IILM Management Review

VOLUME 2 ISSUE 1 JUNE 2014

R IM THE JOURNAL OF IILM INSTITUTE FOR HIGHER EDUCATION

VOLUME 2 ISSUE 1

IILM MANAGEMENT REVIEW

JUNE 2014 200

Reinventing India’s Public Sector

?

A New Vision For The Public Sector In India

By Dr. V. Krishnamurthy, Chairman, National Manufacturing Competitiveness Council (NMCC)

Theme

?

Rediscovering Leadership In Public Sector Enterprises

By Dr. U.D. Choubey, Director General, SCOPE

?

Unlocking The Power Of Brands

By Ramesh Chauhan, Chairman, Bisleri International Pvt Ltd

First Person

?

Passion For Business: Challenges Toward Success

By Naveen Munjal, Managing Director, Hero Eco Group

?

Redefining Financial Inclusion

By M.G. George Muthoot, Chairman, The Muthoot Group ?

Values-centred Innovation As Central To Business Strategy

By Deepak Thombre, Senior Executive Director, Dalmia Bharat Group ?

The Changing Landscape Of Public Affairs In India

By Ajay Khanna (President, Jubilant Organosys) and Harish Krishnan (Executive Director, Cisco Systems India); co-founders of the Public Affairs Forum of India (PAFI)

Research@Work

?

Indian Banking: Turbulence In The Industry

By Jyoti Prakash Gadia, CEO, Resurgent India

Website : www.iilmlr.ac.in

Join us on :

: http://www.twitter.com/iilminstitute : http://www.linkedin.com/company/iilm

: http://www.youtube.com/user/iilmhigheredu

: http://www.fb.com/iilminstitute : http://www.flickr.com/photos/iilm/

IILM MANAGEMENT REVIEW

IILM Institute for Higher Education Rai School Complex, Institutional Area, Lodhi Road New Delhi - 110003

?

The New Digital Age: Reshaping the Future of

People, Nations and Business

Book Review

IILM MANAGEMENT REVIEW

Board of Editors ANJAN ROY Economist & Corporate Advisor New Delhi.

BHASKAR DUTTA Professor of Economics University of Warwick United Kingdom.

KIRANKUMAR.S.MOMAYA Professor of Strategic Management Shailesh.J.Mehta School of Management Mumbai.

P.K.JAIN Professor of Finance Indian Institute of Technology (IIT) New Delhi.

SAPNA POPLI Senior Director Professor of Marketing, IILM

Contents Theme ?

A New Vision For The Public Sector In India 12

By Dr. V. Krishnamurthy, Chairman, National Manufacturing Competitiveness Council (NMCC) ?

Rediscovering Leadership In Public Sector Enterprises 16

By Dr. U.D. Choubey, Director General, SCOPE

First Person ?

Unlocking The Power Of Brands 22

By Ramesh Chauhan, Chairman, Bisleri International ?

Passion For Business: Challenges Toward Success 29

By Naveen Munjal, Managing Director, Hero Eco Group

Research@Work

SUJATA SHAHI Senior Director Professor - OB/HR, IILM

?

Redefining Financial Inclusion 33

RAKESH CHAUDHRY Director, Teaching and Learning Professor of Strategic Management, IILM

?

Values-centred Innovation As Central To Business

RAHUL K. MISHRA Dean Associate Professor-Strategy, IILM SMITHA GIRIJA Director, PGDM Professor of Marketing, IILM

By M.G. George Muthoot, Chairman, The Muthoot Group Strategy

By Deepak Thombre, Senior Executive Director, Dalmia Bharat Group

41

?

The Changing Landscape Of Public Affairs In India 55

By Ajay Khanna (President, Jubilant Organosys) & Harish Krishnan (Executive Director, Cisco Systems India); co-founders of the Public Affairs Forum of India (PAFI)

VANDANA SRIVASTAVA Director, IILM Undergraduate Business School Professor of Operations & Information System

?

Indian Banking: Turbulence In The Industry 60

EDITOR: GEORGE SKARIA

Book Review

Research Associate: Shipra Jain Design by: Cream Group Printed & Published by: Rajiv Kumar on behalf of IILM Institute for Higher Education and Printed at: Pushpak Press Pvt Ltd., 153, DSIDC Complex, Okhla Industrial Area - I, New Delhi and Published at: IILM Institute for Higher Education, 3, Lodhi Institutional Area, Lodhi Road, New Delhi Editor: George Skaria Copyright © 2014 IILM. All Rights Reserved

By Jyoti Prakash Gadia, CEO, Resurgent India

?

The New Digital Age: Reshaping the Future of People,

Nations and Business

By Professor Rahul K. Mishra

75

IILM MANAGEMENT REVIEW

The Editorial Mission Statement IILM Management Review (IMR), the bi-annual journal of the IILM Institute for Higher Education is intended to be research-oriented, scholarly in nature with editorial contributions from the fields of management, business and economics. The primary target of readers are professional managers. Another yardstick for potential papers or articles in IMR would be whether they could be taught to a group of business or management students. In a broad sense, IMR seeks to reach out to thought leaders who influence leadership, management and practice through teaching, consulting, managing and other professional activities.

Ideally, articles should be based on research evidence, either quantitive or qualitative. Papers could include what we already know about academic literature but advance our knowledge in the areas of business, management and economics, be they reviews of themes of particular topics, those that have implications for society or public policy and from areas that have been neglected largely in prior research.

India is increasingly becoming a global engine of growth and a lot of this growth is being driven by Indian corporations. The country has several well-acclaimed business schools, great managers and reasonably good academic research, but so far, there is no single publication that captures this growing dynamism to disseminate lessons from success and failure. Further, research from the business side is far and few between. At another level, India is also grappling with issues of poverty and corruption. This calls for greater focus on social sector management and governance.

Through the Journal, in course of time, we hope to:

! provide a thought leadership platform for Indian business and non-business managers, academics, policy makers and students of management.

! create a world-class management publication to record, understand and disseminate research and knowledge on best practices in Indian business and nonbusiness organisations.

! create a forum for discussing and validating new research, ideas and management innovation across the country and possibly in the future, in emerging economies.

! build a knowledge network involving business schools, academic researchers, business managers, government and other social institutions.

! develop in part a global Indian view of management theory, research and practice.

IILM MANAGEMENT REVIEW

New Era, New Thinking India is at the crossroads once again: after ten years, the United Progressive Alliance (UPA) government has moved on and a new muscle-powered BJP government is in power. Ever since the economic reforms of 1991 and especially in the last decade, while the private sector gained from strength to strength, one segment of the industrial sector, the Public Sector, saw its fortunes yo-yo. At various points of time of the UPA regime, the Public Sector was sought to be revived as an overall entity, but the government never made a strong and sustained effort. On the other hand, even though the BJP seems to, at face value, present a picture of free market economy, its traditional roots of Swadeshi cannot be forgotten. It is at this juncture of the Indian economy that the third edition of IILM Management Review (IMR) takes a critical look at the Public Sector as its main Theme.

In management and economic discourse, the Public Sector is often a neglected theme.

We therefore felt that it was important to bring a debate on this theme upfront once again especially when the new government is taking its first baby steps. And who better than Dr. V. Krishnamurthy, the Chairman of the National Manufacturing Competitiveness Council (NMCC) can give us a heightened roadmap? A doyen of public sector in India with the distinction of having been the chairman of three PSUs – BHEL, Maruti and SAIL – he has close links with both the Congress and the BJP. Therefore, it is likely that his views will be taken seriously even by the new government.

While Dr. Krishnamurthy gives us a 40, 000 feet view, Dr. U.D. Choubey, the Director General of the Standing Conference of Public Enterprises (SCOPE) takes a deep dive on the issue of leadership talent development in PSUs. Both these papers together form the package of the Theme section in the current edition.

We have introduced a new section in this edition of IMR: First Person. In keeping with IMR’s mandate to bring the best of top practitioners from India and overseas largely in a research format, we felt that sometimes the views and stories from the CEOs can best be captured in a first person format. Ramesh Chauhan, the iconic veteran Chairman of Bisleri International and a younger Naveen Munjal, Managing Director of Hero Eco Group from the Munjal family share their views on how they built their respective brands and companies, the challenges and what were the lessons learnt.

The traditional Research@Work section including papers from those like M.G. George Muthoot, Chairman of The Muthoot Group and a Book Review section complete this edition.

We bring IMR-3 after a hiatus and we apologise for the same.

IILM MANAGEMENT REVIEW

Profile of Authors Dr. V. Krishnamurthy is the Chairman of The National Manufacturing Competitiveness Council and Former Member of National Advisory Council, PM's Council on Trade and Industry, PM's Trade and Economic Relations Committee, PM's Energy Coordination Committee and PM's High Level Committee on Manufacturing in the Manmohan Singh Government.

He was the Chairman and CEO of Bharat Heavy Electricals Limited (BHEL) in 1972-1977, of Maruti Udyog Limited in 1981-1990 and of Steel Authority of India Limited (SAIL) in 1985-1990.

Dr. V. Krishnamurthy

Dr. Krishnamurthy has represented India in various international forums and bilateral negotiations and is also associated with Public Enterprises Selection Board, Telecom Restructuring Committee, Committee to Determine the Policies of Disinvestment in Public Enterprises and is Chairman, Committee on “Synergy in Energy�.

Dr. Choubey is the Director General of Standing Conference of Public Enterprises (SCOPE), an apex body of Public Sector Enterprises in India. Previously he was the Chairman and Managing Director of GAIL, from 1st February 2007 to 31st July 2009. He has been the Member of Council of The Institute of Company Secretaries of India, Executive Committee of India International Centre, Executive Committee of Central Board of Trustees (EPF), Ministry of Labour & Employment.

Dr. Upendra Dutta Choubey

He has also held the post of Director (Marketing), GAIL from 6th May 2004 to 31st January 2007 and was responsible for marketing GAIL s complete range of products and services in the field of natural gas, including R-LNG, LPG, Propane and other liquid hydrocarbons, Petrochemicals (HDPE and LLDPE) and Bandwidth Leasing in Telecom sector.

He joined GAIL in April 1986 during its formative period and was associated with the Marketing Department in the early days. Throughout his professional career, has played a leading role in the development of gas-related policies and strategy.

IILM MANAGEMENT REVIEW

Mr. Ramesh Chauhan is the Founder, Chairman and Managing Director of Bisleri International Pvt. Ltd., India's largest bottled water brand. With a career spanning over 40 years, his undying determination and vision has made Bisleri a premium bottled mineral water brand and a household name.

Known for being ahead of his time, Mr. Ramesh Chauhan at the age 27 took the bold step of introducing bottled water to Indian markets. This came at a time when paying for bottled water was unheard of. Soon, in 1969 Parle Exports bought over Bisleri (India) Ltd and started selling bottled mineral water. Today, brand Bisleri is a name synonymous with pure bottled water and is the No.1 brand in the industry.

Ramesh Chauhan

The company, under his remarkable leadership has also ventured into the premium natural water segment. In addition to Bisleri, he is credited with creating many of India's super brands including Thums-up, Goldspot, Citra, Maaza and the ever popular Limca. During his tenure at the Parle Group he expanded the company's franchisee network which gradually transformed every Indian into a softdrink consumer. Currently Bisleri has 11 franchisees and 8 plants across India, with plans of setting up 4 new plants on the anvil.

Mr. Chauhan is a graduate from the Massachusetts Institute of Technology, Boston with a degree in Mechanical Engineering and Business Management. Currently settled in Mumbai (India), he spends is leisure time playing lawn tennis.

Naveen Munjal is the Managing Director of the HERO Eco Group. With a career spanning almost 19 years, Naveen has completed three additional successful stints within the HERO Group as Deputy Chief Executive HERO Cycles Ltd., Deputy Chief Executive HERO Corporate Services Ltd., and Chief Executive HERO Exports, the international marketing arm of the Group, before leading the Group's venture into electric vehicles, under the brand HERO Electric, a wholly owned subsidiary of the HERO Eco Group. Naveen spearheaded the global expansion drive of HERO Eco Ltd in 2011-2012 with the acquisition of the electric two-wheeler business of UK headquartered, Ultra Motor.

Naveen Munjal

Naveen has passionately been working in the electric vehicle industry since 2000, years before the HERO Eco Group's launch of electric two-wheelers in 2007. He took the challenge of building the Group's electric two-wheeler business with strong focus on innovation, process re-engineering, expansion of distribution and scale. Due to this HERO Eco has retained its position as the market leader.

In 2008, he was instrumental in founding the Society of Manufacturers of Electric Vehicles (SMEV), the only representative body of the Indian electric vehicle industry globally. He chairs SMEV as its President and is known as the thought leader for the electric vehicle industry globally. During his leadership, the Indian Government has announced the National Electric Mobility Mission Plan (NEMMP) for the promotion and usage of electric vehicles in India.

IILM MANAGEMENT REVIEW

Hailing from a small town in Kerala, Shri M.G. George Muthoot took over as Chairman of The Muthoot Group in 1993 and built a formidable business empire comprising 16 divisions. A graduate in Mechanical Engineering from Manipal Institute of Technology, he joined the family business at a very young age.

A visionary in transforming the landscape of banking and finance in the country and the industrial geography in Kerala, he revolutionized and unlocked the potential of gold jewellery into an economically productive asset and initiated thousands of rural and semi-urban Indians into the banking net for the first time.

M. G. George Muthoot

Under his able leadership, Muthoot Finance Limited, the flagship company of the Group became the largest gold financing company in India and the first-ever NBFC to join the ' Rs 1000 crore net profit club'. Since listing in May 2011, the company has disbursed INR 2,97,543 crores as easy secured loans, out of which INR 98,682 crore is disbursed in rural and semi urban areas, making it a pioneer financially inclusive organisation. The company, with 30,000+ strong workforce and a dominant presence in almost all states and Union Territories of India is also expanding globally thereby, affirming its major role in the economic growth of the Nation.

His unwavering focus on principles of ethics, values, reliability, dependability, trustworthiness, goodwill, integrity, sound governance and prompt service to customers have contributed in great measure to the growth of The Muthoot Group.

It is due to his untiring efforts that the perception of gold loan NBFCs have evolved into now being perceived as being credibly involved in the mainstream financial sector of the economy.

Presently, he is the National Executive Committee Member of FICCI, current Chairman of FICCI Kerala State Council and Lay Trustee of the Malankara Orthodox Syrian Church. He has also been a recipient of numerous national and international accolades.

IILM MANAGEMENT REVIEW

Mr. Deepak Thombre is a Mechanical Engineer and has Masters in Management Studies from Jamnalal Bajaj Institute of Management Studies, Mumbai. Mr. Thombre has 34 years of work experience, in reputed corporate. He has worked across various Industrial segments, like Iron & Steel, Cement, Chemicals, Engineered materials and in different types of organizations including Multinationals as well as family owned companies.

Deepak Thombre

Mr Thombre is currently a member of the senior leadership team of the Dalmia Group. Until recently he was the MD & CEO of SNCCIL (A Dalmia Group Company). He recently assumed charge as the “Values Ombudsman� of the Dalmia Group, and is working closely with the Dalmia family in this role, with the responsibility for building a unique culture & values across the Dalmia Group.

Ajay Khanna is the President-Strategy & Corporate Affairs at Jubilant Organosys Ltd. He holds a degree in Commerce from Shriram College of Commerce, India; & a degree in Law, Delhi University.

Formerly, he was for 27 years with the Confederation of Indian Industry responsible for the relationship with World Economic Forum including as head of the team organising India Economic Summit and ensuring India's participation at Annual Meeting and regional summits.

Ajay Khanna

His career milestones include: 1999-2008, Deputy Director-General, CII; 2002-06, Founding Chief Executive, India Brand Equity Foundation; in 2006, led India Everywhere Campaign for IBEF and CII at Davos; 2008-09, Partner, Accenture India responsible for managing relationships with governments and corporates.

He was also Vice-Chairman, World Economic Forum Global Agenda Council on India and is a Co-Founder, Public Affairs Forum of India (PAFI).

IILM MANAGEMENT REVIEW

Harish Krishnan is the Founding Member of the Public Affairs Forum of India (PAFI). As Executive Director, Global Government Affairs, Cisco Systems India, Harish leads Cisco's strategic engagement with National and State Governments of India on wide range of policy issues that concern Cisco in India - as an investor, globalization hub, seller and as a corporate citizen.

Harish actively participates in public policy forums in India and is a member of the Confederation of Indian Industry's National Committee on Telecom, Executive Council of MAIT, Vice Chairman, American Chamber of Commerce in India (Northern Region), FICCI's National Committee on Telecom and USIBC's digital task force.

Harish Krishnan

With over 22 years of experience in Public Affairs, Harish worked in IBM & Confederation of Indian Industry before joining Cisco in 2007.

Jyoti Prakash Gadia is the CEO of Resurgent India Limited, a knowledgeoriented full service financial services firm actively involved in fund raising exercise for more than 100 corporate as on date. He has the credential of having raised more than INR 5000 crore for various corporates from different Banks and Financial Institutions till date. He is also Founder of Ginni Systems Limited, specialized in solutions for the retail sector.

He is a seasoned investment banker and has been in the professional arena for past 15 years and has been handling varied kinds of financial assignments in India as well as abroad working with several financial institutions including Public Sector Banks, Private Sector Banks, Private Equity Funds, Venture Capital Funds etc.

Jyoti Prakash Gadia

He is an all-round professional and has wide experience in corporate funding, project financing, private equity, mergers & acquisitions and management consultancy. He has worked very closely with many corporate in successful turnaround of their operations. In a short span of Resurgent India's business, he has led the company in creating a seamless platform for one shop solution for SME segment in India.

Theme Reinventing India's Public Sector A New Vision For The Public Sector In India

By Dr. V. Krishnamurthy Chairman, National Manufacturing Competitiveness Council (NMCC)

Rediscovering Leadership In Public Sector Enterprises

By Dr. U.D. Choubey, Director General, SCOPE

IILM MANAGEMENT REVIEW

A New Vision For The Public Sector In India

By Dr. V. Krishnamurthy Chairman, National Manufacturing Competitiveness Council (NMCC)

Executive Overview Under the Nehruvian model, the public and private sector would work jointly for India’s development. The basic idea of forming a mixed economy in India was to develop a self reliant economy with decent living to all. The public sector had control over the major heavy industries and they have shown successful results in the development of Indian economy.

However, in the recent past, we have witnessed an imbalance in India’s economic growth. This requires urgent corrective measures. To have a balanced economic growth it is necessary to focus our efforts on the manufacturing sector.

T

he founding fathers of our nation wanted to develop a mixed economy. This was a model where the public and private sector worked jointly for India’s development.

The guiding principles under the Nehruvian mixed economy concept were a few. The manufacture of arms and ammunition was totally reserved for public sector.

On a number of major industries manufacturing iron and steel, heavy machines and telecommunication equipment which needed large investment, the new initiatives were assigned to public sector with a view to securing accelerated economic growth.

Contrary to popular perception, the then concept of public sector did not spring from or develop along the path of Soviet socialism. The policies provided full support for the then existing industries of private sector even in the reserved sectors.

The manufacturing sector will generate employment, therefore the need is to impart them the required skills and make them job ready.

NMCC is moving forward in this direction and is assisting Government in framing National Manufacturing Policy.

They were allowed not only to function but helped and encouraged to develop and even expand. There was a misconception that the State kept reserved all development to them. The development of all other industries not in the list of selected industries were left to the private sector. The government reserved the right to step in when necessary mainly in essential areas where public good was paramount, where private sector was either reluctant or unable resource wise to respond.

The same spirit characterised the attitude towards foreign or foreign controlled organisations in India.

Here again, the future entry was regulated by the State but the then existing companies were allowed to function. These policies, generally described as the Nehruvian model were the best, and have been a great beginning in building a strong economy. These policies

12

A NEW VISION FOR THE PUBLIC SECTOR IN INDIA

were, by and large, strictly followed and fairly observed during Pt. Nehru’s life time. This exhibited not only his courage of conviction but also clarity of thinking on economic matters. It took us till 1991 to correct many of these aberrations.

The mixed economy model framed by our founding fathers was the most practicable one given the conditions at that time. The basic idea was to develop a self-reliant economy

Distortions in India’s public sector model

providing a decent living to all. By and large,

The role of the state-owned public enterprises got distorted only after Nehru’s lifetime when populism leads to occupation of areas which did hardly qualify for state intervention. Also the autonomy of the public sector got eroded overtime leading to diffused accountability. To that extent the apprehensions of the liberal economists were valid.

the activities of the public sector had helped to

The mixed economy model framed by our founding fathers was the most practicable one given the conditions at that time. The basic idea was to develop a selfreliant economy providing a decent living to all. By and large the activities of the public sector had helped to achieve these objectives. Look at some of the steps taken towards achieving this basic goal.

The first priority was given to the development of human resources through public sector. These included setting up of Industrial Training Institutes, polytechnics, engineering colleges and institutes for higher learning like IITs, IIMs, AIIMS etc. There were also efforts to support the industry and to build a strong scientific temper over 30 National Research Centres covering all most every subject. This involved setting up a large number of manufacturing establishments in public sector where thousands of technicians

The guiding principles under the Nehruvian mixed economy concept were a few. The manufacture of arms and ammunition was totally reserved for public sector. On a number of major industries manufacturing iron and steel, heavy machines and telecommunication equipment which needed large investment, the new initiatives were assigned to public sector with a view to securing accelerated economic growth.

achieve these objectives.

and Engineers and Managers were trained in this process. Interestingly, the major public sector units at that -- HMT, ITI, BHEL, HEC and Hindustan Steel Plants – were far ahead of China at that time.

Take the example of the Iron and Steel sector for example. A young nation inexperienced in management of industries decided to set up three Integrated Steel Plants in Bhilai, Rourkela and Durgapur in three years. Enormous strides were made in training, technologies and workers. For several years they were the least cost producers of steel in the world. Another example is that of BHEL which was very successful in mastering a most complex and advanced technology, putting India as one of the few countries in the world producing such equipment.

