Minimum Subscription – Meaning and Explanation

Q. Explain in brief Minimum Subscription.

Ans. Section 39(1) of the Companies Act, 2013 provides that a company cannot allot any securities of the company to public unless the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on application for the amount so stated have been received by the company by cheque or other instrument which has been paid.

Minimum Subscription means the amount which, in the opinion of the directors, is the minimum to be raised by the issue of shares so as to provide for the following requirements :

(i) For the payment of purchase price of any property purchased or agreed to be purchased;

(ii) For the payment of preliminary expenses, including underwriting commission and brokerage on issue of shares;

(iii) For the repayment of any moneys borrowed by the company for the above purposes;

(iv) For working capital; and

(v) For any other expenditure required for the usual conduct of business operations.

According to SEBI Guidelines minimum Subscription has been fixed at 90% of the issued amount. As per section 39(3) the company has to get minimum subscription within 30 days from the date of the issue of the prospectus. If the company fails to receive the minimum subscription within the said period, the company cannot proceed for the allotment of shares and the entire application money must be returned within next 15 days. If there is delay in refund of such amount by more than 15 days, the company shall be liable to repay it with interest at the rate of 12% per annum for the delayed period. 

 

Transfer of Ownership under Sale of Goods Act – Meaning and Rules

 Q. What do you mean by “Transfer of ownership”. Give the rules relating to transfer of ownership under Sale of Goods Act. 

Ans. Meaning of Transfer of ownership: Transfer to ownership implies the transfer of all rights to the property in goods from seller to the buyer by virtue of which the buyer can use the goods as he desires, and this right of buyer cannot be restricted. 

For example, Ram gives his watch to Shyam on ‘approval or return’ basis, and allows him to keep it for ten days, and buys it if he likes it, otherwise return the watch. Here Ram has only given the possession of the watch to Shyam; he has not transferred his ownership. If, after ten days, Shyam wants to buy the watch and pays its price to Ram, the ownership will be transferred and Shyam will become the owner.

Transfer of ownership from the seller to the buyer is important in a contract of sale for the following reasons:

(i) Risk follows ownership: The fundamental principle of law is that risk and ownership are co-existent— one follows the other even if there is no transfer of possession. If the goods are damaged or destroyed by any reason, the loss is the owner’s even if he is not in possession of goods at that time. The transfer of ownership in a sale deal is vital because it defines the rights and obligations of the seller and the buyer. Risk follows ownership whether or not a transfer possession of goods has taken place. In case of a delay in the delivery of goods because of a default on the part of the buyer or the seller, the goods are at the risk of the defaulter. 

(ii) Action against third parties: If the goods are destroyed or damaged by any action of a third party only the owner of goods can initiate any proceedings against the third party.

(iii) Insolvency of the seller or the buyer: In case of insolvency of the seller or the buyer, it becomes important to know if the official receiver can take over the goods. This depends on who becomes involvement and who is the owner of the goods — the seller or the buyer. 

Rules: The transfer of ownership from the seller to the buyer can be discussed under the following headings: 

(a) Time when the property changes hands: Normally, it is agreed between parties when transfer will take place, but, in the absence of such agreement, the act stipulates when the transfer of ownership will deemed to be affected in a sale contract.  As per the provisions of the act, the transfer of ownership depends on the type of goods sold, and each type has different rules governning such transfer. The types of goods are:

(i) Ascertained or specific goods

(ii) Unascertained or generic goods

(iii) Goods sent on approval or sale or return

(i) Passing of property in ascertained goods: Ascertained or specific goods refers to such goods that have been identified or specified by the parties at the time of making the contract, and the seller does not have to make any modification or addition to the goods. In this case, both parties, i.e., the seller and the buyer, know specifically what the goods are and what is the quantity for which the transfer of ownership is to take place. For example, A says to B that he wants to buy the blue jar that is displayed in the show window of B’s shop. In this case, both parties have clearly identified the ‘goods’ that is to be sold. Ascertain goods are available with the seller at the time of the contract.

According to Section 19, if the contract of sale is about a ascertained or specific goods,  and the parties to contract have agreed to the terms of the sale, in the absence of contract to the contrary, the transfer of ownership will be affected according to the following rules:

– When the goods are in a deliverable state: Goods are deemed to be in deliverable state when the buyer agrees to accept the delivery of goods and the goods are in a condition that they can be delivered. According to Section 20 of the Sale of Goods Act, when the contract is about the sale of a ascertained goods which are in a ‘deliverable state’, the ownership of goods is transferred to the buyer when the contract is made, if the contract is unconditional.  Whether the payment of goods or the delivery thereof,  or both, are postponed to a later date does not affect the transfer of ownership. For example, A offers to buy B’s horse for ₹2,000, and B accepts the offer, but the horse dies before it is delivered from B to A. The loss in this case will be A’s, and he will have to pay price to B because the ownership of the horse was legally transferred to B when the contact was made. 

– When specific goods need to be put in a deliverable condition: According to Section 21, when the contract of sale is for such ascertained goods, which are not in a deliverable state, and the seller is required to do something to bring the goods into a deliverable state, the transfer of ownership is not affected till such time as the necessary work has been done on the goods, and the buyer has been informed about it. For example, A buys a gold ring from B which will be delivered to A only after it has been polished. The ownership of the ring will only be deemed to be transferred to A when it is been polished and B has informed A that the ring is in a deliverable state. 

– When the seller has to do something for ascertaining the price: According to section 22, where the sale contract is about such ascertained goods which are in a deliverable state but the seller needs to assertain their price – by measurement, weightage or doing any other act on the goods – the ownership cannot be transferred till such time that the seller has ascertained the price of goods and communicate the same to the buyer. If anything remains to be donn with the goods, the ownership of, and the risk of damage to, the goods remains the seller’s. For example, A makes a contract to sell 200 books to B. The books are stored in racks and A has to select the titles and separate them before they can be delivered. If there is a fire and the books are destroyed, the loss of the loss will be A’s because the ownership of the books has not yet been transferred. 

