ISSN (Print): 0976-013X ISSN (Online): 0976-0148

Journal of Management & Public Policy

Vol. 2 No. 2 Jan-June 2011

Editor
Srirang Jha

Associate Editor
Shweta Jha

Assistant Editor
Vandana Malviya

Editorial Advisory Board

Jacqueline L. Angel, University of Texas at Austin, USA Damon Anderson, Monash University, Victoria, Australia Daya Shanker, Deakin University, Melbourne, Australia Nalin Bharti , Indian Institute of Technology, Patna, India P K Chaubey, Indian Institute of Public Administration, New Delhi, India Parag Dubey, Indian Institute of Forest Management, Bhopal, India Shama Gamkhar, University of Texas at Austin, USA Charles Holme, Ethical Executive Training International, UK Vidyanand Jha, Indian Institute of Management, Calcutta, India Sanjay Kumar, Centre for Study of Developing Society, Delhi, India Naresh Khatri, University of Missouri, Columbia, USA T Mallikarjunappa, Mangalore University, Karnataka, India Kannamma Raman, University of Mumbai, Mumbai, India Saif Siddiqui, Jamia Millia Islamia, New Delhi, India Purnima Singh, Indian Institute of Technology, New Delhi, India Surya P Singh, Indian Institute of Technology, New Delhi, India Yinshan Tang, University of Reading, Reading, UK Nachiketa Tripathi, Indian Institute of Technology, Gauhati, India

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Journal of Management & Public Policy (JMPP) is a biannual peerreviewed international journal published in June and December every year by Management Development Research Foundation, New Delhi (India). Online edition of JMPP is available at www.jmpp.in as an open access journal. JMPP seeks to create a body of knowledge around the interface of various functional areas of Management and Public Policy. It is likely to serve as an independent forum for the academia, industry, civil society and the State to carry forward a candid and objective discussion on common issues having a bearing on economy, business, community, environment and the quality of life of the people. JMPP is indexed in the database of EBSCO Publishing Inc. USA. Subscription: Annual: Rs. 500 (India), $ 100 (Overseas) Single Copy: Rs. 250 (India), $ 50 (Overseas) Editorial & Subscription: editor@jmpp.in editor.jmpp@gmail.com Management Development Research Foundation, 2011 All rights reserved. No part of this publication may be reproduced without written permission of the Editor/Publisher. Disclaimer: The views expressed in the articles/reviews are those of the contributors and not necessarily that of the Editorial Board or Management Development Research Foundation. Articles/reviews are published in good faith and the contributors will be liable for any copyright infringements. Printed and published by Spartacus India for Management Development Research Foundation, 4th Floor, Statesman House Building, Connaught Place, Barakhamba Road, New Delhi 110001.

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011

Contents
Corporate Governance Structures and Financial Performance of Selected Indian Banks Hemal Pandya 4 Communicating Corporate Social Responsibility in Annual Reports: A Comparative Study of Indian Companies & Multi-National Corporations Ruchi Tewari 22 Why Indian Companies Indulge in CSR? Shweta Verma 52 Structure, Policy and Prospects of Rural Industrialization in Orissa (India): A Strategic Approach for Sustainable Development Muna Kalyani 70 Assumptions of Central Place Theory (CPT) and Gravity Models with Special Reference to Consumer Spatial Behaviour Madan Lal & Vivek Kumar Pathak 99

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011

Corporate Governance Structures and Financial Performance of Selected Indian Banks

Hemal Pandya*
Abstract Numerous studies have considered the implications of corporate governance structures on company performance. Although the existing literature is not unanimous in its conclusions, the weight of opinion is that there is a significant relationship between governance structures and firm performance. The aim of this research is to study the effect, if any, of corporate governance structures, particularly board structure and CEO duality, on the performance of selected Indian Banks. Using samples of public and private banks operating in India, this research aims to examine the relationship between CEO duality and the proportion of independent directors on firm performance as measured by return on assets (ROA) and return on equity (ROE), using statistical techniques. Results show that there is no significant relationship between corporate governance structures and financial performance of the banks. Keywords: Return on Assets, Return on Equity, Duality, Independent Directors Introduction The Asian financial crisis of 1997 resulted in most Asian countries seeking to strengthen their corporate governance, transparency and disclosure levels (Ho and Wong, 2001). An effective system of corporate governance controls is considered crucial in aligning the interests of directors with those of shareholders. The board of directors has its key role in corporate governance. Their main responsibility is to endorse the organizations strategy, develop a directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its shareholders, authorities and other stakeholders. The relative effectiveness of corporate governance has a profound effect on how well a business performs. The Board structure comprising of executive directors and
*

Assistant Professor, S D School of Commerce, Gujarat University, Ahmedabad (India) E-mail: hemal1967@yahoo.co.in

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 independent directors (also known as 2-tier board) with mixed skills from varied background is recognized for their contribution in the organization. Executive directors have direct responsibilities to manage the companys business and resources, while independent directors are responsible to bring an independent judgment to bear on the issue of strategy, performance and resources including the key appointments and standards of conduct. The field of independent directorship is in no way risk free; it should not be treated lightly. It carries significant exposures, financial liability, possible disqualification and consequential damage to future careers. An independent director legally bears the same responsibilities as the Executive Directors, but achieves effectiveness by influencing decisions rather than controlling operations. An independent director is a nonexecutive director on the board of a company who has integrity, expertise and independence to balance the interests of various stake holders. The idea of having them is to bring objectivity to board decisions and to protect general interests of the company, including that of minority shareholders. Independent directors are expected to improve the level of compliance of corporate governance of a company. The aim of this research paper is to study the effect, if any, of corporate governance structures, particularly board structure and CEO duality, on the performance of Indian Banks. Using samples of public and private banks operating in India, this research aims to examine the relationship between CEO duality and the proportion of independent directors on firm performance as measured by return on assets (ROA) and return on equity (ROE), using statistical techniques. Meaning of Corporate Governance Before delving further on the subject, it is important to define the concept of corporate governance. The vast amount of literature available on the subject ensures that there exist innumerable definitions of corporate governance. To get a fair view on the subject it would be prudent to give a narrow as well as a broad definition of corporate governance. In a narrow sense, corporate governance involves a set of relationships amongst the companys management, its board of directors, its shareholders, its

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 auditors and other stakeholders. These relationships, which involve various rules and incentives, provide the structure through which the objectives of the company are set, and the means of attaining these objectives as well as monitoring performance are determined. Thus, the key aspects of good corporate governance include transparency of corporate structures and operations; the accountability of managers and the boards to shareholders; and corporate responsibility towards stakeholders. While corporate governance essentially lays down the framework for creating long-term trust between companies and the external providers of capital, it would be wrong to think that the importance of corporate governance lies solely in better access of finance. Companies around the world are realizing that better corporate governance adds considerable value to their operational performance: It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience, and a host of new ideas. It rationalizes the management and monitoring of risk that a firm faces globally. It limits the liability of top management and directors, by carefully articulating the decision making process. It assures the integrity of financial reports. It has long term reputational effects among key stakeholders, both internally and externally. In a broader sense, however, good corporate governance- the extents to which companies are run in an open and honest manner- is important for overall market confidence, the efficiency of capital allocation, the growth and development of countrys industrial bases and ultimately the nations overall wealth and welfare. It is important to note that in both the narrow as well as in the broad definitions, the concepts of disclosure and transparency occupy centre-stage. In the first instance, they create trust at the firm level among the suppliers of finance. In the second instance, they create overall confidence at the aggregate economy level. In both cases, they result in efficient allocation of capital. It is therefore appropriate that corporate governance regulations in India seek to promote the rights of shareholders, while at the same time ensuring that the interests of other stakeholders are not adversely impacted.

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Corporate Governance in Indian Banks The initial formal moves towards corporate governance in India can be traced in 1997 with the voluntary code framed by the Confederation of Indian Industry (CII). A number of companies over the next three years (nearly 30 large listed companies accounting for over 25 per cent of Indias market capitalization) voluntarily adopted the CII code. 2. The next major cornerstone in the Indian case has been the SEBI Committee chaired by Shri Kumar Mangalam Birla (1999), as the first formal and comprehensive attempt to evolve a Code of Corporate Governance, in the context of prevailing conditions of governance in Indian companies and the state of capital markets. The Committee recommended that the fundamental objective of corporate governance is the enhancement of shareholder value, keeping in view the interests of other stakeholder. The Committee made recommendations of far-reaching implications for several issues, such as, the independence of board, accounting standards and financial reporting, share-holders rights and responsibilities, and formation of audit and remuneration committee. The initial move towards corporate governance in banks can be traced in the Advisory Group on Corporate Governance for the RBI Standing Committee on International Financial Standards and Codes, chaired by Dr. R.H. Patil, which submitted its Report in 2001, of corporate governance in India is much closer to the East Asian insider model where the promoters dominate governance in every possible way. Among the various recommendations, strengthening of the Companies Act and the role of Independent Directors deserve special mention. The Group looked into public sectors banks and noted that the first important step to improve governance mechanism in these units is to transfer the actual governance functions from the concerned administrative ministries to the boards and also strengthen them by streamlining the appointment process of directors. Furthermore, as a part of strengthening the functioning of their boards, banks should appoint a risk management committee of the board in addition to the three other board committees viz., audit, remuneration and appointment committees. The Advisory Group on Banking Supervision for the Standing Committee on International Financial Standards and Codes, while looking into several areas in which internationally accepted best practices are already in place, probed into corporate governance as well.

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 The noteworthy minimum benchmarks noted by the Group relate to the following: strategies and techniques basic to sound corporate governance; organizational structure to ensure oversight by board of directors and individuals not involved in day-to-day running of business; ensuring that the direct line of supervision of different business areas are different; ensuring independent risk management and audit functions; ensuring an environment supportive of sound corporate governance; and role of supervisors. Interestingly, with reference to public sector banks, the Group noted that the nature of a banks ownership is not a critical factor in establishing sound corporate governance practices and concluded that, the quality of corporate governance should be the same in all types of banking organizations irrespective of the nature of their ownership. The Group, however, felt that there are some areas where practices in the Indian banking sector fell short of international best practices, viz., a) constitutions of boards, b) their accountability, and c) their involvement in risk management. The Group gave special emphasis on enhanced transparency in the constitution and structure of the board and senior management and in public disclosures. Taking this move towards corporate governance further, the Reserve Bank constituted a Consultative Group of Directors of Banks and Financial Institutions (Chairman: Dr. A.S. Ganguly) to review the supervisory role of Boards of banks and FIs. The Ganguly Consultative Group looked into the functioning of the Boards vis--vis compliance, transparency, disclosures, audit committees and suggested measures for making the role of the Board of Directors more effective. The Group submitted its recommendations in April 2002. The major recommendations of the Group are the following: Government while nominating directors on the Boards of PSBs should be guided by certain broad fit and proper norms for the Directors, based on the lines of those suggested by Bank for International Settlement (BIS). The appointment / nomination of independent non-executive directors to the Board of banks (both public sector and private

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 sector) should be from a pool of professional and talented people to be prepared and maintained by RBI. It would be desirable to take an undertaking from every director to the effect that they have gone through the guidelines defining the role and responsibilities of directors, and understood what is expected of them. In order to ensure strategic focus it would be desirable to separate the office of Chairman and Managing Director in respect of largesized PSBs. The information furnished to the Board should be wholesome, complete and adequate to take meaningful decisions. The Boards focus should be devoted more on strategy issues, risk profile, internal control systems, overall performance, etc. It would be desirable if the exposures of a bank to stockbrokers and market-makers as a group, as also exposures to other sensitive sectors, viz., real estate etc. are reported to the Board regularly. The disclosures of progress made towards establishing progressive risk management system, the risk management policy, strategy, exposures to related entities, the asset classification of such lending / investments etc. should be in conformity with corporate governance standards, etc. Finally, the banks could be asked to come up with a strategy and plan for implementation of the governance standards recommended and submit progress of implementation.

The Ganguly Committee recommendations have been benchmarked with international best practices as enunciated in the Basel Paper as well as of other Committees and advisory bodies to the extent applicable to the Indian environment. RBI has also implemented most of the recommendations. In general these regulations have created an enabling framework for improving corporate governance in financial institutions. Subsequently, the circular issued on June 25, 2004 on fit and proper criteria for directors of banks enumerated a number of principles; the following among them deserve special mention, viz., undertaking a process of due diligence on the part of the banks in private sector to determine the suitability of the person for appointment / continuing to hold appointment as a director on the

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Board, based upon qualification, expertise, track record, integrity and other fit and proper criteria; the process of due diligence should be undertaken by the banks in private sector at the time of appointment / renewal of appointment; the boards of the banks in private sector should constitute Nomination Committees to scrutinize the declarations; Banks should obtain annually, as on March 31, a simple declaration that the information already provided has not undergone change and where there is any change, requisite details are furnished by the directors forthwith. These principles would go a long way to ensure corporate governance in banks in India. The Important Role of the Board of Directors The board of directors plays an important role in the operation of a company. It oversees top management and is entrusted with the responsibility of monitoring and supervising the companys resources and operation. (The boards primary responsibilities have been discussed earlier in this paper). Therefore, the board is collectively seen as a team of individuals with fiduciary responsibilities of leading and directing a firm, with the primary objective of protecting the firms shareholders interests (Shamsul Nahar Abdullah 2004). There are three critical board roles that have been identified and studied by a variety of theoretical perspectives inclusive of service roles, control roles and strategic roles (Zahra and Parce 1989, Gopinath et al. 1994, Maassen 1999). This has been further elaborated in a different study that the board should alternatively fill an auditing, a supervisory, a coaching, and a steering role (Strabel 2004). However, the separation between ownership and control mechanism in todays modern organization has resulted in a potential conflict of interest situation (Berle and Means 1932). This is also a consequences of the agency theory in which the self interest of the management is likely to lead them to involve in value-decreasing activities (Jensen and Meckling, 1976). The predicted reduction in value of the firm as a result of the management opportunistic behavior is known as agency cost (Jensen and Meckling 1976).

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 CEO Duality There are two types of leadership structure, that is, combined leadership structure and separated structure (Coles et al 2001). A firm may adopt the combined leadership structure in which the CEO is also acting as chairman of the board whilst the separated structure clearly divides the positions of CEO from chairmanship. Many studies have been done to identify the implications of CEO duality. There is a claim that the operating performance may be improved as a result of less conflict between the CEO and chairman and/or other directors (Anderson and Anthony 1996). Those firms which have been identified as earnings manipulators are more likely to have a CEO who also serves as a board chair (Deochow et al.1996). The CEO duality in fact has a positive effect on firm performance under certain industries (eg. resource scarcity or high complexity) (Donaldson and Davis 1991). However, one study shows that the lack of separation from the CEO has lead to corporate board being aligned with management rather than shareholders notwithstanding the presence of independent directors (Greenspan 2002-2003). Not only that, those firms which practice CEO duality are likely to have lower shareholder returns (Rechner and Dalton 1991). The relationship between CEO duality and firm performance is considered neutral/insignificant in certain studies whereby there is no link between CEO duality and firm performance (Berg and Smith 1978). No significant relationship was shown in a different study done using Malaysian public listed companies as sample (Allen Chang 2004). Although the literature is not unanimous in its conclusions, the weight of opinion is that there is a significant relationship between CEO duality towards firm performance. Independent Directors The role of independent directors on the board of directors is to effectively monitor and control firm activities in reducing opportunistic managerial behaviors and expropriation of firm resources (Fama and Jensen 1983a, b, Brickley et al. 1994). However, independent directors face difficulties in discharging their duties as they are not directly affiliated with the management (Weisbach 1988). There is evidence to show that independent directors are valued for their ability to advise, to solidify business and personal relationships, and to send a signal that the company is doing well

11

Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 rather than for their ability to monitor (Mace 1986, Herman 1981). Nevertheless, a study of Singapores directors has indicated that most of the respondents were of the opinion that the optimum level of independent directorship is between 25% and 50% of the total size of the board and the independent directors were more convinced that strong corporate governance enhanced the board effectiveness more than executive directors (Goodwin and Seow 2000). As such, the proportion of independent directors is identified as the other independent variable in this study. Theoretical Framework and Hypotheses The framework represents a model which concerns ascertaining the relative importance of the known antecedents of firms performance. Many researchers found that CEO duality and the proportion of independent directors to board size gives indirect impact towards the firms performance. For the purpose of this study firms performance is me asured through valuation of Return of Equity (ROE) and Return of Assets (ROA), where profit before interest and tax will be used as denominator because it shows the real performance of a firm as the dependent variable. CEO duality is set as the binary variable and board independence, the number of independent directors to board size, is the independent variables in measuring the relations to firms performance which is the dependent variable. Past researchers applied different methods in measuring firm performance such as stock price, dividend payable, return on assets, return on equity, gearing ratio and so on. In this study, return on assets and return on equity are used as indicators for firm performance. CEO duality occurs if the roles of chairman and CEO are combined. The chairman of the board is responsible for managing the board, which may include tasks such as selecting new board members, monitoring the performance of the executive directors and settling any conflicts which arises within the board. The CEO is responsible for the day to day management of the company, including the implementation of board decisions. The companies that practices CEO duality, may have an individual who possesses too much power and might make decisions that do not maximize shareholders wealth. Interest in duality has emerged primarily because it is assumed to have significant implications for organizational performance and corporate governance. The lack of

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 separation has led to corporate board being aligned with management rather than shareholders notwithstanding the presence of independent directors (Greenspan, 2003). Drawing from the literature on the relationship between a firms performance and CEO duality, the following hypothesis is made: H1: CEO duality has a significant relationship to banks performance The Cadbury Committee recommended that there should be at least three non-executive directors on the board of quoted companies. Board independence is associated with the entry of outsiders into the board and Cadbury Committee outlined the reasons for having an outside presence on the board as: Outside directors broaden the strategic view of boards and they widen a Companys vision Outside board members ensure that boards always have their sights on the interests of the companies. They are well placed to resolve conflicts. The outside directors bring awareness of the external world and ever changing nature of public expectations to board discussions. Outside directors have a clear role in appointing and monitoring the executive team. The literature suggests that increases in the proportion of outside directors on the board increases firm performance as they can more effectively monitor managers (Adams and Mehran, 2003). Drawing from this tread in the literature on the relationship between independent directors and banks performance, the following hypothesis is made: H2: Proportion of independent directors to board size has a significant relationship to banks performance Methodology In this section, the methods employed in the study in testing the research hypotheses are described. The specifics of data collection, and the methods applied to empirically assess the proposed framework are described. The sample consists of twelve banks out of which there are eight public

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 sector banks and four private sector banks. We have chosen two different periods for analysis purpose: year 2005-06 and 2008-09 in order to test the effectiveness of the board structure on the financial performance of Indian banks, with special reference to Duality and Proportion of Independent Directors over this selected period. Data was obtained from the Annual Reports of the selected banks available on the websites of the banks. The variables used in the analysis are as follows: Dependent Variables: (i) ROA return on assets (Profit before interest and Tax / Total Assets) x 100 and (ii) ROE- return on equity ((Profit before interest and Tax / Total Equity) x 100 Independent Variables: (i) Duality - This is a binary variable which has a value of one if one individual has the joint title of chairman and CEO or if one individual has the executive position and there is no separate CEO. If the posts are separate, it is zero and (ii) Proportion of independent directors NED: This measures the number of non-executive directors on the board. We have considered two levels of this variable: NED 33 - This measure will include binary number of one if the independent directors represent at least one third of the board. Binary number zero represent if the independent directors is less than one third. We expect firms which have more than one third of the board to perform better. NED 50 - This measure will include binary number of one if the independent directors represent 50% of the board. Binary number zero represent if the independent directors is less than 50%. We expect firms which have more 50% of independent directors to perform better than firm which do not. SPSS and OpenStat Statistical Package were used along with a number of statistical techniques like, Multiple Regression Analysis with Dichotomous variables and Mann Whitney U Test, in measuring the relationship between the dependent variable and independent variables. Non parametric tests were conducted since ROE and ROA were not distributed normally. Mann Whitney U Test was conducted to test the hypotheses. This tests the hypotheses that two independent samples comes from populations having

