7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
1/24
India in 2012Tough times ahead: No room for complacency
By Raghav Narsalay, Mamta Kapur, Ryan Coffey, Aarohi Sen
and Smriti Mathur.
January 2012
Institute for
High Performance
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
2/24
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
3/24
3
There is little doubt that theIndian economy will face an uphillbattle in 2012. During the second
half of 2011, a variety of factors,including monetary tightening, rupeedepreciation and continued turmoil inthe Eurozone, fuelled anxiety aboutIndias macroeconomic and industrialoutlook for 2012. GDP growthdropped to 6.9 percent in the quarterending in September 2011, registeringthe slowest year-on-year increase inthe past two years.
Policymakers approach of pushingfor growth with less focus on theproductive dynamic has translatedinto increased signs of macro stabilityrisks emerging in the form of higherinflation, fiscal deficit and currentaccount deficit.
Sustaining high growth is likelyto be the overarching concern in2012, although the risk of inflationwill remain, largely because of aweakening rupee. Over the last twoyears, the Reserve Bank of India (RBI),Indias central bank, has aggressivelysought to rein in inflation, raisingthe benchmark rate 13 times sinceMarch 2010. While interest-rate hikeshave not curbed inflation, monetarytightening has hit businesses, slowinginvestments and triggering defermentof corporate capital-expenditure(CapEx) plans. Moreover, higher
interest rates are proving especiallyharmful to growth in sectors likehousing, automotive and consumerdurables, as consumers becomemore cautious about making newpurchases. The negative impact of agradual slowdown in these sectorsis now spreading to other criticalindustries such as steel and cement.
The Indian governments strong fiscalposition, which had enabled it toprime the economy when the global
recession struck in 2008, is nowwavering. Indias fiscal deficit hasrisen sharply, forcing the governmentto borrow at higher-than-ever rates.Moreover, tax revenues are expectedto suffer, given the slowdown in themanufacturing and infrastructureindustries. Budgets for developmentaland income-support programs aimedat helping Indias rural heartlands willlikely take a major hit, compelling
rural consumers to save more andspend less.
The recent depreciation of theIndian rupee will make exports moreattractive. However, new ordersfrom struggling advanced economieshave been subdued and will likelycontinue placing downward pressureon domestic industrial production inearly 2012. Moreover, slowing FDI
and volatility in export revenues willcontinue to exert pressure on theIndian rupee.
Nevertheless, among large economies,Indias potential to bounce backremains undisputed. With a cleardemographic advantage, increasingdisposable income, an expandingmiddle class and large pools ofuntapped demand in rural markets,Indias domestic consumption will
likely fuel the nations economicgrowth for years. Nevertheless, policysupport would help to sustain faithin this growth opportunity. Reformsin key sectors such as retail andinsurance must be implementedquickly to attract investment. As Indiadrafts its next Five Year Plan in 2012,it will have a unique opportunityto outline an agenda for inclusivegrowth and effective governance
that can help rebuild trust among
Introduction
its citizens. For Indian businesses,2012 will be the year to explore newstrategies for boosting efficiency and
stimulating growth. Companies willneed to find fresh ways to cut costs,improve productivity and managerisks to internalize the impact ofinflation, rising interest rate and rupeevolatility. They must also rememberthe demand side too is showing signsof fatigue.
In this report, we present ideasthat can help businesses in India
and elsewhere prepare for thenew realities of Indias changingmacroeconomic and businessenvironment. We recognize that themost successful businesses willinvest in immediate priorities withoutlosing sight of tomorrow. As always,we offer these ideas as starting pointsfor lively dialogue about newbusiness directions.
We invite your commentsand we look forward to theensuing discussions.
Please feel free to contact us at:[email protected] [email protected].
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
4/24
4
TheDirectTaxCode(DST)andGoods and Services Tax (GST)are implemented, simplifying the
tax regime and bringing morepredictability into the tax system
Indiasignsafreetradeagreementon services and investment withASEAN, strengthening regionalintegration and promoting greaterphysical connectivity in the region
ThefirstIndo-Russiannuclearpower project is commissioned,
cementing bilateral ties betweenthe two countries
TheworldsfirstMetaUniversityallowing students to take coursesacross different universitiestakesoff in India, promoting multi-disciplinary learning at the highereducation level
TheLokpalanti-corruptionbillisimplemented, bringing politicians
and civil servants under the lens
PakistanoperationalizesMostFavored Nation status for India,opening up new trade opportunities
for the two countries
TheRegulatoryAuthorityforRealEstate comes into existence,improving accountability andtransparency in the sector
This could be the year that
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
5/24
5
2012
JanuaryIndia and China hold boundarytalks at the Special Representatives(SR) levelIndia begins its first renewableenergy college
FebruaryElectionsinfiveIndianstates-UttarPradesh,Punjab,Uttarakhand,Manipur and Goa
April
Direct tax code comes into affect Creation of a national informationutility or public distribution systemnetwork (PDSN)
JuneNokia launches a tablet in IndiaTheworldsfirstMetaUniversitytakes off in India
AugustTata Motors introduces Air Car inIndiaData.gov platform, a joint venturebetweentheUSandIndiangovernment gets completed
OctoberPakistangivesMostFavouredNation status to IndiaIndia to host World Steel Conference
DecemberDelivery of Indias aircraft carrier INS
Vikramaditya from RussiaIndias longest tunnel at 11KM,connecting Qazigund with Banihal,gets completed
Ratan Tata retires as Chairman of theTata Group
MarchIndia signs services FTA with ASEANand New ZealandIndia announces new national
water policy
MayCommissioning of the first Indo-Russian nuclear power project, the
Kundankulam reactorMinistry of Environment and Forestsbrings out the E-waste Rules 2011,regarding management and handlingof hazardous substances
JulyDelivery of INS Tarkash, a warshipbought from Russia
SeptemberInstalled capacity of solar power goesup to 700MW in GujaratJapans leading refractory producer,
Krosaki Harima, sets up a refractorymud plant in IndiaDaimler launches its electric vehicle
NovemberPanasonics Jhajjar plant becomesoperationalMichelin starts tyre productionin India
2013
Calendar of events
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
6/24
6
Macro trends for 2012
NominalGDP(US$billion) Real GDP growth percentage (year-on-year)
Percentage
(year-on-year)
US$b
illion
Source: International Monetary Fund, September 2011
US$b
illion
FDI outflows FDI inflows
Source:EconomistIntelligenceUnit,December2011
Foreign direct investment (FDI) flowsEconomic growth
Macroeconomicindicators
Target for FY2011-12 Likely Probable Unlikely
Real GDP growth rate 8.2%
Industry growth rate 7.1%
Services growth rate 10%
Domestic savings rate 34%
Exports(US$billion) 330
Imports(US$billion) 484
Inflation rate (wholesale price index-%) 6.5% for FY2011-12
Note:TargetfiguresfromtheReviewoftheEconomy20011/12publishedbytheEconomicAdvisoryCounciltothePrimeMinisterofIndia
Source:EconomistIntelligenceUnit,December2011Source:EconomistIntelligenceUnit,December2011
Industrial production(% change year-on-year)
6.0
8.0
10.0
12.0
14.0
16.0
18.0
0.0
2.0
4.0
2007 2008 2009 2010 2011 2012 2013 2014 20152006
P
ercentage
Percenta
ge
(year-on-year)
US$
billion
0
2
4
6
8
10
12
20072006 2008 2009 2 010 2011 2012 2013 2014 2015 2016
3,000
3,500
0
500
1,000
1,500
2,000
2,500
0.00
70.0
2007 2008 2009 2010 2011 2012 2013 2014 2015
50.0
60.0
10.0
20.0
30.0
40.0
2006
Current account
Current account balance(USdollars)
Current account as a percentage of GDP
2007 2008 2009 2010 2011 2012 2013 2014 20152006
0.0
-1.0
-2.0
-3.0
-4.0
0.0
-20.0
-40.0
-60.0
-80.0
-100.0
-120.0
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
7/24
7
A weak fiscal situation could pull down growth
Indias fiscal deficit will continueto constrain the nations economicgrowth in 2012. The gross fiscaldeficit has already touched 74.4percent of the budget estimates in thefirst seven months of the fiscal year2011-2012. The higher deficit hasstemmed mainly from a huge increasein the governments subsidy burden,its lower-than-expected collection
of corporate taxes and its inability tomeet its disinvestment target forthe year.
