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S. Suman BabuA.R.Aryasri K.V.S.Raju K.Bhavana Raj

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Abstract

In the pursuit of reducing stress, improving performance, increasing productivity, reducing costs and enhancing profitability in the workplace, organizations have been evolving new ways and means to build psychological relationships with employees. Work-life balance (WLB) is a common challenge throughout the industrialized world. Employees all over the world are facing challenges how to balance work and personal life (Ramachandra Aryasri A & Suman Babu S., 2007). In the era of globalization, the boundaries of world are disappearing especially with respect to work. The present global organization is working 24*7, 365 days a year and the growth of the economy is the present priority amidst global recession, which the world over is facing today. Everyone s focus is more on the work than the personal life which is creating an imbalance in the professional work and personal life. (Sindhu & S.Suman Babu, 2008). Most cited workfamily policies in work-family literature are on-site day care; help with day care costs, elder care assistance, information on community day care, paid parental leave, unpaid parental leave, maternity or paternity leave with reemployment, and flexible scheduling (Perry-Smith et al., 2000). Workplace flexibility is the ability of workers to make choices influencing when, where, and for how long they engage in work-related tasks" (Hill, et al., 2008).

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Introduction

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Keywords: Work-life balance, Stress reducer.

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This paper examines the relationship between flexi-time on employee stress reduction as part of a worklife balance practice based on empirical evidence drawn from IT Sector in Hyderabad, India. A total of 300 samples with 30 samples (Asst.Managers, Managers, and Sr. Managers) from each company had been included from the Ten IT companies based on simple random sampling. Managerial personnel from HR, Marketing, Finance, Operations and Technical functions are included in the study. The study shows that when the average flexi-time score increases, the average stress reduction score also increases proportionately. The study reveals positive correlation and significant association between employee stress reduction and flexi-time. The findings of the study shows that majority of the managerial personnel are able to reduce their stress levels with the help of flexi-time as one the important work-life balance practice.

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IMPACT OF FLEXI-TIME (AWORK-LIFE BALANCE PRACTICE) ON EMPLOYEE STRESS REDUCTION IN IT SECTOR INDIAN PERSPECTIVE

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Work-Life research in IT Sector in India

There is more innovation conceiving work-life balance policies and practices in IT and IT enabled services-be they multinational or Indian companies-because of the preponderance of gender balance and resultant increased awareness and concern about family responsibilities. Interestingly, as Wipro s website puts it, the emphasis is on Work balance towards life rather than life balance towards work . (V.Chandra and C.S.Venkata Ratnam, 2009). In view of longer working hours and around the clock support, IT workers suffer more from work-life conflict than in most other cases. (C.S.Venkata Ratnam and V.Chandra, 2009) Stress levels among IT employees in IT Sector in India Information Technology (IT) sector in India is doing very good. There are more job opportunities due to the IT boom. Just after the completion of professional qualifications like B.Tech and MCA (engineering graduates and computer post graduates), the applicants are getting jobs. The pay and perks are encouraging. But the work life is highly complicated and highly demanding. There are many pulls and pressures during the work life. There are too many commitments and deadlines and there are too much of unpredictable peaks and troughs during the course of the working time. Managerial personnel have to work for long hours and in different shifts to meet those deadlines. All these things make the work as a hectic activity and a strenuous one and creating enormous stress due to work-life conflict there by

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The need to avoid stress and absenteeism associated with work and family demands among a newly downsized, highly pressurized core workforce as a result of massive downsizing and restructuring of organizations during 1990s has been recognized by some organizations as a compelling argument for continuing or developing family-oriented policies for this group particularly public sector(Lewis et al., 1996).

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During the period 1995-2000 India saw the information technology enables services (ITES) e g, call centre and software sector boom. Many organizations in this sector adopted work styles and organizational practices from developed countries in the west. Workers were expected to work 24/7 365 days of the year. To prevent such a work style from affecting worker health and productivity, workplaces offered services traditionally associated with the family and nonwork domain within their premises such as gymnasiums, day-care facilities, laundry facilities, canteen facilities, even futons to sleep on if you felt like a nap (Uma Devi, 2002). The IT sector was meant to have emancipatory potential for workingwomen on account of the possibility of telecommuting and working flexible hours. However in reality IT workplaces turned out to give very little room for family time and therefore did not live up to this promise. Also, since family friendly measures were offered more as an imitation of western organizational practices rather than from a genuine concern to enable (women) workers handle work and family responsibilities, they have suffered casualties during the recent recession in the IT sector (Winifred 2003).

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hampering performance, which is causing decline in productivity levels and also forcing them to leave organizations due to work-life problems.

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The different responsibilities, expectations, duties, and commitments required by the multiple roles (work and family) can become difficult to balance, creating pressure and thus resulting in personal stress (Netemeyer, Boles, & McMurrian, 1996). The difficulty or inability to cope with the competing demands of each role is commonly referred to as work-family conflict while the ability to manage both roles simultaneously is referred to as work-family balance. Stress literature indicates that inter role conflict rises from tension in one role that leads to stress in another role (Wiley, 1999); for example, work pressure that interferes with family/marital functioning (indicated as W -F) and family tensions that interfere with work functioning (indicated as F-W)

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Flexi time, a stress reducer and it is importance Nowadays employers are in the habit of cutting costs. Flexi time is one such work-life balance practice that does not add any cost to the employers but moreover it adds many benefits to the bottom line like improved retention, increased performance apart from reduction of employee stress.

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Objectives of the study -

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To asses existing work-life balance practices in select IT organizations in Hyderabad. To examine into and analyze the influence of flexi time on employee stress reduction. To examine how management and co-worker support helps in smooth implementation of flexi-time to reduce employee stress.

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Whether flexi-time as a work-life balance practice is being adopted by IT organizations in India and what are its possible outcomes? How Flexi-time help organizations in reducing employee stress? How Management and Coworker Support helps in smooth implementation of Flexitime in IT companies.

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Research Questions

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The literature review reveals that there are very few studies in India which explore the impact of flexi-time on employee stress reduction. After having extensive discussions with the research guide, academicians, key HRD people in IT industry, and colleagues, the research problem has been formulated keeping following questions in perspective:

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Research Problem

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Literature Review

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When balance is not achieved, the potential for stress in terms of work-family conflict exists. A number of studies will be reviewed to understand the work-family conflict construct. As organization leaders begin to see that work-family conflict affects work-related outcomes, interventions are created in the form of employee benefits as a means to ameliorate the stress. Stress at work is a well known factor for low motivation and morale, decrease in performance, high turnover and sick-leave, accidents, low job satisfaction, low quality products and services, poor internal communication and conflicts etc. (Murphy, 1995). Reduced related stress outcomes due to work-life balance practices have been observed in many research studies (Johnson, 1995). Reduction in worker stress from conflicts between work and family roles (White, et al. 2003).

