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ADVISORY BOARD

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PROF. SHAKTI AWASTHI

The burning desire to acquire, assimilate and utilize knowledge creates an

intellectual. It is this unquenchable desire for knowledge that makes the

environment dynamic in nature. You start craving for knowledge and do not

leave any source unturned to acquire it. However acquiring knowledge should

be channelized, focused and directional. Such knowledge should serve a

purpose, it should have a objective. Research is such a dynamic medium.

Through Parivartan - Journal of Management Research we are trying to

present new aspects of research in different spheres of management. We

are bringing before you the second issue for the year 2015. The present

issue of Parivartan comprise of six quality papers by the researchers

covering the aspects of Finance, Marketing HRM & General Management.

Parivartan- Journal of management congratulates all the contributor for

their quality research articles.

Hope you all will appreciate the research articles.

Ms. Shakti Awasthi

Editor

EDITORIAL

INDEX

Page No.

1. A Comparitive Study on Segment Reporting Under As-17 And Ifrs -8: 01-19

Empirical Evidence From India

Kshema Shrivastava

2. War: The longest running business for United States of America 20-27

Dr. Kaustubh Sontakke, Prathamesh Gosavi

3. Organizations Taking Care of Intellectual Capital 28-30

Raghavendra Suresh Bendigeri

4. Post Merger Financial Appraisal of Royal Bank of Scotland & ABN AMRO Bank 31-55

Dr. Ritesh Dwivedi, Piyuesh Pandey

5. “A Study of Consumer’s Buying Behaviors towards Tobacco Products in Mumbai”. 56-62

6. Journey of Higher Education in India Ten Years Ahead: Vision 2025 63-76

Sampurna Nand Mehta

1*Research Scholar in Pt. Jawaharlal Nehru Institute of Business Management, Vikram University, Ujjain.

* Kshema Shrivastava

A Comparitive Study on Segment ReportingUnder As-17 And Ifrs -8: Empirical Evidence

From India

ABSTRACT

This paper is aimed at examining the benefits of adopting IFRS by the Indian

entities and further examines the effect of adoption of IFRS on Companies

Segment Reportingas compared to Segment Reporting under IGAAP. The paper

studies the impact of adoption of IFRS -8 by taking a case of M/s Sify

Technologies Ltd., an Indian Listed entity gives a detailed analysis of difference

in segment disclosures data under the new standard IFRS- 8 vis-à-vis the

Indian Accounting Standard; AS-17.It has been found from the study that there

are certain marked deviation in the Segment profit and loss as disclosed by

financial statement of M/s Sify Technologies Ltd. as reported under Indian

GAAP and those reported under IFRS. The reason for the same are further

elaborated in the study. Further, under IFRS 8 the disclosure requirements

related to geographical segments is significantly reduced or in most of the

cases completely lost, which is a major concern to stakeholders. Further there

will be lack comparability of segment information between companies as IFRS

provides discretion to the ‘Chief Operating Decision Maker’ to choose what

to disclose and manner in which the information can be disclosed.

Keywords: Segment Reporting, IFRS 8, GAAP, AS-17, Convergence, Sify

Technologies Ltd.

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INTRODUCTION TO IFRS

The era of ‘Globalization’ has not leftthe capital markets and the financialmarkets around the world untouchedand therefore comparison betweenfirms is crucial for investors andstakeholders around the world to makevital and necessary decisions. Thecommon tool used by them to take suchdecision is accounting or financialinformation. The investors make useof this information as one of the mostimportant input or sometimes the soleinput in their decision making processto decide whether to invest or not inthe securities of a particular firm. Thedifferences in financial reportingrequirements and frameworks acrossnations create complications andinconsistent treatment for theCompanies that are globally active inpreparing consolidating and auditingthe financial statements. Thisheterogeneity also render itimpossible to compare financialinformation of companies fromdifferent countries. The differences inaccounting standards creates confusionfor users of financial statements whichleads to inefficiency in capitalmarkets across the world. It alsoincreases the cost of providingsupplementary information so as tomake the financial statementscomparable. This globalization ofcapital markets and increasingcomplexity of business transactions

call for a single set of high qualityaccounting standards. Throughout theworld, the bodies responsible forsetting Accounting Standards indifferent nations are exploring waysto eliminate differences in accountinginformation thereby creating uniformstandards for preparation of theaccounting information so that thefinancial statements from anywhere inthe world can be easily read andunderstood by the business andfinancial communities. InternationalFinancial Reporting Standards(IFRS)are accounting rules whichare applied while preparing theBalance Sheet and IncomeStatement of a Company and areissued by the InternationalAccounting Standard Board (IASB).IFRS is becoming the global standardfor the preparation of public companyfinancial statements. Convergencewith IFRS, has gained momentum inrecent years and the accounting bodiesall over the world have realized thatthe adoption of the IFRS would enablethe world to speak the accountinglanguage understood by all.

In this scenario of globalization, Indiacannot insulate itself from thedevelopments taking placeworldwide. In India, the Institute ofChartered Accountants of India(ICAI) has originally decided to fullyconverge with IFRS issued by the

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International Accounting StandardsBoard for accounting periodscommencing on or after April 1, 2011which will help India to join theleague of IFRS adopting countries.However this mandatory enforcementof IFRS has been deferred on accountof unresolved legal and taxation

issues brought up by the Corporates.

The Institute has recommended a newroadmap for adopting IFRS by IndianCompanies which is subject to theapproval given by Corporate AffairsMinistry which is as follows:

It is expected that once IFRS isimplemented, it will have an impact onthe financial statements of Indiancompanies as there are majordifferences between IFRS and IndianGAAP. IFRS require fuller disclosurethan the Indian GAAP. As against IndianGAAP which is based on HistoricalCost method of asset valuation, IFRSpromotes a fair value presentation inorder to facilitate decision making forinvestors that was exclusively used bymanagers or preparators of FinancialInformation of the Company earlier.

Phase Companies Covered Opening Balance FinancialSheet Statements

Phase I Companies both listed as well as April 1, 2015 31st March, 2015unlisted, but other than bankingand insurance companies and havingnet worth of over Rs 1,000 crore.

Phase II Companies both listed as well as unlisted,but other than banking and insurancecompanies and with a net worth of overRs 500 crore but less than Rs 1,000 crore April 1, 2016 31st March, 2016

Phase III All Other Companies(including listed entities) except Bankingand Insurance Companies. April 1, 2017 31st March, 2017

BENEFITS OF IFRS

The Benefits of convergence to IFRSare can be seen from two prospects:

A. The Macroeconomic Prospect i.eBenefits to the Indian Economy as awhole.

B. The Microeconomic Prospect ie.benefits to the Indian Industries,Investors and other AccountingProfessionals.

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A. MACROECONOMICPROSPECT - TO THE INDIANECONOMY AS A WHOLE

• The convergence to IFRS will aidand assist in maintaining well organizedand efficient capital market where thecost of capital is lower which facilitatebusiness environment to become moreconducive to investment. This willinturn give a boost to the internationalbusiness thereby increasing the ForeignDirect Investments (FDI) and inflow offoreign capital and internationalinvestment into the Indian Economy.

• The use of IFRS by Indian Entitieswould increase the quality, transparency,comparability and reliability of theirfinancial statements and information.The adoption of these standards willfacilitate Indian Companies tocommunicate with other countries in amore cost efficient and productivemanner. It would also reduce the costof understanding and evaluating thefinancial information of any potentialacquisition by international investors asthe information will be in identical andrecognized format and confirm toglobally accepted accounting standards,thereby considering investment in IndianEntities more lucrative in the eyes ofpotential International Investors.

• The majority of Stock Exchangeacross the world require their listedentities to prepare the financial

information using IFRS. Theconvergence to IFRS will eliminate thecost of conversion of financialstatements prepared by using IndianGAAP for international stock markets.It will strengthen the position, credibilityand recognition of Indian Entities in theinternational capital markets which willhelp them to get access to number ofcapital markets across the globe andraise capital across borders potentiallyat a lower cost of capital. This will inturn fuel up and flourish their businessexpansion or significant acquisitions inthe global arena.

B. MICROECONOMICPROSPECT

At the Microeconomic level thebeneficiaries of convergence with IFRSare the industry, investors, regulatorsand accounting professionals. Thebenefits to each of these are summarizedas follows:

I. TO THE INDUSTRY

II. TO THE INVESTORS

III. TO THE SERVICE SECTOR

I. TO THE INDIAN INDUSTRIES

The convergence with IFRS will bringfollowing advantages to the IndianIndustries and Companies:

5

• Standardization and uniformity ofAccounting Information which willenhance the quality of the AccountingInformation presented by the IndianEntities.

• Facilitate the Indian Companies tocome forth and develop uniform andorderly practices in harmony with theglobal practices to resolve theaccounting and financial issues faced bythem.

• Converging to IFRS will ease theburden of multiple financial reportingfaced by the Indian MNCs as they willno more be required to prepare separatereports and make significant accountingadjustments in their consolidatedfinancial statements to convert theirfinancial statements from Indian GAAPfor international stock markets for filingthe same in different stock exchangeswhere they are listed.

• The adoption of these uniform andinternationally accepted standards willalso improve internal communicationsand lead to greater certainty andconsistency in interpreting accountinginformation. This will lead to bettermentof the quality of management reportingand group decision-making.

• This escape from multiplereporting will in turn lead to reductionof waste of time and cost incurred byIndian Companies or the subsidiaries or

associates of Indian Companies listedwith international stock exchanges inpreparing the financial statements usingdifferent sets of accounting standardsbased on the requirement of theparticular exchange with which the entityis listed.

• Migration to IFRS will removethe risk premium from Indian entitieswhich was associated with them whilereporting under Indian GAAP. This willenhance their credibility and brandvalue in the international marketplaceand help them to gain easy access to thevarious stock exchange across the globe.

• When the financial statementsprepared by Indian Companies complywith IFRS which are internationallyaccepted accounting standards it willcreate a trust and confidence in the mindof global stakeholders that the financialstatements prepared by using IFRSpresent a ‘True and Fair’ financialperformance and position of the entity.This will enhance their finance-raisingcapability and enable them to raisecapital from foreign markets at a lowercost which will fuel the capitalrequirement of the Indian entitiesdesirous of expanding or makingsignificant acquisitions in the globalarena.

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Key Differences between Indian AS-17 and IFRS 8

Segment Reporting underIGAAP

Segment Reportingunder IFRS

Standard Applicable The Reporting of variousOperating Segments of theCompany under IGAAP is doneunder AS 17- SegmentReporting

The Reporting of variousOperating Segments of theCompany under IFRS is doneunder IFRS 8- OperatingSegments.

On which entities the Standard isapplicable.

(a) Entities whose equity or debtsecurities are listed or are inthe process of listing on anystock exchange, whether inIndia or outside India.

(b) Banks (including co-operative banks), financialinstitutions or entities carryingon insurance business.

(c) All commercial, industrial andbusiness reporting entities,whose turnover (excludingother income) exceedsrupees fifty crore in theimmediately precedingaccounting year.

(d) All commercial, industrial andbusiness reporting entitieshaving borrowings (includingpublic deposits) in excess ofrupees ten crore at any timeduring the immediatelypreceding accounting year.

Holding and subsidiaryentities of any one of theabove.

Entities whose equity or debtsecuritiesare publicly traded orthat issue equityor debtsecurities in a public market,orfile (or are in the process offiling)financial statements witha regulatoryorganization forpurposes of issuingsecurities ina public market.

Concept of CDOM No such concept of CDOM or‘Chief Operating DecisionMaker” is defined in IndianAS- 17.

IFRS-8 requires identificationof CDOM.The term ‘Chief OperatingDecision Maker’ is a functionand not an individual with aspecific title. The function of theCODM is to allocateresources to and assess theoperating results of thesegments of an entity.

7

Segment Reporting underIGAAP

Segment Reportingunder IFRS

What are the Operating Segments Business- or Geography-basedcomponents that are subject torisks and returns that aredifferent from those of othercomponents.Accordingly there are two kindsof segments identified under AS-17:i. Business SegmentGeographical Segments.

IFRS 8 does imposerequirement to report SegmentInformation on Product orGeographical basis. It does notdefine segments as Business orGeographical Segment rather itdefines Operating Segments asBusiness activities that may earnrevenues or incur expenses,whose operating results areregularly reviewed by the chiefoperating decision maker andfor which discrete financialinformation is available.

Requirement of Primary andSecondary Segment

Indian AS - 17 requires thedetermination of Primary Segmentand Secondary Segment and thedominant source and nature ofrisks and returns of the entitygoverns whether the primarysegment reporting format will beBusiness Segment orGeographical Segment.

IFRS 8 does not require theentity to determine any ‘primary’and a ‘secondary’ basis ofsegment reporting.

The CODM could be anindividual, such as the chiefexecutive officer or the chiefoperating officer, or it could bea group of executives, like theboard of directors or amanagement committee.

On what factor is measurement ofsegment disclosure based on?

Segment information to beprepared in conformity with theaccounting policies adopted forpreparing and presenting theentity’s financial statements

Segment disclosures are basedon Management informationreported to the chief operatingdecision maker.This may result in differencesbetween the amounts reportedin segment information andthose reported in the entity’sprimary financial statements.

Definition of terms The terms Segment Revenue,Segment Expense, SegmentResult, Segment Assets andSegment Liabilities are clearlydefined.

IFRS 8 does not define termsSegment Revenue, SegmentExpense, Segment Result,Segment Assets and SegmentLiabilities. On the other thestandard requires increaseddisclosure regarding the basis onwhich the information regarding

8

segment profit or loss, segmentassets and segment liabilities foreach reportable segment hasbeen prepared.

Segment Reporting underIGAAP

Segment Reportingunder IFRS

Disclosures Required Indian AS-17 specifies thefinancial parameters that must bedisclosed for each reportablesegment such as SegmentRevenue, Segment Result, etc.

On the other hand IFRS-8requires the measure of profitor loss and assets to be dislosedfor each segment. Additionalitems, such as revenue fromexternal customer, depreciation& amortization, interest revenueand interest expense etc. arerequired to be disclosed if thespecified amounts are includedin the measure of segment profitor loss reviewed by the chiefoperating decision maker, or areotherwise regularly provided tothe chief operating decisionmaker, even if not included inthat measure of segment profitor loss.

Aggregation Criteria The aggregation criteria under AS-17 is comparatively liberal.

On the other hand aggregationcriteria (para 12) under IFRS 8is restrictive and more rule basedin nature, which will lead toincrease in the number ofreported segments. Forexample, the nature of products& services may be similar,however, aggregation of suchsegments is not possible underIFRS 8 in case the type / classof customers differs

Comparability of Information Segment Information providedunder AS-17 is easilycomparable across companiesas specific financial parametersare required to be disclosedunder AS-17.

