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New Waves of Growth for India

Unlocking Opportunities

Contents

Foreword

Executive summary

The quest for growth

10

The emerging-markets surge

23

The multi-technology future

39

The resource economy

53

The last word

67

Foreword

Sanjay Jain
Managing Director,
Accenture Management
Consulting

The recent economic slowdown has


transformed markets around the
globe. While developed markets are
still experiencing sluggish recovery,
activity is quickening among the
emerging economies. Emergingmarket multinationals have established
new competitive positions and
garnered new market share in a
number of industries. Meanwhile,
the developed-market multinationals
have regroupedand are striving to
win back the ground that they lost
during the recession. The stage is set
for fiercer-than-ever competition, and
the winners will be those companies
that can position themselves at
the forefront of change. The tools
for competing are also changing
witness the emergence of new
business models, new ecosystems
and new innovation networks forged
through technology advances.
This confluence of dramatic, swift
changes will create both opportunities
and challenges for businesses in India.
While many variables will affect the
Indian economy over the next decade,
several trends are pervasive and
virtually unstoppable: a large section
of Indias population is entering
the working-age group; energy and
natural resources are growing even
more scarce; technology is marching
onward with more applications and
more users; and economic demand is
gravitating toward the emerging world.
If businesses and governments can
make the right responses to these
trends and build the right capabilities,
they can help drive inclusive growth
in India. It will not be easy. The Indian
economy currently faces a deficit
of many supply-side elementssuch
as the right type and mix of skills,
execution capabilities for large
infrastructure projects, and innovation
systemscritical for igniting sustained
growth. While there is a growing

recognition that India cannot reach


its full competitive potential without
the effective engagement of its
massive human capital, the corrective
interventions to improve employability
of the future workforce remain
insufficient.
In this report, we call on businesses
in India to reassess where their future
opportunities will lie and encourage
them to place strong bets on future
global growth. We implore businesses
to make the right investments so
they will be well-equipped to seize
advantage of the global growth that
is coming.
Business leaders and policymakers
will have to make difficult choices
to plant the seeds for future success
in todays resource-constrained
environment. And we do not want
to give the impression that there
is a silver bullet that will enable
companies and governments to
capture these opportunities. The
forces coalescing today to shape
the India of tomorrow are complex;
thus the means for managing them
must be complex as well. Some
opportunities and challenges will be
best tackled through bilateral and
multi-lateral cooperation; others
through coordination among different
players across their supply chain;
still others through non-traditional
and counterintuitive partnerships.
It is clear, however, that the effort
will be very worthwhilebut only
if stakeholders throughout
India act now.

Executive summary

There are clear signs of economic


recovery across the globe, but
growth continues to be uneven
across countries. Uncertainty and
volatility still cloud the horizon.
Such uncertainty is amplified by
the knowledge that many of the
previous sources of growthsuch
as debt-fuelled consumption in the
developed economies of the UK and
UShave evaporated. Emerging
economies also face a daunting
challenge: to sustain their impressive
growth rates for years to come,
diversify that growth across a broader
range of sectors and make it more
inclusive across their populations.
As this new landscape takes shape,
India has the opportunity to position
itself at the forefront of future
economic growth as a leading
international hub for investment,
human capital and innovation. The
countrys growth rate remains among
the strongest in the world, fueled
primarily by rising domestic demand.
Despite these achievements, India
must do more to take its place at

the table with the worlds most


competitive economies. To improve
its position, India needs to rebalance
the foundations of its growth to
build structures and capabilities
that can help it withstand economic
shocks and sustain high growth
rates far into the future. In addition,
India must also broaden its base
of economic growth by uncovering
new sources of consumer demand
in previously underserved markets
such as the rural and lower-income
communities. To serve the rising
demands of its growing population,
India must revitalize its traditional
industries such as agriculture and
manufacturing, supplemented
by an increased commitment to
developing sunrise industries.
New growth sectors must be built
on strong supply-side foundations:
enough workers with the right
skills, a healthy population, strong
physical and financial infrastructure,
smart application of technology and
clear channels to new markets.

This reportNew waves of growth


for India Unlocking opportunities
identifies three key trends that
hold enormous promise for India
in the decade ahead; namely, the
emerging-markets surge, the rise of
new technologies and the burgeoning
resource economy. Applying two
distinctive lensesa sectoral view
and a macroeconomic perspective
our findings are based on extensive
discussions with panels of experts
representing business, academia,
government and the non-profit
sector as well as deep analysis of
extensive secondary data and Oxford
Economics econometric modeling.
Accenture research in collaboration
with Oxford Economics suggests that
with the right responses from business
and government, these trends can
strongly drive future economic growth
and job creation for India. The Indian
economy has the potential to grow
by 8.7 percent per year, instead of 8.0
percent in the current trajectory, over
the next decade. This equates to an
extra Rs 11 trillion (US$244.4 billion)

of GDP by 2020 and 37.5 million


additional jobs, over and above what
India would otherwise achieve. Threequarters of these jobs would arise
from Indias exports to other emerging
markets; one-quarter, from the green
and high-tech sectors.
This report highlights key actions that
policymakers and business leaders
can take to leverage these trends
and stimulate renewed growth in the
Indian economy.

The emerging markets


surge
A primary driver of Indias trade growth
has been a rise in trade with other
emerging economies. Companies that
ignore trade with emerging markets
will not only lose valuable business
opportunities but also miss out on
the potential to increase their own
countrys long-term growth prospects.
Indias increasing integration with
other emerging markets will open new
opportunities for Indian businesses in
the areas of services, consumer goods,
infrastructure and medical tourism.

To capitalize on the growth


opportunities in emerging markets,
India needs to play a more proactive
role in building new bridges to the
emerging world by fostering links in
investments, trade, tourism, labor
movements and aid extensions.
Organizations can kick-start the
foray into emerging markets by
drawing on their experiences of
serving diverse consumer segments in
India. Blending this experience with
local approaches to selling, talent
development and innovation in other
emerging markets can be the recipe
for success for companies from India.

The multi-technology
future
Technology is central to economic
progress and the improvement of living
standards in India. New technologies
have the potential to mobilize
communities, enable innovation and
increase productivity. Next-generation
technologies like mobility solutions,
cloud computing and analytics will
create new sources of demand in

India. They will also give birth to whole


new business models for providing
education, finance and healthcare to
Indias massive rural markets, which
have remained outside their reach
owing to poor infrastructure and
connectivity.
Unleashing these technologies
full potential will call for serious
investments in building digital
literacy and skills and creating smart,
transparent regulatory standards. To
capitalize on the opportunities created
by technology change, businesses
will need to adopt a systematic and
disciplined approach to innovation.

The resource economy


The battle for resources is growing
fiercer across the globe, driven by
rising demand coupled with rapidly
dwindling sources. The widening
energy demand-supply gap is creating
an urgent need to exploit alternative
energy sources such as wind, solar,
hydropower, geo-thermal and nuclear.
With global warming fast becoming

a reality, the need for a low-carbon


economy will accelerate the demand
for intelligent energy solutions such
as smart grids, green infrastructure,
alternate fuels and hybrid vehicles. In
the management of scarce resources,
fresh sources of growth are unfolding
in the form of water, land and solidwaste management solutions.
Realizing the growth potential of the
resource economy will require greater
coordination and collaboration among
stakeholders across the value chain
policymakers, businesses, academia
and R&D institutions - and sustained
investments in next-generation
technologies. Businesses will need to
take a long-term view by securing their
future sources of supply and shifting to
next-generation fuels and alternative
energy sources. Seeking out creative
ways to transform waste into profit
and satisfying the huge demand for
energy-efficient products and services
can present profitable business
opportunities in the years to come.

The last word


How can organizations start
capitalizing on the new waves
of growth today? To secure their
competitive position in the increasingly
interdependent economy of the next
decade, businesses will need to place
strategic bets on the future areas of
growth and build the right strengths
and capabilities. Companies that
are unable to utilize todays assets
and capabilities to build tomorrows
competitive advantages cannot
expect their growth to continue in
the long term. Businesses will need
to continually look outward for new
market opportunities and sources
of knowledge, as well as inward
for new skills and capabilities.

The quest for growth

Indias on the rise...


With the broadening of the global
economic recovery, consumer and
business confidence is improving in
most parts of the world. Global trade
is accelerating, and financial markets
are reviving.
As this new landscape takes shape,
India has the opportunity to position
itself as a leading international hub
of investment, human capital and
innovation. The countrys growth
rate remains among the strongest in
the world, fueled primarily by rising
domestic demand. The International
Monetary Fund (IMF) projects Indias
growth at 8.2 percent in FY2011 and
7.8 percent in FY2012.1 India will
continue to witness strong growth
in the near future, thanks to strong
consumption in rural India and
plentiful employment opportunities
in non-agricultural sectors.

10

Indeed, India is set to become one of


the worlds top five consumer markets.
According to Asian Development Bank
estimates, Indias middle class will
explode over the next four decades,
increasing to 1.2 billion by 2030 and
1.4 billion by 2050.2
India is home to 20 percent of the
worlds population, and one-third of
Indians are under 15 years of age.3
Indian businesses have successfully
capitalized on labor-cost arbitrage to
put India on the world map as a major
exporter of services, a competitive
manufacturing and sourcing hub and
a centre for low-cost, high-quality
research and development (R&D).
These businesses have profited
and grown by tapping into a large
university-educated, English-speaking
talent pool at a cost unmatched in
developed economies. The workingage population pool in India will only
expand in the coming years.

... But it needs to do more


Despite these achievements, India
must do more before it can take its
place at the table of the most globally
competitive economies. For example,
according to the World Economic
Forums Global Competitiveness Index
2010-11, India ranks 51st from among
139 countries reflecting the need to
improve significantly on basic drivers of
its competitiveness such as education,
healthcare and infrastructure. Even
when compared to emerging economies
alone, India ranks just 24th.4
To improve its position, India needs to
build structures and capabilities that
can help it withstand future economic
shocks and sustain high growth
rates far into the future. It must
also broaden its base of economic
growth by rebalancing its agriculture,
manufacturing and service sectors.
This will require continued investments
in traditional industries and in
sunrise industries (those in which
huge advances have already been

made by domestic and multinational


companies). There is tremendous
potential in developing traditional
industries such as agriculture and
manufacturing, particularly if it
is supplemented by an increased
commitment to activities higher up the
value chain, such as food processing,
and by greater use of biotechnology to
increase yields per hectare of land.
In basic and high-value manufacturing
industries, India needs to generate
job opportunities for workers from
a largely agricultural background,
particularly through investment in
vocational education and training.
Opportunities in sunrise industries have
only begun to be exploited. The most
obvious success stories are in IT-related
business services, pharmaceuticals
and renewable energy, while
biotechnology and advanced digital
technologies also hold great potential.
As India looks toward the future with
the same optimism that has driven
the countrys growth to date, there is
a fresh opportunity for government

and business to collaboratively find


solutions to domestic challenges
and achieve sustainable growth
and prosperity. But doing so will
require exploration of questions
such as What will drive Indias
growth in the next decade? Can
India become the worlds low-cost
manufacturing hub? Can it expand
its export markets? and What
resources will it have available?

Mapping future growth


opportunities: About our
research
Our research views Indias future growth
opportunities through two lenses:
A sectoral view: Accenture convened a
series of panel discussions with senior
leaders, opinion formers and experts
across sectors. Each panel shared
perspectives on the most promising
sources of untapped growth for Indias
economy over the next decade and
conditions or actions needed on the
supply side of the economy.

A macroeconomic view: Our panels


suggested that significant untapped
opportunity for further economic
growth and job creation lies within
reach for the Indian economy. To provide
a more concrete view of these potential
growth opportunities, Accenture asked
Oxford Economics, the world-renowned
economic research organization, to
model the potential future impact on
GDP and employment levels of these
trends for the Indian economy. This
analysis provides unique insights into
the alternative growth trajectories
open to the Indian economy, the size
of the potential market opportunity
for business, and the policies and
organizational actions that can help
ignite that growth.
This research project was part of a
multi-country study that Accenture
pursued to spot new waves of growth
for the next decade. Additional
countries studied in this same
project include the United States,
Germany and the United Kingdom.

11

Figure 1.1: India output - 2010 and 2020

The Indian economy has the potential to


increase economic output by Rs11 trillion
by 2020 if it fully harnesses the potential
of the rise of other emerging markets,
multi-technology and natural-resource
security. This is equivalent to Rs 7,700 in
GDP per capita.

180

+ 8.7% p.a.

160

Rs154 trn
Rs11 trn

140

Alternative
trajectory
increment

GDP (Rs trillion)

120
100
80

Rs67 trn

+ 8.0% p.a.

60

Rs144 trn

Current
trajectory

40
20
0
2010

2020

Source: Oxford Economics

Three new waves of


growth
Drawing on our research and input
from our panelists, Accenture
identified three new waves of growth
for the Indian economy:

The emerging-markets surge


The rise of a multi-polar worldin
which economic activity increasingly
gravitates towards the powerhouse
economies of Asia and Latin
America will dramatically expand
trade and investment opportunities
for businesses over the next decade.
India is at the forefront of the surge
in emerging-markets. Over the
last few years, Indias trade with
other emerging markets has risen.
Increased trade integration can drive
economic growth directly through
export opportunities and indirectly
through stimulation of higher
productivity and innovation among
export-competing firms. Businesses

12

in India are moving beyond the


more obvious choices of expanding
in emerging markets such as Brazil
and China. They are considering
making inroads in countries such as
Indonesia, Nigeria, South Africa and
Bangladesh. The understanding that
their tested homegrown business
models could be replicated in
similar economies is giving them the
confidence to make bold moves.

