Causes of Sickness among State Level Public Sector Enterprises(SLPEs) of Kerala : Some Lessons
Author : Dr. Baby MD, Reader, Reader Research and PG department of Commerce, St Dominic’s College, Kanjirappally
Industrial sickness is a global phenomenon. It adversely affects industrial production, optimum resource utilization and employment (Ministry of Industry, 1993). As companies fail, employees lose employment; other firms that are suppliers or customers are forced to make difficult adjustments to their operations; governments suffer from reduced tax revenues and increased social security costs. The heavy social and economic costs of company failure can be reduced through the implementation of proven company turnaround measures which would reverse sickness and promise a new life to the failing company.
The State Level Public Sector Enterprises are a dominant part of the public enterprise system in India. The SLPEs are regarded as a major instrument in the hands of the State Governments to hive off their commercial activities organized departmentally. However, their financial performance has been disappointing. They have become a ‘major cause of the growing fiscal deficit’ (PC, 2002, p. 23). The macroeconomic performance of the State PEs (PC, 2002) reveals that despite their satisfactory growth in terms of investment, their financial performance was unsatisfactory. Instead of earning a decent rate of return, these enterprises registered a compound annual growth of 17.36 per cent in their net losses. The manufacturing and utility category of enterprises presented a very bleak picture in terms of their financial performance and investment use (PC, 2002).
The State of Kerala has the largest concentration of SLPEs in India with 113 out of the total 1070 SLPEs in India (about which information is available). The performance of the SLPEs of Kerala is also disappointing. The number of profit-making SLPEs is only 38. The SLPEs together made a net loss of Rs. 221.69 crores as on 31st March, 2005 (BPE, 2006).
As per RBI data, at the end of March 2002, there were 1,77,336 units identified by banks as “sick” having outstanding dues of 4,81,895 crore. Of these, 1,67,574 were non-viable units with outstanding bank credit of Rs. 4,14,676 crore. Similarly, according to the Department of Public Enterprises (DPE, 2005), as on March 31, 2004, 88 Central Public Sector Enterprises had incurred a loss Rs. 8399 crore. 70 CPSEs had been registered with BIFR owing to complete net worth erosion.
In Kerala out of 113 SLPEs only 38 companies could make profit in 2004-05, (BPE, 2006). Of the remaining units, 49 SLPEs reported making a total loss of Rs. 501.50 crore and 26 SLPEs were non-working due to their huge financial losses and unviable businesses.
Review of literature
Numerous units in both public and private sectors went sick, closed down and were left idle for years, thereby putting into disuse a huge amount of capital assets of the country. The tardy performance of PEs over the years invited considerable attention from different quarters. Government machinery including the administrative ministry, government departments, Planning Board, Reserve Bank Of India, Financial Institutions, politicians and academic community have invested considerable time and energy to unearth the reasons for poor performance. They brought out the important causes of industrial sickness which were considered here for detailed study.
Method
The study covers 10 selected companies in the manufacturing category which reported a loss for five consecutive years during the period 1991 to 2005. Total 49 senior executives were interviewed and responses were collected in a structured interview schedule. The collected data were then analysed using appropriate statistical tools.
Results and Discussion.
The data for the came from a survey of 49 respondents belonging to 10 selected companies. The possible causes of sickness suggested in the literature were considered through 37 selected variables and the respondents were requested to state their opinion on the relative contribution of these variables to the sickness of the companies they belonged to, using a five point-scale: 1 for ‘Small’, 2 for ‘Moderate’, 3 for ‘Medium’, 4 for ‘Great’ and 5 for ‘Greater’.
The Factor Analysis procedure has isolated 11factors that brings sickness in SLPEs of Kerala which are given below( 78.95% variation) in the order of their significance.
1 Absence of professionalism
2 Inadequate finance / improper financial management
3 Project Management deficiencies
4 Management handicapped with unruly labour & scarce materials
5 Confused leadership leading to delayed decisions
6 Status of a government department.
7 Weak competitive positioning
8 Shaky control over staff
9 Changing economic conditions
10 Complacency and resistance under government umbrella
11 Lack of spending on key areas like technology and personnel
Conclusion
Government as owner and regulator of the economy wants a strong public sector. The growing menace of sickness in PEs reduces the government’s capacity to influence the economy and waste valuable public money. Turnaround attempts aim at giving another chance to sick PEs to reverse their sickness and stand on their own feet. Any turnaround effort requires adequate attention to be given to the factors that have led the company to sickness. It may help the management to devise suitable turnaround measures that can suitably ward off the causes of companies’ sickness.
Friday
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
_____________________________________________________________________________
RECTIFYING THE GLOBAL ECONOMIC IMBALANCE
Abstract
The article analyses the logic and feasibility behind the framework put forward by US at the G-20 meet to remove the ‘imbalances in the global economy’, which was one of the critical causes for the current global economic crisis.
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
_____________________________________________________________________________
RECTIFYING THE GLOBAL ECONOMIC IMBALANCE
Abstract
The article analyses the logic and feasibility behind the framework put forward by US at the G-20 meet to remove the ‘imbalances in the global economy’, which was one of the critical causes for the current global economic crisis.
_________________________________________________________________
The last meeting of the heads of states of G-20 countries discussed a framework put forward by the US on building a ‘balanced global economy’. It proposes to create a framework to shrink the huge current account surpluses in countries like China and to boost savings in debt laden countries like US. It also suggests a greater role for International Monetary Fund (IMF), in advising the member nations to ensure compliance with the framework. The world economic growth in the past few years has been led by the consumers in the US and the exporters in countries like China, Germany and Japan.
Now the world economy has reached a juncture where it cannot afford to carry on the practices of the past. It’s in this context that US has raised the issue before the G-20. British Prime Minister Gordon Brown had echoed the same solution at the previous G-20 meet where he remarked “Now in these challenging times, it makes sense for countries with large deficits to boost exports and countries with high current account surplus, to increase demand for goods and services from other countries.”We will first analyse whether US has sufficient logic in its new argument.
Rationale behind the proposal
Firstly, US runs trade deficit with all its major trading partners, most importantly with China. This was possible because of the huge consumer market in the US and dollar’s status as the world’s reserve currency.
The last meeting of the heads of states of G-20 countries discussed a framework put forward by the US on building a ‘balanced global economy’. It proposes to create a framework to shrink the huge current account surpluses in countries like China and to boost savings in debt laden countries like US. It also suggests a greater role for International Monetary Fund (IMF), in advising the member nations to ensure compliance with the framework. The world economic growth in the past few years has been led by the consumers in the US and the exporters in countries like China, Germany and Japan.
Now the world economy has reached a juncture where it cannot afford to carry on the practices of the past. It’s in this context that US has raised the issue before the G-20. British Prime Minister Gordon Brown had echoed the same solution at the previous G-20 meet where he remarked “Now in these challenging times, it makes sense for countries with large deficits to boost exports and countries with high current account surplus, to increase demand for goods and services from other countries.”We will first analyse whether US has sufficient logic in its new argument.
Rationale behind the proposal
Firstly, US runs trade deficit with all its major trading partners, most importantly with China. This was possible because of the huge consumer market in the US and dollar’s status as the world’s reserve currency.
Now, the US consumer is unable to spend unlike the past. Consumer spending, which accounts for nearly two thirds of the US economic activity, has been badly hit because of the current crisis. Though consumer spending has slightly recovered, it is nowhere near its peaks. The chances of jobless recovery add on to the view that the US consumer spending wouldn’t reach the pre- recession levels in the coming years. Therefore, US now feels that the world’s dependence on its consumers no longer makes economic sense to it. US needs the consumers in other major markets to provide it market for its goods.
Secondly, US feels that it hasn’t been able to tap the market potential in other countries, like the way they have used its domestic market. US has been consistently critical on China in this regard. It has often accused it of keeping the value of Yuan low, to boost its exports. US President Barack Obama had recently added Germany also into this list by calling it as a country that exports too much and imports very little. Analysis shows that US has got backing for its argument. The trade data of China shows this clearly. China exports a lot to US and imports very little from it. US lags behind many other countries, when it comes to exports to China.
Why US may find it tough?
US may have a point. But is it possible for it to ‘rebalance the world economy’ in its favour at this juncture? Its prospects look grim. There are certain critical reasons why it would find it tough.
Firstly, the framework may not win the support from China, which has a critical clout in the world economy now. US is dependent on China for funding its huge current account deficit. China is still the largest buyer of US debt. The Doha round of World Trade Organization (WTO) has been in limbo due to the objections from the emerging market economies led by China and India. US therefore cannot pressurize China into changing the current system. Even the European Union may find the proposal tough. The US trade deficit with European Union has gone up by 76% over the last month from $4510mn to $7958mn. It may not support their interest if they go ahead and support the US proposal as they would be risking their future prospects for the benefit of US.
Secondly, the suggested framework seeks to empower the IMF in advising the countries on policy decisions. It suggests that IMF should advise G-20 every six months from the end of the current year. The success of the proposal is dependent on the kind of response shown by countries like China and India. They have been consistently seeking reforms in the IMF, giving them more representation in its decision making forum.
It has to be noted that China had serious problems with IMF in 2007. It had blocked the IMF’s annual assessment of the economy, when it changed its exchange monitoring rules in 2007. China was under the view that it was an attempt by US to push for a stronger Yuan.
Thirdly, US lacks the power to be an export powerhouse now. Over the last few decades labour oriented manufacturing has been outsourced to countries with lower labour costs. A recent report by Newsweek magazine carries a report that US is losing the edge it had in high tech manufacturing. This would add on to the troubles before US.
Conclusion
So, the new framework suggested by US may not have much practical relevance. Though everybody recognizes the imbalance and the need to rectify it, no country would want to risk its prospects of recovery for the sake of US. After all US, is in a pit that it had dug on its own.
So, the new framework suggested by US may not have much practical relevance. Though everybody recognizes the imbalance and the need to rectify it, no country would want to risk its prospects of recovery for the sake of US. After all US, is in a pit that it had dug on its own.
Thursday
Weaknesses Became Strengths – the Magic, IT Industry did for India
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
“Every obstacle can be an opportunity in disguise” –Dr. Robert Schuller
This famous dictum is very much true when observed in the light of the unprecedented triumph of Information Technology [IT] industry in India. A country that remained very poor and isolated from the international economy until early 1990s have suddenly became a global hub for the cutting edge information technology industry by intelligently exploiting avenues referred to as weaknesses till then. Till the opening up of our economy in 1990s, to many in the West, India was a land of religious and ethnic conflict, entrenched and corrupt bureaucrats and a place of teeming poverty . The media coverage about the country has sustained such an image. But the development of information technology as an industry in India began to present a significant contrast. The scenario has changed completely since then. Now India has become virtually the IT hub of the world; most of the developed nations, especially the US and UK relay upon us to keep them going. India ranks as the world’s number one destination for offshore out sourcing of IT and BPO. The country withstood this coveted position without much damage even amidst the recent economic recession which shook the entire global economy. This drastic change owes its indebtedness to a host of reasons. Among them this article focuses on reasons which were once regarded as symptoms of illhealth of our society. It may be interesting to consider the following instances:
1. Unemployment/Underemployment: The main reason for attracting foreign companies to offshore business to India was the cost effectiveness resulting mainly from the large pool of skilled IT professionals available here at a significantly lower rate than the West. The cost advantage achievable through offshore out sourcing continues to be an important factor for companies exploring out sourcing options. Organisations outsourcing to India have consistently reported cost savings of 25 to 60 percent over their original cost base. Why such a huge disparity in employee remuneration rate? Obviously the huge population of educated unemployed/underemployed youngsters available in India. Our youngsters are only happy to toil for much less than the US’s or world’s average wage rate. A severe problem of modern India turning into a blessing in disguise!
2. British Rule: It is a painful truth that our mother nation suffered a lot under the British. But as of now, one residue of the centuries long agony of dependence has become a beneficial tool in the hands of the IT sector. It is the English language, the medium of the present day global communication. There is a natural inclination to do business in countries and places where language is not an issue. We have got a huge pool of English speaking and computer literate manpower which is a definite reason in winning good volume of business from the US and the UK. This is more evident from the example of China which is often regarded as a strong competitor to India. But the fact is that the Chinese off shoring industry is facing impediments to fast growth due to poor English language skills. This necessitated the Chinese government to take several initiatives including hiring thousands of English people as teachers to make Chinese graduates proficient in English.
3. Migration: Nobody wants to leave the motherland if it offers an environment to earn a decent living according to one’s potential and aptitude. Unfortunately India couldn’t offer this to all her citizens. Hence many of their daring citizens were forced to migrate to the developed countries for want of opportunities here. This international exposure enabled our people to familiarise themselves with the culture and business practises of the West. This cultural familiarity is crucial for the development of strong client-vendor relationship. At the same time the Westerners were taking note of the dedication and persuasiveness exhibited by our people at work place as well as social life and formed an opinion that these people are capable and trustworthy. In high-risk and complex IT development projects, a high degree of trust is required between the vendor and client which have unknowingly emerged as a bye-product of migration.
