kbuzz-issue9 - a key mention of nbfc in tge report

8/12/2019 Kbuzz-Issue9 - A Key Mention of Nbfc in Tge Report

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KBuzzSector Insights

Issue 9 September 2011

kpmg com in


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An environment of heightened uncertainty prevails as the fear of another economic recession looms over

the advanced economies of the world. Indicatively, global activity witnessed a slowdown on the back of

rising cost of debt in the US and indebted Euro zone countries, coupled with high interest rates and lack of

investor support, which is hurting these economies. As per the latest World Economic Outlook report,

global growth will moderate to about 4 per cent through 2012, from over 5 per cent in 2010.

Congruent to the mood in the global economy, the Indian economy has been struggling with domestic

perils including persistently high inflation, weak government finances and policy inertia. Particularly marred

by inflation, which has been sticky for the last 13 months and currently at above 9 per cent, the Reserve

Bank of India has been compelled to tighten domestic liquidity and has accordingly hiked interest rates for

the 12th time in 18 months. The repo rates, i.e. the rate at which banks borrow money by selling their

financial assets to the central bank with an agreement to repurchase them at a predetermined price, were

raised by 0.25 basis points to 8.25 per cent. The reverse repo rates, i.e. the rate of interest at which the

central bank borrows funds from other banks, were increased to 7.25 per cent. Recent data show that this

high interest environment is taking a toll on the countrys GDP growth, which has been recorded at 7.7 per

cent for the first quarter of 2011, indicating a steep drop from 9.3 per cent for the first quarter of 2010.

Adding to the countrys economic woes is the rising number of scams and scandals involving eminent

bureaucrats and politicians thereby provoking anti-corruption agitations. The consequent Anna Hazaremovement represented the largest civil anti-corruption movement in recent times. While on the other hand

the Land Acquisition, Rehabilitation and Resettlement Bill, driven by the desire to make land acquisition for

industrialisation and urbanisation easier while at the same time providing fair and just compensation for

those affected, was introduced in the Lok Sabha. The Bills draft makes it mandatory to have the consent

of 80 per cent people of any area where land is to be acquired for developmental purposes.

I hope you find this edition of KBuzz engaging and insightful.

Regards,

Rajesh Jain

Head Markets

KPMG in India

1 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


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EDUCATION 03

ENERGY AND NATURAL RESOURCES 07

FINANCIAL SERVICES 11

GOVERNMENT 15

HEALTHCARE 19

IT-BPO 23

MEDIA AND ENTERTAINMENT 27

PHARMACEUTICALS 31

REAL ESTATE AND CONSTRUCTION 34

TRANSPORTATIONAND LOGISTICS 37

TABLE of CONTENTS




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EDUCATION

2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.3


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Narayanan Ramaswamy

Head

Education

[email protected]

When India became a republic, it hoped to achieve universal education of all

children up to the age of 14 years as enshrined to the Directive Principles of

the Constitution. In 1968, this hope was shaped into a goal in the first-ever

National Policy of Education.

Several education commissions and special programmes, such as District

Primary Education Programme, Midday Meal and Sarva Shiksha Abhiyan,

later the Indian government finally made education a fundamental right in2009. The Right of Children to Free and Compulsory Education Act or Right

to Education Act (RTE), passed by the Indian parliament on August 4, 2009,

describes the modalities of the provision of free and compulsory education

for children between 6 and 14 in India under Article 21A of the Indian

Constitution. India became one of 135 countries to make education a

fundamental right of every child when the act came into force on April 1,

2010.

An ASSOCHAM analysis revealed that the primary education in India is

highly under-developed as compared to the other emerging nations. The

highest gross enrolment ratio is in Brazil, followed by China and Russia.

Even Indonesia and South Africa enjoy better enrolment ratio than India.1

The act hopes to increase the overall Gross Enrolment Ratio (GER) from 14

percent to 30 percent (which is presently the global average). 2

As per government estimates there are nearly 22 crore children in the

relevant age group. However, 4.6 percent of these children (nearly 92 lakh)

are out of school. 3 The RTE Act which is targeted at these children will

ensure:

i) Every child in the age group of 6-14 years will be provided eight years of

elementary education in an age appropriate classroom in the vicinity of

his/her neighbourhood.

ii) Twenty-five percent reservations by private schools for students fromeconomically backward sections.

Education

RTE, no doubt, is a great

step towards achieving

inclusive literacy and

hence economic growth in

a vast and diversified

country like India. It alsomarks a clear direction in

which government wants

to look at education. At a

policy level and in terms of

long-term implications, we

welcome this landmark

act. Having said that, RTE

needs to be fine-tuned and

further strengthened.

Quality education in India

has been happening

thanks to the large scale

participation of private

players (read non-

government). It is

important that these

players are not constrained

by any regulation that will

dilute the academic and

delivery standards.

Narayanan Ramaswamy

Head

Education

KPMG in India

Right to Education: Write Move But Needs Monitoring

Main Features



98.1105.1 110.9

113.8 116.2

148.5

0

20

40

60

80

100

120

140

160

India SouthAfrica

Indonesia Russia China Brazil

points

Primary Education Gross Enrollment Ratio

1. http://india-reports.in/future-growth-global-transitions/economy-in-transition/indias-gross-enrolment-ratio-primary-secondary-tertiary-education/

2. http://www.odishaeye.com/Sibal-targets-30-per-cent-GER-in-higher-education-by-2020-4180.html

3. http://articles.timesofindia.indiatimes.com/2010-04-01/india/28127002_1_compulsory-education-act-implementation-free-elementary-education


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iii) All schools except private unaided schools are to be managed by School

Management Committees with 75 percent parents and guardians as

members.

iv) Each classroom to have a pupil-teacher ratio of 1:30.

v) A teacher has to possess a minimum level of qualification. If the teacher

does not meet the standard set by the government he/she has to acquire

the minimum qualification within five years.

iv) No child shall be denied admission for want of documents; no child shall

be turned away if the admission cycle in the school is over; no child shall

be detained or denied promotion at the end of an academic year and no

child shall be asked to take an entrance test.

v) All schools will have to prescribe to norms and standards laid out in the

Act and no school that does not fulfil these standards within three years

will not be allowed to function.

vi) The National Commission for Protection of Child Rights (NCPCR) has been

mandated to monitor the implementation of this historic right.

Though the Act is a much-needed weapon to arm the children of this country

with education, yet it has been slammed by critics as being a half-hearted

measure which is ill-conceived.

Lack of infrastructure and funds are proving to be a major detriment in

implementation of this act by the state governments. The government had

initially granted a sum of INR1,71,000 crore for five years to implement the RTE

Act. States such as Madhya Pradesh and Uttar Pradesh cited lack of funds. In

July 2010, the government revised the financial allocation under Act to INR

2,31,000 crore for a period of five years. The share of expense to be borne by

the centre and the states was also revised from 65: 35 to 68: 32.4

But lack of infrastructure remains a concern for most states. In country which

has 22 crore students in the relevant age group, the average number ofclassrooms in government schools is merely 3.7 whereas in private schools it is

7.8 and the percentage of schools with single classroom is 7.49 percent and

2.75 percent in government and private schools respectively.5

Various studies and reports highlight the infrastructure shortfall. The Annual

Survey of Education Report 2010 (Rural) conducted by the NGO Pratham found

that only 60 percent of the 13,000 schools visited satisfied the infrastructure

norms specified by the RTE Act. However, more than half of these schools need

more teachers and a third need more class rooms.

