-09. All these factors resulted in a sharp deceleration in

the growth of the Indian economy in the second half of 2008-09. Against this background, this

paper covers the financial innovations and its impact of the global financial crisis on the Indian

economy, the impact of the crisis on various financial market segments in India and policy

responses to contain the damage and restore normalcy.

Statement of the problem

Financial crises are admittedly difficult to define and often have no precise beginning or

end. It indicates stress on the financial system, on banks and other financial intermediaries,

usually resulting in failures of systemically important institutions and sharp contractions in the

national economy. Hence, the research interest evolved to analyze the financial innovations and

its impact of global crises witnessed by the Indian financial markets and the policy implications.


10


Objective of the study

The primary objective of the study of financial innovations and financial crises has been

to better comprehend the underlying analytics of a crisis on India’s financial markets – equity

markets, money markets, forex markets and credit markets so that future occurrence may be

predicted and minimized.

Methodology &Data Source

The methodology adopted is exploratory based on the figures from the secondary data of

the various financial reports of Reserve Bank of India ,World Development Indicators - World

Bank, Speeches of Financial Advisors and Primary data from Researcher’s and various

Financial Expert’s ideas and opinions.

Review of Literature

The global financial crisis and deleveraging led to reversal and/ or modulation of capital

flows, particularly foreign institutional investor flows, ECBs and trade credit (Gopinath, 2009).

An issue that assumed importance during the present global crisis is the relative strength of

various channels of transmission especially against the backdrop of the sharp escalation of

India’s financial integration with global markets over the past few years. While the crisis

transmitted to India through both the trade and finance channels, the latter was by far more

significant in terms of the intensity of the impact (Subbarao, 2009). The global liquidity spiral

increased volatility in the financial markets, and restoring orderly conditions in the financial

markets became critical to contain the spread of contagion to other sectors of the economy

(Chakrabarty, 2009). The argument is that the recurrence of financial crisis has not changed the

positive relation between financial development and growth (Lipsky, 2009). The global crisis of

2008 that originated in the mortgage sector of the US spread to the entire financial system and

the real economy across countries. Exchange rates in many economies depreciated, equity prices

crashed, volatility heightened, and liquidity dried up in financial markets, and the cost of external

borrowings moved significantly upward. While in the case of advanced countries the external

shocks were largely carried through direct channels with the exposure of banking systems to the

sub-prime mortgage assets, the contagion to developing countries was transmitted mainly

through trade, finance, and commodity price channels and rapid changes in expectations

(Subbarao, 2009). The rising financial linkages resulted in a higher degree of business cycle co-


11


movement and the greater wealth effect of external shocks, while the trade linkages generated

both demand-side and supply side spillovers across countries, resulting in more highly correlated

output fluctuations. The relationship between finance and growth in general and the importance

of foreign capital for the economic progress of developing economies deliberated at length over

the years. In theory, financial globalization can help developing countries to manage output and

consumption volatility (Prasad et al., 2003).

Analysis & Discussion

Foreign Exchange Market and Financial Innovations -Prior to the 1990s, the Indian foreign

exchange market was highly regulated with restrictions on transactions, participants and use of

instruments. The period since the early 1990s has witnessed a wide range of regulatory and

institutional reforms resulting in substantial development of the rupee exchange market as is

observed today. Market participants have become sophisticated and acquired reasonable

expertise in using various financial innovated instruments and managing risks. The foreign

exchange market in India today is equipped with several derivative instruments. These derivative

instruments have been cautiously introduced as part of the reforms process in a phased manner,

both for product diversity and, more importantly, as a risk management tool. As a result, trading

volumes in the Indian foreign exchange market have grown significantly over the past few years.

The daily average turnover has seen an almost ten-fold rise during the 10-year period from 1997-

98 to 2007-08, from US$ 5 billion to US$ 48 billion. The pick-up has been particularly sharp

from 2003-04 onwards, when there was a massive surge in capital inflows. Reflecting these

trends, the share of India in global foreign exchange market turnover trebled from 0.3 per cent in

April 2004 to 0.9 per cent in April 2007.

Large withdrawals of funds from the equity markets by the foreign institutional investors

(FIIs) reflecting the credit squeeze and global deleveraging resulted in large capital outflows

during September-October 2008, with concomitant pressures in the foreign exchange market

across the globe including India . The impact of these factors has resulted in a significant fall in

turnover in the foreign exchange market since October 2008. This decline spread across the

merchant and interbank segments of the forex market. The pressure on the foreign exchange

market was also visible in the falling share of the spot market in the total turnover (Table1). At

the same time, the share of the forward and swap markets in total turnover increased, possibly


12


reflecting the rising tendency of hedging the underlying exposure in the foreign exchange

market. After Lehman’s bankruptcy, the rupee depreciated sharply, breaching the level of Rs.50

per US dollar on October 27, 2008. The Reserve Bank scaled up its intervention operations

during the month of October 2008. Despite significant easing of crude oil prices and inflationary

pressures in the second half of the year, declining exports and continued capital outflows led by

global deleveraging process and the sustained strength of the US dollar against other major

currencies continued to exert downward pressure on the rupee. With the spot exchange rates

moving in a wide range, the volatility of the exchange rates increased during this period.

However, with the return of some stability in international financial markets and the relatively

better growth performance of the Indian economy, there has been a revival in foreign investment

flows, especially FII investments since the beginning of 2009-10. As compared with depreciation

of 21.5 per cent during 2008-09, the rupee appreciated by around 13 per cent in 2009-10. During

the current year so far upto June 11, 2010, the rupee depreciated by 3.6 per cent against US

dollar over end-March 2010. Though there has been some recovery in the forex turnover during

2009-10, it has not yet picked up to the pre-crisis levels.

Table 1: Transactions in Foreign Exchange Market

Period Average

Daily

Turnover

in Forex

Market (U

S$

billions)

Average

Daily Share

of Spot

Market in

Total

Turnover

(%)

Average Daily

Share of

Forward &

Swap Market

in Total

Turnover (per

cent)

RBI’s Net

Foreign

Currency

Sales (-

)/Purchases

(+)(US$

million)

Movements

in Average

Exchange

Rate (Rs.

Per

US$)Deprec

iation(-

)/Appreciati

on (+)

Average

Exchange

Rate (Rs.Per

US$) range(Low

-High)

Average

3-

monthFor

ward

Premia

(%)

2000-05 7.7 47 53 20,848 -6.9 5.7 3.3

2005-06 17.5 51 49 8,143 1.5 3.0 1.6

2006-07 25.8 52 48 26,824 2.2 3.8 2.14

2007-08 47.9 50 50 78,203 12.5 3.9 2.16

2008-09 47.6 45 55 -34,922 -12.4 -12.2 3.47

2009-10 40.7 50 40 -3.2 5.6 2.91

Source: Reserve Bank of India Publication 2010.

Money Market and Financial Innovations - Since the early 1990s, the Indian money market

has undergone a significant transformation in terms of various financial innovated instruments,

participants and technological infrastructure. Various segments of the money market developed

in line with shifts in policy emphasis. The call money market transformed into a pure inter-bank


13


market, while other money market instruments, such as market repo and collateralized borrowing

and lending obligation (CBLO), developed to provide avenues to non-banks for managing their

short-term liquidity mismatches. Policy initiatives by the Reserve Bank in terms of widening of

market-based instruments and shortening of maturities of various instruments have not only

helped in promoting market integration but also enabled better liquidity management and

transmission of policy signals by the Reserve Bank. With the increasing uncertainty in global

markets, the volatility in the call market also increased significantly during mid-September 2008.

Following the reversal of capital flows and increase in the liquidity needs of the economy, the

Reserve Bank also started unwinding of the outstanding Market Stabilization Scheme (MSS)

balances, resulting in a steady release of liquidity. After September 2008, the issue of Treasury

Bills under the MSS was suspended. With effect from November 2008, the Reserve Bank also

started buyback of dated securities earlier issued under MSS to augment its efforts to hasten the

pace of liquidity creation. The measures initiated by the Reserve Bank augmented liquidity, and

the weighted average call money rate declined and mostly remained within the Liquidity

Adjustment Facility(LAF) corridor from November 3, 2008 onwards. Moreover, volumes in the

money market have also grown from January 2009 (Table 2), which suggests that there has not

been any adverse perception of counterparty risk; consequently, the interbank money market

functioned normally in India, in contrast to those of certain advanced economies.

Table 2: Activity in Money Market Segments

Month Average Volume (One Leg) (Rs. crore) Term

Money

Market

(Rs.

crore)

Commercial

Paper

Certificates of

Deposit

Call Market

Repo

CBLO Total Money

Market

rate (Per

cent)*

O/S

(Rs.

crore)

WADR

%

Out-

standing(

Rs. crore)

WAD

R %

2006-07 10,863 8,419 16,195 35,477 6.57 506 21,329 8.08 64,821 8.24

2007-08 10,697 13,684 27,813 52,194 5.48 352 33,813 9.20 1,17,186 8.94

2008-09 11,218 14,330 30,776 56,323 6.43 397 47,183 10.54 1,62,574 9.31

Source: Reserve Bank of India Publication 2010: *Weighted average rate of call, market repo and CBLO.

The indirect impact of the crisis also reflected in the financial innovations of Certificate of

Deposits (CDs) and Commercial Paper (CP) markets. In both the markets, the outstanding

amounts declined and the weighted average discount rate (WADR) rose during September-

October 2008. Subsequently, the liquidity conditions eased and the outstanding amount of CP


14


and CDs picked up. The WADR in the CP and CD markets have generally declined until

December 2009 in line with the other money market rates.

Government Securities Market and Financial Innovations - The government securities

market in India has evolved over the years. Recognizing the need for a well-developed

government securities market, the Reserve Bank, in coordination with the government, initiated a

series of measures from the early 1990s to deregulate the market of administered price and

quantity controls. Consequently, the government securities market has witnessed significant

transformation in various dimensions, viz., market-based price discovery, widening of the

investor base, the introduction of new financial innovated instruments, establishment of primary

dealers, and implementation of an electronic trading and settlement infrastructure. The

switchover to an auction-based system of issuance of government securities in the early 1990s

was a major step. This, in turn, led to consistent increases in the size of the market in tandem

with the growth in market borrowings of both the central and state governments. The impact of

the global financial crisis led India to implement extraordinary measures, both on the fiscal and

monetary fronts, to stimulate domestic demand. The primary market yields of Treasury Bills

across all maturities hardened up to August 2008 and softened thereafter, reflecting the interest

rate cycle coupled with improvement in liquidity conditions from October 2008. During March

2009, however, the yields hardened from their levels in January and February 2009 due to

increased market borrowings by both the central and the state governments and quarterly

advance tax outflows (Table 3).

Table 3: Transactions in Government Securities Market

Period Average Turnover in

Govt.Securities (Rs.

crore)

Average10-

YearYield@(p

er cent)

Average Implicit

Yield at Minimum

Cut-off Price(364

days)(per cent)

AverageBid-

CoverRatio (364

days) (per cent)

2006-07 4,863 7.78 7.01 2.45

2007-08 8,104 7.91 7.42 3.21

2008-09 10,879 7.54 7.15 3.47

2009-10 13,939 7.24 4.38 3.64


Market borrowings of the Government of India increased sharply during the last quarter

of 2008- 09 to finance the additional expenditure by way of two supplementary demands for

grants to support various stimulus packages. In sum, the Reserve Bank successfully managed the


15


government market-borrowing programme during the crisis year, 2008-09, and 2009-10, without

creating any disruptive pressures on the government securities market.

Primary Markets and Financial Innovations - The primary segment of the capital market,

which remained buoyant in the years before the recent crisis, subdued significantly during 2008-

09 (Table 4). The slump in the primary market during the second half of 2008-09 ,driven by

heightened volatility and uncertainty in the financial markets, slowdown in growth and

incumbent demand for investment and dampened sentiment due to depressed secondary markets.

Table 4: New Capital Issues by Non-Government Public Ltd. Companies

Month Equity Shares ADRs/ GDRs

No. of Issues Amount (Rs. crore) No. of Issues Amount (Rs. crore)

April-08 2 439 4 2,151

May-08 4 307 3 1,901

June-08 9 1,285 1 3

Jul-08 5 262 1 30

Aug-08 5 368 1 567

Sept-08 7 9,700 0 0

Oct-08 3 129 2 35

Nov-08 2 148 0 0

Dec-08 3 1,370 0 0

Jan-09 0 0 0 0

Feb-09 1 24 0 0

Mar-09 4 640 1 102

Apr-09 0 0 1 167

May-09 1 9 0 0

Jun-09 4 227 1 48

Jul-09 3 3,179 1 48

Aug-09 4 366 4 4,618

Sept-09 12 2,853 1 7,763

Oct-09 4 2,023 1 446

Nov-9 3 878 2 1,774

Dec-09 5 3,586 2 299

Jan-10 8 2,101 4 349

Feb-10 8 5,274 0 0

Mar-10 15 4,803 1 455


Financial Innovations like initial public offerings (IPOs) in the private sector plummeted

significantly during the second half of 2008-09. Similarly, resources mobilized through another

Financial Innovations like American Deposit Receipts/Global Deposit Receipts (ADRs/GDRs)

declined sharply in the second half of 2008-09. The private placements market that had been a


16


major alternative source of funding for Indian corporate in the recent past also contracted in

2008-09. The primary market activities, however, revived since June 2009 and picked up sharply

during the last quarter of 2009- 10 as indicated by IPOs.

Secondary markets and Financial Innovations - The global crisis led by financial innovations

had a pronounced effect on financial markets in general and stock markets in particular through a

rapid decline in stock prices and the market capitalization of listed companies, leading to adverse

consequences of the wealth effect on macroeconomic aggregates. Over the past two decades,

stock markets had witnessed rapid growth due to globalization, reform and advancement in

information technology. The bulk of this expansion came from EMEs in the Asia- Pacific region

and, as a result, market capitalization of stock exchanges as a percentage to GDP in the low- and

middle-income countries had almost converged with high-income countries during recent periods

(Table 5). This rapid expansion of market capitalization also provided adequate lubricant to the

finance channels to transmit shocks across the equity markets, with stock markets emerging as

key channels during the financial crisis.