This migration has brought in other benefits too. Take for example the case of Kerala. The State has got nearly 2.2 million people working as emigrants in different parts of the world of which 1.84 million are in the Middle East alone . To cater to the travel needs of these “Malayalees” the State had to newly construct two international air ports at Kochi and Kozhikode besides elevating the already existed Thiruvananthapuram airport to international status. Presently Kerala is the only State in the country with three international air ports. Accidentally enough international air ports have become a must boost for the growth of IT industry. Accordingly the IT industry in the state originated in Thiruvanaanthapuram, expanded later to Koch and now is sprouting in Kozhikode. All the three places where Kerala has got international air ports!
4. Brain Drain: Similar is the case with brain drain. Brain drain has been a curse for developing countries like India. Throughout the post world war II era the ‘best and the brightest’ routinely left the nation for the economic opportunities and higher standards of living in the West. Entire graduating classes from the elite Indian Institute of Technologies [IITs] emigrated during 1970’s and 80’s. With this exodus of India’s best brains to the West, many Indians railed against what they saw as a tax-payer financed subsidy for the western industry . However the development of IT industry in India has made the opportunity to transform the brain drain from a curse into an asset. Talented immigrants who have studied and worked abroad increasingly return to their home country to pursue promising opportunities here. As engineers and other professionals return home, they transform not only technology and capital, but also managerial and institutional know-how. They also link local producers more directly to the market opportunities and networks of more advanced economies. Because of their experience and professional networks these emigrants can quickly identify promising new market opportunities, raise capital, build management teams and establish partnerships with other specialist producers. Immigrants can also serve as role models and mentors for local entrepreneurs providing advice, contacts and even finance besides the confidence to take risk.
5. Out-dated Education System: Chalk and talk is the chief teaching methodology in our education system even now excepting a few state-of –the –art national institutions like IITs, IIMs and the up-coming high-tech new generation management institutes and engineering colleges. The nation is unable to provide the majority of the student community with the luxury of ‘learning by doing’ and acquire hands own experience. The result was that the learners had to ‘see’ most aspects of the curriculum in their imaginative mind and analyse the pros and cones. Through this process, unknowingly they were strengthening their logical thinking ability which is a premium skill in computer programming field!
6. Far Away from the US: Geographically we are very far away from the United States and this physical distance normally should have reduced the opportunity for close interaction in trade. But in the case of IT, being far away from the source of business becomes a reason for business! When it is night there it is day here. By the evening they can send to India the pending urgent works through the internet and go peacefully to bed. While they sleep our companies will work on it during our normal working time and return the completed matter by the evening so as to reach them when they wake out of bed! Further this 12 hour time zone difference with US and other major markets enables India for providing 24x7 business platform which is highly essential for ITES/BPO sector.
7. Weak Currency Exchange Rate: One US dollar is 44.54 Indian rupees and one Euro is 60.51rupees [as on 14.4.10]. Meaning, every dollar or Euro the Americans or Europeans spend will fetch manifold quantity of item from India in comparison with the corresponding quantity they could get from their own place, be it real estate, infrastructure, manpower or services. This makes India a highly sought after cost effective destination in off shoring. The result, foreign direct investment [FDI] is pouring into our country. A paradox of weak money fetching lot of money!
Conclusion: In the binary number system which is the very basis of the whole computing industry, there are only two digits, zero [0] the lower binary digit and one [1] highest binary digit. In the present international scenario of IT business, India has emerged from the lowest position or nothingness to the highest or number one position, i.e.from zero to one. That is the magic IT industry has done for India. Zero in mathematics is the contribution of India to the rest of the world long long back. So she really deserves a repayment by history, doesn’t she? That exactly is her current envious status in the IT industrial scenario!
References:
S.R. Nidumolu, S.E Goodman, “Computing in India: An Asian Elephant Learning to Dance”, Communication of the ACM, June 1993, p.15.
Government of Kerala, Economic Review 2009, Thiruvananthapuram: State Planning Board, p.448
Sean Creehan “Brain Drain: Indian IT Crisis”, Harvard International review, Summer 2001 p.6
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
“Every obstacle can be an opportunity in disguise” –Dr. Robert Schuller
This famous dictum is very much true when observed in the light of the unprecedented triumph of Information Technology [IT] industry in India. A country that remained very poor and isolated from the international economy until early 1990s have suddenly became a global hub for the cutting edge information technology industry by intelligently exploiting avenues referred to as weaknesses till then. Till the opening up of our economy in 1990s, to many in the West, India was a land of religious and ethnic conflict, entrenched and corrupt bureaucrats and a place of teeming poverty . The media coverage about the country has sustained such an image. But the development of information technology as an industry in India began to present a significant contrast. The scenario has changed completely since then. Now India has become virtually the IT hub of the world; most of the developed nations, especially the US and UK relay upon us to keep them going. India ranks as the world’s number one destination for offshore out sourcing of IT and BPO. The country withstood this coveted position without much damage even amidst the recent economic recession which shook the entire global economy. This drastic change owes its indebtedness to a host of reasons. Among them this article focuses on reasons which were once regarded as symptoms of illhealth of our society. It may be interesting to consider the following instances:
1. Unemployment/Underemployment: The main reason for attracting foreign companies to offshore business to India was the cost effectiveness resulting mainly from the large pool of skilled IT professionals available here at a significantly lower rate than the West. The cost advantage achievable through offshore out sourcing continues to be an important factor for companies exploring out sourcing options. Organisations outsourcing to India have consistently reported cost savings of 25 to 60 percent over their original cost base. Why such a huge disparity in employee remuneration rate? Obviously the huge population of educated unemployed/underemployed youngsters available in India. Our youngsters are only happy to toil for much less than the US’s or world’s average wage rate. A severe problem of modern India turning into a blessing in disguise!
2. British Rule: It is a painful truth that our mother nation suffered a lot under the British. But as of now, one residue of the centuries long agony of dependence has become a beneficial tool in the hands of the IT sector. It is the English language, the medium of the present day global communication. There is a natural inclination to do business in countries and places where language is not an issue. We have got a huge pool of English speaking and computer literate manpower which is a definite reason in winning good volume of business from the US and the UK. This is more evident from the example of China which is often regarded as a strong competitor to India. But the fact is that the Chinese off shoring industry is facing impediments to fast growth due to poor English language skills. This necessitated the Chinese government to take several initiatives including hiring thousands of English people as teachers to make Chinese graduates proficient in English.
3. Migration: Nobody wants to leave the motherland if it offers an environment to earn a decent living according to one’s potential and aptitude. Unfortunately India couldn’t offer this to all her citizens. Hence many of their daring citizens were forced to migrate to the developed countries for want of opportunities here. This international exposure enabled our people to familiarise themselves with the culture and business practises of the West. This cultural familiarity is crucial for the development of strong client-vendor relationship. At the same time the Westerners were taking note of the dedication and persuasiveness exhibited by our people at work place as well as social life and formed an opinion that these people are capable and trustworthy. In high-risk and complex IT development projects, a high degree of trust is required between the vendor and client which have unknowingly emerged as a bye-product of migration.
This migration has brought in other benefits too. Take for example the case of Kerala. The State has got nearly 2.2 million people working as emigrants in different parts of the world of which 1.84 million are in the Middle East alone . To cater to the travel needs of these “Malayalees” the State had to newly construct two international air ports at Kochi and Kozhikode besides elevating the already existed Thiruvananthapuram airport to international status. Presently Kerala is the only State in the country with three international air ports. Accidentally enough international air ports have become a must boost for the growth of IT industry. Accordingly the IT industry in the state originated in Thiruvanaanthapuram, expanded later to Koch and now is sprouting in Kozhikode. All the three places where Kerala has got international air ports!
4. Brain Drain: Similar is the case with brain drain. Brain drain has been a curse for developing countries like India. Throughout the post world war II era the ‘best and the brightest’ routinely left the nation for the economic opportunities and higher standards of living in the West. Entire graduating classes from the elite Indian Institute of Technologies [IITs] emigrated during 1970’s and 80’s. With this exodus of India’s best brains to the West, many Indians railed against what they saw as a tax-payer financed subsidy for the western industry . However the development of IT industry in India has made the opportunity to transform the brain drain from a curse into an asset. Talented immigrants who have studied and worked abroad increasingly return to their home country to pursue promising opportunities here. As engineers and other professionals return home, they transform not only technology and capital, but also managerial and institutional know-how. They also link local producers more directly to the market opportunities and networks of more advanced economies. Because of their experience and professional networks these emigrants can quickly identify promising new market opportunities, raise capital, build management teams and establish partnerships with other specialist producers. Immigrants can also serve as role models and mentors for local entrepreneurs providing advice, contacts and even finance besides the confidence to take risk.
5. Out-dated Education System: Chalk and talk is the chief teaching methodology in our education system even now excepting a few state-of –the –art national institutions like IITs, IIMs and the up-coming high-tech new generation management institutes and engineering colleges. The nation is unable to provide the majority of the student community with the luxury of ‘learning by doing’ and acquire hands own experience. The result was that the learners had to ‘see’ most aspects of the curriculum in their imaginative mind and analyse the pros and cones. Through this process, unknowingly they were strengthening their logical thinking ability which is a premium skill in computer programming field!
6. Far Away from the US: Geographically we are very far away from the United States and this physical distance normally should have reduced the opportunity for close interaction in trade. But in the case of IT, being far away from the source of business becomes a reason for business! When it is night there it is day here. By the evening they can send to India the pending urgent works through the internet and go peacefully to bed. While they sleep our companies will work on it during our normal working time and return the completed matter by the evening so as to reach them when they wake out of bed! Further this 12 hour time zone difference with US and other major markets enables India for providing 24x7 business platform which is highly essential for ITES/BPO sector.
7. Weak Currency Exchange Rate: One US dollar is 44.54 Indian rupees and one Euro is 60.51rupees [as on 14.4.10]. Meaning, every dollar or Euro the Americans or Europeans spend will fetch manifold quantity of item from India in comparison with the corresponding quantity they could get from their own place, be it real estate, infrastructure, manpower or services. This makes India a highly sought after cost effective destination in off shoring. The result, foreign direct investment [FDI] is pouring into our country. A paradox of weak money fetching lot of money!
Conclusion: In the binary number system which is the very basis of the whole computing industry, there are only two digits, zero [0] the lower binary digit and one [1] highest binary digit. In the present international scenario of IT business, India has emerged from the lowest position or nothingness to the highest or number one position, i.e.from zero to one. That is the magic IT industry has done for India. Zero in mathematics is the contribution of India to the rest of the world long long back. So she really deserves a repayment by history, doesn’t she? That exactly is her current envious status in the IT industrial scenario!
References:
S.R. Nidumolu, S.E Goodman, “Computing in India: An Asian Elephant Learning to Dance”, Communication of the ACM, June 1993, p.15.
Government of Kerala, Economic Review 2009, Thiruvananthapuram: State Planning Board, p.448
Sean Creehan “Brain Drain: Indian IT Crisis”, Harvard International review, Summer 2001 p.6
Real Estate Business in India: Opportunities for investment
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Introduction
The Indian economy and the real estate sector in particular are high on its ride to prosperity. As India’s economic growth curve rises, real estate India has emerged as one of the most appealing investment areas for domestic as well as foreign investors. Indian real estate has huge potential demand in almost every sector, but especially commercial, residential, retail, industrial, hospitality, healthcare etc. With a booming economy and liberalized government policies, investors from all over the globe are choosing India as their business destination. As Indian real estate rules the economic vibes of the country, the most important beneficiary of the recent boom in this sector is the investors.
Objective of the study
There are a number of ways in which an investor can participate in the real estate market. The objective of this study is to get into awareness about Indian real estate and identify the opportunities for investing in the Indian real estate.
Results & Discussions
The real estate industry in India is attracting huge investments. After reduction of the minimum mandatory area to allow FDI in real estate sector from 100 acres to 25 acres there has been a sudden spurt in the real estate investment in India. The new FDI policy, allows up to 100% investment under automatic route in townships, housing, built-up infrastructure, and construction-development projects. Moreover, with increasing volatility in stock markets and falling interest rates, many investors have started considering investment in commercial and residential properties. According to a survey conducted by AFIRE, India is one of the most preferred property markets among foreign investors globally. Mumbai real estate market has pockets of attractive opportunities even at high P/E levels. Mumbai real estate is among the most expensive in the world - more than that of Tokyo or New York - and there is no shortage of those who can afford to pay. The city also attracts millions of low wage workers every year, and there are ever-expanding slums that house more than half of the city’s population.
