India in 2013

A quick recovery is a must
An annual review of key macroeconomic and sectoral trends

Produced by the Accenture Institute for High Performance

1. Introduction 2. This could be the year that 3. Calendar of events 4. Macro trends for 2013 5. Key themes for the year ahead Fiscal prudence and inflation management are needed to avoid stagflation Getting more out of existing capital will prove critical Rural consumption will continue to drive domestic demand Domestic reforms will be critical to India’s global competitiveness Increased trade liberalization will set the stage for more balanced business growth 1 2 3 4 5 5 6 7 8 9

6. Spotlight 10 Can India capitalize on demographic change? 10 7. Sector outlook Automotive Banking Chemicals Defense Education Fast-moving consumer goods (FMCG) Healthcare Information Technology Infrastructure Media and Entertainment Oil and gas Pharmaceuticals Power Real estate Retail Telecommunications 8. References 12 12 12 13 14 14 15 15 16 16 17 17 17 18 19 19 20 21

com and mamta. While some cash-rich public sector firms and large. the coming year will test the nerves of business strategists and. India’s trade deficit continues to be much higher than in the previous fiscal year. This could lead to erratic flows of foreign direct investment (FDI) and portfolio investments. In this report. Such a scenario may compel global investors to press the “caution button” in 2013 vis-a-vis India. Such flows could in turn worsen volatility of the rupee and complicate the picture for Indian companies’ domestic and global expansion plans.5%–well below India’s potential as a leading emerging economy. down from 55 and 51. the Confederation of Indian Industry’s Business Confidence Index fell below 50 points.2 Stubborn inflation and a restrained credit environment are likely to continue to depress business leaders’ confidence as well as appetite for substantial investment in 2013. India will likely continue to face challenging macro-economic conditions. To the relief of industry. In fact. and we expect this scenario to continue during the first quarter of 2013. marked by growth in nonagricultural job opportunities across India’s . The 6-plus percent levels of inflation will provide little incentive to the Reserve Bank of India (RBI) to reduce interest rates substantively.3 Many corporations are expected to delay substantial long-term capital investment (CapEx) during 2013 and focus on realizing greater returns from their existing investments rather than striving to expand quickly. New foreign trade agreements (FTAs) are creating fresh opportunities for Indian companies to diversify their growth model by seizing opportunities in foreign markets in 2013.1 Moreover. Beyond rising incomes and consumer demand in rural areas.5 However. major global investors are beginning to consider ramping up investments in India’s equity markets. preserving margins and managing volatility. 1 Reforms in late 2012 to liberalize FDI in key sectors (such as multi-brand retail) could further encourage foreign investors to snap up medium-term investment opportunities in 2013. even with recent reforms aimed at liberalizing foreign investment in certain sectors. with a rising number of Indian companies acquiring the capabilities needed to profitably serve India’s rural markets. owing to falling exports and accelerating gold imports. it’s not just about external investment flowing into India. Moreover. The situation on the external front is challenging too. India must rein in its current account deficit before the imbalance leads to further volatility in the rupee. in the third quarter of FY2012-13. As always. We expect this trend to continue in 2013. Please feel free to contact us at: raghav. Like 2012.kapur@accenture. India’s annual fiscal deficit may increase to 6 percent of gross domestic product (GDP) in 2013. We invite your comments— and we look forward to the ensuing discussions. enthusiastic about recent reforms. For the first time in the last 25 years.Introduction The year 2013 will test Indian policymakers and industry leaders alike. we offer these ideas as starting points for lively dialogue about new business directions. telecommunications and financial services industries. Indian companies also have more opportunity to tap into sources of growth abroad. especially in the construction. As 2013 unfolds. Barring fiscal restraint and new sources of revenue. Reduction in interest rates by 25 to 50 basis points due to monetary interventions by the RBI may not free up sufficient capital to invigorate the “animal spirits” in India. India’s deteriorating fiscal situation and high inflation are cases in point. rural consumption per capita in India grew annually at the jaw-dropping rate of 19 percent4. most important. we present ideas that can help businesses in India and elsewhere prepare for the new realities of India’s changing macroeconomic and business environment.narsalay@accenture. growth in consumption in rural India has pressed on. India also has the potential to develop new sources of growth in 2013 by deepening its engagement with the global economy. financially stable conglomerates may continue cautious expansion. many companies will focus on tapping new markets. job opportunities in the nonagriculture space could multiply.3 points in the first and second quarters respectively. inflation is expected to remain above 6 percent – especially in sectors such as industrial raw materials and food. During 2013. improving productivity. For instance. Between FY2009-10 and FY2011-12. The nation’s capacity to digest a larger current account deficit has increased over the last two decades. India’s gross domestic product (GDP) is expected to remain in the range of 6-6. But its trade deficit is now testing these new limits. incremental cumulative rural spending exceeded incremental cumulative urban spending during that period. But amid India’s gray clouds is a silver lining: bright spots that could drive business and economic growth. strategy execution teams.

connecting 250.This could be the year that • National mobile roaming charges are eliminated. making the largest of them more stable • SEBI guidelines of a mandatory 25 percent public shareholding in listed companies comes into effect with the aim of improving investor confidence in the equity market • The GPS-aided air traffic management and navigation system GAGAN becomes operational.000 village panchayats (councils) with fiber optic networks 2 . allowing people to use mobile devices freely across states without having to change their numbers • Basel III norms are implemented by banks across the country. helping major airline operators to cut fuels costs by as much as 20 percent • ASEAN and India sign an FTA on services and investments that might boost trade in the region by US$20 billion by 2015 • The Bharat Broadband project is launched.

5 billion Koradi supercritical thermal power plant project is commissioned October 2013 • India’s first Mars Orbiter mission is launched • Mumbai’s offshore container terminal is commissioned November 2013 • Tata Motor’s compressed airpowered car is launched • India receives delivery of aircraft carrier INS Vikramaditya from Russia December 2013 • Bharat Broadband project becomes operational 2014 3 . is launched • First phase of the US$1.Calendar of events 2013 January 2013 • Direct cash transfer scheme for subsidies goes live February 2013 • Insurance regulator IRDA discloses Bancassurance guidelines • Nationwide mobile number portability comes into effect • Indo-French joint-venture SARAL satellite launches March 2013 • State elections held in Nagaland. Chandrayaan II. Tripura and Meghalaya • National mobile roaming becomes free April 2013 • Basel III implementation deadline comes for banks • New airline operator dedicated for North-East India starts operations May 2013 • Indian Navy brings home first of the eight P-8I maritime surveillance aircrafts from Boeing • State elections held in Karnataka June 2013 • Companies comply with SEBI guideline of 25 percent public shareholding July 2013 • GPS-aided air traffic management and navigation system GAGAN becomes operational August 2013 • The ASEAN and India sign FTA on services and investments • Old mobile handset models that do not comply with new radiation norms are phased out September 2013 • India’s first unmanned lunar landing mission.

