Consumer Perceptions of Non-Banking Financial Institutions

Consumer Perceptions of Non-Banking Financial Institutions Non-Banking Financial Institutions (NBFI) v/s Banks in India – Why NBFI are doing much business than Banks? A study of New Delhi based Upper and Middle Class Consumers. Master of Business Administration ABSTRACT In the era of globalization and liberalization the development of financial sector has played and important role in the economy of India. With the services offered by banks and non-banking financial institutions (NBFI) the life of consumer in India has completely changed. Borrowing is one of the important aspects that have changed the whole scenario of Indian society. Change in the trend of culture of upper middle class consumers, change in the behaviour of consumer regarding borrowing and change in the norms of banks and NBFI regarding borrowing has made life of Indian consumer very comfortable. This research shows how non-banking financial institutions are fulfilling the demand of upper middle class consumers and how they are doing more business than banks and why consumers rely more on NBFI rather than banks in India. This research uses questionnaires, interviews of consumers and direct sales agent of NBFI to examine the consumer borrowing and role of financial institutions. The research concludes that consumers are relying much more on NBFI and it is not risky difficult to borrow loan because of policies norms regarding loans and availability of flexible financial options. CHAPTER 1 INTRODUCTON 1.1 PREVIEW This chapter is introduction about the research topic. It highlights the aims and objectives of the research. It also tells about the structure of the dissertation and the summary of this chapter. 1.2 BACKGROUND INFORMATION Each and every country has its own financial system. Financial system usually consists of financial market, financial intermediaries and financial product or service. Finance in simple words means ‘money’ but finance is a source which provides funds to a particular activity. A financial sector/system acts as an agent to make sure that funds flow from the areas of surplus to the deficit area. A financial market is a place which creates financial assets and exchange of money for goods and services. Financial market consists of foreign exchange market, capital market, credit market and money market. (Web 8) Money is a fascinating thing which attracts human to a great extent. Over thousands of years the process of creating money and using money is making human enthusiastic. Financial intermediaries play an important role in building economy of a country. Financial Intermediaries includes banks, financial institutions, non-banking financial institutions (NBFI), investment companies, pension and mutual funds. (Web 9) Financial sector plays an important role in organizing and properly distributing sharing the savings. Financial sector act as a passage or tube which transfers the financial resources from net savers to net borrowers .ie. from the person who spend less as compared to their earning to those who earn less and spend more then their earning. (Web 10) Indian financial system consists of huge network of banks and financial institutions (including non-banking financial institutions) and range of financial instruments. From the last two decades there have been great improvements in Indian Financial system and there is a huge supply of banking and other financial facilities provided to large population of India. (Web 10) A safe and sound financial sector is required to maintain the growth of an economy. With the help of globalization and change in technology the operating environment of banks and other financial institutions has changed significantly. Due to competition and change in customer demand there is increase in product innovation and change in strategy of banks and financial institutions. In order to face the competition and meet challenges Reserve Bank of India (RBI) has also changed its regulations and provided a new framework. Reserve Bank of India (RBI) is trying to develop a strong, competitive, stable and powerful banking system so that it can help in growth and development of the economy. (Web 11) According to Sarkar (n.d.) a strong, diverse, efficient and flexible financial system plays an important role in the economy of a country. A developed financial system maintains high level of investment and promotes growth in the economy. The financial system in India consists of financial institutions, financial market, financial instruments and services. Indian financial system is divided into two segments- organized sector and traditional sector which is also called as informal credit market. In organized sector financial services are provided to the community by large number of financial institutions which are mainly business organizations. And financial institutions that are providing specialized or provide some extra services are called as banking or non-banking units. Reserve Bank of India (RBI) is the apex institution and regulates the credit. Financial institutions include public and private commercial banks, cooperative banks, development banks, regional rural banks. Where as finance leasing companies, LIC (Life Insurance Corporation), GIC (General Insurance Companies), provident funds, mutual funds, post office banks .etc. are non-banking financial institutions in India. (Sarkar, n.d., pp. 1) RBI is the central bank of India and was established in April, 1935. RBI acts as Government banker, agent, adviser and also act’s as banker’s bank. RBI is the controller of the credit which means that RBI has power to change the volume of credit created by banks. (Web 12) The profitability of banking sector is improved because of reforms set by banking system which results in high operating and net profit. With the entry of private banks there is a huge competition for public sector banks for loaning of funds. With the entry of non-banking financial institutions (NBFI) and Development financial institutions (DFI) the competition in sourcing the funds is also increased. (Chanda, 2005, pp. 31) NBFI act as an intermediary between lender and borrower and provide better, different services than normal banks. NBFI includes investment companies, finance corporations, chit funds, hire-purchase finance companies, loan companies, leasing companies, mutual benefit funds. All of these NBFI have the ability to provide large amount of financial services to wide range of customers from small borrowers to established companies. (Chanda, 2005, pp. 