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Overall Trends in IT Spending by Industry

Overall Trends in IT Spending by Industry

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F i l i ng Infor mati on: August 2008, IDC #, Vol ume: 1

Cyber House B-35, Sector 32, Institutional Gurgaon 122002 Haryana, India

P.91.124.238.4816

India Overall Trends in IT Spending by Industry Verticals 2008-2012 Forecast and Analysis - An Overview

Arpan Gupta

Praveen Sengar

MARKET ANALYSIS India Overall Trends in IT Spending by Industry Verticals 2008-2012 Forecast and Analysis - An Overview
Arpan Gupta Praveen Sengar

IDC OPINION

India continues to be the highest growing nation in terms of domestic IT spending in the entire developing Asia-Pacific region, with a growth rate of over 20.6% in 2007 and 18.9% in 2008. For the period 2007-2012, the retail vertical is expected to witness the maximum growth in IT spending (CAGR of 33.4%), followed by healthcare (CAGR of 20.1%) and it being followed by pharmaceuticals (CAGR of 18.9%). While the verticals government and education and BFSI verticals have emerged as major IT spending verticals (CAGR of 16.2% and 14.0% respectively), the verticals like manufacturing, telecom and ITeS / BPO are fasting catching up with CAGRs to the tune of 18.2%, 17.7% and 15.4% respectively. India has slowly and gradually came out of the hardware phase of technology adoption and has moved into the software and services phase. The domestic IT packaged software market is expected to grow at a CAGR of 20.9% during the period of 2007-2012, while the services market is expected to grow at a modest CAGR of 20.0% during the same period. With the web 2.0 and electronic gadgets starting to occupy a sizeable portion of the users' minds today, the market for smart hand-held devices is the fastest growing market in India with a CAGR of 23.3% for 2007-2012.

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©2008 IDC

TABLE OF CONTENTS
P In This Study 1

Methodology ............................................................................................................................................. 1 S i t u a t i o n O ve r vi e w 7

Indian Economy in the World ................................................................................................................... 7 The Indian BFSI Sector 10

Overview of BFSI Sector in India.............................................................................................................. 10 I n d i a n B a n k i n g I n d u s t r y: T h e I m p e r a t i ve s 12

Overview of the Sector ............................................................................................................................. 12 Evolution of the Sector ............................................................................................................................. 14 Reforms in the Sector............................................................................................................................... 14 Players in the sector ................................................................................................................................. 15 Trends in the sector.................................................................................................................................. 16 Factors favoring the growth of the sector in India..................................................................................... 19 Challenges in the Sector .......................................................................................................................... 19 Role of Information Technology in the Sector .......................................................................................... 22 I n d i a n I n s u r a n c e I n d u s t r y: T h e I m p e r a t i ve s 24

Overview of the Sector ............................................................................................................................. 24 Evolution of the Sector ............................................................................................................................. 25 Reforms in the Sector............................................................................................................................... 27 Players in the Sector ................................................................................................................................ 27 Trends in the Sector ................................................................................................................................. 32 Factors favoring the growth of the sector in India..................................................................................... 34 Challenges in the Sector .......................................................................................................................... 34 Role of Information Technology in the Sector .......................................................................................... 36 The Indian Manufacturing Sector 39

Overview of Manufacturing Sector in India ............................................................................................... 39 I n d i a n Au t o m o b i l e I n d u s t r y: T h e I m p e r a t i ve s 40

Overview of the Sector ............................................................................................................................. 40 Evolution of the Sector ............................................................................................................................. 41 Reforms in the Sector............................................................................................................................... 44 Players in the Sector ................................................................................................................................ 47 Trends in the Sector ................................................................................................................................. 48 Factors favouring the growth of the sector in India................................................................................... 50 Challenges in the Sector .......................................................................................................................... 51 Role of Information Technology in the Sector .......................................................................................... 53 I n d i a n T e x t i l e I n d u s t r y: T h e I m p e r a t i ve s 56

Overview of the Sector ............................................................................................................................. 56 Evolution of the sector .............................................................................................................................. 57 Reforms in the Sector............................................................................................................................... 58 Players in the Sector ................................................................................................................................ 60

©2008 IDC

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TABLE OF CONTENTS — Continued
P Trends in the Sector ................................................................................................................................. 62 Factors favoring the growth of the sctor in India....................................................................................... 64 Challenges in the Sector .......................................................................................................................... 65 Role of Information Technology in the Sector .......................................................................................... 66 I n d i a n F M C G I n d u s t r y: T h e I m p e r a t i ve s 69

Overview of the Sector ............................................................................................................................. 69 Evolution of the Sector ............................................................................................................................. 70 Reforms in the Sector............................................................................................................................... 71 Players in the Sector ................................................................................................................................ 72 Trends in the Sector ................................................................................................................................. 73 Factors favoring the growth of the sector in India..................................................................................... 75 Challenges in the Sector .......................................................................................................................... 76 Role of Information Technology in the Sector .......................................................................................... 78 The Indian IT / ITES Sector 80

Overview of the Sector ............................................................................................................................. 80 Evolution of the Sector ............................................................................................................................. 81 Reforms in the Sector............................................................................................................................... 84 Players in the Sector ................................................................................................................................ 84 Trends in the Sector ................................................................................................................................. 85 Factors Favoring the Growth of the Sector in India .................................................................................. 88 Challenges in the Sector .......................................................................................................................... 90 Role of Information Technology in the Sector .......................................................................................... 92 The Indian Telecom Sector 95

Overview of the Sector ............................................................................................................................. 95 Evolution of the sector .............................................................................................................................. 99 Reforms in the Sector............................................................................................................................... 100 Players in the Sector ................................................................................................................................ 102 Trends in the Sector ................................................................................................................................. 102 Factors favoring the growth of the sector in India..................................................................................... 103 Challenges in the Sector .......................................................................................................................... 104 Role of Information technology in the Sector............................................................................................ 106 T h e I n d i a n G o ve r n m e n t a n d E d u c a t i o n S e c t o r : I n d i a n G o ve r n m e n t s 108

Overview of the Sector ............................................................................................................................. 108 National E-governance Action Plan: 2003-2007....................................................................................... 114 The Three Core E-Governance Projects .................................................................................................. 115 Roadblocks on the path of E-Governance................................................................................................ 117 T h e I n d i a n G o ve r n m e n t a n d E d u c a t i o n S e c t o r : I n d i a n E d u c a t i o n 119

Overview of the Sector ............................................................................................................................. 119 Evolution of the Sector ............................................................................................................................. 120 Reforms in the Sector............................................................................................................................... 121 Challenges in the Sector .......................................................................................................................... 122 Role of Information Technology in the Sector .......................................................................................... 122 The Indian Media and Entertainment Sector 128

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©2008 IDC

TABLE OF CONTENTS — Continued
P Overview of the Sector ............................................................................................................................. 128 Evolution of the Sector ............................................................................................................................. 129 Reforms in the Sector............................................................................................................................... 132 Players in the sector ................................................................................................................................. 133 Trends in the Sector ................................................................................................................................. 134 Factors favoring the growth of the sector in India..................................................................................... 134 Challenges in the Sector .......................................................................................................................... 136 Role of Information Technology in the Sector .......................................................................................... 137 The Indian Retail and wholesale Sector 139

Overview of the Sector ............................................................................................................................. 139 Evolution of the Sector ............................................................................................................................. 141 Reforms in the Sector............................................................................................................................... 142 Players in the Sector ................................................................................................................................ 142 Trends in the Sector ................................................................................................................................. 143 Factors favoring the growth of the sector in India..................................................................................... 144 Challenges in the Sector .......................................................................................................................... 145 Role of Information Technology in the Sector .......................................................................................... 146 The Indian Utilities Sector: Indian Power 147

Overview of the Sector ............................................................................................................................. 148 Evolution of the Sector ............................................................................................................................. 149 Reforms in the Sector............................................................................................................................... 150 Players in the Sector ................................................................................................................................ 152 Trends in the Sector ................................................................................................................................. 152 Factors favoring the growth of the sector in India..................................................................................... 155 Challenges in the Sector .......................................................................................................................... 155 Role of Information Technology in the Sector .......................................................................................... 156 The Indian Utilities Sector: Indian Oil and Gas 158

Overview of the Sector ............................................................................................................................. 158 Evolution of the Sector ............................................................................................................................. 159 Reforms in the Sector............................................................................................................................... 159 Trends in the Sector ................................................................................................................................. 163 Factors favoring the growth of the sector in India..................................................................................... 164 Challenges in the Sector .......................................................................................................................... 165 Role of Information Technology in the Sector .......................................................................................... 165 The Indian Pharmaceuticals Sector 167

Overview of the Sector ............................................................................................................................. 167 Evolution of the Sector ............................................................................................................................. 168 Reforms in the Sector............................................................................................................................... 170 Players in the Sector ................................................................................................................................ 172 Trends in the Sector ................................................................................................................................. 173 Factors favouring the growth of the sector in India................................................................................... 175 Challenges in the Sector .......................................................................................................................... 176 Role of Information Technology in the Sector .......................................................................................... 178 The Indian Healthcare Sector 182

©2008 IDC

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TABLE OF CONTENTS — Continued
P Overview of the Sector ............................................................................................................................. 182 Evolution of the Sector ............................................................................................................................. 183 Reforms in the Sector............................................................................................................................... 183 Players in the Sector ................................................................................................................................ 185 Trends in the Sector ................................................................................................................................. 186 Factors favouring the growth of the sector in India................................................................................... 188 Challenges in the Sector .......................................................................................................................... 189 Role of Information Technology in the Sector .......................................................................................... 191 Other Verticals.......................................................................................................................................... 193 Future Outlook 194

Forecast and Assumptions ....................................................................................................................... 194 Market Context ......................................................................................................................................... 234 Essential Guidance Learn More Related Research S yn o p s i s 242 243 252 252

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©2008 IDC

LIST OF TABLES
P 1 2 3 4 5 6 7 8 9 Overall IT Spend in India (US$ millions), 2007-2012 ................................................................... 4 Indiactors of Indian Economy, 2007-08 ....................................................................................... 8 Mobile Banking Terminologies ..................................................................................................... 18 Milestones in the Evolution of Indian Insurance........................................................................... 26 Life Insurers in India (US$ Million) ............................................................................................... 28 Non-Life Insurers in India (US$ Million) ....................................................................................... 28 Evolution of the Automobile Sector in India, The Then and Now................................................. 43 Phased Implementation of the Emission Standards' Norms in the Indian Automobile Sector, 2000-2010.................................................................................................................................... 46 Key Players in the Indian Automobile Industry, 2007................................................................... 47

10 Key Players in the Indian Textile Industry .................................................................................... 61 11 Players in the Indian FMCG Sector, 2007.................................................................................... 72 12 Key Business Model Characteristics of Various Segment Organizations in the Indian ITeS industry, 2007 .............................................................................................................................. 85 13 Key M&A Deals in the ITeS / BPO Sector.................................................................................... 86 14 Cost Advantage for Indian BPOs vis-à-vis the US ....................................................................... 88 15 Financial Attractiveness of Top 5 Global Services Locations ...................................................... 88 16 Various Constituents of Indian Telecom Service Industry, 2007.................................................. 98 17 Milestones in the Evolution of Indian Telecom Industry ............................................................... 99 18 Key Telecom Regulatory Organizations in India .......................................................................... 101 19 Key Players in the Indian Telecom Service Industry.................................................................... 102 20 Stages of Education in India ........................................................................................................ 120 21 Challenges prevalent in the Indian Education System................................................................. 122 22 Players in the Media and Entertainment Sector........................................................................... 133 23 Summary of FDI Policy in the Indian Media and Entertainment Industry..................................... 135 24 Players in the Indian Power Sector, 2007 .................................................................................... 152 25 Phasing Out of the Market to allow Consumers choose the Supplier of their Choice (MW), 2005-08 Scenario......................................................................................................................... 153 26 FDI Regime in the Indian Oil and Gas Sector .............................................................................. 160 27 Milestones in Policy Development of Indian Oil and Gas sector.................................................. 160 28 Players in the Indian Oil and Gas Sector, 2007 ........................................................................... 162 29 Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012..................................... 194 30 Overall IT Spend in BFSI (US$ millions), 2007-2012................................................................... 198 31 Overall IT Spend in BFSI (Percentage), 2007-2012 .................................................................... 198 32 Overall Hardware Spend in BFSI (US$ millions), 2007-2012 ...................................................... 200 33 Overall Hardware Spend in BFSI (Percentage), 2007-2012 ........................................................ 200 34 Overall IT Spend in Manufacturing (US$ millions), 2007-2012 .................................................... 202

©2008 IDC

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LIST OF TABLES — Continued
P 35 Overall IT Spend in Manufacturing (Percentage), 2007-2012...................................................... 202 36 Overall Hardware Spend in Manufacturing (US$ millions), 2007-2012........................................ 204 37 Overall Hardware Spend in Manufacturing (Percentage), 2007-2012 ......................................... 204 38 Overall IT Spend in IT/ITeS (US$ millions), 2007-2012 ............................................................... 206 39 Overall IT Spend in IT/ITeS (Percentage), 2007-2012................................................................. 206 40 Overall Hardware Spend in IT/ITeS (US$ millions), 2007-2012................................................... 207 41 Overall Hardware Spend in IT/ITeS (Percentage), 2007-2012 .................................................... 207 42 Overall IT Spend in Telecom (US$ millions), 2007-2012 ............................................................. 209 43 Overall IT Spend in Telecom (Percentage), 2007-2012............................................................... 209 44 Overall Hardware Spend in Telecom (US$ millions), 2007-2012................................................. 211 45 Overall Hardware Spend in Telecom (Percentage), 2007-2012 .................................................. 211 46 Overall IT Spend in Government and Education (US$ millions), 2007-2012 ............................... 213 47 Overall IT Spend in Government and Education (Percentage), 2007-2012................................. 213 48 Overall Hardware Spend in Government and Education (US$ millions), 2007-2012................... 214 49 Overall Hardware Spend in Government and Education (Percentage), 2007-2012 .................... 214 50 Overall IT Spend in Media and Entertainment (US$ millions), 2007-2012................................... 216 51 Overall IT Spend in Media and Entertainment (Percentage), 2007-2012 .................................... 216 52 Overall Hardware Spend in Media and Entertainment (US$ millions), 2007-2012 ...................... 217 53 Overall Hardware Spend in Media and Entertainment (Percentage), 2007-2012 ........................ 217 54 Overall IT Spend in Retail (US$ millions), 2007-2012.................................................................. 219 55 Overall IT Spend in Retail (Percentage), 2007-2012 ................................................................... 219 56 Overall Hardware Spend in Retail (US$ millions), 2007-2012 ..................................................... 220 57 Overall Hardware Spend in Retail (Percentage), 2007-2012....................................................... 220 58 Overall IT Spend in Utility (US$ millions), 2007-2012 .................................................................. 222 59 Overall IT Spend in Utility (Percentage), 2007-2012.................................................................... 222 60 Overall Hardware Spend in Utility (US$ millions), 2007-2012...................................................... 223 61 Overall Hardware Spend in Utility (Percentage), 2007-2012 ....................................................... 223 62 Overall IT Spend in Pharmaceutical (US$ millions), 2007-2012 .................................................. 225 63 Overall IT Spend in Pharmaceutical (Percentage), 2007-2012.................................................... 225 64 Overall Hardware Spend in Pharmaceutical (US$ millions), 2007-2012...................................... 226 65 Overall Hardware Spend in Pharmaceutical (Percentage), 2007-2012 ....................................... 226 66 Overall IT Spend in Healthcare (US$ millions), 2007-2012 ......................................................... 228 67 Overall IT Spend in Healthcare (Percentage), 2007-2012 ........................................................... 228 68 Overall Hardware Spend in Healthcare (US$ millions), 2007-2012 ............................................. 229 69 Overall Hardware Spend in Healthcare (Percentage), 2007-2012............................................... 229 70 Overall IT Spend in Others (US$ millions), 2007-2012 ................................................................ 231 71 Overall IT Spend in Others (Percentage), 2007-2012.................................................................. 231

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©2008 IDC

LIST OF TABLES — Continued
P 72 Overall Hardware Spend in Others (US$ millions), 2007-2012.................................................... 232 73 Overall Hardware Spend in Others (Percentage), 2007-2012 ..................................................... 232 74 India IT Market in Various Verticals, Revenue Forecast Comparison between January 2007 study and August 2008 study....................................................................................................... 234 75 India, Scope of the Verticals Comparison – 2007 Vs 2008.......................................................... 238 76 India, Scope of the Product Categories Comparison – 2007 Vs 2008......................................... 240 77 Overall IT Spend by Industry Verticals (US$ Million), 2007-2012 ................................................ 242

©2008 IDC

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LIST OF FIGURES
P 1 2 3 4 5 6 7 8 9 Structure of the Indian Banking Industry...................................................................................... 13 Market share of Players in Indian Banking Sector, 2007 ............................................................. 16 Vicious Circle of Financial Exclusion Plaguing the Indian Banking Industry in the Rural Areas............................................................................................................................................ 21 Structure of Indian Insurance Industry ......................................................................................... 25 Insurance Industry in India, 2005-06 and 2006-07 ...................................................................... 30 Life Insurance Industry in India, 2005-06 and 2006-07................................................................ 31 Non-Life Insurance Industry in India, 2005-06 and 2006-07........................................................ 32 Challenges in the Value Chain of Indian Insurance Industry ...................................................... 35 Segmental Overview of Indian Automobile industry, 2006 & 2007 .............................................. 41

10 Share of Various Components in the Indian FMCG Industry, 2007 ............................................. 70 11 Scaling Up of the ITeS Industry's Value Chain in India, 1990-2007 ............................................ 83 12 Internal and External Factors for high Attrition in BPOs............................................................... 90 13 Structure of Indian Telecom Sector ............................................................................................. 98 14 Ministrial Framework of DIT ......................................................................................................... 111 15 State Government Institutional Framework for E-Governance .................................................... 113 16 Projects under NeGP ................................................................................................................... 115 17 Changing Face of Indian Media and Entertainment Industry ....................................................... 130 18 Institutional Framework of Ministry of Information and Broadcasting........................................... 132 19 Value Chain of Indian Retail Industry........................................................................................... 140 20 Segments and Formats in Indian Retail Industry ......................................................................... 141 21 India Hardware and IT Market in Various Verticals, Revenue Comparison for 2007 markets between January 2007 study and August 2008 study ................................................................. 238

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©2008 IDC

IN THIS STUDY
Introduction
This report aims at providing a detailed viewpoint on the overall status of IT spending in key industry verticals in India, future trends, and the state of the adoption of new enterprise applications. The report is based on extensive secondary research on the status and the role of IT applications in each industry vertical and is backed by indepth interviews with IT heads/CIOs of selected large organizations in each vertical.

Methodology
India's expanding economy, growing annually by around 8-9%, is spurring domestic IT spending as companies upgrade technologies to stay competitive and consumers log onto the Internet on personal computers and mobile devices. Lifestyle products have started gaining more importance in the lives of Indian consumers and are the prime drivers of the Indian IT market. The Indian economy consists of a number of industry verticals* and all of them have their own set of dynamics and challenges. Correspondingly, their IT requirements are also different. A marketer needs to know the important trends typical to each industry vertical in order to formulate an effective marketing strategy. This report provides a comparative analysis of IT trends and forecasts across 10 key industry vertical segments in India. The vertical segments covered in this report are: BFSI (Banking, Financial Services and Insurance) Manufacturing IT/ITeS Telecom Government & Education Media and Entertainment Retail Energy and Utility Pharmaceutical Healthcare Other Verticals (including transportation, construction, resource industry, water and sanitary facilities among others) The report has been built upon the data points captured by various trackers** that are run by the IDC India research team. These data points and the insights of IDC

©2008 IDC

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analysts were amalgamated to arrive at the total domestic IT spending as well as the forecast. Industry vertical wise splits were taken from the trackers that provide vertical wise spending. For the trackers that do not provide vertical splits of the spending, inputs and judgments of the respective analysts and industry experts (within IDC) were taken to arrive at the vertical-specific current and future. Views were also taken from the industry experts to understand the current IT deployments and IT spending in the respective verticals. In all, data from eight trackers was reviewed for arriving at the final numbers in terms of individual reporting. These eight trackers together capture a bulk of the total domestic IT spending. The eight trackers are: Services Tracker Packaged Software Tracker Server Tracker Personal Computer Tracker (includes notebooks) Multi-Function Devices Tracker Printer Tracker Networking Equipment Tracker and Enterprise Storage Tracker IT spend data from other regular trackers was also taken to arrive at other peripherals and others data. To further fine-tune the market shares and forecasts, comparisons were made with overall Asia-Pacific trends and corrections were made, wherever it was felt necessary.

* For verticals' definitions refer to Table 75 ** For products' definitions refer to Table 76

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©2008 IDC

Executive Summary
India has emerged as the fastest growing IT market in the world. Riding on rapid technology adoption by domestic market, coupled with an impressive showing at export front, the Indian IT market is all set to reach new heights. The economy as a whole is in a boom phase. Vigorous growth with strong macroeconomic fundamentals has characterized developments in the Indian economy in 2007-08. The economy has shown a growth of 9.0% in 2007-08 vis-à-vis a growth of 9.4% in 2006-07. While the agricultural and manufacturing sectors decelerated from 3.8% and 12.0% in 2006-07 to 4.5% and 8.8% respectively in 200708, the services sector grew from 11.0% in 2006-07 to 10.8% in 2007-08. While the agriculture contributes 18% to the GDP, the manufacturing and services sectors contribute 27% and 5% respectively to the Indian economy. To continue growing at above 8% rate, the economy is next looking to leverage the benefits of information technology to gain supremacy in innovation and production, development of the distribution networks, growth in communication, services delivery and expansion. Thus, IT is being looked at as a major tool in the hands of the Indian players to achieve the global competitiveness. The role of IT today is that of a facilitator and business partner in most of the organizations. There is complete awareness at all the levels of the management about the potential of IT to facilitate the fulfillment of business objectives. This is the most opportune time for IT to grow by aligning with the business. Most technology investments that are made by businesses today, whether in storage infrastructure, enterprise applications, or shop-floor automation, are made keeping business necessities and expansion in mind. The IT industry can serve as a medium of e-governance, as it assures easy accessibility to information. The use of information technology in the service sector improves operational efficiency and adds to transparency. It also serves as a medium of skill formation. The IT industry helps many other sectors in the growth process of the economy including the services and manufacturing sectors. The role of technology is to help streamline business activity, make it more cost efficient, reduce wastage in the case of manufacturing companies, and optimize resources. As a result, it is important to align IT to business as IT implementations without business imperatives attached to them are nothing but wasted efforts. The top five business priorities for which IT is looked at are: Improving business processes Controlling costs Maintaining customer relationships Improving competitiveness Regulatory compliance

©2008 IDC

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The impact of IT is best understood when the fundamental differences between the innovations and ventures of industrial and knowledge-based economies are recognized. The economic value of IT depends greatly on the levels of economic progress a nation has already achieved. IT has the potential to make existing processes more effective and efficient, but cannot substitute for the lack of a basic infrastructure. India's expanding economy, growing annually by around 8% to 9%, is spurring domestic IT spending as companies upgrade technologies to stay competitive and consumers log onto the Internet on personal computers and mobile devices. Lifestyle products have started gaining more importance in the lives of Indian consumers and are the prime drivers of the Indian IT market. The growth of the IT sector in India symbolizes the potential of Indian industry to perform at world-class standards. Led by visionaries and supported by thousands of employees and entrepreneurs, the IT sector embodies much of what can go right when the spirit of human enterprise is given free rein. With the economy already through with the basic hardware and IT infrastructure deployment, its time that we turn our attention to networking, applications, smart hand-held devices, software industry and services platform. It is also equally important for the industry players to customize their offerings not only as per the verticals' orientation but also upto the level of individual user requirements. Mass and standard products are going to find increasingly lesser usage in the economy. To become a global leader in the IT industry and retain that position, we need to constantly keep moving up the value chain, focusing on finished products and solutions, rather than purely on skill sets and resumes. We need to be able to package our services as products, rather than offering them as raw material. We need to be able to recognize and build up on our strengths and work on our weaknesses. Provided next is the total IT spending in India across the various product categories.

TABLE 1
Overall IT Spend in India (US$ millions), 2007-2012
Segment/Year Services Planning Implementation Support services Operations Training and education Services total 539.3 2,226.0 1,133.3 962.3 195.6 5,056.5 660.3 2,801.0 1,412.7 1309.4 229.8 6,413.3 781.0 3,351.7 1,682.5 1656.9 254.9 7,727.0 925.5 4,001.0 2,002.6 2084.9 275.6 9,289.7 1070.9 4,757.2 2,372.4 2582.2 315.5 11,098.2 1248.8 5,631.0 2,764.1 3178.9 335.9 13,158.8 18.3% 20.4% 19.5% 27.0% 11.4% 21.1% 2007 2008 2009 2010 2011 2012 CAGR

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©2008 IDC

TABLE 1
Overall IT Spend in India (US$ millions), 2007-2012
Segment/Year Packaged software System infrastructure software Appl. development and deployment Applications Packaged software total Hardware Server High-end servers Midrange servers Volume servers Total servers Clients Personal computers Traditional workstations Total clients Systems total (including servers & clients) Storage Disk Systems Tape Total Storage Peripherals Printers and MFD's Smart Handheld Devices Total Peripherals 599.3 13.2 612.5 682.7 25.2 707.9 749.9 42.2 792.1 804.6 67.4 872.1 851.7 105.7 957.4 893.2 163.2 1056.4 8.3% 65.3% 11.5% 321.9 35.8 357.7 368.6 37.8 406.3 417.5 39.6 457.1 463.0 42.8 505.8 511.4 42.4 553.9 554.8 41.5 596.4 11.5% 3.0% 10.8% 3,683.4 3.3 3,686.7 4,480.6 4,378.0 2.4 4,380.4 5,321.9 5,035.9 1.3 5,037.2 6,105.3 5,777.2 0.9 5,778.1 6,996.7 6,552.8 0.4 6,553.3 7,928.8 7,462.6 0.3 7,462.9 9,002.4 15.2% -39.0% 15.1% 15.0% 103.9 183.5 506.5 793.9 108.1 228.8 604.6 941.4 119.6 264.6 683.8 1,068.0 132.2 305.0 781.4 1,218.6 148.0 351.7 875.8 1,375.5 165.8 405.5 968.2 1,539.5 9.8% 17.2% 13.8% 14.2% 652.4 539.1 736.6 1,928.1 860.9 692.9 923.9 2,477.7 1067.6 841.1 1117.1 3,025.8 1274.5 1015.3 1357.8 3,647.6 1502.5 1215.1 1647.1 4,364.6 1756.1 1443.6 1978.6 5,178.3 21.9% 21.8% 21.9% 21.8% 2007 2008 2009 2010 2011 2012 CAGR

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TABLE 1
Overall IT Spend in India (US$ millions), 2007-2012
Segment/Year Networking IP PBX Wireless LAN LAN Switches Routers Total Networking Other Add-ons (Computing Products) Hardware total Total IT Market in India (excluding others) Others Other (Consumables & individual IT training) Other networking equipment Other Add-ons (Peripheral) Total Others Total IT Market in India (including others) ***
Source: IDC India, 2008

2007

2008

2009

2010

2011

2012

CAGR

156.4 37.9 486.9 284.7 965.9 334.0

194.4 58.2 556.1 335.8 1,144.5 384.0

240.1 77.1 629.7 386.0 1,333.0 436.5

284.8 96.6 688.4 428.5 1,498.2 493.9

320.8 115.5 738.3 469.0 1,643.6 548.6

351.1 128.7 778.0 501.6 1,759.5 612.4

17.6% 27.7% 9.8% 12.0% 12.7% 12.9%

6,750.7 13,735.2

7,964.5 16,855.5

9,124.0 19,876.7

10,366.7 23,304.0

11,632.3 27,095.1

13,027.0 31,364.2

14.1% 18.0%

284.1

343.5

393.4

449.1

502.0

552.3

14.2%

613.8 379.4 1,277.2 15,012.5

773.8 411.0 1,528.4 18,383.9

902.9 416.8 1,713.1 21,589.9

1029.6 399.7 1,878.4 25,182.4

1144.9 384.7 2,031.7 29,126.7

1259.9 369.7 2,181.9 33,546.1

15.5% -0.5% 11.3% 17.4%

The Indian Domestic IT industry continues to be the highest growing market in the Asia-Pacific region. The size of the domestic IT market was US$ 15,012.5 millions in 2007 and is expected to touch US$ 33,546.1 millions in 2012. The CAGR for the period 2007-12 is expected to be 17.4%. The IT market is expected to more than double in the next 5 years with the industry touching US$ 20 billion (20,000 million) mark in 2009. *** All the vertical-wise figures reported in the subsequent pages of this report are based on this set of figures

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©2008 IDC

SITUATION OVERVIEW
Indian Economy in the World
The Indian economy, buoyed by the growth in GDP exceeding 8% year on year since 2003-04 has entered a new phase termed as “India 8.0.” With positive indicators such as rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world. But moving to the era of new growth phase has brought its own set of challenges. The new challenge set is to maintain growth at these levels, not to speak of raising it further to double-digit levels. Boosted by the growth in the agricultural sector, the economy was able to post a GDP growth of 9.0% in FY 2007-08, slightly lower than that of 9.4% in FY 2006-07. Inflationary impact of the inflow of foreign funds, a slowdown of the US economy, the impact of rupee appreciation and an inadequate infrastructure were some of the major challenges that confronted the Indian economy during 2007-08. Marred further by the exponentially rising inflation, shooting oil prices, larger base and slowdown of industrial sector, the economy is expected to remain around 8.0% in 2008-09. But all is not bleak for the marketers in there; with better than expected monsoon and expanding services sector a new ray of hope lights the Indian economy triggering renewed thrust among the key constituents of the same. Performance of the Indian Economy in 2007-08 India at present is second in the world in terms of population with its population touching a mark of 1,134,788,500 in June end, 2008. The Indian economy grew at 9.0% in 2007-08 vis-à-vis a growth of 9.4% in 200607. While the industrial and services sectors decelerated from 12.0% and 11.0% in 2006-07 to 8.8% and 10.8% respectively in 2007-08, the agricultural sector grew from 3.8% in 2006-07 to 4.5% in 2007-08. Broad money growth (M3), on a y-o-y basis, was at 20.7% (US$ 171,524 million; 1US$ = 40 INR) as at end-March 2008 as compared with 21.5% (US$ 146,637 st million) on 31 March 2007. To its credentials, India recorded an inflow of US$ 24,570 million in FDI for FY 2007-08, vis-à-vis an inflow of US$ 15,700 million in 2006-07. Sectors that attracted the maximum FDI inflows in 2007-08 are services, telecom, housing, construction activities, real estate, electrical equipment, computer software and hardware. The buoyant 56.5% growth in FDI has made the targets of US$ 35,000 million look very much feasible for FY 2008-09. The per capita income at the nominal exchange rate is estimated at US$ 741 for 2006-07 and at US$ 828 for FY 2007-08. Stock markets were the most appropriate example of a see-saw market in India. The two key Indices; Bombay Stock Exchange (BSE) and National Stock

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Exchange (NSE); went through regular highs and lows to close at 15,644 (once crossing 18,000) and 4,734 (crossing 5,000) respectively as at March-end 2008. The exports in the FY 2007-08 exceeded US$ 155,512 million, registering a growth of 23.0% vis-à-vis FY 2006-07, when they touched US$ 126,413 million. The imports on other hand grew by 27.0% in 2007-08 to touch US$ 235,910 millions vis-à-vis US$ 185,735 millions in 2006-07. The value of Indian Rupee (INR) vis-à-vis US$ stood at 40.02 as on 31 March 2008. The INR vis-à-vis Euro, Japanese Yen and British Pound stood at 63.25, st 0.40 and 79.45 respectively as on 31 March 2008. The Indian Rupee seems to th be again losing ground on the count of inflation and stands at US$ 42.95 on 30 June 2008. The annual inflation rate in terms of WPI (base 1993-94=100) for the week ended 29 March 2008 was 7.41% vis-à-vis 2.58% and 5.74% for the week ended 29 Dec 2007 and 30 March 2007 respectively. The current spike in inflation is being primarily driven by higher global commodity prices in agriculture and metals feeding through to domestic inflation. But jolted by the exponential increase in crude oil prices at international level, the inflation levels in India have reached 11.44% in mid of June, pushing the economy growth into a dark corner. The food grains productions for 2007-08 was 227.3 million tonnes, registering an increase of 4.6% over the previous fiscal when it was 217.3 million tonnes. The fiscal deficit for 2007-08 is pegged at 3.22% of GDP, worth US$ 37,725 million vis-à-vis US$ 38,075 million in 2006-07. The revenue deficit for 2007-08 was US$ 1,787 million (vis-à-vis US$ 2,085 million in 2006-07), approximating around 1.52% of the GDP.
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TABLE 2
Indiactors of Indian Economy, 2007-08
GDP Growth Rate Agriculture Growth Rate (18% contribution to economy) Manufacturing Growth Rate (27% contribution to economy) Services Growth Rate (55% contribution to economy) Population Inflation US$ Exchange Rate Exports 9.00% 4.50% 8.80%

10.80% 1,134,788,500 11.44% Rs. 42.95/$ US$ 155,512 million

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TABLE 2
Indiactors of Indian Economy, 2007-08
GDP Growth Rate Imports FDI flow into India Fiscal Deficit Revenue Deficit Food grains Production
Source: IDC India, 2008

9.00% US$ 235,910 million US$ 24,570 million 3.22% of GDP 1.52% of GDP 227.3 million tonnes

The Indian political landscape continues to remain fragmented, with the major parties struggling to establish their dominance. Multiple regional parties and local groupings continued to play the role of ‘king makers’. The strong foothold of smaller parties in regional politics is making the larger parties to once again think through their national orientation and look for more regional policies and initiatives. This wave is set to fuel a new era of development in the country, with regional politics to play a major role in it. Another major issue that continues to dominate the Indian political landscape is the issue of the Indo-US nuclear deal. While the Congress-led United Progressive Alliance government is making all the efforts to push through the Indo-US nuclear deal; the left parties, major allies of the coalition government, are opposed to it. They fear that by signing the deal, India would lose its sovereign foreign policy and firmly place itself in the US security orbit. They have gone to the extent of hinting at withdrawing support from the government; triggering fears of early polls in 2008 itself. For more than a year the nuclear deal has been in the center of the political discourse in India, but no concrete decision has been taken till date. The future of India lies strongly on the implementation of policy reforms package covering wide segments of the economy and a recognition that strong macrofundamentals must be coupled with deep structural reforms to realize these objective. Apart from growth in overall terms, the strategy involves a steep reduction in poverty to just around 10% by the end of the decade, high growth in employment, increase in literacy, reduction in gender gaps and a reduction in the decadal growth of population to 16% during this period. India has inherent advantages in achieving and sustaining high rates of growth propelled by: Stable macro-fundamentals with high foreign exchange reserves, sustained growth of services sector, self-sufficiency in foodgrains making us less susceptible to exogenous vulnerabilities.

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Large reservoir of skilled manpower with 700 million Indians in the younger age group whose energies can be harnessed if human resource development programme are properly managed, and which can contribute to undertake activities in this country whichthe rest of world due to ageing population and social pressures maynot find it possible. Government’s new emphasis on Knowledge economy will harness the country’s skills for the ICT economy in areas like Information Technology, IT Enabled Services, e-medicine, bio-technology and enabling the people to quickly move to a society based on science and technology and innovation driven. An external sector that is robust and will continue to impart confidence to foreign investors as the country calibrates its movement towards full convertibility based on fiscal consolidation and improved financial intermediation. Infrastructure which is being rapidly modernized to meet global challenges – Telecom rates are internationally competitive, road connectivity is improving dramatically, turn-around time in Ports are no more a strain on international trade, and the Power sector is bracing itself for a major reform. Harnessing the advantages of India becoming a large common agricultural market based on dismantling regulations which hinder free movement of foodgrains and other agricultural products, permitting farmers flexibility in their operations by eliminating cumbersome regulations, strengthening the agroprocessing sector by a modern Food law and increased diversification in production patterns in consonance with changing consumer preferences. Reforms of the health and education sectors in which beneficiaries will have a greater role in the management of primary schools and health centers and fostering some competition between public and private institutions to broaden consumer choice. Deregulation of the Urban and the Construction sector through computerization of Land records, modern tenancy regulations, rationalization of Stamp Duty, easier access to housing finance freeing up the latent energy of the construction sector, which can nearly contribute an incremental 1.5% to GDP growth. While heading for bigger things, the Indian economy will gain in size and confidence in the coming times.

THE INDIAN BFSI SECTOR
Overview of BFSI Sector in India
The Indian financial sector has displayed stability over the last few years, even when other markets in the Asian region were facing a crisis. This stability was ensured through resilience and the regulations that have been built into the system over time. The financial sector has kept pace with the growing needs of corporate and other

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borrowers. Banks, capital market participants and insurers have developed a wide range of products and services to suit varied customer requirements. The Reserve Bank of India (RBI) has successfully introduced a regime where interest rates are more in line with market forces. Financial institutions have combated the reduction in interest rates and pressure on their margins by constantly innovating and targeting attractive consumer segments. Banks and trade financiers have also played an important role in promoting the foreign trade of the country. The core financial services provided by the financial intermediaries in India include payments and liquidity, maturity transformation, store of value, information processing and pooling of risks. The BFSI vertical consists of varied organizations, including banks, insurance companies, and players in the financial services, such as mutual funds, asset liability management companies, stock market and other non-banking financial companies (NBFCs). The commercial banks and certain variants of NBFCs are among the oldest of the market participants. The financial intermediaries (FIs), on the other hand, are relatively new entities in the financial market place. All these carry out the role of financial intermediaries and bridges the fund related needs of households (retail customers) and companies (corporate customers). They provide lower monitoring cost, greater liquidity and lower price risk for the household depositors, while also providing payment services that directly benefit the corporate sector and the economy equally. The NBFCs in India typically operate in the space of leasing and hire purchase, mortgage, depository and non-depository financial services, stock exchanges and more. Also, they cover the other constituents of the market such as mutual funds, derivatives, money market, and equity markets. There are 22 stock exchanges in India, the first being the BSE, which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have modernized the stock exchanges. Technology and knowledge have been and continue to drive the global economy. Given the inherent strength by way of its human capital, technical skills, cost competitive workforce, research and entrepreneurship, India is positioned for rapid economic growth in a sustainable manner. To realize the potential, the risk finance and venture capital (VC) funding are moving towards innovation, promoting technology and harnessing knowledge-based ideas. Also the FDI is allowed up to 100% in venture capital funds (VCFs) and venture capital companies (VCCs) through the automatic route, subject to SEBI regulations and sector-specific FDI limits. All this is helping the venture capital segment in making extensive inroads into the Indian BFSI scenario because of their capacity for giving high yields. The industry experts believe that maintaining a close analysis of the VCFs is going to yield fruitful results for the investors. There are 860 bankers' clearing houses in India, of which 840 are managed by the State Bank of India and its associates, 14 by the RBI, and the remaining six by nationalized banks. RBI manages 14 clearing-houses at Ahmedabad, Bangalore,

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Bhubaneshwar, Mumbai, Kolkata, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Nagpur, New Delhi, Patna and Thiruvananthapuram. These cover most of the major urban and semi-urban centers of economic activity. Other than the major cities and metropolitan centers, the volume and value of checks cleared are very low. The checks cleared in the clearing houses managed by RBI account for 62% in terms of volume and 86% in terms of value of the total checks cleared in the country. The clearing infrastructure is designed to address the movement of instruments between the presenting and drawee branches. Each member bank in a center is represented in the clearing-house by its service branch, which collects all the instruments from various branches and consolidates them for presentation to all the banks in the clearing house. Similarly, it receives and distributes among its branches all the instruments drawn upon its branches by other banks in the clearing-house. The service branch of a bank performs a crucial intermediary role between the clearinghouse and the branch of a bank.

INDIAN BANKING INDUSTRY: THE IMPERATIVES
Overview of the Sector
With a jump in the Indian economy from a manufacturing sector to the services sector, Banking in India as a whole is undergoing a change. A larger option for the consumer is getting translated into a larger demand for financial products and customization of services is fast becoming a norm rather than a competitive advantage. The Indian banking industry is passing through a phase of a customerdriven market. The customers today have more choices in choosing their banks. The Indian banking industry has been growing faster than the overall economy, resulting in the ratio of assets of commercial banks to GDP increasing to 92.5% at the end of March 2007. The Indian banks have also been doing exceptionally well in the financial sector with the price-to-book value being second only to China. A burgeoning economy, financial sector reforms, rising foreign investment, favorable regulatory climate and demographic profile have all led to India becoming one of the fastest growing banking markets in the world. The overall banking industry's business grew at a CAGR of about 20.0% from US$ 469,400 million in March 2002 to US$ 1,171,290 million by March 2007. Banking today has transformed into a technology-intensive and customer-friendly sector with a focus on convenience. The sector is set to witness the emergence of financial supermarkets in the form of universal banks providing a suite of services, from retail to corporate banking and industrial lending to investment banking. While corporate banking is clearly the largest segment, personal financial services is the segment with the highest growth. Also the rural and retail banking are fasting catching up with corporate and personal banking. Banks in India can be broadly classified into three categories: Regional rural banks (RRBs),

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Co-operative banks, and Scheduled commercial banks (SCBs) The scheduled commercial banks or SCBs can be further classified into three major categories, namely: Public sector banks, Private sector banks, and Foreign banks The public sector banks can be further classified into three categories, namely: Nationalized banks State Bank group Other public banks The figure below provides an overview of banking structure in India.

FIGURE 1
Structure of the Indian Banking Industry

Indian Banking Sector

Regional Rural Banks

Co-operative Banks

Scheduled Commercial Banks

Public Sector Banks

Private Sector Banks

Foreign Banks

Nationalized Banks

State Bank Group

Other Public Banks

Source: Industry and IDC India, 2008

The Indian banking system has a large geographic and functional coverage. India has 88 scheduled commercial banks (SCBs)—28 public sector banks, 29 private banks and 31 foreign banks. By the end of 2007, the total number of bank branches in India was more than 73,013, with an ATM network as strong as 25,000 ATMs.

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Evolution of the Sector
The Indian banking story began with the first Indian bank, the Bank of Hindustan, set up in 1870. Banking in India on modern lines started with the establishment of three presidency banks under the Presidency Bank's Act 1876 -- the Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all presidency banks were amalgamated to form the Imperial Bank of India. The Reserve Bank of India Act was passed in 1934 and RBI was constituted as an apex bank without major government ownership. In 1955, RBI acquired control over the Imperial Bank of India and renamed it to State Bank of India. In 1959, SBI took over the control of eight private banks floated in the erstwhile princely states, making them its fully-owned subsidiaries. RBI was empowered in 1960, to force compulsory merger of weak banks with the strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969, the government nationalized 14 banks that had deposits of Rs. 50 crores (US$ 12.5 million) or more. In 1980, the government acquired six more banks with deposits of more than Rs.200 crores (US$ 50 million). The banks were nationalized to turn them into catalytic agents for economic growth. The amendment of the Banking Regulation Act in 1993 saw the entry of new private sector banks. Since then there has been no stopping the Indian banking industry; in fact, it has grown manifold since independence. Revenues of the banking sector have gone up over six times in last one decade. Continuing the reform process and improving it further is not only increasing the revenue of the banking industry but is also fueling the growth of the Indian economy.

Reforms in the Sector
Reserve Bank of India The RBI was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Kolkata but was permanently moved to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the government of India. The RBI performs the function of financial supervision under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the RBI. The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and NBFCs. The RBI continues to disseminate information through press releases, publications, notifications, master circulars, speeches and advertisements. Reforms in Indian Banking

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The first two decades of independence saw a major portion of bank credit flowing towards big industries. There were apprehensions that the allocation of credit by the predominantly private banking structure was not in conformity with planned objectives of social development. By the mid-1960s, the government decided to exert direct control over banks and bank policy. The government issued an ordinance in July 1969 acquiring ownership and control of 14 major banks. Subsequently, six more commercial banks were nationalized in April 1980. With the nationalization of banks, the government sought a more proactive role in the developmental process by directing the allocation of financial resources so as to step up the growth rate of the economy. The major considerations in late 1960s through early 1990s were those of social banking. The idea was to develop the banking habits in everyone in all parts of the country, especially the disadvantaged areas. Gradually the priorities changed and by the 1990s the concepts of corporate banking and institutional lending started forming the picture of the Indian banking scenario. A major set of reforms for the Indian banking industry was initiated amidst a "current account" crisis in the early 1990s. The year 1991 marked a watershed year in the history of the Indian economy. Faced with a balance of payment crisis, the Indian economy undertook an extensive reform program ushering in an era of deregulation, liberalization and gradual globalization coupled with a liberalized exchange rate management system (LERMS) and devaluation of the rupee exchange rate. The roadmap of the financial sector reforms was traced largely by two committees under the chairmanship of M. Narshimhan -- the committee on the financial systems and the committee on the banking sector reforms, popularly known as the Narshimhan Committee Report-II. With the deregulation of the entry norms, an increasing number of financial banks are showing interest in the Indian economy. Entry deregulation, coupled with progressive deregulation of interest rates on deposits and advances, has helped the banking industry to more than double its turnover between 2002 and 2007.

Players in the sector
With the banking industry turnover being US$ 1,171,290 million, the State Bank of India occupies the top-most position with a market share of 16.3%. It is followed by ICICI Bank, with 9.0% and Canara Bank, with 5.1%. The top seven players occupy around 47% of the total market, the rest being shared by the other players.

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FIGURE 2
Market share of Players in Indian Banking Sector, 2007

State Bank of India (16.3%)

ICICI Bank (9.0%) Others (52.8%) Canara Bank (5.1%) Punjab National Bank (5.0%) Bank of Baroda (4.4%) Bank of India (4.3%)

Union Bank of India (3.1%)

Total = US$ 1,171,290 million
Source: Reserve Bank of India and IDC India, 2008

Trends in the sector
Today banks have started looking beyond the concept of social banking towards corporate and retail banking. They are leveraging the technology for the development of innovative products for distribution through innovative and new channels. The major focus areas for the modern day Indian banking industry are: Retail banking: The Indian banking sector is rapidly shifting its focus from corporate to retail in the assets side. Banks are competing with one another to provide the full range of financial services to this segment. With the emergence of a strong Indian middle class with higher income and willingness to spend for personal gratification, banks are now seeing them as a profitable segment of the market to be targeted. Product innovation/bancassurance: Today’s banks are venturing into other nontraditional banking arenas, such as long term financing, asset-liability management, mutual fund and insurance. They are gradually moving into the universal banking arena where they will be able to provide all the financial services under one roof. The phenomenon of universal banking is also expected to provide economies of scale and scope to the banks and an opportunity to cross-sell their products to the customers. One apt example of this is bancassurance, which involves selling of insurance products through the banking channels. It adds to banks' product line, and insurance companies get a new channel for the distribution of their insurance covers. With the latest applications, such as knowledge management and business intelligence being developed to explore the hidden needs of the customers, the collaboration of the two can serve a meaningful purpose for both the entities for a long period of time.

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Focus on developing alternate channels: The focus on reaching to customers in the minimum possible time has led the banks to make use of technology as an enabler that develops various alternate channels for banking. New-age private sector banks have the dual goal of rapidly increasing their reach to match the network of the public sector banks and at the same time being more customer-focused and serviceoriented. The traditional mode of servicing the customer was found to be both expensive and difficult to maintain. With the help of IT, banks have started servicing the customers through alternate channels, such as ATMs, Net banking, and telebanking, which are cost-effective in the longer run and make processes efficient and quick. Banks are going even to the extent of discouraging branch banking and encouraging the customers to use the electronic channels. Mergers and acquisitions: The merger and acquisition wave is hitting the Indian banking industry like never before. It is expected to gain further momentum, as managements will strive to meet the expectations of stakeholders. This could see the emergence of four to five world-class Indian banks. The Indian banking industry could very well transform from a host of many small banks to the home of few large banks. Seeing the 2009, entry of MNC banks in India, the consolidation by the smaller banks to compete against the larger banks is forecasted to start taking shape by 2010. Rigorous following of the Know Your Customer norm: In India "Know Your Customer" rules have been in place for a very long time. There are specific directions for obtaining proper introduction while opening deposit accounts. Today, with the realization of the benefits that it can bring, the banks have started to adhere to these norms. This not only helps them minimize many thefts and security breaches, but also provides them with the valuable information about their customers. They are utilizing such information for business intelligence and analytics to understand the needs and requirements of their customers. This is ultimately helping the banks in selling many more products to customers than what they would normally buy. Sharing and outsourcing of ATMs: The ATM industry has radically evolved from the being the quintessential cash dispenser to facilitating a wide spectrum of financial operations. ATMs are by far the largest investment made in the electronic self-service segment. But ATMs are expensive to own and operate, especially for banks with a limited branch network and human capital already stretched to capacity. Banks have been struggling to balance the demands of increasing customer care touch points while reducing the cost to serve and maintain them. In particular, ATMs continue to be an extremely important customer touch point to banks, but also represent a significant cost. This cost includes ongoing expenses due to servicing, monitoring, rent, and other operational costs, as well as capital investment in the ATMs themselves. Managing ATMs is becoming an increasingly complex task with each passing day with advanced services being offered. Banks have realized that the value of the ATM is not in its ownership, but in its ability to provide customers with convenient access to their bank accounts. This has been one of the reasons for bankers to let external vendors handle the ATM channel. Banks generally do not consider ATM management a part of their core business as they do not have the core expertise in that. They would rather focus on customers than on managing the ATM network. That is why they prefer to outsource ATM related services.

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Rural initiatives: Private sector banks are fast penetrating the rural and semi-urban sectors and the rural customers are being lured by new products, services and techniques adopted by these banks. Indian banks, especially the PSU banks, are focusing mainly on rural expansion. Banks are eyeing tier-II and tier-III cities as immediate expansion areas. Also farm lending and micro-financing are two major avenues through which banks intend to give strength to their rural initiatives. Mobile banking: Mobile banking refers to provision of and access to bank-related financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customized information. Mobile banking has been slowly but constantly gaining ground. The public perception of mobile financial services (MFS) has undergone a positive change in past few years. This shift can be traced to the increased need for mobility and to technological advances in the telecommunication sector. Successful MFS offer enable business advantages but they also pose certain dilemmas, such as the choice of a suitable technical solution. Today more and more banks are tying up with the mobile and telecommunication companies to provide various facilities such as account transaction, live news, and live stock quotes to the customers on their mobile devices. Though the phenomenon has not been able to make much deeper inroads in the Indian scenario, in the next two to three years, mobile banking is going to be most innovative delivery channel for the banks, with examples being set by the larger banks to be followed by the smaller banks. The table next provides an overview of key concepts often used in mobile banking.

TABLE 3
Mobile Banking Terminologies
Terminology Mobile Accounting Activities Money remittances and transfers, bill payments, subscribing insurance policies, changing operative accounts Sale and purchase of financial instruments, order book administration Balance enquiries, statement requests, credit card information, branches and ATM locations, stock market quotes and reports

Mobile Brokerage

Mobile Financial Information

Source: Industry and IDC India, 2008

Messaging services: In messaging-based applications, the communication between the bank and the customer is carried out via text messages. These messages may be triggered automatically by the bank whenever certain pre-defined events occur, for instance whenever a transaction is performed on the account or the balance updates are being carried. Alternatively, the messages may be sent by the bank as a response or confirmation to the customer requests also. A customer message may

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contain either an instruction, for example, to carry out a transaction, or an information request, such as for the account status. Mobile banking applications are gaining popularity among banks in India and are spreading rapidly.

Factors favoring the growth of the sector in India
Indian banking stands at the threshold of a mega change in the next five years. Many new situations as compared to the present scenario are predicted to emerge. India will not just see the emergence of a few global banks but will also be witness to largescale consolidation by the smaller banks to counter the competition from large banks as we move closer to 2009-10 scenario. The vast potential of Indian banking industry lies on: Untapped rural markets: Huge potentials lie untapped in the rural areas where the banking habits are yet to develop to the potential levels. India, being home to large rural and semi-urban population, offers exponential opportunities for the banking sector in the rural economy. With the aid of technology, the banks are developing alternate channels like mobile ATMs to explore the same and we expect to witness huge thrust on the same in the next five years. Technology: With the advent of newer technologies, the banks in India are able to offer better and bundled products to satisfy varying requirements of wide range of customers. ICT solutions have enabled them to offer “anywhere, anytime” customer services to be able to become more productive and competing with the foreign banks. Changing customer habits: Indian consumers are able to save more and are also developing the habit of banking. They no longer prefer to keep their savings with them, but are rather more receptive to the offerings by the banks (especially the private and the newer players in the market). Thus there is a long way for the Indian banking industry to travel on the back of changing demographics and the advent of information technology. But the scope is very much there to be explored.

Challenges in the Sector
Increased risk: Large-scale use of technology and innovative products has increased the areas and potential of risk exposure. As the Indian economy aligns with the international markets, the impact of global developments will have a bearing on the market and credit risk in India. With RBI's prescription of the adoption of Basel II norms, the immediate concerns of Indian banks are to gear up for additional requirement of capital for market and operational risk, and improve systems and processes so as to accurately measure the risk inherent in the business without delay. Tightening legal environment: The legal environment is likely to be more complex in the years to come. Innovative financial products implemented on computers, new risk management software, user interfaces, and others may become patentable. For some banks, this could offer the potential for realizing commercial gains through

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licensing. But for others, this could be the dictate of the regulator and they may not welcome such changes in the Indian banking industry. Majority of funding goes to the least productive parts of the economy: India's financial system channels only a minority of the savings it does capture to the most productive parts of the economy. And on top of that the unorganized lending takes away the cream away from the Indian banking industry. Soaring Inflation: The sudden rise in the Indian inflation, upto 11.98% for end of July 2008, has made the RBI to increase the interest rates to curb the money supply in the economy. This has made a big dent in the business of the banks, with the number of loans taken reducing by more than 10%. With the inflationary trends not looking to slow down, the banks would have to manage the high interest rates vis-à-vis the business opportunities. Beyond 2009: With the dawn of year 2009, the Indian banking industry will be all set to transform rapidly and in a totally different manner. That will be the time when the foreign banks will be allowed to set up fully owned subsidiaries in India and the public sector banks will face immense competition from the foreign banks. Foreign banks will be treated the same as Indian banks after that and it will be up to the Indian public sector banks to match the pace of the foreign banks, or risk losing their market share to them. Though RBI is talking of extending the timeframe, but nothing concrete has come up yet. Seeing that the competition will intensify, the Indian banks have already started making their plans to combat this competition. Their main focus is to carve out a niche for themselves by 2009 (either by innovative products or through newer distribution channels or both), so that their operations are not affected by the entry of foreign banks. For this they are investing heavily in technology and are looking to leverage the technological benefits to match the foreign banks. In addition, Indian banks may consider the consolidation route to combat the large and technologically advanced foreign banks, but it is not on the radar before 2010. Low penetration of financial markets in India: The penetration of the banking system into India's population is low, and banking activity remains concentrated in urban areas. India has only 28 ATMs per million people, compared to 55 in China and nearly 1,600 in South Korea, and credit and debit card penetration is also very low. Lack of bank penetration limits the system's ability to mobilize savings and thus contributes to India's low financial depth and lesser financial inclusion. Financial exclusion: Today the banking industry finds that the phenomenon of financial exclusion has made deep inroads in the Indian market, especially the rural markets. Only around 31% of the rural population has access to the banking system. The common roadblocks to financial inclusion (delivery of financial services at an affordable cost to vast sections of disadvantaged and low-income groups) among the rural people are fear of temptation (getting into the habit of debts), fear of failure (one might not be able to cope with the banking structure), fear of technology (one might not be able to use the latest technology and gadgets that the banking system has on offer) and fear of banks (environment and staff). Thus the challenge for the banks lies in changing the mindset of the people and in making banking easy and convenient for them. Though the banks have started talking about Financial Inclusion, but the practical achievement of the same is still a far distant dream.

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FIGURE 3
Vicious Circle of Financial Exclusion Plaguing the Indian Banking Industry in the Rural Areas

No Savings

No Assets

No Insurance

Financial Exclusion
No Bank account No Access to Financial Consulting

No Affordable Credit

Source: Industry and IDC India, 2008

Small sizing of the Indian banks: One area seen as a potential constraint, going forward, is the small size of the Indian banks, judged by the international scale. This is limiting the bans’ ability to fund mega projects, achieve economy tech-spend, raise cost-effective capital, and provide the capability to offer full range of products at the right price. Decreasing loyalty of customers: Changes in the banking industry are impacting the customer preferences. Customers have become demanding and the loyalties are diffused. There are multiple choices today for a consumer; and thus the per bank share of the customer's wallet has reduced over time. It has become increasingly difficult for the banks to retain customers. Thus the banks are faced with two challenges -- one, to attract newer customers and the second, to retain their existing customer base. These changes are creating internal challenges as well, as employees are made to adapt to changing conditions. Keeping in mind the aging factor of employees in the Indian banks (especially the public sector banks), change management is one of the biggest problems that the Indian banks face today. Money laundering: Criminal elements in today's technology-driven society are using every means available to launder the proceeds from their illegal activities. The anti– money laundering compliance requires financial institutions to report any unusual banking activity that might be deemed as suspicious, and also vests the treasury department with regulatory powers to penalize any organization that may be a participating factor, whether knowingly or not. Failure to adhere to these strict federal guidelines can have severe results, including damage to a financial organization's reputation, market capitalization, as well as its customer perception and loyalty.

