Banking Vs Industrial Undertaking from the point of view of Economic Growth and Employment
Banking VS Industrial Undertaking From the point of view of national growth and employmentBankingBanks play an important role in development of Indian economy. Afterliberalization, the banking industry under went major changes. The economicreforms totally have changed the banking sector. RBI permitted new banks to bestarted in the private sector as per there commendation of Narasimhamcommittee. The Indian banking industry was dominated by public sector banks.But now the situations have changed. New generation banks with usedof technology and professional management has gained a reasonable position inthe banking industry.Banks over the years, have become a significant aspect of an economy. With theon going financial depression, the position of banks have become all the moreimportant in the course of working of the money market and hence the economyof a nation. The banking sector forming a portion of the financial sectorprimarily works as a financial intermediary generating money supply. From thedifferent macro economic models , banks have been found to be a part of thesupply side of the economy . However, over time banks have transformed frommerely money generating organizations to a multi tasking entity.A bank is a financial institution where an individual can deposit money. Banksprovide a system for easily transferring money from one person or business toanother. Using banks and the many services they offer saves an incredibleamount of time, and ensures that the funds of micro as well as macroeconomicagents "pass hands" in a legal and structured manner. There are also other typesof financial institutions that operate just like banks.Functioning of a Bank is among the more complicated of corporate operations.Since Banking involves dealing directly with money, governments in mostcountries regulate this sector rather stringently. In India, the regulationtraditionally has been very strict and in the opinion of certain quarters,responsible for the present condition of banks, where NPAs are of a veryhigh order. The process of financial reforms, which started in 1991 has clearedthe cobwebs somewhat but a lot remains to be done. The multiplicity of policyand regulations that a Bank has to work with, makes its operations even morecomplicated, sometimes bordering on illogical.Banking Regulation Act of India, 1949 defines Banking as "accepting, for thepurpose of lending or investment of deposits of money from the public,repayable on demand or otherwise and withdraw able by cheques, draft, order or
otherwise". Deriving from this definition and viewed solely from the point ofview of the customers,Banks essentially perform the following functions :1.Accepting Deposits from public/others (Deposits)2.Lending money to public (Loans)3.Transferring money from one place to another (Remittances)4.Credit Creation5.Acting as trustees6.Keeping valuables in safe custody7.Investment Decisions and analysis8.Government business9.Other types of lending and transactionsIn addition to providing a safe custodian of money, banks also loan money tobusinesses and consumers. A large portion of a banks business is lending. Howdo banks get the money they loan? The money comes from depositorswho intend to save a portion of their wealth. Banks acting as intermediaries,use these deposits as loans to prospective borrowers. The objective ofcommercial banks like any other organization is profit maximisation. This profitgenerally originates from the interest differential between borrowers andlenders. In the present day, however, the banking operation has extended muchbeyond simple lending exercise. So there are other different channels of profitensuing from other investment programmes as well. However, it should bementioned in this context that the entire deposit held by a bank cannot be givenas loans as the Central Bank retains a portion of this money in the form of cash-reserve for unforeseen circumstances. Banks create moneyin the economy by making loans. The amount of money that banks can lend isdirectly affected by the reserve requirement set by the Federal Reserve. Thereserve requirement is currently 3 percent to 10 percent of a banks totaldeposits. This amount can beheld either in cash on hand or in the banks reserveaccount with the Fed. To see how this affects the economy, think about it likethis. When a bank gets a deposit of $100, assuming a reserve requirement of 10percent, the bank can then lend out $90. That $90 goes back into the economy,purchasing goods or services, and usually ends up deposited in another bank.That bank can then lend out $81 of that $90 deposit, and that $81 goes into theeconomy to purchase goods or services and ultimately is deposited into anotherbank that proceeds to lend out a percentage of it. In this way, money grows andflows throughout the community in a much greater amount than physicallyexists. That $100 makes a much larger ripple in the economy than you mayrealize!
