CSR in India: An unfinished portrait? Ananda Das Gupta

CSR in India: An unfinished portrait?

Ananda Das Gupta

The Case

Despite the life-size examples from well established houses, CSR in India remains to be at a burgeoning stage. It is followed only by a meager number of public companies and by a few private companies, with international shareholding as this is the practice followed by them in their native foreign country. Thus the scenario is far from being faultless. A shocking revelation of the failure of the proper implementation of the laws of CSR in India has been witnessed in the state of Orissa. The Indian Ministry of Environment and Forests has allowed two major companies of India – Oil and Natural Gas Cooperation of India (ONGC) and Reliance Industries (RIL) to carry out the off shore drilling off the coast of Orissa.

This has led to the deaths of tens of thousands of the Olive Ridley turtles that nest on these sandy beaches. With the number of these turtles already plummeting, they are well on their way towards extinction. The Bhopal Gas tragedy cites another and perhaps the most shameful consequence of the failure of CSR in India. The accidental leakage of the fatal methyl isocyanate gas caused immediate death of thousands of people and caused premature deaths of thousands more, the effects of which are being witnessed till date. The company involved paid some billion dollars to the government as a compensation for the massacre the accident had caused.

But before the ruthless killings of men and children and the long term health risks the tragedy exposed the people to, the amount accounted for but a meager reimbursement. The catastrophe unveiled the eternally known but un-adhered-to principle of the industries’ responsibility towards the society, of the need for measures to avert any such further disasters.

The Scenario

There are many big entities who have been actively engaged in the CSR activities but unfortunately the number is relatively less. In order to encourage more entities to participate in the process of development of the society via- CSR, the Government of India has actually implemented the concept of CSR in the new Companies Act 2013, On 27th February, 2014, the Government of India has notified the rules for CSR spending u/s 135 of the New Companies Act 2013 along with Companies (Corporate Social Responsibility Policy) Rules, 2014 effective from 1st April 2014. Turning the CSR from voluntary activities to the mandated responsibilities, also governed by the bundle of regulations as follows:

Eligibility Criteria:

Company (includes foreign company with branches or project in India) having:

• Minimum net worth of rupees 500 Crore.
• Turnover up to “1000 Crore”
• having a net profit of at least ‘5crore’.

during any financial year, are covered by this provision
.
Composition of CSR Committee

The Company should constitute a Corporate Social Responsibility Committee as follows:

1. The Committee shall consist of minimum 3 (three) including 1 (one) Independent Director, however in case of Private Company or the Company, which is not required to appoint Independent Director on board, or Foreign Company the committee can be formulated with (2) two directors.

2. The CSR Policy shall be formulated in accordance with Schedule VII and the CSR Committee will be responsible for framing the policy, finalizing the amount to be spent on CSR, monitoring & implementation of the Scheme.

3. If Company ceases to fulfill the eligibility criteria for three consecutive years, then the company is not required to comply until the company will meet the eligibility criteria once again.

The CSR Rules provides the manner in which CSR committee shall formulate, monitor the policy and manner of understanding for CSR activities.
Under the rules, the Government has also fixed a threshold limit of 2% of the “Average’ Net Profits of the block of previous three years on CSR activities and if Company fails to spend such amount, disclosures are to be made for the same. But an exemption has been given to the Companies that do not satisfy the above threshold for three consecutive years.

Brief on CSR Activities as prescribed under Schedule VII of CA, 2013

1. Objective to efface the daily life segments including poverty, malnutrition and hunger while enhancing the standard of living and promoting the facets of better health care and sanitation.

2. Initiative to promote the different segments of education including special education and programs to enhance the vocation skills for all ages like children, women, elderly and conducting other livelihood enhancement projects.

3. Aim to bring the uniformity in respect of different sections of the society to promote gender equality and other facilities for senior citizens and developing hostels for women and orphans and taking initiative for empowering women and lowering inequalities faced by socially and economically backward groups.

4. Elevate the segment of flora and fauna to bring the ecological balance and environmental sustainability in respect of animal welfare, conservation of natural resources and ago forestry while maintaining the quality of air, water and soil.

5. Enhancement of Craftsmanship while protecting art and culture and measures to restore sites of historical importance and national heritage and promoting the works of art and setting up of public libraries.

6. Steps to bring worthy to the part of war windows, armed force veterans and their departments.

7. Sports programs and training sessions to enhance the level of rural sports, nationally recognized sports, Paralympic sports and Olympics sports.

8. Favoring to Prime Minister’s National Relief Fund and contribution to other fund set up by the central government to promote socio-economic development and welfare of the schedule castes and Schedule Tribes and for supporting backward classes, minorities and women.

9. To uplift the technology of incubator that’s comes under academic institutions and which are approved by the Central Government.

10. Introducing varied projects for Rural Development.

The below activities doesn’t include under the CSR activities of the Company.

1. Business run in the normal course.
2. Outside the territory of the India or abroad.
3. For the welfare of the employees and their families.
4. Political party contribution of any amount directly and indirectly as defined u/s 182 of the Act.

The above CSR activities shall be undertaken by the Company, as per its stated CSR policy, in consonance with the new or ongoing projects excluding activities undertaken in pursuance of its normal course of business. The Board of Directors may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society.

Yearly Compliances:

1. The Annual Report of the Company shall include a comprehensive Report on CSR in the format as prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014, containing particulars on Overview of CSR Policy, Composition of the Committee, Avg. Net Profit, prescribed expenditure and details of its spending, reason in case of failure etc.

2. The disclosure on CSR in Board Report should also be available on the Company’s Website.

3. The activities included in the CSR Policy and the prescribed expenditure being undertaken/ spent shall be ensured by the Board, in the respective manner.

