Tag: SEBI

Power is the ability to impose your will on others, whereas influence is the ability to deeply affect behaviors and beliefs.

As a leader, you’ll need to use your power once in a while to steer the ship. But when you use influence to lead, you’ll slowly build deeper trust and loyalty with your team.

When you lose a position of power, you lose the power that came with it, but not the influence you generated.

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Power leadership

Power leadership uses sources of power instead of influence to motivate others to act.

With power leadership, you can influence how others act, but it won’t necessarily change what people believe and how committed they are.

Power leadership also tends to centralize power and decision-making to one person.

Instead of working to develop trust in your team and get your team to trust you, you focus on finding external ways to drive performance.

If you rely solely on power leadership, you don’t necessarily try to get feedback from your team. Although, it doesn’t mean you aren’t willing to listen when it comes your way.

Power relies heavily on forcing team members to do something through the use of threats, whether they’re implied or explicit. Intimidation is achieved by creating the belief that if an employee does not comply, they will face punishment whether that means being fired, losing out on a promotion or being berated in a public space. This kind of negative leadership can create the feeling amongst team members that they have no choice but to do things a certain way.

Power remains in the hands of one person, or a small group. This independent approach to leadership means that the team is not consulted during the decision-making process, and are often micromanaged to ensure that the leader’s methods are upheld. This undemocratic response to leadership removes a sense of responsibility from the team, decreasing morale.

Influence leadership

Influence leadership is having an impact on the beliefs and actions of the people you are leading.

You notice how the people you lead become motivated and committed, and you use what you know to generate positive results.

Influence leadership in management is based on two-way trust with the people you lead. 59% of leaders consider employee feedback a high priority, and building this trust can help make way for this feedback.

As an influential leader, this means you are not only open to receiving constructive feedback, but actively encourage it. You understand that feedback is necessary to improve the wellness of the entire team and help you improve as a leader.

Influence understands that teamwork is a dependent process: the team is dependent on their leader for guidance and the leader is dependent on employees to produce excellent work. As a result, there is a shift from autocratic decision-making to an emphasis on transparency and getting the team involved at various stages of a project’s inception. This approach means that team members feel valued, and as a result, produce work that reflects that.

Influence leads to an entirely voluntary approach to completing work. Through the use of positive affirmations and encouragement, influence results in the team feeling that they have a choice in both the work they’re required to complete as well as the means they take to get it done. Threats are traded in for persuasion and negotiation to allow employees more control over the work they’re doing.

Regulation of FDI and foreign exchange

The Reserve Bank of India (RBI) controls all foreign exchange inflows and outflows, directly or through the banking system. Foreign direct investment (FDI) in India was historically heavily regulated, it is now more liberalised. However there are detailed compliance requirements for remittance of capital into India and for repatriation of profits to a parent outside India. Remitting money into or out of India through banking channels also requires a substantial amount of paperwork. Similarly, taking a loan from an overseas parent company falls under the External Commercial Borrowing (ECB) guidelines which restrict certain sectors from borrowing and place limits on amounts, interest rates, agreements, etc.

Complex taxation systems

India has both direct and indirect taxation in the form of income tax (IT) and goods and services tax (GST). The latter replaces many taxes, including service tax, value added tax, central sales tax and others. Both IT and GST systems are moving towards greater online reporting, however both require in-depth analysis and interpretation of tax law. There are also several monthly, quarterly and annual tax compliances for companies of all sizes. In addition to this, tax scrutiny/assessment or tax audit can often be a lengthy, time-consuming process, with extraneous factors influencing outcomes at times.

Complex legal systems and slow-moving judiciary

A relic of the British era, India’s legal system is complicated and often archaic. There are several legacy laws that continue to apply to companies and individuals. All businesses require multiple registrations and certificates and manufacturing entities face the highest compliance burden. Labour laws are strict, however most small to medium sized companies do not have strong unions. Delays in court cases can stretch to decades and it is quite ordinary for all directors of a company to received personal notices in litigations against the company.

