%5BKotak%5D+GameChanger+Perspectives+100th+edition%2C+July+2013.unlocked (1).pdf

July 2013

attractionsdemographic dividend, literacy,

urbanization pg 4

but where are the jobs?pg 28

major

attractions

savings!

identity, interaction, money pg 13

houses and goldpg 37

digital

countrysidefood and water

pg 50

a look at thethe job market

visit

a fragmented Center: do states hold the key to the next

government?pg 9

a political gamewatch

a great consumption storyif jobs and growth are right

pg 45

great

deals

taxes, subsidies andunintended consequences

pg 22

VAT

refunds!

PERSPECTIVES

Akhilesh Tilotia [email protected]

Mumbai: +91-22-6634-1139

GAME

CHANGER

ISSUES

Indialogue

FOR REG AC CERTIFICATION, SEE LAST PAGE FOR OTHER IMPORTANT DISCLOSURES, REFER TO THE END OF THIS MATERIAL.FOR DISCLOSURES REGARDING KOTAK SECURITIES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research 2Kotak Institutional Equities Research 2

Foreword

India’s changing—economically, financially, demographically. Take a trip through India to discover that change. The population is morphing into a younger, more literate, urban crowd. When you travel through the states you will hear their voice growing louder in the formation of a central government. What does that imply about the results of the general elections next year? Watch the political game with us.

Look at India in another light—digitally. Shopping, banking, communicating, and so much more, are going online. You will see the Government using digital options to communicate with its people, the entrepreneur and within its departments. That means life is getting easier—people settle bills online, transfer money online, buy tickets and even pay taxes online. The digital profile is making it difficult to hide from the long arms of the law.

Taxes—you can never escape them in most places on earth. In India, however, you a will discover a slight difference. Along with taxes come subsidies for the needy—a large chunk of India’s rural per capita income comprises such handouts and when such force is exerted, it leads to many outcomes that were un-envisaged or even unintended!

You realize handouts alone will not drag India’s millions out of poverty: high growth can. India needs to create many million jobs a year by skilling its labor force. Visit the labor market with us to get the inside details

When you tour India, you cannot miss its vast rural spread. However, you will find fragmented farm holdings, inefficient storage and transport facilities but a huge surplus of grain. As in food, so in water: you will find water in abundance. However, Indians simply don’t pay for water and hence though there is no scarcity now, there lurks a danger that you might find a thirsty India tomorrow. Not something that a bit of reform cannot solve.

Before you wind up your tour, let’s show you where India spends and saves her money. No longer does the money go under the mattress because as more of the population pushes into the savings age bracket (30-54 years old) and as they become more educated, the instruments of saving change. For the moment, the preferred investments are gold and real estate and the simple pleasures of household appliances and tap water. However, as time goes by, that seems set to change.

India is changing, come, take a look. And for your journey, you need a trusted companion – someone who gives you not just facts but insights, not just data but analysis. Look no further, this is your India handbook.

MAJOR ATTRACTIONS

Demographic dividend, literacy, urbanization


18

2834

44

52

65

74

27

4046

5664

7582

915

2230

39

54

65

0

15

30

45

60

75

90

1951

1961

1971

1981

1991

2001

2011

Literates (LHS) Males (LHS) Females (LHS)

238 252 251 279 319 361439

548

683

846

1,029

1,211

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1,200

1,400

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1911

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30Population (mn, LHS) Decadal growth (%, RHS)

Indian population growth slowing; literacy, life expectancy rising Marginal improvement in a poor sex ratio

2001-05 2006-10 2011-15 2016-20 2021-25Projected values of expectation of life at birth (years)Males 63.8 65.8 67.3 68.8 69.8 Females 66.1 68.1 69.6 71.1 72.3 Total fertility rate 2.9 2.6 2.3 2.2 2.0 Projected population (mn) 1,112 1,193 1,269 1,340 1,400

India's population growth is slowing - though absolute increase still largeIndia population and growth, Census year-ends 1901-2011

Source: Census of India, Kotak Institutional Equities

Sex ratio, 1901-2011


India's population to rise to 1.4 bn by FY2025EProjected values of expectation of life at birth, total fertility rate and corresponding population projections for different periods


Significant gains in overall literacy: 2 of 3 women, 3 of 4 men are literateIndia's literacy rate, Census year-ends, 1951-2011


Sex ratio (Females per 1000 males, LHS)972

964

955950

945 946941

930934

927933

940

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910

920

930

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960

970

980

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1911

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1941

1951

1961

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2011


Demographic dividend will keep dependency ratios low88% of the Indian population will be less than 60 years old in FY2026E

Source: Report of the Technical group on population projections constituted by the National Commission on Population, May 2006

India set to see a demographic dividend The Indian population: age distribution (%) and analysis

2006 2026EAge group Persons Cumulative Persons Cumulative0-4 10.4 10.4 7.5 7.5 5-9 10.7 21.1 7.9 15.4 10-14 11.0 32.1 8.0 23.4 15-19 10.7 42.8 8.0 31.4 20-24 9.3 52.1 8.0 39.4 25-29 8.1 60.2 8.3 47.7 30-34 7.4 67.6 8.5 56.2 35-39 6.7 74.3 8.2 64.4 40-44 6.0 80.3 7.0 71.4 45-49 5.0 85.3 6.1 77.5 50-54 4.1 89.4 5.4 82.9 55-59 3.1 92.5 4.8 87.7 60-64 2.5 95.0 4.1 91.8 65-69 2.0 97.0 3.2 95.0

70-74 1.5 98.5 2.3 97.3 75-79 1.1 99.6 1.5 98.8 80+ 0.4 100.0 1.2 100.0 Total 100.0 100.0


Urbanization to increase by 10 percentage points by 2025EEstimating households and size of households in India, March fiscal year-ends, FY2011-25E

Source: NSSO - 68th round, Census 2010, KIE estimates and calculations

Over the next 15 years, all growth in population will be ‘urban’Number of households, population in rural and urban India

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025Number of households (mn)Rural 169 170 172 174 175 177 179 181 183 184 186 188 190 192 194 Urban 81 84 88 91 95 98 102 106 110 114 118 122 126 131 135 Grand total 249 254 260 265 270 275 281 287 292 298 304 310 316 323 329 % urban 32 33 34 34 35 36 36 37 38 38 39 39 40 41 41 People per householdRural 4.9 4.9 4.8 4.8 4.7 4.7 4.7 4.6 4.6 4.5 4.5 4.4 4.4 4.3 4.3 Urban 4.7 4.6 4.6 4.5 4.5 4.4 4.4 4.3 4.3 4.3 4.2 4.2 4.1 4.1 4.1 Number of people (mn)Rural 833 833 833 833 833 833 833 833 833 833 833 833 832 832 832 Urban 377 389 400 412 424 436 448 460 472 485 497 510 522 535 548 Grand total 1,211 1,222 1,233 1,245 1,257 1,269 1,281 1,293 1,305 1,317 1,330 1,342 1,355 1,368 1,381 % urban 31 32 32 33 34 34 35 36 36 37 37 38 39 39 40

WATCH A POLITICAL GAME

A fragmented Center: do states hold the key to the next government?


Understanding the Indian political equationMap of India showing the Lok Sabha seats won by major parties across states


The demographic dividend can also impact political outcomes New voters in 2014 may outnumber the number of votes won by the INC in 2009

Voter turnout (%)55 60 65 70 75

1999 620 372

2004 671 52 390

2009 717 45 417

2014E 772 55 7 46 85 123 162

Eligible voters New voters Turnout

Source: Election Commission of India, KIE calculations

A meaningful increase in voter turnouts, especially women, since 2009 Voter turnouts across elections in India

Source: Election Commission of India, KIE estimates

Higher turnouts and new voters can meaningfully alter election dynamicsEligible, actual and potential voters across various elections (mn)

Source: Election Commission of India

Votes and seats are not meaningfully correlatedVotes, vote share and Lok Sabha seats won by national parties across elections

2009 2004 1999 1998

National partiesBahujan Samaj Party 25,728,920 3.6 21 20,765,229 3.1 19 15,175,845 2.4 14 17,186,779 2.8 5 Bharatiya Janata Party 78,435,381 10.9 116 86,371,561 12.9 138 86,562,209 14.0 182 94,266,188 15.6 182

Communist Party of India 5,951,888 0.8 4 5,484,111 0.8 10 5,395,119 0.9 4 6,429,569 1.1 9 Communist Party of India (Marxist) 22,219,111 3.1 16 22,070,614 3.3 43 19,695,767 3.2 33 18,991,867 3.1 32

Indian National Congress 119,111,019 16.6 206 103,408,949 15.4 145 103,120,330 16.6 114 95,111,131 15.7 141 Party A (see Note 1) 8,521,502 1.2 9 7,023,175 1.0 9 3,332,702 0.5 1 11,930,209 2.0 6 Party B (see Note 1) 5,280,084 0.7 4 - - 11,282,084 1.8 21 6,491,639 1.1 12 Total 265,247,905 37.0 376 245,123,639 36.5 364 244,564,056 39.5 369 250,407,382 41.3 387 Total electors in the country 716,985,101 671,487,930 619,536,847 605,880,192 - of which, women (%) 48 48 48 48 Total votes polled 417,159,281 58.2 389,948,330 58.1 371,669,104 60.0 375,441,739 62.0

Notes:(1) Party A and B respectively refer to: NCP and RJD (2009 and 2004); JD(S) and JD(U) (1999); JD and Samata Party (1998)