Source:http://bp1.blogger.com
There are opportunities available today for investment across all types of real estate and across all budgets. One of the opportunities could be in Office spaces which are mostly taken on a “leave and license” basis and not purchased outright by the user/occupant. The licensee enters into long-term contracts for periods ranging from five to ten years. Risks of the occupant leaving and the premises remaining vacant, risk of the market falling, risk of the building not being maintained well enough thereby reducing the property values, risk of a higher running or maintenance costs than anticipated. In spite of the risks, this is an opportunity worth considering.
Another opportunity could be in the retail segment. Retail, so far has largely been unorganised. Recently, mall developments have taken place across the country. Presently, only 3% of all retail is in the organised sector, so really there is a long way to go. Here, an investor could buy space in a mall and rent it out to a multinational like Mac Donalds, KFC, Nike or a local company like Barista. Lot of investors are in this sector already, but the scope is huge, so there is still enough space for new entrants. The thing to worry about here is the oversupply of malls in certain pockets as well as the dynamic nature of the business. A mall planned for today can become obsolete very soon, as new formats evolve with lightning speed.
The next opportunity could be a property suited mainly for the IT sector. Here the property sizes are usually much larger with a minimum floor size being upwards of 30,000 sq ft. These properties are usually located at city suburbs and rented out by IT companies, the ITES sector and BPO companies. These properties tend to be very price sensitive and hence a windfall rise in prices is not usually expected. Because IT companies need space within a very tight price band, if the properties cost a lot more, they simply move to a lower cost destination and therefore the infrastructure and the related planning should specifically design for the IT/ITES sector. But, once an IT company uses a space, it usually does not leave it for a very long time. So, predictability of rental flows is high. In addition, the growth in IT is so huge that there is today a larger demand than supply for such properties. It is estimated that over the next five years, the IT sector will require 75 million sq ft of space. Some of the regions where such opportunities can be found are Gurgaon, Chandigarh, Pune, Kolkata, Chennai and Hyderabad. The yields are more or less the same as that of commercial properties.
Another opportunity of investments could be housing. With an estimated shortfall of 22 million housing units, the potential is huge. With reduced interest rates and tax benefits given to borrowers (the effective rate of interest is 5.5% pa) and with simultaneous increase in salary levels, the average affordability has gone down from a high of 15 years in 1995 to 4.5 years today. This basically means that an employed youth can buy a house with 4.5 years income.
Another way to participate in the housing growth story is by investing in apartments for their rentals and capital appreciation. In this model, rentals can give a yield of about 6% pa and one can expect some capital appreciation over the medium to long term, if the property is well located, in a region where the demand is good. However in most cases the rental contracts are not very long-term in nature, so borrowing against such properties can be quite tricky.
Estimated Demand for Houses by 2008 using 2001
Actual population and demand
Year Demand During The Year Cumulative Demand For Houses Average Houses Likely To Be Constructed Balance Houses
2001 8.26 8.26 -- --
2002 1.59 9.85 2.69 7.16
2003 1.07 10.92 5.38 5.54
2004 0.73 11.65 8.07 3.56
2005 0.51 12.16 10.76 1.4
2006 0.55 12.71 13.45 --
2007 0.64 13.35 16.14 --
2008 1.09 14.44 -- --
As per the census survey there were 93.56 lakh houses in Kerala in 2001. 7.31 lakhs of these were vacant and 86.25 lakhs occupied. 64.90 lakhs of the occupied houses were residences and these were categorized into - 849.64 lakhs liveable houses and 105.53 lakhs dilapidated houses. Keeping in mind this count of dilapidated houses, the demand for houses in Kerala for the year 2001 was estimated to be 0.63 lakhs. The number of dilapidated houses which needed reconstruction was 5.33 lakhs and those which require major repair/construction were about 2.3. Thus the total demand in 2001 was calculated at 8.26 lakhs.
Further, the housing sector has been growing at an average of 34% annually, while the hospitality industry witnessed a growth of 10-15% last year. If the economy grows at the rate of 10% the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over a decade. Five per cent of the country’s GDP is contributed by the housing sector. In the next three or four or five years this contribution to the GDP is expected to rise to 6%. Real estate is one of the fastest growing sectors in India. Market analysis pegs returns from realty in India at an average of 14% annually with a tremendous upsurge in commercial real estate on account of the Indian BPO boom. The Real Estate industry has significant linkages with several other sectors of the economy.
Conclusion
By considering the high volatility and varying interest rate, it is better to invest in the real estate. In addition the appreciation in the value of commercial real estate market across the Indian metro is from 9 to 11% p.a. The opportunities are immense; the themes are plenty and varied. It really depends on the investor as to how he wants to play the game. By knowing your bite size, risk appetite, staying power, comfort levels, you can select which is the optimal way for you to participate in the great Indian real estate story. Hopefully, this time round, you will do better than the last. One Rupee invested in this sector results in 78 paisa being added to the GDP of the State. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times
* Reader, Research Guide & Head of the Department, Research and Post graduate Department of Commerce, St. Dominic’s College, Kanjirappally, Kottayam District. E-mail: babymukalel@reddifmail.com
Reference
1. Preeti Singh, Investment Management, Himalaya Publishing House.
2. Ashwin Ramesh, Director of primary real estate advisors Pvt ltd- Real estate. investment opportunities, Yahoo India NRI Corner.
3. Shilendra singh- Bangalore real estate trend
4. Business.gov.in- opportunities for real estate investment
5. India –Real –Estate.org
6. Investment opportunities in India for NRIs, FIIs, Nri Realty News, www.nrirealtynews.com
7. Buzzle.com-trends in the Indian real estate market
8. Business standard, April 13, 2009
9. www.indianrealestateforum.com
10. Business line, Wednesday, December 12,2007- invest long term- pick and choose products
11. KG Kumar, Investment climate: perception versus realty, Business line, Monday, Feb. 09, 2009.
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Introduction
The Indian economy and the real estate sector in particular are high on its ride to prosperity. As India’s economic growth curve rises, real estate India has emerged as one of the most appealing investment areas for domestic as well as foreign investors. Indian real estate has huge potential demand in almost every sector, but especially commercial, residential, retail, industrial, hospitality, healthcare etc. With a booming economy and liberalized government policies, investors from all over the globe are choosing India as their business destination. As Indian real estate rules the economic vibes of the country, the most important beneficiary of the recent boom in this sector is the investors.
Objective of the study
There are a number of ways in which an investor can participate in the real estate market. The objective of this study is to get into awareness about Indian real estate and identify the opportunities for investing in the Indian real estate.
Results & Discussions
The real estate industry in India is attracting huge investments. After reduction of the minimum mandatory area to allow FDI in real estate sector from 100 acres to 25 acres there has been a sudden spurt in the real estate investment in India. The new FDI policy, allows up to 100% investment under automatic route in townships, housing, built-up infrastructure, and construction-development projects. Moreover, with increasing volatility in stock markets and falling interest rates, many investors have started considering investment in commercial and residential properties. According to a survey conducted by AFIRE, India is one of the most preferred property markets among foreign investors globally. Mumbai real estate market has pockets of attractive opportunities even at high P/E levels. Mumbai real estate is among the most expensive in the world - more than that of Tokyo or New York - and there is no shortage of those who can afford to pay. The city also attracts millions of low wage workers every year, and there are ever-expanding slums that house more than half of the city’s population.
Source:http://bp1.blogger.com
There are opportunities available today for investment across all types of real estate and across all budgets. One of the opportunities could be in Office spaces which are mostly taken on a “leave and license” basis and not purchased outright by the user/occupant. The licensee enters into long-term contracts for periods ranging from five to ten years. Risks of the occupant leaving and the premises remaining vacant, risk of the market falling, risk of the building not being maintained well enough thereby reducing the property values, risk of a higher running or maintenance costs than anticipated. In spite of the risks, this is an opportunity worth considering.
Another opportunity could be in the retail segment. Retail, so far has largely been unorganised. Recently, mall developments have taken place across the country. Presently, only 3% of all retail is in the organised sector, so really there is a long way to go. Here, an investor could buy space in a mall and rent it out to a multinational like Mac Donalds, KFC, Nike or a local company like Barista. Lot of investors are in this sector already, but the scope is huge, so there is still enough space for new entrants. The thing to worry about here is the oversupply of malls in certain pockets as well as the dynamic nature of the business. A mall planned for today can become obsolete very soon, as new formats evolve with lightning speed.
The next opportunity could be a property suited mainly for the IT sector. Here the property sizes are usually much larger with a minimum floor size being upwards of 30,000 sq ft. These properties are usually located at city suburbs and rented out by IT companies, the ITES sector and BPO companies. These properties tend to be very price sensitive and hence a windfall rise in prices is not usually expected. Because IT companies need space within a very tight price band, if the properties cost a lot more, they simply move to a lower cost destination and therefore the infrastructure and the related planning should specifically design for the IT/ITES sector. But, once an IT company uses a space, it usually does not leave it for a very long time. So, predictability of rental flows is high. In addition, the growth in IT is so huge that there is today a larger demand than supply for such properties. It is estimated that over the next five years, the IT sector will require 75 million sq ft of space. Some of the regions where such opportunities can be found are Gurgaon, Chandigarh, Pune, Kolkata, Chennai and Hyderabad. The yields are more or less the same as that of commercial properties.
Another opportunity of investments could be housing. With an estimated shortfall of 22 million housing units, the potential is huge. With reduced interest rates and tax benefits given to borrowers (the effective rate of interest is 5.5% pa) and with simultaneous increase in salary levels, the average affordability has gone down from a high of 15 years in 1995 to 4.5 years today. This basically means that an employed youth can buy a house with 4.5 years income.
Another way to participate in the housing growth story is by investing in apartments for their rentals and capital appreciation. In this model, rentals can give a yield of about 6% pa and one can expect some capital appreciation over the medium to long term, if the property is well located, in a region where the demand is good. However in most cases the rental contracts are not very long-term in nature, so borrowing against such properties can be quite tricky.
Estimated Demand for Houses by 2008 using 2001
Actual population and demand
Year Demand During The Year Cumulative Demand For Houses Average Houses Likely To Be Constructed Balance Houses
2001 8.26 8.26 -- --
2002 1.59 9.85 2.69 7.16
2003 1.07 10.92 5.38 5.54
2004 0.73 11.65 8.07 3.56
2005 0.51 12.16 10.76 1.4
2006 0.55 12.71 13.45 --
2007 0.64 13.35 16.14 --
2008 1.09 14.44 -- --
As per the census survey there were 93.56 lakh houses in Kerala in 2001. 7.31 lakhs of these were vacant and 86.25 lakhs occupied. 64.90 lakhs of the occupied houses were residences and these were categorized into - 849.64 lakhs liveable houses and 105.53 lakhs dilapidated houses. Keeping in mind this count of dilapidated houses, the demand for houses in Kerala for the year 2001 was estimated to be 0.63 lakhs. The number of dilapidated houses which needed reconstruction was 5.33 lakhs and those which require major repair/construction were about 2.3. Thus the total demand in 2001 was calculated at 8.26 lakhs.
Further, the housing sector has been growing at an average of 34% annually, while the hospitality industry witnessed a growth of 10-15% last year. If the economy grows at the rate of 10% the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over a decade. Five per cent of the country’s GDP is contributed by the housing sector. In the next three or four or five years this contribution to the GDP is expected to rise to 6%. Real estate is one of the fastest growing sectors in India. Market analysis pegs returns from realty in India at an average of 14% annually with a tremendous upsurge in commercial real estate on account of the Indian BPO boom. The Real Estate industry has significant linkages with several other sectors of the economy.
Conclusion
By considering the high volatility and varying interest rate, it is better to invest in the real estate. In addition the appreciation in the value of commercial real estate market across the Indian metro is from 9 to 11% p.a. The opportunities are immense; the themes are plenty and varied. It really depends on the investor as to how he wants to play the game. By knowing your bite size, risk appetite, staying power, comfort levels, you can select which is the optimal way for you to participate in the great Indian real estate story. Hopefully, this time round, you will do better than the last. One Rupee invested in this sector results in 78 paisa being added to the GDP of the State. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times
* Reader, Research Guide & Head of the Department, Research and Post graduate Department of Commerce, St. Dominic’s College, Kanjirappally, Kottayam District. E-mail: babymukalel@reddifmail.com
Reference
1. Preeti Singh, Investment Management, Himalaya Publishing House.
2. Ashwin Ramesh, Director of primary real estate advisors Pvt ltd- Real estate. investment opportunities, Yahoo India NRI Corner.
