India in 2014

Creating Value with Speed and

Quality: The New Imperative
An annual review of key macroeconomic and sectoral trends

Produced by the Accenture Institute for High Performance

Content

Introduction

1. Introduction

2. This could be the year that

3. Calendar of events

4. Macro trends for 2014

5. Key themes for the year ahead

The growth engine needs a firm push

The fiscal book must balance quality and speed

10

Inflation must be confronted

12

A new trade dynamic is needed

14

Fast-digitizing rural markets are the silver lining

16

Business confidence needs boosting

18

6. Spotlight

20

Made in India digital technologies:

An opportunity whose time has come

20

7. Sector outlook

22

Automotive

22

Banking

23

Chemicals

23

Defense

24

Education

24

Fast-moving consumer goods (FMCG)

25

Healthcare

25

Information Technology

26

Infrastructure

26

Media and Entertainment

26

Oil and gas

27

Pharmaceuticals

27

Power

28

Real estate

28

Retail

29

Telecommunications

29

8. References

30

The year 2014 will be a watershed

for India in political and economic
terms. The nation will conduct its
16th general elections to form the
new central government. It will also
implement several radical economic
policies, such as deregulation of
diesel prices and expansion of direct
cash transfer of subsidies.
In last years edition of this report,
India in 2013, Accenture highlighted
the need for economic growth and
inflation management. However,
both areas are still pain points
for India. In September 2013,
consumer inflation reached 9.8
percent, while the economy grew by
just 4.8 percent over the previous
year. Early in 2014, amid these
unfavorable trends, the nation faces
a higher fiscal deficit, sluggish
industrial growth and a larger current
account deficit.
Why is the Indian economy faltering
on so many fronts simultaneously?
The principle reason is that in the last
few years, India has taken growth
for granted and thus has invested
less effort into raising the quality of
growth. The fiscal deficit challenge
serves as an excellent case in point.
No doubt fiscal support (in such
forms as excise duty cuts and tax
concessions) provided much-needed
stimulus to the Indian economy
after the global economic crisis.
Consequently, as economies around
the world struggled to recharge
growth during 2008-2011, India
posted comparatively better growth
numbers. Unfortunately, the nation
did not simultaneously institutionalize
mechanisms to enhance expenditure
efficiency and manage subsidies.
As a result, the national fiscal deficit
ballooned during 2011-2012 and
2012-2013.

The rate by which India has responded

to impending crises constitutes
another problem. Take inflation
management. For more than a year
now, inflation continues to remain
untamed. Meanwhile, leakages in the
food and petroleum sectorsthe two
key drivers of inflationpersist. And
critical road and rail infrastructure
projects are progressing only slowly,
preventing Indian businesses from
exploiting the shortest possible routes
to efficiently transport food, raw
materials and petroleum products.
In addition, despite being home to one
of the worlds largest pools of digital
talent, India invests only 0.6 percent
of its planned budget on using digital
technologies to enhance the speed
and quality of public transactions and
services delivery.
As a result of poor growth, inflation
and fiscal management, the nation
finds itself burdened with high
interest rates, high operating costs
and low consumer and business
confidence. The only silver lining to
this cloud remains the consumption
growth registered by Indias rural
economy. Backed by real income
growth from higher inflationindexed wages under governmental
employment schemes, consumption
in rural India now accounts for
significantly higher proportions of the
industrial goods and services sold by
the nations businesses.
Clearly, the Indian economy is edging
toward one of its weakest growth
moments in a decade. The nations
economic growth engine runs the
real risk of losing momentum.
Avoiding this scenario will require
swift, effective action. But the widely
held view amongst experts is that
recovery will have to wait for the new
government to assume power after
the elections in May 2014.

Hence the wheel of revival may not

start turning until the second half of
2014. Once it does begin turning, it
will have to move quickly and in the
right direction to inject the necessary
levels of efficiency and quality into
Indias public and private spending
as well as into the countrys inflation
management efforts.
Digital technologies can help the
government as well as industry to
achieve these goals. For instance,
speedier implementation of
government programs aimed at
creating scalable digital platforms
(such as the national broadband
network) will help generate greater
returns on investments in social
programs through robust participation
by citizens. At the same time, it will
create a network of cheaper digital
highways for industry to reach
remote regions and consumers and
unearth fresh sources of growth.
Like the government, industry will
need to think outside the box and
take fresh approaches to surmounting
its most pressing challenges.
The manufacturing and services
sectors alike can benefit by
using digital technology to more
productively engage with partners in
their business ecosystems to create
wealth in an inflationary environment.
In this report, we discuss the trends
shaping Indias macroeconomic and
business environments. As always,
we offer these ideas as starting
points for lively dialogue about new
business directions.
We invite your comments
and we look forward to the
ensuing discussions.
Please feel free to contact us at:
raghav.narsalay@accenture.com and
mamta.kapur@accenture.com

This could be the year that

Indias new central government is
formed after the elections for the
16th Lok Sabha
Subsidies are rolled out to support
manufacturing of electric vehicles
in India and to build a domestic
industry of low-carbon transport

Diesel prices are fully deregulated

India overtakes the United States to
become the second-largest Internet
base in the world after China
The Indian space program takes
a major leap forward with the
Mars orbiter

Calendar of events

June 2014

February 2014

Singapore Airlines and Indias Tata

Group may start their full-service
airline in India

Bihar to launch Food Security Act

Financial bids for Indias first coastal
power plant will be opened
Governement to announce national
information Security policy

April 2014
Government expected
to roll out subsides for
electric vehicles

India could become second largest

internet base in the world after China

The government will launch its first

wind energy mission
Andhra Pradesh to hold assembly
elections

December 2014
Karnataka to digitalize cable networks
with mandatory set-top boxes

August 2014
Videocon Telecom expected to
launch 4G services
India could deliver its first export
vessel, an offshore patrol vessel
(OPV), to the Mauritian Navy

October 2014
Haryana to hold
assembly elections

Work on Mumbai coastal road project

likely to begin
Jharkhand to hold assembly elections
Maharashtra to hold assemble elections

2014

2015

January 2014

March 2014

May 2014

July 2014

September 2014

November 2014

ISRO launches
Geosynchronous Satellite
Launch Vehicle (GSLV) D5

India could finalize US$ 15

billion deal to buy 126 Rafael
fighter jets from Frances
Dassault Aviation

India to hold
general elections
Diesel prices could
be fully deregulated

Compulsory requirement of
affixing barcodes
on primary level
pharmaceutical packaging
to take effect

Indias Mars orbiter

slated to enter
Martian orbit

All six units of its 1200MW

Teesta-III hydrelectric project
to be commissioned

Sikkim to hold
assembly elections

Arunachal Pradesh to hold

assembly elections

Odisha to hold assembly

elections

First indian Football

League tournament
to begin

University of Chicago to open

an academic centre in Delhi

Macro trends for 2014

Foreign direct investment (FDI) flows

Economic growth

3,000

10.0

US$ billion

2,500

8.0

2,000

6.0

1,500

4.0

1,000

100
80
60
40

2.0

500
0

120

US$ billion

12.0

Percentage

3,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Nominal GDP (US$ billion)

20

Real GDP growth percentage (year -over-year)

2008

2009

2010

2011

2012

FDI outflows

Source: International Monetary Fund, October 2013

2013

2014

2015

2016

2017

FDI inflows

Source: Economist Intelligence Unit, December 2013

Industrial production

Current account

(% change year-on-year)
-10

8.0%
6.0%

-2

-40
-50

-3

-60

-4

-70
-80

4.0%

-5

-90

-6

2009

2010

Source: Economist Intelligence Unit, December 2013

2011

2012

2013

2014

2015

2016

2017

Current account balance

(US$ billion)

2017

2016

2015

2014

2013

2012

2011

2010

2008
2008

2009

-100

2.0%

Percentage

US$ billion

Percentage change (y-o-y)

-30

-2.0%

-1

-20

10.0%

0%

-0

-0

12.0%

Current account balance as percentage of GDP

Source: Economist Intelligence Unit, December 2013

Key themes for the year ahead

such wagons. The drag will prove
enormous, so the engines drivers will
need to exploit levers such as growing
consumption in rural India to keep
the train on track.