SeatsShare Seats Votes ShareShare Seats VotesVotes VotesShare Seats

Proportion 2009 election turn-outs

2013Karnataka 72 70 70 0 57 59 (2) 11

2012Uttar Pradesh 59 60 59 1 42 48 (6) 11

Punjab 78 79 78 1 60 62 (1) 17

Uttarakhand 64 68 66 2 44 48 (4) 18

2011Assam 77 75 76 (1) 65 69 (4) 7

Kerala 75 75 75 (0) 69 71 (2) 3

West Bengal 84 84 84 0 75 78 (3) 6

Tamil Nadu 78 79 78 0 57 61 (4) 17

2010Bihar 51 54 53 2 52 58 (6) (5)

Male Female Total Female - Total Total Female - TotalFemale Total - Total


Understanding “swing seats” – is half the parliament “safe”?The INC may be better placed than the BJP – unless there is a major swing

~225 seats are "safe seats"Margins of victory/defeat for major parties across elections, 2004-09 (%)

INC has well spread out "safe" seatsSeats won from a state with over 6% victory margin in the general elections, 2004 and 2009

Source: Election Commission of India, KIE analysis

2009 20040-3 3-6 6-9 >9 Total 0-3 3-6 6-9 >9 Total

INCWinner 46 48 28 84 206 21 17 27 81 146Runner-up 35 35 20 53 143 25 37 27 81 170BJPWinner 29 28 20 39 116 36 27 21 54 138Runner-up 33 17 12 48 110 34 29 19 52 134SPWinner 3 4 6 11 24 9 8 9 11 37Runner-up 7 2 2 7 18 5 8 3 8 24BSPWinner 11 4 3 3 21 4 8 4 3 19Runner-up 8 10 11 21 50 7 7 8 9 31CPI(M)Winner 3 2 3 9 17 5 2 7 30 44Runner-up 4 4 10 19 37 2 2 0 6 10DMKWinner 1 2 3 13 19 0 0 0 16 16Runner-up 0 4 0 1 5 0 0 0 0 0AIADMKWinner 2 6 0 2 10 0 0 0 0 0Runner-up 3 3 2 7 15 0 1 0 33 34Total Winner 95 94 63 161 413 75 62 68 195 400Runner-up 90 75 57 156 378 73 84 57 189 403

2009 2004Andhra Pradesh 18 25 Rajasthan 18 2 Uttar Pradesh 11 5 Maharashtra 8 8 Haryana 7 8 Kerala 7 —NCT of Delhi 7 5 Madhya Pradesh 5 4 West Bengal 5 3 Assam 3 8 Bihar 3 3 Gujarat 3 8 Punjab 3 —Uttarakhand 3 1 Orissa 2 1 Tamil Nadu 2 9 Arunachal Pradesh 1 —Chandigarh 1 1 Jammu & Kashmir 1 1 Manipur 1 1 Meghalaya 1 2 Mizoram 1 —Pondicherry 1 —Karnataka — 4 Others — 9 Total 112 108

2009 2004Bihar 9 3 Madhya Pradesh 9 13 Gujarat 8 5 Karnataka 7 6 Uttar Pradesh 7 6 Chhattisgarh 6 6 Jharkhand 4 1 Maharashtra 3 9 Rajasthan 2 16 Assam 1 —Daman & Diu 1 —Himachal Pradesh 1 1 West Bengal 1 —Others — 9 Total 59 75

Source: Election Commission of India, KIE analysis

BJP's "safe" seats are more clusteredSeats won from a state with over 6% victory margin in the general elections, 2004 and 2009

DIGITAL ATTRACTIONS

(1) identity, (2) interaction, (3) money


The digital interaction between the citizen/business and Government has improved meaningfullyA digital device in the middle makes for a rule-based system

Source: Kotak Institutional Equities

Digitization of (1) identity, (2) interaction and (3) moneyA rule-based and efficient system for interaction with the Government


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G2B and G2C interactions have been significantly digitizedRailways, taxes, voting – many basic aspects of interacting with the Government rapidly digitized

Indian Railways sold more than 100 mn tickets sold online annuallyNumber of tickets booked on Indian Railways' website, March fiscal year-ends, 2006-12

Source: An RTI query reported in the Economic Times, KIE analysis

Online tax filers have increased 10X over the past five yearsNumber of online returns filed, March fiscal year-ends, 2008-13 (mn)

Source: Income tax department, Government of India

Tickets Growth Sales Average price(mn) (%) (Rs mn) (Rs)

2006 3 3,170 1,268 2007 7 172 6,780 997 2008 19 178 17,000 899 2009 44 133 38,830 883 2010 72 63 60,110 836 2011 97 35 80,070 826 2012 116 20 94,980 818


Source: Bhoomi project, Karnataka

Land record digitization is progressing in many statesSignificant benefits of digitization seen

Land records and registration officesNumber of Sub-registrar offices (SROs) 4,407 ComputerizationTotal number of SROs computerized 2,915 States/UTs in which computerization completed 24 States/UTs in which computerization partially completed 3 DocumentsNumber of documents registered per annum across all SROs (mn) 30 States/UTs in which e-stamping services available at SROs 8 States/UTs in which integration of land records and registration complete 8 States/UTs in which integration of land records and registration under progress 1

Digitized land records are more legible - and reduce the importance of the local patwariLand records before and after Bhoomi implementation in Karnataka

Source: Department of Land Resources, Ministry of Rural Development

Meaningful progress in registering land records onlineDetails of computerization of sub-registrar offices, January 2013


Profiling of an individual by the tax department now draws from various databasesVarious databases in use by the Government of India in profiling its taxpayers and citizens

Source: Income tax department

The income tax department has been very active in profiling assesseesThe Government is tightening the noose around errant tax-payers, GST IT will help

Start from PAN or name or mobile

Other matters of interest

Identity particulars?

Income details?

Prepaid taxes?

Lineal ascendants/ descendants?

Siblings?

Persons with a common address?

Investments/ expenditure

Partner in firms?Director in companies?

PAN

PAN

PAN

PAN

AST

OLTAS

e-TDS

Investments / Expenditure

Investments / Expenditure

CIB dataAIR data STT


Improving productivity of subsidies through better targeting via UID However, a lot of work remains to be done on the inclusiveness of UID with respect to gender and age

UID enrolments are over the 20 mn a month mark Monthly enrolments with UID (mn)

Source: UIDAI portal, KIE calculations

New enrolments CumulativeDec-11 22,237,808 103,481,199 Jan-12 24,738,110 128,219,309

Feb-12 8,710,681 136,929,990

Mar-12 22,881,296 159,811,286

Apr-12 15,309,051 175,120,337

May-12 4,766,887 179,887,224

Jun-12 4,645,493 184,532,717

Jul-12 5,930,684 190,463,401 Aug-12 5,314,420 195,777,821

Sep-12 9,863,876 205,641,697

Oct-12 11,292,663 216,934,360

Nov-12 12,573,286 229,507,646

Dec-12 19,487,381 248,995,027

Jan-13 24,794,290 273,789,317 Feb-13 13,748,256 287,537,573

Mar-13 23,910,044 311,447,617

Apr-13 21,606,953 333,054,570

May-13 19,101,975 352,156,545 Jun-13 3,338,250

Notes:(a) The data for June is updated till Jun 5, 2013


Initial thrust of DBT on 25 social schemes and LPG 43 (out of an initial 51) districts have been identified for DBT implementation, 18 for LPG; 15 districts overlap

43 out of the initial 51 districts have identified for DBT; 18 for LPG pilotsDistricts where pilots are being started

Source: Government of India

Himachal Pradesh Rajasthan Madhya Pradesh Andhra Pradesh KarnatakaBilaspur LPG Ajmer DBT Harda DBT LPG Hyderabad DBT LPG Tumkur DBT LPGHamirpur LPG Udaipur DBT Hoshangabad DBT Anantapur DBT LPG Mysore DBTUna LPG Alwar DBT East Nimar DBT LPG Chittoor DBT LPG Bangalore DBTMandi Tripura Gujarat East Godavari DBT LPG GoaPunjab Dhalai DBT Valsad Rangareddy DBT LPG North Goa DBT LPGFatehgarh Sahib DBT North Tripura DBT Mahesana Maharashtra KeralaSBS Nagar DBT LPG South Tripura DBT Anand Wardha DBT LPG Wayanad DBT LPGGurdaspur DBT West Tripura DBT Bhavnagar Nandurbar DBT Pathanamthitta DBT LPGChandigarh Jharkhand NCT of Delhi Amravati DBT Puducherry Chandigarh DBT Ramgarh DBT North East DBT Mumbai Suburban DBT Puducherry DBT LPGHaryana Saraikela-Kharsawan DBT North West DBT Pune DBTAmbala DBT Hazaribagh DBT Sikkim Daman & Diu Sonipat DBT Ranchi DBT West District DBT Diu DBT

East District DBT Daman DBT LPG


Government wants to reach the last man, banks cannotVarious Government subsidies need to reach the poor in the villages, bank model not sustainable

Source: Census of India, 2001

India lives in its far-flung villagesDistribution of villages by population clusters

Number of villages PopulationNumber Proportion Cumulative Number (mn) Proportion Cumulative

Less than 100 45,276 8 8 2 0 0 100-199 46,276 8 15 7 1 1 200-499 127,511 21 37 44 6 7 500-999 145,402 24 61 105 14 21 1,000-1,999 129,977 22 83 183 25 46 2,000-4,999 80,413 14 97 239 32 78 5,000-9,999 14,799 2 99 98 13 91 10,000 & above 3,961 1 100 63 9 100 Total 593,615 100 742 100

Source: Kotak Institutional Equities estimates

A rural branch is not sustainable with current cost structuresEstimates of the cost and deposit break-even for a branch

Operating costsNumber of employees 6 Cost per employee (Rs mn/year) 0.2 Total employee cost (Rs mn) 1.2 Other costs (Rs mn/year) 1.2 Total operating cost (Rs mn/year) 2.4 DepositsExpected Net Interest Margin (NIM, %) 3.0 Required deposit base (Rs mn) 80.0 PenetrationAverage size of deposit (Rs '000) 20.0 Required number of depositors 4,000 Number of households covered by a rural branch 5,000 Required penetration to break even (%) 80

Source: Government of India, Kotak Institutional Equities estimates

The holy grail of UID will be to channel the Rs3 tn of subsidiesBreakdown of major subsidies, March fiscal year-ends, FY2007-14E (Rs bn)

Notes:(a) Data for NREGA for FY2013E and FY2014E is estimated as equal to FY2012.

