How do Technology and Environment Influence the choice of Social Co-ordinate Mechanisms-Using Mintzberg’s Typologies.
C.T.Sunilkumar
Post Doctoral Research Scholar
School of Public Policy, George Mason University
Room No 206, 3330, Truland Buildings,Washington Blvd, Arlington
Virginia- 22201, Phone # 571-748-4981 (H), 703-993-8516(W)
Introduction
As per Henry Mintzberg an Organization begins with a person who has an idea. This person forms the strategic apex. He or she hires people to do the basic work of the organization, in what can be called the operating core. As the organization grows, it acquires intermediate managers who form the middle level management. The organization may also find that it needs two kinds of staff personnel one Analysts, who design formal planning and control of work (Techno-structure) and two Support-staff, providing indirect services. Organizations will have to deal with uncertainties due to technology and environment changes. As per Henry Mintzberg there are 5 different types of structures and later he added two more. The intensity of impact of technology and environment are different in different type of structure and also varies from organization to organization. As per William Ouchi there are three types of strategies that organizations could adopt – bureaucratic, market, and clan.They can also have employment contact, commercial contract and physiological contract respectively. Each form of control uses different types of information’s. However, all three types may appear simultaneously in an organization. The uncertainty in an organization can be due to uncertainty in Environment and uncertainty in Technology.
Environmental Uncertainty (Paul Lawrence & Jay Lorsch)
Work of Lawrence and Lorsch (1969) is regarded as the classic study linking the effects of environment in to structure. For dealing with different set of environmental condition they have given appropriate structural characteristics.
1. Whether the different demands placed on organization by their environments relate to structural designs.
2. Whether Organizations with stable environments make greater use of centralized patterns of authority to achieve co-ordination and control and, if so, whether this is because fewer integrating decisions are required or because decision can be made more effectively by a small number of people at a high level.
3. Whether Organizations in different environment have same degree of specialization of functions.
4. Whether Firms in different environments have greater degrees of functional specialization, giving rise to differences in the extent to which organizational functions are coordinated, or use different ways of integrating functional activities.
To address these issues they coined two terms Differentiation & Integration. Differentiation: Differences in cognitive and emotional orientation among members of different units and consequently difference in formal structure among units. Different organizational function usually deals with distinct segments of the environment, which can mean that people in different function develop unique perspective and emotional orientation. For instances, marketing people can be far more focused on the pressures excreted by customers; this can give them a very different perspective from production people, who tend to be more sensitive to the views of trade unions and suppliers. Integration: The quality of the state of collaboration among sub units in order to achieve unity of effort in response to demands from the environment. Integration reflects the ways in which functional activities are coordinated and controlled to achieve the goals for the organization. Lawrence and Lorsch acknowledge that different functions are likely to have different orientations, but they avoided the assumption that integration is just a matter of minimizing differences to produce a common outlook. Rather, their aim was to determine whether ways had been found to allow the differences in orientation to exit, while getting the function to focus on achieving organizational goals.
Environment is not conceptualized as ‘every thing out there’ but as three specific sub-environments, normally dealt with by three major specialist functions in firms. The market sub-environment dealt with by the marketing function, technical-economic sub-environment dealt with by the production function and the scientific sub-environment dealt with by research and development. The study by Lawrence and Lorsch found that each department evolved towards a different orientation and structure to deal with specialized parts of the external environment, therefore more time and resources must be devoted to achieve coordination when attitude, goals, and work orientation differ so widely. Organizations with highly uncertain environments and with highly differentiated structures assign about 22 % of management personnel to integration activities, such as serving on committees, on task forces, or in liaison roles.
Technology Uncertainty (Charles Perrow)
Charles Perrow developed a classification based on the knowledge required to operate technology. Technology is an important factor in contingency theory. The type of technology determines an organizations most effective structure and success in the market. The classification specified two dimensions of departmental activities that were relevant to organizations structure and process. The first one is the number of exceptions (Variety) in the work and the second dimension of technology concerns the analyzability of work activities.
Variety: This refers to the task variety, which is the frequency of unexpected and novel events that occur in the conversion process. Task variety concerns whether work processes are performed the same way every time or differ from time to time as employees transform the organizations inputs to outputs. When individuals encounter a large no of unexpected situations, with frequent problems, variety is considered high. When there are few problems, and when day-to-day job requirements are repetitious, technology contains little variety. Variety in department can range from repeating a single act, such as traditional assembly line, to work on a series of unrelated problems or projects. Analyzability: When the conversion process is analyzable, the work can be reduced to mechanical steps and participants can follow an objective, computational procedure to solve problems. Problem solution may involve the use of standard procedures, such as instructions and manuals, or technical knowledge, such as that in a text book or hand book. On the other hand some work is not analyzable in this case some times the final solution will be result of wisdom and experience and not the result of standard procedures. The users of technology require less search effort to manage exceptions when able to use existing analytical methods rather than having to rely on their intuition and guesswork. The four technology categories are:
1. Routine technologies: are characterized by little task variety and the use of objective, computational procedures. The tasks are formalized and standardized. Example: Railway ticketing system.
2. Craft technologies: are characterized by a fairly stable stream of activities, but the conversion process is not analyzable or well understood. Tasks require extensive training and experience because employees respond to intangible factors on the basis of wisdom, intuition and experience. E.g. Steel furnace engineers continue to mix steel based on intuition and experience.
3. Engineering technologies: tend to be complex because there is substantial variety in the tasks performed. However, the various activities are usually handled on the basis of established formulas, procedures, and techniques Employees normally refer to a well developed body of knowledge to handle problems. Engineering and accounting tasks usually fall in this category.
4. Non-routine technologies: have a high task variety, and the conversion process is not analyzable or well understood. It is characterized by many exceptions and poor comprehensions. Problems appear frequently with no existing solutions. Commercial space engineering and biotechnology are examples of a non-routine technology.
Social Co-ordinate Mechanisms with Mintzberg’s structure
William Ouchi suggested three control strategies that organizations could adopt – bureaucratic, market, and clan. Each form of control uses different types of information.1. Bureaucratic Control: uses the characteristics given by Max Weber. Bureaucratic control: is the use of rules, policies, hierarchy of authority, written documentation, standardization, and other bureaucratic mechanisms to standardize behavior and assess performance. Weber also gave three types of authority namely rational, traditional and charismatic. 2. Market Control: Market control occurs when price competition is used to evaluate the output and productivity of an organization. The use of market control requires the output be sufficiently explicit for a price to be assigned and the competition exist. With out competition, the price does not accurately reflect internal efficiency. Some firms require that individual departments interact with one another at market prices- buying and selling products or services among themselves at prices equivalent to those quoted outside the firm. 3. Clan Control: is the use of social characteristics, such as corporate culture, shared values, commitment, traditions and beliefs, to control behaviour. Clan control is important when ambiguity and uncertainty are high. Clan control is most often used in small, informal organizations or in organizations with a strong culture, because of personnel involvement in and commitment to organizations purpose.
The structures explained by Mintzberg used the components, flows, work constellation mechanisms to define five configurations. 1. Simple Structure: Relies on direct supervision from the strategic apex. In small companies with simple structure the CEO can have a greater centralized control, such structure adapt to the rapid and flexible innovation. That is they can adapt well to the problems rising out of uncertainties due to technology and environment. The clan control mechanism in simple structure with psychological contracts may result in new innovations. 2. Machine Bureaucracy: A large organization relies on standard of work processes by the techno-structure. If the organization grows then it is likely to shift from the simple structure to the Machine bureaucracy where it elaborates its administration. With the emphasis on standardization of work for co-ordination and is resulting in low skilled and high specialized jobs.
3. Professional Bureaucracy: relies on the professional’s standardization of skills and knowledge in the operating core rather than work process or outputs for its coordination and so emerge as dramatically different from the machine bureaucracy. It relies on its skilled operating staff and decentralizes it power over many decisions. Mostly they are stable and complex and employment contracts may be required to have retention of employees 4: Divisionalised form: relies on standardization of outputs and middle level managers a run independent division. The divisionalised form was created to solve the problem of adaptability in machine bureaucracy. By overlaying another layer of administration that could add and remove divisions. The organization found a way to adapt itself to new conditions and to spread its risk. 5. Adhocracy is the most difficult of the five structures to describe because it is both complex and nonstandardized. Indeed, adhocracy contradicts much of what we accept on faith in organizations-consistency in output, control by administrators, unity of command, strategy emanating from the top. It is a tremendously fluid structure, in which power is constantly shifting and coordinating and control are mutual adjustment through communication and interaction of competent experts.
Conclusion:
Uncertainty is always there always for any organization. Consistency, Coherence and fit-harmony are critical factors in any organizational design. As the number of external elements and the rate of change are different, which structure is better varies according to situation. The structure is not what you make and it is what you achieve.
References
1. Organizational Behaviour and Analysis – An Integrated Approach by Derek Rollinson with Aysel Broadfield, Second Edition- Pearson Education p514
2. Organizational Theory , Change & Design by Richard L.Draft -Cengage Learning India Pvt. Ltd- p61,164,398,485
3. Organisational Behaviour, Foundation, Realities & Challenges by Debra L Nelson & James Camphell Quick – South Western Publishing 5th Edition, p 502-p 505
4. http://www.provenmodels .com
Monday, November 15, 2010
Saturday, November 13, 2010
Enterprise Resource Planning Vs Bespoke Software in Public Policy
Enterprise Resource Planning Vs Bespoke Software in Public Policy
C.T. Sunil Kumar
Post Doctoral Research Scholar, School of Public Policy, George Mason University, Room No:206, 3330 Truland Buildings, Washington Blvd, Arlington- 22201.
Abstract
The share of implementation of ERP software in corporate world is increasing day by day and to compete with them government agencies and organizations are also on the path of implementing them. The usage of ERP system in public offices can definitely provide better results, but at what cost? This paper is comparison of ERP software with bespoke software from a public policy perspective.
