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A PRE RESCISSION COMPARATIVE STUDY ON

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Contents
1

A peep into the Indian two wheeler market

Dr. Soumendu Bhattacharya
A pre rescission comparative study on employees productivity and cost in Indian banking
industry
Dr S.M.Tariq Zafar
Dr D.S.Chaubey
Dr. Adeel Maqbool

16

Environmental taxation: Issues, challenges and prospects

27
Dr. Minakshi Paliwal

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

Jayanta Banerjee
Dr Ajay K Garg

33

Growth and trend of development revenue expenditure in Mizoram

Dr. R. Lalnuntluanga
Dr. L. Shashikumar Sharma

41

Financial inclusion and SHG-bank linkage programme: A rural household study in Kerala
Dr. Minimol M.C.
Dr. Makesh K.G.

47

A study & scope of SME's in Uttarakhand & problems faced by them

Mohammad Alam Khan

53

A study on impact of service quality on customer loyalty in a private PTFE products

manufacturing company, Bangalore
Dr. Lakshmi Jagannathan
S. Deepalakshmi
Taraya Srivilas

58

Talent management practices and its relationship with employees turnover: a study on employees
working in insurance sector industries in Uttarakhand: An empirical study
Dr. D.S. Chaubey
Vishal Gupta

64

Service quality measurement in life insurance sector - A hot phenomenon in today's

commercialized world
Shivani Nischal

73

Total quality management concepts and the Indian scenario

84
P.G. Dangwal

Book Review
Review of Business Statistics

91
Dr. N. D. Vohra
i

From the Editors Desk.....?

Dear Readers,
I am delighted to introduce the volume fourth of management journal Vedaang to
our esteemed subscribers. Vedaang has now established itself very well among the
corporate and academic community and the volume of literary work submitted by
researchers is an indicator to that.
The latest issue consists of high-quality and original research papers alongside
relevant and insightful reviews. The literary work runs across length and breadth of
industrial sector from automobile to FMCG, and from technology to economics.
As such, the current issue of the journal aspires to be vibrant, engaging and
accessible, and at the same time integrative and challenging. I am sure that the
issue will be received well among the readers as in acting as a source of valuable
and reliable source of information.
I congratulate the editorial board of Vedaang for maintaining the standards of the
journal issue after issue. Though any suggestions from the readers and advisory
panel for further improvement will be appreciated.
Jai Hind!

Dr. Shweta Sethi

Editor

ii

A PEEP INTO THE INDIAN TWO WHEELER MARKET

Dr. Soumendu Bhattacharya*
ABSTRACT
The steady growth of middle and upper middle class segments has pushed the demand of two
wheelers. Automobile industry is one of the largest industries, which contributes substantially and is
one of the key sectors of the growing economy. India is the next larger producers of two wheelers in the
world after China. Not too many industries, in fact not even the other segments of the automobile
industry, such as commercial vehicles, passenger cars and tractors, have posted its kind of growth
reeling under the impact of dwindling demand. Manufactures have been always wondering adopt
what the customers look for in a product. The companies are slugging it out to maintain or increase
their market share but the consumers are a happy lot. At the stock market, the share prices of twowheeler companies have seen a divergent trend.

Introduction

combination of two or more segments e.g. scooter

and Motor-cycles . The market primarily comprises
five players in the two wheeler segment with most
of the companies having foreign collaborations with
well-known Japanese firms earlier. But most of the
companies are now planning 100% subsidiaries in
India.

Automobile is one of the largest industries in

global market. Being the leader in product and
process technologies in the manufacturing sector, it
has been recognised as one of the drivers of
economic growth. During the last decade, welldirected efforts have been made to provide a new
look to the automobile policy for realising the
sector's full potential for the economy.. Steps like
abolition of licensing, removal of quantitative
restrictions and initiatives to bring the policy
framework in consonance with WTO requirements
have set the industry in a progressive track.
Removal of the restrictive environment has helped
restructuring, and enabled industry to absorb new
technologies, aligning itself with the global
development and also to realise its potential in the
country. The liberalisation policies have led to
continuous increase in competition which has
ultimately resulted in modernisation in line with the
global standards as well as in substantial cut in
prices. Aggressive marketing by the auto finance
companies have also played a significant role in
boosting automobile demand, especially from the
population in the middle income group. The Indian
two wheeler market has a size of over Rs 100,000
million. The Indian two wheeler segment
contributes the largest volumes amongst all the
segments in automobile industry. Though the
segment can be broadly categorized into 3 subsegments viz; scooters, motorcycles and mopeds;
some categories introduced in the market are a

In the last four to five years, the two-wheeler

market has witnessed a marked shift towards
motorcycles at the expense of scooters. In the rural
areas, consumers have come to prefer sturdier bikes
to withstand the bad road conditions. In the process
the share of motorcycle segment has grown from
48% to 58%, the share of scooters declined
drastically from 33% to 25%, while that of mopeds
declined by 2% from 19% to 17% during the year
2000-01. The Euro emission norms led the existing
players in the two stroke segment to install catalytic
converters. All the new models are now being
replaced by 4-stroke motorcycles. Excise duty on
motorcycles has been reduced resulting in price
reduction, which has aided in propelling the demand
for motorcycles. Fierce competition has also forced
players to cut prices in certain models.
Current Scenario
The two-wheeler industry is passing through a very
interesting phase. Developments such as the entry
of more number of players into the motorcycle
market, price discounts offered by producers,
monsoon failure and growing competitive pressure
have changed the underlying basics of the industry.

*Faculty-Management Studies, Institute of Technology and Science, MohanNagar, Ghaziabad, U.P

Vedaang Vol. 4 No. 1, January-June 2013

The impact of these developments is reflected in a

change in market share, a divergent trend in share
price and the sharp swing in the price-earnings
multiple. Hero Honda continues to be the market
leader in the motorcycle segment with a 44.7 per
cent share. But it has ceded vital market space to
competitors such as Bajaj (23.7 per cent) and TVS
Motor (19.2 per cent). The Hero Honda share, which
peaked at around Rs 400 in April 2002, has since
been on a steady downtrend. Its competitors (such
as Bajaj and TVS Motor), though, have seen their
share prices recover sharply from the lows recorded
in October 2002. The reasons for this kind of a
disparate trend are not far to seek. With more than 40
per cent of the motorcycle demand flowing from the
rural sector, the success or failure of monsoon has a
major influence on the sales volume.

industry. The success of the latest Pulsar has helped

the company to stay clear of adopting an aggressive
price reduction strategy. Besides, the recently
launched Caliber 115 has also enjoyed a fair degree
of success. As a result, and aided by its cash-rich
status, the company has been able to hold its ground.
In stark contrast to the situation that prevailed in the
1990s, the two-wheeler industry has now acquired
the traits of any other consumer durables industry,
of price wars, celebrity endorsements and everincreasing sales and other promotional outgo. In the
1990s, the profit margin of the top companies was
not subject to the kind of strain that is being
witnessed in the recent quarters.
The entry of more players into the fast-growing
four-stroke motorcycle market has led to higher
competitive pressure for the companies. Earlier,
Hero Honda and Bajaj were the only producers of
four-stroke motorcycles. Now, TVS Motor, Kinetic,
LML along with Bajaj and Hero Honda are jostling
for space in the four-stroke market. This has led to
an increase in the number of models and a
consequent reduction in product lifecycle. In the
past couple of years, more than ten new four-stroke
motorcycle models have hit the Indian roads the
popular ones include Victor, Passion and Pulsar. The
past few months also saw the launch of Byk,
Ambition and Caliber 115. This has resulted in an
increase in overall expenses, including promotional
costs, for the companies. Apart from the capital
expenditure, new product launches have an
inflationary impact on expenses of a recurring
nature, such as sales promotion and staff cost. This,
coupled with the discounts that are being forked out,
could have a negative impact on the profitability of
the two-wheeler industry in the near term; at least
until the volume growth manages to compensate
this. The pressure on margins is not fully manifest
owing to the cost control and indigenisation efforts
undertaken by two-wheeler companies. Going
forward, the constituents of the two-wheeler
industry too would find profit margin being
consistently under pressure once the scope for cost
control diminishes. Growth in volume would the
key driver of financial performance even as the
scope for margin expansion wanes. Though Bajaj
and Honda Motorcycles have been successful, the

During April-June 2002, motorcycle sales had

zipped ahead by 50.9 per cent to 9.1 lakh units.
However, in the last quarter of the previous fiscal,
the sales growth dropped to 7 per cent to 8.9-lakh
units. The sharp slowdown in growth rate is
explained by the drought that prevailed across most
parts of the country last year. But for the recovery in
the industrial economy and a soft interest rate
regime, the situation would have been worse. Also,
price discounts and attractive hire purchase
schemes have helped stem the declining trend in
demand. However, these cannot sustain the demand
for long unless there is a normal monsoon in the
current year. A sub-normal monsoon in the current
year could have a direct negative impact on the twowheeler off take, motorcycles in particular. The
slowdown in the demand has prompted twowheeler majors to offer attractive discounts to lure
customers. Hero Honda took the lead in April 2002
when it announced a Rs-1,001 discount across all
products. Earlier, TVS Motor had dropped the price
of its two-stroke motorcycle, Max 100, and this had
the desired impact of higher sales volume.
The impact of competitive pressure and
slowdown in growth is better reflected by TVS
Motor's recent move to offer a discount of Rs 2,003
even for its top-selling four-stroke model, Victor.
Bajaj has also been offering discounts and attractive
financing options to protect its interest in the
2

A Peep into the Indian Two Wheeler Market

task of assessing or anticipating swings and changes

in consumer preferences may not be an easy task.
This is borne out in the case of Hero Honda's CBZ
and the four-stroke scooter venture of Bajaj and
TVS Motor. While Pulsar turned out to be a huge hit
for Bajaj, Hero Honda's CBZ (launched much ahead
of Pulsar) failed despite possessing similar features .

Taking into account the higher degree of uncertainty

associated with earnings and the likelihood of a drop
in valuation levels, existing holders of two-wheeler
companies may look for opportunities to reduce
exposures. Evidence of increase in motorcycle sales
or signs of normal monsoon can be used to take
exposures in two-wheeler majors.

Similarly, both Bajaj and TVS Motor did not

make any progress in their four-stroke scooter
venture. But the latest entrant Honda Motorcycle
has enjoyed a huge success in this segment through
the Activa. The inherent difficulty in assessing and
addressing the developments or changes in the
industry would mean a higher degree of uncertainty
to the earnings growth of two-wheeler companies.
That the success or failure of even a single product
can have a major influence on the earnings
performance would aggravate the uncertainty
problem. Along with these factors, Honda
Motorcycle's decision to venture into the
motorcycle market next year could compound the
problems for companies such as Hero Honda, Bajaj
and TVS Motor. The cumulative impact of these
developments is reflected in the form of a divergent
and volatile trend in share price movement of twowheeler companies Bajaj, Hero Honda, TVS Motor
and LML. After lying low for quite a while, LML's
share price has shot up in the past few months after
the initial success of its Freedom model. Similarly,
the pick-up in sales volume of Hero Honda's
Ambition and CD Dawn models have resulted in a
sharp recovery in share price of the company from
the low of Rs 180 to the current level of about Rs
230. Considering that the stock market hates
uncertainty, especially when it is associated with
earnings stream, the valuation levels are likely to be
stressed in the future.

Motorcycle sales grew by an annual average of

32% over 1995-2006, and constituted nearly 66% of
total two wheeler sales in 2006, up from just 24% in
2005. Average monthly motorcycle sales have
increased five-fold since 1995 to almost 250,000
units in 2006. in today's market hero Honda is the
current market leader with a 49% market share.
Hero Honda has been an early entrant in the 4 stroke
segment of the two wheeler industry. With a right
mix of product styling and pricing the company
helped garner a larger market chunk of the 4-stroke
market as compared to Bajaj Auto. A shifting
consumer preference towards motorcycles also
enabled the fast growth of the company in the last
few years. Hero Honda motorcycle sales jumped
40.6% in 2006 at 135,961 units from 96,672 units it
sold in the corresponding last year. The change in
product mix in favor of higher value products has
resulted in improved realization for the company
the growing popularity of the passion model
appears to be the key factor behind improvement in
unit realization. Taking into account the recent trend
in performance, the company appears well
positioned to retain its top position in the
motorcycle market and also sustain the recent rate
of growth. Bajaj auto ltd is the second biggest
manufacturer of motorcycles. The companies
recent indigenous launch in 4-stroke segment viz;
the 150 / 180 cc pulsar which has practically
snatched the market share of the bikes like Hero
Honda CBZ, Suzuki Fiero, LML Adreno etc, and it
appears that pulsar would rule this segment till the
time there are some new launches in this segment by
other manufacturers, for Bajaj Pulsar has been the
major contributor for the rise in its motorcycle sales
along with its other popular models such as boxer,
caliber Croma etc. well coming to the third largest
share holder in the motorcycle segment which is the
TVS motors, which has emerged as a 'victor' after
the Suzuki break up, riding high on the success, of

This kind of a trend is already reflected in the

valuation of software stocks. A similar kind of a
trend could probably emerge in two-wheelers as
well. From an investment perspective, the earlier
approach of buy, hold and sell at a later date will
probably lose validity. The investment holding
period would tend to get shorter and riding the
momentum associated with company-specific
developments could well be the order of the day.
3

Vedaang Vol. 4 No. 1, January-June 2013

it's motorbike by the same name. TVS Victor is the

first indigenously produced motorcycle from TVS
motors. In fact with a six week waiting period, even
six months after its launch, TVS motors plans to
double its production capacity.

pulsar has arrived and the consumer choice clearly

shows that this place will be reserved for pulsar for
some time as a counter attack hero Honda too would
be launching a bike in this segment but it is too early
to comment on that.

The motorcycle market can be further

segmented on the basis of the price tags which are
the economy, executive and the premium segments.
Basically all the three leading companies have a
presence in all of these sectors. Clearly, the race to
the number one spot in the motorcycle segment has
been a one sided one. But times are changing, Given
the fact that Bajaj is positioning itself at all feature
and price points, it does have every model to satisfy
the needs of a prospective motorcycle buyer, and
also has the privilege of being the only one in the
cruiser segment but except for the two bikes i.e
Boxer CC and Pulsar no other Bajaj models seem to
be on the line of prosperity and the recently
launched dawn by Hero Honda is a direct threat to
the market of boxer ct price competitively at Rs
37,000/- which is just Rs 2,000/- more than the
boxer ct but then again boxer ct already enjoys a vast
market share and is very popular especially in the
rural areas it will be a tough job for dawn to displace
this bike from its current position a lot remains to be
seen by the feedback that it receives from riders.
The pulsar has taken the market by storm in the
premium segment it has clearly displaced the CBZ
and the other models of this segment and looks like
the things will remain this way for some time but
there are tough times ahead since Hero Honda plans
to launch a new bike in this segment by the end of
this year which means that there is a lot to look
ahead from a consumers point of view.

Review of Studies
Contemporary research has examined market
structure in order to explain consumer brand
preferences based on attributes of these brands.
While Elrod (1988), Chintagunta (1994) and Elrod
and Keane (1995) use static market structure
models, Erdem (1996) uses a dynamic model. In
another study, Bresnahan and Greenstein (1999)
have examined the principal structural features of
the computer industry in the U.S. at the industrywide and segment levels. They explain the
persistence of dominant computer firms, their
decline in the 1990s and the changes in the
competitive entry in this industry. They discover
that technological competition in the industry has
increased through a) the formation of young
platforms serving newly founded segments that
challenged established platforms through the
process of indirect entry and b) divided technical
leadership resulting from the vertical disintegration
of platforms.
Other studies that have examined industrial
structure include Baldwin and Gorecki (1994),
Adelman (1951), Golan et. al. (1996) and Amato
(1995). It is noteworthy that all such studies of
evolution of industries have largely been confined
to the US and the Canadian experience. More
specifically there does not exist any work along
these lines for the Indian industrial sector. The
Indian industrial sector has undergone profound
regulatory changes in recent times as a consequence
of the economic reforms program put together in
between 1988 and 1991. Consequent to these
reforms some of the industries that have been
influenced the most have been the consumer
durables industry (such as two-wheelers, washing
machines, televisions etc.), the automobile industry
and certain financial services. Typically an
economy undergoing industrial reforms resorts to
regulatory changes and redefines the role of the
public sector in order to create a climate of growth

Let us first identify the current market leaders in

each category. In the economy segment Bajaj is the
leader with 46% of the market share with boxer
being the largest selling bike in this segment. In the
executive segment Hero Honda is the clear leader
with 67% market share with splendor and passion
leading the market in this segment and will continue
to do so in the near future well now we come to the
most controversial segment which is the premium
segment since the current market leader according
to the sales of the past few months is CBZ but then
4

A Peep into the Indian Two Wheeler Market

and foster private competition. Therefore it is

pertinent to examine the structure and evolution of
industries (such as consumer durables) in
economies where reforms have taken place, for
such industries show a propensity to evolve into
oligopolies in the long run. It would be important in
this context, to analyze the impact that economic
reforms have had on industrial structure and to
understand the implications thereof for the design of
an appropriate regulatory mechanism in response.

durables industry but whether this indeed led to

enhanced competition is an empirical question, not
yet examined. This study addresses this question.
Market imperfections are typically examined by
calculating the Herfindahl index and the four-firm
concentration ratios at the industry-wide and
segment levels. Industrial economists have been
debating the usefulness of these indices in assessing
market concentration.
While Posner (1976) argues that concentration
ratios are but one of the indicators of collusive
tendencies and that it is necessary to include fringe
firms in the analysis, Adelman (1951), Amato
(1995), Golan, Judge, and Perloff (1996), and,
Baldwin and Gorecki (1994) have shown that the
Herfindahl index forms a much sounder indicator of
the structure and performance of a given industry
than four-firm concentration ratios. The Herfindahl
index is used, to a considerable extent, by the
structuralist school, which postulates that
competition, is a state of affairs (Reid, (1987)).
While four firm concentration ratios and Herfindahl
indices have their virtues as indicators of market
concentration at a point in time, it is also important
to understand the evolution of market power over
time.

Posner (1976) argues that if antitrust laws are

not formulated appropriately, competing sellers
might be able to engage in conscious parallelism
or tacit collusion and that the . The dealer margins
have increased from around 5% to about 30% of the
ex-factory price between 1988 and 1999. The
number of exclusive dealerships has also increased.
Bork (1978), however, asserts that only explicit
collusion was likely to exist given that collusion
without detailed communication and agreement
(tacit) was not likely to be successful. In India, laws
like the Monopolies and Restrictive Trade Practices
Act (MRTP) and Foreign Exchange Regulation Act
(FERA) were designed to control monopolistic
tendencies in the markets. If these tendencies create
welfare losses, then, there is a case for framing
appropriate antitrust legislation. The competitive
policy so developed must be able to distinguish
between real competition and purely theoretical
competition.

In this spirit Baldwin and Gorecki (1994) track

the mobility of firms (which captures shifts in
market structure) by using a variant of the instability
index of Hymer and Pashigian (1962). We have
used the Kendall's rank concordance test to put into
perspective the mobility of the firms. This is a more
robust measure of tracking mobility of firms over
time, since it also incorporates certain aspects of
Lorenz type measurements to indicate relative
positions of firms over time. If this index is used
along with the concentration ratios, one can identify
the contributors towards concentration over time in
a clearer manner. This test also enables us to
examine whether the dominance of any given firm
persists over time and if this dominance is
increasing/decreasing. However, a study of
dominance in terms of persistence of ranks needs to
be supplemented with one on dominance in terms of
levels. If the ranks of firms in terms of shares in
sales do not alter much over time, one still needs to

Competitive policy is not a road to Utopia or a

complete basis for public policy (Areeda and
Kaplow (1988)). Yet as Stigler (1966) points out, an
optimal policy on competition often prevents the
defects of social organization from being made
worse by preventing deliberate adoption of
restrictive practices by firms.
In this research work assess the degree of
imperfection in the two-wheeler industry in
particular. The reason is that this industry
underwent a sea change during 1985-2007 due to
economic reforms introduced in this period. These
reforms were aimed at encouraging competition.
During this period, the two-wheeler industry saw
the largest proliferation of brands in the consumer
5

Vedaang Vol. 4 No. 1, January-June 2013

assess whether differences between the sales shares

of these firms are narrowing over time.

industry as a whole, tend to grow at similar rates in

the long run and captures .the dynamics associated
with the long-term growth of volumes and marketshares at the segment and industry-wide levels.
This, then, sheds light on the inter-firm
dependencies at these two levels, which in turn has
implications for the competitive strategies of firms.
We also conduct this test for production capacities
of firms to test whether capacity expansion was the
result of competition within the industry.

Contemporary research has examined market

structure in order to explain consumer brand
preferences based on attributes of these brands.
While Elrod (1988), Chintagunta (1994) and Elrod
and Keane (1995) use static market structure
models, Erdem (1996) uses a dynamic model. In
another study, Bresnahan and Greenstein (1999)
have examined the principal structural features of
the computer industry in the U.S. at the industrywide and segment levels. They explain the
persistence of dominant computer firms, their
decline in the 1990s and the changes in the
competitive entry in this industry. They discover
that technological competition in the industry has
increased through a) the formation of young
platforms serving newly founded segments that
challenged established platforms through the
process of indirect entry and b) divided technical
leadership resulting from the vertical disintegration
of platforms.

It attempts to analyze key aspects of the

structural characteristics of consumer durables
industry in India. An analysis of the evolution of this
industry has implications for firms within the
industry, as well as for regulators and policymakers.
While inter-firm linkages would be pertinent to
firms in the context of competitive strategies, the
analysis of price movements in the industry and its
segments relative to the general price level, and the
structure of competition within the industry and
individual segments therein are of importance to
regulators. Capacity growth movements have
implications for future policy making within the
industry. Based on the results of this research paper
we can make certain general conclusions about the
consumer durables industries. For example, we
establish that a) consumer durables industries will
evolve as oligopolies at the industry-wide level and
at the level of the segments, b) that he convergence
of growth rates of sales volume and market-share is
likely to be conditional at the level of the industry
and absolute at the segment level. We can loosely
define conditional convergence to imply that in the
long run, its own past vector of means will
determine growth rate of a firm. Absolute
convergence implies that the growth rate of a firm is
moving towards the vector of means of other firms
in the industry in the long-run.

Other studies that have examined industrial

structure include Baldwin and Gorecki (1994),
Adelman (1951), Golan et. al. (1996) and Amato
(1995). It is noteworthy that all such studies of
evolution of industries have largely been confined
to the US and the Canadian experience. More
specifically there does not exist any work along
these lines for the Indian industrial sector. The
Indian industrial sector has undergone profound
regulatory changes in recent times as a consequence
of the economic reforms program put together in
between 1988 and 1991. Consequent to these
reforms some of the industries that have been
influenced the most have been the consumer
durables industry (such as two-wheelers, washing
machines, televisions etc.), the automobile industry
and certain financial services. Typically an
economy undergoing industrial reforms resorts to
regulatory changes and redefines the role of the
public sector in order to create a climate of growth
and foster private competition.

Evolution of the Indian Two-wheeler Industry

The two-wheeler industry (henceforth TWI) in
India has been in existence since 1955. It consists of
three segments viz., scooters, motorcycles, and
mopeds. The increase in sales volume of this
industry is proof of its high growth. In 1971, sales
were around 0.1 million units per annum. But by
1998, this figure had risen to 3 million units per

The Evans and Karras (1996) test of

convergence is ideally suited for this purpose. This
test enables us to examine whether firms within the
6

A Peep into the Indian Two Wheeler Market

annum. Similarly ,capacities of production have

also increased from about 0.2 million units of
annual capacity in the seventies to more than 4
million units in the late nineties. The Two wheeler
Industry (TWI) in India began operations within the
framework of the national industrial policy as
espoused by the Industrial Policy Resolution of
1956. (See Government of India (1980, 1985,
1992). This resolution divided the entire industrial
sector into three groups, of which one contained
industries whose development was the exclusive
responsibility of the State, another included those
industries in which both the State and the private
sector could participate and the last set of industries
that could be developed exclusively under private
initiative within the guidelines and objectives laid
out by the Five Year Plans (CMIE, 1990).Private
investment was channelised and regulated through
the extensive use of licensing giving the State
comprehensive control over the direction and
pattern of investment. Entry of firms, capacity
expansion, choice of product and capacity mix and
technology, were all effectively controlled by the
State in a bid to prevent the concentration of
economic power. However due to lapses in the
system, fresh policies were brought in at the end of
the sixties.4 All sales figures are from various issues
of ACMA, capacity figures from various Five Year
Plan documents. These consisted of MRTP of 1969
and FERA of 1973, which were aimed at regulating
monopoly and foreign investment respectively.
Firms that came under the purview of these Acts
were allowed to invest only in a select set of
industries. This net of controls on the economy in
the seventies caused several firms to a) operate
below the minimum scale of efficiency (henceforth
MES), b) under-utilize capacity and, c)use outdated
technology. While operation below MES resulted
from the fact that several incentives were given to
smaller firms, the capacity under-utilization was the
result of i) the capacity mix being determined
independent of the market demand, ii) the policy of
distributing imports based on capacity, causing
firms to expand beyond levels determined by
demand so as to be eligible for more imports. Use of
outdated technology resulted from the restrictions
placed on import of technology through the

provisions of FERA .Recognition of the deleterious

effects of these policies led to the initiation of
reforms in 1975 which took on a more pronounced
shape and acquired wider scope under the New
Economic Policy (NEP) in 1985. As part of these
reforms, several groups of industries were
delicensed and 'broadbanding' was permitted in
select industries. Controls over capacity expansion
were relaxed through the specification of the MES
of production for several industries. Foreign
investment was allowed in select industries and
norms under the MRTP Act were relaxed. These
reforms led to a rise in the trend rate of growth of
real GDP from 3.7% in the seventies to 5.4% in the
eighties. However the major set of reforms came in
1991 in response
Delicensed industries meant that firms no
longer required licenses from the State to enter the
industry or expand their plants. Broad banding
meant that a firm could manufacture products
related to the ones they were currently making
without the need for a separate license.
This meant that expansion of capacity till the
MES did not now require a license. To a series of
macroeconomic crises that hit the Indian economy
in 1990-917. Several industries were deregulated,
the Indian rupee was devalued and made
convertible on the current account and tariffs
replaced quantitative restrictions in the area of
trade. The initiation of reforms led to a drop in the
growth of real GDP between 1990 1992, but this
averaged at about 5.5% per annum after 1992. The
decline in GDP in the years after reforms was the
outcome of devaluation and the contractionary
fiscal and monetary policies taken in 1991 to
address the foreign exchange crisis. Thus the
Industrial Policy in India moved from a position of
regulation and tight control in the sixties and
seventies, to a more liberalized one in the eighties
and nineties. The two-wheeler industry in India has
to a great extent been shaped by the evolution of the
industrial policy of the country. Regulatory policies
like FERA and MRTP caused the growth of some
segments in the industry like motorcycles to
stagnate. These were later able to grow (both in
terms of overall sales volumes and number of
7

Vedaang Vol. 4 No. 1, January-June 2013

players) once foreign investments were allowed in

1981. The reforms in the eighties like 'broad
banding' caused the entry of several new firms and
products which caused the existing technologically
outdated products to lose sales volume and/or exit
the market. Finally, with liberalization in the
nineties, the industry witnessed a proliferation in
brands .A description of the evolution of the two
wheeler industry in India is usefully split up into
four ten year periods. This division traces
significant changes in economic policy making.

collaborations with foreign firms were encouraged.

In the motorcycle segment FERA did not cause
technological stagnation9, as a consequence of
which, new products nor firms entered the market
since this segment depended almost entirely on
foreign collaborations for technology. The scooter
and moped segments on the other hand were
technologically more self-sufficient and thus there
were two new entrants in the scooter segment and
three in the moped segment. c) 1981 1990The
technological backwardness of the Indian twowheeler industry was one of the reasons for the
initiation of reforms in 1981. Foreign collaborations
were allowed for all two-wheelers up to an engine
capacity of 100 cc.

The first time-period, 1960-1969, was one

during which the growth of the two-wheeler
industry was fostered through means like
permitting foreign collaborations and phasing out
of The Indian economy was faced with several
problems at this time. Foreign exchange reserves
were down to two month's imports, there was a large
budget deficit, double digit inflation, and with
India's credit rating downgraded, private foreign
lending was cut off. Also the Gulf war in 1990
brought about an increase in oil prices, and India
had to import oil for over US$ 2 billion (GATT
Secretariat, 1993)10non-manufacturing firms in the
industry. The period 1970-1980 saw state controls,
through the use of the licensing system and certain
regulatory acts over the economy, at their peak.
During 1981-1990 significant reforms were
initiated in the country. The final time-period covers
the period 1991-1999 during which the reform
process was deepened. These reforms encompassed
several areas like finance, trade, tax, industrial
policy etc. We now discuss in somewhat greater
detail the principal characteristics of each sub
period. a) 1960 1969The automobile industry
being classified as one of importance under the
Industrial Policy Resolution of 1948 was therefore
controlled and regulated by the Government. In
order to encourage manufacturing, besides
restricting import of complete vehicles, automobile
assembler firms were phased out by 1952 (Tariff
Commission, 1968), and only manufacturing firms
allowed to continue. Production of automobiles was
licensed, which meant that a firm required a
licensing approval in order to open a plant. It also
meant that a firm's capacity of production was
determined by the Government. During this period,

The variety in products available also improved

after 'broad banding' was allowed in the industry in
1985 as8 Between 1974-79, sales of two-wheelers
increased by 60%, while that of cars declined by
21% and jeeps grew only by 11%. Indian
motorcycles in the seventies had two major
drawbacks viz., low fuel-efficiency and high
weight. Worldwide however, there was a trend
towards using high-strength, low-weight materials
for various components which resulted in vehicles
that were compact and had lower weight. Since fuelconsumption of a two-wheeler depended on its
weight, lighter vehicles meant greater mileage.
These drawbacks were overcome in the eighties
when foreign collaborations were once again
allowed a part of NEP. This, coupled with the
announcement of the MES of production for the
two-wheeler industry, gave firms the flexibility to
choose an optimal product and capacity mix which
could better incorporate market demand into their
production strategy and there by improve their
capacity utilization and efficiency. These reforms
had two major effects on the industry: First, licensed
capacities went up to1.1 million units per annum
overshooting the 0.675 million units per annum
target set in the Sixth Plan. Second, several existing
but weaker players died out giving way to new
entrants and superior products12 d) 1991 1999. The
reforms that began in the late seventies underwent
their most significant change in 1991through the
8

A Peep into the Indian Two Wheeler Market

liberalization of the economy. The two-wheeler

industry was completely deregulated. In the area of
trade, several reforms were introduced with the goal
of making Indian exports competitive. The twowheeler industry in the nineties was characterized
by a) an increase in the number of brands available
in the market which caused firms to compete on the
basis of Fuel-efficiency improved by (60-100)% in
the new vehicles. In the seventies, motorcycle
mileage was on an average between 25 to 50 km pl
(kilometer per liter), which had now improved to 50
to 80 kmpl. For mopeds it improved from 50 km pl
to 80 km pl. Output of the engines also increased
from 3-4 HP to 10 HP per 100 cc.11 In the twowheeler industry, MES was pegged at 2,00,000
units and 5,00,000 units of annual licensed capacity
for non-exporting and exporting firms respectively
(CMIE, 1990). In the scooter segment, models with
features like self-starter facility, automatic
transmission system, gear-less riding etc. were
introduced that were traditionally not available in
scooters. In the motorcycle segment, the new100 cc
models compared well against the existing heavier
models of 250 cc, 350 cc etc. as these were lighter
and more fuel-efficient. Joshi and Little (1996)
discuss the economic crisis of 1991 and the policy
response of the Indian government. The EXIM
Scrip was introduced which granted exporters
entitlements worth 40% of their export earnings.

1993). product features15 and b) increase in sales

volumes in the motorcycle segment vis--vis the
scooter segment reversing the traditional trend.
Growth of Two Wheeler in India
The composition of the two-wheeler industry
has witnessed sea changes in the post-reform
period. In 1991, the share of scooters was about 50
per cent of the total two -wheeler demand in the
Indian market. Motorcycle and moped had been
experiencing almost equal level of shares in the total
number of two-wheelers. In 2003-04, the share of
motorcycles increased to 78 per cent of the total
two-wheelers while the shares of scooters and
mopeds declined to the level of 16 and 6 per cent
respectively. A clear picture of the motorcycle
segment's gaining importance during this period is
exhibited by the Figures 1, 2 and 3 depicting total
sales, share and annual growth during the period
1993-94 through 2003-04.
National Council of Applied Economic
Research (NCAER) had forecast two-wheeler
demand during the period 2002-03 through 201112. The forecasts had been made using econometric
technique along with inputs obtained from a
primary survey conducted at 14 prime cities in the
country. Estimations were based on Panel
Regression, which takes into account both time
series and cross section variation in data. A panel
data of 16 major states over a period of 5 years
ending 1999 was used for the estimation of
parameters. The models considered a large number
of macro-economic, demographic and socio-

Similarly quantitative restrictions were

replaced with import duties which were around 85%
of the two-wheeler industry (GATT Secretariat,

Table 1: Demand Forecast for Motorcycles and Scooters for 2011-12

2-Wheeler Segment

Regions
South

West

North-Central

East & North-East

All India

Motorcycle

2835
(12.9)

4327
(16.8)

2624
(12.5)

883
(11.1)

10669
(14.0)

Scooter

203
(2.6)

219
(3.5)

602
(2.8)

99
(2.0)

1124
(2.08)

Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parenthesis
Source: Indian Automobile Industry: Optimism in the Air, Industry Insight, and NCAER

Vedaang Vol. 4 No. 1, January-June 2013

economic variables to arrive at the best estimations

for different two-wheeler segments. The projections
have been made at all India and regional levels.
Different scenarios have been presented based on
different assumptions regarding the demand drivers
of the two-wheeler industry. The most likely
scenario assumed annual growth rate of Gross
Domestic Product (GDP) to be 5.5 per cent during
2002-03 and was anticipated to increase gradually
to 6.5 per cent during 2011--12. The all-India and
region-wise projected growth trends for the
motorcycles and scooters are presented in Table-1.
The demand for mopeds is not presented in this
analysis due to its already shrinking status
compared to' motorcycles and scooters.

the service sectors have shown high growth during

this period at the rates of 8.0 and 9.5 per cent
respectively. However, poor rainfall last year will
pull down the GDP growth to some extent. Taking
into account all these factors along with other
leading indicators including government spending,
foreign investment, inflation and export growth,
NCAER has projected an average growth of GDP at
6.7 per cent during the tenth five-year plan. Its midterm forecast suggests an expected growth of 7.4 per
cent in GDP during 2004-05 to 2008-09. Very
recently, IMF has portrayed a sustained global
recovery in World Economic Outlook. A significant
shift has also been observed in Indian households
from the lower income group to the middle income
group in recent years. The finance companies are
also more aggressive in their marketing compared
to previous years. Combining all these factors, one
may visualise a higher growth rate in two-wheeler
demand than presented in Table-1 particularly for
the motorcyclesegment.