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 the same distributions. The test is equivalent to the independent groups t test. Results Duality and Board Structure: Table 1 provides percentage of banks with duality and Board Independence. Thus, the proportion of banks with duality was same in 2005-06 and in 2008-09. This is shown in Table I above, which indicates that 91.67% of banks in both the years had same person for CEO and chairman of board of directors. In contrast, the table shows that more banks had a higher proportion of independent directors in 2008-09 compared to 2005-06. Table I shows that 100% of banks had the minimum one third number of independent directors on their boards in 2008-09 as compared to only 66.67% of the banks in 2005-06. This may be the result of the implementation of Listing Requirements in 2005 which required all listed companies to have a minimum of 2 or one third independent directors, whichever was higher. In 2008-09, 83.33% of the banks had more than 50% independent directors on its board which is significantly higher than 75% in 2005-06. Performance Based on Duality and Board Independence Table 2 and Table 3 give comparison of the performance of banks with duality and board independence with those without duality and board independence for the years 2005-06 and 2008-09. Table 2 shows that in 2005-06, 11 banks had duality whereas only one did not. Banks with duality had higher ROA (74.59%) than those without duality (25.41%). In terms of ROE, those banks with duality had a significantly higher ROE (97.2%) than bank without duality (2.79%). The result shows that the separation of CEO and Chairman of BOD does not seem to improve performance in terms of both ROA and ROE. The results for board independence and performance are inconsistent for the year 2005-06. Table II shows that NED50 companies that had more than 50% independent directors on the board (NED50), had lower ROA (26.78%) and higher ROE (77.66%) than those banks that had fewer independent directors (< 50%). However, for NED33 banks those that had more than 33% independent directors performed better with ROA of 74.33% and ROE of 71.12% respectively, than those who had less than

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 33% independent directors with ROA of 25.66% and 28.87% respectively. Thus, the results seem to support the recommendation that requires organizations to have at least one third independent members on the board. In terms of the Z value scores, there is no significance among the variables and ROA/ROE value for the 2005-06 data. In order for there to be a significant correlation, Z -values must be below -1.96 or more than 1.96. So, based on the 2005-06 data, duality and number of independent directors do not have a significant impact on the financial performance. Similarly, Table 3 shows the comparison between the variables and ROA/ROE for year 2008-09. As in 2005-06, in 2008-09, banks with duality have better ROA (91.49%) than those that do not (8.51%). Again in terms of ROE, the results show that banks with duality have a higher ROE (90.69%) than banks without duality (9.31%). The result shows that the separation of CEO and Chairman of BOD does not seem to improve performance in terms of both ROA and ROE. The results for independence for year 2008-09 also show the consistent impact of independent directors on both ROA and ROE. . For NED 50 banks, the ROA and ROE were higher than those with less than 50% independent directors. For NED33, we had no bank in our sample having number of independent directors less than 33%. Hence NED33 could not be used to discriminate its impact on ROA and ROE. However, as for 2005-06 there is no significant correlation between the variables and ROA/ROE except for NED33 in case of year 2008-09. This means that there is a significant correlation between number of independent directors being more than 33% and banks financial performance. But this result may not be reliable for larger sample. Our sample does not contain any bank with number of independent directors less than 33%. Also, all the Z -values are between -1.96 and 1.96 which means that there is no significant correlation.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Simultaneous Impact In order to understand the simultaneous impact of the selected explanatory variables on the dependent variables ROA and ROE respectively, we carried out Multiple Regression Analysis with Dichotomous Variables . The models applied were: ROA= a0 + a1 x NED33 + a2 x NED50 + a3 x DUALITY + and ROE= b0 + b1 x NED33 + b2 x NED50 + b3 x DUALITY + Following are the estimated regression models for the years 2005-06 and 2008-09 respectively: 2005-06 ROA=1584.51+4.338 NED33-772.67 NED50-809.07 (R-squared=0.3099) ROE=35.6407+77.74NED33+168.709NED50+430.13 (R-squared=0.0231) 2008-09 ROA=5.01167-2.66167 NED50-0.53667 (R-squared=0.2026) ROE=2528.035-1733 NED50-405.68 DUALITY (R-squared=0.3437) Conclusions The above results indicate the following points: NED50 and DUALITY have inverse relationship with ROA for both the years, whereas, NED33 has a positive relationship with ROA for year 2005-06. For 2008-09 it has no impact on ROA as well as ROE since there was no bank with NED33 taking value zero in our sample, for this year. The inverse relationship with NED50 justifies that a rational proportion of independent directors in the board should be in the range of 30% to 50% and must not exceed this limit in order to have an increasing ROA. The negative impact of DUALITY DUALITY DUALITY

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 DUALITY on ROA for both the years signifies the importance of separation of responsibilities principle. There is an inconsistency in the relationship of ROE with NED50 and DUALITY in both the years. This may suggest ROA to be a more consistent indicator of financial performance. For all the above estimated models the value of R-squared is very less indicating a weak relationship between the dependent and independent variables and hence very less predictive power of these estimated models. The impact of CEO Duality and proportion of independent directors on company performance has received close attention by researchers in corporate governance in recent years. This study hopes to contribute to this line of research. Based on the results of this study, it was found that there is no significant relationship between duality and board independence to bank performance. These results can be evaluated using larger samples. Limitations and Future Research The study focuses on board structures and CEO duality to draw conclusions on corporate governance and financial performance. This is a limitation. The results obtained cannot be generalized to say that there is no relationship between corporate governance and financial performance because of very small sample size, restricted due to the non-availability of data. Many other studies show otherwise. Also, the use of ROA and ROE as proxies for financial performance has its limitations. A more robust indicator would include more than two proxies for financial performance. This study focuses on the internal processes of a company. But external factors have a significant impact on company performance. Inflation, foreign exchange, macro economy, and interest rate policy may have a more significant impact on company performance than on how a company is regulated internally. This study could be extended to include analysis on other corporate governance issues such as board size, board compensation, ownership structure which impact upon performance. The study could also be augmented with a study of the qualitative aspects of the board that contribute to firm performance, such as the board decision-making process.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 References Agrawal, A. and Knoeber, C.R. (1996). Firm performance and mechanism to control agency problem between managers and shareholders. Journal of Financial and Quantitative Analysis, Vol. 31, pp. 377-397. Allan Chang Aik Leng. (2004). The impact of corporate governance practices on firms financial performance evidence from Malaysian companies. ABI/INFORM Global, pp. 308. Andrew K., Keith W. Nada, K.K. and Cliff Bowman. (2001). Role and contribution of non- executive directors. MCB Limited (MCB). Cadbury, A. (1992). Committee on financial aspects of corporate governance. HMSO. Daily, C. M. and Dalton, D.R. (1994). Corporate governance and the bankrupt firm: an empirical assessment. Strategic Management Journal, Vol. 15, No.6, pp. 643-56. David Laing and Charles M. Weir. (1999). Governance structures, size and corporate performance in UK firms. Management Decision, 37/5, pp. 457464. Dechow, P.M., R.G. Sloan, and A.P. Sweeney. (1996). Causes and consequences of earnings manipulation: an analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13, pp. 1-36. Donalson, T. and Preston L.E. (1993). The stakeholder theory of the corporation: concepts, evidence and implication. Academy of Management Review, Vol. 20. No. 1, pp. 65-91. Hsiang-tsui Chiang. (2005). An empirical study of corporate governance and corporate performance. The Journal of American Academy of Business, Cambridge. Hsiu-I Ting (2006). When does corporate governance add value? The Business Review, Cambridge, Vol. 5, No. 2. Jack Glen and Ajit Singh. (2004). Corporate governance, competition and finance: re-thinking lessons from the Asian crisis. Eastern Economic Journal, Vol. 31, No. 2, pp. 219-242.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 1: Percentage of Banks with Duality and Board Independence 2005-06 DUALITY 91.67% NED 33 66.67% NED 50 75% 2008-09 91.67% 100% 83.33%

Table 2: Performance of Banks With and Without Duality and Board Independence, 2005-06 2005-06 DUALITY N ROA% Z-Score ROE% Z-Score 11 74.59054 1.4484 97.20049 0.2897 25.40946 2.799514

NO DUALITY 1 NED 33 33% < 33% NED 50 50% < 50%

8 4

74.33044 0.1698 25.66956

71.12397 0.5095 28.87603

9 3

26.78191 0.1849 73.21809

77.66211 1.4792 22.33789

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 3: Performance of Banks With and Without Duality and Board Independence, 2008-09 2008-09 DUALITY N ROA% Z-Score ROE% Z-Score 11 91.49167 0.5794 90.69498 0.8690 8.508327 9.305018

NO DUALITY 1 NED 33 33% < 33% NED 50 50% < 50%

12 100 0 0

8.6603

100 0

8.5219

10 67.59594 1.0742 2 32.40406

50.30248 1.2890 49.69752

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011

Communicating Corporate Social Responsibility in Annual Reports: A Comparative Study of Indian Companies & Multi-National Corporations
Ruchi Tewari*
Abstract Purpose: To analyze the CSR reporting of the Indian companies operate in the Information and Technology (IT) sector in India and to compare them with the MNCs operating in the same sector. Design/Methodology/ Approach: Annual reports are used as a medium of communication and content analysis is employed to analyze the focus and intensity of CSR communication. Annual reports of 100 companies operating in the IT sector were examined. Findings: Both Indian and the MNCs target and lay importance to similar group of stakeholders for their CSR communication but the area of focus for the specific stakeholder varies. For the Human Resource the MNCs address quality of work life more while the Indian companies focus upon the monetary benefits provided. Similarly for customers the focus of the MNCs s the quality of product while the Indian companies focus upon the price as a parameter. Indian outperform the MNCs in their environment related disclosure while society as a stakeholder is least attended to through CSR communication made through annual reports. Research Limitations/ implications: The paper considers annual reports only and no other medium of CSR communication. The study is limited to the companies operating in the IT sector only. Originality/ Value: A comparison of the Indian companies and the MNCs on similar parameters has not been explored and therefore the results help bring out the communication strengths and weakness of the Indian companies and the MNCs. Keywords: Corporate Social Responsibility, CSR Communication, Annual Reports, Content Analysis, Information and Technology Sector, Indian Companies, MNCs
*

Associate Professor (Communication), Shanti Communication School, Ahmedabad (India) E-mail: ruchishuk@gmail.com; ruchi@scs.edu.in

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Introduction Corporate Social Responsibility (CSR) as phenomenon is of interest for practitioners and researchers from varied fields like sociology, management, law, communication etc. because as Votaw (1973) put it the term (social responsibility) is a brilliant one, it is something but not always the same thing, to everybody. To some it means socially responsible behavior in an ethical sense; to still others the meaning transmitted is that of responsible for in a casual mode; many simply equate it with charitable contributions; some take it to mean socially conscious or aware; many of those who embrace it most fervently see it as a mere synonym for legitimacy, in the context of belonging or being proper or valid; a few see it as a sort of fiduciary duty imposing higher standards of behavior on businessmen at large. It is the fluidity of the term which attracts and adds dimensions to this process. Further complexity is added by the lack of awareness about CSR amongst the stakeholder (Bhattacharya and Sen, 2004) and yet growing importance and relevance it is enjoying among the corporate circuits. There are several positive outcomes attributed to CSR communication (Brown and Dacin, 1997; Sen and Bhattacharya, 2001) though perils of too much communication has also been experienced by organizations and therefore the companies are confused about the extent, manner and focus of CSR communication (Alsop, 2002). Maignan and Ferrell, (2004), indicate that marketing research in the field of CSR communication is still in the infancy stage and widespread and general conclusions cannot be drawn. Researchers have loosely understood corporate websites, annual reports and other publicly available literature on and off the internet as the sources of CSR literature all of which targets a broad range of stakeholders (Esrock & Leichty, 2000). The various mediums employed for CSR communication can be categorized into internal and external mediums. The internal communication tools include newsletters, intranet, ethical codes, some thematic reports while the external tools for CSR communication include reports, conferences & meetings, advertisements and websites (Grunig, 1992).

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Literature Review CSR Communication and approaches: Morsing, (2006) defined CSR communication as communication that is designed and distributed by the company itself about its CSR efforts. It aims at creating awareness about the organizational activities with the purpose of drawing a positive image about the organization and development of society as well. The fundamentals of CSR communication are held on the ground of creating and maintaining mutually beneficial relations between the organization and the social factors which shape the environment in which the business activity thrives (MOSZ, 2007). Schmidheiny, Holliday, Watts, (2002), specify three broad approaches to CSR communication and categorize it into the following: Talk the talk can be understood as an organization which only makes noise about the issue of responsibility but fails to show any action on that. The organization which fails to live by example but manages to create a buzz by talking it has done about responsibility. Walk the talk is the sort of organization which has undertaken responsible activities and practices what it preaches as a desirable corporate behavior. Words are supplemented and backed by actions. Talk the walk a kind of organization which primarily works upon CSR activities and once integral to the organizational activity, communication and awareness about its deeds are created to improve the value of the company. At the basic ground level what we notice is that most organizations either all into the category of talk the talk or just walk where they are involved into CSR activities but fail to communicate it to the stakeholders. Factors Impacting CSR communication: Lattemann, et. al. (2009) have categorized factors affecting CSR communication into three broad categories country level factors impacted by the nature and kind of governance defined by rule-based versus relation based governance; industry level factors affected by the nature of industry as a manufacturing versus non-manufacturing industry and firm level factors affected by the size, age, board composition, CEOs duality and number of board members. Each of these factors along with the target audience impacts the channel

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 employed by the organization to communicate its responsible deeds. Annual reports have traditionally been the most popular medium of communication till the advent of internet. Now a creative mix of the contemporary and traditional mediums of communication is used and therefore most organizations have begun to post their reports including the annual reports on their websites. CSR communication and Annual Reports (ARs): Corporate Social Responsibility (CSR) related activities are publicly declared and areas of focus, concerns and activities are expressed by organizations through their annual reports that use it as a management tool. Corporate Annual Reports (CARs) are in the present times much beyond the compliance of legal declarations but are instead a highly sophisticated product of a competitive corporate environment (Stanton and Stanton; 2002) and the purpose of CARs is to consciously create a positive visibility and image of the organization than merely report the activities as what they were (Hopwood, 1996). So, annual reports help in creating a picture of an organization and as Hines (1988) put it, we create a picture of an organization and on the basis of that picture people think and act. And by responding to that picture of reality, they make it so. Since CARs are an important tool of communication conveying the personality and philosophy (Anderson and Imperia, 1992) of the organizations and as a means to construct the visibility and meaning of a company (Hopwood, 1996) they are used to understand the corporate attempt at communicating their CSR activities. Social Disclosure and Content Analysis Social disclosures are measured using content analysis because they help in bringing out the quantity and the nature of the disclosure (Holsti, 1969; Krippendorf, 1980). Content analysis has been defined as, `` a technique for gathering data that consists of codifying qualitative information in anecdotal and literary form, into categories in order to derive quantitative scales of varying levels of complexity'' (Abbott and Monsen, 1979) while Krippendorff (1980) elaborated and emphasised upon the reliability and validity aspect as well as he defined content analysis as a research technique for making replicable and valid inferences from data to their context. As a technique it has been rampantly used especially in measurement of CSR studies (Abbott and Monsen, 1979; Ernst and Ernst,

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 1978; Gray et al., 1995; Guthrie and Mathews, 1985; Zeghal and Ahmed, 1990; Williams and Pei, 1999). Units of analysis have been debated about and they range from words, phrases, characters, lines, sentences, pages or proportion of pages dedicated to various categories of social disclosure (Unerman, 2000). For the purpose of this study considering previous literature in mind which uphold and defend the measurement of volume of disclosure in terms of words arguing that disclosure can be recorded in greater detail (Deegan and Gordon, 1996; Zeghal and Ahmed, 1990 Deegan and Rankin, 1996). Therefore, individual words were used as a unit of measurement. Method Objective: A lot of CSR communication focused research has analysed the annual reports but a comparison on similar parameters of the communication has not been made therefore the purpose of this study is to analyse the annual reports published by the Indian companies and their multinational counterparts operating in the same sector. The primary objective of the study is analyse the extent of CSR communication made through annual reports and to understand the key stakeholder targeted through the communication made by the annual reports. Further the areas of attention of the individual stakeholder are also identified through the analysis. Sample Selection and Data Source: The list of top 100 IT companies operating in India was taken from Dataquest, (2008), Indians leading IT magazine. Since these companies are revenue rich and several of them are listed and traded on various stock exchanges therefore they publish their annual reports and communicate about the overall performance and focus of the companies to the various stakeholders. The list of companies was scanned and the companies were categorized as Indian and MNC and information about 12 companies was difficult to find so they were dropped from the study and the annual reports of the remaining 88 companies were analyzed. 46 Indian companies had their annual reports on their websites and 42 MNCs had their annual reports on their websites. To ascertain that maximum number of companies could be covered and the data considered for analysis is recent the annual reports of the financial year 2008-2009 was downloaded (understood as annual report 2009 for the Indian companies which used the Indian GAAP standards of accounting and

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 reporting) For the MNCs annual report of the year 2009 was downloaded (MNCs follow and report according to the International GAAP standards). Technique for analysis of Information in Annual Reports : A compilation of annual reports of Indian and the MNCs was done by downloading them from the companys websites. These annual reports are always found in a pdf format. The content analysis of the downloaded reports was made. To make a content analysis of the downloaded reports they were converted from the pdf into plain text format. These converted annual reports were saved as 'Text Only with Line Breaks' was manually checked to ensure clarity and correctness of data because conversions of pdf into plain text often results in repetitions, omissions or corruption of literature and it was made sure that each line was no longer 30 words which was comfortable to read. To make a content analysis of the CSR related literature in the annual report; software named, Concordance was employed. The software employed 2 basic ways of content analysis through the selection of particular words or through omissions of specific words. For the present study the method of selection was used. The content analysis was done using the single word and phrases search. It was important to keep the search targeted and ensure that the words used for content analysis should cover the entire gamut of CSD. National Association of Accountants (NAA, 1974; Clarkson, 1995; Adams, 2002; Murthy, 2008; Sandhu and Kapoor, 2010; Dagiliene, 2010) identified four broad heads such that factors of corporate social activity are covered systematically and the key stakeholders are identified and crucial areas of CSD are identified community development, human resources, services and product contribution and environment contribution. (NAA, 1974). The World Business Council for Sustainable Development (WBCSD, 2002) has also identified human rights, employee rights, environmental protection and community involvement as the key components for CSD. A close understanding of the focus areas earmarked by world organizations for CSD indicates that human resource, community development, customers and environment are the key stakeholders which need to be addressed through the CSD.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 A list of 200 words encompassing the four stakeholders was compiled using the literature and after random study of the annual reports. This list was run on 20 annual reports of previous years using the software to understand and arrive at the exactness of the output of the software. Several words which did not feature in any of the outputs were deleted and many words were altered. The final list comprised of 111 words. Single word analysis: For a single word analysis a list of words which were to be picked was made. The method employed was Selective Concordance. It was important to take care that the Pick List consisted of one word per line. Care had been taken while putting the words because the software treats the upper and lower case separately. So words which were made from the same base were treated and entered as separate entities in the Pick List e.g. employment, employer, employee etc. Phrases Search: A Phrase search helped in selecting and making concordance which kept all instances of the phrases specified and rejecting all other words. Each phrases list could carry up to six phrases and each phrase had to be more than one word and could be up to five words long. The software carried a separate edit box for each of the five words and care had to be taken that not more than one word was entered into individual edit box. The phrases comprised of words like employee satisfaction, environmental protection, high quality products, free or subsidized education etc. The total number of phrases for each stakeholder employees, customers, society, and environment was 65. Results and Analysis The AR is an important document wherein corporate declare their activities and therefore it is considered to be one of the most authentic literature which makes public the activities and actions of the corporate. It announces the areas and variety of involvement which the corporate has engaged into and most often address the appropriate concerns of the respective stakeholders. Of the 46 Indian companies whose websites carried CSR related material, 39 Indian companies has ARs posted on their websites which was the

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 source of getting the ARs whereas amongst the multinationals 42 companies had CSR related material on their websites, and al these had their ARs on their websites. All the companies whose ARs were found had made declarations about all the four stakeholders considered for the purpose of study. In comparison to most other industries in the service sectors in India, disclosure relating to CSR amongst Indian software companies is high because with globalization, focus towards Indian companies with an exposure to the northern economies is high and software industry has been an integral part of such a conglomerate (Arora et al., 2001). To further understand the disclosure and the areas of focus of reporting, the distribution of the disclosure and the spread over the four categories employee, society, environment and customer was studied. Analysing the CSR related content through the quantity of CSD made under the four categories, it was found that both amongst the Indian and the MNCs human resource related disclosures received maximum coverage. Amongst Indian companies, human resource as a stakeholder occupied 53% of the total CSR disclosure and 50% amongst the MNCs was made towards human resources. Human resource receives maximum attention because the growth of the software companies is highly dependent upon the skilled manpower employed and this holds more truth for the Indian companies over their MNC counterparts because the Indian software industry directly employees more than 2.2 million and about 8 million people indirectly (NASSCOM, 2009). With such high involvement of people in the industry it can therefore be understood why human resource as a stakeholder occupy a major component in CSD. Human resources employed with the firm being a primary stakeholder whose continuing participation is very essential for the healthy well-being of the corporation as there exists a high level of interdependence between the corporation and its primary stakeholder (Clarkson, 1995) and therefore several studies (Hackston and Milne, 1996; Amran, 2006; Haron et al., 2006; Murthy, 2008) have reflected similar findings where employee or HR related information is the most disclosed category. ARs carry statements which reflect how integral human resources are to organizations. A few examples are mentioned below:

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 We value our employees contribution and participation immensely who in turn appreciate our efforts to provide holistic development and care.(Infosys) Quality of our human resources charts the success and growth potential of our business.(Moser Baer) We welcomed more than 43,000 new employees and we invested nearly $700 million in training to equip our people with the skills and capabilities needed to serve our clients.(Accenture) For reasons similar to that for the human resources, customers are the next most addressed stakeholders group. The non-financial information especially relating to soft assets (Robb et al., 2001) of which customer related disclosure is of high importance and makes up an important component in the intangible asset monitoring system (Sveiby, 1997). The organizations highlight their target customers groups, discuss the efforts made by the corporations to understand the needs, produce the best service and the benefits that have arisen to the target customer groups on account of which an appreciable percentage of companies are concerned about the products and services they offer to their customers (Teoh and Thong, 1986) As the sector of study involves a huge bandwidth of forms of customer interaction, ranging from direct customer interaction in the form of business process outsourcing, knowledge process outsourcing to more indirect forms like software programming and data management, therefore the emphasis on customers as a target group is interesting to analyze. A few examples of disclosures about customers are mentioned below: Our ability to grow aggressively during these years has demonstrated our ability to serve the immediate concerns of our customers. (Wipro, 2009.) Evolving customer demands have led to the increasing acceptance and use of offshore resources for higher value-added services. (Cognizant, 2009). We are acquiring new customers, connecting them to our solutions, and helping them (Intuit, 2009).