(ii) Passing of property in unascertained goods: According to Section 18, if the contract is for the sale of unascertained goods, the transfer of ownership is not affected till the goods have been ascertained. Unascertain goods refer to such goods that have not been identified when the contract is made; only a description of the goods has been given in the contract. For example, A contacts to buy a sheet of glass of a particular size and thickness from B’s godown. The ownership of the sheet is not transferable to A until he selects or identifies the sheet that he wants to buy. The ownership of an unascertained goods cannot be transferred till such time that the goods are ascertained. The rules governning the transfer of ownership of unascertained goods are as follows:

– Goods must be ascertained: According to Section 18, when a contract is made for the sale of unascertained goods, the ownership is not transferable to the buyer till such time that they are ascertained. Ascertained here implies that, if the goods have not been manufactured, they need to be manufactured; and if they have not been procured, they need to be procured. 

– Goods must be appropriated: By appropriation is meant the separation of goods to be sold from other goods. When there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriate to the contract either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in goods thereupon passes to the buyer.” Such assent may be expressed or implied and may be given either before or after the appropriation is made. 

– Goods must be delivered to the carrier:  Where the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. 

(iii) Passing of property in case of goods sent on approval, or on sale or return: According to Section 24, when the goods are delivered to the buyer for his approval on sale or return basis, or, on some other normal condition in practice, the transfer of ownership to the buyer can be affected as under:

– When the buyer expressly communicates to the seller his acceptance of goods or does something to indicate his acceptance, the transfer of ownership is completed.

– When the buyer does not indicate his acceptance of goods to the seller but retains the goods without communicating his dispproval to the seller or, if a time limit has been fixed for approval, at the expiry of the time, or within a reasonable time if no limit has been fixed, the ownership is deemed to be transferred to the buyer. What is reasonable time, depends upon the circumstances of the case. 

Example: Ram delivers his car to Shayam on 1 January on the condition that, if he likes the car, he should communicate his approval to Ram by 10 January or return the car. If shayam does not communicate his approval even after that date, and does not return the car, his approval is implied and Ram is entitled to receive the payment for the car. 

(b) Reservation of the right of disposal: The Latin for ‘the right of disposal’ is jus disponendi. When the goods sold to a buyer who is far away and the goods id despatched to the buyer by public transport, in order to ensure that he receives the payment for the good, the seller reserves the right of disposal. 

Normally, if the goods are delivered to the carrier and the Bill of Lading or the Railway Receipt is taken in the name of the seller or agent, it is presumed that the seller has reserved the right of disposal, and any damage to the goods in transit is borne by the seller. Section 25(1) lays down that, when a contract of sale is made for specific goods and the goods are delivered after the contract is made, under the terms of the contract of delivery, the seller is entitled to reserve the right of disposal till such time as such terms are met. In such case, even if the seller has dispatched the goods to the buyer, he retains the right of ownership of goods till the conditions of the contract are satisfied. When the goods are delivered to shipping company or the railways, the seller sends the Bill of Lading or the Railway Receipt along with other documents to the buyer through his agent or bank with instructions that these be delivered to the buyer only when he has made the payment for the goods. In this way, the seller reserves the right of disposal of goods.

Personal Selling – Meaning and Personal Selling Process

Q. What is Personal Selling ? Write a detail note on personal selling process.

Ans. Meaning of Personal Selling: Personal Selling is an important part of the promotion mix. It is an important and most effective method of selling. It is the process of assisting and persuading a prospective buyer to buy a product in a face to face situation. It is a major promotional tool used to increase profitable sales by offering wont satisfying products to the customers. 

It renders valuable services to consumers, producers and the society. It is a effective form of direct sales promotion, involving face to face relationship between sellers and the potential customers. The objective is not only to sell the product but also to make permanent customers. Personal sellings is very much essential for the survival and growth of business. 

According to Richard Buskirk, “Personal selling consists of contacting a prospective buyer of a product personally”.

Personal Selling Process: Selling process is the sequence of steps involved in the conversion of human desire into demand for a product or a service. It is purely a psychological process because, the mind of a customer runs through certain mental stages before he makeup his mind to buy a product or service. The selling process differs from salesman to salesman. There are certain steps involved in the personal selling process for the conversion of human desires into demand for a product or service.

The process of personal selling consists of the following steps: 

Personal Selling Process

Pre-Sale Preparations

⬇

Prospecting for Potential Customers

⬇

Pre-Approach

⬇

Approaching

⬇

Presentation

⬇

Demonstration

⬇

Overcoming the Objections

⬇

Closing the Sale

⬇

Follow up

1. Pre-Sale Preparations: The first step in personal selling is the preparation of sale persons. The sales persons must be properly selected,  trained and motivated for the job. Before going in the field, it is essential for the salesman to prepare thoroughly on all the important aspects of selling. He must know who are the prospective customers, what are their problems and solution to their problems. He must know the relative strengths and weaknesses of the product as compared to his competitor’s product. He must know about himself, his company, his product and about the need and desires of the consumers. He should prepare himself about competing brand, the competing products, competitor’s marketing strategies and his selling strategy. Prior knowledge of its product, Company and competitors constitute the essence of pre-sale preparations. 

2. Prospecting For Potential Customers: Prospecting in personal selling refers to the process of acquiring basic demographic knowledge about the potential customers (i.e. prospects) for the product or services. Prospecting generation consists of obtaining names and addresses of persons, who may turned out to be prospects. Prospect is the person, who has wants to be satisfied and has ability and willingness to buy. 

In this step, the sales person prepares a list of potential customers and tries to identify who really needs the product and has a purchasing power and willingness to purchase. Its purpose to locate the potential buyers and to avoid those who appear to be unprofitable and to make sure that the sales efforts should not be wasted. It should always be remembered that everyone is not a prospective customer.

The prospective customers can be discovered from various sources such as the company’s sales records, customer’s information requests from advertisements, other customers, newspaper announcements, public records, telephone and trade directories, lists of trade associations, past and present customers, etc. 

3. Pre-Approach: Before calling on the prospective customers, the salesperson should try to get information about their nature and behaviour. He must possess the detailed information relating to prospective customers with regard to their education status, income, occupation, their preferences, personality traits, products they are using, brands they are buying, likes, dislikes, etc. This information will help in approaching the prospective customers and making presentation in a better way. Following are the objectives of pre-approach:

(i) To obtain maximum information for planned presentation. 

(ii) To save time and energy.

(iii) To select the best approach to meet the perspective customers. 

(iv) To meet the prospective customers with confidence and enthusiasm. 

(v) To provide additional information.

(vi) To avoid serious mistakes.

