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Unlocking Opportunities
Contents
Foreword Executive summary The quest for growth The emerging-markets surge The multi-technology future The resource economy The last word
5 6 10 23 39 53 67
Foreword
The recent economic slowdown has transformed markets around the globe. While developed markets are still experiencing sluggish recovery, activity is quickening among the emerging economies. Emergingmarket multinationals have established new competitive positions and garnered new market share in a number of industries. Meanwhile, the developed-market multinationals have regroupedand are striving to win back the ground that they lost during the recession. The stage is set for fiercer-than-ever competition, and the winners will be those companies that can position themselves at the forefront of change. The tools for competing are also changing witness the emergence of new business models, new ecosystems and new innovation networks forged through technology advances. This confluence of dramatic, swift changes will create both opportunities and challenges for businesses in India. While many variables will affect the Indian economy over the next decade, several trends are pervasive and virtually unstoppable: a large section of Indias population is entering the working-age group; energy and natural resources are growing even more scarce; technology is marching onward with more applications and more users; and economic demand is gravitating toward the emerging world. If businesses and governments can make the right responses to these trends and build the right capabilities, they can help drive inclusive growth in India. It will not be easy. The Indian economy currently faces a deficit of many supply-side elementssuch as the right type and mix of skills, execution capabilities for large infrastructure projects, and innovation systemscritical for igniting sustained growth. While there is a growing recognition that India cannot reach its full competitive potential without the effective engagement of its massive human capital, the corrective interventions to improve employability of the future workforce remain insufficient. In this report, we call on businesses in India to reassess where their future opportunities will lie and encourage them to place strong bets on future global growth. We implore businesses to make the right investments so they will be well-equipped to seize advantage of the global growth that is coming. Business leaders and policymakers will have to make difficult choices to plant the seeds for future success in todays resource-constrained environment. And we do not want to give the impression that there is a silver bullet that will enable companies and governments to capture these opportunities. The forces coalescing today to shape the India of tomorrow are complex; thus the means for managing them must be complex as well. Some opportunities and challenges will be best tackled through bilateral and multi-lateral cooperation; others through coordination among different players across their supply chain; still others through non-traditional and counterintuitive partnerships. It is clear, however, that the effort will be very worthwhilebut only if stakeholders throughout India act now.
Executive summary
There are clear signs of economic recovery across the globe, but growth continues to be uneven across countries. Uncertainty and volatility still cloud the horizon. Such uncertainty is amplified by the knowledge that many of the previous sources of growthsuch as debt-fuelled consumption in the developed economies of the UK and UShave evaporated. Emerging economies also face a daunting challenge: to sustain their impressive growth rates for years to come, diversify that growth across a broader range of sectors and make it more inclusive across their populations. As this new landscape takes shape, India has the opportunity to position itself at the forefront of future economic growth as a leading international hub for investment, human capital and innovation. The countrys growth rate remains among the strongest in the world, fueled primarily by rising domestic demand. Despite these achievements, India must do more to take its place at
the table with the worlds most competitive economies. To improve its position, India needs to rebalance the foundations of its growth to build structures and capabilities that can help it withstand economic shocks and sustain high growth rates far into the future. In addition, India must also broaden its base of economic growth by uncovering new sources of consumer demand in previously underserved markets such as the rural and lower-income communities. To serve the rising demands of its growing population, India must revitalize its traditional industries such as agriculture and manufacturing, supplemented by an increased commitment to developing sunrise industries. New growth sectors must be built on strong supply-side foundations: enough workers with the right skills, a healthy population, strong physical and financial infrastructure, smart application of technology and clear channels to new markets.
This reportNew waves of growth for India Unlocking opportunities identifies three key trends that hold enormous promise for India in the decade ahead; namely, the emerging-markets surge, the rise of new technologies and the burgeoning resource economy. Applying two distinctive lensesa sectoral view and a macroeconomic perspective our findings are based on extensive discussions with panels of experts representing business, academia, government and the non-profit sector as well as deep analysis of extensive secondary data and Oxford Economics econometric modeling. Accenture research in collaboration with Oxford Economics suggests that with the right responses from business and government, these trends can strongly drive future economic growth and job creation for India. The Indian economy has the potential to grow by 8.7 percent per year, instead of 8.0 percent in the current trajectory, over the next decade. This equates to an extra Rs 11 trillion (US$244.4 billion)
of GDP by 2020 and 37.5 million additional jobs, over and above what India would otherwise achieve. Threequarters of these jobs would arise from Indias exports to other emerging markets; one-quarter, from the green and high-tech sectors. This report highlights key actions that policymakers and business leaders can take to leverage these trends and stimulate renewed growth in the Indian economy.
To capitalize on the growth opportunities in emerging markets, India needs to play a more proactive role in building new bridges to the emerging world by fostering links in investments, trade, tourism, labor movements and aid extensions. Organizations can kick-start the foray into emerging markets by drawing on their experiences of serving diverse consumer segments in India. Blending this experience with local approaches to selling, talent development and innovation in other emerging markets can be the recipe for success for companies from India.
India. They will also give birth to whole new business models for providing education, finance and healthcare to Indias massive rural markets, which have remained outside their reach owing to poor infrastructure and connectivity. Unleashing these technologies full potential will call for serious investments in building digital literacy and skills and creating smart, transparent regulatory standards. To capitalize on the opportunities created by technology change, businesses will need to adopt a systematic and disciplined approach to innovation.
a reality, the need for a low-carbon economy will accelerate the demand for intelligent energy solutions such as smart grids, green infrastructure, alternate fuels and hybrid vehicles. In the management of scarce resources, fresh sources of growth are unfolding in the form of water, land and solidwaste management solutions. Realizing the growth potential of the resource economy will require greater coordination and collaboration among stakeholders across the value chain policymakers, businesses, academia and R&D institutions - and sustained investments in next-generation technologies. Businesses will need to take a long-term view by securing their future sources of supply and shifting to next-generation fuels and alternative energy sources. Seeking out creative ways to transform waste into profit and satisfying the huge demand for energy-efficient products and services can present profitable business opportunities in the years to come.
Indeed, India is set to become one of the worlds top five consumer markets. According to Asian Development Bank estimates, Indias middle class will explode over the next four decades, increasing to 1.2 billion by 2030 and 1.4 billion by 2050.2 India is home to 20 percent of the worlds population, and one-third of Indians are under 15 years of age.3 Indian businesses have successfully capitalized on labor-cost arbitrage to put India on the world map as a major exporter of services, a competitive manufacturing and sourcing hub and a centre for low-cost, high-quality research and development (R&D). These businesses have profited and grown by tapping into a large university-educated, English-speaking talent pool at a cost unmatched in developed economies. The workingage population pool in India will only expand in the coming years.
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made by domestic and multinational companies). There is tremendous potential in developing traditional industries such as agriculture and manufacturing, particularly if it is supplemented by an increased commitment to activities higher up the value chain, such as food processing, and by greater use of biotechnology to increase yields per hectare of land. In basic and high-value manufacturing industries, India needs to generate job opportunities for workers from a largely agricultural background, particularly through investment in vocational education and training. Opportunities in sunrise industries have only begun to be exploited. The most obvious success stories are in IT-related business services, pharmaceuticals and renewable energy, while biotechnology and advanced digital technologies also hold great potential. As India looks toward the future with the same optimism that has driven the countrys growth to date, there is a fresh opportunity for government
and business to collaboratively find solutions to domestic challenges and achieve sustainable growth and prosperity. But doing so will require exploration of questions such as What will drive Indias growth in the next decade? Can India become the worlds low-cost manufacturing hub? Can it expand its export markets? and What resources will it have available?
A macroeconomic view: Our panels suggested that significant untapped opportunity for further economic growth and job creation lies within reach for the Indian economy. To provide a more concrete view of these potential growth opportunities, Accenture asked Oxford Economics, the world-renowned economic research organization, to model the potential future impact on GDP and employment levels of these trends for the Indian economy. This analysis provides unique insights into the alternative growth trajectories open to the Indian economy, the size of the potential market opportunity for business, and the policies and organizational actions that can help ignite that growth. This research project was part of a multi-country study that Accenture pursued to spot new waves of growth for the next decade. Additional countries studied in this same project include the United States, Germany and the United Kingdom.
