Mag-e

Editorial Board

Editor Dr. N. Ravichandran

Associate Editors

Syeedun Nisa

Dr. Sadaf Siraj

Advisory Board

ChairmanProf A. A. Firdausi

National Advisors International Advisors

Prof Sudhir Jain, India Dr. Abdul Hussain, BangladeshProf Pulin Naik, India Dr. David Lewis, LondonDr. Ranjana Agarwal, India Dr. Paul Lilirank, Finland

Prof Paul Lalwani, PakistanDr. Catherine, GermanyDr. Kurian Joseph, UK

Page Layout and Designing

UNIQUE GRAPHICSJanak Puri, New Delhi

Editor Mag-e, IJMSR Infotrack Library SolutionsDept. of Management 506-A, Jyoti Shikhar,Jamia Hamdard District Centre, Janak Puri,New Delhi-110062 New Delhi-110058Email : [email protected] Email : [email protected]

EDITOR’S DESK

As a nascent republic, India has emerged from the shadow of colonialism to evolve as one of thefastest growing economies, transforming millions of lives in her wake. Two months hence we, thebrothers and sisters of India will be celebrating 64th republic day. There have been moments in thelife of India which are worth remembering. They were rather formative years of India. During thisjourney India has achieved many milestones. We are privileged to be a part of the cohort witnessingsome of these events in the life of our great country. In this journey we teachers have played animportant role in this growth journey of India.

It is a pleasant experience for me to present another issue of journal. This issue has seven researchpapers and one case study. In the Historical prospective of the reforms in Indian Capital Marketwritten by R.P. Tulsian has explained the substantial reforms in the Indian capital market which tookplace post liberalization and its impact on the Indian capital market. It has explained the capitalmarket infrastructure development including accounting standards, legal mechanisms which needto be improved. An active market for foreign companies in India is likely to attract investment fromwider avenues, both domestic and foreign and consequently be beneficial to domestic companiesalready listed or waiting to be listed on Indian bourses. He has also explained that such reformswould also have ancillary benefits like job creation in financial cities of India and exposure to globalbest practices in corporate securities law. The paper official development assistance to India withspecific reference to Japan is coauthored by Dr. Swami P Saxena and Neha Kapoor is a sincereefforts to study the economic cooperation and interdependence among the countries is accomplishedby trade, aid, and investment. Among these foreign aid plays a significant role in the socio-economicdevelopment of emerging and developing economies. He explained that although government hasattempted to be as self-reliant as possible, the absolute amount of foreign aid to India has beenhigh. In per capita terms, however, it has been much less than most other developing countriesreceive. In last about two decades a number of positive changes e.g. Global Partnership Agreement2000, Joint Statement towards India Japan Strategic Partnership 2006, Indo-Japan Friendship Year2007, Comprehensive Partnership Agreement between India and Japan 2011 etc. in Indo-Japaneconomic relations have been observed. All these are exemplary in the history of Indo-Japan bilateraleconomic relations. In this backdrop, this paper throws light on the policies, trends, and pattern offoreign assistance from Japan to India. It has also attempted to examine whether strengtheningeconomic relations of two countries had any impact on the ODA from Japan.The paper entitledEmpirical Study of Lead and lag relationship in Nifty Future and Cash Market written by Dr. AnuragAgnihotri is an honest attempt to study the relationship of the Nifty futures and cash market for thePeriod of 2003-2013. This also examine the relationship between the futures market and cash marketof S&P CNX Nifty and enumerate the price discovery function of futures prices in relation to cashprices of the sample series. It was also found the price discovery was achieved first in the cashmarket. These findings may provide insights on the information transaction and index arbitrage

between the CNX Nifty and futures markets.The paper entitled as Role of Government in ChangingScenario of Indian Retail Trade by Rajeev vashist is an effort to explain the role of Indian governmentin the retail trade. This paper has its importance after the central government decision for FDI inretail. He explains that it is an attractive destination of retail trade is the outcome of the policiesmade by the Indian Government. This paper makes an attempt to discuss the policy guidelinesstated by the Government of India relating to Retail Trade, the present scenario and the futureexpectations and aftereffects of allowing FDI. Next paper entitled as Impact of Service Quality ofWeb-Portals in E-Governance in India by Gauravjeet Dagar is an effort to explain the quality of webportal in the E-governance and its implications. He explains that it is being witnessed that in presentglobal scenario product economies are turning to information and knowledge economies, sogovernance of such economies needs also to be electronically consequently concept of E-Governanceis emerging of which effectiveness depends on IT infrastructure, service quality of web portals of E-Governance and its delivery to citizens at affordable cost with accuracy and proper security. Thepaper authored by Rajkumar titled as Empirical Study of Agriculture Investment in India is an attemptto examine the relationship between private investment and its determinants in Indian agriculture.He has explains that there is long run equilibrium relationship between the private investment andits determinants. The next paper empirical study of logistics management in agricultural products ofRajasthan authored by Ajit sing tomar and Dr. niharika maharshi, brings out the various logisticalproblems faced by farmers and intermediaries with specific focus of Rajasthan. At last this issue hasthe case study of the Mughlai Darbar – The CRM flavor to the Mughlai Cuisine authored by Md.Shahnawaz Abdin and Shah Fahim Alam who brings out the interesting facts of the CRM andMughlai Darbar.

This issue of the journal is a joint effort of the editorial advisory board and referees who provided animmaculate support in bringing out this issue. I am thankful to editorial advisory board, referees, Dr.N.Ravichandran, Faculty members and all the staff of Jamia Hamdard, without whom this wouldhave not been a reality.

Dr. Anurag Agnihotri(Guest Editor)

ISSN: 2249-6718 IJMSR Volume 2 (2)

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CONTENTS1. Historical prospective of the reforms in Indian Capital Market ............................................................5

R.P. Tulsian

2. Official Development Assistance to India with Special reference to Japan ..................................... 11Dr. Swami P Saxena and Neha Kapoor

3. Empirical Study of Lead and lag relationship in Nifty Future and Cash Market............................. 28Dr. Anurag Agnihotri

4. Role of Government in Changing Scenario of Indian Retail Trade ................................................... 40Rajive Vassisth

5. Impact of Service Quality of Web-Portals in E-Governance in India ................................................ 49Gauravjeet Dagar

6. Empirical Study of Agriculture Investment in India ............................................................................ 56Rajkumar

7. Empirical Study of logistics management in agricultural products of Rajasthan ......................... 63Ajit Singh Tomar and Dr. Niharika Maharshi

8. Mughlai Darbar – The CRM Flavour to the Mughlai Cuisine .............................................................. 72Md. Shahnawaz Abdin and Shah Fahim Alam


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Historical prospective of the reforms in Indian Capital Market

R.P. TulsianAssociate Professor,

Shaheed bhagat singh college (eve),Delhi University

AbstractOver the last few years, there have been substantial reforms in the Indian capital market. But thereare still many issues to be addressed to make it more efficient in mobilizing and allocating capital.Investor confidence in stock investment is low. This must be regained in order to encourage capitalmobilization through primary market issues. Further strengthening of investor protection andimprovements in transparency, corporate governance and monitoring will be necessary. The capitalmarket infrastructure, such as accounting standards and legal mechanisms, should also be improved.Reforms of the Indian capital markets have long been overdue; liberalization of onerous disclosurerequirements, better price discovery mechanism and entry of foreign companies in Indian marketswould provide the necessary fillip for overall growth of the economy. An active market for foreigncompanies in India is likely to attract investment from wider avenues, both domestic and foreign andconsequently be beneficial to domestic companies already listed or waiting to be listed on Indianbourses. Greater participation from global institutional investors also assures greater liquidity andenhanced reputation of the market, leading to better valuations for companies listed on Indianexchanges. In addition, such reforms would also have ancillary benefits like job creation in financialcities of India and exposure to global best practices in corporate securities law.

Keywords: Capital Market, Reforms, SEBI

IntroductionThe capital market in India has undergone arapid transformation. The introduction ofinternet trading, rolling settlement, abolition ofpar value system and entry of informationtechnology companies would further help theexpansion of securities market. The reformsalready introduced by the SEBI encompass awide range of issues in the securities market.But there is a need for continuous efforts tobring about further transformation andimprovement in i ts infrastructure andmicrostructure so that the market becomessafer, fair, efficient, competitive and attractivefor investors, issuers and institutions. In thefinancial year of 2008, India saw the greatestyear in Indian capital markets when the total

capital raisedwent northwards of US$9 billion.However, the following years have not beenvery promising. Notwithstanding theimpact ofthe global financial crisis, Indian capital marketshave not been able to match the growthstorywitnessed ever since the liberalization ofthe economy till 2008. In the preceding financialyear 2010, while India ranked 4th with respectto the amount of capital raised, contributing to3.7% of global IPO share, China (which alsoincludes Hong Kong) contributed to almost 47%of the global capital raised in IPOs (GlobalIPOTrends 2011). The above statistics providean interesting insight into the growthtrajectoryof the Indian capital markets and its future rolein the financial world. From 2008 to 2010, theamountraised by IPOs in China increased by


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250%, but in India, there was no substantialincrease. (Source: Global IPO Trends 2011,published by Ernst and Young). The writing onthe wall seems to indicate that the Indian capitalmarkets is losing its growth momentum in thepost-crisis financial world and that China isincreasingly becoming popular with respect toattracting foreign capital.

The present paper is an attempt to evaluatethe Indian capital market reforms. In presenttime, the concept of capital market is notrestricted to the share and bond trading in thedeveloped capitalist countries only but isequally influenced by the capital markets ofdeveloping and underdeveloped countries aswell. Now the economic or financial change inone country can affect the capital market ofother country in real time. Almost all thecountries are now exposed to the inter-countrytrades and inter-country investments. The useof internet and electronic media has addedsome more feasibility to the practice. Exchangeof information is fast and accurate with internet.Another advantage of this system is that itbrings the entire world in a single place. Thecapital market is one of the industries that enjoythe maximum facility of the internet service.

New dawn of Indian Capital MarketsThe health of an economy is reflected in theperformance of its capital market. Currently,India’s economic growth is second only toChina but unfortunately the phenomenal growthrate has not reflected in the performance of itscapital market. Performance of a nation’scapital market is not merely reflected by theperformance of its secondary market andindices of stock exchanges, but also by the

positioning of the market in the global financialcircle in terms of reputation and presence offoreign companies. If we take the example ofdeveloped nations, all of them have a robustcapital market with the presence of internationalcompanies and a high reputation. The majorfinancial hubs over the past two decades havebeen cities from developed nations - New York,London and Tokyo - and in the recent past,Hong Kong and Shanghai are fast emergingas the next financial centers. To take theargument further, while the Indian economy hasbeen growing at a rate higher than most of theother economies, India still has a long way togo before attaining the status of an attractivefinancial hub in the world. This poses one ofthe major hurdles for India to progress from adeveloping economy to a developed economy.This is well illustrated by the fact that wellknown international companies like Glencore,Samsonite, Prada, to name a few, haveapproached the Hong Kong exchange forl ist ing. As per current news reports,globalconglomerates like Coca Cola, HSBC,Unilever and Standard Chartered are eyeingthe Shanghai Stock Exchange. On the otherhand, Indian exchanges are way behind to jointhis bandwagon. The question that begs askingis whether we would like these companies tocome to India for listing? And if the answer isyes, are we providing a platform forinternational listings in India?

The current legal framework in India withrespect to listing of foreign companies in Indiais rather onerous and since the introduction ofIndian Depositary Receipts (“IDRs”) in 2000,there has been only one foreign company i.e.Standard Chartered Plc, which got listed in


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India. It was almost 11 years back that theconcept of IDR was floated in India by way ofinsertion of Section 605A of the Companies Act,1956. But even after several rounds ofamendments to liberalize and lay down adetailed framework of rules to govern the issueof IDRs, Indian exchanges have not been ableto attract foreign companies. There are onerousrestrictions on foreign companies requiringthem to have minimum pre-issue paid up capitaland free reserves of USD 50 million and aminimum average market capitalization (duringthe preceding 3 years) in its parent country ofUSD 100 million, for them to be eligible to listtheir IDRs in India. In addition, the regulationsrequire such foreign companies to be listed intheir home jurisdictions for a minimum periodof three preceding years and a track record ofprofitability in at least 3 years out of thepreceding 5 years. These restrictions wouldallow only large listed foreign companies to beable to list in India, for which India has not yetevolved into an attractive dual-listing venue.India should either relax these rather onerousrestrictions for listing of IDRs or set-up analternate exchange on lines of the AlternateInvestment Market of the London StockExchange and the Growth Enterprise Marketof the Hong Kong Stock Exchange, whichallows for smaller foreign companies to getlisted on their exchanges with no requirementof prior listing on home exchanges.

India should also provide a forum for listing ofcommon shares of foreign companies in India.Currently, only common shares of Indiancompanies can be listed on Indian exchanges.In an increasingly globalized world where mostmultinational foreign companies have business

presence in India, they should also have theopportunity to be listed on Indian exchangesand thereby assist in increasing India’scompetitiveness in the global securities market.There are two major schools of thought withrespect to increasing the competitiveness of asecurities market, the proponents of the ‘issuerchoice’ approach and advocates of the existinglegal regime where foreign issuers would besubject to the local laws. While the currentIndian legal framework subject foreign issuersto local Indian laws, it is argued here that anissuer choice regime would be more beneficialto develop the struggling Indian capital market.

Reforms in Capital Market of IndiaThe major reforms undertaken in capital marketof India include:• Establishment of SEBI: The Securities

and Exchange Board of India (SEBI) wasestablished in 1988. It got a legal statusin 1992. SEBI was primarily set up toregulate the activities of the merchantbanks, to control the operations of mutualfunds, to work as a promoter of the stockexchange activities and to act as aregulatory authority of new issue activitiesof companies. The SEBI was set up withthe fundamental objective, “to protect theinterest of investors in securities marketand for matters connected therewith orincidental thereto”. The main functions ofSEBI are:Ø To regulate the business of the

stock market and other securitiesmarket.

Ø To promote and regulate the self-regulatory organizations.

Ø To prohibit fraudulent and unfair


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trade practices in securities market.Ø To promote awareness among

investors and training ofintermediaries about safety ofmarket.

Ø To prohibit insider trading insecurities market.

Ø To regulate huge acquisition ofshares and takeover of companies.

• Establishment of Creditors RatingAgencies: Three creditors rat ingagencies viz. The Credit RatingInformation Services of India Limited(CRISIL - 1988), the InvestmentInformation and Credit Rating Agency ofIndia Limited (ICRA - 1991) and CreditAnalysis and Research Limited (CARE)were set up in order to assess thefinancial health of different financialinstitutions and agencies related to thestock market activities. It is a guide forthe investors also in evaluating the riskof their investments.

• Increasing of Merchant BankingActivities: Many Indian and foreigncommercial banks have set up theirmerchant banking divisions in the last fewyears. These divisions provide financialservices such as underwriting facilities,issue organizing, consultancy services,etc. It has proved as a helping hand tofactors related to the capital market.

• Candid Performance of IndianEconomy: In the last few years, Indianeconomy is growing at a good speed. Ithas attracted a huge inflow of Foreign

Insti tut ional Investments (FII). Themassive entry of FIIs in the Indian capitalmarket has given good appreciation forthe Indian investors in recent times.Similarly many new companies areemerging on the horizon of the Indiancapital market to raise capital for theirexpansions.

• Rising Electronic Transactions: Due totechnological development in the last fewyears. The physical transaction with morepaper work is reduced. Now paperlesstransactions are increasing at a rapidrate. It saves money, time and energy ofinvestors. Thus it has made investingsafer and hassle free encouraging morepeople to join the capital market.

• Growing Mutual Fund Industry: Thegrowing of mutual funds in India hascertainly helped the capital market togrow. Public sector banks, foreign banks,financial institutions and joint mutualfunds between the Indian and foreignfirms have launched many new funds. Abig diversification in terms of schemes,maturity, etc. has taken place in mutualfunds in India. It has given a wide choicefor the common investors to enter thecapital market.

• Growing Stock Exchanges: Thenumbers of various Stock Exchanges inIndia are increasing. Initially the BSE wasthe main exchange, but now after thesetting up of the NSE and the OTCEI,stock exchanges have spread across thecountry. Recently a new Inter-connected


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Stock Exchange of India has joined theexisting stock exchanges.

• Investor ’s Protection: Under thepurview of the SEBI the CentralGovernment of India has set up theInvestors Education and Protection Fund(IEPF) in 2001. It works in educating andguiding investors. It tries to protect theinterest of the small investors from fraudsand malpractices in the capital market.

· Growth of Derivative Transactions:Since June 2000, the NSE has introducedthe derivatives trading in the equities. InNovember 2001 it also introduced thefuture and options transactions. Theseinnovative products have given variety forthe investment leading to the expansionof the capital market.

• Insurance Sector Reforms: Indianinsurance sector has also witnessedmassive reforms in last few years. TheInsurance Regulatory and DevelopmentAuthority (IRDA) was set up in 2000. Itpaved the entry of the private insurancefirms in India. As many insurancecompanies invest their money in thecapital market, it has expanded.

• Commodity Trading: Along with thetrading of ordinary securities, the tradingin commodit ies is also recentlyencouraged. The Mult i CommodityExchange (MCX) is set up. The volumeof such transactions is growing at asplendid rate.

Apart from these reforms the setting up ofClearing Corporation of India Limited (CCIL),Venture Funds, etc., have resulted into thetremendous growth of Indian capital market. Ithas been always a big question to theeconomists whether to allow or not to allow theforeign investments in the country. Packagedwith both advantages and disadvantages, theliberalization of the capital markets has alwaysbeen controversial. In the 1980s and 1990swhen the US Treasury and InternationalMonetary Fund (IMF) tried to push world- widecapital-market liberalization, there had beenenormous opposition. Economists were not inthe support of free and unfettered markets.Now, when the capitalist countries, developingcapitalist countries, underdeveloped countriesand a large number of socialist countries havenodded their support to the capital marketreform and capital market globalization, theglobal capital market has evolved in a newidentity.

ConclusionTo sum up, last few years, there have beensubstantial reforms in the Indian capital market.But there are still many issues to be addressedto make it more efficient in mobilizing andallocating capital. Investor confidence in stockinvestment is low. This must be regained inorder to encourage capital mobilization throughprimary market issues. Further strengtheningof investor protection and improvements intransparency, corporate governance andmonitoring will be necessary. The capitalmarket infrastructure, such as accountingstandards and legal mechanisms, should alsobe improved. Reforms of the Indian capitalmarkets have long been overdue; liberalization


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of onerous disclosure requirements, betterprice discovery mechanism and entry of foreigncompanies in Indian markets would provide thenecessary fil l ip for overall growth of theeconomy. An act ive market for foreigncompanies in India is likely to attract investmentfrom wider avenues, both domestic and foreignand consequently be beneficial to domesticcompanies already listed or waiting to be listedon Indian bourses. Greater participation fromglobal institutional investors also assuresgreater liquidity and enhanced reputation of themarket, leading to better valuations forcompanies listed on Indian exchanges. Inaddit ion, such reforms would also haveancillary benefits like job creation in financialcities of India and exposure to global bestpractices in corporate securities law.

References:• Chatterjee, Biswajeet; Sinha. R P (2006),

“Regulatory Reforms and the IndianCapital Market”, Journal of Economic andSocial Development, Vol.2, No.1, 2006,p. 1.

• Ghosh D N (1998), “Rating Agencies andCapital Market Reform: A Plea for Self-Regulation”, Economic & Political Weekly,Vol.33, No.36-37, p. 2351.

• h t t p : / / w w w . e y . c o m /Global_IPO_Trends2011

• Prasuna D G (2002), “US Capital Markets— Regulators and Reforms”, CharteredFinancial Analyst, Vol.8, No.8, p. 47.

• SethiSudhir (2001), “Indian VentureCapital Reforms - Recommendations for2001”, Chartered Financial Analyst, Vol.6,No.5, p. 13.

• Shiraj, Sayuri (2004), “Assessing theImpact of Financial and Capital MarketReforms on Firms Corporate FinancingPatterns in India”, South Asia EconomicJournal, Vol.5, No.2, p. 189.