In this section, we explore how

inflation, the fiscal deficit, the trade
deficit and rural consumption will
continue to play an important role
in shaping macroeconomic growth
in India.

Figure 1: Global institutions estimate Indias GDP growth

6.0%
5.0%

Percentage

As the Indian growth engine struggles

to gain momentum in 2014, the
number of heavy wagons it must
pull has increased. Along with high
inflation, the fiscal deficit and
the trade deficit constitute two

The growth engine needs a firm push

4.0%
3.0%
2.0%

As expected, this pessimistic growth

outlook has eroded consumers
confidence. In fact, the number of
consumers who believe that the state
of Indias economy is worsening is
growing every quarter. (See Figure
2.) If such gloom persists over a long
period, it could further hurt sales of
consumer goods, vehicles and services
such as tourism. Automotive sales
have already taken a hit. Between
April and November 2013, passenger
car sales plummeted by 3.7 percent.1
Robust agricultural growth stemming
from a good monsoon season could
help reverse this trend. According to
the India Meteorological Department,

monsoon rainfall in 2013 was

5 percent above normal.2 Therefore,
the agriculture sector will likely
grow at about 4.8 percent in
2013-2014, as compared to
1.9 percent in 2012-2013.3 The
manufacturing and services
sectorscurrently experiencing
one of the harshest slowdowns
in immediate history
will surely welcome this as
agricultural growth will increase
rural incomes. To put the issue in
perspective, the manufacturing
sector grew by just 1 percent from
September 2012 to September 2013.4
From September 2009 to September
2010, the sector saw 8.2 percent
growth. Services industries that have
traditionally buoyed the GDP growth
rate have also come under stress.5
For instance, the average growth in
telecommunications, financial and
construction services was slower
between September 2012 and
September 2013 than in the same
period during 2009-2010.

As India moves into the first quarter

of 2014, the present government will
have limited ability to send the right
policy signals. This is because it will
be in a position to present only the
interim budget before the elections,
and the election code of conduct
will restrict it from announcing new
policies beginning in May 2014.
The onus of giving the growth engine
a firm push will therefore fall on the
new government that comes into
power. Irrespective of its constitution
(a single-or multi-party government),
the new government will have to
think and act simultaneously to
resuscitate the nations growth
engine. In particular, it will need to
put in place a workable plan to tackle
the burgeoning fiscal deficit, tame
inflation, maintain a trade deficit
level that can be financed by capital
inflows andmost importantrevive
industrys confidence.

1.0%
0.0%
IMF

World Bank

ADB

PMEAC*

Source: IMF, World Bank, ADB, PMEAC

*PMEAC: Prime Minister Economic Advisory Council

Figure 2: Consumers are increasingly worried about Indias economy

(Consumer Opinion on Economic Conditions-Survey Based)
70

Percentage of respondents

Indias growth engine has slowed

considerably. From a solid 6.7 percent
increase in gross domestic product
(GDP) during 2008-2009, GDP growth
is now expected to close at about
5 percent at the end of 2013-2014.
(See Figure 1.)

60
50
40
30
20
10
0

Dec-10 Mar-11 Jun-11

Economy Improved

Sep-11 Dec-11

Mar-12 Jun-12 Sep-12 Dec-12

Economy remained same

Mar-13 Jun-13 Sep-13

Economy worsened

Source: Centre for Monitoring Indian Economy (CMIE)

The fiscal book must balance quality and speed

Operating Imperatives

The Indian economy remains under

extreme fiscal pressure. The economy
logged an average fiscal deficit of 5.6
percent of GDP in the last five years
(FY2009-FY2013), significantly higher
than the 3.6 percent during FY2004FY2009. And the number promises to
hover around 5 percent at the end of
FY2013-2014.

For government

For industry

Move quickly toward digitized

strategic sourcing: A leading-edge
approach to strategic sourcing and
vendor relations can help Indias
central and state governments
capture and apply fact-based
information about vendor selection
and performance. Such an approach
will help create a shared environment
for agencies and their suppliers to
communicate, coordinate and conduct
commerce. By transferring the
procurement process from traditional
channelssuch as paper, mail and
telephoneto secure, easy-to-access
web-based applications, governments
can inject efficiency into purchasing
operations at scale and save valuable
fiscal resources while delivering
consistent value.

Focus on cash and credit

management: Liquidity conditions
could remain tight, owing to higher
government borrowing aimed at
financing the expanding revenue
deficit, and owing to stubborn interest
rates resulting from higher inflation.
In light of these challenges, businesses
will need to focus on managing
their existing cash and credit pools.
Investing cash in activities with the
best chance of creating immediate
value will be vital. Enterprises cannot
rely on going to markets repeatedly to
raise operating capital. Instead, they
will need to craft and execute savvy
credit management strategies.

same period grew at an average of

31.7 percent each year, crossing Rs
2.5 trillion (US$40 billion) in FY2013.6
(See Figure 3.)
Estimates by the Reserve Bank of India
(RBI) suggest that the fiscal deficit
for FY2013-2014 will reach a figure
of 4.77 percent of GDP.7 But these
estimates may be revised upward,
owing to unplanned expenditures
by the government before the 2014
general election.

Fiscal measures aimed at shoring

up a sluggish economy following
the global financial crisis have
been welcome. However, they have
not led to the creation of future
assets; nor have they enhanced the
nations productivity. Instead, they
have only encouraged subsidized
consumption. Between FY2009 and
FY2013, while total government
expenditure increased by an average
of 15.1 percent each year, the capital
expenditures incurred to generate
future growth increased by an average
of only 9.5 percent. In contrast,
spending on subsidies during the

Adopt a digital shared services

model: A shared services operating
model can help government bodies
establish a defined governance
structure and processes to manage
various entities. Ultimately,
shared services can help increase
public-sector valuethe return
that governments realize on
their investmentsby lowering
administrative costs and shifting the
resulting savings to welfare initiatives
that need more resources. Government
agencies can use shared services
solutions for personnel administration,
training, labor relations, recruitment
and performance management as well
as for planning, administration and
expense and cash management.