4. Preparation: This step also includes a preparation made by the sales person. He must be well dressed, well informed and well equipped with sample of products, sales literature, etc. It also involves the training of sales persons, making them well acquainted with the product, market trends and techniques of selling. Some more information should be given to them about the prospective customers so that he is able to communicate precisely (exactly/accurately) with the prospective. A travelling salesman must get an appointment to meet the prospective customer.

5. Approaching: Approaching the customer means taking the initial contact with the prospective customer. This is the most critical step because the customer’s first impression about the sales person may be a lasting impression that has long-run consequences. This step is based on AIDAS formula. 

Before doing anything else, the sales person must introduce himself and his products to the prospective customer. He has to attract attention of prospective customer to his product. Selling process cannot be developed further as long as the customer is not attracted and ready to give due attention to the sales talk. He should be very polite while approaching and must make the customer realise as to how the product will benefit him, so that he may not have much difficulty at the time of presentation.

A counter sales person should also approach the customer properly to gain his attention. He should make the customer feel that he is getting undivided attention. If the sales person is busy with some other customer, he should assure the new customer that he would be attended very soon. The prospective customer is convinced that he will be rewarding to spend time with him. He should treat the customer and make him feel at home. 

There are four prime methods for approaching the customer:

(i) Reference approach: When the sales person uses the reference letter to approach the customer.

(ii) Introduction approach: When the sales person uses his identity card or visiting card. Give his self introduction and introduces the company under which he is engaged. 

(iii) Product approach: In this, salesperson puts his products before the customer when he meets him. 

(iv) Customer benefit approach: The sales person explains the benefit which a customer can obtain from the product or dealing with the company. 

6. Presentation: Before making presentation, a salesman should try to understand the nature, need and spending power of the customer. The presentation should be such that the customer takes continuous interest in the product. He must be curious to know more about the product, its features, its merits etc. 

The first step in the sales presentation is to get the attention of the customer towards the product. Attention can be drawn by using the following tricks:

(i) Mentioning the names of mutual friends or well known persons. 

(ii) Placing the product sample or visual aids before the customers.

(iii) Allowing the customer to touch, hold or actually use the product. 

(iv) Complementing the customer on the appearance of his store, office, plant or residence.

(v) Demonstration about the use of the product.

Once the customer’s interest has been obtained, the next step is to arouse the interest in his product. The sales person should clearly explain the functions of the product, how it is better than other brands, how it is used, its price, etc. His emphasis is on the benefits of the product to the customer rather than on technical specifications. The success of the sales person depends upon the attitude of the buyer.

7. Demonstration: The next step in the process of personal sharing is giving demonstration. It is the best method of presentation. Through demonstration the customer can be satisfied that the product will satisfy his needs. Demonstration creates desire for the product. The process of demonstration also includes the involvement of the prospective customer. He may also be informed of the special features, merits and benefits of the product. 

The sales person can also show the survey reports, photographs, catalogues, related materials, relevant data, referring to specific problems in other products, free gifts, consumer benefit schemes, etc. The customer must be convinced and interest to possess the product must be aroused. “You and not I” attitude must be followed. 

8. Overcoming the Objections: After demonstrating and explaining the product, its features, price, benefits, etc. the sales person should entertain certain queries from the customer. Queries and objections should not be considered to be an unpleasant task. A sales person should realise that it is the golden opportunity to convince and persuade the customer. This also gives him a chance to give some additional information about the superiority of the product over the competitive products in the market

The sales person should handle these queries, doubts and objections with full confidence, intelligence, enthusiasm and patience. He should not feel irritated by the queries and should never argue with the customer white handling doubts even though the customer disagrees violently and persistently. He should write time and again to convince the prospective customer to buy the product. 

9. Closing the Sale: This step is the climax of the selling process. It aims at taking an order for the products from the prospective customer. A sales person has to act with patience and intelligence to close the sale. He can employ a trial close by which he can judge the customer’s willingness to buy the product. 

A sales person must know the right moment at which the sales story can be closed.  When he is convinced that the customer has made up his mind to buy the product, then he should close the sale by asking questions: What design have you decided ? Which colour have you decided ? Do you want this gift wrapped ? What else would you like to buy ?, etc. 

The sales should be closed in such a manner that the customer feels that he has made the right choice. A sales person should reassure the customer that he has made the right choice. The customer should also be reassured of better services in future. 

10. Follow-up: The next step in the process of personal selling is follow up. It removes all the posts-sales problems. It also provides feedback from the customers. Follow up action refers to the activities undertaken to ensure the customers that he has taken the right decision of buying the product. These activities include: execution of order as per the specifications agreed with the customer, installation of product (if required), checking and testing its smooth performance, maintenence service,  etc. After sale services should be quick, punctual and satisfactory. 

Human Resource Planning – Meaning, Objectives, Process and Steps

Q. Discuss the steps involved in Human Resource Planning in a business organisation.

OR

What are the objectives of manpower planning? Explain its process. 

OR

What is human resource planning? Explain the steps involved in human resource planning process. 

Ans. Meaning of Human Resource Planning: Human Resource Planning is also known as Manpower planning. It is a forward looking function. It may be defined as a procedure by which the management ensures the right number of people and right kind of people at the right time, doing the right things for which they are suitable for the achievement of goals of the organisation.

Human Resource Planning is a process which determines how an organisation should move from its current manpower/human resources position to its desired manpower/human resources position. 

Objectives: HRP is required to achieve the following objectives:

1. To recruit and maintain the HR of requisite quantity and quality.

2. To predict the employee turnover and make the arrangements for minimising turnover and filing up of consequent vacancies. 

3. To meet the requirements of the programmes of extension, diversification etc.

4. To anticipate the impact of technology on work, existing employees and future human resources requirements. 

5. To progress the knowledge, skills, standards, ability and discipline etc.

6. To appraise the surplus or shortage of human resources and take actions accordingly. 

7. To maintain pleasant industrial relations by maintaining optimum level and structure of human resource. 

8. To minimise imbalances caused due to non-availability of human resources of right kind, right number in right time and right place.

9. To make the best use of its human resources.

10. To estimate the cost of human resources. 

So, human resource planning is required to achieve the objectives of estimating potential human resources requirements, to cope with changing requirements of the organisation taking into consideration the changing technology, to make full utilization of existing and potential workforce of the organisation; and career planning of employees.