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 The focus upon customers is higher amongst the MNCs over the Indian companies by nearly 8 % which is not too considerable yet the reason for emphasis higher on customers amongst the MNCs over the Indian companies can be attributed to the fact that, most MNCs are based out of North America where they are tuned to catering to a highly aware and rights-consciousness customer group. The country of origin of a company is an influential determinant of the nature and extent of CSD. (Adams, 1999; Adams et al., 1995, 1998; Adams and Kuasirikun, 2000; Andrew et al., 1989; Belkaoui and Karpik, 1989, Cowen et al., 1987; Guthrie and Parker, 1990; Lynn 1992; Nees and Mirza, 1991; Niskala and Pretes, 1995; Roberts, 1990, 1991; Trotman and Bradley, 1981; United Nations 1992, 1994; Nasscom, 2007). The level of awareness and consciousness and the power in terms of legal support to customers is very high amongst western customers is distinctly higher in comparison to the Indian customer group and therefore the MNCs focus upon customers is higher than the Indian companies. There exists a positive relationship between the levels of social disclosure and the stakeholder power (Roberts, 1992). The difference between the two is not very significant though because most big Indian companies have operations abroad and therefore the sensitivity to customers and their rights is distinctly rising. One area where considerable difference is seen in the pattern of CSD between the Indian and the MNCs is environment. The Indian firms fare much higher than the MNCs in the reporting about environment in the AR. About 18% of the Indian firms reported details about the environment whereas 10% of MNCs disclosed details about environment in their AR. The key reason for this could be that most MNCs publish a separate sustainability report where environmental reporting forms a considerable portion and therefore the disclosure about environment in the AR is not made. As against that very few Indian companies publish sustainability reports and therefore they use the AR to disclose about environment as well. Most Indian ARs have a category titled environmental reporting, social disclosure, and sustainability reporting etc where the disclosure about environmental concerns is made. In comparison to the HR related disclosure reporting about environment is very low. The main reason this is that the nature and extent of disclosure depends upon the industry type

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 (Mathew, 1997; Gray, 2002 and Zakimi and Hamid, 2004) and since the software sector does not directly threaten the environmental balance, the attention to disclose issues about environment arent a concern oh high priority. Research has shown that manufacturing companies like chemical, cement, steel or petroleum based industry pay larger attention to environment as against the industries operating in the service sector (Deegan and Gordon, 1996). A few examples of disclosures about environment are mentioned below: Even though the operations of your Company are not energyintensive, adequate measures have been taken to reduce energy consumption by using efficient equipments. (Cranes Software Industries, 2009) The companys operations involve very low energy consumption and therefore the scope of energy conservation is limited. The company has taken steps to conserve electricity consumption in offices.(Accelfrontline Industries, 2009) We believe that we can affect the environment in a positive way through the use of technology. Our view is that everything connected to the network can be green.(Cisco, 2009) Business organizations depend upon the health, stability and prosperity of the communities in which they operate and therefore organizations adopt activities which ensure help in the sustenance of a healthy community. (European Communities, 2001). Since community focused activities are undertaken by organizations therefore they communicate there deeds as well. Disclosure about society or community based issue occupied least importance amongst the Indian companies. With 6% disclosure attributed to societal issues amongst the Indian companies, there is over 10% disclosure regarding society by the MNCs. The present findings can be confirmed by earlier research when Raman (2006) found that community involvement of organizations in India is the least disclosed category. Of the sample less than 50% India companies carried any information about society but in comparison to other companies in India the performance of the software industry is much better since all of them do allot space to the disclosure of their involvement in community building. There exists a

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 direct relationship between civil society and social institutions like NGOs and the organizations involvement in social deeds. Previous studies suggest that NGOs attempt to influence the social disclosure practices in different ways (Tilt, 1994, 2004; Handy, 2001; Hendry, 2004; ODweye r et al. 2004). A few examples of disclosures about community development / society are mentioned below: We adopted the Calvert Womens Principles and reiterated our support for the Ten Principles of the United Nations Global Compact. These actions and many more, speak of our commitment to larger social issues. (Symantech, 2009). In partnership with Rebuilding Together, more than 4,000 Honeywell volunteers have helped improve living conditions for low-income, elderly and disabled individuals in more than 160 homes and community centers. (Honeywell, 2009). The alliance will help reduce the cost of computing in schools by 50 per cent from current levels, thus enabling schools across Indias cities, towns and villages to offer computer education to its students at a reduced cost. (NIIT, 2009) A deeper understanding of the focus areas of the companies towards each stakeholder can be brought out by analyzing the extent of disclosure made towards each of the indentified area. The focus analysis of each stakeholder will be made in order of attention paid to each HR, customers, society and environment. As a commonality between Indian and MNCs, the largest amount of disclosure is made towards HR an item which confirms research studies that employees are the primary stakeholder (Dictionary of Human Resource Management, 2001) but there exists huge variance between Indian and MNCs in their areas of focus towards HR. The key areas identified important for HR and included as a part of CSR though have been put under different nomenclature by different researchers are Employee Benefits (EB), Compensation, Training and Development, Work Culture, Retirement and Gratuity(R&G), Employee Communication,

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Attrition and Retention and Health and Safety. (Clarkson, 1988; 1995). Analysing the disclosures by Indian and the MNCs on these parameters, it can be seen that the MNCs lay emphasis maximum attention (40 %) upon the compensation both in direct form (salary) and the indirect form (rewards and recognition) whereas amongst Indian companies the maximum disclosure has been made retirement and gratuity. In fact, there exists a considerable difference between the Indians and the MNCs on R&G as a head because against 26% disclosure focused on this parameters by the Indians, the MNCs covered it only to 10.45%. Gratuity is the key distinguishing head because the MNC ARs had just 6 occurrence of gratuity and the Indian ARs had a frequency count of 682. The MNCs laid more emphasis on retirement as against gratuity. Focus on Work-Life Balance (WLB) is an area where the MNCs and Indian ARs showed major variance. 149 words pertaining to WLB featured in MNC ARs and 6 words featured in the Indian ARs. WLB strategies like telecommuting and flexible work hours feature up to 35 and 27 times in the MNCs AR whereas they do not have a single occurrence in the Indian AR. Most Indian organizations still function in the traditional physical office modes whereas MNCs have adopted virtual working styles. An example of this is The flexibility of telecommuting, coupled with an expanded labor pool, results in a more cost-effective and versatile agent solution (Convergys, 2009) and to reduce peak levels of commuter traffic; such programs may include, but shall not be limited to, carpools, vanpools and other ride sharing programs, public and private transit, and flexible work hours(Intuit, 2009). This can be validated by earlier research which reflects a similar outcome (Fiona, 2007). Since issues of WLB are of great importance to western way of life therefore its frequency is higher in MNC ARs whereas since Indian companies are still in earlier stages of development therefore organizations also do not pay heed to issues of WLB. Another soft-issue of work culture inclusive of diversity, multiculturalism, universality, culture sensitivity, gender inclusiveness occupies 7 % of the HR content amongst the MNCs and just 2% amongst the Indian companies. A reason for this could be that since MNCs wish to

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 attract local talent and they need to express there openness local culture and different ways of life. These issues do not hold consequence for the Indian companies because the software sector is a lucrative sector to work with and therefore the need to highlight soft positives to attract talent is not felt. A few examples to how MNCs discuss soft HR issues are, Seagate introduced a global employment brand, increasing the companys emphasis on equal employment opportunity and diversity (Seagate Technology, 2009 and These priorities, along with other areas of corporate responsibility such as our work to promote employee diversity and our outreach to local communities, go beyond nice to have initiatives (Symantec, 2009). Training and development of employee talent and skills is essential in the software industry more than other sectors and the MNCs lay considerable more focus on this (10%) than the Indian companies (0.5%).Since product up gradation, innovation and outsourcing has been a natural way of business development in the IT industry (ILO, 2007) imparting technical and soft skill training becomes very important. Further, training leads to mutual benefits enjoyed both by the employees and the organization and organizations use it as a mode to retain employees and maintain high standards of their services. Other researches also indicate a similar finding regarding HR disclosure by companies (Murthy, 2010; Olsson, 2001). MNCs focus on training can be further validated by the fact that the word retention found more occurrence as against attrition while in the Indian ARs the word attrition outnumbered retention. Therefore the focus of MNCs is on retention while concluding from the word occurrence it can be said that the Indian companies still struggling with attrition issues and has not focused upon retention strategies. An example of this is If we do not attract and retain quality employees, we may not be able to meet our business objectives and therefore we have initiatives to grow revenue, such as improving sales training (NCR Corporation, 2009) while an Indian company communicates about training targeted to internal stakeholders in a different manner such as Performance-linked incentives and regular training programmes ensure a low attrition rate among our employees (HCL Infosystems, 2009). Health and safety issues are not highlighted much because the software industry does not belong to the high risk industry category like mining and petroleum where physical injuries can

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 have a great impact and therefore it is not highly discussed in the ARs. Yet in comparison to the Indian companies the MNCs have covered these issues more because health and safety issues are paid great heed to by the western workers. Indian in general are also more callous about health related issues and so a similar reflection in the ARs. Customer as a Stakeholder: Customers are the second group of stakeholders who are disclosed about after HR. It is important to note that HR issues are concerning the primary stakeholders and the internal stakeholders who are of immediate concern but amongst the external stakeholders it is customers who are most attended to in the ARs. It is the accountability perspective due to which corporations are understood as business entities through their management as agents responding and reacting to the concerns of the external parties. (Stanton and Stanton, 2002) Business should be able to satisfy customers crucial buying criteria like price, quality of products, its appearance, taste, availability, safety and convenience (Joshi and Kapoor, 2004; Centre for Corporate Research & Training, 2003). Literature suggests that social responsibility of corporations towards their customers is meted through providing safe and efficacious products which tend to be the needs of the customers and also attend to the grievances without delay (Mathen and Crane, 2004). A detailed understanding of the various heads under which CSR customer related concerns are disclosed will help understand the CSR focus which organizations hold pertaining to customers. We can see that rhetorical words like customer satisfaction, customer delight, customer centric form the majority of the CSR customer related disclosure. Quantified and specific customer related information is negligible. Both the MNCs (89%) and the Indian companies (90%) pay equal insistence upon attributes like customer satisfaction and customer delight. These attributes were not found qualified at most places and the modes through which Indian and MNCs aspire to achieve customer satisfaction are different. The Indian companies focus more upon the price factor of products while the MNCs insist upon product and product quality. Like Rashid and Ibrahim (2002), found in their study that a large

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 percentage of companies where engaged in providing high product and service quality to their customers. Research for sophistication in product quality and efficiency in service delivery is the area of emphasis for the MNCs. The Indian companies have not made path breaking efforts in providing improved products or service but find their unique selling point in providing services which match the international standards at costs which are lower than the international market. This factor of low price has been a key factor in the in attaining the success which the Indian software industry has achieved (Arora et al., 2001). Further the reason for the MNCs focus on products could be because most MNCs in the IT sector included in the study manufacture hardware and IT retail consumer related products like laptops, personal computers and operating programmes like Microsoft etc, where as the Indian companies are more involved in serving customers through back-off functions like data management etc which does not require immediate retail customer contact. This can be verified by the large number of advertisements aired by MNC through mass media channels as against no releases or public attention towards Indian companies. The communication made to customers by the Indian companies is therefore more formal and therefore it finds mention in their ARs as a part of their CSR disclosure whereas the MNCs do include communication to customers as a part of their CSD. 6% indian companies focus upon communication to customers as a part of their corporate social disclosure where information sharing timely and complete as against less than 0.5% MNCs. This information sharing could be a part of mandatory conditions which the Indian companies may have to fulfill for business contracts with their clients in India and more specifically overseas. Therefore this could be solicited, mandatory disclosure and information sharing which is gaining importance in the field of CSD over years (Laan, 209). Irrespective of oppositions and criticisms, voluntary disclosure technically falls into the category of CSD. Society as a stakeholder: The term CSR is often understood as synonymous to working for society or community in which the business exists. Responsibility which business adopts towards society encompasses

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 activities where organizations spend a part of its profit towards civic and educational facilities (Joshi and Kapoor, 2004). Society is an external, secondary stakeholder and has been reported as not featuring very high in the earlier research conducted on CSD. Epstein and Freedman (1994) and Zhang and Han (2008) found social welfare as the category of least importance in the analysis they made through the content analysis of annual reports disclosures. The total number of appearance of society related disclosure is very limited. This primarily could be because the IT companies disclose less society related information than other industries because the debate about the impact of industry on society is minimal or nearly missing in this sector (Tagesson et al., 2009). Within the minimal CSR disclosure relating society, the MNCs output is double as against the Indian corporations. The focus of the MNCs is clearly towards the affected members of society indicating a concern of the immediate community and members who bore the brunt of the business activity. The focus of the Indian companies is also not very different because the occurrence of community related words are marginalized members and society etc. There is a better spread and a more distinct disclosure which the Indian companies make regarding society because they talk about community development and community services while detailing about areas of work like hospitals which the MNCs do not do in as much detail. The key activities which both the Indian and the MNCs are involved into are healthcare and education. Both these sectors are obvious choices because India lags behind in these two fields. Education becomes a preferred sector also because the IT sector hires academically sound and technically qualified personnel who can be included in extending similar services to the community around and such training may help in generating employment as well. Empowerment as a word is found in 16 Indian ARs which could indicate and substantiate the fact that, CSR activities related to society, of certain Indian companies is aimed at creating self-sufficient programmes so that the members of the community towards who they are targeted become empowered. There is no occurrence of this word in the MNC ARs.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Environment as a stakeholder: Disclosure regarding environment is mandatory for all companies operating in India. In 1991, Government of Indian (GOI), made the first public announcement about the need for all companies to make environmental disclosure in the ARs. It is also mandatory for Indian companies to report about conservation of energy, technology absorption etc. in accordance with the provisions of Section 217(1) (e) of the Indian Companies Act 1956. As per the Companies Act the annual accounts of companies should be prepared in accordance with the accounting standards issued by ICAI (Chatterjee, 2005). Specific guidelines for reporting environmental issues to different stakeholders are not available for Indian companies. KPMG (2008) survey reflects a dramatic rise in the number of companies reporting environment globally but it is pronounced in developed nations while in developing nations the environmental reporting is random and sporadic. The total amount of environment related CSR disclosure is double amongst the Indian companies over the MNCs because majority of the Indian companies do not publish a separate sustainability reports and therefore they report their environment related activities through the ARs whereas the MNCs talk about environment through their sustainability reports. The word energy and conservation were among the highest featured words both among the Indian and the MNCs because the functioning of the IT sector is heavily dependent upon the use of energy primarily electrical energy for running the servers, computer systems and air conditioning big building. Therefore conservation of energy is one of the key areas of environment where CSR activities are targeted at. Use of alternate means of energy like solar and green buildings enabling extensive use of natural light and air is the medium through which environmental CSR activities are catered to. It is also noteworthy that the word pollution and emissions do not feature much because the sample under study includes IT and ITES companies which do not pollute the environment through direct emissions in air. The nature and extent of CSR disclosure depends upon the industry type and therefore nonmanufacturing sector does not focus upon environment and society as a

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 stakeholder is paid to attention to along with HR and customers. (Mathew, 1997; Gray, 2002 and Zakimi and Hamid, 2004). Conclusion CSR communication made through annual reports clearly reflects that both the Indian companies and the MNCs target the human resource and the customers as their audience for CSR communication but the focus differs and MNCs are more inclined towards communicating the softer and quality driven aspects of HR and customers respectively whereas the Indian companies offer more details about monetary benefits and price advantages they offer to the HR and the customers. Reference Abbott, W.F. and Monsen, R.J. (1979). On the measurement of corporate social responsibility: self-reported disclosures as a method of measuring corporate social involvement. Academy of Management Journal, Vol. 22 No. 3, pp. 501-15. Adams, C.A. (1999). The Nature and process of corporate reporting on ethical issues. CIMA Research Monograph, CIMA, London. Adams, C.A.; Hill W.Y. and Roberts, C.B. (1995). Environmental employee and ethical reporting in Europe. ACCA Research Report No 41, ACCA, London. Adams, C.A.; Hill W.Y. and Roberts, C.B. (1998). Corporate social reporting practices in Western Europe: legitimating corporate behavior. British Accounting Review, Vol. 30 No. 1, pp. 1-21. Adams, C.A. and Kuasirikun, N. (2000). A comparative analysis of corporate reporting on ethical issues by UK and German chemical and pharmaceutical companies. European Accounting Review, Vol. 9 No. 1, pp. 53-80. Adams, C. (2002). Internal organizational factors influencing corporate social and ethical reporting Beyond current theorizing. Accounting, Auditing and Accountability Journal, Vol. 15, No. 2, pp. 223-250. Alsop, R. (2002). Perils of corporate philanthropy: touting good works offends the public, but reticence is misperceived as inaction. [Electronic