The multi-technology future


Technology is central to economic
progress and the improvement of living
standards in India. It has provided a
foundation to connect people and
communities, enable innovation and
productivity increases, and improve
standards of living and opportunities
across the country. Recent initiatives
such as the Unique Identification
(UID) project present an enormous
opportunity to improve governance
and public-service delivery. They also
offer new market opportunities for

sectors including financial services,


consumer goods and healthcare.
Initiatives to improve digital literacy
could help the high-tech sector grow
further, with spillover effects on
economic growth and employment.

The resource economy


As the worlds resources grow
scarce, India faces an uphill battle
to secure resources for the future.
Competition has intensified for
resources of all kindsland, water,
energy, food, minerals. Simultaneously,
the supply of resources is limited
by geopolitical factors and stiffer
regulation to address externalities
such as climate change. Indias
response to this resource scarcity
will generate significant employment
opportunities for people with
traditional and new skills and will
stimulate economic growth.

160
150
140

GDP, increment in alternative trajectory, constant 2010 prices (left scale)

620

GDP, current trajectory, constant 2010 prices (left scale)

610

Employment, alternative trajectory (right scale)

600

Employment, current trajectory (right scale)

590
580

GDP (Rs trillion)

130

570

120

560
110

550

100

540
530

90

Employment (million)

Figure 1.2: India GDP - current and alternative trajectories

520
80

510

70

500

60

490
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2019

2020

Source: Oxford Economics

Indias growth potential:


current and alternative
trajectories
To provide a more concrete view of
these potential growth opportunities,
Accenture asked Oxford Economics,
the world-renowned economic
research organization, to model the
potential future impact on GDP and
employment levels of these trends
in the Indian economy. Oxford
Economics began by using its global
macro-econometric model to generate
a baseline outlook, or current
trajectory, for GDP growth and
employment for the Indian economy
for the period 2010 to 2020. The
current trajectory is based on the
likely evolution of the three trends,
assuming no significant policy or
business interventions to bolster the
supply side of the economy. For each
trend, Oxford Economics then modeled
an "alternative whole-economy
trajectory", in which various supply-

side factors were adjusted to capture


additional output and employment
potential from the relevant trend. For
example, in the case of low-carbon
economy, Oxford Economics assessed
the effects of better regulation,
enhanced skills development and
greater levels of investment; in the
case of emerging markets surge, it
looked at the positive spillover effects
of trade (such as knowledge transfers
and innovation).
This analysis provides a unique insight
into the alternative growth trajectories
open to the Indian economy, the size
of the potential market opportunity
for business, and the policy and
organizational actions that can help
ignite that growth. It also underlines
the fact that while the three trends
are largely inevitable, the benefits in
terms of future growth are not. On the
current trajectory, Indian economic
output is expected to grow from Rs
67 trillion (US$1.5 trillion) in 2010
to Rs 144 trillion (US$3.2 trillion)

in 2020. With a clear demographic


advantage, increases in disposable
income, rising aspirations among
consumers and a growing middle
class, Indias domestic consumption
will likely serve as a critical engine
of growth for the nations economy.
Indian rural markets, home to around
700 million prospective consumers,
still have large pools of untapped
demand, giving these markets the
potential to drive consumption
growth for the next few decades.
But India could increase its economic
output further by establishing
supply-side conditions to harness
the new waves of growth, such as
enough workers with the right skills,
sufficient infrastructure, smart use of
technology and clear channels to new
markets. These interventions could
push the Indian economy onto an
alternative trajectory, with economic
output reaching Rs 154 trillion (US$3.4
trillion) by 2020, an additional Rs 11
trillion (US$244.4 billion) of economic

13

Figure 1.3: Additional India employment in 2020 in alternative trajectory


High-tech and green sectors
Trade with emerging markets

9,300,000

28,200,000

Note: Totals may be affected by rounding.


Source: Oxford Economics

output (Figure 1.1). This trajectory


would also boost employment levels
over the next decade by 25 percent,
compared with a 17 percent increase
in the current trajectory, representing
nearly an additional 37.5 million jobs
by 2020 (Figure 1.2). These additional
jobs have the potential to raise Indias
per-capita GDP by Rs 7,700 (US$171.1)
by 2020.

2014.5 India is also seeking to enhance


trade in textiles and handicrafts,
machinery and transport equipment,
and chemicals and pharmaceuticals
to reach its target of US$500 billion
overall exports by 2014.6 Since all
these industries are primarily labor
intensive, growth in exports will
create spillover effects in terms
of new jobs in these sectors.

Seventy-five percent of the potential


additional jobs would originate from
Indias trade with other emergingmarkets. India is well positioned to
reap the rewards of emerging-markets
growth, owing to its relatively high
degree of trade integration with other
emerging markets and its existing
comparative advantage, driven by
cost-competitiveness, in consumer
and intermediary goods.

The remaining 25 percent of new jobs


would arise in the high-tech and green
sectors. Indias technology sector is
known for its software exports and
business process outsourcing. Our
panel for the global new waves of
growth project suggested that the
growth in mobile banking and microfinance products, combined with
the countrys strategy of moving up
the value chain, point to significant
employment growth in technologies
that support these sectors.

The government is striving to promote


exports in sectors such as gems and
jewellery, with an export target of
US$70 billion, and agri-exports, with
an export target of US$22 billion by

14

15

Figure 1.4: India: Population by age


1200
1000
Aged 60+

Million

800

Aged 50-59
Aged 16-49

600
400
200
0
2000

2004

2008

2012

2016

2020

Source: UN/Haver Analytics

Key imperatives for


growth
Sustainable long-term growth is by no
means guaranteed for Indiabecause
the new waves of growth will present
unfamiliar challenges and opportunities.
To harness these waves, India must
meet three growth imperatives that we
call skilling at scale, financial inclusion
and healthcare for all.

Skilling at scale
Nearly one-fifth of the worlds
population lives in India, and one-third
of India's population is younger than
15 years of age. The UN forecasts that
Indias working-age population will grow
by around 240 million people between
2010 and 2030more so than in any
other emerging economy. In 2020, the
average age in India will be only 29
years, compared with 37 in China and
the United States, 45 in Western Europe
and 48 in Japan.7 The number of people
classified as being of retirement age in
India (above the age of 60) is estimated
to increase from 7% at present to
nearly 10% by 2020 (Figure 1.4).
16

However, Indias talent advantage has


come under increasing threat from
other emerging economies. Brazil,
China, the Philippines and Vietnam,
for instance, are developing talent
pools with key skills, including Englishlanguage capabilities. Competing in
higher-value sectors requires skilled
talent pools. Yet, according to the
Planning Commission of India, the
world will have 56.5 million fewer
skilled workers than it needs by
2020. India could help fill the gap by
developing a large, educated, healthy
and productively employed workforce.
To that end, it has made some progress
in primary education. In 2010, 96.5
percent of children in the 6-14 age
group in rural India were enrolled
in school.8 However, the quality of
education is questionable. For example,
according to a survey by the Annual
Status of Education Report (ASER) by
Pratham, an NGO, only 53.4 percent
of children in fifth standard could
read a second standard level text.9
And while Indias legacy of strong
higher-education institutions has
served the nation well, more is needed.

Only 12 percent of the countrys


population enrolls in higher education,
compared with 30 percent in Brazil,
23 percent in China, 75 percent in
Russia and 82 percent in the United
States. Revamping the Indian higher
education system will require reforms
in areas including course content
(for example, vocational training and
problem solving) and assessment
of educational effectiveness.
If India adopts policies that enable
the working-age population to be
productively employed, the country
could expect to achieve a roughly
1 percentage point growth in GDP,
compounded yearly.10
Critical success factors
Technology can improve delivery
and scope of education. Use of
technology to deliver content,
thereby standardizing the teaching
tools and delivery methodology
can help improve consistency of
the quality of delivery to students.
Making use of new technologies
such as video conferencing, one
teacher can reach out to more

Figure 1.5: Rural bank branches, 2006-2010


64,027

62,517

61,356
60,467

2006

60,170

2007

2008

2009

2010

Source: Economic Survey of India

students, including children in farflung regions. In higher education,


technology can enable professors
from reputed Indian and foreign
universities impart high-quality skills
through guest lectures. Technology
can also be used to improve student
assessment and benchmarking as
well as support self-paced learning.

Financial inclusion

Stakeholders can collaborate to


co-create skills. Businesses can
work with government and academia
to broaden access to quality
primary education, enhance the
capacity of tertiary education and
improve the design and delivery of
vocational curricula. Tapping into
the expertise of retired citizens can
help solve the problem of Indias
teacher shortage while keeping
retirees economically active.

The number of total bank branches in


India expanded from around 133,381
in 2006 to around 160,442 in 2010.
However, the number of rural bank
branches have increased from 60,567 in
2006 to only 64,027 in 2010 (Figure 1.5).
Only about 57 percent of the population
has savings accounts and only about 10
percent has life insurance.11 Penetration
of debit and credit cards is also low,
with just 13 percent and 2 percent of
the population owning the respective
products.12 These figures indicate
growth potential for financial services.
As Indias rural economy shifts toward
more commercialized agriculture and
non-agricultural activities, both of
which require banking facilities, this
enterprising rural population will need
access to cheaper credit.

Financial inclusion is a key priority


of the Indian government and is
expected to drive growth for India. It
hinges on ensuring access to banking
and financial services at affordable
costs to Indias vast unbanked,
disadvantaged and low-income groups.

To address the need for financial


inclusion, the government and the
Indian Banks Association launched
a nationwide programme called
Swabhimaan in February 2011. The
programme aims to bring basic
banking services to 73,000 unbanked
Indian villages with a population of
2,000 or more by March 2012.13 It is
expected to increase the demand for
credit among the millions of small
farmers and rural artisans who will
gain access to banking facilities.
Critical success factors
Technology can drive financial access
and affordability. Technological
advancements (including ATMs and
Internet and mobile banking) have
reduced the need for banks to be
physically close to their customers
and have made banking accessible and
affordable for many urban non-poor
residents across the country. But
banks still have difficulty reaching the
poor. Recent initiatives such as the
UID present an enormous opportunity
to spread financial services across
India by helping poor residents easily

17

Figure 1.6: Indias public health spending, 2002-2020


3500

1.5

3000

1.4
1.3
% of GDP

2000

1.2

1500

1.1
1.0

Rupee

1000

% of GDP

Rs billion

2500

0.9

500

0.8

0
2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Source: Oxford Economics / MoF, India

establish their identity to consume


banking and financial products. As a
result, banks will be able to scale up
their branch-less banking deployments
and reach out to a wider population
at a lower cost. Mobile banking can
further increase penetration even
in rural areas. For instance, Reserve
Bank of India (RBI) revised its mobilebanking policies to enable customers
to conduct lower-value transactions.
New delivery channels can reach
untapped customers. By partnering
with local organizations, banks can
expand their outreach profitably.
These local partners could include
players in the organized sector, such
as the postal service, or unorganized
ones, such as the local kirana (grocery)
shops. For instance, ICICI Lombard
(the insurance arm of ICICI Bank)
has joined hands with ITC to provide
a comprehensive suite of general
insurance products to farmers.14

18

Banking and technology players can


collaborate to tap local talent in rural
areas and invest in their training and
capacity building, along the lines of
ITCs e-Choupal model. Local workers
can be a valuable source of ideas for
developing new product and services
tailored to local needs.

Healthcare for all


India faces serious deficits in its
healthcare infrastructure. As just one
example, the bed-to-population ratio
in India is 1:1000, while the World
Health Organization norm is 1:300.
India also has a serious shortage of
doctors and nurses.15 Public healthcare
spending in India is also among
the lowest in the world. And most
advanced medical technology and
hospitals are located in Indias urban
areas; in rural areas, government
hospitals provide inadequate services.

Indias healthcare sector requires


major reforms to make personalized
healthcare available to all, not just
those able to pay. Efforts must be
made towards preventing diseases,
improving access to primary
care, increasing and improving
the quality of the countrys
pool of medical manpower and
incentivizing the private sector
to invest in capacity building.
In addition, policy makers will need
to adopt measures that ensure the
financial, social and physical wellbeing of the growing elderly segment
of Indias population. Indias average
life expectancy rose from 59 to
65 in the last two decades and is
expected to rise to 68 by 2020.16
Ensuring timely access to healthcare
for this age cohort will be critical,
regardless of where patients live
(see Indias ageing population:
challenge or opportunity?).