36) Indian consumers are changing their habits at a fast rate and they are borrowing money to buy the product they wanted. Because of easy financing options they don’t have to think if they can afford a product or not. Consumer finance is a win-win situation for every one and now they don’t have to wait for years to save their money and upgrade their living standards. (Agarwal and Mittal, 2004, pp. 6) The Buy Now Pay Later culture is very much common in India now a days. Consumers are loosing their fear of borrowing. Even if a consumer wants to buy a home, home loan financing is easily available. Falling interest rates, increasing loan duration and reduced monthly installments are making all these things possible for consumers. (Agarwal and Mittal, pp. 6-8) The banking sector is one of the most important sectors in Indian financial sector. Over 80 percent of funds which flow in the financial sector are because of banking sector. (Sarkar, n.d., pp. 1). NBFI are entering in the financial sector because of inflexibility of banks and their less competition amongst them. Kotak Mahindra, Citi Financial, Ashok Leyland Finance, Sundaram Finance .etc. are the big players in this field and are growing rapidly at faster rate and are taking good position in financial sector. In respect to all these things, the purpose of this study is to find why these institutions are doing better business than public and private banks in India. 1.3 AIMS AND OBJECTIVES This research is planned to understand and examine the trend of upper class and middle class Indian consumers in taking loans and their reliance on banks and non-banking financial institutions, particularly in today’s competitive environment. This research is done to achieve the following defined objectives: To compare and contrast the role of banks and non-banking financial institutions (NBFI) in India economy. To evaluate the role of both banks and NBFI for borrowing in Indian developing economy. To understand and examine the banking and financial sector regulations in India in post liberalization period. To evaluate and analyze the emerging consumer culture in India. To understand and examine the trend of upper and middle class Indian consumers in taking loans. To examine the policies of banks /non-banking financial institutions regarding offering loans to consumers. To identify how NBFI are fulfilling the aspirations of upper and middle class in India. 1.4 STRUCTURE OF DISSERTATION There are 5 chapters in this dissertation. Chapter 1: Introduction This chapter introduces the research topic. It outlines the aims and objectives of dissertation, overview, structure of dissertation and finally summary of the chapter. Chapter 2: Literature Review This chapter talks about the literature review. Discussion of available literature related to the topic is done. The aim of this chapter is brief about various concepts on which this dissertation is based. The literature is available from various books, online journal articles and websites. Chapter 3: Research Methodology This chapter discusses about various research methods and data collection methods. It discuss about research design, quantitative research, qualitative research, advantages disadvantages of various methods, limitations, validity reliability. Chapter 4: Findings, Analysis and Discussions This chapter analyses all the data collected using different data collection methods. All the data is critically analyzed and discussions are made on the basis of literature which is related to the objectives of research. Data presentation is done using various methods like tables, graphs, charts and pie charts .etc. Chapter 5: Conclusion and Recommendations This chapter concludes the research by providing a conclusion on the basis of findings, analysis and discussions. This chapter also discusses the limitations faced during research and recommendations for future research. 1.5 SUMMARY This chapter was an introductory chapter aimed to give reader a brief idea of what this research is all about. It highlights introduction, aims, objectives and finally structure of the dissertation. CHAPTER 2 LITERATURE REVIEW 2.1 PREVIEW Aim of this chapter is to discuss the literature related to the research topic. This chapter discusses about financial institutions regulations in India, culture of upper middle class consumers in India and worldwide, what makes consumer to borrow and strategies policies of financial institutions regarding credit. 2.2 FINANCIAL INSTITUTION REGULATIONS 2.2.1 Financial Institution Regulations Globally The Changing scenario of banking sector around the world, in the light of globalization has significantly drawn the attention of researchers and practitioners. They have raised important issues regarding corporate governance regulation and banking institutions as corporate governance is related to banking regulations. In this context the research of Alexander (2004) titled Corporate Governance and Banking Regulations requires worth mentioning here. The research of Alexander (2004) addresses the issues of corporate governance and banking institutions. Alexander (2004) begins by analyzing the upcoming international rule of bank corporate governance. Alexander (2004) provides a framework for how bank supervisor and bank management should act together in relation to the management of banking institutions and its impact on financial stability. Further, Alexander (2004) has analyzed corporate governance and banking regulation in UK and USA. Alexander (2004) concludes Financial Services and Market Act 2000 has authorized FSA (Financial Services Authority) to fill in the gaps to enhance corporate governance because traditionally UK corporate governance was not focused on special role of banks and financial institutions. (Alexander, 2004, pp. 1-2) In USA, the federal and state statute regulations regulates the corporate governance for banking institutions. In order to manage the responsibilities of senior management and directors a framework is provided by federal regulation. There is governance problem in banks and financial companies in US. In order to provide financial stability institutions and banks, the bank regulator must establish governance standard in regards to national banking law. (Alexander, 2004, pp. 1-2, 37) In this era of globalization, banking and financial industry is greatly affected by major changes and it results in increased competition, less profit margin, pressure to cut the price, products having short life cycle. (Alexander, 2004, pp. 1-2, 37) However, when it comes to comparison