Figure 3: Subsidies and capital expenditure are growing aggressively

3000

INR billion

2500
2000
1500
1000
500
0
2007-08

Subsidies

2008-09

2009-10

2010-11

2011-12

2012-13

Capital expenditure

Source: RBI

10

11

Inflation must be confronted

In the last two years, inflation has
become a major barrier to the nations
ability to enjoy the fruits of brisk
economic growth. Left unaddressed,
inflation could become a permanent
feature of Indias growth story.
A main driver of inflation during
the last few years has been high
food prices. Food inflation reached a
dizzying 16.6 percent in September
2013. Moreover, it has exceeded
overall inflation since June 2012.
(See Figure 4.) Consistently high food
inflation is eating into the ability of
low-income households to build up
enough disposable income to buy
high-end consumer products.
Food inflation is being driven by
forces that show little sign of easing
up. Employment under the auspices of
the Mahatma Gandhi National Rural
Employment Guarantee Act (MNREGA)
is enabling millions of rural workers to
earn wages higher than the prevailing
minimum wages in many states.8 This
employment scheme has provided a
stable non-agriculture income for a
large number of low-income rural
households. It has also helped raise

Operating Imperatives

the benchmark wage rate in rural

areas. As a result, wages have grown
steeply in recent years.9 According to
the RBI, the average nominal rural
wage increase during 2008-2009 to
2012-2013 was on the order of 17
percent. The government plans to raise
MNREGA wages before the general
elections and wants to align these
wages with the rural consumer price
index. Thus many observers expect
wage inflation in the farm sector to
escalate further in the coming year.
Poor agricultural yields failed to
neutralize the impact of inflationary
pressure on food markets. During
2008-2009 through 2012-2013,
the yield in food grains, pulses
and vegetables registered average
increases of 4.7 percent, 6.2 percent
and 6.5 percent, respectively.10 The
chances that yield growth will match
increases in food inflation in the
near future seem bleak, owing to a
lack of sustained capital investments
in agriculture technologies and
agriculture extension services.
Unsafe storage of food grains
and inadequate storage facilities
is further driving food inflation.

Fruits, grains and vegetables

worth US$7 billion are wasted
every year because of inadequate
storage infrastructure.11 According
to government estimates made in
November 2011, the total gap of
storage capacity in the country stood
at 14 million tons, and an investment
of about US$642 million is needed to
bridge the gap.12
Finally, fuel-cost inflation is
worsening food inflation. Inflation
of fuel commodities stood at more
than 8 percent year-over-year in
the first two quarters of FY20132014. Prices of dieselthe dominant
fuel used in Indiahave jumped by
more than 12 percent each year
during December 2009 to December
2013. The government will likely
continue raising retail prices of petrol
and diesel to help oil marketing
companies to bridge revenue gaps.
This mechanism, coupled with rising
import prices of petroleum crude as
a result of a volatile rupee, will only
exacerbate fuel-price inflation, further
raising food prices.

For government

For industry

Invest in connected agriculture:

In collaboration with the private
sector, Indias central and state
governments can use mobile
telecommunications to connect
farmers to markets; to efficiently
deliver financial, technological and
extension support to them pre and
post-harvest. Transparency and
accountability in the nations public
food management system can be
enhanced with digital systems.
For example, use of GPS-technologies
and sensors on trucks and railway
wagons carrying subsidized food can
help plug leakages in food distribution
systems and ultimately arrest food
inflation. Connected agriculture
will also help governments unlock the
productivity residing in the agriculture
value chain while managing the
impacts of increased production, such
as more water use and greenhouse
gas emissions.

Be flexible and manage costs:

To continue growing in a volatile
inflationary scenario, businesses
must become more flexible across
their value chain. For example,
shop-floor improvements in such
forms as smarter product routing,
reduced set-up time, and smarter
queuing and product completion time
through low-cost automation can help
reduce fuel and energy consumption
and thus combat inflation. Businesses,
in collaboration with key vendors and
customers, can also develop digital
platforms to accelerate flows of
information and knowledge to further
reduce wastage and allocate resources
more efficiently. Businesses will have
to focus on cutting the right costs
quickly. They will need to examine
their processes to identify cost
drivers and to optimize value from
costs incurred. They will also benefit
from assessing the risks associated
with proposed cost reductions,
to ensure that such cuts confer an
operating advantage.

Figure 4: Food inflation vastly exceeds overall inflation in India

18

Percentage change (y-o-y)

16
14
12
10
8
6
4

Source: CMIE

12

WPI of Food Articles

Sep-13

Aug-13

July-13

Jun-13

May-13

Apr-13

Mar-13

Feb-13

Jan-13

Dec-12

Nov-12

Oct-12

Sep-12

Aug-12

July-12

Jun-12

May-12

Apr-12

Mar-12

Overall WPI
13

A new trade dynamic is needed

Indias position in the global economy
is showing signs of stabilizing and
will need to improve considerably
in the coming year. The country has
had a high current account deficit
for the past few years, which is
being contained thanks to a revival
in export growth and restrictions of
gold imports.
The current account deficit, which
dropped to 1.2 percent of GDP during
the second quarter of FY2013-2014,
has exceeded 4 percent since
September 2011.13 This is much higher
than the 2.5 percent desired by the
national government to achieve
growth projections in Indias 12th
Five Year Plan (2012-2017).
The widening trade deficit has played
a major role in the expanding current
account chasm. Imports have risen
faster than exports since early 2009,
and have stayed high. A disaggregated
analysis of the import bill shows
that crude oil, which continues to
account for 34.5 percent of Indias

Operating Imperatives

total import bill, grew just 16 percent

during March 2009-2013. But the
real culprit behind a bleeding trade
deficit is gold imports, which jumped
27 percent during the same period
owing to high demand in the absence
of alternative long-term investment
options for Indian investors. According
to the RBI, if gold imports were
excluded, the current account deficit
during the first quarter of 2013-2014
over the corresponding quarter of
the preceding year would have been
only 3.2 percent of GDP instead of
4.9 percent. (See Figure 5.)
Meanwhile, a volatile and
depreciating rupee continues to
exert a mixed impact on Indias trade
deficit. While the depreciating rupee
has helped the export community, it
has put added pressure on the import
bill. A volatile rupee has inflated the
value of crude-oil imports, which
already became expensive as winter
approached in the European Union
and the United States and as political
tensions persisted in West Asia.

Government and RBI measures have

helped control gold imports and
stabilize the trade deficit and rupee.
The higher import duty on gold is
one example, and banks have been
asked to discourage retail customers
from buying gold. In September 2013,
the RBI created a special facility for
oil marketing companies (OMCs)
to source their dollar requirements
following the sharp depreciation of
the rupee. With a stabilizing rupee,
this window has now been closed, but
it may be opened again for OMCs if
the rupee once more starts losing its
value rapidly. Terms for Non Resident
Indian (NRI) bondholders have been
eased, and foreign institutional
investors have been allowed to access
securities purchases directly without
waiting for monthly auctions.
Export growth, although picking up,
will require some fiscal support in the
form of export credits to neutralize
the impact of high domestic taxes and
input inflation.

Figure 5: Gold imports have increased sharply

3500
3000

For government

For industry

Ink trade agreements cautiously:

Indias national government must
carefully examine the impact
of preferential and free-trade
agreements on the long-term health
of domestic industry. The most
valuable trade agreements will be
those that help boost industrys
long-term competitiveness and that
give businesses sustained access
to markets. The government will
need to address any inverted duty
structures through intensive industry
consultation before negotiating
trade agreements.

Create value from evolving trade

regimes: Zero-duty imports of raw
materials and zero-duty exports of
finished products resulting from free
and preferential trade agreements
can help corporations become more
price-competitive. At the same time,
such trade regimes can trigger a
surge in competition from cheaper
imports originating from competitors
located in preferential trading
partners jurisdictions. Businesses
must therefore carefully analyze the
implications of bilateral, regional and
multilateral trade agreements as they
emerge and use the resulting insights
to formulate strategies for effectively
managing their supply chains.

Continue to provide viable

investment alternatives to gold:
Investors are chasing gold because
other long-term investment options
are delivering lukewarm returns.
To discourage retail purchasing of
gold, the government must incentivize
financial institutions to devise
long-term, inflation-indexed debt
instruments, the way it has done by
launching inflation indexed bonds.
Such instruments can provide viable
returns to retail investors, while also
making resources available to capital
and infrastructure projects.