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Official Development Assistance to India with Special reference to Japan

Dr. Swami P Saxena, Associate ProfessorMs. Neha Kapoor, Research Scholar

Department of Applied Business EconomicsDayalbagh Educational Institute (Deemed University)

Dayalbagh, Agra 282110 (India)

AbstractThe economic cooperation and interdependence among the countries is accomplished by trade, aid,and investment. Among these foreign aid plays a significant role in the socio-economic developmentof emerging and developing economies. The most common type of foreign aid is Official DevelopmentAssistance (ODA). It is granted to promote development and also to combat poverty. Sinceindependence India had to draw on foreign investments to finance part of its economic development.Though the government has attempted to be as self-reliant as possible, the absolute amount offoreign aid to India has been high. In per capita terms, however, it has been much less than mostother developing countries receive.In last about two decades a number of positive changes e.g. Global Partnership Agreement 2000,Joint Statement towards India Japan Strategic Partnership 2006, Indo-Japan Friendship Year 2007,Comprehensive Partnership Agreement between India and Japan 2011 etc. in Indo-Japan economicrelations have been observed. All these are exemplary in the history of Indo-Japan bilateral economicrelations. In this backdrop, this paper throws light on the policies, trends, and pattern of foreignassistance from Japan to India. It also examines whether strengthening economic relations of twocountries had any impact on the ODA from Japan.

Key Words: Foreign aid, ODA, Grant, Untied loan, Project aid, Global Partnership Agreement

INTRODUCTIONThe economic interdependence andcooperation among the countr ies isaccomplished by three means, viz. trade, aid,and investment. These three forms ideally,must complement one another, and the closerthe actual conditions approximate this ideal, thebetter would be the prospects for theemergence of a truly international economy.When these fel l far short of the ideal,international economic relations becomestrained and distorted. Among these means,foreign aid plays a significant role in the socio-economic development of emerging anddeveloping economies. It is logical as well as

practical that with limited natural and humanresources at disposal, the developing countriesembarking upon economic planning, rummagearound for economic assistance from thedeveloped countries or the global financialinstitutions. In is important to mention here thatthe poor countries normally do not f indthemselves comfortable in raising funds oncommercial terms; hence more often theydepend on foreign aid.

Foreign aid though is a post World War IIphenomenon, also existed in ancient times. TheSecond World War is considered as a landmarkin the evolution of the world economy because


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after World War II priorities of almost all thecountries were changed and new regionalalliances were emerged in the world. Thenations found new bitter economic realities andhence they tied-up with friendship on the scaleof loyalty and common interest. Motivating butconfronting ideologies i.e. communism andcapitalism were going parallel and the wavesof integration of the world economy were alsoaffected. In the nineteenth century, someprivate aid flowed from the Western countriesto the rest of the world. Aid to missionaryschools can be cited as an example. It isnotable that the aid from governments innineteenth and early twentieth century was tinycompared to present levels consisting mostlyof occasional humanitarian crisis relief.

The Development Assistance Committee (DAC)of Organization for Economic Co-operation andDevelopment (OECD) puts foreign aid intofollowing three categories.• Official Development Assistance (ODA):

Development aid provided to developingcountries (on the “Part I” list) with theclear aim of economic development.

• Official Aid (OD): Development aidprovided to developed countries (on the“Part I I” l ist) and internationalorganizations.

• Other Official Flows (OOF): Aid whichdoes not fall into above two categories,either because i t is not aimed atdevelopment or it consists of more than75 percent loan rather than grant.

The most common type of foreign aid is OfficialDevelopment Assistance (ODA). It is granted

to promote development and to combat poverty.Official organizations and those scholars whoare concerned with government policy issuesfrequently include only government-sourced aidin their aid figures, omitting aid from privatesources. The most widely used measure of aidi.e. ODA compiled by the DevelopmentAssistance Committee (DAC) of the OECD issuch a figure. The United Nations, the WorldBank, and many scholars use the DAC’s ODAfigure as their main aid figure because it iseasily available and reasonably consistentlycalculated over time and between countries.The DAC consists of 22 of the wealthiestWestern industrialised countries and the EU.It is a forum in which they coordinate their aidpol icies. In the 1970s the internationalcommunity through the United Nations, set 0.7percent of a country’s Gross National Income(GNI) as the benchmark for foreign aid.However, only a small number of countries(Denmark, Luxembourg, the Netherlands,Norway and Sweden) could reach that mark.The United States and Japan, though havebeen the world’s largest donors, their levels offoreign aid have fallen significantly short of theUN’s goal. ODA needs to contain the threeelements: (a) undertaken by the official sector;(b) with promotion of economic developmentand welfare as the main objective; and (c) atconcessional financial terms (if a loan, havinga grant element of at least 25 per cent).1

The structure and scope of foreign aid can betraced from major developments followingSecond World War. These developmentsincluded (a) the implementation of the MarshalPlan, a US sponsored package to rehabilitate

1 Cherunilam Francis, International Economics Tata McGraw Hill Publishing Company Ltd. Delhi, 2006, p 513-521.


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the economies of 17 western and southernEuropean countries, and (b) the founding ofsignificant international organizations includingthe United Nations (UN), International MonetaryFund (IMF), and the World Bank, now Knownas International Bank for Reconstruction andDevelopment (IBRD). These organizationshave played a major role in al locatinginternational funds, determining thequalif ications for the receipt of aid, andassessing the impact of foreign aid.2

During the 1970s and 1980s foreign aid fromthe Organization for Economic Co-operationand Development (OECD) countr ies todeveloping countries rose steadily. In 1991Official Development Assistance (ODA) peakedat $69 billion. In the 1990s, however, threeevents viz. fiscal problems in OECD countries,the end of the Cold War, and the dramaticgrowth in private capital flows to developingcountries lowered the absolute and relativeimportance of foreign aid.3

LITERATURE REVIEWThough there is lack of research work carriedout in the f ield of Off icial DevelopmentAssistance received in India from Japan, eventhe researchers have tried to collect maximumresearches and articles to enrich the presentstate of knowledge in the area. In pursuanceof this philosophy, the reviewed studies arepresented below.

Kawai Masahiro and Takagi Shinji (2001) andSunaga Kazuo (2004) in their research papersdiscussed issues and possibilities of the future

direction of Japan’s official developmentassistance. The authors argued that Japan canmeet domestic and international challenges bydeveloping a coherent national strategy forODA, broadly designed to enhanceeffectiveness, accountability and transparency.Jain Purnendra (2004) viewed that India bybecoming number one destination of JapaneseYen loans, does not necessarily signal a closeand intimate relationship between the two.China by far leads others in Asia in its relationswith Japan. He stated that a strong bilateralrelationship in the future will not just be basedon how much money a country doles out toanother, but long-lasting friendly relations evenin times of stresses and strains will be thosewhose foundations are based on solid ties atthe grassroots and popular level. On thismeasure, China by far leads others in Asia inits relations with Japan.

Sagasti Francisco (2005) examinedbackground for the emergence of ODA as akey feature of the international developmentlandscape during the last half century. Hementioned that in the coming decades ODAshould be viewed as a complement and catalystfor other external flows and for domesticresource mobil izat ion. The report ofInternational Development Centre of Japan(2004) and the Report of India Japan JointStudy Group (2006) evaluated Japan’s ODApolicies for India. It also presented review ofIndo-Japan economic and commercial relationscovering various aspects of trade in goods,trade in services, investment inflows, role ofJapanese ODA and other aspects of economic

2 Foreign Aid: History, Britannica Online Encyclopedia, www.britannica.com3 Colombo Andrea and Jacopo Bonan (2004), Foreign Aid: A Vehicle of Broad Development and Growth, Corso di Politica economica,Anno accademico, No. 05, http://dipeco.economia.unimib.it


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cooperation in promoting economicpartnership.

Kamiya Setsuko (2007) stated that Japan hasused its ODA not only to help developingcountries to pursue sustainable socioeconomicdevelopment programme, but also to combatglobal issues such as poverty, pollution andinfectious diseases, and to promote peace.Rajmohan PG et al. (2008), Jain Purnendra(2008) and Kesavan KV (2010) took note ofthe critical changes that occurred betweenIndo-Japan economic relat ions. Theymentioned that until recently, their interestswere primarily limited to economic matters, like,development assistance and trade, but, todaythey are more diversified and cover a widerange of subjects, the salient ones beingnuclear disarmament, maritime security, energycooperation, climate change, counter terrorism,UN reforms and the regional communitybuilding.

NEED AND OBJECTIVES OF STUDYIndia is one of the most important nations inthe developing world which has been receivingmassive foreign assistance. As compared toother small aid recipients, India is placed infavourable position to negotiate aid terms andpatterns and in fact has been able to attractforeign assistance by and large within theframework of the tight system of planning, tohelp in achieving its own priorities and purposeswithout getting enmeshed in military alliancesor impairing sovereignty. India was the firstAsian country to receive Japanese economicassistance in 1958. It was the time when South-East Asian countries were grappling with thevexing question of war reparations from Japan.

If we look at Japanese assistance after mideighties, the total amount of soft loans providedby Japan to developing countr ies havedecreased considerably, but the loans to Indiaby contrast have increased substantially.

In last about two decades a number of positivechanges e.g. Global Partnership Agreement2000, Joint Statement towards India JapanStrategic Partnership 2006, Indo-JapanFriendship Year 2007, ComprehensivePartnership Agreement between India andJapan 2011 etc. in Indo-Japan economicrelations have been observed. All these areexemplary in the history of Indo-Japan bilateraleconomic relations. In this backdrop, theresearchers feel that it is the right time to lookin to the policies, trends, and pattern of foreignassistance from Japan to India, and to knowwhether strengthening economic relations oftwo countries had any impact on the ODA fromJapan.

RESEARCH METHODOLOGYThe study is based on secondary data. The datasources include Economic Survey of India,official websites of Ministry of Foreign Affairs(MOFA) Japan, Ministry of Finance, Govt. ofIndia, RBI reports, books, journals andbulletins. The study considers time series datapertaining to ODA from Japan for a period from1990-91 to 2010-11. To make findings of thestudy more accurate, scientific and logical thecollected data is analysed using appropriatestatistical tools, such as regression and testsof significance etc. available in SPSS 17.0.

INDIA-JAPAN RELATIONS: AN OVERVIEWThe exchange between Japan and India is said


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to have begun in the sixth century AD, whenBuddhism was introduced to Japan via theKorean Peninsula. Subsequently, Buddhistpriests from India went to Japan, where theyspread the Buddhist teachings. Indian culture,filtered through Buddhism, has had a greatimpact on Japanese culture and thought, andthis is the source of the Japanese people’ssense of closeness with India. Direct exchange,however, began only in the Meiji era (1868-1912), when Japan embarked on the processof modernization. From then on, bilateralrelat ions developed around Japanesepurchases of cotton. During World War II theIndian nationalist Subhash Chandra Bose, whoadvocated armed struggle to end the UnitedKingdom’s colonial rule, joined forces withJapan. Taking over leadership of the IndianNational Army in 1943, he and the INAparticipated in the Imphal Campaign in 1944.In 1949 Mr. Jawaharlal Nehru the then PrimeMinister of India donated an Indian elephant tothe Ueno Zoo, in Tokyo. This brought a ray oflight into the lives of the Japanese, who stillhad not recovered from Japan’s World War IIdefeat. The elephant, named Indira afterNehru’s daughter, died of old age in August1983. Her death was widely covered in theJapanese press and was mourned by many.India did not join other non-communistcountries in signing the San Francisco PeaceTreaty with Japan in September 1951. Instead,it signed a separate peace treaty with Japan inJune 1952, which was one of the first treatiesJapan signed as an independent country afterWorld War II. India’s friendship with Japan afterthe war helped a great deal when Japan

returned to the international arena.4

Ever since diplomatic relations between Japanand India were established in 1952 the twocountries have enjoyed cordial relations basedon trade, economic and technical cooperation.In the post-war period the focus of Japan’seconomic relations with India switched from thepre-war import of cotton to the import of ironore. Relations developed steadily as Japan’simports of ore and exports of manufacturedproducts increased. Following Japanese PrimeMinister Nobusuke Kishi’s visit to India in 1957,yen loans to India began in 1958. In August1958, the World Bank organized the Aid-to-India Consortium consisting of the World BankGroup and thirteen countries, viz., Austria,Belgium, Britain, Canada, Denmark, theFederal Republic of Germany (West Germanyat that t ime), France, I taly, Japan, theNetherlands, Norway, Sweden, and the UnitedStates. Japan as a member participated in theMeeting and embarked on the full-scaleassistance to India that has continued to thepresent. Since fiscal 1986 Japan has beenIndia’s largest aid donor.5

The Aid-to-India consortium was formed tocoordinate aid and establish priorities amongIndia’s major sources of foreign assistance andto simplify India’s requests for aid based on itsplans for development. The consortium aid wasbilateral government-to-government aid fromthe thirteen consortium countries, and almostall of the aid, including that from the World BankGroup, was for specific projects judged to bevaluable contributions to India’s development.

4 MOFA, Japan-India Relations, www.mofago.jp5 India-Japan relations, www.economywatch.com


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Of Rs. 630 billion in aids authorized by all aiddonors between FY 1974 and FY 1989, morethan 60 percent was provided by theconsortium. Among countries not in the WorldBank consortium, the Soviet Union was themost important contributor that provided morethan 16 percent of all aid between FY 1947 andFY 1988. Since 1991, however, Russia hasprovided only a little aid.6

Thus, Japan has been extending financialassistance for India’s development programmesince 1958. Japanese aid to India initially waschannelized through the government ownedExport-Import Bank of Japan (J-EXIM). During1975-76, aid was channelized through theOverseas Economic Cooperation Fund (OECF)of Japan, and from 1976-77 onwards, bothproject and commodity aid was beingchannelized through the OECF. With effectfrom 1st October 1999, J-EXIM and OECF havemerged and the resulting new agency, JapanBank for International Cooperation (JBIC) hasbecome the channel for both ODA operationsas well as for the international economicoperations function of the Government ofJapan. Presently, Japanese ODA loanassistance to India is received through JBICand the grant aid and Technical Cooperation(TC) is received through Japan InternationalCooperation Agency (JICA).

Industrialization process began in India afterthe late 1950s and to fulfil the demand ofintense development activity, increasedreliance on foreign resources became virtuallyinevitable. In the beginning India received verysmall aid from the rest of the world and

international monetary agencies like WorldBank and IMF. In the economic history of Indiaf ive-year planning scenario is mainlyresponsible for foreign aid. Government of Indiahad to request for the foreign aid for thecompletion of the five years targets and thevolume of foreign aid increased with theintroduction of every five-year plan. It has beena major source for f inancing majorinfrastructure projects, projects in the socialsector and building up institutional capacity.

At the beginning of the 21st century, Japan andIndia resolved to take their bilateral relationshipto a qualitatively new level. Both the countriesrealized that the current international situation,characterized by inter-dependence and theadvent of global izat ion, offers freshopportunities to both Japan and India forenhanced engagement for mutual benefit. Thefoundation for this was laid when Mr. YoshiroMori, and Mr. Atal Bihari Vajpayee, the thenPrime Minister of Japan and India agreedduring the Japanese Prime Minister’s landmarkvisit to India in August 2000 to establish the“Global Partnership in the 21st Century”. Theofficial visit of Indian Prime Minister Dr. ManMohan Singh to Japan during December 13-16, 2006 at the invitation of the then PrimeMinister of Japan, Mr. Shinzo Abe markedupturn in India-Japan relations. During the visit,the two Prime Ministers launched the “India-Japan Friendship Year 2007” and attended theinaugural event of the Festival of India in Japanon December 14, 2006. They also signed AJoint Statement – “Towards India JapanStrategic and Global Partnership”.

6 Foreign Aid India, www.google.com


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In 2007, both governments held “Japan-IndiaExchange Year 2007” to commemorate the 50th

anniversary of the Cultural Agreement. InOctober 2008, Japan and India signed a JointStatement on the Advancement of the Strategicand Global Partnership between Japan andIndia and a Joint Declaration on “SecurityCooperation between Japan and India”. Thismarked only the third time India confirmed asecurity pact with another country, following theUnited States and Australia. Japan and Indiaf inal ly signed the much-awaited“Comprehensive Economic PartnershipAgreement” on 16th February 2011 that wouldabolish duties on more than 90 percent of tradefor 10 years. Most recently in December 2011,Japanese Prime Minister Mr. Noda had asummit meeting with Indian Prime Minister Dr.Singh in Delhi. After the meeting, the two PrimeMinisters signed a Joint Statement titled,“Vision for the Enhancement of Japan-IndiaStrategic and Global Partnership upon enteringthe year of 60th Anniversary of theEstablishment of Diplomatic Relations”.7

In nutshell, the interactions since 2000 haveentered a new phase with the two countriescoming together to build a global partnership.Systematic efforts made by the leaders of bothcountries since then have deepened andstrengthened this partnership. Until recently,their interests were primari ly l imited toeconomic matters like development assistanceand trade, but today they are more diversifiedand cover a wide range of subjects, the salientones being nuclear disarmament, maritimesecurity, energy cooperation, climate change,counter terrorism, UN reforms and regional

community building.

OFFICIAL DEVELOPMENT ASSISTANCE:POLICY MAKINGINDIA’S POLICY REGARDING ODAExternal assistance plays more of a supportiverole in financing major infrastructure projects,social sector projects and in building up theinstitutional capacity. Accordingly, the policy onexternal assistance has been recast to affirmthis changing role of external assistance andto emphasize the reform orientation in India’seconomic policy.

India has reviewed its policy of bilateraldevelopment co-operation in January 2006. Asper the extant policy, Government of India doesnot accept aid in areas where it has substantialcontrol. While bilateral aid is accepted only fromG-8 countries, the Russian Federation and theEC, t ied aid is not accepted at al l .Channelization of external assistance fromsmaller partners (other than those mentionedabove), is only through mult i lateralorganizations to promote greater aidharmonization. Further, all countries canprovide bilateral development assistancedirectly to autonomous institutions, universities,NGOs, etc through a simplified procedure.

India also welcomes bilateral assistance in formof technical assistance that aims atenhancement of knowledge and skills of Indiannationals. Bilateral development assistance canalso be received by the Government, if theassistance is routed through or co-financed witha mult i lateral agency and the proposedprogramme/ project is to be implemented by

7 MOFA, Japan-India Relations, www.mofago.jp


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the multilateral agency under its own rules andprocedures. Such arrangements should beevolved between the participating multilateraland bilateral agencies as part of their policies.The co-financed programmes or projects aregoverned by the procedures applicable to themult i lateral agency spearheading theprogramme/ project.

India has embarked upon a journey ofaccelerated development and growth. ODAfrom Japan appears better suited for physicalinfrastructure. This can also act as prelude toJapanese FDI in infrastructure. India requiresenormous investment in infrastructure sectorto compete internationally in today’s rapidlyglobalizing world, and to sustain high domesticeconomic growth. A Committee onInfrastructure has been constituted under thechairmanship of the Prime Minister to focus onthe ‘Infrastructure Deficit’ and to remedy it in atime-bound manner. The Committee hasestimated an investment requirement of Rs.1,720 billion in the Highway sector alone by2012.

A scheme of financing viable infrastructureprojects through a Special Purpose Vehicle(SPV) has been finalized for the sectors whichinclude (a) Roads and bridges, railways,seaports, airports, inland waterways and othertransportation projects, (b) Urban transport,water supply, sewage, solid waste managementand other physical infrastructure in urbanareas, (c) Gas pipelines Infrastructure projectsin Special Economic Zones, and (d)

International convention centres and othertourism infrastructure projects.8

JAPAN’S POLICY REGARDING ODAJapan’s ODA policy can be regarded as one ofthe main pillars of Japan’s foreign policy in thepost war era. The prototype of Japan’s ODAcould be found in the form of its reparations toAsian countries. Starting in 1954 in accordancewith Article 14 of the Peace Treaty of SanFrancisco, Japan signed reparation treatieswith Burma, South Vietnam, the Philippines andIndonesia, which laid down reparations in theform of the provision of products and servicesdespite their strong demands for reparation inmonetary terms. In 1960s, it became one ofthe nine member countries of the DevelopmentAssistance Group, which was reconstituted asthe Development Assistance Committee (DAC)in the fall of 1961.9 It was widely believed thatJapan’s foreign aid was commercially motivatedin the 1950s and 1960s. The overwhelminglycommercially self-serving approach, however,changed in the 1970s with the outbreak of theoil crises.