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1,000

2,000

3,000

4,000

2007 2008 2009 2010 2011 2012 2013E 2014E

Diesel Gasoline Kerosene LPG Fertilizer Food MG


Banks moving towards low-cost model, various BC models emergingChoice of technology and outreach to drive bank penetration

Source: Discussion with industry players, Kotak Institutional Equities estimates

Banking Correspondent model critically dependent on increasing transactionsModel showing revenues and costs of a feet-on-street for a BC Current

Current To break-even Required increaseNumber of new accounts opened per month 50 100 50 Revenue per new account 10 10 Account opening revenue per month 500 1,000 Number of transactions 175 500 325 Average remittance (Rs/month) 200 200 Total remittances (Rs) 35,000 100,000 Commission income @ 2% (Rs/month) 700 2,000 Total income (Rs/month) 1,200 3,000 Cost of feet-on-street (Rs/month) 3,000 3,000 Profit/(loss) per agent (Rs/month) (1,800) — Total number of monthly transactions 225 600 375 Average number of transactions per day 9 24 15 Average cost per transaction (Rs) 13 5 (8)

Source: TV Mohandas Pai in the Economic Times, SBI, Kotak Institutional Equities estimates

Banks, especially private, have moved towards lower cost banking modelsTransaction cost and proportion of transactions across banking channels

Cost ICICI ICICI SBIFY2009 FY2000 FY2009 1QFY11

(Rs/tranx) (%) (%) (%)ATM+POS 15 3 46 8

Internet banking 4 2 38 15 Mobile banking 1 — 1 0

Branch or call centre transaction 50 95 15 77

Total 100 100 100 Average cost per transaction 48 16 40

Source: Discussion with industry experts, Kotak Institutional Equities

Every BC has to make two choices: which technology and what outreach?The choices that a BC needs to make

VAT REFUNDS!

Taxes, subsidies and unintended consequences


India's average per capita income hides several variationsPer capita income across various segments of the economy, March fiscal year-end, 2012

Source: Budget documents, KIE estimates and KIE calculations

Government-mandated transfers form a large chunk of per capita income in rural IndiaCalculating the proportion of Government-mandated payouts to per capita income, March fiscal year-end, 2012E

Source: Census, NSSO survey - 66th round, ASSOCHAM, KIE calculations

Political compulsions of inequality will continue to drive handoutsNote the discrepancy in per capita incomes – and hence the focus of the Government

Labor force (mn) Proportion (%) GDP ($bn) Per-capita income ($) Per-capita income (Rs)Rural Urban Total Rural Urban Total Rural Urban Total Rural Urban Rural Urban

Agriculture 246 9 255 51 2 53 340 12 352 557 557 26,198 26,198

Industry 62 43 105 13 9 22 95 216 311 620 2,023 29,134 95,076

Services 54 70 124 11 14 26 83 1,327 1,410 620 7,644 29,134 359,269

Total 362 122 484 75 25 100 518 1,555 2,073 577 5,140 27,139 241,581

FY2012E Proportion (%) Amount (Rs bn) Per-capita(Rs bn) Urban Rural Urban Rural Urban Rural

Food 650 30 70 195 455 650 506 Fuel 637 60 40 382 255 1,274 283 Fertilizer 650 — 100 — 650 — 722 NREGA 400 — 100 — 400 — 444 MSP increase 450 — 100 — 450 — 500 Bharat Nirman 580 — 100 — 580 — 644 Total 3,367 577 2,790 1,924 3,100

Per-capita income (Rs) 241,581 26,198 Proportion 1 12


Rural India wages have risen significantly more than the tractor cost over the last few yearsCost of labor (men, annual average, Rs/day) and tractor prices (Rs)

Source: Wage rates in rural India, Labor Bureau, various issues; Industry estimates, KIE analysis

An unintended outcome of capital replacing labor in farmsIncome transfers – especially when so strong – create their own outcomes

2010 % increase 2009 % increase 2008 % increase 2007Well-digging 141 21 116 9 107 31 82 Ploughing 121 17 103 13 91 25 73 Sowing 105 16 90 14 79 22 65 Harvesting 103 18 87 16 75 9 69 Transplanting 98 18 83 13 74 8 68 Winnowing 96 19 81 14 71 7 66 Weeding 93 16 80 14 70 8 65 Average wage increase 108 18 92 13 81 16 70 Average tractor price (Rs) 400,000 9 367,470 11 331,021 6 313,369 Tractor HP (average) 40 2 39 1 39 3 38 Tractor price (HP adjusted) 10,000 7 9,327 9 8,520 3 8,268 Differential increase 11 4 13


Ordinance seeks to reach out to two-thirds of India, less then three-fourths that NAC wantedPopulation to be covered under various options (%)

Source: NAC draft bill, press releases, KIE estimates

800 mn people to be covered by the Food Security BillEven this watered-down version will require half the marketable grains to be intermediated by Government

Ordinance NAC proposalRural Urban Rural Urban

- Priority 46 28 - General 44 22 Total 75 50 90 50 Entitlement (kgs/mth/person) - Priority 5 5 7 7 - General 5 5 3 3 CoverageProportion of population 61 39 61 39 Overall coverage 65 75

Rural Urban TotalPopulation (2011 census, mn) 743 466 1,209 Proportion covered (%) 75 50 Entitled population (mn) 557 233 790 AAY entitlementsIdentified families (mn) 25.0 Members per family 5.5 Identified beneficiaries (mn) 137.4 AAY entitlement (kgs/mth/person) 6.4 AAY grain required (mn tons/year) 10.5 Non-AAY entitlementsEntitled population (mn) 652.8 Entitlement (kgs/mth) 5.0 Requirement (mn tons/year) 39.2 BufferFor other welfare schemes and consecutive drought years 8.0 Total requirement (mn tons/year) 57.7

Grain requirement will be about 58 mn tons in the first yearTotal grain requirement under various Government schemes

Source: Census of India, Department of Food Distribution, Draft bill, Standing Committee report, KIE calculations

Source: FCI annual reports, KIE calculations

Logistics cost adds between 30% and 35% to the purchase price for the GovernmentVarious logistics costs for Food Corporation of India, March fiscal year-end FY2010 (Rs/kg)

Wheat RiceProcurement cost 3.1 4.3 Distribution 4.2 4.1 Logistics cost 7.3 8.3 Pooled cost of grain 12.8 18.1 Economic cost of grain 20.1 26.4 Logistics cost/Economic cost(%) 36.4 31.5

Government agencies procured 63 mn tons of grains in FY2012Procurement of wheat and rice by FCI, September market year-ends (mn tons)

Source: FCI

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Liquidating India’s grain inventory can be the best divestment targetIndia maintains a far higher inventory than required by law

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Wheat stocks are sometimes more than 5X the buffer requirementsMonthly stocks of wheat with FCI and buffer norms, calendar year-ends, 2006-13 (mn tons)

Source: FCI

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Rice stocks are more than 3X the buffer requirementsMonthly stocks of rice with FCI and buffer norms, calendar year-ends, 2006-13 (mn tons)

Source: FCI


NREGA provides contestability, not sustainability to rural households NREGA offers work in non-agriculture intensive periods of the year

NREGA is not a very meaningful source of income for its associated householdsAnalysis of NREGA data, March fiscal year-ends, FY2007-12

Source: NREGA MIS, KIE calculations

Where is the NREGA money going?Cumulative spend of NREGA (Rs bn)

Source: NREGA MIS, KIE calculations

Completed Ongoing Total Proportion (%)Rural connectivity 86.0 210.0 296.0 40.4 Water conservation and water harvesting 48.5 133.2 181.6 24.8 Renovation of traditional water bodies 20.4 69.9 90.3 12.3 Land development 17.6 33.9 51.5 7.0 Drought proofing 7.8 28.8 36.5 5.0 Micro-irrigation works 8.4 26.3 34.8 4.7 Flood control and protection 11.8 21.8 33.7 4.6 Bharat Nirman - Rajeev Gandhi Sewa Kendra 1.2 7.1 8.3 1.1 Total 201.7 531.0 732.7 100.0

2007 2008 2009 2010 2011 2012Cumulative number of household jobcards issued (mn) 38 65 100 113 120 123 Households who have demanded employment (mn) 21 34 46 53 56 50 Households provided employment (mn) 21 34 45 53 55 50 Persondays (mn) 905 1,437 2,163 2,836 2,572 2,114

of which, women (mn days) 368 611 1,036 1,364 1,227 1,019 Expenditure (Rs mn) 88,234 158,584 272,507 379,098 393,773 375,488 Days per household (A) 43 42 48 54 47 42 Expenditure per day (Rs) 97 110 126 134 153 178

of which labor (Rs/day) (B) 78 88 101 94 107 124 Average 'earning' of a household (A*B) 3,359 3,741 4,832 5,052 5,016 5,271 Proportion of women 41 43 48 48 48 48

VISIT THE JOB MARKET

But where are the jobs?


