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AN OVERVIEW OF INDIA January 2007 Information contained in this document is prepared by The Boston Consulting Group, Lda.

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Presentation on theme: "AN OVERVIEW OF INDIA January 2007 Information contained in this document is prepared by The Boston Consulting Group, Lda."— Presentation transcript:

1 AN OVERVIEW OF INDIA January 2007 Information contained in this document is prepared by The Boston Consulting Group, Lda

2 - 1 - Copyright BCG  5,000 year old civilization  Population of 1.1 billion  World’s largest democracy  World’s 10th largest economy (GDP $800 Billion) -4th largest in PPP terms  Second fastest growing large economy (GDP rate 8%)  336 tribes, 325 languages, 1,652 dialects  18 official languages  7 classical dance forms, >45 folk dances  5600 dailies, weeklies, periodicals in 21 languages with total circulation ~ 142 Mn  Parliamentary form of Government  29 states, 5 union territories  Largest English-speaking nation in the world  2nd largest pool of scientists and engineers  3rd largest standing army, over 1.5 Mn strong INDIA FACTS SummarySummary

3 - 2 - Copyright BCG INDIA’S 5000 YEAR HISTORY MARKED BY SEVERAL, VERY DIFFERENT PHASES Indus Valley Civilization Vedic Civilization Middle Hindu Kingdoms Islamic Sultanates Mughal Era Colonial Era Republic of India Independence Movement BC 3300 BC 1300 BC 500 AD 1200 AD 1525 AD 1750 AD 1857 AD 1947 Today Earliest urban civilization in India Centred around ‘Indus’ river valley Gives India its name Independence of India Division into India & Pakistan Sovereign Democratic Republic Rise of intellectual Indian politics Long struggle for freedom Emergence of Gandhi and other leaders French, Portuguese & English colonies English emerged as strongest power Phase of modernization but oppression Turko-Persian invasion Series of great Mughal monarchs Mughal architecture, including Taj Mahal Arab / Turk / Afghan invasions Introduction of Islam Qutub Minar erected Advent of Jainism and Buddhism Asoka’s message of peace Golden age for Arts & Sciences Pastoral Aryans from north-west Origin of the Sanskrit language Principal Hindu texts & epics written HistoryHistory

4 - 3 - Copyright BCG Religions SIGNIFICANT CONTRIBUTIONS ACROSS MANY FIELDS BC 500BC-1000 AD AD AD Advent of Hinduism Yoga – now practiced worldwide Ayurveda – earliest school of medicine Sanskrit Takshila – world's first university Principal Hindu texts & epics including the Vedas No fights for power, never invaded any other country Birth of Buddhism & Jainism, introduction of Christianity in India Invention of decimal system, invention of zero, algebra and calculus Ajanta & Ellora Caves Introduction of Islam Arrival of Zoroastrianism Strengthening of Sikhs Islamic architecture – including the Taj Mahal, Red Fort, Qutub Minar, city of Fatehpur Sikri Sciences Education Literature Architecture Others JC Bose - pioneer of wireless communication Raman Effect Introduction of English Geetanjali by Tagore Non-violent movement for freedom struggle HistoryHistory

5 - 4 - Copyright BCG INDIA IS CURRENTLY THE 10 TH LARGEST ECONOMY IN THE WORLD Source:World bank, Analyst reports, RBI database, BCG analysis GDP ($ Bn in 2005) EconomyEconomy

6 - 5 - Copyright BCG INDIA’S CURRENT GROWTH IS UNPRECEDENTED IN ITS HISTORY GDP Growth Rate ( ) India's Average GDP growth (95-05) Max Average Min 4.9% 5.5% 6.1% 8.6% 2.8% 1.2% 3.3% Source:World Bank; IMF Second fastest growing large economy 3.1% 8.1% EconomyEconomy

7 - 6 - Copyright BCG INDIA EXPECTED TO BE THE 4 TH LARGEST ECONOMY BY 2025 Note: Figures in bracket indicate GDP world ranking Source:Angus Maddison's OECD Book "The World Economy – A Millenial Perspective", IMF, Goldman Sachs projections; BCG Analysis 1.12 Bn people 1.0 Bn people China India US ~29% (1) ~16% (2) ~1.8% (9) ~4% (7) ~2% (12) ~32% (1) ~17% (2) ~5% (4) ~31% (1) Share of World GDP ~27% (1) ~17% (3) ~21% (2) E 2050E 0.3 Bn people EconomyEconomy