On the other hand IFRS 8 doesnot specify any financialparameters. Rather the segmentparameters are based on onlyinternal reporting then the samewould be very open-ended andhence comparability acrosscompanies would not bepossible. The basic reason forthis are:• CDOM could choose whatto disclose, and CDOM can optto disclose similar information inmany different ways.

9

Source of Information:1. Indian Accounting standard 17 issued by Institute of Chartered Accountants ofIndia.2. IFRS – 8 issued by International Accounting Standards Board (IASB)

CASE STUDY

The differences as quoted above are analyzed with the help of case study on SifyTechnologies Ltd.) . The data on segment reporting was sourced from the publishedannual report of M/s Sify Technologies Pvt. Ltd. as per IGAAP and from Form 20-F( i.e Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of1934) for the Financial Year ended 31st March, 2013.The data is further interpretedand conclusion are drawn which are mentioned below.

SEGMENT INFORMATION

AS PER AS-17Business segment

Particulars Enterprise Software Totalservices services

(A) (B) (C)=(A)+(B)

Revenue from operations 78,707 3,418 82,125

Allocable expenses (64,380) (3,085) (67,465)

Segment operating income / (loss) 14,327 333 14,660

Unallocable expenses (5,562)

Operating income 9,098

Other income 783

Foreign exchange gain / (loss), net 165

Profit / (loss) before interest, depreciation, 10,046

tax and exceptional items

Interest income / (expenses), net (1,323)

Depreciation, amortisation and impairment (8,408)

Profit/(loss) before exceptional items and 315

taxation

Exceptional item 3,943

Net profit/(loss) after taxes 4,258

The Company’s operating segment information for the year ended March 31,2013 is presented below:

10

Geographical segmentThe Company’s geographical segment information for the year ended March 31,

2013 is presented below:

The Company’s operating segment information for the year ended March 31, 2012 ispresented below:

Revenue from operations 65,590 4,118 69,708

Allocable expenses (55,214) (3,844) (59,058)

Segment operating income / (loss) 10,376 274 10,650

Unallocable expenses (5,477)

Operating income 5,173

Other income 1,214

Foreign exchange gain / (loss), net 249

Profit / (loss) before interest, depreciation, 6,636

tax and exceptional items

Interest income / (expenses), net (2,206)

Depreciation, amortisation and impairment (6,867)

Income Taxes 37

Net profit/(loss) after taxes (2,400)

Source : Seventeenth Annual Report together with the audited financials of the

Company for the financial year 2012-2013. (taken from official website of

Sify Technologies Ltd.)

Description India Rest of Totalthe world

Sales- External Revenue 51,502 30,623 82,125

Net carrying amount of segment fixed assets bylocation of assets 31,455 - 31,455

Net carrying amount of other segment assetsby location of customers 51,805 6,879 58,684

Cost to acquire tangible and intangible assetsby location of customers 10,490 - 10,490

11

SEGMENT REPORTING

AS PER IFRS – 8

The Group’s operating segment information for the years ended March 31,

2013 and 2012 as in Form 20F:

Year ended March 31, 2013

Enterprise Software Totalservices services

Segment revenue 7,869,647 700,669 8,570,316

Allocated segment expenses (6,486,556) (717,919) (7,204,475)

Segment operating income / (loss) 1,383,091 (17,250) 1,365,841

Unallocated expenses:

Selling, general and administrativeexpenses (587,909)

Depreciation and amortization (848,210)

Other income / (expense), net 50,858

Finance income 73,853

Finance expenses (260,441)

Gain on sale of equity accountedinvestee 657,577

Profit / (loss) before tax 451,569

Income tax (expense) / benefit -

Profit / (loss) for the year 451,569

12

Year ended March 31, 2012 (As adjusted)

Enterprise Software Totalservices services

Segment revenue 6,949,872 749,077 7,698,949

Allocated segment expenses (5,906,845) (729,587) (6,636,432)

Segment operating income / (loss) 1,043,027 19,490 1,062,517

Unallocated expenses:

Selling, general and administrativeexpenses (571,550)

Depreciation and amortization (691,560)

Other income / (expense), net 37,377

Finance income 59,313

Finance expenses (306,732)

Gain on sale of equity accounted investee 27,298

Profit / (loss) before tax (383,337)

Income tax (expense) / benefit -

Profit / (loss) for the year (383,337)

Year Reconciliations

Cost of general Selling, Totalgoods and Financesold admini- expenses

strativeexpenses

Year ended March 31, 2013

Allocated segment expenses 4,750,879 2,453,596 - 7,204,475

Unallocated segment expenses - 587,909 260,441 848,350

Total as per income statement 4,750,879 3,041,505 260,441 8,052,825

Year ended March 31, 2012

Allocated segment expenses 4,660,773 1,975,659 - 6,636,432

Unallocated segment expenses - 571,550 306,732 878,282

Total as per income statement 4,660,773 2,547,209 306,732 7,514,714

13

Cost of Goods Sold and Services (COGS) rendered:Fiscal 2013Fiscal 2012Change%Change

Enterprise Services 4,242 4,126 116 3%

Software Services 509 535 (26) -5%

Total 4,751 4,661 90 2%

Source : Form 20-F i.e Annual Report pursuant to section 13 or 15(d) of the SecuritiesExchange Act of 1934) for the Fiscal Year ended March 31, 2013. of the Company(taken from official website of Sify Technologies Ltd.)

ANALYSIS ANDINTERPRETATION

• As stated above as perAccounting Standard - 17, in thesegment information of M/s SifyTechnologies Pvt. Ltd. as given in theFinancial Statement prepared as perIGAAP, two kind of segments havebeen identified.1) Business Segments being thePrimary Segment – Accordingly twoBusiness Segments i.e (a)Enterprises Service Segment and (b)Software Services Segment hasbeen recognized.2) Geographical Segments beingthe Secondary Segment – Accordinglytwo segments i.e(a) India and (b)Rest of the World are recognized.

Since the overall risk and return ofM/s Sify Technologies Pvt. Ltd. areaffected predominantly by differencesin the Products i.e Software and

Hardware it produces and Services i.eNetwork and IT Services, the grouprender to its clients, its primary formatfor reporting segment information hasbeen Business Segments, withsecondary information reportedGeographically.

• In the Segment Reporting as perIFRS – 8, given in Form 20-F of M/sSify Technologies Pvt. Ltd. preparedas per IFRS, Business Activities i.e.a) Enterprises Service Segment and(b) Software Services Segment thatearn revenues or incur expenses,whose operating results are regularlyreviewed by the chief operatingdecision maker and for which discretefinancial information is available areidentified as Operating Segments.

14

• As per IFRS- 8, Chief OperatingDecision Maker (“CODM”) have beenidentified in the Segment reporting ofthe Company. The CDOM i.e, TheBoard of Directors and the seniormanagement, evaluate the Group’sperformance and allocate resources tovarious strategic business units thatare identified based on the productsand services that they offer and on thebasis of the market served.Themeasure of profit / loss reviewed bythe CODM is “Earnings/loss beforeinterest, taxes, depreciation andamortization” also referred to as“segment operating income / loss”.The financial information is requiredto be reported on the basis that it isused by management internally forevaluating operating segmentperformance and deciding how toallocate resources to operatingsegments.

· Whereas in the SegmentInformation as per IGAAP, no ChiefOperating Decision Maker has beenidentified and the Segment OperatingIncome and Loss is calculated as perthe requirement of AS-17 and not onthe basis of information reviewed byCDOM. The Segment Information hasbeen prepared in conformity with theaccounting policies adopted forpreparing and presenting the entity’sfinancial statements.• Accordingly this has resulted indifferences between the amountsreported in segment information as perIFRS-8 and and those reported underAS-17. The tabular differencebetween the two reporting is statedbelow:

(a) Enterprises Service Segment

All amount in Indian Rupees in lakhs

Particulars Amount Amount Difference % changeReported as Reported (B-A) overper IGAAP as per IFRS IGAAP

(A) (B)

Revenue from operations/

Segment Revenue 78,707 78,696.47 -10.53 -0.01%

Allocable expenses/

Allocated segment expenses -64,380 -64,865.56 485.56 0.75%

Segment operating income /

(loss) 14,327 13,830.91 -496.09 -3.46%

15

The probable reason why thesedifferences have occurred arefurther elaborated as follows:

1. Under AS-17, revenue recognizedis at the nominal amount of or cashequivalents received orreceivable. It is the gross inflowof cash, receivables or otherconsideration arising in the courseof the ordinary activities of anenterprise from the rendering ofservices.Under IFRS, revenue measured atthe fair value of the considerationreceived or receivable which maybe less than the nominal amount ofcash received or receivable wheninflow of cash or cash equivalentsis deferred. The fair value ofrevenue recognized isdetermined by discounting allfuture receipts using an imputedrate of interest to their present

value. The difference between thefair value and the nominal amountof the consideration is recognizedas interest revenue.

2. Another reason is that the underIGAAP revenue recognized fromservices related to sale ofproducts for example Installationservice revenue related to Sale ofProduct or Initial Franchise Fee isgiven under Enterprise ServiceSegment whereas under IFRS theinformation pertaining to same isgiven under Software ServiceSegment till the extent it is relatedto sale of products.

Therefore revenue recognized underIFRS is lower by 10.53 Lacsi.eapproximately by 0.01% overIGAAP.

(a) Software Service Segment All amount in Indian Rupees in lakhs

Particulars Amount Amount Difference % changeReported Reported (B- A) over

as per as per IGAAPIGAAP (A) IFRS (B)

Revenue from operations/ 3,418 7006.69 3,589 104.99 %Segment Revenue

Allocable expenses/ -3,085 -7179.19 -4,094 132.71%Allocated segment expensesSegment operating

income / (loss) 333 -172.5 -505.5 -151.80%

16

The reason why these differenceshave occurred are furtherelaborated as follows:

1. Under AS-17 the segmentreporting as previously stated has beenprepared in conformity with theaccounting policies adopted forpreparing and presenting the entity’sfinancial statements. Therefore in theSoftware Service Segment, theinformation as per AS-17 consist onlyRevenue generated from sale ofproduct i.e Software and Hardwareand expenses related to the same. Therevenue related to installation orrelated services are recognized underEnterprise Service Segment. But underIFRS, Revenue for Software ServiceSegment includes Sale of Products,Initial franchise fee and Installationservice revenue and the expensesrelating to the same.

2. Under IFRS revenue from saleof goods shall be recognized even ifthere is the probability that economicbenefits associated with thetransaction will flow to the entity andthe ability to reliably measure therevenue in question is there, includingany contingent revenue. Whereasrevenue under IGAAP is based onfixed or determinable pricingcriterion. It does not acceptprobability of economic benefitsassociated with the transaction whichresults in contingent amounts generallynot being recorded as revenue until the

contingency is resolved. This couldlead to differences in the timing ofrevenue recognition, with revenuepotentially being recognized earlierunder IFRS and therefore the revenuerecognized under IFRS is higher byapproximately 3.58 Crore thanrevenue recognized under IGAAP.

3. Under IGAAP the Installationfee or Installation Service Revenueare other than incidental to the sale ofa product, then they are recognized asrevenue only when the equipment isinstalled and accepted by thecustomer since these are consideredto be incidental / ancillary to productdelivery and the cost of installationservices is also accrued upon deliveryof the product. But under IFRSrevenue relating to productinstallation services is recognized asand when the installation services areperformed and expenses related toperforming those services are alsorecognized when the installationservices are performed. Now in thiscase sale of product under IFRS isrecognized earlier than IGAAPtherefore the services incidental /ancillary to product will also berecognized earlier under IFRS thanIGAAP. Therefor the revenuerecognition as well as cost/ expensesassociated with the Installationservice is higher under IFRS.

4. Under IGAAP, the InitialFranchise Fees is recognized when

17

the cash instalments are received orto the extent the initial services havebeen substantially completed. And ifthey relate to Supplies of equipmentand other tangible assets, it isrecognized as revenue when the itemsare delivered or title passes. On theother hand IFRS looks to theprobability of economic benefitsassociated with the transaction flowingto the entity and the ability to reliablymeasure the transaction, therefore evenwhen cash installment is accrued butnot received but it is probable that thebenefit will flow to the entity, thenrevenue pertaining to Initial FranchiseFees is recognized under IFRS. Furtherif under IFRS revenue related tosupplies of equipment and othertangible assets is recognized earlierthan IFRS then, Initial Franchise Feesincidental to that will accrue earlierunder IFRS.As a result Installation service revenueand Initial Franchise Fees asrecognized under IFRS is higher thanIGAAP.

• Another major differencebetween the two reporting is theinformation given and presentationrequirement. The information givenunder IFRS is detailed than that underIGAAP. IFRS requires the bifurcationof Allocated segment expenses andUnallocated segment expenses andfurther detail out the Cost of GoodsSold and Services (COGS) renderedrelated to each segment which a userwho does not have any access to

internal reporting is not able toanalyze under IGAAP.

CONCLUSIONThe IFRS adopts the managementapproach to segment reporting andtherefore it provides an opportunityto the users of financial statements toexamine the performance from thesenior management perspective. Itfacilitate the users of financialstatements so as to inquire andexamine how the entity is controlledby its senior decision makers.

Reporting under IFRS 8 also reducescost of preparing the information onreportable segments because theinformation is already to be usedinternally by management and readilyavailable on a timely basis.

The basic idea behind IFRS 8 is thatthe entity should disclose informationso as to enable the users of itsfinancial statements to assess thenature and financial effects of the typesof the business activities of the entityand the economic environments inwhich it operates. AS-17 on the otherhand is not based on this principle,but it is congruous with the objectivesand principles of the IndianAccounting Standards.

But on the other hand if we look to thedrawback of IFRS 8, we assess that itallows the preparers of the segment

18

information more discretion to definesegments and segment information asthey desire, and does not impose anymandatory need for geographicaldisclosures. The companies basicallyare reluctant to provide geographicaldisclosure especially when they areof politically sensitive nature as theyhelp to assess risks, especially thoselinked to country or regional factors.IFRS-8 allows the management adiscretion whether to provide suchdata or not. In such case mostly theinformation is not provided as it isnot mandatory as it could be seen fromthe case study as well.