It is important to remember that the abovementioned forecast presents a long-term growth for
a period of 10 years. The high growth rate in
motorcycle segment at present will stabilise after a
certain point beyond which a condition of
equilibrium will set the growth path. Another
important thing to keep in mind while interpreting
these growth rates is that the forecast could consider
the trend till 1999 and the model could not capture
the recent developments that have taken place in last
few years. However, this will not alter the regional
distribution to a significant extent.

There is a large untapped market in semi-urban

and rural areas of the country. Any strategic
planning for the two-wheeler industry needs to
identify these markets with the help of available
statistical techniques. Potential markets can be
identified as well as prioritised using these
techniques with the help of secondary data on socioeconomic parameters. For the two-wheeler
industry, it is also important to identify the target
groups for various categories of motorcycles and
scooters. With the formal introduction of
secondhand car market by the reputed car
manufacturers and easy loan availability for new as
well as used cars, the two-wheeler industry needs to
upgrade its market information system to capture
the new market and to maintain its already existing
markets. Availability of easy credit for twowheelers in rural and smaller urban areas also
requires more focussed attention. It is also
imperative to initiate measures to make the presence
of Indian two-wheeler industry felt in the global
market. Adequate incentives for promoting exports
and setting up of institutional mechanism such as
Automobile Export Promotion Council would be of
great help for further surge in demand for the Indian
two-wheeler industry.

Table-1 suggests two important dimensions for

the two- wheeler industry. The region-wise numbers
of motorcycle and scooter suggest the future market
for these segments. At the all India level, the
demand for motorcycles will be almost 10 times of
that of the scooters. The same in the western region
will be almost 20 times. It is also evident from the
table that motorcycle will find its major market in
the western region of the country, which will
account for more than 40 per cent of its total
demand. The south and the north-central region will
follow this. The demand for scooters will be the
maximum in the northern region, which will
account for more than 50 per cent of the demand for
scooters in 2011-12.
The present economic situation of the country
makes the scenario brighter for short-term demand.
Real GDP growth was at a high level of 7.4 per cent
during the first quarter of 2004. Both industry and
10

A Peep into the Indian Two Wheeler Market

The production figures of motorcycles simply

reflect the trend that is Prevalent in the industry, as
the demand of motorcycles has increased so have
their production. Demand for two-wheelers has
grown at a rate of 17% in the year 2004/2005. Bajaj
Auto which is the one of the largest producer of twowheelers in the country has been able to achieve a
production of 1.8 million vehicles with manpower
of 10,914 in 2004/2005 as compared to 1.5 million
vehicles in 2003/2004 with manpower of 11,531.
Many companies like the Honda motorcycles and
scooters India Limited are beefing up their
production capacities to reach a target of around
300,000 per annum.

were divided between the motorcycles and mopeds.

But now the trend indicates that people are
preferring motorcycles more than that of the
scooters. At present there is a huge demand for the
motorcycles in India .There are a number of two
wheeler companies in India that produce vehicles of
extremely high standard. Some of the leading two
wheeler manufacturers in India are Bajaj Auto.,
TVS Motor, Kinetic Motor, Suzuki Motor
Corporation, Royal Enfield Motors India, Hero
Honda Motors, Yamaha Motor India, LML India
and Monto Motors. Many of two wheelers
manufactured by these companies are exported to
countries in South East Asia, Africa and South
America.

Though the metal geared scooters have fallen

out of favour of the Indian riders, the ungeared
segment of scooters have been able to drive the
volumes in this segment. This fact is reflected in the
dip in production during the early 2000. On a more
positive note the ungeared segment of scooters have
grown by over 13% in 2004/2005 thus driving the
production in this segment. Bajaj Auto which has an
overwhelming presence in this segment has
produced 742,000 units during 2004/2005.

Motorcycles are usually priced higher than that

of the scooters and mopeds. They are even equipped
with more features for faster travel. Based upon the
engine displacements and power capacity
motorcycles are further classified as: road bikes,
trail bikes, racing bikes and touring bikes . Most of
the motorcycles in India come with engine capacity
of about 100 cc to 250 cc. The engine capacity of
scooters usually vary between 100 cc to 150 cc.
Mopeds have small engine capacity ranging
between 50cc to 100 cc. Most of the automobile
companies in this segment are always coming up
with newer variants of different models of two
wheelers. To be in the long run these companies are
even adding more number of features to these
vehicles

These entry level two-wheelers have seen a

steady decline in the production in the recent years,
though in the year 2005-2006 their production has
picked up but its too early to predict a revival of this
segment of two- wheelers. As entry level
motorcycles become cheaper with every passing
day mopeds might see a further dip in production
and sales in the years to come.

Motorcycles have increased so have their

production. Demand for two-wheelers has grown at
a rate of 17% in the year 2004/2005. Bajaj Auto
which is the one of the largest producer of twowheelers in the country has been able to achieve a
production of 1.8 million vehicles with manpower
of 10,914 in 2004/2005 as compared to 1.5 million
vehicles in 2003/2004 with manpower of 11,531.
Many companies like the Honda motorcycles and
scooters India Limited are beefing up their
production capacities to reach a target of around
300,000 per annum. Though the metal geared
scooters have fallen out of favour of the Indian
riders, the ungeared segment of scooters have been
able to drive the volumes in this segment. This fact

Major Players in Two Wheeler Industry

The two wheelers have played a pivotal role in
the surging growth of the Indian automobile
industry. Over the years the domestic sale of various
brand of two wheelers have grown in large numbers.
Even in the sphere of exports, the two wheelers have
been able to maximize the profit margin of various
two wheeler manufacturers. There are mainly three
Models of two wheelers, which are classified as
scooters, motorcycles and mopeds. In the recent
years the two wheeler industry has witnessed sea
change. During the yesteryears the scooters used to
have about 50% of the market share and the rest
11

Vedaang Vol. 4 No. 1, January-June 2013

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is reflected in the dip in production during the early

2000. On a more positive note the ungeared segment
of scooters have grown by over 13% in 2004/2005
thus driving the production in this segment. Bajaj
Auto which has an overwhelming presence in this
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2004/2005.
These entry level two-wheelers have seen a
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though in the year 2005-2006 their production has
picked up but its too early to predict a revival of this
segment of two-wheelers. As entry level
motorcycles become cheaper with every passing
day mopeds might see a further dip in production
and sales in the years to come.
Conclusion
The two-wheeler industry is passing through a
very interesting business phase. While the
companies are slugging it out to maintain or
increase their market share, the consumers are a
happy lot. At the stock market, the share prices of
two-wheeler companies have seen a divergent
trend. The reshuffling of market share in the
motorcycle segment has been the key factor driving
the share price of the top three two-wheeler
producers Bajaj, Hero Honda and TVS Motor. With
a slew of new models slated to be launched by
almost all top companies, the earnings growth could
turn out to be more uncertain and volatile.
Considering that the share prices of Bajaj, Hero
Honda, LML and TVS Motor have recovered from
their lows recorded a few weeks back, existing
holders could pare exposures. Fresh buying may be
considered on the evidence of a sustained
improvement in motorcycle sales. Alternatively,
equity exposure may also be considered in
companies that enjoy success in new models.
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15

A PRE RESCISSION COMPARATIVE STUDY ON EMPLOYEES

PRODUCTIVITY AND COST IN INDIAN BANKING INDUSTRY
Dr S.M.Tariq Zafar*, Dr D.S.Chaubey**, Dr Adeel Maqbool***
ABSTRACT
To maintain equilibrium between employee productivity and cost and global standard between
demand and supply in present global economic environment, technological and metamorphic
environmental developments within and outside the political boundary there is a need of cost prone
efficiency revolution in Indian banking sector which can effectively mobilize and productively utilize
public savings to optimum. It is expected that the modern banking financial supermarkets survival
largely depend upon employee productivity and cost efficient new high breed financial products and
specialized services. Thus in this paper an attempt is made to explore employee potential in relation to
cost and for the purpose employee productivity and employee cost ratios comparison has been
carried out between the traditional, modern hybrid and Universal banks. Pre recession period from
1997 to 2008 has been taken for the purpose of study. The study revealed the fact that during the
period performance of modern hybrid, universal foreign banks and private sector banks were much
superior to the traditional social sector and private banks. However it is also found that by
implementing effective and efficient measures the performance gap between traditional and modern
hybrid and Universal banks have declined competitively.
Key Words : Traditional Banks, Modern Banks, Universal Banks, Gap Index, Productivity, Cost
JEL: Classifications: G18, G 21, G 23, G24, G29

Introduction

visible of all financial intermediaries in the Indian

financial services sector and hold apex position in
economic integration, promotion and overall
growth & development. The elaborate framework
of laws and regulations governed Indian banking
sector. The statuary framework of Indian banks is
headed by the Reserve bank of India (RBI). It is an
apex regulator of Indian banking industry and
operate as nation's Central bank followed by Indian
scheduled commercial banks which are divided into
two fold, scheduled and non scheduled banks and
are categorized into five different groups. These
groups are (i) State bank of India (SBI) and its
associates (ii) major nationalize scheduled banks,
(iii) Private Sector banks (iv) Foreign banks (v)
other joint stock banks, co-operatives banks,
Regional Rural Banks. Thus, the Indian banking
sector comprises the public sector commercial
banks, private sector banks, co-operative banks and
regional rural banks. The RBI Act, 1934 governs the
working of RBI and Banking Regulatory Act, 1949
empowered RBI to regulate the listed scheduled
banks. Other acts that are part of statuary framework

Banking and finance is a spirit of economic

body without it no economy can survive. At earlier
period banking services was confined to rich and
city dwellers but in present scenario banks is
accessible to common man and their activities
extended to diversified and untouched areas. With
passing time banks have transformed from
traditional banks to hybrid banks, universal banks
and virtual banks. Apart from traditional function
they have adopted national responsibility as their
core vision. They cater to the needs of agriculture,
industrialist, corporate, traders and all other
sections of the society and accelerate the economic
growth of the country and speed the wheels of
nation economy in achieving self sufficiency in all
regards. They are depository institutions and
distinct from other financial institutions. The large
portion of banks funding is contributed by the
deposits and significant portion of which is
repayable on demand.
Banks collectively are largest players and
*Director, Charak Institute of Business Management, GBTU, Lucknow, U.P
**Director, United Institute of Business Studies, Dehradun
***Associate Professor & Head, Integral University, Luckhnow, U.P.

16

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

are the State Bank of India (SBI) Act, 1955 and the
SBI Subsidiary Act, 1959. The Banking Companies
(Acquisition and Transfer of Undertaking) Act,
1969 was passed in order to nationalize 14 private
owned banks and later in 1980, in second round of
nationalization 5 more banks were nationalize by
using the Acquisition Act.

started their operations. The Comptor d, Es Compte

e Paris opened their branches in 1860 in Calcutta
and in Bombay in 1862, and then in Madras and in
Pondicherry. The Allahabad bank was established
in 1865which is considered as an oldest Joint Stock
bank in India. In the year 1869 HSBC was
established. In the year 1881 in Faizabad, first
entirely Indian Joint Stock Bank 'Ouadh
Commercial Bank' was established. In 1895 Punjab
national bank was established in Lahore. During the
period of Mutiny many small banks came into
existence and served ethnically and religiously.
Most of the banking business was dominated by
presidency banks with some Exchange Banks &
Joint Stock Banks. The period of between 1906 and
1911 (Swadeshi movement) saw establishment of
Banks. Due to I world war (1914-1918), 94 banks
failed, later partition paralyzed economy and
banking. RBI was established in 1935 and was
nationalized in January 1949. Banking Regulation
Act was passed in 1949 and empowered RBI to
regulate, control and inspect banks in India.

Origin of Banking
Different countries have their historical
evidence of banking activities and regulations.
There is no unanimous view regarding the origin of
the word bank. It is said that French word 'Banco' or
'Bancus' or 'banc' or'Banque are the mother of word
bank which means ' a bench'. It is said that in
Lambardly Jews use to transact their banking
business by sitting on the benches and when their
business failed the benches were broken and the
word bankrupt came into vogue. According to
Macleod that money changers were never called
'Benchieri' in middle ages thus the word Bank
derivation many be a mere conjecture. Another
common view in regard to existence of word 'Bank'
that it might be originated from the German ward
'Back' which means a joint stock found and later, it
was Italianized into Banco, Frenchised into
Bank and in last Anglicised into Bank

Current scenario of Indian banking industry

Cataclysmic structural reforms in Indian
economic system following the government policy
of tectonic economic liberalization, globalization,
financial deregulation and digitalization, rising
global competition and tumbling of trade barriers
coupled with metamorphic liberalized policy in
financial sector and recommendation of Narsiham
Committee brought revolution in Indian banking
industry and impacted changes in the operating
environment for banks to a large extent. Indian
banking structure is a result of efficient and
effective process of expansion, reorganization and
consolidation. At early stage after independence
economic considerations govern the growth of
banks nationalization but in present scenario with
growing economy greater emphasis have been
accorded on social objectives like 'expansion,
network penetrating deeply in all part of the nation
and efficient and effective utilization of banking
assets.

Indian Banking Evidence

It is found that in ancient India during Vedic
period (1750 BC) Indians were having financial
transaction in the form of loan and advances. It is
found that in the year '1770' Bank of Hindustan
started and became defunct, later in1786 very first
bank of India was established. In the year 1806
Bank of Calcutta started and after short existence it
was converted into Bank of Bengal. During the
period three presidency banks 'Bank of Bengal',
'Bank of Bombay', 'Bank of Madras' were
established under the charter of British East India
Company and acted as Quassi Central Bank and in
1921 all the presidency bank merged and formed
Empirical Bank of India which after independence
became State Bank of India (SBI) in 1955. During
the Colonial Period, Merchant in Calcutta
established the Union bank in 1839 which failed in
1840 due to economic crises. In 1860, foreign banks

New policies with greater degree of operational

autonomy replaced regulated and overadministered banking industry which resulted entry
17

Vedaang Vol. 4 No. 1, January-June 2013

of new domestic and international financial players,

minimized distinction between banks and non bank,
introduction of innovative and path-breaking
communicational and computational technology,
freedom of fixing financial products price,
deregulation of interest rate system and adoption of
floating exchange rate system, income recognition
and capital adequacy, effective changes in credit
delivery mechanism, redefining prudential norms
of assets classification, strategic flexibility in credit
assessment process and increasing trend of
disintermediation has explored competitive
environment in Indian financial sector and gave
regulated freedom to the market forces to decide the
future of banking and other financial institutions
under the shadow of new investments, new
windows and new opportunities, along with these
new challenges.

order to survive smoothly they have to offer wide

array of customized products and services in
convenient atmosphere at economical rate under
one roof with recognized and distinct identity. And
on other hand they have to protect and consolidate
their presence and market share, for the purpose
have to adopt efficiency in order to ensure future
growth, to arrest performance deterioration, to avail
the advantage of emerging opportunities, to retain
the existing customers and to attract new customers.
For this they have to be efficient, effective and have
to evolve a strategy that is forever morphing and
conforming itself to emerging opportunities and
incipient trends.
To become global financial leader it became
necessary for policy makers to identify the
shortcoming and later converting these gray areas
into strength by implementing scientific approach,
efficient policy and effective rules and regulation.
For the purpose policy makers ultimately requires
prognostic diagnosis of the problems and
challenges along with emerging opportunities and
assessment of existing strengths and weakness of
Indian banks? Policy makers considering present
global economic scenario investigated minutely
and analyzed that inefficiency in Indian banking
structure is the major factor contributing to the high
cost of banking services which ultimately
impacting the smooth survival of the banking
industry. Further they found that problem of
pressure on profitability, problem of low
p r o d u c t i v i t y, P r o b l e m o f e v e r- g r o w i n g
nonperforming assets (NPA), problem of resource
crunch, problem of assets and liabilities mismatch,
problem of growing competitive and qualitative
change in Indian and global banking paradigm,
problems of diversified strata customers, growing
domestic and global competition, competition from
disintermediation, problem of managing duality of
ownership, problem of continuous changing
technology, problem of growing collective financial
market uncertainty and risk, problem due to
unskilled work force and scarcity of talents,

In present volatile global economic scenario

and fiercely competitive environment Indian public
sector banks hold over 75 percent of total assets of
the banking industry and remaining held with
private and foreign banks. In competing global
standard Indian banking industry has managed
protective economic and services sector growth due
to which demand for banking services especially
retail banking, mortgages and investment services
will accelerate and will further lead to M&As,
takeovers, and asset sales in large. This demand will
develop challenge in the form of competitive
pressures and will result change in demands both
from foreign banks and new private sector banks. In
India most of the public sector banks and private
sector banks are operating in traditional mode and
requires up gradation to compete or become hybrid
universal bank.
Deregulation and new policies have opened up
new vistas for banks to augment revenues; it has
entailed greater competition and consequently
greater risks. Banks main sources of operating
revenue are interest and discount on loans,
dividends on investment, and services charges on
deposit accounts, services charges and fee on banks
and other charges and major expenditures are
salaries and wages, interest payment and deposit
liabilities and other current operating expenses. In

To fight the competitive odds Indian banking

system opted to become modern banking system at
par to global norms and employed a number of
18

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

measures in order to improve its operational

efficiency , meeting customer expectations and
reduction of operating costs. In process of change
Indian banks strategically tried to control and
minimized banking weakness like low operating
size and high operating costs, they gradually
converted inadequate deposit mobilization efforts
into adequate and speedy, they tried to arrest high
level of nonperforming assets in order to maintain
sound liquidity and financial stability, they
minimized financial exclusion, they converted
complex and non responsive organizational
structure into customer friendly, and responsive,
they controlled credit to non productive sectors like
commercial estate, they converted poor customers
services into efficient and effective, they utilized
existing capacity to optimum and converted
unsatisfactory work culture into satisfactory,
feudalistic attitude of the staff transformed into
consumer friendly and cooperative, they
implemented effective measures to control
ethnocentric and action flippant management and
adopted employees friendly target oriented policies
in order to balance the employee motivation and
growth, they offered VRS to their employees,
training and retraining of staff been adopted, lateral
induction of specialist been adopted, new fully
automated technology with business process
reengineering been adopted by banks to make
global financial market accessible and adequate,
they adopted electronic based multiple service
delivery channels, they adopted business process
outsourcing and established back offices and data
centers, importance of marketing and promotional
activities been realized, customer relationship
management and brand image improvisation
became important part of policy, diversified
economic activities became core of banking
business, to become global banking player some of
the banks have taken help from international
consulting agencies to remove bottleneck in their
operation and undergone restructuring process.
These changes were considered paramount by the
banks to become internationally at par and to
achieve competitive edge over global and domestic
competitors.

provides Introduction in which Origin of Banking,

Indian Banking Evidence and Current scenario of
Indian banking industry has been given. Section II
discusses the objective of the study. Section III
represents the data and methodology. In Section IV
Survey of literature is given. In Section V analysis
and interpretation of data is given. In Section VI
concluding remarks is been given.
Objective of the Study
Employees play important role in overall
growth and achievement of the organization and
their efficient utilization cannot be ignored and
underestimated. The core objective of the study is to
compare the parameters of employee's productivity
and employee cost in Indian banking sector. In
employee productivity business per employee
(BPE) and profit per employee (PPE) between
traditional and Modern banks in India are been
compared and in employee cost comparison is been
done between employee cost to operating expenses,
employees cost to total business and employee cost
to total assets.
Research Methodology
The study is carried out to make qualitative and
comprehensive evaluation of employee's
productivity and employee cost in Indian public and
private sector banks. For the purpose data for the
period of 12 years from 1996- 97 to 2007-08 has
been analyzed in order to observe the impact of
implemented measures by the traditional banks to
counter challenge geared by the modern banks. The
data used in study are extracted from the Statistical
tables published in annual reports of Reserve Banks
India (RBI). Table has been prepared to make
comparison between modern and traditional banks
on the selected parameters of employees'
productivity and employees' cost. The gap index is
prepared to indicate the percentage of difference of
the value of variables between modern banks (MI)
and traditional banks (TB) as a ratio of their
aggregate value. The main objective of Gap Index
construction is to analyze whether or not gap
between modern and traditional banks are reduced
after implementing various measures.
The
outcome of the study depends on the selected period

This paper is organized in six sections. Section I

19

Vedaang Vol. 4 No. 1, January-June 2013

by the researchers which may differ from other

analysis.

Khan Working Group. All these committee and

working groups examined various parameters of
efficiency minutely and given numbers of relevant
suggestions to explore efficiency in Indian banks.
Nag and Shvanaswamy (1990) in their study
compared the performance of foreign banks
operating in India with the Indian scheduled
commercial banks in terms of growth of deposits
and loans and revealed that foreign banks have
performed better than Indian scheduled commercial
banks during the period. Swami and
Subramanayam (1994) in their study examined the
inter- bank differences in the performances of
public sector banks in India by using taxonomic
method and found that most of the banks had a wide
disparities in their measures of performance,
Bhattacharya et al. (1997) in his study examined the
impact of privatization on the performance of
banks. The study revealed that public sector banks
have performed better in comparison to private
sector banks, Shankar and Das (1998) in their study
compared private sector, public sector banks and
foreign banks by using 15 indicators based on major
criteria representing efficiency like profitability,
productivity and financial management, Mukherjee
et al. (2002) examined the technical efficiency and
benchmark performance of 68 commercial banks.
He found that India public sector banks have proven
better than private sector banks and are more
efficient than private and foreign banks and also
found that public sector banks have deep presence
than their competitors, Qamar (2002) examined the
use of profitability, resource and efficiency in
Indian scheduled commercial banks. For the
purpose he used modern techniques to evaluate
performance of the banks and found that new tech
savvy private sector banks and foreign banks are
having marginal edge over old and traditional
private and public sector banks in urban area, Petya
Koeva (2003) examined the impact of financial
liberalization on the performance of Indian
commercial banks. In his study he examined the
behavior and determinants of banks intermediation
costs and profitability during the liberalization
period and found that ownership play important role
on some performance indicators, Sathye (2005)
examined the impact of privatization on the

Review of Literature:
To develop new parameters in any area of study
literature revues play important role. They provide
vital inputs and directions to the study as they base
on past which help in forecasting the future. A
number of studies have been carried out to compare
different type of banks operating in India using
different parameters depending upon time and
importance. The judicious outcome of these studies
indicate that they differ in opinion due to many
reasons like global economic condition, nature of
economy, time period of the study, banks futuristic
policies and other competitive considerations etc.
Therefore, keeping futuristic development in view
this study is authentically designed to understand
and investigate the Productivity and Cost in Indian
banking Industry and their overall impact and their
survival in global competitions by critically
examining and evaluating different theories and
empirical studies conducted universally by
financial experts and academicians. The outcome of
the study will provide insights regarding
operational characteristics and efficiency of
banking companies to the end users in the both
segments long term and short term and will also
explore new dimensions and will set new
parameters to be followed by others.
Nationalization of banks leads unprecedented
expansion of banking operations in India and
explored economic revolution with certain visible
and invisible draw backs. There was growing
concern on the deteriorating of banking and
financial institutions efficiency in all spheres. To
control this deterioration the Reserve Bank of India
(RBI) the apex regulatory body responsible for
maintaining the external value of the rupee, acting
as a bankers banks, Central bank playing
developmental role and ensuring better customer
services, constituted a number of committees and
study groups, notably among them Daheja Study
Group (1968), Tondon Committee (1975), K.B.
Chore Study Group, Luther Committee (1977)
Charkarvarty Committee (1986) M. Narsimham
Committee (1991), E. Nayak Committee (1991),
20

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

performance of banks and found that under

prevailing circumstances in India private sector
banks have performed better than public sector
banks, Vradi, Vijay, Mauluri, Nagarjuna (2006)
examined the stability of profitability, productivity,
assets quality and financial management of banking
industry as a whole. For the purpose they used
development analysis and concluded that public
sector banks are more efficient than other banks in
India, Brijesh K Saho, Anandeep Singh (2007)
examined the performance trend of the Indian
commercial banks. The study revolves around trend
in technical efficiency, higher cost efficiency and
concerning the scale elasticity behavior and their
collective impact on banking industry performance,
coordination and competitiveness, B Satish Kumar
(2008) in his study found that with the adopted
effective economic reforms new generation banks
with modern technology and professional attitude
have revolutionized the sector, Roma Mitra,
Shankar Ravi (2008) evaluated the efficiency of 50
Indian banks. The study found that performance can
be result of policy of the banks depending upon
priority area in which they like to operate.

It is found that productivity is one of the most

important factors affecting profitability of a bank.
Generally it is a function of an input and output
relation. Productivity of banks is said to be high
when for the same quantity of inputs, a greater
quantity of output is generated or when same output
is achieved with lesser quantity of inputs. It is
considered that Banks are socio- economic entity
and earning profit is not their prime objective. Being
a social entity it has social obligations to promote
economic development and to achieve the same
have to channelize their resources and efforts
towards social ends. Acceptance of social
responsibility dilutes the profit of banks and
increases the operational cost and risk along with
diversion of managerial time and talent apart from
scare economic resources of the bank. It is hard and
fast fact that economic goals and social goals are
opposite to each other. It is found that social
desirable obligations become economic suicide.
However, in long run economic goals and social
responsibilities become compatible with each other
and reinforce each other. In fact, basic responsibility
of a bank is to operate profitably and efficiently
utilize the resources at its disposal. Society cannot
gain if banks performance suffers. Bank can serve
society and help economy to develop only when it
operate successfully. Thus, in order to fulfill its
economic goal, banks must utilize its all resources
and factor of production to optimum.

Analysis of Data
Employees Productivity
In a ferociously competitive environment,
banks, to achieve sustainable competitive prowess,
must have to develop competitive strength over its
competitors. This is possible if the banks have
efficient and productive employees who have
ability to attract customers and have strength to
defend the competitors. In order to cater the
growing competition Banks took number of
measures to develop efficiency and productivity
among their employees. Banks with support of
business process engineering and innovative
technology can posse's unique strength that allow it
to achieve superior efficiency, quality, innovation
and customer responsiveness which ultimately
translate into surplus. In fact, economic surplus is an
index of efficient and effective deployment of
resources. It is a fundamental truth that for survival
operating revenue must be more than operating
expenditure. Profit provides cushion to the banks as
it is an index of efficiency.

As per table 1, the employees' productivity

ratios are represented by 'business per employee'
and profit per employee' for the period of 12 years in
respect of traditional and modern banks operating in
India. During the study period it is found that
traditional banks have performed remarkably better
than modern banks in both business per employee
and in profit per employee. Business per employee
for traditional banks has shown upward trend and
has continuously improvised. During the study
period it has increased from Rs. 75.28 lakhs to Rs.
549.21 lakhs, which is 7.29 times. On other hand
modern banks have also shown upward trend and
their business per employee have also increased
from 397.50 lakhs to 1216.75 lakhs which is said to
be 3.06 times. It has been found that the ratios of
business per employee between modern and
21

Vedaang Vol. 4 No. 1, January-June 2013

Table 1: Employee Productivity Ratios

(Rs. Lakhs)

Year*

1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Business Per Employee

(Median)
Traditional
Modern
Banks
Banks
2
75.28
97.53
112.93
136.26
166.23
192.30
223.36
263.12
302.02
355.79
439.96
549.21

3
397.50
689.90
638.66
735.20
690.83
667.41
717.00
758.46
745.56
891.52
790.44
1216.76

Profit Per Employee

(Median)
Traditional
Modern
Banks
Banks
4
0.57
0.81
0.57
0.79
0.71
1.27
1.68
2.23
1.29
1.68
2.84
3.87

5
6.50
7.90
5.66
7.49
5.84
5.37
9.17
10.41
7.82
9.01
11.48
17.74

*represents end of financial year

traditional banks have declined to a great extend,

from 5.28 times in 1997 to 2.21 times in 2008. This
decline is due to effective measures and efforts
made by traditional banks. Further it has been
found that during the period of study profit per
employee in traditional banks is significantly higher
than modern banks. It is been found that profit per
employee in traditional banks was 6.79 times as
compared to modern banks that have 2.73 times.

improve profitability and always try to minimize

them in relation to operating expenses, total
business and total assets. The employee cost in
respect to selected variables for the selected period
of study in respect to traditional and modern banks
are presented in table No.2.
It may be noted from the table that the employee
cost as a ratio of operating expenses in respect of
traditional banks remained more or less constant
from 1997 to 2002 and later got reduced gradually.
On contrary modern banks, the ratio fluctuated
narrowly; it declined marginally up to the year 2006
and further increases in 2007 - 2008. The study
revealed that till 2006 employee cost to operating
expenses of traditional banks were more than
double of modern banks, but after implementation
of controlling measures this ratio decreased
significantly during 2007-2008 and was1.77 and
1.65 times respectively. This indicate that efforts
made by traditional banks to control and minimize
the wage bills in relation to operating cost made an
impact on changing composition of banks input
output, and reduction in total cost.

Employee Cost Ratios

In any economic entity cost play important role.
Profitability fluctuates according to cost
fluctuation. Banking is a service industry whose
output consists not of any physical product but a
bundle of services, thus not easy to measure its
efficiency. Every step of competition has its impact
on cost which ultimately impact margin of safety.
Banks average business is the sum of average
deposits and advances which is the output generated
by the input of human efforts. In this study
employees cost is represented by employee cost to
operating expenses, employee cost to total
business and by employee cost to total assets
which are based on individual banks wage bill data.
Banks consider it as an important factor in order to

It is found that during the period of study

22

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry

Table 2: Employee Cost Rates

(Per cent)

Year

1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Employee Cost to
Employee Cost
Employee Cost
Operating
to Total
to Total Assets
Expenses
Business
Tradition
Modern Tradition
Modern Tradition
Modern
al Banks
Banks al Banks
Banks al Banks
Banks
2
3
4
5
6
7
71.78
30.41
1.45
0.57
2.05
0.81
72.20
71.81
72.28
74.23
71.52
70.13
68.42
66.92
65.26
60.99
58.63

29.52
27.64
30.07
27.79
29.36
26.49
26.96
27.39
30.43
34.35
35.53

1.33
1.34
1.30
1.30
1.15
1.09
1.04
0.99
0.95
0.79
0.68

employee to total business of traditional banks has

reduced consistently, in the year 1997 it was 1.45
per cent and in the year 2008 it reduced to 0.68 per
cent. On the other hand in modern banks it has
marginally increased, it was 0.57 per cent to 0.64
per cent up to 2004, but increased drastically in the
following year 2005 to 1.23 percent and reduced to
0.88 percent in 2008. The study revealed that till
2004, the employee cost to total business of
traditional banks were higher than modern banks
but from 2005 modern banks was found on
increasing trend and traditional banks on
decreasing. This declining trend indicates that
traditional banks have managed their efforts in
effective manner to compete modern banks
challenge of business expansion.

0.55
0.63
0.63
0.63
0.63
0.63
0.64
1.23
1.14
0.80
0.88

1.90
1.88
1.80
1.98
1.62
1.57
1.49
1.39
1.35
1.13
0.96

0.78
0.79
0.75
0.69
0.55
0.60
0.62
0.64
0.69
0.87
0.92

Gap Index Analysis

The Gap Index has been defined as the
percentage of difference of the value of variables
between modern banks (MB) and traditional banks
(TB) as a ratio of their aggregate value. To find the
gap value and to prepare Gap Index of Business per
Employee (BPE) following formula has been
used.
BPE (MB) - BPE (TB)
X 100
BPE (MB) + BPE (TB)
In order to get positive value and to find out cost
related variables the cost of modern banks have
been subtracted from the traditional banks. It was
expected that the value of modern banks will be
lower in comparison to traditional banks. In the
study Table No, 3, gives the gap indices of 5
variables.

The study revealed that employee cost to total

assets of traditional banks has also declined
constantly, in the year 1997 it was 2.05 percent and
declined to 0.96 percent in the year 2008; accept in
the year 2001 it has increased marginally to 1.98
percent. Modern banks has also recorded decline in
employee cost to total assets during the period of
study. In the year 1997 it was 0.81 percent; in 2002
they recorded the lowest 0.55 percent and recorded
highest of 0.92 percent in 2008.