The government has raised only 70percent of its disinvestment target inthe first eight months of 2011-2012.Given that government expendituresare increasing and revenue streamsare shrinking, meeting the budgetedtarget of 4.6 percent of GDP in 2012
looks unlikely. The rising deficitis stepping up the governmentsborrowing requirements, puttingpressure on market liquidity.The situation is compoundedby a widening current-accountdeficit resulting from a mountingtrade deficit.
The twin deficits (fiscal and current-account deficits) account for close to9 percent of GDP. (Adding the state
governments deficits would take thecombined deficit past the double-digitmark.)Undertheseconditions,thedanger of crowding out of investorsis all too real. Higher governmentborrowing is also putting upwardpressure on sovereign bond yields-increasing the cost of financinggovernment borrowing. In addition,the adverse fiscal situation ishurting the governments ability to
finance its flagship developmentalinitiatives, which pumped up demandin rural areas during the 2008global recession.
To mitigate twin-deficit risks, thegovernment must return to a path offiscal consolidation. This will requirefurther reforms in the tax structure toensure revenue buoyancy. It will alsocall for a sharper focus on the qualityof expenditures, with an emphasison reducing subsidies.
Some major tax reforms are already
in the pipeline for 2012, which ifimplemented as per plan can boostgovernment revenues quickly.These include the introduction ofan integrated Goods and ServicesTax (GST) by Centre and Stategovernments to simplify the taxregime and improve tax compliance.Meanwhile, operationalizing a DirectTaxes Code (DTC) could improve theefficiency of direct tax allocation
and equity.
Business implications:Diversifysourcesforraisingcapital,
as liquidity in domestic market isexpected to remain tight due tohigh government borrowings
Re-evaluateandrationalizesupplychain network to sync with the newGST regime
Identifybusinessopportunitiesin governments efforts to bettersubsidy spend and reduce overallexpenditure level (for example,technology for payment transfers)
Key themes for the year ahead
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
8/24
8
Despite continued monetarytightening and 13 interest-rate hikesby the Reserve Bank of India since
March 2010, reigning in inflationcontinues to pose a serious challenge.Headline inflation, which also factorsin manufactured items, besides foodand fuel, has been above 9 percentmark since December 2010. It stoodat 9.11 percent in December 2011and RBI has projected it to fall to 7percent by March 2012. Food inflationnumbers have started showing signsof moderation; the latest data from
the government showed food inflationat 0.42 percent as on December 17,2011, the lowest in almost six years1.
We expect inflation to ease onlygradually in the year ahead asdemand-supply imbalances persist.High inflation has started takingits toll on consumption demand inIndia, with sectors such as consumerdurables, automotive and fast-moving
consumer goods (FMCG) experiencinga growth slowdown. High pricescoupled with high interest rates, onthe back of monetary tightening,are forcing families to cut back onspending, leading to sluggish revenuegrowth across sectors.
High interest rates and a bearishmindset among businesses haveslowed investment in capacity
building. This bodes poorly for Indiasability to address the structuralsupply-side pressures, such asinadequate infrstructure, thatcontribute to high inflation. Thedangerous concoction of slowinggrowth and investment could alsolimit the Indian economys ability togenerate jobs.
Business implications:
Workwithsupplierstoexpand capacity and pluginflationary pressure pointsalong the supply chain
Investindisruptiveinnovationsto develop sustainable andcost-effective solutions forIndias population at the bottom-of-the-pyramid
Identifyareasacrossthesupplychains to profitably engagerural consumers as suppliers,intermediaries and customers
Managing inflation will help India pursue its inclusive-growth agenda
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
9/24
9
Measured trade liberalization necessary to stabilize Indias long-term growth agenda
India has taken significant steps todeepen integration with the globaleconomy over the last two decades,
especially in the area of trade. Thecountry has substantially opened itstrade borders through a variety offree trade agreements (FTAs) and nowleads other major Asian economiesin the number of FTAs, with 13such deals in effect and 12 moreunder negotiation with large tradepartnersliketheEuropeanUnionandCanada. As a result, Indias exportsand imports of goods and services
have more than doubled since the1990sfrom 23 percent of GDP to 50percent in 2009-2011. If trade flowsare considered alongside capital flows,the rise in openness (measured ascurrent receipts and payments pluscapital receipts and payments) is evenmore dramaticjumping from around42 percent of GDP in the 1990s to107 percent in the recent period2.
While integration has largelysupported Indian business growththus far, in 2012, the downside risk
of the countrys integration with theglobal trading system will increasinglycome to the fore. FTAs have openednew export markets, but they havesimultaneously exposed Indian firmsto greater import competition. With aprolongedslowdowninEUandUStwoofIndiasmajorexportmarketslikely to cut Indias export growth in2012 (year-on-year export growthalready fell to 11 percent in October
2011, down from 82 percent in July2011), the potential loss of domesticmarket share to import competitionposes an increasingly pressing threatfor Indian business. Manufacturersare particularly vulnerable (year-on-year manufacturing output droppedby 6 percent in October 2011)3. Tradeliberalization deals with lower costregional neighbors continue to resultin rising finished goods imports
that could undermine domestically-based producers competitive edge inkey sectors, including textilesand machinery.
In a year of depressed export growth,amoremeasuredapproachoneguidedbybusinesswillbecritical
to ensuring that further tradeliberalizationincludingongoingFTAnegotiationswiththeEUandChinado not result in import competitionthat substantially threatens Indianbusinesses capacity to tap intodomestic growth.
Business implications:Developadiversifiedgeographic
portfolio that mitigates
economic risks
Utilizefreetradeagreementstoreduce supply chain costs andaccess new markets
Investinenhancingefficiencyofcapital, labour and technology tosuccessfully compete againstcheap imports
Leverageknowledgeofdomesticmarkets to erode the pricecompetitiveness of competitors
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
10/24
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
11/24
11
An energy crisis could choke growth
Over the last two decades, growthin domestic energy production hasfailed to keep pace with Indias
exploding energy needs. As a resultof inadequate mining and refinerycapacity, India has yet to unleashthe full potential of its domesticcoalendowmentthethirdlargestintheworldanditsestimatedthat insufficient coal productioncontinued to contribute to a thirdof the countrys total power deficitover the last fiscal year4. But Indiasenergy challenges are not limited to
production shortfalls. Poor distributioninfrastructure also constrains supply-side growth. Not only does India lackthe infrastructural capacity to delivermore energy to meet rising demand,inefficiencies in existing distributioninfrastructure has resulted in anaverage of 30 percent energy lossduringtransmissionanddistributionone of the highest rates in the world5.
The demand-side picture is notmuch better, with Indias industrialsectoroneoftheworldsmostenergy-intensivecontinuingtopush domestic energy consumptionupward (industrial output contributesto 16 percent of Indias GDP whileconsuming 45 percent of commercialenergy). The result is a rapidlyyawning gap between domesticenergy supply and demand that isbeing filled by increasing energyimports (the annual value of oilimports alone is expected to risenearly 18 percent in 2012)6.