Table 5. : Market Capitalization of Stock Exchanges: Region-wise (percent to GDP)

Year East

Asia &

Pacific

High

income

High

income:

OECD

Euro

area

Latin

America &

Caribbean

Low &

middle

income

Lower

middle

income

Middle

income

South

Asia

Upper

middle

income

World

1991 16.4 57.0 56.7 22.5 18.9 18.2 11.2 18.5 16.2 22.5 51.5

1993 55.0 62.6 60.5 26.1 31.1 34.0 28.2 34.4 30.3 38.2 58.3

1997 25.5 89.1 88.6 44.8 29.6 29.9 21.7 30.3 26.7 36.8 78.1

1998 30.9 106.1 106.9 63.0 19.5 23.8 23.0 24.0 20.9 24.8 91.3

1999 42.6 134.2 134.2 83.4 32.8 38.9 33.1 39.6 33.5 45.3 118.3

2000 47.1 116.8 117.1 87.0 31.8 35.5 35.3 36.1 26.1 36.7 102.3

2001 42.2 102.0 101.8 68.3 32.5 32.6 30.2 33.0 19.1 35.7 89.4

2002 35.9 81.6 81.0 50.9 25.4 30.1 27.4 30.4 22.2 33.6 72.5

2003 46.7 98.2 96.9 58.3 29.7 39.6 39.0 40.3 39.5 41.7 87.6

2004 40.2 104.6 102.4 61.0 35.6 42.1 37.7 42.9 48.1 48.1 92.6

2005 40.6 110.5 107.1 62.7 40.5 48.6 42.5 49.5 60.2 56.0 97.5

2006 84.9 122.8 120.9 80.7 49.1 71.7 75.7 72.9 76.9 70.3 111.1

2007 158.9 123.5 119.9 85.3 70.8 112.1 140.4 113.5 133.4 86.5 120.7

2008 58.0 62.9 61.8 38.0 31.9 48.9 53.5 49.5 47.0 45.5 59.2

Source: World Development Indicators, World Bank.

The market capitalization of stock exchanges in regions such as East Asia, including

China, and South Asia, including India, which experienced high economic growth during 2003-

2007, surpassed the high-income OECD countries. With the global crisis, the market


17


capitalization of stock exchanges in East Asia and the Pacific region in 2008 fell by more than 50

per cent, comparable to the position one and a half decades ago (Table 6). Further, the decline

was comparable to the OECD countries, which underlines the importance of global integration in

transmitting shocks across the markets. The reversal of private capital flows to emerging and

developing economies was the major factor that contributed to the decline of stock markets in the

EMEs. According to the IMF, private capital flows to emerging and developing economies

declined by 81 per cent in 2008 from the peak in 2007. Though direct investment flows showed

stability, there was a sharp decline in other private capital flows comprising portfolio flows,

external debt and official assistance.

Table 6: Market Capitalization of Stock Markets in Emerging Market Economies (Per cent to GDP)

Year Brazil China India Indonesia Malaysia Korea Philippines Thailand Mexico Russia

1991 10.5 0.5 17.8 5.3 119.3 31.3 25.1 36.4 31.2 0.0

1996 25.8 13.3 31.6 40.0 304.6 24.9 97.4 54.9 32.0 9.5

1997 29.3 21.7 31.3 13.5 93.5 8.9 38.1 15.6 39.0 31.7

1998 19.1 22.7 25.3 23.2 136.6 35.1 54.2 31.2 21.8 7.6

1999 38.8 30.5 41.0 45.8 183.8 88.8 55.3 47.7 32.0 36.9

2000 35.1 48.5 32.2 16.3 124.7 32.2 34.2 24.0 21.5 15.0

2001 33.6 39.5 23.1 14.3 129.3 43.6 58.3 31.5 20.3 24.9

2002 24.6 31.9 25.8 15.3 122.8 43.3 50.8 36.4 15.9 36.0

2003 42.5 41.5 46.6 23.3 152.8 51.2 29.6 85.0 17.5 53.5

2004 49.8 33.1 55.3 28.5 152.3 59.4 33.3 72.3 22.6 45.3

2005 53.8 34.9 68.3 28.5 131.4 85.0 40.6 74.4 28.2 71.8

2006 65.3 91.3 89.5 38.1 150.5 87.8 58.2 71.0 36.7 106.7

2007 102.8 184.1 154.6 49.0 174.4 107.1 71.7 82.9 38.9 116.5

2008 36.6 64.6 53.0 19.2 96.0 53.2 31.2 39.4 21.4 82.2

Growth rate of Stock Market Capitalization

2008 -56.8 -61.4 -64.4 -53.3 -41.8 -58.1 -49.4 -47.7 -45.7 –

2009 125.9 89.8 101.9 117.6 51.2 77.3 66.0 71.6 89.2 –

Source: World Development Indicators, World Bank; World Federation of Exchanges.

The mounting losses of large financial institutions on account of spiraling default in

mortgage loans and deteriorating valuations of mortgage-backed and other securities since

August 2007 triggered deleveraging by these institutions based in the US and other advanced

economies. With increasing deleveraging along with weakening of earnings prospects on the

back of the intensifying economic slowdown, the stock markets began decelerating from January

2008 in advanced and emerging market economies. The failure of Lehman Brothers in

September 2008, however, led to a sharp jump in counterparty risk that reflected in a steep rise in


18


spread on credit default swaps (CDS) and, eventually, amplified the pace of decline in stock

markets across countries. During the recent crisis, stock market crashes were widespread despite

varying macroeconomic fundamentals across countries.

Test of hypothesis

The study made the following hypothesis:

Foreign Investors are confident about the Indian Capital market conditions that they

divert funds to other profitable and more secured destinations.

Yet another landmark reform in financial innovation was the opening up of the Indian

stock market for foreign portfolio investment in 1992. Foreign Institution Investors (FIIs) were

allowed to invest in the Indian stock market. Since 1992, FII policy has evolved from restrictive

and marginal in the initial stages to a very liberal policy now. FI played a significant role in

boosting India’s foreign reserves at a time when the country’s reserves position was precarious,

after the BoP crisis of 1991. FI boosted the sagging morale of the market that was dented by the

crash of 1992. FI also had a positive effect from the macro economic perspective. Increase in

capital flows through FI reduced the interest rate (via increase in money supply) and reduction in

the cost of capital (interest rate) had a favourable impact on investment and growth. Foreign

Investment Inflows in the Indian Capital Market was US $ 103 million in 1990-91 which had

increased to US $ 21313 million in 2008-09. Till 1992, Indian corporate sector could raise

resources only from within the domestic market. Gross domestic corporate capital formation was

thus constrained by the availability of domestic savings. This situation changed in 1992 when

Indian companies were allowed to raise capital abroad through financial innovations like the

issue of Global Depositary Receipts (GDRs) and American Depository (ADRs). This enabled the

Indian corporate sector to mobilize foreign savings for capital formation in India. Capital from

Abroad: GDRS and ADRS was US $ 240 Million in 1992-93 which had increased to US $ 3328

million in 2009-10.Hence Foreign Investors are confident about the Indian Capital market

conditions that they divert funds to other profitable and more secured destinations.

Concluding Observations

The financial markets in India were the first to affect, mainly because of the reversal of

capital flows as part of the global deleveraging process. The rupee-US dollar depreciated

considerably in the second half of 2008-09 and turnover in the forex markets also declined


19


sharply on the back of steep declines in merchandise exports and substantially modulated

capital flows. Besides actual large-scale intervention sales in the foreign exchange market,

the Reserve Bank also opened the forex swap facility for the banks. The policy measures

that aimed at improving the supply of forex liquidity included permitting banks to borrow

from their overseas branches within prudential limits, further relaxing the external

commercial borrowing policy, including allowing NBFCs and housing finance companies

to borrow in foreign currency, and raising the interest rates on NRI deposits.

The money market, which remained largely orderly during the first half of 2008-09, came

under liquidity pressure following the failure of Lehman Brothers and a few other global

financial institutions, and volatility in the call market increased significantly. With

increased volatility in the financial markets during the third quarter of 2008, the Reserve

Bank had to ensure an adequate supply of rupee as well as foreign currency liquidity to

restore the call money rate within the LAF corridor to contain volatility in the exchange

rate. The monetary operations of the Reserve Bank were significantly different from the

experiences of many central banks of the advanced economies, even though the ultimate

objective was almost the same, which was to ensure adequate liquidity in the banking

system. Thus, the transmission of the Reserve Bank’s policies to the money, forex and

government securities markets has been effective, thereby ensuring speedy restoration of

orderly conditions over a short time span.

The credit market functioned normally in India as against almost refreezing of this market

in many advanced countries. Given the overriding importance of containing the moderation

in flow of credit to the private sector for sustaining the growth momentum, counter-cyclical

prudential regulations used to encourage banks to lend. The credit growth of the

commercial banks, however, decelerated sharply during 2008-09, especially in the second

half, because of subdued economic activities and banks being extra cautious about

viability.

Like forex and money markets, the volatility of the 10-year benchmark G-sec movement

increased from September 2008, reflecting general pressures in the financial markets and a

sharp increase in the market borrowings of the Government of India during the last quarter

of 2008-09. The global financial crisis also affected India through the asset price channel.


20


Global financial and real shocks to domestic asset prices, particularly stock prices, led to

erosion of household wealth and corporate balance sheets in terms of value of their

collaterals. Both factors affected household consumption demand and corporate

investment.

The stock markets in India, responding to all major international events, started sliding

from the peak in January 2008 and touched a new low in March 2009. The global and

regional markets together accounted for the bulk of the variation in the Indian stock market.

In sum, Indian Financial Markets affected by the current global crisis from January 2008

largely because of selling pressures by Foreign Institutional Investors (FIIs), besides weakened

domestic sentiments because of turmoil in international financial markets. Indian stock markets

responded to the major global events during the crisis period, reflecting the increased financial

integration of the Indian economy. The deleveraging by FIIs, along with other factors such as the

economic downturn, declining exports and weakened sentiments, has driven the significant

downturn in stock markets during the current crisis. Declining asset prices also affected real

activities such as consumption and investments. Financial innovation is truly welfare enhancing

if it brings about a reduction in the cost of capital and improvement in the financial

intermediation process without a commensurate increase in financial risk. The benefits of

emerging capital markets can be measured in terms of factors such as lower pricing , reduced

cost of capital, mitigated risk exposures, broader access to capital and increased liquidity.

Financial innovation ought to make the movement of capital more efficient, risk management

more targeted, hedging better matched, and trading less costly. Financial innovation also ought to

contribute to better management and transfer of credit risk, the unbundling and trenching of risk,

improved liquidity, more optimal portfolio diversification, and broadened credit risk dispersion.

Various empirical results also suggest that FIIs have been driving the Indian stock markets

largely.

Scope for Future Research

With increasing deleveraging along with weakening of earnings prospects on the back of

the intensifying economic slowdown, the stock markets began decelerating from January 2008 in

advanced and emerging market economies. The failure of Lehman Brothers in September 2008,

however, led to a sharp jump in counterparty risk that reflected in a steep rise in spread on


21


financial innovations of credit default swaps (CDS) and, eventually, amplified the pace of

decline in stock markets across countries. During the recent crisis, stock market crashes were

widespread despite varying macroeconomic fundamentals across countries. Further in-depth

study is possible on the crisis implications on Indian Stock Market and Financial Innovations.

References:

1. Chakrabarty, K.C 2009. “Global Crisis: Genesis, Challenges and Opportunities unleashed.”

RBI Bulletin, October.

2. Gopinath, Shyamala. 2009. “Some Reflections on the Recent Global Financial Turmoil –An

Indian Perspective.” RBI Bulletin, February.

3. International Monetary Fund. 2009. World Economic Outlook, various issues.

4. Lipsky, John. 2009. “Finance and Economic Growth.” Remarks at the Bank of Mexico

Conference, Challenges and Strategies for Promoting Economic Growth, Mexico City,

Mexico. October.

5. Prasad, Eswar S., Kenneth Rogoff, Shang-Jin Wei and M. Ayan Kose. 2003. “Effects of

Financial Globalization on Developing Countries: Some Empirical Evidence.” IMF

Occasional Paper No. 220, September.

6. Reserve Bank of India, Monetary Policy Statements (various statements 2007, 2008 and

2009). Mumbai.

7. Reserve Bank of India, Annual Report, 2009-10.

8. Subbarao, D. 2009. “Emerging Market Concerns: An Indian perspective.” RBI Bulletin,

November.

- 2009. “Global Financial Crisis – Questioning the Questions.” RBI Bulletin, August.

- 2009. “Impact of the Global Financial Crisis on India – Collateral Damage and

Response.” RBI Bulletin, March.

- 2009. “India - Managing the Impact of the Global Financial Crisis.” RBI Bulletin,

April.

- 2009. “Risk Management in the Midst of the Global Financial Crisis.” RBI Bulletin,

June.

- 2009. “The Global Financial Turmoil and Challenges for the Indian Economy.” RBI

Bulletin, January.


22



23


IMPORTANCE OF FOREIGN DIRECT INVESTMENT IN INDIAN AGRI-ZONES

Dr. R Venkataraman, Professor, Presidency College,

Uma C Swadimath, Assistant Professor, New Horizon College

Prasanna B Joshi, Assistant Professor & Head, Dept. of Economics, Rani Parvathi Devi

College of Arts & Commerce, Belgaum

Abstract

The present study is related to the importance of foreign investment that highlights the flow of

foreign capital into the agricultural sector. As agriculture is predominant in Indian economy & it

contributes a larger share to the growth of national income. Agricultural growth is the backbone

of Indian economy. India is the second highest fruits and vegetable producer in the world. India

is also one of the largest food producers in the world. The study emphasizes the importance of

setting up of agri export zones. When countries are striving towards globalization, foreign

investment plays a vital role in promoting economic growth and economic development. The

flow of foreign investment gained prominence after the announcement of industrial policy of

1991, India opened the gates for the flow of foreign capital into the economy.

