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F i l i ng Infor mati on: August 2008, IDC #, Vol ume: 1

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India Overall Trends in IT Spending


by Industry Verticals 2008-2012
Forecast and Analysis - An Overview

Arpan Gupta Praveen Sengar


MARKET ANALYSIS

India Overall Trends in IT Spending by Industry Verticals


2008-2012 Forecast and Analysis - An Overview
Arpan Gupta Praveen Sengar

IDC OPINION

 India continues to be the highest growing nation in terms of domestic IT spending


in the entire developing Asia-Pacific region, with a growth rate of over 20.6% in
2007 and 18.9% in 2008.

 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

The Indian BFSI Sector 10


Overview of BFSI Sector in India.............................................................................................................. 10

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

The Indian Manufacturing Sector 39


Overview of Manufacturing Sector in India ............................................................................................... 39

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

The Indian IT / ITES Sector 80


Overview of the Sector ............................................................................................................................. 80
Evolution of the Sector ............................................................................................................................. 81
Reforms in the Sector............................................................................................................................... 84
Players in the Sector ................................................................................................................................ 84
Trends in the Sector ................................................................................................................................. 85
Factors Favoring the Growth of the Sector in India .................................................................................. 88
Challenges in the Sector .......................................................................................................................... 90
Role of Information Technology in the Sector .......................................................................................... 92

The Indian Telecom Sector 95


Overview of the Sector ............................................................................................................................. 95
Evolution of the sector .............................................................................................................................. 99
Reforms in the Sector............................................................................................................................... 100
Players in the Sector ................................................................................................................................ 102
Trends in the Sector ................................................................................................................................. 102
Factors favoring the growth of the sector in India..................................................................................... 103
Challenges in the Sector .......................................................................................................................... 104
Role of Information technology in the Sector............................................................................................ 106

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

The Indian Media and Entertainment Sector 128

# ©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

The Indian Retail and wholesale Sector 139


Overview of the Sector ............................................................................................................................. 139
Evolution of the Sector ............................................................................................................................. 141
Reforms in the Sector............................................................................................................................... 142
Players in the Sector ................................................................................................................................ 142
Trends in the Sector ................................................................................................................................. 143
Factors favoring the growth of the sector in India..................................................................................... 144
Challenges in the Sector .......................................................................................................................... 145
Role of Information Technology in the Sector .......................................................................................... 146

The Indian Utilities Sector: Indian Power 147


Overview of the Sector ............................................................................................................................. 148
Evolution of the Sector ............................................................................................................................. 149
Reforms in the Sector............................................................................................................................... 150
Players in the Sector ................................................................................................................................ 152
Trends in the Sector ................................................................................................................................. 152
Factors favoring the growth of the sector in India..................................................................................... 155
Challenges in the Sector .......................................................................................................................... 155
Role of Information Technology in the Sector .......................................................................................... 156

The Indian Utilities Sector: Indian Oil and Gas 158


Overview of the Sector ............................................................................................................................. 158
Evolution of the Sector ............................................................................................................................. 159
Reforms in the Sector............................................................................................................................... 159
Trends in the Sector ................................................................................................................................. 163
Factors favoring the growth of the sector in India..................................................................................... 164
Challenges in the Sector .......................................................................................................................... 165
Role of Information Technology in the Sector .......................................................................................... 165

The Indian Pharmaceuticals Sector 167


Overview of the Sector ............................................................................................................................. 167
Evolution of the Sector ............................................................................................................................. 168
Reforms in the Sector............................................................................................................................... 170
Players in the Sector ................................................................................................................................ 172
Trends in the Sector ................................................................................................................................. 173
Factors favouring the growth of the sector in India................................................................................... 175
Challenges in the Sector .......................................................................................................................... 176
Role of Information Technology in the Sector .......................................................................................... 178

The Indian Healthcare Sector 182

©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

Future Outlook 194


Forecast and Assumptions ....................................................................................................................... 194
Market Context ......................................................................................................................................... 234

Essential Guidance 242

Learn More 243

Related Research 252

S yn o p s i s 252

# ©2008 IDC
LIST OF TABLES

P
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

P
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

P
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

India's expanding economy, growing annually by around 8-9%, 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 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:

 BFSI (Banking, Financial Services and Insurance)

 Manufacturing

 IT/ITeS

 Telecom

 Government & Education

 Media and Entertainment

 Retail

 Energy and Utility

 Pharmaceutical

 Healthcare

 Other Verticals (including transportation, construction, resource industry, water


and sanitary facilities among others)

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

 Packaged Software Tracker

 Server Tracker

 Personal Computer Tracker (includes notebooks)

 Multi-Function Devices Tracker

 Printer Tracker

 Networking Equipment Tracker and

 Enterprise Storage 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.

* For verticals' definitions refer to Table 75

** For products' definitions refer to Table 76

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.

The economy as a whole is in a boom phase. Vigorous growth with strong


macroeconomic fundamentals has characterized developments in the Indian
economy in 2007-08. The economy has shown a growth of 9.0% in 2007-08 vis-à-vis
a growth of 9.4% in 2006-07. While the agricultural and manufacturing sectors
decelerated from 3.8% and 12.0% in 2006-07 to 4.5% and 8.8% respectively in 2007-
08, the services sector grew from 11.0% in 2006-07 to 10.8% in 2007-08. While the
agriculture contributes 18% to the GDP, the manufacturing and services sectors
contribute 27% and 5% respectively to the Indian economy.

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:

 Improving business processes

 Controlling costs

 Maintaining customer relationships

 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

Overall IT Spend in India (US$ millions), 2007-2012

Segment/Year 2007 2008 2009 2010 2011 2012 CAGR

Services

Planning 539.3 660.3 781.0 925.5 1070.9 1248.8 18.3%

Implementation 2,226.0 2,801.0 3,351.7 4,001.0 4,757.2 5,631.0 20.4%

Support services 1,133.3 1,412.7 1,682.5 2,002.6 2,372.4 2,764.1 19.5%

Operations 962.3 1309.4 1656.9 2084.9 2582.2 3178.9 27.0%

Training and education 195.6 229.8 254.9 275.6 315.5 335.9 11.4%

Services total 5,056.5 6,413.3 7,727.0 9,289.7 11,098.2 13,158.8 21.1%

4 # ©2008 IDC
TABLE 1

Overall IT Spend in India (US$ millions), 2007-2012

Segment/Year 2007 2008 2009 2010 2011 2012 CAGR

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%

Applications 736.6 923.9 1117.1 1357.8 1647.1 1978.6 21.9%

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

High-end servers 103.9 108.1 119.6 132.2 148.0 165.8 9.8%

Midrange servers 183.5 228.8 264.6 305.0 351.7 405.5 17.2%

Volume servers 506.5 604.6 683.8 781.4 875.8 968.2 13.8%

Total servers 793.9 941.4 1,068.0 1,218.6 1,375.5 1,539.5 14.2%

Clients

Personal computers 3,683.4 4,378.0 5,035.9 5,777.2 6,552.8 7,462.6 15.2%

Traditional workstations 3.3 2.4 1.3 0.9 0.4 0.3 -39.0%

Total clients 3,686.7 4,380.4 5,037.2 5,778.1 6,553.3 7,462.9 15.1%

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

Disk Systems 321.9 368.6 417.5 463.0 511.4 554.8 11.5%

Tape 35.8 37.8 39.6 42.8 42.4 41.5 3.0%

Total Storage 357.7 406.3 457.1 505.8 553.9 596.4 10.8%

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%

Total Peripherals 612.5 707.9 792.1 872.1 957.4 1056.4 11.5%

©2008 IDC # 5
TABLE 1

Overall IT Spend in India (US$ millions), 2007-2012

Segment/Year 2007 2008 2009 2010 2011 2012 CAGR

Networking

IP PBX 156.4 194.4 240.1 284.8 320.8 351.1 17.6%

Wireless LAN 37.9 58.2 77.1 96.6 115.5 128.7 27.7%

LAN Switches 486.9 556.1 629.7 688.4 738.3 778.0 9.8%

Routers 284.7 335.8 386.0 428.5 469.0 501.6 12.0%

Total Networking 965.9 1,144.5 1,333.0 1,498.2 1,643.6 1,759.5 12.7%

Other Add-ons (Computing 334.0 384.0 436.5 493.9 548.6 612.4 12.9%
Products)

Hardware total 6,750.7 7,964.5 9,124.0 10,366.7 11,632.3 13,027.0 14.1%

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 Others 1,277.2 1,528.4 1,713.1 1,878.4 2,031.7 2,181.9 11.3%

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) ***

Source: IDC India, 2008

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

Indian Economy in the World

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.

Performance of the Indian Economy in 2007-08

 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.

 The exports in the FY 2007-08 exceeded US$ 155,512 million, registering a


growth of 23.0% vis-à-vis FY 2006-07, when they touched US$ 126,413 million.
The imports on other hand grew by 27.0% in 2007-08 to touch US$ 235,910
millions vis-à-vis US$ 185,735 millions in 2006-07.

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

Indiactors of Indian Economy, 2007-08

GDP Growth Rate 9.00%

Agriculture Growth Rate (18% contribution to economy) 4.50%

Manufacturing Growth Rate (27% contribution to 8.80%


economy)

Services Growth Rate (55% contribution to economy) 10.80%

Population 1,134,788,500

Inflation 11.44%

US$ Exchange Rate Rs. 42.95/$

Exports US$ 155,512 million

8 # ©2008 IDC
TABLE 2

Indiactors of Indian Economy, 2007-08

GDP Growth Rate 9.00%

Imports US$ 235,910 million

FDI flow into India US$ 24,570 million

Fiscal Deficit 3.22% of GDP

Revenue Deficit 1.52% of GDP

Food grains Production 227.3 million tonnes

Source: IDC India, 2008

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:

 Stable macro-fundamentals with high foreign exchange reserves, sustained


growth of services sector, self-sufficiency in foodgrains making us less
susceptible to exogenous vulnerabilities.

©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.

 Government’s new emphasis on Knowledge economy will harness the country’s


skills for the ICT economy in areas like Information

 Technology, IT Enabled Services, e-medicine, bio-technology and enabling the


people to quickly move to a society based on science and technology and
innovation driven.

 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.

 Infrastructure which is being rapidly modernized to meet global challenges –


Telecom rates are internationally competitive, road connectivity is improving
dramatically, turn-around time in Ports are no more a strain on international
trade, and the Power sector is bracing itself for a major reform.

 Harnessing the advantages of India becoming a large common agricultural


market based on dismantling regulations which hinder free movement of
foodgrains and other agricultural products, permitting farmers flexibility in their
operations by eliminating cumbersome regulations, strengthening the agro-
processing sector by a modern Food law and increased diversification in
production patterns in consonance with changing consumer preferences.

 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.

 Deregulation of the Urban and the Construction sector through computerization


of Land records, modern tenancy regulations, rationalization of Stamp Duty,
easier access to housing finance freeing up the latent energy of the construction
sector, which can nearly contribute an incremental 1.5% to GDP growth.

While heading for bigger things, the Indian economy will gain in size and confidence
in the coming times.

THE INDIAN BFSI SECTOR

Overview of BFSI Sector in India

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 BFSI vertical consists of varied organizations, including banks, insurance


companies, and players in the financial services, such as mutual funds, asset liability
management companies, stock market and other non-banking financial companies
(NBFCs). The commercial banks and certain variants of NBFCs are among the oldest
of the market participants. The financial intermediaries (FIs), on the other hand, are
relatively new entities in the financial market place. All these carry out the role of
financial intermediaries and bridges the fund related needs of households (retail
customers) and companies (corporate customers). They provide lower monitoring
cost, greater liquidity and lower price risk for the household depositors, while also
providing payment services that directly benefit the corporate sector and the economy
equally.

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.

INDIAN BANKING INDUSTRY: THE


IMPERATIVES

Overview of the Sector

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.

Banking today has transformed into a technology-intensive and customer-friendly


sector with a focus on convenience. The sector is set to witness the emergence of
financial supermarkets in the form of universal banks providing a suite of services,
from retail to corporate banking and industrial lending to investment banking. While
corporate banking is clearly the largest segment, personal financial services is the
segment with the highest growth. Also the rural and retail banking are fasting catching
up with corporate and personal banking.

Banks in India can be broadly classified into three categories:

 Regional rural banks (RRBs),

12 # ©2008 IDC
 Co-operative banks, and

 Scheduled commercial banks (SCBs)

The scheduled commercial banks or SCBs can be further classified into three major
categories, namely:

 Public sector banks,

 Private sector banks, and

 Foreign banks

The public sector banks can be further classified into three categories, namely:

 Nationalized banks

 State Bank group

 Other public banks

The figure below provides an overview of banking structure in India.

FIGURE 1

Structure of the Indian Banking Industry

Indian Banking Sector

Regional Rural Banks Co-operative Banks Scheduled Commercial


Banks

Public Sector Banks Private Sector Banks Foreign Banks

Nationalized Banks State Bank Group Other Public Banks

Source: Industry and IDC India, 2008

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.

Reforms in the Sector

Reserve Bank of India

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.

Reforms in Indian Banking

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.

Players in the sector

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

Market share of Players in Indian Banking Sector, 2007

State Bank of
India (16.3%)

ICICI Bank (9.0%)

Others (52.8%) Canara Bank


(5.1%)
Punjab National
Bank (5.0%)
Bank of Baroda
(4.4%)
Union Bank of
Bank of India
India (3.1%)
(4.3%)

Total = US$ 1,171,290 million

Source: Reserve Bank of India and IDC India, 2008

Trends in the sector

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.

Product innovation/bancassurance: Today’s banks are venturing into other non-


traditional banking arenas, such as long term financing, asset-liability management,
mutual fund and insurance. They are gradually moving into the universal banking
arena where they will be able to provide all the financial services under one roof. The
phenomenon of universal banking is also expected to provide economies of scale and
scope to the banks and an opportunity to cross-sell their products to the customers.
One apt example of this is bancassurance, which involves selling of insurance
products through the banking channels. It adds to banks' product line, and insurance
companies get a new channel for the distribution of their insurance covers. With the
latest applications, such as knowledge management and business intelligence being
developed to explore the hidden needs of the customers, the collaboration of the two
can serve a meaningful purpose for both the entities for a long period of time.

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.

Mobile banking: Mobile banking refers to provision of and access to bank-related


financial services with the help of mobile telecommunication devices. The scope of
offered services may include facilities to conduct bank and stock market transactions,
to administer accounts and to access customized information. Mobile banking has
been slowly but constantly gaining ground. The public perception of mobile financial
services (MFS) has undergone a positive change in past few years. This shift can be
traced to the increased need for mobility and to technological advances in the
telecommunication sector. Successful MFS offer enable business advantages but
they also pose certain dilemmas, such as the choice of a suitable technical solution.
Today more and more banks are tying up with the mobile and telecommunication
companies to provide various facilities such as account transaction, live news, and
live stock quotes to the customers on their mobile devices. Though the phenomenon
has not been able to make much deeper inroads in the Indian scenario, in the next
two to three years, mobile banking is going to be most innovative delivery channel for
the banks, with examples being set by the larger banks to be followed by the smaller
banks. The table next provides an overview of key concepts often used in mobile
banking.

TABLE 3

Mobile Banking Terminologies

Terminology Activities

Mobile Accounting Money remittances and transfers, bill payments, subscribing


insurance policies, changing operative accounts

Mobile Brokerage Sale and purchase of financial instruments, order book


administration

Mobile Financial Information Balance enquiries, statement requests, credit card information,
branches and ATM locations, stock market quotes and reports

Source: Industry and IDC India, 2008

Messaging services: In messaging-based applications, the communication between


the bank and the customer is carried out via text messages. These messages may be
triggered automatically by the bank whenever certain pre-defined events occur, for
instance whenever a transaction is performed on the account or the balance updates
are being carried. Alternatively, the messages may be sent by the bank as a
response or confirmation to the customer requests also. A customer message may

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.

Factors favoring the growth of the sector in


India

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.

Challenges in the Sector

Increased risk: Large-scale use of technology and innovative products has


increased the areas and potential of risk exposure. As the Indian economy aligns with
the international markets, the impact of global developments will have a bearing on
the market and credit risk in India. With RBI's prescription of the adoption of Basel II
norms, the immediate concerns of Indian banks are to gear up for additional
requirement of capital for market and operational risk, and improve systems and
processes so as to accurately measure the risk inherent in the business without
delay.

Tightening legal environment: The legal environment is likely to be more complex


in the years to come. Innovative financial products implemented on computers, new
risk management software, user interfaces, and others may become patentable. For
some banks, this could offer the potential for realizing commercial gains through

©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.

Low penetration of financial markets in India: The penetration of the banking


system into India's population is low, and banking activity remains concentrated in
urban areas. India has only 28 ATMs per million people, compared to 55 in China and
nearly 1,600 in South Korea, and credit and debit card penetration is also very low.
Lack of bank penetration limits the system's ability to mobilize savings and thus
contributes to India's low financial depth and lesser financial inclusion.

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

Vicious Circle of Financial Exclusion Plaguing the Indian


Banking Industry in the Rural Areas

No Savings

No Assets No Insurance

Financial
Exclusion
No Bank account No Access to
Financial Consulting

No Affordable Credit

Source: Industry and IDC India, 2008

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.

Decreasing loyalty of customers: Changes in the banking industry are impacting


the customer preferences. Customers have become demanding and the loyalties are
diffused. There are multiple choices today for a consumer; and thus the per bank
share of the customer's wallet has reduced over time. It has become increasingly
difficult for the banks to retain customers. Thus the banks are faced with two
challenges -- one, to attract newer customers and the second, to retain their existing
customer base. These changes are creating internal challenges as well, as
employees are made to adapt to changing conditions. Keeping in mind the aging
factor of employees in the Indian banks (especially the public sector banks), change
management is one of the biggest problems that the Indian banks face today.

Money laundering: Criminal elements in today's technology-driven society are using


every means available to launder the proceeds from their illegal activities. The anti–
money laundering compliance requires financial institutions to report any unusual
banking activity that might be deemed as suspicious, and also vests the treasury
department with regulatory powers to penalize any organization that may be a
participating factor, whether knowingly or not. Failure to adhere to these strict federal
guidelines can have severe results, including damage to a financial organization's
reputation, market capitalization, as well as its customer perception and loyalty.

©2008 IDC # 21
Role of Information Technology in the Sector

The IT deployment of banks aims at achieving operational efficiency, meeting


customer and market expectations. IT has become an essential part of banking and is
integrated with the business plans of the banks. As the industry becomes more
competitive, market dynamics will force product innovation, bringing the business of
banking back full circle to high-touch branch banking for retail customers, while
corporate business would depend on the ability to deliver seamless services through
integration of technology, with client relationships remaining the driver.

IT spending by banks is driven by initiatives to meet regulatory requirements, manage


customer relationships, manage risks, reduce costs and attract new customers.
Banks are looking to provide web-based trade support, value-added transaction
services, basic online transaction services and basic online information services, to
attract and retain customers. The spending on ICT by the banks will be boosted by
the increasing emphasis on electronic and mobile transaction. The implementation of
the BASEL II is also resulting in banks adopting new IT technology.

Key IT solutions 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.

Business intelligence: Another important issue banks face is in proper analysis of


financial data to identify business potential. Here business intelligence comes to their
rescue. It helps a bank in identifying cross-sell and up-sell potentials. Technologies
such as data warehousing and data mining come into play here. A data warehouse
can help the bank get a single view of its data across disparate systems. This is very
useful since most banks have data spread over several disparate systems, and in
many cases, legacy systems.

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.

INDIAN INSURANCE INDUSTRY: THE


IMPERATIVES

Overview of the Sector

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.

Insurance in India is estimated to be only 3.6% of the national GDP, as opposed to


the world average of 7.52%. Though the sector is growing at more than 40%, but the
potential to penetrate in the rural markets is still enormous for the players operating in
the sector.

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

 General/Non-life insurance; and

 Re-insurance

The life insurance business can be further sub-classified into three categories

 Group (Corporate customers)

 Bancassurance

 Agency (or Retail where the target is the individual customer)

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

Structure of Indian Insurance Industry

Insurance Industry

Life Insurance Re-insurance General Insurance

Bancassurance Fire

Agency Motor

Group Marine

Aviation

Health

Others

Source: Industry and IDC India, 2008

Evolution of the Sector

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

Milestones in the Evolution of Indian Insurance

Year Milestone

1912 Establishment of Indian Life Insurance Act

1928 Establishment of Insurance Companies Act

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

Source: Industry and IDC India, 2008

26 # ©2008 IDC
Reforms in the Sector

The Government has taken many proactive steps to give a boost to the insurance
sector in India:

 Foreign direct investment up to 26% is permitted under the automatic route


subject to obtaining a license from the IRDA

 IRDA has removed administered pricing mechanism, i.e. de-tariffing in respect of


fire and engineering along with motor insurance of general insurance for
premium, from 1 January, 2007

 The control rates on fire, engineering and workmen's compensation insurance


classes has been removed from 1 September, 2007

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.

Players in the Sector

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

Life Insurers in India (US$ Million)

Insurer 2005-06 2006-07 Growth

LIC 22698.055 31955.71 41%

ING Vysya 106.345 176.8 66%

HDFC Standard Life 392.4775 713.9675 82%

Birla SunLife 314.92 444.1775 41%

ICICI Prudential 1065.2625 1978.2475 86%

Kotak Life 155.4625 242.8775 56%

Tata AIG 220.0475 341.795 55%

SBI Life 268.83 732.1225 172%

Bajaj Allianz 783.395 1327.5 69%

Max New York Life 197.0325 375.07 90%

Met Life 51.4975 123.1775 139%

Reliance Life 56.0525 251.165 348%

Aviva 150.0675 286.8075 91%

Sahara 6.915 12.75 84%

ShriRam Life 2.5825 46.2875 1692%

Bharti AXA Not There 1.945 NA

Future Genrali India Life New New NA

Total 26468.9425 39010.4 47%

Source: Insurance Regulatory and Development Authority and IDC India, 2008

TABLE 6

Non-Life Insurers in India (US$ Million)

Insurer 2005-06 2006-07 Growth

28 # ©2008 IDC
TABLE 6

Non-Life Insurers in India (US$ Million)

Insurer 2005-06 2006-07 Growth

National Insurance 880.9175 953.605 8%

New India Assurance 1197.875 1254.3 5%

Oriental Insurance 881.7775 982.13 11%

United Insurance 788.695 874.6925 11%

Royal Sundaram 114.66 149.55 30%

Reliance 40.5825 228.0575 462%

Iffco-Tokio 223.18 286.1175 28%

Tata AIG 143.175 177.6375 24%

ICICI Lombard 395.715 747.2675 89%

Bajaj Allianz 318.0725 446.585 40%

Cholamandalam 55.045 77.9325 42%

HDFC Chubb 50.235 48.5 -3%

Star Health and Allied New New NA


Insurance

Apollo DKV Insurance New New NA

Future Genrali India Life New New NA

Total 5089.93 6226.375 22%

Source: Insurance Regulatory and Development Authority and IDC India, 2008

©2008 IDC # 29
FIGURE 5

Insurance Industry in India, 2005-06 and 2006-07

2005-06

General (16.1%)

Life (83.9%)

n = US$ 31,558 million

2006-07

General (13.8%)

Life (86.2%)

n = US$ 45,236 million

Source: Insurance Regulatory and Development Authority and IDC India, 2008

30 # ©2008 IDC
FIGURE 6

Life Insurance Industry in India, 2005-06 and 2006-07

2005-06

Private (14.2%)

Public (85.8%)

n = US$ 26,469 million

2006-07

Private (18.1%)

Public (81.9%)

n = US$ 39,010 million

Source: Insurance Regulatory and Development Authority and IDC India, 2008

©2008 IDC # 31
FIGURE 7

Non-Life Insurance Industry in India, 2005-06 and 2006-07

2005-06

Private (26.3%)

Public (73.7%)

n = US$ 5,090 million

2006-07

Private (34.7%)

Public (65.3%)

n = US$ 6,226 million

Source: Insurance Regulatory and Development Authority and IDC India, 2008

Trends in the Sector

The key trends in the Indian insurance industry are:

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.

Public sector insurers continue to dominate; private players push harder: In


both life and non-life segments, public sector insurance companies continue to
command a higher share of the market. Private players are competing amongst
themselves for a smaller pie. This is mainly because public sector players have been
in existence for a longer duration and are deeply entrenched in the market with a
huge distribution network, whereas new players are only beginning to create a
reputation for themselves. Building a distribution network from scratch is a time-
consuming and costly affair for new players. Many of them are piggy backing on other
exiting networks, like banks through bancassurance and the use of ATMs for
collecting premiums.

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.

Alternate channels of distribution: Alternate channels of distribution such as


bancassurance, direct marketing, Internet and telemarketing reduce costs and enable
insurers to reach a wider customer base. While agency force remains the mainstay of
most insurance companies, insurers are exploring new channels. These efforts are
also relevant in the context of reducing marketing cost as this would enable insurers
to provide affordable insurance to low income households. Creating brand awareness
of their products and their medium of communication is also a key area today.

©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.

Factors favoring the growth of the sector in


India

Moving ahead, the key factors that will lead to the growth of the Indian insurance
industry are:

Tax savings: Particularly, in the life insurance segment, insurance is seen as an


effective means to reduce the tax burden. As more and more people come under the
tax net with the changing income tax policies, life insurance is also increasing in
popularity.

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%.

Challenges in the Sector

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

Challenges in the Value Chain of Indian Insurance Industry

Product Distribution New business Policy owner Claims


development services

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

Source: Industry and IDC India, 2008

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.

Obsolete technology: Insurance companies are usually burdened with complex,


inflexible and often obsolete legacy IT systems. Besides being expensive to maintain,
legacy systems adversely impact business by contributing to:

 High unit cost of application processing

 Longer lead time for policy issuance, reporting and claim settlement

 Loss leakage and poor benefit disbursement

 Long cycle times and high cost of product introduction

 Reduction in the business value of modernization initiatives and increase in cost


of modernization costs, which can be achieved through better-aligned business
and technical architectures

 Negative effect on integration and interoperability

Role of Information Technology in the Sector

An emerging and demanding consumer group, changing distribution models driven by


financial convergence and a stringent regulatory regime require more flexible
business processes, high yield business performance as well as greater transparency
and accountability. In comparison to other areas in the financial services sector,
insurance has been relatively late in adopting technology. But now, insurers have
realized that technology can offer a distinctive edge over competition and are using
technology to impact areas like:

 Transaction processing

 Knowledge management

36 # ©2008 IDC
 Customer management

 Distribution channel

 Product design/product re-design to increase share of customer's wallet

The insurance companies are relying heavily on technology to reshape their


marketing strategies, distribution channels and customer relationships.

IT solutions in the sector

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.

Data warehousing generates the all-important CRM by offering a continuous and


more integrated flow of information between field or remote agents and other field or
corporate functions. Collection and maintaining competitive coverage data and
creating a current, consistent and complete view of customer holdings and activity are
possible using data warehouses. Precise geographic analysis of the location of both
current and potential customers then allows insurers to place the right number of
agents in better proximity to their customers.

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.

There is therefore an increased spending by the insurance companies on solutions


such as CRM, data warehousing, knowledge management, and business intelligence.
These tools are beginning to form an integral part of the IT infrastructure of the
insurance companies and are also a major driver of IT spending by the insurance
companies.

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.

Convergence of high-tech devices: With the increased penetration of technology


among the Indian masses, traditional distribution channels of insurance are getting
converged into the electronic channels. For example, mobile devices are being used
as an effective tool for the promotion of policies and companies are tying up with
various telecommunication companies to create awareness of insurance companies
in India. In the coming times, the focus on the insurance companies will be to
converge technological advancement and deliver their products as per the ease and
convenience of the customers.

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

Overview of Manufacturing Sector in India

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 manufacturing base, which is the fourth-largest among emerging economies,


is among the fastest growing and has seen more investments as a proportion of gross
domestic product than any country except China. Consequently, manufacturers from
across the world are transforming India, which has all the required skills in process,
product, and capital engineering, thanks to its long manufacturing history and higher-
education system, into a potential manufacturing powerhouse.

India's emergence as a manufacturing hub has, and will continue as multinationals


are looking for alternatives to China. A talent shortage is lifting wages in China, which
has already led to Chinese goods becoming costlier and reducing its advantages over
India. Above that, the West is threatening to impose anti-dumping duties on several
Chinese products which has become a matter of worry for multinationals with
operations in China. This will be another strong factor that will keep multinational
manufacturers interested in India.

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.

In today’s information age, business environment requires new capabilities in


manufacturing organizations for competitive success. To compete successfully in this
dynamically changing environment, manufacturing firms need to address several key
strategic issues effectively. IT has been fundamentally changing the way the
organizations conduct their business and compete in the market place. IT is
significantly improving the productivity of the manufacturing sector in the fields of

©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.