000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nominal GDP (US$ billion) 12. December 2012 Industrial production (% change year-on-year) Current account -0 -0 -1 Percentage -2 -3 -4 -5 12. December 2012 Source: Economist Intelligence Unit.Macro trends for 2013 Economic growth 3.000 US$ billion 2. December 2012 4 2017 .0 6.0% 0% US$ billion -20 -40 -60 -80 -100 -120 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 Current account balance (US$ billion) Current account balance as percentage of GDP Source: Economist Intelligence Unit.0 0 50 40 30 20 10 0 Foreign direct investment (FDI) flows 60 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Real GDP growth percentage (year -over-year) FDI outflows FDI inflows Source: International Monetary Fund.0 2.0 Percentage US$ billion 8.500 3.0 10.0 4.0% 6.0% 8.0% 10. October 2012 Source: Economist Intelligence Unit.500 1.0% 2.0% 4.500 2.000 1.

respectively. utility prices will likely remain high owing to increases in fuel prices during 2013. the real story will merit careful examination.3 percent. India’s fiscal situation must stabilize. putting pressure on market liquidity and thus making it costlier for the government to finance growth. and this trend is expected to continue in 2013 despite slower growth.6 percent for FY2012-13 to 5. For instance. The deficit could reach 5.9 The expanding deficit is raising the government’s borrowing requirements. • Improve business processes to cut costs along the value chain. as well as the lowering of oil subsidies in September. are steps in the right direction.8 Moreover. For instance. 5 . it will need to show greater willingness to foster transparency in government procurement through the use of IT and globally accepted procurement norms. India now faces the threat of stagflation. Furthermore. government will need to abstain from inflationary budgetary spending ahead of the 2014 elections.7 And while wholesale pricebased inflation during 2013 may prove lower than expected because of a higher base effect. The state and central governments will have to summon up the courage to embrace expenditure reforms. the government lowered its original GDP growth forecast of 7. such as Brazil and China. India’s fiscal deficit as a percentage of GDP in 2013 will likely remain nearly three times higher than deficits in other key emerging markets. Consequently.7-5.9 percent. moderately high level of inflation may not provide the central banking authority with enough room to reduce interest rates beyond 25-50 basis points.6 India’s rising fiscal deficit continues to be a drag growth. where rates are forecasted to hold at 4.7 percent. Recent disinvestments by the government in some staterun firms. Additionally. borrowing costs will probably remain high and credit markets will continue to be restrained.9 percent of GDP for FY2012 – far exceeding the government’s annual budget projections of 5.Key themes for the year ahead Fiscal prudence and inflation management are needed to avoid stagflation Given the last four quarters of high inflation and stagnating growth. including inflation and fiscal deficit. In December 2012. Business imperatives • Work with suppliers to plug inflationary pressure points along the supply chain. consumer price inflation will probably continue to hover above 7 percent in 2013—substantially higher than in China and Brazil. fuel and raw materials could become a permanent feature of the Indian growth story. To help the economy achieve fiscal stability and moderate inflation. annual inflation on primary articles has remained above 9 percent since the onset of the global financial crisis in 2008.11 But more needs to be done through the active involvement of the private sector. • Develop public-private partnership (PPP) models to create profitable business opportunities and to help governments achieve efficiency in their spending.10 During 2013. India is now an outlier when compared to other emerging markets on macroeconomic indicators. As a result. Given that the Indian government is one of the largest organized purchasers of raw materials and finished products in the nation. Inflation of prices for food.8 and 5.

according to a recent survey. total investments in new infrastructure projects. In spite of ongoing reform efforts.14 sustained high inflation will probably hold commercial lending rates – the interest rate charged by commercial banks on rupeedenominated loans – at their elevated level. With cash-on-hand in an uncertain and credit-restrained environment. confidence in India’s business environment continues to degenerate. • Identify areas to leverage the power of product. • Invest in cutting-edge technologies and new outsourcing opportunities (such as cloud-based enterprise services) to redesign workflows and speed up project execution.15 Securing better returns on existing capital spending through efficient project commissioning and through enhancement of existing plants’ productivity will therefore be critical to boosting GDP and company balance sheets. quarter-onquarter business confidence continued to slip in late 2012. reached a three-year low in India during the quarter ending December 2012. Even after a substantial decline in mid-2012.Getting more out of existing capital will prove critical A healthy rate of gross fixed capital formation (the creation of physical assets) was instrumental in keeping the Indian growth story going strong through the first shock to global demand during 2008-2010. as well as the total number of new infrastructure projects. They will have to sharpen their focus on nearterm projects to improve returns on existing investments and commit to enhancing operational efficiency and labor productivity via new business technologies and improved business process management.16 companies in India will need to execute a more nuanced agenda in the year ahead. 6 . First. Business imperatives • Enhance operational efficiency of capital expenditure through better procurement and supply chain management. compared to around 7 percent in China and 3 percent in the United States.12 There’s only a modest chance that 2013 will see a reversal of this negative trend. However. this cylinder in India’s growth engine has begun to sputter under the continuing threat of domestic stagflation and an uncertain global economy.13 Second (and perhaps most important). business confidence will likely remain shaky in the year ahead. Despite a possible increase in the central banking authority’s power to lower interest rates. Those rates are expected to hold steady at around 9-10 percent. For instance. financing new longterm capital investments will remain costly in 2013. process and business model innovation.

