Download - India- The Land of Opportunities
-
8/10/2019 India- The Land of Opportunities
1/14
Indias Shining Baby-boomers:
Opportunities for the future
White Paper Serieson
Investments in India
Team DEssence
Mobile. +91 9820532465
www.dessenceconsulting.com
-
8/10/2019 India- The Land of Opportunities
2/14
Indian economy has dramatically
changed after the liberalization process
that started in 1991. Indian IT industry
and knowledge workers have put India
on a global map. This has created a
wide range of opportunities. For various
global players, India offers a twin
opportunity. On one side, it offers a
large market with more than one billion
population. The income level of this
population is increasing. Hence, the
potential for growth in demand for
various products and services is
enormous based on current per capita
consumption. On the other side, India
can act as a global sourcing point for
various goods. The highly skilled cheap
labor can no longer be ignored.
India Shining
Indian Governments India Shining
India has long been considered as a
sleeping giant. First generation of
reforms in 1990s has led to awakening
of this giant. Second wave is being
implemented by the present
Government which many believe thatwill lead India in attaining its destined
glory. There are several reasons behind
it. According to Goldman Sachs much
talked report on BRICs, the growth in
most of the developed countries will
saturate. Much of the growth in global
economy will be driven by Brazil,
Russia, India and China. The report
says that BRICs economy will be larger
than G6 economy by 2039. Although
the report may be optimistic, it
nevertheless underlines the importance
of these economies in the future.
The BRICs economies will continue to
grow over the next 50 years. Only India
will continue to grow at the rate of more
than 5 %over the next fifty years. Other
BRICs economies will slow down its
pace after 2030. The major reason
behind this growth would be a large
young and working population in these
countries. Currently, 54% of the
population is below 25 years of age.
According to The Economist, the bulge
in Indian population is going to drive the
growth. This bulge in population had led
to super-normal growth in South East
Asia and China. Same principle can be
applied for India. Based on historical
data, demographics have a powerful
influence over long-term growth rates.
US baby-boomer era has shown it.
However, the changing demographics is
coupled with rising income, the impact
could be visible in the short-to-medium
term too.
-
8/10/2019 India- The Land of Opportunities
3/14
Several reports have been written
comparing China and India. One of the
major differences between China and
India is the presence of private sector
though it may be plagued with license-
raj or inefficiency. The present growth is
driven by the private sector. Hence, the
growth is more sustainable. Apart from
this, the growth is not driven by a single
sector. The growth has been seen
across the sectors. One of the worries is
the lower investment rate. Many critics
say that the growth is not reflected in the
investment rate. This is probably
because the most of the current growth
is achieved through improvements in
productivity and efficiency. The
investment rate may pick up in the next
year. Various earlier reports have said
that Indian economy is plagued by low
productivity. This will no longer be
stumbling block in the near future. Tata
Steel claims that it is one of the
cheapest producers of steel in the world.
There are several such claims in the
Indian industry. Hence, the growth
expectations are reasonable.
India-The positives
The current macroeconomic conditions
in India are strong indicators for positive
outlook for Indian growth. For 2003-04,
Indian economy if poised to grow at the
rate of more than 7%. Services sector is
booming with the help of IT and ITES
industry. Its influence over countrys
GDP has been increasing. The services
sector currently contributes 56% of
GDP. According to CLSA, the economy
is expected to grow at 9% in the next
fiscal followed by 8% growth in the
following fiscal. Inflation is steady and
benign. Fuelled by improvements in
quality and productivity, exports have
become a major force. Foreign
remittances are one of the largest in the
world. Foreign exchange reserves have
swelled to US$ 100 bn placing India
sixth in the world on this measure. Not
long back in 1991, India was facing the
near BoP crisis.
Apart from macro-economic factors,
there are several other reasons for
positive outlook for India.
The relationship with Pakistan
The relationship with Pakistan has
always been a major factor over the
stability in India. The relationship has
significantly changed over the past one
year from the near-war situation that
existed in the last year. The
improvements in the relations with
-
8/10/2019 India- The Land of Opportunities
4/14
Pakistan can act as a boon for Indian
industry. This provides stability in the
region. Also, significant amount of
defense expenditure can be diverted
towards development of the nation. This
also opens a wider door for mutual trade
which has a good prospect.
