DEFENCE

Emerging dynamics and challenges of internal security in India

14 June 2013, Delhi

Message
PHD CHAMBER OF COMMERCE AND INDUSTRY
With the growing economic uncertainty and complexities plaguing the country, it has never been more challenging for India from an internal security perspective. The new dimensions of the threats India faces require very agile security governance. Our state responses are gearing up to match the speed with which things are changing. A multilayered approach that includes depth and breadth of defence is the only way to meet the challenges and protect the countrys assets. Given the vast potential of the market, there is renewed interest in the homeland or internal security, with a host of private firms seeking to leverage the opportunities that exist in this largely undocumented segment. With this as a backdrop, PHD Chamber is organizing a conclave on Homeland Security: Industry Perspective & Investment Opportunities for Indian & Foreign Investors. I wish this Conclave encourages foreign investment into India through joint ventures with Indian players and create an integrated and self-reliant Homeland Security apparatus in India.

KPMG IN INDIA
Internal security has witnessed an increasing focus in the recent past. While this gets reflected in the increased budgetary allocation for security expenditure, Ministry of Home Affairs (MHA) has also sought to create physical and policy-level framework for long term development of security infrastructure. Over the last few years, considerable progress had been made; and yet much needs to be done for gearing up to the need of new emerging India. Private sector has played a significant role in meeting the security requirements in various countries. Indian industry has begun taking note of the potential growth opportunity by aligning itself to emerging technology requirements .There is an immediate need for creation of an integrated and indigenous solution development that is adequately supported by active policy framework and in house research and development capability to address some of the grave challenges that our country faces today.

Suman Jyoti Khaitan President PHD Chamber of Commerce and Industry

Pradeep Udhas Partner and Head Sales and Markets KPMG in India

2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Executive Summary
Internal security in India is characterized by being one of the national subjects that encompasses many complex individual subjects, across the center, state and local jurisdictions, defined by the borders of the homeland yet challenged by unique local conflicts, spanning every nook and cranny of the countrys vast and diverse topography. Simplistically defined under the aegis of the Ministry of Home Affairs, the subject of security spins a complex web around an ecosystem comprising local, state and central governments, players across the private sector and the public sector, including law enforcement officers, protective agencies, and intelligence agencies. Internal security today is handled by a multitude of bodies with complex functional and reporting relationships. Law and order is a state subject and the state police are responsible for maintaining the same. The Ministry of Home Affairs is responsible for internal security, management of paramilitary forces, border management, center-state relations, administration of union territories and disaster management. A subject that spans across matters of grave national interest like defending the countrys borders to those of local priority at a city level, ie critical infrastructure like a monument of religious significance; from matters of brick and mortar like physically protecting our coastline to fighting the downsides of technological advancements like Cybercrime- this is indeed a vast and dynamically evolving subject, which is managed by a network of empowered authorities. The paper attempts to briefly analyse the background of Indian internal security environment, the business opportunities that lie ahead for Indian and global companies for partnering with the government agencies towards securing our nation. It suggests potential way forward for all stake holders towards building win-win partnerships and critical success factors for survival in this industry.

2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Indias internal security

An evolving landscape
The budgetary allocation for the Ministry of Home Affairs (MHA) for the year 2013-14 has been pegged at around USD 10.8 bn and is expected to witness a Compounded Average Growth Rate (CAGR) of ~15% thereby touching USD 18.8 bn by 2017-18. This is expected to provide a significant push to the domestic market driven primarily by the requirements defined by modernization and up gradation plans.1 A heightened threat perception coupled with growing realisation of the challenges that lie before us are now driving government initiatives that are targeted towards strengthening the internal security that has become a significant national priority. The existing ecosystem is multilayered and complex with multiple reporting channels. Given the conflicting priorities, and varying methodologies adopted by the various stakeholders, there arises a strong need to find a synergistic common ground for them. India with its continental dimensions, varied terrain, large porous land borders, long coastline and ethnic differences poses a complex security challenge.. The recent terror attacks and ethnic clashes in the country have accentuated the need to protect the internal environment. In light of current events and threats, the central and state governments in the country now perceive the modernization and up-gradation of the infrastructure as an area of priority. This has led to an increase in expenditure outlay in the country. The government has rightly realigned itself by creating a new ecosystem to combat the existing challenges.