More recently, when the whole world turned against us after Pokhran explosion, it was the heavy industries in Public Sector which helped the completion of the nuclear plants – and maintained India’s dignity. When for love or money we could not get an oil drilling rig, it was BHEL which built them locally. Having gained all these strengths it was logical for us to make the changes in the political economy as we did in 1991. Much of the distortions that took place leading to excessive controls have since been removed. Distinctions between public private, Indian and foreign have reduced. These far reaching changes in removing controls and opening of the Indian Economy have done us good bringing several advantages. A higher rate of growth of GDP has been achieved. At its height, the GDP growth went higher at 8 per cent, 9 per cent and so on. Our aim is to work towards maintaining a growth rate of 8 to 10 per 13

A NEW VISION FOR THE PUBLIC SECTOR IN INDIA

Our aim is to work towards maintaining a growth rate of 8 to 10 per cent. The fact is that we need to grow at a much higher rate if we have to clear the backlog of our problems.

While attempting a high rate of GDP growth, we should also ensure that different elements of this growth are more balanced.

by imparting skills and giving them jobs through manufacturing activities.

Rural poverty can be eliminated only by an accelerated growth of industry and manufacturing. 8 to 10 million boys and girls come into employment market. They cannot get gainful employment except through manufacturing. 75 per cent of our exports is through manufactured goods. Unless manufacturing in India gains importance and competitive we cannot play a role in the global market. The country needs a strong manufacturing sector not only for employment but also for the security of the nation. We cannot be a strong and large nation with a weak manufacturing sector.

cent. The fact is that we need to grow at a much higher rate if we have to clear the backlog of our problems.

While attempting a high rate of GDP growth, we should also ensure that different elements of this growth are more balanced.

Some illustration of our weak areas:

Need for a balanced economy

 IT and Telecom - Demonstrable strengths only on

We have to be more balanced if we have to make growth inclusive – a growth benefitting all sections of the society and all regions. India’s economic growth in the recent past is imbalanced – needing course correction. A balance between Agriculture, Industry and Services is needed. There is an urgent need to identify the areas where the anticipated benefits did not flow – needing course correction.

For a country with such demographics and other characteristics as India has, Indian industry and more particularly, manufacturing activities should constitute around 35 per cent of the GDP. As against, today the manufacturing sectors share of revenue to GDP is hovering around 16 per cent. Unfortunately, it has remained so far over 15 years. Because of this, gainful employment is denied to a large section of the people.

They are presently dependent on agriculture which cannot accommodate them.

Existing weak areas

the software side. Manufacture of supporting hardware very poor.  Power sector – over 50 per cent of the needs of next

decade imported.  Capital goods – weak position. Most of the Defence

hardware imported.  New Steel plants are set up but HEC is not a part of it.  Coal production needs increase but MAMC meant

to produce coal mining equipment remains shut down.  Only 20-30 per cent of machine tools needed are

produced in India. Rest is imported.  All textile machinery imported.

Rural poverty can be eliminated only by an accelerated growth of industry and manufacturing. 8 to 10 million boys and girls

More gainful employment is possible only through manufacturing activities where people move from small industries to medium and then on to large industries. Poverty in the country cannot be alleviated through subsidies and freebies. These are temporary palliatives. A more permanent solution is to train them

come into employment market. They cannot get gainful employment except through manufacturing. 75 per cent of our exports is through manufactured goods.

14

IILM MANAGEMENT REVIEW

This situation indicates that the importance given to domestic manufacture has slowed down. There is no compulsion or a definite incentive to produce in India and there is excessive belief that market forces will determine the priorities. Market economy is good only up to a point. Initiatives by the state or state-owned enterprises are lacking. Imports have become easier.

 Electronics – against 300 billion dollars need of the

present production within India is around 20 to 25 billion dollars.  Ship building – Goods carried on Indian bottoms is

less than 10 per cent.  Aviation – 600 and more aircrafts needed. Even

servicing of engines has to be done abroad.  Domestic manufacturing support to Defence – less

than what it was in the seventies.

This situation indicates that the importance given to domestic manufacture has slowed down. There is no compulsion or a definite incentive to produce in India, there is excessive belief that market forces will determine the priorities. Market economy is good only up to a point. Initiatives by the state or state-owned enterprises are lacking. Imports have become easier.

Any argument against indiscriminate imports may be misconstrued that we are arguing for protectionism again.

FDI is a good instrument for accelerated growth, but there should be a mandatory stipulation regarding transfer of technology to India and local manufacture.

Way forward

also watch whether such growth is balanced – a balance between Agriculture, Industry and Services.

A balanced growth which helps to increase the share of manufacture in total GDP stepped to around 35 percent.. It will not happenstance. It has to be planned and worked for. It will also take time to reach this target. But it is possible if manufacturing growth is maintained at 14-15 percent over a sustained period of 15 years or more. Presently it is around seven percent.

We must skillfully leverage our large market to get both technology and manufacturing through appropriate policies.

In my view there is a need to periodically review whether the benefits that we anticipated in 1991 while making changes in the political economy are being realized. Some aspects of this problem are being studied by the NMCC for the last five years.

A National Strategy for manufacture was formulated.

Efforts taken by NMCC was demonstrated that manufacture can grow at 12 percent in 2006-07. This was possible by working with the industry and by removing some of the bottlenecks. And most importantly, we are assisting the Government to formulate a National Manufacturing Policy.  A policy which encourages domestic manufacture

and value addition.  A policy which helps to develop appropriate skills of

the people to make them employable.  A policy which promotes domestic research and

development and an atmosphere where innovation is recognized.  A policy which ensures employment for all sections

of the society and in all regions.

These lead me to the conclusion that the percentage of GDP growth should not be sole indicator. We should

15

IILM MANAGEMENT REVIEW

Rediscovering Leadership In Public Sector Enterprises

By Dr. U.D. Choubey Director General, SCOPE

Executive Overview To remain competitive in the current global environment, a company necessarily needs to have strong leaders in its organization. Public sector enterprises focus a lot on their human capital and there are various examples to show that talents of PSEs are lured by private corporate with fat salaries and challenging assignments.

SCOPE has attached highest priority to human resource by training them on effective leadership skills. However, there remain certain issues and challenges with corporate leadership in SCOPE. How can we overcome them?

G

lobalisation and increased competition has brought new opportunities as well as challenges to business organisations particularly the Public Sector Enterprises (PSEs). The dynamics of the new economic milieu provide that only competitive firms would finally survive.

Competitiveness refers to the ability of an entity to operate efficiently and productively in relation to other similar entities. This is a direct offshoot of a capable, effective and dynamic leader in charge of the affairs of an organization. Since companies are nothing but a collection of people who have organized themselves together with a common objective, they are necessarily driven by the people in those companies. Hence the better the quality of leadership, competency and teamwork in the workforce, the better would be the chance of succeeding in the long term.

In the past, businesses in India were invariably built around a single leader who used to be the face and force of the company having vision and risk taking abilities to grow the company. However, today, the very concept of leadership is changing. Today, leadership has nothing to do with designations, rather it starts from oneself. It depends upon commitment and individual’s ability to perform, entrusted duties on time. This change is mainly because companies are becoming large, too unwieldy, multi-locational, producing number of products and providing different services.

They require many competent executives/leaders to head their various projects/business units. Emphasis is therefore, to develop leaders within the company as fast as competition in order to have competitive advantage. As far as import of leadership from outside is concerned, it has its own limitations as

16

REDISCOVERING LEADERSHIP IN PUBLIC SECTOR ENTERPRISES

In the past, businesses in India were invariably built around a single leader who used to be the face and force of the company having vision and risk taking abilities to grow the company.

However, today, the very

concept of leadership is changing.

it is linked to culture and environment of a company, the sector to which it belongs, country etc.

Public sector in India India is a prime example of a country which has witnessed colossal presence and contribution of the public sector in the socio-economic development of the country. It comprises of: Departmental Enterprises, Statutory Corporations and Government Limited Companies. Here our emphasis would be about the Central Public Sector Enterprise which has after meeting challenges of globalized world, recessions and turbulences, have proved that they are vibrant and are there to help the Government in its agenda of inclusive growth of the country.

Central PSEs are not a homogenous group. They are very diverse in terms of size, nature of business, the objective they are called upon to pursue, the challenges they face etc. They occupy key positions in several sectors of economy. Central PSEs at present are 260 in number of which 225 are operating. They have total investment of over Rs. 7.29 lakh crore, turnover of about Rs. 18.42 lakh crore, Networth of over Rs. 7.78 lakh crore, earn a net profit of about Rs 1 lakh corores, contribute over Rs. 1.61 lakh crore to the Central Exchequer which is 21.4 percent of Government of India’s revenue receipts. Their foreign exchange earnings at Rs. 1.2 lakh crore is 8.5 percent of India’s export. And they directly employ 14 lakh people.

leadership perhaps occupy top position among several challenges facing PSEs. The top management personnel – Chairman-cum-Managing Director and Director – provide the senior rung leadership in PSEs. As Central Public Sector Enterprise is a vast segment, the government has set up the Public Enterprises Selection Board (PESB) with the objective of evolving a sound managerial policy for CPSEs and to advise the Government on appointments of their top management posts – Chairman, Managing Director or Chairman & Managing Director and Functional Director in PSEs. It also advises the Government on matters related to appointment, confirmation or extension of tenure and termination of services of the personnel of top management posts. The policy is to appoint through a fair and objective selection procedure outstanding professional managers. The Government has also recognized the need to develop a cadre of professional managers within the Public Sector. Hence, unless markedly better candidates are available from outside, internal candidates, employed in the PSEs are preferred. Mobility of managerial personnel among PSEs within the same sector or group is better failing which, mobility within the Public Sector as a whole is encouraged.

PSEs have also made extensive efforts to enrich their human capital through skill development, attitudinal change and team building. They, today, have the best of the leaders, highly proficient managers and a bank of excellent skilled manpower which have all contributed to the development of the Public Sector in India. PSEs recruit the talented young people in very fair selection

India is a prime example of a country which has witnessed colossal presence and contribution of the public sector in the socioeconomic development of the country.

Leadership in PSEs Coming to leadership in PSEs, the challenges of

17

IILM MANAGEMENT REVIEW

Our emphasis would be about the Central Public Sector Enterprises which have after meeting challenges of globalized world, recessions and turbulences, proved that they are vibrant and are there to help the Government in its agenda of inclusive growth of the country.

process and generally through open competition. As a result of Human Resource policies, the Indian PSEs are in the vanguard of productivity enhancement. With less manpower, their value additions, turnover, profits etc. are increasing. PSEs’ goal-oriented human resource management strategies are evident in most leading CPSEs – SAIL, CIL, ONGC, BHEL, IOC, NTPC, GAIL, Power Grid, HPCL, EIL, RITES, NHPC among several others.

A recent study by Ernst & Young India on “Government as Best in Class Shareholders”, showed that a majority of Indian citizens consider managers in Stateowned Enterprises (SOEs)better than their counterparts in private enterprises. The study says, “It seems that SOEs managers inefficiency is a pervasive belief, both at global level and at individual level.

Interestingly, however, the perception of service quality of SOEs is unusually positive in India where a majority believes that managers in SOEs are better than in private firms”.

In particular, the Indian “Navratnas” and their professional and autonomous management have registered positive recognition by citizens, according to the study.

It is because of the talent of Public Sector Chief Executives and Senior Executives that private corporates have been even poaching the talent from Public Sector for running their organization and projects. They are always looking to trained and experienced managers of Indian Public Sector.

There are ample examples of working as well as retired CEOs, Directors and Senior executives who have been

lured away by private corporates with fat salaries and challenging assignments. Some recent examples are: Mr. S.K. Roongta who was earlier Chairman, SAIL, has joined as Managing Director, Vedanta Aluminium.

Mr. R.S. Sharma, retired as CMD, ONGC, got many offers by top business corporates and later has joined South West Asia Head of Lloyd’s Register. Mr. Naresh K. Nayyar, Director (Business (Dev.), IOC, was enticed by the LN Mittal Group as its CEO and later Essar Global Plc. They all are getting many times more salary than what they were getting in PSEs. SCOPE’s efforts toward effective leadership in PSEs After liberalisation of the Indian economy, the Public Sector came under huge pressure in terms of attracting and retaining talent. It was in this context that SCOPE, which has attached and is attaching the highest priority to HR and compensation issues in PSEs, urged the Government to appoint the Second Pay Revision Committee for better pay packages for executives of PSEs. SCOPE’s submission resulted in witnessing a paradigm shift in pay mechanism of PSEs. The report has introduced the concept of Performance Related Payment (PRP) based on robust and transparent Performance Management System for an organization as well as executives. It also met the long felt need of better compensation package well deserved by PSE executives.

SCOPE is now advocating the need for succession planning in PSEs. The apex body of PSEs has emphasized the need to develop leadership rather than developing leaders. Leader development focuses on

The Government has also recognized the need to develop a cadre of professional managers within the Public Sector.

Hence unless

markedly better candidates are available from outside, internal candidates, employed in the PSEs are preferred.

Mobility of managerial

personnel among PSEs within the same sector or group, failing which, mobility within the Public Sector as a whole is encouraged.

18

REDISCOVERING LEADERSHIP IN PUBLIC SECTOR ENTERPRISES

the development of the leader, such as the personal attributes desired in a leader, desired ways of behaving ways of thinking or feeling. In contrast, leadership development focuses on the development of leadership as a process at all levels. This includes the interpersonal relationships, social influence process and the team dynamics between the leader and his/her team, the contextual factors surrounding the team such as the perception of the organizational climate etc.

SCOPE is also making determined efforts at training and creating a large pool of competent leaders to take charge of PSEs and their various disciplines, units etc. so that they can discharge their duties actively and effectively. In this regard, SCOPE has been organizing Global Leadership programmes, Workshop on Board Interviews and many other Executive Development and need-based programmes.

Similarly, SCOPE’s Workshops on “The Board Interview” are to enhance understanding of the selection framework and process adopted by PESB and; to develop better appreciation of the leadership challenges and opportunities inherent in the Board level assignments in the Public Sector amongst the senior executives who are potential candidates for Board level appointment in Central PSEs.

It is because of the talent of Public Sector Chief Executives and Senior Executives that private corporates have been even poaching talent from Public Sector for running their organizations and projects. They are always looking to trained and experienced managers of the Indian Public Sector.

organized with focus on training and skill development of Whole-time Directors, Independent Directors, Government nominee Directors and Potential Directors among the senior executives of public enterprises.

Challenges of PSE leadership There are, however, many poignant issues, problems and challenges with corporate leadership in PSES. These include: Government’s ownership role generally transgresses into managerial domain. This creates many complexities and uncertainties in taking decision professionally.

SCOPE has also been organizing Directors’ Conclave on Corporate Governance to help Directors and Potential Directors in capacity and capability building by deliberating on key aspects of international best practices of Corporate Governance in SOEs. The Directors’ Programmes on Corporate Governance are

The board structure of Indian PSEs is typical, complex and heterogeneous in nature. It has three distinct players – Functional Director, Government Nominee Director and Independent Director. All the three may be coming with different backgrounds, experiences, working environment etc. Convergence of the perspectives of the three constituents is imperative for the Chief Executive of the PSE.

A study by Ernst & Young India on

In PSEs, there are inherent strategic objectives which may be contradictory. This dimension adds more complexities in achieving vision and mission effectively by the leadership.

“Government as Best in Class Shareholders”, showed that a majority of Indian citizens consider managers in Stateowned Enterprises (SOEs)better than their counterparts in private enterprises.

Leadership in PSEs has to deal with multiple compliances and control mechanisms including regulatory agencies and their norms which contribute to delays in decision-making as well as affects the quality of decisions.

19

IILM MANAGEMENT REVIEW

On the issue of Governance of PSEs, E&Y’s study on “Government Best in Class Shareholders”, says, “SOEs are fundamentally different from private companies.

They tend to have different missions and goals, different organizational cultures and different Corporate Governance mechanisms. Unlike private executives, SOE strategies tend to value economic and social goals equally, which gives them a greater willingness to make long-term investments and a degree of openness to the needs of different shareholders. However, politicization is a threat for many SOEs. In many cases, politics unduly influence the appointment of Boards, HRM policy, the choice of which economic investment to develop, the structure of accountability and the communication of results. SOEs can become key players only if Corporate Governance models are reframed so that the State might act as an informed, accountable and active owner”.

Conclusions Public Sector Enterprises have withstood several vicissitudes and crises. They have come victorious.

Their prowess was amply demonstrated during the recent global crises which shook the strongest of the economic power houses but could only cause minor ripples in India because of the strong public sector. As economic crises seem to be ongoing feature of world economics, the importance of PSEs cannot be undermined. Since success and failure, performance and non-performance of an enterprise is a function of quality of leadership which is correlated with commitment and motivation, their recruitment, induction, pay and perks, incentives, tenure etc. to become the key issues for adequately attracting and retaining talented leaders. Hence there is need to reform the recruitment processed pay monetary incentives in line with the market. Public Sector Enterprises are also needed to be encouraged and rewarded in case they have in place a system oriented process of developing leaders.

20

First Person Unlocking The Power Of Brands: Lessons From The Parle And Bisleri Groups

By Ramesh Chauhan Chairman, Bisleri International Pvt Ltd

Passion For Business: Challenges Toward Success

By Naveen Munjal Managing Director, Hero Eco Group

60

IILM MANAGEMENT REVIEW

Unlocking The Power Of Brands Lessons from the Parle and Bisleri Groups

By Ramesh Chauhan Chairman, Bisleri International Pvt Ltd

Executive Overview In this research article, the present Chairman of Bisleri International Pvt Ltd Mr Ramesh Chauhan talks about his journey of building Parle's soft drinks and water brands in India, especially Bisleri. He highlights the pricing strategies, innovation techniques and strong distribution network which were used to strengthen the brand power and help compete his brands with existing soft drinks brands.

I

n 1962, I graduated from Massachusetts Institute of Technology (MIT) in business management and mechanical engineering. As my father had his own business, it was natural that when I came back, I would join it. And in those days, we didn't think too much about the future as things were laid out for us. I did my schooling in Panchgadi, and from there, I was sent to Gwalior to study in Scindia School as my father was fascinated with the idea of sending me to a Maharaja's school.

After I graduated, I visited many factories in the US to see for myself how things really worked. Three to four Indians would land up in a factory, go to the receptionist and ask for an appointment. And frankly, all of us were showed the factory. If this happened today, we wouldn't even be allowed to visit.

The first one we went to see was General Motors. From there, we went to Ford Motors, then to Ohio and other places. People were happy to show us around. Then I went to Europe, saw machinery manufacturers of soft drinks. In all these factories, I noticed that they didn't have spare people to show us around and yet, the safety rules were such that that we could sue them if accidents happened. So, after I returned to India, my first job was to set up a soft drinks factory on the Western Express Highway in Mumbai.

Back Home It was part of Parle's soft drink operations. My father had just split from his brothers and taken up ownership of the soft drink business. But we had to move out from the compound of Parle's biscuit factory and take new premises. I had to start the factory from scratch. I was just 22 and had no experience. I had never seen a big building being built. I had to brief the architect and make the layout. We had to plan where to put the bathroom, the syrup room, sugar store, etc, and I had no clue where to start.

My elder brother who was also an MIT graduate, figured that I would have a chip on my shoulder and it would be best to throw me into the water so I could learn to swim. So he thought, “Let's give him this project, give him the catalogs, machine manuals and proposed layout from different companies and let him look after it.� For four days, I was blank. I didn't know what to do. I wondered what kind of MIT graduate I was. Soon enough, I realized that I needed to see the plant and put together a factory layout. I would have to figure how and where to expand. I realized that even though I was a graduate, I had very little knowledge of reality.

That's how things got going. We had to recruit many people as construction had to start. The plumbers gave me a hard time; they refused to listen and took short-

22

U N LO C K I N G T H E P O W E R O F B R A N D S

Building the brand The architect asked a pertinent question: who will certify the plumbing? As I was lost in the woods, I asked him the process of doing so. He said I would have to go to the municipality with my degree certificate and say I want to become a certified plumber. I went there and got myself certified as a plumber. I must be the first MIT graduate who was a certified plumber.

cuts. I had to fire one plumber. But then the architect asked a pertinent question: who will certify the plumbing? As I was lost in the woods, I asked him the process of doing so. He said I would have to go to the municipality with my degree certificate and say I want to become a certified plumber. I went there and got myself certified as a plumber. I must be the first MIT graduate who was a certified plumber.

The electrical contractor was also a slippery customer and wanted to take shortcuts. In the 1960s, things like transformers and cables had a waiting period of six months to a year before one could get them. This contractor wanted to turn on the power without testing the system for short circuits. If any accident happened and the transformer stopped functioning, we would have a setback of at least eight months. So I put my foot down and refused to allow the power to be turned on until everything was according to specifications.

Fortunately, the power company, the Bombay Suburban Electric Supply was a private one. They wanted us to send them the transformer oil, which they tested and found deficient. They said the oil would blow up the transformer. So they asked us to get a full sealed drum of oil from the company. Again, the services of the electrical contractor were needed. The architect once again asked us who would certify this. I said as the electrical engineer I had could be made a certified electrician. And that's how we got cracking.

The new factory came up in Mumbai, and since then, it's been a long journey in building various brands.

If one has mentally made up one's mind to build brands, profits are secondary. One needs faith to take brand-building forward. Otherwise, one is simply a trader looking for profits. Brand-building is not just about having a nice name and advertising. It requires quality service and involvement.

Firstly, one has to look for the right advertising agency.

I prefer an agency which is small where the people are personally involved and for whom my brand is of utmost importance. So K. Kurien, the adman who invented Amul's advertising, came on board. He did our Limca advertising while he was with ASP. But the partners split and formed Radeus Advertising. We too switched to Radeus and Kurien created the advertisement for Limca. Though he was a journalist by profession, he did a good job.

There were numerous discussions and brain-storming sessions. One was in deciding the name Limca. We had a number of names and two shortlisted ones were Limca and Fresca. Though the agency preferred Fresca, we prevailed upon them to use Limca.

Next, we had to decide production of the soft drink.