This means all the Companies falling in the aforesaid criteria needs to ensure CSR compliance but it is debatable to say that the same is for welfare of the society or the companies are doing it just to avoid penalties. CSR stands to support the Company’s Vision as well as directions to what Organization stands for and will sustain its clients. An ISO 26000 is the accepted worldwide standard for Corporate Social Responsibility (CSR).CSR term has been revaluated with an aim to embrace responsibility for the Company's actions and encourage a positive impact through its activities on the environment, consumers, conscience, corporate citizenship, social performance, employees, communities and all stakeholders. Even as the government tries to coax private companies to spend more money in fulfilling their corporate social responsibilities, public sector undertakings remain laggards. Ten large PSUs, which were together mandated to spend 1,313 crore in FY12, managed to disburse less than half that amount

Source: http://www.csrtimes.com/community-articles/psus-fail-to-meet-csr-targets/203

The Observation

Companies are required to find ways to reduce the negative impact of their operations rather than finding ways to cure that impact. Companies cannot help in lowering the price of vegetables for the indigent community, but they can certainly develop skills in the youth for gainful employment and for a better future.The thrust on local area development is natural, since industries are located in India on the basis of research of raw market availability, transportation costs and, crucially, the co-operative attitude of the local government. Intimate knowledge of the needs of the locality would even be beneficial. Hence, localization of CSR is a workable idea.Rather than attracting more investment to an already developed district, this provision would encourage the government to allot spaces in diverse locations, taking development concerns into account. These would be long term projects, spanning decades.

Companies are unlikely to respond quickly to the threat of having to disclose their planned and actual expenditure, and widespread underspending will look like failure. On the other hand, if spent, the money involved (which is equivalent to about 12 percent of this year’s Ministry of Rural Development’s budget) would flood the existing collection of NGOs, social businesses, and others working outside of the state on social causes with new cash, attracting inexperienced and diversely motivated new entrants. Existing NGOs often struggle to build the human capital and operational capacity to handle the current private social budget from philanthropy, and few have systems in place to track, much less report social impact. An exclusive list of approved social activities would become a focal point for lobbying and newer, more creative approaches could easily be left out.

At the same time, however, the companies that fall under the CSR provision display some of the key ingredients for social innovation and an ability to convert cash into development: decentralised decision-making, institutionalised attention to at least some forms of need, demonstrated capacity for adaptability, and the clear ability to move from idea to implementation. With the right oversight, this potential could flourish into some much-needed caulking around the cracks of an imperfect state. Seizing this opportunity will require an uncharacteristic degree of government restraint, as well as more strategic policy investment in strengthening systems for disclosure.

The current perfunctory disclosure clause handicaps even this nascent potential for public oversight to motivate social effort. Spending obligations are highly concentrated among companies that face limited risk that customers will shun them for absent or inept CSR. More than half of the profits after tax available from companies on the 2012 Economic Times 500 list of India’s largest listed companies are in industries that face limited competition to meet critical needs (such as shipping or refining), don’t depend on everyday goodwill for their brand (such as steel or cement), or simply have a reputation that dwarfs attention to CSR (such as mining).

What is more, three-quarters of India’s companies are family-owned or promoted, according to Chandrajit Banerjee, Director-General of the Confederation of Indian Industry, and it’s hard to see how disclosing failure to meet CSR spend at the Annual General Meeting of this audience would be a threat. This context will evolve—the Companies Bill has new protections for minority shareholders which may encourage more diverse investors to jump in, and India Inc. increasingly attracts institutional investors known to cry foul—but today it’s a small, friendly club.

Media and public watchdogs may reach into this world once in a while to check on CSR progress, but the current disclosure mandate does not make their lives easy. Extracting annual reports from unenthusiastic corporate officers is investigative journalism at its most tedious. Downloading, decoding, and aggregating insights from online annual reports in PDF formats to make some sense of the trends will also be a labour of love. Prominent, publicly listed companies may see more pressure, but they also have larger public-relations cells.

But the CSR provision could still be just the nudge that India Inc. needs to think clearly about how it might contribute to social development. Total disregard of the mandate is a more active opt-out than just casual procrastination: it requires more intentional consideration and rejection of the possibility of organisational philanthropy. Some business leaders may treat the mandate as just so much paperwork for consultants, but many may actually take the time to think about how they can apply their skills, and the organisations they lead, to achieve more than simply profit. It is easy to stereotype the “captains of industry” as a bunch of hard-hearted capitalists, but equally easy to draw up a long list of counter-examples.

The result could be lots of minds at work, many of which have an understanding of process, project management, and scale that complements the passion often seen as the highest virtue in the social sector, leveraging flexible organisational structures, processes, and hiring possibilities towards new ends—in short, the kind of capacities we wish the public sector had, but which it is still, well, acquiring. The logic of a market in which development becomes like another product is certainly not a replacement for higher forms of social contract, but it does offer some prospects for loose coordination among particular projects as companies seek to create a better version of social impact than what’s already being produced by someone else. Large scale CSR could, for example, complement public efforts by offering innovative proofs of concept for local and other governments to replicate and scale. It could address interlinked problems that cut across the fragmented public sector response. It’s worth giving the approach a chance.

The trick is to offer that chance without relaxing expectations. The governance of CSR needs to balance accountability (for the incentives) with freedom (for the creativity). Dispersed social oversight does just that. Just as many minds are more likely to innovate than one, many judges are more likely than one to see the good and accept diverse versions of it. Public sentiment matters more and more in the age of social media; and stronger disclosure can leverage this trend. India could also adopt a clear taxonomy for social outputs, for example, so that a “job” or “energy savings” mean the same thing whenever they are claimed. International standards such as the Impact Reporting and Investment Standards (IRIS) allow global comparisons and benchmarking and are regularly updated as well as open to public comments and addition. The ministry could mandate the format for disclosure to ensure that it is available in electronic, machine-readable, manageable and analysable formats, making it easy for watchdogs to find and report patterns for the general public.

Tightening the definition of “social” and then blindly enforcing the mandate could undermine all this. The journalist R Jagannathan pointed out in MoneyControl that, as is, “the law has no problems whether a company uses profits to help commercial sex workers in Mumbai or build places of worship as part of CSR”; it was meant as a critique, but it should actually be the aspiration—as long as those who care about each cause can track and reward effective work.  