In 2012, weakness in the rupee (therupee depreciated almost 20 percentagainsttheUSdollarinthelastfive
months of 2011) will magnify thenegative impact of foreign energydependence on business risk andprofits in India7. Though depressedglobal consumption may lead to aslight moderation of global energyprices, the rupees weakness is likelyto result in a price hike on energyimports and a higher debt serviceburden in rupee terms that wouldsqueeze domestic profit margins
in 20128.
Curbing energy prices and Indiasdependence on energy importsrequires policy support and reformto address the countrys supply-sideenergy shortcomings. To this end,the government needs to acceleratethe overhaul in the countrys energydistribution infrastructure withinvestment in technologies such as
the smart grids while supporting theexpansion of new alternative energysources. The National Solar Mission(which aims to generate 20,000 MWof solar power by 2020) and theNational Mission on Enhanced EnergyEfficiency (which has targeted todeliver annual fuel savings of about23 million tons oil equivalent) offerhope if implementation and fundingimprove in 2012.
Business implications:Investinenergysavingtechnologies
and processes and developalternative sources of energy supply
Diversifysourcesofsupplybyforging strategic alliances and keypartnerships with suppliers and tosecure resource supply in thelong term
Utilizefreetradeagreementsas a platform to cost-effectivelysource clean and smarter
energy technologies
Shapepro-growthapproachesto regulation by working closelywith policymakers
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
12/24
Indias growing trade with emerging markets
Over the last decade, Indiasdeepening integration into theglobal economy has coincided with astrengthening of trade ties with otheremerging markets. The proportion ofIndias exports to emerging economiesincreased by almost 20 percent, from46 percent in 2000 to 65 percentin 2010, with four of Indias topexport destinations in emerging
markets. Imports from emergingmarkets have grown albeit at a slower
pace, increasing from 51 percentin December 2000 to 59 percentin December 20109. Trade growthbetween India and emerging marketsis only likely to accelerate in 2012.
ThroughinitiativeslikeIndiasLookEast Policy, the Indian governmentcontinues to put in place thestructural support to strengthen trade
ties with Asian, African and SouthAmerican countries. The countrys
30
35
40
45
50
55
60
65
1997 1999 2001
Imports
Exports
2003 2005 2007 2009 20111995
Country Export value CAGR(2000/01-2010/11)
Rank in total trade value2010-2011 (imports + exports)
China 37.07 2
Indonesia 31.57 9
South Korea 24.77 11
Iran 28.23 13
Nigeria 19.31 14
South Africa 29.07 18Malaysia 20.59 19
Brazil 33.16 24
12
tradewithChinawhichgrewatacompound annual growth rate of 37percentbetween2000and2010isonly likely to speed up in 2012 onthebackofarecentUS$16billionbilateral investment and trade deal10.
Source: Haver Analytics; IMF DOTS
Source: Indian Ministry of Commerce; Accenture analysis
Figure 1: Exports/Imports to emerging markets as percent of total
Figure 2: Growth in trade with select emerging markets
Spotlight
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
13/24
13
In July 2011, the Indian governmentcontinued to open up new inroadsinto Africa for Indian businessby announcing over 250 trainingpositions for African students andresearchers in sectors where Indianfirms have market leading expertiseincluding rural electrification, smallhydropower, and wind energy11.Emerging markets in South America
are also interested in deepening tieswith India. Recently ambassadors fromfourcountries-Uruguay,Paraguay,MexicoandPeruexpressedinterestin tapping Indian expertise in areasincluding information technology, oiland agriculture through new bilateraltrade pacts12.
The success of Indian companies in2012 will depend more than ever on
their ability to tap into these newopportunities in emerging markets,especially as they look to counterdepressed demand at home andincreased risk in developed markets.Because of their innovative low-cost business models and ability tooperate on razor-thin margins, Indiancompanies are well-placed to takeadvantage of Indias growing tieswith emerging market. For instance,Bharti Airtels, an Indian telecomsprovider,successinAfricaincludingits successful 2010 acquisitionofZainsAfricanoperationshaselevated it to the worlds fifth largestmobile operator by subscribers13.Manufacturers also stand to benefit.Tata chemicals recently launched
efforts to explore marketing the TataSwach, an innovative low-cost waterpurifier developed for Indias ruralconsumers, across Asia, Africa andSouth America.
While there are downsides togrowingemergingmarkettradeforinstance, domestic competition inlow-cost finished good imports or
IndiasballooningUS$20billiontrade deficit with China14thebusiness and economic benefits ofstrengthening emerging market traderemains immense. A recent analysisby Accenture and Oxford Economicsreveals that growing trade withemerging markets has the potential toboostIndiasGDPbyUS$155.8billionby 2020. Though concerns have alsobeen expressed that opening up trade
threatens domestic jobs in India, theeconometric research found that tradewith emerging markets will likely havea positive impact on job creation inIndia, with the potential to create28.2 million jobs in India by 202015.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
14/24
14
Competition intensifiesin the small- andmedium-sized carsegment
Competition continues to heat upin Indias small-and medium-sizedautomotives segment. Premiumforeign-car manufacturers such as
Toyota and Honda, are still playingcatch-up to more established playerslike Maruti and Hyundai, but aregradually gaining a foothold in Indiasmarket. Toyota and Honda plan tocontinue launching new models in2012 and are proving adept at strikingthe right balance between price andperformance demanded by Indiasconsumers. The newest automotiveplayers, like Chevrolet, Nissan and
Renault, also intend to ramp up newmodel launches in 2012.
Electric-vehiclesmarket heats up
Indias central government plans tohave as many as 7 million electricvehicles on Indian roads by 2020.According to a recent report, Indiacould see sales of more than 6-7million such vehicles by 2020, ofwhich almost 5 million would betwo wheelers. Mahindras recentacquisition of Reva and Chevroletslaunch of an electric version of itsBeat model point to strong futuredemand in the electric-car segment.Other players that have alreadydeveloped this technology, such asMaruti, Hyundai and Tata Motors,have been waiting on the sidelines
for clear policy decisions from thegovernment. With the recent launchof the National Mission for Hybridand Electric Vehiclesalong with
excise and customs duty benefitsproposed for hybrid, electric, fuel-celland hydrogen-cell technology-basedvehicles2012 may see this segment
finally gain momentum.
Internationalcarmakers set up shop
An increasing number of new entrantsare planning to set up manufacturingcapabilities in India and are scoutingpotential land acquisitions across
the country. Reports suggest thatRenault is planning another factoryafter its successful launch of its jointproduction facility alliance withNissan in Chennai. Renault may investanotherUS$2billioninbuildingafactory to produce at least 400,000small cars every year. French carmanufacturer PSA Peugeot Citroenhas opted for the state of TamilNaduforitsUS$785million
manufacturing facility. The plant willhave a capacity of 300,000 units ayear and will cater to domestic andinternational demand.
BankingCrisis lurks for public-
sector banksChallenges to loan growth, liquidityand asset quality will intensify inthe medium term for Indias bankingsector. Given their loan profile,margin track record and inferiorasset quality, public-sector banks aremore vulnerable to these challengesthan private banks. Moreover, thegovernment has not kept its promiseto provide fresh equity support to
public-sector banks, and the lackof support is further hindering theiroperations. On the other hand, thesebanks oppose the inflow of private
Automotive equity investment, on the assumptionthat it would erode their controland thus threaten jobs and benefits.
Indias largest bank, the State Bank ofIndia (SBI), may face a financial crisisin the fiscal year 2012-2013 if thecentral government fails to invest inthe companys proposed rights issue.The banks tier-one capital is thelowest among its counterparts.