that recipients often face when trying to access and receive benefits. • Invest in nascent technologies (such as GPS and context-based technologies) that can improve the efficiency of far-flung rural supply chains. In 2012. such as transport. • Develop a corporate social responsibility (CSR) strategy that can help build infrastructure and relationships that have the potential to benefit future business initiatives. will also create savings for poor people by reducing the hidden transaction costs. Business imperatives • Build a strategy for rural market entry and growth that leverages businesses’ existing footprint in traditional Indian consumer markets.750 billion (US$67 billion). In incremental terms. This will open doors to more sustainable and productive sources of income for many small farmers being currently bypassed. as a result of across-the-board increases in country dwellers’ household incomes.20 Strong growth in rural consumption is expected to continue in 2013. spending by rural India during these two years reached INR 3. A paradigm shift in focus from relief work to integrated natural resource management in schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) may bring in a larger number of collective and productivity-enhancing ventures. significantly higher than the INR 2. such as the cashtransfer scheme currently being piloted across 51 districts in 16 states. but also because it now commands the majority share of Indian consumption17. the government plans to deposit INR 3. The electronic cash transfers will be based on the 12-digit unique identification number (Aadhaar).994 billion (US$58 billion) spent by urbanites.Rural consumption will continue to drive domestic demand Rural India will continue to lead domestic consumption growth in 2013—not just because it accounts for nearly 70 percent of India’s population. Rural India’s share of consumption of popular consumer goods and durables stood at 30-60 percent. rural consumption per capita in India grew annually at 19 percent — two percentage points higher than its urban counterpart. For example. A meager 5 percent savings in the form of non-incurred transaction costs leaves about US$3 billion available as additional annual funds that needy people can spend or invest. Under this initiative. and sales to rural India are growing steadily. the program will enhance the efficiency of welfare schemes. government subsidies for 29 of 42 welfare schemes will be transferred directly into beneficiaries’ bank accounts. rural areas in India laid claim to 56 percent of India’s income.19 Between FY2009-10 and FY2011-12. 64 percent of consumer expenditure and 33 percent of India’s savings18.21 New programs. Through this cash transfer program. If implemented well. fallow-land cultivation and watershed projects could improve under MNREGS in the coming year.2 lakh crore (US$58 billion) in the bank accounts of 10 crore poor families by 2014. because it will enable the government to reach out to identified beneficiaries and ensure that they receive the services and support owed them. efficiency in rainwater harvesting. Manufacturing in rural areas could create at least half a million jobs in rural areas. Key contributing factors to rural income growth in 2013 will include increases in non-farm job opportunities and governmentinitiated employment generation schemes. 7 .

Business imperatives • Encourage foreign confidence by supporting the quick implementation of new FDI rules. owing to electoral dynamics. such as retail. Moreover. Similarly. the global community continues to point to corruption and government bureaucracy as two of the top three challenges to doing business in India. With much fanfare. For instance. the Indian government passed new measures to liberalize foreign investment in key sectors. Passing new reforms in contentious areas such as those involving natural resources could be difficult in the coming year. 8 . the central ministries could work with the National Investment Board to expedite projects worth more than INR 1. they could demonstrate to foreign partners the value of gaining a first-mover advantage in India. Yet action can be taken towards promulgating reforms wherein substantive progress has already been made. • Proactively engage foreign partners to make them aware of the new opportunities created by regulatory change in India. business can help guide India’s next round of reforms and encourage foreign companies to capitalize on the country’s changing regulatory and business environment.Domestic reforms will be critical to India’s global competitiveness Reforms in late 2012 have helped renew global interest in the Indian economy.22 These reforms sent a loud and clear message to the international community: “India is increasingly open for business.26 billion in August 2012. according to the World Economic Forum’s 2012-2013 Annual Competitiveness Report.24 Sending the message that India is willing to address these key impediments would go a long way toward improving the country’s near-term prospects. states and the central government can collectively work to implement a goods and services tax. Experienced Indian companies can help allay foreign reservations about pursuing opportunities in India. which could abolish additional layers of taxation during 2013.23 Signaling an appetite for reform and a more transparent regulatory environment will help promote international business confidence in India in the near term and in the country’s long-term prospects. For instance. rising to US$4.000 crore by setting timelines for project approval for the relevant ministries. Indeed.” Even as Parliament debated the reforms before passing them.62 billion in September 2012. FDI in India more than doubled. especially in untapped consumer markets. up from US$2. • Partner with government to demonstrate commitment to a stable and transparent regulatory environment.

’s ability to pursue a global and diversified growth strategy in the coming year. Business imperatives • Determine which capabilities will translate into a differentiated competitive position abroad. In recent years. particularly in the area of trade. However. as well the potential for moderation in rupee volatility. The government anticipates that the deal may help increase trade with the ASEAN by 20 percent by 2015.26 Perhaps most important for Indian enterprises. the nation’s globally competitive services industry stands to make substantive gains. the Economist Intelligence Unit forecasts that because of structural shifts in the Indian economy. India’s economic rise has been driven primarily by domestic consumption.25 The stage is set for Indian businesses to accelerate their transition to a more diversified growth model in 2013 – one based on a balance of domestic and foreign demand. In fact. • Redesign operating models to position for global growth. an over-reliance on domestic consumption to fuel business or macroeconomic growth is risky. • Assess regional mergers and acquisitions (M&A) targets for inorganic expansion into regional markets.27 With a new FTA in services and investments set to come on line in 2013. the country is aggressively liberalizing trade ties with high-growth neighboring economies in Southeast Asia and Africa. Implementation of this agreement immediately boosted trade flows between India and the ASEAN by a staggering 41 percent in FY2011-12. India has taken steps to deepen its integration with the global community.28 In 2013. growth in domestic consumption is unlikely to return to the pre-2008 rate of above 20 percent. Take the FTA in goods between India and the Association of Southeast Asian Nations (ASEAN) that went into effect in 2011. The country continues to lead major Asian economies in the number of established FTAs and is negotiating to expand trade agreements with large economies such as China and Canada. The continued deepening of trade ties with high-growth neighboring economies. all bode well for India Inc.Increased trade liberalization will set the stage for more balanced business growth Unlike most Asian economies. Indian businesses have the opportunity to position themselves for more balanced. long-term growth. 9 .