Other Services Offered by Bank Credit Cards Personal Loans Home and Car Loans Mutual Funds Business Loans Safe Deposit Boxes Debit Cards Trust Services Signature Guarantees…and many other investment services.Central Bank:The Reserve Bank of India is the central Bank that is fully owned by theGovernment. It is governed by a central board (headed by a Governor)appointed by the Central Government. It issues guidelines for the functioning ofall banks operating within the country.Public Sector Banks a. State Bank of India and its associate banks called the State Bank Groupb.20 nationalized banksc. Regional rural banks mainly sponsored by public sector banksPrivate Sector Banks
a. Old generation private banksb. New generation private banksc. Foreign banks operating in Indiad. Scheduled co-operative bankse. Non-scheduled banksCo-operative SectorThe co-operative sector is very much useful for rural people. The co-operativebanking sector is divided into the following categories. a. State co-operative Banks b. Central co-operative banks c. Primary Agriculture Credit SocietiesDevelopment Banks/Financial InstitutionsIFCI,IDBI , ICICI Bank , IIBISCICI Ltd. NABARD Export-Import Bank ofIndia National Housing Bank Small Industries Development Bank of IndiaNorth Eastern Development Finance Corporation
Average Growth In Credit And Output For BIMAARU StatesAverage Growth In Credit And Output For Other States
Average Growth In Credit And Output For All StatesCredit Allocation and Output Growth in Indian States: Summary StatisticsTo understand the credit-output relationship in rudimentary fashion, Table-1 and Graph-1present the summary statistics of average credit growth and output growth during the period1981-2002. Table-1 suggests that (i) average credit growth and output growth (in total) is higher in developed states (5.62 and 3.79) as compared to BIMAARU states (4.98 and 1.58); (ii) excepting Bihar, all Indian states, both developed and BIMAARU states, show a growth in credit and output individually during this period; (iii) in similar way, all states, excepting Bihar, show a significant correlation betweencredit and output growth; and(iv) though Bihar has a positive growth in credit ( ie., 3.2), it has a negative growth inoutput, (ie., -0.79), resulting in negative correlation between credit and output growth (i.e., -0.16907)1.Table-2 presents states ranking in terms of correlation between credit and output growth,both in BIMAARU and other developed states. Table-2 suggests that (i) among developed states, Tamil Nadu ranks top in the list (ie., 0.9695) while Haryana figures as the lowest with 0.7595; (ii) among BIMAARU states, Madhya Pradesh ranks top, with 0.9219, and Bihar is listed the lowest with -0.1691;
(iii) the credit and output growth relationship (ie., 0.9219) in Madhya Pradesh is higher than certain. developed states such as Gujarat (0.8860), West Bengal (0.8413), Andhra Pradesh(0.8137) and Haryana (0.7595). From Table-1 and Table-2, it is possible to infer that (i) on an average, BIMAARU states have lower credit output growth relationship as compared to other developed Indian states; (ii) Madhya Pradesh, state hailing from BIMAARU has a special status of evidencing a higher credit output growth relationship as compared to four developed states such as Gujarat, West Bengal, Andhra Pradesh and Haryana.Changing TrendsPost nationalisation, the Banks were asked to open more branches in rural areas.Large number of people were recruited to man these newly opened branches.Expanded network gave a new identity to these banks and millions of newcustomers came to the fold of Banking. The business of Banking moved fromclass banking to mass banking.Manpower requirementsPublic sector banks in India employ more than 7 lakh people at present. Ofthese a large number of people will be retiring in next 5-6 years. To fill this gapand to take up the growing business the Banks are on a recruiting spree as canbe seen in media and from vacancy announcements. Only this year about 40,000vacancies have been created in public sector banks due to retirements,resignations and expansion of business.Earlier recruitments in public sector banks were made through Banking