of financial regulations in UK and USA, it is revealed that regulation of financial system in UK is not exact as it is in USA. Evidently in USA the Securities and Exchange Commission has wide ranging regulations, and is stated as too much. Further, it is also stated that formal and strict USA rules procedures do not allow desired flexibility and pace. However, interestingly so far new system in UK provides settlement between the self regulation and statutory regulation to make sure that financial market works in proficient and systematic way. (Web 1) Apart from UK and USA, the regulations of financial market are changing constantly all around the world. For .eg. In Europe the membership of EU changed the main concerns of government while facing the problem of changing or executing the regulation of financial system and it is revealed that issue was the assistance from the jurisdiction. Quinn (1992) says that â€Å"harmonisation of banking rules in the EU, the co-ordination of countries own regulatory standards and centralisation of an EU integrated financial market are needed to enable swift reaction to any future market failure†. (Web 1) 2.2.2 Financial Institution Regulations in India Financial system in India consists of specialized and non specialized financial institutions which further involves organized and unorganized financial market and deals in financial instruments services and it helps in transferring funds. In finance money is exchanged with a promise to pay back in future. Narayanan (2005) says that in product market a buyer can easily find if a product purchased by him is defective but it is difficult to find the defects when a loan is taken. (Narayanan, 2005, pp. 1-2) If we compare Banks and Non-banking Financial Institutions (NBFI) with non financial industries, both banks and NBFI can change or remove the risk factor of their assets more quickly than non financial industries and also banks can easily give loans to clients without taking into consideration the previous debt problems. Financial market easily allocates the resources efficiently and effectively. The financial market face the problem that it is controlled by others because some persons have some information that other does not have. In order to solve this problem there is requirement of corporate governance so that it can be assured that supplier of finance get their return on investment. (Narayanan, 2005, pp. 1-2) India has a strong financial system. After India got freedom it inherited a diverse setup in regards to institution and market. The purpose was to mobilize savings and to increase investment rate. (RBI, 2003, pp. 3) Financial reforms were introduced in 1991 because India faced the crisis of balance of payment in 1991 so several reforms were introduced to come out of the crisis. India faced this problem because it was heavily dependent on the public sector and industrialization strategy and both of them were not able to deliver the growth in competitive environment. Later in 1980’s India tried to expand the role of privatization and reduced the direct tax but it didn’t helped. Later the reforms were introduced in June 1991 to recover from the crisis of balance of payment. (RBI, 2003, pp. 9) After the end of crisis Indian banking system made a considerable progress functionally and geographically. New bank facilities were introduced and the pattern of lending was changed. The feature of reform was ‘gradualism’ because it enhanced micro stability and the same time encouraged micro economic linkages. (RBI, 2003, pp. 5-8) Currently the institutional composition of financial system in India is illustrated as three constituents: banks either domestic or foreign, owned by RBI, government or private and regulated by RBI; Financial refinancing institutions set up under a separate law or under companies act and owned by RBI; Non-banking financial companies/institutions owned privately and regulated by RBI. (Reddy, 2002, pp. 4) On the development of banking and financial sector reforms in India Reddy (2002) comments that reforms have changed the form of organization’s, ownership model, domain of financial institution operations in terms of assets and liabilities. Less availability of low cost fund has resulted in increasing competition for resources for both banks and financial institutions and further with the entry of banks in field of lending and financial institutions are making an attempt to pay out the short term funds has resulted in increased competition. (Reddy, 2002, pp. 4-5) Finally Reddy (2002) says that the aim of financial sector reforms in India to set formal semi formal measures which aim to strength the banking system as well as providing safety and reliability with the means of superior transparency, responsibility, answerability and public trustworthiness. (Reddy, 2002, pp. 6-7) However on the other end Patel (2004) argues that in spite of the establishment of market reforms in India since early nineties the government concerns in the financial sector is not lessened in correspondence to its exit from other feature of economic activity and therefore it is too large to justify the presence on the basis of involving systematic risk. Patel (2004) further puts that during early years of India’s development there might have been some good reasons for ownership of government in intermediaries but now it is causing some damages. (Patel, 2004, pp. 5-6, 28-29) Now India has proper intermediaries and very well commercially oriented. According to Patel (2004) â€Å"A combination of directing resources of intermediaries in fulfilling a quasi-fiscal role for government, extra-commercial accountability structures and regulatory forbearance (arising out of an implicit overarching guarantee umbrella) has mitigated the essential corrective effect of market discipline in both lending and deposit decisions. Coupled with persisting government involvement in intermediation and an implicit support scaffold, this has resulted in an aggravation of the problems of moral hazard that is a normal feature of financial systems.