Study of Key Factors Shaping up Private Security

Industry in India

Submitted by Datta PAWAR

Roll Number EPGPX01.054
Submitted on 14.06.2019
Project Guide Prof. Amol SINGH

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 Table of contents

Content Pages

 Acknowledgement Page 3

 Introduction and Objective Page 4

 Research design Page 5

 Indian Industry Page 5

 Problem Analysis & way forward Page 8

 Statergic factor analysis of Indian private security

Page 11
industry

 Finding & Conclusion Page 12

 Bibliography Page 13

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 Acknowledgement

I would like to thank my project mentor Prof. Amol Singh for his support and guidance during
this project. He was very welcoming of my proposal which is from my own professional line of
work. The project evaluates certain challenges which are shaping up the private security
industry in India.

I thank you very much for your patience and understanding.

Thank you
Datta Pawar
Epgpx01.054

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 A. Introduction

In an increasingly fast paced business world with cut throat competition and business
operations team is busy in responding to evolving customer preferences, strategic moves of
the competition and technology-driven disruptions, there arises a need for someone to
diligently ensure the safety and security of the company’s people, premises and assets. The
rapid evolution of private security services globally and in India is a testimony to this.
The private security industry has witnessed a growth rate of over 20 per cent in the recent
past and is expected to continue to do so owing to rapid infrastructure and economic
development. The private security industry is one of the largest employers in India,
employing more than 80 lakh individuals. While its people have thus far been at the forefront
of delivery in this service industry, technology and electronics are increasingly playing a
strong complementary role. Hi-tech surveillance systems, remote sensors and biometric
technologies will usher in a paradigm shift in the go-to-market strategy of private security
players. While the private security industry had traditionally been dominated by unorganized
players, and characterized by low-cost operations, missing corporate governance, low wages
and no statutory compliances or lack of employee welfare, and even with the advent of many
global, professionally managed and progressive companies in this industry, unorganized
players continue to retain a large market share by holding on to price-sensitive customer
segments.

B. Objective of the report

The Indian personal security market was estimated at INR 57,000 crore (~USD 8.8 billion) in
2016 and is likely to touch INR 99,000 crore (~USD 15.2 billion) by 2020 and INR 1.5 lakh crores
(~USD 23.1 billion) by 2022 (as per latest industry estimates). Apart from revenue growth, the
Private Security Industry (PSI) is also evolving in its employment practices1.

Private security agency in India is facing certain challenges too. This paper presents overview of
private security industry’s background and structure in India, major players in India.

Further, the paper carries out statergic analysis such as environmental and industry analysis of
the following challenges which are shaping up private security industry in India.

Key challenges

1 FICCI & BDO REPORT ON PRIVATE SECURITY INDUSTRY

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  Skill development and job creation: The private security industry is mainly unorganized
with only 10% workforce is employed in the organized sector, thus there is significant
 gap between skills and job requirement. And there are other challenges such as lack of
uniformity of trainings and standardization, quality of training, cost of training.

 Policy issues concerning private security industry: Private security industry is governed
by various regulations in India. The most relevant being Private Security Agencies
Regulations Act (PSARA), 2005. The act regulates the eligibility criteria for operating a
security agency as well as prescribes training requirements for security guards. PSARA
also prescribes various compliance requirements for the security agencies. The main
concerns are overlapping of federal and state regulations, mandatory police verification,
changes in FDI limit, challenges in arms act.

 Impact of GST on private security service provider: The GST regime has led to several
challenges for private security industry. The issues such as shifting of tax liability, cash
flow issues, and incorrect tax base have cropped up due to GST.

C. Research Design/Methodology

The research design of this study is based on study of private security industry as per available
data on the internet, FICCI and BDO report on Private Security Agency and then application of
strategic design tool i.e. statergic factor evaluation matrix.