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Research studies on Management & Co-worker Support The literature has suggested that the adoption of formal family-responsive policies may not have the desired effects if there is no supportive organizational culture (Kossek & Nichol, 1992). Therefore, if lack of supervisor and organizational support is shown from the research findings, then companies considering family-responsive policies should take steps to promote a corporate culture that values or at least accepts the necessity and potential long-tern benefits of the policies. Organizational culture is often cited as the key facilitator or barrier to work-life policies (Thompson et al., 1999) with cultural norms often over-riding formal policy intentions. According to the business case, a supportive culture (management and coworker support) can improve morale and motivation and reduce stress and absences. Based on a study of managers' and professionals' use of work-family policies specifically, BlairLoy and Wharton (2002) also argue that employees were more likely to use these policies if they worked with powerful supervisors and colleagues who could buffer them from perceived negative effects on their careers.

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Relationship between work-life balance practices and employee stress reduction.

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Another factor which may contribute to an understanding of why many employees are reluctant to take up work-family provisions is lack of co-worker support. Also referred to as the backlash movement (Haar and Spell, 2003), there is some evidence, based on theories of organizational justice (Hegtvedt et al., 2002) that resentment by some employees may contribute to a work environment where the utilization of work-life policies is not encouraged.

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Firm size affects the type and extent of work-life balance policies that are offered. In their study of US firms, Galinsky and Bond (1998) found that company size was the next best predictor of the presence of work-life balance policies, after industry type. Larger companies (more than 1,000 employees) were more likely to provide flexible work options and longer and paid parental leave.

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Sampling Techniques and sample size description.

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The primary data was collected from May 2008 to Oct 2008.The study is based on both the primary data and secondary data. Secondary data was collected from various research journals, books, magazines, websites related to the field of the study. Primary data was collected by administering a structured questionnaire to the junior level & middle level managers of the sample companies. A 1-5 point Likert Scale from strongly disagree to strongly agree has been used to measure the statements in the questionnaire. The measures were adapted and Cronbach s coefficient of reliability was computed for all dimensions to verify the internal consistency of the items (Flexitime and employee stress reduction) that constitute the dimensions. For flexi time and employee reduction scale , the number of items are 8 and the Cronbach alpha value is 0.947

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Methodology and Sampling Design

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Ha: There is significant impact of flexi-time in reducing employee- stress.

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After conducting an extensive review of literature, the following hypothesis predominantly in the alternate form is developed in line with the research problem and objectives.

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Hypothesis

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The theoretical underpinning for this present research study was also built on the concept of spillover theory (FIGURE A--Conceptual Model on Flexitime as a WLB practice and employee stress reduction outcome); Spillover theory can help explain the reciprocal relationship between work and family by accounting for both the positive and negative influence of multiple roles (Leiter & Durup, 1996). Spillover refers to the experiences (attitude, behavior, environment, demands, emotions, responsibilities, resources) of one role "spilling over" or affecting the other role. Spillover can simultaneously involve the experience of both stress and support. When an individual's experienced stress accumulates in one domain and cannot be contained within that domain due to lack of resources, the stress spills over into the other domain and is expressed there as well. For example, spillover from work to family occurs when an employee experiences a difficult, stressful day at the office and comes home to the family, yelling at one's spouse and children. Stress experienced at the office is then experienced at the home.

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Theoretical Perspective/Conceptual Framework for the Present study

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When asked I would feel less stressful if flexi-time were offered . 24.2% -25.7% respondents felt agree to strongly agree.15.3% respondents felt neutral and 17.3% -17.3% respondents felt disagree to strongly disagree.

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Descriptive Statistics Mean 3.24 3.47 Std. Deviation N

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Flexitime

1.357 300

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Table 1.1 gives the mean and standard deviation scores for the overall sample of 300 managerial personnel (which includes Assistant Managers, Managers and Senior Managers). It

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Employee Stress Reduction

1.445 300

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Table 1.1: Mean and Standard Deviation Scores of Overall Sample

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For flexi time :The data collected out of 300 Managerial personnel 25.3% -34.7% felt extremely important to important.11.7% respondents felt neutral and 14.3% -14.0% felt somewhat important to not at all important.

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When asked how important you think the following work-life balance practices?

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Statistical Analysis and Results

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Males respondents constitute 218 (72.7%) and Females respondents constitute 82 (27.3%). They belong to age group between 25 yrs to above 45 yrs. The highest percentage of participants is between 35yrs-45yrs (45.7%). 280 participants i.e., (93.3%) are married and 20 participants (6.7%) are unmarried. Truly this is a representative of the work-life problems faced by married managerial personnel. 280 participants i.e., (93.3%) said they have children and 290 participants (96.7%) said they have elderly persons in their families whom they need to look after. 210 participants (73.3%) said they work more than 8 hrs and nearly 100 participants (33.3%) said they work night shifts (8pm -4am) and another important observation is that 244 participants (81.3%) said they have working spouses. All these combinations will help to further study and evaluate work-life balance practices on organizational outcomes. The following tables will explain the demographic characteristics of the respondents

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Ten IT companies are selected on the basis of non-probability sampling which is non-random in nature. A total of 300 samples with 30 samples (Asst.Managers, Managers, and Sr. Managers) from each company had been included from the 10 companies based on simple random sampling. The sizes of each of the junior level and middle level management depends on the population of respective cadre of managers. Managerial personnel from HR, Marketing, Finance, Operations and Technical functions are included in the study. All these companies have more than 1000 employees each.

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is interesting to observe that the averages of these domains are almost the same with lesser variation on Employee Stress Reduction. For Flexitime, the corresponding range is 1 to 5.

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Table 1.2: Correlation between Employee Stress Reduction and Flexitime CorrelationsEmployee Stress Reduction Pearson Correlation

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In order to measure the extent of linear relationship between the average Flexitime scores and the average Employee Stress Reduction scores, Karl Pearson coefficient of correlation is computed; and is tested for significance. Table 1.2 reveals that there is a positive correlation between Employee Stress Reduction and Flexitime (r=0.689, p=0.000), and is found to be statistically highly significant. For future research, it may be suggested that Flexitime can be used to estimate Employee Stress Reduction. Since managers from all cadres for the purpose of work-life balance practices study are included, it reflects the importance of Flexitime to measure Employee Stress Reduction.

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Employee Stress Reduction

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Pearson Correlation

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300 .689** .000 300

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Sig. (2-tailed)

The coefficient of determination R2 = 0.475, p=0.000 highlights that Flexitime contributes on Employee Stress Reduction to a large extent (Table 1.3). Thus, Employee Stress Reduction can be estimated from Flexitime scores. Table 1.3: Coefficient of determination between Employee Stress Reduction and Flexitime

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**. Correlation is significant at the 0.01 level (2-tailed).