In 1992 the Japanese government issued an“ODA Charter”, setting forth the principles: (a)concern for the environment (b) avoidance ofmilitary use of ODA (c) attention to ODArecipients’ mil i tary expenditure anddevelopment of weapons of mass destruction(d) attention to the promotion of democracy,market economy, and basic human rights. Theaid program now is characterized by a numberof perceived goals, including political and

8 Report of India Japan Joint Study Group, Ministry of Finance, Govt. of India, June 2006, p-77-799 Masahiro Kawai and Shinji Takagi, “Japan’s Official Development Assistance: Recent Issues and Future Directions”, the World BankPolicy Research Paper No. 2722, 2001, p-4


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security interests, and the desire for prestigeand acceptance in the internationalcommunity.10

Japan’s ODA consists of three parts: the grantaid, technical assistance and yen loan(governmental loan), each with a differentpolicymaking structure. Grant aid imposes noobligation of repayment on the recipientcountries. Ministry of Foreign Affairs (MOFA)exercises considerable influence over theprovision of grants. Technical assistanceconsists of training, dispatchment of the JapanOverseas Volunteers under Japan InternationalCooperation Agency (JICA), and provision ofcertain types of technical equipment usuallyused in training.11 Yen loans are extended onthe premise that the principal will be repaid withinterest. Interest rates are pegged belowcommercial rates according to the developmentlevel of the recipient. The policymaking systemof yen loan generally calls for Four-MinistrySystem, which includes Ministry of ForeignAffairs (MOFA), Ministry of Economy, Trade andIndustry (METI), Ministry of Finance (MOF) andEconomic Planning Agency (EPA). Based onthe decision of these government ministries,an overwhelming proport ion of bi lateralassistance is administered by the MOFA andimplemented by JICA and Japan Bank forInternational Cooperation (JBIC).12

The Government of Japan has undertaken aserious review of its ODA Policy. The outcomesof this exercise are two epoch-makingdocuments, namely Japan’s ODA Charter(which was approved by the Japanese Cabinet

in August, 2003) and Japan’s Medium-TermPolicy on ODA (adopted in February 2005). TheODA Charter clearly defines the objective ofJapan’s ODA which are to contribute to thepeace and development of the developingcountries and thereby to help/ ensure Japan’sown security and prosperity. The Charter alsoidentif ies four priority issues of PovertyReduction, Sustainable Growth, AddressingGlobal Issues l ike global warming andinfectious diseases, and Peace-building. TheCharter also refers to the importance of theperspective of Human Security.

The Charter and the Mid-Term Policy reiteratethat the most important philosophy of Japan’sODA is to support the self-help efforts ofdeveloping countr ies based on goodgovernance, by extending cooperation for theirhuman resource development, institutionbuilding including development of legalsystems, and economic and socialinfrastructure development. Accordingly, Japanrespects the ownership of developing countries,and places priorities on their developmentstrategies. Japan believes that the goal of thedevelopment will be achieved in conjunctionwith the ownership of developing country andpartnership of developed country. The Charterand the Mid-Term Policy also places anemphasis on formulation of Country AssistancePrograms for the recipient countries whichspecify the direction, priority sectors, andpriority issues of Japan’s ODA for a period ofabout f ive years based on a clearunderstanding of the development needs of therecipient countries. Japan has an intention to

10 Op. Cit., p-511 Rober M Orr Jr.,” The Emergence of Japan’s Foreign Aid Power” Columbia University Press, New York, 1990, p-3012 www.oecd.org


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address various global challenges to achieveMDGs, fight against terrorism, and consolidatethe peace through contribution by ODA inspecific policies.13

ODA loan is a prevalent form of Japan’s ODAto India claiming approximately 99 percent ofthe entire ODA. The Japanese ODA loans toIndia are “Untied Loans” routed through JapanBank for International Cooperation (JBIC).These loans are mostly project tied with aninterest rate (applicable from April 2010) of 1.4percent per annum for general projects with a30 years tenure including a grace period of 10years. For environmental projects, the interest

rate is 0.65 percent per annum with a 40 yearstenure including grace period of 10 years. FromOctober 2007 onwards, in addit ion, acommitment charge of 0.1 percent is leviedafter 120 days of the signing of the loanagreement on the undisbursed loan.14 TheJapan’s Country Assistance Program for India,which was formulated in May 2006, identifiedthe three priority areas for Japan’s ODA toIndia. These included Promotion of EconomicGrowth, Poverty Reduction and Improvementof Environmental issues, and Expansion ofHuman Resources Development andExchange.15

Table 1: Loans to India(US$ Millions)

Year India’s Loans Share of Change inTotal Loans from Japan Japan (In %) Japan’s Share (%)

1990-91 4236.40 914.50 21.6 -1991-92 4766.00 986.70 20.7 7.91992-93 4275.70 1020.70 23.9 3.41993-94 3717.50 1168.30 31.4 14.51994-95 3958.20 1264.60 31.9 8.21995-96 3249.80 1314.60 40.5 4.01996-97 4000.40 1195.20 29.9 -9.11997-98 4006.80 1083.30 27.04 -9.41998-99 1979.20 90.60 4.6 -91.61999-00 4091.40 0 0 - 1002000-01 3769.30 784.10 20.8 1002001-02 4438.70 421.30 9.5 - 46.32002-03 4183.50 1009.10 24.1 139.52003-04 3300.80 1005.30 30.5 - 0.42004-05 5212.20 1136.10 21.8 13.02005-06 3912.20 4150.10 106.1 265.32006-07 6209.80 1539.60 24.8 - 62.92007-08 7182.20 2043.40 28.5 32.72008-09 6183.20 2283.50 36.9 11.82009-10 10318.00 2349.70 22.8 2.92010-11 7870.10 561.50 7.1 - 76.1

Source: Economic survey, Government of India 2011-12

13 Report of India Japan Joint Study Group, Ministry of Finance, Govt. of India, June 2006 p-7614 Japan Division, Department of Economic Affairs, Government of India15 An outline of Japan’s ODA to India, www.mofa.go.jp June 2011


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TREND AND PATTERNS OF JAPAN’S ODATO INDIAIn view of paradigmatic shift in Indo-Japanbilateral economic relations in the last abouttwo decades it becomes necessary to analyzetrend and composit ion of ODA and toinvestigate as to whether the changes in Indo-Japan bilateral economic relations e.g. signingof Global Partnership Agreement in 2000, JointStatement towards India Japan StrategicPartnership in 2006, celebration Indo-JapanFriendship Year 2007, and signing of theComprehensive Economic PartnershipAgreement between India and Japan in 2011had any impact on the ODA from Japan.

ODA LOANSJapan initiated its economic cooperation withIndia in 1958. The cooperation began by ODALoan, which was the first ODA Japan had everprovided not only for India but for any country.ODA Loan has since been the prevalent formof Japan’s ODA for India, claimingapproximately 99 percent of the entire ODA.Table 1 shows India’s total foreign loans andalso the loans from Japan in post liberalizationperiod.

The data contained in the table reveal thatIndia’s total foreign loans and also the Japan’scontribution during the period from 1990-91 to2010-11 has been almost stable except in someyears. Highest amount of Japanese loan toIndia (US$ 4150.10 millions) was in the year2005-06. In this year India and Japan signedJoint statement towards Indo-Japan Strategicand Global Partnership Agreement. India didn’tget loans from Japan in the year 1999-2000probably because India conducted nuclear test

at Pokhran in this year. It is notable to see thatthroughout the period of study the Japan’sshare was not stable. Maximum positivechange (265.3 percent) and maximum negativechange (-100.0 percent) in Japan’s share isobserved in the year 2005-06 and 1999-2000respectively. In almost all the years Japancontributed more than one-fifth of India’s totalloans except in few years.

Japan approved eleven ODA Loan projects forIndia. Japan and India signed Exchange ofNotes for in June 2011, in response to India’sproposals presented in 2010-11. The totalamount of commitment is approximately 203billion yen. Major projects in 2010 (includingthose approved in June, 2011) were YamunaAction Plan Project III (32,571 Million Yen),Dedicated Freight Corridor Project: Phase III(1,616, Million Yen), Andhra Pradesh Rural HighVoltage Distribution System Project (18,590Mil l ion Yen), Bihar National HighwayImprovement Project (22,903 Million Yen),Rajasthan Forestry and Biodiversity Project:Phase II (15,749 Million Yen), and BangaloreMetro Rail Project II (19,832 Million Yen). Indiahas been the largest recipient of Japanese ODALoan for the past several years. The cumulativeamount of Japanese ODA Loan to Indiaamounts to approximately 3,600 billion yen.

GRANTSJapan provides grant aid for India to meet itsbasic human needs that particularly focuses onhealth, one of key MDGs. Since Japan beganextending grant aid to India in 1977, the totalassistance provided till FY 2010-11 was 89.654Billion Yen. Of this an amount of 1.16 BillionYen was provided in the year 2010-11. Table 2


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shows India’s total grants and also the grantsreceived from Japan since 1990-91.

The table shows that of total grants received inIndia, share of Japan was 11.8 percent 101990-91, which has reduced to 2.7 percent onlyin the year 2010-11. This signifies that Indianow no more depends on assistance fromJapan instead it wants that Indo-Japan relationshould hovers around foreign direct investmentand trade. The maximum share of Japanesegrant (68.5 percent of total grant) was in theyear 2006-07, and a negligible share (nil) wasduring the period from 2007 to 2009.

Table 2: Grants to India(US$ Millions)

Year India’s Grants Share of Change inTotal Grants from Japan Japan (In %) Japan’s Share (%)

1990-91 291.0 34.3 11.8 -1991-92 364.1 33.5 9.2 - 2.31992-93 330.7 20.8 6.3 - 37.91993-94 772.7 17.2 2.2 - 17.31994-95 343.8 39.4 11.5 129.11995-96 399.0 61.1 15.3 55.11996-97 825.6 18.2 2.2 - 70.21997-98 566.3 24.6 4.3 35.21998-99 49.9 32.3 64.7 31.301999-00 604.4 1.3 0.2 - 95.982000-01 206.3 2.2 1.1 69.22001-02 711.1 1.0 0.1 - 54.52002-03 244.4 0.6 0.3 - 40.02003-04 525.9 1.4 0.3 133.32004-05 703.7 1.8 0.3 28.62005-06 368.1 53.1 14.4 2850.02006-07 773.0 529.2 68.5 896.62007-08 1064.0 0 0 - 100.02008-09 271.6 0 0 -2009-10 201.8 1.6 0.8 100.02010-11 336.9 9.2 2.7 475.0

Source: Economic survey, Government of India 2011-12

The Grant aid projects approved by Japanduring 2010-11 include: ( i) Project forStrengthening Electronic Media ProductionCentre at Indira Gandhi National OpenUniversity (IGNOU), a leading institution indeveloping and offering distance learningprograms to the citizens of India (787 MillionYen). It helps in improving the Centre’seducational materials and equipment. (ii)Project for the Eradication of Poliomyelitis (192Million Yen). Since 1996 Japan has provided atotal of approximately 8.2 Billion Yen in grantaid for the procurement of polio vaccine andnecessary equipment through UNICEF. Japan’sassistance has contributed to a significant


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reduction of wild polio cases in India from 5,881in 1994 to 774 in 2009. ( i i i ) The GrantAssistance for 20 Grass-Roots Projectstotalling 169 Million Yen.16

TECHNICAL COOPERATIONJapan has continuously offering technicalcooperation for India since 1958.

However, following the policy change of theGovernment of India in 1978, the JapanOverseas Cooperation Volunteers (JOCV) wassuspended in 1979. This was resumedgradually after an agreement in the Japan-IndiaJoint Statement issued in April 2005. As of April2011, 14 JOCVs work across the country. In2009-10 Japan provided for India 1,855 MillionYen for its technical cooperation includingdevelopment studies. The total amount ofcooperation through FY 2009-10 was 29.351Billion Yen, number of trainees received byJapan was 5,689, and 971 experts from Japan

were sent to India. In 2010-11, two projects,namely “Information Network for NaturalDisaster Mitigation and Recovery in India” and“Project for Research Partnership for theApplication of Low Carbon Technology forSustainable Development,” were initiated underthe scheme of Science and TechnologyCooperation on Global Issues.17

In order to enhance the capacity of those whoengage in manufacturing, the VisionaryLeaders for Manufacturing Programme (VLFM)project offers four training courses in fourareas: Visionary Heads of Manufacturing,Visionary Corporate Leaders for Manufacturing,Post Graduate Programme for Executives-Visionary Leaders for Manufacturing, andVisionary Small and Medium Enterprises.These courses are operated in collaborationwith academia, private sector and thegovernment, represented by IIT Kanpur and IITMadras, Confederation of Indian Industry (CII),

Table 4 : Results of Regression Analysis

Particulars Constant Coefficient SE ‘t’ Prob.Total ODA 511.089 - 0.139 10.555 - 0.6 0.546Pre GPA 429.541 0.227 27.729 0.660 0.528Post GPA 194.163 0.290 29.974 0.909 0.387Total Loans 461.607 - 0.117 10.451 - 0.5 0.612Pre GPA 387.383 0.217 27.503 0.630 0.546Post GPA 173.834 0.276 30.138 0.860 0.412Grants 33.619 - 0.761 0.300 - 5.108 0.000Pre GPA 29.051 - 0.083 0.839 - 0.2 0.820Post GPA 5.888 0.075 0.511 0.226 0.826Technical Cooperation 15.864 0.520 0.163 2.655 0.016Pre GPA 13.107 0.775 0.342 3.470 0.008Post GPA 14.441 0.691 0.413 2.871 0.018Source: Own Calculations

16 Overview of Japan’s ODA to India (June 2011), Ministry of Foreign Affairs of Japan,http://www.mofa.go.jp, p-217 Ibid, p-2


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National Manufacturing Competit ivenessCouncil (NMCC), and the Ministry of HumanResource Development (MRHD). Japanesecompanies also cooperate during the trainees’visit to Japan.

IMPACT OF GLOBAL PARTNERSHIPAGREEMENT ON ODA FROM JAPANWith a view to examine the impact of Indo-Japan Global Partnership Agreement (August2000) on ODA from Japan, the researchersconsidered data for a period from 1990-1991to 2010-11 collected from the Economic survey,Government of India (2011-12). Further, thedata series under consideration is divided intotwo categories, (i) ODA received in ten yearsprior to signing of Global PartnershipAgreement (from 1990-1991 to 1999-2000),and (ii) ODA received in eleven years aftersigning of agreement (from 2000-2001 to 2010-11).

The statistical tools used to check sensitivityof ODA received in India from Japan, theresearchers applied regression analysis in preand post agreement scenario, and forexamining the impact of Indo-Japan GlobalPartnership Agreement on ODA from Japan ‘t’test of significance is used. To make study moreaccurate and scientific and to make the findingslogical, the collected data is analyzed usingappropriate statistical tools available in SPSS17.0.

The results of regression analysis shown intable 4 indicate clearly that at overall level thereis not much difference in sensitivity of ODAreceived in India from Japan in pre and postGlobal Partnership Agreement period.

To testify the impact of Global PartnershipAgreement on ODA received from Japan, theresearchers framed null-hypothesis as “By andlarge there is no significant impact of GlobalPartnership Agreement on ODA received fromJapan”. To test the null hypothesis, theresearchers applied ‘t’ test on statistical datapertaining to ODA and its various componentsreceived in India from Japan at the 95 percentconfidence level and 19 degree of freedom. Theresults of ‘t’ test are contained in table 4.

Table 4 : Results of ‘t’ testVariable ‘t’ Prob. Ho Accepted/

Failed to AcceptODA 1.421 0.172 Ho AcceptedLoans 1.265 0.222 Ho AcceptedGrants 7.775 0.000 Ho Failed to AcceptTechnical - 0.854 0.404 Ho AcceptedCooperationSource: Own Calculations

The results of ‘t’ test applied on ODA show thatthere is no signif icant impact of GlobalPartnership Agreement on ODA received fromJapan (p = 0.172, more than 0.05). The ‘t’statistics and their associated ‘p’ values in caseof loans from Japan (p = 0.222), and technicalcooperation (p = 0.404) also significant at 5percent level of significance. It indicates thatthere no signif icant impact of GlobalPartnership Agreement on loans and technicalcooperation from Japan. The hypothesis that“there is no significant impact of GlobalPartnership Agreement on Grants receivedfrom Japan”, however is not true because theassociated probability to the ‘t’ statistics is0.000 ( less than 0.05). Thus, i t can beconcluded that there is significant impact ofGlobal Partnership Agreement on grants and


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not on loans and technical cooperation.

REASONS FOR FLUCTUATIONS IN ODAFROM JAPANSince Independence till 1990: The prolongedtensions between India and Pakistan markedby two major wars in 1965 and 1971 made theJapanese sceptical about long term economicinvolvement in the sub-continent. Further,Japanese government was not fully convincedabout the stability of the political system inIndia. Frequent political changes at the centre,unpredictable centre-state relations, naturaldisasters, and other such factors added toJapanese scepticism. Another important reasonwas Japan’s disenchantment with the economicpol icies pursued by successive Indiangovernments which laid a great emphasis onthe role of the state. Japan on the other handbelieved that the road to progress was alongliberalisation and freeing the economy.

1991 to 2000: In 1991, when India faced amajor financial crisis following the gulf war,Japan quickly extended the emergency loan of30 billion Yen. In 1998, when India conductednuclear test in Pokhran, Japan stopped ODAto India. It resumed ODA in October 2001 onlyafter formal agreement on the ComprehensiveTest Ban Treaty.

2001 to 2011: Japan increased aid in 2002-03to win back India’s heart after the nuclear testof 1998. In 2004 Japan made a policy decisionby shifting its aid focus from China to India. In2005 Japanese Prime Minister JunichiroKoizumi during his visit to India announcedEight –Fold initiative between India and Japanto increase their economic and strategic

interest which resulted in increased inflow ofaid from Japan.

CONCLUSIONWith India’s recent sustained economic growth,its technical prominence globally especially inthe IT, telecom, and financial sector, itsdiplomatic activism as a key player in the groupof 20 developing countries and its push tosecure a place as a permanent member of theUnited Nations Security Council in the recentyears, many countries are forced to sit up andtake notice of India. Japan is no exception toit. By looking at the impressive performance,vast untapped and unexplored potential inIndia, and also the global economic andstrategic condition, Japan started to realize thatit would be well in favour for both the countries,Japan and India, i f they start regionalprogressive economic cooperation. In thisbackdrop of the changing global image of Indiaand the recognition for its competency, Japanhas revived its economic relationship with India.

Recently, a new tide has been observed inJapan to expand Japan–India relations basedon mutual complementarities, which gathersmomentum under the strengthening of strategicand global partnership between the twocountries. Looking at the large consumermarket with the potential to increase profits forcorporations, Japan is continuing to invest inIndia via FDI and the ODA to ensure theexpansion of India’s economy.

The study reveals that until the early 1990’sIndo-Japan economic relations were revolvingaround the aid. But, after 1991 with progressiveeconomic reforms, India’s growing economy in


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the areas of GDP, forex reserves etc., tradeand investment have become more importantmeasures of its international economic ties thanaid. The study finds that there is significantimpact of Indo-Japan Global PartnershipAgreement (August 2000) on grants and noton loans and technical cooperation.

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• Hull Kulwant Singh, “Foreign Aid inIndia: Effectiveness and Policy”, Deepand Deep Publication House, NewDelhi, 2007.

• Rajmohan PG, Rahut Dil Bahadur andJacob Jabin, “Changing Paradigm ofIndo-Japan Relations: Opportunities andChallenges” ICRIER Working Paper, N0.212, April 2008.