Key words: Foreign capital, Investment, Agri export zones.

Introduction

US Govt. statistics define foreign direct investment as ownership or control of 10% or more of

an enterprise’s voting securities or the equivalent interest in an unincorporated US business.

Foreign investments are governed by long term considerations as these investments cannot be

easily liquidated. It helps to enhance the rate of economic growth & development in any country.

The flow of foreign investment is channelized into different economic areas but the present study

makes an attempt to understand the flow of foreign investment into agricultural sector.

Objectives of the study:

a) To understand the importance of foreign investment in an economy

b) To study the flow of foreign direct investment into agricultural sector

c) To understand the importance of agri zones in India


24


Data Collection:

The study focuses on secondary data which is collected through magazines, newspapers etc.

Importance of foreign investment in an economy

Foreign direct investment helps to accelerate the pace of economic growth by facilitating

development programmes. It helps to increase country’s exports and reduce imports. It facilitates

the transfer of technology knowledge & improve balance of payments, introduction of new

products & efficient resource allocation. The flow of foreign capital is viewed as an instrument

of growth & development, the channel through which it flows is foreign direct

investment.International Monetary Fund (IMF) and Organization for Economic Cooperation and

Development (OECD) define FDI as a category of cross border investment made by a resident in

one economy (the direct investor) with the objective of establishing a ‘lasting interest’ in an

enterprise (the direct investment enterprise).

In the present day scenario when many countries are moving towards globalization, foreign

investment forms to be an integral part of economic growth & economic development. There are

lots of advantages to invest in the agricultural sector not because India is one of the largest

emerging economies but a rapid progress in the agricultural production.

In 1991 the Govt. of India began to liberalise foreign direct investment policies giving automatic

approval for upto 51% foreign ownership in 34 industries including food processing but with

continued restrictions on imports & earnings repatriation. Many agricultural units have been

open to foreign direct investment. Of the $38.9 billion in total foreign direct investment inflows

during 1991-2006 about $1.7 billion has been in agriculture. Food processing accounted for $1.2

billion, agricultural machinery $166 million, timber products $107 million and fertilizers $78

million.

One of the most important parameters that are driving foreign direct investment in India is the

rapid growth of India’s GDP and huge potential returns for foreign investors. During April 2000

& October 2009 agriculture services, food processing industries, fermentation industries,

agricultural machinery, vegetable oils, vanaspathi & fertilizers attracted over 3.5% of foreign


25


investment into the country. This has helped in the improvement of life of farmer as improved

agricultural productivity increases the farm output and enabling him to earn a higher income.

Sources of foreign direct investment: During 1991-2006, the largest has been the island nation

of Mauritius accounting for 37% and USA being the second largest country to invest in India.

Other important sources of foreign direct investment in India are from Japan, Netherlands, UK,

Germany, Singapore, France, South Korea and Switzerland.

TABLE 1

Table shows the flow of foreign investment from the countries

Country April-July 2012 April 2000-July 2012

Inflows (%)Share of total inflows Inflows (%)Share of total inflows

Mauritius 2 33.3 66.1 37

Singapore 0.9 15.2 18 10

UK 0.4 6.9 16.9 10

Japan 0.4 7.2 12.7 7

US 0.3 3 10.7 6

Netherlands 0.6 10.3 7.7 4

Cyprus 0.2 4.1 6.6 4

Germany 0.3 4.7 4.9 3

France 0.1 11 3 2

UAE 0.1 14 2.3 1

Total 5.9 176.9

Source: Business Line Newspaper dated October 28th

,2012

The table shows that foreign investment into India from Mauritius, Singapore and Cyprus

accounted for 52.6% of the total inflows from April till July 2012 and Mauritius accounted for

37% of total inflows from April 2000 till July 2012.

Flow of foreign direct investment into agricultural sector


26


Agriculture being an important sector of the economy accounts for 19% of India’s GDP and is

the backbone of rural economy. India has the largest area of fertile land which makes it one of

the world’s largest food producers, over 200 million tons of food grains produced annually. India

is the world’s largest producer of milk producing 315 million tones and tea producing 930

million tons annually. India is also the second largest producer of rice, fruits and vegetables.

FDI in Indian agricultural sector and the latest developments are as follows:

1) 100% foreign direct investment is allowed through the automatic route that includes

horticulture, floriculture, development of seeds, animal husbandry, aqua culture, cultivation

of vegetables, mushroom and services related to agro and allied sectors.

2) Farm credit target of Rs.2,25,000 crores for 2007-08 has been set with an addition of 50

lakhs new farmers to the banking system

3) 35 irrigational projects have been completed in 2006-07 and 9,00,000 hectares to be created.

4) Corpus of Rural Infrastructure Development Fund to be raised

5) The sanctioning of loan facilities has been through Agricultural Insurance and NABARD

FDI would facilitate introduction of frontier technologies, large-scale investment in floriculture,

bio-diesel and mechanisation, and remedy the situation of investment shortage in Indian

agriculture.

It will help transform a ‘negative subsidy regime' into a ‘capital-intensive positive AMS

(Agricultural Marketing Service) regime' on the lines of OECD countries. It would provide a

welcome check on the Government's tendency to restrict Indian produce's access to global

markets, to suit the convenience of Indian industry.

As per economic data of financial year 2008-09

Agriculture had acquired 17% of India’s GDP.

Agricultural exports accounted for 13% of India’s exports

The growth rate for the sector was 5.6% for the year 2007-08 with almost two-

third of its work force engaged in this sector.

Importance of agri zones in India


27


Agri zones are set up to enhance exports of agricultural commodities so as to improve the

income of the farming community. Agri export zones like Special economic zones that could be

set up under the Special Economic Zones Act, 2005 that are set up are encouraged by the

respective state Govts, the motive being to increase agricultural production with the help of latest

mechanization. This is supported by provisions like pre-post harvest operations, plant protection,

processing, packaging, storage and also research and development.

Agricultural & Processed food products development authority (APEDA) has been appointed as

the nodal agency by the central Govt. to promote the setting up of AEZs. With this in view, the

Govt. has sanctioned 10 agri zones in various states with an estimate of Rupees 200 crores.

The exim policy also known as foreign trade announced by the union commerce ministry

emphasized a lot on setting up of agri export zones. Agricultural & processed food products

development Till December 2005, 60 agri export zones have been set up in different parts of the

country.

Agricultural Exports: India's total exports of agricultural and allied products at $10.5 billion

in 2005-06 constitute 10.2% of its export share. Developed country markets account for nearly

35% of India's agri-exports. In agricultural exports there are varied performances across

commodities.

Table 2

Table shows the contribution of various agricultural commodities in world

exports.

Product Percentage share in

world export

Vegetable products, lac, gums 10

Vegetable planting materials 4.9

Coffee, tea, spices 3.7

Marine products 2.3


28


Animal fodder 2.1

Cereals 1.3

Fruits & nuts 1.1

Source: NCTI based on UN-ITC Trade Map Data.

Findings of the study

As per economic data of financial year 2008-09, agriculture contributed 17% of India’s GDP. It

accounted for 13% of India’s exports. Steps are being taken to achieve a second green revolution

by focusing on soil quality, improve water management, rain water harvesting and watershed

development and provide an easy access to credit at affordable rates. The central Govt. has set

up a special cell for the export of certified organic products under APEDA of the Ministry of

Commerce & Industries. In March 2000, the national programme of organic production was

launched.

Suggestions and Conclusion:

For fast growing economies like India, getting international know-how and global marketing

capabilities are as important as access to capital. Increased trade between nations increases

foreign direct investment. The Government should also focus on providing subsidies to small

farmers as subsidies in India are too low when compared to countries to Canada, Japan and USA.

Six experts from Uganda, Scotland, Singapore, Australia, New Zealand, and Zambia presented

their thoughts and focused on the importance of partnerships for India with these countries for an

increased and sustainable growth, mutually benefiting all and providing better livelihood to all.

References:

1) Business Line Newspaper, October 28th

,2012

2) Dept. of Commerce-Press Releases, Agri Export zones get going. (7th

January,2002-

NewDelhi)

3) Environment for agriculture & agribusiness investment in India/EIB-37, Economic

Research Service/USDA


29


4) FDI-Driving the future of India-,Singh, Kulwindar(2005) FDI in India-A critical analysis

of FDI from 1991-2005 Centre for civil society, New Delhi.

5) Food processing in India- Amitabha Sen

6) Indian Economy- its development experience (page 635) -Mishra & Puri, Himalaya

Publishing House 2007 edition.

7) India & foreign trade ministry of food processing industries.(www.mofpi.nic.in)

8) Industry & services (India in business ITP division, ministry of external affairs, Govt. of

India (www.indiainbusiness.nic.in)

9) Modernising Indian Agriculture: Priority tasks & critical policies- V M Rao & P D

Jeromi-Dept. of Economic Analysis & policy, RBI, Mumbai. Development Research

Group-Study no. 21 (rbidocs.rbi.org.in/rdocs/publications/pds/15484.pdf)

10) National Study: India, Dr. Prabha Mahale, Director, Yardi & Soree India-Haryana

(www.unescap.org.rural/doc/oa/India.pdf)

http://www.mofpi.nic.in/

http://www.indiainbusiness.nic.in/


30


“THE ANALYSIS OF JUST-IN-TIME SYSTEM IN PURCHASING MATERIALS OF

N.I.D.C.”

Shahab Tahmasebi

Ph.D Student of Andhra University

[email protected]

ABSTRACT:

In the present research article has been survived the just in time system include: phenomenon

of JIT and causes need to it, goals and usage particular techniques in this purchasing system,

optimum strategy for reduction and how to use this system.

Based on this model which is designed, the necessary factors for implementation of the system

(JIT) are divided into two groups. They are human resources and operational resources. Human

resources include the organization of management and employees; whereas the operational

resources include the condition of suppliers, transportation facilities and other operational

resources. Hypothesis of the research are designed as per mentioned implication factors and then

they are measured.

This research is fulfilled in N.I.D.C.1 and this is titled thesis to achievement of master degree.

The results showed that all the factors mentioned in the hypothesis except the organization of

management were suitable for the implementation of the “just-in-time” system. The total result

also showed that “just-in-time” system is applicable to N.I.D.C.

At last the problems and the barriers of implementation of the JIT system are mentioned, the

suggestions and the solutions relative to the research are also presented.

Keywords: JIT; Purchasing; Human resource; Operational factors; Suppliers;

Transportation

1 - National Iran Oil Drilling Company.

mailto:[email protected]


31


INTRODUCTION

Nowadays, more than 90% of circulating capital of most of the producing industries is related

to the material of the industry.(Khosropanah, 2001) Since it is understood that increases in

interest expenses will threaten the profits of the capital of stocks, development continuance and

development of industry, Consideration on the management of warehouse especially in the

producing industries is continued so that nowadays, it is one of the most important elements of

the excellent management of the pioneer producing industries. In the majority of institutions,

there is not much attention on the management of the products and the issue is remained at the

simple level. This intricate issue is seen on either factories warehousing or houses warehousing.

The warehousing is considered as one of the most expensive activities in industry. Reducing the

expenses is impossible without applying trained, informed and specialized managers in the

affairs especially those who are familiar with and proficient in up-to-date methods of reducing

expenses. (Noorbakhsh, 2000)

Nowadays, many of pioneer industries are able to reduce some of the stock levels at the

circulating production to the needed level to one week and recently even to two hours at the

producing workshops by getting information and regarding the principles of new management of

goods/the management of in-time preparation (just-in-time management). Because of that, it is

remained, grown and developed in the trade market. (Khosropanah, 2001)

The importance of products at the economic activities is evident to everyone. It is sufficient to

investigate the balance sheet of every institute to see that chief part of possessions is goods stock

and this issue is agreed by all the managers of industries. (Alborzi, 1990)

If an institute doesn’t have an appropriate purchase system, sooner or later, the system of that

organization will lead to an intricate condition. By regarding the cost of consuming material

which averagely shows more than 50 percentage of the total cost price, the role and importance

of the issue determines more in reducing cost expenses so that the consuming raw material is one


32


of the determining factors of economic stabilization on the development of countries. (Rasoolian,

2001)

National Iran Oil Company (N.I.O.C) is biggest company in Iran that its share is 80% of

economics of Iran. (Sahafi, 1998) The basic of this company is National Iran Drilling Company

(N.I.D.C) that extracts oil to sale. As significant as this company, its warehousing, raw

materials and goods are important.

By this research I am going to survey warehousing system of N.I.D.C and how to implementing

of JIT in this company.

LITERATURE REVIEW:

What is the JIT Philosophy?

One of the most recent phenomenon’s of the management, which attracts too much attention

of the global industrial community during the two past decades and at the present time is a new

thought and attitude toward this field, is "JIT system”; Although, it took several years from its

establishment. During this period, many industrial organizations at the global level especially

producing companies of cars and like them accept this system and they succeed in applying

divided techniques from it on the whole activities of organization concerning all purchases sales,

productions, etc. in spite of this, there are many other industrial organization in the countries and

various industries which are not aware of this phenomenon and it is an attractive and new

statement for the owners, managers, experts and personal of those places.(Gupta, 1999)

JIT system originates from Japan. Japanese industries have proposed and applied this system

for the first time. Perhaps, the reason for this case is related to the natural geographical

environment of Japan and also dominating culture on the behavior of Japanese people. In

author’s opinion, Japanese are strongly opposed on doing every futile and useless work which

leads to waste of their financial and human resources because of their restricted natural resources

and overpopulation problem.

They believe that producing wastes and imposed reworking because of weak and undesirable

quality is waste of time and they try to produce products with perfect quality. They also believe

that keeping stocks causes to occupy space and being stagnant the capital in most of materials

and precious goods and also as the consequence, the profits of organization will decrease.


33


Every activity, performance and decision, which doesn’t help to increase the added value of the

product and services, is considered as the wasting, futility and uselessness and it should be

omitted. (Kazazi, 1993)

Since some of the American companies succeed in executing this system, it is safe to say that

one of the reasons for executing JIT system is the complete execution of management duties.