While experimenting what flavours, how much of lemon to use, etc, laboratories samples were not good enough as they are different from the final product that comes out. So we decided to make small batches. But while producing, the minimum quantity was 200-300 cases of 24 bottles each. But we required just 5-10 cases.

What did we do with the rest? We filled it up in unwanted bottles. So I used to tell our guys to go out

If one has mentally made up one's mind to build brands, profits are secondary. One needs faith to take brand-building forward.

Otherwise, one is simply a trader looking for profits. Brand-building is not just about having a nice name and advertising. It requires quality service and involvement.

23

IILM MANAGEMENT REVIEW

and sell these, sell it at any price. Give me the empty bottle. You won't believe they just could not sell, so finally we had to do the criminal job of opening the bottles and draining them off.

Meanwhile, Bisleri, another product of ours, had Italian origins. Limca was added to the Bisleri company and we tweaked Bisleri's slogan, “Bisleri is very very extra ordinary” to “Limca is very very lime and lemony”. It worked well and launched it in Madras.

There were no TV advertisements like today. Madras is a very conservative market and it's difficult to get locals to change their habits. But we were very successful with Limca from the start.

Another product of ours was Thumbs Up. We were thinking of a brand name for it, and thought of Ravi Gupta, a creative person who had worked on the Gold Spot campaign, which had Kabir Bedi in a film. We traced him to Trikaya advertising agency, operating from Mint Road in Bombay. He came on board and we gave him a list of names for colas and he selected Thumbs Up. We were scared of using this name as it had many connotations such as ridiculing a guy. We wanted a name associated with a winner, but we felt this wasn't coming through. Though we see pilots giving the thumbs up to ground staff, doing it for a brand was a different thing. We had something called Biska and few other names. However, we settled for Thumbs Up, Ravi made a logo and used the thumbs up sign to squeeze Thumbs Up into it.

At that time, TV advertisements had just started and we made four 20 second films. We also made a one-

While experimenting what flavours, how much of lemon to use, etc, laboratories samples were not good enough as they are different from the final product that comes out. So we decided to make small batches. But while producing, the minimum quantity was 200-300 cases of 24 bottles each. But we required just 5-10 cases.

What did we do with the rest?

In 1993, Parle sold Thumbs up to Coca cola for $60 million. The brand Thums Up has not only become prodigiously iconic, but has spawned a staggering legacy that is spoken of with unanticipated awe. This brand has out beaten many product life cycles theories and has remained a durable proposition.

minute film for cinema. A lot of investment went into it and many people asked us how we could spend so much for these films. But we had the courage to spend that much money before the product actually hit the market and that paid off. The lovely associations with Thumbs Up will always be remembered.

Letting go In 1993, Parle sold Thumbs up to Coca cola for $60 million. The brand Thums Up has not only become prodigiously iconic, but has spawned a staggering legacy that is spoken of with unanticipated awe. This brand has out beaten many product life cycles theories and has remained a durable proposition.

With the introduction of Foreign Exchange Regulatory Act, Coca Cola had left India and there was a sudden absence of cola drink in the Indian market. We took advantage of this void and launched Thums Up. This drink was an instant hit in the market featuring with caption 'Happy days are here again' that indicated the market is free from the 'capitatlist international companies'. Later in 1981 when the Indian youth was more rebellious and flaunting in nature, it launched on pan India basis with new taglines - Toofani Thanda and Taste the Thunder. This strategy resulted in eventual death of Campa Cola, a competitor to Thumbs Up, in 2000.

In 1988, Pepsi Co. re-entered the Indian market endorsing Pepsi through leading Bollywood celebrities. By this time, Thums up had strongly positioned itself as a strong masculine drink. While Thums Up was vehemently defending its position as India's top selling cola

24

U N LO C K I N G T H E P O W E R O F B R A N D S

In 1988, PepsiCo. re-entered the Indian market endorsing Pepsi through leading Bollywood celebrities. By this time, Thums up had strongly positioned itself as a strong masculine drink.

While Thums Up was vehemently defending its position as India’s top selling cola drink, it got a blow when Coca Cola too re-entered India in 1993. And why not? The fight now had become a three-way battle. drink, it got a blow when Coca Cola too re-entered India in 1993. And why not? The fight now had become a three-way battle. And that's exactly when Ramesh Chauhan baffled many, by selling off Thums Up to Coca Cola. We sold Thums Up to Coca Cola as we wanted to concentrate on the packaged drinking water segment, which was beginning to gain momentum as an industry. And then began the bitter battle between Pepsi and Coke of which Thums Up is now an integral part of.

have filled up the market then you go because many times people want to diversify as a defense mechanism.

If we are targeting on a 50 per cent growth this year, that would require a lot of man power. Money is not an issue, it requires a lot of man power and man power which is convinced that, yes, we can grow.

Everyone will say, sir we can't grow at this rate. What about next year? Next year, we will worry about next year, let's worry about this year.

We have people from Coke and Pepsi coming in, but I don't see that drive in them. They again get buried in systems and processes.

Can I be honest? When we bought Bisleri mineral water from the Italian company, Felice Bisleri, in 1969 -- the company had been unable to market bottled water and wanted to exit the market -- we too did not see any potential for the product at that time.

But I made sure the bottling capacity for Bisleri is with me.

As a soft drinks company, we had Thums Up, Gold Spot and Limca (cola, orange drink and lemonade) but no soft drink company was complete without a soda.

So we merely used the name and launched Bisleri soda with two variants -- carbonated and non-carbonated mineral water.

At that time, there was not much demand for packaged water in India. We had to create demand. I can tell you today that with the water business, we have not even touched it as yet. It can grow 100 times. Money is never an issue. The issue is manpower who is capable of managing and pushing the business ahead.

Thus, the earlier brand building efforts focused on Bisleri being healthy with adequate minerals. The Italian name added a dash of class to it. The first print ad campaign captured the international essence and showed a butler with a bow tie, holding two bottles of Bisleri.

Creating a new market, once again

I was unhappy with the fact that when people say Bisleri, they mean bottled mineral water. Because in the name of Bisleri, somebody else is getting the revenue and I am not getting the revenue. In this way the market is expanding but the point is that at some stage the brand must become a brand. The name must become a brand.

That is something which is going on for some time. But my worry is, we will lose focus on expanding the brand Bisleri, where the return on investment, investment means expense, will be much greater. If you feel that your brand or the category is now saturated and you

I was unhappy with the fact that when people say Bisleri, they mean bottled mineral water.

Because in the name of Bisleri, somebody else is getting the revenue and I am not getting the revenue. In this way the market is expanding but the point is that at some stage the brand must become a brand. The name must become a brand.

25

IILM MANAGEMENT REVIEW

According to the Bureau of India Standards there are 1,200 bottled water factories all over India (of which 600 are in one state -- Tamil Nadu). Over 100 brands are vying for the Rs 1,000-crore (Rs 10 billion) bottled water

But to reach out to the masses, we had to make the category more affordable. The introduction of a comfortable-to-carry 500-ml bottle for just Rs 5 in 1995 not only answered that need, but also meant doing away with carrying the excess water or throwing it away if you were to buy a one-litre bottle.

market and are hard selling their products in every way possible -- better margins to dealers, aggressive advertising, catchy taglines.

The idea was a success and gave the company a growth of 400 per cent. We also introduced the 1.2 litre bottle in 2000, which was aimed at those who share their water.

This also gave us the advantage of higher margins that a crate (12 bottles) generated.

The punchline was, "Bisleri is veri veri extraordinari" (the spelling of the punchline was designed to capture the consumer's attention). The campaign was successful and we were being noticed as someone who catered to the need for safe, healthy drinking water.

With other brands joining the fray, things were hotting up -- the bottled-water market was estimated at Rs 300 crore (Rs 3 billion) and was growing at 50 per cent a year. Bisleri had captured 40 per cent of the market.

However, the real boost to mineral water came in the early-to-mid-1980s when we switched to PVC packaging and later to PET bottles. The PET packaging did not just ensure better transparency -- we could now show sparkling clear water to the consumers. It also meant better life for the water.

We realised it was time to move to the next level -- the bulk segment. Several commercial establishments had no access to piped water. We tapped into this segment by introducing the 12-litre container, followed by the 20-litre can. The bulk segment also helped bring down the price per litre from Rs 10-12 a litre to about Rs 3 a litre.

Meanwhile, Bisleri soda was doing well but we had to discontinue production as we sold our soft drink brands to Coca-Cola in 1993. But my interest was in building brands and not in bottling soft drinks. That's when I started to concentrate on developing the Bisleri water brand.

At present, the bulk segment constitutes 60 to 70 per cent of our sales and we intend to increase it to 80 per cent in the next two years. With water scarcity in several cities, even households are demanding bottled water now.

There was a clear opportunity of building a market for bottled water. The quality of water available in the country was bad. It was similar to what Europe faced before World War II. The quality of water in Europe was extremely poor, which created the bottled water industry there. In India, too, not only was water scarce, whatever was available was of bad quality.

Initially, though bottled water was something only foreigners and non-resident Indians consumed, we still had to increase the distribution, which meant the dealer margins reduced. And because of limited sales, the dealer margin had to be kept high to compensate low sales. Now we had to push sales.

The home pack was made more user-friendly by introducing pouring spouts and jars with dispensers.

At the same time, we were constantly looking for new

The punchline was, "Bisleri is veri veri extraordinari" (the spelling of the punchline was designed to capture the consumer's attention). The campaign was successful and we were being noticed as someone who catered to the need for safe, healthy drinking water.

26

U N LO C K I N G T H E P O W E R O F B R A N D S

ways to tap the market. We noticed that during wedding receptions, the older guests (above 50 years of age) generally stayed away from ice cream, soft drinks and so on.

The company has around 35 manufacturing centres and about 120 distribution centres touching over 3.5 lakh retail outlets around the country. Bisleri's distribution is well into the

Hence, we introduced free sampling of Bisleri at the tables where the elderly guests would sit. Soon customers were ordering bottled water on special occasions.

Currently, the consumption of bottled water is far in excess of soft drinks on such occasions.

The other major challenge was distribution. I still have the mindset of a soft drink seller. Soft drink sales are in glass bottles and the distribution model is built around picking up empty bottles and getting them back to the factory. That's not the case with the retail bottled water packs (below 2 litre). But a product that's not available where it's needed, is useless.

The company has around 35 manufacturing centres and about 120 distribution centres touching over 3.5 lakh retail outlets around the country. Bisleri's distribution is well into the villages and paanwalas are one of its biggest distributors. Though affordable pricing, innovation and strong distribution has kept Bisleri in the lead while companies like Coke and Pepsi were too caught up with the cola wars and Nestle with its foods business to have a sustained strategy to back their water brands.

When we started the Bisleri brand building work in 1994-1995, we told ourselves, 'We are in the water business, not the plastic business.' So we didn't do anything about making the plastic containers, caps, etc.

Initially, though bottled water was something only foreigners and non-resident Indians consumed, we still had to increase the distribution, which meant the dealer margins reduced. And because of limited sales, the dealer margin had to be kept high to compensate low sales.

villages and paanwalas are one of its biggest distributors. Affordable pricing, innovation and strong distribution has kept Bisleri in the lead while companies like Coke and Pepsi were too caught up with the cola wars

It was only a few years ago that we started putting our heart and soul into Bisleri.

We went ahead and bought plastic bottle-making machines and other machines. Now we are making what is called the sport cap, which pops up and down the bottle-top.

Frankly, I didn't think that Bisleri would be that big a business. It's only when we started this half-litre (500ml) bottle, that we saw a dramatic rise in volumes and business prospects.

Let me recall a bit of history. Mineral water used to be an elitist indulgence or something to do with health.

Now it has become, first, safe drinking water; second, it seems to me that mineral water is gaining style. If one were to prefer mineral water to soft drinks, it seems one is considered more sophisticated, more hep, more happening.

The fact is the other way round. The multinationals are now coming into this business because we have made water look so attractive. That is the fact.

Our plan for the next few years is to ensure that no consumer is denied a bottle of Bisleri if he asks for it.

The company is putting 35 new plants all over India, with five to six in places such as Rajkot, North Bengal and Silvassa, to service the rural and semi-urban regions around these plants. Water purifiers that do not need electricity but can store water do not fluster Ghosh.

In the meantime, Vedica and its planned flavoured water range will keep the urban markets abuzz. Bisleri 27

IILM MANAGEMENT REVIEW

is biding its time to hit on the right mix of flavours (such as peach and green apple) and value-adds (such as natural Ayurvedic additives that would reduce fat) to introduce its flavoured water which it will position as another choice for thirsty consumers who might be tired of plain water or sweetened carbonated drinks. It could come as soon as summer 2010, what with players such as Coca-Cola not ruling out the possibility of entering the enhanced water market. Soft drinks could be followed by bottled water, which is increasingly shifting towards health and energy drinks.

These two diversifications would not only let Bisleri play on its core expertise but would also open up the

higher-margin markets that its flagship brand does not allow it. Even if natural mineral water commands a small part of the packaged mineral water market, it still retails much higher than regular bottled water because the source of such water is rare to find in nature's lap.

But a short-term impact on Bisleri's bottomline looks unlikely though its brand appeal could shoot up with its premium product.

I like to build brands. I consider brand-building as one of my forte, even though there have been some flops.

But, in the end, this gives the morning motivation that I need every day.

28

IILM MANAGEMENT REVIEW

Passion For Business: Challenges Toward Success Green technologies in motor vehicles are far ahead of its times in the Indian market

By Naveen Munjal Managing Director, Hero Eco Group

Executive Overview Going green is the new mantra in the automotive sector, be it four wheelers or two wheelers. Alternative energy sources are being invented and tested, where electric power is one of the sources. In this first person account, Mr Naveen Munjal shares his journey of entering into e-bike segment and building Hero Electric into a strong brand not only in India but abroad too.

"I had a passion for electric vehicles and started working on them from 1999. I was sent for a trip to the US, where I worked with a bicycle company in Silicon Valley. Part of the trip was a bike show in Las Vegas. There, for the first time, I saw an electric bike. In India, there are cycles and scooters and the difference between them is substantial.

And it struck me -- What if the cycle is motorized. Though India had mopeds, this market was fading away.

This was the time when various emission norms were introduced. But our engines were not capable of conforming to them. Also, many youngsters preferred motorcycles. So I thought it would be a good idea to give a family riding a cycle enough power to travel faster and more efficiently. Quite like a Nano of a cycle."

W

hen I came back from the US, we launched the electric cycle here after doing various market tests. It was a cycle with a battery and a motor and became part of the stable of Hero Cycles. But to our dismay, it bombed. People couldn't understand how to use or charge it. It was priced at around Rs 7,000, 3-4 times more than normal cycles.

We then launched a moped, replaced the fuel tank and added a motor. I was doing my MBA too, and finished it in 1994. But the moped wasn't a success either, and we realized that the market hadn't come out of age.

In 2006-07, I got another opportunity. A UK company called Ultra Motors approached us with an electric technology. I meanwhile, studied the market and this evolving technology. In 2007, we collaborated with Ultra Motors. It was supposed to bring in the technology, the capital, etc, but it didn't culminate in a venture as the company didn't understand the Indian market.

We too didn't want to lose money here. After all, we had to build the network before the actual marketing.

Though we started working on the supply chain, the front end, the back end, etc, our philosophies didn't match and Ultra Motors pulled out of the Indian market. However, we continued building the network.

In 2011, we came to know that the UK arm of Ultra Motors were in dire states. So I approached them and in 2012, we took over the entire company in the UK, the US and Germany. Since then, we have been working to turn it around.

There were no global leaders in electric vehicles; only two-wheelers are present in this segment. We wanted to stick to two-wheelers because we could not compete with four-wheeler market leaders and the need of the hour was technology for two-wheelers. Though fourwheelers like Reva were able to build a market internationally, the numbers were not significant. We wanted a mass market.

29

PA S S I O N F O R B U S I N E S S : C H A L L E N G E S T O W A R D S U C C E S S

'A to B' is what we called our international operations. We found that the market was increasing, but more in the mid- and highlevel. The lower end was very price sensitive.

So we positioned ourselves in the middle and high rung internationally, but in India, for the masses. So we have two different products and price ranges for both markets.

Strategic marketing 'A to B' is what we called our international operations.

We found that the market was increasing, but more in the mid- and high-level. The lower end was very price sensitive. So we positioned ourselves in the middle and high rung internationally, but in India, for the masses.

So we have two different products and price ranges for both markets. This happened over the last 2-3 years.

That's how we had the largest and widest global network in electric vehicles. There is no company which has a presence in as many countries -- 32 -- as us.

We are there in South Africa, Singapore, Australia and Latin America. Assembly operations are there in China and Thailand. Out of our 10 international models, three will begin production in Germany from this year onwards. It is important to realize that India cannot survive without this technology. In order to grow, we need to have alternative energy resources.

Even pollution needs to be tackled in new ways. While China has brought down pollution in many cities, in certain Indian cities, CNG is being used. This is far cleaner. In India, electricity is generated through thermal power, but these are in remote locations. So power is getting produced but not getting consumed.

If we look at certain markets, an electric vehicle is the best option. Take a woman who wants to buy a twowheeler. What are her options? Not many. She would prefer a vehicle going at 30-40 km. They don't want to go to a gas station and wait to fill up. So an electric vehicle is a good option. The batteries we use -- lead

acid -- are heavy and not that efficient, but they are less costly. So it fits certain bills. They give limited charge and range (60-70 km). Though we are presently positioned in urban areas, we are going to newer ones, though these won't be rural because the infrastructure for power charging is absent there.

Policy awaited Then, there is solar charging, but who will invest in this technology. A new government policy should create the national electric vehicle policy. It's a 2020 vision document policy. Seven departments came together and discussed the future of mobility in India. They calculated that if we invest Rs 14,000 crore in building technologies, infrastructure, R&D, etc, over the next few years in this industry, the government could save Rs 40,000 crore on oil bills alone.

Worldwide, the trend is on increasing mobility, be it through peddle power, engine power or clean energy.

The maturity of the market and economics is what works. While India is still price sensitive, in England, electric vehicles are given free parking and no extra charges are levied.

Our positioning in various markets show different issues at play. For example, in South Africa, electric vehicles are a lifestyle product, launched in fancy hotels. In India, dealerships are at the lower end and the size is more basic. It is placed as a mode of transport to reach from one place to another. Like the Tata Nano, we too went through different approaches. When we launched it, it was a technically advanced product. But

There is no company which has a presence in as many countries -- 32 -- as us. We are there in South Africa, Singapore, Australia and Latin America. Assembly operations are there in China and Thailand. Out of our 10 international models, three will begin production in Germany from this year onwards. It is important to realize that India cannot survive without this technology.

30

IILM MANAGEMENT REVIEW

Worldwide, the trend is on increasing mobility, be it through peddle power, engine power or clean energy. The maturity of the market and economics is what works. While India is still price sensitive, in England, electric vehicles are given free parking and no extra charges are levied.

we had to slowly tweak it to take into consideration factors like green technology and cost saving.

If we look at big two-wheeler companies internationally, they are not big in electric vehicles. When we come to the 'A to B' level, the competition is more with the Dutch, the Germans, etc. In different markets, the competition is different and surprisingly, in this segment, the Japanese are not a competition as is usual with motor vehicles.

Slow growth Sadly, in the last two years, things have not panned out as expected. The numbers we had five years back, have

declined. There are various reasons for this -- competition has declined and companies have pulled out. In India, there were 80 two-wheeler vehicle companies, but now, only we are there nationally. But we need to have competition, so that we have more clout in exerting in policy matters. Also, the customers have no choice now. Though a Japanese company is coming into the Indian market, it is a lifestyle product; India is not ready for it.

We hope the national electric policy takes off. We have some champions in the government who initially launched the policies. It's now up to the bureaucracy to move things forward. The government's target is that in 2017-18, 10 percent of vehicles on Indian roads should have clean technology. This is ambitious considering that the policy is not even in place.

It is important to have this in the horizon, otherwise this industry will collapse. It hasn't been easy to keep going when, in the past couple of years, many have pulled out of the market and dealerships have closed.

So most of our sales are actually resale (60 percent). The market is not growing much.

31

Research@Work Redefining Financial Inclusion

By M.G. George Muthoot Chairman, The Muthoot Group

Values-centred Innovation As Central To Business Strategy

By Deepak Thombre Senior Executive Director, Dalmia Bharat Group

The Changing Landscape Of Public Affairs In India

By Ajay Khanna (President, Jubilant Organosys) and Harish Krishnan (Executive Director, Cisco Systems India); co-founders of the Public Affairs Forum of India (PAFI)

Indian Banking: Turbulence In The Industry

By Jyoti Prakash Gadia CEO, Resurgent India

IILM MANAGEMENT REVIEW

Redefining Financial Inclusion Muthoot Group's business model innovation of creating a balance between reaching the bottom of the pyramid and generating value for the company holds lessons for other companies

By M.G. George Muthoot Chairman, The Muthoot Group

Executive Overview India is the largest consumer of gold. The Muthoot saw it as a great opportunity to offer gold loans in rural and semi-urban areas of India. In no time, the gold loan offers became very popular among the middle class. The organized gold loan market has shown growth of 98.5% CAGR from 2008 to 2012. However, in India we need to focus on greater financial inclusion. This research paper highlights the various models initiated by Muthoot Group in aiding financial inclusion of rural and semi-urban poor in India.

S

tarted in 1887 by late Ninan Mathai Muthoot as a small trading business enterprise at Kozhencherry, a remote village in the state of Kerala, The Muthoot Group traded in wholesale of grains and timber to large British-run plantations. In 1939, when the business baton was passed on to my father, Shri M George Muthoot, he took the bold and life-altering step to venture into ‘Banking and Financial Services’. He realised that India is the largest consumer of gold in the world and majority of the population are unaware of organised banking/financial services. Realising the inadequacies of banking facilities for the aam aadmi who contribute a huge number in India, he introduced the concept of ‘Gold Loan’ that could provide immediate finance to the need-based customers in rural and semi-urban areas.