Banking moves towardfinancial inclusion
According to Indias Ministry ofFinance, the government has alreadyachieved 62 percent of its targetto bring 73,000 villages under thebanking net by March 2012. Thisfinancial-inclusion drive could lead tothe creation of more than 50 millionnew bank accounts in rural areas.The plan is to include all the villageswith populations of more than 2,000
in the banking network by the end of2012. At present, only 38 percent ofthe 85,300 bank branches in India arein rural areas, and only 40 percentof Indians have access to bankingfacilities. The finance minister hasemphasized the need to expand andstrengthen banks branch networksin Indias northeastern states. Out of69 unbanked blocks in the northeastregion, 27 blocks have bankingservices. The remaining 42 unbankedblocks are in the states of ArunachalPradesh, Manipur and Nagaland andare not likely to receive services bythe end of March 2012.
Sector outlook
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
15/24
15
Chemicals
Fertilizer input costsrise with new potashdeal
After a three-month standoff, Indianfertilizer companies have agreedto buy potash at an average priceofUS$470aton.TataChemicals,Coromandel International, ZuariIndustries and Indian FarmersFertiliser Cooperative signed importdeals with Canpotex, the NorthAmerican potash cartel, for 670,000tons of potash for the period October2011 through March 2012. Indiais the largest importer of potash,followed by China and Brazil, withimports touching a record 6.4 milliontons in 2010. But while China hasits own mines and has invested inoverseas mines, India is significantly
exposed to global price volatility whenit comes to potash supply, because it
has no domestic reserves.
Regional tradeagreements continueto support strongimport growth
Although the recent depreciation ofthe rupee against the dollarhas made imports costlier, thedemand for chemicals will continue todrive strong import growth for India,thanks to supporting factors such asregional trade agreements (RTAs).An apt example is Indias radial-tiremarket, which imports heavily fromChina, Thailand and South Korea.Both of these export countries are
part of the APAC trade agreement andattract significantly lower customsduties. The import of radial tyres formedium and heavy trucks is reported
to have grown from about 729,000units in FY09 to about 1,607,000 unitsin FY11. On the other hand, import
duties on feedstock and fuelssuch as naptha will continue toencourage imports.
Defense
Defense expenditurewitnesses massive
growthHavingspentclosetoUS$80billionover the last decade on defense, theIndian government has decided tosignificantly ramp up expendituresover the next five years to anexpectedUS$100billion.Mostofthiswill likely be spent on modernizationprograms and procurement of artilleryhowitzers, combat aircrafts, armoredvehicles and upgrades to existinginventory. India will also award the126 multi-role fighter jet contract in2012 after initial screening in 2011,which left only two players in the fray.
Defense collaborationscontinue to rise
Indias status as a stable geopoliticalpower and a major purchaser of
defense equipment will lead tomany new collaborations withother countries in 2012. Oneimportant milestone in such defensecollaborations is the joint militaryexercise to be held between Indiaand China in late 2012. The bilateralmilitary exchanges resumed inApril 2011 after the Indian primeministers visit to China for theBRICS summit. India will also pursue
collaborative defense R&D with theUnitedKingdomsDefenceScienceandTechnologyLaboratory.IndiasDefense Research and Development
Organisation will help facilitateresearch and technology developmentcapabilities through joint projects,
collaborative research and industry
and academia participation.
Defense sees greaterprivate participation
The defense sector in India isexploring opportunities to step up thelevel of private participation. Recently,the Ministry of Defence approved a
proposal to sell 10 percent equity instate-owned Hindustan AeronauticsLtd(HAL)overthenext10years,starting in 2012. With revenues ofaboutUS$2.6billion,HALcountsamong Asias largest aerospace anddefense entities and has not reportedany shortage of funds in recentyears. The decision to divest stakeis therefore considered a positivemove toward privatization. On the
other hand, Tata Power, through itsStrategic Electronics Division, recentlywon the contract to modernize theairfield infrastructure of the Indian AirForce. The program aims to improveairfields ability to handle the fleetof modern combat aircraft to beinducted by the air force and signalsincreasing private participation instrategic defense areas.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
16/24
16
Education
Final decision maycome on foreigninvestment
The Foreign Education Providersbill, intended to allow 100 percentforeign direct investment (FDI) inthe education sector, went throughmany rounds of discussion in 2011and may see the light of day in 2012.The Human Resource DevelopmentMinistry has already gone one stepfurther to encourage FDI by rejectingthe standing committees suggestionthat foreign institutions should
cometoIndiabyinvitationonly.Instead, the ministry believes that itsregulations can ensure the quality ofinstitutions that invest in India. Tobe sure, some foreign institutionsare still waiting for greater clarityon regulations. However, otherslike Educomp Solutions havealready formed joint ventures to test
the market.
Focus sharpens on skilldevelopment
The National Mission on SkillDevelopment, under the chairmanshipof Indias prime minister, has set atarget of developing skills for 500million persons by 2022. Efforts onvarious fronts are being made toachieve this target, starting withthe restructuring of the vocationaleducation scheme. The Ministryof Human Resources has proposedthe National Vocational EducationQualifications Framework (NVEQF),which recently recommendedintroducing vocational educationat the secondary stage. Starting in2012, vocational studies will be acomprehensive course that studentscan pursue along with arts, scienceand commerce courses in senior
secondary classes across all boards.The NVEQF will start from Class IXonward (certification level 1), where
out of 1,000 teaching hours eachyear, 200 hours will be devoted tovocational courses. There will also beseven levels of certification that willend at the university level.
Technology adoption
acceleratesIndias government also recognizesthe immense potential of technologyin education, evidenced by therecent launch of the ultra low-costAakaash tablets exclusively forstudents. Additionally, EducompSolutions, an education-solutionsprovider, has launched its digitalclass transformation system (CTS) in
the state of Gujarat. The CTS couldstrongly supplement traditionalmethods of learning in classroomswith digital instruction, assessmentmaterials and applications. Educompalready caters to around 150 schoolsin Gujarat and 8,000 schools in India.It plans to add 100 more schools in
Gujarat by the close of March 2012.
Fast-MovingConsumer Goods
Margins face pressure
Profit margins of Indias fast-movingconsumer goods (FMCG) companieswill be squeezed in 2012, owing tovolatile commodity prices as wellas a weakening rupee. Some FMCG
companies are considering pricehikes to offset pressure on theirmargins. For instance, GodrejConsumer Products is thinking aboutincreasing prices of some productsin the early months of 2012. Thecompany already raised prices during201116. Dabur India may do the samewith its health and food brands,particularly toothpaste17.
Players enter newproduct segments
Consumer products makers plan toenter alternative product segmentsthat would offer higher profits andovercome pressure on margins. For
instance, Heinz India, the marketleader in ketchup and milk-basedbeverages, plans a foray into cereal.Additionally, sugar confectionerymaker Perfetti Van Melle intendsto launch packaged potato chipsand salty snacks under its StopNot brand18.
Companies look to
expand abroadTo capitalize on the emerging-marketsurge, Indian FMCG companies wantto expand their operations into otherdeveloping economies. For instance,DaburwillinvestuptoUS$39.2million to set up plants in SouthAfrica,KenyaandSriLankaby201219.Moreover, after a two-year acquisitionspree, Marico now seeks acquisitionsin the beauty and wellness segment
in Asian and African countries suchas Thailand, Malaysia, Singapore andKenya20.
