international journal of advance & innovative research volume 1, issue 1 issn: 2394-7780

International Journal of Advance and Innovative Research Volume 1 , Issue 1 ) : October - December 2014

CONTENTS

Research Papers

IMPLICATIONS OF FDI IN THE GROWTH OF SERVICES SECTOR IN INDIA Ms Shivani Dixit and Ms Anjana Sharma

1 - 12

INNOVATIVE SOLUTIONS TOWARDS SUSTAINABLE DEVELOPMENT: FINANCIAL LITERACY SHOULD ACCOMPANY INCLUSION Dr. Anindita

13 - 18

ORGANIZED SECTOR RADIO TAXI OPERATOR IN GUWAHATI - A CASE STUDY ON PRIME CAB

Dr. Tazyn Rahman

19 - 25

TECHNICAL EFFICIENCY OF AFFILIATED DEGREE COLLEGES IN BARAK VALLEY

Monalisa Das and Subhrabaran Das

26 - 31

International Journal of Advance and Innovative Research Volume 1, Issue 1 : October - December, 2014

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IMPLICATIONS OF FDI IN THE GROWTH OF SERVICES SECTOR IN INDIA

Ms Shivani Dixit1 and Ms Anjana Sharma2 Assistant1 Professor, Institute of Management Studies, Ghaziabad.

Faculty2, DPS, Meerut Road, Ghaziabad

ABSTRACT Flow of the FDI to the countries of the world truly reflects their respective potentiality in the global scenario. India has been ranked at the third place in global FDI in 2009 and will continue to remain among the top five attractive destinations for international investors during 2010-11, according to United Nations Conference on Trade and Development (UNCTAD). One of the most significant contributors to Indias booming economy is the development of the services sector. The basic objective of this paper is to emphasize on the implications of FDI in India specifically in services sector. The contribution of services sector in Indian economy is now almost half of GDP. The FDI Inflows to Service Sector has helped the development of several industries in the service sector of the Indian Economy, such as Tele Communication, Financial and Non financial, Hotel & Tourism, and many others. A look at FDI statistics shows that distribution of FDI is uneven across sectors. The paper also find out the reasons responsible for more of investment in services sector.

Keywords: FDI, Services Sector, GDP.

INTRODUCTION Since the early 1990s developing countries have increasingly liberalized, privatized and deregulated their service industries, with a view to greater participation in the global economy. More welcoming policies on FDI have been a prominent component of this trend. National policies on FDI typically feature measures aimed at both attracting and discouraging inflows. Policies to attract FDI such as tax breaks, favorable regulatory treatment and subsidies of various sorts are usually focused manufacturing. Meanwhile, policies restricting inward FDI are mainly concentrated in the service sector. This paper focuses on the aspects of FDI in the services sector in India.

Services now constitute the largest recipient sector of FDI, accounting for about two third of FDI inflows worldwide, and about 55% of FDI inflows into developing countries. However, very little systematic quantification and analysis are available on the policies on FDI in services. Countries welcome FDI because of its potential benefits for employment creation, capital accumulation, transfer of technology, improved provision of services and increased competition. Nevertheless, inward FDI can also impose costs in the form of displacement of local firms and workers and possible monopolistic practices, and there can be valid economic rationales for restricting inward FDI. There may also be non-economic reasons for limiting foreign ownership and control, relating to national security or economic nationalism. Services are generally subject to more restrictions than manufacturing and natural resources. For example, such industries as telecommunications, banking, transportation and electricity provision are often viewed by host countries as strategic or sensitive. These sectors are typically subject to economic or prudential regulation, because of tendencies towards natural monopoly or other market failures, although such market failures do not in themselves provide a clear-cut rationale for discrimination between local and foreign investors.

Service sector has emerged as the largest and the fastest growing sector in the global economy in the last two decades, providing more than 60% of global output and, in many countries, an even larger share of employment. The growth in services has also been accompanied by the rising share of services in world


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transactions. Testimony to the rise in international supply of services is the fact that trade in services has grown as fast as trade in goods in the period 1990-2003 (i.e.; 6% per annum). Interestingly, outward FDI from India has also grown rapidly and in 2003 outward FDI stock in services constituted around 25% of total outbound FDI stock. However, though the growth of service sector in India is in line with the global trends, there are two unique characteristics of Indias service sector growth.

First, the entire decline in the share of agriculture sector in GDP, i.e., from 32% in 1990 to 22% in 2003, has been picked up by the service sector while manufacturing sectors share has remained more or less the same. In general, such a trend is mainly experienced by high income countries and not by developing countries.

And second, in spite of the rising share of services in GDP and trade, there has not been a corresponding rise in the share of services in total employment. This jobless growth of Indias service sector, with no corresponding growth in the share of manufacturing sector; has raised doubts about its sustainability in the long run.

Further, it is found that growth pattern in the service sector has not been uniform across all services in India. Some services have grown fast in terms of their share in GDP and also in terms of their share in trade and FDI (e.g., software and telecommunication services). But there are some services, which have grown fast but have not been able to improve their share in international transactions (e.g., health and education) while there are some services that have in fact witnessed a negative growth and also a low share in international transactions (e.g., legal services).One of the probable reasons for this lopsided growth in services is the fact that reforms in India at the sectoral level have evolved in an ad-hoc way rather than as part of a coherent overall strategy. Though there exists an overall industrial policy and agricultural policy in India, there is no integrated service policy. Consequently, the pace of reforms and their impact lacks uniformity across sectors. Moreover, most of the services have for a long time been in the public domain and they suffer from both external constraints in terms of high barriers to trade, as well as domestic constraints in terms of being highly regulated services with state monopolies. These services consequently suffer from inefficiencies and low growth.

Our services sector is attractive but due to lack of banking sector reforms and closure of retail sector for foreign investors, FDI is not taking up. But still, India remains a preferred destination for foreign investment and that is evident from the strong foreign institutional investors (FII) inflows. The services sector, despite the 30% dip in FDI, topped the chart in attracting maximum investment. Therefore, this paper strives to examine current status and future prospects of the Indian economy with special reference to the role FDI in services sector in achieving higher rate of economic growth and the removal of structural constraints.

COMPOSITION OF SERVICES SECTOR IN INDIA In India, the national income classification given by Central Statistical Organization is followed. In the National Income Accounting in India, service sector includes the following:

Trade, hotels and restaurants (THR) Transport, storage and communication Financing, Insurance, Real Estate and Business Services Community, Social and Personal services

SECTORAL COMPOSITION OF GDP GROWTH During the process of growth over the years, the maximum part of the GDP in the economy was generated from the primary sector but now the service industry is devoting the maximum part of the GDP. This


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share of agricultural sector in real GDP at 1993-94 prices declined from 55.53% in the 1950s to 28.66% in 1990s. The share of industry and services increased from 16% to 27.12% and 28.09% to 44.22% respectively during the same period. The service sector output increased at a rate of 6.63% per annum in the period 1980-81 to 1989-90 (i.e. pre-reform period) compared with 7.71% per annum in the period 1990-91 to 1999-2000 (i.e. post-reform period). The tertiary sector emerged as the major sector of the economy both in terms of growth rates as well as its share in GDP in 1990s. It is to be noted here that while agriculture and manufacturing sectors have experienced phases of deceleration, stagnation and growth, the tertiary sector has shown a uniform growth trend during the period 1950-51 to 1999-2000 (Joshi, 2004, 2008). The share of this sector in GDP further increased to 55.1% in 2006-07. This sector accounted for 68.6% of the overall average growth in GDP in the last five years between 2002-03 and 2006-07 (Economic Survey, 2006-07).

FDI IN THE SERVICES SECTOR The availability of cheap labour has attracted several foreign investors looking for avenues to reduce their labour costs. To a casual observer it appears that the increased FDI in sectors such as power management, IT, telecom, etc. is responsible for the rapid developments in these fields. These fields provided India with abundant employment and avenues for improving Indias infrastructure. But a close examination of the data by several economists reveals that there exist very weak casual linkages between the service sector and the FDI invested in it. The reasons for this could be fourfold:

Very weak linkages of service sector with the host economy: The nature of work in the service sector fuelled by FDI is restricted to a few metropolitan centers performing back office jobs- IT and otherwise. Moreover, the kind of work necessarily requires an extremely skilled workforce and does not form much of a value add for the common Indian man. The firms behave like isolated export points that have a very weak interrelationship with the economy of the host country, negating the advantage of the FDI.