In 1979 when I took over the reins of the business, I took the onus of venturing into the remotest rural areas of India and reaching out to those millions of people who were in dire need of funds for either their personal or business purposes. I knew the immense potential the gold loan business has in serving the underserved population of the country. It is through this hidden and static asset – gold jewellery – that we were able to facilitate the aam aadmi living in rural and semi-rural areas with immediate financial assis-

tance. Hence, even before the term ‘financial inclusion’ was coined, we became the sole connect for people living in small villages and thereby, have been playing a big role in financial inclusion.

Today, we are proud and glad on the role we have been playing in helping millions of unbanked people in empowering their dreams by unleashing and monetizing the potential of their untapped valuable asset. Our concept and services have not only unlocked the potential of gold jewellery into an economically productive asset but has also initiated thousands of rural and semi-urban Indians into the banking network for the first time, thereby, playing an important role in financial inclusion in the country. Moreover, it provided every Indian a share of the much talked about economic growth and freedom through their untapped valuable asset.

Reinventing the gold loan sector In India ‘Gold’ has always been considered an auspicious metal and has been in use for centuries in the form of jewellery, coins and other assets. Indians are the custodians of the largest collection of gold jewellery in the world, and traditionally, they have used this gold to pledge and tide them over short term financial needs.

Though, it wasn’t until recently that consumers

33

REDEFINING FINANCIAL INCLUSION

We considered thousands of rural Indians as perfectly bankable even before the term 'financial inclusion' was coined, and became the sole connect for people living in small villages and thereby, playing a big role in financial inclusion.

leveraged it effectively to meet their liquidity needs.

Largely driven by the unorganised segment in the past, most of whom included the pawn brokers, the gold loan market has now started to be driven heavily by the organised segment. The entrance of organised sector players such as Non-Banking Finance Companies (NBFCs) and banks which now command more than 25 per cent of the market (source: Cognizant 20-20 insights) are the reasons behind it. The corporatisation of the sector has transformed the old business into a new business model with high creditability and immense potential for growth. The stigma attached to pledging gold and gold loans as the “last resort” for those in distress are slowly thinning among people.

Since time immemorial, Indians have expressed great emotional attachment to their gold due to its ancestral value, purity, prosperity and good fortune. Gold is the only item that permeates every strata and class of the Indian society. It is equally sought after by a wealthy urban businessman and a poor farmer in a village and is much beyond being a symbol of wealth or status. This trend has made India the world's largest consumer of gold and a powerhouse in the gold loan industry.

According to ‘India: Heart of Gold’, a World Gold Council research report, Indian gold demand has grown 25 per cent despite a 400 per cent price rise of the rupee in the last decade. The research reaffirms India as a key driver of global gold demand and expects an increase by over 30 per cent in real terms. Research also shows that by 2020, the cumulative annual demand for gold in India will increase to an excess of 1200 tonnes or

approximately Rs. 2.5 trillion, at current price levels.

India’s role as a key driver of global gold demand is reaffirmed by the research which states that at more than 18,000 tonnes, Indian households hold the largest stock of gold in the world. The latest World Gold Council Gold Demand Trends report (January-March 2013), shows a market driven by diverse global demand and an appetite for owning gold jewellery that continues to grow. The total jewellery demand was up 12 per cent year-on-year in Q1 2013, driven in the main

by Asian markets.

The Muthoot Group through its flagship company, Muthoot Finance, has been engaged in the business of gold loans for more than seven decades. Since 1950s, the company has been assisting the general public of Kerala and surrounding areas for going abroad to countries like Ceylon, Malaysia, Singapore, Kuwait and Bahrain. It was Muthoot which came to their financial assistance in aiding them for applying for air tickets and visas when no bank came forward. Today, these NRIs are a major contributor for sending NRI funds, a major source for the development of Kerala and its economy.

At present, Muthoot Finance Limited is a “Systemically Important Non-deposit taking NBFC”. It stands tall as India’s largest gold financing company in terms of loan portfolio, according to the IMaCS Research & Analytics Industry (2010). It is listed in both National Stock Exchange of India (NSE) and BSE Limited. The Company provides personal and business loans secured by gold jewellery or Gold Loans primarily to

The Muthoot Group through its flagship company, Muthoot Finance, has been engaged in the business of gold loans for more than seven decades. Since 1950s, the company has been assisting the general public of Kerala and surrounding areas for going abroad to countries like Ceylon, Malaysia, Singapore, Kuwait and Bahrain. It was Muthoot which came to their financial assistance in aiding them for applying for air tickets and visas when no bank came forward.

34

IILM MANAGEMENT REVIEW

individuals who possess gold jewellery but cannot access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements.

The growing popularity of gold loans among the middle class specially also rises from the fact that the Gold loan companies have won over customers who found getting loans from normal channels difficult.

The gold loan companies have been providing convenient, affordable, flexible and accessible loans across the country.

As per the KUB Rao Committee Report, the total gold estimated in the country range from 18,000-19,000 tonnes and the annual demand ranges between 700-900 tonnes. If we distribute the gold demand region wise then the figure is as follows: Region South West North East

Gold Demand (in percent) 40 25 20-25 10-15

A sector which was not considered as potential for business has today been a major driving force behind the growth of the country. Nearly 90 per cent market share of the loans is made available by NBFCs like Muthoot Finance and these NBFCs in turn account for an estimated 28 percent share of the Rs 1.5 lakh crore outstanding gold loans in the country. It is also pertinent to say that the organized gold loan market has grown at 98.5% CAGR from 2008 to 2012.

Research shows that by 2020, the cumulative annual demand for gold in India will increase to an excess of 1200 tonnes or approximately Rs. 2.5 trillion, at current price levels. India’s role as a key driver of global gold demand is reaffirmed by the research which states that at more than 18,000 tonnes, Indian households hold the largest stock of gold in the world.

Today, Muthoot Finance Limited, the flagship company of The Muthoot Group, is a “Systemically Important Non-deposit taking NBFC”. The Company provides personal and business loans secured by gold jewellery or Gold Loans primarily to individuals who possess gold jewellery but cannot access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements.

While the banking system has traditionally kept away from the rural and semi-urban population, its liberalisation, too, did not help. The retail loans came with a lot of conditions regarding credit worthiness, repayment ability and security. Even the time taken for processing and the charges associated with them put off many people, especially those from the lower strata of society. It is this vacuum that the gold loan companies like Muthoot Finance have been filling over the decades.

The gold loan portfolio of Muthoot Finance has grown from Rs 643 crores in March 2005 to Rs 26387 crores as on March ’13. Its gold holdings too have increased from 15 tonnes in March 2005 to over 134 tonnes in March ’13. The company has registered a growth of 13 per cent in its net profit to Rs.1004 crore for the year ended March 31, 2013 as compared to Rs.892 crore of the previous fiscal. Total income for FY13 stood at Rs. 5387crore, as compared to Rs. 4549crores in FY12, a growth of 18 per cent.

The turning point for the company, which till then was a close-knit family owned business, came in 2011 when it launched its first IPO. It received an overwhelming response with the issue being over-subscribed almost 25 times in the depressed market. In the same year, the Group also became the Team Sponsor of the Delhi Daredevils cricket team.

Coupled with our extensive branch network, faster turnaround time, loan-to-value ratios, lower interest rates and charges and the ability to serve non-bankable customers, Muthoot Finance has played a major role in the financial inclusion of the country.

35

REDEFINING FINANCIAL INCLUSION

Redefining financial inclusion As Dr. C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council says, ‘financial inclusion’ is mainly providing timely, adequate and affordable credit to the needy person who may or may not have a bank account. It is one of the most critical aspects in the context of inclusive growth and development of a country. Financial inclusion can not only bring tremendous gains to the disadvantaged but, can contribute in the creation of a more vibrant and stable financial system, thus, benefitting the society as a whole.

In India, the focus of financial inclusion majorly veers around to the integration of rural India into the banking fold. Even most studies on poverty have been centred on the rural poor and no attention has been given to urban poverty or urban poor. Further, the Banking & Financial Services sector has shown tremendous growth in volume and complexity during the last few decades. Despite making significant improvements in all the areas relating to financial viability, profitability and competitiveness; there are concerns that the sector has not been able to include the Economically Weaker Sections (EWS) of the society into the fold of basic Banking & Financial Services.

There are no concerns addressed about the urban poor.

It may be further noted that with the rapid growth of big cities and increased migration of the poor from the villages, the rural and urban poor population in the country is swelling and breeding grounds of urban squalor. Infact, most of the working population in urban areas work under utterly deplorable conditions.

Since time immemorial, Indians have expressed great emotional attachment to their gold due to its ancestral value, purity, prosperity and good fortune. Gold is the only item that permeates every strata and class of the Indian society. It is equally sought after by a wealthy urban businessman and a poor farmer in a village and is much beyond being a symbol of wealth or status.

With the rapid growth of big cities and increased migration of the poor from the villages, the rural and urban poor population in the country is swelling and breeding grounds of urban squalor.

Infact, most of the working population in urban areas work under utterly deplorable conditions.

The deprivation of rural and urban poor is further accentuated by not incorporating them into the fold of basic Banking & Financial Services.

The deprivation of rural and urban poor is further accentuated by not incorporating them into the fold of basic Banking & Financial Services. It is this large section of the population which lacks access to the most basic banking services like savings accounts, credit, remittances, payment services, financial advisory services among others.

The objective of financial inclusion is to extend the scope of activities of the organized financial system. It is necessary to connect the banked and unbanked sectors. It is also necessary to enable the unbanked to become vibrant and productive participants in the economic growth process.

Presently, as the focus is on access to banking and financial services in the rural areas, rural and urban poor are the neglected/financially excluded ones. With greater penetration of formal financial services into the economy and society, there is a need for ensuring evolution and adherence to codes and standards in delivering financial services to the financially excluded. However, illiteracy and the low income savings and lack of bank branches continue to be a road block to financial inclusion in many states.

RBI has initiated several measures to achieve greater financial inclusion such as facilitating no-frills accounts, simplification of 'Know Your Customer (KYC)' Norms and General Credit Cards (GCCs) for small deposits and credit, yet, unfortunately, the statistics do not show how many rural and urban poor are using this facility. There is a strong feeling among a large section of the population that banks in urban 36

IILM MANAGEMENT REVIEW

Pioneering focus on financial inclusion The growing popularity of gold loans among the middle classes specially also rises from the fact that the Gold loan companies have won over customers who found getting loans from normal channels difficult. The gold loan companies have been providing convenient, affordable, flexible and accessible loans across the country.

areas are reluctant to open ‘no-frills’ accounts for the urban poor. A sample study carried out by the Banking Codes and Standards Board of India through incognito visits to 44 branches of 26 banks across Mumbai in February last year confirmed this suspicion.

Also, with the strong emphasis of the Government on amelioration of the urban poor, the Banking & Financial Services/banks have a two-fold challenge before them: 1. To meet the existing micro-credit needs of the rural and urban poor for meeting consumption needs and reduce their dependence on informal and costly sources of credit.

2. To move from micro-credit to credit to microenterprises or the self-employed or casual workers such as cobblers, rickshaw drivers, carpenters, handcart vendors, hawkers, plumbers, mechanics and dabba-wallas as they are the ones who also keep the life cycle of a metropolis ticking.

Other challenges include large area, cost of small value transactions, weak delivery model, unsuitable products, infrastructure, lack of finances, management support have to be effectively dealt with. The automation of core banking processes with the use of channels such as ATM, IVR based Tele-banking, Internet banking, the banking industry has become more profitable. Low Return –On Investment (ROI), customer behavior, and operating expenses are some more challenges preventing from expansion in rural like urban areas.

Government of India has been emphasising the need to provide banking services to the entire population residing in Urban and Metro Centers. Infact, the Union Finance Ministry has directed all banks to open at least one bank account for every family in urban areas living below poverty line in urban areas.

While these are certainly the key strategies that can go a long way in overcoming the challenges yet, in a big nation like India, providing banking facilities across the length and breadth of the country has been a great challenge for the government. Even though nationalisation gave a big boost to the expansion of big banks, it is a known fact that banks are reluctant to lend without substantial collateral. The rural and urban poor can hardly be expected to be in a position to provide suitable collateral.

It is then pertinent to say that Muthoot Finance Limited (which is regulated by the RBI), recognised and unlocked the value in collateral (gold jewellery) that is readily available with the economically weaker section. We have successfully brought adequate, affordable and timely access of financial services to vast swathes of rural and semi-urban India (through our 4400 plus branches, 65 per cent of which are in tier V and tier VI areas). Our massive branch expansion too has led to a lot of employment opportunities directly (staff recruitment involves the son of soil/local people) and indirectly (construction and labour involved in setting up branches) in Tier II, III, IV, V & VI cities.

The company has been fairly successful in the cannibalisation of the unorganised segment by addressing the needs of those exploited customers and making them part of the organised segment. Thus, venturing into the last mile of the remotest areas of India and saving the rural and urban poor masses from the clutches of local pawn brokers and money lenders.

37

REDEFINING FINANCIAL INCLUSION

More importantly, it has helped millions of people, especially women by recognising that the security available to them - household gold jewellery, is bankable and can indeed be an instrument of immense credit-worthiness, and a store of value.

Over the years, the company has ventured into the last mile of the remotest of rural areas of India and reaching out to those millions of people who are in dire need of funds for either their personal or business purposes.

This venture has helped the company in three ways: One, it has successfully transformed the unorganised sector to an organised sector and saved the rural masses from the clutches of local money lenders. Two, it has brought credibility to the gold loan business and three, it has included thousands of rural and semiurban Indians into the banking net for the very first time.

At Muthoot Finance Limited, the minimum loan amount is INR 1500 and the average ticket size of a loan is INR 40,000 to over 81,000 customers a day– demonstrating that Muthoot is able to cater to the smallest and most vulnerable sections of society. By reaching out to all corners of the country, supporting livelihoods and ensuring that no Indian is left behind, The Muthoot Group has demonstrated that it is financial inclusion plus plus.

Customer Relations Management supports the company’s nationwide mobile sales force and gives more than 1250 sales staff members access to the company’s online Customer Relationship Management system. The numerous call centres assist in providing instant information on any queries related to product and services.

tremendous change in the organization. It has aided in centralized and up-to-date customer information across multiple communication channels; advanced reporting to analyze data from all customer transactions; management of compensation and incentive plans across multiple selling channels; accurate management of sales leads and the revenue pipeline, accurate, real-time customer quotes and proposals; identification of cross-sell and up-sell opportunities, and extension of sales channels to the Web. They are: 

Core Banking Solutions (CBS): An in-house developed IT software solution, CBS has been introduced across 4400 plus branches as an integrated technology for the greater convenience of our customers and at the same time, it also provides the organization much better control of operations and risk management.



Muthoot Group Mobile Applications: Muthoot Group Apps have been created for our tech-savvy customers. The app available on the iOS and Android platforms is packed with enhanced user functionalities that will enable the user to conveniently browse and do many transactions cost effectively anywhere anytime 24x7.



Customer Relations Management (CRM): It supports the company’s nationwide mobile sales force and gives sales staff access to the company’s online Customer Relationship Management system. The numerous call centres assist in providing instant information on any queries related to products and services.

Emphasis on digital inclusion Another significant role played by Muthoot Group is Digital Inclusion through the adaptation of the latest information technology devices that has brought a

Nearly 90 per cent market share of the loans is made available by NBFCs like Muthoot Finance and these NBFCs in turn account for an estimated 28 percent share of the Rs 1.5 lakh crore outstanding gold loans in the country. It is also pertinent to say that the organized gold loan market has grown at 98.5 percent CAGR from 2008 to 2012.

38

IILM MANAGEMENT REVIEW



Fixed Asset Management System (FAMS): An accounting process, it aids us in tracking fixed assets for the purposes of financial accounting, preventive maintenance, depreciation and theft deterrence.

With 4300 plus branches spread across the length and breadth of the country, the company caters to the aam aadmi across semi-urban and rural areas for more than seven decades. The



Human Resource Management System (HRMS): Implemented on a Pan-India level, it combines many human resources functions including benefits administration, payroll, recruitment and training, performance analysis among others. It also enables the staff to view their personal details at a click of the button through the Employee service module.

massive branch expansion has led to a lot of employment opportunities directly (staff recruitment) and indirectly (construction and labour involved in setting up branches) in Tier II, III, IV, V & VI cities. 







Circular Management System (CMS): The implementation of CMS has helped in optimising the basic processes within the organisation. It is a web-based application, developed by our IT division, for managing/uploading Office circular(s)/notices.

This helps in knowing that the circular/notice has been read and complied with.

Video Conferencing: This facility has been provided at all Zonal Offices, Regional Offices and Staff Training Centres as it saves a lot of travel time and travel expenses of both the staff and employer.

Surveillance System: As we deal with gold and cash, there is always a threat of robbery, theft and misplacement in our field. As a pro-active measure, we have strengthened our security measures by training our staff to be more vigilant, installed more CCTVs and alarm bells in each branch. This initiative has proven beneficial to us.

As Dr. C Rangarajan, Economic Advisor to the Prime Minister says, 'financial inclusion' is mainly providing timely, adequate and affordable credit to the needy person who may or may not have a bank account. It is one of the most critical aspects in the context of inclusive growth and development of a country.

Online Trading: Customers maintaining Demat account with us are offered Online Trading facility for Trading in equity shares & derivatives under arrangement with leading broking firms.

A new model of financial inclusion As pioneers and leaders of the gold loan industry, Muthoot had seen the tremendous potential a hidden and static asset (gold jewellery) could facilitate in the inclusive growth in the ‘Bottom of the Pyramid’ and country’s overall economic growth.

With the Government of India, as well as the Reserve Bank of India showing great urgency in promoting financial inclusion, the need of the hour is for sustainable, inclusion-friendly, risk-sensitive regulations that promote sound and scalable growth of financiallyinclusive institutions. In the absence of great interconnectedness with the financial system, and with prudent regulatory oversight, there is little systemic risk posed by the operations of Muthoot Finance Limited and similarly placed institutions to the financial system.

Both the Usha Thorat Report, 2011 “In the event there is a rapid increase in the NBFCs' access to public funds or borrowing from banks, leading to a possible build-up of systemic risk, RBI would always have the option to take appropriate measures”, as well as the Alok Nigam Report, 2013, “Once the regulatory structure and prudential norms are put in place and the regulator is in a position to assess and manage the risks posed by the sector, there could be an even increased interplay with the banking sector” state that any possibility of 39

REDEFINING FINANCIAL INCLUSION

systemic risk can always be monitored and prudently controlled by the regulator, instead of seeking to reduce the operations of the sector and cause great disservice to needy consumers. In fact we are one of the NBFCs in India who have been given authorisation for installation of 9000 White Label ATMs across India by RBI, which shows our credibility with the regulator.

Consequently, consumer-friendly, listed, and wellgoverned institutions like us should be provided a level playing field and allowed to lend funds to vulnerable consumers in a manner that the consumers are able to get the maximum value out of their assets.

To increase financial inclusion, along with ensuring safety and soundness of the financial system, borrowings from Banks by NBFCs like Muthoot for financial inclusion activity should be accorded priority sector lending status thereby reducing the cost of borrowing for consumers. Risk weighted financial regulation must also be brought in place by implementing the recommendations of the Financial Sector Law Reforms Commission, since both good NBFCs and those that violate the law are currently treated alike.

Muthoot’s current operations are centered around a sound and sustainable business model – monetising assets that are held by rural and semi-urban customers to provide them with access to credit. Through prudent management, Muthoot has achieved steady growth, even under uncertain economic conditions, and has

risen to become the largest company operating in this sector. Our current business model is already built around providing access to credit by disbursing loans of Rs. 320 crores per day primarily for the rural and semi-urban population who are largely outside the formal financial system as well as acting as a backbone for the NRI worker managing inward remittances of over Rs. 6000 crores to India per year.

Built brick by brick on the principles of ethics, values, reliability, dependability, trustworthiness, goodwill, integrity, sound governance, robust risk management and technology-driven processes; our constant endeavour over the years has been to build a robust customer-oriented process that will bring a constant smile on the faces of the customers for years to come.

Our unique insight into the financial issues faced by the unbanked population, immaculately engineers every level of the financing transaction by providing maximum financial flexibility, personalised services and myriad products at each of our 4400 plus branches.

In short, the world of Muthoot is about financial fairness, social responsibility and a deep sensitivity for human well-being. Muthoot’s agenda has always been about empowering people in need, so as to accelerate India’s journey towards inclusive growth. In going back to its roots, Muthoot Group aims to provide stellar service to the most deserving, in a manner that cherishes the founder’s values and respect for integrity.

40

IILM MANAGEMENT REVIEW

Values-centered Innovation As Central To Business Strategy The five year Values Journey of the Dalmia Bharat Group holds rich lessons for other companies on how to create, institutionalize and sustain a challenging, group-wide transformation

By Deepak Thombre, Senior Executive Director, Dalmia Bharat Group

Executive Overview 2008 is a significant milestone in the history of the Dalmia Bharat group. For, it was that year, just a little over five year’s back, that the Group embarked on a comprehensive transformation and - the Values Journey. The Group's history reflects a commitment on the part of the management to combine growth based on sound business practices with a commitment to the well-being of communities in which they operate in.

When the Group's promoters were having a discussion on the broad aspects of values, what came out was that while values per se are good in themselves, they can also give the group a competitive edge, as they become enablers to business performance. In that meeting, It was further articulated that like in a circus where one sees an acrobat performing a task that is difficult for others to do because it has been refined over years of training, the marketplace will see how the Dalmias are performing well, but will not able to replicate its efforts, simply because years of effort have gone into creating its values-centric culture that drive its performance. So while the recent push for the current values journey came from that meeting, its logic rests on a strong business foundation backed by a culture and history of values.

The Group’s values-centric culture, however manifests itself in many ways from a historical perspective. The fundamental foundation of the group's value system is evident in different ways: in how the Group managed growth over the years; in how it stayed ahead of the curve as a professionally managed family business; in how it contributed over the years to national development; and in how it was a pioneer in recognising and implementing its corporate social responsibility.

History of growth and contribution to national development

O

ne of the oldest business families of India, the erstwhile Dalmia Group came into existence in the mid-1930s. Headquartered in Delhi, the Group created a diversified conglomerate that had its presence across the country in areas ranging from cement, chemicals, banking, insurance, distilleries, dairy products, jute, paper, plywood, paints, refractory, sugar, textiles, travel agency, magnesite, refractory and electronics.