† (Patel, 2004, pp. 29) Commenting on the government role in liberalized economy Echeverri-Gent (2001) says that reducing state economic interference does not lessen the importance of state in economic development. And in addition to its role of maintaining stability in economy the state continue to play small but more important role to design and modify the activities of economy by creating incentives. There are different ways that are used by state in order to create the incentives; it involves authorization of property right, market microstructure which involves matching the investors demand with the price and volume in effective and efficient manner. (Echeverri-Gent, 2001, pp.1) (Giridhar, n.d., pp. 1-3) Echeverri-Gent (2001) also states that incentives created and recreated by state using political process are present in part of economic result. And politics explain efficiency and fair behavior in market are promoted by which state institution. (Echeverri-Gent, 2001, pp. 1) In relation to the above fact Ramesha (2003) finds that currently in India there is a dual control for credit cooperative and banks. The state government looks after and regulated all the issue related to administration where as Central Bank of India (CBI) supervises and regulates the banking operations. As a result there is some conflict in taking legal decisions between state government and central banks of India. Ramesha (2003) argues that it is not possible to separate the financial administrative areas for regulations and even if it is possible it acts as an obstacle in the effective supervision and control. (Ramesha, 2003, pp. 10-11) Further according to Ramesha (2003) central bank has power under Banking Regulation Act to keep money for specific purpose and to handle vital aspects related to the performance of commercial banks. There is need of Registrar of Cooperative Societies to get involved in the function and difficulties of cooperative banks. The central bank is not in a position to supervise credit cooperatives and banks. Therefore dual control affects the function of urban cooperative banking sector, supervision regulation quality. Therefore Ramesha (2003) finds that beneath this rule of duality of control the urban cooperative banks might result in neither cooperative nor commercial bank. (Ramesha, 2003, pp. 10-11) According to Chakrabarti (2006) the fundamental role of legal reforms in maintaining the growth of economy and financial progress is strongly voted and accepted in India. Where as it is difficult to find what basics of legal system have an effect on financial system and how. Reviewing the literature on law finance and evaluating the India’s legal judicial system it seems that excellent protection is provided to the investor’s right. (Chakrabarti, 2006, pp. 12, 15-20) According to Porta et al there is best protection provided to the creditor in India by Indian legal system in contrast to creditor rights. (1998 in Chakrabarti, 2006, pp. 13) But execution of these laws is below to the satisfactory level. Further it is found that law which deals with public enforcement of securities is weak and courts in India are very slow and has loads of ongoing cases. India is still fighting with the problem of red-tapism and bureaucracy which are obstacles for business and foreign investment in India. Chakrabarti (2006) says that Indian small medium sector rely on informal network and institution on the basis of trust and reputation for financing rather than counting on legal system to issue contracts and settle disputes. (Chakrabarti, 2006, pp. 23) Finally, Rajan and Shah (2003) says that there is problem in the regulations of banks, insurance companies and non financial institutions. There are a lot of problems related to the government guarantees, public sector ownership, processing of information risk taking. Therefore according to Rajan and Shah (2003) there is requirement to solve all these problems by obtaining good regulatory system, and obtaining world class regulations. Thus Rajan and Shah (2003) suggests that dealing with these problems will provide information processing system, reducing the fiscal problem, increasing the flow of risk capital in the system. (Rajan and Shah, 2005, pp. 46) 2.3 CULTURE OF UPPER AND MIDDLE CLASS CONSUMERS The word culture has several meanings, in Latin it means â€Å"tilling of the soil† whereas in most western language culture means â€Å"civilization† or â€Å"refinement of mind†. In simple words culture means way of life, art, behavior and beliefs. (Hofstede and Hofstede, 2005, pp. 2-4). According to Mooij (2004) culture is glue which joins groups together, without culture design it will be difficult for people to live together. It’s only the culture which defines a human community, its individuals and social organizations. (Mooij, 2004, pp. 26) Where as according to Kluckhhohn â€Å"Culture consist in patterned way of thinking, feeling and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievement of human groups, including their embodiments in artifacts; the essential core of culture consists of traditional ideas and especially their attached values† (1951, pg 86 in Hofstede, 2001, pp. 9) Each and every individual is a product of its culture and its social group therefore they have to act in certain manner to live in their social cultural environment. Culture cannot be separated from an individual neither culture can be separated from historical events/situations. (Mooij, 2004, pp. 26) Culture is found in local street, in your city, state, and country. Small children, youngsters, adults, older people have their own culture and most of the times share the culture as well. According to Williams culture is a way of life, people, group or humanity. Culture is not something we absorb- it is something that is learned. (1983b:90 in Baldwin et al, 1999, pp. 4-7) Culture includes shared beliefs, attitudes, norms, roles and values. These elements are basically transferred from generation to generation. Culture includes values, rituals, heroes, symbols. Values are basically feeling of a person having plus and minus side. It deals with evil v/s good, dirty v/s clean, ugly v/s beautiful .etc. values are acquired by a person at very early age in their lives. Values are visible until they become evident in behavior. In contrast to values, rituals are related to social acts, ceremony or something related to religion. Rituals are carried out by an individual for their own sake and usually involve paying respect to other ways of greetings. Heroes are persons alive or dead, real or imaginary whose characteristics are highly appreciated in culture and most of the times serves as a model for behaviors. For eg. Mahatma Gandhi in India or Bill Gates in USA. Symbols are words, gestures, pictures or objects that carry a particular meaning and are recognized by only those people who share a particular culture. It involves national flag or any particular dress or hair style .etc. (Hofstede and Hofstede, 2005, pp. 6-8) (Hofstede, 2001, pp. 9-11) The culture of people around the world is