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IDC OPINION
For the period 2007-2012, the retail vertical is expected to witness the maximum
growth in IT spending (CAGR of 33.4%), followed by healthcare (CAGR of
20.1%) and it being followed by pharmaceuticals (CAGR of 18.9%). While the
verticals government and education and BFSI verticals have emerged as major
IT spending verticals (CAGR of 16.2% and 14.0% respectively), the verticals like
manufacturing, telecom and ITeS / BPO are fasting catching up with CAGRs to
the tune of 18.2%, 17.7% and 15.4% respectively.
India has slowly and gradually came out of the hardware phase of technology
adoption and has moved into the software and services phase. The domestic IT
packaged software market is expected to grow at a CAGR of 20.9% during the
period of 2007-2012, while the services market is expected to grow at a modest
CAGR of 20.0% during the same period.
With the web 2.0 and electronic gadgets starting to occupy a sizeable portion of
the users' minds today, the market for smart hand-held devices is the fastest
growing market in India with a CAGR of 23.3% for 2007-2012.
# ©2008 IDC
TABLE OF CONTENTS
In This Study 1
Methodology ............................................................................................................................................. 1
S i t u a t i o n O ve r vi e w 7
Indian Economy in the World ................................................................................................................... 7
I n d i a n B a n k i n g I n d u s t r y: T h e I m p e r a t i ve s 12
Overview of the Sector ............................................................................................................................. 12
Evolution of the Sector ............................................................................................................................. 14
Reforms in the Sector............................................................................................................................... 14
Players in the sector ................................................................................................................................. 15
Trends in the sector.................................................................................................................................. 16
Factors favoring the growth of the sector in India..................................................................................... 19
Challenges in the Sector .......................................................................................................................... 19
Role of Information Technology in the Sector .......................................................................................... 22
I n d i a n I n s u r a n c e I n d u s t r y: T h e I m p e r a t i ve s 24
Overview of the Sector ............................................................................................................................. 24
Evolution of the Sector ............................................................................................................................. 25
Reforms in the Sector............................................................................................................................... 27
Players in the Sector ................................................................................................................................ 27
Trends in the Sector ................................................................................................................................. 32
Factors favoring the growth of the sector in India..................................................................................... 34
Challenges in the Sector .......................................................................................................................... 34
Role of Information Technology in the Sector .......................................................................................... 36
I n d i a n Au t o m o b i l e I n d u s t r y: T h e I m p e r a t i ve s 40
Overview of the Sector ............................................................................................................................. 40
Evolution of the Sector ............................................................................................................................. 41
Reforms in the Sector............................................................................................................................... 44
Players in the Sector ................................................................................................................................ 47
Trends in the Sector ................................................................................................................................. 48
Factors favouring the growth of the sector in India................................................................................... 50
Challenges in the Sector .......................................................................................................................... 51
Role of Information Technology in the Sector .......................................................................................... 53
I n d i a n T e x t i l e I n d u s t r y: T h e I m p e r a t i ve s 56
Overview of the Sector ............................................................................................................................. 56
Evolution of the sector .............................................................................................................................. 57
Reforms in the Sector............................................................................................................................... 58
Players in the Sector ................................................................................................................................ 60
©2008 IDC #
TABLE OF CONTENTS — Continued
P
Trends in the Sector ................................................................................................................................. 62
Factors favoring the growth of the sctor in India....................................................................................... 64
Challenges in the Sector .......................................................................................................................... 65
Role of Information Technology in the Sector .......................................................................................... 66
I n d i a n F M C G I n d u s t r y: T h e I m p e r a t i ve s 69
Overview of the Sector ............................................................................................................................. 69
Evolution of the Sector ............................................................................................................................. 70
Reforms in the Sector............................................................................................................................... 71
Players in the Sector ................................................................................................................................ 72
Trends in the Sector ................................................................................................................................. 73
Factors favoring the growth of the sector in India..................................................................................... 75
Challenges in the Sector .......................................................................................................................... 76
Role of Information Technology in the Sector .......................................................................................... 78
T h e I n d i a n G o ve r n m e n t a n d E d u c a t i o n S e c t o r : I n d i a n G o ve r n m e n t s 108
Overview of the Sector ............................................................................................................................. 108
National E-governance Action Plan: 2003-2007....................................................................................... 114
The Three Core E-Governance Projects .................................................................................................. 115
Roadblocks on the path of E-Governance................................................................................................ 117
T h e I n d i a n G o ve r n m e n t a n d E d u c a t i o n S e c t o r : I n d i a n E d u c a t i o n 119
Overview of the Sector ............................................................................................................................. 119
Evolution of the Sector ............................................................................................................................. 120
Reforms in the Sector............................................................................................................................... 121
Challenges in the Sector .......................................................................................................................... 122
Role of Information Technology in the Sector .......................................................................................... 122
# ©2008 IDC
TABLE OF CONTENTS — Continued
P
Overview of the Sector ............................................................................................................................. 128
Evolution of the Sector ............................................................................................................................. 129
Reforms in the Sector............................................................................................................................... 132
Players in the sector ................................................................................................................................. 133
Trends in the Sector ................................................................................................................................. 134
Factors favoring the growth of the sector in India..................................................................................... 134
Challenges in the Sector .......................................................................................................................... 136
Role of Information Technology in the Sector .......................................................................................... 137
©2008 IDC #
TABLE OF CONTENTS — Continued
P
Overview of the Sector ............................................................................................................................. 182
Evolution of the Sector ............................................................................................................................. 183
Reforms in the Sector............................................................................................................................... 183
Players in the Sector ................................................................................................................................ 185
Trends in the Sector ................................................................................................................................. 186
Factors favouring the growth of the sector in India................................................................................... 188
Challenges in the Sector .......................................................................................................................... 189
Role of Information Technology in the Sector .......................................................................................... 191
Other Verticals.......................................................................................................................................... 193
S yn o p s i s 252
# ©2008 IDC
LIST OF TABLES
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1 Overall IT Spend in India (US$ millions), 2007-2012 ................................................................... 4
2 Indiactors of Indian Economy, 2007-08 ....................................................................................... 8
3 Mobile Banking Terminologies ..................................................................................................... 18
4 Milestones in the Evolution of Indian Insurance........................................................................... 26
5 Life Insurers in India (US$ Million) ............................................................................................... 28
6 Non-Life Insurers in India (US$ Million) ....................................................................................... 28
7 Evolution of the Automobile Sector in India, The Then and Now................................................. 43
8 Phased Implementation of the Emission Standards' Norms in the Indian Automobile Sector,
2000-2010.................................................................................................................................... 46
9 Key Players in the Indian Automobile Industry, 2007................................................................... 47
10 Key Players in the Indian Textile Industry .................................................................................... 61
11 Players in the Indian FMCG Sector, 2007.................................................................................... 72
12 Key Business Model Characteristics of Various Segment Organizations in the Indian ITeS
industry, 2007 .............................................................................................................................. 85
13 Key M&A Deals in the ITeS / BPO Sector.................................................................................... 86
14 Cost Advantage for Indian BPOs vis-à-vis the US ....................................................................... 88
15 Financial Attractiveness of Top 5 Global Services Locations ...................................................... 88
16 Various Constituents of Indian Telecom Service Industry, 2007.................................................. 98
17 Milestones in the Evolution of Indian Telecom Industry ............................................................... 99
18 Key Telecom Regulatory Organizations in India .......................................................................... 101
19 Key Players in the Indian Telecom Service Industry.................................................................... 102
20 Stages of Education in India ........................................................................................................ 120
21 Challenges prevalent in the Indian Education System................................................................. 122
22 Players in the Media and Entertainment Sector........................................................................... 133
23 Summary of FDI Policy in the Indian Media and Entertainment Industry..................................... 135
24 Players in the Indian Power Sector, 2007 .................................................................................... 152
25 Phasing Out of the Market to allow Consumers choose the Supplier of their Choice (MW),
2005-08 Scenario......................................................................................................................... 153
26 FDI Regime in the Indian Oil and Gas Sector .............................................................................. 160
27 Milestones in Policy Development of Indian Oil and Gas sector.................................................. 160
28 Players in the Indian Oil and Gas Sector, 2007 ........................................................................... 162
29 Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012..................................... 194
30 Overall IT Spend in BFSI (US$ millions), 2007-2012................................................................... 198
31 Overall IT Spend in BFSI (Percentage), 2007-2012 .................................................................... 198
32 Overall Hardware Spend in BFSI (US$ millions), 2007-2012 ...................................................... 200
33 Overall Hardware Spend in BFSI (Percentage), 2007-2012 ........................................................ 200
34 Overall IT Spend in Manufacturing (US$ millions), 2007-2012 .................................................... 202
©2008 IDC #
LIST OF TABLES — Continued
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35 Overall IT Spend in Manufacturing (Percentage), 2007-2012...................................................... 202
36 Overall Hardware Spend in Manufacturing (US$ millions), 2007-2012........................................ 204
37 Overall Hardware Spend in Manufacturing (Percentage), 2007-2012 ......................................... 204
38 Overall IT Spend in IT/ITeS (US$ millions), 2007-2012 ............................................................... 206
39 Overall IT Spend in IT/ITeS (Percentage), 2007-2012................................................................. 206
40 Overall Hardware Spend in IT/ITeS (US$ millions), 2007-2012................................................... 207
41 Overall Hardware Spend in IT/ITeS (Percentage), 2007-2012 .................................................... 207
42 Overall IT Spend in Telecom (US$ millions), 2007-2012 ............................................................. 209
43 Overall IT Spend in Telecom (Percentage), 2007-2012............................................................... 209
44 Overall Hardware Spend in Telecom (US$ millions), 2007-2012................................................. 211
45 Overall Hardware Spend in Telecom (Percentage), 2007-2012 .................................................. 211
46 Overall IT Spend in Government and Education (US$ millions), 2007-2012 ............................... 213
47 Overall IT Spend in Government and Education (Percentage), 2007-2012................................. 213
48 Overall Hardware Spend in Government and Education (US$ millions), 2007-2012................... 214
49 Overall Hardware Spend in Government and Education (Percentage), 2007-2012 .................... 214
50 Overall IT Spend in Media and Entertainment (US$ millions), 2007-2012................................... 216
51 Overall IT Spend in Media and Entertainment (Percentage), 2007-2012 .................................... 216
52 Overall Hardware Spend in Media and Entertainment (US$ millions), 2007-2012 ...................... 217
53 Overall Hardware Spend in Media and Entertainment (Percentage), 2007-2012 ........................ 217
54 Overall IT Spend in Retail (US$ millions), 2007-2012.................................................................. 219
55 Overall IT Spend in Retail (Percentage), 2007-2012 ................................................................... 219
56 Overall Hardware Spend in Retail (US$ millions), 2007-2012 ..................................................... 220
57 Overall Hardware Spend in Retail (Percentage), 2007-2012....................................................... 220
58 Overall IT Spend in Utility (US$ millions), 2007-2012 .................................................................. 222
59 Overall IT Spend in Utility (Percentage), 2007-2012.................................................................... 222
60 Overall Hardware Spend in Utility (US$ millions), 2007-2012...................................................... 223
61 Overall Hardware Spend in Utility (Percentage), 2007-2012 ....................................................... 223
62 Overall IT Spend in Pharmaceutical (US$ millions), 2007-2012 .................................................. 225
63 Overall IT Spend in Pharmaceutical (Percentage), 2007-2012.................................................... 225
64 Overall Hardware Spend in Pharmaceutical (US$ millions), 2007-2012...................................... 226
65 Overall Hardware Spend in Pharmaceutical (Percentage), 2007-2012 ....................................... 226
66 Overall IT Spend in Healthcare (US$ millions), 2007-2012 ......................................................... 228
67 Overall IT Spend in Healthcare (Percentage), 2007-2012 ........................................................... 228
68 Overall Hardware Spend in Healthcare (US$ millions), 2007-2012 ............................................. 229
69 Overall Hardware Spend in Healthcare (Percentage), 2007-2012............................................... 229
70 Overall IT Spend in Others (US$ millions), 2007-2012 ................................................................ 231
71 Overall IT Spend in Others (Percentage), 2007-2012.................................................................. 231
# ©2008 IDC
LIST OF TABLES — Continued
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72 Overall Hardware Spend in Others (US$ millions), 2007-2012.................................................... 232
73 Overall Hardware Spend in Others (Percentage), 2007-2012 ..................................................... 232
74 India IT Market in Various Verticals, Revenue Forecast Comparison between January 2007
study and August 2008 study....................................................................................................... 234
75 India, Scope of the Verticals Comparison – 2007 Vs 2008.......................................................... 238
76 India, Scope of the Product Categories Comparison – 2007 Vs 2008......................................... 240
77 Overall IT Spend by Industry Verticals (US$ Million), 2007-2012 ................................................ 242
©2008 IDC #
LIST OF FIGURES
P
1 Structure of the Indian Banking Industry...................................................................................... 13
2 Market share of Players in Indian Banking Sector, 2007 ............................................................. 16
3 Vicious Circle of Financial Exclusion Plaguing the Indian Banking Industry in the Rural
Areas............................................................................................................................................ 21
4 Structure of Indian Insurance Industry ......................................................................................... 25
5 Insurance Industry in India, 2005-06 and 2006-07 ...................................................................... 30
6 Life Insurance Industry in India, 2005-06 and 2006-07................................................................ 31
7 Non-Life Insurance Industry in India, 2005-06 and 2006-07........................................................ 32
8 Challenges in the Value Chain of Indian Insurance Industry ...................................................... 35
9 Segmental Overview of Indian Automobile industry, 2006 & 2007 .............................................. 41
10 Share of Various Components in the Indian FMCG Industry, 2007 ............................................. 70
11 Scaling Up of the ITeS Industry's Value Chain in India, 1990-2007 ............................................ 83
12 Internal and External Factors for high Attrition in BPOs............................................................... 90
13 Structure of Indian Telecom Sector ............................................................................................. 98
14 Ministrial Framework of DIT ......................................................................................................... 111
15 State Government Institutional Framework for E-Governance .................................................... 113
16 Projects under NeGP ................................................................................................................... 115
17 Changing Face of Indian Media and Entertainment Industry ....................................................... 130
18 Institutional Framework of Ministry of Information and Broadcasting........................................... 132
19 Value Chain of Indian Retail Industry........................................................................................... 140
20 Segments and Formats in Indian Retail Industry ......................................................................... 141
21 India Hardware and IT Market in Various Verticals, Revenue Comparison for 2007 markets
between January 2007 study and August 2008 study ................................................................. 238
# ©2008 IDC
IN THIS STUDY
Introduction
This report aims at providing a detailed viewpoint on the overall status of IT spending
in key industry verticals in India, future trends, and the state of the adoption of new
enterprise applications. The report is based on extensive secondary research on the
status and the role of IT applications in each industry vertical and is backed by in-
depth interviews with IT heads/CIOs of selected large organizations in each vertical.
Methodology
The Indian economy consists of a number of industry verticals* and all of them have
their own set of dynamics and challenges. Correspondingly, their IT requirements are
also different. A marketer needs to know the important trends typical to each industry
vertical in order to formulate an effective marketing strategy. This report provides a
comparative analysis of IT trends and forecasts across 10 key industry vertical
segments in India. The vertical segments covered in this report are:
Manufacturing
IT/ITeS
Telecom
Retail
Pharmaceutical
Healthcare
The report has been built upon the data points captured by various trackers** that are
run by the IDC India research team. These data points and the insights of IDC
©2008 IDC # 1
analysts were amalgamated to arrive at the total domestic IT spending as well as the
forecast. Industry vertical wise splits were taken from the trackers that provide vertical
wise spending. For the trackers that do not provide vertical splits of the spending,
inputs and judgments of the respective analysts and industry experts (within IDC)
were taken to arrive at the vertical-specific current and future. Views were also taken
from the industry experts to understand the current IT deployments and IT spending
in the respective verticals. In all, data from eight trackers was reviewed for arriving at
the final numbers in terms of individual reporting. These eight trackers together
capture a bulk of the total domestic IT spending. The eight trackers are:
Services Tracker
Server Tracker
Printer Tracker
IT spend data from other regular trackers was also taken to arrive at other peripherals
and others data. To further fine-tune the market shares and forecasts, comparisons
were made with overall Asia-Pacific trends and corrections were made, wherever it
was felt necessary.
2 # ©2008 IDC
Executive Summary
India has emerged as the fastest growing IT market in the world. Riding on rapid
technology adoption by domestic market, coupled with an impressive showing at
export front, the Indian IT market is all set to reach new heights.
To continue growing at above 8% rate, the economy is next looking to leverage the
benefits of information technology to gain supremacy in innovation and production,
development of the distribution networks, growth in communication, services delivery
and expansion. Thus, IT is being looked at as a major tool in the hands of the Indian
players to achieve the global competitiveness.
The role of IT today is that of a facilitator and business partner in most of the
organizations. There is complete awareness at all the levels of the management
about the potential of IT to facilitate the fulfillment of business objectives.
This is the most opportune time for IT to grow by aligning with the business. Most
technology investments that are made by businesses today, whether in storage
infrastructure, enterprise applications, or shop-floor automation, are made keeping
business necessities and expansion in mind. The IT industry can serve as a medium
of e-governance, as it assures easy accessibility to information. The use of
information technology in the service sector improves operational efficiency and adds
to transparency. It also serves as a medium of skill formation. The IT industry helps
many other sectors in the growth process of the economy including the services and
manufacturing sectors.
The role of technology is to help streamline business activity, make it more cost
efficient, reduce wastage in the case of manufacturing companies, and optimize
resources. As a result, it is important to align IT to business as IT implementations
without business imperatives attached to them are nothing but wasted efforts. The top
five business priorities for which IT is looked at are:
Controlling costs
Improving competitiveness
Regulatory compliance
©2008 IDC # 3
The impact of IT is best understood when the fundamental differences between the
innovations and ventures of industrial and knowledge-based economies are
recognized. The economic value of IT depends greatly on the levels of economic
progress a nation has already achieved. IT has the potential to make existing
processes more effective and efficient, but cannot substitute for the lack of a basic
infrastructure. India's expanding economy, growing annually by around 8% to 9%, is
spurring domestic IT spending as companies upgrade technologies to stay
competitive and consumers log onto the Internet on personal computers and mobile
devices. Lifestyle products have started gaining more importance in the lives of Indian
consumers and are the prime drivers of the Indian IT market.
The growth of the IT sector in India symbolizes the potential of Indian industry to
perform at world-class standards. Led by visionaries and supported by thousands of
employees and entrepreneurs, the IT sector embodies much of what can go right
when the spirit of human enterprise is given free rein. With the economy already
through with the basic hardware and IT infrastructure deployment, its time that we
turn our attention to networking, applications, smart hand-held devices, software
industry and services platform. It is also equally important for the industry players to
customize their offerings not only as per the verticals' orientation but also upto the
level of individual user requirements. Mass and standard products are going to find
increasingly lesser usage in the economy.
To become a global leader in the IT industry and retain that position, we need to
constantly keep moving up the value chain, focusing on finished products and
solutions, rather than purely on skill sets and resumes. We need to be able to
package our services as products, rather than offering them as raw material. We
need to be able to recognize and build up on our strengths and work on our
weaknesses.
Provided next is the total IT spending in India across the various product categories.
TABLE 1
Services
Training and education 195.6 229.8 254.9 275.6 315.5 335.9 11.4%
4 # ©2008 IDC
TABLE 1
Packaged software
System infrastructure software 652.4 860.9 1067.6 1274.5 1502.5 1756.1 21.9%
Appl. development and deployment 539.1 692.9 841.1 1015.3 1215.1 1443.6 21.8%
Packaged software total 1,928.1 2,477.7 3,025.8 3,647.6 4,364.6 5,178.3 21.8%
Hardware
Server
Clients
Systems total (including servers & 4,480.6 5,321.9 6,105.3 6,996.7 7,928.8 9,002.4 15.0%
clients)
Storage
Peripherals
Printers and MFD's 599.3 682.7 749.9 804.6 851.7 893.2 8.3%
Smart Handheld Devices 13.2 25.2 42.2 67.4 105.7 163.2 65.3%
©2008 IDC # 5
TABLE 1
Networking
Other Add-ons (Computing 334.0 384.0 436.5 493.9 548.6 612.4 12.9%
Products)
Total IT Market in India (excluding 13,735.2 16,855.5 19,876.7 23,304.0 27,095.1 31,364.2 18.0%
others)
Others
Other (Consumables & individual IT 284.1 343.5 393.4 449.1 502.0 552.3 14.2%
training)
Other networking equipment 613.8 773.8 902.9 1029.6 1144.9 1259.9 15.5%
Other Add-ons (Peripheral) 379.4 411.0 416.8 399.7 384.7 369.7 -0.5%
Total IT Market in India (including 15,012.5 18,383.9 21,589.9 25,182.4 29,126.7 33,546.1 17.4%
others) ***
The Indian Domestic IT industry continues to be the highest growing market in the
Asia-Pacific region. The size of the domestic IT market was US$ 15,012.5 millions in
2007 and is expected to touch US$ 33,546.1 millions in 2012. The CAGR for the
period 2007-12 is expected to be 17.4%. The IT market is expected to more than
double in the next 5 years with the industry touching US$ 20 billion (20,000 million)
mark in 2009.
*** All the vertical-wise figures reported in the subsequent pages of this report
are based on this set of figures
6 # ©2008 IDC
SITUATION OVERVIEW
The Indian economy, buoyed by the growth in GDP exceeding 8% year on year since
2003-04 has entered a new phase termed as “India 8.0.” With positive indicators
such as rising foreign exchange reserves, a booming capital market and a rapidly
expanding FDI inflows, India has emerged as the second fastest growing major
economy in the world. But moving to the era of new growth phase has brought its own
set of challenges. The new challenge set is to maintain growth at these levels, not to
speak of raising it further to double-digit levels.
Boosted by the growth in the agricultural sector, the economy was able to post a GDP
growth of 9.0% in FY 2007-08, slightly lower than that of 9.4% in FY 2006-07.
Inflationary impact of the inflow of foreign funds, a slowdown of the US economy, the
impact of rupee appreciation and an inadequate infrastructure were some of the
major challenges that confronted the Indian economy during 2007-08. Marred further
by the exponentially rising inflation, shooting oil prices, larger base and slowdown of
industrial sector, the economy is expected to remain around 8.0% in 2008-09. But all
is not bleak for the marketers in there; with better than expected monsoon and
expanding services sector a new ray of hope lights the Indian economy triggering
renewed thrust among the key constituents of the same.
India at present is second in the world in terms of population with its population
touching a mark of 1,134,788,500 in June end, 2008.
The Indian economy grew at 9.0% in 2007-08 vis-à-vis a growth of 9.4% in 2006-
07. While the industrial and services sectors decelerated from 12.0% and 11.0%
in 2006-07 to 8.8% and 10.8% respectively in 2007-08, the agricultural sector
grew from 3.8% in 2006-07 to 4.5% in 2007-08.
Broad money growth (M3), on a y-o-y basis, was at 20.7% (US$ 171,524 million;
1US$ = 40 INR) as at end-March 2008 as compared with 21.5% (US$ 146,637
st
million) on 31 March 2007.
To its credentials, India recorded an inflow of US$ 24,570 million in FDI for FY
2007-08, vis-à-vis an inflow of US$ 15,700 million in 2006-07. Sectors that
attracted the maximum FDI inflows in 2007-08 are services, telecom, housing,
construction activities, real estate, electrical equipment, computer software and
hardware. The buoyant 56.5% growth in FDI has made the targets of US$ 35,000
million look very much feasible for FY 2008-09.
The per capita income at the nominal exchange rate is estimated at US$ 741 for
2006-07 and at US$ 828 for FY 2007-08.
Stock markets were the most appropriate example of a see-saw market in India.
The two key Indices; Bombay Stock Exchange (BSE) and National Stock
©2008 IDC # 7
Exchange (NSE); went through regular highs and lows to close at 15,644 (once
crossing 18,000) and 4,734 (crossing 5,000) respectively as at March-end 2008.
st
The value of Indian Rupee (INR) vis-à-vis US$ stood at 40.02 as on 31 March
2008. The INR vis-à-vis Euro, Japanese Yen and British Pound stood at 63.25,
st
0.40 and 79.45 respectively as on 31 March 2008. The Indian Rupee seems to
th
be again losing ground on the count of inflation and stands at US$ 42.95 on 30
June 2008.
The annual inflation rate in terms of WPI (base 1993-94=100) for the week ended
29 March 2008 was 7.41% vis-à-vis 2.58% and 5.74% for the week ended 29
Dec 2007 and 30 March 2007 respectively. The current spike in inflation is being
primarily driven by higher global commodity prices in agriculture and metals
feeding through to domestic inflation. But jolted by the exponential increase in
crude oil prices at international level, the inflation levels in India have reached
11.44% in mid of June, pushing the economy growth into a dark corner.
The food grains productions for 2007-08 was 227.3 million tonnes, registering an
increase of 4.6% over the previous fiscal when it was 217.3 million tonnes.
The fiscal deficit for 2007-08 is pegged at 3.22% of GDP, worth US$ 37,725
million vis-à-vis US$ 38,075 million in 2006-07. The revenue deficit for 2007-08
was US$ 1,787 million (vis-à-vis US$ 2,085 million in 2006-07), approximating
around 1.52% of the GDP.
TABLE 2
Population 1,134,788,500
Inflation 11.44%
8 # ©2008 IDC
TABLE 2
The Indian political landscape continues to remain fragmented, with the major parties
struggling to establish their dominance. Multiple regional parties and local groupings
continued to play the role of ‘king makers’. The strong foothold of smaller parties in
regional politics is making the larger parties to once again think through their national
orientation and look for more regional policies and initiatives. This wave is set to fuel
a new era of development in the country, with regional politics to play a major role in
it.
Another major issue that continues to dominate the Indian political landscape is the
issue of the Indo-US nuclear deal. While the Congress-led United Progressive
Alliance government is making all the efforts to push through the Indo-US nuclear
deal; the left parties, major allies of the coalition government, are opposed to it. They
fear that by signing the deal, India would lose its sovereign foreign policy and firmly
place itself in the US security orbit. They have gone to the extent of hinting at
withdrawing support from the government; triggering fears of early polls in 2008 itself.
For more than a year the nuclear deal has been in the center of the political discourse
in India, but no concrete decision has been taken till date.
The future of India lies strongly on the implementation of policy reforms package
covering wide segments of the economy and a recognition that strong macro-
fundamentals must be coupled with deep structural reforms to realize these objective.
Apart from growth in overall terms, the strategy involves a steep reduction in poverty
to just around 10% by the end of the decade, high growth in employment, increase in
literacy, reduction in gender gaps and a reduction in the decadal growth of population
to 16% during this period.
India has inherent advantages in achieving and sustaining high rates of growth
propelled by:
©2008 IDC # 9
Large reservoir of skilled manpower with 700 million Indians in the younger age
group whose energies can be harnessed if human resource development
programme are properly managed, and which can contribute to undertake
activities in this country whichthe rest of world due to ageing population and
social pressures maynot find it possible.
An external sector that is robust and will continue to impart confidence to foreign
investors as the country calibrates its movement towards full convertibility based
on fiscal consolidation and improved financial intermediation.
Reforms of the health and education sectors in which beneficiaries will have a
greater role in the management of primary schools and health centers and
fostering some competition between public and private institutions to broaden
consumer choice.
While heading for bigger things, the Indian economy will gain in size and confidence
in the coming times.
The Indian financial sector has displayed stability over the last few years, even when
other markets in the Asian region were facing a crisis. This stability was ensured
through resilience and the regulations that have been built into the system over time.
The financial sector has kept pace with the growing needs of corporate and other
10 # ©2008 IDC
borrowers. Banks, capital market participants and insurers have developed a wide
range of products and services to suit varied customer requirements. The Reserve
Bank of India (RBI) has successfully introduced a regime where interest rates are
more in line with market forces. Financial institutions have combated the reduction in
interest rates and pressure on their margins by constantly innovating and targeting
attractive consumer segments. Banks and trade financiers have also played an
important role in promoting the foreign trade of the country. The core financial
services provided by the financial intermediaries in India include payments and
liquidity, maturity transformation, store of value, information processing and pooling of
risks.
The NBFCs in India typically operate in the space of leasing and hire purchase,
mortgage, depository and non-depository financial services, stock exchanges and
more. Also, they cover the other constituents of the market such as mutual funds,
derivatives, money market, and equity markets.
There are 22 stock exchanges in India, the first being the BSE, which began formal
trading in 1875, making it one of the oldest in Asia. Over the last few years, there has
been a rapid change in the Indian securities market, especially in the secondary
market. Advanced technology and online-based transactions have modernized the
stock exchanges.
Technology and knowledge have been and continue to drive the global economy.
Given the inherent strength by way of its human capital, technical skills, cost
competitive workforce, research and entrepreneurship, India is positioned for rapid
economic growth in a sustainable manner. To realize the potential, the risk finance
and venture capital (VC) funding are moving towards innovation, promoting
technology and harnessing knowledge-based ideas. Also the FDI is allowed up to
100% in venture capital funds (VCFs) and venture capital companies (VCCs) through
the automatic route, subject to SEBI regulations and sector-specific FDI limits. All this
is helping the venture capital segment in making extensive inroads into the Indian
BFSI scenario because of their capacity for giving high yields. The industry experts
believe that maintaining a close analysis of the VCFs is going to yield fruitful results
for the investors.
There are 860 bankers' clearing houses in India, of which 840 are managed by the
State Bank of India and its associates, 14 by the RBI, and the remaining six by
nationalized banks. RBI manages 14 clearing-houses at Ahmedabad, Bangalore,
©2008 IDC # 11
Bhubaneshwar, Mumbai, Kolkata, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur,
Nagpur, New Delhi, Patna and Thiruvananthapuram. These cover most of the major
urban and semi-urban centers of economic activity. Other than the major cities and
metropolitan centers, the volume and value of checks cleared are very low. The
checks cleared in the clearing houses managed by RBI account for 62% in terms of
volume and 86% in terms of value of the total checks cleared in the country. The
clearing infrastructure is designed to address the movement of instruments between
the presenting and drawee branches. Each member bank in a center is represented
in the clearing-house by its service branch, which collects all the instruments from
various branches and consolidates them for presentation to all the banks in the
clearing house. Similarly, it receives and distributes among its branches all the
instruments drawn upon its branches by other banks in the clearing-house. The
service branch of a bank performs a crucial intermediary role between the clearing-
house and the branch of a bank.
With a jump in the Indian economy from a manufacturing sector to the services
sector, Banking in India as a whole is undergoing a change. A larger option for the
consumer is getting translated into a larger demand for financial products and
customization of services is fast becoming a norm rather than a competitive
advantage. The Indian banking industry is passing through a phase of a customer-
driven market. The customers today have more choices in choosing their banks.
The Indian banking industry has been growing faster than the overall economy,
resulting in the ratio of assets of commercial banks to GDP increasing to 92.5% at the
end of March 2007. The Indian banks have also been doing exceptionally well in the
financial sector with the price-to-book value being second only to China. A
burgeoning economy, financial sector reforms, rising foreign investment, favorable
regulatory climate and demographic profile have all led to India becoming one of the
fastest growing banking markets in the world. The overall banking industry's business
grew at a CAGR of about 20.0% from US$ 469,400 million in March 2002 to US$
1,171,290 million by March 2007.
12 # ©2008 IDC
Co-operative banks, and
The scheduled commercial banks or SCBs can be further classified into three major
categories, namely:
Foreign banks
The public sector banks can be further classified into three categories, namely:
Nationalized banks
FIGURE 1
The Indian banking system has a large geographic and functional coverage. India has
88 scheduled commercial banks (SCBs)—28 public sector banks, 29 private banks
and 31 foreign banks. By the end of 2007, the total number of bank branches in India
was more than 73,013, with an ATM network as strong as 25,000 ATMs.
©2008 IDC # 13
Evolution of the Sector
The Indian banking story began with the first Indian bank, the Bank of Hindustan, set
up in 1870. Banking in India on modern lines started with the establishment of three
presidency banks under the Presidency Bank's Act 1876 -- the Bank of Calcutta,
Bank of Bombay and Bank of Madras. In 1921, all presidency banks were
amalgamated to form the Imperial Bank of India. The Reserve Bank of India Act was
passed in 1934 and RBI was constituted as an apex bank without major government
ownership.
In 1955, RBI acquired control over the Imperial Bank of India and renamed it to State
Bank of India. In 1959, SBI took over the control of eight private banks floated in the
erstwhile princely states, making them its fully-owned subsidiaries.
RBI was empowered in 1960, to force compulsory merger of weak banks with the
strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in
1969. In July 1969, the government nationalized 14 banks that had deposits of Rs. 50
crores (US$ 12.5 million) or more.
In 1980, the government acquired six more banks with deposits of more than Rs.200
crores (US$ 50 million). The banks were nationalized to turn them into catalytic
agents for economic growth. The amendment of the Banking Regulation Act in 1993
saw the entry of new private sector banks.
Since then there has been no stopping the Indian banking industry; in fact, it has
grown manifold since independence. Revenues of the banking sector have gone up
over six times in last one decade. Continuing the reform process and improving it
further is not only increasing the revenue of the banking industry but is also fueling
the growth of the Indian economy.
The RBI was established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially
established in Kolkata but was permanently moved to Mumbai in 1937. Though
originally privately owned, since nationalization in 1949, the Reserve Bank is fully
owned by the government of India.
The RBI performs the function of financial supervision under the guidance of the
Board for Financial Supervision (BFS). The Board was constituted in November 1994
as a committee of the Central Board of Directors of the RBI. The primary objective of
BFS is to undertake consolidated supervision of the financial sector comprising
commercial banks, financial institutions and NBFCs. The RBI continues to
disseminate information through press releases, publications, notifications, master
circulars, speeches and advertisements.
14 # ©2008 IDC
The first two decades of independence saw a major portion of bank credit flowing
towards big industries. There were apprehensions that the allocation of credit by the
predominantly private banking structure was not in conformity with planned objectives
of social development. By the mid-1960s, the government decided to exert direct
control over banks and bank policy. The government issued an ordinance in July
1969 acquiring ownership and control of 14 major banks. Subsequently, six more
commercial banks were nationalized in April 1980.