3. Shilendra singh- Bangalore real estate trend
4. Business.gov.in- opportunities for real estate investment
5. India –Real –Estate.org
6. Investment opportunities in India for NRIs, FIIs, Nri Realty News, www.nrirealtynews.com
7. Buzzle.com-trends in the Indian real estate market
8. Business standard, April 13, 2009
9. www.indianrealestateforum.com
10. Business line, Wednesday, December 12,2007- invest long term- pick and choose products
11. KG Kumar, Investment climate: perception versus realty, Business line, Monday, Feb. 09, 2009.
Outlook of Indian derivatives market: A short term and medium term prespective
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Introduction
Price fluctuations make it hard for businesses to estimate their future production costs and revenues.1 Derivative securities provide them a valuable set of tools for managing this risk. In industrially advanced countries, besides money market and capital market securities, a variety of other securities like derivatives have now become available for investment and trading. A derivative security is a financial contract whose value is derived from the value of something else such as a stock price, a commodity price, an exchange rate, an interest rate, or even an index of prices.
Financial derivatives came into spot light along with rise in uncertainty of post 1970, when the US announced an end to the Bretton Woods System of fixed exchange rates leading to introduction of currency derivatives followed by other innovations, including stock index futures. Need for derivatives as hedging tool was felt first in the commodities market. Agricultural futures and options helped the farmers and processors hedge against commodity price risk. After the collapse of Bretton wood agreement, the financial markets in the world started undergoing radical changes. This period is marked by remarkable innovations in the financial markets, such as introduction of floating rates for currencies, increased trading in a variety of derivative instruments and online trading in the capital market.
Derivatives markets have been in existence in India in some form or other for a long time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875 and, by the early 1900s India had one of the world’s largest futures industries. In 1952 the government banned cash settlement and options trading and derivatives trading shifted to informal forwards markets. In recent years, government policy has changed, allowing for an increased role for market-based pricing and less suspicion of derivatives trading. The ban on futures trading of many commodities was lifted starting in the early 2000s, and national electronic commodity exchanges were created.
Objective:
Today derivatives have become part of the day to day life for ordinary people in most parts of the world. This paper describes the evolution of Indian derivatives market, the popular derivatives instruments in India, with the objective of making an assessment of the outlook of the Indian derivatives market.
Results & Discussion
In the equity markets, a system of trading called “badla” involving some elements of forwards trading had been in existence for decades.2 However, the system led to a number of undesirable practices and it was prohibited off and on till the SEBI banned it for good in 2001. A series of reforms of the stock market between 1993 and 1996 paved way for the development of exchange traded equity derivatives markets in India. In 1993, the government created the NSE in collaboration with state-owned financial institutions. NSE improved the efficiency and transparency of the stock markets by offering a fully automated screen-based trading system and real-time price dissemination.
1. Price volatility may reflect changes in the underlying demand and supply conditions and thereby provide useful information about the market. Thus, economists do not view volatility as necessarily harmful.
2. “Badla” allowed investors to trade single stocks on margin and to carry forward positions to the next settlement cycle. Earlier, it was possible to carry forward a position indefinitely but later the maximum carry forward period was 90 days. Unlike a futures or options, however, in a “badla” trade there is no fixed expiration date, and contract terms and margin requirements are not standardized.
In 1995, a prohibition on trading options was lifted. In 1999, the Securities Contracts (Regulation) Act of 1956 was amended so that derivatives could be declared “securities.” This allowed the regulatory framework for trading securities to be extended to derivatives.
In the exchange-traded market, the biggest success story has been derivatives on equity products. Index futures were introduced in June 2000, followed by index options in June 2001, and options and futures on individual securities in July 2001 and November 2001, respectively. As of 2005, the NSE trades futures and options on 118 individual stocks and 3 stock indices. All these derivative contracts are settled by cash payment and do not involve physical delivery of the underlying product (which may be costly). 3 Derivatives on stock indexes and individual stocks have grown rapidly since inception. In particular, single stock futures have become hugely popular, accounting for about half of NSE’s traded value in October 2005. In fact, NSE has the highest volume (i.e. number of contracts traded) in the single stock futures globally, enabling it to rank 16 among world exchanges in the first half of 2005. Single stock options are less popular than futures. Index futures are increasingly popular, and accounted for close to 40% of traded value in October 2005.
NSE launched interest rate futures in June 2003 but, in contrast to equity derivatives, there has been little trading in them. Institutional investors have preferred to trade in the OTC markets, where instruments such as interest rate swaps and forward rate agreements are thriving.
Foreign exchange derivatives are less active than interest rate derivatives in India, even though they have been around for longer. OTC instruments in currency forwards and swaps are the most popular. Importers, exporters and banks use the rupee forward market to hedge their foreign currency exposure. Turnover and liquidity in this market has been increasing, although trading is mainly in shorter maturity contracts of one year or less (Gambhir and Goel, 2003). In a currency swap, banks and corporations may swap its rupee denominated debt into another currency (typically the US dollar or Japanese yen), or vice versa. Trading in OTC currency options is still muted. There are no exchange traded currency derivatives in India.
Exchange-traded commodity derivatives have been trading only since 2000, and the
growth in this market has been uneven. The number of commodities eligible for futures trading has increased from 8 in 2000 to 80 in 2004, while the value of trading has increased almost four times in the same period (Nair, 2004). However, many contracts barely trade and, of those that are active, trading is fragmented over multiple market venues, including central and regional exchanges, brokerages, and unregulated forwards markets. Total volume of commodity derivatives is still small, less than half the size of equity derivatives (Gorham et al, 2005).
Conclusion
Derivatives are complex and exotic instruments that Indian investors will have difficulty in understanding. It is necessary to organise more no of investor awareness programmes.
India has a long history of derivatives trading. In terms of the growth of derivatives markets and the variety of derivatives users, the Indian market has equalled or exceeded many other regional markets.4 In fact in commodities market, Indian exchanges are inviting foreigners to participate for which the approvals have also been granted. The popularity of single stock options is less. If it is made popular its trading will definitely increase. More no. of institutional investors is to be encouraged to participate in the equity derivatives market also.
There is a large gap exist between the trading of equity derivatives. I.e. NSE figures show that 90% of the activity is due to stock futures and index futures as compared to the trading of options. Therefore necessary step has to be b taken for enhancing the trading of options.
There is no consistent method of accounting for gains and losses from derivatives trading. Thus, a proper framework to account for derivatives needs to be developed.
3. Settlement represents the exchange of a security and its payment.
4. Among exchange-traded derivative markets in Asia, India was ranked second behind S. Korea for
the first quarter of 2005.
* Reader, Research Guide & Head of the Department, Research and Post graduate Department of Commerce, St. Dominic’s College, Kanjirappally, Kottayam District. E-mail: babymukalel@reddifmail.com.com
References:
Asani Sarkar, 2006, Indian Derivatives Markets, The Oxford companion to Economics in India, Oxford university press, New Delhi
Dr V Radha, P.T Oommen and N.S Nair, 2000, Derivatives, capital market and financial services, Lions Publications, Chennai -5
Business lines Investment world, June 11, 2000- Myths behind Investments
www.nseindia.com/marketlist/dupdate.
FitchRatings, 2004, Fixed Income Derivatives---A Survey of the Indian Market,
www.fitchratings.com
Gambhir, Neeraj and Manoj Goel, 2003, Foreign Exchange Derivatives Market in India- Status and Prospects, Susan Thomas (ed.), Derivatives Markets in India, Tata McGraw Hill Publishing Company Limited, New Delhi, India.
ISMR, Indian Securities Market: A Review, 2004, National Stock Exchange of India
Limited, Mumbai, India.
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Introduction
Price fluctuations make it hard for businesses to estimate their future production costs and revenues.1 Derivative securities provide them a valuable set of tools for managing this risk. In industrially advanced countries, besides money market and capital market securities, a variety of other securities like derivatives have now become available for investment and trading. A derivative security is a financial contract whose value is derived from the value of something else such as a stock price, a commodity price, an exchange rate, an interest rate, or even an index of prices.
Financial derivatives came into spot light along with rise in uncertainty of post 1970, when the US announced an end to the Bretton Woods System of fixed exchange rates leading to introduction of currency derivatives followed by other innovations, including stock index futures. Need for derivatives as hedging tool was felt first in the commodities market. Agricultural futures and options helped the farmers and processors hedge against commodity price risk. After the collapse of Bretton wood agreement, the financial markets in the world started undergoing radical changes. This period is marked by remarkable innovations in the financial markets, such as introduction of floating rates for currencies, increased trading in a variety of derivative instruments and online trading in the capital market.
Derivatives markets have been in existence in India in some form or other for a long time. In the area of commodities, the Bombay Cotton Trade Association started futures trading in 1875 and, by the early 1900s India had one of the world’s largest futures industries. In 1952 the government banned cash settlement and options trading and derivatives trading shifted to informal forwards markets. In recent years, government policy has changed, allowing for an increased role for market-based pricing and less suspicion of derivatives trading. The ban on futures trading of many commodities was lifted starting in the early 2000s, and national electronic commodity exchanges were created.
Objective:
Today derivatives have become part of the day to day life for ordinary people in most parts of the world. This paper describes the evolution of Indian derivatives market, the popular derivatives instruments in India, with the objective of making an assessment of the outlook of the Indian derivatives market.
Results & Discussion
In the equity markets, a system of trading called “badla” involving some elements of forwards trading had been in existence for decades.2 However, the system led to a number of undesirable practices and it was prohibited off and on till the SEBI banned it for good in 2001. A series of reforms of the stock market between 1993 and 1996 paved way for the development of exchange traded equity derivatives markets in India. In 1993, the government created the NSE in collaboration with state-owned financial institutions. NSE improved the efficiency and transparency of the stock markets by offering a fully automated screen-based trading system and real-time price dissemination.
1. Price volatility may reflect changes in the underlying demand and supply conditions and thereby provide useful information about the market. Thus, economists do not view volatility as necessarily harmful.
2. “Badla” allowed investors to trade single stocks on margin and to carry forward positions to the next settlement cycle. Earlier, it was possible to carry forward a position indefinitely but later the maximum carry forward period was 90 days. Unlike a futures or options, however, in a “badla” trade there is no fixed expiration date, and contract terms and margin requirements are not standardized.
In 1995, a prohibition on trading options was lifted. In 1999, the Securities Contracts (Regulation) Act of 1956 was amended so that derivatives could be declared “securities.” This allowed the regulatory framework for trading securities to be extended to derivatives.
In the exchange-traded market, the biggest success story has been derivatives on equity products. Index futures were introduced in June 2000, followed by index options in June 2001, and options and futures on individual securities in July 2001 and November 2001, respectively. As of 2005, the NSE trades futures and options on 118 individual stocks and 3 stock indices. All these derivative contracts are settled by cash payment and do not involve physical delivery of the underlying product (which may be costly). 3 Derivatives on stock indexes and individual stocks have grown rapidly since inception. In particular, single stock futures have become hugely popular, accounting for about half of NSE’s traded value in October 2005. In fact, NSE has the highest volume (i.e. number of contracts traded) in the single stock futures globally, enabling it to rank 16 among world exchanges in the first half of 2005. Single stock options are less popular than futures. Index futures are increasingly popular, and accounted for close to 40% of traded value in October 2005.
NSE launched interest rate futures in June 2003 but, in contrast to equity derivatives, there has been little trading in them. Institutional investors have preferred to trade in the OTC markets, where instruments such as interest rate swaps and forward rate agreements are thriving.
Foreign exchange derivatives are less active than interest rate derivatives in India, even though they have been around for longer. OTC instruments in currency forwards and swaps are the most popular. Importers, exporters and banks use the rupee forward market to hedge their foreign currency exposure. Turnover and liquidity in this market has been increasing, although trading is mainly in shorter maturity contracts of one year or less (Gambhir and Goel, 2003). In a currency swap, banks and corporations may swap its rupee denominated debt into another currency (typically the US dollar or Japanese yen), or vice versa. Trading in OTC currency options is still muted. There are no exchange traded currency derivatives in India.
Exchange-traded commodity derivatives have been trading only since 2000, and the
growth in this market has been uneven. The number of commodities eligible for futures trading has increased from 8 in 2000 to 80 in 2004, while the value of trading has increased almost four times in the same period (Nair, 2004). However, many contracts barely trade and, of those that are active, trading is fragmented over multiple market venues, including central and regional exchanges, brokerages, and unregulated forwards markets. Total volume of commodity derivatives is still small, less than half the size of equity derivatives (Gorham et al, 2005).
Conclusion
Derivatives are complex and exotic instruments that Indian investors will have difficulty in understanding. It is necessary to organise more no of investor awareness programmes.
India has a long history of derivatives trading. In terms of the growth of derivatives markets and the variety of derivatives users, the Indian market has equalled or exceeded many other regional markets.4 In fact in commodities market, Indian exchanges are inviting foreigners to participate for which the approvals have also been granted. The popularity of single stock options is less. If it is made popular its trading will definitely increase. More no. of institutional investors is to be encouraged to participate in the equity derivatives market also.
There is a large gap exist between the trading of equity derivatives. I.e. NSE figures show that 90% of the activity is due to stock futures and index futures as compared to the trading of options. Therefore necessary step has to be b taken for enhancing the trading of options.