By contrast. are also set to experience a spike in the number of older dependents (individuals aged over 60).32 Ensuring that these individuals remain a valuable part of the workforce will be critical for economic growth and business competitiveness. The project will be guided by leaders from academia and industry. In this case. realizing the full benefits of demographic change. solutions sensitive to local demographic shifts are now required from business and policymakers if India is translate its demographic advantage into economic growth. a UKbased BMW plant implemented 70 process changes on its assembly line to accommodate its aging workforce. managing demographic change is not only about addressing the needs of a growing working-age population. Perhaps more important. healthcare and job creation – to meet the nation’s current requirements. Moreover. it’s estimated that India will host the world’s largest population of individuals aged over 65 by 2020. Perhaps more important. As a result. growth and the competitiveness of Indian companies will also depend on how well the spike in older populations is managed (see Figure 1). states with booming populations of young people would benefit by ensuring that this age cohort is productive and healthy. such as automotive servicing and solar technology. especially in the south. 10 . many of India’s older workers are among the most able to provide India’s younger workers with critical on-the-job training. Each center is related to a specific industry. Improving pediatric healthcare would be a good place to start.Spotlight Can India capitalize on demographic change? India’s favorable demographic profile is often cited as one of the country’s key economic strengths. In fact. according to the IMF. the majority of states in the north will continue to see an increase in the number of young dependents (persons under age 15) and an explosion in the number of individuals entering the workforce. The state government has also launched 20 superior technology centers to provide specialized industry-led training using state-of-the-art technology. On the one hand. business and civil society need to collectively accelerate efforts to manage India’s demographic transition.29 However. Older individuals who leave the workforce earlier on could place a heavy dependency burden on the country’s working population. With a population that is expected to continue expanding through 2030. It’s estimated that the country will host the world’s largest working-age population by 2020. For instance. Many states. they will have to continue developing and implementing localized strategies. India’s ongoing demographic transformation could add as much as 2 percent to the country’s annual growth in per capita GDP over the next two decades. with disproportionate growth in the country’s older dependents occurring in southern states. ICreate is a world-class incubation center that seeks to provide an ecosystem for young entrepreneurs who want to develop new ideas and products through the use of technology. India already needs innovative solutions to expand critical aspects of its economy – including education. government. for instance. bringing it on par with assembly lines staffed by younger workers.31 On the other hand.33 In 2013. Business strategies and policy reforms must take into account the significant local variations in demographic profiles. surpassing that of China. At the state level.30 One step in the right direction is to begin addressing the finer points of demographic change in India. And they will need to recognize that there is no one-size-fits-all solution to using India’s demographic transition to spur growth. will not be easy. The result: productivity improved 7 percent. the pain of these existing shortcomings will only grow more acute if the necessary action is not taken now to address the nascent demands of demographic change. training programs must reach many people while also building the skills that businesses are hungry for. including its potential to accelerate GDP and income growth. government and businesses can learn from their counterparts in European countries that have aging populations. Gujarat’s “ICreate” (International Centre for Entrepreneurship and Technology) project is an example of this kind of initiative. To do so.

Figure 1: Old-age dependency Percentage of population aged over 60 (select states) Kerala Tamil Nadu Himachal West Bengal Andhra Orissa Gujarat Maharashta Haryana Bihar Madhaya Pradesh Assam Uttar Pradesh 0 5 10 15 20 1971 2010 2026 Source: ADB Working Paper. “Demographic Dividends for India: Evidence and Implications Based on National Transfer Accounts”. December 2011 11 .

40 Car prices to rise across the board In spite of volatile demand patterns. auto companies will need to make up the remainder of the total. the government withdrew its plan to provide subsidies of US$2. one under each brand. The next year will see the launch of many more SUVs and multi-purpose vehicles (MPVs) such as the Ford EcoSport. In April 2012.4 billion. Loans under the joint lending agreements are provided by a consortium of staterun banks. Forecasts suggest that the SUV segment will grow by almost 50 percent in 2013. Austrian motorcycle maker KTM’s partnership with Bajaj Auto could bring forth at least two new high-powered motorcycles in the 350cc range. the RBI has proposed a joint lending mechanism for corporate debt that will help prevent borrowers from seeking multiple loans from different banks against inadequate collateral. derivatives and un-hedged foreign currency exposures among themselves.35 SUVs may continue on a strong growth trajectory Sport utility vehicles (SUVs) constitute the only automotive segment that is continuing to grow at a furious pace in India. Toyota. insulate individual banks from bearing the entire brunt of the non-performers. after having expanded by 56 percent in the first half of 2012. Central Bank of India and Bank of Maharashtra. Highend automotive manufacturers have begun to test the market in recent years and are now looking to launch newer models to expand with the growing market. Prices could reach as high as US$360 for certain models.39 The RBI believes that effective information sharing among banks before sanctioning of new loans or renewing of existing loans can help reduce the incidence of non-performing assets. General Motors has attributed the price hikes to a rise in input costs. will focus on consolidating its presence in the highpowered segment during 2013 and will update its existing models. Maruti has announced that it will increase prices across all its models. it became mandatory for public and private banks to share information relating to credit. While Maruti has stated that currency fluctuations are the reason for the hike.38 The three banks that need the most capital because of growing non-performing assets (NPAs) are Indian Overseas Bank. all major Indian car manufacturers plan to raise prices in 2013. Improved transparency for better asset quality Beginning January 1. Honda and Volkswagen have also decided to increase prices on all their models by 1-3 percent. 2013. Nissan’s version of the Renault Duster and Maruti’s XA Alpha. Sector Unit (PSU) banks the Indian government formulated a US$4 billion investment plan to boost production of electric and hybrid vehicles to meet its target of having 6 million electric vehicles on the market by 2020.34 Yamaha. In addition to information sharing. Consumers are increasingly preferring SUVs for their high ground clearance and relative sense of security.36 The central government has decided to fully invest the US$3 billion provisioned in the budget for the current fiscal year into public sector banks to meet the upcoming Basel III capital requirements. While the government plans to contribute close to US$2. as part of the National Electric Mobility Mission Plan 2020. Government to slow Banking efforts to drive demand Rush of capital for hybrid cars injection into Public In mid-2012.500 per unit for electric and hybrid vehicle buyers.Sector outlook Automotive Superbikes market to gear up The demand for superbikes and luxury sports cars is expected to gain greater momentum in 2013. But the government’s decision to invest in boosting supply in the coming year will no longer be complemented by efforts to drive demand for electric and hybrid vehicles. which in the case of loans that go bad. having already launched a line of superbikes.37 12 .