Source:: http://caravanmagazine.in/perspectives/social-net-worth#sthash.W4jqoIH0.dpuf

Wal-Mart in India: A Case Study

Ananda Das Gupta

I

On 27 November 2006, Bharti Enterprises Ltd (“Bharti”), one of India’s principal business groups, and American retail giant Wal-Mart Stores Inc (“Wal-Mart”), entered into a joint venture with equal partnership for both companies. The partnership would give Wal-Mart access to the highly regulated Indian retail market, which was valued at US$320 billion. Bharti would own retail shops under the Wal-Mart franchise and the companies would jointly operate in areas of the Indian retail industry which were accessible for foreign investment, such as logistics and cash-and-carry.

This partnership between the US retail giant and one of India’s most successful corporate houses was expected to bring a dose of modernity to the Indian retail landscape. It could be questioned, however, how Wal-Mart would cope with the opposition it faced from local shop owners and civil rights groups given its poor reputation with regard to social responsibility. In addition, the state of the country’s transportation network was very poor and the question remained how Wal-Mart planned to implement its supply chain management model in India.

The growth of the organized retail sector was pushed by significant shifts in Indian population demographics. Major drivers included a large number of working youths with a median age of 24 years (in 2006, more than 67% of the population was aged below 35 and approximately 52% was under 24), growing numbers of working women, many nuclear families living in urban cities and a boom in opportunities in the services sector. This shift in demographics led to an increase in consumer purchasing power and higher consumption spending in India’s retail market. In 2005–2008, the forecasted growth in consumption spending was around 7.1%. Market research firm A.C. Nielsen placed India together with Thailand, Indonesia and China in the top segment of its Aspiration Index, measuring “the relationship between current ownership levels and future intentions to purchase a vehicle ..., highlighting countries of high future demand”. (AC Nielsen Company Website (16 March 2005) “Asians in the Driving Seat for Future Car Ownership”, http://hk.nielsen.com/news/20050316.shtml (accessed 10 July 2009; reference 1).

Media reports speculated that Wal-Mart had proposed an initial investment of US$100 million, which would rise to US$450 million within a short period of time. Because the regulatory environment in India did not allow non-domestic retailers with several brands to sell directly to customers, the companies decided to operate as wholesalers and offer back-end support to new or existing local retailing companies. In addition, domestic retailers were permitted to run stores that sold non-domestic brands under a franchisee agreement with the producers. Wal-Mart and Bharti thus planned to use two different formats for their stores: a franchised retail company and a wholesale cash-and-carry joint venture. With the proposed joint venture, Wal-Mart and Bharti had found an arrangement that would allow the US retail giant to enter the huge Indian retail market.

(Knowledge@Wharton (14 December 2006) “Will Wal-Mart Succeed in India? Perhaps ... But ItWon’tBeEasy”,http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4133(accessed 6 January 2008; Reference 2)

Within the US, Wal-Mart had been the subject of the country’s biggest gender-discrimination lawsuit ever. Women in management positions had been paid nearly US$5,000 less per year in 2001 than men with the same job classification. Wal-Mart had also been prosecuted several times for adopting temporary but significant price cuts to drive out competition, a practice known as “predatory pricing”. Finally, Wal-Mart had been criticised for squeezing suppliers for lower-cost manufacturing without ensuring product quality or safety in certain instances.(Drogin, 2003)

Dealing with India’s unique cultural factors was one of the issues that Wal-Mart and Bharti were facing. In a country with more than 6,000 castes and sub-castes, managing such diversity and heterogeneity was a big challenge for any international company entering this market. According to the opposition party, the left-wing political party and various NGOs, if Wal-Mart were allowed to enter the Indian retail sector, this would ruin the livelihoods of more than 40 million people who depended on retailing.

(Bose, 2012).

II

When viewed in its entirety, marketing is appropriately considered a societal, or national, provisioning system for goods and services. How well such systems currently perform and what could or should be done to improve their overall effectiveness has long been a macro marketing concern (Layton 2007). We will consider specifically a long standing social concern, the future of small scale retailing. Should government try to protect small retailers from being driven out of business by their larger competitors? Those who would have government defend “the little guy” argue that this is simply the right thing to do.

They also maintain that once these smaller firms are gone, there will be no way to protect customers from being exploited by the few remaining sellers. The “pure and perfect” market concept, drawn from economic theory, suggests that markets operate best when there are many buyers and sellers, none of whom is large enough to have any effect on the price at which a homogeneous product is being sold. However, others, including John Kenneth Galbraith (1956), have argued that customers are better served when there are only a limited number of suppliers, each large enough to be able to afford to improve their product offerings. Others have argued that the role of government is not to protect any particular type of competitor, but rather to make certain that markets remain competitive whatever the number and/or size of the buyers and sellers.Whether small retailers should be protected has now become part of the fierce and broad ranging debate over Wal-Mart and “the Wal-Mart effect”. That firm, in a relatively limited period of time, has become the world’s largest business organization. That rapid growth has had a harmful effect on the firms that must compete with Wal-Mart, especially those operating in the small to medium size American communities in which Wal-Mart first established itself. When a new Wal-Mart, often accompanied by other large retailers, opens in a suburban location, long established “down town” merchants are often driven out of business. For this reason, because of concerns about traffic congestion and pollution, and, most importantly, because those who think they would be adversely impacted have been effective lobbyists, many communities have kept Wal-Mart from opening a local branch.

Wal-Mart has also been widely criticized, some would argue unfairly and without justification, for underpaying its employees, for relying primarily on part-time staff not entitled to employee benefits, and for not providing its American employees with health insurance. In addition, the hard bargaining Wal-Mart does with its own suppliers, it is often argued, has required those suppliers to close some of their American plants and to manufacture, instead, in China. Because of its size and business practices, Wal-Mart have almost certainly become, rightly or wrongly, America’s most widely criticized business. On the other hand, consumers throughout the world continue to shop at Wal-Mart and similar mega-outlets that compete primarily on price. By doing so, they save significant amounts of money on each item and can thus afford more of the things they want. Wal-Mart’s supporters believe that the firm is operating as it should and that, as a result, consumers are far better off.

