Responsible Management Education

Are Dividend Announcements Informative Corporate Events ?

The value of a firm keeps changing due to changes in economic activities. In academic literature, these economic activities are precisely termed as ‘corporate event’. Corporate actions/events and changes in corporate payout policies are important considerations for the finance managers while taking financial decisions. In particular, corporate actions such as cash dividend announcements have information content and are used by managers to signal the future prospects of the firm. They reduce information asymmetry between the mangers and shareholders through the private information reflected in the stock prices. The significance of dividend payment/announcement is expressed by Ezra Solomon in these words: In an uncertain world in which verbal statements can be ignored or misinterpreted, dividend action does provide a clear-cut means of ‘making a statement’ that speaks louder than a thousand words. The same has been expressed by Gordon (1963) as payment of dividends (in the hand) is worth more than retained earnings (in the bush), due to the risk of sub-optimal investment decisions by managers.

Shareholders’ wealth is represented in the market price of the company’s common stock, which, in turn, is the function of the company’s investment, financing and the dividend decisions. Dividend decisions involve the periodic determination of the proportion of a firm’s total distributable earnings that is payable to its ordinary shareholders. They are considered as the fundamental building blocks of the corporate payout policy. Historically, cash dividends have been considered as the most important form of the payout policy. They are one of the principal mechanisms by which firms distribute cash to their shareholders. These decisions typically carry informational content concerning the value of the firm and, by and large, impact the return, risk and liquidity of the shares.
The market reaction of dividends (by and large) in India supports the Lintner’s (1956) model to be the best fit explanation for dividend behavior. Announcements of corporate actions and their impact on share prices are likely to affect the value of the firm and returns to the investors. It implies that dividends serve as a ‘signaling’ mechanism implying the firm’s future promise to disburse free cash flow and positive future earnings prospects. However, apart from the instant market reaction (represented through returns), it is desirable to understand the fundamental and the psychological factors behind these decisions/announcements. The Indian stock market has huge information asymmetry existing between the managers and the shareholders. Dividend decision is amongst the major financial decisions taken by the firm, the top level finance personnel (Directors/ Vice President/Company Secretary/ Managers) are directly involved in taking these decisions. Hence, it also becomes desirable to gauge/understand the viewpoint of the Indian finance managers behind the announcement of cash dividends. In other words, what are the driving forces and the motivations/perceptions of the management announcing these decisions?.
The Indian managers companies rely both on the past dividend and current earnings in deciding the current period’s payment of dividend. These companies also place more emphasis on dividend stability, as evinced by the fact that the dividend practices of Indian companies have been found to be unaffected by the financial crisis. At the same time, dividend announcing companies are considered to have a strong outlook regarding their future earnings prospects as perceived by the investors.In India, cash dividends also serve the purpose to attract more investors. Investors have strong preference for cash dividends, thereby increasing the market value of the firm. Cash dividend provides a positive impact on the firm’s future prospects and facilitates in maintaining a stable stock price. Dividends are a definitive statement about the ability of management to achieve profitable growth on a sustainable basis among Indian investors as supported with Black’s (1986) suggestion; “I think we must assume that investors care about dividends directly”.

The reaction of the investors subsequent to these corporate announcements helps the corporates, practitioners, market analysts, institutional investors and financial system in evaluating financial decisions like payout policy, investment strategies, construction of optimum portfolios and the availability of information to the investors. They would also provide an insight to the academicians and researchers into how Indian finance managers use the assumptions, models and decision rules generated in teaching/making financial decisions. Further, these decisions are also meant to be considered by various regulatory authorities to improve the informational efficiency of the Indian stock market. Since, these corporate actions have signaling power to indicate the future prospects of the firm, it becomes vital for the managers to identify the growth and investment opportunities prior to taking such decisions. At last, the instant reaction emanating, might help understand investors and the firms to examine the wealth and enhance the value of the firm.

