Satyam Scandal would Impact Foreign

Investments in India
Scandal at Satyam: Truth, Lies and Corporate Governance
Published: January 09, 2009 in India Knowledge@Wharton 

When terrorists attacked Mumbai last November, the media

called it "India's 9/11." That tragedy has been succeeded by
another that has been dubbed "India's Enron." In one of the the
biggest frauds in India's corporate history, B. Ramalinga Raju,
founder and CEO of Satyam Computers, India's fourth-largest IT
services firm, announced on January 7 that his company had
been falsifying its accounts for years, overstating revenues and
inflating profits by $1 billion. Ironically, Satyam means "truth" in
Sanskrit, but Raju's admission -- accompanied by his resignation
-- shows the company had been feeding investors, shareholders,
clients and employees a steady diet of asatyam (or untruth), at
least regarding its financial performance. (Editor's note: Satyam
is a corporate sponsor of India Knolwedge@Wharton.)

Raju's departure was followed by the resignation of Srinivas

Vadlamani, Satyam's chief financial officer, and the appointment
of Ram Mynampati as the interim CEO. In a press conference
held in Hyderabad on January 8, Mynampati told reporters that
the company's cash position was "not encouraging" and that
"our only aim at this time is to ensure that the business
continues." A day later, media reports noted that Raju and his brother Rama (also a Satyam
co-founder) had been arrested -- and the government of India disbanded Satyam's board.
Though control of the company will pass into the hands of a new board, the government
stopped short of a bailout -- it has not offered Satyam any funds. Meanwhile, a team of
auditors from the Securities and Exchange Board of India (SEBI), which regulates Indian
public companies, has begun an investigation into the fraud. Since Satyam's stocks or
American Depository Receipts (ADRs) are listed on the Bombay Stock Exchange as well as
the New York Stock Exchange, international regulators could swing into action if they
believe U.S. laws have been broken. At least two U.S. law firms have filed class-action
lawsuits against Satyam, but given the company's precarious finances, it is unclear how
much money investors will be able to recover. 

According to experts from Wharton and elsewhere, the Satyam debacle will have an
enormous impact on India's business scene over the coming months. The possible
disappearance of a top IT services and outsourcing giant will reshape India's IT landscape.
Satyam could possibly be sold -- in fact, it had engaged Merrill Lynch to explore "strategic
options," but the investment bank has withdrawn following the disclosure about the fraud. It
is widely believed that rivals such as HCL, Wipro and TCS could cherry pick the best clients
and employees, effectively hollowing out Satyam. Another possible impact could be on the
trend of outsourcing to India, since India's IT firms handle sensitive financial information for
some of the world's largest enterprises. The most significant questions, however, will be
asked about corporate governance in India, and whether other companies could follow
Satyam's Raju in revealing skeletons in their own closets.
'Riding a Tiger'

Raju was compelled to admit to the fraud following an aborted attempt to have Satyam
invest $1.6 billion in Maytas Properties and Maytas Infrastructure ("Maytas" is Satyam
spelled backwards) -- two firms promoted and controlled by his family members. On
December 16, Satyam's board cleared the investment, sparking a negative reaction by
investors, who pummeled its stock on the New York Stock Exchange and Nasdaq. The board
hurriedly reconvened the same day and called off the proposed investment.

The matter didn't die there, as Raju may have hoped. In the next 48 hours, resignations
streamed in from Satyam's non-executive director and Harvard professor of business
administration Krishna Palepu and three independent directors -- Mangalam Srinivasan, a
management consultant and advisor to Harvard's Kennedy School of Government; Vinod
Dham, called the "father of the Pentium chip" and now executive managing director of NEA
Indo-US Ventures in Santa Clara, Calif.; and M. Rammohan Rao, the dean of the Indian
School of Business in Hyderabad (ISB). Rao had chaired both December 16 board meetings.
On January 8, he resigned his position as the ISB dean. In a letter to the ISB community,
he explained: "Unfortunately, yesterday's shocking revelations, of which I had absolutely no
prior knowledge, mean that we are far from seeing the end of the controversy surrounding
Satyam Computers. My continued concern and preoccupation with the evolving situation are
impacting my role as dean of ISB at a critical time for the school. Given that my term with
ISB anyway ends in a few months, I think that this is an appropriate time for me to step
down."

Resigning as Satyam's chairman and CEO, Raju said in a letter addressed to his board, the
stock exchanges and the market regulator Securities & Exchange Board of India (SEBI) that
Satyam's profits were inflated over several years to "unmanageable proportions" and that it
was forced to carry more assets and resources than its real operations justified. He took
sole responsibility for those acts. "It was like riding a tiger, not knowing how to get off
without being eaten," he said. "The aborted Maytas acquisition was the last attempt to fill
the fictitious assets with real ones."

Specifically, Raju acknowledged that Satyam's balance sheet included Rs. 7,136 crore
(nearly $1.5 billion) in non-existent cash and bank balances, accrued interest and
misstatements. It had also inflated its 2008 second quarter revenues by Rs. 588 crore
($122 million) to Rs. 2,700 crore ($563 million), and actual operating margins were less
than a tenth of the stated Rs. 649 crore ($135 million).

Satyam's auditor PricewaterhouseCoopers issued a terse statement: "Over the last two
days, there have been media reports with regard to alleged irregularities in the accounts of
Satyam.... Price Waterhouse are the statutory auditors of Satyam. The audits were
conducted by Price Waterhouse in accordance with applicable auditing standards and were
supported by appropriate audit evidence. Given our obligations for client confidentiality, it is
not possible for us to comment upon the alleged irregularities. Price Waterhouse will fully
meet its obligations to cooperate with the regulators and others."

Impact on 'Brand India'

The outrage over Raju's admission of systematic accounting fraud has broadened to wider
concern about the potential damage to India's appeal for foreign investors and the IT
services industry in particular. Immediately following Raju's confession, Satyam's
shareholders took a direct hit as the company's share price crashed 77% to Rs. 30
(approximately 60 cents), a far cry from its 52-week high of Rs. 544 ($11.35) last May.

"If there were one or two more such accounting scandals in the next six months, it would
make international investors more wary," says Wharton management professor Michael
Useem. "One example would put people on guard; several examples would be enough to tell
big investment money managers that they have to be especially careful working in that
environment."

Jitendra Singh, a Wharton management professor who is currently dean of the Nanyang
Business School in Singapore, believes Satyam is an "outlier" and that there is no reason to
think that "problems of this kind may be much more extensive than one company or a
handful of companies." However, he adds, "foreign investors will look a little more askance
at accounting data from India. And that may not be a bad thing."

Useem also warns against overreacting. "Don't assume other firms are guilty," he says. But
he considers the situation to be an "alerting call" for investors to check where their money
is, and for auditors and independent directors in all major firms to take a look at the books.

Corporate India has tried to contain the damage so far. Rajeev Chandrasekhar, president of
the Federation of Indian Chambers of Commerce and Industry, called upon regulators "to
move quickly to demonstrate that this is an exceptional case among corporations, and that
investors need not worry about Indian corporate governance and accounting standards."
Suresh Surana, founder of RSM Astute Consulting Group, said in a statement that the
Satyam development is "a major eye opener and will bring into renewed and critical focus
the role of independent directors, auditors, company management, [the] CFO and other key
persons involved."

"When you have companies that are ostensibly growing their top lines at 30%, 40% or
50%, it is possible to paper over things," Singh says. "Satyam was doing it by boosting
sales and profits; Bernie Madoff was doing it by boosting rates of return. When growth rates
slow down, you are unable to hide the financial reality of how much cash you actually have.
It is possible that during this slowdown period, more scandals will come to light." (U.S.
financier Madoff last month admitted to running a $50 billion Ponzi scheme to keep his
hedge fund afloat.)

Singh adds that companies with "the bluest of blue-chip reputations [such as] Infosys and
TCS" could actually gain in the current environment, because of a potential "flight to
quality" among client companies. "The third-tier and weaker companies will probably
undergo a lot more scrutiny," he says.

According to Ravi Aron, senior fellow at the Mack Center for Technological Innovation at
Wharton, the Satyam fallout could affect India's IT offshoring and outsourcing firms in
several ways. An immediate impact could be skepticism on the part of clients about whether
Indian IT firms can be entrusted with sensitive financial information. "Clients could begin to
ask, 'How much do I know about this IT company and its governance?'" says Aron. "Is the
IT service provider doing anything that could jeopardize the client's compliance with FASB,
Sarbanes Oxley, Basel II or other financial regulations?"

Aron recommends that before other IT companies get blackballed because of Satyam's
problems, "they should act swiftly to demonstrate that their own operations are squeaky
clean." Indian IT companies have always had exceptionally high standards of accounting,
and they should ensure that they do not face any spillover effect, he adds. This has already
begun to happen. On the day that Raju came clean, N. R. Narayana Murthy, chief mentor at
Infosys, was on Indian television -- distancing Infosys and the rest of the IT industry from
Satyam's practices. Similarly, Vineet Nayar, CEO of HCL, e-mailed a personal letter to the
company's clients and associates. Describing Satyam's disclosures as "unfortunate," the
letter added that Nayar would "reaffirm our commitment that we [will] focus on creating
value for our customers with the same passion that we have demonstrated in the past while
maintaining the highest ethical and governance standards."

Mauro Guillen, a Wharton management professor who has studied corporate governance in
emerging economies, believes that Indian business has an advantage in arguing that the
problem is limited to Satyam and is not systemic. "India is not perceived like Russia -- it is
neither everyone's darling nor the plague," he says. "This works to the country's advantage
because it deflects the blame of such occurrences to the way governance works in emerging
economies rather than to India. What regulators in India need to do in response to Satyam
is to find out quickly if other companies have been doing similar things. The proper
response is to deal with and defuse the problem as soon as possible."

Guillen notes that what makes Satyam's case unusual is that it had listed its ADRs on the
NYSE. "Companies in emerging economies have trouble raising capital at low costs. The
literature shows that is the reason they want to list in the U.S., where they accept a higher
level of governance in order to raise capital at a lower cost. The fact that Satyam listed its
ADRs in the U.S. but still had such serious governance problems makes this case
particularly disturbing."

Guillen adds, though, that India has several well-regarded IT companies. "If one or two of
them don't make the grade, it should not shake investor confidence. It shows that investing
in emerging markets is risky. Investors always balance risks and rewards. If the IT sector in
India continues to remain competitive, the Satyam episode will just be a footnote in India's
business story. If the sector becomes uncompetitive, then that would create a serious
problem."