As India grows, driven by its success in information technology and services, there is another revolution waiting to happen in the Retail sector dependent on whether the Government of India can unshackle the various inefficiencies that are keeping this industry constrained. Retail in India is estimated at nearly US$ 400 billion and is growing at a CAGR of 9 percent (AT Kearney GRDI 2010). 96 percent of this sector remains un-organized and constitutes a workforce that have taken to self-employment for daily subsistence due to an overcrowded agriculture sector and lack of employment opportunities for lesser skilled workers in the manufacturing or services sectors.

Food and groceries form nearly 60 percent of India's retailing followed by, among others, clothing and footwear at a distant 9 percent of retail. Despite the size of this market, retail and its food supply chain remains unorganized and inefficient. A lack of investment, technology and process control in the agriculture supply chain leads to tremendous waste accounting for nearly 25-30% of fruits and 10% of grains produced. Also, the related and supporting industries for food processing, cold chains and crafts remain nascent. In a grim reflection on the situation, a politician in India recently remarked that Indian consumers buy shoes in air-conditioned stores but food on the streets. (Das, 2011)

When comparing the presence of Walmart and small traditional stores (STS) in India, how can the institutional context – formal policy and informal constraints – help explain the differences in economic success? There is no lack of academic study on corporate expansion into developing countries, especially the booming markets of China and India. However, what many studies fail to acknowledge is the presence of embedded institutional factors that are tantamount, if not more important, to determining economic performance. Even a recent study done by Chattopadhyay, Dholakia and Dholakia (2010) on the reasons that STS have continued to be frequented in light of corporate presence like Walmart does not go far enough to explain the theoretical role of institutional contexts, choosing instead to focus on anecdotal evidence and interviews.

Walmart’s presence in India today cannot be assessed only by contemporary or economic factors. When using the narrow lens of economic performance via the enforcement of formal rules, it appears as if the U.S. retail giant has run into and will continue to run into very few obstacles on its way to setting up shop in the South Asian country – which is why the contradiction behind the retail giant’s struggles in India continues to be a puzzle. Existing academic literature on the topic simply does not present a holistic narrative behind Walmart’s and other foreign retailers’ struggles. In order to understand the myriad factors at work, both formal and informal, we must study the story of Walmart in India using the concept of institutional contexts.

( Padmanabhan, 2012).

III

The retail industry in India is estimated at about US$ 300 billion and is expected to grow to US$ 427 billion in 2010 and US$ 637 billion in 2015. Moreover, only 3 percent of the Indian retail industry was in the organized sector. Foreign retailers were keen to enter India's rapidly growing retail market. However, the government had permitted retailers of single brand products to own a majority stake in a joint venture with a local partner (with prior government permission). Retailers of multi-brands were only permitted to operate through franchises and licencees, or a cash-and-carry wholesale model.The biggest competitor for Bharti-Wal-Mart is expected to be Reliance Retail, the retail wing of Reliance, which had planned to establish 10,000 stores by 2010. It had already opened 11 pilot stores under the "Reliance Fresh" format in Hyderabad.

A few other Indian retailers felt that the entry of foreign retail giants like Wal-Mart, Carrefour SA and Tesco Plc (Tesco) would result in Indian retailers learning some of the best international practices in retailing. However, analysts noted that the success of the joint venture would depend on how successful Wal-Mart is in building a cost efficient supply chain and sourcing network so that the cost savings are passed on the end consumer through its trademark "every day low price" strategy.

The threats of substitute

The threat of substitute is not very high. As people have to eventually shop at some place for their groceries and items which they would use in their daily life. There is a possibility of substituting brand name items with generic items if the price points do not match.

PEST analysis

Political – The Political situation is a cauldron of controversies, where there is no clear national consensus on organized retail. While many feel that it would benefit retail overall others feel that it would drive out the small retailer. Many have even stronger feelings for entry of international retailers into India. And many feel that this is a backdoor entry of the world’s largest retail store chain into India which still has strict FDI limits in the retail sector.

Economical and Ecological: There are likely to be a lot of economic and ecological effects of this joint venture. The benefits of various vendors would certainly be positive. In addition there would be a positive impact on infrastructure as there would be a requirement of good roads, Warehouse facilities, ports , this would come up with either investment of the Joint Venture or other combination of Private or public partnership.

Social – There would be a strong impact on the social fabric of the nation as the farm sector which supports a large portion of the population would be affected. There would be an impact on the small retailer, and if the impact is even temporarily negative it may have severe social consequences. Many retail stores have seen strikes and protests in India due to the perceived view that it drives out small retailers.

Technology - The impact of technology will certainly be felt in the Joint venture. The best practices globally technologically will enter India through this joint venture. The impact can be unpredictable. The technology in most western countries is often used to reduce manpower. In India, that often is not necessarily the most desirable or viable approach. However in an Interview with Bharti managers many felt that some of the latest technological trends in retail like RFID etc will impact this JV positively.(http://www.ukessays.com/essays/marketing/bharti-wal-mart-case-study-marketing-essay.php ; reference: 10)

From the time Wal-Mart's proposed entry into India came into the news, there were widespread protests from small retailers' groups and the Left parties against allowing the company into India. Opposition also came from business groups and companies which were already operating in the organized retail sector. All of them, perhaps rightly, feared Wal-Mart's formidable competitive strengths. The protesters argued that Wal-Mart was notorious in all its markets for trying to monopolize the retail sector.

The Reason for opposition:

There are several reasons, some fundamental and some superfluous, against Wal-Mart and other large international retailers establishing shops in India.