With the nationalization of banks, the government sought a more proactive role in the
developmental process by directing the allocation of financial resources so as to step
up the growth rate of the economy. The major considerations in late 1960s through
early 1990s were those of social banking. The idea was to develop the banking habits
in everyone in all parts of the country, especially the disadvantaged areas. Gradually
the priorities changed and by the 1990s the concepts of corporate banking and
institutional lending started forming the picture of the Indian banking scenario.
A major set of reforms for the Indian banking industry was initiated amidst a "current
account" crisis in the early 1990s. The year 1991 marked a watershed year in the
history of the Indian economy. Faced with a balance of payment crisis, the Indian
economy undertook an extensive reform program ushering in an era of deregulation,
liberalization and gradual globalization coupled with a liberalized exchange rate
management system (LERMS) and devaluation of the rupee exchange rate. The
roadmap of the financial sector reforms was traced largely by two committees under
the chairmanship of M. Narshimhan -- the committee on the financial systems and the
committee on the banking sector reforms, popularly known as the Narshimhan
Committee Report-II.
With the deregulation of the entry norms, an increasing number of financial banks are
showing interest in the Indian economy. Entry deregulation, coupled with progressive
deregulation of interest rates on deposits and advances, has helped the banking
industry to more than double its turnover between 2002 and 2007.
With the banking industry turnover being US$ 1,171,290 million, the State Bank of
India occupies the top-most position with a market share of 16.3%. It is followed by
ICICI Bank, with 9.0% and Canara Bank, with 5.1%. The top seven players occupy
around 47% of the total market, the rest being shared by the other players.
©2008 IDC # 15
FIGURE 2
State Bank of
India (16.3%)
Today banks have started looking beyond the concept of social banking towards
corporate and retail banking. They are leveraging the technology for the development
of innovative products for distribution through innovative and new channels. The
major focus areas for the modern day Indian banking industry are:
Retail banking: The Indian banking sector is rapidly shifting its focus from corporate
to retail in the assets side. Banks are competing with one another to provide the full
range of financial services to this segment. With the emergence of a strong Indian
middle class with higher income and willingness to spend for personal gratification,
banks are now seeing them as a profitable segment of the market to be targeted.
16 # ©2008 IDC
Focus on developing alternate channels: The focus on reaching to customers in
the minimum possible time has led the banks to make use of technology as an
enabler that develops various alternate channels for banking. New-age private sector
banks have the dual goal of rapidly increasing their reach to match the network of the
public sector banks and at the same time being more customer-focused and service-
oriented. The traditional mode of servicing the customer was found to be both
expensive and difficult to maintain. With the help of IT, banks have started servicing
the customers through alternate channels, such as ATMs, Net banking, and tele-
banking, which are cost-effective in the longer run and make processes efficient and
quick. Banks are going even to the extent of discouraging branch banking and
encouraging the customers to use the electronic channels.
Mergers and acquisitions: The merger and acquisition wave is hitting the Indian
banking industry like never before. It is expected to gain further momentum, as
managements will strive to meet the expectations of stakeholders. This could see the
emergence of four to five world-class Indian banks. The Indian banking industry could
very well transform from a host of many small banks to the home of few large banks.
Seeing the 2009, entry of MNC banks in India, the consolidation by the smaller banks
to compete against the larger banks is forecasted to start taking shape by 2010.
Rigorous following of the Know Your Customer norm: In India "Know Your
Customer" rules have been in place for a very long time. There are specific directions
for obtaining proper introduction while opening deposit accounts. Today, with the
realization of the benefits that it can bring, the banks have started to adhere to these
norms. This not only helps them minimize many thefts and security breaches, but also
provides them with the valuable information about their customers. They are utilizing
such information for business intelligence and analytics to understand the needs and
requirements of their customers. This is ultimately helping the banks in selling many
more products to customers than what they would normally buy.
Sharing and outsourcing of ATMs: The ATM industry has radically evolved from
the being the quintessential cash dispenser to facilitating a wide spectrum of financial
operations. ATMs are by far the largest investment made in the electronic self-service
segment. But ATMs are expensive to own and operate, especially for banks with a
limited branch network and human capital already stretched to capacity. Banks have
been struggling to balance the demands of increasing customer care touch points
while reducing the cost to serve and maintain them. In particular, ATMs continue to
be an extremely important customer touch point to banks, but also represent a
significant cost. This cost includes ongoing expenses due to servicing, monitoring,
rent, and other operational costs, as well as capital investment in the ATMs
themselves. Managing ATMs is becoming an increasingly complex task with each
passing day with advanced services being offered. Banks have realized that the value
of the ATM is not in its ownership, but in its ability to provide customers with
convenient access to their bank accounts. This has been one of the reasons for
bankers to let external vendors handle the ATM channel. Banks generally do not
consider ATM management a part of their core business as they do not have the core
expertise in that. They would rather focus on customers than on managing the ATM
network. That is why they prefer to outsource ATM related services.
©2008 IDC # 17
Rural initiatives: Private sector banks are fast penetrating the rural and semi-urban
sectors and the rural customers are being lured by new products, services and
techniques adopted by these banks. Indian banks, especially the PSU banks, are
focusing mainly on rural expansion. Banks are eyeing tier-II and tier-III cities as
immediate expansion areas. Also farm lending and micro-financing are two major
avenues through which banks intend to give strength to their rural initiatives.
TABLE 3
Terminology Activities
Mobile Financial Information Balance enquiries, statement requests, credit card information,
branches and ATM locations, stock market quotes and reports
18 # ©2008 IDC
contain either an instruction, for example, to carry out a transaction, or an information
request, such as for the account status. Mobile banking applications are gaining
popularity among banks in India and are spreading rapidly.
Indian banking stands at the threshold of a mega change in the next five years. Many
new situations as compared to the present scenario are predicted to emerge. India
will not just see the emergence of a few global banks but will also be witness to large-
scale consolidation by the smaller banks to counter the competition from large banks
as we move closer to 2009-10 scenario. The vast potential of Indian banking industry
lies on:
Untapped rural markets: Huge potentials lie untapped in the rural areas where the
banking habits are yet to develop to the potential levels. India, being home to large
rural and semi-urban population, offers exponential opportunities for the banking
sector in the rural economy. With the aid of technology, the banks are developing
alternate channels like mobile ATMs to explore the same and we expect to witness
huge thrust on the same in the next five years.
Technology: With the advent of newer technologies, the banks in India are able to
offer better and bundled products to satisfy varying requirements of wide range of
customers. ICT solutions have enabled them to offer “anywhere, anytime” customer
services to be able to become more productive and competing with the foreign banks.
Changing customer habits: Indian consumers are able to save more and are also
developing the habit of banking. They no longer prefer to keep their savings with
them, but are rather more receptive to the offerings by the banks (especially the
private and the newer players in the market).
Thus there is a long way for the Indian banking industry to travel on the back of
changing demographics and the advent of information technology. But the scope is
very much there to be explored.
©2008 IDC # 19
licensing. But for others, this could be the dictate of the regulator and they may not
welcome such changes in the Indian banking industry.
Majority of funding goes to the least productive parts of the economy: India's financial
system channels only a minority of the savings it does capture to the most productive
parts of the economy. And on top of that the unorganized lending takes away the
cream away from the Indian banking industry.
Soaring Inflation: The sudden rise in the Indian inflation, upto 11.98% for end of July
2008, has made the RBI to increase the interest rates to curb the money supply in the
economy. This has made a big dent in the business of the banks, with the number of
loans taken reducing by more than 10%. With the inflationary trends not looking to
slow down, the banks would have to manage the high interest rates vis-à-vis the
business opportunities.
Beyond 2009: With the dawn of year 2009, the Indian banking industry will be all set
to transform rapidly and in a totally different manner. That will be the time when the
foreign banks will be allowed to set up fully owned subsidiaries in India and the public
sector banks will face immense competition from the foreign banks. Foreign banks
will be treated the same as Indian banks after that and it will be up to the Indian public
sector banks to match the pace of the foreign banks, or risk losing their market share
to them. Though RBI is talking of extending the timeframe, but nothing concrete has
come up yet. Seeing that the competition will intensify, the Indian banks have already
started making their plans to combat this competition. Their main focus is to carve out
a niche for themselves by 2009 (either by innovative products or through newer
distribution channels or both), so that their operations are not affected by the entry of
foreign banks. For this they are investing heavily in technology and are looking to
leverage the technological benefits to match the foreign banks. In addition, Indian
banks may consider the consolidation route to combat the large and technologically
advanced foreign banks, but it is not on the radar before 2010.
Financial exclusion: Today the banking industry finds that the phenomenon of
financial exclusion has made deep inroads in the Indian market, especially the rural
markets. Only around 31% of the rural population has access to the banking system.
The common roadblocks to financial inclusion (delivery of financial services at an
affordable cost to vast sections of disadvantaged and low-income groups) among the
rural people are fear of temptation (getting into the habit of debts), fear of failure (one
might not be able to cope with the banking structure), fear of technology (one might
not be able to use the latest technology and gadgets that the banking system has on
offer) and fear of banks (environment and staff). Thus the challenge for the banks lies
in changing the mindset of the people and in making banking easy and convenient for
them. Though the banks have started talking about Financial Inclusion, but the
practical achievement of the same is still a far distant dream.
20 # ©2008 IDC
FIGURE 3
No Savings
No Assets No Insurance
Financial
Exclusion
No Bank account No Access to
Financial Consulting
No Affordable Credit
Small sizing of the Indian banks: One area seen as a potential constraint, going
forward, is the small size of the Indian banks, judged by the international scale. This
is limiting the bans’ ability to fund mega projects, achieve economy tech-spend, raise
cost-effective capital, and provide the capability to offer full range of products at the
right price.
©2008 IDC # 21
Role of Information Technology in the Sector
Core-banking: While the core-banking has been widely adopted in the Indian
banking industry; the smaller and regional players are yet to be through with their
core banking implementation. Especially the rural branched are yet to be migrated to
the core-banking applications from a stand-alone scenario at present. Analyzing the
present stage of implementation, it is forecasted that the complete migration would
take another two year framework, wherein the efforts by the smaller banks would be
the key to 100% core banking.
CRM: Managing customers is one of the main issues that banks face in today's
hyper-competitive environment. The customer is very likely to take his business
elsewhere if the service levels are not up to his expectations. This is where CRM
practices and software (on the technology side) play an important role. In banking,
being the first-to-market alone is not enough since products can be copied very fast. It
is the customer service level that matters. This is where CRM techniques and tools
come into place. While the foremost part of CRM strategy is all about treating the
customer right, the longer term objective lies in identifying the hidden needs of the
targeted customers. Increasingly, the banks in India are going ahead with CRM with
key interest; with larger players already in process of implementing the same the
smaller to follow in another year.
22 # ©2008 IDC
Internet and mobile banking: In the last couple of years, banking has acquired a
new dimension. As global connectivity increases and more people travel, the need for
banks to be accessible across any part of the globe has increased. And the best way
to achieve that is through Internet banking. Today more banks are shifting their focus
from traditional branch banking to providing all the banking services online and further
to mobile banking. The concept of internet banking has not only found great
acceptance among the bankers but it is also finding increased acceptance among the
masses. The next initiative which the banks are looking at, after Internet banking, is
towards the mobile banking. They are tying with telecom majors to provide various
financial services through the mobile devices of the customers.
Storage: Storage is an ever-increasing proposition for the banks. The very nature of
financial data involves a large amount of information generated by each and every
transaction. Along with this, the RBI has made it mandatory for the banks and
financial institutions to store the data and records of financial transactions that have
taken place over the past seven years. Also with the advent of Right to Information,
the banks are storing data for more than 12 years of records. This has created a huge
demand for the storage deices and solutions among the banks in India.
Maintaining uptime: A bank also needs to distinguish between uptime and downtime
for critical systems and services. When a solution provides a bank of network
availability at 99.7% uptime through the year, this translates into a downtime of
approximately three to five days. However, banks would probably find it unacceptable
to be crippled for that much time at a stretch because of a network failure. Thus the
banks are investing heavily in techniques and solutions, which would help them in
maintaining the uptime at an uninterrupted level. Also with Internet and mobile
banking making greater inroads into the Indian banking scenario, the need for
maintaining uptime has gaining huge importance vis-à-vis any other priority area.
The banking system of tomorrow that will evolve with the help of IT will be transparent
in its dealings and adopt global best practices in accounting and disclosures driven by
the motto of value enhancement for all stakeholders. Technology solutions would
make flow of information much faster, more accurate and enable quicker analysis of
data received. This would make the decision making process faster and more
efficient. For the banks, this would also enable development of appraisal and
monitoring tools which would make credit management much more effective. The
result would be a definite reduction in transaction costs, the benefits of which would
be shared between banks and customers.
Conclusion
Despite the radical new trends emerging, banks will continue to play their role as
trust-enablers in all commercial activities. Their role as financial intermediaries and
payment enablers will also continue, but they will and are be outsourcing all non-core
activities to specialized service providers and in-source opportunities where they have
a saleable value proposition. The transfer of money will not generate profits; it will,
however, be the basis of other services that banks will provide. Also the level of
integration that banks achieve with their customers supply chain will determine
profitability.
©2008 IDC # 23
Armed with a technology backbone, banking will remain the business model for
managing liquidity, creating trust, and managing risk. The ability to make informed
decisions based on business benefits, to become intelligent investors in technology,
and seek sourcing options would be some the tenets of successful banks in India.
With a billion-plus population, of which NCAER survey estimates 150 million are the
consuming class and another 275 million are the climbing middle class, India is one of
the world’s largest markets for insurance today. From a present value of US$ 45,236
million, the Indian insurance will be a US$ 92,000 million market in 2012. The Indian
insurance industry grew by 43.34% in 2006-07 vis-à-vis 2005-06, when it clocked
US$ 31,58 million. Prime contributor to such a high growth has been the premium
underwritten by life insurers, which grew by 47.38% year-on-year in 2006-07 as
against a growth of 27.78% in 2005-06. The life insurance sector contributed 86.2%
to the total market by garnering US$ 39,010 million market in 2006-07, with general
insurance contributing US$ 6,225 millions.
Indian insurance industry is classified into three broad categories by the Insurance
Regulatory and Development Authority (IRDA), which implies that separate operating
licenses are needed for a company to operate these three types of services
Life insurance
Re-insurance
The life insurance business can be further sub-classified into three categories
Bancassurance
The non-life or general insurance can be further sub-classified into six major
categories
Motor
Marine
24 # ©2008 IDC
Fire
Engineering
Aviation
Health, and
Miscellaneous
The figure next provides a structural overview of the Indian insurance industry.
FIGURE 4
Insurance Industry
Bancassurance Fire
Agency Motor
Group Marine
Aviation
Health
Others
To begin with, the insurance sector in India was only loosely regulated, with only the
Indian Companies Act (1866) being applicable to it. In 1912, two sets of legislations
©2008 IDC # 25
were passed targeted at insurance sector for the first time in the history of Indian
insurance. These laws were meant for only Indian insurers and did not cover the
general insurance business. Comprehensive insurance legislation covering both life
and non-life insurance came in 26 years when the Insurance Act 1938 was put in
place and clearly defined what comprised life insurance and non life insurance. After
nationalization of life and general insurance in 1956 and 1972 respectively, the Act
lost its importance. The privatization of insurance in 1999-2000 prompted by the
passing of the Insurance Regulatory and Development Authority Act brought the
sector back to the fore. The act repealed the monopoly conferred to the Life
Insurance Corporation (LIC) in 1956 and General Insurance Corporation (GIC) in
1972 and created an authority called the Insurance Regulatory and Development
Authority (IRDA) to grant new licenses to private sector players, protect the interest of
holders of insurance policies and to ensure orderly growth of insurance sector in
India. The IRDA separated life, non-life and reinsurance businesses, requiring
companies to have separate licenses and capital for each.
The important milestones in the evolution of the Indian insurance sector are
summarized below in the form of a table.
TABLE 4
Year Milestone
1938 Establishment of Insurance Act: Comprehensive Act to regulate insurance business in India
1956 Nationalization of Life insurance business in India with a monopoly awarded to Life Insurance Corporation of
India
1972 Nationalization of General Insurance business in India with the formation of a holding company General
Insurance Company
1997 The government gives greater autonomy to Life Insurance Corporation, General Insurance Corporation and
its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at
channeling funds to the infrastructure sector
1998 The cabinet decides to allow 40% foreign equity in private insurance companies-26% to foreign companies
and 14% to Non-resident Indians and Foreign Institutional Investors (FIIs)
1999 Standing committee headed by Murali Deora decides that foreign equity in private insurance should be limited
to 26%. The IRA bill is renamed the Insurance Regulatory and Development Authority Bill
2000 President gives assent to the Insurance Regulatory and Development Authority Bill
26 # ©2008 IDC
Reforms in the Sector
The Government has taken many proactive steps to give a boost to the insurance
sector in India:
Also the states in India are aggressively offering public health insurance schemes to
their rural poor, a host of private players are rushing with their offerings, sensing huge
opportunity in this segment. The Karnataka Government has partnered with the
private sector to provide coverage at a low cost in the Yeshaswini Insurance scheme.
Launched in 2002, the scheme provides coverage for major surgical operations,
including those pertaining to pre-existing conditions, to Indian farmers who previously
had no access to insurance.
Several new players have entered the Indian insurance sector in the last few years.
Life insurance has a total of 19 players, with the only public sector player Life
Insurance Corporation (LIC). Among the private players, international companies like
Aviva, MetLife, New York Life, Prudential, Allianz, Sun Life, AIG and Standard Life
are present through joint ventures with Indian companies.
In the general insurance sector, there are a total of 17 players. Of these, 6 are public
sector players and the rest are private players. Private players accounted for 34% of
the market in 2006-07. Joint ventures between foreign players and Indian companies
are dominant here as well.
Of the total 19 general insurers, two are specialized ones. The Agricultural Insurance
Company handles the crop insurance business and the Export Credit Guarantee
Corporation only transacts export credit insurance. The General Insurance
Corporation of India is the only re-insurer operating in India.
Foreign companies are allowed to enter the industry in collaboration with domestic
players only. Currently there is a 26% FDI cap on foreign participation. Although the
government had, in the 2004–2005 budget, proposed hiking the FDI limit to 49%, the
proposal has not been implemented so far.
The tables and figues next aptly represent players' overview of the Indian insurance
industry.
©2008 IDC # 27
TABLE 5
Source: Insurance Regulatory and Development Authority and IDC India, 2008
TABLE 6
28 # ©2008 IDC
TABLE 6
Source: Insurance Regulatory and Development Authority and IDC India, 2008
©2008 IDC # 29
FIGURE 5
2005-06
General (16.1%)
Life (83.9%)
2006-07
General (13.8%)
Life (86.2%)
Source: Insurance Regulatory and Development Authority and IDC India, 2008
30 # ©2008 IDC
FIGURE 6
2005-06
Private (14.2%)
Public (85.8%)
2006-07
Private (18.1%)
Public (81.9%)
Source: Insurance Regulatory and Development Authority and IDC India, 2008
©2008 IDC # 31
FIGURE 7
2005-06
Private (26.3%)
Public (73.7%)
2006-07
Private (34.7%)
Public (65.3%)
Source: Insurance Regulatory and Development Authority and IDC India, 2008
Influx of new players: Growing premiums are attracting the new players, especially
foreign companies. The share of foreign insurers in other competing Asian markets is
not more than 5-10%. In India, the market share of the private insurers was around
20.37% in 2006-07 as compared to 79.63% share of public sector insurers. However,
since private players had only 16.19% share in 2005-06, the market share of private
players is rising at a fast pace.
32 # ©2008 IDC
In 2008-09, two new players joined the life insurance segment and 1 new player
came in the general segment. In life insurance, Aegon Religare Life Insurance
Company Ltd and DLF Pramerica Life Insurance Company Ltd are the two new
entrants, whereas in general insurance, the new entrant is Bharti Axa General
Insurance Company Ltd. From an industry that had only two players in the year 2000,
the strength of 19 life and 17 non-life insurance players speaks of phenomenal
growth.
Forays into newer markets: The corporate segment is no longer a growth area for
insurance companies due to sufficient penetration therein. Companies are already
looking to stimulate demand in areas that are currently not served at all. Insurance
companies are aggressively establishing an extensive agent network for sale of
insurance products in the rural and semi-urban areas of the country. Agents are
creating awareness, motivating purchase and rendering insurance services in their
respective areas. Rural markets being relatively unexplored, insurers are exploring
the needs of specific rural groups and trying to develop products for them.
Product innovation: With the changes in demographics and lifestyles, the demand
for insurance cover has also evolved and policyholders are looking for
packaged/bundled products. Companies have been innovative in the types of
products being marketed to people of different age groups and income groups. Today
a variety of products are available, ranging from traditional to unit-linked, providing
protection towards child, endowment, capital guarantee, pension, and group
solutions. A number of new products have been introduced in the life segment.
Comprehensive packaged products have been popularized with features of
endowment, money back, whole life, single premium, regular premium, rebate in
premium for higher sum assured, premium mode rebate, and others, together with
riders to the base products.
©2008 IDC # 33
Use of technology: In a competitive environment, insurers are using technology to
get an edge over their competitors. In the years ahead, the battle of insurance will be
fought on the effective deployment and usage of the technological tools and solutions.
Technology is playing an increasing role in aiding design of products, in creating new
distribution channels and in managing customer relationships. Data collection,
analysis and management is also a critical technology area for insurance to
understand the changing consumer dynamics.
CRM: Attracting new customers and retaining the old customers is a key challenge
for insurance companies. Therefore, companies are investing heavily in CRM tools,
which are used to analyze customer data. In general, public sector players are able to
retain customers much better owing to their long existence in the market. Private
insurers are now using tools like data warehousing, business intelligence, knowledge
management and CRM to increase customer retention by understanding their latent
needs and offer products of choice, variety and convenience. The IT spend on such
tools is going to form a major part of the total IT spend by the insurance companies in
India.
Moving ahead, the key factors that will lead to the growth of the Indian insurance
industry are:
Increase in income: The increasing per capita income of Indians is playing a critical
role in the growing insurance industry. With more incomes being at the disposal of the
people, the insurance is gradually moving from the tag of tax saver to the saving
instrument.
Untapped Markets: The markets like rural and semi-urban are yet to come up to the
terms of insurance potential. There is huge population untapped in these cities, with
variant insurance needs in existence. India, also along with its huge middle-class
households and growing economy has exhibited huge potential for the insurance
sector. As per the current estimates, for every 1% increase in the GDP, insurance
premiums increase by around 4%.
The insurance industry in India has been growing between 30-40% but it lags behind
its global counterparts primarily due to:
Low awareness and penetration level: Low penetration level coupled with low
awareness about the insurance product is a major hurdle for all insurers who are
trying to grab a pie in insurance market. Insurance in India is only 3.6% of the national
GDP opposed to the world average of 7.52%. Before the industry was deregulated,
34 # ©2008 IDC
state owned LIC was enjoying monopolies situation and did not need to worked to
generate awareness about insurance products and their benefits. Now in a
deregulated environment, all the players are contesting to grab a pie of the emerging
strong middle class market. At the same time insurers are also facing a tough time in
penetrating the rural market, which constitutes more than 50% of Indian population.
Thus they have started putting a lot of emphasis on the awareness and marketing
campaigns to generate awareness among the masses and develop a positive attitude
towards insurance, especially among the rural folks.
Distribution complexity: Traditionally, the players have sold products using tied
agents and an in-house sales force. The majority of private sector insurers also
adopted this approach in the initial years of operation, but this meant that after a
while, the less aggressive ones saw their sources and contacts dry up, and growth in
the sale of new policies decreased and they were unable to expand the market.
In such scenario, it became important for insurers, both state owned and private to
expand their market beyond the obvious existing urban market to newer markets. The
new trend is for insurers to set up branch/satellite offices, which has brought forth the
challenges of managing operational efficiency and customer service. The emergence
of bancassurance has been one of the most significant developments in the
distribution of Insurance products through bank network. Currently, most of the
insurers have entered or are planning to enter into agreement with leading banks.
The advent of the e-economy has also radically changed the distribution strategy of
insurance products. The key value chain challenges for thew Indian insurance are
presented in the figure next.
FIGURE 8
Long cycle times Low agency Manual and rigid Poor response Loss leakage and
retention processes times poor benefit
State specific disbursement
regulations Low persistency Longer cycle time Lack of single
for application customer view Long cycle time
Lack of long term / processing for claim processing
enterprise vision and customer
across product Poor quality of dissatisfaction
portfolio application
processing
Old, inefficient, standalone systems and inflexible enterprise architecture are contributing to the increased costs of
operations and lack of organization agility
Diverted use: In India, many people use insurance as a tax saving device rather than
as a financial security for themselves or their family against any calamity. Added to
this the new players don’t enjoy the trust that the public sector units have gained due
to years of presence, wider distribution reach and government patronage. New
players are trying hard to build their brand as well as trying to find specialty areas to
bring about differentiation in their offerings.
©2008 IDC # 35
Legislation: A strict regulatory framework laid down by the IRDA for the
security/privacy of customers, increased compliance cost has become a major
challenge for insurers today. Also, there have been concerns raised by the experts
regarding the time taken by IRDA in giving approval for new product development.
The FDI cap of 26% has also become a matter of concern for the foreign insurance
companies looking to invest in the Indian insurance markets. The industry is seeking
more liberalization and is working in close consultation with IRDA regarding these.
Credibility and brand building: The new private players are trying to build credibility
in the face of the long presence of public sector insurers. Customers are therefore
exposed to aggressive marketing and brand building strategies by the insurers, which
often present a confusing scenario. However, strong campaigns are characteristic of
competitive and growing markets and is a positive sign in the context of insurance.
Lack of capital: The insurance business, by its very nature, is capital intensive and
needs heavy investment in its early days of operations. Due to a cap of 26% on FDI,
all the new players with a foreign partner are facing a tough time in raising the much-
needed capital for their survival and business expansion.
Longer lead time for policy issuance, reporting and claim settlement
Transaction processing
Knowledge management
36 # ©2008 IDC
Customer management
Distribution channel
Data warehousing: Profitability in the insurance industry requires the ability to gauge
risks and rewards with a high degree of precision. This dependence on aggregate
statistical analysis has led to the establishment of data warehouses by the insurers. In
recent years, claims analysis has become the most prevalent and the most
successful use of data warehousing in the insurance industry. Companies have
accumulated the data regarding claims or losses for past five to seven years. The
insured party and incident data are being converted into a rich and detailed analytic
resource when combined with the right contextual information.
In fact, a data warehouse can be used in all phases of market identification and
penetration and therefore this is a major area of investment for insurance companies.
Consequently, storage solutions are also widely deployed.
CRM and business intelligence: CRM helps insurers to know their customers better
and bring out products and services to best meet their needs. Insurance companies
maintain a whole array of sales data through data warehousing and by utilizing the
business intelligence tools, they analyze that data to understand the customer
requirements. Data is analyzed to understand needs and develop new products,
analyze consumption patterns and competitor sales data obtained from Websites,
press releases and call centers.
E-enabling of agents: Insurers are focused on making their agents tech savvy and
e-enabled, enabling the micro insurance agents to completely manage their insurance
portfolio and provide them with reporting capabilities. Not only does this facilitate
information exchange with insurer's systems, it provides the insurers with greater
control over their micro insurance practices and allows for closer interaction with their
©2008 IDC # 37
agents in online and offline modes. This end-to-end integration enables the insurance
agents to connect efficiently with their companies.
Next Generation tools: The use of novel technology, like using banks ATMs for
premium collection for insurance companies is becoming common. E-insurance and
online premium collections are also common now.
Web portals dedicated to customers, sales intermediaries, and employees are getting
common these days. Premiums are getting collected through online payment
gateways over the Internet. An online data store at a central level is being established
to make data available to requesting applications for online real-time transactions.
This will provide MIS reports and help insurance companies deploy analytical and
operational CRM.
The next movement is towards the establishment of the payment gateway that works
both ways (for payments and receipts), so that the customers can get their payments
whenever and wherever they require. A document management system is eliminating
the need to reference physical records and is creating the capability of extending
anywhere, anytime service to settle claims and other similar activities by using a
repository of document images. Though the initiative is largely restricted to few large
players only, moving ahead the same can be a norm for all once the payment
mechanisms and transactions become secure and safe.
Conclusion
With the opening up of the insurance industry after the reforms, private sector players
in collaboration with their foreign partners are bringing more professionalism and a
focused approach. Though the insurance industry could play a key role in changing
the economic landscape of the country, its success will depend upon meeting the
rising expectations of the consumer who will continue to dictate terms in a de-
regulated insurance sector. Insurers are constantly re-inventing business strategies
and deploying technology to support new sales and customer retention measures.
Information technology like data warehousing, CRM, MIS, and business intelligence,
among others, will continue to play a major role in the evolution of the insurance
industry in India; as it has moved from a status of cost-centre to a facilitator.
38 # ©2008 IDC
THE INDIAN MANUFACTURING SECTOR
The manufacturing revolution has been well underway in the Indian economy, spurred
on by the increasing presence of multinationals, scaling up of operations by the
domestic companies and expanding domestic market. The sector has been averaging
9% in the last four years (2004-08), with a record 12.3% in 2006-07. The growth rate
of manufacturing sector in a country truly reflects its economic potentiality. Most of the
developed countries are strong enough in their manufacturing sector. In India, though
the manufacturing sector is growing at a fast pace (8.8%) still it has failed to some
extent with regards to its percentage share in the total GDP (which is hovering around
27%).
India's vast domestic market and availability of low-cost workers with advanced
technical skills has been instrumental in attracting the ever expanding number of
multinationals who are setting up their manufacturing base in the country. The sheer
size of the Indian market has obvious appeal. The rapid growth of the Indian economy
is likely to make India the fifth largest consumer market in the world by 2025 from
twelfth in 2005. Along with this India offers abundant engineering and technical
manpower, producing annually about 400,000 graduate engineers. Significantly, the
technical workforce is set cross the two million mark this year, with the march from
one million to two million happening in just about three years.
Indian manufacturers, with the tremendous expertise gained in the domestic market,
are spreading their wings to reach out to global markets. Indian corporates have been
busy taking aggressive steps through both acquisitions and Greenfield investments
abroad. All these initiatives are likely to boost brand India in the global arena.
©2008 IDC # 39
supply chain management, collaborative designing and increasing employee
productivity. Moving ahead on the back of IT, the manufacturing sector can revamp
itself to double digit growth rate and a more than 35% contribution to GDP in the
years to come.
Around the world the automotive industry is undergoing a sea-change, and the global
market is becoming highly competitive and dynamic. There is an increasing demand
for cost and weight reduction, fuel economy and reduction in time to market on one
hand, and ever-increasing demands towards assuring improved occupant safety
besides the pressure from environmental regulations on the other.
The automobile Industry in India is growing at a very high rate with more than one
million passenger vehicle sales and 6 million two-wheeler sales per year. More and
more foreign manufacturers are coming in, and the companies present are releasing
new models. The industry today is fairly well developed and experiencing an
unprecedented boom in demand for all types of vehicles. Though there have been
concerns in regards the inflationary trends and the rising fuel prices, but the industry
is still optimistic on account of
The industry is providing direct and indirect employment to more than 1.31 crore
people. The sector accounted for US$ 34,000 million in 2007, growing at more than
10% over 2006. It is forecast to grow to US$ 117,600 million by 2012, growing at a
CAGR of 28.2% for 2007-12. The contribution of the automotive industry to GDP has
risen from 2.77% in 1993 to 5% in 2007. The industry is also making a contribution of
17% to the indirect taxes for the government of India. The automobile exports grew
from 4,850 in 2006 to 5,930 in 2007, thus registering a growth of 22.3%.
40 # ©2008 IDC
The figure next provides an overview of the segmental overview of the Indian
automobile industry for 2006 and 2007.
FIGURE 9
Commercial 2006
Vehicles (2.7%)
Three Wheelers
(3.3%)
Passenger Cars
(14.0%)
Two Wheelers
(80.0%)
2007
Commercial
Vehicles (4.7%)
Three Wheelers
(4.9%)
Passenger Cars
(14.2%)
Two Wheelers
(76.2%)
The automotive sector has always been an important driver in the economy. In India
its genesis can be traced back to the 1940s, with distinct growth decades starting in
the 1970s. Between 1970 and 1984 cars were considered a luxury product;
©2008 IDC # 41
manufacturing was licensed, expansion was restricted; there were quantitative
restrictions (QR) on imports and a tariff structure designed to restrict the market.
Until 1982 only three manufacturers -- Hindustan Motors, Premier Automobiles and
Standard Motors -- were present in the automobile sector. However, low volumes
resulted in obsolete technologies and the sector being completely misaligned with the
world industry. Until that time the Indian car market was dominated by two cars, the
Ambassador and the Fiat. This lack of product activity in the Indian market was
mainly due to the Indian government's complex regulatory system that effectively
banned foreign-owned operations. Though the Fiat and Ambassador were
customised to the poor road conditions in India, they were based on a stale design
concept (with outdated features), and were also largely fuel inefficient.
Between 1995 and 2000 several international players entered the market. Advanced
technology was introduced to meet competitive pressures, and environmental and
safety imperatives became the norm. Automobile companies started investing in
service network to support maintenance of on-road vehicles. Auto financing started
emerging as an important driver for the demand.
In 2003, a Core group on Automotive Research and development (CAR) was set up
to identify priority areas for automotive R&D in India. Since then almost all the global
majors have set up their facilities in India, attracted by the surge in the population with
higher purchasing power and strong economic growth. The production of vehicles
increased from 2 million in 1991 by more than five-fold in the present.
This increasing pull of the Indian market coupled with the near stagnant rate of growth
in the markets of the USA, the EU and Japan have worked as a push factor for
shifting of new capacities and capital in the auto industry to India. The increasing
competition in auto companies has not only resulted in increased choices for Indian
consumers at competitive costs, but has also ensured an improvement in productivity
by almost 20% a year in auto industry, taking it to one of the highest in the Indian
manufacturing sector.
The growth curve of Indian auto industry has been on an upswing for the past few
years, with India becoming the fastest growing car market in the world in 2004. Table
next traces the evolution of the automobile industry in India.