Figure 1: Conflicting priorities of the stakeholders

Source: KPMG in India analysis

MHA Annual Report 2012-13, KPMG in India analysis

2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Figure 2: Internal security ecosystem

Source: Ministry of Home Affairs (MHA), KPMG in India analysis

2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Naxal management and terrorism

Grave challenge facing the country today
Terrorism and Naxal management are the key internal security challenges of India. Naxal menace is also referred as Left Wing Extremism (LWE) and it seriously affects nine states. expected to be the key market drivers that open avenues of collaboration between the industry and the government. It includes raising special battalions and equipping them with necessary gadgets, establishing training schools etc. Market potential Our analysis suggests that an amount of USD 1 to 2 bn was spent on security infrastructure related programs (focused towards curbing naxalism and terrorism) during 2012-13. Equal impetus is being given to development efforts in the affected areas, by emphasizing on better implementation of various development schemes. There has been nearly three folds increase in spending in last two years on this account. Key government priorities MHAs focus has been on capacity building of state forces through various schemes to reimburse Security Related Expenditures (SRE) on training, operational needs and funds for ex- gratia payments. Creation of security related infrastructure viz fortified police stations, roads/track connectivity and construction of helipads in inaccessible areas is being executed. Equal impetus is being given to development efforts in the affected areas, by emphasizing on better implementation of various development schemes. Key challenges
Obtaining actionable intelligence and

Key characteristics
Twin problems of Naxal and terrorism have socio-economic-politico origins and as such the government is countering these by a combination of security and developmental perspectives. The areas of operation are under-developed on most of social indices. There is a dire need for forces specifically trained in counter insurgency operations with adequately equipped intelligence mechanisms.

appropriate technology to collate and analyze the inputs

Concerns of in accessibility coupled

Key market drivers

The government has initiated several initiatives such as scheme for special infrastructure, establishing Counter Insurgency and Anti-Terrorist schools (CIAT), Integrated Action Plan (IAP) for development targeting towards curbing the LWE activities2. These initiatives are

with challenges in mobility countering IEDs, surveillance and secure communications continue to plague the system.

MHA Annual Report 2012-13, KPMG in India analysis

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Critical Infrastructure Protection

Safeguarding installations vital to sustaining Indias economic growth
Key characteristics
Industrial assets and various energy production facilities are widely spread out across the country. Safeguarding transportation modes and assets that has large public footfall requires considerable allocations of physical security and applications of technology. Market potential Our analysis suggest that the cumulative market potential for the infrastructure security is expected to be approx. USD 0.8 to 1.2 bn over the next 4 to 5 years. Key government priorities Investments to the tune of USD 1 Tn are planned for infrastructure creation in the 12th plan period ending March 2017 and this will require an exponential spend increase for protection of such investments. Key challenges
Providing trained manpower for

physical security
Deploying state of the art, cost

effective gadgets for surveillance, collation and analysis of data.

Key market drivers

Creation and up gradation of vital infrastructure such as new power plants, construction of hydro dams, ports, oil refineries, sensitive religious centers etc. are expected to be the key market drivers.

Border Security
Strengthening, developing and upgrading infrastructure
Key characteristics
Border security is aimed at securing nations borders against interests hostile to the nation by putting in place processes to interdict them and facilitate legitimate trade. The key priority of the government is to secure land borders with Bangladesh and Pakistan by fencing, floodlighting and having a network of roads to facilitate effective patrolling all along3. The mechanism on Bangladesh border, is aimed at curbing illegal migration and smuggling, whereas on Pakistan border, it is to prevent infiltration and arms smuggling. Creation of critical infrastructure and development works are being undertaken by dedicated funds through Border Area Development Program. It is also in the process of establishing 13 ICPs for trade through land borders. Key challenges
To plug the porosity of borders with

Key market drivers

The border security and development projects that are being carried out by the MHA to upgrade the security eco system are expected to be the key market drivers: a. Projects include border fencing, roads, flood lighting , creation of additional Border Out Posts (BOP) for guarding and creation of Integrated Check Posts (ICPs) for land trade b. Socio development of the border areas. Market potential An amount of USD 0.7-1 Bn was spent on various programs to upgrade border infrastructure during 2012-133. The border security related equipment procurement opportunity itself could be upwards of 250-500 Mn over the next 4-5 years. Government priorities

effective surveillance by establishing additional BOPs

Application of technology for effective

guarding
Creatinon of road networks on India

China border.

MHA

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Maritime Security
A need for new emphasis
Key characteristics
In India maritime security is a cause of concern since it lacks the required infrastructure. There are number of security concerns like landing of arms, infiltration / ex-filtration of anti national elements, prevent smuggling and security of Exclusive Economic Zone (EEC). Market potential The coastal security related spend under the coastal security scheme phase 2 during 2012-13 was approx. USD 170 200 Mn4. A yearly spend of approx. USD 80 Mn is budgeted over the next 3 to 5 years period (under the same scheme). Key government priorities

Key market drivers

The key market demand for the coastal security infrastructure is expected to be created by two major programs as defined by the MHA: a. Coastal Security Scheme - Phase 2 which is focused on upgrading the infrastructure by purchasing interceptor boats, building coastal police station etc. b. Coastal Surveillance Scheme Phase 2 focused on setting up multiple radar stations by acquiring radars , day and night vision cameras and establishing Command & Control Centers.