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Change Statistics R Square Change .475 F Change 269.114 df1 1 df2 298

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a. Predictors: (Constant), Flexi time

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Adjusted R Std. Error of Square the Estimate R Square

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Model Summary

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.689** .000 300 1

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The analysis of variance table (ANOVA) given in Table 1.4 reveals that the regression model fits well for the data (F=269.114, p=0.000).

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Table 1.4: ANOVA results of Employee Stress reduction and Flexitime

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Sum of Squares 296.201 327.995 624.197

df 1 298 299

Mean Square 296.201 1.101

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Total

a. Predictors: (Constant), Flexitime b. Dependent Variable: Employee Stress Reduction

Hence, the study hypothesis There is significant impact of flexi-time in reducing employee stress is accepted

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Table 1.5: Regression Coefficient and its Associated Test of Significance

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From the above regression line, the average score on Employee Stress Reduction can be estimated for a given average score on Flexitime. Further, the population regression coefficient is different from zero as t=16.405, p=0.000. It signifies that when the average Flexitime score increases, the average Employee Stress Reduction score also increases proportionately.

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Employee Stress Reduction = 0.733 Flexitime + 0.694

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fitted regression m odel is as follows:

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The regression coefficient and its associated test of significance are given in Table 1.5. The

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Residual

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a. Dependent Variable: Employee Stress Reduction

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(Constant)

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Unstandardized Coefficients

Standardized Coefficients

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Managerial implications of the study

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This research work was undertaken in Hyderabad region of Andhra Pradesh in India in ten organizations from the IT sector. The future research can be in areas of evaluation of worklife balance practices such as flexi time based on employee stress reduction in other regions of India and in other sectors to compare the results to arrive at more generalized conclusions. Future research can also focus on the impact of other work-life balance practices on organizational outcomes. This research work was carried out by taking managerial personnel as a sample, whereas future research can be focused by taking different samples like employees belonging to different levels and comparing between the levels. Conclusion

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This study has been a modest attempt to evaluate flexi time as a work-life balance practice based on employee stress reduction. The results of this study conclude that there is significant impact of flexi time on employee stress reduction.

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The literature review revealed that there are only few studies in India in evaluating flexi time as a work-life balance practices based on employee stress reduction. Either the study has been conducted by taking one practice or in single country. Hence the researcher found that the existing literature was short of empirical studies in the area of evaluating flexi time as a worklife balance practice based on reduction in employee stress in India, thereby providing the impetus for this study. This research work, which is conceptual and empirical in nature, has taken a step, and a significant one in the Indian context to fill the void.

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The findings of the study reveals that work-life balance is becoming a burning issue in IT sector in India. To facilitate employees, organizations are practicing work-life balance strategies like flexi time to their employees so that they can balance their work and life domains. Most of the western organizations are providing work-life balance practices like flexi time to its employees and are competing with the global organizations. Indian organizations should match with global approach in providing work-life balance practices to its employees.

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To conclude how provision of work-life balance practices like flexi time may benefit organizations by reducing employee stress rate where employees can perform to the best of their potential and also helps policy makers to frame welfare measures to employees. Organizations should integrate flexi time as a work-life balance practice in core business objectives and also should use as a strategic tool for reducing employee stress. For effective implementation of flexi time as a work-life balance practice there should be both management and co-worker support and also organizations should observe the moods, attitudes, behavior and environment of its employees because spillover of these will have both positive and negative outcomes with reference to employee stress reduction. Organizations should also

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Positive Outcome

Reduced stress levels

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The above article can be summed up in Fig. A (Conceptual Framework of Flexi-time as a Work-Life Balance Practice and reduced employee stress outcome).

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Work-Life Balance Practice

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Management/Coworker Support Provides support for implementing work and family practices.

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Fig A Conceptual Model of Work-Life Balance Practices and reduced employee stress outcome

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Note:

Direct Linkages Interactional Impacts

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Work-Life Balance Combining employment with family life, caring responsibilities, and personal life while meeting employer s needs Proper mix of personal and work responsibilities which leads to better work-life balance

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Flexi time

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Negative Outcome Increased Stress levels

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Workplace Attitudes Behaviors Environment

Spillover Theory Similarity between what occurs in the family and at work

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consider other practices which will increase employee stress reduction. During this economic downturn or global recession organizations should adopt flexi time as a employee stress reduction tool because it does not add any cost to the organizations and moreover it adds many organizational benefits to the bottom line like increased satisfaction and productivity, retention of valuable employees ,decreased absenteeism apart from reducing employee stress.

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Attitudes Behaviors Environment

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References

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Blair-Loy, M., & Wharton, A. (2002). Employee s use of work family policies and workplace social context. Social Forces, 80, 813-845. Venkata Ratnam, C.S., & Chandra, V. (2009). Work-Life Balance: Review of Literature. NHRD Network Journal, 2(3), 89-97. Farid A. Muna & Ned Mansour, (2009). Balancing work and personal life: the leader as acrobat. Journal of Management Development, 28(2), 121-133. Haar, J., & Spell, C.S. (2003). Where is the justice? Examining work-family backlash in New Zealand: the potential for employee resentment. New Zealand Journal of Industrial Relations, 28 (1), 59-75. Hegtvedt, K.A., Clay-Warner, J., & Ferrigno, E.D. (2002). Reactions to injustice: factors affecting workers' resentment toward family-friendly policies. Social Psychology Quarterly, 65(4), 386-401. Hill, E.J., Grzywacz, J.G., Allen, S., Blanchard, V.L., Matz-Costa, C., Shulkin, S., & Pitt-Catsouphes, M. (2008). Defining and conceptualizing workplace flexibility. Community, Work, and Family, 11, 149-163. Johnson, A, A. (1995). The business case for work-family programs. Journal of Accountancy, 180, 53-57. Kossek, E. E., & Nichol, V. (1992). The effects of an on-site childcare on employee attitudes and performance. Personnel Psychology, 45, 485-509. Leiter, M.P., & Durup, M.J. (1996). Work, home, and in-between: A longitudinal study of spillover. Journal of Applied Behavioral Science, 32, 29-47. Lewis, S., Watts, A., & Camp, C. (1996). Midland Bank s experience, In S. Lewis and J. Lewis (Eds.) The Work-Family Challenge. Rethinking Employment. London: Sage. Murphy, L.R. (1995). Managing job stress: an employee assistance/human resource management partnership. Personnel Review, 24 (1), 41-50. Perry-Smith, J. E. & Blum, T. C. (2000). RESEARCH NOTES - Work-Family Human Resource Bundles and Perceived Organizational Performance. Academy of Management Journal, 43(6), 11. Ramachandra Aryasri, A., & Suman Babu, S. (2007). Work-Life Balance- A holistic Approach.Siddhant-A Journal of Decision Making, 7 (1), 1-11. Sindhu & Suman Babu, S. (2008). Achieving Work-Life Balance-Women Perspective. Indian Journal of Training and Development, 38(1), 79-86. Uma Devi, S. (2002). Globalization, Information Technology and Asian Indian Women in US , Economic and Political Weekly, available on line at http://www.epw.org.in. Chandra, V., & Venkata Ratnam C.S. (2009). Model guidelines and best practices for family friendly workplaces and workforce. NHRD Network Journal, 2(3), 79-88. White, L., Rogers, S.J., "Economic circumstances and family outcomes: a review of the 1990s", Journal of Marriage and the Family, Vol. 62, 2000, pp.1035-51. Winifred, R. P. (2003). Organizational Change, Globalization, and Work- Family Programmes: Case Studies from India and the United States. Chapter submitted to Work-Family Interface in International Perspective, LEA Press. Netemeyer, R.G., Boles, J.S., & McMurrian, R. (1996). Development and validation of work-family conflict and family-work conflict scales. Journal of Applied Psychology, 81, 400-410. Wiley, M.G. (1999). Gender, work, and stress: The potential impact of role-identity salience and commitment. The Sociological Quarterly, 32, 495-510. White, M., Hill, S., McGovern, P., Mills, C., & Smeaton, D. (2003). High performance management practices, working hours and work-life balance. British Journal of Industrial Relation, 41 (2), 175-196. McHugh, M. (1993). Stress at work: do managers really count the costs?. Employee Relations, 15 (1), 18-32. Thompson, C.A., Beauvais, L.L. & Lyness, K.S. (1999). When work family benefits are not enough: The influence of work family culture on benefit utilization, organizational attachment, and work family conflict. Journal of Vocational Behavior, 54, 392 415. Galinsky, Ellen & Bond, James T. (1998). The 1998 Business Work-Life Study: A Sourcebook Executive Summary. New York: Families and Work Institute, , http://familiesandwork.org/summary/worklife.pdf