(Waters, 1995)

Despite the connection of the mentioned way with the Japanese companies, the basis for JIT

system is general and many of the ways of implementing and executing of that is dependent upon

the culture of production of “ford engine”. However, in the United States, the methods of

simplifying of the procedure and interfering programs of personnel (like japans methods) is

applied at the many American companies since 19th century. (Noorbakhsh, 2000)

In defining JIT system, it is necessary to say that JIT system is one of the prominent features of

a system which is related to that with a high quality and power of production in Japan. The

performance of JIT represents its title. The goods are purchased when they exactly are needed.

(Ansari & Modarress, 1990)

What are the goals of JIT Purchasing?

The primary goal of JIT way is reducing expenses through removing wastes. Wastes refer to

everything in addition to the minimum facilities, materials, workers and the time which are

required for production. Chiefly, from 15% to 40% of quality cost of every American product is

related to the wastes. JIT states that the stock should be minimizing. Overstocking will increase

the cost of the stock and will block that stock which would be able to invest in the other places.

At the Ford Engine Company, for every one dollar of the recorded elements in the stock cost, 26

cent is devoted to the profit and insurance cost. This issue costs 8.5 billion dollars for producing

11 million cars in comparison with 800 million dollars in the Japanese car industries for

producing the same amount of car. (Ansari & Modarress, 1990)

JIT is not only related to the control of stock and producing systems, but also it is related to the

other aspects of production i.e. purchasing procedures. In JIT, materials are purchase in few

amounts and they will deliver alternately when they are needed.

Needed parts for one workday at the producing procedure or production line will be provided by

close resources or immediate resources. JIT amount or a collection of techniques is not for


34


executing production but it is a comprehensive manner which applies many old and modern

techniques with a new approach. (Pulkonic, 1999)

For example, HP Company is chosen goods which are better purchased by JIT way.

In recent past years, HP is applied the prioritized system of A-B-C for managing stocks.

However, the installation of JIT system forces the company to develop the improved idea which

is called “A/C”. (Alborzi, 1989)

Under this idea, delivery of daily materials for A and B parts and the management of stock and

space and for the parts of C group, delivery averagely 2 to 4 in a year and service are

recommended. Table 1 shows the connection between goods (parts) and alternate delivery and

applied strategy. (Ansari & Modarress, 1990)

Table 1: Strategy of purchase, a framework for choosing JIT goods:

Goods (parts) A group B group C group

Volume 3% 3% 94%

Cost 88% 4% 8%

Alternate Delivery Daily Daily Two or three times a

year

Strategy Stock Management Space Management Level of Services

JIT insures that goods in the appropriate amount (sufficient amount) on the appropriate time

(needed time) and with good quality without any purchasing or building wastes.

The goal of JIT is omitting those activities which don’t create any added value to the product. In

some documents, JIT is mentioned as the system which removes stocks and maximizing

circulating stocks and goods. Of course, removing stocks is considered as one of the most

important characteristics because stocks cause to cover and stealth many problems of a

producing branch. (Rouzban, 2002)


35


Mukhopadhyay (1995) poses that: JIT is not merely program for reducing stock but also it has a

wide range of meaning so that it involves more efficiency with minimum resources and facilities.

(p.60)

How is JIT Purchasing Implemented?

When the concept of Japanese JIT purchasing was introduced to the United States in the early

1980s, many companies were skeptical as to whether this new manufacturing philosophy could

be successfully implemented here. Top management had a tendency to believe that although JIT

purchasing made good sense for Japanese companies, it might not be appropriate here because of

sharp contrasts in management style, manufacturing philosophy, social and cultural features, and

in some cases, size.

It did not take very long; however, for American companies to realize that successful

implementation of JIT purchasing was possible. Many U.S firms have already developed and

implemented their own version of JIT under different names, such as ZIPS (Zero Inventory

Production System), MAN (Material-as-Needed), and Nick –of-time. By any name, JIT treats

purchasing the same way. (Kelle, 1998)

Implementation of the JIT purchasing concept is a three phase project:

Phase I is a learning process; which involves experimenting with JIT purchasing and trying to

achieve incremental improvements by reducing inventories, eliminating waste, exposing

problems, and responding immediately to them. According to the automotive industry action

group, a proponent of the JIT effort in America, most U.S. companies using JIT in 1984 were in

this phase.

PhaseⅡ consists of pilot programs. Typically, the pilot program begins with:

(1) A few local suppliers;

(2) A few part numbers, representing a high dollar investment and low volume;

(3) A few carrier companies; and

(4) Frequent delivers (once or twice a week) directly to assembly line.

Starting the pilot program with a few local suppliers and a few parts increases the likelihood of

success because problems such as poor supplier quality can be measured and late or early

deliveries can be monitored and adjusted.


36


Success of the pilot program depends upon a group effort among managers in several

departments who share the same goals. If members of the group have conflicting goals, their

disagreement will influence the action of certain departments. In choosing the class of parts that

are appropriate for the JIT program, for example, the finance department may favor the parts that

have the highest impact on corporate profitability. The purchasing department may prefer other

parts for different reasons. To make this program work the group must share the same objectives

and work closely to influence their departments to pursue those goals.

The final phase is implementation. JIT purchasing must be designed to meet the needs of the

individual company. However, some common factors that are critical to successful

implementation were identified by the companies that have been studied; which fall into two

basic categories: human and operational, as outlined in table 2 which considered as theoretical

framework of this research. (Ansari & Modarress, 1990)

Table2: Factors affecting the implementation of JIT purchasing:

A- Organization of Human Resources:

1. Management: Obtain continuous top management commitment to and leadership of the

program, in terms of both ideas and actions and applying complete managements duties.

2. Personnel: Prepare employees in every department and their flexibility and satisfaction.

B. Organization of operational Factors:

1. Suppliers: Close resources, reliable, their involvement and their cooperation.

2. Transportation system: The existence of independence transportation system with

correct and in-time programs and using facilities and equipments such as standard

containers.

3. Other operational factors: The absence of bureaucracy system at the organization and

the existence of flexible culture, connections and more cooperation, appropriate

arrangement of materials and good equipments, equipped machinery, highly

computerized and educational system in the organization.

What problems are encountered in implementing JIT Purchasing?


37


“The most serious problems are not operational in nature. They are ‘people problems”.

JIT has produced substantial benefits, for firms that previously used traditional purchasing

practices. Inventory turnover increased by an average of 97 percent; delivery promises met

increased from 67 percent to 83 percent; and depreciation expense declined 40 percent. Most

important, our survey revealed that the greatest degree of improvement was in product quality

and productivity.

While JIT purchasing has provided impressive benefits, major problems can also arise. Their

significance will depend on a number of variables: type of materials purchased, type of product

manufactured, type of manufacturing processes and facilities utilized, product demand patterns,

and the corporations culture and organizational structure. The most serious problems, however,

are not operational in nature. They are “people problems” stemming from attitudes and

orientation, past experience and practices, and the passive factors of interpersonal relations.

The seven significant problems have been found in the firms have been studied are presented in

table 3. These problems are explored with recommendations to overcome them are proposed.

Recommendations are by no means exhaustive, but they encompass the most important points

revealed by the firms studied. Each organization will make appropriate modifications for its own

style of manufacturing and its own unique culture and environment. (Ansari & Modarress, 1990)

Table 3: Major problems encountered in the implementation of just-in-time purchasing:

Major problems Recommendations

Lack of support from suppliers: Education and training of suppliers in JIT purchasing.

Development of long-term mutual relationship with

Suppliers.

Lack of top management support: Motivation of top management through

learning and actual analysis of results


38


Low product quality: Establishment of a quality management program

aimed at early identification of critical quality

characteristics during design, manufacturing and

engineering stages of the supply process.

Lack of employee readiness and Support: Emphasis on continuous long-term training

of employees in JIT purchasing. Education of

employees about company’s main objective and the

philosophy behind implementation

Lack of support from carrier companies: Drastic reduction in the number of carrier

companies. Requirement of transportation services

on a contract basis.

Lack of engineering support: Constant coordination and cooperation among

engineering, purchasing and production

departments.

Lack of communication: Early involvement and high level of integration

among purchasing, production, engineering and

transportation.

HYPOTHESIS:

Organization of human resources for the implementation of JIT purchasing system.

Human resources play a major role in the success of JIT purchasing programs. We divided this

hypothesis to two minor following hypotheses:

H1:

Organization of management is suitable for the implementation of JIT purchasing

system.


39


According to theoretical frame work, the organization of management includes: obtain top

management commitment to and leadership of the program, in terms of both ideas and actions

and applying complete management’s duties that they are planning, organizing, directing,

mobilization of resources and control.

H2:

Organization of personnel is suitable for the implementation of JIT purchasing system.

This hypothesis includes prepare employees for every different jobs in every department, their

flexibility in job assignment, accept changes within their work procedures, unlearn years of

conventional wisdom and accept more responsibility within their jobs.

Organization of operational factors for implementing JIT purchasing system.

This factor includes a new purchasing philosophy which includes lot size, number of suppliers;

long term relationships, early supplier involvement and support; a controlled transportation

system to meet JIT delivery requirement, efficient materials handling equipment and receiving

procedures; accurate and firm supplier scheduling and the use of standard containers.

We divided this main hypothesis to three following sub hypothesis

H3:

Conditions of suppliers are suitable for the implementing of JIT purchasing system.

Conditions of suppliers involves close and fewer suppliers, their involvement, their cooperation

and communication, long term and mutually relationships between the buyer and suppliers;

frequent deliveries in the small lot size and deliver in the right quantities at the right time.

H4:

Transportation system is suitable for the implementing at JIT purchasing system.

An important requirement for JIT purchasing is on-time deliver, so JIT purchasing cannot be

successful if the transportation system cannot meet JIT materials delivery requirements.

Transportation system includes : working transportation system under the JIT program,

reduction in the number of carrier companies, to put 100 percent of transportation services on a


40


contract basis, computer interface with all carriers, independent transportation department incase

of owning it; abilities of transportation system and standard containers.

H5:

Other operational factors are suitable for the implementing of JIT purchasing system.

Because of less importance of these factors in comparison with above mention operational

factors we brought them in a hypothesis as another’s operational factors which include the

following factors:

Absence of bureaucracy system in the organization; the existence of flexible culture; much

connections and ordinations; the appropriate arrangement of goods and facilities; equipped

machinery, computerized and educational system in the organization.

RESEARCH METHODOLOGY:

Whereas purpose of present research is feasibility of implementing of just-in-time purchasing

system in the “national Iran Oil Drilling Company”, the best way is the asking experts and

personnel who are working in the intended companies, because they are closely grappling with

the actual problems in the work.

Thus, we considered the survey study for this research that includes:

We used this way because of describing of existent situation for implementing of JIT purchasing

system. According to survey study we collected the view of experts and personnel of

“Manufacturing Support and Procurement of Oil Goods Company of Tehran” and “the materials

division of N.I.D.C. - National oil drilling company of Ahvaz. They are two companies belongs

to N.I.D.C. that prepare the requirement goods for N.I.D.C. Then we analyzed the view.

Sampling:

The survey population of this research is all managers and personnel of two mentioned

companies. They are 2000 people. First we computed the sample standard deviation with a pilot

study. We distributed 25 questionnaires between 25 peoples of managers and personnel who

they randomly were selected, then we collected the questionnaires, analyzed them and computed

the sample standard deviation.


41


Then we calculated number of sample group from survey population by the follow formula:

Thought the above calculation we gain 139 as the sample size but because of easy calculation, it

considered 140. After determining of sample size, we selected 20 managers that they

approximately are all managers.

We selected 120 people from two intended companies by the systematic sampling that the most

of them were the experts, who they had more information about questions of questionnaire.

Validation of Measurement:

Accordingly already it had mentioned, we distributed 25 primitive questionnaires with 49

questions between survey populations. Then they were collected and we computed the sample

standard deviation by them. After that we calculated validation of each question by following

formula. Then we removed 9 questions because of low validation (less than 70 percent).

Finally, 49 questions remained and their validation according to following formula was 91

percent.

N= number of questions

Si2

= variance of each question

St2

= variance of all questions

α = validation of questionnaire

Data Collection Instrument:

It was used to collect of data through questionnaire and interview in this research.

The questionnaire had 49 questions at the first. After testing of validity, 9 questions removed

and 40 questions remained. So we had a closed-ended questionnaire in the likert scale with five

options.

The questions of questionnaire were designed based on research hypothesis.

We also used the interview to collect the data in this research thereby that we close 12 people

between sample group (140 people) through simple random sampling.

Materials and methods:


42


In this research we used non parametric method of chi-square, because there isn’t necessary

supposition of survey population and the questionnaire has been designed according to

classification scale.

First, we analyzed each hypothesis by chi-square (x2) test of single variable to calculation the

reality and correlation between observated and expected answers. Then we used chi-square test

of double variable to obtain the reality and correlation between managers and personnel answers

in each hypothesis.

Further, we used statistical description methods like: frequency tables, graphs, etc, in order to

more description of hypothesis. At last we computed the weighted – average of each hypothesis

and each questions to measure of significance and effect of them on implementing of JIT

purchasing in the national Iran oil drilling company.

Theoretical framework (evaluating feasibility model of just in time purchasing way):

According to discussions of research literature it can be resulted that essential factors can be

divided to two general categories to execute just in time purchasing way (just-in-time) in an

organization.

A) Human resources

B) Working agents

Human resources include two groups:

1. Management

2. Personnel

Working agents can be put in three groups:

1: providers

2: transportation system and

3: includes the following factors: Absence of bureaucracy system in the organization and the

existence of flexible culture, many connections and coordination, the appropriate arrangement of

goods and facilities, equipped machinery, computerized and educational system in the

organization. Because the mentioned factors in the third group as compared with working agents

stated in the other groups are more specified as it is also evident from the literature review and

have less importance. So they collected in a group and they are under the title of other factors.


