Introduction to BGS 2011

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    Business, Government & Society

    Prof. M. V. Rajeev Gowda

    Indian Institute of Management Bangalore

    [email protected]

    98451 62171

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    What was this ad all about?

    http://www.youtube.com/watch?v=MMjStzJt

    http://www.youtube.com/watch?v=MMjStzJtOI4http://www.youtube.com/watch?v=MMjStzJtOI4
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    Pesticides in Colas

    Click to edit Master text styles

    Second level Third level

    Fourth level Fifth level

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    Flashback 2003

    In 2003, the Centre for Science and Environment (CSE), anon-governmental organization, said soft drinks producedby multinational giants Pepsico and Coca-Cola, containedtoxins such as DDT that can contribute to cancer and abreakdown of the immune system.

    Tested products included Coke, Pepsi, and several othersoft drinks (SevenUp, Mirinda, Fanta, Thums Up, Limca, &Sprite).

    CSE found that the Indian-produced Pepsi had 36 times thelevel of pesticide residues permitted under EuropeanUnion regulations; Coca Cola's had 30 times. CSE said ithad tested the same products in the US and found no suchresidues.

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    Corporate Reactions

    Coke and Pepsi both denied CSEs allegations.

    Coke only "hinted at the issue" in ads as it didn't want tolegitimize the interest group's claims.

    Coke became mired in technical detail, publicizing its owntests that showed the drinks met tough Europeanstandards and pointing out that India's Health Ministry hadtaken issue with CSE's testing methods.

    That was the start of a two-year slide for Coke's casesales, (15% drop) which analysts say was made worse bya troubled distribution system and a decision to raiseprices in the midst of the pesticide controversy.

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    Parliaments Response

    Parliament banned the drinks in its canteen.

    It also set up a Joint Parliamentary Committee to examine theissue.

    The JPC validated the findings of CSE and in early February2004 asked the government to set standards for carbonateddrinks.

    The Bureau of Indian Standards met over 20 times to deliberateon the standards. This was the first time standards were being

    formulated for pesticide residues in soft drinks by the BIS.

    In October 2005, after months of data analysis and discussionwith all stakeholders including the two soft drink majors andCSE, it finalised the standards. But these standards had not yet

    been notified in 2006. Until standards are officially notified,they have no value.

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    2006: Deja Vu

    The controversy flared up again in August of 2006, whenCSE released its new test results.

    The study finds pesticide residues in all samples; itfinds a cocktail of 3-5 different pesticides in all samples

    on an average 24 times higher than BIS [Bureau ofIndian Standards] norms, which have been finalized butnot yet notified.

    The levels in some samplesfor instance, Coca-Colabought in Kolkataexceeded the BIS standards by 140

    times for the deadly pesticide Lindane. Similarly, aCoca-Cola sample manufactured in Thane contained theneurotoxin Chlorpyrifos, 200 times the standard.

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    Counterevidence

    India's Health Ministry said in a sworn statement tothe Indian Supreme Court that Coke and Pepsibeverages tested in three government labs

    contained little to no pesticide residue, and none ofthe levels found exceeded "statutory limits."

    A prominent government lab in the United Kingdomalso reported it found none of the pesticides cited

    by the public interest group.

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    Standards? Which? For Whom?

    o When the controversy broke, New Delhi had not evenformalized its own regulations.

    o The levels that Coke and Pepsi were said to exceedby24 timeswere still proposals that wouldnt go into effect

    until early 2007.o Both companies had been strong supporters of new

    standards. They had participated actively in thegovernments standard setting process.n "It's absolutely in our interest to have clear regulations

    that are scientifically verifiable," says Mike White,chief executive of PepsiCo International.

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    Media Makes It an Emotive Issue

    o Newspapers printedimages of cans ofthe drinks with

    headlines like"toxic cocktail."o News channels

    broadcast images of

    protesters pouringCoke down thethroats of donkeys.

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    Political Response

    o Governmental response was harsh. Seven ofIndia's 28 states imposed partial bans on Cokeand Pepsi.

    o The state of Kerala banned the drinksaltogether. Officials there have ignored asubsequent high court ruling overturning theban (on the grounds that only the centralgovernment can ban a food product).