demonstrated in wealth celebrity and this is particularly true about people in western countries. According to Schor (1998) â€Å"Instead of emulating folks with a similar income, people are taking their consumption cues from television characters, relatives, friends and co-workers whose income often far exceeds their own†. Commenting on this trend Schor (1998) states that this can get expensive because it seems that their culture worship wealth and celebrity. (Web 14) There are 3 layers of culture. The outer layer consists of explicit culture and it involves language, food, houses, monuments, market, fashion and art. These are the symbol of deeper level of culture. Middle layer consists of norms and values. Norms is basically sense of what is right and what is wrong. Norms can be written laws or social control where as values determine what is good and what is bad. Values help in making choice from existing alternatives. And the third core layer is assumptions about existence which is related to the ways that deal with the environment with the available resources. (Trompenaars and Hampden-Turner, 2005, pp. 20-24) Hofstede and Hofstede (2005) has divided cultural layer as national level, gender level, generation level, social class level and regional/ethical level. National level is related to ones country or the country where a person belongs and with nation they have their culture, community. Gender difference is basically based on gender .ie. male or female. In some societies the culture of male is different from female. For eg. Women are not suitable for some particular jobs which are meant for men only. Generation level is separating grandparents, parents and children. For eg. Younger generation has no respect for the values of elders. Social class level is associated with individual’s profession and education because education and profession are the powerful sources of cultural learning. Regional level is based on person’s region and religion. (Hofstede and Hofstede, 2005, pp. 11-12) Today consumers are very much concerned with their identity, ego or superego which totally depends on their culture and most of the times related to the luxuries of life. Human needs are totally related to the culture. Needs like Psychological, safety, self actualization and esteem needs are very much important for consumers of each class. Consumers feel more powerful if they have symbols of power or prestige possessions. For e.g. Prestige possession for consumer is luxury car, big house, frequent travel abroad/holidays abroad. Clothes satisfy functional need but fashion satisfies social need. The behavior of consumer is not only determined by their needs but also by their surroundings. Consumers in same culture can do different things for different reasons. Ownership of luxury items shows the status symbol where ownership of cheap watches show low income of person. (Mooij, 2004, pp. 136-140) 2.3.1 Culture of Consumers Globally Schor (1998) also comments that how you save and spend totally depends on the reference that you choose and it rules the culture of upper and middle class, particularly in western culture of world. In order to make his observation solid Schor (1998) presents example of Americans, where he shows his concerns regarding consumerism. Schor (1998) states that Americans are spending and consuming as if there is no tomorrow, and the worst part is that they are not paying cash for it. Consequently, Schor (1998) cites that debt of personal credit card has doubled in last four years. The bankruptcy has reached on to the highest point and people are trading financial security for short term satisfaction. (Web 14) Schor (1998) also points out that the assets of an American family is $10000 and savings have fall down very quickly in last 10 years. In other words the western culture today commanded by influencing consumers, which forces the people to believe in wealth creation celebration and in result it leads to the tendency of high borrowing. (Web 14) Consumer research has given some evidence that within each social class, there are some specific lifestyle factors which involves beliefs, attitudes, activities and behavior. And all these factors help in distinguishing between the members of one class from other class. There are usually three main classes upper class, middle class and lower class. (Schiffman and Kanuk, 2000, pp. 307) A product can also express the value of consumer. For e.g. A house is not only to live but it tells something about the owner as well. Different towards food is also a part of the culture. Some people buy food from small shops where as some buys from expensive supermarket. Product usage and ownership also determines cultural values. (Mooij, 2004, pp. 233-236) In India the position of consumer in society is defined by the clothes they wear, the shoes, the accessories .etc. and all these things determines the class and power of a particular person. People do not wear in public what they wear in private, but in USA even Pr

Media Stereotyping of Men and Women Essays -- Media Stereotyping of Ge

Throughout society, men and women have been expected to live by guidelines consisting of media generated ideas and ways of living out life. Both men and women’s thinking process are being altered the negative effects of society’s mass media. For both sexes, this repeating negative exposure causes a constant downfall in self-image and creates media influenced decisions that lead to unhealthy lifestyles. The media effects the thinking process of both men and women in negative ways therefore media needs to be heavily regulated.  Ã‚     Ã‚  Ã‚   Today’s young men are increasingly being influenced by the harming mass media. Starting at a young age, these young boys are big active users of many types of media such as watching countless number of hours of television, movies, and sports programs, listening to radio programs and CDs, and playing violent video games. These boys are increasingly surfing the Internet at record numbers unsupervised. All of these forms of media are making huge influential decisions in their lives. Young males are least likely to read beneficial sources of media such as newspapers and magazines. We live in a society that often sends many confusing and contradicting messages to males. These young people that are taking in large amounts of media experience a contradiction between their own reality and media’s messages. These young men are bombarded with advertisements and media based ideas that can harm and alter the way young men operate. Our young men of o...