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Version]. The Wall Street Journal. Retrieved 9th June, 2011, from http://www.reputationinstitute.com/press/WSJ_Perils_16Jan2002.htm. Amran, A. (2006). Corporate social responsibility in Malaysia: an institutional perspective. Ph.D. thesis, Univeristy of Malaysia. Andrew, B.H., Gul F.A., Guthrie J.E. and Teoh, H.Y. (1989). A note on corporate social disclosure practices in developing countries: the case for Malaysia and Singapore. British Accounting Review, December, pp. 371376. Anderson, C. and Imperia, G. (1992). The corporate annual report: a photo analysis of male and female portrayals. The Journal of Business Communications, Vol. 22 No. 2, Spring, pp. 113-28. Arora, A, Arunachalam, V.S., Asundi, J. and Fernandes, R. (2001). The Indian software services industry. Research Policy, Vol. 30 No. 8 pp. 1267-1287. Bhattacharya, C. B., & Sen, S. (2004). Doing better at doing good: when, why, and how consumers respond to corporate social initiatives. California Management Review, Vol. 47, No. 1, pp. 9- 24 Belkaoui, A. and Karpik, R.G. (1989). Determinants of corporate decision to disclose social information. Accounting, Auditing and Accountability Journal, Vol. 2, No. 1 pp. 36-51. Brown, T., & Dacin, P. (1997). The company and the product: corporate associations and consumer product responses. Journal of Marketing, Vol. 61, No. 1, pp. 68-84. Centre for Corporate Research & Training, (2003). Centre social responsibility: initiatives of NSE Nifty companies: content, implementation strategies and impact, available at www.nseindia.com, accessed on Oct, 2010. Chatterjee, B. (2005). Global convergence of financial reporting standards: implications for India. Indian Accounting Review. Vol. 9, No. 1 pp. 29-54. Clarkson, M. B. (1988). Corporate social performance in Canada, 19761986. In L.E. Preston (ed.) Research in corporate social performance and policy, vol. 10 241-265. Greenwich: JAI Press.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 ----------- (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, Vol. 20 No. 1 pp 95-117 Cowen, S.S., Ferreri, L.B. and Parker L.D. (1987). The impact of corporate characteristics on social responsibility disclosure: a typology and frequency based analysis. Accounting Organizations and Society, Vol. 12 pp. 285-313. Dagiliene, L. (2010). The Research of Corporate Social Responsibility Disclosures in Annual Reports. Engineering Economics, Vol. 21, No. 2 pp 197-204. Deegaan, C. and Gordon, B. (1996). A study of the environmental disclosure practices of Australian corporations. Accounting and Business Research, Vol. 26, No. 3, pp. 187-199. Deegan, C. and Rankin, M. (1996). Do Australian companies report environmental news objectively? an analysis of environmental disclosures by firms prosecuted successfully by the environmental protection authority. Accounting, Auditing & Accountability Journal, Vol. 9 No. 2, pp. 50-67. Epstein, M. and Freedman, M. (1994). Social disclosure and individual investor. Accounting, Auditing and Accountability Journal, Vol. 7, No. 4, pp. 94-109. Ernst and Ernst (1978). Social responsibility disclosure surveys. Cleveland: Ernst & Ernst. Esrock, S. & Leichty, G. (2000). Organization of corporate web pages: publics and functions. Public Relations Review, Vol. 26, pp. 327343. European Communities (2001). Promoting European framework for corporate social responsibility. Green Paper. Available at www.europa.eu.int, accessed on 20th November, 2010. Fiona, M. (2007). Work-life balance: contrasting managers and workers in an MNC. Employee Relations, Vol. 29 Issue 4, pp. 385-399. Gray, R.H., Kouhy, R. and Lavers, S. (1995). Constructing a research database of social and environmental reporting by UK companies: a

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 methodological note. Accounting Auditing and Accountability Journal, Vol. 8 No. 2, pp. 78-101. Gray, R. (2002). The social accounting project and accounting organization and society privileging engagement imaginings, new accountings and pragmatism over critique? Accounting Organization and Society, No. 27, pp. 687-708. Grunig, J.E. (1992). Excellence in public relations and communications management. Hillsdale: Lawrence Erlbaum. Guthrie, J.E. and Mathews, M.R. (1985). Corporate social accounting in Australasia. Research in Corporate Social Performance and Policy, Vol. 7, pp. 251-77. Guthrie, J. E. and Parker, L.D. (1990). Corporate social disclosure practice: a comparative international analysis, Advances in Public Interest Accounting, Vol. 3 pp. 159-75. Hackston, D. and Milne, M. (1996). Some determinants of social and environmental disclosures in New Zealand companies. Accounting, Auditing and Accountability Journal, Vol. 9, No. 1 pp. 77 -108. Handy, F. (2001). Advocacy by environmental nonprofit organizations: an optimal strategy for addressing environmental problems? International Journal of Business Ethics, Vol. 27, No. 2 pp 55-68. Haron, H., Ibrahim, D., Ismail, I., Hoo Q., Ali, N., Zainuddin, Y., Nasruddin, E., Said,R., Hariri, H. (2006). Governance , ethics and corporate social responsibility of public listed companies in Malaysia. A Research Report on CSR , submitted to Institut Integriti Malaysia and IIMMAREF Malaysia (unpublished) Hendry, J.R. (2004). Influential environmental stakeholders: a grounded model of process for effecting change. In M. Starik and S. Sharma (eds.), New Perspectives in Research on Corporate Sustainability: Stakeholders, Environment and Society. Northamptom, MA: Edward Elgar, pp. 62-92. Hines, R.D. (1988). Managing accounting: in communicating reality we construct reality. Accounting, Organizations and Society, Vol. 19, No. 3, pp. 251-61.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Holsti, O.R. (1969). Content analysis for the social sciences. London: Addison Wesley. Hopwood, A.G. (1996). Introduction in Accounting Organization and Society, Vol. 21, No. 1 pp. 55-56. ILO (2007). Recent developments on corporate social responsibility (csr) in information and communication technology (ict) hardware manufacturing. Multi Working Paper Number 103. Multinational Enterprises Programme Job Creation and Enterprise Development Department. International Labour Office Geneva Joshi, R. & Kapoor, S. (2004). Business environment. Ludhiana: Kalyani Publishers. KPMG. (2008). International survey of corporate responsibility reporting. Amsterdam: KPMG Global Sustainability Services. Krippendorf, K. (1980). Content analysis: an introduction to its methodology. New York: Sage. Laan, S. (2009). The role of theory in explaining motivation for corporate social disclosures: voluntary disclosures vs solicited disclosures. The Australian Accounting Business & Finance Journal, Vol. 3 No. 4 pp. 1529. Lynn, M. (1992). A note on corporate social disclosure in Hongkong. British Accounting Review, June pp. 105-10. Mathew, M.R. (1997). Twenty-five years of social and environmental accounting research is there a silver jubilee to celebrate? Accounting, Auditing and Accountability Journal, Vol. 10, No. 4 pp. 481-531. Matten, D., Crane, A., & Chapple, W. (2003). Behind the mask: revealing the true face of corporate citizenship. Journal of Business Ethics, 45(1-2), 109-120. Morsing, M. (2006). CSR as strategic auto-communication on the role of external stakeholders for member identification. Business Ethics: A European Review, Vol.15, No. 2, pp. 171-182.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Murthy, V. (2008). Corporate social disclosure practices of top software firms in India. Global Business Review, 9:2 pp. 173-188. MOSZ (2007). Communication and Public Relations Section, Social Communication Departement: V. Europen PR-Debate Day, 2007. Retrieved from http://budapest.mconet.biz/belfold/ajanlas_a_csr_a_szervezetek_tarsadalmi _felelotildessegvallalasa_ertelmezesere_19_358994.html, on 9th June, 2011. Ness, K.E. and Mirza, A.M. (1991). Corporate social disclosure: a note on the test of the agency theory. British Accounting Review, September, pp. 211-218. Niskala, M. and Pretes, M. (1995). Environmental reporting in Finland: a note on the use of annual reports. Accounting Organizations and Society, August, p 457-68. NAA (National Association of Accountants) (1974). Accounting for corporate social performance: measurement of costs of social actions. Management Accounting, No. 56 (September) pp. 2-8. Nasscom, (2007). Catalyzing Change. Nasscom Foundation, New Delhi. NASSCOM (2009). Indian IT-BPO industry 2009: NASSCOM analysis. from http://www.nasscom.in/upload/5216/IT_Industry_FactsheetMar_2009.pdf retrieved on 2nd November, 2010. ODwyer, B. Unerman, J. and Hession, E. (2004). The emergence and future development of corporate social disclosure in Ireland: the perspectives of non-governmental organizations. Fourth Asia Pacific Interdisciplinary Research in Accounting Conference, Singapore, 4-6 July, 2004. Olsson, B. (2001). Annual Reporting Practices: Information about Human Resources in Corporate Annual Reports in Major Swedish Companies, Journal of Human Resource Costing and Accounting , Vol. 6 No. 1 pp. 3952. Rashid, Z & Ibrahim, S. (2002). Executive and management attributes towards corporate social responsibility in Malaysia. Corporate Governance, Vol. 2 No. 4 pp. 10-16.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Robb, S.S.G., Single L.E. and Zarzeski, M.T. (2001). Non-financial disclosure across Anglo-American countries. Journal of International Accounting, Auditing and Taxation, Vol. 10, pp. 71-83. Roberts, C. B. (1990). International Trends in Social and Environmental Reporting, ACCA Occasional Research Paper, No.6, ACCA, London. Roberts, C. B. (1991). Environmental disclosures: a note on reporting practices in mainland Europe. Accounting, Auditing and Accountability Journal, Vol. 3 pp. 62-71. Sandhu, H. and Kapoor, S. (2008). Corporate social responsibility initiatives: an analysis of voluntary corporate disclosure. South Asian Journal of Management, Vol. 4, No. 2, pp. 130-140. Sen, S., & Bhattacharya, C. B. (2001). Does doing good always lead to doing better? consumer reactions to corporate social responsibility. Journal of Marketing Research, Vol. 38(May), pp. 225-243. Schmidheiny, S. - Holliday Jr., C. O. - Watts, P. (2002): Walking the talk: the business case for sustainable development. Greenleaf Publishing, Sheffield & Berrett-Koeler Publishers San Francisco. Stanton, P. and Stanton, C. (2002). Corporate annual reports: research perspectives used. Accounting, Auditing and Accountability Journal. Vol. 15, No. 4 pp. 478-500. Sveiby, K.E. (1997). The new organizational wealth: managing and measuring knowledge-based assets. Berrett-Koehler, San Francisco, CA. Tagesson, T., Blank, V., Broberg, P., Collin, S. (2009). what explains the extent and content of social and environmental disclosures on corporate websites: a study of social and environmental reporting in Swedish listed corporations. Corporate Social Responsibility and Environmental Management, Vol. 16, pp. 352-364. Tilt, C.A. (1994). The influence of external pressure groups on corporate social disclosure: some empirical evidence. Accounting, Auditing and Accountability Journal, Vol. 7, No. 4 pp. 47-72.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 ------(2004). Influences on corporate social disclosure: a look at lobby groups en years on (research paper; Adelaide, Australia: Flinders University. Theoh, H and Thong, G. (1986). Another look at the corporate social responsibility and reporting: an empirical study in a developing country. Malaysian Management Review, Vol. 21 No. 3 pp. 36-51. Trotman, K.T. and Bradley, G.W. (1981). Associations between social responsibility and characteristics of companies. Accounting, Organizations and Society, Vol. 6 pp. 355-62. Unerman, J. (2000). Methodological issues -reflections on quantification in corporate social reporting content analysis. Accounting, Auditing and Accountability Journal, Vol. 13 No. 5 pp. 667-681. United Nations. (1992). Environmental disclosures: international survey of corporate reporting practices. United Nations Economic and Social Council E/C.10/AC.3/1992/3, New York, NY. Votaw, D. (1973). Genius becomes rare. In D Votaw and SP Sethi (eds). The corporate dilemma: traditional values versus contemporary problems, pp. 1145. Englewood Cliffs, NJ: Prentice-Hall. WBCSD (World Business Council for Sustainable Development). (2002). Sustainable development reporting: striking the balance. http://www.wbcsd.ch/DocRoot/GGFpsq8dGngT5K56sAur/20030106_sdre port.pdf Retrieved on 12th October, 2010 Williams, S.M. and Pei, C.H.W. (1999). Corporate social disclosures by listed companies on their web sites: an international comparison. The International Journal of Accounting, Vol. 34 No. 3, pp. 389-419. Zhang, Z., & Han, F. (2008). Analysis of accounting disclosure model for strengthening corporate social responsibility. International Journal of Business and Management, 3(9), 157-161. Zamiki, F. and Hamid, A. (2004). Corporate social disclosure by banks and finance companies: Malaysian evidence. Corporate Ownership and Control, 1(4): pp. 118-30.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Zeghal, D. and Ahmed, S.A. (1990). Comparison of social responsibility information disclosure media used by Canadian firms. Accounting, Auditing & Accountability Journal, Vol. 3 No. 1, pp. 38-53. Table 1: Number of Indian and MNCs Disclosing CSR Indian (46) No. of Percenta Companies ge Human Resource Society Environment Customer 39 39 39 39 84.78 84.78 84.78 84.78 MNC (42) No. of Percenta Companies ge 42 42 42 42 100 100 100 100

Table 2: Disclosure of each stakeholder Indian Total No. of Percenta words ge Human Resource Society Environment Customer Total 3109 357 1046 1300 5812 53.49% 6.14% 18.00% 22.37% 100.00% MNC Total No. of Percenta words ge 3500 661 712 2061 6934 50.48% 9.53% 10.27% 29.72% 100.00%

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 3: Details of Disclosures about Human Resources Categories in HR General Terms like Labour, Workforce, Workgroup, Personnel, HR Benefits (Employee Welfare , Group Insurance), Compensation, rewards & Recognition, Pay, Work Life Balance, Day Care, Telecommuting, Flexible Work Hours, Training and Development Work Culture, Work Environment, Health and Safety, Diversity, Universality, Inclusion, Equality, Multicultural Indian Frequency % MNCs Frequency %

867

27.89

765

21.86

832 17

26.79 0.567

1397 356

39.91 10.17

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1.7

241 366 150 148 68

6.89 10.46 4.29 4.23 1.94

836 Retirement, Gratuity 26.89 339 10.92 Employee Communication 129 4.15 Attrition, Retention 27 0.87 Health and Safety Other issues (Employee Engagement; Job Satisfaction, Team Work) 9 0.3 Total 3109 100% (*) The total may exceed 100 due to rounding offs

9 3500

0.25 100%

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 4: Details of Disclosures about Customers Categories for Customers Promotion; Communication to Customers (Advertisement, Sponsorship) 87 6.16 Product (High Quality Product, Safe Products, Consistent Quality, Researched Products, Innovative Products, Quality Assurance) 0 0 Price (Affordability, Low price Products, Competitive Price) 52 3.68 Place (On-time delivery, Global Availability, Local Availability, Accessibility) 0 0 Others (Customer Satisfaction, Customer Delight, Customer-centric, Buyers) 1273 90.16 Total words 1412 100 (*) The total may exceed 100 due to rounding offs Indian Frequency % MNC Frequency %

0.48

204

10.47

1738 1949

89.17 100

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 5: Details of Disclosures about Society Society Indian MNC Categories for Society/ Community Frequency %(*) Frequency Affected Members of Society 70 17.67 489 Community Development, Community Service 112 28.28 123 Empowerment 16 4.04 0 Hospitals, Medical Health 8 2.02 6 Society, Community living Marginalized Members , Disadvantaged 190 4 47.98 Total words 396 100 622 (*) The total may exceed 100 due to rounding offs Table 6: Details of Disclosures about Environment Environment Indian Categories for Environment Frequency %(*) Climate Change 1 0.084 Green House 1 0.084 Zero Waste 1 0.084 Material Balance 2 0.17 e-waste Management 3 0.25 Recycle 3 0.25 Carbon Credits 5 0.42 Carbon Footprints 11 0.92 Pollution 11 0.92 Reuse 12 1.00 Emissions 46 3.85 Green 65 5.43 Sustainability 83 6.94 Conservation 114 9.53 Environment 405 33.86 Energy 433 36.20 Total words 1196 100 (*) The total may exceed 100 due to rounding offs MNC Frequency 0 0 0 0 0 1 3 7 7 8 15 16 27 32 123 323 562

%(*) 78.62 19.77 0 0.96

0.64 100

%(*) 0 0 0 0 0 0.18 0.54 1.25 1.25 1.42 2.67 2.85 4.80 5.69 21.89 57.47 100

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011

Why Indian Companies Indulge in CSR?

Shweta Verma*
Abstract Corporate Social Responsibility (CSR) is most talked about issue these days in Indian corporate sector. Indian companies have different motives and views about CSR as some believe that it is just a window dressing and is not going to help the growth and profitability of business. In addition, many companies have a view that CSR improves the image of company and helps in long-term sustainability of the business. These views raise a question on the requirement and importance of CSR in India. It is important to understand how and why companies adopt CSR activities in spite of expenses involved. This paper analyzes the motives and benefits of Corporate Social Responsibility initiatives of Indian companies. Keywords: Corporate Accountability, Social Responsibility Investing, Business Ethics Introduction India is spreading its wings all over the world and corporate sector is trying its level best in competing with international market. Many steps have been taken by companies to show a different image of their businesses. One of such steps is corporate social responsibility. There are many studies conducted on social aspects of business in India and findings suggest that most of Indian companies believe that the first responsibility of the company is towards shareholders then to employees, customers and society. One of the surveys conducted by Louis on social problems of 350 executives polled by Fortune magazine showed that 10% felt that main aim of every business is to make profit. And 17% said that business should assume social responsibility even at the cost of reduced profits. And major part of respondents pretends that they are involved in social programs.

Research Scholar, Shri Jagdish Prasad Jhabarmal Tiberwala University, Jhunjhunu, Rajasthan (India) E-mail: shwetaresearch.verma@gmail.com

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 The World Business Council for Sustainable Development in its publication "Making Good Business Sense" by Lord Holme and Richard Watts, used the following definition. "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large." Every company aims to satisfy its stakeholders and understand its obligation towards each stakeholder. One of such responsibility Indian corporate sector has assumed is CSR i.e. responsibility towards society, Corporate Social Responsibility is a concept where a business does something to influence the society in a positive way in its regular course of business. This could be in the form of volunteer assistance programme, henceforth initiative community relationship, special training and education and working for backward communication etc. The basic aim is to contribute something to the society for whatever has been given by society. Companies define CSR in their own definition. Most of the companies do not believe in positive aspects of CSR but many companies do. Objective of Study To understand the concept and meaning of CSR activities via a literature review and definitions given by corporate executives. The paper aims to analyze the motivational factors of CSR activities To understand and analyze investors view on SRI and how far SRI helps corporate sector. Research Methodology The study is primarily based on secondary data but for the better understanding of the concept and actual scenario of SRI (social responsibility Investing) a semi structured interview will be conducted from 150-160 investors. The investors will be those investors who are very keen of investments and do a close study before investment on every aspect of proposed business. The questionnaire will be administered to Delhi based investors only. For secondary data following sources are consider for the betterment of study:

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 - Website of ITC, Godrej, Ashoka Leyland, TCS, Wipro, Tata Group and TNS research organization and Times foundation, which conducted a survey of CSR in India, will be consider for proposed study. - Various professionals from the companies will be consulted for their contribution in successful completion of this study. Literature Review Researchers have defined corporate social activities in different ways and gives different opinion too. Some of them have a strong belief in positive aspects of CSR and many are completely against it. Thus, the literature on corporate social responsibility can be divided into four highly stylized models: 1) minimalist 2) philanthropic; 3) encompassing and 4) social activist conceptions of corporate social responsibility as suggested by Richard M Locke in his note on Corporate citizenship in a Global Economy. Motivation Instrumental Minimalist Encompassing

Shareholders Beneficiaries Stakeholders

Moral/Ethical Philanthropic Social Activist

(Source: Corporate citizenship in a global economy by Richard M Locke, Sloan School 50th Anniversary Celebration). Minimalist is traditional model where management aims to maximize the wealth of shareholders. Considering this model, Milton Friedman, an economist state that social responsibility of b usiness is to increase the wealth of shareholders. Extension of minimalist model is Philanthropic concept, which focuses on acting morally and ethically in the interest of shareholders. In addition, according to encompassing model, management shows responsibility towards other stakeholders such as employees, customers, suppliers and local communities. Thus, management must take into consideration the interest of these groups while taking management decisions.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Further, as far as social activist model is concerned, corporate citizenship extends to the boundaries of supposed beneficiaries beyond those groups directly affected by company decision making and society at large. All different types of CSR activities can be put in different models to understand the relevance of practice and its treatment. Big and well established companies by performing well contribute a lot towards society in the form of economic development. Reliance, Tata and such other companies are creating employment, productivity and improving welfare thus does such company need to spend on other social activities? These are some other issues attracting corporate to think over requirements of CSR in their businesses. Secondly, it is also argued that companies pay higher taxes and that tax is the major source of revenue for social activity which should be and will be performed by government of concerned country. In other words, social responsibility is the responsibility of government not an individual. Some critics, such as Milton Friedman, would argue that a corporations principle purpose is to maximize profits for its shareholders, but only within the context of the law and morality (Trivedi & Kaur). Similarly Berumen suggests that a business is property belonging to the owners, not stakeholders, and thus owners have full right to decide for property i.e. to use it for society or for making profit. Martinez and Agero(2005) in their paper The Why, When, And How Of Corporate Social Responsibility consider Greenfields stimulating artic le and agreed that companies cannot be forced to get into corporate social responsibility. It should be independent initiative on part of the companies. To do otherwise, as Friedman has pointed out (1970), would be to abandon our model of a free society and move towards the corporate state. Business earlier was all about profit but now the system has changed a lot. Kunal Basu, author and academician in his article stated society does not exist for business, but business exists for society. Smart people are challenged not to make more profit but to solve societys major problems. As the culture and regulatory system of Indian economy is changing, the

