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Financial management is that managerial activity which is concerned with the planning &controlling of the
financial resources. In other words managing the funds of the firm most wisely witha view to maximize the wealth
of shareholders. It is concerned with effective use of importanteconomic resources of business firm.Financial
management is concerned with the acquisition. Financing and management of assets with overall goal in mind.
Financial manager has to forecast expected events in business and note theirfinancial implication.Firm anticipating
financial needs means estimation of funds required for investment in fixedand current asserts or long term and
Short term assets.


A modern financial management performs several functions it is difficult to task to identify the functional areas of
modern financial management. They are mainly three types as follows.
 Investment decision

 Financial decisions

 Dividend decisions


1. A firms investment decisions involve capital expenditures.

2. They are therefore referred as a capital budgeting decision.
3. It commitment of long-term assets that would yield benefits in the future.


1. It is the second important decision or function to be performed by the financial manager.

2. Decide how to acquire funds and how met the firm's investment needs.


1. The proportion of profits distribute as a dividends is called the dividend decision.

2. Maximize the market value of the firm's shares is optimum dividend policies.

This project report entitled "A CRITICAL STUDY ON INVENTORY MANAGEMENT", starts with the
necessity of realization of definition, concepts and importance of inventory.Inventory may be defined as usual, but
idle resource. If resource may be tangible andphysical such as materials then it is termed as inventory. Inventory
Management has acquired a great significance and sound position in recent years with an objective ofprofitability
and liquidity. The success or failure of a business enterprise largely dependsupon the management of inventory
management.No firm can be maintained without inventory management, but the requirement ofinventory differs
from firm to firm. Inventory management is needed to every businessenterprise because it indicates liquidity
position of the firm. The problem of inventorymanagement is one of the maintenance, with in a financial
investment, an adequate supply ofgoods to meet an expected supply of demand pattern. This could be raw-
materials, work in progress (semi finished goods) and finished foods.Moreover inventory can be one of the
indicators of the management effectiveness on thematerial management front. Inventory management deals with
determinants if optimalpolicies and procedure for Procuring of commodities. Inventories constitute, in
everybusiness concern, the most significant part of working capital or current assets. Inventoriesin Indian industries
constitute more than 60% of the current assets. Inventories aresignificant elements in cost process.A management
student should properly understand thevarious aspects. Inventory management if opted for specialization in finance
management. Vijaya dairy is big manufacturing unit and the requirement of inventory for each department isvery
high in an organization like vijaya dairy.



 To determine and maintain optimum level of inventory management in RANGAREDDY DISTRICT

 To find out the reasons for the problems and to evaluate possible ways for resolving the problems.


 To minimize the firm's investment in inventories and to maximize profits.

 TO analyze how inventory is maintained in KDMPMACUL
 TO access the diary industry in Krishna district and the establishment in KDMPMACUL
 TO ensure better services to the customer
 To study and analyze the various categories of inventory items in KRISHNADISTRICT MILK
The study is done on inventories help by bulk active division of THE KRISHNADISTRICT MILK
The scope of the study includes ABC analysis of Raw material work in progress and finished goods for five
financial years.
This study provides insight to the management of high value items and also brings
attention of management towards movement of ‘A’ class items over period of 5


Primary Data:

The primary data, which is collected, is entirely based on the details given by thepurchase; stores, production and
sales department are mainly concerned in RANGAREDDYDISTRICT MILK PRODUCERS MUTUALLY

Secondary Data:

The secondary data is entirely based on the data obtained for the officers, Managers andstaff of
LTD.Managers and supervisors of the organization have also been interviewed to elicit necessary information on
the basis of non-structured schedules. And secondary wascollected from the company's manuals and office records
pertaining to production, marketing, personal and financial position.