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Role of Information Technology in the Sector
The IT deployment of banks aims at achieving operational efficiency, meeting customer and market expectations. IT has become an essential part of banking and is integrated with the business plans of the banks. As the industry becomes more competitive, market dynamics will force product innovation, bringing the business of banking back full circle to high-touch branch banking for retail customers, while corporate business would depend on the ability to deliver seamless services through integration of technology, with client relationships remaining the driver. IT spending by banks is driven by initiatives to meet regulatory requirements, manage customer relationships, manage risks, reduce costs and attract new customers. Banks are looking to provide web-based trade support, value-added transaction services, basic online transaction services and basic online information services, to attract and retain customers. The spending on ICT by the banks will be boosted by the increasing emphasis on electronic and mobile transaction. The implementation of the BASEL II is also resulting in banks adopting new IT technology. Key IT solutions in the sector Core-banking: While the core-banking has been widely adopted in the Indian banking industry; the smaller and regional players are yet to be through with their core banking implementation. Especially the rural branched are yet to be migrated to the core-banking applications from a stand-alone scenario at present. Analyzing the present stage of implementation, it is forecasted that the complete migration would take another two year framework, wherein the efforts by the smaller banks would be the key to 100% core banking. CRM: Managing customers is one of the main issues that banks face in today's hyper-competitive environment. The customer is very likely to take his business elsewhere if the service levels are not up to his expectations. This is where CRM practices and software (on the technology side) play an important role. In banking, being the first-to-market alone is not enough since products can be copied very fast. It is the customer service level that matters. This is where CRM techniques and tools come into place. While the foremost part of CRM strategy is all about treating the customer right, the longer term objective lies in identifying the hidden needs of the targeted customers. Increasingly, the banks in India are going ahead with CRM with key interest; with larger players already in process of implementing the same the smaller to follow in another year. Business intelligence: Another important issue banks face is in proper analysis of financial data to identify business potential. Here business intelligence comes to their rescue. It helps a bank in identifying cross-sell and up-sell potentials. Technologies such as data warehousing and data mining come into play here. A data warehouse can help the bank get a single view of its data across disparate systems. This is very useful since most banks have data spread over several disparate systems, and in many cases, legacy systems.

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Internet and mobile banking: In the last couple of years, banking has acquired a new dimension. As global connectivity increases and more people travel, the need for banks to be accessible across any part of the globe has increased. And the best way to achieve that is through Internet banking. Today more banks are shifting their focus from traditional branch banking to providing all the banking services online and further to mobile banking. The concept of internet banking has not only found great acceptance among the bankers but it is also finding increased acceptance among the masses. The next initiative which the banks are looking at, after Internet banking, is towards the mobile banking. They are tying with telecom majors to provide various financial services through the mobile devices of the customers. Storage: Storage is an ever-increasing proposition for the banks. The very nature of financial data involves a large amount of information generated by each and every transaction. Along with this, the RBI has made it mandatory for the banks and financial institutions to store the data and records of financial transactions that have taken place over the past seven years. Also with the advent of Right to Information, the banks are storing data for more than 12 years of records. This has created a huge demand for the storage deices and solutions among the banks in India. Maintaining uptime: A bank also needs to distinguish between uptime and downtime for critical systems and services. When a solution provides a bank of network availability at 99.7% uptime through the year, this translates into a downtime of approximately three to five days. However, banks would probably find it unacceptable to be crippled for that much time at a stretch because of a network failure. Thus the banks are investing heavily in techniques and solutions, which would help them in maintaining the uptime at an uninterrupted level. Also with Internet and mobile banking making greater inroads into the Indian banking scenario, the need for maintaining uptime has gaining huge importance vis-à-vis any other priority area. The banking system of tomorrow that will evolve with the help of IT will be transparent in its dealings and adopt global best practices in accounting and disclosures driven by the motto of value enhancement for all stakeholders. Technology solutions would make flow of information much faster, more accurate and enable quicker analysis of data received. This would make the decision making process faster and more efficient. For the banks, this would also enable development of appraisal and monitoring tools which would make credit management much more effective. The result would be a definite reduction in transaction costs, the benefits of which would be shared between banks and customers.

Conclusion
Despite the radical new trends emerging, banks will continue to play their role as trust-enablers in all commercial activities. Their role as financial intermediaries and payment enablers will also continue, but they will and are be outsourcing all non-core activities to specialized service providers and in-source opportunities where they have a saleable value proposition. The transfer of money will not generate profits; it will, however, be the basis of other services that banks will provide. Also the level of integration that banks achieve with their customers supply chain will determine profitability.

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Armed with a technology backbone, banking will remain the business model for managing liquidity, creating trust, and managing risk. The ability to make informed decisions based on business benefits, to become intelligent investors in technology, and seek sourcing options would be some the tenets of successful banks in India.

INDIAN INSURANCE INDUSTRY: THE IMPERATIVES
Overview of the Sector
With a billion-plus population, of which NCAER survey estimates 150 million are the consuming class and another 275 million are the climbing middle class, India is one of the world’s largest markets for insurance today. From a present value of US$ 45,236 million, the Indian insurance will be a US$ 92,000 million market in 2012. The Indian insurance industry grew by 43.34% in 2006-07 vis-à-vis 2005-06, when it clocked US$ 31,58 million. Prime contributor to such a high growth has been the premium underwritten by life insurers, which grew by 47.38% year-on-year in 2006-07 as against a growth of 27.78% in 2005-06. The life insurance sector contributed 86.2% to the total market by garnering US$ 39,010 million market in 2006-07, with general insurance contributing US$ 6,225 millions. Insurance in India is estimated to be only 3.6% of the national GDP, as opposed to the world average of 7.52%. Though the sector is growing at more than 40%, but the potential to penetrate in the rural markets is still enormous for the players operating in the sector. Indian insurance industry is classified into three broad categories by the Insurance Regulatory and Development Authority (IRDA), which implies that separate operating licenses are needed for a company to operate these three types of services Life insurance General/Non-life insurance; and Re-insurance The life insurance business can be further sub-classified into three categories Group (Corporate customers) Bancassurance Agency (or Retail where the target is the individual customer) The non-life or general insurance can be further sub-classified into six major categories Motor Marine

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Fire Engineering Aviation Health, and Miscellaneous The figure next provides a structural overview of the Indian insurance industry.

FIGURE 4
Structure of Indian Insurance Industry

Insurance Industry

Life Insurance

Re-insurance

General Insurance

Bancassurance

Fire

Agency

Motor

Group

Marine

Aviation

Health

Others

Source: Industry and IDC India, 2008

Evolution of the Sector
To begin with, the insurance sector in India was only loosely regulated, with only the Indian Companies Act (1866) being applicable to it. In 1912, two sets of legislations

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were passed targeted at insurance sector for the first time in the history of Indian insurance. These laws were meant for only Indian insurers and did not cover the general insurance business. Comprehensive insurance legislation covering both life and non-life insurance came in 26 years when the Insurance Act 1938 was put in place and clearly defined what comprised life insurance and non life insurance. After nationalization of life and general insurance in 1956 and 1972 respectively, the Act lost its importance. The privatization of insurance in 1999-2000 prompted by the passing of the Insurance Regulatory and Development Authority Act brought the sector back to the fore. The act repealed the monopoly conferred to the Life Insurance Corporation (LIC) in 1956 and General Insurance Corporation (GIC) in 1972 and created an authority called the Insurance Regulatory and Development Authority (IRDA) to grant new licenses to private sector players, protect the interest of holders of insurance policies and to ensure orderly growth of insurance sector in India. The IRDA separated life, non-life and reinsurance businesses, requiring companies to have separate licenses and capital for each. The important milestones in the evolution of the Indian insurance sector are summarized below in the form of a table.

TABLE 4
Milestones in the Evolution of Indian Insurance
Year 1912 1928 1938 1956 Establishment of Indian Life Insurance Act Establishment of Insurance Companies Act Establishment of Insurance Act: Comprehensive Act to regulate insurance business in India Nationalization of Life insurance business in India with a monopoly awarded to Life Insurance Corporation of India Nationalization of General Insurance business in India with the formation of a holding company General Insurance Company The government gives greater autonomy to Life Insurance Corporation, General Insurance Corporation and its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at channeling funds to the infrastructure sector The cabinet decides to allow 40% foreign equity in private insurance companies-26% to foreign companies and 14% to Non-resident Indians and Foreign Institutional Investors (FIIs) Standing committee headed by Murali Deora decides that foreign equity in private insurance should be limited to 26%. The IRA bill is renamed the Insurance Regulatory and Development Authority Bill President gives assent to the Insurance Regulatory and Development Authority Bill
Source: Industry and IDC India, 2008

Milestone

1972

1997

1998

1999

2000

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Reforms in the Sector
The Government has taken many proactive steps to give a boost to the insurance sector in India: Foreign direct investment up to 26% is permitted under the automatic route subject to obtaining a license from the IRDA IRDA has removed administered pricing mechanism, i.e. de-tariffing in respect of fire and engineering along with motor insurance of general insurance for premium, from 1 January, 2007 The control rates on fire, engineering and workmen's compensation insurance classes has been removed from 1 September, 2007 Also the states in India are aggressively offering public health insurance schemes to their rural poor, a host of private players are rushing with their offerings, sensing huge opportunity in this segment. The Karnataka Government has partnered with the private sector to provide coverage at a low cost in the Yeshaswini Insurance scheme. Launched in 2002, the scheme provides coverage for major surgical operations, including those pertaining to pre-existing conditions, to Indian farmers who previously had no access to insurance.

Players in the Sector
Several new players have entered the Indian insurance sector in the last few years. Life insurance has a total of 19 players, with the only public sector player Life Insurance Corporation (LIC). Among the private players, international companies like Aviva, MetLife, New York Life, Prudential, Allianz, Sun Life, AIG and Standard Life are present through joint ventures with Indian companies. In the general insurance sector, there are a total of 17 players. Of these, 6 are public sector players and the rest are private players. Private players accounted for 34% of the market in 2006-07. Joint ventures between foreign players and Indian companies are dominant here as well. Of the total 19 general insurers, two are specialized ones. The Agricultural Insurance Company handles the crop insurance business and the Export Credit Guarantee Corporation only transacts export credit insurance. The General Insurance Corporation of India is the only re-insurer operating in India. Foreign companies are allowed to enter the industry in collaboration with domestic players only. Currently there is a 26% FDI cap on foreign participation. Although the government had, in the 2004–2005 budget, proposed hiking the FDI limit to 49%, the proposal has not been implemented so far. The tables and figues next aptly represent players' overview of the Indian insurance industry.

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TABLE 5
Life Insurers in India (US$ Million)
Insurer LIC ING Vysya HDFC Standard Life Birla SunLife ICICI Prudential Kotak Life Tata AIG SBI Life Bajaj Allianz Max New York Life Met Life Reliance Life Aviva Sahara ShriRam Life Bharti AXA Future Genrali India Life Total 22698.055 106.345 392.4775 314.92 1065.2625 155.4625 220.0475 268.83 783.395 197.0325 51.4975 56.0525 150.0675 6.915 2.5825 Not There New 26468.9425 2005-06 31955.71 176.8 713.9675 444.1775 1978.2475 242.8775 341.795 732.1225 1327.5 375.07 123.1775 251.165 286.8075 12.75 46.2875 1.945 New 39010.4 2006-07 41% 66% 82% 41% 86% 56% 55% 172% 69% 90% 139% 348% 91% 84% 1692% NA NA 47% Growth

Source: Insurance Regulatory and Development Authority and IDC India, 2008

TABLE 6
Non-Life Insurers in India (US$ Million)
Insurer 2005-06 2006-07 Growth

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TABLE 6
Non-Life Insurers in India (US$ Million)
Insurer National Insurance New India Assurance Oriental Insurance United Insurance Royal Sundaram Reliance Iffco-Tokio Tata AIG ICICI Lombard Bajaj Allianz Cholamandalam HDFC Chubb Star Health Insurance and Allied 880.9175 1197.875 881.7775 788.695 114.66 40.5825 223.18 143.175 395.715 318.0725 55.045 50.235 New 2005-06 953.605 1254.3 982.13 874.6925 149.55 228.0575 286.1175 177.6375 747.2675 446.585 77.9325 48.5 New 2006-07 8% 5% 11% 11% 30% 462% 28% 24% 89% 40% 42% -3% NA Growth

Apollo DKV Insurance Future Genrali India Life Total

New New 5089.93

New New 6226.375

NA NA 22%

Source: Insurance Regulatory and Development Authority and IDC India, 2008

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FIGURE 5
Insurance Industry in India, 2005-06 and 2006-07

2005-06
General (16.1%)

Life (83.9%)

n = US$ 31,558 million 2006-07
General (13.8%)

Life (86.2%)

n = US$ 45,236 million

Source: Insurance Regulatory and Development Authority and IDC India, 2008

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FIGURE 6
Life Insurance Industry in India, 2005-06 and 2006-07

2005-06
Private (14.2%)

Public (85.8%)

n = US$ 26,469 million 2006-07
Private (18.1%)

Public (81.9%)

n = US$ 39,010 million

Source: Insurance Regulatory and Development Authority and IDC India, 2008

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FIGURE 7
Non-Life Insurance Industry in India, 2005-06 and 2006-07

2005-06

Private (26.3%)

Public (73.7%)

n = US$ 5,090 million 2006-07

Private (34.7%)

Public (65.3%)

n = US$ 6,226 million

Source: Insurance Regulatory and Development Authority and IDC India, 2008

Trends in the Sector
The key trends in the Indian insurance industry are: Influx of new players: Growing premiums are attracting the new players, especially foreign companies. The share of foreign insurers in other competing Asian markets is not more than 5-10%. In India, the market share of the private insurers was around 20.37% in 2006-07 as compared to 79.63% share of public sector insurers. However, since private players had only 16.19% share in 2005-06, the market share of private players is rising at a fast pace.

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In 2008-09, two new players joined the life insurance segment and 1 new player came in the general segment. In life insurance, Aegon Religare Life Insurance Company Ltd and DLF Pramerica Life Insurance Company Ltd are the two new entrants, whereas in general insurance, the new entrant is Bharti Axa General Insurance Company Ltd. From an industry that had only two players in the year 2000, the strength of 19 life and 17 non-life insurance players speaks of phenomenal growth. Public sector insurers continue to dominate; private players push harder: In both life and non-life segments, public sector insurance companies continue to command a higher share of the market. Private players are competing amongst themselves for a smaller pie. This is mainly because public sector players have been in existence for a longer duration and are deeply entrenched in the market with a huge distribution network, whereas new players are only beginning to create a reputation for themselves. Building a distribution network from scratch is a timeconsuming and costly affair for new players. Many of them are piggy backing on other exiting networks, like banks through bancassurance and the use of ATMs for collecting premiums. Forays into newer markets: The corporate segment is no longer a growth area for insurance companies due to sufficient penetration therein. Companies are already looking to stimulate demand in areas that are currently not served at all. Insurance companies are aggressively establishing an extensive agent network for sale of insurance products in the rural and semi-urban areas of the country. Agents are creating awareness, motivating purchase and rendering insurance services in their respective areas. Rural markets being relatively unexplored, insurers are exploring the needs of specific rural groups and trying to develop products for them. Product innovation: With the changes in demographics and lifestyles, the demand for insurance cover has also evolved and policyholders are looking for packaged/bundled products. Companies have been innovative in the types of products being marketed to people of different age groups and income groups. Today a variety of products are available, ranging from traditional to unit-linked, providing protection towards child, endowment, capital guarantee, pension, and group solutions. A number of new products have been introduced in the life segment. Comprehensive packaged products have been popularized with features of endowment, money back, whole life, single premium, regular premium, rebate in premium for higher sum assured, premium mode rebate, and others, together with riders to the base products. Alternate channels of distribution: Alternate channels of distribution such as bancassurance, direct marketing, Internet and telemarketing reduce costs and enable insurers to reach a wider customer base. While agency force remains the mainstay of most insurance companies, insurers are exploring new channels. These efforts are also relevant in the context of reducing marketing cost as this would enable insurers to provide affordable insurance to low income households. Creating brand awareness of their products and their medium of communication is also a key area today.

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Use of technology: In a competitive environment, insurers are using technology to get an edge over their competitors. In the years ahead, the battle of insurance will be fought on the effective deployment and usage of the technological tools and solutions. Technology is playing an increasing role in aiding design of products, in creating new distribution channels and in managing customer relationships. Data collection, analysis and management is also a critical technology area for insurance to understand the changing consumer dynamics. CRM: Attracting new customers and retaining the old customers is a key challenge for insurance companies. Therefore, companies are investing heavily in CRM tools, which are used to analyze customer data. In general, public sector players are able to retain customers much better owing to their long existence in the market. Private insurers are now using tools like data warehousing, business intelligence, knowledge management and CRM to increase customer retention by understanding their latent needs and offer products of choice, variety and convenience. The IT spend on such tools is going to form a major part of the total IT spend by the insurance companies in India.

Factors favoring the growth of the sector in India
Moving ahead, the key factors that will lead to the growth of the Indian insurance industry are: Tax savings: Particularly, in the life insurance segment, insurance is seen as an effective means to reduce the tax burden. As more and more people come under the tax net with the changing income tax policies, life insurance is also increasing in popularity. Increase in income: The increasing per capita income of Indians is playing a critical role in the growing insurance industry. With more incomes being at the disposal of the people, the insurance is gradually moving from the tag of tax saver to the saving instrument. Untapped Markets: The markets like rural and semi-urban are yet to come up to the terms of insurance potential. There is huge population untapped in these cities, with variant insurance needs in existence. India, also along with its huge middle-class households and growing economy has exhibited huge potential for the insurance sector. As per the current estimates, for every 1% increase in the GDP, insurance premiums increase by around 4%.

Challenges in the Sector
The insurance industry in India has been growing between 30-40% but it lags behind its global counterparts primarily due to: Low awareness and penetration level: Low penetration level coupled with low awareness about the insurance product is a major hurdle for all insurers who are trying to grab a pie in insurance market. Insurance in India is only 3.6% of the national GDP opposed to the world average of 7.52%. Before the industry was deregulated,

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state owned LIC was enjoying monopolies situation and did not need to worked to generate awareness about insurance products and their benefits. Now in a deregulated environment, all the players are contesting to grab a pie of the emerging strong middle class market. At the same time insurers are also facing a tough time in penetrating the rural market, which constitutes more than 50% of Indian population. Thus they have started putting a lot of emphasis on the awareness and marketing campaigns to generate awareness among the masses and develop a positive attitude towards insurance, especially among the rural folks. Distribution complexity: Traditionally, the players have sold products using tied agents and an in-house sales force. The majority of private sector insurers also adopted this approach in the initial years of operation, but this meant that after a while, the less aggressive ones saw their sources and contacts dry up, and growth in the sale of new policies decreased and they were unable to expand the market. In such scenario, it became important for insurers, both state owned and private to expand their market beyond the obvious existing urban market to newer markets. The new trend is for insurers to set up branch/satellite offices, which has brought forth the challenges of managing operational efficiency and customer service. The emergence of bancassurance has been one of the most significant developments in the distribution of Insurance products through bank network. Currently, most of the insurers have entered or are planning to enter into agreement with leading banks. The advent of the e-economy has also radically changed the distribution strategy of insurance products. The key value chain challenges for thew Indian insurance are presented in the figure next.

FIGURE 8
Challenges in the Value Chain of Indian Insurance Industry
Product development Long cycle times State specific regulations Lack of long term / enterprise vision across product portfolio Distribution Low agency retention Low persistency New business Manual and rigid processes Longer cycle time for application processing Poor quality of application processing Policy owner services Poor response times Lack of single customer view Claims Loss leakage and poor benefit disbursement Long cycle time for claim processing and customer dissatisfaction

Old, inefficient, standalone systems and inflexible enterprise architecture are contributing to the increased costs of operations and lack of organization agility
Source: Industry and IDC India, 2008

Diverted use: In India, many people use insurance as a tax saving device rather than as a financial security for themselves or their family against any calamity. Added to this the new players don’t enjoy the trust that the public sector units have gained due to years of presence, wider distribution reach and government patronage. New players are trying hard to build their brand as well as trying to find specialty areas to bring about differentiation in their offerings.

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Legislation: A strict regulatory framework laid down by the IRDA for the security/privacy of customers, increased compliance cost has become a major challenge for insurers today. Also, there have been concerns raised by the experts regarding the time taken by IRDA in giving approval for new product development. The FDI cap of 26% has also become a matter of concern for the foreign insurance companies looking to invest in the Indian insurance markets. The industry is seeking more liberalization and is working in close consultation with IRDA regarding these. Credibility and brand building: The new private players are trying to build credibility in the face of the long presence of public sector insurers. Customers are therefore exposed to aggressive marketing and brand building strategies by the insurers, which often present a confusing scenario. However, strong campaigns are characteristic of competitive and growing markets and is a positive sign in the context of insurance. Lack of capital: The insurance business, by its very nature, is capital intensive and needs heavy investment in its early days of operations. Due to a cap of 26% on FDI, all the new players with a foreign partner are facing a tough time in raising the muchneeded capital for their survival and business expansion. Obsolete technology: Insurance companies are usually burdened with complex, inflexible and often obsolete legacy IT systems. Besides being expensive to maintain, legacy systems adversely impact business by contributing to: High unit cost of application processing Longer lead time for policy issuance, reporting and claim settlement Loss leakage and poor benefit disbursement Long cycle times and high cost of product introduction Reduction in the business value of modernization initiatives and increase in cost of modernization costs, which can be achieved through better-aligned business and technical architectures Negative effect on integration and interoperability

Role of Information Technology in the Sector
An emerging and demanding consumer group, changing distribution models driven by financial convergence and a stringent regulatory regime require more flexible business processes, high yield business performance as well as greater transparency and accountability. In comparison to other areas in the financial services sector, insurance has been relatively late in adopting technology. But now, insurers have realized that technology can offer a distinctive edge over competition and are using technology to impact areas like: Transaction processing Knowledge management

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Customer management Distribution channel Product design/product re-design to increase share of customer's wallet The insurance companies are relying heavily on technology to reshape their marketing strategies, distribution channels and customer relationships. IT solutions in the sector Data warehousing: Profitability in the insurance industry requires the ability to gauge risks and rewards with a high degree of precision. This dependence on aggregate statistical analysis has led to the establishment of data warehouses by the insurers. In recent years, claims analysis has become the most prevalent and the most successful use of data warehousing in the insurance industry. Companies have accumulated the data regarding claims or losses for past five to seven years. The insured party and incident data are being converted into a rich and detailed analytic resource when combined with the right contextual information. Data warehousing generates the all-important CRM by offering a continuous and more integrated flow of information between field or remote agents and other field or corporate functions. Collection and maintaining competitive coverage data and creating a current, consistent and complete view of customer holdings and activity are possible using data warehouses. Precise geographic analysis of the location of both current and potential customers then allows insurers to place the right number of agents in better proximity to their customers. In fact, a data warehouse can be used in all phases of market identification and penetration and therefore this is a major area of investment for insurance companies. Consequently, storage solutions are also widely deployed. CRM and business intelligence: CRM helps insurers to know their customers better and bring out products and services to best meet their needs. Insurance companies maintain a whole array of sales data through data warehousing and by utilizing the business intelligence tools, they analyze that data to understand the customer requirements. Data is analyzed to understand needs and develop new products, analyze consumption patterns and competitor sales data obtained from Websites, press releases and call centers. There is therefore an increased spending by the insurance companies on solutions such as CRM, data warehousing, knowledge management, and business intelligence. These tools are beginning to form an integral part of the IT infrastructure of the insurance companies and are also a major driver of IT spending by the insurance companies. E-enabling of agents: Insurers are focused on making their agents tech savvy and e-enabled, enabling the micro insurance agents to completely manage their insurance portfolio and provide them with reporting capabilities. Not only does this facilitate information exchange with insurer's systems, it provides the insurers with greater control over their micro insurance practices and allows for closer interaction with their

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agents in online and offline modes. This end-to-end integration enables the insurance agents to connect efficiently with their companies. Next Generation tools: The use of novel technology, like using banks ATMs for premium collection for insurance companies is becoming common. E-insurance and online premium collections are also common now. Web portals dedicated to customers, sales intermediaries, and employees are getting common these days. Premiums are getting collected through online payment gateways over the Internet. An online data store at a central level is being established to make data available to requesting applications for online real-time transactions. This will provide MIS reports and help insurance companies deploy analytical and operational CRM. The next movement is towards the establishment of the payment gateway that works both ways (for payments and receipts), so that the customers can get their payments whenever and wherever they require. A document management system is eliminating the need to reference physical records and is creating the capability of extending anywhere, anytime service to settle claims and other similar activities by using a repository of document images. Though the initiative is largely restricted to few large players only, moving ahead the same can be a norm for all once the payment mechanisms and transactions become secure and safe. Convergence of high-tech devices: With the increased penetration of technology among the Indian masses, traditional distribution channels of insurance are getting converged into the electronic channels. For example, mobile devices are being used as an effective tool for the promotion of policies and companies are tying up with various telecommunication companies to create awareness of insurance companies in India. In the coming times, the focus on the insurance companies will be to converge technological advancement and deliver their products as per the ease and convenience of the customers.

Conclusion
With the opening up of the insurance industry after the reforms, private sector players in collaboration with their foreign partners are bringing more professionalism and a focused approach. Though the insurance industry could play a key role in changing the economic landscape of the country, its success will depend upon meeting the rising expectations of the consumer who will continue to dictate terms in a deregulated insurance sector. Insurers are constantly re-inventing business strategies and deploying technology to support new sales and customer retention measures. Information technology like data warehousing, CRM, MIS, and business intelligence, among others, will continue to play a major role in the evolution of the insurance industry in India; as it has moved from a status of cost-centre to a facilitator.

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THE INDIAN MANUFACTURING SECTOR
Overview of Manufacturing Sector in India
The manufacturing revolution has been well underway in the Indian economy, spurred on by the increasing presence of multinationals, scaling up of operations by the domestic companies and expanding domestic market. The sector has been averaging 9% in the last four years (2004-08), with a record 12.3% in 2006-07. The growth rate of manufacturing sector in a country truly reflects its economic potentiality. Most of the developed countries are strong enough in their manufacturing sector. In India, though the manufacturing sector is growing at a fast pace (8.8%) still it has failed to some extent with regards to its percentage share in the total GDP (which is hovering around 27%). India's manufacturing base, which is the fourth-largest among emerging economies, is among the fastest growing and has seen more investments as a proportion of gross domestic product than any country except China. Consequently, manufacturers from across the world are transforming India, which has all the required skills in process, product, and capital engineering, thanks to its long manufacturing history and highereducation system, into a potential manufacturing powerhouse. India's emergence as a manufacturing hub has, and will continue as multinationals are looking for alternatives to China. A talent shortage is lifting wages in China, which has already led to Chinese goods becoming costlier and reducing its advantages over India. Above that, the West is threatening to impose anti-dumping duties on several Chinese products which has become a matter of worry for multinationals with operations in China. This will be another strong factor that will keep multinational manufacturers interested in India. India's vast domestic market and availability of low-cost workers with advanced technical skills has been instrumental in attracting the ever expanding number of multinationals who are setting up their manufacturing base in the country. The sheer size of the Indian market has obvious appeal. The rapid growth of the Indian economy is likely to make India the fifth largest consumer market in the world by 2025 from twelfth in 2005. Along with this India offers abundant engineering and technical manpower, producing annually about 400,000 graduate engineers. Significantly, the technical workforce is set cross the two million mark this year, with the march from one million to two million happening in just about three years. Indian manufacturers, with the tremendous expertise gained in the domestic market, are spreading their wings to reach out to global markets. Indian corporates have been busy taking aggressive steps through both acquisitions and Greenfield investments abroad. All these initiatives are likely to boost brand India in the global arena. In today’s information age, business environment requires new capabilities in manufacturing organizations for competitive success. To compete successfully in this dynamically changing environment, manufacturing firms need to address several key strategic issues effectively. IT has been fundamentally changing the way the organizations conduct their business and compete in the market place. IT is significantly improving the productivity of the manufacturing sector in the fields of

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supply chain management, collaborative designing and increasing employee productivity. Moving ahead on the back of IT, the manufacturing sector can revamp itself to double digit growth rate and a more than 35% contribution to GDP in the years to come.

INDIAN AUTOMOBILE INDUSTRY: THE IMPERATIVES
Overview of the Sector
Around the world the automotive industry is undergoing a sea-change, and the global market is becoming highly competitive and dynamic. There is an increasing demand for cost and weight reduction, fuel economy and reduction in time to market on one hand, and ever-increasing demands towards assuring improved occupant safety besides the pressure from environmental regulations on the other. The automobile Industry in India is growing at a very high rate with more than one million passenger vehicle sales and 6 million two-wheeler sales per year. More and more foreign manufacturers are coming in, and the companies present are releasing new models. The industry today is fairly well developed and experiencing an unprecedented boom in demand for all types of vehicles. Though there have been concerns in regards the inflationary trends and the rising fuel prices, but the industry is still optimistic on account of Increase in disposable incomes and standard of living of middle-class Indian families. The Indian government’s liberalisation measures such as relaxation of foreign exchange, 100% FDI, reduction of tariffs on imports, and banking liberalisation that has fuelled financing driven purchases. On the business landscape, the automobile industry in India occupies a prominent place. Due to its deep forward and backward linkages with several key segments of the economy, it has a strong multiplier effect and is capable of being the driver of the economic growth. A sound transportation system plays a pivotal role in the country's rapid economic and industrial development as well. The Indian automotive industry ably fulfils this supportive role by producing a wide variety of vehicles, including passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles, scooters, motorcycles, mopeds, three wheelers and tractors. The industry is providing direct and indirect employment to more than 1.31 crore people. The sector accounted for US$ 34,000 million in 2007, growing at more than 10% over 2006. It is forecast to grow to US$ 117,600 million by 2012, growing at a CAGR of 28.2% for 2007-12. The contribution of the automotive industry to GDP has risen from 2.77% in 1993 to 5% in 2007. The industry is also making a contribution of 17% to the indirect taxes for the government of India. The automobile exports grew from 4,850 in 2006 to 5,930 in 2007, thus registering a growth of 22.3%.

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The figure next provides an overview of the segmental overview of the Indian automobile industry for 2006 and 2007.

FIGURE 9
Segmental Overview of Indian Automobile industry, 2006 & 2007

Commercial Vehicles (2.7%) Three Wheelers (3.3%) Passenger Cars (14.0%)

2006

Two Wheelers (80.0%)

n = US$ 30,800 million
Commercial Vehicles (4.7%) Three Wheelers (4.9%) Passenger Cars (14.2%)

2007

Two Wheelers (76.2%)

n = US$ 34,000 million

Source: Industry and IDC India, 2008

Evolution of the Sector
The automotive sector has always been an important driver in the economy. In India its genesis can be traced back to the 1940s, with distinct growth decades starting in the 1970s. Between 1970 and 1984 cars were considered a luxury product;

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manufacturing was licensed, expansion was restricted; there were quantitative restrictions (QR) on imports and a tariff structure designed to restrict the market. Until 1982 only three manufacturers -- Hindustan Motors, Premier Automobiles and Standard Motors -- were present in the automobile sector. However, low volumes resulted in obsolete technologies and the sector being completely misaligned with the world industry. Until that time the Indian car market was dominated by two cars, the Ambassador and the Fiat. This lack of product activity in the Indian market was mainly due to the Indian government's complex regulatory system that effectively banned foreign-owned operations. Though the Fiat and Ambassador were customised to the poor road conditions in India, they were based on a stale design concept (with outdated features), and were also largely fuel inefficient. In 1982, Maruti Udyog Limited (MUL) came up as a government initiative in collaboration with Suzuki of Japan to establish volume production of contemporary models. Economic liberalisation, started in 1991, led to the de-licensing of the passenger car segment in 1993. But the QR on imports continued. This decade witnessed the emergence of Hero Honda as a major player in the two-wheeler segment and Maruti Udyog as the market leader in the passenger car segment. Between 1995 and 2000 several international players entered the market. Advanced technology was introduced to meet competitive pressures, and environmental and safety imperatives became the norm. Automobile companies started investing in service network to support maintenance of on-road vehicles. Auto financing started emerging as an important driver for the demand. Beginning 2000, several landmark policy changes were introduced. Indigenously developed vehicles entered the domestic market and exports were given a thrust. Auto companies started collaboration with financial firms to provide auto financing and insurance services to customers. In 2003, a Core group on Automotive Research and development (CAR) was set up to identify priority areas for automotive R&D in India. Since then almost all the global majors have set up their facilities in India, attracted by the surge in the population with higher purchasing power and strong economic growth. The production of vehicles increased from 2 million in 1991 by more than five-fold in the present. This increasing pull of the Indian market coupled with the near stagnant rate of growth in the markets of the USA, the EU and Japan have worked as a push factor for shifting of new capacities and capital in the auto industry to India. The increasing competition in auto companies has not only resulted in increased choices for Indian consumers at competitive costs, but has also ensured an improvement in productivity by almost 20% a year in auto industry, taking it to one of the highest in the Indian manufacturing sector. The growth curve of Indian auto industry has been on an upswing for the past few years, with India becoming the fastest growing car market in the world in 2004. Table next traces the evolution of the automobile industry in India.

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TABLE 7
Evolution of the Automobile Sector in India, The Then and Now
Before 1980s Manufacturing was licensed 1980s Entry of MUL, better product, with government support Sellers' market Early to mid 1990s Seller’s market and long waiting periods Mid 1990s to 2000 Buyers' market Post 2000 Easy auto finance

High customs duty on import Steep excise duties and sales tax

De-licensing in 1993

Increase in Indigenization Manufacturers diversifying into related activities: finance lease, fleet management, insurance and used car market Entry of international layers

QRs removed

Long waiting periods

Removal of capacity restrictions

Increased choice to customers

2 major players: Premier Automobiles Ltd and Hindustan Motors Cars were a luxury

Decrease in customs and excise

Diversification into financing, insurance business

Auto finance boommore players (foreign banks and nonbanking companies, better schemes.

Focus on safety norms

Improving capacity utilization Increased exports Indigenously designed and developed vehicles 100% FDI allowed through automatic route
Source: Industry and IDC India, 2008

The automotive industry is in the midst of a major structural transformation in today’s globalized scenario. System supply of integrated components and sub-systems is becoming the order of the day, with individual small components being supplied to the system integrators instead of the vehicle manufacturers. In this process, most of the SSI units manufacturing small individual components are on their way to becoming tier-II and tier-III suppliers, while the larger companies, including most MNCs, are being transformed into tier-I companies, which purchase from tier-II and III, and sell to the auto manufacturers. Beyond differentiation on the basis of design and image,

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safety and ergonomics, the individual players are starting to provide end-to-end solutions (from sourcing to retailing) on their own. A greater emphasis is being put on the development of factors that ensure competitiveness on a long-term basis. The sector with its deep backward (metals like steel, aluminum, copper, etc.; plastics; paint; glass; electronics; capital equipment; trucking; warehousing and logistics) and forward (dealership retails, credit and financing, logistics, advertising, repair and maintenance, petroleum products, gas stations, insurance, service parts) linkages has been recognised and identified as a sector with a very high potential to increase the share of manufacturing in GDP, exports and employment. The sector is also seen as a multiplier of industrial growth, helping in attaining two critical goals of the economy: increasing manufacturing output and providing employment. It also indirectly facilitates the third objective of increasing agricultural productivity through farm mechanisation and the needs of agri-produce transportation. In the coming years, industry experts expect the advent of green-field areas such as telematics and embedded systems to result in an integration of customers into the automotive supply chain. The capture of customer life-cycle and vehicle life-cycle is transcending from the realms of imagination to reality with new technological advances. The apt example is the Nano Revolution, which has triggered an era of low-cost cars in the country. It is a revolutionary innovation promising to deliver a car to huge segments of the market hitherto unable to afford one because of high prices. It is the setting in of a period of cars for the masses and the lower strata of the society. Players like Tata, Bajaj and Maruti have already announced their entry plans into the segment with the showcasing of their products being done. The automotive industry continues to evolve and innovate. Supply-side processes have been rationalised and inefficiencies driven out, making the supply chain lean and delivery effective. The Internet has ushered in collaboration and visibility down the chain from component manufacturer to the OEMs. Movements on the demand side are also gaining momentum with most of the players extending their supply chain management initiatives to the customer and dealer side through the initiative of customer relationship management.

Reforms in the Sector
The government of India has identified the automotive sector as a key focus area for improving India’s global competitiveness and achieving high economic growth. This was visible from the fact that the automobile industry was one of the focus areas of 2008-09 budget. It focused on the manufacturing segment of the automotive industry, rather than export and R&D. It also provides a number of excise and custom duty cuts, which would create robust automotive production in India in the future. There was a proposed reduction of excise duties on small cars from 16% to 12%. The three and two-wheeler sector, as well as busses and chassis, and hybrid vehicles were also offered reduction in excise duties. Abolition of licensing in 1991, coupled with some of the positive structural changes like 100% FDI have made India a preferred destination for global automobile giants like Skoda, Daimler Chrysler, Volvo and Toyota.

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Auto Policy 2002 The Indian government’s current Auto Policy, 2002, aims to ‘to establish a globally competitive automotive industry in India and to double its contribution to the economy by 2010’. The policy looks to achieve value addition, make the industry globally competitive and a preferred sourcing destination for auto components. It envisages India as an international hub for manufacturing small, affordable passenger cars and a key centre for manufacturing tractors and two-wheelers in the world. To this end, it looks at opening trade, modernising the industry and facilitating indigenous design, research and development. Additionally, the policy addresses the need for software in automotive technology, the use of alternate energy sources and creating domestic safety and environmental standards at par with international standards. Automotive Mission Plan 2006-16 The development council for automobiles and allied industries has drawn up a tenyear Automotive Mission Plan to make the Indian automotive sector the destination of choice in Asia for the design and manufacture of automobiles and automotive components by 2016. This plan is envisaging to double the sector’s contribution to GDP to 10% and to provide additional employment to 25 million people by 2016 with a road map to attract US$ 40,000 million investment and sectoral output of US$ 145,000 million. The key thrust areas in the plan are Demand creation brand building and infrastructure Competitiveness in manufacturing and technology Export and international business Environment and safety Human resource development Bharat Norms To reduce air pollution, the Automotive Research Association of India has implemented the Bharat Stage emission norms across the country. These are equivalent to the Euro norms. The government has laid out a phased program for introduction these norms in the country by 2010, requiring an investment of US$ 12,220 million by oil and automobile companies in improving fuel quality and vehicular engine specifications. The detailed outlining of the phased implementation of the emission standards is given in next table.

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TABLE 8
Phased Implementation of the Emission Standards' Norms in the Indian Automobile Sector, 2000-2010
Norm Reference Timeframe Cars Two-wheelers Commercial vehicles Introduced nationwide in 2000 Introduced in metros: minimetros, from Sept, 2003

Bharat Norms

Euro I

2000

Introduced nationwide in 2000 Introduced in metros, minimetros, from Sept, 2003

Introduced nationwide in 2000 Introduced from April, 2005

Bharat Stage II

Euro II

NCR and other metros in 2001; NCR, other metros, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and Agra in 2003; Nationwide in 2005 NCR, other metros, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and Agra in 2005; nationwide in 2010 NCR, other metros, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and Agra in 2010

Bharat Stage III

Euro III

Introduced from April, 2005

From April, 2008

Introduced from April, 2005

Bharat Stage IV

Euro IV

From April, 2010

From April, 2010

From April, 2010

Source: Industry and IDC India, 2008

With the changes in the factory designs and in production processes required to adhere to these guidelines, the automobile manufacturers are increasingly looking at the technological solutions that can help them build robust production runs and thus these norms are in a way increasing the spend on technology by the auto manufacturers.

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Players in the Sector
The table next presents an overview of the key players in various sub-segments of the Indian automobile industry.

TABLE 9
Key Players in the Indian Automobile Industry, 2007
Player Ashok Leyland Asian Motor Works Atul Auto Bajaj Auto BMW India Daimler Chrysler India Eicher Motors Electrotherm India Fiat India Force Motors Ford India General Motors India Hero Honda Motors Hindustan Motors Honda Hyundai Motors Kinetic Motor Mahindra & Mahindra Majestic Auto Maruti Suzuki Piaggio LCVs, M&HCVs, Buses M&HCVs Three wheelers Two and Three Wheelers Cars and MUVs Cars LCVs, M&HCVs, Buses Electric Two Wheelers Cars Three Wheelers, MUVs and LCVs Cars and MUVs Cars & MUVs Two Wheelers Cars, MUVs and LCVs Two Wheelers, Cars and MUVs Cars and MUVs Two Wheelers Three Wheelers, Cars, MUVs, LCVs Three Wheelers Cars, MUVs Three Wheelers, LCVs Segments

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TABLE 9
Key Players in the Indian Automobile Industry, 2007
Player Reva Electric Car Co. Royal Enfield Motors Scooters India Skoda Auto India Suzuki Motorcycles Swaraj Mazda Ltd. Tata Motors Tatra Vectra Motors Toyota Kirloskar TVS Motor Co. Volvo India Yamaha Motor India
Source: Industry and IDC India, 2008

Segments Electric Cars Two Wheelers Three Wheelers Cars Two Wheelers LCVs, M&HCVSs, Buses Cars, MUVs, LCVs, M&HCVs, Buses M&HCVs Cars, MUVs Two Wheelers M&HCVs, Buses Two Wheelers

Trends in the Sector
Some of the prominent trends in the Indian automobile sector are: Demographic changes: The growth of Indian middle class with increasing purchasing power along with strong growth of economy over a past few years have attracted the major auto manufacturers to Indian market. Regulatory changes: Liberalisation steps, such as relaxation of foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies, initiated by the government of India, have resulted in a large number of multinational auto companies, especially from Japan, US and Europe entering the Indian market and working in collaboration with Indian firms. Also, the institutionalization of automobile finance has further paved the way to sustain a long-term high growth for the industry. Low urban and rural penetration of the industry: In the highly price-sensitive market, reduction of prices because of lower duties and taxes and progressive indigenisation, are furthering the industry growth rate. Penetration in rural and semi-

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urban areas is extremely low and is providing fresh markets to the auto manufacturers in India. Global footprint: Indian manufacturers are producing automobiles at very competitive costs and are all set to make greater inroads in the global markets in the next two years. The growth rate of exports (22.3% in 2007) against the domestic growth rate of 10% proves the point here. Collaborative designing: In today’s competitive world where time-to-market has reduced significantly, some auto makers have started the collaborative practices in product design and development with their partners, that is, multi-location/multientities real-time product development. Outsourcing: Many global automobile makers are increasingly sourcing parts from India and are also in the process of delegating the important activities like designing and testing to Indian players. The trend is expected to pick up once the Indian manufacturers have developed robust in-house technological capabilities (with the help of ICT solutions) by 2009-10. Supplier base: The growing supplier base and the consolidation in the auto component industry has increased the bargaining power of component suppliers. Manufacturers have also been able to counter that power by diversifying downwards to source the materials from their own sources. This has helped in maintaining the balance of the automobile industry and the changes have only made the two segments more competitive rather than at horns with each other. Integration: More and more manufacturers are concentrating their efforts for the integration of their back-end systems (supply chain management), front-end (customer relationship management) and workflow management (integrating the back-end and the front-end systems). Automotive servicing: Automotive servicing, until recently a captive revenue stream, is being challenged by big names with deep pockets and long-term missions to make their ventures a success. Used-vehicle business: The segment of used vehicles is gaining popularity in the Indian automobile landscape. The growth in the segment is expected to come from the rural and semi-urban customers with the growing awareness, rising incomes and development of the buying power and willingness. Distribution channels: Newer and modernised channels of delivery are emerging with the advent of IT in the sector. Customers can obtain complete information about the vehicles on the Internet before making an actual visit to the showrooms. Cost efficiency and quality due to global competition: Most of the global majors are present in the passenger vehicle and two wheeler segments. In the components industry too, global players are well established, competing with domestic players. Increase in competition has led to a pressure on margins, and players have become increasingly cost efficient. Quality levels have gone up, and there is an increasing focus on compliance to TPM, TQM and Six Sigma processes.

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Mergers and acquisitions: Mergers and acquisitions are being done in the industry to synergise expertise in the areas of manufacturing, overseas markets and new technology. Anti-theft solutions: With the increased incidence of thefts of vehicles in the Indian scenario, manufacturers are increasingly coming up with anti-theft solutions attached with the vehicles that can track vehicles and identify the location of the stolen vehicles. Though the industry is still in the piloting and developmental phase, hi-tech solutions will find increased usage in the industry in the next 3-4 years, especially with the aid of technology like RFID. In sum, the automotive industry is growing rapidly and the landscape is changing fast. The relationships between vehicle manufacturers and dealers are getting strengthened to maintain an unwavering focus on total customer satisfaction and business profitability.

Factors favouring the growth of the sector in India
Low manufacturing costs combined with a robust and growing vendor base for components, experts believe that India could emerge as a global hub, at least for small cars (with the Nano Revolution). India auto industry possesses unique advantages luring the global players to India. These are: Domestic market: A rapidly growing domestic market, encouraged by 9%-plus GDP growth and rising incomes across its 250-million-strong middle class with a higher consumption index offers a huge growth opportunity for the automobile sector in India. Availability of skilled manpower with engineering and design capabilities: India has a growing workforce that is English-speaking, highly skilled and trained in designing and machining skills required by the automotive and engineering industries. In a combined assessment of manpower availability and capabilities, India ranks much ahead of other competing economies. Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design and research and development to their Indian arms. Strong ancillary industry: India’s strong base of auto ancillary manufacturers significantly increases its appeal as an investment destination for global car manufactures. The Indian auto industry is on the radar of all the major manufacturers around the globe who are looking to venture overseas. Sustaining the growth rate: The car penetration in India is only 9 cars per 1,000 persons despite the increase in purchasing power at the top echelon of about 300 million people in the country, implies that passenger car growth in the domestic market is on the verge of a major and sustained boom. It is expected that the passenger car market can easily cross the 3 million mark by 2015. Low manufacturing costs: Indian manufacturing costs are around 15-20% less than that in any other auto industry in the world, mainly due to cheaper and abundant

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labor. Higher profitability is attracting major global auto manufacturers, who are looking to establish their production capabilities in India in the next 2-3 years.

Challenges in the Sector
Lack of clearly defined automotive segments: Today, all segments are served in the same way from the same factories with the same processes and sold through the same types of dealerships. The automotive industry needs to custom tailor the whole supply chain from source through the production process to the distribution system. Recent increase in interest rates: Inflation in the India economy has forced banks to raise the interest rates on car loans. Inflation coupled with the interest rate hike has crunched the resources of the people affecting the automobile sales negatively. Need for innovation: Innovation needs to be on high focus to meet the competition head on. Shortening of product life-cycles further underlines the need to innovate by the auto manufacturers in India. Modularity to enhance customers’ choice: With space frame technology, modularity could be a means to provide greater customization with exchangeability of dashboards, seats, interiors, in-car electronics and other features made possible. Though the manufacturers have not yet looked upon this opportunity, but with the competition getting tough, it could very well be on their cards in next two years. Managing human resources: Current projections indicate that there will be a shortage of well-qualified personnel to enable the aspirationalgrowth to be achieved. The biggest challenge for the auto companies would be to recruit and retain the most talented pool available in the country. Need for mergers and acquisitions: There is a need for OEMs and component manufacturers to look at alternative strategies for growth. Acquisitions and alliances should become an important part of the growth strategy of companies as they seek to acquire global scale. Technology needs: Technology will continue to drive the growth and development of the automotive industry. Huge investments in technology may not be viable for the small and medium sized companies. Technology and solution providers need to provide cost competitive offerings. Pressure on margins: Overcapacity and the proliferation of new products are keeping purchase prices low, leading to average returns on sales for auto manufacturers, who need to look for innovative ways to increase their margins. Oil prices and energy security: Oil prices are rising and appear increasingly volatile. The rising prices of the fuels have restricted the sales of the vehicles in India. The family led purchasing is highly effected by the rising prices of crude oil and is becoming a big worry for the auto manufacturers in India.

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Rising input costs: Rising prices of the various components used in vehicle manufacturing are pushing up manufacturing cot and eating up margins of all the vendors in India. These pressures are coming from two spaces, one from the rising prices of the various components used in vehicle manufacturing and second the rising prices of inputs used for the manufacturing of auto components. This double impact has hit the automobile manufacturers hard and has further squeezed their margins. Growing competition: These days the experts are very positively discussing the attractiveness of the Indian automobile industry to the global manufacturers. But one important aspect that is getting lost is that it means increased competition for the domestic manufacturers. The global players have latest technology at their disposal, which makes their position very strong but hits the domestic manufacturers very hard. To match with the global players they need to invest heavily in the technological applications. New regulations: Changing rules in accounting standards, government regulations, e.g., Block Exemption Reform, Euro norms, CO2 regulations and others calls for constant investment in manufacturing processes and technology and in some cases, even to the extent of complete overhauling of the operations, capabilities and processes. Underutilisation of capacity: In achieving economies of scale in the development of platforms to be utilised in multiple markets around the world, automakers are often unable to exploit their capacities to the full. Managing supplier base: Automobile manufacturers are faced with the challenge of bargaining against the collaborative power of the suppliers. Manufacturing practices will have to change considerably to come closer to lean production. Automobile manufacturers also need to form collaborations to increase their bargaining power vis-à-vis the suppliers. R&D: The industry is moving towards an assembly driven, modular development of components and suppliers will need to invest in research and development to develop innovative products. Globalise proactively: As automakers move away from the mature Western markets towards emerging markets in Asia and Eastern Europe, suppliers need to do the same. Successful suppliers will establish presence in these countries before their automaker clients move there. Adoption of robust and scalable processes would be a key prerequisite towards effectively expanding the global footprint. Poor product quality: Indian suppliers also lag behind in product quality and consistency. The rejection rates for parts in Japan are well below 100 parts per million (ppm). Comparatively, rates for Indian OEMs’ average at 2,000-8,000 ppm. Thus to rise on the global arena, the Indian vehicles need to make a mark for themselves on account of quality and credibility.

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Role of Information Technology in the Sector
Automotive executives worldwide view IT as a key contributor to their business success. To address several challenges and differentiate their brand, auto manufacturers are looking to invest in technologies related to safety and convenience features like telematics or location based emergency, navigational and information service, and in auto styling technology for brand differentiation. Indian automobile companies are moving their focus on the deployment of ERP and building up the internal infrastructure, to automation of supply chain and customer relationship management. They are also working closely with dealers to build their (dealers) infrastructure under the initiative known as dealer management software. The upcoming technologies in the automotive sector, which could be seen as having a major impact, are RFID, business intelligence and knowledge management. Another area that may see major deployment of technology is security. Having so much of confidential data and being vulnerable to so many attacks, companies are being forced to adopt security features in their technological deployments. IT infrastructure is also being used to increase business transparency. International norms in corporate governance are adopted through the better use of IT infrastructure. Here again, accurate and up-to-date information is the key. Businesses are modifying and restructuring their IT infrastructure to capture and consolidate information across their operations. IT has also influenced other areas like customer services, vehicle health tracking and vehicle positioning as well as vehicle financing and aggregate reconditioning business. IT solutions in the sector Supply chain management: The expectation from the IT infrastructure is to accurately assess demand and adjust the supply chain accordingly. Therefore, traditional SCM has evolved into DDSN (Demand Driven Supply Network). The biggest factor in a successful DDSN implementation is accurate and high quality information about customers, about the market and the business. In order to meet the changing customer needs in a competitive landscape, most of the major auto manufacturers are making an integrated effort in collaborative product design and development, engineering and manufacturing with the other supply chain entities. Inventory management: With the advent of concepts like just-in-time delivery, it has become essential for auto manufacturers to invest in solutions that help them in better tracking of their inventory lying at the warehouses and at the dealers. Warehousing solutions are also finding use in the industry as support for inventory management solution. Security solutions: Manufacturers have substantial plans and budgets marked for the implementation of security solutions and are expected to spend heavily on these in the coming years. The increasing databases and the need for 100% uptime of the manufacturing processes is driving the security needs.

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Product development/designs: With the advent of CAD/CAM technologies, IT has completely replaced the manual designing of the product. Today all the designing activities are carried on systems and thus the quality of the designs has also improved substantially. Consolidating standalone applications: The automotive industry has traditionally used heterogeneous IT landscapes. In addition to a variety of proprietary applications, OEMs employ a wide variety of operating systems, databases, and hardware. Mergers and acquisitions driven by industry consolidation have increased the complexity of the IT landscape for companies as they generally have stand-alone, legacy and disparate systems. Thus the efforts of the auto manufacturers are also being directed towards the integration of these applications and stand-alone systems. Though the large sized companies have already achieved a high degree of success in integrating their systems, the small and medium sized ones are still in the final stages of the same. IT-enabled integration between suppliers and OEMs: The global supply chain environment in the automotive industry is fragmented and complex; most supply chain partners share no common IT systems or file standards. However, as responsibility for vehicle value shifts to suppliers, the contact points between suppliers and OEMs become more important than ever and the need for integration and collaboration grows. To maintain a competitive advantage, companies are creating an environment that coordinates and shares information between suppliers and OEMs through the use of ICT platforms. RFID: Information sharing between suppliers and retailers based on Radio Frequency Identification/Electronic Product Code (RFID/EPC) technology introduces significant cost and time efficiencies in the execution of critical programs. The Indian automobile sector is very keenly looking at the RFID technology for keeping a track of their products and capturing the consumption pattern of the consumers, but due to the lack of expertise and high cots of the RFID tags, the manufacturers are still in the pilot phase to test the applicability of the same. Customer relationship management: From a sales perspective, extending the customer relationship management (CRM) systems to have common data about customers and the offering of a Web-based end-to-end lead management system helps in presenting and customising vehicles. CRM tools also promote and generate new interest, opportunities and sales with potentially higher margins. Automobile manufacturing companies are now in the process of extending their supply chain management initiatives to their dealers and the end customers. Product life cycle management: Among product development challenges, the need for shorter cycle times is always a priority. Management always intends to launch new models faster, and reduce the time required for minor changes and development of product variants. Other challenges include streamlining the process of vehicle localisation and enhancing quality and reliability. These challenges point directly to a product life cycle management (PLM) solution with capabilities for information management, process management, knowledge capture and support for global collaboration. PLM’s information management capabilities address the issue of the many platforms, local variants and export destinations. It permits concurrent

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development and faster change management and provides a platform for other process improvements for faster vehicle development. Knowledge capture increases innovation and also reduces costs by increasing part re-use. Workflow management: Workflow management involves integration of the back-end and front-end systems, and the integration of the collaborated system with the supply chain management. Even large firms are still in the proces of implementing these solutions, and are spending around 10% of their IT budgets on it. But the small and medium sized companies are around 15% of their total IT spend on such initiaitives. Outsourcing: The industry is also seeing increased efforts being made by many OEMs and tier-I vendors to outsource key activities along the supply chain to logistics players, in an effort to reduce costs and increase focus on their customers and core activities. Most OEMs and large tier-I suppliers have already outsourced their outbound logistics activities, including carrying out the collection and delivery of parts to OEMs on a daily basis, transferring materials across hubs and warehousing/inventory management. Key logistics players have started maintaining warehouses in close proximity to OEMs’ plants, and supplying materials on a JIT basis. High-performance computing: High-performance computing (HPC) is crucial for the automotive industry. It is employed in mechanical computer-aided design and computer-aided engineering to test structural integrity, airflow motions of components and systems and simulated crash testing. HPC is poised for an evolutionary development that will help drive accelerated speed to market, significant cost reductions and tremendous new flexibility. With the help of desk-side highperformance computing, the auto industry is playing a greater role in development of alternative fuels, which previously were largely in the purview of oil, gas and chemical companies. Just-in-time delivery: Costs, quality and timely delivery continue to be key concerns for auto manufacturers, driven by increasing competition and pressure on margins. Many OEMs have implemented Just-in-time (JIT) supplies in their inbound logistics. However, in cases where this is not accompanied by increased visibility across the supply chain and improved planning, it has only resulted in the burden of inventory getting shifted from OEMs to their tier-I vendors. Thus, manufacturers are in the process of upgrading their JIT solutions and are actively loking at better alternatives to integrte with their supply chains. Business continuity: Whether nurturing existing customers or pursuing new ones, manufacturers face ever-escalating customer demands and expectations with no room for downtime. The business continuity plan of a company needs to mitigate downtime from unanticipated growth, benchmark the business continuity strategies against competitors in the industry, reduce risk with effective recovery strategies and plans, and dynamically respond to planned and unplanned service disruptions by having a set of best practices in place to keep the business operational. The concept of online availability of the information has made it necessary for the manufacturers to ensure 100% uptime because of loss of even an hour of production can cause serious loss to the company. Thus they are looking to build robust applications and

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environment by investing into such solutions, which ensure 100% uptime and business continuity. Business intelligence (BI): BI helps in identifying the demand potential and seasonal changes that can affect sales. Technologies such as data warehousing/mining come into play here. Although, at present only a small proportion of the IT spending by auto companies is directed towards it, but in the light of changing customer expectations and increasing volatility in the demand, the use of BI is bound to increase in the sector in the next 2-3 years.

Conclusion
India, with its rapidly growing middle class, market-oriented stable economy, availability of trained manpower at competitive cost, fairly well-developed credit and financing facilities, and local availability of almost all the raw materials at a competitive cost, has offered itself as a favourite destination for investment to the auto makers. India is also emerging as an outsourcing hub for global majors. The outlook for India’s automotive sector is highly promising. In view of current growth trends and prospect of continuous economic growth of over 8-9%, all segments of the auto industry are likely to see continued growth. Large infrastructure development projects in-progress in India, coupled with favourable government policies will also drive automotive growth in the next few years. Easy availability of finance and moderate cost of financing facilitated by double-income families will drive sales in the next few years. In this context, IT will continue to play a major role in helping the automobile industry to achieve its true potential.