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• Sagasti Francisco, “Official DevelopmentAssistance: Background, Contexts,Issues and Prospects” October 2005.

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• Washio Tomoharu, “Land of Rising Sunand Opportunities”, The Economic Times,6th August 2007.


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Empirical Study of Lead and lag relationship in Nifty Future and CashMarket (For the Period of 2003-2013)

Dr. Anurag AgnihotriAssistant Professor

College of Vocational Studies,Delhi University

ABSTRACTThis paper examines the relationship between the futures market and cash market of S&P CNX Niftyduring the sample period of 2003 to 2013 and enumerate the price discovery function of futuresprices in relation to cash prices of the sample series. The Cointegration tests and Vector ErrorCorrection Models (VECM), and Granger causality is employed to ascertain the long and short termdynamics of the selected cash market and the futures market. From the results of the study it wasalso found the price discovery was achieved first in the cash market. These findings may provideinsights on the information transaction and index arbitrage between the CNX Nifty and futures markets.

IntroductionIntroduction of risk management instrumentsin India has gained momentum in last few yearsthanks to Reserve Bank of India’s efforts inallowing forward contracts, cross currencyoptions etc. which have developed into a verylarge market Until the advent of NSE, the Indiancapital market had no access to the latesttrading methods and was using traditional out-dated methods of trading. NSE gauging themarket requirements initiated the process ofsetting up derivative markets in India. In July1999, derivatives trading commenced in India.The introduction of derivatives segment fromthe early 2000s onwards has led both tointeractions between the cash and futuresmarkets, and to an interest by regulators incontrolling any possible harmful influences ofthis new trading segment. The market thatprovides the greater l iquidity, the lowertransaction costs, and the less restriction islikely to play a more important role in pricediscovery. Futures markets, accordingly, are

more likely to incorporate information moreefficiently than cash markets due to theirinherent leverage, low transaction costs, andlack of short sell restrictions. The findings ofFleming, Ostdiek, and Whaley’s (1996) and DeJong (2002) show that index options contributeto the price discovery process involving indexsecuri t ies. This is accomplished byinvestigating the pricing relationships amongthe German DAX and its futures and optionscontracts using a multivariate Vector ErrorCorrection Model (VECM). This econometricscheme which presupposes cointegrationpermits exploration of both short- and long-runprice discovery Relationship. The studiesrelating to lead lag and price discovery areimportant from both government and regulatorspoint of view. Only with such a closeexamination, can we understand the ability ofprice discovery, the information transmissionand the efficiency in cash -futures markets.


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Review of literatureThe main focus of the review of literature is onthe relationship of the future market with thecash market. Kedar and Mishra (2007) foundto be significant in predicting the future pricein the underlying cash market. Wen-Liang,Chin-shen, and Shu-fang (2008) investigateand found for futures and a subordinate butnon-trivial price discovery from options. Morerecently, Chang, Hseih, and Lai (2009)investigate and found that options volume, asa whole, carries no information on Taiwan cashindex changes. Kofman and Moser (1997) findthat price changes on the DTB lead pricechanges on LIFFE. However, these studiessuffer from home country bias. A major reformundertaken by SEBI was the introduction ofderivatives products: Index futures, Indexoptions, stock options and stock futures, in aphased manner starting from June 2000. It hasbeen about two and half years since theintroduction of Index futures in India mainly asa risk management tool for institutional and forother investors. The two main functions offutures market are price discovery and hedging.Futures markets are also known to have astabilizing effect on the underlying cash market.Price discovery is expected to first take placein the futures market and then it is transmittedto underlying cash market (Pizzi et al, 1998).Since futures market is different from cashmarket in terms of capital required, cost oftransactions and other aspects, it would be aforerunner of the cash market as far as theinformation discounting is concerned. Kawalleret.al. (1987) cash and futures markets aresimultaneously related on a minute to minutebasis throughout the trading day, and that alead lag relationship also exists. The lead from

futures to cash appears to be more pronouncedrelative to cash to futures markets. Stoll andWhaley (1990) investigated causalrelat ionships between cash and futuresmarkets using intra day data for both S&P 500and the Major Market Index (MMI). Feedbackwas detected, but the futures lead was strongerthan the cash Index lead. Chan et.al. (1991)examined the inter dependence in price changeand found much stronger bidirect ionaldependence between stock Index and stockIndex futures price changes. Wahab andLashgari (1993) used dai ly data andcointegration analysis to examine the temporalcausal linkage between Index and stock Indexfutures prices and observed that the cash tofutures lead appears to be more pronouncedacross days relative to the futures to cash lead.Pizzi et.al. (1999) examined price discovery inthe S&P 500 cash Index and its three and sixmonth stock Index futures using intra dayminute by minute data. Cointegration analysisis used. The results show that both the threeand six months futures markets lead the cashmarket by at least twenty minutes. There isbidirectional causality but the futures marketdoes tend to have a stronger lead effect. Boothet.al. (1999) found that cash Index and Indexfutures have substantially larger informationshares than Index options. Having an analysisof studies done across the globe the resultsobtained are conflicting so a modest attemptis made to revisit this issue of price discovery(lead lag) relationships in Indian stock market(NSE).

Research methodologyThe data for present study collected from NSEof India website. The main data for the study is


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returns of the S&P CNX Nifty and Nifty indexfutures. In order to estimate the impact of theintroduction of index futures trading on thevolatility of the NIFTY, daily closing pricesreturns of the NSE 50 index will be collectedduring the period 1 April 2003 to 31st Mar 2013.The study used the daily closing prices of inorder to examine whether world market factorsare affecting cash market volatility or not. Thestudy calculated daily returns using theequation R t = log (Pt/Pt-1)* 100 where, R t isthe daily returns, Pt is the value of the securityat time t, Pt-1 is the value of the security attime t-1.

Data analysisThe data which was collected is processed andanalyzed with the help of statistical tools andvarious models. The results were found withthe help of software and analyzed in the lightof problem and earlier studies. The mainobjective of this paper was to find out whetherfutures help in price discovery or not.

Unit Root TestThe stationarity of data is tested first on priceseries and then on return series data. UsingADF and Philip Perron Test a formal test modelto solve the problem of stationary was firstlyproposed by Dickey and Fuller that is knownas Dickey - Fuller Test (DF Test). The model orprocedure tests for the presence of a ‘unit root’in the time series. The DF test starts with theassumption that a series yt is following an AutoRegressive (1) process of this form: yt = a1 yt-1

+ et And then testing for the case that if thecoefficient a1 is equal to one (unity), hence “unitroot” or Yt series is non stationary. In case ofa1 =1 then the above equation can be

expressed as: Δyt = et. And the yt series is saidto be integrated of order one (I(1)) or non-stationary; while the Δyt is integrated of orderzero (I(0)) or stationary. In fact instead of testingfor a1 =1 we can test an alternative version ofthe same thing using this equation: Δyt = γ yt-1 +et And now testing whether γ=0, which is clearlyequivalent to the above mentioned case.Dickey and Fuller (1979) actually consider threedifferent regression equations that can be usedto test for the presence of a unit root:Δyt = γ yt-1 + et. ..............(1) Δyt =a + γ yt-1 + et ..........(2)

Δyt = a + γ yt-1 + a2 t + et………(3)

The difference between the three regressionsconcerns the presence of the deterministicelements a and a2. The parameter of interest inall the regression equations is γ; if γ=0, the seriescontains a unit root. The test involves estimatingone (or more) of the equations above using OLSin order to obtain the estimated value of γ andassociated standard error.Comparing the resulting t-statistic with theappropriate value reported in the Dickey-Fullertables allows the researcher to determine whetherto accept or reject the null hypothesis γ=0. Themost frequently used test for unit roots is theaugmented Dickey-Fuller test, an advancedform of DF Test. The ADF test simple includesAR(p) terms of the Δyt term in the three alternativemodels. Therefore we have:


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Δyt = γ yt‐1 + ∑=

−Δn

iiti y

1

β+ et ….. (1)

Δyt =a + γ yt‐1 + ∑=

−Δn

iiti y

1β + et

Δyt = a + γ yt‐1 + a2 t + ∑=

−Δn

iiti y

1β + et ……..(3)

The difference between the three regressionsagain concerns the presence of thedeterministic elements a and a2. The lag lengthn should be determined according the AIC andSBC criteria. Also, note that in the ADF testsnote that we use different statistical tables withcritical values in each case. The t-test for 2βis called the (TAU) - statistic for which Dickeyand Fuller have computed the relevant criticalvalues.

Phillips-Perron (PP) TestThe distribution theory supporting the Dickey-Fuller tests is based on the assumption thatthe error terms are statistically independent andhave a constant variance. So when using theADF methodology, we have to make sure thatthe error terms are uncorrelated and haveconstant variance. Phillips and Perron (1988)developed a generalization of ADF test thatallows for mild assumptions concerning thedistribution of errors. The test regression forPP test is the AR (1) process:

While ADF test corrects for higher or serialcorrelation by adding lagged differencedtermed on the right hand side, the PP testmakes correction to the t statistic of thecoefficient from AR (1) regression to accountfor the serial correlation in .

The time series model requires to determinethe optimal lag length. Akaika InformationCriterion (AIC) and Schwarz InformationCriterion (SIC) are used in order to determinethe optimal lag length. AIC method imposespenalty for adding large number of regressesto model. It is defined as:

Where k is the number of regressors includingthe intercept and n is the number ofobservations. It is written for mathematicalconvenience as follow:

Ln AIC = (2k/n) + ln (RSS/n) (5)

Where, ln AIC is the natural log of AIC and 2k/n is penalty factor. N is number of observation,RSS is residual sum square. The SIC criteriais employed as under:

Ln(SIC) = (k/n)Ln(n) + Ln (RSS/n) (6)

The optimum lag length is determined wherethe AIC/SIC bear lowest values.

Co integration and Vector Error CorrectionModelIn a two variable model, there can be only oneco-integrating vector. Since we have five


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variables in our model, Johansen approach formult iple equations in adopted here.Considering n variables, all of which can beendogenous, a Vector Auto Regressive modelwith higher order. Autoregressive process canbe written as:

Xt = A1Xt-1+A2Xt-2+......... + ApXt-p + et (7)

Where

Xt = (n×1) vector (X1t, X2t, .......... Xnt)

et = an independently and identically distributedn dimensional vector with zero mean andvariance matrix . Equation (1) can bereformulated in a vector error correlation model(VECM) as follows:

Where,

The important point to note in equation (2) isthe rank of the matrix , the rank of is equalto the number of independent co-integratingvectors. Clearly, it rank of ( ) =0, the matrix isnull and equation (2) is the usual VAR model infirst differences. If is of rank n, the vectorprocess is stationary. Intermediate cases, ifrank ( ) = 1, there is a single co-integrationvector and the expression xt-1 is the errorcorrection term. For other cases in which 1rank ( ) n, there are multiple co-integratingvectors.

Cointegrating TestsJohansen (1988) and Johansen and Juselius(1990) suggest two tests for determining thenumber co-integrating vectors. In practice, onlyestimates of and its characteristics roots canbe obtained. The tests for the number ofcharacteristic roots that are insignificantlydifferent from unity can be conducted usingfollowing two test statistics:

Where, = the estimated values of thecharacteristic roots (Eigen values) obtainedfrom the estimated matrix.T = the number of observations

The first statistic tests the null hypothesis thatthe number of distinct co-integrating vectors isless than or equal to r against the alternativehypothesis that co-integrating vectors is greaterthan r. The second statistic tests the nullhypothesis that the number of co-integratingvectors is r against the alternative of r+1 co-integrating vectors.

Estimation of Co-integrating Vector andCoefficients of Error CorrectionIn order to test other restrictions on the co-integrating vector, Johansen defines the two

matrices and both of dimension (n x r)

where r is the rank of . The properties of

and are such that: = . It may be noted

that is the matrix of co-integrating parameters

and is the matrix of the speed of adjustmentparameters. Due to cross equation restrictions,


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it is not possible to estimate and usingordinary least squares. However, maximumlikelihood method, it is possible to (a) estimateVECM model as given in equation (2). (b)Determine the rank of , (c) use the mostsignificant co-integrating vectors to form , and

(d) select such that = .

Interpretation of resultsUnit root test was appl ied to know thestationarity of data using Augmented dickeyfuller test .It was first applied on future closingprices of nifty and was found to be nonstationary as is exhibited in Table 1. Then wasdone on first difference and found to be I (1)as shown in Table 1. Further As shown in thetable no. 4 the test rests are same as wasshown in ADF test of stationarity and shownthe non stationarity at 5% level of significance,hence the test was repeated after f i rstdifference. This test was repeated after takingthe first difference and found to be I (i). i.e.

TABLE I : RESULTS OF UNIT ROOT TEST

Name Panel-A Phillips-Perron Panel-B Phillips-Perron(Price- Series) Test Inference On Test

(ADF) Test (Return Series)Integration I (I)

(ADF) Test

Commodity-Indexes t-statistics t-statistics t-statistics** t-stat**

(A) NIFTY FUTURE PRICE -1.09 -0.51 -41.98** -41.98**

(B) NIFTY CASH PRICES 1.12 -1.38 -41.35** -41.32**

NOTE: The table describes the sample price series that have been tested using Augmented Dickey Fuller(ADF) 1981. The ADF test uses the existence of a unit root as the null hypothesis. To double check therobustness of the results, Phillips and Perron (1988) test of stationarity has also been performed for the priceseries and then both the test are performed on return series also as shown in Panel-A (price series) and PanelB (Return series) are integrated to I(1). All tests are performed using 5%level of significance (**).

stationarity at first difference as shown in Table4. Further the table 5 shows the stationarity testat first difference this states that data is I (1).Hence we say that the test of stationarity saysthat data is non–stationary and is stationary atfirst difference.

JOHANSON TEST FOR COINTEGRATIONJohansen’s cointegration test is more sensitiveto the lag length employed. Besides,inappropriate lag length may give rise toproblems of either over parameterization orunderparametrisation. The objective of theestimation is to ensure that there is no serialcorrelation in the residuals. Here, Akaikeinformation criterion (SC) is used to select theoptimal lag length and all related calculationshave been done embedding that lag length.The results of Table 8 shows that the lag lengthcriterion shows that the appropriate lag lengthis coming to be as per Schwarz informationcriterion (SC): is 2 lags. The cointegration testwi l l use this lag length to check the


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cointegration model the price series. Aftertesting the price series for unit root, andcalculating the appropriate lag length on whichthe results will be optimized, it was confirmedthat the series are coinetgrated and thecondition that they have to be non stationary isalso met. The results of cointegration arecontained in Table 2. The table reveals that onecointegration relationship exists between cashand futures prices. Thus, cash and futuresprices of these commodities and indices sharecommon long-run information. Ourcointegration result confirm that in generalthere is a price discovery process in the cashand future commodity markets .Despitedetermining a co integrating vector for eachcommodity /index, it is customary to producethe diagnostic checking criterions beforeestimating the ECM model. Diagnostic tests areperformed only for sample series for which longrun relationship between cash and future pricesis confirmed based on Johnson cointegrationtest. Vector Auto Regression (VAR) estimated

with various lags selected by AIC is used tocheck whether the model satisfies the stability,normality test as well as no serial correlationcriterion among the variables in the VARAdequacy model. Testing the VAR adequacyof the sample series as shown in Table 9, itwas revealed that all the sample series aresatisfying the stability test. In normality test allthe sample commodities are found to benormal. In verifying the VAR Residual SerialCorrelation LM Tests it was found that allsample series have no serial correlation.Therefore, it leads us to take the position thatour model fulfils the adequacy criterion forsample series which exhibited a long runrelationship between cash and futures pricesas shown by Johansson Cointegration Test seetable II.

After confirming the long term relationship let ustest which market makes adjustment in the shortperiod to reach the equilibrium the results of errorcorrection are entailed in Table III.

TABLE II RESULTS OF COINTEGRATION

NAME Hypothesis Lag Trace Critical R=0 AcceptLength Value** R=1 Reject

Null Alternate Criterion Max Eigen Statistic 5 % Sig(Sc) Value Level

NIFTY -13FUTURE r =0 r e”1 2 lags* 37.78 39.53 15.49 RejectPRICES &CASH PRICES r = 0 r e”1 1.75 1.75 3.84

NOTE: The table provides the Johansen’s co-integration test, maximal Eigen value and Trace test statisticsare used to interpret whether null hypothesis of r=0 is rejected at 5 % level and not rejected where r=1. Rejectionof null hypothesis implies that there exists at least one co-integrating vector which confirms a long run equilibriumrelationship between the two variables, cash and future prices in our case.


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VECTOR ERROR CORRECTION MODELThe above test clearly gives the empiricalevidence of cointegration of the series whichproves that they are coinetgrated in the long runor have some long term relationship. Tounderstand which in which series there are morefluctuations and to understand the short termdynamics of the series we use Vector ErrorCorrection Model (VECM). the error correctionequations will tell which series move more toachieve the equilibrium. The drifts will decide thelead lag relationships of the series, i.e. whethercash will move more or future prices will movemore to achieve the equilibrium. The errorcorrection model takes into account the lag termsin the technical equation that invites the short runadjustment towards the long run. This is theadvantage of the error correction model inevaluating price discovery. The presence of errorcorrection dynamics in a particular systemconfirms the price discovery process that enablesthe market to converge towards equilibrium. Inaddition, the model shows not only the degree ofdisequilibrium from one period that is correctedin the next, but also the relative magnitude ofadjustment that occurs in both markets inachieving equilibrium. Moreover, cointegrationanalysis delivers the message saying how twomarkets (such as futures and cash commoditymarkets) reveal pricing information that areidentified through the price difference betweenthe respective markets. The implication ofcointegration is that the commodities in twoseparate markets respond disproportionately tothe pricing information in the short run, but theyconverge to equilibrium in the long run under thecondition that both markets are innovative andefficient. In other words, the root cause ofdisproportionate response to the market

information is that a particular market is notdynamic in terms of accessing the new flow ofinformation and adopting better technology.Therefore, there is a consensus that price changein one market (futures or cash commoditymarket) generates price change in the othermarket (cash or commodity futures) with a viewto bring a long run equilibrium relation is :

(1)

Equation (1) can be expressed as in theresidual form as:

In the above two equations, the first part isthe equilibrium error which measures how thedependent variable in one equation adjusts tothe previous period’s deviation that arises fromlong run equilibrium. The remaining part of theequation is lagged first difference whichrepresents the short run effect of previousperiod’s change in price on current period’sdeviation. The coefficients of the equilibriumerror, and signify the speed of adjustmentcoefficients in future and cash commoditymarkets that claim significant implication in anerror correction model. At least one coefficientmust be non zero for the model to be an errorcorrection model (ECM). The coefficient actsas an evidence of direction of casual relationand reveals the speed at which discrepancyfrom equilibrium is corrected or minimized. If,is statistically insignificant, the current period’schange in future prices does not respond tolast period’s deviation from long run equilibrium.


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If both, and are statistically insignificant; thecash price does not Granger cause futuresprice. The justification of estimating ECM is toknow which sample markets play a crucial rolein price discovery process.

The VECM results are reported in Table10which shows short run dynamics in the priceseries and price movements in the two markets.The lag length of the series is selected in VectorError Correction Model (VECM) on the basisof Akaike’s Information Criteria .The residualdiagnostics tests; indicate existence ofHeteroscedasticity, in most of the samplecommodit ies and indices which exhibitcointegration. Thus, we adjust the t–statistics,as well as the Wald test statistics which areemployed to test for Granger causality, by theWhite (1980) heteroscedasticity correction.After correction we reestimate VECM and fromempirical results, it was noticed that in theVECM model, error correction coefficients issignificant in both the markets futures marketand cash market with T-Statistics [-3.26] and[1.98] i.e. significant Error Correction Terms(ECTS). Error Correction Terms (ECTS) alsoknown as mean- reverting price process,provide some insights into the adjustmentprocess of cash and future prices towards long

run equi l ibr ium. For the entire period,coefficients of the ECTs are statisticallysignificant between one to two lags, in bothequations of cash and future markets assuggested by Akaike Information Criterion(AIC). This implies that once the pricerelationship of cash and futures marketdeviates away from the long-run coinetgratedequi l ibr ium, future market wi l l makeadjustments to re-establish the equilibriumcondit ion. The Results reveal that errorcorrection term of future market is greater inmagnitude than that of cash market whichimplies that future price makes greateradjustment in order to re-establ ish theequilibrium. In other words, cash leads thefuture market in price discovery mechanism.To reconfirm the causality test VAR GrangerCausality/Block Exogeneity Wald Tests is alsoperformed and the results confirm that there isa price discovery in cash market or cash marketis leading and futures market is lagging.Unidirectional causality is observed in cashmarket causing changing in futures market.


