Cybernetics Paradigm: It was devised by Griesinger in the late 1970s which helps in designing

the control process of an organization.

The various elements of Cybernetics Paradigm are-
• Environment: Each organization is surrounded by external and internal environment to
which it responds in case of changes.
• Sensors: The manager interacts with the environment through sensors which are
mechanism to collect data. The mechanism includes formal and informal reports.
• Perception: The manager extracts the information from above data and interprets its
meaning through a process known as perception.
• Factual Premises: Based on manager’s perception certain beliefs regarding performance
and state of external environment are formed known as factual premises.
• Value premises: It is what the decision maker desires. When a gap occurs between
factual premises and value premises then manager is motivated to close the gap.
• Behavior Choice: It is the choice set available that will move the managers closer to
their goals. The search for suitable alternative is stopped as soon as feasible alternative is
found that will close the gap.
• Feedback: The effect of action is determined through feedback and if the new behavior
leads to elimination of the gap then the particular behavior is repeated under similar
circumstances.
Application of Cybernetics Paradigm on Economic Slowdown in India:
The economic slowdown in the country has been analyzed with the help of cybernetics
paradigm. The various elements of it such as sensors, value premises, factual premises and
behavioral choice have been used in defining the economic slowdown situation.
The application has been conducted in 3 stages wherein 3 different time periods have been
considered .After the completion of 1st stage i.e. applying the behavioral choice solutions the 2nd
stage started and so on.

1st Stage:
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1. Sensors: These are the reports through which the data is collected. During the slowdown
the reports that were used to collect data about the prevailing environment were-

• RBI report: RBI advises the Central Board on local matters and to represent
territorial and economic interests of local cooperative and indigenous banks. The
reports generated by RBI
• MOSPI reports: Ministry of Statistics & Programme Implementation maintains
statistical standards, and reorient the processes and priorities in the realm of official
statistics, in tune with the changing technological and economic environment and
needs.
• CMIE reports: The Centre for Monitoring Indian Economy is an independent
economic think-tank headquartered in Mumbai, India. It provides information
solutions in the form of databases and research reports. CMIE has built the largest
database on the Indian economy and companies.

2. Factual Premises: With the help of the above reports the entire slowdown situation in
the country is interpreted and a perception is formed. From this perception various
beliefs evolve about the prevailing situation which are-
• Exchange rate: The exchange rate prevailing during the time period was 45.4.
• Crude oil prices: High crude oil prices were existing which were 96.13
• GDP growth: It was at a moderate value of 6.7%
• Inflation: It was at a very high figure of 10.71%
• Fiscal deficit: The government was facing a fiscal deficit of the amount 6.2% of
GDP.
• Goods export figures ( April – September 2008): US $ 94973 million
(Rs.405118 crores) an increase of over 30.9% in dollar terms over previous year, but
decrease expected.
• Tight liquidity Call money rate: over 15%

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3. Value Premises: This consists of the elements which are desired by the country policy
makers. These are-
• Attainment of stable exchange rate. As frequent fluctuations in the exchange rate
effect imports and exports.
• Attainment of stable crude oil prices to bring stability in the economy of the country.
• As the current fiscal deficit is very high, a moderate fiscal deficit of 3% is desirable.
• Inflation should be less than 5 %.
• GDP growth rate of 9%
• Exports of value $ 200 billion in 2008-09.
• Ease the liquidity by bringing call money rate to 9%

4. Behavior Choice: Since a gap exists between the factual and the value premises
therefore a set of choices is generated to close this gap. The behavior choice of
government was mainly in the form of stimulus packages besides changing CRR,repo
and reverse repo rates.
• For stable exchange rate and crude oil prices: The government sold dollars to
appreciate rupee. It Sold $34 billion while purchased $5.68 billion.
• For fiscal deficit: The government decided not to stick to the framework of FRBM
act due to the dire need of fiscal stimulus.
• Inflation: Inflation automatically lowered because of financial slowdown. The
government had to take steps to lower liquidity crunch and hence could not undertake
any activities to lower inflation.
• Increase GDP growth rate: Additional plan expenditure of Rs 20,000 Crore. Across
the board cut of 4% in the ad velorem CENVAT rate on all products other than
petroleum and those where the current rate is less than 4%.
• Increase exports:
I. Pre and post-shipment export credit for labour intensive exports, i.e., textiles
(including handlooms, carpets and handicrafts), leather, gems & jewellery,
marine products and SME sector is being made more attractive by providing an