A large, educated workforce prepares to enter the marketPopulation growth is slowing but absolute increases are still large

Source: Census of India, Kotak Institutional Equities analysis

23 mn become eligible to join the workforce every year The number of people by educational qualification becoming eligible for employment (mn)

-

5

10

15

20

25

2007

2008

2009

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

2022

E

2023

E

2024

E

2025

E

Illiterate Till V Till IX Till XII Diploma Graduation PG


7-9% growth critical for employment generationIndia has historically created only 6.5-7.1 mn opportunities annually

Source: Planning Commission XIth plan document

India has historically created 7 mn employment opportunities every year Growth in employment across sectors over time (mn)

Source: NCEUS

Employment creation is dependent on growth Expected annual job creation by industry, March fiscal year-ends (mn)

1983 to 1993-94 1993-94 to 2004-05Agriculture 3.3 0.8 Mining and Quarrying 0.1 0.0 Manufacturing 0.7 1.3 Electricity, water, etc. 0.0 0.0 Construction 0.5 0.9 Trade, hotel, and restaurant 0.9 2.1 Transport, storage, and communication 0.3 0.7 Finance, insurance, real estate, and business services 0.1 0.4 Community, social, and personal services 1.1 0.2 Total 7.1 6.5

GDP growth Employment generation (mn)Year (% pa) Agriculture Industry Services Total2012 9 2.0 3.8 6.3 12.1

7 1.3 3.2 5.4 9.9 5 0.5 2.6 4.6 7.7

2017E 9 2.1 4.0 6.8 12.9 7 1.3 3.1 5.3 9.7 5 0.5 2.2 3.9 6.6


Some recent job creation but longer term concerns remain Dramatic fall in labor force participation of women across the board

Unemployment falls; female labor force participation falls dramaticallyEmployment statistics, various NSSO rounds, June year-ends, 2005, 2010 and 2012

Source: Various NSSO rounds, KIE calculations

Male Female Person Male Female Person Male Female PersonNSS - 68th round: July 2011 to June 2012Labor force population (ps+ss) 239 104 342 113 29 141 351 132 484Worker population ratio (ps+ss) 235 102 336 109 27 137 344 129 473Number unemployed (ps+ss) 4 2 6 3 2 5 8 3 11Number unemployed (cds) 13 5 17 5 2 7 18 7 25NSS - 66th round: July 2009 to June 2010Labor force population (ps+ss) 236 106 342 103 24 127 338 130 469Worker population ratio (ps+ss) 232 105 336 100 23 123 332 127 459Number unemployed (ps+ss) 4 2 6 3 1 4 7 3 10Number unemployed (cds) 15 6 21 5 2 7 20 8 28NSS - 61st round: July 2004 to June 2005Labor force population (ps+ss) 227 129 355 92 26 117 319 156 474Worker population ratio (ps+ss) 223 126 349 89 24 112 312 153 463Number unemployed (ps+ss) 4 2 6 4 2 5 7 4 11Number unemployed (cds) 33 34 65 12 17 25 44 49 90Difference between 68th and 66th roundsLabor force population (ps+ss) 3 (3) 1 10 5 14 13 2 15Worker population ratio (ps+ss) 3 (3) 0 9 5 14 12 2 14Number unemployed (ps+ss) 0 0 1 0 0 1 1 0 1Number unemployed (cds) (2) (2) (4) 0 0 0 (2) (2) (3)Difference between 68th and 61st roundsLabor force population (ps+ss) 12 (25) (12) 21 3 24 33 (24) 10Worker population ratio (ps+ss) 11 (25) (13) 21 3 25 32 (24) 10Number unemployed (ps+ss) 1 (1) 0 (0) (0) (0) 1 (1) (0)Number unemployed (cds) (20) (29) (48) (7) (15) (18) (26) (42) (66)

Rural Urban Rural+Urban


Where are all the girls going?NSSO 61st, 66th and 68th round surveys, June year-ends, 2005, 2010, 2012 (%)

Source: Various NSSO rounds

Unemployment rates very low as girls move out of workforce Dramatic fall of women in labor force across the board

Male Female Person Male Female Person Male Female PersonNSS - 68th round: July 2011 to June 2012Labor force participation ratio (ps+ss) 55.3 25.3 40.6 56.3 15.5 36.7 55.6 22.5 39.5 Worker population ratio (ps+ss) 54.3 24.8 39.9 54.6 14.7 35.5 54.4 21.9 38.6 Proportion unemployed (ps+ss) 1.0 0.5 0.7 1.7 0.8 1.2 1.2 0.6 0.9 Unemployment rate (ps+ss) 1.7 1.7 1.7 3.0 5.2 3.4 2.1 2.4 2.2 Unemployment rate (cds) 3.3 3.5 3.4 3.8 6.7 4.4 3.5 4.2 3.7 NSS - 66th round: July 2009 to June 2010Labor force participation ratio (ps+ss) 55.6 26.5 41.4 55.9 14.6 36.2 55.7 23.3 40.0 Workforce participation ratio (ps+ss) 54.7 26.1 40.8 54.3 13.8 35.0 54.6 22.8 39.2 Proportion unemployed (ps+ss) 0.9 0.4 0.7 1.6 0.8 1.2 1.1 0.5 0.8 Unemployment rate (ps+ss) 1.6 1.6 1.6 2.8 5.7 3.4 2.0 2.3 2.0 Unemployment rate (cds) 6.4 8.0 6.8 5.1 9.1 5.8 6.1 8.2 6.6 NSS - 61st round: July 2004 to June 2005Labor force participation ratio (ps+ss) 55.5 33.3 44.6 57.0 17.8 38.2 55.9 29.4 43.0 Workforce participation ratio (ps+ss) 54.6 32.7 43.9 54.9 16.6 36.5 54.7 28.7 42.0 Persons unemployed (ps+ss) 0.9 0.6 0.7 2.2 1.2 1.7 1.2 0.8 1.0 Unemployment rate (ps+ss) 1.6 1.8 1.7 3.8 6.9 4.5 2.2 2.6 2.3 Unemployment rate (cds) 8.0 8.7 8.2 7.5 11.6 8.3 7.8 9.2 8.2 Difference of 68th round and 61st roundLabor force participation ratio (0.2) (8.0) (4.0) (0.7) (2.3) (1.5) (0.3) (6.9) (3.5)Workforce participation ratio (0.3) (7.9) (4.0) (0.3) (1.9) (1.0) (0.3) (6.8) (3.4)Persons unemployed 0.1 (0.1) 0.0 (0.5) (0.4) (0.5) 0.0 (0.2) (0.1)Unemployment rate (ps+ss) 0.1 (0.1) 0.0 (0.8) (1.7) (1.1) (0.1) (0.2) (0.1)Unemployment rate (cds) (4.7) (5.2) (4.8) (3.7) (4.9) (3.9) (4.3) (5.0) (4.5)

Definitions:(1) Labor force participation ratio (LFPR): persons in the labor force (whether employed or unemployed) as a percentage of population(2) Workforce participation (or Worker population) ratio (WFPR): employed persons in the labor force as a percentage of population(3) Proportion unemployed (PU): unemployed persons in the labor force as a percentage of population (LFPR-WFPR)(4) Unemployment rate: unemployed persons in the labor force as a percentage of labor force (PU/LFPR)

Rural Urban Rural+Urban


Employment is moving away from agricultureEmployment status, various NSSO rounds, June year-ends, 2005, 2010 and 2012 (%)

No meaningful change in employment status over timeEmployment status, various NSSO rounds, June year-ends, 2005, 2010-12 (%)

Source: Kotak Institutional Equities estimates Source: Wage rates in rural India, Labor Bureau, various issues; Industry estimates, KIE analysis

Out of agriculture, but into the casualization trap?Less than half of Indians now work in agriculture; more than half are self-employed

Rural UrbanMale Female Male Female

NSS - 68th round; July 2011-June 2012Agriculture (primary) 59 75 6 11 Secondary (manufacturing) 22 17 35 34 Tertiary 19 8 59 55 Total 100 100 100 100 NSS - 66th round; July 2009-June 2010Agriculture (primary) 63 79 6 14 Secondary (manufacturing) 19 13 35 33 Tertiary 18 8 59 53 Total 100 100 100 100 NSS - 61st round; July 2004-June 2005Agriculture (primary) 67 83 6 18 Secondary (manufacturing) 15 10 34 32 Tertiary 18 7 60 50 Total 100 100 100 100 Difference between 68th and 61st roundsAgriculture (primary) (8) (8) (0) (7)Secondary (manufacturing) 7 7 1 2Tertiary 1 2 (1) 5

Rural Urban Rural+UrbanNSS - 68th round; July 2011-June 2012Self employed 56.0 42.0 52.0 Casual labor 35.0 15.0 30.0 Regular wage/salaried 9.0 43.0 18.0 Total 100.0 100.0 100.0 NSS - 66th round; July 2009-June 2010Self employed 54.2 41.1 51.0 Casual labor 38.6 17.5 33.5 Regular wage/salaried 7.3 41.4 15.6 Total 100.1 100.0 100.1 NSS - 61st round; July 2004-June 2005Self employed 56.5 43.4 51.0 Casual labor 34.6 11.8 33.5 Regular wage/salaried 8.8 44.8 15.6 Total 99.9 100.0 100.1 Difference between 68th and 61st roundsSelf employed (0.5) (1.4) 1.0Casual labor 0.4 3.2 (3.5)Regular wage/salaried 0.2 (1.8) 2.4


Double-digit wage inflation over the past seven yearsWages, various NSSO rounds, June year-ends, 2005, 2010, 2012 (%)

Source: Various NSSO rounds, Kotak Institutional Equities analysis

Double-digit wage inflation over the past seven yearsAverage wages meaningfully over the minimum/NREGA wage

