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Fast facts
Source: CLSA Asia-Pacific Markets.
Indicators India
Population (billions) 1.1
2006 GDP (US$ billions) 912.5
GDP per capita (US$) 811.6
10–year GDP growth
(1996–2006 percent)
55.5
5–year GDP Growth
(2003–2007 percent)
17.8
Fertility rate
(child per woman)
3.1
Marginal propensity to save 0.1
India’s nominal GDP is on the rise
Source: International Monetary Fund.
08070605040302010099989796959493929190
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
US$ trillions
India’s GDP growth
Source: International Monetary Fund.
08070605040302010099989796959493929190
25
20
15
10
5
0
-5
-10
-15
Percent change, year ago
070605040302010099989796959493929190
250
200
150
100
50
0
India’s trade balance
Sources: IFS, International Monetary Fund.
US$ billions
Exports
Imports
India’s net foreign directinvestment
Source: International Monetary Fund.
05040302010099989796959493929190
7
6
5
4
3
2
1
0
US$ billions
0302010099989796959493929190
1.2
1.0
0.8
0.6
0.4
0.2
0.0
India’s FDI net inflows vs. netoutflows
Source: International Monetary Fund.
Percent of GDP
Net inflows
Net outflows
India’s FDI equity inflows 2006-2007
Source: Ministry of Commerce and Industry, Government of India.
Sectors US$ billions
Electrical equipment 2.7
Services sector 4.7T elecommunications 0.5
T ransportation industry 0.5
Fuels (power and oil refinery) 0.3
Chemicals 0.2
Construction activities
(including roads and highways)1.0
Drugs and pharmaceuticals 0.2Food processing industries 9.1
Cement and gypsum products 0.2
0
10
20
30
40
50
China India Korea Japan United States
Fixed investments 1995–2006
Sources: IFS, NBS, The World Bank.
Percent of GDP
India’s financial market 2006
Sources: IFS, S&P, BIS.
Stock market
cap
45.7%
Public bonds
17.0%
Private bonds
2.3%
Bank assets
34.9%
Total: $1.8 trillion
India’s non-performing loansare declining
Source: Bankscope.
Year
Non –performing loans
(percent of total loans)
2001 10.0
2002 8.9
2003 6.6
2004 4.9
2005 3.3
2006 2.6
• Total value of funds disbursed in India was$1.3 billion
• Total value of capital under management inthe Indian VC/PE was $3.5 billion
• Indian VC/PE firms have invested around$4.8 billion, 5% of total invested in Asia
• There were 83 firms in India
• The IT sector accounted for nearly 34percent of the investments
India’s venture capital scenario As of December 2004
Source: NASSCOM.
India’s urban population
Source: The World Bank. * 2004 data.
1990 2005
Urban population
(percent of total population) 26 29
Urban agglomerations over 1 million
(percent of total population) 10 12
Population in the largest city
(percent of urban population) 6 6
Access to improved sanitation facilities
(percent of urban population) 45 59*
Average annual growth of urban
population (1990 –2005) 2.5
Exporting partners of India 2004-2005
Source: Ministry of Commerce and Industry, Government of India.
Country
Amount
(US$ billions)
Share of
total exports
(percent)
United States 13.3 16.7
United Arab Emirates 7.1 9.0
Hong Kong 3.7 4.6
United Kingdom 3.5 4.5
Germany 2.6 3.3
Belgium 2.4 3.1
Italy 2.2 2.7
Japan 2.0 2.5
Netherlands 1.5 1.9
Russia 0.6 0.8
Others 40.3 50.9
Total 79.2 100.0
India’s importing countries 2004-2005
Source: Ministry of Commerce and Industry, Government of India.
Country
Amount
(US$ billions)
Share of
total imports
(percent)
United States 6.3 5.9
Switzerland 5.8 5.4
United Arab Emirates 4.6 4.3
Belgium 4.6 4.3
Germany 3.9 3.6
Australia 3.6 3.3
United Kingdom 3.4 3.2
Japan 3.0 2.8
Singapore 2.6 2.4
Italy 1.3 1.2
Others 68.1 63.5
T otal 107.1 100.0
India’s increasing integrationwith the world economy
Source: Ministry of Commerce and Industry, Government of India.