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    Judicial Response: Disclose!

    o The Rajasthan High Court set a deadline ofAugust 3, 2006 for Coke and Pepsi to disclosecontents of soft drinks, including the

    permissible levels of pesticides and chemicals,on bottle labels.o Coke & Pepsi, filed an appeal in Supreme Court

    against this order

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    Civil Society Response:Expanding Fronts of Attack

    n National Alliance of People's Movements coaxed theCentral Pollution Control Board in Varanasi to visit a Cokebottling plant at Mehndiganj to check if toxic effluentswere polluting water bodies & fields close to the unit.

    n

    They alleged that around 25 lakh litres of ground waterwas being depleted daily by these companies pushingdown the water level. (Incidentally, this was exactly whathad happened in Plachimada in Kerala that resulted in theCoca Cola factory being closed.)

    n According to Dr Sandeep Pandey, National Coordinator ofthe NAPM, the sludge from the factory had heavy metalconcentrations like lead, chromium and cadmium that wasover the permitted limit.

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    Interlude:The Cola Companies in India

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    Coca Colas History in India

    India's leading soft drink until 1977; it left after the Janatagovernment ordered it to turn over its secret formula & dilutestake in Indian unit as per FERA

    In 1993, it returned post-liberalization

    In 2005, Coca-Cola and Pepsi together held 95% market shareof soft-drink sales in India.

    Greenpeace urged the Kerala government to close down theCoca-Cola bottling plant at Plachimada, in Palakkad district, forthe "criminal cheating" it had indulged in by passing on to the

    farmers of the area "toxic wastes" in the guise of fertiliser.That plant was closed down also because of allegations that itwas depleting the groundwater of the area; opposed byfarmers

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    Pepsis History in India

    Banned from import in 1970s for refusing torelease list of ingredients.

    Gained entry into India in 1988 by creating ajoint venture with Punjab Agro IndustrialCorporation (PAIC) and Voltas, selling LeharPepsi till 1991.

    After liberalisation, Pepsico bought out itspartners. Joint venture ended in 1994.

    Pepsi arrived on the market shortly after.

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    Can Coke & Pepsi Walk AwayFrom the Indian market?

    India is a small part of the global soft drink business. In 2005,India made up about 1.4 percent of the 20.6 billion cases ofbeverages Coke sold worldwide. Profits were even thinner

    Yet, India is key to Coke & Pepsi for their future.Sales of cola-type soft drinks are on the decline in the US, whereconsumers are turning to diet sodas, water, sports drinks & othernoncarbonated beverages. That means companies have to lookfor future growth in countries such as India, where there are lotsof people and a growing economy

    Indians consume only seven 8 oz servings per capita per year,while Mexicans consume 1500; scope for growth enormous!

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    Coke & Pepsis Economic Impact

    Together, Coke and Pepsi have invested nearly $2 billionin India

    They employ about 12,500 people directly and supportmore than 200,000 indirectly given their huge purchasesof India-made sugar, packaging material, and shippingservices.

    Coke is even India's No. 1 consumer of mango pulp forone of its local soft drink offerings

    Of course, there is probably an adverse health impactfrom consumption of Coke & Pepsi

    But details of such externalities are unavailable

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    Back to the Action:How to Manage the Controversy?

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    The Two Sides: Coke vs. CSE

    o Trace amounts of pesticides can be found inIndia's water supply and in its crops, as well asin raw ingredients such as sugar.n

    Coke says it treats the local water in itsplants before using it to produce soft drinks.

    o CSEs director, Sunita Narain, says pesticideresidue can cause cancer, birth defects and

    damage to nervous and immune systems ifconsumed over a long period.

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    Risk Regulation & Implications

    Refuting these allegations is difficult because:

    Standards for safe pesticide levels in drinks have beenagreed on in India but never made a legal requirement.

    The industry continues to argue over whether tests areneeded for the final product or the water that goes intothe drinks.

    There is also debate over how to cleanse sugar of itspesticide traces and a recognition that India'sgroundwater is so badly contaminated that most foodproducts contain some pesticide residue.

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    Science:Explaining the specifics

    Asim Parekh, a vice president of Coca-Cola India, said his"heart sank" when he first heard the allegations because heknew consumers would be easily confused .

    "I have tried my level best to communicate this information.But even terminology like PPB - parts per billion - is difficultto comprehend. This makes our job very challenging."

    Bakshi, the Pepsi executive, also struggled with themessage. "The subject is extremely technical. It is hard toexplain the entire story. "

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    Tactical Aspects: Identity Politics?