Rural UrbanMale Female Person Male Female Person

NSS - 68th round; July 2011-June 2012Regular wage/salaried 322 202 299 470 366 450 Casual labor - other than public works 149 103 139 182 111 170 - in public works (other than MGNREGS) 127 111 121 - in public works (MGNREGS) 112 102 107 NSS - 66th round; July 2009-June 2010Regular wage/salaried 249 156 232 377 309 365 Casual labor - other than public works 102 69 93 132 77 122 - in public works (other than MGNREGS) 98 86 - in public works (MGNREGS) 91 87 NSS - 61st round; July 2004-June 2005Regular wage/salaried 145 90 134 203 153 194 Casual labor 57 36 76 44 Compunded annual increase (%, pa) between 68th and 61st roundsRegular wage/salaried 12.1 12.3 12.2 12.7 13.2 12.8 Casual labor 14.8 16.1 13.4 14.0


Massive shift from agriculture: skill development in many industries is criticalStock of employment across sectors, March fiscal year-ends, 2008-22E (mn)

Source: National Skill Development Council reports, KIE estimates

Industry/Service 2008 2022E IncreaseAuto and auto components 13 48 35

Banking, financial services and insurance 4 9 4

Building, construction and real estate 37 86 49Chemicals and pharmaceuticals 2 4 2Education and skill development 5 13 9Electronics and IT hardware 1 4 3Food processing 9 18 9Furniture and furnishings 1 5 3Gems and jewellery 3 8 5IT and ITES industry 2 8 5Leather 3 7 5Media and entertainment 1 4 3Organized retail 0 18 17

Textiles and spinning 13 30 17

Tourism 4 7 4Transportation, logistics, warehousing and packaging 7 25 18

Unorganized sector 36 77 41

Others 68 170 102Total in industry or services 209 539 330Total labor force 481 654 173Employed in industry or services (%) 43 82 39Employed in agriculture (mn) 272 114 (158)Employed in agriculture (%) 57 18 (39)

India needs to, and can, create significant manufacturing-led jobsSkill development is the key to better income distribution


Engineering and management student intakes have risen 2-3X over the past five yearsAICTE-approved technical institutions, approved and actual student intake, March fiscal year-ends, 2008-12

Almost anyone who wants higher education in India can now get itPotential candidates and number of college seats, March fiscal year-ends, 2008-12

Source: IPRS, IIM-Ahmedabad, KIE calculations

Mean salaries at IIM-Ahmedabad converging - BFSI no longer an outstanding paymasterMedian salary of freshers from IIM-Ahmedabad across sectors, March fiscal year-ends, 2011-12

Source: AICTE

Source: AICTE, KIE calculations

Indian graduates may find it difficult to get jobsThe return on higher education is falling in India

Source: IIM-Ahmedabad, discussions and KIE calculations

Education loan EMI can form a meaningful component of a fresher's take home pay

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008

2009

2010

2011

2012

Students Seats

2008 2009 2010 2011 2012Institutes (#)Engineering 1,668 2,388 2,972 3,222 3,393 Management 1,149 1,523 1,940 2,262 2,385 Masters in Computer Applications 1,017 1,095 1,169 1,198 1,228 Pharmacy 854 1,021 1,081 1,114 1,137 Others 197 203 199 208 218 Total 4,885 6,230 7,361 8,004 8,361 Approved student intake (#)Engineering 825,791 1,087,283 1,400,270 1,783,431 1,905,802 Management 114,803 155,658 210,737 291,382 313,920 Masters in Computer Applications 55,009 64,247 74,619 83,942 87,573 Pharmacy 65,788 73,489 78,891 95,517 102,078 Others 15,508 16,949 18,835 22,752 22,840 Total 1,076,899 1,397,626 1,783,352 2,277,024 2,432,213 Actual student intake (#)Engineering 653,290 841,018 1,071,896 1,314,594 1,485,894 Management 121,867 149,555 179,561 277,811 352,571 Masters in Computer Applications 70,513 73,995 78,293 87,216 92,216 Pharmacy 52,334 64,211 68,537 98,746 102,746 Others 9,818 10,337 10,520 12,384 13,184 Total 907,822 1,139,116 1,408,807 1,790,751 2,046,611

Fees, other costs at IIM-Ahmedabad 1,600,000 Loan (assumed at 80%) 1,280,000 Loan rate (%) 11 Loan tenure (years) 7 Loan EMI (per month) 21,917 Average salary 1,400,000 Tax and other deductions (at ~30%) 420,000 Take home pay (per month) 81,667 Education loan EMI/Take-home pay (%) 27

2011 2012 % changeBanking and financial services 1,754,417 1,349,912 (23) Consulting 1,378,453 1,514,343 10 Consumer goods (FMCG) 1,295,275 1,345,759 4 Information Technology 1,263,524 1,377,153 9

SAVINGS!

Houses and gold abound


88% of India’s population will be less than 60 years old by 2025EIndia’s age profile in 2025E (percentage of the population)


The households’ savings rate is driven by demographics 40% of India will be in the ‘savings age’ in 2025E: 30-54 years old

0

20

40

60

80

100

0-4

5-9

10-1

4

15-1

9

20-2

4

25-2

9

30-3

4

35-3

9

40-4

4

45-4

9

50-5

4

55-5

9

60-6

4

65-6

9

70-7

4

75-7

9

80+

30.8

14.3

8.0

0

10

20

30

40

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

Gross domestic savings Household physical savings Household financial savings

Physical savings have outpaced financial savings for households over the past few yearsSector-wise gross domestic savings as a percentage of GDP, March fiscal year-ends, 1981-2012

Source: CEIC, Kotak Institutional Equities estimates

0

20

40

60

80

1981-85 1986-90 1991-96 2001-05 2006-10 2016-20

Males Females

Increasing life expectancy makes saving for old age importantProjected life expectancy in India, March fiscal year-ends, 2010-25E

Source: Ministry of Health and Family Welfare, Kotak Institutional Equities


‘Net’ gold imports into India – and the wealth effect Even the doubling of the value of gold has been masked by gains in equity

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TotalTotal gold products export (US$ mn) 1,169 1,512 2,666 3,784 3,882 5,209 5,562 8,746 6,132 12,886 16,517 Gold content in the export (US$ mn) 935 1,210 2,133 3,027 3,106 4,167 4,450 6,997 4,906 10,308 13,214 Average price of gold (US$/troy ounce) 278 326 378 414 477 628 766 868 1,024 1,295 1,647 Average price of gold (US$ mn/ton) 9 10 12 13 15 20 25 28 33 42 53 Gold exported (tons) 105 115 175 227 202 206 181 251 149 248 250 2,109 Gold imported (tons) 471 607 767 783 723 716 698 771 851 970 1,078 8,435 Export/Import (%) 22 19 23 29 28 29 26 32 18 26 23 25

Notes:(a) India exports gold jewelry and medallion/coins of gold. We assume 80% of the value of sale to be gold.(b) 1 troy ounce is taken as equal to 31.1 grams

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TotalNet stay back of gold in India (tons) 367 491 591 556 521 510 518 520 702 722 829 6,326 Investment in stay-back gold 3 5 7 7 8 10 13 15 23 30 44 166 Current value of gold 19 26 31 29 28 27 27 28 37 38 44 335 Wealth effect 16 21 24 22 20 17 15 13 14 8 — 169

20-30% of India's gold imports are re-exportedIndia's exports of and investment in gold, March fiscal year-ends, 2002-12

Source: GJEPC, RBI, CEIC, KIE calculations

India's investment in gold over the last decade has doubled in valueIndia's investment in gold and its current value, March fiscal year-ends, 2002-12 (US$ bn)

Source: KIE estimates and calculations


Loans against gold are a better way to monetize gold in India The dominant use of gold in India is still jewelry; investment use is becoming prominent

0

20

40

60

80

100

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Others

Investment

Jewelry

Scheme Year Interest Collection Comments15-year Gold Bonds 1962 6.5% 16.3 Indo-China war prompted thisGold Bonds 1965 7.0% 6.1 Included an amnesty schemeNational Defence Gold Bonds 1980 6.5% 13.7 Unlike earlier schemes, this was redeemable in goldTotal until 1996 36.1 Estimated gold stock in 1996 9,016.0 Gold monetized (%) 0.40

Notes:(a) India implemented a scheme to restrict jewelry making at 14 carat purity from January 1963 to November 1966.(b) India tried to auction its official gold holdings to the public to contain imports, but withdrew it within months as it was "not practical".

Bank-led schemes to garner gold have met with modest successCollection by gold bond schemes in India (tons)

Source: YV Reddy's speech in 1996 to WGC

Gold is still dominantly used for jewelryBreak-up of consumer demand in India, calendar year-ends, 1990-2008 (%)

Source: Dr. R Kanan in World Gold Council report, 2011

Loan financing may be a better way to monetize goldEstimate of gold monetization, December 2012 (Rs bn)

Source: KIE estimates and calculations

Rs bnBanks 650 Non-banking financial companies (NBFCs) 510 Co-operatives 50 Total 1,210 Average loan to value ratio (%) 65 Loan value mortgaged 1,862 Gold price (Rs/gm) 3,000 Gold mortgaged (tons) 621 Gold stock in 2012 (tons) 18,000 Gold monetized (%) 3.4


81 mn new housing units created in the last decadeHousing stock, March fiscal year-ends, FY2001 and FY2011 (mn)

Larger households breaking up into smaller sizesHousehold size, March fiscal year-ends, FY2001 and FY2011 (%)

Source: Census of India

Nuclearization not driven by 'broken' households but fewer offspringNumber of married couples in a house, March fiscal year-ends, 2001, 2011 (%)

Source: Census of India Source: Census of India

New housing dynamics as smaller families emergeSmall rental market: those who own homes in urban India possibly own multiple homes

FY2001 FY2011Rural Urban Total Rural Urban Total

Occupied 168 65 233 207 99 306 of which,

Residential 129 50 179 160 76 236 Residential-cum-other uses 6 2 8 6 2 9 Non-residential 33 13 46 41 21 62