A number of hospitals are moving to


address the situationentering tier II
and III cities as well as rural areas to
expand the reach of their services. For
example, Glocal Healthcare Systems,
a venture spearheaded by former
civil servants, plans to set up 2,000
hospitals across rural India in five
years, at an investment of Rs 1.6-2
million (around US$40,000) per bed.17
The Indian healthcare sector is
poised to become a US$280 billion
industry by 2020, with spending on
health estimated to grow 14 percent
annually, thanks to household income
increases, government healthcare
outlays, private domestic investments
and longer life expectancy.18 Oxford
Economics expects overall spending
to rise to about Rs 3.5 trillion
(US$77.7 billion) but remain below
1.5 percent of GDP (Figure 1.6).
The health insurance sector is also
witnessing renewed enthusiasm,
with the opening up of the sector
to private participation. Especially

with rising disposable incomes and


the highest population being the
earning age group of 15-59 years,
the insurance reach is bound to grow
from the present meager 2 percent
to 20 percent.19 This will fuel demand
for higher-quality care and greater
professionalism in the insurance
industry. New business models such as
managed healthcare will also emerge.
Rashtriya Swasthya Bima Yojana
(Indias national health insurance
programme), launched in late 2007,
had enrolled nearly 23 million families
and 8,175 hospitals by April 2011.20
Critical success factors
Technology can help deliver quality
patient care consistently. Thanks
to new technology, people can
find information about treatment
and diseases more easily than ever.
Technology is also improving quality
of nursing communication systems,
patient monitoring devices, remote
diagnosis and telemedicine.

Inclusive healthcare models are


required. In India, where more than
half of the population does not have
consistent access to basic healthcare,
the biggest challenge is to ensure
effective coverage while keeping it
affordable. Entrepreneurs in India are
developing new tools and techniques
that use resources sparingly while
still improving outcomes, instead of
adopting expensive equipment whose
costs do not justify the benefits. For
example, cardiac surgery technique
pioneered by Wockhardt Hospitals
in India causes little pain and does
not require general anesthesia or
blood thinners. Results are quicker
recovery and low costs.21

19

Indias ageing population: Challenge or opportunity?


The hype surrounding Indias
demographic dividend makes it easy
to overlook Indias other demographic
shift the rise in the number of
individuals aged over 60. Population
projections by Oxford Economics
indicate that the old-age dependency
ratio in India will rise from its current
level of 12 percent to 15.5 percent by
2020 (Figure 1.7).
While the increase in Indias
dependency ratio will be significantly
less than the increase in the United
States or Europe, this trend will
nevertheless affect businesses
and government. It will demand
new business models that better
integrate older workers into the Indian
workforce, will place new pressures on
government spending and will affect
Indias growth trajectory.
The implications of the shifting age
structure in India come to light
when the Oxford Economics model
compares the baseline with an
alternative reality (Figure 1.8). This
assumes that the population above
retirement age remains a constant
share of the overall population. (That
is, the over-60 population and total
population are lower than in the
actual baseline forecast.) Workforceparticipation rates among this older
age group are also assumed not
to change. The baseline trajectory
incorporates a number of positive
and negative effects of trends in
population ageing, including impacts
on consumption and labor markets,
based on an expected supply-side
accommodation to these trends.
While the ageing trend will support
economic growth and employment,
additional growth can be realized
through actions to raise laborparticipation rates and increase
productivity. The participation
rate of over-60s is estimated at
around 30 percent, high compared
to Europe and the US. This rate
has been stable over the past few
years. Research also suggests that

20

productivity improvements are


a source of long-term economic
growth. Increasing the number
of older people in the workforce,
combined with productivity-enhancing
human-capital investment, could
create a virtuous cycle. These two
changes would enable older people
to increase their disposable income
as they become more productive
and to stay financially independent
for a longer time. Higher disposable
incomes in turn boost consumption.
Compared to the alternative reality,
employment in the baseline scenario
is 1.6% higher by the end of 2020,
while GDP is 1.1% higher. This is a
smaller impact than in the Europe
and the US, reflecting the slower rate
of ageing in the Indian population.
Acting now to define the right policies
and strategies to address Indias ageing
population will help government
and business convert this potential
challenge into a valuable opportunity.

Implications for government


Indias expanding over-60 population
poses an acute challenge for the
Indian government; specifically, how to
effectively account for this population
when designing social-support and
public-healthcare schemes. Current
social-welfare schemes in India were
designed to serve a select and much
smaller over-60 population. Formal
retirement schemes in India thus remain
underdeveloped and cover only about
13 percent of the countrys workforce.
Expanding retirement and pension
schemes to a larger percentage of the
population will be critical.
Moreover, a larger over-60 population
will further strain Indias already
stretched public-healthcare system.
Oxford Economics projection expects
overall spending on public healthcare
to rise to about Rs 3.5 trillion (US$77.7
billion) and to remain below 1.5 percent
of GDP (Figure 1.9).

Implications for business


If businesses in India begin preparing
now, they can capture opportunities
presented by Indias ageing population.
Demand for private healthcare and
pharmaceuticals will increase, since
coverage of public-health services is
currently low. The Indian government
extended the New Pension System
(NPS) from the public to the private
sector in 2009, drawing on individual
defined contribution retirement
accounts through bank and postoffice networks. For example, ICICI
Bank is offering NPS accounts.
Participation in the scheme will
likely increase as incomes rise
and individuals start planning for
retirement. Access to suitable
financial services will also become
increasingly important as people plan
for longer lives. These trends will
create new opportunities for financial
services and insurance providers.
Consumer-goods companies can
also seize opportunities presented
by ageingby developing products
that accommodate older peoples
changing physiological needs. In
addition, the tourism industry
could benefit by serving older and
financially well off consumers
willing to spend more on travel.

Figure 1.7: India - dependency ratios (%)


18

Old age dependency ratio (% of working age)

16

Retiree dependency ratio (% of labour force)

14
12
10
8
6
4
2
0
2005

2008

2011

2014

2017

2020

Source: UN/Haver Analytics/Oxford Economics


Figure 1.8: Economic implications of population ageing
% difference between baseline and 'alternative reality'
1.8

Employment

1.6

GDP

1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2010

2011

2012

2013

2014

2015

2016

2017

2016

2017

2020

2017

2020

Source: Oxford Economics


Figure 1.9: Budgetary implications of population ageing
Difference between baseline and 'alternative reality' (% of GDP)
1.0

Healthcare

0.9

Pensions

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0

2010

2011

2012

2013

2014

2015

2016

2017

2016

Source: Oxford Economics


21

22

The emergingmarkets surge

23

The emerging-markets surge

Chapter summary
Areas to watch

Creating the conditions for success

Service exports
Low-cost business models
Infrastructure
The emerging-market middle class
Medical tourism

Organizational imperatives

Build new bridges to the emerging world


Develop sensitivity and respect for other
cultures
Drive efficiencies in manufacturing

The
emergingmarkets
surge

Use India as the learning laboratory


Be authentically local
Hire local talent
Develop mutually beneficial partnerships
Design a flexible international operating model

24

Impact on growth and jobs


Rs 7 trillion (US$155.8 billion) added to GDP
by 2020
4.9 percent above the current trajectory by 2020
28.2 million additional jobs by 2020

Assessing the trend:


Indias emerging-market
opportunity
In 2009, emerging markets accounted
for nearly 50 percent of global GDP at
purchasing power parity, up from 37
percent in 1990. Their share of global
output is set to rise to 65 percent by
2030 (Figure 2.1). The ascendancy of
emerging-market power is mirrored in
the corporate arena, with emergingmarket multinationals now making up
95 of the Fortune Global 500, compared
with just 20 in 1995. The IMF forecasts
that the total GDP of emerging
markets could overtake that of the
developed economies as early as 2014.
The most striking trend is the rapid
growth in intraregional trade. While
global trade and Asias trade with
economies outside the region have
doubled since 2000, intra-Asian trade
has tripled. Regional trade involving
emerging Asia, in particular, has
increased even faster. Asian economies
accounted for 35 percent of world
exports in 2009, compared with 25

percent 10 years earlier. The share


of intraregional exports rose to 55
percent from 45 percent over the same
period. The World Bank estimates
that foreign direct investment (FDI)
outflows from developing nations
topped US$210 billion in 2010, up
from the previous record of US$207
billion in 2008. Nearly two-thirds of
this investment came from Brazil,
Russia, India and Chinaand most of
it went to other developing nations.

surge in emerging-markets growth


is being driven by the twin dynamics
of a burgeoning middle class of
consumers and rapid urbanization.
Estimates show that the number of
households in emerging markets with
annual incomes above US$5,000 is
set to rise from 320 million in 2009 to
400 million by 2014. The total urban
population of the developing world is
expected to increase from 2.6 billion
in 2010 to nearly 4 billion in 2030.23

The fast-expanding ties between


emerging economies have helped foster
the recent global economic recovery.
The BRICS (Brazil, Russia, India, China
and South Africa) economies decision
to trade in local currencies shows their
confidence and willingness to boost
intra-BRICS trade. At US$4.6 trillion,
the five BRICS countries account for
almost 15 percent of global trade
volume, and trade among them is
about US$230 billion a year.22

India is at the forefront of the surge


in emerging-markets growth. Over the
last decade, Indias exports to emerging
markets as a share of total exports
have increased from 35 percent in
2000 to 52 percent in 2010.24 Indias
imports to emerging markets as a
share of total imports over the same
period increased from 51 percent to 59
percent. Share of developed economies
as export and import partners with
India has decreased, while share of
emerging economies has risen (Figures
2.1 through 2.4). For instance, share of
the United States as an export partner
decreased from 18 percent in 2004 to
10.9 percent in 2010, while the United

No longer viewed as merely lowcost production locations, emerging


markets are becoming important
sources of new consumer demand. The

25

States share as an import partner


shrank from 6.4 percent to 5.9 percent
in the same period. Similarly, Chinas
share as an export partner increased
from 4.6 percent in 2004 to 6.5 percent
in 2010, and its share as an import
partner expanded from 5.2 percent to
10.8 percent during those same years.
Companies in India are vying for
their share of the pie, looking beyond
Brazil and China and seeking growth
in countries such as Indonesia,
Nigeria, South Africa and Bangladesh.
Businesses that ignore trade with
emerging markets lose a valuable
opportunity. Moreover, their own
economies miss out on the productivity
benefits that arise from trade.
According to our research and analysis,
the emerging-markets surge could
add about 28.2 million Indian jobs
by 2020. In addition, services, lowcost business models, infrastructure
development, a focus on emergingmarket middle class and medical
tourism could enhance Indias GDP
by Rs 7 trillion (US$155.8 billion) by
2020, an increase of 4.9 percent above
the current trajectory (Figure 2.6).

26

Figure 2.1: Share of global GDP (US$ trillion at 2005 prices and PPP)
160
140

Emerging economies
Developed economies

120
65%

100
80

57%

60

48%

40
20

38%
37%
62%

52%

2000

2010

63%

1990

Source: Oxford Economics

43%

2020f

35%

2030f

Figure 2.2: BRICs - Trade with emerging economies


% (Exports/imports to emerging economies as % of total
exports/imports)

Figure 2.3: India - Trade with emerging economies


% (Exports/imports to emerging economies as % of total
exports/imports)

50

65

Unweighted average of measures


for China, Brazil, Russia & India

48

Imports

Imports

60

46

55

44
42

50

40
38

45

36

40

34
35

Exports

32
30
1995

1997

1999

2001

2003

2005

2007

2009

2011

30

Exports
1995

1997

1999

2001

2003

2005

2007

2009

Source: Haver Analytics / IMF DOTS

Source: Haver Analytics / IMF DOTS

Figure 2.4: Indias Top 10 Commodity Export Partners


(as a percentage of total exports)

Figure 2.5: Indias Top 10 Commodity Import Partners


(as a percentage of total imports)

2004

2007

2010

China

5.2%

9.4%

10.8%

10.9%

uae

2.6%

4.7%

6.8%

6.6%

6.5%

Saudi Arabia

0.9%

7.2%

5.9%

5.1%

3.7%

4.4%

USA

6.4%

6.3%

5.9%

Singapore

3.3%

4.8%

4.2%

Switzerland

4.2%

4.9%

5.0%

Netherlands

2.0%

2.1%

3.6%

Australia

3.4%

3.8%

4.3%

uk

4.7%

4.4%

3.5%

Iran

0.3%

4.1%

4.0%

Germany

4.0%

3.1%

3.0%

Germany

3.7%

4.1%

3.6%

Saudi Arabia

1.8%

2.0%

2.2%

Indonesia

2.7%

2.3%

3.0%

France

2.0%

1.7%

2.1%

Korea Republic (South)

3.6%

2.6%

3.0%

2004

2007

2010

uae

8.0%

9.5%

13.4%

usa

18.0%

14.9%

china

4.6%

Hong Kong

Source: CMIE

2011

Source: CMIE

27

Areas to watch
Spurred by the rising middle class
and rapid urbanization, Indian
companies are making inroads in
emerging markets by replicating tested
homegrown business models across
sectors such as services, consumer
goods and infrastructure.