CAGR:34.12%

INR Billion

2500
2000
1500
1000
500
0

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

Source: RBI

14

15

Fast-digitizing rural markets are the silver lining

Operating Imperatives

Rural markets are the silver lining in

the otherwise cloudy Indian growth
story. Latest National Sample Survey
Organisation (NSSO) data reveals that
in 2011-2012, expenditure by rural
households on non-food products and
services exceeded 50 percent of total
consumption expenditure. NSSO data
further shows that rural consumption
has outpaced urban consumption
since 2009.

According to the i-Cube report

Internet in Rural India, the number
of claimed rural Internet users is
expected to jump from 72 million in
December 2013 to 85 million in June
201418 percent growth in just six
months. These high levels of mobile
and Internet penetration are giving
rural markets a decidedly digital
character. (See Figure 6.)

For government

Consistent positive income growth

and digital penetration in rural India
pose unprecedented opportunities.
For instance, governments can
now share downloadable skilling
modules, information on agricultural
technologies and other value-creating
information with rural populations
over mobile Internet at affordable
prices. And businesses can offer
insightful product-related guidance
to their rural customers in more
interactive formats.

For industry

Rural consumer spending on non-food

products such as durable goods, fuel,
clothing, footwear and miscellaneous
services increased from 36.8 percent
in 1993-1994 to 51.4 percent in
2011-2012.14 According to market
research company Nielsen India, rural
consumption in India grew at 18.7
percent for the 12 months leading
up to June 2013; in the same period,
the figure was 10.8 percent for the
metropolitan areas of India.15

The good monsoon season in

2013 is expected to further
increase purchasing power in rural
India. According to the Indian
Meteorological Department, rainfall
for the season (June-September
2013) was 106 percent of its long
period average.16 Agricultural and
related activities are therefore
expected to continue registering
brisk growth through the first quarter
of 2014.17 This will generate valuable
agribusiness income opportunities.
When complemented by inflationindexed income opportunities
under the MNREGA initiatives,
such opportunities will help boost
income for rural populations
throughout 2014.
Another notable development in rural
India is the expanding ownership
of mobile phones and increasing
Internet penetration. The number of
Internet users is soaring in rural India.

Continue investing in scalable digital

platforms: The Indian government
needs to continue investing in
creating scalable digital platforms
(similar to Aadhar) that government
bodies and businesses can tap to
offer new forms of value to rural
populations at affordable prices.

Use technology to create advantage:

Effective use of technology in
planning, monitoring and controlling
rural operations differentiates high
performers from their more ordinary
peers. Technology improves efficiency,
optimizes costs and can increase
customer loyalty. Management
information system dashboards can
also boost efficiency of an enterprises
rural operations by providing
sophisticated real-time monitoring
and reporting.

Craft a winning talent management

strategy: Companies need to focus
on end-to-end talent management
to drive high performance in growing
rural markets. They can benefit by
hiring local talent, investing in skills
and career development, and infusing
a sense of contribution into their
sales force.
(For further reading, please see our
rural markets report Masters of Rural
Markets: Profitably Selling to Indias
Rural Consumers at: http://www.
accenture.com/in-en/Pages/insightmasters-rural-markets-2013.aspx.)

Figure 6: Internet use in rural India is soaring

90
80

Million

70
60
50
40
30
20
10
0

Dec 10

Dec 11

Mar 12

Jun 12

Jun 13

Oct 13 F

Dec 13 F

Jun 14 F

Source: Internet in Rural India, IMRB I-Cube (2013)

16

17

Business confidence needs boosting

India Inc. is facing stagnating
industrial production, rising labor
costs, inflationary pressure and high
interest rates paired with a weakening
rupee. As a result, its self-confidence
is slipping despite new sources of
demand arising in rural regions.

The latest Confederation of India

Industries (CII) Business Confidence
Index fell 5.5 points to 45.7 for the
July-September 2013 quarter, down
from 51.2 in the previous quarter
and sinking to its lowest value ever.
(See Figure7.) The dip below the
psychological 50- level mark does

Even foreign investor confidence

has remained volatile. While growth
in net foreign direct investment
(FDI) was stagnant in the quarter
ending September 2013, portfolio
investments witnessed massive
outflows of US$6.6 billion during
the same quarter.

not augur well for Indian industry,

because it mirrors the underlying
weakness in the economy.
Eroded business confidence has
resulted in shrinking capital
investment in key sectors of the
economy. (See Figure 8.)

Unfortunately, many of the forces

behind the slide in business
confidence may not ease up during

Operating Imperatives

Q2 FY14

Q1 FY14

Q4 FY13

Q3 FY13

Q2 FY13

Q1 FY13

Q4 FY12

Q3 FY12

Q2 FY12

Q1 FY12

Index

Figure 7: CII Business Confidence Index dropped to its lowest value in two years
70
60
50
40
30
20
10
0

Source: CII

Figure 8: Investment and industrial production are slipping in India

15

6000

10

INR million

4000
5

3000
2000

0
1000

Source: Centre for Monitoring Indian Economy (CMIE)

18

Investments Dropped

IIP

Sep13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

-5

Percentage Change

5000

Investments Announced

the forthcoming year. For example,

continued inflationary pressure will
not provide room for the RBI to chip
some digits off the interest rate. The
rupee and current account deficit
may stabilize during 2014. However,
policymakers will need to monitor the
impacts on Indias currency of shortterm investment inflows resulting
from monetary policy decisions in the
United States.

For government

For industry

Execute taxation and sectoral

reforms: The Indian government has
already proposed replacing indirect
taxes levied by the central and state
governments with a goods and
services tax (GST). The manufacturing
industry is eager for a GST that will
eliminate the multiple, cascading
levels of taxes now in effect.
With the removal of excise duty on
manufacturing under the proposed
GST regime, cash flows and inventory
costs will improve, suggesting the
importance of implementing a
GST in 2014.

Leverage data analytics: Businesses

must dig deeper into data related
to their inventory, raw materials,
energy use and customers to unearth
trends that can help them identify
new sources of revenue and cost
savings. Most important, they need
to build digital bridges with their
key stakeholders, such as suppliers
e-exchange to regularly shape
and share analysis and insights.
Such bridges will help businesses
and their key stakeholders better
understand each others challenges
and opportunities as well as create
advantage out of adversity in tough
times. The result could be a boost to
India Inc.s confidence.

Reduce cost of capital: Cost of

capital counts among the biggest
hurdles to investing in Indian
manufacturing and R&D. Yet
R&D is especially critical for high
performance in business. Moreover,
higher interest rates are eroding
Indian manufacturers pricing power
putting them at a disadvantage
compared to their counterparts
from countries such as China. The
Indian government, in consultation
with the RBI, can take immediate
steps to reduce the cost of capital.
And by working with industry
associations, the RBI can define a
new set of variables for determining
working-capital interest rates.
For example, in the United Kingdom,
changes in the interest rate are no
longer defined only by inflation but
by the unemployment target that
the national government wants
to achieve.

19

Spotlight
Made in India digital technologies:
An opportunity whose time has come
Indias digital economy is expected to
grow exponentially in the next few
years. The nation could have as many
as 243 million Internet users by June
2014. If that happens, these users will
outnumber American Internet users to
make India the worlds second-largest
online community after China.18
Moreover, The Economist Intelligence
Unit expects Indias Internet economy
to reach a value of US$100 billion
by 2015.19

Indian consumers unprecedented

hunger for smarter gadgetry has
met with an equally robust response
from the nations entrepreneurs.
In the last decade, more than four
domestic brands have established a
large footprint for themselves in the
domestic smartphone handset and
tablet market. At present, domestic
brands have claimed 40 percent of the
smartphone market22 and around 11
percent of the tablet market.