Any study is having of its own advantages and certain disadvantages. Among such few ofthe limitations are
expressed below such as:-
 The reliability of the study depends upon the information furnished by the officials.
 Due to time constraint it is difficult to go into details of the organization.
 The study is limited for a period of 8 weeks.
 Since milk is perishable and it has to be converted into the finished goods within 24hours, so there will be
no operating cycle of this industry.
 The study is exclusively done for the stores department inventory items in

Industry Scenario:
Dairying has been of life in India since the ancient Vedic times. The modern dairy industrytook roots in 1950 with
the sale of bottled milk in Bombay from array milk colony. The first largescale milk products factory was started in
1945 at Anand a cooperative venture, with the assistance of UNICEF, for the production of milk powder, table
butter and ghee. These products were made fromthe buffalo milk.The world's largest development program over
undertaken, the operation flood undertook thegigantic task of upgrading and modernizing with production,
procurement, processing and marketingwith the assistance provided by the world bank and other external
agencies, designed and implanted bythe National Dairy Development Board(NDDB) and the Indian dairy
corporation. The project waslaunched in July 1970. Its basic concept compromises the establishment of co-
operative structure onAnand pattern.
 OPERATION FLOOD-1:Operation flood-1 also referred to as white revolution is a gigantic project
profounded by governmentof India for developing Dairy industry in the country. The operation flood-2
originally meant to becompleted in 1975 for its completion at total cost of about Rs.16 crores. The
operation flood-1 waswholly financed by setting in Indis free metric tones of bottle oil donated out of the
surpluses of European Economic Community
Under the operation flood-1 the program for increasing milk production was taken up in icehinterlands of various
breeding tracks on Anand pattern and loudly proclaimed with a trample. The co-operative were started originally
in 18 of Indian milk shed districts and later on mine more milk shedareas were added to make a total of 27 in 10
states of the country viz, Maharastra, Tamilnadu, AndhraPradesh , West Bengal, Bihar, Hariyana , Punjab, Uttar
Pradesh and Rajasthan.Those dairy co-operatives are based on a model known as Anand pattern of dairy co-
operative.UnderAnand pattern concept rural co-operative infrastructure was to be built in the village, the milk

producers were and keep their animals. In each participating village, the milk producers were to formtheir own
village dairy co-operative. Thus Anand pattern dairy co-operative union organizes mobileveterinary and artificial
insemination counters.In the sphere of co-operativisation the no of Anand pattern organized societies under
operation floodwas 63121 on April 1st 1991 as age INST 60753 a year ago indicate one that years as many as
2368new dairy co-operatives were formed.
The operation flood-2 which was started in July 1978 is scheduled to be completed in 1985 at acost of 483
crores.A humble attempt has been made in it sufficient appraisal of the achievements made in somesufficient field
during operation flood-1. These achievements if as all made particularly the anandpattern dairy co-operative
unions are to serve now bedrock of operation flood. Their unions are to actto the starting. Nucleuses for co-
operative cluster federation.The main instrument for this giganticproject operation food-2. The average nucleus
cluster federation would six districts unions registeredand unregistered.The Indian dairy co-operative, National
possible are not required to indicate the basis on which thestate wise allocations were made in operation flood-2 up
to end of the 11,979 Gujarat state alone gotthe lion's shares of 1666. 70,00,000 five states Haryana, Bihar,
Rajasthan and Andhra Pradesh puttogether the total disbursement in their case was 1732 lakhs only. This trend is
going to be maintainedin operation flood-2.

The Indian dairy industry is growing rapidly and may become a string competitor to world dairypowder. The milk
sector is the second largest contribution to the agricultural economy in terms of produce phenomenal growth is a
result of national airy development board through the operationFlood programs.Operation flood-2 now in its
closing phase only consolidated the procurement affords to boostproduction. The projection for milk output for
200 AD is nearly 90 tones at on 5% growth rate. It isnow 5-8% dairy factories established under operation flood,
which cover 170 milk sheds can handle14.3 millions liters milk daily. They have a milk drying capacity of about
696 tones per day.
The rapid growth in milk production did way with import of milk powder except for a (26400tones) during the
brought years
At the time of industrialization at cattle feed factory at kanjariin October 1964. the late sriLALBAHADUR
SHASTRY , the Prime Minister of India paid unscheduled visit producers co-operative societies and stated there
overnight .He was impressed by the social economic changesbrought milk co-operatives in Krishna district and
desired to have a National level organization to milk producers co-operative societies replicate anansin other part of
the country.Thus the National Dairy Development Board was set up under the empowerment of ministry
of agriculture and irrigation, Govt of India in Sep 1965 under the society registration act 1860 and theBombay trust
act 1950.The president of India nominates the board of directors including chairman, secretary; NationalDairy
Development Board is the chief of the organization.
The information Anand pattern of milk co-operative was launched with the organization of Krishna district co-
operative milk producer's union ltd. In this pattern the function of dairy is milk procurement, processing and
marketing are controlled by the milk producers themselves.PLANNING
INVESTMENT:1. 33.43 Crores 4. 349.00 Crores2. 247.53 Crores 5. 116.00 Crores3. 187.00 Crores 6. 600.00 Cr
DAIRY INDUSTRY IN TELANGANA The program dairy industry was mooted with commendable
help of the united nationalinternational children's emergency fund, food and agriculture organization and freedom
from hungercompany campaign Organization of the U.K. these organization insisted lot of the establishment of
thedairy units at hydria and vijayawada in 1967 and 1969 respectively, which led to pioneer dairydevelopment
program in Andhra Pradesh? Later to set cooling and chilling centers have been set up tofeed these two gigantic