Service exports
India has proved its mettle in the
services industry, with the sector
contributing about 55.2 percent
to the countrys GDP. India is a
highly attractive business process
outsourcing (BPO) services destination;
more than 250 Fortune 500 companies
have their BPO units in India. After
gaining a foothold in the domestic
market, Indian information technology
(IT) companies are extending their
reach in Africa, Latin America
and Asia Pacific. For instance,
Tech Mahindra recently started
BPO operations in the Philippines

28

and has recruited 600 associates


locally for this new operation. Last
year, the company opened centers
in seven African countries.25
Indian telecommunication service
providers have also extended themselves
into other emerging markets. Bharti
Airtel, for instance, entered the African
market through its US$9 billion
acquisition of Kuwait-based Mobile
Telecommunications Co.'s assets in the
continent. Bharti Airtel is now a major
player in 16 African nations.
Indian financial services players are
gradually spreading their wings in
other emerging markets as well. Their
goal is to counter competition from
global banks, which have significantly
expanded advisory operations in India
over the past decade. For instance,
Central Bank of India (CBI), a Mumbaibased public-sector bank, is opening
branches in China, Bhutan, Tanzania
and Mozambique, providing banking
facilities to Indians settled abroad.26

Smaller Indian investment banks have


started setting up joint ventures and
alliances with counterparts in other
emerging economies. For example,
Edelweiss, a fast-growing Indian
financial services group, has ties in
South Africa, Latin America and with
some boutique houses in Europe.27

Low-cost business models


To reach out to Indias low-income and
geographically remote populations,
Indian businesses are experimenting
with scaling strategies. From
manufacturing the cheapest car in
the world (Tatas Nano) to providing
low-cost mobile handsets, India
has emerged as the laboratory for
not just Indian companies but also
multinationals experimenting with
low-cost business models in India.
GE Healthcare, for instance, has
manufactured affordable advanced
cardiac care and electrocardiograph
(ECG) machines in India, which GE
now also sells in developed markets.

Indian companies are now looking


to export these low-cost business
models in other emerging markets.
For example, Bajaj Auto, the market
leader in Indias two-wheeler industry,
recently topped one million units in
exports of its vehicles. The company
has a presence in more than 36
countries in emerging markets such
as Africa, Asia and Latin America.28
India provides multinational companies
in industries as diverse as automobile
manufacturing and mobile handsets
with cheap but high-quality labor and
raw materials, which enable these
companies to develop low-cost but
high-quality products. For example,
Japans Yamaha Motor plans to expand
capacity and export motorcycles
made in India to Africa and South
America.29 And Ford India, the Indian
arm of the American automobile
manufacturer Ford Motor Company,
has started shipping diesel and petrol
engines to Thailand and the fully built
Figo small car to South Africa.30

Indian pharmaceutical players,


not new to emerging markets, are
stepping up their expansion efforts
as well. To illustrate, in April 2011,
Sun Pharmaceutical, Indias largest
drug maker by market capitalization,
entered into a joint venture with
Merck & Co., the second-largest
drug maker in the US. The ventures
goal is to develop, manufacture and
commercialize new formulations,
called innovative branded generics, in
the drug markets of Asia Pacific, Latin
America, Eastern Europe, the Middle
East and Africa. Under the agreement,
Sun Pharmaceutical will focus on
developing and manufacturing
products, while Merck will bring its
clinical and product-registration
expertise as well as global marketing
footprint to the partnership.31

Infrastructure
With increasing urbanization across
emerging markets, governments in
some of these countries are investing
to develop infrastructure assets
such as mobile communications and
transportation, as well as to support
industries that supply materials for
constructing infrastructure. Some Indian
infrastructure companies are seizing
advantage of this opportunityscaling
up their operations, acquiring design
skills and building strong balance sheets
to support projects in other emerging
markets. For instance, GMR Group
became the first Indian company to
operate an airport abroad, with the
opening of the new terminal at Istanbul
Sabia Gokcen International Airport.32
GMR recently also won the bid to
construct the US$360-million airport in
Male, defeating the Aeroport De Paris
(which operates airports in the Paris
region, including Charles de Gaulle).33

29

The emerging-markets
middle class
The middle class is growing in
emerging-market economies, as people
emerge from poverty thanks to their
nations rapid economic growth. The
expansion of this middle class provides
competition for labor and other
resources. It also creates enormous
potential for global consumer markets.
The World Bank estimates that the
global middle class will grow from
430 million in 2000 to 1.15 billion
in 2030, driven primarily by the
surge in emerging economies. The
geographic distribution is striking.
In 2000, developing countries were
home to 56 percent of the global
middle class, but by 2030 that figure
is expected to reach 93 percent.34
Indian consumer goods companies
seek a share in these fast-growing
consumer markets. Most such
companies and retailers are focusing
on markets that have many nonresident Indians, such as Middle
East Asia and Southeast Asia, places

30

culturally similar to India. In 2008,


watchmaker Titan Industries decided
to focus on 10 countries, including
Dubai, Saudi Arabia, Singapore,
Malaysia, Sri Lanka and Vietnam,
despite having a distribution network
across 26 Asian countries.35
African consumer spending is expected
to reach US$1.4 trillion by 2020, while
the number of households in Africa
with discretionary income will rise
by 50 percent to 128 million over the
same period. Africa thus presents new
growth avenues for cash-rich Indian
makers of personal-care products
such as soaps and shampoos who face
rising costs and fierce competition at
home. Godrej has seized advantage
of this opportunity, purchasing
Nigerian personal-care products
maker Tura in 2010 for around US$33
million and buying hair-care brands
Rapidol and Kinky in South Africa.
The sizeable population of Indians
in Africa gives Indian companies an
advantage over global competitors
on the African continent.36

Medical tourism
India is gaining popularity as a global
destination for medical tourism.
The reason: treatment costs can be
substantially lower than in neighboring
medical-tourism destinations such
as Singapore and Thailand. Currently,
India receives more than 100,000
foreign patients a year.37
Most medical tourists treated by
private hospitals in India come from
South Asian Association for Regional
Cooperation (SAARC) countries, and
from Middle East and Africa. These
hospitals often have facilitation
centers in emerging markets, which
educate local residents about the
medical facilities available in India.
An ecosystem that includes several
hospitals, chemists and freelance agents
educates, facilitates and ferries medical
tourists to India from across the world.
In 2010, about 600,000 such patients
travelled to India and spent US$997
million on treatments. The medical
tourism business is estimated to be
growing by 40 percent year-on-year.38

Creating growth through the emerging-markets surge


The econometric analysis by Oxford economics shows that, by embracing the
spillover effects, trade with emerging markets could boost Indias GDP by Rs7
trillion (US$155.8 billion), an increase of 4.9 percent above the current trajectory
by 2020, owing in part to its high degree of integration in emerging market
trade (Figure 2.6). Concerns are often expressed that opening up trade threatens
domestic jobs, but the econometric research finds that trade with emerging
markets has the potential to stimulate maximum employment as new demand is
created, raising 2020 employment levels by 28.2 million in India.
To assess the impact of trade with emerging markets on Indian economy, Oxford
Economics took the novel approach of including the positive spillover effects of
trade (such as knowledge transfers and innovation). India has the potential to
exploit its existing advantage in consumer and intermediate goods, which is
driven by cost competitiveness relative to developed economies.

Figure 2.6: Potential of interventions to stimulate the emerging-markets surge

140

GDP, increment in alternative trajectory, constant 2010 prices (left scale)

610

GDP, current trajectory, constant 2010 prices (left scale)

600

Employment, alternative trajectory (right scale)

590

Employment, current trajectory (right scale)

130

580
570

GDP (Rs trillion)

120

560

110

550
100

540
530

90

Employment (million)

150

520

80

510
70

500
490

60
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2019

2020

Source: Oxford Economics

31

32

Creating the conditions


for success
Emerging economies present
immense long-term growth potential
for businesses operating inside and
outside these markets. However,
access to emerging markets is
often hindered by various factors,
such as restrictions on trade and
investment, inadequate infrastructure
or distribution systems, and cultural
and social differences affecting
consumer demand. To capitalize
on growth in emerging markets,
economies must open trade routes to
those markets through international
agreements and business relationships
as well as uncover and strengthen
areas of comparative advantage.

Build new bridges to the


emerging world
Our analysis highlights the importance
of economies maintaining momentum
toward openness in trade and
investment flows. Resilience to global
shocks will be enhanced if intraregional trade and financial flows are
increased. Bilateral and regional trade

agreements can play an important role


in freeing up these flows. They can also
deepen their economies integration
with regional trade areas. Economies
can further foster regional economic
cooperation by forging links between
regions investments, trade, tourism,
labor pools and aid extensions.
Recent developments augur well for
accelerating regional cooperation in
South Asia. The ASEAN-India Trade in
Goods agreement, for instance, created
the worlds largest free-trade area by
population, bringing together 1.8 billion
people, by liberalizing tariffs on over
90 percent of products traded between
the regions. India recently signed
agreements with Malaysia and Indonesia
to increase trade to US$15 billion and
US$25 billion, respectively, by 2015.
Indian companies have already started
benefiting from these agreements.
Trimex Sands, part of the Trimex Group,
plans to establish a titanium plant in
Indonesia at an estimated cost of over
US$800 million, while GVK Power and
Infrastructure will spend US$4-$5
billion over the next several years to
build airport terminals in the city of
Yogyakarta and on the island of Bali.39

The 16th SAARC summit, held in


Bhutan in April 2010, resolved to
increase intraregional connectivity,
enhance energy cooperation and
expedite implementation of tradefacilitation measures.40 These moves
will help countries harness significant
unutilized complementarities in energy
endowmentsgas, hydropower, coal
within a region and between the
region and its neighbors. Increasing
energy demand, driven by economic
growth and access expansion, will
further increase the opportunity
costs of keeping national energy
systems isolated. Greater intraregional
connectivity allows increased transport
asset utilization, which lowers costs
and tariffs for participating countries
through improved port systems and
better shipping services.
In February 2011, India urged all
member-states to ratify the SAARC
Agreement on Trade in Services,
terming it a "big step forward" for
increasing trade within the region.
While trade under the South Asia Free
Trade Agreement (SAFTA), which came
into force in 2006, crossed US$1.2
billion, the SAARC agreement has the
33

potential to grow trade further. As


one of our panelists put it, Regional
cooperation between Asian countries,
both bilateral and multilateral for
trade, will greatly benefit India and
the region. This cooperation is crucial
to enabling peace and prosperity for
countries in the region as well as the
world at large.

Develop sensitivity and respect


for other cultures
To succeed in other emerging
markets, Indian companies must
understand and respect those
markets cultures, institutions, laws
and business practices. In many
areas, growth has been founded on
the exploitation of historical and
cultural ties between geographies.
However, this traditional strength
also presents a new challenge. As
companies grow across geographic
and cultural borders and move up
the value chain, they will face a more
diverse set of consumers. Businesses

34

must monitor consumers changing


preferences and tailor their offerings
to local cultural norms, rather than
taking a one-size-fits-all approach.
Many organizations are now providing
staff with language lessons and
cultural-sensitivity training to address
issues such as etiquette, protocol,
communication styles and negotiation
approaches. One global brand that has
adapted to local culture and tastes
is US fast-food chain McDonalds
Corporation, which has adapted its
products to local tastes. Big Macs,
for instanceMcDonalds flagship
offeringwould never succeed in
India, where 80 percent of people
do not eat beef and consider cows
sacred. McDonalds restaurant in
Gujarat, where most citizens are
vegetarian, offers vegetarian burgers
and other Indian dishes, such as
samosas. In New Delhi, however,
non-beef meat eaters can get a
Maharaja Mac made with lamb or
chicken at a McDonalds restaurant.41

Drive efficiencies In
manufacturing
India aims to double its exports
over the next three years to reach
an export level of US$450 billion by
2013-2014.42 To achieve this ambitious
target, India will need to build up its
economys manufacturing strength.
Indias manufacturing sector has grown
in size and ranks among the top 10 in
the world. However, in terms of the
value of its manufactured output, the
countrys level of industrialization,
expressed as manufacturing value
added (MVA) per capita, is the lowest
among fast-growing emerging markets.
The promise of the worlds largest
working-age population is undermined
by one of the lowest labor-productivity
rates among fast-growing emerging
markets. India may have some worldclass clusters of excellence (such as
automotives and pharmaceuticals), but
more than 40 percent of its industrial
output is produced by small and
medium enterprises. Around 84 percent

of Indias manufacturing employment


is estimated to be in firms with
fewer than 50 workers.43 Small firms
often get caught in a vicious cycle
of insufficient access to capital, low
productivity, old technologies, limited
earnings and few growth prospects.
Larger enterprisesthose operating in
the formal sector where productivity
and wages tend to be relatively
highalso face barriers to this huge
market opportunity, including poor
infrastructure and rigid labor laws.

Organizational imperatives
Use India as a learning
laboratory
A number of Indian companies
are using their knowledge of how
to operate in India to strengthen
their operations in other emerging
countries. For example, Bajaj Auto
trained roadside mechanics in Angola
to fix their bikes, because many parts
of Angola could not support a proper
dealer and service-centre network.44

Many multinational companies are


also eyeing India as a laboratory
for testing business models and
product offerings with which they are
considering serving other emerging
markets. L'Oral, for instance,
the French cosmetics giant, has
developed products in India for
Indians and then launched them
in other emerging markets. The
company is establishing a new R&D
hub in India to develop products
in India that could be exported
to other emerging countries.45
Google also plans to test its offline
model in India before replicating it in
other emerging markets. The offline
model, still in the experimental stage,
involves putting more salespeople on
the street and using call-centre agents
to help small firms go online and use
Googles advertising platform.46
Similarly, Pearson, a British publishing
company, has entered the education
market in India, hoping to replicate
this model to expand its global

footprint. Few companies have


managed to make good money in the
vocational training and education
business in India, owing to factors
such as scarcity of land inside cities,
government regulations and shortage
of trained teachers. Pearson believes
that if it can make a profit in India,
it will emerge as a formidable
local player and will have a model
it can replicate in other emerging
countries.47

Be authentically local
To create and develop products for
other emerging economies, Indian
companies must understand local
consumers and customize product
design, pricing, value engineering
and marketing strategies to local
preferences and priorities. Savvy
companies embed their innovation
activities into the local R&D and
consumer environment, working
in tandem with industry peers and
policymakers.