43


By organizing two general mentioned factors and the National petroleum excavation company it

can be expected that, there is a possibility of executing the JIT purchasing way in that company.

All of the above mentioned factors under the title of evaluating of feasibility model and as a

research sample are stated in the Table 2 in part of literature review. First, from this model a

questionnaire of 49 questions is made and the authority is granted to the experts in order to

evaluate the validity of questionnaire. In this way, they can determine the vague and

meaningless and incredible ones and they are omitted (a sample of 49 questions questionnaire

has brought on table 4). Finally, a questionnaire of 40 questions is designed to test the

evaluating feasibility JIT way of purchasing.

Table 4: Questionnaire Sample

Question

Numbers

Essential factors in performing JIT purchasing way (JIT) at the National

Petroleum Excavation Company of Iran (evaluating feasibility model)

1-5

6-9

10 – 20

21-25

A – organizing human resources:

Management: high-ranked managers company and applying complete

management duties

Personnel: Preparing personnel for every section and their flexibility and

satisfaction

B – organizing working agents:

Providers: The existence of close resources and

reliable and their involvement and their cooperation

Transportation system: The existences of independence transportation

system with correct and in – time programs and using facilities and equipments

such as standard containers.


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26-40

Other working agents : The absence of bureaucracy system at the

organization and the existence of flexible culture, connections and more

cooperation, appropriate arrangement of materials and good equipments,

equipped machinery, highly computerized and educational system in the

organization.

DATA ANALYSIS AND RESULTS:

After employing above mentioned statistical methods, we achieved follow results:

In case of first hypothesis, frequency of answers was 261(37.3%) for choices of good and very

good and it was 276(39.4%) for choices of weak and very weak. We also tested this hypothesis

by x2

test: x2= 16.23 with (Degree of Freedom (DF) =16, p-value=0.78, α=0.05) that it

was less than x2 of table (index); so, first hypothesis was rejected.

The frequency of answers in the second hypothesis was 305(54.5%) for choices of very good and

good. In other hand x2=32.52 with (DF=12, p-value=0.003 and α=0.05) that it was bigger than

index; so, this hypothesis was supported.

In totally, the frequency of answers for choices of very good and good was 566(45%) for two

first minor hypotheses and it was 385(30.5%) in cases of weak and very weak.

The result of x2 test for the first main hypothesis shows: x

2=135.65 with (DF=32, p-

value=0 and α=0.05) that it was bigger than x2 of index, therefore this hypothesis was supported.

By plotting frequency diagram and chart for third hypothesis we observed frequency of answers

was 585(38%) for choices of very good and good, in other hand it was 450 (29%) for choices of

weak and very weak.

We checked the single variable of x2

test for mentioned hypothesis because of more validity.

These results gained:

X2 = 213.252 with (DF =40, p-value=0 and α=0.05); it was bigger than x

2 of index. Therefore,

this hypothesis was accepted.


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By testing of fourth hypothesis we found out 404 of responses (57.7%) belonged to choices of

very good and good and 138 (19.7%) of them belonged to choices of weak and very weak. In

result, this hypothesis supported, as like as we found it in single variable x2 test:

X2 =160.162 with (DF=16, p-value=0 and α=0.05) that it was bigger than x

2 of index. Then, H4

was supported.

In case of fifth hypothesis the below results obtained:

Frequency of answers for choices of very good and good was 1066(50.7%) in comparison with

456(21.7%) for choices of weak and very weak. there for, this hypothesis accepted. We used the

single variable x2 test for this hypothesis that:

X2

=577.914 with (DF=56, p-value=0 and α=0.05) and it was bigger than x2 of index.

It means H5 was supported.

In general, frequency answers of second main hypothesis, which it is equal to three second minor

hypotheses, was 2055(47.3%) for choices of very good and good; and it was 1044(24%) for

choices of weak and very weak.

Single variable x2 test of this main hypothesis is as follow:

X2=1077.42 with (DF=120, p-value=0.00 and α=0.05)

X2

of this hypothesis was bigger than x2 of index. That means this hypothesis was supported.

At last, we achieved results of total hypothesis as follow:

The frequency answers of very good and good choices was 2621(46.8% of total responses); and

it was 1429(25.5% of total responses) for choices of weak and very weak; and it was

1550(27.7% of total responses) for choice of average.

The results of single variable x2 test for total hypothesis shows:

X2=1247.13 with (DF=156, p-value=0.00 and α=0.05)

X2

of this hypothesis was bigger than x2 of index.

In result, total hypothesis was supported.

We separately compare managers and personnel ideas on each hypothesis by double variable chi-

square test (x2) that results have showed in index part.

DISCUSSION:

We review the results of hypotheses separately as follow:


46


HA (first main hypothesis): organization of human resources is suitable for implementing of JIT

system.

This hypothesis consisted of two sub hypotheses; they were about organization of management

(H1) and organization of personnel (H2).

H1 consisted of: obtain top management commitment to and leader ship of the program and

applying complete management’s duties.

The respondent s didn’t suit the part one of this hypothesis but they suited the applying complete

management’s duties for implementing of JIT purchasing in N.I.D.C. In totally H1 rejected; it

means organization of management isn’t suitable for implementing of JIT purchasing system in

N.I.D.C.

Its rejection cause may be type of management such as: governmental and centralized

management, short-term management and follow that absence of long-range planning,

disinclination to pursue old plans and less concern of managers.

H2 included: prepare employees for every different jobs in every department, their flexibility and

satisfaction. Results show the all above supported by respondents and this hypothesis accepted;

so, organization of personnel is suitable for the implementation of the JIT purchasing system.

In attention to two first sub hypotheses, the first main hypothesis was supported; that means

organization of human resources is suitable for implementing JIT purchasing system in N.I.D.C.

HB (second main hypothesis: organization of operational factors is suitable for implementing of

JIT system.

This hypothesis included three sub hypotheses. They were about conditions of suppliers (H3),

transportation system (H4) and other operational factors (H5).

H3 involved: close and fewer suppliers, their involvement, their cooperation and communication,

long-term and mutually relationships between buyer and suppliers; frequent deliveries in small

lot size and deliver in the right quantities at the right time.

By respondents’ ideas, all of above were suitable for implementing of JIT system except close

suppliers and existence of a multiple and reliable supplier system.

In result, conditions of suppliers were suitable for implementing of JIT purchasing system.

H4 included: working transportation system under the JIT program, reduction in the number of

carrier companies, to put 100 percent of transportation services on a contract basis, computer


47


interface with all carriers, independent transportation department in case of owning it; abilities of

transportation system and standard containers.

Respondents believed equipment and machinery of transportation are suitable, transportation

department is independent and transportation program is suitable; but they believed the standard

containers aren’t enough.

In totally, the fourth sub hypothesis supported. It means, transportation system is suitable for the

implementing of JIT purchasing system.

H5 consisted of: absence of bureaucracy system, flexible culture, much connections and

ordinations; appropriate arrangement of goods and facilities, equipped machinery, computerized

and educational system in the N.I.D.C.

By the respondents’ answers, we released network connections with suppliers, long-term

contract, much long-term and friendly connections and training to suppliers are not suitable; but

other factors are suitable; such as: educational personnel system, flexible culture, appropriate

arrangement of goods and facilities, equipped machinery, computerized system in company and

etc.

Therefore, H5 supported; that means other operational factors are suitable for the implementing

of JIT system.

By the results of the H3, H4 and H5 we found out second main hypothesis(HB) also supported; it

means, organization of operational factors are suitable for implementing of JIT system.

Total result of two main above hypotheses (HA and HB) is:

“Just In Time” purchasing system is applicable in N.I.D.C

The effect and ranking test of hypotheses shows: organization of personnel stood in first place;

transportation system located in second place and follow them H5, H3 and H1. We brought total

ranking table of main hypotheses as bellow:

Table 5: Comparison of Weighted-Average of Main Hypotheses by Samples Group Answers.

Hypothesis weighted-average Ranking

B 3.329 1

A 3.211 2


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Above ranking shows organization of operational factors is better than human resources in

N.I.D.C.

SUGGESTIONS AND RESOLUTIONS:

Conducted study determines that for executing JIT purchasing way at the National petroleum

Excavation company, all the essential materials i.e., organizing personnel, conditions of

providers, condition of producers, facilities of transportation and other working agents, which are

mentioned before, are appropriate except the action of organizing management.

From interviewing with experts and from the evaluating feasibility questionnaire of JIT

purchasing way, the chief problems of management can be considered as:

1 – Applying few specialized, qualified and experienced managers in the petroleum industry.

2 – Shortening the years of management which cause managers do not follow long - lasting

programs. Because managers are going to show their abilities by executing short term programs

in the short duration of their management; if there are some managers, who have long – lasting

programs. Majority of the managers are opposed to long – lasting programs and they have

different attitudes. As they believe in this approach, they state that if previous managers were

qualified for their job and their programs could be accepted they would not change anymore.

3 – Some managers have less concern and compassion in regard with solving industry as it is a

state organization.

As it can be resulted from the above mentioned managerial problems, two general following

resolutions can be presented to overcome managerial problems and barriers.

A – Giving more opportunities to the competent and specialized managers.

B – Privatizing the petroleum industry:

Other factors, which are mentioned in order to apply JIT purchasing way at the National

Petroleum Excavation Company, have some advantages and disadvantages in which the

following resolutions are presented to improve them:

1 – Having cooperation in the manufacturing or local providers’ particularly close and local

providers.


49


2 – Equipped transportation machineries to small standard containers and having applied kanban

system.

3 – Making computer connection between petroleum industry and providers (particularly

wholesale providers)

4 – Making a reliable providing networks (several providers) and also they can be managed.

5 – Physical closeness of providers to themselves via the National Petroleum Excavation

Company

6 – Making long - lasting friendly relationships between providers and having trained them by

petroleum industry

7 – Omitting or reducing red-taping at the time of ordering, inspecting, delivering goods and

omitting or reducing the formal delivery time and inspection after delivery by means of

inspecting products during producing.

For applying JIT purchasing method at the National Petroleum Excavation, it is better to follow

the following steps:

1 – Forming a specialized and particular group to execute JIT purchasing way.

2 – A survey by specialized group from those companies applying JIT purchasing way.

3 – Training specialized group by taking classes and technical courses of the mentioned method.

4 – Comprehensive recognition and introduction of JIT purchasing way

To managers and personnel by specialized group in accompany with educational sector by using

some techniques such as holding seminars in this filed, using experienced teachers and other

available techniques and facilities.

5 – To establish the JIT purchasing way, perishable, dangerous and valuable material should be

first chosen. For example, from materials of group 86-91 (chemical, colorful, greasy, medicinal

materials) by means of analysis method (A – B – C) the desired materials should be chosen.

Suggestions for Further Researches:

Researches that are going to test evaluating feasibility in the future, it is better to bear in mind

that:

1. They consider just one of the essential factors to apply JIT purchasing way in order to

concentrate on it more and reach to more exact and desirable results.


50


2. This study can be conducted on other sectors of petroleum industry such as refining,

distributing of pipelines and communications and also petrochemical and gas in order to

make general and specified decisions of gained results of petroleum industry about

executing JIT purchasing way.

3. Researchers can evaluate the feasibility of this method on other industries of our country

in order to have privileged from applying the mentioned method and its advantages less

resources, one idea for every element or a family of elements in relation to

multiresources.

INDEX:

We extracted following results by double variable x2 test:

Table 6: Testing double variable x2 on H1, by separation of each group (Managers and

Personnel):

VG G A W VW Total

M

O 25 31 23 13 8 100

E 14.4 22.9 23.3 18.4 21 100

P

O 76 129 140 116 139 600

E 86.6 137.1 139.7 110.6 126 600

Total 101 160 163 129 147 700

M: Managers P: Personnel O: Observed E:

Expected

CHI=23.67

VG: Very Good G: Good A: Average W: Weak VW: Very Weak

As we see x2=23.67>x

2(index) =13.28 DF=4 α=0.01

Therefore, we found managers’ ideas were different from personnel ideas about conditions of

management in order to implementation of JIT system in N.I.D.C.


51



Personnel):

VG G A W VW Total

M

O 15 32 17 9 7 80

E 15.1 28.4 20.8 11 4.7 80

P

O 91 167 129 68 25 480

E 90.9 170.6 125.2 66 27.3 480

Total 106 199 146 77 32 560

CHI=3.06

As we see x2=3.06<x

2(index) =13.28 DF=4 α=0.01

In this hypothesis managers and personnel have same ideas about organization of personnel for

implementation of JIT system in N.I.D.C.


Personnel):

VG G A W VW Total

M

O 26 63 77 35 19 220

E 26.3 57.3 72 41.4 23 220

P

O 158 338 428 255 141 1320

E 157.5 343.7 433 248.6 137 1320

Total 184 401 505 290 160 1540

CHI=3.05


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Findings shows x2=3.05<x

2(index) =13.28 DF=4 α=0.01

In this hypothesis managers and personnel have same ideas about conditions of suppliers for



Personnel):

VG G A W VW Total

M

O 16 41 21 14 8 100

E 18 39.7 22.6 11.7 8 100

P

O 110 237 137 68 48 600

E 108 238.3 135.4 70.3 48 600

Total 126 278 158 82 56 700

CHI=.95

Findings shows x2=0.95<x

2(index) =13.28 DF=4 α=0.01

Then, in this hypothesis managers and personnel have same ideas about transportation facilities

for implementation of JIT system in N.I.D.C.