The government of Andhra Pradesh started dairy development corporation to interest of milk producers and
ensuring adequate supply of fresh milk at reasonable price to the urban consumers asT.S.D.D.C ., come in to the
existence on 2nd April 1974. A.P.D.D.C ., providing employment tonearly 20 employees and organism easy
many as 87 dairy units including seven milk factories , 13district dairies, 22 chilling centers , 18 cooling centers and
15 mini cooling centers.In addition to that the private units have been contributing their little mite in the
developmentof dairy industry M/s Hindustan milk foods that has started a malted milk product factory
inRajamundry. Further to enhance working efficiency and to increase the turnover, the government hasconstituted
on autonomous dairy development corporation on the recommendation measure the dairyindustry improving
towards massive milk production and milk collection.
In 1960 pilot milk supply scheme was started in the state for the dairy development. Its initialcapacity was 100
liters a day at the time of starting. Now its daily collection increased to 11 lakhsliters per day. It is also working as
alien between milk producers of the towns by providing reasonableprice to the producers to maintain stable
A.P.D.D.C.F was formed in October, in 1981 to implement operation flood-2 program throughactive involvement
of producers in organization milk production, procurements, processing andmarketing on "three-tier". Co-
operative structure as per the national government of India. The three-tier system consists of primary dairy
cooperatives societies 13 village level, cooperative unionsatdistrict level and federation at state level.
In our state operation flood was divided in three types "Anand level".1.
Village level - D.C.S2.

District level - M.P.C.V3.

State level - A.P.D.D.C.F


Indian dairy development corporation own the responsibility of implementations of operationflood programs,
which provides money assistance put 70% towards loans and 30% as subsidy.National Dairy Development
Corporation selected district of the state for implementation of operationflood. It divided the districts into ten milk
collecting mandals.
District Milk sheds/unionsKrishnaKrishnaSrikakulamVishakaVijayanagaramVishakaVisakapatnamVishakaEast
Godavari ,GodavariWest, Godavari,ChitoorChitoor,Kurnool,Kurnool,Cuddapah,Cuddapah,Nalgonda,Nalgonda,
RangareddyRangareddy,Medak,Medak Nizamabad,Nizamabad

Organization dairying in Krishna commenced in 1965 with integrated milk project assisted byUNICEF. A milk
conversation plan first of its on kind in south India was commissioned in April 1969.The organization of dairy
industry took basic changes beginning with husbandry department; it wasintegrated with project (1960), dairy
development (1991), A.P.Dairy development cooperation (1974),A.P. dairy development cooperative federation
(1981).Krishna district milk producers cooperative union got registered in 1983district have 450organized dairy
cooperative societies with 67000 member's producers. There are 340 producers'association centers.
Farmer's prosperity through technical innovations and customer orientation with specific focus onquality and cost.
Dairying in the district to be the major instrument of strengthening rural economy & makingavailable safe milk
and milk products.
1.Daily average milk procurement: 163794 litres.
2.Turnover of business has reached to 200 crores.
3.Daily milk sales average reached to 1600001itres.
4.Obtained ISO 9001:2000, 14000 and H.A.C.C.P certification.
5.Earning profits and distributing bonus to its members
6.Paying RS.68 crores per year to farmer as cost of milk procured from them.
7.Strengthened the rural economy by avoiding middlemen and making available safe milk andmilk products to
the consumer.
8.Providedself employment to the rural women.

oFirst powder plant established in south India
oLargest democratic functionary in the district serving the farming community
oHaving more than RS. 1000 crores grass root level production base.
oProviding direct and indirect employment to people
oFirst dairy to introduce five varieties of liquid milk.
oFist dairy to introduce liquid ice cream in tetra brick pack.
oFirst dairy cooperative to introduce curd in cups in south India
oFirst dairy to introduce butter milk and lassie in tetra brick pack
oAnnual turnover more than RS.121 crores with a continuous growth rate.
oFirst dairy to introduce Basundi in cups and milk cake.