Indicator 2001 2006
Trade
(percent of GDP) 21.2 34.9
Export share
(percent of world's export) 0.7 1.0
Trends in energy consumptionand electricity generation in India
Source: BP.
Indicators 1990 2000 2006
Primary energy consumption
(million tons oil equivalent) 193.4 320.4 423.2
Oil consumption
(thousands barrels per day) 1,211.2 2,253.9 2,575.0
Electricity generation
(terawatt-hours) 284.7 555.1 726.7
India’s primary energyconsumption by fuel type
Source: BP.
Fuel type 2005 2006
Oil 119.6 120.3
Natural gas 34.3 35.8
Coal 222.0 237.7
Nuclear energy 4.0 4.0
Hydro electric 21.7 25.4
Total 401.6 423.2
Million tons oil
equivalent
0
20
40
60
80
100
2005 2025
Share of poor householdsin India will decline by 2025
Source: McKinsey Global Institute.
Percent
Rich ( > $21,890 )
Middle class( $4,380 - $21,890 )
Poor ( < $4,380 )
Share of disposable income forIndian income groups
Source: McKinsey Global Institute.
Percent
0
20
40
60
80
100
2005 2025
Rich ( > $21,890 )
Middle class( $4,380 - $21,890 )
Poor ( < $4,380 )
20302025202020152010200520001995199019851980
45
40
35
30
25
20
15
Age in years
Median age
Source: McKinsey Global Institute.
China
India
Inputs
2005 2020
Steel 35 41
Aluminium 24 41
Nickel 16 25
Copper 25 37
Oil 12 18
Cement 55 52
Coal 51 64
Iron ore 40 52
Percent
of world's
consumption
China and India’s combinedconsumption of industrial inputs
Source: CLSA Asia-Pacific Markets.
*
* Projected.
Indicators
2005 2020 2005 2020
Capacity (GW) 516 1,687 127 326
Generation (Twh) 2,398 7,592 617 1,747
Capacity utilization (percent) 53 51 55 61
China India
Power generation by Chinaand India
Sources: CLSA Asia-Pacific Markets, CEIC, CEA, Ministry of Power.
**
* Projected.
Five of the ten densest cities in2007 were in China and India
Source: Forbes.
Rank City Country
2007
Population
(millions)
Density
(person per
square km)
1 Mumbai India 18.2 29,650
2 Calcutta India 14.7 23,900
5 Shenzen China 8.0 17,150
8 Chennai India 6.0 14,350
10 Shanghai China 14.5 13,400
Pollution in Indian cities Residential areas, micrograms per cubic meter*
Source: Central pollution Control Board, India.
* National Ambient Air Quality Standards are 60 forSO2 and NO2 and 140 for SPM.
City
2000 2005 2000 2005 2000 2005
Bangalore 24 9 56 44 218 138
Mumbai 8 7 34 19 260 223
Calcutta 15 11 33 40 295 270
Delhi 18 10 34 45 279 268
Hyderabad 11 6 19 22 174 113
Madras 7 7 15 11 113 121
Sulphur
dioxide
(SO 2)
Oxides
of nitrogen
(NO 2)
Suspended
particulate
matter
(SPM)
Percent of surveyed managersciting to business constraints
Source: The World Bank.
Indicators China India
Corruption 27.3 25.0
Courts 24.9 2.7
Crime 20.0 11.8
Procedures for business start-up
(percent of GNI per capita)9.3 73.7
Labor regulations 20.7 8.6
Labor skills 30.7 7.9
T ax rates 36.8 27.9
Policy uncertainty 32.9 9.2
Rigidity of employment index
(0=less rigid to 100=more rigid) 24.0 41.0
Sales of automobiles rising inIndia
Source: Society of Indian Automobile Manufacturers.