There is no consistent method of accounting for gains and losses from derivatives trading. Thus, a proper framework to account for derivatives needs to be developed.
3. Settlement represents the exchange of a security and its payment.
4. Among exchange-traded derivative markets in Asia, India was ranked second behind S. Korea for
the first quarter of 2005.
* Reader, Research Guide & Head of the Department, Research and Post graduate Department of Commerce, St. Dominic’s College, Kanjirappally, Kottayam District. E-mail: babymukalel@reddifmail.com.com
References:
Asani Sarkar, 2006, Indian Derivatives Markets, The Oxford companion to Economics in India, Oxford university press, New Delhi
Dr V Radha, P.T Oommen and N.S Nair, 2000, Derivatives, capital market and financial services, Lions Publications, Chennai -5
Business lines Investment world, June 11, 2000- Myths behind Investments
www.nseindia.com/marketlist/dupdate.
FitchRatings, 2004, Fixed Income Derivatives---A Survey of the Indian Market,
www.fitchratings.com
Gambhir, Neeraj and Manoj Goel, 2003, Foreign Exchange Derivatives Market in India- Status and Prospects, Susan Thomas (ed.), Derivatives Markets in India, Tata McGraw Hill Publishing Company Limited, New Delhi, India.
ISMR, Indian Securities Market: A Review, 2004, National Stock Exchange of India
Limited, Mumbai, India.
Labour Problems in the tea plantations in Peerumedu in Kerala
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Introduction
The cultivation, maintenance, harvesting and processing of tea is labour intensive and provides a regular employment to millions . India is the world’s second largest producer of black tea employing a work force of more than 2 million people. India produces around 927 M. Kg of tea accounting for 27% of world production. India is also the world’s largest consumer of tea. In Idukki district, tea bush is planted in 23415 hectors. Most of the tea plantations are located in Devikulam and Peermade Taluks. The tea plantations of Munnar are owned by big companies. But in Peermade and Vandanmedu areas there are small plantations and small individual holdings.
The Central Travancore group of estates spread over 10,100 hectares in Peermade Taluk and Azhutha block in Idukki district, consists of 36 plantations. Their annual aggregate production comes to nearly 16 million kilograms. These plantations provide direct regular employment to nearly 26,000 people, making Peermade one of the most important tea production centres in Kerala .
Objective of the study
Most of the tea plantations in Peermade have stopped production and over 30 tea estates in Kerala are reported to have been closed down not being able to manage the financial crisis created by emerging market conditions. Some of the plantations are reopened and the tea prices also show some positive sign of recovery, but it is pity to realise that some of the plantations in the area are still remain closed. This study attempts to find out the labour problems in the plantations of Peermade Taluk.
Methodology
The study is compiled with the help of the primary and secondary data. The primary data is collected by using multi stage sampling technique. At the first stage, out of the seven Panchayat in Peermade Taluk, four viz., Vandiperiyar, Peermade, Elappara and Upputhara were selected based on quantity of production and area under cultivation. At the second stage, one Panchayat viz., Elappara was randomly selected. Further Semminivally estate was selected at the third stage. There after 50 male and 50 female labourers were randomly selected at the last stage. There after a scheduled questionnaire is prepared for gathering primary data. The secondary data is sourced from news papers, magazines and journals, and websites.
Results and discussions
33% of the respondents are illiterate and 54% of the respondents have the educational qualification between 5-10th standard. Most of the (39.8%) family members of the respondents are engaging in plantation works (Table; 1) of which 79% are employed on permanent basis.
Table: 1
Occupation of the family members of the respondents
Occupation Male Female Total Percentage
Education 59 54 113 27.8
Plantation Works 78 84 162 39.8
Other Works 29 9 38 9.3
House Keeping 20 56 76 18.7
Agriculture
18 0 18 4.4
Total 407 100
The average income per day of the respondents are Rs.123.5. Opinion of the workers about the wage is in between average and bad (table 2) and there is no regularity on payment of their wages, provident fund, gratuity amount etc., In their opinion, the delay in wage payment is due to fall in prices and lack of demand for tea.
Table: 2
Quantified value respondents opinion about the wages
Very good Good Average Bad Very bad Total
Weight 5 4 3 2 1
Frequency 8 6 24 34 28
Product 40 24 72 68 28 232
64% of the respondents are borrowing money at high rate of interest from the money lenders when they do not get wages in time (table: 3). 58% of the labourers are staying in the line houses provided by the management and their opinion about the houses and other amenities is in between bad and very bad (Table: 4).
Table: 3
Sources of money when non-receipt of wage at right time
sources male female total percentage
1 Borrowing from friends 15 10 25 25
2 Taking from savings 5 6 11 11
3 Borrowing with interest 30 34 64 64
total 50 50 100 100
Table: 4
Opinion about the houses and other amenities providing by the management
Amenities Very good Good Bad Very bad Not useful Total
Bathroom 1 8 59 12 20 100
Kitchen 1 8 62 15 14 100
Bedroom 1 4 72 18 5 100
Furniture 0 8 11 54 27 100
Water 0 1 94 3 2 100
Electricity 1 7 12 72 8 100
77% of the workers have got health problems due to their work in the plantations and 90% of them opined that the management provides help for the labourers. 98% of the labourers opined that their factory had been closed down and electricity to the line houses, where the workers stay, has been disconnected for non-payment of charges by the company. The estate hospitals do not function; supply of drinking water has been stopped and people walk five kilometres to fetch water. Many children have stopped going to school also. There have been eight cases of suicide and 12 deaths due to starvation and denial of medical care, since the crisis in the tea industry began. Further they are not at all satisfied with the role played by the tea board and government to solve their problems. Further they have got regret that the society do not play any role in providing a solution to the tea plantation labourers.
Conclusion
Since the plantation sector is a very important employment provider in Kerala, the government of Kerala should take keen interest in the existence of this industry. The government should ensure that the plantations have been shut down their operations only under unavoidable situations. The market share of Indian tea is reducing year after year and it reduces the foreign exchange earnings of our country. The reasons for the same are low quality of tea supplied and unhealthy competition in the market. The central government must introduce innovative packages to revive the industry and some subsidies must also be given to the tea companies. Low quality tea imported from other countries is again exported to European countries as Indian product and this badly affects the image of Indian tea. Necessary steps must be taken to check this unethical practice. Further the government should make sure that the dues to the employees are given in time. Free ration should be provided to employees when the factory is shut down.
References:
1. Anand, Neena, (2003), "Working Women: Issues and Problems", Yojana, March, Vol: 47, No: 3.
2. Basheer, K. P, (03.04.2006)”Life on closed tea plantations on a down hill slide” The Hindu, India’s National Daily.
3. Datt, Ruddar., & Sundharam, K.P.M. ( 1995), Indian Economy, Sultan Chand & Co. Ltd, New Delhi.
4. George, T.M, (2003), "Changing Scenario of Rural Market in Kerala: A Case Study", Yojana, February, Vol: 47, No: 2.
5. Jacob, and Sreedevi, (28.09.2003) "A Bitter Brew in the High ranges", The Hindu Daily, September.
6. Kumar, K. G., (29.12.2008) Kerala and global financial crisis, Business Line, The Financial Daily.
7. Mohan, Rakesh., (2009) India and Global Crisis, IMC’s 101st Annual General Meeting, May 11.
8. Pant, S. C,( 1996) Indian Labour Problems, Chaithanya Publishing House, Allehabad -2
9. Paul, Sarbajith, (2004) An overview of Indian Tea Industry, The Management Accountant, Vol. 39, No.6
10. Punnathara, C. J (01.04.2008), “Vandiperiyar tea estates: Globalisation plucking away livelihoods”, Business Line.
11. Ram Kumar, B., (2007) “Cost reduction for viability”, The Hindu survey of Indian industry, The Hindu.
12. …………., (August 2003) “Uncertain Prospects: New ILO Report Paints grim picture of world employment”, The Management Accountant : Governance and competitiveness, Vol. 28, No. 8
13. …………., Ministry of Finance, Various Issues, Economic Survey, Economic Division, New Delhi.
14. …………., Various Issues, Economic Review, Directorate of Economics and statistics, Thiruvananthapuram.
15. …………., Various Issues, Tea Statistics, Tea Board, Calcutta.
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Introduction
The cultivation, maintenance, harvesting and processing of tea is labour intensive and provides a regular employment to millions . India is the world’s second largest producer of black tea employing a work force of more than 2 million people. India produces around 927 M. Kg of tea accounting for 27% of world production. India is also the world’s largest consumer of tea. In Idukki district, tea bush is planted in 23415 hectors. Most of the tea plantations are located in Devikulam and Peermade Taluks. The tea plantations of Munnar are owned by big companies. But in Peermade and Vandanmedu areas there are small plantations and small individual holdings.
The Central Travancore group of estates spread over 10,100 hectares in Peermade Taluk and Azhutha block in Idukki district, consists of 36 plantations. Their annual aggregate production comes to nearly 16 million kilograms. These plantations provide direct regular employment to nearly 26,000 people, making Peermade one of the most important tea production centres in Kerala .
Objective of the study
Most of the tea plantations in Peermade have stopped production and over 30 tea estates in Kerala are reported to have been closed down not being able to manage the financial crisis created by emerging market conditions. Some of the plantations are reopened and the tea prices also show some positive sign of recovery, but it is pity to realise that some of the plantations in the area are still remain closed. This study attempts to find out the labour problems in the plantations of Peermade Taluk.
Methodology
The study is compiled with the help of the primary and secondary data. The primary data is collected by using multi stage sampling technique. At the first stage, out of the seven Panchayat in Peermade Taluk, four viz., Vandiperiyar, Peermade, Elappara and Upputhara were selected based on quantity of production and area under cultivation. At the second stage, one Panchayat viz., Elappara was randomly selected. Further Semminivally estate was selected at the third stage. There after 50 male and 50 female labourers were randomly selected at the last stage. There after a scheduled questionnaire is prepared for gathering primary data. The secondary data is sourced from news papers, magazines and journals, and websites.
Results and discussions
33% of the respondents are illiterate and 54% of the respondents have the educational qualification between 5-10th standard. Most of the (39.8%) family members of the respondents are engaging in plantation works (Table; 1) of which 79% are employed on permanent basis.
Table: 1
Occupation of the family members of the respondents
Occupation Male Female Total Percentage
Education 59 54 113 27.8
Plantation Works 78 84 162 39.8
Other Works 29 9 38 9.3
House Keeping 20 56 76 18.7
Agriculture
18 0 18 4.4
Total 407 100
The average income per day of the respondents are Rs.123.5. Opinion of the workers about the wage is in between average and bad (table 2) and there is no regularity on payment of their wages, provident fund, gratuity amount etc., In their opinion, the delay in wage payment is due to fall in prices and lack of demand for tea.
Table: 2
Quantified value respondents opinion about the wages
Very good Good Average Bad Very bad Total
Weight 5 4 3 2 1
Frequency 8 6 24 34 28
Product 40 24 72 68 28 232
64% of the respondents are borrowing money at high rate of interest from the money lenders when they do not get wages in time (table: 3). 58% of the labourers are staying in the line houses provided by the management and their opinion about the houses and other amenities is in between bad and very bad (Table: 4).
Table: 3
Sources of money when non-receipt of wage at right time
sources male female total percentage
1 Borrowing from friends 15 10 25 25
2 Taking from savings 5 6 11 11
3 Borrowing with interest 30 34 64 64
total 50 50 100 100
Table: 4
Opinion about the houses and other amenities providing by the management
Amenities Very good Good Bad Very bad Not useful Total
Bathroom 1 8 59 12 20 100
Kitchen 1 8 62 15 14 100
Bedroom 1 4 72 18 5 100
Furniture 0 8 11 54 27 100
Water 0 1 94 3 2 100
Electricity 1 7 12 72 8 100
77% of the workers have got health problems due to their work in the plantations and 90% of them opined that the management provides help for the labourers. 98% of the labourers opined that their factory had been closed down and electricity to the line houses, where the workers stay, has been disconnected for non-payment of charges by the company. The estate hospitals do not function; supply of drinking water has been stopped and people walk five kilometres to fetch water. Many children have stopped going to school also. There have been eight cases of suicide and 12 deaths due to starvation and denial of medical care, since the crisis in the tea industry began. Further they are not at all satisfied with the role played by the tea board and government to solve their problems. Further they have got regret that the society do not play any role in providing a solution to the tea plantation labourers.
Conclusion
Since the plantation sector is a very important employment provider in Kerala, the government of Kerala should take keen interest in the existence of this industry. The government should ensure that the plantations have been shut down their operations only under unavoidable situations. The market share of Indian tea is reducing year after year and it reduces the foreign exchange earnings of our country. The reasons for the same are low quality of tea supplied and unhealthy competition in the market. The central government must introduce innovative packages to revive the industry and some subsidies must also be given to the tea companies. Low quality tea imported from other countries is again exported to European countries as Indian product and this badly affects the image of Indian tea. Necessary steps must be taken to check this unethical practice. Further the government should make sure that the dues to the employees are given in time. Free ration should be provided to employees when the factory is shut down.