Saikat Chaudhuri, a management professor at Wharton, believes the Satyam episode

reveals that the pressure on companies to maintain their financial performance is immense.
"Satyam always wanted to keep up with the Big Three of Indian IT companies -- TCS,
Infosys and Wipro," he notes. "At a time when the IT industry was booming and companies
were growing rapidly, it was easy for Satyam to argue that the company was doing well and
that it had good governance." The involvement of the board, Chaudhuri adds, was at the
"strategic level; in companies like Satyam, it is the owner/promoter/founder who runs the
show. It has to do with the ownership structure." In Chaudhuri's view, auditors such as
PricewaterhouseCoopers, who signed off on the bogus accounts at Satyam, have a lot more
to answer for than the board of directors. "This is a serious lapse on their part. They should
have probed."

Chaudhuri's advice to other Indian IT firms is to distance themselves from the Satyam
fallout through prompt action. "Honesty and transparency will alleviate investor concerns,"
he says. "I don't believe the sector will come crashing down. Perhaps Indian IT companies
will face more scrutiny in the coming months; they may have to answer a few more
questions, but India Inc. will pull through." NASSCOM, the National Association of Software
and Services Companies, could play a role in helping communicate that "the Satyam
episode, though it shocked everyone, is an isolated instance," he adds. 
WorldCom and Tyco, Again

Useem says that if one were to take an inference from recent high-profile scandals outside
of India, "there would be a redoubled effort [in India] on the part of investors and
independent directors at other companies to ensure that nothing like what happened at
Satyam happens under their noses."

Useem draws a parallel between what occurred at Satyam with the scandals at WorldCom
and Tyco, rather than at Enron. "At WorldCom, the CFO and the CEO were knowingly
misstating the accounting and financials of the firm; at Tyco, the CEO and the CFO were
knowingly taking money from the company for personal purposes," he says. "Satyam's
disaster has a parallel to these acts of malfeasance."

Useem recalls the CEO and promoter of a Chinese solar panel company who "wanted his
company to be extremely well governed" and therefore listed it on the New York Stock
Exchange. "He wanted a great board of directors and thus listed the company fully on the
NYSE -- not as an ADR -- for the sole purpose ... of forcing himself to be disciplined in the
governance policies his company pursues."

If it survives, Satyam may be able to redeem itself with new management and governance
codes, Useem says. He recalls working as a consultant a couple of years ago with Tyco,
where the company's new CEO Ed Breen systematically went about cleaning up after the
departure of disgraced CEO Dennis Kozlowski, instituting strong corporate governance
practices. Tyco is one of the best examples of a corporate governance turnaround, Useem
notes.

Singh adds that the Satyam scandal doesn't necessarily warrant more regulation. "There is
no need to strengthen corporate governance regulations [in India]," he says. "The issue is
really more one of leadership at the board level. The tone gets set by the chairman of the
board; it's much more a matter of culture within the board room, of the group dynamics
within the board."

Truth in Numbers

Notwithstanding Raju's confession, the Satyam episode has brought into sharp relief the
role and efficacy of independent directors. SEBI requires Indian publicly held companies to
ensure that independent directors make up at least half their board strength.

The knowledge available to independent directors and even audit committee members is
inherently limited to prevent willful withholding of crucial information, Singh notes. "The
reality is, at the end of the day, even as an audit committee member or as an independent
director, I would have to rely on what the management was presenting to me," he says,
drawing upon his experience as an independent director and audit committee member at
Fedders, a publicly held company in the U.S. that filed for bankruptcy last year. "It is the
auditors' job to see if the numbers presented are accurate."

Singh says he drew "a level of confidence" from the accounting rigor and governance
mechanisms at Infosys, where he was an independent director from 2000 to 2003. He
recalls how T.V. Mohandas Pai, the company's then-chief financial officer (now a director
overseeing human resources) "would take so much time going into accounting details."
Even if outside directors were unaware of the true state of Satyam's finances, some red
flags should have been obvious. According to Aron, Satyam is one of the world's largest
implementers of SAP systems. In an effort to compete against Satyam, HCL recently
acquired Axon, an SAP consulting firm, at a cost of $800 million. (Editor's note:
See interview with HCL CEO Vineet Nayar.) Aron notes that any Satyam director should
have been puzzled that the company was proposing to invest $1.6 billion in real estate at a
time when a competitor as formidable as HCL was gunning for one of its most lucrative
markets. "IT is a highly capital-intensive business, especially in India," says Aron. "What on
earth would compel Satyam to invest $1.6 billion in real estate at a time when competition
with HCL was about to grow more intense? That is what the directors should have been
asking." Instead, he adds, like the dog that didn't bark in the Sherlock Holmes story, the
matter was allowed to slide.

How effective independent directors can be is mainly a factor of the "dynamics inside the
board room once the doors are closed," according to Singh. "There is an attitude in some
Indian companies that the board members actually work for the people who have brought
them onto the board. This is a completely misguided attitude. It looks like this may have
been a problem at Satyam.... The real strength of a healthy board is when a consensus gets
overturned by a dissenting view."

Even if the proposed investment in the two Maytas firms appeared to be ethical on first
sight, Singh notes that he would have expected the independent directors to be extra
careful. "Given the fact that there is a family connection involved, as an independent board
member I would be looking very hard at whether this is the right decision for the company,"
he says. "Also, quite aside from issues of governance, everything we know about unrelated
diversification [deals] from management literature is that, as a general matter, they are not
a good idea; they don't seem to make strategic sense."

Independent Defectors

Useem wonders if the Satyam directors who resigned actually did the right thing. "The
leadership dictum is that you need to stay the course, stay in the game, face the problem
and solve the problem," he says. "Did the four directors who resigned have an option of
banding together, staying on the board and changing governance?" Useem adds that "it is
often very hard to stay the course. I am empathetic with people who have difficulty [making
that decision]."

Media reports quoted former independent director Srinivasan as saying she accepted "moral
responsibility" for failing to cast a dissenting vote on the Maytas proposal. Some of the
other directors who resigned have cited difficulties in attending frequent board meetings.
Useem says it can indeed prove challenging for independent directors to go through reams
of documents and attend frequent board meetings that companies in distress typically have.

In a written response to Knowledge@Wharton, Palepu, Satyam's former non-executive

director, stated that he was not present at the board meetings where the Maytas
investment proposals were discussed. "As a result, under Indian law, I was not eligible to
vote on the proposals," he said. Palepu earned nearly Rs. 1 crore (about $200,000) from
Satyam in 2007, according to regulatory filings, most of it for rendering "professional
services." He declined comment, but those services were essentially leadership development
and consulting for Satyam's top management, according to Archana Muthappa, the
company's head of media relations.
SEBI and India's registrar of companies have launched an investigation into Satyam. Citing
the Indian Securities Contract Regulation Act of 1956, a report in The Economic Times says
SEBI is empowered to award penalties of up to Rs. 25 crore and imprisonment of up to 10
years to directors and management executives "for violating the listing agreement by
making false and inaccurate disclosures in the company's quarterly and annual results."

Singh says it is important to remember who the ultimate victims are in cases like Satyam.
"This is a real tragedy; the people who will be left holding the bag will be the shareholders."

Even as Raju is widely blamed for unleashing "India's Enron," Chaudhuri points to a major
difference between Enron and Satyam. "At Enron, the CEO stonewalled, while whistle-
blowers came out with the truth," he says. "At Satyam, there were no whistle-blowers. The
CEO blew the whistle on himself." In that sense, Raju did -- ultimately -- tell the truth and
perhaps live up to the "Satyam" name. Unfortunately for him, the company, and India's IT
industry, by then it was much too late.

Globalization, in Long Term, will Cause More Harm than Good

in View of Job Losses
Q.1 (a) What is the impact of globalization and liberalization on industries in our country? 

Ans: 1 (a) The Programme of Economic Liberalization

The New Economic policy
During the mid 1980s, the Congress Government headed by Rajiv Gandhi made a move to change its
policies regarding business, licenses and permits, as also its attitude towards multinational companies
(MNCs) operating in India. However, it was only during the succeeding government of Narasimha Rao
(1991-96) that a strategy was actually formulated in this direction and marketed both in India and abroad.
The strategy aimed to bring the Indian economy into the mainstream of the global economy, and, at the
same time allow a whiff of competition and growth to India business. This, it was hoped would bring a new
dimension to the concepts of quality, productivity and growth.

Inevitably, the winds of liberalization that swept through the nation opened a variable Pandora’s box, with
far-reaching implications for human resource management. It brought in a new era of technology, quality
consciousness and competition, which compelled Indian business to wake up from its somnambulism and
reassess its assumptions for dealing with the ‘compete-or-perish’ situation.

The Pre-reform Scenario

In the pre-liberalization period India had pursued a shortsighted policy in the name of self-reliance, blocking
out the rest of the world in the manufacturing and services sectors. Relying on bureaucratic controls,
through licensing and centralized planning, the government had imposed restrictions on the capacity of
business units, their location, choice and source of raw materials and so on. It had also kept a check on
corporate take-overs and mergers, through the monopolies and Restrictive Trade Practices Commission
(MRTP).

India had actively discouraged foreign investments in its capital markets to protect domestic industries. It
had also denied itself access to international capital, technology and markets; Unlike the Asian Tigers who
went on to beat the first World nations at their own game. However, as seen by the recent downslide in the
South Asian economy and the currency crisis in Indonesia, this access to international capital and markets
has been a mixed blessing for these countries. Notwithstanding this, the tremendous progress made by the
Asian Tigers during the last three decades can certainly serve as an example to developing countries such as
India.

Not that socialistic state planning did not have its benefits in India. Heavy industries were established and
significant strides were made in the field of agriculture, Industrial growth rose from 7 per cent in the early
1950s to 9% in the early 1960s. However the inevitable 
problems of socialism outweighed the benefits. Protected employment led to loss making units where as the
License Raj worked against competitive forces.

The Reform Process and Imperatives

After 1991 there was a two fold shift in the Indian economic policy-at the global level as also the national
level.