Human Resource Planning  Process: Process of human resource planning involves the following steps: 

(1) Analysing Organisational Objectives, Plans and Policies: The person concerned with human resource planning must be clear about the objectives, plans and policies of the overall organisation. He must also be clear about the objectives of woman resource planning. The objective of human resource plan are derived from organization’s objectives. The objectives of human resource plans must be in consistency with the objectives of overall organisation. The ultimate objective of human resource planning is to relate future human resource requirements to future organisational needs. Human Resource Department should begin the human resource planning process with analysis of objectives, plans and policies of the organisation. He should also analyse various other plans e.g. expansion, diversification, technological, financial, marketing, production etc. Analysis of overall organisational plans and other plans will help in making decisions about potential HR requirements. Further, organisational policies and HR policies regarding personnel should also be analysed. Organisation’s plans relating to production technique and automation will help in forecasting of human resources requirements. Thus, analysis of organisational objectives, plans and policies are the starting points for forecasting human resource requirements.

(2) Forecasting Human Resource Demand: Forecasting human resource demand is the process of estimating the future human resource requirement of right quality and right number. Analysis of employment trends, the replacement needs of employees due to death, resignations, retirement termination, productivity of employees, growth and expansion of organisation, absenteeism and labour turnover are the relevant factors for human resources forecasting. Demand forecasting is affected by a number of external and internal factors. 

There are number of techniques of estimating/ forcasting human resources demand:

(a) Managerial Judgement: Managerial judgment technique is very common technique of demand forecasting. This approach is applied by small as well as large scale organisations. This technique involves two types of approaches i.e., ‘bottom-up approach’ and ‘top-down approach’. Under ‘bottom-up approach’, line managers send their departmental requirement of human resources to top management. Top of manages management ultimately forecasts the human resource requirement for the overall organisation on the basis of proposals of departmental heads. Under the ‘Top-down approach’, top management forecasts the human resource requirement for the entire organisation and various departments. This information is supplied to various departmental heads for their review and approval. However, a combination of both the approaches i.e. ‘Participative Approach’ should be applied for demand forecasting. Under this approach, top managements and departmental heads meet and decide about the future human resource requirement. So, the demand of human resources can be forecasted with unanimity under this approach. 

(b) Work-Study Technique: This technique is also known as ‘work-load analysis’. This technique is suitable where the estimated work-load is easily measurable. Under this method, estimated total production and activities for a specific future period are predicted. This information is translated into number of man-hours required to produce per units taking into consideration the capability of the workforce. Past experience of the management can help in translating the work-loads into number of man-hours required. Thus, demand of human resources is forecasted on the basis of estimated total production and contribution of each employee in producing each unit items. 

(c) Ratio-Trend Analysis: Demands for manpower/human resources is also estimated on the basis of the ratio of production level and number of workers available. This ratio will be used to estimate demand of human resources. 

(d) Econometrics Model: These models are based on mathematical and statistical techniques for estimating future demand. Under these models relationship is established between the dependent variable to be predicted (e.g. manpower/human resources) and the independent variables (e.g. sales, total production, wotk-load, etc.). Using these models, estimated demand of human resources can be predicted.

(e) Delphi Technique: Delphi technique is also very important technique used for estimating demand of human resources.  This is a technique takes into consideration human resources requirements given by a group of experts i.e. managers. The human resource experts collect the manpower needs, summarise the various responses and prepare a report. This process is continued until all experts agree on estimated human resources requirement.

(f) Other Techniques: The other techniques of human resources demand forecasting are:

(a) Following the techniques of demand forecasting of human resources used by other similar organisations.

(ii) Organisation-cum-succession-charts.

(iii) Estimation based on techniques of production.

(iv) Estimates based on historical records

(v) Statistical techniques e.g. co-relation end regression analysis. 

(3) Forecasting Human Resource Supply: The demand forecasting helps in determining the number and type of personnel/human resources required in future. The next step in human resource planning is forecasting supply of human resources. The purpose of supply forecasting is to determine the size and quality of present and potential human resources available from within and outside the organisation to meet the future demand of human resources. Supply forecast is the estimate of the number and kind of potential personnel that could be available to the organisation.

The above figure illustrates that supply for the forecasting can be estimated based on the following:

(a) Present/Existing human resources: The first step in forecasting supply of human resources is to start with the present/existing human resources of the organization. Existing inventory of human resources refers to the present inventory of human resources department-wise, age-wise, sex-wise, marital-status wise, skill wise, experience wise, qualification wise, training wise and potential wise. Internal mobility of the employees as a result of transfer and promotion etc. should also be evaluated. So, present inventory of human resources is availability of talent in terms of skills, performance and potential.

(b) Potential additions of human resources: There may also be potential additions to the force of human resources. These are editions to human resources may be due to fresh retirement, selections, transfers and promotions of human resources in the various departments of the organisation.

(c) Potential losses of Human resources: In a running organisation, there may be potential losses of human resources. These potential doses of human resources may be due to deaths, retirements, resignations, retrenchment, discharge and promotions, transfers etc. There may also be losses of human resources due to absenteeism and labour turnover.

(4) Human Resource Programming or Estimating Net Human Resources Requirement: After estimating the future demand and supply of human resources, the next step is to ascertain the human resource gap between demand and supply. This gap has to be measured both in quantitative and qualitative terms. Human resource programming is also called estimating net human resources requirement. The net human resources requirement can be obtained by subtracting estimated supply of human resources from demand of human resources. It will help in determining number and kind of employees required in various departments and the entire organisation. On the basis of human resources programming surplus or shortage of human resources requirement can be determined.

(5) Implementation of HR Plan: The next step after determining net human resources requirement is implementation of human resources plans. Human resources programming indicates the shortage or surplus of availability of human resources. If HR programming indicates that there will be shortage of human resources, then the decision to adjust separate the surplus human resources will have to be implemented. The excess human resources in one department can be adjusted in other department or given some other job after training or retrenched. However, if there will be shortage of human resources, then plan for recruitment, selection and placement has to implemented. 

(6) Control and Appraisal of Human Resource Plan: The final step of human resource planning is the control and review mechanism. Finally, the organisation should assess their human resource planning efforts. It should be assessed to determine how far it has helped in achieving organisational objectives. If human resource planning has not worked effectively there is need for either reviewing the human resource plan or modifying the organisational plan. 