Nature of services expected: The services that are exported to India are at the lower end of the value addition chain. Therefore, there wouldnt be much of a value add in terms of expertise that is expected to be made available as the end result of these investments.

Crowding out: Most of the FDI in this sector comes by way of Mergers and Acquisitions and not as direct investment. Therefore, there is greater probability for replacing the local service providers.

Employee welfare: The stringent employee welfare plans in place in the country of origin of the FDI necessitates the firing of the cheaper labour in the time of crisis.

There are even some studies that show that the long run causality links run from the output of the sector to the FDI investments- the better the performance of the sector, the higher number of foreign investors it is expected to attract. Some of them also claim that the impact of FDI on the service sector can swing its output both in the positive and the negative direction. This ambiguity in the impact on this sector makes it all the more difficult to frame appropriate precautionary regulations.

MAJOR POLICY ISSUES The major policy issues in the services sector are1) the Domestic policy Issues including FDI, Disinvestment, Tariff and tax Issues, Credit and Finance related issues and other policy Issues- General and Sector specific; 2) Domestic Regulations- Sector Specific and General; 3) Market Access Issues due to domestic regulations, subsidies and other barriers; and 4) Other Issues like bilateral, regional and multilateral negotiations and policies of multilateral institutions. This paper focuses on Domestic policy issues including FDI only.


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DOMESTIC POLICY ISSUES: FDI Some important policy issues in the case of FDI in services sector for India are the following:

Opening retail trade: where FDI is prohibited (except single brand product retailing subject to 51% cap) while there is a large unorganized sector with low tax compliance. Along with allowing FDI in retail in a phased way beginning with metros, the existing mom and pop shops (kirana shops) could be incentivized to modernize and compete effectively with the retail shops foreign or domestic.

Raising FDI cap in the Insurance sector from 26% has been in the Governments agenda for long but could not be implemented for various reasons. Given the practical difficulty in raising FDI cap in the insurance sector as a whole, at least some segments of the Insurance sector can be opened up further. One such segment is health insurance and FDI cap at least in health insurance can be raised in India on a priority basis as it will also help the export of super-specialty hospital services. There is also a 10 year disincentive clause in the insurance sector which could be removed. FDI restrictions in reinsurance sector could also be removed and foreign reinsurance companies should be allowed to set up their representative offices and function in India through a network of branches and divisions.

In the Banking Sector there is scope for further liberalization. Though Foreign Investment (FDI + FII) of 74% is allowed, there are licensing requirements. There is also limit of 10% on voting rights in respect of banking companies. While many concerns have to be addressed here particularly in the light of the recent global financial crisis, atleast some segments of this sector could be opened up to foreign investment in areas like rural banking with the help of mobile technology.

FDI in Animation studio needs to be liberalized as there is good scope for this.

In Construction Sector, though 100% FDI is allowed under automatic route, there are conditions like minimum capitalization norms of US$10 million for wholly owned subsidiaries and US$ 5 million for joint venture, minimum area norms under each project- 10 hectares in case of development of services, housing plots and built-up area of 50,000 sq.mts. in case of construction development project and any of the above in case of a combination project. Besides, original investment cannot be repatriated before a period of 3 years from completion of minimum capitalization. Some of these conditions could be relaxed.

For Uplinking News and current affairs TV channel, foreign investment cap is 26% (FDI + FII) under FIPB route and not automatic route. Besides there are conditions like the portfolio investment in the form of FII/ NRI deposits shall not be persons acting in concert with FDI investors, as defined in the SEBI regulations: the company permitted to uplink the channel to certify the continued compliance of this requirement through the company secretary at the end of each financial year; etc. While the foreign investment cap could be raised atleast upto 49% in the case of these services, other conditions mentioned above need to be examined for relaxation.

Telecommunications: In the case of ISP without gateway, the 26% disincentive clause in 5 years to companies listed in other parts of the world could be relaxed.

Air Transport Services: 49% FDI is allowed (100% for NRI Investment) subject to no direct or indirect participation by foreign airlines thus preventing those with experience from operating in this sector. Ministry of Civil Aviations initiative to liberalize this sector needs to be taken to its logical conclusion, while security concerns are also addressed

FDI in Railways: FDI is not allowed in railways. FDI upto 26% could be thought of which can help in modernization of railways.


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SECTOR-WISE SPLIT OF FDI IN INDIA At present India is the leading country pertaining to the IT industry in the Asia- Pacific region. With more international companies entering the industry, the FDI has been phenomenon over the year. The telecom industry is one of the fastest growing industries in India with a growth rate of 45%.The rapid development of the telecommunication sector was due to the FDI inflows in form of international players entering the market and transfer of advanced technologies. The FDI in automobile Industry has experienced huge growth in the past few years. The increase in the demand for cars and other vehicles is powered by the increase in the levels of disposable income in India. The options have increased with quality products from foreign car manufacturers. The introduction of tailor-made finance schemes, easy repayment schemes has also helped the growth of this sector. For the past few years the Indian Pharmaceutical industry is performing well. The varied functions such as contract research and manufacturing, clinical research, R&D pertaining to vaccines are the strengths of this industry in India. The FDI in Semiconductor sector in India were crucial for the development of the IT and ITES (Information Technology Enabled services) sector in India. Electronic hardware is the major component of several industries such as IT, telecommunication, automobiles, electronic appliances and special medical equipments. Tourism is one of the largest services. This industry has the potential to grow at a high rate and ensure consequential development of the infrastructure. STATEMENT ON SECTOR-WISE FDI INFLOWS FROM AUGUST 1991 TO SEPTEMBER 2005 The sector-wise analysis of FDI inflow in India reveals that maximum investment in India has come from the service sector including the telecommunication, IT, travel and many others.

Table: 1.1 Statement on sector-wise FDI inflows from august 1991 to September 2005

Sr. No. Sector Amount of FDI Inflows (in million USD) 1 Electrical Equip. 4266 2 Transportation Industry 3070 3 Services Sector 2840 4 Telecommunications 2730 5 Fuel (Power & Oil Refinery) 2505 6 Chemicals 1818 7 Food Processing Industry 1172 8 Drugs & Pharmaceuticals 936 9 Cement and Gypsum products 715

10 Metallurgical 544 Source: www.dipp.nic.in

Post liberalization, the trend of investments was predominantly in the services and the manufacturing sector. This period was also characterized by controlled investments. However, lately there has been a drastic paradigm shift towards the services sector with industries in the primary sector also figuring predominantly in the top 15 list (Ref table: 1.2). The manufacturing sector which is said to benefit most from the FDIs has been reduced to a small fraction.

Table: 1.2 Statement on sector-wise FDI inflows from April 2000 to august 2009

Sr. No.

Sector Amount of FDI Inflows (In million USD)

%age of total FDI Inflows

1 Services Sector 21728.36 22.14 2 Computer Software and Hardware 9334.00 9.48


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3 Telecommunications 8119.57 8.46 4 Housing & Real Estate(including Cineplex,

multiplex, and commercial plazas) 7309.16 7.46

5 Construction 6090.31 6.09 6 Automobile 4205.41 4.36 7 Power 4009.26 4.13 8 Metallurgical 2945.51 2.89 9 Petroleum and Natural Gas 2598.08 2.57 10 Chemicals (other than fertilizers) 2257.64 2.33

11 Electrical Equip. 1886.42 1.95 12 Trading 1772.79 1.76

13 Cement and Gypsum products 1692.82 1.71 14 Information & Broadcasting (including

Print Media) 1610.28 1.66

15 Hotel and Tourism 1614.61 1.65 Source: www.dipp.nic.in

As the statement reveals that the maximum amount of FDI inflows are coming from the services sector. But the inflow of FDI into this sector has been biased towards few of the services sectors. Sectors that have received largest approvals are telecommunications, consultancy services and financial services. The telecommunication sector, including radio paging, cellular mobile, basic telephone services, is the most favored FDI sector. The Telecom sector has attracted $891 million FDI in April-May 2010-11. The second most favored is the service sector that attracted $578 million investment during the same period. Further, metallurgical industries and power sector clinched third and fourth place with an investment of $461 million and $313 million respectively. This is the result of the continued effort of Government to make the FDI policy more attractive and investors friendly. One of the striking features of Indias FDI flows is the growing proportion of outward FDI from the services sector. The share of services in total FDI outflow increased to around 45% in the period 1999-2003, in which non-financial services constitute around 36%, trade is around 5% and the rest was from financial and other services.