42 # ©2008 IDC
TABLE 7
Before 1980s 1980s Early to mid 1990s Mid 1990s to 2000 Post 2000
Manufacturing was Entry of MUL, better Seller’s market and Buyers' market Easy auto finance
licensed product, with long waiting periods
government support
High customs duty on Sellers' market De-licensing in 1993 Increase in QRs removed
import Indigenization
Steep excise duties Long waiting periods Removal of capacity Manufacturers Increased choice to
and sales tax restrictions diversifying into related customers
activities: finance
lease, fleet
management,
insurance and used
car market
Improving capacity
utilization
Increased exports
Indigenously designed
and developed
vehicles
©2008 IDC # 43
safety and ergonomics, the individual players are starting to provide end-to-end
solutions (from sourcing to retailing) on their own.
In the coming years, industry experts expect the advent of green-field areas such as
telematics and embedded systems to result in an integration of customers into the
automotive supply chain. The capture of customer life-cycle and vehicle life-cycle is
transcending from the realms of imagination to reality with new technological
advances. The apt example is the Nano Revolution, which has triggered an era of
low-cost cars in the country. It is a revolutionary innovation promising to deliver a car
to huge segments of the market hitherto unable to afford one because of high prices.
It is the setting in of a period of cars for the masses and the lower strata of the
society. Players like Tata, Bajaj and Maruti have already announced their entry plans
into the segment with the showcasing of their products being done.
The government of India has identified the automotive sector as a key focus area for
improving India’s global competitiveness and achieving high economic growth. This
was visible from the fact that the automobile industry was one of the focus areas of
2008-09 budget. It focused on the manufacturing segment of the automotive industry,
rather than export and R&D. It also provides a number of excise and custom duty
cuts, which would create robust automotive production in India in the future. There
was a proposed reduction of excise duties on small cars from 16% to 12%. The three
and two-wheeler sector, as well as busses and chassis, and hybrid vehicles were also
offered reduction in excise duties.
Abolition of licensing in 1991, coupled with some of the positive structural changes
like 100% FDI have made India a preferred destination for global automobile giants
like Skoda, Daimler Chrysler, Volvo and Toyota.
44 # ©2008 IDC
Auto Policy 2002
The Indian government’s current Auto Policy, 2002, aims to ‘to establish a globally
competitive automotive industry in India and to double its contribution to the economy
by 2010’. The policy looks to achieve value addition, make the industry globally
competitive and a preferred sourcing destination for auto components. It envisages
India as an international hub for manufacturing small, affordable passenger cars and
a key centre for manufacturing tractors and two-wheelers in the world. To this end, it
looks at opening trade, modernising the industry and facilitating indigenous design,
research and development. Additionally, the policy addresses the need for software in
automotive technology, the use of alternate energy sources and creating domestic
safety and environmental standards at par with international standards.
The development council for automobiles and allied industries has drawn up a ten-
year Automotive Mission Plan to make the Indian automotive sector the destination of
choice in Asia for the design and manufacture of automobiles and automotive
components by 2016. This plan is envisaging to double the sector’s contribution to
GDP to 10% and to provide additional employment to 25 million people by 2016 with
a road map to attract US$ 40,000 million investment and sectoral output of US$
145,000 million.
Bharat Norms
©2008 IDC # 45
TABLE 8
Bharat Stage II Euro II NCR and other Introduced in Introduced from Introduced in
metros in 2001; metros, mini- April, 2005 metros: mini-
NCR, other metros, from Sept, metros, from Sept,
metros, 2003 2003
Bangalore,
Hyderabad,
Ahmedabad,
Pune, Surat,
Kanpur and Agra
in 2003;
Nationwide in
2005
Bharat Stage III Euro III NCR, other Introduced from From April, 2008 Introduced from
metros, April, 2005 April, 2005
Bangalore,
Hyderabad,
Ahmedabad,
Pune, Surat,
Kanpur and Agra
in 2005;
nationwide in
2010
Bharat Stage IV Euro IV NCR, other From April, 2010 From April, 2010 From April, 2010
metros,
Bangalore,
Hyderabad,
Ahmedabad,
Pune, Surat,
Kanpur and Agra
in 2010
With the changes in the factory designs and in production processes required to
adhere to these guidelines, the automobile manufacturers are increasingly looking at
the technological solutions that can help them build robust production runs and thus
these norms are in a way increasing the spend on technology by the auto
manufacturers.
46 # ©2008 IDC
Players in the Sector
The table next presents an overview of the key players in various sub-segments of
the Indian automobile industry.
TABLE 9
Player Segments
©2008 IDC # 47
TABLE 9
Player Segments
Low urban and rural penetration of the industry: In the highly price-sensitive
market, reduction of prices because of lower duties and taxes and progressive
indigenisation, are furthering the industry growth rate. Penetration in rural and semi-
48 # ©2008 IDC
urban areas is extremely low and is providing fresh markets to the auto
manufacturers in India.
Outsourcing: Many global automobile makers are increasingly sourcing parts from
India and are also in the process of delegating the important activities like designing
and testing to Indian players. The trend is expected to pick up once the Indian
manufacturers have developed robust in-house technological capabilities (with the
help of ICT solutions) by 2009-10.
Supplier base: The growing supplier base and the consolidation in the auto
component industry has increased the bargaining power of component suppliers.
Manufacturers have also been able to counter that power by diversifying downwards
to source the materials from their own sources. This has helped in maintaining the
balance of the automobile industry and the changes have only made the two
segments more competitive rather than at horns with each other.
Integration: More and more manufacturers are concentrating their efforts for the
integration of their back-end systems (supply chain management), front-end
(customer relationship management) and workflow management (integrating the
back-end and the front-end systems).
Cost efficiency and quality due to global competition: Most of the global majors
are present in the passenger vehicle and two wheeler segments. In the components
industry too, global players are well established, competing with domestic players.
Increase in competition has led to a pressure on margins, and players have become
increasingly cost efficient. Quality levels have gone up, and there is an increasing
focus on compliance to TPM, TQM and Six Sigma processes.
©2008 IDC # 49
Mergers and acquisitions: Mergers and acquisitions are being done in the industry
to synergise expertise in the areas of manufacturing, overseas markets and new
technology.
Anti-theft solutions: With the increased incidence of thefts of vehicles in the Indian
scenario, manufacturers are increasingly coming up with anti-theft solutions attached
with the vehicles that can track vehicles and identify the location of the stolen
vehicles. Though the industry is still in the piloting and developmental phase, hi-tech
solutions will find increased usage in the industry in the next 3-4 years, especially with
the aid of technology like RFID.
In sum, the automotive industry is growing rapidly and the landscape is changing fast.
The relationships between vehicle manufacturers and dealers are getting
strengthened to maintain an unwavering focus on total customer satisfaction and
business profitability.
Low manufacturing costs combined with a robust and growing vendor base for
components, experts believe that India could emerge as a global hub, at least for
small cars (with the Nano Revolution). India auto industry possesses unique
advantages luring the global players to India. These are:
Sustaining the growth rate: The car penetration in India is only 9 cars per 1,000
persons despite the increase in purchasing power at the top echelon of about 300
million people in the country, implies that passenger car growth in the domestic
market is on the verge of a major and sustained boom. It is expected that the
passenger car market can easily cross the 3 million mark by 2015.
Low manufacturing costs: Indian manufacturing costs are around 15-20% less than
that in any other auto industry in the world, mainly due to cheaper and abundant
50 # ©2008 IDC
labor. Higher profitability is attracting major global auto manufacturers, who are
looking to establish their production capabilities in India in the next 2-3 years.
Lack of clearly defined automotive segments: Today, all segments are served in
the same way from the same factories with the same processes and sold through the
same types of dealerships. The automotive industry needs to custom tailor the whole
supply chain from source through the production process to the distribution system.
Recent increase in interest rates: Inflation in the India economy has forced banks
to raise the interest rates on car loans. Inflation coupled with the interest rate hike has
crunched the resources of the people affecting the automobile sales negatively.
Need for innovation: Innovation needs to be on high focus to meet the competition
head on. Shortening of product life-cycles further underlines the need to innovate by
the auto manufacturers in India.
Need for mergers and acquisitions: There is a need for OEMs and component
manufacturers to look at alternative strategies for growth. Acquisitions and alliances
should become an important part of the growth strategy of companies as they seek to
acquire global scale.
Technology needs: Technology will continue to drive the growth and development
of the automotive industry. Huge investments in technology may not be viable for the
small and medium sized companies. Technology and solution providers need to
provide cost competitive offerings.
Oil prices and energy security: Oil prices are rising and appear increasingly
volatile. The rising prices of the fuels have restricted the sales of the vehicles in India.
The family led purchasing is highly effected by the rising prices of crude oil and is
becoming a big worry for the auto manufacturers in India.
©2008 IDC # 51
Rising input costs: Rising prices of the various components used in vehicle
manufacturing are pushing up manufacturing cot and eating up margins of all the
vendors in India. These pressures are coming from two spaces, one from the rising
prices of the various components used in vehicle manufacturing and second the rising
prices of inputs used for the manufacturing of auto components. This double impact
has hit the automobile manufacturers hard and has further squeezed their margins.
Growing competition: These days the experts are very positively discussing the
attractiveness of the Indian automobile industry to the global manufacturers. But one
important aspect that is getting lost is that it means increased competition for the
domestic manufacturers. The global players have latest technology at their disposal,
which makes their position very strong but hits the domestic manufacturers very hard.
To match with the global players they need to invest heavily in the technological
applications.
Managing supplier base: Automobile manufacturers are faced with the challenge of
bargaining against the collaborative power of the suppliers. Manufacturing practices
will have to change considerably to come closer to lean production. Automobile
manufacturers also need to form collaborations to increase their bargaining power
vis-à-vis the suppliers.
Globalise proactively: As automakers move away from the mature Western markets
towards emerging markets in Asia and Eastern Europe, suppliers need to do the
same. Successful suppliers will establish presence in these countries before their
automaker clients move there. Adoption of robust and scalable processes would be a
key prerequisite towards effectively expanding the global footprint.
Poor product quality: Indian suppliers also lag behind in product quality and
consistency. The rejection rates for parts in Japan are well below 100 parts per million
(ppm). Comparatively, rates for Indian OEMs’ average at 2,000-8,000 ppm. Thus to
rise on the global arena, the Indian vehicles need to make a mark for themselves on
account of quality and credibility.
52 # ©2008 IDC
Role of Information Technology in the Sector
Indian automobile companies are moving their focus on the deployment of ERP and
building up the internal infrastructure, to automation of supply chain and customer
relationship management. They are also working closely with dealers to build their
(dealers) infrastructure under the initiative known as dealer management software.
The upcoming technologies in the automotive sector, which could be seen as having
a major impact, are RFID, business intelligence and knowledge management.
Another area that may see major deployment of technology is security. Having so
much of confidential data and being vulnerable to so many attacks, companies are
being forced to adopt security features in their technological deployments.
Inventory management: With the advent of concepts like just-in-time delivery, it has
become essential for auto manufacturers to invest in solutions that help them in better
tracking of their inventory lying at the warehouses and at the dealers. Warehousing
solutions are also finding use in the industry as support for inventory management
solution.
Security solutions: Manufacturers have substantial plans and budgets marked for
the implementation of security solutions and are expected to spend heavily on these
in the coming years. The increasing databases and the need for 100% uptime of the
manufacturing processes is driving the security needs.
©2008 IDC # 53
Product development/designs: With the advent of CAD/CAM technologies, IT has
completely replaced the manual designing of the product. Today all the designing
activities are carried on systems and thus the quality of the designs has also
improved substantially.
IT-enabled integration between suppliers and OEMs: The global supply chain
environment in the automotive industry is fragmented and complex; most supply
chain partners share no common IT systems or file standards. However, as
responsibility for vehicle value shifts to suppliers, the contact points between
suppliers and OEMs become more important than ever and the need for integration
and collaboration grows. To maintain a competitive advantage, companies are
creating an environment that coordinates and shares information between suppliers
and OEMs through the use of ICT platforms.
RFID: Information sharing between suppliers and retailers based on Radio Frequency
Identification/Electronic Product Code (RFID/EPC) technology introduces significant
cost and time efficiencies in the execution of critical programs. The Indian automobile
sector is very keenly looking at the RFID technology for keeping a track of their
products and capturing the consumption pattern of the consumers, but due to the lack
of expertise and high cots of the RFID tags, the manufacturers are still in the pilot
phase to test the applicability of the same.
Product life cycle management: Among product development challenges, the need
for shorter cycle times is always a priority. Management always intends to launch new
models faster, and reduce the time required for minor changes and development of
product variants. Other challenges include streamlining the process of vehicle
localisation and enhancing quality and reliability. These challenges point directly to a
product life cycle management (PLM) solution with capabilities for information
management, process management, knowledge capture and support for global
collaboration. PLM’s information management capabilities address the issue of the
many platforms, local variants and export destinations. It permits concurrent
54 # ©2008 IDC
development and faster change management and provides a platform for other
process improvements for faster vehicle development. Knowledge capture increases
innovation and also reduces costs by increasing part re-use.
Outsourcing: The industry is also seeing increased efforts being made by many
OEMs and tier-I vendors to outsource key activities along the supply chain to logistics
players, in an effort to reduce costs and increase focus on their customers and core
activities. Most OEMs and large tier-I suppliers have already outsourced their
outbound logistics activities, including carrying out the collection and delivery of parts
to OEMs on a daily basis, transferring materials across hubs and
warehousing/inventory management. Key logistics players have started maintaining
warehouses in close proximity to OEMs’ plants, and supplying materials on a JIT
basis.
Just-in-time delivery: Costs, quality and timely delivery continue to be key concerns
for auto manufacturers, driven by increasing competition and pressure on margins.
Many OEMs have implemented Just-in-time (JIT) supplies in their inbound logistics.
However, in cases where this is not accompanied by increased visibility across the
supply chain and improved planning, it has only resulted in the burden of inventory
getting shifted from OEMs to their tier-I vendors. Thus, manufacturers are in the
process of upgrading their JIT solutions and are actively loking at better alternatives
to integrte with their supply chains.
©2008 IDC # 55
environment by investing into such solutions, which ensure 100% uptime and
business continuity.
Conclusion
India, with its rapidly growing middle class, market-oriented stable economy,
availability of trained manpower at competitive cost, fairly well-developed credit and
financing facilities, and local availability of almost all the raw materials at a
competitive cost, has offered itself as a favourite destination for investment to the
auto makers. India is also emerging as an outsourcing hub for global majors.
The outlook for India’s automotive sector is highly promising. In view of current growth
trends and prospect of continuous economic growth of over 8-9%, all segments of the
auto industry are likely to see continued growth. Large infrastructure development
projects in-progress in India, coupled with favourable government policies will also
drive automotive growth in the next few years. Easy availability of finance and
moderate cost of financing facilitated by double-income families will drive sales in the
next few years. In this context, IT will continue to play a major role in helping the
automobile industry to achieve its true potential.
Though the Indian textiles industry is at the crossroads today, with the phasing out of
quota regime on January 1, 2005 and the full integration of the textiles sector in the
WTO, the industry is for a big boom for 2007-2012. It is forecasted to grow at a CAGR
of 17.5% for 2007-2012 to reach US$ 110,000 million by 2012 (US$ 60,000 million of
domestic market and US$ 50,000 million worth of exports).
The Indian textiles industry comprises of varied components, including the hand-spun
and hand-woven sector as well as the capital intensive, sophisticated mill sector at
56 # ©2008 IDC
the other. The decentralized power-looms/hosiery and knitting sectors form the
largest section of the textiles sector.
The textile sector is self-reliant industry, from the production of raw materials to the
delivery of finished products and offers substantial value-addition at each stage of
processing. India has a natural competitive advantage due to a strong and large
multi-fiber base, abundant cheap skilled labor and presence across the entire value
chain of the industry ranging from spinning, weaving, and made-ups to manufacturers
of garments.
India has 22% of the global installed capacity of spindles and is one of the largest
exporters of yarns in the international market. The industry contributes about 25%
share in the world trade of cotton yarn. Indian textile has the highest loomage
(including handlooms) in the world and contributes about 61% to the world loomage.
The major sectors forming part of the textile industry are the organized cotton/man-
made fiber textile mill industry, man-made fiber/filament yarn industry, the
decentralized powerloom sector woolen textile industry, silk industry, handloom
industry, handicraft industry, jute industry and textile exports.
India has a long and rich tradition of producing woven cottons of noteworthy quality,
one it was able to maintain during the reigns of Mughals and British as well. Though
the last sixty years saw some lows, the last decade has seen the convergence in
efforts of industry, government and market forces to improve the sector domestically
and in the global market.
The government has taken up the role of an industry-friendly and pro-active facilitator
identifying the fact that the textile industry has the potential to become a producer and
exporter of textiles, as it is one of the few industries that is self-sufficient in terms of
the supply chain.
The emergence of large retail formats is today complementing the existing channels
of distribution, which consist of wholesalers, distributors and retailers. Raw material
sectors, ginning facilities, spinning and extrusion processes, processing sector,
weaving and knitting factories and garment (and other stitched and non-stitched)
manufacturing are all part of the supply chain. Agents who secure orders for
producers have a strong presence. Exports are executed through export houses or
procurement/commissioning offices of large global apparel retailers.
The textile industry in our country is one of the few industries in the country that has
the potential to emerge as a true global player. Today the world is looking up to the
Indian textile industry to deliver its goods using technologies used and developed
elsewhere be it the USA or Japan or Hong Kong. India has an untapped potential to
become a producer as well as exporter of textiles.
©2008 IDC # 57
Reforms in the Sector
The policy framework for textiles industry in India is positive and forward-looking.
Before the 1990s, policies were focused on traditional concepts and driven by the
need to protect Indian players in the global market and the need to develop the small-
scale sector. Cotton textiles were given the maximum importance and small-scale
powerlooms were given favourable fiscal treatment over composite mills. Automatic
looms were restricted.
But in the 1990s, the government decided to focus on opening up of the industry for
foreign players and on achieving the economies of scale. Many segments like
readymade garments, knitwear and hosiery were taken off the reserved list for small-
scale industries. Schemes to upgrade technology and modernize mills were
introduced. Multi-fiber, manmade and synthetic fibers were also stressed on in
addition to cotton. Taxation was made simpler and FDI encouraged in infrastructure,
technology, exports and generation of employment and local assets.
Also, statutory bodies like the Jute Manufacturers Development Council, Central Silk
Board and Textiles Committee take up specific aspects of policy making and
implementation.
Public sector undertakings like National Textile Corporation Ltd. (NTC), British India
Corporation Ltd. (BIC), Cotton Corporation Of India Ltd. (CCI), Jute Corporation of
India Ltd. (JCI), Handicrafts and Handlooms Export Corporation (HHEC), Central
Cottage Industries Corporation (CCIC) and National Handloom Development
Corporation (NHDC) play a major role in the manufacturing and promotion of textiles
in the country.
Textiles research associations that render research and consultancy services have
also been set up by the government all across the country. These are the
Ahmedabad Textile Industry Research Association (ATIRA), Bombay Textile
Research Association (BTRA), South India Textile Research Association (SITRA),
Northern India Textile Research Association (NITRA), The Synthetic and Art Silk Mills
Research Association (SASMIRA), Man-made Textile Research Association
58 # ©2008 IDC
(MANTRA), Indian Jute Industry's Research Association (IJIRA) and Wool Research
Association (WRA).
At the outset the textile policies were drawn to provide employment and promote
small-scale units in the sector; but after 1995 policies have been designed to
encourage investments in modern weaving machinery. The removal of the SSI
reservation for woven apparel in 2000 and knitted apparel in 2005 were significant
decisions in promoting setting up of large-scale firms. Government schemes such as
Apparel Parks for Exports (APE) and the Textile Centers Infrastructure Development
Scheme (TCIDS) now provide incentives for establishing manufacturing units in
apparel export zones.
National Textile Policy 2000: The government formulated a National Textile Policy
(NTP) 2000 with the objective of facilitating the industry to attain and sustain a pre-
eminent global standing in the manufacture and export of clothing. A venture capital
fund was set up for tapping knowledge-based entrepreneurs and assisting the private
sector to set up specialized financial arrangements to fund the diverse needs of the
textile industry. In addition to helping the textile industry reach global standards, the
policy aims to equip the industry to tolerate import penetration pressures while
keeping the dominant position. The policy also intended to liberalize controls and
regulations, build conformity to environmental standards and encourage FDI and R&D
in the sector. On the manufacturing front, the policy looked at building a strong multi-
fiber base and focused on product upgradation and diversification, while
strengthening traditional knowledge and skills.
FDI Policy: Several international brands are now operating in India after liberalization
of policy. At present, 100% FDI is freely allowed in spinning, weaving, processing,
garments and knitting sector under the automatic route for both new ventures and
existing companies except in cases where industrial license is required on account of
location of such units falling in a restricted area. In respect of such proposals,
government approval is required.
©2008 IDC # 59
Export Promotion Measures
Duty Exemption Pass Book (DEPB) Scheme: DEPB credit rates have been
prescribed for number of textiles and clothing products. The nomenclature and
rates for DEPB entries pertaining to certain textile products have been
rationalized.
Duty Drawback Scheme: To reduce the burden of indirect taxes, exporters are
allowed refund of the excise and import duty suffered on raw materials, etc.
60 # ©2008 IDC
SMEs are emerging s strong players due to enhanced operations and processes. The
industry comprises mainly of small-scale, non-integrated spinning, weaving, finishing
and apparel-making enterprises. There are over 1500 organized spinning units of
significant scale and over 1000 small spinning mills. The key players in the sector are
listed in the table next.
TABLE 10
Player Business
Raymonds Diversified
KG Denim Fabrics
©2008 IDC # 61
TABLE 10
Player Business
Outsourcing from US and Europe: Lower costs of production in India offers foreign
players an advantage and they can post healthy dividends to their investors.
Companies from US and Europe are looking to set up their manufacturing units in
India. This is bringing increased capital investment into the country and the industry is
also getting exposed to the modern techniques.
From January 1, 2005 when quota-based restrictions for textile exports to the United
States and European nations were lifted, and with the Indian government permitting
100% FDI through automatic route, India textiles have entered a new era. During the
three years 2004-05 to 2006-07, investments in the textile sector has increased from
62 # ©2008 IDC
US$ 2,940 million to US$ 7,850 million. The total investments in the textiles sector
were estimated to be US$ 16,320 million during this period. By 2012, investment in
the textiles and clothing industry is estimated to touch US$ 38,140 million. Even the
Government has increased the plan allocation for textiles by 66.27%t in 2007-08 over
that of 2006-07, making it one of the few ministries that have seen such a high level
of increase in budgetary support.
Growth of technical textiles: Technical textiles are materials and products that are
manufactured primarily for their technical and performance properties.
Orientation towards new markets: Good infrastructure, skilled workforce and strong
growth potential have made Central and Eastern Europe attractive to manufacturers
in the wake of EU enlargement.
Rising demand for value added products: Consumers want value-addition and
styling in textile products. Manufacturers are therefore investing in processes and
systems to meet this demand. A renewed interest in traditional Indian textile products
like handicrafts is another factor that has spurred the Indian textile industry in the
recent times.
Retail boom spurs growth: With growing number of malls, many brands and private
labels are now present in the Indian market. The retail boom is expected to reduce
production costs and give a thrust to the decentralized textile industry. The apparel
category will benefit the most, with ready-mades and western outfits seeing maximum
growth in the shelf sales.
Mergers and acquisitions: Joint ventures and strategic alliances with leading world
manufacturers are becoming a norm of the Indian textile industry to the benefit of
consumers, as these companies combine the labor and material advantages of Indian
textile with the technology from foreign players to create competitive products.
©2008 IDC # 63
An emerging textile hub: With many buyers visiting India, the country is emerging
as a hub rather than a sourcing destination only. Indian textile companies are
planning to expand capacity and strengthen their retail presence in India to tap the
huge potential of both export and domestic market. Expatriate and western designers
(from France, Italy, UK) are forming joint ventures with Indian designers to cater to
the domestic and export markets.
Lower costs: With lower raw material costs and labor costs as compared to other
countries, India is a profitable outsourcing hub for global textile brands. For long there
textile industry has been a source of employment for masses in India. It is one of the
most traditional forms of employment for the rural, semi-urban and family driven
businesses. Getting into the textile business used to be quite a popular option earlier,
which has undoubtedly built Indian capacity in textile production. Not only that, since
most of the labor available in the industry is from the rural and semi-urban areas, the
rates at which labor is available in India is highly competitive with those of other
countries.
Raw material stronghold: India produces over 3 million tons of cotton, and it is a
dominant fabric used in 60% of textiles. The woollen industry employs over 1.2 million
people and keeps over 7000 powerlooms busy. India is the second largest producer
of silk in the world, contributing about 18% to global production. Jute provides direct
employment to 260,000 industrial workers and nearly 1 million hectares of land is
under jute cultivation. Thus all the segments of textile industry are equally explored in
India and presents huge opportunity for any player in the sector.
64 # ©2008 IDC
Lower lead times: India is one of the few developing countries today with a fully
developed textile value chain extending from fiber to fabric to garment exports. The
presence of capabilities across the entire value chain within the country is an
advantage as it reduces the lead-time for production and cuts down the intermediate
shipping time. Indian textile firms have leveraged this advantage to integrate their
operations, both forward and backward.
Textile machinery: The Indian textile engineering industry is highly robust and
produces sophisticated machines, enabling Indian textile manufacturers to be
competitive with quality designs in the world.
Volatile prices and export margins: Crude oil prices are volatile, affecting raw
material prices for textiles. Also, a stronger rupee has meant lower profit margins for
the exporters. All this is leading to closure of the mills run on low margins and is
forcing the players to look for certain different avenues of profit.
Semi-skilled workers: About 95% of the textile workers in India are unskilled,
leading to low productivity. Also the low investment being made in their training
multiplies the problem of low skill set among the Indian textile workers.
Poor infrastructure: Poor quality and availability of infrastructure, high tax rates,
high interest rates, delays at ports, high shipping tariffs, and power shortage, are
some of the problems the textile industry faces. These not only hampers the
©2008 IDC # 65
production and distribution process but also increases the price of Indian textiles
making them a tough buy against the international products.
Scale: As most manufacturing units are small in scale, they are unable to get orders
where capacity is needed. With the ambitious targets for Indian textile industry, larger
firms to produce standard products in large volumes are needed.
Lack of market information: Units catering to the domestic market find it difficult to
effectively market their products due to lack of current information on demand.
Similarly, exporters do not get information on market conditions in the foreign
countries because of which they are not able to rightly judge the market sentiments
there and accord as per the market demands.
Lack of innovation and technology drive: The Indian textile industry needs to enter
newer application domains of industrial textiles, nano-textiles, home furnishings etc
for the forecasted growth. The Technology Upgradation Fund of the government is
being used to stimulate investment in new processes, but it has been a slow process.
The industry is also suffering because of very slow technological up gradation. This is
one of the reasons for lower efficiency and productivity in the Indian textile and
clothing industry. Also the quality of Indian products suffers, especially in the
standardized mass production market. With the extensive use of IT globally, it has
allowed firms to know latest fashion trends very quickly. This has enables them to
reduce supply time in meeting new demands. Thus, the Indian exporters need to
prepare themselves to meet very rigid delivery schedules, in the post MFA regime.
The existing Infrastructure in the country is a major bottleneck for promoting exports
from the country. For India to make maximum of the opportunity, roads, ports and
power infrastructure needs to be up graded on immediate basis.
Lack of single authority: While the textile policy framework seems to be more
conducive to the growth of the industry, still many of its internal problems remain.
Probably the most critical one is that of a lack of a single unified trade association
representing the interests of this diverse industry. The textile industry in India has
dozens of regional and local industry associations, often at loggerheads with one
another, and mostly focused on lobbying with the government for reduction in taxes
and other levies.
66 # ©2008 IDC
competitive. Starting with the use of ERP solutions, the textile industry is now using IT
for supply chain management and is considering at CRM deployment as well. The
deployment of knowledge management and business intelligence solutions is also on
rise. The industry is expected to spend substantially on services along with the
building up of its hardware requirements. The Ministry of Textiles has supported IT
adoption in the sector since 1997. In fact, in 1999 several initiatives including a
conference-cum-exhibition were organized to promote awareness about IT. Other
services like the use of MIS for RTI and web-enabled systems to monitor grant-in-aid
schemes are being implemented by the ministry.
MIS: Managers take decisions related to demand, supply and consumption patterns
of the consumers. An MIS system manages vast amounts of information and makes it
available to managers helping them in their decision making process. Textile
companies are leveraging IT solutions for online generation of the MIS reports, real-
time delivery, and to capturing information related to various systems in the
organization. They are looking to smoothen their operations with the help of IT
enabled MIS and decision process.
ERP: ERP systems enhance information flow through various business processes
such as production, sales, inventory planning and finance, resulting on improved on-
time delivery, reduced purchasing cost, reduced inventory, reduced wastage and
better client relationship. Many medium and large Indian textile manufacturers have
implemented ERP systems. Specialized ERP solutions for the textile sector make
commercial sense for textile firms planning to modernize operations. The most
preferred solutions are for the procurement, production, sales, accounting and human
resource management.
Portals: Interactive web portal are used effectively by textile companies to market
their products. Thus they are earmarking a substantial portion of their IT spending for
the development of their web portals. The portals of the textile manufacturers and
exporters are at present very under-developed and are going to see major
happenings in the sector during 2009.
RFID: Many fashion apparel/textile companies are in the process of streamlining their
supply chain and optimizing sales forecasts and distribution. After experimenting with
sales force automation, they have zeroed in on RFID as an appropriate technology to
impact customer satisfaction and revenues. RFID systems and tags for end-to-end
item-level tracking automate labor-intensive processes, authenticates and safeguards
goods, and enables real-time inventory and asset visibility. While manufacturers with
their own outlets are adopting RFID, small and medium manufacturers are expected
to do so only around 2011-12.
©2008 IDC # 67
Modernized production of cotton: Fully automated process of cotton production is
an area where all the manufacturers whether small or big have concentrated a lot and
are leveraging the IT in a very efficient manner to increase their productivity.
E-fitting of the readymade garments: Apparel firms are using various computer
software in order to offer perfect fit and designs appropriate to individuals, so that
customized clothing can be done with ease and without much expense. The latest
innovation in e-fit is through the medium of 3D body scanning. It is the process of
getting proper fitted clothes by feeding the details of body measurements in the
computer and then generating the details of the garments from the entire store that
could fit the measurements. This is economical not only in terms of time but also in
terms of efforts to be made in searching the best fitted clothes.
SCM: Global partners in the clothing supply chain are exchanging information
electronically, thus the need for Indian clothing industry to spruce up has come up
very strongly. Textile supply chain has been highly influenced by five important
features of information technology; information integration, planning synchronization,
workflow coordination, inventory management and new business models. It has also
come across that these IT applications facilitate the execution of several theories of
supply chain management, like constant refilling, vendor administered refilling,
planned postponement etc. Supply chain management includes sourcing, procuring,
converting, and all the logistic activities. It seeks to increase the transaction speed by
exchanging data in real-time, reduce inventory, and increased sales volume by
fulfilling customer requirements more efficiently and effectively.
The deployment of the CPD across the entire value chain is a complex task and most
of the companies are only in the piloting phase at present.
68 # ©2008 IDC
Conclusion
India is poised to be a winner in the textile manufacturing, especially after the removal
of the quotas. With increased globalization, supply chain management and
information technology are becoming crucial in apparel manufacturing. Global
partners in the clothing supply chain are exchanging information electronically
Upcoming technologies for mass customization like three-dimensional non-contact
body measurement and digital printing are changing the industry dynamics
completely. Thus to sustain a high growth rate, the players in the Indian textile sector
are deploying latest ICT technology / solutions, increasing investments in innovation,
infrastructure improvements, and research and development to match the changing
market demands and remain competent at the global arena.
Driving economy growth, raising the quality of life, creating employment for around 3
million people, and supporting the penetration of technology, FMCG forms a
formidable part of the Indian economy. The sector is fraught with competition between
the unorganized and organized segments, has low operational costs, has a well-
established distribution network, and has a substantial MNC presence. India has a
competitive edge in the sector because of the availability of key raw materials,
cheaper labor costs and a presence across the entire value chain.
The Indian FMCG market is slated for a double-digit growth. The sector is looking to
achieve a turnover of US$ 33,400 million by 2015 and a turnover of US$ 27,520
million by 2012, from the current level of US$ 16,000 million in 2007 (CAGR of
11.5%). The burgeoning Indian population, particularly the middle class and the rural
segments, presents an opportunity to the makers of branded products to convert
consumers to branded products. Growth is also likely to come from consumer
'upgrading' in the matured product categories. With 200 million people expected to
shift to processed and packaged food by 2011-12, India needs around US$ 28,000
million of investment in the food-processing industry alone.
©2008 IDC # 69
FIGURE 10
Consumer Durable
(7.0%) Footwear (2.0%)
Entertainment
(2.0%)
Others (32.0%)
Accessories
(1.0%)
Personal Care
Items (8.0%) Grocery (40.0%)
Even though the FMCG industry has a long history, it began to take shape only during
the last fifty-odd years. In fact, the industry is yet to crystallize in terms of definition
and market size, among others. After all, it is an industry that touches every aspect of
human life, from looks to hygiene to the palate.
The year of 1978: The year 1978 was one when the government earmarked several
product categories for the small-scale sector. MNCs were asked to choose between
slashing their equity stake to 40% or to leave India. IBM and Coca Cola opted for the
latter, while Unilever, in the form of HLL, stayed on. From the 1950s to the 1980s the
investments in the FMCG industry were very limited due to low purchasing power and
the government orientation of the small-scale sector. The focus of the organized
players like HLL was largely urban. However, Nirma’s entry changed the Indian
FMCG landscape. The MNCs woke up to new market realities and acknowledged the
latent rural potential of India. The government’s relaxation of norms also encouraged
these companies to go out for economies of scale in order to make FMCG products
more affordable. Consequently, today soaps and detergents have almost 90%
penetration in India.