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 way of running a business is also changing. Investors recognize and appreciate companies, getting into social activities. CSR is becoming of utmost importance in gaining market image and for getting better rating. Credit rating agencies consider CSR initiative of companies for rating and in result; it gives positive impact in the mind of investors too. Both scientific evidence (Margolis and Walsh, 2003; Orlitzky et al., 2003; Waddock and Graves, 1997), and consumer reaction (McWilliams and Siegel, 2001), have signaled to firms that their participation in CSR is likely to be rewarded, resulting in improved performance. In India all kinds of companies are showing interest in social activities in one or other way. Small firms are doing social responsible activities in their regular course of business i.e. without spending anything. E.g showing awareness in the promotional advertisements about AIDS. In addition, large firms apart from such practices are spending a lot on establishing schools, hospitals and health care centre for poor people. Thus, most of the companies take initiative and show some kind of social responsibility. There is an argument that CSR can afford by big and well established companies and thus small size companies are not very active in CSR activities. Researchers have come up with various ways of motivating small size firm to actively participate in CSR. Krishna Udayasankar, 2007 in study shown that how size of the firm is related to CSR initiative. He argued that firm with high visibility participate more in CSR activities and firms with less visibility can be motivated for CSR. The marginal utility of enhanced legitimacy or positive reputation is possibly greater for less visible firms than for firms with higher visibility. Given that CSR is a potential source of legitimacy (Hooghiemestra, 2000; Shepard et al.,1997), and also that legitimacy substantially enhances firm performance (Oliver, 1991), it is likely that less visible firms will also attempt to gain legitimacy, wherever possible. Small firms with less visibility, less resources and small scale are motivated to do CSR as it can give visibility and access to resources. Large firms however may avoid CSR due to the pressure from shareholders for profit distribution. Commenting on social responsible activities, Robert B Reich, argued that there is a difference in corporate social responsibility and companys steps

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 towards its stakeholders. A step towards reduction in labor turnover should not be treated, as CSR rather should be considering as smart business. There should be a difference between management objective and social responsibilities. Dow Chemical reduces its carbon emission so it can be lower its energy costs. McDonalds employs more humane slaughtering techniques, which prevent costly worker injuries and yield more meat. Such steps are not considered as social responsible but a management practice. Thus, the companies which are taking such steps, which helps in reduction of expense and maximizing profit under the sheds of society should not be, consider as CSR. European Union defines CSR as a program in which companies decid e voluntarily to contribute to a better society and a cleaner environment similarly Hopkins in an International Labor Organization discussion paper states that CSR is concerned with treating stakeholders of the firm ethically or in a responsible manner. CSR cannot be defined in clear term rather can be determine through type of activity, company is performing. Motivational Factors Companies are now more concerned with making better image for competing in the market rather profits because good image or goodwill in the market provide long term sustainability. Thus, this has become the main objective of corporate sector. Corporate social responsibility makes the positive image of a company and thus goodwill is one of the important motivational factors. It is assumed that a company, which is sustainable, will be less risky than one is not. And sustainability is possible only when its stakeholders or society are accepting it in a positive way. Companies have to spend something to perform social responsible activities and thus affect the financial position. Shareholders sometime raise question for such avoidable expenses and thus it become a dilemma for management to either plan for sustainability or for shareholders satisfaction. It has become very importan t for the corporate sector to create awareness about CSR benefits. Indian companies are actively participating in CSR activities in spite of the fact that it is legally not required. ITC via its e-chaupal has proved Indian corporate sector initiative in CSR. Infosys, Godrej, Asian Paints, Zee Entertainment

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 and Wipro are few names in CSR followers. Figure 1 depicts factors motivating the companies to spend on CSR activities. Corporate social responsibility makes the competitive image of the company which in result improved the share value as investors start taking that stock in positive way and trade in that particular stock which enhances the market value of shares. Seeing improving market value of shares the confidence of investors in that stock improved and thus company gain in the form of higher stock price. Customer of such company also start trusting on the products that company produces and thus it maximizes the sales, which in results bring more business. Enhanced business invite strategic alliance and thus government also attracted towards such companies to support to in the form of regulatory flexibilities and financial flexibilities. All such benefits come from small expenses incurred by firm on social activities. The only thing which management have to do is to convince and aware its shareholders about such benefits of CSR. All such benefits become motivational factors for non-followers of CSR practices. One of such example is of IOCL where Thanks Marketing campaign, which the corporation ran in 2009 to promote the fact that it, had become a Fortune 500 company. CSR in Indian Companies CSR is not new for Indian corporate sector; TATA and Birla are employing CSR activities since long time when the concept of CSR was not known to society. India has been ranked second in global corporate social responsibility (TNS). Today, companies are feeling that their contribution to the society can bring an important change in their business, they purposefully getting into such practices. Companies in India adopt various ways of CSR either through spending some money or through usual course of business. While promoting their product, they aware society for social cause. Tata tea in its campaign Har Subha Sirf Utho Mat Jago Re focuses on consumer intellect to awaken to what is around them; this campaign personifies a steaming hot cup of tea beyond a revitalizing beverage to an act of awakening through the social awareness. This ad has targeted the Indian youth who is eligible to vote, in turn to make them prospective consumer.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Similarly, many companies act beyond just awareness program, they spend huge amount of money on making schools, hospitals and colleges. GSPCs societal development is one of the top priorities for Gujarat State Petroleum Corporation (GSPC). A societal welfare trust under the aegis of the GSPC group contemplates to provide educational support to the children hailing from the economically weaker class of the society. Its focus area are educational support to the children hailing from the economically weaker class of the society, AIDS prevention, girl child education, sports and community development (Planken, Sahu and Nickerson). The number of companies, complying social responsibility are increasing, Table 1 indicates the number of Shariah compliant companies in India. There are number of companies in India following CSR practices and spending good amount of profit of social activities. Table 2 presents the CSR activities of Indian corporate sector as provided by Karmayog.com for the year 2007-08. The list of companies is too long which shows the tendency of Indian corporate sector to take active part in CSR. However, it is noted that many companies are not accomplishing the target of CSR budget. Two percent of sales were recommended to incur on CSR and almost all the companies have incurred less. The companies, which are involved in CSR practices, do not provide CSR reports and those, which are published, provide only qualitative information, which may or may not be reliable and useful. CSR is becoming an important factor for credit rating agencies too and many companies are awarded for their CSR initiative. In an award, function that happened recently, Hyundai Motor India Ltd (HMIL), the country's second largest car manufacturer and the largest passenger car exporter was awarded, the Best Corporate Social Responsibility award for 2009-10. The Steel Authority of India Ltd (SAIL), the country's largest steel company, spent Rs100 crore on CSR last year; this was 2% of its profit after tax, exclusive of dividend tax, according to SAIL spokesperson N.K. Singhal. Yet others, such as Tata Steel Ltd, which runs a 850-bed hospital and rural projects in 800 villages around Jamshedpur, spends an average of Rs150 crore as part of its annual revenue expenditure. Such awards and recognition helps the companies to make positive image.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 There is still long way for Indian corporate to go for corporate social responsibility. In spite of investment in CSR activities, companies still are not getting required advantage of such management decision. Lack of government support and lack of awareness among public is a roadblock in its development. Many managers believe that one should not adopt what is perceived expensive. In addition, customers are interested in the product not in the production process. Thirdly, most of the entrepreneurs in India are handling family business where education and awareness is limited to business only. On the other side corruption, violation of rules and corporate malpractices in India is a clear picture of seriousness of CSR in India. There are number of companies, which do not follow pollution standards. Thus, the growth and development of CSR in India is slow in comparison to other countries. Social Responsibility Investing (SRI) Socially responsible investing, also known as sustainable, socially conscious, or ethical investing, describes an investment strategy, which seeks to maximize both financial return and social good. Social responsible investing is very popular term in developed countries. Trend report 2010 shows an increase in SR mutual fund (Table 3). Assets in socially screened mutual funds identified by the Trends Report grew by 19 percent, to $162 billion, up from $136 billion in 2001. More than half (51 percent) of this growth is attributed to both newly identified and newly created funds, and 49 percent represents growth in existing assets. A broad-based approach to investing now encompasses an estimated $3.07 trillion out of $25.2 trillion in the U.S. investment marketplace today. SRI recognizes that corporate responsibility and societal concerns are valid parts of investment decisions. As of 2010, there were 250 socially screened mutual fund products in the US, with assets of $316.1 billion. By contrast, there were just 55 SRI funds in 1995 with $12 billion in assets. However, in India its presence needs to be tested. There are some investment vehicles where the funds are invested in firms that are not affecting society in any of negative way. It avoids companies producing tobacco, alcohol and gambling for investment and seeking out companies engaged in environmental sustainability and alternative energy/clean technology efforts. The first socially screened mutual fund,

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 the Pioneer Fund, was founded in 1928. This fund excluded investments in the alcohol and tobacco industries. Higher returns and improving performance of such investment shows the popularity of CSR in the country. Ethical consumerism is the concept where consumers are ready to pay premium for products that are consistent with their personal values. This concept is very popular in US and Europe and thus SRI is showing tremendous growth in these countries. There was 1200% growth in socially screened portfolio from 1995 to 2003 in US. The KLD 400 Social Index, a social version of the S&P 500, has matched broad market indexes over the years, and so far in 2009 is actually producing slightly better returns and accordingly guides market to invest in. In India we have Taurus ethical mutual fund which is based on Islamic Shariah which avoid investment in companies producing alcohol, gambling and tobacco. Taurus Ethical Fund is the only actively managed Shariah Compliant Fund in India, which gives the possibility to outperform the benchmark index - S&P CNX 500 Shariah Index. KOTAK INDIAN SHARIAH FUND is another shariah based SRI fund, which avoid investment in the securities of companies whose main business involves one or more of the following: (a) Banking, Insurance, Brokerage and Financial Services (b) Hotels, gambling and entertainment (c) Liquor, tobacco and drugs (not pharmaceuticals) (d) Offensive weapons and arms related sectors (e) Manufacturing and processing pork related products. It is however observed that the performance of SRI in India is not up to the standard or expectations. The sensitivity of the developed market towards issues that could affect the human race is still alien or new to Indian investors though. Several SRI funds cater to investors with an ethical bend of investment preferences. SRI funds, currently, have $3 trillion in assets across the globe. In the US, about $2 trillion (or 9% of total assets under management) is in SRI funds, while in Europe the corresponding figure is about $1 trillion.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Indian investors are not ready for SRI funds as yet. There is a feeling (even among high net worth investors) that fund managers will compromise on returns for the sake of meeting social objectives. (Table 4). Findings In India, adopting Islamic finance system is not easy but its SRI fund system is appreciated by all over world. In order to understand investors attitude and opinion for SRI fund in India, 150 investors are interviewed via semi-structured questionnaire. The questionnaire is administered to investors in Delhi/NCR via mail and post. While conducting study only those investors are targeted who are regular investors and have prime interest in financial market. Following results have been drawn from the study conducted: Through the study, it is found that investors are not aware about the benefits of social activities performed by companies. The main motive of investors is to get instant profits from their investment (90%). It has also been noticed that investors who are investing in SRI are of special class and does not withdraw their funds from such fund as their motive is not to get profit out of it. Thus, investors investing in such funds are much less. Most of the investors believe that social responsibility of companies is to satisfy them through maximum returns and if part of the profits is distributed for social activities, their returns will be affected. Although companies, which are independently performing CSR activities, are in large numbers but when the interest of investors is compared via the performance of SRI with increasing interest of companies in CSR, negative relation between two is seen. Thus, CSR is not that much popular in India as the investors are not keen to take active part in such activities. Its benefits in the form of saving corporate tax also lead to negative impression on investors and regulatory bodies. These all questions can be answered when clear understanding of treatment of CSE (Corporate social expense) can be developed. Government need to take step in creating awareness about the benefits and positive effects of CSR on long-term profitability and sustainability of the business.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Conclusion Corporate social responsibility is a debatable issue for a long time in India and other developing countries. Lack of awareness, its legality and taxation issues involved, raise a question; why companies go for CSR when it involves expenses and when companies are not legally bound to do so. It has been observed that there are various motivational factors that are motivating companies to perform CSR activities and one of such major motivation is long-term sustainability. Making good public image brings lot in the form of trust and confidence for company, which helps in competing in highly competitive market even in bad time. There are various ways of performing task for the society, many companies do so in regular course of their business and few companies do beyond their regular course of business. Considering such activities, which are in companys regular course of business as social responsible practice, may not be correct because such an act is usually treated as smart business. If any chemical company remove harmful carbon emission just to reduce energy cost, such decision may not be treated as CSR. Thus, purpose of any decision may guide us to differentiate smart business act and CSR. There are four major models where related CSR activities can be put and pure CSR practices can be extracting. CSR is not new for Indian Corporate sector and Indian companies are very active in doing good job for society. Now financial market has also entered in this sector. Through social responsible investing, investors are motivated to be part of CSR. ABN Amro Sustainable Development Fund (ASDF) is first Indian SRI mutual fund similarly Taurus ethical fund is another SR fund in India. Many more are in pipeline to launch in India. The interest of investors in CSR can be assessed through SRI performance chart. Through this paper, we tried to understand the interest of investors in SRI fund or CSR and it was found that there is lack of awareness of such funds among Indian investors; secondly, investors are not keen to invest in social active companies their major interest is to make profit from their investment. It has also been argued that investors need not compromise their values to make money. If you approach socially responsible mutual funds like any other investment, you may be able to put your money into something that both supports your values and lines your pocketbook. However, finding such companies for investment, which fulfill both the criteria; profit and

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 social responsibility is difficult. When we have companies, which are not producing harmful products and are not against the value system then such companies may or may not be profitable enough thus limited area of investment becomes an important disadvantage of such funds. This may be the reason of slow growth of SRI in India. There is strong need of awareness among public about CSR. Companies generally invest 2% of their investment in CSR but government has not laid down any such minimum investment. Thus, clear policy should be drawn in this respect. Companies should also take initiative in producing timely and quantitative reports of their CSR practices so that its importance can be compared. References Adams, C.A. (2002). Internal organizational factors influencing corporate social and ethical reporting: beyond current theorizing. Accounting, Auditing and Accountability Journal, Vol.15, No. 2, pp. 223250 Antheaume, N. (2007). Full cost accounting. Adam Smith meets Rachel Carson? In Unerman,J., Bebbington, J. and ODwyer, B. (Eds.), Sustainability Accounting and Accountability. London: Routledge. Bebbington, J. (1997). Engagement, education and sustainability: a review essay on environmental accounting. Accounting, Auditing and Accountability, Vol. 10, No. 3, pp. 365381. Bebbington, J., Gray, R., Hibbit, C., and Kirk, E. (2001). Full cost accounting: an agenda for action. London: ACCA. Bernard Black & Vikramaditya Khanna. (2007). Can corporate governance reforms increase firms market values? event study evidence from india. (PPT) Conference on Emerging Markets Corporate Governance, Sabanci University, Istanbul, Turkey http://cgft.sabanciuniv.edu/tr/AnaSayfa/documents/khanna.ppt Jenke ter Horst & Chendi Zhang (2007). Social responsible investmentmethodology , risk exposure and performance. ECGI Working Paper Series in Finance.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Mathews, M.R. (1997). Twenty-five years of social and environmental accounting research. Accounting, Auditing and Accountability, Vol. 10, No. 4, pp. 481531. Maunders, K. (1996), Environmental Accounting Is It Necessarily an Oxymoron? Paper presented at the Environmental Accountability Symposium, Canberra International Hotel, ACT,1617 February. Stanwick, P.A., and Stanwick, S.D. (2006). Environment and sustainability disclosures: a global perspective on financial performance. In Allouche, J. (Ed.) Corporate Social ResponsibilityVolume 2: Performances and Stakeholders. New York: Palgrave Macmillan. Tilt, C.A. (2007). External stakeholders perspectives on sustainability reporting. In Unerman, J., Bebbington, J., and ODwyer, B. (Eds.) Sustainability Accounting and Accountability. New York: Routledge. Websites http://www.nmims.edu/images/Jaago_Re.pdf http://articles.economictimes.indiatimes.com/2007-0605/news/27674972_1_fund-manager-indian-investors-investorresponse http://www.abrmr.com/pdf/Case%20study%20on%20Corporate%20 Social%20Responsibility%20of%20MNCs%20in%20India%20%20G%20Muruganantham%20.pdf http://en.wikipedia.org/wiki/Socially_responsible_investing http://www.socialinvest.org/resources/sriguide/srifacts.cfm http://www.socialinvest.org/resources/research/documents/2010Tren dsES.pdf http://web.mit.edu/ipc/publications/pdf/02-008.pdf http://stdwww.iimahd.ernet.in/~sandeepk/CSR.pdf http://money.outlookindia.com/article.aspx?89850 http://www.coprocem.com/documents/12corporate_social_responsib ility.pdf http://www.indiacsr.in/article-401--.html

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Figure 1: Benefit chain analysis of CSR
REGULAT ORY FLEXIBILI TIES FORMING STRATEGI C ALLAINCE

CSR
CORPORAT E IMAGE

POSITIVE CUSTMER PERCEPTI ON TO THE PRODUCT CUSTOME R LOYALTY

Benefits or motivational factors for CSR

IMPROVED SHAREHOD ER VALUE

HIGHER STOCK PRICE FOR COMPANY

BRINGS COFIDENCE AMONG INVESTORS

Figure 2: Performance of Taurus ethical fund 2010-11

(Source: http://www.bloomberg.com/apps/quote?ticker=TAUETHB:IN )

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 1: Shariah Compliant Companies Mar 02 Mar 03 Mar 04 Mar 05 NSE Total No. of companies 988 listed 115 Shariah compliant companies 500 95 BSE Total No. of companies listed Shariah compliant companies 988 137 500 112 988 185 500 164 988 237 500 196 Dec 05 988 335 500 237

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 2: CSR Activities of Select Indian Companies Name of Company Infosys Technologies Ltd. Aarti Industries ACC Ltd. Andhra Bank L&T Ltd. CSR Budget (Crores) 20 Sales (0708) (Crores) 15000 Rated by Karmayog 4 Type of CSR

0.3 12.2 7.6 26

960 9640 4300 25000

2 4 3 3

Education, children and community welfare Education, Health care Community welfare, healthcare, education Rural development, education, training Environment, education, healthcare, community welfare Education, environment, girl child, poverty eradication Education, community welfare, environment Girl child, education, livelihood Rural development Environment, donation

Mahindra & Mahindra

11

11500

ONGC Tech Mahindra Union Bank of India Ramco Industries Ltd.