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Hence the results are clear that future marketmakes greater adjustments and the pricediscovery is established in cash market. Tounderstand the direction of causality we employ

RESULTS OF ERROR COERRECTION

Panel (1)

INDEXES Nifty NiftyFuture Cash

Error Correction: “FT “ST -0.42** -0.24**

CointEq1 (-0.13) (-0.12) [-3.23] [ -1.98]

D(FUTURES_CLOSING_PRICE__L(-1)) -0.12** 0.24 (0.19) (0.18) [-0.63] [ 1.3]

D(FUTURES_CLOSING_PRICE__L(-2)) 0.24 0.3 (0.17) (-0.17) [1.3] [ 1.8]

D(CASH _PRICES_LN_(-1)) 0.17** -0.17** (0.20) (0.19) [0.8] [ -0.9]

D(CASH _PRICES_LN_(-2)) -0.24** -0.3** (0.18) (0.17) [-1.9] [-1.8]

C 2.3 2.3 (1.6) (1.5) [1.3] [1.4]

Panel (1a) : Variance decomposition analysis

NAME NIFTY NIFTYFUTURE CASH

Variance decomposition analysis 0.63% 99.8%

This table, Panel (1) exhibits short run dynamics using VECM MODEL using Akaike’s Information Criteria. Theerror correction coefficients are significant suggesting a bidirectional error correction and cash price leads thefuture price at 5% (**) level of significance. Panel (II) shows Variance Decomposition Analysis showing dominantinformation share of Cash Market.

Granger causality test the results are shown inTable 4 which confirms that cash market leadsthe futures market.


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RESULTS OF GRANGER CAUSALITY

NULL HYPOTHESIS OBSERVATION F-STATISTICS P (VAL)Cash close does not granger 1743 8.90907 0.00014*cause future closing closeFuture closing price does not 1.32517 0.26603granger cause cash close

ConclusionFrom the models and analysis given above itwas found that there is a close relationshipbetween the futures price and the cash marketprice. Therefore, cash market leads futuresmarket. The results show clearly that it isimportant to take into account the long-runrelationship between the futures and the cashprices in forecasting future cash prices. Inconclusion, the Nifty cash is moreinformationally efficient than the futures market.The results have practical implications forinvestors who wish to improve portfol ioperformance. Investors may use the cashmarket to discover the new equilibrium price,where the mean of this equilibrium price maybe transmitted to the futures market.

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Role of Government in Changing Scenario of Indian Retail Trade

Rajive VassisthAssistant Professor

Ramlal Anand College, Delhi University

AbstractIndia, an attractive destination of retail trade is the outcome of the policies made by the IndianGovernment. Undoubtedly with the efficient role played by the Indian Government, the retail sectorof India is estimated to be US$ 450 billion and one of the top five retail markets in the world byeconomic value. It is only through the timely changing of the policies that such a big achievementbeing achieved. It is on November 24, 2011that the Union Cabinet of the Indian government approveda proposal of allowing 51 percent FDI in the multi-brand retailing in India and 100 percent FDI in thesingle-brand retailing, subject to certain conditions. Though this proposal is being hailed by globalretail giants, many of the Arguments for and against the proposal been expressed by the people.This paper makes an attempt to discuss the policy guidelines stated by the Government of Indiarelating to Retail Trade, the present scenario and the future expectations and aftereffects of allowingFDI.

Keywords – FDI, Single-brand Retail, Multi-brand Retail

INTRODUCTIONIndian Retail trade whenever talked about, thethree most striking things which comes in ourmind are that it has been ranked as No.1 outof 30 of the top emerging markets, the secondlargest employer which provides employmentto around 35 million people and accounts for14% to 15% of its GDP. As regarding theGovernment role is concerned in enhancing theIndian Retail trade it can be said that it hasplayed an efficient role by making timelychanges in the policy guidelines. It is onNovember 24, 2011that the Union Cabinet ofthe Indian government approved a proposalof allowing 51 percent FDI in the multi-brandretailing in India and 100 percent FDI in thesingle-brand retail ing, subject to certainconditions. Though this proposal is being hailedby global retail giants, many of the Arguments

for and against the proposal been expressedby the people.

Meaning of FDIFDI as defined in Dictionary of Economics(Graham Bannock et.al) is investment in aforeign country through the acquisition of alocal company or the establishment there of anoperation on a new (Greenfield) site. To put insimple words, FDI refers to capital inflows fromabroad that is invested in or to enhance theproduction capacity of the economy.

Foreign Investment in India is governed by theFDI policy announced by the Government ofIndia and the provision of the Foreign ExchangeManagement Act (FEMA) 1999. The ReserveBank of India ( RBI‘) in this regard had issueda notification, which contains the Foreign


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Exchange Management (Transfer or issue ofsecurity by a person resident outside India)Regulations, 2000. This notification has beenamended from time to time.

Foreign direct investment (FDI) or foreigninvestment refers to the net inf lows ofinvestment to acquire a lasting managementinterest (10% or more) in an enterpriseoperating in an economy other than that of theinvestor. Foreign direct investment is the sumof equity capital, reinvestment of earnings andother long or short term capital as shown inthe balance of payments. It usually involvesparticipation in management, joint venture,transfer of technology and expertise.

The Foreign Direct Investor may acquire votingpower of an enterprise in an economy throughany of the following methods:• By incorporat ing a wholly owned

subsidiary or company.• By acquiring shares in an associate

enterprise.• Participating in an equity joint venture

with another investor or enterprise.

SINGLE BRAND Single brand implies thatforeign companies would be allowed to sellgoods sold internationally under a ‘singlebrand’, viz., Reebok, Nokia and Adidas. FDI in‘Single brand’ retail implies that a retail storewith foreign investment can only sell one brand.For example, i f Reebok were to obtainpermission to retail its flagship brand in India,those retail outlets could only sell productsunder the Reebok brand and not the Adidasbrand, for which separate permission isrequired. If granted permission, Reebok could

sell products under the Adidas brand inseparate outlets.

MULTI BRAND FDI in Multi Brand retail impliesthat a retail store with a foreign investment cansell multiple brands under one roof. Openingup FDI in multi-brand retail will mean that globalretailers including Wal-Mart, Carrefour andTesco can open stores offering a range ofhousehold items and grocery directly toconsumers in the same way as the ubiquitous’Kirana’ store.

OBJECTIVES OF THE STUDY• To discuss policy guidelines made by the

Government in respect to FDI in Retailing.• To study the changing scenario of

retailing.• To analyze the impact on the retail sector

after making reforms to be undertaken.

RESEARCH METHODOLOGYThe descriptive research methodology hasbeen used to collect the data. To evaluate theoverall position of the entry of FDI in multi brandretail in India, secondary data has beencollected from various published sources andwebsites.

ROLE OF THE GOVERNMENTThe Ministry of Commerce and Industry,Government of India is the nodal agency formotoring and reviewing the FDI policy oncontinued basis and changes in sectoral policy/sectoral equity cap. The FDI policy is notifiedthrough Press Notes by the Secretariat forIndustrial Assistance (SIA), Department ofIndustrial Policy and Promotion (DIPP).


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The foreign investors are free to invest in India,except few sectors/activities, where priorapproval from the RBI or Foreign InvestmentPromotion Board (FIPB) would be required.

As regards the trade is concerned theGovernment of India amended its policy fromtime to time as it can be summarized as:

Year 1997: The wholesale trading sector wasopened for FDI under the Approval Route, thatis, FDI allowed with prior approval of the IndianGovernment.

Year 2000 : the pol icy incorporated thesupplement of “cash and carry trading” to thewholesale trading sector. This was primarilyunderstood to mean B2B (business-to-business) sale either on cash basis or withnormal credit terms.

Year 2006: The wholesale trading or cash-and-carry trading sector was put under theautomatic route and the Government alsoannounced its unique proposition of allowing51 per cent FDI in single brand retail tradingunder the approval route.

Year 2010: DIPP had put A Discussion paperproposing FDI in Multi-Brand retail.

Year 2011: Union Cabinet approved 51% FDIin multi-brand retailing, increasing the FDI limitin single brand retail to 100%.

Year 2012: DIPP notified the decision to allow100% FDI in single brand retai l and inSeptember the Union Cabinet approved thelimit of FDI in multi-brand retail to 51%.

In 2102 the Government had made thefollowing policy guidelines with regard toFDI in retail in India

• Union government has sanctioned 100%foreign direct investment in single brandretail like Gucci, Nokia and Reebok.

• Union government has sanctioned 51%foreign direct investment in multi-brandlike Wal-Mart, Carrefour, Tesco

• As per the new policy multi-brand foreignretailers will be allowed to set up shoponly in cities with a population of morethan 10 lakhs as per the 2011 census(final decision will however lies with thestate governments)

• Foreign retailers will be required to putup 50% of total FDI in back-end infra-structure excluding that on front-endexpenditures within three years of theinduction of FDI. Expenditure on land costand rentals will not be counted for thepurpose of back-end infra-structure.

• Big retailers will need to source at least30% of manufactured or processedproducts from small retailers.

• The government will go for surprisechecks and if found irregularities then thedeed will be broken with a second of time.

• Retail trading by means of e-commerceis not permitted.

CHANGING SCENARIO OF RETAILING ININDIA - PRESENT POSITION AND FUTUREEXPECTATIONSIn India Retail continued in the form of kiranasthat is unorganized retailing till 1980. Later in1990s branded retail outlet like Food World,Nilgiris and local retail outlets like Apna Bazaar


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came into existence. Now big players likeReliance, Tata‘s, Bharti, ITC and other reputedcompanies have entered into organized retailbusiness.

Presently retail sector in India is providingemployment to approximately 8% of totalworkforce (around 40 million persons).

Country Share of Retailingin employment acrossdifferent countries (%)

India 08China 07Poland 12Brazil 15USA 16Source: Presentat ion to FICCI by Alan Rosl ing(Chairman, Jardine Matheson Group): “InternationalExperience on Policy issues”

Broadly the Indian Retail market is divided intosix segments. Food and Grocery covers themajority share of the retail sector The Table 2shows the different segments of the retail sector

Table 2 : Segments of the Retail SectorSegment PercentageFood & Grocery 60%Clothing & Fashion 9.9%Electronics 6.4%Beauty & Wellness 4.0%Furniture & Furnishing 3.4%Others 17%

AT Kearney‘s eleventh annual Globe RetailDevelopment Index (GRDI), in 2012 reportedIndian Retail Industry on 5th position in itsGlobal Retail Development Index (GRDI) andsecond in Asia after China

According to a recent survey by UNCTAD Indiais projected as the second most attractivedestination for FDI (only after China) formultinational corporations during the years2010-2012. As per the data, the sectors suchas telecom, services, infrastructure andcomputer hardware and software attract theFDI the most. The leading sources of FDI arefrom the economies such as the US, the UK,Singapore and Mauritius.

AT Kearney Foreign Direct InvestmentConfidence Index 2012, ranks India as thesecond best country in its global ranking. Thescore of India is equal to 1.73 on a scale of 3and is behind only to China.

Table3 : AT Kearney Foreign DirectInvestment Confidence Index 2012Rank CountryI ChinaII IndiaIII BrazilIV United StatesV GermanyVI Ausralia

The Indian retai l market is currentlyunorganized and highly fragmented, with anestimated 13-15 mn outlets countrywide. Theoverall retail market is expected to grow at aCAGR of about 11-13 per cent by 2020-21, withthe organized retail market expanding at 21-24 percent.

Present Shape of FDI in Retailing in India

Indian retail industry has opened its doors forForeign Direct Investment through the


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Organized retailing. When compared to othercountries the share of FDI in organized retailingin India is very less. As is shown in the Table4while comparing with some of the selectedcountries

Table 4 : FDI share of Organized Sector inselected countries

Country Share of OrganisedRetail (%)

India 04China 20Indonesia 30Russia 36Malaysia 55Japan 66UK 80USA 85

Source: Planet Retail & Technopak AdvisorPvt. Ltd. & ICRTER

But day by day the share of organized retailingis increasing as it can be clearly seen from theTable 5 that in India the growth of organizedretail has been steadily rising since 1999 asfrom a low figure of Rs. 50 Billion it haveachieved a high figure of Rs.1350 billion andis expected to continue in the years to come.

Table 5 : Share of Organized Retail in India

Year 1999 2002 2005 2009 2010 2013(Expected)

Total Retail 7000 8250 10000 18450 19500 24000(in billion INR)Organized Retail 50 150 350 920 1350 2400(in billion INR)Share of Organized 0.7 1.0 3.50 5.00 7.0 10.00Retail (%)Source: www.nielsen.com

Currently, organized retail, or large chains,makes up less than 10% of the market. AnASSOCHAM report states that India’s overallretail sector is expected to rise to USD 833billion by 2013 and to USD 1.3 trillion by 2018,at a compounded annual growth rate of 10%driven by the emergence of shopping centersand malls, and a middle class of close to 300million people that is growing at nearly 2% ayear.

The organized retail industry in India is growingat more than 30% per annum as the data inTable 6 shows the growth of organized retailing.

Table 6 : Growth of Organized Retailing

GDP Retail Market(Billion $) (Billion $)

2006 804 3002010 1133 4272015 1721 637Source: Technopak Analysis, CSO, BRIC Report

The organized retail is expected to reach 20percent by the year 2020 says the report by ATKearney. This growth can be attributed tochanges in FDI policy in retail trade. As thegrowing popularity of Indian Retail sector hasresulted in growing awareness of qualityproducts and brands.

As a whole Indian retai l has made l i feconvenient, easy, quick and affordable. Indianretail sector specially organized retail is growingrapidly, with customer spending growing inunprecedented manner. It is undergoingmetamorphosis. Top business houses in thecountry are investing in the sector. Thisincludes Food World, Shopper‘s Stop,Crossroads, Globas, Pyramid and other such


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outlets. Despite the global economic recessionand a consequent slowdown in the Indianeconomy, organized retail continued to makeheadway although at a slower pace in 2009.Nonetheless, if the current retail landscape iscompared with that of 2004, it has undeniablybecome a much larger environment. Themultinationals with 51% opening of FDI in singlebrand retail has led to direct entrance ofcompanies like Nike, Reebok, Metro etc. orthrough joint ventures like Wal-mart with Bharti,Tata with Tesco etc. Retail stalwarts such asWal-Mart, Tesco and Marks & Spencer havealready made inroads into the Indian retailindustry and with multi-billion dollar investmentsby major domestic players such as RelianceRetail; the market is expected to go fromstrength to strength.

Aftereffects of allowing FDI in Retail Sector:Challenges and Opportunities to IndiaIt is expected that allowing FDI in retailing inIndia specially in Multi brand retailing will bringthe following opportunities and Challenges:

Opportunities

Farmers the biggest beneficiary The directand biggest beneficiary of FDI in retail will bethe Indian farmers. It is a well known fact thatIndian farmers are presently realizing only 33%of the of the total price paid by the finalconsumer due to the presence of theintermediaries. By allowing FDI the farmers willget a higher price of their products as the profitwill flow directly to them due to the directcontact between them and the organizedretailers. The Inter Ministerial Group(IMG) oninflation said that FDI in multi-brand retailing

would help in developing a ‘farm –to-fork’ retailsupply system (The Economic Times,15th

March2012). It is worth mentioning here thatBharti-Wal-Mart, a joint venture between India’sBharti Enterprises and US-based Wal-MartStores, has plans to buy farm produce directlyfrom over 35,000 small and medium farmersin India by 2015. The direct purchase fromfarms rather than from local mandi will givegood returns in the hands of the actualproducers i.e. farmers.

Up gradation through New TechnologiesForeign retai lers wi l l also bring newtechnologies in India which will enhance theproductivity of the Indian farmers as they willtrain them the methods of improving theproductivity. For example Bharti-Walmartenvisages to usher in modern farmmanagement practices and to train farmers tobecome more productive with less water usageand minimal use of fertilizers and pesticides.Wal-Mart is confident that this initiative willresult in an increase of 20 percent in the incomeof farmers and will have a multiplier effectbenefiting one million farmers and agriculturallabor.

Better Infrastructure India is the secondlargest producer of fruits and vegetables (about180 million MT), it has a very limited integratedcold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of23.6 million MT., 80% of this is used only forpotatoes. The chain is highly fragmented andhence, perishable horticultural commoditiesfind it difficult to link to distant markets,including overseas markets, round the year. Atpresent around 35 percent of the post-harvest


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produce is going waste in India. Storageinfrastructure is a prerequisite for carrying overthe agricultural produce from productionperiods to the rest of the year and to preventdistress sales. Farmers are likely to getbenefited through investments in infrastructuresuch as cold storage and other machinery sothat they can mitigate their post harvest lossand thereby get assured and enhanced income.Development of back-end infrastructure can cutthe wastage of farm output, time and canimprove quality. Improved facilities will enablefarmers to increase their income.

Employment Creation Establishment of newmalls and storehouses in the country willincrease the Employment Creation for allsect ions of the society. An example ofemployment generation can be taken from thefact that in United States from a population of300mil l ion Wal-Mart alone providesemployment to around 1.4 million people. Therewill be a creation of Six million new jobs in theinfrastructure segment with logist ics,packaging, housekeeping and security(TheHindu. Business Line17September2012).

Opportunities to Consumers Entry of FDI inMulti-brand retail ing will surely increasecompetition among the retailers which will proveto be a posit ive sign in the direction ofimprovement in the quality of the products at areasonable price to the final consumers.FDI inMulti-brand retailing will also saves time whilewidening options for them by providing all theproducts under one roof. Better after salesservices will also be available to them due tothe intensifying competi t ion among theretailers.

Latest cutting-edge technologies It is opinedthat FDI in Multi-Brand Retail Sector can beconsidered appreciable as it may bring thelatest cutting-edge technologies to India thatwould benefit a host of the sectors of theeconomy such as, the retail traders, farming,cooperative, service sector in non corporateenterprises and end consumers.

Better coverage to SMES Lack of brandingand difficulty in finding avenues to reach out tothe vast world markets is a major drawbacksuffered by the Micro Small & MediumEnterprises (MSME) sector in India. With theentry of FDI in retailing this sector will gain onthe one hand by providing the much neededinformation about the local tastes andmerchandise preferences to the foreignretailers as they cannot establish themselveswithout such information and on the other FDIin Multi-Brand Retailing will definitely aid indeveloping world-class supply chain for theretail sector in India.

Joint ventures would ease capital constraintsof existing organized retailers.

Increased Revenue The organized sales withComputerized Billing system will lessons thechances of tax avoidance and increase therevenue generation by the government in theform of commodity taxes like VAT and servicetax.

Favorable Exports Being a key sourcingcountry for some global retailers. The entryof foreign retailers is likely to a push India‘smanufacturing and export sectors, leadingto a double bonus for the economy


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ChallengesMassive unemployment will be caused as aresult of closing of a large number ofunorganized retail shops as they will not be ableto face the high competition from the foreignretai lers. Examples of south east Asiancountries show that after allowing FDI, thedomestic retailers were marginalized and thisled to unemployment. In U.S. it was reportedthat after the entry of Wal-Mart the number ofretail shops have reduced to 22,000 from afigure of 56,000.The same situation has beenfind out in Norway where 27% jobs were loosenafter the entry of Wal-Mart

Monopoly market will be created by the foreignplayers as they try to capture the market byfollowing different types of strategies likelowering of the prices etc. as is seen in the caseof the soft drinks industry. Pepsi and Cokecame in and wiped out all the domestic brands.

