Business Destination called “India”

White Paper
Sabita Rebecca
Associate Director

2009 LEADER PROSPECTS. All rights reserved. Confidential and Proprietary

Introduction

It's been a difficult 20 months for the global economy. Many of the largest economies (the corporations along with the
Governments) in the world — Germany, Japan, the United Kingdom, the United States, are trying their best to trudge
along. Many of the smaller, developing economies have collapsed. There are a few bright spots, however, the major
players being India and China. Countries in Asia, Latin America, and parts of Eastern Europe have ruling parties that are
doing reasonably well and show few signs of revolt despite the slump in global growth. While in India, most recently came
the Ruling Party's big win, which reinforced stability due to its majority win in parliament.

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The Government and the Economic Growth in India: particular focus on fiscal stimulus in infrastructure investment.
Both the government and industry in India, betting on non-export
Over the years, the Indian Government has been committed in driven sectors are hopeful that the country would be able to tide
its efforts to enhance and maintain a healthy growth rate and over the current slowdown faster than anticipated earlier. A little
provide a conducive policy environment to both public and boost from the forthcoming Budget may make the case even
private enterprises, to invest and grow their business in the stronger.
country. The Government of India has liberalized the foreign
investment regime substantially over the last decade. The Index of Industrial Production
foreign direct investment (FDI) today is allowed in almost all
sectors, excepting a few sensitive areas such as defense. The results of the fiscal stimulus have started showing in the
Further, FDI is permitted in most of the sectors under the economy. After struggling for the past few months, the index of
automatic route, except a few, where approval from the Foreign industrial production surged to a 16 month high at 7.8% for the
Investment Promotion Board is required. month of June 09 (consensus 3.8% - source Bloomberg).

In her address to the UN Conference on World Financial and The IIP number for July is much better than what was expected
Economic Crisis (June 2009) held at the UN headquarters in at 7% (announced ahead of schedule). Since there is a strong
New York Minister of State for External Affairs, Preneet Kaur correlation between IIP growth, sales and profit growth, it is
said "We have fared much better than others though we are likely to result in increase in sales and earnings growth forecast
also affected and our growth rates have come down from the for corporates.
nearly 9 per cent average of the past four years to 6.7 per cent
in 2008-09," In response to the crisis, Kaur said that, India has
made aggressive use of fiscal and monetary policy, with

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Investment Opportunities The economic slide has gathered speed in countries that are
export dependent; with Japan, South Korea and China reporting
According to a survey by Coller Capital's latest Global Private sharply reduced exports and GDP growth. Recession has also
Equity Barometer, which captured the views of institutional taken hold of Hong Kong, Singapore and Taiwan. Singapore is
investor in 102 private equity investors around the world, India expecting approximately 5% decline in GDP in late 2009 despite
will offer the most attractive investment opportunities for GPs committed and increased government spending, while India and
over the next three years. Indonesia appear more resilient.

The chart below by Limited Partners’ shows that India is

followed by China and the developed economies of Japan and
Australia in the preference list for emerging markets.

*forecasted; Data source: The Economist

Graphs by many analysts show that the impact of the downturn

is not consistent across industries or countries. Balance sheets
for households, corporate, financial institutions, and
governments are in good shape in much of Asia unlike in the UK
or US. Consumer credit is modest, bank failures are unlikely and
government debt is manageable in Asian counties. Risk
indicators for the Asian region has steadily improved over the
last five years against those in advanced economies that have
deteriorated.

The 10 sectors attracting highest FDI into India are

Services Computer
Telecommunications Construction
House and Retail Estate Automobile
Power Metallurgy
Petroleum & Natural Gas Chemicals
*Data for India is in fiscal year April 08 – March 09
Source: Asia Forecast Book, January 2009, International
Market Assessment Asia Pvt Ltd

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The Population Advantage Growth in Industrial Sectors

The population of India and China which have (till recently) been In India, agriculture still remains the predominant sector in terms
a problem for the two countries has now proved to be a blessing of employment and livelihood. Manufacturing however is the
in disguise. The growth that both these countries are seeing backbone of the economy. Even as these two sectors now
now is because of their large young working population. Mature grapple with the cyclical demand-supply syndrome now, the
markets across the world are aware about the importance of service sector appears to defy the recession and surge ahead to
having a young and working population and its effect on contribute a whopping 49 per cent of the GDP, growing at a
economy. It is a well known fact that a good well educated healthy rate of 8-10 per cent over the last five years. However
young working class can lift a nation against all odds and vice a India policy makers know that global competitiveness in
versa. manufacturing fosters growth, productivity and employment and
strengthens the agriculture and service sectors and cannot be
therefore ignored.