INDIAN AUTOMOBILE INDUSTRY: THE


IMPERATIVES

Overview of the Sector

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

 Increase in disposable incomes and standard of living of middle-class Indian


families.

 The Indian government’s liberalisation measures such as relaxation of foreign


exchange, 100% FDI, reduction of tariffs on imports, and banking liberalisation
that has fuelled financing driven purchases.

On the business landscape, the automobile industry in India occupies a prominent


place. Due to its deep forward and backward linkages with several key segments of
the economy, it has a strong multiplier effect and is capable of being the driver of the
economic growth. A sound transportation system plays a pivotal role in the country's
rapid economic and industrial development as well. The Indian automotive industry
ably fulfils this supportive role by producing a wide variety of vehicles, including
passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles,
scooters, motorcycles, mopeds, three wheelers and tractors.

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

Segmental Overview of Indian Automobile industry, 2006 &


2007

Commercial 2006
Vehicles (2.7%)
Three Wheelers
(3.3%)

Passenger Cars
(14.0%)

Two Wheelers
(80.0%)

n = US$ 30,800 million

2007
Commercial
Vehicles (4.7%)

Three Wheelers
(4.9%)
Passenger Cars
(14.2%)

Two Wheelers
(76.2%)

n = US$ 34,000 million

Source: Industry and IDC India, 2008

Evolution of the Sector

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.

In 1982, Maruti Udyog Limited (MUL) came up as a government initiative in


collaboration with Suzuki of Japan to establish volume production of contemporary
models. Economic liberalisation, started in 1991, led to the de-licensing of the
passenger car segment in 1993. But the QR on imports continued. This decade
witnessed the emergence of Hero Honda as a major player in the two-wheeler
segment and Maruti Udyog as the market leader in the passenger car segment.

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.

Beginning 2000, several landmark policy changes were introduced. Indigenously


developed vehicles entered the domestic market and exports were given a thrust.
Auto companies started collaboration with financial firms to provide auto financing
and insurance services to customers.

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

Evolution of the Automobile Sector in India, The Then and Now

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

2 major players: Decrease in customs Entry of international Diversification into


Premier Automobiles and excise layers financing, insurance
Ltd and Hindustan business
Motors

Cars were a luxury Auto finance boom- Focus on safety norms


more players (foreign
banks and non-
banking companies,
better schemes.

Improving capacity
utilization

Increased exports

Indigenously designed
and developed
vehicles

100% FDI allowed


through automatic
route

Source: Industry and IDC India, 2008

The automotive industry is in the midst of a major structural transformation in today’s


globalized scenario. System supply of integrated components and sub-systems is
becoming the order of the day, with individual small components being supplied to the
system integrators instead of the vehicle manufacturers. In this process, most of the
SSI units manufacturing small individual components are on their way to becoming
tier-II and tier-III suppliers, while the larger companies, including most MNCs, are
being transformed into tier-I companies, which purchase from tier-II and III, and sell to
the auto manufacturers. Beyond differentiation on the basis of design and image,

©2008 IDC # 43
safety and ergonomics, the individual players are starting to provide end-to-end
solutions (from sourcing to retailing) on their own.

A greater emphasis is being put on the development of factors that ensure


competitiveness on a long-term basis. The sector with its deep backward (metals like
steel, aluminum, copper, etc.; plastics; paint; glass; electronics; capital equipment;
trucking; warehousing and logistics) and forward (dealership retails, credit and
financing, logistics, advertising, repair and maintenance, petroleum products, gas
stations, insurance, service parts) linkages has been recognised and identified as a
sector with a very high potential to increase the share of manufacturing in GDP,
exports and employment. The sector is also seen as a multiplier of industrial growth,
helping in attaining two critical goals of the economy: increasing manufacturing output
and providing employment. It also indirectly facilitates the third objective of increasing
agricultural productivity through farm mechanisation and the needs of agri-produce
transportation.

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 automotive industry continues to evolve and innovate. Supply-side processes


have been rationalised and inefficiencies driven out, making the supply chain lean
and delivery effective. The Internet has ushered in collaboration and visibility down
the chain from component manufacturer to the OEMs. Movements on the demand
side are also gaining momentum with most of the players extending their supply chain
management initiatives to the customer and dealer side through the initiative of
customer relationship management.

Reforms in the Sector

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.

Automotive Mission Plan 2006-16

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.

The key thrust areas in the plan are

 Demand creation brand building and infrastructure

 Competitiveness in manufacturing and technology

 Export and international business

 Environment and safety

 Human resource development

Bharat Norms

To reduce air pollution, the Automotive Research Association of India has


implemented the Bharat Stage emission norms across the country. These are
equivalent to the Euro norms. The government has laid out a phased program for
introduction these norms in the country by 2010, requiring an investment of US$
12,220 million by oil and automobile companies in improving fuel quality and vehicular
engine specifications. The detailed outlining of the phased implementation of the
emission standards is given in next table.

©2008 IDC # 45
TABLE 8

Phased Implementation of the Emission Standards' Norms in the Indian


Automobile Sector, 2000-2010

Norm Reference Timeframe Cars Two-wheelers Commercial


vehicles

Bharat Norms Euro I 2000 Introduced Introduced Introduced


nationwide in nationwide in nationwide in
2000 2000 2000

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

Source: Industry and IDC India, 2008

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

Key Players in the Indian Automobile Industry, 2007

Player Segments

Ashok Leyland LCVs, M&HCVs, Buses

Asian Motor Works M&HCVs

Atul Auto Three wheelers

Bajaj Auto Two and Three Wheelers

BMW India Cars and MUVs

Daimler Chrysler India Cars

Eicher Motors LCVs, M&HCVs, Buses

Electrotherm India Electric Two Wheelers

Fiat India Cars

Force Motors Three Wheelers, MUVs and LCVs

Ford India Cars and MUVs

General Motors India Cars & MUVs

Hero Honda Motors Two Wheelers

Hindustan Motors Cars, MUVs and LCVs

Honda Two Wheelers, Cars and MUVs

Hyundai Motors Cars and MUVs

Kinetic Motor Two Wheelers

Mahindra & Mahindra Three Wheelers, Cars, MUVs, LCVs

Majestic Auto Three Wheelers

Maruti Suzuki Cars, MUVs

Piaggio Three Wheelers, LCVs

©2008 IDC # 47
TABLE 9

Key Players in the Indian Automobile Industry, 2007

Player Segments

Reva Electric Car Co. Electric Cars

Royal Enfield Motors Two Wheelers

Scooters India Three Wheelers

Skoda Auto India Cars

Suzuki Motorcycles Two Wheelers

Swaraj Mazda Ltd. LCVs, M&HCVSs, Buses

Tata Motors Cars, MUVs, LCVs, M&HCVs, Buses

Tatra Vectra Motors M&HCVs

Toyota Kirloskar Cars, MUVs

TVS Motor Co. Two Wheelers

Volvo India M&HCVs, Buses

Yamaha Motor India Two Wheelers

Source: Industry and IDC India, 2008

Trends in the Sector

Some of the prominent trends in the Indian automobile sector are:

Demographic changes: The growth of Indian middle class with increasing


purchasing power along with strong growth of economy over a past few years have
attracted the major auto manufacturers to Indian market.

Regulatory changes: Liberalisation steps, such as relaxation of foreign exchange


and equity regulations, reduction of tariffs on imports, and refining the banking
policies, initiated by the government of India, have resulted in a large number of multi-
national auto companies, especially from Japan, US and Europe entering the Indian
market and working in collaboration with Indian firms. Also, the institutionalization of
automobile finance has further paved the way to sustain a long-term high growth for
the industry.

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.

Global footprint: Indian manufacturers are producing automobiles at very


competitive costs and are all set to make greater inroads in the global markets in the
next two years. The growth rate of exports (22.3% in 2007) against the domestic
growth rate of 10% proves the point here.

Collaborative designing: In today’s competitive world where time-to-market has


reduced significantly, some auto makers have started the collaborative practices in
product design and development with their partners, that is, multi-location/multi-
entities real-time product development.

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).

Automotive servicing: Automotive servicing, until recently a captive revenue stream,


is being challenged by big names with deep pockets and long-term missions to make
their ventures a success.

Used-vehicle business: The segment of used vehicles is gaining popularity in the


Indian automobile landscape. The growth in the segment is expected to come from
the rural and semi-urban customers with the growing awareness, rising incomes and
development of the buying power and willingness.

Distribution channels: Newer and modernised channels of delivery are emerging


with the advent of IT in the sector. Customers can obtain complete information about
the vehicles on the Internet before making an actual visit to the showrooms.

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.

Factors favouring the growth of the sector in


India

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:

Domestic market: A rapidly growing domestic market, encouraged by 9%-plus GDP


growth and rising incomes across its 250-million-strong middle class with a higher
consumption index offers a huge growth opportunity for the automobile sector in
India.

Availability of skilled manpower with engineering and design capabilities: India


has a growing workforce that is English-speaking, highly skilled and trained in
designing and machining skills required by the automotive and engineering industries.
In a combined assessment of manpower availability and capabilities, India ranks
much ahead of other competing economies. Many Indian and global players are
leveraging this advantage by increasingly outsourcing activities like design and
research and development to their Indian arms.

Strong ancillary industry: India’s strong base of auto ancillary manufacturers


significantly increases its appeal as an investment destination for global car
manufactures. The Indian auto industry is on the radar of all the major manufacturers
around the globe who are looking to venture overseas.

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.

Challenges in the Sector

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.

Modularity to enhance customers’ choice: With space frame technology,


modularity could be a means to provide greater customization with exchangeability of
dashboards, seats, interiors, in-car electronics and other features made possible.
Though the manufacturers have not yet looked upon this opportunity, but with the
competition getting tough, it could very well be on their cards in next two years.

Managing human resources: Current projections indicate that there will be a


shortage of well-qualified personnel to enable the aspirationalgrowth to be achieved.
The biggest challenge for the auto companies would be to recruit and retain the most
talented pool available in the country.

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.

Pressure on margins: Overcapacity and the proliferation of new products are


keeping purchase prices low, leading to average returns on sales for auto
manufacturers, who need to look for innovative ways to increase their margins.

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.

New regulations: Changing rules in accounting standards, government regulations,


e.g., Block Exemption Reform, Euro norms, CO2 regulations and others calls for
constant investment in manufacturing processes and technology and in some cases,
even to the extent of complete overhauling of the operations, capabilities and
processes.

Underutilisation of capacity: In achieving economies of scale in the development of


platforms to be utilised in multiple markets around the world, automakers are often
unable to exploit their capacities to the full.

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.

R&D: The industry is moving towards an assembly driven, modular development of


components and suppliers will need to invest in research and development to develop
innovative products.

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

Automotive executives worldwide view IT as a key contributor to their business


success. To address several challenges and differentiate their brand, auto
manufacturers are looking to invest in technologies related to safety and convenience
features like telematics or location based emergency, navigational and information
service, and in auto styling technology for brand differentiation.

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.

IT infrastructure is also being used to increase business transparency. International


norms in corporate governance are adopted through the better use of IT
infrastructure. Here again, accurate and up-to-date information is the key. Businesses
are modifying and restructuring their IT infrastructure to capture and consolidate
information across their operations. IT has also influenced other areas like customer
services, vehicle health tracking and vehicle positioning as well as vehicle financing
and aggregate reconditioning business.

IT solutions in the sector

Supply chain management: The expectation from the IT infrastructure is to


accurately assess demand and adjust the supply chain accordingly. Therefore,
traditional SCM has evolved into DDSN (Demand Driven Supply Network). The
biggest factor in a successful DDSN implementation is accurate and high quality
information about customers, about the market and the business. In order to meet the
changing customer needs in a competitive landscape, most of the major auto
manufacturers are making an integrated effort in collaborative product design and
development, engineering and manufacturing with the other supply chain entities.

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.

Consolidating standalone applications: The automotive industry has traditionally


used heterogeneous IT landscapes. In addition to a variety of proprietary applications,
OEMs employ a wide variety of operating systems, databases, and hardware.
Mergers and acquisitions driven by industry consolidation have increased the
complexity of the IT landscape for companies as they generally have stand-alone,
legacy and disparate systems. Thus the efforts of the auto manufacturers are also
being directed towards the integration of these applications and stand-alone systems.
Though the large sized companies have already achieved a high degree of success
in integrating their systems, the small and medium sized ones are still in the final
stages of the same.

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.

Customer relationship management: From a sales perspective, extending the


customer relationship management (CRM) systems to have common data about
customers and the offering of a Web-based end-to-end lead management system
helps in presenting and customising vehicles. CRM tools also promote and generate
new interest, opportunities and sales with potentially higher margins. Automobile
manufacturing companies are now in the process of extending their supply chain
management initiatives to their dealers and the end customers.

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.

Workflow management: Workflow management involves 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 still in the proces of implementing these
solutions, and are spending around 10% of their IT budgets on it. But the small and
medium sized companies are around 15% of their total IT spend on such initiaitives.

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.

High-performance computing: High-performance computing (HPC) is crucial for the


automotive industry. It is employed in mechanical computer-aided design and
computer-aided engineering to test structural integrity, airflow motions of components
and systems and simulated crash testing. HPC is poised for an evolutionary
development that will help drive accelerated speed to market, significant cost
reductions and tremendous new flexibility. With the help of desk-side high-
performance computing, the auto industry is playing a greater role in development of
alternative fuels, which previously were largely in the purview of oil, gas and chemical
companies.

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.

Business continuity: Whether nurturing existing customers or pursuing new ones,


manufacturers face ever-escalating customer demands and expectations with no
room for downtime. The business continuity plan of a company needs to mitigate
downtime from unanticipated growth, benchmark the business continuity strategies
against competitors in the industry, reduce risk with effective recovery strategies and
plans, and dynamically respond to planned and unplanned service disruptions by
having a set of best practices in place to keep the business operational. The concept
of online availability of the information has made it necessary for the manufacturers to
ensure 100% uptime because of loss of even an hour of production can cause
serious loss to the company. Thus they are looking to build robust applications and

©2008 IDC # 55
environment by investing into such solutions, which ensure 100% uptime and
business continuity.

Business intelligence (BI): BI helps in identifying the demand potential and


seasonal changes that can affect sales. Technologies such as data
warehousing/mining come into play here. Although, at present only a small proportion
of the IT spending by auto companies is directed towards it, but in the light of
changing customer expectations and increasing volatility in the demand, the use of BI
is bound to increase in the sector in the next 2-3 years.

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.

INDIAN TEXTILE INDUSTRY: THE


IMPERATIVES

Overview of the Sector

In India, textile is an important sector that generates employment, contributes to


industrial output and to export earnings. Currently, it contributes about 14% to
industrial production, 4.9% to the GDP, and 19% to the country's export earnings. It
provides direct employment to over 35 million people. The growth and all round
development of this industry directly impact the economics of the nation. The Indian
textile industry is worth US$ 49,000 million in 2007-08 (growing from US$ 40,000
million in 2006-07), spurred by the domestic market worth US$ 30,000 million (from
US$ 24,000 million) and exports worth US$ 19,000 million (from US$ 15,000 million).

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.

Evolution of the sector

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.

Government bodies related to the industry

Primarily, the Ministry of textiles is responsible for policy formulation, planning,


development, export promotion and trade regulation of the textile sector.

A number of advisory bodies; Cotton Advisory Board, Jute Advisory Board,


Development Council for Textile Industry, Co-ordination Council for Textile Research
Associations, All India Handloom Board, All India Handicrafts Board, All India
Powerloom Board, Co-ordination Committee of Textiles Export Promotion Council are
attached to the Ministry.

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.

Offices of the Development Commissioner for Handlooms, Development


Commissioner for Handicrafts, Textile Commissioner and Jute Commissioner
implement the various policies in specific segments.

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).

The Central Wool Development Board, National Institute of Fashion Technology,


National Centre for Jute Diversification (NCJD), and Sardar Vallabhbhai Patel
Institute of Textile Management are autonomous bodies set up to support the
industry. Similarly, export promotion councils for handloom, apparel, sotton textiles,
synthetic and rayon, silk, wool and woollen, carpets, handicrafts and powerlooms
have lso been running.

Government policies for the sector

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.

National Jute Policy 2005: The government has announced comprehensive


National Jute Policy 2005 with a view to develop a strong and vibrant jute sector.
Efforts were directed at reviving the jute economy through research and development,
technology upgradation, creation of infrastructure for storage and marketing of raw
jute and product and marketing development activities for jute and diversified jute
products. The objective is to produce quality fiber for the textile industry while offering
remunerative prices to jute farmers. Increased FDI and expansion of productive
employment are other goals.

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

 Technology Upgradation Fund Scheme: The Technology Upgradation Fund


Scheme that aids modernizing and technology enhancement is under way and
th
will continue into the 11 5-year Plan. The scheme provides for 5% interest
reimbursement on loans availed from the concerned Financial Institutions (FIs)
for investments in benchmarked technology for the sectors of the Indian textile
industries. Power loom units are entitled to 20% capital subsidy under Credit
Linked Capital Subsidy (CLCS-TUFS) up to a cost of US$ 0.25 million (Rs 1
crore) in eligible machinery with facility to obtain credit from a credit network that
includes all co-operative banks and other non banking financial companies
(NBFC) recognized by the Reserve Bank of India. The Export Promotion Capital
Goods Scheme (EPCG) has reduced import duty on 387 textile machinery items
to 5%.

 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.

 Construction of Apparel international Mart: The Apparel Export Promotion


Council has constructed an Apparel International Mart (AIM) at Gurgaon with
assistance from central government. The mart house is given on lease and
license basis to the established garment exporters in India as a facility to
showcase their products serve as one stop shop for reputed international buyers.

 Apparel Park for Exports Scheme: This is a centrally sponsored scheme to


boost exports. Twelve Project Proposals have been sanctioned for setting up
Apparel Parks at Tronica City and Kanpur (Uttar Pradesh), Surat (Gujarat),
Thiruvananthapuram (Kerala), Visakhapatnam (Andhra Pradesh), Ludhiana
(Punjab), Bangalore (Karnataka), Tirupur and Kanchipuram (Tamil Nadu), SEZ,
Indore (Madhya Pradesh), Mahal (Jaipur, Rajasthan) and Butibori-Nagpur
(Maharashtra).

 Promotion of Khadi: Khadi or khaddar, a fabric associated with the Indian


freedom movement and worn largely by politicians, is today reincarnated as a
fashionable fabric, patronized by the elite. Besides khadi cotton, which has a
coarse texture and feel, there are now several varieties of khadi available, like
khadi silk and khadi wool. The Khadi and Village Industries Commission is the
Indian government body that promotes the use of khadi and it is sold through the
outlets of Khadi Gramodyog all over the country. Khadi has gained worldwide
appreciation as it is hand-made, durable, long-lasting and organic in nature.

Players in the Sector

The Indian textile industry is mostly unorganized, comprising small-medium


enterprises (SMEs). The organized sector comprises just over 10% of the industry.

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

Key Players in the Indian Textile Industry

Player Business

Arvind Mills Diversified

Raymonds Diversified

Reliance Man-made Fiber

Vardhman Spinning Composite

Welspun India Manufactures Terry Towels

Century Textiles Composite Mill, Cotton & Man-made

Morarjee Mills Fully Integrated Composite Mill

Indo Rama Cotton and Man-made

GTN Textiles Cotton Yarn and Knit Fabrics

Ginni Filaments Ltd Yarn and Fabric

LNJ Bhilwara Group Diversified

Mafatlal Textiles Fully Integrated Composite Mill

Modern Group Diversified

KG Denim Fabrics

Sanghi Polyesters Ltd Man-made Fiber

Nova Petrochemicals Man-made Fiber

Bombay Dyeing Ltd Composite

Rajasthan Petro Synthetics Diversified

Garware Polyester Diversified

National Rayon Corporation Man-made Fiber

Indian Rayon Man-made Fiber

©2008 IDC # 61
TABLE 10

Key Players in the Indian Textile Industry

Player Business

Alok Textiles Cotton and Man-made Fiber Textiles

Sharda Textile Mills Man-made Fiber

Gokuldas Images Diversified

Hanil Era Textiles Yarn, Cotton & Man-made Fiber

Oswal Knit India Woolen Wear

Niryat Sam Apparels Apparel

Filaments India Ltd Manmade Textiles

Source: Industry and IDC India, 2008

Trends in the Sector

Industry in transformation: While the structure of the industry is predominantly


small-scale and unorganized; the de-reservation and the removal of quotas has led to
the growth of vertically integrated, large-scale units as well. India is now well
positioned to address the in complex, customized designs, and also in low cost mass
production. Mass customization will be a key differentiator for the industry in the
coming times.

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.

Removal of Quotas: The Multi-Fiber Agreement (MFA), which governed international


trade in textiles and clothing since 1974 enabled developed nations, mainly the USA,
European Union and Canada, to restrict imports from the developing countries
through a system of quotas, was abolished in 2005 under the WTO guidelines. The
Agreement on Textiles and Clothing (ATC) to abolish the MFA quotas marked a
significant turnaround in the global textile trade. The ATC mandated the progressive
phase out of import quotas established under MFA and the integration of textiles and
clothing into multilateral trading system.

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.

Exposure to competition: Indian manufacturers and exporters now have to compete


with the global players and face emerging tariff and non-tariff barriers. Indian textile
industry is gaining expertise to enable them to handle all stages of the production
chain, from growing natural fibers to producing finished clothing.

Growth of technical textiles: Technical textiles are materials and products that are
manufactured primarily for their technical and performance properties.

Advances in polymers, fibers, yarns, chemical technology and fabric/web forming


technologies have spearheaded their use in sectors such as protective clothing,
medical devices and health care products, automotive components, building material,
geo-textiles, agricultural devices, sport and leisurewear, filter media and
environmental protection. As per estimates, the non-woven industry is going to be
worth over US$ 43,986 million by 2012 from the current size of US$ 8,000 million.

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.

Increased infrastructure: Apparel parks and special economic zones specially


dedicated to textile manufacturing are coming up with the active involvement of state
governments, financial institutions and the private sector. An increased provision of
US$ 272 million (Rs 10900 million) in 2008-09 budget, as opposed to US$ 227 million
(Rs 9110 million) the previous year textile parks is also encouraging for the sector.

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.

Intelligent / smart clothing: The international trend of smart clothing is catching on


in India. Odor control, ultraviolet protection and fabrics that adapt to external
temperature are some of the specific requirements being met. Also due to the rapid
technological advancements in the international apparel industry, the evolution of
smart clothing has taken place that goes beyond mere wearer comfort to total
protection under any environment.

Factors favoring the growth of the sctor in


India

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.

Changing marketing and distribution strategies: Changing demographics and


increasing disposable income has created openings for apparel and textile in malls
and large retail formats. This means better visibility, growth opportunities and profits
for the textile manufacturers in India, presenting them with new avenues for their
product display and sales.

Manufacturing flexibility: As the industry is fragmented and functions on different


scales, Indian firms can handle small-runs, work on complex designs and handle
variety of materials, which is not possible in a highly industrialized country. The
flexibility offered by India’s textile industry is a significant advantage for the fashion
industry, which typically demands small lots of complex designs. India also offers
flexibility in its ability to handle different materials such as cotton, wool, silk and jute,
with equal skill. These advantages also enable the Indian industry to produce high
value customized apparel that is increasingly finding demand in several exports
markets.

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.

Training expertise: Institutions like NIFT, Apparel Training Institutes, Indian


Institutes of Technology, National Institutes of Technology and other colleges offer
courses in textile engineering and textile development, i.e. design, sourcing,
merchandising and production. Thus, India has the infrastructure in place to produce
qualified and skilled manpower in areas of textile design and engineering Indian firms
have leveraged this strength to develop a competitive advantage; the ability to
contribute to the design, not only in preparing samples and prototypes, but also in
translating concepts into varieties of finished designs, as well as introducing designs
of their own.

Modernization: Government policies have encouraged modernization of production


processes, especially in readymade garments, resulting in market diversification and
better price realization. The industry is now well equipped to combat the tides of
changes that take place continuously in the fashion world. There indeed has occurred
a vast improvement in the latest technologies and systems adopted in the Indian
garments industry. Modernization is expected to help both in the product as well as
the market diversification and better price realization for various categories of
garments. All this is very different from the situation prevailed some years ago when
the industry, with its large base of low wage workers, had little incentive to adopt the
impressive technological breakthroughs that cut lead times, improve productivity and
reduce labor requirements. Even modern cutting and sewing machines that could
speed production and improve garment quality were not widely used. Today, a
majority of units are employing imported machinery.

Challenges in the Sector

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.

Fragmentation: A large number of small-scale units spread across the country


impacts productivity and makes logistics tough. An uneven supply base inhibits
integration between the links in supply chain resulting in unreliable and inconsistent
performance and deliveries.

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.

Competition from cheaper imports: In addition, competition from cheaper imports


in the local market, ecological and social awareness resulting in increased pressure
on the industry to follow international labor and environmental laws and regional
alliances are playing a spoilsport for the industry.

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.

Role of Information Technology in the Sector

Strong IT support systems, entrepreneurial vision and managerial competence are


some of the factors that are helping the Indian textile industry become globally

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.

IT solutions finding way in the sector

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.

Business intelligence: Business intelligence technology helps managers in


understanding the demand and consumption patterns of the consumers, adjust their
production activities accordingly and come up with innovative products and channels
of distribution. Technologies such as data warehousing and workflow management
come into play here. The implementing of solutions for this integration is the current
focus of the textile companies.

©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.

Designing: CAD/CAM technology performs functions from pre-production to surface


designing and pattern making. Such technologies are also helping the textile
companies in coming up with innovative products and offerings. All the textile
designing companies have major emphasis on the deployment of such solutions. Few
large sized firms are already through with the robust implementation of the same
while the others are still in the second half of the implementation process of the same.

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.

Collaborative Product Development: By collaboratively developing, building and


managing products throughout the entire lifecycle, companies can accelerate time-to-
market, increase customer satisfaction, have greater profit potential, and gain in
market share. CPD yields higher quality products and reduces costly design flaws by
allowing different elements in the production process to share information precisely.

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.

Material Requirements Planning (MRP): Proper implementation of MRP ensures


availability of material for production and product for consumption at right time,
optimizes the level of inventory and helps in scheduling various activities.
Manufacturing resource planning (MRP-II) system is a logical extension of the MRP
system that covers the entire manufacturing function. With the automation of supply
chains, the textile manufacturers are also looking keenly at MRP solutions for
effective inventory management.

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.

INDIAN FMCG INDUSTRY: THE IMPERATIVES

Overview of the Sector

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.

The fast-moving consumer goods (FMCG) sector represents consumer goods


required for daily or frequent use. Personal care (oral care, hair care, soaps,
cosmetics, and toiletries), household care (fabric wash and household cleaners),
branded and packaged food, healthcare products, beverages (health beverages, soft
drinks, staples, cereals, dairy products, chocolates, bakery products) and tobacco
form the main segments of this sector. Many diverse products of daily use dominate
the FMCG market. Thus the industry is fragmented not only in terms of the players
but is also highly fragmented in terms of the number and categories of products that
come under the purview of the industry. The figure next presents an overview of the
key components of the industry for 2007.

©2008 IDC # 69
FIGURE 10

Share of Various Components in the Indian FMCG Industry,


2007

Consumer Durable
(7.0%) Footwear (2.0%)
Entertainment
(2.0%)
Others (32.0%)
Accessories
(1.0%)

Books and Music


(8.0%)

Personal Care
Items (8.0%) Grocery (40.0%)

Total = US$ 16,000 million

Source: Industry and IDC India, 2008

Evolution of the Sector

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.

Post-independence era: At the time of India's independence, though MNCs were


allowed to operate in India, only HLL was having a manufacturing capacity here.
Though the sixties saw many MNCs setting up their manufacturing base in the
country, it was not a clear-go for FMCG majors. The government policy, as it was on
a socialistic pattern with strong emphasis on self-efficiency, remained protectionist to
the core.

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.

Reforms in the Sector

India has enacted policies aimed at attaining international competitiveness through


lifting of the quantitative restrictions, reduced excise duties, automatic foreign
investment and food laws resulting in an environment that fosters growth for the
FMCG industry. This has resulted in a boom in the FMCG arena through market
expansion and greater product opportunities. The initiatives taken by the government
for the FMCG sector are:

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.

Players in the Sector

The table next lists the key players in the various sub-segments of the Indian FMCG
sector.

