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Indias Shining Baby-boomers:

Opportunities for the future

White Paper Series

on
Investments in India

Team DEssence

Indian

economy

has

dramatically

most of the developed countries will

changed after the liberalization process

saturate. Much of the growth in global

that started in 1991. Indian IT industry

economy will be driven by Brazil,

and knowledge workers have put India

Russia, India and China. The report

on a global map. This has created a

says that BRICs economy will be larger

wide range of opportunities. For various

than G6 economy by 2039.

global players, India offers a twin

the

opportunity. On one side, it offers a

nevertheless underlines the importance

large market with more than one billion

of these economies in the future.

population. The income level of this

The BRICs economies will continue to

population is increasing. Hence, the

grow over the next 50 years. Only India

potential for growth in demand for

will continue to grow at the rate of more

various

is

than 5 %over the next fifty years. Other

enormous based on current per capita

BRICs economies will slow down its

consumption. On the other side, India

pace after 2030. The major reason

can act as a global sourcing point for

behind this growth would be a large

various goods. The highly skilled cheap

young and working population in these

labor can no longer be ignored.

countries.

products

and

services

report

may

be

Currently,

Although

optimistic,

54%

of

it

the

population is below 25 years of age.

India Shining

According to The Economist, the bulge

Indian Governments India Shining

in Indian population is going to drive the

India has long been considered as a

growth. This bulge in population had led

sleeping

of

to super-normal growth in South East

reforms in 1990s has led to awakening

Asia and China. Same principle can be

of this giant. Second wave is being

applied for India. Based on historical

implemented

present

data, demographics have a powerful

Government which many believe that

influence over long-term growth rates.

will lead India in attaining its destined

US baby-boomer era has shown it.

glory. There are several reasons behind

However, the changing demographics is

it. According to Goldman Sachs much

coupled with rising income, the impact

talked report on BRICs, the growth in

could be visible in the short-to-medium

giant.

First

by

generation

the

term too.

Several

reports

written

outlook for Indian growth. For 2003-04,

comparing China and India. One of the

Indian economy if poised to grow at the

major differences between China and

rate of more than 7%. Services sector is

India is the presence of private sector

booming with the help of IT and ITES

though it may be plagued with license-

industry. Its influence over countrys

raj or inefficiency. The present growth is

GDP has been increasing. The services

driven by the private sector. Hence, the

sector currently contributes 56% of

growth is more sustainable. Apart from

GDP. According to CLSA, the economy

this, the growth is not driven by a single

is expected to grow at 9% in the next

sector. The growth has been seen

fiscal followed by 8% growth in the

across the sectors. One of the worries is

following fiscal. Inflation is steady and

the lower investment rate. Many critics

benign. Fuelled by improvements in

say that the growth is not reflected in the

quality and productivity, exports have

investment

become

rate.

have

This

been

is

probably

major

force.

Foreign

because the most of the current growth

remittances are one of the largest in the

is achieved through improvements in

world. Foreign exchange reserves have

productivity

The

swelled to US$ 100 bn placing India

investment rate may pick up in the next

sixth in the world on this measure. Not

year. Various earlier reports have said

long back in 1991, India was facing the

that Indian economy is plagued by low

near BoP crisis.

productivity. This will no longer be

Apart from macro-economic factors,

stumbling block in the near future. Tata

there are several other reasons for

Steel claims that it is one of the

positive outlook for India.

and

efficiency.

cheapest producers of steel in the world.

There are several such claims in the

The relationship with Pakistan

Indian industry. Hence, the growth

The relationship with Pakistan has

expectations are reasonable.

always been a major factor over the

stability in India. The relationship has

India-The positives
The current macroeconomic conditions
in India are strong indicators for positive

significantly changed over the past one

year from the near-war situation that
existed

in

improvements

the
in

last

year.

the relations

The
with

Pakistan can act as a boon for Indian

in the scorching heat. The ruling alliance

industry. This provides stability in the

of NDA is confident about its victory in

region.

the elections. This is considered to be a

Also,

significant

amount

of

defense expenditure can be diverted

political stability in the country.

towards development of the nation. This

also opens a wider door for mutual trade

Changing Income Distribution

which has a good prospect.