ServiceRecruitment Boards. Each board was taking care of manpower requirements of3-5 banks in a certain geographical area. Now the boards have been abolishedand each public sector bank may announce it’s own recruitment process for thenumber of people required from time to time. Thus more such advertisementsare seen these days. Another change is seen in lateral hiring by these banks.Earlier officers were recruited only in Junior Management Grade. Now publicsector banks are offering direct employment in middle and senior managementcadres as well. Thus for both fresher and experienced people careeropportunities are available in public sector banks. To meet their manpowerrequirements these banks are presently recruiting in large numbers both inclerical and officer cadre. Vs
Industrial UndertakingThe world’s second largest populated country, India, is the apple of the eye forthe world now. The world economies are seeing it as their potential market.This has been going on since quite some time now, ever since 1991 reforms ofliberalization, globalization and privatization. Indian markets in urban areashave grown appreciably and are on the verge of saturation, so corporates havestarted tapping rural markets, since more than 60 per cent of India’s populationlives in rural areas.During this global meltdown and fall of exports, if the FastMoving Consumer Goods (FMCG) sector has been able to show rising quarterlygrowths, it is because of the Rural Markets and their rising spending power,which have not been affected by this meltdown. If we look at the strategiesfollowed by Rural Marketers in the FMCG sector, it is to sell many smallsachets of Rs. 2 shampoo pouches, Rs. 5 Maggi packs and the Rs. 5 chota Pepsi,because here, the strength lies in volume sale, considering the large consumerbase in these rural markets which won’t spend altogether at once on buyinglarge family packs of 500ml shampoo or super saver packs of Maggi or a Pepsipet bottle of 2 litres.Meaning of expression ‘industrial undertakings’ for purpose of section 35Dof IT Act, 1961Those undertakings would qualify as ‘industrial undertakings’ which areinvolved in ‘manufacturing activity’; the activity of construction can, by nostretch of imagination, be treated as manufacturing activity as it does notamount to manufacture or production of an article or a thing.Industries offer several benefits to the country. They are:
1. When there is development of industries in the country, there will be the investment of large capital, use of modern machineries, high degree of specialisation and large-scale operations. As a result, there will be greater productivity and higher national income. Higher national income, in turn, will contribute to increase in per capital income. Thus, development of industries will contribute to the growth of national and in per capital income in the country.2. Industrialisation creates more and varied employment opportunities, and thereby, reduce the problem of unemployment and under-employment in the country. Further it can absorb the surplus agricultural labour, and thereby, reduce the problem of disguised unemployment in rural areas. Again it can contribute to the development of cottage and small industries in rural areas.3. Industries will promote agricultural development in the country in many ways. First, with the development of agro-based industries (i.e. industries based agriculture), such as sugar-cane, raw cotton, raw jute, tobacco, oil seeds etc. there will be more demand for these materials. This, in turn will encourage the development of agriculture.4. Industries will contribute to the development of tertiary sector, i.e. trade, transport & communication , banking insurance, etc.5. Development of industries will be helpful in maintaining a proper balance between agriculture, industry and the tertiary sector, which is essential for the all-round economic progress of any nation.6. Development of industries will contribute to the expansion of existing industrial areas and growth of new industrial areas.7. Agriculture in India is not stable, as it is largely dependent on the vagaries of monsoons. On the other hand, industries are relativity more stable.