1. At the global level, it sough to integrate the Indian economy with the world economy by allowing free
movement of capital investment, both into and from India. This exchange would also expose India to new
technology 

Table 1.1 indicates that there has been a significant time lag between foreign direct investment (FDI)
approvals and actual in-flows. This has been possibly due to the government’s failure to ensure a smooth
single-window clearance for projects. Other factors have been the government’s tendency to backtrack on
its own policy, and lack of congruity in Center-state clearance for FDI inflows.

2. At the national level, it envisaged a decontrolled business environment where free market forces would be
given more freedom to operate and state control would be reduced or eliminated. The omnipotent role of
public sector corporations would be redefined, allowing disinvestments of their equity holdings by the
government.

One of the desired effects of such a major restructuring of the economy was growth and generation of
employment which, it was hoped would lead to more purchasing power for the common man.

The central government’s reform package was a mix of policy and administrative changes. The budget was
used as a major instrument for altering the financial policies. The 1996 budget, which was awaited with both
skepticism and hope proved to be turnaround in many ways-custom duties applicable to core industries were
reduced, excise duty was rationalized and a commitment was made towards disinvestments of PSUs. The
budget identified the existing infrastructure as inadequate for growth and indicated efforts to encourage
investment in this critical area. Further it took cognizance of the aspirations of farmers and the poor,
offering schemes and subsidies to uplift these neglected sections. Unfortunately the budget elicited a
lukewarm response and failed to energies the capital market. This resulted in a slow down of economic
reforms and loss of investor confidence in the Indian economy. In February 1997, the budget presented by
the formed finance minister, Mr. P.Chidambaram, tried to firmly establish India’s commitment to the reform
process and managed to enthuse both Indian and Foreign business. The budget showed a spirit of optimism
and growth. Market-men were amply encouraged and share indices recorded their biggest jump in any post
budget session in the last two decades. The budget reformed India’s tax structure in line with the structure 

in developed countries; significantly reduced tariffs; rationalized excise rates; encouraged investment in

infrastructure; and also opened up the insurance sector partially. On the negative side, however the budget
paid more lip-service to reduction in government expenditure and remained silent on the huge oil-pool
deficit. (This was subsequently tackled by an administrative decision).

One of the imperatives of the environment is to have a skilled and educated workforce, which can
understand and cope with the requirements of IT and other technologies in the manufacturing and services
sectors. Therefore, the state has to make heavyinvestments in education. It is worth noting that Yashwant
Sinha, minister of finance, in his 1998 budget speech, stressed on the importance of education as a key
vehicle for social transformation and provided total budgetary allocation of Rs70, 470 million to the sector.
This was an increase of 50% over the preceding year’s allocation. Here, it must, however, be pointed out
that a significant share of this increase would go into paying the increases in salaries. The finance minister
also expressed the government’s intention to eventually raise total resource allocation for education to 6%
of GDP, in a phased manner. He further stated the government’s plan to implement the constitutional
provision for making primary education free and compulsory up to fifth standard, and also to go beyond and
provide free education for girls up to the college level.

Mahajan (1998) estimates that the central government’s expenditure on human resource development
(HRD), which was Rs 32,410 million in 1989-90, dropped to Rs28, 910 million in 1992-93. The expenditure
by the states was Rs 1,23,100 million in 1989-90, which marginally improved to Rs 1,29,020 million in
1992-93. Given India’s vast population, the number of poor and school drop-outs (turned child laborers), it
is indeed a critical situation. Unfortunately, not much has gone into the National Renewal Fund (NRF) either,
which was originally created to impart training, retrain workers whose skills has become inadequate or
redundant as a result of technology up gradation.

The new economic programme has opened up the economy to a greater degree of international participation
and investments. The service industry has taken significant strides in areas such as tourism, hospitalize or
medicine, banking and financial services. Consequently, not only have more players come into India, but
mergers and acquisitions of a large number of India companies have also taken place. This has compelled
Indian companies to sit up and re-examine their strategies and practices, as also the type of business they
are in. Such a shake-out is indeed in stark contrast to their attitude in the recent past, where cornering a
license mattered more than a company’s product or competence. Liberalization has thus resulted in
paradigmatic shift.

1 (b) What is the effect of competition on Human Resource Management?

Ans: 1 (b) Effect of competition on Human Resource Management

As a result of domestic and international competition, human resource management is being given a key
role. Our survey highlighted the following changes in human resource policies and programmes.

1 With manpower costs going up, and the need to bring product prices down to meet competition,
manpower productivity has become a central issue in organizations. Human resource professionals will have
to play a critical role to fulfill this need.
2 Another area of intervention would be in the case of joint ventures where professional will have to predict
and manage culture-fit policies. Companies are focusing on people with the right profiles as also those who
are more capable. 
3 There is increasing emphasis on training, and retraining to tap latent talent.
4 Companies have started paying attention to career growth and career planning for employee.
5 Companies are showing increasing willingness to retail talent and redeploys manpower when necessary.
6 In some industry, Indian employees are being sought after abroad. This, coupled with competition for
employees among Indian companies, has led to an alarming attrition rate for some companies. To meet
ambitious career aspirations and salary expectations, human resource departments are using industry-wise
benchmarking for salary revisions.
7 Employee compensation is being linked and programmes are becoming more focused, responsive and are
also constantly reviewed against the external environment.
8 Contemporary practices, policies and programmes are becoming more focused, responsive and are also
constantly reviewed against the external environment.
9 Globalization has resulted in an influx of foreign managers to India. There is evidence of greater mobility
both within India and abroad. Furthermore, there is greater integration with world market dynamics and
practices.
10 Corporate restructuring and redefining of roles are areas also under focus.

Conclusion

The aftermath of Liberalization and globalization has made Indian companies conscious of competition and
quality and acquire a totally global mindset. According to Gurcharan Das they need to:
1. Focus on a single area of competence and not hopelessly diversify.
2. Initially concentrate on the domestic market and then leverage their economies of scale overseas.
3. Be able to capitalize on global trade.
4. Not ignore quality even when they are pursuing a low cost strategy.
5. Be able to overcome their historic phobia for investing in product development.

Das (1996) in his article ‘Nation and Corporation-III’ has recommended the adopting of a strategy based on
superior service, rather than a focus on the strategy of cost-leadership. According to him, a cost strategy in
vulnerable to the exchange rates of competitions and the rising labor cost of domestic employees. A strategy
based on superior service, on the other hand, can be very powerful as the value added is high, i.e., superior
service delivered by highly trained knowledge workers (scientists, engineers, market researchers, lawyers)
and provides a powerful insulation against competition. Not only can knowledge workers harness the power
of IT, they can also be trained to benchmark their deliverables against the competition and against customer
needs.

If Indian companies pursue this approach seriously and strategically, they stand a vast potential to emerge
as winners.

Q.2 (a) What is Performance Appraisal? What are the objectives of the Performance Appraisal System?

Ans 2 (a) Performance Appraisal is a formal exercise in which an organization makes an evaluation form, of
its employees, in terms of contributions made towards achieving organizational objectives and/ or their
personal strengths and weaknesses, and in terms of attributes and behaviors demonstrate for meeting
whatever objective the originations may consider relevant.

Performance appraisal systems are widely used today. None is perhaps perfect. Many advocate their
discontinuance. More rational ones plead for their improvement through continuous dialogue with line
managers. However some appraisal systems fail, efforts to improve them notwithstanding. There are several
reasons for such a failure. Some major ones are:

1 Some appraisal systems demand of the superior to assess his subordinate in terms of personality traits.
While talking generally of personality traits is accepted, no subordinate would like such assessment to be
recorded in an official document as a negative evaluation may adversely affect his career. The human
personality is a complex reality. Even physiologists disagree on how it should be defined. Personality traits
as well are extremely difficult to define. Moreover, how many executives are properly trained to assess him
to change aspects of his personality?
2 The results of a subordinate’s behaviour are easy to describe. However, the problem starts when the
superior tries to identify the cause. For example, in a case of inter-personal problems, the superior may
determine that it is because the subordinate is stubborn. The subordinate may claim that he is only being
assertive. The word stubborn itself may make him defensive. This will block further communication reducing
the effectiveness of appraisal system.
3 A superior may not want to pass judgement on another person it he feels that his negative judgement
may have an adverse influence on the individual’s future. In such a case, the superior tends to be non-
committal and vague in his assessment. No wonder in some organizations most of the managers get rated
“above average”.
4 These factors may greatly neutralize the beneficial effects of appraisal systems.

Objectives of the Performance Appraisal

Performance appraisal system can serve the following purposes:
1 To enable each employee to understand his role better and become more effective on the job.
2 To understand his own strengths and weakness with respect to his role in the organization.
3 To identify the developmental needs of each employee.
4 To improve relationship between the superior and the subordinate through the realization that each is
dependent
2(b) Explain the concept of 360-degree appraisal. How is this concept used in industry to appraise the
employees?

Answer 2 (b)

360-degree appraisal is a Multi-Rater Appraisal and Feedback System, where an individual (employee) is
assessed by a number of assesses including superiors, subordinates, peers, internal customers, and external
customers. The appraisal is done anonymously by the concerned persons and the final assessment is
collected by the HRD. The assessment is made on questionnaire designed to measure behaviors considered
critical for performance.

360-degree appraisal system involves 5 main phases to appraise the employees.

a. Participants Orientation and modalities of the exercise
b. Questionnaire distribution
c. Monitoring and Follow-up
d. Data feeding reports and analysis
e. Workshop

3.(a) What is Performance Councelling? Explain the process involved in Performance Councelling.
Ans: Performance Counselling refers to the help provided by a manager to his subordinates in objectively
analyzing their performance. It essentially focuses on the analysis of performance and identification of
training and developing needs for bringing about further improvement. It attempts to help the employee in:

1 Understanding himself – his strengths and weaknesses.

2 Improving his professional and interpersonal competence by giving him feedback about his behaviour.
3 Setting goals and formulating action plans for further improvement.
4 Generating alternatives for dealing with various problems.
5 By providing a supportive and empathetic atmosphere in which the employee feels encouraged to discuss
his aspirations, tensions, conflicts, concerns and problems.

Conditions for Effective counseling

1 A climate of trust, confidence and openness is essential for effective counseling. Counselling cannot be
effective if the subordinate does not trust his boss.
2 It is necessary that the subordinate should feel free to participate, without inhibition or fear, in the process
of review and feedback. Counselling is a dialogue between the boss and the subordinate. It is not one-way
process of communication to the employee what he should do or not do.
3 The main purpose of counseling is employee development.