INDIAN TEXTILE INDUSTRY: THE IMPERATIVES
Overview of the Sector
In India, textile is an important sector that generates employment, contributes to industrial output and to export earnings. Currently, it contributes about 14% to industrial production, 4.9% to the GDP, and 19% to the country's export earnings. It provides direct employment to over 35 million people. The growth and all round development of this industry directly impact the economics of the nation. The Indian textile industry is worth US$ 49,000 million in 2007-08 (growing from US$ 40,000 million in 2006-07), spurred by the domestic market worth US$ 30,000 million (from US$ 24,000 million) and exports worth US$ 19,000 million (from US$ 15,000 million). Though the Indian textiles industry is at the crossroads today, with the phasing out of quota regime on January 1, 2005 and the full integration of the textiles sector in the WTO, the industry is for a big boom for 2007-2012. It is forecasted to grow at a CAGR of 17.5% for 2007-2012 to reach US$ 110,000 million by 2012 (US$ 60,000 million of domestic market and US$ 50,000 million worth of exports). The Indian textiles industry comprises of varied components, including the hand-spun and hand-woven sector as well as the capital intensive, sophisticated mill sector at

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the other. The decentralized power-looms/hosiery and knitting sectors form the largest section of the textiles sector. The textile sector is self-reliant industry, from the production of raw materials to the delivery of finished products and offers substantial value-addition at each stage of processing. India has a natural competitive advantage due to a strong and large multi-fiber base, abundant cheap skilled labor and presence across the entire value chain of the industry ranging from spinning, weaving, and made-ups to manufacturers of garments. India has 22% of the global installed capacity of spindles and is one of the largest exporters of yarns in the international market. The industry contributes about 25% share in the world trade of cotton yarn. Indian textile has the highest loomage (including handlooms) in the world and contributes about 61% to the world loomage. The major sectors forming part of the textile industry are the organized cotton/manmade fiber textile mill industry, man-made fiber/filament yarn industry, the decentralized powerloom sector woolen textile industry, silk industry, handloom industry, handicraft industry, jute industry and textile exports.

Evolution of the sector
India has a long and rich tradition of producing woven cottons of noteworthy quality, one it was able to maintain during the reigns of Mughals and British as well. Though the last sixty years saw some lows, the last decade has seen the convergence in efforts of industry, government and market forces to improve the sector domestically and in the global market. The government has taken up the role of an industry-friendly and pro-active facilitator identifying the fact that the textile industry has the potential to become a producer and exporter of textiles, as it is one of the few industries that is self-sufficient in terms of the supply chain. The emergence of large retail formats is today complementing the existing channels of distribution, which consist of wholesalers, distributors and retailers. Raw material sectors, ginning facilities, spinning and extrusion processes, processing sector, weaving and knitting factories and garment (and other stitched and non-stitched) manufacturing are all part of the supply chain. Agents who secure orders for producers have a strong presence. Exports are executed through export houses or procurement/commissioning offices of large global apparel retailers. The textile industry in our country is one of the few industries in the country that has the potential to emerge as a true global player. Today the world is looking up to the Indian textile industry to deliver its goods using technologies used and developed elsewhere be it the USA or Japan or Hong Kong. India has an untapped potential to become a producer as well as exporter of textiles.

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Reforms in the Sector
The policy framework for textiles industry in India is positive and forward-looking. Before the 1990s, policies were focused on traditional concepts and driven by the need to protect Indian players in the global market and the need to develop the smallscale sector. Cotton textiles were given the maximum importance and small-scale powerlooms were given favourable fiscal treatment over composite mills. Automatic looms were restricted. But in the 1990s, the government decided to focus on opening up of the industry for foreign players and on achieving the economies of scale. Many segments like readymade garments, knitwear and hosiery were taken off the reserved list for smallscale industries. Schemes to upgrade technology and modernize mills were introduced. Multi-fiber, manmade and synthetic fibers were also stressed on in addition to cotton. Taxation was made simpler and FDI encouraged in infrastructure, technology, exports and generation of employment and local assets. Government bodies related to the industry Primarily, the Ministry of textiles is responsible for policy formulation, planning, development, export promotion and trade regulation of the textile sector. A number of advisory bodies; Cotton Advisory Board, Jute Advisory Board, Development Council for Textile Industry, Co-ordination Council for Textile Research Associations, All India Handloom Board, All India Handicrafts Board, All India Powerloom Board, Co-ordination Committee of Textiles Export Promotion Council are attached to the Ministry. Also, statutory bodies like the Jute Manufacturers Development Council, Central Silk Board and Textiles Committee take up specific aspects of policy making and implementation. Public sector undertakings like National Textile Corporation Ltd. (NTC), British India Corporation Ltd. (BIC), Cotton Corporation Of India Ltd. (CCI), Jute Corporation of India Ltd. (JCI), Handicrafts and Handlooms Export Corporation (HHEC), Central Cottage Industries Corporation (CCIC) and National Handloom Development Corporation (NHDC) play a major role in the manufacturing and promotion of textiles in the country. Offices of the Development Commissioner for Handlooms, Development Commissioner for Handicrafts, Textile Commissioner and Jute Commissioner implement the various policies in specific segments. Textiles research associations that render research and consultancy services have also been set up by the government all across the country. These are the Ahmedabad Textile Industry Research Association (ATIRA), Bombay Textile Research Association (BTRA), South India Textile Research Association (SITRA), Northern India Textile Research Association (NITRA), The Synthetic and Art Silk Mills Research Association (SASMIRA), Man-made Textile Research Association

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(MANTRA), Indian Jute Industry's Research Association (IJIRA) and Wool Research Association (WRA). The Central Wool Development Board, National Institute of Fashion Technology, National Centre for Jute Diversification (NCJD), and Sardar Vallabhbhai Patel Institute of Textile Management are autonomous bodies set up to support the industry. Similarly, export promotion councils for handloom, apparel, sotton textiles, synthetic and rayon, silk, wool and woollen, carpets, handicrafts and powerlooms have lso been running. Government policies for the sector At the outset the textile policies were drawn to provide employment and promote small-scale units in the sector; but after 1995 policies have been designed to encourage investments in modern weaving machinery. The removal of the SSI reservation for woven apparel in 2000 and knitted apparel in 2005 were significant decisions in promoting setting up of large-scale firms. Government schemes such as Apparel Parks for Exports (APE) and the Textile Centers Infrastructure Development Scheme (TCIDS) now provide incentives for establishing manufacturing units in apparel export zones. National Textile Policy 2000: The government formulated a National Textile Policy (NTP) 2000 with the objective of facilitating the industry to attain and sustain a preeminent global standing in the manufacture and export of clothing. A venture capital fund was set up for tapping knowledge-based entrepreneurs and assisting the private sector to set up specialized financial arrangements to fund the diverse needs of the textile industry. In addition to helping the textile industry reach global standards, the policy aims to equip the industry to tolerate import penetration pressures while keeping the dominant position. The policy also intended to liberalize controls and regulations, build conformity to environmental standards and encourage FDI and R&D in the sector. On the manufacturing front, the policy looked at building a strong multifiber base and focused on product upgradation and diversification, while strengthening traditional knowledge and skills. National Jute Policy 2005: The government has announced comprehensive National Jute Policy 2005 with a view to develop a strong and vibrant jute sector. Efforts were directed at reviving the jute economy through research and development, technology upgradation, creation of infrastructure for storage and marketing of raw jute and product and marketing development activities for jute and diversified jute products. The objective is to produce quality fiber for the textile industry while offering remunerative prices to jute farmers. Increased FDI and expansion of productive employment are other goals. FDI Policy: Several international brands are now operating in India after liberalization of policy. At present, 100% FDI is freely allowed in spinning, weaving, processing, garments and knitting sector under the automatic route for both new ventures and existing companies except in cases where industrial license is required on account of location of such units falling in a restricted area. In respect of such proposals, government approval is required.

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Export Promotion Measures Technology Upgradation Fund Scheme: The Technology Upgradation Fund Scheme that aids modernizing and technology enhancement is under way and th will continue into the 11 5-year Plan. The scheme provides for 5% interest reimbursement on loans availed from the concerned Financial Institutions (FIs) for investments in benchmarked technology for the sectors of the Indian textile industries. Power loom units are entitled to 20% capital subsidy under Credit Linked Capital Subsidy (CLCS-TUFS) up to a cost of US$ 0.25 million (Rs 1 crore) in eligible machinery with facility to obtain credit from a credit network that includes all co-operative banks and other non banking financial companies (NBFC) recognized by the Reserve Bank of India. The Export Promotion Capital Goods Scheme (EPCG) has reduced import duty on 387 textile machinery items to 5%. Duty Exemption Pass Book (DEPB) Scheme: DEPB credit rates have been prescribed for number of textiles and clothing products. The nomenclature and rates for DEPB entries pertaining to certain textile products have been rationalized. Duty Drawback Scheme: To reduce the burden of indirect taxes, exporters are allowed refund of the excise and import duty suffered on raw materials, etc. Construction of Apparel international Mart: The Apparel Export Promotion Council has constructed an Apparel International Mart (AIM) at Gurgaon with assistance from central government. The mart house is given on lease and license basis to the established garment exporters in India as a facility to showcase their products serve as one stop shop for reputed international buyers. Apparel Park for Exports Scheme: This is a centrally sponsored scheme to boost exports. Twelve Project Proposals have been sanctioned for setting up Apparel Parks at Tronica City and Kanpur (Uttar Pradesh), Surat (Gujarat), Thiruvananthapuram (Kerala), Visakhapatnam (Andhra Pradesh), Ludhiana (Punjab), Bangalore (Karnataka), Tirupur and Kanchipuram (Tamil Nadu), SEZ, Indore (Madhya Pradesh), Mahal (Jaipur, Rajasthan) and Butibori-Nagpur (Maharashtra). Promotion of Khadi: Khadi or khaddar, a fabric associated with the Indian freedom movement and worn largely by politicians, is today reincarnated as a fashionable fabric, patronized by the elite. Besides khadi cotton, which has a coarse texture and feel, there are now several varieties of khadi available, like khadi silk and khadi wool. The Khadi and Village Industries Commission is the Indian government body that promotes the use of khadi and it is sold through the outlets of Khadi Gramodyog all over the country. Khadi has gained worldwide appreciation as it is hand-made, durable, long-lasting and organic in nature.

Players in the Sector
The Indian textile industry is mostly unorganized, comprising small-medium enterprises (SMEs). The organized sector comprises just over 10% of the industry.

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SMEs are emerging s strong players due to enhanced operations and processes. The industry comprises mainly of small-scale, non-integrated spinning, weaving, finishing and apparel-making enterprises. There are over 1500 organized spinning units of significant scale and over 1000 small spinning mills. The key players in the sector are listed in the table next.

TABLE 10
Key Players in the Indian Textile Industry
Player Arvind Mills Raymonds Reliance Vardhman Spinning Welspun India Century Textiles Morarjee Mills Indo Rama GTN Textiles Ginni Filaments Ltd LNJ Bhilwara Group Mafatlal Textiles Modern Group KG Denim Sanghi Polyesters Ltd Nova Petrochemicals Bombay Dyeing Ltd Rajasthan Petro Synthetics Garware Polyester National Rayon Corporation Indian Rayon Diversified Diversified Man-made Fiber Composite Manufactures Terry Towels Composite Mill, Cotton & Man-made Fully Integrated Composite Mill Cotton and Man-made Cotton Yarn and Knit Fabrics Yarn and Fabric Diversified Fully Integrated Composite Mill Diversified Fabrics Man-made Fiber Man-made Fiber Composite Diversified Diversified Man-made Fiber Man-made Fiber Business

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TABLE 10
Key Players in the Indian Textile Industry
Player Alok Textiles Sharda Textile Mills Gokuldas Images Hanil Era Textiles Oswal Knit India Niryat Sam Apparels Filaments India Ltd
Source: Industry and IDC India, 2008

Business Cotton and Man-made Fiber Textiles Man-made Fiber Diversified Yarn, Cotton & Man-made Fiber Woolen Wear Apparel Manmade Textiles

Trends in the Sector
Industry in transformation: While the structure of the industry is predominantly small-scale and unorganized; the de-reservation and the removal of quotas has led to the growth of vertically integrated, large-scale units as well. India is now well positioned to address the in complex, customized designs, and also in low cost mass production. Mass customization will be a key differentiator for the industry in the coming times. Outsourcing from US and Europe: Lower costs of production in India offers foreign players an advantage and they can post healthy dividends to their investors. Companies from US and Europe are looking to set up their manufacturing units in India. This is bringing increased capital investment into the country and the industry is also getting exposed to the modern techniques. Removal of Quotas: The Multi-Fiber Agreement (MFA), which governed international trade in textiles and clothing since 1974 enabled developed nations, mainly the USA, European Union and Canada, to restrict imports from the developing countries through a system of quotas, was abolished in 2005 under the WTO guidelines. The Agreement on Textiles and Clothing (ATC) to abolish the MFA quotas marked a significant turnaround in the global textile trade. The ATC mandated the progressive phase out of import quotas established under MFA and the integration of textiles and clothing into multilateral trading system. From January 1, 2005 when quota-based restrictions for textile exports to the United States and European nations were lifted, and with the Indian government permitting 100% FDI through automatic route, India textiles have entered a new era. During the three years 2004-05 to 2006-07, investments in the textile sector has increased from

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US$ 2,940 million to US$ 7,850 million. The total investments in the textiles sector were estimated to be US$ 16,320 million during this period. By 2012, investment in the textiles and clothing industry is estimated to touch US$ 38,140 million. Even the Government has increased the plan allocation for textiles by 66.27%t in 2007-08 over that of 2006-07, making it one of the few ministries that have seen such a high level of increase in budgetary support. Exposure to competition: Indian manufacturers and exporters now have to compete with the global players and face emerging tariff and non-tariff barriers. Indian textile industry is gaining expertise to enable them to handle all stages of the production chain, from growing natural fibers to producing finished clothing. Growth of technical textiles: Technical textiles are materials and products that are manufactured primarily for their technical and performance properties. Advances in polymers, fibers, yarns, chemical technology and fabric/web forming technologies have spearheaded their use in sectors such as protective clothing, medical devices and health care products, automotive components, building material, geo-textiles, agricultural devices, sport and leisurewear, filter media and environmental protection. As per estimates, the non-woven industry is going to be worth over US$ 43,986 million by 2012 from the current size of US$ 8,000 million. Orientation towards new markets: Good infrastructure, skilled workforce and strong growth potential have made Central and Eastern Europe attractive to manufacturers in the wake of EU enlargement. Rising demand for value added products: Consumers want value-addition and styling in textile products. Manufacturers are therefore investing in processes and systems to meet this demand. A renewed interest in traditional Indian textile products like handicrafts is another factor that has spurred the Indian textile industry in the recent times. Retail boom spurs growth: With growing number of malls, many brands and private labels are now present in the Indian market. The retail boom is expected to reduce production costs and give a thrust to the decentralized textile industry. The apparel category will benefit the most, with ready-mades and western outfits seeing maximum growth in the shelf sales. Increased infrastructure: Apparel parks and special economic zones specially dedicated to textile manufacturing are coming up with the active involvement of state governments, financial institutions and the private sector. An increased provision of US$ 272 million (Rs 10900 million) in 2008-09 budget, as opposed to US$ 227 million (Rs 9110 million) the previous year textile parks is also encouraging for the sector. Mergers and acquisitions: Joint ventures and strategic alliances with leading world manufacturers are becoming a norm of the Indian textile industry to the benefit of consumers, as these companies combine the labor and material advantages of Indian textile with the technology from foreign players to create competitive products.

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An emerging textile hub: With many buyers visiting India, the country is emerging as a hub rather than a sourcing destination only. Indian textile companies are planning to expand capacity and strengthen their retail presence in India to tap the huge potential of both export and domestic market. Expatriate and western designers (from France, Italy, UK) are forming joint ventures with Indian designers to cater to the domestic and export markets. Intelligent / smart clothing: The international trend of smart clothing is catching on in India. Odor control, ultraviolet protection and fabrics that adapt to external temperature are some of the specific requirements being met. Also due to the rapid technological advancements in the international apparel industry, the evolution of smart clothing has taken place that goes beyond mere wearer comfort to total protection under any environment.

Factors favoring the growth of the sctor in India
Lower costs: With lower raw material costs and labor costs as compared to other countries, India is a profitable outsourcing hub for global textile brands. For long there textile industry has been a source of employment for masses in India. It is one of the most traditional forms of employment for the rural, semi-urban and family driven businesses. Getting into the textile business used to be quite a popular option earlier, which has undoubtedly built Indian capacity in textile production. Not only that, since most of the labor available in the industry is from the rural and semi-urban areas, the rates at which labor is available in India is highly competitive with those of other countries. Raw material stronghold: India produces over 3 million tons of cotton, and it is a dominant fabric used in 60% of textiles. The woollen industry employs over 1.2 million people and keeps over 7000 powerlooms busy. India is the second largest producer of silk in the world, contributing about 18% to global production. Jute provides direct employment to 260,000 industrial workers and nearly 1 million hectares of land is under jute cultivation. Thus all the segments of textile industry are equally explored in India and presents huge opportunity for any player in the sector. Changing marketing and distribution strategies: Changing demographics and increasing disposable income has created openings for apparel and textile in malls and large retail formats. This means better visibility, growth opportunities and profits for the textile manufacturers in India, presenting them with new avenues for their product display and sales. Manufacturing flexibility: As the industry is fragmented and functions on different scales, Indian firms can handle small-runs, work on complex designs and handle variety of materials, which is not possible in a highly industrialized country. The flexibility offered by India’s textile industry is a significant advantage for the fashion industry, which typically demands small lots of complex designs. India also offers flexibility in its ability to handle different materials such as cotton, wool, silk and jute, with equal skill. These advantages also enable the Indian industry to produce high value customized apparel that is increasingly finding demand in several exports markets.

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Lower lead times: India is one of the few developing countries today with a fully developed textile value chain extending from fiber to fabric to garment exports. The presence of capabilities across the entire value chain within the country is an advantage as it reduces the lead-time for production and cuts down the intermediate shipping time. Indian textile firms have leveraged this advantage to integrate their operations, both forward and backward. Textile machinery: The Indian textile engineering industry is highly robust and produces sophisticated machines, enabling Indian textile manufacturers to be competitive with quality designs in the world. Training expertise: Institutions like NIFT, Apparel Training Institutes, Indian Institutes of Technology, National Institutes of Technology and other colleges offer courses in textile engineering and textile development, i.e. design, sourcing, merchandising and production. Thus, India has the infrastructure in place to produce qualified and skilled manpower in areas of textile design and engineering Indian firms have leveraged this strength to develop a competitive advantage; the ability to contribute to the design, not only in preparing samples and prototypes, but also in translating concepts into varieties of finished designs, as well as introducing designs of their own. Modernization: Government policies have encouraged modernization of production processes, especially in readymade garments, resulting in market diversification and better price realization. The industry is now well equipped to combat the tides of changes that take place continuously in the fashion world. There indeed has occurred a vast improvement in the latest technologies and systems adopted in the Indian garments industry. Modernization is expected to help both in the product as well as the market diversification and better price realization for various categories of garments. All this is very different from the situation prevailed some years ago when the industry, with its large base of low wage workers, had little incentive to adopt the impressive technological breakthroughs that cut lead times, improve productivity and reduce labor requirements. Even modern cutting and sewing machines that could speed production and improve garment quality were not widely used. Today, a majority of units are employing imported machinery.

Challenges in the Sector
Volatile prices and export margins: Crude oil prices are volatile, affecting raw material prices for textiles. Also, a stronger rupee has meant lower profit margins for the exporters. All this is leading to closure of the mills run on low margins and is forcing the players to look for certain different avenues of profit. Semi-skilled workers: About 95% of the textile workers in India are unskilled, leading to low productivity. Also the low investment being made in their training multiplies the problem of low skill set among the Indian textile workers. Poor infrastructure: Poor quality and availability of infrastructure, high tax rates, high interest rates, delays at ports, high shipping tariffs, and power shortage, are some of the problems the textile industry faces. These not only hampers the

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production and distribution process but also increases the price of Indian textiles making them a tough buy against the international products. Scale: As most manufacturing units are small in scale, they are unable to get orders where capacity is needed. With the ambitious targets for Indian textile industry, larger firms to produce standard products in large volumes are needed. Lack of market information: Units catering to the domestic market find it difficult to effectively market their products due to lack of current information on demand. Similarly, exporters do not get information on market conditions in the foreign countries because of which they are not able to rightly judge the market sentiments there and accord as per the market demands. Fragmentation: A large number of small-scale units spread across the country impacts productivity and makes logistics tough. An uneven supply base inhibits integration between the links in supply chain resulting in unreliable and inconsistent performance and deliveries. Lack of innovation and technology drive: The Indian textile industry needs to enter newer application domains of industrial textiles, nano-textiles, home furnishings etc for the forecasted growth. The Technology Upgradation Fund of the government is being used to stimulate investment in new processes, but it has been a slow process. The industry is also suffering because of very slow technological up gradation. This is one of the reasons for lower efficiency and productivity in the Indian textile and clothing industry. Also the quality of Indian products suffers, especially in the standardized mass production market. With the extensive use of IT globally, it has allowed firms to know latest fashion trends very quickly. This has enables them to reduce supply time in meeting new demands. Thus, the Indian exporters need to prepare themselves to meet very rigid delivery schedules, in the post MFA regime. The existing Infrastructure in the country is a major bottleneck for promoting exports from the country. For India to make maximum of the opportunity, roads, ports and power infrastructure needs to be up graded on immediate basis. Competition from cheaper imports: In addition, competition from cheaper imports in the local market, ecological and social awareness resulting in increased pressure on the industry to follow international labor and environmental laws and regional alliances are playing a spoilsport for the industry. Lack of single authority: While the textile policy framework seems to be more conducive to the growth of the industry, still many of its internal problems remain. Probably the most critical one is that of a lack of a single unified trade association representing the interests of this diverse industry. The textile industry in India has dozens of regional and local industry associations, often at loggerheads with one another, and mostly focused on lobbying with the government for reduction in taxes and other levies.

Role of Information Technology in the Sector
Strong IT support systems, entrepreneurial vision and managerial competence are some of the factors that are helping the Indian textile industry become globally

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competitive. Starting with the use of ERP solutions, the textile industry is now using IT for supply chain management and is considering at CRM deployment as well. The deployment of knowledge management and business intelligence solutions is also on rise. The industry is expected to spend substantially on services along with the building up of its hardware requirements. The Ministry of Textiles has supported IT adoption in the sector since 1997. In fact, in 1999 several initiatives including a conference-cum-exhibition were organized to promote awareness about IT. Other services like the use of MIS for RTI and web-enabled systems to monitor grant-in-aid schemes are being implemented by the ministry. IT solutions finding way in the sector MIS: Managers take decisions related to demand, supply and consumption patterns of the consumers. An MIS system manages vast amounts of information and makes it available to managers helping them in their decision making process. Textile companies are leveraging IT solutions for online generation of the MIS reports, realtime delivery, and to capturing information related to various systems in the organization. They are looking to smoothen their operations with the help of IT enabled MIS and decision process. ERP: ERP systems enhance information flow through various business processes such as production, sales, inventory planning and finance, resulting on improved ontime delivery, reduced purchasing cost, reduced inventory, reduced wastage and better client relationship. Many medium and large Indian textile manufacturers have implemented ERP systems. Specialized ERP solutions for the textile sector make commercial sense for textile firms planning to modernize operations. The most preferred solutions are for the procurement, production, sales, accounting and human resource management. Portals: Interactive web portal are used effectively by textile companies to market their products. Thus they are earmarking a substantial portion of their IT spending for the development of their web portals. The portals of the textile manufacturers and exporters are at present very under-developed and are going to see major happenings in the sector during 2009. RFID: Many fashion apparel/textile companies are in the process of streamlining their supply chain and optimizing sales forecasts and distribution. After experimenting with sales force automation, they have zeroed in on RFID as an appropriate technology to impact customer satisfaction and revenues. RFID systems and tags for end-to-end item-level tracking automate labor-intensive processes, authenticates and safeguards goods, and enables real-time inventory and asset visibility. While manufacturers with their own outlets are adopting RFID, small and medium manufacturers are expected to do so only around 2011-12. Business intelligence: Business intelligence technology helps managers in understanding the demand and consumption patterns of the consumers, adjust their production activities accordingly and come up with innovative products and channels of distribution. Technologies such as data warehousing and workflow management come into play here. The implementing of solutions for this integration is the current focus of the textile companies.

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Modernized production of cotton: Fully automated process of cotton production is an area where all the manufacturers whether small or big have concentrated a lot and are leveraging the IT in a very efficient manner to increase their productivity. E-fitting of the readymade garments: Apparel firms are using various computer software in order to offer perfect fit and designs appropriate to individuals, so that customized clothing can be done with ease and without much expense. The latest innovation in e-fit is through the medium of 3D body scanning. It is the process of getting proper fitted clothes by feeding the details of body measurements in the computer and then generating the details of the garments from the entire store that could fit the measurements. This is economical not only in terms of time but also in terms of efforts to be made in searching the best fitted clothes. Designing: CAD/CAM technology performs functions from pre-production to surface designing and pattern making. Such technologies are also helping the textile companies in coming up with innovative products and offerings. All the textile designing companies have major emphasis on the deployment of such solutions. Few large sized firms are already through with the robust implementation of the same while the others are still in the second half of the implementation process of the same. SCM: Global partners in the clothing supply chain are exchanging information electronically, thus the need for Indian clothing industry to spruce up has come up very strongly. Textile supply chain has been highly influenced by five important features of information technology; information integration, planning synchronization, workflow coordination, inventory management and new business models. It has also come across that these IT applications facilitate the execution of several theories of supply chain management, like constant refilling, vendor administered refilling, planned postponement etc. Supply chain management includes sourcing, procuring, converting, and all the logistic activities. It seeks to increase the transaction speed by exchanging data in real-time, reduce inventory, and increased sales volume by fulfilling customer requirements more efficiently and effectively. Collaborative Product Development: By collaboratively developing, building and managing products throughout the entire lifecycle, companies can accelerate time-tomarket, increase customer satisfaction, have greater profit potential, and gain in market share. CPD yields higher quality products and reduces costly design flaws by allowing different elements in the production process to share information precisely. The deployment of the CPD across the entire value chain is a complex task and most of the companies are only in the piloting phase at present. Material Requirements Planning (MRP): Proper implementation of MRP ensures availability of material for production and product for consumption at right time, optimizes the level of inventory and helps in scheduling various activities. Manufacturing resource planning (MRP-II) system is a logical extension of the MRP system that covers the entire manufacturing function. With the automation of supply chains, the textile manufacturers are also looking keenly at MRP solutions for effective inventory management.

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Conclusion
India is poised to be a winner in the textile manufacturing, especially after the removal of the quotas. With increased globalization, supply chain management and information technology are becoming crucial in apparel manufacturing. Global partners in the clothing supply chain are exchanging information electronically Upcoming technologies for mass customization like three-dimensional non-contact body measurement and digital printing are changing the industry dynamics completely. Thus to sustain a high growth rate, the players in the Indian textile sector are deploying latest ICT technology / solutions, increasing investments in innovation, infrastructure improvements, and research and development to match the changing market demands and remain competent at the global arena.

INDIAN FMCG INDUSTRY: THE IMPERATIVES
Overview of the Sector
Driving economy growth, raising the quality of life, creating employment for around 3 million people, and supporting the penetration of technology, FMCG forms a formidable part of the Indian economy. The sector is fraught with competition between the unorganized and organized segments, has low operational costs, has a wellestablished distribution network, and has a substantial MNC presence. India has a competitive edge in the sector because of the availability of key raw materials, cheaper labor costs and a presence across the entire value chain. The Indian FMCG market is slated for a double-digit growth. The sector is looking to achieve a turnover of US$ 33,400 million by 2015 and a turnover of US$ 27,520 million by 2012, from the current level of US$ 16,000 million in 2007 (CAGR of 11.5%). The burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to the makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2011-12, India needs around US$ 28,000 million of investment in the food-processing industry alone. The fast-moving consumer goods (FMCG) sector represents consumer goods required for daily or frequent use. Personal care (oral care, hair care, soaps, cosmetics, and toiletries), household care (fabric wash and household cleaners), branded and packaged food, healthcare products, beverages (health beverages, soft drinks, staples, cereals, dairy products, chocolates, bakery products) and tobacco form the main segments of this sector. Many diverse products of daily use dominate the FMCG market. Thus the industry is fragmented not only in terms of the players but is also highly fragmented in terms of the number and categories of products that come under the purview of the industry. The figure next presents an overview of the key components of the industry for 2007.

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FIGURE 10
Share of Various Components in the Indian FMCG Industry, 2007

Consumer Durable Footwear (2.0%) (7.0%) Entertainment (2.0%) Accessories (1.0%) Books and Music (8.0%)

Others (32.0%)

Personal Care Items (8.0%)

Grocery (40.0%)

Total = US$ 16,000 million
Source: Industry and IDC India, 2008

Evolution of the Sector
Even though the FMCG industry has a long history, it began to take shape only during the last fifty-odd years. In fact, the industry is yet to crystallize in terms of definition and market size, among others. After all, it is an industry that touches every aspect of human life, from looks to hygiene to the palate. Post-independence era: At the time of India's independence, though MNCs were allowed to operate in India, only HLL was having a manufacturing capacity here. Though the sixties saw many MNCs setting up their manufacturing base in the country, it was not a clear-go for FMCG majors. The government policy, as it was on a socialistic pattern with strong emphasis on self-efficiency, remained protectionist to the core. The year of 1978: The year 1978 was one when the government earmarked several product categories for the small-scale sector. MNCs were asked to choose between slashing their equity stake to 40% or to leave India. IBM and Coca Cola opted for the latter, while Unilever, in the form of HLL, stayed on. From the 1950s to the 1980s the investments in the FMCG industry were very limited due to low purchasing power and the government orientation of the small-scale sector. The focus of the organized players like HLL was largely urban. However, Nirma’s entry changed the Indian FMCG landscape. The MNCs woke up to new market realities and acknowledged the latent rural potential of India. The government’s relaxation of norms also encouraged these companies to go out for economies of scale in order to make FMCG products more affordable. Consequently, today soaps and detergents have almost 90% penetration in India.

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The dramatic nineties: The nineties saw economic reforms in the country and this resulted in some dramatic changes. MNCs, with saturating home-markets, rushed into the Indian markets. The FMCG players had in front of them not only a vast untapped market but also a market that was fast growing. Income-levels were rising. A new class of upwardly mobile was emerging. Television, satellite and cable television were helping the market to grow further in rural and urban areas by changing aspirations and lifestyles. The canvas had widened for the FMCG players, but so had the challenges. Strategies started taking precedence in the Indian FMCG industry. The lowering of the trade barriers encouraged MNCs to come and invest in India to cater to the needs of the Indian population. Rising standards of living urban areas coupled with the purchasing power of rural India saw companies introduce everything from a low-end detergent to a high-end sanitary napkin. Their strategy had become two-pronged in the last decade. One, invest in expanding the distribution reach far and wide across India to enable market expansion of FMCG products. Secondly, upgrade existing consumers to value-added premium products and increase usage of existing product ranges. Sachet revolution: Adapting to local needs, the sector saw a lot of local formulations and packaging. This included the sachet revolution. The concept of sachets was introduced in the 1990s as a small, low-cost packaging option. This is the big innovation used to reach new users and expand market share for value-added products in urban India, and for general FMCG products like detergents, soaps and oral care in rural India. This was done to cater to the weaker sections of the society and to promote the trials of the products. The small packs changed the entire regime of the FMCG market in India. Future of the FMCG Sector: The past ten years have seen a lot of activity for the FMCG sector, and the future looks brighter. With not enough product offerings and the inability of the sector to open new categories, the last decade had limited growth. The market dynamics are changing now. With better levels of affordability, consumers can now afford higher priced products that suit them and are of their choice. This means that the FMCG companies can now innovate products and channels to deliver them. This in effect would accelerate the growth in the FMCG sector in the years ahead.

Reforms in the Sector
India has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting in an environment that fosters growth for the FMCG industry. This has resulted in a boom in the FMCG arena through market expansion and greater product opportunities. The initiatives taken by the government for the FMCG sector are: FDI policy: Upto 100% foreign equity and automatic investment (including foreign technology agreements within specified norms) is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). Temporary approvals for imports for test marketing can also be obtained from the Director General of Foreign Trade.

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Removal of quantitative restrictions and reservation policy: Licensing for almost all food and agro-processing industries, except for some items like alcohol, cane sugar, hydrogenated animal fats and oils etc, has been abolished by the Indian government. Central and state initiatives: Companies now have encouragement from various states governments, like Himachal Pradesh, Uttarakhand and Jammu and Kashmir, for setting up manufacturing facilities in their regions through a package of fiscal incentives and SEZ projects. Food laws: The Prevention of Food Adulteration Act (PFA), 1954, which applies to domestic and imported food commodities, encompassing food color and preservatives, pesticide residues, packaging, labeling and regulation of sales, has brought consumer protection against adulterated food to the fore for the aid of the FMCG companies in India.

Players in the Sector
The table next lists the key players in the various sub-segments of the Indian FMCG sector.

TABLE 11
Players in the Indian FMCG Sector, 2007
Segment Fabric wash market Dish wash Soap & Toiletries Personal wash market Oral care Skin care & cosmetics Hair care Feminine hygiene Bakery products Tea Coffee Mineral water HLL, P&G, Nirma & SPIC HLL HLL, Nirma & Godrej HLL, Nirma & Godrej Colgate Palmolive & HLL HLL, Dabur & P&G Marico, HLL, CavinKare, Procter and Gamble, Dabur & Godrej Procter and Gamble & Johnson and Johnson Britannia, Parle & ITC HLL & Tata Tea Nestle, HLL & Tata Tea Parle Bisleri, Parle Agro, Coca Cola & Pepsi Players

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TABLE 11
Players in the Indian FMCG Sector, 2007
Segment Soft Drink Branded atta Health beverages Milk and Dairy products Chocolates Culinary products Edible oil
Source: Industry and IDC India, 2008

Players Coca Cola & Pepsi Pillsbury, HLL, Agro Tech, Nature Fresh & ITC SmithKline Beecham, Cadbury, Nestle & Amul Amul, Britannia & Nestle Cadbury's & Nestle HLL & Nestle Ruchi Soya, Marico & ITC Agrotech

Trends in the Sector
Various product segments in the sector are experiencing a boom, which shows a latent demand for various consumer categories. For example, the upper end of very rich and a part of the consuming class indicate a small but rapidly growing segment for branded products (also spurred by the retail revolution). The middle segment, on the other hand, indicates a large market for the mass end products. Rising disposable income, changing demographic trends, increased exposure to the international markets, growing interest in lifestyle products, increasing emphasis on innovation and rural marketing are some of the prominent changes happening in the Indian FMCG sector. It is getting increasingly modernized with focus on product and delivery channels innovation. The trends to which the sector is currently exposed to are: Power branding: The FMCG companies these days are concentrating on those brands which are critical to the business and which enjoy considerable consumer advantage. They invest heavily in the promotional campaigns of such brands to make them the front-runners for their business. Reduction of supply chain costs: Players are reducing the number of intermediaries and thereby the supply chain cost. Organized retail chains have set up systems for inventory management and quick servicing, and supplying directly to the warehouse. Getting aligned with the global markets: India as a market has started reflecting international trends, not only within categories, but inter-categories as well. The FMCG companies are looking to adopt the international best practices in India as well to reduce the operating costs and increase the efficiencies.

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Changing demographics: Rapid urbanization, increased literacy and rising per capita income, have all caused rapid growth and change in demand patterns, leading to an explosion of new opportunities. Around 45% of the population in India is below 20 years of age and the aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset. Tapping the large unbranded segment for growth: There is a large section of the society that can be catered to by the unbranded products of the domestic and local players. Most of such markets exist in rural and semi-urban areas where the consumers are not yet on terms with the foreign branded products. Indian players are investing heavily in terms of money, time and efforts in exploring these markets. Rural marketing: With the urban markets getting saturated, the rural market is vital for the survival of the players, and they have realized that. The potential there is high and the population is getting richer. The rural markets are extremely price-sensitive and a number of companies are following the strategy of launching a wide range of package sizes and prices to suit the purchasing preferences of India's varied consumer segments in the rural areas. New distribution channels: The FMCG players are looking keenly at the development of new distribution channels and are also taking the help of the latest technologies for the changing needs of the market. The emergence of the Internet as a distribution channel has gained importance in the last 3-4 years, even though it is limited to urban areas due to low Internet penetration in rural areas. Innovative products: To get highly competitive and to meet the changing demands of the Indian consumers the Indian FMCG players are not only adding their capacities on a continual basis, but are also coming up with innovative, new and trendy products. They are looking to cater to the aesthetic demand of the Indian consumers. Thus at present a major chunk of the investments made in the Indian FMCG industry are being directed towards capacity expansion and development of innovative product. Targeting the global markets: The new wave in the FMCG industry is not only about foreign companies investing in India, attracted by the prospective size of the market. It is also about the venturing of the Indian companies in the global markets. Indian FMCG products are now increasingly finding prime shelf-space in the retail chains of the US and Europe. These include Cobra Beer, Bikanervala Foods, MTR Foods' ready-to-eat foodstuff and ITC's Kitchen of India. Mergers and acquisitions: To compete against the local players, the large MNC players have started merging/acquiring the unbranded players so that these players do not eat into the share of the bigger players. Acquisitions are playing a significant role in propelling the growth of the industry. Backward and forward integration for improving the margins: To increase their margins and to corner a larger share of the Indian market, the FMCG players are integrating both backward and forward. They also get benefits of direct supply

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arrangements with owners of large raw materials to improve their cost competitiveness. Outsourcing from global players: To cut costs and post healthy dividends to their consumers, US and European MNCs are outsourcing their operations to India. What is attracting these companies is the cost competitiveness of the Indian FMCG industry, the availability of abundant labor at cheap rates, highly developed skill set of the Indian people and the huge raw material base that India has. Technology: To ensure efficiency, stability, competition and above all services to common people, all FMCG players are highlighting the need for concerted efforts to enhance the use of technology in the sector. They are looking to leverage the IT for product innovation, supply chain management, development of newer distribution channels and for inventory management.

Factors favoring the growth of the sector in India
Demand fuelled by socio-economic factors: Backed by the large purchasing power of 300 million middle class Indians, who will be 88% of the population by 2015, the demand for FMCG products is expected to grow by more than 100% by 2015. With an average India spending around 40% of his income on grocery and 8% on personal care products, all FMCG segments are likely to grow. Rapid urbanization, increased literacy, rising per capita income and a large proportion of young people means that consumers will buy branded products that cut across segments. Scope for increased penetration: As India's per capita consumption of most FMCG products is much below the world average, there is a latent potential that FMCG companies can exploit. In addition to this, companies are working at getting the consumer up the value chain and are competing on the basis of distribution strength. Rural potential: The FMCG penetration in rural India is quite low as compared to its urban counterpart. Also its largely restricted to the soaps and grocery. But if tapped, there exists a huge potential for the high-end products and with the growing disposable incomes in the hands of rural consumers, there lies a huge market waiting to be explored. Demand-supply gap: Only a small percentage of the raw materials in India are processed into value-added products. However, with the demand for processed products increasing, there is an untapped opportunity in areas such as packaged food, convenience food and drinks, milk products, personal care, etc. Outsourcing advantage: A large raw material base and a low-cost labor force have resulted in a lower cost of production. Many multinationals have set up huge low cost production bases in India to outsource for domestic as well as export markets. Indian companies have also tested foreign shores like Bangladesh, Sri Lanka and the Middle East among others. This cross-interaction is presenting a huge opportunity in the Indian FMCG market, with the experience being gained.

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Demand for style: Indian consumers are getting exposed to global trends and the lifestyles, and FMCG manufacturers can tap huge market shares for themselves by responding to the growing demand for stylish and trendy products. Presence across the entire value chain: From supply of raw material to final processed and packaged goods, both in the personal care products and in the food processing sector, Indian companies have a competitive advantage because they straddle the value chain. For instance, Indian firm Amul's product portfolio includes the supply of milk as well as the supply of processed dairy products like cheese and butter. This makes the firms located in India more competitive. Export potential: Export of products to a large Diaspora of Asian ethnic population settled all over the world is a very big opportunity for India. South East Asia, Middle East, Singapore, Malaysia, Indonesia, Korea, Thailand and Hong Kong, the United States and Europe are some of the destinations for commodities like dry milk, condensed milk, ghee, vegetables, pre-made meals, etc. Though the FMCG companies in India have not yet exploited these markets because they are focused on meeting the domestic requirements, it is an opportunity for the future. Changing marketing and distribution strategies: The growth of malls and retail outlets and an impending surge in organized retail is good news for the FMCG industry. This offers a new distribution platform to the players in the sector for showcasing and selling their products. Manufacturing flexibility: A fragmented industry structure with small average scale of operation enables Indian firms to handle small-runs and complex orders, as opposed to large manufacturing nations like China. This flexibility is a significant advantage for the industry to penetrate rural markets and for niche exports.

Challenges in the Sector
Increased competition due to huge choice available: Manufacturers face competition from a large number of Indian and foreign brands who are all wooing consumers. Also there is a wide range of products available from domestic players as well as the imported goods, which makes the competition all the more stiff in the FMCG sector. Competition from store/private brands: Store brands and private labels that have strategies similar to regional brands attract consumers on the basis of lower prices. Established brands need to analyze trends and keep reinventing themselves to meet this competition. Fragmented market: Unlike the US FMCG market, which is dominated by a handful of global players, India's FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. This creates competition between the organized sector and the unorganized sector, which in a longer run is going to harm the FMCG sector as a whole.

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FMCG sales cannibalized by other products: As consumer exposure to new product categories (like mobile phones, leisure products, durables, etc.) is increasing, demand for FMCG products is dampened hampering the overall growth of the sector. Value-volume trade-off: Most FMCG players do not have the critical size for going all out for rural marketing. They have to make a fine balance between looking at urban markets for value and rural markets for volumes, which may result in a dilution of their efforts. Competition from regional players: When new regional players enter a category, they eat into the market share of the larger players. If major players are not able to counter the threat from the regional brands, they could lose out on a large share of the potential market. Distribution and supply chain issues: FMCG goods are distributed inefficiently. Poor quality of infrastructure, lack of a distribution sector, high logistics costs and lack of specialized distribution companies coupled with the low goods carrying capacity of the Indian suppliers has become a big challenge for the sector. Low productivity: The productivity of the Indian FMCG industry is around 23% to that of the benchmarked US productivity in FMCG sector despite a considerable talent pool. Even after possessing a huge talent pool the Indian FMCG major have not been able to increase the productivity in the sector. Competition from China: China is able to produce FMCG products at lower costs compared to the Indian industry. In China, the FMCG sector is growing in a balanced manner, with equal emphasis on food and non-food categories, and has a modern trade structure established with developing countries. The value of consumer products sold through the modern trade in China is more than 50%, the Indian modern trade channels comprise only 9% of the total value of the urban branded FMCG goods sold. With the Chinese goods flooding the Indian markets the situation for the Indian FMCG sector looks all the more bleak. Rising cost of inputs: Rising cost of raw materials is squeezing the profit margins of the players, who are unable to raise prices due to competition. There is an urgent need to manage their supply chains for the FMCG players in India to achieve the economies of scale for marginalizing the losses due to high input costs. Lack of market information: Units catering to the domestic market find it difficult to effectively market their products due to the lack of current information on the demand and consumption patterns of the consumers. In the case of exporters also, regular information on the prevailing market conditions in the targeted companies is not forthcoming from any source. This has proved to be a major challenge for the sector. Lack of technology upgradation: Slow technological up gradation results in lower efficiency, productivity and quality of Indian products, whose defect rate is among the highest in the world.

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Role of Information Technology in the Sector
Technology has played a crucial role in the strategic areas in the FMCG sector including customer satisfaction, competitor knowledge and customer buying behavior. With increasing technology adoption and deployment, costs of production, commercial, internal communication and service have decreased substantially. With a proactive realization of how IT can add value to business, the companies have been continuously upgrading their IT infrastructure. From distributed and unconnected IT systems, the major FMCG players have now migrated to a centralized and integrated IT architecture, riding a successful change management process. The FMCG segment is among the leading implementers of ICT in the country. As businesses change to deliver better value and maintain their position in a competitive scenario, information technology and executive decision-making tools become important for them. Security is a major concern with all organizations and importance of disaster recovery and business continuity is being realized. Monitoring customer interactions is important for FMCG and is cheaper with the use of IT. Technology has helped companies address customer satisfaction for current products and services, and in gauging competitor knowledge and customer buying behavior. Other prominent areas where FMCG organizations are harnessing IT include supply chain management, dealer management, customer relationship management and sales force management. From distributed and unconnected IT systems, the major FMCG players have now migrated to a centralized and integrated IT architecture, riding a successful change management process. Players want technology to integrate business processes across the enterprise, suppliers and customers; and manage and store data as well. Further, it can help them become aware of the changes in market conditions rapidly and with the flexibility to respond quickly. Key solutions for the sector Workflow management: Integration of the back-end and front-end systems and the integration of the collaborated system with the supply chain management are being done by many companies, as next steps after basic automation and networking. Corporate intranets: Corporate intranets are particularly useful in the FMCG sector for information on brands across the world. Brand managers use intranets to learn how their counterparts across the globe deal with competition, for sales force to share experiences, and for creating learning systems. Data warehousing: Building up of the data centers is the most prevalent IT deployment in the Indian FMCG sector at present. A large portion of the current IT spending in the sector is being directed towards the data mirroring and establishment of data centers. Product lifecycle management: Establishing a robust system to manage and support a collaborative approach throughout a product’s lifecycle, by the integration of information and processes across designers, manufacturers, suppliers, distributors, sales forces and even customers, has become very critical for the continued success

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of any product in the market. Today, over 10% of the total IT spend in the FMCG market is directed towards the implementation the PLM. Customer relationship management: With most large companies already tasting success at applying supply chain managements, they are extending the efforts to involve customers i.e. the dealers and retailers. Large players are already implementing CRM and small players will take this up over the next 2-3 years after the automation of their supply chains. Supply chain management: Supply chain management is the most important area where the FMCG players (especially the small players; with large being in final stages of the same) are spending today and are concentrating their efforts upon. Most large companies have invested in automation and integration of their supply chain. They have implemented robust solutions to include all their suppliers in their value chain. Inventory management: Inventory management solutions have become critical for the FMCG players to manage their inventory through just-in-time concept. Warehousing solutions are finding increased acceptance as well. These solutions provide the information lying at the warehouses of the players and accordingly serve the replenishment needs of the same. Sales force automation: To reach markets in different tier cities as well as in rural India, a complex distribution channel is needed. To manage and control the channel is a challenge best met with sales force automation (SFA) solutions that help them to collect, collate, co-relate and analyze information from the market in real-time. SFA enables and empowers direct store delivery (DSD) sales teams to make accurate spot decisions, and helps keep the sales force customer-focused, tuned into market developments and fully equipped to capture all possible sales opportunities. The use of PDAs, for instance, is a popular technological response to many sales force automation problems. Smart carts: Technology enabled smart carts that guide the consumers through out their shopping exercise by giving information about location and price of products in a store, for instance, are fast gaining popularity. Though their adoption is very limited at present, but once tested in the western world, it will follow suit in India by 2010-11. ERP modules: These have been widely adopted by the FMCG player. Large and small sized firms have rolled out various ERP modules with the procurement, sales, human resource and accounting being the most favored ones. Business intelligence (BI): Technologies such as data warehousing and workflow management help analyze consumer data and plan production and distribution. Business intelligence and knowledge management help capture real-time business and market information and assist in strategic decision-making. Today the MIS reports are generated separately for efficient decision-making. But with the advent of business intelligence, the MIS reporting is also going to get aligned with the BI tolls and solutions. Collaborative planning and forecasting (CPFR) tools: The use of CPFR, usually Web-based, is helping in controlling costs for the vendor, the manufacturer and the retailer. These tools help the retailers in inventory management by keeping a tap on

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the inventory records at various retail stores. Thus in a way it also helps in forecasting the inventory requirements at various outlets for achieving economies of scale and prevention of stok-out situations.

Conclusion
It is clear that profitability in a tough FMCG market is dependent on technology adoption in the longer term. Advertising, focusing spends on a smaller number of critical brands, innovative sales promotions, efforts to stimulate repeat purchase and brand loyalty, efficient distribution and reduced supply chain costs are key areas where FMCG players need to be efficient. Also, channel width and sales organization are critical for the success. Higher margin product-mixes, greater pricing flexibility, better and far reaching network in rural markets, innovation and inorganic contributions will be the key factors that will drive the growth of the FMCG sector and its players moving forward.

THE INDIAN IT / ITES SECTOR
Overview of the Sector
With its origins way back in the late 1980s and 1990s, the ITeS industry has now become a global force, continuing to register double-digit growth year after year. Contributing significantly to the GDP (5.2%), the industry brings in large amounts of foreign exchange and is slated to employ two million people in the next few years. Growing at a CAGR of 18.4%, the ITeS is slated to touch US$ 92,300 million by 2012 from US$ 39,600 million in 2007 (growth of 20.7% over US$ 32,800 in 2006). The business process outsourcing (BPO) industry is slated to grow at a CAGR of 21.4% to reach US$ 33,000 million by 2012 from US$ 12,500 million in 2007 (growth of 31% over US$ 9,540 in 2006). These forecasts make India the fastest growing ITeS and BPO market in Asia for 2007-12. While the BPO exports worth US$ 11,300 million in 2007 (US$ 8,400 million in 2006), the ITeS exports were US$ million in 2007 over US$ 31,300 million in 2006. Within this the share of the captive BPOs stands at 45% in 2007, down from 52% in 2006. Captive units are those owned by a company and largely serving its core and non-core needs (though they may have some external clients as well). Third-party BPOs, which are companies that have developed a competency in a business process and service several clients, had a 55% share of the sector in 2007, up from 48% in 2006. Similarly, voice based services, which constituted 53% of the Indian market in 2006, are now down to 46% in 2007. Non-voice services, such as content development, business/market research, analytics, and others, have made the non-voice BPOs all the more relevant in the Indian context and will continue to increase their share as such 54% in 2007 from 47% in 2006. The Indian BPO industry follows global outsourcing industry trends and serves some critical vertical businesses, including BFSI, telecom, retail, manufacturing, healthcare, utilities, and others. The others is a mix of other emerging verticals like travel and

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tourism, media and publication, government and education, among others. While BFSI, manufacturing and telecom still are the main verticals for software and services exports, there has been an emphasis on expanding to new verticals such as retail, utility, telecom service providers and healthcare in the last 2-3 years. The industry has expanded its radar to new service lines such as package software implementation, systems integration, research and development engineering and network management as new horizon for robust growth. Among horizontal segments, customer support, finance and accounting, administration (primary level services like data entry, transcription services, document preparation, records management, data and information storage, etc), human resource management (payroll processing, benefit administration, health and welfare administration, tax filing, etc), legal processes, and others (which includes technical support, telemarketing, employee IT helpdesk, insurance and claims processing, card processing, and training processes) are the main areas where Indian BPOs are active. In terms of geographical spread, the BPO services in India are present in and around cities where basic IT and communication infrastructure exists and is being developed. The nine cities that account for 90% of ITES-BPO companies are, Ahmedabad, Bangalore, Chennai, Hyderabad, Kochi, Kolkata, Mumbai, NCR (Delhi, Noida and Gurgaon) and Pune. The focus is now shifting to tier-II cities, like Chandigarh, Kochi, Trivandrum, Coimbatore, Mysore, Mangalore, Vizag, Nasik, Dehradun, Jaipur, Bhubaneshwar, Lucknow and others, where the IT and communication infrastructure is developing and also the manpower cost is lower.

Evolution of the Sector
Way back in 1776, economist Adam Smith, in his book The Wealth of the Nations, first gave the concept of outsourcing when he propagated that economies should specialize in producing that commodity or service that the economy had more resources for. While today the theory finds relevance in the light of the IT revolution, back then it was oriented more towards outsourcing manufacturing services to countries that provide cheap labor. Not many would know that the Indian BPO story began as early as the 1960s, with the likes of Chemtex exporting engineering services from India. The concept, however, took a more formal look only in the early and mid 1990s, even though the IT industry had gained a foothold even in the early 1980s. Medical transcription and data processing were the first services to be outsourced, while billing and customer support followed suit in the late 1990s. This was the time when MNCs started establishing their subsidiaries in India to serve their offshoring needs. And since then there has been no looking back for this multi-million dollar industry in India. The BPO industry in India has evolved in the following stages: 1970s-Early 1990s: There was a shortage of skills and cost was the prime driver for outsourcing to India. Companies focused on expanding their skill sets during this period.

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1994-1998: The most crucial time for outsourcing in India, this was when the post liberalization reforms helped already existing companies speed up expansion. New companies were also supported by incentives from the government. The important tasks outsourced to India during this period were medium and large application projects on legacy migration. Companies focused on acquiring diverse skills and execution capabilities, along with achieving client delight through quality delivery of projects. 1999-2001: In this period companies started acquiring additional competence especially in the enterprise resource planning and customer relationship management. The industry gave importance to a range of business aspects, such as excellence in quality of output delivered, investments in research and development, ensuring business continuity and financial stability, gaining worldclass project management capabilities, expanding services to IT consulting by gaining domain skills, and developing infrastructure for further growth. 2001-Present: At present the industry provides for the large application development and maintenance needs of corporates across the world. Indian companies detail out the strategies for large corporations, and focus on providing end-to-end solutions. Indian companies are also in the process of aggressively gaining expertise for carrying out high-end work such as research and development, architecture and business integration. The following figure shows how the industry has scaled up its value chain over the years.

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FIGURE 11
Scaling Up of the ITeS Industry's Value Chain in India, 19902007

Research

Scaling up of the Value Chain

Finance and Accounting

Administration

Sales

Customer Service

Medical Transcription

1990s

1993s

1998s

2000s

2003s

2007s

Source: Industry and IDC India, 2008

At present the BPO industry is said to be in the midst of its growth path. The Indian outsourcing industry is also witnessing the trend of movement towards smaller or tierII cities. Also, to face competition, the players are looking positively towards consolidation. There have been various issues emerging every now and then, especially with the slow-down of the world economy, but the complete ecosystem is trying to get the best feasible models and strategies to resolve them and continue on their growth path. It is the opening up of the global economy that has catalyzed the growth of BPO to its present stature as a key driver of business competitiveness. The roadmap for outsourcing success in India has been laid with: Quality processes Scalability Integration of global markets Seamless global delivery of work across borders through the Internet

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Reforms in the Sector
Recognizing the growing importance of the outsourcing, the government of India has introduced various tax sops and policy initiatives to accelerate the growth of the ITenabled outsourcing market in India. Some of them are as follows: 100% FDI: The government has allowed 100% foreign direct investment (subject to certain conditions) in the Indian BPO sector. No customer-based approval needed: Call centre approval doesn't have to be customer-based anymore, but specific to a place of presence (PoP), or by installed capacity at the place of termination. This way, the lead time for programs for new customers is reduced, as is the cost. Tax Exemption: The Government of India has allowed total income tax exemption on export of IT enabled outsourcing services. A ten-year tax holiday was made applicable to the BPO industry in India from 1999-2009. LAN Connectivity: the government has also allowed connectivity of a LAN in an international call centre through a domestic ISP. This enables a call centre operator to choose his service provider. Competition is driving down prices while offering a higher service-reliability value proposition under the segment. Education: Realizing the promise the sector holds in terms of employment, the government has taken several steps to help students make a career in the BPO industry. Certain educational institutes and universities have started offering industryspecific courses as well.

Players in the Sector
The ITeS/BPO industry in India is dominated by few players at the top level but at the bottom level it is highly fragmented. The top 5 players accounted for more than 28% of the ITeS industry in 2007. A majority of the key players in the BPO industry in India are captive units of MNCs and international BPO companies looking to take advantage of the cost arbitrage offered by India. Several ventures have been hived off into independent companies to attract other customers and become profit centres as opposed to the cost centers they used to be earlier. The companies are growing at a rate more than the industry average. The increasing rate of growth can be attributed to the companies diversifying into newer markets and attaining higher efficiencies. The top five companies employed 309,641 people, including their overseas employees count. The table next highlights the key business model characteristics of the various segment companies in the industry.

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TABLE 12
Key Business Model Characteristics of Various Segment Organizations in the Indian ITeS industry, 2007
Type Large Cap Revenue Rev > US$ 250 million Business Model Mainly concentrated on ADM, Package Implementation, BPO and Consulting Well positioned to bag large IT contracts Strong delivery capabilities across multiple verticals Low client concentration Compete with global IT vendors such as Accenture, IBM, EDS, Cap Gemini Mid Cap Rev > US$ 50 million but < 250 million Mainly concentrated on generic IT services and BPO offerings Scale and margin pressures Increasing competition within the Mid Cap players as well as with the Large Cap IT players Niche players Focused on key niche areas of operations Focused on developing capabilities around a specific niche domain and aspire to be leaders in that domain Scale and growth pressures; Limited growth available in specific niche areas High client concentration Threat from Large Cap/ Middle Cap entering the niche areas
Source: Industry and IDC India, 2008

Trends in the Sector
The next 4-5 years will witness significant global integration and consolidation in the BPO space. Having established a brand that connotes quality and lower cost, the Indian BPO industry has emerged as a dominant global player and is poised to be the main beneficiary of this aggregation opportunity. Some of the changes happening outside and within the Indian BPO industry are rapid and need a careful consideration. These changes need to be factored in by the IT/ITeS companies to get their strategies and decision-making aligned to the opportunities and the challenges. BPO firms target non-English markets: After having tapped the English speaking countries, business process outsourcing (BPO) companies engaged in scientific and market intelligence work have begun to explore the potential offered by the nonEnglish speaking markets. The market for non-English work is believed to be huge. They are targeting the VISTA countries as their first foreign venture.

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Consolidation and acquisitions: The big players are on a spree of acquiring the small players, while the smaller players are consolidating to fight the big fish of the sector. The last couple of years have been a period of significant market activity for the sector, with an increasing number of firms expanding their offshore initiatives in India and several large merger and acquisition deals being scripted. The table next highlights the key M&A deals struck in the sector.