The Confident young India
Indians have found a new confidence in
themselves. Low interests rates have
fuelled the growth in consumer demand
especially for housing, automobiles and
other consumer goods. The recent
landmark deal in the telecom industry
has made Indian telecom sector as one
of the fastest growing sector.
As said by Indian Prime Minister, India
is a young nation. More than 50% of the
population is below 25 years of age.
Majority of Indian youth especially from
urban middle class is confident about
the bright future.
Political Stability
India is the largest democracy in the
world. The elections have been pre-
poned to be held in April-May. The
Indian election is the grand political
show in the world encompassing 650
mn voters, around 1 mn polling stations
and over 5000 candidates campaigning
in the scorching heat. The ruling alliance
of NDA is confident about its victory in
the elections. This is considered to be a
political stability in the country.
Changing Income Distribution
As said earlier, rising income level is
going to drive the future growth. It is
expected that, the distribution of income
level will change in the next few years.
According to CLSA report on India,
Income profile will dramatically change
in the urban population. Significant
number of people from lower income
class will migrate to upper levels. In
rural areas, there will be small change in
the profile though it could be considered
as significant. This is mainly because
more than 70% of population lives in
rural area. Following table shows the
changing pattern
Income Distribution (%of Population)
16.7 11.152 5.4 1.5
22.814.002
7.41.2
44.5
48.947
33.0
22.7
15.525.031
50.5
67.8
0.5 0.867 3.7 6.8
0%
20%
40%
60%
80%
100%
Rural
2001-
02
Rural
2006-
07
Urban
2001-
02
Urban
2006-
2007
Upper
Upper-Middle
Middle
Lower-middle
Lower
Source: Business World & Media Reports
-
8/10/2019 India- The Land of Opportunities
5/14
Also, people spending habits are
changing rapidly. Following chart clearly
shows it. Indian consumers have finally
started to spend. However, majority of
them are value-for-money customers.
Per Capita Expenditure
0
2000
4000
6000
8000
10000
12000
14000
16000
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
Rupees
Food, Beverages &
Tobacco
Clothing & footw ear
Gross Rent, Fuel &
Pow er
Appliances &
Furniture
Healthcare
Transport &
Communication
Recreation,
Education & Cultural
Private Expenditure
Source: BW, Media Reports
Foreign Remittances
Over the past years, India has seen
rising remittances from Indian Diaspora
and NRIs. Remittances are among thehighest in the world and have been the
highest for 2003. Following table shows
the details.
Remittances (in US$ bn)
Country 2003
India 18.3
Mexico 13.3
Philippines 7.2Pakistan 4
Brazil 5.2
Columbia 3.07
Source: Economic Times
For many economies, foreign
remittances had been the major driver
for fuelling the economy. Considering
skilled nature of NRIs compared to other
countries, the remittances are expected
to grow further. This could act as a
catalyst for propelling the Indian
economy in the top gear.
Opportunities for Future
investmentsThere are several industries that show
positive prospects for investments apart
from the hot industries like IT and
Telecom. These industries offer an
opportunity for medium and small
players. Following are the industries
which are lucrative for investments
Pharmaceuticals
Auto Component
BPO
Retailing
Agri-Business
Pharmaceuticals
From 2005, the Product Patent regime
will come in to force in India. Whats the
way out for many Indian players? Attack
the largest market by doing things which
they do the best. India top Pharma
-
8/10/2019 India- The Land of Opportunities
6/14
companies have attacked the global
markets and continued their offensive
for the past few years. They are set to
continue the same for considerable
time. They have shown spectacular
three-year earnings CAGR at 47%.
The 1980s saw a major revolution in the
global pharmaceuticals. Many
blockbuster drugs were launched in this
period. But their patents are going to be
expired during the next few years. This
is going to create a huge market for
Generics (Off-patent drugs). Majority of
the market will be captured by Indian
companies. Indian companies have
strong chemistry skills. They are one of
the experts in reverse engineering. Their
vertical integration and low cost
production make them a force to reckon
and they love it.
Following table gives some information
about Indias global ambitions
Generics Market (US$ bn)
2001 2007
World 27 57
India 7 20
source: Datamonitor
The estimates say that the drugs with
annual sales totaling US$ 42 bn will go
off patent. This offers a big market for
companies with manufacturing facilities
in India. The infrastructure is already
established in India. Many companies
already have started manufacturing or
sourcing generics drugs from India. Yet,
the market is big to accommodate more
players. Europe is going to be next
target enlarging the scope of business.