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The Indian economy has the potential to increase economic output by Rs11 trillion by 2020 if it fully harnesses the potential of the rise of other emerging markets, multi-technology and natural-resource security. This is equivalent to Rs 7,700 in GDP per capita.
+ 8.7% p.a.
Rs67 trn
+ 8.0% p.a.
Rs144 trn
Current trajectory
in India are moving beyond the more obvious choices of expanding in emerging markets such as Brazil and China. They are considering making inroads in countries such as Indonesia, Nigeria, South Africa and Bangladesh. The understanding that their tested homegrown business models could be replicated in similar economies is giving them the confidence to make bold moves.
sectors including financial services, consumer goods and healthcare. Initiatives to improve digital literacy could help the high-tech sector grow further, with spillover effects on economic growth and employment.
12
GDP, increment in alternative trajectory, constant 2010 prices (left scale) GDP, current trajectory, constant 2010 prices (left scale) Employment, alternative trajectory (right scale) Employment, current trajectory (right scale)
120 110 100 90 80 70 60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2019
570 560 550 540 530 520 510 500 490 2020
side factors were adjusted to capture additional output and employment potential from the relevant trend. For example, in the case of low-carbon economy, Oxford Economics assessed the effects of better regulation, enhanced skills development and greater levels of investment; in the case of emerging markets surge, it looked at the positive spillover effects of trade (such as knowledge transfers and innovation). This analysis provides a unique insight into the alternative growth trajectories open to the Indian economy, the size of the potential market opportunity for business, and the policy and organizational actions that can help ignite that growth. It also underlines the fact that while the three trends are largely inevitable, the benefits in terms of future growth are not. On the current trajectory, Indian economic output is expected to grow from Rs 67 trillion (US$1.5 trillion) in 2010 to Rs 144 trillion (US$3.2 trillion)
in 2020. With a clear demographic advantage, increases in disposable income, rising aspirations among consumers and a growing middle class, Indias domestic consumption will likely serve as a critical engine of growth for the nations economy. Indian rural markets, home to around 700 million prospective consumers, still have large pools of untapped demand, giving these markets the potential to drive consumption growth for the next few decades. But India could increase its economic output further by establishing supply-side conditions to harness the new waves of growth, such as enough workers with the right skills, sufficient infrastructure, smart use of technology and clear channels to new markets. These interventions could push the Indian economy onto an alternative trajectory, with economic output reaching Rs 154 trillion (US$3.4 trillion) by 2020, an additional Rs 11 trillion (US$244.4 billion) of economic
Employment (million)
13
580
9,300,000
28,200,000
output (Figure 1.1). This trajectory would also boost employment levels over the next decade by 25 percent, compared with a 17 percent increase in the current trajectory, representing nearly an additional 37.5 million jobs by 2020 (Figure 1.2). These additional jobs have the potential to raise Indias per-capita GDP by Rs 7,700 (US$171.1) by 2020. Seventy-five percent of the potential additional jobs would originate from Indias trade with other emergingmarkets. India is well positioned to reap the rewards of emerging-markets growth, owing to its relatively high degree of trade integration with other emerging markets and its existing comparative advantage, driven by cost-competitiveness, in consumer and intermediary goods. The government is striving to promote exports in sectors such as gems and jewellery, with an export target of US$70 billion, and agri-exports, with an export target of US$22 billion by
2014.5 India is also seeking to enhance trade in textiles and handicrafts, machinery and transport equipment, and chemicals and pharmaceuticals to reach its target of US$500 billion overall exports by 2014.6 Since all these industries are primarily labor intensive, growth in exports will create spillover effects in terms of new jobs in these sectors. The remaining 25 percent of new jobs would arise in the high-tech and green sectors. Indias technology sector is known for its software exports and business process outsourcing. Our panel for the global new waves of growth project suggested that the growth in mobile banking and microfinance products, combined with the countrys strategy of moving up the value chain, point to significant employment growth in technologies that support these sectors.
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800 Million 600 400 200 0 2000 2004 2008 2012 2016
2020
Skilling at scale
Nearly one-fifth of the worlds population lives in India, and one-third of India's population is younger than 15 years of age. The UN forecasts that Indias working-age population will grow by around 240 million people between 2010 and 2030more so than in any other emerging economy. In 2020, the average age in India will be only 29 years, compared with 37 in China and the United States, 45 in Western Europe and 48 in Japan.7 The number of people classified as being of retirement age in India (above the age of 60) is estimated to increase from 7% at present to nearly 10% by 2020 (Figure 1.4).
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However, Indias talent advantage has come under increasing threat from other emerging economies. Brazil, China, the Philippines and Vietnam, for instance, are developing talent pools with key skills, including Englishlanguage capabilities. Competing in higher-value sectors requires skilled talent pools. Yet, according to the Planning Commission of India, the world will have 56.5 million fewer skilled workers than it needs by 2020. India could help fill the gap by developing a large, educated, healthy and productively employed workforce. To that end, it has made some progress in primary education. In 2010, 96.5 percent of children in the 6-14 age group in rural India were enrolled in school.8 However, the quality of education is questionable. For example, according to a survey by the Annual Status of Education Report (ASER) by Pratham, an NGO, only 53.4 percent of children in fifth standard could read a second standard level text.9 And while Indias legacy of strong higher-education institutions has served the nation well, more is needed.
Only 12 percent of the countrys population enrolls in higher education, compared with 30 percent in Brazil, 23 percent in China, 75 percent in Russia and 82 percent in the United States. Revamping the Indian higher education system will require reforms in areas including course content (for example, vocational training and problem solving) and assessment of educational effectiveness. If India adopts policies that enable the working-age population to be productively employed, the country could expect to achieve a roughly 1 percentage point growth in GDP, compounded yearly.10 Critical success factors Technology can improve delivery and scope of education. Use of technology to deliver content, thereby standardizing the teaching tools and delivery methodology can help improve consistency of the quality of delivery to students. Making use of new technologies such as video conferencing, one teacher can reach out to more
62,517
61,356 60,467
60,170
2006
2007
2008
2009
2010
students, including children in farflung regions. In higher education, technology can enable professors from reputed Indian and foreign universities impart high-quality skills through guest lectures. Technology can also be used to improve student assessment and benchmarking as well as support self-paced learning. Stakeholders can collaborate to co-create skills. Businesses can work with government and academia to broaden access to quality primary education, enhance the capacity of tertiary education and improve the design and delivery of vocational curricula. Tapping into the expertise of retired citizens can help solve the problem of Indias teacher shortage while keeping retirees economically active.
Financial inclusion
Financial inclusion is a key priority of the Indian government and is expected to drive growth for India. It hinges on ensuring access to banking and financial services at affordable costs to Indias vast unbanked, disadvantaged and low-income groups. The number of total bank branches in India expanded from around 133,381 in 2006 to around 160,442 in 2010. However, the number of rural bank branches have increased from 60,567 in 2006 to only 64,027 in 2010 (Figure 1.5). Only about 57 percent of the population has savings accounts and only about 10 percent has life insurance.11 Penetration of debit and credit cards is also low, with just 13 percent and 2 percent of the population owning the respective products.12 These figures indicate growth potential for financial services. As Indias rural economy shifts toward more commercialized agriculture and non-agricultural activities, both of which require banking facilities, this enterprising rural population will need access to cheaper credit.