in December 2012. owing to the new REACH legislation that governs and regulates the production and safe use of chemicals. Gulf Oil. Indian companies are already actively exploring internal and foreign investment. This new technology is available for even the most basic mobile handsets and is part of the government’s financial inclusion program.46 Innovations to promote inclusive banking In 2013. raise voting rights for investors in banks and allow state-owned banks to raise capital through bonus and rights issues.45 R&D may see government push Per the 12th Five Year Plan (which covers 2012-2017). the Indian government set out a six-point roadmap for enhancing the role of R&D in the chemicals sector.New banking licenses to be awarded The RBI last issued two new banking licenses back in 2002. check balances and request checkbooks by simply dialing *99# on their mobile phones.44 offloaded its textile.05 billion in November 2012. a part of the Hinduja Group. Indian companies will sharpen their focus on M&A to expand and diversify their portfolios and to explore new markets. Indian bank account holders will be able to access their accounts.43 With many Indian companies being unable to meet the REACH requirements. an autonomous US$100 million chemicals innovation fund and an outreach program to include and involve innovators and researchers across the country in the national innovation program. the amendment will give the RBI more power to regulate banks. The next year could see most of these action plans implemented. Inorganic growth will likely be an important strategic move for an industry saddled with rising input costs. This M&A trend will probably continue into the next year. The coming year could witness a greater effort by the government to unify many of these regulations. the Department of Chemicals and Petrochemicals drafted the National Chemical Policy 2012 to provide direction and guidance to the industry overall. The roadmap calls for a chemical sector council for innovation. transfer funds.41 Chemicals Legislation may be simplified The Indian chemical industry has had difficulty increasing its exports to the European Union over the past couple of years. The National Payment Corporation of India has already rolled out this service through public sector telecom service providers such as BSNL and MTNL for customers of 23 banks. It will most likely award new licenses in 2013 after the Parliament approves the Banking Laws Amendment Bill. acquired USbased specialty chemicals company Houghton International for US$1. For example.42 Inorganic growth to intensify With limited growth opportunities within the country and globally. stiff competition and a sluggish global economy. chemicals. new promoters will require a minimum capital of US$90 million to be eligible for licenses. dedicated innovation centers in universities. and expects other private telecom providers to be included in the short term. According to the bill’s draft norms. The policy clearly states the need for integrated chemical legislation that will seek to replace the multitude of laws currently governing chemical production and use in India. Other than awarding new licenses. paper specialties and emulsions businesses to US-based SK Capital for about US$550 million. Clariant Chemicals 13 .

Singapore and Italy that may be finalized before the general elections. However.47 minority stake in Pipavav. including missiles.000 acres and that will receive an estimated investment of more than US$3 billion.500 new industrial training institutes and 5. Since then. training and skills development. the Australian Council for Private Education and Training signed a memorandum of understanding with the National Skill Development Corporation to exchange information and perspectives on education. India’s biggest naval shipyard. India’s Ministry of Defense cleared numerous large defense deals.52 The government of Switzerland has also expressed interest in collaborating with the Maharashtra state government to help the latter bridge its “skill gap at the middle organizational level. Even the Japanese conglomerate Mitsubishi has expressed interest in acquiring a stake in Larsen and Toubro’s shipbuilding subsidiary. a host of domestic private players have entered the market while simultaneously attracting investment from multinational companies.51 The EU will provide technical assistance in skills development in India in exchange for employment and social policy support. including Bihar and Uttar Pradesh. are lagging behind in meeting the deadline for implementation of the RTE law and are failing to achieve significant targets in requirements such as teacher-student ratio. In the coming year. the European Union 14 .000 skills development centers through a PPP model.Defense Mega deals in the near-term pipeline In December 2012. Reliance Industries is also planning to kick-start its Reliance University project and has identified 800 acres of land on the outskirts of Vadodara in Gujarat for setting up the infrastructure.”53 Deadline nearing on Right to Education Act The Indian government has been unwavering in its decision to meet the March 2013 deadline for enforcing the Right to Education (RTE) Act. The UK-based Vedanta Resources Group has been in talks with the Odisha state government to develop a Vedanta University that will spread across 6. DCNS has already decided to invest close to US$250 million in 2013. To illustrate. the gradual implementation of which will begin in 2013. to buy a Vocational skills development gains international interest The government’s 12th Five Year Plan clearly stated the intent to set up 1. India already has many upcoming defense deals in the pipeline with the Ukraine. Large business groups have already drafted plans for setting up universities across the country. has decided to invest US$7. India and Israel will probably decide on multiple joint weapons development programs. private education could witness a massive surge in new investments.49 Private equity players have also shown keen interest in the education sector. Moreover.5 million in a development project in India up to 2020. France.54 Shipbuilding to attract significant investment The Indian government allowed PPPs in the defense sector back in 2011. promising many more in the pipeline.50 This decision has intensified international interest in India’s skills development sector. The next year may see India finalize a US$127 million contract to fit the Indian Navy’s indigenous aircraft carrier (currently under construction) with long-range surface-to-air missile systems. Mazagon Dock has a pipeline of orders estimated at about US$18 billion.48 Education Rush of investments in higher education With the education sector opening up to 100 percent FDI. Several states. In addition to Israel. entered into a joint venture with shipbuilders Pipavav Defence & Offshore Engineering. it might be extended by another two years to address infrastructural shortcomings. school infrastructure and teacher qualifications. defense systems and radar systems. With the opening up of the defense sector to private investment. which includes manufacturing of six SSK Scorpene submarines (P75) under transfer of technology from French warship manufacturer DCNS. the Mazagon Dock. owing to the increased government spending and private players’ growth plans.