WHAT EXPLAINS GROWTH IN INDIAS SERVICES SECTOR? The literature on the growth in service sector primarily argues that when an economy grows, both demand side and supply side factors operate that lead to higher growth in the service sector as compared to the other sectors and also lead to a larger share of service sector in total employment. These factors are:

DEMAND-SIDE FACTORS:

a. High- Income elasticity of demand for final product services: It implies that at any relative price of services the quantity absorbed rises more than quantity of commodities as real income per capita increases.

b. Slower productivity growth in services: It has been long argued that productivity growth in services is slower than that in manufacturing sector. Different explanations have been put forward for it. Following Verdoons Law, Kaldor (1966) argued that there will be a negative relationship labour productivity growth in the economy as a whole and the productivity growth in the non-manufacturing sector because most activity outside the manufacturing sector particularly land-based activities such as


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agriculture and many service activities are subject to diminishing returns. Further, the unbalanced growth models by Baumol (1967) helped in popularizing the notion that because of their labour- intensive nature, service sector activities cannot be made more efficient through capital accumulation, innovation, or economies of scale. It has also been argued that in the creation of new ways of satisfying wants, technological changes are as important in service sector (such as health care) as in commodity sectors, but when it comes to cost reduction for existing products or services, technological change is more frequent and more powerful in its effects in the commodity sector. Therefore, productivity of service sector relative to productivity of commodity sector may vary inversely with income level of the country.

c. Structural changes: Along with the notion of services being generally unprogressive there are arguments about structural changes that take place with growth in the economy. Greenfield (1966) and Francois (1990) argue that demand for producer services in total intermediate demand by manufacturing firms grow with development because higher specialization is now more profitable. This expansion is linked to growth in more roundabout process of production and the associated conversion of local markets into national markets. With technological progress and development, services also become more crucial to co-ordinate production processes: to create and absorb new innovations and to increase the benefit- extracting capacity in production and consumption. All these lead to higher use of services in the growth process.

A) SUPPLY SIDE FACTORS: a. Trade Liberalization and Reforms: Three supply side factors that lead to higher supply of services

are increased trade, higher FDI and improved technology. But there are two distinguishing features of trade liberalization of services: First, imports of services must be locally produced and, secondly liberalization of services leads to enhanced competition, which is both domestic and foreign. In fact, if foreign participation merely substitutes for domestic factors and the sector does not expand, i.e., the degree of competition remains the same, then there cannot be a positive growth impact on account of scale effect. On the other hand, even without scale effects and even if service sector does not posses endogenous growth attributes, import of foreign factors that characterize services sector liberalization can still have positive effects because they are likely to bring with them the source of endogenous growth, namely, technology. Studies show that growth of Indias services sector can be attributed to:

Structural Changes that have led to increase in usage of services by other sectors; Lower tariff and non-tariff barriers to trade; and Other reforms carried out in the 1990s.

PROSPECTS OF INDIA AS FDI DESTINATION Prospects of India as FDI destination for foreign countries may be counted on several grounds, which are outlined as:

Rationalization of FDI policy: Government of India (GoI) has recently further reviewed the policy of FDI, which allow FDI under automatic route up to 100% in case of setting up of green field investment projects, distillation and brewing of potable alcohol, laying of natural gas and LNG pipeline, etc. (DIPP, 2006). With such policy initiatives GoI can expect more FDI inflow in the natural resource and infrastructure sector since world trend of FDI inflow in the recent times showed attraction towards such sector.


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Large and growing domestic market: Because of fast growing disposable income, increased availability and use of consumer finance and credit cards complement the keenness of the average Indian to adapt to and assimilate global trends. This has led to the creation of rapidly growing consumer base and one of the worlds largest markets for manufactured goods and services.

Versatile, skilled human capital: An unparalleled resource of educated, hard working, skilled and ambitious workforce is the hallmark of Indias human capital.

Sound economic performance: Indian economy is growing at 7% annual average growth rate from the 1993. Most recently, GDP growth rate increased to 9.2% for the second quarter of 2006-07. Definitely, this is a good sign because investors are attracted towards rapidly growing countries.

Tax Measures: Double taxation avoidance treaty is one of the main achievements in the field of tax regime, which is at present implemented with 79 nations. It will definitely boost up confidence of foreign investors since tax on both corporate profit and dividends are treated as disincentive by investors.

Liberalized investment policy: The policy on FDI has been progressively liberalized since 1991. Today, the FDI policy in India is widely reckoned to be among the most liberal in the emerging economies and FDI up to 100% is allowed under the automatic route in most sectors and activities. Recently, FDI up to 100% has been permitted under automatic route in civil aviation, automobiles, and telecommunication, power and road sectors.

FICCI had conducted a survey in 2004 on the experience of investment by the foreign investors in India. According to them Indias strengths as FDI destination lies in following: The respondents had identified market size, highly skilled manpower and low cost of infrastructure and operation as important motivating factors for their entry into Indian market.

PROSPECTS FOR GROWTH IN THE SERVICES SECTOR One of the major drivers of service sector growth in the post globalization era in India is the IT and ITES sector. That is why NASSCOM (2005) says that, The It and BPO industries can become major growth engines for India, as oil is for Saudi Arabia and electronics and engineering are for Taiwan. Indias IT and BPO industries could account for 10-12% Indias GDP by 2015 (NASSCOM, 2005, p.80). According to NASSCOM (2005), Indias offshore IT and BPO industries hold the potential to create over 9 million jobs in 2010, 2.3 million direct jobs and 6.5 million indirect/ induced jobs. The revenue generation from total software and services segment is likely to touch $ 60 billion mark by 2010 as per NASSCOM estimates. In addition, there is a huge potential for growth in the services sector because of increase in disposable income, increasing urbanization, growing middle class, a population bulge in the working age groups providing demographic window of opportunity, and emergence of a wide array of unconventional/ new services like IT, ITES, new financial services (ATMs, credit cards) and tourism services (eco-tourism, health tourism) etc. POLICY MEASURES FOR THE DEVELOPMENT OF THE SERVICES SECTOR In post 1991 period, there were several measures undertaken by the government to develop services sector, especially through deregulation of some-sectors of services sector. FDI varying between 26% (in print media) to 100% in IT sector, BPOs, e-commerce activities, infrastructure etc. has been permitted. There are several other promotional measures taken by the government to sustain the growth of services sector. For example, having realized that in knowledge- intensive world driven by IT, integration with global economy cannot take place without making quality telecom services accessible at affordable prices, a large number of steps like launching of National Telecom Policy 1994, New Telecom Policy 1999, Broad Band Policy 2004 etc were undertaken. In addition to this, a number of promotional measures have


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been taken up in IT and ITES segment, trade, tourism, banking and insurance and real estate sectors. India has emerged as a top destination for off shoring as per Global Service Location Index 2007. There is a lot of scope for future expansion as only 10% of the potentially addressable global IT/ITES market has been realized. The remaining 90% (worth $ 300 billion) remains to be tapped as per An Approach to the 11th Five Year Plan (Joshi, 2007).

CHALLENGES: BARRIERS TO FDI IN SERVICES There are several reasons why developing countries on average, remain restrictive on FDI in services or have other barriers to investments in services. Apart from the sensitivity of services with cultural, social, distributional or strategic significance, there are also economic concerns.

Countries restrict FDI to avoid the risk of foreign investors out-competing domestic investors. Services where domestic investors are not able to cater to the growing demand, or where domestic service- providers do not have the ability or capacity to provide the required quality of services, are where the least barriers exist. These are also services sectors where the government is encouraging FDI. These include infrastructure services like telecommunications.