To address the need for financial inclusion, the government and the Indian Banks Association launched a nationwide programme called Swabhimaan in February 2011. The programme aims to bring basic banking services to 73,000 unbanked Indian villages with a population of 2,000 or more by March 2012.13 It is expected to increase the demand for credit among the millions of small farmers and rural artisans who will gain access to banking facilities. Critical success factors Technology can drive financial access and affordability. Technological advancements (including ATMs and Internet and mobile banking) have reduced the need for banks to be physically close to their customers and have made banking accessible and affordable for many urban non-poor residents across the country. But banks still have difficulty reaching the poor. Recent initiatives such as the UID present an enormous opportunity to spread financial services across India by helping poor residents easily
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establish their identity to consume banking and financial products. As a result, banks will be able to scale up their branch-less banking deployments and reach out to a wider population at a lower cost. Mobile banking can further increase penetration even in rural areas. For instance, Reserve Bank of India (RBI) revised its mobilebanking policies to enable customers to conduct lower-value transactions. New delivery channels can reach untapped customers. By partnering with local organizations, banks can expand their outreach profitably. These local partners could include players in the organized sector, such as the postal service, or unorganized ones, such as the local kirana (grocery) shops. For instance, ICICI Lombard (the insurance arm of ICICI Bank) has joined hands with ITC to provide a comprehensive suite of general insurance products to farmers.14
Banking and technology players can collaborate to tap local talent in rural areas and invest in their training and capacity building, along the lines of ITCs e-Choupal model. Local workers can be a valuable source of ideas for developing new product and services tailored to local needs.
% of GDP Indias healthcare sector requires major reforms to make personalized healthcare available to all, not just those able to pay. Efforts must be made towards preventing diseases, improving access to primary care, increasing and improving the quality of the countrys pool of medical manpower and incentivizing the private sector to invest in capacity building. In addition, policy makers will need to adopt measures that ensure the financial, social and physical wellbeing of the growing elderly segment of Indias population. Indias average life expectancy rose from 59 to 65 in the last two decades and is expected to rise to 68 by 2020.16 Ensuring timely access to healthcare for this age cohort will be critical, regardless of where patients live (see Indias ageing population: challenge or opportunity?).
Rs billion
18
A number of hospitals are moving to address the situationentering tier II and III cities as well as rural areas to expand the reach of their services. For example, Glocal Healthcare Systems, a venture spearheaded by former civil servants, plans to set up 2,000 hospitals across rural India in five years, at an investment of Rs 1.6-2 million (around US$40,000) per bed.17 The Indian healthcare sector is poised to become a US$280 billion industry by 2020, with spending on health estimated to grow 14 percent annually, thanks to household income increases, government healthcare outlays, private domestic investments and longer life expectancy.18 Oxford Economics expects overall spending to rise to about Rs 3.5 trillion (US$77.7 billion) but remain below 1.5 percent of GDP (Figure 1.6). The health insurance sector is also witnessing renewed enthusiasm, with the opening up of the sector to private participation. Especially
with rising disposable incomes and the highest population being the earning age group of 15-59 years, the insurance reach is bound to grow from the present meager 2 percent to 20 percent.19 This will fuel demand for higher-quality care and greater professionalism in the insurance industry. New business models such as managed healthcare will also emerge. Rashtriya Swasthya Bima Yojana (Indias national health insurance programme), launched in late 2007, had enrolled nearly 23 million families and 8,175 hospitals by April 2011.20 Critical success factors Technology can help deliver quality patient care consistently. Thanks to new technology, people can find information about treatment and diseases more easily than ever. Technology is also improving quality of nursing communication systems, patient monitoring devices, remote diagnosis and telemedicine.
Inclusive healthcare models are required. In India, where more than half of the population does not have consistent access to basic healthcare, the biggest challenge is to ensure effective coverage while keeping it affordable. Entrepreneurs in India are developing new tools and techniques that use resources sparingly while still improving outcomes, instead of adopting expensive equipment whose costs do not justify the benefits. For example, cardiac surgery technique pioneered by Wockhardt Hospitals in India causes little pain and does not require general anesthesia or blood thinners. Results are quicker recovery and low costs.21
19
20
Source: UN/Haver Analytics/Oxford Economics Figure 1.8: Economic implications of population ageing % difference between baseline and 'alternative reality'
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2016 2017 2020 Employment GDP
Source: Oxford Economics Figure 1.9: Budgetary implications of population ageing Difference between baseline and 'alternative reality' (% of GDP)
1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2016 2017 2020 Healthcare Pensions
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Chapter summary
Areas to watch
Service exports Low-cost business models Infrastructure The emerging-market middle class Medical tourism
Organizational imperatives
Use India as the learning laboratory Be authentically local Hire local talent Develop mutually beneficial partnerships Design a flexible international operating model
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percent 10 years earlier. The share of intraregional exports rose to 55 percent from 45 percent over the same period. The World Bank estimates that foreign direct investment (FDI) outflows from developing nations topped US$210 billion in 2010, up from the previous record of US$207 billion in 2008. Nearly two-thirds of this investment came from Brazil, Russia, India and Chinaand most of it went to other developing nations. The fast-expanding ties between emerging economies have helped foster the recent global economic recovery. The BRICS (Brazil, Russia, India, China and South Africa) economies decision to trade in local currencies shows their confidence and willingness to boost intra-BRICS trade. At US$4.6 trillion, the five BRICS countries account for almost 15 percent of global trade volume, and trade among them is about US$230 billion a year.22 No longer viewed as merely lowcost production locations, emerging markets are becoming important sources of new consumer demand. The
surge in emerging-markets growth is being driven by the twin dynamics of a burgeoning middle class of consumers and rapid urbanization. Estimates show that the number of households in emerging markets with annual incomes above US$5,000 is set to rise from 320 million in 2009 to 400 million by 2014. The total urban population of the developing world is expected to increase from 2.6 billion in 2010 to nearly 4 billion in 2030.23 India is at the forefront of the surge in emerging-markets growth. Over the last decade, Indias exports to emerging markets as a share of total exports have increased from 35 percent in 2000 to 52 percent in 2010.24 Indias imports to emerging markets as a share of total imports over the same period increased from 51 percent to 59 percent. Share of developed economies as export and import partners with India has decreased, while share of emerging economies has risen (Figures 2.1 through 2.4). For instance, share of the United States as an export partner decreased from 18 percent in 2004 to 10.9 percent in 2010, while the United
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States share as an import partner shrank from 6.4 percent to 5.9 percent in the same period. Similarly, Chinas share as an export partner increased from 4.6 percent in 2004 to 6.5 percent in 2010, and its share as an import partner expanded from 5.2 percent to 10.8 percent during those same years. Companies in India are vying for their share of the pie, looking beyond Brazil and China and seeking growth in countries such as Indonesia, Nigeria, South Africa and Bangladesh. Businesses that ignore trade with emerging markets lose a valuable opportunity. Moreover, their own economies miss out on the productivity benefits that arise from trade. According to our research and analysis, the emerging-markets surge could add about 28.2 million Indian jobs by 2020. In addition, services, lowcost business models, infrastructure development, a focus on emergingmarket middle class and medical tourism could enhance Indias GDP by Rs 7 trillion (US$155.8 billion) by 2020, an increase of 4.9 percent above the current trajectory (Figure 2.6).
Figure 2.1: Share of global GDP (US$ trillion at 2005 prices and PPP)
160 140 120 100 80 60 40 20 0
37% 63% 62% 52% 38% 43% 35% 48% 57% 65%
1990
2000
2010
2020f
2030f
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Figure 2.2: BRICs - Trade with emerging economies % (Exports/imports to emerging economies as % of total exports/imports)
50 48 46 44 42 40 38 36 34 32 30 1995 1997 1999 2001 2003 2005 2007 2009 2011 Exports Unweighted average of measures for China, Brazil, Russia & India
Figure 2.3: India - Trade with emerging economies % (Exports/imports to emerging economies as % of total exports/imports)
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Imports
Imports
2005
2007
2009
2011
Figure 2.4: Indias Top 10 Commodity Export Partners (as a percentage of total exports)
Figure 2.5: Indias Top 10 Commodity Import Partners (as a percentage of total imports)
2004 UAE USA China Hong Kong Singapore Netherlands UK Germany Saudi Arabia France Source: CMIE 8.0% 18.0% 4.6% 5.1% 3.3% 2.0% 4.7% 4.0% 1.8% 2.0%
2007 9.5% 14.9% 6.6% 3.7% 4.8% 2.1% 4.4% 3.1% 2.0% 1.7%
2010 13.4% 10.9% 6.5% 4.4% 4.2% 3.6% 3.5% 3.0% 2.2% 2.1% China UAE Saudi Arabia USA Switzerland Australia Iran Germany Indonesia Korea Republic (South) Source: CMIE
2004 5.2% 2.6% 0.9% 6.4% 4.2% 3.4% 0.3% 3.7% 2.7% 3.6%
2007 9.4% 4.7% 7.2% 6.3% 4.9% 3.8% 4.1% 4.1% 2.3% 2.6%
2010 10.8% 6.8% 5.9% 5.9% 5.0% 4.3% 4.0% 3.6% 3.0% 3.0%
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Areas to watch
Spurred by the rising middle class and rapid urbanization, Indian companies are making inroads in emerging markets by replicating tested homegrown business models across sectors such as services, consumer goods and infrastructure.