IFRS 8 removes the risk and rewardcriteria determining the reportablesegment or for deciding the adequacyof information that is presented (or notpresented) to stakeholders and publicat large, which is there under AS-17.The menace associated with IFRS-8is not about whether the quality ofinformation is enhanced over thatreported under AS-17 or not. The riskis related to the management who ispreparing the information. The basicrisk under IFRS-8 is that it providesdiscretion to management who do notwant to deliver any information, orhave something to hide, which couldthen be passively assented to by non-executives and auditors due to theprescription of the standard allowingit.

REFRENCES

BOOKS:• Mongiello, Dr. M. 2009.International Financial Reporting.Marco Mongiello&Ventus PublishingAps, Italy.

PUBLICATION

• Crawford,L, Extance, H., Helliar,C., Power, D., (2012). OperatingSegment : The Usefulness ofIFRS 8.Satar, An ICAS InsightPublication.

• 2010. The Application of IFRS:Segment Reporting. KPMGInternational Standard Group.

• 2013. IFRS and US GAAP:Similarities and Differences.P r i c e w a t e r h o u s e C o o p e r spublication.

• Nichols, N.B., Street D.L., &Cereola, S.J.(2012). An analysis ofthe impact of adopting IFRS 8 onthe segment disclosures ofEuropean blue chip companies.Journal of International Accounting,Auditing and Taxation 21, pp.79-105.

• Lucchese, M. and Carlo,F.D.(2012). An Analysis ofSegment Disclosure under IFRS 8and IAS 14R: Evidence fromItalian Listed Companies. WorldBusiness Institute Australia,Refereed Paper No. 108 presentedat International Business and SocialScience Research Conference,Bangkok-2012.

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• Dr. Ronald, M.O., Dr. Nyangosi, R.& Martin, L. (2011). SegmentReporting (IFRS-14 AND AS-17);A Study of Commercial Banks inKenya and India. InternationalJournal of MultidisciplinaryResearch, V(1), Issue 8,pp. 237-247.

• Dr. Altintas, T.(2010). Switching toIFRS 8 and its Impact On TheTurkish Listed Companies.SosyalBilimlerDergisi* 2010, (2),pp. 98-107.

*Dumlupinar University, Journal ofSocial Sciences

• Veron N.(2007). EU adoption ofthe IFRS 8 Standard on OperatingSegments. Note for the ECONCommittee of the EuropeanParliament 21 September 2007.

• Hope, O.K, Thomas,W.B.&Winterbotham, G. (2006), TheImpact of Nondisclosure ofGeographic Segment Earnings onEarnings Predictability. Journal ofAccounting, Auditing and Finance,Vol.21(3), pp:323-346.

• Behn, B.K., Nichols, N.B. & Street,D.N., (2002). The PredictiveAbility of Geographic SegmentDisclosures by U.S.Companies:SFAS No. 131 Vs SFAS No.14.Journal of International AccountingResearch, Vol.1,pp:31-44.

• Hope, O.K., Kang, T.,Thomas,W.B. &Vasvari F. (2009).The effects of SFAS 131geographic segment disclosures by

US multinational companies onthe valuation of foreign earnings.Journal of International BusinessStudies, Vol. 40, No. 3, pp. 421-443

• Ray, S. (2012) .Indian GAAP andIts Convergence to IFRS:Empirical Evidence from India.Advances in Applied Economicsand Finance (AAEF), 2(1), pp.257-276.

• Srivastava, S.P & Patel S.K. (2009).Convergence Of IndianAccounting Standards With IFRS: Prospects and Challenges.Management Insight–(SMS)Varanasi, V(2), pp. 64-74.

• Muthupandian, K.S. (2007). IFRS8 Operating Segments – IASB’sConvergence Standard onSegment Reporting. TheChartered Accountant, Vol. 56pp:552-566.

• Hope, O.K, Thomas,W.B.&Winterbotham, G.(2009).Geographic Earnings Disclosureand Trading Volume. Journal ofAccounting and Public Policy, 28,pp: 167-188

WEBSITES:• www.ifrs.org• http://www.wbiconpro.com/• www.pwc.com• www.kpmg.com• http://www.icai.org/

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War: The longest running business forUnited States of America

* Dr. Kaustubh Sontakke

** Prathamesh Gosavi

These words marked one of the most significant events in the World historyand the dawn of an extra-ordinary path chosen by the strongest democracyin the world, towards upholding its hegemony. They were meant to send out astaunch warning to its rivals, a bold move to express its will to travel greatlengths to preserve its position in the world politics. These words marked thebeginning of the Iraq war.

This consideration is motivated by Realism, and, according to DanielLieberfeld’s explanatory perspectives on the Iraq Invasion, was meantto “maintain unipolarity, maintain hegemony and avoid post-9/11decline by demonstrating U.S. willingness to use force” (Lieberfeld,2005)

Assistant Professor, Finance & Accounting, SIES College of Management Studies, Navi Mumbai.

INTRODUCTION

Throughout late 2001, 2002, and early2003, the Bush Administrationworked to build a case for invadingIraq, culminating in then Secretary ofState Collin Powell’s address to theSecurity Council in February 2003.And what followed was more than $2trillion of taxpayer’s money pumpedinto the war funds; an amountequalling the GDP of India, world’slargest democracy. This in addition to$4 Trillion already spent onAfghanistan war.1 Defence and relatedsectors have always had a high sharein the U.S. GDP, the levels reachingas high as 5.7% of GDP during theperiod from 2003-2013.2 The

alarming question that arises thatneeds to be asked is “why” would anation be ready to spend such a hugeamount of taxpayer’s money, if it doesnot expect greater benefits in return?

The answers to this question are ofcourse, not simple.

Let us begin with the traditionaltheories and motives suggested tojustify the rationale behind this war.But it is very important to not look atthe Iraq war as an isolated event inthe history. It was the beginning of ameticulously designed foreign policy,which has directly shaped the

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unipolar world order as we see today.The U.S. government investedinconceivable amount of taxpayer’smoney, and the benefits they reap arehuge and strategically significant.Following the money trail assists infinding clues to the real motivesbehind such policies, which arecharacterised by multiple layers ofsmokescreens and false motives beingplanted in the minds of people.

Objectives

The present study is highlyexploratory in nature. It aims atexploring international war likesituations and terrorism scenario withspecial reference to engagement ofU.S. government on continuous basis.

Research Methodology

The present study is highly exploratoryin nature, and it is based on secondaryinformation and data, its analysis andinterpretation and conclusion. Theinformation and data is processed onpiece meal basis and made amenablefor presentation, analysis andinterpretation.

Limitations

The present study covers international

war like situations and terrorismscenario to the extent of engagementof the U.S. government, for the last two

decades. Thus, other global war likesituations and engagement of othercountries in such situations is notconsidered as the subject matter ofthis study.

The Rise of Global Terrorism ~Expanding Business

The immediate considerationsbehind the invasion of Iraq werecharacterized by concerns brought tothe forefront by the events ofSeptember 11th 2001, namely globalterrorism, and more importantly, theweapons at its disposal in a new eraof transnational asymmetrical warwaged by non-state actors. AsPresident George W. Bush made itclear in his State of the Union onJanuary 29th 2002, “in meeting thischallenge, the U.S. would notdifferentiate between terroristgroups and nations which harbour orarm them” (Bush, 2002). This policyled to the invasion of Afghanistan,motivated by the need to remove al-Qaeda’s safe haven and trainingground.1

Iraq did not specificallyharbour al-Qaeda, but it had providedtraining camps and other support toterrorist groups fighting thegovernment of Turkey and Iran, aswell as hard-line Palestinian groups.In fact, “the question of Iraq’s link toterrorism grew more urgent withSaddam’s suspected determination to

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develop weapons of mass destruction(WMD), which Bush administrationofficials feared he might share withterrorists who could launchdevastating attacks against theUnited States” (Council on ForeignRelations, 2005). Anti-US stance,readiness to develop and use chemicaland biological weapons, andproviding a breeding ground forterrorism were the official reasonscited by the U.S government for theinvasion. 2

According to Henry Michaels,“purely military considerationscannot explain such savagery. Bush’swar plans are driven by politicalaims—to terrorize and demoralizethe Iraqi people and the Arab massesand send a message of violence andintimidation to the entire world”

But, a direct blow to these theoriescomes from the very fact that no suchweapons of mass destruction (WMD)were ever found in the country, in themultiple investigations carried out

neither by weapons investigations norafter the invasion. Also, al-Qaeda hasbeen proven to be the direct result ofU.S. policy towards Afghanistan,when it provided arms support to thecountry to fight the invasion by theSoviet. Studies reveal that U.S. stillis the main supplier of arms andammunition to the rebels and theterrorist organisations; but more onthat in the later sections.

The Iraq war and the subsequentactivities were an effort made by theU.S. government to retain its market,and hegemony. Peace halts thedemand for weapons. And for a nationwhose business is dependent on war,artificial simulation of war-likesituations becomes necessary to keepup the demand. For situations to becreated, you need to conjure enemies.Sometimes things just fall into theplace naturally, sometimes you forcethem too. An investment of $2 Trillionis a meagre amount when you arechanging the entire face of the WorldOrder.

According to Henry Michaels, “purely military considerations cannotexplain such savagery. Bush’s war plans are driven by politicalaims—to terrorize and demoralize the Iraqi people and the Arabmasses and send a message of violence and intimidation to the entireworld”

Vested interests in Oil,Reconstruction Contracts ~Revenue Model

Interesting Fact!

Both the President and Vice

President were formerly CEOs of oiland oil-related companies suchas Arbusto, Harken Energy, Spectrum7, Exon Mobile and Halliburton.

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Iraq holds the world’s fifth-largestproven oil reserves at 141 billionbarrels (2.24×1010 m3) with increasingexploration expected to enlarge thembeyond 200 billion barrels(3.2×1010 m3) For comparison,Venezuela—the largest proven sourceof oil in the world—has 298 billionbarrels (4.74×1010 m3) of proven oilreserves. With the rising dominanceof Russia in the Middle East, and theUnited States rapidly losing control,drastic measures were indeednecessary. The Bush administrationhoped that removing Saddam Husseinwould result in a domino effect, whereall regimes in the greater Middle Easthostile to the U.S. and its interests inthe region would be intimidated intocooperation, or toppled by theirpopulations following the example theU.S. had set freeing the Iraqi people(Gauss III, 2009).1

Understanding the role of “ministry-industry-legislative complex” in thearms build up before the invasiongives tremendous insights. Anincentive stemmed from the Iraqinvasion not only from the interests ofU.S. Energy corporations, but alsofrom multiple billion dollars that thegovernment pumped into military andreconstruction efforts. Huge contractswere doled out to corporations thatwere successful in lobbying the Bushgovernment for the Iraq invasion.

Saddam Hussein’s gruesomewars against Iran and Kuwait in the

late 20th century, which witnessedrampant use of chemical andbiological weapons, do add relevanceto the War-for-Oil theory. UnitedStates had been an ally to the Saddamgovernment in these wars, providingthem strategic and military support.Yet, this theory alone still provesinsufficient to explain the rationalebehind investing 2 Trillion U.S.D.

America did make some tangible, highreturns on the investments she made.The contracts that were offered postthe invasion would let oil companiesmake billions of dollars over thecoming decades. They gave a strategichold over the huge amounts ofreserves in the Middle East. Anotherseries of contracts saw billions ofdollars diverted to Constructioncompanies, in the reconstructionefforts made in Iraq post invasion.

A study co-authored by the Centre forPublic Integrity, found that in the twoyears after September 11, 2001 thepresident and top administrationofficials had made 935 falsestatements, in an orchestrated publicrelations campaign to galvanizepublic opinion for the war, and thatthe press was largely complicit in itsuncritical coverage of the reasonsadduced for going to war.

Also, with gaining control over the oilmarket in Iraq, America was able todeliver a major blow to Russianeconomy. Russia sources oil majorlyfrom the arctic region, with high

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excavation and production costs. Oiltrading had reached $110 a barrel,with the Russian economy flourishing.This price was drastically broughtdown by 55% to $48 a barrel. Thisreduction in price has made a hugedent in the Russian economy, whichworks well in favour of the U.S.government.

Yet, all these theories fail tocompletely justify these tremendousinvestments, and the investments thatfollowed. And these theories fail,because we are still looking at Iraqwar as an isolated incident. Tocompletely understand any businessstrategy, it becomes necessary to lookat philosophy that resides at the heartof the strategy, and the future roadmaptoo. Foreign policies of governmentsare usually dynamic and subject tochange with the change in ruling party.They are characterised by falsepropagandas deliberately beingpromoted, half truths being spread andfed to the communities in large, andusing the public and privatemachinery as pawns in the game ofchess.

Manifest Destiny ~ BusinessPhilosophy

An American writer John L.O’Sullivan coined a term “ManifestDestiny” in the year 1845. This termdescribes what most 19th-CenturyAmericans believed was their God-

given mission to expand westward,occupy a continental nation, and extendU.S. constitutional government tounenlightened people. While the termsounds like it is strictly historical, italso more subtly applies to thetendency of U.S. foreign policy to pushdemocratic nation-building around theglobe.

This philosophy, though subtly, stillgoverns the policies designed by theU.S. government. Quoting the exampleof then President George W. Bush,when he began the war in March 2003,his overt reason was to find “weaponsof mass destruction.” In reality, he wasbent on deposing Iraqi dictator SaddamHussein and installing in his place asystem of American democracy. Theensuing insurrection against Americanoccupiers proved how difficult itwould be for the United States tocontinue pushing its brand of ManifestDestiny.

Though the Bush government facedhuge uproar from the world communitypost the invasion, after its failure, thisgovernment had smartly invested tosustain its frontline business, war.Where the communities perceive warsas drastic efforts taken by nations todefeat their enemies, the elite look atit as a powerful tool. It’s the machineryset up to maintain and sustain itsstronghold, its position as asuperpower. It’s arrogant, it’s bold,and it’s highly effective.

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Post World War I, the U.S. has beenthe largest supplier to the World’sarms and ammunitions market. This,combined with almost no internalconflicts over border disputes, was amajor driver of it becoming asuperpower in the coming years. Withthe philosophy of “Manifest Destiny”at its heart, and the massive militarystrength, the U.S. took no time inestablishing its hegemony in theworld. War became their source ofbusiness. Every time a war was foughtaround the world, the profits went toU.S. Every time a war was waged, thedemand for weapons surged. Whencountries became weary of its rivalsgaining strategic advantages, thedemand of newer and better weaponryincreased. The world saw a hugeescalation in the weapons demand,and the U.S. was always present tocater the demand. Business wasflourishing.

But what happens when the worldstarts moving towards achievingpeace? What if there are other playerswho question your monopoly? Howdoes America react when Russia andChina disrupt her business? How doesAmerica react when the demandreduces? How does America reactwhen she starts losing her strategicfoothold in the world politics?