The sale of public utilizes to foreign firms raises complex issues related to privatization and the regulation of natural monopolies. Countries without the necessary regulatory framework may lose by rushing into liberalization, particularly when a reversal of liberalization is hard to achieve or when liberalization has systemic implications, as in the case of the financial industry.

Entry by large service transnational corporations involves competition policy considerations and many host countries may not feel ready to deal with the technical and legal issues involved. Industries that are characterized by lack of competition are also likely to be subject to more regulations.

It is difficult to assess the impact of liberalization in particular service sector, especially if it employs a large number of unskilled people. In such cases, as for example in the distributive services, it becomes important to undertake an in-depth study prior to the decision to allow foreign firms. Many countries lack the will or expertise to undertake such an analysis.

Ground level hassles continue to be a major impediment for foreign investors.

Transport, Road, Power and water availability continue to remain a cause of concern for investors, as revealed in the survey of FICCI, 2004.

Approval procedure of FDI in India is time consuming.

One of the most prominent hurdles in attracting FDI inflow is its stringent labour laws, which discourage the entry of Greenfield FDI because of the fear that the company concerned would not be possible to downsize the labour strength in the time of downturn of business. (Planning Commission, 2002).

High rate of tariff barriers, excessive red-tapism and bureaucracy and barriers of perception pose as a challenge in realizing FDI inflow in India.

Finally, since a number of services closed to foreign investors are monopolies and, in any event, need to be regulated, domestic regulations are often difficult to put in place.

The above reasons for barriers to FDI in services indicate that though the services sector has provided ample opportunity for trade and growth in the region, it has also, in the process of liberalization, exposed economies to competition in a sector that, for a long time, has been predominantly under public monopoly. Lack of domestic competitive skills may erode domestic investments in some services. It may


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also lead to higher prices of services that were earlier available at a subsidized rate under government ownership. The rise in prices could translate to higher inflationary pressures, reducing the overall welfare of economies. To circumvent such spirals it is important for the region to have appropriate domestic regulations in place, which will assure better quality of services at affordable prices. Clear domestic regulations increase transparency in the system and encourage FDI. To sustain the momentum of growth in services trade in the region, conscious efforts should be made to improve the competitive advantage of the region as a whole.

CONCLUSION The crux of the analysis is that FDI has helped the Indian Economy to grow and the investment profile has also been very diverse. While the silver lining is continuous increase in FDI for services sector, the nominal amount of investment for manufacturing and agriculture is a matter of grave concern. Moreover signs for 2010 dont seem to be very encouraging, clearly requiring GoI to go extra mile to achieve the parity with its peers in FDI inflow. To sustain the momentum of growth in services trade, conscious efforts should be made to improve the competitive advantage of the sector as a whole. The prospects of India as a FDI destination would be realized if some of its constraints could be overcome. Bureaucratic hassles, corruption and time consuming procedures should be reduced to attract more FDI inflow. After all a more transparent investment system will benefit and secure future prospect of FDI inflow in India. To sum up the present paper it provides a brief overview of performance, prospects and problems encountered by the services sector in Indias economy. It is heartening to note that India is called the service hub of the world because of huge FDI inflows. A number of sector specific measures have been taken up by the government of India to promote IT and ITES and other sun-rise sectors like Telecom, Organized retail, Hospitality, Entertainment and Financial services sectors. That is why; the futurists are very optimistic regarding the bright future and performance a head of the sector. To conclude On the tourism front, it is incredible India, but on the economic front, it is clearly Opportunity India.

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Sahoo, D., and M.K. Mathiyazhagan (2002). Economic Growth in India: Does Foreign Direct Investment Inflow Matter? Working Papers 115, Institute for Social and Economic Change. Bangalore.

Goldar, Bishwanath, Banga Rashmi, Impact of Trade Liberalization on Foreign Dtrect Investment in Indian Industries, Perspectives on Equitable Development: International Experience and What can India Learn? at CESS, Hyderabad, 7-9 January 2006

Banga. Rashmi, Critical Issues in Indias Service- Led Growth, Indian council for Research on International Economic Relations, Working paper no.171.

Dutta.M.K, Foreign Direct Investment In India since 1991: Trends, Challenges and prospects, Department of Humanities and Social Sciences, IIT Guwahati, Assam, India International Business Review, vol. 6, no. 2 (April), pp. 165-184.

A.T. Kearney (2007). FDI Confidence Index 2007, A.T. Kearney.


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N.J. Sebastian, FDI in India and its Growth Linkages, National Council of Applied Economic Research, New Delhi

Chakraborty, C., Nunnenkamp, P. (2008). Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis. World Development, 36 (7), 1192-1212.

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Alfaro, Laura (2003), Foreign Direct Investment and Growth: Does the sector Matter? Harvard Business School.

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Prasad Dr.H.A.C, Sathish R., Policy for Indias Services Sector, March 2010, Department of Economic Affairs, Ministry of Finance, Government of India


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INNOVATIVE SOLUTIONS TOWARDS SUSTAINABLE DEVELOPMENT: FINANCIAL LITERACY SHOULD ACCOMPANY INCLUSION

Dr. Anindita

Associate professor, Jaipuria Institute of Management Studies, Ghaziabad ABSTRACT The world is changing perhaps more dynamically than ever before in its history. This new age, lightning-speed leap in the pace of transformation has been enabled by a world which is integrally connected by four rapid forms of connectivity. These are environment, people, economy and ideas. Out of these economic integration is must for sustainable development. But in India the rural population -the other side of mankind- development in financial literacy followed by inclusion is minimal. Rural areas that are the principal target of the government's goal of financial inclusion have only 38% of bank branches and only 40% of the country's population has bank accounts. For India and other emerging economies, where more than half the population doesn't have a bank account, this paper has a message: You can't pull the nation forward with the single horse of financial inclusion; you must ride in tandem with financial literacy also.

The study not only tells about the impact of financial literacy but also how consumers use savings, investment and debt management techniques in their personal finances,"

Key words sustainable development, financial literacy, financial inclusion, saving, investment, rural, urban, risk averse

INTRODUCTION It is a fact of life that education contributes to financial literacy. Financial literacy can broadly be defined as providing the familiarity with and understanding of financial market products, especially, rewards and risks, in order to make informed choices. Viewed from this standpoint, financial literacy primarily relates to personal financial literacy to enable individuals to take effective actions to improve overall well-being and avoid distress in the matter that are financial. Financial literacy then becomes very important and indispensable for better financial behavior and discipline. To be effective, financial literacy needs to inform and empower the individual and would need to cover a wide range of subjects on personal financial management including savings credit, investments , customer protection and so on. But such literacy can take different forms. while Indians know more about saving, Americans know more about investing. Internet-savvy Indians are 20% more financially than Americans. The survey of 2,500 individuals or families was conducted by financial website InvestmentYogi.com. Financial literacy was assessed by asking respondents to answer simple questions related to interest rates, savings and the growth of money.

The report cannot be extrapolated to the whole of India, particularly the rural areas that are the principal target of the government's goal of financial inclusion. Today, only 38% of bank branches are in rural areas and only 40% of the country's population has bank accounts. The banking system has been asked to first target all habitations having a population in excess of 2,000. According to finance minister Pranab Mukherjee, there are around 73,000 such areas. Banks will cover 20,000 villages this year (by March 31). The remaining 53,000 will be covered in 2011-2012. This will be through both bricks-and-mortar branches and banking correspondents (BCs). The latter are agents for the banks -- normally individuals, but the Reserve Bank of India (RBI) has recently allowed companies to be appointed as BCs also.


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POSSIBLE MINEFIELD

Inclusion comes with potential dangers. Recent experiences in India in the microfinance arena show that poor people take loans that they have no capacity to service. Farmers have also taken loans that they have not been able to repay. Many have been driven to suicide because of debt problems. Unless financial literacy goes hand in hand with financial inclusion, there could be a minefield ahead. "The mortgage crisis [in the U.S.] proved that we did not have a handle on how poorly educated consumers taking the loans, and agents offering the loans, really were," That's in the U.S., where financial inclusion is not a major issue. For India and other emerging economies, where more than half the population doesn't have a bank account, there is a message: You can't pull the nation forward with the single horse of financial inclusion; you must ride in tandem with financial literacy also.