D. Indian Industry

The Indian industry is still in nascent stage and is likely to see exponential growth both in
terms of manpower employed and market share due to rapid infrastructure and economic
development with large scale infrastructure projects such as industrial parks, IT parks,
complexes, offices, airports, metro and other public utilities; leading to an increased need for
prevention, detection and protection of assets and citizens against criminal acts such as fraud,
terrorism, theft, drug-related offences, arson and violent crimes.
Demand for security services across the country has expanded over the past decade and is
inching marching ahead to and is expected to become an INR 99,011 billion industry by
2020. The global private security services industry is expected to grow annually at a rate of
about 7%, while the Indian market for security services is expected to grow much faster at
20%. The report further states that the private security industry in the country will generate
around 3 million additional jobs by 2020 in addition to the 8.5 million people already
employed in this sector. Apart from revenue growth, the private security sector is also
evolving with regard to its employment practices. Some leading industry players are charting
new standards in the industry with their keen focus on training and skill development of
people, establishing employee welfare funds, ensuring timely payment of salaries, and
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defining career progression paths for high-performing employees. A few companies that
value the quality of manpower are also paying security men higher than the defined minimum
wages to incentivise employee retention. Certain companies with an international presence
are also introducing global best practices in their Indian operations, such as on-demand
continuous learning/ refresher training for their employees imparted through mobile
solutions, job rotations and enhancing job definition to make the job more engaging for the
individual. This sector also has the potential to become a sector of preference for young
people looking for employment especially, if such globally adopted practices are adopted as a
“standard” rather than being used as an exception which it is at present. The private security
industry in India employs a lot more personnel in comparison to the grossly understaffed
police services, where a meagre 2.2 million people are employed.

 Industry Structure

The private security industry can be broadly divided into 2 major segments, the security
services industry and allied services.

Manned guarding forms major part of the security services industry followed by cash and
electronic security. These have the highest rate of employment and highest revenue share in
the private security industry. Manned guarding accounts for nearly 75% of the security service
industry followed by electronic security services with 20-25% share2.

Security service industry

 Manned Guarding: Key end users of manned guarding services are IT/IT enabled
services, commercial, industrial and manufacturing divisions. Here, 41% of the manned
security services are utilized by the commercial sector, while 39% is utilized by the
residential sector. Around 70% demand of residential demand is coming from major
cities like New Delhi, Chennai, Bangalore, Pune, Chandigarh, Lucknow, and Ahmedabad3.
 Cash Management Services: This sector is predominantly organized, with around 7-8
players controlling 75-80% of the market share. The market is not yet fully mature for
this sector as there are issues with licensing of arms, transfer of liability and insurance.
These factors make this sector a high risk and low return business. There has been
increase in cash management services owing to expanding bank branch network,
increased spread of bank ATMs and growing use of ATM cards 4.

Allied services

 Event security management: Major activities under event security are event access
control, command and control of the event, crowd control and VIP protection services.
 Security guard training services: Owing to the Private Security Agencies (Regulation) Act,
2005, (PSARA) it has become mandatory for private security agencies to adopt in-house
2, 3, 4 FICCI BDO REPORT ON PRIVATE SECURITY

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 training practices. States have authorized opening of new training institutes recognized
by them under PSARA.

Major Security Service Categories (Table: I)5

Major players and revenues of key security agencies in India in Crores (2010 -17)
(Table: II)6

5, 6 GRANT THORNTON AND FICCI REPORT ON PRIVATE SECURITY

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Key Growth Drivers (Table: IV)7
Key Growth Drivers
 Increase in crime rate and terrorism
 Rising urbanization spike in demand of tier-1 and tier-2 cities
 Low police to people ratio of 150 : 100,000
 Penetration of organized player. Foreign players through FDI
 Exponential rise in the number of banks and expanding atm network
 Growth in security solutions
 Institutional and organizational changes
 Government initiative likes smart cities and make in India
 Increased concern for personal safety
 Potential for increase security advisory services and low cost services

E. Problem Analysis & Way Forward (Proposed solutions)

1. Skill development and job creation: Private security industry is large and has huge
employment potential, therefore following job roles were identified by security sector
skills development council under the National skill development corporation (NSDC).
Basis my own experience and inputs received from industry professionals, the
employees identify following gaps in the current workforce.