Calamity for Kirana Merchants

One might wonder why, on the one hand, India is very receptive to the foreign direct investment (FDI) in its manufacturing, information technology, and financial services sectors, but, on the other hand, quite hesitant to encourage the same in its retailing industry? There are about 12 million retail outlets in India which account for 97% of its about $258 billion in annual retail sales (Elliott 2006). About 70 million Indians depend upon these small kirana (grocery) stores, mom and pop shops, and mobile handcart businesses for their livelihood (Institute for Local Self-Reliance, July. 21, 2005). These retailers exist at the end of the distribution chain, selling to the ultimate consumers. Millions of others work as intermediaries between the manufacturers, growers, wholesalers, and the retailers. Wal-Mart's coming to India, endowed with an array of modern equipment, methods, and management expertise will make these intermediaries, retailers, farmers, and manufacturers lose their jobs. According to Guruswamy (2005), eight million people would lose jobs if Wal-Mart or similar stores captured just 20 percent of the retail trade in India (Elliott 2006). These statistics are frightening for a country which is already suffering from high rates of unemployment and poverty.

Threat to Large Indian Retail Firms

Pantaloon, Shoppers' Stop, and Westside are among a very small number of large chain retailers which already operate in different parts of India. The Pantaloon group, the largest discount retailer in India, includes Pantaloon apparel stores, Big Bazaar hypermarkets; and Food Bazaar. They Indian mega-retailers feel threatened by the entry of Wal-Mart and other global retailers who want to start their operations in India. An average-sized Wal-Mart store operates with 200,000 square feet of space. Pantaloon's flagship Big Bazaar operates with only about 50,000 square feet of space (Reddy 2005). It would be like David versus Goliath. It may be noted that Bata, Godrej, Hero, Malhotras, Raymond, Reliance, Shopper's Stop, and Tata companies are among the other growing native large retail chains in India.

Unions Oppose the Anti-Union Retailer

The Indian labour unions are against Wal-Mart coming to India because Wal-Mart is against unionization. In the U.S., its home country, it has prevented its employees to form any union. It, however, is unionized at one of its stores in Canada. In China, under pressure from the All-China Federation of Trade Unions and the Chinese government, Wal-Mart agreed to allow unions if the Chinese workers would request to join one (BBC News 2004; reference 14).

 
However, unlike Canada, workers are much poorer in India; and unlike China, India is a democracy. Labor in India is more organized and powerful as compared to its counterpart in many other countries. For example, according to the Indian labor laws, any company employing more than 100 workers cannot fire employees without first obtaining government permission to do so. Likewise, no worker can be made to work more than 75 hours of overtime a quarter (Rai 2006).

It is not uncommon for labour unions to go on strike when it has not been able to reach an accord with the management over the issues under dispute between them. At times, there are country-wide labor strikes involving millions of workers. Workers also resort to slowdowns, dharnas (sit downs), walkouts, and strikes. Most labor activities against management relate to the issues of wages, benefits, pension, fair-treatment, and job security. Generally, these activities are peaceful. Occasionally, however, they do become violent and destructive. Likewise, the management may also resort to plant closeouts to contain its costs and protect its property. It may be pointed out that while the foreign companies in India are struck less often than their Indian counterpart, they do get their share of the labor unrest. The two-week strike by workers at the Toyota Motors plant in Bangalore and another strike by workers at the Honda Motorcycles & Scooters' plant in Gurgaon, near New Delhi, are just two examples of labour problems at foreign companies in India.

In order to capture the Indian market wal mart is trying to introduce low price strategy on their products which inturn affect the other local businesses. Local traders later also should implement this pricing strategy which may affect their profit margin. But in return the consumers may benefit a lot from this. Local traders from the major of the cities were opposed the entry of retail giant Wal-Mart especially in Delhi because it will affect the local traders or business man and also for small retail shop. They have the issue of domestic traders will be totally neglected. By letting Multi Brand retail giants like Walmart to directly and indirectly penetrate into the Indian retail sector is violative of Articles 14, 19 and 21 and the Directive principles of State Policy listed under Articles 38(1) and (2) and 39(a) and (c) which direct the State to ensure the welfare of the people and strive to minimize the inequalities in income.

One of the biggest arguments in favor of Walmart has been that it will provide additional employment. Entry of big retail is touted to create millions of additional jobs. This again is not supported by experiences in the west. Indian Retail largely dominated by family owned Kirana stores already employs more than 4 million people. In addition to these a significant number of people work in the supply chain and distribution areas. Walmart is expected to create but does not consider the jobs that will be lost due to shutting down of thousands of Kirana stores. What this means is that in the near future an owner of Kirana store may end up becoming a minimum wage labourer in a Big Box Retail store!

It is argued that Walmart will help get workers get better pay. This is far from the truth. Walmart is a cost competitor driving down costs of suppliers, farmers and employees to ensure low prices can be offered to consumers and large profits for the shareholders. Walmart is known to provide one of the lowest paying jobs. Empirical evidence and studies show this:

1. Wal-Mart’s average annual pay of $20,774 is below the US Federal Poverty Level for a family of four. (http://pubadvocate.nyc.gov/news/2011-01-11/new-study-wal-mart- means-fewer-jobs-less-small-businesses-more-burden-taxpayers; Reference 16)

2. Wal-Mart employees earn 20 percent less than retail workers on average.

3. Walmart not only drives down wages of its own employees but also reduces wages in supporting industries. National Employment Law Project (NELP) study shows that Walmart’s outsourcing depresses wages In U.S. Warehouses

This is one of the biggest canards being spread by the government. India is a signatory to the Bilateral Investment Promotion & Protection Agreement (BIPAs) which makes it mandatory for the state governments to let the likes of Walmart operate. By eliminating middleman, distributors and small time retailers, Walmart has become the single biggest middleman gobbling away all the profits from the farm to the fork, thus helping the founder Sam Walton’s family earn a combined wealth in excess of $100 billion which is roughly equal to the wealth of the bottom 40% of Americans combined. Do we in India want emulate the US and help accelerate this wealth of the Waltons at the cost of our farmers, consumers and Kirana shop owners is the big question.