References:
1. Anand, Neena, (2003), "Working Women: Issues and Problems", Yojana, March, Vol: 47, No: 3.
2. Basheer, K. P, (03.04.2006)”Life on closed tea plantations on a down hill slide” The Hindu, India’s National Daily.
3. Datt, Ruddar., & Sundharam, K.P.M. ( 1995), Indian Economy, Sultan Chand & Co. Ltd, New Delhi.
4. George, T.M, (2003), "Changing Scenario of Rural Market in Kerala: A Case Study", Yojana, February, Vol: 47, No: 2.
5. Jacob, and Sreedevi, (28.09.2003) "A Bitter Brew in the High ranges", The Hindu Daily, September.
6. Kumar, K. G., (29.12.2008) Kerala and global financial crisis, Business Line, The Financial Daily.
7. Mohan, Rakesh., (2009) India and Global Crisis, IMC’s 101st Annual General Meeting, May 11.
8. Pant, S. C,( 1996) Indian Labour Problems, Chaithanya Publishing House, Allehabad -2
9. Paul, Sarbajith, (2004) An overview of Indian Tea Industry, The Management Accountant, Vol. 39, No.6
10. Punnathara, C. J (01.04.2008), “Vandiperiyar tea estates: Globalisation plucking away livelihoods”, Business Line.
11. Ram Kumar, B., (2007) “Cost reduction for viability”, The Hindu survey of Indian industry, The Hindu.
12. …………., (August 2003) “Uncertain Prospects: New ILO Report Paints grim picture of world employment”, The Management Accountant : Governance and competitiveness, Vol. 28, No. 8
13. …………., Ministry of Finance, Various Issues, Economic Survey, Economic Division, New Delhi.
14. …………., Various Issues, Economic Review, Directorate of Economics and statistics, Thiruvananthapuram.
15. …………., Various Issues, Tea Statistics, Tea Board, Calcutta.
Impact of Global financial crisis on Indian plantations
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Plantation crops in general are either export oriented or import substituting and therefore assume special significance from the national point of view. The impact of the global crisis has been transmitted to the Indian economy through three distinct channels viz. the financial sector, exports and exchange rates. There has been sharp decline in the exports of agricultural and allied products specifically to countries including the US and Europe during last two years. This study attempts to find out the effect of global financial crisis on the export of Indian plantations.
Introduction
Plantation crops in general are either export oriented or import substituting and therefore assume special significance from the national point of view. Tea, which is extensively grown in north Bengal, Assam and other north-eastern states, coffee, spices and rubber are primarily grown in southern India. It is estimated that nearly 30 lakh families are dependent on the plantation sector for livelihood. India is the fourth largest producer and consumer of natural rubber with a share of 8.9 per cent in the world after Thailand, Indonesia and Malaysia. Area under coffee registered substantial increase during the last two decades with an annual growth rate of over 2 per cent. Coffee provides opportunities for livelihood to nearly one lakh families including agricultural labourers. Among the plantation crops, coffee has made significant contribution to the Indian economy during the last 50 years, Although India contributes only 4 per cent of total world production, Indian coffee has created a niche for itself in the international market, particularly Indian Robusta, which is highly preferred for its blending quality. Tea is one of the largest foreign exchange earners and sources of government revenue in India. It employs more than 20 million people and half of the work force constitute of the women folk. However the market for cardamom is largely domestic as could be seen from the declining share of exports and the share of exports is only 5 per cent of the production.
Objective of the study
There has been sharp decline in the exports of agricultural and allied products specifically to countries including the US and Europe during last two years. This study attempts to find out the effect of global financial crisis on the export of Indian plantations.
Impact of global financial crisis on Indian plantation exports
The impact of the global crisis has been transmitted to the Indian economy through three distinct channels, viz., the financial sector, exports, and exchange rates. While exports of both goods and services, still account for only about 22 percent of the Indian GDP, their multiplier effect for economic activity is quite large. The current global financial crisis has had its impact on Indian coffee exports though it did not have much effect on domestic prices and domestic consumption. Even as India’s exports have diversified product-wise and destination-wise in recent years, there has been acceleration in exports of rice, tobacco, spices oil-meal and marine products. But exports of commercial crops such as tea, coffee and cotton have decelerated. India’s trade data for January 2009, showed a 16 per cent drop in exports and 18 per cent decline in imports.
Production & export of Natural rubber
Year Production ( In tonne) Export (In tonne)
2003-04 711650 75905
2004-05 749665 46150
2005-06 802625 73830
2006-07 852895 56545
2007-08 825345 60353
2008-09 864000 45538
Source: Rubber board
Prices of natural rubber
Year Month RSS 5 (Rs per Quintal)
(domestic) RSS 4 (Rs per Quintal)
(domestic) RSS 3 (Rs per Quintal)
(international)
2008 August 13549 13782 12720
2008 September 13284 13536 13228
2008 October 8831 9074 9963
2008 November 7413 7681 8599
2008 December 6279 6488 6156
2009 January 6874 7034 7449
2009 February 6788 6903 7331
2009 March 7448 7583 7388
Source: Monthly Rubber Statistical News, Rubber Board.
Production & export of Coffee
Year
Production(M.T) Export
Quantity (M.T) Value (Rs Crores)
2006-07 2.88 2.49 2008
2007-08 2.62 2.19 2047
2008-09 2.62 2.02 1925
Source: Coffee board
Export of Tea
Year Export
Quantity (m Kg) Value( Rs Crores)
2004-05 205.81 1924.71
2005-06 196.67 1793.58
2006-07 218.15 2045.72
2007-08 185.32 1888.68
2008-09 190.64 2381.79
Source: Tea Board
Export of Cardamom
Year Export
Quantity ( M.T) Value ( Rs Crores)
2005-06 1909 37.83
2006-07 2150 39.31
2007-08 1825 39.75
Source: Spices Board Kochi.
Findings
1. Production of natural rubber showed an increasing tendency till 2006-07. But there wad a reduction in production in 2007-08.
2. The export of natural rubber was 75905 tonne in 2003-04 to but it reduced to 60353 tonne in 2007-08 and further it reduced to 45538 tonne in 2008-09.
3. The price per quintal of RSS 5 has been reduced to Rs 6279 in December 2008 as compared to Rs 13549 in August 2008.
4. The production and export of Coffee has been reduced to 2.62 M T and 2.02 M T respectively in 2008-09 as compared to 2.88 M T and 2.49 M T in 2006-07.
5. The export of tea is reduced to 185.32 M kg in 2007-08 as compared to 218.15 m kg in 2006-07. But it showed a slight increase in 2008-09. But the export values of tea are little improved.
6. The export of Cardamom is reduced to 1825 M tonne in 2007-08 as compared to 2150 M. tonne in 2006-07. But the value of export is increased from 37.83 Crores to 39.75 Crores.
Conclusion
The exports of natural rubber, Coffee, Tea and Cardamom from India have been negatively affected by the global financial crisis. Exports of Coffee were declined from 2.49 lakhs tonne in 2006-07 to 2.02 lakhs tonne in 2008-09. The export of natural rubber came down from 73830 M tonne in 2005-06 to 45538 MT in 2008-09. Again the prices of natural rubber per quintal were come down from 13549 in August 2008 to 6279 in December 2008. From 218.15 M Kgs in 2006-07, India’s tea export came down to 190.64 M Kg in 2008-09. The export of cardamom has shown an increase of 2150 MT in 2006-07 as compared to 1909 MT in 2005-06. But the export of cardamom in 2007-08 is reduced to 1825 MT. But the export value of cardamom in 2007-08 is increased to 39.75 lakhs from 37.83 Lakhs in 2005-06. The marketability of plantation crops must be improved through quality enhancement programmes and exploration of new areas of market. Whether global warming and climate change would affect plantation cultivation especially coffee in South India needs to be researched. Further greater spending on agricultural research, for promoting agricultural growth, is necessary.
References
1. Acharya, Shankar ., Global Crisis India and agriculture, 9th Convocation of Rajasthan
Agricultural university, Bikaner, May2, 2009
2. Economic Survey 2008-09 ( http:/indiabudget.nic.in)
3. Economic Review, 2008, published by Kerala State Planning Board
4. Ghosh, Jayati.; Sekhar, Chandra, C.P., India and global financial crisis, Business Line,
the business daily, Tuesday, October 21, 2008
5. Jha, Raghbendra ., The Global Financial crisis and short run prospects for India,
ASARC working paper 2009/01
6. Kumar, K. G., Kerala and global financial crisis, Business Line, Monday 29,
December 2008
7. Monthly Rubber statistical News, Vol. 67, No.8, January 2009, Statistics and
Planning Board, Kottayam.
8. Mahajan, Vijay., et.all, Global financial crisis: impact on India’s poor, some initial
perspectives, 2009, published by UNDP India.
9. Mohan, Rakesh., India and Global Crisis, IMC’s 101st Annual General Meeting, May
11, 2009
10. Sekhar, Chandra, G., Coffee improving marketability, Business Line, the Business
daily, Monday, December 7, 2009.
11. Srinivasan, G., Export curbs: A knee- jerk approach to stabilising the Indian economy,
Business Line, the business daily, Tuesday, May20, 2008
12. 13 lakh job losses in export units: UNCTAD, The Hindu, India’s national News
Paper, Saturday, June 13, 2009.
13. Official websites of Tea Board, Coffee Board, Rubber Board and Spices Board.
14. www.indiacoffee.org
15. www.indianspices.com
16. www.rubberboard.com
17. www.teaboard.gov.in
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Plantation crops in general are either export oriented or import substituting and therefore assume special significance from the national point of view. The impact of the global crisis has been transmitted to the Indian economy through three distinct channels viz. the financial sector, exports and exchange rates. There has been sharp decline in the exports of agricultural and allied products specifically to countries including the US and Europe during last two years. This study attempts to find out the effect of global financial crisis on the export of Indian plantations.
Introduction
Plantation crops in general are either export oriented or import substituting and therefore assume special significance from the national point of view. Tea, which is extensively grown in north Bengal, Assam and other north-eastern states, coffee, spices and rubber are primarily grown in southern India. It is estimated that nearly 30 lakh families are dependent on the plantation sector for livelihood. India is the fourth largest producer and consumer of natural rubber with a share of 8.9 per cent in the world after Thailand, Indonesia and Malaysia. Area under coffee registered substantial increase during the last two decades with an annual growth rate of over 2 per cent. Coffee provides opportunities for livelihood to nearly one lakh families including agricultural labourers. Among the plantation crops, coffee has made significant contribution to the Indian economy during the last 50 years, Although India contributes only 4 per cent of total world production, Indian coffee has created a niche for itself in the international market, particularly Indian Robusta, which is highly preferred for its blending quality. Tea is one of the largest foreign exchange earners and sources of government revenue in India. It employs more than 20 million people and half of the work force constitute of the women folk. However the market for cardamom is largely domestic as could be seen from the declining share of exports and the share of exports is only 5 per cent of the production.
Objective of the study
There has been sharp decline in the exports of agricultural and allied products specifically to countries including the US and Europe during last two years. This study attempts to find out the effect of global financial crisis on the export of Indian plantations.
Impact of global financial crisis on Indian plantation exports
The impact of the global crisis has been transmitted to the Indian economy through three distinct channels, viz., the financial sector, exports, and exchange rates. While exports of both goods and services, still account for only about 22 percent of the Indian GDP, their multiplier effect for economic activity is quite large. The current global financial crisis has had its impact on Indian coffee exports though it did not have much effect on domestic prices and domestic consumption. Even as India’s exports have diversified product-wise and destination-wise in recent years, there has been acceleration in exports of rice, tobacco, spices oil-meal and marine products. But exports of commercial crops such as tea, coffee and cotton have decelerated. India’s trade data for January 2009, showed a 16 per cent drop in exports and 18 per cent decline in imports.
Production & export of Natural rubber
Year Production ( In tonne) Export (In tonne)
2003-04 711650 75905
2004-05 749665 46150
2005-06 802625 73830
2006-07 852895 56545
2007-08 825345 60353
2008-09 864000 45538
Source: Rubber board
Prices of natural rubber
Year Month RSS 5 (Rs per Quintal)
(domestic) RSS 4 (Rs per Quintal)
(domestic) RSS 3 (Rs per Quintal)
(international)
2008 August 13549 13782 12720
2008 September 13284 13536 13228
2008 October 8831 9074 9963
2008 November 7413 7681 8599
2008 December 6279 6488 6156
2009 January 6874 7034 7449
2009 February 6788 6903 7331
2009 March 7448 7583 7388
Source: Monthly Rubber Statistical News, Rubber Board.