According to government estimates the country needs at least 20 lakh teachers

to successfully implement the Act. It also needs to appoint at least 5.1 lakh

teachers to fulfil the teacher pupil ratio of 1:30 under the RTE act. The country

will also need 7.8 lakh additional class rooms to implement the act successfully.6

Education



Challenges

4. http://www.thehindu.com/news/national/article540727.ece

5. KPMG prepared analysis from DISE Analytical Reports: School & Facility Related Indicators (provisional report for 2009-10)

6. Press articles



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Criticism

Terming them as an infringement on their autonomy some of the clauses have

come for heavy criticism from private school authorities, some of who have also

legally challenged them.

i) A writ petition was filed in the Supreme Court by Society for Private Unaided

Schools of Rajasthan against the Union government challenging the

constitutionality of the RTE Act and alleging infringement of the fundamental

right of all citizens to engage in the occupation of managing and providing

private education without interference from the State.7

ii) In Bangalore, the managements of over 40 CBSE affiliated schools with an

aggregate enrolment of 60,000 students have united under the banner of

MICSA (Managements of Independent CBSE Schools Association), also filed

a writ petition in the Supreme Court challenging the wide ambit of the RTE

Act and section 12 in particular.8

Educationists have expressed their apprehension about private schools being

forced to accommodate 25 percent students from economically weaker section.

They argue that the amount provided by the government per child may not be

sufficient and they would be force to hike the fee of the rest of the 75 percent

students.

Forcing private schools to provide the deficit amount could derail the booming k-

12 sector in India. It could also discourage the private equity players from

investing.

Apart from this the clause that mandates derecognizing private schools if they fail

to meet the stipulated infrastructure criteria set by the act has been also not well-

received by private school owners. They urge that the same accountability

measures be applied to government schools where the infrastructure statistics

paint a very sorry picture.

KPMG View

Given the magnitude and size of primary and secondary education in India, there isa need to have a comprehensive approach towards inclusive education. RTE is at

best one part of this need. For example, though it stresses on maintaining 1:30

pupil-teacher ratio there is no mention of any structured teacher training program.

The RTE Act is heavily input oriented with hardly any mechanism or body to

measure the outcomes. There is no measurement or incentive to increase the

level of performance of the students. So, while RTE Act is a great means to drive

more students into the school (similar to what mid-day meals scheme did in many

states), can it also provide some means of driving better results from these

schools because, we believe that is when the right to education would be really

effective.

Overall, the RTE act is a great step towards achieving universal elementary

education, but the government needs to put more mechanisms to monitor the

implementation and results.

Education



7. http://educationworldonline.net/index.php/page-article-choice-more-id-2410

8. http://www.indianexpress.com/news/international-school-moves-apex-court-agains/774507/



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ENERGY AND NATURALRESOURCES




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ENERGY AND NATURAL RESOURCES

Arvind Mahajan

Head

Energy and Natural

Resources

[email protected]

Overview

India is blessed to be situated on the equatorial sun belt of the earth, thereby

receives abundant radiant energy from the sun. According to Ministry of New

and Renewable Energy (MNRE), about 5,000 trillion kWh per year energy is

incident over Indias land area1. This would mean, even if we assume the

efficiency of PV modules as low as 10 percent, Indias potential to generate

power from sun is far greater than the current domestic electricity demand.

Hence, capturing even a small portion of this extraordinary potential can helpimprove Indias problem of energy security and at the same time demonstrate

the countrys sensitivity to the environment and climate change issues.

Government realizes the importance of solar energy for Indias growth story and

has taken several steps to promote it. Jawaharlal Nehru National Solar Mission

(JNNSM), Renewable Energy Certificate (REC), fiscal incentives for setting up

solar panel plants etc are some of the initiatives carried out by government to

promote solar power generation in the country. Further, many states, especially

Gujarat, are promoting solar sector at the state level.

This document gives a brief overview on the status of various solar programs

that are currently operational in India.

Status of existing solar power capacity in India

As on 31st July 2011, India has 20 grid connected solar power plants operational

with capacity of 1 megawatt (MW) or more. The total capacity of these plants is

45.5 MW. Three states Gujarat, Rajasthan and Tamil Nadu own more than 50

percent of total installed capacity. All of these plants are based on photovoltaic

(PV) technology except ACME Telepower (Rajasthan, 2.5 MW) plant which is

based on concentrating solar power (CSP) technology1. Table below gives the

MW size grid connected solar power plants in India, as on 31st July 2011:

1 Ministry of New and Renewable Energy (MNRE)

Government initiatives

for promoting solar

energy are praiseworthy,but challenges in project

finance availability is a

major concern at least in

the short-term

Arvind Mahajan

Head

Energy and Natural

Resources

KPMG in India



Update on Indias solar program

StateNumber ofPlants

Total Capacity(MW)

Plant Owners

Andhra Pradesh 1 2 Sri Power Generation Pvt. Ltd.

Delhi 2 2 Reliance Industries Ltd.; North Delhi Power Ltd.

Gujarat 3 11 Lanco Infratech Ltd.; Sun Edison; Azure Power Private Ltd.

Haryana 1 1 C & S Electric Ltd.

Karnataka 2 6 Karnataka Power Corp. Ltd.; Karnataka Power Corp.Ltd.

Maharashtra 3 5 MAHAGENCO; Tata Power; Dr. Babasaheb Ambedkar SSK

Orissa 1 1 Raajratna Energy Holdings Private Ltd.

Punjab 1 2 Azure Power Private Ltd.

Rajasthan 2 7.5 Reliance Industries, SolarGroup; ACME TelePower Ltd.

Tamil Nadu 3 7 Sapphire Industrial Infrastructures Private Ltd.; B & G Solar Private Ltd.; R L Clean power Pvt. Ltd.

West Bengal 1 1 West Bengal Green Energy Development Corporation Ltd.

Source: MNRE


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Jawaharlal Nehru National Solar Mission (JNNSM)

JNNSM was launched by the Prime Minister (Dr. Manmohan Singh) under the brand

'Solar India' with an objective to establish India as a global leader in solar energy.

The Mission has set a target of 20,000 MW of solar power generation capacity by

2022 and stipulates implementation and achievement of the target in three phases

(first phase up to 2012-13, second phase from 2013 to 2017 and the third phase

from 2017 to 2022). In first batch of phase one, total 37 plants were awarded 30

plants based on solar photovoltaic technology with total capacity of 150 MW and 7

plants based on thermal technology with cumulative capacity of 470 MW. Out of

these 37 projects 36 signed PPAs with NTPC Vyapar Vidyut Nigam Ltd. (NVVN) and

in these, 35 have achieved the financial closure2.

Recently, MNRE has issued guidelines for the selection of 350 MW grid-connected

solar power projects under Batch-II, Phase-1 of the JNNSM program. According to

new guidelines, the maximum project size limit is increased to 20 MW from 5 MW

and net worth calculation criteria has become more stringent3.

State-level programs

Gujarat: Gujarat is the front runner in promoting solar power amongst all the states.

The state already has a clear renewable policy to promote solar energy. Gujarat state

electricity unit Gujarat Urja Vikas Nigam Ltd. has signed PPAs of more than 950 MWwith 87 national and international companies. However out of this only 350-400 MW

is expected to commission by March 20124. Availability of finances for projects has

been a major roadblock for the companies to faster implement the projects. Further,

due to delay in commissioning of the projects many companies may not be able to

avail the preferential tariffs fixed by the Gujarat government , as these tariffs is

applicable to only those units that get commissioned before December 2011.