and has recruited 600 associates locally for this new operation. Last year, the company opened centers in seven African countries.25 Indian telecommunication service providers have also extended themselves into other emerging markets. Bharti Airtel, for instance, entered the African market through its US$9 billion acquisition of Kuwait-based Mobile Telecommunications Co.'s assets in the continent. Bharti Airtel is now a major player in 16 African nations. Indian financial services players are gradually spreading their wings in other emerging markets as well. Their goal is to counter competition from global banks, which have significantly expanded advisory operations in India over the past decade. For instance, Central Bank of India (CBI), a Mumbaibased public-sector bank, is opening branches in China, Bhutan, Tanzania and Mozambique, providing banking facilities to Indians settled abroad.26
Smaller Indian investment banks have started setting up joint ventures and alliances with counterparts in other emerging economies. For example, Edelweiss, a fast-growing Indian financial services group, has ties in South Africa, Latin America and with some boutique houses in Europe.27
Service exports
India has proved its mettle in the services industry, with the sector contributing about 55.2 percent to the countrys GDP. India is a highly attractive business process outsourcing (BPO) services destination; more than 250 Fortune 500 companies have their BPO units in India. After gaining a foothold in the domestic market, Indian information technology (IT) companies are extending their reach in Africa, Latin America and Asia Pacific. For instance, Tech Mahindra recently started BPO operations in the Philippines
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Indian companies are now looking to export these low-cost business models in other emerging markets. For example, Bajaj Auto, the market leader in Indias two-wheeler industry, recently topped one million units in exports of its vehicles. The company has a presence in more than 36 countries in emerging markets such as Africa, Asia and Latin America.28 India provides multinational companies in industries as diverse as automobile manufacturing and mobile handsets with cheap but high-quality labor and raw materials, which enable these companies to develop low-cost but high-quality products. For example, Japans Yamaha Motor plans to expand capacity and export motorcycles made in India to Africa and South America.29 And Ford India, the Indian arm of the American automobile manufacturer Ford Motor Company, has started shipping diesel and petrol engines to Thailand and the fully built Figo small car to South Africa.30
Indian pharmaceutical players, not new to emerging markets, are stepping up their expansion efforts as well. To illustrate, in April 2011, Sun Pharmaceutical, Indias largest drug maker by market capitalization, entered into a joint venture with Merck & Co., the second-largest drug maker in the US. The ventures goal is to develop, manufacture and commercialize new formulations, called innovative branded generics, in the drug markets of Asia Pacific, Latin America, Eastern Europe, the Middle East and Africa. Under the agreement, Sun Pharmaceutical will focus on developing and manufacturing products, while Merck will bring its clinical and product-registration expertise as well as global marketing footprint to the partnership.31
Infrastructure
With increasing urbanization across emerging markets, governments in some of these countries are investing to develop infrastructure assets such as mobile communications and transportation, as well as to support industries that supply materials for constructing infrastructure. Some Indian infrastructure companies are seizing advantage of this opportunityscaling up their operations, acquiring design skills and building strong balance sheets to support projects in other emerging markets. For instance, GMR Group became the first Indian company to operate an airport abroad, with the opening of the new terminal at Istanbul Sabia Gokcen International Airport.32 GMR recently also won the bid to construct the US$360-million airport in Male, defeating the Aeroport De Paris (which operates airports in the Paris region, including Charles de Gaulle).33
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culturally similar to India. In 2008, watchmaker Titan Industries decided to focus on 10 countries, including Dubai, Saudi Arabia, Singapore, Malaysia, Sri Lanka and Vietnam, despite having a distribution network across 26 Asian countries.35 African consumer spending is expected to reach US$1.4 trillion by 2020, while the number of households in Africa with discretionary income will rise by 50 percent to 128 million over the same period. Africa thus presents new growth avenues for cash-rich Indian makers of personal-care products such as soaps and shampoos who face rising costs and fierce competition at home. Godrej has seized advantage of this opportunity, purchasing Nigerian personal-care products maker Tura in 2010 for around US$33 million and buying hair-care brands Rapidol and Kinky in South Africa. The sizeable population of Indians in Africa gives Indian companies an advantage over global competitors on the African continent.36
Medical tourism
India is gaining popularity as a global destination for medical tourism. The reason: treatment costs can be substantially lower than in neighboring medical-tourism destinations such as Singapore and Thailand. Currently, India receives more than 100,000 foreign patients a year.37 Most medical tourists treated by private hospitals in India come from South Asian Association for Regional Cooperation (SAARC) countries, and from Middle East and Africa. These hospitals often have facilitation centers in emerging markets, which educate local residents about the medical facilities available in India. An ecosystem that includes several hospitals, chemists and freelance agents educates, facilitates and ferries medical tourists to India from across the world. In 2010, about 600,000 such patients travelled to India and spent US$997 million on treatments. The medical tourism business is estimated to be growing by 40 percent year-on-year.38
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GDP, increment in alternative trajectory, constant 2010 prices (left scale) GDP, current trajectory, constant 2010 prices (left scale) Employment, alternative trajectory (right scale) Employment, current trajectory (right scale)
110 100 90 80 70 60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2019
Employment (million)
31
570
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agreements can play an important role in freeing up these flows. They can also deepen their economies integration with regional trade areas. Economies can further foster regional economic cooperation by forging links between regions investments, trade, tourism, labor pools and aid extensions. Recent developments augur well for accelerating regional cooperation in South Asia. The ASEAN-India Trade in Goods agreement, for instance, created the worlds largest free-trade area by population, bringing together 1.8 billion people, by liberalizing tariffs on over 90 percent of products traded between the regions. India recently signed agreements with Malaysia and Indonesia to increase trade to US$15 billion and US$25 billion, respectively, by 2015. Indian companies have already started benefiting from these agreements. Trimex Sands, part of the Trimex Group, plans to establish a titanium plant in Indonesia at an estimated cost of over US$800 million, while GVK Power and Infrastructure will spend US$4-$5 billion over the next several years to build airport terminals in the city of Yogyakarta and on the island of Bali.39
The 16th SAARC summit, held in Bhutan in April 2010, resolved to increase intraregional connectivity, enhance energy cooperation and expedite implementation of tradefacilitation measures.40 These moves will help countries harness significant unutilized complementarities in energy endowmentsgas, hydropower, coal within a region and between the region and its neighbors. Increasing energy demand, driven by economic growth and access expansion, will further increase the opportunity costs of keeping national energy systems isolated. Greater intraregional connectivity allows increased transport asset utilization, which lowers costs and tariffs for participating countries through improved port systems and better shipping services. In February 2011, India urged all member-states to ratify the SAARC Agreement on Trade in Services, terming it a "big step forward" for increasing trade within the region. While trade under the South Asia Free Trade Agreement (SAFTA), which came into force in 2006, crossed US$1.2 billion, the SAARC agreement has the
33
potential to grow trade further. As one of our panelists put it, Regional cooperation between Asian countries, both bilateral and multilateral for trade, will greatly benefit India and the region. This cooperation is crucial to enabling peace and prosperity for countries in the region as well as the world at large.
must monitor consumers changing preferences and tailor their offerings to local cultural norms, rather than taking a one-size-fits-all approach. Many organizations are now providing staff with language lessons and cultural-sensitivity training to address issues such as etiquette, protocol, communication styles and negotiation approaches. One global brand that has adapted to local culture and tastes is US fast-food chain McDonalds Corporation, which has adapted its products to local tastes. Big Macs, for instanceMcDonalds flagship offeringwould never succeed in India, where 80 percent of people do not eat beef and consider cows sacred. McDonalds restaurant in Gujarat, where most citizens are vegetarian, offers vegetarian burgers and other Indian dishes, such as samosas. In New Delhi, however, non-beef meat eaters can get a Maharaja Mac made with lamb or chicken at a McDonalds restaurant.41
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of Indias manufacturing employment is estimated to be in firms with fewer than 50 workers.43 Small firms often get caught in a vicious cycle of insufficient access to capital, low productivity, old technologies, limited earnings and few growth prospects. Larger enterprisesthose operating in the formal sector where productivity and wages tend to be relatively highalso face barriers to this huge market opportunity, including poor infrastructure and rigid labor laws.