Keywords: ERP, Bespoke, Business Process Reengineering
Introduction
Enterprise Resource Planning is an enterprise solution software system that allows a company to automate and integrate the majority of its business processes, and share common data and practices across the enterprise through integration of various functions in the organization, managers and staff alike can use timely information to make better decisions and to perform activities, which add value to the company. An ERP system may thus provide. 1. A repertoire of standard business process tools to support management initiatives such as activity based costing , business process reengineering and supply chain management; 2. An integrated computer system with a common framework for all corporate processes and data. 3. Potential real-time analysis of key issues for enterprises, such as material usage, costs, quality, customer satisfaction and profitability.
Comparison
SL NO Criterion ERP Bespoke
1 Time taken for Implementation Less, As the enterprise solution is already there and requires only customization More, Will have to start everything from beginning
2 Management / Organization change required More, if BPR is used but will get the benefit of Best practices Less, Will actually change the manual work to computer
3 Cost Factor Timeline and obsolesce should be taken into account Timeline and obsolesce should be taken into account
4 Quality Use of Standards May or may not use industry standards
5 Best Practices in Industry Available Not Available
6 Expertise of Staff required for customization Functional Level Technical Level
7 Integration of Functions High Low
8 Proprietary License No Yes
9 Availability Of the shelf Not Available, have to build from the scarp
The ERP is the solution for the future. If you are able to implement the ERP software as such it will be a better option, because it has all the best practices in the industry integrated in to it. Once you implement ERP you should adopt the path of BPR (Business Process Re engineering) rather than customization because we will be able to use the best practices in the industry in a better way. But in the case of bespoke there is nothing called best practices. They will be making use of the computer in the functions which are normally done manually earlier.
When we consider software project management 90 % of the software projects are scrapped. The reasons may be many. The long term retention of employees in a software company is generally not possible. The person who wrote the software code in case of bespoke may not be available for any future reference or change in the package. But in the case of ERP there is a standard procedure developed over several years. The leading corporate giants of the world use SAP. The companies like Microsoft, Tata Consultancy Service, IBM, Colgate , Steel Authority of India Limited etc use SAP for their functioning.
Risk associated with technology obsolescence is greater in bespoke software in comparison to ERP. ERP software is updated frequently and there is no question of ERP going out of business. But in the case of bespoke software at the time of completion itself, will be obsolete. Many reasons can be attributed for this including modifications required in later part of the development at the stage of testing and modification by trail and error.
Negative from the government employees perspective
The operations relating to food grain management are unique in nature and if ERP software is implemented it will require a lot of customization. In a government organization the operations cannot be changed overnight and resistance to change is very high. So the software will require a large amount of customization. When customization is large, we may loss the integrity of the system.
Each time a new version of ERP is launched in the market the ERP Company will force the government organizations to upgrade to the new package and each time they will have to customize the upgraded. But customization is normally included in the 5 year AMC @ 22 % of the implementation cost per year; this adds to the cost of ERP implementation. In government organizations the work force is not as effective as in the private sector. Whatever is the level of training provided to implement ERP? It is difficult. The Trade unions and management will ask for more staff to be posted and recruitment as a policy is banned in many government organization.
When we look to the successful completion of ERP packages it is very less. A lot of commitment from top level management is required to change any process in a government organization. One of the advantages of the ERP system is that you will have the best practices of industries embedded in the ERP systems. However it is also thought that it will not have the options to take care of the nitty-gritty of food grain management in large organizations like Food Corporation of India where the industry is vertical integrated.
In India the material management or inventory function is not fully automated. The government sector requires a great deal of flexibility to our operations. Another advantage projected by ERP is that the ERP software can be customized by functional level person but for changes to be made in bespoke software you require technically skilled person. Does it make any sense? In case of government, technical as well as functional level people are all equal with no expertise. Both will not be doing the job.
Software made to requirement of the customer is actually computerizing the actual manual operations. There is also an opinion that ERP software is for looting the organization in the name of BPR (Business Process Reengineering) and that implementation of ERP in government offices will always fail. So it is always be better to use bespoke software. Because of the lack of knowledge of computer systems expertise the government companies and organizations are being cheated by the implementers by using technical jargons. For any successful implementation of the ERP software the role of a consultant is very important.
In an organization like Food Corporation of India, data must be fed in to the system from 1,064 locations across the length and breadth of the country. Due to the immature telecommunication network and lack of high speed internet in all parts of the country the data entry from remote areas will be affected and the implementation for computer data transfer system.
In the case of software implementation in various locations and the operations can vary from state to state and region to region. Another concern is that if a functional level consultant at any of the state or smaller level customizes the software it will loss the uniformity though out the organization and therefore a center location is required to maintain the updating and revisions.
One more thing is that it requires a greater understanding of ERP systems rather than the normal operation of the organization to operate an ERP package. Therefore the expertise of the employees will come in to picture which is low in government when compared to private organizations in India.
If we are looking from a larger perspective ERP systems are monopolizing the market. India is a developing country. Does the country need this type of technology advancement? Will it put the country in a technology trap? If we are promoting the ERP system the country will be denying opportunity of thousands of young people who are in the business of developing software. The government also will have to consider things from the point of view of social benefits.
Look at the government office in India, How many are using proper computer networks. Another aspect is of cost. If we implement bespoke software we are having cushion in rolling back. Now a day’s agreement for purchase or development of software is made with less number of licenses and after the entire software is put in to use and is fully functional. Then only the organization will purchase the balance rest 5000 or 6000 licenses for the implementation in the entire organization. But is it possible in the case of ERP.
The other day I had a discussion with one of my colleagues who is a member of the ISS (Indian Statistical Survey) cadre. It was his opinion that “With ERP Marketing in India, we are trying to sell some ones projects and consultants are only facilitating it. What is the actual intellectual contribution? Are they doing anything concrete? Rather than doing marketing for this multinationals. What will happen to the indigenous developments in this country?”
Conclusion
Since the technology is taking quantum leap every day. It will be better to have government agencies and establishments concentrate in their core competency and the best technologies doing the job for them. Since the operations of the similar nature will be there in the other part of the globe in same industry or operation of the same nature in different industry. One can review the merits and demerits and come to conclusion regarding implementation. It will be better if the government organizations leave the job of assisting development of software and rather leave the job to enterprise solutions like ERP to provide the complete solutions.
References
1. Text Book on ERP, Author: Mahadeo Jaiswal, Ganesh Vanapalli, ISBN :9781403927453, Imprint:Machmillan Publishers India, copyright:2005.
2. Maximizing your ERP System – A text book for Managers, Author: Scott Hamilton., Publisher: McGraw-Hill Companies, ISBN:0071406115
3. ERP: Making It Happen: The Implementers ‘Guide to Success with Enterprise Resource Planning A Wiley-Interscience | 1 edition (July 4, 2002) | English | ISBN: 0471218766
4. E-Business and ERP: Rapid Implementation and Project Planning Author: Murrell G. Shields ISBN: 0471406775
C.T. Sunil Kumar
Post Doctoral Research Scholar, School of Public Policy, George Mason University, Room No:206, 3330 Truland Buildings, Washington Blvd, Arlington- 22201.
Abstract
The share of implementation of ERP software in corporate world is increasing day by day and to compete with them government agencies and organizations are also on the path of implementing them. The usage of ERP system in public offices can definitely provide better results, but at what cost? This paper is comparison of ERP software with bespoke software from a public policy perspective.
Keywords: ERP, Bespoke, Business Process Reengineering
Introduction
Enterprise Resource Planning is an enterprise solution software system that allows a company to automate and integrate the majority of its business processes, and share common data and practices across the enterprise through integration of various functions in the organization, managers and staff alike can use timely information to make better decisions and to perform activities, which add value to the company. An ERP system may thus provide. 1. A repertoire of standard business process tools to support management initiatives such as activity based costing , business process reengineering and supply chain management; 2. An integrated computer system with a common framework for all corporate processes and data. 3. Potential real-time analysis of key issues for enterprises, such as material usage, costs, quality, customer satisfaction and profitability.
Comparison
SL NO Criterion ERP Bespoke
1 Time taken for Implementation Less, As the enterprise solution is already there and requires only customization More, Will have to start everything from beginning
2 Management / Organization change required More, if BPR is used but will get the benefit of Best practices Less, Will actually change the manual work to computer
3 Cost Factor Timeline and obsolesce should be taken into account Timeline and obsolesce should be taken into account
4 Quality Use of Standards May or may not use industry standards
5 Best Practices in Industry Available Not Available
6 Expertise of Staff required for customization Functional Level Technical Level
7 Integration of Functions High Low
8 Proprietary License No Yes
9 Availability Of the shelf Not Available, have to build from the scarp
The ERP is the solution for the future. If you are able to implement the ERP software as such it will be a better option, because it has all the best practices in the industry integrated in to it. Once you implement ERP you should adopt the path of BPR (Business Process Re engineering) rather than customization because we will be able to use the best practices in the industry in a better way. But in the case of bespoke there is nothing called best practices. They will be making use of the computer in the functions which are normally done manually earlier.
When we consider software project management 90 % of the software projects are scrapped. The reasons may be many. The long term retention of employees in a software company is generally not possible. The person who wrote the software code in case of bespoke may not be available for any future reference or change in the package. But in the case of ERP there is a standard procedure developed over several years. The leading corporate giants of the world use SAP. The companies like Microsoft, Tata Consultancy Service, IBM, Colgate , Steel Authority of India Limited etc use SAP for their functioning.
Risk associated with technology obsolescence is greater in bespoke software in comparison to ERP. ERP software is updated frequently and there is no question of ERP going out of business. But in the case of bespoke software at the time of completion itself, will be obsolete. Many reasons can be attributed for this including modifications required in later part of the development at the stage of testing and modification by trail and error.
Negative from the government employees perspective
The operations relating to food grain management are unique in nature and if ERP software is implemented it will require a lot of customization. In a government organization the operations cannot be changed overnight and resistance to change is very high. So the software will require a large amount of customization. When customization is large, we may loss the integrity of the system.