Challenge to small retailers The governmenthave made the proposal that big retailers haveto purchase 30% from the small scale industriesbut from India only is not specified in it so theyare free to from anywhere in the world. So theIndian industry will not be benefited. Someexperts say that wherever these big retail storeshave gone they have ruined the local retailers.The ground on which small scale industries ofIndia is lacking behind is that the raw materialssupplied them will be costlier than the Chinawhich is considered to be the largest supplierto Wal-Mart. Hence they will the race.

Drain out of the country’s capital A heavyinitial investment in infrastructure developmentwill be made by the foreign retailers but

afterwards they may remit the higher amountof profits earned in India to their own country.Work will be done by Indians, profits will go toforeigners. This results in draining out of thecountry’s share of revenue to foreign countrieswhich may cause negative impact on India’sBalance of payment and the overall economy.

ConclusionFrom the discussion made in the paper it canbe concluded that it is the efficient role playedby the government that Indian retail industrynow stands on the 5th largest retail destinationaround the globe, can be regarded as one ofthe highly growth oriented and immenselyprofitable in present and future times. As perthe est imates by mellow and experteconomists, the retail market of India can reachthe level of around $650 billion by the year2015. The entry of FDI in Indian retail is animportant means to bring new technology,knowhow, expansion of manufacturingindustries, development of infrastructure andlogistics in India. It is the steps taken by IndianGovernment to allow 100% of FDI in singlebrand retailing and 51% FDI in Multi Brandretailing that gives such a wonderful results tothe country as i t wi l l provide a lot ofopportunit ies in terms of employmentgeneration as well as the overall economicdevelopment of the country .However onecannot deny the challenges to be faced asdiscussed above. But in the era of globalizationand liberalization India cannot standalone interms of attracting FDI in retail. In order to reapits benefits in the real sense the FDI should beinvited slowly in a phased manner so that theeconomy as a whole can adjust to i taccordingly.


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References:1. Association of Traders of Maharashtra v.

Union of India, 2005 (79) DRJ 4262. Dr. Sameena Khan & Fayaz Ahamed.,

(2011), Foreign Direct Investment inIndia:a. Challenges and Opportunities in

Mult i-brand Retai l Sector,International Journal Of

b. Research In Commerce AndManagement, 2(1), pp 97-98.

3. DIPP Discussion Paper on FDI in Retailin India 2010

4. Foreign direct investment, available ath t t p : / /articles.economictimes.indiatimes.com/2010-10-22/news/27569934_1_inflows-fdi-foreign-direct-investment, accessedon 31st November, 2011

5. Foreign direct investment- Types andmethods, avai lable at http:/ /en.wikipedia.org/

a. wiki/ Foreign_direct_investment,accessed on 3rd December 2011

6. Hemant Batra, Retailing Sector in IndiaPros Cons (Nov 30, 2010) http:/ /www. lega l ly ind ia .com/1468- fd i - in -retailing-sector-inindia-pros-cons-by-hemant-batra

7. Notification No. FEMA 20/2000-RB datedMay 3, 2000

8. Walmart Fact Sheets” WalmartNovember 2011.

9. Chandu. K. L “The New FDI policy inRetail in India: Promises, Problems andPerceptions” Asian Journal OfManagement Research ,Volume 3 Issue1, 2012,pp100-106

10. Dr. Jain Mamta; Mrs. Sukhlecha MeenalLodhane “FDI In Multi-Brand Retail: Is ItThe Need Of The Hour??” ZENITHInternational Journal of MultidisciplinaryResearch Vol.2 Issue 6, June 2012, pp108-131

11. The Hindu:Business Line,17 September2012.


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Impact of Service Quality of Web-Portals in E-Governance in India

Gauravjeet DagarResearch Scholar

AbstractThe word “electronic” in the term e-Governance implies technology driven governance. E-Governanceis the application of Information and Communication Technology (ICT) for delivering governmentservices, exchange of information communication transactions, integration of various stand-alonesystems and services between Government-to-Citizens (G2C), Government-to-Business (G2B),Government-to-Government ( G2G) as well as back office processes and interactions within theentire government frame work. Through the e-Governance, the government services will be madeavailable to the citizens in a convenient, efficient and transparent manner. The three main targetgroups that can be distinguished in governance concepts are Government, citizens and businesses/interest groups. In e-Governance there are no distinct boundaries. Generally four basic models areavailable-Government to Customer .As it is being witnessed that in present global scenario producteconomies are turning to information and knowledge economies, so governance of such economiesneeds also to be electronically consequently concept of E-Governance is emerging of whicheffectiveness depends on IT infrastructure, service quality of web portals of E-Governance and itsdelivery to citizens at affordable cost with accuracy and proper security.

IntroductionE-governance is emerging as broadergovernment modernization programs in India,like their global counterparts in the era ofinformation and communication technology. E-governance is nothing but an application ofelectronic media in Govt services. Severaldimension and factors influence the definitionof e-Governance. The word “electronic” in theterm e-Governance implies technology drivengovernance. E-Governance is the applicationof Information and Communication Technology(ICT) for delivering government services,exchange of information communicationtransactions, integration of various stand-alonesystems and services between Government-to-Citizens (G2C), Government-to-Business(G2B), and Government-to-Government (G2G)

as well as back off ice processes andinteractions within the entire government framework. Through the e-Governance, thegovernment services will be made available tothe citizens in a convenient, efficient andtransparent manner. The three main targetgroups that can be distinguished in governanceconcepts are Government, ci t izens andbusinesses/interest groups. In e Governancethere are no distinct boundaries. Generally fourbasic models are available-Government toCustomer (Citizen), Government Employees,Government to Government and Governmentto Business.

Difference between e-governance and e-governmentBoth the terms are treated to be the same,


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however, there is some difference between thetwo. “E-government” is the use of the ICTs inpubl ic administrat ions- combined withorganizational change and new skills- toimprove public services and democraticprocesses and to strengthen support to public”.The problem in this definition to be congruentwith the definition of e-governance is that thereis no provision for governance of ICTs. As amatter of fact, the governance of ICTs requiresmost probably a substantial increase inregulation and policymaking capabilities, withall the expertise and opinion-shaping processesamong the various social stakeholders of theseconcerns. So, the perspective of the e-governance is “the use of the technologies thatboth help governing and have to be governed”.E-Governance is the future; many countries arelooking forward to for a corruption freegovernment. E-government is one-waycommunication protocol whereas E-governance is two-way communicationprotocol. The essence of E-governance is toreach the beneficiary and ensure that theservices intended to reach the desiredindividual has been met with. There should bean auto-response system to support theessence of E-governance, whereby theGovernment real izes the eff icacy of i tsgovernance. E-governance is by the governed,for the governed and of the governed.Establishing the identity of the end beneficiaryis a true challenge in all citizen-centric services.Stat ist ical information publ ished bygovernments and world bodies do not alwaysreveal the facts. Best form of E-governancecuts down on unwanted interference of toomany layers while delivering governmentalservices. It depends on good infrastructural

setup with the support of local processes andparameters for governments to reach theircitizens or end beneficiaries. Budget forplanning, development and growth can bederived from well laid out E-governancesystems. The central and state governmentshave taken several initiatives to harness thepower of ICT to improve G2G, G2C and G2Binteractions Goverment’s concern seems inadoption of National e-governance Plan(NeGP), which aims to make all governmentservices accessible to common citizens in theirlocalities through common service deliveryoutlets and ensure efficiency, transparency andreliability of such services at bearable costs.

Common Service Centres (CSCs), the front-end delivery points for a range of citizenservices that are provided in a transparentmanner, at a convenient location and at anaffordable cost. Out of the 27 Mission ModeProjects, under the National e-governance Plan(NeGP), 14 MMPs have already started deliveryof services while the remaining 13 MMPs areexpected to begin services from 2014. Clearly,the government is taking the e-governancedirective rather seriously, considering that theNeGP was approved only five years back in2006. At the same time, not all Indian stategovernments are at the same level on the e-governance curve. While some states havebeen proactive and faster adopt e-governanceconcept, others are still in the process oftransforming the domain of citizen-centricgovernance. Some developed countries atglobal level, however, have already achievedthe goals of Governance 1.0, and are nowmoving on to Government 2.0, described asthe next phase, or next step of good


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governance and India is also trying to pick thesame track of E-governance.

Objectives of the Study• To assess the quality of E-governance

Web Portals in India.• To explore the factors affecting E-

Governance mix.

Research MethodologyResearch is descriptive as well as diagnosticin nature for which both types of data primaryas well as secondary, has been collected.Primary data has been collected throughcirculation of questionnaire to 100 citizens ofIndia rating at 5 point scale and secondary fromNeswspapers, magazines, internet etc. properweights were given to scores gathered as pertheir signif icance. Principal ComponentAnalysis has been used to testify the adequacyof various factors affecting E-Governance mixand grouping thereof. Further X2-test has beenapplied to know the validity of the results ofthe study.

1) Hypothesis:• H0: E-Governance Mix is not affected by

the stated five factors (F1 F2, F3, F4 andF5)/Variables.

• H1: E-Governance Mix is affected by thestated five factors (F1 F2, F3, F4 and F5)/Variables.

2) Parameters of the Study:Following factors have been taken asparameters of study which will assess thequality of web portals of E-Governance in India

E-Governance FrameworkTaking the various views of different scholarsit has been outcomed that optimal frameworkof following 4 As, which can be named as E-Governance Mix, can make the E-governancemost effective.1. Awareness : This metric of the 4A

framework requires all citizens are awareof al l web portals of e-governanceavailable made by the Government.

2. Accessibility : All reports, information,notifications etc provided by the Govtelectronically must be accessible to allcitizens. Moreover, it needs adequateinfrastructure.

3. Adaptability : The metric ensures the E-governance system ability to adapt to thechanging needs of society and fight theregional disparity disparity as well as localissues and contexts. This must beflexible and respond to the needs of itscitizens, meet their best interests andadapt to different contexts

4. Affordability : Govt should also ensurethat all web portal of e-governance areeither free of cost or affordable to the allcitizens.


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Website Design (F1) Reliability (F2) Familiarity (F3) Personalization (F4) Security/ Privacy (F5)Easy of Use Promise to Familiar with Offers a Choice Confidence of

E-mail Website SecurityVisually Appealing Delivers Right Conducting Online Links to Other Doesn’t share my

Services Transaction Websites informationWell organized Charges me Communicating Delivering the Protects informationAppearance Correctly with Govt. Agencies ServicesAvailable for Different ServiceCitizens OptionsDoesn’t CrashLoads its pagesFaster

Table 1 : Rotated Component Matrix

S.No Constituents F1 F2 F3 F4 F5

1. Offers a Choice 0.8212. Easy of Use 0.7663 Doesn’t share my information 0.7234. Familiar with Website 0.8025. Well organized 0.7216 Confidence of Security 0.5667 Conducting Online Transaction 0.7598 Doesn’t Crash 0.8199 Delivers Right Services 0.54710 Charges me Correctly 0.61511 Promises to mail 0.83912. Loades its pages faster 0.533Eigen Values 2.404 2.404 1.792 1.455 1.366Commutative Percentage 20.032 34.968 47.089 58.470 67.534Note: F1, F2, F3, F4 and F5 are the five derived factors.


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Results and DiscussionsQuestion wise analysis was made with the helpof Excel and SPSS version 12.0. Thequestionnaire was based 5 different variablesthat were considered to be significant whileusing the ICT based Web Portals of E-Governance and it was measured against a 5-point Likert scale, depending on the level ofimportance attached to each variable. The factsobtaining from the questionnaire were analyzedby using Factor Analysis. Variables that havefactor loading of more than 0.5 were groupedunder one factor. Only the factors having Eigenvalues greater than one were considered andthe remaining factors have not been consideredas part the analysis. Further statistical testswere performed on the data collected.

From the Table 1, we can infer that the 12variables have coded against the 5 point Likertscale. Table 1 shows the Rotated ComponentMatrix (RCM) for the 12 variable giving theproper weight as per their importance to eachvariable. This has been used by using SPSSversion 16.0. The Principal ComponentAnalysis is a commonly used method to groupthe variables under few unconnected factors.This method is closely related to FactorAnalysis. A factor is a co-relation between theconcerned variable with a specified factor.Thus, it is very important to analyze the natureof a particular factor, and then group themunder one factor. Factor Analysis using Varimaxrotations has derived 5 factors, with eachhaving Eigen values greater than I have beenshown in the Table 1. From the table, it can beseen that Factor1 has the Eigen value of 2.404and explains 20.032% of the variance. TheEigen values and percentage of variance for

other factors are also shown respectively in thetable. The total Variance accounted by 5 factorsis 65.534%, which is acceptable thusestablishers the validity of the study.

Testing of Hypothesis

Table 2: Cross Tabulation of Factors &E-governance Mix

FactorsF1 F2 F3 F4 F5

E-governance A1 18 3 5 6 0Mix A2 5 0 7 6 1

A3 2 1 5 9 5A4 8 2 10 6 2

Table 3: Pearson’s Chi-square Tests

Factors/Determinants

E-governance Chi-square 26.345Mix Df. 12

Sig. .010*The chi-square statistics is significant at the 0.05 level

From the table 2 and 3, it was found that thechi value i.e. 0.01<0.05 at (95% confidencelevel). Hence, the researcher reject the nullhypothesis that the various elements of E-governance Mix is not affected by variousstated factors i .e. Website Design (F1),Reliability(F2), Familiarity (F3), Personalization(F4) and Security/ Privacy (F5).

From the analysis, it is clear that effectivenessof E-governance is influenced by mainlyawareness and affordability. Other factors havealso significant impact on the E-Governancemix. Thus the researcher accepts the


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alternative hypothesis that E-governance Mixis affected by stated variables i.e. WebsiteDesign (F1), Reliability (F2), Familiarity (F3),Personalization (F4) and Security/ Privacy (F5).

Conclusion:Study reveals that E-governance is emergingas remedial mechanism governance system ofa information or knowledge based economy toensure accountabi l i ty, accuracy andtransparency. If E-Governance portals areconstructed on the basis of stated 5 pillars, itwould make the web site quality better in E-governance. It would assist as well stimulatethe citizens to use the web portals. Hence theGovt should design the websites in such amanner that to provide the better governance.So web portals have significant impact on theE-Governance effectiveness, its quality mattersa lot in this regard and all stated variables i.e.Website Design, Rel iabi l i ty, Famil iar i ty,Personalization and Security/ Privacy canoptimize the E-Governance mix..

References• Abramson A.M., Means E.G.(2001), “e-

Government”, Price Waterhouse Coopersendowment for the Business ofGovernment, Rowman & Lit t lef ieldPublisheers Inc.

• Bhatnagar S. & Schware R.(2000),“Information andCommunicationTechnology in rural development: Casestudies from India”, Sage PublicationsIndia, New Delhi

• Fang Z. (2002), “e-Government in DigitalEra: Concept, Pract ice andDevelopment”, International Journal ofthe Computer, The Internet &

Management, Vol. 10, No.2 Page No. 1-22.

• Fraga E. (2002), “Trends in e-Government : How to Plan,Design,Secure and Measure e-Government”, Government ManagementInformation Services, Santa Fe, NewMexico

• Gupta Vivek (2002), “e-Governance- TheNew Revolution”, The ICFAI UniversityPress, Hyderabad, India

• Jeffrey Roy, University of Ottawa, (2006)“e-Government in Canada”, University ofOttawa Press, Ottawa

• Jaya Iyer & R.K. Srivastava (2012), TheIUP Journal of Information Technology,Vol. VIII, No. 3, September 2012, pp. 39-52.

• Kluver R. (2005), “The Architecture ofControl :A Chinese Strategy for e-Governance”, Journal of Public Policy,Cambridge University Press, Vol. 25, No.1, Page No. 75-97.

• Pani Niranjan, Mishra, Santap S., SahuBijaya (2004), “Modern System ofGovernance: Good Governance Vs e-Governance”, Anmol Publications, NewDelhi,India

• Prabhu C.S.R.(2004), “e-Governance :Concept and Case Studies”,Prentice Hallof India, New Delhi, India

• Rao V.M.(2007), “e-Governance “, ABDPublishers, Jaipur,Rajasthan, India

• Vivek Bhardwaj (2006), “A Study ofInformation &Communication TechnologyUsage in Indian Schools”, Frank Brothers& Co. Publication Ltd, New Delhi,India

• Theodore Tryfonas, (2007) ITgovernance and the role of the


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information security professional CISA,Information Security Research Group,Faculty of Advanced Technology,University of Glamorgan, Wales,Australia.

• http:/ /www.studymode.com/essays/Spyware-192928.html

• www.paloaltonetworks.com/community/learning-center/what-is-spyware.html

• www.spybotdownload.org/articles-for-spyware - remove rs /how-spyware -works.html

• http://www.microsoft.com/india/msindia/perspective/e_governance.aspx

• h t t p : / / e n . w i k i p e d i a . o r g / w i k i / E -Governance

• http://india.gov.in/e-governance/mission-mode-projectshttp://www.egovindia.org/


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Empirical Study of Agriculture Investment in India

RajkumarAssistant Professor,

College of Vocational Studies, Delhi University.

AbstractThis paper mainly attempts to examine the long run relationship between private investment and itsdeterminants in Indian agriculture using data from CSO from 1990-91 to 2011-12. Due to non-stationarity of data series used in the estimation (as verified by ADF test) Johansen co-integrationtest is used to establish the cointegration between hypothesized multivariate function. Thecointegration coefficients are estimated using the vector error correction model (VECM). The resultof cointegratin technique indicates that there is long run equilibrium relationship between the privateinvestment and its determinants. The result of error correction model indicates that 0.43 of thedifference between actual amount of private investment in agriculture and that in the long run will becorrected in each period.

IntroductionAgriculture is a critical sector of the Indianeconomy. Though its contribution to the overallGross Domestic Product (GDP) of the countryhas fallen from about 30 percent in 1990-91 toless than 15 percent in 2011-12, a trend that isexpected in the development process of anyeconomy, agriculture yet forms the backboneof development. Being both a source oflivelihood and food security for a vast majorityof low income, poor and vulnerable sections ofsociety, its performance assumes greatersignificance in view of the proposed NationalFood Security Bill and the ongoing MahatmaGandhi National Rural Employment GuaranteeAct (MGNREGA) scheme.

The important factor which determines thegrowth of agriculture sector is capital formationor investment rate in agriculture sector. Infollowing section we will analyse the public andprivate investment in agriculture.

The trend in public and private investment inagriculture is shown in following fig.1. It is clearfrom above graph that public investment ismore or les costant till 2003-04. The publicinvestment has shown some improvement inlast 6-7 years mainly due to Rashtriya KrishiVikas Yojana (RKVY) and Bhart nirman yojna.The growth rate of publ ic and privateinvestment in agriculture is given in fig 2 andfig 3.

From fig 2 and 3, the growth rate of publicsector seems more volati le than privateinvestment growth rate. the period between2005-06 and 2011-12, the growth rate of publicinvestment from 2009-10 declined rapidly dueto global economic crisis, but growth rate ofprivate investment has increased after 2010-11.

So i t is clear from above analysis thatinvestment in agriculture is volatile. But theinvestments or capital formation in agriculture


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is perhaps one of the keys to achieve 4%growth rate of agriculture sector.

Now the important question-Is there any long run relationship betweenprivate investment, public investment inagriculture and some other important economicindicator like GDP ?

I will to answer this question through my article.The objective of this paper is to analyse thelong run relat ionship between privateinvestment and its determinants in agriculture.

Literature ReviewA number of studies have attempted to analysethe various dimenstion of capital formation inagriculture. As regards the factors influencingprivate investment in Indian agriculture, someclues about such factors may be drawn fromthe existing literature.

Some economist argues that decline in publicsector capital formation tends to lead to declinein private capital formation (Shetty SL,1990).So there is positive relationship between publicand private investment in agriculture.

Shetty SL (1990) in his research paper statedthat over the decade 1960-61 to 1970-71, grosscapital formation in Agriculture at 1980-1981price rose at an annual compound rate at 6.3%per annum(based on 3 yearly moving averages)and over the next decade of 1970’s, it rose atthe rate of 5.9% per annum. But during thesubsequent seven year period up to 1987-88such real gross capital formation in agricultureexperienced on absolute decline at the rate of2.6% per annum.