The saving versus investing aspect should have been logically deduced: According to Businessweek, the household savings rate in China is 38% and in India 34.7%. At the other end of the spectrum, it is 3.9% in the U.S. and 2.9% in Japan. It can be shored up like Indians use about 38% of monthly income to cover monthly expenses -- they save or invest 62% of their salary. The people are risk averse.The real takeaways from the survey are in the realm of financial behavior. Indians tend to be underinsured: Only two-thirds of the participants report any insurance, including medical and life. Most report having clear financial goals, with education as the most popular goal (true for all risk categories -- those comfortable with some financial risk, much risk or no risk at all). Most Indians are not comfortable with taking risks, however.

As could be expected, higher education is a good indicator of financial skills. Highly educated Indians take on more financial risk; find better returns on investments and better rates for insurance policies; have more financial goals in general and specifically more long-term goals; and hold more financial instruments. Participants report an average of 1.67 loans per household, for either personal use, home loans or car loans. Home loans are the most prevalent liability (and the soundest), and this applies for all categories of risk tolerance and education. "Looking at how each education group distributes loans shows that home loans are the most popular, with all categories having above 50% of loans in home loans," says the survey report. "Post-grads have the highest concentration of car loans with 26% and the graduates have the most personal loans as a share of all liabilities with 22%."

THE REAL INCLUSION India requires a huge amount of financial inclusion. Therefore, one can also get the social objective achieved without compromising on the commercial aspects of doing the business. There is huge potential in rural and semi-urban markets. The savings rate in India is very high -- more than 34%. But in rural and semi-urban markets the savings are invested in gold, which is an illiquid asset, or in land, which again [does not offer] the right kind of return. Or in the best case situation, [their savings are] maybe in a fixed deposit with a co-operative bank. So, rural India is not exposed to many of the high-return financial products like equities or mutual funds or even insurance, which can take care of the risk part also. This is where a company like Tata Capital, which has a strong name and a strong distribution network, can play an important role in educating rural India, in terms of converting some of [their] non-productive or illiquid assets, or low-income assets into relatively higher-income assets, which will also give them better liquidity and better returns.

It is a long haul. This objective is not going to be achieved overnight. One needs to have a long-sustaining ability, which is what the BCs should be ready to do. Services of different non banking financial


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companies can be taken like Tata Capital and the Tata Group which can play an important role in financial inclusion by bringing rural India and semi-urban India into a network of these financial products.

GROWING INTEREST: BANKS ARE REACHING OUT TO RURAL INDIA In the western Indian state of Maharashtra, in the Mann Desh region, lives 39-year-old Lakshmi Shellar. She spends a typical day in the field tending to her crops; she also rears buffaloes and sells their milk in the village door to door. A widow since the age of 17, Shellar got in touch with Mann Deshi Mahila Bank, a cooperative bank in rural Maharashtra, a few years ago, where she learned the basics about banking products. Now she runs a financial literacy school by night, attended by 20 women from her village. Women such as Shellar act as business facilitators to India's banks. Some work directly for the bank, others through banking correspondents (BCs) such as microfinance institutions and nongovernment organizations. Each facilitator is connected to hundreds of people. On behalf of the bank, they create awareness about savings and other products, identify potential borrowers, collect and verify loan applications, monitor borrowers' repayment and follow up for recovery.

Shellar's story is told whenever Duvvuri Subbarao, governor of the Reserve Bank of India (RBI), delivers speeches on financial inclusion across the country. Subbarao hopes more women like Shellar will help to promote banking deep within the country. It will be crucial for an organized financial system to find its roots in rural India.

A December 2009 RBI report, "Financial Inclusion: Challenges and Opportunities," points out that the country has 600,000 habitations -- clusters where the population is 100 or more -- but only 30,000 have a commercial bank branch. Less than half the population has a bank account, with the disparity greater in the northeast. Only about 10% of the people have life insurance, and less than 1% have other types of insurance. A full 37% of the population still lives below the poverty line.

It is here that Subbarao sees opportunity. As incomes grow and awareness increases, aspirations rise among the poor. Moreover, rural savings deposits tend to remain in customers' accounts. In the long run, this reduces a bank's dependence on bulk deposits, minimizing the risk posed by sudden large withdrawals. Subbarao stresses that some bankers will need to convert "what they see as a deadweight [social] obligation into an exciting opportunity, and move aggressively on financial inclusion."

NO-FRILLS ACCOUNTS Indian banks, especially those in the public sector, have made substantial efforts to tap the country's rural population. But expanding through branches has been a costly -- and largely unsuccessful -- endeavor. Out of 50 public sector and private sector banks, 26 have therefore appointed BCs, through which eight million no-frills accounts have been opened as of March 31, 2009.

Using banking correspondents in such a way is gaining in popularity globally. A recent RBI directive added six more types of correspondents -- including shop owners and public call office operators -- to the existing categories of microfinance institutions and nongovernment organizations. In Brazil, several banks have adopted the correspondent banking model, acquiring more than 15 million accounts this way. In the networks of two of the largest players, half of account holders earn less than US$4 a day.

In India, few banks have been as active as State Bank of India (SBI), India's leading public sector bank, which has 2.5 million no-frills accounts. It has expanded through 24,000 direct agents, including thousands of nongovernment and microfinance organizations. "From 12,000 villages in 2008, we now


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have a presence in 50,000 villages," O.P. Bhatt, SBI chairman, told business publication Business India recently. The goal, he added, is to double that number by March.

Migratory labor is a target, as remittances through banks make it easier to send money home. Huge sums are remitted across India, predominantly from migrant labor, and more than 90% occurs through informal channels.

Banks have also added more sophisticated and diverse products. SBI, for instance, has a product where a customer deposits up to US$21 at any one time for one to five years. At the end of the term, the customer gets principal plus interest at a fixed deposit rate of 6% to 8%.

In the insurance space, SBI has Grameen Shakti, a dual-benefit life insurance product. For a five-year term with a Rs.26,000 benefit, the premium is about Rs. 300 a year. Upon the group member's death, the beneficiary receives the benefit. Upon maturity, the group member recovers half of the premiums paid over the five years. SBI also has launched Chota SIP (Systematic Investment Plan), an equity-based mutual fund plan with a minimum monthly investment of Rs. 100 over at least five years. Chota SIP funds are invested in bigger funds, including a blue-chip fund, a balanced fund and a growth fund with a small value component.

THE PRICE OF GROWTH Despite banks' success with informal channels, reaching rural customers comes with a price tag. The main challenge, bankers point out, lies in financial education: helping the masses to understand these products, and the benefits of saving and investing. The faster users of banking services learn of the benefits, the shorter will be the bank's gestation period in recovering its investments.

In response, financial literacy centers are being set up across India. Members of SEWA Bank -- a cooperative bank established in 1974 by 4,000 self-employed women -- have held three-day financial education camps in the state of Orissa. Such centers provide individual counseling services on responsible borrowing and early savings. There are advantages to being connected to the financial sector, and there is a need for the people to understand that.

Technology is expected to be one enabler. SBI's Tiny Cards concept, initiated in 2006, is a big step forward. A microchip in a smart card stores a customer profile, including photograph, fingerprint and transaction details. Says Anup Banerji, deputy managing director of rural business and national banking at SBI: "This scheme has been rolled out in 19 states in India. In 2008-2009, the number of cards issued rose from 270,000 to more than 2 million. In that same period, the number of no-frills accounts has doubled to 2.5 million."

SBI's Tiny Cards are connected to the network through a mobile phone or point-of-sale machine. They are used along with handheld devices with fingerprint-scanning facilities, made available to women like Shellar. If used through the banking-correspondent route, nongovernment organizations such as Zero Mass Foundation and Little World, and technology providers such as Financial Information Network and Operations (FINO), bear the cost of the devices. They, in turn, recover costs by working with banks around predefined service agreements.