TABLE 13
Key M&A Deals in the ITeS / BPO Sector
Target Flextronics Software System Acquirer / Investor Kohlberg Kravis Roberts & Co Electronics Data Systems Corporations Subex Azure Ltd Subex Systems Teledata Informatics General Atlantic Partners Wipro Technologies Wipro Technologies Indopark Holdings Ltd 900 Value in US$ Million 85% Stake

Mphasis BFL Ltd

398

52%

Syndesis Azure Solutions, UK eSys Technologies Hexaware Technologies Enabler Saraware Oy Scandent Solutions Corporation Ltd BPM Inc

158 141 141 68 55 34 31

100% 100% 51% 15% 100% 100% 55%

Firstsource Solutions Ltd

30

100%

Source: Industry and IDC India, 2008

Emergence of niche players in specific business functions: Increasingly, certain processes across specific verticals are being outsourced to the Indian third-party BPO service providers. These include those in healthcare, publishing, market research, legal process outsourcing and human resource management services. With the emergence of non-voice based outsourcing, the activities like research and healthcare are becoming a major outsourcing process currently. Vendor maturity, managing people risk: In spite of the relatively high people risk, attributed to the high turnover and attrition, Indian companies are displayed increasing maturity and deploying innovative employee retention strategies. These

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included employee recognition schemes, career planning services, educational guidance and assistance and a greater emphasis on improving the quality of worklife. Thus with the high rates of attrition affecting the industry the BPO players in India, they too are equally geared up for the same and are showing signs of maturity and understanding towards the needs of the employees. Increasing geographical reach: The emergence of offshore outsourcing among global companies has led to Indian BPOs becoming more global in their reach. They are acquiring international BPO firms in various geographies to get closer to their clients for better and quick understanding and also as a precautionary step to de-risk them from unseen business and natural forces. Acquisitions in Mexico and Canada to tap the US near-shore business, and Eastern Europe to tap the Europe near-shore business have begun to happen in the Indian BPO space. BPOs outsourcing: The captive centres are increasingly turning to third-party BPOs to manage the more mechanical and less strategic parts of their work, in the face of rising operational costs and higher-than-the-industry attrition rates. Value-added services: With low-end services yielding low margins and low barriers to entry, many Indian BPO players are scrambling on the value-added bandwagon by offering niche, high margin services. They are looking more towards the high-end services like market research and data analytics. Clients asking for strategic support: With time, the relation between the BPO service providers and the outsourcer has strengthened. Because of this and because of continuous improvement in the existing processes, the clients do not just look at the cost benefits but also expect their outsourcing partners to help them transform their business processes. The clients also look at the outsourcer to guide their longterm strategic roadmap. Thus the role of BPO service providers has become more strategic. BPOs target smaller towns: After expanding their business in tier-I and II cities, the BPO industry has started exploring options in the tier-III and IV cities. As the industry is facing dearth of manpower, many BPOs are moving to smaller cities, which is also helping them cut costs. Climbing up the value chain: Indian outsource providers face competition from many of the foreign players who are able to offer 'one-stop shops' to their clients that not only include BPO services, but higher value-add (and therefore higher margin) activities such as financial research and consulting. Thus the Indian players too are looking to offer complete solutions to win the clients for long-term relationships. Convergence of voice and data: Indian BPOs are integrating communication services with existing applications to exploit both cost savings and enable new revenue generating opportunities. They are not merely looking at a merger of voice and data networks, but are focused on the utilization of the existing data, fixed and wireless infrastructure for the provision of all IP-based services, including voice, data, video, and storage.

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Factors Favoring the Growth of the Sector in India
India is an undisputed leader today in offshore BPO outsourcing and there are apparent reasons for its leadership. The key value propositions for India include: Abundant talent pool: With over half the population of India aged less than 25 years, India’s young demographic profile is a unique and has an inherent advantage. This is complemented by vast network of academic infrastructure, unmatched mix and scale of educated, English-speaking talent. Several firms have also established dedicated facilities and teams, for employee skill enhancement initiatives. The industry is also driving a series of concerted efforts to structurally address the talent concerns. Also, India can boast of producing 85,000 graduates every year with a large chunk possessing the capability of fluency in English speaking. Cost advantage: India has a strong track record of delivering a significant cost advantage, with clients regularly reporting savings of 20-60% over the original cost base. This cost advantage is due to the absolute cost advantage vis-à-vis other key markets and lowering infrastructure and overhead costs. The tables next provides an overview of the cost advantage that India has vis-à-vis US.

TABLE 14
Cost Advantage for Indian BPOs vis-à-vis the US
Head Human Resource Administration Telecom Property Rentals Others Total Cost
Source: Industry and IDC India, 2008

India as percentage of US costs 14% 12% 155% 33% 50% 20%

TABLE 15
Financial Attractiveness of Top 5 Global Services Locations
Country India 3.22 Index on a Scale of 4

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TABLE 15
Financial Attractiveness of Top 5 Global Services Locations
Country China Malaysia Thailand Brazil
Source: Industry and IDC India, 2008

Index on a Scale of 4 2.93 2.84 3.19 2.64

Emphasis on quality and information security: India's sustained leadership in global service delivery has been, in large parts, due to its demonstrated process quality and expertise in service. Over the years, the industry has built robust processes and procedures to offer world class IT software and technology related services. Today, India-based centers (both Indian firms as well as MNC-owned captives) constitute the largest number of quality certifications achieved by any single country. Rapid growth in key business infrastructure: Over a span of little over decade, the Indian telecom market has crafted policies that have helped drive a balanced agenda for the sector by influencing a decline in pricing and increased affordability on one hand and increasing access penetration and usage on the other, resulting in strong growth. The ITeS-BPO sector has been a key beneficiary, with the cost of international connectivity declining rapidly and service level quality improving significantly. Enabling business policy and regulatory environment: Policy makers in India have laid special emphasis on encouraging foreign participation in the ITeS-BPO sector—recognizing its importance not only as a source of financial capital but also as a facilitator of knowledge and technology transfer. The firms have enjoyed minimal regulatory and policy restrictions along with a broad range of fiscal and procedural incentives. Familiarity with the overseas market: IT services companies in India are the only companies that have large marketing teams in the US and other important overseas markets. And not only is their understanding of the overseas market better, they can also quickly start marketing their services. Location attractiveness: Several government initiatives in the last two years have considerably enhanced the attractiveness of India as a location. These include significant investment in infrastructure with the establishment of technology parks like Hitec city, Hyderabad, Tata-Singapore Consortium, Bangalore, Tidel Park, Chennai, etc and competition among state governments to attract BPO investments.

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Challenges in the Sector
India's offshore industries have to overcome major challenges to continue their heady growth and sustain their share relative to other competing countries. The key challenges faced by the Indian BPO industry are: High attrition rates: Attrition means not only the loss of talent, but also includes the cost of training the new recruits. The attrition rate in the industry has been hovering around 40-45%, which is quite high for any industry. There are three basic reasons for this—leaving the jobs for higher studies (as most of the junior level employees in the BPOs are graduates), dissatisfaction with the job in terms of low career prospects and better salaries outside, and the poaching strategy being adopted by the players in the industry. Also the demand for BPO professionals is far outstripping the supply. The figure below provides an overview of the key internal and external challenges leading to high attrition rates in the Indian BPO sector.

FIGURE 12
Internal and External Factors for high Attrition in BPOs

External Factors
ATTRITION ATTRITION

Internal Factors
ATTRITION

ATTRITION

Demand Concentration Limited Supply Shortage of Manpower Pursuing Higher Studies Poaching

Monetary Factors Job Monotony Shift Timings Hard Working Conditions Slow Career Growth

ATTRITION

ATTRITION ATTRITION ATTRITION

Source: Industry and IDC India, 2008

Hue and cry by labor international unions: There has been a growing voice of protest against outsourcing to India by the labor unions in the UK and USA. In the name of patriotism, the labor unions are protesting against the companies outsourcing their back-office operations to India. The media, unions and politicians in these countries have jumped on the backlash bandwagon and have been making strong statements on outsourcing to India. Thus if not countered and settled down, such moves can dampen the growth of the Indian BPO industry in the years to come. The threat of increasing competition: India has many competitors, like Philippines, Ireland and even China, that are expected to catch up with it in the future, even

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though they have their own constraints. These countries can match India's value proposition in a year or two and can give India a run for its money. Surrounded by standards: Indian BPOs are surrounded with several levels of standards and regulations that they have to comply with—national as well as international. Indian laws, compliance standards like Sarbanes-Oxley Act 2002, business process standards like COBIT, Six Sigma, etc, and benchmarks set by the customers. All these scenarios complicate the matters and add to the compliance woes of the Indian BPO service providers. Slow-down of the economies: Not only has the US economy slowed down but the Indian economy has also started showing signs of slower growth. With the global economy into recession, the jobs and processes getting outsourced to India are on a decline, negatively effecting the opportunities for the sector in India. Data security: Protecting customer data is one of the main concerns of BPO players. There is, therefore, a high concern for data security. The Indian government and the IT industry had formed a framework to curb rising cyber crime, which was later enacted by the Indian government as the Indian Technology Act. The Indian legal system does not have specific data protection laws and this is a concern for companies that are offshoring work to India. Difficult working conditions: The conditions generally prevailing in the larger segment of the ITeS-BPO sector include long working hours (without any compensation for the extra hours), almost no leave or holidays, strenuous work environment, close surveillance on employees, and no right to collectively represent or complain. This is turning people away in the long run from careers in the IteS / BPO sector. Shrinking profit margins: With service level agreements becoming stringent, sales cycles stretching far in international deals, high initial capital investments in the industry, long gestational periods, competition leading to reduced billing rates, and appreciation of rupee against the US dollar, margin pressures for the BPO operators in India have increased. BPO service providers need deeper pockets and financial muscle to sustain for long times in the industry. Rising salaries: Compensation for junior and middle management levels are increasing year-on-year, reducing the profitability and sustainability of the industry. The primary reason for this is to attract and retain employees for their operations. Providing a safe working environment to women employees: Most BPOs have women as the majority of their workforce and it is a challenge to provide a safe and conducive working environment to them. Recently there has been an increase in the number of misbehavior with women employees in the BPO companies. The incidents have been mostly occurring during the night shifts. Uptime commitment: The first priority for BPO players is to select vendors who can provide them with guaranteed uptime, or even keep 2-3 backup systems. A downtime of one hour effectively means a loss of one man-hour for the total number of seats (total number of seats x one hour). This has a huge cost implication for the

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company. With various infrastructural problems (like power) still prevalent in India, the problem becomes all the more acute for the BPO players in the country. Advent of foreign languages: The growing BPO industry today has to cater to foreign languages like Spanish, German, French and Japanese, besides English. But the dearth of people speaking these languages has made Indian BPOs eye Argentina and East European countries. According to Nasscom, India lacks a large number of workers fluent in these languages, making China and Eastern Europe countries more attractive off-shoring destinations for foreign language specific jobs and tasks. Tax holidays to end in March 2009: With March 2009 approaching, companies are concerned about how they will continue to leverage the cost benefits they have been getting with the tax holiday they so far had. This is would be the time for the players to stand on their own and play in a level playing field with that of the other countries. High training costs: Training is very important in this industry, due to the nature of job and the kind of requirements, which an employee has to fulfill. In the last two years, the training cost has nearly doubled. Thus the training component in the total cost is becoming very high and needs to be carefully analyzed by the BPO service providers.

Role of Information Technology in the Sector
Technology drives the BPO industry. With the industry moving from low-end services to high-end, knowledge-based ones, the dependence on technology is increasing further. The top five specific technologies inducted by companies in last 2-3 years have been mail messaging solutions, security solutions, wide area networks (WAN), enterprise resource management (ERM), and virtual private networks (VPN). Right now, customer relationship solutions and data security are on top priorities. The five key benefits targeted by the Indian BPOs by deploying IT solutions are: Service quality management (ensuring performance and satisfaction) Issue management (managing escalation and emergency) Change management (analysis of program, demand, consumption) Commercial management (contract management) Compliance management (adherence to regulatory, safety and privacy guidelines) The key IT solutions getting deployed in the industry are: Identity management: The who, when, and how of data access has to be effectively managed by BPOs. Deploying a complete identity management solution lets BPOs secure network access and admission at any point in the network, while isolating and controlling infected or un-patched devices that attempt to access the network. Also with the blended threats such as spyware, adware and phishing attacks increasing substantially in the Indian BPO sector, the authorization through digital signatures to

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enter the networks is gaining huge importance among the BPO service providers in India. Business intelligence: As a competitive edge, BPO companies in India are increasingly looking at business intelligence solutions to understand the demand and need patterns of their clients. Business intelligence often encompasses identifying and mapping intellectual assets within the organization, generating new knowledge for competitive advantage within the organization, making vast amounts of corporate information accessible, sharing of best practices, and technology that enables all of the above, including groupware and intranets. IDC believes that business intelligence is going to be a most sought after solution by Indian BPO industry. They are already in discussions with the IT vendors for the effective deployment of business intelligence solutions in their units. Virtual private networks: BPO companies are keenly looking at VPN technology to support any-to-any communication, which would give them huge benefits in terms of easy and simple network management. The same infrastructure can be shared across different clients, resulting in cost reduction. Ramping up and down is easy, and it provides easy entry and exit points as well. VoIP: Call centers and BPO companies in India are switching to VoIP to slash costs and offer more services. VoIP allows BPOs to have the transmission of digital voice data over the Internet. In the near future more and more BPO units are expected to shift to VoIP technology by spending around 4-5% of their total IT spend. Security solutions: With increasing competition between the enterprises, there is a possibility for intentional attack on organizations' databases. These attacks could be from internal or external users. With India increasingly becoming a global ITeS hub, it is going to be tested for its efficiency and capability in securing global data. But the security solutions currently deployed by the BPO service providers fall desperately short of a secured IT system, putting trade secrets as well as employee and customer information at risk of devastating losses. The evolution of electronic thieves and hackers who can make great inroads into the corporate databases through corporate networks even while in remote regions of the world has highlighted the need for security solutions in a major way in the BPO outfits. Realizing this and realizing the confidentiality of their data the BPO players in India have now widely recognized the importance of robust security systems in their organizations. Thus in the next two years, the BPOs are getting focused more and more on the security requirements and are investing heavily in these solutions. Customer relationship management/customer interaction management: BPOs need to manage every interaction with their customer and maintain a database of it. Also the cost of acquiring a new customer is five times the cost of retaining an old one. So it is important that every customer interaction is managed in the best possible way, for which they look at customer interaction management (CIM) solutions. Therefore the latest trend to hit the Indian BPO industry is the CRM. It is being used to understand the services that are more commonly outsourced to Indian BPOs and to understand the shifting pattern of Indian BPO industry towards high-end services from the low-end services' outsourcing of early 2000s. Thus the Indian BPOs are looking to leverage information from their customer relationships to get additional

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value so as to gain a sustainable competitive edge over their competitors. While the large firms are looking to implement CIM solutions by 2010, the smaller and medium sized firms are looking to implement these by 2012. Regulatory compliance: IT is increasingly being looked at as a medium to ensure that the companies are adhering to the regulatory guidelines on a continual basis. With the precision that is obtained with the help of IT solutions, it becomes easier for the companies to get their processes certified and increases their credibility in the global outsourcing arena. Thus the Indian BPO units are increasingly looking at such solutions that can further their steps in regard the regulatory compliances. And it is not just one or two solutions that encompass such compliances. We at IDC believe that the Indian BPO players are going to spend around 3-4% of their total IT budget on centralized control and monitoring solutions to adhere to the regulatory compliances. ERP: As the sector is climbing up the value chain, BPO service providers find an ERP system quite critical to their growth. ERP systems enhance information flow through various business processes such as query handling, understanding customer demand pattern, monitoring and finance. The major ERP modules used in the BPO industry are: Customer Management Administration Finance Quality Management Human Resource Management In recent years, many BPOs in India have implemented ERP systems, in addition to restructuring their production processes anddeveloping their research and development activities. Though the results have been satisfactory but due its peculiar nature of enhanced focus on outsourced activities of research and analysis, there has been continuously felt a need to upgrade the solutions. Spending around 2-3% of their total IT budget on ERP implementations, the industry is expected to have a robust ERP system in place by 2010. Interactive Voice Response (IVR) System: IVR is a technology that automates interaction with telephone callers. BPOs are increasingly turning to IVR to reduce the cost of common sales, service, collections, inquiry and support calls to and from their company. Previously IVR solutions have used pre-recorded voice prompts and menus to present information and options to callers, and touch-tone telephone keypad entry to gather responses. But the modern-day IVR solutions, along with the features of older versions IVR solutions, also enables interactive entries and responses to be gathered via spoken words with voice recognition. IVR is the latest big technology adopted by the Indian BPO industry. Though the big firms have achieved certain degree of implementation of the same but the smaller players are still in the nascent stages of the IVR adoption. Therefore, we can expect more and

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more embracing of the IVR solutions (especially the smaller players) towards 2009 and 2010. Monitoring solutions: With the requirement to maintain 100% quality, the BPOs have deployed continuous monitoring systems for all the calls coming into their networks. They want to ensure utmost customer satisfaction and thus keep a complete track of the way their employees handle the calls and also train them in the areas that are found lacking. Data warehousing/storage solutions: With a lot of data being captured not only to handle the clients' queries but also to analyze the organization's and employees' performance, the need for storage is huge in the Indian BPO organizations. By capturing the data at source, automating the processes, and providing the necessary information, the IT systems form the base for decision support system. The basic features that they look for while purchasing storage solutions are greater capacity, speed, performance and broader host system support. Response time is of prime importance while selecting the storage solutions in the BPO industry. Also as per the industry experts, NAS (network-attached storage) devices are the most preferred choice of the Indian BPO industry. Disaster recovery/business continuity solutions: BPO organizations are fast building up the disaster recovery sites so that their operations are uninterrupted even in the case of disasters and eventualities. They are aggressively looking at building data repositories for the smooth and efficient flow of their activities. Though the players are in the early stages of the project but are very keenly looking at setting up these sites by 2010. We at IDC believe that around 10-12% of the total IT spending by the BPO units will be directed towards the establishment of disaster recovery sites and their maintenance and modernization of the same.

Conclusion
The Indian ITeS-BPO industry is looking to consolidate its position in the business of outsourcing by strengthening its domain knowledge and becoming more specialized in terms of the services offered. It is climbing up the value chain without restricting itself to low-skilled jobs. It is also targeting new service lines to widen the gamut of services to achieve sustained growth. There is a continuous effort to maintain its position of competitive advantage over other countries in the fray, in terms of low costs, quality and skilled workforce and conducive environment (leveraging the IT and telecom strength of the country). With the international business eyeing India as a hot ITeS destination and the Indian industry gearing up to bring in a new revolution, India is bound to become the BPO and ITeS hub of the world in the next 4-5 years.

THE INDIAN TELECOM SECTOR
Overview of the Sector
The last decade has seen an explosive growth rate of growth of the Indian telecommunications sector. It has been growing at a brisk pace and has emerged as one of the key sectors responsible for India's resurgent economic growth. With a

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CAGR of 13.4% in 2002-07 in the sector, the telecom services industry in India was worth US$ 28,920 million in 2007-08. It is forecasted to grow upto US$ 57,000 million by 2012, at a CAGR of 14.5%. The total subscriber base in India (fixed and cellular) stood at 272 million at the December 2007 and crossed 300 million mark by end of March 2008. The subscriber base for mobile is forecasted to exceed 737 million by 2012 at a CAGR of 25.9% (2007-2012) from the current level of 233 million (December 2007) and 261 million by March 2008. This done, the industry prioritized infrastructure development for higher level services, consolidation and growth in 2007. Innovations in technologies are the USP of the sector and its sustainability in India. The overall teledensity of India stood at 25.34% at the end of February 2008, against 23.89% in December 2007. The urban teledensity stood at 64.48% in February while the rural teledensity was only 9.03%. The Indian government, realizing its limitations to support the sector moved positively to liberalize and permit the entry of private players in the sector. In the post-era of Department of Telecommunications (DoT) acting as the single player providing basic telephony; the telecommunications scenario suddenly was a bubbling cauldron of activity. The number of players increased, consequently the competition. The services on offer increased, consequently the demand and the expectations of the consumers. The Telecom Regulatory Authority of India was set up in 1992 as an independent regulatory body for the sector. Private competition followed with the opening up cellular and basic services for the local area. Private participation is permitted in all segments of the services -- international long distance, domestic long distance, basic, cellular, internet, radio-paging and a number of value-added services. The plethora of telephony services and products that exploded into the market after privatization, was not only user-friendly and provided a better customer experience, but also saw the consumer becoming more conscious of quality and services offered. The telecom sector provides services in two major formats -- Fixed and Mobile. Fixed wireline services: The fixed line segment, one time the primary service format, fell to a second place with the competition from mobile cellular services. The spread of broadband connections has helped the segment to recover somewhat but is still sliping down fast. Government controlled MTNL and BSNL are the top players with several private service providers like Airtel, Tata Teleservices, Reliance telecom, Shyam Telecom taking the rest of the market. The services provided cover Telecom Network Services (TNS): including Basic telephony WLL leased line NLD and ILD Data services for facilities like ATMs, frame relays, VPN and similar data services Other services like mobile satellite services, radio trunking, paging services

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Internet Services: including Broadband ISDN Dial-up Mobile telecom services: Mobile services picked up in a big way in mid-1990s. The segment grew with the fall in call rates and price of handsets. Private players like Airtel, Reliance, Hutch, Idea, Aircel, Spice and others command a high market share as compared to the Government operated BSNL and MTNL in the cellular services. These fall into two broad categories based on the technology used, namely: Global system for mobile communications (GSM) Code Division Multiple Access (CDMA) The figure next presents an overview of the telecom structure in India.

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FIGURE 13
Structure of Indian Telecom Sector

Indian Telecom Industry

Fixed

Mobile

TNS

Internet

GSM

CDMA

Basic Telephony Data Services Leased Line

TNS
WLL (F) Others NLD & ILD

Source: Industry and IDC India, 2008

The table next provides an overview of the various constituents of the Indian telecom service industry.

TABLE 16
Various Constituents of Indian Telecom Service Industry, 2007
Constituent Fixed Cellular NLD Revenue (US$ Million) 5910 16940 2160 Subscriber Base (Million) 39 261 NA Growth over 2006-07 -11.60% 36.40% 35.40%

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TABLE 16
Various Constituents of Indian Telecom Service Industry, 2007
Constituent ILD Internet Broadband VSAT Radio Trunking Revenue (US$ Million) 2560 NA 1190 130 10 Subscriber Base (Million) NA 11 3.92 0.082 0.037 Growth over 2006-07 0.20% NA 162.70% 11.10% 5.60%

Source: Industry and IDC India, 2008

Evolution of the sector
The Indian telecom sector has grown from a single service provider to a vast arena of government owned and private players providing a kaleidoscope of services covering everything from basic landline communication to digitally enhanced state-of-art mobile telecommunication services. With the inclusion of private service providers in the sector, the levels of consumer satisfaction reached new heights. With competition in the market increasing at a speed like never before, the consumers are being flooded with variety and facility options at ever-decreasing costs. The key milestones in the development of the telecom sector in India are listed in the table next.

TABLE 17
Milestones in the Evolution of Indian Telecom Industry
Year 1851 1881 1883 1985 Milestone First operational land lines were laid by the Government near Calcutta Telephone Service introduced in India Merger of telecom with the postal activities Department of Telecommunications (DOT) established, an exclusive provider of domestic and long-distance service that would be its own regulator (separate from the postal system) Conversion of DoT into two wholly government-owned companies: the Videsh Sanchar Nigam Limited (VSNL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas

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TABLE 17
Milestones in the Evolution of Indian Telecom Industry
Year 1992 1994 1994 1995 1996 1997 1999 1999 1999 1999 2000 2001 2003 2004 2008 Milestone VAS (Value Added Services) opened for private operators NTP (National Telecom Policy) 1994 launched Eight mobile licenses for four metros issued Mobile operations commenced in Metros Commencement of mobile operations in circles Telecom Regulatory Authority of India (TRAI) established NTP (National Telecom Policy) 1999 launched Migration from fixed license fee to Revenue Sharing Model Multiple fixed line providers permitted in each circle DoT split into DoT ( licensor and policy maker) and DTS (service provider) NLD opened to unlimited competition ILD opened to unlimited competition Government of India announces concessions for telecom industry including lower license fees Guidelines for intra-circle Mergers and Acquisitions announced Release of licenses for 3G spectrum usage
Source: Industry and IDC India, 2008

Reforms in the Sector
The Indian telecom sector has transformed itself from one owned and managed by the Government to a multi-faceted field with multiple players, both private and public. Regulatory reforms in India are guided by norms that aim to ensure setting a fair rate of return and preventing concentration of market power, their mandate is also to ensure incentives for investments and hence growth. Unlike in developed economies where telecom penetration is near saturation, the Indian regulators have also to kept the objective of increasing tele-density in consideration in deciding the regulatory policies and principles. This makes regulation reform in the country a unique phenomenon in the global scenario. The key regulations guiding the Indian telecom industry are listed next.

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The sector opened to the private sector for equipment manufacturing in the 1980s. This step was followed by several more reforms in quick succession, chief of which were the National Telecom Policy (1994) and the New Telecom Policy (1999) and the formation of the Universal Services Obligation Fund. These encouraged private players by permitting a revenue share license share. The Telecom Regulatory Authority of India was set up in 1992 as an independent body for the sector. The new century brought with it the private players in the national long-distance service. Infrastructure and coverage bloomed with the adoption of Unified Licensing and appropriate changes in the Access Deficit Charge regulations. The table next lists the key telecom sector regulatory bodies in India.

TABLE 18
Key Telecom Regulatory Organizations in India
Regulators Ministry of Communication Department of Telecom Telecom Commission Telecom Authority of India Telecom Dispute Settlement Appellate Tribunal Government Organizations Function Policy maker for the country for all means of communication Policy making and license regulatory body This serves as the executive arm of the Department of Telecom Management of the sector Dispute and grievance settlement

Indian Telephone Industries Ltd (ITI) Telecommunications Consultants India Ltd (TCIL)

Wireless Planning and Coordination

The WPC Wing of the Ministry of Communications, created in 1952, is the National Radio Regulatory Authority responsible for Frequency Spectrum Management This is a technical wing of the Department of Telecom It is the Telecom Technology development centre of the Government of India

Telecom Engineering Centre The Centre for Development of Telematics (C-DOT) Private Organizations/Companies

The Cellular Operators Association of India (COAI) Association of Unified Telecom Service Providers of India (AUSPI)

Source: Industry and IDC India, 2008

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Players in the Sector
The huge market potential for telecom products and services in India and the favorable policy initiatives attracted several small and large players such as Airtel, Hutch, Tata Teleservices, Reliance Infocom, Sify, and Huawei. The healthy competition among mobile service providers has brought down telecom tariffs, which were among the highest in the world less than four years ago, to more affordable levels at present. The falling tariffs have led to the wireless subscriber base growing at a compounded annual growth of 90% over the last three years. The nationwide operators account for over 90% of the market. The increasing demand for mobile phones, a fall in the handset prices, a favorable revenue-sharing regime and a drastic reduction in technology costs besides infrastructure sharing and outsourcing, have fuelled the growth telecom growth in India. The table next lists the key players by various segments of the Indian telecom service industry.

TABLE 19
Key Players in the Indian Telecom Service Industry
Segment State Owned Companies Private Indian Owned Companies Foreign Invested Companies BSNL and MTNL Reliance Infocomm and Tata Teleservices Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile and Spice Communications Players

Source: Industry and IDC India, 2008

Trends in the Sector
The key trends in the Indian telecom service industry are: Attracting the rural subscriber: With the government encouraging rural telecom projects, service providers are working on value-adds that suit the rural population. For example, entertainment services like SMS, ringtones and music are fast catching up among the rural masses. Foreign investment on the rise: International telecom biggies like Vodafone and Maxis are picking up stakes in Indian telecos. There is also a growing trend for crossborder mergers and acquisitions apt example being the talks between Reliance and MTN. Also on rise are the domestic mergers and acquisitions, to the tune like Spice Telecom and Idea merger. Introduction of 3G and Wimax technology-based services: Starting from the metros Indian mobile operators are ready to serve out third-generation or 3G-enabled

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connections to high-end user. This would be an up-gradation process for GSM operators and a whole new network for CDMA operators. Also the government has recently issued the policy for issue of 3G spectrum to the bidders which ahs cleared the road-block in the development path of 3G in India. Content enhancement and Value Added Services: The wireless world is moving beyond voice communication. In fact with the rapid growth of value added services (VAS) on mobiles in recent times, voice functions on mobile phones seem to have taken a back seat. Also the trend is changing and the users are buying mobile phones not just to be in touch, but to express themselves, their attitude, feelings, interests and personality. Customers continuously want more from their phone. Cellular phones are more than communication devices. They are now widely used to play games, read news headlines, surf the Internet, keep a tab on astrology, and listen and compose music, make others listen to your music collection, or check the bank balance. There exists a vast world beyond voice that is being explored and tapped by the cellular industry. Lead by choice and options, mobile phone subscribers are in many ways beginning to choose their operators on the basis of the Value Added Services (VAS) that they offer. The increased importance of VAS has also made content developers to come up with better and newer concepts and services. Mobile VAS constitutes a range of voice, messaging and data applications which utilise the infrastructure of a telecom network operator to provide enhanced services to wireless consumers. Apart from messaging and entertainment innovations the mobile services are looking at providing secure bandwidth for financial transactions, majorly payment services. Convergence of services: Innovations on broadband is encouraging operators to converge to provide voice and data in an integrated manner. Forming these Next Generation Networks (NGN) are players like Reliance, MTNL, BSN and others. Mobile Number Portability (MNP): It enables a subscriber to switch between services, locations or operators while retaining the original telephone number and the convenience of use. According to TRAI’s mandate in March 2006, the MNP service was to be made available to the customers by 1st April 2007. But seeing the current status it dos not look feasible that the MNP will come into force before March 2009.

Factors favoring the growth of the sector in India
Expanding Indian economy and rise in disposable income: Not only has the Indian economy grown at the rate of 8-9% over the last 2-3 years (9.0% in 2007-08), we have also seen a rise in the disposable incomes of the Indian consumers. Along with the increase in disposable incomes, their spending has also increased, with more emphasis on convenience and quality. Also with the Indian economy spreading its wings globally, Indian viewers have been exposed to global trends and patterns in a big way. They are adopting elements from foreign life styles and are thus asking for more services in their mobile phones like music, gaming, ringtones and others. This offers a tremendous opportunity for the telecom players to provide the services in demand and grab a larger pie of the market.

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Emergence of newer technologies: Broadband Internet and wireless technology are acting as the major growth catalysts, boosting overall Internet access spending and creating new opportunities for the telecom revenues in India. Today customers are starting to access Internet through their mobile pones rather than loging in from their PCs. This offers a great opportunity for the operators to leverage the particular need of the customers and make their sets GPRS enabled and give a spurt to the teleom market in India. Regulatory initiatives and reforms: Liberalization of regulatory norms and defining policies for the telecom sector gave it the much needed jumpstart toward achieving the phenomenal growth it shows today. Saturation of markets in developed countries: The telecom markets in other developed and populous nations are already reaching the saturation levels. Also with the low tele-density in India, the market is seen as a growth and investment opportunity. Also, unlike in India, most of the revenue in these markets comes from value-added services and not voice. Therefore, it is relatively difficult to grow revenues in these markets. While in India the major revenues are still driven by the voice and the VAS market is only in its nascent stages and is forecasted to pick up substantially by 2012. Thus this also offers newer opportunities for the operators to drive their revenue growths by focusing on VAS and the add-ons attached to the basic services of telephony. Unexplored (rural) market: The rural market of India is very large as 70% of the population lives there. But the rural teledensity was only around 9.03 in March 2008 vis-à-vis the urban teledensity of 64.48 for the same period. Thus it means that around 70% of the total Indian population (more than 1,100 million) are still not exposed to telephony and represents the largest set of prospective customers for telecom operators around the world. Demand for value-added services: There is an increasing demand from the Indian customers for the value-add features like mobile gaming, music and others, thus giving a big spurt to the VAS and the telecom market in India. Today the content of different types whether Internet download or SMS or MMS or any other type is gaining a lot of popularity among the Indian customers and is going to be the future driver of teleco growth in India. Qualified manpower and technology: The qualified manpower of the country is well equipped with equally good exposure and experience in the new and upcoming technologies. The experience and expertise ranges from providing solutions to a small solution to a large technological set-up. These advantages not only help the telecom players in leveraging the skills and experience of their employees, but also help them in developing innovative products, schemes and services.

Challenges in the Sector
Multiple regulatory environment: The telecom operators are heavily regulated in India. From expansion into other circles to adding of new products and services in their offerings, for all the operators are required to obtain licenses from the regulatory bodies. Also the quality of service norms for the day-to-day operations of the

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companies have been made very strict and makes the operators to invest heavily into the technological solutions. Also at present the sector is under a combined regulation system set up from DOT, TRAI and the cabinet or minister, which makes the operations all the more difficult for the players in the industry. Skewed tele-density distribution: A point of concern is the skewed rural-urban ratio in the subscriber distribution. This shows up as 9.03% in rural areas to 64.48% in the urban areas. Government policies are set to encourage bringing in a better balance to reduce the disparity. Appropriate spectrum allocation: There is an on-going tussle between GSM & CDMA based operators for spectrum allocation. All of these operators are trying to make their point that they are the one who need spectrum before the other and are able to utilize it better. The government is thus cautiously trying to understand each party's requirement. The regulatory bodies are caught up in the tussle between the GSM and CDMA operators while prioritization and final allocation of the spectrum, while ensuring maximum and optimized utilization. Quality of service: Maintaining factors like inter-connectivity between multi-operator networks to ensure quality of service often present difficulties and need to be addressed. Declining ARPU: Due to regulatory pressures and intense competition the ARPU is showing a steady decline. Falling ARPU means diminishing margins and loss of liquidity for the telecom operators in the crucial growth phase. Thus the focus is shifting from Average Revenue Per User (ARPU) to Average Margin Per User (AMPU) and the new mantra for the telecom companies is profitability and stability of the subscriber. To keep up the margins the mantra for the telecom industry is to offer value added services. One way to achieve this is to introduce the bundling of services, which may include various information portals (e-mail, cricket scores, jokes, astrology etc.), web based services (Internet access along with a host of other features like chat, online gaming, online shopping and auctions, web search, content download etc.), and messaging services like SMS, MMS etc. Mobile Congestion: According to TRAI, the congestion in mobile networks had reached alarming levels resulting in increased call drops and poor quality of service. The benchmark notified by TRAI with regard to network congestion is less than 0.5%. This means out of 200 calls between two operators, only one call should face congestion problem. However, as per TRAI’s latest report, there are more than 400 locations in India where the congestion levels between the networks of service providers are several times higher than this limit. This has raised alarms among the industry players on the issue of quality and satisfaction of services on offer to the customers. High valuations, an entry barrier: Despite India's attraction, setting up operations from scratch is proving to be very difficult for the telecom operators (especially the smaller players). With the heightened interest of the foreign players in the Indian telecom industry, the prices / valuations of the major telecom deals have soared very highly in the markets.

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Billing and provisioning: The billing systems of most of the operators though integrated still lacks 100% accuracy. Till recently all the operators were focused on integrating all their billing requirements so that they can generate one consolidated bill for all the services that the customer is using from that particular service provider. Most of them have achieved a certain degree of success in this integration. But now the challenge that the operators are facing is to make their billing process more accurate and error-free. Still many bills are errornous, causing a lot of difficulty to thecustomers and thus deviating them to competitors. Thus it has become all the more necessary for the operators to now concentrate on the accuracy part of the billing process, so that they do not lose customers on account of errors in the bills.

Role of Information technology in the Sector
The telecom sector is constantly renovating itself to meet the demands of the everincreasing subscriber base and the levels of service provided. The telecom industry is aiming for a people-centered information society. Information technology solutions are working to match the growing trend of converging voice and data networks. The security of these networks will necessarily have to be of a very high order. Demand for newer IT solutions in the telecom sector is for the following fields: Operational efficiency Cost saving through automation and innovation Improved customer satisfaction Improved connectivity over both voice and data Security and privacy of networks Gathering business intelligence The solutions are based on three basic features: Data integration Business integration and Technology integration Key solutions in the sector Integration of OSS/BSS applications with ERP, CRM, Business Intelligence and data ware housing: Technologies that integrate all systems of the network along with the upgradation of network applications are expected to draw 3-4% of IT budgets. Customer relationship management (CRM): Service providers are focusing on customer needs and requirements especially in the scenario of growing competition.

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CRM has become a keystone to leveraging VAS and services to gain the competitive edge. Business Intelligence (BI): BI is gaining in importance with telecom specific business solutions dealing with issues of service offering, subscriber churn and revenue leakages. In the telecom, the BI is also used to answer business related questions and provide greater insights into the business issues and pains faced by the industry. The telecom sector in the rural and semi-urban markets uses less of BI because the operators there are still getting their systems in place. They are more likely to focus on operational systems. But the operations of the industry in the urban areas require extensive analysis of data, which fosters the importance of BI in the Indian telecom industry. Geographical Information Systems (GIS): GIS has transformed from a singledepartment application to a company-wide endeavor, allowing telecoms to enhance a variety of applications ranging from engineering applications, workforce management, customer relationship management and location-based services, to advanced analysis on wave propagation. GIS helps telecoms create competitive advantage by optimizing installation, maintenance and tracking of network assets. Telecom companies typically operate in a maze of location-specific data. To manage and solve their operating issues smoothly, telecom companies require information on current and future needs of their customers, customer locations and assets deployed at their various locations. Modern intelligent technologies like Geographical Information Systems (GIS) are helping telecom companies analyze the location-specific information for network infrastructure management, wireless coverage and asset management. Storage solutions: Long-term archiving and retrieval at short notice has become almost a regulatory compliance necessity for telecom companies. Also the emergence of next generation networks, regulatory guidelines, huge spurt in the subscriber base, deployment of CRM applications and the growing infrastructure and applications, have made it all the more necessary for the telecom operators to shift to NAS from SAN. Accordingly the operators are spending around 5-6% of their total IT spend on the storage solutions and storage is going to be the key focus area for them in the next 2-3 years. Document Management Services (DMS): Document management adoption is being driven by the need to comply with regulations, control document-related costs, and streamline business processes and workflow. Document Management Services (DMS) in the Indian telecom have seen substantial changes in the last 2-3 years. The evolution and capacities of DMS have been kept in line with the rapid growth in the subscriber base and the increasing regulations. The players are increasingly deploying DMS to automate their back-end processes and reduce the paper-work. The DMS solutions are becoming increasingly important for the telecom operators to survive and thrive in today’s competitive scenario. Currently the players are still in the process of DMS implementations but are keenly looking at these solutions to ensure smooth and efficient flow of operations. Thus the industry is forecasted to see more DMS implementations in the coming times as the compliance and workflow management becomes critically important for the survival of the players.

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BSS/OSS: In today's competitive scenario, service providers are looking for OSS and BSS solutions that allow them to rapidly deliver new products and services. There is also a pressure to drive down the high costs and complexity of service provisioning on multi-technology, multi-vendor network infrastructure backbones. A flexible and configurable service fulfillment solution can enable service providers to reduce capital and operational expenditure by optimizing the service delivery process, increasing automation and reducing exception scenarios, which require costly manual intervention.

Conclusion
The growing Indian telecom market offers sufficient scope for absorbing top end services and technologies of the world. At the same time traditional formats of fixed line connections will spread in a sustained manner to serve the “common man” with a bouquet of voice and data service offerings. The convergence of technologies of voice and data over mobile and fixed line connectivity will present the Indian telecom sector with a formidable face in the global telecom industry. Telecommunication development aims for a information society based on the convergence of IT and telecommunications. With hardware as the common platform for both IT and telecom and software serving both sides, the symbiotic relationship seems a possible vision for the near future and by 2012. The growth of telecom infrastructure in networks and access points spreading widely geographically is a positive step in the right direction. Spread of fixed lines, followed by rural access to mobile technology and finally the convergence of data and voice is the telecom revolution in the country which is leading it to a significant position in the global arena.

THE INDIAN GOVERNMENT AND EDUCATION SECTOR: INDIAN GOVERNMENTS
Overview of the Sector
India, as one of the world’s largest economies has shown a huge spurt in its social and economic growth in the past two decades. Reforms with a foresight began in 1990s, including liberalization of investment norms and permitting the entry of private players into what were historically government controlled sectors, gave the overall GDP growth the much needed boost. The Indian Government has the huge responsibility of being the world’s largest democracy, with a diverse population having an even more diverse set of cultural and social values. Politically the country is divided into 29 states and 6 union territories. The union territories, except Pondicherry, are governed directly by appointees of the center. The state has elected legislatures, with a chief minister in the executive role. The President nominally appoints a governor for each state. At the center is the Indian Parliament with two houses, the Lok Sabha (house of the people, the lower house) and the Rajya Sabha (the council of states, upper house). The government has three independent branches—the executive, the legislature and the judiciary. The executive head is the Prime Minister and enjoys all real powers. The judiciary

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consists of the Supreme Court of India, high courts at the state level, and district and session courts at the district level. Apart from the cultural diversity, the country also has to deal with a massive socioeconomic spectrum. A large section of the society is marginalized, both economically and socially. In 60 years of being independent the Indian Government has targeted: Reduction of poverty Improvement of health conditions Improvement in literacy levels Overall economic growth Establishing a global presence in information technology, business process outsourcing, telecommunications, and industries The issues that the government has been continuously targeting are: Inadequate delivery of core public services: The quality and accessible quantity of core public services such as water and power supply, education, policing, sanitation, roads and public health leave much to be desired. Shortages all over are affecting the country’s competitiveness to a large extent. Unequal growth: Although this continues to be relatively low by global standards, disparities between urban and rural areas, prosperous and lagging states, skilled and low-skilled workers are growing. This often is the root cause for social dis-satisfaction and civil unrest. Reduction of risk of fiscal instability: Fiscal stability is vital for sustaining growth and developing infrastructure. Factors like high oil prices and growing imports can act like speed breakers to a steady growth rate and buffers for such periods need to be put in place. Inflation: With the inflation rate at an all-time high of 11-12%, there is intense stress on the stability of the economy and the sustaining of GDP growth. The Indian Government is continuously revising its policies and reforms beyond simply maintaining a GDP growth rate of 8-9%. It is now working to make the spread of this growth more widespread and inclusive to all the strata of its population. Rising on the priority scale for the governments are: Rural infrastructure: Building infrastructure and capacity in terms of health, education, employment opportunities and public interaction Urban infrastructure: The objective is to update existing facilities to match the growing numbers and living standards of the urban dweller Towards achieving these targets the governments have inculcated the following reforms in their working portfolio:

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Partnership with the World Bank: The World Bank works in close partnership with India’s Central and State Governments, aligning its strategies with the country’s own development agenda. It lays emphasis on investing in people through better health and education, empowering communities to participate in their own development, improving the effectiveness of government, and promoting private sector-led growth to achieve the country’s development goals. E-governance: E-governance has been recognized as a major tool for improving governance and introducing various administrative reforms. While it aids in the delivery of government services across distances both bureaucratic and geographical, it also breaks the monopoly and control over information. The factors supporting the E-Governance initiatives of the governments are: Encouraging the ICT industry: The first steps were taken in 1970s with the development of in-house applications for defense, economic monitoring, planning and for managing data intensive function in elections, census, and tax administration, etc. With a major change in attitude in mid 1990s, IT technologies supplemented by ICT technologies extended to catalyze the development of E-governance laws and technologies. Liberalization of the telecom sector and the reforms in the sector provided for a level field for regulation and spread of telecom services including Internet. SMART governance encouraged: Simple, Moral, Accountable, Responsive and Transparent become the key words for the government to improve its communication with the citizens. ICT tools are used more extensively for improving connectivity, networking, setting up systems for processing information and delivering services. Participants in the Programme To set up a comprehensive e-governance project with continuity there is a need to create suitable institutions/capacities at different levels. In the Indian scenario the key stakeholders in E-Governance are: Central Government: It is responsible for overall decisions on policies, direction and financial management. It also takes on the management and project implementation of E-governance at both national level and at the state government levels. State Government: While heading the projects at the state level, the state governments are responsible for supporting, creating and strengthening individual project management and state training institutions. Local bodies: They are responsible for developing and managing in-house capabilities and training programs in the departments.

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Citizens: They would participate in the E-governance initiatives through awareness, exercising right to information and getting together civil society organizations. Institutional framework for E-Governance The implementation of e-governance policy and direction is put under the purview of Department of Technology, chaired by the Cabinet Secretary. Department of Information Technology: It is working towards the creation of a common platform for the integrated delivery of services. This shared platform includes high-speed networks for data connectivity, data centers, call centers, common access points all over the country (including the remotest areas) and laying down standards that enable and ensure integration among all the government entities in the country. The figure next provides an overview of the ministrial structure under DIT.

FIGURE 14
Ministrial Framework of DIT

DIT

Attached Offices

Attached Companies

Autonomous Societies

Standardization, Testing and Quality Certification (STQC) Directorate National Informatics Center (NIC)

National Informatics Center Services Inc. (NICSI) Media Lab Asia National Internet Exchange of India (NIXI)

Education & Research in Computer Networking (ERNET) Center for Development of Advanced Computing (C-DAC) Center for Materials for Electronics Technology (C-MET) DOEACC Society Society for Applied Microwave Electronics Engineering and Research (SAMEER) Electronics and Computer Software Export Promotion Council (ESC) Software Technology Parks of India

Source: Department of Information Technology and IDC India, 2008

National Informatics Center (NIC): It was set up as a high priority project under the Electronics Commission and Department of Electronics in 1975-76, with the long terms objectives of setting up a computer-based informatics network for decision support to the Government Ministries/Departments and development of databases relating to India’s socio-economic development and monitoring a plan programs.

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NICNET: It is a government informatics network for E-governance and decision support. NIC has established a nationwide ICT network called NICNET with gateway nodes at about 53 central government departments, 35 state and union territories and 602 district centers, 1000 blocks for various ICT services. Standardization, Testing and Quality Certification (STQC) Directorate: STQC Directorate is a national quality assurance infrastructure in electronics and IT sector. It provides quality assurance service to industry with a vision to be an independent and efficient provider of international level quality assurance service both for products and services in technology intensive electronics and IT sector to help every organization to compete on global scale. National Informatics Center Services Incorporated (NICSI): NICSI provides onestop complete IT solutions catering to the government of India and state bodies, public sector enterprises/undertakings. It specializes in procurement, installation, commissioning and maintenance of state-of-the-art videoconferencing equipment and services, VSATs, hardware, software along with consultancy services and other IT related services like systems integration, application software development, and network installations. Media Lab Asia: The Media Lab Asia researches and innovates developments in the areas of information and communications technologies for the benefit of the citizens. National Internet Exchange of India (NIXI): It has been set up to ensure that the Internet traffic which originates within India and also has destination in India, remains within the country, resulting in improved traffic latency, reduced bandwidth cost and better security. ERNET India: It has over the years has developed a deep understanding of users need and evolving technologies to successfully address growing requirement of providing connectivity to educational and research institutions in the country. Center for Development of Advanced Computing (C-DAC): It is the premier R&D organization in ICET (Information, Communication and Electronics Technologies) in the country working on strengthening national technological capabilities. Center for Materials for Electronics Technology (C-MET): C-MET is established for development of viable technologies in the area of materials mainly for electronics. DOEACC: The DOEACC society has been established to carry out human resource development and related activities in the areas of information, electronics and communication technology to help maintain and further build up India’s lead in these sectors. Society for Applied Microwave Electronics Engineering and Research (SAMEER): SAMEER is engaged in growth of science and technology of microwave electronics and allied areas in India. Electronics and Computer Software Export Promotion Council (ESC): ESC is India’s trade promotion organization mandated to promote India’s electronics and information technology exports to global markets.

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Software Technology Parks of India (STPI): STPI acts as single-window in providing services to the software exporters and incubation infrastructure to Small and Medium Enterprises (SMEs). State Government institutional framework: This has been plan to work through the route given in the next figure.

FIGURE 15
State Government Institutional Framework for E-Governance

State Government Council

State Apex Committee

DIT

Departmental Committee

SeMT

PeMT

Source: Department of Information Technology and IDC India, 2008

State e-Mission Team (SeMT): It is a dedicated body at the state level consisting of full-time experts to provide an overall direction, standardization and consistency through program management of e-governance initiatives under way in the state government. All interdependencies, overlaps, conflicts etc. across projects as well as core and support infrastructure shared across several projects would fall under the purview of this group. Project e-Mission Team (PeMT): This capacity building is at the department level and provides support to the departments for preparation of the DPRs, business process re-engineering, change management, financial sustainability planning, getting technology expertise and managing the implementation of the project. Benefits of E-Governance Faster and convenient dealings with interactive possibilities Transparency in functioning through wider information dissemination and availability

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Functioning is possible beyond geographical barriers: The Internet has become a greater barrier destroyer when it comes to communication. The spread of Internet and broadband connectivity has been a great boon of the digital revolution. Provision of anywhere, anytime services Data management: Information and communication technologies allow for easy storage, archival and retrieval of information without geographical barriers. E-governance in India E-governance or the application of information of technology and communications to processes of governance falls under four categories: Government ↔ Citizen interaction Government ↔ Business interaction Government ↔ Employees interaction Government ↔ Government interaction

National E-governance Action Plan: 20032007
The Government of India approved the National E-governance Action Plan or NEGAP for implementation during the years 2003-07. The Plan purports to lay the foundation and provide the impetus for long-term growth of E-governance within the country. The plan seeks to create the right governance and institutional mechanisms, set up the core infrastructure and policies and implement 27 Mission Mode Projects and 10 Component projects at the center, state and integrated service levels to create a citizen-centric and business-centric environment for governance. These projects were selected on the basis of their reach in term of population and the impact they can make on the lives of citizens by making the service delivery mechanisms more customer-friendly and convenient. The entire effort involves 500 implementation agencies, two hundred thousand sites and an estimated 70,000 man-years of effort. Mission mode projects cover projects on setting up of core infrastructure and basic structuring of core projects, while the component projects cover the operational parts of core projects and projects on setting support infrastructure, HRD and training, integrated services, awareness and assessment, core policies, R&D and technical assistance. The figure next provides lists the E-Governance projects under the plan.

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FIGURE 16
Projects under NeGP

Source: Department of Information Technology and IDC India, 2008

The government has approved a total budget of US$ 5,750 million for the egovernance initiatives (mission-mode and component projects) to be undertaken during the period of 2003-07. From this around US$ 3,250 million will be spent on mission mode projects and around US$ 2,500 million on component projects. Out of the total budget, the government has approved US$ 833.5 million for the project of SWAN, US$ 554.5 millions for state data centers and US$ 1,435.5 million for Community Information Centers (centre - US$ 214 millions, state - US$ 198.5 millions and PPP - US$ 1,023 millions). The government was initially looking to complete these three projects by December 2007, though seeing the present status of the projects in various states the government has extended the timeline to December 2008.

The Three Core E-Governance Projects
State Wide Area Network
The Cabinet Committee on Economic Affairs (CCEA) has approved the scheme for establishing State Wide Area Networks (SWANs) across the country in 29 states and six union territories at a total outlay of US$ 833.5 million. Under this scheme, it is proposed to provide central assistance to states for establishing SWANs from state headquarters up to the block level with a minimum bandwidth capacity of 2 Mbps. The state capital (SHQ) will be connected with all the districts head quarter (DHQ) and subsequently all the DHQ to be connected with sub-division head quarter/blocks (SDHQ/Block). The SWAN project can be implemented by the states by using any of the following four methods: States can tie-up with NIC to establish the SWAN by suitably extending the existing NICNET upto the block level, or By engaging a private/public sector agency through an appropriate competitive bid (BOO/BOOT model) to establish and run the SWAN, or

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By establishing and owning the SWAN infrastructure directly and tying up with a private service provider for operations and facility management, or It can adopt any other PPP model, which it deems appropriate

State Data Centers
The state data center has been identified as one of the important element of the core infrastructure for supporting e-governance initiatives under NEGP. It is proposed to create data repositories/data centers in various states so that common secured data storage could be maintained to serve a host of E-governance applications and to provide electronic delivery of G2G, G2C and G2B services. The state data center project is essential because states need to manage a lot of information about their citizens. Not only this, they need to provide a lot of information to citizens like online application and others. All this online information needs to be maintained with the states, thus establishment of state data centers is essential for the success of NEGP program. The state data center would provide many functions like being the central repository for the state, secure data storage, online delivery of services, citizen information/services portal, state intranet portal, disaster recovery, remote management and service integration. SDC is a key element of e-government initiatives and businesses for delivering services to the citizens with greater reliability, availability and serviceability. SDC provides better operations and management control and minimizes overall cost of data management, IT management, deployment and other costs. SDC will also provide the 24X7 integration and connectivity to all the individual states. DIT has provided two options to the states for the setting up of SDC: Option I: The state/union territory and NIC together form a composite team for the State Data Center. While sovereign control of the data/applications is with the state, NIC through its dedicated core team (domain experts/ professionals), which may be specially created for each state, provides complete handholding for infrastructure up-keep, operations management including issues related to business continuity. Option II: The state and the union territories leverage the capabilities of existing IDCs for which different deployment models are available i.e. co-located services, dedicated services and managed services. Under this option, the state identifies a suitable model to select an appropriate agency through a suitable competitive process for outsourcing establishment, operation and maintenance of the data centre. The entire process of outsourcing, including advising on the most appropriate models, could be managed by the consultant out of the panel suggested by DIT, to be engaged by the state. Template RFP for this option shall be made available to the state by DIT. Depending upon whatever outsourced model is selected by the state, the management of the data/information shall be under the direct control of the state. For this, the state requires to deploy a dedicated team, which includes project manager, system administrator, network administrator, support staff etc. Further, the state can also exercise the option to engage and utilize the services of NIC.

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Community Service Centers
The Government of India has formulated the National E-governance Plan with the vision of providing all government services in an integrated manner at the doorstep of the citizen, at an affordable cost. In this endeavor it had envisioned CSCs as the front-end delivery points for government, private and social sector services to rural citizens of India, in an integrated manner. The objective is to develop a platform that can enable government, private and social sector organizations to align their social and commercial goals for the benefit of the rural population in the remotest corners of the country through a combination of IT-based as well as non-IT-based services. A CSC is an ICT-enabled service delivery outlet providing a range of services to the people in the village or town in which it is located. The CSCs provide e-mail, Internet access, citizen centric services through CSC portal and Web-based services such as agri-market information, hospital bookings and board examination results. The aim of the CSC scheme is to establish 100,000 rural kiosks across the country with an equitable spread at the rate of one CSC for every six villages. The CSC scheme will be achieved by establishing three-tier structure for the states. At the first (CSC) level would be the local Village Level Entrepreneur (VLE), to service the rural consumer in a cluster of six villages. At the second or middle level would be an entity termed the Service Centre Agency (SCA) to operate, manage and build the VLE network and business. An SCA would be identified for one or more districts (one district would cover 100-200 CSCs). At the third level would be the agency designated by the State -- the State Designated Agency (SDA) -- to facilitate implementation of the scheme within the state and to provide requisite policy, content and other support to the SCAs. These three tiers would function as per the policies laid down by DIT, either directly or through the designated National Level Service Agency (NLSA), which would be responsible for the overall planning and management of the project at the national and state level in close co-ordination with the DIT and the state governments.

Roadblocks on the path of E-Governance
Government spending has more than often been accused of exceeding the developmental output. The same applies to the E-governance as well. Though in place since 2003, but it has not yet been able to shower the fruits of ICT to the common man. Some of the critical issues hampering the full exploitation of the potential are: Resistance to change: Low levels of literacy and limited exposure to technology tend to cause technophobia. The government officials are still not much comfortable with the ICT technologies, solutions and infrastructure and fear that computerization can eat into their jobs or will duplicate their working. High cost of implementation: The cost of a solution still remains relatively high and this has serious application impacts. It means that many a time local initiatives remain on the drawing board however the NIC has been working as the primary technical partner, and develops customized solutions in the Indian case. Also the 2-3% of the plan expenditure spent on the IT to enable the e-governance should be the norm for all the governments. While a guideline to this effect already exists, it is not currently followed.

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Non-implementation of budgetary norms: Budget allocations for IT do not necessarily flow the laid down norms. Poor budget utilization also prevents efficient utilization of the funds. Digital security: With the massive amount of data taken on in each e-governance project, security and authorized access to data is of prime importance. With the governments highly prone to security attacks, the confidentiality of the E-Governance and related data has been a prime concern for most the state governments in India. Inappropriate choice of solutions for e-governance: In a vendor-driven environment solutions for E-governance are often inappropriate leading to project inefficiency and failure. Compatibility issues: Though several projects are successful in a stand-alone mode, they fail when integrated with other projects/networks. The projects succeed in the controlled environment, but fails beyond it. The failure is evident not only with exceeding boundaries but also with time. Therefore, the projects need to be planned such that they can be integrated with other projects at a later stage. Communication and administrative pitfalls: The e-governance projects in India suffer from problems like knee-jerk reactions resulting in radical changes, communication and standardization gaps without best practices coming into play, etc. Project implementation is delayed with procedural hassles also. The fixed tenure change in the government officials becomes a key roadblock in timely execution of the projects. Need for government process reengineering: Computerization of inefficient processes can lead to higher rather than lower levels of inefficiency and spiraling cost. Hence, it is essential to undertake process re-engineering as an integral part of e-governance project implementation in order to ensure increased efficiency and reduced costs. Post-implementation maintenance: Departments and states have limited access to any institutional mechanisms for building capacities in the areas of E-governance project development and design. Training is expensive while lack of knowledge is a major obstacle. Issues of infrastructure penetration and national level integration continue to be the pain areas. Thus the e-governance projects should be properly conceptualized and planned. If required help of an external agency may well be taken. While defining the scope of the project, the situation on the ground should be considered and efforts must also be made to understand the limitations in which the government operates. The efforts should be concentrated on governance than on the IT component.

Conclusion
E-governance denotes the application of IT to government processes in order to bring about Simple, Moral, Accountable, Responsive and Transparent (SMART) governance. Through the National E-governance Action Plan or NEGAP impetus was given for long term E-governance in the country with the aim to create the right governance and institutional mechanisms. The plan targeted offering doorstep

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accessibility and convenience for multiple services as well as opening up of welfare schemes to all the sections of the society. Information technology is becoming an important tool for bringing efficiency in government functioning, improved productivity, process standardization, automation, streamlining service delivery across government departments, level of governments, citizen and enterprise. Although there has been significant progress in the field, the government needs to include more people in the system while heading for the complete implementation of the system. Moving ahead there are several options to choose for growth plans. Choices that draw the best of the government, the private sector and civil society will go a long way to progress. Those based on effective use of knowledge to increase the overall productivity of the economy will encourage the opportunities for India to transit towards a knowledge economy.