 Further, one of the arguments in favor Big Box Retail has been that this will eliminate multiple layers of middlemen thereby giving better prices to the farmers. In theory this does sound very plausible, but in practice by eliminating layers of middleman Big Box retail manifests itself instead as the single biggest middleman leading to an Oligarchy – very few Big Box retailers providing limited choice for both the farmers and end consumers. Empirical evidence in developed countries tells us that in reality the farmers get squeezed by Big Retailers and get paid very poorly for their produce:
Farmers in Punjab have supposedly benefited by indulging in Contract Farming for Bharti-Walmart, PepsiCo(Lays Chips) etc. But there have also been reports of big firms entering into contract farming agreements with the farmers and then going back on their commitment when the produce is available cheaper from other sources.
(http://ageconsearch.umn.edu/bitstream/62124; Reference 17)

Future Scenario

Consumers are the key for the success of any business, and the taste and preference of customers varies from one country to another one religion to another and one culture to another. It is most important to be successful for all companies to completely understand the needs and demand of each and every customer. Wal-Mart believes in standardization approach in their global operation.

By doing that it has got success in those countries which cultures are similar to the American culture, but failed in that country where that format was not accepted by the local customers. To be successful in India where cultural difference is a major factor, Wal-Mart has to make suitable change in their business strategies to meet the demand of the consumer of India. It has to learn from each culture about their food habit, clothing pattern, buying ability and accordingly has to set up its business plan. A joint venture with an Indian company like Bharti is a positive strategy towards the direction of success.

In addition to be successful in India, apart from low prices Wal-Mart has to concentrate on few other key issues which can lead them to achieve its desire goal in India. Those are:

• Maintain a mutually understanding, effective and efficient working partnership with Bharti Enterprise and
• Has to give more importance in market research to understand the domestic market and Indian consumer type to fulfill their needs and demand accordingly.

(http://www.americanessays.com/study-aids/free-essays/marketing/challenges-wal-mart-in-india.php; Reference 18)

At the same time Wal-Mart should start a campaign to help the “little guy.”  In a campaign of this sort, Wal-Mart could focus on promoting the other small specialty stores in their community.  They could help advertise for local shops that do not sell competing products, but complimentary ones.  Instead of taking sales away from themselves, Wal-Mart could change their image to one of a company that cares about the community.

**********

Reference:

1. AC Nielsen Company Website (16 March 2005) “Asians in the Driving Seat for Future Car Ownership”, http://hk.nielsen.com/news/20050316.shtml (accessed 10 July 2009;

2. Knowledge@Wharton (14 December 2006) “Will Wal-Mart Succeed in India? Perhaps ... But ItWon’tBeEasy”,http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4133(accessed 6 January 2008.

3. Drogin, R. (2003) “Statistical Analysis ofGender Patterns in Wal-Mart’s Workforce”,Submitted as an expert report in Dukes v. Wal-Mart Stores

4. Indranil Bose: WAL-MART AND BHARTI: TRANSFORMING RETAIL IN INDIA; Asia Case research Centre, University of Hong Kong, 2012

5. Layton, Roger 2007 Marketing Systems--A Core Macromarketing Concept. Journal of Macromarketing 27 (September) 227-242.
6. 
   
7. Galbraith, John K., 1956 American Capitalism: The Principle of Countervailing Power. Boston: Oxford University Press.

7. Das, Ashish Kumar.(2011),  Should India open foreign direct investment in multi-brand retail : a case study using the Wal-Mart effect; MBA Thesis; Sloan School of Management; Massachusetts Institute of Technology, Sloan School of Management, 2011.

8. Chattopadhyay, A., Dholakia N., & Dholakia, R.R. (2010, December). Standing Up to Goliaths: How Small Traditional Stores Influence Brand Choices in India. William A. Orme Working Paper Series 2010-2011, 7. Kingston, RI: University of Rhode Island, College of Business Administration.

9. Padmanabhan , Mallika,(2012). Walmart’s Struggles in India: How Institutional Contexts Can Limit Foreign Entry; http://gnovisjournal.org ; Volume XIII Issue I Fall..

10. http://www.ukessays.com/essays/marketing/bharti-wal-mart-case-study-marketing-essay.php

11. Elliott, John (2006). Why there are no Indian Wal-Marts, Fortune, May 25, 12:09 PM EDT. http://money.cnn.com/magazines/fortune/fortune_archive/2006/ 05/15/8376903/index.htm

12. Guruswamy, Mohan (2005). Is Wal-Mart what the doctor prescribes? Hindu Business Line, Friday, May 27.

13. Reddy, Balaji (2005). Wal-Mart assault: India may forced to open its protected retail sector, but Wal-Mart for the first time will face real communists in India, India Daily, July.

14. BBC NEWS (2005). Levi's told to pay Mexican damages, Monday 7 March, 22:14 GMT. http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/ hi/business/4327713.stm.

15. Rai, Saritha (2006). Labor rigidity in India keeps firms on edge, International Herald Tribune, Internet Edition, February 9. http://www.iht.com/articles/2006/02/09/business/toyota.php

16. http://pubadvocate.nyc.gov/news/2011-01-11/new-study-wal-mart-

     means-fewer-jobs-less-small-businesses-more-burden-taxpayers

17. http://ageconsearch.umn.edu/bitstream/62124

18. (http://www.americanessays.com/study-aids/free-essays/marketing/challenges-wal-mart-in-india.php

 A Case Study on Saradha Group scam: the bad drives out the good the Ponzi way?

Ananda Das Gupta

I

In connection with Saradha scam in West Bengal recently, a number of people have commented that a root cause is the lack of availability of proper financial services. If financial inclusion had been achieved then people would not have to turn to deposit outfits like Saradha. Some articles explicitly claimed that the Reserve Bank of India (RBI) was directly responsible for such scams because it hadn’t allowed the expansion of banks. While it may be true that India has fewer banks than it needs but the idea of this being a root cause of Saradha-type scams is pure bunkum.

Historically, it has often been said that bad money drives out the good. In a somewhat similar way, bad financial services drive out the good. Could it be that all those people who put money into Saradha wouldn’t have done so if they had a bank in their neighbourhood? Very unlikely. A lot of the deposits seem to have come from towns where there would have been banks. Moreover, almost every ponzi scheme that has come to light in the last few years has actually flourished in towns and cities. The investors who fell for StockGuru or the Emu farms or other schemes all had access to legitimate alternatives.

