1

The India Opportunity

Doing Business in India

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India is expected to be the 4th largest economy and will

continue to be the 2nd largest population in the world by 2025

18%

US

Russia

359 mn

1.45 bn

EU – 27

India

China

132 mn

Brazil

1.43 bn

469 mn

213 mn

2%

3%

6%

World Population by 2025 – 8,000 mn

Total population

Region’s population as a % of total world’s population

Sources: United Nations population studies (Medium variant prospects); Goldman Sachs Economic Research (GDP estimates); International Monetary Fund; Reed Analysis

4%

18%

Top 10 GDP Countries by 2025

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Also, the Indian economy has been witnessing healthy

growth rates in the past with the services sector making the

major contribution to the economy

3.9

8.5

10.5

6.3

3.2 3.8

5.1

6.3 6.5 6.7 6.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Real GDP Growth

Source: Worldbank

The share of agriculture has been declining over the

past few years and the trend is expected to continue

in the future.

However, the government realizes that a service

sector based strategy may not be sustainable over a

long horizon.

Accordingly, it is expected that policy push on

infrastructure and acceleration in the pace of reforms

and investment in key sectors, is likely to keep India

on its high growth trajectory.

34% 27%

17% 10%

23% 23%

26% 26%

43% 50%

57% 64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 2000 2010 2020

Agriculture Manufacturing Services

Source: Economic Survey of India

GDP – Sector Contribution

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India’s economic growth is driven primarily by domestic

market (private consumption), followed by investments…

Source: Worldbank

59 57 56 59 60

11 12 11 12 12

32 32 32 31 30

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011 2012

Private Consumption Government Consumption Gross Fixed Investment

7%

7%

9%

8%

4%

10%

14%

6%

9%

4% 4%

8%

14%

4%

2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2008 2009 2010 2011 2012

Private Consumption Government Consumption Gross Fixed Investment

Private Consumption, Government Consumption &

Investment (as % of GDP)

Private Consumption, Government Consumption and

Investment Growth Rate

India GDP

(USD 1.8 trillion)

Private Consumption

(USD 1,105 billion)

Government Consumption

(USD 221 billion)

Gross Fixed Investment

(USD 553 billion)

6

9.3 9.8

3.9

8.5

10.5

6.3

3.2 3.8 5.1

6.3 6.5 6.7 6.7

12.7 14.2

9.6 9.2 10.4

9.3

7.7 7.6 7.3 7.0 7.0 7.0 7.0

4.0

6.1 5.2

-0.3

7.5

2.7

0.9

2.5 2.5 3.2 3.3 3.5 3.5

8.2 8.5

5.2

-7.8

4.5 4.3 3.4

1.5

3.0 3.5 3.5 3.5 3.5

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

India China Brazil Russia

….thereby making its growth more sustainable, resilient and

relatively more consistent than other BRIC countries

Source: Worldbank

Real GDP Growth Rate

GDP Growth

India & China fared well during the

credit crunch compared to Brazil &

Russia, who had negative growth

rates.

While India and China are expected

to witness similar GDP growth rates

(~7%) over the forecast period.

Comparatively, both Brazil and

Russia are expected to register lower

GDP growth rates

Growth Drivers

Private Consumption key contributor

to GDP growth in India, Brazil and

Russia.

Compared to this, China’s growth is

driven by capital investments (~46%).

Country Inflation % (CPI) 1

GDP1 (Current Prices) in Tn USD

FDI (as % of GDP) 1

GDP Share (in %)1

Private Consumption

Government Consumption

Gross Fixed Investment

India 10.4 1.8 1.3 60% 12% 30%

China 2.7 8.4 3.1 36% 14% 46%

Brazil 5.4 2.3 2.7 62% 21% 18%

Russia 5.1 2.0 1.6 48% 19% 22%

Forecast

Note: 1) 2012 figures

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Between December 2009 and August