Performance Counselling does not serve its purpose if the discussion is allowed to digress into other areas
like increments, salaries, rewards etc.

Processes Involved in Performance Counselling

The superior should be an excellent listener. He should pay careful attention to the ideals and feelings of the
subordinate. While ideas can be easily understood by the superior, the subordinate’s feelings and concern
should also be deciphered. This requires both patience and skill on the part of the superior, who is doing
performance counseling.

Questions play an important role in performance counseling, they can help in gathering more information
and in stimulating thinking. However, all questions do not facilitate communication. Some questions can
actually hinder it.

It is extremely important that feedback is communicated in a manner that produces a constructive response
in the subordinate. Most managers find it extremely embarrassing to give negative feedback. Given below
are some guidelines that could be followed in giving feedback.

Pre-Interview preparation

1 Make sure you know that was mutually agreed in terms of job responsibilities.
2 Review employee’s background, education, training, and experience.
3 Review employee’s past jobs and job performance.
4 Determine the strengths and development needs to be discussed with the employee.
5 For each need you plan to discuss with the employee, be prepared with alternative development plans
should he need assistance in coming up with a suitable plan.
6 Determine those points you do not intend to discuss with the employee and how you plan to handle them.
7 Identify areas that need attention during the next review period.
8 Make sure that the employee has sufficient advance notice for the interview so that he has time to do his
own preparation.
9 It is useful to note the key points on a piece of paper.

The Interview

1 Be sincere, informal and friendly. Explain the purpose of the discussion and make it clear to the
subordinate that the interview is a two-way communication.
2 Encourage the employee to discuss how he appraises his own performance.
3 Talk about strong points first, interspersing the discussion with areas that need improvement. Wherever
possible, cite specific observations you have made.
3 .(b)What are the Objectives of Potential Appraisal?

(ans ) Potential Appraisal

In making potential appraisal of managers, levels of talent and ambition have to be clearly identified. It
should be remembered that there are limits beyond which any individual employee will be over-stretched
and likely to succeed. Doing the present job exceedingly well is no indicator of assured success in a higher
job. Some employees are cut-out for specific jobs. They are happy doing such jobs. Promoting them without
assessing their potential may be a lose-lose situation for the organization. For example all good salesmen
cannot be promoted as sales supervisors. In the absence of a proper potential assessment, the organization
may lose an ace salesman and get poor sales supervisor.

Objectives of the Potential Appraisal

1 To assess an individual in terms of the highest level of work the individual will be able to handle
comfortably and successfully in future without being over-stretched.
2 To assist the organization in discharging its responsibility of selecting and developing managers for the
future to ensure continuous growth of the organization.

Vital Qualities

Based on past experience and research, the following qualities determine the potential of an employee;

1 Analytical Power.
2 Creative Imagination.
3 Sense of Reality
4 Capability of taking holistic view from a detached position.
5 Effective Leadership.

Conclusion

Potential appraisal is a relatively difficult exercise. Therefore, it should be done with care. Otherwise it may
do more harm than good to the organization.

4.(a) Define TQM. Examine the elements involved in TQM and evaluate the advantages and disadvantages of
TQM.?

Ans: Introduction

The concept of quality control as a distinct discipline, emerged in the United States in the 1920’s. At that
time, quality control was intended simply to control or limit the creation of defective items in the industrial
processes. The process involved inspection of the output and then sorting the defective products from good
ones. The concept of quality underwent numerous refinements. The pioneers who carried out these
refinements included Shewhart, Deming, Juran, Crosby and others. As a result, a more effective
management philosophy was adopted. The focus was on actions to prevent a defective product from being
created, rather than simply screening it out. The philosophy also recognized that the concept of quality
control need not be restricted only to manufacturing process, but could also be applied to administrative
processes and service industries.

Several management theorists expanded this idea and started using statistics to control processes, to limit
variations and to improve quality.

This was when Deming evolved the TQM philosophy. He believed that quality should be shared by everyone
in an organization. Deming recognized that most quality problems were system-induced and were therefore,
not related to workmanship. Crosby later promoted the “Zero defects” concept and emphasized adherence
to quality requirements and employee motivation.

TQM Defined:
1. Ron Collard and Gill Sivyer: “TQM is a cost effective system for integrating the continuous quality
improvement efforts of people at all levels in the organization to deliver products and services which ensure
customer satisfaction.”

2. TQM is the conformance to the requirements which customers expect.

3. TQM is about building quality rather than merely inspecting defects out.

Elements of TQM / Effective Implementation of TQM

TQM emphasizes a number of concepts which all supports the philosophies of customer focus, continuous
improvement, defect prevention and a recognition that quality responsibility is shared by all.

The Key TQM concepts are:

1. Management Commitment to Quality: The commitment to implement TQM has to start at the top. The
commitment of the top level reflects the seriousness towards quality.

2. Focus on the customer: The TQM philosophy is based on customer focus. The basic aim is to assure that
customer needs and expectations are understood and met. This philosophy can be understood with
reference to the ad of Lee lacocca. He once advertised that Chrysler had only three rules: Satisfy the
customer, Satisfy the customer and Satisfy the customer.

3. Prevention rather than detection of defects: This philosophy seeks to prevents poor quality rather than
detecting and sorting out defects. The technologies evolved to prevent defects are statistical process control,
continuous process improvement, problem solving and systems failure analysis.

4. Universal quality responsibility: TQM is based on the precept that quality is not just the responsibility of
the quality control department, but is instead a guiding philosophy that everyone shares in an organization.
It has been observed that once TQM is effectively implemented the quality control department gets smaller.
This is because quality becomes everyone’s responsibility and as such the need for a separate quality
assurance function disappears.

5. Quality measurement: TQM believes that quality is a measurable commodity and in order to improve, we
need to know what the current quality levels are and we need to know what quality levels we aspire to
attain.

6. Continuous Improvement: TQM strives for continuous improvement in all areas. This is made by typing in
closely with quality measurement and universal quality responsibility. The essence of this element is not to
find someone to blame when things go wrong instead it aims at zeroing on the process deficiencies that
allowed the problem to exist. Another significant aspect of this element is that it should not be attempted on
a grand scale but pursued in small, incremental and manageable steps.

7. Root Cause Corrective Action: It is often experienced that problems continue to appear though corrective
measures have been taken. This issue is tackled effectively under TQM, since it seeks to identify the root
cause of problems and by implementing corrective action that address problems at the root cause level.
The techniques used to address problems at the root cause level include problem solving approach and
systems failure analysis approach including fault free analysis and management tracking tools.

8. Employees involvement and empowerment: TQM demands employee involvement and empowerment.
While employee involvement means every employee is an active participant in goal attainment, employee
empowerment means providing the employees with necessary tools and authority to overcome obstacles to
achieving goals.

9. Synergy of teams: The problems & challenges of continuous improvement can be effectively tackled by
taking advantage of the synergy of teams. Dr. Ishikawa formalizer the team concept as a part of the TQM
philosophy by developing quality circles.

10. Bench marking: This element involves defining competitors best features and adopting the best
practices organizations for ones own operation.

11. Inventory reduction: This element, also know as Just-in-Time Inventory management, originally
intended to address material shortages. The ultimate impact of this concept was that as inventories grew
smaller, quality improved.

12. Value Improvement: The essence of value improvements is the ability to meet customer expectations
while removing unnecessary cost. Here, the customer receives the same level of quality for a lower cost.
Supplier Teaming: Another principle of TQM is to develop long-term relationships with a few high-quality
suppliers, rather than selecting those suppliers with the lowest initial const. The TQM philosophy believes
that lowest initial cost does not reflect the lowest overall life cycle cost if quality problems later emerge with
the low bidders supplies.

13. Training: Training is the basic element of the TQM process. This concept can be developed by
encouraging continuous improvement for which training appears to be the basic and the important tool.

Need and Importance / Advantages of TQM:

TQM is an integrative management concept aiming at continuous improvement in the quality of goods and
services through the participation of all levels. It believes in making quality everyone’s concern and
responsibility. Quality should become a habit and not a matter of chance. TQM ensures attainment of this
objective generating a number of benefits to the organization.

The advantages of TQM includes:

1. Improving customer satisfaction: TQM aims at producing goods and services in accordance with customer
expectation. This approach improves customer satisfaction and generates higher profits.

2. Enhancing quality: TQM helps in manufacturing better quality products at a lower cost. This increases the
market share and profits of the organization.

3. Reduction in waste: TQM seeks to prevent poor quality rather than detecting and correcting defects. It
stresses on things done right the first time. This reduces wastage and the related costs are eliminated.

4. Reduction in inventory: TQM aims at eliminating shortage in the supply of inputs. It also ensures that the
organization does not purchase excessive inventory. TQM believes that smaller the inventory, better is the
quality.

5. Improving productivity: Productivity is the input output relationship. Productivity improves when the
same output is attained at a lower cost or higher output is achieved at the same cost. TQM helps in attaining
these goals, thus contributing to improved productivity.

6. Reducing product development time: TQM not only focuses on customers, it also analyses and improves
the basic business systems and subsystems to match customer requirements. This helps in reducing the
product development time.

7. Flexibility : TQM increases the flexibility in meeting market demands. It helps in ascertaining the
requirements of the customers and evolves systems to do a better job in a shorter time.

8. Motivates human resource: TQM demands employee involvement and empowerment. Employees who
adopt customer satisfaction as their primary objective are rewarded with monetary and non-monetary
benefits. All this motivates the employees to do a better job.

9. Enhances competitiveness: TQM enables a company to face competition. This is facilitated by better
quality products, lowest possible cost and a team of dedicated employee.

Pitfalls in Implementing TQM:

(I) TQM incorporates several dimensions: The design of the products, control of processes and quality
improvement. It goes without saying that crisis are inevitable.
The initial period is focused on quality awareness, infrastructure, measurement systems and ungrading
skills. Gradually, the quality message is no longer new and as such loses some of its excitement. As
measurement improves, problems can be seen more clearly.
The realization that things are not going as expected causes disappointment, anxiety and even panic. This is
mainly because organizations tend to look for quick results, rather than at long-term improvement.
(II) The crisis in implementing TQM arises from:

1. Difficulties experience in bringing about change: TQM requires significant changes in methods, processes,
attitudes and behaviour. This realization not only takes time to set in but the change is painful. Line
managers become more accountable for their work. Supervisors become coaches. Middle manages become
problem solvers and the top level has to interact with customer. The process is very painful.