The rise in the service sector's share in GDP marks a structural

shift in the Indian economy and takes it closer to the
fundamentals of a developed economy, where agriculture
accounts for a relatively lower share. The services sectors can
be in identified as healthcare, telecom, Software, outsourced
services like BPO/KPOs/ITES etc

The services sector, according to the Central Statistical

Organisation, has grown in the first quarter of 2009-10. Trade,
hotels, transport and communication grew 6.1 per cent in April-
June 2009 from a year earlier. Financing, insurance, real estate
and business services grew at 7.8 per cent in April-June, 2009
from a year earlier.

Indian law firms have beat the world’s biggest to emerge top
legal advisors to global project deals, according to a global
investment banking report. India closed 36 projects valued at
US$ 31.9 billion, in the first half of 2009, an increase of 158 per
In any country, more critical for economic growth, however, is cent over the same period last year
the rate of growth in the labor force, best estimated by projecting
growth in the “working-age” population (age 15-60). India’s The Telecom Regulatory Authority of India released a
advantages are amplified, here. The growth in India’s working comprehensive report on the growth of Indian
age population is expected to exceed its already rapid telecommunication Industry for Quarter ending March 2009.
population growth until 2015. India’s working age population India which had less than 7 million subscribers during a
increases until atleast 2045, while China’s working age government controlled telecom market has gone from 33 million
population declines from 2020 to 2050. This is depicted in the mobile subscribers to close to 450 million in 5 years!
graph above. China’s current statistics dwarfs India’s by 230
million; India has the potential to grow from contributing 2% of
the global GDP to 16% of the GDP by 2039, by 2050 India’s
working age population will exceed China’s by the same
amount.

We are of the opinion that India is likely to transform into an

affluent nation in one generation or in the next thirty years.
Leader Prospects’ observes that any entity planning to start
business in India, is going to have distinct advantages over
other countries when it comes to building a good workforce over
coming years.

Growth trend of Subscriber base (Wireless)

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Global competition is emerging in the health care industry, too.
In 2006, the medical tourism industry grossed about $60 billion
worldwide. McKinsey & Company estimates this total will rise to
$100 billion by 2012.

Source: McKinsey & Company and the Confederation of Indian

Industry Source: Department of Information Technology, Government of
India
In Asia, hospitals, such as Bumrungrad, Thailand and Apollo,
India, report revenue growth of about 20 percent to 25 percent The growth of the Indian services sector has also reflected on its
annually, with Singapore hoping to treat 1 million foreign trade front, which is expected to continue even in the next fiscal.
patients in 2012. McKinsey & Company estimates that medical
tourism in India alone will grow to $2.3 billion by 2012. India is • According to NASSCOM, exports for the Information
arguably the cheapest destination for medical treatment with no Technology (IT) and Business Process Outsourcing (BPO)
compromise on quality or treatment. Hospitals in India are sectors are expected to touch US$ 60 billion–US$ 62 billion
equipped with the latest technology, highly trained physicians in 2010-11, in the current fiscal (2008-09), exports were
and bundle hospital services into package deals which is likely to touch US$ 47 billion. In 2007- 08, exports stood at
attractive. Law and policy makers have also been participative US$ 31.4 billion.
and responsible for this change. • According to a study done by Offshoring Research Network
(ORN), US-based healthcare companies are expected to
send more information technology projects to India, in
order to bring down their costs of operations. As per a
The Banking, Financial Services and Insurance, High
NASSCOM report, the medical transcription industry will be
Technology and Telecom accounts for more than 60% of the
worth US$ 798.1 million by 2010 and could employ as
Indian IT-BPO exports. The industry has enhanced India’s
many as 50,000 people.
credibility as a business destination by creating a global 24X7
• As per a report by Deutsche Bank Research, India is also
service delivery thereby forging relationships with 75 per cent of
likely to retain its tag as the back office of the world, amid
the fortune 500 companies. This has resulted in immense
competition from its neighbouring country China. At
savings for customers (savings from global sourcing for
present, India is in a comfortable position as the share of IT
customers amounted to an estimated US $ 20 billion to US $ 25
and IT-based services in China's export revenues comes to
billion in 2008) and promoting quality (65 per cent of all
only just above three per cent, compared to over 26 per
Capability Maturity Model (CMM) Level 5 firms are based in
cent in India.
India).