Companies can also look for an
opportunity to do contract manufacturing
for generics MNCs.
Clinical Trails
With a more than one billion population
with a diverse range of people, India
seems to be a good market for clinical
trials. It is also very cheap to conduct
the trails in India. Many companies have
already started clinical trails for few
products in India. However, the
opportunity for investment is huge.
R& D
There is no doubt that India produces a
large number of skilled graduates every
year. The number is close to 2 million
every year. Their skills, analytical
mindset and cheap labor make them a
very attractive place for having R&D.
For many other products, R&D work has
already shifted to India. Same can
happen for Pharmaceuticals too.
Considering the global expenditure on
R&D in the pharma industry, the market
-
8/10/2019 India- The Land of Opportunities
7/14
is enormous. The competing countries
are way behind India.
Many labs have started flourishing in
metros in India. The scenario is similar
to what happened in India software
industry. Earlier the entry, better are the
chances for success in this industry.
Auto-Component
One of the promising industries in India
that going to leap forward considerably
is Auto-Component industry. Various
auto companies are looking for sourcing
raw materials from locations which offer
a sustainable cost reduction in future.
India offers a good way for achieving
this objective.
Over the past decade, Indian Auto-
component industry has seen dramatic
changes. It has improved its productivity
considerably. The quality standards are
improving. The labor costs are cheaper
while the manpower is highly skillful.
The industry has a potential to emerge
as a global sourcing point.
Following table shows Indias position
vis--vis other countries. India offers a
good alternative to other locations. This
is the reason, many players are
optimistic about the future of the
industry.
According to ACMA report, Indian auto-
component production for 2002-03 fiscal
was at USD 5,140 mn. This is expected
to reach USD 6,365 mn in 2005-06. This
figure might even be higher. The pace of
growth will pick up further after 2005-06
mainly through rise in the exports. .The
investments in the sector are picking up.
The fruits from the investment are
expected to be reaped after few years.
Currently, India exports around USD 1
bn auto-components. According to
ACMA, this figure will reach USD 1,240
mn by 2005-06. According to CMIE, the
figure will cross USD 3,500 mn by 2008.
The prospects of the industry are good.
According to Business World survey,
India lacks tier 3 suppliers for becoming
an important global player. The FTA
with Thailand may solve the problem.
Various global players like Dana, Delphi,
Ford, Bosch and Cummins have already
-
8/10/2019 India- The Land of Opportunities
8/14
started sourcing some products from
India.
The story does not end here. India has a
large domestic market for automobiles
which is showing a double digit growth
rate over the past few years. India is
also emerging as a small car sourcing
hub. These developments will definitely
fuel the growth in the Auto-Component
industry. And the players are confident
about the future. Why not? After all,
indigenously developed products like
Scorpio and Indica have been a major
success.
BPO
The Current recession in several
economies has affected the bottom-line
of several companies. Outsourcing has
become a common tool for cutting the
costs thereby improving the bottom-line.
Availability of cheap labor in developing
countries fuelled the process. Over the
period, India has emerged as a natural
destination based on its attractiveness.
The story does not end here. The last
years SARs showed that it is not
advisable to put all eggs in one basket.
Therefore, many other countries also
started attracting outsourcing.
According to Gartner Study, the
worldwide outsourcing market size is
estimated to be at US$ 143 Billion
(2002). North America is the biggest
market contributing 63% followed by
Europe & Middle East with 28% and
Asia-Pacific region with 9% share.
According to Gartner study, Indian BPO
market size is US$ 1.5 bn in 2001. It is a
small portion of entire outsourcing
market. NASSCOM & Gartner predict
that once outsourcing climbs up the
value-chain, larger pie of the
outsourcing will be off shored. India has
emerged as a leading player in the
outsourcing field. Hence, a large portion
of off shored outsourcing will be
grabbed by India. According to
NASSCOM Mckinsey study 2002, Indian
BPO industry size would be worth US$
21 bn. Hence, the market offers a huge
opportunity that can be tapped.
Indian Outsourcing Opportunity(US$ bn)
2001# 2005# 2008*
Total BPOMarket
127 234 310
Off-shored BPOMarket
6.4 35.1 62
Indian BPOMarket
1.5 9.5 21
source: NASSCOM Mckinsey Study 2002 and Gartner
# - Gartner Study
* - NASSCOM McKinsey Study
-
8/10/2019 India- The Land of Opportunities
9/14
India Advantage
Various countries have become a
popular destination for outsourcing.