    Have Coke & Pepsi been singled out because they are foreign-owned?

    "We are continuously challenged because of who we are,"says Atul Singh, CEO of Coca-Cola India.

    But Indian soft drink makers have been tested for similarviolations, and many people believe that pesticide levelsare even higher in Indian-made milk and bottled tea.

    While pesticide residues are present in virtually all

    groundwater in India, New Delhi has largely ignored theproblem.

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    Brand Vulnerability

    Isdell of Coke said CSE "picked on carbonated soft drinksbecause that would get the headlines ... for a broaderissue of pesticides in the food chain in India.

    David Cox, Coke's Hong Kong-based communicationsdirector for Asia, accused Sunita Narain, of "brandjacking" using Coke's brand name to draw attention to hercampaign against pesticides.

    Bakshi, the head of Pepsi in India, said, "You are not justup against the person holding the press conference, butalso the people who seize on the allegations, the otherconstituencies who jump on the fray."

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    Gaining Leverage

    Sunita Narain acknowledged she targeted the soft drinkgiants to bring attention to the issue of pesticidecontamination of food products but has stood by hertesting.

    "Our concern was that if we are finding pesticides in a productthat is supposedly clean and safe, it means there is widespreadcontamination in India," Narain told National Public Radio's"Morning Edition"

    Coke has joined Narain in calling for limits on pesticideresidue in finished soft drinks, not just the water used tomake them.

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    Crisis Response

    In 2006, within a week of the CSE report, Cokelaunched the first of three rounds of newspaperads refuting the claims. The ads were in the formof a letter from India's more than 50 company-owned and franchised Coke bottlers saying theirproducts were safe. Similar letters were given toretailers. Merchandisers pressed stickers onto drinkcoolers that proclaimed Coke was "safety

    guaranteed."

    "We had a communication that took the bull by thehorns," said Kini, Coke India's marketing chief.

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    Standard Operating Procedures?

    Coke & Pepsi formed committees in India and the US,working in parallel on legal & PR issues.

    Worked around the clock fashioning rebuttals

    They commissioned their own laboratories to conduct testsand opted to wait until the results came through beforecommenting in detail.

    This approach quickly backfired: their reticence merelyfanned consumer suspicion.

    They became bogged down in the technicalities of theallegations, instead of focusing on winning back theemotional support of their customers.

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    o Coca-Cola also decided to go on the attack, thoughindirectly.n Coke officials from Delhi gave briefings during which

    they questioned the scientific credentials of theiraccusers.n They directed reporters to blogs containing large

    quantities of uniformly pro-Coke entriesn

    They handed out the cellphone number for thedirector of an organization called the Center forSanity and Balance in Public Life.

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    o Coke also decided to address customers directly,printing an advertisement asking, "Is thereanything safer for you to drink?" and invitingIndians to visit its plants to see how the beverage

    was made.o Experience has shown that consumers are often

    reassured by the sight of the water filtrationprocess in the factory.

    o

    Coke said it had received about 2,000 calls frompeople interested in the tour.o And, of course, Coke used the Aamir Khan ad

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    Assessing the Crisis Response

    Coke and Pepsi stumbled badly in their response to thepesticide allegations:

    they underestimated how quickly this would spiral into anationwide scandal

    misjudged the speed with which local politicians would seizeon an Indian environmental group's report to attack powerfulglobal brands

    failed to respond swiftly to quell the anxieties of their

    customers.In short, two of the world's biggest brands failed to do whatthey do best: pitch the virtues of their products directly totheir customers.

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    PR Consultants Gyaan

    Coke & Pepsi should have known betterSuhel Seth,Advisor to Coca Cola

    "Fringe politicians will continue to be publicly hostile to bigWestern companies, regardless of how eager they are for

    their investment.""Large multinational corporations are still seen by pocketsof consumers and opinion makers as marauders and not ascontributors."

    Levick, an American PR consultant, agrees:"They underestimated their own importance.

    "Much more than companies, they are symbols of the West.They don't realize how powerful that is."

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    "Crisis abhors a vacuum. They needed to showleadership. These minimalist statements were notadequate." Levick

    Because they failed to anticipate the political potency of

    the story, Coke and Pepsi initially hoped that the crisiswould blow over and adopted a policy of virtual silence.