The current Dalmia Bharat Group however traces its origin to 1939 when a cement division was formed and

today it enjoys a heritage of over 70 years of expertise and experience. Prior to Independence, the Dalmia Group had established four cement plants, two of which were affected by the partition. Today, the two remaining plants are part of Dalmia Bharat Group even while new capacity has been added through building new plants at existing locations, new locations and acquisition. But the moot point remains that the Group was witness to the country's Independence and contributed to national development especially in the area of infrastructure. By virtue of being among the top three business houses in the period just after Independence, it was also a major employment 41

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

The Group was witness to the country's Independence and contributed to national development especially in the area of infrastructure. By virtue of being among the top three business houses in the period just after Independence, it was also a major employment generator. Further, by making deep inroads into South and East India, a group whose promoters essentially were from the north, helped in a small way in the process of national integration.

generator. Further, by making deep inroads into South and East India, a group whose promoters essentially were from the north, helped in a small way in the process of national integration.

This sense of national pride and contribution is evident even today as the group rechristened itself as the Dalmia Bharat Group resonating the nation's name in itself. Further, its logo and brand reflect the tri color of the national flag as it strives to take its place among the leading business groups in the country.

The Group now has a national presence with operations and factories across the country with cement capacity of about twenty million tons per annum, including the recent acquisitions in the North East and recently in Bokaro. The sugar business of the Group comprises of three plants in Uttar Pradesh with total capacity of 22500 TCD, and one recent acquisition in Maharashtra. The power business of the Dalmia Bharat Group started with the need to meet power requirements of cement and sugar plants reliably and cost effectively. Accordingly, the company developed captive power projects with a total generating capacity of 151 MW, which are supplying power not only to cement and sugar plants, but also exporting to the State Grid. In a bid to encourage green energy, the group also developed wind power project of 17 MW capacity in Tamil Nadu. Two companies, Dalmia Power Limited and Dalmia Solar Power Limited, have been incorporated to undertake the development of thermal and solar power generating projects, respectively.

indicates that it has not gone down the growth path for the sake of growth. Its business growth has been consistent with its traditional and long-held values of fairness, trust and integrity. In fact, to adhere to its intrinsic values, there have been many instances when growth has been sacrificed at the altar of values. These incidents manifest themselves in the group's resolve to stick to the path of values and ethics when the external environment demands it to move away from them, when the need of the hour calls for sparring with competition in an unhealthy manner and the company refuses to do so, when it resists the temptation to play big brother to its vendors but instead treats them with respect and fairness. As articulated by one of the very senior executives “Values are deep rooted beliefs, which we believe in and we will be even ready to subject ourselves to pain in compliance of our values�.

Knowing this is one thing, but actually putting it into practice is something different.� And this is where Dalmia Bharat Group is distinct from others.

History of good family business practices The Indian corporate landscape is dotted with the debris of family businesses that have fractured themselves and in many cases have withered away.

Conventional wisdom and research in India and overseas on family businesses suggest that less than four per cent of business families worldwide survive beyond three generations. Given this backdrop and reality, the key to the vitality of the seven decade old Dalmia Bharat Group is perhaps its adherence as a business family, in letter and spirit, since inception, to values, ethics and a sense of fair play.

The history of the Dalmia Bharat Group also indicates that it has not gone down the growth path for the sake of growth. Its business growth has been consistent with its traditional and long-held values of fairness, trust and integrity. In fact, to adhere to its intrinsic values, there have been many instances when growth has been sacrificed at the altar of values.

But the history of the Dalmia Bharat Group also 42

IILM MANAGEMENT REVIEW

Business families world over are going through throes of change. Equally so in India. Economic liberalisation, globalisation, formation of joint ventures, cascading global economic crises, increasing competitive pressures, nuclearisation of business families and passing away of the patriarchs and founders have led to gutwrenching changes in family businesses in India. These drivers have resulted in the professionalization of family business managements, induction of independent directors on the boards of companies, global education of the younger members in the families including women joining at the helm of affairs and better succession planning.

The role of family business leadership has progressively evolved from authoritarian control to inclusive leadership. The decision-making authority, once the exclusive domain of the elder family members, is increasingly opening up to scrutiny by other family members. Many family businesses opting for a documented future-plan, is indicative of the gradual shift of traditional family businesses towards a professional style of managing business affairs. Succession is a crucial leadership change in an organization that requires the smooth transfer of ownership and management leadership from one generation to the next.

Succession may involve realignment of family relationships, redistribution of traditional patterns of influence and alterations in management and ownership structures of the business.

The promoters of Dalmia Bharat Group have been early movers in establishing family governance for the group. The Group has created a family constitution

Values are deep rooted beliefs, which we believe in and we will be even ready to subject ourselves to pain in compliance of our values�. Knowing this is one thing, but actually putting it into practice is something different.� And this is where Dalmia Bharat Group is distinct from others.

Conventional wisdom and research in India and overseas on family businesses suggest that less than four per cent of business families worldwide survive beyond three generations.

Given this backdrop and reality, the key to the vitality of the seven decade old Dalmia Bharat Group is perhaps its adherence as a business family, in letter and spirit, since inception, to values, ethics and a sense of fair play.

with clear philosophy, policies, processes and structures. The process of transferring responsibility to the next generation with proper checks and balances has been largely established. A sizeable number of reputed independent directors have been inducted in the boards of the group companies. The MDs are professionals themselves, having graduated in management and other relevant areas at the top of their class from some of the best of the educational institutions in India and overseas. The board of the Dalmia Group have empowered the next generation in the family and professional managers to make decisions within their work span. The Group successors have the right mix of education, technological skills, managerial skills, financial management skills, zeal, ambition, emotional intelligence and human relationship skills to successfully execute the strategic business plans.

To strengthen alignment between promoters and strike the right balance of speed with caution two structures been created amongst the owners. The family members are part of the family council where all ownership issues are discussed and a clear decision making process has been agreed to. Also, the Group has created the Governing Owner's Council where the family promoters sit with two independent members to build consensus on issues where the family members might have differences.

Additionally, with an eye on growth, the infusion of private equity has given a new impetus to the group’s growth plans. The Dalmias increased focus on strategic planning, opening up to new business ideas, recruitment of high quality non-family executives and 43

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

The Group has shared the society's responsibility of addressing social and environmental issues. Its leadership has carried the baton of innovative and responsible way of doing business over seven decades. The Group is working in a number of areas: to eradicate poverty by initiating income and livelihood generation programmes, taking basic health services awareness to masses, ensuring primary and secondary education for poor children, steps in water conservation, energy efficient production and better civic infrastructure. leadership's growing inclinations for delegation of key decisions to competent managers, are reflective of the group's move towards professionalization. The group is also creating a sizeable asset portfolio by aggressively pursuing its expansion plan in its key business areas through incubation of new projects and through acquisitions.

The Dalmia Bharat Group started as a family business that was owned, controlled, and operated by the members of the family. Today, while its ownership and management is more inclusive, the promoters have also tried to inculcate a balance between their responsibility as owners and as managers.

History of doing good Over the years, there have been two simple components to its approach to social responsibility. One, making significant and sustainable difference. It's CSR approach is distinct from charity where out of compassion, help is given to the poor and needy. While it acknowledges the power of charity, the group because of its focus on making a significant and sustainable difference, develops its programmes that make a longterm difference in the lives of its targeted beneficiaries.

Second, it believes in forging partnerships and thus work closely with a diverse set of stakeholders. All its programmes start with a need assessment done by closely involving the local community and village leaders. Subsequently, the Group involves the local leaders both at the time of formulation and implementation of the programmes.

In the process, the Group has shared the society's

responsibility of addressing social and environmental issues. Its leadership has carried the baton of innovative and responsible way of doing business over seven decades. The Group is working in a number of areas: to eradicate poverty by initiating income and livelihood generation programmes, taking basic health services awareness to masses, ensuring primary and secondary education for poor children, steps in water conservation, energy efficient production and better civic infrastructure.

In today's context Based on this foundation, as a continuity of its history of seven decades, its values journey has marked a new beginning. The journey of initiating and establishing a set of core organizational values started in 2008 with a vision to be one of the best performing companies in India. With a new generation of family business owners and professionals, the Group is aiming to build on the foundation of its past through a growth vision consistent with its values. It has set itself the objective of being the number one or two player in its chosen businesses and geographies.

The organizational values being practiced in the Group today are meant to guide the behavior and function of management and staff for the collective success of all stakeholders. Importantly, its values are unique in the sense that they do not emphasize only on the external behavior and performance of staff but also instill a sense of joy and happiness both at work and in life in general. Happiness and Performance are therefore the intended outcomes following the new values system

The organisational values being practised in the Group today are meant to guide the behaviour and function of management and staff for the collective success of all stakeholders.

Importantly, its values are unique in the sense that they do not emphasise only on the external behaviour and performance of staff but also instill a sense of joy and happiness both at work and in life in general.

44

IILM MANAGEMENT REVIEW

Changing behavior of an individual is difficult; attempting to change the behaviors of thousands of people is many times more difficult. This difficulty gets further aggravated because unlike the western society which is mostly based on contract and written agreement, Indian society is based on relationships and Dharma carries a lot of weight in daily life. Building on the reality of Indian Context, Dalmia Bharat group’s trust in the inherent goodness of people is the bedrock of its values journey. that it has adopted. But that's not all. These values it is hoped will also develop its staff from inside out enabling positive interaction with supply chain, distributors, government, industry bodies, communities and consumers. The values will empower and guide its employees to adapt and respond to rapidly shifting business scenarios and patterns. The values will also guide the management and staff to adopt practices that will lead to the goals of a successful, dependable and reputed corporate entity that the new India can be proud of, a result of the heritage that it inherited through the last seven decades.

Philosophy of Values After a long drawn enquiry and creative process involving the promoters and top 70 leaders of the company and reflecting on the group’s history as well as looking at its aspirations for the future in April 2008, the four Values of Dalmia group were articulated.

These were Learning, Teamwork, Speed and Excellence (Lets Excel), founded on pillars of Integrity, humility, Trust & Respect and Commitment as the timeless supporting principles. These were converted into specific behaviors and translated into rules of engagement at the work place.

Transforming a company inside out is not an easy task.

More so, if it is one with a rich history of seven decades.

However, the Dalmia Bharat Group's through its belief in its core values is attempting to overcome the difficult challenges of transformation as it moves forward. The groups’ Values Journey is the process of transformation.

Changing behavior of an individual is difficult; attempting to change the behaviors of thousands of people is many times more difficult. This difficulty gets further aggravated because unlike the western society which is mostly based on contract and written agreement, Indian society is based on relationships and Dharma carries a lot of weight in daily life. Building on the reality of Indian Context, Dalmia Bharat group’s trust in the inherent goodness of people is the bedrock of its values journey.

After 4 years of the values journey, the leadership at Dalmia Bharat Group is currently planning to have a renewed look at the values to evolve a new philosophy that will further transform the very DNA of the Group.

In the process, it would help create a business entity that would focus on performance, a high degree of happiness quotient among its employees and an atmosphere where all its stakeholders benefit in the short and long terms. This in turn would help the company sustain itself better in the future.

What then are the key tenets of such a company? What are the unique characteristics that differentiate and define the new face and the 'new think' of the Dalmia Bharat Group? What are the lessons in it for other companies?

Value as a dharma In some ways, the concept of Dharma in the Mahabharata forms the bedrock on which the principles and values of Dalmia Bharat are built. Just as the Mahabharata emphasizes that winning the war is as

In some ways, the concept of Dharma in the Mahabharata forms the bedrock on which the principles and values of Dalmia Bharat are built.

Just as the Mahabharata emphasizes that winning the war is as important as adhering to dharma, the group stresses on duty and dharma towards its stakeholders to turn the fortunes of the company and raise its stakeholders’ value.

45

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

important as adhering to dharma, the group stresses on duty and dharma towards its stakeholders to turn the fortunes of the company and raise its stakeholders’ value.

At Dalmia Bharat Group, Values have been made an integral part of all important HR

Further, just as important is the right versus wrong debate in the company, the right versus right debate is no less important. For example, if a sales officer goes into the market and gives a commitment to the dealer on price or delivery, but comes back to his office to hear his senior executive say that there was a miscommunication and the commitment cannot be honored, how would the sales officer respond to the dealer? Dealing with such questions requires one to look within as to what extent am I abiding the Values of the company in making my choice.

Value as a way of being Values at Dalmia Bharat are a way of being. Integrity, humility, trust & respect, and commitment, are different ways of being. At any given point of time, one is either being (living) any of these or not. For example at any given point of time either I am 100% trusting my boss, colleague or subordinate or not. There is no midway in between. A dilution in trust even by a 1% is dilution of the relationship, authenticity and ultimately efficiency and effectiveness of work. Thus, a slight distrust would amount to being off value. Being on value generates positive energy and helps in improving performance, leading to greater happiness. Dalmia Bharat values are thus not just confined to the rule book, rather they guide employees’ behavior on an ongoing basis.

The Dalmia Bharat Group has a team of employees who bring on board a balanced blend of experience and youth - who are moving forward in their endeavor to strengthen their values compliance. In the process they are learning to strike the right balance between the paradoxical requirements of life and career. For example we need respect as well as assertiveness and speed as well as meticulous detailing and excellence as well as quick implementation.

policies and processes – recruitment, induction, performance management, talent development and rewards and recognition.

While it is extremely difficult, almost impossible to establish a clear and direct co-relation between employees values compliance and business performance, the leadership at Dalmia believes that the focus on values does in some measure contribute to the company’s growth and performance. Over the last six years, the gross group turnover has almost trebled from Rs 2250 crores in 2007-08 to Rs 6150 crores in 201314. In the same period, the groups’ cement production capacity has gone up from 5.30 million tonnes per annum to 18.5 million tonnes per annum.

Today, the Dalmia Bharat Group has a team of employees who bring on board a balanced blend of experience and youth - who are moving forward in their endeavor to strengthen their values compliance. In the process they are learning to strike the right balance between the paradoxical requirements of life and career. For example we need respect as well as assertiveness and speed as well as meticulous detailing and excellence as well as quick implementation.

Remaining on the value curve is not easy, and to remain steadfast on this journey one has to keep in mind longterm gains and ignore short-term profits. Values guide employees in the face of dilemmas at work. They are principles that help individuals understand and choose what’s right over what is convenient. In Dalmia Bharat, the belief is gaining strength that values provide the illumnation to make right choices amongst the multiple options that one inevitably faces in one’s life and career.

46

IILM MANAGEMENT REVIEW

The Group has developed focused program to enhance the company’s leadership bandwidth and over the last few years leaders with high potential have been identified and put on a rigorous development programme. They have been sent to Assessment Centers to map their competencies

and their

Individual Development Plans have been created.

Currently, some of them have been provided with coaches while plans are being developed to extend coaching facilities to more leaders.

Value as people-centric The Dalmia Bharat Group deeply believes that every employee has the potential to develop into a good leader. In today’s competitive world, the quality of people in an organization can certainly be a potent source of its competitive edge in the market place. So, people focus is a critical part of Dalmia Bharat Group’s vision, core purpose strategy and core values.

The Values Journey at a broader level is about empowering and enabling people for enhanced performance and happiness. The way to enhanced performance and happiness is through Learning, practicing Team work, acting with Speed and pursuing Excellence.

At Dalmia Bharat Group, Values have been made an integral part of all important HR policies and processes – recruitment, induction, performance management, talent development and rewards and recognition.

At the time of recruitment the company assesses the fit between the candidate’s personal values and the group values on the basis of behavior interviews. Over the past five years of this journey, each new employee during the induction process is taken through a 2 hour module on company values. Also about 150 top executives are rated on their personal compliance on all four values (12 behaviors) through a confidential 360 feedback process. 10% weightage is given to the score secured by individual leader as compared to the company average in the Performance assessment.

The Group has developed focused program to enhance the company’s leadership bandwidth and over the last

few years leaders with high potential have been identified and put on a rigorous development programme. They have been sent to Assessment Centers to map their competencies and their Individual Development Plans have been created.

Currently, some of them have been provided with coaches while plans are being developed to extend coaching facilities to more leaders.

Value through a company-wide shared institutional framework The values were launched in September 2008 wherein the Managing Directors and the Senior Leadership Team of the company travelled to different locations where Values were shared with all executives on the platform of Employee Communication Forum (ECF).

Also, about 100 Value Champions were identified through a process of self-nomination and selection.

The responsibility of these Value Champions was to work with the Ombudsman in charting out and moving forward on the Values Journey of the group.

All the Value Champions were taken through a “Train the Trainer” programme where after they conducted Values Workshop covering each and every employee of the company. Subsequently, all new joinees to the company are taken through a Values module during their induction in the company. Every year, the Values Champions come together for two days Values Conclave. During this period, they share their personal experience, the progress of Values Journey in different locations, the challenges faced and the way forward. Values Conclave, thus becomes a platform

The values were launched in September 2008 wherein the Managing Directors and the Senior Leadership Team of the company travelled to different locations where Values were shared with all executives on the platform of Employee Communication Forum (ECF).

Also, about 100 Value Champions were identified through a process of self-nomination and selection.

The responsibility of these Value Champions was to work with the Ombudsman in charting out and moving forward on the Values Journey of the group.

47

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

where every year a comprehensive view of the year gone by is taken and plans for the ensuing year is formulated.

A dedicated Values Portal has also been created which has all Values related information. Every quarter a Values Update email is sent to all executives of the group.Outstanding cases of Value compliance are documented as Values case studies and circulated amongst all employees as well as hosted on the Values portal.

The belief at Dalmia's is that the Values Journey is ongoing and never ending. Further, it is hoped that the journey will strengthen and sharpen the DNA of the group.

Values in action The proof of the pudding is in the eating. In the same way, the application of the values framework has resulted in a host of initiatives that have improved business performance.

The DNA of the organization takes shape from the values which the family has practiced down the years and the aspirations for the future. A melding of discoveries and reflections has led to a value core structure that the company believes in and practices.

Developed in April 2008, it was realized for these values to reach fruition, teams had to innovate, change existing paradigms, create curiosity, and live a life of constant learning. It is all about trust and collaboration, which meant, that winning a world cup is more

Trust and mutual respect are integral to team work. When someone joins the company, they take the values pledge. Each year it is renewed by signing a code of conduct. The Trust Handbook has three sections. Section one explains how our values are connected. The second has examples where people have not followed these values and action has been taken by the company, and the last section speaks of lessons learned from these examples.

Values are critical to every company for the simple reason that it is the human resources which create, maintain and tap all other resources. How people behave on a daily basis in the long run becomes a powerful determinant of success for the organization. Values are deep beliefs and convictions that drive human behavior.

important that winning the man of the match. Speed also means being passionate and meticulous detailing.

Planning and detailing might be counter to speed, yet it’s about the balance of opposites. In today’s competitive world, it is not just the big who win, but the fast who triumph. The License Raj is over and the company needs to compete globally. It means having the courage to taking on challenges, finding new goals, keeping the focus, and conquering obstacles.

The four-pillar framework set in motion the Values Journey. Through the institutional approach that finds its roots through the Value Conclave and the Awards, the company has been rewarded with initiatives that have been taken across the various locations with differing levels of success. There have been over 30 different case studies under different themes that have merited mention. From a local level, they get prominence at a corporate level. The best teams are recognized and at an annual event, value awards are given under a separate category. For instance, at a plant, there was a critical fault with an equipment that had to be replaced. It was done in a record time of 11 days. The company has documented that and shared it across the organization.

At another level, trust and mutual respect are integral to team work. When someone joins the company, they take the values pledge. Each year it is renewed by signing a code of conduct. The Trust Handbook has three sections. Section one explains how our values are connected. The second has examples where people have not followed these values and action has been

48

IILM MANAGEMENT REVIEW

The values framework was launched in 2008

house that provide I can illumination for people to stay on track.

and over the last four years of the journey, its

The Values Framework

implementation has been constantly

The values framework was launched in 2008 and over the last four years of the journey, its implementation has been constantly improvised. The new values framework was articulated by reflecting upon the group’s history, discovering its deep beliefs and keeping in minds its aspirations for the future.

improvised. The new values framework was articulated by reflecting upon the group’s history, discovering its deep beliefs and keeping in minds its aspirations for the future.

taken by the company, and the last section speaks of lessons learned from these examples. The handbook is given to our dealers and vendors, so everybody can hold us accountable to the promises we make.

This amalgamation of rich legacy of the past and aspirations for the future gave birth to the four core values of the group Learning, Teamwork, Speed and Excellence -- LETS EXCEL, for short.

Value Champions

All this does not mean that it has been a smooth ride. In fact, in the last two years at a time when the business and the competitive environment has not been easy, the Values Journey going forward has also been marked by ups and downs. There has been resistance and some tough calls had to be made, but ultimately, building values within an organization and incorporating it as part of its culture, takes time and we believe in it, to make it happen.

Institutionalizing the Values Journey Values are critical to every company for the simple reason that it is the human resources which create, maintain and tap all other resources. How people behave on a daily basis in the long run becomes a powerful determinant of success for the organization.

Values are deep beliefs and convictions that drive human behavior. Thus, values by driving behavior become the source of individual and organization’s reputation and character – who they are and what to expect from them?

Values are also about the future. The company deeply believes that the real constraint for growth are not opportunity or resources; rather the real constraint is about the actions and the way thousands of its employees behave every day and while it is humanly impossible for a single individual to control each and every action of thousands of people, values are the light

To drive actual implementation of the values journey on ground, a new designation of Value Champion was created. The company did not create any new positions but decided to identify and designate over 100 of its existing leaders at all levels as Value Champions.

There was no extra tangible benefit for being a Value Champion but being Value Champion means pride in being recognized as a Champion and also an opportunity to expand and make difference in one’s life and the life of others and the group. The Value Champions were selected through a process of self-nomination and screening.

The role of Value Champion is defined as follows: • Be a role model • Support the ombudsperson in values institutionalization

In November 2008, group conducted their first Values 360 degree assessment for 2008-09 to know the status of values compliance of executives General Manager Level and above. This is repeated every year and by 2012 four rounds of this exercise have been completed.