Vacant 10 7 17 14 11 25 Total 178 72 250 221 110 331 Number of households 192 168 79 247

2001 2011Total Rural Urban Total Rural Urban

1 3.6 3.5 3.7 3.7 3.7 3.6

2 8.2 8.2 8.2 9.7 9.8 9.5 3 11.1 10.4 12.7 13.6 12.6 15.9 4 19.0 17.7 22.4 22.7 21.0 26.4

5 18.7 18.5 19.2 18.8 18.9 18.5

6-8 28.1 29.6 24.4 24.9 26.9 20.6 9 + 11.3 12.1 9.4 6.6 7.1 5.5

Total 100.0 100.0 100.0 100.0 100.0 100.0


None 11.1 10.5 12.6 11.6 11.1 12.7

1 70.3 69.3 73.0 70.2 69.5 71.0 2 13.5 14.6 10.8 14.1 14.9 12.6

3 3.6 4.0 2.7 3.2 3.4 2.9 4 1.0 1.1 0.7 0.7 0.8 0.6 5+ 0.5 0.5 0.3 0.2 0.3 0.2 Total 100.0 100.0 100.1 100.0 100.0 100.0


More than five out of six households in India own their homesOwnership and renting of homes, March fiscal year-ends,1991, 2001, 2011 (%)

20111991 2001 2011 Rural Urban

Owned 86.3 86.7 86.6 94.7 69.2 Rented 11.8 10.5 11.1 3.4 27.5 Others 1.9 2.8 2.3 1.9 3.3 Total 100.0 100.0 100.0 100.0 100.0


Indians have sturdier roofs over their headsMaterial of roof, March fiscal year-ends, FY1991, 2001 and 2011 (%)

Walls of Indian homes are strongerMaterial of walls, March fiscal year-ends, 1991, 2001 and 2011 (%)


Most of the floors in India are pavedMaterial for floors, March fiscal year-ends, 1991, 2001 and 2011 (%)


Indian houses are much better than over the past two decadesIndians seem to want to invest in quality over quantity – a trend that is expected to continue


Most Indian homes have one or two rooms Number of rooms, March fiscal year-ends, FY2001 and 2011 (%)

20111991 2001 2011 Rural Urban

Grass/thatch/bamboo/wood/mud, etc. 31.3 21.9 15.0 20.0 4.6 Tiles 36.1 32.6 23.8 28.7 13.2

GI/ Metal/ Asbestos sheets 8.6 11.6 15.9 15.9 15.9 Concrete 10.8 19.8 29.0 18.3 51.9

Others 13.2 14.1 16.3 17.1 14.4 Total 100.0 100.0 100.0 100.0 100.0

20111991 2001 2011 Rural Urban

Grass/thatch/bamboo, etc. 10.3 10.2 9.0 11.9 2.7

Mud/unburnt bricks 41.5 32.2 23.7 30.5 9.3

Stone 10.1 9.4 14.2 13.6 15.0

Burnt brick 34.2 43.7 47.5 40.0 63.5

Others 3.9 4.5 5.6 4.0 9.5 Total 100.0 100.0 100.0 100.0 100.0

20111991 2001 2011 Rural Urban

Mud 67.0 57.1 46.5 62.6 12.2

Stone - 5.8 8.1 6.2 12.2 Cement 21.3 26.5 31.1 24.2 45.8 Mosaic/floor tiles 3.8 7.3 10.8 3.7 25.9

Others 7.9 3.3 3.5 3.3 3.9 Total 100.0 100.0 100.0 100.0 100.0


No exclusive room 3.1 3.4 2.3 3.9 4.3 3.1

One room 38.5 39.8 35.1 37.1 39.4 32.1 Two rooms 30.0 30.2 29.5 31.7 32.2 30.6 Three rooms 14.3 13.3 17.1 14.5 12.7 18.4 Four rooms 7.5 7.0 8.7 7.5 6.6 9.3 Five rooms 2.9 2.8 3.3 2.6 2.3 3.3 Six rooms and above 3.7 3.5 4.0 2.7 2.5 3.2 Total 100.0 100.0 100.0 100.0 100.0 100.0


Tap water gains significant currency, though vast rural-urban gaps remainSource of water, March fiscal year-ends,1991, 2001 and 2011 (%)

India gets rapidly electrified—kerosene loses importance in lighting up homesSource of lighting, March fiscal year-ends, 1991, 2001 and 2011 (%)


Even as LPG catches on and kerosene takes a backseat, firewood is used in half of Indian homes to cookFuel used for cooking, March fiscal year-ends, 2001 and 2011 (%)


Amenities at home and asset ownership are rising dramaticallyA small point on wasteful subsidies is in order, here


Dramatic improvement in material asset ownershipHouseholds with asset ownership, March fiscal year-ends, 2001 and 2011 (%)

20111991 2001 2011 Rural Urban

Tap 32.3 36.7 43.5 30.8 70.6 Hand-pump and tube-well 30.0 41.2 42.0 51.9 20.8 Well 32.2 18.2 11.0 13.3 6.2 Others 5.5 3.9 3.5 4.0 2.4 Total 100.0 100.0 100.0 100.0 100.0

1991 2001 2011 Rural UrbanElectricity 42.4 55.9 67.3 55.3 92.7Kerosene 31.4Solar energy 0.4Other oil 0.2Any other source 0.2No lighting 0.5


Fire-wood 52.5 64.1 22.7 49.0 62.5 20.1

Crop residue 10.0 13.1 2.1 8.9 12.3 1.4 Cow dung cake 9.8 12.8 2.0 8.0 10.9 1.7 Coal, Lignite, Charcoal 2.0 1.1 4.6 1.4 0.8 2.9

Kerosene 6.5 1.6 19.2 2.9 0.7 7.5 LPG/ PNG 17.7 5.7 47.9 28.5 11.5 65.1

Electricity 0.2 0.1 0.3 0.1 0.1 0.2 Biogas 0.4 0.5 0.4 0.4 0.4 0.4 Any other 0.6 0.8 0.2 0.5 0.6 0.2 No cooking 0.3 0.2 0.6 0.3 0.2 0.5 Total 100.0 100.0 100.0 100.0 100.0 100.0

2011 2001 ChangeRural Urban Rural Urban Rural Urban

Banking 54.4 67.8 30.1 49.5 24.3 18.3 Radio/transistor 17.3 25.3 31.5 44.5 (14.2) (19.2) Television 33.4 76.7 18.9 64.3 14.5 12.4 Bicycle 46.2 42.0 42.8 46.0 3.4 (4.0) Car/Jeep/Van 2.3 9.8 1.3 5.7 1.0 4.1 Scooter/Motorcycle/Moped 14.3 35.2 6.7 24.7 7.6 10.5 Telephone 54.0 82.0 3.5 23.0 50.5 59.0

of which, mobile 51.0 76.0 NA NA NA NAComputer/laptop 5.2 18.7 NA NA NA NA

of which, with internet 0.7 8.3 NA NA NA NA


India’s home loan market Six million active accounts; ticket sizes and repayment tenures rising

There are more than six million home-loan borrowers even as average balances increaseHousing-loan accounts and balances, March fiscal year-ends, 2005-10

Source: National Housing Bank

Repayments calculations show a lengthening tenure of loansHousing loans tenure calculations, March fiscal year-ends, 2011-12 (Rs bn)

Source: National Housing Bank, KIE analysis

Loan accounts

Loan outstanding Credit limit

Average loan outstanding

Average credit limit

(Rs bn) (Rs bn) (Rs/account) (Rs/account)2005 3,666,450 1,268 1,450 345,830 395,568 2006 4,521,531 1,822 2,092 402,888 462,753 2007 5,009,913 2,289 2,697 456,940 538,423 2008 5,214,331 2,484 2,918 476,445 559,660 2009 5,710,702 2,848 3,388 498,627 593,265 2010 6,037,786 3,063 3,766 507,315 623,775

2012 2011Opening outstanding 2,391 2,024 Disbursements 738 752 Closing outstanding 2,730 2,391 Repayments 399 384 Average outstanding 2,560 2,207 Average tenure (years) 6.4 5.7

Ticket-sizes of home loans are increasingHome loans disbursed and outstanding, March fiscal year-ends, 2010-12 (Rs bn)

Source: National Housing Bank

Scheduled Commercial Banks2012 2011 2010

Disbursed O/S NPA (%) Disbursed O/S NPA (%) Disbursed O/S NPA (%)Under Rs0.2 mn 53 68 11.5 58 94 6.1 45 90 6.3 Rs0.2 mn - Rs0.5 mn 56 385 4.8 113 483 4.9 106 440 5.8 Rs0.5 mn - Rs1.0 mn 118 643 3.4 135 588 3.7 122 512 4.3 Rs1.0 mn - Rs2.5 mn 266 1,012 1.7 202 684 2.6 190 550 2.9 Over Rs2.5 mn 246 622 1.1 243 542 1.6 256 432 1.4 Total 738 2,730 2.6 752 2,391 3.2 719 2,024 3.7

GREAT DEALS

A great consumption story if jobs and growth are right


The big winners in the Indian consumption storyCAGR and market size of various commodities, March fiscal year-ends

Source: Kotak Institutional Equities’ RUPEES model

Spending on discretionary items will increase as incomes riseFood, housing, transport to be the biggest value creators

Growth Market size (Rs bn) OpportunityCategories CAGR (%) Rank FY 2012 FY 2025 (Rs bn)Food and beverages 6.0 12 23,590 50,578 26,988 Alcohol and tobacco 7.7 10 1,403 3,681 2,278 Clothing and footwear 7.3 11 2,904 7,266 4,361 Housing 9.6 4 6,412 21,183 14,771 Household goods 8.8 9 2,282 6,818 4,537 Healthcare 10.2 2 2,482 8,735 6,253 Transport 9.1 8 4,751 14,700 9,949 Communications 9.4 5 1,406 4,527 3,121 Leisure 10.4 1 1,945 7,038 5,094 Education 9.2 6 1,440 4,527 3,087 Hotels 10.1 3 1,661 5,797 4,136 Miscellaneous 9.2 7 5,852 18,390 12,538 Total 8.0 56,129 153,241 97,113