Personnel):

VG G A W VW Total

M

O 41 113 83 51 12 300

E 50.7 101.6 82.6 48.7 16.4 300


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P

O 314 598 495 290 103 1800

E 304.3 609.4 495.4 292.3 98.6 1800

Total 355 711 578 341 115 2100

CHI=5.16

By the above data we find out x2=5.16<x

2(index) =13.28 DF=4 α=0.01

So, managers and personnel have same ideas on other mentioned operational factors for


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1108/01443579510099751


55


INNOVATION IN INDIAN BANKING: EXTENT OF PRECAUTIONS TAKEN BY THE

CUSTOMERS WHILE E-BANKING

Mrs Shakira Irfana

Research Scholar

Department Of PG Studies And Research In Commerce

Mangalore University

E-Mail ID: [email protected]

Prof. A.Raghurama

Chairman, Department Of Commerce,

Dean, Faculty Of Commerce,

Mangalore University

ABSTRACT

Financial liberalization and technology revolution have allowed the developments of new and

more efficient delivery and processing channels as well as more innovative products and services

in banking industry. Banking institutions are facing competition not only from each other but

also from non-bank financial intermediaries as well as from alternative sources of financing. As

financial institutions increasingly offer online banking services to their customers, they must face

issues of consumer confidence in the Internet. Consumers are concerned about identity theft and

wonder if the Internet is safe for online banking. The answer is yes—if financial institutions, in

cooperation with their customers, make it safe. Therefore, building the best controls to prevent

fraud and protect customers is of critical importance.

This paper investigates the extent of safety measures followed by customers while e-banking,

analyses the awareness of the customers regarding the various online banking scams and

suggests safety measures to be followed while e-banking. Primary data was collected from 118



56


respondents through a structured questionnaire. Secondary data was used to know about the

various electronic e-banking products and services and various online scams. The findings are of

great help to bankers to enable them to frame proper guidelines for their customers who use e-

banking facility. It helps e-banking customers to bank safely using the safety measures.

Key words: E-banking, online scams, safety measures, innovation.

INTRODUCTION

Indian banking is the lifeline of the nation and its people. Banking has helped in developing the

vital sectors of the economy and usher in a new dawn of progress on the Indian horizon. The

sector has translated the hopes and aspirations of millions of people into reality. But to do so it

has to control miles and miles of difficult terrain, suffer the indignities of foreign rule and the

pangs of partition. Today, Indian banks can confidently compete with modern banks of the

world.

As the banking institutions expand and become increasingly complex under the impact of

deregulation, innovation and technological up gradation, it is crucial to maintain balance between

efficiency and stability. During the last 30 years since nationalization tremendous changes have

taken in the financial markets as well as in the banking industry due to financial sector reforms.

The banks have shed their traditional functions and have been innovating, improving and coming

out with new types of services to cater to the emerging needs of their customers. Banks have

been given greater freedom to frame their own policies. Rapid advancement of technology has

contributed to significant reduction in transaction costs, facilitated greater diversification of

portfolio and improvements in credit delivery of banks.

During the past one decade, one of the sectors which underwent visible sea-change through

innovative strategies is undoubtedly the banking sector. The sector has been growing at a fast

pace in India and is challenged with several aspects like new regulations from time to time,

changing customer needs and perceptions, changing technology and changing operations.

Technology has been playing a crucial role in the tremendous improvement of banking services

and operations. Banks appear to be on the path of achieving sustainability and a long term

survival because of innovation. Technological changes relating to telecommunications and data


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processing have spurred financial innovations that have altered bank products and services and

production processes.

STATEMENT OF THE PROBLEM

While the e-banking offers enormous advantages and opportunities, it also presents various

security risks. With this in mind, banks take extensive steps to protect the information

transmitted and processing when banking online. This includes for example, ensuring that

confidential data sent over the internet cannot be accessed or modified by unauthorized third

parties.

But the banks normally have no influence over the systems used by their customers. The choice

is entirely up to them. Moreover, the system selected – a PC connected to the internet, for

example – will usually be used for a number of other applications as well. The systems used by

online banking customers are therefore exposed to risks beyond the banks control. For this

reason, the banks cannot assume liability for them. To ensure that the bank’s security measures

cannot be undermined by manipulation, it is essential that customers, too, follow safety

measures. Hence, as it is necessary to analyse the extent of safety measures followed by

customers while e-banking, this paper focuses on measuring the precautions taken by e-banking

customers, their awareness about various e-banking scams and suggests measures for a secured

e-banking.

OBJECTIVES OF THE STUDY

1. To study the various innovative types of banking, innovative products and services of

banking and the types of electronic system in modern banking.

2. To study the various services available through online banking

3. To study the various types of online banking scams

4. To study the extent of precautions followed by customers while e-banking

5. To suggest safety measures while e-banking

RESEARCH QUESTIONS

1. What are the various types of banking products and services in e-banking?

2. What are the various online scams in e-banking?

3. What is the extent of precautions followed by customers while e-banking?


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SIGNIFICANCE OF THE STUDY

A high level of perceived risk is considered to be a barrier to propagation of new innovations in

e-banking. Influenced by the imagination – capturing stories of hackers, customers fear that an

unauthorized party will gain access to their online account and serious financial implications will

follow. “Security” is the biggest single concern for customers when faced with the decision to

use internet banking. Security has always been an issue, but its scope has

changed from mere doubts about the privacy of personal information to worries of

financial loss.

Hence, this study measures the extent of safety measures followed by e-banking customers,

educates the e-banking customers regarding the various online scams and suggests the safety

measures to be followed while e-banking. The study will help bankers to know the safety

measures followed by their customers which will enable them to take steps to educate their

customers on safety measures while e-banking. The suggestions provided will help the customers

to bank safely.

SCOPE OF THE STUDY

This study is premised on the current safety measures followed by customers in e-banking

residing in Mangalore city of Karnataka. Therefore, responses of selected respondents are sought

in providing answers to the research questions. The focus of the research in terms of study

groups includes businessmen, doctors, academicians, bank officials, housewives and engineers

who used e-banking facility in Mangalore city of Karnataka. Responses from the study groups

were analysed to measure the extent of safety measures followed by them and suggest them with

the required safety measures while e-banking.

RESEARCH DESIGN


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Survey research design and secondary data was used in this study. This research strategy was

considered necessary because of its ability to view comprehensively and in detail the major

questions raised in the study.

STUDY POPULATION

A population is the entire set of relevant units of analysis. Thus, businessmen, doctors,

academicians, bank officials, housewives and engineers who used e-banking facility in

Mangalore city of Karnataka represent the population of the study.

SAMPLING FRAME AND SAMPLING TECHNIQUE

Sampling is the procedure for drawing units from a population. It results in the reduction of the

amount of data to be collected, by considering only data from a sub-group rather than all possible

elements. When data serving as the basis for generalization is comprised of a subset or sub-group

of the population, that subset or subgroup is called sample. Because of the absence of an up-to-

date list of customers using e-banking facility in Mangalore city of Karnataka, 118 respondents

consisting of 14 businessmen, 11 doctors, 18 academicians, 38 bank officials, 14 housewives and

23 engineers who used e-banking facility were drawn randomly where the respondents were

approached for participation in the study.

DATA TYPE AND DATA COLLECTION INSTRUMENT

Primary data and secondary data was collected for the study. The primary data was obtained

from the targeted respondents through a carefully constructed questionnaire. The questionnaire

was designed to capture the demographic data of the respondents and the extent of safety

measures followed by the respondents while e-banking. The questionnaire was constructed using

a three- point likert scale.

Secondary data was collected to study the various e-banking products and services, facilities

offered in e-banking and various e-banking online scams.

METHOD OF DATA ANALYSIS

The data collected were analyzed using percentages.


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Types of Innovative Banking

1. E-Banking: E-Banking enables people to carry out most of their banking transaction

using a safe website which is operated by their respective bank.

Advantages

a. Faster and more convenient transaction

b. No longer required to wait in long queues

c. Opening of account simple and easy

d. Can apply for bank loan

e. Cost effective for bankers

f. Fund transfer becomes faster and convenient

g. Stock trading, exchanging bonds and other investment

2. Core Banking

a.Depositing and lending of money

b. Core banking solution

c. Knowing customers needs

3. Corporate Banking

Financial services to large corporate and MNC’s.

Services

a. Overdraft facility

b. Domestic and international payments

c. Funding

d. Channel financing

e. Letters of guarantee

f. Working capital facility for domestic and international trade

4. Investment banking

a. Creating funds and wealth of clients


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b. Fund creating in two ways: corporate finance and mergers & acquisitions

c. Professional sales person providing advice on stock trading

5. Rural banking

It provides and regulates credit services for the promotion and development of rural

sector mainly agriculture, SSI, cottage and village industries, handicraft and many more

6. NRI banking

This facility is designed for diverse banking requirements of the vast NRI population

spread across the globe. Deals with NRE (Non Resident External Account), NRO (Non

Resident Ordinary Account), FCNR (Foreign Currency Non Resident Account)

7. Retail banking

It refers to banking in which banks execute transaction directly with individual rather

than corporate banks. It is also known as ‘one stop shop’.

Services

a. Saving and checking accounts

b. Mortgage

c. Housing Finance

d. Auto finance

e. Consumer durable loans

f. Personal loans

g. Educational loans

h. Credit cards

Types of Products and Services

1. Total Branch Automation which speeds up bank transactions and reduces error, more

customer friendly and flexible and paperless transactions.


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2. Any Branch Banking: It is a facility for customers to operate their account from any of

the same banks network branch. Facilities available are cash withdrawal and cash

deposits, account statement, facility to issue multi-city cheques, fund transfer, balance

enquiry, purchase of demand drafts, pay order and repayment of loan account.

3. Demat services: It offers secure and convenient way to track your securities and

investment over a period of time without the hassle of handling physical documents. It

provides facility of online trading.

4. Microfinance: Microfinance refers to a movement that envisions a world in which low

income households have permanent access to a range of high quality financial services to

finance their income producing activities, build assets, stabilize consumption and protect

against risks.

5. Plastic money: Plastic money are an alternative to the cash or standard money which is

convenient to carry and is a generic term for all types of bank cards, debit cards, credit

cards, smart cards.

6. Mobile Banking: In mobile banking, the account can travel with you. One can bank from

anywhere, at any time and in any condition or any how using mobile phones. Facilities

are balance enquiry, fund transfer, cheque book request etc.

Types of Electronic Systems

1. ATM: ATM stands for Automated Teller Machine. In simple words, it is ‘simple to use

self service solution’. It offers value added services like recharging the mobile, paying

the utility bills, mutual fund transactions etc.

2. RTGS: RTGS stands for ‘Real Time Gross Settlement System’. It is a fund transfer

mechanism where transfer of money takes place from one bank to another on a real time

or gross basis. This is the fastest possible money transfer system through the banking

system. It is primarily for large volume transaction. The time taken for effecting funds

transfer from one account to another is normally 2 hours.

3. Finacle: This system provides the holistic and integrated transformation approach,

complete with solutions and services. Finacle solution addresses the requirements of


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retail, corporate and universal banking worldwide like core banking solution, E-banking

solution, mobile banking solution, wealth management, CRM requirements etc.

Various types of online banking scams

With the range of payments becoming ever greater over the world, everyone needs to be aware

of the coherent steps that should be taken to minimize the chances of being an online fraud

victim. Being an victim of fraud can cause stress and worry, so taking measures to protect

yourself is essential. Some common online banking scams are:

1. Phishing: This is the name given to e-mails that claim to be from your bank or other

organizations but are actually sent to you by fraudsters. These e-mails typically urge you

to click on a link that takes you to a fake website identical to the one you would expect to

see. You are then asked to verify or update your personal information but, by doing so,

you are actually giving your information to the fraudster who has created the fake

website. The fraudster then uses the details to access your online bank account and take

your money. One easy way to spot phishing e- mails is that they are usually addressed to

”Dear valued customer” instead of your name. This is because phishing e-mails are

usually sent out at random as the fraudsters only have limited information such as e-mail

address. In a similar scheme, called ‘Vishing’, a person calls you and pretends to be a

bank representative seeking to verify account information.

2. Pharming: Pharming is the installation of malicious code on your computer without any

acknowledgement on your part. In one type of pharming attack, you open an e-mail, or an

e-mail attachment that installs malicious code on your computer. Later, you go to a fake

web site that closely resembles your bank or financial institution. Any information you

provide during a visit to the fake site is made available to malicious users. Both phishing

and pharming share the one characteristic, they are created using technology, but in order

to be successful, they require your information. In phishing attacks you have to provide

the information or visit links whereas with pharming, you have to open an e-mail, or e-

mail attachment, to become a victim. You then visit a fake website and, without your

knowledge, provide information that comprises your financial identity.


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3. Malware: Malware (malicious softwatre) is a computer virus that can be installed on your

computer without your knowledge. It is capable of monitoring your PC activity, enabling

fraudsters to capture your passwords and other personal information. To be a malware

victim, you must be tricked into performing actions you would not normally do. You

have to install the malware on your computer either by running a program or by visiting a

website through e-mail or instant message link. Then, you are requested to send your

bank login information. Your financial information will then be at risk only after you

perform all these steps. To make sure you do not become a victim of malware, make sure

you have up-to-date anti-virus and anti-spyware software installed.

4. Money Mules: Money mules are people who accept fraudulently obtained money into

their account, and then withdraw the money and transfer it overseas to a fraudster. Money

mules are often innocent people who have been deceived into helping criminals transfer

funds abroad. Criminals offer prospective mules the chance to earn some easy money –

concealing the fact that the work is illegal by advertising the job as a “shipping manager”

or “sales manager” for an overseas company. However, money mules are liable for

presentation and anyone who thinks they may have been deceived by such a scam should

contact the police immediately.

5. Identity Fraud: This fraud involves criminals obtaining key pieces of personal

information that they use to pretend to be you. Criminals use these personal details to

obtain financial services products in your name such as credit cards, loans, state benefits

and documents such as driving licenses and passports. Alternatively criminals can use

your personal information to gain access to your existing accounts.

RESULTS OF THE EXTENT OF SAFETY MEASURES FOLLOWED BY

RESPONDENTS WHILE E-BANKING

Although internet banking is a very common way of accessing your bank account, it is

vital to be aware of the ways in which criminals can try to gain access to your account and to

learn how to protect yourself and your money. Financial institutions that employ any form of

internet banking should have effective and reliable methods of authenticating customers. An


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effective authentication system is necessary in order to comply with requirements to preserve

customer information to prevent money laundering, reduce fraud, restrain identity theft and

promote the legal enforceability of their electronic agreements and transactions.