TABLE 11

Players in the Indian FMCG Sector, 2007

Segment Players

Fabric wash market HLL, P&G, Nirma & SPIC

Dish wash HLL

Soap & Toiletries HLL, Nirma & Godrej

Personal wash market HLL, Nirma & Godrej

Oral care Colgate Palmolive & HLL

Skin care & cosmetics HLL, Dabur & P&G

Hair care Marico, HLL, CavinKare, Procter and Gamble, Dabur & Godrej

Feminine hygiene Procter and Gamble & Johnson and Johnson

Bakery products Britannia, Parle & ITC

Tea HLL & Tata Tea

Coffee Nestle, HLL & Tata Tea

Mineral water Parle Bisleri, Parle Agro, Coca Cola & Pepsi

72 # ©2008 IDC
TABLE 11

Players in the Indian FMCG Sector, 2007

Segment Players

Soft Drink Coca Cola & Pepsi

Branded atta Pillsbury, HLL, Agro Tech, Nature Fresh & ITC

Health beverages SmithKline Beecham, Cadbury, Nestle & Amul

Milk and Dairy products Amul, Britannia & Nestle

Chocolates Cadbury's & Nestle

Culinary products HLL & Nestle

Edible oil Ruchi Soya, Marico & ITC Agrotech

Source: Industry and IDC India, 2008

Trends in the Sector

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.

Reduction of supply chain costs: Players are reducing the number of


intermediaries and thereby the supply chain cost. Organized retail chains have set up
systems for inventory management and quick servicing, and supplying directly to the
warehouse.

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.

Technology: To ensure efficiency, stability, competition and above all services to


common people, all FMCG players are highlighting the need for concerted efforts to
enhance the use of technology in the sector. They are looking to leverage the IT for
product innovation, supply chain management, development of newer distribution
channels and for inventory management.

Factors favoring the growth of the sector in


India

Demand fuelled by socio-economic factors: Backed by the large purchasing


power of 300 million middle class Indians, who will be 88% of the population by 2015,
the demand for FMCG products is expected to grow by more than 100% by 2015.
With an average India spending around 40% of his income on grocery and 8% on
personal care products, all FMCG segments are likely to grow. Rapid urbanization,
increased literacy, rising per capita income and a large proportion of young people
means that consumers will buy branded products that cut across segments.

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.

Export potential: Export of products to a large Diaspora of Asian ethnic population


settled all over the world is a very big opportunity for India. South East Asia, Middle
East, Singapore, Malaysia, Indonesia, Korea, Thailand and Hong Kong, the United
States and Europe are some of the destinations for commodities like dry milk,
condensed milk, ghee, vegetables, pre-made meals, etc. Though the FMCG
companies in India have not yet exploited these markets because they are focused
on meeting the domestic requirements, it is an opportunity for the future.

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.

Manufacturing flexibility: A fragmented industry structure with small average scale


of operation enables Indian firms to handle small-runs and complex orders, as
opposed to large manufacturing nations like China. This flexibility is a significant
advantage for the industry to penetrate rural markets and for niche exports.

Challenges in the Sector

Increased competition due to huge choice available: Manufacturers face


competition from a large number of Indian and foreign brands who are all wooing
consumers. Also there is a wide range of products available from domestic players as
well as the imported goods, which makes the competition all the more stiff in the
FMCG sector.

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.

Fragmented market: Unlike the US FMCG market, which is dominated by a handful


of global players, India's FMCG market remains highly fragmented with roughly half
the market going to unbranded, unpackaged home made products. This creates
competition between the organized sector and the unorganized sector, which in a
longer run is going to harm the FMCG sector as a whole.

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.

Lack of technology upgradation: Slow technological up gradation results in lower


efficiency, productivity and quality of Indian products, whose defect rate is among the
highest in the world.

©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.

Key solutions for the sector

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.

Data warehousing: Building up of the data centers is the most prevalent IT


deployment in the Indian FMCG sector at present. A large portion of the current IT
spending in the sector is being directed towards the data mirroring and establishment
of data centers.

Product lifecycle management: Establishing a robust system to manage and


support a collaborative approach throughout a product’s lifecycle, by the integration of
information and processes across designers, manufacturers, suppliers, distributors,
sales forces and even customers, has become very critical for the continued success

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.

Customer relationship management: With most large companies already tasting


success at applying supply chain managements, they are extending the efforts to
involve customers i.e. the dealers and retailers. Large players are already
implementing CRM and small players will take this up over the next 2-3 years after
the automation of their supply chains.

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.

Inventory management: Inventory management solutions have become critical for


the FMCG players to manage their inventory through just-in-time concept.
Warehousing solutions are finding increased acceptance as well. These solutions
provide the information lying at the warehouses of the players and accordingly serve
the replenishment needs of the same.

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.

Business intelligence (BI): Technologies such as data warehousing and workflow


management help analyze consumer data and plan production and distribution.
Business intelligence and knowledge management help capture real-time business
and market information and assist in strategic decision-making. Today the MIS
reports are generated separately for efficient decision-making. But with the advent of
business intelligence, the MIS reporting is also going to get aligned with the BI tolls
and solutions.

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.

THE INDIAN IT / ITES SECTOR

Overview of the Sector

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.

Among horizontal segments, customer support, finance and accounting,


administration (primary level services like data entry, transcription services, document
preparation, records management, data and information storage, etc), human
resource management (payroll processing, benefit administration, health and welfare
administration, tax filing, etc), legal processes, and others (which includes technical
support, telemarketing, employee IT helpdesk, insurance and claims processing, card
processing, and training processes) are the main areas where Indian BPOs are
active.

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.

Evolution of the Sector

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.

The BPO industry in India has evolved in the following stages:

 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.

 1999-2001: In this period companies started acquiring additional competence


especially in the enterprise resource planning and customer relationship
management. The industry gave importance to a range of business aspects,
such as excellence in quality of output delivered, investments in research and
development, ensuring business continuity and financial stability, gaining world-
class project management capabilities, expanding services to IT consulting by
gaining domain skills, and developing infrastructure for further growth.

 2001-Present: At present the industry provides for the large application


development and maintenance needs of corporates across the world. Indian
companies detail out the strategies for large corporations, and focus on providing
end-to-end solutions. Indian companies are also in the process of aggressively
gaining expertise for carrying out high-end work such as research and
development, architecture and business integration.

The following figure shows how the industry has scaled up its value chain over the
years.

82 # ©2008 IDC
FIGURE 11

Scaling Up of the ITeS Industry's Value Chain in India, 1990-


2007

Research
Scaling up of the Value Chain

Finance and Accounting

Administration

Sales

Customer Service

Medical Transcription

1990s 1993s 1998s 2000s 2003s 2007s

Source: Industry and IDC India, 2008

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

 Integration of global markets

 Seamless global delivery of work across borders through the Internet

©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.

No customer-based approval needed: Call centre approval doesn't have to be


customer-based anymore, but specific to a place of presence (PoP), or by installed
capacity at the place of termination. This way, the lead time for programs for new
customers is reduced, as is the cost.

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.

LAN Connectivity: the government has also allowed connectivity of a LAN in an


international call centre through a domestic ISP. This enables a call centre operator to
choose his service provider. Competition is driving down prices while offering a higher
service-reliability value proposition under the segment.

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.

Players in the Sector

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

Key Business Model Characteristics of Various Segment Organizations in the


Indian ITeS industry, 2007

Type Revenue Business Model

Large Cap Rev > US$ 250 Mainly concentrated on ADM, Package Implementation, BPO and Consulting
million
Well positioned to bag large IT contracts

Strong delivery capabilities across multiple verticals

Low client concentration

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

High client concentration

Threat from Large Cap/ Middle Cap entering the niche areas

Source: Industry and IDC India, 2008

Trends in the Sector

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

Key M&A Deals in the ITeS / BPO Sector

Target Acquirer / Investor Value in US$ Million Stake

Flextronics Software System Kohlberg Kravis Roberts & 900 85%


Co

Mphasis BFL Ltd Electronics Data Systems 398 52%


Corporations

Syndesis Subex Azure Ltd 158 100%

Azure Solutions, UK Subex Systems 141 100%

eSys Technologies Teledata Informatics 141 51%

Hexaware Technologies General Atlantic Partners 68 15%

Enabler Wipro Technologies 55 100%

Saraware Oy Wipro Technologies 34 100%

Scandent Solutions Indopark Holdings Ltd 31 55%


Corporation Ltd

BPM Inc Firstsource Solutions Ltd 30 100%

Source: Industry and IDC India, 2008

Emergence of niche players in specific business functions: Increasingly, certain


processes across specific verticals are being outsourced to the Indian third-party BPO
service providers. These include those in healthcare, publishing, market research,
legal process outsourcing and human resource management services. With the
emergence of non-voice based outsourcing, the activities like research and
healthcare are becoming a major outsourcing process currently.

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.

Increasing geographical reach: The emergence of offshore outsourcing among


global companies has led to Indian BPOs becoming more global in their reach. They
are acquiring international BPO firms in various geographies to get closer to their
clients for better and quick understanding and also as a precautionary step to de-risk
them from unseen business and natural forces. Acquisitions in Mexico and Canada to
tap the US near-shore business, and Eastern Europe to tap the Europe near-shore
business have begun to happen in the Indian BPO space.

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.

Convergence of voice and data: Indian BPOs are integrating communication


services with existing applications to exploit both cost savings and enable new
revenue generating opportunities. They are not merely looking at a merger of voice
and data networks, but are focused on the utilization of the existing data, fixed and
wireless infrastructure for the provision of all IP-based services, including voice, data,
video, and storage.

©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

Cost Advantage for Indian BPOs vis-à-vis the US

Head India as percentage of US costs

Human Resource 14%

Administration 12%

Telecom 155%

Property Rentals 33%

Others 50%

Total Cost 20%

Source: Industry and IDC India, 2008

TABLE 15

Financial Attractiveness of Top 5 Global Services Locations

Country Index on a Scale of 4

India 3.22

88 # ©2008 IDC
TABLE 15

Financial Attractiveness of Top 5 Global Services Locations

Country Index on a Scale of 4

China 2.93

Malaysia 2.84

Thailand 3.19

Brazil 2.64

Source: Industry and IDC India, 2008

Emphasis on quality and information security: India's sustained leadership in


global service delivery has been, in large parts, due to its demonstrated process
quality and expertise in service. Over the years, the industry has built robust
processes and procedures to offer world class IT software and technology related
services. Today, India-based centers (both Indian firms as well as MNC-owned
captives) constitute the largest number of quality certifications achieved by any single
country.

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.

Enabling business policy and regulatory environment: Policy makers in India


have laid special emphasis on encouraging foreign participation in the ITeS-BPO
sector—recognizing its importance not only as a source of financial capital but also as
a facilitator of knowledge and technology transfer. The firms have enjoyed minimal
regulatory and policy restrictions along with a broad range of fiscal and procedural
incentives.

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

Internal and External Factors for high Attrition in BPOs

External Factors

ATTRITION ATTRITION  Demand Concentration


 Limited Supply
 Shortage of Manpower
 Pursuing Higher Studies
 Poaching
ATTRITION
Internal Factors
ATTRITION
 Monetary Factors
 Job Monotony
 Shift Timings
 Hard Working
Conditions
 Slow Career ATTRITION
Growth

ATTRITION

ATTRITION

ATTRITION

Source: Industry and IDC India, 2008

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.

Surrounded by standards: Indian BPOs are surrounded with several levels of


standards and regulations that they have to comply with—national as well as
international. Indian laws, compliance standards like Sarbanes-Oxley Act 2002,
business process standards like COBIT, Six Sigma, etc, and benchmarks set by the
customers. All these scenarios complicate the matters and add to the compliance
woes of the Indian BPO service providers.

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.

Difficult working conditions: The conditions generally prevailing in the larger


segment of the ITeS-BPO sector include long working hours (without any
compensation for the extra hours), almost no leave or holidays, strenuous work
environment, close surveillance on employees, and no right to collectively represent
or complain. This is turning people away in the long run from careers in the IteS /
BPO sector.

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.

Providing a safe working environment to women employees: Most BPOs have


women as the majority of their workforce and it is a challenge to provide a safe and
conducive working environment to them. Recently there has been an increase in the
number of misbehavior with women employees in the BPO companies. The incidents
have been mostly occurring during the night shifts.

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.

Role of Information Technology in the Sector

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:

 Service quality management (ensuring performance and satisfaction)

 Issue management (managing escalation and emergency)

 Change management (analysis of program, demand, consumption)

 Commercial management (contract management)

 Compliance management (adherence to regulatory, safety and privacy


guidelines)

The key IT solutions getting deployed in the industry 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.

Business intelligence: As a competitive edge, BPO companies in India are


increasingly looking at business intelligence solutions to understand the demand and
need patterns of their clients. Business intelligence often encompasses identifying
and mapping intellectual assets within the organization, generating new knowledge
for competitive advantage within the organization, making vast amounts of corporate
information accessible, sharing of best practices, and technology that enables all of
the above, including groupware and intranets. IDC believes that business intelligence
is going to be a most sought after solution by Indian BPO industry. They are already
in discussions with the IT vendors for the effective deployment of business
intelligence solutions in their units.

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.

Security solutions: With increasing competition between the enterprises, there is a


possibility for intentional attack on organizations' databases. These attacks could be
from internal or external users. With India increasingly becoming a global ITeS hub, it
is going to be tested for its efficiency and capability in securing global data. But the
security solutions currently deployed by the BPO service providers fall desperately
short of a secured IT system, putting trade secrets as well as employee and customer
information at risk of devastating losses. The evolution of electronic thieves and
hackers who can make great inroads into the corporate databases through corporate
networks even while in remote regions of the world has highlighted the need for
security solutions in a major way in the BPO outfits. Realizing this and realizing the
confidentiality of their data the BPO players in India have now widely recognized the
importance of robust security systems in their organizations. Thus in the next two
years, the BPOs are getting focused more and more on the security requirements and
are investing heavily in these solutions.

Customer relationship management/customer interaction management: BPOs


need to manage every interaction with their customer and maintain a database of it.
Also the cost of acquiring a new customer is five times the cost of retaining an old
one. So it is important that every customer interaction is managed in the best possible
way, for which they look at customer interaction management (CIM) solutions.
Therefore the latest trend to hit the Indian BPO industry is the CRM. It is being used
to understand the services that are more commonly outsourced to Indian BPOs and
to understand the shifting pattern of Indian BPO industry towards high-end services
from the low-end services' outsourcing of early 2000s. Thus the Indian BPOs are
looking to leverage information from their customer relationships to get additional

©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.

Regulatory compliance: IT is increasingly being looked at as a medium to ensure


that the companies are adhering to the regulatory guidelines on a continual basis.
With the precision that is obtained with the help of IT solutions, it becomes easier for
the companies to get their processes certified and increases their credibility in the
global outsourcing arena. Thus the Indian BPO units are increasingly looking at such
solutions that can further their steps in regard the regulatory compliances. And it is
not just one or two solutions that encompass such compliances. We at IDC believe
that the Indian BPO players are going to spend around 3-4% of their total IT budget
on centralized control and monitoring solutions to adhere to the regulatory
compliances.

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

 Human Resource 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.

Interactive Voice Response (IVR) System: IVR is a technology that automates


interaction with telephone callers. BPOs are increasingly turning to IVR to reduce the
cost of common sales, service, collections, inquiry and support calls to and from their
company. Previously IVR solutions have used pre-recorded voice prompts and
menus to present information and options to callers, and touch-tone telephone
keypad entry to gather responses. But the modern-day IVR solutions, along with the
features of older versions IVR solutions, also enables interactive entries and
responses to be gathered via spoken words with voice recognition. IVR is the latest
big technology adopted by the Indian BPO industry. Though the big firms have
achieved certain degree of implementation of the same but the smaller players are
still in the nascent stages of the IVR adoption. Therefore, we can expect more and

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.

Disaster recovery/business continuity solutions: BPO organizations are fast


building up the disaster recovery sites so that their operations are uninterrupted even
in the case of disasters and eventualities. They are aggressively looking at building
data repositories for the smooth and efficient flow of their activities. Though the
players are in the early stages of the project but are very keenly looking at setting up
these sites by 2010. We at IDC believe that around 10-12% of the total IT spending
by the BPO units will be directed towards the establishment of disaster recovery sites
and their maintenance and modernization of the same.

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 INDIAN TELECOM SECTOR

Overview of the Sector

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 Regulatory Authority of India was set up in 1992 as an independent


regulatory body for the sector. Private competition followed with the opening up
cellular and basic services for the local area. Private participation is permitted in all
segments of the services -- international long distance, domestic long distance, basic,
cellular, internet, radio-paging and a number of value-added services. The plethora of
telephony services and products that exploded into the market after privatization, was
not only user-friendly and provided a better customer experience, but also saw the
consumer becoming more conscious of quality and services offered.

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

Telecom Network Services (TNS): including

 Basic telephony

 WLL leased line

 NLD and ILD

 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:

 Global system for mobile communications (GSM)

 Code Division Multiple Access (CDMA)

The figure next presents an overview of the telecom structure in India.

©2008 IDC # 97
FIGURE 13

Structure of Indian Telecom Sector

Indian Telecom Industry

Fixed Mobile

TNS Internet GSM CDMA

Basic Telephony

Data Services Leased Line

TNS

WLL (F) NLD & ILD

Others

Source: Industry and IDC India, 2008

The table next provides an overview of the various constituents of the Indian telecom
service industry.

TABLE 16

Various Constituents of Indian Telecom Service Industry, 2007

Constituent Revenue (US$ Million) Subscriber Base (Million) Growth over 2006-07

Fixed 5910 39 -11.60%

Cellular 16940 261 36.40%

NLD 2160 NA 35.40%

98 # ©2008 IDC
TABLE 16

Various Constituents of Indian Telecom Service Industry, 2007

Constituent Revenue (US$ Million) Subscriber Base (Million) Growth over 2006-07

ILD 2560 NA 0.20%

Internet NA 11 NA

Broadband 1190 3.92 162.70%

VSAT 130 0.082 11.10%

Radio Trunking 10 0.037 5.60%

Source: Industry and IDC India, 2008

Evolution of the sector

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

Milestones in the Evolution of Indian Telecom Industry

Year Milestone

1851 First operational land lines were laid by the Government near Calcutta

1881 Telephone Service introduced in India

1883 Merger of telecom with the postal activities

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

Milestones in the Evolution of Indian Telecom Industry

Year Milestone

1992 VAS (Value Added Services) opened for private operators

1994 NTP (National Telecom Policy) 1994 launched

1994 Eight mobile licenses for four metros issued

1995 Mobile operations commenced in Metros

1996 Commencement of mobile operations in circles

1997 Telecom Regulatory Authority of India (TRAI) established

1999 NTP (National Telecom Policy) 1999 launched

1999 Migration from fixed license fee to Revenue Sharing Model

1999 Multiple fixed line providers permitted in each circle

1999 DoT split into DoT ( licensor and policy maker) and DTS (service provider)

2000 NLD opened to unlimited competition

2001 ILD opened to unlimited competition

2003 Government of India announces concessions for telecom industry including lower license fees

2004 Guidelines for intra-circle Mergers and Acquisitions announced

2008 Release of licenses for 3G spectrum usage

Source: Industry and IDC India, 2008

Reforms in the Sector

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.

Unlike in developed economies where telecom penetration is near saturation, the


Indian regulators have also to kept the objective of increasing tele-density in
consideration in deciding the regulatory policies and principles. This makes regulation
reform in the country a unique phenomenon in the global scenario. The key
regulations guiding the Indian telecom industry are listed next.

100 # ©2008 IDC


 The sector opened to the private sector for equipment manufacturing in the
1980s. This step was followed by several more reforms in quick succession, chief
of which were the National Telecom Policy (1994) and the New Telecom Policy
(1999) and the formation of the Universal Services Obligation Fund. These
encouraged private players by permitting a revenue share license share.

 The Telecom Regulatory Authority of India was set up in 1992 as an independent


body for the sector.

 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

Key Telecom Regulatory Organizations in India

Regulators Function

Ministry of Communication Policy maker for the country for all means of communication

Department of Telecom Policy making and license regulatory body

Telecom Commission This serves as the executive arm of the Department of Telecom

Telecom Authority of India Management of the sector

Telecom Dispute Settlement Dispute and grievance settlement


Appellate Tribunal

Government Organizations Indian Telephone Industries Ltd (ITI)

Telecommunications Consultants India Ltd (TCIL)

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

Telecom Engineering Centre This is a technical wing of the Department of Telecom

The Centre for Development of It is the Telecom Technology development centre of the Government of India
Telematics (C-DOT)

Private Organizations/Companies The Cellular Operators Association of India (COAI)

Association of Unified Telecom Service Providers of India (AUSPI)

Source: Industry and IDC India, 2008

©2008 IDC # 101


Players in the Sector

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

Key Players in the Indian Telecom Service Industry

Segment Players

State Owned Companies BSNL and MTNL

Private Indian Owned Companies Reliance Infocomm and Tata Teleservices

Foreign Invested Companies Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular,


BPL Mobile and Spice Communications

Source: Industry and IDC India, 2008

Trends in the Sector

The key trends in the Indian telecom service industry are:

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.

Introduction of 3G and Wimax technology-based services: Starting from the


metros Indian mobile operators are ready to serve out third-generation or 3G-enabled

102 # ©2008 IDC


connections to high-end user. This would be an up-gradation process for GSM
operators and a whole new network for CDMA operators. Also the government has
recently issued the policy for issue of 3G spectrum to the bidders which ahs cleared
the road-block in the development path of 3G in India.

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.

Convergence of services: Innovations on broadband is encouraging operators to


converge to provide voice and data in an integrated manner. Forming these Next
Generation Networks (NGN) are players like Reliance, MTNL, BSN and others.

Mobile Number Portability (MNP): It enables a subscriber to switch between


services, locations or operators while retaining the original telephone number and the
convenience of use. According to TRAI’s mandate in March 2006, the MNP service
was to be made available to the customers by 1st April 2007. But seeing the current
status it dos not look feasible that the MNP will come into force before March 2009.

Factors favoring the growth of the sector in


India

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.

©2008 IDC # 103


Emergence of newer technologies: Broadband Internet and wireless technology
are acting as the major growth catalysts, boosting overall Internet access spending
and creating new opportunities for the telecom revenues in India. Today customers
are starting to access Internet through their mobile pones rather than loging in from
their PCs. This offers a great opportunity for the operators to leverage the particular
need of the customers and make their sets GPRS enabled and give a spurt to the
teleom market in India.

Regulatory initiatives and reforms: Liberalization of regulatory norms and defining


policies for the telecom sector gave it the much needed jumpstart toward achieving
the phenomenal growth it shows today.

Saturation of markets in developed countries: The telecom markets in other


developed and populous nations are already reaching the saturation levels. Also with
the low tele-density in India, the market is seen as a growth and investment
opportunity. Also, unlike in India, most of the revenue in these markets comes from
value-added services and not voice. Therefore, it is relatively difficult to grow
revenues in these markets. While in India the major revenues are still driven by the
voice and the VAS market is only in its nascent stages and is forecasted to pick up
substantially by 2012. Thus this also offers newer opportunities for the operators to
drive their revenue growths by focusing on VAS and the add-ons attached to the
basic services of telephony.

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.

Challenges in the Sector

Multiple regulatory environment: The telecom operators are heavily regulated in


India. From expansion into other circles to adding of new products and services in
their offerings, for all the operators are required to obtain licenses from the regulatory
bodies. Also the quality of service norms for the day-to-day operations of the

104 # ©2008 IDC


companies have been made very strict and makes the operators to invest heavily into
the technological solutions. Also at present the sector is under a combined regulation
system set up from DOT, TRAI and the cabinet or minister, which makes the
operations all the more difficult for the players in the industry.

Skewed tele-density distribution: A point of concern is the skewed rural-urban ratio


in the subscriber distribution. This shows up as 9.03% in rural areas to 64.48% in the
urban areas. Government policies are set to encourage bringing in a better balance to
reduce the disparity.

Appropriate spectrum allocation: There is an on-going tussle between GSM &


CDMA based operators for spectrum allocation. All of these operators are trying to
make their point that they are the one who need spectrum before the other and are
able to utilize it better. The government is thus cautiously trying to understand each
party's requirement. The regulatory bodies are caught up in the tussle between the
GSM and CDMA operators while prioritization and final allocation of the spectrum,
while ensuring maximum and optimized utilization.

Quality of service: Maintaining factors like inter-connectivity between multi-operator


networks to ensure quality of service often present difficulties and need to be
addressed.

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.

Mobile Congestion: According to TRAI, the congestion in mobile networks had


reached alarming levels resulting in increased call drops and poor quality of service.
The benchmark notified by TRAI with regard to network congestion is less than 0.5%.
This means out of 200 calls between two operators, only one call should face
congestion problem. However, as per TRAI’s latest report, there are more than 400
locations in India where the congestion levels between the networks of service
providers are several times higher than this limit. This has raised alarms among the
industry players on the issue of quality and satisfaction of services on offer to the
customers.

High valuations, an entry barrier: Despite India's attraction, setting up operations


from scratch is proving to be very difficult for the telecom operators (especially the
smaller players). With the heightened interest of the foreign players in the Indian
telecom industry, the prices / valuations of the major telecom deals have soared very
highly in the markets.

©2008 IDC # 105


Billing and provisioning: The billing systems of most of the operators though
integrated still lacks 100% accuracy. Till recently all the operators were focused on
integrating all their billing requirements so that they can generate one consolidated
bill for all the services that the customer is using from that particular service provider.
Most of them have achieved a certain degree of success in this integration. But now
the challenge that the operators are facing is to make their billing process more
accurate and error-free. Still many bills are errornous, causing a lot of difficulty to
thecustomers and thus deviating them to competitors. Thus it has become all the
more necessary for the operators to now concentrate on the accuracy part of the
billing process, so that they do not lose customers on account of errors in the bills.

Role of Information technology in the Sector

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

 Cost saving through automation and innovation

 Improved customer satisfaction

 Improved connectivity over both voice and data

 Security and privacy of networks

 Gathering business intelligence

The solutions are based on three basic features:

 Data integration

 Business integration and

 Technology integration

Key solutions in the sector

Integration of OSS/BSS applications with ERP, CRM, Business Intelligence and


data ware housing: Technologies that integrate all systems of the network along
with the upgradation of network applications are expected to draw 3-4% of IT
budgets.

Customer relationship management (CRM): Service providers are focusing on


customer needs and requirements especially in the scenario of growing competition.

106 # ©2008 IDC


CRM has become a keystone to leveraging VAS and services to gain the competitive
edge.

Business Intelligence (BI): BI is gaining in importance with telecom specific


business solutions dealing with issues of service offering, subscriber churn and
revenue leakages. In the telecom, the BI is also used to answer business related
questions and provide greater insights into the business issues and pains faced by
the industry. The telecom sector in the rural and semi-urban markets uses less of BI
because the operators there are still getting their systems in place. They are more
likely to focus on operational systems. But the operations of the industry in the urban
areas require extensive analysis of data, which fosters the importance of BI in the
Indian telecom industry.

Geographical Information Systems (GIS): GIS has transformed from a single-


department application to a company-wide endeavor, allowing telecoms to enhance a
variety of applications ranging from engineering applications, workforce management,
customer relationship management and location-based services, to advanced
analysis on wave propagation. GIS helps telecoms create competitive advantage by
optimizing installation, maintenance and tracking of network assets. Telecom
companies typically operate in a maze of location-specific data. To manage and solve
their operating issues smoothly, telecom companies require information on current
and future needs of their customers, customer locations and assets deployed at their
various locations. Modern intelligent technologies like Geographical Information
Systems (GIS) are helping telecom companies analyze the location-specific
information for network infrastructure management, wireless coverage and asset
management.

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.

Document Management Services (DMS): Document management adoption is being


driven by the need to comply with regulations, control document-related costs, and
streamline business processes and workflow. Document Management Services
(DMS) in the Indian telecom have seen substantial changes in the last 2-3 years. The
evolution and capacities of DMS have been kept in line with the rapid growth in the
subscriber base and the increasing regulations. The players are increasingly
deploying DMS to automate their back-end processes and reduce the paper-work.
The DMS solutions are becoming increasingly important for the telecom operators to
survive and thrive in today’s competitive scenario. Currently the players are still in the
process of DMS implementations but are keenly looking at these solutions to ensure
smooth and efficient flow of operations. Thus the industry is forecasted to see more
DMS implementations in the coming times as the compliance and workflow
management becomes critically important for the survival of the players.

©2008 IDC # 107


BSS/OSS: In today's competitive scenario, service providers are looking for OSS and
BSS solutions that allow them to rapidly deliver new products and services. There is
also a pressure to drive down the high costs and complexity of service provisioning
on multi-technology, multi-vendor network infrastructure backbones. A flexible and
configurable service fulfillment solution can enable service providers to reduce capital
and operational expenditure by optimizing the service delivery process, increasing
automation and reducing exception scenarios, which require costly manual
intervention.

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.