Rajasthan: Rajasthan has maximum solar capacity allocation under JNNSM, 26 out

of 37 plants allocated under JNNSM are in Rajasthan. To tab this opportunity further,

in April 2011, Rajasthan government has proposed its Solar Energy Policy 2011. The

policy targets a minimum of 200 MW of grid connected solar power in Phase 1 (up

to 2013)5. However given the poor financial status of the state distribution

authorities, the success of the policy is questionable.

Maharashtra: Maharashtra is expanding its solar power generation programme in

adherence to the centre's renewable energy policy. Projects of state owned power

generation company MahaGenco and several other private players are under-

construction. Maharashtra state utility has already awarded EPC contract for 125

MW of solar power and is in the process of awarding another 25 MW6.

Karnataka: Karnataka has launched its Solar Policy 2011-16 in July this year.

Under this policy state government plans to have 200MW of solar capacity linked to

the grid by 2016. Recently Karnataka Renewable Energy Development Limited

(KREDL), has initiated a tender process for 80MW of solar capacity to be built over

the next three years, with 50MW to come from PV and the rest 30 MW from solar

thermal7.




2 NTPC Vyapar Vidyut Nigam Ltd., KPMG Analysis

3 Ministry of New and Renewable Energy (MNRE)

4 Business Standard article dated September 5, 2011 titled Sunny days may not be ahead for all solar power companies in Gujarat

5 Rajasthan Renewable Energy Corporation Limited (RRECL)

6 Press Articles, KPMG Analysis

7 Karnataka Renewable Energy Development Limited (KREDL)



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Other States: Other states like Tamil Nadu, Uttar Pradesh and Andhra Pradesh have

expressed interest in solar power and currently working on drafting their state wide

renewable energy policy. To make these policies a success, government should

come with a clear subsidy sharing mechanism.

KPMG View

The steps taken by central and state government are in the right direction and theavailability of grid connected solar power is likely to increase several folds from the

current level in next three-four years. However, pace of commissioning of solar

plants has been slow, mainly as the sector is going through the learning process.

Initially financial institutions were averse to funding solar projects. However, we

have now seen increasingly that banks have started to fund such projects and some

of the projects have achieved financial closure. Financing environment continues to

improve as banks climbed up the learning curve. Other issues such as project

management skills, availability of skilled manpower and land have delayed projects

from taking off. We expect, Batch II of bidding in JNNSM will see non-serious

players staying out of fray leading to larger project sizes. We further expect the

increased participation of large players such as infrastructure firms in the bid

process.

We believe it is a matter of time before India becomes one of the leading markets

for Solar Energy worldwide. Availability of good radiation, energy security issues and

geopolitical concerns will help hasten this process.





10


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FINANCIALSERVICES




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Abizer Diwanji

Head

Financial Services

[email protected]

The NBFC sector in India has evolved significantly over the past decade and is

playing an active and complementary role to the banking system by driving the

agenda of financial inclusion and diversification of the financial sector. However,

the sector has been witnessing the risks arising from regulatory gaps, arbitrage

and systemic inter-connectedness. The need to bridge the regulatory arbitrage

between banks and NBFCs has led the Reserve Bank of India (RBI) to constitutea working group, chaired by Smt. Usha Thorat, to review the existing regulatory

and supervisory framework of NBFCs with special focus on risk.

The group has examined a range of emerging issues and concerns pertaining to

regulation of the NBFCs keeping in view the economic role and heterogeneity of

this sector and the recent international experience. The group has made various

recommendations to strengthen the regulatory and supervisory framework.

Key recommendations of the working group and their high level impact are given

below:

Registration/change in control or management Minimum asset size of INR 500 million along with existing requirement of

minimum net owned fund (NOF) of INR 20 million for registration of any

new NBFC Relaxed regulations regarding the registration of NBFCs not accessing

public funds

Prior regulatory approval required from RBI for any change in

control/ownership directly or indirectly more than 25 percent stake in

registered NBFC

Prior approval of RBI should be required for any

merger/amalgamation/acquisition by or of NBFC governed by SEBI

Takeover regulations.

Impact: The registration of NBFCs with RBI is expected to provide comfortto lenders and investors and facilitate their access to public funds.

Twin criteria test for financial assets and income of NBFCs

Theminimum proportion of financial assets in total assets to be increased

from 50 percent previously to 75 percent, in a phased manner of three

years

Income derived from these financial assets should be 75 percent or more

(earlier more than 50 percent) of total income, to be achieved in a phased

manner of three years.

Impact: Registered NBFCs are expected to focus more on financialservices business.

Disclosure norms

More stringent disclosure norms in financial statements will be made for

NBFCs (similar to that of banks) such as provision coverage ratio, liquidity

ratio, asset-liability profile, extent of financing of parent products,movement of non-performing loans, off-balance sheet disclosures,

structured products and securitization/assignment.

Impact: Extensive disclosure requirements for NBFCs will improve thedisclosure standard and enable better analysis of NBFCs.

Overall, the

recommendations

attempt convergence

of the regulatory

framework for banksand NBFCs in order to

reduce systemic risk in

the long-term

Financial Services

- Abizer Diwanji

Head

Financial Services

KPMG in India



RBI Working Group Recommendations for Non-Banking

Finance Companies (NBFC)


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Capital adequacy, asset qualification and provisioning norms

While the minimum capital adequacy ratio is suggested to be kept at 15

percent level, minimum tier I capital will be raised from 7.5 percent to 12

percent over a period of three years for all registered NBFCs

Asset qualification and provisioning norms similar to bank to be applicable in a

phased manner NPA recognition norms for NBFCs would also be changed from 180/360 days

to 90 days, similar to those for banks. (Housing finance companies already

recognize NPA with 90 days at present)

NBFCs may be given the benefit under Securitization and Reconstruction of

Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

Impact: Raising tier 1 ratio may not have any significant impact as most of the

companies already maintain tier I capital of more than 12 percent except for

some highly leveraged NBFCs

Uniformity in asset quality and provisioning norms as of banks will bridge the

regulatory arbitrage that NBFCs enjoy, leading to convergence with banking

regulations

Recommendations on NPA recognition from 90 days of non-payment will

significantly impact NBFCs operating into asset financing business as gross

NPA will rise, requiring higher provisioning

SARFAESI will help NBFCs reduce their NPAs by adopting measures for

recovery or reconstruction and improve their asset quality.

Exposure norms Risk weights assigned to banks exposure to sensitive sectors to apply to

bank-sponsored NBFCs as well

Exposure limit to real estate prescribed for banks will apply for entire bank

group where NBFC is a part of the group

For NBFCs that are not sponsored by banks or are not part of any bank group,

capital market and real estate will attract higher risk weights of 150 percent

and 125 percent, respectively. At present, the risk weights are 100 percent.

Impact: Increase in risk weights assigned to sensitive sectors may increase costsof funds for companies in these sectors. Reduced exposure limit will impact the

lending to the real estate sector where NBFC is a part of the bank group but real

estate lending will face higher provisioning costs where NBFC is not a part of the

bank group.

Liquidity Management

To ensure better liquidity management, NBFCs should maintain high-quality

liquid assets along with maintaining stipulated liquidity ratio, to cover the gap

between cash inflows and cash outflow for the first 30 days.