As said earlier, rising income level is

going to drive the future growth. It is

The Confident young India

expected that, the distribution of income

Indians have found a new confidence in

level will change in the next few years.

themselves. Low interests rates have

According to CLSA report on India,

fuelled the growth in consumer demand

Income profile will dramatically change

especially for housing, automobiles and

in the urban population. Significant

other consumer goods. The recent

number of people from lower income

landmark deal in the telecom industry

class will migrate to upper levels. In

has made Indian telecom sector as one

rural areas, there will be small change in

of the fastest growing sector.

the profile though it could be considered

As said by Indian Prime Minister, India

as significant. This is mainly because

is a young nation. More than 50% of the

more than 70% of population lives in

population is below 25 years of age.

rural area. Following table shows the

Majority of Indian youth especially from

changing pattern

urban middle class is confident about

the bright future.

Income Distribution (% of Population)

100%

Political Stability

80%

India is the largest democracy in the

60%

world. The elections have been pre-

40%

poned to be held in April-May. The

20%

Indian election is the grand political

0%

show in the world encompassing 650

mn voters, around 1 mn polling stations
and over 5000 candidates campaigning

0.5 0.867
15.5
25.031

3.7

6.8

50.5
44.5

67.8
48.947

Upper
Upper-Middle
Middle

22.8
14.002
16.7 11.152

33.0
7.4
5.4

Lower-middle
22.7
1.2
1.5

Lower

Rural Rural Urban Urban

2001- 2006- 2001- 200602
07
02
2007
Source: Business World & Media Reports

Also,

people

spending

habits

are

For

many

economies,

foreign

changing rapidly. Following chart clearly

remittances had been the major driver

shows it. Indian consumers have finally

for fuelling the economy. Considering

started to spend. However, majority of

skilled nature of NRIs compared to other

them are value-for-money customers.

countries, the remittances are expected

to grow further. This could act as a

Per Capita Expenditure

catalyst

Rupees

16000
14000

Food, Beverages &

Tobacco

12000

Clothing & footw ear

10000

for

propelling

the

Indian

economy in the top gear.

Gross Rent, Fuel &

Pow er

8000

Appliances &
Furniture

6000
4000

Opportunities

for

Future

Healthcare

2000
0
1997- 1998- 1999- 2000- 200198
99
00
01
02

Transport &
Communication

investments

Recreation,
Education & Cultural

There are several industries that show

Private Expenditure

positive prospects for investments apart

Source: BW, Media Reports

from the hot industries like IT and

Telecom. These industries offer an

Foreign Remittances

opportunity

Over the past years, India has seen

players. Following are the industries

rising remittances from Indian Diaspora

which are lucrative for investments

for

medium

and

small

and NRIs. Remittances are among the

highest in the world and have been the

Pharmaceuticals

highest for 2003. Following table shows

Auto Component

the details.

BPO

Retailing

Agri-Business

Remittances (in US$ bn)

Country
India
Mexico
Philippines
Pakistan
Brazil
Columbia

2003
18.3
13.3
7.2
4
5.2
3.07
Source: Economic Times

Pharmaceuticals
From 2005, the Product Patent regime
will come in to force in India. Whats the
way out for many Indian players? Attack
the largest market by doing things which
they do the best. India top Pharma

companies have attacked the global

established in India. Many companies

markets and continued their offensive

already have started manufacturing or

for the past few years. They are set to

sourcing generics drugs from India. Yet,

continue the same for considerable

the market is big to accommodate more

time. They have shown spectacular

players. Europe is going to be next

three-year earnings CAGR at 47%.

target enlarging the scope of business.

The 1980s saw a major revolution in the

Companies

global

opportunity to do contract manufacturing

pharmaceuticals.

Many

blockbuster drugs were launched in this

can

also

look

for

an

for generics MNCs.

period. But their patents are going to be

expired during the next few years. This

Clinical Trails

is going to create a huge market for

With a more than one billion population

Generics (Off-patent drugs). Majority of

with a diverse range of people, India

the market will be captured by Indian

seems to be a good market for clinical

companies.

have

trials. It is also very cheap to conduct

strong chemistry skills. They are one of

the trails in India. Many companies have

the experts in reverse engineering. Their

already started clinical trails for few

vertical

products

Indian

companies

integration

and

low

cost

production make them a force to reckon

in

India.