Milk is being procured twice a day from about 830 villages in the district organized through 29routes and 6 chilling
centers besides getting raw milk directly to the factory from certain villages in a radius of 50 km around
Vijayawada. Among 480 centers, about 431 are registered societies as underAnand pattern.
Area occupied by the factory 27.3 acresValue of factory building 400 lakhsMoney given by UNICEF 53

 Machinery
Investment on equipment 600 lakhs

 Buildings
Opened on 11-4-1969Workers 1538Date of formation of union 6-7-
1983Date of transfer of management 8-2-1985Of the union Annual turnover 60 crores

 Production power:
Milk 500001ts/dayGhee 5 tonnesButter
7tonnesMilk powder 4tonnesPacket filling 160000packets/dayRefrigeration capacity 1.5tonnesContracted maxim
um demand 900 chillingProcessing 150000
 The company got ISO 9001 and ISO 14000 trademark for its quality of milk.
 The company recently made record sales of 1.64 lakh Its/day where as its previous sales recordwas 1.45m
lakh Its/ day.

The Inventory Management Practices on the following heads:
1.Organization for Inventory Management.
3.Receiving and Inspection of Materials.
4.Stores Management
5.Inventory Control System.
Every enterprise needs inventory for smooth running of its activities; it serves as a link between the recognition of a
need and its fulfillment the greater the time leg. The higher therequirements of inventory, the unforeseen
fluctuations in demand and supply of goods also necessitatethe need for inventory. It also serves as a cushion for
future prices fluctuations. The simple meaning of inventory is "stock of goods" or "list of goods" the word
inventory is understood differently by variousauthors. In accounting language it means stock of finished goods
only, for a manufacturing concern itincludes raw-materials, work-in-progress, finished goods etcInventories
constitute the most significant part of current assets. Many companies maintain60% of current assets as
inventories. Because of the large size of the inventories maintained by thefirms, a considerable amount of funds is
required to be committed to them. It is therefore absolutelyimperative to manage inventories efficiently in order to
avoid unnecessary investment. A firmneglecting the management of inventories will be failed in its long run
profitability and may failultimately. It is possible for a company to reduce its levels of inventories to a considerable
degree within the range of 10 to 20% without any adverse effect by using simple inventory planning and
controltechniques. The reduction in excess inventories has a favorable impact on the profitability of the firm.
1.Minimize investment in inventories in order to maximize profits.
2.In order to minimize carrying costs and ordering costs of inventory. To minimize obsolescencein stores.
3.To avoid excess and inadequate stocks.
4.To provide check against losses of materials.

Inventories are the stock of the product a company is manufacturing for sale and components
that make up the product. The various forms in which inventories may exist in a manufacturingcompany are:-
1.Raw materials
3.Finished goods

Raw materials are those basic inputs that are converted into finished product through themanufacturing process.
Raw materials inventories are those units, which have been purchased andstored for future productions. A
company should maintain adequate stock of a continuous supply tothe factors for an uninterrupted production. If it
is not possible for a company to produce raw materialswhenever needed, a time lag exists between demand for
materials and its supply also there will besome uncertainty on procuring raw materials in time on many
occasions.The procurement of materials is delayed because of uncertain factors like strike, transport,disruption or
short supply. Therefore the firm should maintain sufficient stock of raw materials at agiven time to streamline
production. Other factors which may necessitate purchasing and holding rawmaterials are quantity discounts and
anticipated price increase. The firm may purchase large quantitiesof raw materials than needed for the desired
production and sales levels to obtain quantity discounts of bulk purchasing. At times the firm would like to
accumulate raw materials in anticipation of price rise.
The inventories are semi-finished products. They represent products that need more work beforethey become
finished products for sale. Work in progress inventory builds up because of productioncycle. Production cycle is
the time span between introduction of raw-materials and mergence of finished products at the completion of
production cycle. Till, production cycle completes, stock of work in progress has to be maintained. Efficient firms
constantly try to make production cyclessmaller by improving their production techniques.