Fraudulent schemes will always drive out the legitimate ones because they have many advantages that the legitimate ones can’t match. They will promise much higher returns since the returns are fictional anyway. They spend much more on sales commissions, on offices, keeping politicians happy and getting media coverage because they can just dip into the deposited money for all these expenses. Therefore, even if legitimate financial services are available passively, they won’t be able to compete. 

For example, the post office offers excellent schemes with a huge reach in rural and semi-urban areas but can it compete on sales and marketing? In fact, when the government eliminated commissions on PPF and other deposits in post offices in 2011, it effectively eliminated whatever little sales muscle there was. It’s clear that the mere presence of legitimate services cannot compete with fraudulent ones — the latter have to be stamped out proactively.

Among the many bizarre stories circulating about  Sudipto Sen is that he was forced to get his face reconstructed by plastic surgery after being mauled by attack dogs. Sen was born Shankaraditya Sen and got involved with the Naxalbari movement in the 1970s and was even jailed in 1971-72. In the late 1990s, he resurfaced as Sudipta Sen. With a new identity, Sen started as a real estate broker in the late 1990s in Kolkata. The money-circulating schemes began in the mid-2000s. This eventually morphed into nearly 100 companies, including his flagship Saradha Realty India, launched in 2008. Some of his other businesses were Saradha Properties, Saradha Biogas Production, Saradha Multipurpose Himghar, Saradha Livestock Breeding and Saradha Ad Agency.

II

Suicides, thousands of duped investors, hundreds of laid-off journalists, bickering politicians, protests slack regulation, one suspected mastermind arrested: it’s Ponzi scheme time in West Bengal, and it looks likely that little will change after the drama ends. The latest fleecing of poor and middle-class investors brought in an estimated $730 million, according to media reports, though public interest litigation filed in the Calcutta High Court by one lawyer says the amount is as high as Rs. 300 billion. ($5.5 billion) The head of the Saradha Group and accused mastermind of the scheme, Sudipta Sen, was arrested in Kashmir on April 23,2013 after two weeks as a fugitive. He has maintained his innocence, and reportedly threatened suicide, saying he might not be able to repay investors.

Sen started out as a small-time property dealer in the late 1990′s in Kolkata. His Saradha Group in the past decade had interests in real estate, tours groups and newspapers and television stations and eventually owned nearly 100 companies. Data from India’s Ministry of Corporate Affairs reveals interesting details. Many were incorporated in a one-week period in January 2011. They shared an address: 455 Diamond Harbour Road, Behala, Kolkata. They each listed working capital of Rs. 5 lakh each ($9,196). Their email addresses were the same. India’s market regulator, the Securities and Exchange Board of India, began investigating the Saradha Group in 2010.Three years after its investigation began, SEBI on April 23 ordered the company to pay back investors in three months. It has threatened to start a criminal case if investors don’t get their money back, according to NDTV. West Bengal sought Sen’s arrest, and the Congress Party has asked for a federal law enforcement investigation.

Here is how Saradha allegedly presented the scheme, according to NDTV: glossy brochures, abnormally high returns of 15 percent to 50 percent, an estimated 250,000 to 350,000 people investing their money and bringing others on board for 15-percent to 40-percent commissions. Starting amount for investment: as little as 100 rupees ($1.83). Also: promises of land and holiday packages. The scheme collapsed, NDTV said, as some policies matured and the group couldn’t pay up.

The responsibility for stopping such schemes lies with the state government, not the regulator. See this excerpt from an article in The Hindu Business Line. While SEBI investigates “Collective Investment Schemes,” the paper reported, state governments regulate the “chit funds,” or group savings funds that the Saradha Group used in this case. And the investigation has taken plenty of time to get anywhere.

West Bengal politicians have taken less action, and are accusing each other of ignoring the problem instead. The Left Front blames the Trinamool Congress for helping this group to flourish, while the government of Chief Minister and Trinamool leader Mamata Banerjee castigates the Left Front for allowing “cheat funds” to exist. Trinamool has proposed a 10 percent tax on cigarettes to raise money for a Rs. 500 crore ( – actually $92 million. Editor’s error.) investor relief fund.

“All political parties are involved, at least parts of it — that is, individuals. … They are of course to blame,” said economist Avirup Sarkar of the Indian Statistical Institute. “In West Bengal, lots of people have gained from such schemes and they have made fortunes. Their names will come out eventually. Now we see the usual blame game between political parties. That is not going to change the situation. Poor people have lost money and that is not going to come back.”

Nor are their jobs. At least 10 Saradha Group-owned newspapers and television channels in West Bengal and the neighboring state of Assam have shut down in the past month. Did the journalists know that they were financed by a Ponzi scheme?“Yes, we knew,” said one newspaper journalist who lost his job when the papers closed. He declined to be identified to avoid souring his future job prospects. “But they were paying good money, and we never thought that they would wind up the media organizations so soon.”

Others – poor people – reportedly killed themselves after losing most of their money in the scheme. What drew them to it in the first place? Sarkar said that the typical reason is financial illiteracy. And a journalist who works in the Burdwan district of West Bengal, where two people killed themselves because of the scheme’s failure, said that the temptation is too great to resist.

“Poor villagers find it much easier to invest in these schemes as they do not require too much documentation work, unlike opening a bank account or an account with the local post office,” said the journalist, who declined to be identified. “Also, the high interest returns are a lure.”

While the Saradha story has made plenty of headlines, it is far from the only Ponzi scheme that has surfaced recently. In March, India’s corporate affairs minister Sachin Pilot told Parliament that there have been complaints against 87 companies across India over Ponzi schemes. As many as 73 of those were from West Bengal. Ten were Saradha Group accusations, leaving another 67 to tackle. With the time it took to figure out that anything was wrong, it seems like defrauding investors may remain a safe bet for a while.