As per private security agencies regulation act, 2005 (PSARA), the security guard as a trainee
needs to undergo 160 hrs. Of training. But, PSARA act does not specify any standard guidelines,
neither does it specifies training for categories of security services. The key challenges in
training standards are:

 Lack of uniformity and minimum training standards

 Many firms carry out ad-hoc job of training, not fulfilling the minimum training criteria
 In cases where quantity of hours is met, quality of training remains an issue
 Many customers prefer resources with good soft skills such as English communication,
presentability and etiquettes)

Job Roles
Unarmed security guards
CCTV supervisor
Security supervisor
(Table V)8
Skill Gaps
Guards need more rigorous training on fitness,
firefighting, English communication skills
Guards need more rigorous training on fitness,
firefighting, English communication skills
Team management skills, medium-term vision and

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Armed security guard
Personal security officer
resource planning are key issues faced by the
industry currently
Proficiency in handling of fire arms; awareness levels
about safety in handling
Proficiency in local languages of region

Way Forward: The gaps in skills required by the clients and as per the training requirements
needs to be addressed to make the sector more viable and regulated. Despite of 25% growth in
the sector and massive demand of manpower, the industry faces the ambiguity of admissible
training certificates. Following measures are recommended to address the concerns:
 The GoI needs to provide impetus on skilling of security guards by increasing training
centers and provision subsidy to the trainees to undertake training programs.
 Amendments to PSARA are required to identify more categories of security services and
stream line methodology of certification of training provided.
 The regulation of curriculum, standards of training to be met, infrastructure standards
of training centers, certification of trainers and assessors need to be done by NSDC.
 Service providers with 1000 or more guards should be mandated to set up training
center.
 Recognition of prior learning (RPL): RPL, which means certification of guards with prior
industry experience should be vigoursly implemented. This will help to ensure faster
assimilation of skilled ‘uncertified’ manpower into the mainstream. This will increase
employability of existing manpower.

2. Policy issues concerning private security industry: The policy issues faced by the
security industry in India are discussed below :

 Overlapping Federal and State regulations: This is a major concern for security industry
in India, where we have overlapping set of federal and state regulations, leading to
multiplicity of registrations to carry out business.
 Mandatory police verification: It is mandatory to conduct police verification of directors
of the company and security guards. The process to carry out police verification is
tedious and timely delivery of reports from police department rarely happens.
 Changes in FDI Limit: In the year 2016, 49% FDI via the automatic route and 74% via the
approval route was allowed for private security agency in India. However, the changes in
FDI policy were not addressed by suitable amendments in the PSARA act. As per PSARA,
an Indian should be holding a majority stake in the company; this one directly
contradicts the revised FDI guideline permitting upto 74% FDI under approval route for
private security agency.
7, 8 FICCI BDO REPORT ON PRIVATE SECURITY

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  Arms Act: The PSARA does not include provision of armed security service as a service.
The current framework of Indian Arms Act, 1959 only allows individual applicants to
hold arms licenses. Therefore, private security agencies have been technically compelled
to employ people who hold Arms.

Way Forward: The possible solutions to the challenges pertaining to policy issues are
discussed below:

 Government should provide single window system to simplify the registration process.
An amendment to the PSARA can be considered for specifying the categories of private
security agencies that can provide services throughout India based on central
registration.
 Each state has its own rules for the grant of license and mandatory conditions for the
same. To ease this, the states may consider implementation of an online process which
would make the process faster, easier and more accountable.
 Crime and Criminal Tracking Network and Systems (CCTNS) could be used for
verification of crime records. Online process should be implemented for conducting
police verification and such police verification should be made time bound. Post certain
days of time after submission of application in case there is no receipt of reply from
police authorities, in this case police verification should be considered as completed and
closed.
 In order to attract more foreign investment and enhance ease of doing business in India,
legislative action in removing ambiguities in the regulatory framework is very much
required. It would beneficial if various government agencies coordinate between
themselves to ensure suitable amendments in legislations prior to being rolled out.
 It is proposed that suitable amendment to the Arms act is made to allow the licensed
private security agency to procure and store arms as per compliance and audit
requirement.

3. Impact of GST on private security service provider: GST was introduced in India w.e.f
July 2017, as a reformatory measure to eliminate multiple taxes levied by centre and
states and also enables businesses to avail credit of tax paid on procurement. The issues
due to GST implementation are discussed below :

 Shifting of tax liability: In pre GST period, the security agencies were liable to pay service
tax at rate of 15% on provision of security services to business entities. There was an
exception; the onus of tax payment was on recipient in case of provision of security
service by a propriety firm. But, on GST implementation, the liability to pay GST at 18%
is established on the service provider without any exception. This has led to a huge
compliance cost for service providers, who were earlier not liable to pay tax.
 Cash flow issues: In the pre-GST regime, trigger for tax liability for security services was
linked to payments by the service recipients. On transition to GST, security agencies are
faced with the challenge of upfront tax payment on a forward charge basis. This has