Internet in India Essay

We live in an age of information. Today information is power. Those who have it are powerful and those who don’t have it are powerless. The rise of internet as a tool for information and information, in the last decades of the twentieth century has changed the power balances on this globe. The twenty first century has begun with the most populous countries on this world, India and China adopting the internet technology very fast. These two countries share almost 40% of the population on this globe, and the pattern in which they have adopted internet is surely leading them to become super powers in future. This essay discusses how internet has developed in India, what are the reasons behind this development and what could be the future implications of the current status of internet in India. The Beginning In the middle of 1980s, India had a young Prime Minister Rajiv Gandhi, who understood the importance of government policies favoring information technology. He managed to hire services of USA based Indian technocrat, Sam Pitroda, for improvement of the communication scene in India. The foundation stone for a revolution was laid then. While working on the telecommunication aspects, the government realized the fact that internet can be powerful democratizing force, offering greater economic, political, and social participation to communities that have traditionally been underserved- and helping developing nations meet their pressing needs. ( internet growth ). Subsequently, Videsh Sanchar Nigam Limited (VSNL), the government agency responsible for telecommunications in India, launched the internet in the year 1995. It was perceived by the government of India that internet would be helpful in the following ways : 1. Open dialogue – The low cost networking would facilitate knowledge sharing, awareness of alternate perspectives and allow more open exchanges. 2. Improve governance – To raise the efficiency of the government by making it more transparent and enabling more public participation. 3. Improve social and human rights condition – Expand access to better quality education, health car, disaster relief capacity and other services. 4. Reduce poverty : Open new avenues and opportunities for income generation for the bypassed groups like women, rural people etc. 5. Introduce more economic opportunities – Through Ecommerce, and other applications of the internet, many new earning opportunities can be created. 6. Improve environmental management – through GIS, early warning systems and various other applications, the environment can be better managed. ( Internet growth) The government also rightfully perceived the emerging globalization phenomenon since 1980s. It was right in believing that if the nation had to survive in this scenario, giving information access to the public is a must, and behind internet, the facilities attached with it, like E-governance, E-Commerce and E-learning are also bound to come. For the first four years, VSNL had the monopoly to provide internet services and was the sole service provider. This monopoly was withdrawn in November 1998, and the field opened up for the private service providers. The terms were very liberal. There was no license fee and unlimited players were allowed to take part. Private ISPs were allowed to fix their own tariffs and set their own gateways also. The department of Telecom (DOT) has issued licenses to almost 100 ISPs in category ‘A’, which is for All India operations, and 220 each for category ‘B’ and ‘C’, which is for metros and state level circles, and medium and small cities, respectively. Out of these, about 184 ISPs have started their operations. ( Internet growth ). Government Initiatives The government of India has laid primary focus on development of internet in India. Some of the measures taken by it, to freely promote the use of internet are ; 1. Formulation of National telecom policy in 1999. Its target is to provide internet services to all district headquarters by 2002. 2. Provide license to private ISPs without any license fee up to October 2002. A token fee of Re. 1 ( 2 cents) per annum, to be levied from November 2003. 3. There is no restriction on the number of ISPs in all categories. 4. ISPs are given permission to set up international gateways by having business arrangement with Foreign Satellites Providers, and collaborators. 5. ISPs permitted to provide last mile access using radio and fiber optics. 6. ISPs also permitted to provide service through cable TV infrastructure /operators 7. Initiated an ambitious plan to develop National Internet Backbone (NIB). 8. Adopted the Information Technology act, a law recognizing electronic transactions and thus providing legal frame work for E-commerce in India 9. Internet telephony services opened up to private service providers from 1 April 2002 ( Internet growth ) Fats and figures The internet industry in India, can be described in the following table in a nut-shell: ISP licences issued Appx. 540 ISPs operational Appx. 185 Cities/towns covered Appx. 340 Internet subscribers Appx. 3. 3 million Cyber cafes/ public access kiosks Appx. 12000 In principle approval for setting up international gateways Appx. 45 ISPs Operational gateways by 8-9 ISPs 40 + Total estimated investment by ISPs Rs, 6000 crores Estimated investment in equipments By ISPs Rs. 2500 crores Estimated employment provided ( direct/ indirect ) 1. 