New packaging normsemerge
Indias Ministry of Consumer Affairs,Food & Public Distribution issueda notification on 19 consumer
product categories to be sold instandardized package sizes, to go intoeffect starting in July 2012. FMCGcompanies have recently startedreducing package sizes to managedeclining operating margins in aninflationary scenario. If this regulationis implemented, these companies willhave to use standard packaging sizes;some may need to introduce new sizes
in a few product categories21.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
17/24
17
Healthcare
Private players speedup expansion plans
The Indian healthcare sector could
generate more than 40 million newjobsandUS$200billioninincreasedrevenues by 2020, according to thereportIndiasNewOpportunities-2020. Realizing the magnitude ofthis opportunity, private healthcareplayers, domestic and international,are revving up their investmentplans. For example, Fortis Healthcarerecently announced the launch of twomore hospitals, one in Hyderabad andthe other in Agra, taking its hospital
network count to 68. Fortis alsoacquired its sister firm, Singapore-based arm Fortis HealthcareInternationalforUS$665millionas part of its plan to consolidatedomestic and international operations.In addition, it recently acquired a 65percent stake in Hoan My MedicalCorporation. One of Vietnams largestprivate healthcare provider groups,Hoan My has more than 1,100 beds
across six hospitals.
Inward consolidation isset to rise
LifeHealthcareGroup,SouthAfricasthird-largest private hospitals group,will acquire a 26 percent stakein Max Healthcare Institute, foraroundUS$103millionincash.Life
Healthcare will invest by subscribingto new shares of Max Healthcare. Thisconstitutes the largest FDI inflow inthe Indian healthcare sector and willreduce Maxs debt by an estimatedUS$180million.USmedical-devicesmaker Welch Allyn also plans toexpand its presence in India. Offeringa wide range of products includingstethoscopes, ophthalmoscopes,blood-pressure monitors andcardiopulmonary and thermometrydevices, Welch Allyn has drawn up anaggressive five-year strategy that calls
forrevenuesofUS$5millionby2015.
Emphasis increases onlow-cost healthcare
The Indian government plans toincrease spending on low-costhealthcare from 1.3 percent to 2.5percent of GDP during the 12th Five
Year Plan (2012-2017) period. Thisspending will cover the buildingof more healthcare facilities andhospitals as well as the settingup of more medical colleges andnurse training institutes. Vaatsalya,Indias first hospital network focusedexclusively on Indias tier-two and -three towns, recently raised anadditionalUS$10milliontoexpanditsnetwork in 2012. Additionally, FortisHealthcare plans to set up a secondbrand of hospitals aimed at smallertowns and cities, with a target of 25hospitals in three years. The companyis also launching a nationwide Mother& Child program for the poor under
the aegis of the Fortis Foundation.
Information
TechnologyExport revenues drivegrowth
Exporting of software and servicesis expected to grow to the tune of16-18 percent for FY2012, thoughrupee volatility could put pressure onsoftware exports margins. NASSCOMexpects to see exports grow acrossa broad range of offering types.Business process outsourcing (BPO)especially could see a turnaroundin terms of export growth, primarilyowing to the rise in demand foroffshore BPO services in sectors likecustomer management, accounting,banking and finance. HR outsourcingis also rising, apart from billing BPOservices and supply managementBPO. The IT and BPO sectors alone
will create as many as 250,000 jobsin 2012, most of them during Januarythrough March.
Strong domestic growthcontinues
The upbeat domestic IT-BPO spendingtrend will continue in FY2012, as theindustry grows at an anticipated 16percenttoreachUS$20billion.Indias
domestic market for IT will enjoy thefastest growth in the APAC region.We expect domestic IT spending tosignificantly increase in verticals likeautomotive and healthcare. Even theIndian government, with its focuson e-governance and inclusion, willcontinue to invest heavily in IT toachieve its developmental goals.Moreover, the expansion of the ITindustry into tier-two and-three citieswill fuel the creation of new jobs andserve as a source of fresh recruits fromthese communities.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
18/24
18
Infrastructure
Infrastructure projectsface delays
Delays in government and regulatory
decision-making have causedseveral road, railway, port and otherinfrastructure projects to fall behindschedule. According to Standard &Poors report, India needs to reformpolicies concerning project executionand long-term funding to overcomeits infrastructure challenge, whichcould prevent it from achieving itstarget of 9-9.5 percent annual growthduring 2012-2017. The slow paceof reforms and a lack of long-termfunding could hurt profitability anddelay several projects in 201222.
Deterioratinginvestments hurt thesector
The uncertain economic environmentis causing investments to dry up in
the infrastructure sector. Accordingto the ratings agency Fitch,increased borrowing cost is boundto hurt projects structured with thinfinancial margins, because mostinfrastructure projects are funded bybanks. A material reduction in ratesseems unlikely. In addition to thenegative investment environment,the infrastructure sector could bethreatened by a slowdown in GDPgrowth, rising inflation and interestrates, and a depreciating currency23.
Global companies setthe stage for enteringIndias construction-equipment market
IndiasgovernmentanticipatesaUS$1trillion investment in the countrysinfrastructure sector during the 12thPlan period. In response, severalglobal firms are keen to enter theemerging Indian earthmoving-and
construction-equipment marketthrough subsidiaries or joint ventures.Several global players from countriessuch as Japan, Britain, SwedenandUnitedStatesalreadyhaveapresence in India. But the marketsgrowth potential is now attractinginterest from companies in other
countries, most notably China,Finland, Germany, Italy, South Korea,Spain and Turkey24.
The infrastructure debtfund is launched
The Indian government will likelylaunch the nations infrastructuredebt fund in early 2012. The finance
ministry drafted the structure of thefund in June 2011 and plans to usethe fund as the primary instrumentto finance the countrys long-terminvestments in infrastructure25. Thisfund will provide an alternative tobanks for local developers looking toraise long-term, low-cost funding for
infrastructure projects26.
Media andEntertainment
Print media drivegrowth
The Indian media sector is expected togrow briskly in 2012, driven especiallyby robust growth in print media. The
Indian digital printing industry isforecasted to achieve a compoundedannual growth rate (CAGR) of85 percent in 2011-2012, accordingto the All India Federation ofMaster Printers. This increase willlikely derive from growth in thecountrys economy and the rise inadvertising expenditures across
media platforms27.
Foreign media houseslook to expand theirpresence in India
Many overseas media andentertainment houses are lookingto expand their operations in India,
drawn by the healthy growth in thesector. These companies include NBC,Time Warner, Viacom and Sony28.USmediagianttheWaltDisneyCompany is also seeking to expandits presence in India, plans to buy outshares held by public shareholders andoriginalpromotersofUTVSoftwareCommunications and delist thecompany in a deal valued at around
US$392.5million29.
The industry movestoward digitization
The Indian government has introduceda bill to change the Cable TV NetworksRegulation Act in a way that willmake digitization mandatory. Whilethe plan is for complete digitizationof cable television in the four metros
by 2012, the next target will becities with population of more than1 million30. At an expected investmentofuptoUS$7.85billion,digitizationof TV signals will give consumers abroader choice of channels at a lowerprice31.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
19/24
19
Oil and Gas
Depreciating rupeecould spell trouble foroil companies
The rupee, which depreciated 15-20percent in 2011, is expected to exertpressure on oil marketing companies,includingIndianOilCorporation,HPCLandBPCL,byraisingthepriceofoilimports. In addition, these companiesbalance sheets will be negativelyaffected by the weaker rupee, as thefall in the currency will increase their
debt-servicing costs32.
Investment in newexplorations continues
The Indian government will likelyaward oil and gas blocks offered forbidding in the ninth round of the NewExplorationLicensingPolicybyMarch201233. This will enable the awardedcompanies to explore and produce oiland gas in the region. Moreover, India
is expected to secure unconventionalhydrocarbon sources to meet energyneeds by launching its first bid roundfor exploration of shale gas during the
12th Plan period34.