India has its own advantage which has
made it as a natural destination for
outsourcing. The labor costs are at least
40 to 50 % cheaper compared to
developed countries. It is not the only
low cost game for India. People are
highly skilled. India has the vast
population that can speak and
understand English. Every year, around
2.1 million graduates come out of
schools. This ranges from humanitarian
graduates to high-class engineers.
Apart from labor skills, India is rapidly
developing its infrastructure to support
highly skilled labors.
Following table shows Indias position
with respect to other outsourcing
destinations. It clearly shows that India
has several advantages over other
countries.
Country Capabilities
Capabilities of Workers
Loca
tion
A
ttracti
veness
India
Philippines
Mexico
Australia
UK
ireland
Singapore
China
Source: Nasscom
One major advantage is availability of
players who can offer end-to-end
services to clients. This reduces risks
like risk towards losing sensitive
information as clients are dealing with
only one company.
Following are the services that will drive
the future growth in the BPO industry
Content services
Design (Fashion & others)
Market research
Research and Knowledge
Services
Animation
Geographic Information Services
Employee leasing or staffing
Retailing
For years, India has been considered as
a paradox where a large majority of
people live under poverty. The scenario
is changing. The income levels are
rising. The people are spending. Under
these conditions, the market with one
billion people would be anybodys envy.
The consumers are more accessible.
Therefore, retailing industry would be
primed for dramatic growth.
Low
High
HighLow
-
8/10/2019 India- The Land of Opportunities
10/14
For years, the most of the population is
accessed through retailers which are
part of the un-organized sector.
However, over the last few years,
organized retailing started emerging as
a major force to reach the great Indian
urban middle class.
Retail sales in India last year totaled
around $180bn. Retail spending has
been growing at 3%-4%, but this might
accelerate thanks to improving
conditions in Indias rural sector.
A key feature of the retail industries of
both countries is the rise of the
"organized sector" or chains of outlets
with centralized administration and
purchasing. The organized sector is
displacing "unorganized" retailers orsmall "mom and pop" shops. Indias
organized sector is generally reckoned
to account for about sales of $3bn, or
about 2% of the entire retail industry. A
study commissioned by the
Confederation of Indian Industry (CII)
found that the organized sector had
grown by 40% over the last three years.
Till last year, the number of malls in
operation was barely in double digits.
This year at least 50 new malls - of
100,000 sq. ft size and above - are
slated to go into business in 2004. Retail
consultants KSA Technopak estimates
that another 200 malls will come up in
2005 and 2006.
The organized retailing offers a big
opportunity. According to Economic
Times, the current size of organized
retail is Rs.16, 000 crores (US$ 3.5 bn).
This is expected to reach Rs. 37,000
crores (US$ 8.2 bn) in 2007. Following
table shows the details.
Organized Retail in India(In Rs. mn)
Sector2001-
022007
CAGR(%)
ConsumerDurables
16,500 37,870 18
Food 18,000 74,730 33
Apparel 49,500 104,230 16
Books & Music 4,500 14,260 26
TotalOrganizedRetail
160,000 372,160 18
Source: ETIG
This data represents only organized
sectors. Organized sector represents
only a small portion of entire retail
market. Also, the penetration level for
various products in India is very small.
Hence, the size of organized retail
industry could see a much larger growth
rate. According to study conducted by
-
8/10/2019 India- The Land of Opportunities
11/14
CII, the organized sector may account
for 40% of total retail industry by 2007.
This seems to be over-optimistic.
However, the opportunities are
immense.
The opportunities will not be entirely
seized by big players. There are some
niche areas in the Indian market which
are in developing conditions. Some of
them are
Electrical households
Pharmaceuticals
Home-furnishing & Home depot
Books and stationery
Agri-business
India is one of the largest producers of
agriculture. India ranks either one or two
in the most of the product categories.
The data can easily emphasize that
India is one of the powerhouse in the
world. India has the largest cultivable
land in the world. India is home to all
major climates in the world. The all-year
availability of land for cultivation is the
major advantage for India. Diverse land
and climate makes India an enviable
country.