70 # ©2008 IDC
The dramatic nineties: The nineties saw economic reforms in the country and this
resulted in some dramatic changes. MNCs, with saturating home-markets, rushed
into the Indian markets. The FMCG players had in front of them not only a vast
untapped market but also a market that was fast growing. Income-levels were rising.
A new class of upwardly mobile was emerging. Television, satellite and cable
television were helping the market to grow further in rural and urban areas by
changing aspirations and lifestyles.
The canvas had widened for the FMCG players, but so had the challenges. Strategies
started taking precedence in the Indian FMCG industry. The lowering of the trade
barriers encouraged MNCs to come and invest in India to cater to the needs of the
Indian population. Rising standards of living urban areas coupled with the purchasing
power of rural India saw companies introduce everything from a low-end detergent to
a high-end sanitary napkin. Their strategy had become two-pronged in the last
decade. One, invest in expanding the distribution reach far and wide across India to
enable market expansion of FMCG products. Secondly, upgrade existing consumers
to value-added premium products and increase usage of existing product ranges.
Sachet revolution: Adapting to local needs, the sector saw a lot of local formulations
and packaging. This included the sachet revolution. The concept of sachets was
introduced in the 1990s as a small, low-cost packaging option. This is the big
innovation used to reach new users and expand market share for value-added
products in urban India, and for general FMCG products like detergents, soaps and
oral care in rural India. This was done to cater to the weaker sections of the society
and to promote the trials of the products. The small packs changed the entire regime
of the FMCG market in India.
Future of the FMCG Sector: The past ten years have seen a lot of activity for the
FMCG sector, and the future looks brighter. With not enough product offerings and
the inability of the sector to open new categories, the last decade had limited growth.
The market dynamics are changing now. With better levels of affordability, consumers
can now afford higher priced products that suit them and are of their choice. This
means that the FMCG companies can now innovate products and channels to deliver
them. This in effect would accelerate the growth in the FMCG sector in the years
ahead.
FDI policy: Upto 100% foreign equity and automatic investment (including foreign
technology agreements within specified norms) is allowed for most of the food
processing sector except malted food, alcoholic beverages and those reserved for
small scale industries (SSI). Temporary approvals for imports for test marketing can
also be obtained from the Director General of Foreign Trade.
©2008 IDC # 71
Removal of quantitative restrictions and reservation policy: Licensing for almost
all food and agro-processing industries, except for some items like alcohol, cane
sugar, hydrogenated animal fats and oils etc, has been abolished by the Indian
government.
Central and state initiatives: Companies now have encouragement from various
states governments, like Himachal Pradesh, Uttarakhand and Jammu and Kashmir,
for setting up manufacturing facilities in their regions through a package of fiscal
incentives and SEZ projects.
Food laws: The Prevention of Food Adulteration Act (PFA), 1954, which applies to
domestic and imported food commodities, encompassing food color and
preservatives, pesticide residues, packaging, labeling and regulation of sales, has
brought consumer protection against adulterated food to the fore for the aid of the
FMCG companies in India.
The table next lists the key players in the various sub-segments of the Indian FMCG
sector.
TABLE 11
Segment Players
Hair care Marico, HLL, CavinKare, Procter and Gamble, Dabur & Godrej
Mineral water Parle Bisleri, Parle Agro, Coca Cola & Pepsi
72 # ©2008 IDC
TABLE 11
Segment Players
Branded atta Pillsbury, HLL, Agro Tech, Nature Fresh & ITC
Various product segments in the sector are experiencing a boom, which shows a
latent demand for various consumer categories. For example, the upper end of very
rich and a part of the consuming class indicate a small but rapidly growing segment
for branded products (also spurred by the retail revolution). The middle segment, on
the other hand, indicates a large market for the mass end products. Rising disposable
income, changing demographic trends, increased exposure to the international
markets, growing interest in lifestyle products, increasing emphasis on innovation and
rural marketing are some of the prominent changes happening in the Indian FMCG
sector. It is getting increasingly modernized with focus on product and delivery
channels innovation. The trends to which the sector is currently exposed to are:
Power branding: The FMCG companies these days are concentrating on those
brands which are critical to the business and which enjoy considerable consumer
advantage. They invest heavily in the promotional campaigns of such brands to make
them the front-runners for their business.
Getting aligned with the global markets: India as a market has started reflecting
international trends, not only within categories, but inter-categories as well. The
FMCG companies are looking to adopt the international best practices in India as well
to reduce the operating costs and increase the efficiencies.
©2008 IDC # 73
Changing demographics: Rapid urbanization, increased literacy and rising per
capita income, have all caused rapid growth and change in demand patterns, leading
to an explosion of new opportunities. Around 45% of the population in India is below
20 years of age and the aspiration levels in this age group have been fuelled by
greater media exposure, unleashing a latent demand with more money and a new
mindset.
Tapping the large unbranded segment for growth: There is a large section of the
society that can be catered to by the unbranded products of the domestic and local
players. Most of such markets exist in rural and semi-urban areas where the
consumers are not yet on terms with the foreign branded products. Indian players are
investing heavily in terms of money, time and efforts in exploring these markets.
Rural marketing: With the urban markets getting saturated, the rural market is vital
for the survival of the players, and they have realized that. The potential there is high
and the population is getting richer. The rural markets are extremely price-sensitive
and a number of companies are following the strategy of launching a wide range of
package sizes and prices to suit the purchasing preferences of India's varied
consumer segments in the rural areas.
New distribution channels: The FMCG players are looking keenly at the
development of new distribution channels and are also taking the help of the latest
technologies for the changing needs of the market. The emergence of the Internet as
a distribution channel has gained importance in the last 3-4 years, even though it is
limited to urban areas due to low Internet penetration in rural areas.
Innovative products: To get highly competitive and to meet the changing demands
of the Indian consumers the Indian FMCG players are not only adding their capacities
on a continual basis, but are also coming up with innovative, new and trendy
products. They are looking to cater to the aesthetic demand of the Indian consumers.
Thus at present a major chunk of the investments made in the Indian FMCG industry
are being directed towards capacity expansion and development of innovative
product.
Targeting the global markets: The new wave in the FMCG industry is not only
about foreign companies investing in India, attracted by the prospective size of the
market. It is also about the venturing of the Indian companies in the global markets.
Indian FMCG products are now increasingly finding prime shelf-space in the retail
chains of the US and Europe. These include Cobra Beer, Bikanervala Foods, MTR
Foods' ready-to-eat foodstuff and ITC's Kitchen of India.
Mergers and acquisitions: To compete against the local players, the large MNC
players have started merging/acquiring the unbranded players so that these players
do not eat into the share of the bigger players. Acquisitions are playing a significant
role in propelling the growth of the industry.
Backward and forward integration for improving the margins: To increase their
margins and to corner a larger share of the Indian market, the FMCG players are
integrating both backward and forward. They also get benefits of direct supply
74 # ©2008 IDC
arrangements with owners of large raw materials to improve their cost
competitiveness.
Outsourcing from global players: To cut costs and post healthy dividends to their
consumers, US and European MNCs are outsourcing their operations to India. What
is attracting these companies is the cost competitiveness of the Indian FMCG
industry, the availability of abundant labor at cheap rates, highly developed skill set of
the Indian people and the huge raw material base that India has.
Scope for increased penetration: As India's per capita consumption of most FMCG
products is much below the world average, there is a latent potential that FMCG
companies can exploit. In addition to this, companies are working at getting the
consumer up the value chain and are competing on the basis of distribution strength.
Rural potential: The FMCG penetration in rural India is quite low as compared to its
urban counterpart. Also its largely restricted to the soaps and grocery. But if tapped,
there exists a huge potential for the high-end products and with the growing
disposable incomes in the hands of rural consumers, there lies a huge market waiting
to be explored.
Demand-supply gap: Only a small percentage of the raw materials in India are
processed into value-added products. However, with the demand for processed
products increasing, there is an untapped opportunity in areas such as packaged
food, convenience food and drinks, milk products, personal care, etc.
Outsourcing advantage: A large raw material base and a low-cost labor force have
resulted in a lower cost of production. Many multinationals have set up huge low cost
production bases in India to outsource for domestic as well as export markets. Indian
companies have also tested foreign shores like Bangladesh, Sri Lanka and the Middle
East among others. This cross-interaction is presenting a huge opportunity in the
Indian FMCG market, with the experience being gained.
©2008 IDC # 75
Demand for style: Indian consumers are getting exposed to global trends and the
lifestyles, and FMCG manufacturers can tap huge market shares for themselves by
responding to the growing demand for stylish and trendy products.
Presence across the entire value chain: From supply of raw material to final
processed and packaged goods, both in the personal care products and in the food
processing sector, Indian companies have a competitive advantage because they
straddle the value chain. For instance, Indian firm Amul's product portfolio includes
the supply of milk as well as the supply of processed dairy products like cheese and
butter. This makes the firms located in India more competitive.
Changing marketing and distribution strategies: The growth of malls and retail
outlets and an impending surge in organized retail is good news for the FMCG
industry. This offers a new distribution platform to the players in the sector for
showcasing and selling their products.
Competition from store/private brands: Store brands and private labels that have
strategies similar to regional brands attract consumers on the basis of lower prices.
Established brands need to analyze trends and keep reinventing themselves to meet
this competition.
76 # ©2008 IDC
FMCG sales cannibalized by other products: As consumer exposure to new
product categories (like mobile phones, leisure products, durables, etc.) is increasing,
demand for FMCG products is dampened hampering the overall growth of the sector.
Value-volume trade-off: Most FMCG players do not have the critical size for going
all out for rural marketing. They have to make a fine balance between looking at
urban markets for value and rural markets for volumes, which may result in a dilution
of their efforts.
Competition from regional players: When new regional players enter a category,
they eat into the market share of the larger players. If major players are not able to
counter the threat from the regional brands, they could lose out on a large share of
the potential market.
Distribution and supply chain issues: FMCG goods are distributed inefficiently.
Poor quality of infrastructure, lack of a distribution sector, high logistics costs and lack
of specialized distribution companies coupled with the low goods carrying capacity of
the Indian suppliers has become a big challenge for the sector.
Low productivity: The productivity of the Indian FMCG industry is around 23% to
that of the benchmarked US productivity in FMCG sector despite a considerable
talent pool. Even after possessing a huge talent pool the Indian FMCG major have
not been able to increase the productivity in the sector.
Competition from China: China is able to produce FMCG products at lower costs
compared to the Indian industry. In China, the FMCG sector is growing in a balanced
manner, with equal emphasis on food and non-food categories, and has a modern
trade structure established with developing countries. The value of consumer
products sold through the modern trade in China is more than 50%, the Indian
modern trade channels comprise only 9% of the total value of the urban branded
FMCG goods sold. With the Chinese goods flooding the Indian markets the situation
for the Indian FMCG sector looks all the more bleak.
Rising cost of inputs: Rising cost of raw materials is squeezing the profit margins of
the players, who are unable to raise prices due to competition. There is an urgent
need to manage their supply chains for the FMCG players in India to achieve the
economies of scale for marginalizing the losses due to high input costs.
Lack of market information: Units catering to the domestic market find it difficult to
effectively market their products due to the lack of current information on the demand
and consumption patterns of the consumers. In the case of exporters also, regular
information on the prevailing market conditions in the targeted companies is not
forthcoming from any source. This has proved to be a major challenge for the sector.
©2008 IDC # 77
Role of Information Technology in the Sector
Technology has played a crucial role in the strategic areas in the FMCG sector
including customer satisfaction, competitor knowledge and customer buying behavior.
With increasing technology adoption and deployment, costs of production,
commercial, internal communication and service have decreased substantially. With a
proactive realization of how IT can add value to business, the companies have been
continuously upgrading their IT infrastructure. From distributed and unconnected IT
systems, the major FMCG players have now migrated to a centralized and integrated
IT architecture, riding a successful change management process.
The FMCG segment is among the leading implementers of ICT in the country. As
businesses change to deliver better value and maintain their position in a competitive
scenario, information technology and executive decision-making tools become
important for them. Security is a major concern with all organizations and importance
of disaster recovery and business continuity is being realized. Monitoring customer
interactions is important for FMCG and is cheaper with the use of IT. Technology has
helped companies address customer satisfaction for current products and services,
and in gauging competitor knowledge and customer buying behavior.
Other prominent areas where FMCG organizations are harnessing IT include supply
chain management, dealer management, customer relationship management and
sales force management. From distributed and unconnected IT systems, the major
FMCG players have now migrated to a centralized and integrated IT architecture,
riding a successful change management process. Players want technology to
integrate business processes across the enterprise, suppliers and customers; and
manage and store data as well. Further, it can help them become aware of the
changes in market conditions rapidly and with the flexibility to respond quickly.
Workflow management: Integration of the back-end and front-end systems and the
integration of the collaborated system with the supply chain management are being
done by many companies, as next steps after basic automation and networking.
Corporate intranets: Corporate intranets are particularly useful in the FMCG sector
for information on brands across the world. Brand managers use intranets to learn
how their counterparts across the globe deal with competition, for sales force to share
experiences, and for creating learning systems.
78 # ©2008 IDC
of any product in the market. Today, over 10% of the total IT spend in the FMCG
market is directed towards the implementation the PLM.
Supply chain management: Supply chain management is the most important area
where the FMCG players (especially the small players; with large being in final stages
of the same) are spending today and are concentrating their efforts upon. Most large
companies have invested in automation and integration of their supply chain. They
have implemented robust solutions to include all their suppliers in their value chain.
Sales force automation: To reach markets in different tier cities as well as in rural
India, a complex distribution channel is needed. To manage and control the channel
is a challenge best met with sales force automation (SFA) solutions that help them to
collect, collate, co-relate and analyze information from the market in real-time. SFA
enables and empowers direct store delivery (DSD) sales teams to make accurate
spot decisions, and helps keep the sales force customer-focused, tuned into market
developments and fully equipped to capture all possible sales opportunities. The use
of PDAs, for instance, is a popular technological response to many sales force
automation problems.
Smart carts: Technology enabled smart carts that guide the consumers through out
their shopping exercise by giving information about location and price of products in a
store, for instance, are fast gaining popularity. Though their adoption is very limited at
present, but once tested in the western world, it will follow suit in India by 2010-11.
ERP modules: These have been widely adopted by the FMCG player. Large and
small sized firms have rolled out various ERP modules with the procurement, sales,
human resource and accounting being the most favored ones.
Collaborative planning and forecasting (CPFR) tools: The use of CPFR, usually
Web-based, is helping in controlling costs for the vendor, the manufacturer and the
retailer. These tools help the retailers in inventory management by keeping a tap on
©2008 IDC # 79
the inventory records at various retail stores. Thus in a way it also helps in forecasting
the inventory requirements at various outlets for achieving economies of scale and
prevention of stok-out situations.
Conclusion
It is clear that profitability in a tough FMCG market is dependent on technology
adoption in the longer term. Advertising, focusing spends on a smaller number of
critical brands, innovative sales promotions, efforts to stimulate repeat purchase and
brand loyalty, efficient distribution and reduced supply chain costs are key areas
where FMCG players need to be efficient. Also, channel width and sales organization
are critical for the success. Higher margin product-mixes, greater pricing flexibility,
better and far reaching network in rural markets, innovation and inorganic
contributions will be the key factors that will drive the growth of the FMCG sector and
its players moving forward.
With its origins way back in the late 1980s and 1990s, the ITeS industry has now
become a global force, continuing to register double-digit growth year after year.
Contributing significantly to the GDP (5.2%), the industry brings in large amounts of
foreign exchange and is slated to employ two million people in the next few years.
Growing at a CAGR of 18.4%, the ITeS is slated to touch US$ 92,300 million by 2012
from US$ 39,600 million in 2007 (growth of 20.7% over US$ 32,800 in 2006). The
business process outsourcing (BPO) industry is slated to grow at a CAGR of 21.4% to
reach US$ 33,000 million by 2012 from US$ 12,500 million in 2007 (growth of 31%
over US$ 9,540 in 2006). These forecasts make India the fastest growing ITeS and
BPO market in Asia for 2007-12. While the BPO exports worth US$ 11,300 million in
2007 (US$ 8,400 million in 2006), the ITeS exports were US$ million in 2007 over
US$ 31,300 million in 2006.
Within this the share of the captive BPOs stands at 45% in 2007, down from 52% in
2006. Captive units are those owned by a company and largely serving its core and
non-core needs (though they may have some external clients as well). Third-party
BPOs, which are companies that have developed a competency in a business
process and service several clients, had a 55% share of the sector in 2007, up from
48% in 2006.
Similarly, voice based services, which constituted 53% of the Indian market in 2006,
are now down to 46% in 2007. Non-voice services, such as content development,
business/market research, analytics, and others, have made the non-voice BPOs all
the more relevant in the Indian context and will continue to increase their share as
such 54% in 2007 from 47% in 2006.
The Indian BPO industry follows global outsourcing industry trends and serves some
critical vertical businesses, including BFSI, telecom, retail, manufacturing, healthcare,
utilities, and others. The others is a mix of other emerging verticals like travel and
80 # ©2008 IDC
tourism, media and publication, government and education, among others. While
BFSI, manufacturing and telecom still are the main verticals for software and services
exports, there has been an emphasis on expanding to new verticals such as retail,
utility, telecom service providers and healthcare in the last 2-3 years. The industry
has expanded its radar to new service lines such as package software
implementation, systems integration, research and development engineering and
network management as new horizon for robust growth.
In terms of geographical spread, the BPO services in India are present in and around
cities where basic IT and communication infrastructure exists and is being developed.
The nine cities that account for 90% of ITES-BPO companies are, Ahmedabad,
Bangalore, Chennai, Hyderabad, Kochi, Kolkata, Mumbai, NCR (Delhi, Noida and
Gurgaon) and Pune. The focus is now shifting to tier-II cities, like Chandigarh, Kochi,
Trivandrum, Coimbatore, Mysore, Mangalore, Vizag, Nasik, Dehradun, Jaipur,
Bhubaneshwar, Lucknow and others, where the IT and communication infrastructure
is developing and also the manpower cost is lower.
Way back in 1776, economist Adam Smith, in his book The Wealth of the Nations,
first gave the concept of outsourcing when he propagated that economies should
specialize in producing that commodity or service that the economy had more
resources for. While today the theory finds relevance in the light of the IT revolution,
back then it was oriented more towards outsourcing manufacturing services to
countries that provide cheap labor.
Not many would know that the Indian BPO story began as early as the 1960s, with
the likes of Chemtex exporting engineering services from India. The concept,
however, took a more formal look only in the early and mid 1990s, even though the IT
industry had gained a foothold even in the early 1980s. Medical transcription and data
processing were the first services to be outsourced, while billing and customer
support followed suit in the late 1990s. This was the time when MNCs started
establishing their subsidiaries in India to serve their offshoring needs. And since then
there has been no looking back for this multi-million dollar industry in India.
1970s-Early 1990s: There was a shortage of skills and cost was the prime driver
for outsourcing to India. Companies focused on expanding their skill sets during
this period.
©2008 IDC # 81
1994-1998: The most crucial time for outsourcing in India, this was when the post
liberalization reforms helped already existing companies speed up expansion.
New companies were also supported by incentives from the government. The
important tasks outsourced to India during this period were medium and large
application projects on legacy migration. Companies focused on acquiring
diverse skills and execution capabilities, along with achieving client delight
through quality delivery of projects.
The following figure shows how the industry has scaled up its value chain over the
years.
82 # ©2008 IDC
FIGURE 11
Research
Scaling up of the Value Chain
Administration
Sales
Customer Service
Medical Transcription
At present the BPO industry is said to be in the midst of its growth path. The Indian
outsourcing industry is also witnessing the trend of movement towards smaller or tier-
II cities. Also, to face competition, the players are looking positively towards
consolidation. There have been various issues emerging every now and then,
especially with the slow-down of the world economy, but the complete ecosystem is
trying to get the best feasible models and strategies to resolve them and continue on
their growth path. It is the opening up of the global economy that has catalyzed the
growth of BPO to its present stature as a key driver of business competitiveness. The
roadmap for outsourcing success in India has been laid with:
Quality processes
Scalability
©2008 IDC # 83
Reforms in the Sector
Recognizing the growing importance of the outsourcing, the government of India has
introduced various tax sops and policy initiatives to accelerate the growth of the IT-
enabled outsourcing market in India. Some of them are as follows:
100% FDI: The government has allowed 100% foreign direct investment (subject to
certain conditions) in the Indian BPO sector.
Tax Exemption: The Government of India has allowed total income tax exemption on
export of IT enabled outsourcing services. A ten-year tax holiday was made
applicable to the BPO industry in India from 1999-2009.
Education: Realizing the promise the sector holds in terms of employment, the
government has taken several steps to help students make a career in the BPO
industry. Certain educational institutes and universities have started offering industry-
specific courses as well.
The ITeS/BPO industry in India is dominated by few players at the top level but at the
bottom level it is highly fragmented. The top 5 players accounted for more than 28%
of the ITeS industry in 2007. A majority of the key players in the BPO industry in India
are captive units of MNCs and international BPO companies looking to take
advantage of the cost arbitrage offered by India. Several ventures have been hived
off into independent companies to attract other customers and become profit centres
as opposed to the cost centers they used to be earlier.
The companies are growing at a rate more than the industry average. The increasing
rate of growth can be attributed to the companies diversifying into newer markets and
attaining higher efficiencies. The top five companies employed 309,641 people,
including their overseas employees count. The table next highlights the key business
model characteristics of the various segment companies in the industry.
84 # ©2008 IDC
TABLE 12
Large Cap Rev > US$ 250 Mainly concentrated on ADM, Package Implementation, BPO and Consulting
million
Well positioned to bag large IT contracts
Compete with global IT vendors such as Accenture, IBM, EDS, Cap Gemini
Mid Cap Rev > US$ 50 Mainly concentrated on generic IT services and BPO offerings
million but < 250
million Scale and margin pressures
Increasing competition within the Mid Cap players as well as with the Large Cap IT
players
Niche players Focused on key Focused on developing capabilities around a specific niche domain and aspire to be
niche areas of leaders in that domain
operations
Scale and growth pressures; Limited growth available in specific niche areas
Threat from Large Cap/ Middle Cap entering the niche areas
The next 4-5 years will witness significant global integration and consolidation in the
BPO space. Having established a brand that connotes quality and lower cost, the
Indian BPO industry has emerged as a dominant global player and is poised to be the
main beneficiary of this aggregation opportunity. Some of the changes happening
outside and within the Indian BPO industry are rapid and need a careful
consideration. These changes need to be factored in by the IT/ITeS companies to get
their strategies and decision-making aligned to the opportunities and the challenges.
BPO firms target non-English markets: After having tapped the English speaking
countries, business process outsourcing (BPO) companies engaged in scientific and
market intelligence work have begun to explore the potential offered by the non-
English speaking markets. The market for non-English work is believed to be huge.
They are targeting the VISTA countries as their first foreign venture.
©2008 IDC # 85
Consolidation and acquisitions: The big players are on a spree of acquiring the
small players, while the smaller players are consolidating to fight the big fish of the
sector.
The last couple of years have been a period of significant market activity for the
sector, with an increasing number of firms expanding their offshore initiatives in India
and several large merger and acquisition deals being scripted. The table next
highlights the key M&A deals struck in the sector.
TABLE 13
Vendor maturity, managing people risk: In spite of the relatively high people risk,
attributed to the high turnover and attrition, Indian companies are displayed
increasing maturity and deploying innovative employee retention strategies. These
86 # ©2008 IDC
included employee recognition schemes, career planning services, educational
guidance and assistance and a greater emphasis on improving the quality of work-
life. Thus with the high rates of attrition affecting the industry the BPO players in India,
they too are equally geared up for the same and are showing signs of maturity and
understanding towards the needs of the employees.
BPOs outsourcing: The captive centres are increasingly turning to third-party BPOs
to manage the more mechanical and less strategic parts of their work, in the face of
rising operational costs and higher-than-the-industry attrition rates.
Value-added services: With low-end services yielding low margins and low barriers
to entry, many Indian BPO players are scrambling on the value-added bandwagon by
offering niche, high margin services. They are looking more towards the high-end
services like market research and data analytics.
Clients asking for strategic support: With time, the relation between the BPO
service providers and the outsourcer has strengthened. Because of this and because
of continuous improvement in the existing processes, the clients do not just look at
the cost benefits but also expect their outsourcing partners to help them transform
their business processes. The clients also look at the outsourcer to guide their long-
term strategic roadmap. Thus the role of BPO service providers has become more
strategic.
BPOs target smaller towns: After expanding their business in tier-I and II cities, the
BPO industry has started exploring options in the tier-III and IV cities. As the industry
is facing dearth of manpower, many BPOs are moving to smaller cities, which is also
helping them cut costs.
Climbing up the value chain: Indian outsource providers face competition from
many of the foreign players who are able to offer 'one-stop shops' to their clients that
not only include BPO services, but higher value-add (and therefore higher margin)
activities such as financial research and consulting. Thus the Indian players too are
looking to offer complete solutions to win the clients for long-term relationships.
©2008 IDC # 87
Factors Favoring the Growth of the Sector in
India
India is an undisputed leader today in offshore BPO outsourcing and there are
apparent reasons for its leadership. The key value propositions for India include:
Abundant talent pool: With over half the population of India aged less than 25
years, India’s young demographic profile is a unique and has an inherent advantage.
This is complemented by vast network of academic infrastructure, unmatched mix
and scale of educated, English-speaking talent. Several firms have also established
dedicated facilities and teams, for employee skill enhancement initiatives. The
industry is also driving a series of concerted efforts to structurally address the talent
concerns. Also, India can boast of producing 85,000 graduates every year with a
large chunk possessing the capability of fluency in English speaking.
Cost advantage: India has a strong track record of delivering a significant cost
advantage, with clients regularly reporting savings of 20-60% over the original cost
base. This cost advantage is due to the absolute cost advantage vis-à-vis other key
markets and lowering infrastructure and overhead costs. The tables next provides an
overview of the cost advantage that India has vis-à-vis US.
TABLE 14
Administration 12%
Telecom 155%
Others 50%
TABLE 15
India 3.22
88 # ©2008 IDC
TABLE 15
China 2.93
Malaysia 2.84
Thailand 3.19
Brazil 2.64
Rapid growth in key business infrastructure: Over a span of little over decade, the
Indian telecom market has crafted policies that have helped drive a balanced agenda
for the sector by influencing a decline in pricing and increased affordability on one
hand and increasing access penetration and usage on the other, resulting in strong
growth. The ITeS-BPO sector has been a key beneficiary, with the cost of
international connectivity declining rapidly and service level quality improving
significantly.
Familiarity with the overseas market: IT services companies in India are the only
companies that have large marketing teams in the US and other important overseas
markets. And not only is their understanding of the overseas market better, they can
also quickly start marketing their services.
Location attractiveness: Several government initiatives in the last two years have
considerably enhanced the attractiveness of India as a location. These include
significant investment in infrastructure with the establishment of technology parks like
Hitec city, Hyderabad, Tata-Singapore Consortium, Bangalore, Tidel Park, Chennai,
etc and competition among state governments to attract BPO investments.
©2008 IDC # 89
Challenges in the Sector
India's offshore industries have to overcome major challenges to continue their heady
growth and sustain their share relative to other competing countries. The key
challenges faced by the Indian BPO industry are:
High attrition rates: Attrition means not only the loss of talent, but also includes the
cost of training the new recruits. The attrition rate in the industry has been hovering
around 40-45%, which is quite high for any industry. There are three basic reasons
for this—leaving the jobs for higher studies (as most of the junior level employees in
the BPOs are graduates), dissatisfaction with the job in terms of low career prospects
and better salaries outside, and the poaching strategy being adopted by the players in
the industry. Also the demand for BPO professionals is far outstripping the supply.
The figure below provides an overview of the key internal and external challenges
leading to high attrition rates in the Indian BPO sector.
FIGURE 12
External Factors
ATTRITION
ATTRITION
ATTRITION
Hue and cry by labor international unions: There has been a growing voice of
protest against outsourcing to India by the labor unions in the UK and USA. In the
name of patriotism, the labor unions are protesting against the companies
outsourcing their back-office operations to India. The media, unions and politicians in
these countries have jumped on the backlash bandwagon and have been making
strong statements on outsourcing to India. Thus if not countered and settled down,
such moves can dampen the growth of the Indian BPO industry in the years to come.
The threat of increasing competition: India has many competitors, like Philippines,
Ireland and even China, that are expected to catch up with it in the future, even
90 # ©2008 IDC
though they have their own constraints. These countries can match India's value
proposition in a year or two and can give India a run for its money.
Slow-down of the economies: Not only has the US economy slowed down but the
Indian economy has also started showing signs of slower growth. With the global
economy into recession, the jobs and processes getting outsourced to India are on a
decline, negatively effecting the opportunities for the sector in India.
Data security: Protecting customer data is one of the main concerns of BPO players.
There is, therefore, a high concern for data security. The Indian government and the
IT industry had formed a framework to curb rising cyber crime, which was later
enacted by the Indian government as the Indian Technology Act. The Indian legal
system does not have specific data protection laws and this is a concern for
companies that are offshoring work to India.
Shrinking profit margins: With service level agreements becoming stringent, sales
cycles stretching far in international deals, high initial capital investments in the
industry, long gestational periods, competition leading to reduced billing rates, and
appreciation of rupee against the US dollar, margin pressures for the BPO operators
in India have increased. BPO service providers need deeper pockets and financial
muscle to sustain for long times in the industry.
Rising salaries: Compensation for junior and middle management levels are
increasing year-on-year, reducing the profitability and sustainability of the industry.
The primary reason for this is to attract and retain employees for their operations.
Uptime commitment: The first priority for BPO players is to select vendors who can
provide them with guaranteed uptime, or even keep 2-3 backup systems. A down-
time of one hour effectively means a loss of one man-hour for the total number of
seats (total number of seats x one hour). This has a huge cost implication for the
©2008 IDC # 91
company. With various infrastructural problems (like power) still prevalent in India, the
problem becomes all the more acute for the BPO players in the country.
Advent of foreign languages: The growing BPO industry today has to cater to
foreign languages like Spanish, German, French and Japanese, besides English. But
the dearth of people speaking these languages has made Indian BPOs eye Argentina
and East European countries. According to Nasscom, India lacks a large number of
workers fluent in these languages, making China and Eastern Europe countries more
attractive off-shoring destinations for foreign language specific jobs and tasks.
Tax holidays to end in March 2009: With March 2009 approaching, companies are
concerned about how they will continue to leverage the cost benefits they have been
getting with the tax holiday they so far had. This is would be the time for the players to
stand on their own and play in a level playing field with that of the other countries.
High training costs: Training is very important in this industry, due to the nature of
job and the kind of requirements, which an employee has to fulfill. In the last two
years, the training cost has nearly doubled. Thus the training component in the total
cost is becoming very high and needs to be carefully analyzed by the BPO service
providers.
Technology drives the BPO industry. With the industry moving from low-end services
to high-end, knowledge-based ones, the dependence on technology is increasing
further. The top five specific technologies inducted by companies in last 2-3 years
have been mail messaging solutions, security solutions, wide area networks (WAN),
enterprise resource management (ERM), and virtual private networks (VPN). Right
now, customer relationship solutions and data security are on top priorities.
The five key benefits targeted by the Indian BPOs by deploying IT solutions are:
Identity management: The who, when, and how of data access has to be effectively
managed by BPOs. Deploying a complete identity management solution lets BPOs
secure network access and admission at any point in the network, while isolating and
controlling infected or un-patched devices that attempt to access the network. Also
with the blended threats such as spyware, adware and phishing attacks increasing
substantially in the Indian BPO sector, the authorization through digital signatures to
92 # ©2008 IDC
enter the networks is gaining huge importance among the BPO service providers in
India.
Virtual private networks: BPO companies are keenly looking at VPN technology to
support any-to-any communication, which would give them huge benefits in terms of
easy and simple network management. The same infrastructure can be shared
across different clients, resulting in cost reduction. Ramping up and down is easy,
and it provides easy entry and exit points as well.
VoIP: Call centers and BPO companies in India are switching to VoIP to slash costs
and offer more services. VoIP allows BPOs to have the transmission of digital voice
data over the Internet. In the near future more and more BPO units are expected to
shift to VoIP technology by spending around 4-5% of their total IT spend.
©2008 IDC # 93
value so as to gain a sustainable competitive edge over their competitors. While the
large firms are looking to implement CIM solutions by 2010, the smaller and medium
sized firms are looking to implement these by 2012.
ERP: As the sector is climbing up the value chain, BPO service providers find an ERP
system quite critical to their growth. ERP systems enhance information flow through
various business processes such as query handling, understanding customer
demand pattern, monitoring and finance. The major ERP modules used in the BPO
industry are:
Customer Management
Administration
Finance
Quality Management
In recent years, many BPOs in India have implemented ERP systems, in addition to
restructuring their production processes anddeveloping their research and
development activities. Though the results have been satisfactory but due its peculiar
nature of enhanced focus on outsourced activities of research and analysis, there has
been continuously felt a need to upgrade the solutions. Spending around 2-3% of
their total IT budget on ERP implementations, the industry is expected to have a
robust ERP system in place by 2010.
94 # ©2008 IDC
more embracing of the IVR solutions (especially the smaller players) towards 2009
and 2010.
Monitoring solutions: With the requirement to maintain 100% quality, the BPOs
have deployed continuous monitoring systems for all the calls coming into their
networks. They want to ensure utmost customer satisfaction and thus keep a
complete track of the way their employees handle the calls and also train them in the
areas that are found lacking.
Data warehousing/storage solutions: With a lot of data being captured not only to
handle the clients' queries but also to analyze the organization's and employees'
performance, the need for storage is huge in the Indian BPO organizations. By
capturing the data at source, automating the processes, and providing the necessary
information, the IT systems form the base for decision support system. The basic
features that they look for while purchasing storage solutions are greater capacity,
speed, performance and broader host system support. Response time is of prime
importance while selecting the storage solutions in the BPO industry. Also as per the
industry experts, NAS (network-attached storage) devices are the most preferred
choice of the Indian BPO industry.