8 - 7 - Copyright BCG INDIA’S PATTERN OF GROWTH IS UNIQUE India Real GDP CAGR (95-05) ~8.3% ~6.2% ~2.1% Industry Service Agriculture Services sector has grown strongly Source:RBI % share of GDP EconomyEconomy

9 - 8 - Copyright BCG SIGNIFICANT IMPROVEMENT ACROSS KEY ECONOMIC INDICATORS Interest rate on 5 yr G-sec paper Inflation (WPI) Exports ($ Bn) Forex reserves ($ Bn) Forex reserves as months of imports Currency appreciation Current a/c deficit (% of GDP) Fiscal deficit (1) 1997 data Source: Analyst reports; literature review Indicator Trend 13.7% (1) 6.3% 8.1% 6.4% % % -0.9% 5.1% 4.0% % EconomyEconomy

10 - 9 - Copyright BCG INDIA’S GROWTH DRIVEN BY GROWTH OF DOMESTIC CONSUMPTION Higher income segments showing faster growth <$650 $650-$1350 $1350-$2000 $2000-$3000 >$3000 Expected figures Note:Income classification (at prices, per annum. calculated by applying 5% inflation rate to prices); Assumed exchange rate of $1 = Rs. 50 for ; Assumed HH size of 5.5 across years Source: NCAER, SOI; BCG analysis (1) -7.1% 4.9% 7.1% 9.6% 14.4% CAGR (%) No. of HH Income Addition of ~65 Mn HH and ~350 Mn into consumption class income >$1350 pa) over 10 years ~ size of the American population EconomyEconomy

11 Copyright BCG INDIA’S ECONOMIC PAST HAS INFLUENCED THE PRESENT Five Phases of India’s Economy Post Independence Initial and partial de-licensing in some keysectors Increased growth ofprivate companies Opening of capitalgoods imports Formation of the firstMNC-govt JV – Maruti-Suzuki Initial and partial de-licensing in some keysectors Increased growth ofprivate companies Opening of capitalgoods imports Formation of the firstMNC-govt JV – Maruti-Suzuki De-licensing CAGR = 5% CAGR = 5% Oil shock (1970s) anddevaluation of rupee Greater emphasis onself-sufficiency andimport substitution Licensing restrictionsplaced on severalindustries Continued publicsector investments Nationalization ofbanks and otherindustries Oil shock (1970s) anddevaluation of rupee Greater emphasis onself-sufficiency andimport substitution Licensing restrictionsplaced on severalindustries Continued publicsector investments Nationalization ofbanks and otherindustries Import substitution CAGR =4% CAGR =4% Industrial growthdriven by governmentinvestments in largepublic sectorenterprises Governmentinvestmentscontributed 53% oftotal Gross CapitalFormation and 92% ofall investments ingreenfield projects Focus on keyinfrastructureindustries and onbeing self-sufficient Industrial growthdriven by governmentinvestments in largepublic sectorenterprises Governmentinvestmentscontributed 53% oftotal Gross CapitalFormation and 92% ofall investments ingreenfield projects Focus on keyinfrastructureindustries and onbeing self-sufficient Industrial foundation CAGR =3.5% CAGR =3.5% Strong local players in some key industries Development of process expertise Development of local capital equipment industry Mindset of asset optimization to avoid imports Focus on flexibility rather than scale Economic andpayments crisis Broad reforms,reduction of licensingand protection Higher competition,access to technologyand imported inputs Higher share of privatesector in fixedinvestment Increased threatperception from China Economic andpayments crisis Broad reforms,reduction of licensingand protection Higher competition,access to technologyand imported inputs Higher share of privatesector in fixedinvestment Increased threatperception from China Liberalisation CAGR = 6% CAGR = 6% Cost reduction and restructuring waves to achieve competitiveness Removal of mostimport controls Resurgence of keyindustries Indian companiesacquiring companiesabroad, gaining globalidentity Outsourcing boom Removal of mostimport controls Resurgence of keyindustries Indian companiesacquiring companiesabroad, gaining globalidentity Outsourcing boom 2000 onwards Global competitiveness CAGR = 7-8% CAGR = 7-8% Innovation and global expansion Note:GDP numbers are approximate EconomyEconomy