THE INDIAN GOVERNMENT AND EDUCATION SECTOR: INDIAN EDUCATION
Overview of the Sector
The education sector - once seen as the exclusive obligation of the government and NGOs - now presents opportunities for research and private investment. Education is an essential resource for a country’s economic grown and for development of society in general. It enables people to take informed decisions about the use of available economic opportunities. In fact, literacy rate has been a major determinant of the rise and fall of all other major socio-economic indicators, such as: growth rate of the economy, birth rate, death rate and infant mortality rate. The central government, in partnership with state governments, has initiated a number of programmes to fulfil the constitutional obligation sand national aspirations for education, aiming to impart knowledge and skills, and shape values and attitudes for its citizens. In the new world of information, knowledge has become the new asset, rapidly replacing raw materials and labour as the most critical input for survival and success. More than half of the GDP in the major OECD countries is now knowledge-based, and about two-thirds of the growth of world GDP is estimated to come from technology-led businesses. The education sector in India can be categorised broadly as elementary, secondary and higher education, besides others attached like technical education, adult education, distance education, language development, scholarships, book promotion and planning and administration. Table next provides an outline of these categories and the corresponding age groups.

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TABLE 20
Stages of Education in India
Stages 1. Elementary 1. Elementary 2. Secondary 2. Secondary 3. Higher (Non-Professional) 3. Higher (Non-Professional) 4. Higher (Professional) Classes Category Primary Upper Primary High School Senior School Undergraduate Post-graduate Depends on the nature of Course I-V VI-VIII IX-X XI-XII 3 Years 2 Years Depends on the nature of Course Classes Name Corresponding age 6-11 11-14 14-16 16-18 18-21 21-23 Depends on the nature of Course

Source: Ministry of HRD and IDC India, 2008

Evolution of the Sector
Though the modern higher education system in India is almost 135 years old, its growth has been much faster since independence. Over the past 60 years, there has been a significant growth in the number of new universities and institutions of higher learning in specialised areas. There are now around 398 universities/deemed universities and more than 13,000 colleges in India. Special initiatives like the Sarva Shiksha Abhiyan have been launched by the Department of School Education & Literacy focusing on elementary education. The IT initiatives of the Kendriya Vidyalaya Sangathan (the central ministry), which spends up to US$ 10 millions annually on IT making the department's services more fruitful and encourages all the institutes under it on providing technical education in schools and colleges. So far there have been two main national policies on education: of 1968 and 1986. The former contained decisions of the central government on the recommendations of the national commission on education, 1964-66. The later was a result of the renewed priority assigned to education by the government during 1984-89. The 1986 policy was reviewed by a committee constituted in 1990 under the chairmanship of Acharya Ramamurti, and modified in 1992. The modified National Policy on Education of 1992 envisages the improvement and expansion of education in all sectors, elimination of disparities in access and laying greater stress on improvement in the quality and relevance of education at all levels, including technical and professional education. It also emphasises the role of

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education in empowering women and in securing a rightful place for the disadvantaged and the minorities. The apex body in the Indian education sector is the Ministry of Human Resource Development, formed in September, 1985 and has, since then, played a pivotal role in increasing the literacy levels among the Indian citizens. The ministry heads two departments formed to take the objectives of the ministry further. These are Department of School Education and Literacy and Department of Higher Education.

Reforms in the Sector
The total allocation for the education sector (including NER) was increased by 20% from US$ 7,168 million in 2007-08 to US$ 8,600 million in 2008-09 in the Union Budget. Accordingly, the SSA will be provided US$ 3,275 million; the Mid-day Meal Scheme will be provided US$ 2,000 million; and secondary education will be provided US$ 1,138.5 million. The focus of SSA is shifting from access and infrastructure at the primary level to enhancing retention; improving quality of learning; and ensuring access to upper primary classes. To address the issue of equity in the education of girls belonging to SC, ST, OBC and minority communities, 1,754 Kasturba Gandhi Balika Vidyalayas have been set up. In the 2008-09 budget it has been proposed to allocate funds (as part of SSA) to set up an additional 410 vidyalayas in educationally backward blocks. A sum of US$ 20 million has been allocated to set up new or upgrade existing hostels attached to the Balika Vidyalayas. A Model School Programme that aims to establish 6,000 high-quality model schools will be started in 2008-09, with a proposed budgetary outlay of US$ 162.5 million. In order to make education more accessible to SC and ST students, the government plans to establish Navodaya Vidyalayas in 20 districts that have a large concentration of Scheduled Castes and Scheduled Tribes, with a proposed outlay of US$ 32.5 million for the aforesaid objective. In 2007 the National Means-cum-Merit Scholarship Scheme was announced to enable students to continue their education beyond class VIII and up to class XII, with US$ 187.5 million budgeted. The Scheme will be implemented by award of 100,000 scholarships beginning 2008-09. A sum of a further US$ 187.5 million has been earmarked annually, so that a corpus of US$ 750 million will be built up in four years. US$ 2.5 million has also been allocated to set up Nehru Yuva Kendras in 123 districts that do not yet have one. The Mid-day Meal Scheme has been extended to upper primary classes in 3,479 educationally backward blocks. The scheme will now be extended to upper primary classes in government and government-aided schools in all blocks in the country. This will benefit an additional 2.5 crore children, taking the total number of children covered under the Scheme to 13.9 crore. To set India on the path to becoming a knowledge society, an IIM at Shillong; three IISERs at Mohali, Pune and Kolkata; and an IIIT at Kanchipuram have started functioning. Sixteen new central universities have been proposed for 2008-09, as well

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as three IITs in Andhra Pradesh, Bihar and Rajasthan; two IISERs at Bhopal and Tiruvananthapuram; and two Schools of Planning and Architecture at Bhopal and Vijayawada. More institutes of higher education, as promised by the Prime Minister, are to be established during the Eleventh Plan period.

Challenges in the Sector
Despite having embarked on a process of modernisation, the Indian education society is plagued with basic challenges that it was faced with even few decades back. These are presented below in the forma of a table.

TABLE 21
Challenges prevalent in the Indian Education System
Challenge Access What it is While availability of elementary schools within a reasonable distance from habitations is now fairly universal, the same cannot yet be said in regard to secondary schools and colleges. Besides the physical availability of institutions, other barriers to access, e.g. socio-economic, linguistic, academic, physical barriers for the disabled, etc., also have not been removed completely yet. The participation rates in all the forms of education in India are low and need to be raised very substantially, for India to become a knowledge society/economy. A linked challenge is one of equity. Students suffering from disadvantages of gender, socio-economic status, physical disability, etc. generally have access to education of considerably lower quality than the others. The challenge of quality in Indian education includes providing adequate physical facilities and infrastructure, making available adequate teachers of requisite quality, and having effective teachinglearning processes. Education in India needs to be more skill-oriented, both in terms of life-skills as well as livelihood skills. In sheer numerical terms, India has the manpower to substantially meet the needs of a world hungry for skilled workers, provided its education system can convert those numbers into a skilled work-force with the needed diversity of skills. The management of Indian education needs greater decentralisation, accountability and professionalism, so that it is able to deliver good quality education to all, and ensure optimal utilisation of available resources. India’s stated national policy since 1968 has been to raise public expenditure on education to the level of 6% of GDP, and the gap in allocations for education is still substantial. This needs to be urgently bridged.

Participation and equity

Quality

Relevance

Management

Resources

Source: IDC India, 2008

Role of Information Technology in the Sector
Technology has a pivotal role to play in the future of education. Around the world, applications of information and communications technologies (ICT) are making dramatic changes in economic and social development, going beyond a mere

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increase in the number of computers appearing in workplaces, homes, and schools, to more fundamental changes in the foundations of economic growth and its relationship to human capital. Education is, of course, at the core of the knowledge economy and learning society. Hence, the role of ICT in schools is shifting dramatically. Its traditional role has been that of a minor curricular subject or an instructional aid. However in some countries, ICT is now at the centre of education reform efforts that involve its use in coordination with changes in curriculum, teacher training, pedagogy, and assessment. The effective use of information and communication technologies (ICT) is helping the Indian education sector in the following six key areas Policy Training of teachers Teaching and learning Non-formal education Monitoring and measuring change Research and knowledge sharing. India is increasingly experimenting with various forms of new technologies to expand education and training programmes. Explosive growth in the area of IT, more particularly the Internet revolution coupled with multimedia strength, has fuelled a new wave of better teachings tools into the system. The key e-concepts in Indian education include: Online Education Online education is a term, which encompasses any kind of learning that is done exclusively online, sometimes through free, self-study websites. Credit-granting courses or education training may be delivered primarily via the Internet to students at remote locations, including their homes. An online course may include a requirement that students and teachers meet once or periodically in a physical setting for lectures, labs, or exams, so long as the time spent in the physical setting does not exceed 25% of the total course time. It provides the flexibility of ease and convenience to even those who could not have otherwise afforded to attend to classroom coaching (primarily because of lack of time due to their other commitments). The concept of online education has increased the reach of education to the poor and working people. It is important that education delivered online matches the quality of education delivered in classrooms. This is yet to be achieved in the Indian context, which is constrained due to considerations of cost and reach. The non-availability of adequate ICT infrastructure keeps online education in India from reaching all its intended audience, and it still remains costly. Once these aspects are sorted out, it will become

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an efficient and convenient way for many employed and poor citizens in the country to acquire education. It is imperative for the government to simultaneously develop both the ICT infrastructure (for education dissemination) and also the newer delivery channels of communication, keeping in mind that they should be able to reach the bottom-most at an economical cost. Cyber-age Education A majority of human activity has been wired into a connectivity that has transcended national frontiers, geographical boundaries and even transcultural barriers. Learning too is undergoing changes as a result of the focus of enterprises on enhancing inhouse skills and expertise, making the market for e-learning solutions a very lucrative proposition for enterprises worldwide. Technology based solutions allow more room for individual differences in learning styles. This leads to a markedly faster learning curve, compared to instructor-led learning. The main thrust of the e-learning programme of the Indian education department is to effectively integrate it methodology and approach with the conventional classroom system to maximise the benefits flowing from each, increase its reach to more and more learners, and spread e-learning from teaching of ITrelated subjects to other subjects. Distance Education The rapid and positive change of appreciation of open and distance learning, mainly due to the development of the application of advanced information technology and the evolution of the concept of the information society, has interestingly coincided with the rapid development of open and distance learning. The term ‘open and distance learning’ embraces an increasingly diverse range of education and training activities. In this educational form, the teaching process is clearly separated in two parts carried out in general by different groups of experts— the first one is the preparation of course materials and this is a long-lasting activity of expert groups, and the other is the process of course delivery, which is the task of other groups of experts (tutors and course organisers). Advanced information technology plays role in three fields of open and distance learning: PCs are a very effective media and instrument of distance education Computer-based telecommunication increases the access to and effectiveness of open and distance learning, decreases costs and opens ways for new approaches Multimedia teaching materials and methods offer qualitatively new opportunities in open and distance learning Virtual Learning Environment

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A Virtual learning environment (VLE) is an environment designed to facilitate teachers in the management of educational courses for their students. While often thought of as primarily tools for distance education, they are most often used to supplement the face-to-face classroom. These environments usually run on servers, to serve the course to students as Internet pages. Components of these systems include templates for content pages, discussion forums, chat, quizzes and exercises such as multiple-choice, true/false and one-word-answer. Services generally provided include access control, provision of e-learning content, communication tools, and administration of the user groups. India Emerging as an Online Tutorial Hub India is fast emerging as a global online tutoring hub by delivering teaching services at very low rates. With a large number of dedicated post-graduates well-versed in English language, India has the potential to grow in the online tutoring industry. Indian teachers provide tutoring services at around 25% of the amount charged by their counterparts in the United States, the United Kingdom and other European countries. India earns over 10% of the global market share for online tutoring and the figure is expected to double by 2010-11. World-class institutes such as the Indian School of Business have been opened in the past few years and market leaders like NIIT have created their respective shares in the education market. One of the new, private sector enterprises, the Indian School of Business (ISB) has been founded in collaboration with over 50 of the world’s top corporations and two prestigious management institutions, the Kellogg Graduate school of Management at Northwestern University and the Wharton School at the University of Pennsylvania. IT solutions for the sector The Indian education sector is using a wide gambit of IT solutions for its modernisation and up gradation. It is awakening to the use of latest tools to deliver education in a much more convenient and effective manner to the learners. Hardware Computers in classrooms: One of the greatest potential benefits of distributing computers to individual classrooms is to provide teachers and students with easier access to these educational tools. But providing only one or a few computers in all classrooms of a school has have little or no impact on learning. The alternative is the COWs or Computers On Wheels; carts that hold a set of computers (10 to 20), usually laptops, often a printer, with the possibility to connect to a school network via one network connection. COWs can be wheeled into a classroom when the teacher wants to use computers for a specific activity. Using battery-powered laptops makes it possible to avoid the need to provide special electrical power. However, the initial cost of COWs with laptops and wireless networking capabilities has a higher cost per computer than conventional stationary computers. COWs can be seen as communal property and therefore it can be more costly to maintain them, especially when using laptops, than with stationary systems. There is also a greater risk of equipment

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damage from accidents, hard use or dropping with COW using laptops than with stationary equipment. Computer rooms or labs: Establishing one or more computer rooms or labs is a popular way to provide equitable access to computers for the greatest number of users at the lowest possible cost. Computer labs enable schools to concentrate expensive resources in a common space that can be used for student educational activities, teacher professional development events and community groups. Computers in libraries and teachers’ rooms: When funding and staff resources are scarce, schools can optimise investments in computers and Internet access by installing a few computers in public spaces such as the library and the teachers’ planning room. Giving teachers private access to computers and the Internet can encourage them to learn to use these technologies and enable them to carry out planning activities involving the use of computers. Hybrid Options: Where possible, the greatest educational returns on technology investments can result by strategically using combinations of the above configuration options. Networking Connecting computers together to form a network, and connecting school, lab, and classroom networks to the Internet can further multiply the educational value and impact of computers in schools. There are a variety of options for creating classroom, lab and school computer LANs that are being explored by educational institutions at present: Peer-to-peer networking: As with all networked computers, users share files and resources located on computers in the network, but there is no file server or central computer to manage network activity. One or more of the computers in a peer-to-peer network provide centralized services such as printing and access to the Internet. Client / server networking: As a computer network grows in size and complexity, it is necessary to shift to a client/server style of network using more advanced network operating software. In these networks, one computer centralises such functions as storing common files, operating network e-mail delivery, and providing access to applications and peripherals such as printers. Thin-client / server networking: A thin-client/server network is similar to a traditional client/server network, except that the client is not a freestanding computer capable of operating on its own, but rather desktop appliances or network devices that link the keyboard, monitor, and mouse to a server where all applications and data are stored, maintained, and processed. The server, often called an application server, is built to provide all networking services and computer calculations. Since all network and computer services are centralised, all maintenance and upgrading is done at the server; there is no need to service the clients.

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Wireless LANs: This type of system does not require cables to connect computers to each other and to the server and shared peripherals. Instead, wireless network adapters (receivers) are installed in all computers that will be part of the network. One or more wireless network hubs/transmitters are connected to the server, usually by a cable. Several wireless network hubs are connected to each other in a chain. Network traffic is then transmitted by the hub to each computer and to and from the server. Software Operating system: Decisions about what operating system software to use are usually based on the type of hardware purchased, as the OS often comes with the computer. Yet decisions about what software are being based to operate networked computers not as predetermined as they are with client system software. Basic applications: All computers in schools require a basic set of software applications, both for computer literacy programs and to be integrated effectively into mainstream education programs. These applications generally include software for word processing, spreadsheets, presentation software, graphics software, and software to create websites and HTML documents, such as Frontpage. As with operating system software, commercial and public domain options are available. Educational software: Countless software applications have been developed over the years, to meet educational objectives. As with all uses of computers to enhance and improve teaching and learning, the key to success is not the type of educational software that is used, but how teachers use the software and integrate it into their teaching programs. Internet software: One of the most important benefits of Internet and webrelated software is that most of it can be used regardless of the kind of hardware and software. The platform independence of the Internet reduces the costs involved in using the Internet in education and enhances its benefits. One key benefit of Internet use is access to a variety of Internet and web-based software applications, much of it freely available in many languages, to be used by teachers and students in ways.

Conclusion
There is a need to follow a mix of both public and private presence in the education sector. Private intervention in education has several advantages, including reducing inequality, improving accessibility, compensating for market failures in lending for education, and disseminating information about the benefits and availability of education. On the other hand, governments can help improve the quality of education by establishing standards, supporting inputs, adopting flexible strategies for the acquisition and use of inputs, and monitoring performance. The world of the future will have much more education occurring outside of schools. It will draw on vastly more powerful technologies, like the two-way voice-activated, computer-assisted and self-paced learning. Learners will be able to go beyond the

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classroom and obtain information in a variety of forms—text, data, sound, video— from all over the world, at any time of the day or night, and at rapidly diminishing costs. The Indian education sector needs to be prepared to keep pace with the changes happening in the education sector at the world level. The sector is not only to fight against the assault of denying education of equitable quality to the masses but also has to take care of the social and pedagogical character of knowledge itself.

THE INDIAN MEDIA AND ENTERTAINMENT SECTOR
Overview of the Sector
The coming of the digital age has opened the opportunity venue for the Indian media and entertainment sector like never before. Estimated at US$ 11,900 million in 2007 (growth of 17% over 2006), this sunshine sector has everything going for it; the regulations that allow foreign investment, the impetus from the economy, the digital lifestyle, the spending habits of the consumers and the opportunities thrown open by the advancements in technology. Fuelling the growth is emerging avatar of the media and entertainment industry as an investment opportunity. The impetus from the economy, liberal Foreign Direct Investment (FDI) government policies, increased consumer spending, digital lifestyles and developing technology are spurring the sector’s potential. Interestingly, not only has there been an FDI inflow in the sector, but also a lucrative outflow with Indian companies acquiring businesses abroad. Advertising accounted for US$ 4,600 million, which is 38% of the revenues of the media and entertainment industry. This marked a 22% annual growth. With a sustained growth expected this value is expected to touch a whopping US $36,000 million by 2012, meaning a 50.9% growth for the sector. Currently among the top three markets for global collaborations in entertainment and media, the Indian media and entertainment industry is just about 0.5% of the global media and entertainment industry. But outstripping the global industry growth rate (6.6% for 2007-2012), the Indian media and entertainment industry is forecasted to grow at a CAGR of 24.9% to be US$ 36,300 million by 2012. The newly emerging electronic distribution chain has set the sector revamping supply chains, content development and now business processes too. Indian entertainment products are drawing global attention while the evolving media space is rapidly reinventing itself to meet the consumer’s accessibility to the convergent media of digital entertainment and broadband access in the Indian household. On demand content may come up as serious competition to physical distribution of media in the next 45years. While the media and entertainment sector is consumer driven, the industry is gearing for the competition arising from the lesser availability of time and attention span of the user. Growing on the scene are bundled products, newer distribution channels and better and efficient means of communicating with the end consumers. The media

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industry, be it music, motion picture or publishing industries, all are working to meet deadlines to develop new business models and systems to take a lead in new internet distribution streams. With around 80% of all content will be digital by 2012 the content distribution chain is expected to meet almost 90% Internet-based business in less than a decade.

Evolution of the Sector
The media and entertainment scenario in India is changing rapidly as Indian and foreign players are evolving their distribution channels to effectively reach to the audiences with the use of online delivery mechanisms. Media convergence and digitization are the new facets of the Indian media and entertainment industry. Preferences for niche offerings are growing, be it video-on-demand and pay-per-view or multiplexes with add-on facilities. News updates are taken off the Internet than in print format. Digital music with its polyphonic tunes is the listener’s choice while radio fills the air with multiple channels. The industry as a whole has changed its face in moving from family owned to full blown corporate houses. The convergence of various distribution platforms with similar type of content and meet the consumer needs is a basic reason for most amalgamations of technology and content followed by convenience of electronic channels. The figure next provides a landscape of the changing face of media and entertainment industry in India.

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FIGURE 17
Changing Face of Indian Media and Entertainment Industry

M&E Sector

Films

Television

Radio

Print Media

Music

Content

Commercial (Hindi & Regional Cinema), Art & Cartoon Movies

Commissioned Programs, News & Current Affairs

Commissioned Programs, News & Current Affairs

News, Current affairs, Fiction & Non-Fiction Articles

Film Music & Private albums

Delivery

Cinema Halls & Home Videos (Cassettes)

Mobile Phones

Cable Terrestrial & DTH

Public Broadcaster & FM Channels

Internet

Newspapers Magazines & Books

Cassettes & CDs

Traditional delivery Mechanisms Converged Delivery Mechanisms
Source: Industry and IDC India, 2008

Constituents of the sector Television Indian television industry is expected to be the top revenue generator among the constituents of the media and entertainment industry. Revenue comes in the form of subscription, advertising and software content. The television industry was the top growth segment with a 20% growth rate, taking the industry to US$ 4,800 million in 2007. New formats for distribution like the DTH (Direct-to-home) and IPTV (Internet Protocol television) are the new subscription revenue generators and are likely to grow cumulatively by 44% annually till 2012.Advertising revenues and value add services are encouraging the launch of new channels. Regional programming is coming up a selling factor in this field. Overshadowing mass entertainment channels are the niche channels in segments like music, movie and children’s channels. Multi-channel advertising adds to the television advantage over print or radio. Growing at a CAGR of 22.4% for 2007-2012, the television industry is forecasted to be US$ 13,200 million in 2012.

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Films With more than 900 films churned out annually, the Indian film industry is the largest of its kind in the world. Growth has been spurred by factors like digital formats, multiplexes making a lifestyle statement at a comparable cost, digital technology reducing time to market and the film industry turning into corporate bodies. This industry, which was worth US$ 2,500 million in 2007, is estimated to grow at a CAGR of 16.2% to US$ 5,300 million by 2012. The value chain in this industry runs through the three main players namely, the producer, distributor and exhibitor. Revenue for the producer are mainly from sales to theatres, cable and satellite television, home video, music sales and in-cinema product placements. Distributor earnings come from selling screening rights. Distribution rights are purchased from the producer. Film exhibitors are the link between the film distributors and the audience. Operating in two basic categories – single and double screen cinemas and multiplex cinemas, the Indian film exhibitor emerges as largely individuals operating in an unorganized sector. The film industry faces a major challenge for survival due to the advent of alternate viewing options like video and cable television. With people shifting to DVDs for film viewing, the Indian cinema houses are fighting against tough and digital competition. In the country’s economic boom this industry is working on recovery through growing corporate format in the ownership structure and the spread of multiplexes. Modifications in the tax structure are another factor serving as a helping hand. Avenues for earning are also coming up in the form of dubbed versions of films, merchandise in newer forms of mobile ring-tones, wallpapers. Radio Traditionally, radio has been the most cost effective source of entertainment in India. With FDI and liberalized license norms the sector has shown a 24% growth in 2007. The radio industry is forecasted to grow at a CAGR of 24.5% to reach upto US$ 300 million in 2012 from US$ 100 million in 2007. The cheapest and oldest form of entertainment, reaching 99% of the population, this segment is likely to see dynamic changes, with the advent of private players (including foreign participation). Print Media The boom-time for print media is reflected in the fact that the segment has a growth of 16% in 2007 and is estimated at US$ 3,500 million. This rate is among the highest in the world. Though the advent of digital media has made a big dent in the market value of print media, but the rural masses are still on in terms of print media. With the changes in the content planned by the operators, the segment is likely to maintain a moderate growth path (to the tune of 12-14%) in the next 4-5 years. Music The Indian music industry, which until recently was overwhelmingly dominated by film music, is now being propelled by non-film music as well. The Indian music industry is

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forecasted to grow at a CAGR of 4.3% from US$ 170 million in 2007 to US$ 210 million in 2012. Significantly, the share of digital music is likely to increase, with an estimated growth rate of 25%. Digital music sales exceeded physical sales of music for the first time in 2006, primarily driven by mobile phone platforms like caller ring back tones, ring tones and music clips. Multiplexes The influx of multiplexes in the country is providing a tremendous boost to the domestic box office market. Though the number of multiplexes in India is around 97 with 400 screens (as compared to about 12,000 single screens theaters in India), in view of the aggressive growth plans by some of the leading film exhibition companies, we expect the number of multiplexes and thereby the number of screens to grow significantly in the next 4-5 years.

Reforms in the Sector
The media and entertainment in India works within the regulatory framework prescribed by the government of India. Though this used to be restrictive in the past, several moves to modernize the industry have been made in the recent years. The Indian media and entertainment industry comes under the purview of Ministry of Information and Broadcasting. The three divisions under the ministry are: the Films Division comprising National Film Development Corporation (NFDC) and Central board of Film Certification (CBFC), the Broadcasting Division, which overlooks Prasar Bharti, AIR and Doordarshan and the Information Division comprising Press Council of India and Press Bureau of Information. This is represented in the figure below.

FIGURE 18
Institutional Framework of Ministry of Information and Broadcasting
Ministry of Information and Broadcasting

Films Wing

Broadcasting Wing

Information Wing

Directorate of Films Festival -> National film val Development Corporation -> Central Board of Film Education Figure 5

-> Prasar Bharti -> AIR -> Doordarshan -> Broadcast Engineering Consultants (India) Limited

-> Press Council of India -> Press Information Bureau

Source: Industry and IDC India, 2008

To boost the Indian media and Entertainment industry, the government has made certain mandatory provisions for players in various sub-segments of the sector. The key ones among them are:

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No differentiation on content: The major regulation issue in television is that distribution platforms are not allowed to screen exclusive content, which means they cannot compete on the basis of content. Foreign investment: In television and newspapers publishing, news-based content and non-news content is treated differently for foreign investment. Whereas 100% foreign investment is possible in non-news content, only 26% can come into the news segment. Broadcast regulation: A new draft broadcasting services bill is in the offing, which proposes imposition of cross media curbs and restrictions with regard to number of channels owned by a broadcaster. The aim is to avoid the creation of monopolies in the media sector. A content and carriage regulator called the Broadcast Regulatory Authority of India is also proposed.

Players in the sector
The key players in various sub-segments of the sector are mapped in the table below.

TABLE 22
Players in the Media and Entertainment Sector
Segment Films Players Zee Telefilms, Adlabs Films and AVM Productions (in production, distribution and exhibition); Mukta Arts, Pritish Nandy Communications and Rajshri productions (in production and distribution) and Shringar Group and PVR Cinemas (in distribution and exhibition) CNBC-TV 18, Discovery, ESPN Star Sports, MTV, STAR Network, Ten Sports, Walt Disney, Doordarshan, NDTV, United Television, Nimbus, Sahara India, Sony Entertainment, Sun Television and Zee Telefilms Universal, Saregama India (HMV), Venus, Sony, BMG Crescendo, Virgin Records and Magnasound All India Radio (AIR), Radio Today, Radio City, Entertainment Network India and India FM Radio Newspapers – Times of India, Hindustan Times, Hindu, Telegraph, Indian Express, Dainik Jagran, Navbharat Times, Punjab Kesari and Mid-Day. Magazines – India Today, Readers Digest, Outlook, Femina, Filmfare, BusinessWorld and Stardust Shringar Cinemas, PVR Cinemas, Adlabs, Fun cinemas, Satyam, Wave and Inox

Television

Music Radio Print Media

Multiplexes

Source: IDC India, 2008

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Trends in the Sector
Convergence: The confluence of technology and media offers many benefits. Media and entertainment companies are trying to take advantage of this. Different types of media -- TV, Internet, books, magazines, movies, etc. -- are getting converged usually via the Internet, creating a market for graphic design, web development, content creation and direct marketing. Live chats, streaming music and videos, targeted advertising and audience testing are examples of converged media applications taking shape in the Indian market. Deregulation: Fewer regulatory controls and more autonomy being given by the governments in India is allowing companies to raise funds, and look at innovative business structures and activities. They are able to operate more freely and are able to generate newer ideas to provide variety and convenience to their customers Entertainment as focus: A growing consumer economy needs entertainment to be woven into many aspects and business activities; the media companies are looking at Entertainment as a high potential segment for growth. Open media: New digital technology will support the development of open media firms that will base media and entertainment decisions on the changing consumer behavior, which in turn will be influenced by affordable and sophisticated technology. The closed media structure will give way to an open one. Growth of pervasive media: Pervasive media, which represents the coming era where consumers and businesses are fully connected, immersed in media all the time, is growing at a rapid pace. Increased demand, power (larger megabytes of content carried over smaller devices) and liquidity (portability and interoperability) are the salient features of this growth. Digitization and digital cinema: Digitization is the latest key word for distribution channels, fo processes and content deliveries into electronic content. This has raised the bar for technical sophistication and content production. As far as DTH, digitalization of cable and IPTV go, India will have 90% penetration from an estimated 185 million television households by 2015. Digital cinema is also gaining popularity as multiplexes grow in number and invest in improved technological solutions. Improved print technology: Print media has grown in sophistication with the help of improved printing technology and computer-aided processes. There has been a big facelift seen in both the content and presentation of the media in the past decade.

Factors favoring the growth of the sector in India
Positive economic and demographic trends: With 60% of the population below 35 years of age and a rise in disposable income, the Indian consumer is willing to pay for the content demanded. He is willing to shell more for what he wants to see than what he used to a decade back.

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Liberalization of Foreign Direct Investment: This has primarily benefited the films and multiplexes segment in India, which have come in for a big boom in the last few years. The summary of FDI permissions in the sector are given in the table next.

TABLE 23
Summary of FDI Policy in the Indian Media and Entertainment Industry
Sector Films Multiplexes Television - DTH Television - Cable Television - Software Production Television - Terrestrial Broadcasting Television - Establishment and Operation of Satellites Print Media - Non-news Publications Print Media - News Publications Films Advertising Radio
Source: IDC India, 2008

FDI Limit (%) 100 100 49 49 100 0 74

Methodology Approval through direct route Approval through direct route Including FDI and FII Including FDI and portfolio investment Approval through direct route No private operator is allowed FIPB approval needed

100 26 100 100 20

Approval through direct route FIPB approval needed Approval through direct route Approval through direct route FIPB approval needed

Advertising growth: Advertising spending in India is directly linked to the growth in GDP. A reasonable estimate of its sensitivity to economic growth places it at least 500 basis points over the GDP growth across the foreseeable future. This increase in advertising spending is expected to strengthen broadcaster revenues and, in turn, content producers’ revenues. Besides, the delivery of content over new wireless delivery formats is expected to open up a new avenue for advertising. Broadband access: As broadband access is increasing growing in Indian homes, the media industry (music, motion picture or publishing industries) is working to meet deadlines to develop new business models and systems to take a lead in new internet distribution streams. With around 75-80% of all content will be digital by 2012 the content distribution chain is expected to meet almost 90% Internet-based

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business in less than a decade. The right asset management system support will be the key to success. Increasing demand for content: On the television content side, it is expected that the content production houses with well-established production processes, scale, ability to identify customer preferences and changing audience tastes, diversified revenue streams, strong creative talent and reputation for quality, will continue to be in demand. The demand for television content and programming is bound to increase significantly as a result of increasing number of channels, the need for broadcasters to invest in content to differentiate themselves from the clutter, and competition among broadcasters to pull viewers. The emergence of new distribution formats such as DTH and broadband would also create additional outlets for content. Regional programming: The attention being given to regional programming especially on television and the growing viewership of the segment is becoming a lucrative investment option for the players eyeing the television sub-segment of the industry. Untapped potential: Rural areas represent a large untapped market for media and entertainment, with penetration rates presently far lower than semi-urban areas. Television, especially, is attractive to rural Indians, as it exposes them visually to trends and events in other parts of the country.

Challenges in the Sector
Gaps in accessibility: The socio-economic strata of Indian society present a large gap in the levels of accessibility. In lower socio-economic classes, the penetration rates for print media, television, radio and films are 30%, 65%, 16% and 15% respectively (2006). On the other hand, the penetration rates for the same among higher classes are 95%, 96%, 37% and 30% respectively (2006). The figures clearly indicate towards the huge disparity between the two sectors with the rural masses still not exposed to media advantages to the full potential. Piracy and the entertainment tax rulings: These are the bane of the film industry. The problem of piracy assumes a different proportion in a country such as India with a widespread area and a population of over 1,100 million speaking 22 different languages. It impacts all segments of the industry especially films, music and television. Also the entertainment tax rates in India are one of the highest in the world. Currently it varies from 15% to 60% of gross box office collections (differing from state to state) in comparison to the average rate of 10% in the developed countries. The two big issues are hindering the growth of the M&E industry in India from realizing its true potential. Imbalance of offerings: The market share of international and regional films and programming is skewed in favor of Hindi and Bollywood products. Foreign films account for a bare 18-20% of the gross box office collections. The big hindrance to the growth is the dubbing of the foreign films in the regional languages which not only distracts the audience but also deteriorates the quality of the films screened.

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Inconsistent foreign investment for media: The current FDI policy has several inconsistencies including different norms and limits for various media segments. The whole gambit adds to the confusion and adds to the woes of the players looking to expand into different sub-segments. Regulations for content sharing: Events/contents declared as being of national importance are covered under mandatory content sharing guidelines. The issue also affects the distribution of exclusive content on a single platform. Openings for premium content plans are therefore limited at present.

Role of Information Technology in the Sector
Information technology and the solutions it offers are now definitely an indispensable and inherent part of any media organization. Technology developments like broadband access and Internet protocol, not only meet the needs for efficiency and ease-of-use requirements of the consumer, but also offer opportunities to access and manipulate content and services, when time and attention are in short supply. Convergence is expected to change traditional industry structures, business models, and distribution mechanisms. Media audiences would get increasingly fragmented, thereby posing challenges as well as opportunities for players in the industry. IT solutions in the sector Knowledge management and business intelligence: As media companies provide services over multiple channel, knowledge management is a key function. This means identifying and mapping intellectual assets within the organization, making corporate information accessible, sharing best practices and technology that enables these, including groupware and intranet. An increasingly competitive marketplace makes this even more necessary. The media organizations in India are increasingly using KM and BI to comprehend the user preferences and plan their expansion accordingly. Digitization: Significant investments in equipment and technology have taken place to capture, manage and distribute information in digital form. This reduces unplanned downtime of revenue generating assets, increases employee productivity, streamlines workflow and improves flexibility. Also with the increasing customer orientation towards digital and online content, the media companies are increasingly deploying solutions for the faster and accurate conversion of their content into digitized format. They are looking to build a community around digital content viewing. Increasing use of special effects: More sophisticate special effects in movies is becoming a norm rather than an innovation. Companies providing these services are growing in number. Large pool of available manpower in India is a major growth factor for animation and special effects. They are using high-end applications and hardware components to support their animation and special effect endeavors. It has given a big boost to the servers, software and services market in the vertical. Storage: A reliable storage infrastructure is critical for the media and companies are looking at networked storage through NAS and SAN initiatives. Companies are consolidating their storage to minimize the need and are setting up business

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continuity infrastructure by developing datacenters and repositories. Greater capacity, speed, enhanced platform support; broader host system and performance are some basic requirements. Storage is also essential to comply with certain regulatory needs where companies are required to have last years’ data with them. Content management: Capturing, creating, managing and delivering information are the key functions of media and entertainment companies. Content management enables companies to do this effectively by doing the above in a structured manner. IDC believes that the content management solutions/software market is a major driver of IT deployment in the Indian media and entertainment industry and will continue to be in the next 4-5 years. The content management solutions have taken the top position in the priority list of the media companies when it comes to the usage of information technology. Content lies at the core of the media industry and thus appropriately it is the most important area where the companies are presently focusing upon. They are purchasing the software, which can effectively manage their content and can also help them in continuously updation of the content. Even the companies who have well-developed and well-maintained content management solutions in place are looking to continuously upgrade their versions of the content management solutions. Back-end and front-end integration: Integrating the back-end (such as, content creation and management) enables flexible content re-purposing and eliminates redundant storage of media content systems. Back-end integration enhances content production, content distribution and storage, and overall distribution management. Linking front-end systems (such as, content sales and distribution) supports optimum brand-portfolio leverage. Front-end integration requires a unified view of the customer and knowledge of his or her multimedia preferences. Analyzing that the firms that have integrated content-creation systems with content-distribution systems are realizing better returns on their assets (because they are in a better position to fully exploit their content rights), more and more companies have started integrating the two and are also equally focused on the implementation of ERP solutions. Though the bigger players have already deployed the ERP packages, the smaller players are still in the process of ERP deployment and are keenly focusing on the same in the next 12 years. RFID labeling for products: RFID labeling for VCDs/DVDs ensures absolute correctness of data as the product moves around through the supply chain. An RFID enabled product is also a value-add for the stores since it can effectively reduce the shrink in the outlet. But the high costs of RFID tags have inhibited the adoption at present. The prices of the tags need to come down for being economical for the players to adopt them commonly. Workflow management: Automation of workflow is also a focus area to access information quickly, to develop standard formats and for many other applications. For media and entertainment companies that need real-time information (primarily print media, news channels, online advertisement and general information sites like Rediff and MSN), workflow management is the major driver of their IT spending. Security and reliability: Companies are investing heavily in order to ensure security and reliability of their online content. Security solutions, secured web-portal solutions

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and secured content management applications are finding increased usage in the sector. IDC believes that in the years ahead, there will be big investments by the M&E companies on security solutions because only once the security gets ensured is the reliability met to a large extent. Virtualization and networking: With the objective of covering more and more number of people under their viewership / listenership, the media and entertainment companies are looking to ensure networking of all their offices, branches and sites. By ensuring the automated workflow even at the correspondent level, companies are trying to create a virtualized networking environment, which covers even the far-flung correspondents. Since this is essential for business continuity, companies are highly focused on networking and their networking requirements are expected to grow at a much faster pace around 2010.

Conclusion
The media and entertainment sector in India is undergoing a major transformation. Triggered by the influx of foreign players on the field, the distribution channels are reinventing themselves to effectively reach audiences with the use of online delivery mechanisms. The convergence of media and digitization has raised the level of expectations of the consumer in terms of choice, quality and personalization of services. In this very dynamic scenario, media and entertainment business are investing heavily into newer information technologies to upgrade their services. They are deploying IT solutions to meet the demand for concepts like video-on-demand and pay-per-view. Simultaneously print media and radio are competing for the market share with the advent of sophisticated presentation, multi-channel access and a wider content repertoire.

THE INDIAN RETAIL AND WHOLESALE SECTOR
Overview of the Sector
In India the retail industry is large, and is growing exponentially. The industry has a huge appetite for investment and is already seeing a lot of action with the setting in of organized retailing. A large number of interest groups especially the corporates are eyeing to get a share of the Indian retail pie. The retail sector in India is largely unorganized, and prevalent are the traditional formats of low-cost retailing in the form of the local “mom and pop” stores, ownermanned general and convenience stores or small time vendors and hawkers. The organized sector, on the other hand, includes licensed retailers registered for applicable taxes like sales and income tax. These are both corporate-backed hypermarkets and retail chains and privately owned large format retail businesses. In either case, the sector is identified and encouraged for its employment generating potential. This could be with jobs directly associated with retailing or through related

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sectors that link the backend and front-end of the supply chain. The sector contributes around 30% to India’s GDP and creates opportunities for 6-7% of the total employment. Indian retail industry is predicted to be worth US$ 550,000 million by 2012 from US$ 330,000 million in 2007; organized retailing is estimated to grow from US$ 16,900 million in 2007 to US$ 50,000 million in 2012. Such a small share of organized retailing in India is the prime reason for the fact that India has lowest per capita retailing space in the world despite of having the highest density of retail outlets in the global arena. The period 2008-2012 is being seen as one in which the retail sector is likely to strengthen back-end systems and work on consolidation of businesses. Price wars are likely to give way to drawing the customer with variety, convenience and hygiene. Penetration into smaller towns and rural areas would be the trend rather than expansion in metros and bigger cities. While organized retail is growing it is also true that the trend is seen mostly in urban areas. In these areas consumers are willing to pay just that bit more for a superior shopping experience. The rural retail would continue to be driven by the unorganized sector for next two years before getting into the organized retailing experience by 2010. Presented in the figure next is the value chain and the segments and formats in the Indian retailing.

FIGURE 19
Value Chain of Indian Retail Industry

Manufacturer

C&F Agent

Stockiest

Wholesaler

Retailer

End Consumer

Source: Industry and IDC India, 2008

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FIGURE 20
Segments and Formats in Indian Retail Industry
Organized Retailing

Segments

Formats

Food

Non-Food

B2C

B2B

Destination Malls

Neighbourd Malls

Cash-n-Carry Outlets

Speciality Stores Apparel Books/Music Departmental Stores Watch/Jewelry Pharma Supermarket
Convenience Stores

Hypermarket

Exclusive Outlets Footwear Health/Beauty

Durables

Entertainment

Discount Stores

Factory Outlets

Source: Industry and IDC India, 2008

Evolution of the Sector
From the centuries old tradition of weekly markets and village fairs, the retail sector in India initially graduated to the neighborhood grocery and general store. The Government stepped in to support rural retail through Khadi and Village Industries franchises. The opening of the economy led to the emergence of the market chain store from textile manufacturers like Raymond, Bombay Dyeing, Grasim and Binny. The 1990s sprung up pure retailers rather than manufacturers, with chains like Food world, Nilgiris, Homeland, Planet M, and Crossword marking the landscape. By 2000, shopping centers became home for hyper-stores and supermarkets with an even better shopping experience. The retail sector in India is witnessing a huge revamping exercise as traditional markets make way for new formats, such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in the metros and second-rung cities, which are introducing the Indian consumer to a shopping experience like never before. This transition is attracting international retailers, who are awaiting further liberalization of FDI norms in the sector. The route of strategic licensing agreements is currently the most popular. The other formats being adopted for now are: Franchisee: The international player trades brand name and technology for royalty.

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Joint venture: Equity and support in return for local knowledge and tie-up Manufacturing: Setting up of production facilities for local selling with ensuring intention to stay while providing employment as is being done by Bata India. Distribution: Goods are supplied for sale through a distribution outlet as in the case of Hugo Boss and Swarovski.

Reforms in the Sector
Government initiatives: FDI in the retail sector is allowed upto 51% in singlebrand retail after approval and 100% allowed in cash and carry wholesale operation. The limitations are kept with the view to protect small tie businesses while benefitting from the increased scope for employment and other development in the resource and technology gaps. But liberalization of the FDI norms will have a multiplier impact on the economy not only in the retail sector, but also in many other activities such as manufacturing, food processing, packaging and logistic services. Not only it will lead to an increased influx of imported goods, foreign companies will also be able to source most of their items domestically and will in fact, use quality Indian products to stock thousands of their outlets in foreign countries, thus giving a fillip to our manufacturing as well as exports. But it is also believed that relaxing the FDI regime will expand the organized retailing only by destroying the traditional retail sector. Also, there are apprehensions that FDI in retailing would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially small familymanaged outlets. Property regulations: Withdrawal or restriction of the Urban Land Ceiling Act and the Rent Control Act have allowed the opening up of real estate benefiting all including the organized retail sector. Domestic taxation system: Different sales tax rates across different states in India make supply chain management an immensely difficult task for the retailers. While the differing tax and licensing systems across states could raise some issues when organized retailers expand nationally, this could well protect the interests of regional retailers. But the key to success is to build a fairly extensive network of stores across the country to enable e-commerce transactions. This in the emerging scenario would help retailers to target a wider audience and maximize returns. Strength in physical distribution will remain the backbone of any retail arrangement; however, ongoing investment in bandwidth, development of internet facilities, and increasing awareness of IT among the literate and educated population is expected to create a large base of online shoppers.

Players in the Sector
Organized retail has launched into a high growth trajectory. Though in its nascent stages, the sector has existing players moving in rapidly to book their space and lay out expansion plans. Large investments are being set up by both domestic and international interests to set up front and back-end operations in the industry.

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There is room for several players to enter, provided they understand the Indian consumers’ psyche. The battle of retail will be fought on all grounds—territorial coverage, service, products, price and distribution. With the inevitable entry of deeppocketed foreign retail giants and Indian corporate houses, competition for the local players would be manifold. Local kirana shops are also in the process of a makeover. The Indian retail already has a multi-faceted, multi-layered presence. Several players, varied formats, organized and unorganized they are all there, each in its own space and growing. In the organized segment established names in various categories are inclusive of, but not limited to: Corporate Houses: Future Group, Tata Group, K.Raheja Group, RPG, Landmark Group, ITC, Reliance, Others Dedicated Brand Outlets: Shopper’s Stop, Nike, Reebok, Zodiac, Levis, Others Multi Brand Outlets: Vijay Sales, Nilgiris, Subhiksha, Others Manufacturers/Exporters: Pantaloons, Bata, Weekender, Others

Trends in the Sector
The Indian shoppers are becoming more trend conscious than ever before. But the value for money still remains the underlying principle for any purchase being made by them. On the other hand, retail is becoming an investment option for businesses and is being looked at as a potential goldmine. Thus the key trends shaping up both from shoppers and investors perspectives are: Rural markets: An increasing number of corporate organizations are setting up retail outlets in small towns and rural markets in order to reach out to the large untapped consumer base. Consumer durables, FMCG, and oil companies are tapping rural consumers in a big way by investing in infrastructure and manpower. Mall culture is rapidly moving towards small towns and rural communities while the metros are getting specialty malls. Online shopping or e-tailing: Development of internet facilities, and increasing awareness of IT among the literate and educated population is expected to create a large base of online shoppers. Though the number of online shoppers is very limited at present and restricted mainly to urban areas, the universe of online shoppers is expected to expand on the account of increase internet awareness among the masses and the security measures being adopted by the players over the electronic transactions. Heightened interest in Indian retailing: Seen as the most eventful and most lucrative sector of the Indian economy, already established players have major expansion plans for future operations; while on the other hand, there are many corporate houses who are looking to foray into organized retailing sector with massive investments upfront. The high-value, high-margin nature of apparel retail has attracted several large business houses to invest heavily into retailing.

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Retailing at airports and railway stations: Players are foraying into retailing at airports and railway stations. Pantaloon, Nirulas and Shopper's Stop are both considering developing retail and food catering business in airports across the country. However, such retail will have different dynamics, as the traveler would go to these shops not with shopping in mind but generally to spend some time. Players will thus have to stock the right mix of impulse goods and specialties of that particular region. New formats and segments: Franchising, large format and specialty retailing are gaining huge importance in the Indian retailing. Many multinational retailers are firming up their entry strategies for India. Those already present in India are going in for rapid expansions. Franchising is gaining pace with the retailers and franchisee activity in tier-II cities pegged to rise. Malls getting increasingly differentiated and specialized: The generic me-too malls are running out of flavor, given the large numbers that are being planned. Malls are increasingly differentiating themselves by specializing in particular types of retail commodities. One such example is the specialty gold malls that largely have jewelry retailers. Changing lifestyles and growing disposable incomes of Indian consumers: Indian consumer lifestyles and shopping habits are evolving rapidly. Discretionary spending witnessed a huge spurge among the urban upper and middle classes in the last two years. There is an easier acceptance of luxury and an increased willingness to experiment with mainstream fashion among masses. Expenditure on personal care items and clothing has increased since there is greater emphasis on looking and feeling good. Lifestyle habits are shifting from austerity to complete self-indulgence and Indians are now unapologetic about spending lavishly on non-essential goods such as luxury watches, cars, and hi-tech products. Growing income levels, meanwhile, have caught the attention of luxury retailers. Thus, the increasing disposable income of an Indian household and the increase in the number of households are the key drivers of the retail boom in India. Also, the Indian consumers are increasingly getting exposed to western culture and are gradually adopting the western trend of lifestyle shopping.

Factors favoring the growth of the sector in India
Economic and social changes: Growing economy, surplus incomes and consumerist trends are key drivers to change in buying habits in large cities and large towns. The pace of growth of the organized retail sector is also being driven by changing consumer habits, which is reflected in other parts of the economy. The key driver of the change in buying habits, both in cities and large towns, is increasing income levels with a higher proportion of dual income households and increased aspirations caused by higher exposure to television, and cable and satellite (C&S) channels. Globalization of the sector: The trend to move out of saturated home markets and make a footprint on the global scale is spreading. India is a most-favored destination for global retailers.

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Change in consumer outlook towards branded products: In the last 4-5 years, Indian markets have witnessed a marked shift towards branded products. Indian consumers have started to believe that branded goods indeed are of a better quality and offer great value for money. The increased exposure to international trends and fast-changing lifestyles can result in a 25% growth in branded goods and this, in turn, will provide a platform for growth of organized retail. Increased awareness: Media penetration, especially through television, has influenced lifestyles and living standards. Retailing as against bulk buying is preferred these days by the Indian consumers. Acceptance of new concepts has improved with increased exposure to western entertainment culture. Retailing is therefore now an accepted concept in the average Indian household.

Challenges in the Sector
FDI limitations: The Indian government has permitted 51% FDI in the single brand retail. All other sub-segments are still closed for FDI. The government, though very active on opening of the sector for foreign participation, is still very cautious with regards to the FDI regime in the retail sector. Set up the government with the aim to protect the unorganized sector and the small time businesses, these limitations have foreign players waiting on the sidelines. Apprehensions of India becoming a dumping ground for out-dated and below par quality manufactures are another obstacle in the direction. But it is also opined that the sector and the Indian consumers will get their due only when the foreign players will enter the market and the competition gets intensified. Lack of industry status to retail: The retailing policy in the country is subject to random regulation by various ministries. The finance, trade, industry and commerce ministries randomly regulate retailing from time to time. There is no single body responsible for the industry. Because of the non-availability of the industry status, the sector also suffers from the lack of established retailing norms. Varying taxation regime across the country especially with regard to sales tax, octroi, differing tax and licensing systems is also the outcome of lack of unity of command for the industry. High cost of real estate: High cost of real estate especially in city centers impacts setting up of retail outlets in accessible areas. High overheads and labor cost are additional deterrents for setting up an outlet in urban areas. Inadequate infrastructure: Back-end support and logistics of the supply chain are much needed for retailers to improve operational efficiency. A dedicated distribution sector would definitely aid growth while cutting costs. With the agricultural sector remaining largely unorganized formats like hypermarkets remain insecure of the availability of steady supply of farm produce. Non-agricultural suppliers too are suspect in terms of service levels delivered. High churn rate of preferences: The Indian consumer keeps the retailer on his toes with the rapid rate of demand patterns. Resulting lower life cycles of products prevent benefitting from the economics of scale.

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Shortage of trained manpower: Manpower specifically trained into retailing is in short supply, reducing overall productivity and growth. Attrition rates are high with allied industries with high growth prospects drawing away manpower. This is especially true for front-end personnel in the industry.

Role of Information Technology in the Sector
IT has been a growth partner for the retail sector in India and is seen as a facilitator in achieving business objectives. Strengthening of back-end processes is an aspect in which IT solutions are gaining importance. There is also the need for better customer interface, operation support and strategic decision-making. A number of organized retailers in India have installed solutions ranging from simple point-of-sale (PoS) systems to complex retail ERPs. The demand for enterprise-wide IT platforms that come up in a modular manner, with clearly defined goals and ROI, is growing. Scalability of solutions is the key to their increased utilization. UPS, intranets, anti-virus solutions, windows and UNIX servers, LAN, IT management, laser printers, MFDs and computing support are the key technologies where the retail sector would be focusing in 2008-09. The solutions that businesses are looking at are: Business Intelligence: Though the thrust in this direction is still to gain importance from businesses, larger scale enterprises would need to consider investing in this technology to maintain their competitive edge. They need information for understanding the changing consumer patterns and choices for which BI and CRM are going to be the key solutions which the sector would deploy in the next two years. Customer Relationship management (CRM): CRM information could go a long way on analyzing repeat customer buying trends. Management of campaigns and multichannel sales is a field these solutions would support. There are a number of CRM packages like Talisma, Siebel, Clarify, Retek CRM, Sales Logix, etc., which could be used for this purpose. The scope of these packages would have to be extended beyond just repeat customers to the occasional shopper to ensure that data collected is spread over a larger customer profile so that the most general trends can be captured and analyzed. Data Centers: Based on the size of the enterprise and its spread data centers with servers, storage, back-up systems and remote disaster recovery systems are the prime focus areas of major retailers in the Indian retailing today. The big stores are capturing the data locally, which is shared with the data center at the central location on a real time basis through Virtual Private Network. The convenience/small stores, or the stores located in places with poor communication infrastructure are sharing the information periodically with its central data repository, which is then updated at all the locations simultaneously. Retail ERP packages: Presently ERP modules in retail are essentially looking at inventory management, finances and accounting. Cost of the software is often a deterrent slowing down their implementation. Specialized retail ERP packages offering integrated solutions for demand forecasting, merchandising, replenishments,

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supply chain, etc. are gaining importance in the sector. Most of these packages have built-in CRM, OLAP tools, collaborative planning and supply chain systems that are tightly integrated with the merchandising and forecasting functionality. Online analytical processing (OLAP) tools: Customized OLAP solutions are versatile as they can analyze sales data from the PoPs. This analysis offers details of sales rate, merchandize information and geographical spread of sales. Solutions available in the market for same are Arthur Planning, Oracle Analyzer, Adaytum, Cognos, Business Objects, etc. Retailers are using OLAP tools to help and provide correct merchandise and devise the right promotional strategies directed to the appropriate target audience. Format compatible solutions: Emergence of newer retail formats like kiosks, mobile credit card processing, virtual terminal, PDA with card reader, two-way pager with magnetic card reader and portable PoS swipe are slowly but substantially finding increased usage in Indian retailing. They are going to become a key feature of planning and decision-making among the vendors by 2010.

Conclusion
Retailing in India is witnessing exponential growth, despite of being the most difficult sector to operate in. Going forward, the economies of scale, strong supply chain logistics and futuristic planning will be the key focal points for the competitive retailer. IT will form the backbone of strategies for offering competitive pricing and a robust bottom line through improved management of stores and improved customer experience. The vast geographical spread would require distributed yet centralized IT infrastructure. IT will bring its own challenges in terms of management and optimum utilization of IT infrastructure. Retailers will be required to manage the complete IT environment on one side, and also look at changing business requirements and adopt IT accordingly, managing the challenges it embarks on them.

THE INDIAN UTILITIES SECTOR: INDIAN POWER
Energy is universally recognized as one of the most significant inputs for economic growth. The growth of a nation, encompassing all sectors of the economy and all sections of society, is contingent on meeting its energy requirements adequately. A fast-growing economy, India is targeting growth rates of 7-8% over the next 4-5 years. Economic growth coupled with a growing population necessitates an increase in energy consumption. The need of the hour, therefore, is to meet the energy needs of all segments of India's population in the most efficient and cost-effective manner while ensuring long-term sustainability. India needs to add to the existing capacities, build regulatory capacity and restructure the energy sector to facilitate contestability and reduce dominance. Since the energy sector holds the most vital place in any economy (and so much especially for a developing country like India) it is high time that all the stakeholders (government, players, consumers, investors, etc.) gear up to meet the future requirements and play their roles effectively.

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Overview of the Sector
Decades of economic planning since independence in India placed significant emphasis on development of the power sector. Today India is one of the largest producers and consumers of energy. Since independence, there has been sizeable growth in the power sector. Generating capacity in the country, which was only 1362 MW has increased to more than 126 GW today. Despite, rapid increase in population over period of time, per capita consumption has increased from 15 KwH to more than 631 KwH during the same period. The Indian economy uses a variety of energy sources, both commercial and noncommercial. Fuel-wood, animal waste and agricultural residue are the traditional or non-commercial sources of energy that continue to meet the bulk of the rural energy requirements even today. However, the share of these fuels in the primary energy supply has declined from over 70% in the early 1950's to around 30% as of today. The traditional fuels are gradually getting replaced by the commercial fuels such as coal, lignite, petroleum products, natural gas and electricity. The power supply position is characterized by shortages both in terms of demand met during peak time and overall energy supply. The Indian Power Sector is a regular importer of energy, because of the huge disparity between production and consumption. If the process of energy development is allowed to proceed along the current standards, the supply-demand gap in the energy sector is likely to widen to such an extent that a very substantial proportion of the country's export earnings will have to finance the energy import bill in the coming decades. In the long run, this is evidently unsustainable. The substantial increase in electricity demand is difficult to sustain entirely on the basis of indigenous resources of coal and hydro-electricity. As a result, the country may have to import not only oil but also coal in large quantities if the steeply increasing demand for electricity is to be fully met. The power system in India is organized as five geographical regions (North, West, East, South and North-East) for administrative purposes, management of transmission systems (regional grids), load dispatch functions and for the purpose of balancing and settling of inter-state energy transactions. The five regional grids are connected by high voltage AC and DC transmission lines thus forming a unified national grid catering to the inter-state and inter-region transfer of electricity. These five regional grids comprises of: Northern Region: Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab, Rajasthan, Uttaranchal and Uttar Pradesh Eastern Region: Bihar, Jharkhand, Orissa, Sikkim, and West Bengal Western Region: Dadra and Nagar Haveli, Daman and Diu, Chattisgarh, Goa, Gujarat, Madhya Pradesh and Maharashtra Southern Region: Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil Nadu

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North-eastern Region: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura Investment opportunities in the Indian power sector The power sector in India offers an aggregate investment opportunity of over US$ 200,000 million over the next five years. Investment opportunities in the sector have opened up across the value chain for the segments of Generation: Through power plants classified on the energy source used for generation such as thermal, hydroelectric or hydel, nuclear or non-conventional Transmission: With aggressive capacity additions in power till 2012, India would be requiring a huge infrastructure build-up for the transmission of the power among the states Distribution: Efficient distribution of power is critical for ensuring the financial viability of the sector Renovation and Modernization (R&M): This is a new opportunity for players by participating in the renovation, modernization, updating and life extension of old thermal and hydro power plants

Evolution of the Sector
The process of electrification commenced in India almost concurrently with developed world in 1880s, with establishment of a small hydroelectric power station in Darjeeling. However, commercial production and distribution started only in 1889 in Kolkata. From an installed capacity of only 1,362 MW in 1947, the generation capacity has increased to 126,839 MW as in 2006. India's power system today, with its extensive regional grids maturing in to an integrated national grid, has more than 6.3 million circuit kms of transmission and distribution lines criss-crossing the diverse topography of the country. However, the achievements of India's power sector growth appear lackadaisical in the face of huge gaps in supply and demand on one side and an antediluvian generation and distribution system on the verge of collapse having plagued by inefficiencies, mismanagement, political interference and corruption for decades, on the other. Through the process of planned development undertaken over the last six decades, the country has taken major strides in stepping up the production of primary commercial energy. Coal continues to be the main source of primary commercial energy not only for direct energy use in industry but also for indirect energy use through power generation. Concerted efforts made in exploration and development of hydrocarbons has led to a significant step up in the production of oil and natural gas. However, in the recent years, the production of crude oil has been stagnating. The availability of hydro-electricity has also increased significantly. There have been additions to nuclear power generation capacity as well. The wind power generation has also picked up significantly during the last ten odd years. Thus the Indian power sector has picked up substantially in the last 10-15 years but the growth has still been

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insufficient in meeting the exponentially growing demand for power in the country. And thus arises the need for extensive reforms in the sector.