Organizational imperatives
Use India as a learning laboratory
A number of Indian companies are using their knowledge of how to operate in India to strengthen their operations in other emerging countries. For example, Bajaj Auto trained roadside mechanics in Angola to fix their bikes, because many parts of Angola could not support a proper dealer and service-centre network.44
Many multinational companies are also eyeing India as a laboratory for testing business models and product offerings with which they are considering serving other emerging markets. L'Oral, for instance, the French cosmetics giant, has developed products in India for Indians and then launched them in other emerging markets. The company is establishing a new R&D hub in India to develop products in India that could be exported to other emerging countries.45 Google also plans to test its offline model in India before replicating it in other emerging markets. The offline model, still in the experimental stage, involves putting more salespeople on the street and using call-centre agents to help small firms go online and use Googles advertising platform.46 Similarly, Pearson, a British publishing company, has entered the education market in India, hoping to replicate this model to expand its global
footprint. Few companies have managed to make good money in the vocational training and education business in India, owing to factors such as scarcity of land inside cities, government regulations and shortage of trained teachers. Pearson believes that if it can make a profit in India, it will emerge as a formidable local player and will have a model it can replicate in other emerging countries.47
Be authentically local
To create and develop products for other emerging economies, Indian companies must understand local consumers and customize product design, pricing, value engineering and marketing strategies to local preferences and priorities. Savvy companies embed their innovation activities into the local R&D and consumer environment, working in tandem with industry peers and policymakers.
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Businesses in India are increasingly taking this approach as they expand their base in other emerging markets. For instance, when Dabur set up its international arm, Dabur International, in 2001, the objective was to get closer to its Indian-origin customers in the Middle East. Today, almost 90 percent of Daburs customers are localsnot the Indian diaspora. The companys closer proximity to nonIndian consumers enabled it to adapt its products to locals needs and aspirations. To do so, the company not only modified existing products formulations, it also created new products exclusively for these markets.
programme in South Africa is a good example of the kind of investments Indian companies are making towards skill development and creation of jobs in other markets. The programme focuses on imparting training and skills to local unemployed students with basic education and no work experience in the uMhlathuze district, thus enabling them to enter the mainstream workforce. The TSKZN Learnership programme has produced two batches of graduates so far, of whom 49 have been employed as operators with Tata Steel.48
Company (SLEMCO) to mine bauxite in northern Sierra Leone in West Africa, an area with over 300 million tons of proven reserves of the valuable rock.49 Through this partnership ABG Shipyard Company got access to the rich natural resources, while SLEMCO benefited from the vast experience that ABG got to this venture. Larsen & Toubro (L&T) is another case in point. The company signed an agreement with South Africa-based Befula Investments for a joint venture to develop power transmission and distribution projects in South Africa. L&T will have a 72.5 percent stake in the venture. The two companies have agreed to collaborate on turnkey execution of power transmission lines, sub-stations, rural electrification, power distribution and industrial electrification. The joint venture company will look at the engineering, procurement and construction of high voltage transmission lines and also the associated sub-stations. L&T will be responsible for the design and engineering of the projects.50
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business model that has emerged in the Indian telecom industry, based on volume, affordability and inclusive growth, can be replicated in other emerging markets. After operating a volume-based business model in India, Bharti easily established itself in Africa by acquiring Zain Telecom's African operations. Similarly, Godrej group intends to strengthen its presence in emerging markets in Asia, Africa and Latin America via three core product categories. The company has already charted a clear roadmapOne Africafor scaling its Africa operations.
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Chapter summary
Areas to watch
Digital goods and services Core technologies Ancillary technologies Convergent technologies Technology-enabled business model
Organizational imperatives
Embrace the cloud Use technology to pursue polycentric innovation Harness technology to serve customers needs Share digital literacy Create open innovation networks
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Internet penetration in India has increased exponentially over the last decade from zero broadband connections back in 2000 to more than 10 million connections in 2010.51 Falling costs are now complemented by reliable, easy-to-use interfaces. As more Indians gain access to the Internet, economic and social dynamics across the country will change dramatically, with massive implications for productivity and opportunities for businesses and public-sector organizations. As one of our panelists stated, The mobile revolution is credited with leapfrogging Indias growth in a myriad of ways, including connecting the rural hinterland. The next revolution that can potentially supplement this is the Internet revolution, especially with the introduction of 3G. New technologies bring not just new sources of demand but also whole new business and service models. The rapid spread of mobile phones to help farmers and fishermen become
more efficient and improve their livelihoods is just one example. Such developments are creating a fastpaced and competitive business ecosystem, with reduced time to market and the ever-present danger that businesses will miss out on market trends. As a result, Indian IT players are competing aggressively with developed-world incumbents in a more interconnected landscape. Smaller Indian software firms are also making a mark as they shift focus to finding solutions for the domestic market instead of attempting to emulate products and ideas from the developed markets. In the last three years, Indias software product exports have reached a revenue level of US$1.14 billion. But with the traditional IT majors accounting for maximum share, more than 125 start-up companies have been established in India.52 Their goal is to muscle into the domestic business emerging from the manufacturing sector and other sources.
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thousands
millions
400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
6,000 4,000 2,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
India is also fast gaining credibility as a global R&D hub. Research reveals that Fortune 500 companies operate 63 captive R&D facilities in India.53 Companies want lean and nimble innovation hubs in emerging markets that do not take the traditional captive route of owning all resources. Instead, these hubs partner with local universities and start-ups to build scale and speed in taking cutting-edge ideas to market.54 The hubs aim to design offerings that suit low-income and culturally diverse populations. E-governance represents additional potential. Estimates by NASSCOM suggest that e-governance is a US$9 billion opportunity in India. One such mega project is the UID initiative. The world's largest biometric project, UID will expand its footprint across several Indian states in 2011 and is slated to generate US$4 billion in new
business by 2015.55 Other government and defense segments will also create sizeable opportunities in large systems integration projects for application services. Managed services around IT infrastructure will open doors to application services as well. Technology will not only boost performance efficiency and generate new growth opportunities for the economy, it will also launch many new technology sectors. Oxford Economics analysis illustrates that, by investing in skills and widespread technology adoption to harness the technology trend, India can boost its GDP by Rs 4 trillion (US$90 billion) by 2020, a 2.8 percent above the current trajectory. These moves will also help create 10.8 million jobs by 2020 (Figure 3.2).
Areas to watch
As technologies mature and are brought to market, they offer a springboard for a major leap forward in almost every area of business operations. The core technologies themselves will develop their own markets as they are adopted, as well as foster ancillary markets for related technologies and services. Sometimes growth stems from the convergence of one technology with another. Finally, new technologies can enable new ways of doing business with existing products.
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million.56 The mobile-handset and smartphone market is keeping pace and is expected to be worth US$8 billion by 2016, from the current US$5.8 billion.57 Indias young, urban citizens with high disposable incomes are increasingly demanding highend handsets. And with the rollout of 3G mobile services, demand for smartphones will only accelerate in the coming years. The market has responded to the opportunity. Recent research reveals that there are more than 200 mobilehandset brands available at retail outlets across the country.58 New entrants like Micromax, Spice, Karbonn and GFive have gained sizeable market share through their competitively priced models.59 Even traditional consumer-durables companies such as Videocon and Onida have launched their own mobile handsets.