Impact: Minimum liquidity management by maintaining high cash and cash

equivalents will enable NBFCs to match standards stipulated for banks and hence

mitigating the risk of liquidity crisis but at the same time impacting their net interestmargins.

Financial Services






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Corporate Governance All NBFCs with assets of over INR 1 billion should be made to comply with

Clause 49 of SEBIs listing agreement. Clause 49 of listing agreement

include requirements of composition of Board of Directors, guidance on

compensation of directors and code of conduct for Board of Directors and

Senior Management.

Impact: Active involvement of RBI in management of NBFCs (i.e. RBI to havepower regarding appointment of directors, related party advances, etc.)

Other key recommendations

Government-owned NBFCs to comply with the regulatory framework

applicable to NBFCs at the earliest and hence, losing on the benefits like

higher exposure limits, zero standard asset provisioning requirement and

exemption from creation of reserve fund as prescribed in RBI Act

Stringent supervisory framework, comprehensive supervision based on

capital, assets, management, earnings and liquidity approach (CAMEL) to be

introduced for NBFCs

Regulations similar to banks while lending to stock brokers and merchant

banks as specified by SEBI

Captive NBFCs, the business models of which focus mainly (90 percent andabove) on financing parent companys products, to maintain tier I capital at

12 percent from date of registration.

These recommendations, if accepted, are expected to structurally strengthen the

NBFCs from the risk management and stakeholders perspective. Overall, the

recommendations attempt convergence of the regulatory framework for banks and

NBFCs in order to reduce systemic risk in the long-term. However, in the short-term,

there could be some effects on profitability due to increased capital requirements

and provisioning norms. The RBI has invited suggestions/comments on the report

from all stakeholders and the public by September 2011, following which it will

decide on the final recommendations to be implemented.

Financial Services

Source: ISI Emerging Markets



Key deals in September 2011

Target Company Buyer Seller Deal Value (USD mn) Stake (%)

Stock Holding Corporation of India Ltd. (SHCIL) International Finance Corporation (IFC) ICICI Bank 65 17



Source: RBI report of working group on NBFC sector, KPMG Analysis


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GOVERNMENT




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Unique Identification Authority of India (UIDAI)

Overview

India has finally taken the plunge of creating an ecosystem to uniquely

identify its 120 crore plus citizens through issuance of a unique ID named

Aadhaar. Aadhaar translates into "foundation or support in the national

language Hindi. A project driven by the Unique Identification Authority of

India (UIDAI) - it has been in the pipeline for more than two years now;

applies the principles of biometrics in strengthening its technological

backbone. India will be the first country to implement biometrics based

unique ID system on such a large scale. It is designed in such a way that

the number is easily verifiable online, in a cost effective way.

The UIDAI intends to leverage extremely sophisticated back-end

technology and a robust front end of collaborative registrars (both public

and private sector companies) and enrolling agencies to enable scale. The

requisite information including name, address, gender, date of birth,

photograph, 1o fingerprints and iris images, is collected using laptops and

webcams. The software however is multilingual and carries back-end

capability of de-duplication and a host of other expected linkages.

Public as well as private sector agencies across the country typically

require proof of identity before providing individuals with services. Till date,

there remains no nationally accepted, verified identity number that both

residents and agencies can use with ease and confidence. Presently

different service providers have different requirements and such

information collection is leading to duplication of efforts and silos of

information increase cost of identification and cause extreme

inconvenience to the individual.

Spare the hassle ofrepeatedly providingidentification documentsto access both public andprivate services

Encourage the poor andunderprivileged to adoptthe formal bankingsystem

Citizens

Eliminate duplicationunder various schemes -expected to savesubstantial money for thegovernment exchequer

Provide governments withaccurate data onresidents, enable directbenefit programs, andallow governmentdepartments to coordinateinvestments and shareinformation

Government

Serve as key customerauthentication data sourcefor accessing financialservices including bankaccounts, mutual funds,other services such asmobile connections, gasconnections and the like

Potentially large businessopportunity for the ITIndustry

Industry

Benefits envisaged through UIDAI



Government

Navin Agrawal

HeadGovernment

[email protected]

Despite its seemingly

simple aim to provide

every resident of India a

unique identification

number, the quantum ofwork involved in realizing

the same is huge and will

require continued

coordinated effort from all

stakeholders over the

next few years. This can

then enable Aadhaar to

act as the backbone for

the planned social

infrastructure

development in India

- Navin Agrawal

Head

Government

KPMG in India


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UID and reforms a perfect team

Indias growth story in the global economy is also supported by the substantial

increase in spending in new and existing welfare schemes . For instance, NREGA is

being implemented at a cost of Rs 42,000 crores and the proposed food security act

anticipates a spend of Rs 100,000 crores. It is hence imperative to identify the right

beneficiaries of such welfare schemes and prevent leakages while enabling

appropriate monitoring.

UIDAI plans to initially target such schemes where there is maximum expenditure and

thus plugging leakages will reap maximum benefits. The table below represents cross

section of schemes and areas where Aadhaar adoption could benefit.

The As-is status

Activity in the UIDAI space has picked up with more than 14 million Aadhaar numbers

already been issued as of 19 July 2011. With the current pace of 400,000 enrollments

a day, the expected plan is to increase enrollments to 1 million a day by October 2011.

UIDAI in conjunction with State Governments and other partners is committed to

deliver Aadhaar numbers to all residents. To achieve this UIDAI has signed a number

of MoUs with all States and UTs. Registrars, Enrolment Agencies, Consultants and

Software Providers have already been empanelled to assist States in realizing the

benefits derived through Aadhaar implementation.


Scheme Aadhaarcan help in. Current Major Schemes

UID and PDS

Elimination and duplication of fake

beneficiaries

Tracking food grain movement and curb

diversion

Ensuring transfer of entitlements to the right

beneficiary

Mid-day meal scheme

Wheat based nutrition program

Scheme For Supply of Foodgrains to minorities

Hostels/Welfare Institutions

Minorities hostels

Annapurna scheme Sampoorna gramin rozgar yojna & Special component of

samporrna gramin rozgar yojna

Nutrition program for adolescent girls

Emergency feeding program

Grain bank scheme

National food for work program

UID and

Education

Eliminating multiple and ghost enrolments

leading to leakages in mid-day meals, books

and scholarships.

Sarva Shiksha Abhiyan

Mid Day Meal Scheme

UID and Public

Health

Gaining knowledge of prevalence of routine

diseases and responding to unforeseen

epidemics

JananiSuraksha Yogana

National Rural Health Mission

UID and Rural

employment

Providing payment of wages to the rightful

beneficiary and eliminating theft from

beneficiary and Ghost beneficiaries

Introducing efficient beneficiary management

Mahatma Gandhi National Rural Employment Guarantee

Scheme



Government


19/42


Challenges

It would be wrong to assume that with all the Government support for the UID project,

challenges do not exist

The initial thought of issuing and mapping the identities of a billion plus people is itself

a mammoth task

Technologically, storing the biometrics for a billion plus people will require terabytes ofmemory space. While memory space and storage may not be the larger problem,

creating, maintaining and running such a database would be a challenge. Post creation

of such a system is the challenge of managing the system. For example identity

verification by comparing one million identity related requests against a database of,

say, 600 million identities. That will require some capacity and capability within UIDs

computing system

On the other front a state government implementing the National Rural Heath Mission

Scheme (NRHM) may not desire to integrate UID with its scheme for reasons of their

choice. In these cases there is little that UIDAI can do. The goal of ensuring that

benefits do not go to those for whom they are not meant is lost. It is well known fact

that presently leakages due to misrepresentation or non-existence of identity are a

common feature of all such schemes being misused

Though the Union government and its agencies have assured cooperation to UIDAI itwill be challenge to convince its counterparts at the state and local levels.