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In 1980, telephones were stuck to walls, facts were found in books and people had to browse shelves in a record store if they wanted to buy the latest music. But, today all these things are accessible by the click of a button. This is by virtue of newer technology penetrating in the every field of life. Even the banking sector has not remained unscathed and undergoing dramatic transformation. The competitive retail environment is compelling the banks to become more customer-centric. Banks are embracing technology to innovate and update business processes, improve customer service, increase sales opportunities and differentiate them in a market. Branchless Banking (BB) is the consequence of such advancements. It desires to offer basic banking services to customers at a cost of at least 50 percent less than that through traditional channels. In the Philippines, a typical transaction through a bank branch costs the bank US$2.50; which can cost only US$0.50 if it were automated by using a mobile phone (Asian Banker 2007). The endeavor of BB is to utilize innovative information and communications technologies (ICTs) to deliver financial services through retail channels that reach beyond traditional bank branches and ATMs. Mobile phones, Plastic cards and point-of-sale devices, hybrid technologies are few aids of technology to enhance the penetration of banking services and tying to reach out to remote villages and aiming towards achieving inclusive finance for social sector.

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Introduction

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Key words: Branchless banking, Upshot of Innovative Technology to Serve Poor

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Newer technology has penetrated in every field of life. Even the banking sector has not remained unscathed and undergoing dramatic transformation. Banks are embracing technology to innovate and update business processes improve customer service and differentiate them in a market. Branchless Banking (BB) is the consequence of such advancements. It desires to offer basic banking services to customers at a cost of at least 50 percent less than that through traditional channels. The endeavor of BB is to utilize innovative information and communications technologies to deliver financial services through retail channels that reach beyond traditional bank branches and ATMs. Mobile phones, Plastic cards and point-of-sale devices, hybrid technologies are few aids of technology trying to reach out to remote villages. This paper is an attempt to draw focus on BB as a new delivery channel to offer banking services in a cost effective manner. This paper offers analytical discussion on challenges, issues and concludes with policy perspectives and future ahead for this development.

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Abstract

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Ritu Sinha

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BRANCHLESS BANKING: UPSHOT OF INNOVATIVE TECHNOLOGY TO SERVE THE POOR

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Financial sector reforms and competitive environment in the country conveyed a sea change in the profile of the banking sector. The concept of branchless banking serves as an additional way of reaching unbanked people for delivering financial services, thereby, contributing towards financial inclusiveness. In our country, there are around one billion people who constitute the segment of unbanked people and marginalized communities, incessantly in the need of financial services like access to banking for savings, loans and microfinance and bank account. They offer enormous potential proviso banks comprehend their needs, requirements and preferences and accordingly upgrade their solution by harnessing new age technology and working out innovative products and new age delivery channels to serve them. These needs could be affordability, simplicity, proximity and easiness of access, flexibility in savings and repayment plans and speed in processing, small product sizes for loans and low-balance savings accounts.

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The key players in the branchless banking delivery chain include customers, financial service providers, agents, products, and technology interface. Since most of banks offer more or less same type of products, no differentiation between me-too products, therefore they try to have

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Branchless banking represents a new distribution channel through which range of customers acquires an access to the varied services of banks without actually paying a visit to the branch. This channel offers banking and payment services through postal and retail outlets, including grocery stores, pharmacies, seed and fertilizer retailers, rather than using banks branches and their field officers. It employs information and communication technologies applied to record and communicate transaction details quickly, reliably, and economically over vast distances. The instruments used under this system include cell phones, debit and prepaid cards, and card readers to transmit transaction details from the retail agent or customer to the bank and viceversa. Internet banking and automatic teller machines (ATMs) can be distinguished as extensions of conventional branch-based banking whereas in branchless banking customers conduct financial transactions at retail agents instead of at bank branches or through bank employees. It will deliver fast and real-time services to the customers and reduce operational costs.

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What is branchless banking?

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Customers are supportive of those banks which make their products available in a place which is convenient to them. Hence, place utility is a strategically vital variable responsible for the deepest outreach of the bank. Technology, today, has become a strategic and integral part of banking and its outreach can be further augmented by increasing technological advances in the form of mobile phone, telephone banking, PC banking, internet banking, plastic magnetic stripe, point-of-sale devices, hybrid technologies a debit card, or an ATM machine on the street. In the light of these developments, further methods of obtaining and retaining customers are to offer increased convenience in banking via self-service technology at the customer interface.

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This channel aims for to a low-value, high-volume transactional environment and to build more flexible, scalable retail networks of points. It broadens the distribution of financial services to poor, both by reducing the cost of delivery (of building and maintaining branches and handling low value transactions directly) and by plummeting the cost to customers of accessing services (travel and queuing time). This phenomenon is being use extensively in many countries like Brazil, India, South Africa, Kenya and Philippines. In Brazil, customers open bank accounts, make deposits, and pay bills at lottery houses and small retail outlets. In the Philippines, urban migrants send money to their families in rural areas using mobile phones. Both of these cases can be described as branchless banking1.

