K. V. Bhanu Murthy

A Critique of the Environmental Sustainability Index

The Environmental Sustainability Index (ESI) has been proposed by collaboration of the World Economic Forum, Geneva, Center for International Earth Science Information Network, Columbia University, and Yale Center for Environmental Law and Policy, New Haven as a measure of the overall state of the environment. This paper argues that the basic design of the ESI leaves much to be desired. It has conceptual problems in its visualization of environmental degradation and sustainability. The choice of variables as well as the statistical methodology of compiling the index is also found to be wanting. The paper then proposes an alternative methodology using Principal Components Analysis and argues that this is an improvement upon the ESI methodology. Given the likely use of aggregate environmental indexes in future environmental management, the critique advanced in this paper is of considerable significance.

Market Integration in Wholesale Rice Markets in India

This paper tests for market integration in 55 wholesale rice markets in India using monthly data over the period January 1970 - December 1999. The technique of Gonzalez-Rivera and Helfand (2001) is used to identify common factors across various markets. It is discovered that market integration is far from complete in India and a major reason for this is the excessive interference in rice markets by government agencies. As a result it is hard for scarcity conditions in isolated markets to be picked up by markets with abundance in supply. A number of policy implications are also considered.

A Consumption Based Human Development Index and the Global Environmental Kuznets Curve

We extend the analysis of Jha and Murthy (2003) to relate consumption to environmental degradation (conceived of as a composite) within a cross-country framework. We use the method of Principal Components Analysis (PCA) to construct an Environmental Degradation Index (EDI) for each country and global environmental degradation (GED) as the sum of the EDI’s. We then identify outliers and influential observations among both the environmental and consumption related variables. Canonical Discriminant analysis is then used to classify development classes along environmental lines. We then estimate a simultaneous equation model to analyze the pattern of causation between per capita income, consumption and environmental degradation. We estimate a Global Environmental Kuznets curve (GEKC) as a relation between EDI ranks and ranks of the consumption-based EDI. A cubic representation is most appropriate with high-consumption countries contributing excessively to GED and middleconsumption countries slightly less. Low-consumption countries are contributing insignificantly to GED. Finally we present an alternative consumption-based Human Development Index to UNDP’s income-based Human Development Index. We then compare the ranking of countries according to the consumption-based HDI ranks with their ranking according to their EDI. Two sets of data drawn from the Human Development Report (HDR) UNDP(2000)) are used in the analysis. One relates to the environment and the other to developmental variables. For the formation of a composite index that would enable the estimation of a GEKC for 174 countries, we used cross-sectional data used in the HDR. The two main contributions of this paper are to build a consumption based HDI and to estimate a Global EKC based on consumption. A simultaneous equations model explains the causal structure that is responsible for Global Environmental Degradation. Further, with Canonical Discriminant Analysis it has been shown that GED does not have geo-physical basis but an anthropogenic basis. As a part of the system of equations a Global Consumption Function has been estimated that displays interesting results. In net, the paper attempts to establish that a certain ‘type of development’ that characterizes high consumption countries is primarily responsible for Global Environmental Degradation.

Business Ethics and Corporate Responsibility - A New Perspective

Starting from the famous but controversial statement of Peter Drucker (1981) - “There is neither a separate ethics of business nor is one needed”, this paper goes on to argue that business ethics and social responsibility are not unrelated. It shows how it is necessary to distinguish between business philosophy and philosophy of business. Through this distinction it develops a framework that relates the two – business ethics and CSR. It goes on to argue that there is a paradigm shift in the philosophy of business. This shift leads to a framework wherein a new perspective on business ethics and social responsibility emerges. It is coined as Corporate Responsibility. It consists of (a) good governance (b) corporate social responsibility (“CSR”) (c) environmental accountability. It discusses the role of top managers in achieving Corporate Responsibility through Organizational Transformation. This is the integrated approach to Corporate Responsibility that needs to be incorporated into International Standards of Social Responsibility. However, the major challenge is of evolving a strategy for laying down standards that take care of major issues and provide standards that are measurable, objective and universal. The three central issues of International Social Responsibility Standards are: 1. Acceptance of the tri-focal approach – Governance, Responsibility and Accountability. 2. Approach to methods of measurement is resolved. 3. The mandatory versus voluntary issue can be resolved only if issues of measurement and their universal applicability is resolved.