12 Copyright BCG INDIA WILL BENEFIT FROM A DEMOGRAPHIC DIVIDEND 2020 India Demographic ProfileChina Demographic ProfileFrance Demographic Profile Mn people Age group Female Male Mn people Age group Mn people Age group Source:CII Conference 2002; CSFB Report; UN Population Division; BCG analysis age group : 325 mn people (~25 %) age group : 308 mn people (~21 %) age group : 11 mn people (~17 %) DemographyDemography

13 Copyright BCG INDIA’S REGIONAL DIVERSITY POSES UNIQUE CHALLENGES... Below More than 900 State GDP Per Capita (US$) NORTH Main Language: Hindi Main Religions: Hindu, Sikh, Muslim Agricultural Hub GDP/Cap: $ % of India GDP EAST Main Languages: Hindi, Bengali Religions: Hindu Natural Resources Hub GDP/Cap: $415 18% of India GDP WEST Main Languages: Hindi, Gujarati, Marathi Religions: Hindu, Parsi, Muslim Financial Hub GDP/Cap: $ % of India GDP SOUTH Main Languages: Tamil, Malyalam, Kanada Religions: Hindu, Christian Technological Hub GDP/Cap: $ % of India GDP Andhra Pradesh 41 Karnataka 29.4 Gujarat 37.2 Madhya Pradesh 22.5 Chattisgarh 8.6 Maharashtra 74 Orissa 12 Rajasthan 23.2 West Bengal 42.2 Delhi 18.6 Seven Sisters 2.5 Goa 2.1 Punjab 18 Haryana 16.4 Note:Numbers Under State Names Indicate State GDP (US$Bn) for 2004 Source: Statistical Outline of India, Central Statistical Organisation Uttar Pradesh 47.8 Kerala 19.9 Tamilnadu 37.4 Jarkhand 8.8 Bihar 12.5 CENTRAL Main Languages: Hindi Religions: Hindu GDP/Cap: $ % of India GDP Himachal Pradesh 4 Jammu & Kashmir India’s challenges

14 Copyright BCG...AS DOES THE RURAL-URBAN DIVIDE Key IndicatorsContrasting Penetration % RuralUrban CTVs Refrigerators Shampoos Cable TV Two-Wheelers RuralUrban Per Capita GDP ($) MPCE (1) ($) % of Population Adult Literacy (%) Tele-density (%) (1)Monthly Per Capita Consumption Expenditure Source:NCAER, Literature Review, BCG Analysis Backup India’s challenges

15 Copyright BCG CONTINUED SIGNIFICANT POVERTY... Distribution of households (in ’000s) by income class Rural vs. urban split ,712 9,034 41, ,378 Deprived < 90,000 Aspirers 90,000-2 lacs Seekers 2 -5 lacs Strivers 5-10 lacs Near Rich lacs Clear Rich lacs Sheer Rich 50 lacs-1 cr Super Rich > 1 cr UrbanRural Top 10 cities (1) Delhi & Mumbai Urban agglomeration (1)Excluding Delhi and Mumbai Note:Income figures in Rs. per annum Source:NCAER India’s challenges

16 Copyright BCG...AND WIDENING INCOME DISPARITY India’s challenges

17 Copyright BCG EXTREME VARIATIONS IN INFRASTRUCTURE Few spectacular successes but lots more to be done Delhi Metro (USD 2 billion) Golden Quadrangle (USD 15 billion) India’s challenges

18 Copyright BCG CHALLENGES OF MANAGING GOVERNMENT COALITIONS OFTEN HELD RESPONSIBLE FOR SLOWER PACE OF REFORMS Appeasement of Many Identities Independence ’s Indian National Congress (INC) dominates politics INC led by Nehru-Gandhi family retain power First non-congress coalition government ‘Janata Party’ Retains power for only a short period Political instability -7 governments in 10 years INC only party able to maintain a stable 5 year government First stable non INC coalition government led by Bharatiya Janata Party (BJP) INC wins election by narrow margin Coalition government with regional parties and Communist Party of India Source: Election Commission Of India ; Press Review Caste Region Religion Economic principles Many political identities India’s challenges

19 Copyright BCG AND CERTAIN FEATURES THAT HAMPER BUSINESS EFFICIENCY Comparison Of Various Aspects Of Setting Up A New Business Source:World Bank Economy Rating 2005; Literature Review, Transparency International Corruption Perception Index 2005 Ranking of Countries As Per Corruption Perception Index, 2005 MalaysiaIndiaIndonesia India’s challenges