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But all these services come with high economic cost and banks often lack appetite to serve the poor. Banks would opt for distribution channels that will maximize the branch s profit position offering optimum service and coverage at a minimum cost. However, with the passage of time, economies of scale and upcoming information and communication technology can bridge the gap between demand and supply. A mobile banking model, upshot of optimal technology, serves as a primary channel for distributing banking services to the unbanked. It adds value from product development to collection and results in convenient, fast, simple, and secure branchless banking for the unbanked sector. In this approach people can conveniently pay into or cash out from their savings accounts, pay their regular microinsurance contributions, and receive and service their microloans, at a variety of outlets, right in their vicinity. It also proves invaluable to the banks in terms of reduced integration by leveraging common interface messages, maintenance and deployment costs. This method would also support interface with host systems, core banking systems and third-party applications. This will cut the cost considerably to the banks and allow them to extend the product portfolio and customize the solution to unbanked segment. However, this approach cannot be successful with the help of other market players like telecom companies, technology service providers, and agents etc., who have significant roles and responsibilities in this process.

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an edge over their competitors in terms of large number of access point s network. Hence it is an endeavor to encourage more expediency and efficiency in the system in extending its outreach to remote places.

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Ivatury, Gautam, and Ignacio Mas. 2008. The Early Experience with Branchless Banking. Focus Note 46. Washington, D.C.: CGAP. Aprril - June 20

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Bank-based: In the bank-based model, the bank offers financial products and services, but distribution of these products and services is done through retail agents who handle customer interaction. Here the touch point for the customer is the agent who carries out face-to-face

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Two models of branchless banking have been discussed as below:

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Models of Branchless Banking

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Non-banked Model: In the nonbank-based model, bank is not involved with the customers at point of transaction. Even customers do not maintain a bank account with the bank. Under this, customers transact with a nonbank firm like a mobile network operator or prepaid card issuer or retail agents and exchanges cash at a retail agent in return for an electronic record of value or e-money stored in a virtual e-money account on the nonbank s server. It is not connected to a bank account in the individual s name. E-money, according to the Basel Committee s definition, is a stored value or prepaid product in which a record of the funds or value available to the consumer for multipurpose use is stored on an electronic device in the consumer s possession. (Bank for International Settlements 2004). This e-money account can be used to store funds for future use and can be converted back to cash from any participating retail agent. In this model, the role of bank is limited only to the designing of financial and payment products, contracts retail agents directly or indirectly and maintains customer e-money accounts. When the nonbank is a prepaid card issuer, it issues POS card readers and customers must visit to the participating retail agent to process his transaction. But, if the nonbank is a mobile operator, the customer can completes his transaction over his cell phone service and has to visit his retail agent only for transactions that involve depositing or withdrawing cash. Under this model, retail agents accept and disburse cash and record the same with the help of mobile phones or POS card readers.

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Source: www.microfinancegateway.com/content/article/detail/36551

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interaction with customers and performs cash-in/cash-out functions, rather than the bank. But customers maintain accounts with the bank. In some countries, these retail agents also deal with all account opening procedures and even identify and service loan customers. He can be in touch directly with the bank by using either a mobile phone or a point-of-sale (POS) terminal. Once account formalities are complete, the customer goes to the retail agent to carry out his financial transactions. After checking the customer s identification documentation, retail agent conducts the transaction and an electronic record of the transaction is either routed to the bank directly or is supervised by a payment processing agent that clears up the transaction between the customer s account and the payee s account.

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Branchless banking can offer basic banking services to customers at a cost of at least 50 percent less than that through traditional channels. It addresses the two biggest problems of access to finance: the cost of roll-out (physical presence) and the cost of handling low-value

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Source: www.microfinancegateway.com/content/article/detail/36551

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There is huge cost reduction, when agents are used as compare to banks for remote cash transactions. Banco de Credito in Peru calculates approximately that a cash transaction at a branch costs about US$0.85, while the same transaction at an agent would cost US$0.32. According to Tameer Bank in Pakistan, the setup cost of a branch in the Orangi slum of Karachi would be 30 times more than the setup cost per agent, which is about US$1,400. The monthly average cost for running a branch is about US$28,000 as compared to US$300 for an agent.

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Issues and challenges Ahead The major challenge for the banks is to make use of sophisticated technology to unsophisticated people and areas. Also, the rural areas are full of power shortage and lack of telephone connectivity and their people are not familiar with complex machine processes. Therefore all these technological innovation presents challenges and opportunities for regulators while maintaining a safe and sound banking system.

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Most of banks and other financial service providers perceive a symbiotic relationship with business entities that have local retail outlets. They serve as business correspondents or agents. They can offer their services, depending on regulations, to open new accounts or conduct, agents can be used to conduct customers cash transactions like to deposit into or withdraw from an account, or to make or receive payments. The pace of agent sign-up is most dramatic in Brazil, where 95,000 agents have opened for business, leaving no municipality without a retail bank outlet. This agent network has directly led to the opening of more than 13 million bank accounts in the past five years2. This move often helps the banks and other players to jump-start their agent network like by including NGOs, SHGs, MFIs mobile operators, post offices and main retail chains. This gives an access to local knowledge, requirements of product design catering to their need, and aptitude to manage small loans.

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transactions. This is achieved by delegating the work to third-party agents for cash transactions and account opening and by conducting all transactions online. This helps in increasing the population with access to formal finance and, in particular, in rural areas where many poor people live. There could be biggest cost saving on transactions that can be done electronically via mobile banking. In the Philippines, a typical transaction through a bank branch costs the bank US$2.50; this would cost only US$0.50 if it were automated by using a mobile phone (Asian Banker 2007).

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The factors that limit the access of Branchless banking to the target segment are the remote places or places of low population density, little income with respect to cost of the service, illiteracy and low education and awareness level, short of credit history, problem with product or channel design and narrow range of products offered by the institutions. BB must aim for

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BB raises issues of taxation, redress of grievances, price transparency, and competition regulation and consumer protection for the successful implementation of this approach. Also, consumer data privacy and its security is another concern as there is a large amount of dependability on technology and that technology can be breached at various level, resulting in

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Under BB, when most of work is done through outsourcing, this phenomenon becomes highly susceptible to risks like agent-related risks or e-money risks. The agents may lack expert training when their functions go beyond the cash-in or cash-out transactions like a role in credit decisions. They might operate in remote places devoid of security. But, apart from this, the most important risks are credit risk, operational risk, legal risk, liquidity risk, and reputational risk when customers use retail agents rather than bank branches to access banking services. When there is involvement of nonbank collecting repayable funds from the public in exchange for e-money, there is likelihood that they might use these funds imprudently, resulting in insolvency and the inability to honor customers claims. So, maintaining adequate liquidity to honor customer claims is other challenge that nonbank model faces otherwise subject to prudential regulation and supervision. It also raises a question mark regarding the compliance with rules for combating money laundering and financing of terrorism. Here the task is not to eliminate these risks, but to balance them appropriately with the benefits of branchless banking. This calls for need of strict regulations for the successful implementation of this technique.