From the Table No, 3, it has been found that

employee cost ratios of modern and traditional
banks have declined consistently from 1997 to
2008. The study revealed that percentage reduction
in case of employee cost to total business was
highest to 129 percent, which drastically came
down and assumed negative value from the year
23

Vedaang Vol. 4 No. 1, January-June 2013

Table 3: Gap Index

Year

1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Percentage
Reduction from
1997 to 2008
(per cent)

Business
Profit per
per
Employee
Employee (Rs. Lakhs)
(Rs. Lakhs)
2
68.15
75.23
69.95
68.73
61.21
55.26
52.50
48.49
42.34
42.95
28.49
29.86

3
83.84
81.35
81.63
80.86
78.24
61.79
69.08
64.77
71.62
68.53
60.34
64.18

2005 to 2008. It has also been found that the gap of

employee cost to total assets between traditional
and modern banks have reduced at a significant rate.
In the year 1997 it was 43.41 and came down to 2.13
in the year 2008, means 95.09 per cent reduction. It
is also been found that gap between traditional and
modern banks in case of employee productivity
ratios and business per employee have also reduced
at a significant rate. In the year 1997 it was 68.15
and came down to 29.86 in 2008, means reduction
of 56.18 percent. The study also revealed that the
gap between traditional and modern banks in
respect of profit per employee also reduced
significantly. In the year 1997 it was 83.84 and came
down to 64.18 respectively in the year 2008, means
23.45 percent reduction during the period. Further,
it has been found that the gap in absolute terms was
still high in respect of business per employee, profit
per employee and employee cost to operating
expenses and was 29.86, 64.18, and 24.53
respectively by the end of March 2008. Thus, to
compete growing challenge of modern banks,

Employee
Cost to
Total
Business
(per cent)

Employee
Cost to
Operating
Expenses
(per cent)

Employee
Cost to
Total
Assets
(per cent)

43.34
41.48
36.04
34.40
35.02
28.86
27.10
23.70
-10.93
-9.17
-0.63
-12.82

40.48
41.96
44.42
41.24
45.52
41.80
45.16
43.47
41.92
36.39
27.94
24.53

43.41
41.83
41.08
41.38
48.51
49.58
44.46
41.41
37.32
32.40
13.00
2.13

traditional banks have to adopt quality, efficiency,

productivity and profitability as their core policy
and in process have to improve their productivity
and cost reduction efforts perpetually.
Concluding Remarks
The foregoing analysis reveals that there has
been discernible improvement in operational
efficiency of traditional banks in comparison to
modern banks in India. The study revealed that in
productivity factors (Business per Employee' and
'Profit per Employee) modern banks performed
better than traditional banks and similarly in
employee cost factors (Employee Cost to total
Business', 'Employee Cost to total Assets' and
'Employee Cost to Operating Expenses) modern
banks performed much superior than traditional
banks. The increasing trend in efficiency has been
fairly uniform, irrespective of the ownership.
However study found that the gap between the
performance of modern and traditional banks on all
the five variables was on declining trend and has
24

A pre rescission comparative study on employees productivity and cost in Indian Banking Industry
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Reserve Bank of India (1991), Report of the Committee on the
Financial System, (Narasimham Committee)
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Financial Conglomerates and Universal Banks in
Europe', Journal of Money, Credit and Banking, Vol. 34,
No. 1
Rime, Bertrand and Kevin J. Strioh (2003),'The Performance
of Universal Banks: Evidence from Switzerland', Journal
of Banking and Finance, Vol.27.
Rakesh Mohan (2005), Reforms, Productivity and Efficiency
in Banking, The Indian Experience, Address Delivered at
the 21st Annual General Meeting and Conference of the

significantly declined during the period of study.

These gaps will further reduce due to effective and
efficient measures taken by the traditional banks.
The approach to improve the efficiency is
broadly in consonance and undergoing deregulation
and transformation. The traditional banks are still to
resolve a number of legacy issues related to people
and processes for improving the productivity and
reducing cost in order to compete with the modern
banks. Even though in prevailing competitive
environment all the banks have registered
efficiency to a particular strength but the
performance of the traditional banks was found
below in comparison to the modern banks on
studied variables except on 'Employee Cost to total
Business in which they have performed better
during the period from 2005 to 2008. Further, the
study found that the measures taken by the
traditional banks to cater the growing challenge
from modern banks have positive impact. It has
been found that overall operational efficiency of
traditional banks has improved. However
sustaining the current trend in efficiency, there
remains scope for banks to expand their assets
relative to their input usage by adopting innovative
product technology and to control operating
expenditure. In last it can be said that modern banks
have recorded higher efficiency as compared to
their traditional Indian counterparts and trend has to
be closely monitored to come to a firm conclusion
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Pakistan Society of Development Economists at
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htm

26

ENVIRONMENTAL TAXATION: ISSUES, CHALLENGES AND PROSPECTS

Dr. Minakshi Paliwal*
ABSTRACT
Recently, many governments are looking at environmental taxation as a possible way to make up the
shortfall from declining tax intake due to the recession. Before they do this, they will need to ensure
that business and their electorates support this approach and are able to see what the environmental
taxes are achieving. In this light the present paper makes an attempt to discuss various issues and
challenges in environmental taxation. In the end of paper some policy measures are suggested for
successful implementation of environmental taxation.
Key Words: Environmental Taxation, Command- and- Control; Pollution; Fiscal Incentive
JEL Codes: H23, Q38, Q58

or gaining a competitive advantage from

environmental decisions. As long as the costs of
environmental protection remained relatively
limited and/or exposure to international
competition was low, there was little need for other
instruments that could provide better incentives to
exploit the opportunities of environmental
legislation. Yet the governments have started
recognising the limits of regulatory approaches
while realising the potential of markets in
environmental management. During the 1980s and
the 1990s, not the least due to increased
international competition and a general trend
towards a preference for 'markets', economists,
politicians and businesses (especially in the OECD
member states) became interested in a regulatory
reform of environmental policies, introducing a
shift towards the increased use of incentive-based
and fiscal or economic instruments and voluntary
agreements (collectively known as market based
economic instruments). The common element of all
these instruments is that they operate on a
decentralised level through their impact on market
signals. Under most scenarios, they shift the costs
and responsibilities associated with pollution back
on to the polluter more efficiently than do command
and control, which rely on mandated technologies
and/or pollution reduction targets applied
universally across polluters2 (UNEP, 2004).
Market-based instruments, such as environmental
taxes, tradable permit systems or targeted subsidies,

Introduction
The design of environmental policies has
assumed a more urgent tone in recent years. In part,
this reflects the continued interest of the general
public, mass media and policy makers in many
developed, developing and even poor countries.
Traditionally, the developed economies have
mainly relied on command and control methods
(regulations) or public investment to rectify the
effects of pollutants. Regulation is often the
preferred approach by governments to
environmental management mainly for reasons of
effectiveness. It is generally perceived that
regulation offers better protection than taxation
since the environmental objectives are clearly
specified in terms of physical limits that cannot be
exceeded and the technology to reach such
objectives is often prescribed. This preference also
reflects the important role that engineers played in
environmental decision-making. Another reason
for politicians to prefer regulation was its ability to
hide full costs and their distribution, avoiding
difficult debates on equity. Regulators' (i.e.
governments') preferences have been mirrored by
regulated firms' preferences, which have for a long
time seen environmental regulation as a cost factor
and have chosen to minimise the costs of complying
with command-and-control regulations. Firms
relied primarily on problem avoidance and risk
management rather than exploiting opportunities in
the form of markets for new products and processes

* Assistant Professor, Department of Commerce, Ramjas College, University of Delhi, Delhi-7, INDIA

27

Vedaang Vol. 4 No. 1, January-June 2013

are a cost-effective way to protect and improve the

environment. They provide incentives to firms and
consumers to opt for greener production or
products. Governments can also opt for an
Environmental Fiscal Reform or the reform of
Environmentally Harmful Subsidies. Economic
instruments also provide ongoing incentives for
innovation in pollution control; they may also be
less prone to influence by polluters themselves than
regulations negotiated case-by-case with individual
firms. However, they are not a panacea. They can
encourage costly avoidance activities, such as
illegal waste dumping, and in some cases they may
have significant distributional consequences,
placing heavy burdens on the poor. They are most
useful when wide-ranging changes in behaviour are
needed across a large number of polluters-the costs
of regulation in such cases are large, and the
efficiency benefits of economic instruments are
likely to be greater (Don et al, 2008). Little will be
gained, however, making the tax structure too
sophisticated when the environmental costs are low.

ecologically sustainable activities. Taxes should not

be confounded neither with payments of rent nor
with purchase of an environmental protection
service.
By internalizing the environmental costs, (for
example, activities that burden the environment will
be taxed, whereas activities that contribute to the
preservation of the environment will get tax break),
environmental taxes provide incentives for
businesses and individuals to integrate
environmental concerns into economic activities,
and minimize negative environmental impacts.
Tax revenues of environmental taxes can be
used for environmental preservation or other nonenvironmental welfare. The revenues from
environmental taxes can be used to cut taxes such as
income tax, corporate tax and social insurance
premium. Environmental taxes have many
important advantages, such as environmental
effectiveness, economic efficiency, the ability to
raise public revenue, and transparency. Also,
environmental taxes have been successfully used to
address a wide range of issues including waste
disposal, water pollution and air emissions.
Regardless of the policy area, the design of
environmental taxes and political economy
considerations in their implementation are crucial
determinants of their overall success.

Making the Sense of Environmental Taxation

From the above discussion it is clear that the
choice and design of instrument should be clear. The
tax system can be a powerful device for changing
behaviour. Consequently, environmental taxation,
which was almost unheard of 20 years ago, is now
being widely used to assist in the fight against
climate change, with taxes around the world on
everything from plastic bags to energy
consumption, car use and waste disposal. There is
no single definition of an environmental or green
tax, but the UN, OECD and the European
Commission have agreed upon a definition of:

International Experiences
Many European countries, most notably
perhaps the Scandinavian countries but also
countries such as the United Kingdom, Germany
and France, have introduced various environmental
taxes to control emission of CO2 and SO2. In 1990,
Finland became the first country to introduce a
carbon tax. Australia introduced a small levy on
fertiliser as early as 1986. Although this does not
raise significant amounts in tax revenues, it has had
an impact on the type and amount of fertiliser used.
Germany has implemented taxation on emissions
on transport, which are calculated directly on the
level of emissions. The UK has implemented a
range of environmental taxes, including the Climate
Change Levy, a tax on the end-use of 'taxable
commodities' (principally electricity, gas and coal)

An environmental tax is a tax whose tax base is a

physical unit (or a proxy of it) that has a proven
specific negative impact on the environment. Four
subsets of environmental taxes are distinguished:
energy taxes, transport taxes, pollution taxes and
resources taxes. Environmental Taxes are a kind of
economic instruments to address environmental
problems. They are designed to internalize
environmental costs and provide economic
incentives for people and businesses to promote
28

Environmental taxation: Issues, Challenges and Prospects

by commercial customers, and the Landfill Tax,

which taxes people and organisations when they
discard waste in landfill sites. China taxes the
disposal of household and commercial waste and
has a further tax on the disposal of waste water,
while companies that reduce their water
consumption are offered corporate income tax
allowances. China's Ministry of Finance is also
drawing up plans for an environmental taxation
system for polluting companies. The US has
implemented tax measures to increase investment
in renewable energy sources enacting tax credits for
the expansion of wind, solar, biomass and other
renewable energy technologies. President Barack
Obama has increased the impact of these measures
in the recent US economic stimulus package. The
US administration is also now committed to
negotiating a new climate change treaty and
introducing a 'cap and trade' system. Further, in the
United States, markets for tradeable pollution
permits have been established to help control SO2
emissions and other air pollution problems with the
Acid Rain Program implemented under Article IV
of the Clean Air Act amendment of 1990 being the
most famous and successful example. The interest
in establishing markets for tradeable pollution
permits is also present in Europe where the
Commission of the European Union, having failed
to gain support for a common CO2 tax in the early
1990s, is setting up a market for greenhouse gas
emission permits starting from year 2005. In
addition to this, one of the cornerstones of the
socalled flexibility mechanism under the Kyoto
Protocol (Article 17) is to develop an international
market for CO2 emission permits. The broad picture
is fairly clear: the tendency is to move away from
direct command-and-control regulation towards the
use of green taxes and markets for tradeable
pollution permits to combat air pollution (and other
environmental) problems.

modern tax system. These taxes in turn should

stimulate the development of new, less
environmentally damaging products. But there are
still many issues and questions that need to be
answered in terms of environmental taxation. First,
the fatal flaw in terms of environmental taxation
would be for politicians to view it as a panacea. Tax
shifting to environmental taxation cannot both
solve the environmental crisis and raise significant
income via taxation in the long-term. Taxes on
polluting activities and products are small and have
not increased significantly over the past 15 years,
despite growing concern about the environment and
growing enthusiasm for market-based
environmental policies. Second, the aim and
purpose of environmental taxes is to curb or reduce
the extent and amount of the use or consumption of
harmful substances or activities, or depletion of a
resource. When the imposition of the tax is well
targeted, it will add to the costs of the subject paying
the tax. The adding of costs to a producer within one
country or region that is not imposed on producers
outside that country or region may of course impact
on the competitiveness of the local producer. The
result may be that a polluting activity is reduced in
geographical areas where environmental standards
are higher, and increased or taken over by
competitors in places with laxer regulatory regimes.
Governments therefore may need to consider a
smooth introduction of a new environmental tax
over a phasing in period, rather than abruptly
imposing tax that dramatically changes the terms of
market competition overnight. Other measures may
be to exempt certain industries or parts thereof, or to
couple the levying of a tax with refund mechanisms
or to economically support certain sectors in a
transitional period, thus abating the effects of the
tax. Such measures to cushion the effects of a tax
will tend to reduce its effectiveness, but may be
politically necessary in order to introduce the tax in
the first place. Also, introducing a general
environmental related tax may have distributional
effects that raise concerns, in particular where such
effects are regressive in the sense that they impact
more on consumers with low capability to pay and
relatively less on the wealthy part of the population.
If, for example, a significant levy is introduced on

Issues and Challenges in Environmental

Taxation
Environmental taxes are an efficient way for
governments to raise revenue, and most policy
makers now agree that making the polluter pay
should be one of the principles of an effective
29

Vedaang Vol. 4 No. 1, January-June 2013

driving motor vehicles in certain urban areas, the

levy may be effective in reducing the total amount
of traffic but also have the effect that less wealthy
households are prevented from driving children to
school while it does not affect the well off. In order
to mitigate the overall negative economic
distributive effects of certain taxes and levies,
Governments may need to consider other changes to
the tax system to alleviate the tax burden of low
income citizens, e.g. by adjusting the lower tax
brackets.

more, than expected. In cases where the precise

achievement of an environmental target is a high
priority, this may be an important drawback of
environmental taxes. Sixth, in the past, the lack of
experience with environmental taxes may have
been a significant obstacle to their adoption in any
particular practical context. Last but not the least,
Both environmental taxes and conventional
command-and-control regulation require
mechanisms for administration and enforcement.
For example, a pollution tax may require counting
tons of emissions, whereas a design standard simply
requires authorities to confirm the use of a particular
kind of pollution control equipment. Government
inspectors can easily check that the plant has a
working scrubber, but for some kinds of emissions,
they may have much difficulty trying to confirm the
exact number of tons to be able to collect a tax or
permit price.

Third, issue that needs to be addressed is the

administrative costs and difficulties. Environmental
taxes often can be simple and easy to administer at
low costs, but where exemptions and refund
mechanisms are applied this may change the
picture. A recent example demonstrating how
difficult considerations needed to be balanced when
a new environment tax was introduced was the
Norwegian tax on nitrogen oxides (NOx), first
imposed from 1 January 2007. The introduction of
the tax was deemed necessary in order that Norway
shall be able to meet the obligations under the
Gothenburg Protocol and reduce NOx-emissions by
2010. The main sources of such emissions in
Norway are the domestic shipping, petroleum
extraction, road transport, the coastal fisheries and
certain industries. Although the tax rate at the
introduction was at the low level of 15 NOK per
kilo, and for practical reasons only energy
production by larger engines and plant in sectors
representing 55% of the emissions were targeted, it
was deemed necessary to couple the tax with
significant compensatory payments to support
certain affected industries whilst also establishing
subsidy arrangement in support of other direct
measures to reduce NOx-emissions. Fourth, it is
very difficult to guarantee-will taxes be used
creatively as agents to modify and change
behaviour, or imposed in a blunt manner to penalise
'bad' environmental practices? Fifth, the level of
pollution abatement achieved by an environmental
tax depends on individual polluters' responses to the
abatement incentive that the tax creates. It is not
possible to guarantee that an environmental tax will
achieve a particular environmental impact;
polluters' behavioural responses may be less, or

Designing Viable Environmental Taxation

Policy
Environmental taxation should be designed to
work effectively and the level of the tax should
match the cost of the environmental damage.
There are some recommendations to policymakers in terms of the design of future
environmental taxes. These include the
following. First, an environmental tax generally
should be levied as directly as possible on the
pollutant or action causing the environmental
damage. Using the tax to increase the market cost of
the polluting activity helps to incentivise the full
range of potential abatement options: cleaner
production processes; end-of-pipe abatement (i.e.,
measures to capture and neutralise emissions before
they enter the environment); adoption of existing
products which cause less pollution; development
of new, less-polluting products; and reducing output
or consumption. Second, concern with levying
taxes on intermediate goods is that the implicit tax
rates on emissions are not necessarily transparent,
which can contribute to mis-specification of tax
rates. For example, a carbon tax of a fixed amount
per litre that applies to both gasoline and diesel
would not reflect the fact that a litre of diesel
produces more CO2 emissions than a litre of
30

Environmental taxation: Issues, Challenges and Prospects

gasoline. This kind of mis-specification can weaken

the efficacy of carbon taxes by implicitly favouring
a dirtier fuel.

taxation at a disadvantage relative to competitors in

countries without comparable measures, driving
costs up even further and adding to the business
burden. Further, as already stated there is little point
in imposing a tax if the taxed behaviour will simply
relocate to another country and continue to do the
same damage. Hence, the need for global
coordination.

Third, the appropriate scope of an

environmental tax depends on the scope of the
environmental damage being addressed. This has
implications for the level of the political jurisdiction
that imposes the tax. For some problems, like soil
contamination, the impacts are generally limited to
a relatively small area. Therefore, a tax or charge on
waste disposal or harmful garden chemicals might
effectively be imposed at the level of a municipality
or township. Fourth, g overnments should
therefore try to implement environmental taxes as
broadly as possible, with few or no exemptions. It
is usually preferable to address distributional
impacts outside the tax in order to preserve the
incentive effect of the tax. Fifth, the tax rate should
generally be set to reflect society's value of the
environmental damage, other negative spillover
effects of the activity, as well as the need to raise
public revenues. Sixth, revenue from
environmental taxes should be treated as general
government revenue and used to maintain spending
in other areas, reduce debt, or reduce taxes. While in
theory some of the revenues could be used to
compensate those most affected by the
environmental damage. However, in practice it is
very difficult. Seventh, governments also need to
ensure that the results are thoroughly analysed and
that they are prepared to amend or reverse the policy
if it has unintended or damaging consequences.
Eight, Part of the challenge with an environmental
tax is business awareness. If a company is paying
environmental taxes but does not realise it, then it is
less likely to change its behaviour. It is therefore
vital that there is clarity in terms of what an
environmental tax is and what the aim of the tax is.
Last but not the least; environmental taxation is
often aimed to a significant extent, at business.
Although business largely accepts and supports the
fact that it should be responding to the climate
change issue, it often has a negative attitude towards
environmental taxation. The reason for this is that
environmental taxation, if applied unevenly, puts
those businesses in countries with environmental

Concluding Remarks
Environmental taxation has a significant role to
play in addressing environmental challenges. Taxes
can be extremely effective when they are properly
designed, are levied as close to the environmentally
damaging pollutant or activity as possible, and are
set at an adequate rate. Administration costs or
barriers may necessitate the taxation of proxies to
environmentally harmful activities, but care should
be taken to ensure this does not impair
environmental outcomes. The revenues generated
can be used to help with fiscal consolidation or
reduce other tax rates. Environmental taxes give
rise to distributional or competitiveness concerns,
but these are usually best addressed through other
policies tools. Providing information, transparency,
and certainty is critical to public acceptance and to
the effectiveness of environmental taxation. Finally,
taxes may need to be combined with other
instruments to obtain the most efficient and
effective environmental policy package, but care
should be taken to assess the impact of overlapping
instruments.
References
Bovenberg, A. L. and L. H. Goulder (2002), Environmental
taxation and regulation, in A. J. Auerbach and M.
Feldstein (eds.), Handbook of Public Economics, Vol. 3,
Amsterdam: North Holland, Elsevier.
Bovenberg, A. L. and R. de Mooij (1994), Environmental
levies and distortionary taxation, American Economic
Review, Vol. 84, No. 4, pp. 108589.
Cornwell, A. and J. Creedy (1996), Carbon taxation, prices
and inequality in Australia, Fiscal Studies, Vol. 17, No.
3, pp. 2138.
Don Fullerton; Andrew Leicester and Stephen Smith (2008)
Environmental Taxes, Prepared for the Report of a
Commission on Reforming the Tax System for the 21st
Century, Chaired by Sir James Mirrlees, The Institute of
Fiscal Studies.

31

Vedaang Vol. 4 No. 1, January-June 2013

Fullerton, D. and S. West (2000), Tax and Subsidy
Combinations for the Control of Vehicle Pollution,
NBER Working Paper No. 7774, Cambridge, MA.:
NBER.
Fullerton, D. and S. West (2002), Can taxes on vehicles and
on gasoline mimic an unavailable tax on emissions?,
Journal of Environmental Economics and Management,
Vol. 43, No. 1, pp. 13557.
Fullerton, D. and W. Wu (1998), Policies for green design,
Journal of Environmental Economics and Management,
Vol. 36, no. 2, pp. 13148.
Fullerton, Don; Andrew Leicester and Stephen Smith (2008)
Environmental Taxes, Working Paper 14197, NBER,
July.
Katri, Kosonen and Gaetan, Nicodeme (2009) The Role of
Fiscal Instrument in Environment Policy, Working
Paper No. 19, 2009.
Miranda, M. L., J. W. Everett, D. l. Blume and B. A. Roy Jr.
(1994), Market-based incentives and residential

municipal solid waste, Journal of Policy Analysis and

Management, Vol. 13, No. 4, pp. 68198.
OECD (1993), Taxation and the Environment:
Complementary Policies, Paris, OECD.
OECD (1996), Implementation strategies for environmental
taxes. Paris: OECD.
OECD (2006), The Political Economy of Environmentally
Related Taxes, Paris: OECD.
Toke Skovsgaard Aidt and Jayasri Dutta (2004) Transitional
politics:emerging incentive-based instruments in
environmental regulation, Journal of Environmental
Economics and Management, Vol. 47, pp 458479.
UNEP (2004) The Use of Economic Instruments in
Environmental Policy: Opportunities and Challenges,
United Nations Publication, UNEP/ETB/2003/9,
September.
Veena, Hudson and Chas Roy-Chowdhury (2009) Green
Taxation in Recession, ACCA Position Paper.

32

FACTORS INFLUENCING LOYALTY: AN EXPLORATORY

STUDY OF MOBILE CONSUMERS IN KOLKATA
Jayanta Banerjee*, Dr Ajay K Garg**
ABSTRACT
More and more companies make recourse to loyalty programs within the framework of a defensive
strategy. After the liberalization of the Indian telecom industry and the advent of both private and the
public service providers, this sector saw stiff competition. Prices were reduced; service qualities
increased and with all mobile service providers offering undifferentiated services, retaining
subscribers and making them loyal has become an ever escalating challenge. Operating in a market
which will eventually be saturated with intense competition, frequently changing government
policies and increasing operational costs, the strategy of consumer loyalty development seems to be a
good option.
This paper attempts to illustrate the factors which are responsible for creation brand loyalty among
mobile subscribers in Kolkata.
Key word: Subscriber churn, Brand Switching, Loyalty strategies, Mobile service providers,
Customer care service.

Introduction

mobile service provider. Many organizations

understand that retaining customer is very
important. Traditionally companies tried to retain
customers by offering incentives in the form of
offers, reduced tariffs, free night calls within their
own network in the same circle etc. But with time it
has been seen that customer retention is not
satisfactory using such strategy only. Subscribers
can switch for a number of reasons. To retain
subscribers and lessen the effects of churn, service
providers are using strategies like- offering service
reliability, being more responsive to address
subscriber dissatisfaction and developing
personalized service packs and prices. Now service
providers believe that tempting a person to choose a
particular service provider is just the first step in a
long relationship where profit can be made only in
the years to come.

Human beings methods of communicating with

persons far off have evolved from the smoke
signals, drums, lamps to wired and much later
wireless telecommunication. Telecommunication is
an intriguing fast-growing industry. From the
educated urban bureaucrat to the uneducated urban
slum dweller, mobile users can be found in every
strata of our society. Even in villages devoid of
proper roads and electric connection, mobile
phones are used with much contentment. Offering a
wide portfolio of services like the simple voice
telephone calls, access to the Internet, high speed
data communications, weather report, surfing the
World Wide Web, bill payment, video conferencing
all can be done through the mobile. India and China
are on the top of the class when it comes to global
telecom growth rates, with India having the second
largest mobile subscriber base.

Mobile telecom business environment

According to the telecom regulatory authority

of India (TRAI) the mobile phone industry at
present is growing at a phenomenon rate with robust
subscriber addition in every quarter. But with a high
growth rate, competition follows and with twenty
one different mobile service providers, customers
are spoilt with choice of selecting their preferred

The Indian mobile industry was set up in 1992

(Mukherjee 2008). Back then mobile phones were a
symbol of fashion but presently have evolved to
become a symbol of necessity.
In the last few years we have seen a tremendous
growth in the mobile telecom industry. The role of

* Assistant Professor, School of Management Studies, Narula Institute of Technology

**Faculty Member, Department of Masters of Administrative Sciences. Petrocelli College, Fairleigh Dickinson University, Vancouver, Canada

33

Vedaang Vol. 4 No. 1, January-June 2013

the mobile phone service providers have increased

to a great extent in the sense that apart from
fulfilling the basic needs of the customers, the
service providers are also providing additional
facilities to remain competitive in the market.

handset manufacturers have also noticed this

market shift and have augmented their product
portfolio accordingly. This technology have
benefitted the consumers as two networks can be
used using the same mobile. But this technology has
fragmented the money a consumer used to spend on
a telecom service provider. Now the same money is
split between two service providers. As a result the
Average Revenue per User (ARPU) of the
service providers which already is quite low is
getting lower. According to a report published in
Business Line 2nd October, 2009, the voice based
average revenue per user for GSM operators falls
below Rs 200. The ARPU for CDMA services
declined by 7.2 per cent from Rs 99 in March
quarter to Rs 92 in June quarter(CAG,2011). The
popularity of dual SIM mobiles can have multiple
consequences affecting the subscribers, hand set
manufacturers and the MSP's (Secker, Matthew,
2002).

The year 2003-04 witnessed a dramatic increase

in the number of mobile users in India
(Dhananjayan 2005). It was largely propelled by
decreasing tariffs and entry cost and also the
increase in area of network coverage. The reasons
can be summarized as below
a) Free incoming call charges announced by the
telecom authority from May 2003, leading to
substantial reduction in the usage charges for
customers. It made mobiles far more affordable
than all other regulatory changes had done till
then.
b) Reduction in the tariff plans for local, STD and
ISD calls, which made calling through mobile
cheaper than through a landline. The tariffs
went down to 40 paisa per minute for local call
against Rs. 1.20 per pulse of 3 minutes through
a landline. The reduction in the roaming
charges, further enthused the customers to go in
for mobile and travel all over with a mobile.

The telecommunication as it stands presently

can be summarized The mobile industry can briefly
be summarized as- having the second largest
subscriber base in the world with 21 service
providers battling for survival in 22 telecom circles
after offering the lowest call charges anywhere in
the world(The Telegraph,2011). The industry
contributes 2% to our countries GDP and provides
direct employment to 2.8 million and indirect
employment to 7 million persons (COAI Press
release, August 2011). With high growth,
competition also follows and it become extremely
important for companies to tries to match their
offering to the expectation of the existing as well as
prospective customers.

c) The entry of the CDMA mobile phones, which

started as a limited mobility phone, but turned
out to be a complete mobile phone.
The telecom industry is considered as having
the highest potential for investment in India
(Srikant, 2006). Recognizing that the telecom
sector is one of the prime movers of the economy,
the government's regulatory and policy initiatives
have also been directed towards establishing a
world class telecommunication infrastructure in
India. From April 1991 to March 2003 the total
Foreign Direct Investment (FDI) in telecom was Rs.
9590.7 cr.

Review of literature
Multiple factors cause subscribers to exhibit
loyal or disloyalty to their mobile service provider.
Research, as well as logic suggests that improving
service quality satisfy subscribers and thus makes
them loyal (Keaveney, 2001; Zeithaml, Berry and
Parasuraman, 1996).In Japanese way of life, quality
means zero defect product and service. It
emphasizes doing the things right for the first time.
In the case of tangible goods, the measurement of
quality is comparatively an easy chore since

Presently the demand for dual SIM (Subscriber

Identity Module) mobiles in India has increased by
an extraordinary level. First the grey market
Chinese mobiles and now the new Indian brands
have made dual SIM mobiles affordable and within
the reach of the bottom line segment. Established
34

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

uniform quality standards can be met every time.

But the distinctiveness of service makes
measurement of quality difficult (Cronin et al.
1992). The three basic character of service makes it
a challenge for service providers are intangibility,
heterogeneity and inseparability. Intangible
character a service product makes it complicated for
the service provider to measure subscriber's
perception about service quality. The second
character of a service is heterogeneity which makes
every service experience different and varies from
customer to customer and from provider to
provider. The characteristics of inseparability
underline the fact that production and consumption
of service takes place simultaneously. (Lemmink
et.al 2003) has concluded in their research paper
that service quality has two parameter process and
output. Process quality extols on the way service is
catered to a consumer and output quality is
evaluated once service is delivered.

customers who perceive service quality to be better

than competitors develop a constructive image of
the organization. Price stands out as another
important factor for switching, for example, in
insurance and banking (Roos, Edvardsson and
Gustafsson, 2004). Yet pricing decisions can have
important consequences for the service provider.
Pricing low makes it attractive to subscribers but if
the organization fails to build volumes, profitability
declines. Low profits makes the company
vulnerable to market changes especially up
gradation of infrastructure, fees related to spectrum
etc. The price has specific relationship with other
components of marketing mix. Actually the price is
the only component that generates revenue, while
other components generate costs. From the
literature review it was found out that researchers
has contemplated on service quality, corporate
image/ positioning subscribers overall satisfaction
and price as some of the factors responsible for
switching behavior in subscribers.

A positive corporate/ brand image can increase

sales through better customer satisfaction followed
by loyalty. Corporate image also benefits the
organization In attracting both investors and future
employees as well (Andreassen & Lanseng, 1998).
In their research paper Nguyen and LeBlanc (1998)
experimented on the correlation between service
quality and brand image and conclude that

Methodology
This research was carried out in two levels.
Brainstorming and latter data collection using a pre
structured questionnaire hosted in Google docs for
convenient access to respondents. The respondents
are full time students and faculties of two private

Table 1: Rank order of the factors affecting brand loyalty

Rank

Price

Factors influencing loyalty with current service provider

Loyalty Technical
Peer
Customer Brand image Other factors
programs
service
group
care service (Positioning)
quality
influence
quality

Rank

Factors influencing intention to switch from current service provider

Technical
Price
Loyalty
Peer
Customer Other factors Brand image
service
programs
group
care service
(Positioning)
quality
influence
quality

Source: Primary data collected using questionnaire

35

Vedaang Vol. 4 No. 1, January-June 2013

?
Loyalty programs- Offers and schemes to make
subscribers loyal (like Aircell- rate cutter:
recharge with Rs. 65, benefits- tariff reduced for
six month, Aircell to Aircell 1paisa for three
seconds and 2 paisa for three seconds for other
network) are an attraction when the competitors'
loyalty schemes tempt subscriber to switch to
another service provider. MTS has recently
introduced loyalty card as a similar strategy.

engineering college located in West Bengal.

Convenience sampling technique was used to draw
the sample. The sample is composed of male and
female respondents in the age group of 25 to 55
years using mobile for at least last one year.
Initially brainstorming was done to identify the
primary factors responsible for creating brand
loyalty in a subscriber. Latter these factors were
used to create a questionnaire using Likert scale and
respondents were asked to rank these factors
according to importance, illustrated in Table: 1.
Brainstorming was carried out during August 2012
and the questionnaire was used in September the
same year. A total of 140 students and 36 faculties
participated as respondents from both the colleges.
To minimize biases, care was taken to select an
equal number of subscribers from both the colleges.
For statistical interpretation SPSS 17 has been used.

?
?
Peer group influence- This factor was mainly
contributed by students and refers to the
influence of family, friends, and close associates
in continuing with a particular mobile service
provider because of economical and value
added service benefits.
?
Brand image (positioning)- Certain perception
regarding quality expectation was seen among
respondents regarding corporate / brand image,
that the firm will deliver expected benefits for
the long run.

Findings and Discussions

From brainstorming five factors were identified
which according to respondents influence their
decision to remain loyal to a mobile subscriber. The
factors are-

?
Other factors- Certain other factors were also
noted and are clubbed under this point. Certain
subscribers may switch or choose a second
service provider because of impulse (like a free
SIM offer, or sales promo- handset/ reduced
tariff), advertising or maybe relocation to a
place where present service provider is not
operating.