Differences in market

In size and scope, India is an extremely complex marketplace. For consumer brands in particular, it can be overwhelming to formulate a strategy. This is because of the multitude of regional languages, the varied income ranges of consumers, the difficulty of setting up a distribution network and so on. Local competition usually exists and has the first mover advantage. There is also a thriving and fragmented unorganised sector which cannot be analysed and competed with.

Wealth Management Services Used

• Independent financial advisers are more widely being used than firms that position themselves as wealth managers.
• Younger potential clients use a wealth management service as a one-stop shop.
• Poor service and poor communication are the key reasons for dissatisfaction with a wealth manager.

Investment Preferences

• Potential clients in both age groups favour an advisory portfolio management approach where every investment transaction is first approved by the client. So discretionary mandates are declining and Clients are increasingly becoming more active in the investment decision making process.
• Overall, clients want to focus on core asset classes such as equities and bonds, with less interest in non-core instruments. Younger clients show marginally more interest in specialist areas such as emerging markets.
• Clients are increasingly going for a customized portfolio creation than just investing in model portfolios.

Client-led not sales-led proposition: wealth managers need to show how they differ from other intermediaries. Primarily this requires a business structure that enables the Wealth Management Organizations to focus on quality of client advice, not volume of product sales.

STP

STP is a useful tool in mutual funds to average your investment over a specific period. To decide on whether one should do an STP or lump sum depends on three factors an investor’s current allocation to equities, the risk profile of the investor and finally, the market view. For instance, to invest Rs.1 lakh in an equity fund using STP, you may first select either an ultra-short-term fund or a liquid fund.

Features of a Systematic Transfer Plan

Entry & Exit load

To apply for an STP, you need to do at least six capital transfers from one mutual fund to another. While you are free from entry load, SEBI allows fund houses to charge exit load. However, the exit load cannot exceed 2%.

Minimum Investment

There is no standard minimum investment amount to invest in the source fund. However, some AMCs insist on a minimum amount of Rs.12,000 in their systematic transfer plans.

Taxation on STPs

While an STP is a good strategy, you should be aware of the tax implications and exit loads on the transfer. Every transfer from one fund to another is considered as redemption and new investment. The redemption is usually taxable. The money transferred within the first three years from a debt fund is subject to short-term capital gains tax (STCG). But even with this tax aspect, the returns earned would be higher than those in a bank account.

Disciplined & Lucrative

Systematic Transfer Plan (STP) enables a disciplined and planned transfer of funds between two mutual fund schemes. In most cases, investors initiate an STP from a debt fund to an equity fund.

Investment steps of STP:

First Step: As soon as the lump-sum amount gets credited into bank account, go to websites like moneycontrol or valuereserachonline and pick a good debt based & equity based mutual fund. The units purchased of a debt based fund is the beginning of the process.

Second Step: In the second step you will decide an amount which you would like to withdraw (SWP) each month from the debt fund for onward investing (SIP). This amount can be fixed or variable. We will know more about this in types of STP.

Third Step: The amount decided in 2nd step gets automatically invested (like SIP) to buy units of a pre-decided equity-based fund. In an STP, there is a limitation on number of transfers from a debt fund to equity fund. Example: Minimum of 6 transfers from a debt fund to equity. Read more about other limitations.

Systematic Withdrawal Plan

A Systematic Withdrawal Plan or SWP allows an investor to withdraw from his/her mutual fund scheme every month on predefined dates. This withdrawal could be a fixed or a variable amount. It could be made on an annual, semi-annual, quarterly, or even monthly basis.

Advantages of systematic withdrawal plan

A steady source of income

SWP’s can help your finances by ensuring a steady and regular flow of income as per your chosen period. It can be of great help, especially if you have attained retirement or when you need an extra cash flow to meet expenses like your child’s educational expenses.

Investment with discipline

With SWP, an investor can automatically redeem some mutual fund units every month to meet monthly expenses, irrespective of market levels. Thus, it protects against withdrawing large amounts from panic/fear during volatile market situations. It allows withdrawals even when markets are experiencing new highs and therefore, protects investors from impulsive investment during boom periods.