The key priority as per the MHA is to enhance maritime security by creating coastal police stations, check posts and providing vessels to patrol high seas and intercept intruders. Separate comprehensive coastal security plan is being executed for Andaman and Nicobar island territories. Key challenges
Establish and operationalize coastal

police station, construct jetties, procure a large number of patrolling and interceptor boats
Needs to be supplemented with sizable

numbers of radars and networked surveillance systems.

Police Modernization
Need for technology enabled environment
Key characteristics
Police Modernization (PM) division of the MHA is mandated to steer this effort of modernization of all police forces, procurement of arms/equipment and effecting reforms. Market potential The cumulative spending for the police modernizationfor the past 5 years has been around USD 2 bn4. The government has already approved a police modernization plan(spread over 2013-17) with an outlay of over USD 2 bn. Key government priorities The government intends to enhance the capabilities (qualitatively and quantitatively) of the police forces to equip them with state of art weapons, communication systems and other equipments The focus will be to strengthen infrastructure with cutting edge equipments and technology to make a smart police force with much required mobility and communication. Key challenges
States should be able to utilize their

allotted funds for modernization

Technology is not being introduced at

the required pace to meet present day policing and internal security challenges
The procurement processes need to be

Key market drivers

Various programs such as megacity policing, city surveillance project, Crime Criminal Technology Networking Systems (CCTNS) have been initiated aimed at creating and upgrading the infrastructure across various cities in the country. These programs are expected to create considerable requirement for equipments such as night vision devices, GPS/GIS for patrol cars, surveillance camera systems, portable x-ray machines, vehicle number plate identification system, cyber patrol and communication monitoring system etc.
4 MHA Annual Report 2012-13, KPMG in India analysis

streamlined and made robust to effect speedier reforms.

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City Surveillance
Ensuring safer cities
Key characteristics
Indias heavy density population centers and congested market places have continued to be a nightmare for providing security to these areas. City surveillance systems aim to make our cities safer by providing seamless surveillance of vulnerable areas. Delhi and Mumbai surveillance projects. As other cities (mega and state cities) are included in the plan, this is expected to add to the market potential significantly. Key government priorities MHA intends to put in place a system for keeping vulnerable areas under surveillance and gradually build up capabilities with wider surveillance, networking, effective vehicle management systems and feeding inputs from these systems to data centers for meaningful analysis. Key challenges
Creating customized security

Key market drivers

Mega Safe City projects for 7 chosen cities, as defined by the MHA, and the City Surveillance programs for keycities in each state (to be defined by the respective state governments) are expected to be the key market drivers that will create the need for purchase of advanced surveillance equipments. Market potential As per market reports, cumulative amount of USD 300-500 Mn is being spent on

architecture
Applying contemporary technologies

and devising quick response systems.

Intelligence and Cyber security

Countering the threat
Key characteristics
Much of our critical infrastructure lies in cyber space which faces challenges from hacking, financial fraud, data theft and espionage. Any threat of disruption of financial, rail, air, power and critical information services can be construed as an act of terror, as such, cyber security requires desired priority. Intelligence collection, collation, analysis and dissemination are a prerequisite for success of internal security apparatus. Market potential MHA is planning to execute several programs to enhance the cyber security are underway. NATGRID alone has a spend budget of USD 0.2 bn approximately spread over 4 to 5 years, thus making the cyber security domain a lucrative business opportunity for the private sector. Key government priorities
The key priorities of the government

Key market drivers

The key drivers for the cyber security equipment market are the technology programs such as NATGRID which demands setting up of state of the art safe networking / communication infrastructure. Also, the constantly increasing computerization drive across different state and central ministries and sensitive installations demands urgent need to upgrade the cyber security infrastructure.

is to create robust mechanism to monitor flow of information and data on different media to help detect, prevent, investigate and deter criminal and terrorist actions
Increased emphasis on investment

in building up new and required cyber infrastructure. Key challenges

Ensuring development of right skills at

operational level
Have dedicated cyber security laws in

place to create a techno-legal expertise.

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An emerging opportunity for the private sector

The governments efforts in upgrading the countrys internal security infrastructure opens up multiple opportunities for the Indian and global companies to partner towards securing the nation . The current technology penetration level across different segments pertaining to inland security is very low when compared to developed economies. This again creates avenues to technology companies to bring in innovative, advanced as well as cost effective solutions to meet the growing demand of building the countrys underdeveloped infrastructure. The key business opportunities across the segments will arise out of vital purchases of advanced equipments and also up gradation of the existing out dated infrastructure.