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Most of the customers are using BB channels only for the utility bill payments apart from other services which this channel offers like account opening, cash payments like cash deposits and cash withdrawal, transfer of funds, payment of utility bills, dividends etc. In Brazil, bill payments and the payments of government benefits to individuals comprised 78 percent of the 1.53 billion transactions conducted at the country s more than 95,000 agents in 20063. They are still very reluctant to keep their savings at BB channels and majority of them tend to withdraw the full amount received. But, if this segment receives their pension, remittance receipt or salary payment through BB, then it can act as sole motivators for opening saving accounts at these outlets. It has been emphasized by various studies that very few poor and unbanked people have began using this channel for financial services and constitutes around even less than 10 percent of this segment. They could not be early adopters of technology which makes the jobs of government and service providers difficult to make regular use of those accounts and maintain sizable deposit balances over a period of time.

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simplicity and use friendly interface with the poor and financially excluded segment to increase its outreach and penetration. Hence there is a need to get better customer awareness about BB, to train customers about its mechanism, its asking price and advantages over the available options. Branchless banking has yet to exhibit pro-poor, pro-growth impacts for households, communities, and national economies.

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Branchless Banking in India

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Notes on Regulation of Branchless Banking in India(2008), document can be assessed at www.cgap.org/gm/document-1.9.2322/India-Notes-On-Regulation-Branchless-Banking-2008.pdf 5 Notes on Regulation of Branchless Banking in India(2008), document can be assessed at www.cgap.org/gm/document-1.9.2322/India-Notes-On-Regulation-Branchless-Banking-2008.pdf

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Many private and public-sector banks have shown substantial interest for the unbanked sector. ICICI Bank is using "ICICI partnership model," in which in which the bank make use of MFIs as agents in initiating, disbursing, following, and collecting loans. Under this model, they are using smartcards, biometrics, and electronic capability that help the banks to monitor

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In spite of numerous government initiatives and a burgeoning microfinance sector, lack of access to formal financial services remains a problem in India to date. As of 2006, around 29 percent or 321 million Indians, subsisted below the national poverty line. Of these, nearly 80 percent lack access to formal financial services. Less than 59 percent of the adult population has access to a bank account, and less than 14 percent of the adult population has a loan with a bank. With more than 30,000 bank branches, 110,000 cooperatives (one in every five villages), and 150,000 post offices, financial sector policy makers and regulators do not believe the number of service points is a major problem5.

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Indian government and RBI have demonstrated its deep commitment for making branchless banking work in India. They have categorized concerns like access to finance, consumer protection and banking sector stability as decisive dimensions for improving access to financial services for poor people. Our country has a great network of sophisticated banks, competitive mobile phone industry and plethora of cutting-edge technology providers and most importantly, presence of a central bank mindful of potential risks posed by branchless banking models in future. Government has selected the business facilitators and correspondent model to unleash the potential of this approach by offering wide range of agents outside bank branches resulting in proliferation in the number of service points; facilitates the process of account opening while upholding adequate KYC standards; and allowing players to provide payment services and issue e-money thereby utilizing innovative technology for the benefit of society. Under this, business correspondents are given modern biometric smart cards and voice-guided systems to provide secure banking facilities to the rural populace and are allowed to carry out various banking functions like disbursal of smallvalue credit, collection of loan repayments, gathering of small-value deposits and receipt and disbursing of small-value remittances and other payments.

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malpractices. Payment Systems is another area which has to be regulated well as India does not have a payment systems law. According to Payment and Settlement Systems Bill, passed by the Lok Sabha on 26 November 2007, only banks and financial institutions may collect funds for payment to third parties. A nonbank may provide "payment services" only if these services do not categorize the provider as a bank or as a financial institution4.

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Various new banks like YES Bank and UTI are also planning to follow the suite. Many big NBFCs like SKS and Basix and many NGO and M FIs are keen to use agents and technology to offer deposit and/or remittance services but BC Circular prohibits them to take deposits. Thus it may act as restraint for them to go ahead with this approach. In fact, a number of banks have commenced the use of post offices for lending under the business correspondent model.

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For the payment services, India Post has played a major role and followed the same suite by incorporating new technology of iMO (instant Money order) to expedite the services. ICICI Bank has tied up with Reliance Communication (R-Com) that facilitates its customer who also subscribes to R-Com's CDMA or GSM mobile services to send to and receive money from another ICICI Bank customer. Same kind of initiatives has been spearheaded by banks like HDFC, Corporation Bank and others. Even Visa International and mCheck permit its customers to send and receive money through their cell phones. Bharti Airtel has tied up with SBI for domestic remittances through mobile phones. They are also getting into strategic allowance with Western Union, which make possible for purchaser outside India to send money via the person s mobile phone to a Bharti Airtel customer in India. Technology providers Oxigen, m -Check, Obopay, and A Little World have developed mpayment business models for unbanked customers via agents but they are still in nascent stage and looking for the nod of RBI.

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Anti-money laundering (AML) and combating the financing of terrorism (CFT) issues have forced the RBI to remain stringent over the KYC norms and AML standards. In response, RBI issued a circular substantially relaxing the identification and proof of residence requirements for small-value accounts with a maximum account balance of Rs. 50,000 (approximately US$1,225) and maximum money deposit into the account per year of Rs. 100,000 (approximately US$2,450)6. These KYC procedures will be further simplified in the interest of financial inclusion as stated by governor of RBI. It also allocates for non face-toface customer identification requirements, if and only if there are specific and adequate procedures to alleviate the higher peril involved.

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transactions with partner MFIs within 24 hours. This enables banks in complying with the KYC requirement and also allows for the verification customer KYC via the card. SBI is using Business Correspondents in which an agent is available at various customer service points with POS terminals. Customers hold smart cards and access their bank accounts at these customer service points.