Way forward

The way forward to help ensure smooth roll out of the Aadhar project in India would entail

the following action steps, some of which have already been taken by the Government:

Ensure skilled manpower is deployed for the implementation of the project by creating

a resource pool from existing employees and empanelled agencies

Ensure agreement with states all over India as the ID would be effective only through

affirmation of go-ahead from all state governments

Ensure stable 24-hour power supply as access to central databases for authentication

would be hindered with inconsistent power supply Take steps to address the issue of saliency which arises when certain aspects of an

individuals identity are publicly highlighted as studies have proven that knowledge of

these identifiers adversely impact delivery of services in areas such as education,

health etc.

The central and state governments should put in place robust safeguards and

operating processes for sharing of the databases amongst states, before the Aadhaar

numbers are issued.

Conclusion Our government departments work in silos, with each department maintaining their own

databases with no inter linkages while the databases have their inherent problems such

as inaccurate data entry, duplicate and dead entries which makes reconciliation of data a

herculean task. Though India is one of the most promising developing countries to cross

over, corruption is a major roadblock. To tackle these issues, a sound technology

infrastructure, built with the premise of providing unique identities to stakeholders at

large, will certainly go a long way forward.



Government


20/42

HEALTHCARE




21/42

Healthcare

Amit Mookim

Head

Healthcare

[email protected]

Overview

Mobile Healthcare or M-Health is the delivery of health-related services and information

via telecommunications networks, such as CDMA, GSM and Wi-Fi, and devices ranging

from smart phones to blood glucose meters. The reason why this concept is gaining

importance today is because technology has a clear and distinct role in addressing the

challenges of the health care system. Although MHealth is big in developing countries

such as the US with an estimated market size of USD 125 million, in countries like India,

this technology is still to gain traction1.

The use of this technology in India cannot be underestimated primarily because majority

of the population lives in villages, and most healthcare professionals/ facilities are located

in cities, in a situation like this M-Health is imperative to provide healthcare services in all

parts of the country.

Some initiatives have already been taken in the field with the Apollo Group setting up tele-

centres in Chennai and Kolkata where medical services are available at a call on a mobile

phone. They are also in the process of launching a pilot project to handle emergency

pregnancies through video streaming. Hospitals are primary customers of this service

where it is vital to address healthcare issues on a real time basis2.

Key drivers that are likely to influence the pace and direction of the industry are :

Innovation in telecommunications / mobile technology

Developments / adoption in health care technology

End-user interest and adoption

Structural/regulatory barriers in health industry

Physician demand for smartphones and tablet software and services will in most

likelihood drive the growth, coupled with health care providers' mandates for improving

quality of care and cutting costs at the same time. The latter would come into play with

increasing penetration of health insurance in the Indian scenario. 3

Opportunities/ Possible solutions that can be delivered Monitoring (Remote, biometric, sleep studies, E-ICU, pill box, etc.) Solutions

that combine a specialty wireless device (either PAN-connected, WAN, or both) with a

software solution to monitor a patients bio-metric activity such as cardio-activity, blood

glucose levels etc.

Personal Emergency Response Systems (PERS) Solutions include a connectedelectronic device a person can use to signal a dispatcher in the event of a need for

assistance. Newer models expand the range of functions to potentially include fall

detection, location monitoring, and bio-metric monitoring features.

Telemedicine (Teleradiology, e-consults, telepresence, etc.) Solutions breakdown barriers of location and/or time of day to deliver diagnostics from remote

locations. Store-and-forward and live-consults are the primary modelswith long run

evolution towards mobile technologies.

Mobile Medical Equipment (Portable ultrasound, portable ECG, etc.) Specializedimage and diagnostics machines such as ultrasound and ECG that have wireless

functionality built-in for remote diagnostics or rapid information synching.

Mobile Healthcare: Can it be the future of Indian

healthcare?

20 2011KPMG, an Indian Partnershipand a member firmof the KPMGnetwork of independent member firms affiliated with

KPMGInternational Cooperative(KPMGInternational),a Swiss entity. All rights reserved.

1 CSMG

2 CSMG

3 Press Articles


22/42

Mobile Health Information (Mobile EMR, mobile home health care, etc.)

Software/device platforms that enable medical professionals such as physicians

or home health care workers to view/update EMRs, issue prescriptions, order

follow-ups, and perform other health-related tasks from wireless-connected

devices (such as tablet PC or Smartphone). Basically, a mobilized enterprise

application. RFID Tracking (Asset tracking, patient location, etc.) Solutions that combine

connected tag identifiers with software systems to wirelessly monitor the

location of patients and valuable assets.

Health and Fitness Software (Personal health records, diet/fitness

compliance tracking, etc.) Solutions that leverage software on generic devices

(e.g. Smartphone, etc.) to improve consumers ability to monitor, track, and

update health and fitness information. Examples include personal health records

(PHR), mobile medical apps, and handset software coupled with peripheral

specialty devices.



Sustainability in India

In a country like India where basic healthcare is still a facility that is not accessible to a

majority of the population, M-Health still remains an unrealistic goal. The approach, therefore,

is to strengthen the basic healthcare infrastructure, followed by fortification of the e-

healthcare models and then work on mobile healthcare.

The Indian market is an extremely price sensitive market and hence the success of M-Health

is largely dependent on its affordability. Smart phones and Wi-Fi enabled gadgets, though

used in India are still limited to a certain section of the society and hence the access of M-Health would also be limited only to a certain section of the society. Also, health insurance

has not been able to penetrate the Indian market as it has the developing economies. It is

possible that the entire scheme is too expensive for the population at large and doesnt

attract players who deem this venture is too ambitious for the current market.


healthcare?

The Concept

Healthcare


23/42




healthcare?

It is important to note that the success/sustainability of the model will largely depend

on co-operation of multiple ministries/parties including the health, telecommunication

and IT sectors. There have been various initiatives taken by the government to

encourage and promote better healthcare accessibility to the rural part of the country,

however with M-Health being an extremely technology intensive and expensive

enterprise, there is likely to be some reluctance on the part of the government tosubsidize these services. This issue gets further highlighted by the fact that the

government contribution to healthcare funding is a mere 26.2 percent4.

Conclusion

While it is possible that mHealth could be the future of basic healthcare in the Indian

market, it would largely depend on building a sustainable business model for e-health

with the contribution of various service and healthcare providers. A plausible solution

to test this theory would be to initiate pilot projects as a part of corporate social

responsibility and then streamlining parameters and scaling it up whilst assessing its

sustainability and utility.

4. WHO Healthcare figures

Healthcare


24/42

IT-BPO




25/42

Pradeep Udhas

Head

IT-BPO

[email protected]

A cloud of uncertainty looms over Europe. The sovereign debt crisis has hit thecontinent with full force; with bailouts of countries like Greece, Ireland andPortugal and other stabilisation mechanisms having thus far proven ineffectivein addressing the issue of lack of solvency. Prices of bonds have been rising1

and the credit rating of countries such as Italy has been downgraded. 2 The debtcrisis has now started showing its spill-over effect on other countries of Europeas well with slowing growth rates. The IT-BPO sector in the continent has

started bearing the brunt of this turmoil too. While some of them havewitnessed budget-cuts and belt-tightening, a lot of them are facing losinginvestor confidence amidst turbulent macro-economic environment and volatileexchange rates in the region.