Reforms in the Sector
Evidently, some fundamental changes are imperative in the working of the power sector entities to realize the vision of “reliable, affordable and quality power for all by 2012”. The reform process is in progress in several states under the overall guidance of the Ministry of Power. It is aimed at bringing about sustainable improvements in the operations of the power companies and making them viable businesses. The reforms have brought about various improvements in the operational structure, commercial orientation, transparency in operation and overall customer orientation in several states. However, there has been limited success in institutionalizing these changes and sustaining these improvements over a period of time. Therefore, the need is to institutionalize the changes and bring about sustainable and pervasive improvements. Some of the landmark reforms initiated for the sector are: The Electricity Act 2003: The enactment of the act liberalized the framework for the development of the power sector. Aiming for the a reliable availability of power by 2012 the act advocated: Open access on T&D networks Choice of power supplier to high usage consumers Power trading and market development Reduction of losses through theft and malpractices Power trading and market development De-licensing of generation and distribution of power in rural areas, and Setting up of State Electricity Regulatory Commission (SERC) with the functional unbundling of State Electricity Boards The National Electricity Policy (NEP) 2005: Enacted in compliance with the requirement of the Electricity Act 2003, the NEP 2005 encourages competition, profitmaking and privatization in the power sector. The policy envisages: Encouragement through capital subsidy and preferential priority for the development of the rural electrification distribution backbone Greater focus towards the realization of the full potential of hydro-power. Open access in transmission and distribution to the private players. National Grid: The Central government, in 1981, approved a plan for setting up a national grid to optimize the utilization of generation capacity through the exchange of power between surplus and deficit regions. The process of setting-up the national grid

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was initiated with the formation of the central sector power generating and transmission companies, National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Power Grid Corporation of India Limited (PGCIL). A national grid would enable the optimal utilization of energy resources by facilitating a uniform thermal-hydel mix among various regions. From a regional perspective, the exploitation of thermal and hydroelectric resources may not be economically viable in some cases, although it may be so from the national perspective. The National Grid offers the advantages of lower investments required for new generation capacities, better scheduling of planned outages of power plants and improved stability of the grid. Tariff Policy, 2006: The objectives of the tariff policy are to: Ensure availability of electricity to consumers at reasonable and competitive rates Ensure financial viability of the sector and attract investments Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimize perceptions of regulatory risks Promote competition, efficiency in operations and improvement in quality of supply Power Trading: The concept of exchange of power from suppliers with surpluses to suppliers with deficits was identified as an activity separate from generation, transmission and distribution. Seasonal diversity in generation and demand, as well as the concentration of power generation facilities in the fuel-rich eastern region of India, has created ample opportunities for trading of power. Power trading is cost effective as the transmission of power and the setting up of large scale generating stations at specific locations near the fuel source is cheaper than transportation of fuel and setting up small generation facilities near each load center. Power for all by 2012 According to the 16th Electric Power Survey conducted by the Central Electricity Authority (CEA), the demand for electricity is expected to double by 2012. This translates into a requirement for an additional generation capacity of 100,000 MW, which implies almost doubling the total installed capacity over the next few years. But the capacity addition program has fallen short of its target in all the years of the tenth five-year plan. Thus the sector needs to pick up big to reach to its targets, else the saying "Targets are for non achievement" would get proved right once again. Capacity addition targets for 2012 46,500 MW for central generating companies At the state level, the SEBs/state utilities and private sector are expected to add about 41,800 MW

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An investment of about US$ 90,000-110,000 million is required in generation by 2012. The envisaged capacity towards the end of 2012 will change the ownership mix with the respective contributions of the central and private sectors scaling up substantively

Players in the Sector
The Indian power sector fields players from various organizations including central ministries, state power/energy departments, electricity regulatory commissions, electricity boards/departments/generation companies, transmission companies, distribution companies, state nodal agencies for renewable energy resources, central sector utilities, among others. The table next lists the key players in various sub-segments of the industry.

TABLE 24
Players in the Indian Power Sector, 2007
Segment Power Generation Players NTPC (National Thermal Power Corporation), NPC (Nuclear Power Corporation of India Ltd.), NHPC (National Hydro-electric Power Corporation), North-Eastern Electric Power Corporation Ltd., Bhakra Nangal Management Board, Torrent Power, Neyveli Lignite Corporation, Nuclear Power Corporation of India, GMR Group, Satluj Jal Vidyut Nigam Ltd. and the Damodar Valley Corporation Damodar Valley Corporation, Power Grid Corporation of India and Power Grid Corporation of India

Power Transmission (interregions/among regional hubs) Power Distribution (intraregion)

Reliance Energy, Calcutta Electricity Supply Company and Tata Power

Source: Industry and IDC India, 2008

Trends in the Sector
Growing attraction for the foreign investor: With opening of the sector, foreign investors have been attracted particularly to the generation segment of the sector. Distribution privatization also attracted international interest initially, but soon waned, mainly due to concerns of continuing cash losses in the sector and the regulatory environment. But generation is the segment with heightened international interest. Co-generation: In some industries, like the chemicals industry, the manufacturing process generates huge amounts of heat, which can be used to produce steam. This steam in turn can be used to run a turbine generator. In a co-generation plant the turbine runs on low-pressure steam as compared with the high-pressure steam used

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in conventional thermal plants. Power can be generated through co-generation, either in the topping cycle (wherein the steam produced is first used for generating power and later used for the process) or in the bottoming cycle (wherein the waste heat available as a by-product of the process is used for producing the steam that runs the turbo-generator sets). With the focus on alternative fuels and profits margins getting squeezed, the players in the sector are actively working towards co-generation with the allied industries. Focus redirecting towards renewable energy based generation: Private players are looking at a significant untapped potential in the renewable energy segment. In its quest for increasing availability of electricity, India has adopted a blend of thermal, hydel and nuclear sources. Out of these, coal-based thermal power plants and in some regions, hydro-power plants have been the mainstay of electricity generation. Oil, natural gas and nuclear power account for a smaller proportion. Of late, emphasis is also being laid on non-conventional energy sources i.e. solar, wind and tidal. Environment friendly technologies: With the setting in of Green IT and increased surveillance by the regulators, the players have started to insist on the adoption of newer technologies and fuels. The use of natural gas in the fuel mix has increased, performance of coal-based plants is being improved, and nuclear power and energy from non-conventional and renewable resources is being looked at as an alternative. Rural electrification: Rural electrification is being rolled out as a vital program for socio-economic development of rural areas. The objectives are to trigger economic development and generate employment by providing electricity as an input for productive uses in agriculture and rural industries and improve the quality of life of rural people by supplying electricity for lighting of homes, shops, community centers and public places in all villages. Thus we are going to see some strong and concentrated efforts from the states in the next 4-5 years to complete the 100% electrification target by 2012. This presents a great opportunity for the power operators to collaborate with such state governments and take the initiative further. Open access: The Electricity Act envisages an open access regime with a phased opening of the market for large consumers. This policy allows consumers utilizing over 1MW power, to choose their supplier. A significant number of State Commissions have laid out the roadmap for the gradual opening of the power market. Regulations and other implementation requirements are in varying stages of development. The table below shows the phasing of the open access in such states.

TABLE 25
Phasing Out of the Market to allow Consumers choose the Supplier of their Choice (MW), 2005-08 Scenario
State Rajasthan 15 (Apr) 2005 5 (Apr) 2006 1.5 (Apr) 2007 2008 & 2009 1 (Apr)

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TABLE 25
Phasing Out of the Market to allow Consumers choose the Supplier of their Choice (MW), 2005-08 Scenario
State Maharashtra Karnataka Madhya Pradesh Uttar Pradesh Orissa Andhra Pradesh Gujarat Tamil Nadu 5 (Apr) -10 (Jun) 20 (Apr) 5 (Aug) 5 (Sep) --2005 2 (Apr) 5 (Apr) 5 (Apr) 10 (Apr) 2 (Apr) 2 (Sep) --2006 1 (Apr) 3 (Apr) 2 (Apr) 5 (Apr) ----2007 -1 (Apr) 1 (Oct) 1 (Apr) 1 (Apr) 1 (Apr) 1 (Dec) 1 (Dec) 2008 & 2009

Source: Industry and IDC India, 2008

Public private partnership model in transmission: There is increased private sector interest in the transmission sector. The Government is finalizing the competitive bidding guidelines for developing transmission projects. The Central Transmission Utility has identified specific elements of inter-state transmission systems under system expansion and system strengthening schemes. Staggering of loads: There are two peaks in the daily demand curve of power utilities in India: in the late morning (due to industrial and irrigation loads) and in the evening (due to lighting load). By staggering the load through statutory provisions, the peak demand in the two periods can be reduced significantly. For instance, in some states, the weekly holidays of all industrial and large commercial houses are staggered over the week, instead of having a common holiday. Energy audits: Many SEBs encourage energy audits and conservation by subsidizing the audit expenses incurred by the industry, provided the short-term measures suggested by the auditors are implemented. Some SEBs also undertake energy audits for large consumers. They are deploying meters both at transformer and feeder levels to monitor the supply and consumption patterns of the power respectively. A meter deployed at the transformer level continuously measures the power being supplied and similarly a meter at the feeder level measures the power being consumed on an hourly basis. Supervisory Control and Data Acquisition (SCADA): The SCADA system supports the power system operator in controlling the remote or local terminal equipments such as opening or closing of the circuit breaker with security features like authorization

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and a “Select – Verify – Execute” procedure. The data acquisition section gathers tele-metered data for use by all other functions within the EMS. Data are obtained from various sources including remote terminal units (RTUs) installed in plants and sub-stations and delivered at the system control center by local I/O devices.

Factors favoring the growth of the sector in India
Formation of the National Grid: The initiative started for the optimal utilization and distribution of generation capacity. In order to optimize the utilization of generation capacity through the exchange of power between surplus and deficit regions and exploit the uneven distribution of hydroelectric potential across various regions, the Central government, in 1981, approved a plan for setting up a national grid. The process of setting-up the national grid was initiated with the formation of the central sector power generating and transmission companies, National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Power Grid Corporation of India Limited (PGCIL). A national grid would enable the optimal utilization of energy resources by facilitating a uniform thermal-hydel mix among various regions. From a regional perspective, the exploitation of thermal and hydroelectric resources may not be economically viable in some cases, although it may be so from the national perspective. Accelerated Power Development Reform Program (APDRP): To improve distribution, the government formulated an Accelerated Power Development Reform Program. The objectives of this program are improving financial viability of state power utilities, reduction of aggregate technical and commercial losses to around 10%, improving customer satisfaction, increasing reliability and quality of power supply. Under this program, loans, grants and incentives will be given to states pursuing distribution reforms. It will attack the problems faced by a state on a micro level (consumer, feeder, sub-station) as well as on a macro level (circle, state national) entailing intervention at six stages. These funds will be utilized for upgradation and modernization of their sub-transmission and distribution networks. India-US nuclear deal: In the wake of the recent US-India civilian nuclear deal, the government is thinking of setting up ‘Atomic Parks’ to augment nuclear power generation capacity at a fast pace. The proposal, though still at a preliminary stage, is aimed at setting up a large number of nuclear power units at each site to achieve the twin prong strategy of enhancing the potential for new capacity addition and also streamlining the process of possible International Atomic Energy Agency inspections of the civilian nuclear sites in the future.

Challenges in the Sector
Investment requirement for capacity building: Keeping in mind the socioeconomic factors in the country, it is projected that India will need to target doubling its generation capacity from upto 2012, with an associated increase in transmission and distribution infrastructure. The investment requirement in the segment is projected at over US$ 100,000 million over the period. This is a call for huge capacity build-up, which the sector might not be able to achieve.

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Demand supply deficit: The present installed capacity is only capable of meeting 70% of the demand and analyzing the additions done in the tenth five year plan, the forecasted additions in the eleventh five year plan also doesn’t look promising and would definitely fall short of the demand in 2012 as well. Revenue losses: Organizations like State Electricity Boards are running in loss due to power thefts and overall inefficiency. Nearly 50% of the supply goes unmetered and this problem is more acute in urban and semi-urban areas. Although SEBs have been granted partial financial autonomy, most of them work under the administrative control of the respective state governments. The tariffs for agricultural and domestic consumers are subsidized in most states. High tariffs: Indian consumers pay the highest tariffs in terms of power parity. Also the pricing policy is less than transparent with a number of components determining the final cost. Policy issues: Absence of clear-cut policy guidelines has been an obstacle for development of power projects. Government subsidies to agricultural customers reduce profitability. Bureaucratic interference is another pain area for the players in the sector. Transmission challenges: The transmission segment faces problems of capacity addition, piling of costs of transmission and wheeling over multiple regions and states, losses as high as 30-35% due to an inadequate T&D system. Private investment inadequacy: Despite the opening up of the sector private participation has not reached expected levels. There is also a lack of exposure of the sector to prospective investors. Transmission congestion: Congestion is caused when the available transmission capacities are constrained due to excess load. Real-time transmission congestion can be defined as the operating condition in which there is not enough transmission capability to implement all the traded transactions simultaneously due to some unexpected contingencies. This can be caused due to heavy load in a particular region or zone, which requires rescheduling of power dispatch through various congestion management methodologies. Currently, India faces a problem of congestion on the majority of its network.

Role of Information Technology in the Sector
With the increasing participation of the private players and the impacting emergence of Information Technology, the Indian power sector is deploying IT in the following areas: Application architecture Data architecture Infrastructure requirements – hardware and network Online generation of all consumer bills

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Making the payments possible through debit and credit cards Computerization of management system Making important information available online to the citizens IT adoption in the Indian power sector is behind the global best. With several core process still not automated, efficiency takes a hard hit. Even those using IT extensively are still struck with the piecemeal approach rather than a holistic perspective. IT solutions for the sector The possibilities of inculcating IT in the power are interesting and convenient. The range of applicability stretches over all aspects of the sector from technical to commercial and material management to HR. These can be brought in a phased manner to match available investment. Further, the phasing can be done along other parameters like application functionality, geography and customer type. With increasing deregulation in the power sector, a huge set of computer-enabled tools are available to make the whole set of operations more viable. Automatic Reading Technology (AMR) technology: It is a remote controlled device that collects the meter reading and uploads the same to the billing servers directly. This prevents manipulation of data, even at the stage of reading the meter. Integrated billing and collection system for large commercial and industrial (C&I) customers: These include meter reading, billing, payment and collection improving efficiency for C&I customers to eliminate scope for tampering and manipulation and thus improve collection as C&I customers contribute more than 70% of the total power sector revenues. Energy accounting system: These capture data at various stages of the customer mapping system permitting loss detection and increased distribution efficiency. Based on the data, energy accounting system must provide information about losses at different levels. This will help them in utilizing the information on loading, voltage and consumption at different levels for network management, reduction in outages and managing the peak demand requirements. Management information systems (MIS): MIS for power sector includes information on finance, operations, customer satisfaction and development/investment including that of human resources. MIS takes care of the varying information requirements for monitoring and decision-making at different levels in the hierarchy. Otherwise, huge data generated from MIS will not be of any significant use. The structure of MIS should be SEB-specific to address the differences in organizational structures and responsibilities at various levels, but at the same time should be generic enough to provide standard information at the national level. Meter reading solutions: Electronic meters, digitization of meter reading, hand held devices or RAMCRAM are today finding increased usage in the sector; overcoming issues of billing accuracy and speed while cutting costs.

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Supervisory Control and Data Acquisition (SCADA): A major task ahead of power system designers/planners is to ensure system operation to manage such large power systems network efficiently and effectively. The SCADA system supports the power system operator in controlling the remote or local terminal equipments such as opening or closing of the circuit breaker with security features like authorization and a “Select – Verify – Execute” procedure. The data acquisition section gathers telemetered data for use by all other functions in the organization.

Conclusion
Privatization of the power sector in the country was a big success. It is now up to the private regimes to grab the latest that IT has to offer to push the Indian power industry into the digital age. Also with the planned size of investments and understanding the importance of power in any economy, IT will pay an increasing role in the sector in the coming years. Policy reforms combined with institutional restructuring at various levels make the sector commercially attractive. Establishment of independent regulatory commissions, tariff orientation to commercial principles, and improvements in operational and financial aspects of state utilities have been steps in the right direction. Now the need is to keep these reforms and efforts going to achieve the targets of 100% electrification by 2012. The planned increase in generation capacity, implementation of open access and concentration of generating capacities in certain parts of the country warrants an increase in transmission capacities, taking India closer to its targets in the sector.

THE INDIAN UTILITIES SECTOR: INDIAN OIL AND GAS
Overview of the Sector
Energy requirement is the focus in the economic development of any country and an important issue today. While a growing GDP always is encouraging, a growing population stretches the environment, infrastructure and natural resources of the country. In India’s case, both these factors are in their growth phase. The economy continues to grow fast, permitting the country’s per capita income to grow 7.2%. India, which stood at fifth position in terms of energy consumption in the world in 2002, is now depending on other countries for fuel due to high energy demand. India meets a large part of its crude oil demand through imports only. Currently India is the ninth largest importer of crude oil in the world. The consumption of natural gas grew at a CAGR of 2.7 % in the period 1999-2005, supported by rise in availability through domestic and imported sources of gas. Oil comprises 36 % of India’s primary energy consumption and is expected to grow both in absolute and percentage terms driven by overall economic growth. Growth in demand is expected to catapult the overall demand to 196 million metric tons by 2011-2012 and 250 million metric tons in 2024-25. During the same period, domestic production from existing developed reserves is expected to grow at approximately 2.5%. Natural gas comprises 9% of India’s primary energy consumption at present and will be around14% of energy mix by 2010. Demand for natural gas is also likely to

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increase at a CAGR of 7.3%. Worldwide biodiesel production is expected to grow at a CAGR of over 5.2% from 2008 to 2017. India’s total biodiesel requirement is projected to grow to 3.6 million Metric Tons in 2011-12. The segmental overview of the sector in India is as follows: Upstream (Exploration and Production) Segment: India has 26 sedimentary basins with an area of 3.14 million square km and prognosticated reserves of 28,000 million tons of oil equivalent of gas. Downstream (Refining and Marketing) Segment: India has a total of 19 refineries (17 in public sector and 2 in private sector) with Indian Oil (owning 7 refineries) currently owning the maximum refining capacity. They have an installed capacity of 149 MTPA. Oil Segment: India’s demand for oil has consistently been far in excess of its domestic production. It gets 66% of its crude oil imports from Middle East and the balance is from other countries. Natural Gas Segment: Natural gas has gained tremendous importance, both as a fuel and as a feedstock over the past 20 years. Demand of natural gas is currently met by domestic production but LNG is imported. Liquefied Petroleum Gas: LPG is largely used as a domestic fuel in India. The domestic segment accounts for around 78% of the total LPG demand.

Evolution of the Sector
The oil and gas industry started in and for a long time remained limited to the state of Assam. Declared a core industry by the Government of India it remained the playing field of two government owned companies, or the national oil companies (NOC) namely -- ONGC and Indian Oil. Production and exploration were controlled under the Industrial Policy Resolution, 1954. Starting with a domestic oil production of 250,000 tons per month, the NOCs managed about 70% of the domestic requirement by 1970s. With the growing consumption and steadily decreasing production brought the NOC supply to 35% of the market requirements. The 1980s made the picture even bleaker with a resource crunch from the government. Development of fields came to a practical standstill. With the Petroleum Sector Reforms (PSR 1990) conditions began to pickup to contribute to 45% of the domestic primary energy consumption. This was further enhanced with the deregulation of the industry in 2002, permitting the entry of private players. There was also the rethink phase in 2002-03 elevating the status of resources like CNG to meet fuel and energy requirements in the country.

Reforms in the Sector
India offers favorable investment climate across all the sub-segments of oil and gas. The regulatory regime of India permits Foreign Direct Investment (FDI) into petroleum sector without any constraints. Upstream sector investments are facilitated by

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licensing policy (NELP), which provides a conducive regulatory framework for the players in the sector. The tables next provide an overview of the FDI regime in the sector and the policy evolution for the same.

TABLE 26
FDI Regime in the Indian Oil and Gas Sector
Segment Exploration & Production Refining Marketing Product Pipelines LPG / Natural Gas Pipelines
Source: Industry and IDC India, 2008

FDI Norm Upto 100% FDI through automatic route Upto 100% FDI set-up as a private Indian company Upto 100% FDI through automatic route Upto 100% FDI through automatic route Upto 100% FDI through automatic route

TABLE 27
Milestones in Policy Development of Indian Oil and Gas sector
Policy New Exploration Licensing Policy, 1999 (for Exploration & Production) 100% foreign participation allowed Licenses are awarded through international competitive bidding Provide fiscal stability in contract Model Production Sharing Contract and Petroleum Tax Guide provided upfront Attractive Fiscal Incentives,1999-2003 Corporate Tax deduction and allowances available to companies prospecting for oil and gas 7 year tax holiday Capital expenditures incurred in respect of exploration and drilling operations fully tax deductible Oilfield service provider taxable on 10% of gross receipts Reduction of duty on project imports from 25% to 10% Reduction of import duty on ATF from 16% to 8% Highlights

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TABLE 27
Milestones in Policy Development of Indian Oil and Gas sector
Policy Duty free import of fuel for exporters Reduction of subsidy on domestic LPG and kerosene sold through the public distribution system Draft Petroleum & Natural Gas Regulatory Bill, 2004 (for Downstream Oil and Natural Gas Operations) The Government has tabled a Draft Petroleum & Natural Gas Bill in the Parliament, which proposes a Petroleum & Natural Gas Regulator to regulate all downstream activities in India (which include refining, processing, storage, transportation and gas transmission and distribution, setting up LNG terminals and gas retailing etc) along with ensuring that marketing companies comply with retail regulations Pipelines are built on a common carrier principle. The Policy allows two or more companies to use a single pipeline. Entities laying pipelines will have to provide 25% extra capacity. This extra capacity will be available to other users on the common carrier principle. Proposed Regulator to authorize laying of new pipelines Any entity desirous of transporting gas owned by it will negotiate with the pipeline owner on terms of transportation as may be mutually agreed The Regulator, in consultation with the state governments, will prepare a long-term plan for the Gas Pipeline Network, for its growth in various states and across various regions to enable industrial growth Non-captive pipelines on common carrier principle Regulator to lay down cap for negotiable tariffs Draft Auto Fuel Policy A comprehensive policy on auto fuels, their availability and security of supplies, vehicle technology, and emission reduction in a cost effective manner. Highlights

Common Carrier Pipeline Policy, 2002 (for Product Pipelines) Draft Gas Pipeline Policy, 2003

Source: Industry and IDC India, 2008

The government of India through its nodal wing, Ministry of Petroleum and Natural Gas has created extensive regulatory framework in the segment of exploration and production through NELP rounds. Of the extensive resource base in India, E&P

has been initiated in earnest only in 44% of the area. Since 1980, eight exploration rounds, one round for joint venture and six rounds under NELP have been offered for global bidding. The Government of India, offered 69 small and medium sized oil and gas fields in onshore and offshore to private sector, in 1992 and 1993. Under the first round, NELP I Government of India, invited bids on 8th January 1999 for 48 blocks, for exploration of oil and natural gas. The PSCs were signed for 24 exploration blocks. Since then, within a short period, a total of 16 discoveries have been made in two Krishna-Godavari deepwater blocks and one shallow offshore block of Mahanadi – NEC.

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Under the second round, NELP II, Government of India, invited bids on 15th December 2000 for 25 blocks for exploration of oil and natural gas. The PSCs were signed for 23 exploration blocks. A total of 5 discoveries have already been made in two blocks, viz. CB-ONN-2000/1 and CB-ONN-2000/2 located in Cambay basin and Krishna Godavari basin. Under the third round, NELP III, Government of India, invited bids in March 2002, for 27 blocks for exploration of oil and natural gas. The PSCs were signed for 23 exploration blocks. Under the fourth round, NELP IV, Government of India, invited bids in May 2003, for 24 blocks for exploration of oil and natural gas. The PSCs were signed for 20 exploration blocks. Under the fifth round, NELP V, 20 exploration blocks have been awarded to different consortiums/individual companies. 55 exploration blocks were offered under the sixth round, NELP VI, in February, 2006, the highest offering so far, covering an area of 352 thousand square kilometres. The Government of India, had received 165 bids for 52 blocks by the bid closing date. Three deepwater blocks did not receive any bids. A total of 68 companies, including 36 foreign companies and 32 Indian companies, submitted bids either on their own or as joint ventures and 52 deep water blocks have been allocated to 13 companies/consortiums. A seventh round of exploration, NELP VII, is currently under offer. Players in the Sector The oils and gas sector offers the entry of players in four key operational segments: Exploration of prospective sites for oil production Development of sites from drilling through equipment installation Production from commercially viable fields Marketing and distribution to reach the end user The table next provides a listing of the key players in the Indian oil and gas sector in India.

TABLE 28
Players in the Indian Oil and Gas Sector, 2007
Segment Exploration & Production Players Oil & Natural Gas Corporation: with subsidiary company ONGC Videsh Ltd Oil India Ltd Reliance Energy Cairn Energy Premier Oil

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TABLE 28
Players in the Indian Oil and Gas Sector, 2007
Segment Refining, Marketing & Pipelines Players Indian Oil Corporation Ltd: with the subsidiary companies IBP Ltd, Chennai Petroleum Corporation, Bongaigaon Refinery & Petrochemicals Hindustan Petroleum Corporation Ltd: with its subsidiary Mangalore Refinery & Petrochemicals Bharat Petroleum Corporation Ltd ExxonMobil Lubricants Shell Group of Industries Gas Transport & Distribution Reliance Energy Essar Oil Ltd Gas Authority of India Ltd. (GAIL) Gujarat State Petronet Ltd
Source: Industry and IDC India, 2008

Trends in the Sector
Investment in spare capacity additions: Globally the trend is growth in investments in exploration in new and old fields to improve reserve replacement rates. Also the exploratory investments will have to be increased as finding costs have increased, gestation periods of projects have risen and the size of new discoveries has fallen over the years. Acquisition of international oil assets: In an effort to reduce dependence on foreign companies for oil supplies moves are being made to either acquire foreign companies or acquire an equity. India currently prefers oil equity holdings. This is considered a significant advantage, even over the term contracts used by Indian refineries for a large portion of imports, as exporters can refuse to renew supply contracts or refuse to provide additional volumes. Competitive growth in petro-retailing: Focusing on profit rather than on volume, oil companies are looking at attracting the consumer with initiatives like product differentiation, premium products and customer loyalty programs. And all such offers are being made through he retail outlets established by the players. In the next couple of years we could see the strengthening of the retail structure by the oil companies with emphasis on performance management and building new retail skills like development of modern retail network.

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Consolidation of the sector: Looking at the advantages of scale, there is a growing tendency to consolidate across the value chain through partnerships, joint ventures, acquisitions at home and overseas. Supply infrastructure growth: Pipeline infrastructure is in the limelight with the need to connect existing markets to sources of gas supply, both existing and potential. The southern region has so far seen no development as far as pipelines are concerned. Hence, the south will see lot of action as far as pipeline infrastructure development is concerned. There is also a need to connect Punjab, Haryana and Rajasthan to the existing pipeline infrastructure in the northern region. All these projects will involve huge capital investments. In view of these, there has been renewed interest among the players who want to invest in the sector. Increasing energy cooperation: Global integration of the petrochemical industry is also triggering the importance of India as a regional hub for energy development. Energy policies, improved transportability of basic petrochemical products are reducing geographical barriers for market competition.

Factors favoring the growth of the sector in India
Favorable investment regulations: Regulations have been reviewed to encourage the overall economy. For instance, FDI upto 100% is permitted across all subsegments of oil and gas, tax holidays and the setting up of SEZs. New Exploration Licensing Policy (NELP): This encourages and facilitates upstream sector investments within the regulations. The government has already issued six round of NELPs and is in the process for seventh. Free market pricing: Withdrawal of the Administered Pricing Mechanism (APM) in 2002 brought in healthy competition in the market with improved customer satisfaction. Taxation reforms: Radical changes effective 1 March 2005 including subsidy on PDS Kerosene and LPG , customs duty on petrol and diesel etc with compensation for revenue loss balanced with hike in excise duties has provided a big boost to the sector players in marginalizing their losses. Growth in demand for petro-infrastructure and products: With the exponential demand happening, both domestic and for export all the operational areas of the sector have become attractive investment prospects. This has brought in interests from private and foreign players at all points from exploration to end product delivery. Geographical advantage: Being strategically located in proximity to premier oil and gas market, the Middle East, and major petroleum product importers China and Japan, gives India a good take-off platform in the sector globally.
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Challenges in the Sector
Rising oil prices: Increasing oil prices at international level is putting pressure on all oil companies. This pressure is impacting the profitability and future expansion plan of the oil marketing companies in a big way. Oil equity driving competition: Having chosen international oil equity as one method of achieving oil security, India has begun acquiring oil assets in other nations. As China is also aggressively pursuing oil equity, India and China will increasingly compete for assets. While China’s diplomatic efforts and the financial strength of its companies give it an edge, its all-out pursuit of oil, even at the cost of profits makes it a very tough competitor. Competition will also intensify from major oil companies in other countries, including the US, which are now increasing their focus on oil. Supply deficit: Growing demand for refined petroleum is constantly widening the supply demand gap. India has 0.5 % of the oil and gas resources of the world and 15 % of the world’s population. This makes India heavily dependent on import of crude oil and natural gas. India’s crude oil production has also been flat over the last 10 or more years, whereas its refining capacity has grown by 20+% over the last 5 years. Transportation issues: A shortfall in pipeline infrastructure pushes road and railway transportation for domestic purposes in India. At present, pipelines are being developed mainly for international transportation and more and more international transportation will be done through pipelines, but for inter-transportation railways will hold the key because India cannot make much use of coastal transportation. Also lesser dependence on imports will shrink the share of pipelines, while that of railways will increase. On the other hand, greater dependence on imports will see more of pipeline transportation and lesser of railways. Product adulteration: Kerosene and diesel with the current government subsidy become lucrative adulterants in petrol. India's pricing policies for petroleum products - end-user price caps -- are increasingly causing oil product adulteration and pollution in addition to severe imbalances in demand and supply for oil products as well as rising subsidy bill and heavy financial losses by refineries. The adulteration is happening primarily due to widespread differences between administered prices for kerosene (which is sold at US$ 0.225 per litre) and gasoline (petrol at US$ 1.1 per litre, or diesel at US$ 0.9 a litre). Consequently, as much as 50% of kerosene is diverted for illegal blending.

Role of Information Technology in the Sector
Apart from technological applications in the production field, IT is playing a major role in the makeover and accessibility options for the regulatory authorities. IT solutions like ERP, CRM are gaining foothold on par with GPRS and online monitoring. The sector, with several big players on the scene is aware of the advantages of IT solution implementation. Funding and technical familiarity are therefore, non-issues for implementation and upgradation for the players.

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IT solutions in the sector Exploration and drilling solutions: Three-dimensional seismic surveys with their higher resolutions, in-depth analysis of areas prior to drilling and platform designs are improving efficiency and accessibility to oil sources. The companies are increasingly using seismic surveys and drilling techniques to analyze the feasibility of oil exploration at a particular field. ERP implementation: A heightened ERP implementation is being seen by all the players in the core functions like Finance and Accounting, Inventory Management, HRM, operations planning, billing processes, among others. Most of them are through with the ERP implementations and are now focusing on workflow management and back-end front-end integration. CRM and SCM: With most of their customers (industrial) almost through with their plans of automating the supply chains, the oil and gas companies too automated their supply chains and are implementing CRM. They are also embarking on CRM implementations in a big way. They are looking to connect to their distributors and dealers. The advantage that the oil and gas sector has is that it mainly has big players operating in the sector, who are very well versed with the use of information technology, IT deployments and also do not face acute fund shortage for IT applications. They are very adapt to using IT in their processes and generally do not resist new technologies, softwares and systems. Online Monitoring of Inventories: Oil companies today are establishing systems for online monitoring of their inventories. This has largely been forced by the automation of their supply chains and implementation of CRM. The online monitoring system helps in keeping track of the inventory levels at various locations of the company and thus facilitates the inter-location stock transfers. Data warehousing: With the application of the CRM and the increasing focus of the companies on the business intelligence and data mining, the companies are currently focused on setting up of their data centers. Though the major and well-established players are through with their establishment plans, the new comers are still in the process of completing the built-up of their data centers. RFID: This technology is being used in three broad areas: asset life cycle and maintenance tracking of machines like pumps and engines while transportation, supply chain applications and for ensuring safety of the goods. Through the deployment of RFID technology, companies can track goods in the supply chain itself. Also, the sensors help in monitoring the temperature, shock and vibrations while the products are transported. Though the same has not find heightened usage in the industry but with growing maturity the same has started to become a part of the board room discussion of the large players in the sector, though they have not been able to finalize anything concrete on the same.

Conclusion
The Indian oil and gas sector looks very opportunistic with heavy emphasis on deployment of IT initiatives. As the sector is struggling to meet domestic demand, there is a growing concern for energy security. The growing demand poses the threat

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of a large import bill looming on the horizon, as domestic production will not be able to meet the requirement. With limited natural resources and domestic production, the issue needs serious consideration. In this context, the key issues faced by India that have significant energy implications are rising population, need for economic growth, access to adequate commercial energy supplies and the financial resources needed to achieve this, rational energy pricing regime, improvements in energy efficiency of both the energy supply and consumption, technological up grades, a matching R&D base and environmental protection. Also the key initiatives of the oil and gas companies moving forward are going to be forced by the compliance towards regulatory requirements. The companies are looking to leverage information technology to comply with the Euro III and Euro IV norms in the refineries. Also, with more and more emphasis on petro-retailing by the companies; and with the expected surge in the retail outlets of the companies, their automation, integration and networking is going to drive the major IT spending of the companies in the coming 3-4 years. Thus, the technologies like RFID, store automation, networking systems and compliance with the regulatory requirements are going to be the IT norm for tomorrow in the oil and gas sector.

THE INDIAN PHARMACEUTICALS SECTOR
Overview of the Sector
The pharmaceutical industry in India is a forerunner in the science-based ranks, with wide-ranging capabilities in terms of technology, quality and range of products. The industry is estimated to be worth US$ 10,300 million in a global industry worth US$ 650 billion (2007), growing at about 7% annually. India exports its drugs to more than 65 countries and meets around 70% of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. The pharmaceutical industry in India presently stands on the brink of change. In January 2005 it formally recognised product patents, as a result of which foreign players feel more secure, while local companies can compete in the domestic market and internationally on the basis of their cost competency. Since then, companies have been adopting a two-pronged strategy: in the domestic market, generic drugs are being manufactured, or a different ‘process patent’ being used to boost growth; in the global market companies are targeting the US generics market, where US$ 65,000 million worth of drugs will go off patent by 2012, making opportunities under the new patent regime immense for India. The Indian pharma industry is poised to become a regional hub for R&D, manufacturing and exports within the next decade. India’s clinical research industry, which is now worth US $140 million, is expected to reach over US$ 1,000 million by 2012 growing at a CAGR of 48.2% (2007-2012). Moving ahead since clinical research trials is going to be a big area for the Indian pharmaceutical industry, the potential for growth is as high as 40-50% on an annual basis.

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In India, over 70% of the pharmaceuticals sales are from the retail market, through distributors and wholesalers. The balance is from direct sales to hospitals and nursing homes. The Medical Stores Organization (MSO) under the Ministry of Health procures pharmaceuticals for government-owned and managed hospitals and dispensaries. It distributes supplies received from the international aid agencies, procures medicines for the National Health Programs; and coordinates disaster relief. Maintaining one or more Indian agent/representatives is the best way to enter the large Indian market. Representatives maintain close contact with government officials and decision-makers, obtain advance information regarding procurements, and keep the foreign supplier abreast of local market opportunities, conditions and competition. The Indian pharmaceutical market therefore operates under a completely different structure, with more emphasis on local medical representatives.

Evolution of the Sector
With close to 6,000 companies, the Indian pharma industry is one of the most fragmented industry in the world, and its development has been very interesting. In the beginning; the government of newly independent India emphasised rapid industrialisation and invested heavily in pharmaceuticals, but did not discourage foreign companies from competing in India. As a result, foreign products ruled the Indian pharmaceutical industry and drug prices in India were among the highest in the world. The year 1954 saw the establishment of Hindustan Antibiotics Limited (HAL), followed by Indian Drugs and Pharmaceutical Ltd. (IDPL) in 1961. These two enterprises played an important role in starting domestic production of key bulk drugs and in diffusing substantial spillovers in terms of technical know-how, technology transfer and the technology innovation process/system. The pharmaceutical industry policies during this era continued to emphasise national health and self-reliance rather than indigenous production, and allowed MNCs to exploit the Indian market. In 1970, the size of India’s pharmaceutical industry was very small (around US$ 90 million). The relative absence of organised Indian players added to high costs of pharma products. The dependence on imports for important drugs was very high. That year also saw the Indian Patents Act, which came in to effect in 1972. It granted patents only for the method and process of manufacturing substances by chemical processes to be used as foods, medicines and drugs. Its aim was to encourage domestic producers to manufacture drugs and achieve self-sufficiency in medicines. The Drug Price Control Order also came into existence around that time, capping the prices of all bulk drugs and formulations at reasonable prices. It also regulated the production pattern of pharmaceutical companies by fixing a ratio between the formulations and bulk drugs produced by the companies. This led to greater investments in the production of key bulk drugs such as antibiotics and cardiovascular drugs, and hence, ensured their availability. The share of multinationals in the total production of formulations began to decline during this period. This was also due to the introduction of the Foreign Exchange Regulation Act (FERA), 1974, which required all multinationals to dilute their equity holdings. In the late 1970s and early 1980s, legal reverse engineering made new

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technologies and new drugs available easily and at an affordable price. These reforms laid the foundation for generic drug production, and the number of smallscale units (SSIs) in the industry increased rapidly. The period after liberalisation saw a fresh lease of reforms, and set into motion the innovation and research phase of the Indian pharmaceutical industry.Once the Indian market opened up to foreign firms and the import of goods, the demand for improved manufacturing processes and new products drove the need for new technology and innovative products at par with international products. The period from 1990 to 1994 was one of high growth for the domestic pharmaceutical industry. As part of the reforms process, tariff barriers were lowered and FERA regulations were relaxed. This not only benefited Indian producers, it also encouraged foreign investment. Many Indian players made the effort to increase their presence in the global market. All this resulted in increased competition in the industry. In 1995 the Indian government agreed to adhere to the WTO’s product patent regimes, which caused MNCs to pursue the Indian market more aggressively. However, due to more intense competition in the domestic bulk drugs market, many producers shifted to the marketing of generic formulations, especially in the alimentary and anti-infective segments. This marked the transition of the Indian pharmaceutical industry from bulk drugs to formulations. Also, the rate of introduction of new drugs grew consistently, and the pressure to introduce new products at affordable prices rose to ensure reasonable volumes. Adding to that was the quest by the domestic players for exports to the semi-regulated markets, which gave them a new avenue for increasing their revenues. The early years of the 21st century saw heavy investments in research and development activities by domestic players, who upgraded their manufacturing facilities to ensure compliance with domestic and international regulations. The WTO regulation also forced Indian players to seriously consider the option of generic markets. Conversely, the government's move on product patents and its decision to grant exclusive marketing rights strengthened the interest of MNCs in the domestic market. In 2005 and 2006, the Indian pharmaceutical industry was exposed to a series of regulatory developments, ranging from the recognition of product patent in January 2005, implementation of value added tax (VAT), a shift in excise duty levy to MRPbased levy to Schedule M implementation. Presently the industry is also benefiting from the advent of information technology and is utilising the latest technologies for manufacturing, and research and development processes. In the near future we are expected to see an increased exposure to the use of information technology, with newer technologies like RFID and knowledge management finding increased acceptance among various players. Factors such as changing Intellectual Property and patent laws, favourable cost/skill ratios, the past success of outsourcing in IT fields -- all these have converged to create a compelling business opportunity for Indian companies in pharmaceutical market.

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Reforms in the Sector
The Indian government has played a very active role in the Indian pharmaceutical industry. Some of the key regulations are: Tax Benefits: The Excise and Income Tax Free Zones are a boon for the small and medium pharmaceutical companies, particularly those engaged in contract manufacturing. In the 2008-09 Union budget it was proposed to totally exempt certain specified life-saving and bulk drugs used in the manufacturing of such drugs from excise duty, while reducing customs duty on such products to 5% from the present 10%. The excise duty on both the bulk drugs and the formulations were reduced to 16% in 2006-07, and has now been further reduced to 8% in 2008-09. Foreign Technology Agreements: Automatic approval for Foreign Technology Agreements is available in the case of all bulk drugs cleared by the Drug Controller General (India), all their intermediates and formulations. Also the SEZ Board of Approvals (BoA) has approved 11 pharma SEZs for the country. Pharma R&D Fund: The Government of India has created a pharma R&D fund with a total corpus of US$ 33.3 million. The fund will act as a grant for public institutions and a loan to the industry. Liberalization: Following liberalization set in motion in 1991, industrial licensing for the manufacture of all drugs and pharmaceuticals has been abolished except for bulk drugs produced by the use of recombinant DNA technology, bulk drugs requiring use of nucleic acids and specific cell/tissue targeted formulations. Foreign investment through automatic route was raised from 51% to 74% in March 2000 and the same now has been raised to 100%. Also, automatic approval for foreign technology agreements is being given in the case of all bulk drugs, their intermediates and formulations except those produced by the use of recombinant DNA technology, for which the procedure prescribed by the Government would be followed. Drug Price Control Order: To keep the prices of the drugs, especially the life-saving and essential drugs, the government introduced the drug price control order for the first time in 1970. In 1987, the order was modified for the first time, and then again in 1994 when the number of drugs under the control was further brought down to 74. The Indian Patent Act, 1970: The Patent Act, 1970, came into force in 1972. It recognized only process patents and not the product patents. Though it hindered the growth of MNCs in the Indian pharmaceutical industry, it gave a boost to the domestic pharmaceutical players and also restricted the monopoly of MNCs. The Patents Act, 2005: Necessitated by the WTO regulations and the well-balanced development of the domestic pharmaceutical industry, the Indian government has moved back to the product patent regime from January 2005. This has re-entrusted the confidence of the MNC players in the Indian pharmaceutical market and are now investing heavily in India after being ensured of non-copying of their products.

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Schedule M (Good Manufacturing Practices) of the Drugs Rules: The Ministry of Health and Family Welfare has amended the good manufacturing practices (GMP) outlined in Schedule M of the drugs rules. It lays down certain requirements in terms of manufacturing environment and a definite procedure that needs to be followed by the pharmaceutical manufacturers. The provisions in the modified regulations are now applicable to all pharmaceutical manufacturers from July 2005. Quality Control: To improve the existing state drugs testing laboratories and to set up new ones, wherever not established, funds have been sanctioned under a centrally sponsored scheme for the same. National Drug Policy, 1986: A National Drug Policy was introduced in 1986 with the main objectives of ensuring availability of essential and life-saving and prophylactic medicines of good quality at reasonable costs; strengthening the system of quality control over drug production and promoting the rational use of drugs in the country; creating an environment conducive to new investment; and strengthening the indigenous capability for production of drugs Pharmaceutical Policy, 2002: The drug and pharmaceutical industry in the country faced new challenges in 1990s due to liberalisation, the globalisation of the world economy, and the new obligations undertaken by India under the WTO agreements. In the wake of these, the Indian government came up with a new pharmaceutical policy in 2002 with the major objectives of: Ensuring abundant availability at reasonable prices within the country of good quality essential pharmaceuticals of mass consumption. Strengthening the indigenous capability for cost effective quality production and exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical sector. Strengthening the system of quality control over drug and pharmaceutical production and distribution to make quality an essential attribute of the Indian pharmaceutical industry and promoting rational use of pharmaceuticals. Encouraging R&D in the pharmaceutical sector in a manner compatible with the country’s needs and with particular focus on diseases endemic or relevant to India by creating an environment conducive to channelizing a higher level of investment into R&D in pharmaceuticals in India. Creating an incentive framework for the pharmaceutical industry, which promotes new investment into the pharmaceutical industry and encourages the introduction of new technologies and new drugs. Creation of the National Institute of Pharmaceutical Education and Research (NIPER) by the Government of India as an institute of national importance to achieve excellence in pharmaceutical sciences and technologies, education and training. Through this institute, Government’s endeavor is to upgrade the standards of pharmacy education and increase the spend on research and development in the industry. Besides tackling problems of human resources development for academia and the indigenous pharmaceutical industry, the

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institute makes efforts to maximize collaborative research with the industry and other technical institutes in the area of drug discovery and pharmaceutical technology development. National Pharmaceutical Policy, 2006: The most important feature of this policy is to bring down the prices of medicines by including 354 specified drugs in addition to the already existing list of 74 drugs under the list of essential medicines. The policy proposes to increase the maximum allowable post-manufacturing expense (MAPE) from the current 100% to 150%. Drug prices will be fixed for all drugs in the cost-plus price control system based on the given percentage of MAPE. The key features of the policy are: Strengthening of patent office infrastructure Focus on research and development process development, drug discovery, drug development and clinical trials-incentives in the form of higher Maximum Allowable Post-manufacturing Expenses (MAPE) Human Resource Development in Pharmaceutical Sciences through more institutes like the National Institute of Pharmaceutical Education and Research (NIPER) to meet the growing need of industry for technical manpower Streamlining the System of bulk procurement of drugs by government Promotion of Generic Drugs Consumer Awareness Campaigns to be organized Schemes for providing accessibility of drugs to the poor, especially below poverty line (BPL) families. The major schemes are Health Insurance, National Illness Assistance Fund and State illness Association Funds, among others Encouraging production of critical bulk drugs in India Setting up of drug price monitoring awareness and accessibility (DPMAA) fund Setting up of pharma parks Greater thrust on pharma exports Improving the retail system for efficient pharmaceutical distribution Strengthening of NPPA with greater computerization and better monitoring

Players in the Sector
Of the three categories of pharma companies—innovator, discovery and generics— most Indian companies belong to the first. The Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units, having expanded drastically in the last two decades.

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The major companies in Indian pharmaceutical industry are Pfizer, Ranbaxy Laboratories, Dr. Reddy's Laboratories, Lupin, Novartis, Cipla, Nicholas Piramal, Aurobindo Pharma, Aventis, Glaxo Smithkline, Kopran, Sun Pharma, Wockhardt Ltd. and Zydus Cadila. Traditionally MNCs have dominated the industry, but that trend is presently seeing a reversal. Today, the top 10 players account for only 36% with the next 60 players taking the count to 49%. In other words, the leading 250 pharmaceutical companies control 70% of the market with the market leader having a share of only around 7%, highlighting the fragmented nature of the industry.

Trends in the Sector
The Indian pharmaceutical industry has undergone a paradigm shift in the last few years. Major global companies have shifted their focus to India; at the same time domestic companies are actively participating in the global drug development process. Contract research, contract manufacturing and clinical trials are the areas in which the country is emerging as a major player in the global market. With the new Patent Act in place, expectations for global opportunities are also on a high note. The key happenings at which the India pharma industry is looking at are: Pharma Hub: India is fast becoming a leading destination for contract research and manufacturing services (CRAMS) with advantages like cGMP and FDA compliant facilities, manufacturing capabilities, R&D base, high IT capability, skilled personnel and cost efficiency. There is an increased trend towards outsourcing by the developed countries to the developing countries for cost reasons and with the obvious advantages that India has (skilled manpower at low cost), it is viewed as one of the key destinations for CRAMS and clinical research. Global Foray: The industry is on a global acquisition spree and is becoming a significant player in the global pharmaceutical market in the generics space. Domestic companies in India have begun to tie up with foreign ones to in-license drugs. The Indian manufacturers are increasingly tapping the export markets. Export revenues now contribute almost half the total revenues for the top pharmaceutical companies in India. Domestic Foray: With the advent of product patent regime and increasing affordability, MNC pharma companies are planning to accelerate the launch of their patented products in India. The market has been growing between 8 and 9% over the last two years, primarily driven by new launches and to some extent by volumes. While the Indian pharma majors have been launching more than ten products per year, global MNCs averaged one or two annually, giving the Indian companies a broader product line to offer. Outsourcing: India is emerging as an alliance and outsourcing destination of choice for global pharma companies across the value chain. The emergence of multinational Indian companies such as Ranbaxy, Cipla, and Dr. Reddy’s (DRL) as credible players in the global generics mart and the growing number of FDA-approved plants and ANDA (Abbreviated New Drug Application)/DMF (Drug Master File) filings by Indian

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companies has brought India into the limelight as a cost-competitive supplier of quality pharmaceutical products. The change in the country’s patent laws, transitioning from a process patent to a product patent regime, has also assuaged fears of intellectual property risk. Emerging global opportunities in the areas of R&D outsourcing have driven several Indian companies to redefine their businesses models and branch out into offering contract research services. A number of niche service providers have emerged in the recent past that bring with them a wide spectrum of offerings to cover gaps in capacity, optimize the costs, widen the skill base of the partner and enhance the drug development pipeline. Changing Demographics: The Indian pharmaceutical market has potential for tremendous growth with a burgeoning middle-class of around 300 million people that have higher healthcare expectations. Not only they are getting increasingly aware about the utility of healthcare and pharma, they are willing to pay for the quality services and medicines. In the long run, affordability and awareness are expected to increase and about 35-45 million Indians are estimated to be able to afford the best medicines. With the growing healthcare market in India, the derived effect on the pharmaceutical industry has already started to show signs and is going to get stronger and stronger in the next 4-5 years. PPP Model: While industry leaders have long called for the development of PPPs for the provision of healthcare in India, particularly in rural areas, such initiatives are currently totally unexplored. The government’s 2006 draft National Pharmaceuticals Policy proposes the introduction of PPPs with drug manufacturers and hospitals as a way of vastly increasing the availability of medicines to treat life-threatening diseases. But the same is yet to take a commendable shape in India. Emphasis on R&D: Over the past decade pharmaceutical MNCs have accordingly been off-shoring more and more of their R&D to emerging countries to accelerate output and reduce costs. The major beneficiary of this trend has been India, with its broad vendor base that can produce high-quality work at short notice. Also the domestic players have increased their R&D spend substantially over the last 5-6 years and are continuously innovating new drugs and processes for the industry. They are also spending heavily on IT to aid their research processes and are thus giving a major boost to the IT market in the pharmaceutical sector. Mergers and Acquisitions: The Indian pharma industry is seeing the increasing number of mergers and acquisitions in the last few years. The major companies are tying together in one or the other field related to pharmaceutical industry. International and national level mergers, acquisitions and takeovers have now become a common phenomenon in the pharmaceutical industry. To match the situation created by international mergers and takeovers, Indian companies are adopting the same path. A recent acquisition in news was the Daiichi Sankyo's (Japan) stake purchase in the country's top drug maker, Ranbaxy Laboratories for US$ 4,600 million. As per the industry experts, it has marked the beginning of the second phase of evolution for the Indian pharmaceutical industry with the foreign collaborations starting to take importance for quality and technology.

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Factors favouring the growth of the sector in India
Capital efficiency: Thanks to access to locally fabricated equipment, and highquality local technology and engineering skills, Indian companies are able to reduce the upfront capital cost of setting up a project by as much as 25 to 50%. Indian companies have been able to establish US FDA standard plants at approximately 50% lower capital costs as compared to US or Europe based manufacturing units. Thus collaborating with the Indian companies or establishing manufacturing plants in India leads to huge savings in costs for the pharmaceutical players. Process engineering: The highly competitive local market and lack of pricing power force Indian companies to continuously work on the molecule even after a product is launched. This often results in gains in the form of improved yields and more costeffective manufacturing processes. Customers and suppliers generally share such benefits in a pre-determined ratio, thus providing the benefit of continuous cost reduction. Therefore the global pharmaceutical players can leverage the strong manufacturing processes of India. Competent workforce: India has a large talent pool of skilled personnel with high managerial and technical competence, and English proficiency, all available at a fraction of the cost in comparison to developed countries. Also, labour costs in India are around a seventh of the levels in developed countries. High receptiveness to technology: Since the pharmaceutical sector comprises of highly educated, qualified and competent professionals, their reception of technology (IT and others) is relatively faster in comparison to that of other industries. This makes the change management better and quicker and also allows the IT teams to make complex IT deployments; with little bit of training only. With India riding high on technology deployments and its receptiveness, the pharma industry can very easily leverage the benefits of the same and build a strong base in the country. Cost-effective chemical synthesis: India’s track record of development, particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. Advantages in ayurveda: India has enormous resources of medicinal and herbal plants. That, along with pre-historic knowledge of ayurveda and its applications to cure illnesses effectively, is yet to be fully explored. Once this happens, India could gain a very significant competitive edge in the global market, especially in the pharmaceuticals, beauty care, and healthcare segments. Most importantly since this traditional knowledge of ayurveda is not available in other countries, India could dominate in this sector. The firms have been for long talking on these lines but have not yet been able to formulate a policy for the same. They need to understand the inherent advantages that the Indian ayurveda possesses and how it can be further explored for the betterment of the masses.

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High quality standards: The increasing number of domestic pharmaceutical companies winning international regulatory approvals (such as US Food and Drug Administration or Medicines and Healthcare Products Regulatory Agency, UK), and the fact that a major share of exports are going to the developed countries, point towards the price competitiveness and excellent quality of domestic pharmaceuticals. India has more US FDA-approved manufacturing sites compared to other developing countries, providing credibility to the Indian pharmaceutical industry and its products. Low prices of drugs: The prices of Indian drugs are also one of the lowest in the world. The cost of manufacturing in India is significantly lower as compared with US. A number of players from developed markets from North America, Europe regularly source APIs (Associated Pharmaceutical Intermediate) and drug intermediates from India. Government initiatives: The government has initiated a number of policies for strengthening research and development in pharmaceutical sector, and strengthen regulatory mechanisms. The government has also continuously reduced the rates of excise and customs duties to make Indian pharmaceutical space increasingly lucrative for the players. This coupled with 100% FDI in the pharmaceutical sector has made India a favourable destination for the global pharmaceutical companies. Booming medical tourism and healthcare industry: Indian healthcare players have already announced their expansion plans in regards the tertiary hospitals to be set up in India. With an increased number of hospitals in India, the demand for drugs is going to rise manifold in the years ahead. This provides a huge incentive to the pharmaceutical players to expand their scope of operations and match the supply with the increased demand. Low per-patient expenditure in clinical trials: The expenditure per patient for a clinical trial in India is much less compared as compared to that of the US. Thus, MNCs are finding it viable to establish an alliance with the Indian companies that have their own clinical trial set-up. Huge market for lifestyle drugs: The increasing spread of lifestyle diseases in the country has added to the need for lifestyle disease drugs. This opens a huge market for drugs, in which makers of lifestyle drugs are going to be the biggest beneficiaries in the coming years. Information Technology: The last decade has seen a rapid development of the Indian IT industry. Also, presently IT acts as an enabler and facilitator for Indian pharmaceutical companies and is helping the global players in furthering their entry into the Indian pharma space. Undoubtedly IT is going to find increased adoption in the industry in the next few years, with its benefits helping the pharma majors in modernization and expansion.

Challenges in the Sector
The Indian pharmaceutical sector faces the following challenges:

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Low per capita expenditure on pharma: Only about 30% of India’s 1,100 millionplus population has access to modern medicine; most of these live in metro cities. Also, about 80% of healthcare payments are borne by the individual, unlike in developed markets where the figure is 10 to 30%. All this is resulting in low per capita expenditure on pharmacy in India, which is hovering at US$ 8 compared to US$ 170 in the US (2007). Threat from China: China is becoming a major competitor to India, especially in exports of active pharmaceutical ingredients (APIs). China’s exports are growing at the rate of about 20% on an annual basis. China is gaining this competitive advantage because the electricity costs are lower in China as compared to India. It has also established a large number of profit oriented research and development institutions, which are today independent of government funding in contrast to institutions in India, which are mostly dependant on government funding. Also the labor charges in pharmaceutical industry are 40% lower than that of India. All this makes China a huge competitor for India in the pharmaceutical space, especially when it comes to exploitation of opportunities presented post 2005. Spurious drugs: Despite efforts of large companies to protect their products, counterfeit drugs still remains a big problem for the Indian pharmaceutical industry. India still needs to tackle the problem of spurious drugs with more stringent licence procuring procedures. There is a strong need to strengthen and streamline the central and state drug control organisations. The spurious drugs can ruin the potential for the Indian pharmaceutical industry and thus putting a check on them immediately should be of utmost importance. Lack of exploitation of herbal expertise: India has not been able to exploit its know-how in herbal medicines yet. Since these medicines do not come under the purview of the TRIPS regime, it presents a great opportunity for the Indian companies. On its part, the government should set up R&D laboratories undertaking research exclusively in the area of herbal medicines and support the companies in their research and patent filing. Supply Chain issues: Lack of transparency across the supply chain is a major issue. Companies need to automate their supply chain and develop it end-to-end for the benefit of customers, vendors, dealers and most importantly the organisation itself. Ceiling over the prices: The Drug Price Control Order (DPCO) under the Drug Policy of Government of India sets limitations on the accrual of profits. There is a limit on the prices which can be set for certain drugs thus making it difficult for the companies to charge market rate prices. Adherence to international quality norms: Also the international quality standards to which the Indian companies need to adhere before becoming truly global companies are too stringent and the Indian pharmaceutical industry needs to gear up for them. Due to increased FDA scrutiny, manufacturing quality is increasingly a key driver in successful and timely product launches, optimizing revenue streams, enhancing the company's reputation, and maximizing shareholder value. Thus to gain true global recognition the Indian pharmaceutical players need to re-align their processes for stricter adherence to the international quality norms.