Finished goods are the completely manufactured products, which are for sale. Stocks of rawmaterials and work in
progress facilitate production, while stock of finished goods is required forsmooth marketing operations. Stock of
finished goods has to hold because production and sales are notinstantaneous. A firm cannot produce immediately
when customers demand goods. Therefore tosupply finished goods on a regular basis, their stock has to be
maintained for sudden demand fromcustomers. In case the firm sales are seasonal in nature, substantial finished
goods should be kept tomeet the peak demand. Failure to supply products to customers would mean loss to firm's
sales tocompetitors.The level of finished goods inventories would depend upon the co-ordination between sales
andproduction as well as on production time. The levels of three kinds of inventories for a firm depend onthe
nature of business.A manufacturing firm will have substantially high levels of three kinds of inventories while a
retailor wholesale firm will have a very high level of finished goods inventories and no raw materials orwork in
progress inventories. Within manufacturing firms there will be differences.LargeEngineering companies produce
long production cycle, products therefore they carry largeinventories on the other hand, and inventories of a
consumer product will not be large because of shortproduction cycle and fast turnover. Firms also maintain a
fourth kind of inventory called supplies.Supplies include office and plant cleaning materials like soap brooms, oil,
fuel, light, bulbs, etc. thesematerials do not directly enter production, but are necessary for production process.
In an inventory control situation, there are three basic questions to be answered. They are:
 How much to order? That is to say, what is the optimal quantity of an item that should beordered
whenever an order is placed?
 When should the order be placed?
 How much safety stock should be kept? Thus, what quantity of an item in excess of the expected
requirements should be held as buffer stock in anticipation of the variations in its demand and/or the time
involved in acquiring fresh supplies.

In determining optimal inventory policy, the criterion most often is the cost function. The classicalinventory
analysis identifies four major cost components. Depending on the structure of an inventorysituation, some or all of
these are included in the objective function.
This refers to nominal cost of inventory. It is the purchase price for the items that are boughtoutside sources, and
the production cost if the items are produced within the organization. This may beconstant per unit, or it may vary
as the quantity purchased/ produced increases or decreases. Quiteoften, situation is found when it may be stipulated
that, for example the unit price is rest 20 for anorder unto 100 units and rest 19.50 if the order is for more than 100
This category of costs is associated with the acquisition or ordering of inventory. Firms have toplace orders with
suppliers to replenish inventory of raw materials. It includes costs associated withthe processing and chasing of the
purchase order, transformation, inspection for quality, expeditingoverdue orders and so on.The parallel of the
ordering cost when units are produced within the organization and the cost of acquiring materials consists of
clerical costs and costs of stationery. It is therefore called a set-up cost.The ordering cost is likely and taken to be
independent of the order size. Therefore the unitordering/setup cost declines as the purchase order/ production run
increases in size. Ordering costs arecosts involved in:
1.Preparing a purchase order
2.Receiving, inspecting and recording the goods received to ensure both quantity & qty.
They are involved in maintaining or carrying the inventory. It represents the cost that is associatedwith storing an
item in inventory. Carrying costs are also known as holding cost or the storage cost.The main components of this
category of carrying costs are
1.Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc.
2.Insurance of inventory against fire and theft
3.Deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescenceetc.
4.Serving costs such as labour for handling inventory, clerical and accounting costs.The opportunity cost of funds
consists of expenses in raising funds (interest of capital) to financethe acquisition of inventory. It funds were not
locked up in inventory they would have earned a return.This is the opportunity cost of funds or the financial cost.
The carrying cost and the inventory size arepositively related and move in same direction. If the level of inventory
increases, the carrying costsalso increased and vice-versa.
Stock out cost means the cost associated with not serving the customers. Stock outs implyshortages. If the stock
out is internal (i.e. in the production system) it would imply that someproduction is lost, resulting in idle time for
men and machines, or that the work is delayed whichmight attract some penalty. While if the stock out is external,
it would result in a loss of potential salesand /or loss of customer goodwill. A shortage can evoke different reactions
from customers.
In VED analysis, the items are classified on the basis of their criticality to the production processor other service. In
the VED classification of materials, V stands for Vital items without which theproduction process would come to a
standstill. E in the system denotes Essential items whose stock outwould adversely affect the efficiency of the
production system.Although the system would not altogether stop for want of these items, yet their
nonavailabilitymight cause temporary losses in, or dislocation of production. The D items are the Desirable
itemswhich are required but do not immediately cause a loss to production. The VED analysis is donemainly in
respect of spare parts.
HML ANALYSISThis is similar to the ABC analysis except that, in this analysis, the items are classified on the
basisof unit value rather than usage value. The item are classified accordingly as their cost per unit is H-high, M-
medium and L-low. This type of Analysis is useful for keeping control over materialsconsumption at their
department levels.SDE ANALYSISThis uses the criterion of the availability of the items. In this analysis S-stands
for scarce itemswhich are short in supply, D-refers to the difficult items meaning the items that might available
inindigenous market but cannot procured easily, While E represents easily available items even fromlocal
markets.S-OS ANALYSISS-OS analysis is based on the nature of supplies, wherein S represents the seasonal
items and Osrepresents the off seasonal items. This classification of items is done with the aim of
determiningproper procurement of strategies.FSN ANALYSISBased on the consumption pattern of the items, the
FSN classification calls for classification of items, as F-Fast Moving, S-Slow Moving and N-Non Moving goods.
This 'speed' classification helpsin the arrangement of stocks in the stores and in determining the distribution and
handling patterns.XYZ ANALYSISXYZ analysis is based on the closing inventory value of different items.
Items, whose inventoryvalues are high, are classed as X-items while those with low investment in them are termed
as Z-items. Other items are the Y-items whose inventory value is neither too high nor too low.It can be easily
visualized that the several types of analysis discussed are not mutually exclusive.They can be, and often are, used
jointly to ensure better control over materials. For example ABC andXYZ analysis may be combined to classify
and control depending on whether the items are AX, BY,CZ, AY of and so on. Similarly XYZ - FSN combine
classification exercise will help in timelyprevention of obsolescence.