Tax Benefit

Since tax is usually payable only on the income component and not the capital component, SWP can be a great way to benefit from tax efficiency. Withdrawals on the SWP are treated as a combination of Capital and Income. SWPs also enjoy tax exemption for up to Rs. 1 lakh on long-term capital gains. The investor needs to pay tax only on earnings in excess of Rs. 1 lakh. In the case of equity funds, tax is to be paid on the gains from equity at 15% on the withdrawn sum if the holding period is less than a year. In the case of debt funds, if it is withdrawn within 3 years, the returns are treated as a part of income and taxed on the basis of the relevant slab rates. On the other hand, if it is withdrawn after 3 years of investment, then the gains from equity mutual funds are taxable at a rate of 20% after indexation, which is, of course, more profitable.

Meeting financial goals

If planned on time, SWPs can be a great asset for you and help you meet your financial goals easily. A second income, besides the salary, is always an added benefit. It can help meet your goals from being delayed due to the unavailability of cash or cash crunch. If set for redemption at a time when you need the most, SWP is a great value addition.

Portfolio Management Strategies refer to the approaches that are applied for the efficient portfolio management in order to generate the highest possible returns at lowest possible risks. There are two basic approaches for portfolio management including Active Portfolio Management Strategy and Passive Portfolio Management Strategy.

Portfolio management strategy essentially involves the following elements.

• Monitoring their performance to ensure that they meet your financial objectives.
• Picking the right investment options for your individual investor profile.

Characteristics and Advantages of active portfolio management strategy

• It gives you the ability to employ various sub-strategies and techniques.
• It provides you with an opportunity to outperform the market.
• Since investments are bought and sold regularly, this strategy has a high portfolio turnover.

Active Portfolio Management Strategy

The Active portfolio management relies on the fact that particular style of analysis or management can generate returns that can beat the market. It involves higher than average costs and it stresses on taking advantage of market inefficiencies. It is implemented by the advices of analysts and managers who analyze and evaluate market for the presence of inefficiencies.

Top-down Approach: In this approach, managers observe the market as a whole and decide about the industries and sectors that are expected to perform well in the ongoing economic cycle. After the decision is made on the sectors, the specific stocks are selected on the basis of companies that are expected to perform well in that particular sector.

Bottom-up: In this approach, the market conditions and expected trends are ignored and the evaluations of the companies are based on the strength of their product pipeline, financial statements, or any other criteria. It stresses the fact that strong companies perform well irrespective of the prevailing market or economic conditions.

Passive Portfolio Management Strategy

Passive asset management relies on the fact that markets are efficient and it is not possible to beat the market returns regularly over time and best returns are obtained from the low cost investments kept for the long term.

The passive management approach of the portfolio management involves the following styles of the stock selection.

Efficient market theory: This theory relies on the fact that the information that affects the markets is immediately available and processed by all investors. Thus, such information is always considered in evaluation of the market prices. The portfolio managers who follows this theory, firmly believes that market aveages cannot be beaten consistently.

Indexing: According to this theory, the index funds are used for taking the advantages of efficient market theory and for creating a portfolio that impersonate a specific index. The index funds can offer benefits over the actively managed funds because they have lower than average expense ratios and transaction costs.

Apart from Active and Passive Portfolio Management Strategies, there are three more kinds of portfolios including Patient Portfolio, Aggressive Portfolio and Conservative Portfolio.

Patient Portfolio: This type of portfolio involves making investments in well-known stocks. The investors buy and hold stocks for longer periods. In this portfolio, the majority of the stocks represent companies that have classic growth and those expected to generate higher earnings on a regular basis irrespective of financial conditions.

Aggressive Portfolio: This type of portfolio involves making investments in “expensive stocks” that provide good returns and big rewards along with carrying big risks. This portfolio is a collection of stocks of companies of different sizes that are rapidly growing and expected to generate rapid annual earnings growth over the next few years.

Conservative Portfolio: This type of portfolio involves the collection of stocks after carefully observing the market returns, earnings growth and consistent dividend history.

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.

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.

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.