Cost of Living Index Number – Meaning, Uses and Formulas

 Q. What is the cost of Living Index Number? Discuss its uses. Give formulas you will use in the construction of cost of living index number.

Ans. Meaning of Cost of Living Index Number: Cost of living index numbers show the direction and magnitude of change taking place in the cost of living of specific group of persons at given time and place. Its purpose is to know how much increase or decrease has taken place in the expenditure made by a consumer on his living, therefore these are also known as consumer price index. Effect of changes in the prices is not uniform on all the classes of a society because different classes of people consume different commodities and changes in the prices of the commodities are different. Therefore, separate cost of living indices are constructed for different classes of people and for different places. Consumer Price Index Numbers are those index numbers which measure the effects on living conditions of different classes of consumers for any change in the level of prices over a period of time. Such types of indices are constructed in order to find out how the economic progress of a country has affected the standard of living of a particular class of people. 

Uses of Consumer Price Index: The different uses of consumer price index are given below.

(i) To Examine the Effects of Changes in Retail Prices: It is used to examine the effect of change in the retail prices on the cost of living of a particular class of people. 

(ii) Helpful in Policy Formulation: The government may decide its price control, minimum wages, rationing policies in the light of the changes in the cost of living index.

(iii) Fixation of Dearness Allowance: The amount of dearness allowance and revision of wages of different categories of employees are decided on the basis of consumer price index. 

Construction of Consumer Price Index: The procedure of constructing a consumer price index is as follows:

(1) Decision about the Class of People: First of all, it should be ascertained that for which class consumer price index will be constructed, i.e., whether the index is related to industrial workers, teachers, office employees, etc. At the same time, the scope of the index should also be well defined. 

(2) Conducting Family Budget Enquiry: After deciding about the specific class, some families from that class should be selected by random sampling and their budgets should be studied to make findings about their items of income-expenditure, quantities of commodities and size of families etc. According to convenience, the items of consumption are divided into five main categories: (i) Food, (ii) Clothing, (iii) Fuel and Lighting, (iv) House Rent, (v) Miscellaneous. 

(3) Obtaining Price Quotations: After selecting the commodities, their retail prices are obtained. Retail prices of the selected comodities are collected from the reliable sources and from those places from where the people of that class buy goods.

(4) To Decide Weight: To express the relative importance of the items of consumption, selective weights are assigned to them. Weights can be given into two ways: (i) In the proportion of consumption quantity in the base year (q₀) (ii) In the proportion of expenditure made on each commodity in the base year (p₀q₀)

(5) Methods of Constructing Consumer Price Index: After this, consumer price indices are constructed by the following methods:

▶ (i) Aggregate Expenditure Method: In this method, wages are assigned to items on the base of base year quantities.

Consumer Price Index (P₀₁) =

∑ p₁q₀∑ p₀q₀

× 100

Aggregative expenditure method is equal to Laspeyre’s Method.

Steps for Calculation

• (i) Quantity in base year (q₀) and prices in current year (p₁) are multiplied and their sum (∑ p₁q₀) is taken. This is the aggregate expenditure in current year.

• (ii) Quantity in base year (q₀) and price in base year (p₀) are multiplied and their sum (∑ p₀q₀) is taken. This is the aggregate expenditure in base year.

• (iii) ∑ p₁q₀ is divided by ∑ p₀q₀ and the quotient is multiplied by 100.

▶ (2) Family Budget Method: Under this method, the weights are assigned to items on the basis of percentage expenditure on the items.

Consumer Price Index (P₀₁) = 

∑ PW∑ W

Where, P = Price Relatives = 

p₁p₀

× 100,

W = Total Expenses = p₀ q₀.

If the geometric mean is used, then,

 P₀₁ = AL[

∑ W log P∑ W

]

Family budget method is equal to Weighted Average of Price Relative Method.

Steps for Calculation

• (i) Price relative of current year for each commodity is computed by the following formula:

• P = 

  p₁p₀

  × 100
• (ii) Price relative of each commodity is multiplied by the expenditure on it or (Value Weight or W) to find out weighted price relatives.
• (iii) Weighted price relatives are summed up (∑PW)
• (iv) ∑W, i.e., summation of weights which is ∑ p₀q₀ is determined.
• (v) ∑PW is divided by ∑W and the quotient is multiplied by 100.

Note I. It should be noted that prices and quantities must be same in units while multiplying. If the units of price and quantity are different, then the unit of quantity must be changed into the unit of price before carrying out multiplication. For example, if the price is per quantal and the quantity purchase is kg, then kg must be to be converted into quindals before carrying out multiplication.

Note 2. The consumer price index numbers (or cost of living index) obtained by both the methods are the same.

Note 3. Aggreate expenditure method should always be preferred to in as much as it proves to be easier than the family budget method so far as calculations are concerned. 

Security Concerns in E-Commerce and Their Solutions

 Q. Explain security concerns in E-Commerce with solutions. 

Ans. Essential security requirement for safe electronic payments are: 

1. Confidentially: Information should be protected from eyes of unauthorized internal users,external hackers and from being intercepted during transmission on communication networks by making it unintelligible to the attacker. 

2. Integrity: Ensuring that information will not be accidentally and maliciously altered or destroyed during transmission. On retrieval or receipt at the other end of a communication network the Information should appear exactly as was stored or sent. It should be possible to generate an alert on any modification, addition or deletion to the original content. 

3. Availability: The Information that is being stored or transmitted across communication networks should be available whenever required and to whatever extend as desired within pre-established time constraints.

4. Authenticity: Authenticity is a method to verify the buyer’s identity before payment is authorized. It should be possible to prevent any person or object from masquerading as some other person or object.  When a message is received it should therefore be possible to verify whether it has indeed been sent by the person or object ciming to be the originator.

5. Non-Repudiability: It is the protection against customer’s denial of orders placed and against merchant’s denial of payment mode. After sending/ authorizing a message, the sender should not be able to, at a later date, deny having done so. Similarly, the recipient of a message should not be able to deny receipt at a later date.

6. Encryption: Encryption is a process of making messages indecipherable except by those who have an authorized decryption key.

7. Auditability: Audit data must be recorded in such a way that all specified confidentiality and integrity requirements are met. 