1 lac ( Internet growth ) primary source : Internet services providers association of India. The Internet Growth in India During the initial years, when VSNL had a monopoly on this business, the growth rate was very slow, but no sooner private players were allowed, the growth in internet subscribers was substantial, as proved from the following table : Month/year subscriber base ( million ) August 1995 0. 01 March 1996 0. 05 March 1997 0.09 March 1998 0. 14 March 1999 0. 28 March 2000 0. 90 March 2001 3. 00 March 2002 3. 30 ( Internet Growth ) primary source : Internet services providers association of India Research results Some interesting results are also available from a research study conducted by Larry. Press, William Foster, Peter Wolcott and William McHenry, on the subject of comparison between the internet status in China and India. This paper was published in ‘ First Monday ‘, a Peer reviewed journal on the internet. The authors used a six dimensional framework which characterizes the state of internet in a nation. These are : 1. Pervasiveness : This parameter indicates the number of internet users per capita. 2. Geographic dispersion : This measure the concentration of internet within a nation from none or a single city to nationwide availability. 3. Organizational structure : This is a measure based on the state of the ISP industry and market conditions 4. Connectivity Infrastructure : This is based on domestic and international backbone bandwidth, exchange points and last mile access methods 5. Sectoral absorption – This is a measure of degree of internet utilization in education, business, health care and public sectors. These sectors are seen as key to development and were suggested by the United Nations Development Program. ( UNDP) Human development Index. 6. Sophistication of use – This measure ranks the usage from conventional to highly sophisticated and driving innovation. A conventional nation would be using Internet as substitute for other media like telephone and fax. Pervasiveness India needs to improve upon the following aspects to score more on the Interrnet pervasiveness factor. – With GDP per capita of $ 2358 and a dial-up tariff of $15. 75 per month for 30 hours usage, internet is still unaffordable to most of the Indian population. – With a tele density of 3. 6 in the year 2000, India ranks 145th on a global scale. This has to go up. – Electricity, personal computers and networking equipments are also expensive in India. There are estimated 6 million PCs in India. The equipment cost needs to come down. – Literary rate of India is rather poor at 52%. The secondary school enrollment rate is 39% and mean years of schooling for those who are 15 years and above is only 5. 1 % . Internet cannot spread unless the user is literate. – India has a large population which is very well conversed with English, which is the language mostly used in internet also. This works to India’s advantage. Geographic dispersion Reaching remote villages in the countryside is one of the major hindrance. Most of India’s population lives in villages. The huge investment required for Internet to become accessible from remote villages, is not justified. Low earth orbiting IP satellite technology may solve this problem in future, not only for India but many other developing nations also. Here Indian efforts are commendable. The ministry for Information technology has a working group on Information Technology for Masses that issued a report recommending about 56 actions in infrastructure and service, electronic governance, education and raising mass IT awareness in October 2000. Organizational infrastructure Largely due to a very complex political structure it is difficult to formulate and implement policies in India. The complexities are further enhanced by the law and judiciary system, government inefficiencies, and corruption. The organizational infra structure can be further improved upon, if these bottlenecks are removed. Connectivity infrastructure The key determinants to connectivity infrastructure are trade policy and other factors which encourage investment and the availability of skilled work force. India will see increase in trade as it implements its IT plans. India is also an early mover in software exports, which totaled to 8. 26 billion in 2001. The expatriate trained work force in Europe and United States is also playing a role in growth of internet in India. Most of them have formed joint ventures or set up subsidiaries, back home. This surely enhances the use of internet. Sectoral Absorption The schools and colleges of India have started using the internet on a wide scale, but there is considerable scope for improvement. E-governance and increase in trade will see increased use of internet in future, in India. The relative freedom of states in India is the determining factor here. In the health sector internet is hardly used. Sophistication of use Almost 70% of Indian population lives in villages. If Internet can improve rural education, health care, entertainment, news, economy etc. , the flow of people to the crowded cities can be diminished. India has several projects pursuing village connectivity, but there has not been widespread deployment. ( Press Larry, Foster William, Wolcott Peter & McHenry William ) The ISPs in India There are 183 ISPs in India in total. Out of these, those who have the All India license are as follows : ISPs having all-India licence include: BSNL CMC