35

Businesses in India are increasingly


taking this approach as they expand
their base in other emerging markets.
For instance, when Dabur set up its
international arm, Dabur International,
in 2001, the objective was to get
closer to its Indian-origin customers
in the Middle East. Today, almost 90
percent of Daburs customers are
localsnot the Indian diaspora. The
companys closer proximity to nonIndian consumers enabled it to adapt
its products to locals needs and
aspirations. To do so, the company
not only modified existing products
formulations, it also created new
products exclusively for these markets.

Hire local talent


By recruiting local talent in emerging
markets, companies save money. Expat
executives usually command higher
salaries and need time to absorb
the local culture. Equally important,
companies build credibility while also
deepening their understanding of
local markets so they can tailor their
offerings accordingly. For instance, the
Tata Steel KZN (TSKZN) Learnership

36

programme in South Africa is a good


example of the kind of investments
Indian companies are making towards
skill development and creation of jobs
in other markets. The programme
focuses on imparting training and
skills to local unemployed students
with basic education and no work
experience in the uMhlathuze district,
thus enabling them to enter the
mainstream workforce. The TSKZN
Learnership programme has produced
two batches of graduates so far, of
whom 49 have been employed as
operators with Tata Steel.48

Develop mutually beneficial


partnerships
Companies should partner with local
organizations to source information,
develop new products and increase
distribution reach. Local partners
offer deep expertise and valuable
insights into market trends, consumer
preferences, government regulations,
and procurement and distribution
channels. For instance, Indian ABG
Shipyard Company partnered with
the Sierra Leone Exploration Mining

Company (SLEMCO) to mine bauxite in


northern Sierra Leone in West Africa,
an area with over 300 million tons
of proven reserves of the valuable
rock.49 Through this partnership ABG
Shipyard Company got access to the
rich natural resources, while SLEMCO
benefited from the vast experience
that ABG got to this venture.
Larsen & Toubro (L&T) is another
case in point. The company signed an
agreement with South Africa-based
Befula Investments for a joint venture
to develop power transmission and
distribution projects in South Africa.
L&T will have a 72.5 percent stake
in the venture. The two companies
have agreed to collaborate on turnkey
execution of power transmission lines,
sub-stations, rural electrification,
power distribution and industrial
electrification. The joint venture
company will look at the engineering,
procurement and construction of
high voltage transmission lines and
also the associated sub-stations. L&T
will be responsible for the design and
engineering of the projects.50

Design a flexible international


operating model
Companies aspiring to do business
in emerging markets must determine
how to achieve growth on a regional
scale while maintaining the local
focus that made them successful
initially. Surmounting this challenge
requires flexible operating models
that combine local knowledge and
practices with regional functions and
capabilities. Companies cannot afford
to lose sight of the skills and practices
that helped them growsuch as deep
local knowledge, products tailored
to consumer needs and constraints,
adaptability and entrepreneurial
zeal. If they can avoid stifling these
abilities in the quest for scale, they
will be well positioned to achieveand
sustaingreater growth in the future.

business model that has emerged in


the Indian telecom industry, based
on volume, affordability and inclusive
growth, can be replicated in other
emerging markets. After operating
a volume-based business model in
India, Bharti easily established itself
in Africa by acquiring Zain Telecom's
African operations. Similarly, Godrej
group intends to strengthen its
presence in emerging markets in
Asia, Africa and Latin America via
three core product categories. The
company has already charted a
clear roadmapOne Africafor
scaling its Africa operations.

Bharti Airtel, for instance, used its


expertise in one emerging market
India to tackle another Africa.
The continent is home to almost 15
percent of the world's population
but is one of the most underserved
places on earth. Bharti realized the

37

38

The multitechnology future

39

The multi-technology future

Chapter summary
Areas to watch

Creating the conditions for success

Digital goods and services


Core technologies
Ancillary technologies
Convergent technologies
Technology-enabled business model

Build digital literacy and skills


Create smart regulatory standards
Build on existing excellence and reputation

Organizational imperatives

The multitechnology
future

Embrace the cloud


Use technology to pursue polycentric
innovation
Harness technology to serve customers needs
Share digital literacy
Create open innovation networks

40

Impact on growth and jobs


INR4 trillion (US$90 billion) added to GDP by 2020
2.8 percent above the current trajectory by 2020
10.8 million additional jobs by 2020

Assessing the trend:


The acceleration of
everyday life
The ICT revolution is catalyzing
social and economic transformation
in India. It is connecting people and
communities, enabling innovation
and productivity increases, and
improving standards of living and
opportunities across the country. As
technology costs continue to drop,
poor and geographically remote
populations are adopting technology
and are willing to pay for products
and services that satisfy their
wants in a sustained manner. The
continuing spread of information
and communication technologies is
making those groups more accessible
to companies than ever before (Figure
3.1 and 3.2). New connection points
arise daily as government funding
and low-cost innovations such
as a US$35 touch-screen laptop
developed in India make purchasing
computing hardware more feasible.

Internet penetration in India has


increased exponentially over the
last decade from zero broadband
connections back in 2000 to more
than 10 million connections in 2010.51
Falling costs are now complemented
by reliable, easy-to-use interfaces.
As more Indians gain access to
the Internet, economic and social
dynamics across the country will
change dramatically, with massive
implications for productivity and
opportunities for businesses and
public-sector organizations. As
one of our panelists stated, The
mobile revolution is credited with
leapfrogging Indias growth in a myriad
of ways, including connecting the rural
hinterland. The next revolution that
can potentially supplement this is the
Internet revolution, especially with the
introduction of 3G.
New technologies bring not just new
sources of demand but also whole
new business and service models.
The rapid spread of mobile phones to
help farmers and fishermen become

more efficient and improve their


livelihoods is just one example. Such
developments are creating a fastpaced and competitive business
ecosystem, with reduced time to
market and the ever-present danger
that businesses will miss out on
market trends. As a result, Indian IT
players are competing aggressively
with developed-world incumbents
in a more interconnected landscape.
Smaller Indian software firms are also
making a mark as they shift focus
to finding solutions for the domestic
market instead of attempting to
emulate products and ideas from
the developed markets. In the last
three years, Indias software product
exports have reached a revenue
level of US$1.14 billion. But with
the traditional IT majors accounting
for maximum share, more than
125 start-up companies have been
established in India.52 Their goal is
to muscle into the domestic business
emerging from the manufacturing
sector and other sources.

41

Figure 3.1: Mobile phone subscriptions in India

Figure 3.2: Fixed line phone subscriptions in India

700

12,000

600

10,000

500
400

thousands

millions

8,000

300

4,000

200
100

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: International Telecommunication Union & TRAI

India is also fast gaining credibility


as a global R&D hub. Research
reveals that Fortune 500 companies
operate 63 captive R&D facilities
in India.53 Companies want lean
and nimble innovation hubs in
emerging markets that do not take
the traditional captive route of
owning all resources. Instead, these
hubs partner with local universities
and start-ups to build scale and
speed in taking cutting-edge ideas
to market.54 The hubs aim to design
offerings that suit low-income and
culturally diverse populations.
E-governance represents additional
potential. Estimates by NASSCOM
suggest that e-governance is a US$9
billion opportunity in India. One such
mega project is the UID initiative.
The world's largest biometric project,
UID will expand its footprint across
several Indian states in 2011 and is
slated to generate US$4 billion in new

42

6,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: International Telecommunication Union & TRAI

business by 2015.55 Other government


and defense segments will also create
sizeable opportunities in large systems
integration projects for application
services. Managed services around
IT infrastructure will open doors to
application services as well.
Technology will not only boost
performance efficiency and generate
new growth opportunities for the
economy, it will also launch many new
technology sectors. Oxford Economics
analysis illustrates that, by investing
in skills and widespread technology
adoption to harness the technology
trend, India can boost its GDP by
Rs 4 trillion (US$90 billion) by 2020,
a 2.8 percent above the current
trajectory. These moves will also
help create 10.8 million jobs by 2020
(Figure 3.2).

Areas to watch
As technologies mature and are brought
to market, they offer a springboard for
a major leap forward in almost every
area of business operations. The core
technologies themselves will develop
their own markets as they are adopted,
as well as foster ancillary markets for
related technologies and services.
Sometimes growth stems from the
convergence of one technology with
another. Finally, new technologies can
enable new ways of doing business with
existing products.

Digital goods and services


Rising income levels and increasing
levels of consumer awareness are
driving demand for digital goods and
services across India. Mobile-phone
subscriptions continue to grow rapidly,
having already increased at almost a
70 percent compound rate over the
last decade to reach close to 700

million.56 The mobile-handset and


smartphone market is keeping pace
and is expected to be worth US$8
billion by 2016, from the current
US$5.8 billion.57 Indias young, urban
citizens with high disposable incomes
are increasingly demanding highend handsets. And with the rollout
of 3G mobile services, demand for
smartphones will only accelerate in
the coming years.
The market has responded to the
opportunity. Recent research reveals
that there are more than 200 mobilehandset brands available at retail
outlets across the country.58 New
entrants like Micromax, Spice, Karbonn
and GFive have gained sizeable market
share through their competitively
priced models.59 Even traditional
consumer-durables companies such
as Videocon and Onida have launched
their own mobile handsets.

Notebook sales have witnessed equally


astounding growth over the past five
years, skyrocketing by almost 15 times
from about 177,000 in 2004-2005 to
2.5 million in 2009-2010.60 Gartner
predicts that by 2012, notebook sales
will outgrow desktop PC sales in India,
with most of the demand coming
from consumers as well as small
and medium enterprises. The digital
goods manufacturing sector in India
will continue to enjoy robust growth
driven by domestic and international
demand. Moreover, demand for skilled
technicians who can build and repair
this deluge of digital goods will almost
certainly climb.

Core technologies
New technologies will open up
significant opportunities for rapid
growth. The market for cloud
computing in India is expected to
be worth US$360 million by 2014,

growing at a 40 percent compounded


rate.61 Pay-per-use models of software
and storage infrastructure as a service
based on cloud computing platforms
are helping Indian businesses compete
with financially stronger developedmarket rivals. Indias massive small and
medium (SME) business and consumer
segments are the main drivers of
cloud computing, owing to its cost
effectiveness. Large enterprises are
testing the public cloud by initially
moving less critical applications to
it. Small micro-finance institutions
in India seeking to serve low-income
populations are reducing their own
operating costs by using the Mifos
Cloud to manage their data. Launched
by the Grameen Foundation, the Mifos
Cloud is managed through Amazon's
hosting facilities and provides
commercial-level security, availability
and disaster recovery to customers at
affordable prices.62

43

44

Large volumes of data, pictures,


music, videos and even complete
websites are increasingly being
stored online for cost and efficiency
reasons. Estimates suggest that
information stored online in India will
grow from current levels of 40,000
petabytes (1 petabyte is about 1
million gigabytes) to 2.3 million
petabytes over the next decade.63

Ancillary technologies
Tech-savvy enterprises can now base
key management decisions on large
quantities of informationdriving
development of new services centered
on analytics. Business intelligence and
analytics will be critical for companies
in sectors such as retail, healthcare,
telecom and financial services, which
rely on data-driven decision making.
India has a billion-plus consumers,
and very little is known about the
consumption patterns of most of
them. Companies that previously based
decisions on managers past experience
and business instincts will gradually
move toward fact-based decision
making. Banks are already analyzing
customer profiles to cross-sell other
products, while telecom companies are
examining usage patterns to market
new plans and services to subscribers.
Forecasts suggest that the Indian
business-intelligence technology market
will generate revenues of US$65.4
million in 2011, up almost 16 percent
over 2010.64
Indias government is seeking to build
its competency in business intelligence
and analytics. The UID programme
will make available huge volumes of
consumer data that the government
plans to analyze to improve efficiencies
in collecting taxes, combating fraud
and maximizing public services.
But with the availability of so much
data, security and privacy will become
growing concerns. Businesses are
already facing increased enterprise
security risks coming from social
networking sites, mobile devices
and cloud platforms. Security is an

even bigger worry for governments


as IT infrastructure supports critical
national assets such as power
grids, emergency communications
systems, financial systems and
air-traffic control networks.
Indias National Cyber Security Policy
identifies indigenous development of
IT goods as vital for fighting threats
from imported high-tech products. The
policy also recommends identification
of cyber-security threats and critical IT
infrastructure vulnerabilities as key to
developing a coordinated R&D effort
focused on addressing deficiencies. In
addition, it identifies at-risk proprietary
technologies and encourages open
standards to cut down the risk of
dependency on proprietary
IT products.65

Convergent technologies
The convergence of two or more
different technology fields generates
innovative solutions across industries.
For example, biotechnology combined
with pharmacology, information
technology and even agriculture
has created vital opportunities. The
Indian biopharmaceuticals sector
has been a particularly successful
segment, boasting revenues of
US$1.9 billion and growing at 12
percent.66 Indian biotechnology
major Biocons biopharmaceuticals
and chemical formulations business
has been the main force behind its
high profit and revenue growth.
Biocon is also making a US$160
million investment in Malaysia for
development of high-end biosimilars
(officially approved new versions
of innovator biopharmaceutical
products, following patent expiry).67
The bio-agriculture market segment
in India, estimated at US$420 million,
is the fastest growing segment in the
biotechnology sector.68 Bio-agriculture
can help tackle Indias food-shortage
problems. Private companies and
government research agencies are
genetically improving the quality of
crops to create high-yielding hybrid

varieties. Bt cotton is the best-known


success story, and accounts for more
than 80 percent of all cotton produced
in India. The biopesticides and
biofertilisers market, although nascent,
has captured attention because
these products are economical,
eco-friendly, efficient, productive
and accessible to marginal and small
farmers. The market for biofertilizers
is expected to grow at almost 15
percent compound rate until 2012.69
Meanwhile, the domestic market for
bio-informatics, estimated at US$50.2
million, is expected to receive a huge
push owing to the UID programme.70
The plan is to establish a national
identification infrastructure through a
biometric platform (iris and fingerprint
scans) for the entire Indian population.
As the government looks to enhance
public-service provision through
e-governance, the UID programme
will try to forge links between citizens
and servicesimproving access for
excluded parts of the population, and
providing a safe, reliable infrastructure
for public and private service provision.