The risks of doing business with unauthorized or incorrectly identified persons in an internet

banking environment can result in financial loss and reputation damage through fraud, disclosure

of customer information, corruption of data, or unforceable agreements.

Table 1- Age of the respondents

AGE Number of

respondents

Percentage

Less than 20 years 6 5%

20-30 years 14 12%

30-40 years 48 41%

40-50 years 38 32%

Above 50 years 12 10%

Total 118 100%

Table 2 – Gender of the respondents

Gender Number of

respondents

Percentage

Male 74 63%

Female 44 37%

Total 118 100%


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Table 3 – Educational Qualification of the respondents

Qualification Number of

respondents

Percentage

PUC 12 10%

Graduate 52 44%

Post-Graduate 14 12%

Doctorate Degree 4 3%

Professional Degree 36 31%

Total 118 100%

Table 4 – Job Profiles of the respondents

Job Profile Number of

respondents

Percentage

Businessmen 14 12%

Doctors 11 9%

Academicians 18 15%

Bank Officials 38 32%

Home makers 14 12%

Engineers 23 20%

Total 118 100%


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Table 5- Facilities used by respondents in E-banking

Facilities in E-banking YES NO

No. of

respondents

Percentage No. of

respondents

Percentage

a.)Financial transaction such as

account to account transfer, bill

payment etc

64 54% 54 46%

b.)Electronic bill display and

payments

34 29% 84 71%

c.) Funds transfer between

customers

18 15% 100 85%

d.) Financial transactions for

sales and purchases

102 86% 16 14%

e.) Loan repayment 4 3% 114 97%

f.)Update of savings account 118 100% 0 0%

g.)Online bank statement status 118 100% 0 0%

Table 6 – Extent of safety measures followed while E-banking

Safety measures in E-banking Sometimes Always Never

No. % No. % No. %

a.)Disabling file and printer sharing in your

computer while E-banking

22 19% 12 105 84 71%


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b.)Avoiding installation or running software

application from unknown sources

18 15% 14 12% 86 73%

c.)Avoid disclosing or entering of personal

data like Date of Boirth, CVV number of the

credit card, card number to unfamiliar

websites, e-mails

22 19% 82 69% 14 12%

d.)Avoid accessing online banking or

performing financial transactions from

public terminals or computers or devices

which cannot be trusted

32 27% 8 7% 78 66%

e.)Avoid keeping the computer on without

logging out while E-banking

36 31% 60 51% 22 19%

f.)Ensuring that the website you are

transacting on starts with ‘https://’ and not

‘http://’ where s means secure

6 5% 8 7% 104 88%

g.)Looking out for an icon of a padlock at

the bottom of the browser

4 3% 5 4% 109 93%

h.)Changing your PIN frequently in 2

months

11 9% 5 4% 102 87%

i.)Not to send credit card or account details

via e-mail and phone to anybody

8 7% 3 2% 107 91%

j.) Regularly check the monthly credit card

billing statements

6 5% 112 95% 0 0%

k.)Checking the website’s private policy and

install the latest anti-virus software and

63 53% 29 25% 26 22%


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firewalls

l.)Signing on the backside of a new credit

card and keeping an eye on it during the

transaction

4 3% 114 97% 0 0%

m.)Destroying the carbons of the credit card

receipts

58 49% 18 15% 42 36%

n.)Taking immediate action in case of loss

and theft

0 0% 118 100% 0 0%

o.)Ensuring that the credit card is swiped in

your presence and the billed amount has

been double checked before signing the

payment slip

14 12% 102 86% 2 2%

p.)Accessing the internet banking site

directly by entering the official bank URL

and not through any site or links in e-mail

13 11% 32 27% 73 62%

q.)Checking the last log-in-date in your net

banking account

18 15% 8 7% 92 78%

r.)Using the virtual keyboard provided on

bank’s website for logging in

17 14% 15 13% 86 73%

s.)Checking your credit rating syatem from

time to time to make sure that nobody has

tried to take out a loan in your name

3 2% 3 3% 112 95%

t.)Using a secured broadband connection to

prevent others from accessing your

broadband connection

26 22% 74 63% 18 15%


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u.)To activate a po-up window blocker 4 3% 8 7% 106 90%

v.)Ensuring that the ATM card, credit card

& PIN are not kept together

4 3% 112 95% 2 2%

Table 7 – Frauds aware of by the customers in E-banking

Various frauds in E-banking YES NO

No. of

Respondents

Percentage No. of

Respondents

Percentage

a.)Phishing 48 41% 70 59%

b.)Pharming 36 31% 82 69%

c.)Money mules 26 22% 92 78%

d.)Malware 38 32% 80 68%

e.)Identity Fraud 32 27% 86 73%

f.)Brand Spoofing 28 24% 90 76%

g.)Cyber-Mugging 18 15% 100 85%

h.)Trojan horses 16 14% 102 86%

i.)Keystroke sniffer 8 7% 110 93%

j.)Salami Slicing 6 5% 112 95%

k.)Skimming 12 10% 106 90%

FINDINGS OF THE STUDY

1.) Majority of the respondents who used e-banking facility was in the age group of 30-40 years


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2.) Majority of the respondents used e-banking facility for account transfer, bill payment, sales

and purchases, update of savings account and online bank statement status.

3.) Respondents followed basic safety measures while e-banking

4.)Online safety measures are not followed by majority of the respondents as they are not aware

of them.

5.)Offline safety measures are followed by the respondents to some extent

6.)Overall safety measures followed by the respondents while e-banking is very low

7.)Majority of the respondents are not aware of the frauds in e-banking and the security available

to control internet threats and challenges.

SUGGESTIONS FOR RESPONDENTS WHILE E-BANKING

To improve the security online, one must follow the following precautions:

General Safety Precautions

I.Before banking online

Make sure your computer has up-to-date anti-virus software and a firewall installed

Install anti-spyware software on your machine

Download download the latest security updates, known as patches for your browser and

your operating system. Set your computer to automatically download these updates if

possible

Ensure your browser is set at its highest level of security notification and monitoring. The

safety options are no always activated by default

Keep your passwords and PINs secret- do not write them down or tell anyone what they

are.

II.Whilst banking online

Be aware of unsolicited e-mails or phone calls asking you to disclose any personal details

or passwords. Your bank or the police would never contact you o ask you to disclose

your PIN or your online banking password

Always access your internet banking site by typing the bank’s address into web browser

Never go to a website from a link in an e-mail and then enter personal details

The login pages of bank websites are secured through an encryption process, so ensure

that there is a locked padlock or unbroken key symbol in your browser window when


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accessing your bank site. The beginning of the bank’s internet address will change from

‘http’ to ‘https’ when a secure connection is established.

Never leave your computer unattended when logged in to your online account

When making a payment, always double check that you have entered the correct account

number and sort code – if you enter incorrect details the payment will go to a different

recipient and it may prove difficult to get the money back.

III.When you have finished banking online

Ensure you log off from your online bank account before you shut down, especially if

you are accessing your online bank account from a public computer or at an internet café

Check your bank statements regularly and thoroughly. If you notice anything irregular on

your account, contact your bank as soon as possible.

IV. Shopping online securely

To minimize the chances of becoming a victim of fraud while shopping online, one should:

Be aware that your card details are as valuable as cash in the wrong hands so store your

cards securely at all times and try not to let them out of your site

Sign up to “Verified by visa” or “MasterCard SecureCode” whenever you are given the

option whilst shopping online. This involves you registering a password with your card

company. By signing up, your card will have an additional level of security that will help

prevent you from being a victim of online fraud.

Only shop on secure sites. Before submitting card details, ensure that the locked padlock

or unbroken key symbol is showing in your browser. (The locked padlock symbol is

usually found at the top of the screen if you use Internet Explorer 7 or Firefox 2). The

beginning of the online retailer’s internet address will change from ‘http’ or ‘https’ when

a connection is secure. In some new browser’s such as Internet Explorer 7 and Firefox 2,

the address bar may also turn green to indicate that a site has an additional level of

security.

Never disclose your PIN to anyone and never send it over the Internet.

Print out your order and keep copies of the retailer’s terms and conditions, returns policy,

delivery conditions, postal address (not a post office box) and phone number (not a

mobile number). There may be additional charges such as local taxes and postage,


73


particularly if you are purchasing from abroad. When buying from overseas remember

that it may be difficult to roll back if problems arise, but having all the aforementioned

information will help your card company take up your case if you subsequently have any

difficulties.

Ensure you are fully aware of any payment commitments you are entering into, including

whether you are authorizing a single payment or a series of payments.

Consider using a separate credit card specifically for online transactions.

CONCLUSION

E-banking has become a must for people’s daily life due to its ease of access and transaction

processing in a timely manner. However, many individuals or organizations are not vigilant

enough and do not take appropriate safety precautions whilst online. Consequently, this leads to

fraudsters capturing their personal information and performing all sorts of fraudulent transactions

on the internet. For this reason, users of e-banking should ensure that they follow secure

principles when giving away or accessing sensitive information.

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IS IMPORT LIBERALISATION PROMOTING INCOME AND EMPLOYMENT

GROWTH IN INDIA ?

Dr. Tushar Das

Research Scholar, Netaji Subhas Open University, Kolkata

and

Headmaster, Sadananda Mission High School, Howrah

[email protected]

Abstract

Economic liberalization in India in 1991 had its major component reflected in the liberalized

import policies of government of India. The obvious objective was to promote freer trade by

allowing the substitution of imported inputs for domestic ones when it is needed for achieving

more competitive exports via more efficient production and thereby gaining greater share of

Indian export products in the world market. However, we notice stimulating debates in the

empirical literature questioning the possibility of success of the above in the Indian context .

Nambiar and others(1994,1999) have tried to establish the view that instead of promoting

income and employment through accelerated export growth via more efficient production

through eased used of imported inputs, trade has shrunk income and employment growth. This

paper using slightly improved methodological framework and data base (substituting domestic

input-output matrix for total matrix (domestic + import) matrix) for projection of income and

employment, we arrive at the conclusion that liberalized trade has promoted income and

employment rather than squeezed it.

INTRODUCTION

Economic theory suggests that free trade promotes economic activity leading to increased

production, income and employment. Policy makers in India went into massive economic reform

in the year 1991-92 to tide over critical balance of payment crisis and to overcome certain

structural constraints. The major component of this reform package has been liberalized import.

Import duty has been reduced sizably on a large number of commodities. Non tariff restrictions

on import also have been withdrawn noticeably. So it is now possibly high time to ask the

question: though liberalization of import is intended primarily to solve the balance of payment


77


problem what is its macroeconomic repercussion namely the effect on domestic employment and

income or in other words the question is: how far it succeeded in promoting income and

employment growth in India.

Nambiar, Tadas (1994) and Nambiar, Mungekar and Tadas(1999) have looked into the issue

quite competently and in depth and have observed that trade has shrunk India’s manufacturing

base both in terms of income and employment. Nambiar and others (1999) have further observed

that freer trade in India have shrunk intermediate and capital goods industries relatively more.

However we feel that the study by Nambiar and others do suffer from certain limitations apart

from the issue of not taking care of updating of data base. The calculation of domestic output

and hence the import requirement for any vector of final demand in Nambiar (1994,1999) has

been done through projection by the Leontief inverse of the technical coefficient matrix( in the

absence of any availability of domestic input coefficient matrix). Obviously, the above is

erroneous to the extent that domestic input coefficients may differ from the corresponding

technical coefficients.

So, the purpose of the paper is two fold.

First, to utilize the domestic input output matrices for India for the years 1993-94 , 1998-99 ,

2003-04 and 2006-07 made available by CSO for getting a more correct projection of domestic

output requirement and hence the import requirement resulting in some income and employment

consequent to a certain export vector and also the loss of employment and income caused by the

competitive import as a component of final demand. So by the above we may expect some

improvement in the quality of projection in the present exercise of the consequences of

liberalization of import compared to projection obtained in the exercises done by others.

Second, as the data base of our study incorporates information related to more recent periods it

has been possible to capture the impact of liberalization in the truer sense as it is expected that as

more and more time passes consequences of relaxation of controls will be manifested in greater

and greater degrees. In this respect, results of our study possibly appear to be more robust.

Now, the paper is organized as follows-

In Section-I after highlighting the purpose of the paper, section -II discusses the methodological

framework used for our projection of the impact on generation of income and employment of

liberalized trade. Section-III presents the data base of our study. Section-IV highlights the results


78


of our projection (and decomposition) and the major observations on our results. Section-V

concludes with a comment on how these results compare with those obtained by Nambiar and

others.

THE METHODOLOGICAL FRAME WORK

Leontief open input-output model obviously seems a useful analytical tool and is widely used

for analyzing of economy wise impact consequent to any sort of final demand. Total output

from each industry equals total inter-industrial demand plus the final demand. So, we have

the balance relations as follows:

m

Xi = ∑Xij + Fi ……….(1) where Xi = Output in the ith sector(in value terms),

j = i

Fi = Final Demand in the ith sector (in value terms) and Xij = input flow from ith sector to jth

sector

Assuming a production function with fixed coefficients ,

Xij = aij.Xj …………..(2) where aij = Xij/Xj

By substituting (2) in (1) , gross output or sales of sector i can be expressed as :

m

Xi = ∑aij.Xj + Fi …………..(3)

j = i

Therefore, X = AX + F where X= (Xi), A = (aij) and F = (Fi)

Or, F = X – AX = IX – AX = (I – A)X

Or, X = (I-A)-1

.F……………..(4)

In the equation (4) if F is prescribed from outside, the required gross output levels X’s get

determined. For our present purpose it is not the entire Final Demand but the export part of the

final demand which is relevant .

Let Xij(m) = Imported input of ith sector to jth sector, if Xij(t) = total supply of input of ith

sector to jth sector and Xij(d) = domestically produced input of ith sector to jth sector then

we may write Xij(d) = Xij(t) - Xij(m)


79


Now, we consider Q= f(Fd + E – M) …..(5) where Q = Production of goods, Fd = Domestic

Final Demand , E = Exports and M = Imports. It follows from –(5) that any change in

production can be decomposed into i) a change due to domestic use and ii) a change due to

foreign trade. To estimate the impact of a change in domestic demand, exports or imports or

trade on production , the induced effect of that change must be taken into account also . A

complete accounting of the impact of trade and domestic demand has to take into

consideration both the direct and induced effects.