8. Industrialisation contributes to better utilisation of natural resources like minerals, forests, fisheries, etc. which the country has in abundance9. Industrialisation will contribute to the expansion of the markets for agricultural crops, minerals, forest products etc. Further, industrialisation will contribute to the expansion of the markets for capital goods or producer goods like plant & machinery.10.Industries contribute to increase in the income and purchasing power of the people. Further, they make available to the people a wide variety of goods for consumption.11.Industries are indispensable for national defence. Arms and ammunitions, ships, aircrafts, tankers, etc. Economy Growth Industry accounts for 28% of the GDP and employ 14% of the total workforce. In absolute terms, India is 12th in the world in terms of nominal factory output. The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods. Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labour-intensive processes. Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people. As stated in late January, by the then Minister of Textiles, India, Shri Shankersinh Vaghela, the transformation of the textile industry from a degrading to rapidly developing industry, has become the biggest achievement of the central government. After freeing the industry in 2004–2005 from a number of limitations, primarily financial, the government
gave the green light to the flow of massive investment – both domestic andforeign. During the period from 2004 to 2008, total investment amounted to27 billion dollars. By 2012, still convinced of the government, this figure willreach 38 billion as expected; these investments in 2012 will create an additionalsector of more than 17 million jobs. But demand for Indian textiles in worldmarkets continues to fall. According to Union Minister for Commerce andIndustries Kamal Nath, only during 2008–2009 fiscal year (which ends 31March) textile and clothing industry will be forced to cut about 800 thousandnew jobs – nearly half of the rate of two million, which will have to go all theexport-oriented sectors of Indian economy to soften the impact of the globalcrisis. Ludhiana produces 90% of woollens in India and is known as theManchester of India. Tirupur has gained universal recognition as the leadingsource of hosiery, knitted garments, casual wear and sportswear.India is 13th in services output. The services sector provides employment to23% of the work force and is growing quickly, with a growth rate of 7.5% in1991–2000, up from 4.5% in 1951–80. It has the largest share in the GDP,accounting for 55% in 2007, up from 15% in 1950. Information technologyand business process outsourcing are among the fastest growing sectors, havinga cumulative growth rate of revenue 33.6% between 1997–98 and 2002–03 andcontributing to 25% of the countrys total exports in 2007–08. The growth inthe IT sector is attributed to increased specialisation, and an availability of alarge pool of low cost, highly skilled, educated and fluent English-speakingworkers, on the supply side, matched on the demand side by increased demandz to outsource their operations. The share of the Indian IT industry in thecountrys GDP increased from 4.8 % in 2005–06 to 7% in 2008. In 2009, sevenIndian firms were listed among the top 15 technology outsourcing companies inthe world.Mining forms an important segment of the Indian economy, with the countryproducing 79 different minerals (excluding fuel and atomic resources) in 2009–10, including ironore,manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum,ochre, phosphorite and silica sand. Organised retail supermarkets accounts for24% of the market as of 2008. Regulations prevent most foreign investment inretailing. Moreover, over thirty regulations such as "signboard licences" and"anti-hoarding measures" may have to be complied before a store can opendoors. There are taxes for moving goods from state to state, and even withinstates. Tourism in India is relatively undeveloped, but growing at double digits.Some hospitals woo medical tourism.
Current ScenarioAccording to a survey of the manufacturing industry, carried out by FICCIamong 25 core sectors, 21 capital goods, 15 intermediate goods, 26 consumersdurables, and 13 consumer non-durable sectors, the countrys manufacturingsector is expected to grow by 9.5 per cent in 2008-09, up from 8.8 per cent lastfiscal. LG is looking at making India its global manufacturing hub for its mobile handsets. The company will soon be exporting mobile phones to Europe and the Commonwealth of Independent States (CIS) from India. Luxury brands like Louis Vuitton and Frette are looking at India as a manufacturing base for their products. Skoda Auto, a part of the international Volkswagen Group based in the Czech Republic, plans to make India its regional manufacturing hub. It will start producing cars in India by 2010 with a manufacturing target of 50,000 units. Besides the domestic market, these will also be exported to neighbouring countries like Nepal, Sri Lanka, Burma and Bangladesh. Aircraft manufacturer Airbus is considering India as one of the key centers for design and development of its long haul A 350 plane. Cummins is making India its manufacturing hub for newly developed line of generator sets. Samsung plans to invest US $ 100 million over a period of four years in its manufacturing plant near Chennai and make it its global hub. Ford is making India its manufacturing hub for engine manufacturing.
Hyundai has made India the manufacturing and export hub for its smallCars. The i10 is being manufactured only in India and exported to theworld. India is Hyundais largest base outside Korea.Suzuki too is making India its manufacturing hub for small cars. The A-Star is being manufactured solely in India and exported to Europe.Nokia is investing an additional US $ 75 million in its Sriperumbudurplant taking the total investment to US$ 285 million. Nearly 50 per centof its production at Sriperumbudur is exported to countries across theMiddle East and Africa, Asia, Australia and New Zealand.