2. Rising expectations: As people become more knowledgeable about what a quality organization is, their
expectations keep rising. This creates anxiety.

To avoid this crisis situation, the following measures are needed:

a) At the beginning of the process expectations should be kept simple.

b) Everyone needs to recognize that setbacks will occur and are a normal phenomenon.
c) Managers should be trained in interpersonal skills so that the human issues associated with change are
effectively managed.
d) All improvements, no matter how small, should be publicized and appropriately rewarded.
e) Progress should be reviewed periodically, and goals revised accordingly.

(b) What are Quality Circles? Examine the process involved in Quality Circles and evaluate the advantages
and disadvantage of Quality Circles.

(ans ) Quality Circles (QC’s):

Introduction:

After the colossal destruction in World War-II, Japan became notorious for the poor quality of its goods.
“Made in Japan” became a synonym for shoddy goods. The Japanese started searching for ways to improve
quality. Dr. Deming and Dr. Juran played a key role in this process. They trained Japanese supervisors
thoroughly in the use of Statistical Quality Control (SQC) techniques. The supervisors disseminated this
technology and exhorted the workers to use SQC in solving problems related to quality. This gave birth to
the quality control movement in Japan in the early sixities. The Japanese exploited the SQC and quality
circle philosophy to such an extent that their products became a major threat to sophisticated western
products. Dr. Ishikawa Kaoru played a major role in launching this movement in Japan.

Quality Circle Defined:

1. Philip Thomson: “A quality circle is a small group of employees from the same work area who meet
regularly and voluntarily to identify, solve and implement solutions to work related problems.”

2. A quality circle is a group of people from the same work area, coming together voluntarily to identify,
work-area problems, analyse them and find solutions.

Process of Quality Circles:

In the QC philosophy, the circle members identify the work area problems, analyses them and find solutions.
It aims to achieve the objectives through the development of people, the most important asset of an
organization.

The Process of QC’s involves:

1. Problem Collection: The creation of a problem bank is one of the primary tasks that the circle members
perform. Each problem bank is given a priority number depending on its benefit potential and urgency.
Problem collection is an on-going process.

2. Problem Analysis: Problem analysis depends on facts and not on feelings. A good number of data
collection tools, charts and statistical techniques to establish facts, before proceeding to find solutions.
Subjective opinions have no place in this philosophy.

3. Problem Solution: A proper environment and group thinking together with expertise in work area
generate appropriate solutions to problems. Various alternative solutions are explored and the optimum
solution is chosen. Experience shows the people involved in a work area are the best equipped to solve its
problems and their solutions are feasible and practical.

4. Management Presentation: The solutions chosen by the circle members are presented to the
management, highlighting the benefits anticipated. Acceptance of the solution acts as a powerful motivator.

5. Implementation, review and follow up: After getting the sanction of the management, the circle members
chalk out a schedule for the implementation of the solutions. The results are constantly reviewed and follow-
up action is taken if required. In fact, review and follow-up is a continuing responsibility of the circle.

Benefits of Quality Circles

There are no financial rewards in the QC’s. But there are many other gains, which primarily benefit the
individual and in turn, benefit the organization. These are:

1. Self-development: QC’s facilitate self-development of individuals by bringing about attitudinal change,

improving self-confidence and a sense achievement.

2. Social development: QC is a participative and consultative programme where each member interacts with
others. This interaction helps in developing team-spirit.

3. Opportunity to acquire knowledge: QC members have an opportunity for acquiring new knowledge by
sharing ideas, opinions and experience.

4. Potential Leader: Every individual gets an opportunity to develop his leadership potential, since any
member can become a leader.

5. Improved communication skills: The joint problem solving and presentation before the management helps
the members to improve their communication skills. Non-attainment of cherished objectives due to poor
communication is, thus, avoided.

6. Job satisfaction: QC’s encourage creativity by tapping the dormant intellectual skills of the people.
Individuals also perform activities different from routine work, which boosts their self-confidence and gives
them immense job satisfaction.

7. Healthy work environment: QC’s generates a tension-free environment which each members likes,
understands and co-operates with others.

8. Organizational benefits: The individual benefits generates a synergistic effect, leading to higher
productivity, better quality, reduction in waste and cost effectiveness.

All these benefits are long-term in nature, which bring about improvements over a period of time.

Pitfalls of QC’s / Essentials of effective QC’s

1. Unconditional Support: The top management should offer unconditional support to the QC movement.
Lack of support or its withdrawal at a later date leaves the circles at a loose end. The support should also be
made visible, by the top managers by participating frequently in the QC activities.

2. Prompt approval: The acceptable recommendations of the circle should be promptly approved to boost
the enthusiasm of members. If the recommendations are not accepted or delayed, reason for the same
should be explained to the members.

3. Long-term approach: The objectives intended to be achieved can be achieved over a period of time, QC’s
are a long-term approach. Overnight miracles can’t be achieved in QC’s.

4. Proper orientation: The QC philosophy should be appreciated by one and all. For this a proper orientation
at all levels needs to be undertaken. This will help in increasing everybody’s involvement in the movement.

5. Morale trickles from the top: The top management should praise the work of the members. This boosts
the morale of the members and helps in sustaining their continued enthusiasm. The principle to be
remembered is that morale trickles from the top.

6. Expenditure scrutiny: The top management should get the cost – benefit analysis done expeditiously.
Delays can demotivate the members.

7. Dispel fears: The middle management often entertains fears like losing importance, becoming redundant,
being exposed, etc. The top level needs to take steps in this direction and ensure that such fears are
dispelled.

8. Identify of interests: Middle management co-operation and identify of interests with circles is important.
Lack of understanding of objectives lead to diversity of interests and to misdirected goals.

9. Regular communication: The communication channels should be kept open to ensure the success of QC.
Communication gap can lead to misinformation or no information between different people involved in the
QC operations.
Also there should be no language barrier. Training should be conducted in a common language.

10. Proper environment: A proper environment with mutual trust, faith and respect is necessary for QC’s to
thrive.

11. Effective leader: The success of a QC depends largely on the leader. He has to take initiative, be
tolerant, appreciate the objectives, motivate the members and foster a feeling of oneness. He should also
own responsibility for the action of the QC.

Ques.5: (a) What is Manpower Planning? Explain the various steps involved in Manpower Planning.

Ans 5 (a) Man Power Planning Definition:

Vetter defines man Power Planning as “the process by which Management determines how the organization
should move from its current man power position to desired manpower position. Through planning,
management strives to have the right time, doing things which result in both the organization and individual
receiving maximum long run benefits.”
According to Gordon McBeath, Man Power Planning is concerned with two things:
1 Planning of Manpower requirements
2 Planning of Manpower supplies.

Manpower Planning Steps

The need to anticipate and provide for future manpower requirements has made manpower planning a vital
function today in the area of staffing or the personnel function. In large organizations, where a personnel
department exists, such department as a staff function naturally performs this function. Systematic
manpower planning has not yet become really popular even in advanced countries such as USA and UK,
being practiced there only by a few huge companies in large-scale industries such as petroleum and
chemicals. Observing the following three steps can basically do manpower planning:

First step, determine the period for forecasting requirements of manpower in the future (i.e., requirements
at the end of the first year, second year, third year, fourth year, fifth year, etc.) and forecast the manpower
required at the end of such period.

Second step, from the number available at the commencement of the period, deduct the expected wastage
through deaths, resignations, retirements and discharges. This would give the manpower available from
existing staff at the end of the period concerned. A comparison of the figures arrived at in steps first and
second, would indicate shortages or surpluses in manpower requirements.

Third step, (a) In case of shortages, decide how such shortages are to be met (i.e., whether through fresh
recruitment and/or promotions from within) and whether any training or developmental facilities would be
required for this purpose. (b) If surpluses are anticipated, decide how these surpluses will be dealt with like
through early retirements, discharge, or lay offs.

Manpower planning thus seeks to ensure that the required personnel possessing the necessary skills are
available at the right time. As Dr. Ram Tarneja emphasizes, “Management can ensure control of labor costs
by avoiding both shortages and surpluses or manpower proper manpower planning. “He stresses that under-
estimation either regarding quality of quantity of manpower requirements would lead to shortfalls of
performance. Whilst over estimation would result in avoidable costs to the organization. Whist agreeing that
it is necessary to project deep into the future for skills which would require longer periods of training. He
warns that if the periods selected are too long, manpower forecasts are likely to be less accurate in view of
the inability to predict effectively the likely changes in the economic, social and technological spheres.

With this caution in mind, forecasts can be made for a short-term up to two years, medium term for periods
3-5 years and long-term periods longer than 5 years. However, a reasonable degree of accuracy can only be
expected in case of short-term forecasts up to 2 years. Even, such forecast should be periodically reviewed
and readjusted.

(b) What is meant by Human Resource Planning?

Ans.5.(b): Human Resource Planning

The actual HRM process starts with the estimation of the number and the type of people needed. The HRM
process never stops. It is an ongoing process that tries to keep the organization supplied with the right
people in the right positions at the right time. Human resource planning is a sub-system of this process.

Human Resource Planning Defined:

1. Leap and Crime: “HRP includes the estimation of how many qualified people are necessary to carry out
the assigned activities. How many people will be available, and what, if anything, must be done to ensure
that personnel supply equals personnel demand at the appropriate point in the future”.

2. De Cenzo and Robbins:”HRP is the process by which an organization ensures that it has the right number
and kinds of people, at the right place, capable of effectively and efficiently completing those tasks that will
help the organization achieve its overall objectives.”

3. Stoner and Freeman: :HRP is planning for the future personnel needs of an organization, taking into
account both internal activities and factors in the external environment.”

HRP Procedures:

HRP has four basic aspects:

Planning has future needs by deciding how many people, with what skills, the organization will need.

(I) Planning for future balance by comparing the number of employees needed to the number of present
employees who can be expected to stay with the organization.

(II) Planning for recruiting employees if the number exceeds the number of present employees or laying-off
employees if the number needed is less than the number of present employees.

(III) Planning for the development of employees, to be sure the organization has a steady supply of
experienced and capable personnel.

Question 6(a) : Explain how the training needs can be identified?