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Report by Evalueserve predicts that India will capture more than Though the Service sector has been growing at a fast pace, we
70 percent of the KPO sector by 2010. The below figure cannot ignore the Retail Sector in India, which generates
demonstrates the expected growth in the BPO and KPO employment of 8% and contributes to 10% of GDP. The Indian
markets markets by the end of year 2010 demonstrates the retail market is the fifth largest retail destination globally. The
expected growth in the BPO and KPO markets by the end of size of the Indian retail industry stood at $511 billion in 2008.
year 2010. Simultaneously, modern retail is likely to increase its share in
the total retail market to 22 per cent by 2010 and is expected to
A study by Frost & Sullivan Study Reveals India's Organized be worth US$ 175 -200billion by 2016. The Indian organized
Retail Market Looks to Security Solutions as it expects 44% retail consists of 4% of the total Indian retail market and is
Growth by 2012. This can be attributed to the fact that the expected to grow to 15% by 2011. There are 12 million retail
unorganized sector occupies almost that 96% of the market outlets present in India and though the market has been
share and is not so dependent on the global trends. dominated by unorganised players, the entry of domestic and
international organised players is set to change the scenario.
The services sector accounted for a huge 24.3 per cent of the
total FDI inflow in 2008. The FDI inflow to this sector has grown Per capita retailing space in India is the lowest with about 2 sq.
32 times in the past five years from a mere US$ 214.78 million ft compared to 16 sq. ft in the U S. However there is a distinct
in 2004 to US$ 6.78 billion in 2008. need for FDI in this sector and the government is working on
liberalization and policies to achieve a growth rate of almost
15%; we are at 8%.
The Global Outsourcing Report says that "While a smaller
percentage of companies are outsourcing those activities
offshore (32%), half of them have cut full-time jobs as a result. The government has Policy Initiatives to encourage growth in
India is the most competitive and popular technology the Retail sector.
outsourcing destination in the world in 2005." Global Knowledge
Process Outsourcing industry (KPO) is expected to reach USD • 100 per cent FDI is allowed in cash-and-carry
17 billion by 2010, of which USD 12 billion would be outsourced wholesale formats. Franchisee arrangements are also
to India which would employ 250,000 professionals ( Current permitted in retail trade.
figure is 25,000) • 51 per cent FDI is allowed in single-brand retailing.

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The Pharmaceutical sector is estimated to have created 2.20 industry stalwarts for achieving growth and development of the
lakh employment opportunities (Source: Ministry of Commerce domestic Pharmaceutical sector in the country.
& Industry). The aggregate sectoral income grew by 18.9%
during the quarter ending June 2008 (Source: CMIE). The Clinical trials in India can cost less than 50% of those conducted
Pharmaceuticals sector has been able to attract FDI amounting in western countries, as a result of which India attracts
to an inflow of US $ 125.30 million during the first half of 2008- outsourced work from western countries and the market for the
09 (Source: Ministry of Commerce & Industry). The Department purpose is projected to expand two-fold from US$ 176 billion in
of Pharmaceuticals (DoP), Government of India, has formulated 2008 to 356 billion in 2012 as exhibited in Graph-1(Source: IMS
and implemented policies and programs in consultation with the Health, McKinsey, ABLE, as quoted by the “Financial Express”
dated 29.12.08).

Clinical Research Outsourcing Market(India)

Hiring in India

Due to this growth in the overall industry portfolio in India there According to Times of India, the recruitment outlook amongst
has been hirings in India despite the economic slowdown. At a employers in the nerve centers of Delhi, Mumbai & Bangalore is
time when thousands of jobs are lost worldwide, India Inc seems once again on the upswing as employers plan to increase hiring
to be bullish on recruitment with more than 60% of companies in the next quarter, as reported by 42% of the employers in
going ahead with the hiring plans. According to the HR Firm Delhi, 44% in Mumbai and 24% in Bangalore. Commenting on
Hewitt Associates only 12.6% firms in India are considering this result, Mr. Vivek Madhukar, VP, TimesJobs.com said, “The
layoffs in comparision to 55% in the US in a survey done in Dec positive hiring outlook of Employers in India is not unfounded,
2008. The survey also said that Indian companies (37.3%) are the Q-on-Q growth that India Inc. has witnessed both in terms of
taking action on the hiring freeze as against China (60%) revenues & profits, and the continuation of government stability,
policies & commitments, have brought a more optimistic
business forecast for organisations.”