1.It is important to study the size of Inventory Management of any enterprise. It decides the needfor best owing
attention in the management of this component. In the enterprise under thestudy Inventory formed a major
percentage of total assets. It varied between the lowest of 55percent and the highest of 60 percent to total assets.
2.The composition of current assets is dominated by inventory and receivable in 2001-02 thecomposition of
current assets are dominated by inventory and other current assets.
3.The inventory index and growth rate of KDMPMACUL is so even for instance the annualgrowth of
KDMPMACUL is negative.
4.The receivable index in KDMPMACUL is highly uneven. In some year it is highly positiveand in some year it
is negative. The unevenness is not good.
5.Some of the inventories are ordered on the basis of minimum stock or reorder level.
6.There is no particular method has been followed for valuing the particular type of inventories.Fast Moving
stocks.Slow Moving stocks.Seasonal stocks.Vital Items.A valuation at inventories is entirely based on both
manual valuation and computer valuation.

a.A plan should be drawn to use the surplus milk in some seasons for the manufacturersof long-lived bi-products.
b.The company should introduce continuous stock verification system for all thematerials.
c.The company should introduce some of the major inventory classification methods likeXYZ analysis and FSN
analysis for better control of inventories.
d.The composition of current assets is dominated by inventory and other current assets inthis regard it is advised to
the company to maintain a balance among the differentcomponents of current assets.
e.It is better to start own manufacturing unit for materials like which has monopolysupplier, so that Ordering Cost
and Carrying Costs reduce and can have materials intime.

Here an attempt is made to draw conclusion based on the study of KDMPMACU Ltd.The study revealed the
 The KDMPMACU Ltd. Have maintain slight standard Inventory levels
 The KDMPMACU Ltd. EOQ levels was satisfactory.
 The KDMPMACU Ltd. ABC Analysis was satisfactory.
 The KDMPMACU Ltd. RAW material turnover was satisfactory.
 Over all KDMPMACU Ltd. Financial performance was positive.



4. Production &operation Management S.N.Charry TMH New Delhi 2001
5. Production &operation Management B.L.Goel Pragathi PRAGATHI,NEW 2001