    "In the U.S. and the West there is a certain dignity tosilence, said Seth, the Indian public relations expert ."But here people interpret silence as guilt. You have to

    roll up your sleeves and get into a street fight. Coke andPepsi didn't understand that."

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    The companies also failed to realize how fast newstravels in modern India

    "We are living in a new, very aware India," said

    Amit Agnihotri, a public relations analyst in Delhi."We have 36 news channels. People are interestedin what is happening around them. Coke and Pepsihaven't understood the power of this new India.

    They tried to wish this problem away, by ignoring

    it, by not responding to it. That won't work anymore."

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    Sunita Narain Counterattacks

    o Takes on Cola cos: What a line of attack!n Pepsis ads denying it had pesticides in its drinks, said there were

    more pesticides in tea, eggs, rice & apples.

    n Coca-Cola, in its defense, has similarly argued that as everything inIndia is contaminated, its drinks are safe.

    n They say this is being done to target them, because they are bigbrands & US multinationals.

    n The pesticide industry wants the focus not to be on pesticides but onheavy metals & other contaminants. They also say that they arebeing singled out.

    n We also do not have the luxury of first cleaning agricultural raw

    material, then building our processed food industry. We will have toclean both ends of the food chainthe farm & the fork.

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    Sunita Narain Analyses MNC Tactics

    o Tactics used by MNCs against opponentsn Diversion is just one of the ploys.n The second is to Deny. This is where 'science' becomes a

    handy weapon. Even though science has created moderntoxins, it is slow on generating knowledge about the impactof toxins and pollutants on our bodies and our environment.The polluters want 'conclusive' & 'incontrovertible evidencethat there is cause & effect. We the victims have to prove ourscience.

    n The third tactic is to Discredit and Dismiss: your science is notgood, it is not validated or peer reviewed. The health minister

    (Anbumoni Ramadoss) did exactly this when he used a half-baked report to try & discredit our laboratory and our work onsoft drinks and pesticides.

    n The fourth step in the polluter's game-plan is to Damn and toDestroy.

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    Paradox! Swaminathan S. AnklesariaAiyar on Risk-Risk Tradeoffs

    Colas are safer than alternatives.

    The biggest health risk comes not from pesticides but bacteria, which killmillions. Cola has far less bacteria. That is why many foreign touristsdrink Coke, Pepsi or bottled water, & nothing else. Ironically, these threedrinks are the ones targeted by CSE as being unsafe.

    Besides, the actual pesticide level, is

    3,080 times higher in milk, 111,600 times in fruit, 69,700 times invegetables, 60,000 times for tea leaves than in proposed cola standards.These are priority items in diet, and so are permitted high levels,

    If you ban colas, what will people switch to? Water, tea, cane juice & fruit

    juices. (More nutrition?) Banning colas will increase pesticide intake, notdecrease it.

    The cost is entirely bearable for cola companies. So OK

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    The Final WordIndra Nooyi

    "One thing I should have done was appear in India threeyears ago and say: Cut it out. These products are the safestin the world, bar none. And your tests are wrong."

    [OK! This sounds like a good strategy]

    "We have to invest, too, in educating communities in how tofarm better, collect water, and then work with industry toretrofit plants and recycle."

    [Really? Doesnt sound like a typical Pepsico agenda!]

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    Tata Tea and ULFA

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    The History

    Tata Tea had a major presence in Assamand owned several tea gardensIn 1990, ULFA contacted them for the

    first time, asked for cashTata Tea refused, and instead set uphospitals, adult literacy centres,

    childcare centres, a technical traininginstitute and schools + scholarships,support for handicapped childrenTook Lifeline Express to Assam in 1995

    August 1993: Bolin Bordoloi kidnapped

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    Company officials met Home Secretary,demanded protectionBut no response

    January 1996: Tata Tea expressedwillingness to participate indevelopment projects; sent copy of

    communication to State govt.Tata Tea CEO received threats frommilitant groups; requested central govtfor help

    Talks at Bangkok in early 1996: Tata Tea

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    Following arrest of an ULFA member,links between Tata Tea and ULFA werepublicly revealed

    Interrogation, cases against Tata Teatop management followedTatas threatened to pull out of Assam

    Mediation by politiciansAssam government decided to softpedal the case

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    According to an analyst.