Year
Passenger
cars
(millions)
Two
wheelers
(millions)
Others
(millions)
Total
(millions)
2001-02 0.5 4.2 0.5 5.2
2002-03 0.5 4.8 0.6 5.9
2003-04 0.7 5.4 0.8 6.8
2004-05 0.8 6.2 0.9 7.9
2005-06 0.9 7.1 1.0 8.9
2006-07 1.1 7.9 1.2 10.1
Quality of life 2005
Source: The World Bank. * 2004 estimates. ** 2003 estimates.
Indicators India
Access to improved water source
(percent of population) 86*
Access to improved water source
(percent of urban population) 95
Access to improved sanitation facilities
(percent of urban population) 59*
Carbon dioxide emissions
(per capita metric tons) 1.2**
HIV prevalence
(percent of ages 15-49) 0.9
Incidence of tuberculosis
(per 100,000 people) 168
India in theGlobal Services Economy
April 30, 2008
CONFIDENTIAL AND PROPRIETARY
Value Chain: Insight or Fallacy?
CONFIDENTIAL AND PROPRIETARY
Profits$ Millions
ROEPercent
Employment
Thousands
16
1,800
88
32
22
11,200
4.5%
22.7%
-861
548
n/a
11.1%
Lessons From Other Industries
CONFIDENTIAL AND PROPRIETARY
Indian Performance vs.“Competitors”
Philippines
India
Canada
US
Cost$/hour
18.3
11.7
8.3
5.9
QualityScore
10
12
17
8
Attrition Percent
130%
120%
163%
49%
CONFIDENTIAL AND PROPRIETARY
The Canadian Cameo
.022
.025
200
400
India
2004
2007
Jobs (iQor)
1,200
(300)
Canada
2004
2007
ExchangeRate
.67
1.01
CONFIDENTIAL AND PROPRIETARY
Building a Global Power – TheRise of India
Shantanu Prakash
CEOEducomp Solutions Limited
34
INDIA’S EDUCATION SECTORIS DRIVEN BY ROBUST 20-YEARTRENDS IN CONSUMPTIONGROWTH
• India’s education sector is driven bypredictable and sustainable consumptiondrivers based on robust 20+ year trends
• Education consumption in India has grownat 11% CAGR for the last 20 years(compared to 4.7% CAGR consumptiongrowth)
• Education consumption is likely to reachUS$150 billion by 2025 – making India oneof the world’s largest educationeconomies
• Key consumption drivers – demographics,rising discretionary income and sustainedgovernment spending
Wageinflation
Demographics &
Employability
Governmentspend
Outsourcing
Sustainability
Pre
dic
tab
ilit
y
Education: consumption drivers
35
…MAKING INDIA ONE OF THELARGEST AND FASTEST GROWINGEDUCATIONAL ECONOMIES OFTHE WORLD
Source: EIU, World Bank, UNESCO, Merrill Lynch research
36
DEMOGRAPHICS CIRCUMVENTSDEMAND
India has over 218 million students studying in over 1 million schools andinstitutions. With over 100 million students out of school and high birth rates inthe region, enrollment numbers have been increasing at close to 6% a year.
India has the world’s largest population of people under the age of29.
0
100
200
300
400
500
600
700
800
India China US UK
687
597
12522
25 – 29
20 – 24
5 – 19
0 – 4 Birth to Pre-school
KG to Class XII
College Degree / first job
Higher Education / earlycareer
Age SegmentPopulation in Million (source: UN)
-
50
100
150
200
250
India China UK US
2000
2001
2002
Total enrollment in Million (source: UN)
37
Large Numbers Educated , largerstill left behind
630
Illiterate
Up to Std. IV
Population(million) No. of schools
Workforce*
Up to Std. V-IX
SSC/HSC
CollegePG
297
154
22
1 m
illio
n (
150,0
00 p
rivate
)~
11,0
00
13
mil
lio
n ad
ded
ev
ery
y
ear
Demographic dividend
Access to basiceducation
Unemployability Training – last mile repair
203m60m13m
Urban population
Mid
dle
Cla
ss
38
INDIA’S MIDDLE CLASS – GROWING AFFLUENCE, CHILDREN’S EDUCATION TOP PRIORITY HIGH WILLINGNESS TO PAY
Indian Middle class: 13 millionhouseholds*
*Source: Report by CLSA “Mr. & Mrs. India”, September 2007
70m 106m
Households earning US$2-44k to hit 106m by 2010FY2006-2010 CAGR of 11%
Earning US$2-44k p.a.