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Difficulties in IT adoption: Pharma companies face certain challenges while implementing IT, including resistance from employees. Also newer versions of various tools and solutions are being innovated at a very rapid pace, which makes IT adoption very difficult especially for smaller companies. Mismatch between demand and supply: The pharmaceutical industry in India meets only 70% of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. The remaining portion of the demand is met by the imports, which is severely impacting the trade balance and the further development of the pharmaceutical industry in India.

Role of Information Technology in the Sector
Pharmaceutical manufacturing has undergone considerable change over the last few years, and most of the companies are expanding manufacturing facilities by upgrading or restructuring processes at the core level. IT deployment in the Indian pharmaceutical industry has followed one of the following three paths: Establishing the basic IT infrastructure first and then deploying advance level applications: Companies initially streamlined and globalized their IT function to increase its scale and efficiency. Once their basic IT systems were in place then they focused on IT-driven business performance and innovation. This approach takes the longest time, generally 24-36 months, but is the least risky approach because resources can be managed in a focused and coherent way. The approach also gives the organisation time to build the necessary change management capabilities as it moves from internally focused IT efficiency to externally focused business innovation and enablement. Establishing the basic infrastructure and advanced level applications simultaneously: This approach is rarely used, and that too by companies who are a little late with their IT adoption and need to deploy advanced applications along with establishing their basic IT infrastructure. With this approach the companies split their resources into two, one for establishing IT infrastructure and the other for deploying advance level applications. It is risky approach because without disciplined adherence to cross-cutting policies and operating procedures, the two separate power centres may make slow and ineffective decisions, which can lead to misalignment and waste. It can also create cash-flow problems in the companies. On the plus side, it is less time consuming and can scale up the IT operations of an organisation very quickly. Outsourcing the establishment of basic IT infrastructure and deploying advance level applications internally: Under this approach companies outsource the less critical component of their IT applications, keeping the important applications of business innovation and business criticality in-house. Outsourcing infrastructure and legacy systems lets companies focus on business changes and innovation. Also, this approach involves less strain on the internal resources of the organisations.

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IT solutions in the sector Workflow management: This involves the integration of the back-end and front-end systems and the integration of the collaborated system with the supply chain management. Even large firms are not yet 100% through in implementing these solutions and are spending around 5% of their IT budgets on implementing such solutions. But the small and medium sized companies are spending around 8% of their total IT spend on such initiaitives. The workflow coordination for the pharmaceutical companies include activities such as research and development, drug discovery, marketing of the novel drug, procurement of the orders, order execution, design optimization, and financial exchanges which result in cost and time efficiency. Integration / consolidation: The problems many pharmaceutical companies struggle with in terms of their IT process are the effects of using a variety of different non-connected or loosely connected IT systems. This typically happens in the cases of mergers and acquisitions. The true benefits of these systems can be best had by a fully integrated manufacturing business solution with a central database. Integration is used to control production, stocks, purchasing, sales, formulations and all of the standard financial functions required. The integration has been on the cards of all the Indian pharmaceutical players for long, be it the larger firm or the smaller company. Only the degree of integration attained is different. The large firms even after the challenge of size have been able to achieve a better degree of integration then the smaller players. Wile the smaller firms are still completing the integration process, the larger firms are in the final stages of the same. ERP: With the increasing global interaction the ERP system has become all the more critical for the pharmaceutical companies to ensure adherence to the regulatory compliances of international authorities like FDA. In recent years, several medium and large Indian pharmaceutical companies have implemented ERP systems, in addition to restructuring their production capacities and their research and development activities. Though the results have been satisfactory but due its peculiar nature of enhanced focus on research and novel drug discoveries, the experts in the industry opined that the availability of specialized and customized ERP solutions for the sector would make more commercial sense for the firms planning to modernize their operations. These solutions should be tailored specifically for the pharmaceutical sector, right from research to the final tracking of the drugs supplied to the doctors and the chemists. Management execution system (MES): Well integrated IT systems through MES will help companies to quickly respond to the changing market dynamics and help them take advantage of the opportunities thrown up by the changing economic and business scenarios. This holds vital importance for the companies that have undergone mergers and acquisitions as they generally have many different IT systems in place. To the accord, the pharmaceutical companies have realized that they need to integrate their various IT systems like ERP, business intelligence (BI), process management, customer relationship management (CRM), research and development, supply chain management (SCM) systems to enhance earnings and increase operational efficiency.

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Sales force automation: Sales force automation (SFA) is a vital tool that enables and empowers the sales team to make accurate spot decisions. It helps in real-time capturing of the information about customers along with sales data. This proves to be a very handy tool in the hands of the sales people so that they can understand the customer requirements and his demand pattern and can pitch for their offerings accordingly with the doctors and the chemists. Increased usage of PDAs and smart hand-held devices: Over the past few years the pharmaceutical industry has adopted higher end valves, smart transmitters and new technology flow-meters. The entry of personal digital assistants (PDAs) has revolutionised the business of data collection in pharmaceuticals. Handheld devices like mobile computing and infotainment tools have developed due to advances in wireless technology used to transmit data and information to and from remote locations. Data warehousing/storage, its management and retrieval: Data is the most critical element of any pharmaceutical research, for any drug discovery as well as for the regulatory compliance, thus it is important to have robust and secured data increases all the more. By capturing the data at source, automating the processes, and providing the necessary information, the IT systems form the base for decision support system. Therefore, it has become very critical for any pharmaceutical company to have robust solutions and data management tools for the same. The large pharmaceutical companies have implemented solutions and software in this regard and they are now looking to make their storage infrastructure more robust and secured by focusing on security solutions for the same. The smaller companies on the other hand are at present in the implementation stage of the storage solutions and are expected to migrate from one platform to other in 2009 and 2010. Drug discovery informatics: The modern day requirements of the pharmaceutical companies in regards the drug discoveries are such solutions and techniques that can successfully meet these challenges of integrated diverse data transacted across the business process; tie together various informatics and analytical applications used for prediction and analysis; streamline workflow activities by automating manual processes and connecting diverse scientific collaborators; and present the project results in easy to access reports and other data visual aides. Though some companies are already looking at the implementation of informatics solutions in the next few years, the number is very low and thus the industry needs a robust and costeffective solution that can take care of its needs for a longer duration and in a more secured manner. Regulatory compliances: IT plays a major role in ensuring that the standard operating practices (SOPs) and policies are in place and is being adhered to—like the GXP (GMP, GCP, GPP, and GLP) standards. From a compliance perspective, it helps in having proper application processes, controls and ensuring that the processes are being followed. Thus the Indian pharmaceutical players are increasingly looking at such solutions that can further their steps in regard the regulatory compliances. Customer relationship management: CRM is becoming essential for the companies in the sector to successfully understand the requirements of their

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customers along with the market dynamics. Thus the Indian pharmaceutical companies are looking to leverage information from their customer relationships to get additional value so as to gain a sustainable competitive edge over their competitors. Quality management solutions: Quality management plays a key role in the pharmaceutical industry. To ensure that the products are safe and effective, manufacturing processes are subject to strict legal conditions. National and international authorities constantly monitor the manufacturers' adherence to regulations. The directives and procedural instructions for validation require companies in the industry to document the entire logistics chain in full–from goods inwards to delivery, and from the development of new preparations to the maintenance of mixers and packaging lines. Such validation activities can be carried out only with the software applications. Therefore the pharmaceutical companies have taken up the deployment of quality management solutions so that the adherence to the quality standards can be ensured. E-Procurement through portals: E-procurement is a viable option to contain costs, manage inventory and streamline the ordering process. E-procurement solutions do not require additional technology, dedicated personnel, or staffing resources. Rather, existing technology infrastructure, including equipment and computers with Internet connectivity (which may already be in place), can be used. The e-vendor typically is an independent, online storefront that serves as a type of electronic group purchasing organization, appealing to manufacturers for deep discounts based on the economies of scale and the clout of a large customer base. Thus, the role of web portals in the sector is getting its due importance and the companies are working extensively towards the development of their portals. Bar coding: In Indian pharmaceutical companies bar coding is still limited to cartons and not on packages. Though most of the players in the industry (both small as well as large) have the bar code systems in place for the materials flowing in and out of the manufacturing units and depots; but with the advent of RFID the focus of the large players has now started to shift towards it. SCM: IT applications facilitate the execution of several theories of supply chain management, like constant refilling, vendor administered refilling, planned postponement, etc. The supply chains in the Indian pharmaceutical industry are getting automated at a very high speed, with large companies already in the process of integrating their suppliers in the chain via secured and robust networks.

Conclusion
As India enters the product patent regime and the generics market (by 2012), the industry is becoming more confident of its capability to develop its own original molecules. Indian companies are climbing up the value chain by moving to developed markets and from bulk drugs to formulation exports. Also, the research focus of large companies has shifted towards discovery of new chemical entities due to regulation of the product patent regime since 2005. It is also is considered a highly promising outsourcing IT and clinical data management destination because of its rich talent pool, technological innovation, creditable quality, operational flexibility, cost

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effectiveness, time-to-market and competitive advantage. Thus the opportunity area for the Indian pharmaceutical industry is vast and can be harnessed with the advent of latest IT solutions backed by the strong inherent advantages.

THE INDIAN HEALTHCARE SECTOR
Overview of the Sector
One of the largest service sectors in India, the healthcare industry serves over 1,100 million people and is approximately worth US$ 34,200 million, estimated to increase to US$ 58,000 million by 2012. It contributes around 3% to the GDP of India, and is set to grow at 15% annually for the next few years, thanks mainly to the availability of quality service at a fraction of the cost compared to the developed world, making it a desired healthcare destination for patients from around the world. Healthcare services are offered at primary, secondary and tertiary levels. At the primary level, general services are offered through clinics. They are the first point of contact for patients. Secondary services refer to those provided by medical specialists who generally do not have first contact with patients (e.g. cardiologists, urologists, dermatologists). The tertiary level hospitals offer healthcare in specialized consultative areas. There are about 229 medical colleges and hospitals in India. Thus, the healthcare system consists of: Primary, secondary and tertiary care institutions, manned by medical and paramedical personnel Medical colleges and paraprofessional training institutions to train the needed manpower and give the required academic input Programme managers managing ongoing programmes at central, state and district levels Health management information system consisting of a two-way system of data collection, collation, analysis and response Some facts about India’s healthcare sector are as follows: In India, 25,000 medical graduates pass out each year Hospital beds per 1,000 people is 1.11 Most private hospitals operate as a proprietorship or partnership business. Corporate hospitals account for approximately 10% of the total private ownership Adaptation of telemedicine technology offers one of the best options for delivering healthcare for rural and geographically distant population spread across India.

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Indigenous or traditional medical practitioners exist throughout the country. The two main forms of traditional medicine practised in India are ayurveda, which deals with causes, symptoms, diagnoses, and treatment based on all aspects of well being (mental, physical, and spiritual), and unani, which is herbal medical practice.

Evolution of the Sector
The Indian healthcare scenario pre independence was dismal, and it has since seen significant changes. Considerable efforts have been put into expanding the public health system, with an emphasis on primary health care in the last few decades. However, government-funded facilities were found to be inadequate in meeting the burden of disease and the growing demands of the population at all three levels of care -- primary, secondary and tertiary. This necessitated the need for alternate funding, and resulted in the entry of the private players into the sector. Norms for the entry of private players in healthcare were relaxed in the 1980s. The resultant, facilities are owned and operated by for-profit companies as well as charitable or non-profit organisations. It has also opened a gamut of opportunities for India in terms of medical equipment, information technology in health services, BPO, telemedicine and medical and health tourism. In order to meet its healthcare goals, the Indian government acknowledges that increased foreign involvement is necessary, especially in high-technology and specialised areas such as equipment for plastic surgery, cancer diagnosis and medical imaging. Allowing 100% FDI subject to approval by the Foreign Investment Promotion Board has assisted in opening up the Indian healthcare market for international investors. India is also fast moving towards adopting international standards like accreditation of hospitals, providing state-of-the-art healthcare facilities at far lesser prices compared to its western counterparts. The Indian healthcare industry has the potential to show the same exponential growth that the software and pharmaceutical industries have shown in the past decade. Today, the majority of healthcare services in India are provided by the private sector, and its involvement and contribution is on the rise. Investments from the corporate sector have been steadily growing since the mid-1990s. In the last few years a number of new players have entered the healthcare delivery sector as well, setting up specialty and super-specialty centres. In the government sector the states provide the bulk of healthcare. Presently, the public spending is at a level of 0.9% of GDP.

Reforms in the Sector
The Union Ministry of Health and Family Welfare is responsible for the implementation of various programmes of national importance related to health, like family welfare, and prevention and control of major diseases. The ministry assists states in preventing and controlling the spread of outbreaks and epidemics through technical assistance. In addition to centrally-sponsored schemes, the ministry has formulated and is implementing various World Bank-assisted projects for the control of various diseases. State health projects are implemented through state

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governments, though the department of health has assisted states in availing external assistance. There are three departments under the ministry: Department of Health Department of Family Welfare Department of AYUSH (Ayurveda, Unani, Siddha and Homoeopathy) A National Health Policy was announced by the government in 2002. This policy encourages greater privatisation of the healthcare system, and also suggests policy instruments for implementation of public health programmes through individuals and institutions of civil society. It outlines improvement in the health status of the population as one of the major thrust areas in its social development program. It focuses on the need for enhanced funding and an organisational restructuring of national public health initiatives in order to facilitate more equitable access to health facilities. 2008 Health Budget A budget of US$ 4,130 million has been allocated to the health sector (including NER) under the 2008-2009 annual budget. This marks an increase of 15% over the allocation in 2007-08. The salient points of the health budget include: Allocation to the health and educational sector has been increased to 20% Excise duties on anti-AIDS drugs have been brought down The National Aids Control Programme will be provided US$ 250 million The drive to eradicate polio continues with a revised strategy and a focus on the high-risk districts in Uttar Pradesh and Bihar; receives proposed allocation of US$ 260 million The sanitation programme is to receive US$ 300 million Customs duties on some bulk-drugs have been brought down to 5% 17 lakh families of weavers have been included in the health insurance programme The allocation provided to the National Rural Health Mission has been increased by 15%. US$ 3,000 million will be allotted to strengthen the health services in the villages Apart from these, two major interventions are planned to be started in 2008-09. The first is the Rashtriya Swasthya Bima Yojana that will provide a health cover of US$ 750 for every worker in the unorganised sector falling under the BPL category and his/her family. This plan was launched in Delhi, Haryana and Rajasthan on 1 April 2008, and most other states were on course to join. The annual budget provides US$ 51 million as the centre’s share of the premiums in 2008-09.

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The second is the National Programme for the Elderly with a Plan outlay of US$ 100 million. Also, during the Eleventh Plan period, two National Institutes of Ageing, eight regional centres, and a department for geriatric medical care in one medical college/tertiary level hospital in each state are to be set up. The government also takes the initiative to institutionalise a mechanism of publicprivate partnerships (PPP) in healthcare, right from the district level. It is in the process of developing guidelines for public-private partnerships and areas for partnership that are need-based and necessary for the healthcare industry. The public sector will play the main role in defining the framework and sustaining the partnerships. It will further design the management plans for public-private partnerships initiatives at the district/state and national levels. The government has undertaken certain initiatives with the objective of developing institutional capacity with multivariate skills in order to reorganise and finance the health system in the country. The skills will range from enforcement of regulations to designing flexible and innovative approaches. Proper regulation of healthcare provision is imperative, especially in the light of the commercialisation of healthcare services. It is of special importance in third world countries such as India, given the wide and varied groups of persons who are stakeholders in the field of providing healthcare service. The creation and use of health information has been a matter of special concern to governments as well other public bodies involved in the field of healthcare, since it is now perceived that this materially affects the lives and rights of a growing body of people.

Players in the Sector
In India health services are provided by the government from the primary to the tertiary level through publicly financed and managed institutions. These services, accounting for about 20% of the overall health spending and 0.9% of the GDP, are provided free of cost or at subsidised rates to the patients. A fee-levying private sector, which plays a dominant role in the provision of individual curative care through ambulatory services, coexists with public healthcare. It accounts for about 80% of the overall health expenditure and 4.4% of the GDP. Despite a low ROI of 15-20%, but with huge potential and large opportunities, international groups like Parkway Group Healthcare, Pacific Healthcare, Columbia Asia and a host of others are penetrating the promising Indian healthcare market. The market in India is dominated by a huge number of players with small market shares. The key players include Apollo Hospitals, Fortis Healthcare, AIIMS, Wockhardt Ltd, KLink Healthcare Systems, HealthPlan Systems, The Escorts Group and Max Healthcare. Among these, Apollo is the market leader in bringing healthcare of international standards to India. While Fortis has equipped itself with state-of-the-art IT infrastructure and applications that have given it a major edge over other nontechnology focused healthcare facilities, Max Healthcare is India's first truly integrated healthcare system, offering all three levels of clinical service within one system. Corporations like the Apollo Group, Fortis, Max, Wockhardt, and Escorts Group have made significant investments in setting up state-of-the-art private hospitals in cities like Mumbai, New Delhi, Chennai and Hyderabad. Using the latest technical

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equipment and the services of highly skilled medical personnel, these hospitals are in a position to provide a variety of general as well as specialist services at extremely competitive prices, encouraging patients not only from developing countries, but also from a number of developed ones to come to India for specialised treatment.

Trends in the Sector
The Indian healthcare industry is currently being exposed to trends it has never witnessed, not only changing the picture of the industry, but also bringing in lot of opportunities and challenges with them. Customer outlook: The Indian economy is growing at a rate of 7 to 8%, which has resulted in more cash flow in the hands of Indian customers. Increasing purchasing power and available options of delivery have made patients demand augmented services besides just getting quality product/services. This is providing a big boost to the healthcare players to integrate world-class services under one basket. Expansion: Corporate companies are embarking on either horizontal or vertical expansion to become integrated healthcare providers. Horizontal expansion involves the addition of new, synergetic revenue streams such as pharmacy, health insurance and telemedicine. Vertical expansion refers to adding clinics, secondary and primary healthcare facilities. Apart from enhancing hospitals’ reach, these expansions will also act as a feeder service to it. Some corporate companies are adopting a franchisee model, a variation of the hub-and-spoke model that is less capital intensive, wherein they tie up with other hospitals and clinics to drive growth. Corporatization: Changing trends have led large corporate players such as the Apollo Group, Wockhardt, Fortis and Max Healthcare to rapidly expand their operations in India. In order to gain competitive advantage, these corporate players are increasingly entering into collaborations with established global leaders. This has spawned new strategies of expansion, such as franchising, mergers and acquisitions, joint ventures, public-private partnerships and operations management. Accreditation: Even up to 2004 the private healthcare market in India was very disorganised, with no standardisation of processes and quality of delivery. Accreditation norms have helped private healthcare players by enabling them to compete globally and get a major share of the medical tourism market. Even though accreditation from ISO, ICRA or CRISIL was acquired by hospitals more as a business development initiative, they were not universally accepted, and players wanted to evolve accreditation norms that would enable them to compete globally. Hence several of them preferred the Joint Commission International (JCI) accreditation, since they were set standards already implemented in a lot of hospitals in the US and Europe. The JCI provided instant recognition by foreign insurance companies, thus increasing the medical tourism share. Changing demographic profiles: The most fundamental structural change altering the healthcare scene in India is the shifting demographic and socio-economic profile of its population fuelled by improving overall health status. With the decline in birth rates, the population aged 0 to 14 has declined, while on the other hand improvement

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in life expectancy has led to an increase in the old age population. On an average this has led to higher per capita demand for health services. The most significant demographic change is in the working class population (15 to 64 years), whose share in total population is expected to rise from 61.5% in 2000 to more than 65% by 2011. The working age group population is more prone to lifestyle diseases. In addition, the large geriatric population (55 and above), estimated to be the largest in the world, will form a major consumer segment in the near future. With lifestyle patterns changing, the country’s disease profile has been changing too. Lifestyle diseases such as diabetes and cardiovascular disorders is on the rise and the incidence of communicable diseases is declining at a fast pace. Such a change is opening up both preventive and curative care opportunities, and driving the demand for multi-specialty and super-specialty healthcare services, covering key therapeutic areas like cardiology, nephrology, oncology, orthopaedics, geriatrics, maternity and critical care. Payment model: Out-of-pocket spending on healthcare in India stands at a very high 82%. But this cash-and-carry model of payment is slowly taking a backseat and ‘third party payment’ is gaining importance. Third party payment facilitates cashless transaction by giving credit facilities. Cashless facility for an insured person means he or she can just walk into a network provider of his preference for the cashless hospitalisation. Health insurance penetration: The healthcare insurance is in for a big boom in the next 4-5 years. With the growing awareness among the masses towards preventive healthcare; but the high expenses of the same; the people are getting more and more inclined to the healthcare insurance to guard against any prospective expenditure in future. The same is also seen as a big business opportunity by the insurers in India and have to the accord directed their marketing and promotional campaigns towards the same. Healthcare BPO: The global healthcare industry is increasingly under pressure due to regulations and the need for cutting costs, which warrants huge potential for Indian IT companies. India can capitalise on the BPO opportunities, existing at least in the more advanced sectors of healthcare such as imaging, disease management and claims processing. But the industry needs to be careful because the healthcare outsourcing can eat into the share of medical transcriptions. The healthcare outsourcing market can be primarily divided into four major blocks: Providers (hospitals and physician groups) Payers (healthcare insurance companies, third party administration, etc.) Drug manufacturers (clinical research and bulk drug outsourcing) Pharmacy chains The types of services being offered by healthcare BPOs in India include: Data capture: Reporting of diagnostic tests and radiology reporting.

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Documentation: Data coding, medical transcription, billing and data migration. Commercial: Invoicing, disbursal, expense reporting, procurement, cash management, general ledger and receivables management. Administration: Claims processing, adjudication, mailroom services and records management. Human resources: Employee assistance, training and payroll. Customer care: Dispatch and activation services, technical support. Influx of international patients in India (medical tourism): The number of foreign patients visiting India for medical treatment has risen from 10,000 in 2000 to about 100,000 in 2005 (latest estimates). The medical tourism market in India is forecasted to grow to US$ 2,100 million by 2012. Indian medical industry's main appeal is its lowcost treatment, with the costs in India starting at around a tenth of the price of comparable treatment in US or UK. Telemedicine: In India only about 30% of the population lives in urban areas, while a sizeable 70% of the population is rural. Around only 25% of the doctors in India reside in semi-urban areas and a mere 3% in rural areas. The outcome of this lop-sided distribution is that 80% of the medical facilities are concentrated in urban areas and a mere 20% in rural areas, which continue to remain deprived of proper healthcare facilities. The answer to patient treatment in inaccessible areas in India with fewer medical facilities is telemedicine. Tele-consultation and remote patient monitoring is taking a big leap in India to integrate fragmented healthcare industry. But due to the low technology penetration in India, the telemedicine is yet to take its full shape in India. Seeing the current trend the same does not look a very successful venture before 2010. Thus while initiating telemedicine can solve the healthcare problems of rural India to a great extent, but the sector needs leverage ICT tools to be able to harness the true benefits of the same.

Factors favouring the growth of the sector in India
Not only is India emerging as a preferred healthcare destination, it is also a lucrative market for international and corporate investors. With changing consumer preferences and attributes, coupled with greater liberalisation and reforms, the role of the private sector is likely to increase significantly in the Indian healthcare landscape in next 4-5 years. Some of the other factors that augur well for the development of the health sector in India are: Medical tourism: It has been estimated that healthcare tourism alone can rake in over US$ 2,100 million as additional revenue by 2012. India offers world-class healthcare that costs substantially less than that of developed countries, which accounts for the great pace of evolution of medical tourism, attracting patients from South-East Asia, Africa, Middle East, the UK and the US. Given the overburdened

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healthcare infrastructure in the West, Europe and the United States are under severe pressure; the scope for Indian healthcare sector from medical tourism is huge. High-end laboratory and diagnostic services: India is becoming a competitive outsourcing destination for high-end laboratory and diagnostic tests. It is very costeffective for hospitals in foreign countries to outsource these tests to Indian providers, which is almost 70-80% less expensive than the US laboratories. Outsourcing of laboratory testing and diagnostic services is set to become big business in India. Duty structure: Attracted by advantages such as lower costs of production and skilled workforce that India offers, international companies are looking to set up research and development as well as production centres in India. Initially the government imposed a high custom duty on imported medical equipment making it difficult for private entrepreneurs to set up hospitals, but post liberalisation the duties have come down, and some lifesaving medicines and equipment can now be imported duty free. Unmet healthcare demand and changing demographics: The Indian middle class is driving the unprecedented demand for quality healthcare. Also, the rich are demanding treatment for lifestyle-related diseases and cosmetic changes. Rising literacy in India is improving health awareness, especially about lifestyle-related disorders, which tend to be more costly to treat than infections. With demand expected to outstrip supply over the next decade, the outlook for private medical care providers is very positive. Almost 80,000 additional hospital beds will be required every year for the next four to five years to adequately meet growing healthcare demands. Medical expertise: With yoga, meditation, ayurveda, allopathy and other systems of medicines, India offers a unique basket of services to an individual that is difficult to match by other countries. India has a rich repertoire of a traditional systems of medicine which are effective in preventing illness, coupled with modern practices are good at diagnostics and surgery. The presence of both these systems enriches India’s medical expertise.

Challenges in the Sector
Despite making huge strides in overall development, health coverage is still a distant dream to a majority of our population. Even being a high growth industry, healthcare has its own set of problems. Some of them are outlined here. Inadequate infrastructure: The biggest hindrance in India’s path to growth into a world-class health destination is the unavailability of adequate infrastructure. A significant amount of infrastructure development is needed before India can be successfully branded as the world’s healthcare destination. This is not only necessary in terms of physical infrastructure but also the IT infrastructure for the success of the terminologies like telemedicine. Dismal marketing strategies: Efficient marketing has been instrumental in the positioning of countries like Thailand as global healthcare hubs. Most Indian hospitals

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have poor marketing strategies, adopting questionable strategies like referrals and lowering prices, which tarnish the image of India as a global healthcare hub. Low healthcare awareness: In spite of the rising literacy levels and healthcare awareness, there is a large section of the Indian population that is still reluctant to avail of facilities. Hospitals do not have many takers for several services they offer. This is especially true for the treatment of lifestyle-related diseases. Unmatched demand and supply: Demand is expected to outstrip supply over the next decade. Almost 80,000 additional hospital beds will be required every year for the next few years to adequately meet growing healthcare demands. The government, traditionally the largest healthcare provider, is now under pressure to meet evolving and rising demands for healthcare services across the country. But the private participants will need to step in to take care of the burgeoning demand. Cost competitiveness might get lost in the future: For healthcare to be costeffective, information sharing is the key. Unless the stakeholders create an information infrastructure that allows various stakeholders to create, store, and share information, securely and seamlessly, costs of healthcare will go up on account of factors like ageing population, increase in incidence of chronic diseases etc. It is important that India invests in creating such an infrastructure, and maintains its cost competitiveness in the world to emerge as a healthcare hub by 2011-12. Problems with Primary Health Centres: Primary health centres and sub-centres are the cornerstones of the rural healthcare system, and rely on trained paramedics to meet most of their needs. The main problems affecting these are the predominance of clinical and curative concerns over the intended emphasis on preventive work and the reluctance of the staff to work in rural areas. In addition, the integration of health services with family planning programmes often causes the local population to perceive the primary health centres as hostile to their traditional preference for large families. Therefore, primary health centres often play an adversarial role in the local efforts to implement national health policies. High fixed expenses: Fixed expenses in government hospitals (salary, wages and overheads) have risen by 70% in the last decade to almost 80% of total expenses at present. This is mainly due to the increases in the salary of government employees at the recommendations of the report of the Fifth Pay Commission. And since they cannot fix the prices of medicines and treatment as per the free market regime, their margins are increasingly squeezed. Archaic purchase policies: Government policies for procurement of materials are the same for all government departments, from healthcare to education. Therefore, special requirements of hospital supplies, such as expiry dates of drugs and medicines, are often overlooked. Rate contracts are religiously followed, at the expense of quality, reliability and procurement lead-time considerations. Too many vendors, legacy systems and procedures, frequent delays in making payments to the vendors and lack of proper record-keeping lead to medicines and drugs being out of stock in government hospitals. It has been widely talked that the Indian hospitals should be given the status of emergency services and should have the according flexibility in their day-to-day operations.

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Attracting / retaining doctors/medical staff is a big challenge: The key to success in the hospitals business is to have the best doctors and paramedical staff. Like in most other businesses, it is the large corporate organisations that pay well and also offer better career prospects, and thus attract the best of the best medical practitioners and staff. So the problem of attrition is a major obstacle in the development of Indian healthcare. Thus India will be unable to stand up to world standards unless there is a focus on regulation and processes, which is woefully inadequate at present. Regulation should be a joint effort between the industry and government. Some of the initiatives needed are an improvement in the infrastructure for healthcare, boost to insurance, and incentives for the players in the sector.

Role of Information Technology in the Sector
Healthcare providers are increasingly realising the importance of information technology in bringing about process improvements for greater efficiency and improved customer services. Being a late adopter of information technology, the healthcare providers' investment is more towards setting up basic infrastructure like putting administrative modules in place, followed by patient data informatics to provide timely and convenient services to patients. This trend throws immense opportunities for vendors in medical informatics segment like telemedicine, PACS, tele-consultancy and e-prescribing. Having said that, healthcare providers still have to go long way to achieve international standards of healthcare services. An important and positive development in the Indian healthcare sector is the use of information technology for upgrading the delivery of healthcare services and improving efficiency levels. Some examples include: Computerisation of medical records Networking of various departments in a hospital Providing tele-medicine services Computerised and online billing and payment By adopting ICT tools, the healthcare sector is improving upon the way it is doing business currently and become more vigilant to the finer details in its day-to-day operations and their implications on international competitiveness. Effective utilisation of an information and decision support system is providing the units with a disciplined business environment to operate in, where decisions concerning supply and demand are fully supported by the facts. This approach is also helping them in maximising business value and enhancing the growth and competitiveness of the industry. IT solutions for the sector Information storing: Healthcare workers no longer carry large stacks of paper records with them. Today, the information is stored in devices such as laptops, PDAs, smartphones; and now more and more people are loading information onto USB keys and even onto MP3 players, which have a capacity comparable to that of high-end

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laptops. The data can be protected by encryption and passwords to avoid falling into wrong hands. Increased usage of Internet: The Internet is being used to convey more real-time information to the service providers. A physician practicing in a remote village can now consult a specialist sitting at any distance by providing him images and data online, thus eliminating the risk involved and saving on the time and money spent on travel. Cyber-surgery is the latest healthcare development on the Net. Virtual Reality Modeling Language (VRML) enables doctors to actually view complicated surgeries underway in real time. Business process reengineering: Material and inventory costs constitute around 90% of the variable expenses for a government hospital. They are now looking to cut on these costs by making the purchasing process more efficient and by automating their supply chains. IT is playing a major role in supply chain automation by cutting down the time involved and removing the bottlenecks. Outsourcing network management: Indian healthcare providers are open to outsourcing all such applications for which they do not have in-house expertise. They would rather focus on the management of only those applications for which they do not need to divert from their core expertise. Bar coding and RFID: Currently bar coding is the primary identification technology used by the medical products industry, with RFID being less common. The industry’s current focus is only on the usage of bar-code technology and it is looking at ways to evolve it further rather than to switch to some new technology. Data warehousing: Today most of the larger players in the industry have data collection mechanisms implemented, while the smaller players are still in the process of implementing the same. They will take another two years before they are able to come up with a secured and robust data collection mechanism. Computer-based patient record: Physicians and health administrators can efficiently retrieve data for consequent research from the computerised medical records. This detailed information can even be used for other processes in the business of medical and healthcare. Business intelligence: To succeed, health plans must be able to anticipate emerging trends and rapidly adapt strategy and business processes to focus on the right opportunities at both the operational and clinical levels. Hospitals need to understand the various demand patterns also and formulate their strategies accordingly. Business intelligence (BI) is the one-stop solution that helps the healthcare providers to make the well-informed decisions. Picture archiving and communication systems: The next system that most Indian hospitals are looking to deploy is picture archiving and communication systems (PACS), a system that is used to capture, store, distribute and display medical images, and transmit them digitally. Corporate hospitals in the Indian scenario are looking keenly towards the implementation of the PACS and many of them have already started the rollout.

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Hospital management and information system: The HMIS acts as an MIS tool that provides all the relevant information to the management for making strategic decisions. It also helps the hospitals in the continuous monitoring of the procedures and provides regular updates on any discrepancies. Surgical simulations/tele-surgery: The advancement in imaging technology and high performance computer hardware and software have made it possible for surgeons to intuitively explore the complex data to determine the best form of treatment in the most difficult pathologic conditions. The development of a 3-D interactive anatomic road map for a particular patient’s disease and anatomy enables the surgeon to have accurate pre-operative assessment. The surgeon’s hand motions are converted into electronic signals and then sent to the tip of the surgical instrument. Endoscopic surgery, tele-presence, virtual reality, digital imaging, and networking are coming together at the physician’s workstation, enabling him to work at a distance, dissolving time and space.

Conclusion
The healthcare infrastructure in India has a long way to go towards achieving quality, technologically sound and superior delivery systems comparable to the best in the world. While the central government’s role is limited to family welfare and disease control programmes, state governments are responsible for primary and secondary medical care, with a limited role in specialty care. Looking at the growing prevalence of non-communicable lifestyle-related diseases, the two need to act as a facilitator and as a provider for others -- namely, private healthcare providers and international groups looking to venture into India -- who are looking to give the industry that has been due for decades.

Other Verticals
Other verticals include other industry verticals like, Transportation and transportation services, Resource industries, Water and sanitary services, Bio-Technology and bioscience, Travel & Transportation, Hospitality and any other industry that is not being covered under BFSI, Manufacturing, Media & Entertainment, Telecom, BPO, Utility, Government & Education, Retail & Wholesale, Pharmaceuticals and Healthcare.

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FUTURE OUTLOOK
Forecast and Assumptions
Key Forecast Assumptions
The following table provides the set of assumptions on which the report has been based.

TABLE 29
Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012
Accelerator / Inhibitor / Neutral

Market Force

IDC Assumption

Impact Economics

Certainty of Assumption

GDP Growth

India's economic boom is forecasted to moderate over the next few years with GDP growth slowing from 9.4% in 2006-07 to 9.0% 2007-08. Although business confidence is high, financing costs and inflation rates are soaring. Nonetheless, the government has indicated its commitment to help ease inflationary pressures (but to of very little use) and lower import duties on non-food commodities. IDC assumes that the US GDP will not grow significantly in 2008, and that the APEJ IT spending market will lose 2% of its previously forecasted value in 2008. Despite to the short-term plan to increase jobs in the manufacturing sector, approximately two million jobs are expected to be lost in the months to come. With the swings in the rupee, labour-intensive exportoriented industries (such as textiles and handicrafts) will be greatly affected. India will remain an attractive destination for foreign investments and this will continue to put upward pressure on the rupee, impacting

High. Inflationary pressures have rocked back the forecasted GDP. Although the Govt. & RBI have initiated a range of fiscal measures, an all time high inflation is expected to be under control not before december. And most certainly, inflation has hit the buyer sentiments.

US Recession

Moderate. IT & ITeS sector is already in a cautious mood with widespread employee downsizing experienced in many organizations and the US recession. Low. While a sizeable group of people will lose their source of income, thus theoretically affecting IT spendings, most of these segments of labor were never active prospects for IT consumption to begin with.

Labor Market

Exchange Rates

Moderate. Export oriented units have been badly hit by the dollar depreciation against the local currency and the more recent swings of the Indian rupee.

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TABLE 29
Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012
Accelerator / Inhibitor / Neutral

Market Force

IDC Assumption India's export-competitiveness. However, economists expect the slowdown in export growth to be only temporary.

Impact Corrective measures by RBI has started showing signs but a lot needs to be done to negate the impact and ease the pressure of the exporters in particular. High. With an inflow of high FDI in sectors like telecom, real estate, electrical appliances, IT & BFSI, petroleum & manufacturing, the economy is expected to gain momentum, thus resulting in enhanced corporate spending and IT expenditures. Low. Recent political debates in India about the US nuclear deal are creating uncertainty, but IDC expects no major disruption to the markets yet.

Certainty of Assumption

FDI Inflows

In 2007-08 India received FDI of USD 32,000 million as against USD 22,000 million, a growth 45%.

Political Issues

IDC assumes stability in the region despite North Korean nuclear testing and Thailand's coup. Tensions with Pakistan and recent explosions should not hamper economic growth. Terrorist attacks remain a serious threat in many countries. An increase in terrorist threats, especially if it involves weapons of mass destruction, can have serious repercussions to the global economy. Oil prices are sky high and are likely to remain so for awhile due to long term capacity issue. Rising oil prices often translate into a reduction in GDP growth.

Terrorism

Low. Despite these uncertainties, IDC assumes little or no impact to the IT market.

Oil Prices

Low. High oil prices may have some effect on the region's overall economy, but should have no direct impact on IT budgets.

End User Demand (Projects) Governmen t Initiatives Many e-government initiatives will be launched like process automation, national citizen IDs, smart cards and digital education. IDC assumes a positive impact of the same on the IT market in India. The Central Board of Excise and Custom's move of implementing excise on MRP of all IT products on January 25, 2008 has left the IT industry in a state of flutter. While few vendors have already increased High. With the Indian governments entering into the execution and deployment phase, there would be more demand for IT equipments and services.

2008 Budget

Low. Vendors might increase their transfer prices and also reduce the MRP, which would narrow the channel margin and might lead to ASV increases by 23%. But still there is a wait-and watch policy for this implementation in the

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TABLE 29
Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012
Accelerator / Inhibitor / Neutral

Market Force

IDC Assumption the prices of their products others are still in a wait and watch mode.

Impact budget, so IDC has not assume any impact yet. Moderate. The strong economic growth has led to an insatiable demand for credit, both from the retail and industrial segments. IT hardware would be needed as banks are moving quickly in retail expansion. Complete automation and implementation of core-banking solutions will keep generating regular demand for IT.

Certainty of Assumption

Financial Services

IT spending in the financial sector has been phenomenal as national banks with huge infrastructures are currently automating their processes. Next generation banks are also rapidly expanding in urban and semi-urban areas. Many a bank could take to the capital markets next year. The other positives for the sector could be easy disposal of non-performing assets. IT Services is growing market due to an increased penetration by Indian firms in the overseas market. The government has announced planned urbanisation schemes and establishment of new towns for specific industries such as information technology (IT). While it is showing some recent dullness due to the US slowdown, the domestic market is increasing. The biotech, manufacturing, telecom, and SMB sectors are moving along well, which will require more IT. Even the education sector is expected to be an area of growth for the networking and IT market. A number of factors are consolidating in India that can help increase consumer IT penetration, including falling prices, rising awareness, and affordable broadband/internet infrastructure buildouts in rural areas. Consumer and commercial buying goes through seasonal lows and highs each quarter depending on multiple factors such as fiscal year ends, country holidays, and back-toschool seasons.

IT Services

Moderate. Investments are expected from large and medium sized enterprises alike. Tier 1 cities have not been able to keep pace with the rapid growth in the IT and ITES industry. This will help spread the IT growth story to Tier-II cities and ease the pressure of increasing infrastructure costs for IT and ITES companies.

Other Industries

Moderate. Government-funded education projects are in an upswing, as is buying from engineering and management institutes. Biotech and manufacturing will encompass multiple sizes ranging from startups to large enterprises. Moderate. With increased disposable incomes and growing awareness, the IT is expected to penetrate further in the lives of common man.

Consumer Interest

Seasonal Trends

High. With the seasonal trends getting nullified in five year period, IDC expects a very little impact of same on the IT markets in India.

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TABLE 29
Key Forecast Assumptions for the Indian Verticals Markets, 2007-2012
Accelerator / Inhibitor / Neutral

Market Force

IDC Assumption

Impact Technology / Service Developments

Certainty of Assumption

New Applications

Internet and basic office productivity will remain the key applications, but no killer app is seen for either consumer or corporate applications. Gaming and multimedia can help slightly, but not by much. Microsoft's new Vista OS can provide a number of new security and usability benefits, but demand for the new OS appears to be contained to larger players with smaller players still wondering about the issues such as compatibility of Vista with their existing systems. very low, low,

Low. With the market for newer applications like gaming spreading rapidly, IDC expects a positive impact on the IT markets.

Microsoft Vista

Low. While Vista can help accelerate the market to some degree, IDC does not expect any significant change (neither positive nor negative) in the IT spend by the players, atleast for the next 2-3 years.

Legend:
Source: IDC, 2008

moderate,

high,

very high

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Overall IT Market in BFSI
BFSI, the largest spending vertical of the Indian economy is expected to continue its strong growth in the Indian domestic IT market for 2007-2012. Technology has moved from being just an enabler to the core of business and facilitator in this vertical. Intense competition, regulatory compliance, retail focus, development of alternate channels, Bancassurance, expansions, convinience and compliance to BASEL II norms are the key reasons for huge IT spending in BFSI. While the aggressive and tech savvy banks and insurance segments will see better growth in the software and services arena as compared to hardware, a lot of financial instituions which are still in the process of implementing their basic IT infrastructure will drive the spending in hardware. Thus the services are cornering a share around 36% of the total IT market in BFSI in 2007 and are expected to garner around 40% in 2012 as well. But not lose focus upon hardware which will still continue to have more than 40% of the IT spending in the segment. The following tables provide an overview of the total IT market in the BFSI sector for 2007-2012.

TABLE 30
Overall IT Spend in BFSI (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in BFSI Sector
Source: IDC India, 2008

2007 1,657.4 443.1 1,314.7 226.0 3,641.2

2008 1,959.5 548.7 1,603.3 276.2 4,387.8

2009 2,227.6 633.2 1,862.2 324.1 5,047.1

2010 2,475.7 715.3 2,155.2 353.5 5,699.7

2011 2,769.1 810.8 2,552.6 372.7 6,505.2

2012 3,082.6 914.8 2,960.7 386.8 7,344.9

CAGR 13.2% 15.6% 17.6% 11.3% 15.1%

TABLE 31
Overall IT Spend in BFSI (Percentage), 2007-2012
Category Hardware Packaged Software Services Others 2007 45.5% 12.2% 36.1% 6.2% 2008 44.7% 12.5% 36.5% 6.3% 2009 44.1% 12.5% 36.9% 6.4% 2010 43.4% 12.5% 37.8% 6.2% 2011 42.6% 12.5% 39.2% 5.7% 2012 42.0% 12.5% 40.3% 5.3%

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TABLE 31
Overall IT Spend in BFSI (Percentage), 2007-2012
Category Total IT Market in BFSI Sector
Source: IDC India, 2008

2007 100.0%

2008 100.0%

2009 100.0%

2010 100.0%

2011 100.0%

2012 100.0%

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Overall Hardware Market in BFSI
The spending in hardware is going to be driven by branch computerization (for new establishments) and networking processes. A lot of second rung banks are still continuing with the process of total branch automation and it's expected to spill upto 2009 and mid of 2010. This is expected to drive the spending on PCs. Similarly a lot of activity is still under so far as the networking of branches is concerned. Both new age private sector banks and public sector banks are aggressively pushing their branch expansion plans. With the advent of concepts like RTGS, Internet banking, mobile bankingt and EFT, the networking and automation have become all the more necessary for the banks. The following tables provide an overview of the total hardware market in the BFSI sector for 2007-2012.

TABLE 32
Overall Hardware Spend in BFSI (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in BFSI Sector
Source: IDC India, 2008

2007 178.6 1,000.9 95.5 128.6 165.6 88.2

2008 214.6 1,183.5 108.9 148.9 200.1 103.5

2009 245.6 1,341.0 123.0 169.9 233.8 114.3

2010 286.4 1,473.9 135.6 188.2 266.3 125.4

2011 323.2 1,659.7 148.4 206.1 290.8 140.8

2012 360.2 1,862.8 159.8 230.5 312.2 157.0

CAGR 15.1% 13.2% 10.8% 12.4% 13.5% 12.2%

1,657.4

1,959.5

2,227.6

2,475.7

2,769.1

3,082.6

13.2%

TABLE 33
Overall Hardware Spend in BFSI (Percentage), 2007-2012
Category Servers Clients Storage 2007 10.8% 60.4% 5.8% 2008 11.0% 60.4% 5.6% 2009 11.0% 60.2% 5.5% 2010 11.6% 59.5% 5.5% 2011 11.7% 59.9% 5.4% 2012 11.7% 60.4% 5.2%

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TABLE 33
Overall Hardware Spend in BFSI (Percentage), 2007-2012
Category Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in BFSI Sector
Source: IDC India, 2008

2007 7.8% 10.0% 5.3% 100.0%

2008 7.6% 10.2% 5.3% 100.0%

2009 7.6% 10.5% 5.1% 100.0%

2010 7.6% 10.8% 5.1% 100.0%

2011 7.4% 10.5% 5.1% 100.0%

2012 7.5% 10.1% 5.1% 100.0%

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Overall IT Market in Manufacturing
Though the manufacturing vertical in India has started making rapid expansion only in the recent past but the IT has been its companion since the advent of the IT applications. The IT market in the manufacturing sector in India is expected to grow at a CAGR of 19.3%, the IT spend reaching US$ 6,234.0 millions from the present of US$ 2,581.0 millions. Like the BFSI vertical, the services and the hardware are going to be the major constituents of this IT spend in the vertical while the packaged software applications will make the least contribution. But the packaged software market is the fastest growing market in the vertical riding on the advent of applications and tools for production and designing like CAD and collaborative planning. With the emergence of concepts like supply chain automation and deployment of CRM applications by the manufacturing companies in India (be it the automobile, textile, or FMCG), the manufacturing vertical will maintain its premium position in the domestic IT market in the next 5 years. The following tables provide an overview of the total IT market in the Manufacturing sector for 2007-2012.

TABLE 34
Overall IT Spend in Manufacturing (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Manufacturing Sector
Source: IDC India, 2008

2007 954.0 324.4 1,193.3 109.2 2,581.0

2008 1,159.9 421.1 1,507.1 132.2 3,220.3

2009 1,351.2 536.5 1,823.6 149.7 3,860.9

2010 1,558.3 677.7 2,155.2 167.1 4,558.3

2011 1,757.8 828.8 2,585.9 181.5 5,354.0

2012 1,969.2 1016.4 3,052.8 195.5 6,234.0

CAGR 15.6% 25.7% 20.7% 12.3% 19.3%

TABLE 35
Overall IT Spend in Manufacturing (Percentage), 2007-2012
Category Hardware Packaged Software Services 2007 37.0% 12.6% 46.2% 2008 36.0% 13.1% 46.8% 2009 35.0% 13.9% 47.2% 2010 34.2% 14.9% 47.3% 2011 32.8% 15.5% 48.3% 2012 31.6% 16.3% 49.0%

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TABLE 35
Overall IT Spend in Manufacturing (Percentage), 2007-2012
Category Others Total IT Market in Manufacturing Sector
Source: IDC India, 2008

2007 4.2% 100.0%

2008 4.1% 100.0%

2009 3.9% 100.0%

2010 3.7% 100.0%

2011 3.4% 100.0%

2012 3.1% 100.0%

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Overall Hardware Market in Manufacturing
With the small players in the vertical being still in the process of setting up their basic IT infrastructure, the hardware spending in the vertical will mostly be dominated by the PCs, printers and networking requirements. The trend visible is the deployment of PCs and printers in the first half of the forecasted period while the networking is expected to pick up in the second half of the forecasted period. The overall hardware market is expected to grow to US$ 1,969.2 millions in 2012 from the present level of US$ 954.0 millions (CAGR of 15.6%). The following tables provide an overview of the total hardware market in the Manufacturing sector for 2006-2011.

TABLE 36
Overall Hardware Spend in Manufacturing (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Manufacturing Sector
Source: IDC India, 2008

2007 113.5 589.3 63.3 71.1 63.0 53.7

2008 131.8 724.4 71.1 87.4 82.0 63.2

2009 142.0 852.3 80.0 105.6 99.1 72.1

2010 158.4 989.1 88.5 126.1 114.3 81.9

2011 180.2 1,113.5 96.9 144.0 131.3 92.0

2012 201.7 1,249.7 104.4 164.9 145.9 102.7

CAGR 12.2% 16.2% 10.5% 18.3% 18.3% 13.8%

954.0

1,159.9

1,351.2

1,558.3

1,757.8

1,969.2

15.6%

TABLE 37
Overall Hardware Spend in Manufacturing (Percentage), 2007-2012
Category Servers Clients Storage Peripherals 2007 11.9% 61.8% 6.6% 7.5% 2008 11.4% 62.5% 6.1% 7.5% 2009 10.5% 63.1% 5.9% 7.8% 2010 10.2% 63.5% 5.7% 8.1% 2011 10.3% 63.3% 5.5% 8.2% 2012 10.2% 63.5% 5.3% 8.4%

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TABLE 37
Overall Hardware Spend in Manufacturing (Percentage), 2007-2012
Category Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Manufacturing Sector
Source: IDC India, 2008

2007 6.6% 5.6% 100.0%

2008 7.1% 5.4% 100.0%

2009 7.3% 5.3% 100.0%

2010 7.3% 5.3% 100.0%

2011 7.5% 5.2% 100.0%

2012 7.4% 5.2% 100.0%

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Overall IT Market in IT/ITeS
The sunrise sector of the Indian economy, IT/ITeS is going to see a spurge in the IT spending which is going to increase at a CAGR of 16.4%; growing from present level of US$ 2,133.4 millions to US$ 4,565.7 millions by 2012. Since a BPO set-up requires the IT infrastructure in the basic physical form, the hardware is going to be the dominant segment of the market. It is garnering around 57% of the total market but is losing heavily to the services market in the next 5 years. The only two markets able to maintain the hardware constituent in the market are PCs (for the basic set-up) and networking (for the connectivity). The following tables provide an overview of the total IT market in the IT/ITeS sector for 2007-2012.

TABLE 38
Overall IT Spend in IT/ITeS (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in IT/ITeS Sector
Source: IDC India, 2008

2007 1,222.6 297.8 429.8 183.2 2,133.4

2008 1,455.6 382.8 551.5 224.7 2,614.7

2009 1,664.1 471.0 664.5 251.6 3,051.2

2010 1,890.4 576.0 798.9 285.2 3,550.5

2011 2,110.4 675.6 948.9 309.5 4,044.5

2012 2,345.8 765.0 1,118.5 336.4 4,565.7

CAGR 13.9% 20.8% 21.1% 12.9% 16.4%

TABLE 39
Overall IT Spend in IT/ITeS (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in IT/ITeS Sector
Source: IDC India, 2008

2007 57.3% 14.0% 20.1% 8.6% 100.0%

2008 55.7% 14.6% 21.1% 8.6% 100.0%

2009 54.5% 15.4% 21.8% 8.2% 100.0%

2010 53.2% 16.2% 22.5% 8.0% 100.0%

2011 52.2% 16.7% 23.5% 7.7% 100.0%

2012 51.4% 16.8% 24.5% 7.4% 100.0%

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Overall Hardware Market in IT/ITeS
Since the basic IT requirements for smooth operations of BPO activities is quite obvious, the industry is going to witness high degree of growth in the spending of Personal Computers and Networking Equipments. Increasing concerns about data security coupled with some degree of backlash has also forced the Indian players to concentrate more on storage in the early part of the forecasted period. IT/ITeS continues to be the sector where hardware is such an important constituent of the IT market. The following tables provide an overview of the total hardware market in the IT/ITeS sector for 2007-2012.

TABLE 40
Overall Hardware Spend in IT/ITeS (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons Products) (Computing 2007 121.5 703.7 40.1 79.2 221.4 56.8 2008 141.2 863.6 45.5 90.5 247.2 67.5 2009 158.1 994.7 51.2 99.8 283.4 76.9 2010 182.8 1,137.0 56.7 107.9 318.8 87.2 2011 207.7 1,280.4 62.0 116.5 345.7 98.1 2012 232.5 1,437.0 66.8 128.9 370.8 109.8 CAGR 13.9% 15.3% 10.8% 10.2% 10.9% 14.1%

Total Hardware Market in IT/ITeS Sector
Source: IDC India, 2008

1,222.6

1,455.6

1,664.1

1,890.4

2,110.4

2,345.8

13.9%

TABLE 41
Overall Hardware Spend in IT/ITeS (Percentage), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments 2007 9.9% 57.6% 3.3% 6.5% 18.1% 2008 9.7% 59.3% 3.1% 6.2% 17.0% 2009 9.5% 59.8% 3.1% 6.0% 17.0% 2010 9.7% 60.1% 3.0% 5.7% 16.9% 2011 9.8% 60.7% 2.9% 5.5% 16.4% 2012 9.9% 61.3% 2.8% 5.5% 15.8%

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TABLE 41
Overall Hardware Spend in IT/ITeS (Percentage), 2007-2012
Category Other Add-ons (Computing Products) Total Hardware Market in IT/ITeS Sector
Source: IDC India, 2008

2007 4.6% 100.0%

2008 4.6% 100.0%

2009 4.6% 100.0%

2010 4.6% 100.0%

2011 4.6% 100.0%

2012 4.7% 100.0%

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Overall IT Market in Telecom
With the rapid expansion in the subscriber base the outlook for the telecom industry is on a very high note. This is aptly reflected in the domestic IT market for the vertical. The IT market in telecom is expected to show a CAGR of 18.8% for 2007-2012 and is expected to reach US$ 4,929.6 millions from the present level of US$ 2,086.7 millions. The Indian telecom sector is expected to absorb the most high-end technologies of the world and is expected to show great maturity in IT deployments in the next 5 years. Virtually the backbone of the telecom sector is based on the ICT technologies and with the capacity addition plans of the telecom players, the rate of IT adoption in the telecom sector is going to increase at a much brisk pace than the other verticals. But the key point to take a note of is that with the players being somewhat through with their basic IT infrastructure are keenly looking at services market now; the operations that they can outsource and the facilities that they can manage with the help of ICT solutions. This is driving the services market in the vertical to the tune of CAGR of 23.1% for 2007-12. The following tables provide an overview of the total IT market in the Telecom sector for 2007-2012.

TABLE 42
Overall IT Spend in Telecom (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Telecom Sector
Source: IDC India, 2008

2007 729.1 316.5 864.7 176.5 2,086.7

2008 866.8 403.6 1,103.1 217.7 2,591.2

2009 993.5 486.6 1,359.9 244.5 3,084.5

2010 1,127.5 587.3 1,672.1 275.7 3,662.7

2011 1,249.7 684.6 2,031.0 303.0 4,268.3

2012 1,371.8 775.7 2,447.5 334.7 4,929.6

CAGR 13.5% 19.6% 23.1% 13.7% 18.8%

TABLE 43
Overall IT Spend in Telecom (Percentage), 2007-2012
Category Hardware Packaged Software Services Others 2007 34.9% 15.2% 41.4% 8.5% 2008 33.5% 15.6% 42.6% 8.4% 2009 32.2% 15.8% 44.1% 7.9% 2010 30.8% 16.0% 45.7% 7.5% 2011 29.3% 16.0% 47.6% 7.1% 2012 27.8% 15.7% 49.6% 6.8%

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TABLE 43
Overall IT Spend in Telecom (Percentage), 2007-2012
Category Total IT Market in Telecom Sector
Source: IDC India, 2008

2007 100.0%

2008 100.0%

2009 100.0%

2010 100.0%

2011 100.0%

2012 100.0%

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Overall Hardware Market in Telecom
As the industry is experiencing a phase of high growth, players are expanding their networks rapidly. Correspondingly there will be high degree of need for networking equipment, which is reflected in the table presented next. The two interesting markets here are that of PCs and servers. The PC market is on a high primarily because of the expansion planned in the sector, while the servers market is on a high to support the value-added services and high-end applications being deployed by the players. The hardware market in the telecom sector is expected to show a CAGR of 13.5%, reaching upto US$ 1,371.8 millions in 2012 from the present level of US$ 729.1 millions (2007). The following tables provide an overview of the total hardware market in the Telecom sector for 2007-2012.

TABLE 44
Overall Hardware Spend in Telecom (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons Products) Total Hardware Telecom Sector (Computing 2007 115.9 217.7 71.5 30.6 260.3 33.1 2008 141.2 266.7 81.3 35.4 304.5 37.8 2009 163.4 313.2 89.1 39.6 345.6 42.5 2010 188.9 365.0 98.6 43.3 384.1 47.7 2011 213.2 411.0 108.0 47.6 416.5 53.4 2012 238.6 461.3 116.3 52.2 444.1 59.3 CAGR 15.5% 16.2% 10.2% 11.2% 11.3% 12.4%

Market

in

729.1

866.8

993.5

1,127.5

1,249.7

1,371.8

13.5%

Source: IDC India, 2008

TABLE 45
Overall Hardware Spend in Telecom (Percentage), 2007-2012
Category Servers Clients Storage 2007 15.9% 29.9% 9.8% 2008 16.3% 30.8% 9.4% 2009 16.4% 31.5% 9.0% 2010 16.8% 32.4% 8.7% 2011 17.1% 32.9% 8.6% 2012 17.4% 33.6% 8.5%

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Overall Hardware Spend in Telecom (Percentage), 2007-2012
Category Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Telecom Sector
Source: IDC India, 2008

2007 4.2% 35.7% 4.5% 100.0%

2008 4.1% 35.1% 4.4% 100.0%

2009 4.0% 34.8% 4.3% 100.0%

2010 3.8% 34.1% 4.2% 100.0%

2011 3.8% 33.3% 4.3% 100.0%

2012 3.8% 32.4% 4.3% 100.0%

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Overall IT Market in Government and Education
With all the state Governments in the execution phase of their National E-Governance projects, the IT spending in the sector is expected to show a CAGR of 17.3% for 2007-2012. The domestic IT market for the vertical is expected to increase from US$ 2,247.5 millions in 2007 to US$ 4,996.2 millions in 2012. Since the states and central ministries are looking to build-up their basic IT infrastructure in the next 2-3 years, the hardware is expected to dominate the market by cornering a share of around 50% in 2007 which is forecasted to decline to 48% in 2012, because after installing the basic infrastructure the states will focus more on the software and services market, maintainenance and sustenance of the projects taking the precedence. The following tables provide an overview of the total IT market in the Government and Education sector for 2007-2012.