Production & export of Coffee
Year
Production(M.T) Export
Quantity (M.T) Value (Rs Crores)
2006-07 2.88 2.49 2008
2007-08 2.62 2.19 2047
2008-09 2.62 2.02 1925
Source: Coffee board
Export of Tea
Year Export
Quantity (m Kg) Value( Rs Crores)
2004-05 205.81 1924.71
2005-06 196.67 1793.58
2006-07 218.15 2045.72
2007-08 185.32 1888.68
2008-09 190.64 2381.79
Source: Tea Board
Export of Cardamom
Year Export
Quantity ( M.T) Value ( Rs Crores)
2005-06 1909 37.83
2006-07 2150 39.31
2007-08 1825 39.75
Source: Spices Board Kochi.
Findings
1. Production of natural rubber showed an increasing tendency till 2006-07. But there wad a reduction in production in 2007-08.
2. The export of natural rubber was 75905 tonne in 2003-04 to but it reduced to 60353 tonne in 2007-08 and further it reduced to 45538 tonne in 2008-09.
3. The price per quintal of RSS 5 has been reduced to Rs 6279 in December 2008 as compared to Rs 13549 in August 2008.
4. The production and export of Coffee has been reduced to 2.62 M T and 2.02 M T respectively in 2008-09 as compared to 2.88 M T and 2.49 M T in 2006-07.
5. The export of tea is reduced to 185.32 M kg in 2007-08 as compared to 218.15 m kg in 2006-07. But it showed a slight increase in 2008-09. But the export values of tea are little improved.
6. The export of Cardamom is reduced to 1825 M tonne in 2007-08 as compared to 2150 M. tonne in 2006-07. But the value of export is increased from 37.83 Crores to 39.75 Crores.
Conclusion
The exports of natural rubber, Coffee, Tea and Cardamom from India have been negatively affected by the global financial crisis. Exports of Coffee were declined from 2.49 lakhs tonne in 2006-07 to 2.02 lakhs tonne in 2008-09. The export of natural rubber came down from 73830 M tonne in 2005-06 to 45538 MT in 2008-09. Again the prices of natural rubber per quintal were come down from 13549 in August 2008 to 6279 in December 2008. From 218.15 M Kgs in 2006-07, India’s tea export came down to 190.64 M Kg in 2008-09. The export of cardamom has shown an increase of 2150 MT in 2006-07 as compared to 1909 MT in 2005-06. But the export of cardamom in 2007-08 is reduced to 1825 MT. But the export value of cardamom in 2007-08 is increased to 39.75 lakhs from 37.83 Lakhs in 2005-06. The marketability of plantation crops must be improved through quality enhancement programmes and exploration of new areas of market. Whether global warming and climate change would affect plantation cultivation especially coffee in South India needs to be researched. Further greater spending on agricultural research, for promoting agricultural growth, is necessary.
References
1. Acharya, Shankar ., Global Crisis India and agriculture, 9th Convocation of Rajasthan
Agricultural university, Bikaner, May2, 2009
2. Economic Survey 2008-09 ( http:/indiabudget.nic.in)
3. Economic Review, 2008, published by Kerala State Planning Board
4. Ghosh, Jayati.; Sekhar, Chandra, C.P., India and global financial crisis, Business Line,
the business daily, Tuesday, October 21, 2008
5. Jha, Raghbendra ., The Global Financial crisis and short run prospects for India,
ASARC working paper 2009/01
6. Kumar, K. G., Kerala and global financial crisis, Business Line, Monday 29,
December 2008
7. Monthly Rubber statistical News, Vol. 67, No.8, January 2009, Statistics and
Planning Board, Kottayam.
8. Mahajan, Vijay., et.all, Global financial crisis: impact on India’s poor, some initial
perspectives, 2009, published by UNDP India.
9. Mohan, Rakesh., India and Global Crisis, IMC’s 101st Annual General Meeting, May
11, 2009
10. Sekhar, Chandra, G., Coffee improving marketability, Business Line, the Business
daily, Monday, December 7, 2009.
11. Srinivasan, G., Export curbs: A knee- jerk approach to stabilising the Indian economy,
Business Line, the business daily, Tuesday, May20, 2008
12. 13 lakh job losses in export units: UNCTAD, The Hindu, India’s national News
Paper, Saturday, June 13, 2009.
13. Official websites of Tea Board, Coffee Board, Rubber Board and Spices Board.
14. www.indiacoffee.org
15. www.indianspices.com
16. www.rubberboard.com
17. www.teaboard.gov.in
Globalisation and its impact on Indian plantations
Dr. M.D Baby
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Plantation for a general definition implies tea, coffee and rubber and cardamom. Plantations in Kerala is passing through a very difficult period as a result of steep fall in prices of plantation commodities especially tea. This study attempts to find out whether there is any impact of globalization in the changes that are taking place in the plantation sector. The Indian Tea Industry is facing serious crisis. Over 30 tea estates in Kerala are reported to have been closed down not being able to manage the financial crisis created by emerging market conditions. The unprecedented crisis in the tea industry has assumed alarming proportions with prices crashing at the auction centres week after week. In one of the auctions, certain grades of tea were said to have been sold at an all-time low of Rs. 20 a kg. Globalisation, the trade liberalisation policies of the government of India, the decline in the price of Indian Tea, low productivity, etc have contributed to the crisis. Indian tea should become competitive and this calls for heavy investment in plantations for enhancing the productivity, improving quality and introducing modern mechanised cultivation methods. Government should give soft loans to the producers on a long term basis in this regard.
Introduction
Rubber, Tea, Coffee and Cardamom are the important plantation crops cultivated in Kerala. All the four plantation industries are controlled by the central government by the tea act, 1953, coffee act 1942, rubber act 1947 and the cardamom act 1959 as amended by the spices act 1984. Kerala hold long tradition in the cultivation of plantation crops. Now Kerala accounts for 45 percent (6,26,000 hectares) of the total area of plantation crops in the country. At present out of the total area of plantation crops in Kerala, tea is estimated to be 5.88 percentages (36,821 hectares). Tea Industry accounts for more than 10 percent of India's exchange earnings. It provides direct employment to over one million people and indirect employment to another one million through ancillary occupation. Nine percent of total cultivation area and work force of tea in the nation is represented by Kerala.
Tea in Kerala has the unique advantage of being grown in a wide variety of agro-climatic zones, ranging in altitude from 650 to 2000 meters above sea level. The difference in the climate, particularly temperatures and humidity coupled with the differing soil profile, these gives price to a range of distinct teas, each with a unique quality attribute. For instance the teas in Wayanad are known for their strength and black leaf appearance and the one from Peermade / Vandiperiyar are known for their brightness of cup and those from the high ranges for their aroma and flavour. Kerala produces both CTC (Cut, Tear and Curl) and the orthodox variety of tea. Kerala exports annually 35 million kgs of tea valued at Rs. 2200 million, particularly to the Middle East and Russia.
Objective
Better quality tea at cheaper prices enters Indian market from countries such as Sri Lanka, Kenya, and Vietnam etc. This study attempts to find out whether there is any impact of globalization in the changes that are taking place in the plantation sector with specific reference to tea.
Impact of globalisation on Indian plantation
Globalisation is a phenomenon by which any activity becomes worldwide or the barrier to it becoming so gets dismantled. Globalisation is very often used to refer to economic globalisation i.e. integration of national economies into the international economy through trade, foreign direct investment and capital flows. Though covers all fields including arts and cultures in the popular parlance, it mostly refers to an economic phenomenon The WTO induced globalisation has tremendous impacts on the plantation sector - both positive and negative.
Positive impacts
Green Box Measures -A major positive impact of the process of globalisation induced by the WTO is that countries have now started moving from Market Price Support to less distorting Direct Income Payments (known as "Green box Measures") though not completely trade neutral, they have a much lesser distorting impact on world trade. Since trade distorting subsidy gap of 10% has been given to developing countries, which had no trade distorting subsidies in place prior to the agreement, Indian plantation producers can hope to have a level playing field.
Export subsidies- Another area of positive impact has been that of export subsidies. Export subsidies have been considerably capped both in terms of volume and value. Those countries that were earlier not giving subsidies were barred from giving subsidies of a trade distorting nature. This aspect has been significant in the case of plantation crops such as rubber, tea etc.
Quotas with price based tariff barriers & verifiable dispute settlement mechanism - The move to replace Non-Tariff barriers such as quotas with price based tariff barriers is another welcome measure. The advantage with price based mechanisms is that they are more easily predictable and can be overcome by making price based adjustments. Quite a few plantation crops have benefited from this change. Yet another advantage resulting from the WTO is that a new verifiable Dispute Settlement Mechanism has been put in place. A number of plantation products have benefited from this.
Adoption of international treaty on plant genetic resources- An important step towards the harmonization of laws was achieved by the adoption of the International Treaty on Plant Genetic Resources for Food and Agriculture in November 2001. This treaty which aims at acting in complementary with TRIPs and the Convention on Bio-diversity is a significant step in the direction of sharing benefits from the use of plant genetic material and conserving the same in the plantation sector.
Negative impacts
Lowering of import duties - Some of the most protected plantation crops in India were exposed to ruthless foreign competition as a result of the implementation of the WTO rules and regulations. The case of the tea industry is poignant in itself. The Peermade tea plantations of Kerala give us a clear picture regarding the saga of pain induced by the process of Globalisation. Out of the 32 tea factories in the area 18 have been closed down and 13 more have been abandoned leaving more than 30000 people jobless and also resulting in Rs.100 crores as pending wages. This kind of scenario resulted from the lowering of import duties in India against tea imports to just 4 per cent to 7 per cent range. Consequently tea imports from 13 countries flooded the Indian market. The tea imports from Sri Lanka to the tune of 15 million kg. Wrecked havoc in South India.
Statement of Import- tea
Financial year Quantity( M.Kgs) CIF Value( Rs Crores) Unit price (Rs/Kg)
2003-2004
2004-2005
2005-2006
2006-2007
11.34
32.53
17.41
20.80
66.23
145.15
102.77
111.02
58.41
44.61
59.03
53.37
Source: various editions of central economic survey
Perils of pursuing the TRIPS mandate - This is just one of the examples that highlight the perils of globalization. Such economic destruction invariably leads to social evils such as rampant suicides, uncontrollable levels of prostitution and human trafficking, blighting poverty, massive debt trap and so on.
IF one probed deeper inside the TRIPs agreement will find that there may not be a more complex agreement framed till date. For instance, let us have a look at Art 27.3 of the agreement which calls for protection of plant varieties by patents or an effective sui-generic system. There are two contending frameworks for the consideration of being sui-generic equivalents - a) the UPOV scheme and b) The FA0 scheme. All countries including India had the option of accepting either framework.
As far as the UPOV scheme is concerned, it does not recognize the aspect of prior knowledge of the farming community. It tries to restrict the rights of the farmers to replant seeds, which could have disastrous effects on the prospects of a plantation crop like cardamom.
As far as the TRIPs provisions is concerned, its major shortfall lies in the fact that the agreement does not take into account several key facets pertaining to traditional knowledge, local rights over genetic resources, bio-safety concerns and so on. All these aspects are of vital importance as far as the plantation sector is concerned. Coupled with this scenario is the fact that many countries lack the scientific acumen to make necessary innovations in the concerned field.
Perpetuation of Quota system - In spite of the MFN clause in WTO, some exceptions were given to favour developing countries and the least developed countries. One such exception was the Generalized System of Preferences (GSP) aimed at providing preferential treatment to the products of such countries in the developed country markets. But problems arose when discrimination emerged with in the GSP. Quotas started being fixed based on political considerations. The latest twist to the events is provided by the concept of the Super GSP mooted by some developed countries through which more favourable treatment was provided to some countries within the developing block in comparison to others in the block. Such discrimination within groups is a source of concern and can definitely affect the prospects of some very important plantation exports from India like tea, coffee etc.
Concerns regarding the application of SPS and TBT provisions - SPS and TBT agreements form major hurdles in the path of Indian plantation crops achieving global reach. On the one hand developing countries and Least Developed Countries have often found the adjustment time for meeting new standards extremely strict and on the other hand they often lack the technical know how to make such a transition based on standards set by Codex Alimentarius Commission (CAC) and the International Plant Protection Convention (IPPC). Adding further to their woes is the fact that the processes of transferring technical know how from the North to the South has been extremely slow. Eco-Labelling requirements, packaging constraints, process and production methods - all have been areas of immense concern.
Conclusion
Consequent to globalisation the Indian teas, especially those of Kerala with the highest cost of production (of which 60% is labour cost) have to face stiff competition from countries such as Kenya, Sri Lanka, and Indonesia where the cost of production was reported to be very low. The cost of production should be linked with the productivity and the productivity should be increased. For this we are in urgent need of re-plantation. In addition Indian tea should become competitive and this calls for heavy investment in plantations for enhancing the productivity, improving quality and introducing modern mechanised cultivation methods. Government should give soft loans to the producers on a long term basis in this regard.