In the state of Andhra Pradesh, for instance, 350,000 people receive money from the government through such programs as the National Rural Employment Guarantee Scheme, social security and pensions. Of the


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2% commission SBI receives from the government for distributing these funds, it passes on 1.5% to the correspondent or facilitator.

BRINGING LIFE TO ACCOUNTS For a bank the size of SBI, acquiring new accounts is not the problem. The real issue, across the industry, is deriving revenues from these accounts. India is still a country with over a billion people where nearly half the nation is unbanked. There should be the inclusion of a small charge on the customers' end, to make the banking correspondents' route more viable. The challenge for the bulk of the poor is financial services, not affordability. Suzuki Motor Company in India, the manufacturer of Maruti cars, boasts of its service network throughout the length and breadth of the country. Similar pride should be taken by State Bank of India, the country's premier public sector bank, by expanding its reach throughout the country. Since the buzzword "financial inclusion" is sweeping the country, it is time the SBI took the initiative and established its presence in all rural areas.

The cost-benefit analysis of having presence in all areas will throw on a different light and may force banks not to venture into unbanked areas where they will not find any viability to run a branch. But in the years to come, India's rural population will also benefit through high incomes due to an increase in disposal incomes of the middle class. This will create demand for all products and have its impact on rural areas also.

But the real issue is in educating the masses about banking, the need for having an account, and creating interest among rural populations to opt for banking services. Like postal services, banks should increase their reach through deployment of men for a complete understanding of banking. Financial inclusion without proper education is of no avail.

Funds distributed through government schemes, for instance, are rolled out into 400,000 accounts in Andhra Pradesh, while the total number of no-frills accounts acquired has crossed 1.8 million in the state. There is little or no life in accounts acquired outside such schemes; the average balance in such accounts hovers around 50 cents. Meanwhile, costs to maintain the accounts continue to rise. BCs keep up servers that interact with point-of-sale machines. The BC servers interact with a server at the bank. This server, in turn, connects these accounts to the bank's core operations.

There are also operational issues -- like the facilitator's travel expense from branch to home and the security of funds while at residence -- that have yet to be resolved. Expenses mount as new accounts register, and there is already a mismatch between revenues earned and costs incurred in undertaking BC operations. Banks charge BCs interest for the temporary overdraft provided to them. This adds to operating costs. Further training of BC staff involves even more outlays. The commission paid by banks to the BCs is not adequate for a viable business model. A majority of BCs have reported losses, and some of them have even suspended their operations. This, in turn, affects the banks [since] it becomes difficult for banks to [find substitutes for them]. Financial inclusion, however, is not an end by itself. It is a means -- the end being social inclusion. Banks play the role of financial intermediation and, therefore, are an important catalyst in attaining inclusive growth.

The government has been active in this area. The National Bank for Agriculture and Rural Development (NABARD) launched two financial inclusion funds in 2007-2008 with about US$100 million each. These funds have equal investments by the government and the RBI, and an additional 20% by NABARD. The latter disburses these funds annually to Indian banks. One fund actively invests in developmental and


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promotional activities in backward regions and unbanked areas. The second promotes the use of technology in similar places. Yet bankers say greater support will be required to make the BC route a success.

The opportunity lies at the bottom of the pyramid: The only way to reduce costs is to increase volumes. As the country grows at 8%, job opportunities grow. As people start earning, their incomes will provide a growing source of bank deposits -- and banks that are ahead of the curve in establishing a presence in the hinterlands will likely have a first-mover advantage.

REFERENCES

Kochhar,Sameer R, Chandrashekhar R, Chakravarty, K C, Financial Inclusion, Academic Foundation

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4578

http://fino-cofi.blogspot.in/2010/08/financial-literacy-required-to.html

http://www.cab.org.in/FILCPortal/default.aspx

www.inclusion.in/index.php?option=com_content&view...id...


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ORGANIZED SECTOR RADIO TAXI OPERATOR IN GUWAHATI - A CASE STUDY ON PRIME CAB

Dr. Tazyn Rahman Dean (Academics), Jaipuria Institute, Indirapuram, Ghaziabad

ABSTRACT According to the industry sources, unorganized operators dominate about 85% of the market. The car rental industry grew from ` 30bn in FY03 to ` 200bn in FY11 notching up an annual average growth of 30%.The Radio cabs business has emerged as one of the fastest growing businesses in the Indian transportation sector. The concept of 24-hour radio cabs caught up in the country about a decade back with Delhi-based Mega Corp setting the wheels rolling under the Mega Cabs brand in cities such as Bangalore, Mumbai, Calcutta, Chandigarh, Ludhiana and Amritsar. Guwahati also is not laying back in this regard. Private luxury taxi operators in Guwahati are also planning to expand their fleets in the absence of a state-owned service and the shift by most commuters to the economical yet comfortable mode of transport. The Northeast is a prime destination for tourist, so the demand for car rental services can only get bigger. In the absence of a state owned radio cab service in Guwahati, the private players are eyeing big business.

My Taxi has the pioneered private taxi operators ( not radio taxi ) to hit the road in 2010 followed by Prime Cabs. Prime Cabs launched in 2012 has emerged as the first organized Radio taxi service provider. Prime Cabs offers a cab service that emulates the best taxi service norms across the world. Their endeavor is to ensure that customers need for commuting is met every time they need to commute and in as hassle free a manner as possible.

The prime objective of this study is to understand the customer perception and customer satisfaction level on Radio Taxi services with special reference to the city of Guwahati and to offer suggestion to improve the performance of the services

Key Words: Radio cabs, taxi operators, Northeast, Guwahati, Prime Cabs

SCENARIO OF ORGANIZED RADIO TAXI OPERATORS IN INDIA The Radio cabs business has emerged as one of the fastest growing businesses in the Indian transportation sector. Till 2003, the point-to-point taxi market in Indias big metropolitan cities was completely unorganized. It was served either by unorganized, inconsistent and somewhat expensive private operators or by state government controlled pre-paid taxis offering a standardized but low quality service. The concept of 24-hour radio cabs caught up in the country about a decade back with Delhi-based Mega Corp setting the wheels rolling under the Mega Cabs brand in cities such as Bangalore, Mumbai, Calcutta, Chandigarh, Ludhiana and Amritsar. Today, 15,000 plus professionalized air-conditioned taxis are available to customers in 6 big cities in a largely reliable, convenient and affordable manner. These services are fast spreading to other cities and the sector is seeing an active interest from new entrants and financial investors alike. Despite the glitches in the model, the underlying value of this service is undeniable. New models are emerging with innovations on cost and technology in a bid to make these services rapidly accessible to more and more customers. Delhi currently has over 5,000 AC radio cabs and 3,800 economy radio taxis plying on its roads. Mumbai based Meru Cabs has also done brisk business since it started operations in 2006-07 to become one of the largest service providers in the country.


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Private luxury taxi operators in Guwahati are planning to expand their fleets in the absence of a state-owned service and the shift by most commuters to the economical yet comfortable mode of transport. The Northeast is a prime destination for tourist, so the demand for car rental services can only get bigger. In the absence of a state owned radio cab service in Guwahati, the private players are eyeing big business. Radio taxis are all set to do booming business here as private operators of the service go on an expansion spree, bolstering their fleets to meet the mounting transport needs of the growing city. In North East and in particular, Guwahati, My Taxi was the pioneered private taxi operators ( not radio taxi ) to hit the road in 2010 followed by Prime Cabs in 2012 and both appear upbeat about what the future holds for them. My Taxi started with 12 vehicles; today have a fleet of 75, which bears testimony to a substantial increase in demand for the service with over 400 trips a day. It has posted a month-on-month growth of 12 to 15 per cent. The Assam Tourism Development Corporation Ltd is also planning to start a dedicated airport radio taxi service. Prime Cabs the first organized Radio taxi service launched services in Guwahati in 2012.