TABLE 46
Overall IT Spend in Government and Education (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Government and Education Sector
Source: IDC India, 2008

2007 1,143.5 213.6 616.9 273.5 2,247.5

2008 1,316.4 288.4 776.0 316.7 2,697.5

2009 1,548.3 349.3 927.2 340.1 3,164.9

2010 1,813.8 414.1 1,114.8 360.8 3,703.5

2011 2,105.3 504.5 1,320.7 397.3 4,327.8

2012 2,390.8 631.2 1,546.2 428.1 4,996.2

CAGR 15.9% 24.2% 20.2% 9.4% 17.3%

TABLE 47
Overall IT Spend in Government and Education (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Government and Education Sector
Source: IDC India, 2008

2007 50.9% 9.5% 27.4% 12.2% 100.0%

2008 48.8% 10.7% 28.8% 11.7% 100.0%

2009 48.9% 11.0% 29.3% 10.7% 100.0%

2010 49.0% 11.2% 30.1% 9.7% 100.0%

2011 48.6% 11.7% 30.5% 9.2% 100.0%

2012 47.9% 12.6% 30.9% 8.6% 100.0%

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Overall Hardware Market in Government and Education
Since the vertical is witnessing the dawn of spending on technology particularly on the E-Governance initiative, the IT spending will typically be in favor of basic computerization and interconnectivity. Consequently both PCs and networking equipments are expected to see high growth in the times to come and are expected to garner a share of around 75-80% of the total hardware market in the sector by 2012. The same is true for the education sector as well which has picked up networking in a big manner among all its institutes. The following tables provide an overview of the total hardware market in the Government and Education sector for 2007-2012.

TABLE 48
Overall Hardware Spend in Government and Education (US$ millions), 20072012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Government and Education Sector
Source: IDC India, 2008

2007 93.7 682.3 32.5 119.9 162.6 52.5 1,143.5

2008 113.0 768.4 37.0 138.2 198.1 61.9 1,316.4

2009 128.2 919.0 43.4 155.0 233.2 69.4 1,548.3

2010 146.2 1,102.2 48.1 168.3 267.3 81.7 1,813.8

2011 165.1 1,315.4 52.6 180.2 302.2 89.8 2,105.3

2012 187.8 1,530.7 56.7 191.7 326.1 97.9 2,390.8

CAGR 14.9% 17.5% 11.7% 9.8% 14.9% 13.3% 15.9%

TABLE 49
Overall Hardware Spend in Government and Education (Percentage), 2007-2012
Category Servers Clients Storage Peripherals 2007 8.2% 59.7% 2.8% 10.5% 2008 8.6% 58.4% 2.8% 10.5% 2009 8.3% 59.4% 2.8% 10.0% 2010 8.1% 60.8% 2.6% 9.3% 2011 7.8% 62.5% 2.5% 8.6% 2012 7.9% 64.0% 2.4% 8.0%

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TABLE 49
Overall Hardware Spend in Government and Education (Percentage), 2007-2012
Category Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Government and Education Sector
Source: IDC India, 2008

2007 14.2% 4.6% 100.0%

2008 15.0% 4.7% 100.0%

2009 15.1% 4.5% 100.0%

2010 14.7% 4.5% 100.0%

2011 14.4% 4.3% 100.0%

2012 13.6% 4.1% 100.0%

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Overall IT Market in Media and Entertainment
With the digitization of the Indian Media and Entertainment industry still in process, the domestic IT market for the sector is expected to grow to US$ 587.1 millions in 2012 from the present market worth US$ 277.1 millions, showing a CAGR of 16.2% for 2007-2012. Since the emphasis of the players in the sector is on going digital whether it is cinemas, movies or print media; the software and services together corner about 25% of the total market in 2007. Their share is expected to reach to 35% by 2012, primarily riding high on the software licenses being procured by the players for the content and applications management. The following tables provide an overview of the total IT market in the Media and Entertainment sector for 2007-2012.

TABLE 50
Overall IT Spend in Media and Entertainment (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Media and Entertainment Sector
Source: IDC India, 2008

2007 92.6 43.5 35.4 105.6 277.1

2008 110.6 54.8 44.9 115.4 325.7

2009 132.4 65.5 46.4 124.6 368.9

2010 159.9 79.1 55.7 129.9 424.6

2011 193.8 99.1 66.6 135.4 495.0

2012 229.6 133.7 79.0 144.8 587.1

CAGR 19.9% 25.2% 17.4% 6.5% 16.2%

TABLE 51
Overall IT Spend in Media and Entertainment (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Media and Entertainment Sector
Source: IDC India, 2008

2007 33.4% 15.7% 12.8% 38.1% 100.0%

2008 34.0% 16.8% 13.8% 35.4% 100.0%

2009 35.9% 17.8% 12.6% 33.8% 100.0%

2010 37.7% 18.6% 13.1% 30.6% 100.0%

2011 39.2% 20.0% 13.5% 27.4% 100.0%

2012 39.1% 22.8% 13.4% 24.7% 100.0%

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Overall Hardware Market in Media and Entertainment
The total hardware market in the sector is expected to show a CAGR of around 19.9% increasing from US$ 92.6 millions in 2007 to US$ 229.6 millions in 2012. With digitization and animation into focus the sector is looking positively towards high-end servers, PCs and peripherals to the tune of printers, projectors and scanners. Also with the exapsnion in place, the networking comes to the core of the hardware spending by the sector. The following tables provide an overview of the total hardware market in the Media and Entertainment sector for 2007-2012.

TABLE 52
Overall Hardware Spend in Media and Entertainment (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons Products) (Computing 2007 18.3 48.4 7.0 2.2 11.4 5.3 2008 23.5 54.4 8.5 2.6 15.5 6.0 2009 26.7 66.3 9.6 3.4 19.5 6.8 2010 30.5 81.7 10.6 4.3 25.0 7.7 2011 34.4 102.4 11.6 5.8 30.9 8.7 2012 38.5 125.6 12.5 7.3 36.1 9.7 CAGR 16.1% 21.0% 12.2% 26.6% 26.0% 12.8%

Total Hardware Market in Media and Entertainment Sector
Source: IDC India, 2008

92.6

110.6

132.4

159.9

193.8

229.6

19.9%

TABLE 53
Overall Hardware Spend in Media and Entertainment (Percentage), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments 2007 19.7% 52.3% 7.6% 2.4% 12.3% 2008 21.3% 49.2% 7.7% 2.4% 14.0% 2009 20.2% 50.1% 7.3% 2.6% 14.8% 2010 19.1% 51.1% 6.6% 2.7% 15.6% 2011 17.7% 52.8% 6.0% 3.0% 16.0% 2012 16.8% 54.7% 5.5% 3.2% 15.7%

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TABLE 53
Overall Hardware Spend in Media and Entertainment (Percentage), 2007-2012
Category Other Add-ons (Computing Products) Total Hardware Market in Media and Entertainment Sector
Source: IDC India, 2008

2007 5.7% 100.0%

2008 5.4% 100.0%

2009 5.2% 100.0%

2010 4.8% 100.0%

2011 4.5% 100.0%

2012 4.2% 100.0%

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Overall IT Market in Retail
The most happening sector of the Indian economy is retail and this fast expansion mode of the sector is reflected in the IT market for the sector as well, which is expected to grow at a CAGR of 34.6% for 2007-2012. The IT market in the retail is expected to grow to US$ 1,340.5 millions by 2012 from the current level of US$ 302.9 millions. Since most of the players/prospective players are having plans for expansion of their offices and outlets, the major chunk of the market is going towards hardware in the early part of the forecasted period. But once through with the IT deployment, the players are next looking for the services and outsourcing market making services the fastest growing market with a CAGR of 56.2%. The following tables provide an overview of the total IT market in the Retail sector for 2007-2012.

TABLE 54
Overall IT Spend in Retail (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Retail Sector
Source: IDC India, 2008

2007 138.1 59.9 70.8 34.1 302.9

2008 180.7 82.2 160.3 41.5 464.7

2009 229.9 109.5 231.8 48.7 619.9

2010 307.6 139.3 371.6 55.1 873.6

2011 337.2 184.7 477.2 55.3 1,054.4

2012 373.1 251.4 657.9 58.1 1,340.5

CAGR 22.0% 33.2% 56.2% 11.3% 34.6%

TABLE 55
Overall IT Spend in Retail (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Retail Sector
Source: IDC India, 2008

2007 45.6% 19.8% 23.4% 11.2% 100.0%

2008 38.9% 17.7% 34.5% 8.9% 100.0%

2009 37.1% 17.7% 37.4% 7.9% 100.0%

2010 35.2% 15.9% 42.5% 6.3% 100.0%

2011 32.0% 17.5% 45.3% 5.2% 100.0%

2012 27.8% 18.8% 49.1% 4.3% 100.0%

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Overall Hardware Market in Retail
Since most of the existing players in the sector are planning for rapid expansion and also the sector is expecting to see other big companies like Bharti, Wal-Mart, Birlas and others foraying into the Indian retail scenario, we expect to see a major surge in the number of retail outlets in the country. This entails that there will be increased focus on deploying basic IT infrastructure giving a big boom to the PC market. The following tables provide an overview of the total hardware market in the Retail sector for 2007-2012.

TABLE 56
Overall Hardware Spend in Retail (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons Products) (Computing 2007 39.7 48.4 8.7 15.2 19.2 6.9 2008 50.8 72.1 9.8 16.9 22.3 8.9 2009 61.9 99.1 11.0 19.0 27.6 11.2 2010 79.2 151.6 12.1 21.1 28.1 15.4 2011 89.4 170.7 13.3 23.3 23.2 17.3 2012 98.5 191.6 14.3 26.5 22.9 19.3 CAGR 19.9% 31.6% 10.4% 11.7% 3.6% 23.0%

Total Hardware Market in Retail Sector
Source: IDC India, 2008

138.1

180.7

229.9

307.6

337.2

373.1

22.0%

TABLE 57
Overall Hardware Spend in Retail (Percentage), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments 2007 28.7% 35.1% 6.3% 11.0% 13.9% 2008 28.1% 39.9% 5.4% 9.3% 12.3% 2009 26.9% 43.1% 4.8% 8.3% 12.0% 2010 25.7% 49.3% 3.9% 6.9% 9.1% 2011 26.5% 50.6% 3.9% 6.9% 6.9% 2012 26.4% 51.3% 3.8% 7.1% 6.1%

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TABLE 57
Overall Hardware Spend in Retail (Percentage), 2007-2012
Category Other Add-ons (Computing Products) Total Hardware Market in Retail Sector
Source: IDC India, 2008

2007 5.0% 100.0%

2008 4.9% 100.0%

2009 4.9% 100.0%

2010 5.0% 100.0%

2011 5.1% 100.0%

2012 5.2% 100.0%

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Overall IT Market in Utility
The domestic IT market for utility is expected to increase from US$ 269.3 millions in 2007 to US$ 516.3 millions in 2012, showing a CAGR of 13.9%. The major component of this is the hardware but it is expected to loose some of its market share (around 6%) by 2012 in favour of packaged software. The market for software is expected to increase at a CAGR of 22.6%, increasing from present level of US$ 38.7 millions to US$ 107.0 millions in 2012. The primary reason driving this growth is the automation and applications getting deployed in the sector. With ERP and asset management softwares at the core the system infrastructure software and applications software are the two key markets in the software segment of the vertical. The following tables provide an overview of the total IT market in the Utility sector for 2007-2012.

TABLE 58
Overall IT Spend in Utility (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Utility Sector
Source: IDC India, 2008

2007 116.5 38.7 96.1 18.0 269.3

2008 128.8 52.3 109.0 20.8 311.0

2009 148.7 66.9 131.4 24.0 370.9

2010 158.9 79.1 148.6 26.5 413.0

2011 177.4 99.1 166.5 26.6 469.6

2012 192.1 107.0 190.8 26.4 516.3

CAGR 10.5% 22.6% 14.7% 8.0% 13.9%

TABLE 59
Overall IT Spend in Utility (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Utility Sector
Source: IDC India, 2008

2007 43.3% 14.4% 35.7% 6.7% 100.0%

2008 41.4% 16.8% 35.1% 6.7% 100.0%

2009 40.1% 18.0% 35.4% 6.5% 100.0%

2010 38.5% 19.1% 36.0% 6.4% 100.0%

2011 37.8% 21.1% 35.5% 5.7% 100.0%

2012 37.2% 20.7% 37.0% 5.1% 100.0%

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Overall Hardware Market in Utility
The hardware market in the utility sector is expected to increase at a CAGR of around 10.5% for 2007-2012. The major contributor towards this growth is the clients market which is expected to increase at a CAGR of around 14.2% for 2007-2012. This kind of a scenario is emerging primarily due to two factors; one, the players are looking to set-up their IT infrastructure at the exploration fields (for oil and gas sector) and at the power distribution stations (for the power sector) and two, the SEBs and smaller players are on with a major automation drive during the next 2-3 years. The following tables provide an overview of the total hardware market in the Utility sector for 20072012.

TABLE 60
Overall Hardware Spend in Utility (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons Products) (Computing 2007 19.8 49.3 7.7 14.3 19.9 5.5 2008 21.7 58.3 8.5 16.4 17.7 6.2 2009 25.6 66.3 9.6 17.9 22.3 7.0 2010 24.4 75.5 10.6 19.3 21.6 7.5 2011 27.5 85.3 11.6 20.6 23.8 8.5 2012 33.9 95.8 12.5 21.9 18.4 9.6 CAGR 11.3% 14.2% 10.3% 9.0% -1.6% 11.6%

Total Hardware Market in Utility Sector
Source: IDC India, 2008

116.5

128.8

148.7

158.9

177.4

192.1

10.5%

TABLE 61
Overall Hardware Spend in Utility (Percentage), 2007-2012
Category Servers Clients Storage Peripherals 2007 17.0% 42.3% 6.6% 12.2% 2008 16.8% 45.3% 6.6% 12.7% 2009 17.2% 44.6% 6.5% 12.1% 2010 15.3% 47.5% 6.7% 12.1% 2011 15.5% 48.1% 6.6% 11.6% 2012 17.6% 49.9% 6.5% 11.4%

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TABLE 61
Overall Hardware Spend in Utility (Percentage), 2007-2012
Category Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Utility Sector
Source: IDC India, 2008

2007 17.1% 4.8% 100.0%

2008 13.8% 4.8% 100.0%

2009 15.0% 4.7% 100.0%

2010 13.6% 4.7% 100.0%

2011 13.4% 4.8% 100.0%

2012 9.6% 5.0% 100.0%

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Overall IT Market in Pharmaceutical
With the Indian pharma players expanding in domestic arena as well as spreading their global wings and the international players and patients starting to trust the Indian pharma market scenario, the domestic IT market in the vertical is expected to grow at a CAGR of around 20.0% for 2007-2012. Since the sector is in the expansion phase the hardware is going to be the major constituent of the IT market in pharma. Also the players are gearing up themselves to take advantage of drugs going off patent during 2008 and 2012. The hardware expansion would be the key market feature during the first half of the forecasted period while the second half would see more of software buying and services management. The following tables provide an overview of the total IT market in the Pharmaceutical sector for 2007-2012.

TABLE 62
Overall IT Spend in Pharmaceutical (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Pharmaceutical Sector
Source: IDC India, 2008

2007 169.3 40.6 60.7 30.5 301.1

2008 202.1 58.7 83.4 35.8 380.0

2009 233.0 69.9 115.9 36.4 455.2

2010 257.9 87.9 157.9 36.9 540.6

2011 294.2 112.6 188.7 40.4 635.9

2012 335.8 149.8 223.7 41.2 750.5

CAGR 14.7% 29.8% 29.8% 6.2% 20.0%

TABLE 63
Overall IT Spend in Pharmaceutical (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Pharmaceutical Sector
Source: IDC India, 2008

2007 56.2% 13.5% 20.2% 10.1% 100.0%

2008 53.2% 15.4% 21.9% 9.4% 100.0%

2009 51.2% 15.4% 25.5% 8.0% 100.0%

2010 47.7% 16.3% 29.2% 6.8% 100.0%

2011 46.3% 17.7% 29.7% 6.4% 100.0%

2012 44.7% 20.0% 29.8% 5.5% 100.0%

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Overall Hardware Market in Pharmaceutical
The hardware market in the pharma sector is expected to grow at a CAGR of around 14.7% for 2007-2012. The major component of the hardware market is going to be the clients (especially the PC), which is expected to corner a market share of more than 43% in 2012 from the current share of around 37%. This growth is fuelled by the set of two factors - one, the smaller players looking to develop a robust IT infrastructure and the big players embarking on latest technologies like RFID. Also the key market to look at is the networking market, growing at a CAGR of 23.5%, driven by the expansion and inter-connectivity by the players in the vertical. The following tables provide an overview of the total hardware market in the Pharmaceutical sector for 2007-2012.

TABLE 64
Overall Hardware Spend in Pharmaceutical (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Pharmaceutical Sector
Source: IDC India, 2008

2007 42.1 63.7 18.6 27.7 7.4 9.7

2008 45.2 80.7 21.1 33.0 10.9 11.3

2009 49.1 98.7 23.8 34.7 14.1 12.5

2010 48.7 114.5 26.8 37.1 16.9 13.7

2011 55.0 128.9 29.4 47.3 18.2 15.4

2012 61.6 144.7 31.6 59.5 21.3 17.1

CAGR 7.9% 17.8% 11.2% 16.5% 23.5% 11.9%

169.3

202.1

233.0

257.9

294.2

335.8

14.7%

TABLE 65
Overall Hardware Spend in Pharmaceutical (Percentage), 2007-2012
Category Servers Clients Storage 2007 24.9% 37.6% 11.0% 2008 22.4% 39.9% 10.5% 2009 21.1% 42.4% 10.2% 2010 18.9% 44.4% 10.4% 2011 18.7% 43.8% 10.0% 2012 18.3% 43.1% 9.4%

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TABLE 65
Overall Hardware Spend in Pharmaceutical (Percentage), 2007-2012
Category Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market Pharmaceutical Sector
Source: IDC India, 2008

2007 16.4% 4.4% 5.8% in 100.0%

2008 16.3% 5.4% 5.6% 100.0%

2009 14.9% 6.1% 5.4% 100.0%

2010 14.4% 6.6% 5.3% 100.0%

2011 16.1% 6.2% 5.2% 100.0%

2012 17.7% 6.4% 5.1% 100.0%

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Overall IT Market in Healthcare
With the increased confidence in the Indian healthcare services and an increase in the number of foreign patients coming to India for treatment, the Indian healthcare players and the international healthcare providers have embarked on the major expansion plans for their operations. This is aptly reflected in the domestic IT market for healthcare which is expected to show a CAGR of 21.3%. The hardware is dominating the IT market scenario in 2007 with a share of around 54% but is losing quickly to software and services as the players (especially with the corporatization of the sector) are targeting the high-end applications and solutions like tele-medicine, HMIS and e-prescribing. The following tables provide an overview of the total IT market in the Healthcare sector for 2007-2012.

TABLE 66
Overall IT Spend in Healthcare (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Healthcare Sector
Source: IDC India, 2008

2007 124.0 23.2 55.6 28.3 231.1

2008 148.7 32.4 77.0 29.9 287.9

2009 170.8 48.7 100.5 32.3 352.2

2010 196.2 62.2 139.3 35.3 433.1

2011 219.7 85.6 172.0 39.5 516.8

2012 240.5 112.3 210.5 42.3 605.6

CAGR 14.2% 37.1% 30.5% 8.4% 21.3%

TABLE 67
Overall IT Spend in Healthcare (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Healthcare Sector
Source: IDC India, 2008

2007 53.7% 10.0% 24.1% 12.2% 100.0%

2008 51.6% 11.2% 26.7% 10.4% 100.0%

2009 48.5% 13.8% 28.5% 9.2% 100.0%

2010 45.3% 14.4% 32.2% 8.2% 100.0%

2011 42.5% 16.6% 33.3% 7.6% 100.0%

2012 39.7% 18.6% 34.8% 7.0% 100.0%

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Overall Hardware Market in Healthcare
The overall hardware market in the sector is expected to grow at a CAGR of around 14.2%, increasing from US$ 124.0 millions in 2007 to US$ 240.5 millions in 2012. The major constituent of the hardware market and also a major driver of the same is the client (especially PC) market, which is expected to grow at a CAGR of around 17.4% for the forecasted period of 2007-12. With the rapid expansion of hospitals and healthcare services planned, the PCs and the peripherals are going to be the two major focus areas in the healthcare hardware market. The key market also to take a note of is the servers market which is growing rapidly due to the deployment of highend applications like CRM and tele-medicine. The following tables provide an overview of the total hardware market in the Healthcare sector for 2007-2012.

TABLE 68
Overall Hardware Spend in Healthcare (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Healthcare Sector
Source: IDC India, 2008

2007 19.1 48.3 6.3 33.3 11.9 5.2

2008 25.4 61.4 7.7 32.8 14.7 6.6

2009 29.9 74.3 8.7 35.8 14.5 7.6

2010 36.6 85.3 9.6 38.8 17.3 8.6

2011 41.3 96.0 10.5 41.9 20.3 9.7

2012 44.6 107.8 11.3 45.5 20.5 10.8

CAGR 18.6% 17.4% 12.5% 6.5% 11.4% 15.7%

124.0

148.7

170.8

196.2

219.7

240.5

14.2%

TABLE 69
Overall Hardware Spend in Healthcare (Percentage), 2007-2012
Category Servers Clients Storage Peripherals 2007 15.4% 38.9% 5.1% 26.8% 2008 17.1% 41.3% 5.2% 22.0% 2009 17.5% 43.5% 5.1% 21.0% 2010 18.6% 43.5% 4.9% 19.8% 2011 18.8% 43.7% 4.8% 19.1% 2012 18.6% 44.8% 4.7% 18.9%

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TABLE 69
Overall Hardware Spend in Healthcare (Percentage), 2007-2012
Category Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Healthcare Sector
Source: IDC India, 2008

2007 9.6% 4.2% 100.0%

2008 9.9% 4.5% 100.0%

2009 8.5% 4.4% 100.0%

2010 8.8% 4.4% 100.0%

2011 9.2% 4.4% 100.0%

2012 8.5% 4.5% 100.0%

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Overall IT Market in Others
The overall IT market in the others is expected to grow at a CAGR of around 12.2% of which the hardware spending is going to be the major component in the early part of the forecasted period with services to pick up substantiall in the second half. This is basically due to the fact that the others vertical is dominated by the small individual players in all the left over sectors of the Indian economy. Since most of them are in the phase of deployment of basic IT infrastructure or the upkeep of ttheir systems the market is highly skewed towards the hardware market. Once they are through with the basic IT infrastructure and their automation drive, they will then focus on the services and outsourcing arena in the IT landscape. The following tables provide an overview of the total IT market in the Others sector for 2007-2012.

TABLE 70
Overall IT Spend in Others (US$ millions), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Others Sector 2007 403.7 126.6 318.6 92.5 941.3 2008 435.3 152.6 397.6 117.4 1,103.0 2009 424.6 188.7 463.6 137.2 1,214.2 2010 420.5 229.7 520.2 152.4 1,322.8 2011 417.5 279.3 588.2 170.4 1,455.3 2012 495.8 321.0 671.1 187.7 1,675.6 CAGR 4.2% 20.4% 16.1% 15.2% 12.2%

Source: IDC India, 2008

TABLE 71
Overall IT Spend in Others (Percentage), 2007-2012
Category Hardware Packaged Software Services Others Total IT Market in Others Sector
Source: IDC India, 2008

2007 42.9% 13.5% 33.8% 9.8% 100.0%

2008 39.5% 13.8% 36.0% 10.6% 100.0%

2009 35.0% 15.5% 38.2% 11.3% 100.0%

2010 31.8% 17.4% 39.3% 11.5% 100.0%

2011 28.7% 19.2% 40.4% 11.7% 100.0%

2012 29.6% 19.2% 40.1% 11.2% 100.0%

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Overall Hardware Market in Others
Taking the case of hardware market in the others, the market is expected to grow at a CAGR of around 4.2%. Within the hardware, the growth will come from the networking equipments due to the focus on connectivity among various offices of the players in various sub-verticals constituting the sector. But not to be ignored is the clients market largely driven by the PC market for the automation focus of the players, which will continue to garner more than 50% of the hardware market in the vertical. The following tables provide an overview of the total hardware market in the Others sector for 2007-2012.

TABLE 72
Overall Hardware Spend in Others (US$ millions), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments Other Add-ons (Computing Products) Total Hardware Market in Others Sector
Source: IDC India, 2008

2007 31.8 234.7 6.5 90.3 23.2 17.1

2008 33.0 247.0 6.9 105.8 31.5 11.1

2009 37.4 212.3 7.8 111.3 39.7 16.2

2010 36.6 202.2 8.6 117.6 38.6 17.0

2011 38.5 189.8 9.4 124.1 40.6 15.0

2012 41.6 256.0 10.1 127.5 41.3 19.3

CAGR 5.5% 1.8% 9.4% 7.1% 12.2% 2.4%

403.7

435.3

424.6

420.5

417.5

495.8

4.2%

TABLE 73
Overall Hardware Spend in Others (Percentage), 2007-2012
Category Servers Clients Storage Peripherals Networking Equipments 2007 7.9% 58.2% 1.6% 22.4% 5.7% 2008 7.6% 56.7% 1.6% 24.3% 7.2% 2009 8.8% 50.0% 1.8% 26.2% 9.4% 2010 8.7% 48.1% 2.0% 28.0% 9.2% 2011 9.2% 45.5% 2.3% 29.7% 9.7% 2012 8.4% 51.6% 2.0% 25.7% 8.3%

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TABLE 73
Overall Hardware Spend in Others (Percentage), 2007-2012
Category Other Add-ons (Computing Products) Total Hardware Market in Others Sector
Source: IDC India, 2008

2007 4.2% 100.0%

2008 2.6% 100.0%

2009 3.8% 100.0%

2010 4.0% 100.0%

2011 3.6% 100.0%

2012 3.9% 100.0%

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Market Context
The overall IT and the hardware markets in various verticals have shown positive growth trends. Analyzing that, the market forecasts have undergone changes with respect to the previous IDC India studies (India Overall Trends in IT Spending by Industry Verticals 2007-2011: Forecast and Analysis), which are highlighted in the following table and figure.

TABLE 74
India IT Market in Various Verticals, Revenue Forecast Comparison between January 2007 study and August 2008 study
Market Category Overall IT Market in BFSI (January 2007 study) Overall IT Market in BFSI (August 2008 study) Overall Hardware Market in BFSI (January 2007 study) Overall Hardware Market in BFSI (August 2008 study) Overall IT Market in Manufacturing (January 2007 study) Overall IT Market in Manufacturing (August 2008 study) Overall Hardware Market in Manufacturing (January 2007 study) Overall Hardware Market in Manufacturing (August 2008 study) Overall IT Market in IT/ITeS (January 2007 study) Overall IT Market in IT/ITeS (August 2008 study) Overall Hardware Market in IT/ITeS (January 2007 study) 2006 2734.7 2007 3233.1 2008 3723.5 2009 4152.6 2010 4579.9 2011 5013.3 2012 NA CAGR 12.9%

NA

3641.2

4387.8

5047.1

5699.7

6505.2

7344.9

15.1%

1275.1

1548

1813.8

2020.2

2253.9

2486.59 68 2769.1

NA

14.3%

NA

1657.4

1959.5

2227.6

2475.7

3082.6

13.2%

1922.5

2286.7

2685.1

3117.9

3557.9

3975.7

NA

15.6%

NA

2581.0

3220.3

3860.9

4558.3

5354.0

6234.0

19.3%

741.3

906.2

1068.9

1226.2

1409.3

1586.3

NA

16.4%

NA

954.0

1159.9

1351.2

1558.3

1757.8

1969.2

15.6%

1566.9

1889.5

2225.9

2555.1

2926.6

3324.8

NA

16.2%

NA

2133.4

2614.7

3051.2

3550.5

4044.5

4565.7

16.4%

911.1

1108.8

1307.6

1493.9

1708.5

1935

NA

16.3%

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TABLE 74
India IT Market in Various Verticals, Revenue Forecast Comparison between January 2007 study and August 2008 study
Market Category IT/ITeS (January 2007 study) Overall Hardware Market in IT/ITeS (August 2008 study) Overall IT Market in Telecom (January 2007 study) Overall IT Market in Telecom (August 2008 study) Overall Hardware Market in Telecom (January 2007 study) Overall Hardware Market in Telecom (August 2008 study) Overall IT Market in Government and Education (January 2007 study) Overall IT Market in Government and Education (August 2008 study) Overall Hardware Market in Government and Education (January 2007 study) Overall Hardware Market in Government and Education (August 2008 study) Overall IT Market in Media and Entertainment (January 2007 study) Overall IT Market in Media and Entertainment (August 2008 study) Overall Hardware Market in Media and Entertainment (January 2007 study) Overall Hardware Market in Media and Entertainment (August 2008 study) NA 1222.6 1455.6 1664.1 1890.4 2110.4 2345.8 13.9% 2006 2007 2008 2009 2010 2011 2012 CAGR

1515.9

1816.8

2136.5

2478.4

2868.3

3226.9

NA

16.3%

NA

2086.7

2591.2

3084.5

3662.7

4268.3

4929.6

18.8%

564.6

692.4

815.5

934.1

1062.2

1174.6

NA

15.8%

NA

729.1

866.8

993.5

1127.5

1249.7

1371.8

13.5%

1734.4

2151.2

2543

2896.2

3275

3770.8

NA

16.8%

NA

2247.5

2697.5

3164.9

3703.5

4327.8

4996.2

17.3%

898.7

1191.5

1449.5

1663.3

1891

2188.9

NA

19.5%

NA

1143.5

1316.4

1548.3

1813.8

2105.3

2390.8

15.9%

214.7

232.7

256.9

298.4

337.5

378.8

NA

12.0%

NA

277.1

325.7

368.9

424.6

495.0

587.1

16.2%

70.5

87.3

94.3

109.2

126.2

144.1

NA

15.4%

NA

92.6

110.6

132.4

159.9

193.8

229.6

19.9%

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TABLE 74
India IT Market in Various Verticals, Revenue Forecast Comparison between January 2007 study and August 2008 study
Market Category Overall IT Market in Retail and Wholesale (January 2007 study) Overall IT Market in Retail and Wholesale (August 2008 study) Overall Hardware Market in Retail and Wholesale (January 2007 study) Overall Hardware Market in Retail and Wholesale (August 2008 study) Overall IT Market in Utilities (January 2007 study) Overall IT Market in Utilities (August 2008 study) Overall Hardware Market in Utilities (January 2007 study) Overall Hardware Market in Utilities (August 2008 study) Overall IT Market in Pharmaceuticals (January 2007 study) Overall IT Market in Pharmaceuticals (August 2008 study) Overall Hardware Market in Pharmaceuticals (January 2007 study) Overall Hardware Market in Pharmaceuticals (August 2008 study) Overall IT Market in Healthcare (January 2007 study) Overall IT Market in Healthcare (August 2008 study) 2006 173.2 2007 243.7 2008 309.2 2009 396 2010 543.5 2011 640.1 2012 NA CAGR 29.9%

NA

302.9

464.7

619.9

873.6

1054.4

1340.5

34.6%

72.2

112.6

144

179.9

247.2

294.4

NA

32.5%

NA

138.1

180.7

229.9

307.6

337.2

373.1

22.0%

182.2

216.0

271.4

326.1

404.3

455.1

NA

20.1%

NA

269.3

311.0

370.9

413.0

469.6

516.3

13.9%

77.0

89.4

98.9

111.2

121

127.4

NA

10.6%

NA

116.5

128.8

148.7

158.9

177.4

192.1

10.5%

222.2

266.4

311.6

349.2

392.9

443.4

NA

14.8%

NA

301.1

380.0

455.2

540.6

635.9

750.5

20.0%

134.3

166.1

192.8

211.3

229.2

253.1

NA

13.5%

NA

169.3

202.1

233.0

257.9

294.2

335.8

14.7%

159.8

185.7

216.2

257.3

308.3

352.3

NA

17.1%

NA

231.1

287.9

352.2

433.1

516.8

605.6

21.3%

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TABLE 74
India IT Market in Various Verticals, Revenue Forecast Comparison between January 2007 study and August 2008 study
Market Category Overall Hardware Market in Healthcare (January 2007 study) Overall Hardware Market in Healthcare (August 2008 study) Overall IT Market in Others (January 2007 study) Overall IT Market in Others (August 2008 study) Overall Hardware Market in Others (January 2007 study) Overall Hardware Market in Others (August 2008 study) Overall Domestic IT Market in India (January 2007 study) Overall Domestic IT Market in India (August 2008 study) Overall Hardware Market in India (January 2007 study) Overall Hardware Market in India (August 2008 study)
Source: IDC India, 2007 and 2008

2006 86.2

2007 101.6

2008 118.5

2009 131.5

2010 148.7

2011 161.7

2012 NA

CAGR 13.4%

NA

124.0

148.7

170.8

196.2

219.7

240.5

14.2%

3452.2

4342.8

5098.1

5945.6

6912.7

7780.9

NA

17.6%

NA

941.3

1103.0

1214.2

1322.8

1455.3

1675.6

12.2%

2333.0

2915.4

3375.1

3918.8

4464

4921.4

NA

16.1%

NA

403.7

435.3

424.6

420.5

417.5

495.8

4.2%

13879

16864.8

19778.1

22773.2

26106.3

29362.1

NA

16.2%

NA

15012.5

18383.9

21589.9

25182.4

29126.7

33546.1

17.4%

7164.1

8919.4

10478.9

11999.8

13661.3

15273.7

NA

16.3%

NA

6750.7

7964.5

9124.0

10366.7

11632.3

13027.0

14.1%

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FIGURE 21
India Hardware and IT Market in Various Verticals, Revenue Comparison for 2007 markets between January 2007 study and August 2008 study
5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

US$ Millions

January 2007 Study August 2008 Study

Source: IDC India, 2007 and 2008

Change in Scope of Verticals Definition in 2008
Also in this study we have ensured consistency in the definition of the verticals and sub-verticals across worldwide regions and IDC India. The following table provides an overview of the scope of the verticals used in the report for 2007 and 2008.

TABLE 75
India, Scope of the Verticals Comparison – 2007 Vs 2008
Vertical BFSI 2007 It covers Banking, Insurance and Financial Services. We excluded oil and gas and Pharmaceuticals from the manufacturing. We covered Oil and gas under Utilities and Pharmaceuticals as a separate vertical. Remaining scope has been kept same. It covers telecommunications. BPO was kept separate from IT Services. 2008 It covers Banking, Insurance and Financial Services. We excluded oil and gas and Pharmaceuticals from the manufacturing. We covered Oil and gas under Utilities and Pharmaceuticals as a separate vertical. Remaining scope has been kept same. It covers telecommunications. BPO has been kept as a separate vertical from IT services. Difference in Scope No difference.

Manufacturing

No difference.

Telecom IT/ITeS

No difference. No difference.

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TABLE 75
India, Scope of the Verticals Comparison – 2007 Vs 2008
Vertical Government and Education 2007 It covers all government institutions and educational bodies. We covered Media and Entertainment as one vertical covering radio television, multiplexes, film industry and print media. Retail entertainment is also a part of this. Retail and Wholesale (together) were covered as a separate vertical. We covered oil and gas and power in this. Pharma earlier used to be in manufacturing. This time it is treated as a separate vertical. This was a new vertical that we added in the report. In 2007 report, we have not included HH/SOHO under others. We have bifurcated the overall IT market into HH/SOHO and enterprise data. The vertical comprised of Resources, Travel and transportation, Bio technology, Water and sanitary services and Bio-sciences. 2008 It covers all government institutions and educational bodies. We covered Media and Entertainment as one vertical covering radio television, multiplexes, film industry and print media. Retail entertainment is also a part of this. Retail and Wholesale (together) were covered as a separate vertical. We covered oil and gas and power in this. Covered as a separate vertical. Difference in Scope No difference.

Media and Entertainment

No difference.

Retail

No difference.

Utility

No difference.

Pharma

No difference.

Healthcare

Covered as a separate vertical.

No difference.

Others

Scope has been kept same.

No difference.

Source: IDC India, 2007 and 2008

Change in Scope of Products Definition in 2008
Similar consistency has been ensured in the product definitions for the IT market in various verticals across worldwide regions and IDC India. The following table provides an overview of the scope of the product definitions used in the report for 2007 and 2008.

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TABLE 76
India, Scope of the Product Categories Comparison – 2007 Vs 2008
Product Services Sub-Product Services 2007 As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition To align with the worldwide practice this was added to the Enterprise IT market scope. It is an estimated value based on the taxonomy definition and WW model. 2008 As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition Scope has been kept same. Difference in Scope No Difference

Packaged Software Hardware

Packaged Software

No Difference

Servers

No Difference

Hardware

PCs

No Difference

Hardware

Traditional Workstations

No Difference

Hardware

Storage

No Difference

Hardware

Add-ons (Computing and Storage products). This includes: 1. SHDs, which are counted in their own set of categories: personal digital assistants (PDAs), high-end organizers/PC companions, personal companions, pen tablets, pen notepads, keypad handhelds, and smart phones 2. Board-level devices for embedded applications or for upgrading existing PCs 3. Application-specific devices that are designed from the start for a dedicated function such as point-of-sale (PoS) terminals, automated teller machines (ATMs), and voting machines 4. Any product, such as

No Difference

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TABLE 76
India, Scope of the Product Categories Comparison – 2007 Vs 2008
Product Sub-Product a terminal or network computer (NC), that is designed primarily to access information on another computer and lacks local storage and the ability to operate without being connected to another processor Hardware Peripherals -- Printers and MFDs Peripherals -- Smart Handheld Devices Networking Equipment As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition To align with the worldwide practice was removed from the Enterprise IT market definition and has been added as part of the others in the market To align with the worldwide practice this was removed from the Enterprise IT market definition and has been added as part of the others in the market To align with the worldwide practice this was made a part of the Others in the IT market definition. As per IDC World-Wide definition As per IDC World-Wide definition As per IDC World-Wide definition Scope has been kept same. No Difference 2007 2008 Difference in Scope

Hardware

No Difference

Hardware

No Difference

Others

Add-ons (Peripheral Products) -- (Digital Cameras, Scanners, MP3 Players, PoS, Projectors, Fax and Copiers)

No Difference

Others

Add ons (Networking Equipment) – (Wi-Fi, Structured Cabling, Modem, etc.)

Scope has been kept same.

No Difference

Others

Others (Consumables and IT individual training)

Scope has been kept same.

No Difference

Source: IDC India, 2007 and 2008

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ESSENTIAL GUIDANCE
The key to look at the Indian IT market is to look from the verticals perspective that though have small bases but are forecasted to grow at CAGRs to the tune of 18-30% (2007-2012). These constitute retail, healthcare and pharmaceuticals. But not to be ignored are the verticals like BFSI, manufacturing, telecom, government and education, which though are not growing at such high rates but contribute significantly to the IT spending in India. From an overall perspective, the IT market in India is a complex mix of fast-growing and large-base sectors that act as the key to the IT spending in India and will continue to remain the focus area for 2007-12. The following table provides an overview of the total IT market across the verticals in India for 2007-2012.

TABLE 77
Overall IT Spend by Industry Verticals (US$ Million), 2007-2012
Year BFSI Manufacturing IT / ITeS Telecom Government and Education Media and Entertainment Retail & Wholesale Utility Pharmaceuticals Healthcare Others Total IT Market in India
Source: IDC India, 2008

2007 3,641.2 2,581.0 2,133.4 2,086.7 2,247.5 277.1 302.9 269.3 301.1 231.1 941.3 15,012.5

2008 4,387.8 3,220.3 2,614.7 2,591.2 2,697.5 325.7 464.7 311.0 380.0 287.9 1,103.0 18,383.9

2009 5,047.1 3,860.9 3,051.2 3,084.5 3,164.9 368.9 619.9 370.9 455.2 352.2 1,214.2 21,589.9

2010 5,699.7 4,558.3 3,550.5 3,662.7 3,703.5 424.6 873.6 413.0 540.6 433.1 1,322.8 25,182.4

2011 6,505.2 5,354.0 4,044.5 4,268.3 4,327.8 495.0 1,054.4 469.6 635.9 516.8 1,455.3 29,126.7

2012 7,344.9 6,234.0 4,565.7 4,929.6 4,996.2 587.1 1,340.5 516.3 750.5 605.6 1,675.6 33,546.1

CAGR 15.1% 19.3% 16.4% 18.8% 17.3% 16.2% 34.6% 13.9% 20.0% 21.3% 12.2% 17.4%

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LEARN MORE
Definitions
This IDC study outlines the IT spending and IT deployment patterns in the ten most critical and happening verticals of the economy. A vertical industry is the set of all economic entities that are engaged primarily in the same or similar kinds of productive economic activity. The kind of economic activity carried out by a unit is the type of production in which it engages. The main criteria employed in delineating industries, concern the characteristics of the activities of producing units which are strategic in determining the degree of similarity in the structure of the units and certain relationships in an economy. These characteristics include: The character of the goods and services produced (the physical composition and stage of fabrication of the items and the needs served by them) The uses to which the goods and services are put The inputs, the process and the technology of production

Vertical Definitions
Financial Services The Financial Services sector refers to a super-category comprised of banking, insurance, and other financial services Banking refers to all credit institutions by any name that accepts deposits from individuals or entities and uses these funds for any of various forms of financial and/or monetary intermediation. Examples include central banks, retail banks, commercial banks, savings institutions, savings and loan associations, mortgage brokers and bankers, and credit unions. Banking also refers to credit institutions that back or execute loans without having received deposits (consumer finance companies, central credit card services, etc. Insurance comprises all businesses offering non-compulsory insurance of any kind (life, fire and casualty, accident and health, medical service, surety and title insurance, pension, health and welfare funds, etc.). This includes carriers as well as insurance agents and broker Other Financial Services include a variety of institutions that facilitate and execute capital transfers (for example equity markets, mutual funds etc.) Manufacturing IDC has selected two broad divisions, discrete and process manufacturing -- in the manufacturing vertical, as the most relevant for IT purposes Discrete manufacturing is manufacturing in which products are produced through the assembly of distinct and/or individual parts. Discrete manufacturing includes the following sub-industries: apparel and other textile products, leather and leather products, fabricated metal products, except machinery and transportation equipment,

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automobile industry, auto component sector and fast moving consumer goods industry besides other discrete manufacturing Process manufacturing is manufacturing in which the basic product is created primarily through one or more continuous activities, including milling, curing, weaving, smelting, and/or refining. Process manufacturing includes the following subindustries: textile mill products, primary metal industries, heavy and light engineering and miscellaneous process manufacturing Exceptions: Discrete manufacturing sometimes involves parts created through process manufacturing, which occasionally blurs the distinction between the two types. Textile manufacturing is a case in point. While the cutting up and needle trades are associated with the assembly of fabrics into products, and are considered discrete manufacturing, knitting mills or hand-knitting establishments are generally considered more similar to basic textile production, and therefore are grouped within process manufacturing, even when their product is sold as apparel with some additional finishing work (e.g., knitted blouses, headwear, jogging suits, and leotards) IT enabled Services / Business Process Outsourcing IDC defines BPO as a business outsourcing engagement, which involves the transfer of fixed assets and personnel from the customer to the service provider. Business outsourcing engagements are ongoing, and contract terms may range anywhere from one year to more than ten years. Telecommunications Telecommunications includes services providing point-to-point contact by telephone or telegraph. The value of the hardware used to transmit or receive telecommunications is accounted for in discrete manufacturing. Broadcasting includes entities engaged in creating and disseminating visual and audio content through radio or televisions to the public Government and Education Government refers to all public administration, defense, and justice activities. Government comprises: executive, legislative, and general government, justice, public order, and safety; public finance, taxation, and monetary policy; administration of human resource programs; administration of environmental quality and housing programs; administration of economic programs; national security and international affairs Governmental organizations can be divided in a number of ways, but the predominant distinction in IDC is between federal or central governments, state or provincial governments and local/municipal governments. Federal or central governments are the governmental structure associated with national self-identity and responsible for all citizens, typically headquartered in one or more capita

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State and local governments are any governmental structure (state, province, county, city, town, etc.) other than, and lower ranking than the central government Education refers to all institutions dedicated to academic and/or technical/vocational instruction, with the exception of certain training environments that are better treated as social services (e.g., job training for the unemployed) Media and Entertainment The media market has been defined by IDC to encapsulate all vertical markets playing a part in the creation of media and entertainment, with the aim of providing solution vendors focused on this industry a holistic and helpful insight into the complete value chain. This derivative is obtained pulling the subsets pertaining to television/radio broadcasting, cable and pay TV and other communications services from the communication sub-industry; printing, publishing and reproduction of all types of media, advertising and the distribution of media activities to the end user from business and financial services. These include motion picture production, distribution and theatres. Retail and Wholesale Retail/wholesale distribution is a super-category comprising retail trade and wholesale of goods Retail includes enterprises involved in the sale or resale of goods, sometimes with related services primarily, although not necessarily exclusively, to individual consumers. Because the same company can play roles in both retail and wholesale distribution, the distinction is made on the primary sales targets Retail includes the following sub-industries: materials, general merchandise stores, food stores, automotive dealers and gasoline service stations, apparel and accessory stores, home furniture, including furnishings, appliance and electronics and music stores, eating and drinking places and miscellaneous retail. Miscellaneous retail includes drug stores, liquor stores, used merchandise, fuel dealers, non-store retailers such as direct selling and catalog and mail order houses, and other shopping stores including jewelry, sporting goods, and book stores Wholesale includes enterprises primarily involved in the sale of goods to other enterprises or organizations, whether for resale (e.g., by retail companies or other wholesale organizations), for value-add by manufacturing entities, or for internal consumption Utilities It includes organizations created to generate and/or disseminate broad social necessities such as electricity. Namely they include: power generation, transmission and distribution. It also encompasses the oil and gas industry of an economy. The

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value chain for the industry ranges from the extraction of the raw energy through to the distribution and wholesale to the end user. Pharmaceuticals Pharmaceuticals include small molecule drug compounds, biopharmaceuticals, CROs (organizations that typically manage specific R&D elements as well as portions of the clinical trials process). Healthcare Healthcare services is represented by healthcare service providers. IDC segments this industry in offices and clinics (individual practitioners such as medical doctors, or dentists as well as medical practice activities), nursing and personal care facilities, hospitals, home healthcare services, other health and allied services. Health maintenance organizations (HMOs) primarily engaged in providing medical and other health services are also included. Also included are the separate establishments of health maintenance organizations, which provide medical insurance. Other Verticals Other verticals include Transportation and transportation services, Resource industries, Water and sanitary services, Bio-Technology and bio-science, Travel & Transportation, Hospitality and any other industry that is not being covered under BFSI, Manufacturing, Media & Entertainment, Telecom, BPO, Utility, Government & Education, Retail & Wholesale, Pharmaceuticals and Healthcare

Product Definitions
Hardware Personal Computers A PC is a general-purpose, single-user machine that is microprocessor based, capable of supporting attached peripherals, and can be programmed in a high-level language. It typically costs less than US$12,000, though instances of higher-priced Intel-architecture PCs are included in this category. Specifically excluded from this definition are board-level products for building embedded systems or upgrading existing PCs. Also excluded from this category are microprocessor-based, multiprocessor-capable systems and handheld computers. In addition, excluded from this category are single-user workstations (i.e., models from Data General, Sun Microsystems, and so on). Traditional Workstations The key criteria distinguishing traditional workstations from PCs and personal workstations are the primary operating system, distribution channels, market focus, and relative functionality.

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Servers As per IDC, servers are currently represented in the following major categories: High-end enterprise servers Mid-range enterprise servers Volume servers High-End Enterprise Server: A high-end enterprise server is any server priced at US$ 500,000 or more. Mid-range Enterprise Server: Mid-range enterprise servers are servers that are above volume servers and below high-end enterprise servers. This definition is based strictly on the price of the server, which must be between US$ 25,000 and US$ 499,999. No other usage connotations are inferred. It is important to note that IDC does not refer to all machines smaller than mainframes as mid-range enterprise servers. Volume Server: This is IDC’s term for servers priced less than US$ 25,000. Storage Disk Storage Systems: IDC defines a disk storage system as a set of storage elements, including controllers, cables, and host bus adapters, associated with three or more disk drives (direct attach storage device [DASD]/hard disk drive [HDD]). A system may be located outside of or within a server cabinet. Thus, nearly all storage in large, medium-sized and small-scale servers is storage systems. Tape Automation: The following definitions apply to IDC’s analysis of the worldwide tape automation market: The low-end tape automation segment includes autoloaders, typically holding 4.15 tape cartridges. mostly one-drive

The mid-range tape automation segment includes one-drive autoloaders as well as multi-drive libraries with 20 to over 1,000 tape cartridges. Printers and Multi-function Peripherals Printers: A printer is a device that converts text and graphics from a computer and outputs the information in the form of a hardcopy document. Two broad categories of printing technology exist: impact and non-impact. The printers’ total includes both impact and non-impact printers. Impact printers employ techniques that involve striking the final print medium, usually paper. Some use print elements (for example, daisy wheels or thimbles), chain/train or drum techniques, or hammers (for dot-matrix printing).

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Conversely, non-impact printers employ techniques that do not involve striking the paper. This category includes inkjet and printers that employ electro-photographic (laser, LED, or liquid crystal) technologies. Electron beam, magnetic, and electrosensitive printers also are part of the non-impact category. Multi-function peripherals: An MFP is a device that incorporates at least two of the following document functions: copy, fax, print, and scan. One of these two functions must be the print function. MFPs are defined as devices that are either directly connected to a computer workstation or indirectly connected via a network. Inkjet MFPs use either a continuous, controlled flow of ink or a staccato ejection of ink, often referred to as 'drop on demand'. Ink is typically ejected through a multinozzled head. Laser MFPs form the image of an entire page on an intermediate medium (usually a photosensitive drum) before transferring it to paper. Smart Handheld Devices Included in IDC's definition of SHDs are standalone handheld devices and converged handheld devices, as defined in the following sections. Handheld Devices: These devices bring a wide range of mobile functionality to their users. Either pen or keypad centric, they are designed to access and manage data. They may include wireless capabilities that may enable Internet access, text communication, and voice communication. These pocket-sized devices feature a pen-centric design and are capable of being synchronized with a desktop or laptop computer. Positioned to replace paper-based address books, day planners, and even laptops themselves, in some cases, these devices also include an expanding list of features such as multimedia, e-mail, and wireless connectivity capabilities. The devices feature evolved operating systems, minimum 16-bit capability, and the ability to download and run applications and store user data beyond their required personal information management (PIM) capabilities. Converged Handheld Devices: These pocket-sized devices feature a pen- or keypad-centric design and are capable of synchronizing with a desktop or laptop computer. Positioned to solve the multiple-device question and replace the need to carry a mobile phone and a pen-based handheld or a mobile phone and a communicator, for example, these devices may also include an expanding list of features such as multimedia and e-mail and include wireless voice capability. The devices must match the wireless voice capability of evolved operating systems and include minimum 16-bit capability and the ability to download and run applications and store user data beyond their required PIM capabilities. Network Equipment The network equipment market includes various components, such as purchased network service providers, enterprise customers, and consumers. Not included is the spending on telecommunications services related to the voice and data revenue generated by network service providers. Also excluded are traditional legacy telecommunications equipment categories (e.g., PBXs, wireless base stations, central office switches, add/drop multiplexers, SDH/SONET, voice processing systems, and

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call centers). The following markets are defined as components of the total market for network equipment. LAN Switches: A LAN switch is a networking device that receives incoming packets and stores them temporarily to examine link-layer information, such as source and destination MAC addresses. Based on address table lookups, the switch decides whether the packet needs to be forwarded and, if so, to which port. A LAN switch transfers the data based on the destination addresses of the individual packets. Switches break LANs into smaller workgroups, allowing simultaneous transmissions to take place and leading to increases in the performance of the network. Because multiple parallel connections can be supported, bandwidth contention is eliminated. WAN Network Infrastructure: The product types for the WAN network infrastructure markets are: Routers WAN access IP VPN A router is a packet-forwarding device that directs traffic based on a Layer 3 protocol, such as IP or IPX, or Layer 3 packets encapsulated in the multi-protocol label switching (MPLS) format, which falls between Layers 2 and 3 on the open systems connection model. Although routers were originally LAN segmenting devices, virtually all are used today to handle transmissions at the edge or core of WANs. WAN access equipment, also known as customer premise equipment (CPE), includes integrated access devices (IADs), asynchronous transfer mode (ATM), frame relay, and inversion multiplexing (IMUX). Other Add-Ons The market sizing for other add-ons is a modeled estimate of the residual system value, not captured in the initial sales value of the PC and server computer systems. This category represents components that are essential to the operation of the PC and server systems, but not sold as part of the assembled computer system. This estimate is created through a review of system value growth trends across all regions and in consultation with research conducted globally and locally into those component add-on markets for which published research is available. Examples of other add-ons to be considered as part of this estimate include: Monitors PC components System replacement components

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Not included in this estimated total are system peripherals such as imaging equipment, digital cameras, handheld devices, and other devices that are not an integral component of system performance or operation. Packaged Software Packaged software includes programs or code sets of any type commercially available through sale, lease, or as a service. Packaged software revenue typically includes fees for initial and continued right-to-use packaged software licenses. These fees may include, as part of the license contract, access to product support and/or other services that are inseparable from the right-to-use license fee structure, or this support may be priced separately. Upgrades may be included in the continuing right of use or may be priced separately. All of the above are counted by IDC under the packaged software revenue. Packaged software revenue excludes service revenue derived from training, consulting, and system integration that is separate (or unbundled) from the right-touse license, but does include the implicit value of software included in a service that offers software functionality by a different pricing. Services IDC’s services market research covers services provided to various buyer segments by external companies for planning, building, supporting, and managing systems and processes. IT services primarily target information systems and technology-enabled processes. Business services primarily target business processes that may or may not incorporate any technology. IDC uses two approaches to analyzing the composition of IT services: engagement and activity group. Both approaches break down delivery of a given service to its component elements, called activities in the services taxonomy. The engagement view classifies services based on how clients purchase them from suppliers. The activity view classifies similar activities into one of five groupings, which correlate to the stages of services delivery. Presented below are the IT services market segmented by these five activity groups. Planning: Planning consists of the assessment and evaluation of organizations’ needs and operations to make decisions regarding their IT strategies and tactics. These activities include process improvement, operations assessment, benchmarking, needs assessment, strategy, capacity planning, change management, maintenance planning, design, and supplier analysis. Implementation: Implementation refers to the building of technical solutions. At a point in the planning phase of a project, focus turns from concept to the actual building or prototyping of the system, and implementation activities start. Much like planning activities, implementation services are delivered as standalone activities or packaged within a larger offering such as systems integration projects. For example, the installation of a PC would be considered a standalone installation service. However, a systems integration project aimed at building a new datacenter would include bundling implementation. Activities in this group include site preparation, project management, test and debug, system

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configuration, installation, software reengineering, custom software development, packaged software customization, application interfacing and integration, relocation services, systems migration, documentation, and user experience design. Operations: These activities are aimed at taking responsibility for managing components of a company’s IT infrastructure or entire IT function, as in IS outsourcing. Operations activities include asset management, procurement, administration and operations, media duplication and replication, systems management, performance tuning, network management, backup and archiving, and business recovery. Maintenance and Support: This group includes activities involved with ensuring that products and systems are performing properly. Support activities include IT telephone support, IT parts support, remote network monitoring, remote diagnostics, electronic support software maintenance, onsite IT maintenance, onsite software support, and preventive IT maintenance. Training and Education: Training and education enhance knowledge of information technology and expand its use. Training services focus on improving performance or developing new concepts, behaviors, and skills. Training activities include IS/technical skills training, desktop skills training, professional IT certification, and IT learning augmentation.

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RELATED RESEARCH
India Overall Trends in IT Spending by Industry Verticals 2007-2011: Forecast and Analysis (IDC India #IN 387113P, January 2007)

SYNOPSIS
This report provides the reader an overview of the IT spending trends by various verticals in India. It also provides insights into their important industry dynamics and opportunities, the trends shaping up in the verticals, emerging business challenges and issues and the role that IT is playing in exploiting these opportunities and meeting these challenges. Along with this, the report also provides insights into componentwise IT spending patterns for the major product categories in the verticals for the year 2007 as well as a forecast of the same on a yearly basis till 2012. "The total IT spending in India was estimated to be US$ 15,012.5 million in 2007 and this is expected to increase at a CAGR of 17.4% for the forecast period to reach US$ 33,546.1 million by 2012. BFSI, Manufacturing and Government and Education are the three highest contributing sectors in the IT market in India in 2007. But the verticals like Retail, Healthcare, Pharmaceuticals and Telecom are fast catching up and are going to be the biggest drivers of the IT market in India for the forecasted period. This trend is forecasted analyzing the expansion, automation, modernization and networking phase that these verticals are currently in." – said Arpan Gupta, Analyst, Verticals Research, IDC India.

Copyright Notice
This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit www.idc.com to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit www.idc.com/offices. Please contact the IDC Hotline at 800.343.4952, ext. 7988 (or +1.508.988.7988) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2008 IDC. Reproduction is forbidden unless authorized. All rights reserved.

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