and the final guidelines are expected during 2013. Godrej has decided to focus on the FMCG sector for the next decade. Warburg Pincus. The low-cost hospital chain will constitute 30. up from the existing 1. is expected to invest US$30 million into the construction of 80 new hospitals by 2015 as it looks to expand its presence across rural India.61 Private equity funds quadrupled their investment in India’s primary healthcare sector in 2012. which currently operates 20 specialty eye hospitals. the easy flow of money into Healthcare Government expenditure to incentivize private investment The Indian healthcare market is set to enjoy about 20 percent year-onyear growth.4 percent. the sector does not mirror the return on investments or margins achieved by these firms. with Indian consumers purchasing everything from diapers and books to houses and even groceries online.55 Robust rural consumption will continue to encourage big players to further explore India’s hinterland in search of new markets. Direct selling—the marketing and selling of products directly to consumers instead of through a fixed retail location—has been present in India for more than a decade but has been out of the limelight. expenditure to 2. Hindustan Unilever. All major players. In addition.62 Private sector investment to intensify in rural locations Bangalore-based Narayana Hrudayalaya Hospitals. Some experts believe that these companies will require at least six to seven years to break even.57 Innovations such as cost optimization through warehouse and logistics management are expected to revolutionize the e-commerce market and enable companies to improve profit margins. reaching an estimated value of US$100 billion by 2015.56 Significant online discounts will continue to attract consumers.63 Eye-care chain Eye-Q. expect additional such growth in the new year.60 Healthcare major Apollo Hospital is adding 3. is planning to invest close to US$900 million to set up a chain of 100 low-cost specialty hospitals in rural areas and at least three more cities in India. with an eye toward growing its consumer products business tenfold over the period. as will the ease of shopping. the Indian government has decided to increase health 15 .Fast-moving consumer goods (FMCG) Industry majors bullish on strong growth Despite fragile consumer demand. the FMCG segment witnessed strong growth (15-20 percent) in 2012. the interest in healthcare is only expected to rise. and experts forecast investment to surpass US$1 billion. which currently has 14 facilities with 6. with 2013 earnings expected to be even higher.58 The industry will likely witness 20 percent year-onyear growth over the next few years. Sequoia Capital and the Government of Singapore Investment Corp investing over US$520 million. channels and product innovations. The Ministry of Corporate Affairs has assembled a committee responsible for drafting a regulatory framework for the direct marketing sector.59 Meanwhile. Dabur.5 percent of GDP by the end of the 12th Five Year Plan period. Direct selling guidelines coming The Indian government is expected to provide guidelines on direct selling to help companies operate seamlessly and reduce the incidence of fraudulent schemes that victimize consumers. with Goldman Sachs. easier return policies and convenient navigation on websites and loyalty programs. Godrej and Marico. 64 Online shopping to become more customer-centric Internet buying skyrocketed in 2012.000 beds to its hospital chain in the next three years at an investment of US$327 million. While 52 e-commerce companies received over US$700 million of venture capital in 2012.000 beds across seven states.000 beds added over the next five years. the government has allocated US$18 million in the 2012-2013 budget for dispensing essential medicines for free in public health facilities. In 2013. rising input costs and escalating inflation. including ITC. E-commerce revenues reached US$14 billion.

At present. Vietnam. also known as the Bharat Broadband Project. especially for projects with investments in excess of US$180 million. because the debt-ridden companies want to offload projects that they had won but are now finding tough to execute. Even the number of medical tourists is expected to grow at a CAGR of over 19 percent during the same period.66 Infrastructure Private sector interest in roads losing steam Many road infrastructure projects under way in India were put on the back burner in 2012 owing to the general economic slowdown.69 Close to 50 different road infrastructure projects worth US$9 billion and totaling 5. The government will set up a national investment board to monitor and advise ministries on expediting infrastructure projects in their respective industries. telemedicine and e-education services delivered by private and government-owned content creators.65 National optic fiber network ready for rollout The government’s US$4 billion national optic fiber network project. more than 100 projects over this investment threshold have been delayed owing to regulations. India’s share in the global medical tourism industry will reach around 3 percent by the end of the year.67 The project aims to bring broadband services through fiber optic cables to 250. Government regulations to revive investment profile The Planning Commission’s US$1 trillion commitment to infrastructure projects for the 12th Five Year Plan period is already facing hurdles. 50 percent of FDI into multi-brand retail must be allocated to the creation of such back-end infrastructure and will thus drive infrastructure demand. with investors unwilling to bet on the sector. RailTel and PowerGrid will be responsible for laying out 2. Major domestic healthcare players such as Apollo and Fortis reportedly have obtained 10 percent of their revenues from the medical tourism segment.000 km are up for sale in the secondary market. According to a report by RNCOS. reaching 1. The government’s goal of building 20 kilometers (km) of highways per day hit a major roadblock when it was able to award contracts for only 1.72 Information Technology IT exporters look east Sluggish economic recovery in India’s traditional export markets such as the US and Western Europe have compelled Indian IT and IT enabled service (ITeS) providers to look east to other emerging economies. It is estimated that an investment of close to US$12 billion will be required to create robust back-end infrastructure such as warehouses and cold storage facilities. private players will be able to sell services using the network. where it has yet to establish a strong presence.000 village panchayats as part of a last-mile connectivity initiative. To overcome the low confidence levels. The Asia Pacific market is growing at 18 percent year-over-year and is expected to account for 8 percent of total IT-ITeS exports by the end of 2013.3 million by the end of 2013. some African countries and the Asia Pacific region are expected to grow steadily in the coming year. competition from countries such as China.73 16 .70 Even prestigious projects such as the Golden Quadrilateral have experienced prolonged delays. Commercial testing is already under way in 61 village panchayats for the project. Brazil and Egypt will present a tough challenge for India in these emerging markets.Medical tourism to maintain strong growth trajectory Medical tourism is expected to intensify in India during 2013.5 million km of fiber throughout the country. is expected to roll out toward the end of 2013. The segment could generate revenue of about US$3 billion by 2013. According to a government stipulation. the Philippines. While companies such as BSNL.100 km out of the targeted 8.68 The project will serve as the backbone for a host of e-governance.71 Multi-brand retail to boost domestic infrastructure The approval of FDI (for the purchase of majority stakes) in India’s multibrand retail sector may present a major opportunity for the construction and infrastructure sector. Exports to markets such Russia. expanding at a compound annual growth rate (CAGR) of around 26 percent during 2011–2013. which will be executed as a publicprivate partnership.800 km. Poland. However. India’s government is exploring the possibility of modifying regulations and guidelines to attract investors.