However,

the

opportunity for investment is huge.

and they love it.

Following table gives some information

R& D

about Indias global ambitions

There is no doubt that India produces a

Generics Market (US$ bn)

2001

2007

large number of skilled graduates every

year. The number is close to 2 million

World

27

57

every

India

20

mindset and cheap labor make them a

source: Datamonitor

year.

Their

skills,

analytical

very attractive place for having R&D.

The estimates say that the drugs with

For many other products, R&D work has

annual sales totaling US$ 42 bn will go

already shifted to India. Same can

off patent. This offers a big market for

happen for Pharmaceuticals too.

companies with manufacturing facilities

Considering the global expenditure on

in India. The infrastructure is already

R&D in the pharma industry, the market

is enormous. The competing countries

are way behind India.
Many labs have started flourishing in
metros in India. The scenario is similar
to what happened in India software
industry. Earlier the entry, better are the
chances for success in this industry.

Auto-Component
One of the promising industries in India
that going to leap forward considerably
is Auto-Component industry.

Various

auto companies are looking for sourcing

raw materials from locations which offer
a sustainable cost reduction in future.
India offers a good way for achieving
this objective.

component industry has seen dramatic

changes. It has improved its productivity
considerably. The quality standards are
improving. The labor costs are cheaper
while the manpower is highly skillful.
The industry has a potential to emerge
as a global sourcing point.
Following table shows Indias position
vis--vis other countries. India offers a
good alternative to other locations. This
the

optimistic
industry.

reason,
about

component production for 2002-03 fiscal

was at USD 5,140 mn. This is expected
to reach USD 6,365 mn in 2005-06. This
figure might even be higher. The pace of
growth will pick up further after 2005-06
mainly through rise in the exports. .The
investments in the sector are picking up.

Over the past decade, Indian Auto-

is

According to ACMA report, Indian auto-

many
the

players
future

of

are
the

The fruits from the investment are

expected to be reaped after few years.
Currently, India exports around USD 1
bn

auto-components.

According

to

ACMA, this figure will reach USD 1,240

mn by 2005-06. According to CMIE, the
figure will cross USD 3,500 mn by 2008.
The prospects of the industry are good.
According to Business World survey,
India lacks tier 3 suppliers for becoming
an important global player. The FTA
with Thailand may solve the problem.
Various global players like Dana, Delphi,
Ford, Bosch and Cummins have already

started sourcing some products from

According

India.

worldwide outsourcing market size is

The story does not end here. India has a

estimated to be at US$ 143 Billion

large domestic market for automobiles

(2002). North America is the biggest

which is showing a double digit growth

market contributing 63% followed by

rate over the past few years. India is

Europe & Middle East with 28% and

also emerging as a small car sourcing

Asia-Pacific region with 9% share.

hub. These developments will definitely

According to Gartner study, Indian BPO

fuel the growth in the Auto-Component

market size is US$ 1.5 bn in 2001. It is a

industry. And the players are confident

small

about the future. Why not? After all,

market. NASSCOM & Gartner predict

indigenously developed products like

that once outsourcing climbs up the

Scorpio and Indica have been a major

value-chain,

success.

outsourcing will be off shored. India has

to

Gartner

portion

of

Study,

entire

larger

the

outsourcing

pie

of

the

emerged as a leading player in the

outsourcing field. Hence, a large portion

BPO
The

Current

recession

in

several

of

off

shored
by

outsourcing
India.

will

be

According

to

economies has affected the bottom-line

grabbed

of several companies. Outsourcing has

NASSCOM Mckinsey study 2002, Indian

become a common tool for cutting the

BPO industry size would be worth US$

costs thereby improving the bottom-line.

21 bn. Hence, the market offers a huge

Availability of cheap labor in developing

opportunity that can be tapped.

countries fuelled the process. Over the

period, India has emerged as a natural
destination based on its attractiveness.
The story does not end here. The last
years SARs showed that it is not
advisable to put all eggs in one basket.
Therefore, many other countries also
started attracting outsourcing.