Technology-enabled business
models
Indian businesses want to use
technology to bridge the gap to the
countrys massive rural markets, which
have stood outside companies reach
because of poor infrastructure and
lack of connectivity. Technology will
play a critical role in the inclusion of
these people in Indias growth story.
For instance, the National Bank for
Agriculture and Rural Development
(NABARD) has entered into a
partnership for a one-year programme
with international news agency
Thomson Reuters' Indian subsidiary,
Reuters Market Light. The goal is to
provide farmers in Tamil Nadu with
real-time market information for a
duration of one year for free. The
service will deliver spot crop prices,
commodity news and other relevant
information to farmers through SMS
in local vernacular languages. Armed

45

with such information, farmers stand


a better chance of avoiding distress
selling of their crops, because they
know when the demand and the
prevailing market prices are high.71
Technology is bringing to life whole
new business models that previously
would not have been profitableor
even possible. One such phenomenon
that is rapidly gaining popularity in
India is group-buying websites. These
sites bring customers together socially
and harness groups bargaining
power to negotiate large discounts
on products. The Internet acts as an
aggregator that benefits consumers
and merchants alike. Ventures like
Taggle, SnapDeal, MyDala and Koovs
are growing quickly and attracting
additional players into this segment.
Meanwhile, Indias mobile-telecom
revolution has sparked the emergence
of companies offering a variety of
value-added services (VAS). The
introduction of 3G mobile services
will accelerate the VAS markets

46

growth. Companies will increasingly


offer a range of services such as
content aggregation and distribution,
mobile-commerce solutions, mobile
advertising and content management.
Some will even partner with
companies outside the telecom value
chain to tap the bottom of Indias
population pyramid. Mobile-commerce
company mCheck India, for example,
is collaborating with micro-finance
institutions to implement mobile
payments in the micro-credit sector.72
One of our panelists commented
that although at present microcredit products are more known,
the major breakthrough will be in
micro-savings banking products using
technology. Recent estimates suggest
that the market for mobile VAS will
exceed US$4 billion by 2015.73

Creating growth through the multi-technology future


The econometric modeling by Oxford Economics illustrates that, by investing in skills
and widespread technology adoption to harness the multi-technology trend, India
can boost its GDP by Rs 4 trillion (US$90 billion) by 2020, 2.8 percent above the
current trajectory. This translates to a lift in employment levels by 10.8 million by
2020 (Figure 3.3).
The alternative trajectory incorporates the effect of sustained, targeted
improvements in education and training policies for the high-tech sector. Next
generation technologies like mobility solutions, cloud computing and analytics will
not just create new sources of demand in India but will give birth to new business
and service models.

Figure 3.3: Potential of interventions to stimulate the multi-technology future

140

GDP, increment in alternative trajectory, constant 2010 prices (left scale)

610

GDP, current trajectory, constant 2010 prices (left scale)

600

Employment, alternative trajectory (right scale)

590

Employment, current trajectory (right scale)

130

580
570

GDP (Rs trillion)

120

560

110

550
100

540
530

90

Employment (million)

150

520

80

510
70

500
490

60
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2019

2020

Source: Oxford Economics

47

Creating the conditions


for success
Indias future workforce must fully
embrace the digital world. Adoption of
new technologies relies on regulation
to provide stability for businesses and
public services along with assurance of
data privacy for consumers.

Build digital literacy and skills


Availability of digital skills is vital
to the growth of Indias hightech sector and overall economy.
Widespread digital literacy is critical
for amplifying technologys impact
on productivity and innovation across
the wider economy. This creates
a virtuous cycle in which higher
productivity lowers production costs
and prices, enhancing consumption,
investment and job creation.
Consider Hole-in-the-Wall Education,
a joint venture between Indian
education major NIIT and the
International Finance Corporation

48

(a part of the World Bank Group). The


venture set up 23 outdoor computer
kiosks in some of the poorest slums
in India, where children never had
access to a computer. Monitors
protruded through holes in the
kiosk walls. Instead of a mouse
and keyboard, there were specially
designed joysticks and buttons, and
the computers were connected to the
Internet. Within hours of installation,
and without instruction, children
began browsing the Internet.
Another example is the joint technology
entrepreneurship programme between
Indias Department of Science and
Technology (DST), Indo-US Science
and Technology Forum and Intel. The
goal is to build an entrepreneurial
ecosystem in India. Intel provides
technology training and a global
platform for the initiative.74

Creating smart regulatory


standards
Systematically building industry
standards can facilitate the rapid
uptake of a new technology. The Indian
government recently restructured its
semiconductor policy to offer special
fiscal incentives for the industry,
providing concessions of up to 25
percent on capital expenditure to
domestic manufacturers.75 Incentivizing
growth of the semiconductor sector
will help India cement its position
among leading IT and electronics
hardware manufacturers, while
also supporting Indias solar-energy
capacity-expansion plans.
The government is also establishing
disincentives for non-renewable energy
producers. The tax levied on export and
manufacturing of coal, effective in July
2010, will raise an estimated US$555
million in 2011. The government
plans to channel these funds to
establish new electricity-transmission
lines and clean-energy projects.76

UID: Inclusion through Technology


The UID programme was conceptualized by the Planning Commission of India in
2006 to solve the identity problems facing the millions of rural Indian citizens.
Only about 50 percent of Indias population today is covered by the four major
identification programmes. Migrant workers, poor farmers and landless laborers
often lack any kind of identification document. Proving ones identityto get social
aid and open bank accountscan seem impossible for this marginalized section
of the population, who make up most of the 400 million Indians living below the
poverty line.
The Unique Identification Authority of India has undertaken Aadhaar, a national
identification infrastructure that will be established through a biometric platform
for the entire Indian population. Aadhaar will issue every resident a unique 12-digit
identification number based on fingerprint and iris scans. Residents will not require
any identification document.
Aadhaar will make India a world leader in identification management and biometric
technologies, given the size and demographic complexity of its population. It will
also deliver tremendous opportunities to businesses and the government.
Public-service delivery: Aadhaar will ensure that benefits reach the right
beneficiaries in a predictable and timely manner. For instance, wages under the
National Rural Employment Guarantee Scheme could be transferred directly to
a UID-linked bank account and withdrawn only through UID authentication.
Another example could be the Rashtriya Swasthya Bima Yojana, which provides
families living below the poverty line with insurance coverage. Every beneficiary
family is issued a biometric-enabled smart card containing their fingerprints and
photographs. If the UID data could be added to the chip mounted on the card,
families below the poverty line could validate their identity to obtain governmentprovided grain at Indias fair-price shops.
Health and education: Aadhaar numbers will help track health and education
records across the country, as well as enable the poor to gain access to basic
services through vouchers linked to their UID. With health records stored against
each UID, hospitals will be able to track historical records of patients to provide
accurate diagnosis and treatment. Meanwhile, imprinting the UID number on
students performance records will help prospective employers and educational
institutions verify authenticity. The system will help educators track school
dropouts and migrant students, improving these at-risk individuals access to
education. The technology would support implementation of the Right of Children
to Free and Compulsory Education Act and monitoring of the mid-day meal scheme
and other school programmes.
Opportunities at the bottom of the pyramid: Having unique identities will
promote financial inclusion for people at the bottom of the pyramid. Indias
Ministry of Finance has recognized the Aadhaar number as an officially valid
document to satisfy Know Your Customer norms for opening bank accounts.
Aadhaar is therefore paving the way to include small farmers, peasants, microentrepreneurs and poor women in the countrys organized monetary system.
Empowered with bank accounts, the poor can begin building up their savings and
gain access to new forms of credit. Financial institutions will have a more accurate
picture of poor households cash-flow cycles and repayment capacities. They can
then develop instruments to help the poor invest in the economy and in their own
financial futures.
Enrollments under Aadhaar have reached almost 6 million since the programme
began in August 2010.77 By the end of 2011, new enrollments will happen at the
rate of 1 million every day.78

49

Build on the existing excellence


and reputation

Use technology to pursue


polycentric innovation

Create open innovation


networks

Indias achievements in the IT


services industry has provided it with
a platform from which it can build
capabilities in other new technologies,
such as cloud computing, bioinformatics and robotics. Indias
2.5-million-strong IT workforce will
expand to almost 10 million over
the next decade,79 and will prove an
advantage for companies seeking
to engage in these new technology
areas. Major Indian IT companies can
leverage their outsourcing experience
to build viable cloud-computing and
virtualization business models. Indian
IT major Wipro recently launched
the Wipro Hospitality Management
Solution, a cloud solution intended to
enable a single view of guests across
group hotels and a single image of
inventory so hotels can respond to
customer needs consistently.80

Multinational companies are pursuing


polycentric innovationchoosing
locations for innovation based on
the markets served; for example,
a different innovation hub for a
different type of innovation for a
different type of market. They are
increasingly shifting idea incubation to
locations like India to create relevant
products for their emerging-market
consumers. Reverse innovation
is also on the rise, whereby ideas
originate in emerging markets before
being sold into the developed world.

Open innovationwhereby
companies involve stakeholders
such as suppliers, vendors and
customers in their innovation
processis attracting interest in
India. Automobile companies in India
provide exceptional examples. They
have nurtured capabilities in local
auto-parts companies and OEMs, and
in return, have benefited from these
stakeholders ideasstrengthening
technological capabilities across the
industrys value chain.

Nivios cloud-computing platform


lets users store files online, rent
applications and access the features
of a desktop through a normal web
browserall at a price as affordable as
cable TV. Bharti Airtel, Indias largest
mobile telecom operator, has already
signed an agreement to offer Nivios
software solutions to its customers on
a monthly rental basis. The telecom
giant recently launched this service
offering under the brand name of
Airtel Online Desktop.81

Organizational
imperatives
Embrace the cloud
Purchasing IT solutions as a service
enables companies to enter new
markets rapidly, minimize sunk
costs and benefit from cuttingedge software. Offering all these
advantages, cloud computing will
help Indian entrepreneurs and SMEs
compete with larger organizations.
As more of Indias low-income
consumers demand pay-per-use
services, companies will have little
choice but to shift to clouds.

50

Harness technology to serve


customers' needs
Indian companies recognize the
importance of putting the customer
at the centre of their technology
agendas. They are analyzing
customer needs before deciding what
technology to deploy, which helps
them justify technology investments
to the shareholders.
Tata Docomo, the telecom service
provider, is an apt example. The
company recently launched a webbased live-chat feature, the first in its
industry. The feature allows new and
existing users to ask questions and
provide feedback in real time, and to
share files during the sessions.82

Share digital literacy


Full integration of new technology
requires a variety of skills in the
workforce at a range of levels, from
basic digital literacy to more advanced
technical skills. Knowledge-sharing
schemes such as mentoring, social
networks and enterprise wikis can
spread the necessary expertise
cheaply and effectively as well as
bridge generational gaps in working
practices. However, India needs many
more formal training institutions.
Although India has a strong IT talent
pool, a wide gap exists in terms of
other technical skills. The government
is trying to bridge that gap through
skills-development programmes.

In the pharmaceuticals and


biotechnology fields, the Open Source
Drug Discovery (OSDD) Consortium,
launched in 2008 by Indias Council
of Scientific and Industrial Research
(CSIR), brings together scientists
from across the world to collaborate
on ways to hasten the drugdevelopment process.83

51

52

The resource
economy

53

The resource economy

Chapter summary
Areas to watch

Creating the conditions for success

Intelligent energy
Alternative energy
Green infrastructure
Food processing and agribusiness
Water, waste and land management
Alternative fuels
Hybrid and electric vehicles

Invest in next-generation technologies


Create incentives for firms
Collaborate with stakeholders

Organizational imperatives
Shift to next-generation fuels and
renewable energy sources
Diversify supply sources
Develop energy-conserving products
and services
Turn scarcity into abundance
Shape pro-growth regulation

54

The
resource
economy
Impact on growth and jobs
INR458 billion (US$10 billion) added to
GDP by 2020
0.3 percent above the current trajectory
by 2020
821,000 additional jobs by 2020

Assessing the trend:


The drive for resource
efficiency
As the worlds resourcesland,
water, energy, food and minerals
grow scarce, India faces an uphill
battle to secure its resources for
the future. Population growth and
urbanization are contributing to
water scarcity. Uncontrolled and
unregulated use of groundwater has
lowered water tables. Meanwhile, the
same trends are causing demand for
food to soar. The Indias agriculture
sector is facing intense pressures,
due to growing demand, threat
from changing weather conditions,
increased risk of diseases and pests
to plants. While companies in the
food processing business have sought
to expand capacity, infrastructural
inadequacies and regulatory
bottlenecks have slowed the effort.
Energy intensiveness in Indian
industries counts among the highest in
the world. Accounting for one-fifth of
Indias GDP, the manufacturing sector
consumes about half the countrys

energy generated for industrial use.