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 created a set back as customers generally take 3 to 6 months to pay the security agency
after issuance of invoice. Hence, security agencies are facing challenges on managing
additional funds to meet tax obligations.
 High tax rate: Security services provided by the agencies are subject to a high GST rate
of 18%. Industry associations have raised concerns that such high GST rate may compel
few security agencies to shut down their shops.
 Incorrect tax base: The GST is levied on gross income which includes service fee, wages
of the worker/guard, and contributions made to PF, ESI etc. for these workers. There is
an anomaly here as guard wages and contribution made to PF, ESI are effectively
incurred by security agencies on behalf of their customers. This split of revenue
between worker wages and actual service fee reveals that such cost accounts for 80 to
90% of the revenue, while balance forms the service fees of the security agency. This
further adds to the sustainability of the business.

Way forward

 Given the contribution of private security industry to employment generation and skills
initiative support given to the Government, it is important that a beneficial treatment is
accorded to this industry.
 It is proposed that the onus of tax burden be shifted from security agencies to
customers. This will ensure that the agencies would not have to deal with sustainability
issues.
 It is also proposed that the tax base be limited to service fees of the security agency. The
wages and statutory components should be excluded from GST.
 GST at 18% on enhanced tax base had led many customers to re-evaluate their
manpower requirement. This further adds to the sustainability of business. It is
proposed that the tax should be reduced from 18% to 5%.

F. Statergic Factor Analysis of Private Security Industry in India

A statergic factor analysis of private security industry in India is carried out by identifying the
strengths, weaknesses, opportunities and threats of the industry and rating these appropriately
to study the statergic outlook of the industry.
(Table VI)
Statergic Factor Analysis of Private Security Industry in India
Weighted
Sr. No. Statergic Factors Weight Rating Comments
Score
Growing Demand for private There multiple demand
Strength 1 0.10 5 0.5
security factors in India
Regulation of private security There is PSARA act in India to
Strength 2 0.10 4 0.4
agency regulate private security
Penetration of organized Good penetration of
Strength 1 0.05 5 0.25
players organized players

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 There is significant skill
Weakness1 Skill issues 0.10 2 0.2
deficit
Policy issues at center and in
Weakness2 Policy issues 0.10 3 0.3
various states
GST issues such as tax
Weakness3 GST challenges 0.05 3 0.15 liability, cash flow issues,
incorrect tax base
Opportunit
Increase in crime & terrorism 0.10 4 0.4 There is spike in crime
y1
Opportunit Increase in infrastructure is
Rising urbanisation 0.10 4 0.4
y2 driving demand for security
An opportunity for private
Opportunit Low police to people ratio
0.05 4 0.2 security to support police
y3 (150:100,000)
with generic/low skill jobs
Threat of attrition of
Threat1 Attrition 0.10 2 0.2
resources
Threat2 High risk business 0.05 3 0.15 The risks are high
Threat3 Low Returns 0.10 3 0.3 The returns are low in India
1 3.45

The score of external factor analysis is 3.45, which is a good score and indicates that the
outlook of private security industry is positive in India.

G. Findings and Conclusion

The Private Security Sector is the second largest employer of manpower after the Agriculture
Sector and mainly an unorganized sector of our economy. Industrial view has suggested that
the supply of manpower is likely to grow at a CAGR of about 10% over the next decade. In 2014,
only 35% of industry was organized which is expected to reach a level of approximately 50% in
2020. Despite a large majority of the business being unorganized there is a shift towards the
sector becoming more organized and compliant9.

The score of external factor analysis 3.45 shows that the industry has strong potential grow in
the future. The factors/challenges discussed in this report are also helping the industry shift to
organized sector. For example, GST is creating a level playing field and taking away the unfair
advantage by unorganized players. Agencies are getting PSARA compliant, and thereby coming
under the ambit of regulation. Global players entering the market and customer preferences
are shifting to the organized players. The Govt. is playing an important role in encouraging the
unorganized players to move into organized sector by facilitating ease of doing business. This
can be achieved by single window clearance, reduction in timelines for grant of licenses and
security clearances.

9 FICCI BDO REPORT ON PRIVATE SECURITY

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 Bibliography

1. FICCI BDO Report on private security

2. GRANT THORNTON FICCI Report on private security services in India

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