Notebook sales have witnessed equally astounding growth over the past five years, skyrocketing by almost 15 times from about 177,000 in 2004-2005 to 2.5 million in 2009-2010.60 Gartner predicts that by 2012, notebook sales will outgrow desktop PC sales in India, with most of the demand coming from consumers as well as small and medium enterprises. The digital goods manufacturing sector in India will continue to enjoy robust growth driven by domestic and international demand. Moreover, demand for skilled technicians who can build and repair this deluge of digital goods will almost certainly climb.
Core technologies
New technologies will open up significant opportunities for rapid growth. The market for cloud computing in India is expected to be worth US$360 million by 2014,
growing at a 40 percent compounded rate.61 Pay-per-use models of software and storage infrastructure as a service based on cloud computing platforms are helping Indian businesses compete with financially stronger developedmarket rivals. Indias massive small and medium (SME) business and consumer segments are the main drivers of cloud computing, owing to its cost effectiveness. Large enterprises are testing the public cloud by initially moving less critical applications to it. Small micro-finance institutions in India seeking to serve low-income populations are reducing their own operating costs by using the Mifos Cloud to manage their data. Launched by the Grameen Foundation, the Mifos Cloud is managed through Amazon's hosting facilities and provides commercial-level security, availability and disaster recovery to customers at affordable prices.62
43
44
Large volumes of data, pictures, music, videos and even complete websites are increasingly being stored online for cost and efficiency reasons. Estimates suggest that information stored online in India will grow from current levels of 40,000 petabytes (1 petabyte is about 1 million gigabytes) to 2.3 million petabytes over the next decade.63
even bigger worry for governments as IT infrastructure supports critical national assets such as power grids, emergency communications systems, financial systems and air-traffic control networks. Indias National Cyber Security Policy identifies indigenous development of IT goods as vital for fighting threats from imported high-tech products. The policy also recommends identification of cyber-security threats and critical IT infrastructure vulnerabilities as key to developing a coordinated R&D effort focused on addressing deficiencies. In addition, it identifies at-risk proprietary technologies and encourages open standards to cut down the risk of dependency on proprietary IT products.65
Ancillary technologies
Tech-savvy enterprises can now base key management decisions on large quantities of informationdriving development of new services centered on analytics. Business intelligence and analytics will be critical for companies in sectors such as retail, healthcare, telecom and financial services, which rely on data-driven decision making. India has a billion-plus consumers, and very little is known about the consumption patterns of most of them. Companies that previously based decisions on managers past experience and business instincts will gradually move toward fact-based decision making. Banks are already analyzing customer profiles to cross-sell other products, while telecom companies are examining usage patterns to market new plans and services to subscribers. Forecasts suggest that the Indian business-intelligence technology market will generate revenues of US$65.4 million in 2011, up almost 16 percent over 2010.64 Indias government is seeking to build its competency in business intelligence and analytics. The UID programme will make available huge volumes of consumer data that the government plans to analyze to improve efficiencies in collecting taxes, combating fraud and maximizing public services. But with the availability of so much data, security and privacy will become growing concerns. Businesses are already facing increased enterprise security risks coming from social networking sites, mobile devices and cloud platforms. Security is an
varieties. Bt cotton is the best-known success story, and accounts for more than 80 percent of all cotton produced in India. The biopesticides and biofertilisers market, although nascent, has captured attention because these products are economical, eco-friendly, efficient, productive and accessible to marginal and small farmers. The market for biofertilizers is expected to grow at almost 15 percent compound rate until 2012.69 Meanwhile, the domestic market for bio-informatics, estimated at US$50.2 million, is expected to receive a huge push owing to the UID programme.70 The plan is to establish a national identification infrastructure through a biometric platform (iris and fingerprint scans) for the entire Indian population. As the government looks to enhance public-service provision through e-governance, the UID programme will try to forge links between citizens and servicesimproving access for excluded parts of the population, and providing a safe, reliable infrastructure for public and private service provision.
Convergent technologies
The convergence of two or more different technology fields generates innovative solutions across industries. For example, biotechnology combined with pharmacology, information technology and even agriculture has created vital opportunities. The Indian biopharmaceuticals sector has been a particularly successful segment, boasting revenues of US$1.9 billion and growing at 12 percent.66 Indian biotechnology major Biocons biopharmaceuticals and chemical formulations business has been the main force behind its high profit and revenue growth. Biocon is also making a US$160 million investment in Malaysia for development of high-end biosimilars (officially approved new versions of innovator biopharmaceutical products, following patent expiry).67 The bio-agriculture market segment in India, estimated at US$420 million, is the fastest growing segment in the biotechnology sector.68 Bio-agriculture can help tackle Indias food-shortage problems. Private companies and government research agencies are genetically improving the quality of crops to create high-yielding hybrid
45
with such information, farmers stand a better chance of avoiding distress selling of their crops, because they know when the demand and the prevailing market prices are high.71 Technology is bringing to life whole new business models that previously would not have been profitableor even possible. One such phenomenon that is rapidly gaining popularity in India is group-buying websites. These sites bring customers together socially and harness groups bargaining power to negotiate large discounts on products. The Internet acts as an aggregator that benefits consumers and merchants alike. Ventures like Taggle, SnapDeal, MyDala and Koovs are growing quickly and attracting additional players into this segment. Meanwhile, Indias mobile-telecom revolution has sparked the emergence of companies offering a variety of value-added services (VAS). The introduction of 3G mobile services will accelerate the VAS markets
growth. Companies will increasingly offer a range of services such as content aggregation and distribution, mobile-commerce solutions, mobile advertising and content management. Some will even partner with companies outside the telecom value chain to tap the bottom of Indias population pyramid. Mobile-commerce company mCheck India, for example, is collaborating with micro-finance institutions to implement mobile payments in the micro-credit sector.72 One of our panelists commented that although at present microcredit products are more known, the major breakthrough will be in micro-savings banking products using technology. Recent estimates suggest that the market for mobile VAS will exceed US$4 billion by 2015.73
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GDP, increment in alternative trajectory, constant 2010 prices (left scale) GDP, current trajectory, constant 2010 prices (left scale) Employment, alternative trajectory (right scale) Employment, current trajectory (right scale)
110 100 90 80 70 60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2019
Employment (million)
47
570
(a part of the World Bank Group). The venture set up 23 outdoor computer kiosks in some of the poorest slums in India, where children never had access to a computer. Monitors protruded through holes in the kiosk walls. Instead of a mouse and keyboard, there were specially designed joysticks and buttons, and the computers were connected to the Internet. Within hours of installation, and without instruction, children began browsing the Internet. Another example is the joint technology entrepreneurship programme between Indias Department of Science and Technology (DST), Indo-US Science and Technology Forum and Intel. The goal is to build an entrepreneurial ecosystem in India. Intel provides technology training and a global platform for the initiative.74
48
49
Organizational imperatives
Embrace the cloud
Purchasing IT solutions as a service enables companies to enter new markets rapidly, minimize sunk costs and benefit from cuttingedge software. Offering all these advantages, cloud computing will help Indian entrepreneurs and SMEs compete with larger organizations. As more of Indias low-income consumers demand pay-per-use services, companies will have little choice but to shift to clouds.