Conclusion
The Indian ITeS-BPO industry is looking to consolidate its position in the business of
outsourcing by strengthening its domain knowledge and becoming more specialized
in terms of the services offered. It is climbing up the value chain without restricting
itself to low-skilled jobs. It is also targeting new service lines to widen the gamut of
services to achieve sustained growth. There is a continuous effort to maintain its
position of competitive advantage over other countries in the fray, in terms of low
costs, quality and skilled workforce and conducive environment (leveraging the IT and
telecom strength of the country). With the international business eyeing India as a hot
ITeS destination and the Indian industry gearing up to bring in a new revolution, India
is bound to become the BPO and ITeS hub of the world in the next 4-5 years.
The last decade has seen an explosive growth rate of growth of the Indian
telecommunications sector. It has been growing at a brisk pace and has emerged as
one of the key sectors responsible for India's resurgent economic growth. With a
©2008 IDC # 95
CAGR of 13.4% in 2002-07 in the sector, the telecom services industry in India was
worth US$ 28,920 million in 2007-08. It is forecasted to grow upto US$ 57,000 million
by 2012, at a CAGR of 14.5%. The total subscriber base in India (fixed and cellular)
stood at 272 million at the December 2007 and crossed 300 million mark by end of
March 2008. The subscriber base for mobile is forecasted to exceed 737 million by
2012 at a CAGR of 25.9% (2007-2012) from the current level of 233 million
(December 2007) and 261 million by March 2008. This done, the industry prioritized
infrastructure development for higher level services, consolidation and growth in
2007. Innovations in technologies are the USP of the sector and its sustainability in
India.
The overall teledensity of India stood at 25.34% at the end of February 2008, against
23.89% in December 2007. The urban teledensity stood at 64.48% in February while
the rural teledensity was only 9.03%.
The Indian government, realizing its limitations to support the sector moved positively
to liberalize and permit the entry of private players in the sector. In the post-era of
Department of Telecommunications (DoT) acting as the single player providing basic
telephony; the telecommunications scenario suddenly was a bubbling cauldron of
activity. The number of players increased, consequently the competition. The services
on offer increased, consequently the demand and the expectations of the consumers.
The telecom sector provides services in two major formats -- Fixed and Mobile.
Fixed wireline services: The fixed line segment, one time the primary service
format, fell to a second place with the competition from mobile cellular services. The
spread of broadband connections has helped the segment to recover somewhat but
is still sliping down fast. Government controlled MTNL and BSNL are the top players
with several private service providers like Airtel, Tata Teleservices, Reliance telecom,
Shyam Telecom taking the rest of the market. The services provided cover
Basic telephony
Data services for facilities like ATMs, frame relays, VPN and similar data services
Other services like mobile satellite services, radio trunking, paging services
96 # ©2008 IDC
Internet Services: including
Broadband
ISDN
Dial-up
Mobile telecom services: Mobile services picked up in a big way in mid-1990s. The
segment grew with the fall in call rates and price of handsets. Private players like
Airtel, Reliance, Hutch, Idea, Aircel, Spice and others command a high market share
as compared to the Government operated BSNL and MTNL in the cellular services.
These fall into two broad categories based on the technology used, namely:
©2008 IDC # 97
FIGURE 13
Fixed Mobile
Basic Telephony
TNS
Others
The table next provides an overview of the various constituents of the Indian telecom
service industry.
TABLE 16
Constituent Revenue (US$ Million) Subscriber Base (Million) Growth over 2006-07
98 # ©2008 IDC
TABLE 16
Constituent Revenue (US$ Million) Subscriber Base (Million) Growth over 2006-07
Internet NA 11 NA
The Indian telecom sector has grown from a single service provider to a vast arena of
government owned and private players providing a kaleidoscope of services covering
everything from basic landline communication to digitally enhanced state-of-art mobile
telecommunication services. With the inclusion of private service providers in the
sector, the levels of consumer satisfaction reached new heights. With competition in
the market increasing at a speed like never before, the consumers are being flooded
with variety and facility options at ever-decreasing costs.
The key milestones in the development of the telecom sector in India are listed in the
table next.
TABLE 17
Year Milestone
1851 First operational land lines were laid by the Government near Calcutta
1985 Department of Telecommunications (DOT) established, an exclusive provider of domestic and long-distance
service that would be its own regulator (separate from the postal system)
1986 Conversion of DoT into two wholly government-owned companies: the Videsh Sanchar Nigam Limited
(VSNL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in
metropolitan areas
©2008 IDC # 99
TABLE 17
Year Milestone
1999 DoT split into DoT ( licensor and policy maker) and DTS (service provider)
2003 Government of India announces concessions for telecom industry including lower license fees
The Indian telecom sector has transformed itself from one owned and managed by
the Government to a multi-faceted field with multiple players, both private and public.
Regulatory reforms in India are guided by norms that aim to ensure setting a fair rate
of return and preventing concentration of market power, their mandate is also to
ensure incentives for investments and hence growth.
The new century brought with it the private players in the national long-distance
service.
Infrastructure and coverage bloomed with the adoption of Unified Licensing and
appropriate changes in the Access Deficit Charge regulations.
The table next lists the key telecom sector regulatory bodies in India.
TABLE 18
Regulators Function
Ministry of Communication Policy maker for the country for all means of communication
Telecom Commission This serves as the executive arm of the Department of Telecom
Wireless Planning and Coordination The WPC Wing of the Ministry of Communications, created in 1952, is the National
Radio Regulatory Authority responsible for Frequency Spectrum Management
The Centre for Development of It is the Telecom Technology development centre of the Government of India
Telematics (C-DOT)
The huge market potential for telecom products and services in India and the
favorable policy initiatives attracted several small and large players such as Airtel,
Hutch, Tata Teleservices, Reliance Infocom, Sify, and Huawei. The healthy
competition among mobile service providers has brought down telecom tariffs, which
were among the highest in the world less than four years ago, to more affordable
levels at present. The falling tariffs have led to the wireless subscriber base growing
at a compounded annual growth of 90% over the last three years. The nationwide
operators account for over 90% of the market. The increasing demand for mobile
phones, a fall in the handset prices, a favorable revenue-sharing regime and a drastic
reduction in technology costs besides infrastructure sharing and outsourcing, have
fuelled the growth telecom growth in India. The table next lists the key players by
various segments of the Indian telecom service industry.
TABLE 19
Segment Players
Attracting the rural subscriber: With the government encouraging rural telecom
projects, service providers are working on value-adds that suit the rural population.
For example, entertainment services like SMS, ringtones and music are fast catching
up among the rural masses.
Foreign investment on the rise: International telecom biggies like Vodafone and
Maxis are picking up stakes in Indian telecos. There is also a growing trend for cross-
border mergers and acquisitions apt example being the talks between Reliance and
MTN. Also on rise are the domestic mergers and acquisitions, to the tune like Spice
Telecom and Idea merger.
Content enhancement and Value Added Services: The wireless world is moving
beyond voice communication. In fact with the rapid growth of value added services
(VAS) on mobiles in recent times, voice functions on mobile phones seem to have
taken a back seat. Also the trend is changing and the users are buying mobile phones
not just to be in touch, but to express themselves, their attitude, feelings, interests
and personality. Customers continuously want more from their phone. Cellular
phones are more than communication devices. They are now widely used to play
games, read news headlines, surf the Internet, keep a tab on astrology, and listen
and compose music, make others listen to your music collection, or check the bank
balance. There exists a vast world beyond voice that is being explored and tapped by
the cellular industry. Lead by choice and options, mobile phone subscribers are in
many ways beginning to choose their operators on the basis of the Value Added
Services (VAS) that they offer. The increased importance of VAS has also made
content developers to come up with better and newer concepts and services. Mobile
VAS constitutes a range of voice, messaging and data applications which utilise the
infrastructure of a telecom network operator to provide enhanced services to wireless
consumers. Apart from messaging and entertainment innovations the mobile services
are looking at providing secure bandwidth for financial transactions, majorly payment
services.
Expanding Indian economy and rise in disposable income: Not only has the
Indian economy grown at the rate of 8-9% over the last 2-3 years (9.0% in 2007-08),
we have also seen a rise in the disposable incomes of the Indian consumers. Along
with the increase in disposable incomes, their spending has also increased, with more
emphasis on convenience and quality. Also with the Indian economy spreading its
wings globally, Indian viewers have been exposed to global trends and patterns in a
big way. They are adopting elements from foreign life styles and are thus asking for
more services in their mobile phones like music, gaming, ringtones and others. This
offers a tremendous opportunity for the telecom players to provide the services in
demand and grab a larger pie of the market.
Unexplored (rural) market: The rural market of India is very large as 70% of the
population lives there. But the rural teledensity was only around 9.03 in March 2008
vis-à-vis the urban teledensity of 64.48 for the same period. Thus it means that
around 70% of the total Indian population (more than 1,100 million) are still not
exposed to telephony and represents the largest set of prospective customers for
telecom operators around the world.
Demand for value-added services: There is an increasing demand from the Indian
customers for the value-add features like mobile gaming, music and others, thus
giving a big spurt to the VAS and the telecom market in India. Today the content of
different types whether Internet download or SMS or MMS or any other type is
gaining a lot of popularity among the Indian customers and is going to be the future
driver of teleco growth in India.
Qualified manpower and technology: The qualified manpower of the country is well
equipped with equally good exposure and experience in the new and upcoming
technologies. The experience and expertise ranges from providing solutions to a
small solution to a large technological set-up. These advantages not only help the
telecom players in leveraging the skills and experience of their employees, but also
help them in developing innovative products, schemes and services.
Declining ARPU: Due to regulatory pressures and intense competition the ARPU is
showing a steady decline. Falling ARPU means diminishing margins and loss of
liquidity for the telecom operators in the crucial growth phase. Thus the focus is
shifting from Average Revenue Per User (ARPU) to Average Margin Per User
(AMPU) and the new mantra for the telecom companies is profitability and stability of
the subscriber. To keep up the margins the mantra for the telecom industry is to offer
value added services. One way to achieve this is to introduce the bundling of
services, which may include various information portals (e-mail, cricket scores, jokes,
astrology etc.), web based services (Internet access along with a host of other
features like chat, online gaming, online shopping and auctions, web search, content
download etc.), and messaging services like SMS, MMS etc.
The telecom sector is constantly renovating itself to meet the demands of the ever-
increasing subscriber base and the levels of service provided. The telecom industry is
aiming for a people-centered information society. Information technology solutions are
working to match the growing trend of converging voice and data networks. The
security of these networks will necessarily have to be of a very high order.
Demand for newer IT solutions in the telecom sector is for the following fields:
Operational efficiency
Data integration
Technology integration
Storage solutions: Long-term archiving and retrieval at short notice has become
almost a regulatory compliance necessity for telecom companies. Also the
emergence of next generation networks, regulatory guidelines, huge spurt in the
subscriber base, deployment of CRM applications and the growing infrastructure and
applications, have made it all the more necessary for the telecom operators to shift to
NAS from SAN. Accordingly the operators are spending around 5-6% of their total IT
spend on the storage solutions and storage is going to be the key focus area for them
in the next 2-3 years.
Conclusion
The growing Indian telecom market offers sufficient scope for absorbing top end
services and technologies of the world. At the same time traditional formats of fixed
line connections will spread in a sustained manner to serve the “common man” with a
bouquet of voice and data service offerings. The convergence of technologies of
voice and data over mobile and fixed line connectivity will present the Indian telecom
sector with a formidable face in the global telecom industry.
India, as one of the world’s largest economies has shown a huge spurt in its social
and economic growth in the past two decades. Reforms with a foresight began in
1990s, including liberalization of investment norms and permitting the entry of private
players into what were historically government controlled sectors, gave the overall
GDP growth the much needed boost.
The Indian Government has the huge responsibility of being the world’s largest
democracy, with a diverse population having an even more diverse set of cultural and
social values. Politically the country is divided into 29 states and 6 union territories.
The union territories, except Pondicherry, are governed directly by appointees of the
center. The state has elected legislatures, with a chief minister in the executive role.
The President nominally appoints a governor for each state. At the center is the
Indian Parliament with two houses, the Lok Sabha (house of the people, the lower
house) and the Rajya Sabha (the council of states, upper house). The government
has three independent branches—the executive, the legislature and the judiciary. The
executive head is the Prime Minister and enjoys all real powers. The judiciary
Apart from the cultural diversity, the country also has to deal with a massive socio-
economic spectrum. A large section of the society is marginalized, both economically
and socially. In 60 years of being independent the Indian Government has targeted:
Reduction of poverty
The issues that the government has been continuously targeting are:
Inflation: With the inflation rate at an all-time high of 11-12%, there is intense
stress on the stability of the economy and the sustaining of GDP growth.
The Indian Government is continuously revising its policies and reforms beyond
simply maintaining a GDP growth rate of 8-9%. It is now working to make the spread
of this growth more widespread and inclusive to all the strata of its population. Rising
on the priority scale for the governments are:
Towards achieving these targets the governments have inculcated the following
reforms in their working portfolio:
Encouraging the ICT industry: The first steps were taken in 1970s with the
development of in-house applications for defense, economic monitoring, planning
and for managing data intensive function in elections, census, and tax
administration, etc. With a major change in attitude in mid 1990s, IT
technologies supplemented by ICT technologies extended to catalyze the
development of E-governance laws and technologies.
Liberalization of the telecom sector and the reforms in the sector provided for
a level field for regulation and spread of telecom services including Internet.
ICT tools are used more extensively for improving connectivity, networking,
setting up systems for processing information and delivering services.
State Government: While heading the projects at the state level, the state
governments are responsible for supporting, creating and strengthening
individual project management and state training institutions.
Local bodies: They are responsible for developing and managing in-house
capabilities and training programs in the departments.
The implementation of e-governance policy and direction is put under the purview of
Department of Technology, chaired by the Cabinet Secretary.
FIGURE 14
DIT
DOEACC Society
National Informatics Center (NIC): It was set up as a high priority project under the
Electronics Commission and Department of Electronics in 1975-76, with the long
terms objectives of setting up a computer-based informatics network for decision
support to the Government Ministries/Departments and development of databases
relating to India’s socio-economic development and monitoring a plan programs.
Media Lab Asia: The Media Lab Asia researches and innovates developments in the
areas of information and communications technologies for the benefit of the citizens.
National Internet Exchange of India (NIXI): It has been set up to ensure that the
Internet traffic which originates within India and also has destination in India, remains
within the country, resulting in improved traffic latency, reduced bandwidth cost and
better security.
ERNET India: It has over the years has developed a deep understanding of users
need and evolving technologies to successfully address growing requirement of
providing connectivity to educational and research institutions in the country.
DOEACC: The DOEACC society has been established to carry out human resource
development and related activities in the areas of information, electronics and
communication technology to help maintain and further build up India’s lead in these
sectors.
State Government institutional framework: This has been plan to work through the
route given in the next figure.
FIGURE 15
SeMT PeMT
State e-Mission Team (SeMT): It is a dedicated body at the state level consisting of
full-time experts to provide an overall direction, standardization and consistency
through program management of e-governance initiatives under way in the state
government. All interdependencies, overlaps, conflicts etc. across projects as well as
core and support infrastructure shared across several projects would fall under the
purview of this group.
Project e-Mission Team (PeMT): This capacity building is at the department level
and provides support to the departments for preparation of the DPRs, business
process re-engineering, change management, financial sustainability planning,
getting technology expertise and managing the implementation of the project.
Benefits of E-Governance
E-governance in India
The Government of India approved the National E-governance Action Plan or NEGAP
for implementation during the years 2003-07. The Plan purports to lay the foundation
and provide the impetus for long-term growth of E-governance within the country. The
plan seeks to create the right governance and institutional mechanisms, set up the
core infrastructure and policies and implement 27 Mission Mode Projects and 10
Component projects at the center, state and integrated service levels to create a
citizen-centric and business-centric environment for governance. These projects were
selected on the basis of their reach in term of population and the impact they can
make on the lives of citizens by making the service delivery mechanisms more
customer-friendly and convenient. The entire effort involves 500 implementation
agencies, two hundred thousand sites and an estimated 70,000 man-years of effort.
Mission mode projects cover projects on setting up of core infrastructure and basic
structuring of core projects, while the component projects cover the operational parts
of core projects and projects on setting support infrastructure, HRD and training,
integrated services, awareness and assessment, core policies, R&D and technical
assistance. The figure next provides lists the E-Governance projects under the plan.
The government has approved a total budget of US$ 5,750 million for the e-
governance initiatives (mission-mode and component projects) to be undertaken
during the period of 2003-07. From this around US$ 3,250 million will be spent on
mission mode projects and around US$ 2,500 million on component projects. Out of
the total budget, the government has approved US$ 833.5 million for the project of
SWAN, US$ 554.5 millions for state data centers and US$ 1,435.5 million for
Community Information Centers (centre - US$ 214 millions, state - US$ 198.5 millions
and PPP - US$ 1,023 millions). The government was initially looking to complete
these three projects by December 2007, though seeing the present status of the
projects in various states the government has extended the timeline to December
2008.
States can tie-up with NIC to establish the SWAN by suitably extending the
existing NICNET upto the block level, or
Option I: The state/union territory and NIC together form a composite team for
the State Data Center. While sovereign control of the data/applications is with the
state, NIC through its dedicated core team (domain experts/ professionals),
which may be specially created for each state, provides complete handholding
for infrastructure up-keep, operations management including issues related to
business continuity.
Option II: The state and the union territories leverage the capabilities of existing
IDCs for which different deployment models are available i.e. co-located
services, dedicated services and managed services. Under this option, the state
identifies a suitable model to select an appropriate agency through a suitable
competitive process for outsourcing establishment, operation and maintenance of
the data centre. The entire process of outsourcing, including advising on the
most appropriate models, could be managed by the consultant out of the panel
suggested by DIT, to be engaged by the state. Template RFP for this option shall
be made available to the state by DIT. Depending upon whatever outsourced
model is selected by the state, the management of the data/information shall be
under the direct control of the state. For this, the state requires to deploy a
dedicated team, which includes project manager, system administrator, network
administrator, support staff etc. Further, the state can also exercise the option to
engage and utilize the services of NIC.
Government spending has more than often been accused of exceeding the
developmental output. The same applies to the E-governance as well. Though in
place since 2003, but it has not yet been able to shower the fruits of ICT to the
common man. Some of the critical issues hampering the full exploitation of the
potential are:
High cost of implementation: The cost of a solution still remains relatively high and
this has serious application impacts. It means that many a time local initiatives remain
on the drawing board however the NIC has been working as the primary technical
partner, and develops customized solutions in the Indian case. Also the 2-3% of the
plan expenditure spent on the IT to enable the e-governance should be the norm for
all the governments. While a guideline to this effect already exists, it is not currently
followed.
Digital security: With the massive amount of data taken on in each e-governance
project, security and authorized access to data is of prime importance. With the
governments highly prone to security attacks, the confidentiality of the E-Governance
and related data has been a prime concern for most the state governments in India.
Conclusion
E-governance denotes the application of IT to government processes in order to bring
about Simple, Moral, Accountable, Responsive and Transparent (SMART)
governance. Through the National E-governance Action Plan or NEGAP impetus was
given for long term E-governance in the country with the aim to create the right
governance and institutional mechanisms. The plan targeted offering doorstep
Moving ahead there are several options to choose for growth plans. Choices that
draw the best of the government, the private sector and civil society will go a long way
to progress. Those based on effective use of knowledge to increase the overall
productivity of the economy will encourage the opportunities for India to transit
towards a knowledge economy.
The education sector - once seen as the exclusive obligation of the government and
NGOs - now presents opportunities for research and private investment. Education is
an essential resource for a country’s economic grown and for development of society
in general. It enables people to take informed decisions about the use of available
economic opportunities. In fact, literacy rate has been a major determinant of the rise
and fall of all other major socio-economic indicators, such as: growth rate of the
economy, birth rate, death rate and infant mortality rate.
In the new world of information, knowledge has become the new asset, rapidly
replacing raw materials and labour as the most critical input for survival and success.
More than half of the GDP in the major OECD countries is now knowledge-based,
and about two-thirds of the growth of world GDP is estimated to come from
technology-led businesses.
4. Higher (Professional) Depends on the nature of Depends on the nature of Depends on the nature of
Course Course Course
Though the modern higher education system in India is almost 135 years old, its
growth has been much faster since independence. Over the past 60 years, there has
been a significant growth in the number of new universities and institutions of higher
learning in specialised areas. There are now around 398 universities/deemed
universities and more than 13,000 colleges in India.
Special initiatives like the Sarva Shiksha Abhiyan have been launched by the
Department of School Education & Literacy focusing on elementary education. The IT
initiatives of the Kendriya Vidyalaya Sangathan (the central ministry), which spends
up to US$ 10 millions annually on IT making the department's services more fruitful
and encourages all the institutes under it on providing technical education in schools
and colleges.
So far there have been two main national policies on education: of 1968 and 1986.
The former contained decisions of the central government on the recommendations of
the national commission on education, 1964-66. The later was a result of the renewed
priority assigned to education by the government during 1984-89. The 1986 policy
was reviewed by a committee constituted in 1990 under the chairmanship of Acharya
Ramamurti, and modified in 1992.
The modified National Policy on Education of 1992 envisages the improvement and
expansion of education in all sectors, elimination of disparities in access and laying
greater stress on improvement in the quality and relevance of education at all levels,
including technical and professional education. It also emphasises the role of
The apex body in the Indian education sector is the Ministry of Human Resource
Development, formed in September, 1985 and has, since then, played a pivotal role
in increasing the literacy levels among the Indian citizens. The ministry heads two
departments formed to take the objectives of the ministry further. These are
Department of School Education and Literacy and Department of Higher Education.
The total allocation for the education sector (including NER) was increased by 20%
from US$ 7,168 million in 2007-08 to US$ 8,600 million in 2008-09 in the Union
Budget. Accordingly, the SSA will be provided US$ 3,275 million; the Mid-day Meal
Scheme will be provided US$ 2,000 million; and secondary education will be provided
US$ 1,138.5 million. The focus of SSA is shifting from access and infrastructure at the
primary level to enhancing retention; improving quality of learning; and ensuring
access to upper primary classes.
To address the issue of equity in the education of girls belonging to SC, ST, OBC and
minority communities, 1,754 Kasturba Gandhi Balika Vidyalayas have been set up. In
the 2008-09 budget it has been proposed to allocate funds (as part of SSA) to set up
an additional 410 vidyalayas in educationally backward blocks. A sum of US$ 20
million has been allocated to set up new or upgrade existing hostels attached to the
Balika Vidyalayas.
A Model School Programme that aims to establish 6,000 high-quality model schools
will be started in 2008-09, with a proposed budgetary outlay of US$ 162.5 million. In
order to make education more accessible to SC and ST students, the government
plans to establish Navodaya Vidyalayas in 20 districts that have a large concentration
of Scheduled Castes and Scheduled Tribes, with a proposed outlay of US$ 32.5
million for the aforesaid objective.
The Mid-day Meal Scheme has been extended to upper primary classes in 3,479
educationally backward blocks. The scheme will now be extended to upper primary
classes in government and government-aided schools in all blocks in the country.
This will benefit an additional 2.5 crore children, taking the total number of children
covered under the Scheme to 13.9 crore.
To set India on the path to becoming a knowledge society, an IIM at Shillong; three
IISERs at Mohali, Pune and Kolkata; and an IIIT at Kanchipuram have started
functioning. Sixteen new central universities have been proposed for 2008-09, as well
TABLE 21
Challenge What it is
Access While availability of elementary schools within a reasonable distance from habitations is now fairly
universal, the same cannot yet be said in regard to secondary schools and colleges. Besides the physical
availability of institutions, other barriers to access, e.g. socio-economic, linguistic, academic, physical
barriers for the disabled, etc., also have not been removed completely yet.
Participation and The participation rates in all the forms of education in India are low and need to be raised very
equity substantially, for India to become a knowledge society/economy. A linked challenge is one of equity.
Students suffering from disadvantages of gender, socio-economic status, physical disability, etc. generally
have access to education of considerably lower quality than the others.
Quality The challenge of quality in Indian education includes providing adequate physical facilities and
infrastructure, making available adequate teachers of requisite quality, and having effective teaching-
learning processes.
Relevance Education in India needs to be more skill-oriented, both in terms of life-skills as well as livelihood skills. In
sheer numerical terms, India has the manpower to substantially meet the needs of a world hungry for
skilled workers, provided its education system can convert those numbers into a skilled work-force with the
needed diversity of skills.
Management The management of Indian education needs greater decentralisation, accountability and professionalism,
so that it is able to deliver good quality education to all, and ensure optimal utilisation of available
resources.
Resources India’s stated national policy since 1968 has been to raise public expenditure on education to the level of
6% of GDP, and the gap in allocations for education is still substantial. This needs to be urgently bridged.
Technology has a pivotal role to play in the future of education. Around the world,
applications of information and communications technologies (ICT) are making
dramatic changes in economic and social development, going beyond a mere
Education is, of course, at the core of the knowledge economy and learning society.
Hence, the role of ICT in schools is shifting dramatically. Its traditional role has been
that of a minor curricular subject or an instructional aid. However in some countries,
ICT is now at the centre of education reform efforts that involve its use in coordination
with changes in curriculum, teacher training, pedagogy, and assessment.
The effective use of information and communication technologies (ICT) is helping the
Indian education sector in the following six key areas
Policy
Training of teachers
Non-formal education
Online Education
Online education is a term, which encompasses any kind of learning that is done
exclusively online, sometimes through free, self-study websites. Credit-granting
courses or education training may be delivered primarily via the Internet to students at
remote locations, including their homes. An online course may include a requirement
that students and teachers meet once or periodically in a physical setting for lectures,
labs, or exams, so long as the time spent in the physical setting does not exceed 25%
of the total course time.
It provides the flexibility of ease and convenience to even those who could not have
otherwise afforded to attend to classroom coaching (primarily because of lack of time
due to their other commitments). The concept of online education has increased the
reach of education to the poor and working people.
Cyber-age Education
A majority of human activity has been wired into a connectivity that has transcended
national frontiers, geographical boundaries and even transcultural barriers. Learning
too is undergoing changes as a result of the focus of enterprises on enhancing in-
house skills and expertise, making the market for e-learning solutions a very lucrative
proposition for enterprises worldwide.
Technology based solutions allow more room for individual differences in learning
styles. This leads to a markedly faster learning curve, compared to instructor-led
learning. The main thrust of the e-learning programme of the Indian education
department is to effectively integrate it methodology and approach with the
conventional classroom system to maximise the benefits flowing from each, increase
its reach to more and more learners, and spread e-learning from teaching of IT-
related subjects to other subjects.
Distance Education
The rapid and positive change of appreciation of open and distance learning, mainly
due to the development of the application of advanced information technology and the
evolution of the concept of the information society, has interestingly coincided with the
rapid development of open and distance learning.
The term ‘open and distance learning’ embraces an increasingly diverse range of
education and training activities. In this educational form, the teaching process is
clearly separated in two parts carried out in general by different groups of experts—
the first one is the preparation of course materials and this is a long-lasting activity of
expert groups, and the other is the process of course delivery, which is the task of
other groups of experts (tutors and course organisers).
Advanced information technology plays role in three fields of open and distance
learning:
India is fast emerging as a global online tutoring hub by delivering teaching services
at very low rates. With a large number of dedicated post-graduates well-versed in
English language, India has the potential to grow in the online tutoring industry. Indian
teachers provide tutoring services at around 25% of the amount charged by their
counterparts in the United States, the United Kingdom and other European countries.
India earns over 10% of the global market share for online tutoring and the figure is
expected to double by 2010-11.
World-class institutes such as the Indian School of Business have been opened in the
past few years and market leaders like NIIT have created their respective shares in
the education market. One of the new, private sector enterprises, the Indian School of
Business (ISB) has been founded in collaboration with over 50 of the world’s top
corporations and two prestigious management institutions, the Kellogg Graduate
school of Management at Northwestern University and the Wharton School at the
University of Pennsylvania.
The Indian education sector is using a wide gambit of IT solutions for its
modernisation and up gradation. It is awakening to the use of latest tools to deliver
education in a much more convenient and effective manner to the learners.
Hardware
Networking
Connecting computers together to form a network, and connecting school, lab, and
classroom networks to the Internet can further multiply the educational value and
impact of computers in schools. There are a variety of options for creating classroom,
lab and school computer LANs that are being explored by educational institutions at
present:
Software
Operating system: Decisions about what operating system software to use are
usually based on the type of hardware purchased, as the OS often comes with
the computer. Yet decisions about what software are being based to operate
networked computers not as predetermined as they are with client system
software.
Internet software: One of the most important benefits of Internet and web-
related software is that most of it can be used regardless of the kind of hardware
and software. The platform independence of the Internet reduces the costs
involved in using the Internet in education and enhances its benefits. One key
benefit of Internet use is access to a variety of Internet and web-based software
applications, much of it freely available in many languages, to be used by
teachers and students in ways.
Conclusion
There is a need to follow a mix of both public and private presence in the education
sector. Private intervention in education has several advantages, including reducing
inequality, improving accessibility, compensating for market failures in lending for
education, and disseminating information about the benefits and availability of
education. On the other hand, governments can help improve the quality of education
by establishing standards, supporting inputs, adopting flexible strategies for the
acquisition and use of inputs, and monitoring performance.
The world of the future will have much more education occurring outside of schools. It
will draw on vastly more powerful technologies, like the two-way voice-activated,
computer-assisted and self-paced learning. Learners will be able to go beyond the
The coming of the digital age has opened the opportunity venue for the Indian media
and entertainment sector like never before. Estimated at US$ 11,900 million in 2007
(growth of 17% over 2006), this sunshine sector has everything going for it; the
regulations that allow foreign investment, the impetus from the economy, the digital
lifestyle, the spending habits of the consumers and the opportunities thrown open by
the advancements in technology.
Fuelling the growth is emerging avatar of the media and entertainment industry as an
investment opportunity. The impetus from the economy, liberal Foreign Direct
Investment (FDI) government policies, increased consumer spending, digital lifestyles
and developing technology are spurring the sector’s potential. Interestingly, not only
has there been an FDI inflow in the sector, but also a lucrative outflow with Indian
companies acquiring businesses abroad.
Advertising accounted for US$ 4,600 million, which is 38% of the revenues of the
media and entertainment industry. This marked a 22% annual growth. With a
sustained growth expected this value is expected to touch a whopping US $36,000
million by 2012, meaning a 50.9% growth for the sector.
Currently among the top three markets for global collaborations in entertainment and
media, the Indian media and entertainment industry is just about 0.5% of the global
media and entertainment industry. But outstripping the global industry growth rate
(6.6% for 2007-2012), the Indian media and entertainment industry is forecasted to
grow at a CAGR of 24.9% to be US$ 36,300 million by 2012.
The newly emerging electronic distribution chain has set the sector revamping supply
chains, content development and now business processes too. Indian entertainment
products are drawing global attention while the evolving media space is rapidly re-
inventing itself to meet the consumer’s accessibility to the convergent media of digital
entertainment and broadband access in the Indian household. On demand content
may come up as serious competition to physical distribution of media in the next 4-
5years.
While the media and entertainment sector is consumer driven, the industry is gearing
for the competition arising from the lesser availability of time and attention span of the
user. Growing on the scene are bundled products, newer distribution channels and
better and efficient means of communicating with the end consumers. The media
The media and entertainment scenario in India is changing rapidly as Indian and
foreign players are evolving their distribution channels to effectively reach to the
audiences with the use of online delivery mechanisms. Media convergence and
digitization are the new facets of the Indian media and entertainment industry.
Preferences for niche offerings are growing, be it video-on-demand and pay-per-view
or multiplexes with add-on facilities. News updates are taken off the Internet than in
print format. Digital music with its polyphonic tunes is the listener’s choice while radio
fills the air with multiple channels.
The industry as a whole has changed its face in moving from family owned to full
blown corporate houses. The convergence of various distribution platforms with
similar type of content and meet the consumer needs is a basic reason for most
amalgamations of technology and content followed by convenience of electronic
channels. The figure next provides a landscape of the changing face of media and
entertainment industry in India.
Television
Indian television industry is expected to be the top revenue generator among the
constituents of the media and entertainment industry. Revenue comes in the form of
subscription, advertising and software content. The television industry was the top
growth segment with a 20% growth rate, taking the industry to US$ 4,800 million in
2007.
New formats for distribution like the DTH (Direct-to-home) and IPTV (Internet Protocol
television) are the new subscription revenue generators and are likely to grow
cumulatively by 44% annually till 2012.Advertising revenues and value add services
are encouraging the launch of new channels. Regional programming is coming up a
selling factor in this field. Overshadowing mass entertainment channels are the niche
channels in segments like music, movie and children’s channels.
With more than 900 films churned out annually, the Indian film industry is the largest
of its kind in the world. Growth has been spurred by factors like digital formats,
multiplexes making a lifestyle statement at a comparable cost, digital technology
reducing time to market and the film industry turning into corporate bodies. This
industry, which was worth US$ 2,500 million in 2007, is estimated to grow at a CAGR
of 16.2% to US$ 5,300 million by 2012.
The value chain in this industry runs through the three main players namely, the
producer, distributor and exhibitor. Revenue for the producer are mainly from sales to
theatres, cable and satellite television, home video, music sales and in-cinema
product placements. Distributor earnings come from selling screening rights.
Distribution rights are purchased from the producer. Film exhibitors are the link
between the film distributors and the audience. Operating in two basic categories –
single and double screen cinemas and multiplex cinemas, the Indian film exhibitor
emerges as largely individuals operating in an unorganized sector.
The film industry faces a major challenge for survival due to the advent of alternate
viewing options like video and cable television. With people shifting to DVDs for film
viewing, the Indian cinema houses are fighting against tough and digital competition.
In the country’s economic boom this industry is working on recovery through growing
corporate format in the ownership structure and the spread of multiplexes.
Modifications in the tax structure are another factor serving as a helping hand.
Avenues for earning are also coming up in the form of dubbed versions of films,
merchandise in newer forms of mobile ring-tones, wallpapers.
Radio
Traditionally, radio has been the most cost effective source of entertainment in India.
With FDI and liberalized license norms the sector has shown a 24% growth in 2007.
The radio industry is forecasted to grow at a CAGR of 24.5% to reach upto US$ 300
million in 2012 from US$ 100 million in 2007.