Soaring demandunderscores the needfor alternative supplies
Indias fuel demand could rise 3.8percent in 2012, led by diesel andpetrol, according to the InternationalEnergy Agencys forecast. Demand fordiesel is expected to increase to 1.44millionB/Din2012,increasingby5.5percent over 2011, while demand forpetrol could increase by 6.7 percent(388,000B/D)in201235. In addition,crude shipments from Saudi Arabiato Indian refiners will likely increase
in 2012 with the addition of plantsin India. After a lingering paymentdispute with Iran, Indias second-
largest crude supplier, India is alsolooking at Saudi Arabia for alternate
supplies36.
Deregulation may be inthe offing
The Indian government mayderegulate diesel and liquefiedpetroleumgas(LPG)pricingin2012.The government proposes offeringsubsidized cooking gas only to thepoor. It also plans to discuss withoil companies, industry associationsand other stakeholders the notion ofurging the rich to voluntarily give upsubsidizedLPGcylinders.Theearlierproposal limiting the number of
subsidized cylinders to four per yearwas shelved by the government, whichnow wants to follow the PDS shopsmodel. Through this model, peoplewho could afford to do so stoppedbuying food from PDS shops eventhough they had ration cards37.Underthe current proposal, the ministers,members of Parliament, bureaucratsand senior managers at public-sectorcompanies would be among the firstpeople asked to give up subsidized
LPGvoluntarily38.
Pharmaceuticals
FDI inflows swell
With the Indian governmentremoving caps on greenfield andbrownfield foreign investment in the
pharmaceuticals sector, multinationalplayers likely will ramp up their effortsto acquire domestic pharmaceuticalfirms in 2012. Although the ReserveBank of India recently removedthe automatic approval system inbrownfield investments, this maynot significantly affect internationalplayers expansion plans. Recentacquisitions such as the RanbaxyLaboratoriesbuyoutbyDaiichiSankyo of Japan, Shanta Biotech bySanofi Aventis of France and PiramalHealthCarebyAbbottLaboratories
oftheUnitedStatessignalforeignpharmaceutical firms growing
appetite for Indian pharma.
Stricter quality controlscome into play
The Indian pharmaceutical industrywill soon have to adopt bar-codingsystems to track and trace drugsorigins to align with global measuresagainst counterfeit drugs. Bar codingon primary packaging (bottles, vialsor strips) for exports will begin inJuly 2012. Bar coding for secondarypackaging (such as packets) willbe made mandatory starting inJanuary 2012. Swift adoption of this
new system will be critical to theIndian pharmaceutical industrysexport competitiveness, as countriesincluding Malaysia, China and Turkeyhave already complied with thesenorms. The Planning Commission hasalso recommended strengtheningthe infrastructure and manpower ofthe national drug regulator, CentralDrug Standard Control Organization.It has urged the government to pumpUS$1.2billionintotighteningthedrug regulatory system at both thecentral and state levels during the12th Five Year Plan period. Othersuggestions made by the PlanningCommission include setting up anindependent authority for regulation
and control of all medical devices.
Greater gains emerge
from the patent cliffAs more and more patents expire,Indian drug makers like Ranbaxycould start generating major profitsfrom exporting generics to developedmarkets.DrugssuchasLipitor,ananti-cholesterol pill manufacturedby the worlds largest drug maker,Pfizer, was one of the most profitableproducts for the company and hassalesinexcessofUS$10billiona
year. It lost patent protection inNovember 2011, and Ranbaxy wonapprovalfromtheUSFoodandDrug
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
20/24
20
Administration (FDA) to sell a genericversionofLipitorintheUSmarket.Drugs with combined annual sales ofUS$150billioncouldgooff-patentby2015, intensifying competition in thegenerics market and fueling a drop inprices. India has the highest numberof FDA-approved pharmaceutical
manufacturing facilities outsidetheUnitedStates.Thus,Indianpharmaceutical manufacturerscould see a significant boost to theirbottom lines.
Power
A coal shortage
threatens the powersector
Indian power companies could becompelled to cut their productionbecause of a shortage of coal stocksin the country. The shortage willlikely exceed 200 million tons duringthe 12th Five Year Plan period ifurgent measures are not taken tobridge the gap, according to the
Ministry of Coal39. With domesticcoal production struggling to keeppace with the capacity addition in thepower sector, more than 40,000 MWof new generation capacity could getstranded in the coming years for wantof fuel. This constitutes almost 70percent of the power capacity slatedto come between 2012 and 2017 andcould delay new power projects beingestablished across the country40.
Power companieslosses could extend tocustomers
The growing gap between tariffsand the cost of producing electricityis the primary factor behind the
US$13.7billioninlossesthatIndiaspower companies endured in the lastfiscal year41. Moreover, with Indiasdomestic supply of coal expected tobe sluggish, the Ministry of Power isadvising power companies to importcoal to meet their requirements.However, with the cost of importedcoalshootinguptoUS$120aton,power companies must brace forlarger losses, which may translate into
higher customer tariffs42.
Focus continues onalternative powersources
India is keen to take aggressive stepsin the field of renewable energyto meet its increasing demand
for electricity. To that end, thegovernment has set a goal to generate2 GW (2,000 MW) of solar power byMarch 201343. Business conglomerateLarsenandToubro(L&T)planstoenter wind-based power projects.L&Tsinfrastructurefinancedivisionis also exploring opportunities todevelop wind-based power projectsglobally44. In addition, the AsianDevelopment Bank, a multilateralfundingagency,agreedtolendUS$48
million to Reliance Power for its solarenergy plant in Rajasthan, showing itssupport for Indias alternative-powersector. The project also marksReliance Powers entry into thesolar-energy business and thecompanys plans to expand its
renewable-energy portfolio45.
Indian companiescontinue expandingtheir revenue source onforeign soil
A number of Indian companies are
taking up power-sector projectsoutside India. For instance, aconsortium led by Madhucon Projectsis setting up two units of a 150 MWcoal-fired power project in SouthSumatra46. Moreover, NTPC has signedan agreement with the ElectricityGeneration Company of Bangladeshto provide critical services such asmaintenance, recruitment and trainingas well as quality and environment
management for a 240 MW gas-basedSiddhirganj power plant near Dhaka
in Bangladesh47.
Real Estate
The forecast for sectorgrowth is grim
Indias residential and commercial realestate market will remain cautiousin early 2012 because of prevailinguncertainty in the global market andthe likelihood of further interest-ratehikes by RBI, according to real estateconsultantsJonesLangLaSalleintheirreport,IndiaRealEstateForecast2012 Across Asset Classes. Whilethe absorption rate in the residentialsector will likely be low with adecline in new launches, demand forcommercial real estate is expected to
remain stable in 201248.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
21/24
21
Focus sharpens on thegreen-building sector
India is a world leader in the green-building sector, and its position willstrengthen further in 2012. Adding toIndias existing 800 green buildings,
the Indian Green Building Council willfacilitate development of 200 greenbuildings by 2012. The council alsoplans to apply green practices to a 1billion square feet area (up from thecurrent half-a-billion square feet) andtrain 5,000 accredited professionals insuch practices49.
The Real Estate Bill
imposes accountabilityin the sector
The Indian government has draftedthe Real Estate (Regulation andDevelopment) Bill 2011, whichis expected to be tabled in theparliament in 2012. This bill aimsto curb malpractice in the lightlyregulated real estate sector. The newlegislation that will arise from this bill
will push for more accountability andtransparency in the sector50.
Big companies enterlow-cost housingsegment
Tata Group intends to pilot pre-fabricated homes at a unit price ofUS$628forIndiasruralmarketby
the end of 2012 and to gather initialfeedback from consumers to improvethe product51. Meanwhile, Mahindraplans to enter the affordable-homessegment as well, by building housescostinguptoaboutUS$19,600inmetrosandUS$9,800-US$13,700in
tier-two and-three cities52.