Telecommunication development aims for a information society based on the


convergence of IT and telecommunications. With hardware as the common platform
for both IT and telecom and software serving both sides, the symbiotic relationship
seems a possible vision for the near future and by 2012. The growth of telecom
infrastructure in networks and access points spreading widely geographically is a
positive step in the right direction. Spread of fixed lines, followed by rural access to
mobile technology and finally the convergence of data and voice is the telecom
revolution in the country which is leading it to a significant position in the global arena.

THE INDIAN GOVERNMENT AND EDUCATION


SECTOR: INDIAN GOVERNMENTS

Overview of the Sector

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

108 # ©2008 IDC


consists of the Supreme Court of India, high courts at the state level, and district and
session courts at the district level.

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

 Improvement of health conditions

 Improvement in literacy levels

 Overall economic growth

 Establishing a global presence in information technology, business process


outsourcing, telecommunications, and industries

The issues that the government has been continuously targeting are:

 Inadequate delivery of core public services: The quality and accessible


quantity of core public services such as water and power supply, education,
policing, sanitation, roads and public health leave much to be desired. Shortages
all over are affecting the country’s competitiveness to a large extent.

 Unequal growth: Although this continues to be relatively low by global


standards, disparities between urban and rural areas, prosperous and lagging
states, skilled and low-skilled workers are growing. This often is the root cause
for social dis-satisfaction and civil unrest.

 Reduction of risk of fiscal instability: Fiscal stability is vital for sustaining


growth and developing infrastructure. Factors like high oil prices and growing
imports can act like speed breakers to a steady growth rate and buffers for such
periods need to be put in place.

 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:

 Rural infrastructure: Building infrastructure and capacity in terms of health,


education, employment opportunities and public interaction

 Urban infrastructure: The objective is to update existing facilities to match the


growing numbers and living standards of the urban dweller

Towards achieving these targets the governments have inculcated the following
reforms in their working portfolio:

©2008 IDC # 109


 Partnership with the World Bank: The World Bank works in close partnership
with India’s Central and State Governments, aligning its strategies with the
country’s own development agenda. It lays emphasis on investing in people
through better health and education, empowering communities to participate in
their own development, improving the effectiveness of government, and
promoting private sector-led growth to achieve the country’s development goals.

 E-governance: E-governance has been recognized as a major tool for improving


governance and introducing various administrative reforms. While it aids in the
delivery of government services across distances both bureaucratic and
geographical, it also breaks the monopoly and control over information.

The factors supporting the E-Governance initiatives of the governments are:

 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.

 SMART governance encouraged: Simple, Moral, Accountable, Responsive and


Transparent become the key words for the government to improve its
communication with the citizens.

 ICT tools are used more extensively for improving connectivity, networking,
setting up systems for processing information and delivering services.

Participants in the Programme

To set up a comprehensive e-governance project with continuity there is a need to


create suitable institutions/capacities at different levels. In the Indian scenario the key
stakeholders in E-Governance are:

 Central Government: It is responsible for overall decisions on policies, direction


and financial management. It also takes on the management and project
implementation of E-governance at both national level and at the state
government levels.

 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.

110 # ©2008 IDC


 Citizens: They would participate in the E-governance initiatives through
awareness, exercising right to information and getting together civil society
organizations.

Institutional framework for E-Governance

The implementation of e-governance policy and direction is put under the purview of
Department of Technology, chaired by the Cabinet Secretary.

Department of Information Technology: It is working towards the creation of a


common platform for the integrated delivery of services. This shared platform includes
high-speed networks for data connectivity, data centers, call centers, common access
points all over the country (including the remotest areas) and laying down standards
that enable and ensure integration among all the government entities in the country.
The figure next provides an overview of the ministrial structure under DIT.

FIGURE 14

Ministrial Framework of DIT

DIT

Attached Offices Attached Companies Autonomous Societies

 Standardization, Testing and  National Informatics Center


Quality Certification (STQC) Services Inc. (NICSI)  Education & Research in Computer
Networking (ERNET)
Directorate
 Media Lab Asia  Center for Development of Advanced
 National Informatics Center (NIC) Computing (C-DAC)
 National Internet Exchange of
India (NIXI)  Center for Materials for Electronics
Technology (C-MET)

 DOEACC Society

 Society for Applied Microwave


Electronics Engineering and Research
(SAMEER)

 Electronics and Computer Software


Export Promotion Council (ESC)

 Software Technology Parks of India

Source: Department of Information Technology and IDC India, 2008

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.

©2008 IDC # 111


NICNET: It is a government informatics network for E-governance and decision
support. NIC has established a nationwide ICT network called NICNET with gateway
nodes at about 53 central government departments, 35 state and union territories and
602 district centers, 1000 blocks for various ICT services.

Standardization, Testing and Quality Certification (STQC) Directorate: STQC


Directorate is a national quality assurance infrastructure in electronics and IT sector.
It provides quality assurance service to industry with a vision to be an independent
and efficient provider of international level quality assurance service both for products
and services in technology intensive electronics and IT sector to help every
organization to compete on global scale.

National Informatics Center Services Incorporated (NICSI): NICSI provides one-


stop complete IT solutions catering to the government of India and state bodies,
public sector enterprises/undertakings. It specializes in procurement, installation,
commissioning and maintenance of state-of-the-art videoconferencing equipment and
services, VSATs, hardware, software along with consultancy services and other IT
related services like systems integration, application software development, and
network installations.

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.

Center for Development of Advanced Computing (C-DAC): It is the premier R&D


organization in ICET (Information, Communication and Electronics Technologies) in
the country working on strengthening national technological capabilities.

Center for Materials for Electronics Technology (C-MET): C-MET is established


for development of viable technologies in the area of materials mainly for electronics.

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.

Society for Applied Microwave Electronics Engineering and Research


(SAMEER): SAMEER is engaged in growth of science and technology of microwave
electronics and allied areas in India.

Electronics and Computer Software Export Promotion Council (ESC): ESC is


India’s trade promotion organization mandated to promote India’s electronics and
information technology exports to global markets.

112 # ©2008 IDC


Software Technology Parks of India (STPI): STPI acts as single-window in
providing services to the software exporters and incubation infrastructure to Small
and Medium Enterprises (SMEs).

State Government institutional framework: This has been plan to work through the
route given in the next figure.

FIGURE 15

State Government Institutional Framework for E-Governance

State Government Council

State Apex Committee

DIT Departmental Committee

SeMT PeMT

Source: Department of Information Technology and IDC India, 2008

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

 Faster and convenient dealings with interactive possibilities

 Transparency in functioning through wider information dissemination and


availability

©2008 IDC # 113


 Functioning is possible beyond geographical barriers: The Internet has become a
greater barrier destroyer when it comes to communication. The spread of Internet
and broadband connectivity has been a great boon of the digital revolution.

 Provision of anywhere, anytime services

 Data management: Information and communication technologies allow for easy


storage, archival and retrieval of information without geographical barriers.

E-governance in India

E-governance or the application of information of technology and communications to


processes of governance falls under four categories:

 Government ↔ Citizen interaction

 Government ↔ Business interaction

 Government ↔ Employees interaction

 Government ↔ Government interaction

National E-governance Action Plan: 2003-


2007

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.

114 # ©2008 IDC


FIGURE 16

Projects under NeGP

Source: Department of Information Technology and IDC India, 2008

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.

The Three Core E-Governance Projects

State Wide Area Network


The Cabinet Committee on Economic Affairs (CCEA) has approved the scheme for
establishing State Wide Area Networks (SWANs) across the country in 29 states and
six union territories at a total outlay of US$ 833.5 million. Under this scheme, it is
proposed to provide central assistance to states for establishing SWANs from state
headquarters up to the block level with a minimum bandwidth capacity of 2 Mbps. The
state capital (SHQ) will be connected with all the districts head quarter (DHQ) and
subsequently all the DHQ to be connected with sub-division head quarter/blocks
(SDHQ/Block). The SWAN project can be implemented by the states by using any of
the following four methods:

 States can tie-up with NIC to establish the SWAN by suitably extending the
existing NICNET upto the block level, or

 By engaging a private/public sector agency through an appropriate competitive


bid (BOO/BOOT model) to establish and run the SWAN, or

©2008 IDC # 115


 By establishing and owning the SWAN infrastructure directly and tying up with a
private service provider for operations and facility management, or

 It can adopt any other PPP model, which it deems appropriate

State Data Centers


The state data center has been identified as one of the important element of the core
infrastructure for supporting e-governance initiatives under NEGP. It is proposed to
create data repositories/data centers in various states so that common secured data
storage could be maintained to serve a host of E-governance applications and to
provide electronic delivery of G2G, G2C and G2B services. The state data center
project is essential because states need to manage a lot of information about their
citizens. Not only this, they need to provide a lot of information to citizens like online
application and others. All this online information needs to be maintained with the
states, thus establishment of state data centers is essential for the success of NEGP
program. The state data center would provide many functions like being the central
repository for the state, secure data storage, online delivery of services, citizen
information/services portal, state intranet portal, disaster recovery, remote
management and service integration. SDC is a key element of e-government
initiatives and businesses for delivering services to the citizens with greater reliability,
availability and serviceability. SDC provides better operations and management
control and minimizes overall cost of data management, IT management, deployment
and other costs. SDC will also provide the 24X7 integration and connectivity to all the
individual states. DIT has provided two options to the states for the setting up of SDC:

 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.

116 # ©2008 IDC


Community Service Centers
The Government of India has formulated the National E-governance Plan with the
vision of providing all government services in an integrated manner at the doorstep of
the citizen, at an affordable cost. In this endeavor it had envisioned CSCs as the
front-end delivery points for government, private and social sector services to rural
citizens of India, in an integrated manner. The objective is to develop a platform that
can enable government, private and social sector organizations to align their social
and commercial goals for the benefit of the rural population in the remotest corners of
the country through a combination of IT-based as well as non-IT-based services. A
CSC is an ICT-enabled service delivery outlet providing a range of services to the
people in the village or town in which it is located. The CSCs provide e-mail, Internet
access, citizen centric services through CSC portal and Web-based services such as
agri-market information, hospital bookings and board examination results. The aim of
the CSC scheme is to establish 100,000 rural kiosks across the country with an
equitable spread at the rate of one CSC for every six villages. The CSC scheme will
be achieved by establishing three-tier structure for the states. At the first (CSC) level
would be the local Village Level Entrepreneur (VLE), to service the rural consumer in
a cluster of six villages. At the second or middle level would be an entity termed the
Service Centre Agency (SCA) to operate, manage and build the VLE network and
business. An SCA would be identified for one or more districts (one district would
cover 100-200 CSCs). At the third level would be the agency designated by the State
-- the State Designated Agency (SDA) -- to facilitate implementation of the scheme
within the state and to provide requisite policy, content and other support to the
SCAs. These three tiers would function as per the policies laid down by DIT, either
directly or through the designated National Level Service Agency (NLSA), which
would be responsible for the overall planning and management of the project at the
national and state level in close co-ordination with the DIT and the state governments.

Roadblocks on the path of E-Governance

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:

Resistance to change: Low levels of literacy and limited exposure to technology


tend to cause technophobia. The government officials are still not much comfortable
with the ICT technologies, solutions and infrastructure and fear that computerization
can eat into their jobs or will duplicate their working.

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.

©2008 IDC # 117


Non-implementation of budgetary norms: Budget allocations for IT do not
necessarily flow the laid down norms. Poor budget utilization also prevents efficient
utilization of the funds.

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.

Inappropriate choice of solutions for e-governance: In a vendor-driven


environment solutions for E-governance are often inappropriate leading to project
inefficiency and failure.

Compatibility issues: Though several projects are successful in a stand-alone


mode, they fail when integrated with other projects/networks. The projects succeed in
the controlled environment, but fails beyond it. The failure is evident not only with
exceeding boundaries but also with time. Therefore, the projects need to be planned
such that they can be integrated with other projects at a later stage.

Communication and administrative pitfalls: The e-governance projects in India


suffer from problems like knee-jerk reactions resulting in radical changes,
communication and standardization gaps without best practices coming into play, etc.
Project implementation is delayed with procedural hassles also. The fixed tenure
change in the government officials becomes a key roadblock in timely execution of
the projects.

Need for government process reengineering: Computerization of inefficient


processes can lead to higher rather than lower levels of inefficiency and spiraling
cost. Hence, it is essential to undertake process re-engineering as an integral part of
e-governance project implementation in order to ensure increased efficiency and
reduced costs.

Post-implementation maintenance: Departments and states have limited access to


any institutional mechanisms for building capacities in the areas of E-governance
project development and design. Training is expensive while lack of knowledge is a
major obstacle. Issues of infrastructure penetration and national level integration
continue to be the pain areas.

Thus the e-governance projects should be properly conceptualized and planned. If


required help of an external agency may well be taken. While defining the scope of
the project, the situation on the ground should be considered and efforts must also be
made to understand the limitations in which the government operates. The efforts
should be concentrated on governance than on the IT component.

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

118 # ©2008 IDC


accessibility and convenience for multiple services as well as opening up of welfare
schemes to all the sections of the society.

Information technology is becoming an important tool for bringing efficiency in


government functioning, improved productivity, process standardization, automation,
streamlining service delivery across government departments, level of governments,
citizen and enterprise. Although there has been significant progress in the field, the
government needs to include more people in the system while heading for the
complete implementation of the system.

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 INDIAN GOVERNMENT AND EDUCATION


SECTOR: INDIAN EDUCATION

Overview of the Sector

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.

The central government, in partnership with state governments, has initiated a


number of programmes to fulfil the constitutional obligation sand national aspirations
for education, aiming to impart knowledge and skills, and shape values and attitudes
for its citizens.

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.

The education sector in India can be categorised broadly as elementary, secondary


and higher education, besides others attached like technical education, adult
education, distance education, language development, scholarships, book promotion
and planning and administration. Table next provides an outline of these categories
and the corresponding age groups.

©2008 IDC # 119


TABLE 20

Stages of Education in India

Stages Classes Category Classes Name Corresponding age

1. Elementary Primary I-V 6-11

1. Elementary Upper Primary VI-VIII 11-14

2. Secondary High School IX-X 14-16

2. Secondary Senior School XI-XII 16-18

3. Higher (Non-Professional) Undergraduate 3 Years 18-21

3. Higher (Non-Professional) Post-graduate 2 Years 21-23

4. Higher (Professional) Depends on the nature of Depends on the nature of Depends on the nature of
Course Course Course

Source: Ministry of HRD and IDC India, 2008

Evolution of the Sector

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

120 # ©2008 IDC


education in empowering women and in securing a rightful place for the
disadvantaged and the minorities.

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.

Reforms in the Sector

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.

In 2007 the National Means-cum-Merit Scholarship Scheme was announced to


enable students to continue their education beyond class VIII and up to class XII, with
US$ 187.5 million budgeted. The Scheme will be implemented by award of 100,000
scholarships beginning 2008-09. A sum of a further US$ 187.5 million has been
earmarked annually, so that a corpus of US$ 750 million will be built up in four years.
US$ 2.5 million has also been allocated to set up Nehru Yuva Kendras in 123 districts
that do not yet have one.

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

©2008 IDC # 121


as three IITs in Andhra Pradesh, Bihar and Rajasthan; two IISERs at Bhopal and
Tiruvananthapuram; and two Schools of Planning and Architecture at Bhopal and
Vijayawada. More institutes of higher education, as promised by the Prime Minister,
are to be established during the Eleventh Plan period.

Challenges in the Sector

Despite having embarked on a process of modernisation, the Indian education society


is plagued with basic challenges that it was faced with even few decades back. These
are presented below in the forma of a table.

TABLE 21

Challenges prevalent in the Indian Education System

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.

Source: IDC India, 2008

Role of Information Technology in the Sector

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

122 # ©2008 IDC


increase in the number of computers appearing in workplaces, homes, and schools,
to more fundamental changes in the foundations of economic growth and its
relationship to human capital.

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

 Teaching and learning

 Non-formal education

 Monitoring and measuring change

 Research and knowledge sharing.

India is increasingly experimenting with various forms of new technologies to expand


education and training programmes. Explosive growth in the area of IT, more
particularly the Internet revolution coupled with multimedia strength, has fuelled a new
wave of better teachings tools into the system. The key e-concepts in Indian
education include:

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.

It is important that education delivered online matches the quality of education


delivered in classrooms. This is yet to be achieved in the Indian context, which is
constrained due to considerations of cost and reach. The non-availability of adequate
ICT infrastructure keeps online education in India from reaching all its intended
audience, and it still remains costly. Once these aspects are sorted out, it will become

©2008 IDC # 123


an efficient and convenient way for many employed and poor citizens in the country to
acquire education. It is imperative for the government to simultaneously develop both
the ICT infrastructure (for education dissemination) and also the newer delivery
channels of communication, keeping in mind that they should be able to reach the
bottom-most at an economical cost.

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:

 PCs are a very effective media and instrument of distance education

 Computer-based telecommunication increases the access to and effectiveness of


open and distance learning, decreases costs and opens ways for new
approaches

 Multimedia teaching materials and methods offer qualitatively new opportunities


in open and distance learning

Virtual Learning Environment

124 # ©2008 IDC


A Virtual learning environment (VLE) is an environment designed to facilitate teachers
in the management of educational courses for their students. While often thought of
as primarily tools for distance education, they are most often used to supplement the
face-to-face classroom.

These environments usually run on servers, to serve the course to students as


Internet pages. Components of these systems include templates for content pages,
discussion forums, chat, quizzes and exercises such as multiple-choice, true/false
and one-word-answer. Services generally provided include access control, provision
of e-learning content, communication tools, and administration of the user groups.

India Emerging as an Online Tutorial Hub

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.

IT solutions for the sector

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

 Computers in classrooms: One of the greatest potential benefits of distributing


computers to individual classrooms is to provide teachers and students with
easier access to these educational tools. But providing only one or a few
computers in all classrooms of a school has have little or no impact on learning.
The alternative is the COWs or Computers On Wheels; carts that hold a set of
computers (10 to 20), usually laptops, often a printer, with the possibility to
connect to a school network via one network connection. COWs can be wheeled
into a classroom when the teacher wants to use computers for a specific activity.
Using battery-powered laptops makes it possible to avoid the need to provide
special electrical power. However, the initial cost of COWs with laptops and
wireless networking capabilities has a higher cost per computer than
conventional stationary computers. COWs can be seen as communal property
and therefore it can be more costly to maintain them, especially when using
laptops, than with stationary systems. There is also a greater risk of equipment

©2008 IDC # 125


damage from accidents, hard use or dropping with COW using laptops than with
stationary equipment.

 Computer rooms or labs: Establishing one or more computer rooms or labs is a


popular way to provide equitable access to computers for the greatest number of
users at the lowest possible cost. Computer labs enable schools to concentrate
expensive resources in a common space that can be used for student
educational activities, teacher professional development events and community
groups.

 Computers in libraries and teachers’ rooms: When funding and staff


resources are scarce, schools can optimise investments in computers and
Internet access by installing a few computers in public spaces such as the library
and the teachers’ planning room. Giving teachers private access to computers
and the Internet can encourage them to learn to use these technologies and
enable them to carry out planning activities involving the use of computers.

 Hybrid Options: Where possible, the greatest educational returns on technology


investments can result by strategically using combinations of the above
configuration options.

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:

 Peer-to-peer networking: As with all networked computers, users share files


and resources located on computers in the network, but there is no file server or
central computer to manage network activity. One or more of the computers in a
peer-to-peer network provide centralized services such as printing and access to
the Internet.

 Client / server networking: As a computer network grows in size and


complexity, it is necessary to shift to a client/server style of network using more
advanced network operating software. In these networks, one computer
centralises such functions as storing common files, operating network e-mail
delivery, and providing access to applications and peripherals such as printers.

 Thin-client / server networking: A thin-client/server network is similar to a


traditional client/server network, except that the client is not a freestanding
computer capable of operating on its own, but rather desktop appliances or
network devices that link the keyboard, monitor, and mouse to a server where all
applications and data are stored, maintained, and processed. The server, often
called an application server, is built to provide all networking services and
computer calculations. Since all network and computer services are centralised,
all maintenance and upgrading is done at the server; there is no need to service
the clients.

126 # ©2008 IDC


 Wireless LANs: This type of system does not require cables to connect
computers to each other and to the server and shared peripherals. Instead,
wireless network adapters (receivers) are installed in all computers that will be
part of the network. One or more wireless network hubs/transmitters are
connected to the server, usually by a cable. Several wireless network hubs are
connected to each other in a chain. Network traffic is then transmitted by the hub
to each computer and to and from the server.

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.

 Basic applications: All computers in schools require a basic set of software


applications, both for computer literacy programs and to be integrated effectively
into mainstream education programs. These applications generally include
software for word processing, spreadsheets, presentation software, graphics
software, and software to create websites and HTML documents, such as
Frontpage. As with operating system software, commercial and public domain
options are available.

 Educational software: Countless software applications have been developed


over the years, to meet educational objectives. As with all uses of computers to
enhance and improve teaching and learning, the key to success is not the type of
educational software that is used, but how teachers use the software and
integrate it into their teaching programs.

 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

©2008 IDC # 127


classroom and obtain information in a variety of forms—text, data, sound, video—
from all over the world, at any time of the day or night, and at rapidly diminishing
costs. The Indian education sector needs to be prepared to keep pace with the
changes happening in the education sector at the world level. The sector is not only
to fight against the assault of denying education of equitable quality to the masses but
also has to take care of the social and pedagogical character of knowledge itself.

THE INDIAN MEDIA AND ENTERTAINMENT


SECTOR

Overview of the Sector

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

128 # ©2008 IDC


industry, be it music, motion picture or publishing industries, all are working to meet
deadlines to develop new business models and systems to take a lead in new
internet distribution streams. With around 80% of all content will be digital by 2012 the
content distribution chain is expected to meet almost 90% Internet-based business in
less than a decade.

Evolution of the Sector

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.

©2008 IDC # 129


FIGURE 17

Changing Face of Indian Media and Entertainment Industry

M&E Sector Films Television Radio Print Media Music

Content Commercial Commissioned Commissioned News, Current Film Music &


(Hindi & Regional Programs, News Programs, News affairs, Fiction & Private albums
Cinema), Art & & Current Affairs & Current Affairs Non-Fiction
Cartoon Movies Articles

Delivery Cinema Mobile Cable Public Internet Newspapers Cassettes &


Halls & Phones Terrestrial & Broadcaster Magazines CDs
Home DTH & FM & Books
Videos Channels
(Cassettes)

Traditional delivery Mechanisms

Converged Delivery Mechanisms

Source: Industry and IDC India, 2008

Constituents of the sector

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.

Multi-channel advertising adds to the television advantage over print or radio.


Growing at a CAGR of 22.4% for 2007-2012, the television industry is forecasted to
be US$ 13,200 million in 2012.

130 # ©2008 IDC


Films

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

©2008 IDC # 131


forecasted to grow at a CAGR of 4.3% from US$ 170 million in 2007 to US$ 210
million in 2012. Significantly, the share of digital music is likely to increase, with an
estimated growth rate of 25%. Digital music sales exceeded physical sales of music
for the first time in 2006, primarily driven by mobile phone platforms like caller ring
back tones, ring tones and music clips.

Multiplexes

The influx of multiplexes in the country is providing a tremendous boost to the


domestic box office market. Though the number of multiplexes in India is around 97
with 400 screens (as compared to about 12,000 single screens theaters in India), in
view of the aggressive growth plans by some of the leading film exhibition companies,
we expect the number of multiplexes and thereby the number of screens to grow
significantly in the next 4-5 years.

Reforms in the Sector

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

Institutional Framework of Ministry of Information and


Broadcasting

Ministry of Information and Broadcasting

Films Wing Broadcasting Wing Information Wing

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

Source: Industry and IDC India, 2008

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:

132 # ©2008 IDC


No differentiation on content: The major regulation issue in television is that
distribution platforms are not allowed to screen exclusive content, which means they
cannot compete on the basis of content.

Foreign investment: In television and newspapers publishing, news-based content


and non-news content is treated differently for foreign investment. Whereas 100%
foreign investment is possible in non-news content, only 26% can come into the news
segment.

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.

Players in the sector

The key players in various sub-segments of the sector are mapped in the table below.

TABLE 22

Players in the Media and Entertainment Sector

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

Source: IDC India, 2008

©2008 IDC # 133


Trends in the Sector

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

Entertainment as focus: A growing consumer economy needs entertainment to be


woven into many aspects and business activities; the media companies are looking at
Entertainment as a high potential segment for growth.

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.

Factors favoring the growth of the sector in


India

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.

134 # ©2008 IDC


Liberalization of Foreign Direct Investment: This has primarily benefited the films
and multiplexes segment in India, which have come in for a big boom in the last few
years. The summary of FDI permissions in the sector are given in the table next.

TABLE 23

Summary of FDI Policy in the Indian Media and Entertainment Industry

Sector FDI Limit (%) Methodology

Films 100 Approval through direct route

Multiplexes 100 Approval through direct route

Television - DTH 49 Including FDI and FII

Television - Cable 49 Including FDI and portfolio investment

Television - Software Production 100 Approval through direct route

Television - Terrestrial Broadcasting 0 No private operator is allowed

Television - Establishment and 74 FIPB approval needed


Operation of Satellites

Print Media - Non-news Publications 100 Approval through direct route

Print Media - News Publications 26 FIPB approval needed

Films 100 Approval through direct route

Advertising 100 Approval through direct route

Radio 20 FIPB approval needed

Source: IDC India, 2008

Advertising growth: Advertising spending in India is directly linked to the growth in


GDP. A reasonable estimate of its sensitivity to economic growth places it at least
500 basis points over the GDP growth across the foreseeable future. This increase in
advertising spending is expected to strengthen broadcaster revenues and, in turn,
content producers’ revenues. Besides, the delivery of content over new wireless
delivery formats is expected to open up a new avenue for advertising.

Broadband access: As broadband access is increasing growing in Indian homes,


the media industry (music, motion picture or publishing industries) is working to meet
deadlines to develop new business models and systems to take a lead in new
internet distribution streams. With around 75-80% of all content will be digital by 2012
the content distribution chain is expected to meet almost 90% Internet-based

©2008 IDC # 135


business in less than a decade. The right asset management system support will be
the key to success.

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.

Regional programming: The attention being given to regional programming


especially on television and the growing viewership of the segment is becoming a
lucrative investment option for the players eyeing the television sub-segment of the
industry.

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.

Challenges in the Sector

Gaps in accessibility: The socio-economic strata of Indian society present a large


gap in the levels of accessibility. In lower socio-economic classes, the penetration
rates for print media, television, radio and films are 30%, 65%, 16% and 15%
respectively (2006). On the other hand, the penetration rates for the same among
higher classes are 95%, 96%, 37% and 30% respectively (2006). The figures clearly
indicate towards the huge disparity between the two sectors with the rural masses still
not exposed to media advantages to the full potential.

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.

136 # ©2008 IDC


Inconsistent foreign investment for media: The current FDI policy has several
inconsistencies including different norms and limits for various media segments. The
whole gambit adds to the confusion and adds to the woes of the players looking to
expand into different sub-segments.

Regulations for content sharing: Events/contents declared as being of national


importance are covered under mandatory content sharing guidelines. The issue also
affects the distribution of exclusive content on a single platform. Openings for
premium content plans are therefore limited at present.

Role of Information Technology in the Sector

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.

IT solutions in the sector

Knowledge management and business intelligence: As media companies provide


services over multiple channel, knowledge management is a key function. This
means identifying and mapping intellectual assets within the organization, making
corporate information accessible, sharing best practices and technology that enables
these, including groupware and intranet. An increasingly competitive marketplace
makes this even more necessary. The media organizations in India are increasingly
using KM and BI to comprehend the user preferences and plan their expansion
accordingly.

Digitization: Significant investments in equipment and technology have taken place


to capture, manage and distribute information in digital form. This reduces unplanned
downtime of revenue generating assets, increases employee productivity, streamlines
workflow and improves flexibility. Also with the increasing customer orientation
towards digital and online content, the media companies are increasingly deploying
solutions for the faster and accurate conversion of their content into digitized format.
They are looking to build a community around digital content viewing.

Increasing use of special effects: More sophisticate special effects in movies is


becoming a norm rather than an innovation. Companies providing these services are
growing in number. Large pool of available manpower in India is a major growth factor
for animation and special effects. They are using high-end applications and hardware
components to support their animation and special effect endeavors. It has given a
big boost to the servers, software and services market in the vertical.

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

©2008 IDC # 137


continuity infrastructure by developing datacenters and repositories. Greater capacity,
speed, enhanced platform support; broader host system and performance are some
basic requirements. Storage is also essential to comply with certain regulatory needs
where companies are required to have last years’ data with them.