120 3 14 0.4

60000 3600 9500 345

2 2 3 1

(Source: http://www.karmayog.org/redirect/strred.asp?docId=22285)

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 3: Socially Responsible Mutual Funds 1995 1997 1999 2001 2003 Number of SR 55 139 168 181 200 MF Net $12 $96 $154 $136 $151 assets(billions) (Source: Social Investment Forum Foundation) 2005 201 $179 2007 2010 260 493 $202 $569

Table 4: Investors response to Socially Responsible Investment 1. Percentage of awareness of SRI fund in India 2. Percentage of investors interested in investment in companies investing in CSR 3. Percentage of investors interested in current profits 4. Percentage of awareness of Dow Jones Sustainability Index & FTSE4 Global Index series 5. Percentage of awareness of Taurus mutual fund 35%

54%

90%

30%

24%

6. Percentage of investors who feel that companies should invest in CSR 7. Percentage of investors, ready to pay premium for product with social and ethical activities

58%

23%

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011

Structure, Policy and Prospects of Rural Industrialization in Orissa (India): A Strategic Approach for Sustainable Development
Muna Kalyani*
Abstract Orissa, the ancient land of temples in the eastern coast of India, is one of the most resource-rich states in the country. However, a large population of the state is reeling under poverty. This paper examines the poor living conditions of the people of rural Orissa and measures taken so far to improve their economic situation through rural industrialization. The author illustrates that sustainable development should be paired with the abundant natural resources for a broader, deeper and more dynamic process of learning and change aimed at creating appropriate and equitable human activity system and ways of life (i.e., culture) for a greater sustainable development. Keywords: Rural Industrialization, Sustainable Development, Equitable Human Activity Introduction The new province of Orissa was born on 1 April, 1936. Since long, Orissa continues to be symbol of abysmal poverty and backwardness. Acute underdevelopment combined with the onslaught of natural calamities has made the life of the Oriya people miserable. While droughts and floods are regular invaders, cyclones and. super cyclones make their routine visits, taking heavy tolls. Besides all this misfortunes, nature has blessed the state with natural resources to fill up the gap. Orissa is the richest state in minerals. The State Government is determined to take full advantage of the sweeping changes in the national and international scenario and forge ahead with its program of industrialization.1 The State Government is fully committed to attract large investment in development and its people. While
*

Sr. Lecturer, Post Graduate Department of Business Administration, Utkal University, Bhubaneswar, India E-mail : dr.munakalyani@yahoo.com

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 the past industrial policies starting from of infrastructure, mining and industry including power generation to harness the vast promise and potential to improve the economy, to state 1980 have created a favorable industrial climate in the state with many new industries coming up, the state has to take full advantage of the create employment and generate resources for all round development of the liberalized economic and industrial regime to attract substantial private investment for infrastructure and industrial development of the state. Accordingly, the new Industrial Policy, 1996 and 2001 are formulated by the State Government to spell out the strategies and modalities to translate this commitment into concrete action.2 As per the census of Orissa, 2001, the total population of Orissa is 36,706,920, out of which the rural population is 31,210,602. Accordingly, 85.03% of the population lives in the rural villages. The Oriyas dwelling in rural Orissa.3 Hence, industrialization in Orissa means rural industrialization. Structure and Policies The structure is built by its resources. Orissa has vast reservoirs of natural resources to spur industrial growth and development. The resources are land, mineral, forest, water, fisheries and animal resources and knowledgeable human resources. These resources put foundation stone for industrialization in Orissa. The structure covers a wide variety of Industries which differ in the nature of products, techniques and scale of production, location pattern and marketing channels etc. This can be divided into several groups of industries. Agriculture Orissa occupies 4.74% of India's landmass is endowed with a wide range of fertile soil along with adequate rainfall and suitable climate for agriculture nearly 70% of the population in the state depend on agriculture. Agriculture is the mainstay of state's economy and sustenance of life of the people. Agriculture and Animal Husbandry contributed 25.75% of the net domestic product of the state in 2004-05 at 1993-94 prices and provided employment directly and indirectly to around 65% of the total workforce as per 2001 census. The per-capita availability of cultivated land was 0.39 ha. in 1950-51 and has declined to 0.15 ha. in 2004-05.4

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Development of Agriculture in Orissa has lagged behind due to several constraints, such as traditional method of cultivation, inadequate capital formation and low investment, inadequate irrigation facilities and uneconomic size of holdings. This dominant sector of the State's economy has become, more often than not, a helpless victim of natural calamities like flood, drought and cyclone. For sustaining economic development, much emphasis has been laid during the planning process for accelerating the pace of agricultural development, by increasing both production and productivity, by taking steps to remove regional imbalances in cropping pattern and agricultural practices, to evolve new variety of seeds, to expand irrigation facilities, to extend the supply of institutional credit and also a price support to farmers which shall place this dominant sector on a sound and safe footing. Improvement in production and productivity needs to be effected to meet the increasing demand of the growing population, step up income of farmers and increase agricultural exports. Taking all these aspects into consideration during the Seventh Plan, several new programs were launched for development of Cereals, Pulses, Oilseeds, and Jute etc. These programs continued during the Eighth and subsequent Plan periods with the objectives of improving the level of production and productivity. Priority was laid on crop planning, productivity, expansion of area under cash crops, cropping intensity, use of fertilizers, pest management, marketing and use of modern agricultural implements and farm machinery. Considering the importance of this sector, the State Government have come up with a comprehensive Agriculture Policy according agriculture the status of an industry. The objectives of the above policy have been pursued vigorously during the Tenth Plan period to make Agriculture sector one of the growth engines for accelerating the pace of development of the State. The State Agriculture Policy 1996 aims at doubling the production of food grains and oil seeds, generation of adequate employment opportunities in the rural sector and eradication of rural poverty within a specific time frame. The main objectives set out in the State Agriculture Policy 1996 are as follows: i. To enhance the status of Agriculture from the present level of a subsistence one to a profitable and commercial venture, so that

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 young persons can accept agriculture as a means of selfemployment. ii. To generate adequate employment opportunities. iii. To adopt integrated programs for problem soils such as water logged areas, areas with soil erosion, dry / rain fed areas, area under shifting cultivation, waste land, saline and alkaline soil etc. iv To create entrepreneurship in the field of agriculture and horticulture. v. To create skilled laborers for management of modern agriculture. vi. To help mechanization of agriculture to increase productivity. vii. To establish Agro-based and Food Processing Industries. viii. To provide irrigation facilities to 50% of cultivable land through completion of incomplete irrigation projects and promotion of individual and group irrigation projects. ix. To promote private enterprise in the marketing of agricultural produces. x. To identify and promote thrust crops in different agro-climatic zones of the State. xi. To reorient agriculture towards export. Rice is the principal food crop of the State. The average yield rate of rice in Odisha which was 14.96 quintal / ha. in 2003-04 declined to 14.55 quintal / ha. during 2004-05. The per capita production of food grains per annum, which was 189 kg in 2003-04, has declined to 181 kg in 2004-05. The picture of production of food-grains in the State during the last five years, i.e., 2000-01 to 2004-05 is reflected in Table 1. Cropping Pattern Agro-climatic conditions exercise big influence on the type of crop to be grown in an area. More than 75% of the cultivated area in the State is covered under paddy crop. Since the Eighth Plan, efforts are being made to divert land from paddy to cash crops like pulses, oil seeds, sugarcane, potato etc. to ensure better returns. Table 2 presents the cropping pattern of principal crops in Orissa from 2000-01 to 2004-05. Table 2 indicates that only paddy covered 76.9% of the total cropped area during 2004-05, followed by pulses (11.2%) and oilseeds (5.6%). The area under fiber crops accounted for only 1.4% and other cash crops, which

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 include sugarcane, potato, chilly, ginger and tobacco etc. constituted only 2.0% of the total gross cropped area under principal crops. The percentage of area under pulses & food grains has increased in 2004-05 over 2000-01 while that of cereals and oilseeds has declined. Cropping Intensity The cropping intensity of the State went up from 135% in 2000-01 to 15.2% in 2004-05. Due to development of irrigation facilities more areas were brought under cultivation and farmers could raise more than one crop in same land in the same year. Cropping intensity is one of the indices of the level of agricultural development. Table 3 shows net area sown, gross cropped area and cropping intensity from 2000-01 to 2004-05. Horticulture Orissa is blessed with varied agro-climatic condition suitable for growing fruits, vegetables and spice crops. Hill tracts of KBK districts and of Kandhamal and Gajapati districts are suitable for intensive horticultural activities. The development of horticulture has importance not only for increasing the production of fruits and vegetables but also for improving the rural economy of the state by generating employment, and income particularly for small and marginal farmers. Cultivation of commercial fruits, use of hybrid vegetable seeds, propagation of off-season vegetable cultivation, establishment of bio-centers for production of quality planting materials, use of quality potato seeds, installation of drip irrigation systems, beneficiary oriented cultivation of oil palm etc. are the major thrust areas in horticulture. The Tenth Plan proposals have been formulated for promoting integrated development of horticulture through area expansion of fruit crops, vegetables, spices, root and tuber crops and floriculture. Emphasis has also been given for dissemination of technology by way of massive training programs, incentives for production of quality foundation and certified vegetable seeds. Effort of macro management is further supplemented in pro-active agriculture policy of the State by providing opportunities to entrepreneurs to choose horticulture as a profession and a means of sustainable income generation.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 During 2004-05, the total area under fruit crops in the State was 284.21 thousand hects, out of which mango area accounted for 120.25 thousand hectare, coconut 50.78 thousand hectare, banana 20.73 thousand hectare, citrus fruits 26.42 thousand hectare, pineapple 0.70 thousand hectare and papaya 0.74 thousand hectare. All other fruits covered 64.59 thousand hectare. Table 4 presents data on area, production and yield rate of different fruits during 2004-05. During 2004-05, the total area covered under vegetable was 625.11 thousand ha. and production was 7,719.36 thousand M.T. as against 623.14 thousand ha. and 7,701.96 thousand M.T. respectively during the previous year. Table 5 summarizes area, production and yield rate of vegetable crops during 2004-05. Floriculture In order to meet the increasing demand for flowers like Tuberose, Rose, Gladioli, Marigold, Crossandra etc. in and around the urban centres of the State, floriculture has been given due thrust in the planning process. Under this program quality planting materials are supplied to farmers for taking up commercial cultivation of flowers in their fields, in addition to conducting demonstrations. During 2004-05, 2,934 demonstrations on Gladioli, Marigold, Crossandra, Jasmine and Rose were taken up with an expenditure of Rs.61.38 laths. Under this program 64.18 lash cuttings/seedlings of Gladioli, Marigold, Crossandra and Jasmin seedlings were supplied to the beneficiaries. Table 6 presents area and production of different floricultural crops in the year 2003-04 and 2004-05. Steps were taken for plantation of short duration fruit species under work plan as well as RLTAP in KBK region. 40.72 ha of new banana plantations were established under work plan by providing 16.02 lakh quality banana suckers to farmers at subsidized rate. Different fruit grafts have been supplied to farmers under the Work plan and RLTAP for KBK during 2004-05 for raising 7,169 ha of fruit orchards covering 6,670 ha of mango, 51 ha of sapota, 97 ha of guava, 191 ha of litchi & 160 ha of custard apple at a cost of Rs. 137.21 lash. Small and marginal farmers are being encouraged to plant fruit trees in their backyards for supplementary income from their holdings. During 2004-05, 240 quintals of improved varieties of turmeric seeds and 64.09 quintals of supersaver variety of ginger seeds

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 have been multiplied in the Departmental farm covering an area of 16 ha. Attempt has been made under the work plan to promote and propagate root and tuber crops on a massive scale and to introduce improved crop varieties. Due to suitable agro-climatic conditions coupled with growing demand vegetable cultivation has tremendous scope in the state. To popularize seasonal and offseason vegetable cultivation in the State, Seed Minikits have been supplied to the small and marginal farmers. During 2004-05, 1,98,953 vegetable seed minikits have been supplied with an expenditure of Rs.139.32 lash. The Central Sector Scheme "Integrated Development of Horticulture in Hilly/Tribal Areas" is being implemented in three tribal districts viz Keonjhar, Koraput and Gajapati. During 200405,1428 ha. have been covered under different fruit crops in these districts, both seasonal and off-season. The State Government have signed an agreement with the Agricultural & Processed Food Products Export Development Authority (APEDA) in January, 2003 for setting up an Agricultural Export Zone (AEZ) on ginger and turmeric for contiguous districts of Kandhamal and Koraput for promotion of export of these commodities. Under Cashew Development Program, 2,980 hectares have been covered during 2004-05, under new plantation by distributing 5.96 lakh grafts to the beneficiaries. For 2005-06, there is a proposal to cover 4,000 ha. under cashew plantation with a financial provision of Rs.244.26 lash. Agricultural Credit Agricultural credit is an essential input for augmenting agricultural production and helps a lot to the poverty stricken farmers of Orissa. The total amount of agricultural loans advanced by different Commercial Banks, RRBs, Co-operative Banks and OSFC curing 2004-05 was to the tune of Rs. 1904.03 crore which was higher by 43,50% as compared to Rs. 1326.88 crore financed in 2003-04. Out of the total agricultural loan financed during 2004-05, the share of Co-operative Banks was 51.01% followed by 32.98% by Commercial Banks, 16.00% RRBs and 0.01% by OSFC. Apart from crop financing, term lending for floriculture, horticulture, livestock, pisci-culture, plantation and composite projects is also being encouraged. Table 7 reflects the amount of agricultural credit advanced in Orissa by different banks.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Farm Mechanization Farm mechanization has a great role in enabling farmers to take up timely and quality agricultural operations, reduce costs of production and improve the productivity. Various agricultural implements are supplied to farmers at subsidized rates. In KBK districts an additional 25% subsidy is given on power Tillers under RLTAP. During 2004-05 emphasis given on demonstration of specialized power driven farm implements like selfpropelled paddy transplanter, tractor operated renovator, power pulse thresher, maize seller, sugarcane ridge/cutter/planter etc. So far 1649 power tillers, 466 tractors, 44 reapers, 3 paddy transplanters, 23 rotavators have already been supplied to the farmers at subsidized rates. During 2005-06, it has been proposed to supply 2435 power tillers, 100 paddy reapers, 10 paddy transplanters, 865 tractors, 60 tractor operated rotavators and 200 other implements with subsidy. Besides, 200 power tillers will be subsidized in the KBK districts under RLTAP with a provision of Rs.54.20 lash. Agro service centers under the world Bank assisted Cyclone Restoration Program have helped farmers to use customhired tractors and other agricultural implements. During 2004-05, 14 Agro Service Centers have been set up till January and subsidy amounting to Rs. 18.77 lash have been released 250 Agro Service Centre will be set up under the program during the, next 2 years. In spite of Agriculture, the minerals, forests, a long coast line, sea, sweet water and brackish water bodies, rivers and rivulets and a rich cultural heritage offering a wide range of fine manifestations having both aesthetic and commercial value. In spite of the high potential, the socio-economic status of the State portrays a paradoxical picture of poverty amidst plenty. In order to transform the State into a vibrant economic zone, State Government are giving stress to convert the available potential energy into kinetic energy through massive industrialization with optimization of value addition, technological up-gradation and export promotion. To facilitate the process, the State Government enunciated a new Industrial Policy in 2001. Main features of the New Industrial Policy of Orissa are as under: Create a business climate conducive to accelerate investment in industry and infrastructure projects.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Raise income, employment and economic growth in the State Reduce regional disparities in economic development and Ensure balance utilization of the natural resources for sustainable development. The State Government's Industrial Policy coupled with favorable market condition has been able to attract mega projects to the State. So far, 46 MOUs have been signed for setting up of Steel, Aluminum and Oil industries. In order to facilitate these industries and to create an enabling environment to attract national and international investment, Government has enacted Orissa Industries (Facilitation) Act, 2004 for implementing the Single Window Clearance System with the following objectives: Faster and one-point clearance of industrial projects, Single point dissemination of industrial project related information and To streamline the inspection of the industries by different agencies/ authorities. For providing infrastructure support of international standard to the industrial environment in the State, Public-Private Partnerships (PPP) is being leveraged. Priority areas like roads, fishing harbours, transport terminals, industrial and urban townships etc. have been identified. Port development at Dhamara and Gopalpur through PPP mode is being attempted. Government are contemplating to have a policy framework in place to facilitate infrastructure development through PPP. The contact point like "Shilpa Jyoti" in IPICOL for large and medium projects and "Shilpa Sathi" in the Directorate of Industries, Orissa and DICs for tiny and small units will be created. Escort services will also be provided by these contact points for interaction with various agencies and authorities. Keeping in view the priorities laid down in the industrial policy, establishment of growth centers at Duburi, Chhatrapur, Kalinga Nagar in Bhubaneswar, Jharsuguda and Kesinga has already been sanctioned by Government of India and also establishment of specialized industrial park is being accorded high priority. Export Promotion Industrial Park (EPIP) has been set up at Bhubaneswar to promote export oriented industrial units with Central Government assistance. This has been

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 renamed as INFOCITY and earmarked for establishment of all I.T industries. Large and Medium Scale Industries Industrial Promotion and Investment Corporation of Orissa Ltd. (IPICOL),Industrial Development Corporation of Orissa Ltd. (IDCOL), and Orissa State Electronics Development Corporation (OSEDC) are three nodal agencies for promotion of large and medium scale industries in the State. A number of mega industrial projects in sectors like steel, alumina/aluminum, oil refining, and fertilizers etc. involving large investment are in the pipeline. The emphasis during the Tenth Plan would be on sustaining the momentum already generated and providing all necessary support to facilitate early grounding of these projects. In the Tenth Plan, the provision under the large and medium industry sector has been kept at Rs.27.68 crore for operation of different schemes.5 During 2004-05, only one industry whose project cost is Rs. 3.35 crore has gone in to production and created employment opportunity for 42 persons. Table 8 indicates the development of large and medium industries in the State. The Industrial Promotion and Investment Corporation of Orissa Ltd (IPICOL), a key promotional institution, was incorporated in 1973 with the main objective of accelerating the pace of industrial development of the State by promoting large and medium scale industries. IPICOL has promoted 263 large and medium scale industries by the end of Ninth plan period (2001-02) with project cost of Rs. 2931.70 crore and created employment opportunities for 34,294 persons. During the first three years of Tenth Plan period ten industries have gone into production with project cost of Rs.49.58 crore and created employment for 557 persons. During 2004-05 only one unit has gone into production. Table 9 indicates the large and medium scale industries promoted by IPICOL. During the year 2004-05, IPICOL has sanctioned Rs. 9.13 crore to 3 units and disbursed Rs. 6.22 crore to 8 units while recovering Rs. 22.13 crore towards loan and interest from assisted units. After incurring continuous operating losses for the last four years, the Corporation has come out of it and has posted operating profit since 2001-02. During 2004-05 the

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Corporation has earned a profit of Rs. 48.00 lakh as against Rs. 76.00 lash profit earned during 2003-04. IPICOL is acting as single window contact for all information related to setting up large and medium industries in the State. 43 large and medium projects are under implementation as on 31.3.2005. Total investment envisaged for these proposals is about Rs. 84,000 crore. Steel sector has the major chunk of projects under implementation. 27 companies have signed 'memorandum of understanding for setting up steel / aluminum projects with the State Government as on 31st March'2005. Industrial Development Corporation of Orissa Limited (IDCOL) was incorporated in the year 1962 as a wholly owned governmen. company. Its objective was to promote large and medium scale industry in the State. The Corporation, since its inception, has set up 15 industrial units in diverse sectors like cement, ferrochrome, pig iron, spun pipe etc. under direct management. IDCOL is functioning as a holding company, after the three directly managed industrial units such as Kalinga Iron Works, Ferro Chrome Plant and IDCOL Rolling Mill were separated as wholly owned subsidiary companies w.e.f. 1st April '2002. At present, IDCOL is having 9 subsidiary companies under its control after divestment of IDCOL CEMENT Ltd. in favor of M/s. ACC.Ltd. during December, 2003. Under Public Sector Restructuring Program IDCOL is exploring the possibility of disposal of assets of its defunct units. IDCOL has stepped up mining activities in the chromite ore mines at Tailangi in Jajpur district and iron-ore mines at Roida 'C in Keonjhar district and has exported chrome ore valued at Rs. 14.62 crore during 2004-05. Established in 1981, Orissa Industrial Infrastructure Development Corporation (IDCO) has entered the 25th year of its existence. It is among the few State Government PSUs, which is not only able to sustain on its own financial strength but also growing stronger over the years and has become a zero-equity and debt-free Corporation. It is the only State level organization to be conferred the "Golden Peacock" award by the Institute of Directors, New-Delhi for adopting and maintaining quality management standard in all its operations and also bagged ISO-9001 & ISO-14001