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Factors of Concern
decision making is very slow, and complicated by difficulties with
Leader Prospects takes into consideration the following acquiring land and permissions from various civil authorities.
attributes as concern factors in a robust growing economy.
Governance
Business Environment
Another major factor that limits growth in India is the difficulty in
The recent growth in the services sector in India has distracted making necessary policy changes and further reforms. The
the policy makers and rulers from the fundamental problems of Indian government is pushing ahead with the liberalization and
education, infrastructure, rules, red tape and bureaucracy. India, privatization of a number of sectors, such as aviation,
through the years, has never enjoyed a reputation for telecommunications and banking, and committing to improve
bureaucratic efficiency and requires a number of structural India's power and transportation infrastructure.
reforms.
Cross Border Challenges
According to a World Bank Report on ‘Ease of doing business’,
out of total 183 countries, India was ranked 120 in 2007, 122 in India faces geo political challenges with neighboring countries
2008 and 133 in 2009; For cost & time taken to ‘Start a like Pakistan and China on cross border issues of Pakistan
Business’ in India, the rank was placed at 169. occupied Kashmir and Arunachal Pradesh respectively. While
the Central Government with it’s almost majority brings in an
element of stability, much is to be seen in efficient handling of
Infrastructure such challenges with the respective governments.

Though the infrastructure plans for the next twenty years and
more are mapped out by the central and state governments,

Source: World Bank Report 2009 on ‘Ease of doing business’

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Conclusion 4.5%. In 2010, the country’s economy is projected to expand at
6.5%. India’s economy expanded 5.8% in January-March,
The reform process and government policies initiated during the
beating the expectations of forecasters. In fiscal 2008-09, India’s
late eighties and early nineties have begun to show their impact
in India and the country is taking huge strides in the course of gross domestic product (GDP) grew 6.7%. IMF upgraded its
growth and development. However, recognizing that there is no growth projection for emerging Asia due to “improved prospects
room for complacency Indian policy makers are moving ahead in China and India”, partly reflecting “substantial macroeconomic
with due caution and at the same time integrating India with the stimulus and a faster-than-expected turnaround in capital flows”.
global economy.
As quoted by the Times of India October 13, 09, out of the
India has witnessed a number of success stories. A number of
Corporate and Multi National Companies from all over the world 17industry groups in India 14 have showed positive growth. The
have established business in India and have expanded over the three sub-indies – manufacturing (10.2%), mining (912.9%) and
years. Overseas investors are looking at India as an attractive power ( 10.6%) recorded double digit growth rates in August
investment destination owing to the prospects of high returns. 2009, with the over all industy year on year growth rate of 10.4%
Both Indian and multinational firms have registered higher . The industry data prompted C Rangarajan, chairman of the
profits, increased turnover and higher sales over the years. This
Prime Ministers Economic Advisory Council, to suggest that
has induced them to reinvest profits and inject fresh capital into
their processes in order to reap the benefits of the India growth during the current financial year, “industry growth would be 7.5%
story. - 8%.

Investments have been made by corporate across the board Industry bodies like CII, FICCI and ASSOCHAM agree that the
and almost all the sectors have seen inflow of funds. Global recent data reflects and industry recovery from the slowdown.
players such as Daimler Chrysler, General Motors, Ford, LG
Electronics, Samsung, Sony, Amway, Tupperware, Pepsico, At Leader Prospects, we are of the opinion that India is likely to
McDonald's, IBM, Oracle, Microsoft, Aviva, Nortel, Nokia among
transform into an affluent nation in one generation or in the next
others have benefited from their operations in India and have
made expansion plans for the country. The companies plan to thirty years, inspite of the risk factors involved. India has the
expand by way of product diversification, setting up potential to grow from contributing 2% of the global GDP to 16%
manufacturing base in India, increasing the existing production of the GDP by 2039.The average Indian along with the policy
capacity, establishing research centers in India, etc. India does makers is working towards this goal, as India is now being a
well in protecting its investors. marathon runner rather than a sporadic sprinter.

In its World Economic Outlook update, IMF revised its 2009

growth projection for India to 5.4%, up from its April forecast of

Addendum

The graph below is the latest information published by the Times of India (Dec 01, 09), which talks about the growth of the Indian
economy. This supports the hypothesis and conclusions made by Leader Prospects in this White Paper.

Source: Time of India, December 01, 2009

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Notes

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About Leader Prospects

Leader Prospects India Pvt. Ltd. is a premier HR Consulting firm, with key focus on Life Sciences, Health Care and Clean
Technology industry in India. Over the last few years of our leadership, we have assisted organizations set up their
founding/management teams, besides assisting them as thought partners in the quest to develop their own leadership.

Leader Prospects since 2001 has been adding value to the industry by constantly studying and analyzing current industry
thinking, trends and norms. We believe in the ever changing challenges of the industry, it is important for such studies to
influence the decision making of industry leaders and stalwarts.

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2009 LEADER PROSPECTS. All rights reserved. Confidential and Proprietary.

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