Security Schemes (or Security Solution): Main security schemes for electronic payment systems are :

1. Encryption 

2. Digital Signature 

3. Security Certificates

1. Encryption: 

Control against Network Threats (Encryption): An effective and practical way to safeguard data transmitted over networks is by encryption. The process required an encryption device (key) for converting the original message into a code, as well as decryption device (key) for translating the code back into recognizable text. In business data processing, this can be accomplished by using specialized computer software. There are two types of encryption:

(i) Symmetric encryption or secret key cryptography: Secret key encryption is beased on a single key. In this scheme, the same key is used by a sender (for encryption) and a receiver (for decryption). The most widely accepted algorithm for secret key encryption is the Data Encryption Standard (DES). Essentially, therefore, for every period of partners engaging in secure communications, a new key has to be generated and securely maintained. 

(ii) Asymmetric encryption or public key cryptography: Public key cryptosystems are built around the possession of a pair of keys - a public key and a private key by each entity washing to engaged in secure communications. While, as the name suggests, the public key is known to everyone, the private private key is known only the owner. The algorithm used to generate these keys is such that if either of these keys is used to encrypt a message, only the corresponding key in the key pair will be able to decrypt it. The most popular algorithm with public key cryptography is the RSA (Rivest, Shamir and Adelman) algorithm. This algorithm has never been broken by hackers so it is seen as the safest encription method known to date. This scheme is used to provide both the services of confidentiality and authentication. RSA algorithm is usually used to transmit the secret key of DES algorith because DES algorithm is more efficient and faster in handling encryption and decryption. 

2. Digital Signatures: The digital signatures are a means of ensuring authentication of electronic information. Digital signature is an electronic signature whose authenticity is guaranteed through encryption and a password.

The digital signature technology involves:

(i) Private Key: A unique combination known only do the signer. It is a used to encrypt the message. 

(ii) Message Digest: The encrypted message that is created with the help of private key. 

(iii) Public Key: A code sent to the receiver separately to enable the decryption of the message digest. It is also available on the website of the certification authority.

In this scheme, a message is encrypted with the sender’s private key to generate the ‘signature’. The message is then sent to the destination along with the signature. The recipient decrypts the signature using the sender’s public key, and if the result matches with the copy of the message received, the recipient can be sure that the message was sent by the claimed originator and that the message has not been modified during transmission, since only the originator is in possession of the corresponding encryption key. 

The RSA algorithm is widely used to implement digital signatures. The other popular algorithm is the Digital Signature Algorithm (DSA) developed by the US National Institute of Standards and Technology. 

3. Security Certificates: Just as a passport is a universal way to establish your identity and gain entry to another country, a digital or security certificate provides identification in the electronic world. Certificate authorities (CAs) are organizations that issue security certificates. Much like the role of the passport office, the role of the CA is to validate ate the certificate holder’s identity and to “sign” the certificate so that it cannot be forged or tampered with. Once a CA has signed a certificate, the holder can present the certificate to people, websites, and network resources. 

A certificate is a unique digital ID that can be used to verify the identity of an individual. The certificate always includes a public key, the name of the entity it identifies, an expiration date, the name of the certificate authority (CA) that issued the certificate.

These certificates use public key cryptography to sign and authenticate signatures and are protect protected by public and private key pairs linked by cryptographic algorithms. These keys have the ability to encrypt and decrypt information. The digital signature component of a security certificate is your electronic identity card. The digital signature tells the recipient that the information actually came from you and hasn not been forged or tampered with.

Business Cycle: Meaning and Phases of a Business Cycle

Q. What is a Business Cycle ? Describe various phases of a Business Cycle. 

Ans. Meaning of Business Cycle: Every country witnesses boom and depression periodically. Depression is characterised by falling production, falling prices, and rise in unemployment. On the other hand, boom is characterised by rising production, rising prices and high employment percentage. These changes of boom and depression are cyclical in form. Hence, these are called Trade or Business Cycles. Rhythmic fluctuations taking place in an economy, at intervals, in the form of boom and depression are called Trade or Business Cycles.

In the words of Lord Keynes, “A business cycle is composed of periods of good trade characterised by rising prices and low unemployment percentage alternating with periods of bad trade characterised by falling prices and high unemployment percentage.”

According to Anatol Murad, “Business Cycles are alternations of prosperity and depression.”

Phases of Business Cycle: According to Prof. Schumpeter a business cycle can have four phases:

(1) Expansion or Boom,

(2) Recession, 

(3) Depression or Trough or Contraction, and

(4) Recovery.

The following figure illustrate all the four phases or stages of business cycles:

● (1) Expansion or Boom: This phase of the business cycle represents the best stage of prosperity. The objective of the national economic policy of each country is to attain this stage. In this phase hectic economic activities go on and factors of production are put to optimum use. The main characteristics of this phase are:

(i) Income or production is maximum. 

(ii) The economy reaches full employment by removing unemployment.

(iii) Prices rise very high.

(iv) Wages, rates of interest, rent and taxes increase. But increase in all these is less than increase in prices. Thus, real wages do not rise much.

(v) Because of relatively more increase in prices than cost of production, profits rise very high.

(vi) Rise in profits and possibility of their remaining high, lead to rise in the prices of shares. As a result, expectations of profits rise further. 

(vii) Under condition of prosperity, today's an entrepreneurs become optimist. All kinds of products and speculative activities grow. As a result, there is more investment.

(viii) Bank banks pursue liberal credit policy leading to more investment in machines, factory buildings, etc. It results in more productivity.

(ix) Under condition of prosperity, producers expand economic activities by stimulating demand for consumption goods and rise in price level. Explain expenditure of the consumers rise and so also demand.

(x) Under condition of prosperity, the process of expansion continues to be cumulative and self-sustained till the economy reaches the highest level of production, called boom. It is the situation of over full employment and inflation.

● (2) Recession: Under the phase of prosperity, the entrepreneurs make investments in certain ventures which do not prove to be profitable. Their optimism gives way to pessimism. Investivment shows signs of decline. Many enterprises are closed down. Unemployment spreads and income of the people falls. As a matter of fact, beyond the stage of full employment, annie increase in investment is followed by increase in interest, wages and other costs. Consequently, prices rise sharply causing fall in demand. Falling demand obliges the firms to sell their stocks at reduced prices. This paves the way for the recession. In this phase there is decline in economic activities. The main to main features of this phase are under.

(i) There is fall in income and output.

(ii) Workers are rendered unemployed.

(iii) Prices begin to fall.

(iv) Wages fall.