ORGANIZED RADIO TAXI OPERATORS IN GUWAHATI Prime Cabs started its operation in July 2012. It is the first organized premium radio taxi service company launch metered "Radio cabs" in Guwahati, Assam-the gateway to North East India. Prime Cabs offers a cab service that emulates the best taxi service norms across the world. Their endeavor is to ensure that customers need for commuting is met every time they need to commute and in as hassle free a manner as possible. They ensure availability and the onboard technology ensures that a customer pays a fair fare with a printed receipt for each transaction. Its aim is to quality ride to the destination; ensure that each cab is well maintained as well as the chauffeur driving the cab is well trained. The cabs equipped with GPS (Global Positioning System), immobilizer buttons, making it easier to keep things in place. Prime Cabs is perhaps the first and the only player to offer complete 360 degree solutions to completely transform the Guwahati personal transportation industry into an organized business. At Rs 17 per km, the firm claims to offer the lowest fare on a radio cab ride in Guwahati and offering a comfortable and safe ride than any other service, be it a taxi or an auto. On an average, it conducts 250 trips a day with call centre open for bookings 24 hours. OBJECTIVES OF STUDY The prime objective of the study is to understand the customer perception and customer satisfaction level on Radio Taxi services with special reference to the city of Guwahati and to offer suggestion to improve the performance of the services. The paper has following objectives: 1. To analyse the demographic profile of the customers and overall satisfaction. 2. To understand the measure of satisfaction amongst the Respondent 3. To identify various components contributing towards the Customer satisfaction. 4. To find the correlation between different variable and overall job satisfaction 5. To understand the factors leading to Customer dissatisfaction 6. Propose suggestion for improvement. RESEARCH METHODOLOGY AND SAMPLE Research methodology used during the study conducted in this research paper is based upon real data primary as well as secondary. The primary data are collected from 100 Prime Cab customers of Guwahati city by using questionnaire method. Secondary data are collected from books, journals, newspapers, company manuals, company website and informal talk with the officers and the employees. LIMITATIONS OF THE STUDY Getting information from respondents becomes problematic as we had to interview individuals who are quite busy to give proper thought to the questions. Indifferent attitude of some respondents could have


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affected the final findings. Respondents were less cooperative and were more conscious for getting their identity disclosed. Respondents may be biased and may not be sincerely responding to the questionnaire survey. ANALYSIS AND INTERPRETATION OF DATA

Table 1 : Demographic Profile of Respondents

Sr. No Demographic Factor Details No. of Respondents

Percentage

1 Age Group Below 25 years 8 8

25 35 years 19 19 35 45 years 42 42

Above 45 years 31 31 2 Gender Male 71 71

Female 29 29 3 Marital Status Single 23 23

Married 77 77 4 Education Qualification Upto School Level 13 13

UG & PG degree 39 39

Professional degree 48 48

5 Occupation Student & Home maker 9 9 Professional ( Pvt. / Public ) 56 56 Businessman 35 35

6 Income Group Below 2 Lakhs 4 4 2 4 Lakhs 9 9 4 6 Lakhs 29 29 Above 6 Lakhs 58 58

Table 1 exemplify the demographic analysis of the respondents participated in the study. This includes age, gender, marital status, education qualification, occupation and income groups. Age as an important demographic variable not only determines an individuals physical and mental maturity but also depicts his or her life experiences shows that 42% of the respondents are in the age group of 35 45 years and 31% belongs to age group of above 45 years. In gender wise distribution of the respondents the table revealed that among the total respondents, 71 percent of the respondents were male and 29 percent were female. In short, majority of the respondents were male in the study area. 77% of the respondents were married. The another important variable education-wise classification of respondents shows that 48% respondents belongs to the education group of professional degree and 39% belongs to the educated group of UG / PG degree. It is clear from the above table that out of 100 respondents surveyed, 56% belongs to the occupation group Professional, 35% belongs to the occupation group Businessman and the remaining 9% belong to Student & Home maker. The table also reveals that out of the 100 respondents,


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58% belong to the income group above 6 lakhs, 29% belong to the income group 4 - 6 lakhs, 9% belong to the income group 2 - 4 lakhs and rest 4% belong to below 2 lakhs.

Table 2 : Sources of Information for Prime Cab Service

Sr. No Factors No. of Respondents Percentage 1 Newspaper / Display Advertisement 8 8

2 Friends / Relatives 45 45 3 Other sources 18 18

4 Display on Cab 29 29 A customer is exposed to a number of stimuli in his daily routine that helps him/her in selection of services. In order to study consumers perception it is very important to know about the source of information from which the customer has obtained the information about the service. Table 2 exhibits that 45% of the respondents got information about Prime Cab service from Friend / Relatives, 29% of the respondents got information about the service from Display on Cab and remaining from other sources.

Table 3 : Factor Influencing the Selection of Service

Sr. No Influencing Factors No. of Respondents Percentage 1 Customer Support & SMS system 16 16 2 On Time Reporting 55 55

3 Cleanness of Cab 9 9 4 Comfort & Big Luggage space available

in Cab 16 16

5 Driver Behavior 4 4

In the competitive market it is very important to satisfy the customer needs. Selection of a service is influenced by a number of factors. The importance given to a factor by a person may not be same as in case of another. Some of them are satisfied with one aspect but dissatisfied with the other aspect. It was found that in case of Prime Cab service Customer Support & SMS system, On Time Reporting, Cleanness of Cab and Driver Behavior have been the influencing factors. Table 3 revealed that 55% of the respondents preferred the services because of On Time Reporting and 16% of the respondents preferred the services due to customer friendly service like 24 hours call center, cab and driver information via SMS and another 16% of the respondents preferred the services for comfort journey and big luggage space.

Table 4 : Customer Pattern for Prime Cab Service

Sr. No Detail of Customer Pattern No. of Respondents Percentage 1 First Timer Customer 31 31

2 Repeat Customer 69 69 From the table 4 it can be interpreted that, 69% of the respondents are repeat customer and 31% of the respondents are useing the service for the first time. Majority of the customers are using the service repeatedly due to its customer friendly service and On Time Reporting.


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Table 5 : Frequency of Using Service Per Month

Sr. No Frequency No. of Respondents Percentage 1 Rarely 32 32 2 2 3 times 42 42 3 Above 4 times 26 26

From the table 5 it can be interpreted that, 42% of the respondents used the service about 2 3 times in a month and 32% of the respondents are rarely using the service.

Table 6 : Customer Pattern for using of Prime Cab Service

Sr. No Service Used Pattern No. of Respondents Percentage 1 Airport Pick Up / Drop Out 46 46 2 Railway Station Pick Up / Drop Out 13 13 3 ISBT Pick Up / Drop Out 8 8 4 Whole Day Local Tour 4 4 5 Short Trip within City 29 29

Table 5 illustrates the customer pattern for using the service revealed the 46% of the respondents are using the service for Airport pick up / dropping, 29% of the respondents are using the service for short trip within city, 13% of the respondents are using the service for Railway Station pick up / dropping.

Table 7 : Satisfaction Level of Respondents

Sr. No Satisfaction Level No. of Respondents Percentage 1 Highly Satisfied 17 17 2 Satisfied 74 74 3 Not Satisfied 7 7

From the table 8 it is evident that 74% of the respondents are satisfied with the service, 17% of the respondents are Highly Satisfied and only 7% of the respondents are Not Satisfied with the service. Majority of the respondents, who are Not Satisfied with the service are due to high fare rate and waiting charges. FINDINGS Following are the major finding of the present study:

73% of the respondents are in the age group of 35 45 years and above 45 years. Majority of the respondents were male in the study area and 77% were married.

Around 91% of the customers were belonging to Professional and Businessman travelling for official or business trip. Majority of the Professionals belong to public sector companies.

87% of the respondents have higher education qualification like graduation or above.

58% respondents belong to the income group of above 6 lakhs, 29% belong to the income group 4 - 6 lakhs.

It was observed that word of mouth have played a major role in expanding the services and demand. 45% of the respondents got information about Prime Cab service from their Friend / Relatives.


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To sustain in the competitive market it is very important to satisfy the customer needs upto their expectation level. 55% of the respondents preferred the services because of On Time Reporting and 16% of the respondents preferred the services due to customer friendly service like 24 hours call center, cab and driver information via SMS. The study also revealed that 69% of the respondents are repeat customer due to above mentioned customer centric services.