Content management: Capturing, creating, managing and delivering information are


the key functions of media and entertainment companies. Content management
enables companies to do this effectively by doing the above in a structured manner.
IDC believes that the content management solutions/software market is a major driver
of IT deployment in the Indian media and entertainment industry and will continue to
be in the next 4-5 years. The content management solutions have taken the top
position in the priority list of the media companies when it comes to the usage of
information technology. Content lies at the core of the media industry and thus
appropriately it is the most important area where the companies are presently
focusing upon. They are purchasing the software, which can effectively manage their
content and can also help them in continuously updation of the content. Even the
companies who have well-developed and well-maintained content management
solutions in place are looking to continuously upgrade their versions of the content
management solutions.

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.

Workflow management: Automation of workflow is also a focus area to access


information quickly, to develop standard formats and for many other applications. For
media and entertainment companies that need real-time information (primarily print
media, news channels, online advertisement and general information sites like Rediff
and MSN), workflow management is the major driver of their IT spending.

Security and reliability: Companies are investing heavily in order to ensure security
and reliability of their online content. Security solutions, secured web-portal solutions

138 # ©2008 IDC


and secured content management applications are finding increased usage in the
sector. IDC believes that in the years ahead, there will be big investments by the M&E
companies on security solutions because only once the security gets ensured is the
reliability met to a large extent.

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.

THE INDIAN RETAIL AND WHOLESALE


SECTOR

Overview of the Sector

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

©2008 IDC # 139


sectors that link the backend and front-end of the supply chain. The sector contributes
around 30% to India’s GDP and creates opportunities for 6-7% of the total
employment.

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

Value Chain of Indian Retail Industry

Manufacturer C&F Agent Stockiest Wholesaler Retailer End Consumer

Source: Industry and IDC India, 2008

140 # ©2008 IDC


FIGURE 20

Segments and Formats in Indian Retail Industry


Organized Retailing

Segments Formats

Food Non-Food B2C B2B

Destination Malls Neighbourd Malls Cash-n-Carry Outlets

Speciality Stores

Apparel Books/Music Hypermarket

Departmental Stores
Watch/Jewelry Pharma Supermarket Convenience Stores

Exclusive Outlets
Footwear Health/Beauty

Durables Entertainment Discount Stores

Factory Outlets

Source: Industry and IDC India, 2008

Evolution of the Sector

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.

The retail sector in India is witnessing a huge revamping exercise as traditional


markets make way for new formats, such as departmental stores, hypermarkets,
supermarkets and specialty stores. Western-style malls have begun appearing in the
metros and second-rung cities, which are introducing the Indian consumer to a
shopping experience like never before. This transition is attracting international
retailers, who are awaiting further liberalization of FDI norms in the sector. The route
of strategic licensing agreements is currently the most popular. The other formats
being adopted for now are:

 Franchisee: The international player trades brand name and technology for
royalty.

©2008 IDC # 141


 Joint venture: Equity and support in return for local knowledge and tie-up

 Manufacturing: Setting up of production facilities for local selling with ensuring


intention to stay while providing employment as is being done by Bata India.

 Distribution: Goods are supplied for sale through a distribution outlet as in the
case of Hugo Boss and Swarovski.

Reforms in the Sector

 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.

 Property regulations: Withdrawal or restriction of the Urban Land Ceiling Act


and the Rent Control Act have allowed the opening up of real estate benefiting all
including the organized retail sector.

 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.

Players in the Sector

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.

142 # ©2008 IDC


There is room for several players to enter, provided they understand the Indian
consumers’ psyche. The battle of retail will be fought on all grounds—territorial
coverage, service, products, price and distribution. With the inevitable entry of deep-
pocketed foreign retail giants and Indian corporate houses, competition for the local
players would be manifold. Local kirana shops are also in the process of a makeover.

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

Multi Brand Outlets: Vijay Sales, Nilgiris, Subhiksha, Others

Manufacturers/Exporters: Pantaloons, Bata, Weekender, Others

Trends in the Sector

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:

Rural markets: An increasing number of corporate organizations are setting up retail


outlets in small towns and rural markets in order to reach out to the large untapped
consumer base. Consumer durables, FMCG, and oil companies are tapping rural
consumers in a big way by investing in infrastructure and manpower. Mall culture is
rapidly moving towards small towns and rural communities while the metros are
getting specialty malls.

Online shopping or e-tailing: 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. Though the number of online shoppers is very limited
at present and restricted mainly to urban areas, the universe of online shoppers is
expected to expand on the account of increase internet awareness among the
masses and the security measures being adopted by the players over the electronic
transactions.

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.

©2008 IDC # 143


Retailing at airports and railway stations: Players are foraying into retailing at
airports and railway stations. Pantaloon, Nirulas and Shopper's Stop are both
considering developing retail and food catering business in airports across the
country. However, such retail will have different dynamics, as the traveler would go to
these shops not with shopping in mind but generally to spend some time. Players will
thus have to stock the right mix of impulse goods and specialties of that particular
region.

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.

Malls getting increasingly differentiated and specialized: The generic me-too


malls are running out of flavor, given the large numbers that are being planned. Malls
are increasingly differentiating themselves by specializing in particular types of retail
commodities. One such example is the specialty gold malls that largely have jewelry
retailers.

Changing lifestyles and growing disposable incomes of Indian consumers:


Indian consumer lifestyles and shopping habits are evolving rapidly. Discretionary
spending witnessed a huge spurge among the urban upper and middle classes in the
last two years. There is an easier acceptance of luxury and an increased willingness
to experiment with mainstream fashion among masses. Expenditure on personal care
items and clothing has increased since there is greater emphasis on looking and
feeling good. Lifestyle habits are shifting from austerity to complete self-indulgence
and Indians are now unapologetic about spending lavishly on non-essential goods
such as luxury watches, cars, and hi-tech products. Growing income levels,
meanwhile, have caught the attention of luxury retailers. Thus, the increasing
disposable income of an Indian household and the increase in the number of
households are the key drivers of the retail boom in India. Also, the Indian consumers
are increasingly getting exposed to western culture and are gradually adopting the
western trend of lifestyle shopping.

Factors favoring the growth of the sector in


India

Economic and social changes: Growing economy, surplus incomes and


consumerist trends are key drivers to change in buying habits in large cities and large
towns. The pace of growth of the organized retail sector is also being driven by
changing consumer habits, which is reflected in other parts of the economy. The key
driver of the change in buying habits, both in cities and large towns, is increasing
income levels with a higher proportion of dual income households and increased
aspirations caused by higher exposure to television, and cable and satellite (C&S)
channels.

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.

144 # ©2008 IDC


Change in consumer outlook towards branded products: In the last 4-5 years,
Indian markets have witnessed a marked shift towards branded products. Indian
consumers have started to believe that branded goods indeed are of a better quality
and offer great value for money. The increased exposure to international trends and
fast-changing lifestyles can result in a 25% growth in branded goods and this, in turn,
will provide a platform for growth of organized retail.

Increased awareness: Media penetration, especially through television, has


influenced lifestyles and living standards. Retailing as against bulk buying is preferred
these days by the Indian consumers. Acceptance of new concepts has improved with
increased exposure to western entertainment culture. Retailing is therefore now an
accepted concept in the average Indian household.

Challenges in the Sector

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.

©2008 IDC # 145


Shortage of trained manpower: Manpower specifically trained into retailing is in
short supply, reducing overall productivity and growth. Attrition rates are high with
allied industries with high growth prospects drawing away manpower. This is
especially true for front-end personnel in the industry.

Role of Information Technology in the Sector

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.

UPS, intranets, anti-virus solutions, windows and UNIX servers, LAN, IT


management, laser printers, MFDs and computing support are the key technologies
where the retail sector would be focusing in 2008-09.

The solutions that businesses are looking at are:

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.

Customer Relationship management (CRM): CRM information could go a long way


on analyzing repeat customer buying trends. Management of campaigns and multi-
channel sales is a field these solutions would support. There are a number of CRM
packages like Talisma, Siebel, Clarify, Retek CRM, Sales Logix, etc., which could be
used for this purpose. The scope of these packages would have to be extended
beyond just repeat customers to the occasional shopper to ensure that data collected
is spread over a larger customer profile so that the most general trends can be
captured and analyzed.

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,

146 # ©2008 IDC


supply chain, etc. are gaining importance in the sector. Most of these packages have
built-in CRM, OLAP tools, collaborative planning and supply chain systems that are
tightly integrated with the merchandising and forecasting functionality.

Online analytical processing (OLAP) tools: Customized OLAP solutions are


versatile as they can analyze sales data from the PoPs. This analysis offers details of
sales rate, merchandize information and geographical spread of sales. Solutions
available in the market for same are Arthur Planning, Oracle Analyzer, Adaytum,
Cognos, Business Objects, etc. Retailers are using OLAP tools to help and provide
correct merchandise and devise the right promotional strategies directed to the
appropriate target audience.

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 UTILITIES SECTOR: INDIAN


POWER
Energy is universally recognized as one of the most significant inputs for economic
growth. The growth of a nation, encompassing all sectors of the economy and all
sections of society, is contingent on meeting its energy requirements adequately. A
fast-growing economy, India is targeting growth rates of 7-8% over the next 4-5 years.
Economic growth coupled with a growing population necessitates an increase in
energy consumption. The need of the hour, therefore, is to meet the energy needs of
all segments of India's population in the most efficient and cost-effective manner while
ensuring long-term sustainability. India needs to add to the existing capacities, build
regulatory capacity and restructure the energy sector to facilitate contestability and
reduce dominance. Since the energy sector holds the most vital place in any
economy (and so much especially for a developing country like India) it is high time
that all the stakeholders (government, players, consumers, investors, etc.) gear up to
meet the future requirements and play their roles effectively.

©2008 IDC # 147


Overview of the Sector

Decades of economic planning since independence in India placed significant


emphasis on development of the power sector. Today India is one of the largest
producers and consumers of energy. Since independence, there has been sizeable
growth in the power sector. Generating capacity in the country, which was only 1362
MW has increased to more than 126 GW today. Despite, rapid increase in population
over period of time, per capita consumption has increased from 15 KwH to more than
631 KwH during the same period.

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:

 Northern Region: Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir,


Punjab, Rajasthan, Uttaranchal and Uttar Pradesh

 Eastern Region: Bihar, Jharkhand, Orissa, Sikkim, and West Bengal

 Western Region: Dadra and Nagar Haveli, Daman and Diu, Chattisgarh, Goa,
Gujarat, Madhya Pradesh and Maharashtra

 Southern Region: Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil


Nadu

148 # ©2008 IDC


 North-eastern Region: Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland and Tripura

Investment opportunities in the Indian power sector

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

 Distribution: Efficient distribution of power is critical for ensuring the financial


viability of the sector

 Renovation and Modernization (R&M): This is a new opportunity for players by


participating in the renovation, modernization, updating and life extension of old
thermal and hydro power plants

Evolution of the Sector

The process of electrification commenced in India almost concurrently with developed


world in 1880s, with establishment of a small hydroelectric power station in
Darjeeling. However, commercial production and distribution started only in 1889 in
Kolkata. From an installed capacity of only 1,362 MW in 1947, the generation
capacity has increased to 126,839 MW as in 2006. India's power system today, with
its extensive regional grids maturing in to an integrated national grid, has more than
6.3 million circuit kms of transmission and distribution lines criss-crossing the diverse
topography of the country. However, the achievements of India's power sector growth
appear lackadaisical in the face of huge gaps in supply and demand on one side and
an antediluvian generation and distribution system on the verge of collapse having
plagued by inefficiencies, mismanagement, political interference and corruption for
decades, on the other.

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

©2008 IDC # 149


insufficient in meeting the exponentially growing demand for power in the country.
And thus arises the need for extensive reforms in the sector.

Reforms in the Sector

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.

Some of the landmark reforms initiated for the sector are:

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:

 Open access on T&D networks

 Choice of power supplier to high usage consumers

 Power trading and market development

 Reduction of losses through theft and malpractices

 Power trading and market development

 De-licensing of generation and distribution of power in rural areas, and

 Setting up of State Electricity Regulatory Commission (SERC) with the functional


unbundling of State Electricity Boards

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:

 Encouragement through capital subsidy and preferential priority for the


development of the rural electrification distribution backbone

 Greater focus towards the realization of the full potential of hydro-power.

 Open access in transmission and distribution to the private players.

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

150 # ©2008 IDC


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. The National Grid offers the advantages of lower investments required
for new generation capacities, better scheduling of planned outages of power plants
and improved stability of the grid.

Tariff Policy, 2006: The objectives of the tariff policy are to:

 Ensure availability of electricity to consumers at reasonable and competitive


rates

 Ensure financial viability of the sector and attract investments

 Promote transparency, consistency and predictability in regulatory approaches


across jurisdictions and minimize perceptions of regulatory risks

 Promote competition, efficiency in operations and improvement in quality of


supply

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.

Power for all by 2012

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.

Capacity addition targets for 2012

 46,500 MW for central generating companies

 At the state level, the SEBs/state utilities and private sector are expected to add
about 41,800 MW

©2008 IDC # 151


 An investment of about US$ 90,000-110,000 million is required in generation by
2012. The envisaged capacity towards the end of 2012 will change the
ownership mix with the respective contributions of the central and private sectors
scaling up substantively

Players in the Sector

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

Players in the Indian Power Sector, 2007

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)

Source: Industry and IDC India, 2008

Trends in the Sector

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.

Co-generation: In some industries, like the chemicals industry, the manufacturing


process generates huge amounts of heat, which can be used to produce steam. This
steam in turn can be used to run a turbine generator. In a co-generation plant the
turbine runs on low-pressure steam as compared with the high-pressure steam used

152 # ©2008 IDC


in conventional thermal plants. Power can be generated through co-generation, either
in the topping cycle (wherein the steam produced is first used for generating power
and later used for the process) or in the bottoming cycle (wherein the waste heat
available as a by-product of the process is used for producing the steam that runs the
turbo-generator sets). With the focus on alternative fuels and profits margins getting
squeezed, the players in the sector are actively working towards co-generation with
the allied industries.

Focus redirecting towards renewable energy based generation: Private players


are looking at a significant untapped potential in the renewable energy segment. In its
quest for increasing availability of electricity, India has adopted a blend of thermal,
hydel and nuclear sources. Out of these, coal-based thermal power plants and in
some regions, hydro-power plants have been the mainstay of electricity generation.
Oil, natural gas and nuclear power account for a smaller proportion. Of late, emphasis
is also being laid on non-conventional energy sources i.e. solar, wind and tidal.

Environment friendly technologies: With the setting in of Green IT and increased


surveillance by the regulators, the players have started to insist on the adoption of
newer technologies and fuels. The use of natural gas in the fuel mix has increased,
performance of coal-based plants is being improved, and nuclear power and energy
from non-conventional and renewable resources is being looked at as an alternative.

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

State 2005 2006 2007 2008 & 2009

Rajasthan 15 (Apr) 5 (Apr) 1.5 (Apr) 1 (Apr)

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TABLE 25

Phasing Out of the Market to allow Consumers choose the Supplier of their
Choice (MW), 2005-08 Scenario

State 2005 2006 2007 2008 & 2009

Maharashtra 5 (Apr) 2 (Apr) 1 (Apr) --

Karnataka -- 5 (Apr) 3 (Apr) 1 (Apr)

Madhya Pradesh 10 (Jun) 5 (Apr) 2 (Apr) 1 (Oct)

Uttar Pradesh 20 (Apr) 10 (Apr) 5 (Apr) 1 (Apr)

Orissa 5 (Aug) 2 (Apr) -- 1 (Apr)

Andhra Pradesh 5 (Sep) 2 (Sep) -- 1 (Apr)

Gujarat -- -- -- 1 (Dec)

Tamil Nadu -- -- -- 1 (Dec)

Source: Industry and IDC India, 2008

Public private partnership model in transmission: There is increased private


sector interest in the transmission sector. The Government is finalizing the
competitive bidding guidelines for developing transmission projects. The Central
Transmission Utility has identified specific elements of inter-state transmission
systems under system expansion and system strengthening schemes.

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.

Energy audits: Many SEBs encourage energy audits and conservation by


subsidizing the audit expenses incurred by the industry, provided the short-term
measures suggested by the auditors are implemented. Some SEBs also undertake
energy audits for large consumers. They are deploying meters both at transformer
and feeder levels to monitor the supply and consumption patterns of the power
respectively. A meter deployed at the transformer level continuously measures the
power being supplied and similarly a meter at the feeder level measures the power
being consumed on an hourly basis.

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

154 # ©2008 IDC


and a “Select – Verify – Execute” procedure. The data acquisition section gathers
tele-metered data for use by all other functions within the EMS. Data are obtained
from various sources including remote terminal units (RTUs) installed in plants and
sub-stations and delivered at the system control center by local I/O devices.

Factors favoring the growth of the sector in


India

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.

Accelerated Power Development Reform Program (APDRP): To improve


distribution, the government formulated an Accelerated Power Development Reform
Program. The objectives of this program are improving financial viability of state
power utilities, reduction of aggregate technical and commercial losses to around
10%, improving customer satisfaction, increasing reliability and quality of power
supply. Under this program, loans, grants and incentives will be given to states
pursuing distribution reforms. It will attack the problems faced by a state on a micro
level (consumer, feeder, sub-station) as well as on a macro level (circle, state
national) entailing intervention at six stages. These funds will be utilized for
upgradation and modernization of their sub-transmission and distribution networks.

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.

Challenges in the Sector

Investment requirement for capacity building: Keeping in mind the socio-


economic factors in the country, it is projected that India will need to target doubling
its generation capacity from upto 2012, with an associated increase in transmission
and distribution infrastructure. The investment requirement in the segment is
projected at over US$ 100,000 million over the period. This is a call for huge capacity
build-up, which the sector might not be able to achieve.

©2008 IDC # 155


Demand supply deficit: The present installed capacity is only capable of meeting
70% of the demand and analyzing the additions done in the tenth five year plan, the
forecasted additions in the eleventh five year plan also doesn’t look promising and
would definitely fall short of the demand in 2012 as well.

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.

Transmission challenges: The transmission segment faces problems of capacity


addition, piling of costs of transmission and wheeling over multiple regions and states,
losses as high as 30-35% due to an inadequate T&D system.

Private investment inadequacy: Despite the opening up of the sector private


participation has not reached expected levels. There is also a lack of exposure of the
sector to prospective investors.

Transmission congestion: Congestion is caused when the available transmission


capacities are constrained due to excess load. Real-time transmission congestion can
be defined as the operating condition in which there is not enough transmission
capability to implement all the traded transactions simultaneously due to some
unexpected contingencies. This can be caused due to heavy load in a particular
region or zone, which requires rescheduling of power dispatch through various
congestion management methodologies. Currently, India faces a problem of
congestion on the majority of its network.

Role of Information Technology 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

 Infrastructure requirements – hardware and network

 Online generation of all consumer bills

156 # ©2008 IDC


 Making the payments possible through debit and credit cards

 Computerization of management system

 Making important information available online to the citizens

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.

IT solutions for the sector

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.

Automatic Reading Technology (AMR) technology: It is a remote controlled


device that collects the meter reading and uploads the same to the billing servers
directly. This prevents manipulation of data, even at the stage of reading the meter.

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.

©2008 IDC # 157


Supervisory Control and Data Acquisition (SCADA): A major task ahead of power
system designers/planners is to ensure system operation to manage such large
power systems network efficiently and effectively. 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 and a
“Select – Verify – Execute” procedure. The data acquisition section gathers tele-
metered data for use by all other functions in the organization.

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.

THE INDIAN UTILITIES SECTOR: INDIAN OIL


AND GAS

Overview of 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

158 # ©2008 IDC


increase at a CAGR of 7.3%. Worldwide biodiesel production is expected to grow at a
CAGR of over 5.2% from 2008 to 2017. India’s total biodiesel requirement is
projected to grow to 3.6 million Metric Tons in 2011-12.

The segmental overview of the sector in India is as follows:

Upstream (Exploration and Production) Segment: India has 26 sedimentary


basins with an area of 3.14 million square km and prognosticated reserves of 28,000
million tons of oil equivalent of gas.

Downstream (Refining and Marketing) Segment: India has a total of 19 refineries


(17 in public sector and 2 in private sector) with Indian Oil (owning 7 refineries)
currently owning the maximum refining capacity. They have an installed capacity of
149 MTPA.

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.

Evolution of the Sector

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.

Reforms in the Sector

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

©2008 IDC # 159


licensing policy (NELP), which provides a conducive regulatory framework for the
players in the sector.

The tables next provide an overview of the FDI regime in the sector and the policy
evolution for the same.

TABLE 26

FDI Regime in the Indian Oil and Gas Sector

Segment FDI Norm

Exploration & Production Upto 100% FDI through automatic route

Refining Upto 100% FDI set-up as a private Indian company

Marketing Upto 100% FDI through automatic route

Product Pipelines Upto 100% FDI through automatic route

LPG / Natural Gas Pipelines Upto 100% FDI through automatic route

Source: Industry and IDC India, 2008

TABLE 27

Milestones in Policy Development of Indian Oil and Gas sector

Policy Highlights

New Exploration Licensing 100% foreign participation allowed


Policy, 1999 (for Exploration
& Production) Licenses are awarded through international competitive bidding

Provide fiscal stability in contract

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

Oilfield service provider taxable on 10% of gross receipts

Reduction of duty on project imports from 25% to 10%

Reduction of import duty on ATF from 16% to 8%

160 # ©2008 IDC


TABLE 27

Milestones in Policy Development of Indian Oil and Gas sector

Policy Highlights

Duty free import of fuel for exporters

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

Non-captive pipelines on common carrier principle

Regulator to lay down cap for negotiable tariffs

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.

Source: Industry and IDC India, 2008

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.

©2008 IDC # 161


Under the second round, NELP II, Government of India, invited bids on 15th
December 2000 for 25 blocks for exploration of oil and natural gas. The PSCs were
signed for 23 exploration blocks. A total of 5 discoveries have already been made in
two blocks, viz. CB-ONN-2000/1 and CB-ONN-2000/2 located in Cambay basin and
Krishna Godavari basin. Under the third round, NELP III, Government of India, invited
bids in March 2002, for 27 blocks for exploration of oil and natural gas. The PSCs
were signed for 23 exploration blocks.

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.

Players in the Sector

The oils and gas sector offers the entry of players in four key operational segments:

 Exploration of prospective sites for oil production

 Development of sites from drilling through equipment installation

 Production from commercially viable fields

 Marketing and distribution to reach the end user

The table next provides a listing of the key players in the Indian oil and gas sector in
India.

TABLE 28

Players in the Indian Oil and Gas Sector, 2007

Segment Players

Exploration & Oil & Natural Gas Corporation: with subsidiary company ONGC Videsh Ltd
Production
Oil India Ltd

Reliance Energy

Cairn Energy

Premier Oil

162 # ©2008 IDC


TABLE 28

Players in the Indian Oil and Gas Sector, 2007

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

Bharat Petroleum Corporation Ltd

ExxonMobil Lubricants

Shell Group of Industries

Gas Transport & Reliance Energy


Distribution
Essar Oil Ltd

Gas Authority of India Ltd. (GAIL)

Gujarat State Petronet Ltd

Source: Industry and IDC India, 2008

Trends in the Sector

Investment in spare capacity additions: Globally the trend is growth in investments


in exploration in new and old fields to improve reserve replacement rates. Also the
exploratory investments will have to be increased as finding costs have increased,
gestation periods of projects have risen and the size of new discoveries has fallen
over the years.

Acquisition of international oil assets: In an effort to reduce dependence on


foreign companies for oil supplies moves are being made to either acquire foreign
companies or acquire an equity. India currently prefers oil equity holdings. This is
considered a significant advantage, even over the term contracts used by Indian
refineries for a large portion of imports, as exporters can refuse to renew supply
contracts or refuse to provide additional volumes.

Competitive growth in petro-retailing: Focusing on profit rather than on volume, oil


companies are looking at attracting the consumer with initiatives like product
differentiation, premium products and customer loyalty programs. And all such offers
are being made through he retail outlets established by the players. In the next couple
of years we could see the strengthening of the retail structure by the oil companies
with emphasis on performance management and building new retail skills like
development of modern retail network.

©2008 IDC # 163


Consolidation of the sector: Looking at the advantages of scale, there is a growing
tendency to consolidate across the value chain through partnerships, joint ventures,
acquisitions at home and overseas.

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.

Increasing energy cooperation: Global integration of the petrochemical industry is


also triggering the importance of India as a regional hub for energy development.
Energy policies, improved transportability of basic petrochemical products are
reducing geographical barriers for market competition.

Factors favoring the growth of the sector in


India

Favorable investment regulations: Regulations have been reviewed to encourage


the overall economy. For instance, FDI upto 100% is permitted across all sub-
segments of oil and gas, tax holidays and the setting up of SEZs.

New Exploration Licensing Policy (NELP): This encourages and facilitates


upstream sector investments within the regulations. The government has already
issued six round of NELPs and is in the process for seventh.

Free market pricing: Withdrawal of the Administered Pricing Mechanism (APM) in


2002 brought in healthy competition in the market with improved customer
satisfaction.

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.

Growth in demand for petro-infrastructure and products: With the exponential


demand happening, both domestic and for export all the operational areas of the
sector have become attractive investment prospects. This has brought in interests
from private and foreign players at all points from exploration to end product delivery.

Geographical advantage: Being strategically located in proximity to premier oil and


gas market, the Middle East, and major petroleum product importers China and
Japan, gives India a good take-off platform in the sector globally.

164 # ©2008 IDC


Challenges in the Sector

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.

Transportation issues: A shortfall in pipeline infrastructure pushes road and railway


transportation for domestic purposes in India. At present, pipelines are being
developed mainly for international transportation and more and more international
transportation will be done through pipelines, but for inter-transportation railways will
hold the key because India cannot make much use of coastal transportation. Also
lesser dependence on imports will shrink the share of pipelines, while that of railways
will increase. On the other hand, greater dependence on imports will see more of
pipeline transportation and lesser of railways.

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.

Role of Information Technology in the Sector

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.

©2008 IDC # 165


IT solutions in the sector

Exploration and drilling solutions: Three-dimensional seismic surveys with their


higher resolutions, in-depth analysis of areas prior to drilling and platform designs are
improving efficiency and accessibility to oil sources. The companies are increasingly
using seismic surveys and drilling techniques to analyze the feasibility of oil
exploration at a particular field.

ERP implementation: A heightened ERP implementation is being seen by all the


players in the core functions like Finance and Accounting, Inventory Management,
HRM, operations planning, billing processes, among others. Most of them are through
with the ERP implementations and are now focusing on workflow management and
back-end front-end integration.

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

166 # ©2008 IDC


of a large import bill looming on the horizon, as domestic production will not be able to
meet the requirement. With limited natural resources and domestic production, the
issue needs serious consideration.

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 PHARMACEUTICALS SECTOR

Overview of the Sector

The pharmaceutical industry in India is a forerunner in the science-based ranks, with


wide-ranging capabilities in terms of technology, quality and range of products. The
industry is estimated to be worth US$ 10,300 million in a global industry worth US$
650 billion (2007), growing at about 7% annually. India exports its drugs to more than
65 countries and meets around 70% of the country’s demand for bulk drugs, drug
intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and
injectibles.

The pharmaceutical industry in India presently stands on the brink of change. In


January 2005 it formally recognised product patents, as a result of which foreign
players feel more secure, while local companies can compete in the domestic market
and internationally on the basis of their cost competency. Since then, companies
have been adopting a two-pronged strategy: in the domestic market, generic drugs
are being manufactured, or a different ‘process patent’ being used to boost growth; in
the global market companies are targeting the US generics market, where US$
65,000 million worth of drugs will go off patent by 2012, making opportunities under
the new patent regime immense for India.

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.

©2008 IDC # 167


In India, over 70% of the pharmaceuticals sales are from the retail market, through
distributors and wholesalers. The balance is from direct sales to hospitals and nursing
homes. The Medical Stores Organization (MSO) under the Ministry of Health
procures pharmaceuticals for government-owned and managed hospitals and
dispensaries. It distributes supplies received from the international aid agencies,
procures medicines for the National Health Programs; and coordinates disaster relief.
Maintaining one or more Indian agent/representatives is the best way to enter the
large Indian market. Representatives maintain close contact with government officials
and decision-makers, obtain advance information regarding procurements, and keep
the foreign supplier abreast of local market opportunities, conditions and competition.
The Indian pharmaceutical market therefore operates under a completely different
structure, with more emphasis on local medical representatives.

Evolution of the Sector

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 share of multinationals in the total production of formulations began to decline


during this period. This was also due to the introduction of the Foreign Exchange
Regulation Act (FERA), 1974, which required all multinationals to dilute their equity
holdings. In the late 1970s and early 1980s, legal reverse engineering made new

168 # ©2008 IDC


technologies and new drugs available easily and at an affordable price. These
reforms laid the foundation for generic drug production, and the number of small-
scale units (SSIs) in the industry increased rapidly.