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51
52
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Chapter summary
Areas to watch
Intelligent energy Alternative energy Green infrastructure Food processing and agribusiness Water, waste and land management Alternative fuels Hybrid and electric vehicles
Organizational imperatives
Shift to next-generation fuels and renewable energy sources Diversify supply sources Develop energy-conserving products and services Turn scarcity into abundance Shape pro-growth regulation
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energy generated for industrial use. With Indias GDP expected to grow at an average of 8 percent per year over the next decade, resource consumption in India is set to expand further (Figure 4.1). In an attempt to meet the need, Indias oil-import volumes increased from 1.6 million barrels per day (MB/D) in 2000 to 2.5 MB/D in 2009 and are expected to reach 14 MB/D by 2050. India would also need to increase its gas imports quickly, particularly after 2020, to reach 140 billion cubic meters (BCM) by 2050.84 To prepare for the future, India must explore alternative resources, source traditional resources from new locations and leverage efficiencyenhancing technologies. The Indian government is working to expand supplies of alternative energy sources such as wind, solar and nuclear, while also overhauling the countrys energy infrastructure through technologies such as the smart grid to improve supply efficiency. Agriculture and agribusiness sectors are working on next-generation solutions in collaboration with sectors such as
biotech and IT meet rising demand. If approached imaginatively, the quest for resource efficiency can fuel economic growth and job creation. Our research and analysis show that the green sector could do more than just help India address resource shortages. It could also generate 821,000 new jobs by 2020 and boost Indias structural transformation (Figure 4.2). Thanks to new technologies and other innovations, fresh sources of growth are unfolding in this sector. New areas such as renewable energy, green infrastructure and food processing will generate significant employment opportunities for individuals possessing traditional and new skills. The green sector will also enhance GDP by serving domestic and export demand. The Oxford Economics model shows that, with appropriate regulation, skills development, investment incentives and technology spillovers, this sector could raise Indias GDP by Rs 458 billion (US$10 billion) by 2020, 0.3 percent above the current trajectory (Figure 4.3).
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Quadrillion btu
25.0 20.0 15.0 10.0 5.0 0.0 2000 2005 2008 2015 2020 2025 2030 2035
Areas to watch
Which sectors stand to benefit most from this resource-efficiency revolution? Our research shows that managing the scarcity of resources is opening up growth opportunities for a wide range of old and new industries including agriculture, energy, consumer products, infrastructure and automotive sector.
have adequate and reliable access when each user is mapped on a smart grid. The smart-grid market in India is still nascent; only a few public-sector utility companies have launched pilot projects to test the technologys suitability. Smart grids that work in tandem with smart meters have two-way communications capabilities and can further improve efficiencies while promoting use of green energy. Reliance Energy has installed more than 20,000 such smart meters in the state of Maharashtra, which send energy-usage data in real time to meter owners through Google. User can manage their power usage from a remote location, choosing when to switch off the meter, and can prioritize usage of green electricity sources. Smart meters can also send consumption statistics to the grid, which can use the data to regulate loads more efficiently.85
Alternate energy
India wants to reduce its dependence on non-renewable energy sources. The Ministry of New and Renewable Energy in India has set a target of renewable energy sources contributing 10 percent to new power-generation capacity installed up to 2012. Alternative energy sources such as wind power, hydro-power, bioenergy (biomass gasifiers) and next-generation solar power can create new markets and export opportunities as well as provide a much-needed impetus to Indias domestic manufacturing sector. Wind energy is one of the fastest-growing alternative-energy sectors in India. Nuclear power is the fourth-largest source of electricity in India, with India ranking ninth in the world in terms of number of operational reactors. As of 2010, India had 20 nuclear-power plants generating 4,780 megawatts
Intelligent energy
Intelligent-energy solutions will promote Indias low-carbon agenda while also addressing its inefficient power supply. At present, energy losses during transmission and distribution in India exceed 30 percent, one of the highest in the world. Smart grids intelligently gather and analyze consumption patterns to control distribution and reduce theft. Rural/agricultural areas suffering acute power shortages can
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(MW). The country plans to increase nuclear-power output to 63,000 MW by 2032. The India-US civilian nuclear deal is a major step toward establishing a strong nuclear-power capability. The US-India Business Council estimates that India will spend about US$175 billion within the next 25 years on the nuclear-industry build-up.86 US companies like GE Hitachi Nuclear Energy and Westinghouse Electric Company are already exploring opportunities to build nuclear reactors in India and provide nuclear fuel for civilian energy programmes. Meanwhile, nuclear-energy major Areva plans to build six next-generation reactors over the next few years.87 Domestic players like the National Thermal Power Corporation (NTPC) and the Nuclear Power Corporation of India (NPCIL) are also partnering to develop nuclearpower plants within India. NTPC has set a target of generating 2,000 MW of nuclear power by 2020.88
India has abundant solar resources, receiving the equivalent of more than 5,000 trillion kilowatt hours (KWH) in sunshine each year. The Jawaharlal Nehru National Solar Mission, a solar-energy government initiative, aims to deploy 20,000 MW of solar power by 2022.89 The government also plans to deploy 20 million solar lighting systems in rural areas by 2022.90 Tata Power, for instance, intends to increase its solar-power generation capacity tenfold within a year to achieve its target of 40 MW by March 2012. The solar-energy agenda is also accelerating expansion plans in ancillary industries such as semiconductors.
Green infrastructure
Indias drive toward renewable energy is fuelling its green-infrastructure sector and breeding demand for a host of green capital goods as well as construction and building materials. Recent research by The Climate Group estimates that Indias wind-energy sector could create as many as 250,000 additional jobs by 2020. The solarenergy sector could create another 235,000 jobs during the same period.91 Indias production capacity for solar photo voltaic (PV) systems has grown multifold, from less than 60 MW in 2005 to more than 1 gigawatt (GW) in 2009, and is expected to reach 2.5 GW by 2015. India is also set to become a major manufacturing hub for the global solar PV market, exporting close to 75 percent of its total production to markets in the EU.92
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In addition, India will be a major manufacturing hub for wind turbines in Asia. Annual production capacity will rise from the current level of 7,500 MW to more than 17,000 MW by 2013.93 Suzlon, Asia's fifthlargest wind-turbine manufacturer, is benefiting from strong domestic demand, and recently received an order from Caparo Energy to set up 1,000-MW wind projects through March 2013.94 In turn, Suzlon is creating demand for a wide variety of ancillary manufacturing parts such as gearboxes and drive shafts. Meanwhile, rapid urbanization is driving new demand for energyefficient residential and commercial buildings. Indias green building products and technologies market is expected to hit US$100 billion by 2012, while the green-building footprint will likely increase to 45 million sq ft by 2012.95 There are
1,063 projects in the pipeline with a green footprint of 636 million sq ft. And with 80 percent of India yet to be built, the next two decades would present a huge opportunity for the construction sector as well as related sectors such as cement and steel.96
expects that reaching these targets would require an additional investment of US$22 billion over the next five years and a large inflow of talent. As one of our panelists pointed out, The next big jump in GDP growth will come from agricultural and rural reforms and there is a long pending agenda there. Expanding contract-farming engagements in India indicate the employment that the food-processing sector can create. Pepsico started contract farming with potato growers in the state of Punjab in 2001 and is now doing so in eight other states. In Rajasthan, Pepsico has partnered with 1,200 farmers to cultivate barley in a partnership tie-up with the United Breweries Group. It has also contracted with 22,000 farmers to procure potatoes, rice, barley, tomato and chilies.97
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Logistics and warehousing companies are also proliferating around major agricultural hubs across the country. The government has stipulated the creation of two million tons of additional storage for agricultural produce through modern silos.
Newer sources of water are scarce, so the water-treatment and -management sector will need to step up. Between 2005 and 2010, investors injected US$160 million in 17 companies that specialize in water and waste management, recycling and engineering.100 But India will need to further invest more than US$5 billion in the water-management and solidwaste management sectors over the next 15 years.101 A large portion of this investment will go into R&D. Indian businesses are actively tackling water conservation and recycling. For instance, the 170,000 sq ft ITC Green Centre, located at Gurgaon, is the worlds largest zero percent water discharge, noncommercial green building.102 The building harvests all of the rain that falls on the structure. It also recycles all the water used in the facility, including waste water, to tertiary standards through its sewage-treatment plant.