A need to address sectoral challenges

Our analysis suggests that the Indian security environment has few challenging characteristics that are being encountered by the industry:
Sector fragmented with no single

Critical Success Factors for the industry

The figure below (Figure 3) lists down some of those critical success factors that the industry should focus on in order to overcome the existing bottlenecks and establish a successful partnership with the government.

decision making authority

Current procurement process complex

and slow
Market requirements not so clear

due to constant evolution and fragmentation

No assurance of continuous orders High entry costs and associated risks

including long gestation period and associated bureaucratic delays.

Figure 3: Critical success factors for the Industry

Critical success factors Priority Basis

Understanding the government ecosystem, stakeholders and their requirements

Multiple stakeholders including the ministry, departments under the ministry, nodal executing agency and PSU companies are expected to be involved

System Integration capabilities

2 4 2

Usage of multiple technology products such as Radars, Cameras, AIS, etc driving need for data fusion

Understanding of Procurement Process

In-depth understanding of the procurement process (procedures, policy framework, qualification criteria etc)

Product Localization

Driven by unique characteristics/ topography Government also keen to encourage indigenous development/ Transfer of Technology This will also help in bringing the product cost lower.

Strategic Alliances with Indian companies

Local partnerships critical to provide implementation assistance and sustain the customer relationship

0 Low 2 Medium 4 High

Source: KPMG in India analysis

2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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Way Forward
One of the key challenges associated with this sector is the coordination across all of the concerned agenciesto take a truly national approach to internal security. So, what will it take to manage a concerted, coordinated and truly integrated national effort?
The national internal security vision and

Need for creation and management of an integrated and selfreliant security apparatus
Greater private sector involvement

and participation with emphasis on indigenization

Creating systems for bulk

procurements to achieve scales of economy for the industry. These aspects need to be planned and executed so as to help manage this complex ecosystem while orchestrating the various factions to harmoniously deliver on the National Security agenda. Internal Security is a very essential component of the national security and its importance cannot be over emphasized to ensure growth of a fast emerging economy like India. Capacity building in internal security is imperative to match our national aspirations and this can only be achieved by adopting technology in all fields of internal security. The outlook is bright but it needs Governments on-going active management and fine tuning of policy, regulations, process and fiscal environment and on the other hand the industry will have to play an important role to provide cost effective solutions. Together this will ensure effective project implementation and create a safer nation.

agenda should be defined and then cascaded down to the state and local level
Reforming, realigning and building

upon the existing security structures at all levels so as to support the national agenda, allowing a more decentralized yet coordinated model
Higher degree of coordination between

various departments, as also, between the center and the states, that require clarity on role, minimizes overlaps and conflicts and allows adequate empowerment
Seamless Intelligence data sharing

across the network, through clearly spelt out objectives, guidelines and protocols

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About PHD
PHD Chamber is a 108 year old vibrant and proactive representative organization of business and mercantile community of northern and central India, serving their interest. This apex regional organization plays an active role in Indias development and acts as a much needed link between government and industry, serving as a catalyst for rapid economic development prosperity of the community in the region through promotion of trade, industry and services. With its base in the National Capital, Delhi, the Chamber has Regional offices in States of Bihar, Chhattisgarh, Haryana, Himachal Pradesh, Jammu & Kashmir, Jharkhand, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh, Uttarakhand and the Union Territory of Chandigarh.

Six Thrust Areas

Industrial Development Infrastructure Housing Health Education and Skill

Development

Agriculture and

Agribusiness

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About KPMG in India

KPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. Our professionals leverage the global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. KPMG in India provide services to over 4,500 international and national clients, in India. KPMG has offices across India in Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Kochi, Hyderabad and Kolkata. The Indian firm has access to more than 7 ,000 Indian and expatriate professionals, many of whom are internationally trained. We strive to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment. KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 156 countries and have 152,000 people working in member firms around the world. Our Audit practice endeavors to provide robust and risk based audit services that address our firms clients strategic priorities and business processes. KPMGs Tax services are designed to reflect the unique needs and objectives of each client, whether we are dealing with the tax aspects of a cross-border acquisition or developing and helping to implement a global transfer pricing strategy. In practical terms that means, KPMG firms work with their clients to assist them in achieving effective tax compliance and managing tax risks, while helping to control costs. KPMG Advisory professionals provide advice and assistance to enable companies, intermediaries and public sector bodies to mitigate risk, improve performance, and create value. KPMG firms provide a wide range of Risk Consulting, Management Consulting and Transactions & Restructuring services that can help clients respond to immediate needs as well as put in place the strategies for the longer term.

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KPMG Contacts Pradeep Udhas Partner and Head Sales and Markets T: +91 22 3090 2040 E: pudhas@kpmg.com Neelu Khatri Director Defence Advisory T: +91 124 307 4000 E: neelukhatri@kpmg.com

PHD Chamber Contact PHD Chamber of Commerce and Industry PHD House, 4/2 Siri Institutional Area August Kranti Marg, New Delhi 110016 T: +91 11 2686 3801-04 E: phdcci@phdcci.in

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Printed in India.