III

The success of Ponzi schemes targeting low-income individuals is seen by analysts as indicative of broader failures in India’s banking sector.Banking penetration in India is estimated to be 52 percent among middle- and high-income groups, but only 5 percent among low-income people, according to numbers cited by banking industry officials.It is estimated that only 57 percent of India’s population has access to bank accounts, 13 percent have debit cards and 2 percent use credit cards, Dun and Bradsreet, a research firm, reported in 2011. 

“This is a huge problem," said Ramnath Pradeep, former Chairman of Corporation Bank, one of India’s largest public-sector lenders. “The rural poor have very few options available to invest and often end up falling prey to dubious investment schemes. India urgently needs more banks especially in the rural sector,” Pradeep said. Regulators have been closing down companies considered unfit to run investment schemes, but experts believe that desired results will take more time.India is home to more than 12,000 registered financial services companies and monitoring the activity of each of them remains difficult. “But there have been improvements and India’s banking regulations have been changed several times to encourage financial inclusion,” Pradeep said.Between 2011 and 2012 deposits in India’s commercial banks grew at 18.3 percent, and lending has gone up by 22.9 percent, Dun and Bradstreet reported. Average population per branch has also improved from 14,000 in 2010 to 13,466 in 2011. Under India’s revised banking policy, banks have been asked to open at least 25 percent of their new branches in rural areas.

While, market regulator Sebi is probing the Kolkata-based Saradha group, it is time to ponder at what RBI can do to deter recurrence of such Ponzi schemes or misuse of funds raised by street-corner chit fund companies in the country.In a country of 1.2 billion population, every second person requires money and sometimes more than others can imagine. The chit-fund business has grown since the 1970s as a major corner-house meeting where one can raise funds for daily business needs. Every shop owner in India knows how to make use of money from chits than visiting banks and getting loans. Thanks to strict RBI stipulations, money flow from the banks to the needy corner-shop owners is still a herculean task making it easy for microfinance banks to reach them.Not for long and thanks to Vikram Akula, the founder and former chairperson of SKS Microfinance, who misinterpreted Bangladeshi economist and Nobel Laureate Muhammad Yunus's Grameen model of microfinance in his rush for numbers that the model went bust, and consequently brought forth a near-restriction on the business process of microfinance in India. 

IV

Despite some movement on reform, critics believe the combination of endemic corruption, the greed of investors demanding high returns and a weak banking sector in rural areas mean the problem could get worse.“These scams happen because smaller investors fall for the high returns,” said Ashis Biswas, a senior journalist. Even with access to bank accounts, India’s poor may have little to cheer about. For more than five years, inflation has been close to 6 percent in India, while average annual returns on bank deposits have been between 8-9 percent, reducing real income significantly. The worst affected are India’s poor, who often live on less than $2 a day.

At a time when it looked difficult to defraud the public in a modern, well-connected society, the Kolkata-based chit fund group proved otherwise. The Saradha group of companies were running openly under political patronage and the current exposure obviously attracted a knee-jerk reaction from the Trinamool Congress leader to set up a fund to give instant relief, ironically with the additional tax money collected from the smokers.

 The case is ironic but not rational. The society or tax-payer at large cannot always foot the bill of fraudulent players in society. Though chits come under the state list, the Centre and the RBI cannot wait for such scams to dent our strong unitary financial supervision practised since 1935. When microfinance players can be curbed with an iron hand, why not the chit fund organisers? The question should be how soon than when?

***

ETHICS IN BUSINESS: Ananda Das Gupta

We are almost bound to welcome the New Paradigm in Business because it opens the path for a decisive step forward in evolution from an authoritarian, mechanistic, Taylorian era to a freer and a more humanistic ethos in business. But even while the New Paradigm values are spreading fast and getting established in business, we have to think ahead and visualize the next stage in the evolution of business. The crucial question we have to ask is what the highest potentiality of humanism is, or in other words, what is the highest potential in man and how to manifest it in the individual and corporate life, especially in business? Some ideas can be put forward, we believe, as a New Paradigm for Management with Positivism (NPMP):

A Holistic Approach to Management

·           Managing others

·           Need to play one’s role well

·           Need to understand the importance and place of one’s role

·           Need to understand and function within a proper hierarchy

·           Need for common and individual goals

·           Need to ‘give’ and ‘take’

Value Based Administration: To add value to administration an administrator should:

·           Possess strategic thinking to integrate one’s region with the nation

·           Recognise the world beyond one’s office and  face its challenge

·           Understand society’s goals

·           See people as potential and strategic resources and mentor them  accordingly

·           Nurture belief in value adding

The Real Need

·           Hierarchy should be replaced by self managing structures such as (a) Networks; (b) multidisciplinary teams (c) Small action dyads

·           Information dissemination should be a routine work

·           Delivering service should be effective in terms of its cost, quality and quantity.

Working with Others

                    

·           Empathy

·           Team Work

Modern business philosophy has a certain viewpoint or perspective on human potential based on the secular humanistic values of the west and the scientific theories on the nature of man and his evolution. We are presenting a complementing perspective based on the values of spiritual humanism and the spiritual vision of the Vedantic sciences of the East. In general most of the conceptions on spirituality emerging in business and management denote some form of moral, religious, social and psychological fulfilment, like creativity, self-expression, sharing, charity or community service.

Business cannot be abstracted from the society in which it exists and functions; it is an integral part of the human society. This ‘holistic’ view of business is another perception emerging in modern business philosophy. And business happens to be the most dominant and representative organ of the modern society. So in an organic vision of business it has to be viewed as an integral part of the economic, technological, social, political and cultural environment in which it functions. And this environment, and the forces of the environment, at once influences and is influenced by the social organs which constitute it. But our focus will be not on the environment that belongs to the past, but of the new world of the future which is struggling to emerge from the ashes of the past and the facts of the present.

There are three major factors or forces, which, we believe, will shape the new world of the future. First is the urge for a new synthesis in thought and action; second, in the external world, the development of Science and Technology; third in the inner-world, mapping a new horizon for the development of consciousness.