The answers can be found in stepstaken by the U.S. government, theforeign policies designed, beginningwith the Iraq war.

As mentioned earlier, war is the mainbusiness of America. And it cannotafford to lose its ground. Russiarapidly gaining ground in the MiddleEast, together with Saddam Hussein’saggressive policies, made Americauncomfortable. They needed acomprehensive policy to maintain itsposition in the world order. They hadto increase their military presence inEurope and Asia, together with softpower diplomacy with thegovernments.

But strategically placing your militaryaround the world without spooking thenations is definitely not straightforward. Also, to sustain the businessit started almost a century ago, thedemand had to be positivelyinfluenced, enemies had to be created.

Al-Qaeda and the rising terrorism allover the world became the enemy thatAmerica wanted. And quite contraryto the beliefs, it was a brain-child ofAmerica itself. The roots of al-Qaedahave been traced back to the rebelsthat successfully fought the Sovietinvasion with the support from U.S.

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Interesting Fact!Both the President and Vice President were formerly CEOs of oil andoil-related companies such as Arbusto, Harken Energy, Spectrum 7,Exon Mobile and Halliburton.

A study co-authored by the Centre for Public Integrity, found that inthe two years after September 11, 2001 the president and topadministration officials had made 935 false statements, in anorchestrated public relations campaign to galvanize public opinionfor the war, and that the press was largely complicit in its uncriticalcoverage of the reasons adduced for going to war.

The same Al-Qaeda was used as amain reason of invading Iraq. It wasestablished over multiple reportspublished over the period of 3 years(2001-03), that Iraq had beenharbouring terrorists on its soil,providing them training and armssupport (sounds similar to ourneighbour’s story eh?), though nosuch proofs ever came forward. Thereports of Weapons of MassDestruction (WMD) were established,yet never proved. America invadedIraq successfully. And she got its entryinto Middle East Asia.

Iraq, due to its strategic position gaveAmerica a very strong position in onebold move. The multi-trillion dollarsinvested into this move gives moreintangible, than a few tangible returnslike oil and construction contracts.The U.S. government set up a hugemilitary camp in the heart of theMiddle East. The troops stationedwere meant to stay forever. But thereason of reconstruction and setting updemocratic government in Iraq had a

time limit.

When the current President BarackObama announced the recall of theU.S. soldiers, from Iraq, the worldapplauded and looked up to him withpride. But again, this was just a smallmove in a broader plan. Veryinterestingly, a new enemy wassimultaneously emerging in the MiddleEast. They had immensely strongmanagement, with tremendous manforce and high arms stockpile, andshook the world by its feats. They werecalled “Islamic State of Iraq andSyria”.

Iraq now again was at the centre ofthe axis of terrorism. Due to thesuspicious emergence of this newterrible threat, America now again hada reason to retain its troops in its Iraqiestablishments. It thus got a chance tomaintain its image of being a saviourto the world, and extend its militaryfoothold deeper into Syria. This movetakes it one more step closer to its archenemy, Russia.

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A new cold war has been suspectedof brewing between America on oneside, and Russia and China on theother. Interestingly, all these nationshave been investing large sums ofmoney into expanding their strategicreach. All the nations have beenapproaching their expansioniststrategies in all together differentdirections. While China’s expansionistpolicies are perceived to be highlyovert and aggressive, Russia has beenliving up to its legacy of playing itscards close to its chest. America onthe other hand, has been involvingitself into a much softer expansionistpath, doing what it does the best.Playing the game of war.

Conclusion:Experts all around the world aretalking about this new type of war. The21st century has already been termedas the age of wars. But the nature ofthis modern war is drastically differentfrom what our ancestors witnessed.This is the age of “Limited War”,where there are limited resourcestargeted towards achieving limiteddestruction (supposedly).Whilst the world is busy talking aboutrising terrorism, and how the world isheading towards destruction, Americais busy counting the tings on the cashcounter. Their cash counters areflooding. Very intelligently, she hascreated the demand in the market forwar, and she has been supplying war.Business is booming. Profits are on a

all time high. It has invested about $6Trillion overtly, and many morecovertly. And the investments havepaid. Oil markets are under hercontrol, governments are under hercontrol, her position in the worldorder remains unfazed, and Americancorporations in support of thegovernment have been regularlyawarded with multi-billion contractsfor weaponry and nation building.What started as an all out invasion ofIraq 12 years ago, has nowtransformed into a beautifully craftedforeign policy for the United States ofAmerica, carrying its philosophy of“Manifest Destiny” ahead. The beautyof the policy lies in the fact thatenemies will be created and destroyedby America, but no one in the worldwill ever challenge its authority.That’s what truly makes her thesuperpower.May God Bless the United States ofAmerica!!

Other References:1. Lieberfeld D., “Theories of

conflict and War”, , InternationalJournal of Peace Studies, Vol. 10

2. Leopold J., “The CIA declassifiesdocuments on WMD”, GlobalResearch Forum, October 2015

3. “Cost of National Securities”,www.nationalpriorities.org

4. Snyder M., “Is Barrack Obamatrying to start World War III”,Global Research Forum, October2015

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Organizations Taking Care ofIntellectual Capital

INTRODUCTION

“Intellectual capital is the knowledge, applied experience, enterprise processesand technology customer relationships and professional skills which are valuableintangible assets to an organization.”In fact in our knowledge based service orientated economy, intangible assetsare becoming as important as tangible ones. Intellectual Capital is probably theprimary creator of value in your business. This has presented companies with anew challenge - how to manage and develop intellectual capital.

Objective

• This study aims to investigate the role of organization in perpetuation anddevelopment of intellectual capital (IC).

Findings

The only way to create value in the knowledge economy is by adopting innovationas the core business process. An organization’s ability to create value dependson its innovation process, its intellectual resources, and the creativity of itsworkforce—its intellectual assets.The value most companies receive from their intellectual capital is the result ofa well-planned and well-executed set of management initiatives.

* Raghavendra Suresh Bendigeri

* Assistant Professor, Oriental Institute of Management, Plot No – 149, Sector – 12, Vashi, Navi Mumbai.

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The findings suggest that the followingcompetencies are vital and play asignificant role in management ofIntellectual Capital for Organizations.

Knowledge Management

Knowledge management is the firstcompetency that an organization needsto develop for the management of IC.Knowledge management constitutes theability of an organization to learn, toremember what it learned, and toleverage what it learned internally andexternally.

British Petroleum (BP) is a pioneerin knowledge management. BPprofessed that collaboration betweenemployees to transform personal intoorganizational knowledge is what makes“the bigger brain that is BP.” BPinnovated and implemented a number ofprograms on the operational leveldesigned to make knowledge sharing thejob of every employee and division,realizing great profits.

Innovation Management

Innovation management is a key corecompetency in an economy wherecycles of change are more recurrent. Asa core competency, it involves theability to embrace and create change,take risks, accept failure as part of theexperimentation process, and get from

product concept to market in theshortest time.Consider the experience ofEncyclopedia Britannica.Britannica continued producing theirleather-bound encyclopedia volumesafter the market was ready topurchase the same data in othermedium— compact discs. Microsoftseized the opportunity and producedtheir own encyclopedic CDs,Encarta, for less than a tenth of theprice. The market, preferring thefractional price and the addedconvenience of digital, searchableencyclopedic CDs, forcedBritannica into bankruptcy.

Intellectual Property (IP)Management

To protect ideas, expressions, andother intellectual capital,organizations have to manage theirIP, because until protected, ideas andexpressions are the property of noone. The speed andcomprehensibility with which anorganization moves to protect a goodidea sometimes can be critical. IBMis a company that developed IPmanagement as a core competency.IBM first adopted a very aggressivepatenting strategy, where inventionsare patented regardless of whetherthey fall in a core technological areaor not.

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Organisational Culture

The previously mentionedcompetencies cannot be developedwithout the support of the rightorganizational culture. Organizationalculture is the set of shared unspokenvalues that stem from theorganizational philosophy and history,and affect its behavioral patterns.Being deeply entrenched in theorganization, a positive culture andphilosophy is a core competency thatcan hardly be replicated by thecompetition. Every organization needsto develop culture as a corecompetency, but the same is not truefor the other mentioned competencies.

Conclusion

Efficient and Effective Management ofIntellectual Capital is a primaryprerequisite of every organization todevelop sustainable competitiveadvantage and create a uniqueidentity.

REFERENCES

K. E. Sveiby, The New OrganizationalWealth: Managing and MeasuringIntangible Resources (San Francisco:Berrett-Koehler Publishers, 1997), pp.6–7.

Christopher Bartlett, “The KnowledgeBased Organization”. In Ruggles &Holtshouse (editors), The KnowledgeAdvantage (Oxford, U.K., Capstone1999), p. 116.

M. Porter, Competitive Advantage:Creating and Sustaining SuperiorPerformance (New York: The FreePress, 1985), pp. 11–26.

Brooking, A. 1997, ‘The Manage mentof Intellectual Capital’, Long RangePlanning, 30(3), 365-366.

Collins, J. C. & Porras, J. I. 1999,Built to Last: Successful habits ofvisionary companies, Random House,London.

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Post Merger Financial Appraisal of RoyalBank of Scotland & ABN AMRO Bank

Abstract

The focus of this study is to estimate the profitability (or loss) of the RoyalBank of Scotland (RBS) after it acquired the ABN AMRO during the financialcrisis of 2008. Also, some qualitative data have been utilized to analyze thecompetitive advantage and management techniques of the RBS PLc. Thisparticular merger has by and large improved the competitive edge of the RBSPLc that they might need to broaden their presence in the untouched markets.RBS Plc should provide enabling financial environment to ABN AMRO in orderto regain its lost profitability. The EPS and P/E ratio are better after themerger which is giving a clear indication good financial health and betteroperational performance of banks involved. The bank’s cost of capital issignificantly higher than other competitors in the market and therefore bankmust take action to reduce its cost of capital like capital restructuring,considering dividend decision. In order to match with the accounting practicesbeing followed by the ABN AMRO bank, RBS should adopt the IFRS practices.Overall, this merger & acquisition has been accepted happily by a large sectionof employees and its future prospects also seem to be promising.

Keywords: Royal Bank of Scotland, ABN AMRO Bank, Bank Merger &Acquisition

*Dr. Ritesh Dwivedi

**Piyuesh Pandey

*Assistant Professor, Amity Business School, Amity University NOIDA, (UP)**Amity Business School

A. Introduction

In present day globalize economy,business cannot be thought of inisolation and also every business isinterdependent and therefore mergersand acquisition are being used worldover for improved competitiveefficiency through access to larger

market share, reducing market risk bydistribution of portfolio, entering intonew market in terms of geography,demography etc, and it also helps incapitalizing on economies of scale,economies of scope, it helps in getting

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taxation benefits too. Recently theIndian financial sector and economyor for that matter the global economyis facing severe challenges especiallyafter the 2008 recession and the eurozone crisis. In order to overcomethese financial challenges, besidesregulatory measures, there are lot ofmerger and acquisitions have takenplace. This increase in merger andacquisition are playing an importantrole in changing the entire structureof financial industry with an objectiveof strengthening and decreasing thedefault risk which is attached tofinancial sector.

Royal Bank of Scotland in India

The Royal Bank of Scotland has morethan 700 branches across Scotland.The RBS Group always supporteddifferent enterprises and companies.In India, RBS group has its footprintsin various cities such as Kolkata,Mumbai, New Delhi, Chennai, Pune,Baroda, Hyderabad, Bengaluru,Noida, Gurgaon etc. Group providesretail and business banking servicesincluding the recent concept oftransaction banking, investmentbanking, private privilege banking andasset and wealth management. Thereare total of 28 branches throughout thecountry with 1.3 million customers.

Royal Bank of Scotland ConsortiumTakeover of ABN AMRO

Interesting aspects to discuss atinterview Background to the RBSConsortium acquisition of ABNAMRO. In April 2007, the EuropeanCommission ordered Dutch regulatorsto allow the takeover of ABN AMRO(ABN). Soon after, ABN received a•66bn takeover bid from BarclaysBank. Two days later a consortium(the RBS Consortium), led by RoyalBank of Scotland (RBS) and includingFortis Bank and Banco Santander,made an even bigger offer of •72bn,•50bn of which would be cash andthe remainder of which would bemade up of shares in RBS.

The takeover is unrivalled in termsof size and complexity and is hugelysignificant as it is the world’s biggestbanking transaction to date and thefirst cross-border takeover of aEuropean bank. No European bankhad ever succumbed to a cross-borderhostile bid and it is interesting thatthe acquisition was for a perfectlysolvent conglomerate. It iscommonplace for acquisitions likethat of ABN to happen incircumstances where there is adisparity between two organisationsor where one organisation is infinancial crisis. An example of this isthe Virgin Group’s proposedacquisition of Northern Rock

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following the effect of the creditcrunch, where share prices tumbled toan all-time low. In the case of ABN,you have a bank with a significantpresence in the European bankingmarket and its performance certainlydid not suggest that it was in anyfinancial difficulties. Althoughtakeovers are often triggered by theweakness of the target, ABN is a hugeorganisation with offices in 53countries and its reputation was neverthat of a desperate operation.

B. Review of the literature

The main objective of this Researcharticle is to study the performance andoperations of well established banks,how they cope up with the changingenvironment and the financial healthof the country due to the globalfinancial dynamics (crisis), Severalprevious related studies werereviewed focussing especially on thediversifiable effect of merger andacquisition on the operations andprofitability of the two or moremerged banks. For this purpose RBSwas chosen as sample companybecause it is a foreign bank which hasits operations in India as well, and thecauses of 2008 crisis was mainlyrooted in the downfall of Americanand European financial structure, sothe critical study of RBS would be

helpful in making a connect with theobjective of this study report.

Andrea Resti (1998) talked about theoutcomes of mergers on the banksconceiving the target market, he foundout in the study and aptly said thatwhen the two banks which areoperating in the similar market and atthe equivalent operational levelsmerge, the efficiency of the firmsincreases, but in this particular paperhe did not talk about the alteration inprofitability and the liquidity of thebanks which are involved and alsofailed to talked about the mergers oftwo foreign banks or which is usuallyreferred to as cross border mergers.

Scott, Hviid and B. Lyons, 2005, thatMerger control in the United Kingdomhas recently entered a new phase inits development. The advent of thepertinent aspects of merger andacquisition has been welcomed as a‘depoliticisation’ of the government.He talked about the less hindrance ofthe politics would result in fairer andquick process of recovery of the banksbeing acquired.