(v) Profits fall. There is no new borrowing despite fall in the rate of interest.

(vi) There is contradiction of bank credit.

(vii) Fall in investment sets in motion the reverse action of the multiplier. Consequently, income falls many times more than the decline in investment.

(viii) Demand of the consumers for various goods fall. 

(ix) There is a sharp decline in the stocks of goods. 

(x) There is a feeling of doubt and fear among the people. They turn pessimistic. Share prices fall.

● (3) Depression or Contraction: Once the process of recession starts, it becomes almost difficult to stop the rot. It goes on gathering momentum and ends hopeless depression. Consequently, economic activities are faced with depression or contraction. Level of output and employment is extremely low. There is heavy fall in prices and wages. Prices of goods fall much more than wages and interest, resulting into heavy losses to the entrepreneurs and traders. Workers are the hit adversely because of widespread unemployment. Production and distribution systems of the economy go out of gear. Heavy fall in profits serves as a disincentive to any new investment. Although rate of interest falls, yet no new investment takes place as marginal efficiency of capital falls more than proportionate fall in rate of interest. 

Under depression, prices of raw materials fall more than the prices of finished products. Economic condition of farmers and producers of raw material grows worse than that of the traders and producers of finished goods. Because of the reverse action of the multiplier and the accelerator, there is heavy fall in income. Share prices fall rapidly. Many indian industries are ruined. Eighth every mversously affects the entire economy. Thus, under depression, all economic factors like income, output, employment, prices, profit, interest, wages, demand etc. have a tendency to contract. Salient features of this phase are as follows:

(i) Level of output and income is low.

(ii) Unemployment increases.

(iii) Wages, interest and other costs decline.

(iv) Price level falls.

(v) Volume of the profits falls sharply. Hence, despite fall in the rate of interest, inducement to invest very low.

(vi) Cash reserves with the bank pile up and demand for credit falls. 

(vii) Old and worn-out machines are not replaced. Hence, demand for capital gods falls.

(viii) Demand for consumer goods falls.

(ix) There is an all-round decline in investment , causing reverse action of multipliers and accelerator.

(x) People grow pessimist. It affects economy adversely. 

● (4) Recovery: It is worth noting that depression phase cannot last for ever. During the phase of depression the entrepreneurs do not even replace machines and other capital goods. Production falls considerably. Stocks of goods are at their lowest. Even during the phase of depression a situation does arise wherein shortage of goods is experienced. Need for replacement of machines become so imperative that the entrepreneurs are obliged to buy new machines to replace old and worn out ones. It results into more demand for capital goods. Investment in capital goods industries increased. As a result of it, interaction of multiplier and the accelerator comes into play and there is increase in income. Demand for goods rises. There is increase in output and employment. Thus, the economy gradually moves from depression to recovery. The wave of recovery once initiated begins to feed up itself. The main features of this phase are as follows:

(i) Replacement investment results into increase and income output. 

(ii) Employment increases.

(iii) Demand for consumption and production good rises.

(iv) Prices begin to look up.

(v) There are more profits.

(vi) Costs increase relatively less.

(vii) Investment increases.

(viii) Demand for bank loans and advances increases.

(ix) Pessimism gives place to optimism.

Table. Features of Different Phases of Business Cycles 

 

Feature	Expansion or Boom	Recession	Depression	Recovery
1.  Employment	Increases	Suddenly falls	Very Low	Slowly rises
2. Output	Increases	Falls	Falls very low	Slowly rises
3. Wages	Rise	Fall	Fall very low	Begin to rise
4. Prices	Rise	Fall sharply	Fall very low	Begin to rise
5. Interest	High	Begins to fall	Very low	Begins to rise
6. Bank Credit	Expands	Suddenly falls	Falls low	Begins to expand
7. Cost of Production	Rises	Falls	Falls very low	Begins to rise
8. Stocks	Large	Fall	Fall very low	Begins to rise
9. Feeling	Optimism	Doubt and Fear	Pessimism	Optimism

Phases of Business Cycle 

Meaning and components of group dynamics.

 Q. Explain the meaning and components of group dynamics.

Ans. Meaning of Group Dynamics: Group Dynamics contains two terms – Group and Dynamics. Group is basically collectivity of two or more persons. Dynamics comes from greek word meaning force. Thus, group dynamic is concerned with the interaction of forces among group members in a social situation. Analysis of forces within a group is known as group dynamics.

It refers to the forces operating in groups, which have an impact on the behaviour of group members. Group dynamics refers to those forces operating or present in the group and which influence the behaviour of the members of the group. These forces chiefly are the group composition, group norms, group leadership, group cohesiveness, etc. The study of group dynamics provides information to the managers about the way to control the behaviour of the members of the group. 

The social process by which people interact with each other in small groups is called group dynamics.  Group dynamics refers to the understanding of behavior of people in groups that are trying to solve a problem on making a decision. 

Thus, Group Dynamics refers to - 1. Social process by which people interact in a group environment. 2. The attitudinal and behavioural characteristics of a group.

Components of Group Dynamics: The major components of group dynamics are the following: 

1. Group Composition: Group Composition has an important part to play in influencing the group dynamics. Group composition depends on the extent of commonalty of the members of the group. The members of a group are either homogeneous or a heterogeneous. In the homogenous group the members have similar qualities. This similarity can be (i) Demographic, e.g. caste, sex, education, experience, age, income, culture, etc. (ii) personality (iii) abilities and (iv) opinions. In the heterogeneous group the members differ on these points.

Group Composition is important because it affects the behaviour of the members of the group and the results.  The members of both the types of groups in respect of behaviour and possible results are as follows:

(a) Homogeneous Group: The members of homogenous group have more cohesiveness. Consequently, there are less conflicts among them. Since there is no variety in their qualities, theses members are often unsuccessful in handling adverse situations

(b) Heterogeneous Group: The members of such a group have different qualities. Consequently, there is lack of cohesiveness among them. Because of this there are usually conflicts. The members have different specialities which help them to face adverse situation successfully.

In this way, we can see that the group composition affects the behaviour of the group members.

2. Group Norms: Norms refers to those standards which guide the behaviour of the members of the group. Group norms are the acceptable standards of behaviour within a group that are shared by the members of the group. Norms defines the boundaries of the acceptable and unacceptable behaviour.