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 interest subvention of 2 percent upto 31/3/2009 subject to minimum rate of
interest of 7 percent per annum.
II. Additional funds of Rs. 1100 crore is provided to ensure full refund of Terminal
Excise duty/CST.
III. An additional allocation for export incentive schemes of Rs. 350 crore is made.
IV. Government back-up guarantee to make available to ECGC to the extent of Rs.
350 crore to enable it to provide guarantees for exports to difficult
markets/products.
V. Exporters will be allowed refund of service tax on foreign agent commissions of
upto 10 percent of FOB value of exports. They will also be allowed refund of
service tax on output services while availing of benefits under Duty Drawback
Scheme.
• Ease the liquidity:
I. Cut repo rate and reverse repo rates, the two rates have been cut by a total of 350
and 200 basis points respectively, and now stand at 5.5% and 4%.
II. Cash reserve ratio (CRR), has been slashed by 400 basis points to 5%.

Factual Value
Premises: premises:
GPD, Decrease
Inflation,
cc
c

Stage 2: After the behavior choice of the 1st stage was applied, 2nd stage emerged. The various
elements of the 2nd stage were:

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1. Sensors:
• RBI reports
• MOSPI report
• CMIE report

2. Factual premises 2:

• Exchange rate :48.71

• Crude oil prices: 32.94
• Inflation: 5.65%
• India’s GDP growth: 6.7%
• Fiscal Deficit: 6.2% of GDP
• Call money rate: 6.5%
• Exports fell in December by 1.6% from November to stand at 11.2bn $

3. Value premises 2:
• Inflation less than 5%
• GDP growth rate 9%
• Exports $ 200 billion in 2008-09.
• Further ease liquidity

4. Behavior choice 2
• Measures for liquidity
I. Reduced the repo rate by 100 basis points from 6.5 per cent to 5.5 per cent.
Reduced the reverse repo rate by 100 basis points from 5.0 per cent to 4.0 per
cent.
II. Cash reserve ratio (CRR) of scheduled banks by 50 basis points from 5.5 per cent
to 5.0 per cent.
5. Measures for export

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 I. 2% interest rate subvention up to March 31, 2009 in pre-and post- shipment
credit for labour-intensive exports for textiles (including handloom, carpets and
handicrafts), leather, gems & jewellery, marine products and small and medium
industries subject to minimum rate of interest of 7 percent a year.
II. Additional funds of Rs 1,100 crore will be provided to ensure full refund of
Terminal Excise duty/ CST.
III. Rs 350 crore additional allocation for export incentive schemes.
IV. Government back-up guarantee for ECGC of Rs 3 50 crore for exports to difficult
markets/ products.
V. Service tax refund on foreign agent commissions of up to 10% of FOB value of
exports
VI. Service tax refund on output services while availing of benefits under the duty
drawback

Factual Value
Premises: premises:
GPD, Decrease
Inflation,
VII.
Cc
C

Stage 3: After the behavior choice of the 2nd stage was applied, 3rd stage emerged. The various
elements of the 3rd stage were:
1. Sensors:

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 • RBI reports
• MOSPI report
• CMIE report
2. Factual premises 3
• Exchange rate: 48.7
• Crude oil prices: 31.04
• Inflation: 0.8%
• India’s GDP growth rate: 5.8%
• Fiscal deficit: 6.2% of GDP
• Exports for February fell 13% to stand at $13.04 bn.
3. Value premises 3
• GDP growth rate 7-8%
• Exports 2008-09 $ 175 bn
4. Behavior choice 3
• To increase GDP growth rate:
I. Service Tax Rates reduction by 2%. Now the Service Tax shall be charged
at 10% instead of 12%.
II. Central Excise Rate reduced by 2%. Now the Central Excise Tax shall be
levied at 8% instead of 10%.
• Increase exports:
I. Export obligation period against advance authorizations extended up to 36
months.
II. Procedure for claiming Duty Drawback refund & refund of Terminal
Excise Duty further simplified.
III. Under Export Promotion Capital Goods Scheme (EPCG), export
obligation extended till 2009-10 for exports during 2008-09.
IV. Special Package of Rs. 325 crores for Leather and Textiles sector.
V. Duty Credit Scripps under Duty Entitlement Pass Book (DEPB) Scheme
to be issued without waiting for realization of export proceeds.

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 Factual Value
Premises: premises:
GPD, Decrease
Inflation,

Feedback: After applying the behavioral choices available in all the above 3 stages it was
observed that economy started reviving. Thus the behavior should be repeated as it is leading to
elimination of gap between the factual and the value premises on a continuous basis.

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