The cheapest and oldest form of entertainment, reaching 99% of the population, this
segment is likely to see dynamic changes, with the advent of private players
(including foreign participation).
Print Media
The boom-time for print media is reflected in the fact that the segment has a growth of
16% in 2007 and is estimated at US$ 3,500 million. This rate is among the highest in
the world. Though the advent of digital media has made a big dent in the market
value of print media, but the rural masses are still on in terms of print media. With the
changes in the content planned by the operators, the segment is likely to maintain a
moderate growth path (to the tune of 12-14%) in the next 4-5 years.
Music
The Indian music industry, which until recently was overwhelmingly dominated by film
music, is now being propelled by non-film music as well. The Indian music industry is
Multiplexes
The media and entertainment in India works within the regulatory framework
prescribed by the government of India. Though this used to be restrictive in the past,
several moves to modernize the industry have been made in the recent years.
The Indian media and entertainment industry comes under the purview of Ministry of
Information and Broadcasting. The three divisions under the ministry are: the Films
Division comprising National Film Development Corporation (NFDC) and Central
board of Film Certification (CBFC), the Broadcasting Division, which overlooks Prasar
Bharti, AIR and Doordarshan and the Information Division comprising Press Council
of India and Press Bureau of Information. This is represented in the figure below.
FIGURE 18
Directorate of Films Festival -> Prasar Bharti -> Press Council of India
-> AIR -> Press Information
-> National
val film -> Doordarshan Bureau
Development Corporation -> Broadcast Engineering
-> Central Board of Film Consultants (India) Limited
Figure 5
Education
To boost the Indian media and Entertainment industry, the government has made
certain mandatory provisions for players in various sub-segments of the sector. The
key ones among them are:
Broadcast regulation: A new draft broadcasting services bill is in the offing, which
proposes imposition of cross media curbs and restrictions with regard to number of
channels owned by a broadcaster. The aim is to avoid the creation of monopolies in
the media sector. A content and carriage regulator called the Broadcast Regulatory
Authority of India is also proposed.
The key players in various sub-segments of the sector are mapped in the table below.
TABLE 22
Segment Players
Films Zee Telefilms, Adlabs Films and AVM Productions (in production, distribution and exhibition); Mukta
Arts, Pritish Nandy Communications and Rajshri productions (in production and distribution) and
Shringar Group and PVR Cinemas (in distribution and exhibition)
Television CNBC-TV 18, Discovery, ESPN Star Sports, MTV, STAR Network, Ten Sports, Walt Disney,
Doordarshan, NDTV, United Television, Nimbus, Sahara India, Sony Entertainment, Sun Television and
Zee Telefilms
Music Universal, Saregama India (HMV), Venus, Sony, BMG Crescendo, Virgin Records and Magnasound
Radio All India Radio (AIR), Radio Today, Radio City, Entertainment Network India and India FM Radio
Print Media Newspapers – Times of India, Hindustan Times, Hindu, Telegraph, Indian Express, Dainik Jagran,
Navbharat Times, Punjab Kesari and Mid-Day. Magazines – India Today, Readers Digest, Outlook,
Femina, Filmfare, BusinessWorld and Stardust
Multiplexes Shringar Cinemas, PVR Cinemas, Adlabs, Fun cinemas, Satyam, Wave and Inox
Convergence: The confluence of technology and media offers many benefits. Media
and entertainment companies are trying to take advantage of this. Different types of
media -- TV, Internet, books, magazines, movies, etc. -- are getting converged usually
via the Internet, creating a market for graphic design, web development, content
creation and direct marketing. Live chats, streaming music and videos, targeted
advertising and audience testing are examples of converged media applications
taking shape in the Indian market.
Deregulation: Fewer regulatory controls and more autonomy being given by the
governments in India is allowing companies to raise funds, and look at innovative
business structures and activities. They are able to operate more freely and are able
to generate newer ideas to provide variety and convenience to their customers
Open media: New digital technology will support the development of open media
firms that will base media and entertainment decisions on the changing consumer
behavior, which in turn will be influenced by affordable and sophisticated technology.
The closed media structure will give way to an open one.
Growth of pervasive media: Pervasive media, which represents the coming era
where consumers and businesses are fully connected, immersed in media all the
time, is growing at a rapid pace. Increased demand, power (larger megabytes of
content carried over smaller devices) and liquidity (portability and interoperability) are
the salient features of this growth.
Digitization and digital cinema: Digitization is the latest key word for distribution
channels, fo processes and content deliveries into electronic content. This has raised
the bar for technical sophistication and content production. As far as DTH,
digitalization of cable and IPTV go, India will have 90% penetration from an estimated
185 million television households by 2015. Digital cinema is also gaining popularity as
multiplexes grow in number and invest in improved technological solutions.
Improved print technology: Print media has grown in sophistication with the help of
improved printing technology and computer-aided processes. There has been a big
facelift seen in both the content and presentation of the media in the past decade.
Positive economic and demographic trends: With 60% of the population below 35
years of age and a rise in disposable income, the Indian consumer is willing to pay for
the content demanded. He is willing to shell more for what he wants to see than what
he used to a decade back.
TABLE 23
Increasing demand for content: On the television content side, it is expected that
the content production houses with well-established production processes, scale,
ability to identify customer preferences and changing audience tastes, diversified
revenue streams, strong creative talent and reputation for quality, will continue to be
in demand. The demand for television content and programming is bound to increase
significantly as a result of increasing number of channels, the need for broadcasters
to invest in content to differentiate themselves from the clutter, and competition
among broadcasters to pull viewers. The emergence of new distribution formats such
as DTH and broadband would also create additional outlets for content.
Untapped potential: Rural areas represent a large untapped market for media and
entertainment, with penetration rates presently far lower than semi-urban areas.
Television, especially, is attractive to rural Indians, as it exposes them visually to
trends and events in other parts of the country.
Piracy and the entertainment tax rulings: These are the bane of the film industry.
The problem of piracy assumes a different proportion in a country such as India with a
widespread area and a population of over 1,100 million speaking 22 different
languages. It impacts all segments of the industry especially films, music and
television. Also the entertainment tax rates in India are one of the highest in the world.
Currently it varies from 15% to 60% of gross box office collections (differing from state
to state) in comparison to the average rate of 10% in the developed countries. The
two big issues are hindering the growth of the M&E industry in India from realizing its
true potential.
Imbalance of offerings: The market share of international and regional films and
programming is skewed in favor of Hindi and Bollywood products. Foreign films
account for a bare 18-20% of the gross box office collections. The big hindrance to
the growth is the dubbing of the foreign films in the regional languages which not only
distracts the audience but also deteriorates the quality of the films screened.
Information technology and the solutions it offers are now definitely an indispensable
and inherent part of any media organization. Technology developments like
broadband access and Internet protocol, not only meet the needs for efficiency and
ease-of-use requirements of the consumer, but also offer opportunities to access and
manipulate content and services, when time and attention are in short supply.
Convergence is expected to change traditional industry structures, business models,
and distribution mechanisms. Media audiences would get increasingly fragmented,
thereby posing challenges as well as opportunities for players in the industry.
Storage: A reliable storage infrastructure is critical for the media and companies are
looking at networked storage through NAS and SAN initiatives. Companies are
consolidating their storage to minimize the need and are setting up business
Back-end and front-end integration: Integrating the back-end (such as, content
creation and management) enables flexible content re-purposing and eliminates
redundant storage of media content systems. Back-end integration enhances content
production, content distribution and storage, and overall distribution management.
Linking front-end systems (such as, content sales and distribution) supports optimum
brand-portfolio leverage. Front-end integration requires a unified view of the customer
and knowledge of his or her multimedia preferences. Analyzing that the firms that
have integrated content-creation systems with content-distribution systems are
realizing better returns on their assets (because they are in a better position to fully
exploit their content rights), more and more companies have started integrating the
two and are also equally focused on the implementation of ERP solutions. Though the
bigger players have already deployed the ERP packages, the smaller players are still
in the process of ERP deployment and are keenly focusing on the same in the next 1-
2 years.
RFID labeling for products: RFID labeling for VCDs/DVDs ensures absolute
correctness of data as the product moves around through the supply chain. An RFID
enabled product is also a value-add for the stores since it can effectively reduce the
shrink in the outlet. But the high costs of RFID tags have inhibited the adoption at
present. The prices of the tags need to come down for being economical for the
players to adopt them commonly.
Security and reliability: Companies are investing heavily in order to ensure security
and reliability of their online content. Security solutions, secured web-portal solutions
Virtualization and networking: With the objective of covering more and more
number of people under their viewership / listenership, the media and entertainment
companies are looking to ensure networking of all their offices, branches and sites.
By ensuring the automated workflow even at the correspondent level, companies are
trying to create a virtualized networking environment, which covers even the far-flung
correspondents. Since this is essential for business continuity, companies are highly
focused on networking and their networking requirements are expected to grow at a
much faster pace around 2010.
Conclusion
The media and entertainment sector in India is undergoing a major transformation.
Triggered by the influx of foreign players on the field, the distribution channels are
reinventing themselves to effectively reach audiences with the use of online delivery
mechanisms. The convergence of media and digitization has raised the level of
expectations of the consumer in terms of choice, quality and personalization of
services.
In this very dynamic scenario, media and entertainment business are investing
heavily into newer information technologies to upgrade their services. They are
deploying IT solutions to meet the demand for concepts like video-on-demand and
pay-per-view. Simultaneously print media and radio are competing for the market
share with the advent of sophisticated presentation, multi-channel access and a wider
content repertoire.
In India the retail industry is large, and is growing exponentially. The industry has a
huge appetite for investment and is already seeing a lot of action with the setting in of
organized retailing. A large number of interest groups especially the corporates are
eyeing to get a share of the Indian retail pie.
The retail sector in India is largely unorganized, and prevalent are the traditional
formats of low-cost retailing in the form of the local “mom and pop” stores, owner-
manned general and convenience stores or small time vendors and hawkers. The
organized sector, on the other hand, includes licensed retailers registered for
applicable taxes like sales and income tax. These are both corporate-backed
hypermarkets and retail chains and privately owned large format retail businesses.
In either case, the sector is identified and encouraged for its employment generating
potential. This could be with jobs directly associated with retailing or through related
Indian retail industry is predicted to be worth US$ 550,000 million by 2012 from US$
330,000 million in 2007; organized retailing is estimated to grow from US$ 16,900
million in 2007 to US$ 50,000 million in 2012. Such a small share of organized
retailing in India is the prime reason for the fact that India has lowest per capita
retailing space in the world despite of having the highest density of retail outlets in the
global arena.
The period 2008-2012 is being seen as one in which the retail sector is likely to
strengthen back-end systems and work on consolidation of businesses. Price wars
are likely to give way to drawing the customer with variety, convenience and hygiene.
Penetration into smaller towns and rural areas would be the trend rather than
expansion in metros and bigger cities.
While organized retail is growing it is also true that the trend is seen mostly in urban
areas. In these areas consumers are willing to pay just that bit more for a superior
shopping experience. The rural retail would continue to be driven by the unorganized
sector for next two years before getting into the organized retailing experience by
2010.
Presented in the figure next is the value chain and the segments and formats in the
Indian retailing.
FIGURE 19
Segments Formats
Speciality Stores
Departmental Stores
Watch/Jewelry Pharma Supermarket Convenience Stores
Exclusive Outlets
Footwear Health/Beauty
Factory Outlets
From the centuries old tradition of weekly markets and village fairs, the retail sector in
India initially graduated to the neighborhood grocery and general store. The
Government stepped in to support rural retail through Khadi and Village Industries
franchises. The opening of the economy led to the emergence of the market chain
store from textile manufacturers like Raymond, Bombay Dyeing, Grasim and Binny.
The 1990s sprung up pure retailers rather than manufacturers, with chains like Food
world, Nilgiris, Homeland, Planet M, and Crossword marking the landscape. By 2000,
shopping centers became home for hyper-stores and supermarkets with an even
better shopping experience.
Franchisee: The international player trades brand name and technology for
royalty.
Distribution: Goods are supplied for sale through a distribution outlet as in the
case of Hugo Boss and Swarovski.
Government initiatives: FDI in the retail sector is allowed upto 51% in single-
brand retail after approval and 100% allowed in cash and carry wholesale
operation. The limitations are kept with the view to protect small tie businesses
while benefitting from the increased scope for employment and other
development in the resource and technology gaps. But liberalization of the FDI
norms will have a multiplier impact on the economy not only in the retail sector,
but also in many other activities such as manufacturing, food processing,
packaging and logistic services. Not only it will lead to an increased influx of
imported goods, foreign companies will also be able to source most of their items
domestically and will in fact, use quality Indian products to stock thousands of
their outlets in foreign countries, thus giving a fillip to our manufacturing as well
as exports. But it is also believed that relaxing the FDI regime will expand the
organized retailing only by destroying the traditional retail sector. Also, there are
apprehensions that FDI in retailing would lead to unfair competition and
ultimately result in large-scale exit of domestic retailers, especially small family-
managed outlets.
Domestic taxation system: Different sales tax rates across different states in
India make supply chain management an immensely difficult task for the
retailers. While the differing tax and licensing systems across states could raise
some issues when organized retailers expand nationally, this could well protect
the interests of regional retailers. But the key to success is to build a fairly
extensive network of stores across the country to enable e-commerce
transactions. This in the emerging scenario would help retailers to target a wider
audience and maximize returns. Strength in physical distribution will remain the
backbone of any retail arrangement; however, ongoing investment in bandwidth,
development of internet facilities, and increasing awareness of IT among the
literate and educated population is expected to create a large base of online
shoppers.
Organized retail has launched into a high growth trajectory. Though in its nascent
stages, the sector has existing players moving in rapidly to book their space and lay
out expansion plans. Large investments are being set up by both domestic and
international interests to set up front and back-end operations in the industry.
The Indian retail already has a multi-faceted, multi-layered presence. Several players,
varied formats, organized and unorganized they are all there, each in its own space
and growing. In the organized segment established names in various categories are
inclusive of, but not limited to:
Corporate Houses: Future Group, Tata Group, K.Raheja Group, RPG, Landmark
Group, ITC, Reliance, Others
Dedicated Brand Outlets: Shopper’s Stop, Nike, Reebok, Zodiac, Levis, Others
The Indian shoppers are becoming more trend conscious than ever before. But the
value for money still remains the underlying principle for any purchase being made by
them. On the other hand, retail is becoming an investment option for businesses and
is being looked at as a potential goldmine. Thus the key trends shaping up both from
shoppers and investors perspectives are:
Heightened interest in Indian retailing: Seen as the most eventful and most
lucrative sector of the Indian economy, already established players have major
expansion plans for future operations; while on the other hand, there are many
corporate houses who are looking to foray into organized retailing sector with massive
investments upfront. The high-value, high-margin nature of apparel retail has
attracted several large business houses to invest heavily into retailing.
New formats and segments: Franchising, large format and specialty retailing are
gaining huge importance in the Indian retailing. Many multinational retailers are
firming up their entry strategies for India. Those already present in India are going in
for rapid expansions. Franchising is gaining pace with the retailers and franchisee
activity in tier-II cities pegged to rise.
Globalization of the sector: The trend to move out of saturated home markets and
make a footprint on the global scale is spreading. India is a most-favored destination
for global retailers.
FDI limitations: The Indian government has permitted 51% FDI in the single brand
retail. All other sub-segments are still closed for FDI. The government, though very
active on opening of the sector for foreign participation, is still very cautious with
regards to the FDI regime in the retail sector. Set up the government with the aim to
protect the unorganized sector and the small time businesses, these limitations have
foreign players waiting on the sidelines. Apprehensions of India becoming a dumping
ground for out-dated and below par quality manufactures are another obstacle in the
direction. But it is also opined that the sector and the Indian consumers will get their
due only when the foreign players will enter the market and the competition gets
intensified.
Lack of industry status to retail: The retailing policy in the country is subject to
random regulation by various ministries. The finance, trade, industry and commerce
ministries randomly regulate retailing from time to time. There is no single body
responsible for the industry. Because of the non-availability of the industry status, the
sector also suffers from the lack of established retailing norms. Varying taxation
regime across the country especially with regard to sales tax, octroi, differing tax and
licensing systems is also the outcome of lack of unity of command for the industry.
High cost of real estate: High cost of real estate especially in city centers impacts
setting up of retail outlets in accessible areas. High overheads and labor cost are
additional deterrents for setting up an outlet in urban areas.
Inadequate infrastructure: Back-end support and logistics of the supply chain are
much needed for retailers to improve operational efficiency. A dedicated distribution
sector would definitely aid growth while cutting costs. With the agricultural sector
remaining largely unorganized formats like hypermarkets remain insecure of the
availability of steady supply of farm produce. Non-agricultural suppliers too are
suspect in terms of service levels delivered.
High churn rate of preferences: The Indian consumer keeps the retailer on his toes
with the rapid rate of demand patterns. Resulting lower life cycles of products prevent
benefitting from the economics of scale.
IT has been a growth partner for the retail sector in India and is seen as a facilitator in
achieving business objectives. Strengthening of back-end processes is an aspect in
which IT solutions are gaining importance. There is also the need for better customer
interface, operation support and strategic decision-making. A number of organized
retailers in India have installed solutions ranging from simple point-of-sale (PoS)
systems to complex retail ERPs. The demand for enterprise-wide IT platforms that
come up in a modular manner, with clearly defined goals and ROI, is growing.
Scalability of solutions is the key to their increased utilization.
Business Intelligence: Though the thrust in this direction is still to gain importance
from businesses, larger scale enterprises would need to consider investing in this
technology to maintain their competitive edge. They need information for
understanding the changing consumer patterns and choices for which BI and CRM
are going to be the key solutions which the sector would deploy in the next two years.
Data Centers: Based on the size of the enterprise and its spread data centers with
servers, storage, back-up systems and remote disaster recovery systems are the
prime focus areas of major retailers in the Indian retailing today. The big stores are
capturing the data locally, which is shared with the data center at the central location
on a real time basis through Virtual Private Network. The convenience/small stores,
or the stores located in places with poor communication infrastructure are sharing the
information periodically with its central data repository, which is then updated at all
the locations simultaneously.
Retail ERP packages: Presently ERP modules in retail are essentially looking at
inventory management, finances and accounting. Cost of the software is often a
deterrent slowing down their implementation. Specialized retail ERP packages
offering integrated solutions for demand forecasting, merchandising, replenishments,
Format compatible solutions: Emergence of newer retail formats like kiosks, mobile
credit card processing, virtual terminal, PDA with card reader, two-way pager with
magnetic card reader and portable PoS swipe are slowly but substantially finding
increased usage in Indian retailing. They are going to become a key feature of
planning and decision-making among the vendors by 2010.
Conclusion
Retailing in India is witnessing exponential growth, despite of being the most difficult
sector to operate in. Going forward, the economies of scale, strong supply chain
logistics and futuristic planning will be the key focal points for the competitive retailer.
IT will form the backbone of strategies for offering competitive pricing and a robust
bottom line through improved management of stores and improved customer
experience. The vast geographical spread would require distributed yet centralized IT
infrastructure. IT will bring its own challenges in terms of management and optimum
utilization of IT infrastructure. Retailers will be required to manage the complete IT
environment on one side, and also look at changing business requirements and adopt
IT accordingly, managing the challenges it embarks on them.
The Indian economy uses a variety of energy sources, both commercial and non-
commercial. Fuel-wood, animal waste and agricultural residue are the traditional or
non-commercial sources of energy that continue to meet the bulk of the rural energy
requirements even today. However, the share of these fuels in the primary energy
supply has declined from over 70% in the early 1950's to around 30% as of today.
The traditional fuels are gradually getting replaced by the commercial fuels such as
coal, lignite, petroleum products, natural gas and electricity.
The power supply position is characterized by shortages both in terms of demand met
during peak time and overall energy supply. The Indian Power Sector is a regular
importer of energy, because of the huge disparity between production and
consumption. If the process of energy development is allowed to proceed along the
current standards, the supply-demand gap in the energy sector is likely to widen to
such an extent that a very substantial proportion of the country's export earnings will
have to finance the energy import bill in the coming decades. In the long run, this is
evidently unsustainable. The substantial increase in electricity demand is difficult to
sustain entirely on the basis of indigenous resources of coal and hydro-electricity. As
a result, the country may have to import not only oil but also coal in large quantities if
the steeply increasing demand for electricity is to be fully met.
The power system in India is organized as five geographical regions (North, West,
East, South and North-East) for administrative purposes, management of
transmission systems (regional grids), load dispatch functions and for the purpose of
balancing and settling of inter-state energy transactions. The five regional grids are
connected by high voltage AC and DC transmission lines thus forming a unified
national grid catering to the inter-state and inter-region transfer of electricity. These
five regional grids comprises of:
Western Region: Dadra and Nagar Haveli, Daman and Diu, Chattisgarh, Goa,
Gujarat, Madhya Pradesh and Maharashtra
The power sector in India offers an aggregate investment opportunity of over US$
200,000 million over the next five years. Investment opportunities in the sector have
opened up across the value chain for the segments of
Generation: Through power plants classified on the energy source used for
generation such as thermal, hydroelectric or hydel, nuclear or non-conventional
Transmission: With aggressive capacity additions in power till 2012, India would
be requiring a huge infrastructure build-up for the transmission of the power
among the states
Through the process of planned development undertaken over the last six decades,
the country has taken major strides in stepping up the production of primary
commercial energy. Coal continues to be the main source of primary commercial
energy not only for direct energy use in industry but also for indirect energy use
through power generation. Concerted efforts made in exploration and development of
hydrocarbons has led to a significant step up in the production of oil and natural gas.
However, in the recent years, the production of crude oil has been stagnating. The
availability of hydro-electricity has also increased significantly. There have been
additions to nuclear power generation capacity as well. The wind power generation
has also picked up significantly during the last ten odd years. Thus the Indian power
sector has picked up substantially in the last 10-15 years but the growth has still been
Evidently, some fundamental changes are imperative in the working of the power
sector entities to realize the vision of “reliable, affordable and quality power for all by
2012”. The reform process is in progress in several states under the overall guidance
of the Ministry of Power. It is aimed at bringing about sustainable improvements in the
operations of the power companies and making them viable businesses. The reforms
have brought about various improvements in the operational structure, commercial
orientation, transparency in operation and overall customer orientation in several
states. However, there has been limited success in institutionalizing these changes
and sustaining these improvements over a period of time. Therefore, the need is to
institutionalize the changes and bring about sustainable and pervasive improvements.
The Electricity Act 2003: The enactment of the act liberalized the framework for the
development of the power sector. Aiming for the a reliable availability of power by
2012 the act advocated:
The National Electricity Policy (NEP) 2005: Enacted in compliance with the
requirement of the Electricity Act 2003, the NEP 2005 encourages competition, profit-
making and privatization in the power sector. The policy envisages:
National Grid: The Central government, in 1981, approved a plan for setting up a
national grid to optimize the utilization of generation capacity through the exchange of
power between surplus and deficit regions. The process of setting-up the national grid
Tariff Policy, 2006: The objectives of the tariff policy are to:
Power Trading: The concept of exchange of power from suppliers with surpluses to
suppliers with deficits was identified as an activity separate from generation,
transmission and distribution. Seasonal diversity in generation and demand, as well
as the concentration of power generation facilities in the fuel-rich eastern region of
India, has created ample opportunities for trading of power. Power trading is cost
effective as the transmission of power and the setting up of large scale generating
stations at specific locations near the fuel source is cheaper than transportation of
fuel and setting up small generation facilities near each load center.
According to the 16th Electric Power Survey conducted by the Central Electricity
Authority (CEA), the demand for electricity is expected to double by 2012. This
translates into a requirement for an additional generation capacity of 100,000 MW,
which implies almost doubling the total installed capacity over the next few years. But
the capacity addition program has fallen short of its target in all the years of the tenth
five-year plan. Thus the sector needs to pick up big to reach to its targets, else the
saying "Targets are for non achievement" would get proved right once again.
At the state level, the SEBs/state utilities and private sector are expected to add
about 41,800 MW
The Indian power sector fields players from various organizations including central
ministries, state power/energy departments, electricity regulatory commissions,
electricity boards/departments/generation companies, transmission companies,
distribution companies, state nodal agencies for renewable energy resources, central
sector utilities, among others.
The table next lists the key players in various sub-segments of the industry.
TABLE 24
Segment Players
Power Generation NTPC (National Thermal Power Corporation), NPC (Nuclear Power Corporation of India Ltd.),
NHPC (National Hydro-electric Power Corporation), North-Eastern Electric Power Corporation
Ltd., Bhakra Nangal Management Board, Torrent Power, Neyveli Lignite Corporation, Nuclear
Power Corporation of India, GMR Group, Satluj Jal Vidyut Nigam Ltd. and the Damodar Valley
Corporation
Power Transmission (inter- Damodar Valley Corporation, Power Grid Corporation of India and Power Grid Corporation of
regions/among regional India
hubs)
Power Distribution (intra- Reliance Energy, Calcutta Electricity Supply Company and Tata Power
region)
Growing attraction for the foreign investor: With opening of the sector, foreign
investors have been attracted particularly to the generation segment of the sector.
Distribution privatization also attracted international interest initially, but soon waned,
mainly due to concerns of continuing cash losses in the sector and the regulatory
environment. But generation is the segment with heightened international interest.
Rural electrification: Rural electrification is being rolled out as a vital program for
socio-economic development of rural areas. The objectives are to trigger economic
development and generate employment by providing electricity as an input for
productive uses in agriculture and rural industries and improve the quality of life of
rural people by supplying electricity for lighting of homes, shops, community centers
and public places in all villages. Thus we are going to see some strong and
concentrated efforts from the states in the next 4-5 years to complete the 100%
electrification target by 2012. This presents a great opportunity for the power
operators to collaborate with such state governments and take the initiative further.
Open access: The Electricity Act envisages an open access regime with a phased
opening of the market for large consumers. This policy allows consumers utilizing
over 1MW power, to choose their supplier. A significant number of State
Commissions have laid out the roadmap for the gradual opening of the power market.
Regulations and other implementation requirements are in varying stages of
development. The table below shows the phasing of the open access in such states.
TABLE 25
Phasing Out of the Market to allow Consumers choose the Supplier of their
Choice (MW), 2005-08 Scenario
Phasing Out of the Market to allow Consumers choose the Supplier of their
Choice (MW), 2005-08 Scenario
Gujarat -- -- -- 1 (Dec)
Staggering of loads: There are two peaks in the daily demand curve of power
utilities in India: in the late morning (due to industrial and irrigation loads) and in the
evening (due to lighting load). By staggering the load through statutory provisions, the
peak demand in the two periods can be reduced significantly. For instance, in some
states, the weekly holidays of all industrial and large commercial houses are
staggered over the week, instead of having a common holiday.
Supervisory Control and Data Acquisition (SCADA): The SCADA system supports
the power system operator in controlling the remote or local terminal equipments such
as opening or closing of the circuit breaker with security features like authorization
Formation of the National Grid: The initiative started for the optimal utilization and
distribution of generation capacity. In order to optimize the utilization of generation
capacity through the exchange of power between surplus and deficit regions and
exploit the uneven distribution of hydroelectric potential across various regions, the
Central government, in 1981, approved a plan for setting up a national grid. The
process of setting-up the national grid was initiated with the formation of the central
sector power generating and transmission companies, National Thermal Power
Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Power
Grid Corporation of India Limited (PGCIL). A national grid would enable the optimal
utilization of energy resources by facilitating a uniform thermal-hydel mix among
various regions. From a regional perspective, the exploitation of thermal and
hydroelectric resources may not be economically viable in some cases, although it
may be so from the national perspective.
India-US nuclear deal: In the wake of the recent US-India civilian nuclear deal, the
government is thinking of setting up ‘Atomic Parks’ to augment nuclear power
generation capacity at a fast pace. The proposal, though still at a preliminary stage, is
aimed at setting up a large number of nuclear power units at each site to achieve the
twin prong strategy of enhancing the potential for new capacity addition and also
streamlining the process of possible International Atomic Energy Agency inspections
of the civilian nuclear sites in the future.
Revenue losses: Organizations like State Electricity Boards are running in loss due
to power thefts and overall inefficiency. Nearly 50% of the supply goes unmetered
and this problem is more acute in urban and semi-urban areas. Although SEBs have
been granted partial financial autonomy, most of them work under the administrative
control of the respective state governments. The tariffs for agricultural and domestic
consumers are subsidized in most states.
High tariffs: Indian consumers pay the highest tariffs in terms of power parity. Also
the pricing policy is less than transparent with a number of components determining
the final cost.
Policy issues: Absence of clear-cut policy guidelines has been an obstacle for
development of power projects. Government subsidies to agricultural customers
reduce profitability. Bureaucratic interference is another pain area for the players in
the sector.
With the increasing participation of the private players and the impacting emergence
of Information Technology, the Indian power sector is deploying IT in the following
areas:
Application architecture
Data architecture
IT adoption in the Indian power sector is behind the global best. With several core
process still not automated, efficiency takes a hard hit. Even those using IT
extensively are still struck with the piecemeal approach rather than a holistic
perspective.
The possibilities of inculcating IT in the power are interesting and convenient. The
range of applicability stretches over all aspects of the sector from technical to
commercial and material management to HR. These can be brought in a phased
manner to match available investment. Further, the phasing can be done along other
parameters like application functionality, geography and customer type. With
increasing deregulation in the power sector, a huge set of computer-enabled tools are
available to make the whole set of operations more viable.
Integrated billing and collection system for large commercial and industrial
(C&I) customers: These include meter reading, billing, payment and collection
improving efficiency for C&I customers to eliminate scope for tampering and
manipulation and thus improve collection as C&I customers contribute more than 70%
of the total power sector revenues.
Energy accounting system: These capture data at various stages of the customer
mapping system permitting loss detection and increased distribution efficiency. Based
on the data, energy accounting system must provide information about losses at
different levels. This will help them in utilizing the information on loading, voltage and
consumption at different levels for network management, reduction in outages and
managing the peak demand requirements.
Management information systems (MIS): MIS for power sector includes information
on finance, operations, customer satisfaction and development/investment including
that of human resources. MIS takes care of the varying information requirements for
monitoring and decision-making at different levels in the hierarchy. Otherwise, huge
data generated from MIS will not be of any significant use. The structure of MIS
should be SEB-specific to address the differences in organizational structures and
responsibilities at various levels, but at the same time should be generic enough to
provide standard information at the national level.
Meter reading solutions: Electronic meters, digitization of meter reading, hand held
devices or RAMCRAM are today finding increased usage in the sector; overcoming
issues of billing accuracy and speed while cutting costs.
Conclusion
Privatization of the power sector in the country was a big success. It is now up to the
private regimes to grab the latest that IT has to offer to push the Indian power industry
into the digital age. Also with the planned size of investments and understanding the
importance of power in any economy, IT will pay an increasing role in the sector in the
coming years. Policy reforms combined with institutional restructuring at various
levels make the sector commercially attractive. Establishment of independent
regulatory commissions, tariff orientation to commercial principles, and improvements
in operational and financial aspects of state utilities have been steps in the right
direction. Now the need is to keep these reforms and efforts going to achieve the
targets of 100% electrification by 2012. The planned increase in generation capacity,
implementation of open access and concentration of generating capacities in certain
parts of the country warrants an increase in transmission capacities, taking India
closer to its targets in the sector.
Energy requirement is the focus in the economic development of any country and an
important issue today. While a growing GDP always is encouraging, a growing
population stretches the environment, infrastructure and natural resources of the
country. In India’s case, both these factors are in their growth phase. The economy
continues to grow fast, permitting the country’s per capita income to grow 7.2%.
India, which stood at fifth position in terms of energy consumption in the world in
2002, is now depending on other countries for fuel due to high energy demand. India
meets a large part of its crude oil demand through imports only. Currently India is the
ninth largest importer of crude oil in the world.
The consumption of natural gas grew at a CAGR of 2.7 % in the period 1999-2005,
supported by rise in availability through domestic and imported sources of gas. Oil
comprises 36 % of India’s primary energy consumption and is expected to grow both
in absolute and percentage terms driven by overall economic growth. Growth in
demand is expected to catapult the overall demand to 196 million metric tons by
2011-2012 and 250 million metric tons in 2024-25. During the same period, domestic
production from existing developed reserves is expected to grow at approximately
2.5%. Natural gas comprises 9% of India’s primary energy consumption at present
and will be around14% of energy mix by 2010. Demand for natural gas is also likely to
Oil Segment: India’s demand for oil has consistently been far in excess of its
domestic production. It gets 66% of its crude oil imports from Middle East and the
balance is from other countries.
Natural Gas Segment: Natural gas has gained tremendous importance, both as a
fuel and as a feedstock over the past 20 years. Demand of natural gas is currently
met by domestic production but LNG is imported.
Liquefied Petroleum Gas: LPG is largely used as a domestic fuel in India. The
domestic segment accounts for around 78% of the total LPG demand.
The oil and gas industry started in and for a long time remained limited to the state of
Assam. Declared a core industry by the Government of India it remained the playing
field of two government owned companies, or the national oil companies (NOC)
namely -- ONGC and Indian Oil. Production and exploration were controlled under the
Industrial Policy Resolution, 1954. Starting with a domestic oil production of 250,000
tons per month, the NOCs managed about 70% of the domestic requirement by
1970s.
With the growing consumption and steadily decreasing production brought the NOC
supply to 35% of the market requirements. The 1980s made the picture even bleaker
with a resource crunch from the government. Development of fields came to a
practical standstill. With the Petroleum Sector Reforms (PSR 1990) conditions began
to pickup to contribute to 45% of the domestic primary energy consumption. This was
further enhanced with the deregulation of the industry in 2002, permitting the entry of
private players. There was also the rethink phase in 2002-03 elevating the status of
resources like CNG to meet fuel and energy requirements in the country.
India offers favorable investment climate across all the sub-segments of oil and gas.
The regulatory regime of India permits Foreign Direct Investment (FDI) into petroleum
sector without any constraints. Upstream sector investments are facilitated by
The tables next provide an overview of the FDI regime in the sector and the policy
evolution for the same.