20 Copyright BCG SEVERAL FACETS TO THE INDIA OPPORTUNITY 1. Large and growing markets 2. A source of talent 3. Base for business process offshoring 4. Attractive LCC sourcing base India opportunity

21 Copyright BCG SEVERAL INDIAN CONSUMER MARKETS BECOMING ATTRACTIVE FMCG Size: US$14Bn Growth: 9% Media & Entertainment Size: US$11Bn Growth: 15-17% Consumer Durables Size: US$5.1Bn Growth: 15-20% Retail Size: US$210Bn Growth: 10-15% Apparels Size: US$20Bn Growth: 15-25% Travel & Tourism Size: US$13Bn Growth: 8.9% 1. Large and growing markets India opportunity

22 Copyright BCG INDIA HAS A STRONG TALENT BASE (1) Compensation is (US$ ‘000) and includes salary plus bonuses Note:Survey results: 1=low; 10 = high Source:IMD world competitiveness Yearbook with high end qualifications......and extremely cost efficient Availability of qualified engineers, 2005 India is the largest English speaking nation in the world India has the second largest pool of Scientists and Engineers in the World India is the largest English speaking nation in the world India has the second largest pool of Scientists and Engineers in the World A large pool of skilled people... Availability of skilled labour, 2005Total compensation for engineers, 2004 (1) 2. A source of talent India opportunity

23 Copyright BCG 47 Mn 19 Mn 7 Mn 3Mn 5Mn 3Mn India Bangladesh Pakistan Iran Brazil Mexico Philippines 5Mn 4Mn Vietnam 2Mn Turkey Potential surplus population in working age group (2020) -10 Mn China -6 Mn Russia 5Mn Indonesia 1Mn Malaysia 0Mn Ireland Israel 0Mn THE INDIA WORKFORCE SURPLUS IS LIKELY TO CONTINUE While Other Countries Face Shortages Iraq 2Mn -1 Mn Czech Republic Note:Potential workforce surplus is calculated keeping the ratio of working population (age group 15 – 59) to total population constant and under the assumption that this ratio needs to be broadly constant to support economic growth. Therefore, India will have 47 Million more people in the working age group/total population by 2020 compared to today, while France will have a deficit of 3 Million people in the working age group compared to today. Source: U.S. Census Bureau; BCG Analysis 4Mn Egypt -17Mn US -2 Mn UK -2 Mn Italy -3 Mn France -9 Mn Japan -0.5 Mn Australia -3 Mn Spain -3 Mn Germany 2. A source of talent India opportunity

24 Copyright BCG SEVERAL FIRMS HAVE OUTSOURCED OPERATIONS TO INDIA Select Examples Industrial GoodsConsumer/Services/Hi-TechFinancial Services 3. Base for business process off-shoring India opportunity

25 Copyright BCG MNCs DEEPENING R&D PRESENCE IN INDIA >100 MNCs in India Level of expertise 1. Selected steps in product development 2. End-to-end product development for emerging markets 3. End-to-end product development for global markets 4. Fundamental research TI: 900 people; 225 IPs, 20 products GE: 1700 people; 77 patents; 2 products Time/Extent of success Akzo Nobel: 75 of 400 people in India Source: Literature, BCG interviews 3. Base for business process off-shoring India opportunity

26 Copyright BCG INDIA HAS POTENTIAL TO BE A GLOBAL SOURCING HUB ACROSS MANY INDUSTRIES Source: Business World – 12 May 2003; BCG analysis Automobiles Even within our different factories world- wide we believe India will be most competitive for small cars -BG Lee, Executive Director, Hyundai Motor Company Engineering goods Our proposal to source transmission from India had competition from China and Philippines. We believe it would be more economical in India -Atsushi Toyoshima, Managing Director, Toyota Kirloskar Motor Pharmaceuticals Shasun chemicals and drugs -sole supplier of Nizatidine, Eli Lilly's ~€190 Mn anti ulcer drug -60% of Knoll Pharma's global requirement of Ibuprofen € Bn 26% 22% ~50 CAGR: 25% Manufactured products outsourcing projected to be ~€50 Bn by 2015 Where is this going to come from? 4. Attractive LCC sourcing base India opportunity

27 Copyright BCG JUST ANOTHER DAY IN INDIA...


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