46% of the respondents used the service for Airport pick up / dropping, which is growing very rapidly.

The satisfaction level of the customer is very high, which is a very good sign for growth. 91% of the respondents are satisfied with the services.

RECOMMENDATIONS Guwahati is the 10th largest domestic airport with more than 2 mn traffic in FY12. Currently Prime

Cab does not have a counter at the airport, due to which almost 50% of the vehicles that go to the airport comes back empty, which results in higher fuel cost and idle run. They should open a counter at airport, which will result in better fuel efficiency and revenues.

A huge number of people commutating through rail and deluxe buses use radio taxi services, Prime Cab should open a counter at Guwahati railway station and ISBT, Lokhora.

Prime Cab should maintain one type of fuel efficient car to minimize the spare inventory and maintenance cost.

Prime Cab should maintain minimum education level for it driver as matriculation and pay special attention to soft skills training of drivers like personal Greeting to customers, dealing with difficult customers, handling money, hygiene and being On time.

Customer feedback form should be provided in each cab to gather Customer experience and to improve service quality.

Presently only cash mode of payment is accepted. Company should accept credit / debit card.

Magazine and English and regional newspaper should be made available in each cab for customers.

CONCLUSSION The Prime Cabs has a tremendous potential for growth in North East as the transport needs of the corporate world and even of middle-class and affluent class is growing day by day. With Guwahati city facing enormous parking problems, many residents would prefer to call up a radio taxi for the purpose of visiting a shopping mall, a beauty saloon, or even to attend a late-night party. This option scores higher points over wasting time in search of parking space for own vehicle, or negotiating treacherous snarls on a leisurely weekend. The study shows that its customer satisfaction level is very high, which is a positive point for its growth and expansion. REFERENCES JOURNAL Xavier, M.J., Thamezhvanam, A., Swaminathan, T. N. ( 2010 ), Call Taxi Service on the Fast

Track, IMT Case Journal, 1(1): 1-13. Pathania, N. ( 2012 ), Radio Cabs How Do They Work in Delhi?, CCS working paper No 266

published in Researching Reality Intership.


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BOOKS S. Neelamegham," Marketing in India, Cases and Reading, Vikas Publishing House Pvt. Ltd, III

Edition, 2000. REPORTS: Information Memorandum of Prime Cabs ( 2013 ) prepared by Algorism. WEBSITES: http://www.telegraphindia.com/1130617/jsp/northeast/story_17011569.jsp#.Uohxa9JBN9w http://www.primecabz.com


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TECHNICAL EFFICIENCY OF AFFILIATED DEGREE COLLEGES IN BARAK VALLEY

Monalisa Das1 and Subhrabaran Das2

Research Scholar1 & Faculty2, Department of Economics, Assam University, Silchar, Assam

ABSTRACT A production frontier captures all the possible combinations of inputs and output on an output space and helps to estimates the efficiency level of producing units. Efficient management of resources in every sector is a central issue with respect to our scarce resources. Higher education production frontier involves several tangible and intangible inputs as well as outputs, and these outputs contribute to economic development through development of human capital. The study measures the technical efficiency of affiliated colleges in Barak Valley by using a higher education production frontier where weighted results of successful students is taken as input and different institutional specific factors are considered as output. Technical efficiency measures the productive capacity of the institute to produce maximum possible level of outputs for a given level of inputs. The main objectives of the study are to estimate higher education production frontier of affiliated degree colleges of Barak Valley and to compare the technical efficiency scores of NAAC accredited Degree colleges and other Degree colleges. The results of the study reveals that most of the Degree colleges are producing below frontier and number of teaching staffs, number of non teaching staffs and years of establishment have positive impact on determining the outputs of Degree colleges while types of affiliation has negative impact on it. Key Words: Degree Colleges, Higher Educational Institutions, Production Frontier, Technical Efficiency.

1. INTRODUCTION Efficient management of resources in every sector is a central issue with respect to our scarce resources from the perspective of management. Recently, different organisations and institutions use various methods to measure their efficiency and then search ways to improve them. This does not only apply to profit-making organizations, but also in non-profit making organizations and the public sectors, including educational institutions. Efficiency of Higher Educational Institutions (Degree colleges) is one of the subjects of growing attention in recent years. The issue of efficiency in higher education in this region or elsewhere has remained vague and problematic due to huge heterogeneity within the system itself. As the resources are scarce so the optimal utilisation of resources are required in every sector. Therefore, it is important to analyse whether the educational institutions are working efficiently or not. One of the ways to find efficiency is measurement of technical efficiency, which specifies the relationship between inputs and outputs in production processes. Technical efficiency can be defined in two ways; either from input side or output side. From the input side, technical efficiency refers to the production of a given amount of output with a minimum input combination (input orientated), while from the output side it shows the ability of a firm, sector or institution to produce the maximum output with given inputs (output orientated). The measurement of institution specific technical efficiency is based upon deviations of observed output from the best production or efficient production frontier. A unit is considered efficient if the actual production point lies on the frontier, and technically inefficient if it lies below the frontier. Degree colleges produce skill, efficient and trained workers which increase labour productivity and ultimately lead to economic development. But the labour productivity depends on the quality and level of the education; hence efficient management of Degree colleges is necessary. In Barak Valley, numbers of students in colleges are increasing day by day, but there are inadequate infrastructural facilities and low success rate in most of the colleges. Thus the study focuses on measurement of technical efficiency of


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higher educational institutions in Barak Valley by considering the higher educational institutions as analogous to a firm transforming inputs into outputs through a production process where typical inputs in the education production function are the characteristics of the teaching and learning environment, while output(s) are defined as students performance.

1.1. STRUCTURE OF HIGHER EDUCATION IN BARAK VALLEY The Barak Valley consists of three districts viz: (1) Cachar, (2) Karimganj and (3) Hailakandi where both public and private institutions operate simultaneously. At present there are 41 degree colleges, 1 Central University (under it these 41 degree colleges are affiliated), 1 Medical College, 1 NIT, 1 Polytechnic Institute, and few study centres of Distance Education which constitutes the set of Higher Educational Institutions in Barak Valley. Here out of these 41 degree colleges 32 provide general education of either single or combination of Arts, Science and Commerce streams, and the rest 9 are professional colleges 7 B.Ed. Colleges and 2 Law colleges). In Barak Valley, there are 15 NAAC accredited Degree colleges out of which one is teachers training college, another one is central university and the rest 13 are three years general degree colleges. The study is concentrated only on affiliated general degree colleges.

2. REVIEW OF RELATED LITERATURES There are several literatures in the field of Economics of Education which have measured the performance of the educational institutions by measuring the technical and allocative efficiency of the institutions. Different authors across the worlds have used Stochastic Frontier Analysis (SFA) or Data Envelopment Analysis (DEA) or both to estimate efficiency of Degree colleges, few of these are as follows: Liu et al. (2012) analyze the technical efficiency of 40 Teachers colleges of Thailand by taking a multiple input-output educational production function. They find that high personnels quality, more intensity funds and more research and development have positive impact in the technical efficiency scores of teachers colleges, while the years of establishment of the colleges has no impact on it. Sav (2012) uses SFA to investigate possible differences in cost efficiencies of public relative to private for-profit Higher Educational Institutions in US. The findings suggest that private institutions operated at greater inefficiencies relative to their publicly owned counterparts. While the public minority serving colleges shows inefficiency deterioration over time, the findings point to private institutions efficiency gains. Daghbashyan (2011) investigates the economic efficiency of higher education institutions in Sweden and found that government financing is significant and negative. The characteristics of the academic staffs found to have significant impact on the HEI cost efficiency. John Robst (2001) has measured cost efficiency of Public Higher Education Institutions by using OSL and MLE for a stochastic production frontier and examined the factors leading to inefficiency. The study reveals that increase in tution fees lead to more inefficiency and institutions with less state share are more efficient than institutions with more state share.

3. OBJECTIVES OF THE STUDY The objectives of the study are as follows: To measure the technical efficiency of Degree colleges in Barak Valley. To analyse the role of institution specific factors in determining

international journal of advance & innovative research volume 1, issue 1 issn: 2394-7780

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