49

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

To recognize performance through extra ordinary adherence to values, Values Awards have been established under three categories: Individual award, Team award and Best Location

qualifications and experience and two, their alignment with group values. For this, all the recruiters have been trained in conducting behavioral interviews and for each position, specific values/behaviors that are to be assessed have been identified.

award. At each of the company’s location those executives and teams who have demonstrated exemplary compliance to each of the four values

Values in Induction

• Conduct values workshop

All new joinees are required to attend a two hour workshop on Values within 15 days of their joining.

These workshops are conducted by Value Champion to familiarize the new joinees with the group values and processes.

• Provide values related clarifications

Values Updates

• Aid in assessing trends and issues in values compliance

Beginning March 2009, a Values Update is sent to all executives of the group periodically (initially once every two months and now quarterly) by one of the members of the Senior Leadership Team by rotation.

The Values Update communicates the values journey progress and the tangible and intangible benefits of living values. This has been a credible tool for encapsulating the values progress and all updates are available on the Values Website. Values 360 Degree Assessment

are identified through a process of Selection and e-poll.

• Facilitate formulation and implementation of the Values Improvement Plan The Value Champions conducted 60 workshops within a span of 6 months of the launch of Values to orient all employees on following the organizational values and behaviors. Through these workshops, all the executives and the leadership team at all the locations were covered.

Values Group Leaders Group also identified Values Group Leaders in year two of the journey. This became necessary as it was not possible to communicate with all values champions at the same time. The values group leaders took up the responsibility of acting as the ‘leader/support’ for the values champions in a given location. The group leaders are required to meet the values champions in their teams once a month. They are responsible for coordination of documentation and publication of case studies for the Values Portal and Values Update, organizing values meetings, Values Week and review workshops, and sharing of values on different occasions.

In November 2008, group conducted their first Values 360 degree assessment for 2008-09 to know the status of values compliance of executives General Manager Level and above. This is repeated every year and by 2012 four rounds of this exercise have been completed.

In FY12, beginning with the two Managing Directors top 148 leaders of the group were rated on 12 Value Behaviors by their bosses, peers and subordinates.

While Values scores are available at individual levels,

The EEL was launched into 2009 for organization wide employee empowerment programme. The purpose of the programme was to “enhance happiness and performance levels of all participants”. The first pilot run of the program was launched with 22 employees who were to be trained

Integrating Values in the Recruitment Process

(‘coachees’) and 8 coaches who themselves were

Since May 2009, values assessment has been made an integral part of our recruitment process. The potential candidates are assessed on 2 parameters: One, their

to guide the 22 participants.

getting simultaneous coaching and were required

50

IILM MANAGEMENT REVIEW

To bring all values champions and Value champion group leaders together for powerful sharing of experiences, developing the path for future and further skill building every year two values conclaves are organized(one for Cement business and second for Sugar and Corporate office). These conclaves facilitate taking stock of the values journey and identifying specific programmes for taking it forward.

The conclaves provide an excellent opportunity for value position holders to come together and meet in a very informal and open environment with the top leaders of the company.

the programme was to “enhance happiness and performance levels of all participants”. The first pilot run of the program was launched with 22 employees who were to be trained (‘coachees’) and 8 coaches who themselves were getting simultaneous coaching and were required to guide the 22 participants. They did this by providing mandatory mentoring over phone (‘coach calls’) for the projects that coachees had taken for completing the EEL programme. The Coaches had also taken up their own projects.

they are also compiled on the basis of location, business and the entire group. At the end of this exercise, each year, the leaders are required to identify two specific actions they would take on a consistent basis in consultation with their peers, subordinates and boss.

In the round two of EEL, 85 participants were coached by 15 coaches over a three month period. This programme was well received by participants as more than 80 per cent of them reported that the programme made a tangible difference in their performance and happiness.

Value Awards

Values Conclaves

To recognize performance through extra ordinary adherence to values, Values Awards have been established under three categories: Individual award, Team award and Best Location award. At each of the company’s location those executives and teams who have demonstrated exemplary compliance to each of the four values are identified through a process of Selection and e-poll. The identified executives are awarded at the location and the top two entries in each Value category then compete at the Group level. The best case of value compliance for each value is then awarded at the annual conclave of the group where top 80 leaders of the group come together.

To bring all values champions and Value champion group leaders together for powerful sharing of experiences, developing the path for future and further skill building every year two values conclaves are organized(one for Cement business and second for Sugar and Corporate office). These conclaves facilitate taking stock of the values journey and identifying specific programmes for taking it forward. The conclaves provide an excellent opportunity for value position holders to come together and meet in a very informal and open environment with the top leaders of the company.

Every year, one of the plants of the group is awarded for best location in Values Compliance. This is done through a detailed process which takes into account the Values 360 score of the location, number of Values case studies contributed, quality of execution of Values processes in recruitment and induction and any other innovative values practice implemented at the location.

nurtured and reinforced. The strength of an

Every Employee A Leader (EEL)

climate of trust prevalent in the organization.

Trust and mutual respect are perhaps the most important aspects of our values. We believe that trust is the foundation on which all our values are organization is directly proportional to the

The EEL was launched into 2009 for organization wide employee empowerment programme. The purpose of

51

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

Trust and compliance Trust and mutual respect are perhaps the most important aspects of our values. We believe that trust is the foundation on which all our values are nurtured and reinforced. The strength of an organization is directly proportional to the climate of trust prevalent in the organization. To us trust means honoring our word doing what we said we would do and by when we said we would do it. And, when we don’t deliver as we promised, we will take responsibility for the consequences, make a new promise and keep it. Living by trust would require we honor all small and big promises we make to people within and outside the organization. It also means adhering to the Dalmia code of conduct which is an integral part of being a Dalmia-ite.

All employees are duty bound to live by the organizational code of conduct that lists clear guidelines for ethical behavior. The Dalmia code of conduct is both based on and reinforces our organization’s values.

Violating the code of conduct would be tantamount to breaching the promise made to the company and fellow employees and would amount to breach of trust.

Preserving and strengthening trust requires us to live by rules and standards articulated by the organization.

Every day, in the course of fulfilling our professional duties, we are presented with myriad situations as we work with diverse people both within and outside the organization. In handling these situations and in engaging these people, we must maintain the highest standards of integrity, dignity, decency and fairness in all our dealings.

We need to create a deeper valuesbased organization. In order to do so, we must articulate better our mission and philosophy, which must have a connect with the values that we have imbibed, as

Organizational culture is all about inculcating deep rooted values, and building character through practice of these values. A strong and common set of values is a bond that keeps employees operating in a consistent fashion.

Adhering to these standards is simple – each of us has an innate sense of what is just and fair. Our conscience is that inner voice of reason that helps us distinguish between good and bad, truth and deceit, right and wrong. There are a number of examples of how values played itself out among the employees and at the work place and the response of the management.

Every individual has the right to dignity at work, and this right is sacrosanct. Honour and dignity are paramount, and must never be compromised Way forward The next phase of our values journey must predominantly bring in a connect and convergence between our values and our philosophy in the way in which we live our lives as Indians. We need to create a deeper valuesbased organization. In order to do so, we must articulate better our mission and philosophy, which must have a connect with the values that we have imbibed, as we move into the next phase of our values journey.

To reinforce our commitment to our values, we must outline specific programmes that need to be conducted at the grass root level in the next phase of our values journey, and create accountability for their execution.

This will involve redefining the Roles and Responsibilities of the value champions and their group leaders with specific goals and mechanism for reviewing the progress.

we move into the next phase of our values journey.

Why are we doing all this? Clearly, we believe that this unique organizational culture which we create, will drive exemplary performance and hence the competi-

52

IILM MANAGEMENT REVIEW

The Dalmia Philosophy, which in turn, which will draw its insights from the Indian way of life, must converge and get aligned to our values of learning, teamwork, speed and excellence, so that they become sustainable and strongly rooted in the Dalmia minds and hearts, as we journey through times ahead.

tiveness of our businesses.

Organizational culture is all about inculcating deep rooted values, and building character through practice of these values. A strong and common set of values is a bond that keeps employees operating in a consistent fashion.

We as Indians have a particular way of living, which is very distinct from the Western world, and we must align our organizational culture to the Indian way of life. We must therefore first understand and agree to what we believe as the Indian way of life.

The Dalmia Philosophy, which in turn, which will draw its insights from the Indian way of life, must converge and get aligned to our values of learning, teamwork, speed and excellence, so that they become sustainable and strongly rooted in the Dalmia minds and hearts, as we journey through times ahead.

As Indians we are a “relationship-based” society whereas the Western world is more of a “contractbased” society.

As Indians we are also more integrated, interdependent and seamlessly linked through relationships with family and community whereas in the western world their relationships are more individualistic and contractual.

As Indians our Relationships are predominantly emotional, moral and spiritual, whereas in the West Relationships are predominantly driven by rationality, logic, legality and are more transactional in nature.

The next phase of our journey is to strengthen and build upon our values of learning, teamwork, speed and excellence, linked to and in consonance with the Dalmia Philosophy, ultimately linked to the fundamental ways in which we live our lives as Indians.

In the next phase, we have agreed on three work themes. These include: Family Connect to leveraging family relationships; Walk the talk which is about individual development and Role Modeling; and Sadhana that refers to the practice of excellence in the work context.

In Family Connect we hope to have health and wellness programmes; Planning personal finances (personal Planning) for family wellbeing and Counseling for family/ children development.

Under Walk The Talk, we will organise the Creation of knowledge sharing groups and developing an e library. Including functional as well as general knowledge; develop a “Humility Code of Conduct" and practice the same and become a role model to strengthen trust and mutual respect. Finally, through Sadhana, there will be special projects to drive continuous improvement and innovations at the work place; create an enhanced Empowerment at operating levels and integrate values into our people and business processes.

We also need to do a number of things going forward.

Firstly, that there was a need to revisit “Values Pledge" to include family too. Second, that youngsters teach us a lot - learn from GET's. Owners were advised to

As Indians we are a “relationship-based” society whereas the Western world is more of a “contract-based” society. As Indians we are also more integrated, interdependent and seamlessly linked through relationships with family and community whereas in the western world their relationships are more individualistic and contractual.

53

V A L U E S - C E N T R E D I N N O V AT I O N A S C E N T R A L T O B U S I N E S S S T R AT E G Y

involve GET's in their programmes. Third, we need to develop Value Champions at the workers level.

Owners to include workers in their respective teams.

Fourth, reinvigorate, the “Ladies Club" to have greater involvement of the ladies in the values journey. Fifth, incorporate values awards for workers. Finally, extend the scope of inculcating values to family and children through more structured programmes.

The next phase of our values journey must predominantly bring in a connect and convergence between our values and our philosophy in the way in which we live

our lives as Indians. Our Mission will be to revitalize our values on the fundamental principle of nourishing and nurturing relationships at all levels and across all human interfaces that we touch to enhance our happiness, drive great performance and create distinct competitive advantage for our organization.

The challenge will be to see how we bring in this emotional connect, and expand the values framework to a larger population and make it much more inclusive by involving self, family as well as organization.

54

IILM MANAGEMENT REVIEW

The Changing Landscape Of Public Affairs In India It’s imperative for corporations and managers to intergrate PA into the core of business strategy

By Ajay Khanna (President, Jubilant Organosys) and Harish Krishnan (Executive Director, Cisco Systems India); co-founders of the Public Affairs Forum of India (PAFI)

Executive Overview Public Affairs play an important role in addressing and focusing the corporation on the higher order goal of selfactualization, enabling the company to engage with the highest levels of the Government. They play a major role in how companies create value. The growing government regulation and the recognition by companies of the need to collaborate with the government have raised the profile of Public Affairs. The current socio-economic and political situation has changed the dimension of Public Affairs in India making it a composite and integrated function.

T

he 21st century has long been recognised as the information and knowledge age. New industries of Internet, mobile and social media fast-tracked and gained momentum and scale like never before.

However, in this milieu and century, the evolution and importance of one key industry and indeed a profession almost went unnoticed across the world, in Asia and crucially in India: that of Public Affairs (PA). While over the last decade the nascent profession has been taking shape, it is only now, in more recent years, that PA has crystallised itself. In fact, even though the term Public Affairs has been loosely used, it is also of recent origin that a definition has gained currency. Today, it is a term used to describe an institution’s relationship with its various stakeholders, both internal and external. These could be individuals or groups with an interest in the organisation's betterment or affairs that could include legislators, civil servants, shareholders, customers, clients, trade associations, think tanks, civil society, industry associations, trade unions and the media. Public affairs practitioners engage stakeholders to explain the organisation's policies, provide factual information and advocate on issues which could impact the future and current activities of the organisation.

Today, the work of PA Professionals combines government relations, media communications,

academic interaction, issue management, corporate and social responsibility information dissemination and strategic communications advice. They aim to influence public policy, build and maintain a strong reputation, help do business ethically, be responsible corporate citizens and find a common ground with the multiple stakeholders of the organisation. In many ways, especially in multinationals, they perform the function of the communicator translating what the company stands for to the external world and what the external world expects of the company to the highest levels of the company. While most functions in companies are very sharply focused, the Public Affairs function is one of the few functions which has the luxury of not seeing everything over the prism of the next quarter results. They are marathon runners often With almost all major MNCs now in India from virtually every part of the world, what happens with them globally will also affect their operations in India. Asia and emerging markets like India have become even more important to them and therefore, the need to scan the Indian environment and play a more significant role has catalysed the importance of the PA function within MNCs.

55

THE CHANGING L ANDSCAPE OF PUBLIC AFFAIRS IN INDIA

required and in position to take a long term view for the next 3 to 5 years. By definition, they are in a position to see the big picture.

Over the recent years, Public Affairs has also moved away from its traditional role as “liaison officers”.

Today, PA practitioners combine a host of responsibilities including policy influencing, government affairs & relations, parliamentary affairs & relations, political advisor, political researcher, external affairs & relations, campaigns, corporate communications, corporate affairs, corporate social responsibility, stakeholder relations and stakeholder management. They provide inputs into strategic investment, and more importantly align the company to national priorities and create relevance for the company at the macro level.

Individuals, companies and company CEOs also have the Maslow’s hierarchy of needs. Public Affairs plays an important role in addressing and focusing the corporation on the higher order goal of selfactualisation, enabling the company to engage with the highest levels of the Government.

What then have been the key driving forces of Public Affairs and why is it gaining momentum now in India?

Over twenty years back when economic reforms unfolded, it was hoped and believed by the corporate sector that the need to connect with the government would gradually lessen. Indeed, in the first ten years, this proved to be the case to some extent.

But in the last decade and especially in the last five years, that perception and perhaps the reality have taken a 180 degree change. In India, and in indeed in other parts of the world too, the government seems to have come back with a big bang, both in terms of its regulatory activities as well as in terms of its intent to be part of the distribution network such as through food subsidies and fuel distribution.

With Indian business groups and multinational corporations (MNCs) now implementing large projects in various states specially in PPP mode, the need to interact with the state governments apart from the central government has also gained manifold. Some

Over the recent years, Public Affairs has also moved away from its traditional role as “liaison officers”. Today, PA practitioners combine a host of responsibilities including policy influencing, government affairs, government relations, parliamentary affairs, parliamentary relations, political advisor, political researcher, external affairs, external relations, campaigns, corporate communications, corporate affairs, corporate social responsibility, stakeholder relations and stakeholder management.

companies have tasted the truth of this reality when managing issues at the grassroots became all the more important.

The third McKinsey Global Survey on “Engaging with the Government” that surveyed executives across the world affirms that governments and regulators will play an increasing and consistent role in how companies create value over the next few years.

Larger share of executives than last year said governments and regulators will affect their companies’ economic value, according to results from the survey on how they managed their external affairs.

Interestingly, few said their companies engaged proactively with these stakeholders or were more effective at implementing external-affairs practices.

Crucially, executives in India and elsewhere believed that government’s role in business continued to remain important: most expected increased involvement in their industries and nearly three-quarters said external affairs issues will impact (either positively or negatively) their companies’ operating income.

Yet, when the survey grouped respondents based on their attitudes toward government, it found higher shares than the previous survey saying they did not understand the business opportunities and risks associated with government involvement. Only 19 per cent said their companies frequently succeeded at influencing either government policy or regulatory decisions and few reported the use of formal mechanisms (including social media) to track opinion.

56

IILM MANAGEMENT REVIEW

It is this twin driver of growing government regulation and the recognition by companies of the need to collaborate with the government that has in part raised the profile of Public Affairs now. At another level, Indian businesses have been reinventing and restructuring. With almost all major MNCs now in India from virtually every part of the world, what happens with them globally will also affect their operations in India.

Asia and emerging markets like India have become even more important to them and therefore, the need to scan the Indian environment and play a more significant role has catalysed the importance of the PA function within MNCs. Indeed, in many of them now in India, Public Affairs works closely with the India CEO and Global CEO’s office and is often an alter-ego position. In most MNC’s, the function directly reports to the Global HQ and in some ways acts as the voice, eyes and ears of the HQ and ensures there is no dilution in global values and principles of the company.

Structurally too, within MNCs, there have been centralising of functions and therefore, while the business divisions have a more market-driven, decentralised approach, the non-profit centres have tended to get grouped together in a global alignment.

India by now has emerged as a market that MNCs cannot ignore. Significant moves are also being made in MNCs towards localisation of strategies and practices.

So while many companies, especially in sectors where policies are still evolving such as banking and financial services, telecommunications, social media, direct selling and retail, face insurmountable odds while doing business in India, they still need to continue the

In India, and in indeed in other parts of the developing world too, the government seems to have come back with a big bang, both in terms of its regulatory activities as well as in terms of its intent to be part of the distribution network such as through food subsidies and fuel distribution.

The third McKinsey Global Survey on “Engaging with the Government” that surveyed executives across the world affirms that governments and regulators will play an increasing and consistent role in how companies create value over the next few years.

dialogue with the government. All these have raised the importance of the Public Affairs champion within companies.

At the other end of the corporate spectrum are Indian businesses that are growing in scale and crucially outside the country. There a need in such companies for Public Affairs to dialogue with the Indian and state governments and also with the various governments and stakeholders outside the country.

In recent years, corruption has emerged as a major issue that corporates are facing in India. Companies, both domestic and overseas, are coping to deal with corruption at the central and state levels. India ranks a low 95 on Transparency International’s Corruption Perception Index that captures the extent of corruption in the government sector. While there is great clarity in many sectors with regard to policy formulations and clearances, when these same businesses go down to the state levels for implementations, controls, clearances and corruption go hand in hand.

Responding to these needs, there arose a group of lobbyists in cahoots with some companies who tended to twist the system. Public Affairs professionals in companies today have a greater challenge of keeping the system corruption-free and engaging with the government and other stakeholders like vendors and suppliers to usher in an era of ethical and responsible business practices. The ability of corporations to deal with this aspect and overcome the challenges in a way that transparency and honesty are upheld is more critical than ever.

57

THE CHANGING L ANDSCAPE OF PUBLIC AFFAIRS IN INDIA

Experience and research have also shown that companies that are able to focus on environment, analyse the landscape, combine the best interests of the various stakeholders, do business in an ethical way and work in the best interests of the local communities and governments will be able to build sustainable businesses.

Public Affairs, therefore in this age of hypercompetition is more crucial than ever.

Changing dimensions

Indian businesses that are growing in scale and crucially outside the country.

There a need in such companies for Public Affairs to dialogue with the Indian and state governments and also with the various governments and stakeholders outside the country.

Public affairs as a composite, integrated function Two factors have contributed to the creation of an integrated function of Public Affairs. One, with the role being that of an extension of the CEO’s or Chairman’s office, most of the long-term business strategies come to be integrated into one. Second, with Public Affairs now seen as contributing to business strategy, there is a need to integrate the various functions that relate to the various stakeholders of the company. Today, it integrates the various roles of managing the government, doing landscape analysis, brand management & positioning, involving in corporate social responsibility, public relations, alignment to national agenda, internal communication and corporate affairs. The role of public affairs has undergone a sea change too: it has become more critical to an organisation’s future more than ever. Today, it represents an organisation’s efforts to monitor and manage its business environment and combines government relations, communications, issues management and corporate citizenship strategies to influence public policy, build a strong reputation and find common ground with stakeholders.

Indian businesses have been reinventing and restructuring. With almost all major MNCs now in India from virtually every part of the world, what happens with them globally will also affect their operations in India. Asia and emerging markets like India have become even more important to them and therefore, the need to scan the Indian environment and play a more significant role has catalysed the importance of the PA function within MNCs.

Crisis management is increasingly a critical component of Public Affairs.

With that, it also brings in the need for the Public Affairs function to be a versatile one, even as he or she brings on board a degree of versatility that an educational milestone like even an MBA cannot bring on board. It is also in such a situation that he/she has the trust and confidence of the CEO. The ability of networking, use of technology, building corporate citizenship and being proactive are all parts of the new PA profile. Above all, with this integration of roles and responsibilities, the Public Affairs functionary will have to be crucially a people’s person meshing the interests of the top management with that of the various businesses. Often, in MNCs in India, the Public Affairs role is a global one, with direct reporting relationship to the parent headquarters. In India, it assumes a top level role as interactions at the Board level are often called for.

Public affairs as the foundation of future business Increasingly, Public Affairs is a function of business.

Crucially, it is about building the foundation of the future business. Governments, centrally and in the states, want to strengthen the economy. They would also like corporations to contribute to nation building and help strengthen the economy. It is in this context that companies are called to strengthen the economy.

Public Affairs functions have a key role here. By being part of the CEO’s office, he or she also has the role of getting inputs from various businesses and integrating it with the business plan and vision. Therefore, Public 58

IILM MANAGEMENT REVIEW

Affairs also assume the role of corporate planning.

Landscape analysis and scenario planning therefore will be a key role, addressing questions such as the following: * How can companies mesh the national agenda with the corporate vision? * Where should the company be five or ten years from now? * What are the inputs the company can get from the stakeholders of policy making and legislative functionaries that could impact their business in the future? * How does one disseminate that information within the company, debate upon them, distill that information and take it to the strategy level where needed?