RPG Infotech Essel Shyam Communications Sify Siti Cable Network Gateway Systems (India) World Phone Internet Services VSNL Guj Info Petro Hughes Escorts Communications Astro India Networks Reliance Primus Telecommunications India ERNET India RailTel Corporation Data Infosys GTL Jumpp India L&T Finance HCL Infinet Primenet Global Tata Internet Services Tata Power Broadband Bharti Infotel Pacific Internet India In2Cable (India) Reliance Engineering Associates BG Broad India Swiftmail Communications Estel Communication Bharti Aquanet Trak Online Net India Spectra Net Reach Network India i2i Enterprise. Tata Teleservices (Maharashtra) Comsat Max Gujarat Narmada Valley Fertilizers Corporation HCL Comnet Systems and Services Harthway Cable ( Indiaonestop ) The role of BSNL in development of Internet in India Bharat Sanchar Nigam Limited, ( BSNL) the apex body which looks after the telecomm sector in India, was formed in 2000 as a public enterprise. It is India’s largest communication service provider and offers services throughout India, except New Delhi and Bombay. On March 31 2007, it had a customer base of 33. 7 million wirelines, 3. 6 million CDMA-WLL and 27. 5 GSM mobile subscribers. The credit of making Internet popular and affordable to the people of India goes to BSNL. It pioneered in offering the broadband services to its customers, at a unbelievably low rates, under its ‘home’ and ‘business plans’. The cheapest home plan is slated at Rs. 250/- for a usage of 1 GB. This is in sharp contrast to the expensive dial-up networking where the charge was time based, and used to be very high. These plans have become so popular in a short span of 2 years or so, that today, BSNL is the biggest ISP with a market share of about 50%. The Indian communications minister, Dayanidhi Maran, has declared the year 2007 as a ‘ year of broadband ’, and BSNL is targeting 5 million broadband connections by the end of the year 2007. BSNL has two major plans to be executed in the near future. One, to provide a speed of 2 Mb/sec on to all its broadband customers without any extra cost, and two, it is planning to upgrade its broadband services to triple play in 2007. Today, BSNL is India’s one of the largest PSU with a share capital of $ 3. 95 billion, and net worth of US $ 14. 32 billion. ( BSNL ) Most favored outsourcing hub – India The development of internet in India, has opened up many new venues. One of them is outsourcing of work to India. This trend started with outsourcing of medical transcription jobs, which later spread to database management, insurance and the financial sector. Today it has become an authentic hub which is most favored by all. India has got a new identity as a most favored nation for outsourcing. This would have never been possible, without the fast, affordable spread of the internet in India. Of course, India also benefits from its proficiency in English and the perfect time synchronization with the USA and UK. The work hours of USA are night hours in India and vice-versa. The work hours of UK synchronizes with 3 p. m. to 11 p. m. in India. Hence, a file can be sent at the end of the day from UK or USA, work on it is carried out when UK and USA sleep, and the processed file is back to them , when they start their work on the next day. Conclusion Internet is a modern day technological tool, which has considerable advantages. Development of Internet is related to increasing the number of people who can gain an access to it. It is a general assumption made by all, that if more and more people get an access to the Internet, the nation will automatically develop. All debates and research on this subject, is based on the number game. The basic question is : even if Internet is available to every one, will the development be automatic? It has to be borne in mind that Internet is a potentially dangerous tool also, capable of ruining lives, especially of youngsters, if not handled judiciously. Exactly this is happening in India. The government has only concentrated on the number game, taking it for granted that it will be used judiciously for betterment. So far, the only good internet has done is to fill the pockets of the players in this game and provide earning opportunities to a negligible percentage of the population. Any visible advantage to the nation, to the society or to the Indian culture is not witnessed at all. Another colossal mistake the government of India has made is, it has given importance to the IT sector, by bye passing other crucial areas like electric power, education, and health services. Including New Delhi, the capital India, compulsory daily power cuts are very regular !!! What to talk of other cities and the interiors? Hardly anything could be achieved, only by increasing the number of Internet users ! References 1. Internet growth, key learnings from India, Retrieved on 12 May 07 from: < http://www. internetpolicy. net/principles/021122india-lessons. pdf > 2. Press Larry, Foster William, Wolcott Peter & McHenry William, The Internet in India and China, First Monday, a Peer -reviewed journal on the internet, retrieved on 12 May 07 from : < http://www. firstmonday. org/issues/issue7_10/press/ > 3. Indiaonestop, retrieved on 12 May 07 from : < http://indiaonestop. com/ISPS. htm> 4. BSNL, wikipedia the free encyclopedia, 8 May 2007, retrieved on 12 May 07 from: < http://en. wikipedia. org/wiki/BSNL>.

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