?
Price- Respondents are unanimous that tariff
rates are responsible to change subscriber's
cost- benefit equation. Competitors offers in
monetary value, including items such as a
handset subsidy(in case of costly handsets like
Iphone and Samsung Galaxy), fees waived, and
monthly subscription fees tempt brand
switching.

The next stage of the research phase is

summarized in Table 1. In the figure, respondents
preferred ranking of the above mentioned factors
are tabulated.

?
Technical service quality- As mobile quality can
vary due to technical reasons and human
interaction these two points are separated out.
Technical service quality include quality aspect
relates to the physical service elements like
extent of coverage, signal strength, call drop or
network congestion.

This section enumerates the respondent's

opinion about the importance of the factors related
to purchasing decision. The relative importance of
the sub-variables has been derived by comparing
the opinion scores assigned to each sub-variable.
Since a seven-point scale has been used, the interval
for breaking the range in measuring each variable is
calculated as:

?
Customer care service quality- As service
encounter in mobile telecom at one time or the
other involve human beings, customer care
executive are also found out to be important in
this study, specially the level of problem solving
and customer-friendly attitude.

(7 - 1)/7 = 0.86
?
The opinion score between 1 to 1.86 has been
considered of most importance;
36

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

Table 2 : Factors affecting Loyalty

Factors

price
Loyalty Prg
TechQty
Peer Gr
Cust Care
Br Image
Other
Valid N (listwise)

Mean
30
30
30
30
30
30
30
30

1.3000
1.9333
2.8667
4.1000
4.9000
6.2667
6.7000

Std.
Deviation
.46609
.78492
.50742
.54772
.54772
.52083
.46609

Importance
Most Important
Medium Important
Important
Neutral
Moderate Important
Least Important
Least Important

Table 3 : Factors affecting Switching

N
TechQty
Price
LoyaltyPrg
Peer Gr
Cust Care
Other
Br Image
Valid N (listwise)

Mean
30
30
30
30
30
30
30
30

1.4333
1.9333
2.8000
4.0333
4.8667
6.2667
6.6667

?
The opinion score between 1.87 to 2.72 has been
considered of medium importance;
?
The opinion score between 2.73 to 3.59 has been
considered of importance;
?
The opinion score between 3.60 to 4.46 has been
considered of neutral; and
?
The opinion score between 4.47 to 5.33 has been
considered of moderate importance.
?
The opinion score between 5.34 to 6.20 has been
considered of low importance.
?
The opinion score above 6.20 has been
considered of least importance.

Std.
Deviation
.56832
.69149
.88668
.66868
.43417
.58329
.47946

Importance
Most Important
Medium Important
Important
Neutral
Moderate Important
Least Important
Least Important

respondents as they have a mean higher than 2.6.

Only two factors, namely, beautiful packaging and
imported shoes, are given least importance by the
respondents which scored less than 2.6.
It is observed from Table 2 that `value for price
paid' has been assigned as the highest important
factor. The high importance given to `same quality
but lower price than that of competitors' indicates
that the respondents compare the prices of different
competitors before making their final decision.
However, they also do not go by the cheapest price
mainly due to the high importance assigned to
quality in the product factor.
H01: There is no significant relationship between
gender and loyalty factors.

It is inferred from Table 1 that the factors,

quality and durability, have emerged as the most
important variable considered by consumers in their
purchase decision. The other two variables with
high importance are design and product warranty. It
is concluded that eight of the variables under
product factors are considered important by the

It is observed from Table 3 that there is no

significant difference in opinion between male and
female for loyalty factors.
H02: There is no significant relationship between
age and loyalty factors.
37

Vedaang Vol. 4 No. 1, January-June 2013

It is observed from Table 4 that there is no

significant difference in opinion between male and
female for maximum number of loyalty factors.
Only in case of price and loyalty programmes a
difference in opinion between different income
group people has been observed.

significant difference in opinion between male and

female for loyalty factors.
H04: There is no significant relationship between
age and switching factors.
It is observed from Table 6 that there is no
significant difference in opinion between male and
female for switching factors except for loyalty
programmes, customer care and other factors,
where a difference in opinion between different
income group people has been observed.

?
There is a significant difference in opinion
about the importance of price as a factor to
continue with the same service provider. Higher
income groups give more preference to design
and quality than the lower income groups.

Major Findings

H03: There is no significant relationship between

gender and switching factors.

It is observed that there is a significant

difference of opinion among respondents of
different age group in terms of loyalty program

It is observed from Table 5 that there is no

Table 4: Results of T test for Loyalty Factors
Mean
male
price
Loyalty Prg
TechQty
Peer Gr
Cust Care
Br Image
Other

1.2857
1.9286
2.9286
4.0000
4.9286
6.1429
6.7857

Std.
Importance
Deviatio
n male
.46881
.73005
.61573
.55470
.47463
.53452
.42582

Mean
Female
1.3125
1.9375
2.8125
4.1875
4.8750
6.3750
6.6250

Std.
Importance
t
Deviation
Female
.47871
-.154
.85391
-.031
.40311
.618
.54391
-.933
.61914
.263
.50000
-1.229
.50000
.940

df

28
28
28
28
28
28
28

Sig.
Decision at
(2-tailed) 5% level of
significance
Accept
.878
Accept
.976
Accept
.541
Accept
.359
Accept
.795
Accept
.229
Accept
.355

Table 5: Results of ANOVA for Loyalty Factors

Fcators
price
Loyalty Prg
TechQty
Peer Gr
Cust Care
Br Image
Other

Mean Tech Qty

Age
1.00
1.5000
2.00
1.3333
3.00
1.4000
Total
1.4333

Value
24.772
8.441
.298
1.767
.135
.115
.135

Price
1.6875
2.0000
2.6000
1.9333

df

Sig. (2-tailed)
29
29
29
29
29
29
29

Loyalty
Prg
2.8750
3.1111
2.0000
2.8000

.000
.001
.745
.190
.874
.891
.190

Peer Gr
4.0000
3.7778
4.6000
4.0333

38

Decision at 5% level of
significance
Reject
Reject

Cust
Care
4.9375
5.0000
4.4000
4.8667

Accept
Accept
Accept
Accept
Accept

Other
6.1250
6.3333
6.6000
6.2667

Br Image
6.8750
6.4444
6.4000
6.6667

Factors influencing loyalty: An exploratory study of mobile consumers in Kolkata

Table 6: Results of T test for Switching Factors

Mean
male
TechQty
Price
LoyaltyPrg
Peer Gr
Cust Care
Other
Br Image

1.2857
1.8571
3.0714
3.9286
4.9286
6.2143
6.7143

Std.
Deviation
male
.46881
.53452
.73005
.61573
.47463
.57893
.46881

Mean
Female
1.6291
2.0000
2.5625
4.1250
4.8125
6.3125
6.6250

Std.
t
Deviation
Female
.15729 -1.350
.81650 -.558
.96393 1.611
.71880 -.798
.40311
.725
.60208 -.454
.50000
.502

df

Sig.
(2-tailed)

28
28
28
28
28
28
28

.188
.581
.118
.432
.475
.654
.619

Decision at 5%
level of
significance
Accept
Accept
Accept
Accept
Accept
Accept
Accept

Table 7: Results of ANOVA for Switching Factors

Fcators

Value

Price* age
Loyalty Prg*
age
TechQty* age
Peer Gr* age
Cust Care*
age
Br Image* age
Other* age

Mean
Age
1.00
2.00
3.00
Total

Loyalty
Prg
2.3125
1.7778
1.0000
1.9333

.245

29

Sig.
(2-tailed)
.785

4.098

29

.028

3.014
2.775

29
29

.066
.080

4.337

29

.023

1.383
3.901

29
29

.268
.032

TechQty
2.8750
2.7778
3.0000
2.8667

df

Peer Gr
3.9375
4.2222
4.4000
4.1000

offered by the mobile service providers. Thus to

enhance brand loyalty different loyalty based
schemes should be developed for different age
groups.

Decision at 5% level of
significance
Accept
Reject
Accept
Accept
Reject
Accept
Reject

Cust
Br Image
Care
5.0625
6.2500
4.7778
6.3333
4.6000
6.2000
4.9000
6.2667

Other
6.6875
6.6667
6.8000
6.7000

significant difference in opinion amongst different

age group of respondent. The higher age respondent
generally put more importance towards the
customer care service compared to the young. In
general this factor is of very less importance.

Further it is also inferred that different age

group of respondents have difference in opinion
regarding promotional factors like free SIM offer,
or 3G handset offer. But they took this factor as a
least important one thus there is no such need for
developing this king of subscriber retention
strategy.

Gender wise switching and loyalty behavior is

not significant. Thus there is no need to make
different strategy gender wise.
Conclusion
From the findings it can be observed that price
ranks as the most important parameter when loyalty
is concerned. Alteration in tariff/ price perceptions
may cause the loyalty-switching transition. Price

In relation to quality of customer care and age

the hypothesis is rejected. Hence there is a
39

Vedaang Vol. 4 No. 1, January-June 2013

References
Andreassen, T.W., & Lanseng, E. (1998). Customer loyalty
and complex services: The impact of corporate image on
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Friday, Oct 02, 2009
CAG, Report No. CA 35 of 2010-11, Rajyasabha session paper,
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COAI Press release 21,WWW. Coai.com August 2011.
Cronin, J.J., & Taylor, S.A. (1992). Measuring service quality:
A re-examination and extension. Journal of Marketing,
56(3), 5568.
Dhananjayan.G, 2005, The next Mobile Revolution in India
Marketing mastermind, January 2005,ICFAI University
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Keaveney, S. M., and Parthasarathy, M., 2001. Customer
Switching Behavior in Online Services: An Exploratory
Study of the Role of Selected Attitudinal, Behavioral, and
Demographic Factors. Journal of Academy of Marketing
Science 29 (4), 374-390.
Lemmink, J., Annelien, S.. & Sandra , S . (2003). The role of
corporate image and company employment image in
explaining application intentions. Journal of Economic
Psychology 24 1 15 .
Muhkerjee Arindam,2008, Genesis, Growth and Future
Trends of Mobile Service Providers, Page 3-13, ICFAI
University Press, , Page: 3-5,12.
Nguyen, N., & LeBlanc, G. (1998). The mediating role of
corporate image on customers' retention decisions: An
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of Bank Marketing, 16(2), 5265.
Roos, I., Edvardsson, B., and Gustafsson, A., 2004. Customer
Switching Patterns in Competitive and Noncompetitive
Service Industries. Journal of Service Research 6 (3),
256-271.
Secker, Matthew, 2002, Is ARPU a valid performance
metric? accessed 20th December 2009, available at
http://www.highbeam.com/ doc/1G1-92586867.html,
Page: 4,9.
Srikant.A, 2006, Cellular Mobile Industry in India: A study.
The Icfai Journal of Service Marketing, March 2006,
Page: 32.
The Telegraph,2011,Kolkata edition, Tele-tomorrow
(specifics on hold)"Page1, 11 October 2011.
Zeithaml, V. A., Berry, L. L., and Parasuraman, A., 1996. The
Behavioral Consequences of Service Quality. Journal of
Marketing 60 (2), 31-46.

can be used to displace seemingly satisfied and

loyal customers from their providers. Price based
strategy implies that after switching over
competitors subscribers, mobile firms must
continue to offer value to these customers or risk
losing them to another competitor. But service
quality is the most important reason for switching.
Subscribers may regard service quality as a
'hygienic' factor; expecting superior service levels
and not accepting poor service.
Furthermore, loyalty programs cause loyalty
and unsatisfactory loyalty programs cause brand
switching. Loyalty programs are determinants of
switching and loyalty; respondents rank loyalty
programs both as an attraction to switch and as a
switching deterrent. Mobile service providers
should therefore consider initiating loyalty
programs because of their twin benefits; luring
competitor's customers and retaining own
subscribers. Certain different factors such as
impulse buying and advertising illustrate some new
reasons for brand switching.
Limitation and contributions to future research
This study is exploratory in nature and aims at
developing a base on which future research can be
done. Future research should be conducted on a
larger sample base drawn in random stratified
manner. As loyalty is company specific and can vary
according to demographic character of a subscriber,
nore strata of samples can be chosen.
Secondly, these findings emerge by subjecting
participants to hypothetical situations (like- if a
competitor offers twin SIM , with two consecutive
mobile number topped with a attractive tariff
scheme between the two number ) and gauging their
switching/ loyalty response. Future researcher can
conduct longitudinal research that addresses actual
intentions and in the process highlight more on the
subscribers psychological thought process while
choosing a different mobile subscriber. Lastly, this
research did not explore the issue of 'zone of
tolerance' or the extent to which a subscriber
tolerates the service provider.

40

GROWTH AND TREND OF DEVELOPMENT REVENUE EXPENDITURE IN MIZORAM

Dr. R. Lalnuntluanga*, Dr. L. Shashikumar Sharma**
ABSTRACT
In the literature of Indian fiscal federalism, the key features of the economic and fiscal scenario of
most of the States have been slow economic growth and high dependence on Central support. Our
State is also no exception to this group. It is therefore relevant to have a brief review and highlight on
the performance of India economy during the past few years. The present paper focus on the trends of
development expenditure on revenue account of the government of Mizoram. The paper also
highlights the changing composition of expenditure of government and examine how the expenditure
of the state government has been increasing over the past 37 years, the distribution and composition
of this increase and the extent to which this distribution conforms to the broad scheme of social
priorities is also discussed.
Key Words: Fiscal Federalism, Economic and Fiscal Policies, Development and Non-Development
Expenditure, etc.

Introduction

non-development expenditure. Development

expenditure is, on the other hand, presumed to have
direct relation with the pace of economic
development of a backward economy. The term
'development expenditure' has an obvious growth
implication in the sense that expenditure classified
as development should be such that can be
considered to promote growth. Development
expenditure may be understood to mean
expenditure incurred on development programmes
for the purpose of promoting social welfare and for
accelerating the tempo of economic development.
Following the functional classification,
development expenditure will be dealt with under
two broad heads i) Social & Community Services
and ii) Economic Services. Expenditures incurred
on items such as education, medical and public
health, water supply, sanitation, housing and urban
development, labour and employment are booked
under Social & Community Service, while
agriculture, animal husbandry, co-operation, rural
and community development projects, irrigation,
electricity, industry and minerals, transport and
communication, forest and other miscellaneous
services fall under Economic Services. Expenditure
incurred on these items both on revenue and capital
accounts are treated as development expenditure.

The Indian economy is expected to register a

growth rate of 5.0 per cent in the fiscal 2012-13 in
terms of Gross Domestic Product at factor cost at
constant 2004-05 prices. The growth rate in 2011-12
was, however, 6.2 per cent. In view of the decadal
average growth rate of 7.9 per cent during 2003-04
to 2012-13, the growth rate in the last two years is on
the lower side. As pointed out by the title, it is
attempted here to analyse the trends of development
expenditure on revenue account of the government
of Mizoram.
The changing composition of
expenditure will also be analysed. We shall examine
how the expenditure of the state government has
been increasing over the past 37 years, the
distribution and composition of this increase and the
extent to which this distribution conforms to the
broad scheme of social priorities.
The total expenditure of government has been
classified into Development and Non-development
expenditure. Non-development expenditure arises
for the maintenance of law and order, expenditure
incurred for the collection of revenues and for the
maintenance of the existing set up. Expenditure
under the heads such as defence, collection of taxes
and duties, administrative services, interest on debt
and other services, stationery and printing and other
expenditure on general services is grouped under

In the federal set up of India, State Government

* Associate Professor, Deptt. of Economic,Govt. Aizawl North College

**Associate Professor & Head, Department of Management, Mizoram University, Aizawl, Mizoram.

41

Vedaang Vol. 4 No. 1, January-June 2013

has to take responsibility for performing social and

development functions. But these initiatives require
large amount of expenditure.
Besides, the
introduction of Five Year Plan since 1951 and the
bending towards socialistic pattern of society
required the government to play a pivotal role in
initiating the process of economic development on
all fronts. It is indispensable for the government to
incur an increasing amount of expenditure. This is
more relevant to a backward and remote state like
Mizoram where all the infrastructures are at an
initial stage. Government has to play a dominant
role in initiating development programmes in order
to keep pace with the rest of the country. Mizoram
was formerly one of the remotest districts of Assam,
it was elevated to a status of Union Territory in the
year 1972 and to a full-fledged state in 1986. It is,
therefore, true to say that Mizoram is a late starter in
development planning as the state had always been
one of the neglected remotest districts of Assam.
No meaningful planning programme had been taken
up in the district while the rest of the country reaped
the fruit of economic planning. It was, practically
from Seventh Five Year Plan that Mizoram joined
the ambit of planning process of the country.
Therefore, it would be interesting to analyse the
growing trend of public expenditure particularly on
revenue account in the following discussion.

155.85 times within 37 years of this study period.

The causes of rapid increase in the volume of the
total revenue expenditure was mainly due to the
multiplicity of government departments and
expanding functions that have been taken up by
these new departments. In addition to this, the
government has to take care of the welfare of the
increasing population by importing almost all
commodities from outside the State as Mizoram had
no infrastructure for production. The State is
lagging far behind the rest of the country in all
respects. Private enterprise can hardly come up due
to lack of infrastructure and exorbitant cost of
production. Government has to play a vital role in
initiating development programmes and the
emergence of price spiral and the mounting
inflationary pressure in the economy has resulted in
a serious budget deficit. Since the government quite
often availed itself of the provision of 'ways and
means advances' and even resorted to short term
commercial loan to meet its financial deficit, the
expenditure on debt services and interest payment
rose to an alarmingly high level.
The same table exhibits that there has been a
continuous increase of development revenue
expenditure in absolute terms over the years. It
went up from Rs. 19.00 crores in 1974 - 75 to Rs.
104.32 crores in 1985 - 86 which is 5.49 times
higher. The expenditure has continuously been
increasing and then touched a staggering figure
of Rs. 2648.69 crores in 2011 12 R.E. This
increase is a multiple of 139.40 time over 1974
75.
In
percentage
term, the growth of
development revenue expenditure shows a
remarkable increase as high as 13840 % in 2011 - 12
over the year 1974 - 75.

Table 1 presents a clear picture and trend of

revenue expenditure in Mizoram from the period
1974 - 1975 to 2011- 2012. During this period of 37
years, there has been a tremendous growth in the
volume of the total revenue expenditure at current
prices. In the year 1974 -1975, the total revenue
expenditure was Rs. 24.94 crores which had grown
up within ten years in 1984-85 to Rs. 120.66 crores.
This was 4.83 times more or in percentage term, the
expenditure grew up by 383.80 % within a short
span of ten years. There has been a continuous
increase in the expenditure in absolute term over the
following years.
While the total revenue
expenditure was Rs. 449.99 crores in 1994 - 95, it
had grown up to Rs. 1295.51crores in 2004 05 and
again to Rs. 3886.85 crores in 2011 12 Revised
Estimate. A comparison of expenditure in absolute
term between 1974 - 75 and 2011 - 12 shows that
public expenditure in Mizoram has increased

Taking plan-wise growth trend of development

revenue expenditure in absolute term, it indicated an
ever increasing trend, having grown to Rs. 132.95
crores in the Fifth Plan, Rs.312.47 crores, Rs.737.65
crores, Rs. 481.26 crores, Rs. 1694.41 crores, Rs.
2933.78 crores, Rs. 4457.34 and Rs. 9321.55 crores
in the Sixth, Seventh, Two Annual Plans, Eight and
Ninth, Ten and Eleventh Plan respectively. But the
percentage variation in the proportion of
development expenditure to total revenue
42

Growth and Trend of Development Revenue Expenditure in Mizoram

Table 1 : Percentage Growth of Development and

Revenue Expenditure

expenditure was not so impressive. While it was

75.76% in the Fifth Plan, it went down to 66.74% in
the Eleventh Five Year Plan. Taking a yearly
expenditure during the Fifth Plan period, the
proportion of development expenditure to total
revenue expenditure in percentage term varies from
73.41% to 78.87%. The Sixth Five Year Plan
showed a decreasing percentage of development
expenditure which was well above 70% excepting
the year 1983 - 84 which recorded 69.75%. During
Seventh Five Year Plan, the overall percentage of
development expenditure to total revenue
expenditure increased to 75.87% but the lowest
percentage during this Five Year Plan was recorded
in 1986 - 87 at 67.01%. It increased gradually every
year to 77.67% in 1989 - 90. The two Annual Plans
showed 71.38% and 74.86% in the year 1990 - 91
and 1991 - 92 respectively. The first year of the
Eight Plan recorded an expenditure at 74.32 %
which fell to 72.19 % and then falling down
consecutively to 71.54%, 70.20% and 70.69 % in
the following three years.

Rs. In crores
Year

Total
Development
Expenditure

1
1974 - 75
1975 - 76
1976 - 77
1977 -78
1978 - 79
5th Plan
1979 - 80 (A.P.)
1980 - 81
1981 - 82
1982 - 83
1983 - 84
1984 - 85
6th Plan
1985 - 86
1986 - 87
1987 - 88
1988 - 89
1989 - 90
7th Plan
1990 - 91
1991 - 92
Annual Plan
1992 - 93
1993 - 94
1994 - 95
1995 - 96
1996 - 97
8th Plan
1997 - 98
1998 - 99
1999 - 00
2000 - 01
2001 - 02
9th Plan
2002 - 03
2003 - 04
2004 - 05
2005 - 06
2006 - 07
10th Plan
2007 - 08
2008 - 09
2009 - 10
2010 - 11
2011 - 12 (R.E.)
11th Plan

2
19.00
24.51
31.45
24.33
33.66
132.95
40.50
43.78
53.69
61.17
66.50
87.33
312.47
104.32
31.03
204.39
195.63
202.28
737.65
219.70
261.56
481.26
246.85
289.20
321.92
388.70
447.74
1694.41
445.06
465.84
600.26
686.76
735.86
2933.78
725.33
804.43
780.86
1046.35
1100.37
4457.34
1262.74
1510.65
1755.06
2145.01
2648.69
9322.15

Total Revenue 2 as a
Expenditure per cent
of 3
3
24.94
33.39
39.88
32.89
44.51
175.50
52.41
58.01
71.42
85.24
95.35
120.66
432.90
143.44
46.31
268.01
254.06
260.44
972.27
307.78
349.38
657.16
332.16
400.60
449.99
553.70
633.36
2369.81
661.57
690.83
894.28
1021.61
1128.23
4396.53
1128.96
1266.97
1295.51
1587.98
1717.29
6996.71
1908.62
2313.62
2702.81
3155.83
3886.85
13967.73

4
76.20
73.41
78.87
73.98
75.63
75.76
77.27
75.47
75.18
71.76
69.75
72.38
72.18
72.73
67.01
76.26
77.00
77.67
75.87
71.38
74.86
73.23
74.32
72.19
71.54
70.20
70.69
71.50
67.27
67.43
67.12
67.22
65.22
66.73
64.25
63.49
60.27
65.89
64.08
63.71
66.16
65.29
64.93
67.97
68.14
66.74

During the Ninth Plan, the first four years

recorded more or less a constant level of
development expenditure hovering around 67%,
but declined to 65.22% in 2001 - 02. During Tenth
Plan, the development expenditure shows falling
percentage at a minimum of 60.27% in 2004 05, but
gradually increases during the Eleventh Plan. The
total development expenditure on revenue account
in 2011 - 2012 is estimated at Rs. 2648.69 crores
which recorded an increase of 23.48 % over the
previous year 2010 - 11 which was at Rs. 2145.01
crores. The average development expenditure as a
proportion to total revenue expenditure during
Eleventh Plan stood at 66.74% which indicated a
decrease of 9% from the Fifth Five Year Plan.
In the accounting and Budgeting system of the
State Government, there is no reflection of
expenditure in terms of physical targets. Moreover,
the plan framework gives only lists of demands for
financial outlay without specific target
achievements. At the end of the financial year, the
statement of expenditure is compiled to show the
amount of money actually spent for the various
programmes. It is thus well-nigh impossible to

Source : Annual Financial Statement, Government of Mizoram

43

Vedaang Vol. 4 No. 1, January-June 2013

Plan and the increase in the percentage of

expenditure on Social Services (11166.80 %) was
considerably higher than that of the expenditure on
Economic Services (4653.54 %).
While
expenditure on Social Services witnessed a sharp
increase as a proportion to total development
revenue expenditure from 36 per cent in the Fifth
Plan to 57 per cent in the Eleventh Plan, the
expenditure on Economic Services on the other
hand, fell from 64 per cent to 43 per cent. In other
words, expenditure on Economic Services in the
Fifth Five Year Plan recorded nearly 2 times more
than the expenditure on Social Services, but the
growth trend had been reversed in the Eleventh Plan
showing a higher percentage of expenditure on
Social Services to Economic Services. This
changing ratio of expenditure between Social

evaluate physical achievement of public

expenditure programmes in details as all the
dealings in the Government Account remain
opaque. At best, it is possible to analyse the
different components of development expenditure
in terms of financial outlays for a given period.
Table 2 and 3 show the growth and pattern of
development expenditure in Mizoram from the
Fifth Five Year Plan to the Eleventh Five Year Plan.
A close examination of the figure indicates the
following results :1) Social Services and Economic Services which
accounted for 36 : 64 per cent of the total
development revenue expenditure in the Fifth Plan
period changed to 57 : 43 per cent in the Eleventh

Table 2 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Social Services
Rs. In crores
Constituents of
Development
Expenditure

Fifth
Plan

Sixth
Plan

Seventh
Plan

Annual
Plans

Eight
Plan

Ninth
Plan

Tenth
Plan

Eleventh
Plan

1
SOCIAL
SERVICES

2
47.62
(35.82)
22.74
(17.60)
7.56
(5.85)

3
140.86
(45.08)
56.96
(18.90)
20.88
(6.93)

4
350.15
(47.47)
134.71
(19.06)
49.71
(7.03)

5
215.67
(44.81)
99.42
(21.52)
31.59
(6.84)

6
873.84
(51.57)
386.78
(23.69)
130.13
(7.97)

7
1608.87
(54.84)
784.60
(27.43)
255.42
(8.93)

8
2458.94
(53.66)
1226.37(2
6.76)
376.72
(8.22)

9
5365.25(5
6.95)
2530.51(2
6.86)
896.45
(9.51)

8.90
(6.89)

42.15
(13.99)

90.58
(2.82)

45.01
(9.74)

167.74
(10.27)

242.85
(8.49)

319.45
(6.97)

688.74
(7.31)

7639

0.74
( 0.57 )

1.77
(0.59)

4.05
( 0.57 )

2.67
( 0.58 )

8.54
( 0.52)

13.56
( 0.47 )

19.05
(0.42)

31.44
(0.33)

4149

24.07
(3.41)

18.69
(4.05)

98.98
( 6.06 )

197.63
(6.91)

302.67
(6.60)

695.45
(7.38)

Education
Health &
Family Welfare
Water Supply,
Sanitation,
Housing &
Urban Dev.
Information &
Broadcasting
Welfare of
SC/ST & Other
Backward
Classes
Labour &
Employment
Social
Welfare &
Nutrition
Others

% increase
in the 11th
Plan over
the 5th
Plan
10
11166.8
11028
11758

0.29
( 0.22 )

1.03
( 0.34 )

2.47
( 0.35 )

1.60
( 0.35 )

5.52
( 0.34 )

9.79
( 0.34 )

18.78
(0.41)

28.86
(0.31)

9852

7.05
( 5.46 )

17.73
( 5.88 )

43.44
( 6.15 )

15.50
( 3.36 )

70.30
( 4.31 )

105.48
( 3.69 )

179.89
(3.93)

456.26
(4.84)

6372

0.34
( 0.27 )

0.34
( 0.11 )

1.12
( 0.16 )

1.19
( 0.26 )

5.85
( 0.36 )

11.24
( 0.39 )

16.06
(0.35)

37.54
(0.40)

10942

Source : Computed and Arrange from Financial Statement, Government of Mizoram

Figures in the brackets are percentage to Total Development Revenue expenditure

44

Growth and Trend of Development Revenue Expenditure in Mizoram

Services and Economic Services clearly indicates

that the Government of Mizoram has put more
importance to welfare programme with immediate
result than to long term development programme. It
is now of utmost importance for the planners and
policy makers to seriously look into the pattern of
public expenditure in the State. A backward state
like Mizoram cannot afford to enhance too much
welfare programmes at the cost of long-term
development programmes. This is the reason why
even after four decades of economic planning of the
State, Mizoram has poor infrastructural facilities
and no industrial base. If the trend goes on like this,
the economy of the State is bound to entangle in
secular stagnation and be capsized in a vicious
circle of poverty.

expenditure during the last 37 years under study

which recorded an expenditure of Rs. 5242 crores.
Agriculture and Allied Services in Economic
Services group occupies the second place with a
total expenditure of Rs. 3528 crores. While Water
supply, Sanitation, Housing & Urban Development
head ranks third with an expenditure of Rs.
1605.42crores and generation of power and energy
in the Economic Services group comes next with a
very close total expenditure of Rs. 595.33 crores.
3) As regards the percentage increase in the
Eleventh Plan over the Fifth Plan, the constituent
head of expenditure called Energy in the Economic
Services group and General Economic Services
comprising Secretariat Economic Services,
Tourism, Census and Statistics, Civil Supplies,
Public Works shows an unprecedented increase
recording the highest and the second highest
respectively. This soaring increase is largely

2) A close examination of the constituent heads of

expenditure in the table shows that Education in
Social Services occupies the highest proportion of

Table 3 : The Plan-wise Growth and Pattern of Development Revenue Expenditure on Economic Services
Rs. In crores

Constituents Fifth
Sixth Seventh Annual Eight
Ninth
Tenth Eleventh Plan
% increase
of
Plan
Plan
Plan
Plans
Plan
Plan
Plan
in the 11th
Development
Plan over the
Expenditure
5st Plan
1
2
3
4
5
6
7
8
9
10
Economic
85.33 171.61 387.50 265.59 820.57 1331.57 2123.05
4056.20
4653.54
Services
(64.18) (54.92) (52.53) (55.19) (48.43) (45.11) (46.33)
(43.05)
Agriculture &
1725.81(18.32)
25.46
57.39
143.90
92.57 308.30 431.87 742.41
Allied
6679
(19.71) (19.05) (20.36) (20.04) (18.88) (15.10) (16.20)
Activities
Rural
3.83
6.64
33.50
57.21 159.16 154.99 163.91
240.40 (2.55)
6177
Development (2.96) ( 2.20 ) ( 4.74 )
(12.38) (9.75)
(5.42)
(3.58)
Special Area
3.10
9.71
26.06
1.65
4.60
54.83
60.57
170.21 (1.81)
5391
Programme
(2.40) (3.22 ) ( 3.69 ) ( 0.36 ) ( 0.28 ) ( 1.92 )
(1.32)
Irrigation &
33.59 (0.36)
0.68
1.65
6.98
6.16
11.92
13.38
20.85
Flood
4840
(0.53) ( 0.55 ) ( 0.99 ) ( 1.33 ) ( 0.73 ) ( 0.47 )
(0.45)
Control
2.23
20.46
66.62
42.47 147.91 315.64 618.32 979.75 (10.40)
Energy
43835
(1.73) ( 6.79 ) ( 9.43 ) ( 9.19 ) ( 9.06 ) (11.03) (13.49)
Industry &
3.76
11.16
30.92
19.32
61.74
91.53
143.18
210.77 (2.24)
5506
Minerals
(2.91) ( 3.70 ) ( 4.38 ) ( 4.18 ) ( 3.78 ) ( 3.20 )
(3.12)
45.45
61.75
66.88
36.29
87.72
186.42 251.57
426.38 (4.52)
Transport
838
(35.18) (20.49) ( 9.46)
(7.86)
(5.37)
(6.52)
(5.49)
General Eco.
0.82
2.85
12.64
9.92
39.22
82.91
122.24
269.29 (2.86)
32740
Service
(0.63) ( 0.95 ) (1.79)
(2.15)
(2.40)
(2.90)
(2.67)
Source : Computed and Arrange from Financial Statement, Government of Mizoram
Figures in the brackets are percentage to Total Development Revenue expenditure

45

Vedaang Vol. 4 No. 1, January-June 2013

Expenditure,' The Economic Weekly, 1961.
Gupta, B.N., Government Budgeting, Asia Publishing House,
New Delhi, 1967.
Reddy, K.N., and Sudhakar, S., Incidence of Public
Expenditure in India, Commonwealth Publishers, New
Delhi, 1989.
Sharma, Atul and Tulsidhar, V.B., Economic Impact of
Government Expenditure, Concept Publishing
Company, New Delhi, 1984.
Sury, M.M., Government Budgeting in India, Commonwealth
Publishers, New Delhi, 1990.
Thangchungnunga, 'Financial Management in Mizoram,'
Dialogue Quarterly, (July September, 2002), A Journal
of Astha Bharati, New Delhi.
Goverrnment of Mizoram, Annual Financial Statement
(Budget), Finance Department, Aizawl, from 1974 75 to
2011 12).
Government of Mizoram, explanatory Memorandum on the
Budget (As laid before the Legislative Assembly), from
1974 75 to 2011 12.
Government of Mizoram, Demand for Grants, Finance
Department, Aizawl, for the year 1974 75 to 2011 12.
Government of Mizoram, Reports of the Comptroller and
Auditor General of India, (various years).
Government of Mizoram, Reports of the Public Accounts
Committee, (various reports relating to different
departments, Government of Mizoram.
Government of Mizoram, Reports of the Estimate Committee,
(various action taken report relating to different
departments, Government of Mizoram.
Government of Mizoram, Reports of the Committeeon Public

explained by the low base in the initial years. In

absolute terms, the total development expenditure
on revenue account during the Fifth Five Year Plan
on Energy was Rs. 2.23 crores which increased to
Rs. 979.75 crores in the Eleventh Plan. Total
Development expenditure on the head 'General
Economic Service' in Economic Services was Rs.
0.82 crore in the Fifth Plan which increased to Rs.
269.29 crores in the Eleventh Plan. The low base of
development expenditure during the Fifth and Sixth
Plans may be explained by the fact that Mizoram
was one of the poorest and remotest Union
Territories where no major developmental
programme had been taken up so far and the
government set up was confined to small pockets of
establishment during this period. It was only since
Mizoram became a full-fledged State, Government
establishment has become expanded and its
activities also increased manifolds. Expenditure
also inevitably increased tremendously.
References
Bhuyan, P. K., The Regional Fiscal Economics of Assam,
Chugh Publication, Allahabad, 1984
Das, H.N., 'The Present Financial Crisis in Assam,' Dialogue
Quarterly, (July September, 2002), Vol. 4, No. 1,
AJournal of Astha Bharati, New Delhi.
Gadhok, N., Parliamentary Control OverGovernment
Expenditure, Sterling, 1976.
Gulati, I.S., 'An Analysis of Central Government

46

FINANCIAL INCLUSION AND SHG-BANK LINKAGE PROGRAMME:

A RURAL HOUSEHOLD STUDY IN KERALA
Dr. Minimol M.C.*, Dr. Makesh K.G.**
ABSTRACT
Deliberations and discussions on the subject of Financial Inclusion has formulated a consensus
among people that merely having a bank account need not necessarily be a good indicator of
financial inclusion. Further, indebtedness as quantified in the NSSO 59th round (2003) may not also
be a reflective indicator. The ideal definition should look at people who want to access financial
services but are denied the same. If genuine claimants for credit and financial services are denied the
same, then that is a case of exclusion. This would require re-engineering of existing financial
products or delivery systems and making them more in tune with the expectations and absorptive
capacity of the intended clientele. Based on the above consideration, a broad working definition of
financial inclusion could be the process of ensuring access to financial services and timely and
adequate credit where needed by vulnerable groups such as weaker sections and low income groups
at an affordable cost (Committee on Financial Inclusion, 2008). The SHGS-Bank linkage programme
is considered to be an effective strategy to ensure financial inclusion. It is against this backdrop, the
present study has been undertaken with the specific objective of analyzing the impact of SHG-Bank
Linkage Programme on the financial inclusion in rural Kerala. The study was taken up in Kottayam
district of Kerala and covered a sample of 300 SHG members. Results of this study clearly show that
the SHG-Bank linkage programme has increased the flow of institutional credit to landless and
marginal farm households and discouraged non-institutional borrowing through the thrift creation.
Financial inclusion index, which measures the degree of financial inclusion, has been computed for
each household by giving appropriate weight to the selected financial services.
Key Words : Financial Inclusion, Self help Groups, Financial Exclusion, Institutional Credit,
Financial Services

Introduction

SHGs with banks in 1992, the programme has

reached to linking of 69.5 lakh saving-linked
SHGSs and 48.5 lakh credit-linked SHGs and thus
about 9.7 crore households are covered under the
programme, envisaging synthesis of formal
financial system and informal sector[1].