2013, WPI averaged over 8%

However, there are few moderate risks associated with

economic growth in India

Exchange

Rate Inflation

Fiscal Deficit

Governance &

Transparency

Risks to

Growth

Fiscal deficit rose to over 6% of the GDP

in FY 09 and FY 10 on account of

increased Government spending to

stimulate domestic demand

In the recent past, cases such as the

Vodafone tax case have shook the

confidence of the foreign investors

INR has been one of the weakest

performing currencies globally,

depreciating by ~15% against the USD

over the past one year

Logistics in India

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14.2 35.5

223.2

364.7

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

FY 13 FY 18

Organised Unorganised

The logistics industry in India has strong growth drivers, is

highly fragmented and provides ample opportunities for

international companies to establish their presence

80%

57%

40%

10%

6%

0% 20% 40% 60% 80% 100%

Japan

USA

Europe

China

India

Percentage of logistics activity by organized sector Logistics spend (in USD bn)

237.3

400.2

CAGR - ~20%

CAGR - ~10%

CAGR - ~11%

Favourable demographics driving demand

Increasing urbanization, spread of modern retail and cluster-based manufacturing

Rising exports (~13% CAGR between FY08 and FY13) and imports (~14% CAGR between FY08 and FY13)

Demand for higher end services & infrastructure driven by greater presence of MNCs & maturity in end-users

Strong growth drivers for organized logistics include

Source: World Bank report on trade logistics 007, SPA Research Source: Oxford economics Global economic data bank; 13% of GDP is assumed as

logistics spend in FY13; 11% of GDP is assumed as logistics spend in FY18

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Positive, though slow, developments are taking place on the

infrastructure and regulatory front giving players in the

sector flexibility to scale, integrate and innovate

PPP policies (container rail, R3i , PFT, Wagon licensing

and SFTO policies)

Investment in Dedicated Freight Corridors

Rail

Air

Sea

Road

Investments in superior road infrastructure

Policy initiatives

Improving policy environment for private participation

in ports

Incentives for coastal and inland waterway movement

Incentives for domestic shipbuilding being mooted

Private airports with superior cargo handling

infrastructure

Implementation of the

Warehousing Bill – upside for agri

logistics

Proposed rationalization of tax

structure (GST) and FDI in Retail

Incentives for cold chains

PPP policies to facilitate private

investment in Rail based

warehouses and terminals

Multimodal Transport Act

Thrust on development of Multi-

modal logistics parks

Warehousing

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745 804

837 892

926 975

1,038

1,119

1,206

1,300

1,405

0

200

400

600

800

1000

1200

1400

1600

FY07 FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F

Rail freight traffic is expected to expand at a CAGR of 6.6% to

1.4 billion tonnes by FY17 from 745 million tonnes in FY07

Freight Traffic (Million Tonnes) Drivers of rail freight in India

Government investment in building rail

infrastructure

Dedicated Freight Corridor

Rising industrialization

Increasing private participation due to

favourable policy measures

As of FY12, railways accounted for 31% of

India’s freight traffic

Railways has set a target of having a freight

market share of 50% by 2030

Source: Ministry of Railways, Planning Commission, Aranca Research

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911

1,300

1,835

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007-08 2012-13 2016-17

Road transportation industry has been the most significant

constituent of the Indian logistics industry. However, the

segment continues to struggle to cater to the country’s size

and widely spread consumption hubs

Freight Traffic (billion tonne kilometres) Drivers of road freight in India

Rising domestic consumption

Lack of suitable rail infrastructure

Improvement in quality of road infrastructure

Source: Ministry of Road Transport & Highways, KPMG Research

13

184.9

351.6

815.2

0

100

200

300

400

500

600

700

800

900

FY07 FY12 FY17E

463.8

560.1

943.1

0

100

200

300

400

500

600

700

800

900

1000

FY07 FY12 FY17E

Cargo traffic is on the rise at both major and non-major ports

due to the growing demand, policy support and increasing

investments in the sector in India

Cargo traffic at major ports (million tonnes)