Disruptive innovations in the digital

hardware and digital electronics
industries are reducing the cost of
ownership of smarter platforms,
spurring sales of smartphones, tablets
and iPods in India. Indeed, India now
constitutes the worlds third-largest
smartphone market.20 In April-June
2013 alone, 70 international and
domestic vendors shipped 1.15 million
tablets in India.21

Digital democratization is no longer

limited to the demand side of the
digital market. The supply side is also
witnessing such democratization.
Startups involved in e-commerce,
B2B web-based tools and mobile
applications that enhance end
customers overall digital experience
have mushroomed across India.
According to the Microsoft India
Accelerator Report (2012), among
technology product startups,
e-commerce startups constituted onethird of all new companies, followed
by B2B web-based tool companies.

Angel investors and venture

capitalists are showing more interest
in financing ventures that have a
digital technology background. As
a result, the cost of establishing a
startup in the digital technologies
space has decreased. Digital
technology incubators in the country
are multiplying. India now boasts
four specialized incubators for
launching digital startups, and the
number is expected to double in the
next decade.
The central governments IT spending
in India is expected to reach US$6.4
billion in 2013, according to Gartner.23
By investing in Aadhar and initiating
the National Broadband Plan, the
Indian government has paved the
way for creating a robust digital
foundation for existing businesses and
budding entrepreneurs.

On the industry front, intensifying

consumer demand for digital
platforms and applications,
coupled with a steadily maturing
digital technology ecosystem,
has incentivized large companies
to explore greater use of digital
technologies in their marketing and
sales functions. Enterprises aware of
the benefits of digital technologies
across the value chain have started
deploying them on the shop floor
as well as across their design and
procurement functions.
Companies such as Hindustan
Unilever Limited have invested in the
development of digital media labs,
and digital sales fronts are becoming
commonplace in large consumer
products companies. Tata Motors
and Maruti have already adopted
digital technologies to design complex
systems on their shop floor.

India is readying itself to take

advantage of a historical opportunity
similar to the one it successfully
unlocked two decades ago. In the
nineties, the nation drew on its
young English-speaking talent and
entrepreneurial mindset to introduce
Made in India scalable business
models and cost-competitive
processes in software technologies.
This helped spark a services revolution
that enabled India to record robust
GDP growth rates. It also gave birth
to a new, young middle class in India
and introduced a new breed of Indian
managerial and entrepreneurial talent
to the world.
Businesses, policymakers, academic
institutions and other stakeholders
now need to invest energy and
resources to launch Made in India
affordable and scalable digital
technologies. They have the talent
to embark on this journey, the
entrepreneurship to innovate and a
digital-savvy market to test and buy
new offerings.
The timing is perfect!

20

21

Banking

Sector outlook

Indian financial
services firms
to adopt more
digital technologies

Despite the macroeconomic and business challenges confronting India, Inc.,

high performers across industries are deciphering future trends and opportunities
to grow their businesses profitably. Whether they are expanding their footprint
across new geographies, product segments and categories; investing in R&D;
or embracing digital technologies, these companies are getting ready for the
upturn. Evolving models of collaborative innovation and regulatory reforms can
give them the necessary push to advance into the next phase of growth.

Automotive
Sales could grow but
margins to remain
under pressure
The Society of Indian Automobile
Manufacturers (SIAM) expects total
sales of all vehicles in the country
during FY2014 to grow by 6-8
percent, with contributions from
almost all market segments. This
growth will be driven primarily by
utility-vehicle sales, which will likely
increase by 11-13 percent in FY2014.24
However, a slowdown in sales paired
with capacity underutilization by
automotive companies will keep
pressure on margins in 2014.
According to the financial solutions
services provider Resurgent India
Ltd., capacity utilization in the
Indian automobile industry has
declined by about 50 percent in
the passenger-vehicle segment,
putting further pressure on auto
companies margins.25

22

Electric vehicles to get

a push from subsidies
To provide a much-needed push to
the slowing automobile industry, the
Indian government plans to roll out
subsidies for electric vehicles (EVs).
For instance, the Ministry of Heavy
Industries intends to initiate subsidies
for such vehicles under the National
Electric Mobility Mission Plan by April
2014. The government expects to
save US$6.4 billion worth of fuel if
the EV market takes off. The ministry
aims to get all cabinet approvals
before April 1 so that the incentives
can start flowing to EV makers as
soon as possible.26

Companies taking
action to improve
quality and efficiency
Automobile companies operating in
India are taking advantage of the
current downturn to improve the
quality of their models. For instance,
Volvo Car Corporation has signed
an agreement with IT company
Tech Mahindra, wherein the latter
will provide Volvo with services for
maintaining and developing a range of
applications that can boost efficiency
and reduce manufacturing costs.27
Meanwhile, Maruti Suzuki India is
working on establishing an integrated
R&D center in Rohtak. The test tracks
at the center will be longer and more
technologically sophisticated than the
tracks at Suzuki Motor Corporations
facility in Japan.28

Automakers to expand
presence in other
emerging markets
Numerous Indian automobile
companies are looking to expand their
presence in other emerging markets
to offset declining sales in India. Tata
Motors, for instance, plans to expand
its range of passenger-car vehicles
in South Africa early in 2014.29 TVS
Motor Company intends to set up a
two-wheeler assembly line in Uganda
and launch two motorcycle models
there in the first half of 2014.30

India to be a
global production
and export hub
Multinational automobile companies
are actively working to make India
their global production and export
hub. Take Ford Motor Company,
which has decided to make India
its compact-car global production
base with the founding of its Sanand
plant in Gujarat in 2014.31 At the
same time, German automobile giant
Daimler is developing its Indian
commercial-vehicle operation,
Daimler India Commercial Vehicles,
as an exports hub. This operation
will export locally assembled trucks
from the conglomerates Mitsubishi
Fuso range to 15 markets in Asia and
Africa, including Indonesia, Thailand,
Malaysia, Tanzania, Malawi, Uganda,
Zimbabwe, Mozambique, Mauritius
and the Seychelles.32

The RBI recently fined 22 banks for

flouting a number of rules including
anti-money laundering norms and
know-your-customer (KYC) mandates.
It also tightened anti-money
laundering and KYC rules.33 Owing to
the increased number of scandals in
the industry and stricter policies from
the RBI, Indian financial services firms
will look to upgrade their technology
systems in 2014. Banks want to
upgrade to modern tools that can help
them analyze real-time data to predict
fraud or illegal activities.
In addition, the RBI has decided to
implement a national GIRO-based
Indian Bill Payment System such that
households will be able to use their
bank accounts to pay school fees,
utilities and medical bills as well
as make remittances electronically.
The RBI has also assembled a GIRO
advisory group to implement this
national bill payment system.34

Private-sector
banks to focus on
emerging sectors
and rural markets
The tough macroeconomic situation
in India is driving private-sector banks
to sharpen their focus on emerging
sectors and rural markets to boost
growth. YES BANK, for example, has
defined a growth strategy focused on
emerging sectors such as life sciences,
IT, education and healthcare.35 Some
private banks are also setting out to
strengthen their rural presence.36

Easing restrictions to
encourage foreign and
private banks
Banks have been given conditional
freedom to open branches in tier-I
Indian cities without seeking the
RBIs prior approval in each case.37
This will likely push banks to expand
their operations in the country.
Additionally, India is hoping to
improve banking operations in rural
areas by easing restrictions on foreign
banks willing to open local branches.
India is expected to issue new rules
in 2014 regarding the operation of
foreign banks. These regulations will
make it easier for foreign lenders to
set up local units and lend more in
rural areas.38