With Indias GDP expected to grow at
an average of 8 percent per year over
the next decade, resource consumption
in India is set to expand further (Figure
4.1). In an attempt to meet the need,
Indias oil-import volumes increased
from 1.6 million barrels per day (MB/D)
in 2000 to 2.5 MB/D in 2009 and are
expected to reach 14 MB/D by 2050.
India would also need to increase its
gas imports quickly, particularly after
2020, to reach 140 billion cubic meters
(BCM) by 2050.84
To prepare for the future, India must
explore alternative resources, source
traditional resources from new
locations and leverage efficiencyenhancing technologies. The Indian
government is working to expand
supplies of alternative energy sources
such as wind, solar and nuclear, while
also overhauling the countrys energy
infrastructure through technologies
such as the smart grid to improve
supply efficiency. Agriculture and
agribusiness sectors are working
on next-generation solutions in
collaboration with sectors such as

biotech and IT meet rising demand.


If approached imaginatively, the
quest for resource efficiency can fuel
economic growth and job creation.
Our research and analysis show that
the green sector could do more than
just help India address resource
shortages. It could also generate
821,000 new jobs by 2020 and boost
Indias structural transformation
(Figure 4.2). Thanks to new
technologies and other innovations,
fresh sources of growth are unfolding
in this sector. New areas such as
renewable energy, green infrastructure
and food processing will generate
significant employment opportunities
for individuals possessing traditional
and new skills. The green sector
will also enhance GDP by serving
domestic and export demand. The
Oxford Economics model shows
that, with appropriate regulation,
skills development, investment
incentives and technology spillovers,
this sector could raise Indias GDP
by Rs 458 billion (US$10 billion)
by 2020, 0.3 percent above the
current trajectory (Figure 4.3).

55

Figure 4.1: Total Primary Energy Consumption in India


40.0
35.0

Quadrillion btu

30.0
25.0
20.0
15.0
10.0
5.0
0.0
2000

2005

2008

2015

2020

2025

2030

2035

Source: US Energy Information Administration

Areas to watch
Which sectors stand to benefit
most from this resource-efficiency
revolution? Our research shows that
managing the scarcity of resources is
opening up growth opportunities for a
wide range of old and new industries
including agriculture, energy,
consumer products, infrastructure
and automotive sector.

Intelligent energy
Intelligent-energy solutions will
promote Indias low-carbon agenda
while also addressing its inefficient
power supply. At present, energy losses
during transmission and distribution
in India exceed 30 percent, one of the
highest in the world.
Smart grids intelligently gather
and analyze consumption patterns
to control distribution and reduce
theft. Rural/agricultural areas
suffering acute power shortages can

56

have adequate and reliable access


when each user is mapped on a
smart grid. The smart-grid market
in India is still nascent; only a few
public-sector utility companies
have launched pilot projects to
test the technologys suitability.
Smart grids that work in tandem
with smart meters have two-way
communications capabilities and
can further improve efficiencies
while promoting use of green energy.
Reliance Energy has installed more
than 20,000 such smart meters in
the state of Maharashtra, which send
energy-usage data in real time to
meter owners through Google. User
can manage their power usage from
a remote location, choosing when
to switch off the meter, and can
prioritize usage of green electricity
sources. Smart meters can also send
consumption statistics to the grid,
which can use the data to regulate
loads more efficiently.85

Alternate energy
India wants to reduce its dependence
on non-renewable energy sources.
The Ministry of New and Renewable
Energy in India has set a target of
renewable energy sources contributing
10 percent to new power-generation
capacity installed up to 2012.
Alternative energy sources such
as wind power, hydro-power, bioenergy (biomass gasifiers) and
next-generation solar power can
create new markets and export
opportunities as well as provide a
much-needed impetus to Indias
domestic manufacturing sector. Wind
energy is one of the fastest-growing
alternative-energy sectors in India.
Nuclear power is the fourth-largest
source of electricity in India, with India
ranking ninth in the world in terms
of number of operational reactors. As
of 2010, India had 20 nuclear-power
plants generating 4,780 megawatts

Million metrics tons of carbon dioxide emissions

Figure 4.2: India - Carbon Dioxide Emissions


1800
1500
1200
900
600
300
0
1980

1984

1988

1992

1996

2000

2004

2008

Source: US Energy Information Administration

(MW). The country plans to increase


nuclear-power output to 63,000 MW
by 2032. The India-US civilian nuclear
deal is a major step toward establishing
a strong nuclear-power capability. The
US-India Business Council estimates
that India will spend about US$175
billion within the next 25 years on
the nuclear-industry build-up.86 US
companies like GE Hitachi Nuclear
Energy and Westinghouse Electric
Company are already exploring
opportunities to build nuclear reactors
in India and provide nuclear fuel for
civilian energy programmes. Meanwhile,
nuclear-energy major Areva plans to
build six next-generation reactors
over the next few years.87 Domestic
players like the National Thermal Power
Corporation (NTPC) and the Nuclear
Power Corporation of India (NPCIL) are
also partnering to develop nuclearpower plants within India. NTPC has
set a target of generating 2,000 MW of
nuclear power by 2020.88

India has abundant solar resources,


receiving the equivalent of more than
5,000 trillion kilowatt hours (KWH)
in sunshine each year. The Jawaharlal
Nehru National Solar Mission, a
solar-energy government initiative,
aims to deploy 20,000 MW of solar
power by 2022.89 The government
also plans to deploy 20 million solar
lighting systems in rural areas by
2022.90 Tata Power, for instance,
intends to increase its solar-power
generation capacity tenfold within a
year to achieve its target of 40 MW
by March 2012. The solar-energy
agenda is also accelerating expansion
plans in ancillary industries such as
semiconductors.

Green infrastructure
Indias drive toward renewable energy
is fuelling its green-infrastructure
sector and breeding demand for a
host of green capital goods as well as
construction and building materials.
Recent research by The Climate Group
estimates that Indias wind-energy
sector could create as many as 250,000
additional jobs by 2020. The solarenergy sector could create another
235,000 jobs during the same period.91
Indias production capacity for solar
photo voltaic (PV) systems has grown
multifold, from less than 60 MW in
2005 to more than 1 gigawatt (GW) in
2009, and is expected to reach 2.5 GW
by 2015. India is also set to become
a major manufacturing hub for the
global solar PV market, exporting close
to 75 percent of its total production to
markets in the EU.92

57

In addition, India will be a major


manufacturing hub for wind turbines
in Asia. Annual production capacity
will rise from the current level of
7,500 MW to more than 17,000
MW by 2013.93 Suzlon, Asia's fifthlargest wind-turbine manufacturer,
is benefiting from strong domestic
demand, and recently received an
order from Caparo Energy to set up
1,000-MW wind projects through
March 2013.94 In turn, Suzlon is
creating demand for a wide variety of
ancillary manufacturing parts such as
gearboxes and drive shafts.
Meanwhile, rapid urbanization is
driving new demand for energyefficient residential and commercial
buildings. Indias green building
products and technologies market
is expected to hit US$100 billion
by 2012, while the green-building
footprint will likely increase to 45
million sq ft by 2012.95 There are

58

1,063 projects in the pipeline with a


green footprint of 636 million sq ft.
And with 80 percent of India yet to
be built, the next two decades would
present a huge opportunity for the
construction sector as well as related
sectors such as cement and steel.96

Food processing and


agribusiness
Indias food-processing industry is
evolving rapidly, owing to the changing
lifestyles and rising disposable
incomes. The Ministry of Food
Processing estimates that this market
will be worth US$70 billion by 2015.
To capture this huge opportunity, the
ministry has set targets to raise the
level of perishables processing from 6
to 60 percent, increase value addition
from 20 to 35 percent and double
Indias share in global food trade to
3 percentall by 2015. The ministry

expects that reaching these targets


would require an additional investment
of US$22 billion over the next five
years and a large inflow of talent.
As one of our panelists pointed out,
The next big jump in GDP growth
will come from agricultural and rural
reforms and there is a long pending
agenda there.
Expanding contract-farming
engagements in India indicate the
employment that the food-processing
sector can create. Pepsico started
contract farming with potato growers
in the state of Punjab in 2001 and is
now doing so in eight other states.
In Rajasthan, Pepsico has partnered
with 1,200 farmers to cultivate barley
in a partnership tie-up with the
United Breweries Group. It has also
contracted with 22,000 farmers to
procure potatoes, rice, barley, tomato
and chilies.97

Logistics and warehousing companies


are also proliferating around major
agricultural hubs across the country.
The government has stipulated
the creation of two million tons of
additional storage for agricultural
produce through modern silos.

Waste, water and land


management
Land degradation, a changing climate
and growing water scarcity will put a
premium on efficient land and water use.
As acknowledged by the Indian Ministry
of Environment and Forests, 70 percent
of Indias surface water resources and a
growing percentage of its groundwater
reserves are already contaminated by
biological, toxic, organic and inorganic
pollutants.98 Estimates suggest that
Indias total water demand will double
between now and 2030. India will need
around 1,500 BCM of water by 2030,
and at the current rate of increase it will
have a supply of just 744 BCM.99

Newer sources of water are scarce,


so the water-treatment and
-management sector will need to
step up. Between 2005 and 2010,
investors injected US$160 million in
17 companies that specialize in water
and waste management, recycling and
engineering.100 But India will need to
further invest more than US$5 billion
in the water-management and solidwaste management sectors over the
next 15 years.101 A large portion of this
investment will go into R&D.
Indian businesses are actively tackling
water conservation and recycling.
For instance, the 170,000 sq ft ITC
Green Centre, located at Gurgaon,
is the worlds largest zero percent
water discharge, noncommercial
green building.102 The building
harvests all of the rain that falls on
the structure. It also recycles all the
water used in the facility, including
waste water, to tertiary standards
through its sewage-treatment plant.

In 2008-2009, the companys stormwater pits recharged groundwater


by 5,492 kilolitres (KL), and its
sewage-treatment plant recycled
6,852 KL of water, reducing costs
andmore importantwater usage.
Meanwhile, crop and animal waste
in rural India has traditionally been
used to generate biomass electricity
on a small scale. The total capacity
is expected to increase tenfold in
the coming decade, reaching 10 GW
by 2020.103 The National Biomass
Cookstoves Initiative will develop
next-generation cleaner biomass
stoves and deploy them to 160 million
Indian households that currently
use traditional stoves based on solid
biomass fuels. Over 4 percent of Indias
total greenhouse emissionsworth
US$1 billion in the international
carbon marketwill be avoided once
this initiative is implemented.104

59

Alternate fuels
As fuel prices continue to rise, vehicle
manufacturers in India are developing
models that can function on alternative
fuels as efficiently as they do on
conventional fuels such as petrol and
diesel. Shale gas may be one such
alternative fuel. Indias Oil & Natural Gas
Corporation (ONGC) recently discovered
the first shale gas deposit in the country
in the state of West Bengal. This is
the first significant shale gas reserve
found outside the US and Canada.
Initial estimates from US mining major
Schlumberger has pegged the gas
reserves at this site at 300 trillion cubic
feet.105 If successful, this initiative could
turn Indias current energy picture from
deficit to surplus.
Coal-to-liquid technology, which uses
domestic coal reserves, offers another
sign of hope because it may help reduce
Indias reliance on oil imports. The
government recently awarded two coal
blocks in the state of Orissa to Jindal
Steel and Power (JSPL) and Strategic
Energy Technology Systems (SETL) for

60

coal-to-liquid technology projects that


will likely begin by 2018. A joint venture
between India's Tata Group and South
Africa's Sasol will invest US$10 billion
in another coal-to-liquid project in the
same state.106
Meanwhile, other research efforts are
exploring additional alternative fuels.
Scientists at the Institute of Chemical
Technology (ICT) are searching for algal
strains that can be used to develop
next-generation biofuels. India aims to
reduce the current cost of production
of US$10 per liter by almost 25 times
by utilizing micro-algae that can
be grown on a massive scale. ICTs
five-year project in collaboration with
the International Centre for Genetic
Engineering and Biotechnology will
genetically modify the best-suited algal
strains to increase their productivity.107
Coal-bed methane (CBM), another
relatively new fuel alternative, is also
attracting interest in India. The country
has one of the largest estimated
reserves of CBM, thought to be around
4.6 trillion cubic meters.108 Essar Oil, a

major player in this segment, currently


produces 35,000 cubic meters of gas
per day from its 33 drilling wells. It plans
to invest US$300 million to increase
production to 3.5 million cubic meters a
day through 500 drilling wells over the
next two to three years.109

Hybrid and electric vehicles


India is steadily gaining a reputation as
the global hub of fuel-efficient cars.
However, a steep increase in vehicle
ownership, more than 15 percent
per annum, will pose a significant
threat to Indians transport system
and the environment overall. More
futuristic technologies, particularly
hybrid cars, will play a critical role in
reducing dependence on oil. To enter
the electric-vehicle (EV) market, the
Mahindra group acquired electric-car
manufacturer Reva in May 2010. It
plans to establish a new plant with
a production capacity of 30,000
units per year.110 Mahindra Reva is
coming out with two four-seater
electric cars under the names NXR
and NXG. It is also developing a

Creating growth through the resource economy


The econometric analysis by Oxford Economics shows that, with appropriate
regulation, skills development, investment incentives and technology spillovers, the
green sector could boost Indias GDP by Rs 458 billion (US$10 billion) by 2020, 0.3
percent above the current trajectory. This translates to a lift in employment levels
by 821,000 by 2020.
To model the impact of the green sector on the economy, Oxford Economics used
the generally accepted definition of green businesses as those that make use of
low-carbon and resource-efficient practices to operate more sustainably than
competitors in their industry. This definition includes traditional environmental
businesses dealing with pollution, waste management, water treatment,
environmental consultancy and recycling as well as renewable energy companies
and those involved in emerging low-carbon activities (such as alternative fuels,
carbon capture and storage, carbon finance, energy management, and green
building technologies). The potential of the sector could be improved, however,
with pro-green regulation combined with skills development, investment incentives
and measures to induce greater technology spillovers.