Each time a new version of ERP is launched in the market the ERP Company will force the government organizations to upgrade to the new package and each time they will have to customize the upgraded. But customization is normally included in the 5 year AMC @ 22 % of the implementation cost per year; this adds to the cost of ERP implementation. In government organizations the work force is not as effective as in the private sector. Whatever is the level of training provided to implement ERP? It is difficult. The Trade unions and management will ask for more staff to be posted and recruitment as a policy is banned in many government organization.
When we look to the successful completion of ERP packages it is very less. A lot of commitment from top level management is required to change any process in a government organization. One of the advantages of the ERP system is that you will have the best practices of industries embedded in the ERP systems. However it is also thought that it will not have the options to take care of the nitty-gritty of food grain management in large organizations like Food Corporation of India where the industry is vertical integrated.
In India the material management or inventory function is not fully automated. The government sector requires a great deal of flexibility to our operations. Another advantage projected by ERP is that the ERP software can be customized by functional level person but for changes to be made in bespoke software you require technically skilled person. Does it make any sense? In case of government, technical as well as functional level people are all equal with no expertise. Both will not be doing the job.
Software made to requirement of the customer is actually computerizing the actual manual operations. There is also an opinion that ERP software is for looting the organization in the name of BPR (Business Process Reengineering) and that implementation of ERP in government offices will always fail. So it is always be better to use bespoke software. Because of the lack of knowledge of computer systems expertise the government companies and organizations are being cheated by the implementers by using technical jargons. For any successful implementation of the ERP software the role of a consultant is very important.
In an organization like Food Corporation of India, data must be fed in to the system from 1,064 locations across the length and breadth of the country. Due to the immature telecommunication network and lack of high speed internet in all parts of the country the data entry from remote areas will be affected and the implementation for computer data transfer system.
In the case of software implementation in various locations and the operations can vary from state to state and region to region. Another concern is that if a functional level consultant at any of the state or smaller level customizes the software it will loss the uniformity though out the organization and therefore a center location is required to maintain the updating and revisions.
One more thing is that it requires a greater understanding of ERP systems rather than the normal operation of the organization to operate an ERP package. Therefore the expertise of the employees will come in to picture which is low in government when compared to private organizations in India.
If we are looking from a larger perspective ERP systems are monopolizing the market. India is a developing country. Does the country need this type of technology advancement? Will it put the country in a technology trap? If we are promoting the ERP system the country will be denying opportunity of thousands of young people who are in the business of developing software. The government also will have to consider things from the point of view of social benefits.
Look at the government office in India, How many are using proper computer networks. Another aspect is of cost. If we implement bespoke software we are having cushion in rolling back. Now a day’s agreement for purchase or development of software is made with less number of licenses and after the entire software is put in to use and is fully functional. Then only the organization will purchase the balance rest 5000 or 6000 licenses for the implementation in the entire organization. But is it possible in the case of ERP.
The other day I had a discussion with one of my colleagues who is a member of the ISS (Indian Statistical Survey) cadre. It was his opinion that “With ERP Marketing in India, we are trying to sell some ones projects and consultants are only facilitating it. What is the actual intellectual contribution? Are they doing anything concrete? Rather than doing marketing for this multinationals. What will happen to the indigenous developments in this country?”
Conclusion
Since the technology is taking quantum leap every day. It will be better to have government agencies and establishments concentrate in their core competency and the best technologies doing the job for them. Since the operations of the similar nature will be there in the other part of the globe in same industry or operation of the same nature in different industry. One can review the merits and demerits and come to conclusion regarding implementation. It will be better if the government organizations leave the job of assisting development of software and rather leave the job to enterprise solutions like ERP to provide the complete solutions.
References
1. Text Book on ERP, Author: Mahadeo Jaiswal, Ganesh Vanapalli, ISBN :9781403927453, Imprint:Machmillan Publishers India, copyright:2005.
2. Maximizing your ERP System – A text book for Managers, Author: Scott Hamilton., Publisher: McGraw-Hill Companies, ISBN:0071406115
3. ERP: Making It Happen: The Implementers ‘Guide to Success with Enterprise Resource Planning A Wiley-Interscience | 1 edition (July 4, 2002) | English | ISBN: 0471218766
4. E-Business and ERP: Rapid Implementation and Project Planning Author: Murrell G. Shields ISBN: 0471406775
Wednesday, October 1, 2008
FCI KERALA REGION IN TUNE WITH CITIZENS CHARTER.
*****************************
Dr. C.T.Sunilkumar
*****************************
May 1997 was the turning point in the concept of citizen’s service in India. Significant progress in economic development and literacy rate has made Indian citizens increasingly aware of their rights. Citizens have become more articulated and except the administration not merely to respond to their demands but also to anticipate them. It was in this climate that a consensus began to evolve, since 1996, in the government on effective and responsive administration. At a Conference of Chief minister of various states and union territories held 24 May, 1997 in New Delhi, presided over by prime minister of India, an “Action plan for Effective and Responsive Government” at the centre and State levels was adopted. One of the major decisions at that Conference was that the Central and State Government would formulate Citizen’s Charter, starting with those sectors that have a large public interface( e.g. Railways, Telecom, Posts, Public Distribution System and the like). These Charters were to include first, standard of service as well as the time limit that the public can reasonably except for service delivery, avenues of grievance redressal and a provision for independent scrutiny through the involvement of citizen and consumer groups.
The Department of Administration Reforms and Public Grievances in Government of India (DARPG) initiated the task of coordinating, formulating and operationalising Citizen’s charter. The guidelines for formulating the Charter as well as a list of do’s and don’t s were communicated to various government departments/ organizations to enable them to bring out focused and effective charters. If successfully implemented the charter can enable the following: 1. Improved service delivery, 2. Greater responsiveness of official towards the public; and 3. Greater public satisfaction with services.
In continuation of the efforts of the Government of India the Food Corporation of India also took up the responsibility of improving public satisfaction with services offered by it.
FCI Kerala Region was the first among the regions of FCI to go ahead for quality certifications for its depot operations. It was a great challenge for the FCI management in Kerala Region to evaluate its performance from the point of view of the citizen expectations. As FCI is doing inventory and distribution management it was difficult to have a benchmark of quality of service delivery. Food Corporation of India, Kerala Region decided to go for IS/ ISO 9001:2000 certification. The FCI started its operations for attaining ISO certification with a strong commitment from its top management. An ISO cell was started at its Regional Office in Trivandrum for the preparation of Quality Manual, Standard Operating Procedures (SOP) & Work Instructions.
There was initially wide spread opposition from the trade unions and the staff as well as the labourers. Slowly the management overcame the situation and every one wanted to be part of ISO implementation.
The objective was very clear from the very beginning of the process of attaining of ISO certification. The management aimed at attaining ISO certification for all 22 depots, 9 district office and the Regional Office at Trivandrum. An ISO Cell was setup in the Regional Office which was directly reporting to the Regional Head to look after the ISO implementation programme. The main duties were preparation of Quality Manuel, SOP and WI. The training of staff / officers to be posted as ISO Co-ordinates and ISO Auditors were performed. The Trained Officials performed awareness programme in all the depot and district offices. All the staff was trained mandatorilyy as part of the ISO certification. The Quality Policy was prepared and circulated among all the staff in the region. The display of Quality Policy was made mandatory in all the depot & district offices and in the regional office also.
Where ever there is a customer interface. Customer feed back were collected on a regular basis and analyzed. Continual improvement and customer satisfaction was given prior importance. FCI Kerala Region attained IS/ISO certification in the year 2005.
The model of bringing excellence in public service delivery (Sevottam) has been developed by involving civil society representatives, NGOs and employees. Indian standard IS: 15700:2005 has been developed as a mark of excellence in public service delivery and the quality certification would be awarded to departments achieving excellence in public service delivery. But the PSUs and most of the other organization which is having commercial nature went for IS/ ISO 9001:2000 Certification as the same was global certification and will give them mileage in its international operations.
The Quality improvement certification aimed at the following points.
Meant a complete switch over to managing service delivery as per requirement of the citizens
Transition from administration to good governance by involving citizens.
Especially for employees at the cutting edge-level or the employees in direct interaction with the customer / citizen
The frame work is based on the principle of transparency, accountability and citizen-centric governance.
Delivering services that citizens are keen to receive and not what the government wants to deliver.
Achieve sevottam is implemented in a time bound manner. A two year action plan has been drawn up by the government for bringing all central government organizations under the ambit of Sevottam
Publish information about their preparedness for meeting Sevottam requirements in their Annual Reports
Declare publicly, the quality of service and the grievance redress mechanism available to citizens, and engage in dialogue with citizens or their representatives groups to align their actions with citizen’s expectations.
All organizations in the government will have to have sevottam in coming years. Sevottam starts from the day an organization undertakes itself assessment. The sevottam model is designed in such a manner that each time an organization assesses itself; the system triggers citizen-centric improvements in service delivery. Assessment questions are framed in a manner that even attempt to provide an answer to the question brings out the strengths and weakness of process in the management of public service delivery.
Self assessment and gap identification tools, action plan templates, as well as the requirements standards IS 15700 with guidance material in printed and electronic form available with DARPG.
The IS 15700:2005 standard was published in Dec 2005, India has the honor of being the first country in the world to publish a requirement standard for quality management of public service delivery. The standard consists of 3 Modules, 9 Criteria and 33 elements.. The details are as follows.
1. Citizens Charter Excellence
1.1 Implementation
1.2 Monitoring
1.3 Review
2. Public Grievance Redress Excellence
2.1 Receipt
2.2 Redress
2.3 Prevention
3. Service Delivery Excellence
3.1 Customers
3.2 Employees
3.3 Infrastructure
The model synthesizes the best of compliance and quality systems together to create a two tier measurement system. Assessment findings are based on a combination of process at the parent department level, which is responsible for policy making and outlet level policies are implemented through citizens interface and service delivery.