India's Agriculture Output (mntonnes)
Commodity 2001-02Rank in
theworld
2011-12
Rice 86.91 2 129
Wheat 72.45 2 112.5
Coarse Cereals 30.92 NA 55
Pulses 13.13 1 23.5
Total FoodGrains 203.41 2 320
Oilseeds 21.3 NA 46
Sugarcane 294.67 2 432
Fruits 45.37 2 81
Vegetables 93.92 2 185
Spices 3.02 NA 5.5
Milk 84.6 1 127
Eggs (nos inbn)
34 5 52
Source: Agriculture Ministry, India
Nevertheless, Indias yield is
considerably low compared to the best
benchmarks. One of the major reasons
is that farmers share in the total value is
very low. Following table shows the
details.
-
8/10/2019 India- The Land of Opportunities
12/14
Agriculture Process Chain in India
Source: Worldoffruit.com
Yield Loss (30 to 50 %) (Asian Markets) Shrinkage (10%)
From the table, it is clear that
intermediaries take 60% of the customer
value. There are several reasons behind
it. Following are the major reasons
Low productivity compared to
global standards
Poor post-harvest management
leading to substantial wastages
and deterioration in the quality
Distorted markets where
intermediaries earn larger share
of consumer rupee at the cost of
producers and consumers
More than 25% of the produce is
wasted. Only 2-3 % of the produce is
processed. This offers a big opportunity
for improvements.
There are several initiatives taken by
Indian Government for overcoming the
problems. Some other steps are in the
pipeline.
Following are the areas which offer a big
scope for investments
Food processing
Contract Farming
Organic Farming
Intermediaries take 60 % of consumervalue
Growing Exporting Shipping Importing
Shipping
Wholesaling/
DistributionRetailing
Low
RealisationsHigh Costs
15% 60% 25% 100%
% of Customer Value
-
8/10/2019 India- The Land of Opportunities
13/14
Cold Storage and warehousing
Grain storage
Logistics
Food Parks
Food retail chains
Poultry & Fisheries
Organic farming
Organic farming is emerging as a big
opportunity. For centuries, India has
used organic farming techniques. The
world is moving back to the same
system. Many farmers are aware of
organic farming techniques which were
used till 1980s. Hence, this field offers a
big scope.
The table shows the potential
opportunity for organic farming. The
demand for these products is increasing
in the developed world. Consumers are
also ready to pay premium for such
products.
Opportunities exist in
Farming & Training
Farm marketing
Storage
Certification
Overview of World Markets for Organic Food Beverages
Retail
sales2003
AnnualGrowth
2003 -05
PricePremium
Markets(million
USD/Euro)
% of
totalfood
sales -Estimate in % in %
Germany2,800 -3,100 1.7 - 2.2 5-10% 20-50%
UK1,550 -1,750 1.5 - 2.0 10-15% 30-50 %
Italy1,250 -1,400 1.0 - 1.5 5-15% 35-100 %
France1,200 -1,300 1.0 - 1.5 5-15% 25-35 %
Switzerland 725 - 775 3.2 - 3.7 5-15% 10-40%
Netherlands 425 - 475 1.0 - 1.5 5-10% 15-20 %
Sweden 350 - 400 1.5 - 2.0 10-15% 20-40 %
Denmark 325 - 375 2.2 - 2.7 0-5% 20-30 %
Austria 325 - 375 2.0 - 2.5 5-10% 25-30%
Belgium 200 - 250 1.0 - 1.5 5-10% -
Ireland 40 -50 < 0.5 10-20% -Other
Europe 750 - 850 - - -Total
Europe10,000 -11,000 - - -
USA11,000 -13,000 2.0 - 2.5 10-15% 10-30%
Canada850 -1,000 1.5 - 2.5 10-20% -
Japan 350 - 450 < 0.5 - 10-20%
Oceania 75 - 100 < 0.5 - -
Total23,000 -25,000 - - -
Source :USDA/ITC
There is no doubt that, this industry will
be a major force in Indias future as
India has the necessary resources.
-
8/10/2019 India- The Land of Opportunities
14/14
No part of this publication may be reproduced or transmitted in any form or by any means,
electronic, digital or mechanical, including scanning, photocopying, recording or any
information storage and retrieval system relating to all or part of the text, photographs,
logotypes without first obtaining permission in writing from the publisher.
DEssence Consulting 2004
For further information, please contact
Off No. 2, Bldg No. 1 New Mhada Complex, Near PMGP Colony
Off Mahakali Caves Road, Andheri (East)Mumbai, India- 400093
Tel 91-22-2834-7425, Fax 91-22-2822-8142
Email.- [email protected] Mob - +91 9820532465
www.dessenceconsulting.com