In 2008-2009, the companys stormwater pits recharged groundwater by 5,492 kilolitres (KL), and its sewage-treatment plant recycled 6,852 KL of water, reducing costs andmore importantwater usage. Meanwhile, crop and animal waste in rural India has traditionally been used to generate biomass electricity on a small scale. The total capacity is expected to increase tenfold in the coming decade, reaching 10 GW by 2020.103 The National Biomass Cookstoves Initiative will develop next-generation cleaner biomass stoves and deploy them to 160 million Indian households that currently use traditional stoves based on solid biomass fuels. Over 4 percent of Indias total greenhouse emissionsworth US$1 billion in the international carbon marketwill be avoided once this initiative is implemented.104
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Alternate fuels
As fuel prices continue to rise, vehicle manufacturers in India are developing models that can function on alternative fuels as efficiently as they do on conventional fuels such as petrol and diesel. Shale gas may be one such alternative fuel. Indias Oil & Natural Gas Corporation (ONGC) recently discovered the first shale gas deposit in the country in the state of West Bengal. This is the first significant shale gas reserve found outside the US and Canada. Initial estimates from US mining major Schlumberger has pegged the gas reserves at this site at 300 trillion cubic feet.105 If successful, this initiative could turn Indias current energy picture from deficit to surplus. Coal-to-liquid technology, which uses domestic coal reserves, offers another sign of hope because it may help reduce Indias reliance on oil imports. The government recently awarded two coal blocks in the state of Orissa to Jindal Steel and Power (JSPL) and Strategic Energy Technology Systems (SETL) for
coal-to-liquid technology projects that will likely begin by 2018. A joint venture between India's Tata Group and South Africa's Sasol will invest US$10 billion in another coal-to-liquid project in the same state.106 Meanwhile, other research efforts are exploring additional alternative fuels. Scientists at the Institute of Chemical Technology (ICT) are searching for algal strains that can be used to develop next-generation biofuels. India aims to reduce the current cost of production of US$10 per liter by almost 25 times by utilizing micro-algae that can be grown on a massive scale. ICTs five-year project in collaboration with the International Centre for Genetic Engineering and Biotechnology will genetically modify the best-suited algal strains to increase their productivity.107 Coal-bed methane (CBM), another relatively new fuel alternative, is also attracting interest in India. The country has one of the largest estimated reserves of CBM, thought to be around 4.6 trillion cubic meters.108 Essar Oil, a
major player in this segment, currently produces 35,000 cubic meters of gas per day from its 33 drilling wells. It plans to invest US$300 million to increase production to 3.5 million cubic meters a day through 500 drilling wells over the next two to three years.109
60
GDP, increment in alternative trajectory, constant 2010 prices (left scale) GDP, current trajectory, constant 2010 prices (left scale) Employment, alternative trajectory (right scale) Employment, current trajectory (right scale)
110 100 90 80 70 60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2019
Source: Oxford Economics green sector could boost Indias GDP by INR458 billion (US$10 billion), 0.3 percent above the current and technology spillovers, the
trajectory by 2020. This translates to lifting employment levels by 821,000 by 2020.
The Oxford Economics modeling shows that, buttressed with an appropriate blend of regulation, skills development, investment incentives
Employment (million)
61
570
hybrid version of its popular SUV, the Scorpio. Mahindra & Mahindras acquisition of Korean SUV maker SsangYong will further strengthen its electric- and hybrid-vehicle projects. Even public-sector major Bharat Heavy Electricals Ltd (BHEL) is looking to partner with Japanese automaker Toyota to make EVs. Toyota, for its part, is keen to partner with BHEL to tap its experience in manufacturing electric buses and electric locomotives.111 Indias Ministry of Natural and Renewable Energy announced a US$21 million incentive scheme, providing incentives of up to 20 percent on ex-factory prices of EVs sold in India for the remainder of the 11th five-year plan.112
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capturing and storing carbon emissions. The first 5-MW carboncapture plant in India will be set up by 2016, and will help reduce climatechange effects of coal-based power plants. NTPC also plans indigenous development of next-generation super-critical and ultra-super-critical power-plant technology that will significantly reduce CO2 emissions. A variety of new, cost-effective technologies can also help exploration companies improve productivity. For instance, Reliance Industries recently partnered with BP to get access to BPs technology, which can help Reliance make the most of its exploration assets. BP will help Reliance Industries to maximize the performance of its existing blocks with the help of its superior technologies.
scheme for wind-power projects. An incentive tariff of Rs 0.50/KWH (1.1 cents) would be given to eligible projects for a maximum period of 10 years. Projected financial outlay for this scheme under the 11th plan period (2007-2012) is estimated at US$90 million.114 The Indian government also made financial support available for the installation of solar-energy systems and solar lights through the Jawaharlal Nehru Solar Mission. The programme provides a 30-percent subsidy combined with 5-percent interest on loans by individuals, industrial, commercial and non-commercial entities. India has also been trying to build tidal-power plants. A recent study found 7 GW of potential in the Gulf of Cambay and an additional 1.2 GW in the Gulf of Kutch, both located in the state of Gujarat. The government wants to promote private participation by subsidizing 50 percent of the cost of demonstration tidal-energy plants.
As these companies expand operations beyond geographical boundaries, their clean, energy-efficient operations will help them gain access in developed economies and avoid stringent environmental regulation. The companies should also benefit from government incentives to increase production of renewable resources. For instance, windpower projects have received many concessions, such as a 10-year tax holiday, accelerated depreciation, concessional custom duty and power buy-back from states.116
Organizational imperatives
Shift to next-generation fuels and renewable-energy sources
Indian companies must plan for a future where pollution-causing fossil fuels will be prohibitively expensive and regulated. They have an advantage in not having to deal with legacy systems and can base their growth on clean technologies that will help them tackle future resource scarcity.
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about solar-energy benefits to persuading commercial and rural banking institutions to finance sustainable energy systems for lowincome rural households.119 Even consumer-durables companies are developing products that use less electricity than ever before. Energystar ratings are no longer good-tohave features; they are must-haves.
innovation developed at TERI gives consumers the option of using diesel or producer gas. The producer gas is fed into the diesel engine, allowing the engine to operate in dualfuel mode, thereby reducing diesel consumption by more than 70 percent. TERIs biomass gasifier requires less expensive diesel, uses and recycles waste, and reduces air pollution.
The Ministry of Environment and Forests in India is helping to advance such efforts. The ministry is piloting a market-driven emissions-trading system in three states that will allow different companies to cut emissions as much as they can and to benefit accordingly. System administrators will take into account the different scales of emissions, rather than penalizing companies for not meeting fixed emission-reduction numbers. They will grant emission-reduction permits to companies that reduce emissions. Polluting companies can choose to reduce emissions or buy permits through an auction.120
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Ask business leaders today for their assessment of global economic prospects, and the pervading sense one gets is some degree of optimism tempered with a large dose of uncertainty. Indias business leaders take a similar mixed view of the future. They are optimistic, because Indias rising incomes and rapid economic growth will almost certainly continue to bode well for business. And they are uncertain, because continued risk and volatility make it difficult to know what is needed to maximize Indias potential and capitalize on the new opportunities arising abroad. Amid this uncertainty, the economic horizon seems both foreign and promising for many of Indias business leaders. Those who cling to old strategies and focus exclusively on traditional drivers of business growth will find the future challenging and alien indeed.
Accentures recent research on the New Waves of Growth confirms that this need not be the whole story for India. Adopting a new perspective on the trends reshaping the economic landscape many of which are often viewed as challenges reveals a tremendous upside that includes fresh drivers of business growth. From the surge of emerging markets and demographic shifts, new demandand supply-side drivers of growth are taking shape. Simultaneously, technologys accelerating impact offers firms novel ways to tap these new opportunities. What is now clear is that future success will hinge on how well businesses, individuals and governments respond to these new opportunities today. Indias firms will need leaders who can guide them beyond their old identities and traditional wellsprings of growthand who have the foresight to creatively harness the new waves of growth.
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not control or guarantee the accuracy, relevance, timelines or completeness of such information. The information contained and the references made in this Report is in good faith, neither Accenture nor any of its directors, agents or employees give any warranty of accuracy nor accepts any liability as a result of reliance upon the information, advice, statement or opinion contained in this Report.
Acknowledgments
Authors Mamta Kapur, Aarohi Sen, Smriti Mathur, Ryan Coffey Senior Review Team Sanjay Jain, Raghav Narsalay, Matthew Robinson, David Light, Mark Purdy, Armen Ovanessoff, Ladan Davarzani
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About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 215,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.
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