Regional Analysis

While Western Europe has remained relatively less impacted with a few strongcountries such as UK, France, Germany and Sweden, condition in other parts ofthe Europe remain precarious. The PIIGS countries (Portugal, Ireland, Italy,Greece, and Spain) have been the worst hit. Many countries had startedshowing signs of recovery in the first quarter of 2011 but the situationdeteriorated again in the last quarter leading to fears of double-dip slowdown.

Source: OECD

Source: Ovum, OECD, Company Websites, KPMG Analysis

IT-BPO

Weathering the European Economic Turmoil

1 http://www.istockanalyst.com/finance/story/5188423/european-debt-crisis-accelerating-again

2 http://www.istockanalyst.com/finance/story/5188423/european-debt-crisis-accelerating-again

3 NASSCOM Strategic Review 2011

Amidst all this doom

and gloom, the situation

in Europe for Indian IT-

BPO firms is not all bad

news. While Europe

contributes almost 30

percent3 of Indias IT-BPO revenues, majority

of this comes from the

UK, France and Germany

which have not been

severely hit by the

ongoing debt crisis and

continue to be the most

promising destinations

for Indian IT-BPO

players.

-Pradeep Udhas

Head

IT-BPOKPMG in India



-5

0

5

Q4-2009 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011

Greece Italy France Germany

Spain United Kingdom Sweden European Union

Country-wise Growth Rates of Real GDP


26/42

IT-BPO

Performance of Indian IT-BPO Players in the Region

The performance of IT-BPO players in this region too has not been very

encouraging. The growth rates of revenues from Europe for most of the players

have either remained flat or have plummeted. Cognizant was the only exception

which recorded an increasing growth percentage; yet, has not reached its pre-

crisis peak.

Source: Company Filings

With dented investor and customer confidence in Europe, there is a need for

Indian IT-BPO firms in these countries to remodel their strategy and take cautious

steps.

KPMG in India Point of ViewIn order to successfully weather the slowdown, Indian IT firms need to:

Focus on stronger countries such as the UK, France & Germany: These

countries have performed better than others and have strong fundamentals.

Indian companies should continue investing in these to have long term

returns. Owing to large IT-BPO market size in these countries, vendors can

look for selling maintenance services and software applications based oncloud and pay as you go models to reduce costs. Since these countries are

performing relatively better, the propensity to invest is still higher in

comparison to other European countries.

Look for attractive acquisition targets: This is a good time to buy suitable

assets in Europe as the valuations of the companies are low. The STOXX

Europe 600 Technology Index, an index that includes Technology companies

in Europe and started with a base price of EUR 100 in December 1991,

traded at its historical lows of EUR 177.55 in September 2011, from a peak

of EUR 350 in September 2007.4 Companies looking to add capabilities or

expand presence may look for opportunities here. For example, NIIT

Technologies recently bought Proyecta Sistemas de Informacion SA of

Spain. The acquisition would strengthen NIITs portfolio across the travel

and financial services verticals and would bolster NIITs front-end capabilities

to serve large European clients.5




4 http://www.bloomberg.com/apps/quote?ticker=SX8P:IND#chart

5 http://articles.economictimes.indiatimes.com/2011-08-16/news/29892519_1_niit-technologies-europe-firm-offerings

6 http://articles.economictimes.indiatimes.com/2011-08-20/news/29905744_1_firm-acquisition-tcs

-5%

0%

5%

10%

15%

20%

Sep/10 Dec/10 Mar/11 Jun/11

Infosys Wipro Technologies HCL Technologies

Tech Mahindra Cognizant TCS

Revenue Performance of Top Indian IT Firms in Europe


27/42

IT-BPO

Similarly, TCS has also bid for the IT subsidiary of German Airline Lufthansa -

Lufthansa Systems.6 With revenues of around USD 850 million, acquisitions

like these exhibit how Indian companies are planning to go big in Europe and

are harping on the opportunity of getting low-priced assets.

Acquisitions by Indian IT-BPO Companies in the Recent Past:

Source: Merger Market, ISI Emerging Markets

Leverage this slowdown to sell Indias offshoring capabilities: Companies

in Europe are looking to reduce costs. Positioning India as a cost efficient

outsourcing destination may help companies win outsourcing deals. For

example, HP won an outsourcing contracts with Wrtsil Corporation of Finland

in June 2011 to provide IT outsourcing services, with server management and

monitoring delivered from the vendor's center in Bangalore, India and remote

management and monitoring of Wartsila's LAN and WAN environment being

provided from Kuala Lumpur, Malaysia.7

Consumer and business sentiments have been deeply impacted by the

slowdown. Lack of confidence may push businesses to slow the pace of hiring

and consumers to choose saving and debt-repayment over spending. This may

lead to a Catch-22 situation where there would be less demand, less hiring

and less investment. In addition to this, high amount of public debt on

countries may reduce the public sector demand which would eventually stifle

the IT-BPO sector in the continent as well. While it may be expected that the

situation may remain the same in near future, but for businesses, European IT-

BPO market opportunity of USD 287.8 billion8 cant be ignored. It does make

sense to continue investing in right assets; this would not only act as a catalyst

but would also give long-term gains from the region. Also, it must be noted that

the growth rates in the continent have slowed down but have not gone

negative and considering the size of the European market, smaller growth rates

also add up to significant incremental opportunity.



6 http://articles.economictimes.indiatimes.com/2011-08-20/news/29905744_1_firm-acquisition-tcs

7 http://www.hp.com/hpinfo/newsroom/press/2011/110615b.html

8 Source: Ovum forecasts for IT services, Hardware and Enterprise applications



29/42

Media and Entertainment

In-Cinema Digital Advertisement: The next media

engagement platform

The rapidly changing media landscape in a culturally diverse country like

India, presents a set of unique challenges to the media planner, both at

the agency and advertiser level. The fragmentation of TV as a medium

due to the dramatic increase in the number of channels, the expansion of

Radio as a medium into tier II and III towns, the rapid growth of regional

and vernacular print media, the proliferation of but simultaneous lack of

transparency in the OOH space, and the emergence of digital as a new

medium are just some of the examples of the changes that a media

planner has to contend with. This, coupled with the fact that India is still

an under penetrated market with socio economic segments and

geographical areas which are still media dark, makes the job of media

planning and allocating media spend to achieve optimum reach and

frequency , a challenging task. Given the nature of Indian market, no

single medium can ensure full penetration into the market. In order to

ensure a greater recall in the minds of consumers, advertisers need to

exploit all the available touch-points. It is here that Cinema as a medium

can play a differentiating role.

Cinema as a media option

Cinema has time and again proved to be one of the most impactful of allentertainment mediums due to the grand experience it offers - both in

terms of screen size and surround sound. With consumers being actively

engaged in the experience, captive, willing and have opted in, cinema

offers advertisers a unique opportunity to make an impact on their target

audience. The upside is that unlike other mediums such as TV and Radio

where advertisement is considered as an obstruction to the

entertainment experience, cinemagoers see cinema advertising as an

integral element to the build-up of watching a movie along with trailers of

upcoming films. Research shows that 82 percent of 15-24 year olds

watch cinema ads and find them to most useful for their purchase

decisions.1 This is a huge portion of an otherwise hard to reach audience

through conventional media.