Banks set to
expand operations
Driven by easing regulations as well
as a search for growth avenues, banks
will probably expand their operations
in the coming year. For instance,
HDFC Bank plans to open 500 minibranches across India by March 2014,
each of which will be staffed by one
to three people.39 Bank Internasional
Indonesia will revive its operations in
India after a gap of nearly five years,
under its new promoter, the Malaysiabased Maybank group. The bank is
also expected to begin discussions
with the RBI on offering Islamic
banking products.40

Chemicals
Fertilizer plants to
be revived
A number of public-sector companies
in India are coming together to
revive fertilizer plants, which are
also public-sector undertakings.
A consortium of such companies
Coal India Ltd., GAIL India, Rashtriya
Chemicals & Fertilizers Ltd.will
invest US$1.3 billion to revive the
Talcher unit of Fertilizer Corp of
India, with the goal of producing
1.2 million tons per annum of urea
and ammonium nitrate.41 Another
consortium comprising National
Fertilisers, Engineeers India Ltd.
and Fertiliser Corporation of India Ltd.
are in discussions regarding reviving a
closed urea plant at Ramagundam in
Andhra Pradesh with an investment of
US$766.6 million.42

Eastern India
could emerge as
hub for plastics
With the development of the
Assam Gas Cracker Project and
Brahmaputra Cracker & Polymer
Ltd. in Eastern India, the region is
strategically placed to become the
hub for the nations plastics sector.
The All India Plastics Manufacturers
Association also acknowledges that
recent developments could shift
the industrys center of gravity to
Indias eastern region.43 Moreover,
the national government may soon
approve a plastics park in Tinsukhia
in Assam. This park would be located
near the Assam Gas Cracker plant
near Dibrugarh, and thus will ensure
availability of the feedstock naphtha.44

23

Optimistic chemical
companies to invest in
growth initiatives
Chemical companies are expected to
continue investing in new capacities
and production. Assam Petrochemicals
Limited, a public-sector unit, plans
to invest US$165.6 million for its
new 500 tons per day (TPD) methanol
plant and 200 TPD acetic acid plant.45
In addition, Gujarat State Fertiliser
and Chemicals plans to invest
US$96.7 million in capacity expansion
of its diammonium phosphate plant
in the state.46 Meanwhile, Himadri
Chemicals & Industries, the countrys
largest producer of coal tar pitch,
plans to invest US$56.4 million in new
capacity addition to cater to higher
demand arising in the aluminum and
graphite industries.47

Defense
India to roll out
the countrys first
indigenous light
combat aircraft
With production of Tejas, Indias
first indigenous light combat aircraft,
in high gear, the country is expected
to roll out the first few completed
units by mid-2014. The lightweight
multi-role combat aircraft has been
in the making for 30 years now and
is intended to replace Indias aging
fleet of MiGs.48 Hindustan Aeronautics
Limited plans to manufacture four
of these aircraft each year and then
double that number within a year
after initial operational clearance.49

24

Indias military
strength on the rise
The country has launched a number
of initiatives to strengthen its defense
force. The Indian navy will have its
second aircraft carrier warship, INS
Vikramaditya, in January 2014.50 In
addition, India is expected to conclude
a US$15 billion deal to buy 126 Rafael
fighter jets from Frances Dassault
Aviation by March 2014. Under the
deal, Dassault is expected to send 18
ready-made jets and will manufacture
the rest in India. Hindustan
Aeronautics will be its lead partner.51

Education
Foreign universities
to step up presence
in India
A number of foreign universities are
looking to establish a presence in
India. For instance, the University of
Chicago in the United States intends
to open a new academic center in
Delhi by mid-2014.52 In addition,
Purdue Universitys online learning
program in India, Purdue NexT, plans
to more than double the number
of courses to 46 by mid-2014.
Purdue University has established
this program in collaboration with
Wiley India.53

Government
pushing for new
academic institutions
The Indian government acknowledges
the need for more institutions to
educate its large young population
so as to take advantage of the
demographic dividend. To encourage
private companies to meet the
increasing demand of technical
institutes, the government in 2012
allowed private and public companies
with revenues of at least US$16
million per year (over a three-year
period) to set up technical institutes.
Following this regulation, the All India
Council for Technical Education has
recently permitted a private company
to establish a technical institution
in the country.54 Many other private
companies are also expected to
take similar advantage of this new
regulation in 2014.

Indian institutes
and universities
to partner with
foreign universities
Indias three top universities
Delhi University, Jawaharlal Nehru
University and Hyderabad University
signed memos of understanding
(MoUs) with three Belgian universities
for exchange of professors and
students.55 Moreover, the Jawaharlal
Institute of Postgraduate Medical
Education and Research will launch
various initiatives, beginning February
2014, in association with Boston
University and the University of
Medicine and Dentistry in New Jersey.
The association will be funded jointly
by the US National Institute of Health
and the Department of Biotechnology
from India to promote public
healthcare programs.56

Fast-moving
consumer
goods (FMCG)
FMCGs still struggling
Economic slowdown in India, together
with high inflation, is expected to
further drag down consumer demand.
Moreover, the depreciating rupee
has escalated raw materials prices.
If these cost increases are transferred
to shoppers, consumer confidence will
erode further. Meanwhile, entry of
new players into the sector is forcing
FMCG companies to spend more on
advertising, putting further pressure
on their bottom line. FMCG majors are
likely to experience a margin squeeze
and weak growth in sales volumes.57

FMCGs exploring new

product segments
The economic slowdown and eroding
consumer confidence are leading
FMCG companies to explore new
product areas with an eye toward
reaching more customers. Ruchi Soya,
for example, plans to make a foray
into the ready-to-cook segment and
sharpen its focus on branded products
that deliver better margins.58 Parle
Agro intends to re-enter the cola
market in early 2014 with a coffeeflavored carbonated drink called Caf
Cuba. The company hopes to gain a
market share of about 7 percent in the
first year of sales of the drink.59

Companies to focus on Innovative healthcare

high-growth markets
technologies to be
In the search for new growth avenues, developed in India

FMCG companies are looking to

expand their operations in rural
Indian markets as well as other
developing countries. Cadbury India,
for example, is moving into villages
with populations in the range of
5,000-10,000 in nine states within
India.60 Godrej Consumer Products
aims to expand its manufacturing
operations to two African countries
Tanzania and Uganda. The company
also wants to make acquisitions
to enlarge its footprint on the
African continent.61

Healthcare
India taking steps
to become a global
healthcare hub
India hosts about 150,000 medical
tourists annually, and this number
is expected to grow by 15 percent
every year. To better serve them and
to attract more people to India for
low-cost medical treatments, India
is establishing new facilities with
foreign tourists in mind. For instance,
a medical township of nine superspecialty hospitals in Kochi will be
operational by March 2014. Called
Aster Medcity, the township will
offer state-of-the-art technology to
treat a number of diseases including
cancer. Apart from the newest medical
technologies, Aster Medcity will also
offer residential apartments, hotels,
a convention center, cafeterias, guest
rooms and a home for the elderly.62

India has been the hub for lowcost innovation, and this quality
is attracting foreign technology
companies who want to set up plants
in the country. GE, for instance, is
establishing a plant in Pune that will
be operational by mid-2014. GE plans
to manufacture products for various
industry sectors including healthcare.
The products manufactured at this
plant will be sold in India as well
as abroad.63 National Instruments,
a US-based company, will partner
with Indian Institute of Technology
(IIT), Madras and the Department of
Biotechnology to establish a research
and development facility called the
Healthcare Technology Innovation
Centre. The joint initiative will
produce automated testing equipment
and virtual instrumentation software
to support development of affordable
and effective medical devices.64