The various stages for attaining the IS 15700:2005 certification is given below
1. Application : An organization which plans to get IS 15700:2005 should submit an application to BIS along with the fee
2. Processing of Application : The processing of application is done by and the BIS
3. Preliminary visit by BIS – The BIS auditor will do the preliminary Document review
4. Initial Assessment – After the initial review of the document the next is the initial assessment. In the initial assessment if all the items are satisfactory or if there is no non-conformity the auditor recommends for the certification
5. Grant of Licence- If there is no non-conformity against of any of the clauses. Then the IS 15700:2005 certificate is issued.
6. Operation of Licence – The licence is given for aperiod of 3 years. In this three years there will be 3 surveillance audits by the BIS auditors.
7. Renewal, Expiry, Suspension & Cancellation of Licence.: Once the term of 3 years is over the company can appliy for a renewal of the licence with the prescribed application form. If in any of the audits: if there is non-conformity noticed the BIS can give a suspension of the certification or even cancel the licence in the case of major non-conformities.
The FCI Kerala Region have already achieved IS/ ISO9001:2005 certification and will try to achieve the IS 15700:2005 certification in the years to come.
Dr. C.T.Sunilkumar
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May 1997 was the turning point in the concept of citizen’s service in India. Significant progress in economic development and literacy rate has made Indian citizens increasingly aware of their rights. Citizens have become more articulated and except the administration not merely to respond to their demands but also to anticipate them. It was in this climate that a consensus began to evolve, since 1996, in the government on effective and responsive administration. At a Conference of Chief minister of various states and union territories held 24 May, 1997 in New Delhi, presided over by prime minister of India, an “Action plan for Effective and Responsive Government” at the centre and State levels was adopted. One of the major decisions at that Conference was that the Central and State Government would formulate Citizen’s Charter, starting with those sectors that have a large public interface( e.g. Railways, Telecom, Posts, Public Distribution System and the like). These Charters were to include first, standard of service as well as the time limit that the public can reasonably except for service delivery, avenues of grievance redressal and a provision for independent scrutiny through the involvement of citizen and consumer groups.
The Department of Administration Reforms and Public Grievances in Government of India (DARPG) initiated the task of coordinating, formulating and operationalising Citizen’s charter. The guidelines for formulating the Charter as well as a list of do’s and don’t s were communicated to various government departments/ organizations to enable them to bring out focused and effective charters. If successfully implemented the charter can enable the following: 1. Improved service delivery, 2. Greater responsiveness of official towards the public; and 3. Greater public satisfaction with services.
In continuation of the efforts of the Government of India the Food Corporation of India also took up the responsibility of improving public satisfaction with services offered by it.
FCI Kerala Region was the first among the regions of FCI to go ahead for quality certifications for its depot operations. It was a great challenge for the FCI management in Kerala Region to evaluate its performance from the point of view of the citizen expectations. As FCI is doing inventory and distribution management it was difficult to have a benchmark of quality of service delivery. Food Corporation of India, Kerala Region decided to go for IS/ ISO 9001:2000 certification. The FCI started its operations for attaining ISO certification with a strong commitment from its top management. An ISO cell was started at its Regional Office in Trivandrum for the preparation of Quality Manual, Standard Operating Procedures (SOP) & Work Instructions.
There was initially wide spread opposition from the trade unions and the staff as well as the labourers. Slowly the management overcame the situation and every one wanted to be part of ISO implementation.
The objective was very clear from the very beginning of the process of attaining of ISO certification. The management aimed at attaining ISO certification for all 22 depots, 9 district office and the Regional Office at Trivandrum. An ISO Cell was setup in the Regional Office which was directly reporting to the Regional Head to look after the ISO implementation programme. The main duties were preparation of Quality Manuel, SOP and WI. The training of staff / officers to be posted as ISO Co-ordinates and ISO Auditors were performed. The Trained Officials performed awareness programme in all the depot and district offices. All the staff was trained mandatorilyy as part of the ISO certification. The Quality Policy was prepared and circulated among all the staff in the region. The display of Quality Policy was made mandatory in all the depot & district offices and in the regional office also.
Where ever there is a customer interface. Customer feed back were collected on a regular basis and analyzed. Continual improvement and customer satisfaction was given prior importance. FCI Kerala Region attained IS/ISO certification in the year 2005.
The model of bringing excellence in public service delivery (Sevottam) has been developed by involving civil society representatives, NGOs and employees. Indian standard IS: 15700:2005 has been developed as a mark of excellence in public service delivery and the quality certification would be awarded to departments achieving excellence in public service delivery. But the PSUs and most of the other organization which is having commercial nature went for IS/ ISO 9001:2000 Certification as the same was global certification and will give them mileage in its international operations.
The Quality improvement certification aimed at the following points.
Meant a complete switch over to managing service delivery as per requirement of the citizens
Transition from administration to good governance by involving citizens.
Especially for employees at the cutting edge-level or the employees in direct interaction with the customer / citizen
The frame work is based on the principle of transparency, accountability and citizen-centric governance.
Delivering services that citizens are keen to receive and not what the government wants to deliver.
Achieve sevottam is implemented in a time bound manner. A two year action plan has been drawn up by the government for bringing all central government organizations under the ambit of Sevottam
Publish information about their preparedness for meeting Sevottam requirements in their Annual Reports
Declare publicly, the quality of service and the grievance redress mechanism available to citizens, and engage in dialogue with citizens or their representatives groups to align their actions with citizen’s expectations.
All organizations in the government will have to have sevottam in coming years. Sevottam starts from the day an organization undertakes itself assessment. The sevottam model is designed in such a manner that each time an organization assesses itself; the system triggers citizen-centric improvements in service delivery. Assessment questions are framed in a manner that even attempt to provide an answer to the question brings out the strengths and weakness of process in the management of public service delivery.
Self assessment and gap identification tools, action plan templates, as well as the requirements standards IS 15700 with guidance material in printed and electronic form available with DARPG.
The IS 15700:2005 standard was published in Dec 2005, India has the honor of being the first country in the world to publish a requirement standard for quality management of public service delivery. The standard consists of 3 Modules, 9 Criteria and 33 elements.. The details are as follows.
1. Citizens Charter Excellence
1.1 Implementation
1.2 Monitoring
1.3 Review
2. Public Grievance Redress Excellence
2.1 Receipt
2.2 Redress
2.3 Prevention
3. Service Delivery Excellence
3.1 Customers
3.2 Employees
3.3 Infrastructure
The model synthesizes the best of compliance and quality systems together to create a two tier measurement system. Assessment findings are based on a combination of process at the parent department level, which is responsible for policy making and outlet level policies are implemented through citizens interface and service delivery.
The various stages for attaining the IS 15700:2005 certification is given below
1. Application : An organization which plans to get IS 15700:2005 should submit an application to BIS along with the fee
2. Processing of Application : The processing of application is done by and the BIS
3. Preliminary visit by BIS – The BIS auditor will do the preliminary Document review
4. Initial Assessment – After the initial review of the document the next is the initial assessment. In the initial assessment if all the items are satisfactory or if there is no non-conformity the auditor recommends for the certification
5. Grant of Licence- If there is no non-conformity against of any of the clauses. Then the IS 15700:2005 certificate is issued.
6. Operation of Licence – The licence is given for aperiod of 3 years. In this three years there will be 3 surveillance audits by the BIS auditors.
7. Renewal, Expiry, Suspension & Cancellation of Licence.: Once the term of 3 years is over the company can appliy for a renewal of the licence with the prescribed application form. If in any of the audits: if there is non-conformity noticed the BIS can give a suspension of the certification or even cancel the licence in the case of major non-conformities.
The FCI Kerala Region have already achieved IS/ ISO9001:2005 certification and will try to achieve the IS 15700:2005 certification in the years to come.
Tuesday, September 23, 2008
Impact of Reservation in Education – Merits and Demerits
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Dr. CT. Sunilkumar
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Introduction
The greatest of all revolution the French revolution of 1789 was based on three pillars, Equality, Fraternity and Liberty. In India too the freedom fight led by M.K.Gandhi projected equality as one of the major themes for Indian freedom fighting. But after 60 years of Indian Independence how far equality is being practiced in society is a matter of major concern. Reservation as a practice existed in the society for more than 2000 years and transformed to the new contrary stature in the post independence period due to the tenacious efforts of Dr. B.R. Ambedkar, MK Gandhi and other great leaders. The Constitution of India, adopted in 1950, defines the nation as a ‘Democratic Republic’ which ensures that All citizens are equal before law, free from discrimination on grounds of caste, creed, religion, sex, place of birth, and equality of opportunity in education and public appointments. The Constitution also specifically abolishes untouchability. The Constitution lay down ‘special provisions’ for the reservation of seats in educational institutions, government service, PSU service, Parliament and state legislature for Scheduled castes (SCs) and Scheduled Tribes (STs). The same section also defines ‘backward classes’ but neither gives a satisfactory definition of them nor lays any specific provisions on their behalf.
The explicit purpose of the reservation policy was and is to promote social, economic, and political equality for Dalits, tribal peoples, and other lower castes peoples, (i.e. OBCs (Other Backward Communities) through positive or compensatory discrimination. By this policy, the leaders of independent India declared their determination to eradicate inequalities. The constitutional delegitimation of caste has had a significant impact at all levels of society. Nevertheless, the policy has also contributed to the progressive strengthening of caste as a major political factor, so that sixty years after independence it still plays a key role in the working of Indian democracy.
Caste Reservation
The role of caste in politics was at its peek in 1990, when Shri. V.P. Singh, the then prime minister announced that the National Front government would implement the recommendations of Mandal Commission report which was issued 10 years earlier, beginning with the reservation of 27 % of jobs in central government services and public undertakings for the OBCs. This new quota was in addition to the existing 22.5 percentage already reserved for scheduled castes and scheduled tribes, and the total reserved quota amounted to just under 50 percent.