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 certificate for providing infrastructure & services of high order and maintaining modern environment management system. IDCO has established 86 Industrial Estates/ Areas all over the State and its achievement in various fields of operation is noteworthy. The Corporation is engaged in multifarious activities to foster rapid industrialization in the State by development of industrial infrastructure. Agricultural Promotion and Investment Corporation of Orissa Ltd. (APICOL) was set up with a view to strengthen the rural economy by providing financial support for promotion and development of agro-based and food-processing industries, APICOL came into existence in March 1996. By the end of March 2005, the Corporation has promoted 59 agro and food processing units with an investment of Rs. 97.94 crore including one unit with investment of Rs. 0.28 crore during 2004-05. Besides, APICOL has promoted 462 agri-enterprises by the end of 2004-05 with an investment of Rs. 141.17 crore out of which 10 units with investment of Rs. 4.03 crore were set up during 2004-05. APICOL has also provided incentives to the tune of Rs. 8.68 lakh towards subsidy to one agro and food-processing unit and Rs. 1.35 crore to 27 agri-enterprises during 200405. Orissa State Financial Corporation (OSFC) is a premier State level financial institution that came into existence in 1956 to cater to the need of industrial development in the State. It provides financial assistance to small and medium scale industries in consortium with State level financial institutions. Besides, the Corporation also receives financial assistance from State Government and Central Government and provides soft loans and margin money for rehabilitation of sick industrial units. Since it's inception in 1956 till 2004-05, OSFC has sanctioned loan amounting to Rs. 1434.32 crore in favor of 46846 units including Rs. 2.85 crore sanctioned in favor of 44 units during 2004-05. Similarly Rs. 1305.01 crore has been disbursed to 28,207 units by the end of 2004-05 including Rs.2.09 crore disbursed to 67 units during 2004-05. During 2004-05 an amount of Rs. 73.06 crore was recovered while Rs. 1645.40 crore was overdue.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Orissa Pisci-culture Development Corporation Ltd (OPDC) has launched a number of projects like supply of fishnet, fuel, and fish seeds for the economic development of fishermen. Small Scale Industries (SSI) Sector constitutes the backbone of the National as well as State economy as it can generate employment opportunities because of its low capital investment requirement, low gestation period, high value addition and high export promotion prospects. The State Government aims at developing, reviving, modernizing and reorienting the SSI and tiny sector towards open market economy through cluster development approach. Growth of small-scale industries sector is being emphasized not only because of its potential for generation of employment opportunities but also for its contribution to the output of the State. In pursuance to the latest Industrial Policy, State Government are actively considering to implement the Single Window Clearance System - a mechanism for creation of conducive environment for industrial ventures which includes attracting domestic as well as foreign investment through expeditious clearance at a single contact point. Besides, a special package of incentives has also been announced for boosting the SSI sector. Directorate of Industries, Orissa is the Nodal Agency for promotion of SSIs and plays a vital role in identification of entrepreneurs and assisting them to set up industrial units. By the end of 2004-05, about 83,075 small scale units have been set up in the State of which, 4,511 units went into production during 2004-05 with total investment of Rs. 245.59 crore and 21,898 persons were provided with employment, including 2,922 SC, 3,088 ST and 1803 women. While the number of units set up during 200405 is highest in Repairing & Services sector (49.35%), contribution of, food & allied sector is highest in investment (43.98%) and employment (28.55%) respectively. Similarly while highest number of 482 SSIs were established in Sundargarh district, Malkangiri was the lowest with 8 SSIs.6 Sick Units Industrial sickness in Small Scale sector is a growing phenomenon and allout efforts are being made to revive the viable sick units. By the end of 2004-05, 83,075 small-scale units were set up in the State, out of which

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 1,688 SSI units were identified as sick by OSFC. OSFC have provided assistance amounting to Rs.8.22 crore for rehabilitation of 102 sick units by the end of 2004-05. The position in regard to small-scale units set up in Orissa and number of sick units identified by OSFC is presented in Table 10. Orissa Small Industries Corporation (OSIC) was established in April 1972 to aid and assist small scale industrial units in the State for their sustained growth & development to gear up the industrialization process. The Corporation has been extending marketing support, financial assistance for purchase of raw materials, sub-contracting exchange and rendering various other services to small-scale units. The Corporation also administers certain incentives as per the Industrial Policy of Government. During 2004-05, the Corporation has supplied 40,562 MT of raw materials to small-scale units valued at Rs.91.93 crore through its 12 raw material depots. Table 11 indicates the achievements of OSIC from 2002-03 to 2004-05. Handicraft and Cottage Industries Orissa is known for its excellence in silver filigree, applique, stone carving, brass and bell-metal works, horn carving, terracotta and patta painting etc. The Directorate of Handicrafts and Cottage Industries provides administrative, managerial and financial support for promotion, revival and diversification of these traditional industries through various schemes. During 2004-05, 17,808 cottage industries have been set up in the State with an investment of Rs.47.11 crore providing employment to 29,587 persons. Data on the growth of Cottage industries in the State over the years is presented in Table 12. 289 Handicrafts Co-operative Societies with a membership of 21,204 were actively functioning in the State, during 2004-05. These societies provided employment to 6519 artisans and produced handicraft articles worth Rs.6.80 crore during 2004-05 as against Rs.8.06 crore in the previous year. During 2004-05, these Co-operative societies have sold articles worth Rs.7.19 crore as against Rs.8.55 crore during the previous year i.e.2003-04. Handloom and Craft Development in KBK Districts under RLTAP is a new program proposed to be implemented in the KBK districts of the state

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 during 10th Plan period with objective to provide massive employment to the Handloom weavers by providing them financial assistance like share capital, margin money, training to the handloom weavers, supply of improved accessories etc. During 2004-05, a sum of Rs.1.25 crore was spent under the scheme. Sericulture Sericulture industry deals with Tsar, Mulberry and Erie, which provide opportunities for rural employment. Orissa State Tsar and Silk Cooperative Society is the apex body, which provides financial assistance as well as services to cocoon producers and weavers. During 2004-05, an amount of Rs.30.00 lash has been spent through Centrally Sponsored Plan Scheme for assisting Seri-culturists in the State. Tsar During 2004-05, 62 Primary Tsar Co-operative Societies were functioning in the State for development of tsar products and about 7620 hectares of land in 1110 villages was brought under their activities. During 2004-05 about 9.57 lash Tsar DFLs were supplied to the villagers and 32.5 Mt of tsar yarn was produced providing employment to 14,225 persons. Mulberry Mulberry plantation and silkworm rearing have been taken up on a large scale in 33 blocks of the State. During 2004-05, 885 acres of land was brought under mulberry culture involving 1468 farmers of 39 Rearers Cooperative Societies and 1.84 MT of mulberry yarn was produced. A cold storage for preservation of mulberry eggs has been set up at Chandragiri and mulberry rearing has also been introduced in 4 Mulberry Rearering Co-operative Societies as a preliminary venture to impart training. Erie Erie culture has been promoted as a subsidiary occupation in the State. At present one Erie Rearer's Co-operative Society is operating in the State. During 2004-05, 249 acres of land was brought under erie-culture and 18,210 number of DFLs were supplied to erie-rearers. About 0.588 MT of yarn was produced in the State in 2004-05 providing employment to 580 persons.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Intensive Development of Sericulture in KBK Districts under RLTAP is functional since 2002-03 a State Plan Scheme is in operation in the State, which aims at upliftment of the poor tribal families in KBK districts through Mulberry, Tsar and Erie Plantation and Silkworm rearing. During 2004-05, Rs.50.00 lash was spent under this scheme providing benefits to 399 nos. of Mulberry, 50 nos. of Tsar and 300 nos. of Erie-rearers. Khadi and Village Industries In Orissa, khadi and village industries are being promoted by the Orissa Khadi and Village Industries Board with financial support from Khadi and Village Industries Commission, Government of India.7 The Board is providing assistance in shape of grants and loan to the beneficiaries through cooperative societies. During 2004-05, out of total 5,315 cooperative societies, 1,414 co-operative societies were in operation, which produced khadi and village industries products worth Rs. 39.65 crore and sold goods worth Rs. 48.13 crore. During 2004-05 full time employment for 17,225 persons and part time employment for 77,112 persons was generated.8 By the end of 2004-05, 2,249 khadi and village units have been financed under Rural Employment Generation Program (REGP), out of which 475 units were financed in 2004-05 which includes 158 food processing units, 137 textiles & services units, 76 "mineral based industries, 52 rural engineering & biotechnology units and the rest belonging to other sectors like handmade paper, fiber, forest and agro-based and polymer & chemical based.9 During the year 2004-05, goods worth Rs. 4.97 crore were produced and goods valued at Rs. 6.19 crore were sold by these units with creation of full time employment for 861 persons and part-time employment for 1,562 persons. Prospects Orissa has enormous growth potential with its abundant stock of natural and human resources. But ironically the state exhibits an image of overt poverty with cramped development for so many decades. It does show the success-failure mix of plan, investments and performances in the state. These neutralizing factors continue to slow down the State's economic prospects over the years.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Orissa economy has been characterized by high level of poverty caused by large scale unemployment and under-employment. But a recent phenomenon is the growing joblessness among the educated youth. This calls for higher level of investments to create more gainful employment opportunities. But the issue needs to be approached at regional and sect oral level rather than at macro level. The solution to this problem lies in labour intensive rural development and wage-employment programs. Capital intensive Industrialization and technology might lessen the burden of under employment of educated skilled labour and boost the economy to new height in long run. But being an agrarian economy, it is equally important that the State needs to emphasize on agro based industrialization10 to reduce the burden of unemployment in vast unorganized sector both in short run and long run. With 65% work force, directly and indirectly engaged in agriculture sector, Orissa remains an agrarian economy. But the agricultural practices remain very traditional and dependent on rainfall. The overall productivity of the sector is therefore low as compared to the agriculturally developed states like Punjab and Haryana. The State needs to bring about technological and structural improvement in the thrust areas of agriculture sector to counter the climatic uncertainties, uneven distribution of precipitations during monsoon; traditional practices of operation etc.11 There is need to promote cash crops; develop small and medium irrigation facilities and harness available ground water resources, educate farmers on adoption of advanced technology and implement land reform measures in the state to ensure increased agricultural production and productivity. Accordingly the State Agricultural Policy, 1996 envisions greater income generation in agricultural sector; extensive application of advanced farming technology;12 better scope for entrepreneurships in the areas of agro-based and food processing industries; self-sufficiency in fruits, vegetables, flowers, poultry and dairy products and extension of irrigation potential up to 50% of total cultivated areas of the State. The Policy resolves to ensure efficient production and management of quality seeds, fertilizers, bio-fertilizers, making available soil health cards to farmers, soil reclamation, crop insurance, fisheries and animal resources etc. The new Policy visualizes revamping of the existing administrative structure and

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 establishment of agricultural Aid centers at the block level. Agriculture has been given the status of industry under the Agricultural Policy, 1996. The process of industrialization in Orissa has been slow. The share of secondary sector in NSDP has been 11.84% as per Advanced Estimate of 2004-05. There have been marginal increases in the number of units and investment in SSI sector. Taking advantage of available natural and human resource stock, the State has geared up to face the challenges and commitments of industrialization envisioned in the liberalized industrial policy resolution, 2001. While promoting private sector participation in industries, the policy resolution also aims at ensuring quality, productivity and skill development in industrial sector. The State expects to generate more employment opportunities, raise income and economic conditions of people through rapid industrialization process initiated by the Government with signing of a series of MOUs with private foreign investors as well as steps taken for developing infrastructure facilities in power, railways, tele-communications, ports, airport, road network etc. This apart, the State Government organizations like IPICOL, IDCOL, IDCO, OSFC and OSIC are making concerted efforts to promote private investment in manufacturing, mining and infrastructure projects in the State under liberalized policy regime. Power sector reform in Orissa has succeeded in making it a power surplus State with availability of Power of 1996 MW during 2004-05 as against an estimated requirement of 1986 MW. One problem area in power sector has been its over dependency on Hydropower projects. Climatic uncertainties, resource crunch and possible river water sharing disputes among the neighboring States call for lessening the dependence on Hydro power with generation of more of thermal power. Agriculture sector accounts for a meager 1.93% of total power consumption even though it contributes a major share to the NSDP of Orissa. It is a matter of concern which needs to be addressed with priority. The State is optimistic about accelerating power generation by encouraging private investment in the sector envisaged under Orissa Electricity Reform Act, 1995. The State government is also keen to promote renewable and environment friendly non-conventional source of energy. With around

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 80% of villages electrified at present, the State Government is committed to achieve 100% village electrification by 2010. Road transport plays the anchor role in economic development of the State because- of the limited network of other modes of transport like railways, airways, water ways. The sector generates substantial revenue for State exchequer. Savings and investment are core input to growth of output and employment in the State. High rate of domestic savings and adequate mobilization of resources are essential requisites for macro-economic stability of the State. This necessitates significant and sustained reductions in the revenue and fiscal deficit of Government. The State Government contemplates for selective disinvestments in public enterprises to reduce mounting debt burden. There is need to increase public savings and reduce the deficit by augmenting tax and non-tax revenue. Steps are also necessary to curb low priority expenditure and to enhance the financial efficiency of public enterprises. The State has been addressing this resolutely. The strategy of large scale private sector participation in many economic sectors during 10th Plan period is expected to accelerate the process of economic development and reduce the incidence of poverty in the State to a great extent in the coming years. Conclusion Rural Industrialization encompasses the development of khadi and handloom industries on the one hand and small scale industries on the other. State government is determined to promote such a form of industrialization in the rural areas that can generate economic viability in the village. Handlooms, handicraft, khadi and other village industries are likely to receive greater attention to achieve a faster rate of growth in the villages. Some of the imperatives are given as under: i) ii) Better management of natural resources such as land, water, fisheries, poultry, dairy farming etc. Exploiting natural resources for human welfare should include utilization of existing energy resources effectively and developing new source of energy. Managing human skill and developing, it would include identifying rural artisans engaged in cottage and small industries which could be

iii)

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 run through local skill, providing training and management skills and marketing of the village industrial products. iv) Improve productivity enhance quality, reduce cost and restructure product mix through up gradation of technology and modernization. v) Expand share of VSI products in the domestic markets through publicity, standardization, market support and increased participation in the government purchase programs. v) Strengthen the programs of ancillarisation to establish and improve linkage between large and small industrials, leading to harmonious growth of the total industrial sector. vii) Promote specialization in production and export oriented industries. viii) Strengthen and enlarge skill profile and entrepreneurial base to increase opportunities for self-employment. ix) Restructuring the production process which includes change in output pattern, re-evaluations of non-renewable resources and ecologically adjusted production. x) Technologies for processing perishables for supply to cities and Towns- fish, meat, poultry milk, fruits and vegetables. xi) Improve general levels of welfare of workers and artisans through better working conditions, welfare measures and security of employment. xii) Restructuring of agricultural growth especially in the lagging regions with irrigation and land development supported by new seed - fertilizer technology. xiii) Eco- restoration through integrated watershed development in dry and drought prone areas. xiv) The importance of non-crop activities in agriculture, such as horticulture, dairying, poultry, piggery goat and sheep rearing, fishery, sericulture etc. is expected to in future. These activities should be pre-empted, as far a possible for the rural poor under IRDP by Providing necessary training, credit and marketing facilities. xv) The KVIC should enlarge the coverage of village under the programs for promoting Khadi and village industries. The state is endowed with rich structure, policies and prospects for rural industrialization but no remarkable achievement in this field has been obtained so far. It lacks proper coordination and integration. However the

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 development of rural industrialization is plagued by some major problems like inadequate flow of credit, use of obsolete technology, machinery and equipment and inadequate infrastructure facilities, lack of communication and market information, poor quality of raw materials, lack of storage and ware housing facilities, and lack of promotional strategy. Addressing these issues is necessary for developing rural industries. Rural industrialization is inextricably interwoven with rural entrepreneurship. A new approach i.e. an integrated approach to entrepreneurial culture in rural Orissa is required for sustainable development in the field of rural industries. The new entrepreneurial culture will create needs for goods and services in a big way leading to setting up of new ventures by exploiting innovative combinations of its available resources matched with entrepreneurial goals. This culture should be nurtured, fostered and promoted with fresh vision, values, norms and traits that is conducive for the sustainable development of the rural industrialization. Notes 1. Economic Survey 2005-06 Government of Orissa, Directorate of Economics and Statistics, Planning and Co-ordination Department. 2. Industrial Policy 1996 (Orissa) -New Industrial Policy - 2001 (Orissa) 3. Orissa Census 2001 4. State Agriculture Policy 1996 (Orissa) 5. Orissa Industries (Facilitation) Act, 2004. 6. Statistical Abstract of Orissa - 2005. Directorate of Economics and Statistics, Orissa, Bhubaneswar 7. Orissa Reference Annual, 2005. 8. The Orissa Development Report, 2001. 9. Website : http//api.nic.in/#regpbk 1 National Program for Rural Industrialization (NPRI) 10. Report of the National Commission on Labour : 2002 11. Report of the National Commission on Labour : 1967 12. Report of the National Commission on Rural Labour. 1991.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 References Agarwal, Manmohan. (2006). India and the world economy in 2020. Indian Quarterly, Vol. LXII, No.2, pp. 203-277. Chandrasekhar, C.P. (2006). Employment guarantee: The road ahead. Labour File, Vol. 4, No.1, pp. 14-15. Chopra, Suneet. (2006). The National Rural Employment Guarantee Act : Part of the broader perspective. Labour File, Vol. 4, No.1, pp. 32-33. Dev, S. Mahendra. (2005). Agriculture and rural employment in budget. Economic and Political Weekly, Vol. XL, No. 14, pp. 1410-1418. Dhar, Upinder. (2006). Integrated rural development: Role and contribution of behavioral science. Prestige Journal of Management and Research, Vol. 10, No. 1&2, pp. 18-26. Kumari, R. Vijaya. (2005). An economic analysis of rural indebtedness in North Telangana Zone of Andra Pradesh. Indian Journal of Agricultural Economics, Vol. 60, No.3, pp. 302-308. Kuroda, Haruhiko. Investing in infrastructure: Key to economic growth. ASCI Journal of Management, Vol. 35, No. 1&2, pp. 1-6. Midha, Vinay Kumar & Sikka, Monica. (2004). Entrepreneurship Development in India : Challenges and opportunities. Prestige Journal of Management and Research, Vol. 8, No.1-2, pp. 119-124. Mishra, P. (2006). Performance of small scale manufacturing units in the post-economic reform with special reference to factor periodicity: A study of five industrial clusters in Orissa. Asian Economic Review, Vol. 48, No.2, pp. 329-349. Sarma, Atul. (2006). Economic development of northeastern region: Challenges and constraints. Manpower Journal, Vol. xxxxi, No.2, pp.115. Subramanian, K.S. (2006). Development policies and programmes in the north-eastern region of India: A case study of Tripura. Manpower Journal, Vol. XXXXI, No.2, pp. 83-105.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Tanabe, Koji & Watanabe, Chihiro. (2005). Sources of small and medium enterprises excellent business performance in a service oriented economy. Journal of Services Research, Vol. 5, No.1, pp. 5-20. Varejao, Jose & Protugal, Pedtro. (2007). Employment dynamics and the structure of labour adjustment costs. Journal of Labour Economics, Vol. 25, No.1, pp. 137-165.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 1: Food grain Production in Orissa SI. Food Crop No. 1 2 1 Rice 2 Total cereals 3 Total pulses Total food grains (Sl. 2 +3) P: Provisional Estimate Sources: Directorate of Economics and Statistics, Orissa, Bhubaneswar & Directorate of Agriculture and Food Production, Orissa, Bhubaneswar. Table 2: Cropping Pattern of Principal Crops in Orissa Sl. No. 1 1. 2. 3. 4. 5. 6. 200001 3 77.5 81.1 9.7 90.8 5.9 1.4 1.9 200102 4 76.2 79.5 11.4 90.9 5.5 1.8 1.8 (Figures in percentage) 2002- 2003- 200403 04 05(P) 5 6 7 77.7 76.4 76.9 80.8 79.3 79.8 10.9 12.2 11.2 91.7 91.5 91.0 4.9 5.2 5.6 1.3 1.3 1.4 2.1 2.0 2.0 200001 3 46.13 47.67 Z08 49.75 200102 4 71.49 72.81 Z59 75.40 200203 5 32.44 33.50 2.05 35.55 (in lakh MT) 2003200404 05(P) 6 7 67.34 65.37 68.86 67.04 2.66 2.61 71.52 69.65

Principal crop 2 Paddy All cereals Total pulses Total food grains Oilseeds Fibers Other crops (sugarcane, potato, tobacco, chilly and ginger) Oil crops Total Area (thousand hectare)

7.

100 5720

100 5907

100 5499

100 5891

100 5840

P: Provisional Estimate Sources: Directorate of Economics and Statistics, Bhubaneswar, Directorate of Agriculture and Food Production, Bhubaneswar, Directorate of Horticulture, Bhubaneswar.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 3: Cropping Intensity for the Period from 2000-01 to 2004-05 (P) Sl. No. 1 1 2 3 4 5 Year 2 2000-01 2001-02 2002-03 2003-04 2004-05(P) Net area sown 3 5,829 5,845 5,680 5,796 5,739 (Area in thousand hectare) Gross cropped Cropping area intensity (%) 4 5 7,878 135 8,798 151 7,853 138 8,637 149 8,701 152

Source: Directorate of Agriculture and Food Production, Orissa. Table 4: Area, Production and Yield Rate of different Fruits in Orissa during 2004-05 (P) Sl. No. 1 1 2 3 4 5 6 7 Name of the fruits 2 Mango Banana Citrus Pineapple Papaya Coconut Other fruits Total Area ('000 ha.) 3 120.25 20.73 26.42 0.70 0.74 50.78 64.59 284.21 Production ('000 MT) 4 416.34 269.79 204.66 7.74 13.06 2,746 (lakh nuts) 492.38 1403.97 and 2746 lakh nuts Yield rate (qtl/ha) 5 34.62 130.14 77.46 110.57 176.49 5,408 (nuts) 76.23 60.15 and 5408 no. of nuts per ha.