The SHGs - Bank Linkage Programme can be

regarded as the most potent initiative since
Independence for delivering financial services to
the poor in a sustainable manner. The programme
has been growing rapidly and the number of SHGSs
financed increased to 29.25 lakhs on 31 March
2007. The Self Help Group (SHG)-Bank Linkage
Programme, in the past eighteen years, has become
a well known tool for bankers, developmental
agencies and even for corporate houses. SHGSs, in
many ways, have gone beyond the means of
delivering the financial services as a channel and
turned out to be focal point for purveying various
services to the poor. The programme, over a period,
has become the common vehicle in the development
process, converging important development
programmes. With the small beginning as Pilot
Programme launched by NABARD by linking 255

The programme involves forming SHGSs of the

poor, encouraging them to pool their thrift regularly
and using the pooled thrift to make small interest
bearing loans to members, and in the process
learning the nuances of financial discipline. Bank
credit to such SHGs followed. NABARD saw the
promotion and bank linking of SHGs not merely as
a credit programme but as part of an overall
arrangement for providing financial services to the
poor in a sustainable manner leading to
empowerment of the members of these SHGs [3]. In
this backdrop, this study has been undertaken with
the specific objective of analyzing the impact of

* Assistant Professor, Rajagiri Centre for Business Studies, Rajagiri College of Social Sciences
**Associate Professor, School of Communication and Management Studies [SCMS]

47

Vedaang Vol. 4 No. 1, January-June 2013

SHGs-Bank linkage programme on the financial

inclusion.

Objective of the Study

The study was undertaken with the specific
objective to analyze the impact of SHGs-Bank
linkage programme on the financial inclusion.

Review of literature
Financial Inclusion covers a wide array of
services by banking sector. Financial inclusion, at a
minimum, may be interpreted to mean the ability of
every individual to access basic financial services
which include savings, loans and insurance in a
manner that is reasonably convenient and flexible in
terms of access and design and reliable in the sense
that savings are safe and that insurance claim will be
paid with certainty [2]. Though financial inclusion
covers a wide array of services by the banking
sector, one crucial area relate to borrowings from
banks by the lower strata of the unorganized
segment of the economy. Further, debt owed to
institutional and non institutional source could be
used as barometer of degree of financial inclusion in
the two sectors [7]. Studies reveal that in the rural
areas 70 per cent of borrowings of the richest
households were institutional in nature while this
share was only 18 per cent for the poorest
households. A huge untapped population is still
denied of these formal banking services [5].
According to an estimate by the World Bank, the
credit requirement of the poorer sections in India
was placed at aroundRs.50,000 crore per annum in
2002. Against this requirement, the credit
outstanding of the poorer sections with the formal
banking sector is stated to be Rs.5,000 crore or 10
per cent of the total demand(Planning Commission,
2007). Furthermore, the physical outreach of the
rural credit has not been effective in achieving
income expansion and poverty reduction, and
access to needed financial services is still an issue in
the rural areas [4].

Hypotheses
The hypotheses formulated for the empirical
verification through this study are;
?
SHGs-Bank linkage programme positively
contributed to the flow of institutional credit to
the vulnerable section,
?
There exists association between the degree of
financial inclusion and the participation in
SHGs.
Methodology
The study is based on the primary data collected
from Kanjirapplly Taluk of Kottayam district in the
state of Kerala. Agriculture forms the livelihood of
the majority in the Taluk. Though the Taluk is being
served by 120 branches of commercial banks and 60
branches of regional rural banks besides a large
number of credit cooperative societies, cent percent
financial inclusion continued to be a major
challenge. Government agencies and many NGOs
are promoting SHGs to face this challenge. The
socio-economic environment of the district
provides strong case for the purposeful selection of
the district for this study.
Sampling Design and Data Collection
In the first step four Panchayats of the Taluk
were randomly selected. Households of each
Panchayat were stratified into five segments Lower
segment(less than 25 cents), marginal (25-50 cents),

Table 1: Distribution of Sample Respondents

Farm Size Category
Lower segment
Marginal segment
Small segment
Medium segment
Large segment
Total

Without SHGs
3(23.08)
11(42.30)
6(22.22)
12(57.15)
8(61.53)
40(40)

48

With SHGs
10(76.92)
15(57.70)
21(77.78)
9(42.85)
5(38.47)
60(60)

Total
13(100)
26(100)
27(100)
21(100)
13(100)
100(100)

Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

small (50 cents-1 acres), medium (1- 2 acres) and

large (more than 2 acres) farm category in the
second stage. From each Panchayat, considering the
land holding distribution, 2 landless, 2 marginal, 6
small, 10 medium and 5 large farm households were
randomly selected in the third stage. Thus, totally
100 rural households were selected by using
multistage stratified random sampling method.
Primary data were elicited from these households
by using pre-tested, well structured schedule

significance of the association between the

degree of financial inclusion and the membership in
the SHGs.
Data Analysis and Interpretation
Financial Inclusion Index
Index which measures the degree of financial
inclusion has been developed by giving appropriate
weights to the selected financial services. Bank
officials and knowledgeable farmers were
consulted in order to understand the farmers'
financial needs. In the light of the experience gained
through consultation, some important financial
services were selected and the weights were
assigned for computing the financial inclusion
index [6]. Details of financial services selected for
developing the financial inclusion index and their
corresponding weight are given in table 2. The
household which availed all the financial services
will get 100 weights whereas the one which did not
avail any of these services will get 0 weights. The

Analytical Framework
In this study the total borrowing made during
2009-2010 from institutional and non-institutional
sources were computed separately for households
without SHGs' and households with SHGs'.
Significance in the difference in mean values of
borrowing was tested by using t' test. Further, seven
important financial services were selected and the
extent of households' inclusion into these services
was estimated in terms of percentages. The Chisquare test (2) was made to verify the

Table 2: Financial Services and Corresponding Weights

Weight if answer is
Yes
No
Borrowings from Institutional Sources
i) B orrowed directly from institutional Agencies
and/or through SHG during 10-11?
ii) B orrowed directly from institutional Agencies
and/or through SHG during 09-10?
iii) B orrowed directly from institutional Agencies
and/or through SHG during 08-09?
Savings in Institutional Agencies
i) H aving at least one SB account in bank or post
office
ii) H aving at least one recurring and/or Fixed
deposit in bank or post office?
iii) Have savings in SHG
Other Financial Services
i) Adult member/s of family covered under life
Insurance
ii) Family asset/s covered under insurance
iii) Family having at least one ATM card
iv) Family having at least one credit card
Total

49

30

10

10

10

10

10

5
5
5
100

0
0
0
0

Maximum
weight

50

25

25
100

Vedaang Vol. 4 No. 1, January-June 2013

total weights of an individual household show its

degree of financial inclusion.

Among lower segment household, the mean

value of institutional borrowing by the families with
SHG (Rs 4038.5) was found to be considerably
more compared to the households without SHG (Rs.
769.23). The calculated't' value between these two
means was found to be greater than the critical
value at 5 percent level of significance. Therefore,
the difference is statistically significant. In case of
lower segment households, institutional credit is
frequently available through the SHGs. Though
there is difference between the households without
SHGs and with SHGs in the mean values of
institutional borrowing by the small, medium and
large farm size group, they are very minimal.
Another important finding of this study is that all the
size groups of households with SHG, borrow
considerably lower amount from non-institutional
sources compared to their counterparts without
SHG. This difference was found to be statistically
significant for pooled as well as marginal size

Borrowings of the Households

Percentage share of institutional and noninstitutional sources in the total borrowing of the
respective farm size group was computed for both
the groups of households. Percentage share of
institutional sources in the total borrowing is more
among the households with SHGS compared to the
households without SHGS in the entire farm size
group but the difference is more among the lower
and small household group. It is generally believed
that the flow of institutional credit to vulnerable
groups will increase with the SHGS-Bank linkage
programme. For the empirical verification of this
hypothesis borrowings of the households with
SHGs and Without SHGs during the year 2009 2010 were tested using t test. The results are given
in Table 3.

Table 3: Arithmetic Mean values of borrowings during 2009-2010

Sources of
Borrowing

institutional

Non institutional

Total

Farm size Group

Lower segment(13)
Marginal segment(26)
Small segment(27)
Medium segment(21)
Large segment(13)
Pooled(100)
Lower segment(13)
Marginal segment(26)
Small segment(27)
Medium segment(21)
Large segment(13)
Pooled(100)
Lower segment(13)
Marginal segment(26)
Small segment(27)
Medium segment(21)
Large segment(13)
Pooled(100)

With SHG

Without SHG

4038.5(72.41)
6000.00(83.87)
9000.00(94.18)
9285.71(100.0)
6923.07(100.0)
7365.00(91.89)
1538.5(27.59)
1153.84(16.13)
555.55(5.82)
0.00(0.00)
0.00(0.00)
650.00(8.11)
5577.00(100)
7153.84(100)
9555.55(100)
9285.71(100)
6923.07(100)
8015.00(100)

769.23(50.01)
30769.23(88.8)
18518.51(72.9)
19047.61(94.1)
23076.92(100)
20100.00(86.2)
769.23(49.99)
3846.15(11.20)
6851.85(27.10)
1190.47(5.90)
0.00(0.00)
3200.00(13.80)
1538.00(100)
34615.38(100)
25370.37(100)
20238.09(100)
23076.92(100)
23300.00(100)

Figures in parentheses indicate percentage to the total borrowing of the respective farm size group

50

t value

.795
.462
.460
.670
.577
.670
.915
1.00
0
.780
.698

.491
.670

Financial inclusion and shg-bank linkage programme: A rural household study in Kerala

group. It might be because SHGs, besides creating

thrift culture, discourage their members to borrow
from non-institutional sources. Thus SHGs have
definitely increased the flow of institutional credit
to credit-thirsty landless and marginal farm
households and discouraged non-institutional
borrowing through the thrift creation.

the households with SHGS compared to their

counterparts without SHGs. Since the saving is
compulsory for the SHGS members, the percentage
of households which saved with the formal
institutions is cent percent in the households with
the SHGS and without SHGs irrespective of their
farm size group and membership in SHGSs.

The percentage of households included in seven

important financial services

Degree of financial inclusion

The degree of financial inclusion of each
household was computed by using the method
explained in the financial inclusion index table. The
two way classification of the respondents based on
their degree of financial inclusion and the

Percentage of households which borrowed from

institutional sources during 2009-10 increases with
farm size. The borrowing was considerably more in

Table 4 : Association between degree of financial inclusion and membership in SHGs

Farm size group
Low (0-40)
Lower segment
Without SHGS
With SHGS
TOTAL
Marginal segment
Without SHGS
With SHGS
TOTAL
Small segment
Without SHGS
With SHGS
TOTAL
Medium segment
Without SHGS
With SHGS
TOTAL
Large segment
Without SHGS
With SHGS
TOTAL
Pooled
Without SHGS
With SHGS
TOTAL

Degree of financial inclusion

Medium
High
(41-75)
(76-100)

2
total

1(33.33)
0(0.0)
1(7.70)

1(33.33)
7(70.00)
8(61.53)

1(33.34)
3(30.00)
4(30.77)

3(100)
10(100)
13(100)

10.791

3(27.28)
0(0.00)
3(11.53)

5(45.45)
5(33.33)
10(38.47)

3(27.27)
10(66.67)
13(50.00)

11(100)
15(100)
26(100)

6.291

1(16.67)
1(4.77)
2(7.40)

5(83.33)
13(61.90)
18(66.68)

0(0.0)
7(33.33)
7(25.92)

6(100)
21(100)
27(100)

3.178

2(16.67)
0(0.0)
2(9.53)

9(75.00)
6(66.67)
15(71.42)

1(8.33)
3(33.33)
4(19.05)

12(100)
9(100)
21(100)

3.225

4(50.00)
0(0.0)
4(30.77)

4(50.00)
4(80.00)
8(61.53)

0(0.0)
1(20.00)
1(7.70)

8(100)
5(100)
13(100)

4.581

11(27.50)
1(1.67)
12(12.00)

24(60.00)
35(58.33)
59(59.00)

5(12.50)
24(40.00)
29(29.00)

40(100)
60(100)
100(100)

Note: figures in parenthesis are percentage to the respective row total

51

30.902

Vedaang Vol. 4 No. 1, January-June 2013

membership in the SHGs was made and the results

are given in table 4. The Chi-square test (2)

counterparts without SHG.

?
SHG bank linkage program enhance its
members contributions to their total household
income.

was made to verify the significance of the

association

between

the

degree

of

?
A high degree of financial inclusion can be
achieved by linking formal (banking and nonbanking) institutions with SHGs.

financial inclusion and the membership

in the SHGs. The calculated chi-square

?
SHG linkage program improves cash
management of its members.

(2) value (30.902) was found to be statistically

significant at 5 percent level of significance.
Therefore, it could be inferred that the degree of
financial inclusion could be increased with
implementation of SHGs-Bank linkage
programme. Though the percentage of household

?
It also improves the social participation of its
members especially women.
8. Conclusion
Results of this study clearly show that the SHGBank linkage programme has increased the flow of
institutional credit to landless and marginal farm
households and discouraged non-institutional
borrowing through the thrift creation. Financial
inclusion index, which measures the degree of
financial inclusion, has been computed for each
household by giving appropriate weight to the
selected financial services. Based on the index
value, households were classified into the
households with low, medium and high degree of
financial inclusion. Percentage of household which
reached the medium and high degree of financial
inclusion, increased with the size of the land
holding. The percentage of households, which
reached the higher degree of financial inclusion, is
relatively more among SHG member households
compared to non-member households The chi-

reached the medium and high degree of

financial inclusion is relatively more
among the SHGs member households
compared to Non-member households in
all the farm size groups, the chi-squire
value (2) was found to be statistically
significant only for lower and marginal
household segments. Therefore it could be inferred
that SHGs-Bank linkage programme increased the
degree of financial inclusion among lower and
marginal household segments. But no such
inference could be drawn with respect to small,
medium and large household segments.
Findings

square (2) results lead to the conclusion

?
SHG bank linkage program increase the flow of
institutional credits to poor and weaker sections
of the society.

that the SHG-Bank linkage programme

increased the degree of financial inclusion

?
There exists association between the degree of
financial inclusion and the participation in
SHGs

category.

?
All segments of households with SHG, borrow
considerably lower amount from noninstitutional sources compared to their

References
Chavan Pallavi (2007), Access to Bank Credit: Implications
for Dalit Rural Households, Economic and Political
Weekly, August, Vol. XLII (31), pp 3219-3224.

among landless and marginal household

52

A STUDY & SCOPE OF SME'S IN UTTARAKHAND &

PROBLEMS FACED BY THEM
Mohammad Alam Khan*
ABSTRACT
After the formation of Uttarakhand state the people of the Uttarakhand region are having the
high expectation from the government are of the local people related to the development of the state,
better job opportunities, better growth, & better standard of living & etc. TheState Infrastructure &
Industrial Development Corporation of Uttarakhand Limited (SIDCUL), a government of
Uttarakhand enterprise, was incorporated as a limited company in the year 2002 to promote
industrial development in the state. It provides financial assistance to promote industries and develop
industrial infrastructure in the state of Uttarakhand directly. Most of its major industrial
infrastructure has been developed in the plains with limited concentration in the hills. As the
government knowing the importance of SMEs Uttarakhand appears headed for another push to their
growth through a new industrial policy. The government has contemplated a move to bring in a new
policy for industrial growth in the year 2010 for further growth of SMEs in the state. As government
formed various policies just to develop the industrial backward and remote areas & hilly region of the
state just to develop the industrial infrastructure & to encourage the entrepreneurial development &
financial support to the various industries in the state. As this paper highlighting the various reasons
for the growth of SMEs & the limitation of SMEs in the Uttarakhand state.

?
Sports goods
?
Plastic Products
?
Computer Software

INTRODUCTION TO SMES IN INDIA:

India has nearly 3 million SMEs,
which account for almost 50 percent industrial
output and 42 percent ofIndia's total export. They
constitute the most important employment
generating sector and an effectivetool for balanced
regional development. They account for 50 percent
of private sector employment and30-40 percent of
value addition in manufacturing. They produce a
diverse range of products (about8000) including
consumer items, and capital and intermediate
goods.

Indian SMEs have been passing through a

transitional period, keeping competitive spirit high,
with a willingness to restructure themselves, facing
the challenges and come out with shining colors and
contribute to Indian economy.
What is a SME?
SME stands for Small and Medium Enterprises.
By SME business, we mean small and medium
enterprises that maintain revenues or a number of
employees below a certain standard. Every country
has its own definition of what is considered as a
small and medium-sized enterprise. In India, an
industrial undertaking that has investments in fixed
assets which do not exceed more than Rs.10 million
or 1 crores falls under the category of small
business. A small-sized enterprise is a company
with less than 50 employees while a medium-sized
enterprise is one with fewer than 250 employees.

In India, SMEs have been established in almost

all major sectors in Indian industry like:
?
Food Processing
?
Agricultural Inputs
?
Chemicals & Pharmaceuticals
?
Engineering Electrical & Electronics
?
Electro-medical Equipment
?
Textiles & Garments
?
Leather & Leather Goods
?
Bio-engineering

Enterprises qualify as micro, small and

* Assistant Professor, HIPR, Dehradun(U.K)-248001, India

53

Vedaang Vol. 4 No. 1, January-June 2013

Enterprise category
Medium -sized
Small
Micro

Headcount
< 250
< 50
< 10

Turnover
= 50 million
= 10 million
= 2 million

medium-sized enterprises (SMEs) if they fulfill the

criteria laid down in the recommendation which are
summarized in the table below. In addition to the
staff headcount ceiling, an enterprise qualifies as an
SME if it meets either the turnover ceiling or the
balance sheet ceiling, but not necessarily both.

districts comprise the hill region of the state.The

formation of the new state had to fulfill the high
expectations of the local people related to
development and better living standards. However,
within Uttarakhand there is a geographical
inequality between the hills and the plains that
divides the state critically.

Types of SMEs

The State Infrastructure & Industrial

Development Corporation of Uttarakhand Limited
(SIDCUL), a government of Uttarakhand
enterprise, was incorporated as a limited company
in the year 2002 to promote industrial development
in the state. It provides financial assistance to
promote industries and develop industrial
infrastructure in the state of Uttarakhand directly or
through Special Purpose Vehicles, Joint Ventures,
assisted companies, etc. Most of its major industrial
infrastructure has been developed in the plains with
limited concentration in the hills.

According to the Micro, Small and Medium

Enterprise Development Act (MSMEDA), 2006,
the micro, small and medium enterprises inIndia are
defined as follows:
Role of SMEs in Uttarakhand
Uttarakhand State was carved out of the state of
Uttar Pradesh on November 9, 2000. It is divided
into two broad regions--Garhwal and Kumaon. The
state is comprised of 13 districts, namely, Chamoli,
Pauri, Tehri, Uttarkashi, Dehradun, Haridwar and
Rudraprayag in the Garhwal region and Nainital,
Almora, Pithoragarh, Udham Singh Nagar,
Champawat and Bageshwar in the Kumaon region.
Of these 13 districts, four districts (Nainital,
Haridwar, Dehradun and Udham Singh Nagar) have
large areas in the plains, whereas the other nine
Nature of the
Enterprise
Manufacturing Sector

Service Sector

or
Balance sheet total
= 43 million
= 10 million
= 2 million

Some of its major projects include the

Integrated Industrial Estate at BHEL inHaridwar,
the Integrated Industrial Estate at Pantnagar, and an
IT Park in Dehradun, Pharma City in Selaqui,
Dehradun, the Growth Centre at Pauri, and the

Micro Enterprise

Small Enterprise

Medium Enterprise

Investment in plant
& machinery does
not exceed INR 2.5
million (USD 62.5
Thousand)

Investment in
plant & machinery
more than INR 2.5
million (USD 62.5
thousand) but does
not exceed INR 50
million (USD 1.25
million)
Investment in
equipment is
more than INR 1.0
million (USD 25
thousand) but does
not exceed INR 20
million (USD 500
thousand)

Investment in plant
& machinery more
than INR 50 million
(USD 1.25 million)
but does not
exceed INR 100
million (USD 2.5
million)
Investment in
equipment more
than INR 20
million (USD 500
thousand) but does
not exceed INR 50
million (USD 1.25
million)

Investment in
equipment does
not exceed INR
1.0 million (USD 25
Thousand)

54

A study & scope of Sme's in Uttarakhand & problems faced by them

Integrated Industrial Estate at Sitarganj. SIDCUL

enables industrial projects to be set up in a short
time. The Corporation administers all promotional
schemes of the government for industries and uses
the single-window system.

facilitation in the state to expedite project

clearances and to provide an investor-friendly
climate. It also looks to provide and facilitate
expeditious land availability for setting up
industrial ventures and infrastructure projects. The
policy aims to provide assured, good quality,
uninterrupted and affordable power for industries
and to simplify and rationalize labour laws and
procedures in line with current requirements while
ensuring that workers get their due share in the
economic prosperity of the state. For small-scale
industries, cottage, khadi and village industries,
handicrafts, and the silk and handloom sectors, it
will assist them in modernization and technological
upgrading and provide necessary common facilities
and backward and forward linkages, including
product design and marketing support so as to make
them globally competitive and remunerative.

The state has seen strong industrialization since

2003, but that was mainly in the plains, following
the special package announced by the Centre in
2003. Thus an Integrated Industrial Development
Policy 2008 was launched in February especially
for the industrial development of hilly and remote
areas in the state. This policy has aimed at the
economic development of the hill region. With the
objective of inclusive growth, the main
concentration is now on the hill districts. This policy
aims to celebrate industrial development in the
industrially backward and remote hill districts of the
state, to develop industrial infrastructure, and to
encourage entrepreneurial development through
market encouragement and financial support to
entrepreneurs. The creation of employment
opportunities along with the removal of economic
backwardness is expected to help control the
migration of the population towards the plains and
other states in search of better livelihoods. This
policy targets industries in the manufacturing and
services sectors. These steps are in addition to the
Industrial Policy, 2003, which aimed to provide a
comprehensive framework to enable a facilitative,
investor-friendly environment to ensure rapid and
sustainable industrial development in Uttarakhand
and, through this, to generate additional
employment opportunities and to bring about a
significant increase in the State Domestic Product
and eventual widening of the resource base of the
state.

There has been an impressive increase of 18 per

cent in SSI units in India from 2001-02 to 2006-07
and in Uttarakhand this increase is 22.8 per cent. Of
these SSIs registered units showed an increase of
about 50 per cent and unregistered of about 15 per
cent in Uttarakhand, whereas the figures for India
are 32 percent and 15 percent, respectively. This
increase in scale of SSIs in Uttarakhand can be
attributed to the industrial policy of 2003. Thus,
after the industrial policy of 2008 is implemented,
the industrialization process is expected to
strengthen even in the hill regions.
Knowing the importance of Small and Medium
Enterprises (SMEs), Uttarakhand appears headed
for another push to their growth through a new
industrial policy. The government has contemplated
a move to bring in a new policy for industrial growth
in the year 2010 for further growth of SMEs in the
state.

The policy looks at providing single-window

Table: Number of small-scale industrial units in India and Uttarakhand (2001-02 and 2006-07)
Type of Industry
Small-Scale Industry Units
Registered
Un-registered
Source:

Uttarakhand
2006-07
2009-10
106484
137618
15285
30268
91199
107350

India
2006-07
10521190
1374974
9146216

2009-10
12843774
2031910
10811864

Indiastat (www.indiastat.com). Outsourced from Annual Report 2006-07, 2009-10 Ministry of SSI, Govt. of India and various
Annual Surveys of India.

55

Vedaang Vol. 4 No. 1, January-June 2013

?
Low investment requirements
?
Significant export earnings
?
Capacities to develop appropriate indigenous
technology
?
Operational flexibility
?
Contribution towards defense production
?
Technology - oriented industries
?
Location wise mobility
?
Low intensive imports
?
Competitiveness in the domestic market
?
Competitiveness in the export markets

Importance of SMEs in Global Economy

Global economic integration is changing the
competitive paradigm in which all businesses
operate, requiring an international expansion
strategy to positively impact long-term growth and
survival (Karagozoglou and Lindell, 1998). The
small businesssector has become more important as
they emerge as a dominant force impacting the
growth of national economies (Shridhar, 2006).
There are a number of disadvantages inherently
faced by SMEs as they transition into international
environments (Chen and Huang, 2004). Managers
of non-exporting SMEs perceive the international
environment as being risky, unprofitable and
unmanageable, due primarily to misinformation
and lack of experience with global business
(Malekzadeh and Nahavandi, 1985). SMEs, due to
their size limitations, often have limited financial
capital and a lack of necessary human resources.
Many operators of small businesses lack experience
in developing an international strategy (Tesar and
Moini, 1998). There are also disadvantages related
to a lack of competitive power as a consequence of
the size of the organization. SMEs have difficulty in
influencing global pricing as they rely on a small
customer base, and arelimited in expansion due to
minimal access to financial resources (Kalantaridis,
2004).

Limitations of SMEs
Inspite of making significant contribution
towards global economy, SMEs face a lot of
limitations in their growth and performance. Some
of them are:
?
Low capital base
?
Low utilization of installed capacity
?
Problem of specialized training and skilled
management
?
Unavailability of high quality of inputs
?
Less innovation actions
?
Lack of proper market information
?
Low level of research & development
?
Lack of awareness of global trade laws
?
Inadequate accession to the monetary
institutions
?
Less exposure to international environment
?
Lack of Professionalism

Even though faced with the need to overcome

significant weaknesses, the strategic importance of
SMEs has been identified as the following:
?
They are responsible for growing employment
at a faster rate than largerorganizations;
?
They increase the competitive intensity of the
market and reduce the monopolisticpositions of
large organizations; and
?
They encourage the development of
entrepreneurial skills and innovation.

References
SMEs, Entrepreneurship and Innovation,DOI :10.1787/
9789264080355-en www.oecd.org/ innovation/strategy
The Business Finance Market: A Survey, Industrial Systems
Research Publications, Manchester UK, 3rd. revised
edition 2008.[1]
UN/ECE Secretariat. "SMEs Their role in foreign trade".
www.unece.org. United Nations Economic Commission
for Europe (UN/ECE). http://www.unece.org/indust/
sme/foreignt.htm. Retrieved 2007-06-28.
Tyler Biggs. Is small beautiful and worthy of subsidy.
w w w. u n e c e . o r g . Wo r l d B a n k ( U N / E C E ) .

Reasons behind growth in SMEs

There are various reasons due to which the small
scale business in India has witnessed a spurt of
growth like:
?
Import substitution
?
High contribution to domestic production
56

A study & scope of Sme's in Uttarakhand & problems faced by them

http://rru.worldbank.prg/Documents/ PapersLinks/
TylerPaperonSMEs.pdf. Retrieved 2008-05-30.
"OECD-APEC Keynote Paper on Removing Barriers to SME
Access to International Markets". www.oecd.org. OECD.
2 0 0 6 . h t t p : / / w w w. o e c d . o r g / d a t a o e c d /
4/16/37818320.pdf. Retrieved 2007-06-28.
Adapted from: Berger, A.; G. Udell (2005). "A More Complete
Conceptual Framework for SME Finance".
http://ideas.repec.org/p/ wbk/ wbrwps/3795.html.
Newberry, Derek (2006). "The role of small- and mediumsized enterprises in the futures of emerging economies".
http://earthtrends.wri. org/features/ view_feature.php?
theme=5&fid=69. Retrieved 2008-05-19.
Journal of Small Business and Enterprise Development
Volume List, ISSN: 1462-6004, vol 16 -17
Article: International entrepreneurship: towards a theory of
SME internationalization, Journal of International
Business and Economics , Article date: January 1, 2009
Author: Schulz, Anja; Borghoff, Thomas; Kraus, Sascha.
Tambunan, Tulus (Oct 2007). 'Development of SMES in a
developing country : The Indonesian story', Journal of
Business and Entrepreneurship.
Journal of technology management & innovation, versin Online ISSN 0718-2724
Journal of Technology Management & Innovation v.4 n.4
Santiago dic. 2009,doi: 10.4067/S071827242009000400005, J. Technol. Manag. Innov. 2009,
Volume 4, Issue 4
SME Innovative Capacity, Competitive Advantage and
Performance in a 'Traditional' Industrial Region of
Portugal, Carla Susana Marques , Joo Ferreira
EUROPA Enterprise The new SME definition User guide
and. www.ec.europa.eu/ enterprise/ policies/ sme/.../
sme.../ sme_user_ guide_ en.pdf
SME Definition - Small and medium sized enterprises (SME...
6 May 2003 ... European Commission - Enterprise and
Industry - This page ... ec.europa.eu/enterprise/policies/
sme/.../sme.../index_en.html
SME Small Medium Enterprise SME Definition What is an
SME (Small to Medium Enterprise, SME definition
explains. sbinfocanada.about.com/od/businessinfo

/g/SME.html
The Improtance of SMEs in the ecnomywww.itdweb.org,
www.oecd.org.
SMEs India,India's SMEscenario, SMEsrole in Indian
economy, SMEswww.tradeindia.com/ newsletters/...
/tips_13_feb_2007.html
SMEOvercoming Barriers to Innovation for Indian
SMEswww.annualmeeting2005.in sme.org/...
/14.4.../presentation_stuti.doc
Reasons behind growth in SME business. There are various
reasons due to which the small scale business in India has
witnessed a spurt of growth. blogs.siliconindia.com/.../
An_Overview_of_Scope_and_Growth_of_SME_Busin
ess_in_India-bid On284gb518532640.html
The reason for SME's all-out attack on JYJ 9 Jan 2011
www.seiofbluemountain.com/ en/search/detail.
php?id=4310
SME Problems, www.hutex.com/Problems.htm
Challenges facedby SMEs. Presented By. Lynette P Holder.
OUTLINE. Overview of CASME; Projects to Date;
Sector Analysis; Challenges FacedbySMEs...
www.ttbs.org.tt/sme/day2/Lynette%20Holder.ppt
Competitivechallenges facedby small and medium enterprises
(SMEs ...1 article on Competitive challenges faced by
small and medium enterprises (SMEs)
www.helium.com/.../275119-competitive-challengesfaced-by-small-and-medium-enterprises-smes
Overview of the problemsfacedby micro and small businesses
whenwww.ueapme.com /docs/pos.../0710_Guido_
problems_SME.pdf
Business Directory with Free CRM of Top Companies in
India, Delhi ...Fundoodata.com is a Business Directory
with Free CRM consisting of India Top 100 , Top 500 ,
Top 1000 , MNCs companies in India, Delhi NCR ,
Mumbai, www.fundoodata.com
http://www.beemanagement.com/pdf/2005/pn4.pdf
http://www.business-standard.com/india/news/uttarakhandto-redrawindustrial-policy/400416/
http://www.icrier.org/pdf/Working_Paper_217.pdf

57

A STUDY ON IMPACT OF SERVICE QUALITY ON CUSTOMER LOYALTY

IN A PRIVATE PTFE PRODUCTS MANUFACTURING COMPANY, BANGALORE
Dr. Lakshmi Jagannathan1, Mrs. S Deepalakshmi2, Ms Taraya Srivilas3
ABSTRACT
The most important asset of any organization is its customers. Customers who are satisfied will
increase in number, buy more and buy more frequently. Increasingly manufacturing and service
organizations are using customer satisfaction as the measure of quality. Customer satisfaction is one
of the major purposes of Quality Management systems. From customer perspective, Quality means
meeting or exceeding customer expectations. The factors of performance, features, service, and
warranty are part of the product or service quality; Therefore it is evident that product and service
quality are important than price. Customer service is the set of activities an organization uses to win
and retain customers' satisfaction. Organizations' that emphasize service never stops looking and
finding ways to serve their customers better, even if their customers are not complaining. Providing
excellent service is different from and more difficult to achieve than excellent product quality. In this
research the impact of service quality on customer loyalty was identified in a PTFE product
manufacturing company at Bangalore. For that sample of size 25 was taken by using stratified
sampling considering Indian clients and Foreign clients as strata. Online questionnaires were sent
and data was collected. Using suitable statistical techniques data was analyzed and interpretation
and Suggestions were provided.
Key words: Service Quality, Customer Satisfaction, Quality Management, Customer Loyalty

Introduction

new customers, create a pool of referrals for

capturing new accounts, improve employee
productivity, satisfaction, and retention.