The 104th Constitution Amendment Bill, providing reservations was passed in the parliament; the bill provides reservation for the socially and educationally backward classes, besides the Scheduled Castes and Scheduled Tribes, in all private aided and unaided educational institutions. Out of the 381 members present in the Parliament, 379 voted in favour of the bill. The amendment is the government's attempt to offset the effect of the Supreme Court judgment that categorically said that “in an unaided (which runs without government funding) educational institution; whether run by non-minorities or minorities, the government cannot implement its policy of reservation.”
All the minority private management started to use the Article 30 of the Indian Constitution that acted as a shield which gives the right to minorities to establish and administer educational institutions, in practice. These institutions have become highly commercialized where poor or backward students can't even dream of getting education. The decision of Bill 104 was having an adverse effect on the upper caste Hindus but the opposition party BJP never opinioned against it because they never wanted major vote bank going towards the Congress. The BJP tried to capitalise on both these classes’ sentiments by unsuccessfully moving an amendment to the Bill to get Muslim and Christian education institutions under the purview of the Bill. But the BJP move got only 110 votes out of the 382 members who voted.
Impact of Reservation
From another perspective, the fact that literacy rates among the disadvantaged castes (particularly the ‘Scheduled Caste’) are much lower than average is well-known. What is less clear is why this contrast happens to be so sharp and resilient, even when different castes share the same schooling facilities. Economic deprivations among the disadvantaged castes helps to explain this pattern, but there is much evidence of a strong caste basis in literacy rates even at a given level of income. This basis has several possible roots. First, the traditional upper caste view that education is not appropriate for the ‘lower’ castes continues to have some social influence. This view is bound to reduce the educational aspirations of children from the disadvantaged castes, and the parental and social support they receive in pursuit of these aspirations. Second, there may be objectives difference in economic and other returns to education for different castes. For e.g. an upper caste boy with good social connections often has a better chance of finding a well-paid job than a low-caste boy with more or similar educational qualifications. Third, children from disadvantaged castes are still discriminated against the schooling system. Example: teachers refusing to touch low-caste children, children from particular castes being special targets of verbal abuse and physical punishment by the teachers, and low-caste children being frequently beaten by higher-caste classmates. Fourth, in higher / top undergraduate and graduate institutions in India, such as the IIT, the IIM, that are among the most selective in the world, it is not surprising that most reservation criteria are applied at the stage of entrance examinations for these institutions. Some of the criteria are relaxed for reserved categories, while others are completely eliminated. Examples include: The minimum high school marks criteria are relaxed for reserved seats. For example, in IIT JEE, reserved category candidates scoring about 65% of the last admitted general category candidate are directly offered admission. Candidates not meeting this cutoff but scoring as low as half of this are offered admission to a one year preparatory course. In AIIMS, for example SC/ST students are eligible only if they score 50%. But this 50% is not mandatory for the institute quota, and on an occasion, the Honourable High Court of Delhi had found that "AIIMS students, who had secured as low as 14% or 19% or 22% in the (all-India) entrance examination got admission to PG courses.”
It is important to note, however, that the criteria required to graduate from an institution are never relaxed; the thus admitted students finding it difficult to get pass marks to come out of the programs successfully. Generally, the percentage of students passing from the top institutions is 87% to 95 % (approx) and most of those who fail are from the reserved categories. When there are students in the same class of different intellectual levels (the student scoring 1st rank and the student scoring the lowest rank), it will be difficult for the professors to go ahead in the same pace and rhythm in the class. The drop outs will be those from the backward and weakers sections.
Merits
After the Bill 104, opinions are clearly divided between those who feel that the reservations are nothing but a political gimmick and should be opposed at all cost, and those who say the move will genuinely help lift the status of backward classes. If it is true, why the state of Kerala was able to provide this nation with a President and a Supreme Court Chief Justice from the Scheduled Caste community? Why in the literacy situation in India, Kerala is distinct from others? Kerala is the place where the first Dalit School came up at Venganoor in Trivandrum district of Kerala. In 1904, Shri. Ayyankali started the school entry struggle which resulted in this. Other major development in terms of the social status was due to the Temple entry proclamation done by the His Highness Shri Chitira Thirunal Balarama Varma in 1936. He abolished the ban on low caste people or ‘avarnas’ from entering Hindu temple in the state of Travancore (now a part of Kerala).
Demerits
Demerits are that the politicians are manufacturing fertile ground to sow, nurture and harvest the evils of separatism, keep people divided on religious grounds. The Human Resource Development Minister, who moved the Bill 104, could not hide his glee when he replied to the BJP on why minority institutions cannot be included. “Minority rights, as specified in Article 30, should, in all circumstances, be protected. This Article has a great historical necessity. Therefore, it cannot be deleted,” he said.
All over India, minorities do run a few exceptionally dedicated institutions, helping the poor and bringing social justice, but most of them are profit-making machines. The cries to include minority institutions are raised loudly because the private institutions are better managed than the government-owned institutions. But when we look at the minority institution statistics, the institutions owned by the SC/ST management are negligibly small and those by the minority communities linguistically are more. Then who is having the major chunk? Are these minority institutions really protecting the rights of minorities? Are they upholding the noble cause of reservation?
Conclusion
Reservations are intended to increase the social diversity in campuses by lowering the entry criteria for certain identifiable groups that are grossly under-represented in proportion to their numbers in the general population. Caste is the most used criteria to identify under-represented groups. However, there are other identifiable criteria for under-representation: gender (women), state of domicile (North Eastern States, as Bihar and Uttar Pradesh), rural people, etc. are under-represented, as revealed by the Government of India sponsored National Family Health and National Sample surveys.
The underlying theory is that the under-representation of the identifiable groups is a legacy of the Indian caste systems. After India gained independence, the Constitution of India listed some erstwhile groups as Scheduled Castes (SC) and Schdeuled Tribes (ST). The framers of the Constitution believed that, due to the caste system, SCs and the STs were historically oppressed and denied respect and equal opportunity in Indian society and were thus under-represented in nation-building activities. The Constitution laid down 15% and 7.5% of vacancies to government aided educational institutes and for jobs in the government/public sector as ‘reserved quota’ for the SC and ST candidates respectively, for a period of five years, after which the situation was to be reviewed. This period was routinely extended by the following governments and the Indian Parliament, and no revisions were undertaken for the fear of losing votes (It is a well known fact that the so-called backward communities are active in politics and their people vote; unfortunately, the majority of highly educated Indians do not vote during the general elections.). Most of the time, the achievement made by the reservation system is being ignored. When the nation progresses, we cannot neglect any sections. How can we go ahead when 1/3 of the population is below poverty line?
References
- Fuller, Christopher J. “Caste”. In The Oxford Indian Companion to Sociology and Social Anthropology (p 477-p 499) Oxford University Press
- Dreze, Jean. “Patterns of Literacy and their Social Context Caste”. The Oxford Indian companion to Sociology and Social Anthropology. Oxford University Press (p 974-p 989)
- Shah, Ghanshyam. Social movements in India – A Review of LiteratureMandelbaum,
- David G. Society in India. (Vol.I) Bombay:Popular Prakashan.
Game Theory - Tata Corus Deal
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Dr. C.T.Sunil Kumar
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TATA-CORUS DEAL
Corus
The Corus was created by the merger of British Steel and Dutch steel company, Hoogovens. Corus was Europe’s second largest steel producer with a production of 18.2 million tonnes and revenue of GBP 9.2 billion (in 2005). The product mix consisted of Strip steel products, Long products, Distribution and building system and Aluminum. With the merger of British Steel and Hoogovens there were two assets the British plant asset which was older and less productive and the Dutch plant asset which was regarded as the crown jewel by every one in the industry.
They have union issues and are burdened with more than $ 13 billion of pension liabilities. The Corus was making only a profit of $ 1.9 billion from its 18.2 million tonnes production per year (compared to $ 1.5 billion form 8.7 million tone capacity by Tata).
The Corus was having leading market position in construction and packaging in Europe with leading R&D
The Corus was the 9th largest steel producer in the world. It opened its bid for 100 % stake late in the 2006. Tata (India) & CSN (Companhia Siderurgica Nacional) emerged as most powerful bidders.
CSN ( Companhia Siderurgica Nacional)
CSN (Companhia Siderurgica Nacional) was incorporated in the year 1941. The company initially focused on the production of coke, pig iron castings and long products. The company was having three main expansions at the Presidente Vargas Steel works during the 1970’s and 1980’s. The first completed in the year 1974, increased installed capacity to 1.6 million tons of crude steel. The second completed in 1977, raised capacity to 2.4 million tons of crude steel. The third completed in the year 1989, increased capacity to 4.5 million tons of crude steel. The company was privatized by the Brazilian government by selling 91 % of its share.
The Mission of CNS is to increase value for the shareholders. Maintain position as one of the world’s lowest-cost steel producer. Maintain a high EBITDA and strengthen position as a global player.
CNS is having fully integrated manufacturing facilities. The crude steel capacity was 5.6 million tons. The product mix consisted of Slabs, Hot and Cold rolled Galvanized and Tin mill products. In 2004 CSN sold steel products to customers in Brazil and 61 other countries. In 2002, 65 % of the steel sales was in domestic market and operating revenues were 70 %. In 2003, the same figures were 59 % and 61 % and in 2004 the same figures were 71% and 73 %.
The principal export markets for CSN were North America (44%),Europe (32%) and Asia (11%)
Tata Steel
Tata steel, India’s largest private sector steel company was established in the 1907.The Tata steel which falls under the umbrella of Tata sons has strong pockets and strong financials to support acquisitions. Tata steel is the 55th in production of steel in world. The company has committed itself to attain global scale operations.
Production capacity of Tata steel is given in the table below
The product mix of Tata steel consist of flat products and long products which are in the lower value chain. The Tata steel is having a low cost of production when compared to Corus. The Tata steel was already having its capacity expansion with its indigenous projects to the tune of 28 million tones.