Re-Engineering Higher Education - The Knowledge Management System

This paper argues that the University system is under great pressure from industry (society) to deliver such finished products (graduates) from its system so as to be directly absorbed into industry and that too at a mass scale and in a short period of time. For this the University system has to undergo a process re-engineering so as to be able to deliver to industry needs. There needs to be a new Knowledge Management System in place, in the University, that is based on the new Pedagogic System that is skill augmenting. For achieving this, three strands of process re-engineering of the University System are needed. 1. e-learning 2. distance / open learning 3. an outcomes approach to pedagogy

Operationalizing and Measuring Competition: Determinants of Competition in Private Banking Industry in India

Using an appropriate theoretical framework and econometric methodology, the study has sought to measure and model competition in private banking industry in India in an attempt to analyse the process of market dynamics in the industry. The changing scenario of private banking consequent to deregulation provided the motivation behind the study. It used the concept of competition proposed by Stigler (1961) and measured it by Bodenhorn’s (1990) measure of mobility. The study provides a critique of the mechanism of inducing competition, which is implicit in the Narasimham Committee (1991). It then provides the theoretical background of an alternative mechanism based on Structure-Conduct-Performance paradigm, which incorporates basic conditions and strategic groups, apart from including entry, economies of scale, product differentiation and price cost margin, One basic contention of the study is that competition goes beyond “conduct” and encompasses all the four components of S-C-P paradigm: basic conditions, structure, conduct and performance. Accordingly, a three equation simultaneous equation model is used to ultimately estimate the equation of competition through Tobit technique. The result demonstrates that variables related to basic conditions, structure, and conduct and performance influence competition. The study has found evidence against the simplistic relationship between concentration and competition, which remained implicit in the literature. The study also developed a methodology to arrive at market form from an analysis of three aspects of a market and concludes that private banking industry in India is characterized by monopolistic competition.

Business Group Ownership of Banks: Issues and Implications

The paper for the first time provides a theoretical framework for the conduct of business group owned banks. It introduces the phenomenon of business groups in the theory of financial intermediation by banks developed by Diamond (1984) with a view to analyze their impact on the result of financial intermediation. Two kinds of business groups are distinguished depending on the relationship between the firms and the bank comprising the group. It is argued that result of financial intermediation depends on the type of business groups. Diverse historical experiences relating to India and Japan are found to be in line with the theoretical formulation. The contemporary experience in India analyzed in the paper in the form of three case studies is also found to be in agreement with the above theory. The theory developed in the paper and the evidence in its favor through case studies leads to rejection of the idea of business group owned banks in India. The paper made a pioneering attempt to econometrically examine the impact of group ownership on conduct of a bank in an emerging economy like India. The paper substantiates the findings from case studies through estimating a logit model using panel data with the help of a Generalized Estimating Equation. The results clearly show that group banks differ in their conduct from non group banks. Firstly, groups exploit the bank by getting larger funds to augment the group�s fund position. It is also evident that the group bank is subjected to higher risk and is more fragile. A hypothesis that the group cross subsidizes its activities through owning a bank is found to be true. Some of the obvious corporate governance issues like collusion with the auditor do not come out very sharply.

Sub Prime Crisis in US: Emergence, Impact and Lessons

The sub prime crisis in US is the result of excessive amounts of loans made to people who could not afford them and excessive amounts of money thrown into the mortgage arena by investors who were very eager for high return. The crisis represents the other side of a phase when a low rate of interest, rising home prices and mortgage securitization brought huge gains. A number of factors like legislations like Community Reinvestment Act, low rate of interest, mortgage brokers and lenders, rating agencies played their role in generating crisis. Three important dimensions of the sub prime saga relate to poor regulation of investment banks, relaxation in lending standards led by greed in a regime of unbridled competition and failure of the asset market to realize the dues from the defaulter. It once again brings home the fact that financial sector is distinctive in nature and can be exposed to unbridled and unregulated competition only at the cost of a complete peril.

The impact of bilateral tax treaties: A multi-country analysis of FDI inflows into India

This paper models the role of tax treaties in promoting foreign direct investment (FDI) with the help of panel data for 14 countries for the period 1993–2011. A fixed effects (least squares dummy variable) model is developed that captures macroeconomic factors such as gross domestic product (GDP) and per capita income (PCI) in ratio form of home to host country. It also includes bilateral tax treaties as a determinant of FDI inflow. The results show that GDP is a major determinant that is demand driven and per capita income is a major determinant that is supply driven. FDI openness of the home countries and population are also significant determinants. The introduction of the treaty had a positive impact on FDI inflows into India. We get largely significant and positive results for the ‘age of the treaty effect’, especially, in the case of Germany, Switzerland and Japan. The main contribution of the paper is to show that both presence and ‘age of treaty’ are important determinants of FDI flows to India. Further, fundamentals like GDP and PCI are major variables that influence FDI inflows.

IPO Pricing: Informational Inefficiency and Misallocation in Capital Market

Extant literature is not unequivocal about IPO pricing. It is almost silent about the misallocation in the capital market. IPO pricing is mostly argued from the point of view of listing gains/losses. This paper seeks to explain the process and outcomes of IPO pricing in the capital market with the help of a basic model. With the help of certain cases it attempts to show that asymmetric information and informational inefficiency lead to misallocation of capital, adverse selection costs and moral hazard costs.