Indian Outsourcing Opportunity

(US$ bn)
Total BPO
Market
Off-shored BPO
Market
Indian BPO
Market

2001#

2005#

2008*

127

234

310

6.4

35.1

62

1.5

9.5

21

source: NASSCOM Mckinsey Study 2002 and Gartner

# - Gartner Study
* - NASSCOM McKinsey Study

One major advantage is availability of

India Advantage
Various

countries

have

popular

destination

for

become

outsourcing.

players

who

can

offer

end-to-end

services to clients. This reduces risks

India has its own advantage which has

like

made it as a natural destination for

information as clients are dealing with

outsourcing. The labor costs are at least

only one company.

risk

towards

losing

sensitive

40 to 50 % cheaper compared to
developed countries. It is not the only

Following are the services that will drive

low cost game for India. People are

the future growth in the BPO industry

highly

skilled.

the

vast

speak

and

Content services

understand English. Every year, around

Design (Fashion & others)

2.1 million graduates come out of

Market research

schools. This ranges from humanitarian

Research

population

India

that

has

can

graduates to high-class engineers.

and

Knowledge

Services

Apart from labor skills, India is rapidly

Animation

developing its infrastructure to support

Geographic Information Services

highly skilled labors.

Employee leasing or staffing

Following table shows Indias position

with

respect

to

other

outsourcing

Retailing

destinations. It clearly shows that India

For years, India has been considered as

has several advantages over other

a paradox where a large majority of

countries.

people live under poverty. The scenario

Country Capabilities
High

is changing. The income levels are

India

rising. The people are spending. Under

L o c a tio n
A ttra c tiv e n e s s

Philippines
Mexico

these conditions, the market with one

Australia

billion people would be anybodys envy.

UK

The consumers are more accessible.

Low

Singapore

ireland

Low Capabilities of Workers High

China

Source: Nasscom

Therefore, retailing industry would be

primed for dramatic growth.

For years, the most of the population is

100,000 sq. ft size and above - are

accessed through retailers which are

slated to go into business in 2004. Retail

part

sector.

consultants KSA Technopak estimates

However, over the last few years,

that another 200 malls will come up in

organized retailing started emerging as

2005 and 2006.

of

the

un-organized

a major force to reach the great Indian

urban middle class.

The organized retailing offers a big

opportunity.

According

to

Economic

Retail sales in India last year totaled

Times, the current size of organized

around $180bn. Retail spending has

retail is Rs.16, 000 crores (US$ 3.5 bn).

been growing at 3%-4%, but this might

This is expected to reach Rs. 37,000

accelerate

crores (US$ 8.2 bn) in 2007. Following

thanks

to

improving

conditions in Indias rural sector.

table shows the details.

A key feature of the retail industries of

both

countries

is

the

rise

of

the

"organized sector" or chains of outlets

with

centralized

administration

and

purchasing. The organized sector is

displacing "unorganized" retailers or
small "mom and pop" shops. Indias
organized sector is generally reckoned
to account for about sales of $3bn, or
about 2% of the entire retail industry. A
study

commissioned

by

the

Confederation of Indian Industry (CII)

found that the organized sector had
grown by 40% over the last three years.
Till last year, the number of malls in
operation was barely in double digits.
This year at least 50 new malls - of

Organized Retail in India

(In Rs. mn)
Sector
Consumer
Durables
Food
Apparel
Books & Music
Total
Organized
Retail

200102

2007

CAGR
(%)

16,500

37,870

18

18,000
49,500
4,500

74,730
104,230
14,260

33
16
26

160,000

372,160

18

Source: ETIG

This data represents only organized

sectors. Organized sector represents
only a small portion of entire retail
market. Also, the penetration level for
various products in India is very small.
Hence, the size of organized retail
industry could see a much larger growth
rate. According to study conducted by

CII, the organized sector may account

and climate makes India an enviable

for 40% of total retail industry by 2007.

country.

This

seems

However,

to
the

be

over-optimistic.

opportunities

are

India's Agriculture Output (mn

tonnes)

immense.