Some rules are required for the successful running of the activities of a group. These rules are known as norms in a group. Normames norms are those standards which guide the behaviour of the members of the group. For example, the order of a manager to the effect that nobody will use telephone for personal use during the working hours in the office, gradually becomes a norm. These norms guide the members as to how to conduct themselves in a particular situation – what is to be done and what is not to be done. Group norms are normally unwritten (oral). They are brought to the notice of the members and after that they are bound to comply with them. Those members who ignore these norms have to face boycott from the group for which there is a provision to this effect. 

Features of Group Norms: The chief features of the group norms are as follows:

(i) Group norms guide the behaviour of the members of the group.

(ii) Group norms clearly specify the duties of the members of the group. 

(iii) Group norms can both be written and oral.

(iv) Group norms are laid down for important function.

(v) Those memers members who failed to observe the group norms can be boycotted.

(vi) There is a variety among group norms of different groups.

(vii) Group norms generally take shape gradually but if needed they can be formed quickly.

(viii) Group norms do not apply to all the members in equal measure, e.g., the members occupying high ranks may not always like to follow them as it is not necessary to do so.

They are typically created in order to –

(i) Facilitate group survival.

(ii) Make behaviour more predictable.

(iii) Avoid embarrassing situations.

(iv) express the values of the group.

Why People Conform to Group Norms? 

The members of the group conform to group norms because of the following reasons:

(i) Proper Role Pay: Every member of the group has to perform a special role. Those members who observe group norms can perform their role more effectively. Norms guide them in their action.

(ii) Self Interest: Every member of the group has to keep in mind the interest of the group. By conforming the group norms he can protect his personal interest along with the interests of the group.

(iii) Group Control: The group has a claim on the members of the group. They are afraid lest they should be boycotted by the group. That is  why they observe the group norms.

(iv) Rewards: In some of the groups, it is already known to the members that those who observe the group norms will be rewarded. They observe norms in order to get rewarded.

(v) Goodwill: Some groups enjoy a special goodwill among the people. In order to maintain this goodwill, the members have to observe the norms compulsorily.

3. Group Leadership: Group leadership is another element that influences the behaviour of the members.  Every group has a leader. The style of working of the leader has an effect on the behavior of the members of the group. He/She gives an identity to the group as a functioning unit. Groups can both be formal and informal. 

In the formal group, leaders are appointed. Their ranks, powers and responsibilities are formally laid down (explained). The chief function of these leaders is to order and direct the members in the work of achieving the objectives of the organization. On the contrary, leaders are not appointed in the informal group but are accepted because of their personality or impression. Such leaders help the members of the group in giving expression to their thoughts and helping them in getting their demands highlighted. There can be more than one leader at a time in a group.

4. Group Cohesiveness: Group Cohesiveness refers to the closeness or similarity of attitude, behaviour and performance of the members of the group. Group Cohesiveness is an indicator of the unity of the members of the group. If this cohesiveness is found in ample measure in a group then, (i) the members are cooperative, (ii) unanimity of opinion is immediately established on any point, (iii) mambers like one another, (iv) members observe group norms, (v) members perform effectively. This situation compels the members to stick to the group. On the contrary, if the cohesiveness is little short,  then (i) the members lack the spirit of cooperation, (ii) there are differences of opinion which delays decisions, (iii) members do not like one another, (iv) members ignored group norms and cannot work effectively. This situation compels the members to drift away from the group. 

Features of a Cohesive Group: A cohesive group has the following features:

(i) All the members have positive attitude towards the group objectives and group norms.

(ii) The number of the number of the members of the group is less.

(iii) Members are more loyal to the group.

(iv) Members often meet regularly at short interval.

(v) There is free and effective communication among the members.

(vi) Group of a successful history.

(vii) Members of the group feel secure and satisfied.

(viii) Members are not willing to leave the group under any condition.

(ix) Members take the final decision quickly.

(x) The goodwill of the group is greeter as compared to the goodwill of other groups. 

5. Group Status: Group status refers to the position of rank of a person in a group which he gets because of his personal qualities. A person is recognised by his status and gets motivated by high rank. The behaviour of a motivated person is different to others. In nutshell, we can say that because of the differences in the ranks, people behave differently. In an organisation there are two types of status available:

(a) Formal Status: Various posts are created in every organisation, e.g. General Manager, Functional Manager, Supervisor, etc. People get a particular post in accordance with their education, training and experience. The salary, other benefits, respect, etc. are connected with the position that one holds. One gets encouraged on seeing these things and tries to work better.

(b) Informal Status: In another organization along with the formal status one gets informal status also. Informal status is obtained with the help of experience, personality, age, sex, etc. As accepting somebody as the leader is an example an informal status.

6. Group Roles: The role means the expected behaviour of the holder of a special position in a social unit. Here a social unit can be a family, a club or an educational institution. 

The role of the members of the group is cleared in formal group. Every member remains conscious of his role. Every effort is made so that nobody can raise a finger on their role (i.e., point out any weakness or deficiency in their role). This feeling or thinking is reflected in their behaviour. On the other hand, the role of the members in an informal group is not clear. It is not explicitly laid down as to what member is expected to do in a particular situation. This is not decided at any point of time. This unclear on unspecified nature of the role of the members affect them negatively. It is, therefore, clear that greater clarity about the role of the members would give them great satisfaction and they will work in a better way for the group. 

7. Group Think: In the group, all the members have different types of information. Everything is discussed about various kinds of information. With the help of such discussion, many alternatives emerged as a possible solution to the problem. Then all the alternatives are analysed and some final decision is arrived at.  Since all the members have participated in the process of arriving at the final decision, such a decision is happily implemented. On the contrary, on some occasion, time and resources are visting in arriving at group decisions. Unnecessary controversy takes place. Suggestions includes by politics are advanced. Individual interests outweigh group interests. In the absence of individual responsibility in such decisions risk factor is ignored. In this context, it has been said that responsibility of many means nobody's responsibility. This reduces the effectiveness of the group decisions. Even then if the negative points in the group decisions are controlled a little, they can prove to be better than individual decisions.

Or

Group Think is the psychological phenomenon that occurs within a group of people which desires for a harmony or confirmity in the group results in an irational or dysfunctional decision making outcome. It occurs when members of a group exert pressure on each other to come to consensus in a decision making. It results in –

1. Careless judgements.

2. Unrealistic appraisals of alternative course of actions.

3. A lack of reality testing.