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.

©2008 IDC # 169


Reforms in the Sector

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.

Foreign Technology Agreements: Automatic approval for Foreign Technology


Agreements is available in the case of all bulk drugs cleared by the Drug Controller
General (India), all their intermediates and formulations. Also the SEZ Board of
Approvals (BoA) has approved 11 pharma SEZs for the country.

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.

Liberalization: Following liberalization set in motion in 1991, industrial licensing for


the manufacture of all drugs and pharmaceuticals has been abolished except for bulk
drugs produced by the use of recombinant DNA technology, bulk drugs requiring use
of nucleic acids and specific cell/tissue targeted formulations. Foreign investment
through automatic route was raised from 51% to 74% in March 2000 and the same
now has been raised to 100%. Also, automatic approval for foreign technology
agreements is being given in the case of all bulk drugs, their intermediates and
formulations except those produced by the use of recombinant DNA technology, for
which the procedure prescribed by the Government would be followed.

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.

170 # ©2008 IDC


Schedule M (Good Manufacturing Practices) of the Drugs Rules: The Ministry of
Health and Family Welfare has amended the good manufacturing practices (GMP)
outlined in Schedule M of the drugs rules. It lays down certain requirements in terms
of manufacturing environment and a definite procedure that needs to be followed by
the pharmaceutical manufacturers. The provisions in the modified regulations are now
applicable to all pharmaceutical manufacturers from July 2005.

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:

 Ensuring abundant availability at reasonable prices within the country of good


quality essential pharmaceuticals of mass consumption.

 Strengthening the indigenous capability for cost effective quality production and
exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical
sector.

 Strengthening the system of quality control over drug and pharmaceutical


production and distribution to make quality an essential attribute of the Indian
pharmaceutical industry and promoting rational use of pharmaceuticals.

 Encouraging R&D in the pharmaceutical sector in a manner compatible with the


country’s needs and with particular focus on diseases endemic or relevant to
India by creating an environment conducive to channelizing a higher level of
investment into R&D in pharmaceuticals in India.

 Creating an incentive framework for the pharmaceutical industry, which promotes


new investment into the pharmaceutical industry and encourages the introduction
of new technologies and new drugs.

 Creation of the National Institute of Pharmaceutical Education and Research


(NIPER) by the Government of India as an institute of national importance to
achieve excellence in pharmaceutical sciences and technologies, education and
training. Through this institute, Government’s endeavor is to upgrade the
standards of pharmacy education and increase the spend on research and
development in the industry. Besides tackling problems of human resources
development for academia and the indigenous pharmaceutical industry, the

©2008 IDC # 171


institute makes efforts to maximize collaborative research with the industry and
other technical institutes in the area of drug discovery and pharmaceutical
technology development.

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:

 Strengthening of patent office infrastructure

 Focus on research and development process development, drug discovery, drug


development and clinical trials-incentives in the form of higher Maximum
Allowable Post-manufacturing Expenses (MAPE)

 Human Resource Development in Pharmaceutical Sciences through more


institutes like the National Institute of Pharmaceutical Education and Research
(NIPER) to meet the growing need of industry for technical manpower

 Streamlining the System of bulk procurement of drugs by government

 Promotion of Generic Drugs

 Consumer Awareness Campaigns to be organized

 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

 Encouraging production of critical bulk drugs in India

 Setting up of drug price monitoring awareness and accessibility (DPMAA) fund

 Setting up of pharma parks

 Greater thrust on pharma exports

 Improving the retail system for efficient pharmaceutical distribution

 Strengthening of NPPA with greater computerization and better monitoring

Players in the Sector

Of the three categories of pharma companies—innovator, discovery and generics—


most Indian companies belong to the first. The Indian pharmaceutical sector is highly
fragmented with more than 20,000 registered units, having expanded drastically in the
last two decades.

172 # ©2008 IDC


The major companies in Indian pharmaceutical industry are Pfizer, Ranbaxy
Laboratories, Dr. Reddy's Laboratories, Lupin, Novartis, Cipla, Nicholas Piramal,
Aurobindo Pharma, Aventis, Glaxo Smithkline, Kopran, Sun Pharma, Wockhardt Ltd.
and Zydus Cadila.

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.

Trends in the Sector

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.

Global Foray: The industry is on a global acquisition spree and is becoming a


significant player in the global pharmaceutical market in the generics space. Domestic
companies in India have begun to tie up with foreign ones to in-license drugs. The
Indian manufacturers are increasingly tapping the export markets. Export revenues
now contribute almost half the total revenues for the top pharmaceutical companies in
India.

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.

Outsourcing: India is emerging as an alliance and outsourcing destination of choice


for global pharma companies across the value chain. The emergence of multinational
Indian companies such as Ranbaxy, Cipla, and Dr. Reddy’s (DRL) as credible players
in the global generics mart and the growing number of FDA-approved plants and
ANDA (Abbreviated New Drug Application)/DMF (Drug Master File) filings by Indian

©2008 IDC # 173


companies has brought India into the limelight as a cost-competitive supplier of
quality pharmaceutical products. The change in the country’s patent laws,
transitioning from a process patent to a product patent regime, has also assuaged
fears of intellectual property risk. Emerging global opportunities in the areas of R&D
outsourcing have driven several Indian companies to redefine their businesses
models and branch out into offering contract research services. A number of niche
service providers have emerged in the recent past that bring with them a wide
spectrum of offerings to cover gaps in capacity, optimize the costs, widen the skill
base of the partner and enhance the drug development pipeline.

Changing Demographics: The Indian pharmaceutical market has potential for


tremendous growth with a burgeoning middle-class of around 300 million people that
have higher healthcare expectations. Not only they are getting increasingly aware
about the utility of healthcare and pharma, they are willing to pay for the quality
services and medicines. In the long run, affordability and awareness are expected to
increase and about 35-45 million Indians are estimated to be able to afford the best
medicines. With the growing healthcare market in India, the derived effect on the
pharmaceutical industry has already started to show signs and is going to get
stronger and stronger in the next 4-5 years.

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.

174 # ©2008 IDC


Factors favouring the growth of the sector in
India

Capital efficiency: Thanks to access to locally fabricated equipment, and high-


quality local technology and engineering skills, Indian companies are able to reduce
the upfront capital cost of setting up a project by as much as 25 to 50%. Indian
companies have been able to establish US FDA standard plants at approximately
50% lower capital costs as compared to US or Europe based manufacturing units.
Thus collaborating with the Indian companies or establishing manufacturing plants in
India leads to huge savings in costs for the pharmaceutical players.

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.

High receptiveness to technology: Since the pharmaceutical sector comprises of


highly educated, qualified and competent professionals, their reception of technology
(IT and others) is relatively faster in comparison to that of other industries. This
makes the change management better and quicker and also allows the IT teams to
make complex IT deployments; with little bit of training only. With India riding high on
technology deployments and its receptiveness, the pharma industry can very easily
leverage the benefits of the same and build a strong base in the country.

Cost-effective chemical synthesis: India’s track record of development, particularly


in the area of improved cost-beneficial chemical synthesis for various drug molecules
is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk
drugs.

Advantages in ayurveda: India has enormous resources of medicinal and herbal


plants. That, along with pre-historic knowledge of ayurveda and its applications to
cure illnesses effectively, is yet to be fully explored. Once this happens, India could
gain a very significant competitive edge in the global market, especially in the
pharmaceuticals, beauty care, and healthcare segments. Most importantly since this
traditional knowledge of ayurveda is not available in other countries, India could
dominate in this sector. The firms have been for long talking on these lines but have
not yet been able to formulate a policy for the same. They need to understand the
inherent advantages that the Indian ayurveda possesses and how it can be further
explored for the betterment of the masses.

©2008 IDC # 175


High quality standards: The increasing number of domestic pharmaceutical
companies winning international regulatory approvals (such as US Food and Drug
Administration or Medicines and Healthcare Products Regulatory Agency, UK), and
the fact that a major share of exports are going to the developed countries, point
towards the price competitiveness and excellent quality of domestic pharmaceuticals.
India has more US FDA-approved manufacturing sites compared to other developing
countries, providing credibility to the Indian pharmaceutical industry and its products.

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.

Government initiatives: The government has initiated a number of policies for


strengthening research and development in pharmaceutical sector, and strengthen
regulatory mechanisms. The government has also continuously reduced the rates of
excise and customs duties to make Indian pharmaceutical space increasingly
lucrative for the players. This coupled with 100% FDI in the pharmaceutical sector
has made India a favourable destination for the global pharmaceutical companies.

Booming medical tourism and healthcare industry: Indian healthcare players


have already announced their expansion plans in regards the tertiary hospitals to be
set up in India. With an increased number of hospitals in India, the demand for drugs
is going to rise manifold in the years ahead. This provides a huge incentive to the
pharmaceutical players to expand their scope of operations and match the supply
with the increased demand.

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.

Challenges in the Sector

The Indian pharmaceutical sector faces the following challenges:

176 # ©2008 IDC


Low per capita expenditure on pharma: Only about 30% of India’s 1,100 million-
plus population has access to modern medicine; most of these live in metro cities.
Also, about 80% of healthcare payments are borne by the individual, unlike in
developed markets where the figure is 10 to 30%. All this is resulting in low per capita
expenditure on pharmacy in India, which is hovering at US$ 8 compared to US$ 170
in the US (2007).

Threat from China: China is becoming a major competitor to India, especially in


exports of active pharmaceutical ingredients (APIs). China’s exports are growing at
the rate of about 20% on an annual basis. China is gaining this competitive
advantage because the electricity costs are lower in China as compared to India. It
has also established a large number of profit oriented research and development
institutions, which are today independent of government funding in contrast to
institutions in India, which are mostly dependant on government funding. Also the
labor charges in pharmaceutical industry are 40% lower than that of India. All this
makes China a huge competitor for India in the pharmaceutical space, especially
when it comes to exploitation of opportunities presented post 2005.

Spurious drugs: Despite efforts of large companies to protect their products,


counterfeit drugs still remains a big problem for the Indian pharmaceutical industry.
India still needs to tackle the problem of spurious drugs with more stringent licence
procuring procedures. There is a strong need to strengthen and streamline the central
and state drug control organisations. The spurious drugs can ruin the potential for the
Indian pharmaceutical industry and thus putting a check on them immediately should
be of utmost importance.

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.

Adherence to international quality norms: Also the international quality standards


to which the Indian companies need to adhere before becoming truly global
companies are too stringent and the Indian pharmaceutical industry needs to gear up
for them. Due to increased FDA scrutiny, manufacturing quality is increasingly a key
driver in successful and timely product launches, optimizing revenue streams,
enhancing the company's reputation, and maximizing shareholder value. Thus to gain
true global recognition the Indian pharmaceutical players need to re-align their
processes for stricter adherence to the international quality norms.

©2008 IDC # 177


Difficulties in IT adoption: Pharma companies face certain challenges while
implementing IT, including resistance from employees. Also newer versions of various
tools and solutions are being innovated at a very rapid pace, which makes IT
adoption very difficult especially for smaller companies.

Mismatch between demand and supply: The pharmaceutical industry in India


meets only 70% of the country’s demand for bulk drugs, drug intermediates,
pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. The
remaining portion of the demand is met by the imports, which is severely impacting
the trade balance and the further development of the pharmaceutical industry in India.

Role of Information Technology in the Sector

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:

 Establishing the basic IT infrastructure first and then deploying advance


level applications: Companies initially streamlined and globalized their IT
function to increase its scale and efficiency. Once their basic IT systems were in
place then they focused on IT-driven business performance and innovation. This
approach takes the longest time, generally 24-36 months, but is the least risky
approach because resources can be managed in a focused and coherent way.
The approach also gives the organisation time to build the necessary change
management capabilities as it moves from internally focused IT efficiency to
externally focused business innovation and enablement.

 Establishing the basic infrastructure and advanced level applications


simultaneously: This approach is rarely used, and that too by companies who
are a little late with their IT adoption and need to deploy advanced applications
along with establishing their basic IT infrastructure. With this approach the
companies split their resources into two, one for establishing IT infrastructure and
the other for deploying advance level applications. It is risky approach because
without disciplined adherence to cross-cutting policies and operating procedures,
the two separate power centres may make slow and ineffective decisions, which
can lead to misalignment and waste. It can also create cash-flow problems in the
companies. On the plus side, it is less time consuming and can scale up the IT
operations of an organisation very quickly.

 Outsourcing the establishment of basic IT infrastructure and deploying


advance level applications internally: Under this approach companies
outsource the less critical component of their IT applications, keeping the
important applications of business innovation and business criticality in-house.
Outsourcing infrastructure and legacy systems lets companies focus on business
changes and innovation. Also, this approach involves less strain on the internal
resources of the organisations.

178 # ©2008 IDC


IT solutions in the sector

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.

Integration / consolidation: The problems many pharmaceutical companies


struggle with in terms of their IT process are the effects of using a variety of different
non-connected or loosely connected IT systems. This typically happens in the cases
of mergers and acquisitions. The true benefits of these systems can be best had by a
fully integrated manufacturing business solution with a central database. Integration is
used to control production, stocks, purchasing, sales, formulations and all of the
standard financial functions required. The integration has been on the cards of all the
Indian pharmaceutical players for long, be it the larger firm or the smaller company.
Only the degree of integration attained is different. The large firms even after the
challenge of size have been able to achieve a better degree of integration then the
smaller players. Wile the smaller firms are still completing the integration process, the
larger firms are in the final stages of the same.

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.

Management execution system (MES): Well integrated IT systems through MES


will help companies to quickly respond to the changing market dynamics and help
them take advantage of the opportunities thrown up by the changing economic and
business scenarios. This holds vital importance for the companies that have
undergone mergers and acquisitions as they generally have many different IT
systems in place. To the accord, the pharmaceutical companies have realized that
they need to integrate their various IT systems like ERP, business intelligence (BI),
process management, customer relationship management (CRM), research and
development, supply chain management (SCM) systems to enhance earnings and
increase operational efficiency.

©2008 IDC # 179


Sales force automation: Sales force automation (SFA) is a vital tool that enables
and empowers the sales team to make accurate spot decisions. It helps in real-time
capturing of the information about customers along with sales data. This proves to be
a very handy tool in the hands of the sales people so that they can understand the
customer requirements and his demand pattern and can pitch for their offerings
accordingly with 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.

Drug discovery informatics: The modern day requirements of the pharmaceutical


companies in regards the drug discoveries are such solutions and techniques that
can successfully meet these challenges of integrated diverse data transacted across
the business process; tie together various informatics and analytical applications used
for prediction and analysis; streamline workflow activities by automating manual
processes and connecting diverse scientific collaborators; and present the project
results in easy to access reports and other data visual aides. Though some
companies are already looking at the implementation of informatics solutions in the
next few years, the number is very low and thus the industry needs a robust and cost-
effective solution that can take care of its needs for a longer duration and in a more
secured manner.

Regulatory compliances: IT plays a major role in ensuring that the standard


operating practices (SOPs) and policies are in place and is being adhered to—like the
GXP (GMP, GCP, GPP, and GLP) standards. From a compliance perspective, it
helps in having proper application processes, controls and ensuring that the
processes are being followed. Thus the Indian pharmaceutical players are
increasingly looking at such solutions that can further their steps in regard the
regulatory compliances.

Customer relationship management: CRM is becoming essential for the


companies in the sector to successfully understand the requirements of their

180 # ©2008 IDC


customers along with the market dynamics. Thus the Indian pharmaceutical
companies are looking to leverage information from their customer relationships to
get additional value so as to gain a sustainable competitive edge over their
competitors.

Quality management solutions: Quality management plays a key role in the


pharmaceutical industry. To ensure that the products are safe and effective,
manufacturing processes are subject to strict legal conditions. National and
international authorities constantly monitor the manufacturers' adherence to
regulations. The directives and procedural instructions for validation require
companies in the industry to document the entire logistics chain in full–from goods
inwards to delivery, and from the development of new preparations to the
maintenance of mixers and packaging lines. Such validation activities can be carried
out only with the software applications. Therefore the pharmaceutical companies
have taken up the deployment of quality management solutions so that the adherence
to the quality standards can be ensured.

E-Procurement through portals: E-procurement is a viable option to contain costs,


manage inventory and streamline the ordering process. E-procurement solutions do
not require additional technology, dedicated personnel, or staffing resources. Rather,
existing technology infrastructure, including equipment and computers with Internet
connectivity (which may already be in place), can be used. The e-vendor typically is
an independent, online storefront that serves as a type of electronic group purchasing
organization, appealing to manufacturers for deep discounts based on the economies
of scale and the clout of a large customer base. Thus, the role of web portals in the
sector is getting its due importance and the companies are working extensively
towards the development of their portals.

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.

SCM: IT applications facilitate the execution of several theories of supply chain


management, like constant refilling, vendor administered refilling, planned
postponement, etc. The supply chains in the Indian pharmaceutical industry are
getting automated at a very high speed, with large companies already in the process
of integrating their suppliers in the chain via secured and robust networks.

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

©2008 IDC # 181


effectiveness, time-to-market and competitive advantage. Thus the opportunity area
for the Indian pharmaceutical industry is vast and can be harnessed with the advent
of latest IT solutions backed by the strong inherent advantages.

THE INDIAN HEALTHCARE SECTOR

Overview of the Sector

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.

Thus, the healthcare system consists of:

 Primary, secondary and tertiary care institutions, manned by medical and


paramedical personnel

 Medical colleges and paraprofessional training institutions to train the needed


manpower and give the required academic input

 Programme managers managing ongoing programmes at central, state and


district levels

 Health management information system consisting of a two-way system of data


collection, collation, analysis and response

Some facts about India’s healthcare sector are as follows:

 In India, 25,000 medical graduates pass out each year

 Hospital beds per 1,000 people is 1.11

 Most private hospitals operate as a proprietorship or partnership business.


Corporate hospitals account for approximately 10% of the total private ownership

 Adaptation of telemedicine technology offers one of the best options for


delivering healthcare for rural and geographically distant population spread
across India.

182 # ©2008 IDC


Indigenous or traditional medical practitioners exist throughout the country. The two
main forms of traditional medicine practised in India are ayurveda, which deals with
causes, symptoms, diagnoses, and treatment based on all aspects of well being
(mental, physical, and spiritual), and unani, which is herbal medical practice.

Evolution of the Sector

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.

Reforms in the Sector

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

©2008 IDC # 183


governments, though the department of health has assisted states in availing external
assistance. There are three departments under the ministry:

 Department of Health

 Department of Family Welfare

 Department of AYUSH (Ayurveda, Unani, Siddha and Homoeopathy)

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.

2008 Health Budget

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%

 Excise duties on anti-AIDS drugs have been brought down

 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 sanitation programme is to receive US$ 300 million

 Customs duties on some bulk-drugs have been brought down to 5%

 17 lakh families of weavers have been included in the health insurance


programme

 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.

184 # ©2008 IDC


The second is the National Programme for the Elderly with a Plan outlay of US$
100 million. Also, during the Eleventh Plan period, two National Institutes of Ageing,
eight regional centres, and a department for geriatric medical care in one medical
college/tertiary level hospital in each state are to be set up.

The government also takes the initiative to institutionalise a mechanism of public-


private partnerships (PPP) in healthcare, right from the district level. It is in the
process of developing guidelines for public-private partnerships and areas for
partnership that are need-based and necessary for the healthcare industry. The
public sector will play the main role in defining the framework and sustaining the
partnerships. It will further design the management plans for public-private
partnerships initiatives at the district/state and national levels.

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.

Players in the Sector

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

©2008 IDC # 185


equipment and the services of highly skilled medical personnel, these hospitals are in
a position to provide a variety of general as well as specialist services at extremely
competitive prices, encouraging patients not only from developing countries, but also
from a number of developed ones to come to India for specialised treatment.

Trends in the Sector

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.

Expansion: Corporate companies are embarking on either horizontal or vertical


expansion to become integrated healthcare providers. Horizontal expansion involves
the addition of new, synergetic revenue streams such as pharmacy, health insurance
and telemedicine. Vertical expansion refers to adding clinics, secondary and primary
healthcare facilities. Apart from enhancing hospitals’ reach, these expansions will also
act as a feeder service to it. Some corporate companies are adopting a franchisee
model, a variation of the hub-and-spoke model that is less capital intensive, wherein
they tie up with other hospitals and clinics to drive growth.

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.

Changing demographic profiles: The most fundamental structural change altering


the healthcare scene in India is the shifting demographic and socio-economic profile
of its population fuelled by improving overall health status. With the decline in birth
rates, the population aged 0 to 14 has declined, while on the other hand improvement

186 # ©2008 IDC


in life expectancy has led to an increase in the old age population. On an average this
has led to higher per capita demand for health services.

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.

Payment model: Out-of-pocket spending on healthcare in India stands at a very high


82%. But this cash-and-carry model of payment is slowly taking a backseat and ‘third
party payment’ is gaining importance. Third party payment facilitates cashless
transaction by giving credit facilities. Cashless facility for an insured person means he
or she can just walk into a network provider of his preference for the cashless
hospitalisation.

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:

 Providers (hospitals and physician groups)

 Payers (healthcare insurance companies, third party administration, etc.)

 Drug manufacturers (clinical research and bulk drug outsourcing)

 Pharmacy chains

The types of services being offered by healthcare BPOs in India include:

 Data capture: Reporting of diagnostic tests and radiology reporting.

©2008 IDC # 187


 Documentation: Data coding, medical transcription, billing and data migration.

 Commercial: Invoicing, disbursal, expense reporting, procurement, cash


management, general ledger and receivables management.

 Administration: Claims processing, adjudication, mailroom services and records


management.

 Human resources: Employee assistance, training and payroll.

 Customer care: Dispatch and activation services, technical support.

Influx of international patients in India (medical tourism): The number of foreign


patients visiting India for medical treatment has risen from 10,000 in 2000 to about
100,000 in 2005 (latest estimates). The medical tourism market in India is forecasted
to grow to US$ 2,100 million by 2012. Indian medical industry's main appeal is its low-
cost treatment, with the costs in India starting at around a tenth of the price of
comparable treatment in US or UK.

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.

Factors favouring the growth of the sector in


India

Not only is India emerging as a preferred healthcare destination, it is also a lucrative


market for international and corporate investors. With changing consumer
preferences and attributes, coupled with greater liberalisation and reforms, the role of
the private sector is likely to increase significantly in the Indian healthcare landscape
in next 4-5 years.

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

188 # ©2008 IDC


healthcare infrastructure in the West, Europe and the United States are under severe
pressure; the scope for Indian healthcare sector from medical tourism is huge.

High-end laboratory and diagnostic services: India is becoming a competitive


outsourcing destination for high-end laboratory and diagnostic tests. It is very cost-
effective for hospitals in foreign countries to outsource these tests to Indian providers,
which is almost 70-80% less expensive than the US laboratories. Outsourcing of
laboratory testing and diagnostic services is set to become big business in India.

Duty structure: Attracted by advantages such as lower costs of production and


skilled workforce that India offers, international companies are looking to set up
research and development as well as production centres in India. Initially the
government imposed a high custom duty on imported medical equipment making it
difficult for private entrepreneurs to set up hospitals, but post liberalisation the duties
have come down, and some lifesaving medicines and equipment can now be
imported duty free.

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.

Challenges in the Sector

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.

Inadequate infrastructure: The biggest hindrance in India’s path to growth into a


world-class health destination is the unavailability of adequate infrastructure. A
significant amount of infrastructure development is needed before India can be
successfully branded as the world’s healthcare destination. This is not only necessary
in terms of physical infrastructure but also the IT infrastructure for the success of the
terminologies like telemedicine.

Dismal marketing strategies: Efficient marketing has been instrumental in the


positioning of countries like Thailand as global healthcare hubs. Most Indian hospitals

©2008 IDC # 189


have poor marketing strategies, adopting questionable strategies like referrals and
lowering prices, which tarnish the image of India as a global healthcare hub.

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.

Archaic purchase policies: Government policies for procurement of materials are


the same for all government departments, from healthcare to education. Therefore,
special requirements of hospital supplies, such as expiry dates of drugs and
medicines, are often overlooked. Rate contracts are religiously followed, at the
expense of quality, reliability and procurement lead-time considerations. Too many
vendors, legacy systems and procedures, frequent delays in making payments to the
vendors and lack of proper record-keeping lead to medicines and drugs being out of
stock in government hospitals. It has been widely talked that the Indian hospitals
should be given the status of emergency services and should have the according
flexibility in their day-to-day operations.

190 # ©2008 IDC


Attracting / retaining doctors/medical staff is a big challenge: The key to success
in the hospitals business is to have the best doctors and paramedical staff. Like in
most other businesses, it is the large corporate organisations that pay well and also
offer better career prospects, and thus attract the best of the best medical
practitioners and staff. So the problem of attrition is a major obstacle in the
development of Indian healthcare.

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.

Role of Information Technology in the Sector

Healthcare providers are increasingly realising the importance of information


technology in bringing about process improvements for greater efficiency and
improved customer services. Being a late adopter of information technology, the
healthcare providers' investment is more towards setting up basic infrastructure like
putting administrative modules in place, followed by patient data informatics to
provide timely and convenient services to patients. This trend throws immense
opportunities for vendors in medical informatics segment like telemedicine, PACS,
tele-consultancy and e-prescribing. Having said that, healthcare providers still have to
go long way to achieve international standards of healthcare services.

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:

 Computerisation of medical records

 Networking of various departments in a hospital

 Providing tele-medicine services

 Computerised and online billing and payment

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.

IT solutions for the sector

Information storing: Healthcare workers no longer carry large stacks of paper


records with them. Today, the information is stored in devices such as laptops, PDAs,
smartphones; and now more and more people are loading information onto USB keys
and even onto MP3 players, which have a capacity comparable to that of high-end

©2008 IDC # 191


laptops. The data can be protected by encryption and passwords to avoid falling into
wrong hands.

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.

Business process reengineering: Material and inventory costs constitute around


90% of the variable expenses for a government hospital. They are now looking to cut
on these costs by making the purchasing process more efficient and by automating
their supply chains. IT is playing a major role in supply chain automation by cutting
down the time involved and removing the bottlenecks.

Outsourcing network management: Indian healthcare providers are open to


outsourcing all such applications for which they do not have in-house expertise. They
would rather focus on the management of only those applications for which they do
not need to divert from their core expertise.

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.

Computer-based patient record: Physicians and health administrators can


efficiently retrieve data for consequent research from the computerised medical
records. This detailed information can even be used for other processes in the
business of medical and healthcare.

Business intelligence: To succeed, health plans must be able to anticipate


emerging trends and rapidly adapt strategy and business processes to focus on the
right opportunities at both the operational and clinical levels. Hospitals need to
understand the various demand patterns also and formulate their strategies
accordingly. Business intelligence (BI) is the one-stop solution that helps the
healthcare providers to make the well-informed decisions.

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.

192 # ©2008 IDC


Hospital management and information system: The HMIS acts as an MIS tool that
provides all the relevant information to the management for making strategic
decisions. It also helps the hospitals in the continuous monitoring of the procedures
and provides regular updates on any discrepancies.

Surgical simulations/tele-surgery: The advancement in imaging technology and


high performance computer hardware and software have made it possible for
surgeons to intuitively explore the complex data to determine the best form of
treatment in the most difficult pathologic conditions. The development of a 3-D
interactive anatomic road map for a particular patient’s disease and anatomy enables
the surgeon to have accurate pre-operative assessment. The surgeon’s hand motions
are converted into electronic signals and then sent to the tip of the surgical
instrument. Endoscopic surgery, tele-presence, virtual reality, digital imaging, and
networking are coming together at the physician’s workstation, enabling him to work
at a distance, dissolving time and space.

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.

©2008 IDC # 193


FUTURE OUTLOOK

Forecast and Assumptions

Key Forecast Assumptions


The following table provides the set of assumptions on which the report has been
based.

TABLE 29

Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012

Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption

Economics

GDP India's economic boom is High. Inflationary pressures have rocked


Growth forecasted to moderate over the back the forecasted GDP. Although the
next few years with GDP growth Govt. & RBI have initiated a range of
slowing from 9.4% in 2006-07 to fiscal measures, an all time high inflation
9.0% 2007-08. Although business is expected to be under control not
confidence is high, financing costs before december. And most certainly,
and inflation rates are soaring. inflation has hit the buyer sentiments. ↓ 
Nonetheless, the government has
indicated its commitment to help
ease inflationary pressures (but to
of very little use) and lower import
duties on non-food commodities.

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.