•Black, F. (1986). Noise. The Journal of Finance, 41(3), 528-543.
•Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance, 18(2), 264-272.
•Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 46(2), 97-113.


On June 23, 2016, in one of the most epochal referendums in European history if not modern history, Britain the 5th largest economy in the world voted to quit the European Union (EU) by a margin of around 1.3 million votes, defying predictions from all economic, political & academic quarters. The impact of Britain’s Exit from the EU is already being felt by financial markets across the EU and the globe.

Brexit- A snapshot:
‘Brexit’ is a combination of the words “ British” and “Exit” and referred ( when it was coined- by the Economist magazine in June 2012- “ A Brixit Looms”- ) to the departure of Britain from the EU. The origins of the EU dates back to 1957 as a six nation economic and political alliance. Britain joined the alliance only in 1973 but has faced a lot of opposition and skepticism against its continuation within the EU ever since. In 1975, in the first referendum on the same issue (whether Britain should continue with EU), 67% of those who voted preferred to ‘Remain’. Meanwhile, EU has today grown into a “gigantic transnational entity of 28 countries, with most countries moving into a common currency ‘Euro’. However, Britain still uses pound as its currency and does not participate in the Schengen border-free zone, which allows passport- free travel within the EU.
Why Brexit?
As part of his 2015 re-election campaign, British Prime Minister David Cameron had promised to hold a referendum on Brexit. Many from the ruling Conservative Party and the U.K. Independence Party believe that the EU infringes on British sovereignty and its national interests on issues such as trade, immigration, financial and labor regulation, social spending and a host of related issues .
•According to Brexit supporters, increased migration from other European countries into UK using the ‘freedom of movement clause’ has put a heavy burden on natural resources and increased welfare expenditure. The ‘Remain’ supporters argue to the contrary saying that the addition to the national economy from the migrants is more than they take out.

•45% of UK trade is with the EU, therefore, the ‘Remain’ side says, access to the single European market, free of tariffs and border controls, is critical for the U.K. However, the Brexit supporters are confident that since the the EU needs British markets, individual trade deals with European countries can be easily negotiated.

•While Brexit supporters claim that there will be a jobs boom without the restrictions that EU regulations impose, the opposers argue that as three million jobs in the UK are tied to the EU there could be a jobs crisis if the U.K. leaves the EU.

•One side is of the opinion that cooperating with the EU will make the UK safer, while the other side believes that the security risk will in fact increase if the U.K. does not have control over its borders.

•Another argument in support of the Remain campaign was that leaving the EU will jeopardize the dominance of London, the Europe’s financial centre, as banks will move out. Whereas, the Brexiteers argue that London’s status is unassailable as it is already a global power base!

Possible Impact of Brexit on UK and EU:

A major impact could be on UK laws ( a 2010 study attributes 17% of UK laws to its EU membership), especially relating to fishing, agriculture, trade and environmental policies, criminal justice, data protection, immigration and broadcasting, and human rights . For example, in agriculture British farmers would be deprived of EU subsidies. “British farmers have to meet the EU standards of quality control to export to member countries. EU’s agriculture policy lays down the law on GM crops, animal husbandry and even how much of his field a farmer must leave fallow to get subsidies” . With Brexit, it remains to be seen how Britain negotiates with EU on these issues on a case- by- case basis. On the economy front, it has been pointed out that since prices in the EU are 20% higher than global market prices, exiting the EU will enable Britain to reduce prices by 8% . The political fallouts of Brexit are yet to take shape, the only major indication so far being the declaration of David Cameron that he will step down as the Prime Minister with effect from October this year.
UK is one of the largest contributors to the EU’s monetary resources spent on administration of the EU in member countries, aid activities outside the EU, grants for asylum, education and culture, on preserving and managing natural resources (this includes, agriculture, fishing, mining and so on), helping poorer countries in Europe and in grants to research in science and technology and in helping small businesses. The Brexit, it’s strongly believed, would rock the EU — already shaken by differences over migration and the future of the eurozone — by ripping away its second-largest economy, one of its top two military powers and by far its richest financial centre. Moreover, as Dr. Jonathan Portes of the National Institute of Economic and Social Research points out, “ If Brexit wins we can account on a lot more referendums” !!
Possible Impact on India
India’s concerns over Brexit are multi-dimensional. Listed below are some of them.
•The welfare of a nearly 3 million strong diaspora of Indian-origin UK citizens.

•The interests of a large moving population of Indians who come to Britain ever year as tourists, business people, professionals, students, spouses, parents and relatives.

•Many Indian companies (around 800 companies- more than the combined number in Europe) are listed on the London Stock Exchange and many have European headquarters in London- Brexit could reduce the advantage.
•“Brexit can affect India’s flagship IT sector given that the UK accounts for 17% or one-sixth of the sector’s global exports that topped $100 billion (approximately Rs.6.70 lakh crore). For one, Brexit will increase overhead costs, setting up new headquarters, perhaps in both Europe and Britain” .

It may be noted that there is a tone of optimism in Indian circles as evidenced by statements by industry heads, policy practitioners including the RBI Governor and the Union Finance Minister.
The rise in uncertainty brings both risks and opportunities for India. “Brexit is neither good nor bad for India. It’s mostly how the country responds to the new situation”

Bonds and Masala Bonds

Bonds are instruments of debt – typically used by corporates to raise money from investors. Masala bonds, on the other hand, have to be explained in the context of Indian corporates raising money from overseas investors. Before masala bonds, corporates have had to rely on avenues such as external commercial borrowings or ECBs. The challenge with the likes of ECBs is the entity raising money is faced with a currency risk – they have to be raised and repaid in dollar terms. A year is a long time in forex markets – currencies fluctuate sharply. So, imagine the risk a bond issuing entity, especially one with largely rupee earnings, if issue and repayment are years apart.

They are rupee-denominated bonds issued to overseas buyers. This is how it is different from other instruments. With a masala bond, a corporate could issue Rs. 10 billion worth of bonds with the promise of paying back Rs. 11 billion in one year. But as the Indian rupee has limited convertibility, the investors will lend the dollar equivalent of the Rs. 10 billion. After one year, the Indian corporate needs to pay back the dollar equivalent of Rs. 11 billion. The currency risk is with the investor.
The International Finance Corporation (IFC), the investment arm of the World Bank, issued a Rs. 1,000 crore bond in November last year. The purpose of the issue was to fund infrastructure projects in India.

IFC named them ‘masala’ bonds to reflect the Indian angle to it. This kind of naming has been done before. There was even much speculation about what the rupee-denominated bonds would be called before ‘masala’ was confirmed. Samosa, Ganga, and Peacock were apparently some of the names doing the rounds.
Why should investors look at masala bonds?
The Finance Ministry has cut the withholding tax (a tax deducted at source on residents outside the country) on interest income of such bonds to 5 per cent from 20 per cent, making it attractive for investors. Also, capital gains from rupee appreciation are exempted from tax.
Globally, there is ample liquidity thanks to lower interest rates in developed markets, but there are very few investment options due to weak economic conditions globally. India is that rare fast-growing large economy, and masala bonds is one way for investors to take advantage of this.
What do masala bonds mean to the issuer?
An important consideration for issuers is the access to cheaper funding than what’s available in the domestic markets, according to ratings firm S&P. For corporates, who would be the main issuers, masala bonds will be one other key source of funding apart from banks and local debt markets. Another ratings firm India Ratings and Research says such bonds would lower the cost of capital over a period of time – the cost remains one of the highest in Asia. This also makes sense given that Indian banks are reluctant to lend to sectors facing weak demand and heavy debt.

Benefits of Masala Bonds

It helps the Indian companies to diversify their bond portfolio. For example,earlier companies used to issue only corporate bonds. Masala bonds is an addition to their bond portfolio.
It helps the Indian companies to cut down cost. If the company issues any bond in India, it carries an interest rate of 7.5%-9.00% whereas; Masala Bonds outside India is issued below 7.00% interest rate.
It helps the Indian companies to tap a large number of investors as this bond is issued in the offshore market.
Masala bonds will help in building up foreign investors’ confidence in Indian economy and currency which will strengthen the foreign investments in the country.
An offshore investor earns better returns by investing in Masala bonds rather than byinvesting in his own country.For example, if he had invested in the bond offered in his own country the US, the bond yield is hardly 2% whereas if he invests in rupee denominated Masala Bond the yield ranges from 5.00% to 7.00%.
An investor will benefit from his investment in masala bondsif the rupee appreciates at the time of maturity. For example,Price of a bond in Rupee terms is Rs. 1050, INR/USD rate on investment date is Rs. 70, Amount Invested in USDis $17.5, Redemption Amount in Rupee terms is Rs. 1800, INR/USD rate on Redemption date is Rs. 60, so Redemption amount in USD would be $30. The investor pays $17.5 and receives $30, i.e., the investor is earning a profit of $12.5 on his investment.

As it is rupee denominated bond the risk will be borne by the investor. The issuer does not carry any currency risk by issuing this bond in the foreign market.
For example:
Price of a bond in Rupee terms: 1050
INR/USD rate on investment date: 60
Amount Invested in USD ($): 17.5
Redemption Amount in Rupee terms: 1110
INR/USD rate on Redemption date: 70
Redemption amount in USD ($): 15.85
The investor pays $17.5 and receives $15.85. The loss of $1.65 on his investment due to fluctuation in exchange rate has to be borne by the investor.

Masala bond will help the Indian corporates to reduce its interest cost burden on the debt amount on its balance sheet. The more of foreign funds can be used for infrastructural development in the country. Overall, the development of a Masala bond market would be positive for Indian firms, opening up potentially significant new sources of funding over External Commercial Borro wings (ECB).

Unlocking the value of HR in Merger and Acquisition

Since 1980s, Dramatic changes in the global business environment have been driving a wave of Merger and Acquisition in the world. Although they are undertaken for good reasons, many fail to meet their objectives, in part because HR issues are generally poorly understood, under managed, and often discarded at the outset as irrelevant to strategic planning process. Plenty of attention is paid to the legal, financial and operational elements of Merger and Acquisition. In today’s economy, the management of the human side of change is the real key to maximizing the value of a deal which was neglected earlier. The uncertainty during Merger and Acquisition activity divert the focus of employees from productive work issues like job security, career path, working in new departments, working with the new teams, integration of corporate cultures, retention level of compensation, payroll benefits and reward strategy etc. As M&A activity continuous to step up globally, companies involved in these transactions have the increased involvement & responsibility of HR professionals. In implementing an M&A, most of managers focus on financials. But success depends on how you deal with people issues and cultural integration. It depends on the people who drive the business, their ability to execute, Creativity and innovation. It is of utmost importance to involve HR professionals in M&A discussion as it has an impact on key people issues. By doing so, they will achieve a much better outcome and increase the chance that the overall deal is a total success.
Many companies report that their mergers are successful but admit the end results aren’t as successful as they could have been. Recent studies place the success rate of merged companies at 30 to 60 percent, depending on what criteria you measure. No matter how flawless a deal seems on paper, the results are often disappointing. Most merged organizations lose 1 to 10 percent of their market value in the first year after the merger. There’s a lot to learn about managing the transition period, optimizing short-term performance, keeping the highest percent of talent, and integrating processes and systems. Companies that don’t address those issues may suffer a loss of profitability, top talent, and confidence in leadership decisions. Although a multitude of factors can contribute to a disappointing merger or acquisition, success depends ultimately on the effective use of people. A recent report from the Bureau of Business Research shows that organizational and cultural problems are more likely to derail a merger than are financial factors. Only 28 percent of companies said they did a good job of assessing the culture of their merging organizations before the deal, only 26 percent said they had put the right people in the right roles during the merger, and a scant 15 percent said they had successfully communicated the vision and goals after the union. Beginning at the start of the process, HR must orchestrate its role in due diligence.
Role of HR Identifying the role HR should play and the tasks in which HR should engage is a good start. However, successfully executing the role is something altogether difference. It’s essential to assess the valued human assets that never show up on a balance sheet, in order to determine the true value of the deal and its likelihood of success. Looking at just one key issue, leadership, it’s essential to evaluate the strengths and weaknesses of the players, individually and collectively, to ensure that the management talent required to define the future of the new company is there to steer the chosen course. The HR manager, on the other hand, has an opportunity to influence events so that each company comes out ahead — but, to do that, the HR manager must preserve their own position. Even at the highest level of the company, HR can have a role. The new leadership team will need to work together on a daily basis, despite cultural and personality differences, power issues, and other barriers. HR can act as a facilitator, and also as a coach to individual executives. Personal and team assessments can be helpful in enabling team members to work together constructively. Some questions to ask during this phase are: What are each organization’s key strengths, weaknesses, opportunities, and threats? What is each organization’s strategy? How will they be merged? Is there a communication strategy to keep employees and customers informed? Are the cultures for the two organizations compatible? Is there a plan for merging the cultures? Will one be dominant, and, if so, how will people operating under the other culture be brought on board? Identifying the role HR should play and the tasks in which HR should engage is a good start. However, successfully executing the role is something altogether different. In this light, HR as an internal consulting group during a merger or takeover, along with quality or process engineering teams deal with several issues. Some key issues in mergers follow:

Effective Communication by Being Upfront and Honest:
As people look inwards to try to find their place in the merged company and attempt to see their future in it – or outside it – productivity drops. The grapevine can become a major source of headaches. Constant, consistent, and honest communication from leaders and HR is essential. Communication must begin with the first announcement. Then it is fragmented with different messages and information flowing to investors, employees, managers, and customers. Messages to all stakeholders must be well planned and consistent. There can never be enough repetition. The message must be heard again and again to be fully understood. Two-way communication always helps comprehension. All avenues should be used: written, one-on-one meetings, and small- and large-group meetings. People need a chance to probe, discuss, ask questions, and arrive at a personal level of understanding that they can’t get from a piece of paper. The overriding question is, “How does this affect me?” Speed in communication goes along with speed in the total integration. The goal of communications should be not only to inform, but also to engage employees’ hearts and minds. By presenting a clear vision of the future and gaining commitment to it, the new company begins to build the loyalty that’s crucial to survival.

Growth and Development of Preliminary Organisation Design:
The role of HR is to identify key human assets in the target company, development of preliminary organizational designs and identification of the top three levels of management creating development plans for people to prepare them to achieve the anticipated corporate growth. Other issues needing attention to maximize the growth synergy are deployment of appropriate resources in the new company, development of total reward and recognition programs for the combines companies, team development, and integration of benefit and compensation programs–ensuring they are competitive to attract and retain desirable employees. When mergers are contemplated, synergy and value often depend on the effective transfer of knowledge. As knowledge becomes an increasingly important corporate asset, it’s critical to capture the best practices of each company for maximum return. It starts with the relatively easy task of identifying the people and processes needed to keep the business operating as usual. It moves to training on systems, specific job skills, and procedures. Ultimately, it involves capturing the tacit knowledge and informal networks that enable an organization to get things done.

Power and conflict:
It is essential to bring conflict out to the surface and deal with power issues honestly. If one group is obviously in charge, that should be admitted early on so people don’t waste time with second-guessing. Often, people get wrapped up in turf wars which are destructive to both sides, rather than trying to figure out roles for both sides and have a win-win situation.

Integration of Corporate Culture.
Organizational culture is an organization’s shared values, beliefs, and preferred ways to behave – is a key to success, and though many talk about it, few seem to have the skills to grapple with culture and work with both organizations to assure a good fit. Many organizations use a brief cultural fit survey to assist them during mergers. To understand the similarities and differences between the cultures of the two companies involved, we have to look at the history of each company, its reputation in the industry, and its products and services. Although those are fixed, other factors that influence how a company operates and how employees, customers, and other stakeholders interact are critical to the effective functioning of the newly formed organization. Even location can affect the fit. A West Coast group of techies may have great difficulty merging successfully with an old-guard southern firm or a staid New England operation. Another issue to consider is where authority lies and how decisions are made. Are the companies bureaucratic or freewheeling? Formal or informal? Finally, there’s the emotional element. How do employees feel about the company, management, and the future? How much job satisfaction do people feel? How open are they to the new strategy? Also it’s important to identify the norms, the value systems, and beliefs. Practices regarding casual dress, attitudes about long hours, and how offices are apportioned are deeply ingrained and must be dealt with. One can’t consider culture compatibility without touching on the different views that the acquirer and the acquired have about the new company.

Retaining key talent
There is no one way to retain people during a merger or acquisition. We can make offers to certain people and if they accept and want to stay, that’s fine, if they don’t, that may also be fine. But when we are talking about key people, the picture changes. Key people don’t always mean top executives. Executives may be key in some respects, but there may be other employees who are more important to the workings of the enterprise. If we lose them, we can end up spending a lot of money and still be unsuccessful. Whether they’re technology specialists, marketing people, or top management, we must make certain they’ll stay. The next question: How long do we need them? Some talent may be needed only during the transition period, after which their responsibilities can be handed off. Others may be needed for much longer. Each person must be considered, and a plan must be put together for that person. The kind of agreement that’s drawn up and how far it goes to keep key talent will differ from organization to organization. But it’s best not to give away too much or keep someone who will never adapt to the new structure, simply because he or she is talented or highly thought of. We may have to let people go as a trade-off against disruptive attitudes or constant conflict. The appropriate fit of any one person in the new culture can be as critical to success as talent. A fair and equitable bonus must be in plan to make the talents feel special, and stay for the longer period. By this talented people tend to welcome the challenges of a new role, and they enjoy career growth and added responsibility.


Mergers and Acquisitions don’t follow a carefully laid-out linear progression. As much as we might desire a logical, well-ordered approach, when two groups combine, the process takes on a life of its own. Initial plans and assumptions have to be adjusted, and focus can be lost as critical and immediate problems rear their ugly heads. Executives are often pulled away to deal with the next business issue, reducing their visibility and giving the impression they’re no longer concerned about the merger. If the HR professionals can manage a degree of uncertainty in their responsibilities making the business direction clear, the chances of long-term success will be more.

Tapping customer cash to sponsor your start-up

“Money is only a tool, it will take you wherever you wish, but it will not replace you as a driver” Ayn Rand
In todays’ entrepreneurial spree, the terms like angel investments, venture capital (VC), crowd financing are so highly ranked that starting a start-up seems a cake walk. At least, the angels, crowd financing and VCs take away the first biggest hurdle to execute the great business ideas. One person every 150,000 Indians is aspiring for initiating start-up. The notion is that the short-cut to being richis to have a great business idea, arrange finance from the venture capitalists, angel investors or in crowd funding and immaculately accomplish success.
The recent Nasscom report is also an encouraging for the start-ups, according to which India has progressed to third position after the USA and the UK in the total count of the start-ups. India is found to be projecting commendable growth from the year 2015-20 with 9.5% nominal growth, where India ranked first among USA, the UK, Israel and China. The report projected that the rate of the start-ups initiating the new business has increased from 3-4 per day in the year 2015 to 6-7 per day by 2020. The next great news for the Indian start-ups is that the growth rate in India is exceeding the China’s growth rate in the year 2015. The enhanced growth rate is accentuated by the various reforms on ease of doing business, better governance, reduced inflation and reforms on digitization, among other initiatives. With increasing number of the venture capitalists at 156 and angel investors at 300 in the year 2014, Indian investment still contribute only 5% share of global VC funding. Thus, the next question arises what exactly is the criteria to attract VC funding?
The recent research supported that the businesses catering a smaller market than $1 billion of net revenues in the time span of 5 years fail to attract VCs and angels’ attention. The significant market sharebolsters against the possible future market entrants and strive to combat that level of business scale. With this criteria, the petite business models like gardening, music listening groups, or some models for the challenging sections of the society might not fit in it, however the whopping e-commerce, food and beverages, healthcare, might hail here.
Having talked about the business scale, the new start-up model should counteract bootlegging business model, else there is no dearth of the business to introduce the new business model to their existing line of businesses. The promoter’s qualification and professional experience, innovative projects undertaken also attracts the funding from VCs and angels. The extent of imitation can be conjectured from the patents filed for that business idea, and lead time to duplicate.For instance, the ecommerce models with already existing Flipkart, Snapdeal, Amazon might fail to attract many new VCs and angels.
The question arises here that how many business ideas get funded and are able to give good returns to the investors? According to Nasscom and Zinnov, 2015 report, total financing reaching the Indian startups till 2015 was estimated at $6.5billion, but one thig to be noticed that this the major funding has been for the technology related business ideas like ecommerce, analytics, health technology, payment portals among others. According to the Bain VC and PE report, the total number of the funds reaching India has grown by 40% during 2013-14 and India witnessed total of 456 funds. Having appreciated the growth, the number might not look very impressive in comparison to the number in the United States which is approximately 301,300. Thus, two prime issues have been identified here:one is available of the seed, angel or VC, and second is concentration of the funding for the technology related business ideas.
The research team led by John Mullins have suggested some business models which employs the customer cash to execute a business idea. These business ideas can be the rescue for the cash starved startups. He researched on these business ideas after being exposed the foundation of Airbnb. The founders of Airbnb helped some conference graduates by offering them the space in their homes during the conference, and a year later they formally announced the same as their business idea-helping people find an affordable and home-like place to stay. Airbnb made a great headline about their fetching the million dollars venture financing, however, there actual growth came from the advance booking amount that the customers pay them. This advance from customers helped them grow organically and be least dependent on the external financing as most start-ups are. Technically, this is also termed as negative working capital.
The businesses models that require a middleman services to bring together the customers together, for instance the real estate brokers who have no products to sell, but builds trust between two unknown customers and deploy their expertise in carrying out the property deal smoothly and legally. The business models like, help customers find the required flights, hotels, or complete tour packages. Ebay also fits in this model of providing a platform to bring the buyer and seller together and charges the fee for their services. is also peculiar for bringing the teachers and students together, thereby charging the commission. The peculiar feature is that the huge investment is not required for the products.
The news headlines like Maruti is accepting the advance booking for their new sub-compact SUV-VitaraBrezza can also be the pathway for some startups where they can come up with the business idea of seeking advance for the job to be done. Consider the model of the construction contractors, who work on the advance payments. The ‘Via world’, formerly ‘Flight raja’, identified that the penetration of the internet users were very limited in India. The website provided real time space to travel agents, for which they sought a deposit of Rs. 5,000 from travel agents. This business was in profits just three months after foundation and was able to attract VCs subsequently. The businesses seeking advance subscription requirements like the coaching centers, newspapers, cable networks, can also flourish on negative working capital.
The youth aspiring to start a startup which is cash starved can count on the aforementioned business ideas to quickly grow and grab the VCs and angels attention. The growth of the new businesses that can prove themselves viable in a short span of time cannot be prohibited. Thus, finance is not the only factor that holds back a startup, it’s the drive in the founder to prepare a business plan given the resources constraint; which can be managed using customer cash, or working out the negative working capital model for your business.

Book Review:An Uncertain Glory: India and its Contradictions

Authors: Jean Dreze and Amartya Sen
Published by Penguin Books ( 2014)
ISBN No. 978-0-141-97582-5

An Uncertain Glory: India and its Contradictions is published by Penguin Books in 2014 , wherein the two economists Jean Dreze and Amartya Sen pose a question that who are the actual beneficiaries of this growth. The book is an eye opener on two fronts one that the growth is not participatory and two public sources generated by economic growth have not been able to improve the living conditions of people at large.
There has been a lot of discussion on the caste, religion, gender discrimination, regional disparity and languages. But, ever increasing income inequality has often been obscured in all these discussions. In modern India this seems to be a major concern area wherein there has been a widening gap between the deprived community and ever growing opulent rich class. This book by Dreze and Sen narrates this divide between the privileged and ignored society as one of the biggest challenge which has seldom been highlighted in all the literature which has been creating a hype of ever growing and prosperous India.
An Uncertain Glory thus, is equally of interest for readers coming from economic, social and political background as it reveals the story of India’s development. There has been an implied notion amongst political and economic logics which believes that the benefit of economic development will eventually trickle down from the higher levels to the grass roots leading to development with a broader base. But, the fact here is that neither the colonial past nor the policies post independence addressed the issues of poverty, illiteracy and inequality effectively.
The country has overseen the rapid rate of growth which has successfully employed the skilled people and wealth accumulation for a few corporate. There has been a surge in the living standard of middle class. Despite this fact, India has experienced a lack of political will which could utilize growing resources for improving ‘education, healthcare, nutrition, social facilities, and other essentials of fuller and freer human life for all.
The authors demonstrate that “India is not doing well at all in many respects even in comparison with some of the poorest countries in the world” outside of sub- Saharan Africa and even in South Asia though ahead of neighbors in terms of per capita income, India’s developmental indicators stand ahead of only Pakistan, a country with a perpetually disturbed political situation.
Dreze and Sen have strongly raised an argument that markets cannot allocate the resources effectively in the area of education, healthcare and infrastructure services due to inherent externality effects and the state intervention thus becomes inevitable. But, along with that the public services in India have been suffering with the malaise of corruption and lack of accountability .These problems somehow are a major cause of ever increasing inequality in the country. Dreze and Sen have thus spoken about education especially at a higher level as an escape route for the unheard millions. This might curb the established practices viz. corruption and bribery.
The book becomes more relevant in the context of understanding the economic development process as there are solutions been given for global and local issues. The authors have emphasized upon the fact that high level of human development in Europe, Latin America or East Asia – plus others even among India’s South Asian neighbors such as Bangladesh and Sri Lanka are a result of prudent and rationalist intervention of the government. Although some of the state government like Kerala Tamil Nadu or Himachal Pradesh have successfully been able to provide public services like education, administration and addressing economic inequalities as compared to states with poor governance like Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odhisa, Rajasthan and Uttar Pradesh. In these states living standards are no better than some of the poorer states in Africa.
The ability of the government to hasten poverty alleviation, secure gender justice and produce a corruption-free society can only be ensured by informed political selection. While much has been made, and rightfully so, of India’s democracy, evident in the size of the country, the variety of political parties, a largely free press as well as in the ability to sustain the democratic process amidst vast poverty, Dreze and Sen stress India’s need “to make much greater use of the democratic system.” It is in this optimism, which recognizes that India indeed possesses the means of achieving broad development for all, that An Uncertain Glory maintains a tone of hope amid grounds for despair.
The book by Dreze and Sen is a powerful, thought provoking and strong narration of pertinent issues which have been ailing the country since long. The book highlights the range of both the contradictions and possibilities inherent in the country.