Source: Ministry of Shipping, Planning Commission, Aranca Research

Cargo traffic at non-major ports (million tonnes)

Source: Ministry of Shipping, Planning Commission, Aranca Research

Growing trade – India’s total external trade has grown at a CAGR of 18% between FY06-13 and container traffic has grown

at a CAGR of 10% between FY07-12

Government initiatives – As per National Maritime Agenda 2010-20, Government envisages to create a port capacity of

around 3,200 MT to handle the expected traffic of about 2,500 MT by 2020; Proposed investments in major ports by 2020 are

expected to total USD 24.9 billion, while those in non-major ports would be USD 35 billion etc.

Increasing investment – The proposed outlay for port sector in the twelfth plan, excluding private investment, is USD4.7

billion. The government anticipates private sector investment of around USD10.6 billion during 12th Plan Period

Strong growth drivers include

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1.4

2.3

11.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

FY 06 FY 12 FY 32F

Air freight traffic is expected to be five times the current level

by the end of the next two decades

Freight Traffic (Million Tonnes) Drivers of air freight in India

Growth in import and export

Concentration of population, wealth and

industries leading to higher local consumption

Investment in infrastructure

30% of India’s total trade (by value) is

undertaken via airways

International freight accounts for 65% of

India’s air freight traffic

Source: Airports Authority of India, Aranca Research

Just-in-time manufacturing coupled with global

outsourcing business model

Key growth opportunities in the

logistics sector in India

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1,600 1,722

1,852 1,993

0

500

1,000

1,500

2,000

2,500

2011-12 2012-13 2013-14 2014-15

The size of the Indian warehousing industry is currently

pegged at ~USD 11 Bn and is growing at over 10% annually

Warehousing capacity (in Mn Sq. Ft.) Current warehouse industry size with sub segments in FY13

Traditionally, warehouses in India were “godowns”, gradually they are evolving into modern setups

By 2015, the share of organized sector of the warehousing industry is estimated to reach 15% from

the current 9% indicating immense potential for foreign players

This demand shall be driven by a combination of growing GDP, maturing industry segments, GST

implementation, rising external trade and share of organized retail

Source: CRISIL report on warehousing Source: CRISIL report on warehousing

15%

55%

14%

16%

Agri

CFS/ICD

Industrial/retail

Cold Store

Total Market Size: ~USD 11Bn

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Huge emerging opportunities for foreign companies in the

Indian cold chain industry, which is undergoing a major

change, due to Government focus on food preservation

Size of Cold Chain industry in India (in USD Bn)

2.0

4.7

12.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2009 2013E 2017F

Drivers of the Cold Chain Industry in India

Budget 2011-2012 provided infrastructure

status to the cold chain sector

Growth in organized retail

Government initiatives

Demand from pharma

India is the second largest producer of

vegetables and fruits in the world after China

Source: Assocham, US Commercial Service, Media Reports, Reed Analysis

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Growth in logistics has also made segments such as

commercial vehicles and material handling equipment

attractive opportunities for investment in India

Demand for Commercial Vehicles in India (in Mn Units)

0.8

1.4

2.2

0

0.5

1

1.5

2

2.5

FY 13E FY 15F FY 20F

Source: SIAM, Vision 2020, Aranca Research

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

FY 13E FY 16F

2.5

3.8 - 4.3

Demand for Material Handling Equipment in India (in USD Bn)

Source: The Hindu, Reed Analysis

Better infrastructure

Easy availability of credit

Rapid urbanization

Policy support

Key Growth Drivers

Growth in underlying sectors to drive demand

Infrastructure spend by the Government

Rising amount of cargo and freight traffic

Need for increase in efficiency

Key Growth Drivers

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India Material Handling & Logistics Show in Pictures

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India Cold Chain Show in Pictures

Appendix

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Some Government policies stimulating growth in the Rail

sector

R3i Policy (Railway Infrastructure Investment Initiative) - Aimed at attracting private sector participation in rail

connectivity projects in order to create additional rail transport capacity. As per the policy, private companies would be

authorized to build tracks up to 20 km or longer distance.