TABLE 26
LPG / Natural Gas Pipelines Upto 100% FDI through automatic route
TABLE 27
Policy Highlights
Model Production Sharing Contract and Petroleum Tax Guide provided upfront
Attractive Fiscal Corporate Tax deduction and allowances available to companies prospecting for oil and gas
Incentives,1999-2003
7 year tax holiday
Capital expenditures incurred in respect of exploration and drilling operations fully tax deductible
Policy Highlights
Reduction of subsidy on domestic LPG and kerosene sold through the public distribution system
Draft Petroleum & Natural The Government has tabled a Draft Petroleum & Natural Gas Bill in the Parliament, which
Gas Regulatory Bill, 2004 proposes a Petroleum & Natural Gas Regulator to regulate all downstream activities in India
(for Downstream Oil and (which include refining, processing, storage, transportation and gas transmission and distribution,
Natural Gas Operations) setting up LNG terminals and gas retailing etc) along with ensuring that marketing companies
comply with retail regulations
Common Carrier Pipeline Pipelines are built on a common carrier principle. The Policy allows two or more companies to
Policy, 2002 (for Product use a single pipeline. Entities laying pipelines will have to provide 25% extra capacity. This extra
Pipelines) capacity will be available to other users on the common carrier principle.
Draft Gas Pipeline Policy, Proposed Regulator to authorize laying of new pipelines
2003
Any entity desirous of transporting gas owned by it will negotiate with the pipeline owner on terms
of transportation as may be mutually agreed
The Regulator, in consultation with the state governments, will prepare a long-term plan for the
Gas Pipeline Network, for its growth in various states and across various regions to enable
industrial growth
Draft Auto Fuel Policy A comprehensive policy on auto fuels, their availability and security of supplies, vehicle
technology, and emission reduction in a cost effective manner.
The government of India through its nodal wing, Ministry of Petroleum and Natural
Gas has created extensive regulatory framework in the segment of exploration and
production through NELP rounds. Of the extensive resource base in India, E&P
has been initiated in earnest only in 44% of the area. Since 1980, eight
exploration rounds, one round for joint venture and six rounds under NELP have
been offered for global bidding. The Government of India, offered 69 small and
medium sized oil and gas fields in onshore and offshore to private sector, in 1992
and 1993. Under the first round, NELP I Government of India, invited bids on 8th
January 1999 for 48 blocks, for exploration of oil and natural gas. The PSCs
were signed for 24 exploration blocks. Since then, within a short period, a total of
16 discoveries have been made in two Krishna-Godavari deepwater blocks and
one shallow offshore block of Mahanadi – NEC.
Under the fourth round, NELP IV, Government of India, invited bids in May 2003, for
24 blocks for exploration of oil and natural gas. The PSCs were signed for 20
exploration blocks. Under the fifth round, NELP V, 20 exploration blocks have been
awarded to different consortiums/individual companies. 55 exploration blocks were
offered under the sixth round, NELP VI, in February, 2006, the highest offering so far,
covering an area of 352 thousand square kilometres. The Government of India, had
received 165 bids for 52 blocks by the bid closing date. Three deepwater blocks did
not receive any bids. A total of 68 companies, including 36 foreign companies and 32
Indian companies, submitted bids either on their own or as joint ventures and 52 deep
water blocks have been allocated to 13 companies/consortiums. A seventh round of
exploration, NELP VII, is currently under offer.
The oils and gas sector offers the entry of players in four key operational segments:
The table next provides a listing of the key players in the Indian oil and gas sector in
India.
TABLE 28
Segment Players
Exploration & Oil & Natural Gas Corporation: with subsidiary company ONGC Videsh Ltd
Production
Oil India Ltd
Reliance Energy
Cairn Energy
Premier Oil
Segment Players
Refining, Marketing Indian Oil Corporation Ltd: with the subsidiary companies IBP Ltd, Chennai Petroleum Corporation,
& Pipelines Bongaigaon Refinery & Petrochemicals
Hindustan Petroleum Corporation Ltd: with its subsidiary Mangalore Refinery & Petrochemicals
ExxonMobil Lubricants
Supply infrastructure growth: Pipeline infrastructure is in the limelight with the need
to connect existing markets to sources of gas supply, both existing and potential. The
southern region has so far seen no development as far as pipelines are concerned.
Hence, the south will see lot of action as far as pipeline infrastructure development is
concerned. There is also a need to connect Punjab, Haryana and Rajasthan to the
existing pipeline infrastructure in the northern region. All these projects will involve
huge capital investments. In view of these, there has been renewed interest among
the players who want to invest in the sector.
st
Taxation reforms: Radical changes effective 1 March 2005 including subsidy on
PDS Kerosene and LPG , customs duty on petrol and diesel etc with compensation
for revenue loss balanced with hike in excise duties has provided a big boost to the
sector players in marginalizing their losses.
Rising oil prices: Increasing oil prices at international level is putting pressure on all
oil companies. This pressure is impacting the profitability and future expansion plan of
the oil marketing companies in a big way.
Oil equity driving competition: Having chosen international oil equity as one
method of achieving oil security, India has begun acquiring oil assets in other nations.
As China is also aggressively pursuing oil equity, India and China will increasingly
compete for assets. While China’s diplomatic efforts and the financial strength of its
companies give it an edge, its all-out pursuit of oil, even at the cost of profits makes it
a very tough competitor. Competition will also intensify from major oil companies in
other countries, including the US, which are now increasing their focus on oil.
Supply deficit: Growing demand for refined petroleum is constantly widening the
supply demand gap. India has 0.5 % of the oil and gas resources of the world and 15
% of the world’s population. This makes India heavily dependent on import of crude
oil and natural gas. India’s crude oil production has also been flat over the last 10 or
more years, whereas its refining capacity has grown by 20+% over the last 5 years.
Product adulteration: Kerosene and diesel with the current government subsidy
become lucrative adulterants in petrol. India's pricing policies for petroleum products -
- end-user price caps -- are increasingly causing oil product adulteration and pollution
in addition to severe imbalances in demand and supply for oil products as well as
rising subsidy bill and heavy financial losses by refineries. The adulteration is
happening primarily due to widespread differences between administered prices for
kerosene (which is sold at US$ 0.225 per litre) and gasoline (petrol at US$ 1.1 per
litre, or diesel at US$ 0.9 a litre). Consequently, as much as 50% of kerosene is
diverted for illegal blending.
Apart from technological applications in the production field, IT is playing a major role
in the makeover and accessibility options for the regulatory authorities. IT solutions
like ERP, CRM are gaining foothold on par with GPRS and online monitoring. The
sector, with several big players on the scene is aware of the advantages of IT solution
implementation. Funding and technical familiarity are therefore, non-issues for
implementation and upgradation for the players.
CRM and SCM: With most of their customers (industrial) almost through with their
plans of automating the supply chains, the oil and gas companies too automated their
supply chains and are implementing CRM. They are also embarking on CRM
implementations in a big way. They are looking to connect to their distributors and
dealers. The advantage that the oil and gas sector has is that it mainly has big
players operating in the sector, who are very well versed with the use of information
technology, IT deployments and also do not face acute fund shortage for IT
applications. They are very adapt to using IT in their processes and generally do not
resist new technologies, softwares and systems.
Online Monitoring of Inventories: Oil companies today are establishing systems for
online monitoring of their inventories. This has largely been forced by the automation
of their supply chains and implementation of CRM. The online monitoring system
helps in keeping track of the inventory levels at various locations of the company and
thus facilitates the inter-location stock transfers.
Data warehousing: With the application of the CRM and the increasing focus of the
companies on the business intelligence and data mining, the companies are currently
focused on setting up of their data centers. Though the major and well-established
players are through with their establishment plans, the new comers are still in the
process of completing the built-up of their data centers.
RFID: This technology is being used in three broad areas: asset life cycle and
maintenance tracking of machines like pumps and engines while transportation,
supply chain applications and for ensuring safety of the goods. Through the
deployment of RFID technology, companies can track goods in the supply chain itself.
Also, the sensors help in monitoring the temperature, shock and vibrations while the
products are transported. Though the same has not find heightened usage in the
industry but with growing maturity the same has started to become a part of the board
room discussion of the large players in the sector, though they have not been able to
finalize anything concrete on the same.
Conclusion
The Indian oil and gas sector looks very opportunistic with heavy emphasis on
deployment of IT initiatives. As the sector is struggling to meet domestic demand,
there is a growing concern for energy security. The growing demand poses the threat
In this context, the key issues faced by India that have significant energy implications
are rising population, need for economic growth, access to adequate commercial
energy supplies and the financial resources needed to achieve this, rational energy
pricing regime, improvements in energy efficiency of both the energy supply and
consumption, technological up grades, a matching R&D base and environmental
protection.
Also the key initiatives of the oil and gas companies moving forward are going to be
forced by the compliance towards regulatory requirements. The companies are
looking to leverage information technology to comply with the Euro III and Euro IV
norms in the refineries. Also, with more and more emphasis on petro-retailing by the
companies; and with the expected surge in the retail outlets of the companies, their
automation, integration and networking is going to drive the major IT spending of the
companies in the coming 3-4 years. Thus, the technologies like RFID, store
automation, networking systems and compliance with the regulatory requirements are
going to be the IT norm for tomorrow in the oil and gas sector.
The Indian pharma industry is poised to become a regional hub for R&D,
manufacturing and exports within the next decade. India’s clinical research industry,
which is now worth US $140 million, is expected to reach over US$ 1,000 million by
2012 growing at a CAGR of 48.2% (2007-2012). Moving ahead since clinical research
trials is going to be a big area for the Indian pharmaceutical industry, the potential for
growth is as high as 40-50% on an annual basis.
With close to 6,000 companies, the Indian pharma industry is one of the most
fragmented industry in the world, and its development has been very interesting. In
the beginning; the government of newly independent India emphasised rapid
industrialisation and invested heavily in pharmaceuticals, but did not discourage
foreign companies from competing in India. As a result, foreign products ruled the
Indian pharmaceutical industry and drug prices in India were among the highest in the
world.
The year 1954 saw the establishment of Hindustan Antibiotics Limited (HAL), followed
by Indian Drugs and Pharmaceutical Ltd. (IDPL) in 1961. These two enterprises
played an important role in starting domestic production of key bulk drugs and in
diffusing substantial spillovers in terms of technical know-how, technology transfer
and the technology innovation process/system. The pharmaceutical industry policies
during this era continued to emphasise national health and self-reliance rather than
indigenous production, and allowed MNCs to exploit the Indian market.
In 1970, the size of India’s pharmaceutical industry was very small (around US$ 90
million). The relative absence of organised Indian players added to high costs of
pharma products. The dependence on imports for important drugs was very high.
That year also saw the Indian Patents Act, which came in to effect in 1972. It granted
patents only for the method and process of manufacturing substances by chemical
processes to be used as foods, medicines and drugs. Its aim was to encourage
domestic producers to manufacture drugs and achieve self-sufficiency in medicines.
The Drug Price Control Order also came into existence around that time, capping the
prices of all bulk drugs and formulations at reasonable prices. It also regulated the
production pattern of pharmaceutical companies by fixing a ratio between the
formulations and bulk drugs produced by the companies. This led to greater
investments in the production of key bulk drugs such as antibiotics and cardiovascular
drugs, and hence, ensured their availability.
The period after liberalisation saw a fresh lease of reforms, and set into motion the
innovation and research phase of the Indian pharmaceutical industry.Once the Indian
market opened up to foreign firms and the import of goods, the demand for improved
manufacturing processes and new products drove the need for new technology and
innovative products at par with international products.
The period from 1990 to 1994 was one of high growth for the domestic
pharmaceutical industry. As part of the reforms process, tariff barriers were lowered
and FERA regulations were relaxed. This not only benefited Indian producers, it also
encouraged foreign investment. Many Indian players made the effort to increase their
presence in the global market. All this resulted in increased competition in the
industry.
In 1995 the Indian government agreed to adhere to the WTO’s product patent
regimes, which caused MNCs to pursue the Indian market more aggressively.
However, due to more intense competition in the domestic bulk drugs market, many
producers shifted to the marketing of generic formulations, especially in the
alimentary and anti-infective segments. This marked the transition of the Indian
pharmaceutical industry from bulk drugs to formulations. Also, the rate of introduction
of new drugs grew consistently, and the pressure to introduce new products at
affordable prices rose to ensure reasonable volumes. Adding to that was the quest by
the domestic players for exports to the semi-regulated markets, which gave them a
new avenue for increasing their revenues.
The early years of the 21st century saw heavy investments in research and
development activities by domestic players, who upgraded their manufacturing
facilities to ensure compliance with domestic and international regulations. The WTO
regulation also forced Indian players to seriously consider the option of generic
markets. Conversely, the government's move on product patents and its decision to
grant exclusive marketing rights strengthened the interest of MNCs in the domestic
market.
In 2005 and 2006, the Indian pharmaceutical industry was exposed to a series of
regulatory developments, ranging from the recognition of product patent in January
2005, implementation of value added tax (VAT), a shift in excise duty levy to MRP-
based levy to Schedule M implementation. Presently the industry is also benefiting
from the advent of information technology and is utilising the latest technologies for
manufacturing, and research and development processes.
In the near future we are expected to see an increased exposure to the use of
information technology, with newer technologies like RFID and knowledge
management finding increased acceptance among various players. Factors such as
changing Intellectual Property and patent laws, favourable cost/skill ratios, the past
success of outsourcing in IT fields -- all these have converged to create a compelling
business opportunity for Indian companies in pharmaceutical market.
The Indian government has played a very active role in the Indian pharmaceutical
industry. Some of the key regulations are:
Tax Benefits: The Excise and Income Tax Free Zones are a boon for the small and
medium pharmaceutical companies, particularly those engaged in contract
manufacturing. In the 2008-09 Union budget it was proposed to totally exempt certain
specified life-saving and bulk drugs used in the manufacturing of such drugs from
excise duty, while reducing customs duty on such products to 5% from the present
10%. The excise duty on both the bulk drugs and the formulations were reduced to
16% in 2006-07, and has now been further reduced to 8% in 2008-09.
Pharma R&D Fund: The Government of India has created a pharma R&D fund with
a total corpus of US$ 33.3 million. The fund will act as a grant for public institutions
and a loan to the industry.
Drug Price Control Order: To keep the prices of the drugs, especially the life-saving
and essential drugs, the government introduced the drug price control order for the
first time in 1970. In 1987, the order was modified for the first time, and then again in
1994 when the number of drugs under the control was further brought down to 74.
The Indian Patent Act, 1970: The Patent Act, 1970, came into force in 1972. It
recognized only process patents and not the product patents. Though it hindered the
growth of MNCs in the Indian pharmaceutical industry, it gave a boost to the domestic
pharmaceutical players and also restricted the monopoly of MNCs.
The Patents Act, 2005: Necessitated by the WTO regulations and the well-balanced
development of the domestic pharmaceutical industry, the Indian government has
moved back to the product patent regime from January 2005. This has re-entrusted
the confidence of the MNC players in the Indian pharmaceutical market and are now
investing heavily in India after being ensured of non-copying of their products.
Quality Control: To improve the existing state drugs testing laboratories and to set
up new ones, wherever not established, funds have been sanctioned under a
centrally sponsored scheme for the same.
National Drug Policy, 1986: A National Drug Policy was introduced in 1986 with the
main objectives of ensuring availability of essential and life-saving and prophylactic
medicines of good quality at reasonable costs; strengthening the system of quality
control over drug production and promoting the rational use of drugs in the country;
creating an environment conducive to new investment; and strengthening the
indigenous capability for production of drugs
Pharmaceutical Policy, 2002: The drug and pharmaceutical industry in the country
faced new challenges in 1990s due to liberalisation, the globalisation of the world
economy, and the new obligations undertaken by India under the WTO agreements.
In the wake of these, the Indian government came up with a new pharmaceutical
policy in 2002 with the major objectives of:
Strengthening the indigenous capability for cost effective quality production and
exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical
sector.
National Pharmaceutical Policy, 2006: The most important feature of this policy is
to bring down the prices of medicines by including 354 specified drugs in addition to
the already existing list of 74 drugs under the list of essential medicines. The policy
proposes to increase the maximum allowable post-manufacturing expense (MAPE)
from the current 100% to 150%. Drug prices will be fixed for all drugs in the cost-plus
price control system based on the given percentage of MAPE. The key features of the
policy are:
Schemes for providing accessibility of drugs to the poor, especially below poverty
line (BPL) families. The major schemes are Health Insurance, National Illness
Assistance Fund and State illness Association Funds, among others
Traditionally MNCs have dominated the industry, but that trend is presently seeing a
reversal. Today, the top 10 players account for only 36% with the next 60 players
taking the count to 49%. In other words, the leading 250 pharmaceutical companies
control 70% of the market with the market leader having a share of only around 7%,
highlighting the fragmented nature of the industry.
The Indian pharmaceutical industry has undergone a paradigm shift in the last few
years. Major global companies have shifted their focus to India; at the same time
domestic companies are actively participating in the global drug development
process. Contract research, contract manufacturing and clinical trials are the areas in
which the country is emerging as a major player in the global market. With the new
Patent Act in place, expectations for global opportunities are also on a high note.
The key happenings at which the India pharma industry is looking at are:
Pharma Hub: India is fast becoming a leading destination for contract research and
manufacturing services (CRAMS) with advantages like cGMP and FDA compliant
facilities, manufacturing capabilities, R&D base, high IT capability, skilled personnel
and cost efficiency. There is an increased trend towards outsourcing by the
developed countries to the developing countries for cost reasons and with the obvious
advantages that India has (skilled manpower at low cost), it is viewed as one of the
key destinations for CRAMS and clinical research.
Domestic Foray: With the advent of product patent regime and increasing
affordability, MNC pharma companies are planning to accelerate the launch of their
patented products in India. The market has been growing between 8 and 9% over the
last two years, primarily driven by new launches and to some extent by volumes.
While the Indian pharma majors have been launching more than ten products per
year, global MNCs averaged one or two annually, giving the Indian companies a
broader product line to offer.
PPP Model: While industry leaders have long called for the development of PPPs for
the provision of healthcare in India, particularly in rural areas, such initiatives are
currently totally unexplored. The government’s 2006 draft National Pharmaceuticals
Policy proposes the introduction of PPPs with drug manufacturers and hospitals as a
way of vastly increasing the availability of medicines to treat life-threatening diseases.
But the same is yet to take a commendable shape in India.
Emphasis on R&D: Over the past decade pharmaceutical MNCs have accordingly
been off-shoring more and more of their R&D to emerging countries to accelerate
output and reduce costs. The major beneficiary of this trend has been India, with its
broad vendor base that can produce high-quality work at short notice. Also the
domestic players have increased their R&D spend substantially over the last 5-6
years and are continuously innovating new drugs and processes for the industry.
They are also spending heavily on IT to aid their research processes and are thus
giving a major boost to the IT market in the pharmaceutical sector.
Mergers and Acquisitions: The Indian pharma industry is seeing the increasing
number of mergers and acquisitions in the last few years. The major companies are
tying together in one or the other field related to pharmaceutical industry. International
and national level mergers, acquisitions and takeovers have now become a common
phenomenon in the pharmaceutical industry. To match the situation created by
international mergers and takeovers, Indian companies are adopting the same path.
A recent acquisition in news was the Daiichi Sankyo's (Japan) stake purchase in the
country's top drug maker, Ranbaxy Laboratories for US$ 4,600 million. As per the
industry experts, it has marked the beginning of the second phase of evolution for the
Indian pharmaceutical industry with the foreign collaborations starting to take
importance for quality and technology.
Process engineering: The highly competitive local market and lack of pricing power
force Indian companies to continuously work on the molecule even after a product is
launched. This often results in gains in the form of improved yields and more cost-
effective manufacturing processes. Customers and suppliers generally share such
benefits in a pre-determined ratio, thus providing the benefit of continuous cost
reduction. Therefore the global pharmaceutical players can leverage the strong
manufacturing processes of India.
Competent workforce: India has a large talent pool of skilled personnel with high
managerial and technical competence, and English proficiency, all available at a
fraction of the cost in comparison to developed countries. Also, labour costs in India
are around a seventh of the levels in developed countries.
Low prices of drugs: The prices of Indian drugs are also one of the lowest in the
world. The cost of manufacturing in India is significantly lower as compared with US.
A number of players from developed markets from North America, Europe regularly
source APIs (Associated Pharmaceutical Intermediate) and drug intermediates from
India.
Low per-patient expenditure in clinical trials: The expenditure per patient for a
clinical trial in India is much less compared as compared to that of the US. Thus,
MNCs are finding it viable to establish an alliance with the Indian companies that
have their own clinical trial set-up.
Huge market for lifestyle drugs: The increasing spread of lifestyle diseases in the
country has added to the need for lifestyle disease drugs. This opens a huge market
for drugs, in which makers of lifestyle drugs are going to be the biggest beneficiaries
in the coming years.
Information Technology: The last decade has seen a rapid development of the
Indian IT industry. Also, presently IT acts as an enabler and facilitator for Indian
pharmaceutical companies and is helping the global players in furthering their entry
into the Indian pharma space. Undoubtedly IT is going to find increased adoption in
the industry in the next few years, with its benefits helping the pharma majors in
modernization and expansion.
Lack of exploitation of herbal expertise: India has not been able to exploit its
know-how in herbal medicines yet. Since these medicines do not come under the
purview of the TRIPS regime, it presents a great opportunity for the Indian
companies. On its part, the government should set up R&D laboratories undertaking
research exclusively in the area of herbal medicines and support the companies in
their research and patent filing.
Supply Chain issues: Lack of transparency across the supply chain is a major issue.
Companies need to automate their supply chain and develop it end-to-end for the
benefit of customers, vendors, dealers and most importantly the organisation itself.
Ceiling over the prices: The Drug Price Control Order (DPCO) under the Drug
Policy of Government of India sets limitations on the accrual of profits. There is a limit
on the prices which can be set for certain drugs thus making it difficult for the
companies to charge market rate prices.
Pharmaceutical manufacturing has undergone considerable change over the last few
years, and most of the companies are expanding manufacturing facilities by
upgrading or restructuring processes at the core level. IT deployment in the Indian
pharmaceutical industry has followed one of the following three paths:
Workflow management: This involves the integration of the back-end and front-end
systems and the integration of the collaborated system with the supply chain
management. Even large firms are not yet 100% through in implementing these
solutions and are spending around 5% of their IT budgets on implementing such
solutions. But the small and medium sized companies are spending around 8% of
their total IT spend on such initiaitives. The workflow coordination for the
pharmaceutical companies include activities such as research and development, drug
discovery, marketing of the novel drug, procurement of the orders, order execution,
design optimization, and financial exchanges which result in cost and time efficiency.
ERP: With the increasing global interaction the ERP system has become all the more
critical for the pharmaceutical companies to ensure adherence to the regulatory
compliances of international authorities like FDA. In recent years, several medium
and large Indian pharmaceutical companies have implemented ERP systems, in
addition to restructuring their production capacities and their research and
development activities. Though the results have been satisfactory but due its peculiar
nature of enhanced focus on research and novel drug discoveries, the experts in the
industry opined that the availability of specialized and customized ERP solutions for
the sector would make more commercial sense for the firms planning to modernize
their operations. These solutions should be tailored specifically for the pharmaceutical
sector, right from research to the final tracking of the drugs supplied to the doctors
and the chemists.
Increased usage of PDAs and smart hand-held devices: Over the past few years
the pharmaceutical industry has adopted higher end valves, smart transmitters and
new technology flow-meters. The entry of personal digital assistants (PDAs) has
revolutionised the business of data collection in pharmaceuticals. Handheld devices
like mobile computing and infotainment tools have developed due to advances in
wireless technology used to transmit data and information to and from remote
locations.
Data warehousing/storage, its management and retrieval: Data is the most critical
element of any pharmaceutical research, for any drug discovery as well as for the
regulatory compliance, thus it is important to have robust and secured data increases
all the more. By capturing the data at source, automating the processes, and
providing the necessary information, the IT systems form the base for decision
support system. Therefore, it has become very critical for any pharmaceutical
company to have robust solutions and data management tools for the same. The
large pharmaceutical companies have implemented solutions and software in this
regard and they are now looking to make their storage infrastructure more robust and
secured by focusing on security solutions for the same. The smaller companies on
the other hand are at present in the implementation stage of the storage solutions and
are expected to migrate from one platform to other in 2009 and 2010.
Bar coding: In Indian pharmaceutical companies bar coding is still limited to cartons
and not on packages. Though most of the players in the industry (both small as well
as large) have the bar code systems in place for the materials flowing in and out of
the manufacturing units and depots; but with the advent of RFID the focus of the large
players has now started to shift towards it.
Conclusion
As India enters the product patent regime and the generics market (by 2012), the
industry is becoming more confident of its capability to develop its own original
molecules. Indian companies are climbing up the value chain by moving to developed
markets and from bulk drugs to formulation exports. Also, the research focus of large
companies has shifted towards discovery of new chemical entities due to regulation of
the product patent regime since 2005. It is also is considered a highly promising
outsourcing IT and clinical data management destination because of its rich talent
pool, technological innovation, creditable quality, operational flexibility, cost
One of the largest service sectors in India, the healthcare industry serves over 1,100
million people and is approximately worth US$ 34,200 million, estimated to increase
to US$ 58,000 million by 2012. It contributes around 3% to the GDP of India, and is
set to grow at 15% annually for the next few years, thanks mainly to the availability of
quality service at a fraction of the cost compared to the developed world, making it a
desired healthcare destination for patients from around the world.
Healthcare services are offered at primary, secondary and tertiary levels. At the
primary level, general services are offered through clinics. They are the first point of
contact for patients. Secondary services refer to those provided by medical specialists
who generally do not have first contact with patients (e.g. cardiologists, urologists,
dermatologists). The tertiary level hospitals offer healthcare in specialized
consultative areas. There are about 229 medical colleges and hospitals in India.
The Indian healthcare scenario pre independence was dismal, and it has since seen
significant changes. Considerable efforts have been put into expanding the public
health system, with an emphasis on primary health care in the last few decades.
However, government-funded facilities were found to be inadequate in meeting the
burden of disease and the growing demands of the population at all three levels of
care -- primary, secondary and tertiary. This necessitated the need for alternate
funding, and resulted in the entry of the private players into the sector.
Norms for the entry of private players in healthcare were relaxed in the 1980s. The
resultant, facilities are owned and operated by for-profit companies as well as
charitable or non-profit organisations. It has also opened a gamut of opportunities for
India in terms of medical equipment, information technology in health services, BPO,
telemedicine and medical and health tourism.
In order to meet its healthcare goals, the Indian government acknowledges that
increased foreign involvement is necessary, especially in high-technology and
specialised areas such as equipment for plastic surgery, cancer diagnosis and
medical imaging. Allowing 100% FDI subject to approval by the Foreign Investment
Promotion Board has assisted in opening up the Indian healthcare market for
international investors.
India is also fast moving towards adopting international standards like accreditation of
hospitals, providing state-of-the-art healthcare facilities at far lesser prices compared
to its western counterparts. The Indian healthcare industry has the potential to show
the same exponential growth that the software and pharmaceutical industries have
shown in the past decade.
Today, the majority of healthcare services in India are provided by the private sector,
and its involvement and contribution is on the rise. Investments from the corporate
sector have been steadily growing since the mid-1990s. In the last few years a
number of new players have entered the healthcare delivery sector as well, setting up
specialty and super-specialty centres. In the government sector the states provide the
bulk of healthcare. Presently, the public spending is at a level of 0.9% of GDP.
The Union Ministry of Health and Family Welfare is responsible for the
implementation of various programmes of national importance related to health, like
family welfare, and prevention and control of major diseases. The ministry assists
states in preventing and controlling the spread of outbreaks and epidemics through
technical assistance. In addition to centrally-sponsored schemes, the ministry has
formulated and is implementing various World Bank-assisted projects for the control
of various diseases. State health projects are implemented through state
Department of Health
A National Health Policy was announced by the government in 2002. This policy
encourages greater privatisation of the healthcare system, and also suggests policy
instruments for implementation of public health programmes through individuals and
institutions of civil society. It outlines improvement in the health status of the
population as one of the major thrust areas in its social development program. It
focuses on the need for enhanced funding and an organisational restructuring of
national public health initiatives in order to facilitate more equitable access to health
facilities.
A budget of US$ 4,130 million has been allocated to the health sector (including NER)
under the 2008-2009 annual budget. This marks an increase of 15% over the
allocation in 2007-08. The salient points of the health budget include:
Allocation to the health and educational sector has been increased to 20%
The National Aids Control Programme will be provided US$ 250 million
The drive to eradicate polio continues with a revised strategy and a focus on the
high-risk districts in Uttar Pradesh and Bihar; receives proposed allocation of
US$ 260 million
The allocation provided to the National Rural Health Mission has been increased
by 15%.
US$ 3,000 million will be allotted to strengthen the health services in the villages
Apart from these, two major interventions are planned to be started in 2008-09. The
first is the Rashtriya Swasthya Bima Yojana that will provide a health cover of US$
750 for every worker in the unorganised sector falling under the BPL category and
his/her family. This plan was launched in Delhi, Haryana and Rajasthan on 1 April
2008, and most other states were on course to join. The annual budget provides US$
51 million as the centre’s share of the premiums in 2008-09.
The government has undertaken certain initiatives with the objective of developing
institutional capacity with multivariate skills in order to reorganise and finance the
health system in the country. The skills will range from enforcement of regulations to
designing flexible and innovative approaches. Proper regulation of healthcare
provision is imperative, especially in the light of the commercialisation of healthcare
services. It is of special importance in third world countries such as India, given the
wide and varied groups of persons who are stakeholders in the field of providing
healthcare service. The creation and use of health information has been a matter of
special concern to governments as well other public bodies involved in the field of
healthcare, since it is now perceived that this materially affects the lives and rights of
a growing body of people.
In India health services are provided by the government from the primary to the
tertiary level through publicly financed and managed institutions. These services,
accounting for about 20% of the overall health spending and 0.9% of the GDP, are
provided free of cost or at subsidised rates to the patients. A fee-levying private
sector, which plays a dominant role in the provision of individual curative care through
ambulatory services, coexists with public healthcare. It accounts for about 80% of the
overall health expenditure and 4.4% of the GDP.
Despite a low ROI of 15-20%, but with huge potential and large opportunities,
international groups like Parkway Group Healthcare, Pacific Healthcare, Columbia
Asia and a host of others are penetrating the promising Indian healthcare market. The
market in India is dominated by a huge number of players with small market shares.
The key players include Apollo Hospitals, Fortis Healthcare, AIIMS, Wockhardt Ltd, K-
Link Healthcare Systems, HealthPlan Systems, The Escorts Group and Max
Healthcare. Among these, Apollo is the market leader in bringing healthcare of
international standards to India. While Fortis has equipped itself with state-of-the-art
IT infrastructure and applications that have given it a major edge over other non-
technology focused healthcare facilities, Max Healthcare is India's first truly integrated
healthcare system, offering all three levels of clinical service within one system.
Corporations like the Apollo Group, Fortis, Max, Wockhardt, and Escorts Group have
made significant investments in setting up state-of-the-art private hospitals in cities
like Mumbai, New Delhi, Chennai and Hyderabad. Using the latest technical
The Indian healthcare industry is currently being exposed to trends it has never
witnessed, not only changing the picture of the industry, but also bringing in lot of
opportunities and challenges with them.
Customer outlook: The Indian economy is growing at a rate of 7 to 8%, which has
resulted in more cash flow in the hands of Indian customers. Increasing purchasing
power and available options of delivery have made patients demand augmented
services besides just getting quality product/services. This is providing a big boost to
the healthcare players to integrate world-class services under one basket.
Corporatization: Changing trends have led large corporate players such as the
Apollo Group, Wockhardt, Fortis and Max Healthcare to rapidly expand their
operations in India. In order to gain competitive advantage, these corporate players
are increasingly entering into collaborations with established global leaders. This has
spawned new strategies of expansion, such as franchising, mergers and acquisitions,
joint ventures, public-private partnerships and operations management.
Accreditation: Even up to 2004 the private healthcare market in India was very
disorganised, with no standardisation of processes and quality of delivery.
Accreditation norms have helped private healthcare players by enabling them to
compete globally and get a major share of the medical tourism market. Even though
accreditation from ISO, ICRA or CRISIL was acquired by hospitals more as a
business development initiative, they were not universally accepted, and players
wanted to evolve accreditation norms that would enable them to compete globally.
Hence several of them preferred the Joint Commission International (JCI)
accreditation, since they were set standards already implemented in a lot of hospitals
in the US and Europe. The JCI provided instant recognition by foreign insurance
companies, thus increasing the medical tourism share.
The most significant demographic change is in the working class population (15 to 64
years), whose share in total population is expected to rise from 61.5% in 2000 to
more than 65% by 2011. The working age group population is more prone to lifestyle
diseases. In addition, the large geriatric population (55 and above), estimated to be
the largest in the world, will form a major consumer segment in the near future.
With lifestyle patterns changing, the country’s disease profile has been changing too.
Lifestyle diseases such as diabetes and cardiovascular disorders is on the rise and
the incidence of communicable diseases is declining at a fast pace. Such a change is
opening up both preventive and curative care opportunities, and driving the demand
for multi-specialty and super-specialty healthcare services, covering key therapeutic
areas like cardiology, nephrology, oncology, orthopaedics, geriatrics, maternity and
critical care.
Health insurance penetration: The healthcare insurance is in for a big boom in the
next 4-5 years. With the growing awareness among the masses towards preventive
healthcare; but the high expenses of the same; the people are getting more and more
inclined to the healthcare insurance to guard against any prospective expenditure in
future. The same is also seen as a big business opportunity by the insurers in India
and have to the accord directed their marketing and promotional campaigns towards
the same.