In recent years, quality is a key competitive

weapon in the global marketplace. Quality
engenders competitive advantage by providing
products that meet or exceed customer needs and
expectations. In other words, quality products and
services are essential for firms seeking to compete
globally. Research indicates that customer service
has been influential on customer satisfaction.

Researcher reported two simple reasons for

satisfaction being linked to loyalty: (1) satisfied
customers are more likely to stay with the company,
continue to buy from the company over the longer
term, and to increase their expenditures; and (2)
satisfied customers are more likely to tell others
about their positive experiences, which generates
new business for the company (E. Neumann, P.
Williams and M. Sajid Khan 2009). It is possible for
a customer to be loyal without being highly satisfied
(e.g., when there are few other choices) and to be
highly satisfied and yet not be loyal (e.g., when
many alternatives are available) (Shankar ad Amy,
2002). According to Mittal et al. (1999) the
relationship between satisfaction and loyalty
changes over time. The relationship between
satisfaction and loyalty is expected to be dependent
on the quality of the product and services. However,

Customer satisfaction and loyalty are critical

elements of long-term business growth and
profitability, usually because attracting new
customers is more expensive than retaining existing
ones. Higher customer satisfaction and loyalty can
have a much broader impact on industrial business
by enabling them to achieve lower costs of selling,
increase repeated purchases from existing
customers, improve brand equity or price premium,
increase retention rates for supplies sales, leverage
satisfaction rates in marketing messages to attract
1
2
3

Professor and Head of the Department, Department of Management Studies, Dayananda Sagar College of Engineering, Bangalore.
Assistant Professor, Alliance College of Commerce, Alliance University, Bangalore.
Student , Department of Management Studies, Dayananda sagar College of Engineering, Bangalore.

58

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

?
How well the business fulfills the customers'
requests (Response to meet exigencies/urgent
requirements)
?
Time required to address customers' needs
(Time taken for developing customer's product)
?
Effective communication with customers (Our
response to customer's communication)
?
Innovative at meeting customers' needs (Our
response to customer's special requirement)
?
Relative service quality
?
Follow-up on service performance (Resolution
of customer's complaints)
?
Invoice accuracy
?
Ability to minimize employee turnover

service quality, product quality, customer

satisfaction and loyalty can be measured at different
stages, for example, at the beginning of the
purchase, and one or two years after purchase
(Asghar 2011).
The aim of this research was to identify the
impact of service quality on customer loyalty of this
company.
Theoretical Framework of the Study
Service Quality
Customer service is one of the organizational
processes which companies perform considering
the growing competition and for attracting
entrepreneurial opportunities for increasing
profitability and better access to the market and
increasing the customer satisfaction and loyalty
level (Calif, 1987). According to Goofin and Prince
(1996) customer service has higher value because it
ends in increasing product quality, gaining
competitive advantage, gaining profitable
opportunities, and as a result increasing sales and
income.

1) Customer Loyalty
Customer loyalty is one of the most important
issues organizations face today. Creating loyal
customers has become more important due to
significant increase in competition and
concentrated markets. As suggested by several
researchers (Kumar and Shah, 2004; Back and
Parks, 2003; Bell et al, 2005 and Dean, 2007) there
are two types of loyalty; behavioral and attitudinal
loyalty. The behavioral aspects of the customer
loyalty were characterized in terms of repurchase
intentions (Nadiri, et al. 2008; Karatepe and Ekiz,
2004; Yi, 1990; Zeithaml et al., 1996). On the other
hand, attitudinal concepts can be identified as
providing positive word of mouth (e.g. Zeithaml et
al., 1996; Andreassen and Lindestad, 1998),
recommending the service to others (Zeithaml et al.,
1996), and encouraging others to use the service
(Bettencourt and Brown, 1997).

Dimensions of Service Quality

Research suggests several quality elements will
predict satisfaction, positive word-of-mouth, and
loyalty (dependent variables). A few of the elements
have been studied in B2B relationships. Most of the
elements have been researched only in business to
customer (B2C) relationships. According to the
study of these elements in B2B customer
relationships, Kristen and Adam (2007) showed the
dimension of service quality as following.
?
Anticipating and meeting the underlying needs
of the customer (Meeting specification)

Table 6.2: The different kinds of customer service in PTFE industry

Customer Services in
PTFE industry
Research service
Design service
Information services
Communication service
Delivery service

Objective
Research material requirement and material testing for customer.
Design products to meet customers' specific needs
Providing customer about products and services information.
After sold, establish a long term relationship with customers for
any request.
Providing delivery service to customer as schedules

59

Vedaang Vol. 4 No. 1, January-June 2013

The literature review ended up with the research

question Is there any impact of service quality on
B2B Customers' loyalty in this PTFE products
manufacturing company?

companies in India all and all around the world. In

that 25 companies are selected to be sample
respondents by sampling method. The respondents
are business-functional managers of the client
companies. Multistage sampling method was used.
At the first stage using stratified sampling two strata
were identified as Indian clients and foreign clients.
At the second stage convenience sampling method
was used to select 15 from total of 50 Indian clients
and 10 were selected from a total of 30 Foreign
clients.

The objectives were framed from the research

problem as follows:
1. To identify the impact of service quality on
customer loyalty at this company.
2. To find the relationship between satisfaction
and loyalty of customers' at this company

2. Data collection plan

Research Design

Primary data are original sources from which

the researcher directly collect data that have not
been previously collected. Primary data plays an
important role in the study of this kind.

Research design is the specification of methods

and procedures for acquiring the information
needed. It is the over-all operational pattern or
framework of the project that stipulates what
information is to be collected from which sources
by what procedures.

Primary data was collected through online

questionnaire which was structured using Likert's
five point scale for measurement. Some closed end
questions and open end questions also were
included in that questionnaire. These online
questionnaires were sent to the respondents for data
collection.

The research design selected for this research is

descriptive research design. The major purpose of
description of the state of affairs as it exists at
present. The characteristic of this method is that the
researcher has no control over the variables: he can
only report what has happened or what is
happening.

Analysis and Interpretation

After data collected, collected data was
analyzed to find the impact of service quality on
customer satisfaction. For that Hypothesis 1 was
framed as follows

1. Sampling plan
The study was conducted to find out customer
loyalty so the population chosen for this research
was client companies of this PTFE products
manufacturing company. There are 80 client

Hypothesis1 : There is relationship between

service quality and customer satisfaction at the
company

Table 1: Serviced Quality Vs. Customer Satisfaction

Overall satisfaction Overall satisfaction
rating with our
rating with our
service quality
company
**
Overall satisfaction
Pearson Correlation
1
.534
rating with our service Sig. (2-tailed)
.006
quality
N
25
25
**
Overall satisfaction
Pearson Correlation
.534
1
rating with our
Sig. (2-tailed)
.006
company
N
25
25
**. Correlation is significant at the 0.01 level (2-tailed).

60

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore

This hypothesis was tested using correlation

analysis.

was framed and tested.

Hypothesis 2 : Customer loyalty is affected
significantly by customer satisfaction at the
company

From table 1, it was come to know that p value is

equal to 0.006 which shows that at 1% level of
significance, overall satisfaction rating with service
quality and about the company were correlated.
This test showed that there is an impact of service
quality on B2B customer satisfaction at the PTFE
product manufacturing company.

From Table 2, it was come to know that p value

is equal to 0.049which shows that at 5% level of
significance, overall satisfaction rating with the
company and repurchasing of the company
products were correlated. This test showed that
customer loyalty is affected significantly by
customer satisfaction at the PTFE product
manufacturing company.

In order to prove that there is a positive impact

of service quality on customer loyalty, as per the
literature review behavioral as well as attitudinal
loyalty were checked.

Findings and Recommendations

From figure 1, it was understood that nearly

60% of the respondents told that they definitely
would continue repurchasing with the company and

Overall the Organization is performing well in

maintaining customer satisfaction and creating
customer loyalty. The majority of customers are
definitely would recommend the company's
products and services to others and definitely would
continue to repurchase with it. The company can
continuously improve in quality especially in
increasing customer satisfaction in
accommodation/modification in delivery schedules
and pricing for retaining existing customers and
attract new customers.
As this descriptive study provide evidence that
customer loyalty is affected by customer
satisfaction at this organization, it is essential to
effectively maintain and improve customer
satisfaction to increase the level of customer
loyalty. Perceived quality can be measured by

remaining respondents told that they probably

would continue repurchasing. No customer told that
they would not continue repurchasing. It showed
the behavioral loyalty of the customers of that
company.
From figure 2, it was understood that majority
of the customers would recommend the company to
others which showed the attitudinal loyalty of the
customers. In order to find out whether customer
satisfaction leads to customer loyalty, Hypothesis 2
61

Vedaang Vol. 4 No. 1, January-June 2013

Table 2: Customer Loyalty Vs. Customer satisfaction

Repurchasing with
us

Repurchasing with us Pearson Correlation 1

Sig. (2-tailed)
N
25
Overall satisfaction Pearson Correlation .398*
rating with our
Sig. (2-tailed)
.049
company
N
25
*. Correlation is significant at the 0.05 level (2-tailed).

comparing customer's perceptions and expectations

of company's service performance. In addition, this
organization is already concentrating on quality
improvement efforts to make their customers
always happy and to attract new customers. In order
to keep up the customer loyalty, the five variables on
which the company should focus its attention for
q u a l i t y i m p r o v e m e n t a r e c o n s i s t e n c y,
serviceability, features, responsiveness, and price.

Overall
satisfaction
rating with our
company
*
.398
.049
25
1
25

longer buy solely on the basis of price. They

compare the total package of products and services
that a business offers called 'consumer benefit
package 'with the price and with competitive
offerings. If competitors offer netter choices for a
similar price, consumers will rationally select the
package with the highest perceived quality.
In addition to value, satisfaction and loyalty are
influenced greatly by service quality, Integrity and
the relationships that organizations build with the
customers.

Finally, this organization has built its name on

quality, innovation and customer service in PTFE
industry. In order to retain customer satisfaction and
improve customer loyalty, service quality requires a
synergistic relationship between the firm and its
internal and external customers.

As per the theory, from this research also, it is

well understood that Customer satisfaction has a
positive impact on Customer loyalty. It is clear that
customer loyalty and satisfaction are affected by
service quality at this company shows that theory
matches with it. This research can be extended to
whole PTFE Manufacturing Industry and other
industries to find the impact of service quality on
Customer loyalty.

Conclusion
Customer Satisfaction and loyalty are two
different concepts. To quote Patrick Mehne the
chief Quality officer at Ritz Carlton Hotel company,
L.L.C.: Satisfaction is an attitude; Loyalty is a
behavior Customers who are merely satisfied may
often purchase from competitors because of
convenience, promotions and other factors. Loyal
customers place a priority on doing business with a
particular organization and will often go out of their
way or pay a premium to stay with the company.

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Customer satisfaction occurs when products

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deliver ever improving value to the customers.
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62

A study on impact of service quality on customer loyalty in a private PTFE products manufacturing company, Bangalore
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The TQM Journal, Vol 20 (3), 265-280
(Shankar and Amy, 2002): Shankar,V. Amy K.S, Customer
satisfaction and loyalty in online and offline
Environments, International Journal of research in
Marketing, e Business Research centre, pp 3-42
(Yi, 1990); Yi.Y. A critical Review of Consumer
Satisfaction, in Zeithaml V. (Ed), Review of Marketing,
1990, American Marketing Association,
Chicago,IL,PP.68-123
(Zeithaml et al., 1996): Zeithaml, Valarie A., Leonard L.Berry
and A. Parasuraman, The behavioral consequences of

63

TALENT MANAGEMENT PRACTICES AND ITS RELATIONSHIP WITH

EMPLOYEES TURNOVER: A STUDY ON EMPLOYEES WORKING IN
INSURANCE SECTOR INDUSTRIES IN UTTARAKHAND: AN EMPIRICAL STUDY
Dr. D.S. Chaubey*, Vishal Gupta**
ABSTRACT
In the present economic circumstances the country is witnessing rapid expansion of industrial
activity. With enrichment and enhancement of information & Communication Technology the
complexity of human factor have also increased substantially. Insurance industry in the country is
passing through the acid test. Human resource mobalisation has become the important element for
the survival and growth of the organization. Today Human Resources function is expected to identify
potential talent and also comprehend, conceptualize and implement relevant strategies to enable and
empower them to contribute effectively to achieve organizational objectives. Talent management
refers to the process of developing and integrating new entrants, retaining current employees, and
attracting highly skilled people to work for a company. Present research paper focus on
understanding underlying factors of talent management strategies and its relationship with
employee turnover in some selected insurance organization of Uttarakhand. Research tried to know
the organizational challenges of talent retention faced by the insurance organization in Uttarakhand.
Study indicates some underlying factors that company should exert some effort and undertake some
analyses to determine the non-monetary interests and preferences of its key employees, and then
attempt to meet these preferences in action. In this context organizations need to dig novel
approaches of talent management that is helpful to retain the most effective manpower. Looking
carefully into many organizations - retention strategies are very competitive.
Key words: Talent management, talent retention, turnover ,human resource mobalisation etc.

employees profitably, has become increasingly

competitive leading to the situation called "the war
for talent between firms of strategic importance. A
serious concern of every Human Resource manager,
in order to survive this 'War for Talent', is to
optimize attracting a limited and diminishing pool
of qualified and available candidates to replace
valuable employees when they leave- underscoring
the challenge to motivate and retain the best talent in
an organisation. Empirical study on the subject
reveals only about 5 percent of organizations have a
clear talent management strategy and operational
programs in place today.

Introduction
In the present economic circumstances the
country is witnessing rapid expansion of industrial
activity. With enrichment and enhancement of
information & Communication Technology the
complexity of human factor have also increased
substantially. Insurance industry in the country is
passing through the acid test. Human resource
mobalisation has become the important element for
the survival and growth of the organization. Today
Human Resources function is expected to identify
potential talent and also comprehend, conceptualize
and implement relevant strategies to enable and
empower them to contribute effectively to achieve
organizational objectives. Talent management
refers to the process of developing and integrating
new entrants, retaining current employees, and
attracting highly skilled people to work for a
company. The process of attracting and retaining

Talent management is a process that emerged in

the 1990s and continues to be adopted, as more
companies come to realize that their employees'
talents and skills drive their business success.
Companies that have put into practice talent
management have done so to solve an employee

* Director, RCMCA, Roorkee

**Research Scholar, Pacific University Udaipur (Rajasthan)

64

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

retention problem. The issue with many companies

today is that their organizations put tremendous
effort to attract employees, but spend little time to
retain and develop talent. A talent management
system must be worked into the business strategy
and implemented in daily processes throughout the
company as a philosophy to be practiced. It cannot
be left solely to the human resources department
alone to attract and retain employees, but rather
must be practiced at all levels of the organization.
The business strategy must include responsibilities
for line managers to develop skills of their
immediate subordinates. Divisions within the
company should be openly sharing information
with other departments so that employees gain
knowledge of the overall organizational objectives.
Companies that have integrated plans and processes
to track and manage their employee talent, focus on
the following strategic issues:
?
Sourcing, attracting, recruiting and on boarding
qualified candidates with competitive
backgrounds
?
Defining and Managing competitive salaries
?
Training and development
?
Performance Management Systems &
Processes
?
Career Planning & Retention programs
?
Promotion and transitioning

Branham clearly states that one major reason why

people leave their organisations is because of the
organisation's failure to bring about a correlation
between pay and performance. Human Resource
experts in the industry also believe that matching
the right blend of talent with the right job profile can
lead to superior performance.
The present scenario with abundant
opportunities has triggered a wave of employees,
perpetually on the move, seeking better
opportunities whenever, wherever and however
they can. What is behind the restlessness of these
hard to keep employees? By focusing on
productivity, organisations are realising that it is
imperative to hire employees who can do the job
and be successful at it. The organisation no longer
want to just hire for the sake of hiring; in fact they
are striving to find the right people, bring them into
the organisation and retain their services. One of the
critical functions of HR is a sound Human Resource
Planning through which they are able to project the
demand for human resource and thereafter
formulate strategies for acquiring them. As the
leading HR heads of the country point out, the
solution is not just about finding the correct
retention mechanisms , but it starts from the very
beginning by devising ways to acquire the right
people for the right jobs.
Or perhaps, there is another option - Talent
Management A conscious, deliberate approach
undertaken to attract, develop and retain people
with the aptitude and abilities to meet current and
future organizational need Organization need to
have a vision and a well defined strategy on hiring
for the future. India has become the outsourcing
capital of the world and this has created its own set
of HR challenges. India's biggest problem is that
qualified graduates are becoming scarce. Despite
the large population, the supply of talented
manpower cannot keep up with the sharply
increased demand. So, do we have the right talent
within to attract and retain the best available talent?
The supply side discussed puts pressure on
companies to attract the best talent and ensure that
employees join the company and choose to stay in
the organization rather than look for opportunities

Today, companies have become fiercely

competitive in action when it comes to attracting
and retaining talent. According to Branham, 75 per
cent of the senior executives admit that employee
retention is a major concern today, the obvious
reason being the 'increasing turnover'. This dynamic
and volatile demand-supply equation with such
erratic attrition trends and cut-throat competition
has led organisations to focus on mechanisms to
attract and retain talent. It is accepted that turnover
will happen and companies need to device a strategy
to curb unexpected turnover from affecting
organisational effectiveness and success. Despite
intense competition being the key to market
development and success, organisations have failed
to identify some of the major reasons which
highlight why 'good performers' leave. In his study,
65

Vedaang Vol. 4 No. 1, January-June 2013

elsewhere. Present study is supposed to find out the

talent retention strategies and its impact on business
performance with specific reference to some
selected industries in Uttrakhand state.
Accessibility of researcher with the respondents of
some selected organisation of Uttrakhand state has
motivated her to select them for proposed study.

control employee turnover for the benefit of the

organization. The current literature on employee
turnover is primarily divided into three groups, viz:
- sources of employee attrition, effects of employee
turnover and the strategies used in order to
minimize turnover.
Incentive and Talent retention

Review of Related Literature

Incentives are monetary benefits paid to

encourage executives with talent in recognition of
their outstanding performance. The primary
advantage of incentives is the inducement and
motivation of talent for higher efficiency and
innovative ideas. It may not be difficult to get
people for fixed wages and salaries. But with fixed
remuneration, it is difficult to motivate executives
to remain with the organization. Positive response
will surely come when incentives are included as a
part of the total remuneration in the form of loyalty
to the firm. Earnings of employees would be
enhanced due to incentives. There are instances
where incentive earnings exceed to three times the
time rated wages or salaries. Increased earnings
would enable the senior and mid-level employees to
improve their standard of living. The company's
performance management systems must resonate
with employees
needs, and should assure
well.Long-term incentive plans keeping an
employee's interest in mind and creating the
proverbial 'win-win' between employees and the
company. In managing talent and rewarding people
companies still struggle the most with issues around
pay.

In this fast-paced, cutthroat, wireless world of

work, performance improvement and bottom-line
performance both depend on retaining the top
talent. Companies can't take on the work, collect
revenue, and grow unless there are people in place
to do the work. In short, retaining top talent and
business performance go hand in hand in the new
economy. Human resources of a company is saying
to be one of the important capital is playing such an
important role in the operation of an organisation.
Pfeffer (1994) argued that human capital has long
been held to be a critical resource in most firms.
Companies are now trying to add value with their
human resources and human resource (HR)
department has been set up in order to manage their
human capital, where as organisation in last decade,
managed their human capital trough personnel
department which is only a small division of the
company.
Employees turnover has been studied from
various aspects. One theory highlight that
employees' decision to resign is influenced by two
factors: their perceived ease of movement, which
refers to the assessment of perceived alternatives or
opportunity and perceived desirability of
movement, which is influenced for instance by job
satisfaction (Morrell et al., 2004; Abdullah et al.,
2012). This describes how balance is struck both
for the organization and its employees in terms of
inducements, such as pay, and contributions, such
as work, which ensures continued organizational
efficiency.

According to Mueller and Price (1990: p. 321),

pay is considered as a part of the sanctions system
used by the organization to motivate employees to
be in compliance with its regulations and rules. The
wage payment plays an important role in their
current as well as in possible future employment.
The lower the salary is in his existent organization,
the more an employer will aim to change this
situation. Furthermore it is to assume, that better
paid employees within the same hierarchy level
tend to stay in the organization (Henneberger
&Sousa-Poza, 2007: p. 61). However, there are
well-established literatures concerning motivation

According to Meaghan et al (2002) the value of

employees to an organization is a very crucial
element in organizations success. This value is
intangible and cannot be easily replicated therefore,
it becomes very important that managers should
66

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

(e.g. McGregor 1957) suggesting that for at least

some individuals, pay is not the sole motivating
factor. It is told that motivation has some link with
job choice and that pay will not be the sole criterion
used when people decide to choose a job, or when
they decide to continue within an existing job.

follow up telephonic calls were made in order to

encourage respondents to complete and return the
survey. After follow-up 125 questionnaires were
returned. After editing 107 responses were found
suitable which was taken up for the proposed study?
Demographic characteristics are facts about
the make up of a population. Demographic
variables, also known as personal characteristics,
are widely used in management research.
Demographic determinants are examined to assess
talent management practices and its relationship
with employees turnover. Demographic variable
such as age gender, marital status education
qualification and tenure having direct bearing on
Organizational strategies of talent management and
in turn employees turnover The data obtained
through surveys reveals that sample is dominated by
middle age group younger lot , male and married
and well educated people. It also reveals that sample
is the composition of experienced person as almost
40% employees are having experience ranging
from 5 years and above. 10.3% employees
indicated that they are fresher and having

Employees talent and Business performance can

also be enhanced by effective Recruiting and
Training the employees. It is seen that many
companies invest a lot of effort into recruiting these
employees, but then do very little by way of talent
management and talent development to retain them.
Another way of managing talent is the employee
development strategies by effective mentoring
through structured mentoring programs. These can
be a very powerful tool in acclimating employees to
the corporate culture and values.another way of
talent management is giving high potential
employees high visibility and meaningful
assignments to keep them engaged. Stablishing the
effective communication and investing in their
learning and development and building proper
system for measuring progress are also some the
important strategies for managing talent in the
organization.

Table 1 : Demographic determinants

Category
Upto 25 Years
25-35 Years
35-45 Years
45 to 55 Years
From 55-65 Years
Gender
Male
Female
Marital
Married
Status
Un Married
Education Up to matriculation
level
Intermediate
Graduation
Post Graduation
Professional
Qualification
Others
Tenure
Less than 1 year
1 to 3 years
3 to 5 years
5to 10 years
10-20 years years
20-30 years
more than 30 years

Objectives and Research Methodology

Age

The objective of this research work is to

identify and understand underlying factors of talent
management strategies and its relationship with
employee turnover in some selected insurance
organization of Uttarakhand. Another objective was
to know the organizational challenges of talent
retention faced by the insurance organization in
Uttarakhand. . To achieve these objectives both
quantitiave and qualitative methods were employed
to understand talent management strategies and its
relationship with employees turnover This research
was conducted in some selected private and public
sector insurance oranisation located in Dehradun
district. A random sample of employees working in
insurance organization was selected which included
employees of various rank and file Surveys along
with a cover letter explaining the significance and
the need for conducting the same were sent to all
200employees across 10 different offices of
Dehradun. In order to ensure a good response rate,
67

Count Percentage
18
16.8
22
20.6
24
22.4
33
30.8
10
9.3
79
73.8
28
26.2
70
65.4
37
34.6
2
4
29
50
21
1

1.9
3.7
27.1
46.7
19.6
.9

11
40
13
33
4
5
1

10.3
37.4
12.1
30.8
3.7
4.7
.9

Vedaang Vol. 4 No. 1, January-June 2013

experience of less than 1 years. More than one third

(37.4%) were having experience from 1 to 3 years.

advancement opportunity that they would not

receive in the short term when they stayed with their
present employer, This organization provide better
opportunity for career development, My education
and job matches well and gives me a feeling of
achievement., The company stablish the proper
progress monitoring system and recognizes my
achievements., There are opportunities for me to
develop my skill and improve my performance and
grow in this organisation., experience, skills and
performance
are well recognized in this
organisation, In the present organization, I am
empowered enough to do my job., I have got
freedom and I can make my own decision in my
job., I always feel that my contribution is important
in achieving organization mission, I am free to
choose my own method of working. on which
employees were asked to rate on the scale of 1 to 5
and mean and SD were calculated with the help of
SPSS software and, was grouped into 8 important
factor and this was done to make a comparative
analysis of the data collected from interviews and
the survey, which helped to identify talent
management practices which influence employee to
remain with the organization. The first, quantitative
data obtained from surveys was analyzed using
descriptive statistics technique in order to
summarize the data set obtained. This provided a
meaningful insight of various underlying factors of
talent management practices influencing
employees to remain with present organization.
These factors includes
recruitment, Work
autonomy and empowerment, Training and
development, communication, Succession planning
career development and opportunity for
advancement, Promoting work autonomy creativity
and innovativeness, Long term bonding and social
security, Feed back system, . The mean and SD thus
obtained of each factor is presented in the table
below.

Principle components and Underlying Factor of

Talent Management Strategies : A Descriptive
Study
Value propositions are the heart, soul, and
epicenter of a business, because they reflect an
organization's market positioning while
communicating the core promises that companies
make to their customers. Qualitative data that was
obtained both from questionnaires and interviews
includes the different statement like Recruitment
and selection process of my organization efficient
and suitable and is able to attract talent, HR
department use the most effective and efficient
system of talent acquisition and management., My
organization is
attracting the right kind of
personnel that help it grow the organization., My
organization Endeavour tries to design plan to help
employee development, Each employees in this
organization get equal opportunity and know how to
get into the talent pool, My organization support the
policy of open communication and give one to one
attention with all level of management for foster
creativity, talent management system in this
organization is transparent all help are provided to
the employees for talent pool, Accelerated route are
o p t e d i n t h e o rg a n i z a t i o n t o e n h a n c e
communication for talent progress, Organisation
Supports managers to better know the composition
of talent in their individual pools by stablishing
better communication, My organisation prepare a
plan to Assists with the timing of succession
planning decisions, the organization's priorities are
well communication to all the level of employees.,
Employees in this organisation are always Ready
For Advancement and movement, Employees in
this organisation are always Well-Placed In their
Role, Employees in this organisation are always
Developed in their Current Role, Employees in this
organisation are always requires a lateral move for .
better fit elsewhere in organizational structure,
Employees in this organisation are given post
retirement opportunity for knowledge sharing and
knowledge transfering., I understand how my job
aligns with the company's mission., A career

An effort was directed to know the different

factor of talent management There are various
factors that influence an individual's decision to
move or remain with the present organization.
According to mean rating of different factor, feed
back system of the organization has scored highest
mean of 3.243 with SD 1.2547. it was followed by
68

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

Table 2 : Principle components and Underlying Factor of Talent Management Strategies : A Descriptive
Study
N
Recruitment and Selection Policy
Work autonomy and empowerment
Training and development
communication
Succession planning career development
and opportunity for advancement
Promoting work autonomy creativity and
innovativeness
Long term bonding and social security
Feed back system
Valid N (listwise)

effective recruitment and selection policy of the

orgaisation with the mean 3.2212 and SD .94365.
Succession planning career development and
opportunity for advancement ( Mean 3.0315 and
SD.71393) has also influencing employees to
remain in.

107
107
107
107

Mean
3.2212
2.3396
2.9720
2.9860

Std. Deviation
.94386
.71078
.47884
.88610

107

3.0315

.71393

107

2.7103

.88498

107
107
107

3.0000
3.2430

1.22089
1.29470

Overall feed back system of the organization has

scored highest mean in the employees among all the
category.
In the present economic and fast changing
business environment, There are many challenge
before the management for talent retention . To
retain the employees, one needs to understand the
pulse, needs & expectations of employees. Previous
research proves that Salary is not one of the biggest
components for employee retention. There are
various other factor like Providing Job Challenges
,Building an open environment and culture ,Giving
competitive remuneration packages ,Clarifying Job
Responsibilities and career paths ,Providing
continuous training opportunities for skill up
gradation which are the great challenge before
management to handle it. With this in mind an
attempt was made to assess the employees opinion
about Challenges in retaining employees in

It is seen from the above table that mean rating

of Long Term Binding And Social Security has
scored highest mean of 4.100 among the employees
in the age group of 55-65 years. Recruitment and
selection policy has scored highest mean in the age
group of 35-45 years. However feed back has
motivated a large number of respondents as this
factor has been rated higher by all the respondents
as it scored mean of 3.2727.
It is seen from the above table that mean rating
of Long Term Binding And Social Security has
scored highest mean of 5.0000 among the
employees of other professional qualification.

Table 3 : Mean of Different Talent Management strategies across the age category of Respondents
Age wise
Classification

Upto 25 Years
25-35 Years
35-45 Years
45 to 55 Years
From 55-65
Years
Total

Recruitment
and selection
policy

Work
Autonomy And
Empowerment

Training And
Development

Communication

Succession
Promoting
Planning Career
Work
Development
Autonomy
And
Creativity And
Opportunity For Innovativeness
Advancement

Long
Term
Binding
And
Social
Security

Feed
Back
System

3.3889
2.9091
3.4306
3.2727

2.4630
2.7121
1.9444
2.3030

3.0926
3.0758
2.9306
2.8485

2.9583
2.8182
3.0937
3.1061

3.0463
2.9924
2.8681
3.0869

2.8333
2.4318
2.8333
2.8636

3.0000
2.6818
3.0000
2.8788

3.6111
3.5000
2.7917
3.2727

2.9333

2.3667

3.0333

2.7500

3.3000

2.3000

4.1000

3.0000

3.2212

2.3396

2.9720

2.9860

3.0315

2.7103

3.0000

3.2430

69

Vedaang Vol. 4 No. 1, January-June 2013

Table 4 : Mean of Different Talent Management strategies across the level of educational category of
Respondents
Edn
Recruitment
Work
Training
Communication Succession
Promoting
Long
Qualification
and
Autonomy
And
Planning
Work
Term
selection
And
Development
Career
Autonomy
Binding
policy
Empowerment
Development
Creativity
And
And
And
Social
Opportunity Innovativeness Security
For
Advancement
Up to
2.1667
2.0000
2.6667
2.2500
2.8333
2.2500 2.0000
matriculation
Intermediate
3.0833
2.4167
2.5417
2.6250
2.7500
3.2500 2.5000
Graduation
2.9655
2.5517
3.0402
2.8190
2.9943
2.4138 3.0690
Post
3.5000
2.2533
3.0167
3.2050
3.0540
2.8700 2.9800
Graduation
Professional
3.0317
2.2698
2.8730
2.8810
3.0794
2.7381 3.0476
Qualification
Others
3.3333
2.3333
3.1667
2.0000
3.5000
1.5000 5.0000
Total
3.2212
2.3396
2.9720
2.9860
3.0315
2.7103 3.0000

Feed Back
System

3.0000
2.5000
3.4138
3.3800
2.9048
2.0000
3.2430

Table 5 : Challenges in retaining employees in your organization

Frequency Percent

Valid

Managing expectations of
employees
Matching person to the job
Matching person to the culture of
the firm
Provide adequate opportunities for
career growth and opportunities
Treat employees fairly through
compensation, rewards and
recognition schemes
Total

organization. Analysis indicates that Managing

expectations of employees is one of the most
important challenges before management as it was
indicated by 38.3% employees in the sample.
Matching persons to the job was indicated by 25.2%
employees where as Matching person to the culture
of the firm, Provide adequate opportunities for
career growth and opportunities and Treat
employees fairly through compensation, rewards
and recognition schemes was indicated by 16.8%
10.3% and 9.3% employees respectively.
The employees who spend a considerable
amount of time tend to be loyal and committed
towards the management and always decide in
favour of the organization. Management opt various

Valid
Percent

Cumulative
Percent

41

38.3

38.3

38.3

27

25.2

25.2

63.6

18

16.8

16.8

80.4

11

10.3

10.3

90.7

10

9.3

9.3

100.0

107

100.0

100.0

strategies like deligation of responsibility,

managing disputes , hiring the right candidate,
employees recognition stablishing proper
performance appraisal system, wage and salary
administration, and effective HR policies to retain
the employees into the organization. The survey
reveals that Clarifying Job Responsibilities and
career paths is one of the most important retention
strategies as it was indicated by 29.9% employees in
the survey. Giving competitive renumeration was
indicated by 23.4% respondent in the sample.
Building an open environment and culture was
indicated by 20.6% , Providing continuous training
opportunities for skill up gradation was indicated by
17.8% respondents . Providing Job Challenges was
70

Talent management practices and its relationship with employees turnover: A study on employees working in insurance...