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Notes on Regulation of Branchless Banking in India(2008), document can be assessed at www.cgap.org/gm/document-1.9.2322/India-Notes-On-Regulation-Branchless-Banking-2008.pdf Aprril - June 26

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Future Ahead

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Ivatury, Gautam, and Ignacio Mas. 2008. The Early Experience with Branchless Banking. Focus Note 46. Washington, D.C.: CGAP document can be assessed at http://www.cgap.org/p/site/c/template.rc/1.9.2640 Ghate P (2008), Branchless banking in India, Economic Times, Mumbai, Section: Editorial, Page 8. Bandyopadhyay G (2008), Banking the Unbanked: Going Mobile, document can be assessed at www.infosys.com/finacle/pdf/thoughtpapers/Banking-the-Unbanked.pdf State Bank of Pakistan (2008), Branchless Banking Regulations for Financial Institutions Desirous to undertake Branchless Banking, Banking Policy & Regulations Department, document can be assessed at http://www.sbp.org.pk/bprd/2008/Annex_C2.pdf Prendergast G., Marr N.(1994), Towards a Branchless Banking Society?, International Journal of Retail & Distribution Management, Vol. 22, No. 2, 1994, pp. 18-26 , MCB University Press, document can be assessed at http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=/published/emeraldfulltextarticle/pdf/0890220203 .pdf Lyman TR, Ivatury G, and Stefan Staschen S.(2006), Use Of Agents In Branchless Banking For The Poor: Rewards, Risks, And Regulation, Focus Note No. 38, October 2006, document can be assessed at www.microfinancegateway.com/content/article/detail/36551

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References

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The further development of branchless banking is being pressurized by the risks posed by unregulated entities as well as by the legal ambiguity regarding whether nonbanks may provide payment services. We should give some more time to really access the advantages of this approach. But technologies are just the tools and the parties to branchless banking models must realize the importance of emergence of newer business opportunities offered by new system. It calls for the need of developing a network of agent and shared agent networks between different banking providers. This will further enhance increased savings and product offering. It is also evident from support from central banks and guidance from the World Bank. The existing example is clear guiding principle in recent times published by the Pakistan central bank. In addition to this, a number of major banks have also announced their plans in providing product and services to these markets e.g. Tameer Bank in Pakistan, ICICI bank in India, Corporation bank in Mongolia, Pacific and Western in Canada to name few of them.

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Branchless banking is spreading fast all over the world with the aim of providing basic banking facilities to the poorest of the poor in country s vast and sparsely populated areas. The concept of BB is still new and the period of experimentation is short and the acceptability of this novel concept in the remote villagers largely depends on people most of whom are illiterate and has no idea about the value for money. With the ongoing rapid growth in branchless banking, this approach has huge potential provided it is been allowed to use extensive range of agents outside bank branches, resulting in increased number of service points; relaxing account opening norms while maintaining adequate KYC standards; and permits a range of players to provide payment services and issue e-money.

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Abstract

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The economic impact of global financial turmoil and US slowdown in particular, on the Indian economy is expected to be within limits i.e. less than 1% impact on GDP as forecast by economists. This is supported by the fact that the growth being witnessed is not as much from export-oriented sectors, and that the Indian economy is consumption-based driven by domestic demand and supply. This is substantiated by the fact that trade is comparatively a smaller part of the GDP. Further, the economy is also adequately prepared for any capital outflows due to large foreign exchange reserves; high CRR and MSS. Taking into account all these factors it could be a fair assumption that the Indian economy is relatively decoupled from the US economy to some extent in the long term.

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US housing mortgage sector has turned successively into a global banking crisis, global financial crisis and now a global economic crisis.

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particular, failure of financial institutions

is behind us or worst is still to come?

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respectively in the FY 2009. This paper aims to discuss, the impact of slowdown on India, the

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Despite the global slowdown India and China still forecast the growth rate of 7.1% and 8%

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question today is whether the worst

in terms of the financial sector meltdown, and in

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Such is the depth and sweep of financial globalization. By far, the most frequently asked

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depression that originated in the advanced economies and rapidly engulfed the whole world.

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This crisis is also the first of a kind in the sense that it is the first financial crisis since the great

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situation continues to be uncertain and unsettled. What started off as a Sub-prime crisis in the

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speculation and excesses brought the global economy down on its knees. The global financial

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remembered for any of these. It will be remembered as the year when corporate greed,

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in Europe, scientists initiated the largest experim ent in particle physics. Yet, 2008 won t be

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China held a spectacular Olympics Games; India made giant strides in reaching the moon and

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Introduction

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Technology

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Keyword: Global Economic Slowdown, Financial crisis, Real Estate, Infrastructure, Information

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D.Hema

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IMPACT OF GLOBAL ECONOMIC SLOWDOWN INDIAN PERSPECTIVE

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facilitating factors for an anticipated growth rate of 7.1%, the measures to be taken by the government and Corporates to keep the performance level of the economy high.

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US government deficits due to tax cuts

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Low savings rate in the US

Large US current account deficits: global imbalances Housing bubble

Abolition of Glass-Steagall in 1999 accelerates move of investment banks and shadow Investment banking falls outside regulatory net Credit rating agencies have conflicts of interest

Where we are?

Impact of the crisis on the global economies Many economists are now predicting that this Great Recession of 2008/09 will be the worst global recession since the 1930s. The IMF made its customary forecast for global growth in

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The Lehman Brothers fundamental error that spooked the market

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No ex ante strategy, only ad hoc responses until recently

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Macro interacts with bad incentives interacts with policy mistakes:

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High leverage ratios

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Securitisation and originate-to-distribute model

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This results in good and bad financial innovation

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banks into risky business plans

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Asian capital flows into dollar assets after Asian crisis

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High liquidity due to loose monetary policy post 2001

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How did we get into the current financial crisis?

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Firstly, that the global situation has deteriorated rapidly, in a space of less than two months.

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Secondly, that 2009 is going to be a more challenging year than 2008.

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and from 3.0 per cent to 2.2 per cent for 2009. There are two inferences that follow from this.

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revised its forecast for global growth downwards

from 3.9 per cent to 3.7 per cent for 2008,

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the World Economic Outlook published in October 2008. By early November, the IMF had

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Impact on different sectors

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Mildly Impacted Sectors are

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Power equipment & Services, Auto, Retail, Logistics and Hospitality and tourism

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Banks, Financial Services, Real Estate, Infrastructure, and Information Technology

The most impacted sectors include-

Indian Financial ServicesThe US sub-prime market crisis, which so far caused losses worth $181 billion to the world s top 45 banks by the end of FY08, has started hitting Indian banks also. about Rs. 1056 crores owing to the subprime crisis of US in the FY08 results. The public sector banks have had a limited position in the structured products and harder. therefore impact is expected to be minimal. However negative sentiments will hit Punjab national Bank, Bank of India, State Bank of India, Bank of Baroda were major However the banking sector in general will have to face tight liquidity conditions apart from further mark-to-market losses. The net non performing assets of entire banking sector are less than 2% and it is well capitalized. The capital adequacy ratio is around 13% as against the statutory requirement of 8 to 9%. The banks are expected to continue going strong due to limited impact from exposures. India s largest private sector bank ICICI Bank was the first bank to announce a loss of

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banks having an exposure to the instruments issued by Lehman and Merrill Lynch.

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Most Impacted Sectors are

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Pharmaceuticals, Oil & Gas, FMCG and Media & Entertainment

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Least Impacted Sectors include

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Real Estate

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prices would find it difficult to raise further funds.

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were already facing the problem of lack of funds due to economic slowdown & correction in

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With the sudden collapse of world leading financial houses, the Indian real estate players who

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Among the US Financial Houses --- Lehman Brothers was very bullish on Indian

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Lehman s real estate investments at project levels (including the big ones like DLF, projects.