Healthcare BPO: The global healthcare industry is increasingly under pressure due
to regulations and the need for cutting costs, which warrants huge potential for Indian
IT companies. India can capitalise on the BPO opportunities, existing at least in the
more advanced sectors of healthcare such as imaging, disease management and
claims processing. But the industry needs to be careful because the healthcare
outsourcing can eat into the share of medical transcriptions. The healthcare
outsourcing market can be primarily divided into four major blocks:
Pharmacy chains
Telemedicine: In India only about 30% of the population lives in urban areas, while a
sizeable 70% of the population is rural. Around only 25% of the doctors in India reside
in semi-urban areas and a mere 3% in rural areas. The outcome of this lop-sided
distribution is that 80% of the medical facilities are concentrated in urban areas and a
mere 20% in rural areas, which continue to remain deprived of proper healthcare
facilities. The answer to patient treatment in inaccessible areas in India with fewer
medical facilities is telemedicine. Tele-consultation and remote patient monitoring is
taking a big leap in India to integrate fragmented healthcare industry. But due to the
low technology penetration in India, the telemedicine is yet to take its full shape in
India. Seeing the current trend the same does not look a very successful venture
before 2010. Thus while initiating telemedicine can solve the healthcare problems of
rural India to a great extent, but the sector needs leverage ICT tools to be able to
harness the true benefits of the same.
Some of the other factors that augur well for the development of the health sector in
India are:
Medical tourism: It has been estimated that healthcare tourism alone can rake in
over US$ 2,100 million as additional revenue by 2012. India offers world-class
healthcare that costs substantially less than that of developed countries, which
accounts for the great pace of evolution of medical tourism, attracting patients from
South-East Asia, Africa, Middle East, the UK and the US. Given the overburdened
Unmet healthcare demand and changing demographics: The Indian middle class
is driving the unprecedented demand for quality healthcare. Also, the rich are
demanding treatment for lifestyle-related diseases and cosmetic changes. Rising
literacy in India is improving health awareness, especially about lifestyle-related
disorders, which tend to be more costly to treat than infections.
With demand expected to outstrip supply over the next decade, the outlook for private
medical care providers is very positive. Almost 80,000 additional hospital beds will be
required every year for the next four to five years to adequately meet growing
healthcare demands.
Medical expertise: With yoga, meditation, ayurveda, allopathy and other systems of
medicines, India offers a unique basket of services to an individual that is difficult to
match by other countries. India has a rich repertoire of a traditional systems of
medicine which are effective in preventing illness, coupled with modern practices are
good at diagnostics and surgery. The presence of both these systems enriches
India’s medical expertise.
Despite making huge strides in overall development, health coverage is still a distant
dream to a majority of our population. Even being a high growth industry, healthcare
has its own set of problems. Some of them are outlined here.
Low healthcare awareness: In spite of the rising literacy levels and healthcare
awareness, there is a large section of the Indian population that is still reluctant to
avail of facilities. Hospitals do not have many takers for several services they offer.
This is especially true for the treatment of lifestyle-related diseases.
Unmatched demand and supply: Demand is expected to outstrip supply over the
next decade. Almost 80,000 additional hospital beds will be required every year for
the next few years to adequately meet growing healthcare demands. The
government, traditionally the largest healthcare provider, is now under pressure to
meet evolving and rising demands for healthcare services across the country. But the
private participants will need to step in to take care of the burgeoning demand.
Cost competitiveness might get lost in the future: For healthcare to be cost-
effective, information sharing is the key. Unless the stakeholders create an
information infrastructure that allows various stakeholders to create, store, and share
information, securely and seamlessly, costs of healthcare will go up on account of
factors like ageing population, increase in incidence of chronic diseases etc. It is
important that India invests in creating such an infrastructure, and maintains its cost
competitiveness in the world to emerge as a healthcare hub by 2011-12.
Problems with Primary Health Centres: Primary health centres and sub-centres are
the cornerstones of the rural healthcare system, and rely on trained paramedics to
meet most of their needs. The main problems affecting these are the predominance
of clinical and curative concerns over the intended emphasis on preventive work and
the reluctance of the staff to work in rural areas. In addition, the integration of health
services with family planning programmes often causes the local population to
perceive the primary health centres as hostile to their traditional preference for large
families. Therefore, primary health centres often play an adversarial role in the local
efforts to implement national health policies.
High fixed expenses: Fixed expenses in government hospitals (salary, wages and
overheads) have risen by 70% in the last decade to almost 80% of total expenses at
present. This is mainly due to the increases in the salary of government employees at
the recommendations of the report of the Fifth Pay Commission. And since they
cannot fix the prices of medicines and treatment as per the free market regime, their
margins are increasingly squeezed.
Thus India will be unable to stand up to world standards unless there is a focus on
regulation and processes, which is woefully inadequate at present. Regulation should
be a joint effort between the industry and government. Some of the initiatives needed
are an improvement in the infrastructure for healthcare, boost to insurance, and
incentives for the players in the sector.
An important and positive development in the Indian healthcare sector is the use of
information technology for upgrading the delivery of healthcare services and
improving efficiency levels. Some examples include:
By adopting ICT tools, the healthcare sector is improving upon the way it is doing
business currently and become more vigilant to the finer details in its day-to-day
operations and their implications on international competitiveness. Effective utilisation
of an information and decision support system is providing the units with a disciplined
business environment to operate in, where decisions concerning supply and demand
are fully supported by the facts. This approach is also helping them in maximising
business value and enhancing the growth and competitiveness of the industry.
Increased usage of Internet: The Internet is being used to convey more real-time
information to the service providers. A physician practicing in a remote village can
now consult a specialist sitting at any distance by providing him images and data
online, thus eliminating the risk involved and saving on the time and money spent on
travel. Cyber-surgery is the latest healthcare development on the Net. Virtual Reality
Modeling Language (VRML) enables doctors to actually view complicated surgeries
underway in real time.
Bar coding and RFID: Currently bar coding is the primary identification technology
used by the medical products industry, with RFID being less common. The industry’s
current focus is only on the usage of bar-code technology and it is looking at ways to
evolve it further rather than to switch to some new technology.
Data warehousing: Today most of the larger players in the industry have data
collection mechanisms implemented, while the smaller players are still in the process
of implementing the same. They will take another two years before they are able to
come up with a secured and robust data collection mechanism.
Picture archiving and communication systems: The next system that most Indian
hospitals are looking to deploy is picture archiving and communication systems
(PACS), a system that is used to capture, store, distribute and display medical
images, and transmit them digitally. Corporate hospitals in the Indian scenario are
looking keenly towards the implementation of the PACS and many of them have
already started the rollout.
Conclusion
The healthcare infrastructure in India has a long way to go towards achieving quality,
technologically sound and superior delivery systems comparable to the best in the
world. While the central government’s role is limited to family welfare and disease
control programmes, state governments are responsible for primary and secondary
medical care, with a limited role in specialty care. Looking at the growing prevalence
of non-communicable lifestyle-related diseases, the two need to act as a facilitator
and as a provider for others -- namely, private healthcare providers and international
groups looking to venture into India -- who are looking to give the industry that has
been due for decades.
Other Verticals
Other verticals include other industry verticals like, Transportation and transportation
services, Resource industries, Water and sanitary services, Bio-Technology and bio-
science, Travel & Transportation, Hospitality and any other industry that is not being
covered under BFSI, Manufacturing, Media & Entertainment, Telecom, BPO, Utility,
Government & Education, Retail & Wholesale, Pharmaceuticals and Healthcare.
TABLE 29
Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption
Economics
US IDC assumes that the US GDP will Moderate. IT & ITeS sector is already in
Recession not grow significantly in 2008, and a cautious mood with widespread
that the APEJ IT spending market employee downsizing experienced in ↓
will lose 2% of its previously many organizations and the US
forecasted value in 2008. recession.
Labor Despite to the short-term plan to Low. While a sizeable group of people
Market increase jobs in the manufacturing will lose their source of income, thus
sector, approximately two million theoretically affecting IT spendings, most
jobs are expected to be lost in the of these segments of labor were never
months to come. With the swings in
the rupee, labour-intensive export-
active prospects for IT consumption to
begin with.
↓
oriented industries (such as textiles
and handicrafts) will be greatly
affected.
Exchange India will remain an attractive Moderate. Export oriented units have
Rates destination for foreign investments
and this will continue to put upward
been badly hit by the dollar depreciation
against the local currency and the more
↓
pressure on the rupee, impacting recent swings of the Indian rupee.
Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption
FDI Inflows In 2007-08 India received FDI of High. With an inflow of high FDI in
USD 32,000 million as against USD sectors like telecom, real estate,
22,000 million, a growth 45%. electrical appliances, IT & BFSI,
petroleum & manufacturing, the economy
is expected to gain momentum, thus
↑
resulting in enhanced corporate
spending and IT expenditures.
Political IDC assumes stability in the region Low. Recent political debates in India
Issues despite North Korean nuclear about the US nuclear deal are creating
testing and Thailand's coup. uncertainty, but IDC expects no major
Tensions with Pakistan and recent disruption to the markets yet. ↔
explosions should not hamper
economic growth.
Terrorism Terrorist attacks remain a serious Low. Despite these uncertainties, IDC
threat in many countries. An assumes little or no impact to the IT
increase in terrorist threats, market.
especially if it involves weapons of ↓
mass destruction, can have serious
repercussions to the global
economy.
Oil Prices Oil prices are sky high and are likely Low. High oil prices may have some
to remain so for awhile due to long effect on the region's overall economy,
term capacity issue. Rising oil but should have no direct impact on IT ↓
prices often translate into a budgets.
reduction in GDP growth.
Governmen Many e-government initiatives will High. With the Indian governments
t Initiatives be launched like process entering into the execution and
automation, national citizen IDs, deployment phase, there would be more
smart cards and digital education. demand for IT equipments and services. ↑
IDC assumes a positive impact of
the same on the IT market in India.
2008 The Central Board of Excise and Low. Vendors might increase their
Budget Custom's move of implementing transfer prices and also reduce the MRP,
excise on MRP of all IT products on
January 25, 2008 has left the IT
which would narrow the channel margin
and might lead to ASV increases by 2-
↓
industry in a state of flutter. While 3%. But still there is a wait-and watch
few vendors have already increased policy for this implementation in the
Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption
the prices of their products others budget, so IDC has not assume any
are still in a wait and watch mode. impact yet.
Financial IT spending in the financial sector Moderate. The strong economic growth
Services has been phenomenal as national has led to an insatiable demand for
banks with huge infrastructures are credit, both from the retail and industrial
currently automating their segments. IT hardware would be needed
processes. Next generation banks as banks are moving quickly in retail
are also rapidly expanding in urban expansion. Complete automation and ↑
and semi-urban areas. Many a bank implementation of core-banking solutions
could take to the capital markets will keep generating regular demand for
next year. The other positives for IT.
the sector could be easy disposal of
non-performing assets.
Seasonal Consumer and commercial buying High. With the seasonal trends getting
Trends goes through seasonal lows and nullified in five year period, IDC expects
highs each quarter depending on a very little impact of same on the IT
multiple factors such as fiscal year markets in India. ↔
ends, country holidays, and back-to-
school seasons.
Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption
New Internet and basic office productivity Low. With the market for newer
Applications will remain the key applications, but applications like gaming spreading
no killer app is seen for either rapidly, IDC expects a positive impact on
consumer or corporate applications. the IT markets. ↑
Gaming and multimedia can help
slightly, but not by much.
Microsoft Microsoft's new Vista OS can Low. While Vista can help accelerate
Vista provide a number of new security the market to some degree, IDC does
and usability benefits, but demand not expect any significant change
for the new OS appears to be (neither positive nor negative) in the IT
contained to larger players with spend by the players, atleast for the next ↔
smaller players still wondering 2-3 years.
about the issues such as
compatibility of Vista with their
existing systems.
Legend: very low, low, moderate, high, very high
Source: IDC, 2008
TABLE 30
Total IT Market in BFSI Sector 3,641.2 4,387.8 5,047.1 5,699.7 6,505.2 7,344.9 15.1%
TABLE 31
Total IT Market in BFSI Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 32
Other Add-ons (Computing 88.2 103.5 114.3 125.4 140.8 157.0 12.2%
Products)
Total Hardware Market in BFSI 1,657.4 1,959.5 2,227.6 2,475.7 2,769.1 3,082.6 13.2%
Sector
TABLE 33
Other Add-ons (Computing Products) 5.3% 5.3% 5.1% 5.1% 5.1% 5.1%
Total Hardware Market in BFSI Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 34
Total IT Market in Manufacturing 2,581.0 3,220.3 3,860.9 4,558.3 5,354.0 6,234.0 19.3%
Sector
TABLE 35
Total IT Market in Manufacturing Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 36
Other Add-ons (Computing 53.7 63.2 72.1 81.9 92.0 102.7 13.8%
Products)
Total Hardware Market in 954.0 1,159.9 1,351.2 1,558.3 1,757.8 1,969.2 15.6%
Manufacturing Sector
TABLE 37
Other Add-ons (Computing Products) 5.6% 5.4% 5.3% 5.3% 5.2% 5.2%
Total Hardware Market in Manufacturing 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sector
TABLE 38
Total IT Market in IT/ITeS Sector 2,133.4 2,614.7 3,051.2 3,550.5 4,044.5 4,565.7 16.4%
TABLE 39
Total IT Market in IT/ITeS Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 40
Other Add-ons (Computing 56.8 67.5 76.9 87.2 98.1 109.8 14.1%
Products)
Total Hardware Market in IT/ITeS 1,222.6 1,455.6 1,664.1 1,890.4 2,110.4 2,345.8 13.9%
Sector
TABLE 41
Other Add-ons (Computing Products) 4.6% 4.6% 4.6% 4.6% 4.6% 4.7%
Total Hardware Market in IT/ITeS Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 42
Total IT Market in Telecom 2,086.7 2,591.2 3,084.5 3,662.7 4,268.3 4,929.6 18.8%
Sector
TABLE 43
Total IT Market in Telecom Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 44
Other Add-ons (Computing 33.1 37.8 42.5 47.7 53.4 59.3 12.4%
Products)
Total Hardware Market in 729.1 866.8 993.5 1,127.5 1,249.7 1,371.8 13.5%
Telecom Sector
TABLE 45
Other Add-ons (Computing Products) 4.5% 4.4% 4.3% 4.2% 4.3% 4.3%
Total Hardware Market in Telecom Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 46
Total IT Market in Government 2,247.5 2,697.5 3,164.9 3,703.5 4,327.8 4,996.2 17.3%
and Education Sector
TABLE 47
Total IT Market in Government and 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Education Sector
TABLE 48
Other Add-ons (Computing Products) 52.5 61.9 69.4 81.7 89.8 97.9 13.3%
Total Hardware Market in 1,143.5 1,316.4 1,548.3 1,813.8 2,105.3 2,390.8 15.9%
Government and Education Sector
TABLE 49
Other Add-ons (Computing Products) 4.6% 4.7% 4.5% 4.5% 4.3% 4.1%
Total Hardware Market in Government and 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Education Sector
TABLE 50
Total IT Market in Media and 277.1 325.7 368.9 424.6 495.0 587.1 16.2%
Entertainment Sector
TABLE 51
Total IT Market in Media and Entertainment 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sector
TABLE 52
Other Add-ons (Computing 5.3 6.0 6.8 7.7 8.7 9.7 12.8%
Products)
Total Hardware Market in 92.6 110.6 132.4 159.9 193.8 229.6 19.9%
Media and Entertainment
Sector
TABLE 53
Other Add-ons (Computing Products) 5.7% 5.4% 5.2% 4.8% 4.5% 4.2%
Total Hardware Market in Media and 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Entertainment Sector
TABLE 54
Total IT Market in Retail Sector 302.9 464.7 619.9 873.6 1,054.4 1,340.5 34.6%
TABLE 55
Total IT Market in Retail Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 56
Other Add-ons (Computing 6.9 8.9 11.2 15.4 17.3 19.3 23.0%
Products)
Total Hardware Market in Retail 138.1 180.7 229.9 307.6 337.2 373.1 22.0%
Sector
TABLE 57
Other Add-ons (Computing Products) 5.0% 4.9% 4.9% 5.0% 5.1% 5.2%
Total Hardware Market in Retail Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 58
Total IT Market in Utility Sector 269.3 311.0 370.9 413.0 469.6 516.3 13.9%
TABLE 59
Total IT Market in Utility Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 60
Other Add-ons (Computing 5.5 6.2 7.0 7.5 8.5 9.6 11.6%
Products)
Total Hardware Market in Utility 116.5 128.8 148.7 158.9 177.4 192.1 10.5%
Sector
TABLE 61
Other Add-ons (Computing Products) 4.8% 4.8% 4.7% 4.7% 4.8% 5.0%
Total Hardware Market in Utility Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 62
TABLE 63
Total IT Market in Pharmaceutical Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 64
Total Hardware Market 169.3 202.1 233.0 257.9 294.2 335.8 14.7%
in Pharmaceutical
Sector
TABLE 65
Other Add-ons (Computing Products) 5.8% 5.6% 5.4% 5.3% 5.2% 5.1%
TABLE 66
Total IT Market in Healthcare 231.1 287.9 352.2 433.1 516.8 605.6 21.3%
Sector
TABLE 67
Total IT Market in Healthcare Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 68
Total Hardware Market 124.0 148.7 170.8 196.2 219.7 240.5 14.2%
in Healthcare Sector
TABLE 69
Other Add-ons (Computing Products) 4.2% 4.5% 4.4% 4.4% 4.4% 4.5%
Total Hardware Market in Healthcare 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sector
TABLE 70
TABLE 71
Total IT Market in Others Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE 72
Total Hardware Market 403.7 435.3 424.6 420.5 417.5 495.8 4.2%
in Others Sector
TABLE 73
Other Add-ons (Computing Products) 4.2% 2.6% 3.8% 4.0% 3.6% 3.9%
Total Hardware Market in Others 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sector
The overall IT and the hardware markets in various verticals have shown positive
growth trends. Analyzing that, the market forecasts have undergone changes with
respect to the previous IDC India studies (India Overall Trends in IT Spending by
Industry Verticals 2007-2011: Forecast and Analysis), which are highlighted in the
following table and figure.
TABLE 74
Market Category 2006 2007 2008 2009 2010 2011 2012 CAGR
Overall IT Market in BFSI 2734.7 3233.1 3723.5 4152.6 4579.9 5013.3 NA 12.9%
(January 2007 study)
Overall IT Market in BFSI (August NA 3641.2 4387.8 5047.1 5699.7 6505.2 7344.9 15.1%
2008 study)
Overall Hardware Market in BFSI 1275.1 1548 1813.8 2020.2 2253.9 2486.59 NA 14.3%
(January 2007 study) 68
Overall Hardware Market in BFSI NA 1657.4 1959.5 2227.6 2475.7 2769.1 3082.6 13.2%
(August 2008 study)
Overall Hardware Market in 741.3 906.2 1068.9 1226.2 1409.3 1586.3 NA 16.4%
Manufacturing (January 2007
study)
Overall Hardware Market in NA 954.0 1159.9 1351.2 1558.3 1757.8 1969.2 15.6%
Manufacturing (August 2008
study)
Overall IT Market in IT/ITeS 1566.9 1889.5 2225.9 2555.1 2926.6 3324.8 NA 16.2%
(January 2007 study)
Overall IT Market in IT/ITeS NA 2133.4 2614.7 3051.2 3550.5 4044.5 4565.7 16.4%
(August 2008 study)
Overall Hardware Market in 911.1 1108.8 1307.6 1493.9 1708.5 1935 NA 16.3%
IT/ITeS (January 2007 study)
Market Category 2006 2007 2008 2009 2010 2011 2012 CAGR
Overall Hardware Market in NA 1222.6 1455.6 1664.1 1890.4 2110.4 2345.8 13.9%
IT/ITeS (August 2008 study)
Overall IT Market in Telecom 1515.9 1816.8 2136.5 2478.4 2868.3 3226.9 NA 16.3%
(January 2007 study)
Overall IT Market in Telecom NA 2086.7 2591.2 3084.5 3662.7 4268.3 4929.6 18.8%
(August 2008 study)
Overall Hardware Market in 564.6 692.4 815.5 934.1 1062.2 1174.6 NA 15.8%
Telecom (January 2007 study)
Overall Hardware Market in NA 729.1 866.8 993.5 1127.5 1249.7 1371.8 13.5%
Telecom (August 2008 study)
Overall IT Market in Government 1734.4 2151.2 2543 2896.2 3275 3770.8 NA 16.8%
and Education (January 2007
study)
Overall IT Market in Government NA 2247.5 2697.5 3164.9 3703.5 4327.8 4996.2 17.3%
and Education (August 2008
study)
Overall Hardware Market in 898.7 1191.5 1449.5 1663.3 1891 2188.9 NA 19.5%
Government and Education
(January 2007 study)
Overall Hardware Market in NA 1143.5 1316.4 1548.3 1813.8 2105.3 2390.8 15.9%
Government and Education
(August 2008 study)
Overall IT Market in Media and 214.7 232.7 256.9 298.4 337.5 378.8 NA 12.0%
Entertainment (January 2007
study)
Overall IT Market in Media and NA 277.1 325.7 368.9 424.6 495.0 587.1 16.2%
Entertainment (August 2008
study)
Overall Hardware Market in 70.5 87.3 94.3 109.2 126.2 144.1 NA 15.4%
Media and Entertainment
(January 2007 study)
Overall Hardware Market in NA 92.6 110.6 132.4 159.9 193.8 229.6 19.9%
Media and Entertainment (August
2008 study)
Market Category 2006 2007 2008 2009 2010 2011 2012 CAGR
Overall IT Market in Retail and 173.2 243.7 309.2 396 543.5 640.1 NA 29.9%
Wholesale (January 2007 study)
Overall IT Market in Retail and NA 302.9 464.7 619.9 873.6 1054.4 1340.5 34.6%
Wholesale (August 2008 study)
Overall Hardware Market in 72.2 112.6 144 179.9 247.2 294.4 NA 32.5%
Retail and Wholesale (January
2007 study)
Overall Hardware Market in NA 138.1 180.7 229.9 307.6 337.2 373.1 22.0%
Retail and Wholesale (August
2008 study)
Overall IT Market in Utilities 182.2 216.0 271.4 326.1 404.3 455.1 NA 20.1%
(January 2007 study)
Overall IT Market in Utilities NA 269.3 311.0 370.9 413.0 469.6 516.3 13.9%
(August 2008 study)
Overall Hardware Market in 77.0 89.4 98.9 111.2 121 127.4 NA 10.6%
Utilities (January 2007 study)
Overall Hardware Market in NA 116.5 128.8 148.7 158.9 177.4 192.1 10.5%
Utilities (August 2008 study)
Overall Hardware Market in 134.3 166.1 192.8 211.3 229.2 253.1 NA 13.5%
Pharmaceuticals (January 2007
study)
Overall Hardware Market in NA 169.3 202.1 233.0 257.9 294.2 335.8 14.7%
Pharmaceuticals (August 2008
study)
Overall IT Market in Healthcare 159.8 185.7 216.2 257.3 308.3 352.3 NA 17.1%
(January 2007 study)
Overall IT Market in Healthcare NA 231.1 287.9 352.2 433.1 516.8 605.6 21.3%
(August 2008 study)
Market Category 2006 2007 2008 2009 2010 2011 2012 CAGR
Overall Hardware Market in 86.2 101.6 118.5 131.5 148.7 161.7 NA 13.4%
Healthcare (January 2007 study)
Overall Hardware Market in NA 124.0 148.7 170.8 196.2 219.7 240.5 14.2%
Healthcare (August 2008 study)
Overall IT Market in Others 3452.2 4342.8 5098.1 5945.6 6912.7 7780.9 NA 17.6%
(January 2007 study)
Overall IT Market in Others NA 941.3 1103.0 1214.2 1322.8 1455.3 1675.6 12.2%
(August 2008 study)
Overall Hardware Market in 2333.0 2915.4 3375.1 3918.8 4464 4921.4 NA 16.1%
Others (January 2007 study)
Overall Hardware Market in NA 403.7 435.3 424.6 420.5 417.5 495.8 4.2%
Others (August 2008 study)
Overall Domestic IT Market in 13879 16864.8 19778.1 22773.2 26106.3 29362.1 NA 16.2%
India (January 2007 study)
Overall Domestic IT Market in NA 15012.5 18383.9 21589.9 25182.4 29126.7 33546.1 17.4%
India (August 2008 study)
Overall Hardware Market in 7164.1 8919.4 10478.9 11999.8 13661.3 15273.7 NA 16.3%
India (January 2007 study)
Overall Hardware Market in NA 6750.7 7964.5 9124.0 10366.7 11632.3 13027.0 14.1%
India (August 2008 study)
5000
4500
4000
US$ Millions
3500
3000 January 2007 Study
2500
2000 August 2008 Study
1500
1000
500
0
TABLE 75
BFSI It covers Banking, Insurance and It covers Banking, Insurance and No difference.
Financial Services. Financial Services.
Manufacturing We excluded oil and gas and We excluded oil and gas and No difference.
Pharmaceuticals from the Pharmaceuticals from the
manufacturing. We covered Oil manufacturing. We covered Oil
and gas under Utilities and and gas under Utilities and
Pharmaceuticals as a separate Pharmaceuticals as a separate
vertical. Remaining scope has vertical. Remaining scope has
been kept same. been kept same.
IT/ITeS BPO was kept separate from IT BPO has been kept as a separate No difference.
Services. vertical from IT services.
Retail Retail and Wholesale (together) Retail and Wholesale (together) No difference.
were covered as a separate were covered as a separate
vertical. vertical.
Utility We covered oil and gas and We covered oil and gas and power No difference.
power in this. in this.
Healthcare This was a new vertical that we Covered as a separate vertical. No difference.
added in the report.
Others In 2007 report, we have not Scope has been kept same. No difference.
included HH/SOHO under others.
We have bifurcated the overall IT
market into HH/SOHO and
enterprise data. The vertical
comprised of Resources, Travel
and transportation, Bio
technology, Water and sanitary
services and Bio-sciences.
Packaged Packaged Software As per IDC World-Wide As per IDC World-Wide No Difference
Software definition definition
Hardware Traditional Workstations As per IDC World-Wide As per IDC World-Wide No Difference
definition definition
Hardware Add-ons (Computing To align with the world- Scope has been kept No Difference
and Storage products). wide practice this was same.
added to the Enterprise
This includes: IT market scope. It is an
estimated value based
1. SHDs, which are on the taxonomy
counted in their own set definition and WW
of categories: personal model.
digital assistants
(PDAs), high-end
organizers/PC
companions, personal
companions, pen
tablets, pen notepads,
keypad handhelds, and
smart phones
2. Board-level devices
for embedded
applications or for
upgrading existing PCs
3. Application-specific
devices that are
designed from the start
for a dedicated function
such as point-of-sale
(PoS) terminals,
automated teller
machines (ATMs), and
voting machines
a terminal or network
computer (NC), that is
designed primarily to
access information on
another computer and
lacks local storage and
the ability to operate
without being connected
to another processor
Hardware Peripherals -- Printers As per IDC World-Wide As per IDC World-Wide No Difference
and MFDs definition definition
Hardware Peripherals -- Smart As per IDC World-Wide As per IDC World-Wide No Difference
Handheld Devices definition definition
Hardware Networking Equipment As per IDC World-Wide As per IDC World-Wide No Difference
definition definition
Others Add-ons (Peripheral To align with the world- Scope has been kept No Difference
Products) -- (Digital wide practice was same.
Cameras, Scanners, removed from the
MP3 Players, PoS, Enterprise IT market
Projectors, Fax and definition and has been
Copiers) added as part of the
others in the market
Others Add ons (Networking To align with the world- Scope has been kept No Difference
Equipment) – (Wi-Fi, wide practice this was same.
Structured Cabling, removed from the
Modem, etc.) Enterprise IT market
definition and has been
added as part of the
others in the market
Others Others (Consumables To align with the world- Scope has been kept No Difference
and IT individual wide practice this was same.
training) made a part of the
Others in the IT market
definition.
TABLE 77
Government and Education 2,247.5 2,697.5 3,164.9 3,703.5 4,327.8 4,996.2 17.3%
Media and Entertainment 277.1 325.7 368.9 424.6 495.0 587.1 16.2%
Retail & Wholesale 302.9 464.7 619.9 873.6 1,054.4 1,340.5 34.6%
Total IT Market in India 15,012.5 18,383.9 21,589.9 25,182.4 29,126.7 33,546.1 17.4%
Definitions
This IDC study outlines the IT spending and IT deployment patterns in the ten most
critical and happening verticals of the economy. A vertical industry is the set of all
economic entities that are engaged primarily in the same or similar kinds of
productive economic activity. The kind of economic activity carried out by a unit is the
type of production in which it engages. The main criteria employed in delineating
industries, concern the characteristics of the activities of producing units which are
strategic in determining the degree of similarity in the structure of the units and certain
relationships in an economy. These characteristics include:
The character of the goods and services produced (the physical composition and
stage of fabrication of the items and the needs served by them)
Vertical Definitions
Financial Services
Banking refers to all credit institutions by any name that accepts deposits from
individuals or entities and uses these funds for any of various forms of financial and/or
monetary intermediation. Examples include central banks, retail banks, commercial
banks, savings institutions, savings and loan associations, mortgage brokers and
bankers, and credit unions. Banking also refers to credit institutions that back or
execute loans without having received deposits (consumer finance companies,
central credit card services, etc.
Other Financial Services include a variety of institutions that facilitate and execute
capital transfers (for example equity markets, mutual funds etc.)
Manufacturing
IDC has selected two broad divisions, discrete and process manufacturing -- in the
manufacturing vertical, as the most relevant for IT purposes
IDC defines BPO as a business outsourcing engagement, which involves the transfer
of fixed assets and personnel from the customer to the service provider. Business
outsourcing engagements are ongoing, and contract terms may range anywhere from
one year to more than ten years.
Telecommunications
The media market has been defined by IDC to encapsulate all vertical markets
playing a part in the creation of media and entertainment, with the aim of providing
solution vendors focused on this industry a holistic and helpful insight into the
complete value chain.
Retail includes enterprises involved in the sale or resale of goods, sometimes with
related services primarily, although not necessarily exclusively, to individual
consumers. Because the same company can play roles in both retail and wholesale
distribution, the distinction is made on the primary sales targets
Utilities
Pharmaceuticals
Healthcare
Other Verticals
Product Definitions
Hardware
Personal Computers
Specifically excluded from this definition are board-level products for building
embedded systems or upgrading existing PCs. Also excluded from this category are
microprocessor-based, multiprocessor-capable systems and handheld computers. In
addition, excluded from this category are single-user workstations (i.e., models from
Data General, Sun Microsystems, and so on).
Traditional Workstations
The key criteria distinguishing traditional workstations from PCs and personal
workstations are the primary operating system, distribution channels, market focus,
and relative functionality.
As per IDC, servers are currently represented in the following major categories:
Volume servers
Mid-range Enterprise Server: Mid-range enterprise servers are servers that are
above volume servers and below high-end enterprise servers. This definition is
based strictly on the price of the server, which must be between US$ 25,000 and
US$ 499,999. No other usage connotations are inferred. It is important to note
that IDC does not refer to all machines smaller than mainframes as mid-range
enterprise servers.
Volume Server: This is IDC’s term for servers priced less than US$ 25,000.
Storage
Disk Storage Systems: IDC defines a disk storage system as a set of storage
elements, including controllers, cables, and host bus adapters, associated with
three or more disk drives (direct attach storage device [DASD]/hard disk drive
[HDD]). A system may be located outside of or within a server cabinet. Thus,
nearly all storage in large, medium-sized and small-scale servers is storage
systems.
Printers: A printer is a device that converts text and graphics from a computer and
outputs the information in the form of a hardcopy document.
Two broad categories of printing technology exist: impact and non-impact. The
printers’ total includes both impact and non-impact printers. Impact printers employ
techniques that involve striking the final print medium, usually paper. Some use print
elements (for example, daisy wheels or thimbles), chain/train or drum techniques, or
hammers (for dot-matrix printing).
Inkjet MFPs use either a continuous, controlled flow of ink or a staccato ejection of
ink, often referred to as 'drop on demand'. Ink is typically ejected through a multi-
nozzled head. Laser MFPs form the image of an entire page on an intermediate
medium (usually a photosensitive drum) before transferring it to paper.
Included in IDC's definition of SHDs are standalone handheld devices and converged
handheld devices, as defined in the following sections.
Network Equipment
WAN Network Infrastructure: The product types for the WAN network
infrastructure markets are:
Routers
WAN access
IP VPN
WAN access equipment, also known as customer premise equipment (CPE), includes
integrated access devices (IADs), asynchronous transfer mode (ATM), frame relay,
and inversion multiplexing (IMUX).
Other Add-Ons
The market sizing for other add-ons is a modeled estimate of the residual system
value, not captured in the initial sales value of the PC and server computer systems.
This category represents components that are essential to the operation of the PC
and server systems, but not sold as part of the assembled computer system. This
estimate is created through a review of system value growth trends across all regions
and in consultation with research conducted globally and locally into those component
add-on markets for which published research is available. Examples of other add-ons
to be considered as part of this estimate include:
Monitors
PC components
Packaged Software
Services
IDC’s services market research covers services provided to various buyer segments
by external companies for planning, building, supporting, and managing systems and
processes. IT services primarily target information systems and technology-enabled
processes. Business services primarily target business processes that may or may
not incorporate any technology.
Maintenance and Support: This group includes activities involved with ensuring
that products and systems are performing properly. Support activities include IT
telephone support, IT parts support, remote network monitoring, remote
diagnostics, electronic support software maintenance, onsite IT maintenance,
onsite software support, and preventive IT maintenance.
SYNOPSIS
This report provides the reader an overview of the IT spending trends by various
verticals in India. It also provides insights into their important industry dynamics and
opportunities, the trends shaping up in the verticals, emerging business challenges
and issues and the role that IT is playing in exploiting these opportunities and meeting
these challenges. Along with this, the report also provides insights into component-
wise IT spending patterns for the major product categories in the verticals for the year
2007 as well as a forecast of the same on a yearly basis till 2012.
"The total IT spending in India was estimated to be US$ 15,012.5 million in 2007 and
this is expected to increase at a CAGR of 17.4% for the forecast period to reach US$
33,546.1 million by 2012. BFSI, Manufacturing and Government and Education are
the three highest contributing sectors in the IT market in India in 2007. But the
verticals like Retail, Healthcare, Pharmaceuticals and Telecom are fast catching up
and are going to be the biggest drivers of the IT market in India for the forecasted
period. This trend is forecasted analyzing the expansion, automation, modernization
and networking phase that these verticals are currently in." – said Arpan Gupta,
Analyst, Verticals Research, IDC India.
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