Kumar G (1992) concludes that1) Though only about 30% of cultivable land

in the country is under irrigation, it hasacquired a crucial rate in determining theperformance of Indian agriculture.

2) Since 1980-81, Agriculture Investmenthas shown a clear fall, both in level andalso a percentage of the total investment.

3) While Total Agricultural Investment hasgrown by 2.74 times between 1960-61 to1980-81. But Agriculture Investment fellin the 80’s both in levels and as apercentage of total investment mainly dueto fall in public investment and alsobecause of slowing down of thedevelopment of irrigation.

A fall in Public Investment in Agricultural sectorreflects a bias in government policy in favor ofnon – agricultural sector.

Lower investments in agriculture also reflectlower per capita incomes in rural India asproduction has stagnated. As rural India housestwo-third of the country’s population, thereneeds to be more focus on the sector,especially in improving capital stock (such asirrigation canals) to improve output. (Bisht Vand Singhal R, 2011)Dev SM (2012),ascertained in his article that share of privateinvestment in total investment increasedsignificantly over time from 50% in the early1980’s to 80% in the decade of 2000. It maybe noted that 90% of the private is made byfarmers for on farm production. Dev SM (2012)used the CSO data. The estimates of CSO’spublic sector investment comprise mainly ofinvestment in irr igat ion projects. Someresearchers feel that this is an underestimate


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and there is a need for widening the definitionof public investment by including investmentin physical infrastructure (rural roads andelectrification), social infrastructure (educationand agriculture research), subsidies inagriculture, investment in anti-povertyprograms, etc. because all of them are veryimportant factors and helps in stimulating andgive a push to agriculture investment

MethodologyBased on Granger (1969), Engle and Granger(1987) and Johansen (1991) approaches, theprivate investment functions in the long run andshort run are defined in equations (1) and (2):

ln pvt = a0 + a1 ln put + a2ln gpt + ut ...(1)

where lnpr, lnpu and lngp are the privateinvestment, public investment and real GDP atthe years t, respectively. ut is the usual errorterm. In order to estimate the short-runagricultural private investment function, theVector Error Correction (VEC) model (2) wasapplied to the data using STATA.

...(2)

D refers to the first order difference, ECt-1 isthe lagged error correction terms of the longrun function (from equation 1) and wt is theshort- run error term.

We used following testThe Augmented Dickey - Fuller (ADF) testThe ADF test is constructed with the followingequation (3)

where p is selected to be large enough toensure that the residual e2t is empirical whitenoise. It is important to note if there are nolagged values of Xt–1 in the right hand side ofthe equation (3), the statistic becomes the DFstatistic.

If the null hypothesis is accepted, the unit roottests for the first-difference of the variables iscarried using the following regression equation.

where the null hypothesis Ho : Xt is I (2), that istwo unit roots, which is rejected in favour ofI(1) if is found to be negative and statisticallysignificantly different from zero. Similarly, thevariable Xt is replaced by Yt to test unit roothypothesis so as to identify the order ofintegration and random walk characteristics ofthe variable Yt

Cointegration and Error correction model-The residual–based approach for testingcointegration is inefficient and can lead tocontradictory results , especially when there aremore than two I(1) variables underconsideration. Amore satisfactory approachwould be to employ Johanson’s MaximumLikelihood procedure The most popular systemmethod is the Johansen and Juselius (JJ) tests


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based on canonical correlations, involving twotest statistics (Johansen 1988; Johansen andJuselius 1990). The first (trace test) tests thehypothesis that there are at most r cointegratingvectors, and the second (maximum eigen valuetest) tests the null hypothesis that there are rcointegrating vectors against the hypothesisthat there are r+1 cointegrating vectors.Johansen and Juselius (1990) recommend thesecond test as better. If the variables are nonstationary of the same order I(1) and thevariables are co integrated), the next step is torely upon an error-correction mechanism(ECM) which is bound to exist for a cointegrated system.

Selection of Optimal Lag Length : There areseveral criteria to determine “optimum” laglengths, such as Akaike’s Information criterion,Akaike’s FPE, and the Schwarz criterion.

Result Table 1 present the calculated t values fromADF test on each variable in levels and in firstdifference. Since the calculated values of allthree variable (variable in levels) is less thancritical value so we cannot reject the nullhypothesis of unit root. We can use theMacKinnon approximate p-value. so at 5% levelof significance, we concluded that there is unitroot for three variable lnpv, lnpu and lngdp.

Now we take the first difference, then ADF testindicates that with first difference, we will rejectthe null hypothesis of unit root at 5% level ofsignificance.

So time series lnpv, lnpu and lngdp are non-stationary but their first difference is stationary.After having established that the series are I(1),i.e. each series is integrated of order 1, thelong run relationship between the variable may


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exist. We test this cointegration by usingjohanson test of cointegration. The result of testis given in table

So we reject the nul l hypothesis of nocointegrat ion (rank=0) at 5% level ofsignificance because the trace statistic is higherthan critical value. But we cannot reject the nullhypothesis rank=1 i .e. there exist onecointegrated equation at 5% level ofsignificance because trace statistic is lowerthan critical value. so Johanson test indicatesthat there is only one cointegration vector.

The est imated coeff icients of long runinvestment in the agriculture sector are givenin table 3.

As shown in above table, GDP and publicinvestment are found with expected signs. Totaloutput level can encourage the private

investment positively and it is highly significant.The public investment encourage the privateinvestment and this relationship is significantly.It may be due to fact that the area of investmentfor private and public investment sectors aredifferent but they are complement, i.e. privateinvestment attract towards those activities inwhich short run profits is high whereas thepublic investment is done activit ies l ikeirrigation, development of basic infrastructure.In such activities, the short run profit is quitelower and gestation period is very large. Withdevelopment of infrastructure, the privateinvestment will encourage due to low cost.

Because variables are cointegrated so we canuse error correction model. The optimal numberof lag base on Schwarz Bayesion certerion turnout as one. With one lag the estimated modelis shown in table 4.

*Error correction term


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The negative coefficient of ecm indicates theexistence of long run relationship. The negativecoefficient of the error term of the model is 0.43so it says that 0.43 of the difference betweenactual amounts of private investment inagriculture and in the long run will be correctedin each period.

ConclusionThis paper mainly attempts to examine the longrun relationship between private investmentand its determinants in Indian agriculture usingdata from CSO from 1990-91 to 2011-12. Theresult of cointegration technique indicates thatthere is long run equilibrium relationshipbetween the private investment and i tsdeterminants. The result of error correctionmodel indicates that 0.43 of the differencebetween actual amount of private investmentin agriculture and that in the long run will becorrected in each period.

ReferencesBisht V and Singhal R, (2011), CapitalFormation In India, Dhanlaxmi bank., (http://59.144.54.70/pdf/reports/GCF-Nov%204-2011.pdf)

Dev SM (2012) A note on Trends in PublicInvestment in India, IGIDR Proceedings/Projects Series PP-069-SMD2, Indira GandhiInstitute of Development Research, Mumbai

Engle, R. F., and Granger, C. W. J.(1987),“Cointegrat ion and Error Correct ion:Representation, Estimation and Testing,”Econometrica, March, 251-276.

Granger, C.W.J (1969): “Investigating CausalRelations by Econometric Models and Cross-Special Methods”, Econometrica, pp. 424-438.

Johansen, S (1991): “Estimation andHypothesis Testing of Cointegration Vectors inGaussian Vector Autoregressive Models”,Econometrica, Vol. 59, pp. 1551–1580.

Johansen, S and Juselius, K (1990): “MaximumLikelihood Estimation and Inferences onCointegrat ion—with appl icat ions to theDemand for Money”, Oxford Bul let in ofEconomics and Statistics, Vol. 52, pp. 169–210.

Johansen, S. (1988), “Statistical Analysis ofCointegration Vectors,” Journal of EconomicDynamics and Control, June-September, 231-254.

Kumar G (1992), Falling Agriculture Investmentand its consequences, Economic and PoliticalWeekly, Oct 17.

Shetty SL (1990), Investment in Agriculture:Brief Review of Recent Trends’, Economic andPolitical Weekly, Vol - XXV No. 7-8, February17.


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Empirical Study of logistics management in agricultural products ofRajasthan

*Ajit Singh Tomar,Research Scholar, Jaipur National University

**Dr. Niharika Maharshi,Associate Professor, Jaipur National University

AbstractThe post-harvest losses have been estimated at different stages in major food grains in Rajasthan.The data from 2007-08 to 2012-13 on area, production and productivity of two food grains havebeen under researcher analysis. The post-harvest losses have been estimated using the stratifiedsampling, data collected from farmers, wholesalers, processors and retailers in each crop in Rajasthanfor the year 2012-13. Tabular analysis has been used to calculate approximately the post-harvestlosses at different stages, and operative analysis has been used to assess the influence of socio-economic factors on post-harvest losses.

Wheat output has been increased due to increased wheat productivity in India. The post-harvestlosses at the farm level have been estimated to be 3.82 kg/ q for Oil seeds and 3.28 kg/q for wheat.The losses have been highest during storage in both the crops. The factors that influence the post-harvest losses significantly at the farm level have been identified and some policy implications havebeen suggested.

IntroductionProduced Food grains have to undergo a seriesof operations such as harvesting, threshing,winnowing, bagging, transportation, storageand processing before they reach the endconsumer, and there are appreciable losses incrop output at all the above mention stages. Arecent estimate by the Ministry of Food and CivilSupplies, Government of India, puts the totalpreventable post-harvest losses of food grainsat 10 per cent of the total production or about20 Mt, which is equivalent to the total foodgrains produced in Australia annually. In acountry where 20 per cent of the population isundernourished, post-harvest losses of 20 Mtannually is a substantial avoidable waste.

According to a World Bank study (2009), post-harvest losses of food grains in India are 8-10per cent of the total production from farm tomarket level and 4-5 per cent at market anddistribution levels. For the system as a whole,such losses have been worked out to be 11-15Mt of food grains annually, which included 3-4Mt of wheat and 5-7 million tonnnes of oil seeds.With an average per capita consumption ofabout 15 kg of food grains per month, theselosses would be enough to feed about 70-100million people, i.e. about 1/3rd of India’s pooror the entire population of the states of the Biharand Haryana together for about one year. Thus,the post-harvest losses have impact at both themicro and macro levels of the economy.


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Summary of Rajasthan agri statistics

S. Components Growth/No. Ratio1 Population dependent on Two-thirds

agriculture

2 Agriculture GDP at Rs79994.97current price Crore

3 Growth of Agriculture GDP 8.30%(Avg. from FY2001 to FY 2011)

4 Agricultural sectors 26%contribution in GSDP

5 Food Grain production 11283.4(Thousand Tonnes)

6 State’s contribution to 5.17%national food grain production

7 State’s rank in food grains 7th

production

8 Yield Kg/Hectare 890(of total food grains)

9 Total agricultural area 35%irrigated

10 Area under wells and 60-70%tube well irrigation

11 Rice Production 228.3(Thousand Tonnes)

12 Wheat Production 6326.5(Thousand Tonnes)

13 Oil Seeds production 4469.2(Thousand Tonnes)

Source: PHD RESEARCH BUREAU, Compiled from RBI andEconomic Review of Rajasthan 2010-11

The study on post-harvest losses in food grainsat different stages of their handling would helpassess the extent and magnitude of losses andidentify the factors responsible for such losses.This in turn would help develop propermeasures to reduce these losses. Evolvingcorrect policies for minimizing post-harvestlosses would crucially depend on reliable andobjective estimates of such losses at differentstages. This information is important forscientists, technologists, pol icymakers,administrators and industrialists.

The specific objectives of the present study are:(i) To measure the extent of post-harvest

losses in food grains, and(ii) To study the factors affecting post-

harvest losses.

Review of LiteratureReview of post harvest loss on food grains1. The research reported the estimates of post-harvest losses of rice and wheat in India atdifferent stages of post harvest operations andthe post-harvest losses were estimated usingthe survey data collected from 100 farmers, 20wholesalers, 20 processors and 20 retailers ineach crop in Karnataka for the year 2003-04.Tabular analysis was used to estimate the post-harvest losses at different stages, andfunctional analysis was used to assess theinfluence of socio-economic factors on postharvest losses at the farm level. The postharvest losses at the farm level were estimatedto be 3.82 kg/q for rice and 3.28 kg/q for wheat.The losses have been highest during storagein both the crops. The factors that influencethe post-harvest losses significantly at the farmlevel were identi f ied and some pol icy


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implications were highlighted.

2. The research found that the post harvestlosses at national level from producer to retailerwere 10.74 percent for Aman 11.71 percent forBoro, and 11.59 percent for Aus rice. Theestimated total post harvest losses of rice atfarm level in Bangladesh were 9.16 percent,10.10 percent and 10.17 percent for Aman,Boro and Aus respectively. Total post harvestlosses of rice at farm level is 85.28 – 87.77percent of the total post harvest losses and thestorage loss is 33.92 – 40.99 percent of totallosses at farm level. The storage loss of rice is(3.45 – 4.14 percent) and it is followed by drying(2.19-2.37 percent), harvesting (1.60-1.91percent), threshing (1.10-1.79 percent) andtransportat ion (0.87-1.13 percent). Theestimated total post harvest losses of rice atprocessor level in Bangladesh were 1.30%,1.30% and 1.13 percent for Aman, Boro andAus respectively while the estimated total postharvest losses of rice at wholesale level were0.17 percent, 0.18 percent and 0.19 percentfor Aman, Boro and Aus respectively and atretail level were 0.27 percent, 0.31 percent and0.28 percent for Aman, Boro and Ausrespectively.

Therefore, reducing the post harvest losses asmuch as possible is a vital concerning issue inachieving food security of Bangladesh. Clearlythe estimation of post-harvest grain losses andits management practices and capacities wouldminimize the magnitude of loss for theachievement of food security objective.

3. The research is about post harvest losses inIndia, the issues of supply chain and challenges

to improve the SCM and logistics to reduce thelosses. It highlights the food grain production,post harvest losses, warehousing role of FCIand current status of SCM, warehouse storageand need for improvement. It also suggest theareas for improvement to reduce post harvestlosses.

In India, the role of warehouses in the overallsupply chain was always underplayed. But thepresent concept of integrated supply chainmanagement has to focus on all componentsviz. transportation, warehousing, inventories,information etc. so as to improve the efficiencyof supply chain which is vital to the economyof the nation.

SamplingA stratified sampling design was adopted forthe ultimate selection of foodgrain-growingfarmers. The Alwar district (Rajasthan) with aoil seeds production of 234887 per hectare inthe state topped the list of oil seeds-growingdistricts. Hence, this district was selected forchoosing oil seeds-growing cultivators in thepreliminary stage of sampling. For wheat, kotadistrict with production of 193938 per hectarethe district stood first in the state. Hence, it wasconsidered for select ing wheat-growingcultivators in the first stage of sampling. In thesecond stage, two talukas were chosen fromeach of the selected districts and then fivevillages predominantly growing the selectedfood grains were chosen from each of theselected talukas. Finally, 10 foodgrains-growingfarmers in each vi l lage were randomlyinterviewed. In all, 50 cultivators growing oilseeds in Alwar district and 50 cultivatorsgrowing wheat in the Kota districts were


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selected at the rate of 25 farmers from eachtaluka. From each of the selected districts, 10wholesalers, 05 processors and 10 retailersdealing in each of these crops were alsointerviewed for eliciting information on post-harvest losses.

Analytical TechniquesFor computing the growth in area, productionand productivity of selected food grains,compound growth equation of the form Y= abT

was estimated. Averages and percentageswere used to compute the post-harvest losses.Information about post-harvest losses wasobtained from the farmers during followingoperations:(i) harvesting,(ii) threshing,(iii) cleaning/winnowing, and(iv) drying.

The information on following losses wascollected from the farmers as well as marketintermediaries:(i) Storage, and (ii) transit. The total post-harvest losses were estimated as a sum of allthese losses.

Functional analysis was carried out to examinethe factors affecting post-harvest losses in foodgrains. The following multiple linear regressionfunction was specified in the present study:

Y=a0+ a

1x

1+a

2x

2+a

3x

3+………..+a

6x

6+e

Where,Y=post-harvest losses of oil seeds/wheat atfarm level in Quintals per hectare.

X1= storage dummy which takes the value “0”if the storage facility was adequate and value”1"otherwise

X2=weather dummy which takes the value”0" ifthe weather during harvesting was favorableand value “1”otherwise

X3=Transportation dummy which takes thevalue”0" if transportation facility was adequateand value”1"otherwise

X4= Threshing machine dummy Which takesthe value”0" if availability of threshing machineduring harvesting was adequate ,”1", otherwise

X5= Weather dummy which takes the value “0”,if the weather during harvesting was favorableand value “1”, otherwise

X6= Grading dummy which takes the value “0”,if grading facility was adequate and value “1”.

e= Random error

Growth in Area, Production and Productivityof Oil seeds and WheatTo examine the temporal production pattern ofoil seeds and wheat, the growth analysis wasconducted with respect to their area, productionand productivity in the study districts, state andcountry. The area under oil seeds in the Alwardistrict registered a positive annual growth of1.59 per cent (Table 1) and the productionincreased at a moderate rate of 0.87 per centannually. However, the productivity witnesseda mild declining annual growth of -0.81 per cent.Thus, in the study district, increase in oil seedsproduction was Estimated Post-harvest Lossesin Oil seeds and Wheat.


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Table 1. Growth in area, production and productivity of oil seeds and wheat

S. Oil Seeds WheatNo. Particulars Alwar Rajasthan India Kota Rajasthan India

District State District State1 Area 1.59 1.40 0.62 -0.40 -0.20 1.672 Production 0.87 2.88 1.90 0.61 0.83 3.813 Productivity -0.81 1.51 1.27 2.24 2.08 2.11

The survey data revealed that average size offarm holding was 5.00 ha for oil seeds growers,and 6.24 ha for wheat growers. The samplefarmers were found growing oil seeds over anarea of 2.50 ha and wheat over 2.25 ha. Thesesample farmers obtained an average yield of43.96 q/ha of oil seeds and 13.70 q/ ha ofwheat. A majority of oil seeds-growers (44.00%)and wheat-growers (52.00%) belonged tomiddle age group of 35-50 years. Theproportion of illiterate farmers in the samplewas 19.67 per cent for oil seeds cultivators and21.67 per cent for wheat cultivators

Estimation of Post-harvest LossesThe estimated post-harvest losses per quintalof food grains produced or handled at differentstages are presented in Table 2. These wereestimated to be 3.82 kg/q in oil seeds and3.28kg/q in wheat at the farm level. Theselosses were maximum due to faulty storage(1.20 kg/q in oil seeds and 0.95 kg/q in wheat)in both the crops. Important factors leading tostorage losses were(i) non-availability of separate godowns for

storage,(ii) poor storage structures,(iii) presence of rodents, insects and

dampness, and(iv) Improper drainage at storage places.