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permission is also a step in positive direction and would restrict flight of capital. However, stocks of companies in which sunked financial institutions have a direct exposure (as FII investments especially Lehman) would see selling pressure.

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Lesser probability of immediate cancellation of orders or vendor consolidation Sales cycle would become longer and hence top line impact should be visible after two-three quarters due to this crisis

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for top Indian IT companies

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USA as a region and Banking Financial Services and Insurance as a vertical are most critical

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Information Technology

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Adverse impact on the infrastructure companies as it disturbs the financial atmosphere for the companies which are in the growth stage. Lately, after having raised money through IPO s many Indian infrastructure companies have gone in for QIP issues with the financial majors across the world. Thus, the current situation might not affect the companies at the project implementation level; however we might see heavy selling pressure in the stocks of these companies by the sinking US financial institutions which have an exposure to these companies.

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Infrastructure

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RBI s directive not to remit investments made by US financial houses in India without

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Unitech & Future Capital) have been disbursed & it will not affect the ongoing

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peers)

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Reality Sector and had an investment in excess of US$ 700 mn (maximum amongst

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in the Balance of payments report of January 2009.

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Aprril - June

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But still, the software sector is doing well which showed a growth in the exports of invisibles

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now resulting in reduction of outsourcing pie.

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Large investment banks had significant discretionary IT spend, which should reduce

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Why business in India should continue the way it was?

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market s homeland i.e. USA, the times have to be extraordinarily compelling.

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The credit crisis in US has grown beyond sectors and national boundaries to take the entire

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to entrepreneurs to customers

everyone is acutely aware of the magnitude of the crisis as

we enter2009. Owing to this contagious global crisis we are confronted with a unique set of challenges. Though the liquidity crisis first showed up in the real estate sector, it has now spread. Demand slowdown in some of the sectors is compelling Corporates to rework their business plans for the coming year. Job losses have been reported from several sectors. confidence as never before. There is a general crisis of confidence today. In times like this, the

stated above, growth rate in the manufacturing sector halved from 8.2% in 2007-08 to 4.1% in 2008-09, which will certainly raise doubts about the capacity of Indian economy to sustain a growth rate between 7% and 8 % which the economists are forecasting. But in the words of Kamal Nath, Union Cabinet Minister for Commerce and Industry It is a fact that the Indian

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Even though we are very optimistic about our economy in the coming years due to the factors

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has dipped significantly to protect consumer purchasing power.

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demand is unlikely to affect growth as much as it is doing elsewhere. Three, of late, inflation

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domestic demand continues to be the prime driver of our economy. Hence a slump in global

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regulatory framework prevents a US type credit crisis from developing. Two, unlike China,

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economy will sail through the coming year relatively unscathed. One, India s strong financial

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resilience of an economy does come to the fore. Three things prompt to think that the Indian

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Considerable wealth erosion too has already occurred in the bourses shaking investor

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global economy in its sweep. In India too, as elsewhere across the world, from policymakers

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desperately attempts to rescue beleaguered banking, insurance and automotive giants in free

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When a 150 year old global investment bank sinks without a trace in no time and government

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speaks volumes for the consistent return and encashability of the Indian stocks.

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confidence.

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value in ten months, and the stock indices shed 60% in a year. It has resulted in a crisis of

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But we had to pay for the FIIs sudden exit. Our currency, tied to the US dollar, lost 25%

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Institutional Investors (FIIs) in a panic. They fled from our capital markets with profit, which

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and then its markets as well as those of Europe had not collapsed. These put the Foreign

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economy has suddenly slowed down, but it would not have happened if, first, the US banks,

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The Index of Industrial Production has shown a negative growth because the manufacturer is not sure about sales. And the buyer is hesitant because he too is not confident about future

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upward movements of the threshold population , like those aspirers who hope to move up

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has been little or no asset price bubble here, except for a moderate correction in places.

But there has been no disaster on the scale of the US sub-prime housing loan crisis, which

has, in a matter of weeks, turned bustling localities into rows of foreclosed houses. And the credit card crisis, which is about to hit the West, is just a blip on the screen in India, where less than 2% people use plastic money .

Agriculture Industry Services

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Trends in GDP by activity (%) FY 08 4.9 8.1 10.9 FY-09 2.6 4.8 9.6

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Source: Central statistical organization (CSO)

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1. Indian economy will turn in second fastest growth rate in the world after China s 8%

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2. Overall consumption held up due to high public sector spending

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for 2008-09.

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Indian Economy in 2009

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GDP

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growth, advance estimates of growth are positive

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India is not insulted from global meltdown. But as bulk of investment is led by domestic

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just second to china s.

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Growth Intact-Indian Economy seen growing 7.1% despite slow down

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menacing as the US seems to be facing. Our banking system has remained untouched. There

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jam, or a landing delay at a fog-bound airport. The problems in India are not so massive and

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from an Rs 50,000 income bracket to a lakh of rupees. But it is a temporary glitch, like a traffic

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income. Our problem is limited to a deficit of confidence. It may temporarily postpone the

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3. The rate of growth is forecasted to decline in all sectors barring two: mining and quarrying, and community, social and personal services

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four consecutive years.

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slowdown? Doing well in adversity after all, is what this country does best economists and policy makers alike often say that India is lethargic except in crisis.

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watched turned on it. Are there things India can hope to achieve, in the throes of a Indian

The outlook for India, going forward, is mixed. There is evidence of a slowdown in the economic activity. The real GDP growth has moderated in the first half of 2008-09. Industrial services sector too, which has been our prime growth engine for the last five years, is slowing, subsectors. activity, particularly in the manufacturing and infrastructure sectors, is decelerating. The mainly in the construction, transport and communication, trade, hotels and restaurants

index, has fallen sharply, and the decline has been sustained for the past four weeks, pointing to a faster-than-expected reduction in inflation. Largely, the falling commodity prices have been the key drivers behind the disinflation; however, some contribution has also come from

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correlation between wholesale and consumer price inflation, and given this correlation,

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articles in the measures of consumer price inflation. Historically, there has been a positive

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possibly owing to the firm trend in food-articles inflation and the higher weight of food

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consumer price inflation for the months of September and October 2008 did increase. This is

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slowing domestic demand. The reduction in prices of petrol and diesel announced last week,

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Despite these facts, on the positive side, headline inflation, as measured by the wholesale price

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margins while the uncertainty surrounding the crisis has affected business confidence.

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liquidity in the system. Higher input costs and dampened demand have dented corporate

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For the first time in seven years, exports have declined in absolute terms in October 2008.

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4. But for the first time in the last four decades, farm sector growth has been positive for

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consumer price inflation too can be expected to soften in the months ahead. All these factors suggest that the forecasted growth rate of 7.1% may not be too hard to achieve in FY 2009.

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Measures Taken So Far by the RBI and the Govt. of India in the wake of Slowdown

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The RBI has taken several measures aimed at infusing rupee as well as foreign exch