Ans: 6)(a) Identification of Training needs

Criticism about trainers is that they conduct training programmes on the basis of what they know rather
than the trainees need. Thus, an expert in marketing on a rotational assignment as Training Manager would
keep on conducting training programmes on marketing without even thinking whether such programmes are
needed or not. This not only wastes a scarce corporate resource but, also holds the training profession up
for ridicule.

The second most important role of a trainer would be to concentrate on the identification of the real training
needs. Conducting training programmes for the sake of improving training related statistics on increasing
training budgets will not produce good results. What is required is that trainers should assume the role of
the training-need-identifiers. They should develop sophisticated training need identification skills and only
the right type of training programme could be designed.

SSL Technology

Jorge Chapiro, a Management Consultant, who works in Buenos Airs, Argentina and Sao Paulo, Brazil, has
done excellent work in this area. He has developed what has come to be referred to as the Supervisory Skill
Level Survey, also known as SSL Technology. It is a method of measuring objectively the training needs of a
company’s supervisors through well-designed psychometric tests. This was developed through test on 5000
supervisors in 75 of Brazil’s largest companies including General Motors, Fiat, Norton, AUG, Telefunken and
Massey Ferguson. Te tests were repeated in the US under the auspices of the American Society for Training
& Development.

The idea behind SSL is that companies could obtain a good understanding of training supervisors by
comparing their performance with that of several thousand supervisors in other companies. The supervisors
have to spend three hours answering a 400- statement questionnaire. Typical of these statement are the
following:

1 Objectives are always attained when planning is good.

2 Subordinates need not participate in discussion and preparation of all changes undertaken. 
3 A supervisor has no responsibility to teach his subordinates safety measures. The organization should
provide specialists for that purpose.
4 It is almost impossible to motive people in situation where there is disagreement, however, slight.

The final judgments that have to be made on many of the questions gradually reveal the basic attitudes
each supervisor has towards his role. The large number of responses is necessary to establish the
consistency of the supervisors reactions. This ensures that the attitudes and this test helps in determining
who should be trained in what. Each of the 11 performance areas has an accompanying training module.

These modules are on 

1 Training Subordinates
2 Control
3 Safety
4 Discipline
5 Planning and Programming
6 Introduction of Change
7 Work Environment
8 Motivation
9 Communication
10 Human Relations
11 Union Relations

The key to the whole programme ties in the initial identification of the Supervisor’s weaknesses. The
computerized results usually hold a number of surprises for all. Experience shows that very seldom does a
supervisor needs training in more than areas. The outcome is that training costs are reduced considerably
quite frequently by 30% to 50%. Each supervisor gets what he specifically needs to improve the learning
effectiveness.

Major sources of identifying training and development needs of individuals are performance appraisal, career
plans and new system introduction/improvement.

Performance Appraisal

In the performance appraisal system there is scope to identify the difference between the organization’s
expectations and the individuals performance. Areas relating to knowledge, skill, attitude and behavior on
the job, which need change, can be specifically assessed in the system. The identification comes from the
employee himself or out of a discussion between the employee and senior who prepare the appraisal.

Generally, training need identification forms a part of management. Appraisal system. The needs identified
are then collected and suitable training programmes designed to meet identified needs for different groups
of managers.
Based on the advance information made available about changes in content/ context of the job of an
individual, the training manager provides suitable inputs to prepare the individual for the change.

The details of the inputs to be given to the individual emerge from discussions the Training Manager has
with the concerned employee and his supervisors, both present and future.

System Introduction

New systems and procedures, when introduced, call intervention from the Training & Development function,
implementation of new systems becomes much easier., if all individuals/groups concerned are explained in
advance about the change and how to derive the maximum benefit from it.

If more and more employees become aware of the functions of the Training Department, it would increase
the free flow of communication between the Training Department and other employees. This would help in
better identification of training needs.

6(b) : Explain how the results of training can be evaluated?

Ans 6 (b): Evaluate the Results of Training

Trainers today are so busy conducting training programmes that they have no time to find out what results
their training efforts have produced. There is a famous joke about training effectiveness.

On a request from the King a trainer agrees to teach the king’s horse to fly within a year. To this surprise
and apprehensive friends, he says: why worry’ within a year many things could happen. The King could die,
or I could die. Or who knows, the horse might fly”.

Thus training programmes are conducted in the hope that they will have some effect.

No doubt measuring training effectiveness is a difficult job. However, this difficult job must be dome is to
take somebody from outside the impact of some selected training programmes. He studies and makes a
presentation to the line managers on the results obtained as a result of these training programmes.

Training evaluation is a must to enhance the effectiveness of training systems.

Goal Of Training

The goal of all job related training is to achieve long term improvements in the way employees do their jobs.
How could this goal be best achieved? Dean Spitzer in a recent article published in Training makes
interesting points, which should be remembered by every trainer interested in producing results through
training. This is what he has to say.

Question 7(a): Examine the elements of succession planning?

Ans: 7 (a): 
1 As a first step, management staffing plans should be developed. These plans should be prepared on an
individual basis for all anticipated needs in the immediate year ahead and for key positions the intermediate
and long-range future. The potential forecasts and overall manpower market forecasts should be reviewed
and considered. The business plans should be reviewed to determine their effect on managerial needs. As
business plans for both the near and the long term are developed, the organization plans and human
resources forecasts should be formulated. Both of them can then be dovetailed into the staffing plans. This
step is clear from the following illustration:
2 The second step concerns staffing and development. Staffing includes recruitment, selection and
placement of candidates from outside. As well as selection and movement of present employees through
promotion and transfer. Development of managerial personnel should be ensured through approaches such
as formal training, both within the organization and outside, planned job rotation, performance planning and
appraisal, counseling and coaching.
3 The third step concerns creation a congenial environment, where people give their best. The organizational
environment should ensure the retention of the most desirable employees. In case the nominated successor
quits, the whole exercise will have to be repeated. This will be a costly exercise.
4 The fourth step consists of doing appraisals. Appraisal and analysis of results achieved should provide an
organization with essential feedback on the performance of managers. Potential appraisal done separately
will provide feedback on the potential of these managers.
5 The last step in the succession planning exercise is the preparation of Management Resource inventory
consisting of the following:

1 Personal data
2 Performance
3 Potential 
4 Skills
5 Career Goals
6 Career Plans

This should help identify the best-qualified employees for filling present and future managerial vacancies.

7(b):Explain the advantages of promoting employee within the Organization rather than employing outside
persons?

Ans7(b): Promotion from within

Familiarity breeds contempt. It is so true in the corporate sector. Whenever a vacancy comes up because of
some manager retiring or resigning, top managers always think of bringing some body from outside. They
have so little of faith in their own men and women and so much of it in outsider. Headhunters are called in
to locate managers from competitors to succeed the retiring manager. What is the outcome of such an
approach?

There are several adverse impacts on the organization. Firstly, managers lose faith in the fairness of the top
management. The moment this feeling takes root in the minds of managers in general the productivity of
the organization suffers. Secondly, many managers directly affected by the induction of a manager from
outside decide to separate from the company rather than helplessly watch the injustice done to them. What
starts as a trickle ultimately becomes an exodus. In the short run, it means increase in the recruitment,
induction and training costs.

In the long run, it may mean fewer suitable candidates applying for jobs in the organization. In the absence
of talent, the organization gets caught in the mediocrity trap and its long-term growth and prosperity are
hampered. Thirdly, many a time a gang war starts in the organization to oust the “outsider”. It happened
sometime back in very prestigious and professionally managed organization.

In the absence of a succession plan, the Chief Executive was brought in from another professionally
managed organization. There were competent managers within, but they were not considered. It was a
high-profile recruitment finalized by an intentional selection committee after global advertisements. The
candidate selected was really a brilliant one. He was an excellent leader. He could make an impact in no
time. However, his brilliant itself unleashed forces within the organization. It was first these top mangers,
who had missed the opportunity of becoming the chief executive , starting subtle rebellion. When the
intensity of these rebellious forces intensified, the boss of the newly inducted chief executive, who was
instrumental in bringing him, joined these forces. And this talented Chief Executive left. The rebellious top
managers have been rewarded through promotions for staging the coup. The Chief Executive has started a
new company 
and is doing well. Everybody, has gained except the poor organization, which has remained stagnant. Its
growth has been stifled. It has virtually lost the race to be in the big-league. The organization still continues
to be divided in two camps. The gang-wars have stopped but some skirmishes do take place from time to
time. After every such incident, a few talented senior managers leave, further depleting the already depleted
talent pool of the organization.

Question: 8(a) : Explain the importance of Carrier Planning in Industry?

Ans: 8 (a) Career planning involves efforts on the part of the organization to provide avenues for growth to
its employees. Certainly this growth should be companied by development. The other side of the coin is the
role of employees in career planning. It involves efforts on the part of employees to clearly think through
and decided areas in which they would like to make a career for themselves.

Career Anchors
Research studies have indicated that certain attitudes formed early in life, guide people throughout their
career. They ‘anchor’ an individual to one or a few related types of careers. Five such anchors have been
identified:

Managerial Competence: The fundamental characteristics of the persons anchored by an overriding interest
in management include a capacity to take considerable responsibility, ability, to influence and control others
and skills in problem solving.

Technical-functional competence: Their primary interest is in the functional work. They consider managerial
and administrative responsibilities as avoidable irritants. They will like to remain experts rather than become
general managers.

Search for security: They are more attached to an organization or a location than to work. They do not want
to hear anything against their organization. The only price to be paid by the organization is to keep them at
the location of their choice.

Desire for creating and developing something new: Such individuals start a new business, less for making
money than for creating a product that could be identified as theirs.

Freedom or Independence: They will like to work at their own place. They will like to choose their working
hours. Freelance writes and consultants come under this category. 

Knowledge of these career anchors helps in planning for career development.

8(b) : Carrier Planning and Succession Planning are very vital to meet the
challenges thrown by the forces of Globalization and Liberalization. Explain?

Ans 8 (b): Career Development Cycle

There are four stages of this cycle:

Exploratory stage: This stage starts when a new employee joins an organization. He gets a real shock. He
finds a big gap between what an ideal organization should be and what it is. He finds that neither the
education in the university nor the induction programme of the organization is able to prepare him fully for
the job at hand. Alternatives for the initial training include a “swim or sink’ approach. Full time training with
no job responsibility. And worthwhile training. However, the sooner the trainee is given a definite job
assignment, the more rapidly he will develop.