We first obtain the sector wise labour coefficients(the labour requirement per rupee worth of

output). Then the direct and indirect labour requirements for domestic final demand, exports,

imports and for trade are separately derived in the following way :

FdL = L*(I-Ad)

-1*Fd : Total Labour requirement due to final domestic demand (Direct plus

Induced)

EL = L*(I-Ad)

-1* E : Total Labour requirement due to export (Direct plus Induced)

ML = L*(I-Ad)

-1*M : Total Labour requirement for import replacement(Direct plus

Induced)

Where L is a row vector of labour coefficients, (I-Ad)-1

is the Leontief inverse of the domestic

input matrix, E is the column vector of exports , M is the column vector of imports, Fd is the

column vector of domestic final demand. FdL

is the direct and indirect labour requirement for

domestic use. EL is the direct and indirect employment associated with exports. M

L is the direct

and indirect employment displaced by the competitive imports . In a similar way , value added

requirements are calculated for domestic final demand, exports , imports and trade.

DATA BASE OF THE EMPIRICAL STUDY

For our empirical study relating to the impact of liberalization on income and employment, I-O

tables (Total inter-industry Transaction matrix) prepared and circulated by CSO for the year

1993-94 , 1998-99, 2003-04 and 2006-07 are the major source of data that meet our

requirement. The import matrices for the said years are also prepared by CSO but these are not

circulated by them . We have collected the import matrices (not published or circulated) from

C.S.O ‘s desk informally. The matrices (Transaction and import) as obtained from CSO for the

year 1993-94 and 1998-99 are of order 115*115 where those for the year 2003-04 and 2006-07


80


are of order 130*130. All these matrices are aggregated into 50*50 matrices by clubbing together

the similar sectors. It needs to mention here that the input-output matrix for the year 2006-07 is

not survey based, it is projected and upgraded from the input output matrix of the year 2003-04.

The employment data for the non manufacturing sectors have been taken from the Economic

Survey-2006-07 published by Government of India. Annual Survey of Industries (ASI) Reports

published by C.S.O , Govt. of India , gives information in respect of number of employees for

the manufacturing sector. The grouping of the Manufacturing sectors covered in our study are

based on the two digit commodity classification of NIC ( National Industrial Classification) of

the year1987 and 1988.

RESULTS AND INTERPRETATIONS

Table-1 shows estimates of employment and value added for Indian economy as a whole for

1993-94 , 1998-99 , 2003-04 and 2006-07. In 1993-94, employment generated directly and

indirectly from exports was 7.04% (24.2 million) of the overall employment in Indian economy

while the production of imported goods at home would have raised employment by 6.82 % (23.5

million). On the whole the net effect of trade on employment was a net gain in employment of

0.22 % (.7 million). By 1998-99 , the net employment generation due to trade seems to

deteriorate. Employment generated through exports was 9.16%(29.1 million) of the overall

employment of Indian economy , while the employment loss due to import was (-) 9.74% (-31.0

million). Thus in 1998-99, trade contributed to loss in net employment roughly by (-)0.58 % (-

1.9 million). Again, the situation seems to improve a lot in 2003-04 and 2006-07. Export

accounted for direct and indirect employment gain of 10.38%(35.8 million) in 2003-04 and

11.35% (39.7 million) in 2006-07 while employment loss due to import was (-)8.79%(-30.3

million) in 2003-04 and (-) 10.92 % (-38.2 million) in 2006-07 implying the fact that trade in

2003-04 and 2006-07 results in net employment gain of 1.59%(5.5 million) and .42 % ( 1.5

million) respectively.

Value Added has suffered in the era of liberalized trade particularly in 1993-94, 1998-99 and

2006-07 as revealed in Table-1. The value added due to exports in 1993-94 was 10.20 % (Rs.

742845.1 million ) of the overall value added of the economy whereas loss of income due to

imports was (-)10.39 %(-Rs.756340.7 million). The net effect of trade was to squeeze value


81


added by (-) 0.19% (-Rs.13495.6 million). The same trend was noticed in 1998-99 and 2006-

07 also. In the year 1998-99, value added associated with exports was 11.70%(Rs.1663135

million ) whereas loss of income due to imports was (-)13.36%(-Rs.1898557.8 million )

resulting in a net loss of income of (-)1.66% (-Rs. 235422.8 million ).

In 2006-07, income generated from exports (directly and indirectly) was 15.89% (Rs. 3875829.1

million) of the overall value added in Indian economy while the production of imported goods at

home would have resulted in loss of income by (-)16.21 % (-Rs. 3953291 million). On the

whole the net effect of trade on value added was a net loss in income of (-)0.30 % (-Rs.77462.3

million). In 2003-04, value added related to exports was 14.88 % (Rs. 3221509 million )

whereas loss of income due to imports was (-)14.80 %(-Rs. 3204978.8 million) resulting in a net

gain of income of 0.08 % (Rs. 16530.2 million).

Table-1

Employment (Number in Million) and Value Added (Rs. in Million) in Indian Economy due to

Domestic Use and Foreign Trade

Items 1993-94 1998-99 2003-04

2006-07

Value added(Rs. In Million)

Domestic Use 7293389.8 14444383.0 21635970.5

24457914.2

Exports 742845.1 1663135.0 3221509.0

3875829.1

Imports (-) 756340.7 (-)1898557.8 (-)3204978.8 (-

)3953291.4

Trade -13495.6 -235422.8 16530.2 (-

)77462.3

Total 7279894.2 14208960.2 21652500.7

14380452.5

Employment (Number in Million)


82


Domestic Use 343.8 320.2 340.0

348.0

Exports 24.2 29.1 35.8

39.7

Imports (-) 23.5 (-)31.0 (-)30.3 (-

)38.2

Trade .7 -1.9 5.5

1.5

Total 344.5 318.3 345.5

349.5

Addenda :

% due to Domestic Use

Value Added 100.19 101.66 99.92

100.31

Employment 99.78 100.58 98.41

99.57

% due to Exports

Value Added 10.20 11.70 14.88

15.89

Employment 7.04 9.16 10.38

11.35

% due to Imports

Value Added (-) 10.39 (-)13.36 (-) 14.80 (-

)16.21

Employment (-) 6.82 (-)9.74 (-) 8.79 (-

)10.92

% due to Foreign Trade


83


Value Added -0.19 -1.66 0.08 (-

).30

Employment 0.22 -0.58 1.59

.42

Source: Author’s Own Calculation

Table-2 presents the relative contribution of domestic use and trade to the net change in

employment and value added over the period 1993-94 – 2006-07. As shown in table-2, net gain

in employment was 1.45 % (5 million). Decomposing this change into 1) that attributable to

domestic use and 2) that due to trade , we find that (+) 1.21% (4.2 million) was due to domestic

use and (+).24% (.8 million ) was due to trade. Net increase in value added was 234.90%

(Rs.17100557 million) . After decomposition , it is found that the change attributable to

domestic use is 235.77 %(Rs.17164525 million) and to trade is (-).87 % (-Rs.63967 million).

Table-2

% Change in Employment and Value added in Indian Economy resulting from Domestic

Use and Trade over the period 1993-94 – 2006-07

Change in Employment Change in Value Added

Total Due to Due to Total Due to Due to

Domestic Use Foreign Trade Domestic Use

Foreign Trade

1.45 (+)1.21 (+).24 (+)234.90 (+)235.77 (-).87

Source: Author’s Own Calculation

The picture which is depicted for the economy as a whole may not be the same for the sectoral

level. Table -3 shows the percentage change in value added and employment at the sectoral level

resulting from trade and domestic use over the period 1993-94-2003-04.

Table-3


84


Percentage change in Value Added and Employment resulting from Trade and Domestic Use

Over the period 1993-94-2003-04

Sectors Change in Value Added Change in

Employment

Total Due to Domestic Use Due to Trade Total Due to Domestic

Use Due to Trade

1.Agriculture 119 115 4 -2 -3

1

2.Crude Petro -1282 442 -1725 -420 -143

-277

3.Iron Ore 441 135 306 -14 -18

4

4.Other Minerals 121 -127 247 -41 -1

-40

5.Food Products -46 -41 -5 -15 -3

-13

6.Misc.Food prods 232 211 21 12 9

3

7.Beverages 1090 1084 6 117 117

0

8.Tobacco Prods 110 109 1 -14 -13

-1

9.Cotton Textile 37 18 19 78 55

24

10 Wool, Silk Tex 22 9 13 436 360

76

11.Jute Textiles 240 241 -1 791 741

50


85


12.Textiles Prods 470 277 193 602 350

252

13.Wood, Furniture 119 141 -22 -33 -26

-7

14.Paper, Printing 47 61 -14 -6 -10

4

15. Leather Prods 130 91 38 8 19

-11

16.Rubber Prods 126 96 30 47 31

16

17 Plastic Prods 176 195 -19 13 23

-10

18.Petro Prods 322 323 -1 -59 -141

82

19 Heavy Chem -912 -1092 179 244 156

88

20.Fertiliser 97 93 5 24 5

19

21.Pesticides 261 211 49 11 3

8

22.Paints, Vernishes 278 280 -2 64 72

-7

23.Drugs,medicines 371 302 69 13 2

11

24.Other Chem 178 209 -31 2 6

-5

25.Cement 219 213 6 -91 -88

-3

26.Nonmetallic Min. 391 450 -59 -88 -33

-55


86


27.Iron steel ferr alloys173 161 12 36 11

26

28.Iron steel casting 754 730 24 103 69

34

29.Iron steel found 77 71 6 30 24

6

30.Non fers B.metal -1481 1415 -2896 -230 -7

-222

31.Handtools 520 516 4 48 45

3

32.Misc metal prods 114 115 -1 331 333

-2

33.Agri Machinery 140 129 11 -52 -57

5

34.Indus Machinery 149 187 -38 -55 -101

46

35.Other Indus Mach -880 -990 110 -220 162

-382

36.Machine tools 2158 2388 -230 -22 -68

46

37. Comp Mach 8150 8226 -76 -97 -105

8

38.Electrical 1540 1689 -149 -72 -86

15

39.Other non electri 358 381 -23 -91 -

158 67

40. Electronics -38 40 -78 -95 -94

-1

41.Ship, Boat -579 52 -631 -111 -124

14


87


42.Rail equip. 49 53 -4 -97 -94

-3

43.Other trans.Equip 182 135 48 -41 -102

60

44.Misc manufac -341 143 -484 -169 -37

-132

45.Construction 308 309 -1 41 41

0

46.Power, gas -82 -85 3 -93 -97

4

47.Trade hotels res. 649 577 72 22 13

9

48Transport Serv 77 70 7 33 32

1

49 Finance Insurance 663 682 -19 28 30

-2

50.Comm. Serv. 469 466 3 -9 -10

1

Source : Author’s Own Calculation

Note : As 2006-07 Input Output Table is not survey based, it is not considered here.

We notice from the table-3 that for some category of industries like Food Products, Textiles,

Leather Products, Rubber Products, Chemicals, Iron and Steel Industries, trade and domestic use

have contributed to both employment and value added gain in reform era. These categories may

have certain types of product - mix by which it has been made possible. Possibly, these sectors

are composed of products whose performance in domestic front as well as export front towards

employment and income generation are significantly positive.


88


CONCLUSION

We have analyzed the impact of liberalization on employment and income over the period 1993-

94-2006-07. Now, some broad implications that we got from our study are as follows-

1. Over the period 1993-94-1998-99 liberalized trade contributed to loss of employment, but it

is interesting to note that over the period 1998-99 -2006-07 trade contributed to growth in

net employment.

2. The liberalized trade contributed to the loss of value added over the period 1993-94 - 1998-

99, but it is to be noted here that over the period 1998-99 – 2006-07, trade contributed to the

gain in net income.

3. It is observed that as far as the employment generation is concerned, , the induced effect of

domestic use and trade are in same direction implying that both are contributing to positive

employment growth of the economy. As far as value added is concerned, while domestic

demand contributed to positive income growth, trade stimulated negative net income

growth of the economy.

4. At the sectoral level, industries like Food Products, Textiles, Leather Products, Rubber

Products, Chemicals, Iron and Steel Industries, trade and domestic use have contributed to

both employment and value added gain in reform era.

For Indian economy, it is interesting to observe that as more and more time passes, liberalization

gets deepen and the relaxation of import controls is being manifested significantly on domestic

income and employment.

REFERENCES:

Basu, K (1993) Structural Reform in India, 1991-93, Experience and Agenda, Economic and

Political Weekly, November, 2

Bharadwaj , R (1962) , Structural Basis of India’s Foreign Trade, ,University of Bombay.

Economic Survey , 2002-03, 2006-07, Govt. of India.

Ghosh, A (1960) , Experiments with Input-Output Models, Cambridge University Press.

Input-Output Tables , 1993-94,1998-99 , 2003-04 and 2006-07, Central Statistical Organization,

Govt. of India.


89


Nambiar, R.G and G Tadas (1994) , Is Trade De industrializing India?, Economic and

Political Weekly Oct-15, Pp-2741-46

Nambiar R G, B L Mungekar and G A Tadas(1999), Is import Liberalisation Hurting

Domestic Industry and Employment, Economic and Political Weekly, Feb-13,Pp- 417-24


90


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REFERENCES

Journals :

Meredith, P. A., Elliott, H. L., Clin. Pharmacokinet. 1992, 22, 22 – 31

Yamamoto, K., Hagino, M., Kotaki, H., Iga, T., J. Chromatogr. B 1998, 720, 251 – 255

Books:

Myers, R. H., Montgomery, D., Response Surface Methodology, Wiley, New York 1995

Chapter in a book:

Crowther, J. B., in: Ahuja, S., Scypinski, S. (Eds.), Handbook of Modern Pharmaceutical

Analysis, Academic Press, New York 2001, pp. 415 – 443

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