P: Provisional Source: Directorate of Horticulture, Orissa, Bhubaneswar

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 5: Area, Production and Yield Rate of different Vegetables during 2004-05 (P) Sl. Name of the Area ('000 Production Yield rate No. vegetable hect.) ('000 M.T.) (qtls./hect) 1 2 3 4 5 1 Brinjal 127.71 1,852.24 145.03 2 Tomato 100.26 1,330.76 132.73 3 Cabbage 33.71 931.00 276.18 4 C. Flower 45.01 637.87 141.72 5 Pea 4.79 41.76 87.18 6 Okra 71.39 619.70 86.80 7 Sweet Potato 47.11 394.29 83.70 8 Potato* 8.51 80.77 94.91 9 Others 186.62 1,830.97 98.11 Total 625.11 7,719.36 123.49 P Provisional Source: Directorate of Economics & Statistics, Orissa, Bhubaneswar, Directorate of Horticulture, Orissa, Bhubaneswar Table 6: Area and Production of different Floricultural Crops (Area in ha./ Prodn. in Qtl.) Year Marigold Rose Gladioli Tube rose. Area Productio Area Producti Area Productio Area Producti n on n on 1 2 3 4 5 6 7 8 9 2003-04 194.64 14,581 41.62 92.19 11.37 11,36,80 33.6 540 0 2 2004- 221.05 16,599 46.14 98.63 12.07 12,05,96 34.9 555 05(P) 0 2 P: Provisional Source: Directorate of Horticulture, Orissa, Bhubaneswar

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 7: Agricultural Credit Advanced in Orissa from 2000-01 to 2004-05(p) Sl. No. 1 1 2 3 4 5 Year 2 2000-01 2001-02 2002-03 2003-04 200405(P) Commercial Banks 3 206.23 266.40 281.40 434.89 627.89 RRBs Co-operative Banks 4 5 134.42 442.38 129.80 532.25 155.89 609.00 167.65 724.03 304.66 971.26 (Rs. in crore) OSFC Total 6 0.18 0.54 0.26 0.31 0.22 7 783.21 928.99 1,046.55 1,326.88 1,904.03

P: Provisional Source: State Level Bankers' Committee, Bhubaneswar Table 8: Large and Medium Industries in Orissa Sl. No. Year No of units Investment gone (Rs. in into crore) production 3 4 305 1616.96 352 3550.63 Employment generated (number) 5 78593 85369

1 2 1 By the end of 8th Plan (1996-97) 2 By the end of 9th Plan (2001-02) During the year 3 2002-03* 4 2003-04* 5 2004-05* * Relates to IPICOL only

6 3 1

34.08 12.15 3.35

408 107 42

Sources: Industrial Promotion and Investment Corporation Ltd., Bhubaneswar, Orissa State Electronics Development Corporation, Bhubaneswar & Industrial Development Corporation Ltd., Bhubaneswar

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 9: Large and Medium Industries promoted by IPICOL Sl. Year No . 1 2 1 By the end of Eighth Plan (1996-97) 2 By the end of NinthPlan (2001-02) During the Year 3 2002-03 4 2003-04 5 2004-05 No of units gone into production 3 237 267 Investment (Rs. in crore) 4 1283.56 2931.70 Employment generated (number) 5 30,903 34,294

6 3 1

34.08 12.15 3.35

408 107 42

Source: Industrial Promotion and Investment Corporation Ltd., Bhubaneswar Table 10: Small Scale Industries in Orissa Sl. No . Year Small Scale Small units set up Scale units (cumulative set up ) (during the year) 3 4 49,589 2,507 66,206 3,676 70,125 3,919 74,133 4,008 78,564 4,431 83,075 4,511 Investme Employme No. of SSI nt (Rs. in nt units crore) generated identified as (number of sick by OSFC persons) (cumulative) 5 6 7 74.82 13,019 1,458 153.18 18,115 1,519 165.23 16,582 1,524 155.14 16,320 1,527 170.13 20,547 1,535 245.59 21,898 1,688

1 1 2 3 4 5 6

2 1995-96 2000-01 2001-02 2002-03 2003-04 2004-05

Source: Directorate of Industries, Orissa

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Table 11: Activities of Orissa Small Industries Corporation (OSIC) Sl. Scheme No . 1 2 1 Raw materials supplied 2 Marketing Assistance 3 Sub-contracting exchange 4 Others (consignment sale & ID card) (Quantity - in MT., Value - Rs. in lakh) Achievement made during the year 2002-03 2003-04 2004-05 Qty. Value Qty. Value Qty. Value 3 4 5 6 7 8 46,384 6934.1 45,236 6644.1 40562 9192.9 2 4 5 988.52 907.88 352.93 495.58 24.18 410.13 415.94 30.20 248.02

Source: Orissa Small Industries Corporation, Cuttack Table 12: Growth of Cottage Industries in Orissa SI. No. 1 1 2 3 4 5 Year No. of units established 3 22,431 26,196 25,041 23,287 17,808 Investment (Rs. in lakh) 4_ 4,064.68 6,172.55 6,133.67 6,788.65 4,711.02 Employment generated (number of persons) 5 37,641 36,937 39,528 39,743 29,587

2 2000-01 2001-02 2002-03 2003-04 2004-05

Source: Directorate of Handicrafts and Cottage Industries, Bhubaneswar

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011

Assumptions of Central Place Theory and Gravity Models with Special Reference to Consumer Spatial Behaviour
Madan Lal* & Vivek Kumar Pathak**
Abstract Central Place Theory and gravity models have been the basic operational procedures to study consumer spatial behaviour. But, with major shifts in the socio-economic status and the newfound complex nature of movement of modern retail consumers, the underlying assumption of these models dont fit in the present context and needs to be revisited. The present study attempts to examine these assumptions in the light of these observed changes. Key Words: Consumer Spatial Behaviour, Retail Location, Central Place Theory, Gravity models Introduction It is said that location, location, location is the major factor leading to a firms success or failure. Location decisions are complex in nature and there is little flexibility in retracting from the decision once a site is chosen. A good location lets a retailer succeed even if there is any lacuna in the strategy mix. But, it is found that there is negligence of retail location studies. In most of the marketing research studies, the central concern is channel of distribution, store environment and image and not the location. Location analysis is basically done on the basis of geographical research and most of the strategic dimensions of location in marketing research are borrowed from it (Ian Clarke, David Benison and John Pal, 1997).

Assistant Professor, Faculty of Management studies, Banaras Hindu University, Varanasi (India) E-mail: madanfms@sify.com ** Research Scholar, Faculty of Management Studies, Banaras Hindu University, Varanasi (India) E-mail: vivekbizs@yahoo.co.in

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Geographical research and consumer spatial behaviour One of the important areas of research that links retailing and geography is consumer spatial behaviour. Consumer behaviour traditionally has been a fertile area of research in geography and paradoxically the study of consumer spatial behaviour has been the object of a relatively small number of publications in scientific marketing reviews. In general, consumer spatial behaviour is defined as the ways in which consumers relate to the distribution of the various goods and services over space (market area) (Huge James Gayler, 1974). It is the reactions of an individual or groups of individuals with relation to the immediate surrounding market area. It studies the question Where of the consumer research. Where the consumer is likely to shop directly affects the location and organization of the retail market system and vice-versa (Reginald G. Golledge and Robert J. Stimson, 1997). Many researchers in the past Where the consumer is likely to shop directly affects the location and organization of the retail market system and vice-versa (Reginald G. Golledge and Robert J. Stimson, 1997). Many researchers in the past have tried to explore relationship between consumer behaviour and spatial structure of the retail environment. Among the earliest approaches is that of Reillys law of retail gravitation (1931), Christallers central place theory (CPT) (1933) and Huffs law of shopper attraction (1962, 1964). But, these approaches are based on certain assumptions about consumers that are not reasonable now. Analysis of Assumptions of Central place Theory (CPT) and Gravity models: There is a similarity between Christallers central place theory, Reillys law of retail gravitation and Huffs law of shopper attraction and that is they all seek to analyse the trade performance of retail centres based on consumer behaviour. The central place theory proposes a hierarchy of retail centres. A large retail centre that offers a variety of different retail functions is surrounded further by with less choice and specialist retailers, which is surrounded further by small centres with less choice and specialist retailers (David Gilbert, 2009). It states that location, number, size and spacing of these centres are based on certain assumptions of rationality on the part of retail and consumer behaviour.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 There are three important concepts in CPT. The first one is the range; it is the maximum distance people are willing to travel to avail a retail function (J D Forbes, 1987). It denotes the area from which consumers will come to purchase a particular good. As the distance to retail centre increases, the demand for a product decreases and ultimately drops to zero. Beyond the limit of the range the total cost and the friction involved in the purchase of the good is such that demand declines rapidly (Hugh James Gaylor, 1974). The second concept is that of threshold, it is the minimum size of an agglomeration of people necessary before a function is provided. And the third one is the function ie any type of institution serving a population. The central place theory makes broad generalizations about the nature of retail function and the ways in which consumers relate to them. The retail gravity models explain the way consumers behave over space with the help of Newtonian physics ie the force between two masses is proportional to the size of those masses and inversely proportional to the distance between them. Reillys law states that Greater shopping centre size increase consumer utility, thus increasing the gravitational pull of a centre and that distance to that centre decreases consumer utility, which exponentially decreases the gravitational pull of the centre (Mark J Eppli and James D Shilling, 1992). It establishes a point of indifference between two cities or communities so the trading areas can be determined. This law may be algebraically expressed as: D(ab) = d/1+Pb/Pa where D(ab) is the limit of city As catchment area measured in miles along the road to city B, d is the distance in miles along a major roadway, Pa is population of city A and Pb is population of city B. This model assumed rational economic and spatially invariant individual behaviour on the part of the consumer. Similarly, Huffs law of shopper attraction states that the probability of any shopper choosing a particular retail centre is equal to the ratio of the utility of that centre to the sum of utilities of all competing centres in the system. It delineates trade area on the basis of the product assortment at various shopping locations, travel times from the shoppers home to alternative locations and the sensitivity of the kind of shopping to travel time. Unlike Relliys law which works on a two centre

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 specification, Huffs model includes the possibility of having an unlimited number of competing stores in market as well allowing for a varying distance parameter (Mark J Eppli and James D Shilling, 1992). This model incorporates the realistic notion that customer do not always select one centre for exclusive shopping. It describes the process by which potential consumers choose from among acceptable alternative retail centres to obtain specific goods and services. Huffss law is expressed as: Pij= Sj/(Tij) Sj/(Tij) where Pij is Probability of a consumers travelling from home i to shopping location j, Sj is square footage of selling space in shopping location j, Tij is Travel time from consumers home i to shopping location j, n is the number of different shopping locations under consideration and is the parameter to estimate the effect of travel time on different kind of shopping trips. These three broad theoretical approaches are based on certain assumption about consumers. The CPT considers all consumers to be identical. It is based on single purpose shopping trip and on patronizing the nearest shopping centre. The Reillys law of gravitation assumes that the consumer trades off the attractiveness of alternative shopping area against the deterrent effect of distance (Richard M Clarkson, Colin M Clarkhill and Terry Robinson, 1996). Assumption 1: All consumers are identical A fundamental part of scientific research has been to show that differences in overt behaviour are related to differences in peoples personal situation (family background, income, age etc.) Consumer spatial behaviour is no exception. Differentiating consumers only on the basis of what they purchase, where they purchase, where they live and how far they travel will not suffice (Eliot Hurst et al. (1992). The study of possible relationship between consumer spatial behaviour and the attributes which allow us to describe and group consumers is required. A study (H. J. Gayler, 1980) carried out in Vancouver, Canada tried to establish a relationship between consumer spatial behaviour and the socio-economic characteristics of consumers.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 The study analysed the distance travelled by the consumers for different goods categories to see if there was any significant difference when the consumers were differentiated into different social class. It was further analysed from the point of view of the store type and the shopping centre patronized. It was hypothesized that the higher the social class position, the greater the distance that is travelled to shop. This hypothesis was found to be statistically significant for two goods categories i.e. Grocery and dress. A similar study (S Martin Taylor, 1979) carried out at the same place by classifying the consumers on the basis of personal disposition could not yield significant results. At the macro level when consumer is choosing between different shopping centres the influence of dispositional variables were not pronounced, but, at micro level when choosing between different stores, the consumers disposition assumed far greater significance. The methodology usually employed in social sciences and marketing research is that the population is differentiated into different groups on the basis of certain variables (Income, Age, Socio-economic attributes). A need is felt here to study consumer spatial behaviour on the basis of these variables and to find out which variable predicts consumer spatial behaviour in a better way. Assumption 2: Consumer patronises the nearest shopping centre CPT is based on the assumption that consumer always patronises the nearest shopping centre, also termed as nearest centre hypothesis. Studies have proved that consumers are prepared to travel further to purchase a good in a central business district or other high order centres than to purchase the good at a low order centre (Clark W A V, 1968). In the Vancouver, Canada study (H J Gaylor, 1980), it was found that there was a greater tendency for upper/upper-middle and lower-middle class consumers to travel the greater distances and this was invariably implied by passing one of the major chain stores in favour of food floors in department stores. It has been also found that the patronization of the shopping centre is influenced by the type of goods purchased. For convenience goods, which is bought frequently, a consumer might not travel to other places and will patronize the nearest centre but in case of speciality good, which is bought less frequently, location becomes less important and consumer might travel to other places (Ward Nefstead, 1988). It has also been found that low income group travel shorter

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 distances to shop than higher income group because of the socio-economic constraints placed on their mobility. This assumption of CPT is based on the premise that the purchase response is based upon price and product range, where the consumer tries to reduce its transportation cost. Here, a rational economic behaviour is assumed. Assumption 3: Consumer trades off the attractiveness of alternative shopping area against the deterrent effect of distance There is over emphasis on distance in gravity models. Distance has been extensively studied, (called the principle of least effort) in psychology and still remains paradoxically the variable that is often the most difficult to understand. In gravity models the consumer spatial behaviour is summed as the analysis of distance travelled between home and point of sale. The strict definition of the law of gravitation and its application to retail impose this restriction, for gravitation is defined in terms of distance and mass (Gerard Cliquet,2006). In contrast with Reilly, Huff used time as a measure of distance. Use of time as a measure of distance seems to be more appropriate, as the time spent in getting from one point to the other is more important than the distance between them. Because of the major socio-economic shifts, more out of home recreational lifestyle and increased transport mobility levels time is becoming the scarcest commodity. The consumers these days are increasingly concerned about optimizing the efficiency of their shopping pattern (Dellaert et al, 1998). However, distance in terms of time is also very deceptive. Consumers do not all have the same perception of time. These differences of perception come from various causes for e.g. Trips made at different times of the day or of the week can lead to a totally distinct appreciation between one individual and another. Apart from this, work by various researches have shown that closer and shorter distances tend to be overestimated and further and long distances tend to be underestimated (Heli Marjanen, 2000). This complexity of understanding of distance variable is now being reduced because it is now well understood that there are other variables also that affect consumer spatial behaviour. For a modern retail consumer, non-price factors are increasingly a more important determinant of a purchase decision (David Gilbert, 2009). The distance variable itself gets affected by certain intervening variables like the frequency of shopping and mode of transportation used. In general, the distance travelled varies inversely with the frequency of shopping (Peter Scott, 2007).

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 The CPT also assumes that trips are home location based and each good is purchased on a different trip. It has been found that 30 % of all urban travel behaviour involve trips with more than two shops and often involve more than one purpose. Given an initial stop for grocery shopping, the most likely subsequent stop is non-grocery shopping. Given an initial stop for non-grocery shopping, the most likely subsequent stop is non-grocery shopping (Losch, 1967). Consumers are increasingly connecting their shopping with their other activities and this further diminishes the explanatory power of distance. For example, daily grocery shopping is mainly done in connection with the trip to/from work; it is of limited use to measure the distance from the respondents home to the store (Heli Marjanen, 2000). So, the assumption that all the trips are made from home and they are single purpose trips do not hold true for modern retail consumers. Conclusion CPT and Gravity models are based on a static and simplistic view of consumer spatial behaviour. To a large extent the gravity model and its derivatives have been the basic operational procedures to study consumer spatial behaviour. But, with major shifts in the socio-economic status of the consumers, the underlying assumption of these models needs to be revisited. The modern retail consumer moves rapidly and along complex paths. The understanding of this newfound complex nature of consumer mobility is important for the design of a location based strategy. There is a need to develop consumer spatial behaviour models that integrate the intensification and complex nature of consumer mobility. On the basis of the above discussion a basic model is proposed here.
Origin--------------------------------------------------------------------------------> Destination Consumer Distance Market place Classification of consumers on the basis of various attributes Factors attracting consumers to the market place

Type of goods

Factors affecting Distance travelled

BASIC MODEL OF CONSUMER SPATIAL BEHAVIOUR

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 When analysing the consumer Spatial behaviour three important groups of factors need to be considered. The consumer with all his/her characteristics, the characteristics of the shop or retail centre, including its location and the factors affecting distance travelled. However, the number of variables that can be included at a time might be a major concern for researchers. The detailed explanation of this model and assumptions of CPT and gravity models which are not consumer specific is beyond the scope of this paper. Since most of the researches in the field of consumer spatial behaviour belong to geographers like Christaller, who proposed central place theory was a German geographer), there is a need of input from both practitioners (managers) and academicians from the field of marketing. References Benedict G.C. Dellaert et al (1998). Investigating consumers tendency to combine multiple shopping purposes and destinations. Journal of Marketing Research, Vol. 35, No. 2, pp.177-188. Berry Berman, Joel R. Evans (2007), Retail Management: A Strategic Approach, Tenth Edition, PHI Clarke, Ian, David Bennison and John Pal. (1997). Towards a contemporary perspective of retail location. International Journal of Retail and Distribution Management. Vol. 25, No. 2, pp. 59-69. Clark, W. A. V. (1968), Consumer travel patterns and the concept of range, Annals of the Association of Geographers, Vol.58, pp. 386-96 David Gilbert (2009). Retail marketing management, Sixth Edition, Pearson Education. Davis, Martin and Clarke, Ian. (1994). A framework for network planning. International Journal of Retail and Distribution Management, Vol. 22, No.6, pp. 6-10

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Eliot Hurst et al. (1992), An analysis of the spatial distribution of customer around two grocery retailing operations, Professional geographer, vol. 21, pp 184-190 Eveline S.Van Leeuwen, Piet Rietveld. (2010). Spatial consumer behaviour in small and mid-sized towns. Regional Studies, pp.1-13. Forbes, J. D. (1972). Central place theory: An analytical framework for retail structures. Land Economics, Vol.18, No.1, pp15-22. Gayler, H. J. (1980). Social class and consumer spatial behaviour: Some aspects of variation in shopping patterns in metropolitan Vancouver, Canada. Transactions of the Institute of British Geographers, New Series, Vol. 5, No. 4, pp. 427-445. Gerard, Cliquet. (2006). Geomarketing- Methods and strategies in spatial marketing, ISTE. Kelly, M. E. O. (1993). Multipurpose shopping trips and the size of retail facilities. Annals of the Association of American Geographers, Vol.73, No.2, pp. 231-239. Losch, A.(1967). The economics of location. John Wiley. Mark, J. Eppli and James D. Shilling. (1996). How critical is a good location to a regional shopping centre. The journal of Real Estate Research, Vol.12, No.3, pp. 345-359. Richard M. Clarkson, Colin M. Clarke Hill and Terry Robinson. (1996). UK supermarket location assessment. International Journal of Retail and Distribution Management, Vol.24, No.6, pp. 22-23.

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Journal of Management & Public Policy, Vol. 2, No. 2 June 2011 Scott, Peter. (2007), Geography and Retailing, second edition, Aldine Transaction. Taylor, S. Martin. (1979). Personal dispositions and human spatial behavior. Economic geography, vol.55, no.3, pp.184-195 Ward, Nefstead. (2006). Principles of retail location. Geojournal, Vol.10, No.4, pp.546-550.

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