Defining the RUPEES frameworkClassifying Indian households in various categories of MPCE, 2010-Rs

Understanding the RUPEES walletProportion of annual expenditure-wallet spent on various categories on a per capita basis


Source: KIE estimates

Understanding our RUPEES frameworkThe share of wallet spent by ‘Real-rich’ households is significantly different from that of the ‘Survivors’

Monthly expenditure Annual expenditure AverageFrom To From To

Real-rich 30,000 360,000 — 500,000 Upper-class 20,000 30,000 240,000 360,000 300,000 Prospering 10,000 20,000 120,000 240,000 180,000 Evolving 5,000 10,000 60,000 120,000 90,000 Emerging 2,500 5,000 30,000 60,000 45,000 Surviving - 2,500 - 30,000 15,000

Proportion (%) Real-rich Upper-class Prospering Evolving Emerging SurvivingFood and beverages 15.0 20.0 30.0 40.0 45.0 50.0 Alcohol and tobacco 2.0 2.0 2.5 2.5 2.5 2.5 Clothing and footwear 4.5 4.5 4.5 5.0 5.0 7.0 Housing 17.0 17.0 15.0 12.0 11.0 7.5 Household goods 6.0 5.0 4.5 4.0 4.0 4.0 Healthcare 9.0 8.0 6.0 4.5 4.0 4.0 Transport 11.0 11.0 10.0 9.0 8.0 7.0 Communications 4.0 4.0 3.0 2.5 2.5 2.0 Leisure 6.0 6.0 5.0 4.0 3.0 2.0 Education 4.0 4.0 3.0 2.5 2.5 2.5 Hotels 5.0 4.5 4.0 3.5 2.5 2.0 Miscellaneous 16.5 14.0 12.5 10.5 10.0 9.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 Average income 500,000 300,000 180,000 90,000 45,000 15,000


Our analysis has a reasonable resemblance to Indian consumption estimatesEstimates of the break-up of India's consumption basket, March fiscal year-end, FY2011

Global consumption patterns help to guide Indian projectionsConsumer spending across categories, 2010 (%)

Source: Euromonitor 'World Consumer Income and Expenditure Patterns', July 2011, NSSO, KIE estimates

Source: Euromonitor, KIE estimates and calculations

India’s consumption profile has many estimatesWe use international comparisons to derive the spending wallet of different classes

KIE analysis NSSO EuromonitorRural Urban All-India Rural Urban All India

Food and beverages 45.5 39.9 42.8 53.6 40.7 27.7 Alcohol and tobacco 2.5 2.5 2.5 2.2 1.2 3.2 Clothing and footwear 5.6 5.0 5.3 5.9 5.6 6.4 Housing 10.1 12.1 11.1 14.5 Household goods 4.0 4.1 4.1 4.8 6.7 3.9 Healthcare 4.1 4.7 4.4 4.8 Transport 7.9 8.8 8.3 9.5 8.0 17.7 Communications 2.3 2.6 2.5 2.2 Leisure 2.9 3.8 3.3 1.3 Education 2.5 2.6 2.6 2.4 Hotels 2.5 3.2 2.9 2.9 Miscellaneous 9.9 10.8 10.3 24.0 37.8 13.2 Grand total 100.0 100.0 100.0 100.0 100.0 100.0

2010 - PPP basisIndonesia China Korea Japan USA

Food and beverages 32.2 22.3 15.0 14.7 6.8 Alcohol and tobacco 5.8 2.3 2.6 2.8 2.1 Clothing and footwear 3.1 7.5 4.1 3.4 3.5 Housing 13.8 14.8 17.3 23.8 19.1 Household goods 5.3 4.7 3.9 3.7 4.2 Healthcare 4.3 6.9 5.4 4.8 20.3 Transport 6.5 6.4 10.8 11.6 9.7 Communications 2.1 4.9 5.7 3.0 2.3 Leisure 1.4 5.3 7.3 10.9 9.3 Education 2.1 4.8 6.3 2.2 2.4 Hotels 13.7 8.4 7.3 7.5 6.2 Miscellaneous 9.8 11.7 14.3 11.4 14.1 Total 100.0 100.0 100.0 100.0 100.0

Per capita income (PPP, US$) 3,179 4,432 19,068 28,637 43,539 # of years to reach this stage 2 7 28 34 40


India will see a massive uptick in rich householdsDistribution of Indian households by consumption expenditure, March fiscal year-ends, 2010-25E


Economic growth can create a very meaningful middle classTop three classes will rise 3X in number; Survivors will upgrade to ‘Emerging’ and ‘Evolving’

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025Rural households (mn)Real-rich — — — — — — — — — — — — — — — Upper-class — — — — — — — — — — — — — 1.2 2.7 Prospering — — 1.2 2.6 4.1 5.5 7.1 8.6 10.1 11.7 13.4 15.0 19.4 19.8 21.7 Evolving 11.3 17.5 17.5 20.1 24.0 27.6 30.9 36.1 42.4 48.2 56.1 64.4 70.3 79.8 87.4 Emerging 54.0 70.3 79.8 87.0 92.8 98.9 104.5 107.7 109.2 110.1 108.6 106.4 100.3 91.1 82.0 Surviving 103.3 82.4 73.4 63.9 54.6 45.2 36.5 28.4 20.8 14.4 8.2 2.3 — — — Total 168.6 170.3 172.0 173.7 175.4 177.2 178.9 180.7 182.5 184.4 186.2 188.1 189.9 191.8 193.8 Urban households (mn)Real-rich — — — — — — — — 0.4 1.3 2.3 3.4 4.5 5.7 7.0 Upper-class — — 0.7 1.4 2.3 3.1 4.1 5.1 5.8 6.0 6.2 6.4 8.5 8.5 10.0 Prospering 6.5 8.8 9.0 10.3 12.2 14.2 16.0 17.8 20.8 24.4 28.1 32.0 35.3 40.6 44.7 Evolving 19.7 25.3 29.2 32.7 35.7 38.9 42.9 47.1 49.8 52.1 54.3 56.7 57.8 58.9 59.8 Emerging 38.1 40.4 41.2 41.2 41.3 41.2 39.0 35.9 32.9 29.9 26.9 23.7 20.4 17.1 13.8 Surviving 16.6 9.7 7.5 5.4 3.1 0.9 — — — — — — — — — Total 80.9 84.2 87.6 91.0 94.6 98.3 102.0 105.8 109.7 113.8 117.9 122.1 126.4 130.9 135.4

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025Real-rich — — — — — — — — 0.4 1.3 2.3 3.4 4.5 5.7 7.0 Upper-class — - 0.7 1.4 2.3 3.1 4.1 5.1 5.8 6.0 6.2 6.4 8.5 9.7 12.8 Prospering 6.5 8.8 10.2 13.0 16.3 19.7 23.1 26.4 31.0 36.2 41.5 47.0 54.6 60.3 66.4 Evolving 31.0 42.9 46.7 52.8 59.6 66.5 73.8 83.1 92.2 100.3 110.4 121.0 128.1 138.7 147.2 Emerging 92.1 110.7 121.0 128.3 134.1 140.0 143.5 143.6 142.1 140.0 135.4 130.1 120.6 108.3 95.8 Surviving 119.9 92.1 81.0 69.3 57.7 46.1 36.5 28.4 20.8 14.4 8.2 2.3 — — — Total 249.5 254.4 259.5 264.7 270.0 275.4 280.9 286.5 292.3 298.1 304.1 310.2 316.4 322.7 329.1

A LOOK AT THE COUNTRYSIDE

Food and water


Farming does not provide a good yield Economics for the farmer assuming two-crops, none fails

Source: Discussion with landowners, KIE calculations

The wealth effect in farming is very pronouncedThere may not be any financial yield in agriculture – but that does not mean there are no capital gains!

Rural - irrigated Rural - unirrigatged Semi-urban UrbanLocation Mangrol Mangrol Sehore MisrodDescription 120 kms off Bhopal 120 kms off Bhopal 5 kms from Sehore 12 kms from BhopalTypical cropping cycle Two a year Two a year Two a year Two a yearCropping pattern Wheat and soya Wheat and soya Wheat and soya Wheat and soyaRealization (Rs/acre) 24,000 18,000 24,000 24,000Land price (Rs/acre) 350,000 275,000 700,000 10,000,000Yield (%) 6.9 6.5 3.4 0.2Rate of interest of public sector banks 9.0 9.0 9.0 9.0Interest subvention by central government 2.0 2.0 2.0 2.0Interest subsidy by MP government 4.0 4.0 4.0 4.0Cost to farmer (%) 3.0 3.0 3.0 3.0Yield above cost of capital 3.9 3.5 0.4 (2.8)


The agriculture value chain is very fragmented Significant scope to upgrade productivity

Source: Agriculture Statistics at a Glance, 2009

India has vast scope to improve productivityComparing productivity of Indian agriculture with the world, March fiscal year-end, 2007 (kg/ha)

Country Paddy Country Wheat Country MaizeWorld 4,223 World 2,829 World 5,010 Bangladesh 4,012 China 4,608 Agentina 7,666 Brazil 3,826 Egypt 6,478 Canada 8,511 China 6,422 France 6,256 China 5,151 India 3,303 India 2,704 India 2,440 Indonesia 4,705 Italy 3,568 Italy 9,144 Japan 6,511 Spain 3,470 Turkey 6,838 USA 8,092 United Kingdom 7,225 USA 9,458

Source: KPMG, Indiastat, Industry analysis

Bt Cotton has gained traction: increasing yieldIncreasing area cultivated with Bt Cotton (mn ha), yield (kg/ha)

Cotton area Bt Cotton area Yield2002 7.7 — 186 2003 7.6 0.2 191 2004 8.8 0.6 307 2005 8.7 1.1 318 2006 9.1 3.8 362 2007 9.4 6.2 421 2008 9.3 7.6 560 2009 9.3 8.9 591


Land holding is fragmenting even as the youth opts out of agriculture Operational consolidation should begin to take place

1971 1976 1981 1986 1991 1996 2001 2006 2011'000 holdingsMarginal <1.0 ha 36,200 44,523 50,122 56,147 63,389 71,179 75,408 83,694 92,356 Small 1.0-2.0 ha 13,432 14,728 16,072 17,922 20,092 21,643 22,695 23,930 24,705 Semi-Medium 2.0-4.0 ha 10,681 11,666 12,455 13,252 13,923 14,261 14,021 14,127 13,840 Medium 4.0-10.0 ha 7,932 8,212 8,068 7,916 7,580 7,092 6,577 6,375 5,856 Large >10.0 ha 2,766 2,440 2,166 1,918 1,654 1,404 1,230 1,096 1,000 Total 71,011 81,569 88,883 97,155 106,637 115,580 119,931 129,222 137,757 '000 haMarginal <1.0 ha 14,599 17,509 19,735 22,042 24,894 28,121 29,814 32,026 35,410 Small 1.0-2.0 ha 19,282 20,905 23,169 25,708 28,827 30,722 32,139 33,101 35,136 Semi-Medium 2.0-4.0 ha 29,999 32,428 34,645 36,666 38,375 38,953 38,193 37,898 37,547 Medium 4.0-10.0 ha 48,234 49,628 48,543 47,144 44,752 41,398 38,217 36,583 33,709 Large >10.0 ha 50,064 42,873 37,705 33,002 28,659 24,160 21,072 18,715 17,379 Total 162,318 163,343 163,797 164,562 165,507 163,355 159,436 158,323 159,180 ha/holdingMarginal <1.0 ha 0.40 0.39 0.39 0.39 0.39 0.40 0.40 0.38 0.38 Small 1.0-2.0 ha 1.44 1.42 1.44 1.43 1.43 1.42 1.42 1.38 1.42 Semi-Medium 2.0-4.0 ha 2.81 2.78 2.78 2.77 2.76 2.73 2.72 2.68 2.71 Medium 4.0-10.0 ha 6.08 6.04 6.02 5.96 5.90 5.84 5.81 5.74 5.76 Large >10.0 ha 18.10 17.57 17.41 17.21 17.33 17.21 17.13 17.08 17.38 Total 2.29 2.00 1.84 1.69 1.55 1.41 1.33 1.23 1.16

Age (years) Proportion15-20 19.7 20-25 21.2 25-30 24.7 30-35 28.2 35-40 30.9 40-45 32.8 45-50 34.8 50-55 37.0 55-60 40.0 Overall 31.3

Land fragmentation continues apaceHoldings of land by number and area, March fiscal year-ends, 1971-2011

Source: Agri census 2011

Fewer youth in agricultureProportion of people in agriculture across ages, quarter ended June 2012

Source: CMIE survey of 700,000 individuals quoted on Ajay Shah's blog


Incomes increasing in agriculture – and in rural India, in generalFarming profit growth beat inflation in the past decade, driven significantly by Government intervention


Significant boost to rural incomes over the past decadeComputation showing the changing profile of rural incomes, March fiscal year-ends, 2004-13

Prices Production (mn tons) Value (Rs bn) Increase2004 2013 Inc (%) 2004 2013 Inc (%) 2004 2013 (Rs bn) (%)

Agriculture - important commoditiesWheat (Rs/qtl) 630 1,350 114 72 94 30 455 1,269 814 179Paddy-Grade A (Rs/qtl) 590 1,250 112 89 104 17 522 1,300 778 149Dairy (Rs/lit) 15 20 30 88 128 45 1,357 2,558 1,201 88Government schemes - flagship schemeMG-NREGA — 400 400 — Agricultural creditFrom organized sector 905 5,899 4,994 552Total 3,239 11,426 8,187 253

Profitability has improved significantlyEstimated profitability at the start and end of the decade, March fiscal year-ends, 2001-10

Source: Agriculture Statistics at a Glance, 2009, Agricultural Economics Research Review, Vol. 23, Jan-Jun 2010

Paddy (Common) Wheat Lentils2001-03 2009-10 2001-03 2009-10 2001-03 2009-10

Yield (qtl/ha) 19 22 27 29 6 6 MSP/market price (Rs/qtl) 520 1,500 603 1,100 1,273 2,500 Realization (Rs/ha) 9,922 32,790 16,239 31,977 8,134 15,550 Estimated cost (Rs/ha) 7,546 14,646 11,541 16,799 9,501 11,064 Estimated profit (Rs/ha) 2,375 18,144 4,698 15,178 (1,367) 4,486


Logistics is the bane of Indian agriculturePoor storage and long distances lead to a significant fall in output

Source: Food Corporation of India, Kotak Institutional Equities

India has been storing well above its buffer requirementsBuffer norms and actual stocks of staples, quarter ends, March fiscal year-ends, 2000-2013 (mn tons)

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Buffer norms (without strategic reserve) Actual stock

More than a tenth of the produce is lost due to poor infrastructureBreak-up of wastage by location of waste, March fiscal year-end, 2009 (%)

Source: Industry estimates

Potato Onion Other vegetables FruitsFood-grains and

oilseeds Average

From farm-gate to mandi 4 6 8 9 4 8

Within district 3 2 1 4 2 2Within state 2 1 2 3 2 1Outside state 2 2 2 3 2 1Total 11 11 13 19 10 12


Water is a US$30 bn-a-year industry in India No scare scenario presently, but the future can be markedly different

Source: MOSPI, Kotak Institutional Equities estimates

Agriculture will remain the biggest water consumer in India Table showing current and projected water demand (billion cubic meters)

Source: Ministry of Water Resources

Supply is plentiful Sources of water (annual flow, bcm)

Breakdown (%)2010 2025E CAGR (%) 2010 2025E

Agriculture 688 910 1.9 85 83 Industry 64 95 2.7 8 9 Energy 5 15 7.6 1 1 Residential 56 73 1.8 7 7 Total 813 1,093 2.0 100 100

Annual precipitation (including snowfall) 4,000 Average annual availability 1,869 Estimated utilizable water resources, of which 1,123

- Surface water resources 690- Ground water resources 433

Source: India’s Water Economy - Bracing for a Turbulent Future, World Bank

India’s storage capacity is relatively small Water storage per capita in different countries (m3 per capita)

USA 6,000 Australia 5,000 China 2,500 Spain 1,500 Morocco 500 India 200 Pakistan 100

Source: Census of India, Kotak Institutional Equities analysis

Ground water use has been rising faster than surface water Plan-wise irrigation potential utilized through surface/ground water in India (mn ha)

0

20

40

60

80

100

Pre-plan

I plan II plan III plan IV plan V plan VI plan VII plan VIII plan IX plan X plan

Surface-water Groundwater


City water distribution is a messHigh non-revenue water, low tariffs lead to low availability, poor quality

Source: Asian Development Bank

Water utilities in India work at below operating costs, providing poor service Various parameters for understanding the function of urban water utilities, FY2007

Average tariff

Unaccounted for water Revenue O&M

Operating ratio Availability

(Rs/m3) (%) (Rs mn) (Rs mn) (X) (hours/day)Ahmedabad 1.4 NA 223 318 1.4 2.0

Amritsar 9.3 57.0 172 234 1.4 11.0

Bangalore 20.6 45.0 4,255 3,414 0.8 4.5

Bhopal 0.6 NA 100 282 2.8 1.5 Chandigarh 5.0 39.0 404 548 1.4 12.0

Chennai 10.9 17.0 3,127 1,388 0.4 5.0

Coimbatore 3.7 41.0 135 111 0.8 3.0

Indore 2.8 NA 165 881 5.3 0.8

Jabalpur 1.5 14.0 62 104 1.7 4.0 Jamshedpur 4.5 13.0 532 328 0.6 6.0 Kolkata 1.1 35.0 260 1,228 4.7 8.3

Mathura 0.6 NA 9 28 3.1 2.0

Mumbai 4.6 13.0 8,789 4,284 0.5 4.0

Nagpur 6.6 52.0 561 424 0.8 5.0

Nashik 4.3 60.0 182 214 1.2 3.5 Rajkot 5.1 23.0 92 148 1.6 0.3 Surat 1.7 NA NA NA NA 2.5 Varanasi 3.2 30.0 140 182 1.3 7.0 Vijayawada 2.2 24.0 91 104 1.1 3.0 Vizag 8.6 14.0 525 411 0.8 1.0 All India avg 4.9 31.8 19,823 14,629 1.6 4.3 US$ mn 431 318


Pricing of water in India will progressively changeWill the European model work in India? Some examples

Source: Discussion with farm owners, Kotak Institutional Equities estimates

Indian water charges are one-hundredth of highest prices charged internationally Charges in US$ per m3, FY2009

Country Water Waste water Combined Domestic use (lpcd)China 0.27 0.12 0.39 95 Denmark 8.83 — 8.83 114 France 3.58 0.66 4.24 232 Germany 3.12 1.75 4.87 151 India 0.08 — 0.08 139 Netherlands 1.26 — 1.26 NARussia 0.35 0.24 0.59 NASouth Korea 0.49 0.16 0.65 552 United Kingdom 2.03 2.20 4.23 139 United States 1.03 1.42 2.45 616


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