PFT (Private Fright Terminal Policy) - A PFT operator can handle various types of goods for the Railways and provide

value-added services such as storage and distribution. This is different from private rail sidings where Railways permitted

specific type of cargo to be handled, usually on a captive use basis for use by the company that built the siding. By

allowing companies to earn revenue by handling cargo of various types, the Railways expect to get some incremental

cargo, and attract some cargo from the road as well

Wagon investment scheme - Indian Railways launched the Wagon Investment Scheme in 2005 to offer freight rebates

and supply a guaranteed number of rakes for a period of 7 – 15 years for different types of wagons. The Ministry of

Railways has proposed to set up five wagon factories in Secunderabad, Bardhaman, Bhubaneswar/ Kalahandi, Guwahati

and Haldia under the JV/ PPP model

Special Freight Train Operator (SFTO) scheme – Scheme will facilitate private players to invest in wagons and earn

profits through transportation of commodities. Through this scheme, operator would privately own the freight train for

transportation of identified commodities

Automobile Freight Train Operator (AFTO) Scheme - The scheme provides logistic service providers and road

transporters an opportunity to introduce their own special wagons to run on the railways' network and avail of freight

rebates in return

Dedicated Freight Corridor - The plan is to construct dedicated freight lines along the Eastern and Western parts of

India. Total length of project is estimated to be 3,300 kilometres, costing USD 16.7 billion and scheduled for completion in

FY17

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Some Government policies stimulating growth in the Road

sector

Infrastructure is a key government priority - The Government targeted USD 500 billion worth of spending on

infrastructure in the 11th Five-Year Plan (FY08-12); the amount is set to double to USD1 trillion in the 12th Five Year Plan

(FY13-17)

Tax Benefits - Companies enjoy 100 per cent tax exemption in road projects for five years and 30 per cent relief for the

next five years.

Budgetary Support - For FY14, the Planning Commission has provided an outlay of USD 6.9 billion for the road sector.

The budget outlay for road transport and highways increased at a robust CAGR of 19.4% between FY09 and FY14

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Some Government policies stimulating growth in the Marine

sector

Policies encouraging private participation –

‒ The government has allowed FDI of up to 100% under the automatic route for projects related to the construction

and maintenance of ports and harbours

‒ A 10-year tax holiday to enterprises engaged in the business of developing, maintaining, and operating ports,

inland waterways, and inland ports

‒ Private ports enjoy price flexibility, as the government allows non-major ports to determine their own tariffs in

consultation with the State Maritime Boards; at major ports, tariffs are regulated by the Tariff Authority for Major

Ports

Incentives for domestic shipbuilding being mooted – Recommendation to introduce interest subvention scheme

(Interest subvention is a scheme where the government pays a certain percentage of the borrowing cost to bring down

the net borrowing cost). The Shipping ministry has also sought a 15% subsidy scheme for the shipbuilding sector

Incentives for coastal and inland waterway movement – Government has plans to divert at least 20% of the cargo

through coastal shipping by 2015 and 40% by 2020. An incentive system is being drawn up by the Government wherein

operators would get incentives, while shipper would get discounts in port charges. Financial assistance under

consideration for which a Coastal Shipping Fund would be established

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Some Government policies stimulating growth in the

Aviation sector

Investments – The Indian aviation sector likely to see investments totalling USD 12.4 billion during the Twelfth Five Year

Plan. Of the total investment, USD 9.2 billion is expected to come from the private sector

PPP Model – Recourse to the Public Private Partnership (PPP) model has boosted private sector investments in airports.

PPP route for five international airports (Delhi, Mumbai, Cochin, Hyderabad, Bengaluru) most noteworthy. These private

investments have not only led to an increase in the passenger handling capacity but also the cargo handling capacity at

airports

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Thank You!