Figure 4.3: Potential of interventions to stimulate the resource economy

140

GDP, increment in alternative trajectory, constant 2010 prices (left scale)

610

GDP, current trajectory, constant 2010 prices (left scale)

600

Employment, alternative trajectory (right scale)

590

Employment, current trajectory (right scale)

130

580
570

GDP (Rs trillion)

120

560

110

550
100

540
530

90

Employment (million)

150

520

80

510
70

500
490

60
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2019

2020

The Oxford Economics modeling shows that, buttressed with an appropriate blend of regulation, skills development, investment incentives

Source:
Oxfordspillovers,
Economics
and technology
the green sector could boost Indias GDP by INR458 billion (US$10 billion), 0.3 percent above the current
trajectory by 2020. This translates to lifting employment levels by 821,000 by 2020.

61

hybrid version of its popular SUV,


the Scorpio. Mahindra & Mahindras
acquisition of Korean SUV maker
SsangYong will further strengthen its
electric- and hybrid-vehicle projects.
Even public-sector major Bharat
Heavy Electricals Ltd (BHEL) is
looking to partner with Japanese
automaker Toyota to make EVs.
Toyota, for its part, is keen to partner
with BHEL to tap its experience
in manufacturing electric buses
and electric locomotives.111
Indias Ministry of Natural and
Renewable Energy announced a
US$21 million incentive scheme,
providing incentives of up to 20
percent on ex-factory prices of
EVs sold in India for the remainder
of the 11th five-year plan.112

Creating the conditions


for success
Indias resource economy has
significant growth potential and
abundant opportunities for the private
sector. It is still nascent compared
to other developed markets. It thus
provides a chance for companies to
build next-generation capabilities
without having to manage legacy
systems. As suggested by our analysis,
there is an urgent need for investment
incentives and technology spillovers to
realize this growth potential. To bridge
the supply-side deficit, India should
address the infrastructure shortages
currently constraining resource-related
growth opportunities.

Investing in next-generation
technologies
Investing in next-generation
technologies can help India catch up
with developed-economy competitors
in the resource arena. Idea incubation
will be vital for generating innovative
solutions to old problems based on
high-technology platforms. To support
technology development, companies
will need to rapidly develop large-scale
green-infrastructure capabilities.
Signs look promising. For instance,
NTPC, Indias biggest power producer,
is in talks with Toshiba, the Japanese
power-equipment maker, to build
a pilot project in India aimed at

62

capturing and storing carbon


emissions. The first 5-MW carboncapture plant in India will be set up
by 2016, and will help reduce climatechange effects of coal-based power
plants. NTPC also plans indigenous
development of next-generation
super-critical and ultra-super-critical
power-plant technology that will
significantly reduce CO2 emissions.
A variety of new, cost-effective
technologies can also help exploration
companies improve productivity. For
instance, Reliance Industries recently
partnered with BP to get access to BPs
technology, which can help Reliance
make the most of its exploration
assets. BP will help Reliance Industries
to maximize the performance of its
existing blocks with the help of its
superior technologies.

Create incentives for firms


Incentives are needed for private
investment in resource exploration and
generation. For instance, the projected
investments in power generation
during Indias 11th plan period (20072012) are US$133 billion. Of this,
the private-sector contribution is
expected to be around US$37 billion
or 21 percent. For the 12th plan
period (2012-2017), private-sector
participation will likely be higher
about US$60 billion (35 percent of the
total capacity addition). The private
sector has already announced a planned
capacity increase of nearly 100 GW
over the next six to seven years.113
In 2010, the Indian government
formally recognized the role that
renewable energy can play in reducing
the countrys dependence on fossil
fuels and combating climate change.
It introduced a tax of US$1 on every
metric ton of coal produced or imported
into India. This money will contribute to
a new Clean Energy Fund. In addition,
the government will establish a Green
Bank using the US$500 million raised
through the national Clean Energy
Fund annually. The new entity would
likely work in tandem with the Indian
Renewable Energy Development Agency
(IREDA), a government-owned nonbanking financial company.
Meanwhile, the Ministry for New and
Renewable Energy (MNRE) approved
a Generation Based Incentive (GBI)

scheme for wind-power projects.


An incentive tariff of Rs 0.50/KWH
(1.1 cents) would be given to eligible
projects for a maximum period of
10 years. Projected financial outlay
for this scheme under the 11th plan
period (2007-2012) is estimated at
US$90 million.114
The Indian government also made
financial support available for
the installation of solar-energy
systems and solar lights through
the Jawaharlal Nehru Solar
Mission. The programme provides
a 30-percent subsidy combined
with 5-percent interest on loans by
individuals, industrial, commercial
and non-commercial entities.
India has also been trying to build
tidal-power plants. A recent study
found 7 GW of potential in the Gulf
of Cambay and an additional 1.2 GW
in the Gulf of Kutch, both located in
the state of Gujarat. The government
wants to promote private participation
by subsidizing 50 percent of the cost
of demonstration tidal-energy plants.

Collaborate with stakeholders


To achieve green targets and
seize opportunities in these areas,
stakeholders throughout India must
collaborate with each other and
with external partners. Educational
institutions and academia are keen
to help shape the future resource
economy. For instance, academics
at the University of Nottingham will
receive more than 5 million (US$8
million) in UK funding for research on
opportunities in the UK and India for
small-scale energy generation through
renewable sources, development
of an autonomous green-power
system and promotion of greater
use of mobile technologies to grow
wealth in rural communities.115

Organizational imperatives
Shift to next-generation fuels
and renewable-energy sources
Indian companies must plan for a
future where pollution-causing fossil
fuels will be prohibitively expensive
and regulated. They have an advantage
in not having to deal with legacy
systems and can base their growth on
clean technologies that will help them
tackle future resource scarcity.

As these companies expand operations


beyond geographical boundaries, their
clean, energy-efficient operations will
help them gain access in developed
economies and avoid stringent
environmental regulation.
The companies should also benefit
from government incentives to
increase production of renewable
resources. For instance, windpower projects have received many
concessions, such as a 10-year tax
holiday, accelerated depreciation,
concessional custom duty and power
buy-back from states.116

Diversify supply sources


Intensifying demand for resources
and concerns about future resource
security are motivating Indian
companies to scout for coal, iron ore
and other assets abroad in sectors
such as power generation, oil and gas,
and metals and mining. Companies
are forging strategic alliances and
key partnerships with suppliers and
even competitors to secure resource
supply in the long term. NTPC, which
plans to increase its capacity from
the current 30,000 MW to 75,000
MW by 2017, hopes to import 5-10
million tons of coal from Australia
in the next three to five years. The
company intends to import the same
quantity of coal from Indonesia.117
India already counts among the largest
buyers of coal from Indonesia. Tata
Power holds a 30 percent stake in two
of the countrys largest coal mines,
and the Adani Group, Indias biggest
coal importer, last year committed
US$1.6 billion to build mining-related
infrastructure in Indonesia.118

Develop energy-conserving
products and services
Be it the semiconductor industry
that supports the solar PV systems
market, or green-building construction
companies, the market for green
technologies is expanding. SELCO
Solar, a not-for-profit organization
established in India in 1995, provides
solar-energy solutions to underserved
households and businesses, and has
serviced and financed more than
115,000 solar systems since its
inception. Its services span the value
chainfrom creating awareness

63

about solar-energy benefits to


persuading commercial and rural
banking institutions to finance
sustainable energy systems for lowincome rural households.119 Even
consumer-durables companies are
developing products that use less
electricity than ever before. Energystar ratings are no longer good-tohave features; they are must-haves.

innovation developed at TERI gives


consumers the option of using diesel
or producer gas. The producer gas is
fed into the diesel engine, allowing
the engine to operate in dualfuel mode, thereby reducing diesel
consumption by more than 70 percent.
TERIs biomass gasifier requires less
expensive diesel, uses and recycles
waste, and reduces air pollution.

Turn scarcity into abundance

Shape pro-growth approaches


to regulation

By using resources in creative ways,


companies can transform waste
into assets, helping to provide food,
raw materials and energy. In Indias
large agrarian economy, biomass
wood, agricultural residues, animal
waste is available in enormous
quantities. Indeed, over 40 percent
of Indias total energy requirement
is met through biomass burning.
The Energy and Resources Institute
(TERI)s biomass gasifier system uses
biomass for power generation. Such
systems could make up for the absence
of grid electricity supply in many
remote areas in India. A technological

64

Indias regulatory environment remains


underdeveloped with respect to green
technologies and alternative energy.
Companies thus have an opportunity
to shape such regulation in
partnership with policymakers. But to
help create a regulatory environment
favorable to growth, businesses must
engage with each other, with the
scientific and academic communities,
and with regulators. They can also
work with regulators to educate other
stakeholders, including customers
and investors, about the value of
sustainable business models.

The Ministry of Environment and


Forests in India is helping to advance
such efforts. The ministry is piloting
a market-driven emissions-trading
system in three states that will allow
different companies to cut emissions
as much as they can and to benefit
accordingly. System administrators will
take into account the different scales
of emissions, rather than penalizing
companies for not meeting fixed
emission-reduction numbers. They
will grant emission-reduction permits
to companies that reduce emissions.
Polluting companies can choose
to reduce emissions or buy permits
through an auction.120

65

66

The last word

Ask business leaders today for their


assessment of global economic
prospects, and the pervading sense
one gets is some degree of optimism
tempered with a large dose of
uncertainty. Indias business leaders
take a similar mixed view of the future.
They are optimistic, because Indias
rising incomes and rapid economic
growth will almost certainly continue
to bode well for business. And they
are uncertain, because continued risk
and volatility make it difficult to know
what is needed to maximize Indias
potential and capitalize on the new
opportunities arising abroad.

Accentures recent research on the


New Waves of Growth confirms that
this need not be the whole story for
India. Adopting a new perspective on
the trends reshaping the economic
landscape many of which are often
viewed as challenges reveals a
tremendous upside that includes fresh
drivers of business growth. From
the surge of emerging markets and
demographic shifts, new demandand supply-side drivers of growth
are taking shape. Simultaneously,
technologys accelerating impact
offers firms novel ways to tap these
new opportunities.

Amid this uncertainty, the economic


horizon seems both foreign and
promising for many of Indias business
leaders. Those who cling to old
strategies and focus exclusively on
traditional drivers of business growth
will find the future challenging and
alien indeed.

What is now clear is that future


success will hinge on how well
businesses, individuals and
governments respond to these new
opportunities today. Indias firms
will need leaders who can guide
them beyond their old identities and
traditional wellsprings of growthand
who have the foresight to creatively
harness the new waves of growth.

67

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68

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69

About this study


This Report has been published for
information and illustrative purposes
only and is not intended to serve as
advice of any nature whatsoever.
Any figures and statistics used in
this study were up-to-date at time
of writing and are subject to change
without notice. The views and opinions
expressed in this publication are
those of Accenture only and do not
necessarily reflect those of any of the
companies researched or surveyed
or any other third party referenced
in the report. Such opinions should
not be construed as providing
professional advice, recommendations
or endorsements, or relied upon as
such. This Report also contains certain
information available in public domain,
created and maintained by private and
public organizations. Accenture does

70

not control or guarantee the accuracy,


relevance, timelines or completeness
of such information. The information
contained and the references made
in this Report is in good faith, neither
Accenture nor any of its directors,
agents or employees give any warranty
of accuracy nor accepts any liability
as a result of reliance upon the
information, advice, statement or
opinion contained in this Report.

Acknowledgments
Authors
Mamta Kapur, Aarohi Sen,
Smriti Mathur, Ryan Coffey
Senior Review Team
Sanjay Jain, Raghav Narsalay,
Matthew Robinson, David Light,
Mark Purdy, Armen Ovanessoff,
Ladan Davarzani

71

About the Accenture


Institute for High
Performance
The Accenture Institute for High
Performance creates strategic
insights into key management issues
and macroeconomic and political
trends through original research and
analysis. Its management researchers
combine world-class reputations with
Accentures extensive consulting,
technology and outsourcing experience
to conduct innovative research and
analysis into how organizations
become and remain high-performance
businesses.

Copyright 2011 Accenture


All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

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About Accenture
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Combining unparalleled experience,
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