New entrants and

expansions to help in
industry growth
Indias healthcare industry is growing
at a brisk pace, inspiring major
players to expand their operations
and some new players to enter the
market. Apollo Hospitals, for instance,
plans to add a hospital in each of the
four cities in Indias East: Kolkata,
Patna, Raipur and Guwahati. It also
intends to expand the number of
tele-medicine centers it operates.65
Havells India, an electrical equipment
company, is diversifying into
healthcare by setting up a chain of
hospitals under the QRG brand.66

25

Information
Technology

Growth in domestic
IT spending to drive
the sector

Initiatives to
encourage investment
in the IT sector

The National Association of Software

and Services Companies (NASSCOM)
expects export revenues to grow
by 12-14 percent in FY2014 and
domestic revenues to grow at a
Despite the slowdown in growth of the rate of 13-15 percent.70 Technology
global IT sector, Indian governments
researcher Gartner has stated that
and the nations domestic IT sector
despite the economic slowdown, IT
intend to take steps to foster more
spending in India will rise by at least
investment in the sector at home.
6 percent, reaching US$71.3 billion
The Karnataka government, for
in 2014, with most of the growth
instance, has designed a new IT policy driven by spending on IT services.71
focused on attracting more investment Moreover, India will have 243 million
to the state. Karnataka aims to become Internet users, surpassing the US as
the largest IT cluster globally, ahead of the worlds second-largest Internet
Silicon Valley. The new policy provides base by June 2014, according to
several incentives and exemptions
a report released by the Internet
to the IT sector that are expected to
and Mobile Association of India
encourage increased investment in
(IAMAI) and market research firm
the state in 2014.67 The first IT special IMRB International.72 Therefore, the
economic zone in the cooperative
domestic market for the IT sector
sector in the country, the UL Cyber
looks promising for the coming year.
Park, is expecting to attract the global
market, particularly West Asia, with its
facilities. The Kozhikode-based Cyber
Park is hoping to leverage the presence
of premier domestic institutes such
as Indian Institutes of Technology and
National Institutes of Technology to
attract IT companies.68
Indias Ministry of Civil Aviation hopes
to finish privatizing six major airports
Chennai, Kolkata, Ahmedabad,
Jaipur, Lucknow and Guwahati
by mid-2014, before the general
India has long been recognized as
elections. This will allow private
an important player in the global IT
companies to enter into partnership
sector. However, the nation is stepping with the Airport Authority of India for
up to play an even stronger role,
a 30-year lease to operate, manage
and is eyeing developed markets to
and develop facilities at these airports.
expand its share in the global IT space. The scope of the project includes the
The Common Criteria Recognition
entire airport, including air-and cityArrangement (CCRA), which includes
side facilities. However, this move
the US, Canada, UK, Germany, France
will also significantly increase airport
and Japan among its 26 members,
costs and charges.73
has given India authorizing member
nation status. Thus India may now
issue clearances to companies to
set up CCRA-accredited private
test labs in the country. This gives
India an opportunity to emerge as a
low-cost hub for testing securitysensitive IT products.69

Infrastructure

Indian government to
privatize six airports

India to become a
low-cost testing hub

26

Metro operations
to expand
The first phase of the Chennai metro
service from Koyambedu to Alandur
has been tested, and the service
is expected to start in early 2014.
The four-coach rake has been
assembled in Brazil by Alstom. The
distinguishing factor for the Chennai
metro will be the luggage racks for
office goers, a feature not found on
other metro trains that currently
operate in India.74 The work for the
Pune metro rail is expected to begin
in 2014. Pune Municipal Corporation
(PMC) has begun setting up the
Special Purpose Vehicle (SPV), a group
of 11 directors. Through the SPV, PMC
will push for the project to get the
nod from the Union government.75

Media and
Entertainment
Crowd funding to
become a popular
funding model for
Indian movies
A handful of Indian movies have
successfully raised money through
crowd funding, making it a popular
model for filmmakers. Young directors
are using social media to reach out
to people to fund their projects,
and a number of projects have
raised a quarter or more of their
films budget through such funding.
Other filmmakers will likely choose
this route to fund their projects.
Indeed, those in charge of the
Malayalam film Oraalpokkam are
planning to raise the money through
crowd-funding source Springr.
This will be the first Malayalam film
to use this funding model.76

Social media
to influence
general elections
Social media has become
indispensable for reaching young
people in India, who make up a large
portion of the nations population.
Even Indias political parties
acknowledge the impact of social
media on the large, young Internetusing population, especially in the
long term. According to the survey
Social Media in India2013, social
media will strongly influence Indias
2014 general elections and may
swing 3-4 percent of the votes.77
Until recently, political parties
campaign strategies centered on
public rallies along with print,
television and radio advertising.
But the proliferation of Internet
use, computers and smartphones
in the past few years has prompted
politicians to consider the potential
of the online medium.78

Oil and gas

Indian and Middle
Eastern oil companies
exploring investment
opportunities
In an effort to meet Indias energy
needs, Indian oil companies are
exploring the geographically closest
and richest oil and gas hubs in the
Middle East. Reliance Industries, for
instance, is evaluating investment
opportunities in Iraq oil and gas
fields, and Hindustan Petroleum
Corp Ltd. may import about 6 million
barrels of Iranian oil by March 2014,
if certain government regulations
come through.79
Meanwhile, Saudi Aramco plans to
acquire up to a 30 percent stake in
a giant petrochemicals project in
Gujarat, a stake that would include
a key management role.80 The
Saudi company is negotiating with
ONGC Petro additions Ltd., with
the goal of completing the deal as
soon as possible.81

India to build strategic

oil and gas reserves
The Indian government is working
to build crude-oil reserves, as has
been done in countries such as the
US, Japan and China. India will
commission its first reserve oil storage
in Visakhapatnam in January 2014.
Apart from Visakhapatnam, India is
building underground storage facilities
at Mangalore and Padur in Karnataka
to accommodate 5.3 million tons of
crude oil, enough to meet the nations
needs for 13 days.82

Diesel prices to
be deregulated
Indias petroleum ministry plans
to deregulate diesel prices by mid2014 with a gradual increase in
prices. Diesel prices could thus rise
by at least Rs 10 by mid-2014.
The government started the
deregulation process in January 2013,
but depreciation of the rupee derailed
its plans. In January 2013, retailers
were allowed to increase diesel prices
by 50 paise per month.

Pharmaceuticals
FDI conditions
to tighten
The Department of Industrial Policy
and Promotion proposes tightening
FDI policy for the pharmaceutical
sector by incorporating conditions like
mandatory investment in R&D and
non-compete clauses in shareholders
pacts. According to the proposed
draft, foreign companies would not be
allowed to close down existing R&D
centers and would have to invest up
to 25 percent of the FDI in the new
unit or R&D facility spelled out in the
deal. The Ministry of Commerce and
Industry has proposed these stricter
conditions to manage the rush of
multinational companies seeking to
acquire Indian pharmaceutical firms.83

No clinical trials
for serious diseases
in India
With the government proposing
tougher compensation rules for
injuries suffered by participants
during clinical trials, drug
manufacturers may shy away from
conducting clinical trials in India
for serious diseases. Under the new
regulations proposed by the Ministry
of Health, drug-makers will have
to provide compensation for all
injuries sustained by participants in
clinical trials, barring totally proven
unrelated cases.84

Private companies
participating in
government schemes
for rural penetration
Indian pharmaceutical companies
such as Cipla, Ranbaxy, Dr. Reddys
Labs and Lupin might soon be part
of the governments ambitious Jan
Aushadhi project, which aims to set
up stores selling affordable generic
drugs to low-income consumers.
In an attempt to commercialize the
project and meet growing demand,
the government will seek to bulkprocure generic drugs from private
sector players. As of 2012, there were
117 Jan Aushadhi stores across the
country; the plan calls for expanding
that number to at least 600 by 2014
and to 3,000 by the end of the 12th
Five Year Plan period.