The event nature of cinema acts as a catalyst which offers a rare

opportunity to bond between various social groups- friends, families,

couples, colleagues etc. A movie can emerge as a focal point for social

interaction and offer a shared experience which can fuel discussions on

social media platforms such as Facebook and Twitter. Through

emergence of new media platforms, the networks for word-of-mouth are

gaining significant traction and expanding faster than ever. Thus fuelling

admissions and creating greater brand recall of advertisements.

According to a study conducted by Digital Cinema Media cinema

commercials are found to generate the highest level of word-of-mouth

discussions (39 percent) as compared to other media such as TV (36

percent), print (18 percent) and radio (14 percent. 2

.

1. Digital Cinema Media, TGI Q1 2010 study. Base: All Adults; Target: 15-24 year olds

2. Digital Cinema Media, http://www.dcm.co.uk/

With availability of

effective monitoring

systems and metrics to

determine the reach of

in-cinema advertising,

low ad-avoidance and

high engagement

media is expected to

see high growth in

coming years.

- Jehil ThakkarHead

Media and EntertainmentKPMG in India

Jehil Thakkar

Head

Media and

Entertainment

[email protected]




30/42


Digital cinema advertisement as a key enabler

Even though cinema provides a captive audience and unique eyeballs to the advertisers,

cinema advertising has traditionally been affected by the fragmented nature of the

exhibition industry, the inherent lack of proof of play out, high logistical costs associated

with delivery and projection of ad-films; and in ability of exhibitors to offer customization to

advertisers.

However, these challenges have been overcome by the introduction of digital cinema.

Digital cinema advertising is not only expected to help advertisers save on costs but also

reach target audiences in target locations.

Digital cinemas are able to offer advertisers a host of advantages including constant and

consistent quality, shorter lead times allowing advertisers to take advantage of last minute

opportunities, reduction in production costs, opportunities for local and regionaladvertising and greater creative flexibility. Some of the salient features of digital cinemas

include:

Transparency: Detailed electronic logs that can be retrieved from the system provide a

comprehensive report of each and every spot screened at individual theatres, making the

medium completely transparent and reliable.

Savings: Digital Cinema provides significant savings to the advertisers, making the

medium one of the most cost effective audio visual medium of advertising:

No Additional Prints In case of traditional in-cinema advertising, each theatre

required a separate print, but digital cinemas require only one print and the

advertisement can be played in any number of theatres

Multi Lingual Ads Digital cinemas allow advertisers to play a single tape in different

language commercial across different states as per the linguistic requirements oftarget audience

Quality of the commercial remains unaltered irrespective of the number of airings as

compared to traditional system where the print had a restricted life.

Source: Digital Cinema Media, TGI Q1 2010 study. Base: All Adults; Target: 15-24 year olds

Parameter TV Cinema

Environment

Multi-tasking Environment: Usually is

accompanied by Internet, mobiles, music,

magazines, books, newspapers, etc.

Focused Environment: Where cinemagoers

have high anticipation and abide by a social

etiquette

Attention span Maximum attention span is 5 minutes Single task leads to focused attention

Emotional Experience Low level of emotional engagement Triggers high emotional response due to

richer audio visuals and single focus

Frequency of Advertisements High frequency Lower frequency

Ad-Recall Colours, characters and music of the ad, but

often unbranded

Brand, facts, prices, dates, executional

features, interpretation and effect of the ad

Overall Impact

Top-of-mind awareness due to high

frequency but low impact because of

selective attention

Deeper impact due to high attention and

improved ability to remember




engagement platform


31/42


Flexibility: Digital cinema allows the commercial to be scheduled either with

a specific film or a theatre or at specific location depending upon the

marketing plan. While traditional system of in-cinema advertising supported

only 60 sec commercial, digital cinema allows advertisers to play ads of any

time duration.

Satellite Delivery: All advertisements are delivered directly via satellite to the

theatres, enabling real time delivery to hundreds of theatres.

Mandatory Play of Ads: The playlist is automatically stitched to film content

and the operator in the Theatre just runs a computer file. The system does not

have the fast forward facility which ensures that the ad is played as per the

schedule.

Positioning of the commercial: Digital cinema makes advertising placement

possible and, for example, additional revenue as a result. For example, an

advertiser can decide to place the ad just before the Censor Certificate or

immediately after the interval or at any other position.

KPMG in India Point of View

Thus far, media spends were skewed towards television and print as

advertising platforms leading to rising threshold limits to achieve minimum

impact. The rise of digital cinema is transforming the positioning of Cinema as

a media touch point by establishing credibility and traction in the advertisers

and media planners minds and budgets. Inclusion of cinema in a media plan

now has the potential to deliver effective reach and a robust Return on

Investment for media spends across categories.




engagement platform


32/42

PHARMACEUTICALS




33/42

Overview

Any business function not strategic in nature is typically outsourced to a third party. This

helps the company in cutting costs, increasing flexibility, having access to new

technologies and skills and focusing on core competencies. Some of the non-strategic

functions outsourced include payroll, human resources, IT maintenance, facilities

management, and logistics. Over a period of time, this definition has evolved to include

strategic functions such as manufacturing, tele-marketing etc.

Over the years outsourcing of product development and manufacturing has been aprevalent practice in the pharmaceutical industry and is referred to as Contract Research

and Manufacturing Servicesor CRAMS.

Pharmaceutical and biotechnology companies in a bid to rationalize costs, outsource

almost all functions across the pharma value chain. Apart from the more common

outsourcing of manufacturing and clinical trial research, innovator pharmaceutical

companies have also started outsourcing more high-end and complex technical work

such as drug discovery services as well as sales/promotion and distribution services to

contract research and marketing companies.

Opportunity

India currently accounts for a very small market share in the global outsourcing spend.

However, this scenario is changing rapidly. Outsourcing is no longer driven only by fiscal

considerations but by the expertise and potential offered by emerging markets such as

India and China. A recent survey revealed that beyond the cost factor, 36 percent

companies preferred Asia as a destination for outsourcing in 2011.1 India is almost at par

with China in cost efficiency but scores in terms of its technical expertise and

capabilities.

Global Outsourcing Spend

Pharmaceuticals

Anthony Crasto

Head

Pharmaceuticals

[email protected]

1. Contract Pharma Outsourcing Survey 2010

Outsourcing Opportunities in India



US and Europe

80%

India

4%

China

2%

Others

14%

24%

12%

45%

25% 25%19% 20%

25%

11%

20%

0%6%

31%

16%

29%

8%

20%

15%

25%

24%

24%

5%

31%

15%

20%

32%

26%

18%

17%

38%

0%

40%

12%

0%

22%

0%

20%

40%

60%

80%

100%

Top Pha rma S ma ll/

Mid-tier

Pharma

Generic

Pharma

Virtual

Pharma

Emerging

Bio-pharma

Top Pha rma Total

Def in itel y wil l not Probably wil l not May or may not Probably wil l Def in itel y will

How likely are companies to outsource a project to Asia1

Source: Systematix Research_May 2010 Source: Contract Pharma Outsourcing Survey 2010


34/42

Pharmaceuticals

The Indian CRAMS sector is expected to almost double to USD 7.6 billion by 2012,

up from USD 3.8 billion in 2010, with a Compound Annual Growth Rate (CAGR) of

41.4 percent during the fiscal years 2010-12 which signifies the growth potential of

CRAMS in the pharmaceutical industry.2

Typically, Indian CRAMS players provide BA/BE, clinical trial, formulation

development, stability studies, clinical data management and associated regulatory

services. The majority of outsourcing to India is by global CROs and small andmedium pharmaceutical players. In clinical research, Phase II and Phase III trials are

more common in India. Outsourcing of drug and discovery development and dosage

manufacturing has started to grow; and it represents a huge potential for future

growth. High-end research services with significantly higher margins as well as

biologics manufacturing, research in nanotechnology etc. are expected to drive

growth for the Indian CRAMs players.