Table 6 : Employees Opinion about Most Important retention strategies

Frequency Percent

Valid

Providing Job Challenges

Building an open environment and
culture
Giving competitive remuneration
packages
Clarifying Job Responsibilities and
career paths
Providing continuous training
opportunities for skill up gradation
Total

Valid
Percent

Cumulative
Percent

8.4

8.4

8.4

22

20.6

20.6

29.0

25

23.4

23.4

52.3

32

29.9

29.9

82.2

19

17.8

17.8

100.0

107

100.0

100.0

Table 7 : Overall talent retention strategies of the present organization influence you to remain with
present organisation
Frequency Percent

Valid

To a great extent
To a considerable
extent
To some extent
To a little extent
Not at All
Total

20

18.7

Valid
Percent
18.7

29

27.1

27.1

45.8

17
25
16
107

15.9
23.4
15.0
100.0

15.9
23.4
15.0
100.0

61.7
85.0
100.0

indicated by 8.4respondents in the sample.

Talent is the critical success factor to any
organization. Talent pool management is the most
challenging area to any organization. The challenge
of finding, attracting, developing and retaining the
right talent is taking up a major part of management
and once the right talent is found the next
demanding job is to retain that talent. Retaining
employees involves understanding the intrinsic
motivators of them which many organizations
unable to identify. The reason is Individuals differ
greatly in this regard. The analysis indicates that
18.7% employees in the sample are of the opinion
that overall talent retention strategies of the present
organization influence then to a great extent to
remain with present organization. 27.1% employees
are of the opinin that overall talent retention
strategies of the present organization influence
them to a considerable extent to remain with present

Cumulative
Percent
18.7

organization. 15.9% indicated to some extent

where as 23.4% and 15% respondent respectively
revealed that it influenced them to a little extent and
not at all.
A regression analysis was carried out to have a
relationship of all the talent management ractices
with the employees willingness to remain with the
present organization . On the basis of information
presented in the table 16 it can be expressed as
Employees willingness to remain with present
organization (Y) =-.174- Recruitment and Selection
Policy -337 Work autonomy and empowerment+
. 5 7 7 Tr a i n i n g a n d d e v e l o p m e n t + . 0 9 9
communication +.135 Succession planning career
development and opportunity for
advancement+.137 Promoting work autonomy
creativity and innovativeness +.053 Long term
bonding and social security-.054 Feed back system
71

Vedaang Vol. 4 No. 1, January-June 2013

Table 8 : Regression Coefficients (a)

Model
1
(Constant)
Recruitment and
Selection Policy
Work autonomy and
empowerment
Training and
development
communication
Succession planning
career development
and opportunity for
advancement
Promoting work
autonomy creativity
and innovativeness
Long term bonding
and social security
Feed back system

Unstandardized
Standardized
Coefficients
Coefficients
B
Std.
Beta
Error
.174
1.264

Sig.

B
.138

Std.
Error
.891

-.337

.173

-.232

-1.946

.056

.577

.226

.317

2.550

.013

.365

.316

.137

1.153

.253

.099

.203

.055

.488

.627

.135

.259

.064

.524

.602

.197

.213

.110

.921

.360

.059

.131

.053

.455

.650

-.054

.137

-.052

-.398

.692

a Dependent Variable: overall environment and Switching Intentin

Conclusions

manpower. Looking carefully into many

organizations - retention strategies are very
competitive. Companies try to provide their best to
retain the employees of their competitors

Insurance industry in the country is passing

through the acid test. Human resource mobalisation
has become the important element for the survival
and growth of the organization. Today Human
Resources function is expected to identify potential
talent and also comprehend, conceptualize and
implement relevant strategies to enable and
empower them to contribute effectively to achieve
organizational objectives. Talent management
refers to the process of developing and integrating
new entrants, retaining current employees, and
attracting highly skilled people to work for a
company. The process of attracting and retaining
employees profitably, has become increasingly
competitive A company should exert some effort
and undertake some analyses to determine the nonmonetary interests and preferences of its key
employees, and then attempt to meet these
preferences in action. In this context organizations
need to dig novel approaches of talent management
that is helpful to retain the most effective

References
Mueller, C.W. & Price, J. (1990). Economic, Psychological,
and Sociological Determinants of Voluntary Turnover.
Journal of Behavioral Economics 19, 321-336.
Mueller, C.W.,Wallace, J.E., (1996). Justice and the Paradox
of the Contented Female Worker.Social Psychology
Quarterly 59, 338349.
Morrell, K., Loan-Clarke, J. & Wilkinson (2001). Unweaving
Leaving: The Use of Models in the Management of
Employee Turnover. Business School Research Series, 165.
Meaghan Stovel, Nick Bontis (2002), Voluntary turnover:
knowledgemanagement-friend or foe? J. intellect. Cap. 3
(3): 303-322
Pfeffer, J. (1994). Competitive advantage through people.
Boston: Harvard Business School Press .
Pfeffer, J. (1996). When it comes to "best practices'-Why do
smart organizations occasionally do dumb things?
Organizational Dynamics, 25, 33-44 .

72

SERVICE QUALITY MEASUREMENT IN LIFE INSURANCE SECTOR

-A HOT PHENOMENON IN TODAY'S COMMERCIALIZED WORLD
Shivani Nischal*
ABSTRACT
Service quality is a term which describes a comparison of expectations with performance. This aim
may be achieved by understanding and improving operational processes; identifying problems
quickly and systematically; establishing valid and reliable service performance measures and
measuring customer satisfaction and other performance outcomes. The article explains various
concepts related to quality and measurement of service in various sector of commercialised world.
The gap model (also known as the "5 gaps model") of service quality is an important customersatisfaction framework has been discussed in the paper with linkage to customer's satisfaction in life
insurance sector. A wide review based literature and theoretical observations in the paper elaborated
the various areas in which the service quality measurement has widen its arms and still growing need
of the study is felt at various dimensions and research should be carrying on this particular field to
investigate further about Service Quality Measurement. The earlier studies on measurement of
customer perceived service quality were very few in the life insurance industry, more so in the Indian
context. So, the topic therefore needs to be investigated.
Keywords: Service Quality Measurement, Literature Review, Life Insurance Sector, Gap Model,
Customer Satisfaction.

Introduction

those product features which meet customer needs

and thereby provide customer satisfaction These
basic definitions are commonly accepted and can
also be applied in service management. However
when it comes to more specific service quality
attributes and dimensions a wide variety of models
and frameworks exist and there is an intense
discussion on service quality measurement in
different industry contexts. In particular, traditional
concepts and measures of service quality and
customer satisfaction have been questioned in the
business-to-business environment. Let us look at
some of the critical characteristics and design
1
requirements in Service Quality .

Quality is whatever customers say it and the

quality of particular product or service is whatever
customer perceives to be Thus the emphasis is on
the customer and the perceived quality. Quality is an
elusive and indistinct construct. Often mistaken for
imprecise adjectives like "goodness, or luxury, or
shininess, or weight" (Crosby 1979), quality and its
requirements are not easily articulated by
consumers (Takeuchi and Quelch 1983).
Explication and measurement of quality also
present problems for researchers (Monroea and
Krishnan1983), who often bypass definitions and
use unidimensional self-report measures to capture
the concept (Jacoby, Olson, and Haddock 1973;
McConnell 1968; Shapiro 1972). All organizations
in manufacturing or in service business - encounter
difficulties in attaining Quality. During the last few
decades extensive work has been done to identify
and solve quality problems in manufacturing sector.
With increasing competition, the product
characteristics are becoming difficult to
differentiate. Customers have started considering
Service features to make buying decisions. Quality
has been generally defined as fitness for use and

Review of literature
Rand graham k. (2004) in his study Diagnosis
and improvement of service quality in the insurance
industries of Greece and Kenya identified
determinants of quality and existing quality gaps in
the insurance industries. Researcher also suggested
quality improvement strategies regarding each case.
SERVQUAL metrics had been used to diagnose the
quality of service in the insurance industries of
Greece and Kenya. A well structured questionnaire

* Research Fellow, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar

73

Vedaang Vol. 4 No. 1, January-June 2013

had been used to collect data from the sample of 84

insurer's and 126 insured's from the four major
insurance companies of Kenya and 168 respondents
from Greece insurance industry. GAP analysis of
both insurance industry suggested that (a) the most
deficient dimensions were empathy and reliability
found in Greek insurance industry & reliability and
responsiveness were the most deficient dimensions
of service quality in Kenya insurance industry, (b)
comparative analysis stated that quality gap
between these two insurance industries were largely
similar as the dimensions of reliability and empathy
were the deficient part of service quality.

The results of multiple regression indicated that the

main predictor of service quality was
responsiveness dimension of service quality
measurement in both insurance companies.
Ahmad Affiaine and Zalina Sungip (2008) in
their study, An assessment of service quality in
Malaysia insurance industry evaluated customer's
expectations in general and perceptions in ordered
to identify gaps between both about the services
offered at insurance service counter on the basis of
service quality dimensions. The study further
examined relationship between demographic
variables selected and SERVQUAL mean scores.
Data had been gathered from the sample of 319
policyholders through a structured questionnaire
based on SERVQUAL dimensions revenant for the
purpose of the study which contained personal
information, customers' expectations and
customers' perceptions. Various techniques such as
descriptive statistics, independent sample T-test, Ftest, Anova had been used to analyze the data.
Researcher conducted gap analysis on the basis of
five dimensions of SERVQUAL i.e. tangibility,
reliability, responsiveness, assurance and empathy.
Findings of the study revealed that (a) customers
expect highest (6.409) on responsiveness
dimension and expect lowest (5.571) on tangibles
dimension (b) the gap of service quality dimensions
for reliability indicated (2.422) large gap and
technology indicated (0.811) small gap. The study
concluded that tangibles which were perceived by
customers nearly met and reliability emerged as
most critical determinant of SERVQUAL measure
of service quality which showed highest gap
between perceived and expected Service quality In
Malaysia Insurance Industry.

Marwa Simmy and Rand K. Grahm (2004) in

their study Quality improvement in the Greek and
Kenyan Insurance industries measured service
quality with the identification of quality gap in the
Greek and Kenyan insurance industries. The
SERVQUAL metric had been used towards quality
measurement in both industries through well
structured questionnaire based upon SERVQUAL
d i m e n s i o n s i . e . t a n g i b i l i t y, r e l i a b i l i t y,
responsiveness, assurance and empathy. A sample
of 168 and 210 respondents had been chosen from
Greek and Kenya insurance industries respectively.
The findings revealed that (a) In the both industries,
reliability was most deficient part while measuring
service quality, (b) Greek insurance industry
depicted reliability and empathy as most deficient
dimensions, (c) In Kenya insurance industry, the
most deficient dimensions were reliability had
responsiveness showing highest gaps in terms of
perceptions and expectations of service quality.
Goswami Paromita (2007) in her study
Customer satisfaction with service quality in life
insurance industry in India attempted to identify
various dimensions related to service quality that
ensure maximum customer satisfaction and provide
help to insurers to capture large market share. A well
structured questionnaire was designed to collect
data from the sample of 232 respondents in Kolkata,
a cosmopolitan city. Two database samples were
selected from LIC and ICICI prudential life
insurance. SERVQUAL scale and regression were
tools had been employed to measure service quality.

Yusuf Tajudeen olalekan, Ayantunji Gbadamosi

and Dallah Hamadu (2009) in their study Attitudes
of Nigerians towards insurance services: An
empirical study measured the attitudes of
Nigerians towards insurance services through the
effect of socio-cultural and demographic factors. A
sample of 500 respondents had been chosen in
Lagos, Nigeria through simple random sampling
technique. A set of set of structured questionnaire
contained 39 questions out of which 9 questions
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Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

were related to demographic factors and 7 were

likert scale items and remaining 23 deals with
market strategies. Descriptive statistics like F-test,
T-test were used to analyze the data collected for the
purpose of the study. The study concluded that age,
marital status, profession, working status,
educational status, household income, and property
ownership had significant and greater positive
attitude towards insurance except gender which had
insignificant attitude towards insurance service
quality in Nigeria.

India. Various tools such as group statistics,

correlation, Anova and regression had been used to
analyze the collected data. the results indications
were (a) the mean and standard deviation revealed
little difference between males and females on the
four variables of online insurance i.e. Accessibility
factors, security factors, attitude factors and
availability of information (b) Pearson correlation
indicated significant and strongest correlation
between attitude and security (0.401), (c) Anova
results indicated (i) no difference regarding attitude
towards online insurance between various age
groups except group differences towards security
(0.030) and attitude (0.003) which were significant,
(ii) only security factor revealed significant
difference related to gender and accessibility
revealed significant difference (0.015) of
knowledge and awareness of customer about online
insurance, (iii) Multiple regression indicated that
only security factor was significant and the best
predictor of attitude of customers towards online
insurance.

Siddiqui Masood H. and Tripti Ghosh Sharma

(2010) in their study Measuring the customer
perceives service quality for life insurance services:
an empirical investigation measured customer
perceived service quality in life insurance sector. A
well structured questionnaire had been used for the
collection of data from the sample of 868
respondents from various cities i.e. Lucknow,
Delhi, Mumbai, Bangalore, Kolkata. Various
analytical techniques were employed such as
exploratory factor analysis, SERVQUAL,
Analytical hierarchy process to analyze the data.
The findings of the study revealed that (a) Six
dimensions such as assurance, personalized
financial planning, competence, corporate image,
tangibility and technology were extracted from the
outcome of SERVQUAL instrument, (b) Results of
analytical hierarchy process highlighted that
assurance is the best predictor of service quality
followed by priority wise other dimensions of
service quality such as competence, personalized
financial planning, corporate image tangibility and
technology (c) gap scores indicated that
improvement zone is greater in all dimensions of
service quality. The study concluded with the
suggestion that findings should be transformed into
effective strategies for the achievement of customer
satisfaction and loyalty.

Siddiqui Masood H. and Tripti Hosh Sharma

(2010) in their study Analysing customer
satisfaction with service quality in life insurance
services explored the dimensions of consumer
perceptions of service quality towards life
insurance sector. The study also estimated the
multiple and inter-related casual relationships
among perceptual service quality dimensions with
the overall satisfaction with life insurance services.
A sample of 868 respondents had been chosen to
collect the data through a well structured
questionnaire from the various cities like Delhi,
Lucknow, Bangalore, Mumbai and Hyderabad.
Exploratory factor analysis had been used to study
various dimensions related to perceptions of
policyholders towards service quality and
structured equation modeling had been used to
study the causal and multiple relation between
perceptual service quality dimensions and overall
satisfaction. The results indicated that: (a) six
factors had been extracted namely assurance (52%),
personalized financial planning (65%), competence
(70%), tangibles (73%), corporate image(76%) and
technology(78%) which explained the respectively
stated percentage of cumulative variance, (b)

Khare Arpita and Shaveta Singh (2010) in their

study- Antecedents to Indian customers towards
online insurance services analyzed the attitude of
customers towards online insurance services of
Indian insurance companies. Structured
questionnaire had been used to collect data from the
sample of 192 respondents in the cities of Northern
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Vedaang Vol. 4 No. 1, January-June 2013

assurance was the major predictor towards

satisfaction with agent, (c) competence was the
major predictor towards satisfaction with
functionality services and satisfaction with
company (d)out of three major constructs,
satisfaction with functional services with higher
0.883 loading coefficient better explain the overall
satisfaction through structured equation modeling.

construct representing (a) proficiency, (b) media

and presentations, (c) physical and ethical
excellence, (d) service delivery process and
purpose, (e) security and dynamic operations, (f)
credibility and (g) functionality had been extracted
measuring customers perceptions about service
quality of Life Insurance Corporation of India.
Jajaee Sharareh Mansouri and Fauziah Binti
Sheikh Ahmad (2011) in their study A study in the
perceived service quality in Australian car
insurance industry measured service quality of car
insurance by employing SERVQUAL scale which
is an accepted instrument for measuring service
quality. An online questionnaire had been used to
collect data from sample of 384 respondents
residing in Melbourne, Australia. Respondents
were selected from 40 major insurance companies.
Descriptive statistics and SERVQUAL instrument
had been used to analyze the data collected for the
purpose of the study. The mean or average of each
question answered by participants were greater than
mean of population so the results indicated that
service quality of car insurance industry was high
and mean (4.27) was greater than population
mean(3).

Upadhyaya Deepika and Manish Badlani

(2011) in their study Service quality perception
and customer satisfaction in life insurance
companies in India indentified key success factors
and importance of technology to improve service
quality in life insurance industry in terms of
customer satisfaction so as to survive in intense
competition. A sample of 206 insurance
respondents had been chosen from major cities of
Rajasthan and Maharashtra. Researcher used
SERVQUAL model for measuring service quality
across a broad range of service categories and
discipline. A well structured questionnaire had been
used to collect the data through e-mail. Findings of
the study revealed that: (i) tangibles and assurance
features of LIC insurance service were good as
compared to reliability, responsiveness and
empathy, (ii) nine factors had been extracted to
identify the dimensions of service quality affecting
customer satisfaction (iii) the study indicated higher
satisfaction level but suggestions had been made to
improve the service quality and customer
satisfaction level in life insurance companies in
India.

Ifejionu Samson and Stella Toyosi (2011) in

their study customer evaluation of the quality of
insurance services in Lagos, Nigeria attempted to
evaluate customer's assessment of service quality of
insurance services. A well structured questionnaire
had been used to collect data from sample of 212
respondents in Lagos state, commercial capital of
Nigeria. Descriptive tools such as percentages and
tabular percentages had been used to analyze the
collected data. The findings of study indicated that:
(a) customers of life insurance companies
undertook prompt claim settlement which
explained highest variance (71.2%) perceived as
most important factor for the measurement of
service quality followed by the subsequent factors
such as premium charged (50.9%), premises
(49.1%), caring for customers (45.3%), association
with other organization (39.2%), ability to reach
customers (39.2%), deployment of technology
(36.8%), staff coordination(336.3%), financial
incentives (35.8%) and advertisements (32.1%)

Sandhu H.S. and Neetu Bala (2011) in their

study customer perceptions towards service
quality of life insurance corporation of India: A
factor analytic approach measured customer's
perceptions towards service quality of life
insurance corporation of India. A sample of 337
respondents had been driven from 3 major cities of
Punjab. Various tools such as descriptive statistics,
items and reliability analysis, exploratory factor
analysis, multiple regression had been used to
measure customer perceptions towards service
quality. A well structures questionnaire had been
used to collect data for the purpose of the study. The
findings of the study revealed that seven factor
76

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

respectively.

of five dimensions of SERVQUAL. A well

structured questionnaire had been used to collect
data from the sample of 380 policyholders from
Virudhunagar district of Tamilnadu. Researchers
also examined the various significant relationships
between demographic factors and SERVQUAL
mean scores. Various tools like descriptive statistics
and percentages had been used to analyze the data.
The findings of the study revealed (a)
Responsiveness impact occupied the first place
with Standard deviation (4.44) which is least among
all dimensions showing consistence in the
perceptions of the respondents and tangibility
dimension showed highest variation in perceptions
with standard deviation (4.96), (b) Relationship
between various demographic factors like gender,
age, marital status, income and perceptions showed
insignificant relationship, (c) only assurance
dimension showed significant relationship(0.029)
between occupation and perception mean scores.
The study concluded that different personal
variables had no influence on the perception scores.

Bala Neetu and H.S. Sandhu (2011) in their

study Analysis of factors influencing agents'
perceptions towards Life Insurance Corporation of
India investigated the major factors that influenced
agents perceptions towards life insurance. A sample
of 225 respondents had been selected from 3 cities
of Punjab namely Amritsar, Ludhiana, Jalandhar
and Factor Analysis had been used to analyze the
data collected by well structured questionnaire
based upon 23-item perception scale. The results
revealed that (1) staff co-ordination (20.9%) is the
major factor that influenced customer perceptions
followed by other six factors which are: (a)
customer target (14.69%), (b) competitive
advantage predicators (10.25%), (c) material
hallmarks (7.95%), (d) promising products and
process (6.336%), (e) service enhancements
(5.544%), (f) exclusive attention (4.753%),
explaining respective variances and (2) one way
anova analysis indicated no statistical difference
existed among various group of respondents with
respect to their perceptions towards life insurance
corporation of India.

Toloir Abbas, Mohammad-Ali-Nasimi and

alireza Poorebrahimi (2011) in their study on
Assessing quality of insurance companies using
multiple criteria decision making tried to assess the
quality of service of insurance companies. Multiple
criteria decision making had been used for the
assessment of performance of insurance companies.
The study specified many aspect related to quality
of services which are tangible and subjective in
nature. A well structured questionnaire had been
used to collect data from sample of 196 respondents
of Iran. AHP method, TOPSIS method had been
used to study average important level of each
criteria and ranking quality of insurance companies.
The finding of study revealed that: (a) the main
specific dimensions for which customers are
seriously concerned about all physical aspects of the
services and less worried about harmony, (c)
TOPSIS ranking resulted B company (0.83) was the
providing best service quality in insurance
companies.

Farivor Farveh, Mohammad Khanbashi and

Osven Emaeelinezhad (2011) in their study The
analysis of different customers and employees
perceptions from service quality in the insurance
industry of Iran analyzed and differentiate the
customers and employees perceptions about the
insurance industry. Research questionnaire was
framed from various dimensions of SERVQUAL
model. A sample of 254 respondents had been
selected consisting employees and customers.
Pearson, Kolmogorov smrirnov, T-test were various
statistical tools employed to analyze the collected
data. The findings of the study revealed that (a)
perceptions of both groups towards all dimensions
were similar except tangibility dimension (ii) there
was significant difference between customers and
employees towards tangibility dimension of
measuring service quality.
Rajehwari k and S. Kartheeswari (2011) in their
study Perceptions of customers towards life
insurance services tried to explore perceptions of
the policyholders towards LIC of India on the basis

Sharma Ravikant and M.R. Bansal (2011) in

their study Service quality assessment in insurance
sector, A comparative study between Indian and
77

Vedaang Vol. 4 No. 1, January-June 2013

Chinese customers focused on the development of

valid and reliable instrument to measure service
quality and comparing these between Chinese and
Indian insurance companies. A well structured
questionnaire based upon SERVQUAL dimensions
had been used to collect data from 145 and 242
respondents in China and India respectively.
SERVQUAL instrument and Factor analysis had
been used to analyze the data. The findings of the
study revealed that (a) gaps were positive for first
two dimensions i.e. tangibility and competence for
both Indian and Chinese customers ensuring
customer satisfaction and rest four factors that were
corporate image, technology, personalized financial
planning and assurance showed negative gap
indicating customer's dissatisfaction, (b) Adequate
number of branches, simple and less time
consuming procedure for purchasing a policy,
financially stable company, value for money and all
the variables of personalized financial planning,
assurance and technology revealed higher level of
customer dissatisfaction through component wise
analysis, (d) the both sample customers had very
similar perceptions and expectations on the various
dimensions of service quality.

should design their services according to customer

expectations to attain higher customer satisfaction.
Theoretical Observations
Over the past few years, there has been a
considerable research on different aspects of service
quality leading to a sound conceptual base for both
practioners and researchers. Authors (Parasuraman
et al., 1988; 1991; Carman, 1990) agree that service
quality is an abstract concept, difficult to define and
measure. Some of the contemporary definitions of
service quality are summarized in Table 1. On
service quality modeling, Gronroos (1984) divides
the customer's perceptions of any particular service
into two dimensions, namely technical and
functional quality.
Parasuraman et al. (1985) proposed the gap
model of service quality that operationalised
service quality as the gap between expectation and
performance perception of the customer.
Later on, service quality has also been defined
broadly as consumers' assessment of the overall
excellence or superiority of the service (Zeithaml
et al., 1993). It is viewed as an attitude or global
judgment about the overall excellence of a service,
with comparison of expectations and performance
as the measuring tools. Researchers have tried to
operationalize service quality from different
perspectives for different service applications.
Based on their conceptual and empirical studies,
researchers derived and proposed different service
quality dimensions for various service
applications. However, the most widely used
service quality measurement tools include
SERVQUAL (Parasuraman et al., 1988; Boulding
et al., 1993) and SERVPERF (Cronin and Taylor,
1992). SERVQUAL scale measures service
quality, based on difference between expectation
and performance perception of customers using 22
items and five-dimensional structure. In the
S E RV P E R F s c a l e , s e r v i c e q u a l i t y i s
operationalised through performance only score
based on the same 22 items and five dimensional
structure of SERVQUAL2. Parasuraman et al.
(1988) developed the SERVQUAL scale a

Barik Bhagabat (2012) in his study Customer

expectation about insurance product in Indian life
insurance industry tried to (i) understand the
expectation of policyholders towards life insurance
product, (ii) judge the various factors which directly
or indirectly impacting customer expectation and
satisfaction, (iii) describe the practices followed
and present situation of life insurance sector
regarding customer expectation, (iv) provide a
modified dimension to new entrants for life
insurance companies market in India. Data was
collected from multiple sources such as books,
journals, websites, magazines, personal and
telephonic interviews and discussions with
corporate personalities and policyholders of life
insurance products. Exploratory research
methodology had been used to analyze the data. The
study concluded that life insurance sector is
grooming one and expectations of customers have
been increasing in terms of policy bond, claim,
relationship building, and technology. Researcher
thereby suggested that life insurance companied
78

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

widespread instrument to measure both the

expectations and the service perceptions of
customers. This twin scale consists of 22 items.
The size of the gaps between internal customers'
service expectations and their perceptions indicate
the level of dissatisfaction. Expectations and
perceptions are measured across 5 dimensions of
service quality3.

forming service expectations due to limited

understanding of and familiarity with the service
(Johnston et al., 1984). At the same time, because of
the amount of money that is typically invested in an
insurance policy, customers seek long-term
relationships with their insurance companies and
respective agents in order to reduce risks and
uncertainties (Berry, 1995). Pure services like
insurance may, therefore, conjure different
expectations than that of services that include
tangible products (Toran, 1993). An insurance
policy is almost always sold by an agent who, in
80% of the cases, is the customer's only contact
(Richard and Allaway, 1993; Clow and Vorhies,
1993; Crosby and Cowles, 1986). Customers are,
therefore, likely to place a high value on their
agent's integrity and advise (Zeithaml et al., 1993)
The quality of the agent's service and his/her
relationship with the customer serves to either
mitigate or aggravate the perceived risk in
purchasing the life insurance product. Putting the
customer first, and, exhibiting trust and integrity
have found to be essential in selling insurance
(Slattery, 1989). Sherden (1987) laments that high
quality service (defined as exceeding customers'
expectations) is rare in the life insurance industry
but increasingly demanded by customers.

Tangibles : Physical facilities, equipment and

appearance of personnel.
Reliability: Ability to perform the promised
service dependably and accurately.
Responsiveness: Willingness to help customers
and provide prompt service.
Assurance: Knowledge and courtesy of
employees and their ability to inspire trust and
confidence.
Empathy: Caring, individualized attention the
firm provides for its customers.
Service quality in Life Insurance
Life insurance providers offer services that are
credence products with very few clues to signal
quality. It has been suggested that consumers
usually rely on extrinsic cues like brand image to
ascertain and perceive service quality (Gronroos,
1984). This factor is especially true for a pure
service such as insurance, which has minor tangible
representations of its quality and is highly relational
during most transactions. There is also a lack of
price signal in the market due to specialized
customer needs and difficulty in comparing prices;
thus consumers cannot rely solely on price as an
extrinsic cue to signal quality. The outcomes of life
insurance purchase are often delayed, and thus do
not allow immediate post-purchase valuation. As
such, the consequences of a purchase do not
produce an immediate reaction towards overall
satisfaction. This situation is more apparent as the
future benefits of the product purchased are
difficult to foresee and take a long time to prove
its effects (Crosby and Stephens, 1987). Infrequent
purchase and usage of such credence products by
consumers would mean an inability or difficulty in

Toran (1993) points out that quality should be at

the core of what the insurance industry does.
Customer surveys by Prudential have identified that
customer want more responsive agents with better
contact, personalized communications from the
insurer, accurate transactions, and quickly solved
problems (Pointek, 1992). A different study by the
National Association of Life Underwriters found
other important factors such as financial stability of
the company, reputation of the insurer, agent
integrity and the quality of information and
guidance from the agent (King, 1992). Clearly,
understanding consumers' expectations of life
insurance agent's service is crucial as expectations
serve as standards or reference points against which
service performance is assessed (Walker and Baker,
2000).Technology has also become an important
factor in how the agent operates in the field
including other functions such as distribution, claim
costs and administration (Anonymous, 2004).
79

Vedaang Vol. 4 No. 1, January-June 2013

Research has shown that the quality of services and

the achievement of customer satisfaction and
loyalty are fundamental for the survival of insurers.
The quality of after sales services, in particular, can
lead to very positive results through customer
loyalty, positive WOM, repetitive sales and crossselling (Taylor, 2001). However, many insurers
appear unwilling to take the necessary actions to
improve their image. This creates problems for
them as the market is extremely competitive and
continuously becomes more so (Taylor, 2001).

expect and what managers think they expect

Clearly survey research is a key way to narrow
this gap.
?
Gap 2 is between management perception and
the actual specification of the customer
experience - Managers need to make sure the
organization is defining the level of service they
believe is needed.
?
Gap 3 is from the experience specification to the
delivery of the experience - Managers need to
audit the customer experience that their
organization currently delivers in order to make
sure it lives up to the spec.

It is therefore not surprising that measurement of

service quality has generated, and continues to
generate, a lot of interest in the industry (Wells and
Stafford, 1995). Several metrics have been used to
gauge service quality. In the United States, for
example, the industry and state regulators have used
"complaint ratios" in this respect. The Quality
Score Card, developed by QIC and RIMS, has also
been used. However, both the complaints ratios and
the quality scorecards have been found to be
deficient in measuring service quality and so a more
robust metric is needed. Although service quality
structure is found rich in empirical studies on
different service sectors, service quality modeling
in life insurance services is not adequately
investigated. Further, for service quality modeling,
a set of dimensions is required, but there seems to be
no universal dimension; it needs to be modified as
per the service in consideration. Thus, the
dimensions issue of service quality requires re4
examination in context of life insurance services .

?
Gap 4 is the gap between the delivery of the
customer experience and what is communicated
to customers - All too often organizations
exaggerate what will be provided to customers,
or discuss the best case rather than the likely
case, raising customer expectations and
harming customer perceptions.
?
Finally, Gap 5 is the gap between a customer's
perception of the experience and the customer's
expectation of the service - Customers'
expectations have been shaped by word of
mouth, their personal needs and their own past
experiences. Routine transactional surveys after
delivering the customer experience are
important for an organization to measure
7
customer perceptions of service .
The Link between Service Quality and customer
satisfaction

Service Quality Gap Model

Service quality and customer satisfaction are

inarguably the two core concepts that are at the crux
of the marketing theory and practice (Spreng and
Mackoy, 1996). In today's world of intense
competition, the key to sustainable competitive
advantage lies in delivering high quality service that
will in turn result in satisfied customers (Shemwell
et al., 1998). Oliver (1997) describe satisfaction as
the consumer's fulfillment response, a post
consumption judgment by the consumer that a
service provides a pleasing level of consumptionrelated fulfillment, including under- or overfulfillment. Service quality is renowned as a multidimensional construct. Its dimensions often vary

The gap model (also known as the "5 gaps

model") of service quality is an important customersatisfaction framework. In "A conceptual model of
service quality and its implications for future
research" (The Journal of Marketing, 1985), A.
Parasuraman, VA Zeitham and LL Berry identify
five major gaps that face organizations seeking to
meet customer's expectations of the customer
experience6.
The five gaps that organizations should
measure, manage and minimize:
?
Gap 1 is the distance between what customers
80

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World

Fig. 1 : The Integrated Gap Model of Service Quality (Parasuraman, zeithaml, berry 1985)
from one researcher to other researcher, but still
there is some harmony that service quality mainly
consists of three major features: outcome quality,
interaction quality, and physical service
environment quality (Brady & Cronin, 2002).
Numerous researchers more elaborate on subaspects of these three broad dimensions e.g., the
most popular construct of service quality
SERVQUAL have five dimensions: tangibles,
reliability, responsiveness, empathy and
assurance (Parasuraman et al., 1988). The
tangibles dimension contact with physical
environment aspect, the reliability dimensions
corresponds with service outcome aspect and
remaining three signify interaction quality aspect.