EDUCATION IS A KEY PRIORITY FOR INDIA’S MIDDLE CLASS*
Biggest worry? Rising prices (34% of survey respondents), Education fees (18%)and medical costs (10%)What would they do if given 10 million rupees? 49% would buy property, 44%would save and invest for children’s future and 32% would start a businessMain reasons for savings? Emergency (62%), Children’s education (55%),healthcare (35%)Education spend is the highest non-food expense category in India’s middle classconsumption basket (9%)
0
5
10
15
20
25
IND
ON
ES
IA
IND
IA
CH
INA
IRE
LA
ND
MA
LA
YS
IA
PH
ILIP
PIN
ES
TH
AIL
AN
D
39
PUBLIC EXPENDITURE IS ON THE RISE BUTTHERE IS ROOM FOR GROWTH
• Public expenditure on education on the rise
– Public expenditure: 4+% of GDP
– Govt. allocation increased 2x to $1 billion per
year
• However, among lowest in the region
– Education’s share of the government-wallet is
among the lowest in the region (11.6%)
• National goal: eradication of illiteracy by 2020
Initiative Description Ownership Outlay
ICT@Schools • Introduce information andcommunication technologyin schools
Central Government
(CCEA)
• $15,000 per school
“Sarva Shiksha Abhiyan”
(Literacy for all)
• Main vehicle to provideelementary education to allchildren
• $1 billion allocation
Central Government • Additional cess of 2% imposed onall direct and indirect taxes
• Allocation: $2 million per year perdistrict ($150k for ICT)
Global e-schools andcommunities initiative
• India has 800k schools ofwhich govt. aided schools(85% are in rural areas)
• Provide basic ICTinfrastructure
Public/Private • Basic ICT infrastructure costs$30,000 per school
• $25 billion required to cover 800kschools + $3 billion annualmaintenance costs
Education as a percentage ofgovernment expenditure
40
SUMMARY: INDIAN EDUCATIONSECTOR POISED FOR EXPLOSIVEMULTI YEAR GROWTH
Demand Drivers Supply Side Constraints
• Government spend –currently 4% of GDP,likely to increase
• Middle class householdspend – education is 2nd
fastest growing andhighest non-foodcategory of householdwallet
• Unmet demand forknowledge workers – 13million workers addedeach year, but majorityunemployable
• Aspirational demand –consumers are looking fora skill upgrade so theycan get better paying jobs
• Severe shortage ofeducation infrastructure –India needs 200,000 newschools in the next 5 years*
• Very few players of nationalscale – largely fragmented,run like a cottage industry
• Little or no innovation –huge variance in teachingeffectiveness, employmentopportunities andinfrastructure betweenlocations
• Lack of private capital –banks are not geared towardsthe needs of educationalinstitutions and there is apaucity of private capital
Education/
Trainingin India
is poisedfor
explosive growth
* Central Board of Secondary Education, India
Yet Education Challenges couldimpede growth
• Substantial and urgent investments in core capacity creation• India needs 200,000 new schools in the next 5 years• Capital requirements are large – US$140 billion
• Youth unemployability crisis bigger than unemployment• 57% of India’s youth suffer from some degree of unemployability• Estimated investment required for skill training – US$120 billion over the next
2 years
• India’s rapidly growing services sector cannot find enoughpeople to employ
• India’s services sector, growing at 14 % needs 5 million each year• Demand-supply gap is creating hyperinflation in wages
• Widening digital divide• 31% of all government schools in India (of a total of 850,000) do not have
electricity• Less than 2% of government schools have any kind of IT infrastructure
• Less than 40% of Indian engineers are“employable”
• Only 3.5% of high school graduates enroll for acollege degree
• Due to shortage of capacity , India has becomethe largest exporter of students in the world –exporting 1,25,000 students in FY07 who spendover $ 4 billion each year
• High levels of absolute poverty
• Growing rural-urban disparity
• Building core capacities
•Health
•Education
•Infrastructure
• Sustainable growth can be driven by the 600million Indians not integrated into economicmainstream
Challenges
•Create complementary infrastructure toaddress basic health and education needs
•Providing access to finance for rural India
•Creating sustained economic activity bypromoting rural enterprises
•Sourcing capital and developing access tocapital markets for sectors critical todevelopment
Strategy