The crisis is the result of the wrong policy initiatives of the central government with respect to the Indo-Sri Lankan agreement under its globalisation agenda. The tea plantations cannot be saved unless the accord is revamped. The government has been going ahead with a move to bring down the import tariff on agricultural products under the WTO pact. Such move should be stopped in order to protect our tea plantations which employs about half a million workers.
* Reader, Research Guide & Head of the Department, Research and Post graduate Department of Commerce, St. Dominic’s College, Kanjirappally, Kottayam District. E-mail: babymukalel@reddifmail.com
References
1. A bitter brew in the high ranges, The Hindu (Magazine) Sep 28, 2003.
2. B.Ramkumar, Cost reduction for viability, The Hindu survey of indian industry, 2007.
3. C.J Punnathara, “Vandiperiyar tea estates: Globalisation plucking away livelihoods, Business Line, Apr’01, 2008.
4. Devinder Sharma, The Indian experience of liberalisation of agriculture” Conference on agricultural trade & development organised by national farmers federation and Oxfam Australia at Canberra, Australia, Aug 17, 2005
5. D Jose, Starvation stares at thousands Kerala plantation workers” Rediff.com, Nov 12, 2002.
6. G. K Nair, Road ahead for tea industry is not smooth, Business Line, Aug 16, 2004.
7. Himanshu Dutt, The turnaround of Indian Tea Sector, The turnaround of Indian Tea sector, Delhi Business Review, vol.8, No.1 (January-June 2007)
8. Hard Times for Kerala Tea industry, Business Line, Sep 7, 2000.
9. K Venkiteswaran, APK proposes suspension of minimum wage revision, The Hindu, dec21, 2005.
10. K.P.M basheer ”Life on closed tea plantations on a down hill slide” The Hindu Apr03, 2006.
11. Krishnan A Goyal, “Impact of Globalisation on Developing Countries (with special reference to India)”, International Research Journal of Finance & Economics, ISSN 1450-2887, Issue 5(2006)
12. Narender Kumar Jain, Four-pronged strategy needed, The Hindu survey of indian agriculture, 2008
Reader & Head-Dept of Commerce,
St. Dominic’s College, Kanjirappally, Kerala
drbabymukalel@rediffmail.com
____________________________
Plantation for a general definition implies tea, coffee and rubber and cardamom. Plantations in Kerala is passing through a very difficult period as a result of steep fall in prices of plantation commodities especially tea. This study attempts to find out whether there is any impact of globalization in the changes that are taking place in the plantation sector. The Indian Tea Industry is facing serious crisis. Over 30 tea estates in Kerala are reported to have been closed down not being able to manage the financial crisis created by emerging market conditions. The unprecedented crisis in the tea industry has assumed alarming proportions with prices crashing at the auction centres week after week. In one of the auctions, certain grades of tea were said to have been sold at an all-time low of Rs. 20 a kg. Globalisation, the trade liberalisation policies of the government of India, the decline in the price of Indian Tea, low productivity, etc have contributed to the crisis. Indian tea should become competitive and this calls for heavy investment in plantations for enhancing the productivity, improving quality and introducing modern mechanised cultivation methods. Government should give soft loans to the producers on a long term basis in this regard.
Introduction
Rubber, Tea, Coffee and Cardamom are the important plantation crops cultivated in Kerala. All the four plantation industries are controlled by the central government by the tea act, 1953, coffee act 1942, rubber act 1947 and the cardamom act 1959 as amended by the spices act 1984. Kerala hold long tradition in the cultivation of plantation crops. Now Kerala accounts for 45 percent (6,26,000 hectares) of the total area of plantation crops in the country. At present out of the total area of plantation crops in Kerala, tea is estimated to be 5.88 percentages (36,821 hectares). Tea Industry accounts for more than 10 percent of India's exchange earnings. It provides direct employment to over one million people and indirect employment to another one million through ancillary occupation. Nine percent of total cultivation area and work force of tea in the nation is represented by Kerala.
Tea in Kerala has the unique advantage of being grown in a wide variety of agro-climatic zones, ranging in altitude from 650 to 2000 meters above sea level. The difference in the climate, particularly temperatures and humidity coupled with the differing soil profile, these gives price to a range of distinct teas, each with a unique quality attribute. For instance the teas in Wayanad are known for their strength and black leaf appearance and the one from Peermade / Vandiperiyar are known for their brightness of cup and those from the high ranges for their aroma and flavour. Kerala produces both CTC (Cut, Tear and Curl) and the orthodox variety of tea. Kerala exports annually 35 million kgs of tea valued at Rs. 2200 million, particularly to the Middle East and Russia.
Objective
Better quality tea at cheaper prices enters Indian market from countries such as Sri Lanka, Kenya, and Vietnam etc. This study attempts to find out whether there is any impact of globalization in the changes that are taking place in the plantation sector with specific reference to tea.
Impact of globalisation on Indian plantation
Globalisation is a phenomenon by which any activity becomes worldwide or the barrier to it becoming so gets dismantled. Globalisation is very often used to refer to economic globalisation i.e. integration of national economies into the international economy through trade, foreign direct investment and capital flows. Though covers all fields including arts and cultures in the popular parlance, it mostly refers to an economic phenomenon The WTO induced globalisation has tremendous impacts on the plantation sector - both positive and negative.
Positive impacts
Green Box Measures -A major positive impact of the process of globalisation induced by the WTO is that countries have now started moving from Market Price Support to less distorting Direct Income Payments (known as "Green box Measures") though not completely trade neutral, they have a much lesser distorting impact on world trade. Since trade distorting subsidy gap of 10% has been given to developing countries, which had no trade distorting subsidies in place prior to the agreement, Indian plantation producers can hope to have a level playing field.
Export subsidies- Another area of positive impact has been that of export subsidies. Export subsidies have been considerably capped both in terms of volume and value. Those countries that were earlier not giving subsidies were barred from giving subsidies of a trade distorting nature. This aspect has been significant in the case of plantation crops such as rubber, tea etc.
Quotas with price based tariff barriers & verifiable dispute settlement mechanism - The move to replace Non-Tariff barriers such as quotas with price based tariff barriers is another welcome measure. The advantage with price based mechanisms is that they are more easily predictable and can be overcome by making price based adjustments. Quite a few plantation crops have benefited from this change. Yet another advantage resulting from the WTO is that a new verifiable Dispute Settlement Mechanism has been put in place. A number of plantation products have benefited from this.
Adoption of international treaty on plant genetic resources- An important step towards the harmonization of laws was achieved by the adoption of the International Treaty on Plant Genetic Resources for Food and Agriculture in November 2001. This treaty which aims at acting in complementary with TRIPs and the Convention on Bio-diversity is a significant step in the direction of sharing benefits from the use of plant genetic material and conserving the same in the plantation sector.
Negative impacts
Lowering of import duties - Some of the most protected plantation crops in India were exposed to ruthless foreign competition as a result of the implementation of the WTO rules and regulations. The case of the tea industry is poignant in itself. The Peermade tea plantations of Kerala give us a clear picture regarding the saga of pain induced by the process of Globalisation. Out of the 32 tea factories in the area 18 have been closed down and 13 more have been abandoned leaving more than 30000 people jobless and also resulting in Rs.100 crores as pending wages. This kind of scenario resulted from the lowering of import duties in India against tea imports to just 4 per cent to 7 per cent range. Consequently tea imports from 13 countries flooded the Indian market. The tea imports from Sri Lanka to the tune of 15 million kg. Wrecked havoc in South India.
Statement of Import- tea
Financial year Quantity( M.Kgs) CIF Value( Rs Crores) Unit price (Rs/Kg)
2003-2004
2004-2005
2005-2006
2006-2007
11.34
32.53
17.41
20.80
66.23
145.15
102.77
111.02
58.41
44.61
59.03
53.37
Source: various editions of central economic survey
Perils of pursuing the TRIPS mandate - This is just one of the examples that highlight the perils of globalization. Such economic destruction invariably leads to social evils such as rampant suicides, uncontrollable levels of prostitution and human trafficking, blighting poverty, massive debt trap and so on.
IF one probed deeper inside the TRIPs agreement will find that there may not be a more complex agreement framed till date. For instance, let us have a look at Art 27.3 of the agreement which calls for protection of plant varieties by patents or an effective sui-generic system. There are two contending frameworks for the consideration of being sui-generic equivalents - a) the UPOV scheme and b) The FA0 scheme. All countries including India had the option of accepting either framework.
As far as the UPOV scheme is concerned, it does not recognize the aspect of prior knowledge of the farming community. It tries to restrict the rights of the farmers to replant seeds, which could have disastrous effects on the prospects of a plantation crop like cardamom.
As far as the TRIPs provisions is concerned, its major shortfall lies in the fact that the agreement does not take into account several key facets pertaining to traditional knowledge, local rights over genetic resources, bio-safety concerns and so on. All these aspects are of vital importance as far as the plantation sector is concerned. Coupled with this scenario is the fact that many countries lack the scientific acumen to make necessary innovations in the concerned field.
Perpetuation of Quota system - In spite of the MFN clause in WTO, some exceptions were given to favour developing countries and the least developed countries. One such exception was the Generalized System of Preferences (GSP) aimed at providing preferential treatment to the products of such countries in the developed country markets. But problems arose when discrimination emerged with in the GSP. Quotas started being fixed based on political considerations. The latest twist to the events is provided by the concept of the Super GSP mooted by some developed countries through which more favourable treatment was provided to some countries within the developing block in comparison to others in the block. Such discrimination within groups is a source of concern and can definitely affect the prospects of some very important plantation exports from India like tea, coffee etc.
Concerns regarding the application of SPS and TBT provisions - SPS and TBT agreements form major hurdles in the path of Indian plantation crops achieving global reach. On the one hand developing countries and Least Developed Countries have often found the adjustment time for meeting new standards extremely strict and on the other hand they often lack the technical know how to make such a transition based on standards set by Codex Alimentarius Commission (CAC) and the International Plant Protection Convention (IPPC). Adding further to their woes is the fact that the processes of transferring technical know how from the North to the South has been extremely slow. Eco-Labelling requirements, packaging constraints, process and production methods - all have been areas of immense concern.
Conclusion
Consequent to globalisation the Indian teas, especially those of Kerala with the highest cost of production (of which 60% is labour cost) have to face stiff competition from countries such as Kenya, Sri Lanka, and Indonesia where the cost of production was reported to be very low. The cost of production should be linked with the productivity and the productivity should be increased. For this we are in urgent need of re-plantation. In addition Indian tea should become competitive and this calls for heavy investment in plantations for enhancing the productivity, improving quality and introducing modern mechanised cultivation methods. Government should give soft loans to the producers on a long term basis in this regard.
The crisis is the result of the wrong policy initiatives of the central government with respect to the Indo-Sri Lankan agreement under its globalisation agenda. The tea plantations cannot be saved unless the accord is revamped. The government has been going ahead with a move to bring down the import tariff on agricultural products under the WTO pact. Such move should be stopped in order to protect our tea plantations which employs about half a million workers.
* Reader, Research Guide & Head of the Department, Research and Post graduate Department of Commerce, St. Dominic’s College, Kanjirappally, Kottayam District. E-mail: babymukalel@reddifmail.com
References
1. A bitter brew in the high ranges, The Hindu (Magazine) Sep 28, 2003.
2. B.Ramkumar, Cost reduction for viability, The Hindu survey of indian industry, 2007.
3. C.J Punnathara, “Vandiperiyar tea estates: Globalisation plucking away livelihoods, Business Line, Apr’01, 2008.
4. Devinder Sharma, The Indian experience of liberalisation of agriculture” Conference on agricultural trade & development organised by national farmers federation and Oxfam Australia at Canberra, Australia, Aug 17, 2005
5. D Jose, Starvation stares at thousands Kerala plantation workers” Rediff.com, Nov 12, 2002.
6. G. K Nair, Road ahead for tea industry is not smooth, Business Line, Aug 16, 2004.
7. Himanshu Dutt, The turnaround of Indian Tea Sector, The turnaround of Indian Tea sector, Delhi Business Review, vol.8, No.1 (January-June 2007)
8. Hard Times for Kerala Tea industry, Business Line, Sep 7, 2000.
9. K Venkiteswaran, APK proposes suspension of minimum wage revision, The Hindu, dec21, 2005.
10. K.P.M basheer ”Life on closed tea plantations on a down hill slide” The Hindu Apr03, 2006.
11. Krishnan A Goyal, “Impact of Globalisation on Developing Countries (with special reference to India)”, International Research Journal of Finance & Economics, ISSN 1450-2887, Issue 5(2006)
12. Narender Kumar Jain, Four-pronged strategy needed, The Hindu survey of indian agriculture, 2008
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