Fridolfsson & Stennek (2006)clearly said that there is rise in shareprice but it subsequently falls, theearnings of the firms being merged,they stated that the study gives apossible account of a universal puzzlewhether mergers improves ordegrades the profits of the company.

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Mingo, Caruthers (1975) provides astrong basis to admit that the mergershave very little affect on theprofitability of the firms beingacquired and merged, in their studythey found that over a course of timethe ratio factors becomes stable andneutral.

Talking about the other aspect of thisresearch paper that is the managerialpractices of the RBS, SarahRobinson University of LeicesterSchool of Management (“Rivalryamong banking leaders and heads forgenuineness within the field activatedby behaviour which is irrational,which contributed to the financialrecession and crisis” 2008) exploresthat the guidelines and policesfollowed by the RBS PLc managerslately in which they periled theemployees with redundancies and tomeet the target aggressively by anymeans adopted and she used a termeconomic violence to describe thisparticular style of management.

Ron Kerr said: “Past managementexecutives at RBS PLc had gainedpower by banking on ’symbolicviolence’. This particular expression,termed by the French sociologistPierre Bourdieu, it means theupbringing leaders of the belief amongthose they guide and lead, that thelower position held in corporation isjust and natural.

Delloitte (2009) mentions in its reporton merger of RBS PLc and ABNAMRO that the Economist explicatesthat merger decision by consortiarather than single banks is the wayforward. In this way, banks can sharethe costs and the risks affiliated withany merger. It also means that they willnot be pushed to sell off parts of theaimed business that do not fit in withtheir own framework, as these can beassembled off and distributed to theRBS Consortium member that is bestplaced to take hold of those assets.There may be more banking deals inEurope which take the form ofuncongenial acquisitions. Analysts areanticipating the inevitability ofBarclays engaging a larger merger oritself become a bid target. Followingthe ABN merge there have beenrustles that Unicredit are having talkswith Société Générale in Franceregarding a prospect merger.

The Guardian (2008) gave Twomajor suggestions which are clearlyworth adopting. First, the regulatorshould have the potency to blockM&A’s, would not have had thecourageousness to stop the ABN dealbut it’s better that regulators are giventhe power to say ‘no’. Secondly,directors of broken banks should facelegal actions (fines or bans) or non-

35

legal penalties (bans or the forfeit ofpay) given the grandness of banks thebigger economy. A few people mightbe stopped from acceptingdirectorships at banks. But volunteerswould be promoted to engage theirbrain when presented with a mega-deal that smelled bad at the time.

C. Study

In order to rationally study the caseof Royal Bank Of Scotland (RBS),accounting ratios have been used toanalyze the functioning of Royal BankOf Scotland Public LimitedCorporation (RBS PLC). Financialstatements of RBS PLC for 4 years(2008-2013) have been used toperform ratio analysis by making useof 21 vital ratios. Although there arecertain shortcomings of accountingratios but still they are considered tobe one of the most reliable andconvenient tools of analyzing thefinancial statements of a company andthereby estimating the performance ofthe firm.

The study clearly indicates that thebank’s ability to pay interest over itsdebts have dropped after the mergerwith ABN AMRO and probablerationale behind this could be that themerging firm may have bought asignificant number of long term debts.So in order to fix this problem RBSPLc should go for capital restructuringby raising more capital through equity

rather than debt source of financing.The work culture prevailing in theRBS PLc is very satisfactory becausethe perception of their employeestowards the issue of merger is moretowards positivity as discussed abovein the analysis of primary data.

Methodology

This research study is broadlyquantitative in nature and a case studyand descriptive research design hasbeen formulated to get an answer,whether the policy of merger andacquisition followed by many bankinginstitutions throughout the world,really helped improve theirfunctioning and profitability. And forthis very purpose, the case of mergerof ABN AMRO and RBS PLc havebeen used and chosen it as samplecompany for this research study. Datafrom several previous studies,research papers have been referred togain basic knowledge about theprofitability and managerial practicesof RBS PLc. Few interviews withRBS PLc employees have beenconducted in order to get data aboutprevailing managerial practices in thebank and operational efficiency.

For the purpose of financial dataanalysis figures from P&L a/c andbalance sheet and CFS have been usedto calculate various ratios in order to

36

compare the post and pre mergerperformance of the RBS. Also variousreview data have been used for criticalcomments on the managerialfunctioning of the bank. For thepurpose following broad categories ofratios have been calculated:

1. Profitability

2. Liquidity

3. Leverage

4. Activity Ratios

Hypothesis

In order to prove the rationale of thisresearch study, I have developedfollowing hypothesis:

Null Hypothesis Ho - The profitabilityof the Royal Bank Of Scotland doesnot improve after the merger.

Alternative Hypothesis H1 - Theprofitability of RBS PLC improveafter the merger.

In order to authenticate the outcomeof the data analysis a one sample t-test has been conducted. This t testwas finalised because the sample sizein the study is small i.e. below 30 andwhich is apt for t test hypothesistesting.

Gearing ratios, liquidity ratios andprofitability ratios have beencalculated and the profitability of thecompany was checked at large. Theseaccounting ratio can be a convenient

and reliable tool for the stakeholdersin not only analyzing the presentcondition of the company but also itprovides basis for the analysis of thefuture prospects of the company andrational decision making and thisfeature of ratio analysis would proveto be a great help for me to conduct acomparative study of the financialstatement of RBS, before and after theacquisition of ABN AMRO during the2008 financial crisis. For the purposeof qualitative study of managementtechniques and the competitiveadvantage of RBS, it is necessary tostudy the management practices andbasic operational practices of RBSespecially in the Indian market.

D. Data Analysis

(based on secondary data)

Following is the general informationabout the Royal bank of Scotland(table 1) :

37

Table 1

Type Public Company

Industry Finance and insurance

Founded 1727

Headquarters Edinburgh, Scotland

CEO Ross McEwen

Key Products Consumer banking, corporate banking, financing and insurance

Employees 1,41,000

Net worth £37,090 million

Current P/E ratio 16.64

Current EPS -0.81

Shares outstanding 6,204 million

Price / Sales ratio 1.38

As per the consolidated Income statements and balance sheet of the RBS PLc (seeannexure) which has been collected from different sources. These are the incomeand position statement of the RBS PLc two years before M&A i.e. 2005 and 2006and two years after M&A i.e. 2007 & 2008.

Liquidity Ratios ComparisonTable 2

Liquidity Ratio Before Merger After Merger Status

Current Ratio 0.545 0.95 Better

Quick Ratio 0.48 0.93 Better

Cash Ratio .14 0.07 Better

Working Capital 3407954 9658680 Unfavourable

38

The table 2 shows the calculated average liquidity ratios of the firm and also itshows a comparison of pre and post merger performance of RBS PLc. It gives aclear picture of liquidity position of RBS and it would be apt to say that thebank is in a better liquidity position after the merger with ABN AMRO. Exceptfrom the fact that the working capital has substantially increased, the idealmaintenance reserve of working capital reflects the unwise usage of short termasset and liabilities of the firm.

Profitability Ratios Comparison

Table 3

Fig: 1 Liquidity Ratios Comparison

Profitability Ratios Before After StatusMerger Merger

Return on Assets -.96% 0.20% Better

Return on Equity -10.17% -3.44% Better

Gross Profit Margin 3.86% 2.33% Unfavourable

Net Profit Margin -1.14% 0.26% Better

Pre-Tax Profit Margin -1.52 0.96% Better

Operating Profit Margin 2.05% 3.67% Better

Management Rate of Return 2.13% 3.71% Better

39

Apart from comparing liquidity, the profitability ratio is also a vital indicationof performance of the firm, it gives a clear picture of the very reason of theexistence of any firm i.e. profits. Table 2 shows that profitability of the RBSPLc has got better after the merger with ABN AMRO. The reason behind thisconclusion is that out of 7 profitability ratio 6 ratios gives favourable postmerger indications.

Solvency/Leverage Ratios Comparison

Table 4

Solvency Ratios Before After StatusMerger Merger

Total Debts to Equity 17.80 10.68 Better

Proprietary Ratio 0.06 .09 Better

Interest Coverage Ratio -0.24 .20 Unfavourable

Debt Ratio .94 .91 Better

Long Term Debts to Equity 14.36 7.55 Better

Fig: 2 Solvency/Leverage Ratios Comparison

40

The above ratios (see table 3) determines the solvency of the firm i.e. whether thefirm is capable enough to meet its long term financial obligations. The above tabledratios gives a clear indications that RBSs long term paying ability has improvedsignificantly and hence it can be said that merger of ABN AMRO has proved to be abetter decision in terms of its solvency.

Returns on Investment Ratios Comparison

Table 5

The above table 4 shows the comparison of ratios which gives the total profitsearned against the total capital employed by the firm. The bank now gets betterreturn on the total capital invested after the merger with ABN AMRO. The bankis now in a better position to avail higher earning to the shareholders of the RBSPLc.

Market Stock Ratios Comparison

Table 6

Return on InvestmentRatios Before AfterMerger Merger Status

Return on CapitalEmployed 1.46% 1.58 Better

Return on ShareholdersFunds 7.24% 8.67% Better

Market Stock Ratios Before After StatusMerger Merger

Earnings Per Share 0.31 -0.59 Better

Earning Yield Ratio 0.05 0.01 Better

The above calculated average ratios of the bank give the market value of thestock of the firm. These ratios assist investors in making right investmentdecisions. The current status of the bank is in a better position after the mergerwith ABN AMRO.

A. Data Analysis (based on primary data)

41

RBS Liquidity Improved After M&A

Table 7

About 50% of the total respondents agreed that the liquidity of the RBS PLcimproved after the acquisition of ABN AMRO. Apart from the fact that 50% ofthe employees of RBS agreed to improvement of liquidity of RBS, there were18% of employee who were neutral, it means that they did not denied to it aswell.

Ownership gets diluted after M&A

Table 8

Frequency Percent Valid CumulativePercent Percent

Strongly agree 4 14.3 14.3 14.3

Agree 10 35.7 35.7 50.0

Neutral 5 17.9 17.9 67.9

Disagree 9 32.1 32.1 100.0

Total 28 100.0 100.0

Frequency Percent Valid CumulativePercent Percent

Always 5 17.9 17.9 17.9

Sometimes 15 53.6 53.6 71.4

Rarely 7 25.0 25.0 96.4

Never 1 3.6 3.6 100.0

Total 28 100.0 100.0

Valid

From the above table it is clear that most of the employees agreed that mergerdoes effect the consistency of the ownership which means always or sometimesthe owner’s equity gets diluted with addition of the stakeholders of the firmwhich has been acquired. Majority of the RBS PLc employees admitted thatafter the merger with ABN AMRO the equity of the RBS PLc got diluted.

42

Convertibility & ROA Improves After M&A

Table 9

Frequency Percent Valid CumulativePercent Percent

Strongly agree 6 21.4 21.4 21.4

Agree 13 46.4 46.4 67.9

Neutral 6 21.4 21.4 89.3

Disagree 2 7.1 7.1 96.4

Strongly Disagree 1 3.6 3.6 100.0

Total 28 100.0 100.0

Valid

Above frequency distribution shows that majority of the employees agree to thefact that Return on asset of the RBS PLc improved by the acquisition of ABNAMRO. Nearly 68% of the respondents were in the favour admitted to it andwhen we cumulate the percentage of responses about 90% of the employee didnot deny the improvement of convertibility of the firm.

Profitability & Diversification Are Related

Table 10

Frequency Percent Valid CumulativePercent Percent

Yes 14 50.0 50.0 50.0

No 14 50.0 50.0 100.0

Total 28 100.0 100.0

Valid

The frequency distribution in the above table gives a clear picture that theemployees of RBS were evenly distributed on the question that whether theprofitability and diversification are related. Exactly 50% of the employeessaid that the above two mentioned variables are related to each other.

43

Fig: 3 Effects of MeCrger and Acquisition on Employees

Looking into the effects of merger and acquisition on the psychological state of theemployees, the above pie chart shows that majority of the employees were eitherneutral or positive towards the decision of acquisition of ABN AMRO. Rest of theemployees either felt neglected or took it negatively altogether. But there was veryless, so it could be well concluded that majority of the employee welcomed thedecision of acquisition of ABN AMRO.

Fig: 4 Most Effective Alternatives to Overcome Financial Crisis

The above pie chart shows that the employees of RBS PLc voted for change inmanagement would be the best option to overcome the financial crisis while thesecond best option they were in favour of was the merger and acquisition withsome other firm. About rest of 35% respondents were in the favour of overallcapital restructuring or gaining access to new markets.

44

Fig: 5 Crucial Factors behind Merger and Acquisition

About 40% of the employees were of the opinion that RBS took the decision ofmerger with ABN AMRO to increase its market share while about samepercentage of respondent said that diversification of its services and productsdrove RBS to acquire ABN AMRO. While rest of the employees i.e. about 30%of them said geographical expansion or operational efficiency was the reasonbehind this particular decision of merger with ABN AMRO.

Correlation Between Cross Border M&A Efficiency GainsTable 11

M & Aallows firms

to obtainefficiency

gainsthrough cost

reduction

Org. benefitsfrom cross

border M&A

M&A allows firms toobtain efficiency gainsthrough cost reduction

Org. benefits from crossborder M&A

PearsonCorrelation

Sig. (2-tailed)N

PearsonCorrelation

Sig. (2-tailed)N

1 .019

.924

28 28

.019 1

.924

28 28

45

The above table shows the correlation between the cross border merger andacquisition and the efficiency gains through cost reduction. The value r is 0.019which infer that there is some correlation between the above mentioned factorsand the respondents agreed to the fact that cross border M&As are one factor tobenefit the organization to obtain competitive edge by reducing the cost ofoperations.

One-Sample Statistics

Table 12

N Mean Std. Std.Error

Deviation Mean

RBS Profitability 28 2.5714 .99735 .18848

increased after the

M&A of ABN AMRO

One-Sample Test

Table 13

Test Value = 0

RBS Profitability increased after

the M&A of ABN AMRO

95%Confidence

Interval of theDifference

Lower Upper

13.643 27 .000 2.57143 2.1847 2.9582

T dfSig. (2-tailed)

MeanDiffer-ence

The table above shows the outcome of the t test, the t test was conducted at the95% confidence level, the result shows the significance level (t = 0.000) whichis less than the tabulated significance of 0.05, therefore there is a strong evidenceto reject the Null hypothesis Ho in favour of the alternate hypothesis H1. So itis very much clear from the alternate hypothesis that the profitability of RBSPLc increased after the acquisition of ABN AMRO.