Indian Scenario
After liberalization, there have been no shortages of iron and steel materials in the country. Apparent consumption of finished (carbon) steel increased from 14.84 Million tonnes in 1991-92 to 39.185 million tonnes (Provisional) in 2005-06. The steel industry which was facing a recession for some time has staged a turn around since the beginning of 2002. Demand has started showing an uptrend on account of infrastructure boom. The steel industry is buoyant due to strong growth in demand particularly by the demand for steel in China. The Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively. Today, India is the 7th largest crude steel producer of steel in the world. In 2005-06, production of Finished (Carbon) Steel was 44.544 million tonnes. Production of Pig Iron in 2005-06 was 4.695 Million Tonnes. The share of Main Producers (i.e SAIL, RINL and TSL) and secondary producers in the total production of Finished (Carbon) steel was 36% and 64% respectively during the period of April-November, 2006.
THE GAME
Player 1 : Corus decides to Sell : Reasons for decision:
1. Total debt of Corus is 1.6bn GBP
2. Corus needs supply of raw material at lower cost
3. Though Corus has revenues of $18.06bn, its profit was just $626mn (Tata’s revenue was $4.84 bn & profit $ 824mn)
4. Corus facilities were relatively old with high cost of production
5. Employee cost is 15%( Tata steel- 9%)
Player 2: Tata Decides to bid : Reasons for decision:
1. Tata is looking to manufacture finished products in mature markets of Europe
2. At present manufactures low value long and flat steel products while Corus produces high value stripped products
3. A diversified product mix will reduce risks while higher end products will add to bottom line.
4. Corus holds a number of patents and R & D facility.
5. Cost of acquisition is lower than setting up a green field plant and marketing and distribution channels
6. Tata is known for efficient handling of labour and it aims at reducing employee cost and improving productivity at Corus
7. It had already expanded its capacities in India.
8. It will move from 55th in world to 5th in production of steel globally.
Player 3: CSN decides to bid : Reasons for decision:
1. There was an abortive merger with Corus 3 years ago. It had offered $3.5bn.
2. CSN has a 3.8% stake in Corus since 2002
3. Every 10pence increase in bid gets CSN an extra 3mn GBP( Pound)
4. CSN also looking for producing finished steel products in Europe
5. CSN is paid 1% of the offer price as an “incentive remuneration” from Corus
Tata CNS Game
The UK take over panel set up the rules for the bidding. Of the maximum 9 rounds 8 will be for the suitors to table a fixed price bid in cash. In the event of competitive situation continuing a final round would be held to give chance to the bidders to outbid the other within a ceiling that has already been informed to the panel. There has to be a difference of 5 pence for each round of the bid between the two suitors. Before arriving at this stage the strategies are.
Player 1 Tata having two stragies two bid or not to bid and the player 2 CSN is also having two option to bid or not. The pay offs relating to the same is given in the game table.
CNS is already having a 4 % stake on Corus. For every increase of pence the share price of Corus will increase by $ 4 million and CNS will have its share. In the game cited. Tata is having a dominant strategy to play up i.e to bid and the CSN is also having a dominant strategy to play left or bid. There for the Nash equilibrium will be (Bid,Bid) i.e. (4,3) and the same is aslo pareto efficient. But it is likely to (4,3) outcome and both of the player will be bidding.
In both bidding , Pay of (4, 3): Here Tata will have 4 and CNS will have three. Both will be better off as Tata will have the advantages of developed markets, new patients, advance R& D of Corus. If Tata is willing under competition then the share price will be high and the CNS will also benefit as it is having 4 % share in Corus. In the pay off (5,2) where Tata is bidding and CNS is not bidding the Tata will be better off as they can have Corus in a low price. If Tata is not bidding and CNS bidding they can have Corus at a lower price. But Tata will also be loosing by loosing the opportunity to have developed market, patient rights, increase product mix, and chance to be a major player. If both are not bidding both of them are loosing.
Tata Corus Game
Strategy 1: Tata Bidding and Corus Accepting (Bid: A:A)
Strategy 2: Tata Bidding and Corus Not Accepting (Bid :NA :A)
Strategy 3: Tata Not Bidding and Corus Accepting ( NB : A:A)
Strategy 4: Tata Not Bidding and Corus Not Accepting ( NB NA:NA)
(Other four options not explained as they are not relevant)
Strategy 1: Tata Bidding and Corus Accepting (Bid: A: A)
This is also the roll back and Nash equilibrium of the game. In this case both will be benefiting. The pay off is given by ( 2,3). Which mean 2 for Tata and 3 for Corus. The Tata will have access to developed markets by this acquisition. It can also have its product mix enhanced with the high value product from Corus and more over it can also have the excellent R& D facilities of Corus. They can break the supply chain and produce parts of it where it makes sense, for Tata steel. It means producing the semi finished goods at locations where it has raw materials support and cost efficiencies and then making the finished products in the market where it gets the value i.e. China, South East Asia and European countries. As Tata is taking over the company the Corus will have better management skills high Value for its shares.
Strategy 2: Tata Bidding and Corus Not Accepting (Bid: NA: A)
If Tata is bidding and Corus is not accepting. The pay off is given by (- 4, 1).Tata will be the looser more than Corus because it will be forced to find market in future for the new expansion projects in India (enhanced capacity of 28 million tonnes in India) as their domestic expansion. More over its dream to be global player will cease in the present condition. Whilst denying the Tata the Corus can explore possibilities to get a better price for it share from some other player in the market. But is no one turn up it will have to go back to the old condition where no one was there to take it. With problem of pension payments, labour union and lower profit margin the pay off associated with it is 1.
Strategy 3: Tata Not Bidding and Corus Accepting ( NB : A:A)
If Tata is not bidding it will be definitely loosing and when Tata is not bidding the loss of Corus will be much higher. It will loose the bargaining power and the options. The pay off will be lesser than when Tata bids and accept i.e 3.
Here the payoff for Corus is -5 because it will lose its bargaining power and be at the situation were several player looked seriously at Corus and kicked the tires. The ultimate price offered at that time was $ 5 million.
In this strategy also going for option “Not bidding” for Tata will deny it from entraning the developed markets and other benefits like patent rights, advance R& D facilities etc... So the pay off is less compared to the (Bid :A:A) option and more over it will have to find new markets, R&D, product patents etc.
Strategy 4: Tata Not Bidding and Corus Not Accepting ( NB NA:NA)
If Tata not bids and Corus also not selling the both will be losers. The more loser will Corus as it is having more problems than Tata. The pay off given to this is ( -3,-6). The pay off for Tata is ” -3” because in the case of Tata bidding and Corus not accepting it was “-4” . It is always better as far as reputation of the organization is concerned that bidding and rejecting is worse than not bidding and rejecting.
Conclusion
In the case the roll back equilibrium and the Nash equilibrium is the ( Bid :A:A). In this game the Tata will be valuing Corus more as their galaxy of benefits are more and the Corus will be selling itself to Tata as the pay off it receives is high. The payoff is the Nash and pareto efficient.
As we all know that Tata won the bidding for price of 608 pence per share, which translates to a purchase price of $ 12 billion which was 9 times the EBITDA. Tata valued Corus very high as it has a dream to be a major player in steel industry. On the first bid in October Ratan Tata said “ This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through International expansion”.
References.
Game Theory and Economic Modeling by David M.Kerps – Clarendon Press OxfordDecision Making using Game Theory- An introduction for managers – Anthony Kelly
Corus
The Corus was created by the merger of British Steel and Dutch steel company, Hoogovens. Corus was Europe’s second largest steel producer with a production of 18.2 million tonnes and revenue of GBP 9.2 billion (in 2005). The product mix consisted of Strip steel products, Long products, Distribution and building system and Aluminum. With the merger of British Steel and Hoogovens there were two assets the British plant asset which was older and less productive and the Dutch plant asset which was regarded as the crown jewel by every one in the industry.
They have union issues and are burdened with more than $ 13 billion of pension liabilities. The Corus was making only a profit of $ 1.9 billion from its 18.2 million tonnes production per year (compared to $ 1.5 billion form 8.7 million tone capacity by Tata).
The Corus was having leading market position in construction and packaging in Europe with leading R&D
The Corus was the 9th largest steel producer in the world. It opened its bid for 100 % stake late in the 2006. Tata (India) & CSN (Companhia Siderurgica Nacional) emerged as most powerful bidders.
CSN ( Companhia Siderurgica Nacional)
CSN (Companhia Siderurgica Nacional) was incorporated in the year 1941. The company initially focused on the production of coke, pig iron castings and long products. The company was having three main expansions at the Presidente Vargas Steel works during the 1970’s and 1980’s. The first completed in the year 1974, increased installed capacity to 1.6 million tons of crude steel. The second completed in 1977, raised capacity to 2.4 million tons of crude steel. The third completed in the year 1989, increased capacity to 4.5 million tons of crude steel. The company was privatized by the Brazilian government by selling 91 % of its share.
The Mission of CNS is to increase value for the shareholders. Maintain position as one of the world’s lowest-cost steel producer. Maintain a high EBITDA and strengthen position as a global player.
CNS is having fully integrated manufacturing facilities. The crude steel capacity was 5.6 million tons. The product mix consisted of Slabs, Hot and Cold rolled Galvanized and Tin mill products. In 2004 CSN sold steel products to customers in Brazil and 61 other countries. In 2002, 65 % of the steel sales was in domestic market and operating revenues were 70 %. In 2003, the same figures were 59 % and 61 % and in 2004 the same figures were 71% and 73 %.
The principal export markets for CSN were North America (44%),Europe (32%) and Asia (11%)
Tata Steel
Tata steel, India’s largest private sector steel company was established in the 1907.The Tata steel which falls under the umbrella of Tata sons has strong pockets and strong financials to support acquisitions. Tata steel is the 55th in production of steel in world. The company has committed itself to attain global scale operations.
Production capacity of Tata steel is given in the table below
The product mix of Tata steel consist of flat products and long products which are in the lower value chain. The Tata steel is having a low cost of production when compared to Corus. The Tata steel was already having its capacity expansion with its indigenous projects to the tune of 28 million tones.