Establishment stage : Once an individual has chosen a career., he requires regular feedback on his
performance. A good career development plan should provide this feedback. The first performance appraisal,
the first promotion and the successfully complete assignment are all very important occasions for a young
employee. 

Maintenance stage: In this stage, employees try to retain the name they have established in their career. In
a fast changing world, this will require continuous efforts at self-development. This is the stage many face
their mid-career crisis. Some start an entirely different career. In one case, an executive took to journalism
at the age of 40. And he was quite successful.

Stage of decline: Impending retirement scares everybody. But it almost inevitable. Some planning for
recruitment can ensure smooth transition, many organization conduct-training programmes for their retiring
employees.

Career Need Assessment

Employees are often uncertain as to the type of work that would suit them best. There are a number of
evaluation instruments available to determine basic aptitudes. Human Resources Development Managers
should be able to guide employees by administering these instruments on them. Employees should think
whether they value prestige, Independence, money or security. They should also find out whether they are
loners or socially active. These exercises with some assistance from HRD managers should help in career
need assessment.
Career Opportunities

Realizing that employees have definite career needs, organization should chart different career paths.
Several examples of such career [paths chartered by a large public sector organization have been discussed.
These should be made known to all the employees. As every employee wishes to see bright future for
himself, these career paths do provide the hope to achieve success.

Question: 9(a): What is Job Evaluation? Explain the various methods used in 
conducting Job Evaluation Studites.

Ans : 9(a): Introduction

Job evaluation is the process to determine in a systematic and analytical manner the comparative worth of
job with an organization. The worth of job is determined in relation to other jobs in terms of the skill
needed, responsibility involved, efforts required and the surroundings in which it is performed. Job
evaluation attempts to measure these requirements for individual jobs and arrive at their respective worth
and place them in their relative order.

Techniques of Job Evaluation

Many techniques are used for the measurement of jobs. All forms of job evaluation are designed to enable
management to determine how much one job should be paid as compared to others. Basically all systems of
job evaluation can be classified under two categories: 1) Non-quantitative 2) Quantitative. Simple ranking
and grading are placed in non-quantitative while point system and factor comparison methods are under
quantitative category. The most widely used method is point system and the least is ranking system. One
company can apply two methods for two different types of jobs. But, generally, all the four methods are
useful and real effectiveness of any method would depend on how best they are applied. Thomas Atkinson
and Wendell Frech tried to inter-correlate these four systems and found inter-correlation to be as high as
0.94.

1. Job Ranking: This method is widely used in small organizations. Being a very simple and not expensive
method, it also consumed less time and promises enough potential in its usefulness. Before actual ranking,
brief job descriptions of all the jobs are taken. Then the Job’s relative worth, without any other consideration
is taken. In the beginning of the process, the highest and lowest jobs are determined which serve as the
bench marks for the ranking of the remainder. The second method is the paired comparison technique in
which each job is to be compared with all other jobs.

Once the comparison is done, jobs are arranged according to their worth. In this technique, the main idea is
to rank jobs in order of their worth. The simplicity of this method is rather deceptive.

2. Job Grading: In ranking we do not have pre-decided scale of values, but here thee is one yardstick
consisting of job classes. In this approach, job factors approach is not considered. Jobs are rather measured
as whole.

A scale of values consisting of grades and grade description is prepared. Job grades are determined for a
category of jobs. From this, the grade descriptions are prepared which should be broad enough to include
several jobs. Such grade descriptions cover job description as well.

Two approach are used in preparing grade description on which help to create a single scale of values for
measuring the worth of a job. For example, in an enterprise, Job A and B are similar in nature and job X,Y,Z
are of similar nature. Another approach is to give some known key jobs.

3. Factor comparison System: Improved method of ranking systems is known as factor comparison system
where job factors are compared rather than the whole job. It consists of the following steps:

a) Selection of job characteristics.

b) Selection of key jobs.
c) Determination of correct rates of key jobs.
d) Ranking key jobs under each job factor.
e) Allocation of correct rate to each key job.
f) Evaluation of all other jobs.
g) Designing, Adjusting and Operating the wage structure.

The first three steps are quite similar to that of point system. While the fourth one, is the ranking of all the
key jobs, to a particular factor at a time. For example, suppose job A,B,C,D,E constitute key jobs. They are
ranked in such a way that one factor is considered at a time.

4. Point Rating System: This system is widely used in job evaluation. It is quantifying, analytical and
detailed approach hammered out to derive a balanced wage structure with least dispute among employees.
This method consists of the following steps.

h) Select job factors or features.

i) Prepare yardstick of value for each job factor.
j) Decide the value of all the jobs against the predetermined yardstick.
k) Build a wage survey for selected key jobs.
l) Design the wage structure.
m) Adjust and operate the wage structure.

9(b): What is meant by HRD Audit?

Ans: 9 (b) : Need for HRD Audit

In the last two decades a large number of corporations have established HRD departments, introduced new
systems of HRD, made structural changes in terms of differentiating the HRD function and integrating it with
the HR function. A good number of CEOs saw a hope in HRD for most of their problems, issues and
challenges. It is estimated that on an average, establishing a new HRD department with a small size of
about five professionally trained staff costs about two million rupees per annum in terms of salaries, another
ten million in terms of budget (e.g. Training budget, travel etc.) and probably about five to 10 times the
amount in terms of managerial time costs and opportunity costs. This is because HR systems are people
intensive and require a lot of managerial time.

Inspite of these investments in a number of corporations, there is a widespread feeling that HRD has not
lived upto the expectations of either the top management or the line managers. There are also examples of
corporations where HRD has taken the driver’s seat and has given a lot of benefits. In today’s competitive
world `people’ or employees can give a good degree of competitive advantage to the company. To get the
best out of the HR function, there should be a good alignment of the functions – its strategies, structure
systems, and styles – with business (e.g. financial and customer parameters). It should be aligned both with
the shorterm goals and long-term strategies. If it is not aligned, the HR function can become a big liability to
corporations and they will have no alternative but to close their HR departments. Besides this alignment, the
skills and styles of the HR staff, line managers and top management should be in synergy with the HR goals
and strategies. HRD audit is an attempt to assess these alignment and ensure that they take place.

HRD audit is a comprehensive evaluation of the current HRD strategies, structure, systems, styles and skills
in the context of the short and long-term business plans of a company. It attempts to find out the future
HRD needs of the company after assessing the current HRD activities and inputs. In the last few years the
author alongwith his colleague Udai Pareek pioneered, in India, a methodology for auditing the HRD function
called HRD audit and implemented in many companies.

Conclusion

HRD audit is a comprehensive evaluation of the current HRD strategies structure, systems styles and skills
in the context of the short and long-tyerm business plans of a company. It provides inputs required to
assess all aspects of HRD and assign the HRD score for the company on a number of dimensions. Its main
objective is to align the HR function (structure, systems and processes) with business goals or 
to create a business-driven HR function. Since it incomprehensive, it uses a variety of methods including
interviews, observation, secondary data analysis, workshops. It has to be business-driven and
comprehensive. There are numerous reasons why companies go for HRD audit, the main ones being growth
and diversification, promoting professionalism, improving HRD strategies and enhancing the direct
contribution of HRD to business. Experience has shown HRD audit to have tremendous impact on business in
areas of strategic planning, role clarity, streamlining practices, better policies, top management styles,
improvement in HRD systems, focus on competence and TQM interventions. However, proper
implementation and top management support are both very crucial for its success.
Q 10 (a) Explain the nature of Human Resource Development . Examine its nature & scope.

Ans) HRD is the process of increasing knowledge , capabilities and positive work attitudes of all people
working at all levels in a business undertaking.

HRD is matching the organizations needs for human resources with the individual needs for personal career
growth & development.

Nature & scope of HRD:- 

The dynamic environment in which an organization functions demands regular updating of job requirements.
This is necessary to insure an adequate number of qualified persons for the changed job. Its scope can be
understood with reference to the following points:-

1) HRD is a system made up of mutually dependent parts . Therefore the design of the system cannot be
considered in isolation . It must take into account its linkages with other parts of the organization.
2) HRD is a proactive function. Its function is not merely to cope with the needs of the organization, but to
anticipate them and to act on them in advance in a continuous & planned way.
3) HRD aims at developing the capabilities of all line managers so that they can increasingly handle
functions like industrial relations , reward and punishment, performance appraisal etc.
4) HRD emphasizes on building the right work culture in the organization. The work culture should identify,
nurture and use the capabilities of the people.
5) HRD emphasizes a lot on the need to motivate people . It considers informal organization, job enrichment
, participative management as motivating forces.
6) HRD considers that the better utilization of human resources leads to improved performance. This in turn
leads to increased job satisfaction and morale.

Q 10 (b ) What constitutes good HR practices ? What is its impact on the organizational performance.

Ans) Any practice that deals with enhancing competencies , commitment and culture building can be
considered an HR practice. The practice can take the form of a system, a process, an activity, a norm, a rule
an accepted or expected habit , or just a way of doing things. HRD has been defined as essentially
consisting of these three Cs :-
Competencies
Commitment 
Culture
All three are needed to make an organization function well. Without competencies many tasks of the
organization may not be completed cost effectively or with optimal efficiency. Without commitment they
may not be done at all or are done at such a slow pace that they loose relevance . Without an appropriate
culture organizations cant live.

Competencies are not merely related to single individuals . They can also be related to pairs of individuals
.Competencies may also relate to pairs of individuals . This includes departments, task forces, teams and
other informal groups and teams that may come into existence from time to time on a temporary , semi
permanent or permanent basis . Competencies may be related to an organization as a whole. They may also
deal with various areas and functions : technology , organization and management , behavioral , conceptual
etc. They may also include a variety of skills and abilities ranging from simple awareness , knowledge and
information to highly sophisticated ones.

Developing commitment has a lot to do with motivation and work habits. Commitment is indicated by work
effort. Commitment building should be continuous and should be a part of life. Commitment should be at the
level of individuals, dyads, teams, work unit, and the entire organization. Various HR systems contribute
towards developing commitment among employees. At the more visible level , rewards , recognition and
similar interventions can lead to greater culture.

A strong culture can have a lasting effect and provide sustenance to an organization . It gives a sense of
pride and identity to individuals and teams. It enhances predictability , reduces transactional costs and also
contributes to commitment. However the culture and values associated with an organization need to be
appreciated and well articulated. The instruments of culture building include organizational climate surveys,
total quality management interventions, value clarification exercises , vision , mission workshops,
organizational – renewal exercises and various other organization development interventions.