Challenges

On the downside, some companies have also had unpleasant experiences with

outsourcing and the contracts have not worked out successfully. A typical example:

A pharmaceutical client using the services of a contract manufacturer does not have

direct control of the project with respect to scheduling, cost, quality or accountability.Information security is also a big concern for the pharma companies as confidential

data and intellectual property is exchanged between the parties. Most CRAMS

players still fail to demonstrate strict regulatory compliance that global companies

require.

In order for the client and the service provider contracts to work successfully, various

parameters need to be assessed and guidelines need to be laid out strictly. The

opportunities that outsourcing industry in India offers can be leveraged successfully

if the companies involved approach it in a focused manner.



Outsourcing Opportunities in India

2. IBEF


35/42

REAL ESTATE ANDCONSTRUCTION




36/42

Raajeev Batra

Executive Director

Real Estate and

Construction

[email protected]

One of the time

tested and most basic

precept of cost

management in real

estate and construction

projects is that you caninfluence the cost

decisions the most,

when you have not

committed to

construction

Real Estate and Construction

- Raajeev Batra

Executive Director


KPMG in India

Cost Reduction and Cost Management in Real Estate Projects



Cost management, and in that process cost reduction, is actually a desired

out come of a process that covers various project aspects, across the

project lifecycle. It typically involves proper gathering and dissemination of

all pertinent project information including engineering, design and

construction phasing, time schedules, quantity estimates, cost

assumptions and project budgets, cash flow forecast, value engineering

analysis and team organization, to name the few critical ones.

The cost management, and cost reduction strategies in real estate,

typically can be divided in two parts, aligned to the project lifecycle,

inherently two components:

1. Pre construction (before money and resources have been committed

to construction)

2. During construction while constructing, various technological and

material options may open up possibility to re-look at the project and

construction cost structures.

One of the time tested and most basic precept of cost management in

real estate and construction projects is that you can influence the cost

decisions the most, when you have not committed to construction. Youcan change designs, components, even consultants and material

specifications, all on the drawing board, till you have buttoned down on

the exact design and material configuration you want, before floating a

detailed work order or contract.

However, in the Indian context this process is still dynamic, specially in

the residential real estate projects, and even to a large extent in the

commercial projects. Market sentiments, more often than not, determine

the project amenities, finishes and interior ambience, driving costs higher

than planned at later stage of the project.

Technology on the other hand does provide a solution to this dilemma.

New building simulation and design technologies are available where

complete interior and exterior 3D simulation can be done, and bill ofquantities can be accurately predicated through the same.

3D BIM (Building Information Management) Design provides efficient,

cost and time effective tools, which enable pre-construction and even

construction stage planning and cost impact assessment of design,

elemental and specification changes to buildings.

It also helps enable programming sketching, schematic drawings and

preliminary work scope outlines to develop an efficient final design that

incorporates not only scope and work quantities to enable superior work

planning during construction, but also helps in utilizing the most efficient

processes, across various construction components of a project.

Dealing with unwanted cost is critical and provides the project with acompetitive advantage. The more efficient the end design, the greater the

opportunity for the project to provide competitive product. The pre

construction strategy allows focusing on driving out waste and unwanted

cost throughout the design process.


37/42


Cost Reduction and Cost Management in Real Estate Projects



Couple of simple approaches to reducing the cost of construction, specifically

during pre-construction stage, is rooted in the following percepts:

Standardization of design let the availability of material and ease of

procurement determine the specification of the material and usage. We see a

lot of stone being used in landscape, specified by the landscape architect, but

the stone is not a natural product of the region where the project is. The

resultant impact on cost per sq.ft of landscape area is close to INR 15/sq.ft.

Imagine this cost over a few million sq.ft of landscaped area, in large office

and mixed use projects.

Maximize the use of factory built components, wherever they best suit

the design and technology available current technologies in use, like

monolithic construction through metal form-work, allows for, and enables

standardization of steel components, re-barring process and also the concrete

casting methods by grids. However, we still do not see factory cut, pre-bent

steel being widely used in real estate projects as yet. The same has the

capacity to reduce steel wastages by two to three percent in a typical building

project, where four to five percent wastages are given as wastage norm. Two

to three percent saving for a project of few million sq.ft, with six to seven KG

of steel per sq.ft. of consumption, and steel at INR 45/ kg, can lead to decentaddition to the bottom line.

Cost Management and Reduction during Construction

Well the adage is that, you cannot do much when you have started construction,

except for mostly buying cheap, and deploying your resources judiciously and

with maximum frugality. Since cost commitments in terms of construction

contracts and technology are already done at pre-construction stage, cost

reductions are difficult during construction; however, cost management is an

ongoing process and can be applied and should be applied at this stage to the

maximum. Few key areas where cost management, or deep and focused

oversight can enable cost savings, or wastage reductions are as follows:

Purchase planning do not wait for project sites to raise material indents, and

then start planning for purchases. The traditional purchase function and their

method of working will not help. The essence is in forward contracts and bulk

material purchases, for which detailed quantity estimate and purchase planning

needs to be looked into.

Wastage reductions and monitoring Generally if there is wastage tolerance

provided to contractors, they will tend to not monitor wastages less than the

tolerance. The loss is obviously adding to the project cost. It is imperative that

detailed wastage and process loss estimates are conducted at various stages of

the project, and material reconciliations are done, to assess how and where the

wastages can be reduced. Specifically for large projects, with tall buildings, steel

wastages should always be looked into. Saving even one percent on a million

sq. ft can lead to INR 2.5 million in savings.

Other aspects worth making a mention here would be import planning, hedgingfor material and currency, when there are large imports etc. But real estate and

building industry today is sourcing almost over 95 percent of its project

requirements locally, and is not indulging into imports. As such the focus is on

better sourcing, negotiations and long term forward contracts, across one or

multiple project portfolios that are the imperatives of the time.


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TRANSPORTATION

AND LOGISTICS




39/42

Transportation and Logistics



Infrastructural constraints to hinder Indias ambition

to double exports by FY14

While macro-

economic factors such

as indications of global

recession, high inflation

in domestic market anda weaker Indian

currency may have a

mixed impact on Indias

plan to double exports

to USD 500 bn by

FY14, infrastructural

constraints may clearly

turn the tide against the

ambitious growth

trajectory.

- Manish Saigal

Head

Transportation andLogistics

Introduction

Exports have been a constituting a significant portion ~ 40 percent (by value)

of Indias EXIM trade in the recent years. In the last decade, while the overall

EXIM trade grew at CAGR ~ 19.4 percent from USD 95 bn in 2000-01 to USD

467 bn in fiscal 2009-101, its exports component grew at a lower CAGR of

16.7 percent from USD 45 bn to USD 179 bn during the same period. To stepup the growth trajectory of exports, the Ministry of Commerce & Industry

plans to double merchandise exports from USD 246 bn in FY11 to USD 500

bn by

kbuzz-issue9 - a key mention of nbfc in tge report

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