46

RBS Profitability Increased After M&A of ABN AMRO

Table 14

A. Conclusion and SuggestionsThe gross profit of RBS PLc has beendeclining even after merger with ABNAMRO which indicates the lowgrowth in sale of its core bankingproducts. The working capital fund ofthe RBS PLc is significantlyincreasing over the year whichindicates the disproportionate usageof current asset, so the bank mustredistribute its current asset. Thereare certain issues and suggestionsbased on this research study listedbelow:• The banks cost of capital is

significantly higher than othercompetitors in the market andtherefore bank must take action toreduce its cost of capital like

The above table show the result of one sample t test and the frequency of theresponses to the question whether RBS PLCs profitability increased after theacquisition of ABN AMRO. Approximately 54% of respondents either stronglyagreed or agreed to it. Out of the remaining respondent about 29% of theemployees were neutral to it. It should be noted that only 18% of the respondentdid not agree to it.

capital restructuring, consideringdividend decision.

• In order to match with theaccounting practices beingfollowed by the ABN AMRObank, RBS should adopt the IFRSpractices.

• The gross profit of RBS PLc hasbeen declining even after mergerwith ABN AMRO which indicatesthe low growth in sale of its corebanking products.

• The working capital fund of theRBS PLc is significantlyincreasing over the year whichindicates the disproportionateusage of current asset, so the bankmust redistribute its current asset.

• The study clearly indicates that the

Frequency Percent Valid CumulativePercent Percent

Strongly agree 3 10.7 10.7 10.7Agree 12 42.9 42.9 53.6Neutral 8 28.6 28.6 82.1Disagree 4 14.3 14.3 96.4Strongly Disagree 1 3.6 3.6 100.0Total 28 100.0 100.0

Valid

47

bank’s ability to pay interest overits debts have dropped after themerger with ABN AMRO andprobable rationale behind thiscould be that the merging firm mayhave bought a significant numberof long term debts. So in order tofix this problem RBS PLc shouldgo for capital restructuring byraising more capital through equityrather than debt source offinancing.

• The work culture prevailing in theRBS PLc is very satisfactorybecause the perception of theiremployees towards the issue ofmerger is more towards positivityas discussed above in the analysisof primary data.

• This particular merger has by andlarge improved the competitiveedge of the RBS PLc that theymight need to broaden theirpresence in the untouched markets.

• RBS Plc should provide enablingfinancial environment to ABNAMRO in order to regain its lostprofitability.

• The EPS and P/E ratio are betterafter the merger which is giving aclear indication good financialhealth and better operationalperformance of banks involved.

ReferencesAltunbas, Y., & Ibanez, M. D. (2004).Mergers and Acquisitions and BankPerformance In Europe: The Role of

Strategic Similarities EuropeanCentral Bank, 1-35.Burki, A. A., & Ahmad, S. (2008).Corporate Governance Changes inIndia’s Banking Sector: Is There aPerformance Effect? Journal ofEconomics and Business, 1-39.Martikainen, T & Ankelo, T. (1991).On the instability of financial patternsof failed firms and the predictabilityof corporate failure, EconomicsLetters 35/2, 209-214.Pinches, G.E., Eubank, A.A., Mingo,K.A., & Caruthers, J.K. (1975). Thehierarchical classification of financialratios Journal of Business Research,Vol.3, No. 4, 295-310.Martikainen, T & Ankelo, T. (1991).On the instability of financial patternsof failed firms and the predictabilityof corporate failure, EconomicsLetters 35/2, 209-214.Resti A. “The optimal structure of PD buckets”, Journal of Banking andFinance, vol. 32, 2008, pp. 2255-2266.

Websitesht tp : / /www.inves tors . rbs .com/r e s u l t s - c e n t r e / a n n u a l - r e p o r t -subsidiary-results/archived.aspxhttp://www.mirror.co.uk/all-about/royal%20bank%20of%20scotland.http://uk.reuters.com/article/2011/12/1 2 / u k - r b s - d e l o i t t e -idUKTRE7BB17420111212.h t t p : / / w w w. t h e g u a r d i a n . c o m /business/royalbankofscotlandgroup.

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Annexure 1

STATUTORY AND PRO FORMA INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005

(Source: Compiled data from annual reports of RBS PLc)

S. no Items Amount (in M £ )

1 Net interest income 9,071

2 Fees and commissions receivable 6,473

3 Fees and commissions payable (1926)

4 Income from trading activities 1988

5 Other operating income 2138

6 Insurance net premium income 5647

8 Non-interest income 14320

9 Total operating income 23391

10 Administration expenses – staff costs 5105

11 Other operating expenses 4692

12 operating expenses 9797

13 Profit before other operating charges 13594

14 Insurance net claims 4260

15 Impairment losses: Loansavailable-for-

sale financial assets 140283

16 Operating profit before amortisation of

intangibles and integration costs 7849

17 Amortisation of intangibles 45

18 Integration costs 520

19 Profit before tax 7284

20 Taxation 1995

21 Profit after tax 5289

49

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005

S. no Assets Amount (in M £)

1 Cash and balances at central banks 4,293

2 Treasury bills and other eligible bills 6,110

3 Short term Loans and advances to banks 61,073

4 Loans and advances to customers 347,251

5 Debt securities 93,908

6 Equity shares 4,723

7 Intangible assets 19,242

8 Property, plant and equipment 16,428

9 Settlement balances 5,682

10 Derivatives at fair value 17,800

11 Prepayments, accrued income and other assets 11,612

12 Total assets 588,122Liabilities

13 Deposits by banks 99883

14 Customer accounts 283315

15 Debt securities in issue 63999

16 Settlement balances and short positions 32990

17 Derivatives at fair value 18876

18 Accruals, deferred income and other liabilities 17648

19 Retirement benefit liabilities 2940

20 Deferred taxation liabilities 2061

21 Insurance liabilities 8647

22 Subordinated liabilities 20366

23 Total liabilities 550725

24 EquityMinority interestShareholders’ equity 349233905

25 Total equity 37397

26 Total liabilities and equity 588122

(Source: Compiled data from annual reports of RBS PLc)

50

STATUTORY AND PRO FORMA INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2006

(Source: Compiled data from annual reports of RBS PLc)

2006£m

Interest receivable 24,6 88Interest payable 14,092

Net interest income 10,596

Fees and commissions receivable 7,116Fees and commissions payable (1,922)Income from trading activities 2,675Other operating income (excluding insurance premium income) 3,564Insurance premium income 6,243Reinsurers’ share (270)

Non-interest income 17,408

Total income 23,002

Staff costs 6,723Premises and equipment 1,421Other administrative expenses 2,658Depreciation and amortisation 1.678

Operating expenses* 12,480

Profit before other operating charges and impairment losses 15,522Insurance claims 4,550Re i nsu rers’ sh are (92)Impairment losses 1,878

Operating profit before tax 9.136

Tax 2,689

Profit for the year 6,497Minority interests 104Preference dividends 191

Profit attributable to ordinary shareholders 6,202

51

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2006

(Source: Compiled data from annual reports of RBS PLc)

2006£m

AssetsCash and balances at central banks 6,121Treasury and other eligible bills 5,491Loans and advances to banks 32.60SLoans and advances to customers 466,893Debt securities 127,251Equity shares 13,504Intangible assets 18,904Property, plant and equipment 18,420Settlement balances 7,425Derivatives 116,681Prepayments, accrued income and other assets 8,136

Total assets 871,432

LiabilitiesDeposits by banks 132,143Customer accounts 384,222Debt securities in issue 85,963Settlement balances and short positions 49,476Derivatives 118,112Accruals, deferred income and other liabilities 15,660Retirement benefit liabilities 1,992Deferred taxation 3,264Insurance liabilities 7,456Subordinated liabilities 27,654

Total liabilities 825,942

Equity:

Minority interests 5,263Shareholders’ equity*

Called up share capital 815Reserves 39,41Total equity 45.490

Total liabilities and equity 371.432

*Shareholders’ equity attributable to:Ordinary shareholders 36,546Preference shareholders 3,681

40,227

52

STATUTORY AND PRO FORMA INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007

(Source: Compiled data from annual reports of RBS PLc)

2007

£m

Interest receivable 33,420

Interest payable 20,752

Net interest income 12,668

Fees and commissions receivable 8,465

Fees and commissions payable (2,311)

Incorne from trading activities 1,327

Other operating income (excluding insurance premium income) 4,857

Insurance premium income 6,398

Reinsurers’ share (289)

Non-interest income 18,447

Total income 31,115

Staff costs 7,552

Premises and equipment 1,766

Other administrative expenses 3,147

Depreciation and amortisation 1,970

Operating expenses” 14,435

Profit before other operating charges and impairment losses 16,680

Insurance claims 4,770

Reinsurers’ share (118)

Impairment losses 2,128

Operating profit before tax 9,900Tax 2,052

Profit from continuing operations 7,848Loss from discontinued operations, net of tax 136

Profit for the year 7,712Minority interests 163

Other owners 246

Profit attributable to ordinary shareholders 7,303

53

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007

(Source: Compiled data from annual reports of RBS PLc)

2007

£mAssetsCash and balances at central banks 17,866Treasury and other eligible bills 18,229Loans and advances to banks 219,460Loans and advances to customers 829,250Debt securities 276,427Equity shares 53,026Settl ement ba la n ces 16,589Derivatives 337,410Intangible assets 43,492Property, plant and equipment 18,750Prepayments, accrued income and other assets 19,066Assets of disposal groups 45,954

Total assets 1,900,519

LiabilitiesDeposits by banks 312,633Customer accounts 682,365Debt securities in issue 273,615Settlementbalancesandshortpositions 91,021Derivatives 332,060Accruals, deferred income and other liabilities 34,024Retirement benefit liabilities 496Defe rred taxati on 5,510Insurance liabilities 10,162Subordinated liabilities 37,979Liabilities of disposal groups 29,228

Total liabilities 1,809,093Equity:Minority inte rests 33,388Owners' equity*Called up share capital 2,530Reserves 50,508Total equity 91,426

Total liabilities and equity 1,900,519

54

STATUTORY AND PRO FORMA INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2008

2008£m

Interest receivable 49,522

Interest payable 30.847

Net interest income 18,675

Fees and commissions receivable 9,831

Fees and commissions payable (2,386)

(Loss)Zincome from trading activities (8,477)

Other operating income (excluding insurance premium income) 1,899

Net insurance premium income 6,326

Non-interest income 7,193

Total income 25,868

Staff costs 10,241

Premises and equipment 2,593

Other administrative expenses 5,464

Depreciation and amortisation 3,154

Write-down of goodwill and other intangible assets 32,581

Operating expenses” 54,033

(Loss) / profit before other operating charges and impairment (28,165)

Net insurance claims 4.430

Impairment 8,072

Operating (loss)/profit before tax (40,667)

Tax (credit)/charge (2,323)

(Loss)/profit from continuing operations (38,344)

Profit’(loss) from discontinued operations, net of tax 3,971

(Loss)/profit for the period (34,3 73)

Minority interests (10,832)

Other owners’dividends 596

(Loss) / profit attributabIe to ordinary share holders (24,137)

(Source: Compiled data from annual reports of RBS PLc)

55

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2008

(Source: Compiled data from annual reports of RBS PLc)

2008£m

AssetsCash and balances a: central banks 11,830

Net bans and advances to banks 70,637Reverse repurchase agreements 59,771

Loans and advances :o ban ks 129,408

Net loans and advances :o cus:orrers 691,876Reverse repurchase agreeiren-i and stock borrowing 33,289

Loans and advances :o cu s-.omers 731,165Debt securities 253,098Equity shares 22,094Sellemenl balances 17,812Derivatives 991,493Intangible assets 16,386Property, plant and equipment 17.169Deferred taxation 5,409Prepayrren”.5, accrued income and other assets 20,715Assets of disposal groups 67

2,216,646Consortium share of shared assets 2,047

Total assets 2,218,693

LiabilitiesDeposits by banks 178,268Repurchase agreements and s:ock lending 83,666

Deposits by banks 261,934

Met customer accounts 460,318Repurchase agreements and s:ock lendi ng 58,143Customer accou nts 518,461Debt securities in issue 269,188Settlement balances and short positions 54,264Derivatives 969,396Accruals, deferred i nccme and other liabilities 23,453Retirement benefit liabil ities 1,547Deferred taxation 2,930Insurance liabil ities 7,480Subordinated liabilities 43,678Liabilities of disposal groups -

2,152,331Consortium share of shared assets 2,047

Total liabilities 2,154,378

Equity:MinoriTy interests 5,436Owners’ equity, 58,879

Total equity 64,315

56

“A Study of Consumer’s Buying Behaviorstowards Tobacco Products in Mumbai”.

Abstract:

A study is planned to identify the consumers buying behaviour towardstobacco consumption in Mumbai city by Mr.Chetan Jagtap ( MMS inMarketing) .

Method: The study will be descriptive and analytical in nature. The study isaimed at describing the consumer behavior pattern in tobacco segment andto know the existing and future market. Therefore, Survey method will befollowed. The data will be collected through interview method and tool willbe used as checklist for statutory warning about cigarette consumptioninfluences consumer behavior, a structured questionnaire to identify consumerbehavior with respect to tobacco consumption and a Likert scale is used tofind out impact of visual display of different brands on consumer buyingbehavior. The respondents will be given complete freedom to express theirviews. 50 samples are planned to identify the research hypothesis.

Materials and Methods

Research design: The study will be descriptive and analytical in nature. Thestudy is aimed at describing the consumer behavior pattern in tobacco segmentand to know the existing and future market. Therefore, Survey method will befollowed.

Collection of data: In order to find out the consumer behavior pattern intobacco among target population who are men/ women. The data will becollected through interview method and tool will be used as an unstructuredquestionnaire. The schedule contained both open ended as well as close endedquestions. The respondents will be given complete freedom to express theirviews.

Secondary data will be collected from books, journals, Reports and websites.

Sampling design: It will be non probability sampling technique as sampleswill be selected on the basis of the availability of the respondents.

* Chetan Jagtap

* Research Scholar Mumbai University

57

Sample Universe: People in Mumbai. (Men and women who smoke.)

Sample size: 1000 persons.

Data analysis: Data would be analyzed with the help of computer softwarewhere statistical tools and techniques will be followed.

Keywords – Consumer, Buying Behavior, Brand, Tobacco, Loyalty.

Aims & Objectives:

1. To study if statutory warning about cigarette consumption influencesconsumer behaviour.

2. To understand consumer behaviour with respect to tobacco consumption.

3. To understand the impact of visual display of different brands on consumerbuying behaviour.

Rationale / Research Hypothesis

H0- There is no significant difference in the behavior of consumer towardstobacco with respect to age group.