The grain losses during the threshing activitywere estimated to be 0.52 kg/q in oil seeds and0.44 kg/q in wheat. The threshing losses weremainly in the form of broken grains, which wereslightly higher, when the produce was threshedby machine as compared to manual threshing.The threshing losses were still higher whenpower threshers were used. However a majorityof the producers preferred power threshers dueto their cost and time advantage


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Table 2. Estimated post-harvest losses at different stages in oil seeds and wheat:

Stages Oil seeds WheatLoss Loss Loss Loss(kg/q) (%) (kg/q) (%)

I. Farm level lossesHarvesting 0.40 7.70 0.36 8.33Threshing 0.52 10.02 0.44 10.19Cleaning/winnowing 0.20 3.85 0.14 3.24Drying 0.80 15.41 0.66 15.28Storage 1.20 23.11 1.95 21.99Transportation 0.50 9.63 0.51 11.81Packaging 0.20 3.85 0.22 5.09Total losses at farm level 3.82 73.57 4.28 75.93

II. Wholesale level lossesStorage 0.12 2.31 0.08 1.85Transit 0.17 3.27 0.12 2.78Total Losses at farm level 0.29 5.58 0.20 4.63

III. Process level lossesStorage 0.01 0.17 0.01 0.19Transit 0.01 0.15 0.01 0.14Grain Scattering 0.01 0.10 0.01 0.14Total losses at processor level 0.03 0.42 0.03 0.47

IV. Retailer level lossesStorage 0.53 10.21 0.41 9.49Transit 0.32 6.16 0.25 5.79Handling 0.21 4.04 0.16 3.70Total losses at retailer level 1.06 20.42 0.82 18.98

Total Post-harvest losses 5.20 100.00 4.32 100.00


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The losses due to drying operation in grainswere estimated to be 0.80 kg/q in oil seeds and0.66 kg/q in wheat. These were mainly due touse of traditional methods of drying by thefarmers. The grain losses as a result of faultytransportation were estimated to be 0.50kg/qin oil seeds and 0.51 kg/q in wheat. A majorityof the producers used bullock carts and tractorsto transport the produce to different marketplaces. The losses were noticed during loadingand unloading of produce during transportation.

Grain losses during harvesting were estimatedto be 0.40kg/q in oil seeds and 0.36 kg/q inwheat. These losses were mainly due toshedding of grains. The amount of lossesdepended on the crop stage and time ofharvesting. The losses during cleaning/winnowing operation were estimated to be 0.20kg/q in oil seeds and 0.14 kg/q in wheat. Thepacking losses were estimated to be 0.20 kg/qin oil seeds and 0.22 kg/q in wheat.

The average post-harvest losses per farm wereestimated at 4.20 quintals for oil seeds and 1.01quintals for wheat. The average losses per haworked out to be 1.68 quintals for oil seeds and0.45 quintals for wheat. Nag et al. (2000) havereported that post-harvest losses in chickpeawere 6.97 per cent of production.

Market Level Losses

The total post-harvest losses at wholesalerlevel were 0.29 kg/q in oil seeds and 0.20 kg/qin wheat. The storage losses in oil seeds andwheat at the wholesaler level were 0.12 kg/q,and 0.08 kg/q, respectively. The othercomponent of post-harvest losses at this stage

was transit losses of 0.17 kg/q in oil seeds and0.12 kg/q in wheat. The transit losses weremore because of the use of unsuitable transportcontainers, negligent driving and rough roads.The post-harvest losses at the processor levelwere negligible (0.03 kg/q) at less than one percent of the quantity handled in both the foodgrains. The post-harvest losses at the retaillevel were 1.06 kg/q in oil seeds and 0.82 kg/qin wheat. The transit loss was 0.32 kg/q in oilseeds and 0.25 kg/q in wheat. The losses dueto spoilage and multiple-handling of produceduring retailing were 0.21 kg/q in oil seeds and0.16 kg/q in wheat. The post-harvest losses atthe retailer level due to storage were 0.53 kg/qin oil seeds and 0.41 kg/q in wheat.

Total Post-harvest Losses in Food GrainsThe total post-harvest losses worked out to be5.19 kg/q in oil seeds and 4.32 kg/q in wheat.The losses were maximum at the farm level(3.82 kg/q in oil seeds and 3.28 kg/q in wheat)accounting for 73.57 per cent and 75.93 percent of the total post-harvest losses,respectively. The market level losses were 5.59per cent in oil seeds and 4.63 per cent in wheatof total post-harvest losses. The losses atprocessor level were less than 0.50 per cent ofthe total losses. The losses at retail level were20.42 per cent in oil seeds and 18.98 per centin wheat. The post-harvest losses wererelatively more at retail than at wholesale level.Hence, proper storage arrangements at retaillevel are needed.

Conclusions and Policy ImplicationsThe study has estimated post-harvest lossesin two major food grains, viz. oil seeds andwheat. It has been found that about 75 per cent


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of the total post-harvest losses occur at thefarm level and about 25 per cent at the marketlevel. The post-harvest losses at farm levelhave been observed as 1.68 q/ha in oil seedsand 0.45 q/ha wheat. On per farm basis, thesehave been estimated to be 4.20 quintals in oilseeds and 1.01 quintals in wheat. The storagelosses at different stages have added up toabout 35.80 per cent of the total post-harvestlosses in oil seeds and 33.52 per cent in wheat,while harvesting and threshing operationstogether have accounted for about 17 per centof total losses in both the crops. Transit lossesat different levels have been importantcomponent of post-harvest losses, contributingto about 20 per cent of the total losses. Thefunctional analysis has revealed that educationlevel of farmers and bad weather conditionsinfluence the post-harvest losses significantlyat farm level in both the food grains, whileinadequate availability of labour and faultystorage method influence the post-harvestlosses positively and significantly in oil seedsand wheat, respectively. Educating and trainingthe farmers on post-harvest operations wouldgreatly help in reducing the post-harvest lossesin food grains. The establishment of small-sizecold storage units in the production centerswould help reduce the storage losses. In thisdirection, the zero energy cool chamberstechnology developed by the Indian Council ofAgricultural Research needs to be popularized.

References• Atibudhi, H. N., (1997) An estimation of

post-harvest losses of onion and itsmanagement in Nawapada district ofOrissa, Indian Journal of AgriculturalMarketing, 11(1&2): 26-30.

• Azim, I. I. (1980). Post harvest loss dueto storage pests in various crops inBangladesh, Post Production Workshopon Food Grains, December 12-14,BCSIR, Dhaka Bangladesh.

• Bala, B.K. (1978). Post harvest losses ofpaddy in Bangladesh. AMA. 9(4), 54-56.Tokyo, Bala, B.K, Haque, M.A., HossainM.A. and Majumdar, S. (2010). Postharvest loss and technical efficiency ofrice, wheat and maize production system:Assessment and measures forstrengthening food security.

• Basappa, G., Deshmanya, J. B., and Patil,B. L. (2007). Post harvest losses of maizecrop in Karnataka – An economicanalysis. Karnataka Journal ofAgricultural Science 20(1), 69-71.

• FAO, (1977) Analysis of an FAO Surveyof Post-harvest Crop Losses inDeveloping Countries, AG PP, Misc,27,FAO, Rome, Italy.

• FAO, (1980) Assessment and Collectionof Data on Post-harvest Food GrainLosses, FAO Economic and SocialDevelopment Paper 13, FAO, Rome, Italy.

• Gauraha, A. K., (1997) Economicassessment of post-harvest losses invegetable crops, Indian Journal ofAgricultural Marketing, 11: 38-39.

• Nag, S. K., S. B. Nahatkar and H. O.Sharma, (2000) Post-harvest losseses ofchickpea as perceived by the producers


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of Sehore distr ict of MadhyaPradesh,Agricultural Marketing, (Oct-Dec): 12-16.

• PHD RESEARCH BUREAU, Compiledfrom RBI and Economic Review ofRajasthan 2010-11.

• Singh, P. K. A decentralized and holisticapproach for grain management in India.current science, vol. 99, no. 9, 10november 2010, 1179-1180.

• World Bank Report, (1999) Post-harvestManagement – Fights hunger with FAO,India Grains, March 2002, 4(3): 20-22.


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Mughlai Darbar – The CRM Flavour to the Mughlai Cuisine

Md. Shahnawaz AbdinAssistant Professor

Department of ManagementFaculty of Management and Information Technology

Jamia Hamdard, New Delhi-110062

Shah Fahim AlamPhD scholar

Department of ManagementFaculty of Management and Information Technology

Jamia Hamdard, New Delhi-110062

AbstractThe case study talks about Mughlai Darbar, a restaurant that specializes in Mughlai cuisines. Theprotagonist in the case, Mr. Azeem Siddiqui got the idea of starting a new restaurant while he waspreparing for a perfect wedding show for his best friend. He had a firm belief that Indians would lovethe Mughlai flavor and hence christened the restaurant as “Mughlai Darbar”. The management ofthe restaurant wanted to create lifetime customer loyalty and hence took CRM (Customer RelationshipManagement) very seriously. They also used information technology to their advantage. They wentonline for orders, reservations and feedback. Social media was also used to its full potential. Themanagement of the restaurant was very keen on feedback. They were never disheartened withnegative feedbacks. Rather, they took it as a guiding block to march ahead. The promoters of therestaurant maintained a highly personal touch with their customers and treated them especially ontheir special occasions. The case highlights the importance of CRM and its advantage to a business.

Azeem Siddiqui had been busy all day puttingup a perfect wedding show for his friend. Beinga groom’s best friend, not only was he entrustedthe job of putting the house in order but wasalso expected to do so with a smile. As he satdown along with his friends to relish thedelicacies being served at the dinner, he couldnot help doing the calculations in his mind thatthe zeal for good food served in a perfect waycould make delhiites stand in a beeline forhours and that’s when the idea of starting up arestaurant serving the best available food cameto his mind which could be the ultimate answerto the craving taste buds of the people residingin Delhi.

As he wished the his friend dressed as anhandsome groom a lovely married life ahead,he had given himself a little pat on the back fora new idea which would take him to a newjourney in his life. A young mind brewing withan idea claiming good monetary benefits wasnot such a welcome idea for his family memberswhom he had asked for financial support. Andas always, after hearing a no from the familymembers, Azeem like any other young guy ranto seek solace in the company of his friends,unaware of the fact that he would be findinghis future business partners in his pals. After alittle bit of cajoling, he knew that he had twopeople with him who believed in his dream and


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who believed that together all three of themcan provide the people with the best food beingserved in and around Delhi and thus a jointlyowned restaurant by Azeem Siddiqui, AbhishekJacob and Ajay Negi came into existence on1st January 2010.

Once the initial finances were arranged for, thenext step was to decide the type of food therestaurant would be serving. Since all three ofthem unanimously shared the passion forMughlai food, deciding on the menu was nevera difficult task. A whole lot of study was doneon the history of Mughlai food in the countryso as to get the nitty griities of the restaurantbusiness absolutely correct.

The three youngsters decided to sit with theirgrandmothers to bring that homemade taste intheir food which would make people even eattheir fingers. They knew that with such stiffcompetition in the market, the least they coulddo is to be complacent with the food quality attheir restaurant.

They knew that the diverse culinary habits, widerange of cuisines and the diverse cookingtechniques are some of the main factors behindthe growth of restaurants in India. With themarket liberalization policies undertaken by thegovernment, India has also become aconsumer market with a huge customer base.This has provided a fillip to the restaurantindustry in the country. With the high standardof living and the change in the lifestyle of thepeople, more and more consumers are alsoflocking various restaurant.

Abhishek specifically believed that the growthof the tourism industry has also been a positivefactor behind the growth of restaurants in India.

He knew that the future of the restaurantindustry looked bright. With the increase indemand, the consumer patterns, the profit ofthis industry will be significantly rising.

One common factor that got all three of themvery excited was that the cuisine of India is asvast as its people. Each and every ethnic grouphas its own distinctive food preferences alongwith their different culture.

They knew that the Mughals brought their rich,aromatic food culture in India and which is nowan important part of the Indian culinary culture.Quite ideally therefore, apart from giving thegreatest architectural monuments, the Mughalsalso changed the country‘s cooking by mergingMiddle Eastern cuisine with Indian spices andingredients to give the most beautiful Mughlaicuisine.

Ajay Negi firmly believed that the Mughalinfluence on Indian food is immense. For him,Mughlai cuisine was one of the most richest,popular and lavish cuisines in the country.

The Mughal influence on Indian food supportedthe evolution of Indian food to a great extent.Marriages of Mughal rulers to several Rajputprincesses added a new dimension to theMughal cuisines.

The reigns of Jahangir and Shah Jahan,marked the evolvement of bountiful dishes inIndian cuisine. In the mean time, the Nizams


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of Hyderabad developed Biryani as their ownstyle of cooking, which is now considered asone of the main dishes in India.

Apart from the introduction of new dishes, theinfluence of Mughlai cuisine on Indian food alsopresented the novel idea of using aromaticspices in cooking.

People in India are crazy about Mughlaicuisines. Some of the popular Mughlai dishesbeing served in the restaurant Mughlai Drabarare, Aloo Ka Raita, Carrot and Capsicum Raita,Badaam Halwa, Chicken Korma, ChaampMasala or Lamb Chops Curry, Chole or Chane,Kesar Chawal, Chicken Tikka, Jhinga MalaiCurry or Creamy Prawn Curry, Naan a type ofIndian Bread, Palak Gosht, Palak Paneer,Seekh Kebabs, Tandoori Chicken Legs orGrilled Chicken Drumsticks and the mostfavourite dish Biryani.

Upclose and personal with the customersBeing a new restaurant on the outskirts ofFaridabad, the owners knew that they wouldhave to create loyal customer base by providingquality food and service to make profits in thelong term. They knew that people never forgetgood food served in any part of the capital andonly tasty delicacies would bring them againand again to the restaurant.

However, Azeem remembered that he used tobe emotionally attached to that restaurantwhose staff would remember his face andwould give him friendly and appreciative smilesevery time he would visit them.

This made him understand the importance ofCustomer Relationship Management in orderto make the restaurant a success.

He along with ideas from Abhishek and Ajayformulated a fool proof CRM database wherethey would keep record of those customers whowould visit the restaurant often and wouldprovide them with special offers and discounts.

Let’s go online!Mughlai Darbar created an interactive websiteseeking valuable feedback from theircustomers. The owners created an opt-in formon the company’s website so that visitors cansign up for specials and promotional offers.

Once the visitors clicked on the subscribebutton, they start receiving mails from therestaurant in case of the special offers beingput on the platter by the restaurant and anynew schemes being started by the restaurantowners for the customers.

The customers who usual ly throng therestaurant were provided with the option ofunsubscribing from the website so that in casethey feel that they are not getting any valuableinformation from the restaurant, they candeactivate themselves from such service.

To automate this process, the owners startedusing Autoresponders. And thus the restauranthad the computer programmes whichautomatically started answering the e-mailssent to it.

The policy makers believed that on an average,it takes at least five or more contacts with most


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of your potential customers before they finallydecide to buy, or in this case, go to yourrestaurant. They believed that the customersget busy and forget.

Using an autoresponder system, the ownersstarted sending emails to the people whosubscribe to the site. Usually, the first emailwould be sent with the coupon the same daythey subscribe to the list on the website. Then,three days later a reminder is sent to thecustomers to visit the place (if they haven’tdone so). The owners can keep a track whetheror not they visit you and delete these customersfrom the autoresponder if they don’t respond.If they would still not visit the place, the ownerswould follow up with another autoresponder aweek after that.

Meanwhile, while the top management runs therestaurant, all these processes happen in thebackend. In such a scenario, the marketingteam doesn’t have to make sales calls orremember to email the potential customers.The team doesn’t have to enter each newprospect into the database; since that isautomatic. All the team has to do is to keep thetrack of the new customers coming to therestaurant and delete them from the initialautoresponders so that they don’t get annoyedby the automatic emails reminding them to visitthe restaurant, since they already did.

With an autoresponse program, the marketingteam monitored that how many emails wereopened, how many readers clicked through,what geographic regions bring the bestresponses, and more.

The marketing team of Mughlai Darbar hasbeen using this program for a while in manycreative and profitable ways such as to –§ Deliver a series of staggered reminders

to use the coupon that they’ve receivedwhen they subscribe to the website.

§ Send your regular daily, weekly, ormonthly newsletter.

§ Start a reminder service to keep the staffaware of the customers’ importantbirthdays, anniversaries, etc.

§ Communicate the special events to thecustomers.

In order to collect the information regarding theemail addresses from the customers, therestaurant owners stared using the nifty gadgetcalled Sterizon wiZit. The Sterizon wiZit is asmall wireless, portable, handheld WiFi devicewhich the team has been using for collectingcustomer information and feedback at therestaurant. The device is handed out to thecl ients where they enter the requiredinformation themselves. No spelling mistakes,no errors with emails, the customers do the jobof garnering the correct information.

With the email campaigns, the restaurant hasbuild up a loyal customer base which getsannual birthday and anniversary cards from therestaurant and thus helps the restaurant tostrike an emotional chord with the customers.The marketing team has also created onlineOrkut and Facebook accounts, thereby,updating their customers who access theaccounts about the events and offers beingintroduced by the restaurant. Moreover, thespecial discounted schemes are also beingannounced through the websites.


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Getting feedback about the restaurant is,perhaps, one of the best ways that the decisionmakers at the restaurant have used to improvethe business.

Giving feedback requires time and energy, yetonce the feedback form was enclosed alongwith the bill, most customers didn’t bother tellingthe owners about the food served, the serviceoffered and the ambience.

It is true that most of the feedback receivedinitially was negative. But the team very keenlytook all the negative comments in stride andworked on improving the loopholes. Themarketing team didn’t take much time tounderstand that people are mostly moved byemotions and nothing motivates a person toact more than expressing their feelings aboutwhy their dining experience was ruined. Was itbecause of the food, service, ambience, orsome combination of them?

Receiving feedback was often anuncomfortable activity. Since the brickbats werenever very pleasing to the mind and the heartbut such feedback always motivated theowners to provide a new improved MughlaiDarbar every time the customers would revisit.

However, the criticism from the customers wasa welcome gesture since i t helped therestaurant owners to know that when do theyhave to react when the services are not up tothe mark or when the ambience is not appealingenough to the senses of the customers.

The feedback was collected by getting theforms filled from the customers by providing

them with the forms along with the bills and bykeeping feedback cards on the tables, so thatthe customers can f i l l them as per theconvenience either during the meal or after themeal. This method has been very effective incollecting the considerable data which hashelped the owners in making t imelyimprovements in the services being providedby the restaurant.

Mughlai Darbar has also won accolades fromthe customers by introducing the service ofproviding an opportunity to the customers tofix reservations online or through phone callsand also to make orders for the home deliverythrough the same medium.

The results collected through this initiativeproved that customers had been spending 20%to 30% more while ordering online as againstthe same customers having a meal at therestaurant.

The marketing team also took the initiative ofpromoting those dishes more among thecustomers who had higher profit margins.

Leaving the footprintsAs the thinking tank of Mughlai Darbar sat downto lay down a strategy to promote the restaurantservices at a greater speed and to take therestaurant to a higher level, they knew that theywould have to focus upon three areas whichthey summarized as –§ Increasing the number of clients who

come to your restaurant.§ Increasing the amount of money that they

spend per visit.


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§ Increasing the frequency of their visits(number of times that they dine at therestaurant).

The marketing team knew that increasing thenumber of clients not only implied adding tothe existing customer base. Rather it alsoimplies bringing the old customers back.

Apart from using the usual ways for promotioncomprising of newspaper ads, radio jingles andadvert isements through hoardings andbillboards, the team also invested huge amountof money in promoting the restaurant by usinga formalized referral system, through usingcoupons and through word of mouthpromotional activities. Moreover pamphlets aredistributed among the local people residing inand around the restaurant which has resultedin increasing sales for the restaurant.

In order to increase the frequency of the visitsof the customers, the restaurant ownersdecided to improve the ambience of the

restaurant. Along with it, more emphasis waspaid on providing heavy discounts to the regularcustomers who frequently visi ted therestaurant. Regular customers are alsoprovided with membership cards which helpthem to avail special discounts and offers.

A good deal of marketing is also done by theteam of Mughlai Darbar by sending textmessages to the customers on every specialoccasion such as new year, or the birthday oranniversary of the customers. Since, textmessages are more personal in nature; theyhelp to create faithful relations with thecustomers.

Mughlai Darbar effectively uses Customerrelationship management database that theycollect while being in constant touch with thecustomers. Not only do they keep elongateddatabases of the customers but they also tryto win lifelong loyalty of the customers bytreating them especially on their specialoccasions.

Some imperative facts and figures:Quarterly Jan to April to July to Oct to Jan to April tofigures March 2010 June 2010 Sep 2010 Dec 2010 March 2011 June 2011Expenses incurred 2,00,000 2,45,000 3,15,000 3,86,000 4,00,000 4,15,000(in rupees)No. of Customers 495 768 1087 1356 1267 1390Profits made 3,23,000 3,95,000 4,34,000 3,63,000 4,12,000 2,87,000


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