Good HR practices are those that contribute to one or more of the three Cs . They need to be identified and
implemented cost effectively, reviewing and revising them from time to time to enhance their effectiveness
and appropriateness.

Impact of good HR practices:-

A lot of evidence linking organizational effectiveness with good HR practices comes from case studies of HR
practices and organizational performance. The National HRD Network and Confederation of Indian industries
has been giving HRD awards for organizations that have outstanding HR practices.

About 90 % of the award winning companies have continued to grow and expand in spite of having to face a
turbulent environment in the recent past. They have shown that they have the wherewithal to withstand all
kinds of turbulence including the onslaught of globalization after having been in a protected environment for
several years. Most of these companies exhibit the following characteristics:-

1) They seem to have capability to cope well with leadership changes.

2) They seem to have coped well with changes due to liberalization and have even exploited the
opportunities to their advantage.
3) All the companies seem to have attempted to meet the challenges to liberalization by becoming customer
oriented.
4) Most of these organizations seem to demonstrate that they are changing and learning organizations.
5) Most of them have used their HR departments to initiate and manage changes.
6) These organizations have heavily invested in training and some of them have even established new
training centers.
7) They have integrated well the personnel and HRD functions.

Although the above generalizations are based on impressionistic data , a scientific study may not reveal too
different a picture. The only scientific study in this field has been made by Abraham. Who surveyed 68
Indian organizations. He measured various elements of HRD profile of these organizations including
performance management, training, career planning, promotions, autonomy. Abraham has also constructed
an index of growth of the companies profitability as a measure of organizational performance. He found that
the perception of the HRD climate was more important than the HRD practice itself.

This evidence is sufficient to indicate that good HR practices do matter . However the relationship between
good HR practices and organizational effectiveness is not simple. It is not that all one has to do is to have
good HR practices and everything else will automatically follow. Though good HR practices can ensure a
number of things . They can lend a competitive advantage to a company if other things are equal. There are
other variables that need to be kept in mind which are location of the company, economic policies.
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Global Impact of a Local Problem like Sub-

prime Crisis
As interest rates started falling due to excess liquidity, house prices rose rapidly, creating a pool of wealth in the
hands of Americans, which they unlocked by contracting mortgage loans. It benefited them in two ways — they got
huge liquidity at inflated housing prices and interest rates that were practically lowest in the last twenty years. This
became a virtuous cycle, which resulted in very high consumer spending, obviously fuelling globalgrowth.
As interest rates started rising in the US due to inflation concerns, this virtuous cycle came to a standstill and the
demand for houses started tapering. This resulted in lower prices for houses and many were unable to cover the
mortgage loans. It has now hit the entire banking industry in the US and the virtuous cycle is becoming a vicious
cycle.
This subprime crisis has inevitably become an election issue, and the Democratic presidential candidates have
outlined plans to address it.
Obama’s stand, which avoids direct government spending, is more conservative and impractical, as compared to
Clinton’s, who has promised to allocate federal reserves to resolve the crisis.
What does all this mean for the Indian capital market? For one, the flow of capital coming to the Indian stock market
will be reduced. India was always considered one of the robust emerging markets, but definitely with certain political
and economic risks.
These risks, in recent times, were not priced into equity valuations as the excess liquidity was chasing emerging
market exposures and India became the investor’s darling, after China. Now with the subprime crisis, excess
liquidity will vanish and the market will correct for the price of risks. Let us also look at domestic fundamentals. Indian
markets will see a correction because of high oil prices, high interest rates, slowing down of exports because of the
slowing down of the US economy and rupee appreciation. This will definitely have an impact on the GDP growth rate.
The stock market has, in the recent past, rallied largely because of global cues and has almost completely ignored
the local issues. With liquidity drying up, the market will now focus on local issues, including political uncertainties and
corporate earnings. It is natural to expect that, finally, fundamentals will rule over technicalities, and the market will
look at ground realities.
A slowdown can be observed in the automobile sector, some slowing down is already being witnessed in the real-
estate segment and, with exports coming down, and it will not be too long before we see the same in textiles,
jewellery and other areas as well.
Perhaps a similar story will unfold in the next couple of months for these lenders who have lent big money into the
subprime markets. One or more banks will fold, just like Enron did, resulting in a huge crisis of confidence. It would be
naive to wish away this major problem inflicting the global markets and to presume that the Indian market is
decoupled. If the global super-tanker US, which has a 25 per cent share of global GDP, slows down it will definitely
have an impact on the Indian economy.
Only time can decide which policy becomes successful. More importantly, no one can predict a change of plans in the
Oval office.
Tamal Roy

What Is Brain Drain?

Brain drain is also known as “The human capital flight”. It can be simply defined as the mass emigration of technically

skilled people from one country to another country. Brain-drain can have many reasons, for example-political

instability of a nation, lack of opportunities, health risks, personal conflicts etc. Brain-drain can also be named as

“human capital flight” because it resembles the case of capital flight, in which mass migration of financial capital is

involved.
 The term brain-drain was introduced by observing the emigration of the

various technologists, doctors and scientists, from various developing countries (including Europe) to more developed

nations like USA. Now this phenomenon of brain drain has a conversed effect for a country in which people are

getting migrated and brain-drain of a nation becomes brain-gain for that particular country. Usually all developing

countries including India are suffering from brain drain and developed countries like USA are having brain gain from

this phenomenon.

Brain drain from Europe 

A few years before, Europe was one of extreme sufferers of the brain-drain. In Europe brain drain was occurring in

two stages. First was the migration of workers from the southeastern Europe and Eastern Europe to the Western

Europe. And other stage of brain-drain was the migration from Western Europe to the USA. But this cycle of migration

is getting slower these days. To stop the brain-drain Europe community also launched a provision called “Blue-card”.

It’s same as green-card facility of USA. In fact EU was getting much more liable for the immigrants of Asia in last

decade in order to compensate the brain-drain. But at the same time EU is worried about the effects of foreign

population on culture and environment of Europe, so these days EU is implying some strict rules to regulate flow of

immigrants.

Africa 

This continent has suffered maximum because of brain-drain. According to a survey Ethiopia lost its 75 % of skilled

workers in the years 1980-1991. This mass migration of skilled workers is showing extremely detrimental effects on

the development of nation. In the similar manner Kenya and Nigeria are also great sufferers of brain-drain.

Middle East

Countries of Middle East like Iraq, Iran etc are also great sufferers of the phenomena of brain-drain. Lack of some

basic facilities and services are the reasons for the mass migration from these areas. Dictatorship, terrorism,

orthodox attitude are basic hurdles of development of this region.

Asia

Countries like china, Pakistan, Russia and India are also facing problems of brain-

drain. Unemployment, population explosion and corrupt political systems are main reasons for migration of skilled

workers from Asia. In countries like India, Pakistan, Bangladesh etc graduates, post graduates, experienced and

skilled professionals are not getting enough opportunities to develop and succeed. So with dreams of development

these professionals leave their native country in search of better future. This brain-drain is a great loss to these

developing countries.

What Is Brain Gain

On the other hand brain-gain is just an opposite situation to brain-drain. Countries in which skilled workers are

migrating are said to brain-gaining countries. Examples include- USA, Canada and UK. These countries are having

brain-gain because these nations are rich and have enough work opportunities. Moreover, they provide better

facilities and life styles.

Conclusion

For the balance of power and for the staggered development of the world, it is very important to stop the phenomena

of brain-drain. This will help a particular country to use all local skilled citizens for development and proliferation. But

to hold these skilled workers at their native places, it is also important to provide them enough work opportunities and

living facilities. For this purpose, developed nations should help developing countries with necessary money and

resources. So that each and every human of this planet can have good standard of living and each and every nation

can introduce itself as a developed nation.

Brain Drain in India – Favorable or Unfavorable?

A brain drain is a large emigration of individuals with the Knowledge or Technical skills, usually due to conflict,
political instability, lack of opportunity, or health risks. A brain drain is generally regarded as an  economic cost,
because emigrants usually take with them the fraction of value of their teaching sponsored by government.
Do you believe brain drain, regularly known as a main problem in our country is essentially a bad thing? I don’t
think so. In reality it is a big gift that capable minds are able to depart the country and track their goals and
dreams elsewhere. At the first glimpse, it seems like a huge loss. A significant number of young people are parting
the country. It looks like the state is loosing a lot of knowledgeable and educated workforce.
However, what will happen if they seal the borders and detain all this talent inside the nation ? Would they be able
to grow and be as creative as they would like to? Would they cause a technological revolution or will they join the
queue of unemployed people as well as produce more problems for our already worried society?
The biggest benefit of brain drain is that all those individual brains will get the opportunity to nurture in another
atmosphere where they get more support as well as have more freedom to boom and this is why they leave. From
a universal point of view, it will help talents develop and not be shattered. Here is a plain example, a very
intelligent friend of mine got a medal in the International Physics Olympics as well as entered the university with
no concourse. He graduated with most excellent marks, passed the Masters Entrance exam however was failed for
some silly reason. For some time he unsuccessfully tried to get around the difficulty, but at the end he gave up
and determined to study his masters out of the country. Now he is a PhD as well as lives happily and works in the
States. Would someone else in his condition have done something else? I think no.
Furthermore, the knowledge that those young brilliant people gain overseas will be very helpful if they choose in a
later phase to go back as well as settle down or engage in their country. The fact that young cultured people leave
the country in the present situation is not only good for themselves however is also good for the world.
However on the other side, Brain drain is a severe loss due to the flow of the competent and effective sector of
the country particularly oil producing states which are now in terrible need for trained and highly skilled
employees. Brain drain influences all level of education in the world which suffers illiteracy estimation at 70
million people. The economy can also be affected due to expenditure on study whether state funded or privately.
The migration even broadens the gap between the rich and poor countries. Brain drain is advantageous to the
beneficiary countries as well as loss to countries of origin, because it deprives these countries from the innovations
of their subjects. Such countries as a result have become culturally and technologically dependent on the West.
An answer to this would be to encourage entrepreneurs to produce employment. The Government is supposed to
give concessions in tax as well as decrease the hassles concerned in setting up an industry. In this way we could
make India’s workforce one of its major assets.

Author: