Month: October 2022

An employee stock purchase plan (ESPP) refers to a stock program that allows participating employees to purchase their organization’s stock at a discounted price. In some cases, organizations offer stock discounts as high as 15%. Rather than directly purchasing their organization’s stock, participating employees contribute to their plan through automatic payroll deduction.

Qualified Plans vs. Non-Qualified Plans

Generally, organizations offer two forms of employee stock purchase plans – qualified and non-qualified plans.

Qualified Plans

For an organizational-run qualified plan to be implemented, they must receive the approval of shareholders. Also, all qualified plan participants have equal rights, there must be restrictions on the maximum discount offered, and the offering period cannot surpass three years.

Non-Qualified Plans

Conversely, non-qualified plans are not subject to as many limitations as qualified plans. However, non-qualified plans have less desirable tax implications compared to qualified plans.

ESPP Process

Offering Date: The offering date is the period when payroll deductions begin.

Enrollment Period: The enrollment period is the period of time where you can choose to either enroll or deny entry into the purchase plan.

Offering Period: The offering period is an extension of the offering date. The extension can be as long as a maximum of 27 months.

Purchase Date: The purchase date is the final day of the purchasing period. It is when payroll contributions are used to buy organizational stocks.

Purchase Period: The purchase period is a subset of the offering period that generally occurs every six months.

Taxation of ESPPs

Tax charged on the discount allowed by the company as a benefit derived from your employment. The amount chargeable is the difference between the:

• Market value of the shares when they are purchased on your behalf
• Amount you pay for those shares.

Important Dates

Participation in the company ESPP may only commence after the offering period has begun. This period begins on the offering date, and this date corresponds with the grant date for the stock option plans. The purchase date will mark the end of the payroll deduction period. Some offering periods have multiple purchase dates in which stock may be purchased.

Eligibility

ESPPs typically do not allow individuals who own more than 5% of company stock to participate. Restrictions are often in place to disallow employees who have not been employed with the company for a specified duration often one year. All other employees typically have the option, but not the obligation, to participate in the plan.

Key Figures

During the application period, employees state the amount to be deducted from their pay and contributed to the plan. This may be subject to a percentage limitation.

Financial Reporting may be defined as communication of published financial statements and related information from a business enterprise to third parties (external users) including shareholders, creditors, customers, governmental authorities and the public. It is the reporting of accounting information of an entity (individual, firm, company, government enterprise) to a user or group of users.

Company financial reporting is a total communication system involving the company as issuer (preparer); the investors and creditors as primary users, other external users; the accounting profession as measurers and auditors; and the company law regulatory or administrative authorities.

Nature

• Accounting Conventions:

\Accounting Standards prescribe certain conventions applicable in the process of accounting. We have to apply these conventions while preparing these statements. For example, the valuation of inventory at cost price or market price, depending on whichever is lower.

• Recorded facts:

We need to first record facts in monetary form to create the statements. For this, we need to account for figures of accounts like fixed assets, cash, trade receivables, etc.

• Postulates:

Apart from conventions, even postulates play a big role in the preparation of these statements. Postulates are basically presumptions that we must make in accounting. For example, the going concern postulate presumes a business will exist for a long time. Hence, we have to treat assets on a historical cost basis.

• Personal judgments:

Even personal opinions and judgments play a big role in the preparation of these statements. Thus, we have to rely on our own estimates while calculating things like depreciation.

Function

• Investment Decisions

Investors use the information to decide whether to invest, and the price per share at which they want to invest. An acquirer uses the information to develop a price at which to offer to buy a business.

• Credit Decisions

Lenders use the entire set of information in the financials to determine whether they should extend credit to a business, or restrict the amount of credit already extended. Financial statements may sometimes be used as the basis for terminating an outstanding loan.

• Taxation Decisions

Taxation decisions. Government entities may tax a business based on its assets or income, and can derive this information from the financials.

• Subsidiary Evaluations

Financial statements can be presented for individual subsidiaries or business segments, to determine their results at a more refined level of detail.

• Union Bargaining Decisions

A union can base its bargaining positions on the perceived ability of a business to pay; this information can be gleaned from the financial statements. Thus, a union may not push too hard if an employer has suffered losses for several years in a row.

Objectives

An evaluation of company financial reporting requires some agreement on its objectives. Financial reporting is not an end in itself but is a means to certain objectives.

The objectives of financial reporting and financial statements have been discussed for a long time. While there is no final statement on objectives, to which all parties (of financial reporting) have agreed, some consensus has been developing on the objectives of financial reporting.

At present, the following may be described as the primary objectives of financial reporting:

(а) Investment Decision-making.

(b) Management Accountability.

(a) Investment Decision-Making:

The basic objective of financial reporting is to provide information useful to investors, creditors and other users in making sound investment decisions. These decisions concern the efficient allocation of investment funds and the selection among investment opportunities.

The True-blood Committee stated that “…the basic objective of financial statements is to provide information useful for making economic decisions.” Recently, the FASB (USA) in its Concept No. 1 also concluded that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions.

It is essential to have an understanding of the investment decision process applied by external users in order to provide useful information to them. The investors seek such investment which will provide the greatest total return with an acceptable range of risk. Investment return is comprised of future interest or dividends and capital appreciation (or loss).

The investors while making investment decisions aim to determine the amount and certainty of a company’s future earning power in order to estimate their future cash return in dividends and capital appreciation. Earning power is the ability of a business firm to produce continuous earnings from the operating assets of the business over a period of years, which may differ from accounting net income.

The financial statements and other business data are analysed in relation to the enterprise’s environment to project this future earning power. Investors compare returns on alternative investments relative to risk, which (risk) is the degree of uncertainty of future returns. The risk premium is a measure of uncertainty which is defined as the possible variation of the actual from the expected return.

The investment decision process may be pictured as a three-legged stool. One leg is the analysis of the company and its securities and of the industry in which it operates. The second is the assessment of the economic environment, including the business outlook, financial markets and interest rates, international trade and finance, and political and regulatory developments.

The third is the portfolio decision in which these two streams of information are integrated into an investment appraisal related to the objectives of the investor individual or fund.

Portfolio decisions sort out expected rates of return relative to risk, as the investor (portfolio manager) seeks that combination of securities which will produce the highest total return available within the risk constraints adopted for the portfolio. In this continual winnowing process, investment funds tend to flow toward the most favourably situated companies and industries and away from the weaker and less promising areas.

Investment decision and investment values, both, are comparative, not absolute. In all investment decisions, comparison is made in order to determine the most attractive (greatest) returns in relation to risk first, comparison between one type of security us. another; second, comparison between one company vs. another within each category; third, comparison within a company over time.

Comparison requires uniform standards of measurement. Where different accounting measurements are used in similar situations, investors and financial analysts make their own accounting adjustments to achieve comparability, provided adequate information is available to do so.

But the attribute of comparability can be achieved at a lower cost (associated with financial reporting system), and with equal benefit for all investors, by eliminating the alternatives.

(b) Management Accountability:

A second basic objective of financial reporting is to provide information on management accountability to judge management’s effectiveness in utilizing the resources and running the enterprise.

Management of an enterprise is periodically accountable to the owners not only for the custody and sale-keeping of enterprise resources, but also for their efficient and profitable use and for protecting them to the extent possible from unfavorable economic impacts of factors in the economy such as technological changes, inflation or deflations.

Management accountability is of very great interest not only to existing shareholders and other users but also to potential shareholders, creditors and users. A company generally offers shares, debentures etc., to the prospective investing public and therefore it should accept accountability responsibilities to prospective investors also. Certainly annual and other financial statements is intended to play a major role in this regard.

The management accountability concept includes information about future activities, budgets, forecast financial statements, capital expenditure proposal etc. Accountability is beyond the narrow limits of companies’ regal responsibilities to shareholders (and sometimes debenture-holder and creditors).

It obviously includes the interests of persons other than existing shareholders. Management is accountable for the values of assets as well as for their costs. In this way, the financial statements not only inform but also protect the various interests of the shareholders and other users.

There is a school of thought which contends that financial accounting and reporting based on ‘decision-making’ may differ from financial accounting and reporting based on ‘accountability objective’.

This is because decision-making objective and accountability objective differ from each other in some respects such as the following:

Firstly, ‘economic decision-making objective’ focus on the contents of financial statements and how the information reported therein are useful to economic decisions. This objective emphasises more the reliability of information than the accounting system used in producing financial statements.

For instance, cash balance appearing on a balance sheet, if it reflects actual cash balance, will contribute to the decision-making objective and it is immaterial whether cash balance has been determined on the basis of cash book or after mere cash count at the end of an accounting period.

On the other hand, ‘management accountability objective’ mainly emphasises accounting system and procedures used in producing financial statements and other related information. It implies that financial statement figures are supported by adequate documents, records and system.

Secondly, the decision-making objective assumes that the accountant should aim at serving the decision-makers’ informational requirements. That is, his task is to design an information system which is most useful to users in helping them to make sound decisions.

Benefits

• Better Transparency of Records:

It helps the organization present better to increase the transparency of records.

• Helps in Ratio Analysis:

It helps in ratio analysis so that the trends can be compared with the industry and measure performance.

• Improved Legal Compliance:

It improves legal compliance as the organization can comply with more legal formalities due to public presentations.

• Better Decisions:

It helps to make better decisions to safeguard investments.

Limitations of Financial Reporting

• Comparable Not Presented:

In the financial reporting presentation, only the current year’s data is presented. Comparison with the previous year is not reflected hence it becomes difficult for investors to compare.

• No Discussions of Non-Financial Data:

Non-financial data is not presented and reported in the financial reporting framework. Hence the important non-financial data remains unaffected.

• Presented for Specific Time Period:

It is presented for the period mentioned instead of from the beginning to the end of the period to make a better clear picture.

A dividend is a part of the profit that is distributed among the shareholders. When there is more profit, it increases the dividends which, in turn, increase the stock price of the firm and vice versa, when there is less profit it decreases the dividend payment and the stock price.

Dividend Policy and Stock Value:

Dividend Irrelevance Theory: This theory purports that a firm’s dividend policy has no effect on either its value or its cost of capital. Investors value dividends and capital gains equally.

Optimal Dividend Policy: Proponents believe that there is a dividend policy that strikes a balance between current dividends and future growth that maximizes the firm’s stock price.

Dividend Relevance Theory: The value of a firm is affected by its dividend policy. The optimal dividend policy is the one that maximizes the firm’s value.

Litzenberger and Ramaswamy (1982) showed that dividend policy influences investor behaviors as a result of disparity in taxation on dividends and capital gains. The authors believed that investors prefer low-dividend businesses since the amount of taxes payable is minimized. Jensen and Meckling (1976) stated that there is a tradeoff in the form of agency costs between having more or less insider ownership. Agency costs are created whenever the manager also controls an outsider’s investment besides her own, because there is a fundamental conflict of interest.

The next underlying theory is the pecking order theory which was first introduced by Donaldson (1961) and modified by Myers and Majluf (1984). The Pecking Order Theory relates to a company’s capital structure. The theory states that managers follow a hierarchy when considering sources of financing. The pecking order theory arises from the concept of asymmetric information which causes an imbalance in transaction power. Company managers typically possess more information regarding the company’s performance, prospects, risks, and future outlook than external users such as creditors (debt holders) and investors (shareholders). Therefore, to compensate for information asymmetry, external information users demand a higher return to counter the risk that they are taking. As opposed to external financing, internal financing is the cheapest and most convenient source of financing.

Another underlying theory for dividend policies is the signaling theory that was firstly introduced by Spence (1973) and it is useful for describing behavior when two parties (individuals or organizations) have access to different information sources as sender or receiver and both parties act differently. Dividend signaling is a theory that suggests that company announcements of dividend increases are an indication of positive future results. Increases in a company’s dividend payout generally forecast a positive future performance of the company’s stock. In the finance area, the reporting principle shows that the shift in dividends will give shareholders an indication of the future profitability of the business and perceptions of management. Management will not increase dividends unless it is certain that future earnings will meet the dividend increase. The decline in dividend payout is considered a negative signal because investors will think that the company’s future earnings are going to decrease.

Capital budgeting is a company’s formal process used for evaluating potential expenditures or investments that are significant in amount. It involves the decision to invest the current funds for addition, disposition, modification or replacement of fixed assets. The large expenditures include the purchase of fixed assets like land and building, new equipment’s, rebuilding or replacing existing equipment’s, research and development, etc. The large amounts spent for these types of projects are known as capital expenditures. Capital Budgeting is a tool for maximizing a company’s future profits since most companies are able to manage only a limited number of large projects at any one time.

Factors affecting capital budgeting decisions are;

Technological changes:

Before taking CBD, management must undertake in-depth study of cost of new product /equipment as well productive efficiencies of new as well as old equipment.

Demand forecast:

Analysis of demand for a long period must be undertaken before CBD.

Competitive strategy:

If a competitor is going for new machinery /equipment of high capacity and cost effective, we may have to follow that.

Minimum Rate of Return on Investment

Every management expects a minimum rate of return or cut-off rate on capital investment. It refers to the point of below which a project would not be accepted.

Legal Compulsions

The management should consider the legal provisions while-selecting a project. In the case of leather and chemical industries, there are number of legal provisions created to protect environment pollution. Now, the management gives much importance to legal provisions rather than cost and profit.

Type of management:

If management is innovative, firm may go for new equipment’s/ investment as compared to conservative management.  

Cash flow:

Cash flow statement or cash budget helps a firm in identifying time when a firm can make investment in CBD. All the projects are not requiring the same level of investments. Some projects require huge amount and having high profitability. If the company does not have adequate funds, such projects may be given up.

Other factors:

Like fiscal policy (tax concessions, rebate on investments) political stability, global situation etc.

Corporate farming is the practice of large-scale agriculture on farms owned or greatly influenced by large companies. This includes corporate ownership of farms and selling of agricultural products, as well as the roles of these companies in influencing agricultural education, research, and public policy through funding initiatives and lobbying efforts.

The definition and effects of corporate farming on agriculture are widely debated, though sources that describe large businesses in agriculture as “Corporate farms” may portray them negatively.

Legal definitions

Most legal definitions of corporate farming in the United States pertain to tax laws, anti–corporate farming laws, and census data collection. These definitions mostly reference farm income, indicating farms over a certain threshold as corporate farms, as well as ownership of the farm, specifically targeting farms that do not pass ownership through family lines.

Common definitions

In public discourse, the term “corporate farming” lacks a firmly established definition and is variously applied. However, several features of the term’s usage frequently arise:

• It is largely used as a pejorative with strong negative connotations.
• It most commonly refers to corporations that are large-scale farms, market agricultural technologies (in particular pesticides, fertilizers, and GMO’s), have significant economic and political influence, or some combination of the three.
• It is usually used in opposition to family farms and new agricultural movements, such as sustainable agriculture and the local food movement.

Farming contracts are agreements between a farmer and a buyer that stipulates what the farmer will grow and how much they will grow usually in return for guaranteed purchase of the product or financial support in purchase of inputs (e.g. feed for livestock growers). In most instances of contract farming, the farm is family owned while the buyer is a larger corporation. This makes it difficult to distinguish the contract farmers from “corporate farms,” because they are family farms but with significant corporate influence. This subtle distinction left a loop-hole in many state laws that prohibited corporate farming, effectively allowing corporations to farm in these states as long as they contracted with local farm owners.

Arguments against corporate farming

Family farms maintain traditions including environmental stewardship and taking longer views than companies seeking profits. Family farmers may have greater knowledge about soil and crop types, terrains, weather and other features specific to particular local areas of land can be passed from parent to child over generations, which would be harder for corporate managers to grasp.

Advantages:

1. Farmers are facing problem of credit and income; and this is a way out for them.
2. They become economically stable and also get agricultural credit.
3. They get seeds, fertilizers, modern equipment, etc. through the company for farming which is difficult to get when pursuing farming on their own, owing to their poor economic condition.
4. There is skill development among the farmers which can be useful when they pursue farming on their own later on (if they choose to).
5. There is infrastructure development due to contract and corporate farming as the company takes care of transporting and storing of the produce.
6. The farmer no longer is dependent on the volatility of the market. Also the exploitation of farmers by the intermediaries is removed by direct contract with the company.
7. Contract farming can open up new markets which would otherwise be unavailable to small farmers.
8. In India, land holdings are getting smaller and smaller. The companies can convince many farmers and bring many of them together under contract to have a continuous stretch of land for farming. This will help in mechanization of agriculture and help increase the per head income of the farmers themselves.
9. Many sell land or keep it uncultivated as agriculture is seen as a non-profitable profession nowadays. Such innovations can turn people towards agriculture again and give it a business oriented and profitable outlook.
10. This is also profitable for the sponsors as they get a consistent quality and production.

Disadvantages:

1. This is similar to indigo cultivation done by British where the farmers produced under an obligation. There physical force was used; here they use economic force and enticement trying to encash on the poverty and need of the farmers.
2. Traditional varieties are going extinct due to negligence towards them. Companies force the farmers to use seeds given by the company itself.
3. Economically the farmer becomes dependent on the companies. It becomes sort of a laborer who is working for a master and the farmers no longer have a feeling of ownership of land. Some corporations actually buy agricultural land and employ the previous owner-farmers as workers in the land. (This is similar to estate farming.)
4. There is feeling of alienation among the farmers as they hold no right over the produced crop. The product of their efforts is not theirs; just like Karl Marx said about the industrial workers where they get wages and have no right over the product of their labor.
5. They have to work as per strict rules laid down by the company which may contradict their social customs and culture. A feeling of subservience might creep up in the farmers.
6. Sponsoring companies may be unreliable or exploit the farmers. If they are the only buyers it creates a monopolistic situation which can be exploited by them. Who will be responsible in such scenarios?
7. If a company denies purchasing the produce owing to low standards reason, the loss falls on the head of the farmer itself. Who will be responsible in such cases of dishonoring the contracts?
8. The companies are a stronger group; a fight with whom, the farmers cannot afford. Currently the government has no role in this type of farming. This is between the company and the farmer as per the contract. So there is no use going to the government on dishonoring of the contract by any parties. There is no grievance redressal forum for such cases.
9. Indebtedness and over reliance on advances are other problems. Farmers may start to rely heavily on the advances given by the company and may not be able to get out of the contract even if they want to.
10. Sometimes land which traditionally is under food crops might be selected by the company for their crops.
11. Due to high mechanization in corporate farming lot of work is done by machines alone and that can increase unemployment. In India agriculture employs a considerable amount of people.
12. Due to use of chemical pesticides and fertilizers there is soil degradation. The farmer cannot stop the use of chemical inputs as they are necessary for high yield. Thus there is land degradation.

All the financial transactions which are to be done electronically are known as E-payments, without using or involving any cash and cheque in physical. It is an online based payment system, done through the internet. In the E-payment system a person can make transactions (make payments, transfer of funds, booking anything online,etc) to another person or business without involving any physical cash, without minding the time, location and the amount of money. With this kind of advancement of technology and growing internet’s popularity, buying and selling goods & services online have been increasing exceedingly, over the past few years, resulting in the need for a robustE-payment system.

Around 70 per cent of the Indian population live in rural areas, and they contribute a keyproportion in the growth of the country’s GDP.  People living in remote areas and villages lack in the technological skills which are most necessary when it comes to the e-payment system. The Government of India should encourage the concept of  ‘Smart Villages’ along with ‘smart cities’. With the advancement in services of the banking sector various easy methods of payment have been developed like RTGS, NEFT, Mobile Banking and Internet Banking but in rural areas the majority of people are unaware of this system.

Rural Literacy

India, a country of 139 crore people in it, where only 35% of people lives in the urban areas, which contributes about roughly 63% of GDP, while the remaining population live in rural areas, that are 65% of total population, who contribute only 27% to the GDP. With the majority of 65% in the rural areas, they are underdeveloped with no modern education of the age, still too far from the digitalization. There is a huge potential lying there, which can lead India to its vision of a $5 trillion economy in recent upcoming years. The Indian government started many initiatives intended to fill this “digital literacy gap” and make India a digital empowering society.

Cost of Upgrade

On the very day when demonetization happened, banning of 500 and 1000 rupees did give a huge setback to the economy. Urban area people are educated and lean toward the idea of a digital economy using digital payment, as they have the means for it, like smartphones, computers, and technology & have the education to understand it and do it properly. On the other hand, in rural areas there is nothing like that, literacy rate is low, 50% of people don’t have their own phone, not even smartphone, those who have the phone, out of them most of them have keypad 2g phones.

Banking Structure

Banks play an important role in the digitalization transition. After 8 November 2016, over 2 crore accounts were opened in a month throughout the country. The Finance Minister has asked once again to all the banks for opening these no-frill accounts to ensure that unorganized sector workers, including daily wage earners, have access to formal banking channels, a step that will help the government’s agenda towards the digital economy.

The rural marketing structure is not uniform in all parts of the country. The type of structure prevalent in a particular State or Region depends on various factors like the state of development of agriculture, condition of transport and communication facilities, purchasing power of population, etc.

In the North-Eastern region and far-flung areas of the country where the ‘agricultural production and levels of income are low and communication and transport facilities are not available the marketing structure comprises predominantly. Primary markets like hats and shandies which have sprung-up at convenient places to cater to the needs of the local population.

At the other end are areas in North-West like Punjab and Haryana where the agriculture and other facilities are developed. The market structure comprises a larger number of organised markets.

However, rural markets of India can be broadly categorised into three types.

They are:

Periodic Markets:

Periodic markets are the important characteristic feature of the rural marketing in India. In spite of urbanisation and development of retail stores, periodic markets are also playing an important role in rural economy as well as in social life of the rural masses. The periodic marketing function is performed by two institutions, viz., fairs, and weekly markets.

A fair denotes a gathering of people who assemble at regular intervals in certain fixed placesgenerally around shrines or other religious institutions. Although, by far the largest number of fairs have a religious background, there are some which owe then origin to purely economic considerations.

A general concept regarding Inn is that they are simply an occasion for the recreation of rural folk. These fairs provide an opportunity for rural people for yearly and half-yearly, sometimes be-biennial or once in 12 years like that of Kumbha-Mela, Godavari Pushkarmas, etc.

The purchase and sale of goods, etc. The important fairs draw people not only from surround­ing tracts, but also from very distant places. There are about 1700 fairs organised in different parts of the country involving produce and also livestock. There are a few fairs which are attended by a few lakhs of population and there are others which are attended by a few thousands.

On an average, the attendance per fair works out at about 16,000. The periodicity of fair varies from one fair in one state with that of another in other States also from one region to another within the State. The time schedule of a fair may vary between 1 day to 7 days.

The various types of fairs include:

1. On the basis of Primary Purpose:

(a) Religious fair,

(b) Commercial fair,

(c) Commodity fair,

(d) Cattle fair,

(e) Exhibition fair, and

(f) Mixed fair.

1. On the basis of the periodicity:

(a) One-day fair,

(b) Short- duration fair, and

(c) Long-duration fair.

iii. On the basis of their importance or area of influence:

(a) Local fair,

(b) Regional fair,

(c) Inter-regional fair or national fairs

Now-a-days international fairs are also organised by the Governments. Festivals of India, organised by the Government of India in important cities of several countries like USA, France and Germany, etc., belong to this category. However, with the change in rural economy, the pattern of shopping in fairs has also been changed.

The development of permanent shops in rural areas and easy contact with towns have also changed the shopping practice of the rural people. But the importance of fairs is still the same, due to behavioural pattern of rural people who always wait for the purchase of many items. The State Governments are also helping in popularizing the fairs.

Paintings, hats, shandies, bazaars are different names employed in various parts of the country to designate periodical markets held usually once or twice a week and in some cases even often. They are commonly known as weekly markets. However, there is slight distinction between these terms.

For example, the term paints, is used in united province to denote a periodical market dealing more in agricultural produce than in livestock, whereas in a hat the reverse is the case.

As the goods and services of daily market or permanent shops are not available in remote rural areas, most of the villages are not connected with all-weather roads. Added to this, the state of agriculture is subsistence, peasants have to dispose their meagre surpluses on one hand and have to purchase limited manufactured goods on the other.

Created out of this situation in rural areas are weekly markets, and to purchase their daily consumption goods. A periodic market is a public gathering of buyers and sellers of commodities meeting an appointed or customary location at regular intervals. Though the time varies between different regions, in most of the cases these meet once in a week.

The number of hats or weekly markets held in various parts of the country are estimated around 22,000. These markets are found in greater numbers (80%) in the eastern and north eastern regions of the country comprising Assam, Bengal, Bihar, United Provinces and Central Province.

Out of the States, Hyderabad State occupies the first position with as many as 1,000 hats. Gwalior, Travancore, Mysore and Bhopal followed with 300,225, and 200 hats respectively.

Most of the weekly markets serve an area within a radius of 8 to 16 kms. In some States like Maharashtra and Tamil Nadu, these markets serve a larger area while in northeastern states these serve a smaller area. Transactions are mostly on cash basis though the barter system is still in practice.

The volume of produce traded, commodities traded, number of villages and the population served by the weekly markets differ considerably from State to State and from market to market within the same State. For example, the number of villages served varies from 27 in the case of markets in Andhra Pradesh to 277 in case of markets in Bihar.

In terms of the population served, the variation is 40,000 in respect of a market in Andhra Pradesh to 1,83,000 in the case of market in Gujarat.

However, the weekly markets at the village level are generally devoid of most of the market facilities. The consumers are subjected so many malpractices indulged in by the traders both in purchasing farms produce from the rural masses and also in selling their required consumer goods to them.

In spite of this, these markets serve as an important marketing institution in rural areas. Most of the agricultural labour who get their wages once in a week visit these markets and purchase their consumption goods.

Mobile Traders:

There is another important agency known as mobile traders to fulfill the limited needs like vegetables, fruits, clothes, utensils, cosmetics, spices, toiletries etc. of rural consumers. The practice of mobile trading is not a new one, but even in ancient India this phenomenon was common.

The mobile traders are those merchants who move from one place to another, from one house to another in order to sell those commodities which are often required by rural masses. As it is rightly observed by Stine, important reason for the existence of mobile trader is that when the maximum range is smaller than the threshold requirement of the firm, the firm either ceases to function or else it becomes mobile.

Even in those villages where there are permanent shops and weekly markets, there is a phase for mobile traders because of behavioural pattern of rural masses. Mobile traders move from one village to another on foot or bicycle or buses, bullock carts, etc. They visit the villages once or twice in a week. Sometimes, they visit those villages which are on the way of weekly markets in return direction after attending these weekly markets.

While moving from one house to another within the village they loudly announce the name of the commodity which they sell such as chadar, (bed sheet), pandlu (fruits), gajulu (Bangles), palu, perugu (milk and curd), etc. There will be too such haggling in price fixation. The payment is made either in cash or in kind in the form of foodgrains. Sometimes these traders extend credit upto periods harvests.

Mobile traders move in groups or 3 to 5 persons carrying different types or similar types of articles. They move only in those parts of the village, they have decided at the time of the entry. Female mobile traders are also found significantly dealing in cosmetics, utensils, toiletries, plastic goods, spices, etc.

During harvesting season, the frequency of visits by mobile traders is more. Most of these traders belong to certain castes like Poosala in Andhra Pradesh. These mobile traders are an integral part of the rural marketing system.

One important aspect of designing products for rural markets is the product fit with the rural lifestyle and environment.

Some new products introduced in rural markets are 5-kg cooking gas cylinder by HPCL; Jolly batter-operated color TV, Philips Free Power Radio, Kisan Credit Card etc.

The Process involves

Idea Generation

The first stage of the New Product Development is the idea generation.

In rural homes, the detergent bar used for washing clothes is cut into two pieces before use to ensure that it lasts longer due to less melting. But no marketer has addressed this need so far.

Similarly areas with a problem of hard water would appreciate detergents able to cope with this factor.

Idea Screening

This second step of new product development involves finding those good and feasible ideas and discarding those which aren’t.

Concept Development and Testing

• A concept is a detailed strategy or blueprint version of the idea.
• Concept Testing in rural market needs to be done in different regions, as needs change from area to area depending upon the characteristics of a particular region.
• A concept of low-cost dry toilet promoted by UNICEF (requiring less water) was appreciated in water-scarce regions of Rajasthan, but was opposed in other regions where water availability is not a problem.

Business Strategy Analysis and Development

The testing results help the business in coming up with the final concept to be developed into a product.

Estimated product profitability, marketing mix, and other product strategies are decided for the product.

Product Development

Once all the strategies are approved, the product concept is transformed into an actual tangible product.

This development stage of new product development results in building up of a prototype or a limited production model.

Test Marketing

Unlike concept testing, the prototype is introduced for research and feedback in the test marketing phase.

This process is of utmost importance as it validates the whole concept and makes the company ready for the launch.

This is the most important factor in deciding the success or failure of the product. It becomes critical in the rural context where failure rates are high.

Eicher Tractors aborted its idea of generating electricity through its tractors with the use of a generator powered by tractor engine. This was because the company found that it could not take care of the farmer’s agricultural power purposes and could only be used for domestic purposes. It found that farmers use 5-KW water pumps for irrigation which ran on 3-phase power supply. Hence the company’s single-phase, 3KW generator was not suitable. Because of limited space on tractors a bigger one could not be fit either.

Commercialization

The marketing mix is now put to use.

Markets are decided for the product to launch in.