Indian Scenario
After liberalization, there have been no shortages of iron and steel materials in the country. Apparent consumption of finished (carbon) steel increased from 14.84 Million tonnes in 1991-92 to 39.185 million tonnes (Provisional) in 2005-06. The steel industry which was facing a recession for some time has staged a turn around since the beginning of 2002. Demand has started showing an uptrend on account of infrastructure boom. The steel industry is buoyant due to strong growth in demand particularly by the demand for steel in China. The Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively. Today, India is the 7th largest crude steel producer of steel in the world. In 2005-06, production of Finished (Carbon) Steel was 44.544 million tonnes. Production of Pig Iron in 2005-06 was 4.695 Million Tonnes. The share of Main Producers (i.e SAIL, RINL and TSL) and secondary producers in the total production of Finished (Carbon) steel was 36% and 64% respectively during the period of April-November, 2006.
THE GAME
Player 1 : Corus decides to Sell : Reasons for decision:
1. Total debt of Corus is 1.6bn GBP
2. Corus needs supply of raw material at lower cost
3. Though Corus has revenues of $18.06bn, its profit was just $626mn (Tata’s revenue was $4.84 bn & profit $ 824mn)
4. Corus facilities were relatively old with high cost of production
5. Employee cost is 15%( Tata steel- 9%)
Player 2: Tata Decides to bid : Reasons for decision:
1. Tata is looking to manufacture finished products in mature markets of Europe
2. At present manufactures low value long and flat steel products while Corus produces high value stripped products
3. A diversified product mix will reduce risks while higher end products will add to bottom line.
4. Corus holds a number of patents and R & D facility.
5. Cost of acquisition is lower than setting up a green field plant and marketing and distribution channels
6. Tata is known for efficient handling of labour and it aims at reducing employee cost and improving productivity at Corus
7. It had already expanded its capacities in India.
8. It will move from 55th in world to 5th in production of steel globally.
Player 3: CSN decides to bid : Reasons for decision:
1. There was an abortive merger with Corus 3 years ago. It had offered $3.5bn.
2. CSN has a 3.8% stake in Corus since 2002
3. Every 10pence increase in bid gets CSN an extra 3mn GBP( Pound)
4. CSN also looking for producing finished steel products in Europe
5. CSN is paid 1% of the offer price as an “incentive remuneration” from Corus
Tata CNS Game
The UK take over panel set up the rules for the bidding. Of the maximum 9 rounds 8 will be for the suitors to table a fixed price bid in cash. In the event of competitive situation continuing a final round would be held to give chance to the bidders to outbid the other within a ceiling that has already been informed to the panel. There has to be a difference of 5 pence for each round of the bid between the two suitors. Before arriving at this stage the strategies are.
Player 1 Tata having two stragies two bid or not to bid and the player 2 CSN is also having two option to bid or not. The pay offs relating to the same is given in the game table.
CNS is already having a 4 % stake on Corus. For every increase of pence the share price of Corus will increase by $ 4 million and CNS will have its share. In the game cited. Tata is having a dominant strategy to play up i.e to bid and the CSN is also having a dominant strategy to play left or bid. There for the Nash equilibrium will be (Bid,Bid) i.e. (4,3) and the same is aslo pareto efficient. But it is likely to (4,3) outcome and both of the player will be bidding.
In both bidding , Pay of (4, 3): Here Tata will have 4 and CNS will have three. Both will be better off as Tata will have the advantages of developed markets, new patients, advance R& D of Corus. If Tata is willing under competition then the share price will be high and the CNS will also benefit as it is having 4 % share in Corus. In the pay off (5,2) where Tata is bidding and CNS is not bidding the Tata will be better off as they can have Corus in a low price. If Tata is not bidding and CNS bidding they can have Corus at a lower price. But Tata will also be loosing by loosing the opportunity to have developed market, patient rights, increase product mix, and chance to be a major player. If both are not bidding both of them are loosing.
Tata Corus Game
Strategy 1: Tata Bidding and Corus Accepting (Bid: A:A)
Strategy 2: Tata Bidding and Corus Not Accepting (Bid :NA :A)
Strategy 3: Tata Not Bidding and Corus Accepting ( NB : A:A)
Strategy 4: Tata Not Bidding and Corus Not Accepting ( NB NA:NA)
(Other four options not explained as they are not relevant)
Strategy 1: Tata Bidding and Corus Accepting (Bid: A: A)
This is also the roll back and Nash equilibrium of the game. In this case both will be benefiting. The pay off is given by ( 2,3). Which mean 2 for Tata and 3 for Corus. The Tata will have access to developed markets by this acquisition. It can also have its product mix enhanced with the high value product from Corus and more over it can also have the excellent R& D facilities of Corus. They can break the supply chain and produce parts of it where it makes sense, for Tata steel. It means producing the semi finished goods at locations where it has raw materials support and cost efficiencies and then making the finished products in the market where it gets the value i.e. China, South East Asia and European countries. As Tata is taking over the company the Corus will have better management skills high Value for its shares.
Strategy 2: Tata Bidding and Corus Not Accepting (Bid: NA: A)
If Tata is bidding and Corus is not accepting. The pay off is given by (- 4, 1).Tata will be the looser more than Corus because it will be forced to find market in future for the new expansion projects in India (enhanced capacity of 28 million tonnes in India) as their domestic expansion. More over its dream to be global player will cease in the present condition. Whilst denying the Tata the Corus can explore possibilities to get a better price for it share from some other player in the market. But is no one turn up it will have to go back to the old condition where no one was there to take it. With problem of pension payments, labour union and lower profit margin the pay off associated with it is 1.
Strategy 3: Tata Not Bidding and Corus Accepting ( NB : A:A)
If Tata is not bidding it will be definitely loosing and when Tata is not bidding the loss of Corus will be much higher. It will loose the bargaining power and the options. The pay off will be lesser than when Tata bids and accept i.e 3.
Here the payoff for Corus is -5 because it will lose its bargaining power and be at the situation were several player looked seriously at Corus and kicked the tires. The ultimate price offered at that time was $ 5 million.
In this strategy also going for option “Not bidding” for Tata will deny it from entraning the developed markets and other benefits like patent rights, advance R& D facilities etc... So the pay off is less compared to the (Bid :A:A) option and more over it will have to find new markets, R&D, product patents etc.
Strategy 4: Tata Not Bidding and Corus Not Accepting ( NB NA:NA)
If Tata not bids and Corus also not selling the both will be losers. The more loser will Corus as it is having more problems than Tata. The pay off given to this is ( -3,-6). The pay off for Tata is ” -3” because in the case of Tata bidding and Corus not accepting it was “-4” . It is always better as far as reputation of the organization is concerned that bidding and rejecting is worse than not bidding and rejecting.
Conclusion
In the case the roll back equilibrium and the Nash equilibrium is the ( Bid :A:A). In this game the Tata will be valuing Corus more as their galaxy of benefits are more and the Corus will be selling itself to Tata as the pay off it receives is high. The payoff is the Nash and pareto efficient.
As we all know that Tata won the bidding for price of 608 pence per share, which translates to a purchase price of $ 12 billion which was 9 times the EBITDA. Tata valued Corus very high as it has a dream to be a major player in steel industry. On the first bid in October Ratan Tata said “ This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through International expansion”.
References.
Game Theory and Economic Modeling by David M.Kerps – Clarendon Press OxfordDecision Making using Game Theory- An introduction for managers – Anthony Kelly
Sunday, September 21, 2008
FOOD GRAIN MANAGEMENT
********************
Dr. C.T.Sunil Kumar
********************
FOOD GRAIN MANAGEMENT
Food grain management in India has three objectives 1. Procurement of food grains from farmers at remunerative prices (MSP- Minimum Support Price). 2. Distribution of food grains to customers particularly vulnerable section at affordable prices (CIP- Central Issue Price). 3. Maintenance of food buffers for price stability and food security. In 1947 agriculture supported 80 % of the 350 million populace or 280 million people. Today it is supporting over 620 million with 82 % farmers holding less than 2 hectares of land of which 60 % are depending on rain. The share of agriculture in GDP has shrunk from 61 % in 1951 to 19 % in 2008. It means that now people are now dependent on a smaller size of the pie.
In first time in the history of independent India, food grains production has crossed 227 million tonne and government procuring 210 lakh tonne. The bumper output is equated to the agricultural policy of UPA government in providing with large agricultural credit and increased MSP. The paradox here is in one part of the country having plenty of food grains accumulated in its godowns and on the other part starvation, poverty and hunger deaths taking place. With storage and PDS (Public Distribution System) proved to be a failure. Is this bumper crop going to provide government with storage and transit losses? Similar to 2007-08 the years 2001-02 also witnessed high levels of stock build up in the Central pool. The food grains stocks reached a peak of 64.7 million tones an all time record, in June 2002. The year 2003-04 witnessed a general easing of foodgrains stocks in central pool because of relatively lower procurement of rice and wheat following a bad agricultural year in 2002-03 combined with relatively high offtake of foodgrains, especially for drought relief operations. The new procurement is triggering worries of storage capacities for the future.
Food Security comes under the “Directive Principles of State Policy” as embodied in the constitution. As Article 47 says: ‘The state shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as, among its primary duties”.
The Central Government buys paddy at Rs 10 per kilogram (MSP- Minimum Support Price) and translates it into Rs 16.66 per kg of Rice and further add freight and others storage costs and the price could touch Rs 20 , post procurement. (The MSP for Rice in the year 2007-08 was Rupees 850 per quintal and in 2006-07 was Rupees 620 quintal.) On the other hand we are having an increase in price of Rice in the open market from Rupees 14 to Rupees 20 per kilogram. Is the price in open market due to increase in MSP? Is there any need to provide farmers with better remunerations? Is it so that the agriculture is operated on the principle that the farmer must subsidize the produce for consumers? Is it high time for a public policy change in the sector?