These are key, emerging roles of Public Affairs.

When Public Affairs is seen as part of the business, it naturally also has to build deeper relationships within and outside the company. Public Affairs As Advocacy and Legitimate Beyond Pure Lobbying

Increasingly, the task of Public Affairs will be to shape opinion, advance policy making, educate and engage key decision-makers. It should also be able to move the country’s agenda in the socio-economic and political spheres, change attitudes of stakeholders and improve corporate reputations and build brands. It should enhance the policy reach, advancing their ideas through deep domain expertise, with an ability to get those ideas in front of the right people. It should be able to translate these ideas into actionable policies. However, much of this has to be done in a new way by creating and executing successful public affairs campaigns for major corporations, governments, trade associations, coalitions and non-profit organisations.

Traditionally, industry associations and trade bodies interact directly with the government. There is a greater need than ever for Public Affairs divisions of companies to be more and more involved with the industry associations at the national and state levels.

59

IILM MANAGEMENT REVIEW

Indian Banking: Turbulence In The Industry New banks and other opportunities could fuel growth even in this phase

By Jyoti Prakash Gadia, CEO, Resurgent India

Executive Overview Indian banking industry has been incremental in the progress of the country. Despite this, the sector in India has lagged behind, as it has left half of the population behind who till now remain as the unbanked population in India.

Going ahead, the sector has opened up and has fared very well during the post liberalization era, but this dream run halted couple years back, when the problems of raising NPA, implementing Financial Inclusion, capital adequacy and many others haunted the segment. However on the brighter side, the rising consumerism from the emerging ‘middle’ India and the higher purchasing power in rural India on account of rising employment provides opportunities for banks to look beyond the traditional customer segments.

Further, over the last few years, use of technology has been extensive in the Indian Banking Scenario and it has largely helped in implementation of Financial Inclusion and reached the unbanked population in the country. On the other hand, Banks should not consider Financial Inclusion as an obligation but an opportunity to increase its reach.

Besides, RBI is pushing Financial Inclusion through relaxation of regulatory guidelines, provision of innovative products, encouraging use of technology and other supportive measures.

In this research work we have put together various aspects such as Financial Inclusion, Capital Raising Issues, Trends, Opportunities, Growth drivers, Significant innovations and many more.

I

ndia is one of the attractive investment destination in the world, however Indian economy after registering robust growth of more than 9 per cent during the period 2005-08, moderated to a growth of 6.7 per cent in 2008-09 on the back of the global financial crisis. As a result of timely stimulus in fiscal and monetary space, the economy managed to recover quickly to a growth of 8.4 per cent in 2009-10 and 201011. Since then, however, the fragile global economic recovery and a number of domestic factors have led to a slowdown once again. Indian economy is expected to grow at a slightly improved rate of 3.4 in FY14 from 3.3 per cent in FY13, as per projections from the Organization for Economic Co-operation and Development (OECD). Further, the growth is expected

to improve in FY15 (5.1 per cent) and FY 2016 (5.7 per cent).

The slowdown in economic growth is mainly due to weakness in industry segment that registered a growth of only 3.5 per cent and 3.1 per cent in FY13 and FY12 respectively. Manufacturing sector reported even slower growth rate of 2.7 per cent and 1.9 per cent during the same period. Following the trend, agriculture has also been weak in FY13, due to lower-thannormal rainfall, especially in the initial phases (months of June and July) of the south-west monsoon. Going ahead, service sector, after achieving double-digit growth continuously for five years and narrowly missing double digits in the sixth (between 2005-06 and 2010-11), the sector fell to 8.2 per cent in 2011-12 and 6.6 60

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

per cent in 2012-13.

The reason behind, economic slowdown despite a strong recovery from the global financial crisis is firstly, the boost to demand given by monetary and fiscal stimulus following the crisis was large.

Additionally, consumption grew at an average of over 8 per cent annually between 2009-10 and 2011-12. The result was strong inflation and a powerful monetary response that also slowed consumption demand.

Second, starting in 2011-12, corporate and infrastructure investment started slowing both as a result of investment bottlenecks as well as the tighter monetary policy. Thirdly, even as the economy slowed, it was hit by two additional shocks: a slowing global economy, weighed down by the crisis in the Euro area and uncertainties about fiscal policy in the United States, and a weak monsoon, at least in its initial phase.

The consequent slowdown, especially in 2012-13, has been across the board, with no sector of the economy remaining unaffected. Falling savings without a commensurate fall in aggregate investment have led to a widening Current Account Deficit (CAD). Wholesale price index (WPI) has been coming down in recent months. However, food inflation, after a brief slowdown, continues to be higher than overall inflation.

Given the higher weightage to food in Consumer Price Indices (CPI), CPI inflation has remained close to double digits. Another consequence of the slowdown has been lower-than-targeted tax and non-tax revenues. With the subsidies bill, particularly that of petroleum products, increasing, and danger that fiscal

The long-term policy of the country is to achieve inclusive growth. The current developmental problem facing India is exacerbated by the changing demographic profile of the country. The number of unemployed will be a large number of which the proportion of the educated youth will be the largest. Therefore, the need for strong, accelerated economic growth is now much more acute than ever.

The slowdown in economic growth is mainly due to weakness in industry segment that registered a growth of only 3.5 per cent and 3.1 per cent in FY13 and FY12 respectively. Manufacturing sector reported even slower growth rate of 2.7 per cent and 1.9 per cent during the same period.

targets would be breached substantially became very real in the FY14.

The situation warranted urgent steps to reduce government spending so as to contain inflation. Also required were steps to facilitate several measures announced in recent months are aimed at restoring the fiscal health of the government and shrinking the CAD as also improving the growth rate. With the global economy also likely to recover somewhat in 2013, these measures should help in improving the Indian economy's outlook for FY14.

The long-term policy of the country is to achieve inclusive growth. The current developmental problem facing India is exacerbated by the changing demographic profile of the country. The number of unemployed will be a large number of which the proportion of the educated youth will be the largest. Therefore, the need for strong, accelerated economic growth is now much more acute than ever.

India’s economic growth has been led by the services sector in the last decade, particularly owing to the growth in Information Technology (IT) and Business Process Outsourcing (BPO) industries. The manufacturing sector’s importance has grown in the recent years with the advancement in its output. The sector offers huge potential for employment creation.

Moreover, the importance of Micro, Small and Medium Enterprises (MSMEs) in the growth process is considered to be a key engine of economic growth in India in the years ahead.

61

IILM MANAGEMENT REVIEW

The Indian banking sector has emerged as one of the strongest drivers of India's economic growth.

The Indian banking industry has attained phenomenal advancement during the last few years, despite its global counterpart struggling with financial meltdown. India's economic development and financial sector liberalization have led to a transformation of the Indian banking sector over the past two decades.

Lastly, the sigh of relief is that, India’s exports touched US$ 303 billion mark in FY13 that is almost double of what it managed (US$ 167 billion) four years ago.

Further, there is expectation that figure will reach US$ 325 billion by the end of FY14. The US$ 1.2 trillion investment planned in the infrastructure sector will go a long way in boosting export performance of Indian companies and the Indian growth story.

Indian banking: trends and overview The Indian banking sector has emerged as one of the strongest drivers of India’s economic growth. The Indian banking industry has attained phenomenal advancement during the last few years, despite its global counterpart struggling with financial meltdown. India's economic development and financial sector liberalization have led to a transformation of the Indian banking sector over the past two decades.

In the near future, the Indian banking industry is expected to see consolidation in the wake of future economic growth, changes in banking regulations and increase in competition from foreign banks. Further, technological innovation and especially mobile banking have paved the way for dramatic growth in the industry in the coming years.

The growth story of banking during the last decade has been spectacular and beyond the consistent double digit growth. The key trends were strong regulatory framework, use of multiple channels and technology; strong customer oriented banking services and a growing economy. Although the past couple of years have witnessed a slowdown in the face of high domes-

tic inflation, depreciation of the rupee and the aftermath of the crisis in US and Europe, the sector still performs better in India as compared to developing countries in terms of growth, profitability and capital adequacy and asset quality. Further, the future seems to be promising despite a series of challenges like the overall slowdown in the economy impacting credit growth, deteriorating asset quality and rising NPAs, accompanying financial inclusion and Basel III implementation are all lingering issues, the sector is well cushioned with factors like a positive demographic dividend, increasing investment in infrastructure, innovation in technology and most importantly constructive regulatory policies.

Indian banks’ total asset size is recorded at US$ 1.5 tn in FY12 and is expected to reach US$ 28.5 tn by 2025.

Further, assets of public sector banks grew at an average of 7.5 per cent, while Private sector expanded at a CAGR of 11.3 per cent and foreign banks posted a growth of 6.7 per cent. Increase in working population and growing disposable incomes will increase the demand for banking and related services. Housing and personal finance are expected to remain key demand drivers.

Above table signifies that Return on Assets (ROA) in Emerging Economies fared better than those in Developed Economies. Despite ROA of Indian Banks being the lowest in Emerging economies, but it has managed to be ahead of most of the countries in Developed Countries.

Currently, there are 87 scheduled commercial banks

The growth story of banking during the last decade has been spectacular and beyond the consistent double digit growth. The key trends were strong regulatory framework, use of multiple channels and technology; strong customer oriented banking services and a growing economy.

62

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

with deposits worth Rs.71.6 tn (US$ 1.21 tn) as on 31 May, 2013. Of this, 26 are public sector banks, which accounts for 73 per cent of interest income in the sector.

Besides, 20 are private banks and 41 are foreign banks.

Credit off-take has registered impressive growth during the past decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit. During FY06– 13, credit off-take expanded at a CAGR of 22.8 per cent to US$ 991 bn. Total credit off-take is estimated to grow to US$ 1,140 bn in FY14. Demand has grown for both corporate and retail loans.

Currently, Private Banks are focusing on the faster growing retail loans and also improving the growth rate in fee income by increasing transaction fees whereas, Public Sector Banks are emphasizing on higher recoveries and upgrades in Non Performing Loans (NPL) and also improving their deposits mix by reducing the share of bulk deposits.

The net non-performing assets (NPA) of Indian banking sector have shrunk during the past few years, but the net NPA levels increased to 1.68 per cent in FY13 from 1.28 per cent in FY12, and is further expected to deteriorate.

Total deposits have grown at a compound annual growth rate (CAGR) of 21.2 per cent during FY06-13; in FY13 total deposits stood at US$ 1,274.3 bn. Deposit growth has resulted due to strong growth in savings amid rising disposable income levels. Further, access to the banking system has also improved over the years due to continuous government initiatives; at the same

Private Banks are focusing on the faster growing retail loans and also improving the growth rate in fee income by increasing transaction fees whereas, Public Sector Banks are emphasizing on higher recoveries and upgrades in Non Performing Loans (NPL) and also improving their deposits mix by reducing the share of bulk deposits.

Indian banks’ total asset size is recorded at US$ 1.5 tn in FY12 and is expected to reach US$ 28.5 tn by 2025. Further, assets of public sector banks grew at an average of 7.5 per cent, while Private sector expanded at a CAGR of 11.3 per cent and foreign banks posted a growth of 6.7 per cent.

time India’s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years.

Mobile banking: a breakthrough innovation After achieving success in online banking, mobile banking is the next revolutionary step which has attracted huge attention among the customers. Further, Mobile banking can perform all the banking functions such as money transfer, credit card payment, bill payment, account updates and other transactions. On an average, there are about 3 lakh transactions per day through mobile banking and some of the big banks have witnessed a 100 per cent increase in mobile banking with more services likely to be introduced in the near future.

Many customer segments are finding it very useful using mobile banking. It is mostly preferred by customers in the age group of 18-32, who are more likely to adopt mobile banking than older users. Overall the growth in mobile banking that has taken place in the country till date, though at a great pace, but is yet to reach the critical mass that will enable it to deliver on its promise of taking banking, including payment services, at a cheaper, secure and seamless manner to the existing and potential customers.

Recent trends in banking industry Improved risk management practices Indian banks are increasingly focusing on adopting integrated approach to risk management and have already embraced the international banking supervi63

IILM MANAGEMENT REVIEW

sion accord of Basel II; interestingly, according to RBI, majority of the banks already meet capital requirements of Basel III. Further, most of the banks have drawn a framework for asset-liability match, credit and derivatives risk management.

Diversification of revenue stream Banks are emphasizing on diversifying the source of revenue stream to protect themselves from interest rate cycle and its impact on interest income. Focusing on increasing fee and fund based income by launching plethora of new asset management, wealth management and treasury products Technological improvement Indian banks, including public sector banks are aggressively emphasizing on improving the technological aspect of operation to enhance customer experience and gain competitive advantage. Further, internet and mobile banking are becoming popular among the customers. Further, Customer Relationship Management (CRM) and data warehousing will drive the next wave of technology in banks.

Focus on financial inclusion RBI has asked banks to focus on spreading the reach of banking services to the un-banked population of India.

With this regard, players are stretching their branch network in the rural areas to capture the new business opportunity.

The growth in mobile banking that has taken place in the country till date, though at a great pace, but is yet to reach the critical mass that will enable it to deliver on its promise of taking banking, including payment services, at a cheaper, secure and seamless manner to the existing and potential customers.

Mobile banking can perform all the banking functions such as money transfer, credit card payment, bill payment, account updates and other transactions. On an average, there are about 3 lakh transactions per day through mobile banking and some of the big banks have witnessed a 100 per cent increase in mobile banking with more services likely to be introduced in the near future.

Derivatives and risk management products In a changing business scenario and financial sophistication which has increased the need for customized exotic financial products, Banking firms are developing Innovative financial products and advanced risk management methods to capture the market share.

Consolidation As foreign banks ventured into Indian scenario, competition has intensified and banks are increasingly looking at consolidation to derive greater benefits such as enhanced synergy, cost take-outs from economies of scale, organizational efficiency, and diversification of risks.

Wide usability of RTGS and NEFT Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being implemented by Indian banks for fund transaction and have been well received by the consumers as it saves time and energy on their part. Further, regulatory body, Securities Exchange Board of India (SEBI) has included NEFT and RTGS payment system to the existing list of methods that a company can use for payment of dividend or other cash benefits to their shareholders and investors. Further, wide scope and ease of online banking has led to a paradigm shift from traditional branch banking to net banking. The total customers using net banking has increased to 7 per cent in 2012.

Besides, extensions of facilities such as fund transfer, account maintenance and bill payment at ATM stations have reduced branch banking footfall.

64

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

Challenges, Opportunities & Growth Drivers Challenges Developing countries like India, still have a huge number of people who do not have access to banking services due to scattered and fragmented locations. But if we talk about those people who are availing banking services, their expectations are raising as the level of services are increasing due to the emergence of Information Technology and competition. Since, foreign banks are playing in Indian market, the number of services offered has increased and banks have laid emphasis on meeting the customer expectations.

Now, the existing situation has created various challenges and opportunities for Indian Commercial Banks. In order to encounter the general scenario of banking industry we need to understand the challenges and opportunities lying with banking industry of India.

Economic slow-down and aggressive lending by the banks has turned loans into non- performing assets and thus impacting the profitability of the banks as they are required to have higher provisioning amounts.

the banking industry and other players such as NBFCs (less regulation) has resulted in reducing market share of the existing banks.

Increasing NPA Economic slow-down and aggressive lending by the banks has turned loans into non- performing assets and thus impacting the profitability of the banks as they are required to have higher provisioning amounts.

Introduction of Basel-III norms Licensing requirement As per Basel- III norms, Indian Banks will have to bring in an additional capital of Rs. 5 lakh crore to meet the Basel III norms. The government on its part has to infuse Rs. 90,000 crore into the state-run banks to maintain majority shareholding as per the Basel III. Further, this norm will be implemented in a phased manner starting from January 2013 and to be implemented to the fullest by March 2018

Opportunities

Intensifying competition

Mortgages to cross Rs 40 trillion by 2020

Intense competition due to a large number of players in

The total mortgages in the books of banks have grown from 1.5 per cent to more than 10 per cent of the total bank advances/loans in the last period of 10 years. The total ratio of outstanding mortgages, including the Housing Finance Companies to the GDP is 10 per cent.

Further, as per a survey, by 2020, this ratio were to reach 20 per cent, a number similar to that of China, then the mortgage industry can be expected to grow at an average rate of over 20 per cent during the next decade. The outstanding mortgages are expected to cross Rs. 40 trillion by 2020

The focus of financial inclusion is on promoting sustainable development and generating employment for a vast majority of the population especially in the rural areas. In the first-ever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries, India has been ranked 50.

For setting up of a banking business in India, a banking license from the RBI has to be acquired which has served as an associated protocol and formalities. The requirements are so stringent that the last licenses issued were to Kotak Mahindra Bank and Yes Bank in 2003 and 2004 respectively.

65

IILM MANAGEMENT REVIEW

Infrastructure financing The banking sector is the major financer for the infrastructure in India, accounting for more than half of the funding of this segment. To sustain India's economic growth, the Planning Commission envisages that $1 trillion (about 10 per cent of GDP) will be spent on infrastructure during the 12th plan from 2012 to 2017, thus providing huge opportunity for banking industry.

Wealth management to boost the growth Wealth is expected to get further concentrated in the hands of a few. The top band of income distribution is expected to grow most rapidly over the next decade. By the end of this decade, the top 5 per cent house-holds, predominantly residing in the metros and Tier I cities, will account for 30 per cent of the total disposable income. In such a situation, wealth management services will be an integral part of the product portfolio for both private as well as public sector banks.

Rapid growth of branches and ATMs India’s penetration rate of branches and ATMs is very low as compared to other developed and developing nations. Total number of ATMs in India has increased by 19.2 per cent from prior year to 114,014 in FY13 (recent figures shows there are more than 140,000 ATMs across the country) and is expected to double over the next two years. Further, the ATMs are expected to grow and double their number in the next two years. As such, most of the new ATMs, 50-65 per cent will be deployed in tier 2 and 3 cities, while tier 1 cities will grow at around 20 per cent.

Mobile banking to grow exponentially The Internet is widely used by all banking segments around the world to purchase financial services products. Further, by 2015, it is estimated that the mobile banking transaction volume worldwide will reach US$500 mn. And on domestic front, mobile banking transactions are expected to result in a transaction cost savings to banks of Rs 1,100 crore.

Currently, the banking sector is the major financer for the infrastructure in India, accounting for more than half of the funding of this segment. To sustain India’s economic growth, the Planning Commission envisages that $1 trillion (about 10 per cent of GDP) will be spent on infrastructure during the 12th plan from 2012 to 2017, thus providing huge opportunity for banking industry.

New models to serve the Small & Medium Enterprises (SME) As per a survey, large customers in banking segment are more satisfied than the medium and small sized ones. Due to higher risk and lower ticket size, SMEs typically get less attention. This provides the opportunity to create innovative models to serve SMEs with sufficient and timely credit at the right price.

Growth Drivers Reforms in Indian financial sector Current banking structure in India has evolved over several decades, is elaborate and serving the credit and banking services needs of the economy. At present Indian banking structure contains multiple layers to cater the specific and varied requirements of different customers and borrowers. The banking sector played a major role in the mobilization of savings and promoting economic development. In post liberalization era, the performance and strength of the banking structure improved perceptibly.

India’s financial sector is diversified and is expanding rapidly. The sector includes commercial banks, insurance companies, non-banking financial companies, cooperatives, pension funds, mutual funds and other smaller financial entities. India’s financial sector is primarily dominated by bank and commercial banks account for more than 60 per cent the total assets of the financial system followed by the Insurance.

66

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

India’s financial sector is diversified and is expanding rapidly. The sector includes commercial banks, insurance companies, non-banking financial companies, cooperatives, pension funds, mutual funds and other smaller financial entities. India’s financial sector is primarily dominated by bank and commercial banks account for more than 60 per cent the total assets of the financial system followed by the Insurance. In addition to these two, other financial intermediaries include regional rural banks and cooperative banks that targets under serviced rural and urban populations. Many Non banking Finance Companies (NBFC) operate in specialized segments such as leasing, factoring, micro finance, infrastructure finance, though some can accept deposits. Pension provision covers 12 percent of the working population and consists of civil service arrangements, a compulsory scheme for formal private sector employees, and private schemes offered through insurance companies.

Reforms in Indian Financial Sector was initiated in early 1990s was to create an efficient, competitive and stable financial sector that could then contribute in greater measure to stimulate growth. Simultaneously, the monetary policy framework was designed for a phased shift from direct instruments of monetary management to an increasing reliance on indirect instruments. However, appropriate monetary transmission needs an efficient price discovery of interest rates and exchange rates in the overall functioning of financial markets, the corresponding development of the money market, Government securities market and the foreign exchange market became necessary.

Private Sector Institutions have played a vital role in the last decade and have grown rapidly in commercial banking and asset management business. Further, competition among financial intermediaries gradually resulted in decline of interest rates and deregulation further helped the situation. The real interest rate was maintained resulting in low interest rate for borrowers, whereas depositors had incentives to save.

The monetary policy framework was designed for a phased shift from direct instruments of monetary management to an increasing reliance on indirect instruments. However, appropriate monetary transmission needs an efficient price discovery of interest rates and exchange rates in the overall functioning of financial markets, the corresponding development of the money market, Government securities market and the foreign exchange market became necessary.

Reforms in the various segments, therefore, had to be coordinated.

Indian financial market has witnessed maturity in the last two decades as the Government took various initiatives in reforming the financial sector of the country. These measures have lead to following modification, which are discussed below.

Private Sector Institutions have played a vital role in the last decade and have grown rapidly in commercial banking and asset management business. Further, competition among financial intermediaries gradually resulted in decline of interest rates and deregulation further helped the situation. The real interest rate was maintained resulting in low interest rate for borrowers, whereas depositors had incentives to save.

Regulators The Finance Ministry continuously formulated major policies to regulate and supervise the Indian Financial Sector. The Government has acknowledged the role of regulators and The Reserve Bank of India (RBI) has become more independent. Regulatory bodies such as Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) became important institutions. Besides, there is a view that supports setting up of super-regulator for the financial services sector instead of multiplicity of regulators.