H1- There is a significant difference in the behavior of consumer towards tobaccowritten age group.

H0- There is no significant difference in the behavior of consumer towardstobacco with respect to income group.

H1- There is a significant difference in the behavior of consumer towards tobaccowith respect to income group.

INTRODUCTION

A business , also known as anenterprise or a firm, is anorganization involved in the trade ofgoods, services, or both to consumers.Businesses are prevalent in capitalisteconomies, where most of them areprivately owned and provide goods

and services to customers for profit.Businesses may also be not-for-profitor state-owned. A business owned bymultiple individuals may be referredto as a company, although that termalso has a more precise meaning

The etymology of “business” stems

58

from the state of being busy, and

implies commercially viable andprofitable work. The term “business”has at least three usages, dependingon the scope in which it is used. Abusiness can mean a particularorganization, while a moregeneralized usage refers to aparticular market sector, i.e. “themusic business”. Compound formssuch as agribusiness represent subsetsof the word’s broadest meaning, whichencompasses all the activity by all thesuppliers of goods and services.

REVIEW OF LITERATURE

1. European Journal of Public Healthhad published an article related to thetobacco sales ban and tobaccopurchases by adolescents: a generalpopulation study in The Netherlandsin 2005 , Research was conducted byVerdonk-kleinjan et all, The studyaimed to assess the effect of theintroduction on 1 January 2003 of alegal tobacco sales ban in TheNetherlands on tobacco purchases bysmoking and non-smoking adolescentsaged <16 years. Methods used wastwo cross-sectional surveys wereconducted among adolescents aged 13through 15 years, one at the end 1999(n = 4751) and the other at the end of2003 (n = 13 298). Investigator foundthe percentage of adolescents buyingtobacco was decreased significantlyfrom 26.3% in 1999 to 10.8% in 2003

(P < 0.001). Further analysis showedthat, after the ban, the proportion ofsmokers among buyers almost tripled[Odds Ratio (OR) = 2.9], while thelikelihood of non-smokers buyingtobacco decreased strongly (OR =0.17). A difference in the pattern ofpurchasing tobacco also emerged afterthe ban. In 2003, the proportion ofsmokers buying at least weekly incommercial outlets was larger than in1999. For non-smokers there was nodifference between 1999 and 2003 inthe proportion buying weekly. Thevariety of commercial outlets in whichpurchases were made increased amongboth smoking and non-smokingpurchasers of tobacco. Implementationof the 2003 tobacco sales ban has hadthe (intended) effect of loweringtobacco purchases among adolescents.This was mainly due to the decreasein the likelihood of buying tobaccoamong those who regard themselves asa non-smoker. The decrease in buyingtobacco is associated with a decreasein prevalence of smoking. The salesban has probably contributed to astronger decrease in prevalence ofsmoking.

( In the plan study investigator wouldlike to find out the attitude of theconsumer regarding buying of tobaccoproducts like cigarettes , in abovestudy researcher could not analyzed thedetailed aspects of behavior ofconsumer which will help in future to

59

identify the need of consumer to buytobacco products.)

2. Strong, Carolyn A;SidiraEftychiaMarketing Intelligentconducted a study in 2006 on , Theinfluence of family and friends onteenage smoking in Greece. Thepurpose of this study is to investigatethe influence of family and friends onteenage smoking behavior in Greece,as distinct from tobacco marketing,against the background of relevantliterature and previous studieselsewhere.

Methodology used in this exploratorystudy was undertaken via a researcher-administered anonymousquestionnaire, distributed to a sampleof Greek teenagers in coffee shops andfast-food restaurants, with structuredquestions and the opportunity for opendiscussion during completion. Theaim was to elicit evidence fromteenage smokers themselves, and agegroup not known for their forwardcommunications. The age of the sampleof 100 ranged from 16 to 19 years oldand the majority were in full-timeeducation.

With the proviso that the structure andscope of the survey limits the certaintyof conclusions about the links betweenteenage smoking and the influences offamily and friends, the designidentified common themes, with thefindings giving attention to the

similarities in links betweenparticular smoking related issues(Creswell, 1994; Hibbert et al., 2005).It is acknowledged that furtherresearch using a larger sample isrequired to add rigour to the study.

The data show that 11 per cent wereoffered a cigarette by a familymember; and 16 per cent had triedcigarettes bought by a family member,without their knowledge. In otherwords, nearly a third of respondent’scigarette consumption is closelylinked to family smoking behaviour.Consumer socialization of childrenrests on the presumption that childrenlearn about consumption by watchingand imitating their parents. Thisinfluence declines, but does notdisappear, as children get older anddevelop preferences for other sourcesof information, especially that of theirolder siblings and their peers (John,1999; Peter and Olson, 2001). Thisfinding, therefore, tentatively suggeststhat the first trial of cigarette smokingis linked with family smokingbehaviour, an indication thatexperimentation and continuation arean outcome of consumer socialization.

Nearly a quarter of respondents (22per cent) reported that all or most oftheir family members smoked, andalmost half (45 per cent) that somefamily members did. With respect topeer influence, more than half (53 percent) stated that all or most of theirfriends were smokers, while 45 per

60

cent stated that only some were. Onlytwo of the 100 adolescents had nofriends who smoked, a finding clearlyreflecting the known high incidence ofsmoking in Greece. The responsesreveal that teenage smokers weresomewhat more likely than non-smokers to have immediate relativeswho smoked: 49 per cent versus 40per cent. They were also significantlymore likely to have friends (“all” or“most”) who smoked: 61 per centversus 42 per cent. In short, youngsmokers were one and a half timesmore likely than non-smokers to havefriends who smoked.

( Above study could not reveal theattitude and behaviour of the familyand friends towards the teenagerswhich influence them to adopt certainpractices of addiction those can becertain coping strategies or peerpressure among teenagers or it couldbe modelling of popular actors , henceit could not identify the psychologicalaspects of young teenagers .In plannedstudy investigator is going to find outthe attitude and behaviour of familyand friends those can either preventor influence teenagers for consumptiontobacco.)

3. A number of studies investigatingthe reasons for taking up the smokinghabit have found strong associationswith the consumption patterns amongteenagers’ peers and families.

In the UK, children of 11-15 years-old from 32 secondary schools in

England and Wales were selected andinterviewed in 1986, 1987, 1988(Goddard, 1990). This exploratorystudy revealed the strength of theassociation between current smokingbehaviour and parental and siblingsmoking. Children were twice aslikely to smoke, if both their parentswere smokers than they were if neitherwas. Parents’ smoking behaviour wasalso found to have little effect, if therewere siblings who smoked. Girlsappeared to be somewhat moresusceptible to the influence of siblingsthan boys. Children in single-parentfamilies were also more likely to startsmoking whether or not the parent wasa smoker. This finding suggests that,in stressful situations, children arelikely to see smoking as an escapefrom unhappiness.

( In above study the investigatorthrown the light on parentingbehaviour which influences theteenagers for smoking or consumingtobacco products but did not specifytheir faulty parenting , hence planstudy will reveal the data related toparenting where addiction of tobaccoamong teenagers in Indian society isnot acceptable .)

4. Another government-sponsoredsurvey in the UK (Dawe and Goddard,1997) cast light on the influence ofpeers and family on smokingbehaviour among the 11 to 15 yearolds in England, suggesting the mainreason for starting to smoke was that

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they wanted to “see what it was like”,while others do so because theirfriends said they should and so thatthey would fit in with them. Half ofthose surveyed tried their first cigarettein the company of friends from school,and a third in the company of otherfriends. Almost, half the respondentsreported that they thought smoking waspart of growing up, that it wassometimes difficult to refuse acigarette when it was offered, and thatit was difficult not to smoke, if mostof their friends did (Owen and Boiling,1995).

(Above study provides data related tofaulty parenting and peer pressure areequally responsible for teenagerssmoking behavior but did not flashedlight on responsible factors for theirsmoking behavior as well as marketingstrategies used by sellers who couldattract the teenagers , planned studywill reveal both the attributes inrespective study.)

Conclusion:

The study result will help the businesspersons or entrepreneurs to identify theconsumer behavior in consumption oftobacco and learn to adopt the differentstrategies to enhance the sell as wellas production of tobacco in respectiveindustry.

The reason for a business firm to comeinto being is the existence of aconsumer who has unfulfilled needs

and wants. To fulfill these consumerneeds an organization is set up. Inprofessional capacity we may also bea part of one such businessorganization. But as part of theorganization, have we ever wonderedabout who are the consumers of ourproducts and services? Why do theseconsumers buy a particular brand andnot that of the competitors? How dothe consumers perceive our productto fulfils their needs? After havingbought our product do they feelsatisfied or dissatisfied? and how arethese feelings reflected in theirbehavior ?

It is important to the survival andgrowth of the organization that weregularly raise such questions andattempt to find answers to them. It ispossible only through such process ofquestioning and seeking that we canbe sure of keeping our firm on thegrowth path. A thorough knowledge ofour consumers and an understandingof their behavior (as consumers) areessential if we wish to continue toremain in business.

These proposals provide me aninsight into the subject of consumerbehavior. After having read severalarticles I would be able to spell outwho are consumers, why they behavein the manner that they do, whatinfluences their behavior and how weas a marketer can manipulate theinfluencing factors in our favor. Thisis the most important aspect of

62

consumer behavior which haspractical action implications for eachbusiness firm. Once having understoodthe behavior of consumers andknowing that their behavior can beinfluenced, we can initiate a numberof steps to do so. This unit covers thenature, scope and applications ofconsumer behavior.

Scope of the study:

Tobacco is the harmful substance forhuman body but still products are soldopenly in the market. Even after lotsof tax impositions on them, theproducts are heavily in demand. Thisstudy will help me in identifying the

behavior of people written themdemographics towards tobaccoconsumption. This is the mostimportant aspect of consumer behaviorwhich has practical implications foreach business firm. Once havingunderstood the behavior of consumersand knowing that their behavior can beinfluenced, we can initiate a numberof steps to do so. This study coversthe nature, scope and applications ofconsumer behavior. In companiesthrough better and sound understandingof market and consumer behavior willable to implement effective businessstrategies. Which would add immensevalue not only to the product but alsothe perception of an individual.

63*(Ph D Scholar, University of Mumbai) Deputy Registrar, MGM’s College of Engineering &Technology, Navi Mumbai.

Journey of Higher Education in India TenYears Ahead: Vision 2025

*Sampurna Nand Mehta

Introduction

Education holds the key role in thedevelopment of any nation. It lays thefoundation for a continuous andequitable growth of any country.Higher Education is the back bone ofany society. It imparts in-depthknowledge and understanding so as toadvance the students to new frontiersof knowledge in different walks oflife. Higher education is the chiefinstrument for ensuring the upwardmobility of the people and theadvancement of the country.

In India, at the time of independence,less than one-fifth of the populationwas literate. There were only 20universities and 500 colleges in thecountry with 2.1 lakh students in thehigher education system. But, it haswitnessed a tremendous increase in thenumber of Universities/Universitylevel Institutions & Colleges sinceIndependence. The number ofUniversities has increased 34 timesfrom 20 in 1950 to 677 in 2014. Thesector boasts of 45 CentralUniversities of which 40 are under thepurview of Ministry of HumanResource Development, 318 State

Universities, 185 State Privateuniversities, 129 Deemed to beUniversities (Figure 1). Apart fromUniversities, 51 Institutions ofNational Importance (establishedunder Acts of Parliament) underMHRD (IITs - 16, NITs – 30 andIISERs – 5) and four Institutions(established under various Statelegislations). The number of collegeshas also registered manifold increaseof 74 times with just 500 in 1950growing to 37,204, as on 31st March,2013.

Typewise Degree Awarding Unversities/University Level Institutions in India-Ason 31 March 2014

Deemed to beUniversity19%

CentralUniversity

7%

PrivateUniversity

27%

StateUniversity

47%

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The higher education system in Indiahas grown in a remarkable way,particularly in the post-independenceperiod, to become one of the largestsystem of its kind in the world.

During the academic year 2013-14,there had been 237.65 lakhs(provisional) students enrolled in

Enrollment Growth in 5 years

various courses at all levels inuniversities/colleges and otherinstitutions of higher education ascompared to the revised figure of223.03 lakhs in the previous year,registering an increase of 6.56 per cent(Figure 2).

Figure 2

However, the system has many issuesof concern at present, like financingand management including access,equity and relevance, reorientation ofprogrammes by laying emphasis onhealth consciousness, values andethics and quality of higher educationtogether with the assessment ofinstitutions and their accreditation.These issues are important for thecountry, as it is now engaged in theuse of higher education as a powerfultool to build a knowledge-basedinformation society of the 21stCentury.

The Twelfth Five Year Plan for highereducation provides a good policyfoundation for India’s highereducation future. A lot of work interms of detailing is needed to moveforward.

There have been many schemes andeffective steps taken by UGC tostrengthen the higher education inIndia. In order to revive our traditionto support higher education, and toencourage the participation of societyin the development of universities, theUGC initiated the scheme during XIPlan entitled “Incentives for ExternalResource Mobilization”. This scheme

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is also continued during the XII Plan.The contribution of the UGC will beupto the extent of 25 per cent of thecontribution received by theUniversity for a particular year,subject to a maximum of 750.00 lakhper annum.

The Govt. of India allocated 7100crores each to AMU and BHU asadditional fund for their MedicalColleges under recurring as well asnon-recurring heads. An amount of750 crores each was released to AMUand BHU during 2013-2014 under thescheme.

Expansion to Provide reservationfor OBC’s in admissions

The Central Educational Institutions(Reservation in Admission) Act, 2006,envisaging reservation of 27% of theannual permitted strength in eachbranch of study or faculty for the OBCs(excluding the “creamy layer”), apartfrom 15% for the SCs and 7.5% forthe STs, in Central EducationalInstitutions (CEIs) established,maintained or aided by the CentralGovernment, other than thoseexempted under the Act, requires themto increase the annual permittedcapacity for the academic session2006-07 by 54% over a maximumperiod of

3 years commencing from theacademic session 2008-09, with aview to ensuring that the number ofunreserved seats available to the

OBCs as also to the SCs and the STsfor each academic session arecommensurate with the increase in thepermitted capacity for that session.

Tuition Fee waiver scheme (TFWS)for economical backward class

The Govt. has taken steps toencourage the economically backwardclass of people under TFWS schemeby giving 20% of additionaladmissions above the approved intakein various colleges. Under TFWSscheme the people having annualincome less than 1 lakh can getadmission for their wards inprofessional and technical collegeswith waive off facility of tuition fees.