Retail
Rural India promisesgrowth in the sector
Indias retail sector counts among the
largest in the world and is a majoremployer domestically. Industry expertsbelieve that Indian retail will be worth
US$521billionby201253. One forcedriving this increase is sales growthin Indias rural areas. Rural consumersare augmenting basics with purchasesof more contemporary products such
as diapers, colognes and chocolates54.This trend presents an opportunity forretailers to experiment with different
products in the rural market andcould stimulate growth in the sectorthroughout India.
Multi-brand retailpushes for higher FDI
The Indian government postponed itsdecision to open up the retail sectorto FDI in 2011. In 2012, industrybodies and companies are expected to
continue pushing the government toallow higher FDI in the sector. Industryfirmly believes that reforms to FDIregulations in the retail sector are vitalfor driving growth in the sector and theIndian economy overall55. Even farmerassociations have been pressuring thegovernment to open the retail sector,on the assumption that doing so could
bring farms greater market access56.
Foreign players increasetheir presence in India
The proposal to allow 100 percentforeign ownership of multi-brandretail in India has been put on hold.Nevertheless, the Indian governmentwill allow 100 percent FDI in single-brand retail. This will pave the way forforeign brands such as Prada, Ikea and
GAP (among many others) to enterIndia because they sell a single brandunder one roof. These brands had not
entered India earlier, owing to policyrestrictions on their ownership andcontrol of their brands57. However,with the new policy regime, theretail sector will expand and Indianconsumers will have more brands tochoose from.
Indian conglomeratesexpand their retailpresence
Reliance Industries will enter thefast-food business with its ownbrand in 2012. The company plansto take on established internationalfast-food brands such as McDonaldsand Dominos as well as local chains
including Jumbo King and SaravanaBhavan. Reliance intends to launchits first stores in Delhi, Mumbai andBangalore in the form of independentoutlets as well as in food courts58.Moreover, Godrej Group has decidedto double the number of stores in itsretail venture, Godrej Natures Basket.India has 16 Natures Basket stores sofar. With average individual spendingon gourmet food more than doubling
over the past three years in India,Godrej aims to scale up its operationswith increased product offerings atits stores59.
India remains thepreferred destinationfor foreign retailers
India has not opened its retail industry
to foreign investors. However, it willlikely remain a preferred destinationfor global retailers eyeing emergingmarkets to offset worsening economicconditions in the developed world.For example, Swiss retail chain DufryInternational and InterGlobe Retail,a sister concern of IndiGo Airlines,have partnered with the Delhi MetroRail Corporation (DMRC) to set upglobally renowned Hudson News
Cafes across 57 metro stations.Hudson News currently operates morethan 500 shops in 10 countries acrossthe globe, and the tie-up with DMRCwould be its first foray in India60.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
22/24
22
Inaddition,US-basedretailgiantWal-Mart is setting up a researchand software development center inBangalore to develop technologies andsolutions for its global e-commercebusiness. Wal-Mart has launched thisventure through its global e-commercedivision,WalmartLabs,whichdevelops
technologies in social and mobilecommerce for global shoppers61.
Telecommunications
Indian telecom sectorgrows
Mobile-device sales in India areexpected to rise over 8.5 percent toreach 231 million units in 2012, upfrom 213 million units in 201162. Inaddition, the data-center co-locationand hosting market in India could beworthaboutUS$609millionin2012, primarily thanks to serviceproviders efforts to expand their data-
center business63.
Telecom companies
take 3G services to thenext level
With the leading mobile-serviceproviders becoming comfortable withoffering 3G services, the sector isexpected to grow, particularly in termsof subscribers64. 3G services in Indiacould reach 50 million subscribersby 2012. In addition, the telecom
ministry has stated that India hascapacity in the spectrum to move tofourth generation (4G) services. Thus,advanced services could be launched in
the country in 201265.
Mobile operators raisecall tariffs
Recent growth in the mobile sector
stemmed from call rates of 30 paiseper minute in India, which countamong the lowest in the world.However, as the sector matures andhits stagnation in Indias urban and
semi-urban sectors, mobile operatorsare considering raising call tariffs.Stagnation in the urban segment isalso pushing operators to move torural areas, which has increased theiroperational costs and put furtherpressure on margins66. The high pricethat mobile operators had to pay for
3G licenses has further pressuredmargins, increasing the likelihood that
operators will raise tariffs.
Telecom industry maywitness consolidation
Because of pressure on margins andstiff competition in the sector, thetelecom industry is pushing for a
liberal merger and acquisition policythat can encourage consolidation.Consequently, sector regulatorsincorporated some guidance on M&Apolicy in the draft of the NationalTelecom Policy (NTP) 2011. Inaddition, recent regulations regardingspectrum management and licensingframeworks stipulate that the marketshare of any entity resulting fromM&A should not be above 35 percentof the total subscriber base67. This isexpected to fuel consolidation in
the industry.
Reforms areimplemented
The proposed NTP 2011 will likelybe implemented in 2012. The policyaims to lay out revised rules that willmake the telecommunications sector
more transparent, relax M&A normsto encourage consolidation and givemore control to the industry regulator,Telecom Regulatory Authority of India(TRAI)68. In addition, state-run telecomoperatorBSNLalsoplanstoleaseoutspare capacity of its 60,000-strongnetwork of towers to private playersas a way to generate revenue fromits infrastructure. This will benefitprivate players seeking to expand their
network,asBSNLhasinfrastructureacross the remotest regions of India69.Moreover, the Telecom Ministryhas suggested the rollout of 4Gtechnology by the end of 2012, which
will make advanced telecom servicesavailable to Indian consumers70.
Indian telecomcompanies expandabroad
Indias second-largest telecom towercompany, Viom Networks, plansto expand its operations globally,particularly in Africa as well asWest and East Asia71. In addition,IMImobile, the Hyderabad-basedmobile data technology company, willlikely expand its African operationsin 201272. After entering Africawith its mobile service, Bharti Airtelhas partnered with Samsung for
exclusive distribution rights for someof Samsungs wireless products in17 African countries for the first sixmonths after their launch73. This willhelp Bharti Airtel broaden itspresence and product offeringsthroughout Africa.
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
23/24
23
1.Foodinflationdeclinesto0.42%,BusinessSandard,December30,2011.http://www.business-standard.com/india/news/food-inflation-declines-to-042-/460214/
2. Reserve Bank of India.
3.EconomistIntelligenceUnit.AccessedDecember12, 2011
4. Central Electricity Authority. 2011
5. Accenture. New Waves of Growth. 2011
6.EconomistIntelligenceUnit.AccessedDecember15, 2011.
7.Indiasexternaldebtrises6.6%to$326.6billion, Hindustan Times, December 30, 2011.http://www.hindustantimes.com/business-news/WorldEconomy/India-s-external-debt-rises-6-6-to-326-6-bn/Article1-789176.aspx
8.Weakrupeetohitprofitsofcompanies:Government,Times of India, December 30, 2011.http://timesofindia.indiatimes.com/business/india-business/Weak-rupee-to-hit-profits-of-companies-Government/articleshow/11305486.cms
9. Ministry of Commerce-Government of India.Accessed December 11, 2011
10. Ministry of Commerce-Government of India.Accessed December 11, 2011
11.IndiacallsforcooperationwithAfricainsolarenergy, The Economic Times, July 8, 2011.
12.SouthAmericannationskeenontradepactswithIndia,TheHinduBusinessLine,August6,2011.
13.BhartiAirtelbecomesworldsfifthlargesttelco,sealsZaindeal,Mint,June9,2010.http://www.livemint.com/2010/06/08111538/Bharti-Airtel-becomes-fifth-la.html
14.India-ChinaFTAtalksmaystumbleoverdeficit,Mint, December 15, 2010.