194 # ©2008 IDC


TABLE 29

Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012

Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption

India's export-competitiveness. Corrective measures by RBI has started


However, economists expect the showing signs but a lot needs to be done
slowdown in export growth to be to negate the impact and ease the
only temporary. pressure of the exporters in particular.

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.

End User Demand (Projects)

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

©2008 IDC # 195


TABLE 29

Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012

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.

IT Services IT Services is growing market due Moderate. Investments are expected


to an increased penetration by from large and medium sized enterprises
Indian firms in the overseas market. alike. Tier 1 cities have not been able to
The government has announced keep pace with the rapid growth in the IT
planned urbanisation schemes and and ITES industry. This will help spread
establishment of new towns for
specific industries such as
the IT growth story to Tier-II cities and
ease the pressure of increasing
↑ 
information technology (IT). While it infrastructure costs for IT and ITES
is showing some recent dullness companies.
due to the US slowdown, the
domestic market is increasing.

Other The biotech, manufacturing, Moderate. Government-funded


Industries telecom, and SMB sectors are education projects are in an upswing, as
moving along well, which will is buying from engineering and
require more IT. Even the
education sector is expected to be
management institutes. Biotech and
manufacturing will encompass multiple
↑ 
an area of growth for the networking sizes ranging from startups to large
and IT market. enterprises.

Consumer A number of factors are Moderate. With increased disposable


Interest consolidating in India that can help incomes and growing awareness, the IT
increase consumer IT penetration, is expected to penetrate further in the
including falling prices, rising lives of common man. ↑ 
awareness, and affordable
broadband/internet infrastructure
buildouts in rural areas.

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.

196 # ©2008 IDC


TABLE 29

Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012

Accelerator
Market / Inhibitor / Certainty of
Force IDC Assumption Impact Neutral Assumption

Technology / Service Developments

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

©2008 IDC # 197


Overall IT Market in BFSI
BFSI, the largest spending vertical of the Indian economy is expected to continue its
strong growth in the Indian domestic IT market for 2007-2012. Technology has moved
from being just an enabler to the core of business and facilitator in this vertical.
Intense competition, regulatory compliance, retail focus, development of alternate
channels, Bancassurance, expansions, convinience and compliance to BASEL II
norms are the key reasons for huge IT spending in BFSI. While the aggressive and
tech savvy banks and insurance segments will see better growth in the software and
services arena as compared to hardware, a lot of financial instituions which are still in
the process of implementing their basic IT infrastructure will drive the spending in
hardware. Thus the services are cornering a share around 36% of the total IT market
in BFSI in 2007 and are expected to garner around 40% in 2012 as well. But not lose
focus upon hardware which will still continue to have more than 40% of the IT
spending in the segment. The following tables provide an overview of the total IT
market in the BFSI sector for 2007-2012.

TABLE 30

Overall IT Spend in BFSI (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 1,657.4 1,959.5 2,227.6 2,475.7 2,769.1 3,082.6 13.2%

Packaged Software 443.1 548.7 633.2 715.3 810.8 914.8 15.6%

Services 1,314.7 1,603.3 1,862.2 2,155.2 2,552.6 2,960.7 17.6%

Others 226.0 276.2 324.1 353.5 372.7 386.8 11.3%

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%

Source: IDC India, 2008

TABLE 31

Overall IT Spend in BFSI (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 45.5% 44.7% 44.1% 43.4% 42.6% 42.0%

Packaged Software 12.2% 12.5% 12.5% 12.5% 12.5% 12.5%

Services 36.1% 36.5% 36.9% 37.8% 39.2% 40.3%

Others 6.2% 6.3% 6.4% 6.2% 5.7% 5.3%

198 # ©2008 IDC


TABLE 31

Overall IT Spend in BFSI (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Total IT Market in BFSI Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

©2008 IDC # 199


Overall Hardware Market in BFSI
The spending in hardware is going to be driven by branch computerization (for new
establishments) and networking processes. A lot of second rung banks are still
continuing with the process of total branch automation and it's expected to spill upto
2009 and mid of 2010. This is expected to drive the spending on PCs. Similarly a lot
of activity is still under so far as the networking of branches is concerned. Both new
age private sector banks and public sector banks are aggressively pushing their
branch expansion plans. With the advent of concepts like RTGS, Internet banking,
mobile bankingt and EFT, the networking and automation have become all the more
necessary for the banks. The following tables provide an overview of the total
hardware market in the BFSI sector for 2007-2012.

TABLE 32

Overall Hardware Spend in BFSI (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 178.6 214.6 245.6 286.4 323.2 360.2 15.1%

Clients 1,000.9 1,183.5 1,341.0 1,473.9 1,659.7 1,862.8 13.2%

Storage 95.5 108.9 123.0 135.6 148.4 159.8 10.8%

Peripherals 128.6 148.9 169.9 188.2 206.1 230.5 12.4%

Networking Equipments 165.6 200.1 233.8 266.3 290.8 312.2 13.5%

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

Source: IDC India, 2008

TABLE 33

Overall Hardware Spend in BFSI (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 10.8% 11.0% 11.0% 11.6% 11.7% 11.7%

Clients 60.4% 60.4% 60.2% 59.5% 59.9% 60.4%

Storage 5.8% 5.6% 5.5% 5.5% 5.4% 5.2%

200 # ©2008 IDC


TABLE 33

Overall Hardware Spend in BFSI (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Peripherals 7.8% 7.6% 7.6% 7.6% 7.4% 7.5%

Networking Equipments 10.0% 10.2% 10.5% 10.8% 10.5% 10.1%

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%

Source: IDC India, 2008

©2008 IDC # 201


Overall IT Market in Manufacturing
Though the manufacturing vertical in India has started making rapid expansion only in
the recent past but the IT has been its companion since the advent of the IT
applications. The IT market in the manufacturing sector in India is expected to grow at
a CAGR of 19.3%, the IT spend reaching US$ 6,234.0 millions from the present of
US$ 2,581.0 millions. Like the BFSI vertical, the services and the hardware are going
to be the major constituents of this IT spend in the vertical while the packaged
software applications will make the least contribution. But the packaged software
market is the fastest growing market in the vertical riding on the advent of applications
and tools for production and designing like CAD and collaborative planning. With the
emergence of concepts like supply chain automation and deployment of CRM
applications by the manufacturing companies in India (be it the automobile, textile, or
FMCG), the manufacturing vertical will maintain its premium position in the domestic
IT market in the next 5 years. The following tables provide an overview of the total IT
market in the Manufacturing sector for 2007-2012.

TABLE 34

Overall IT Spend in Manufacturing (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 954.0 1,159.9 1,351.2 1,558.3 1,757.8 1,969.2 15.6%

Packaged Software 324.4 421.1 536.5 677.7 828.8 1016.4 25.7%

Services 1,193.3 1,507.1 1,823.6 2,155.2 2,585.9 3,052.8 20.7%

Others 109.2 132.2 149.7 167.1 181.5 195.5 12.3%

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

Source: IDC India, 2008

TABLE 35

Overall IT Spend in Manufacturing (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 37.0% 36.0% 35.0% 34.2% 32.8% 31.6%

Packaged Software 12.6% 13.1% 13.9% 14.9% 15.5% 16.3%

Services 46.2% 46.8% 47.2% 47.3% 48.3% 49.0%

202 # ©2008 IDC


TABLE 35

Overall IT Spend in Manufacturing (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Others 4.2% 4.1% 3.9% 3.7% 3.4% 3.1%

Total IT Market in Manufacturing Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

©2008 IDC # 203


Overall Hardware Market in Manufacturing
With the small players in the vertical being still in the process of setting up their basic
IT infrastructure, the hardware spending in the vertical will mostly be dominated by
the PCs, printers and networking requirements. The trend visible is the deployment of
PCs and printers in the first half of the forecasted period while the networking is
expected to pick up in the second half of the forecasted period. The overall hardware
market is expected to grow to US$ 1,969.2 millions in 2012 from the present level of
US$ 954.0 millions (CAGR of 15.6%). The following tables provide an overview of the
total hardware market in the Manufacturing sector for 2006-2011.

TABLE 36

Overall Hardware Spend in Manufacturing (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 113.5 131.8 142.0 158.4 180.2 201.7 12.2%

Clients 589.3 724.4 852.3 989.1 1,113.5 1,249.7 16.2%

Storage 63.3 71.1 80.0 88.5 96.9 104.4 10.5%

Peripherals 71.1 87.4 105.6 126.1 144.0 164.9 18.3%

Networking Equipments 63.0 82.0 99.1 114.3 131.3 145.9 18.3%

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

Source: IDC India, 2008

TABLE 37

Overall Hardware Spend in Manufacturing (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 11.9% 11.4% 10.5% 10.2% 10.3% 10.2%

Clients 61.8% 62.5% 63.1% 63.5% 63.3% 63.5%

Storage 6.6% 6.1% 5.9% 5.7% 5.5% 5.3%

Peripherals 7.5% 7.5% 7.8% 8.1% 8.2% 8.4%

204 # ©2008 IDC


TABLE 37

Overall Hardware Spend in Manufacturing (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Networking Equipments 6.6% 7.1% 7.3% 7.3% 7.5% 7.4%

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

Source: IDC India, 2008

©2008 IDC # 205


Overall IT Market in IT/ITeS
The sunrise sector of the Indian economy, IT/ITeS is going to see a spurge in the IT
spending which is going to increase at a CAGR of 16.4%; growing from present level
of US$ 2,133.4 millions to US$ 4,565.7 millions by 2012. Since a BPO set-up requires
the IT infrastructure in the basic physical form, the hardware is going to be the
dominant segment of the market. It is garnering around 57% of the total market but is
losing heavily to the services market in the next 5 years. The only two markets able to
maintain the hardware constituent in the market are PCs (for the basic set-up) and
networking (for the connectivity). The following tables provide an overview of the total
IT market in the IT/ITeS sector for 2007-2012.

TABLE 38

Overall IT Spend in IT/ITeS (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 1,222.6 1,455.6 1,664.1 1,890.4 2,110.4 2,345.8 13.9%

Packaged Software 297.8 382.8 471.0 576.0 675.6 765.0 20.8%

Services 429.8 551.5 664.5 798.9 948.9 1,118.5 21.1%

Others 183.2 224.7 251.6 285.2 309.5 336.4 12.9%

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%

Source: IDC India, 2008

TABLE 39

Overall IT Spend in IT/ITeS (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 57.3% 55.7% 54.5% 53.2% 52.2% 51.4%

Packaged Software 14.0% 14.6% 15.4% 16.2% 16.7% 16.8%

Services 20.1% 21.1% 21.8% 22.5% 23.5% 24.5%

Others 8.6% 8.6% 8.2% 8.0% 7.7% 7.4%

Total IT Market in IT/ITeS Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

206 # ©2008 IDC


Overall Hardware Market in IT/ITeS
Since the basic IT requirements for smooth operations of BPO activities is quite
obvious, the industry is going to witness high degree of growth in the spending of
Personal Computers and Networking Equipments. Increasing concerns about data
security coupled with some degree of backlash has also forced the Indian players to
concentrate more on storage in the early part of the forecasted period. IT/ITeS
continues to be the sector where hardware is such an important constituent of the IT
market. The following tables provide an overview of the total hardware market in the
IT/ITeS sector for 2007-2012.

TABLE 40

Overall Hardware Spend in IT/ITeS (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 121.5 141.2 158.1 182.8 207.7 232.5 13.9%

Clients 703.7 863.6 994.7 1,137.0 1,280.4 1,437.0 15.3%

Storage 40.1 45.5 51.2 56.7 62.0 66.8 10.8%

Peripherals 79.2 90.5 99.8 107.9 116.5 128.9 10.2%

Networking Equipments 221.4 247.2 283.4 318.8 345.7 370.8 10.9%

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

Source: IDC India, 2008

TABLE 41

Overall Hardware Spend in IT/ITeS (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 9.9% 9.7% 9.5% 9.7% 9.8% 9.9%

Clients 57.6% 59.3% 59.8% 60.1% 60.7% 61.3%

Storage 3.3% 3.1% 3.1% 3.0% 2.9% 2.8%

Peripherals 6.5% 6.2% 6.0% 5.7% 5.5% 5.5%

Networking Equipments 18.1% 17.0% 17.0% 16.9% 16.4% 15.8%

©2008 IDC # 207


TABLE 41

Overall Hardware Spend in IT/ITeS (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

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%

Source: IDC India, 2008

208 # ©2008 IDC


Overall IT Market in Telecom
With the rapid expansion in the subscriber base the outlook for the telecom industry is
on a very high note. This is aptly reflected in the domestic IT market for the vertical.
The IT market in telecom is expected to show a CAGR of 18.8% for 2007-2012 and is
expected to reach US$ 4,929.6 millions from the present level of US$ 2,086.7
millions. The Indian telecom sector is expected to absorb the most high-end
technologies of the world and is expected to show great maturity in IT deployments in
the next 5 years. Virtually the backbone of the telecom sector is based on the ICT
technologies and with the capacity addition plans of the telecom players, the rate of IT
adoption in the telecom sector is going to increase at a much brisk pace than the
other verticals. But the key point to take a note of is that with the players being
somewhat through with their basic IT infrastructure are keenly looking at services
market now; the operations that they can outsource and the facilities that they can
manage with the help of ICT solutions. This is driving the services market in the
vertical to the tune of CAGR of 23.1% for 2007-12. The following tables provide an
overview of the total IT market in the Telecom sector for 2007-2012.

TABLE 42

Overall IT Spend in Telecom (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 729.1 866.8 993.5 1,127.5 1,249.7 1,371.8 13.5%

Packaged Software 316.5 403.6 486.6 587.3 684.6 775.7 19.6%

Services 864.7 1,103.1 1,359.9 1,672.1 2,031.0 2,447.5 23.1%

Others 176.5 217.7 244.5 275.7 303.0 334.7 13.7%

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

Source: IDC India, 2008

TABLE 43

Overall IT Spend in Telecom (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 34.9% 33.5% 32.2% 30.8% 29.3% 27.8%

Packaged Software 15.2% 15.6% 15.8% 16.0% 16.0% 15.7%

Services 41.4% 42.6% 44.1% 45.7% 47.6% 49.6%

Others 8.5% 8.4% 7.9% 7.5% 7.1% 6.8%

©2008 IDC # 209


TABLE 43

Overall IT Spend in Telecom (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Total IT Market in Telecom Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

210 # ©2008 IDC


Overall Hardware Market in Telecom
As the industry is experiencing a phase of high growth, players are expanding their
networks rapidly. Correspondingly there will be high degree of need for networking
equipment, which is reflected in the table presented next. The two interesting markets
here are that of PCs and servers. The PC market is on a high primarily because of
the expansion planned in the sector, while the servers market is on a high to support
the value-added services and high-end applications being deployed by the players.
The hardware market in the telecom sector is expected to show a CAGR of 13.5%,
reaching upto US$ 1,371.8 millions in 2012 from the present level of US$ 729.1
millions (2007). The following tables provide an overview of the total hardware market
in the Telecom sector for 2007-2012.

TABLE 44

Overall Hardware Spend in Telecom (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 115.9 141.2 163.4 188.9 213.2 238.6 15.5%

Clients 217.7 266.7 313.2 365.0 411.0 461.3 16.2%

Storage 71.5 81.3 89.1 98.6 108.0 116.3 10.2%

Peripherals 30.6 35.4 39.6 43.3 47.6 52.2 11.2%

Networking Equipments 260.3 304.5 345.6 384.1 416.5 444.1 11.3%

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

Source: IDC India, 2008

TABLE 45

Overall Hardware Spend in Telecom (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 15.9% 16.3% 16.4% 16.8% 17.1% 17.4%

Clients 29.9% 30.8% 31.5% 32.4% 32.9% 33.6%

Storage 9.8% 9.4% 9.0% 8.7% 8.6% 8.5%

©2008 IDC # 211


TABLE 45

Overall Hardware Spend in Telecom (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Peripherals 4.2% 4.1% 4.0% 3.8% 3.8% 3.8%

Networking Equipments 35.7% 35.1% 34.8% 34.1% 33.3% 32.4%

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%

Source: IDC India, 2008

212 # ©2008 IDC


Overall IT Market in Government and Education
With all the state Governments in the execution phase of their National E-Governance
projects, the IT spending in the sector is expected to show a CAGR of 17.3% for
2007-2012. The domestic IT market for the vertical is expected to increase from US$
2,247.5 millions in 2007 to US$ 4,996.2 millions in 2012. Since the states and central
ministries are looking to build-up their basic IT infrastructure in the next 2-3 years, the
hardware is expected to dominate the market by cornering a share of around 50% in
2007 which is forecasted to decline to 48% in 2012, because after installing the basic
infrastructure the states will focus more on the software and services market,
maintainenance and sustenance of the projects taking the precedence. The following
tables provide an overview of the total IT market in the Government and Education
sector for 2007-2012.

TABLE 46

Overall IT Spend in Government and Education (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 1,143.5 1,316.4 1,548.3 1,813.8 2,105.3 2,390.8 15.9%

Packaged Software 213.6 288.4 349.3 414.1 504.5 631.2 24.2%

Services 616.9 776.0 927.2 1,114.8 1,320.7 1,546.2 20.2%

Others 273.5 316.7 340.1 360.8 397.3 428.1 9.4%

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

Source: IDC India, 2008

TABLE 47

Overall IT Spend in Government and Education (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 50.9% 48.8% 48.9% 49.0% 48.6% 47.9%

Packaged Software 9.5% 10.7% 11.0% 11.2% 11.7% 12.6%

Services 27.4% 28.8% 29.3% 30.1% 30.5% 30.9%

Others 12.2% 11.7% 10.7% 9.7% 9.2% 8.6%

Total IT Market in Government and 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Education Sector

Source: IDC India, 2008

©2008 IDC # 213


Overall Hardware Market in Government and Education
Since the vertical is witnessing the dawn of spending on technology particularly on
the E-Governance initiative, the IT spending will typically be in favor of basic
computerization and interconnectivity. Consequently both PCs and networking
equipments are expected to see high growth in the times to come and are expected
to garner a share of around 75-80% of the total hardware market in the sector by
2012. The same is true for the education sector as well which has picked up
networking in a big manner among all its institutes. The following tables provide an
overview of the total hardware market in the Government and Education sector for
2007-2012.

TABLE 48

Overall Hardware Spend in Government and Education (US$ millions), 2007-


2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 93.7 113.0 128.2 146.2 165.1 187.8 14.9%

Clients 682.3 768.4 919.0 1,102.2 1,315.4 1,530.7 17.5%

Storage 32.5 37.0 43.4 48.1 52.6 56.7 11.7%

Peripherals 119.9 138.2 155.0 168.3 180.2 191.7 9.8%

Networking Equipments 162.6 198.1 233.2 267.3 302.2 326.1 14.9%

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

Source: IDC India, 2008

TABLE 49

Overall Hardware Spend in Government and Education (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 8.2% 8.6% 8.3% 8.1% 7.8% 7.9%

Clients 59.7% 58.4% 59.4% 60.8% 62.5% 64.0%

Storage 2.8% 2.8% 2.8% 2.6% 2.5% 2.4%

Peripherals 10.5% 10.5% 10.0% 9.3% 8.6% 8.0%

214 # ©2008 IDC


TABLE 49

Overall Hardware Spend in Government and Education (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Networking Equipments 14.2% 15.0% 15.1% 14.7% 14.4% 13.6%

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

Source: IDC India, 2008

©2008 IDC # 215


Overall IT Market in Media and Entertainment
With the digitization of the Indian Media and Entertainment industry still in process,
the domestic IT market for the sector is expected to grow to US$ 587.1 millions in
2012 from the present market worth US$ 277.1 millions, showing a CAGR of 16.2%
for 2007-2012. Since the emphasis of the players in the sector is on going digital
whether it is cinemas, movies or print media; the software and services together
corner about 25% of the total market in 2007. Their share is expected to reach to 35%
by 2012, primarily riding high on the software licenses being procured by the players
for the content and applications management. The following tables provide an
overview of the total IT market in the Media and Entertainment sector for 2007-2012.

TABLE 50

Overall IT Spend in Media and Entertainment (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 92.6 110.6 132.4 159.9 193.8 229.6 19.9%

Packaged Software 43.5 54.8 65.5 79.1 99.1 133.7 25.2%

Services 35.4 44.9 46.4 55.7 66.6 79.0 17.4%

Others 105.6 115.4 124.6 129.9 135.4 144.8 6.5%

Total IT Market in Media and 277.1 325.7 368.9 424.6 495.0 587.1 16.2%
Entertainment Sector

Source: IDC India, 2008

TABLE 51

Overall IT Spend in Media and Entertainment (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 33.4% 34.0% 35.9% 37.7% 39.2% 39.1%

Packaged Software 15.7% 16.8% 17.8% 18.6% 20.0% 22.8%

Services 12.8% 13.8% 12.6% 13.1% 13.5% 13.4%

Others 38.1% 35.4% 33.8% 30.6% 27.4% 24.7%

Total IT Market in Media and Entertainment 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sector

Source: IDC India, 2008

216 # ©2008 IDC


Overall Hardware Market in Media and Entertainment
The total hardware market in the sector is expected to show a CAGR of around
19.9% increasing from US$ 92.6 millions in 2007 to US$ 229.6 millions in 2012. With
digitization and animation into focus the sector is looking positively towards high-end
servers, PCs and peripherals to the tune of printers, projectors and scanners. Also
with the exapsnion in place, the networking comes to the core of the hardware
spending by the sector. The following tables provide an overview of the total
hardware market in the Media and Entertainment sector for 2007-2012.

TABLE 52

Overall Hardware Spend in Media and Entertainment (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 18.3 23.5 26.7 30.5 34.4 38.5 16.1%

Clients 48.4 54.4 66.3 81.7 102.4 125.6 21.0%

Storage 7.0 8.5 9.6 10.6 11.6 12.5 12.2%

Peripherals 2.2 2.6 3.4 4.3 5.8 7.3 26.6%

Networking Equipments 11.4 15.5 19.5 25.0 30.9 36.1 26.0%

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

Source: IDC India, 2008

TABLE 53

Overall Hardware Spend in Media and Entertainment (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 19.7% 21.3% 20.2% 19.1% 17.7% 16.8%

Clients 52.3% 49.2% 50.1% 51.1% 52.8% 54.7%

Storage 7.6% 7.7% 7.3% 6.6% 6.0% 5.5%

Peripherals 2.4% 2.4% 2.6% 2.7% 3.0% 3.2%

Networking Equipments 12.3% 14.0% 14.8% 15.6% 16.0% 15.7%

©2008 IDC # 217


TABLE 53

Overall Hardware Spend in Media and Entertainment (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

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

Source: IDC India, 2008

218 # ©2008 IDC


Overall IT Market in Retail
The most happening sector of the Indian economy is retail and this fast expansion
mode of the sector is reflected in the IT market for the sector as well, which is
expected to grow at a CAGR of 34.6% for 2007-2012. The IT market in the retail is
expected to grow to US$ 1,340.5 millions by 2012 from the current level of US$ 302.9
millions. Since most of the players/prospective players are having plans for expansion
of their offices and outlets, the major chunk of the market is going towards hardware
in the early part of the forecasted period. But once through with the IT deployment,
the players are next looking for the services and outsourcing market making services
the fastest growing market with a CAGR of 56.2%. The following tables provide an
overview of the total IT market in the Retail sector for 2007-2012.

TABLE 54

Overall IT Spend in Retail (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 138.1 180.7 229.9 307.6 337.2 373.1 22.0%

Packaged Software 59.9 82.2 109.5 139.3 184.7 251.4 33.2%

Services 70.8 160.3 231.8 371.6 477.2 657.9 56.2%

Others 34.1 41.5 48.7 55.1 55.3 58.1 11.3%

Total IT Market in Retail Sector 302.9 464.7 619.9 873.6 1,054.4 1,340.5 34.6%

Source: IDC India, 2008

TABLE 55

Overall IT Spend in Retail (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 45.6% 38.9% 37.1% 35.2% 32.0% 27.8%

Packaged Software 19.8% 17.7% 17.7% 15.9% 17.5% 18.8%

Services 23.4% 34.5% 37.4% 42.5% 45.3% 49.1%

Others 11.2% 8.9% 7.9% 6.3% 5.2% 4.3%

Total IT Market in Retail Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

©2008 IDC # 219


Overall Hardware Market in Retail
Since most of the existing players in the sector are planning for rapid expansion and
also the sector is expecting to see other big companies like Bharti, Wal-Mart, Birlas
and others foraying into the Indian retail scenario, we expect to see a major surge in
the number of retail outlets in the country. This entails that there will be increased
focus on deploying basic IT infrastructure giving a big boom to the PC market. The
following tables provide an overview of the total hardware market in the Retail sector
for 2007-2012.

TABLE 56

Overall Hardware Spend in Retail (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 39.7 50.8 61.9 79.2 89.4 98.5 19.9%

Clients 48.4 72.1 99.1 151.6 170.7 191.6 31.6%

Storage 8.7 9.8 11.0 12.1 13.3 14.3 10.4%

Peripherals 15.2 16.9 19.0 21.1 23.3 26.5 11.7%

Networking Equipments 19.2 22.3 27.6 28.1 23.2 22.9 3.6%

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

Source: IDC India, 2008

TABLE 57

Overall Hardware Spend in Retail (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 28.7% 28.1% 26.9% 25.7% 26.5% 26.4%

Clients 35.1% 39.9% 43.1% 49.3% 50.6% 51.3%

Storage 6.3% 5.4% 4.8% 3.9% 3.9% 3.8%

Peripherals 11.0% 9.3% 8.3% 6.9% 6.9% 7.1%

Networking Equipments 13.9% 12.3% 12.0% 9.1% 6.9% 6.1%

220 # ©2008 IDC


TABLE 57

Overall Hardware Spend in Retail (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

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%

Source: IDC India, 2008

©2008 IDC # 221


Overall IT Market in Utility
The domestic IT market for utility is expected to increase from US$ 269.3 millions in
2007 to US$ 516.3 millions in 2012, showing a CAGR of 13.9%. The major
component of this is the hardware but it is expected to loose some of its market share
(around 6%) by 2012 in favour of packaged software. The market for software is
expected to increase at a CAGR of 22.6%, increasing from present level of US$ 38.7
millions to US$ 107.0 millions in 2012. The primary reason driving this growth is the
automation and applications getting deployed in the sector. With ERP and asset
management softwares at the core the system infrastructure software and
applications software are the two key markets in the software segment of the vertical.
The following tables provide an overview of the total IT market in the Utility sector for
2007-2012.

TABLE 58

Overall IT Spend in Utility (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 116.5 128.8 148.7 158.9 177.4 192.1 10.5%

Packaged Software 38.7 52.3 66.9 79.1 99.1 107.0 22.6%

Services 96.1 109.0 131.4 148.6 166.5 190.8 14.7%

Others 18.0 20.8 24.0 26.5 26.6 26.4 8.0%

Total IT Market in Utility Sector 269.3 311.0 370.9 413.0 469.6 516.3 13.9%

Source: IDC India, 2008

TABLE 59

Overall IT Spend in Utility (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 43.3% 41.4% 40.1% 38.5% 37.8% 37.2%

Packaged Software 14.4% 16.8% 18.0% 19.1% 21.1% 20.7%

Services 35.7% 35.1% 35.4% 36.0% 35.5% 37.0%

Others 6.7% 6.7% 6.5% 6.4% 5.7% 5.1%

Total IT Market in Utility Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

222 # ©2008 IDC


Overall Hardware Market in Utility
The hardware market in the utility sector is expected to increase at a CAGR of around
10.5% for 2007-2012. The major contributor towards this growth is the clients market
which is expected to increase at a CAGR of around 14.2% for 2007-2012. This kind of
a scenario is emerging primarily due to two factors; one, the players are looking to
set-up their IT infrastructure at the exploration fields (for oil and gas sector) and at the
power distribution stations (for the power sector) and two, the SEBs and smaller
players are on with a major automation drive during the next 2-3 years. The following
tables provide an overview of the total hardware market in the Utility sector for 2007-
2012.