The banking domain Indian banking sector is primarily dominated by Public

67

IILM MANAGEMENT REVIEW

Sector Banks (PSBs) which account for 3/4th of totalbusiness. Post liberalization RBI has issued license to Private Sector Banks and is also granting licenses to new applicants. Most of the banks are operating successfully in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance. Going ahead, due to its extensive reach PSBs will play an important role in the industry, whereas foreign banks are facing the constraint of limited number of branches.

Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the non PSBs and increase their footprint.

Non- Banking Finance Companies With regards to NBFCs registration with the RBI, the requirement of minimum net owned funds, has been increased to Rs.2 crores. Previously, the money market in India was narrow and circumscribed due to rigid regulations over interest rates and participants and on the other hand, secondary market was underdeveloped and lacked liquidity. Several initiatives that comprised of new money market instruments, strengthening of existing instruments and setting up of the Discount and Finance House of India (DFHI).

Additionally, The RBI conducts its sales of dated securities and treasury bills through its Open Market Operations (OMO) window. Subsequently, Primary dealers bid for these securities and also trade in them.

The DFHI is the principal agency involved in developing a secondary market for money market instruments and Government of India treasury bills. The RBI has

The focus of financial inclusion is on promoting sustainable development and generating employment for a vast majority of the population especially in the rural areas. In the first-ever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries, India has been ranked 50. The RBI has aimed to provide banking services through a banking branch in every village having a population of more than 2000. introduced Liquidity Adjustment Facility (LAF) in which liquidity is injected through reverse repo auctions and liquidity is sucked out through repo auctions.

Further, development of a long-term debt market is crucial to the financing of infrastructure. After bringing some order to the equity market, the SEBI has now decided to concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of dematerialization of debt instruments in order to encourage paperless trading.

Capital Market As per data, the number of shareholders in India is estimated at 25 million, however only 10-15 per cent actively trade in stocks. On the other hand, there has been a dramatic improvement in the country's stock market trading infrastructure in the recent past. It is anticipated that India will be an attractive emerging market with tremendous potential. Unfortunately, during recent times the stock markets have been constrained by some unsavory developments, which have led to retail investors deserting the stock markets.

There has been a dramatic improvement in the country's stock market trading infrastructure in the recent past. It is anticipated that India will be an attractive emerging market with tremendous potential. Unfortunately, during recent times the stock markets have been constrained by some unsavory developments, which have led to retail investors deserting the stock markets.

Mutual Funds The Mutual Funds Industry regulated by the SEBI (Mutual Funds) Regulations, 1996. With the issuance of SEBI guidelines, the industry had a framework for the establishment of many more players, both Indian and foreign players.

The largest mutual fund in India is Unit Trust of India that controls a corpus of approximately Rs.70,000 68

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

crores, but its share is going down. Further, with the growth in the securities markets and tax advantages granted for investment in mutual fund units, mutual funds started becoming popular. The foreign owned AMCs are the ones which are now setting the pace for the industry. They are introducing new products, setting new standards of customer service, improving disclosure standards and experimenting with new types of distribution.

The insurance industry is now the latest to be open to competition from the private sector including foreign players. Foreign companies can only enter joint ventures with Indian companies, with participation restricted to 26 per cent of equity. However, it’s very early to comment, whether erstwhile public sector monopolies will successfully be able to counter the competition from new players, but customer will be gaining from this, as the quality of services is anticipated to improve. However, to be at par with the existing players, the new players should come up with innovative products as well as fresh ideas on marketing and distribution, in order to improve the low per capita insurance coverage.

Financial inclusion plan The focus of financial inclusion is on promoting sustainable development and generating employment for a vast majority of the population especially in the rural areas. In the first-ever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries, India has been ranked 50. The RBI has aimed to provide banking services through a

Financial inclusion is the gateway for achieving inclusive growth in India. All the commercial banks in India including cooperative banks are actively involved in financial inclusion process through opening of new branches in rural and urban areas thus ensuring that all the Indians should have access to basic banking services for achieving sustainable economic development.

Out of 19.9 crore households in India, only 6.82 crore households have access to banking services. As far as rural areas are concerned, out of 13.83 crore rural households in India, only 4.16 crore rural households have access to basic banking services.

banking branch in every village having a population of more than 2000.

Out of 19.9 crore households in India, only 6.82 crore households have access to banking services. As far as rural areas are concerned, out of 13.83 crore rural households in India, only 4.16 crore rural households have access to basic banking services. In respect of urban areas, only half of the population has access to banking services and 34 per cent of the India’s urban population with annual income less than Rs. 50,000 have access to banking services.

As a result of Financial Inclusion Plan, banking connectivity increased by threefold from 67,694 villages, at the beginning of the plan period, to 211,234

by December 2012. Besides, Basic Savings Bank Deposit Accounts (BSBDA) has gone up from 73.45 mn in 2010 to 171.43 million by 2012. Kissan Credit Cards outstanding have gone up from 24.3 mn in 2010 to 31.7 mn by 2012, while General Credit Cards outstanding have gone up from 1.4 million to 3.1 mn during the same period.

Lastly, financial inclusion has been made an integral part of the banking sector policy in India. RBI is pushing financial inclusion in a mission mode through a combination of strategies ranging from relaxation of regulatory guidelines, provision of innovative products, encouraging use of technology and other supportive measures for achieving sustainable and scalable financial inclusion. Financial inclusion is the gateway for achieving inclusive growth in India. All the commercial banks in India including cooperative banks are

69

IILM MANAGEMENT REVIEW

The success in Financial Inclusion could only be achieved by collaborative effort of all the stakeholders involved. Policymakers should facilitate policy framework, infrastructure support and creating an environment, where service providers can experiment with different models to serve the unbanked. Further, there has to be collaboration among service providers with financial institutions partnering with telecom, technology, and consumer product providers to create an enabling environment. actively involved in financial inclusion process through opening of new branches in rural and urban areas thus ensuring that all the Indians should have access to basic banking services for achieving sustainable economic development.

As per the data released by the World Bank it can be concluded that average Indians over the age of 15 years remain considerably under-banked as compared to their global peers. The data also mentions that half the global population ageing more than 15 years has an account at a formal banking channel as compared to 35 per cent in India. The scenario is further inferior when it comes to female population as 41 per cent population globally has an account as against 27 per cent in India.

Implementation of financial inclusion globally and its relevance to India There are various instance of successful experiences globally have been led by telecom companies with the banks playing a secondary role. This signifies the importance of technology in developing and pushing banking to the unbanked areas.

M-Pesa in Kenya Mobile companies have set up a parallel eco system that allows consumers to make majority of banking activities through their mobile phones. It also allow customers to make payments, transfers and transactions and whole process is cost effective. This system has brought many people into the formal banking system and has grown rapidly with client base of around 10 million, roughly 40 per cent of Kenya’s adult

population.

USAID MABS in Philippines Microenterprise Access to Banking Services (MABS) helps a network of partner rural banks in the development and introduction of innovative products that also comprises financial services. It’s a successful network currently has above 90 MABS-supported rural banks catering to the needs of more than 250,000 microloan borrowers and 1.5 million micro-savings accounts.

Through this model these banks have been successful in registering more than 250,000 mobile phone banking clients and have processed more than US$ 250 mn in mobile banking transactions. This model could be used in Indian scenario to offer training and technical assistance to rural banks which could give a boost to innovative product launches in the rural segment.

MTN Mobile Money in South Africa South African mobile operator MTN along with Standard Bank came up with the joint venture MTN Banking thus launching mobile banking product MTN MobileMoney. Under this, every MTN SIM card has an embedded banking application and only MTN subscribers can open MobileMoney accounts. Under this venture it has registered over 1.6 mn people with over US$ 90 mn transacted every month. Although this module is at a nascent stage in India, so both mobile operators and Indian banks have to take measures to popularize this to provide banking services to unbanked people, however the only obstacle is banking regulations do not permit a lead role for telecom companies in India.

Capital requirement is a force that pushes the banks to maintain minimum ratio. Some of such ratios are of capital (such as the bank’s equity, long term debts etc.) to assets (such as the loans and investments it holds). The purpose of this is to ensure that banks can overcome unexpected losses of the assets they hold while still honouring withdrawals and other essential obligations

70

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

Lastly, the success in Financial Inclusion could only be achieved by collaborative effort of all the stakeholders involved. Policymakers should facilitate policy framework, infrastructure support and creating an environment, where service providers can experiment with different models to serve the unbanked. Further, there has to be collaboration among service providers with financial institutions partnering with telecom, technology, and consumer product providers to create an enabling environment.

Further Government and Regulatory bodies should put in place a strategy to provide financial education through standard literacy material. Besides, banks should emphasize on developing simpler financially products to make it easy for financial ignorant population. Besides, technology based initiatives are leading examples for success in Financial Inclusion.

Capital raising challenges for Indian banks Capital is one of the most significant inputs of any business and the same applies to the banking system as well. Capital requirement is a force that pushes the banks to maintain minimum ratio, as mentioned in the guidelines by the regulatory bodies. Some of such ratios are of capital (such as the bank’s equity, long term debts etc.) to assets (such as the loans and investments it holds). The purpose of this is to ensure that banks can overcome unexpected losses of the assets they hold while still honouring withdrawals and other essential obligations. Stability in any financial system depends on effective and adequate capital availability and the 2008 crisis did reveal serious problems with the

Since 1992, capital was regulated with a simple guideline known as ‘Basel I’, by keeping 8 per cent capital to risk weighted assets (RWA). A ‘revised framework’ known as Basel II was released in June 2004. The simplified Basel II approach was more ‘granular’ than Basel I, but had kept its basic features.

existing requirements.

Assessment of capital requirement Since 1992, capital was regulated with a simple guideline known as ‘Basel I’, by keeping 8 per cent capital to risk weighted assets (RWA). A ‘revised framework’ known as Basel II was released in June 2004. The simplified Basel II approach was more ‘granular’ than Basel I, but had kept its basic features. The revised version covers minimum risk capital covering credit, market and operational risks. Banks had an option to choose between an approach based on external ratings; and second an internal ratings based (IRB) approach for sophisticated banks, driven by their own internal rating models.

Basel II was in different stage of implementation among the leading economies of the world, when the global financial crisis hit the overall economic scenario.

As the global economy is on the road to recovery, the financial authorities and regulators agreed on new norms for banks’ capital adequacy standards (Basel III).

Basel III – the new norms

RBI has estimated that Indian banks will require an additional capital of Rs 5 trillion to meet the new global banking norms.

This would comprise an equity capital of Rs. 1.6-1.75 trillion

In India, as per the guidelines of RBI, implementation of Basel III started from 1 April 2013 and has to be completed by 31 March 2018 in a phased manner. The key elements of Basel III norms are: Additional capital requirement under Basel III RBI has estimated that Indian banks will require an additional capital of Rs 5 trillion to meet the new global 71

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

banking norms. This would comprise an equity capital of Rs. 1.6-1.75 trillion. Since the government is the majority shareholder in PSBs it will have to pump in around Rs. 415,955 crores till FY21 to retain its shareholding in the public sector banks at the current level to meet the norms.

Further, the implementation of new norms will affect the investor returns. They have to look at a longer horizon, where a stable financial system will ensure a better and less volatile return. As these norms come into effect, sectors like retail will be attractive as these require less capital. However, banks need appropriate infrastructure (Human resource (HR), technology and analytics) to manage large pool of retail assets. The buyer of OTC derivatives will find costlier as the credit valuation adjustment (CVA) charges will be applicable for such derivative transactions from 1st January 2014.

The banks will most probably pass on the same to customers.

Lastly, the question that keeps recurring is the repercussion of implementing Basel III, can capital requirements be improved without undermining economic growth. Assuming that banks may be able to raise the increased capital requirement under Basel III from the shareholders and markets, but concerns are raised of its impact on economic growth and profitability of banks.

In general, the increase in equity capital requirement is likely to increase the weighted average cost of capital, part of which could be passed to the borrowers by increasing lending rates. This would result in slight increase in lending rates and result in slower credit growth. However, on the basis of past experience the The financial sector reforms have brought about significant changes and had positive impact in the financial strength and the competitiveness of the Indian banking system. The prudential norms, accounting and disclosure standards, risk management practices, etc are keeping pace with global standards, making the banking system resilient to global shocks.

On the basis of past experience the financial system globally had fallout as a result of allowing the banks to expand credit on an inadequate base of capital. It is time to recognise that longer horizon of stability comprising of prudent regulations and market disciplines are better propositions to keep the banks in check while also enabling economic growth.

financial system globally had fallout as a result of allowing the banks to expand credit on an inadequate base of capital. It is time to recognise that longer horizon of stability comprising of prudent regulations and market disciplines are better propositions to keep the banks in check while also enabling economic growth.

Conclusion The financial sector reforms have brought about significant changes and had positive impact in the financial strength and the competitiveness of the Indian banking system. The prudential norms, accounting and disclosure standards, risk management practices, etc are keeping pace with global standards, making the banking system resilient to global shocks.

Recently, the Indian Banks have undergone significant developments and investments. In this sector, there are huge opportunities and numerous challenges.

Challenges include, financial inclusion, deregulation of interest rates on saving deposits, slow industrial growth, management of asset quality, increased stress on some sectors, transition to the International Financial Reporting System, implementation of Basel III & so on.

The Indian Banks have managed to grow with resilience during the post reform era. However the Indian banking sector still has a large market unexplored.

With the Indian households being one of the highest savers in the world accounting for 69 per cent of India’s

72

INDIAN BANKING: TURBULENCE IN THE INDUSTRY

gross national saving of which only 47 percent is accessed by the banks. More than half of the Indian population is still unbanked with only 55 per cent of the population having a deposit account and 9 percent having credit accounts with banks. India has the highest number of households (145 million) excluded from Banking & has only one bank branch per 14,000 people. This kind of statistics shows that there is huge unexplored market for Indian Banking System.

With regards to entry of new banking players, they have the pressure of competing with existing players who have loyal customer base. To take away this loyal customer base away from the existing players is a huge challenge and the new entrants have to be unique. For this they have to attain qualities such as sectoral expertise/ knowledge based on products, on industry, nature of their work or on geography which will definitely put them ahead of the race and help them attain consumers’ trust.

In case of retail, asset-backed lending applicants who have an edge with their customer base, loan book and sectoral knowledge would be ahead in the race as opposed to other applicants who have to start from scratch. The transition from an NBFC to a bank will depend on strong management as they would be moving in new businesses with uncharted risk areas.

Further, opening the market for new entrants after 10 years since the last round of bank licenses, implies that the current banks are already entrenched in consumer’s mind and wallets. New banks are expected to

More than half of the Indian population is still unbanked with only 55 per cent of the population having a deposit account and 9% having credit accounts with banks. India has the highest number of households (145 million) excluded from Banking & has only one bank branch per 14,000 people.

perform extremely well to gain customers. However, the new entrants have to identify gaps in both urban and rural area in terms of high-end innovative products, need, pricing or business models that would put the new banks on the road to success. New banks have to analyze the gaps in between the saturated markets— MSME, only women-led businesses, wholesale banking, traders, totally under-banked markets with unorganized professions or corporate banking — and use different operating models to reach out to their customers. They have to use different customer segmentation techniques to think differently in terms of products and offer innovative need-based products to the customers at a low cost.

However among the various challenges faced by Indian Banking Industry, operating in a niche area profitably would be a key concern. Besides, that the banks have to adhere to statutory reserve requirement that may affect their credit availability.

With regards to entry of new banking players, they have the pressure of competing with existing players who have a loyal customer base. To take away this loyal customer base away from the existing players is a huge challenge and the new entrants have to be unique.

73

Book Review A Peep Into The Future

By Professor Rahul K. Mishra, IILM

IILM MANAGEMENT REVIEW

A Peep Into The Future

The New Digital Age has been written by authors who are part of the team which is creating this digital age for the world. The sub-title of the book which says “Reshaping the future of people, nations and business” define content of the book which has been written by Eric Schmidt, Executive chairman, Google and Jared Cohen, Director, Google Ideas.

With the world celebrating 25 years of the World Wide Web or internet, it is high time to take a look at the impact of human invention. To set the tone of the book, I quote authors, “The internet is among the few things humans have built that they don't truly understand.

What began as a means of electronic information transmission room sized computer to room sized 75

A PEEP INTO THE FUTURE

computer -- has transformed into an omnipresent and endlessly multifaceted outlet for human energy and expression.

It is at once intangible and in a constant state of mutation, growing larger and more complex with each passing second. It is a source for tremendous good and potentially dreadful evil, and we are just beginning to witness its impact on the world stage.” With this kind of canvas which authors have painted in the very first paragraph of the book, we must understand this phenomenon as it has the potential to transform a lot around us.

The background of this massive transformation is such as that there are 2 billion people in the world today who are connected through internet and over six billion people who have subscribed to mobile phone???. With mobile phones accessing internet in the future, the stage is set for this massive transformation. The book predicts and rightly so, that by 2025, if the current pace of technological innovation is maintained, most of the projected eight billion people on earth will be on line.

Eric Schmidt and Jared Cohen are trying to look into that world and trying to figure out the impact on human identity, concept of virtual identify versus real ones, citizenship and reporting. The authors' pontificate the future of states which will be far more complex in a sense, as it will challenge a lot of presumptions and constructs. They go looking at the future of revolution, terrorism and reconstruction. I agree with the background of the change not extrapolating a future is little tricky as it is extremely difficult to predict the overall

Eric Schmidt and Jared Cohen are trying to look into that world and trying to figure out the impact on human identity, concept of virtual identify versus real ones, citizenship and reporting. The authors' pontificate the future of states which will be far more complex in a sense, as it will challenge a lot of presumptions and constructs.

They go looking at the future of revolution, terrorism and reconstruction.

In the area of business and information search and share, Google, Facebook, Whatsapp and Twitter are redefining the world. The power of Amazon, eBay, Expedia and several mobile applications are making a world where people will have unfiltered access of information and commerce at less and less costs.

future in this age of accelerated change. There are numerous other forces at work to predict the future.

But to quote Peter Drucker when he was asked how the world in the 21st century would look like, he replied that future has already arrived and it will unfold in more detailed ways in the coming years. A part of the answer is also like that the basic contours of the digital age have already happened and it will unfold in more detailed way in coming years.

In the area of business and information search and share, Google, Facebook, Whatsapp and Twitter are redefining the world. The power of Amazon, eBay, Expedia and several mobile applications are making a world where people will have unfiltered access of information and commerce at less and less costs.

The authors predict with a degree of plausibility that in the next decade. Every person will be represented in multiple ways online. This has new implications for individuals, families, communities and the nation at large. The potential for misuse of and manipulation may also increase as the storage is on cloud-based data.

The good part of the book is that it looks at the benefits as well as the flaws of the merging future. But with this, the grouse is that the authors for most part use “will“ rather than “could or might” which would have been better when we talk of future.

One of the authors, Jared Cohen has been Advisor to two Secretaries of State, Ms. Condoleezza Rice and Ms. Hillary Clinton. Both the authors have written interesting chapter on the future of the state. In the virtual world, where size matters less, technology empowers 76

IILM MANAGEMENT REVIEW

In the virtual world, where size matters less, technology empowers all parties and allows smaller parties to have outsized impacts.

Cyber warfare and attacks have been discussed and digital, espionage, sabotage, infiltration and other mischief have the potential to inflict serious damage to the state and the economy.

all parties and allows smaller parties to have outsized impacts. Cyber warfare and attacks have been discussed and digital, espionage, sabotage, infiltration and other mischief have the potential to inflict serious damage to the state and the economy.

The book is worth reading to know the benefits as well as the flaws in the merging digital age with so many people accessing, collaborating and creating content

and information without much governmental control.

The promise of this is that the virtual world will not overtake or overhaul the existing world order, but it will complicate almost every behavior. Crowds of virtually courageous people might be sufficient to start a revolution with the help of social media platform as it happened in Arab Spring, but people paid with their lives when the state acted brutally.

The authors have also looked at connectivity and technology and the kind of empowerment it brings to ordinary people. With sharing and availability of information, the existing structure of governance demands change in structure and the way. The good part they have raised about the issues and the answers which have been given may not unfold the way it has been envisaged, but these questions and issues will remain relevant for times to come.

Book Review by Professor Rahul K. Mishra, IILM

IILM MANAGEMENT REVIEW

Editorial Policies and Guidelines for Contributors IILM Management Review (IMR) is open to contributions that could be case studies, qualitative research, statistical studies and trend analysis broadly in the areas of business, management and economics.

Preferably, authors interested in publishing articles in IMR must first submit a short proposal (of about two pages) outlining their work and get feedback before submitting the full manuscript.

However, if the contributors prefer to send full-length manuscripts for submission, we could consider that too.

The proposal should ideally include an introduction and summarise the general structure of the planned paper that could address: the main message and theme of the paper; the potential audience for the article; the research basis; its potential implications and whether the paper is based on original information or findings.

The manuscript under review at IMR should not be for review elsewhere and should not be submitted to another publication entity during the review period at IMR. The submitted manuscript should be in a Word file. IMR adheres to the British style of writing. Authors should submit a cover sheet with names and complete contact information of the primary author and any co-authors. It should also include an executive summary at the beginning of the paper. Detailed references should be included at the end of the paper. Typically, an article should be about 4000-5000 words.

On receipt of the manuscript, after the initial screening by the editor, it will be sent for two reviews. On completion of the review process, the author will be informed of the status of the paper. Typically, in most cases, the entire review and acceptance process should be completed in about three months. Accepted contributions will carry a modest honorarium. Additional questions may be directed to the IMR editorial office. Email: editor.imr@iilm.edu

VOLUME 2 ISSUE 1 JUNE 2014

Website : www.iilmlr.ac.in

Join us on :

: http://www.twitter.com/iilminstitute : http://www.linkedin.com/company/iilm

: http://www.youtube.com/user/iilmhigheredu

: http://www.fb.com/iilminstitute : http://www.flickr.com/photos/iilm/

IILM MANAGEMENT REVIEW

IILM Institute for Higher Education Rai School Complex, Institutional Area, Lodhi Road New Delhi - 110003