15. Accenture. New Waves of Growth for India. 2011
16.GodrejConsumermullspricehikestooffsetrising input costs, The Economic Times, November15, 2011.
17.Carscostly,soapscostly,chocolatescostly...2012 costly, Daily News & Analysis, December 8,2011.
18.FMCGcompaniessuchasHeinzIndia,Perfetti
Van Melle and Glaxo SmithKline Consumer enteringnew product segments for higher profits, TheEconomic Times, October 3, 2011.
19.Daburplans3plantsabroad,FY12capexatRs200 cr, Business Standard, May 18, 2011.
20.Maricoplanstogrowoverseasbusinessthroughacquisitions,TheHinduBusinessLine,July1,2011.
21.Newpackagingnormtohaveanegativeimpact, Angel Broking, December 12, 2011.
22.InfrastructuretohitIndiagrowth:S&P,TheFinancial Express, November 18, 2011.
23.Negativeinvestmentclimatetohurtinfrasectorin 2012: Fitch, Zee News, December 15, 2011.
24.MoreglobalfirmseyeIndianconstructionequipment market, The Economic Times, November28, 2011.
25.Infrastructuredebtfundlikelywithintwo
months, The Economic Times, December 8, 2011.
26.Govtunveilsstructureforinfrastructuredebtfunds,LiveMint,June25,2011.
27.Printmediaexpectedtogrowat9-10%:AIFMP, The Economic Times, September 21, 2011.
28.DisneylookstoexpandinIndia,TheFinancialTimes, July 26, 2011.
29.DisneyplansUTVSoftwarebuyout,BusinessStandard, July 27, 2011.
30.BillintroducedinLokSabhatomakedigitisation in cable TV mandatory, The EconomicTimes, November 28, 2011.
31.DigitisationofTVsignalstoinvolveinvestmentof up to Rs 40,000 crore, The Economic Times,November 6, 2011.
32.IOC,BPCL,HPCLfacebiggestchallengewith
falling rupee: Moodys, The Economic Times,December 14, 2011.
33.GovtmayawardblocksunderNELPIXbynextMarch, The Economic Times, December 5, 2011.
34.Indiatolaunchshalegasexplorationbidduring12th Plan, The Economic Times, November 22,2011.
35. Oil and Gas Industry, India Brand EquityFoundation, September 2011.
36.SaudiArabiatoraisecrudesalestoIndiain2012, domain-b, November 22, 2011.
37.MinisterofferstopaymarketpriceforLPG,wants well-off to follow suit, The Times of India,December 13, 2011.
38.GovtwantsrichtogiveupsubsidisedLPG,Hindustan Times, December 12, 2011.
39.Indiamayface200mntonnescoalshortage,Deccan Herald, December 14, 2011.
40.Coalshortagemaytrip42,000MWofnewprojects,TheHinduBusinessLine,May4,2011.
41.PowerdiscomssufferRs70,000crloss,wantprice hike, The Financial Express, October 12, 2011.
42.Coalshortagetoupsettargets:PowerMinistry,Indian Express, November 8, 2011.
43.Indiatargets2GWsolarcapacityby2013,domain-b, November 11, 2011.
44.L&Tmullingforayintowind-basedpower,TheEconomic Times, November 28, 2011.
45.AsianDevelopmentBankgrants$48mnloanto Reliance Powers solar project in Rajasthan, TheEconomic Times, December 5, 2011.
46.Madhuconprojectstobuildthermalpowerplant at Indonesia, The Economic Times, December13, 2011.
47.NTPCtooffermaintenanceservicesinBangladesh, The Economic Times, December 13,2011.
48.Residential,commercialrealestatemarketsentimentswillremaincautiousin2012:JLLforecast, The Economic Times, December 1, 2011.
49.200moregreenbuildingsby2012,BusinessStandard, December 29, 2010.
50.Draftbillframedtoregulaterealestatesector,domain-b, November 11, 2011.
51TataGrouptolaunchRs32,000housesforrural
market, The Economic Times, July 15, 2011.
52.Mahindrastoforayintoaffordablehousing,domain-b, October 3, 2011.
53.Indianretailsectortotouch$521bnby2012,Business Standard, July 23, 2009.
54.Ruralconsumersnowbuyingdiapers,saltysnacks, colognes and even contraceptives, TheEconomic Times, December 2, 2011.
55.RecallofretailFDIregressive,disappointing:India Inc, The Economic Times, December 8, 2011.
56.FarmergroupstomeetManmohanSinghto press for FDI in retail, The Economic Times,December 12, 2011.
57.100%FDInodforsinglebrands,HindustanTimes, December 7, 2011.
58.RelianceIndustriestoenterfast-foodbusiness
with its own brand next year, The Economic Times,December 12, 2011.
59.GodrejGroupretailchainNaturesBasketplansbig expansion, domain-b, October 8, 2011.
60.InterGlobeRetail-DMRCtosetupnewscafesatmetro stations, domain-b, November 11, 2011.
61.Wal-Marttosetupe-commerceR&DcentreinBangalore, domain-b, November 10, 2011.
62.Mobilehandsetsalestoreach231millionin2012: Gartner, domain-b, November 22, 2011.
63.Indiadatacentreco-location,hostingmarkettoreach$609.1mnin2012:Gartner,domain-b,November 26, 2011.
64.3GinIndiaprojectedtoreach50millionsubscribers by 2012, Telecom Engine, June 23, 2011.
65.Sibalexpects4Gserviceslaunchby2012,TheTimes of India, November 5, 2011.
66.BhartiAirtelchairmanSunilMittalhintsat higher tariffs, Reliance Communications chiefAnil Ambani calls for regulatory consistency, TheEconomic Times, September 7, 2011.
67.Telecomsector-Onthecuspofconsolidation,TheHinduBusinessLine,November15,2011.
68.HighlightsofdraftNationalTelecomsPolicy2011, The Economic Times, October 10, 2011.
69.BSNLplanstoleaseinfrastructuretoprivate
players: Govt, The Economic Times, December 2,2011.
70.Sibalexpects4Glaunchin2012,domain-b,November 5, 2011.
71.ViomNetworkslooksbeyondIndiaforprofitability, The Economic Times, December 5,2011.
72.IMImobiletoexpanditsAfricaoperations,TheEconomic Times, November 25, 2011.
73.BhartiAirtelsaysinpartnershipwithSamsungin Africa, The Economic Times, December 8, 2011.
References
7/31/2019 Accenture India 2012 Tough Times Ahead No Room Complacency
24/24
Disclaimer About AccentureThis Report has been published for
information and illustrative purposes only
and is not intended to serve as advice of
any nature whatsoever. The information
contained and the references made in this
Report is in good faith, neither Accenture
nor any its directors, agents or employees
give any warranty of accuracy (whether
expressed or implied), nor accepts any
liability as a result of reliance upon
the content including (but not limited)
information, advice, statement or opinion
contained in this Report. This Report also
contains certain information available in
public domain, created and maintained
by private and public organizations.
Accenture does not control or guarantee
the accuracy, relevance, timelines or
completeness of such information. ThisReport constitutes a view as on the date
of publication and is subject to change.
Accenture does not warrant or solicit
any kind of act or omission based on this
Report. Accenture does not warrant or
solicit any kind of act or omission based
on this Report.
Accenture is a global management
consulting, technology services
and outsourcing company, with
approximately 244,000 people serving
clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities across
all industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses
and governments. The company
generatednetrevenuesofUS$25.5
billion for the fiscal year ended
Aug. 31, 2011. Its home page is
www.accenture.com.
Copyright 2012 AccentureAll rights reserved.
A i l d
Top Related