ONGC has drilled four exploratory wells in the Damodar Basin. the government refused to subsidize them and decided not to exempt them from the high excise duty.80 Pharmaceuticals Chronic disease drugs gaining share With rising income levels in India. Disney would bring in foreign equity for expansion of its existing business.81 Chronic therapies now contribute 50 percent of US-based Lupin’s Indian revenues.77 Bharat Petroleum Corporation Ltd. More than 20 percent Interest in shale rising rapidly The state-owned Oil and Natural Gas Corporation (ONGC) will launch a technology partnership with US-based ConocoPhillips for the exploration of shale oil and gas resources in India. Many of India’s gas power plants are having difficulty satisfying the growing demand. BPCL is expected to set up two LNG plants. Research suggests that the boost provided by fresh foreign investment will help the industry grow by almost 17 percent year-over-year. As a result. it is unlikely that these targets will be met. chronic diseases such as diabetes.Media and Entertainment Slow yet steady rise in FDI The government’s decision to raise the FDI ceiling to 74 percent from 49 percent in broadcast carriage services will boost India’s cable TV sector. Xtramile and Power marketed by the major oil companies saw demand plunge as prices rose in 2012. But changing lifestyles are coming with a higher incidence of lifestyle-related. each with 5 million tons per annum capacity. the government approved an FDI proposal worth US$180 million from US entertainment giant The Walt Disney Company. ONGC is in the early stages of shale gas exploration and is looking to cooperate with experts in exploration 17 . In August 2012.5 million tons. the government is exploring the possibility of increasing imports of natural gas from countries like the US as well as Australia. heart attacks and cancer. The third phase of this initiative seeks to digitize TV across the whole nation by the end of 2014. plans to invest an additional US$8. companies may decide to scrap the production and sale of these premium branded fuels in 2013. which may contain about 35 trillion cubic feet of gas. With sales drying up. studio entertainment. The Information and Broadcasting Ministry has set itself an aggressive target of March 2013 to achieve similar cable TV digitization in 38 additional cities with populations of more than 1 million. while the chronic segment expanded by just over 20 percent. the acute therapeutic drug segment grew by almost 12 percent. The coming year will witness a rapid growth in such diseases as well as in the market for drugs developed to address them. up from about 33 percent five years ago.79 Oil and gas Gas gaining prominence With gas demand expected to grow by 14 percent over the next five years.74 of urban subscribers and close to 40 percent of rural subscribers may have difficulty affording the service. Having discovered significant gas reserves in Mozambique. standard of living is also improving in urban and rural areas alike. parks and resorts. In 2012.75 through joint studies in targeted areas.76 While oil and gas account for 22 percent and 9 percent of India’s energy mix at present. However. in addition to making new downstream investments in other companies. Because these products are categorized as branded fuels.2 billion during 20122017 to enhance its refining capacity and upstream operations. Disney already has a stake in UTV. reaching an estimated US$32 billion by 2016. 8 trillion of which experts deem recoverable. So far. 2012. India aims to increase its liquefied natural gas (LNG) handling capacity to 50 million tons a year by 2017 from 13. the share of gas in the mix is expected to reach 20 percent by 2025. End of premium fuels Premium fuels like Speed.78 Even the Gas Authority of India aims to increase its purchase of spot cargoes of LNG in 2013 from 16-17 to 25.82 Digitization to include non-metros Cable television digitization was partially implemented in three out of the four Indian metropolitan cities meeting the much-extended deadline of October 31. respectively. and thus may be unable to bear the cost associated with migrating to digital cable TV. and will likely kick-start new projects in 2013 in segments such as media networks. consumer products and interactive media. as estimates suggest that the number of cable TV subscribers will reach just over 60 million by 2015.

In December 2012. All foreign investments in existing domestic firms will be subject to clearance by the board.000 MW. which aims to set up stores selling affordable generic drugs to low-income consumers. the government decided in December 2012. 87 companies into India. the short supply of coal will continue to trouble domestic power companies.93 Stringent FDI approvals to weaken international interest Foreign investments in India’s pharmaceuticals sector will now require approval from the Foreign Investment Promotion Board. Pharmaceutical companies will no longer be able to sell generic fixed dose combination drugs under their branded names.90 Moreover. Reddy’s Labs and Lupin might soon be part of the government’s ambitious Jan Aushadhi project. recently signed 35 fuel supply agreements (FSA) that were pending for more than a year. Estimates suggest that India will not be able to meet internal demand for coal through indigenous supplies until 2022. thus it will have to depend on imports to some extent. Imported coal will be supplied by Coal India on a cost-plus basis. The move intends to address concerns over the rising prices for essential drugs that came with the entry of multinational Power Coal shortage will continue to worry power companies Despite numerous government initiatives to strengthen India’s power sector. These FSAs will help revive operations of many power units across the country that were facing severe input shortages.84 But the Indian government has chosen to leverage the competence of Indian manufacturers in the generic drugs segment to provide consumers with access to affordable medicines. Dr. raising overall renewable power capacity to about 56.000 megawatts (MW) of fresh generating capacity from renewable sources during the 12th Five Year Plan period. regardless of share of investment. This means that consumers will have to pay for the cost of imported coal plus any additional expenditures incurred by Coal India in handling the material. so these medicines will automatically come under price control. the government will seek to bulkprocure generic drugs from private sector players. there were 117 Jan Aushadhi stores across the country. the plan calls for expanding that number to at least 600 by 2014 and to 3.86 The government has also ordered state governments to stop issuing licenses for the manufacture or sale of drugs on the basis of their brand name. Maharashtra made it mandatory for all power utilities in the state to procure 0. Focus to sharpen on renewable energy The central government wants to derive 15 percent of the country’s energy from renewable sources by 2020.83 India could benefit from the patent cliff. the coal supply shortfall is projected to 18 . As of 2012.91 The world’s largest coal miner. In an attempt to commercialize the project and meet growing demand. the National Pharmaceutical Pricing Policy declared that it would bring 348 essential drugs under price control. However. the Ministry of Health launched a scheme that will give patients access to free generic drugs in all Indian hospitals by April 2013.85 Moreover.5 percent of their energy from solar projects annually from 2013 to 2016. Coal India.Cheaper generics to come In 2011. with its exports expected to reach US$25 billion by 20142015.89 increase to about 120 million tons by FY2013. and that number is expected to hit US$430 billion by 2016. drug patent expiries led to a global loss of market value totaling US$270 billion.000 by the end of the 12th Five Year Plan period. even Coal India will be unable to supply its customers solely through indigenous production. Ranbaxy. buyers of Indian firms producing essential drugs will need to continue manufacturing the medicines after acquisition until the Competition Commission of India decides otherwise.92 Under the national tariff policy. However. The government proposes to create 30. it will make the sector considerably less attractive for foreign investors. Moreover.88 Private companies participating in government schemes for rural penetration Indian pharmaceutical companies such as Cipla.

Although 53 cities meet this criterion. the Parliament passed a bill allowing 51 percent FDI in India’s multi-brand retail sector.94 and accountability norms and to fast-track dispute resolution in real estate transactions. While international investors are excited about the prospects of investing in residential real estate in India. The project is set to be completed by 2014. However. Even slum rehabilitation projects will be eligible to raise such funds. with Mumbai.000 or less. developers continue to feel apprehensive about the projects’ low margins. While FDI in singlebrand retail was already permitted.000 to individuals who buy units priced at US$55. the government has set no definite time frame for approval and implementation of the bill. The National Power Highway project will help link the five grids to facilitate smooth transfer of power capacity among them. India’s state governments have been given the authority to choose whether to allow FDI in their respective states. packaging.5 million square feet of retail mall space in 2013. storage and warehousing. logistics. The government believes that this stipulation will benefit small and medium-size enterprises (SMEs) and farmers by enabling them to sell directly to retailers.8 million square feet in 2013 and 7. only 18 of those are in the 10 states and union territories that have agreed to permit FDI in multi-brand retail. Moreover. quality control. opening up the sector to international retail majors. fair practice 19 . consumers and real estate developers.97 Absorption rate is forecasted to reach 6. Bangalore and Chennai accounting for 70 percent of the total retail space absorption. The funds raised may be used to develop low-cost housing projects or to provide loans of up to US$45.Grid interconnectedness to improve Efforts are under way to improve the connections among India’s five regional power grids. The 30-percent Implementation of Real Estate Regulation Bill still uncertain The Indian government has drafted the Real Estate Regulation Bill. the RBI permitted realty firms and housing finance companies to borrow up to US$1 billion through external commercial borrowing instruments to fund low-cost housing projects. which is expected to provide a uniform regulatory environment to enforce disclosure. with a minimum of US$100 million brought in by the foreign investor. manufacturing. The move seeks to incentivize the development of low-cost housing options for the economically disadvantaged.98 For one thing. While this clause has excited India’s real estate and infrastructure sectors. Moving forward. state governments continue to feel immense pressure from regional merchant associations to block entry of FDI into the multibrand retail sector.1 million square feet in 2014. However. Major cities will see the addition of close to 9. Retail FDI rules come with risks In December 2012. Yet the requirement seems to really be about pacifying the large voting block comprising small traders and farmers. NCR-Delhi. This percentage must be achieved within three years of the first tranche of FDI. a deeper look into the bill may dampen the mood. Real estate Regulations to support growth of low-cost housing In December 2012. distribution. outside investment in multi-brand retail has excited retail investors.95 procurement requirement will have to be met with the first instance of FDI entry as an average of five years’ total value of the products purchased. as mall developers work to meet global retail standards for design and dimension. Finally.” whose total investment in plant and machinery does not exceed US$1 million. design improvement.96 Retail real estate to boom The government’s nod to FDI in multibrand retail will be a major driving factor for increased activity in the retail real estate segment in 2013. the Department of Industrial Policy & Promotion says that 30 percent of the value of manufactured/processed products purchased by multi-brand retail giants should be sourced from Indian “small industries. In addition. it is already spawning further concerns among retail investors about high sunk costs and overall financial feasibility. the FDI policy allows retailers to set up outlets with majority foreign investment only in cities with populations of more than 1 million. at least 50 percent of total FDI brought in must be invested in back-end infrastructure needed for activities such as processing. This unusual procurement clause has already made foreign retail giants apprehensive about investing in India. allowing one grid’s surplus to plug another’s deficit.

and to 100 percent by 2020. 20 . Operators will now be able to provide any kind of service based on any technology.100 The NTP 2012 replaces a 13-year-old policy from 1999. the government will also develop capabilities for online real-time submission and processing of license requests. 4G LTE services will be launched across the country by numerous service providers. In the coming year. operations With the NTP 2012 gaining approval. Airtel already offers 4G services but only in the cities of Kolkata. the government cleared National Telecom Policy (NTP) 2012. including Airtel.Telecommunications Regulations to simplify National Telecom Policy may ease mobility but increase call charges In May 2012. Reliance. Bangalore and Pune. Starting in 2013. which abolishes roaming charges. Roaming charges currently account for about 10 percent of the sector’s revenues. The policy will be followed up by full mobile number portability. mobile phone subscribers will be able to use the same number across the country without having to pay extra fees.99 The government expects the policy to help it reach its goal of increasing rural penetration of telecom services from 39 percent to about 70 percent by 2017. Starting in 2013. Telecom operators have responded to the new rules by saying that call rates may escalate in the coming year to make up for lost roaming charges. allowing users to retain their existing number if they change service providers across states. telecom licenses have been uncoupled from the band spectrum made available to them. Videocon and Aircel. removing earlier restrictions on usage of specific frequency bands for specific services. Airtel plans to launch 4G services in New Delhi and Mumbai. 4G services to be launched across the nation Even as the 3G subscriber base is expected to continue growing in 2013.

“ConocoPhillips-ONGC partnership for exploration of shale gas resources in India likely next month.” 9 December 2012. Ibid. latimes. 56. “Free trade agreements. “Eye-Q to invest Rs 160 cr investment to open 80 more hospitals.” 19 December 2012. Business Standard. “Business confidence index continues to decline: NCAER MasterCard Worldwide Index of Business Confidence. World Economic Forum. The Hindu.” 18 December 2012. 40.” 28 July 2012. 22. 57.vccircle.” 2 December 2012. Working paper The Planning Commission. “Reliance University is next big project: Nita Ambani.” Accessed 15 December 2012. Hindu Business “GAIL to buy 25 LNG cargoes in 2013. 97. Business Standard. 80.” 2012. “Viewswire – India. The Times of 55. Society of Chemical Industry. Economist Intelligence Unit. Economic Intelligence Unit.”17 November 2012. http://www. Ibid.” 13 December 2012. 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