IFMR Trust
• For Profit Trust
– Identify and Invest in CommercialEnterprises
– Focus: Low income Households in India
– Largest Partner of ICICI Foundation
• Engaging low income households as bothProducers and Consumers
Three Parts
• Regional Rural Financial Services (RRFS)– National Network of 300 RRFS
– Rural Market, last mile solutions
• Network Enterprises Fund– Private Equity Fund
• Guarantee Company
– NBFC to access financial markets
Introduction – FinancialServices Channel
• Focused on the creation of 300 regional financial institutions acrossthe country with following defining characteristics:
• Tight geographical focus and serving all households within thatgeography
• Leveraging economies of scope through offering multiple financialservices including savings, remittance, insurance, small-ticket loansand investments
• Hybrid, low-cost and “thin” front-ends
• High degree of automation via centralized technology back-ends
• Process standardization
• A comprehensive methodology of staff training
5/7/08
Financial Services Channel
Regional Rural Financial
Services Co. 1 (per 5 mn. Population)
Regional Rural Financial
Services Co. 2
Regional Rural Financial
Services Co. 300
Rural Business HUB
Mini Branch –Thin front end
1 per 10K population
One per block
Touch point Touch point Touch point
Network Enterprises Fund
Interface to markets appears weakened by remoteness and resultant transaction costs
Rural producers have spare capacity even when markets are experiencing severeshortages of products and skills (Ex: furnishing, skills)
Rural consumers pay more in absolute terms for services (healthcare, drinkingwater, credit) relative to urban consumers
These companies will create an architecture for large markets to profitably interactwith remote rural India
Commercial opportunity for dedicated companies that fix supply chain failures
Interface to markets appears weakened by remoteness and resultant transaction costs
Workings (Private Equity Fund)
IFMR Trust GuaranteeCompany
Network
Enterprise FundITGC
Origination
CapitalProvision
ITGC
Balance
Sheet
Arranger/
Structurer
Principal capital
Repackaging/distribution
• ITGC will be a registered non-banking financialinstitution regulated by RBI
• ITGC will bring access to capital for critical sectorsat a lower cost by using tools such as diversification,credit enhancement and driving secondary markets
Share of oil as an energysource (2006)
(%)
0
20
40
60
Mex
ico
Thaila
ndBra
zil
Indones
ia
Chile
Ven
ezuel
aColo
mbia
Mal
aysi
aPak
ista
nTurk
eyArg
entin
a
India
Polan
dChi
na
South A
fric
aRuss
ia
Source: BP Statistical Review of World Energy June 2007, Morgan Stanley Research
Share in world oilconsumption (2006)
(%)
0
3
6
9
12
25
USA
EU 2
5Chi
naJa
pan
Russ
iaIn
diaBra
zil
Mex
ico
Indones
iaThai
land
Turkey
Ven
ezuel
aPol
and
South A
fric
aM
alay
sia
Arg
entin
aPak
ista
nChile
Colo
mbia
Source: BP Statistical Review of World Energy June 2007, Morgan Stanley Research
25
18
China and India: infrastructureinvestment
Source: CSO, CEIC, Morgan Stanley Research
9.4246.04.238.0Total
0.410.30.10.9Urban Infrastructure
3.490.71.211.2Electricity
0.922.41.312.1Communication
0.25.80.21.6Airports
0.512.50.21.4Ports
3.078.80.65.8Roads
1.025.60.65.1Railways
4.7122.61.513.9Transport
% of GDPUS$Bn% of GDPUS$Bn
ChinaIndia
F2007 / 2006
Infrastructure investment as a% of GDP
(%)
2.0
3.5
5.0
6.5
F1990
F1992
F1994
F1996
F1998
F2000
F2002
F2004
F2006
F2008E
F2010E
Source: CSO, CEIC, Morgan Stanley Research, E = Morgan Stanley Research estimates
(15)
(7)
14
32
49
55
58
145
151
564
India the largest contributor to growthin the working population over the next 10 years
(Millions)
World
Africa
India
South East Asia
Latin America
China
Western Asia
USA
Japan
Europe
4,323
537
734
377
369
947
139
205
84
499
Stock Position 2007 Addition to working age population by 2017
Source: UN, Morgan Stanley Research
Demographic comparison
13254541122004Personal Computers (per 1,000 people)
989391372004Household with Television (%)
517761258442004Mobile Phones (per 1,000 people)
256542241412004Telephone Mainlines (per 1,000 people)
6,6496,5451,8875202006Electricity (Consumption per capita kwh)
Penetration Comparison
6,85618,3922,0017972006Per Capita Nominal Income, US$
RussiaS KoreaChinaIndiaAs of:
Note: (1) Has increased to 132 mobile phones per 1,000 people as of 2006 for India and 350 per 1,000 people as of 2006for China.
Source: NCAER, IMF, CIA World Factbook, World Development Indicators
(1)(1)
Indian infrastructure sector
Indian Infrastructure Industry SWOT
Opportunity
Strengths Threats
Weaknesses
• Construction sector contributes 6.8% ofIndia’s GDP
• Strong development policies to promote growth in
infrastructure projects
• Lack of strong competitive industry
• Best opportunities in new house, road building andenergy sector
• Opportunity for domestic industry to becomemore organized
• High cost of construction
• Increasing population in India
• Failure to achieve targeted growth in the
construction industry
• Lack of structured regulatory andpolicy framework
• Large number of unorganized / unofficialplayers and lack of professional approach
• Lack of technological awareness
SWOT Analysis
Highly attractive infrastructuresector
1242.250.050.056.851.029.036.834.6Vietnam
1142.650.050.058.145.040.235.144.4Pakistan
1044.950.050.056.153.347.735.358.8Philippines
950.350.055.070.358.344.556.766.5Thailand
852.280.065.061.353.320.135.044.7Indonesia
753.740.065.074.870.764.872.144.9Taiwan
654.560.055.076.160.060.370.254.5Malaysia
555.020.070.080.073.383.688.261.5Singapore
456.450.075.063.255.074.486.966.7Hong Kong
357.950.075.080.663.361.069.357.6South Korea
260.080.085.075.546.736.455.952.6China
163.0100.075.064.568.344.442.247.4India
Rank
InfrastructureBusiness
Environment
AnticipatedSector
Growth
CompetitiveEnviron-
ment
StructuralEconomic
Risk
Long-TermPolitical
Risk
LegalFrame-
Work
FinancialInfra-
structure
LabourMarket
Infrastructure
Sector PotentialCountry RiskBusiness Environment
Asia Business Attractiveness Ranking
Source: Morgan Stanley Research
Drivers of private investment inIndian infrastructure
Political WillLack of political will to developinfrastructure
Political will to develop infrastructureto support economic growth
Funding Limited funding by governmentInnovative government fundingthrough cess and multi-lateralborrowings
PrivateInvestments
Disincentivised due to governmentregulations
Government regulations encourageprivate investments
User ChargesHigh resistance to pay forinfrastructure facilities
Lower resistance to pay forinfrastructure facilities
Interest RatesHigh interest rates led to higherbenchmark IRR’s
Lower interest rates led to lowerbenchmark IRR’s
What was wrong? What has changed?
Source: SSKI India, December 2006
Private investments toprincipally fund infrastructure projects
Area of infrastructure spending Mode of funding
4%3%
8%
12%
20%
44%
6%
Pipelines
Airports3%
Ports
Irrigation
Urban Infra
Railways
Roads
Power
Source: SSKI India, December 2006
14%
7%
35%
44%
Others
Debt
Budgetary
Grants
Public Private Partnership
The Govt. of India has announced ambitious plans of spending upto $475 billion in infrastructure development over the next 5 years