Service quality is an precursor of the broader theory

of customer satisfaction (Lee et al., 2000; Buttle,
1996) and the relationship between loyalty and
service quality is intercede by satisfaction
(Caruana, 2002; Fullerton & Taylor, 2002).
Although the organizations are operating in service
sector know that the service quality is of key factor
for success at national and international level (Berry
et al., 1989). even then companies were found that
the instrument of service quality is relatively less
appropriate in other than developed countries
because of cultural context which lead to
unsatisfactory and inappropriate sales and
marketing approaches in those cultural contexts
(Laroche et al., 2004). In today's economy, service
81

Vedaang Vol. 4 No. 1, January-June 2013

quality has come out as critical component for the

top management of successful business (Blose et
al., 2005) and human elements, as well, play
essential role to determining the whole perception
of customers about service quality (Yavas et al.,
1997) and retaining the customers (Ranaweera &
Neely, 2003)8.

more so in the Indian context. The topic therefore

needs to be investigated.
References
Asubonteng, P., McCleary, K. J. & Swan, J. E. (1996),
SERVQUAL Revisited: A Critical Review of Service
Quality, Journal of Services Marketing, 10(6), 62-81.
Bitner, M. J., Booms, B. H. & Tetreault, M. S. (1990), The Service
Encounter: Diagnosing Favourable and Unfavourable
Incidents, Journakl of Marketing, 54(1), 71-84.
Boulding, W., Karla, A., Staelin, R. & Zeithaml, V. A. (1993),
A Dynamic Process Model of Service Quality: From
Expectations to Behavioural Intentions Journal of
Marketing Research, 30(1), 7-27.
Carman, J. M. (1990), Consumer Perceptions of Service
Quality: An Assessment of the SERVQUAL
Dimensions, Journal of Retailing, 66 (Spring), 33-55.
Clow, K. F. & Vorhies, D. W. (1993), Building a Competitive
Advantage for Service Firms, Journal of Services
Marketing, 7(1), 22-32.
Cooper, R. W. & Frank, G. L. (2001), Key ethical issues
facing the property and casualty insurance: has a decade
made a difference? CPCU Journal, 54 (2), 99-111.
Cronin, J. J. Jr. & Taylor, S. A. (1992), Measuring Service
Quality: A Re-examination and Extension. Journal of
Marketing, 56 (3), 55-68.
Crosby, L. A. & Cowles, D. (1986), Life Insurance Agents as
Financial Planners: A Matter of Role Consensus. Journal
of Professional Services Marketing, 1 (Spring), 69-89.
Crosby, L. A. & Stephens, N. (1987), Effects of relationship
marketing on satisfaction, retention, and prices in the life
insurance industry, Journal of Marketing Research, 24
(November), 404-411.
Friedman , S. (2001), RIMS launches quality process,
National Underwriter, 105(19), 3-29.
Friedman, S. (2001), RIMS plans to have third quality
scorecard published in 2002, National Underwriter,
105(18), 3-22.
Gronroos, C. (1984) A service-oriented approach to
marketing of services. European Journal of Marketing,
12 (8), 588-601.
Hampton, G. M. (1993), Gap Analysis of College Student
Satisfaction as a Measure of Professional Service
Quality, Journal of Professional Services Marketing,
9(1), 15-28.
ISHAQ Muhammad Ishtiaq (2011), An Empirical
Investigation of Customer Satisfaction and Behavioural
Responses in Pakistani Banking Sector, Management &
Marketing Challenges for the Knowledge Society, Vol. 6,
No. 3, pp. 457-470
Johnson, R. L., Tsiros, M. & Lancioni, R. A. (1995),
Measuring Service quality: A Systems approach,
Journal of Services Marketing, 9 (5), 6-19.

Growing Need of the study

The insurance industry affects money, capital
markets and the real sectors in an economy, making
insurance facility necessary to ensure the
completeness of a market. It is an industry with
strategic importance for any country as it
contributes to the financial sector as well as confers
social benefits on the society. Although numerous
researchers have made theoretical and empirical
contribution to the study of service quality in
various industries like banking, healthcare,
education, etc the area of life insurance is not
adequately researched. Previous studies in this area
focused exclusively on relational qualities (Crosby
and Stephens, 1987) and on the generic
SERVQUAL format of quality measurement
(Parasuraman et al., 1994). In the light of this, the
objective of this study is to first investigate service
quality structure for life insurance. The relative
importance of these service quality dimensions
from customers' perspective need to be studied to
ensure optimal deployment of resources among
these dimensions, and thereby providing best value
to the customers. Further, objective is to measure as
to how well services are being delivered i.e. up-to
what level performances are meeting the
expectations. The life insurance players have a vast
foray of products and services in their bouquet to
meet the varying needs of various individuals.
Besides this, almost all companies offer the
flexibility to customers to choose the most suitable
product or service for themselves by combining
features of a number of products and services
together. Thus life insurance companies have
customized a lot the services to improve the quality
of service to suit the customer as per their needs. A
review of literature revealed that the earlier studies
on measurement of customer perceived service
quality were very few in the life insurance industry,
82

Service quality measurement in life insurance sector - A hot phenomenon in today's commercialized World
Johnston, E. O., O'Connor, R. J. & Zultowski, W. H. (1984),
The personal selling process in the life insurance
industry, in J. Jacoby, & C. S. Craig (Eds.), Personal
Selling: Theory, Research and Practice (pp. 136-164).
King, C. (1992), Agents/policy owners split on service,
National Underwriter, 41(October), 7.
Lehtinen, U. & Lehtinen, J. R. (1991), Two Approaches to
Service Quality Dimensions, The Service Industries
Journal, 11(3), 287-305.
Lewis, B. (1993), Service quality: recent developments in
financial services, International Journal of Bank
Marketing, 11(6), 19-25.
Loo, F. (2000), Buying insurance on the net, Financial
Planner, February, 58-60.
Marying, P. (2000), Qualitative Content Analysis, Forum:
Qualitative Social Research. 1 (2), Art. 20:June 2000
(www.qualitative-research.net/index.php/fqs/article/
.../1089) (Jan 7, 2010).
Mehta, S. C. & Lobo, A. (2002), MSS, MSA and zone of
tolerance as measures of service quality: A Study of the
Life Insurance Industry, Second International Services
Marketing Conference, University of Queensland.
Parasuraman, A. & Zeithaml, V. A. & Berry, L. L. (1985), A
Conceptual Model of Service Quality and Its Implications
for Future Research, Journal of Marketing, 49(4), 41-50
Parasuraman, A., Berry, L. L. & Zeithaml, V. A. (1991),
Refinement and reassessment of the SERVQUAL
scale, Journal of Retailing, 67(4), 420-450.

Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1988),

SERVQUAL: A Multi-Item Scale for Measuring
Consumer Perceptions of Service Quality, Journal of
Retailing, 64 (Spring), 21-40.
Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1994),
Alternatives Scales for Measuring Service Quality: A
Comparative Assessment Based on Psychometric and
Diagnostic Criteria, Journal of Retailing, 70(3), 201230.
Siddiqui and Sharma (2010), Analyzing customer
satisfaction with service quality in life insurance
services, Journal of Targeting, Measurement and
Analysis for Marketing, Vol. 18, 3/4, 221238
Upadhyaya, Deepika (2011) Service Quality Perception
and Customer Satisfaction in Life Insurance Companies
in India, International Conference on Technology and
Business Management, March 28-30.
Websites Referred
www.bseindia.com
www.businessdayonline.com
www.financialexpress.com
www.findarticles.com
www.fdic.gov.com
www.gktoday.com
www.google.com
www.insuranceinstituteofindia.com
www.nytimes.com
www.newssky.com

83

TOTAL QUALITY MANAGEMENT CONCEPTS AND

THE INDIAN SCENARIO
P.G. Dangwal*
ABSTRACT
Total Quality Management ( TQM ) wave swept India in early 90's particularly in view of challenges
thrown up by Liberalisation , Globalisation and Privatisation ( LPG) initiatives of then prime
minister Mr. P. V. Narsimha Rao and Finance minister Dr. Manmohan Singh. TQM became a
management strategy that transcended every functional area and every level of organization to
continuously improve products and services thereby impacting quality of human life and even that of
businesses , government and society at large. This paper tries to examine the various popular
concepts of TQM and to what extent TQM has become a part of Indian business philosophy.

Introduction

continuous improvement.

Concepts of Total Quality Management

The means to improve quality lie in the ability to

control and manage systems and processes
properly, and in the role of management
responsibilities in achieving this. Deming
advocated methodological practices, including the
use of specific tools and statistical methods in the
design, management, and improvement of process,
which aim to reduce the inevitable variation that
occurs from common causes and special causes
in production Common causes of variations are
systemic and are shared by many operators,
machines, or products. They include poor product
design, non-conforming incoming materials, and
poor working conditions. These are the
responsibilities of management. Special causes
relate to the lack of knowledge or skill, or poor
performance. These are the responsibilities of
employees. Deming proposed 14 points as the
principles of TQM which are listed below:
1. Create constancy of purpose toward
improvement of product and service, with the
aim to become competitive and to stay in
business, and to provide jobs.
2. Adopt the new philosophy. We are in a new
economic age. Western management must
awaken to the challenge, must learn their
responsibilities, and take on leadership for
change.
3. Cease dependence on mass inspection to
quality. Eliminate the need for inspection on a

A) Deming's Approach to TQM

The theoretical essence of the Deming approach
to TQM concerns the creation of an organizational
system that fosters cooperation and learning for
facilitating the implementation of process
management practices, which, in turn, leads to
continuous improvement of processes, products,
and services as well as to employee fulfillment, both
of which are critical to customer satisfaction, and
ultimately, to firms survival. Deming stressed the
responsibilities of top management to take the lead
in changing processes and systems. Leadership
plays a significant role in ensuring the success of
quality management system, because it is the top
management's responsibility to create and
communicate a vision to move the firm toward
continuous improvement. Top management is
responsible for most quality problems; it should
give employees clear standards for what is
considered acceptable work, and provide the
methods to achieve it. These methods include an
appropriate working environment and climate for
work which is free from faultfinding, blame or fear.
Deming also emphasized the importance of
identification and measurement of customer
requirements, creation of supplier partnership, use
of functional teams to identify and solve quality
problems, enhancement of employee skills,
participation of employees, and pursuit of

* P. G. Dangwal Assistant Professor, Institute of Management Studies Dehradun, Research Scholar Pacific University, Udaipur

84

Total quality management concepts and the Indian scenario

mass basis by building quality into the product

in the first place.
4. End the practice of awarding business on the
basis of price tag. Instead, minimize total cost.
Move toward a single supplier for any one item,
on a long-term relationship of loyalty and trust.
5. Improve constantly and forever the system of
production and service, to improve quality and
productivity, and thus constantly decrease
costs.
6. Institute training on the job.
7. Institute leadership. The aim of supervision
should be to help people and machines and
gadgets to do a better job. Supervision of
management is in need of overhaul, as well as
supervision of production workers.
8. Drive out fear, so that people may work
effectively for the company.
9. Break down barriers between departments.
People in research, design, sales, and
production must work as a team, to foresee
problems of production and in use that may be
encountered with the product or service.
10. Eliminate slogans, exhortations, and targets for
the workforce asking for zero defects and new
levels of productivity. Such exhortations only
create adversarial relationships, as the bulk of
the causes of low quality and low productivity
belong to the system and thus lie beyond the
power of the workforce.
11. Eliminate work standards (quotas) on the
factory floor. Substitute leadership. Eliminate
management by objective. Eliminate
management by numbers, numerical goals.
Substitute leadership.
12. Remove barriers that rob the hourly worker of
his right to pride of workmanship. The
responsibility of supervisors must be changed
from sheer numbers to quality. Remove
barriers that rob people in management and in
engineering of their right to pride of
workmanship. This means abolishment of the
annual or merit rating and of management by
objective.

13. Institute a vigorous program of education and

self-improvement.
14. Put everybody in the company to work to
accomplish the transformation.
Transformation is everybody's job.
B) Juran's Approach to TQM
TQM is the system of activities directed at
achieving delighted customers, empowered
employees, higher revenues, and lower costs. Juran
believed that main quality problems are due to
management rather than workers. The attainment of
quality requires activities in all functions of a firm.
Firm-wide assessment of quality, supplier quality
management, using statistical methods, quality
information system, and competitive benchmarking
are essential to quality improvement. Juran's
approach is emphasis on team (QC circles and selfmanaging teams) and project work, which can
promote quality improvement, improve
communication between management and
employees coordination, and improve coordination
between employees. He also emphasized the
importance of top management commitment and
empowerment, participation, recognition and
rewards. According to Juran, it is very important to
understand customer needs. This requirement
applies to all involved in marketing, design,
manufacturing and services. Identifying customer
needs requires more vigorous analysis and
understanding to ensure the product meets
customers' needs and is fit for its intended use, not
just meeting product specifications. Thus, market
research is essential for identifying customers'
needs. In order to ensure design quality, he proposed
the use of techniques including quality function
deployment, experimental design, reliability
engineering and concurrent engineering.
Juran considered quality management as three basic
processes (Juran Trilogy): Quality control, quality
improvement, and quality planning. In his view, the
approach to managing for quality consists of:
?
The sporadic problem is detected and acted
upon by the process of quality control;
?
The chronic problem requires a different
process, namely, quality improvement;
85

Vedaang Vol. 4 No. 1, January-June 2013

?
Such chronic problems are traceable to an
inadequate quality planning process.
Juran defined four broad categories of quality
costs, which can be used to evaluate the firm's
costs related to quality. Such information is
valuable to quality improvement. The four
quality costs are listed as follows:

Understanding, commitment, and

communication are all essential. Crosby presented
the quality management maturity grid, which can be
used by firms to evaluate their quality management
maturity. The five stages are: Uncertainty,
awakening, enlightenment, wisdom and certainty.
These stages can be used to assess progress in a
number of measurement categories such as
management understanding and attitude, quality
organization status, problem handling, cost of
quality as percentage of sales, and summation of
firm quality posture. The quality management
maturity grid and cost of quality measures are the
main tools for managers to evaluate their quality
status. Crosby offered a 14-step program that can
guide firms in pursuing quality improvement. These
steps are listed as follows:
1) Management commitment: To make it clear
where management stands on quality.
2) Quality improvement team: To run the quality
improvement program.
3) Quality measurement: To provide a display of
current and potential nonconformance
problems in a manner that permits objective
evaluation and corrective action.
4) Cost of quality: To define the ingredients of the
cost of quality, and explain its use as a
management tool.
5) Quality awareness: To provide a method of
raising the personal concern felt by all
personnel in the company toward the
conformance of the product or service and the
quality reputation of the company.
6) Corrective action: To provide a systematic
method of resolving forever the problems that
are identical through previous action steps.
7) Zero defects planning: To investigate the
various activities that must be conducted in
preparation for formally launching the Zero
Defects program.
8) Supervisor training: To define the type of
training that supervisors need in order to
actively carry out their part of the quality
improvement program.
9) Zero defects day: To create an event that will

?
Internal failure costs (scrap, rework, failure
analysis, etc.), associated with defects found
prior to transfer of the product to the customer;
?
External failure costs (warranty charges,
complaint adjustment, returned material,
allowances, etc.), associated with defects found
after product is shipped to the customer;
?
Appraisal costs (incoming, in-process, and final
inspection and testing, product quality audits,
maintaining accuracy of testing equipment,
etc.), incurred in determining the degree of
conformance to quality requirements;
?
Prevention costs (quality planning, new product
review, quality audits, supplier quality
?
Evaluation, training, etc.), incurred in keeping
failure and appraisal costs to a minimum.
C) Crosby's Approach to TQM
Crosby identified a number of important
principles and practices for a successful quality
improvement program, which include, for example,
management participation, management
responsibility for quality, employee recognition,
education, reduction of the cost of quality
(prevention costs, appraisal costs, and failure costs),
emphasis on prevention rather than after-the-event
inspection, doing things right the first time, and zero
defects. Crosby claimed that mistakes are caused by
two reasons: Lack of knowledge and lack of
attention. Education and training can eliminate the
first cause and a personal commitment to excellence
(zero defects) and attention to detail will cure the
second. Crosby also stressed the importance of
management style to successful quality
improvement. The key to quality improvement is to
change the thinking of top managers-to get them not
to accept mistakes and defects, as this would in turn
reduce work expectations and standards in their jobs.
86

Total quality management concepts and the Indian scenario

10)

11)

12)
13)

14)

make all employees realize, through a personal

experience, that there has been a change.
Goal setting: To turn pledges and commitment
into actions by encouraging individuals to
establish improvement goals for themselves
and their groups.
Error causal removal: To give the individual
employee a method of communicating to
management the situation that makes it
difficult for the employee to meet the pledge to
improve.
Recognition: To appreciate those who
participate.
Quality councils: To bring together the
professional quality people for planned
communication on a regular basis.
Do it over again: To emphasize that the quality
improvement program never ends.

permits what might be called total quality

management to cover the full scope of the product
and service life cycle from product conception
through production and customer service. He
claimed that effective TQM requires a high degree
of effective functional integration among people,
machines, and information, stressing a system
approach to quality. A clearly defined total quality
system is a powerful foundation for TQM. Total
quality system is defined as follows:
The agreed firm-wide operating work structure,
documented in effective, integrated technical and
managerial procedures, for guiding the coordinated
actions of the people, the machines, and the
information of the firm in the best and most
practical ways to assure customer quality
satisfaction and economical costs of quality.
Feigenbaum emphasized that efforts should be
made toward the prevention of poor quality rather
than detecting it after the event. He argued that
quality is an integral part of the day-today work of
the line, staff, and operatives of a firm. There are
two factors affecting product quality: The
technological-that is, machines, materials, and
processes; and the human-that is, operators,
foremen, and other firm personnel. Of these two
factors, the human is of greater importance by far.
Feigenbaum considered top management
commitment, employee participation, supplier
quality management, information system,
evaluation, communication, use of quality costs,
use of statistical technology to be an essential
component of TQM. He argued that employees
should be rewarded for their quality improvement
suggestions, quality is everybody's job. He stated
that effective employee training and education
should focus on the following three main aspects:
Quality attitudes, quality knowledge, and quality
skills.

D) Feigenbaum's Approach to TQM

Feigenbaum defined TQM as an effective
system for integrating the quality development,
quality-maintenance, and quality-improvement
efforts of the various groups in a firm so as to enable
marketing, engineering, production, and service at
the most economical levels which allow for full
customer satisfaction. He claimed that effective
quality management consists of four main stages,
described as follows:
?
Setting quality standards;
?
Appraising conformance to these standards;
?
Acting when standards are not met;
?
Planning for improvement in these standards.
The quality chain, he argued, starts with the
identification of all customers' requirements and
ends only when the product or service is delivered to
the customer, who remains satisfied. Thus, all
functional activities, such as marketing, design,
purchasing, manufacturing, inspection, shipping,
installation and service, etc., are involved in and
influence the attainment of quality. Identifying
customers' requirements is a fundamental initial
point for achieving quality. He claimed that it

E) Ishikawa's Approach to TQM

Ishikawa argued that quality management
extends beyond the product and encompasses aftersales service, the quality of management, the quality
of individuals and the firm itself. He claimed that
the success of a firm is highly dependent on treating
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Vedaang Vol. 4 No. 1, January-June 2013

quality improvement as a never-ending quest. A

commitment to continuous improvement can
ensure that people will never stop learning. He
advocated employee participation as the key to the
successful implementation of TQM. Quality
circles, he believed, are an important vehicle to
achieve this. Like all other gurus he emphasized the
importance of education, stating that quality begins
and ends with it. He has been associated with the
development and advocacy of universal education
in the seven QC tools . These tools are listed below:

advancement, emergence of cheaper and better

substitute products, information technology
explosion, leaner and flatter organization and
flexible manufacturing system have made at least
one thing clear to all enterprises only good
performances in isolated sporadic areas are not
enough for the survival of an organization; the
organization should have an all round performance
excellence to be the best among the betters for
survival. Almost all the organizations across the
globe practice the TQM principles and practices for
their survival. However, what makes the difference
between the leader in the field and the also runs is
that the leader practices the TQM principles and
practices in a holistic manner with proper strategic
quality plan foundation infrastructure and total
quality management consisting of quality planning,
quality control and quality improvement, whereas
the also runs practice the TQM principles and
practices in bits and pieces following only one
aspect of total quality management, like either
Kaizen or ISO 9000 or TPM etc. thereby giving
marginal results.

?
Pareto chart;
?
Cause and effect diagram (Ishikawa diagram);
?
Stratification chart;
?
Scatter diagram;
?
Check sheet;
?
Histogram;
?
Control chart.
Ishikawa suggested that the assessment of
customer requirements serves as a tool to foster
cross-functional cooperation; selecting suppliers
should be on the basis of quality rather than solely
on price; cross-functional teams are effective ways
for identifying and solving quality problems.
Ishikawa's concept of TQM contains the following
six fundamental principles:

The six sigma approach is adopted by all the

Indian software and information technology firms
like Tata computer system Ltd. , Patni Computer
system Ltd, Wipro Technologies Ltd, Infosys Ltd.,
Satyam Computers Ltd. etc. apart from the
attainment of the CMM level. The Tata group,
including Tata Motors Ltd. , Tata Iron Steel Ltd, Tata
Chemicals Ltd. , Tata International Ltd. and other
Tata group companies follow a business excellence
model in line with the Malcolm Baldridge model of
quality award criteria. The ISO 9000 quality
Management system implementation as well as the
implementation of Juran's Quality improvement
JQI projects in various functional areas is practiced
in all the Tata Group companies. The TQM
principles and practices have become the mainstay
of the automobile industries. Tata Motors,
Mahindra & Mahindra automotive division and
tractors division, Maruti Suzuki Ltd., Hero Group,
Bajaj Auto Ltd., the RDSO of the Indian Railways
as well the Indian Defence organization all insists
on the implementation of the TQM principles and
practices to suppliers and ancillaries. The
Government of India gives an immediate

?
Quality first-not short-term profits first;
?
Customer orientation-not producer orientation;
?
The next step is your customer-breaking down
the barrier of sectionalism;
?
Using facts and data to make presentationsutilization of statistical methods;
?
Respect for humanity as a management
philosophy, full participatory management;
?
Cross-functional management.
The Indian Scenario
The Stress and strain of globalization and
liberalization has created the business pressures
hitherto unseen and inexperienced by the most of
the industries across the world. This situation is not
unique to India, it is global in nature. The floodgates
of intense international competition have swept the
industries off their feet. The rapid technological
88

Total quality management concepts and the Indian scenario

reimbursement for ISO 9000 certification cost upto

Rs. .75.000 to the business units registered under
the small scale industry (SSI Sector).

consumer durable manufacturing industry and

Marico Industry Ltd., Asian paints Ltd. in the
FMCG Industry are the examples where in TQM
principles and practices have been adopted and the
resultant world class performance excellence and
market leadership has been achieved and sustained.

The TVS group is famous for the

implementation of the TQM principles and
practices. Sundaram Fastners Ltd. was the first
organization in India to get the prestigious ISO 9001
certification. Sundaram Clayton Ltd. From the
same group was the first Indian organization to be
awarded the prestigious Deming Quality Award
followed by TVS Motors Ltd. of the same group.
The other members of the group like the Lucas TVS
Ltd. or the Brakes India Ltd. also got similar
recognition in the implementation of the TQM
principles and practices to defend the market
leadership of the products manufactured by the
organization. They have implemented various TQM
principles and practices like JQI projects, ISO 9001
quality management system implementation,
business process re-engineering , benchmarking,
statistical process control, logistics and supply
chain management etc. Maruti Suzuki Motors being
an organization in collaboration with the world's
largest small car manufacturer from Japan has
implemented all the TQM principles and practices
which is the key to its market leadership position
and its success at defending the same for the years
together in spite of intense market competition.

In the engineering industry, Bharat Heavy

Electricals Ltd, Carborrundum Universal
manufacturing industries Ltd. Otis Elevators Ltd.
Philips India Ltd. Hindustan Motors Ltd. ISUZU
Engine Plant at Prithampur, Bajaj tempo ltd.
Crompton Greaves Ltd. Godrej Group of Industries,
Larsen and Toubro Group of Industries, Aditya
Birla Group of Industries, Reliance Group of
Industries, Modi Rubbers Ltd. Gujarat Heavy
Chemicals Ltd. Amul, etc. are all the examples of
companies attaining world class performance
excellence through the implementation of the TQM
principles and practices.
India has already become one the prominent
global players in the field of the information
Technology. We are now in for a grand success story
in the field of manufacturing, riding on the back of
the implementation of the TQM principles and
practices. India is a warehouse of competent
qualified engineers for more than two million
working in the manufacturing sector, making it as
one the soundest, technically experienced and
competent industry with many of the companies
progressing at a revolutionary rate of growth. Indian
Industry is on a journey towards total quality but it
has to refine the approach by adopting a holistic
approach to be an international leader in the
respective fields of operation. The interest shown by
the global manufacturing companies in sourcing
parts and components from India is on the rise as the
recognition to the Indian Industries commitment to
quality. Today the American, European and
Japanese firms are seeking outsourcing deals with
the Indian manufacturing firms. Toyota is sourcing
transmission parts from India. Ford is sourcing the
entire car engine from India. The Suzuki motors
corporation has leveraged on Maruti's capability to
make it the sole manufacturing facility of
manufacturing many of the Suzuki models for the
international market in India as well ass sourcing

The Ajay Piramal Group company Nicholas

Piramal Ltd, Gujarat Glass Ltd. have reached the
market leadership position respectively in last
decade and half from an inconsequential position,
with the sheer implementation of the TQM
principles and practices by way of ISO 9001 quality
management system implementation, JQI projects
implementation, implementation of logistics and
supply chain management , employees training etc.
The TQM principles and practices can be employed
in all sorts of industries in both the manufacturing
and service sectors. The Ritz Carlton Hotel in the
hospitality industry Bombay Dyeing Ltd, Mafatlal
Industries and Arvind Mills in the textile Industry,
Tata Iron and steel Industries Ltd. (TISCO), Steel
Authorities India Ltd. (SAIL), Mukand Ltd etc in
the steel industry, Voltas Ltd, Godrej group of
industries and Videocon International Ltd. in the
89

Vedaang Vol. 4 No. 1, January-June 2013

?
Quality is a systematic firm-wide activity from
suppliers to customers. All functional activities,
such as marketing, design, engineering,
purchasing, manufacturing, inspection,
shipping, accounting, installation and service,
should be involved in quality improvement
efforts.

parts and components from many Indian

organization. Yahama and Mitsubishi have
announced to make India a global sourcing hub for
automobile components and parts in the two
wheeler segment. Tata Motors is selling Indica cars
to Rover for the United Kingdom market. Mahindra
& Mahindra is selling its Scorpio model of SUV all
over the world including Asian and European
countries successfully. Bajaj Auto Ltd has been
selling its scooter in the world market for many
years. The United States market leader in retailing
and a global leader, Wal-mart intends to increase
outsourcing from India from the current level of
USD 1 billion to USD 10 billion in the next couple
of years.

Many success stories of Indian companies build

up the resolution for the companies who are not
implementing the TQM principles and practices to
immediately go for the same. This is the reason why
most of the management and engineering institutes
have introduced Total quality management as a
compulsory subject in their syllabus. The only way
the organization can survive and excel in the current
global environment of intense international and
local competition is by the implementation of the
TQM principles and practices. The most interesting
part of the entire exercise for the industries is that it
is zero investment activity which maximizes the
productive use of the plant and machineries as well
as all other resources. The implementation of the
TQM principles and practices simultaneously gives
customer satisfaction as well as the market
leadership position and maximization of return on
investment, which are the vital factors for attaining
global leadership and world class performance
excellence.

Conclusion
It is evident that each quality has his own
distinctive approach but do share some common
points which are summarized as follows:
?
It is management's responsibility to provide
commitment, leadership, empowerment,
encouragement, and the appropriate support to
technical and human processes. It is top
management's responsibility to determine the
environment and framework of operations
within a firm. It is imperative that management
foster the participation of the employees in
quality improvement, and develops a quality
culture by changing perception and attitudes
toward quality.

References
P. N. Mukherji (2009), Total Quality Management, PHI
Learning Private Limited, New Delhi
Ahire, S.L., Waller, M.A. and Golhar, D.Y. (1996), Quality
management in TQM versus on-TQM firms: An empirical
investigation, International Journal of Quality
&Reliability Management, Vol. 13 No. 8, pp. 8-27.
Cole, R.E. (1992), The quality revolution, Production and
Operations Management, Vol. 1 No. 1, pp. 118-20.
Crosby, P.B. (1979), Quality Is Free, McGraw-Hill, Inc.,
New York.
Ishikawa, K. (1985), What is Total Quality Control? The
Japanese Way, Prentice-Hall, London.
Juran, J.M. (1994), The upcoming century of quality,
Quality Progress, Vol. 27 No. 8, pp. 29-37.
Zhang, Z.H. (2000), Developing a model of quality
management methods and evaluating their effects on
business performance, Total Quality Management, Vol.
11 No. 1, pp. 129-137.

?
The strategy, policy, and firm-wide evaluation
activities are emphasized.
?
The importance of employee education and
training is emphasized in changing employees'
beliefs, behavior, and attitudes; enhancing
employees' abilities in carrying out their duties.
?
Employees should be recognized and rewarded
for their quality improvement efforts.
?
It is very important to control the processes and
improve quality system and product design. The
emphasis is on prevention of product defects,
not inspection after the event.
90

BOOK REVIEW
REVIEW OF BUSINESS STATISTICS
Dr. N. D. Vohra
Dept. of Commerce,
Ramjas College, University of Delhi
Delhi-7 (India)
ABSTRACT
Statistics plays an important role in business. In the highly competitive business environment of
today, a business can not survive by making decisions based merely on instinct, guesswork and
approximations. Acquiring relevant data and information, and analysing such information accurately
can help to make decisions that are likely to be more profitable for the business organizations. An
organization that is strong in the core area of decision-making is likely to achieve greater success for
its stakeholders in the long run, have less risk exposure, and have a lower chance of missing lucrative
opportunities. Statistics provides managers with more confidence in dealing with uncertainty,
enabling them to solve problems in a diversity of contexts, add substance to decisions, and reduce
guesswork in taking decisions relating to both short and long terms. Given the role that statistics
plays in fields such as marketing, finance, human resources, production, and logistics; it is necessary
that the management students managers of the future - be acquainted with statistical tools and
methods for developing decision-making skills.
While statistical analysis is essential to business decision-making and management, grasping of the
underlying theory of data collection, organization and analysis is a challenge for business students
and practitioners. There are many books available in the market, full of knowledge, instructions,
illustrations and real world examples. To help stand out from the crowd, Dr. N. D. Vohra of Ramjas
College, University of Delhi has written an exciting new book on the subject for the business students
and teachers. This book is titled Business Statistics. It teaches how to use data to make informed
decisions. The author provides strong connections between the statistical concepts in the text and the
problems students will face as practitioners in their future careers by showing how to find patterns,
create statistical models from the data, and deliver findings to an audience. Dr. Vohra is a well
established author in the field of statistics and finance. Previously Dr. Vohra has written Quantitative
Techniques in Management and Futures and Options, both with Tata McGrw Hill. The book
Business Statistics is the result of nearly four decades of teaching experience of Dr. Vohra at Delhi
University and many other international institutions.
The book surveys the statistical techniques commonly used, especially in business and economics.
The book is written with the objective of developing students' abilities to describe, analyse and
interpret data soundly, making effective use of computer software. The book is divided into 18
chapters in all covering Introduction to Statistics and Data Collection; Summarizing and Presenting
Statistical Data; Measuring Central Tendency; Measures of Variation; Measures of Skewness and
Kurtosis, and Moments; Theory of Probability; Statistical Decision Theory; Probability
Distributions; Sampling and Sampling Distributions; Theory of Estimation; Testing of Hypotheses:
Means and Proportions; Tests of Variance and Analysis of Variance (ANOVA), Simple Linear
Correlation and Regression Analysis; Partial and Multiple Correlation and Multiple Regression
Analysis; Chi-square and Other Non-Parametric Tests; Index Numbers; Time Series and Forecasting
and ends with Statistical Quality Control. Each chapter first states its goals and ends with
summarizing the contents to help the students review the material quickly and recap the important
points and concept discussed in the chapter. Besides illustrative examples given within the text,
Additional Solved Examples have been included in all chapters. Added to these, a large number of

91

Vedaang Vol. 4 No. 1, January-June 2013

True/False questions are provided to test the understanding of students. A distinguishing feature of
the book is the inclusion of the applications at the end of the most of the chapters to enable the students
to understand how the statistical tools may by usefully applied. Other resources available to the
teachers are included in the website www.mhhe.com/vohrabs which are likely to prove a boon to the
teachers of the subject.
With Business Statistics, Dr. Vohra has provided a non-comparable business statistics book that
users can easily read and understand and apply. The Concepts are fully explained in simple, easy-tounderstand language as they are presented, making the book an excellent source from which to learn
and teach. After each discussion, readers are guided through real-world examples to show how book
principles work in professional practice. By creating a text with the goals of accessibility and
simplification in mind, Dr. Vohra has not only made the study of statistics comprehensible to students
who do not think quantitatively, but he also has re-thought the idea of what a textbook is and can be.
Indeed, with rich pedagogy and user friendly features, Business Statistics seems to be perfectly
tailored to programs that teach management at various levels. It is highly recommend that professors
who teach statistics in business, management and economics consider Dr Vohra's text as either the
main course textbook, or as a supplementary resource for the students without prior training in
statistical analysis.

Reviewer
Dr. Suman Jeet Singh
Asst. Prof.
Ramjas College, University of Delhi
Delhi-7 (India)

92

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the review process.

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* You can also refer to www.sgrrits.org for journal details

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