2001-02

Rank in
the
world

2011-12

Rice

86.91

129

Wheat

72.45

112.5

Coarse Cereals

30.92

NA

55

Pulses

13.13

23.5

Total Food
Grains

203.41

320

21.3

NA

46

Sugarcane

294.67

432

Fruits

45.37

81

Vegetables

93.92

185

Agri-business

Spices

3.02

NA

5.5

India is one of the largest producers of

Milk

84.6

127

agriculture. India ranks either one or two

Eggs (nos in
bn)

34

52

The opportunities will not be entirely

seized by big players. There are some
niche areas in the Indian market which
are in developing conditions. Some of
them are

Electrical households

Pharmaceuticals

Home-furnishing & Home depot

Books and stationery

in the most of the product categories.

Commodity

Oilseeds

Source: Agriculture Ministry, India

The data can easily emphasize that

India is one of the powerhouse in the

Nevertheless,

world. India has the largest cultivable

considerably low compared to the best

land in the world. India is home to all

benchmarks. One of the major reasons

major climates in the world. The all-year

is that farmers share in the total value is

availability of land for cultivation is the

very low. Following table shows the

major advantage for India. Diverse land

details.

Indias

yield

is

Agriculture Process Chain in India

Source: Worldoffruit.com
Yield Loss (30 to 50 %) (Asian Markets)

Growing

Exporting

Shipping

Shrinkage (10%)

Importing Wholesaling/
Shipping Distribution

Intermediaries take 60 % of consumer

value

Low
Realisations

Retailing

High Costs

% of Customer Value
15%
From

intermediaries take 60% of the customer

wasted. Only 2-3 % of the produce is

value. There are several reasons behind

processed. This offers a big opportunity

it. Following are the major reasons

for improvements.

it

is

clear

100%

More than 25% of the produce is

table,

25%
that

the

60%

Low productivity compared to

There are several initiatives taken by

global standards

Indian Government for overcoming the

Poor post-harvest management

problems. Some other steps are in the

leading to substantial wastages

pipeline.

and deterioration in the quality

Following are the areas which offer a big

Distorted

scope for investments

markets

where

intermediaries earn larger share

Food processing

of consumer rupee at the cost of

Contract Farming

producers and consumers

Organic Farming

Cold Storage and warehousing

Grain storage

Logistics

Food Parks

Food retail chains

Markets

Poultry & Fisheries

Germany

Overview of World Markets for Organic Food Beverages

Organic farming

UK

Organic farming is emerging as a big

Italy

opportunity. For centuries, India has

France

Retail
sales
2003
(million
USD/Euro)
2,800 3,100
1,550 1,750
1,250 1,400
1,200 1,300

Annual
Growth
2003 05

Price
Premium

in %

in %

1.7 - 2.2

5-10%

20-50%

1.5 - 2.0

10-15%

30-50 %

1.0 - 1.5

5-15%

35-100 %

1.0 - 1.5

5-15%

25-35 %

% of
total
food
sales Estimate

Switzerland

725 - 775

3.2 - 3.7

5-15%

10-40%

Netherlands

425 - 475

1.0 - 1.5

5-10%

15-20 %

world is moving back to the same

Sweden

350 - 400

1.5 - 2.0

10-15%

20-40 %

system. Many farmers are aware of

Denmark

325 - 375

2.2 - 2.7

0-5%

20-30 %

Austria

325 - 375

2.0 - 2.5

5-10%

25-30%

Belgium

200 - 250

1.0 - 1.5

5-10%

Ireland
Other
Europe
Total
Europe

40 -50

< 0.5

10-20%

2.0 - 2.5

10-15%

10-30%

used organic farming techniques. The

organic farming techniques which were

used till 1980s. Hence, this field offers a

opportunity for organic farming. The

USA

demand for these products is increasing

Canada

750 - 850
10,000 11,000
11,000 13,000
850 1,000

1.5 - 2.5

10-20%

in the developed world. Consumers are

Japan

350 - 450

< 0.5

10-20%

Oceania

Total

75 - 100
23,000 25,000

< 0.5

also ready to pay premium for such

big scope.
The

table

shows

the

potential

products.
Opportunities exist in

Farming & Training

Farm marketing

Storage

Certification

Source :USDA/ITC

There is no doubt that, this industry will

be a major force in Indias future as
India has the necessary resources.

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