The households are expecting food grains to be issued to them under subsidy whilst it’s incurring government Rs 20 per kg to procure and process it. The CIP Central Issue Price under various categories is Above Poverty Line (APL) Rs 7.40, Below Poverty Line (BPL) Rs 5.65 and Anthoydaya Anna Yogana (AAY) Rs 3.00 per kilogram. How long can we provide subsidies and go further with this huge difference in procurement and issue price ?. Do the APL households really require subsidy?. Other than APL , BPL and AAY FCI also takes care of other Welfare schemes such as MDMS (Mid Day Meal Scheme), Food for Work. OMSS ( Opem market Sale Scheme).
A policy as a program SGRY ( Sampoorna Grameen Rozgar Yojana ) a scheme for employment generation in rural areas and safeguard food security was introduced in the year 2001 with a cash outlay of 10,000 crores. Under this scheme 50 lakhs tonnes of food grains amounting to Rs 5000 crores has been provided to every states and UTs free of cost. The remaining funds was used for material cost and cash component of wages. The program is to be implemented with the co-operation of Central and state governments and there were co-existence of several normative orders. There are different SGRY allotments namely stream I , stream II and special component for flood, drought etc. Every worker seeking employment under the SGRY, have to be provided with minimum 5 kgs of food grains (on kind) per mandays as part of wages. The SGRY scheme is materialized through state government departments with the help of project officers.
In the state of Kerala which the schem stared operating in ( 2002-2003) with a total allotment of 188105 Metric Tonnes of Rice and 9839 Metric Tonnes of Wheat. Heavy offtake was also witnessed on account of this scheme. Out of the allotted quantity 89.14 % was lifted. The subsequent years also witnessed offtake of foodgrains to the tune of 90 %. Whilst implementing the scheme by the street level bureaucrats. Discretion was shown by sabotaging the priority list as well as the FIFO (First in First Out) principles so as to enable the contractors to sell the allotment in open market.
Legitimization of corruption was there and the term “corruption” was treated as “co-operation” as the policy in its implementation ignored the cost of transportation of foodgrains and the cost of lifting the stocks from FCI. “ Attikasu” ( meaning amount for staking of food grain bags). The system of “Attikasu” is a regular practice and is now treated as a legitimate right of the head load worker rather than corruption; even if the law prevents it. This kind of legal pluralism is seen in almost all activities inside the depot from contract work implementation to casual labour engagement.
Whilst analyzing the output and outcome of this policy of generating employment with the surplus food grains was a failure for all these years and any analysis of this policy at higher level took place or not is ignorant to me but with the field experience I am having the policy was defeated due to the following reasons 1. In the State of Kerala the labour were not interested in taking food grains as there remuneration. 2. The policy when percolated down failed to deliver its purpose in the implementation stage as the policy failed to address the issues regarding lifting of stocks from FCI.
The food grains are issued as per the directions of the DRDA authorities and are lifted by some authorized agents who in turn will lift the stocks from FCI on behalf of DRDA. The agent then sells the foodgrains in the open market to have liquid cash to give wages to the employees under the scheme. The formulation of the policy itself was failed to address this issue. Lifting of the stocks from FCI godows and selling it in the open markets involves many hidden costs which vary as per situations. The amount after all deductions was utilized for the developmental schemes on the account head of SGRY.
The year 2007-08 is witnessing a bumper crop and the central government agencies have already purchased 223 million MT. It is likely that, SGRY scheme with additional component will be there as a scapegoat for our storage inefficiencies. The long storage of surplus food grain stored will result in huge storage losses and will force to have schemes like SGRY. The stock postions as on 18-06-2008 in FCI Kerala region is 74.20 % (4.6535 Lacs Tonnes of foodgrains with an effective storage capacity of 4.67 lac tonnes.) and more wagon in pipeline to reach the state of Kerala. It is high time to have proper analysis of previous policies in food sector and to have Analysis for policies.
Dr. C.T.Sunil Kumar
********************
FOOD GRAIN MANAGEMENT
Food grain management in India has three objectives 1. Procurement of food grains from farmers at remunerative prices (MSP- Minimum Support Price). 2. Distribution of food grains to customers particularly vulnerable section at affordable prices (CIP- Central Issue Price). 3. Maintenance of food buffers for price stability and food security. In 1947 agriculture supported 80 % of the 350 million populace or 280 million people. Today it is supporting over 620 million with 82 % farmers holding less than 2 hectares of land of which 60 % are depending on rain. The share of agriculture in GDP has shrunk from 61 % in 1951 to 19 % in 2008. It means that now people are now dependent on a smaller size of the pie.
In first time in the history of independent India, food grains production has crossed 227 million tonne and government procuring 210 lakh tonne. The bumper output is equated to the agricultural policy of UPA government in providing with large agricultural credit and increased MSP. The paradox here is in one part of the country having plenty of food grains accumulated in its godowns and on the other part starvation, poverty and hunger deaths taking place. With storage and PDS (Public Distribution System) proved to be a failure. Is this bumper crop going to provide government with storage and transit losses? Similar to 2007-08 the years 2001-02 also witnessed high levels of stock build up in the Central pool. The food grains stocks reached a peak of 64.7 million tones an all time record, in June 2002. The year 2003-04 witnessed a general easing of foodgrains stocks in central pool because of relatively lower procurement of rice and wheat following a bad agricultural year in 2002-03 combined with relatively high offtake of foodgrains, especially for drought relief operations. The new procurement is triggering worries of storage capacities for the future.
Food Security comes under the “Directive Principles of State Policy” as embodied in the constitution. As Article 47 says: ‘The state shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as, among its primary duties”.
The Central Government buys paddy at Rs 10 per kilogram (MSP- Minimum Support Price) and translates it into Rs 16.66 per kg of Rice and further add freight and others storage costs and the price could touch Rs 20 , post procurement. (The MSP for Rice in the year 2007-08 was Rupees 850 per quintal and in 2006-07 was Rupees 620 quintal.) On the other hand we are having an increase in price of Rice in the open market from Rupees 14 to Rupees 20 per kilogram. Is the price in open market due to increase in MSP? Is there any need to provide farmers with better remunerations? Is it so that the agriculture is operated on the principle that the farmer must subsidize the produce for consumers? Is it high time for a public policy change in the sector?
The households are expecting food grains to be issued to them under subsidy whilst it’s incurring government Rs 20 per kg to procure and process it. The CIP Central Issue Price under various categories is Above Poverty Line (APL) Rs 7.40, Below Poverty Line (BPL) Rs 5.65 and Anthoydaya Anna Yogana (AAY) Rs 3.00 per kilogram. How long can we provide subsidies and go further with this huge difference in procurement and issue price ?. Do the APL households really require subsidy?. Other than APL , BPL and AAY FCI also takes care of other Welfare schemes such as MDMS (Mid Day Meal Scheme), Food for Work. OMSS ( Opem market Sale Scheme).
A policy as a program SGRY ( Sampoorna Grameen Rozgar Yojana ) a scheme for employment generation in rural areas and safeguard food security was introduced in the year 2001 with a cash outlay of 10,000 crores. Under this scheme 50 lakhs tonnes of food grains amounting to Rs 5000 crores has been provided to every states and UTs free of cost. The remaining funds was used for material cost and cash component of wages. The program is to be implemented with the co-operation of Central and state governments and there were co-existence of several normative orders. There are different SGRY allotments namely stream I , stream II and special component for flood, drought etc. Every worker seeking employment under the SGRY, have to be provided with minimum 5 kgs of food grains (on kind) per mandays as part of wages. The SGRY scheme is materialized through state government departments with the help of project officers.
In the state of Kerala which the schem stared operating in ( 2002-2003) with a total allotment of 188105 Metric Tonnes of Rice and 9839 Metric Tonnes of Wheat. Heavy offtake was also witnessed on account of this scheme. Out of the allotted quantity 89.14 % was lifted. The subsequent years also witnessed offtake of foodgrains to the tune of 90 %. Whilst implementing the scheme by the street level bureaucrats. Discretion was shown by sabotaging the priority list as well as the FIFO (First in First Out) principles so as to enable the contractors to sell the allotment in open market.
Legitimization of corruption was there and the term “corruption” was treated as “co-operation” as the policy in its implementation ignored the cost of transportation of foodgrains and the cost of lifting the stocks from FCI. “ Attikasu” ( meaning amount for staking of food grain bags). The system of “Attikasu” is a regular practice and is now treated as a legitimate right of the head load worker rather than corruption; even if the law prevents it. This kind of legal pluralism is seen in almost all activities inside the depot from contract work implementation to casual labour engagement.
Whilst analyzing the output and outcome of this policy of generating employment with the surplus food grains was a failure for all these years and any analysis of this policy at higher level took place or not is ignorant to me but with the field experience I am having the policy was defeated due to the following reasons 1. In the State of Kerala the labour were not interested in taking food grains as there remuneration. 2. The policy when percolated down failed to deliver its purpose in the implementation stage as the policy failed to address the issues regarding lifting of stocks from FCI.
The food grains are issued as per the directions of the DRDA authorities and are lifted by some authorized agents who in turn will lift the stocks from FCI on behalf of DRDA. The agent then sells the foodgrains in the open market to have liquid cash to give wages to the employees under the scheme. The formulation of the policy itself was failed to address this issue. Lifting of the stocks from FCI godows and selling it in the open markets involves many hidden costs which vary as per situations. The amount after all deductions was utilized for the developmental schemes on the account head of SGRY.
The year 2007-08 is witnessing a bumper crop and the central government agencies have already purchased 223 million MT. It is likely that, SGRY scheme with additional component will be there as a scapegoat for our storage inefficiencies. The long storage of surplus food grain stored will result in huge storage losses and will force to have schemes like SGRY. The stock postions as on 18-06-2008 in FCI Kerala region is 74.20 % (4.6535 Lacs Tonnes of foodgrains with an effective storage capacity of 4.67 lac tonnes.) and more wagon in pipeline to reach the state of Kerala. It is high time to have proper analysis of previous policies in food sector and to have Analysis for policies.
Saturday, September 20, 2008
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