    The determination of the stategovernment to prosecute managers ofthe company for consorting with the

    enemy is sheer hypocrisy. With theAssam state government's writ barelyextending beyond Guwahati and its

    compromised police and paramilitaryforces unable to provide even minimalprotection to the far-flung propertiesand personnel of tea companies, they

    had no option but to parley with militant

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    And according to PritishNandy

    A government that cannot protect itspeople and its corporates, has no rightto punish anyone who is protecting

    himself.

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    But the Assam governmentargued that

    .. the funding of extremists bybusiness houses was an anti-nationalact.

    Mahanta said, It is the moralresponsibility of companies to informthe government, the police or

    intelligence agencies about extortion bymilitants.

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    The Course

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    Overview of the Course

    Rationale:

    Everything you study in the MBA is focused onthe world of the corporation

    This course takes you outside, to examine theexternal, environmental, societal forces thataffect corporations and markets

    Emphasis is on political, social, institutionalfactors affecting corporations

    Very interdisciplinary, lots of great thinkers!

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    Course Evaluation ...Subject to Revision

    10% Film or Book Review

    25% Group Project

    Case Study on BGS ThemeLet us immediately form groups of 5-6

    (PGP)

    Identify topics and clear them with me

    30% Mid-term Examination

    35% Final Examination

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    The Professor

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    Introducing the Professor

    Born Oct 29, 1963, Bangalore, India

    St. Josephs Boys High School, Bangalore

    BA: History, Economics, Political Science

    St. Josephs College, Bangalore University, 1984

    MA: Economics

    Fordham University, New York, 1985

    PhD: Public Policy and Management

    Wharton School, University of Pennsylvania, Philadelphia,1992

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    I have never left school! But

    John M Olin Postdoctoral Fellow

    Law School, University of California, Berkeley, 1990-91

    Associate Professor and Research Fellow

    Political Science + Science and Public Policy, University ofOklahoma, 1992-2000*

    Professor

    Economics and Social Sciences, Indian Institute of

    Management-Bangalore, 2000 present**

    Chairperson, Centre for Public Policy, 2009-

    *Assistant Professor, 1992-1999; **Associate Professor, 2000-2007

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    Some Other Things I Do

    Quiz

    Founder Secretary, Karnataka Quiz Association, 1983

    BBC TV Mastermind India National Runner-up, 2001

    Agitate

    Triggered Bengaluru Unitesprotests in Bangalore against attacks on womenby Sri Rama Sena

    Blog

    Check http://hamaracongress.com

    Write

    Book on Understanding India: Paradigm ShiftsBook on Business, Government and Society in India

    Run an NGO

    Resurgent India Trust, aimed at youth empowerment

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    A Flavour of the Course

    d/ l

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    Topics Covered/Class Sessions

    Introduction & Overview; BGS Mini Debates

    Role of the Corporation/Corporate Social Responsibility

    Rationale for Government

    Regulation

    Interest Groups

    Social Capital

    Media

    How People Reason and Respond

    Institutions

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    Indian Politics

    Indian Society

    Indian Economy

    India on the Global Stage: Foreign Policy

    Globalization

    Urbanization

    Environmental Issues

    Agrarian Crisis and the Rural Economy

    Innovation and the Knowledge Economy

    Th BGS C Bl

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    The BGS Course Blog

    In the spirit of Wiki, in the belief that ~350 studentbrains make up intellectual critical mass, in the hopethat students read beyond class materials (if theyread that at all :-)

    We are happy to unveil http://bgsatiim.wordpress.com

    Dedicated to discussions, debates, and links tointeresting, topical material

    A platform for all of you to engage with ideasTo make the BGS class come alive

    Check. Comment. Contribute.

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    Mi i d b t BGS Th

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    Mini-debates on BGS Themes

    Media:

    The media is fundamentally a business.

    Therefore paid news is acceptableSociety:

    Artists and authors should have

    complete freedom of expression, even iftheir work offends the sentiments ofcertain sections of society

    Indian Society and Politics:

    Th

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    Themes

    Professional Politicians

    Like Singapore, we should pay MPs salaries higherthan similar jobs in the private sector

    Values and Indian SocietyCaste-based Census is a regressive idea. Junk it.

    Equity

    All non-government schools must reserve at least

    25% of seats for poor children from theneighborhood

    A d

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    And

    IIMs Social Responsibility

    Since the IIMs have been established by

    the government and heavily subsidised,all graduates must do a years ruralservice before taking up jobs of theirchoice