Development (Plan) andMaintenance (Non-Plan) Assistanceto Universities

A grant of 7247.47 crores (7215crores for University of Delhi, 712.50crores for UCMS and 716.69 croresfor Visva Bharati) was released toCentral Universities during 2013-2014 for implementation of OBCreservation policy.

Strengthening/Setting up of schoolsof education in Central universities

The UGC has been impressing uponthe Central Universities and otherUniversities to establish Departmentof Education and conduct programmesfor preparation of school teachers andTeacher Educators. In the wake of theRight to Education Act, 2009 and the

66

Government of India requested theUGC to take urgent steps for expandinginstitutional support of teachereducation in the University system andalso to bring various qualitativeimprovements thereof. One suchaspect in entailing such initiative wasto establish School of Education inCentral Universities of the country.With this objective, all the CentralUniversities are establishing Schoolsof Education within them and takevarious activities relating to teachereducation other than pre-serviceteacher education. These includedcurriculum research, policy andeducational development, learningand pedagogic studies, assessmentand evaluation, professionaldevelopment of teacher educators, etc.

The UGC has sanctioned for expansionand strengthening of teacher educationin 19 Central Universities for whichapproval was given for variousteaching and non-teaching posts andduring XII Plan an amount of 7110.00crores was also sanctioned to theseCentral Universities, out of which anamount of 735.00 crores was releasedduring 2013-2014. The UGC has alsoinvigorated the initiative for reformsin the curricula of the teachereducation courses, requestingacademic staff colleges to providerefresher and orientation training

programmes for teacher educators, tostrengthen post-graduate programmes

in the teacher education departmentsand to run integrated teacher educationprogrammes.

As a result of the above efforts, atpresent 36 Central Universities haveSchools/Departments of Educationoffering various pre-service and otherteacher education programmes andthey have also intensified their effortsfor providing other relatedprogrammes of teacher education.The Govt. has made compulsoryaccreditation for a higher educationInstitution which has successfullycompleted 5 years of their existence.Such steps will effectively help inenhancing the quality level of suchinstitutions.

By 2025, India will be amongst theyoungest nations in the world. Withnearly 70 million people in thecollege-going age group, one in everyfour graduates in the world will be aproduct of the Indian higher educationsystem.

In 2025, India will be one of thepioneers of a higher education modelthat is not just the best in the world,but the best for the world, deliveringsocial, economic and intellectualvalue par excellence.

In order to realize the goals, atransformative and innovativeapproach would be required acrossall the levers of higher education:from curricula and pedagogy to the useof technology to partnerships,

67

governance and funding. Making rapidprogress over the next two decadeswould require a committed andconcerted effort from all stakeholdersinvolved i.e. academia, industry, andGovernment. Technology basededucation will be one of the besteffective tools in enhancing the qualityeducation by 2025.

Today, the median age of India’s 1.5billion strong population is a mere 32;a good ten years lower than most othernations in the world. Today, India isthe largest contributor to the globalworkforce, its working age populationsurpassing 950 million. It is nosurprise then that, India has emergedto be the world’s third largesteconomy – an achievementunderpinned, no doubt, by its uniquedemographic advantage, but also aprospect that would not havetranslated into reality if not for thecountry’s pioneering reforms inuniversity education over the past 20years.

Over the last two decades, India hasremarkably transformed its highereducation landscape. It has createdwidespread access to low-cost high-quality university education forstudents of all levels. With well-planned expansion and a student-centric learning-driven model ofeducation, India has not only betteredits enrolment numbers but hasdramatically enhanced its learning

outcomes. A differentiated three-tiereduniversity system – where each tierhas a

distinct strategic objective – hasenabled universities to build on theirstrengths and cater across differentcategories of educational needs.Further, with the effective use oftechnology, India has been able toresolve the longstanding tensionbetween excellence and equity. Indiahas also undertaken large-scalereforms to better faculty-student ratiosby making teaching an attractivecareer path, expanding capacity fordoctoral students at researchuniversities and delinking educationalqualifications from teachingeligibility.

Despite these strides of progress,India’s higher education institutionsare not yet the best in the world – Indiahas fewer than 25 universities in thetop 200. Yet, India’s post-secondaryeducation system is increasinglyrecognised as being the best for theworld. The promise of excellence andequity has made the Indian highereducation system worthy of emulating,certainly in the developing world thatfaces the same challenges as India didin the decades prior to its highereducation reforms, but less obviouslyin pockets of the developed worldwhich is under tremendous pressureto provide higher education in cost-effective ways.

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However, India has emerged as aregional hub of education and attractsglobal learners from all over theworld. Students, faculty and employersnow flock to India to learn, teach andrecruit as India dons the mantle of ahigher education leader and emergesthe role model for delivering high-quality education to vast numbers atlow cost.

To achieve the envisioned state in2025, transformational and innovativeinterventions would be requiredacross all levers of the highereducation system. The architecture ofHigher Education Model is supportedby its base Foundation Funding and

Analysis & Suggestions

Higher Education Model

Governance. Funding & Governanceare the Foundation of Higher educationinstitutions whereas Curricula &Pedagogy, Faculty, Research,Partnership, Infrastructure are itspillars. Accreditation in highereducation acts as a catalyst to enhancethe quality of education whichultimately help in strengthening theacademia- industry relationship. Thisrelationship is explained in HigherEducation model (Figure 3).

Literature Review

Figure 3

Accreditation

Academ

ia-IndustryInterface

69

In order to have strong pillars of education following suggestion required tofollow to achieve vision 2025. Each suggestion is accompanied by its impactand key steps to take to get it.

1. Curricula & Pedagogy

1.1 Adopt a learner-cantered paradigm of education

Impact Key actions

• Effective and customized learning• Pool of reflexive and thoughtful

learners• Graduates with independent and

critical thinking skills• Increased innovation capability and

entrepreneurship in the countryEvolution of a workforce that canreadily adapt to the dynamic workenvironment

• Develop content, pedagogy, and

assessment systems that support

experiential,interactive, and student-

centered learning

• Revamp the existing structure of

teaching in higher education

institutions tocater to the diverse

choices and learning styles of students

• Train faculty in being good facilitators

1.1 Introduce multi-disciplinary, industry-oriented, entrepreneurship, andskill-based courses

Impact Key actions

• The students will able to getprofessional and practical knowledgealongwith traditional knowledge.

• More & more students will get finalplacement which increase academia-industry interface.

• Develop content/pedagogy inaccordance with requirements toimprove the skills.

• Revise of existing evaluation (exam-oriented approach) system to makeroom for adoption of new teachingtechniques

• Tie-ups/Partnerships with industryplayers for internships

• Train faculty members to enable themto deliver the revised curricula /pedagogy

• All undergraduate students have tochoose from a core group of commonsubjects related to history,communication, culture, environmentand society

70

1.3 Include courses on social sciences and general awareness for societaldevelopment

1.4 Adopt new pedagogical techniques: blended learning, flipped classroom,

experiential learning

Impact Key actions

• Students will get knowledge beyondcurriculum. They will not only become agood professional but also a good humanbeing.

• Develop content/pedagogy inaccordance with the requirements ofthe courses

• Train faculty to enable them to deliverthe revised curricula

• Launch modules on generalawareness/current affairs to producebetter informed citizens anddisseminate knowledge to improvestandards of health, hygiene,sanitation, life expectancy and othersocial parameters

• Introduce full-fledged courses onsocial administration, public health,and cultural and heritage development

Impact Key actions

• Traditional type classroom will beconverted into flipped classroom

• Theoretical information available withthe students in forms of texts notesetc. More focus on presentationpractical knowledge.

• Develop adequate bandwidth toensure fast and uninterrupted internetconnectivity at higher educationinstitutions across geographies

• Develop device-agnostic technologyfor accessing online content

• Develop content/pedagogy inaccordance with the requirements,including self-learning material foronline teaching as well as activity-based content for face-to-faceteaching

• Train faculty in this ‘new age’pedagogy to enable them toeffectively deliver quality learningoutcomes

71

2. Faculty

2.1 Flexible faculty recruitment norms and offer incentives for attractingfaculty

2.2 Retain high-quality faculty by implementing tenure based and rewards-based systems

Impact Key actions

• Qualified and experienced faculty willmore focus.

• Industry experienced professionalsalso attracted towards teaching.

• Introduce reforms in the selectionprocess of faculty members, based onthe requirements of institutions

• Grant autonomy to best-in-classinstitutions to devise their ownmechanisms to recruit faculty

• Ensure active participation of theindustry in encouraging industryprofessionals to accept facultypositions

Impact Key actions

• Faculty will be motivated towards theirwork

• Quality level of education willimprove.

• Senior faculties will train juniorfaculties.

• Encourage higher education institutionsto implement a tenure-based system

• Develop a structured and transparentframework for performance evaluationof faculty.

• Implement a transparent and effectiveperformance-based remunerationsystem

• Implement a system of peer reviews andstudent feedback in all higher educationinstitutions

• Appoint an independent committees ininstitutions to ensure accountability andtransparency in implementation of theseinitiatives.

72

2.3 Encourage faculty development and exchange programs with top-end institutions

Impact Key actions

• Knowledge of students will explore

• Faculty will get hands-on trainingfrom top institutions.

• Delivery of lecture will improve

• Develop effective faculty-developmentprograms

• Ensure fast and uninterrupted internetconnectivity to deliver faculty trainingprograms using virtual classrooms.

• Provide funding support to educationinstitutions to enable them to organizeactivities such as summer workshops andexchange programs.

• Ensure active participation by best-in-class faculty from top most institutionsto be ‘hubs’ for training and developmentof junior and mid-level faculty membersfrom other institutions

3. Research

3.1 Attract best-in-class faculty to conduct research

Impact Key actions

• Enhancement of joint research programsand other research collaborationsbetween top-most internationalinstitutions and Indian higher educationinstitutions.

• Interaction and exchange of knowledgebetween two different institutions leadto the improvement in the quality of theirresearch-based activities and generateincreased interest in research

• Identify institutions/countries that willmutually benefit from researchpartnerships with Indian institutions

• Identify areas that would be of mutualinterest to international and Indianinstitutions to forge research-basedcollaborations

• Provide attractive incentives tointernational institutions to engage incollaborative research activities withIndian institutions.

• Formalize tie-ups of Indian institutionswith leading international institutionsto operationalize the mentor model.

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3.2 Develop centres of excellence in higher education institutions to conduct highquality research activity

Impact Key actions

• It will improve the research activity.

• Able to generate funds for researchactivities.

• Develop platforms for interactionbetween higher education institutionsand research centers in the country toestablish research-basedrelationships.

• Incentivize collaboration betweenresearch institutions as well asbetween research centers andinstitutions.

• Develop adequate infrastructure andthe requisite environment for R&D inhigh quality academic institutions

• Attract top-notch researchers to suchinstitutions to lead collaborativeresearch between multiplestakeholders

• Increase budget on R&D as apercentage of GDP

3.3 Encourage community-focused/development oriented research atacademic institutions

Impact Key actions

• It will help in improving academia-industry interface

• Indian Universities tie-up withinternational universities enhancingresearch oriented work.

• Provide funding for community-focused (or region-specific)development oriented research.

• encourage faculty and students toconduct community-focused research

• Ensure active participation of localindustry

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4. Partnership

4.1 Strengthen industry-academia linkages across all aspects of theeducation value chain, from curricula and faculty to infrastructure, research,and placements.

5. Infrastructure

5.1 Encourage e-learning & digital learning system

Impact Key actions

• It will help in improving Placementopportunities.

• Alumni based will be stronger whichwill help in generation of fund

• Include corporate professionals forvisiting lectures seminar workshopsetc

• Strengthen the alumni database

• Allocate sufficient funds for practicalteaching methodology.

• Conducts various job orientedmodules

Impact Key actions

• It will help in improving placementopportunities.

• Alumni based will be stronger whichwill help in generation of fund

• Ease norms to allow establishedhigher education institutions toincrease their intake in the popularstreams in existing campuses

• Deploy existing physical facilitiesmore efficiently by schedulingmultiple shifts and year-roundoperations

• Use digital mode of delivery oflectures Create an affordable pricingmodel to maximize usage of virtualclassrooms

75

5.2 Library should be equipped with good and qualitative journals and books ofinternational standard

5.3 Encourage foreign universities to established their courses or campus withinIndian university

Impact Key actions

• Students benefited of world classknowledge

• Encourage e-learning and book bankfacilities

• Association with various worldfamous journals and publishers

Impact Key actions

• Students will get world class infrafacilities at lower cost

• Tie-up with foreign universities

• Encourage twining program

The above are few suggestive points whichwill help in building a superb class of highereducation in India. The above will be in placeif the Foundation of higher educationsystem are well planned i.e funding andGovernance should be strong.Following are few suggestions to improveand enhance the techniques of funding andgovernance.

1. Finding

• Provide competitive access to publicresearch grants.

• Encourage corporate and alumni fundingby arranging various conferencesseminars and meets.

• Link public funding to institutionalperformance

• Promote individual based funding

2. Governance/Leadership

• Simplify the regulatory framework, moveincreasingly towards autonomy and self-regulation of institutions,

• Introduce mandatory accreditation• Enforce mandatory disclosure of key

financial and operational information• Provide a thrust to internationalization of

leadership, separate ownership andmanagement for effective governance

• Ensure effective self-regulation in allhigher education institutions by theirseeking guidance/direction fromsuggested frameworks

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Conclusion

The Future of Higher education in India isvery vast. The Government as well as theInstitutions are taking major precautionarysteps to improve and enhance the highereducation. The Indian Government is alsoworking hard in promoting the highereducation system by encouraging more andmore students to enrol. They are offeringscholarships and necessary support to themeritorious and poor people. Themanagement of Institutions should be morefocused on quality based rather than quantitybased. If the higher education institutionsstarts maintain the quality then definitely,within 10 years India will be one of the bestin higher education system. The growingadvance technology will give boost to theeducation system and the student will get allthe facility with affordable fees within thecountry. The quality of education will be atpar to the education of developed country.

References

i) Dr. Sanjaya Mishra : Quality Assurancein Higher Education, Author, publishedby NAAC, Bangalore- edition 2006

ii) Quality, Accreditation and GlobalUniversity Ranking Issues beforeIndian Higher Education-by EmonNandi and Saumen Chattopadhyay

iii) Fabrice Hénard, Alexander Mitterle:Governance and quality guidelines inHigher Education

iv) FICCI report 2013 on HigherEducation in India-Vision 2030

v) UGC Report 2013-14

vi) Website

a. www.ugc.ac.in

b. www.aicte-india.org

c. www.naac.edu.in

d. www.nbaind.org

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Institutions Rs 750 Rs 1250 Rs 1500