TABLE 60

Overall Hardware Spend in Utility (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 19.8 21.7 25.6 24.4 27.5 33.9 11.3%

Clients 49.3 58.3 66.3 75.5 85.3 95.8 14.2%

Storage 7.7 8.5 9.6 10.6 11.6 12.5 10.3%

Peripherals 14.3 16.4 17.9 19.3 20.6 21.9 9.0%

Networking Equipments 19.9 17.7 22.3 21.6 23.8 18.4 -1.6%

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

Source: IDC India, 2008

TABLE 61

Overall Hardware Spend in Utility (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 17.0% 16.8% 17.2% 15.3% 15.5% 17.6%

Clients 42.3% 45.3% 44.6% 47.5% 48.1% 49.9%

Storage 6.6% 6.6% 6.5% 6.7% 6.6% 6.5%

Peripherals 12.2% 12.7% 12.1% 12.1% 11.6% 11.4%

©2008 IDC # 223


TABLE 61

Overall Hardware Spend in Utility (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Networking Equipments 17.1% 13.8% 15.0% 13.6% 13.4% 9.6%

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%

Source: IDC India, 2008

224 # ©2008 IDC


Overall IT Market in Pharmaceutical
With the Indian pharma players expanding in domestic arena as well as spreading
their global wings and the international players and patients starting to trust the Indian
pharma market scenario, the domestic IT market in the vertical is expected to grow at
a CAGR of around 20.0% for 2007-2012. Since the sector is in the expansion phase
the hardware is going to be the major constituent of the IT market in pharma. Also the
players are gearing up themselves to take advantage of drugs going off patent during
2008 and 2012. The hardware expansion would be the key market feature during the
first half of the forecasted period while the second half would see more of software
buying and services management. The following tables provide an overview of the
total IT market in the Pharmaceutical sector for 2007-2012.

TABLE 62

Overall IT Spend in Pharmaceutical (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 169.3 202.1 233.0 257.9 294.2 335.8 14.7%

Packaged Software 40.6 58.7 69.9 87.9 112.6 149.8 29.8%

Services 60.7 83.4 115.9 157.9 188.7 223.7 29.8%

Others 30.5 35.8 36.4 36.9 40.4 41.2 6.2%

Total IT Market in 301.1 380.0 455.2 540.6 635.9 750.5 20.0%


Pharmaceutical Sector

Source: IDC India, 2008

TABLE 63

Overall IT Spend in Pharmaceutical (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 56.2% 53.2% 51.2% 47.7% 46.3% 44.7%

Packaged Software 13.5% 15.4% 15.4% 16.3% 17.7% 20.0%

Services 20.2% 21.9% 25.5% 29.2% 29.7% 29.8%

Others 10.1% 9.4% 8.0% 6.8% 6.4% 5.5%

Total IT Market in Pharmaceutical Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

©2008 IDC # 225


Overall Hardware Market in Pharmaceutical
The hardware market in the pharma sector is expected to grow at a CAGR of around
14.7% for 2007-2012. The major component of the hardware market is going to be
the clients (especially the PC), which is expected to corner a market share of more
than 43% in 2012 from the current share of around 37%. This growth is fuelled by the
set of two factors - one, the smaller players looking to develop a robust IT
infrastructure and the big players embarking on latest technologies like RFID. Also
the key market to look at is the networking market, growing at a CAGR of 23.5%,
driven by the expansion and inter-connectivity by the players in the vertical. The
following tables provide an overview of the total hardware market in the
Pharmaceutical sector for 2007-2012.

TABLE 64

Overall Hardware Spend in Pharmaceutical (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 42.1 45.2 49.1 48.7 55.0 61.6 7.9%

Clients 63.7 80.7 98.7 114.5 128.9 144.7 17.8%

Storage 18.6 21.1 23.8 26.8 29.4 31.6 11.2%

Peripherals 27.7 33.0 34.7 37.1 47.3 59.5 16.5%

Networking Equipments 7.4 10.9 14.1 16.9 18.2 21.3 23.5%

Other Add-ons 9.7 11.3 12.5 13.7 15.4 17.1 11.9%


(Computing Products)

Total Hardware Market 169.3 202.1 233.0 257.9 294.2 335.8 14.7%
in Pharmaceutical
Sector

Source: IDC India, 2008

TABLE 65

Overall Hardware Spend in Pharmaceutical (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 24.9% 22.4% 21.1% 18.9% 18.7% 18.3%

Clients 37.6% 39.9% 42.4% 44.4% 43.8% 43.1%

Storage 11.0% 10.5% 10.2% 10.4% 10.0% 9.4%

226 # ©2008 IDC


TABLE 65

Overall Hardware Spend in Pharmaceutical (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Peripherals 16.4% 16.3% 14.9% 14.4% 16.1% 17.7%

Networking Equipments 4.4% 5.4% 6.1% 6.6% 6.2% 6.4%

Other Add-ons (Computing Products) 5.8% 5.6% 5.4% 5.3% 5.2% 5.1%

Total Hardware Market in 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


Pharmaceutical Sector

Source: IDC India, 2008

©2008 IDC # 227


Overall IT Market in Healthcare
With the increased confidence in the Indian healthcare services and an increase in
the number of foreign patients coming to India for treatment, the Indian healthcare
players and the international healthcare providers have embarked on the major
expansion plans for their operations. This is aptly reflected in the domestic IT market
for healthcare which is expected to show a CAGR of 21.3%. The hardware is
dominating the IT market scenario in 2007 with a share of around 54% but is losing
quickly to software and services as the players (especially with the corporatization of
the sector) are targeting the high-end applications and solutions like tele-medicine,
HMIS and e-prescribing. The following tables provide an overview of the total IT
market in the Healthcare sector for 2007-2012.

TABLE 66

Overall IT Spend in Healthcare (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 124.0 148.7 170.8 196.2 219.7 240.5 14.2%

Packaged Software 23.2 32.4 48.7 62.2 85.6 112.3 37.1%

Services 55.6 77.0 100.5 139.3 172.0 210.5 30.5%

Others 28.3 29.9 32.3 35.3 39.5 42.3 8.4%

Total IT Market in Healthcare 231.1 287.9 352.2 433.1 516.8 605.6 21.3%
Sector

Source: IDC India, 2008

TABLE 67

Overall IT Spend in Healthcare (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 53.7% 51.6% 48.5% 45.3% 42.5% 39.7%

Packaged Software 10.0% 11.2% 13.8% 14.4% 16.6% 18.6%

Services 24.1% 26.7% 28.5% 32.2% 33.3% 34.8%

Others 12.2% 10.4% 9.2% 8.2% 7.6% 7.0%

Total IT Market in Healthcare Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

228 # ©2008 IDC


Overall Hardware Market in Healthcare
The overall hardware market in the sector is expected to grow at a CAGR of around
14.2%, increasing from US$ 124.0 millions in 2007 to US$ 240.5 millions in 2012. The
major constituent of the hardware market and also a major driver of the same is the
client (especially PC) market, which is expected to grow at a CAGR of around 17.4%
for the forecasted period of 2007-12. With the rapid expansion of hospitals and
healthcare services planned, the PCs and the peripherals are going to be the two
major focus areas in the healthcare hardware market. The key market also to take a
note of is the servers market which is growing rapidly due to the deployment of high-
end applications like CRM and tele-medicine. The following tables provide an
overview of the total hardware market in the Healthcare sector for 2007-2012.

TABLE 68

Overall Hardware Spend in Healthcare (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 19.1 25.4 29.9 36.6 41.3 44.6 18.6%

Clients 48.3 61.4 74.3 85.3 96.0 107.8 17.4%

Storage 6.3 7.7 8.7 9.6 10.5 11.3 12.5%

Peripherals 33.3 32.8 35.8 38.8 41.9 45.5 6.5%

Networking Equipments 11.9 14.7 14.5 17.3 20.3 20.5 11.4%

Other Add-ons 5.2 6.6 7.6 8.6 9.7 10.8 15.7%


(Computing Products)

Total Hardware Market 124.0 148.7 170.8 196.2 219.7 240.5 14.2%
in Healthcare Sector

Source: IDC India, 2008

TABLE 69

Overall Hardware Spend in Healthcare (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 15.4% 17.1% 17.5% 18.6% 18.8% 18.6%

Clients 38.9% 41.3% 43.5% 43.5% 43.7% 44.8%

Storage 5.1% 5.2% 5.1% 4.9% 4.8% 4.7%

Peripherals 26.8% 22.0% 21.0% 19.8% 19.1% 18.9%

©2008 IDC # 229


TABLE 69

Overall Hardware Spend in Healthcare (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Networking Equipments 9.6% 9.9% 8.5% 8.8% 9.2% 8.5%

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

Source: IDC India, 2008

230 # ©2008 IDC


Overall IT Market in Others
The overall IT market in the others is expected to grow at a CAGR of around 12.2% of
which the hardware spending is going to be the major component in the early part of
the forecasted period with services to pick up substantiall in the second half. This is
basically due to the fact that the others vertical is dominated by the small individual
players in all the left over sectors of the Indian economy. Since most of them are in
the phase of deployment of basic IT infrastructure or the upkeep of ttheir systems the
market is highly skewed towards the hardware market. Once they are through with
the basic IT infrastructure and their automation drive, they will then focus on the
services and outsourcing arena in the IT landscape. The following tables provide an
overview of the total IT market in the Others sector for 2007-2012.

TABLE 70

Overall IT Spend in Others (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Hardware 403.7 435.3 424.6 420.5 417.5 495.8 4.2%

Packaged Software 126.6 152.6 188.7 229.7 279.3 321.0 20.4%

Services 318.6 397.6 463.6 520.2 588.2 671.1 16.1%

Others 92.5 117.4 137.2 152.4 170.4 187.7 15.2%

Total IT Market in 941.3 1,103.0 1,214.2 1,322.8 1,455.3 1,675.6 12.2%


Others Sector

Source: IDC India, 2008

TABLE 71

Overall IT Spend in Others (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Hardware 42.9% 39.5% 35.0% 31.8% 28.7% 29.6%

Packaged Software 13.5% 13.8% 15.5% 17.4% 19.2% 19.2%

Services 33.8% 36.0% 38.2% 39.3% 40.4% 40.1%

Others 9.8% 10.6% 11.3% 11.5% 11.7% 11.2%

Total IT Market in Others Sector 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: IDC India, 2008

©2008 IDC # 231


Overall Hardware Market in Others
Taking the case of hardware market in the others, the market is expected to grow at a
CAGR of around 4.2%. Within the hardware, the growth will come from the
networking equipments due to the focus on connectivity among various offices of the
players in various sub-verticals constituting the sector. But not to be ignored is the
clients market largely driven by the PC market for the automation focus of the players,
which will continue to garner more than 50% of the hardware market in the vertical.
The following tables provide an overview of the total hardware market in the Others
sector for 2007-2012.

TABLE 72

Overall Hardware Spend in Others (US$ millions), 2007-2012

Category 2007 2008 2009 2010 2011 2012 CAGR

Servers 31.8 33.0 37.4 36.6 38.5 41.6 5.5%

Clients 234.7 247.0 212.3 202.2 189.8 256.0 1.8%

Storage 6.5 6.9 7.8 8.6 9.4 10.1 9.4%

Peripherals 90.3 105.8 111.3 117.6 124.1 127.5 7.1%

Networking Equipments 23.2 31.5 39.7 38.6 40.6 41.3 12.2%

Other Add-ons 17.1 11.1 16.2 17.0 15.0 19.3 2.4%


(Computing Products)

Total Hardware Market 403.7 435.3 424.6 420.5 417.5 495.8 4.2%
in Others Sector

Source: IDC India, 2008

TABLE 73

Overall Hardware Spend in Others (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

Servers 7.9% 7.6% 8.8% 8.7% 9.2% 8.4%

Clients 58.2% 56.7% 50.0% 48.1% 45.5% 51.6%

Storage 1.6% 1.6% 1.8% 2.0% 2.3% 2.0%

Peripherals 22.4% 24.3% 26.2% 28.0% 29.7% 25.7%

Networking Equipments 5.7% 7.2% 9.4% 9.2% 9.7% 8.3%

232 # ©2008 IDC


TABLE 73

Overall Hardware Spend in Others (Percentage), 2007-2012

Category 2007 2008 2009 2010 2011 2012

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

Source: IDC India, 2008

©2008 IDC # 233


Market Context

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

India IT Market in Various Verticals, Revenue Forecast Comparison between


January 2007 study and August 2008 study

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 IT Market in 1922.5 2286.7 2685.1 3117.9 3557.9 3975.7 NA 15.6%


Manufacturing (January 2007
study)

Overall IT Market in NA 2581.0 3220.3 3860.9 4558.3 5354.0 6234.0 19.3%


Manufacturing (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)

234 # ©2008 IDC


TABLE 74

India IT Market in Various Verticals, Revenue Forecast Comparison between


January 2007 study and August 2008 study

Market Category 2006 2007 2008 2009 2010 2011 2012 CAGR

IT/ITeS (January 2007 study)

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)

©2008 IDC # 235


TABLE 74

India IT Market in Various Verticals, Revenue Forecast Comparison between


January 2007 study and 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 IT Market in 222.2 266.4 311.6 349.2 392.9 443.4 NA 14.8%


Pharmaceuticals (January 2007
study)

Overall IT Market in NA 301.1 380.0 455.2 540.6 635.9 750.5 20.0%


Pharmaceuticals (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)

236 # ©2008 IDC


TABLE 74

India IT Market in Various Verticals, Revenue Forecast Comparison between


January 2007 study and 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)

Source: IDC India, 2007 and 2008

©2008 IDC # 237


FIGURE 21

India Hardware and IT Market in Various Verticals, Revenue


Comparison for 2007 markets between January 2007 study and
August 2008 study

5000
4500
4000
US$ Millions

3500
3000 January 2007 Study
2500
2000 August 2008 Study
1500
1000
500
0

Source: IDC India, 2007 and 2008

Change in Scope of Verticals Definition in 2008


Also in this study we have ensured consistency in the definition of the verticals and
sub-verticals across worldwide regions and IDC India. The following table provides an
overview of the scope of the verticals used in the report for 2007 and 2008.

TABLE 75

India, Scope of the Verticals Comparison – 2007 Vs 2008

Vertical 2007 2008 Difference in Scope

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.

Telecom It covers telecommunications. It covers telecommunications. No difference.

IT/ITeS BPO was kept separate from IT BPO has been kept as a separate No difference.
Services. vertical from IT services.

238 # ©2008 IDC


TABLE 75

India, Scope of the Verticals Comparison – 2007 Vs 2008

Vertical 2007 2008 Difference in Scope

Government It covers all government It covers all government No difference.


and Education institutions and educational institutions and educational
bodies. bodies.

Media and We covered Media and We covered Media and No difference.


Entertainment Entertainment as one vertical Entertainment as one vertical
covering radio television, covering radio television,
multiplexes, film industry and print multiplexes, film industry and print
media. Retail entertainment is media. Retail entertainment is also
also a part of this. a part of this.

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.

Pharma Pharma earlier used to be in Covered as a separate vertical. No difference.


manufacturing. This time it is
treated as a separate vertical.

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.

Source: IDC India, 2007 and 2008

Change in Scope of Products Definition in 2008


Similar consistency has been ensured in the product definitions for the IT market in
various verticals across worldwide regions and IDC India. The following table
provides an overview of the scope of the product definitions used in the report for
2007 and 2008.

©2008 IDC # 239


TABLE 76

India, Scope of the Product Categories Comparison – 2007 Vs 2008

Product Sub-Product 2007 2008 Difference in Scope

Services Services As per IDC World-Wide As per IDC World-Wide No Difference


definition definition

Packaged Packaged Software As per IDC World-Wide As per IDC World-Wide No Difference
Software definition definition

Hardware Servers As per IDC World-Wide As per IDC World-Wide No Difference


definition definition

Hardware PCs As per IDC World-Wide As per IDC World-Wide No Difference


definition definition

Hardware Traditional Workstations As per IDC World-Wide As per IDC World-Wide No Difference
definition definition

Hardware Storage 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

4. Any product, such as

240 # ©2008 IDC


TABLE 76

India, Scope of the Product Categories Comparison – 2007 Vs 2008

Product Sub-Product 2007 2008 Difference in Scope

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.

Source: IDC India, 2007 and 2008

©2008 IDC # 241


ESSENTIAL GUIDANCE
The key to look at the Indian IT market is to look from the verticals perspective that
though have small bases but are forecasted to grow at CAGRs to the tune of 18-30%
(2007-2012). These constitute retail, healthcare and pharmaceuticals. But not to be
ignored are the verticals like BFSI, manufacturing, telecom, government and
education, which though are not growing at such high rates but contribute significantly
to the IT spending in India. From an overall perspective, the IT market in India is a
complex mix of fast-growing and large-base sectors that act as the key to the IT
spending in India and will continue to remain the focus area for 2007-12. The
following table provides an overview of the total IT market across the verticals in India
for 2007-2012.

TABLE 77

Overall IT Spend by Industry Verticals (US$ Million), 2007-2012

Year 2007 2008 2009 2010 2011 2012 CAGR

BFSI 3,641.2 4,387.8 5,047.1 5,699.7 6,505.2 7,344.9 15.1%

Manufacturing 2,581.0 3,220.3 3,860.9 4,558.3 5,354.0 6,234.0 19.3%

IT / ITeS 2,133.4 2,614.7 3,051.2 3,550.5 4,044.5 4,565.7 16.4%

Telecom 2,086.7 2,591.2 3,084.5 3,662.7 4,268.3 4,929.6 18.8%

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%

Utility 269.3 311.0 370.9 413.0 469.6 516.3 13.9%

Pharmaceuticals 301.1 380.0 455.2 540.6 635.9 750.5 20.0%

Healthcare 231.1 287.9 352.2 433.1 516.8 605.6 21.3%

Others 941.3 1,103.0 1,214.2 1,322.8 1,455.3 1,675.6 12.2%

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%

Source: IDC India, 2008

242 # ©2008 IDC


LEARN MORE

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)

 The uses to which the goods and services are put

 The inputs, the process and the technology of production

Vertical Definitions
Financial Services

The Financial Services sector refers to a super-category comprised of banking,


insurance, and other 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.

Insurance comprises all businesses offering non-compulsory insurance of any kind


(life, fire and casualty, accident and health, medical service, surety and title
insurance, pension, health and welfare funds, etc.). This includes carriers as well as
insurance agents and broker

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

Discrete manufacturing is manufacturing in which products are produced through


the assembly of distinct and/or individual parts. Discrete manufacturing includes the
following sub-industries: apparel and other textile products, leather and leather
products, fabricated metal products, except machinery and transportation equipment,

©2008 IDC # 243


automobile industry, auto component sector and fast moving consumer goods
industry besides other discrete manufacturing

Process manufacturing is manufacturing in which the basic product is created


primarily through one or more continuous activities, including milling, curing, weaving,
smelting, and/or refining. Process manufacturing includes the following sub-
industries: textile mill products, primary metal industries, heavy and light engineering
and miscellaneous process manufacturing

Exceptions: Discrete manufacturing sometimes involves parts created through


process manufacturing, which occasionally blurs the distinction between the two
types. Textile manufacturing is a case in point. While the cutting up and needle trades
are associated with the assembly of fabrics into products, and are considered discrete
manufacturing, knitting mills or hand-knitting establishments are generally considered
more similar to basic textile production, and therefore are grouped within process
manufacturing, even when their product is sold as apparel with some additional
finishing work (e.g., knitted blouses, headwear, jogging suits, and leotards)

IT enabled Services / Business Process Outsourcing

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

Telecommunications includes services providing point-to-point contact by telephone


or telegraph. The value of the hardware used to transmit or receive
telecommunications is accounted for in discrete manufacturing. Broadcasting includes
entities engaged in creating and disseminating visual and audio content through radio
or televisions to the public

Government and Education

Government refers to all public administration, defense, and justice activities.


Government comprises: executive, legislative, and general government, justice,
public order, and safety; public finance, taxation, and monetary policy; administration
of human resource programs; administration of environmental quality and housing
programs; administration of economic programs; national security and international
affairs

Governmental organizations can be divided in a number of ways, but the


predominant distinction in IDC is between federal or central governments, state or
provincial governments and local/municipal governments.

 Federal or central governments are the governmental structure associated with


national self-identity and responsible for all citizens, typically headquartered in
one or more capita

244 # ©2008 IDC


 State and local governments are any governmental structure (state, province,
county, city, town, etc.) other than, and lower ranking than the central
government

Education refers to all institutions dedicated to academic and/or technical/vocational


instruction, with the exception of certain training environments that are better treated
as social services (e.g., job training for the unemployed)

Media and Entertainment

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.

This derivative is obtained pulling the subsets pertaining to television/radio


broadcasting, cable and pay TV and other communications services from the
communication sub-industry; printing, publishing and reproduction of all types of
media, advertising and the distribution of media activities to the end user from
business and financial services. These include motion picture production, distribution
and theatres.

Retail and Wholesale

Retail/wholesale distribution is a super-category comprising retail trade and wholesale


of goods

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

Retail includes the following sub-industries: materials, general merchandise


stores, food stores, automotive dealers and gasoline service stations, apparel and
accessory stores, home furniture, including furnishings, appliance and electronics and
music stores, eating and drinking places and miscellaneous retail. Miscellaneous
retail includes drug stores, liquor stores, used merchandise, fuel dealers, non-store
retailers such as direct selling and catalog and mail order houses, and other shopping
stores including jewelry, sporting goods, and book stores

Wholesale includes enterprises primarily involved in the sale of goods to other


enterprises or organizations, whether for resale (e.g., by retail companies or other
wholesale organizations), for value-add by manufacturing entities, or for internal
consumption

Utilities

It includes organizations created to generate and/or disseminate broad social


necessities such as electricity. Namely they include: power generation, transmission
and distribution. It also encompasses the oil and gas industry of an economy. The

©2008 IDC # 245


value chain for the industry ranges from the extraction of the raw energy through to
the distribution and wholesale to the end user.

Pharmaceuticals

Pharmaceuticals include small molecule drug compounds, biopharmaceuticals, CROs


(organizations that typically manage specific R&D elements as well as portions of the
clinical trials process).

Healthcare

Healthcare services is represented by healthcare service providers. IDC segments


this industry in offices and clinics (individual practitioners such as medical doctors, or
dentists as well as medical practice activities), nursing and personal care facilities,
hospitals, home healthcare services, other health and allied services. Health
maintenance organizations (HMOs) primarily engaged in providing medical and other
health services are also included. Also included are the separate establishments of
health maintenance organizations, which provide medical insurance.

Other Verticals

Other verticals include 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

Product Definitions
Hardware

Personal Computers

A PC is a general-purpose, single-user machine that is microprocessor based,


capable of supporting attached peripherals, and can be programmed in a high-level
language. It typically costs less than US$12,000, though instances of higher-priced
Intel-architecture PCs are included in this category.

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.

246 # ©2008 IDC


Servers

As per IDC, servers are currently represented in the following major categories:

 High-end enterprise servers

 Mid-range enterprise servers

 Volume servers

 High-End Enterprise Server: A high-end enterprise server is any server priced


at US$ 500,000 or more.

 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.

 Tape Automation: The following definitions apply to IDC’s analysis of the


worldwide tape automation market:

 The low-end tape automation segment includes mostly one-drive


autoloaders, typically holding 4.15 tape cartridges.

 The mid-range tape automation segment includes one-drive autoloaders as


well as multi-drive libraries with 20 to over 1,000 tape cartridges.

Printers and Multi-function Peripherals

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).

©2008 IDC # 247


Conversely, non-impact printers employ techniques that do not involve striking the
paper. This category includes inkjet and printers that employ electro-photographic
(laser, LED, or liquid crystal) technologies. Electron beam, magnetic, and electro-
sensitive printers also are part of the non-impact category.

Multi-function peripherals: An MFP is a device that incorporates at least two of the


following document functions: copy, fax, print, and scan. One of these two functions
must be the print function. MFPs are defined as devices that are either directly
connected to a computer workstation or indirectly connected via a network.

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.

Smart Handheld Devices

Included in IDC's definition of SHDs are standalone handheld devices and converged
handheld devices, as defined in the following sections.

 Handheld Devices: These devices bring a wide range of mobile functionality to


their users. Either pen or keypad centric, they are designed to access and
manage data. They may include wireless capabilities that may enable Internet
access, text communication, and voice communication. These pocket-sized
devices feature a pen-centric design and are capable of being synchronized with
a desktop or laptop computer. Positioned to replace paper-based address books,
day planners, and even laptops themselves, in some cases, these devices also
include an expanding list of features such as multimedia, e-mail, and wireless
connectivity capabilities. The devices feature evolved operating systems,
minimum 16-bit capability, and the ability to download and run applications and
store user data beyond their required personal information management (PIM)
capabilities.

 Converged Handheld Devices: These pocket-sized devices feature a pen- or


keypad-centric design and are capable of synchronizing with a desktop or laptop
computer. Positioned to solve the multiple-device question and replace the need
to carry a mobile phone and a pen-based handheld or a mobile phone and a
communicator, for example, these devices may also include an expanding list of
features such as multimedia and e-mail and include wireless voice capability.
The devices must match the wireless voice capability of evolved operating
systems and include minimum 16-bit capability and the ability to download and
run applications and store user data beyond their required PIM capabilities.

Network Equipment

The network equipment market includes various components, such as purchased


network service providers, enterprise customers, and consumers. Not included is the
spending on telecommunications services related to the voice and data revenue
generated by network service providers. Also excluded are traditional legacy
telecommunications equipment categories (e.g., PBXs, wireless base stations, central
office switches, add/drop multiplexers, SDH/SONET, voice processing systems, and

248 # ©2008 IDC


call centers). The following markets are defined as components of the total market for
network equipment.

 LAN Switches: A LAN switch is a networking device that receives incoming


packets and stores them temporarily to examine link-layer information, such as
source and destination MAC addresses. Based on address table lookups, the
switch decides whether the packet needs to be forwarded and, if so, to which
port. A LAN switch transfers the data based on the destination addresses of the
individual packets. Switches break LANs into smaller workgroups, allowing
simultaneous transmissions to take place and leading to increases in the
performance of the network. Because multiple parallel connections can be
supported, bandwidth contention is eliminated.

 WAN Network Infrastructure: The product types for the WAN network
infrastructure markets are:

 Routers

 WAN access

 IP VPN

A router is a packet-forwarding device that directs traffic based on a Layer 3 protocol,


such as IP or IPX, or Layer 3 packets encapsulated in the multi-protocol label
switching (MPLS) format, which falls between Layers 2 and 3 on the open systems
connection model. Although routers were originally LAN segmenting devices, virtually
all are used today to handle transmissions at the edge or core of WANs.

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

 System replacement components

©2008 IDC # 249


Not included in this estimated total are system peripherals such as imaging
equipment, digital cameras, handheld devices, and other devices that are not an
integral component of system performance or operation.

Packaged Software

Packaged software includes programs or code sets of any type commercially


available through sale, lease, or as a service. Packaged software revenue typically
includes fees for initial and continued right-to-use packaged software licenses. These
fees may include, as part of the license contract, access to product support and/or
other services that are inseparable from the right-to-use license fee structure, or this
support may be priced separately. Upgrades may be included in the continuing right
of use or may be priced separately. All of the above are counted by IDC under the
packaged software revenue.

Packaged software revenue excludes service revenue derived from training,


consulting, and system integration that is separate (or unbundled) from the right-to-
use license, but does include the implicit value of software included in a service that
offers software functionality by a different pricing.

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.

IDC uses two approaches to analyzing the composition of IT services: engagement


and activity group. Both approaches break down delivery of a given service to its
component elements, called activities in the services taxonomy. The engagement
view classifies services based on how clients purchase them from suppliers. The
activity view classifies similar activities into one of five groupings, which correlate to
the stages of services delivery. Presented below are the IT services market
segmented by these five activity groups.

 Planning: Planning consists of the assessment and evaluation of organizations’


needs and operations to make decisions regarding their IT strategies and tactics.
These activities include process improvement, operations assessment,
benchmarking, needs assessment, strategy, capacity planning, change
management, maintenance planning, design, and supplier analysis.

 Implementation: Implementation refers to the building of technical solutions. At


a point in the planning phase of a project, focus turns from concept to the actual
building or prototyping of the system, and implementation activities start. Much
like planning activities, implementation services are delivered as standalone
activities or packaged within a larger offering such as systems integration
projects. For example, the installation of a PC would be considered a standalone
installation service. However, a systems integration project aimed at building a
new datacenter would include bundling implementation. Activities in this group
include site preparation, project management, test and debug, system

250 # ©2008 IDC


configuration, installation, software reengineering, custom software development,
packaged software customization, application interfacing and integration,
relocation services, systems migration, documentation, and user experience
design.

 Operations: These activities are aimed at taking responsibility for managing


components of a company’s IT infrastructure or entire IT function, as in IS
outsourcing. Operations activities include asset management, procurement,
administration and operations, media duplication and replication, systems
management, performance tuning, network management, backup and archiving,
and business recovery.

 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.

 Training and Education: Training and education enhance knowledge of


information technology and expand its use. Training services focus on improving
performance or developing new concepts, behaviors, and skills. Training
activities include IS/technical skills training, desktop skills training, professional IT
certification, and IT learning augmentation.

©2008 IDC # 251


RELATED RESEARCH
 India Overall Trends in IT Spending by Industry Verticals 2007-2011: Forecast
and Analysis (IDC India #IN 387113P, January 2007)

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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252 # ©2008 IDC

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