27

Power
Big push to set up
power infrastructure
India has been grappling with an
acute power shortage, and inadequate
infrastructure is a major culprit. To
tackle this challenge, the government
wants to establish infrastructure
for the power sector, particularly
in renewable-energy sources. The
Ministry of Power has relaxed the
new bidding norms for two upcoming
ultra-mega power projects, which
will be awarded in February 2014.85
Moreover, private companies plan to
enter the renewable power generation
sector. Shriram Group, for example,
intends to invest more than US$100
million to set up new wind-energy
projects under its renewable-energy
arm Orient Green Power Ltd.86
And Hero Group has launched a
new company, Hero Future Energies,
which will initially focus on wind
and solar projects.87

India to partner
with other nations
on energy
The Indian government wants to
collaborate with other nations to
share knowledge and to invest in the
energy sector. State governments
are following suit. For example,
the government of Andhra Pradesh
is collaborating with the UK to
learn best practices in managing
energy-efficiency and-conservation
initiatives. A delegation of experts on
energy and representatives of energyefficiency companies based in the
UK will visit Andhra Pradesh to share
best practices.88 India has also offered
to help Cuba develop its renewable
resources and explore opportunities
to collaborate.89 In addition, Canadian
companies are looking for jointventure opportunities in hydroelectric
and biomass-based power generation
projects in Indias eastern and northeastern states, and may invest in them
in 2014.90
28

India may reduce

dependence on
Chinese powerequipment imports

Real estate market

in Daman to pick
up, thanks to a
casino resort

Conglomerates
expanding the
growing convenience
stores business

The importing of Chinese power

equipment into India has expanded
significantly in recent years. According
to the Indian Electrical and Electronics
Manufacturers Association (IEEMA),
such importing reached 45 percent in
2012-2013, a major increase from 15
percent in 2005-2006. Indian powerequipment makers say that the rapidly
rising Chinese imports could be a
big security risk. The reason: Beijing
can disrupt the Indian economy by
withdrawing technical support for
plants built with cheap imports.
IEEMA plans to discuss the issue with
the central government in 2014.91

Indias largest integrated casino resort

in Daman, by Delta Group, boasts a
10-acre spread with 60,000 square
feet of gaming space. The resort will
likely become operational starting in
early 2014. The proximity of Daman
to Mumbai and key cities in Gujarat,
together with development of the
largest casino resort in the country, is
expected to help drive growth in the
real estate market in Daman.93

Retail

A number of conglomerates including

Reliance and Bharti Airtel have
recently established a chain of
convenience stores in India. The
success of this format is encouraging
these companies to further expand
their operations. Sahara, for example,
plans to open 400 Sahara Q Shop
stores in the National Capital Region
of Delhi by March 2014. The company
also intends to increase the number
of stores from the 901 that existed in
12 states in August 2013 to 10,000
nationwide by March 2014.96

E-commerce to
continue seeing
high grow

Luxury brands to
expand their presence
in India

Foreign telecoms
may buy out their
Indian partners

Indias e-commerce sector is booming,

dominated by startups backed by
venture capital funds and driven by
the nations youth. The industrys
growth, along with the soaring
number of Internet users in India, is
inspiring established retail players
to enter the e-commerce business.
Reliance Retail, which operates more
than 1,500 stores across the country,
plans to enter the industry by mid2014 to compete with established
players such as Amazon and eBay for
a share of Indias fast-growing online
retail market. While organized retail
is restricted to metros and big cities,
e-commerce offers the opportunity
to sell products anywhere in the
country.94 Groupon India, an online
deals company, currently operates
in 11 cities across the nation and
plans to launch its services in Goa in
January 2014.95

Despite a slowdown of economic

growth in India and a consequent
drop in consumer spending, the luxury
retail market in India is expected
to achieve healthy growth in 2014.
That market will likely grow by 17
percent in 2014 to cross the US$10
billion mark, up from US$8.6 billion
in 2013, according to a joint study
by market research firm IMRB and
the Confederation of Indian Industry
(CII).97 Luxury brands are even
expanding their customer base to
smaller cities from the big metros,
targeting wealthy farmers and
professional service providers such
as doctors. Two global luxury brands,
Godiva (chocolates) and Faberge
(jewelry), have solidified plans to
expand their presence in India. Godiva
will open a store in India, while
Faberge aims to build on its gemcutting base in Jaipur.98

With the Indian government

allowing 100 percent FDI in the
telecommunications sector, foreign
telecom companies such as Britains
Vodafone Group, Norway-based
Telenor and Russias Sistema have
the option to buy out their Indian
partners.101 Vodafone Plc is already
seeking the Foreign Investment
Promotion Boards approval to bring in
US$1.6 billion to raise its 64 percent
equity stake in Vodafone India to
100 percent.102 Telenor has raised its
stake in its Indian operations to 74
percent in 2013 and may now look
to increase this stake to 100 percent.
Sistema, which has a 57 percent stake
in its Indian operations, and Malaysias
Maxis, which owns 74 percent of
Aircel, have also acknowledged
this positive development
for the industry.103

Real estate
Japanese companies
to enter the Indian
real estate sector
A Japanese consortium consisting
of JGC Corporation, a multinational
management contractor and
investment partner, and Mizuho Bank,
a subsidiary of the US$1.8 trillion
Japan-based Mizuho Financial Group,
is setting up a 1,450-acre integrated
industrial township 50 kilometers
south of Chennai. The US$700
million industrial town project is a
joint venture between the Japanese
consortium and Ascendas India
Development Trust, a commercialspace developer in Asia, and Ireo,
a developer of large-scale projects
covering residential and commercial
space. The township will be completed
in six to eight years, but the common
infrastructure for the facilities for
the first phase will be completed
in early 2014.92

Telecommunications Optic fiber cable

Internet use to
grow, particularly
in rural India
With 243 million Internet users,
India might outpace the US to become
the worlds second-largest online
community after China by June 2014,
according to a report released by the
Internet and Mobile Association of
India (IAMAI) and market research
firm IMRB International. Moreover,
the number of Internet users in rural
India is expected to rise to 85 million
by June 2014.99 The availability of
more content in local languages is
helping to drive these trends.100

network to expand
India has an ambitious plan to
expand its optic fiber cable network
for defense forces as well as gram
panchayats by 2014. State-run
Bharat Sanchar Nigam Ltd (BSNL)
plans to roll out an optic fiber cable
network for the army and navy worth
roughly US$765 million by February
2014. BSNL also intends to roll out a
US$418.5 million Internet protocol
network for the defense ministry by
June 2014.104 Moreover, the Ministry
of Communications wants to connect
2.5 lakh gram panchayats across
India via an optical fiber network by
2014. This will enable panchayats
to enjoy 3G connectivity in their
respective villages.105

29

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30

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31

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Project team
Raghav Narsalay, Mamta Kapur,
Aarohi Sen, Smriti Mathur